FREEPORT-MCMORAN INC - Quarter Report: 2017 September (Form 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 September 30, 2017 | ||
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ | Accelerated filer ¨ | ||
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company ¨ | ||
Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 October 31, 2017, there were issued and outstanding 1,447,590,668 shares of the registrant’s common stock, par value $0.10 per share.
FREEPORT-McMoRan INC.
TABLE OF CONTENTS
Page | |
2
Part I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements. |
FREEPORT-McMoRan INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, 2017 | December 31, 2016 | ||||||
(In millions) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 4,957 | $ | 4,245 | |||
Trade accounts receivable | 1,024 | 1,126 | |||||
Income and other tax receivables | 522 | 879 | |||||
Inventories: | |||||||
Materials and supplies, net | 1,276 | 1,306 | |||||
Mill and leach stockpiles | 1,393 | 1,338 | |||||
Product | 1,188 | 998 | |||||
Other current assets | 241 | 199 | |||||
Assets held for sale | 549 | 344 | |||||
Total current assets | 11,150 | 10,435 | |||||
Property, plant, equipment and mine development costs, net | 22,914 | 23,219 | |||||
Oil and gas properties, subject to amortization, less accumulated amortization and impairments | 20 | 74 | |||||
Long-term mill and leach stockpiles | 1,453 | 1,633 | |||||
Other assets | 1,790 | 1,956 | |||||
Total assets | $ | 37,327 | $ | 37,317 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued liabilities | $ | 2,098 | $ | 2,393 | |||
Current portion of debt | 2,215 | 1,232 | |||||
Accrued income taxes | 464 | 66 | |||||
Current portion of environmental and asset retirement obligations | 419 | 369 | |||||
Liabilities held for sale | 321 | 205 | |||||
Total current liabilities | 5,517 | 4,265 | |||||
Long-term debt, less current portion | 12,567 | 14,795 | |||||
Deferred income taxes | 3,771 | 3,768 | |||||
Environmental and asset retirement obligations, less current portion | 3,498 | 3,487 | |||||
Other liabilities | 1,744 | 1,745 | |||||
Total liabilities | 27,097 | 28,060 | |||||
Equity: | |||||||
Stockholders’ equity: | |||||||
Common stock | 158 | 157 | |||||
Capital in excess of par value | 26,743 | 26,690 | |||||
Accumulated deficit | (15,763 | ) | (16,540 | ) | |||
Accumulated other comprehensive loss | (443 | ) | (548 | ) | |||
Common stock held in treasury | (3,722 | ) | (3,708 | ) | |||
Total stockholders’ equity | 6,973 | 6,051 | |||||
Noncontrolling interests | 3,257 | 3,206 | |||||
Total equity | 10,230 | 9,257 | |||||
Total liabilities and equity | $ | 37,327 | $ | 37,317 |
The accompanying notes are an integral part of these consolidated financial statements.
3
FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(In millions, except per share amounts) | |||||||||||||||
Revenues | $ | 4,310 | $ | 3,877 | $ | 11,362 | $ | 10,453 | |||||||
Cost of sales: | |||||||||||||||
Production and delivery | 2,802 | 2,529 | 7,497 | 7,984 | |||||||||||
Depreciation, depletion and amortization | 418 | 643 | 1,257 | 1,937 | |||||||||||
Impairment of oil and gas properties | — | 239 | — | 4,317 | |||||||||||
Total cost of sales | 3,220 | 3,411 | 8,754 | 14,238 | |||||||||||
Selling, general and administrative expenses | 106 | 110 | 366 | 408 | |||||||||||
Mining exploration and research expenses | 27 | 13 | 61 | 46 | |||||||||||
Environmental obligations and shutdown costs (credits) | 73 | (3 | ) | 81 | 18 | ||||||||||
Net gain on sales of assets | (33 | ) | (13 | ) | (66 | ) | (762 | ) | |||||||
Total costs and expenses | 3,393 | 3,518 | 9,196 | 13,948 | |||||||||||
Operating income (loss) | 917 | 359 | 2,166 | (3,495 | ) | ||||||||||
Interest expense, net | (304 | ) | (187 | ) | (633 | ) | (574 | ) | |||||||
Net gain on exchanges and early extinguishment of debt | 11 | 15 | 8 | 51 | |||||||||||
Other income (expense), net | 2 | (10 | ) | 36 | 54 | ||||||||||
Income (loss) from continuing operations before income taxes and equity in affiliated companies’ net earnings | 626 | 177 | 1,577 | (3,964 | ) | ||||||||||
(Provision for) benefit from income taxes | (387 | ) | 114 | (747 | ) | (79 | ) | ||||||||
Equity in affiliated companies’ net earnings | 3 | 1 | 6 | 9 | |||||||||||
Net income (loss) from continuing operations | 242 | 292 | 836 | (4,034 | ) | ||||||||||
Net income (loss) from discontinued operations | 3 | (6 | ) | 50 | (191 | ) | |||||||||
Net income (loss) | 245 | 286 | 886 | (4,225 | ) | ||||||||||
Net loss (income) attributable to noncontrolling interests: | |||||||||||||||
Continuing operations | 35 | (37 | ) | (106 | ) | (146 | ) | ||||||||
Discontinued operations | — | (22 | ) | (4 | ) | (44 | ) | ||||||||
Preferred dividends attributable to redeemable noncontrolling interest | — | (10 | ) | — | (31 | ) | |||||||||
Net income (loss) attributable to common stockholders | $ | 280 | $ | 217 | $ | 776 | $ | (4,446 | ) | ||||||
Basic and diluted net income (loss) per share attributable to common stockholders: | |||||||||||||||
Continuing operations | $ | 0.19 | $ | 0.18 | $ | 0.50 | $ | (3.27 | ) | ||||||
Discontinued operations | — | (0.02 | ) | 0.03 | (0.18 | ) | |||||||||
$ | 0.19 | $ | 0.16 | $ | 0.53 | $ | (3.45 | ) | |||||||
Weighted-average common shares outstanding: | |||||||||||||||
Basic | 1,448 | 1,346 | 1,447 | 1,289 | |||||||||||
Diluted | 1,454 | 1,351 | 1,453 | 1,289 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(In millions) | ||||||||||||||||
Net income (loss) | $ | 245 | $ | 286 | $ | 886 | $ | (4,225 | ) | |||||||
Other comprehensive income, net of taxes: | ||||||||||||||||
Unrealized gains on securities | — | 2 | 2 | 3 | ||||||||||||
Defined benefit plans: | ||||||||||||||||
Actuarial gains arising during the period, net of taxes of $48 million for the nine months ended September 30, 2017 | — | — | 69 | — | ||||||||||||
Amortization or curtailment of unrecognized amounts included in net periodic benefit costs | 12 | 11 | 42 | 34 | ||||||||||||
Foreign exchange gains (losses) | 1 | (1 | ) | — | (11 | ) | ||||||||||
Other comprehensive income | 13 | 12 | 113 | 26 | ||||||||||||
Total comprehensive income (loss) | 258 | 298 | 999 | (4,199 | ) | |||||||||||
Total comprehensive loss (income) attributable to noncontrolling interests | 35 | (59 | ) | (118 | ) | (189 | ) | |||||||||
Preferred dividends attributable to redeemable noncontrolling interest | — | (10 | ) | — | (31 | ) | ||||||||||
Total comprehensive income (loss) attributable to common stockholders | $ | 293 | $ | 229 | $ | 881 | $ | (4,419 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
5
FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
(In millions) | ||||||||
Cash flow from operating activities: | ||||||||
Net income (loss) | $ | 886 | $ | (4,225 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation, depletion and amortization | 1,257 | 2,017 | ||||||
Net charges for Cerro Verde royalty dispute | 359 | — | ||||||
Payments for Cerro Verde royalty dispute | (32 | ) | (20 | ) | ||||
Impairment of oil and gas properties | — | 4,317 | ||||||
Oil and gas non-cash drillship settlements/idle rig costs and other adjustments | (33 | ) | 705 | |||||
Net gain on sales of assets | (66 | ) | (762 | ) | ||||
Net charges for environmental and asset retirement obligations, including accretion | 196 | 149 | ||||||
