Document

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 June 30, 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 July 29, 2016, there were issued and outstanding 1,328,258,134 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)
 
June 30,
2016
 
December 31,
2015
 
(In millions)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
352

 
$
195

Trade accounts receivable
694

 
660

Income and other tax receivables
916

 
1,341

Other accounts receivable
102

 
154

Inventories:
 
 
 
Mill and leach stockpiles
1,348

 
1,539

Materials and supplies, net
1,338

 
1,594

Product
1,058

 
1,071

Other current assets
226

 
164

Assets held for sale
4,666

 
744

Total current assets
10,700

 
7,462

Property, plant, equipment and mining development costs, net
23,609

 
24,248

Oil and gas properties, net - full cost method
 
 
 
Subject to amortization, less accumulated amortization and impairment
1,381

 
2,262

Not subject to amortization
1,656

 
4,831

Long-term mill and leach stockpiles
1,742

 
1,663

Other assets
2,208

 
2,001

Assets held for sale
—

 
4,110

Total assets
$
41,296

 
$
46,577

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
2,569

 
$
3,255

Current portion of debt
770

 
649

Current portion of environmental and asset retirement obligations
322

 
272

Accrued income taxes
55

 
23

Liabilities held for sale
824

 
108

Total current liabilities
4,540

 
4,307

Long-term debt, less current portion
18,549

 
19,779

Deferred income taxes
3,758

 
3,607

Environmental and asset retirement obligations, less current portion
3,697

 
3,717

Other liabilities
1,662

 
1,641

Liabilities held for sale
—

 
718

Total liabilities
32,206

 
33,769

 
 
 
 
Redeemable noncontrolling interest
771

 
764

 
 
 
 
Equity:
 
 
 
Stockholders’ equity:
 
 
 
Common stock
145

 
137

Capital in excess of par value
25,105

 
24,283

Accumulated deficit
(17,049
)
 
(12,387
)
Accumulated other comprehensive loss
(488
)
 
(503
)
Common stock held in treasury
(3,710
)
 
(3,702
)
Total stockholders’ equity
4,003

 
7,828

Noncontrolling interests
4,316

 
4,216

Total equity
8,319

 
12,044

Total liabilities and equity
$
41,296

 
$
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
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
(In millions, except per share amounts)
Revenues
$
3,334

 
$
3,938

 
$
6,576

 
$
7,709

Cost of sales:
 
 
 
 
 
 
 
Production and delivery
2,956

 
2,651

 
5,455

 
5,330

Depreciation, depletion and amortization
632

 
833

 
1,294

 
1,699

Impairment of oil and gas properties
291

 
2,686

 
4,078

 
5,790

Total cost of sales
3,879


6,170


10,827

 
12,819

Selling, general and administrative expenses
160

 
148

 
298

 
299

Mining exploration and research expenses
15

 
30

 
33

 
57

Environmental obligations and shutdown costs
11

 
11

 
21

 
24

Net gain on sales of assets
(749
)
 
—

 
(749
)
 
(39
)
Total costs and expenses
3,316

 
6,359

 
10,430

 
13,160

Operating income (loss)
18

 
(2,421
)
 
(3,854
)
 
(5,451
)
Interest expense, net
(196
)
 
(142
)
 
(387
)
 
(281
)
Net gain on early extinguishment of debt
39

 
—

 
36

 
—

Other income, net
25

 
36

 
64

 
43

Loss before income taxes and equity in affiliated companies' net earnings
(114
)
 
(2,527
)
 
(4,141
)
 
(5,689
)
(Provision for) benefit from income taxes
(116
)
 
699

 
(193
)
 
1,413

Equity in affiliated companies’ net earnings
1

 
—

 
8

 
1

Net loss from continuing operations
(229
)
 
(1,828
)
 
(4,326
)
 
(4,275
)
Net (loss) income from discontinued operations
(181
)
 
29

 
(185
)
 
70

Net loss
(410
)
 
(1,799
)
 
(4,511
)
 
(4,205
)
Net income attributable to noncontrolling interests:
 
 
 
 
 
 
 
Continuing operations
(47
)
 
(16
)
 
(109
)
 
(48
)
Discontinued operations
(12
)
 
(26
)
 
(22
)
 
