10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
Commission File Number: 001-11307-01
Freeport-McMoRan Inc.
(Exact name of registrant as specified in its charter)
Delaware
74-2480931
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
 
333 North Central Avenue
 
Phoenix, AZ
85004-2189
(Address of principal executive offices)
(Zip Code)
(602) 366-8100
(Registrant's telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes  o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       þ Yes  o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ         Accelerated filer o          Non-accelerated filer o         Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No

On April 29, 2016, there were issued and outstanding 1,252,141,504 shares of the registrant’s common stock, par value $0.10 per share.


FREEPORT-McMoRan INC.

TABLE OF CONTENTS

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents                 


Part I.
FINANCIAL INFORMATION

Item 1.
Financial Statements.

FREEPORT-McMoRan INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
 
March 31,
2016
 
December 31,
2015
 
(In millions)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
331

 
$
224

Trade accounts receivable
837

 
689

Income and other tax receivables
1,182

 
1,414

Other accounts receivable
122

 
174

Inventories:
 
 
 
Materials and supplies, net
1,714

 
1,869

Mill and leach stockpiles
1,644

 
1,724

Product
1,170

 
1,195

Other current assets
233

 
173

Total current assets
7,233

 
7,462

Property, plant, equipment and mining development costs, net
27,376

 
27,509

Oil and gas properties, net - full cost method
 
 
 
Subject to amortization, less accumulated amortization and impairment
1,700

 
2,262

Not subject to amortization
1,743

 
4,831

Long-term mill and leach stockpiles
2,324

 
2,271

Other assets
2,288

 
2,242

Total assets
$
42,664

 
$
46,577

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
2,987

 
$
3,363

Current portion of debt
1,139

 
649

Current portion of environmental and asset retirement obligations
270

 
272

Accrued income taxes
30

 
23

Total current liabilities
4,426

 
4,307

Long-term debt, less current portion
19,638

 
19,779

Deferred income taxes
4,442

 
4,288

Environmental and asset retirement obligations, less current portion
3,762

 
3,739

Other liabilities
1,659

 
1,656

Total liabilities
33,927

 
33,769

 
 
 
 
Redeemable noncontrolling interest
767

 
764

 
 
 
 
Equity:
 
 
 
Stockholders’ equity:
 
 
 
Common stock
138

 
137

Capital in excess of par value
24,333

 
24,283

Accumulated deficit
(16,570
)
 
(12,387
)
Accumulated other comprehensive loss
(503
)
 
(503
)
Common stock held in treasury
(3,706
)
 
(3,702
)
Total stockholders’ equity
3,692

 
7,828

Noncontrolling interests
4,278

 
4,216

Total equity
7,970

 
12,044

Total liabilities and equity
$
42,664

 
$
46,577


The accompanying notes are an integral part of these consolidated financial statements.

3
Table of Contents                 


FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
 
 
(In millions, except per share amounts)
Revenues
$
3,527

 
$
4,153

 
Cost of sales:
 
 
 
 
Production and delivery
2,725

 
2,912

 
Depreciation, depletion and amortization
722

 
939

 
Impairment of oil and gas properties
3,787

 
3,104

 
Total cost of sales
7,234


6,955


Selling, general and administrative expenses
140

 
154

 
Mining exploration and research expenses
19

 
33

 
Environmental obligations and shutdown costs
10

 
13

 
Net gain on sale of assets
—

 
(39
)
 
Total costs and expenses
7,403

 
7,116

 
Operating loss
(3,876
)
 
(2,963
)
 
Interest expense, net
(200
)
 
(146
)
 
Other income, net
38

 
7

 
Loss before income taxes and equity in affiliated companies' net earnings
(4,038
)
 
(3,102
)
 
(Provision for) benefit from income taxes
(70
)
 
695

 
Equity in affiliated companies’ net earnings
7

 
1

 
Net loss
(4,101
)
 
(2,406
)
 
Net income attributable to noncontrolling interests
(72
)
 
(58
)
 
Preferred dividends attributable to redeemable noncontrolling interest
(11
)
 
(10
)
 
Net loss attributable to common stockholders
$
(4,184
)
 
$
(2,474
)
 
 
 
 
 
 
Basic and diluted net loss per share attributable to common stockholders
$
(3.35
)
 
$
(2.38
)
 
 
 
 
 
 
Basic and diluted weighted-average common shares outstanding
1,251

 
1,040

 
 
 
 
 
 
Dividends declared per share of common stock
$
—

 
$
0.05

 
 
The accompanying notes are an integral part of these consolidated financial statements.


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FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2016
 
2015
 
 
 
(In millions)
Net loss
 
$
(4,101
)
 
$
(2,406
)
 
 
 
 
 
 
 
Other comprehensive (loss) income, net of taxes:
 
 
 
 
 
Defined benefit plans:
 
 
 
 
 
Amortization of unrecognized amounts included in net periodic benefit costs
 
8

 
8

 
Foreign exchange (losses) gains
 
(9
)
 
4

 
Other comprehensive (loss) income
 
(1
)
 
12

 
 
 
 
 
 
 
Total comprehensive loss
 
(4,102
)
 
(2,394
)
 
Total comprehensive income attributable to noncontrolling interests
 
(71
)
 
(58
)
 
Preferred dividends attributable to redeemable noncontrolling interest
 
(11
)
 
(10
)
 
Total comprehensive loss attributable to common stockholders
 
$
(4,184
)
 
$
(2,462
)
 

The accompanying notes are an integral part of these consolidated financial statements.