Payments for environmental and asset retirement obligations | (85 | ) | (190 | ) | ||||
Net charges for defined pension and postretirement plans | 95 | 78 | ||||||
Pension plan contributions | (152 | ) | (44 | ) | ||||
Net gain on exchanges and early extinguishment of debt | (8 | ) | (51 | ) | ||||
Deferred income taxes | 77 | (22 | ) | |||||
(Gain) loss on disposal of discontinued operations | (41 | ) | 182 | |||||
Decrease (increase) in long-term mill and leach stockpiles | 181 | (84 | ) | |||||
Oil and gas contract settlement payments | (70 | ) | — | |||||
Other, net | 59 | 61 | ||||||
Changes in working capital and other tax payments, excluding amounts from dispositions: | ||||||||
Accounts receivable | 420 | 257 | ||||||
Inventories | (314 | ) | 251 | |||||
Other current assets | (17 | ) | (120 | ) | ||||
Accounts payable and accrued liabilities | (93 | ) | (80 | ) | ||||
Accrued income taxes and changes in other tax payments | 399 | 175 | ||||||
Net cash provided by operating activities | 3,018 | 2,594 | ||||||
Cash flow from investing activities: | ||||||||
Capital expenditures: | ||||||||
North America copper mines | (106 | ) | (87 | ) | ||||
South America | (65 | ) | (332 | ) | ||||
Indonesia | (663 | ) | (706 | ) | ||||
Molybdenum mines | (4 | ) | (2 | ) | ||||
Other, including oil and gas operations | (182 | ) | (1,182 | ) | ||||
Net proceeds from the sale of additional interest in Morenci | — | 996 | ||||||
Net proceeds from sales of other assets | 68 | 410 | ||||||
Other, net | (22 | ) | 9 | |||||
Net cash used in investing activities | (974 | ) | (894 | ) | ||||
Cash flow from financing activities: | ||||||||
Proceeds from debt | 795 | 3,463 | ||||||
Repayments of debt | (1,991 | ) | (4,539 | ) | ||||
Net proceeds from sale of common stock | — | 442 | ||||||
Cash dividends paid: | ||||||||
Common stock | (2 | ) | (5 | ) | ||||
Noncontrolling interests | (67 | ) | (87 | ) | ||||
Stock-based awards net payments | (10 | ) | (5 | ) | ||||
Debt financing costs and other, net | (12 | ) | (17 | ) | ||||
Net cash used in financing activities | (1,287 | ) | (748 | ) | ||||
Net increase in cash and cash equivalents | 757 | 952 | ||||||
Increase in cash and cash equivalents in assets held for sale | (45 | ) | (43 | ) | ||||
Cash and cash equivalents at beginning of year | 4,245 | 177 | ||||||
Cash and cash equivalents at end of period | $ | 4,957 | $ | 1,086 |
The accompanying notes are an integral part of these consolidated financial statements.
6
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, 2016 | 1,574 | $ | 157 | $ | 26,690 | $ | (16,540 | ) | $ | (548 | ) | 129 | $ | (3,708 | ) | $ | 6,051 | $ | 3,206 | $ | 9,257 | ||||||||||||||||
Exercised and issued stock-based awards | 4 | 1 | 4 | — | — | — | — | 5 | — | 5 | |||||||||||||||||||||||||||
Stock-based compensation | — | — | 49 | — | — | — | — | 49 | — | 49 | |||||||||||||||||||||||||||
Tender of shares for stock-based awards | — | — | — | — | — | 1 | (14 | ) | (14 | ) | — | (14 | ) | ||||||||||||||||||||||||
Dividends | — | — | — | 1 | — | — | — | 1 | (67 | ) | (66 | ) | |||||||||||||||||||||||||
Net income attributable to common stockholders | — | — | — | 776 | — | — | — | 776 | — | 776 | |||||||||||||||||||||||||||
Net income attributable to noncontrolling interests, including discontinued operations | — | — | — | — | — | — | — | — | 110 | 110 | |||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 105 | — | — | 105 | 8 | 113 | |||||||||||||||||||||||||||
Balance at September 30, 2017 | 1,578 | $ | 158 | $ | 26,743 | $ | (15,763 | ) | $ | (443 | ) | 130 | $ | (3,722 | ) | $ | 6,973 | $ | 3,257 | $ | 10,230 |
The accompanying notes are an integral part of these consolidated financial statements.
7
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, 2016. 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 accounting for discontinued operations, assets held for sale, the remeasurement of a pension plan and charges related to a continuing royalty dispute with respect to historical periods at FCX’s mine in Peru, all such adjustments are, in the opinion of management, of a normal recurring nature. As a result of FCX’s sale of its interest in TF Holdings Limited (TFHL), FCX has reported TFHL as discontinued operations for all periods presented in the unaudited consolidated financial statements (refer to Note 2). Operating results for the nine-month period ended September 30, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
Indonesia Mining. As a result of the first-quarter 2017 regulatory restrictions and uncertainties regarding long-term investment stability, PT Freeport Indonesia (PT-FI) took actions to adjust its cost structure, reduce its workforce and slow investments in its underground development projects and new smelter. These actions included workforce reductions through furlough and voluntary retirement programs. Following the furlough and voluntary retirement programs, a significant number of employees and contractors elected to participate in an illegal strike action beginning in May 2017, and were subsequently deemed to have voluntarily resigned under existing laws and regulations. As a result, PT-FI recorded charges to operating income for employee severance and related costs totaling $9 million for third-quarter 2017 and $113 million for the first nine months of 2017.
Additionally, because of the significant reduction in workforce, PT-FI was required to remeasure its pension assets and pension benefit obligation as of June 30, 2017. The discount rate and rate of compensation increase used for the June 30, 2017, remeasurement were 7.50 percent and 4.00 percent, respectively, compared to the December 31, 2016, discount rate of 8.25 percent and the rate of compensation increase of 8.00 percent. The expected long-term rate of return on the plan assets was unchanged (7.75 percent). The remeasurement and curtailment resulted in the projected benefit obligation declining by $145 million and plan assets declining by $21 million. In addition, PT-FI recognized a curtailment loss of $4 million in second-quarter 2017 and for the first nine months of 2017. As of September 30, 2017, the funded status of PT-FI’s pension plan was a net asset of $36 million (included in other assets in the consolidated balance sheet), compared with a net liability of $90 million (included in other liabilities in the consolidated balance sheet) as of December 31, 2016.
Oil and Gas Properties. During 2016, FCX Oil & Gas LLC (FM O&G, a wholly owned subsidiary of FCX) determined the carrying values of certain of its unevaluated properties were impaired. During the first nine months of 2016, FM O&G transferred $3.2 billion of costs (including $3.1 billion in first-quarter 2016) associated with unevaluated properties to the full cost pool, mostly reflecting impairment of the carrying values of unevaluated properties. The transfer of unevaluated properties to the full cost pool, along with the impact of the reduction in twelve-month historical prices and reserve revisions in 2016 caused net capitalized costs to exceed the related ceiling test limitation under full cost accounting rules. As a result, FM O&G recognized impairment charges of $239 million in third-quarter 2016 and $4.3 billion for the first nine months of 2016. Refer to Note 1 of FCX’s annual report on Form 10-K for the year ended December 31, 2016, for further discussion.
