Close

Form 8-K FREEPORT-MCMORAN INC For: Jul 26

July 27, 2016 4:56 PM EDT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 27, 2016 (July 26, 2016)

 

 

 

LOGO

FREEPORT-McMoRan INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-11307-01   74-2480931
(State or other jurisdiction
of incorporation)
  (Commission
File Number)
  (IRS Employer
Identification No.)

 

333 North Central Avenue

Phoenix, AZ

  85004-2189
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (602) 366-8100

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 1.01 Entry into a Material Definitive Agreement.

On July 27, 2016, Freeport-McMoRan Inc. (the “Company”) entered into a distribution agreement (the “Agreement”) with J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BBVA Securities Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., BTIG, LLC, CIBC World Markets Corp., Citigroup Global Markets Inc., HSBC Securities (USA) Inc., Mizuho Securities USA Inc., MUFG Securities Americas Inc., RBC Capital Markets, LLC, Santander Investment Securities Inc., Scotia Capital (USA) Inc., SMBC Nikko Securities America, Inc., TD Securities (USA) LLC and Wells Fargo Securities, LLC (collectively, the “Sales Agents”). Pursuant to the terms of the Agreement, the Company may offer and sell shares of common stock, par value $0.10 per share (the “Shares”) having aggregate gross proceeds of up to $1,500,000,000 from time to time through one or more of the Sales Agents. Sales of the Shares, if any, would be made by means of ordinary brokers’ transactions or block trades on the New York Stock Exchange at market prices or as otherwise agreed between the Company and one or more of the Sales Agents. The Company may also agree to sell the Shares to one or more of the Sales Agents as principal for its own account on terms agreed to by the parties to such agreement. The Sales Agents will receive from the Company a commission equal to a percentage, not to exceed 1.50%, of the gross sales price per share of the Shares sold in agency transactions under the Agreement.

The Shares are registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s shelf registration statement (File No. 333-206257) (the “Registration Statement”) on Form S-3, which was filed with the Securities and Exchange Commission (the “SEC”) on August 10, 2015.

The Agreement is filed as Exhibit 10.1 to this Current Report on Form 8-K, and the description of the Agreement is qualified in its entirety by reference to such exhibit. For a more detailed description of the Agreement, see the disclosure under the caption “Plan of distribution (conflicts of interest)” contained in the Company’s prospectus supplement dated July 27, 2016 to the prospectus dated August 10, 2015, that has been filed with the SEC pursuant to Rule 424(b) under the Securities Act, which disclosure is hereby incorporated by reference. The Agreement is also filed with reference to, and is hereby incorporated by reference into, the Registration Statement.

In the ordinary course of its business, each of the Sales Agents has and/or its affiliates have in the past performed, and may continue to perform, investment banking, lending, broker dealer, financial advisory or other services for us for which they have received, or may receive, separate fees. In addition, in the ordinary course of their business activities, the Sales Agents and/or their affiliates may make or hold a broad array of investments and actively traded debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The Sales Agents and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. Under our revolving credit facility and term loan (the “senior credit facilities”), JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC, is administrative agent and collateral agent. JPMorgan Chase Bank, N.A., also acts as swingline lender under our revolving credit facility. Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, acts as syndication agent under both of our senior credit facilities. In addition, affiliates of certain of the sales agents are joint lead arrangers, co-documentation agents, joint bookrunners and senior managing agents under one or both of our senior credit facilities or credit facilities of certain of our subsidiaries and trustees under certain of our indentures. Affiliates of each of the Sales Agents are also lenders under one or both of our senior credit facilities. These Sales Agent affiliates will receive a portion of the proceeds from the sale of our common stock under the Agreement to the extent such proceeds are used to repay borrowings under these credit facilities.

A copy of the opinion of Davis Polk & Wardwell LLP relating to the legality of the Shares is filed as Exhibit 5.1 to this Current Report and is filed with reference to, and is hereby incorporated by reference into, the Registration Statement.


Item 8.01. Other Events.

Freeport-McMoRan

Reports Second-Quarter and Six-Month 2016 Results

 

 

 

  Net loss attributable to common stock totaled $479 million, $0.38 per share, for second-quarter 2016.

 

  Consolidated sales (including volumes from Tenke Fungurume (Tenke), which is being reported as a discontinued operation) totaled 1.1 billion pounds of copper, 156 thousand ounces of gold, 19 million pounds of molybdenum and 12.4 million barrels of oil equivalents (MMBOE) for second-quarter 2016, compared with 964 million pounds of copper, 352 thousand ounces of gold, 23 million pounds of molybdenum and 13.1 MMBOE for second-quarter 2015.

 

  Consolidated sales for the year 2016 (including volumes from Tenke through the anticipated closing date) are expected to approximate 5.0 billion pounds of copper, 1.7 million ounces of gold, 76 million pounds of molybdenum and 47.4 MMBOE, including 1.3 billion pounds of copper, 410 thousand ounces of gold, 20 million pounds of molybdenum and 11.4 MMBOE for third-quarter 2016.

 

  Average realized prices were $2.18 per pound of copper, $1,292 per ounce for gold and $41.10 per barrel for oil for second-quarter 2016.

 

  Average unit net cash costs were $1.33 per pound of copper for mining operations and $15.00 per barrel of oil equivalents (BOE) for oil and gas operations for second-quarter 2016. Unit net cash costs for the year 2016 are expected to average $1.06 per pound of copper for mining operations (including Tenke) and $15.50 per BOE for oil and gas operations.

 

  Operating cash flows totaled $874 million (including $278 million in working capital sources and changes in other tax payments) for second-quarter 2016. Based on current sales volume and cost estimates and assuming average prices of $2.25 per pound for copper, $1,300 per ounce for gold, $6 per pound for molybdenum and $48 per barrel for Brent crude oil for the second half of 2016, operating cash flows for the year 2016 are expected to approximate $4.5 billion (including $0.7 billion in working capital sources and changes in other tax payments).

 

  Capital expenditures totaled $833 million for second-quarter 2016, consisting of $441 million for mining operations (including $350 million for major projects) and $392 million for oil and gas operations. Capital expenditures are expected to approximate $3.1 billion for the year 2016, consisting of $1.7 billion for mining operations (including $1.3 billion for major projects) and $1.4 billion for oil and gas operations.

 

  During second-quarter 2016, FCX completed previously announced asset sales for aggregate cash consideration of $1.3 billion, including the $1.0 billion sale of an additional 13 percent undivided interest in Morenci. In May 2016, FCX entered into a definitive agreement to sell its interest in TF Holdings Limited for $2.65 billion in cash and contingent consideration of up to $120 million. In accordance with accounting guidelines, the results of Tenke are reported as discontinued operations for all periods presented.

 

  During second-quarter 2016, FCX entered into agreements to terminate FM O&G’s three drilling rig contracts for a total of $755 million and potential contingent consideration depending on future oil prices. The settlements result in aggregate savings of approximately $350 million, compared to the previously contracted commitments.

 

  Through July 25, 2016, FCX exchanged $369 million in senior notes for approximately 28 million shares of its common stock in a series of privately negotiated transactions, including $268 million exchanged during second-quarter 2016.

 

  At June 30, 2016, consolidated debt totaled $19.3 billion and consolidated cash totaled $352 million. At June 30, 2016, FCX had no borrowings and $3.5 billion available under its $3.5 billion revolving credit facility.

 

 

Freeport-McMoRan    1


PHOENIX, AZ, July 26, 2016 - Freeport-McMoRan Inc. (NYSE: FCX) reported net losses attributable to common stock of $479 million, $0.38 per share, for second-quarter 2016 and $4.7 billion, $3.70 per share, for the first six months of 2016, compared with $1.85 billion, $1.78 per share, for second-quarter 2015 and $4.3 billion, $4.16 per share, for the first six months of 2015. FCX’s net losses attributable to common stock include net charges totaling $452 million, $0.36 per share, for second-quarter 2016 and $4.4 billion, $3.53 per share, for the first six months of 2016, primarily for impairment of oil and gas properties and drillship settlements/idle rig costs, partly offset by net gains on the sales of assets. Second-quarter 2015 included net charges of $2.0 billion, $1.92 per share, and the first six months of 2015 included net charges of $4.4 billion, $4.24 per share, primarily for the impairment of oil and gas properties. For further discussion of these net charges refer to the supplemental schedule “Adjusted Net (Loss) Income,” on page V.

SUMMARY FINANCIAL DATA

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  
     (in millions, except per share amounts)  

Revenuesa,b

   $ 3,334       $ 3,938       $ 6,576       $ 7,709   

Operating income (loss)a

   $ 18       $ (2,421    $ (3,854    $ (5,451

Net loss from continuing operations

   $ (229    $ (1,828    $ (4,326    $ (4,275

Net (loss) income from discontinued operationsc

   $ (181    $ 29       $ (185    $ 70   

Net loss attributable to common stockd,e

   $ (479    $ (1,851    $ (4,663    $ (4,325

Diluted net (loss) income per share of common stock:

           

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
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted-average common shares outstanding

     1,269         1,040         1,260         1,040   

Operating cash flowsf

   $ 874       $ 1,069       $ 1,614       $ 1,786   

Capital expenditures

   $ 833       $ 1,661       $ 1,815       $ 3,528   

At June 30:

           

Cash and cash equivalents

   $ 352       $ 318       $ 352       $ 318   

Total debt, including current portion

   $ 19,319       $ 20,902       $ 19,319       $ 20,902   

 

a. For segment financial results, refer to the supplemental schedules, “Business Segments,” beginning on page VIII.
b. Includes (unfavorable) favorable adjustments to provisionally priced concentrate and cathode copper sales recognized in prior periods totaling $(28) million ($(15) million to net loss attributable to common stock from continuing operations or $(0.01) per share) in second-quarter 2016, $(22) million ($(11) million to net loss attributable to common stock from continuing operations or $(0.01) per share) in second-quarter 2015, $5 million ($2 million to net loss attributable to common stock from continuing operations or less than $0.01 per share) for the first six months of 2016 and $(99) million ($(47) million to net loss attributable to common stock from continuing operations or $(0.04) per share) for the first six months of 2015. For further discussion, refer to the supplemental schedule, “Derivative Instruments,” on page VII.
c. Net (loss) income from discontinued operations includes charges for (i) allocated interest expense totaling $11 million in second-quarter 2016, $7 million in second-quarter 2015, $21 million for the first six months of 2016 and $14 million for the first six months of 2015 associated with the portion of the term loan that is required to be repaid as a result of the sale of FCX’s interest in Tenke and (ii) income tax (benefit) provision totaling $(16) million in second-quarter 2016, $12 million in second-quarter 2015, $(23) million for the first six months of 2016 and $31 million for the first six months of 2015. In accordance with accounting guidelines, the second quarter and first six months of 2016 are also net of an estimated loss on disposal, which will be adjusted through closing of the transaction (refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on page V).
d. Includes net charges totaling $452 million ($0.36 per share) in second-quarter 2016, $2.0 billion ($1.92 per share) in second-quarter 2015, $4.4 billion ($3.53 per share) for the first six months of 2016 and $4.4 billion ($4.24 per share) for the first six months of 2015, which are described in the supplemental schedule, “Adjusted Net (Loss) Income,” on page V.

 

Freeport-McMoRan    2


e. FCX defers recognizing profits on intercompany sales until final sales to third parties occur. For a summary of net impacts from changes in these deferrals, refer to the supplemental schedule, “Deferred Profits,” on page VII.
f. Includes net working capital sources (uses) and changes in other tax payments of $278 million in second-quarter 2016, $(104) million in second-quarter 2015, $466 million for the first six months of 2016 and $(190) million for the first six months of 2015.

DEBT REDUCTION INITIATIVES

FCX previously announced plans to reduce debt and restore its balance sheet strength through a combination of asset sale transactions, cash flow from operations and potential capital market transactions. To date, FCX has announced over $4 billion in transactions and has received aggregate cash consideration of $1.4 billion, including $87 million in July 2016. The $2.65 billion Tenke Fungurume (Tenke) transaction is expected to close in fourth-quarter 2016. In addition, FCX continues to aggressively manage production, exploration and administrative costs and capital spending.

During second-quarter 2016, FCX restructured its oil and gas business to reduce costs and align capital allocation for the business with FCX’s corporate debt reduction initiatives. During the quarter, FCX terminated contracts for Freeport-McMoRan Oil & Gas LLC’s (FM O&G) deepwater drillships, and settled aggregate commitments totaling $1.1 billion for $755 million, of which $540 million was funded with shares of FCX common stock.

During 2016, FCX has retired $369 million of its senior notes through a series of privately negotiated exchanges for 28 million shares of its common stock (including $268 million during second-quarter 2016, which resulted in a $39 million gain on early extinguishment of debt). These transactions will reduce annual interest expense by $17 million. FCX will continue to evaluate opportunities for transactions, which may include open-market purchases of its debt, debt for debt exchanges, and privately negotiated exchanges of its debt for equity or equity-linked securities. FCX may also issue additional debt or convertible securities to repay or refinance existing debt. The completion and amount of these transactions, if any, are subject to a number of factors, including market conditions, FCX’s financial position and its ability to complete such transactions on economically attractive terms.

As part of its plan to reduce outstanding indebtedness, FCX intends to commence, subject to market conditions, a registered at-the-market offering of up to $1.5 billion of common stock and use the proceeds to retire outstanding indebtedness. FCX believes the proceeds of this offering, together with previously announced asset sale transactions and anticipated cash flow from operations, will enable it to achieve its near-term debt reduction objectives.

While additional asset sales may be considered, FCX remains focused on retaining a high-quality portfolio of long-lived copper assets positioned to generate value as market conditions improve. In addition to debt reduction plans, FCX is pursuing opportunities to create additional value through mine designs that would increase copper reserves, reduce costs and provide opportunities to enhance net present values, and continues to advance studies for future development of its copper resources, the timing of which will be dependent on market conditions.     

 

Freeport-McMoRan    3


Following provides a summary of FCX’s completed and pending asset sales (in billions):

 

     Closing or Expected    Cash  
    

Closing Date

   Consideration a  

Morenci (13 percent interest)

   Second-quarter 2016    $ 1.00   

Timok exploration project in Serbia

   Second-quarter 2016      0.13  b 

Oil and gas royalty interests

   Second-quarter 2016      0.10   

Other land sales

   Second-quarter 2016      0.06   

Haynesville shale assets

   Third-quarter 2016      0.09   

Tenke

   Fourth-quarter 2016      2.65  c 
     

 

 

 

Total, excluding potential transactions and contingent consideration

        4.03   

Potential Freeport Cobalt/Kinsanfu transactionsd

        0.15   

Contingent considerationb,c

        0.23   
     

 

 

 

Total

      $ 4.41   
     

 

 

 

 

a. Reflects aggregate cash consideration.
b. Excludes contingent consideration of up to $107 million payable to FCX in stages based upon achievement of defined development milestones.
c. Excludes contingent consideration of up to $120 million, 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, for the 24-month period ending December 31, 2019.
d. FCX has agreed to negotiate exclusively with China Molybdenum Co., Ltd. (CMOC) until December 31, 2016, to enter into a definitive agreement to sell its interests in Freeport Cobalt for $100 million and the Kinsanfu exploration project in the Democratic Republic of Congo (DRC) for $50 million in separate transactions.

SUMMARY OPERATING DATA

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Copper (millions of recoverable pounds)

           

Productiona

     1,133         977         2,230         1,892   

Sales, excluding purchasesa

     1,111         964         2,234         1,924   

Average realized price per pounda

   $ 2.18       $ 2.71       $ 2.16       $ 2.70   

Site production and delivery costs per poundb

   $ 1.43       $ 1.85       $ 1.47       $ 1.89   

Unit net cash costs per poundb

   $ 1.33       $ 1.50       $ 1.35       $ 1.57   

Gold (thousands of recoverable ounces)

           

Production

     166         367         350         626   

Sales, excluding purchases

     156         352         357         615   

Average realized price per ounce

   $ 1,292       $ 1,174       $ 1,259       $ 1,183   

Molybdenum (millions of recoverable pounds)

           

Production

     19         25         39         49   

Sales, excluding purchases

     19         23         36         46   

Average realized price per pound

   $ 8.34       $ 9.51       $ 7.99       $ 9.84   

Oil Equivalents

           

Sales volumes

           

MMBOE

     12.4         13.1         24.5         25.6   

Thousand BOE (MBOE) per day

     136         144         135         142   

Cash operating margin per BOEc

           

Realized revenues

   $ 32.70       $ 50.04  d     $ 28.29       $ 46.95  d 

Cash production costs

     (15.00      (19.04      (15.42      (19.62
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash operating margin

   $ 17.70       $ 31.00       $ 12.87       $ 27.33   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Freeport-McMoRan    4


a. Includes production and sales volumes from the Tenke mine, which is reported as a discontinued operation. Copper sales volumes from the Tenke mine totaled 124 million pounds in second-quarter 2016, 104 million pounds in second-quarter 2015, 247 million pounds for the first six months of 2016 and 237 million pounds for the first six months of 2015.
b. Reflects per pound weighted-average production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines (including Tenke), before net noncash and other costs. Excluding the Tenke mine, mining unit net cash costs averaged $1.33 per pound in second-quarter 2016, $1.56 per pound in second-quarter 2015, $1.36 per pound for the first six months of 2016 and $1.63 per pound for the first six months of 2015. For reconciliations of per pound unit costs by operating division to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.
c. Cash operating margin for oil and gas operations reflects realized revenues less cash production costs. Cash production costs exclude accretion and other costs. For reconciliations of realized revenues and cash production costs per BOE to revenues and production and delivery costs reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.
d. Includes realized cash gains on crude oil derivative contracts of $7.73 per BOE in second-quarter 2015 and $7.87 per BOE for the first six months of 2015. FCX currently does not have oil and gas derivative contracts in place for 2016 or future years.

