BUSINESS SEGMENTS

9 Months Ended

Sep. 30, 2018

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.

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 segments, including Atlantic Copper Smelting & Refining and on 25 percent of PT-FI’s sales to PT Smelting, 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 Financial Information by Business Segment 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.

Product Revenues. FCX’s revenues attributable to the products it sold for the third quarters and first nine months of 2018 and 2017 follow (in millions):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Copper:
Concentrate	$	1,743		$	1,571		$	5,093		$	3,793
Cathode	1,271			1,197			4,159			3,192
Rod and other refined copper products	561			604			1,899			1,818
Gold	1,073			495			2,814			1,334
Molybdenum	286			213			882			661
Other^a	381			307			1,179			819
Adjustments to revenues:
Treatment charges	(162		)	(147		)	(433		)	(378		)
Royalty expense^b	(75		)	(46		)	(217		)	(112		)
Export duties^c	(52		)	(21		)	(153		)	(62		)
Revenues from contracts with customers	5,026			4,173			15,223			11,065
Embedded derivatives^d	(118		)	137			(279		)	297
Total consolidated revenues	$	4,908		$	4,310		$	14,944		$	11,362


a.	Primarily includes revenues associated with cobalt, silver, oil, gas and natural gas liquids.


b.	Reflects royalties for sales from PT-FI and Cerro Verde that will vary with the volume of metal sold and the prices of copper and gold.


c.	Reflects PT-FI export duties.


d.	Refer to Note 6 for discussion of embedded derivatives related to FCX’s provisionally priced concentrate and cathode sales contracts.

Financial Information by Business Segment




(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		nations				Total
Three Months Ended September 30, 2018
Revenues:
Unaffiliated customers	$	30	$	2	$	32	$	687		$	122		$	809	$	1,703	^a	$	—		$	1,212	$	579	$	573		^b	$	4,908
Intersegment	467		587		1,054		71			—			71		61			101			8		—		(1,295		)		—
Production and delivery	304		485		789		519		^c	105			624		522			76			1,215		559		(716		)		3,069
Depreciation, depletion and amortization	43		45		88		122			20			142		181			20			3		6		18				458
Selling, general and administrative expenses	1		—		1		3			—			3		29			—			—		5		63				101
Mining exploration and research expenses	—		1		1		—			—			—		—			—			—		—		26				27
Environmental obligations and shutdown costs	—		2		2		—			—			—		—			—			—		—		6				8
Net gain on sales of assets	—		—		—		—			—			—		—			—			—		—		(70		)	^d	(70		)
Operating income (loss)	149		56		205		114			(3		)	111		1,032			5			2		9		(49		)		1,315

Interest expense, net	1		—		1		15			—			15		—			—			—		7		120				143
Provision for income taxes	—		—		—		37			5			42		424			—			—		—		56				522
Total assets at September 30, 2018	2,826		4,465		7,291		8,613			1,709			10,322		11,764			1,808			284		835		5,445			^e	37,749
Capital expenditures	63		118		181		47			3			50		246			4			1		3		22				507

Three Months Ended September 30, 2017
Revenues:
Unaffiliated customers	$	57	$	40	$	97	$	850		$	109		$	959	$	1,121	^a	$	—		$	1,137	$	554	$	442		^b	$	4,310
Intersegment	460		548		1,008		64			—			64		—			65			8		1		(1,146		)		—
Production and delivery	242		410		652		683		^f	76			759		407			57			1,140		533		(754		)		2,794			^g
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		64				104
Mining exploration and research expenses	—		—		—		—			—			—		—			—			—		—		27				27
Environmental obligations and shutdown costs	—		—		—		—			—			—		—			—			—		—		72				72
Net gain on sales of assets	—		—		—		—			—			—		—			—			—		—		(33		)	^d	(33		)
Operating income (loss)	232		123		355		113			15			128		546			(12		)	3		11		(103		)		928

Interest expense, net	1		—		1		156		^f	—			156		1			—			—		5		141				304
Provision for income taxes	—		—		—		134		^f	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


a.	Includes PT-FI's sales to PT Smelting totaling $827 million in third-quarter 2018 and $652 million in third-quarter 2017.


b.	Includes revenues from FCX's molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North America and South America copper mines.


c.	Includes charges of $69 million associated with Cerro Verde’s new three-year collective labor agreement.

Includes gains in third-quarter 2018 of $50 million associated with an increase to the estimated fair value less costs to sell for Freeport Cobalt (refer to Note 1) and $20 million reflecting adjustments to the fair value of the potential contingent consideration related to the 2016 sale of onshore California oil and gas properties, and a gain in third-quarter 2017 of $33 million associated with the sale of oil and gas properties.


e.	Includes assets held for sale, primarily Freeport Cobalt, totaling $626 million at September 30, 2018, and $459 million at September 30, 2017.


f.	Includes net charges of $216 million in production and delivery costs, $141 million in interest expense and $2 million in provision for income taxes associated with disputed royalties for prior years.


g.	Includes an $8 million decrease related to the adoption of the new guidance for the presentation of net periodic benefit cost for pension and other postretirement benefit plans (refer to Note 11 for further discussion).