8
NOTE 2. DISPOSITIONS
TF Holdings Limited - Discontinued Operations. FCX had a 70 percent interest in TFHL, which owns 80 percent of Tenke Fungurume Mining S.A. (TFM or Tenke) located in the Democratic Republic of Congo (DRC). On November 16, 2016, FCX completed the sale of its interest in 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. The contingent consideration is considered a derivative, and at September 30, 2017, the related fair value of $58 million was recorded in other assets on the consolidated balance sheets. During the first nine months of 2017, the fair value of the contingent consideration derivative increased by $45 million ($3 million in third-quarter 2017), primarily resulting from higher cobalt prices, and was recorded in net income (loss) from discontinued operations.
In accordance with accounting guidance, FCX has reported the results of operations of TFHL as discontinued operations in the consolidated statements of operations. The consolidated statements of cash flows are reported on a combined basis without separately presenting discontinued operations.
Net income (loss) from discontinued operations in the consolidated statements of operations consists of the following (in millions):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | $ | — | $ | 261 | a | $ | 13 | a | $ | 819 | a | |||||
Costs and expenses: | ||||||||||||||||
Production and delivery costs | — | 248 | — | 730 | ||||||||||||
Depreciation, depletion and amortization | — | — | — | 80 | ||||||||||||
Interest expense allocated from parent | — | 12 | b | — | 33 | b | ||||||||||
Other costs and expenses, net | — | 4 | — | 10 | ||||||||||||
Income (loss) before income taxes and net gain (loss) on disposal | — | (3 | ) | 13 | (34 | ) | ||||||||||
Net gain (loss) on disposal | 3 | c | (5 | ) | d | 41 | c | (182 | ) | d | ||||||
Net income (loss) before income taxes | 3 | (8 | ) | 54 | (216 | ) | ||||||||||
Benefit from (provision for) income taxes | — | 2 | (4 | ) | 25 | |||||||||||
Net income (loss) from discontinued operations | $ | 3 | $ | (6 | ) | $ | 50 | $ | (191 | ) |
a. | In accordance with accounting guidance, amounts are net of (eliminations) recognition of intercompany sales totaling $(53) million in third-quarter 2016, $13 million for the first nine months of 2017 and $(125) million for the first nine months of 2016. |
b. | In accordance with accounting guidance, interest associated with FCX’s term loan that was required to be repaid as a result of the sale of TFHL has been allocated to discontinued operations. |
c. | Includes a gain of $3 million in third-quarter 2017 and $45 million for the first nine months of 2017 associated with the change in the fair value of contingent consideration. |
d. | In accordance with accounting guidance, an estimated loss on disposal was recorded and adjusted through closing of the transaction in November 2016. |
Cash flows from discontinued operations included in the consolidated statements of cash flows for the nine months ended September 30, 2016, follow (in millions):
Net cash provided by operating activities | $ | 213 | ||
Net cash used in investing activities | (71 | ) | ||
Net cash used in financing activities | (103 | ) | ||
Increase in cash and cash equivalents in assets held for sale | $ | 39 |
9
Oil and Gas Operations. On July 31, 2017, FM O&G sold certain property interests in the Gulf of Mexico Shelf for cash consideration of $62 million, before closing adjustments, with an effective date of April 1, 2017. On March 17, 2017, FM O&G sold property interests in the Madden area in central Wyoming for cash consideration of $17.5 million, before closing adjustments. Under the full cost accounting rules, the sales resulted in the recognition of gains of $33 million in third-quarter 2017 and $49 million for the first nine months of 2017 because the reserves associated with these properties were significant to the full cost pool.
On June 17, 2016, FM O&G sold certain oil and gas royalty interests for cash consideration of $102 million, before closing adjustments. In addition, on July 25, 2016, FM O&G sold its Haynesville shale assets for cash consideration of $87 million, before closing adjustments. Under the full cost accounting rules, the proceeds from these transactions were recorded as a reduction to capitalized oil and gas properties, with no gain or loss recognition for the first nine months of 2016 because the reserves were not significant to the full cost pool.
Morenci. On May 31, 2016, FCX sold a 13 percent undivided interest in its Morenci unincorporated joint venture to SMM Morenci, Inc. for $1.0 billion in cash. FCX recorded a $576 million gain for the first nine months of 2016 and used losses to offset cash taxes on the transaction. A portion of the proceeds from the transaction was used to repay borrowings under FCX's unsecured bank term loan and revolving credit facility. As a result of the transaction, the unincorporated joint venture is owned 72 percent by FCX, 15 percent by Sumitomo Metal Mining Arizona, Inc. and 13 percent by SMM Morenci, Inc.
Timok. On May 2, 2016, Freeport Minerals Corporation (FMC), a wholly owned subsidiary of FCX, sold an interest in the Timok exploration project in Serbia to Global Reservoir Minerals Inc. (now known as Nevsun Resources, Ltd.) for consideration of $135 million in cash and contingent consideration of up to $107 million payable to FCX in stages upon achievement of defined development milestones. As a result of this transaction, FCX recorded a gain of $133 million for the first nine months of 2016, and no amounts were recorded for contingent consideration under the loss recovery approach.
Assets Held for Sale. 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 cobalt exploration project, located near Tenke, in which FCX holds a 100 percent interest. As a result of the sale of TFHL, FCX expects to sell its interest in Freeport Cobalt and Kisanfu, and the assets and liabilities of Freeport Cobalt and Kisanfu are classified as held for sale in the consolidated balance sheets. During the first nine months of 2017, a favorable adjustment of $13 million was recorded in net gain on sales of assets in the consolidated statements of operations associated with the estimated fair value less costs to sell for the Kisanfu exploration project. The adjustment was limited to the reduction in the carrying value when the Kisanfu exploration project was initially classified as held for sale in November 2016.
NOTE 3. EARNINGS PER SHARE
FCX calculates its basic net income (loss) per share of common stock under the two-class method and calculates its diluted net income (loss) per share of common stock using the more dilutive of the two-class method or the treasury-stock method. Basic net income (loss) per share of common stock was computed by dividing net income (loss) attributable to common stockholders (after deducting accumulated dividends and undistributed earnings to participating securities) by the weighted-average shares of common stock outstanding during the period. Diluted net income (loss) per share of common stock was calculated by including the basic weighted-average shares of common stock outstanding adjusted for the effects of all potential dilutive shares of common stock, unless their effect would be anti-dilutive.
10
Reconciliations of net income (loss) and weighted-average shares of common stock outstanding for purposes of calculating basic and diluted net income (loss) per share follow (in millions, except per share amounts):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income (loss) from continuing operations | $ | 242 | $ | 292 | $ | 836 | $ | (4,034 | ) | |||||||
Net loss (income) from continuing operations attributable to noncontrolling interests | 35 | (37 | ) | (106 | ) | (146 | ) | |||||||||
Preferred dividends on redeemable noncontrolling interest | — | (10 | ) | — | (31 | ) | ||||||||||
Undistributed earnings allocated to participating securities | (3 | ) | (3 | ) | (3 | ) | (3 | ) | ||||||||
Net income (loss) from continuing operations attributable to common stockholders | $ | 274 | $ | 242 | $ | 727 | $ | (4,214 | ) | |||||||
Net income (loss) from discontinued operations | $ | 3 | $ | (6 | ) | $ | 50 | $ | (191 | ) | ||||||
Net income from discontinued operations attributable to noncontrolling interests | — | (22 | ) | (4 | ) | (44 | ) | |||||||||
Net income (loss) from discontinued operations attributable to common stockholders | $ | 3 | $ | (28 | ) | $ | 46 | $ | (235 | ) | ||||||
Net income (loss) attributable to common stockholders | $ | 277 | $ | 214 | $ | 773 | $ | (4,449 | ) | |||||||
Basic weighted-average shares of common stock outstanding | 1,448 | 1,346 | 1,447 | 1,289 | ||||||||||||
Add shares issuable upon exercise or vesting of dilutive stock options and restricted stock units | 6 | 5 | 6 | — | a | |||||||||||
Diluted weighted-average shares of common stock outstanding | 1,454 | 1,351 | 1,453 | 1,289 | ||||||||||||
Basic and diluted net income (loss) per share attributable to common stockholders: | ||||||||||||||||
Continuing operations | $ | 0.19 | $ | 0.18 | $ | 0.50 | $ | (3.27 | ) | |||||||
Discontinued operations | — | (0.02 | ) | 0.03 | (0.18 | ) | ||||||||||
$ | 0.19 | $ | 0.16 | $ | 0.53 | $ | (3.45 | ) | ||||||||
a. | Excludes 12 million shares of common stock for the first nine months of 2016 associated with outstanding stock options with exercise prices less than the average market price of FCX’s common stock and restricted stock units that were anti-dilutive. |
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 (loss) per share of common stock. Stock options for 38 million shares of common stock were excluded for third-quarter 2017, 46 million for third-quarter 2016, 42 million for the first nine months of 2017 and 46 million for the first nine months of 2016.