Consolidated Sales Volumes

Second-quarter 2016 consolidated copper sales (including Tenke) of 1.1 billion pounds were higher than second-quarter 2015 sales of 964 million pounds, primarily reflecting higher volumes from Cerro Verde.

Second-quarter 2016 consolidated gold sales of 156 thousand ounces were lower than second-quarter 2015 sales of 352 thousand ounces, primarily reflecting lower ore grades and lower mining and milling rates.

Second-quarter 2016 consolidated molybdenum sales of 19 million pounds were lower than second-quarter 2015 sales of 23 million pounds, primarily reflecting market-driven curtailed production volumes from the primary molybdenum mines.

Second-quarter 2016 sales from oil and gas operations of 12.4 MMBOE, including 8.65 million barrels (MMBbls) of crude oil, 18.8 billion cubic feet (Bcf) of natural gas and 0.6 MMBbls of natural gas liquids (NGLs), were lower than second-quarter 2015 sales of 13.1 MMBOE, primarily reflecting lower natural gas volumes from Haynesville.

Sales volumes for the year 2016 are expected to approximate 5.0 billion pounds of copper (including 440 million pounds for Tenke through the anticipated closing date), 1.7 million ounces of gold, 76 million pounds of molybdenum and 47.4 MMBOE, including 1.3 billion pounds of copper (including 115 million pounds for Tenke), 410 thousand ounces of gold, 20 million pounds of molybdenum and 11.4 MMBOE for third-quarter 2016. Anticipated higher grades from the Grasberg mine are expected to result in approximately 30 percent of 2016 copper sales and 55 percent of 2016 gold sales to occur in fourth-quarter 2016.

Consolidated Unit Costs

Mining Unit Net Cash Costs. Consolidated average unit net cash costs (net of by-product credits) for FCX’s copper mines (including Tenke) of $1.33 per pound of copper in second-quarter 2016 were lower than unit net cash costs of $1.50 per pound in second-quarter 2015, primarily reflecting higher copper sales volumes and the impact of ongoing cost reduction initiatives, partly offset by lower gold and silver credits.

Assuming average prices of $1,300 per ounce of gold and $6 per pound of molybdenum for the second half of 2016 and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for copper mines (including Tenke) are expected to average $1.06 per pound of copper for the year 2016. The impact of price changes for the second half of 2016 on consolidated unit net cash costs would approximate $0.015 per pound for each $50 per ounce change in the average price of gold and $0.01 per pound for each $2 per pound change in the average price of molybdenum. Quarterly unit net cash costs vary with fluctuations in sales volumes and realized prices primarily for gold and molybdenum.

Oil and Gas Cash Production Costs per BOE. Cash production costs for oil and gas operations of $15.00 per BOE in second-quarter 2016 were lower than cash production costs of $19.04 per BOE in second-quarter 2015, primarily reflecting higher production from Gulf of Mexico (GOM) wells and ongoing cost reduction efforts.

Based on current sales volume and cost estimates, cash production costs are expected to approximate $15.50 per BOE for the year 2016.

 

Freeport-McMoRan    5


 

MINING OPERATIONS

North America Copper Mines. FCX operates seven open-pit copper mines in North America - Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. In addition to copper, molybdenum concentrate and silver are also produced by certain of FCX’s North America copper mines.

All of the North America mining operations are wholly owned, except for Morenci. FCX records its undivided joint venture interest in Morenci using the proportionate consolidation method. On May 31, 2016, FCX completed the sale of an additional 13 percent undivided interest in Morenci for $1.0 billion in cash. As a result of the transaction, FCX’s undivided interest in Morenci was prospectively reduced from 85 percent to 72 percent.

Operating and Development Activities. FCX has significant undeveloped reserves and resources in North America and a portfolio of long-term development projects. In the near term, FCX is deferring development of new projects as a result of current market conditions. Future investments will be undertaken based on the results of economic and technical feasibility studies, and market conditions.

During 2015, FCX’s revised plans for its North America copper mines to incorporate reductions in mining rates to reduce operating and capital costs. In addition, FCX curtailed operations at the Miami and Tyrone mines and is operating its Sierrita mine at reduced rates. The revised plans at each of the operations incorporate the impacts of lower energy, acid and other consumables, reduced labor costs and a significant reduction in capital spending plans. These operating plans continue to be reviewed and additional adjustments will be made as market conditions warrant.     

Operating Data. Following is a summary of consolidated operating data for the North America copper mines for the second quarters and first six months of 2016 and 2015:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Copper (millions of recoverable pounds)

           

Production

     469         469         956         921   

Sales

     464         486         967         958   

Average realized price per pound

   $ 2.18       $ 2.77       $ 2.17       $ 2.73   

Molybdenum (millions of recoverable pounds)

           

Productiona

     8         10         16         19   

Unit net cash costs per pound of copperb

           

Site production and delivery, excluding adjustments

   $ 1.40       $ 1.78       $ 1.40       $ 1.79   

By-product credits

     (0.11      (0.16      (0.10      (0.17

Treatment charges

     0.11         0.12         0.11         0.13   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unit net cash costs

   $ 1.40       $ 1.74       $ 1.41       $ 1.75   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. Refer to summary operating data on page 4 for FCX’s consolidated molybdenum sales, which includes sales of molybdenum produced at the North America copper mines.
b. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.

North America’s consolidated copper sales volumes totaling 464 million pounds in second-quarter 2016 were lower than 486 million pounds in second-quarter 2015 primarily because of timing of sales in the 2015 period. North America copper sales are estimated to approximate 1.8 billion pounds for the year 2016, compared with 2.0 billion pounds in 2015.

Average unit net cash costs (net of by-product credits) for the North America copper mines of $1.40 per pound of copper in second-quarter 2016 were lower than the unit net cash costs of $1.74 per pound in second-quarter 2015, primarily reflecting cost reduction initiatives and lower energy and other input costs.

Average unit net cash costs (net of by-product credits) for the North America copper mines are expected to approximate $1.42 per pound of copper for the year 2016, based on achievement of current sales volume and cost

 

Freeport-McMoRan    6


 

estimates and assuming an average molybdenum price of $6 per pound for the second half of 2016. North America’s average unit net cash costs would change by approximately $0.012 per pound for each $2 per pound change in the average price of molybdenum.

South America Mining. FCX operates two copper mines in South America - Cerro Verde in Peru (in which FCX owns a 53.56 percent interest) and El Abra in Chile (in which FCX owns a 51 percent interest). These operations are consolidated in FCX’s financial statements. In addition to copper, the Cerro Verde mine produces molybdenum concentrate and silver.

Operating and Development Activities. In September 2015, the Cerro Verde expansion project commenced operations, and achieved capacity operating rates during first-quarter 2016. Cerro Verde’s expanded operations benefit from its large-scale, long-lived reserves and cost efficiencies. The project expanded the concentrator facilities from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day and is on track to provide incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum.

During 2015, FCX revised plans for its South America copper mines, principally to reflect adjustments to the mine plan at El Abra to reduce mining and stacking rates by approximately 50 percent to achieve lower operating and labor costs, defer capital expenditures and extend the life of the existing operations.

FCX continues to evaluate a potential large-scale milling operation at El Abra to process additional sulfide material and to achieve higher recoveries. Exploration results in recent years at El Abra indicate a significant sulfide resource, which could potentially support a major mill project. Future investments will depend on technical studies, economic factors and global copper market conditions.

Operating Data. Following is a summary of consolidated operating data for the South America mining operations for the second quarters and first six months of 2016 and 2015:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Copper (millions of recoverable pounds)

           

Production

     334         188         669         381   

Sales

     327         178         650         378   

Average realized price per pound

   $ 2.19       $ 2.69       $ 2.18       $ 2.68   

Molybdenum (millions of recoverable pounds)

           

Productiona

     4         2         9         4   

Unit net cash costs per pound of copperb

           

Site production and delivery, excluding adjustments

   $ 1.20       $ 1.77       $ 1.22       $ 1.76   

By-product credits

     (0.12      (0.04      (0.10      (0.06

Treatment charges

     0.23         0.17         0.23         0.17   

Royalty on metals

     —           —           0.01         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Unit net cash costs

   $ 1.31       $ 1.90       $ 1.36       $ 1.87   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. Refer to summary operating data on page 4 for FCX’s consolidated molybdenum sales, which includes sales of molybdenum produced at Cerro Verde.
b. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.

South America’s consolidated copper sales volumes of 327 million pounds in second-quarter 2016 were significantly higher than second-quarter 2015 sales of 178 million pounds, primarily reflecting Cerro Verde’s expanded operations. Sales from South America mining are expected to approximate 1.36 billion pounds of copper for the year 2016, compared with 871 million pounds of copper in 2015.

 

Freeport-McMoRan    7


 

Average unit net cash costs (net of by-product credits) for South America mining of $1.31 per pound of copper in second-quarter 2016 were significantly lower than unit net cash costs of $1.90 per pound in second-quarter 2015, primarily reflecting higher copper sales volumes and economies of scale associated with the Cerro Verde expansion. Average unit net cash costs (net of by-product credits) for South America mining are expected to approximate $1.40 per pound of copper for the year 2016, based on current sales volume and cost estimates and assuming average prices of $6 per pound of molybdenum for the second half of 2016.

Indonesia Mining. Through its 90.64 percent owned and consolidated subsidiary PT Freeport Indonesia (PT-FI), FCX’s assets include one of the world’s largest copper and gold deposits at the Grasberg minerals district in Papua, Indonesia. PT-FI operates a proportionately consolidated joint venture, which produces copper concentrates that contain significant quantities of gold and silver.

Regulatory Matters. In October 2015, the Indonesian government provided a letter of assurance to PT-FI indicating that it will approve the extension of operations beyond 2021, and provide the same rights and the same level of legal and fiscal certainty provided under its current Contract of Work (COW). PT-FI continues to engage in discussions with the Indonesian government to obtain extension of its long-term rights available under the COW.

In connection with its COW negotiations and subject to concluding an agreement to extend PT-FI’s operations beyond 2021 on acceptable terms, PT-FI has agreed to construct new smelter capacity in Indonesia and to divest an additional 20.64 percent interest in PT-FI at fair market value.

PT-FI is required to apply for renewal of export permits at six-month intervals. In February 2016, PT-FI’s export permit was renewed through August 8, 2016. PT-FI has applied for an extension of this permit. The Indonesian government continues to impose a 5.0 percent export duty while it reviews PT-FI’s smelter plans.

Operating and Development Activities. PT-FI’s revised operating plans incorporate improved operational efficiencies, reductions in input costs, supplies and contractor costs, foreign exchange impacts and an approximate 20 percent deferral of capital expenditures that had been planned for 2016.

PT-FI has several projects in progress in the Grasberg minerals district related to the development of its large-scale, long-lived, high-grade underground ore bodies. In aggregate, these underground ore bodies are expected to produce large-scale quantities of copper and gold following the transition from the Grasberg open pit, currently anticipated to occur in early 2018. From 2016 to 2020, estimated aggregate capital spending on these projects is currently expected to average $1.0 billion per year ($0.8 billion per year net to PT-FI). Considering the long-term nature and size of these projects, actual costs could vary from these estimates. In response to market conditions and Indonesian regulatory uncertainty, the timing of these expenditures continues to be reviewed.

 

Freeport-McMoRan    8


 

Operating Data. Following is a summary of consolidated operating data for the Indonesia mining operations for the second quarters and first six months of 2016 and 2015:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Copper (millions of recoverable pounds)

           

Production

     208         205         373         359   

Sales

     196         196         370         351   

Average realized price per pound

   $ 2.20       $ 2.61       $ 2.17       $ 2.66   

Gold (thousands of recoverable ounces)

           

Production

     158         360         336         615   

Sales

     151         346         346         606   

Average realized price per ounce

   $ 1,292       $ 1,173       $ 1,260       $ 1,183   

Unit net cash costs per pound of coppera

           

Site production and delivery, excluding adjustments

   $ 1.77       $ 2.26       $ 1.99       $ 2.51   

Gold and silver credits

     (1.05      (2.13      (1.27      (2.11

Treatment charges

     0.29         0.32         0.30         0.31   

Export duties

     0.08         0.18         0.08         0.16   

Royalty on metals

     0.11         0.18         0.12         0.17   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unit net cash costs

   $ 1.20       $ 0.81       $ 1.22       $ 1.04   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.

Indonesia’s consolidated copper sales totaled 196 million pounds in both the second quarters of 2016 and 2015 as higher copper ore grades in the 2016 period were offset by lower mining and milling rates. Indonesia’s second-quarter 2016 gold sales of 151 thousand ounces were lower than second-quarter 2015 sales of 346 thousand ounces, primarily reflecting lower gold ore grades and lower mining and milling rates.

During second-quarter 2016, PT-FI completed repairs to its large-scale concentrating facility, which required 23 days of downtime to repair one of the milling circuits. PT-FI’s second-quarter 2016 production was also impacted by lower than expected mining rates and productivity in the Grasberg open pit, which affects the timing of metal production. Productivity in the Grasberg open pit has improved in July.

At the Grasberg mine, the sequencing of mining areas with varying ore grades causes fluctuations in quarterly and annual production of copper and gold. Consolidated sales volumes from Indonesia mining operations are expected to approximate 1.3 billion pounds of copper and 1.7 million ounces of gold for the year 2016, compared with 744 million pounds of copper and 1.2 million ounces of gold for the year 2015. PT-FI expects ore grades to improve significantly, with approximately 40 percent of its 2016 copper sales and 55 percent of its 2016 gold sales anticipated in fourth-quarter 2016.

A significant portion of PT-FI’s costs are fixed and unit costs vary depending on volumes and other factors. Indonesia’s unit net cash costs (including gold and silver credits) of $1.20 per pound of copper in second-quarter 2016 were higher than unit net cash costs of $0.81 per pound in second-quarter 2015, primarily reflecting lower gold credits, partly offset by lower royalties, export duties and energy costs.

Based on current sales volume and cost estimates, and assuming an average gold price of $1,300 per ounce for the second half of 2016, unit net cash costs (net of gold and silver credits) for Indonesia mining are expected to approximate $0.12 per pound of copper for the year 2016 and $0.43 per pound for third-quarter 2016. Indonesia mining’s unit net cash costs for the year 2016 would change by approximately $0.05 per pound for each $50 per ounce change in the average price of gold. Because of the fixed nature of a large portion of Indonesia mining’s costs, unit costs vary from quarter to quarter depending on copper and gold volumes. Anticipated higher ore grades from the Grasberg mine are expected to result in lower unit net cash costs in the second half of 2016.

 

Freeport-McMoRan    9


 

Africa Mining. Africa mining includes the Tenke Fungurume Mining S.A. (TFM) minerals district, in which FCX holds an effective 56 percent interest in the Tenke copper and cobalt mining concessions in the Southeast region of the DRC. In May 2016, FCX entered into a definitive agreement to sell its interest in TF Holdings Limited. As a result and in accordance with accounting guidelines, the operating results of Africa mining have been separately reported as discontinued operations in FCX’s consolidated statements of operations for all periods presented. The transaction is expected to close in fourth-quarter 2016, subject to regulatory approvals, CMOC shareholder approval and other customary closing conditions.

Operating and Development Activities. Revised plans at Tenke incorporate a 50 percent reduction in capital spending for 2016 and various initiatives to reduce operating, administrative and exploration costs. TFM successfully commissioned a sulphuric acid plant in first-quarter 2016, which will reduce requirements for third-party acid purchases.

Operating Data. Following is a summary of operating data for the Africa mining operations for the second quarters and first six months of 2016 and 2015:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Copper (millions of recoverable pounds)

           

Production

     122         115         232         231   

Sales

     124         104         247         237   

Average realized price per pounda

   $ 2.07       $ 2.63       $ 2.08       $ 2.66   

Cobalt (millions of contained pounds)

           

Production

     10         9         19         16   

Sales

     10         8         20         16   

Average realized price per pound

   $ 6.58       $ 9.27       $ 6.52       $ 9.23   

Unit net cash costs per pound of copperb

           

Site production and delivery, excluding adjustments

   $ 1.62       $ 1.54       $ 1.63       $ 1.56   

Cobalt creditsc

     (0.33      (0.53      (0.35      (0.44

Royalty on metals

     0.05         0.06         0.05         0.06   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unit net cash costs

   $ 1.34       $ 1.07       $ 1.33       $ 1.18   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. Includes point-of-sale transportation costs as negotiated in customer contracts.
b. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in net (loss) income from discontinued operations in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.
c. Net of cobalt downstream processing and freight costs.