5
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FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
 
 
(In millions)
 
Cash flow from operating activities:
 
 
 
 
Net loss
$
(4,101
)
 
$
(2,406
)
 
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation, depletion and amortization
722

 
939

 
Impairment of oil and gas properties
3,787

 
3,104

 
Oil and gas inventory write downs
35

 
4

 
Net gain on sale of assets
—

 
(39
)
 
Net charges for environmental and asset retirement obligations, including accretion
57

 
53

 
Payments for environmental and asset retirement obligations
(90
)
 
(42
)
 
Deferred income taxes
152

 
(709
)
 
Increase in long-term mill and leach stockpiles
(53
)
 
(82
)
 
Net gains on crude oil derivative contracts
—

 
(52
)
 
Other, net
43

 
33

 
Changes in working capital and other tax payments, excluding amounts from disposition:
 
 
 
 
Accounts receivable
93

 
316

 
Inventories
114

 
165

 
Other current assets
(68
)
 
(42
)
 
Accounts payable and accrued liabilities
9

 
(402
)
 
Accrued income taxes and changes in other tax payments
40

 
(123
)
 
Net cash provided by operating activities
740

 
717

 
 
 
 
 
 
Cash flow from investing activities:
 
 
 
 
Capital expenditures:
 
 
 
 
North America copper mines
(34
)
 
(107
)
 
South America
(157
)
 
(445
)
 
Indonesia
(225
)
 
(225
)
 
Africa
(35
)
 
(39
)
 
Molybdenum mines
(1
)
 
(3
)
 
United States oil and gas operations
(480
)
 
(1,018
)
 
Other
(50
)
 
(30
)
 
Other, net
2

 
127

 
Net cash used in investing activities
(980
)
 
(1,740
)
 
 
 
 
 
 
Cash flow from financing activities:
 
 
 
 
Proceeds from debt
1,796

 
2,273

 
Repayments of debt
(1,442
)
 
(802
)
 
Net proceeds from sale of common stock
32

 
—

 
Cash dividends and distributions paid:
 
 
 
 
Common stock
(4
)
 
(327
)
 
Noncontrolling interests
(18
)
 
(23
)
 
Stock-based awards net payments, including excess tax benefit
(4
)
 
(6
)
 
Debt financing costs and other, net
(13
)
 
(7
)
 
Net cash provided by financing activities
347

 
1,108

 
 
 
 
 
 
Net increase in cash and cash equivalents
107

 
85

 
Cash and cash equivalents at beginning of year
224

 
464

 
Cash and cash equivalents at end of period
$
331

 
$
549

 
The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents                 


FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

 
Stockholders’ Equity
 
 
 
 
 
Common Stock
 
 
 
Accum-ulated Deficit
 
Accumu-
lated
Other Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total
Stock-holders' Equity
 
 
 
 
 
Number
of
Shares
 
At Par
Value
 
Capital in
Excess of
Par Value
 
 
 
Number
of
Shares
 
At
Cost
 
 
Non-
controlling
Interests
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Balance at December 31, 2015
1,374

 
$
137

 
$
24,283

 
$
(12,387
)
 
$
(503
)
 
128

 
$
(3,702
)
 
$
7,828

 
$
4,216

 
$
12,044

Sale of common stock
5

 
1

 
31

 
—

 
—

 
—

 
—

 
32

 
—

 
32

Exercised and issued stock-based awards
2

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation
—

 
—

 
23

 
—

 
—

 
—

 
—

 
23

 
—

 
23

Reserve on tax benefit for stock-based awards
—

 
—

 
(3
)
 
—

 
—

 
—

 
—

 
(3
)
 
—

 
(3
)
Tender of shares for stock-based awards
—

 
—

 
—

 
—

 
—

 
1

 
(4
)
 
(4
)
 
—

 
(4
)
Dividends on common stock
—

 
—

 
—

 
1

 
—

 
—

 
—

 
1

 
—

 
1

Dividends to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10
)
 
(10
)
Noncontrolling interests' share of contributed capital in subsidiary
—

 
—

 
(1
)
 
—

 
—

 
—

 
—

 
(1
)
 
1

 
—

Net loss attributable to common stockholders
—

 
—

 
—

 
(4,184
)
 
—

 
—

 
—

 
(4,184
)
 
—

 
(4,184
)
Net income attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
72

 
72

Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1
)
 
(1
)
Balance at March 31, 2016
1,381

 
$
138

 
$
24,333

 
$
(16,570
)
 
$
(503
)
 
129

 
$
(3,706
)
 
$
3,692

 
$
4,278

 
$
7,970

 
The accompanying notes are an integral part of these consolidated financial statements.


7
Table of Contents                 


FREEPORT-McMoRan INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1. GENERAL INFORMATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles (GAAP) in the United States (U.S.). Therefore, this information should be read in conjunction with Freeport-McMoRan Inc.'s (FCX) consolidated financial statements and notes contained in its annual report on Form 10-K for the year ended December 31, 2015. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. With the exception of the oil and gas properties impairment discussed below and the related tax charges to establish a deferred tax valuation allowance (refer to Note 4), all such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the three-month period ended March 31, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

Asset Dispositions. On February 15, 2016, FCX announced it had entered into a definitive agreement to sell a 13 percent undivided interest in its Morenci unincorporated joint venture to Sumitomo Metal Mining Co., Ltd. (SMM) for $1.0 billion in cash. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in second-quarter 2016. FCX expects to record an approximate $550 million gain on the transaction and use losses to offset cash taxes on the transaction. Proceeds from the transaction will be used to repay borrowings under FCX's unsecured bank term loan (Term Loan) and revolving credit facility.

The Morenci unincorporated joint venture is currently owned 85 percent by FCX and 15 percent by Sumitomo Metal Mining Arizona Inc. (Sumitomo). Following completion of the transaction, the unincorporated joint venture will be owned 72 percent by FCX, 15 percent by Sumitomo and 13 percent by an affiliate that is wholly owned by SMM.

On April 21, 2016, FM O&G entered into a definitive purchase and sale agreement to sell certain oil and gas royalty interests to Black Stone Minerals, L.P. for cash consideration of $102 million, subject to certain purchase price adjustments at closing. The transaction is expected to close in second-quarter 2016.