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NOTE 4. INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES
The components of inventories follow (in millions):
September 30, 2017 | December 31, 2016 | |||||||
Current inventories: | ||||||||
Total materials and supplies, neta | $ | 1,276 | $ | 1,306 | ||||
Mill stockpiles | $ | 336 | $ | 259 | ||||
Leach stockpiles | 1,057 | 1,079 | ||||||
Total current mill and leach stockpiles | $ | 1,393 | $ | 1,338 | ||||
Raw materials (primarily concentrate) | $ | 285 | $ | 255 | ||||
Work-in-process | 154 | 114 | ||||||
Finished goods | 749 | 629 | ||||||
Total product inventories | $ | 1,188 | $ | 998 | ||||
Long-term inventories: | ||||||||
Mill stockpiles | $ | 346 | $ | 487 | ||||
Leach stockpiles | 1,107 | 1,146 | ||||||
Total long-term mill and leach stockpilesb | $ | 1,453 | $ | 1,633 |
a. | Materials and supplies inventory was net of obsolescence reserves totaling $31 million at September 30, 2017, and $29 million at December 31, 2016. |
b. | Estimated metals in stockpiles not expected to be recovered within the next 12 months. |
NOTE 5. 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 47 percent for the first nine months of 2017 and (2) percent for first nine months of 2016. Geographic sources of FCX’s (provision for) benefit from income taxes follow (in millions):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
U.S. operationsa | $ | 2 | $ | 331 | $ | 24 | $ | 293 | ||||||||
International operations | (389 | ) | b | (217 | ) | (771 | ) | b | (372 | ) | ||||||
Total | $ | (387 | ) | $ | 114 | $ | (747 | ) | $ | (79 | ) |
a. | Includes net tax (charges) credits of $(10) million for third-quarter 2017 and $21 million for the first nine months of 2017 associated with alternative minimum tax credit carryforwards. The third quarter and first nine months of 2016 include net tax credits of $332 million and $290 million, respectively, associated with alternative minimum tax credits, changes to valuation allowances and net operating loss carryback claims. |
b. | Includes net charges of $2 million associated with the Cerro Verde mining royalties dispute, consisting of tax charges of $127 million for disputed royalties and other related mining taxes for the period October 2011 through the year 2013 (when royalties were determined based on operating income), mostly offset by a tax benefit of $125 million associated with disputed royalties and other related mining taxes for the period December 2006 through the year 2013. |
As a result of the unfavorable Peruvian Supreme Court ruling on the Cerro Verde royalty dispute, FCX recorded pre-tax charges of $357 million to income from continuing operations and $2 million of net tax expense for the first nine months of 2017. FCX’s consolidated effective income tax rate was 39 percent for the first nine months of 2017 excluding these charges.
As a result of the impairment to U.S. oil and gas properties, FCX recorded tax charges of $1.6 billion for the first nine months of 2016 to establish a valuation allowance primarily against U.S. federal and state deferred tax assets that will not generate a future benefit. FCX’s consolidated effective income tax rate was 32 percent for the first nine months of 2016 excluding these tax charges.
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NOTE 6. DEBT
The components of debt follow (in millions):
September 30, 2017 | December 31, 2016 | |||||||
Senior notes and debentures: | ||||||||
Issued by FCX | $ | 12,811 | $ | 13,745 | ||||
Issued by FMC | 358 | 359 | ||||||
Issued by Freeport-McMoRan Oil & Gas LLC (FM O&G LLC) | 122 | 267 | ||||||
Cerro Verde credit facility | 1,486 | 1,390 | ||||||
Cerro Verde shareholder loans | — | 261 | ||||||
Other | 5 | 5 | ||||||
Total debta | 14,782 | 16,027 | ||||||
Less current portion of debt | (2,215 | ) | (1,232 | ) | ||||
Long-term debt | $ | 12,567 | $ | 14,795 |
a. | Includes additions for unamortized fair value adjustments totaling $131 million at September 30, 2017 ($179 million at December 31, 2016), and is net of reductions for unamortized net discounts and unamortized debt issuance costs totaling $92 million at September 30, 2017 ($100 million at December 31, 2016). |
Revolving Credit Facility. At September 30, 2017, there were no borrowings outstanding and $36 million in letters of credit issued under FCX’s revolving credit facility, resulting in availability of approximately $3.5 billion, of which approximately $1.5 billion could be used for additional letters of credit.
Senior Notes Issued by FCX. In March 2017, FCX’s 2.15% Senior Notes matured, and the $500 million outstanding principal balance was repaid.
Cerro Verde Credit Facility and Shareholder Loans. In June 2017, Cerro Verde’s credit facility was amended to increase the commitment by $225 million to $1.5 billion, modify the amortization schedule and to extend the maturity date to June 19, 2022. The amended credit facility amortizes in four installments, with $225 million due on December 31, 2020, $225 million due on June 30, 2021, $525 million due on December 31, 2021, and the remaining balance due on the maturity date of June 19, 2022. All other terms, including the interest rates, remain the same. The interest rate on Cerro Verde's credit facility was 3.14 percent at September 30, 2017. Cerro Verde used proceeds from its amended credit facility plus available cash to repay the balance of its shareholder loans in June 2017. Refer to Note 8 of FCX’s annual report on Form 10-K for the year ended December 31, 2016, for further discussion.
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Exchanges and Early Extinguishment of Debt. During third-quarter 2017, FCX redeemed in full certain senior notes. A summary of these early debt extinguishments follows (in millions):
Principal Amount | Net Adjustments | Book Value | Redemption Value | Gain | |||||||||||||||
FCX 6.125% Senior Notes due 2019 | $ | 179 | $ | 5 | $ | 184 | $ | 182 | $ | 2 | |||||||||
FM O&G 6.125% Senior Notes due 2019 | 58 | 2 | 60 | 59 | 1 | ||||||||||||||
FCX 6.625% Senior Notes due 2021 | 228 | 12 | 240 | 234 | 6 | ||||||||||||||
FM O&G 6.625% Senior Notes due 2021 | 33 | 2 | 35 | 34 | 1 | ||||||||||||||
FM O&G 6.75% Senior Notes due 2022 | 45 | 2 | 47 | 46 | 1 | ||||||||||||||
$ | 543 | $ | 23 | $ | 566 | $ | 555 | $ | 11 |
Partially offsetting the $11 million gain on early extinguishment of certain senior notes was a net loss of $3 million, primarily associated with the modification of Cerro Verde’s credit facility in second-quarter 2017.