Africa mining’s copper sales of 124 million pounds in second-quarter 2016 were higher than second-quarter 2015 copper sales of 104 million pounds, primarily reflecting higher mining rates and timing of sales in the 2015 period. Africa mining’s sales for 2016 (through the anticipated closing date) are expected to approximate 440 million pounds of copper and 35 million pounds of cobalt, compared with 467 million pounds of copper and 35 million pounds of cobalt for the year 2015.

Africa mining’s unit net cash costs (net of cobalt credits) of $1.34 per pound of copper in second-quarter 2016 were higher than unit net cash costs of $1.07 per pound of copper in second-quarter 2015, primarily reflecting lower cobalt credits. Unit net cash costs (net of cobalt credits) for Africa mining are expected to approximate $1.28 per pound of copper for the year 2016, based on current sales volume and cost estimates and assuming an average cobalt price of $11 per pound for the second half of 2016. Africa mining’s unit net cash costs for the year 2016 would change by approximately $0.045 per pound for each $2 per pound change in the average price of cobalt.

 

Freeport-McMoRan    10


 

Molybdenum Mines. FCX has two wholly owned molybdenum mines in North America—the Henderson underground mine and the Climax open-pit mine, both in Colorado. The Henderson and Climax mines produce high-purity, chemical-grade molybdenum concentrate, which is typically further processed into value-added molybdenum chemical products. The majority of molybdenum concentrate produced at the Henderson and Climax mines, as well as from FCX’s North and South America copper mines, is processed at FCX’s conversion facilities.

Operating and Development Activities. In response to market conditions, the revised plans for the Henderson molybdenum mine incorporate lower operating rates, resulting in an approximate 65 percent reduction in Henderson’s annual production volumes. FCX also adjusted production plans at its by-product mines, including reduced production at its Sierrita mine. Additionally, FCX incorporated changes in the commercial pricing structure for its chemicals products to promote continuation of chemical-grade production.

Production from the Molybdenum mines totaled 7 million pounds of molybdenum in second-quarter 2016 and 13 million pounds in second-quarter 2015. Refer to summary operating data on page 4 for FCX’s consolidated molybdenum sales, which includes sales of molybdenum produced at the Molybdenum mines, and from FCX’s North and South America copper mines.

Average unit net cash costs for the Molybdenum mines of $7.80 per pound of molybdenum in second-quarter 2016 were higher than average unit net cash costs of $7.19 per pound in second-quarter 2015, primarily reflecting lower volumes. Based on current sales volume and cost estimates, unit net cash costs for the Molybdenum mines are expected to average approximately $8.60 per pound of molybdenum for the year 2016.

For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.

Mining Exploration Activities. FCX’s mining exploration activities are generally associated with its existing mines focusing on opportunities to expand reserves and resources to support development of additional future production capacity. Exploration results continue to indicate opportunities for significant future potential reserve additions in North and South America. Exploration spending continues to be constrained by market conditions and is expected to approximate $45 million for the year 2016.

OIL AND GAS OPERATIONS

Through its wholly owned oil and gas subsidiary, FM O&G, FCX’s principal oil and gas assets include significant oil production facilities and growth potential in the Deepwater GOM and established oil production facilities in California. For the first six months of 2016, approximately 90 percent of FCX’s oil and gas revenues were from oil and NGLs.

During second-quarter 2016, FM O&G completed the sale of certain oil and gas royalty interests for cash consideration of $102 million (before closing adjustments), and in July 2016, completed the sale of its Haynesville shale assets in North Louisiana for cash consideration of $87 million (before closing adjustments). Under full cost accounting rules, the proceeds from these transactions are recorded as a reduction of capitalized oil and gas properties, with no gain or loss recognition.

Impairment of Oil and Gas Properties. FM O&G follows the full cost method of accounting, whereby all costs associated with oil and gas property acquisition, exploration and development activities are capitalized and amortized to expense under the unit-of-production method on a country-by-country basis using estimates of proved oil and gas reserves relating to each country where such activities are conducted. The costs of unproved oil and gas properties are excluded from amortization until the properties are evaluated.

Under full cost accounting rules, a “ceiling test” is conducted each quarter to review the carrying value of oil and gas properties for impairment. The U.S. Securities and Exchange Commission (SEC) requires the twelve-month average of the first-day-of-the-month historical reference oil price be used in determining the ceiling test limitation. Using West Texas Intermediate (WTI) as the reference oil price, the average price was $43.12 per barrel at June 30, 2016, compared with $46.26 per barrel at March 31, 2016. As a result of the impact of the reduction in twelve-month historical prices, net capitalized costs exceeded the ceiling test limitation under full cost accounting rules, which resulted in the recognition of a second-quarter 2016 impairment charge of $291 million.

 

Freeport-McMoRan    11


 

If the twelve-month historical average price remains below the June 30, 2016, twelve-month average of $43.12 per barrel, the ceiling test limitation will decrease, potentially resulting in additional ceiling test impairments of FCX’s oil and gas properties. The WTI spot oil price was $43.13 per barrel at July 25, 2016. In addition to a decline in the trailing twelve-month average oil and gas prices, other factors that could result in future impairment of FCX’s oil and gas properties include costs transferred from unevaluated properties to the full cost pool without corresponding proved oil and gas reserve additions, negative reserve revisions and the capitalization of future exploration and development costs. At June 30, 2016, carrying costs for unevaluated properties excluded from amortization totaled $1.7 billion. These costs will be transferred into the full cost pool as the properties are evaluated and proved reserves are established or if impairment is determined. If these activities do not result in additions to discounted future net cash flows from proved oil and gas reserves at least equal to the related costs transferred (net of related tax effects), additional ceiling test impairments may occur.

Financial and Operating Data. Following is a summary of financial and operating data for the U.S. oil and gas operations for the second quarters and first six months of 2016 and 2015:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Financial Summary (in millions)

           

Realized revenuesa

   $ 405       $ 656  b     $ 694       $ 1,203   

Cash production costsa

     (186      (249      (378      (503
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash operating margin

   $ 219       $ 407       $ 316       $ 700   

Capital expendituresc

   $ 388       $ 777       $ 868       $ 1,795   

Sales Volumes

           

Oil (MMBbls)

     8.7         8.6         17.0         17.0   

Natural gas (Bcf)

     18.8         23.5         38.4         45.3   

NGLs (MMBbls)

     0.6         0.6         1.2         1.1   

MMBOE

     12.4         13.1         24.5         25.6   

Average Realized Pricesa

           

Oil (per barrel)

   $ 41.10       $ 67.61  b     $ 35.21       $ 62.13  b 

Natural gas (per million British thermal units, or MMBtu)

   $ 2.04       $ 2.66       $ 2.02       $ 2.75   

NGLs (per barrel)

   $ 18.00       $ 20.50       $ 16.44       $ 21.71   

Cash Operating Margin per BOEa

           

Realized revenues

   $ 32.70       $ 50.04  b     $ 28.29       $ 46.95  b 

Cash production costs

     (15.00      (19.04      (15.42      (19.62
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash operating margin

   $ 17.70       $ 31.00       $ 12.87       $ 27.33   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. Cash operating margin for oil and gas operations reflects realized revenues less cash production costs. Cash production costs exclude accretion and other costs. For reconciliations of realized revenues (including average realized prices for oil, natural gas and NGLs) and cash production costs to revenues and production and delivery costs reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.
b. Includes realized cash gains on crude oil derivative contracts of $101 million ($11.79 per barrel of oil and $7.73 per BOE) in second-quarter 2015 and $201 million ($11.88 per barrel of oil and $7.87 per BOE) for the first six months of 2015. FCX currently does not have oil and gas derivative contracts in place for 2016 or future years.
c. Excludes international oil and gas expenditures totaling $4 million in second-quarter 2016, $29 million in second-quarter 2015, $47 million for the first six months of 2016 and $44 million for the first six months of 2015, primarily related to the Morocco oil and gas properties.

FM O&G’s average realized price for crude oil was $41.10 per barrel in second-quarter 2016 (87 percent of the average Brent crude oil price of $47.03 per barrel). FM O&G’s average realized price for natural gas was $2.04 per MMBtu in second-quarter 2016, compared to the New York Mercantile Exchange natural gas price average of $1.95 per MMBtu for the April through June 2016 contracts.

 

Freeport-McMoRan    12


 

Lower realized revenues for oil and gas operations of $32.70 per BOE in second-quarter 2016, compared to $50.04 per BOE in second-quarter 2015, primarily reflects lower oil prices and the impact of realized cash gains on derivative contracts of $7.73 per BOE in second-quarter 2015.

Cash production costs for oil and gas operations of $15.00 per BOE in second-quarter 2016 were lower than cash production costs of $19.04 per BOE in second-quarter 2015, primarily reflecting higher production from GOM wells and ongoing cost reduction efforts.

Following is a summary of average oil and gas sales volumes per day by region for the second quarters and first six months of 2016 and 2015:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Sales Volumes (MBOE per day)

           

GOMa

     88         80         85         77   

California

     32         38         32         39   

Haynesville/Madden/Otherb

     16         26         18         26   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total oil and gas operations

     136         144         135         142   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. Includes sales from properties on the GOM Shelf and in the Deepwater GOM, and the Inboard Lower Tertiary/Cretaceous natural gas trend.
b. In July 2016, FM O&G completed the sale of the Haynesville shale assets.

Daily sales volumes averaged 136 MBOE for second-quarter 2016, including 95 thousand barrels (MBbls) of crude oil, 207 million cubic feet (MMcf) of natural gas and 6 MBbls of NGLs. Since year-end 2015, FM O&G has commenced production from six 100-percent-owned Deepwater GOM wells. Oil and gas sales volumes are expected to average 130 MBOE per day for the year 2016, comprised of 73 percent oil, 22 percent natural gas and 5 percent NGLs.

In late June 2016, a fire at a third-party natural gas processing plant in Pascagoula, Mississippi resulted in the shutdown of the plant and the pipeline that transports gas supply from several offshore platforms, including FM O&G’s Horn Mountain and Marlin facilities (representing approximately 45 percent of FM O&G’s GOM BOE production). As a result, production has been temporarily constrained and FM O&G is currently accessing an alternative pipeline as an interim solution. FM O&G is working with third parties on alternative routes to resume normal production and does not expect long-term impacts from this event.

Based on current sales volume and cost estimates, cash production costs are expected to approximate $15.50 per BOE for the year 2016.

Oil and Gas Exploration, Operating and Development Activities. In second-quarter 2016, FM O&G remained focused on managing costs and enhancing asset values in response to the current market environment. FM O&G achieved a number of important operational milestones during the quarter, including the commencement of production from five 100-percent-owned Deepwater GOM tieback wells, including three at Holstein Deep and two in the Horn Mountain area. At Lucius and Heidelberg, the operator drilled development wells with favorable results that we believe will further benefit future oil production.

During second-quarter 2016, FCX negotiated the termination and settlement of FM O&G’s drilling rig contracts with Noble Drilling (U.S.) LLC (Noble) and Rowan Companies plc (Rowan). As a result of the settlements, FM O&G was released from a total of $1.1 billion in payment obligations under its three drilling rig contracts. In aggregate, reductions in previously contracted commitments for deepwater drillships approximate $350 million. During second-quarter 2016, FCX issued 48 million shares of its common stock (representing a value of $540 million) and paid $85 million cash in connection with the settlements. FCX will fund the remaining $130 million in cash during third-quarter 2016. FCX also agreed to provide contingent payments of up to $105 million, depending on the average price of crude oil over the 12-month period ending June 30, 2017. A net charge of $0.6 billion was recorded in second-quarter 2016 associated with the termination of these contracts.

Since commencing development activities in 2014 at its three 100-percent-owned production platforms in the Deepwater GOM, FM O&G has drilled 14 wells in producing fields with positive results; 10 of these wells have been brought on production, including five wells during second-quarter 2016.

 

Freeport-McMoRan    13


Oil and Gas Capital Expenditures. Capital expenditures for oil and gas operations in second-quarter 2016 totaled $388 million in the U.S. (including $205 million incurred for GOM and approximately $150 million associated with the change in capital expenditure accruals) and $4 million associated with international oil and gas properties.

Capital expenditures for oil and gas operations for the year 2016 are estimated to total $1.4 billion, with approximately 90 percent of the capital budget expected to be directed to the GOM.

Deepwater GOM. FM O&G operates and owns 100-percent working interests in the Holstein, Marlin and Horn Mountain deepwater production platforms, which in total have processing capacity of 250 MBbls of oil per day. In addition, FM O&G has interests in the Lucius, Heidelberg, Ram Powell and Hoover producing oil fields and the Atwater Valley undeveloped area.

During second-quarter 2016, production from six wells in the Lucius field in the Keathley Canyon area averaged 20 MBOE per day, net to FM O&G’s 25-percent working interest. The field has performed well since initial production commenced in first-quarter 2015. In second-quarter 2016, the operator completed the seventh well in the field. Approximately 80 percent of FM O&G’s working interest is held through its consolidated subsidiary Plains Offshore Operations Inc. (POI). Third parties hold a preferred interest in POI and are entitled to a liquidation preference and to receive preferred distributions.

In January 2016, first oil production commenced from three initial subsea wells in the Heidelberg oil field in the Green Canyon area. Heidelberg is a subsea oil development consisting of five subsea wells tied back to a truss spar hull located in 5,300 feet of water. In second-quarter 2016, the operator commenced drilling a fourth well in the field, and in July 2016, logging results confirmed oil pay with similar characteristics to a good offset producing well. The fifth and final well of the initial development phase commenced drilling in third-quarter 2016. Heidelberg field was discovered in February 2009, and the subsequent development project was sanctioned in early 2013. FM O&G has a 12.5 percent working interest in Heidelberg.

At the 100-percent-owned Holstein Deep, three wells commenced production in second-quarter 2016 and are currently producing at a gross rate of approximately 9 MBOE per day. The rates are below previous estimates, reflecting lower than expected crude oil quality and lower permeability. The Holstein Deep development is located in Green Canyon Block 643, west of the 100-percent-owned Holstein platform in 3,890 feet of water, with production facilities capable of processing 113 MBbls of oil per day.

FM O&G’s 100-percent-owned Horn Mountain field is located in the Mississippi Canyon area and has production facilities capable of processing 75 MBbls of oil per day. The Quebec/Victory and Kilo/Oscar wells commenced production in second-quarter 2016. To enhance recovery of remaining oil in place, future development plans will target subsea tieback from multiple stacked sands in the area.

FM O&G’s well inventory also includes the Horn Mountain Deep discovery well, where successful drilling results in 2015 indicated the presence of sand sections deeper than known pay sections in the field. These positive results and geophysical data support the existence of Middle Miocene reservoir potential for additional development opportunities in the Horn Mountain Deep area, including five 100-percent-owned exploration prospects with significant future potential. FM O&G controls rights to over 55,000 acres associated with these prospects.

FM O&G’s 100-percent-owned Marlin Hub is located in the Mississippi Canyon area and has production facilities capable of processing 60 MBbls of oil per day. FM O&G has drilled five successful tieback opportunities in the area since 2014. The King D-12 and Dorado wells commenced production in 2015, and the King D-13 well commenced production in first-quarter 2016.

CASH FLOWS, CASH and DEBT TRANSACTIONS

Operating Cash Flows. FCX generated operating cash flows of $874 million (including $278 million in working capital sources and changes in other tax payments) for second-quarter 2016 and $1.6 billion (including $466 million in working capital sources and changes in other tax payments) for the first six months of 2016.

Based on current sales volume and cost estimates and assuming average prices of $2.25 per pound of copper, $1,300 per ounce of gold, $6 per pound of molybdenum and $48 per barrel of Brent crude oil for the second half of 2016, FCX’s consolidated operating cash flows are estimated to approximate $4.5 billion for the year 2016 (including $0.7 billion in working capital sources and other tax payments). The impact of price changes for the second half of 2016 on operating cash flows would approximate $260 million for each $0.10 per pound change in the average price of copper, $40 million for each $50 per ounce change in the average price of gold, $35 million for

 

Freeport-McMoRan    14


 

each $2 per pound change in the average price of molybdenum and $55 million for each $5 per barrel change in the average Brent crude oil price.

Capital Expenditures. Capital expenditures totaled $833 million for second-quarter 2016, consisting of $441 million for mining operations (including $350 million for major projects) and $392 million for oil and gas operations. Capital expenditures for the first six months of 2016 totaled $1.8 billion, consisting of $900 million for mining operations (including $0.7 billion for major projects) and $915 million for oil and gas operations.

Capital expenditures are expected to approximate $3.1 billion for the year 2016, consisting of $1.7 billion for mining operations (including $1.3 billion for major projects, primarily for underground development activities at Grasberg and remaining costs for the Cerro Verde expansion) and $1.4 billion for oil and gas operations.