On May 2, 2016, Freeport Minerals Corporation (FMC), a wholly owned subsidiary of FCX, completed the sale of an interest in the Timok exploration project in Serbia to Reservoir Minerals Inc. for consideration of $135 million in cash at closing and contingent consideration of up to $128 million upon the achievement of development milestones and events defined in the transaction agreements.

On May 9, 2016, FCX announced it had entered into a definitive agreement to sell its 70 percent interest in TF Holdings Limited (TFHL) to China Molybdenum Co., Ltd. (CMOC) for $2.65 billion in cash, before closing adjustments, and contingent consideration of up to $120 million in cash, consisting of $60 million if the average copper price exceeds $3.50 per pound and $60 million if the average cobalt price exceeds $20 per pound, both during calendar years 2018 and 2019. Through its interest in TFHL, FCX has an effective 56 percent interest in Tenke Fungurume Mining S.A. (Tenke) located in the Democratic Republic of Congo (DRC). The transaction is expected to close in fourth-quarter 2016, subject to regulatory approvals, CMOC shareholder approval and other customary closing conditions. The transaction is also subject to Lundin Mining Corporation’s (Lundin) right of first offer (ROFO), which will be open for 90 days from Lundin's receipt of the ROFO notice. Lundin holds the remaining 30 percent interest in TFHL. FCX does not expect to record a material gain or loss on the transaction and expects to use the proceeds to repay debt.

In addition, FCX has agreed to negotiate exclusively with CMOC (until December 31, 2016) to enter into a definitive agreement to sell its interest in Freeport Cobalt for $100 million and the Kisanfu exploration project in the DRC for $50 million in separate transactions. Freeport Cobalt includes the large-scale cobalt refinery in Kokkola, Finland, and the related sales and marketing business, in which FCX owns an effective 56 percent interest. Kisanfu is a copper and exploration project, located near Tenke, in which FCX holds a 100 percent interest.


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Oil and Gas Properties. Under the U.S. Securities and Exchange Commission's (SEC) full cost accounting rules, FCX reviews the carrying value of its oil and gas properties in the full cost pool for impairment each quarter on a country-by-country basis. Under these rules, capitalized costs of oil and gas properties (net of accumulated depreciation, depletion, amortization and impairment, and related deferred income taxes) for each cost center may not exceed a “ceiling” equal to:
•
the present value, discounted at 10 percent, of estimated future net cash flows from the related proved oil and gas reserves, net of estimated future income taxes; plus
•
the cost of the related unproved properties not being amortized; plus
•
the lower of cost or estimated fair value of the related unproved properties included in the costs being amortized (net of related tax effects).

These rules require that FCX price its future oil and gas production at the twelve-month average of the first-day-of-the-month historical reference prices as adjusted for location and quality differentials. FCX's reference prices are West Texas Intermediate (WTI) for oil and the Henry Hub spot price for natural gas. Such prices are utilized except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts. The estimated future net cash flows also exclude future cash outflows associated with settling asset retirement obligations included in the net book value of the oil and gas properties. The rules require an impairment if the capitalized costs exceed this “ceiling.”

In addition, following the first-quarter 2016 evaluation of alternatives for the oil and gas business and the current limitations and cost of capital available for future drilling, FCX Oil & Gas Inc. (FM O&G, a wholly owned subsidiary of FCX) determined that the carrying values of certain of its unevaluated properties were impaired as of March 31, 2016. As a result, FM O&G transferred $3.1 billion of costs associated with unevaluated properties to the full cost pool, mostly reflecting impairment of the carrying values of unevaluated properties. Combined with the impact of the reduction in twelve-month historical prices, net capitalized costs exceeded the related ceiling test limitation under full cost accounting rules, which resulted in the recognition of a first-quarter 2016 impairment charge of $3.8 billion. The twelve-month average price (using WTI as the reference oil price) was $46.26 per barrel at March 31, 2016, compared with $50.28 per barrel at December 31, 2015.

NOTE 2. EARNINGS PER SHARE
FCX’s basic net loss per share of common stock was computed by dividing net loss attributable to common stockholders by the weighted-average shares of common stock outstanding during the period. Diluted net income per share of common stock was computed using the most dilutive of (a) the two-class method or (b) the treasury stock method. Under the two-class method, net income is allocated to each class of common stock and participating securities as if all of the earnings for the period had been distributed. FCX’s participating securities consist of vested restricted stock units (RSUs) for which the underlying common shares are not yet issued and entitle holders to non-forfeitable dividends.

A reconciliation of net loss and weighted-average shares of common stock outstanding for purposes of calculating basic and diluted net loss per share follows (in millions, except per share amounts):
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
 
Net loss
$
(4,101
)
 
$
(2,406
)
 
Net income attributable to noncontrolling interests
(72
)
 
(58
)
 
Preferred dividends on redeemable noncontrolling interest
(11
)
 
(10
)
 
Undistributed earnings allocable to participating securities
(3
)
 
(3
)
 
Net loss allocable to common stockholders
$
(4,187
)
 
$
(2,477
)
 
 
 
 
 
 
Basic weighted-average shares of common stock outstanding
1,251

 
1,040

 
Add shares issuable upon exercise or vesting of dilutive stock options and RSUs
—

a 
—

a 
Diluted weighted-average shares of common stock outstanding
1,251

 
1,040

 
 
 
 
 
 
Basic and diluted net loss per share attributable to common stockholders
$
(3.35
)
 
$
(2.38
)
 
a.
Excludes approximately 10 million shares of common stock for first-quarter 2016 and 14 million for first-quarter 2015 associated with outstanding stock options with exercise prices less than the average market price of FCX's common stock and RSUs that were anti-dilutive.

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Outstanding stock options with exercise prices greater than the average market price of FCX’s common stock during the period are excluded from the computation of diluted net income per share of common stock. Stock options for 47 million shares of common stock were excluded for first-quarter 2016 and 40 million were excluded for first-quarter 2015.