(52
)
Preferred dividends attributable to redeemable noncontrolling interest
(10
)
 
(10
)
 
(21
)
 
(20
)
Net loss attributable to common stockholders
$
(479
)
 
$
(1,851
)
 
$
(4,663
)
 
$
(4,325
)
 
 
 
 
 
 
 
 
Basic and diluted net (loss) income per share attributable to common stockholders:
 
 
 
 
 
 
 
Continuing operations
$
(0.23
)
 
$
(1.78
)
 
$
(3.54
)
 
$
(4.18
)
Discontinued operations
(0.15
)
 
—

 
(0.16
)
 
0.02

 
$
(0.38
)
 
$
(1.78
)
 
$
(3.70
)
 
$
(4.16
)
 
 
 
 
 
 
 
 
Basic and diluted weighted-average common shares outstanding
1,269

 
1,040

 
1,260

 
1,040

 
 
 
 
 
 
 
 
Dividends declared per share of common stock
$
—

 
$
0.1605

 
$
—

 
$
0.2105

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


4
Table of Contents             


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

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(In millions)
Net loss
 
$
(410
)
 
$
(1,799
)
 
$
(4,511
)
 
$
(4,205
)
 
 
 
 
 
 
 
 
 
Other comprehensive income, net of taxes:
 
 
 
 
 
 
 
 
Unrealized gains on securities
 
1

 
—

 
1

 
—

Defined benefit plans:
 
 
 
 
 
 
 
 
Amortization of unrecognized amounts included in net periodic benefit costs
 
15

 
8

 
23

 
16

Foreign exchange (losses) gains
 
(1
)
 
1

 
(10
)
 
5

Other comprehensive income
 
15

 
9

 
14

 
21

 
 
 
 
 
 
 
 
 
Total comprehensive loss
 
(395
)
 
(1,790
)
 
(4,497
)
 
(4,184
)
Total comprehensive income attributable to noncontrolling interests
 
(59
)
 
(42
)
 
(130
)
 
(100
)
Preferred dividends attributable to redeemable noncontrolling interest
 
(10
)
 
(10
)
 
(21
)
 
(20
)
Total comprehensive loss attributable to common stockholders
 
$
(464
)
 
$
(1,842
)
 
$
(4,648
)
 
$
(4,304
)

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




5
Table of Contents             


FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Six Months Ended
 
 
June 30,
 
 
2016
 
2015
 
 
(In millions)
 
Cash flow from operating activities:
 
 
 
 
Net loss
$
(4,511
)
 
$
(4,205
)
 
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation, depletion and amortization
1,374

 
1,829

 
Impairment of oil and gas properties
4,078

 
5,790

 
Non-cash oil and gas drillship settlements/idle rig costs
612

 
—

 
Oil and gas inventory adjustments and write downs
82

 
23

 
Mining inventory adjustments
7

 
63

 
Net gain on sales of assets
(749
)
 
(39
)
 
Net charges for environmental and asset retirement obligations, including accretion
107

 
109

 
Payments for environmental and asset retirement obligations
(116
)
 
(81
)
 
Net gain on early extinguishment of debt
(36
)
 
—

 
Deferred income taxes
169

 
(1,432
)
 
Estimated loss on disposal of discontinued operations
177

 
—

 
Increase in long-term mill and leach stockpiles
(99
)
 
(104
)
 
Net gains on crude oil derivative contracts
—

 
(58
)
 
Other, net
53

 
81

 
Changes in working capital and other tax payments, excluding amounts from dispositions:
 
 
 
 
Accounts receivable
259

 
493

 
Inventories
190

 
8

 
Other current assets
(53
)
 
(1
)
 
Accounts payable and accrued liabilities
44

 
(205
)
 
Accrued income taxes and changes in other tax payments
26

 
(485
)
 
Net cash provided by operating activities
1,614

 
1,786

 
 
 
 
 
 
Cash flow from investing activities:
 
 
 
 
Capital expenditures:
 
 
 
 
North America copper mines
(76
)
 
(214
)
 
South America
(293
)
 
(902
)
 
Indonesia
(459
)
 
(438
)
 
Molybdenum mines
(1
)
 
(7
)
 
United States oil and gas operations
(868
)
 
(1,795
)
 
Other
(118
)
 
(172
)
 