Cash. Following is a summary of the U.S. and international components of consolidated cash and cash equivalents available to the parent company (excluding cash and cash equivalents of $78 million in assets held for sale), net of noncontrolling interests’ share, taxes and other costs at June 30, 2016 (in millions):

 

Cash at domestic companies

   $ 20   

Cash at international operations

     332   
  

 

 

 

Total consolidated cash and cash equivalents

     352   

Noncontrolling interests’ share

     (102
  

 

 

 

Cash, net of noncontrolling interests’ share

     250   

Withholding taxes and other

     (23
  

 

 

 

Net cash available

   $ 227   
  

 

 

 

Debt. FCX continues to focus on cost and capital management and cash flow generation from its operations and is taking actions to reduce debt through asset sales, available cash flows and other transactions. Following is a summary of total debt and the related weighted-average interest rates at June 30, 2016 (in billions, except percentages):

 

                             
            Weighted-  
            Average  
            Interest Rate  

FCX Senior Notes

   $ 11.6         3.8

FCX Term Loan

     2.5  a       3.2

FM O&G Senior Notes

     2.5         6.6

Cerro Verde Credit Facility

     1.8         2.8

Other debt

     0.9         4.7
  

 

 

    
   $ 19.3         4.0
  

 

 

    

 

a. In accordance with the mandatory prepayment provision of the amended Term Loan, 50 percent of the proceeds associated with the Tenke sale must be applied toward repaying the Term Loan.

At June 30, 2016, FCX had $40 million in letters of credit issued and availability of $3.5 billion under its $3.5 billion revolving credit facility.

Through July 25, 2016, FCX exchanged $369 million in senior notes (including exchanges totaling $268 million in second-quarter 2016) maturing in 2022, 2023, 2034 and 2043 for 28 million shares of FCX common stock in a series of privately negotiated transactions at a cost of $311 million. FCX has approximately 1.33 billion common shares outstanding, which includes shares issued through July 25, 2016, in connection with the settlement of these privately negotiated transactions.

FINANCIAL POLICY

FCX intends to continue to seek to strengthen its financial position, with a focus on significant debt reduction. In December 2015, FCX’s common stock dividend was suspended. FCX’s Board of Directors will continue to review its financial policy on an ongoing basis.

 

 

Freeport-McMoRan    15


FREEPORT-McMoRan INC.

SELECTED MINING OPERATING DATA

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2015      2016      2015  

100% North America Copper Mines

           

Solution Extraction/Electrowinning (SX/EW) Operations

           

Leach ore placed in stockpiles (metric tons per day)

     780,700         890,000         807,100         902,500   

Average copper ore grade (percent)

     0.33         0.26         0.32         0.25   

Copper production (millions of recoverable pounds)

     303         261         605         508   

Mill Operations

           

Ore milled (metric tons per day)

     300,400         316,000         299,500         308,800   

Average ore grades (percent):

           

Copper

     0.48         0.47         0.49         0.48   

Molybdenum

     0.03         0.03         0.03         0.03   

Copper recovery rate (percent)

     86.6         85.8         85.6         85.6   

Production (millions of recoverable pounds):

           

Copper

     219         247         445         488   

Molybdenum

     8         10         16         19   

100% South America Mining

           

SX/EW Operations

           

Leach ore placed in stockpiles (metric tons per day)

     170,400         237,000         155,500         235,300   

Average copper ore grade (percent)

     0.39         0.41         0.40         0.41   

Copper production (millions of recoverable pounds)

     82         109         172         223   

Mill Operations

           

Ore milled (metric tons per day)

     352,000         116,500         345,700         117,900   

Average ore grades:

           

Copper (percent)

     0.42         0.46         0.43         0.45   

Molybdenum (percent)

     0.02         0.01         0.02         0.02   

Copper recovery rate (percent)

     88.0         78.2         87.1         78.9   

Production (recoverable):

           

Copper (millions of pounds)

     252         79         497         158   

Molybdenum (millions of pounds)

     4         2         9         4   

100% Indonesia Mining

           

Ore milled (metric tons per day)a

           

Grasberg open pit

     110,200         134,200         108,000         121,200   

Deep Ore Zone underground mine

     36,700         42,700         40,500         45,800   

Deep Mill Level Zone (DMLZ) underground mineb

     4,900         —           4,500         —     

Grasberg Block Cave underground mineb

     2,600         —           2,400         —     

Big Gossan underground mineb

     1,000         —           600         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     155,400         176,900         156,000         167,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Average ore grades:

           

Copper (percent)

     0.84         0.67         0.77         0.63   

Gold (grams per metric ton)

     0.48         0.86         0.50         0.78   

Recovery rates (percent):

           

Copper

     90.4         90.6         89.9         90.6   

Gold

     80.0         83.5         80.3         83.9   

Production (recoverable):

           

Copper (millions of pounds)

     226         205         409         359   

Gold (thousands of ounces)

     174         360         364         615   

100% Africa Mining (Discontinued Operation)

           

Ore milled (metric tons per day)

     15,900         15,300         15,500         14,900   

Average ore grades (percent):

           

Copper

     4.05         4.02         4.01         4.18   

Cobalt

     0.43         0.44         0.46         0.40   

Copper recovery rate (percent)

     94.5         93.9         93.7         93.9   

Production (millions of pounds):

           

Copper (recoverable)

     122         115         232         231   

Cobalt (contained)

     10         9         19         16   

100% Molybdenum Mines

           

Ore milled (metric tons per day)

     18,600         35,900         18,500         38,200   

Average molybdenum ore grade (percent)

     0.19         0.20         0.21         0.19   

Molybdenum production (millions of recoverable pounds)

     7         13         14         26   

 

a. Amounts represent the approximate average daily throughput processed at PT-FI’s mill facilities from each producing mine and from development activities that result in metal production.
b. Targeted production rates once the DMLZ underground mine reaches full capacity are expected to approximate 80,000 metric tons of ore per day in 2021; production from the Grasberg Block Cave underground mine is expected to commence in 2018 and production from the Big Gossan underground mine is expected to restart in the first half of 2017.

 

I


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)  

Revenuesa

   $ 3,334      $ 3,938      $ 6,576      $ 7,709   

Cost of sales:

        

Production and deliveryb

     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  c      148        298  c      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, netd

     (196     (142     (387     (281

Net gain on early extinguishment of debt

     39        —          36        —     

Other income, net

     25        36  e      64        43  e 
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before income taxes and equity in affiliated companies’ net earnings

     (114     (2,527     (4,141     (5,689

(Provision for) benefit from income taxesf

     (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 operationsg

     (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 stockholdersh

   $ (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   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

a. Revenues include favorable (unfavorable) adjustments to provisionally priced concentrate and cathode copper sales recognized in prior periods (refer to the supplemental schedule, “Derivative Instruments,” on page VII for a summary of these amounts). Revenues for the 2015 periods also include net noncash mark-to-market losses associated with crude oil derivative contracts (refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on Page V for a summary of these amounts).
b. Refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on page V for a summary of amounts included in production and delivery costs for net charges at (i) oil and gas operations primarily associated with drillship contract settlements/idle rig costs and inventory write downs and (ii) mining operations for adjustments to inventories.
c. Includes net restructuring charges at oil and gas operations. Refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on page V.
d. Consolidated interest expense, 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.
e. Includes a gain for the proceeds received from insurance carriers and other third parties related to a shareholder derivative litigation settlement. Refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on page V.
f. Refer to the supplemental schedule, “Income Taxes,” on page VI for a summary of income taxes from continuing operations.
g. Net of charges for (i) allocated interest expense associated with FCX’s term loan that is required to be repaid as a result of the sale of FCX’s interest in Tenke Fungurume (Tenke) totaling $11 million in second-quarter 2016, $7 million in second-quarter 2015, $21 million for the first six months of 2016 and $14 million for the first six months of 2015 and (ii) income tax (benefit) provision totaling $(16) million in second-quarter 2016, $12 million in second-quarter 2015, $(23) million for the first six months of 2016 and $31 million for the first six months of 2015. In accordance with accounting guidelines, the second quarter and first six months of 2016 are also net of $177 million for the estimated loss on disposal, which will be adjusted through closing of the transaction.
h. FCX defers recognizing profits on intercompany sales until final sales to third parties occur. Refer to the supplemental schedule, “Deferred Profits,” on page VII for a summary of net impacts from changes in these deferrals.

 

II


FREEPORT-McMoRan INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

 

     June 30,     December 31,  
     2016     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   

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   

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   

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   

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 interestsa

     4,316        4,216   
  

 

 

   

 

 

 

Total equity

     8,319        12,044   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 41,296      $ 46,577   
  

 

 

   

 

 

 

 

a. Includes noncontrolling interests of $1.2 billion at June 30, 2016, and December 31, 2015, associated with Tenke.

 

III


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

U.S. 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   
  

 

 

   

 

 

 

 

IV


FREEPORT-McMoRan INC.

ADJUSTED NET (LOSS) INCOME

 

     Three Months Ended June 30,  
     2016     2015  
     Pre-tax     After-tax     Per Share     Pre-tax     After-tax     Per Share  

Net loss attributable to common stockholders

     N/A      $ (479   $ (0.38     N/A      $ (1,851   $ (1.78
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net noncash mark-to-market losses on crude oil derivative contracts

   $ —        $ —        $ —        $ (95   $ (59   $ (0.06

Impairment of oil and gas properties

     (291     (291 ) a      (0.23     (2,686     (1,975 ) a      (1.90

Other net charges for oil and gas operations:

            

Drillship settlements/idle rig costs

     (639     (639     (0.50     (3     (2     —     

Inventory write downs

     (53     (53     (0.04     (19     (12     (0.01

Restructuring charges

     (37     (37     (0.03     —          —          —     

Mining inventory adjustments

     (2     (2     —          (59     (38     (0.04

Net gain on sales of assetsb

     749        744        0.59        —          —          —     

Net gain on early extinguishment of debt

     39        39        0.03        —          —          —     

Gain on shareholder derivative litigation settlement

     —          —          —          92        92        0.09   

Net tax chargesc

     N/A        (36     (0.03     N/A        —          —     

Estimated loss on discontinued operations

     (177     (177     (0.14     —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ (411   $ (452   $ (0.36 ) d    $ (2,770   $ (1,994   $ (1.92
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months Ended June 30,  
     2016     2015  
     Pre-tax     After-tax     Per Share     Pre-tax     After-tax     Per Share  

Net loss attributable to common stockholders

     N/A      $ (4,663   $ (3.70     N/A      $ (4,325   $ (4.16
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net noncash mark-to-market losses on crude oil derivative contracts

   $ —        $ —        $ —        $ (143   $ (89   $ (0.09

Impairment of oil and gas properties

     (4,078     (4,078 ) a      (3.24     (5,790     (4,374 ) a      (4.20

Other net charges for oil and gas operations:

            

Drillship settlements/idle rig costs

     (804     (804     (0.64     (16     (10     (0.01

Inventory write downs

     (88     (88     (0.07     (23     (14     (0.01

Restructuring charges

     (39     (39     (0.03     —          —          —     

Mining inventory adjustments

     (7     (7     (0.01     (63     (41     (0.04

Net gain on sales of assetsb

     749        744        0.59        39        25        0.02   

Net gain on early extinguishment of debt

     36        36        0.03        —          —          —     

Gain on shareholder derivative litigation settlement

     —          —          —          92        92        0.09   

Net tax chargesc

     N/A        (36     (0.03     N/A        —          —     

Estimated loss on discontinued operations

     (177     (177     (0.14     —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ (4,408   $ (4,449   $ (3.53 ) d    $ (5,904   $ (4,411   $ (4.24
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

a. As a result of the impairment to oil and gas properties, FCX recorded tax charges of $108 million in second-quarter 2016, $305 million in second-quarter 2015, $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 against deferred tax assets that will not generate a future benefit. These tax charges have been reflected in the above after-tax impacts for the impairment of oil and gas properties.
b. Net gain on sales of assets primarily reflects the sales of a 13 percent undivided interest in the Morenci unincorporated joint venture and an interest in the Timok exploration project in Serbia for the second quarter and first six months of 2016, and the sale of FCX’s one-third interest in the Luna Energy power facility in New Mexico for the first six months of 2015.
c. For further discussion of net tax charges impacting the second quarter and first six months of 2016, refer to “Income Taxes,” on page VI.
d. Per share amounts do not foot down because of rounding.

 

V


FREEPORT-McMoRan INC.

INCOME TAXES

Following is a summary of the approximate amounts used in the calculation of FCX’s consolidated income tax (provision) benefit from continuing operations for the first six months of 2016 and 2015 (in millions, except percentages):

 

     Six Months Ended June 30,  
     2016     2015  
                 Income Tax                 Income Tax  
     Income     Effective     Benefit     Income     Effective     Benefit  
     (Loss)a     Tax Rate     (Provision)     (Loss)a     Tax Rate     (Provision)  

U.S.

   $ (535     (7 )%    $ (39 ) b    $ (455 ) c      63   $ 288   

South America

     219        38     (82     81        37     (30

Indonesia

     164        33     (54     289        43     (124

Impairment of oil and gas properties

     (4,078     38     1,543        (5,790     38     2,179   

Valuation allowance, netd

     —          N/A        (1,543     —          N/A        (763

Eliminations and other

     89        N/A        (25     186        N/A        (50

Rate adjustmente

     —          N/A        7        —          N/A        (87
  

 

 

     

 

 

   

 

 

     

 

 

 

Continuing operations

   $ (4,141     (5 )% f    $ (193   $ (5,689     25   $ 1,413   
  

 

 

     

 

 

   

 

 

     

 

 

 

 

a. Represents income (loss) from continuing operations by geographic location before income taxes and equity in affiliated companies’ net earnings.
b. Includes net tax charges of $36 million, comprised of a tax charge of $96 million related to the reversal of income tax benefits recognized in 2015 for carryback claims, partly offset by a tax benefit of $60 million associated with FCX’s election to monetize alternative minimum tax credits.
c. Includes a gain of $92 million related to net proceeds received from insurance carriers and other third parties related to the shareholder derivative litigation settlement for which there was no related tax provision.
d. As a result of the impairment to U.S. oil and gas properties, FCX recorded tax charges to establish valuation allowances against U.S. federal and state deferred tax assets that will not generate a future benefit.
e. In accordance with applicable accounting rules, FCX adjusts its interim provision for income taxes equal to its consolidated tax rate.
f. The consolidated effective income tax rate is a function of the combined effective tax rates for the jurisdictions in which FCX operates. Accordingly, variations in the relative proportions of jurisdictional income result in fluctuations to FCX’s consolidated effective income tax rate. Assuming achievement of current sales volume and cost estimates and average prices of $2.25 per pound for copper, $1,300 per ounce for gold, $6 per pound for molybdenum and $48 per barrel of Brent crude oil for the second half of 2016, FCX estimates its consolidated effective rate related to continuing operations for the year 2016 will approximate 40 percent, excluding U.S. domestic losses.

 

VI


FREEPORT-McMoRan INC.

DERIVATIVE INSTRUMENTS

Provisional Pricing. During the first six months of 2016, FCX’s mined copper (excluding volumes from Tenke) was sold 53 percent in concentrate, 23 percent as cathode and 24 percent as rod from North America operations. Under the long-established structure of sales agreements prevalent in the industry, copper contained in concentrates and cathodes is provisionally priced at the time of shipment. The provisional prices are finalized in a contractually specified future month (generally one to four months from the shipment date) primarily based on quoted monthly average spot copper prices on the London Metal Exchange (LME). Because a significant portion of FCX’s copper concentrate and cathode sales in any quarterly period usually remain subject to final pricing, the quarter-end forward price is a major determinant of recorded revenues and the average recorded copper price for the period. LME spot copper prices averaged $2.14 per pound during second-quarter 2016, compared to FCX’s average realized price from continuing operations of $2.19 per pound. Following is a summary of the (unfavorable) favorable impacts of net adjustments to prior periods’ provisionally priced copper sales for the second quarters and first six months of 2016 and 2015 (in millions, except per share amounts):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2015      2016      2015  

Revenues from continuing operations

   $ (28    $ (22    $ 5       $ (99

Net income attributable to common stock from continuing operations

   $ (15    $ (11    $ 2       $ (47

Net income per share of common stock from continuing operations

   $ (0.01    $ (0.01    $ —         $ (0.04

At June 30, 2016, FCX had provisionally priced copper sales at its copper mining operations totaling 538 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average of $2.19 per pound, subject to final pricing over the next several months. FCX estimates that each $0.05 change in the price realized from the June 30, 2016, provisional price recorded would have an approximate $19 million effect on 2016 net loss attributable to common stock from continuing operations. The LME spot copper price closed at $2.22 per pound on July 25, 2016.

DEFERRED PROFITS

FCX defers recognizing profits on sales from its mining operations to Atlantic Copper and on 25 percent of PT-FI’s sales to PT Smelting (PT Freeport Indonesia’s 25 percent-owned Indonesian smelting unit) until final sales to third parties occur. Changes in these deferrals attributable to variability in intercompany volumes resulted in net (reductions) additions to net loss attributable to common stock from continuing operations of $(13) million in second-quarter 2016, $13 million in second-quarter 2015, $(11) million for the first six months of 2016 and $37 million the first six months of 2015. FCX’s net deferred profits on its inventories at Atlantic Copper and PT Smelting to be recognized in future periods’ net income attributable to common stock from continuing operations totaled $31 million at June 30, 2016. Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices will result in variability in FCX’s net deferred profits and quarterly earnings.