NOTE 3. INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES
The components of inventories follow (in millions):
 
March 31,
2016
 
December 31, 2015
 
Current inventories:
 
 
 
 
Total materials and supplies, neta
$
1,714

 
$
1,869

 
 
 
 
 
 
Mill stockpiles
$
139

 
$
137

 
Leach stockpiles
1,505

 
1,587

 
Total current mill and leach stockpiles
$
1,644

 
$
1,724

 
 
 
 
 
 
Raw materials (primarily concentrate)
$
247

 
$
220

 
Work-in-process
118

 
108

 
Finished goods
805

 
867

 
Total product inventories
$
1,170

 
$
1,195

 
 
 
 
 
 
Long-term inventories:
 
 
 
 
Mill stockpiles
$
521

 
$
480

 
Leach stockpiles
1,803

 
1,791

 
Total long-term mill and leach stockpilesb
$
2,324

 
$
2,271

 
a.
Materials and supplies inventory was net of obsolescence reserves totaling $28 million at March 31, 2016, and $29 million at December 31, 2015.
b.
Estimated metals in stockpiles not expected to be recovered within the next 12 months.

NOTE 4. INCOME TAXES
Variations in the relative proportions of jurisdictional income result in fluctuations to FCX's consolidated effective income tax rate. FCX’s consolidated effective income tax rate was (2) percent for first-quarter 2016 and 22 percent for first-quarter 2015. Geographic sources of FCX's (provision for) benefit from income taxes follow (in millions):
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
 
U.S. operations
$
11

 
$
835

 
International operations
(81
)
 
(140
)
 
Total
$
(70
)
 
$
695

 
As a result of the impairment to U.S. oil and gas properties, FCX recorded tax charges of $1.4 billion in first-quarter 2016 and $458 million in first-quarter 2015 to establish a valuation allowance primarily against U.S. federal and state deferred tax assets that will not generate a future benefit. Excluding these charges, FCX's consolidated effective income tax rate was 34 percent in first-quarter 2016 and 37 percent in first-quarter 2015.

Applicable accounting standards provide that FCX estimate an annual effective tax rate and apply that rate to each year-to-date interim period. However, because FCX’s estimated effective income tax rate for 2016 is highly variable (i.e., minor changes in FCX’s estimated annual (loss) income would have a significant effect on the consolidated annual effective income tax rate), the actual effective income tax rate for the year-to-date reporting period represents a better estimate of the consolidated annual effective income tax rate. Accordingly, for the three months ended March 31, 2016, the actual consolidated effective tax income rate was used to determine FCX’s income tax provision.


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NOTE 5. DEBT AND EQUITY
Debt. The components of debt follow:
 
March 31,
2016
 
December 31, 2015
Term Loan
$
3,011

 
$
3,032

Revolving credit facility
480

 
—

Lines of credit
332

 
442

Cerro Verde credit facility
1,783

 
1,781

Cerro Verde shareholder loans
261

 
259

Senior notes and debentures:
 
 
 
Issued by FCX
11,911

 
11,908

Issued by Freeport-McMoRan Oil & Gas LLC (FM O&G LLC)
2,532

 
2,539

Issued by FMC
359

 
359

Other (including equipment capital leases and other short-term borrowings)
108

 
108

Total debta
20,777

 
20,428

Less current portion of debt
(1,139
)
 
(649
)
Long-term debt
$
19,638

 
$
19,779

a.
Includes additions for unamortized fair value adjustments totaling $203 million at March 31, 2016, and $210 million at December 31, 2015, and net reductions for unamortized debt issuance costs and unamortized discounts of $130 million at March 31, 2016, and $129 million at December 31, 2015.

On February 26, 2016, FCX amended its revolving credit facility and Term Loan. The amendments include (i) modification of the maximum leverage ratio and the minimum interest expense coverage ratio, and (ii) the addition of a springing collateral and guarantee trigger. In addition, the commitment under the revolving credit facility was reduced from $4.0 billion to $3.5 billion, and the mandatory prepayment provision was modified under the Term Loan. Refer to Note 18 of FCX's annual report on Form 10-K for the year ended December 31, 2015, for further discussion of these amendments.

At March 31, 2016, there were $480 million of borrowings outstanding and $38 million of letters of credit issued under FCX's revolving credit facility, resulting in availability of approximately $3.0 billion, of which approximately $1.5 billion could be used for additional letters of credit.

Consolidated interest expense (excluding capitalized interest) totaled $228 million in first-quarter 2016 and $210 million in first-quarter 2015. Capitalized interest added to property, plant, equipment and mining development costs, net, totaled $20 million in first-quarter 2016 and $45 million in first-quarter 2015. Capitalized interest added to oil and gas properties not subject to amortization totaled $8 million in first-quarter 2016 and $19 million in first-quarter 2015.

Equity. In 2015 and through January 5, 2016, FCX generated approximately $2 billion in gross proceeds (net proceeds of $1.97 billion after $20 million of commissions and expenses) through the sale of 210 million shares of common stock under its at-the-market equity programs. At April 29, 2016, FCX has approximately $12 million remaining under its at-the-market equity programs.

NOTE 6. FINANCIAL INSTRUMENTS
FCX does not purchase, hold or sell derivative financial instruments unless there is an existing asset or obligation, or it anticipates a future activity that is likely to occur and will result in exposure to market risks, which FCX intends to offset or mitigate. FCX does not enter into any derivative financial instruments for speculative purposes, but has entered into derivative financial instruments in limited instances to achieve specific objectives. These objectives principally relate to managing risks associated with commodity price changes, foreign currency exchange rates and interest rates.