Net proceeds from sale of additional interest in Morenci
996

 
—

 
Net proceeds from sale of other assets
290

 
150

 
Other, net
(6
)
 
(14
)
 
Net cash used in investing activities
(535
)
 
(3,392
)
 
 
 
 
 
 
Cash flow from financing activities:
 
 
 
 
Proceeds from debt
2,811

 
4,422

 
Repayments of debt
(3,649
)
 
(2,360
)
 
Net proceeds from sale of common stock
32

 
—

 
Cash dividends and distributions paid:
 
 
 
 
Common stock
(5
)
 
(380
)
 
Noncontrolling interests
(39
)
 
(60
)
 
Stock-based awards net payments, including excess tax benefit
(5
)
 
(7
)
 
Debt financing costs and other, net
(18
)
 
(7
)
 
Net cash (used in) provided by financing activities
(873
)
 
1,608

 
 
 
 
 
 
Net increase in cash and cash equivalents
206

 
2

 
Increase in cash and cash equivalents in assets held for sale
(49
)
 
(1
)
 
Cash and cash equivalents at beginning of year
195

 
317

 
Cash and cash equivalents at end of period
$
352

 
$
318

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

6
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

Issuance of common stock
70

 
8

 
793

 
—

 
—

 
—

 
(3
)
 
798

 
—

 
798

Exercised and issued stock-based awards
3

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation
—

 
—

 
33

 
—

 
—

 
—

 
—

 
33

 
—

 
33

Reserve on tax benefit for stock-based awards
—

 
—

 
(4
)
 
—

 
—

 
—

 
—

 
(4
)
 
—

 
(4
)
Tender of shares for stock-based awards
—

 
—

 
—

 
—

 
—

 
1

 
(5
)
 
(5
)
 
—

 
(5
)
Dividends on common stock
—

 
—

 
—

 
1

 
—

 
—

 
—

 
1

 
—

 
1

Dividends to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(25
)
 
(25
)
Changes in noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5
)
 
(5
)
Net loss attributable to common stockholders
—

 
—

 
—

 
(4,663
)
 
—

 
—

 
—

 
(4,663
)
 
—

 
(4,663
)
Net income attributable to noncontrolling interests, including discontinued operations
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
131

 
131

Other comprehensive income (loss)
—

 
—

 
—

 
—

 
15

 
—

 
—

 
15

 
(1
)
 
14

Balance at June 30, 2016
1,447

 
$
145

 
$
25,105

 
$
(17,049
)
 
$
(488
)
 
129

 
$
(3,710
)
 
$
4,003

 
$
4,316

 
$
8,319

 
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 accounting for discontinued operations, and the oil and gas properties impairment discussed below and the related tax charges to establish a deferred tax valuation allowance (refer to Note 5), all such adjustments are, in the opinion of management, of a normal recurring nature. As a result of FCX's second-quarter 2016 agreement to sell 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 six-month period ended June 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

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 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. For the first six 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. 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 $291 million impairment charge in second-quarter 2016 and $4.1 billion for the first six months of 2016. The twelve-month average price (using WTI as the reference oil price) was $43.12 per barrel at June 30, 2016, compared with $46.26 per barrel at March 31, 2016.


8
Table of Contents             


NOTE 2. DISPOSITIONS

Timok. 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 and contingent consideration of up to $107 million payable to FCX in stages upon achievement of defined development milestones (no amounts were recorded for the contingent consideration as of June 30, 2016). As a result of this transaction, FCX recorded a gain of $133 million in second-quarter 2016.

Morenci. On May 31, 2016, FCX completed the sale of a 13 percent undivided interest in its Morenci unincorporated joint venture to Sumitomo Metal Mining Co., Ltd. (SMM) for $1.0 billion in cash. FCX recorded a $577 million gain on the transaction and used losses to offset cash taxes on the transaction. Proceeds from the transaction were used to repay borrowings under FCX's unsecured bank term loan (Term Loan) and revolving credit facility.

The Morenci unincorporated joint venture was owned 85 percent by FCX and 15 percent by Sumitomo Metal Mining Arizona Inc. (Sumitomo). As a result of the transaction, the unincorporated joint venture is owned 72 percent by FCX, 15 percent by Sumitomo and 13 percent by an affiliate that is wholly owned by SMM.