 

VII


FREEPORT-McMoRan INC.

BUSINESS SEGMENTS

FCX has organized its continuing 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. For oil and gas operations, FCX determines its operating segments on a country-by-country basis. Separately disclosed in the following table are FCX’s reportable segments, which include the Morenci, Cerro Verde and Grasberg copper mines, the Rod & Refining operations, the Atlantic Copper Smelting & Refining operation and U.S. Oil & Gas operations.

FCX’s reportable segments previously included Africa mining, which consisted of the Tenke Fungurume (Tenke) mine. In May 2016, FCX entered into a definitive agreement to sell its effective 56 percent interest in Tenke, and as a result, Tenke has been removed from continuing operations and reported as discontinued operations for all periods presented.

On May 31, 2016, FCX completed the sale of an additional 13 percent undivided joint venture interest in the Morenci unincorporated joint venture. As a result, FCX’s undivided interest in Morenci was prospectively reduced from 85 percent to 72 percent.

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

FCX 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.

 

 

VIII


FREEPORT-McMoRan INC.

BUSINESS SEGMENTS (continued)

 

(In millions)   Mining Operationsa                    
    North America Copper Mines     South America     Indonesia                                                  
                                                          Atlantic     Other                 Corporate,        
                                              Molyb-           Copper     Mining           U.S.     Other        
                      Cerro                       denum     Rod &     Smelting     & Elimi-     Total     Oil & Gas     & Elimi-     FCX  
    Morenci     Other     Total     Verde     Other     Total     Grasberg     Mines     Refining     & Refining     nations     Mining     Operations     nations     Total  

Three Months Ended June 30, 2016

                             

Revenues:

                             

Unaffiliated customers

  $ 79      $ 43      $ 122      $ 494      $ 123      $ 617      $ 532  b    $ —        $ 919      $ 493      $ 241  c    $ 2,924      $ 410      $ —        $ 3,334   

Intersegment

    404        534        938        60        —          60        (1 ) d      45        7        2        (1,051     —          —          —          —     

Production and delivery

    298        428        726        303        103        406        356        50        919        466        (866     2,057        889  e      10        2,956   

Depreciation, depletion and amortization

    57        77        134        109        27        136        93        17        3        7        20        410        218        4        632   

Impairment of oil and gas properties

    —          —          —          —          —          —          —          —          —          —          —          —          290        1  f      291   

Selling, general and administrative expenses

    1        1        2        2        —          2        22        —          —          4        2        32        81  g      47        160   

Mining exploration and research expenses

    —          —          —          —          —          —          —          —          —          —          15        15        —          —          15   

Environmental obligations and shutdown costs

    —          —          —          —          —          —          —          —          —          —          10        10        —          1        11   

Net gain on sale of assets

    (577     —          (577     —          —          —          —          —          —          —          (172     (749     —          —          (749
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    704        71        775        140        (7     133        60        (22     4        18        181        1,149        (1,068     (63     18   

Interest expense, net

    —          1        1        20        —          20        —          —          —          4        19        44        93        59        196   

Provision for (benefit from) income taxes

    —          —          —          45        (2     43        18        —          —          —          —          61        —          55        116   

Total assets at June 30, 2016

    2,960        4,676        7,636        9,330        1,609        10,939        9,550        1,969        217        607        6,151  h      37,069        3,902        325        41,296   

Capital expenditures

    37        5        42        135        1        136        234        —          —          5        24  i      441        388  j      4        833   

Three Months Ended June 30, 2015

                             

Revenues:

                             

Unaffiliated customers

  $ 180      $ 92      $ 272      $ 195      $ 221      $ 416      $ 792  b    $ —        $ 1,089      $ 495      $ 305  c    $ 3,369      $ 569  k    $ —        $ 3,938   

Intersegment

    427        706        1,133        37        —          37        (2 ) d      102        8        5        (1,283     —          —          —          —     

Production and delivery

    386        576 l      962        165        150        315        455        84  l      1,088        468        (1,004 ) l      2,368        281  e      2        2,651   

Depreciation, depletion and amortization

    55        84        139        40        32        72        78        25        3        9        19        345        485        3        833   

Impairment of oil and gas properties

    —          —          —          —          —          —          —          —          —          —          —          —          2,686        —          2,686   

Selling, general and administrative expenses

    —          2        2        —          1        1        25        —          —          4        5        37        49        62        148   

Mining exploration and research expenses

    —          2        2        —          —          —          —          —          —          —          28        30        —          —          30   

Environmental obligations and shutdown costs

    —          —          —          —          —          —          —          —          —          —          11        11        —          —          11   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    166        134        300        27        38        65        232        (7     6        19        (37     578        (2,932     (67     (2,421

Interest expense, net

    —          1        1        —          —          —          —          —          —          2        39        42        41        59        142   

Provision for (benefit from) income taxes

    —          —          —          (5     11        6        95        —          —          —          —          101        —          (800     (699

Total assets at June 30, 2015

    3,806        5,582        9,388        8,567        1,935        10,502        8,959        2,052        286        786        6,461  h      38,434        15,393        181        54,008   

Capital expenditures

    79        28        107        444        13        457        213        4        —          4        70  i      855        777  j      29        1,661   

 

a. Excludes the results of Tenke, which is reported as discontinued operations. Net (loss) income from discontinued operations totaled $(181) million in second-quarter 2016 and $29 million in second-quarter 2015. Refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI for a summary of the results of discontinued operations.
b. Includes PT-FI’s sales to PT Smelting totaling $287 million in second-quarter 2016 and $293 million in second-quarter 2015.
c. Includes revenues from FCX’s molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North and South America copper mines.
d. Reflects net reductions for provisional pricing adjustments to prior period open sales.
e. Includes charges at oil and gas operations totaling $692 million in second-quarter 2016 and $22 million in second-quarter 2015 primarily associated with drillship settlements/idle rig costs and inventory write-downs. For a summary of these amounts, refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on Page V for a summary of these amounts.
f. Reflects impairment charges for international oil and gas properties primarily in Morocco.
g. Includes $37 million for net restructuring charges at oil and gas operations.
h. Includes assets held for sale totaling $4.7 billion at June 30, 2016, and $4.9 billion at June 30, 2015, associated with the Tenke disposal group.
i. Includes capital expenditures of $20 million in second-quarter 2016 and $58 million in second-quarter 2015 associated with discontinued operations.
j. Excludes international oil and gas capital expenditures totaling $4 million in second-quarter 2016 and $29 million in second-quarter 2015, primarily related to the Morocco oil and gas properties, which are included in Corporate, Other & Eliminations.
k. Includes net mark-to-market gains of $6 million associated with crude oil derivative contracts.
l. Includes inventory adjustments totaling $11 million at other North America copper mines, $3 million at Molybdenum mines and $45 million at Other Mining & Eliminations.

 

IX


FREEPORT-McMoRan INC.

BUSINESS SEGMENTS (continued)

 

 

(In millions)   Mining Operationsa                    
    North America
Copper Mines
    South America     Indonesia                                                  
                                                          Atlantic     Other                 Corporate,        
                                              Molyb-           Copper     Mining           U.S.     Other        
                      Cerro                       denum     Rod &     Smelting     & Elimi-     Total     Oil & Gas     & Elimi-     FCX  
    Morenci     Other     Total     Verde     Other     Total     Grasberg     Mines     Refining     & Refining     nations     Mining     Operations     nations     Total  

Six Months Ended June 30, 2016

                             

Revenues:

                             

Unaffiliated customers

  $ 241      $ 99      $ 340      $ 980      $ 267      $ 1,247      $ 1,030  b    $ —        $ 1,890      $ 915      $ 449  c    $ 5,871      $ 705      $ —        $ 6,576   

Intersegment

    761        1,095        1,856        101        —          101        57        90        15        3        (2,122     —          —          —          —     

Production and delivery

    638        876        1,514        594        222        816        750        102        1,889        859        (1,784     4,146        1,296  d      13        5,455   

Depreciation, depletion and amortization

    119        159        278        210        58        268        174        36        5        15        38        814        473        7        1,294   

Impairment of oil and gas properties

    —          —          —          —          —          —          —          —          —          —          —          —          4,061        17  e      4,078   

Selling, general and administrative expenses

    1        2        3        4        —          4        36        —          —          8        6        57        130  f      111        298   

Mining exploration and research expenses

    —          1        1        —          —          —          —          —          —          —          32        33        —          —          33   

Environmental obligations and shutdown costs

    —          —          —          —          —          —          —          —          —          —          20        20        —          1        21   

Net gain on sale of assets

    (577     —          (577     —          —          —          —          —          —          —          (172     (749     —          —          (749
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    821        156        977        273        (13     260        127        (48     11        36        187        1,550        (5,255     (149     (3,854

Interest expense, net

    1        1        2        42        —          42        —          —          —          8        39        91        164        132        387   

Provision for (benefit from) income taxes

    —          —          —          90        (8     82        54        —          —          —          —          136        —          57        193   

Capital expenditures

    65        11        76        291        2        293        459        1        1        7        63  g      900        868  h      47        1,815   

Six Months Ended June 30, 2015

                             

Revenues:

                             

Unaffiliated customers

  $ 286      $ 207      $ 493      $ 443      $ 452      $ 895      $ 1,413  b    $ —        $ 2,151      $ 1,035      $ 653  c    $ 6,640      $ 1,069  i    $ —        $ 7,709   

Intersegment

    877        1,370        2,247        51        (7 ) j      44        (16 ) j      215        15        11        (2,516     —          —          —          —     

Production and delivery

    760        1,145  k      1,905        363        297        660        894        167  k      2,151        987        (2,003 ) k      4,761        564  d      5        5,330   

Depreciation, depletion and amortization

    106        166        272        77        70        147        148        51        5        19        35        677        1,015        7        1,699   

Impairment of oil and gas properties

    —          —          —          —          —          —          —          —          —          —          —          —          5,790        —          5,790   

Selling, general and administrative expenses

    1        2        3        1        1        2        50        —          —          9        11        75        103        121        299   

Mining exploration and research expenses

    —          5        5        —          —          —          —          —          —          —          52        57        —          —          57   

Environmental obligations and shutdown costs

    —          —          —          —          —          —          —          —          —          —          24        24        —          —          24   

Net gain on sale of assets

    —          (39     (39     —          —          —          —          —          —          —          —          (39     —          —          (39
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    296        298        594        53        77        130        305        (3     10        31        18        1,085        (6,403     (133     (5,451

Interest expense, net

    1        1        2        1        —          1        —          —          —          5        79        87        78        116        281   

Provision for (benefit from) income taxes

    —          —          —          —          30        30        124        —          —          —          —          154        —          (1,567     (1,413

Capital expenditures

    163        51        214        875        27        902        438        7        1        8        119  g      1,689        1,795  h      44        3,528   

 

a. Excludes the results of Tenke, which is reported as discontinued operations. Net (loss) income from discontinued operations totaled $(185) million for the first six months of 2016 and $70 million for the first six months of 2015. Refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI for a summary of the results of discontinued operations.
b. Includes PT-FI’s sales to PT Smelting totaling $564 million for the first six months of 2016 and $643 million for the first six months of 2015.
c. Includes revenues from FCX’s molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North and South America copper mines.
d. Includes charges at oil and gas operations totaling $892 million for the first six months of 2016 and $39 million for the first six months of 2015 primarily associated with drillship settlements/idle rig costs and inventory write downs. For a summary of these amounts, refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on Page V for a summary of these amounts.
e. Reflects impairment charges for international oil and gas properties primarily in Morocco.
f. Includes $39 million for net restructuring charges at oil and gas operations.
g. Includes capital expenditures of $55 million for the first six months of 2016 and $97 million for the first six months of 2015 associated with discontinued operations.
h. Excludes international oil and gas capital expenditures totaling $47 million for the first six months of 2016 and $44 million for the first six months of 2015, primarily related to the Morocco oil and gas properties, which are included in Corporate, Other & Eliminations.
i. Includes net mark-to-market gains of $58 million associated with crude oil derivative contracts.
j. Reflects net reductions for provisional pricing adjustments to prior period open sales. There were no intersegment sales from El Abra or Grasberg for the first six months of 2015.
k. Includes inventory adjustments totaling $11 million at other North America copper mines, $3 million at Molybdenum mines and $49 million at Other Mining & Eliminations for the first six months of 2015.

 

X


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS

Mining Product Revenues and Unit Net Cash Costs. Unit net cash costs per pound of copper and molybdenum are measures intended to provide investors with information about the cash-generating capacity of FCX’s mining operations expressed on a basis relating to the primary metal product for the respective operations. FCX uses this measure for the same purpose and for monitoring operating performance by its mining operations. This information differs from measures of performance determined in accordance with U.S. generally accepted accounting principles (GAAP) and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although FCX’s measures may not be comparable to similarly titled measures reported by other companies.

FCX presents gross profit per pound of copper in the following tables using both a “by-product” method and a “co-product” method. FCX uses the by-product method in its presentation of gross profit per pound of copper because (i) the majority of its revenues are copper revenues, (ii) it mines ore, which contains copper, gold, molybdenum and other metals, (iii) it is not possible to specifically assign all of FCX’s costs to revenues from the copper, gold, molybdenum and other metals it produces, (iv) it is the method used to compare mining operations in certain industry publications and (v) it is the method used by FCX’s management and Board to monitor mining operations. In the co-product method presentations, shared costs are allocated to the different products based on their relative revenue values, which will vary to the extent FCX’s metals sales volumes and realized prices change.

FCX shows revenue adjustments for prior period open sales as a separate line item. Because these adjustments do not result from current period sales, these amounts have been reflected separately from revenues on current period sales. Noncash and other costs consist of items such as stock-based compensation costs, start-up costs, inventory adjustments, long-lived asset impairments, restructuring and/or unusual charges. They are removed from site production and delivery costs in the calculation of unit net cash costs. As discussed above, gold, molybdenum and other metal revenues at copper mines are reflected as credits against site production and delivery costs in the by-product method. The following schedules are presentations under both the by-product and co-product methods together with reconciliations to amounts reported in FCX’s consolidated financial statements.

U.S. Oil & Gas Product Revenues and Cash Production Costs per Unit. Realized revenues and cash production costs per unit are measures intended to provide investors with information about the cash operating margin of FCX’s oil and gas operations. FCX uses this measure for the same purpose and for monitoring operating performance by its oil and gas operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. FCX’s measures may not be comparable to similarly titled measures reported by other companies.

Accretion charges for asset retirement obligations and other costs, such as drillship settlements/idle rig costs, inventory write downs and/or unusual charges, are removed from production and delivery costs in the calculation of cash production costs per BOE. Additionally, in the 2015 periods, FCX had crude oil derivative contracts. FCX shows revenue adjustments from these derivative contracts as separate line items. Because these adjustments did not result from oil and gas sales, gains and losses have been reflected separately from revenues on current period sales. The following schedules include calculations of oil and gas product revenues and cash production costs together with a reconciliation to amounts reported in FCX’s consolidated financial statements.

 

 

XI


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs

 

Three Months Ended June 30, 2016

                                
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Molybdenuma      Otherb      Total  

Revenues, excluding adjustments

   $ 1,010      $ 1,010      $ 50       $ 20       $ 1,080   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     647        617        39         11         667   

By-product credits

     (50     —          —           —           —     

Treatment charges

     49        47        —           2         49   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net cash costs

     646        664        39         13         716   

Depreciation, depletion and amortization (DD&A)

     134        127        5         2         134   

Noncash and other costs, net

     22        21        1         —           22   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total costs

     802        812        45         15         872   

Revenue adjustments, primarily for pricing on prior period open sales

     (7     (7     —           —           (7
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

   $ 201      $ 191      $ 5       $ 5       $ 201   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     462        462           

Molybdenum sales (millions of recoverable pounds)a

         8         

Gross profit per pound of copper/molybdenum:

  

Revenues, excluding adjustments

   $ 2.18      $ 2.18      $ 5.92         
  

 

 

   

 

 

   

 

 

       

Site production and delivery, before net noncash and other costs shown below

     1.40        1.34        4.71         

By-product credits

     (0.11     —          —           

Treatment charges

     0.11        0.10        —           
  

 

 

   

 

 

   

 

 

       

Unit net cash costs

     1.40        1.44        4.71         

DD&A

     0.29        0.27        0.57         

Noncash and other costs, net

     0.05        0.05        0.08         
  

 

 

   

 

 

   

 

 

       

Total unit costs

     1.74        1.76        5.36         

Revenue adjustments, primarily for pricing on prior period open sales

     (0.01     (0.01     —           
  

 

 

   

 

 

   

 

 

       

Gross profit per pound

   $ 0.43      $ 0.41      $ 0.56         
  

 

 

   

 

 

   

 

 

       
Reconciliation to Amounts Reported                                 
(In millions)    Revenues     Production
and Delivery
    DD&A                

Totals presented above

   $ 1,080      $ 667      $ 134         

Treatment charges

     —          49        —           

Noncash and other costs, net

     —          22        —           

Revenue adjustments, primarily for pricing on prior period open sales

     (7     —          —           

Eliminations and other

     (13     (12     —           
  

 

 

   

 

 

   

 

 

       

North America copper mines

     1,060        726        134         

Other mining & eliminationsc

     1,864        1,331        276         
  

 

 

   

 

 

   

 

 

       

Total mining

     2,924        2,057        410         

U.S. oil & gas operations

     410        889        218         

Corporate, other & eliminations

     —          10        4         
  

 

 

   

 

 

   

 

 

       

As reported in FCX’s consolidated financial statements

   $ 3,334      $ 2,956      $ 632         
  

 

 

   

 

 

   

 

 

       

 

a. Reflects sales of molybdenum produced by certain of the North America copper mines to FCX’s molybdenum sales company at market-based pricing.
b. Includes gold and silver product revenues and production costs.
c. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule “Business Segments,” beginning on page VIII.