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Commodity Contracts.  From time to time, FCX has entered into derivative contracts to hedge the market risk associated with fluctuations in the prices of commodities it purchases and sells. Derivative financial instruments used by FCX to manage its risks do not contain credit risk-related contingent provisions. As of March 31, 2016, and December 31, 2015, FCX had no price protection contracts relating to its mine production or future sales of oil and gas. A discussion of FCX’s derivative contracts and programs follows.

Derivatives Designated as Hedging Instruments – Fair Value Hedges
Copper Futures and Swap Contracts. Some of FCX’s U.S. copper rod customers request a fixed market price instead of the Commodity Exchange Inc. (COMEX), a division of the New York Mercantile Exchange, average copper price in the month of shipment. FCX hedges this price exposure in a manner that allows it to receive the COMEX average price in the month of shipment while the customers pay the fixed price they requested. FCX accomplishes this by entering into copper futures or swap contracts. Hedging gains or losses from these copper futures and swap contracts are recorded in revenues. FCX did not have any significant gains or losses during the three-month periods ended March 31, 2016 and 2015, resulting from hedge ineffectiveness. At March 31, 2016, FCX held copper futures and swap contracts that qualified for hedge accounting for 69 million pounds at an average contract price of $2.23 per pound, with maturities through March 2018.

A summary of gains (losses) recognized in revenues for derivative financial instruments related to commodity contracts that are designated and qualify as fair value hedge transactions, along with the unrealized gains (losses) on the related hedged item follows (in millions):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Copper futures and swap contracts:
 
 
 
Unrealized gains (losses):
 
 
 
Derivative financial instruments
$
7

 
$
6

Hedged item – firm sales commitments
(7
)
 
(6
)
 
 
 
 
Realized losses:
 
 
 
Matured derivative financial instruments
(4
)
 
(10
)

Derivatives Not Designated as Hedging Instruments
Embedded Derivatives. As described in Note 1 to FCX's annual report on Form 10-K for the year ended December 31, 2015, under “Revenue Recognition,” certain FCX copper concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on the London Metal Exchange (LME) copper price or the COMEX copper price and the London Bullion Market Association (London) gold price at the time of shipment as specified in the contract. Similarly, FCX purchases copper under contracts that provide for provisional pricing. FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host sales agreements since the contracts do not allow for net settlement and always result in physical delivery. Sales and purchases with a provisional sales price contain an embedded derivative (i.e., the price settlement mechanism is settled after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale or purchase of the metals contained in the concentrate or cathode at the then-current LME or COMEX copper price or the London gold price as defined in the contract. Mark-to-market price fluctuations from these embedded derivatives are recorded through the settlement date and are reflected in revenues for sales contracts and in cost of sales as production and delivery costs for purchase contracts.

A summary of FCX’s embedded commodity derivatives at March 31, 2016, follows:
 
Open Positions
 
Average Price
Per Unit
 
Maturities Through
 
 
Contract
 
Market
 
Embedded derivatives in provisional sales contracts:
 
 
 
 
 
 
 
Copper (millions of pounds)
776

 
$
2.14

 
$
2.20

 
September 2016
Gold (thousands of ounces)
89

 
1,224

 
1,236

 
June 2016
Embedded derivatives in provisional purchase contracts:
 
 
 
 
 
 
 
Copper (millions of pounds)
156

 
2.17

 
2.20

 
July 2016

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Crude Oil Contracts. As a result of the acquisition of the oil and gas business, FCX had derivative contracts for 2015 that consisted of crude oil options. These derivatives were not designated as hedging instruments and were recorded at fair value with the mark-to-market gains and losses recorded in revenues. The crude oil options were entered into to protect the realized price of a portion of expected future sales in order to limit the effects of crude oil price decreases. The remaining contacts matured in 2015.

Copper Forward Contracts. Atlantic Copper, FCX's wholly owned smelting and refining unit in Spain, enters into copper forward contracts designed to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match. These economic hedge transactions are intended to hedge against changes in copper prices, with the mark-to-market hedging gains or losses recorded in cost of sales. At March 31, 2016, Atlantic Copper held net copper forward purchase contracts for 47 million pounds at an average contract price of $2.24 per pound, with maturities through May 2016.

Summary of Gains (Losses). A summary of the realized and unrealized gains (losses) recognized in the loss before income taxes and equity in affiliated companies’ net earnings for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, follows (in millions):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Embedded derivatives in provisional copper and gold
 
 
 
sales contractsa
$
77

 
$
(72
)
Copper forward contractsb
7

 
(1
)
Crude oil optionsa
—

 
52

a.
Amounts recorded in revenues. 
b.
Amounts recorded in cost of sales as production and delivery costs.

Unsettled Derivative Financial Instruments
A summary of the fair values of unsettled commodity derivative financial instruments follows (in millions):
 
 
March 31,
2016
 
December 31, 2015
Commodity Derivative Assets:
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Copper futures and swap contractsa
 
$
4

 
$
1

Derivatives not designated as hedging instruments:
 
 
 
 
Embedded derivatives in provisional copper and gold
 
 
 
 
sales/purchase contracts
 
68

 
21

Total derivative assets
 
$
72

 
$
22

 
 
 
 
 
Commodity Derivative Liabilities:
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Copper futures and swap contractsa
 
$
6

 
$
11

Derivatives not designated as hedging instruments:
 
 
 
 
Embedded derivatives in provisional copper and gold
 
 
 
 
sales/purchase contracts
 
25

 
82

Copper forward contracts
 
2

 
—

Total derivative liabilities
 
$
33

 
$
93

a.
FCX paid $5 million to brokers at March 31, 2016, and $10 million at December 31, 2015, for margin requirements (recorded in other current assets).