During the second and third quarters of 2016, FCX redeemed certain senior notes in exchange for its common stock, which resulted in gains of $15 million in third-quarter 2016 and $54 million for the first nine months of 2016. Partially offsetting the gains were $3 million in losses, primarily associated with the modification of FCX’s revolving credit facility in first-quarter 2016. Refer to Notes 8 and 10 of FCX’s annual report on Form 10-K for the year ended December 31, 2016, for further discussion.
Interest Expense, Net. Consolidated interest costs from continuing operations (before capitalization and excluding $141 million of interest expense associated with disputed Cerro Verde royalties recorded in third-quarter 2017) totaled $196 million in third-quarter 2017, $211 million in third-quarter 2016, $583 million for the first nine months of 2017 and $647 million for the first nine months of 2016. Capitalized interest added to property, plant, equipment and mine development costs, net, totaled $33 million in third-quarter 2017, $24 million in third-quarter 2016, $91 million for the first nine months of 2017 and $66 million for the first nine months of 2016. Capitalized interest added to oil and gas properties not subject to amortization totaled $7 million for the first nine months of 2016 (none in third-quarter 2016 or 2017).
NOTE 7. 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.
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 September 30, 2017, and December 31, 2016, FCX had no price protection contracts relating to its mine production. 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) 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 resulting from hedge ineffectiveness during the nine-month periods ended September 30, 2017 and 2016. At September 30, 2017, FCX held copper futures and swap contracts that qualified for hedge accounting for 46 million pounds at an average contract price of $2.83 per pound, with maturities through June 2019.
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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 | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Copper futures and swap contracts: | |||||||||||||||
Unrealized gains (losses): | |||||||||||||||
Derivative financial instruments | $ | — | $ | 1 | $ | (1 | ) | $ | 11 | ||||||
Hedged item – firm sales commitments | — | (1 | ) | 1 | (11 | ) | |||||||||
Realized gains (losses): | |||||||||||||||
Matured derivative financial instruments | 12 | — | 21 | (8 | ) |
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, 2016, 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 related to continuing operations 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. Mark-to-market price fluctuations associated with embedded derivatives for discontinued operations, which were minimal, are included in discontinued operations for all periods presented in these financial statements.
A summary of FCX’s embedded derivatives at September 30, 2017, follows:
Open Positions | Average Price Per Unit | Maturities Through | ||||||||||
Contract | Market | |||||||||||
Embedded derivatives in provisional sales contracts: | ||||||||||||
Copper (millions of pounds) | 546 | $ | 2.84 | $ | 2.93 | February 2018 | ||||||
Gold (thousands of ounces) | 194 | 1,318 | 1,287 | December 2017 | ||||||||
Embedded derivatives in provisional purchase contracts: | ||||||||||||
Copper (millions of pounds) | 155 | 2.83 | 2.93 | January 2018 |
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 September 30, 2017, Atlantic Copper held net copper forward purchase contracts for 5 million pounds at an average contract price of $2.95 per pound, with maturities through October 2017.
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Summary of Gains (Losses). A summary of the realized and unrealized gains (losses) recognized in operating income (loss) for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, follows (in millions):
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Embedded derivatives in provisional copper and gold | |||||||||||||||
sales contractsa | $ | 137 | $ | 12 | $ | 297 | $ | 88 | |||||||
Copper forward contractsb | (9 | ) | (1 | ) | (14 | ) | 4 |
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):
September 30, 2017 | December 31, 2016 | |||||||
Commodity Derivative Assets: | ||||||||
Derivatives designated as hedging instruments: | ||||||||
Copper futures and swap contracts | $ | 7 | $ | 9 | ||||
Derivatives not designated as hedging instruments: | ||||||||
Embedded derivatives in provisional copper and gold | ||||||||
sales/purchase contracts | 74 | 137 | ||||||
Total derivative assets | $ | 81 | $ | 146 | ||||
Commodity Derivative Liabilities: | ||||||||
Derivatives designated as hedging instruments: | ||||||||
Copper futures and swap contracts | $ | 2 | $ | 2 | ||||
Derivatives not designated as hedging instruments: | ||||||||
Embedded derivatives in provisional copper and gold | ||||||||
sales/purchase contracts | 46 | 56 | ||||||
Total derivative liabilities | $ | 48 | $ | 58 |
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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 generally offset balances by counterparty on its balance sheet. FCX’s embedded derivatives on provisional sales/purchase contracts are netted with the corresponding outstanding receivable/payable balances. A summary of these unsettled commodity contracts that are offset in the balance sheets follows (in millions):
Assets | Liabilities | |||||||||||||||
September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | |||||||||||||
Gross amounts recognized: | ||||||||||||||||
Commodity contracts: | ||||||||||||||||
Embedded derivatives in provisional | ||||||||||||||||
sales/purchase contracts | $ | 74 | $ | 137 | $ | 46 | $ | 56 | ||||||||
Copper derivatives | 7 | 9 | 2 | 2 | ||||||||||||
81 | 146 | 48 | 58 | |||||||||||||
Less gross amounts of offset: | ||||||||||||||||
Commodity contracts: | ||||||||||||||||
Embedded derivatives in provisional | ||||||||||||||||
sales/purchase contracts | 1 | 12 | 1 | 12 | ||||||||||||
Copper derivatives | 2 | 2 | 2 | 2 | ||||||||||||
3 | 14 | 3 | 14 | |||||||||||||
Net amounts presented in balance sheet: | ||||||||||||||||
Commodity contracts: | ||||||||||||||||
Embedded derivatives in provisional | ||||||||||||||||
sales/purchase contracts | 73 | 125 | 45 | 44 | ||||||||||||
Copper derivatives | 5 | 7 | — | — | ||||||||||||
$ | 78 | $ | 132 | $ | 45 | $ | 44 | |||||||||
Balance sheet classification: | ||||||||||||||||
Trade accounts receivable | $ | 69 | $ | 119 | $ | 24 | $ | 13 | ||||||||
Other current assets | 5 | 7 | — | — | ||||||||||||
Accounts payable and accrued liabilities | 4 | 6 | 21 | 31 | ||||||||||||
$ | 78 | $ | 132 | $ | 45 | $ | 44 |
Credit Risk. FCX is exposed to credit loss when financial institutions with which it 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 September 30, 2017, the maximum amount of credit exposure associated with derivative transactions was $78 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 $1.9 billion at September 30, 2017, and $64 million at December 31, 2016), 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 8 for the fair values of investment securities, legally restricted funds and long-term debt).
In addition, as of September 30, 2017, FCX has contingent consideration assets related to certain 2016 asset sales (refer to Note 8 for the related fair value and to Note 2 of FCX’s annual report on Form 10-K for the year ended December 31, 2016, for further discussion of these instruments).
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NOTE 8. 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 third-quarter 2017.