 

XII


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs

 

Three Months Ended June 30, 2015

                                
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Molybdenuma      Otherb      Total  

Revenues, excluding adjustments

   $ 1,341      $ 1,341      $ 80       $ 28       $ 1,449   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     862        804        64         22         890   

By-product credits

     (80     —          —           —           —     

Treatment charges

     60        58        —           2         60   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net cash costs

     842        862        64         24         950   

DD&A

     137        129        5         3         137   

Noncash and other costs, net

     46        45        1         —           46   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total costs

     1,025        1,036        70         27         1,133   

Revenue adjustments, primarily for pricing on prior period open sales

     (13     (13     —           —           (13
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

   $ 303      $ 292      $ 10       $ 1       $ 303   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     485        485           

Molybdenum sales (millions of recoverable pounds)a

         10         

Gross profit per pound of copper/molybdenum:

  

Revenues, excluding adjustments

   $ 2.77      $ 2.77      $ 7.80         
  

 

 

   

 

 

   

 

 

       

Site production and delivery, before net noncash and other costs shown below

     1.78        1.66        6.24         

By-product credits

     (0.16     —          —           

Treatment charges

     0.12        0.12        —           
  

 

 

   

 

 

   

 

 

       

Unit net cash costs

     1.74        1.78        6.24         

DD&A

     0.28        0.27        0.53         

Noncash and other costs, net

     0.10        0.09        0.06         
  

 

 

   

 

 

   

 

 

       

Total unit costs

     2.12        2.14        6.83         

Revenue adjustments, primarily for pricing on prior period open sales

     (0.03     (0.03     —           
  

 

 

   

 

 

   

 

 

       

Gross profit per pound

   $ 0.62      $ 0.60      $ 0.97         
  

 

 

   

 

 

   

 

 

       
Reconciliation to Amounts Reported                                 
(In millions)          Production                      
     Revenues     and Delivery     DD&A                

Totals presented above

   $ 1,449      $ 890      $ 137         

Treatment charges

     —          60        —           

Noncash and other costs, net

     —          46        —           

Revenue adjustments, primarily for pricing on prior period open sales

     (13     —          —           

Eliminations and other

     (31     (34     2         
  

 

 

   

 

 

   

 

 

       

North America copper mines

     1,405        962        139         

Other mining & eliminationsc

     1,964        1,406        206         
  

 

 

   

 

 

   

 

 

       

Total mining

     3,369        2,368        345         

U.S. oil & gas operations

     569        281        485         

Corporate, other & eliminations

     —          2        3         
  

 

 

   

 

 

   

 

 

       

As reported in FCX’s consolidated financial statements

   $ 3,938      $ 2,651      $ 833         
  

 

 

   

 

 

   

 

 

       

 

a. Reflects sales of molybdenum produced by certain of the North America copper mines to FCX’s molybdenum sales company at market-based pricing.
b. Includes gold and silver product revenues and production costs.
c. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule “Business Segments,” beginning on page VIII.

 

XIII


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs

 

Six Months Ended June 30, 2016

                                
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Molybdenuma      Otherb      Total  

Revenues, excluding adjustments

   $ 2,092      $ 2,092      $ 90       $ 41       $ 2,223   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     1,349        1,295        72         21         1,388   

By-product credits

     (92     —          —           —           —     

Treatment charges

     103        99        —           4         103   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net cash costs

     1,360        1,394        72         25         1,491   

DD&A

     277        263        9         5         277   

Noncash and other costs, net

     48        48        —           —           48   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total costs

     1,685        1,705        81         30         1,816   

Revenue adjustments, primarily for pricing on prior period open sales

     (1     (1     —           —           (1
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

   $ 406      $ 386      $ 9       $ 11       $ 406   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     964        964           

Molybdenum sales (millions of recoverable pounds)a

         16         

Gross profit per pound of copper/molybdenum:

            

Revenues, excluding adjustments

   $ 2.17      $ 2.17      $ 5.61         
  

 

 

   

 

 

   

 

 

       

Site production and delivery, before net noncash and other costs shown below

     1.40        1.34        4.51         

By-product credits

     (0.10     —          —           

Treatment charges

     0.11        0.11        —           
  

 

 

   

 

 

   

 

 

       

Unit net cash costs

     1.41        1.45        4.51         

DD&A

     0.29        0.27        0.55         

Noncash and other costs, net

     0.05        0.05        0.02         
  

 

 

   

 

 

   

 

 

       

Total unit costs

     1.75        1.77        5.08         

Revenue adjustments, primarily for pricing on prior period open sales

     —          —          —           
  

 

 

   

 

 

   

 

 

       

Gross profit per pound

   $ 0.42      $ 0.40      $ 0.53         
  

 

 

   

 

 

   

 

 

       
Reconciliation to Amounts Reported                                 
(In millions)          Production                      
     Revenues     and Delivery     DD&A                

Totals presented above

   $ 2,223      $ 1,388      $ 277         

Treatment charges

     —          103        —           

Noncash and other costs, net

     —          48        —           

Revenue adjustments, primarily for pricing on prior period open sales

     (1     —          —           

Eliminations and other

     (26     (25     1         
  

 

 

   

 

 

   

 

 

       

North America copper mines

     2,196        1,514        278         

Other mining & eliminationsc

     3,675        2,632        536         
  

 

 

   

 

 

   

 

 

       

Total mining

     5,871        4,146        814         

U.S. oil & gas operations

     705        1,296        473         

Corporate, other & eliminations

     —          13        7         
  

 

 

   

 

 

   

 

 

       

As reported in FCX’s consolidated financial statements

   $ 6,576      $ 5,455      $ 1,294         
  

 

 

   

 

 

   

 

 

       

 

a. Reflects sales of molybdenum produced by certain of the North America copper mines to FCX’s molybdenum sales company at market-based pricing.
b. Includes gold and silver product revenues and production costs.
c. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule “Business Segments,” beginning on page VIII.

 

XIV


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs

 

Six Months Ended June 30, 2015

                                
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Molybdenuma      Otherb      Total  

Revenues, excluding adjustments

   $ 2,612      $ 2,612      $ 162       $ 54       $ 2,828   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     1,715        1,605        122         41         1,768   

By-product credits

     (163     —          —           —           —     

Treatment charges

     121        118        —           3         121   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net cash costs

     1,673        1,723        122         44         1,889   

DD&A

     270        254        11         5         270   

Noncash and other costs, net

     77        76        1         —           77   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total costs

     2,020        2,053        134         49         2,236   

Revenue adjustments, primarily for pricing on prior period open sales

     (28     (28     —           —           (28
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

   $ 564      $ 531      $ 28       $ 5       $ 564   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     956        956           

Molybdenum sales (millions of recoverable pounds)a

         19         

Gross profit per pound of copper/molybdenum:

  

Revenues, excluding adjustments

   $ 2.73      $ 2.73      $ 8.28         
  

 

 

   

 

 

   

 

 

       

Site production and delivery, before net noncash and other costs shown below

     1.79        1.68        6.24         

By-product credits

     (0.17     —          —           

Treatment charges

     0.13        0.12        —           
  

 

 

   

 

 

   

 

 

       

Unit net cash costs

     1.75        1.80        6.24         

DD&A

     0.28        0.27        0.58         

Noncash and other costs, net

     0.08        0.08        0.06         
  

 

 

   

 

 

   

 

 

       

Total unit costs

     2.11        2.15        6.88         

Revenue adjustments, primarily for pricing on prior period open sales

     (0.03     (0.03     —           
  

 

 

   

 

 

   

 

 

       

Gross profit per pound

   $ 0.59      $ 0.55      $ 1.40         
  

 

 

   

 

 

   

 

 

       
Reconciliation to Amounts Reported                                 
(In millions)          Production                      
     Revenues     and Delivery     DD&A                

Totals presented above

   $ 2,828      $ 1,768      $ 270         

Treatment charges

     —          121        —           

Noncash and other costs, net

     —          77        —           

Revenue adjustments, primarily for pricing on prior period open sales

     (28     —          —           

Eliminations and other

     (60     (61     2         
  

 

 

   

 

 

   

 

 

       

North America copper mines

     2,740        1,905        272         

Other mining & eliminationsc

     3,900        2,856        405         
  

 

 

   

 

 

   

 

 

       

Total mining

     6,640        4,761        677         

U.S. oil & gas operations

     1,069        564        1,015         

Corporate, other & eliminations

     —          5        7         
  

 

 

   

 

 

   

 

 

       

As reported in FCX’s consolidated financial statements

   $ 7,709      $ 5,330      $ 1,699         
  

 

 

   

 

 

   

 

 

       

 

a. Reflects sales of molybdenum produced by certain of the North America copper mines to FCX’s molybdenum sales company at market-based pricing.
b. Includes gold and silver product revenues and production costs.
c. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule “Business Segments,” beginning on page VIII.

 

XV


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

South America Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Three Months Ended June 30, 2016

                         
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Othera      Total  

Revenues, excluding adjustments

   $ 715      $ 715      $ 51       $ 766   
  

 

 

   

 

 

   

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     391        369        33         402   

By-product credits

     (40     —          —           —     

Treatment charges

     76        76        —           76   

Royalty on metals

     2        2        —           2   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net cash costs

     429        447        33         480   

DD&A

     136        127        9         136   

Noncash and other costs, net

     5        5        —           5   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total costs

     570        579        42         621   

Revenue adjustments, primarily for pricing on prior period open sales

     (11     (11     —           (11
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

   $ 134      $ 125      $ 9       $ 134   
  

 

 

   

 

 

   

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     327        327        

Gross profit per pound of copper:

  

Revenues, excluding adjustments

   $ 2.19      $ 2.19        
  

 

 

   

 

 

      

Site production and delivery, before net noncash and other costs shown below

     1.20        1.13        

By-product credits

     (0.12     —          

Treatment charges

     0.23        0.23        

Royalty on metals

     —          —          
  

 

 

   

 

 

      

Unit net cash costs

     1.31        1.36        

DD&A

     0.41        0.39        

Noncash and other costs, net

     0.02        0.02        
  

 

 

   

 

 

      

Total unit costs

     1.74        1.77        

Revenue adjustments, primarily for pricing on prior period open sales

     (0.04     (0.04     
  

 

 

   

 

 

      

Gross profit per pound

   $ 0.41      $ 0.38        
  

 

 

   

 

 

      
Reconciliation to Amounts Reported                          
(In millions)          Production               
     Revenues     and Delivery     DD&A         

Totals presented above

   $ 766      $ 402      $ 136      

Treatment charges

     (76     —          —        

Royalty on metals

     (2     —          —        

Noncash and other costs, net

     —          5        —        

Revenue adjustments, primarily for pricing on prior period open sales

     (11     —          —        

Eliminations and other

     —          (1     —        
  

 

 

   

 

 

   

 

 

    

South America mining

     677        406        136      

Other mining & eliminationsb

     2,247        1,651        274      
  

 

 

   

 

 

   

 

 

    

Total mining

     2,924        2,057        410      

U.S. oil & gas operations

     410        889        218      

Corporate, other & eliminations

     —          10        4      
  

 

 

   

 

 

   

 

 

    

As reported in FCX’s consolidated financial statements

   $ 3,334      $ 2,956      $ 632      
  

 

 

   

 

 

   

 

 

    

 

a. Includes silver sales of 911 thousand ounces ($17.50 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to FCX’s molybdenum sales company at market-based pricing.
b. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XVI


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

South America Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Three Months Ended June 30, 2015

                        
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Othera     Total  

Revenues, excluding adjustments

   $ 479      $ 479      $ 14      $ 493   
  

 

 

   

 

 

   

 

 

   

 

 

 

Site production and delivery, before net noncash and other costs shown below

     314        305        15        320   

By-product credits

     (8     —          —          —     

Treatment charges

     30        30        —          30   

Royalty on metals

     1        1        —          1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash costs

     337        336        15        351   

DD&A

     72        70        2        72   

Noncash and other (credits) costs, net

     (4     (5     1        (4
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs

     405        401        18        419   

Revenue adjustments, primarily for pricing on prior period open sales

     (8     (8     —          (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

   $ 66      $ 70      $ (4   $ 66   
  

 

 

   

 

 

   

 

 

   

 

 

 

Copper sales (millions of recoverable pounds)

     178        178       

Gross profit per pound of copper:

  

Revenues, excluding adjustments

   $ 2.69      $ 2.69       
  

 

 

   

 

 

     

Site production and delivery, before net noncash and other costs shown below

     1.77        1.72       

By-product credits

     (0.04     —         

Treatment charges

     0.17        0.17       

Royalty on metals

     —          —         
  

 

 

   

 

 

     

Unit net cash costs

     1.90        1.89       

DD&A

     0.40        0.39       

Noncash and other credits, net

     (0.02     (0.03    
  

 

 

   

 

 

     

Total unit costs

     2.28        2.25       

Revenue adjustments, primarily for pricing on prior period open sales

     (0.05     (0.05    
  

 

 

   

 

 

     

Gross profit per pound

   $ 0.36      $ 0.39       
  

 

 

   

 

 

     
Reconciliation to Amounts Reported                         
(In millions)          Production              
     Revenues     and Delivery     DD&A        

Totals presented above

   $ 493      $ 320      $ 72     

Treatment charges

     (30     —          —       

Royalty on metals

     (1     —          —       

Noncash and other credits, net

     —          (4     —       

Revenue adjustments, primarily for pricing on prior period open sales

     (8     —          —       

Eliminations and other

     (1     (1     —       
  

 

 

   

 

 

   

 

 

   

South America mining

     453        315        72     

Other mining & eliminationsb

     2,916        2,053        273     
  

 

 

   

 

 

   

 

 

   

Total mining

     3,369        2,368        345     

U.S. oil & gas operations

     569        281        485     

Corporate, other & eliminations

     —          2        3     
  

 

 

   

 

 

   

 

 

   

As reported in FCX’s consolidated financial statements

   $ 3,938      $ 2,651      $ 833     
  

 

 

   

 

 

   

 

 

   

 

a. Includes silver sales of 373 thousand ounces ($15.15 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to FCX’s molybdenum sales company at market-based pricing.
b. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XVII


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

South America Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Six Months Ended June 30, 2016

                         
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Othera      Total  

Revenues, excluding adjustments

   $ 1,414      $ 1,414      $ 80       $ 1,494   
  

 

 

   

 

 

   

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     789        754        53         807   

By-product credits

     (62     —          —           —     

Treatment charges

     151        151        —           151   

Royalty on metals

     3        3        —           3   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net cash costs

     881        908        53         961   

DD&A

     267        253        14         267   

Noncash and other costs, net

     12        12        —           12   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total costs

     1,160        1,173        67         1,240   

Revenue adjustments, primarily for pricing on prior period open sales

     8        8        —           8   
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

   $ 262      $ 249      $ 13       $ 262   
  

 

 

   

 

 

   

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     650        650        

Gross profit per pound of copper:

  

Revenues, excluding adjustments

   $ 2.18      $ 2.18        
  

 

 

   

 

 

      

Site production and delivery, before net noncash and other costs shown below

     1.22        1.16        

By-product credits

     (0.10     —          

Treatment charges

     0.23        0.23        

Royalty on metals

     0.01        0.01        
  

 

 

   

 

 

      

Unit net cash costs

     1.36        1.40        

DD&A

     0.41        0.39        

Noncash and other costs, net

     0.02        0.02        
  

 

 

   

 

 

      

Total unit costs

     1.79        1.81        

Revenue adjustments, primarily for pricing on prior period open sales

     0.01        0.01        
  

 

 

   

 

 

      

Gross profit per pound

   $ 0.40      $ 0.38        
  

 

 

   

 

 

      
Reconciliation to Amounts Reported                          
(In millions)          Production               
     Revenues     and Delivery     DD&A         

Totals presented above

   $ 1,494      $ 807      $ 267      

Treatment charges

     (151     —          —        

Royalty on metals

     (3     —          —        

Noncash and other costs, net

     —          12        —        

Revenue adjustments, primarily for pricing on prior period open sales

     8        —          —        

Eliminations and other

     —          (3     1      
  

 