Oil and Gas Operations. On June 17, 2016, FM O&G completed the sale of certain oil and gas royalty interests to Black Stone Minerals, L.P. for cash consideration of $102 million, before closing adjustments. In addition, on July 25, 2016, FM O&G completed the sale of its Haynesville shale assets for cash consideration of $87 million, before closing adjustments. Under the full cost accounting rules, the proceeds were recorded as a reduction of capitalized oil and gas properties, with no gain or loss recognition.

TF Holdings Limited - Discontinued Operations. On May 9, 2016, FCX entered into a definitive agreement to sell its 70 percent interest in TFHL to China Molybdenum Co., Ltd. (CMOC) for $2.65 billion in cash 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 (no amounts were recorded for the contingent consideration as of June 30, 2016). Through its interest in TFHL, FCX has an effective 56 percent interest in Tenke Fungurume Mining S.A. (TFM or 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 expires on September 15, 2016. Lundin holds the remaining 30 percent interest in TFHL. In accordance with the mandatory prepayment provision of FCX's Term Loan, one-half of the proceeds from this transaction must be applied toward repaying FCX's Term Loan.

In accordance with accounting guidance, FCX has reported the results of operations of TFHL as discontinued operations in the consolidated statements of operations and presented the assets and liabilities of TFHL as held for sale in the consolidated balance sheets for all periods presented. The consolidated statements of comprehensive loss were not impacted by discontinued operations as TFHL did not have any other comprehensive income, and the consolidated statements of cash flows are reported on a combined basis without separately presenting discontinued operations.

9
Table of Contents             


The carrying amounts of TFHL's major classes of assets, liabilities and noncontrolling interests, which are presented as held for sale in the consolidated balance sheets, follow (in millions):
 
June 30,
2016
 
December 31, 2015
Assets
 
 
 
Cash and cash equivalents
$
78

 
$
29

Inventories
1,152

 
584

Receivables and other current assets
154

 
131

Property, plant, equipment and mining development costs, net
3,056

 
—

Other assets
226

 
—

Total current assets held for sale
$
4,666

 
$
744

 
 
 
 
Property, plant, equipment and mining development costs, net
$
—

 
$
3,261

Inventories
—

 
608

Other assets
—

 
241

Total long-term assets held for sale
$
—

 
$
4,110

 
 
 
 
Liabilities
 
 
 
Accounts payable and accrued liabilities
$
99

 
$
108

Deferred income taxes
679

 
—

Asset retirement obligations and other liabilities
46

 
—

Total current liabilities held for sale
$
824

 
$
108

 
 
 
 
Deferred income taxes
$
—

 
$
681

Asset retirement obligations and other liabilities
—

 
37

Total long-term liabilities held for sale
$
—

 
$
718

 
 
 
 
Noncontrolling interests
$
1,185

 
$
1,178


Net (loss) income from discontinued operations in the consolidated statements of operations consists of the following (in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Revenuesa
$
272

 
$
310

 
$
558

 
$
692

Costs and expenses:
 
 
 
 
 
 
 
Production and delivery costs
256

 
197

 
482

 
430

Depreciation, depletion and amortization
20

b 
57

 
80

b 
130

Interest expense allocated from parentc
11

 
7

 
21

 
14

Other costs and expenses, net
5

 
8

 
6

 
17

(Loss) income before income taxes and estimated loss on disposal
(20
)
 
41

 
(31
)
 
101

Estimated loss on disposald
(177
)
 
—

 
(177
)
 
—

Net (loss) income before income taxes
(197
)
 
41

 
(208
)
 
101

Benefit from (provision for) income taxes
16

 
(12
)
 
23

 
(31
)
Net (loss) income from discontinued operations
$
(181
)
 
$
29

 
$
(185
)
 
$
70

a.
In accordance with accounting guidance, amounts are net of eliminations of intercompany sales totaling $41 million in both second-quarter 2016 and 2015, $73 million for the first six months of 2016 and $69 million for the first six months of 2015.
b.
In accordance with accounting guidance, depreciation, depletion and amortization is not recognized subsequent to classification as assets held for sale.
c.
In accordance with accounting guidance, interest associated with FCX's Term Loan that will be required to be repaid as a result of the sale of TFHL has been allocated to discontinued operations.
d.
In accordance with accounting guidance, an estimated loss on disposal was recorded, which will be adjusted through closing of the transaction.