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FCX's commodity contracts have netting arrangements with counterparties with which the right of offset exists, and it is FCX's policy to offset balances by counterparty on its balance sheet. FCX's embedded derivatives on provisional sales/purchases are netted with the corresponding outstanding receivable/payable balances. A summary of these unsettled commodity contracts that are offset in the balance sheet follows (in millions):
 
 
Assets
 
Liabilities
 
 
March 31, 2016
 
December 31, 2015
 
March 31, 2016
 
December 31, 2015
 
 
 
 
 
 
 
 
 
Gross amounts recognized:
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
Embedded derivatives in provisional
 
 
 
 
 
 
 
 
sales/purchase contracts
 
$
68

 
$
21

 
$
25

 
$
82

Copper derivatives
 
4

 
1

 
8

 
11

 
 
72

 
22

 
33

 
93

 
 
 
 
 
 
 
 
 
Less gross amounts of offset:
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
Embedded derivatives in provisional
 
 
 
 
 
 
 
 
sales/purchase contracts
 
4

 
6

 
4

 
6

Copper derivatives
 
4

 
1

 
4

 
1

 
 
8

 
7

 
8

 
7

 
 
 
 
 
 
 
 
 
Net amounts presented in balance sheet:
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
Embedded derivatives in provisional
 
 
 
 
 
 
 
 
sales/purchase contracts
 
64

 
15

 
21

 
76

Copper derivatives
 
—

 
—

 
4

 
10

 
 
$
64

 
$
15

 
$
25

 
$
86

 
 
 
 
 
 
 
 
 
Balance sheet classification:
 
 
 
 
 
 
 
 
Trade accounts receivable
 
$
61

 
$
10

 
$
9

 
$
52

Accounts payable and accrued liabilities
 
3

 
5

 
16

 
34

 
 
$
64

 
$
15

 
$
25

 
$
86


Credit Risk.  FCX is exposed to credit loss when financial institutions with which FCX has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize the risk of such losses, FCX uses counterparties that meet certain credit requirements and periodically reviews the creditworthiness of these counterparties. FCX does not anticipate that any of the counterparties it deals with will default on their obligations. As of March 31, 2016, the maximum amount of credit exposure associated with derivative transactions was $57 million.

Other Financial Instruments.  Other financial instruments include cash and cash equivalents, accounts receivable, restricted cash, investment securities, legally restricted funds, accounts payable and accrued liabilities, and long-term debt. The carrying value for cash and cash equivalents (which included time deposits of $39 million at March 31, 2016, and $34 million at December 31, 2015), accounts receivable, restricted cash, and accounts payable and accrued liabilities approximates fair value because of their short-term nature and generally negligible credit losses (refer to Note 7 for the fair values of investment securities, legally restricted funds and long-term debt).



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NOTE 7. FAIR VALUE MEASUREMENT
Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

FCX recognizes transfers between levels at the end of the reporting period. FCX did not have any significant transfers in or out of Level 1, 2 or 3 for first-quarter 2016.

FCX retrospectively adopted the May 2015 Accounting Standards Update (ASU) associated with investments for which fair value is measured using the net asset value (NAV) per share as a practical expedient. As a result, investments valued using NAV per share are shown in the tables below in a column separate from the levels within the fair value hierarchy. A summary of the carrying amount and fair value of FCX’s financial instruments, other than cash and cash equivalents, accounts receivable, restricted cash, and accounts payable and accrued liabilities (refer to Note 6) follows (in millions):
 
At March 31, 2016
 
Carrying
 
Fair Value
 
Amount
 
Total
 
NAV
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
Investment securities:a,b
 
 
 
 
 
 
 
 
 
 
 
U.S. core fixed income fund at NAV
$
23

 
$
23

 
$
23

 
$
—

 
$
—

 
$
—

Money market funds
22

 
22

 
—

 
22

 
—

 
—

Equity securities
4

 
4

 
—

 
4

 
—

 
—

Total
49

 
49

 
23

 
26

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Legally restricted funds:a,b,c,d
 
 
 
 
 
 
 
 
 
 
 
U.S. core fixed income fund at NAV
53

 
53

 
53

 
—

 
—

 
—

Government bonds and notes
33

 
33

 
—

 
—

 
33

 
—

Government mortgage-backed securities
32

 
32

 
—

 
—

 
32

 
—

Corporate bonds
29

 
29

 
—

 
—

 
29

 
—

Asset-backed securities
14

 
14

 
—

 
—

 
14

 
—

Collateralized mortgage-backed securities
7

 
7

 
—

 
—

 
7

 
—

Money market funds
7

 
7

 
—

 
7

 
—

 
—

Municipal bonds
1

 
1

 
—

 
—

 
1

 
—

Total
176

 
176

 
53

 
7

 
116

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives:a,e
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/
 
 
 
 
 
 
 
 
 
 
 
purchase contracts in a gross asset position
68

 
68

 
—

 
—

 
68

 
—

Copper futures and swap contracts
4

 
4

 
—

 
3

 
1

 
—

Total
72

 
72

 
—

 
3

 
69

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
 
$
297

 
$
76

 
$
36

 
$
185

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Derivatives:a,e
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/
 
 
 
 
 
 
 
 
 
 
 
purchase contracts in a gross liability position
$
25

 
$
25

 
$
—

 
$
—

 
$
25

 
$
—

Copper futures and swap contracts
6

 
6

 
—

 
3

 
3

 
—

Copper forward contracts
2

 
2

 
—

 
2

 
—

 
—

Total
33

 
33

 
—

 
5

 
28

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portionf
20,777

 
16,679

 
—

 
—

 
16,679

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
$
16,712

 
$
—

 
$
5

 
$
16,707

 
$
—




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Table of Contents                 


 
At December 31, 2015
 
Carrying
 
Fair Value
 
Amount
 
Total
 
NAV
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
Investment securities:a,b
 
 
 
 
 
 
 
 
 
 
 
U.S. core fixed income fund at NAV
$
23

 
$
23

 
$
23

 
$
—

 
$
—

 
$
—

Money market funds
21

 
21

 
—

 
21

 
—

 
—

Equity securities
3

 
3

 
—

 
3

 
—

 
—

Total
47

 
47

 
23

 
24

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Legally restricted funds:a,b,c,d
 