 

   

 

 

   

 

 

    

South America mining

     1,348        816        268      

Other mining & eliminationsb

     4,523        3,330        546      
  

 

 

   

 

 

   

 

 

    

Total mining

     5,871        4,146        814      

U.S. oil & gas operations

     705        1,296        473      

Corporate, other & eliminations

     —          13        7      
  

 

 

   

 

 

   

 

 

    

As reported in FCX’s consolidated financial statements

   $ 6,576      $ 5,455      $ 1,294      
  

 

 

   

 

 

   

 

 

    

 

a. Includes silver sales of 1.8 million ounces ($16.03 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to FCX’s molybdenum sales company at market-based pricing.
b. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XVIII


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

South America Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Six Months Ended June 30, 2015

                        
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Othera     Total  

Revenues, excluding adjustments

   $ 1,013      $ 1,013      $ 35      $ 1,048   
  

 

 

   

 

 

   

 

 

   

 

 

 

Site production and delivery, before net noncash and other costs shown below

     664        642        33        675   

By-product credits

     (24     —          —          —     

Treatment charges

     64        64        —          64   

Royalty on metals

     1        1        —          1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash costs

     705        707        33        740   

DD&A

     147        143        4        147   

Noncash and other costs, net

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs

     852        850        37        887   

Revenue adjustments, primarily for pricing on prior period open sales

     (31     (31     —          (31
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

   $ 130      $ 132      $ (2   $ 130   
  

 

 

   

 

 

   

 

 

   

 

 

 

Copper sales (millions of recoverable pounds)

     378        378       

Gross profit per pound of copper:

  

Revenues, excluding adjustments

   $ 2.68      $ 2.68       
  

 

 

   

 

 

     

Site production and delivery, before net noncash and other costs shown below

     1.76        1.70       

By-product credits

     (0.06     —         

Treatment charges

     0.17        0.17       

Royalty on metals

     —          —         
  

 

 

   

 

 

     

Unit net cash costs

     1.87        1.87       

DD&A

     0.39        0.38       

Noncash and other costs, net

     —          —         
  

 

 

   

 

 

     

Total unit costs

     2.26        2.25       

Revenue adjustments, primarily for pricing on prior period open sales

     (0.08     (0.08    
  

 

 

   

 

 

     

Gross profit per pound

   $ 0.34      $ 0.35       
  

 

 

   

 

 

     
Reconciliation to Amounts Reported                         
(In millions)          Production              
     Revenues     and Delivery     DD&A        

Totals presented above

   $ 1,048      $ 675      $ 147     

Treatment charges

     (64     —          —       

Royalty on metals

     (1     —          —       

Noncash and other costs, net

     —          —          —       

Revenue adjustments, primarily for pricing on prior period open sales

     (31     —          —       

Eliminations and other

     (13     (15     —       
  

 

 

   

 

 

   

 

 

   

South America mining

     939        660        147     

Other mining & eliminationsb

     5,701        4,101        530     
  

 

 

   

 

 

   

 

 

   

Total mining

     6,640        4,761        677     

U.S. oil & gas operations

     1,069        564        1,015     

Corporate, other & eliminations

     —          5        7     
  

 

 

   

 

 

   

 

 

   

As reported in FCX’s consolidated financial statements

   $ 7,709      $ 5,330      $ 1,699     
  

 

 

   

 

 

   

 

 

   

 

a. Includes silver sales of 759 thousand ounces ($14.97 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to FCX’s molybdenum sales company at market-based pricing.
b. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XIX


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

Indonesia Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Three Months Ended June 30, 2016

                               
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Gold     Silvera      Total  

Revenues, excluding adjustments

   $ 431      $ 431      $ 195      $ 10       $ 636   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     347        235        107        5         347   

Gold and silver credits

     (206     —          —          —           —     

Treatment charges

     57        39        17        1         57   

Export duties

     16        11        5        —           16   

Royalty on metals

     21        14        7        —           21   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash costs

     235        299        136        6         441   

DD&A

     93        63        28        2         93   

Noncash and other costs, net

     2        1        1        —           2   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total costs

     330        363        165        8         536   

Revenue adjustments, primarily for pricing on prior period open sales

     (12     (12     1        —           (11

PT Smelting intercompany loss

     (7     (5     (2     —           (7
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

   $ 82      $ 51      $ 29      $ 2       $ 82   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     196        196          

Gold sales (thousands of recoverable ounces)

         151        

Gross profit per pound of copper/per ounce of gold:

  

Revenues, excluding adjustments

   $ 2.20      $ 2.20      $ 1,292        
  

 

 

   

 

 

   

 

 

      

Site production and delivery, before net noncash and other costs shown below

     1.77        1.20        706        

Gold and silver credits

     (1.05     —          —          

Treatment charges

     0.29        0.20        116        

Export duties

     0.08        0.05        32        

Royalty on metals

     0.11        0.07        45        
  

 

 

   

 

 

   

 

 

      

Unit net cash costs

     1.20        1.52        899        

DD&A

     0.48        0.33        190        

Noncash and other costs, net

     0.01        0.01        4        
  

 

 

   

 

 

   

 

 

      

Total unit costs

     1.69        1.86        1,093        

Revenue adjustments, primarily for pricing on prior period open sales

     (0.06     (0.06     7        

PT Smelting intercompany loss

     (0.03     (0.02     (14     
  

 

 

   

 

 

   

 

 

      

Gross profit per pound/ounce

   $ 0.42      $ 0.26      $ 192        
  

 

 

   

 

 

   

 

 

      
Reconciliation to Amounts Reported                                
(In millions)          Production                     
     Revenues     and Delivery     DD&A               

Totals presented above

   $ 636      $ 347      $ 93        

Treatment charges

     (57     —          —          

Export duties

     (16     —          —          

Royalty on metals

     (21     —          —          

Noncash and other costs, net

     —          2        —          

Revenue adjustments, primarily for pricing on prior period open sales

     (11     —          —          

PT Smelting intercompany loss

     —          7        —          
  

 

 

   

 

 

   

 

 

      

Indonesia mining

     531        356        93        

Other mining & eliminationsb

     2,393        1,701        317        
  

 

 

   

 

 

   

 

 

      

Total mining

     2,924        2,057        410        

U.S. oil & gas operations

     410        889        218        

Corporate, other & eliminations

     —          10        4        
  

 

 

   

 

 

   

 

 

      

As reported in FCX’s consolidated financial statements

   $ 3,334      $ 2,956      $ 632        
  

 

 

   

 

 

   

 

 

      

 

a. Includes silver sales of 562 thousand ounces ($17.42 per ounce average realized price).
b. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XX


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

Indonesia Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Three Months Ended June 30, 2015

                               
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Gold     Silvera      Total  

Revenues, excluding adjustments

   $ 511      $ 511      $ 406      $ 8       $ 925   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     442        244        194        4         442   

Gold and silver credits

     (416     —          —          —           —     

Treatment charges

     62        34        27        1         62   

Export duties

     36        20        16        —           36   

Royalty on metals

     35        19        16        —           35   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash costs

     159        317        253        5         575   

DD&A

     78        43        34        1         78   

Noncash and other costs, net

     8        5        3        —           8   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total costs

     245        365        290        6         661   

Revenue adjustments, primarily for pricing on prior period open sales

     (4     (4     2        —           (2

PT Smelting intercompany loss

     (5     (3     (2     —           (5
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

   $ 257      $ 139      $ 116      $ 2       $ 257   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     196        196          

Gold sales (thousands of recoverable ounces)

         346        

Gross profit per pound of copper/per ounce of gold:

  

Revenues, excluding adjustments

   $ 2.61      $ 2.61      $ 1,173        
  

 

 

   

 

 

   

 

 

      

Site production and delivery, before net noncash and other costs shown below

     2.26        1.25        560        

Gold and silver credits

     (2.13     —          —          

Treatment charges

     0.32        0.18        79        

Export duties

     0.18        0.10        45        

Royalty on metals

     0.18        0.10        45        
  

 

 

   

 

 

   

 

 

      

Unit net cash costs

     0.81        1.63        729        

DD&A

     0.40        0.22        100        

Noncash and other costs, net

     0.04        0.02        10        
  

 

 

   

 

 

   

 

 

      

Total unit costs

     1.25        1.87        839        

Revenue adjustments, primarily for pricing on prior period open sales

     (0.02     (0.02     7        

PT Smelting intercompany loss

     (0.02     (0.01     (5     
  

 

 

   

 

 

   

 

 

      

Gross profit per pound/ounce

   $ 1.32      $ 0.71      $ 336        
  

 

 

   

 

 

   

 

 

      
Reconciliation to Amounts Reported                                
(In millions)          Production                     
     Revenues     and Delivery     DD&A               

Totals presented above

   $ 925      $ 442      $ 78        

Treatment charges

     (62     —          —          

Export duties

     (36     —          —          

Royalty on metals

     (35     —          —          

Noncash and other costs, net

     —          8        —          

Revenue adjustments, primarily for pricing on prior period open sales

     (2     —          —          

PT Smelting intercompany loss

     —          5        —          
  

 

 

   

 

 

   

 

 

      

Indonesia mining

     790        455        78        

Other mining & eliminationsb

     2,579        1,913        267        
  

 

 

   

 

 

   

 

 

      

Total mining

     3,369        2,368        345        

U.S. oil & gas operations

     569        281        485        

Corporate, other & eliminations

     —          2        3        
  

 

 

   

 

 

   

 

 

      

As reported in FCX’s consolidated financial statements

   $ 3,938      $ 2,651      $ 833        
  

 

 

   

 

 

   

 

 

      

 

a. Includes silver sales of 558 thousand ounces ($15.48 per ounce average realized price).
b. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XXI


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

Indonesia Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Six Months Ended June 30, 2016

                                
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Gold      Silvera      Total  

Revenues, excluding adjustments

   $ 802      $ 802      $ 436       $ 17       $ 1,255   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     737        471        256         10         737   

Gold and silver credits

     (470     —          —           —           —     

Treatment charges

     112        72        39         1         112   

Export duties

     29        18        10         1         29   

Royalty on metals

     43        27        16         —           43   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net cash costs

     451        588        321         12         921   

DD&A

     174        111        60         3         174   

Noncash and other costs, net

     14        9        5         —           14   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total costs

     639        708        386         15         1,109   

Revenue adjustments, primarily for pricing on prior period open sales

     (1     (1     17         —           16   

PT Smelting intercompany profit

     1        1        —           —           1   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

   $ 163      $ 94      $ 67       $ 2       $ 163   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     370        370           

Gold sales (thousands of recoverable ounces)

         346         

Gross profit per pound of copper/per ounce of gold:

  

Revenues, excluding adjustments

   $ 2.17      $ 2.17      $ 1,260         
  

 

 

   

 

 

   

 

 

       

Site production and delivery, before net noncash and other costs shown below

     1.99        1.27        740         

Gold and silver credits

     (1.27     —          —           

Treatment charges

     0.30        0.20        113         

Export duties

     0.08        0.05        29         

Royalty on metals

     0.12        0.07        47         
  

 

 

   

 

 

   

 

 

       

Unit net cash costs

     1.22        1.59        929         

DD&A

     0.47        0.30        175         

Noncash and other costs, net

     0.04        0.02        14         
  

 

 

   

 

 

   

 

 

       

Total unit costs

     1.73        1.91        1,118         

Revenue adjustments, primarily for pricing on prior period open sales

     —          —          48         

PT Smelting intercompany profit

     —          —          2         
  

 

 

   

 

 

   

 

 

       

Gross profit per pound/ounce

   $ 0.44      $ 0.26      $ 192         
  

 

 

   

 

 

   

 

 

       
Reconciliation to Amounts Reported                                 
(In millions)          Production                      
     Revenues     and Delivery     DD&A                

Totals presented above

   $ 1,255      $ 737      $ 174         

Treatment charges

     (112     —          —           

Export duties

     (29     —          —           

Royalty on metals

     (43     —          —           

Noncash and other costs, net

     —          14        —           

Revenue adjustments, primarily for pricing on prior period open sales

     16        —          —           

PT Smelting intercompany profit

     —          (1     —           
  

 

 

   

 

 

   

 

 

       

Indonesia mining

     1,087        750        174         

Other mining & eliminationsb

     4,784        3,396        640         
  

 

 

   

 

 

   

 

 

       

Total mining

     5,871        4,146        814         

U.S. oil & gas operations

     705        1,296        473         

Corporate, other & eliminations

     —          13        7         
  

 

 

   

 

 

   

 

 

       

As reported in FCX’s consolidated financial statements

   $ 6,576      $ 5,455      $ 1,294         
  

 

 

   

 

 

   

 

 

       

 

a. Includes silver sales of 1.1 million ounces ($16.56 per ounce average realized price).
b. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XXII


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

Indonesia Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Six Months Ended June 30, 2015

                                
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Gold      Silvera      Total  

Revenues, excluding adjustments

   $ 933      $ 933      $ 716       $ 16       $ 1,665   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     882        494        380         8         882   

Gold and silver credits

     (741     —          —           —           —     

Treatment charges

     108        61        46         1         108   

Export duties

     57        32        24         1         57   

Royalty on metals

     60        33        26         1         60   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net cash costs

     366        620        476         11         1,107   

DD&A

     148        83        64         1         148   

Noncash and other costs, net

     14        8        6         —           14   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total costs

     528        711        546         12         1,269   

Revenue adjustments, primarily for pricing on prior period open sales

     (52     (52     9         —           (43

PT Smelting intercompany profit

     2        2        —           —           2   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

   $ 355      $ 172      $ 179       $ 4       $ 355   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     351        351           

Gold sales (thousands of recoverable ounces)

         606         

Gross profit per pound of copper/per ounce of gold:

  

Revenues, excluding adjustments

   $ 2.66      $ 2.66      $ 1,183         
  

 

 

   

 

 

   

 

 

       

Site production and delivery, before net noncash and other costs shown below

     2.51        1.41        626         

Gold and silver credits

     (2.11     —          —           

Treatment charges

     0.31        0.17        77         

Export duties

     0.16        0.09        41         

Royalty on metals

     0.17        0.10        42         
  

 

 

   

 

 

   

 

 

       

Unit net cash costs

     1.04        1.77        786         

DD&A

     0.42        0.24        106         

Noncash and other costs, net

     0.04        0.02        10         
  

 

 

   

 

 

   

 

 

       

Total unit costs

     1.50        2.03        902         

Revenue adjustments, primarily for pricing on prior period open sales

     (0.15     (0.15     14         

PT Smelting intercompany profit

     0.01        0.01        2         
  

 

 

   

 

 

   

 

 

       

Gross profit per pound/ounce

   $ 1.02      $ 0.49      $ 297         
  

 

 

   

 

 

   

 

 

       
Reconciliation to Amounts Reported                                 
(In millions)          Production                      
     Revenues     and Delivery     DD&A                

Totals presented above

   $ 1,665      $ 882      $ 148         

Treatment charges

     (108     —          —           

Export duties

     (57     —          —           

Royalty on metals

     (60     —          —           

Noncash and other costs, net

     —          14        —           

Revenue adjustments, primarily for pricing on prior period open sales

     (43     —          —           

PT Smelting intercompany profit

     —          (2     —           
  

 

 

   

 

 

   

 

 

       

Indonesia mining

     1,397        894        148         

Other mining & eliminationsb

     5,243        3,867        529         
  

 

 

   

 

 

   

 

 

       

Total mining

     6,640        4,761        677         

U.S. oil & gas operations

     1,069        564        1,015         

Corporate, other & eliminations

     —          5        7         
  

 

 

   

 

 

   

 

 

       

As reported in FCX’s consolidated financial statements

   $ 7,709      $ 5,330      $ 1,699         
  

 

 

   

 

 

   

 

 

       

 

a. Includes silver sales of 993 thousand ounces ($15.75 per ounce average realized price).
b. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XXIII


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

Africa Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Three Months Ended June 30, 2016

                        
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Cobalt     Total  

Revenues, excluding adjustmentsa

   $ 258      $ 258      $ 61      $ 319   
  

 

 

   

 

 

   

 

 

   

 

 

 

Site production and delivery, before net noncash and other costs shown below

     201        177        46        223   

Cobalt creditsb

     (40     —          —          —     

Royalty on metals

     6        5        1        6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash costs

     167        182        47        229   

DD&A

     62        52        10        62   

Noncash and other costs, net

     11        9        2        11   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs

     240        243        59        302   

Revenue adjustments, primarily for pricing on prior period open sales

     (1     (1     1        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

   $ 17      $ 14      $ 3      $ 17   
  

 

 

   

 

 

   

 

 

   

 

 

 

Copper sales (millions of recoverable pounds)

     124        124       

Cobalt sales (millions of contained pounds)

         10     

Gross profit per pound of copper/cobalt:

  

 

Revenues, excluding adjustmentsa

   $ 2.07      $ 2.07      $ 6.58     
  

 

 

   

 

 

   

 

 

   

Site production and delivery, before net noncash and other costs shown below

     1.62        1.42        5.03     

Cobalt creditsb

     (0.33     —          —       

Royalty on metals

     0.05        0.04        0.11     
  

 