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Cash flows from discontinued operations included in the consolidated statements of cash flows follow (in millions):
 
Six Months Ended
 
June 30,
 
2016
 
2015
Net cash provided by operating activities
$
157

 
$
153

Net cash used in investing activities
(57
)
 
(105
)
Net cash used in financing activities
(51
)
 
(47
)
Increase in cash and cash equivalents in assets held for sale
$
49

 
$
1


FCX has also 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 cobalt exploration project, located near Tenke, in which FCX holds a 100 percent interest.

NOTE 3. 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.


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A reconciliation of net loss and weighted-average shares of common stock outstanding for purposes of calculating basic and diluted net (loss) income per share follows (in millions, except per share amounts):
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
 
Net loss from continuing operations
$
(229
)
 
$
(1,828
)
 
$
(4,326
)
 
$
(4,275
)
 
Net income from continuing operations attributable to noncontrolling interests
(47
)
 
(16
)
 
(109
)
 
(48
)
 
Preferred dividends on redeemable noncontrolling interest
(10
)
 
(10
)
 
(21
)
 
(20
)
 
Undistributed earnings allocated to participating securities
(3
)
 
(3
)
 
(3
)
 
(3
)
 
Net loss from continuing operations attributable to common stockholders
$
(289
)
 
$
(1,857
)
 
$
(4,459
)
 
$
(4,346
)
 
 
 
 
 
 
 
 
 
 
Net (loss) income from discontinued operations
$
(181
)
 
$
29

 
$
(185
)
 
$
70

 
Net income from discontinued operations attributable to noncontrolling interests
(12
)
 
(26
)
 
(22
)
 
(52
)
 
Net (loss) income from discontinued operations attributable to common stockholders
$
(193
)
 
$
3

 
$
(207
)
 
$
18

 
 
 
 
 
 
 
 
 
 
Net loss attributable to common stockholders
$
(482
)
 
$
(1,854
)
 
$
(4,666
)
 
$
(4,328
)
 
 
 
 
 
 
 
 
 
 
Basic weighted-average shares of common stock outstanding
1,269

 
1,040

 
1,260

 
1,040

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

a 
—

a 
—

a 
—

a 
Diluted weighted-average shares of common stock outstanding
1,269

 
1,040

 
1,260

 
1,040

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted net (loss) income per share attributable to common stockholders:
 
 
 
 
 
 
 
 
Continuing operations
$
(0.23
)
 
$
(1.78
)
 
$
(3.54
)
 
$
(4.18
)
 
Discontinued operations
(0.15
)
 
—

 
(0.16
)
 
0.02

 
 
$
(0.38
)
 
$
(1.78
)
 
$
(3.70
)
 
$
(4.16
)
 
a.
Excludes 12 million shares of common stock for second-quarter 2016, 15 million for second-quarter 2015, 11 million for the first six months of 2016, and 14 million for the first six months of 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.

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 46 million shares of common stock were excluded for second-quarter 2016, 47 million for the first six months of 2016 and 40 million for both the quarter and six months ended June 30, 2015.



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NOTE 4. INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES

The components of inventories follow (in millions):
 
June 30,
2016
 
December 31, 2015
 
Current inventories:
 
 
 
 
Mill stockpiles
$
146

 
$
137

 
Leach stockpiles
1,202

 
1,402

 
Total current mill and leach stockpiles
$
1,348

 
$
1,539

 
 
 
 
 
 
Total materials and supplies, neta
$
1,338

 
$
1,594

 
 
 
 
 
 
Raw materials (primarily concentrate)
$
222

 
$
220

 
Work-in-process
93

 
108

 
Finished goods
743

 
743

 
Total product inventories
$
1,058

 
$
1,071

 
 
 
 
 
 
Long-term inventories:
 
 
 
 
Mill stockpiles
$
584

 
$
480

 
Leach stockpiles
1,158

 
1,183

 
Total long-term mill and leach stockpilesb
$
1,742

 
$
1,663

 
a.
Materials and supplies inventory was net of obsolescence reserves totaling $29 million at June 30, 2016, and $26 million at December 31, 2015.
b.
Estimated metals in stockpiles not expected to be recovered within the next 12 months.