FCX’s financial instruments are recorded on the consolidated balance sheets at fair value except for contingent consideration associated with the sale of the Deepwater Gulf of Mexico (GOM) oil and gas properties (which was recorded under the loss recovery approach) and debt. 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 7) follows (in millions):
At September 30, 2017 | |||||||||||||||||||||||
Carrying | Fair Value | ||||||||||||||||||||||
Amount | Total | NAV | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Assets | |||||||||||||||||||||||
Investment securities:a,b | |||||||||||||||||||||||
U.S. core fixed income fund | $ | 25 | $ | 25 | $ | 25 | $ | — | $ | — | $ | — | |||||||||||
Money market funds | 21 | 21 | — | 21 | — | — | |||||||||||||||||
Equity securities | 6 | 6 | — | 6 | — | — | |||||||||||||||||
Total | 52 | 52 | 25 | 27 | — | — | |||||||||||||||||
Legally restricted funds:a | |||||||||||||||||||||||
U.S. core fixed income fund | 55 | 55 | 55 | — | — | — | |||||||||||||||||
Government bonds and notes | 38 | 38 | — | — | 38 | — | |||||||||||||||||
Corporate bonds | 30 | 30 | — | — | 30 | — | |||||||||||||||||
Government mortgage-backed securities | 25 | 25 | — | — | 25 | — | |||||||||||||||||
Money market funds | 18 | 18 | — | 18 | — | — | |||||||||||||||||
Asset-backed securities | 14 | 14 | — | — | 14 | — | |||||||||||||||||
Collateralized mortgage-backed securities | 8 | 8 | — | — | 8 | — | |||||||||||||||||
Municipal bonds | 1 | 1 | — | — | 1 | — | |||||||||||||||||
Total | 189 | 189 | 55 | 18 | 116 | — | |||||||||||||||||
Derivatives: | |||||||||||||||||||||||
Embedded derivatives in provisional sales/ | |||||||||||||||||||||||
purchase contracts in a gross asset positionc | 74 | 74 | — | — | 74 | — | |||||||||||||||||
Copper futures and swap contractsc | 7 | 7 | — | 5 | 2 | — | |||||||||||||||||
Contingent consideration for the sales of TFHL | |||||||||||||||||||||||
and onshore California oil and gas propertiesa | 80 | 80 | — | — | 80 | — | |||||||||||||||||
Total | 161 | 161 | — | 5 | 156 | — | |||||||||||||||||
Contingent consideration for the sale of the | |||||||||||||||||||||||
Deepwater GOM oil and gas propertiesa | 150 | 138 | — | — | — | 138 | |||||||||||||||||
Total assets | $ | 540 | $ | 80 | $ | 50 | $ | 272 | $ | 138 | |||||||||||||
Liabilities | |||||||||||||||||||||||
Derivatives:c | |||||||||||||||||||||||
Embedded derivatives in provisional sales/ | |||||||||||||||||||||||
purchase contracts in a gross liability position | 46 | $ | 46 | $ | — | $ | — | $ | 46 | $ | — | ||||||||||||
Copper futures and swap contracts | 2 | 2 | — | 1 | 1 | — | |||||||||||||||||
Total | 48 | 48 | — | 1 | 47 | — | |||||||||||||||||
Long-term debt, including current portiond | 14,782 | 14,735 | — | — | 14,735 | — | |||||||||||||||||
Total liabilities | $ | 14,783 | $ | — | $ | 1 | $ | 14,782 | $ | — |
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At December 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 | $ | 23 | $ | 23 | $ | 23 | $ | — | $ | — | $ | — | |||||||||||
Money market funds | 22 | 22 | — | 22 | — | — | |||||||||||||||||
Equity securities | 5 | 5 | — | 5 | — | — | |||||||||||||||||
Total | 50 | 50 | 23 | 27 | — | — | |||||||||||||||||
Legally restricted funds:a | |||||||||||||||||||||||
U.S. core fixed income fund | 53 | 53 | 53 | — | — | — | |||||||||||||||||
Government bonds and notes | 36 | 36 | — | — | 36 | — | |||||||||||||||||
Corporate bonds | 32 | 32 | — | — | 32 | — | |||||||||||||||||
Government mortgage-backed securities | 25 | 25 | — | — | 25 | — | |||||||||||||||||
Asset-backed securities | 16 | 16 | — | — | 16 | — | |||||||||||||||||
Money market funds | 12 | 12 | — | 12 | — | — | |||||||||||||||||
Collateralized mortgage-backed securities | 8 | 8 | — | — | 8 | — | |||||||||||||||||
Municipal bonds | 1 | 1 | — | — | 1 | — | |||||||||||||||||
Total | 183 | 183 | 53 | 12 | 118 | — | |||||||||||||||||
Derivatives: | |||||||||||||||||||||||
Embedded derivatives in provisional sales/ | |||||||||||||||||||||||
purchase contracts in a gross asset positionc | 137 | 137 | — | — | 137 | — | |||||||||||||||||
Copper futures and swap contractsc | 9 | 9 | — | 8 | 1 | — | |||||||||||||||||
Contingent consideration for the sales of TFHL | |||||||||||||||||||||||
and onshore California oil and gas propertiesa | 46 | 46 | — | — | 46 | — | |||||||||||||||||
Total | 192 | 192 | — | 8 | 184 | — | |||||||||||||||||
Contingent consideration for the sale of the | |||||||||||||||||||||||
Deepwater GOM oil and gas propertiesa | 150 | 135 | — | — | — | 135 | |||||||||||||||||
Total assets | $ | 560 | $ | 76 | $ | 47 | $ | 302 | $ | 135 | |||||||||||||
Liabilities | |||||||||||||||||||||||
Derivatives:c | |||||||||||||||||||||||
Embedded derivatives in provisional sales/ | |||||||||||||||||||||||
purchase contracts in a gross liability position | 56 | $ | 56 | $ | — | $ | — | $ | 56 | $ | — | ||||||||||||
Copper futures and swap contracts | 2 | 2 | — | 2 | — | — | |||||||||||||||||
Total | 58 | 58 | — | 2 | 56 | — | |||||||||||||||||
Contingent payments for the settlements of | |||||||||||||||||||||||
drilling rig contractse | 23 | 23 | — | — | 23 | — | |||||||||||||||||
Long-term debt, including current portiond | 16,027 | 15,196 | — | — | 15,196 | — | |||||||||||||||||
Total liabilities | $ | 15,277 | $ | — | $ | 2 | $ | 15,275 | $ | — |
a. | Current portion included in other current assets and long-term portion included in other assets. |
b. | Excludes time deposits (which approximated fair value) included in (i) other current assets of $41 million at September 30, 2017, and $28 million at December 31, 2016, and (ii) other assets of $122 million at both September 30, 2017, and December 31, 2016, primarily associated with an assurance bond to support PT-FI’s commitment for smelter development in Indonesia. |
c. | Refer to Note 7 for further discussion and balance sheet classifications. |
d. | Recorded at cost except for debt assumed in acquisitions, which were recorded at fair value at the respective acquisition dates. |
e. | Included in accounts payable and accrued liabilities. |
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Valuation Techniques. The U.S. core fixed income fund is valued at net asset value (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 (which are usually within one business day of notice).
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.
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 7 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 7 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.
The fair value of contingent consideration for the sales of TFHL and onshore California oil and gas properties is calculated based on average commodity price forecasts through applicable maturity dates using a Monte Carlo simulation model. The models use various observable inputs, including Brent crude oil forward prices, historical copper and cobalt prices, volatilities, discount rates and settlement terms. As a result, these contingent consideration assets are classified within Level 2 of the fair value hierarchy.
The fair value of contingent consideration for the sale of Deepwater GOM oil and gas properties is calculated based on a discounted cash flow model using inputs that include third-party reserve estimates, production rates, production timing and discount rates. Because significant inputs are not observable in the market, the contingent consideration is classified within Level 3 of the fair value hierarchy.
The December 31, 2016, fair value of contingent payments for the settlements of drilling rig contracts was calculated based on the average price forecasts of West Texas Intermediate (WTI) crude oil over the 12-month period ending June 30, 2017, using a mean-reverting model. The model used various observable inputs, including WTI crude oil forward prices, volatilities, discount rate and settlement terms. As a result, these contingent payments were classified within Level 2 of the fair value hierarchy. The contingency period for FM O&G’s drilling rig contract settlements ended June 30, 2017, and no additional amounts were paid.
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 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 September 30, 2017, as compared to those techniques used at December 31, 2016.