 
 
 
 
 
 
 
 
 
 
U.S. core fixed income fund at NAV
52

 
52

 
52

 
—

 
—

 
—

Government bonds and notes
37

 
37

 
—

 
—

 
37

 
—

Government mortgage-backed securities
28

 
28

 
—

 
—

 
28

 
—

Corporate bonds
26

 
26

 
—

 
—

 
26

 
—

Asset-backed securities
13

 
13

 
—

 
—

 
13

 
—

Collateralized mortgage-backed securities
7

 
7

 
—

 
—

 
7

 
—

Money market funds
7

 
7

 
—

 
7

 
—

 
—

Municipal bonds
1

 
1

 
—

 
—

 
1

 
—

Total
171

 
171

 
52

 
7

 
112

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives:a,e
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/
 
 
 
 
 
 
 
 
 
 
 
purchase contracts in a gross asset position
21

 
21

 
—

 
—

 
21

 
—

Copper futures and swap contracts
1

 
1

 
—

 
1

 
—

 
—

Total
22

 
22

 
—

 
1

 
21

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
 
$
240

 
$
75

 
$
32

 
$
133

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Derivatives:a,e
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/
 
 
 
 
 
 
 
 
 
 
 
purchase contracts in a gross liability position
$
82

 
$
82

 
$
—

 
$
—

 
$
82

 
$
—

Copper futures and swap contracts
11

 
11

 
—

 
7

 
4

 
—

Total
93

 
93

 
—

 
7

 
86

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portionf
20,428

 
13,987

 
—

 
—

 
13,987

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
$
14,080

 
$
—

 
$
7

 
$
14,073

 
$
—

a.
Recorded at fair value. 
b.
Current portion included in other current assets and long-term portion included in other assets.
c.
Excludes time deposits (which approximated fair value) included in other assets of $119 million at March 31, 2016, and $118 million at December 31, 2015, associated with an assurance bond to support PT Freeport Indonesia's (PT-FI) commitment for smelter development in Indonesia.
d.
Excludes time deposits (which approximated fair value) included in other current assets of $29 million at March 31, 2016, and$28 million at December 31, 2015.
e.
Refer to Note 6 for further discussion and balance sheet classifications.
f.
Recorded at cost except for debt assumed in acquisitions, which were recorded at fair value at the respective acquisition dates.

Valuation Techniques
Money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

Equity securities are valued at the closing price reported on the active market on which the individual securities are traded and, as such, are classified within Level 1 of the fair value hierarchy.


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Table of Contents                 


Fixed income securities (government securities, corporate bonds, asset-backed securities, collateralized mortgage-backed securities and municipal bonds) are valued using a bid-evaluation price or a mid-evaluation price. A bid-evaluation price is an estimated price at which a dealer would pay for a security. A mid-evaluation price is the average of the estimated price at which a dealer would sell a security and the estimated price at which a dealer would pay for a security. These evaluations are based on quoted prices, if available, or models that use observable inputs and, as such, are classified within Level 2 of the fair value hierarchy.

FCX’s embedded derivatives on provisional copper concentrate, copper cathode and gold purchases and sales are valued using only quoted monthly LME or COMEX copper forward prices and the London gold forward price at each reporting date based on the month of maturity (refer to Note 6 for further discussion); however, FCX's contracts themselves are not traded on an exchange. As a result, these derivatives are classified within Level 2 of the fair value hierarchy.

FCX’s derivative financial instruments for copper futures and swap contracts and copper forward contracts that are traded on the respective exchanges are classified within Level 1 of the fair value hierarchy because they are valued using quoted monthly COMEX or LME prices at each reporting date based on the month of maturity (refer to Note 6 for further discussion). Certain of these contracts are traded on the over-the-counter market and are classified within Level 2 of the fair value hierarchy based on COMEX and LME forward prices.

Long-term debt, including current portion, is valued using available market quotes and, as such, is classified within Level 2 of the fair value hierarchy.

The U.S. core fixed income fund is valued at NAV. The fund strategy seeks total return consisting of income and capital appreciation primarily by investing in a broad range of investment-grade debt securities, including U.S. government obligations, corporate bonds, mortgage-backed securities, asset-backed securities and money market instruments. There are no restrictions on redemptions (usually within one business day of notice).

The techniques described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while FCX believes its valuation techniques are appropriate and consistent with other market participants, the use of different techniques or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the techniques used at March 31, 2016.
 
 
 
NOTE 8. CONTINGENCIES AND COMMITMENTS
Litigation. During first-quarter 2016, there were no significant updates to previously reported legal proceedings included in Note 12 of FCX's annual report on Form 10-K for the year ended December 31, 2015.

Tax and Other Matters. Cerro Verde Royalty Dispute. As reported in Note 12 of FCX’s annual report on
Form 10-K for the year ended December 31, 2015, SUNAT, the Peruvian national tax authority, has assessed mining royalties on ore processed by the Cerro Verde concentrator, which commenced operations in late 2006, for the period December 2006 to December 2007 and the years 2008 and 2009. In April 2016, SUNAT issued assessments for the year 2010 and the period January 2011 to September 2011. The aggregate amount of the assessments covering the period December 2006 to September 2011 totals $413 million (based on the exchange rate as of March 31, 2016), including estimated accumulated interest and penalties. Cerro Verde is contesting or will contest these assessments. Additionally, in April 2016, Peru’s Twentieth Contentious Administrative Court, which specializes in taxation matters, rendered its decision upholding the Peruvian Tax Tribunal’s July 2013 decision affirming SUNAT’s assessments for the period December 2006 through December 2007. On May 2, 2016, Cerro Verde appealed this decision to Peru’s Twentieth Contentious Administrative Court.