FCX recorded charges for adjustments to inventory carrying values of $2 million in second-quarter 2016 and $7 million for the first six months of 2016, primarily at the Molybdenum mines because of lower molybdenum prices, and $59 million in second-quarter 2015 and $63 million for the first six months of 2015, primarily because of lower molybdenum and copper prices (refer to Note 10 for 2015 inventory adjustments by business segment).

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 (5) percent for the first six months of 2016 and 25 percent for the first six months of 2015. Geographic sources of FCX's (provision for) benefit from income taxes follow (in millions):
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
 
U.S. operations
$
(49
)
 
$
829

 
$
(38
)
 
$
1,664

 
International operations
(67
)
 
(130
)
 
(155
)
 
(251
)
 
Total
$
(116
)
 
$
699

 
$
(193
)
 
$
1,413

 

As a result of the impairment to U.S. oil and gas properties, FCX recorded tax charges of $1.5 billion for the first six months of 2016 and $763 million for the first six months of 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 33 percent for the first six months of 2016 and 38 percent for the first six months of 2015.


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As of December 31, 2015, FCX had determined that undistributed earnings of TFM were reinvested indefinitely and were allocated toward specifically identifiable needs of the local operations. In connection with the anticipated sale of its interest in TFHL, management concluded that its share of undistributed earnings of TFM were no longer reinvested indefinitely. This change did not have a material impact on FCX's results of operations.

Applicable accounting standards require 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 six months ended June 30, 2016, the actual consolidated effective income tax rate was used to determine FCX’s income tax provision.

NOTE 6. DEBT AND EQUITY

Debt. The components of debt follow (in millions):
 
June 30,
2016
 
December 31, 2015
Term Loan
$
2,446

 
$
3,032

Revolving credit facility
—

 
—

Cerro Verde credit facility
1,784

 
1,781

Cerro Verde shareholder loans
261

 
259

Lines of credit
192

 
442

Senior notes and debentures:
 
 
 
Issued by FCX
11,648

 
11,908

Issued by Freeport-McMoRan Oil & Gas LLC (FM O&G LLC)
2,524

 
2,539

Issued by FMC
359

 
359

Other (including equipment capital leases and other short-term borrowings)
105

 
108

Total debta
19,319

 
20,428

Less current portion of debt
(770
)
 
(649
)
Long-term debt
$
18,549

 
$
19,779

a.
Includes additions for unamortized fair value adjustments totaling $195 million at June 30, 2016, and $210 million at December 31, 2015, and net reductions for unamortized debt issuance costs and unamortized discounts of $120 million at June 30, 2016, and $129 million at December 31, 2015.

On February 26, 2016, FCX amended its revolving credit facility and Term Loan. The amendments included (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.

In second-quarter 2016, FCX prepaid $568 million on the Term Loan with a portion of the proceeds from the sale of the 13 percent undivided interest in Morenci.

With closed and pending asset sales exceeding the required $3 billion threshold under FCX's revolving credit facility and Term Loan, the springing collateral requirement under these agreements was not triggered on June 30, 2016. Since the TFHL transaction is not expected to close until fourth-quarter 2016, FCX was required to pledge its shares in FMC on June 30, 2016, which will be released upon closing of this transaction. If $3 billion in asset sale transactions have not been completed by December 31, 2016, the springing collateral requirement will be triggered.

At June 30, 2016, there were no borrowings outstanding and $40 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.

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Early Extinguishment of Debt
During second-quarter 2016, FCX redeemed certain senior notes in exchange for its common stock (refer to the discussion under "Equity" in this note). A summary of these debt extinguishments follows (in millions):
 
Principal Amount
 
Discounts/Deferred Debt Issuance Costs
 
Book Value
 
Gain
3.55% Senior Notes due 2022
$
85

 
$
—

 
$
85

 
$
9

3.875% Senior Notes due 2023
52

 
—

 
52

 
6

5.40% Senior Notes due 2034
50

 
1

 
49

 
8

5.450% Senior Notes due 2043
81

 
1

 
80

 
16

Total
$
268

 
$
2

 
$
266

 
$
39


In addition, FCX recorded a loss on early extinguishment of debt totaling $3 million associated with the modifications to its Term Loan and revolving credit facility in first-quarter 2016.