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A summary of the changes in the fair value of FCX’s Level 3 instrument, contingent consideration for the sale of the Deepwater GOM oil and gas properties, during the first nine months of 2017 follows (in millions):
Fair value at January 1, 2017 | $ | 135 | ||
Net unrealized gain related to assets still held at the end of the period | 3 | |||
Fair value at September 30, 2017 | $ | 138 |
NOTE 9. CONTINGENCIES AND COMMITMENTS
Environmental
Historical Smelter Sites — Borough of Carteret
As reported in Note 12 of FCX’s annual report on Form 10-K for the year ended December 31, 2016, from 1920 until 1986, United States Metal Refining Company (USMR), an indirect wholly owned subsidiary of Cyprus Amax Minerals Company, owned and operated a copper smelter and refinery in the Borough of Carteret, New Jersey, on the banks of the Arthur Kill (a narrow waterway that separates New Jersey from Staten Island). As a result of recent off-site soil sampling in public and private areas near the former smelter, FCX increased its associated environmental obligation for known and potential off-site environmental remediation by recording a $59 million charge to operating income in third-quarter 2017. Additional sampling is ongoing and could result in additional adjustments to the related environmental remediation obligation.
Uranium Mining Sites
As reported in Note 12 of FCX’s annual report on Form 10-K for the year ended December 31, 2016, the Department of Justice, the U.S. Environmental Protection Agency, the Navajo Nation and two FCX-related subsidiaries reached an agreement regarding the scope of environmental investigation and remediation work for 94 former uranium mining sites on tribal lands, and the related financial contributions of the U.S. government and the FCX subsidiaries. The related Consent Decree was approved by the U.S. District Court for the District of Arizona in second-quarter 2017. Based on updated cash flow and timing estimates, FCX reduced its associated obligation for that contingency by recording a $41 million credit to operating income in second-quarter 2017 after receiving court approval of the Consent Decree.
Litigation
During third-quarter 2017, 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, 2016.
Tax and Other Matters
Cerro Verde Royalty Dispute
As reported in FCX’s annual report on Form 10-K for the year ended December 31, 2016, and as subsequently updated in Note 9 of FCX’s quarterly report on Form 10-Q for the quarter ended June 30, 2017, SUNAT, Peru’s 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 September 2011. Cerro Verde contested these assessments because it believes its 1998 stability agreement exempts from royalties all minerals extracted from its mining concession, irrespective of the method used for processing those minerals. No assessments have been issued for the period from October 2011 to December 2013, and no assessments can be issued for years after 2013, as Cerro Verde began paying royalties on all of its production in January 2014 under its new 15-year stability agreement. Since 2014, Cerro Verde has been paying the disputed assessments for the period December 2006 through December 2008 under an installment program ($135 million paid by Cerro Verde through September 30, 2017).
In October 2017, the Peruvian Supreme Court issued a ruling in favor of SUNAT that the assessments of royalties for the year 2008 on ore processed by the Cerro Verde concentrator were proper under Peruvian law.
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As a result of the unfavorable Peruvian Supreme Court ruling on the 2008 royalty dispute, Cerro Verde recorded pre-tax charges totaling $357 million ($359 million including net tax charges and $188 million net of noncontrolling interests) in third-quarter 2017, consisting of $240 million in royalty assessments, $147 million of penalties and interest related to the December 2006 to December 2008 assessments, and $97 million for related items (primarily associated with the special mining tax and net assets tax) that Cerro Verde would have incurred under the view that its concentrator was not stabilized.
A summary of the charges recorded in third-quarter 2017 for the Cerro Verde royalty dispute follows (in millions):
Royalty and related assessment charges: | ||||||
Production and delivery | $ | 216 | a | |||
Interest expense, net | 141 | |||||
Provision for income taxes | 2 | b | ||||
Net loss attributable to noncontrolling interests | (171 | ) | ||||
$ | 188 |
a. | Includes $176 million related to disputed royalty assessments for the period from December 2006 to September 2011 (when royalties were determined based on revenues), $6 million of penalties related to the December 2006 to December 2008 royalty assessments and $34 million primarily associated with the net assets tax. |
b. | Includes tax charges of $127 million for disputed royalties ($64 million) and other related mining taxes ($63 million) for the period October 2011 through the year 2013 when royalties were determined based on operating income, mostly offset by a tax benefit of $125 million associated with disputed royalties and other related mining taxes for the period December 2006 through the year 2013. |
Cerro Verde acted in good faith in applying the provisions of its 1998 stability agreement and continues to evaluate alternatives to defend its rights. Cerro Verde intends to seek a waiver available under Peruvian law of penalties and interest associated with this matter and has not recorded charges for potential unpaid penalties and interest totaling $360 million ($193 million net of noncontrolling interests) at September 30, 2017, as FCX believes that Cerro Verde should be successful under Peruvian law in obtaining a waiver. Cerro Verde also intends to file a reimbursement claim with SUNAT for penalties and interest paid under the installment plan for the December 2006 to December 2008 assessments, and may have claims for reimbursement of payments it would not have made in the absence of the stabilization agreement, such as the overpayments made for a special (voluntary) levy (GEM), import duties and civil association contributions. No amounts have been recorded for these potential gain contingencies at September 30, 2017.
Other Peru Tax Matters
There were no significant changes to other Peru tax matters during third-quarter 2017 (refer to Note 12 of FCX’s annual report on Form 10-K for the year ended December 31, 2016).
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, 2016.
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 September 2017. PT-FI is filing objections to these assessments. During 2017, the Indonesia Tax Court issued rulings against PT-FI with respect to assessments for additional taxes and penalties for the period from January 2011 through December 2015 in the amount of $402 million (based on the exchange rate as of September 30, 2017, and including $240 million in penalties). The aggregate amount of assessments received from January 2016 through September 2017 was an additional $114 million, including penalties (based on the exchange rate as of September 30, 2017). No charges have been recorded for these assessments as of September 30, 2017, 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 which FCX estimates the total exposure based on the exchange rate as of September 30, 2017, totals $516 million, including penalties) in the Indonesia Tax Court and ultimately the Indonesia Supreme Court. As of November 7, 2017, PT-FI has not paid and does not intend to pay these assessments unless there is a mechanism established to secure a refund for any such payments upon the final court decision. Additionally, PT-FI is seeking to address this matter in connection with the ongoing negotiations with the Indonesian government to resolve PT-FI’s long-term operating rights.
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Indonesia Mining Contract. The following information includes updates to the discussion of PT-FI’s COW included in Note 13 of FCX’s annual report on Form 10-K for the year ended December 31, 2016.
In January and February 2017, the Indonesian government issued new regulations to address the export of unrefined metals, including copper concentrate and anode slimes, and other matters related to the mining sector. The new regulations permit the continuation of copper concentrate exports for a five-year period through January 2022, subject to various conditions, including conversion from a contract of work to a special operating license (known as an IUPK, which does not provide the same level of fiscal and legal protections as PT-FI’s COW, which remains in effect), a commitment to the completion of smelter construction in five years and payment of export duties to be determined by the Ministry of Finance. In addition, the new regulations enable application for an extension of operating rights five years before expiration of the IUPK and require foreign IUPK holders to divest a 51 percent interest in the licensed entity to Indonesian interests no later than the tenth year of production. Export licenses would be valid for one-year periods, subject to review every six months, depending on smelter construction progress.
Following the issuance of the January and February 2017 regulations and discussions with the Indonesian government, PT-FI advised the government that it was prepared to convert its COW to an IUPK, subject to obtaining an investment stability agreement providing contractual rights with the same level of legal and fiscal certainty enumerated under its COW, and provided that the COW would remain in effect until it is replaced by a mutually satisfactory alternative. PT-FI also committed to commence construction of a new smelter during a five-year time frame, following approval of the extension of its long-term operating rights.
On January 12, 2017, PT-FI suspended exports in response to Indonesian regulations adopted in January 2014. In addition, as a result of labor disturbances and a delay in the renewal of its export license for anode slimes, PT Smelting’s operations (PT-FI’s 25 percent-owned smelter in Indonesia) were shut down from January 19, 2017, until early March 2017. On February 10, 2017, PT-FI was forced to suspend production as a result of limited storage capacity at PT-FI and PT Smelting. On April 21, 2017, the Indonesian government issued a permit to PT-FI that allowed exports to resume for a six-month period, and PT-FI commenced export shipments.