SUNAT may make additional assessments for mining royalties and associated penalties and interest for the period from October 2011 through December 2013, which Cerro Verde will contest. FCX estimates the total exposure associated with these mining royalties for the period from December 2006 through December 2013 approximates $515 million (based on the exchange rate as of March 31, 2016), including estimated accumulated interest and penalties. No amounts have been accrued for these assessments as of March 31, 2016, because Cerro Verde believes its 1998 stability agreement exempts it from these royalties and believes any payments will be recoverable.


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Table of Contents                 


Other Peruvian Tax Matters. There were no significant changes to other Peruvian tax matters during first-quarter 2016 (refer to Note 12 of FCX’s annual report on Form 10-K for the year ended December 31, 2015, for further discussion of these matters).

Indonesia Tax Matters. The following information includes a discussion of updates to previously reported Indonesia tax matters included in Note 12 of FCX’s annual report on Form 10-K for the year ended December 31, 2015.

In December 2009, PT-FI was notified by Indonesian tax authorities that it was obligated to pay value-added taxes on certain goods imported after the year 2000. In December 2014, PT-FI paid $269 million for valued-added taxes for the period from November 2005 through the year 2009 and sought a refund. In March 2016, PT-FI collected a cash refund of $196 million and $38 million was offset against other tax liabilities. The remaining balance of the amount originally paid was reduced by currency exchange and other losses.

PT-FI received assessments from the local regional tax authority in Papua, Indonesia, for additional taxes and penalties related to surface water taxes for the period from January 2011 through January 2016. PT-FI has filed or will file objections to these assessments. The local government of Papua rejected PT-FI’s objections to the assessments related to the period from January 2011 through December 2015, and PT-FI has filed or will file appeals with the Indonesian tax court. The aggregate amount of all assessments received through April 29, 2016, including penalties, was 2.7 trillion Indonesian rupiah ($207 million based on the exchange rate as of March 31, 2016). Additional penalties, which could be significant, may be assessed depending on the outcome of the appeals process. No amounts have been accrued for these assessments as of March 31, 2016, because PT-FI believes its Contract of Work (COW) exempts it from these payments and that it has the right to contest these assessments in the tax court and ultimately the Indonesian Supreme Court.

Indonesia Mining Contract. There were no significant updates related to PT-FI's COW during first-quarter 2016 (refer to Note 13 of FCX’s annual report on Form 10-K for the year ended December 31, 2015, for further discussion).

NOTE 9. BUSINESS SEGMENTS
FCX has organized its mining operations into five primary divisions – North America copper mines, South America mining, Indonesia mining, Africa mining and Molybdenum mines, and operating segments that meet certain thresholds are reportable segments. For oil and gas operations, FCX determines its operating segments on a country-by-country basis. Separately disclosed in the following table are FCX's reportable segments, which include the Morenci, Cerro Verde, Grasberg and Tenke Fungurume copper mines, the Rod & Refining operations and the U.S. Oil & Gas operations.

Intersegment sales between FCX’s mining operations are based on similar arms-length transactions with third parties at the time of the sale. Intersegment sales may not be reflective of the actual prices ultimately realized because of a variety of factors, including additional processing, timing of sales to unaffiliated customers and transportation premiums.

FCX defers recognizing profits on sales from its mines to other divisions, including Atlantic Copper (FCX's wholly owned smelter and refinery in Spain) and on 25 percent of PT-FI's sales to PT Smelting (PT-FI's 25 percent-owned smelter and refinery in Indonesia), until final sales to third parties occur. Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices result in variability in FCX's net deferred profits and quarterly earnings.
FCX allocates certain operating costs, expenses and capital expenditures to its operating divisions and individual segments. However, not all costs and expenses applicable to an operation are allocated. U.S. federal and state income taxes are recorded and managed at the corporate level (included in corporate, other & eliminations), whereas foreign income taxes are recorded and managed at the applicable country level. In addition, most mining exploration and research activities are managed on a consolidated basis, and those costs along with some selling, general and administrative costs are not allocated to the operating divisions or individual segments. Accordingly, the following segment information reflects management determinations that may not be indicative of what the actual financial performance of each operating division or segment would be if it was an independent entity.


18
Table of Contents                 


Financial Information by Business Segments
(In millions)
Mining Operations
 
 
 
 
 
 
 
North America Copper Mines
 
South America
 
Indonesia
 
Africa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic
 
Other
 
 
 
 
 
Corporate,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Molyb-
 
 
 
Copper
 
Mining
 
 
 
U.S.
 
Other
 
 
 
 
 
 
 
 
 
Cerro
 
 
 
 
 
 
 
 
 
denum
 
Rod &
 
Smelting
 
& Elimi-
 
Total
 
Oil & Gas
 
& Elimi-
 
FCX
 
Morenci
 
Other
 
Total
 
Verde
 
Other
 
Total
 
Grasberg
 
Tenke
 
Mines
 
Refining
 
& Refining
 
nations
 
Mining
 
Operations
 
nations
 
Total
Three Months Ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
162

 
$
56

 
$
218

 
$
486

 
$
144

 
$
630

 
$
498

a 
$
286

 
$
—

 
$
971

 
$
422

 
$
207

b 
$
3,232

 
$
295


$
—

 
$
3,527

Intersegment
357

 
561

 
918

 
41

 
—

 
41

 
58

 
31

 
45

 
8

 
1

 
(1,102
)
 
—

 
—

 
—

 
—

Production and delivery
340

 
448

 
788

 
291

 
119

 
410

 
394

 
226

 
52

 
970

 
393

 
(918
)
 
2,315

 
407

c 
3

 
2,725

Depreciation, depletion and amortization
62

 
82

 
144

 
101

 
31

 
132

 
81

 
60

 
19

 
2

 
8

 
18

 
464

 
255

 
3

 
722

Impairment of oil and gas properties
—

 
—

 
—

 
—

 
—

 
—

 
—
</