Interest Expense, Net
Consolidated interest expense from continuing operations (excluding capitalized interest) totaled $218 million in second-quarter 2016, $208 million in second-quarter 2015, $436 million for the first six months of 2016 and $411 million for the first six months of 2015. Capitalized interest added to property, plant, equipment and mining development costs, net, totaled $22 million in second-quarter 2016, $47 million in second-quarter 2015, $42 million for the first six months of 2016 and $92 million for the first six months of 2015. Capitalized interest added to oil and gas properties not subject to amortization totaled $19 million in second-quarter 2015 (none in second-quarter 2016), $7 million for the first six months of 2016 and $38 million for the first six months of 2015.

Equity. In 2015 and through January 5, 2016, FCX generated approximately $2 billion in gross proceeds (proceeds of $1.97 billion net of $20 million of commissions and expenses) through the sale of 210 million shares of common stock (206 million shares through December 31, 2015, and 4 million shares (with a value of $32 million) in January 2016) under its at-the-market equity programs. At July 29, 2016, FCX has approximately $12 million remaining under these at-the-market equity programs.

During second-quarter 2016, FCX issued 48 million shares of its common stock (with a value of $540 million, excluding $5 million of commissions paid by FCX) in connection with the settlement of two drilling rig contracts (refer to Note 9 for further discussion).

During second-quarter 2016, FCX negotiated private exchange transactions exempt from registration under the Securities Act of 1933, as amended, whereby 17 million shares of FCX's common stock were issued, with an additional 3 million shares that settled in early July 2016 (with an aggregate value of $226 million), in exchange for $268 million principal amount of FCX’s senior notes. From July 1, 2016, through August 4, 2016, an additional 8 million shares of FCX’s common stock (with a value of $85 million) were issued in exchange for $101 million principal amount of FCX’s senior notes. The timing of future exchanges is dependent upon many factors including FCX’s operating results, cash flow and financial position, the market price of FCX's common stock, and general economic and market conditions.

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.


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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 June 30, 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 six-month periods ended June 30, 2016 and 2015, resulting from hedge ineffectiveness. At June 30, 2016, FCX held copper futures and swap contracts that qualified for hedge accounting for 62 million pounds at an average contract price of $2.18 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
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Copper futures and swap contracts:
 
 
 
 
 
 
 
Unrealized gains (losses):
 
 
 
 
 
 
 
Derivative financial instruments
$
3

 
$
(4
)
 
$
10

 
$
2

Hedged item – firm sales commitments
(3
)
 
4

 
(10
)
 
(2
)
 
 
 
 
 
 
 
 
Realized losses:
 
 
 
 
 
 
 
Matured derivative financial instruments
(4
)
 
(1
)
 
(8
)
 
(11
)

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 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 June 30, 2016, follows:
 
Open Positions
 
Average Price
Per Unit
 
Maturities Through
 
 
Contract
 
Market
 
Embedded derivatives in provisional sales contracts:
 
 
 
 
 
 
 
Copper (millions of pounds)
769

 
$
2.16

 
$
2.20

 
November 2016
Gold (thousands of ounces)
90

 
1,259

 
1,322

 
October 2016
Embedded derivatives in provisional purchase contracts:
 
 
 
 
 
 
 
Copper (millions of pounds)
123

 
2.17

 
2.20

 
October 2016

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Table of Contents             



Crude Oil Contracts. As a result of the acquisition of the oil and gas business, FCX had derivative contracts in 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 contracts matured in 2015, and FCX does not have any crude oil derivative contracts in place for 2016 or future years.

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 June 30, 2016, Atlantic Copper held net copper forward purchase contracts for 14 million pounds at an average contract price of $2.10 per pound, with maturities through August 2016.