In mid-February 2017, pursuant to the COW’s dispute resolution process, PT-FI provided formal notice to the Indonesian government of an impending dispute listing the government's breaches and violations of the COW. PT-FI continues to reserve its rights under these provisions.
As a result of the 2017 regulatory restrictions and uncertainties regarding long-term investment stability, PT-FI took actions to adjust its cost structure, slow investments in its underground development projects and new smelter, and place certain of its workforce on furlough programs.
In late March 2017, the Indonesian government amended the regulations to enable PT-FI to retain its COW until replaced with an IUPK accompanied by an investment stability agreement, and to grant PT-FI a temporary IUPK through October 10, 2017, that would allow concentrate exports to resume during this period. In April 2017, PT-FI entered into a Memorandum of Understanding with the Indonesian government confirming that the COW would continue to be valid and honored until replaced by a mutually agreed IUPK and investment stability agreement. PT-FI agreed to continue to pay a five percent export duty during this period.
In August 2017, FCX and the Indonesian government reached an understanding on a framework that would resolve PT-FI’s long-term operating rights. This framework includes (i) conversion from the COW to an IUPK providing PT-FI with long-term operating rights through 2041, (ii) Indonesian government certainty of fiscal and legal terms during the term of the IUPK, (iii) PT-FI commitment to construct a new smelter in Indonesia within five years of reaching a definitive agreement, and (iv) divestment of 51 percent of the project area interests to Indonesian participants at fair market value structured so that FCX retains control over operations and governance of PT-FI. FCX cannot currently predict whether there will be any material accounting and tax implications associated with the divestment.
The framework requires documentation and execution of a definitive agreement, which must be approved by the FCX Board of Directors and joint venture partner Rio Tinto. The parties continue to negotiate to reach agreement on important aspects of implementation of the framework, including the timing and process of divestment, governance matters, and the determination of fair market value, and to complete documentation on a comprehensive agreement for PT-FI’s operations through 2041. The parties have expressed a mutual objective of completing the negotiations and documentation during 2017.
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In October 2017, the Indonesian government extended PT-FI’s export rights to December 31, 2017, while negotiations to reach and document a comprehensive long-term definitive agreement based on the agreed framework continue.
Until a definitive agreement is reached, PT-FI has reserved all rights under its COW, including pursuing arbitration under the dispute resolution provisions.
NOTE 10. BUSINESS SEGMENTS
FCX has organized its mining operations into four primary divisions – North America copper mines, South America mining, Indonesia mining and Molybdenum mines, and operating segments that meet certain thresholds are reportable segments. Separately disclosed in the following tables are FCX’s reportable segments, which include the Morenci, Cerro Verde and Grasberg (Indonesia Mining) copper mines, the Rod & Refining operations and Atlantic Copper Smelting & Refining.
FCX’s reportable segments previously included U.S. Oil & Gas operations. During 2016, FCX completed the sales of its Deepwater Gulf of Mexico, onshore California and Haynesville oil and gas properties. As a result, beginning in 2017, the U.S. oil and gas operations no longer qualify as a reportable segment, and oil and gas results for all periods presented have been included in Corporate, Other & Eliminations in the following tables. Refer to Note 2 of FCX’s annual report on Form 10-K for the year ended December 31, 2016, for additional information.
Intersegment sales between FCX’s business segments are based on terms similar to 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.
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Financial Information by Business Segments
(In millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
Atlantic | Corporate, | |||||||||||||||||||||||||||||||||||||||||||||||
North America Copper Mines | South America | Copper | Other | |||||||||||||||||||||||||||||||||||||||||||||
Cerro | Indonesia | Molybdenum | Rod & | Smelting | & Elimi- | FCX | ||||||||||||||||||||||||||||||||||||||||||
Morenci | Other | Total | Verde | Other | Total | Mining | Mines | Refining | & Refining | nationsa | Total | |||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||
Unaffiliated customers | $ | 57 | $ | 40 | $ | 97 | $ | 850 | $ | 109 | $ | 959 | $ | 1,121 | b | $ | — | $ | 1,137 | $ | 554 | $ | 442 | c | $ | 4,310 | ||||||||||||||||||||||
Intersegment | 460 | 548 | 1,008 | 64 | — | 64 | — | 65 | 8 | 1 | (1,146 | ) | — | |||||||||||||||||||||||||||||||||||
Production and delivery | 244 | 414 | 658 | 683 | d | 76 | 759 | 406 | 58 | 1,141 | 533 | (753 | ) | 2,802 | ||||||||||||||||||||||||||||||||||
Depreciation, depletion and amortization | 42 | 54 | 96 | 116 | 18 | 134 | 136 | 20 | 2 | 7 | 23 | 418 | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 1 | 1 | 2 | 2 | — | 2 | 32 | — | — | 4 | 66 | 106 | ||||||||||||||||||||||||||||||||||||
Mining exploration and research expenses | — | — | — | — | — | — | — | — | — | — | 27 | 27 | ||||||||||||||||||||||||||||||||||||
Environmental obligations and shutdown costs | — | — | — | — | — | — | — | — | — | — | 73 | 73 | ||||||||||||||||||||||||||||||||||||
Net gain on sales of assets | — | — | — | — | — | — | — | — | — | — | (33 | ) | (33 | ) | ||||||||||||||||||||||||||||||||||
Operating income (loss) | 230 | 119 | 349 | 113 | 15 | 128 | 547 | (13 | ) | 2 | 11 | (107 | ) | 917 | ||||||||||||||||||||||||||||||||||
Interest expense, net | 1 | — | 1 | 156 | d | — | 156 | 1 | — | — | 5 | 141 | 304 | |||||||||||||||||||||||||||||||||||
Provision for income taxes | — | — | — | 134 | d | 5 | 139 | 233 | — | — | 1 | 14 | 387 | |||||||||||||||||||||||||||||||||||
Total assets at September 30, 2017 | 2,844 | 4,223 | 7,067 | 8,851 | 1,595 | 10,446 | 11,100 | 1,885 | 264 | 751 | 5,814 | e | 37,327 | |||||||||||||||||||||||||||||||||||
Capital expenditures | 26 | 13 | 39 | 17 | 3 | 20 | 206 | 2 | 1 | 5 | 41 | 314 | ||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||
Unaffiliated customers | $ | 115 | $ | 112 | $ | 227 | $ | 505 | $ | 112 | $ | 617 | $ | 984 | b | $ | — | $ | 930 | $ | 445 | $ | 674 | c | $ | 3,877 | ||||||||||||||||||||||
Intersegment | 358 | 499 | 857 | 54 | — | 54 | 2 | 46 | 7 | — | (966 | ) | — | |||||||||||||||||||||||||||||||||||
Production and delivery | 275 | 464 | 739 | 333 | 91 | 424 | 478 | 57 | 931 | 416 | (516 | ) | f | 2,529 | ||||||||||||||||||||||||||||||||||
Depreciation, depletion and amortization | 51 | 78 | 129 | 109 | 25 | 134 | 110 | 15 | 2 | 7 | 246 | 643 | ||||||||||||||||||||||||||||||||||||
Impairment of oil and gas properties | — | — | — | — | — | — | — | — | — | — | 239 | 239 | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 1 | — | 1 | 1 | 1 | 2 | 24 | — | — | 5 | 78 | 110 | ||||||||||||||||||||||||||||||||||||
Mining exploration and research expenses | — | 1 | 1 | — | — | — | — | — | — | — | 12 | 13 | ||||||||||||||||||||||||||||||||||||
Environmental obligations and shutdown costs |