Financial Information by Business Segment (continued)




(In millions)

																						Atlantic		Corporate,
	North America Copper Mines						South America Mining															Copper		Other
							Cerro							Indonesia			Molybdenum			Rod &		Smelting		& Elimi-				FCX
	Morenci		Other		Total		Verde			Other		Total		Mining			Mines			Refining		& Refining		nations				Total
Nine Months Ended September 30, 2018
Revenues:
Unaffiliated customers	$	58	$	30	$	88	$	2,031		$	443	$	2,474	$	4,863	^a	$	—		$	3,984	$	1,758	$	1,777		^b	$	14,944
Intersegment	1,636		1,917		3,553		273			—		273		114			307			24		2		(4,273		)		—
Production and delivery	892		1,477		2,369		1,391		^c	354		1,745		1,404			214			3,992		1,694		(2,626		)		8,792
Depreciation, depletion and amortization	133		141		274		336			66		402		534			60			8		20		53				1,351
Selling, general and administrative expenses	3		2		5		7			—		7		96			—			—		16		217				341
Mining exploration and research expenses	—		2		2		—			—		—		—			—			—		—		70				72
Environmental obligations and shutdown costs	—		2		2		—			—		—		—			—			—		—		74				76
Net gain on sales of assets	—		—		—		—			—		—		—			—			—		—		(126		)	^d	(126		)
Operating income (loss)	666		323		989		570			23		593		2,943			33			8		30		(158		)		4,438

Interest expense, net	3		—		3		48			—		48		—			—			—		18		367				436
Provision for income taxes	—		—		—		207			15		222		1,254			—			—		1		66				1,543
Capital expenditures	151		262		413		178			10		188		695			6			3		10		76				1,391

Nine Months Ended September 30, 2017
Revenues:
Unaffiliated customers	$	168	$	122	$	290	$	2,057		$	332	$	2,389	$	2,720	^a	$	—		$	3,290	$	1,412	$	1,261		^b	$	11,362
Intersegment	1,354		1,704		3,058		237			—		237		—			199			22		1		(3,517		)		—
Production and delivery	765		1,273		2,038		1,450		^e	245		1,695		1,224		^f	167			3,296		1,369		(2,327		)		7,462			^g
Depreciation, depletion and amortization	138		192		330		332			60		392		372			58			7		21		77				1,257
Selling, general and administrative expenses	2		2		4		7			—		7		92		^f	—			—		13		246				362
Mining exploration and research expenses	—		2		2		—			—		—		—			—			—		—		58				60
Environmental obligations and shutdown costs	—		—		—		—			—		—		—			—			—		—		76				76
Net gain on sales of assets	—		—		—		—			—		—		—			—			—		—		(66		)	^d	(66		)
Operating income (loss)	617		357		974		505			27		532		1,032			(26		)	9		10		(320		)		2,211

Interest expense, net	2		1		3		187		^e	—		187		1			—			—		13		429				633
Provision for income taxes	—		—		—		288		^e	10		298		435			—			—		4		10				747
Capital expenditures	78		28		106		60			5		65		663			4			3		30		149				1,020


a.	Includes PT-FI’s sales to PT Smelting totaling $2.1 billion for the first nine months of 2018 and $1.4 billion for the first nine months of 2017.


b.	Includes revenues from FCX’s molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North America and South America copper mines.


c.	Includes charges of $69 million associated with Cerro Verde’s new three-year collective labor agreement.

Includes gains for the first nine months of 2018 of $50 million associated with an increase to the estimated fair value less costs to sell for Freeport Cobalt (refer to Note 1) and $76 million reflecting adjustments to the fair value of the potential contingent consideration related to the 2016 sale of onshore California oil and gas properties; and net gains for the first nine months of 2017, primarily associated with sales of oil and gas properties of $49 million and a favorable adjustment of $13 million associated with the estimated fair value less costs to sell for the Kisanfu exploration project.


e.	Includes net charges of $216 million in production and delivery, $141 million in interest expense and $2 million in provision for income taxes associated with disputed royalties for prior years.


f.	Includes net charges at PT-FI associated with workforce reductions totaling $112 million in production and delivery costs and $5 million in selling, general and administrative expenses.


g.	Includes a $35 million decrease related to the adoption of the new guidance for the presentation of net periodic benefit cost for pension and other postretirement benefit plans (refer to Note 11 for further discussion).