Summary of Gains (Losses). A summary of the realized and unrealized gains (losses) recognized in FCX's 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
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Embedded derivatives in provisional copper and gold
 
 
 
 
 
 
 
sales contractsa
$
4

 
$
(73
)
 
$
76

 
$
(144
)
Copper forward contractsb
(2
)
 
(6
)
 
5

 
(7
)
Crude oil optionsa
—

 
6

 
—

 
58

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):
 
 
June 30,
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
 
49

 
19

Copper forward contracts
 
2

 
—

Total derivative assets
 
$
55

 
$
20

 
 
 
 
 
Commodity Derivative Liabilities:
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Copper futures and swap contractsa
 
$
3

 
$
11

Derivatives not designated as hedging instruments:
 
 
 
 
Embedded derivatives in provisional copper and gold
 
 
 
 
sales/purchase contracts
 
18

 
81

Copper forward contracts
 
1

 
—

Total derivative liabilities
 
$
22

 
$
92

a.
FCX paid $3 million to brokers at June 30, 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
 
 
June 30,
2016
 
December 31, 2015
 
June 30,
2016
 
December 31, 2015
 
 
 
 
 
 
 
 
 
Gross amounts recognized:
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
Embedded derivatives in provisional
 
 
 
 
 
 
 
 
sales/purchase contracts
 
$
49

 
$
19

 
$
18

 
$
81

Copper derivatives
 
6

 
1

 
4

 
11

 
 
55

 
20

 
22

 
92

 
 
 
 
 
 
 
 
 
Less gross amounts of offset:
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
Embedded derivatives in provisional
 
 
 
 
 
 
 
 
sales/purchase contracts
 
3

 
5

 
3

 
5

Copper derivatives
 
4

 
1

 
4

 
1

 
 
7

 
6

 
7

 
6

 
 
 
 
 
 
 
 
 
Net amounts presented in balance sheet:
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
Embedded derivatives in provisional
 
 
 
 
 
 
 
 
sales/purchase contracts
 
46

 
14

 
15

 
76

Copper derivatives
 
2

 
—

 
—

 
10

 
 
$
48

 
$
14

 
$
15

 
$
86

 
 
 
 
 
 
 
 
 
Balance sheet classification:
 
 
 
 
 
 
 
 
Trade accounts receivable
 
$
48

 
$
9

 
$
8

 
$
51

Accounts payable and accrued liabilities
 
—

 
5

 
7

 
35

 
 
$
48

 
$
14

 
$
15

 
$
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 June 30, 2016, the maximum amount of credit exposure associated with derivative transactions was $42 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 $48 million at June 30, 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 8 for the fair values of investment securities, legally restricted funds and long-term debt).

In addition, FCX has contingent liabilities related to the settlement of FM O&G's drilling rig contracts (refer to Note 8 for the fair value and Note 9 for further discussion of these instruments).


18
Table of Contents             


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 second-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 7) follows (in millions):
 
At June 30, 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
$
24

 
$
24

 
$
24

 
$
—

 
$
—

 
$
—

Money market funds
22

 
22

 
—

 
22

 
—

 
—

Equity securities
4

 
4

 
—

 
4

 
—

 
—

Total
50

 
50

 
24

 
26

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Legally restricted funds:a,b,c,d
 
 
 
 
 
 
 
 
 
 
 
U.S. core fixed income fund at NAV
55

 
55

 
55

 
—

 
—

 
—

Government bonds and notes
38

 
38

 
—

 
—

 
38

 
—

Government mortgage-backed securities
30

 
30

 
—

 
—

 
30

 
—

Corporate bonds
30

 
30

 
—

 
—

 
30

 
—

Asset-backed securities
15

 
15

 
—

 
—

 
15

 
—

Money market funds
12

 
12

 
—

 
12

 
—

 
—

Collateralized mortgage-backed securities
6

 
6

 
—

 
—

 
6

 
—

Municipal bonds
1

 
1

 
—

 
—

 
1

 
—

Total
187

 
187

 
55

 
12

 
120

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives:a,e
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/
 
 
 
 
 
 
 
 
 
 
 
purchase contracts in a gross asset position
49

 
49

 
—

 
—

 
49

 
—

Copper futures and swap contracts
4

 
4

 
—

 
4

 
—

 
—

Copper forward contracts
2

 
2

 
—

 
1

 
1

 
—

Total
55

 
55

 
—

 
5

 
50

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
 
$
292

 
$
79

 
$
43

 
$
170

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Derivatives:a,e
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/
 
 
 
 
 
 
 
 
 
 
 
purchase contracts in a gross liability position
$
18

 
$
18

 
$
—

 
$
—

 
$
18

 
$
—

Copper futures and swap contracts
3

 
3

 
—

 
1

 
2