 

   

 

 

   

 

 

   

Unit net cash costs

     1.34        1.46        5.14     

DD&A

     0.49        0.41        1.07     

Noncash and other costs, net

     0.09        0.08        0.20     
  

 

 

   

 

 

   

 

 

   

Total unit costs

     1.92        1.95        6.41     

Revenue adjustments, primarily for pricing on prior period open sales

     (0.01     (0.01     0.17     
  

 

 

   

 

 

   

 

 

   

Gross profit per pound

   $ 0.14      $ 0.11      $ 0.34     
  

 

 

   

 

 

   

 

 

   
Reconciliation to Amounts Reported                         
(In millions)          Production              
     Revenues     and Delivery     DD&A        

Totals presented above

   $ 319      $ 223      $ 62     

Royalty on metals

     (6     —          —       

Noncash and other costs, net

     —          11        —       

Revenue adjustments, primarily for pricing on prior period open sales

     —          —          —       

Eliminations and other adjustmentsc

     (41     22        (42  
  

 

 

   

 

 

   

 

 

   

Total

   $ 272  d    $ 256  d    $ 20  d   
  

 

 

   

 

 

   

 

 

   

 

a. Includes point-of-sale transportation costs as negotiated in customer contracts.
b. Net of cobalt downstream processing and freight costs.
c. Reflects adjustments associated with reporting Tenke as discontinued operations/assets held for sale, including the elimination of intercompany sales to FCX’s consolidated subsidiaries and the impact of discontinuing DD&A.
d. Represents amounts included in net (loss) income from discontinued operations, as reported in FCX’s consolidated financial statements (in millions):

 

Revenues

   $ 272   

Less:

  

Production and delivery costs

     256   

DD&A

     20   

Estimated loss on sale

     177   

Allocated interest expense

     11   

Benefit from income taxes

     (16

Other expense, net

     5   
  

 

 

 

Net loss from discontinued operations

   $ (181
  

 

 

 

 

XXIV


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

Africa Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Three Months Ended June 30, 2015

                        
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Cobalt     Total  

Revenues, excluding adjustmentsa

   $ 275      $ 275      $ 76      $ 351   
  

 

 

   

 

 

   

 

 

   

 

 

 

Site production and delivery, before net noncash and other costs shown below

     161        141        45        186   

Cobalt creditsb

     (55     —          —          —     

Royalty on metals

     6        5        1        6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash costs

     112        146        46        192   

DD&A

     57        45        12        57   

Noncash and other costs, net

     4        3        1        4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs

     173        194        59        253   

Revenue adjustments, primarily for pricing on prior period open sales

     2        2        4        6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

   $ 104      $ 83      $ 21      $ 104   
  

 

 

   

 

 

   

 

 

   

 

 

 

Copper sales (millions of recoverable pounds)

     104        104       

Cobalt sales (millions of contained pounds)

         8     

Gross profit per pound of copper/cobalt:

  

 

Revenues, excluding adjustmentsa

   $ 2.63      $ 2.63      $ 9.27     
  

 

 

   

 

 

   

 

 

   

Site production and delivery, before net noncash and other costs shown below

     1.54        1.35        5.48     

Cobalt creditsb

     (0.53     —          —       

Royalty on metals

     0.06        0.05        0.16     
  

 

 

   

 

 

   

 

 

   

Unit net cash costs

     1.07        1.40        5.64     

DD&A

     0.55        0.43        1.42     

Noncash and other costs, net

     0.03        0.03        0.10     
  

 

 

   

 

 

   

 

 

   

Total unit costs

     1.65        1.86        7.16     

Revenue adjustments, primarily for pricing on prior period open sales

     0.02        0.02        0.50     
  

 

 

   

 

 

   

 

 

   

Gross profit per pound

   $ 1.00      $ 0.79      $ 2.61     
  

 

 

   

 

 

   

 

 

   
Reconciliation to Amounts Reported                         
(In millions)          Production              
     Revenues     and Delivery     DD&A        

Totals presented above

   $ 351      $ 186      $ 57     

Royalty on metals

     (6     —          —       

Noncash and other costs, net

     —          4        —       

Revenue adjustments, primarily for pricing on prior period open sales

     6        —          —       

Eliminations and other adjustmentsc

     (41     7        —       
  

 

 

   

 

 

   

 

 

   

Total

   $ 310  d    $ 197  d    $ 57  d   
  

 

 

   

 

 

   

 

 

   

 

a. Includes point-of-sale transportation costs as negotiated in customer contracts.
b. Net of cobalt downstream processing and freight costs.
c. Reflects adjustments associated with the presentation of Tenke as discontinued operations, including the elimination of intercompany sales to FCX’s consolidated subsidiaries.
d. Represents amounts included in net (loss) income from discontinued operations, as reported in FCX’s consolidated financial statements (in millions):

 

Revenues

   $ 310   

Less:

  

Production and delivery costs

     197   

DD&A

     57   

Allocated interest expense

     7   

Provision for income taxes

     12   

Other expense, net

     8   
  

 

 

 

Net income from discontinued operations

   $ 29   
  

 

 

 

 

XXV


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

Africa Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Six Months Ended June 30, 2016

                        
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Cobalt     Total  

Revenues, excluding adjustmentsa

   $ 514      $ 514      $ 128      $ 642   
  

 

 

   

 

 

   

 

 

   

 

 

 

Site production and delivery, before net noncash and other costs shown below

     403        350        98        448   

Cobalt creditsb

     (87     —          —          —     

Royalty on metals

     11        9        2        11   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash costs

     327        359        100        459   

DD&A

     122        101        21        122   

Noncash and other costs, net

     13        11        2        13   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs

     462        471        123        594   

Revenue adjustments, primarily for pricing on prior period open sales

     (4     (4     4        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

   $ 48      $ 39      $ 9      $ 48   
  

 

 

   

 

 

   

 

 

   

 

 

 

Copper sales (millions of recoverable pounds)

     247        247       

Cobalt sales (millions of contained pounds)

         20     

Gross profit per pound of copper/cobalt:

  

 

Revenues, excluding adjustmentsa

   $ 2.08      $ 2.08      $ 6.52     
  

 

 

   

 

 

   

 

 

   

Site production and delivery, before net noncash and other costs shown below

     1.63        1.42        4.99     

Cobalt creditsb

     (0.35     —          —       

Royalty on metals

     0.05        0.03        0.11     
  

 

 

   

 

 

   

 

 

   

Unit net cash costs

     1.33        1.45        5.10     

DD&A

     0.49        0.41        1.05     

Noncash and other costs, net

     0.05        0.04        0.11     
  

 

 

   

 

 

   

 

 

   

Total unit costs

     1.87        1.90        6.26     

Revenue adjustments, primarily for pricing on prior period open sales

     (0.02     (0.02     0.19     
  

 

 

   

 

 

   

 

 

   

Gross profit per pound

   $ 0.19      $ 0.16      $ 0.45     
  

 

 

   

 

 

   

 

 

   
Reconciliation to Amounts Reported                         
(In millions)          Production              
     Revenues     and Delivery     DD&A        

Totals presented above

   $ 642      $ 448      $ 122     

Royalty on metals

     (11     —          —       

Noncash and other costs, net

     —          13        —       

Revenue adjustments, primarily for pricing on prior period open sales

     —          —          —       

Eliminations and other adjustmentsc

     (73     21        (42  
  

 

 

   

 

 

   

 

 

   

Total

   $ 558  d    $ 482  d    $ 80  d   
  

 

 

   

 

 

   

 

 

   

 

a. Includes point-of-sale transportation costs as negotiated in customer contracts.
b. Net of cobalt downstream processing and freight costs.
c. Reflects adjustments associated with reporting of Tenke as discontinued operations/assets held for sale, including the elimination of intercompany sales to FCX’s consolidated subsidiaries and the impact of discontinuing DD&A.
d. Represents amounts included in net (loss) income from discontinued operations, as reported in FCX’s consolidated financial statements (in millions):

 

Revenues

   $ 558   

Less:

  

Production and delivery costs

     482   

DD&A

     80   

Estimated loss on sale

     177   

Allocated interest expense

     21   

Benefit from income taxes

     (23

Other expense, net

     6   
  

 

 

 

Net loss from discontinued operations

   $ (185
  

 

 

 

 

XXVI


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

Africa Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Six Months Ended June 30, 2015

                        
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Cobalt     Total  

Revenues, excluding adjustmentsa

   $ 631      $ 631      $ 152      $ 783   
  

 

 

   

 

 

   

 

 

   

 

 

 

Site production and delivery, before net noncash and other costs shown below

     370        325        92        417   

Cobalt creditsb

     (104     —          —          —     

Royalty on metals

     14        12        2        14   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash costs

     280        337        94        431   

DD&A

     130        109        21        130   

Noncash and other costs, net

     8        6        2        8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs

     418        452        117        569   

Revenue adjustments, primarily for pricing on prior period open sales

     (7     (7     (1     (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

   $ 206      $ 172      $ 34      $ 206   
  

 

 

   

 

 

   

 

 

   

 

 

 

Copper sales (millions of recoverable pounds)

     237        237       

Cobalt sales (millions of contained pounds)

         16     

Gross profit per pound of copper/cobalt:

  

 

Revenues, excluding adjustmentsa

   $ 2.66      $ 2.66      $ 9.23     
  

 

 

   

 

 

   

 

 

   

Site production and delivery, before net noncash and other costs shown below

     1.56        1.37        5.54     

Cobalt creditsb

     (0.44     —          —       

Royalty on metals

     0.06        0.05        0.15     
  

 

 

   

 

 

   

 

 

   

Unit net cash costs

     1.18        1.42        5.69     

DD&A

     0.55        0.46        1.31     

Noncash and other costs, net

     0.03        0.03        0.08     
  

 

 

   

 

 

   

 

 

   

Total unit costs

     1.76        1.91        7.08     

Revenue adjustments, primarily for pricing on prior period open sales

     (0.03     (0.03     (0.04  
  

 

 

   

 

 

   

 

 

   

Gross profit per pound

   $ 0.87      $ 0.72      $ 2.11     
  

 

 

   

 

 

   

 

 

   
Reconciliation to Amounts Reported                         
(In millions)          Production              
     Revenues     and Delivery     DD&A        

Totals presented above

   $ 783      $ 417      $ 130     

Royalty on metals

     (14     —          —       

Noncash and other costs, net

     —          8        —       

Revenue adjustments, primarily for pricing on prior period open sales

     (8     —          —       

Eliminations and other adjustmentsc

     (69     5        —       
  

 

 

   

 

 

   

 

 

   

Total

   $ 692  d    $ 430  d    $ 130  d   
  

 

 

   

 

 

   

 

 

   

 

a. Includes point-of-sale transportation costs as negotiated in customer contracts.
b. Net of cobalt downstream processing and freight costs.
c. Reflects adjustments associated with the presentation of Tenke as discontinued operations, including the elimination of intercompany sales to FCX’s consolidated subsidiaries.
d. Represents amounts included in net (loss) income from discontinued operations, as reported in FCX’s consolidated financial statements (in millions):

 

Revenues

   $ 692   

Less:

  

Production and delivery costs

     430   

DD&A

     130   

Allocated interest expense

     14   

Provision for income taxes

     31   

Other expense, net

     17   
  

 

 

 

Net income from discontinued operations

   $ 70   
  

 

 

 

 

XXVII


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

Molybdenum Mines Product Revenues, Production Costs and Unit Net Cash Costs

 

     Three Months Ended June 30,        
(In millions)    2016     2015        

Revenues, excluding adjustmentsa

   $ 50      $ 112     
  

 

 

   

 

 

   

Site production and delivery, before net noncash and other costs shown below

     45        80     

Treatment charges and other

     5        10     
  

 

 

   

 

 

   

Net cash costs

     50        90     

DD&A

     17        25     

Noncash and other costs, net

     5        4     
  

 

 

   

 

 

   

Total costs

     72        119     
  

 

 

   

 

 

   

Gross loss

   $ (22   $ (7  
  

 

 

   

 

 

   

Molybdenum sales (millions of recoverable pounds)a

     7        13     

Gross loss per pound of molybdenum:

  

Revenues, excluding adjustmentsa

   $ 7.87      $ 9.00     
  

 

 

   

 

 

   

Site production and delivery, before net noncash and other costs shown below

     6.95        6.35     

Treatment charges and other

     0.85        0.84     
  

 

 

   

 

 

   

Unit net cash costs

     7.80        7.19     

DD&A

     2.71        1.97     

Noncash and other costs, net

     0.82        0.37     
  

 

 

   

 

 

   

Total unit costs

     11.33        9.53     
  

 

 

   

 

 

   

Gross loss per pound

   $ (3.46   $ (0.53  
  

 

 

   

 

 

   
Reconciliation to Amounts Reported                   
(In millions)                   

Three Months Ended June 30, 2016

   Revenues     Production
and Delivery
    DD&A  

Totals presented above

   $ 50      $ 45      $ 17   

Treatment charges and other

     (5     —          —     

Noncash and other costs, net

     —          5        —     
  

 

 

   

 

 

   

 

 

 

Molybdenum mines

     45        50        17   

Other mining & eliminationsb

     2,879        2,007        393   
  

 

 

   

 

 

   

 

 

 

Total mining

     2,924        2,057        410   

U.S. oil & gas operations

     410        889        218   

Corporate, other & eliminations

     —          10        4   
  

 

 

   

 

 

   

 

 

 

As reported in FCX’s consolidated financial statements

   $ 3,334      $ 2,956      $ 632   
  

 

 

   

 

 

   

 

 

 

Three Months Ended June 30, 2015

                  

Totals presented above

   $ 112      $ 80      $ 25   

Treatment charges and other

     (10     —          —     

Noncash and other costs, net

     —          4        —     
  

 

 

   

 

 

   

 

 

 

Molybdenum mines

     102        84        25   

Other mining & eliminationsb

     3,267        2,284        320   
  

 

 

   

 

 

   

 

 

 

Total mining

     3,369        2,368        345   

U.S. oil & gas operations

     569        281        485   

Corporate, other & eliminations

     —          2        3   
  

 

 

   

 

 

   

 

 

 

As reported in FCX’s consolidated financial statements

   $ 3,938      $ 2,651      $ 833   
  

 

 

   

 

 

   

 

 

 

 

a. Reflects sales of the Molybdenum mines’ production to FCX’s molybdenum sales company at market-based pricing. On a consolidated basis, realizations are based on the actual contract terms for sales to third parties; as a result, FCX’s consolidated average realized price per pound of molybdenum will differ from the amounts reported in this table.
b. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII. Also includes amounts associated with FCX’s molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North and South America copper mines.

 

XXVIII


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

Molybdenum Mines Product Revenues, Production Costs and Unit Net Cash Costs

 

     Six Months Ended June 30,        
(In millions)    2016     2015        

Revenues, excluding adjustmentsa

   $ 102      $ 236     
  

 

 

   

 

 

   

Site production and delivery, before net noncash and other costs shown below

     92        161     

Treatment charges and other

     12        21     
  

 

 

   

 

 

   

Net cash costs

     104        182     

DD&A

     36        51     

Noncash and other costs, net

     10        6     
  

 

 

   

 

 

   

Total costs

     150        239     
  

 

 

   

 

 

   

Gross loss

   $ (48   $ (3  
  

 

 

   

 

 

   

Molybdenum sales (millions of recoverable pounds)a

     14        26     

Gross loss per pound of molybdenum:

  

Revenues, excluding adjustmentsa

   $ 7.47      $ 9.34     
  

 

 

   

 

 

   

Site production and delivery, before net noncash and other costs shown below

     6.76        6.34     

Treatment charges and other

     0.85        0.84     
  

 

 

   

 

 

   

Unit net cash costs

     7.61        7.18     

DD&A

     2.66        2.00     

Noncash and other costs, net

     0.69        0.25     
  

 

 

   

 

 

   

Total unit costs

     10.96        9.43     
  

 

 

   

 

 

   

Gross loss per pound

   $ (3.49   $ (0.09  
  

 

 

   

 

 

   
Reconciliation to Amounts Reported                   
(In millions)          Production        

Six Months Ended June 30, 2016

   Revenues     and Delivery     DD&A  

Totals presented above

   $ 102      $ 92      $ 36   

Treatment charges and other

     (12     —          —     

Noncash and other costs, net

     —          10        —     
  

 

 

   

 

 

   

 

 

 

Molybdenum mines

     90        102        36   

Other mining & eliminationsb

     5,781        4,044        778   
  

 

 

   

 

 

   

 

 

 

Total mining

     5,871        4,146        814   

U.S. oil & gas operations

     705        1,296        473   

Corporate, other & eliminations

     —          13        7   
  

 

 

   

 

 

   

 

 

 

As reported in FCX’s consolidated financial statements

   $ 6,576      $ 5,455      $ 1,294   
  

 

 

   

 

 

   

 

 

 

Six Months Ended June 30, 2015

                  

Totals presented above

   $ 236      $ 161      $ 51   

Treatment charges and other

     (21     —          —     

Noncash and other costs, net

     —          6        —     
  

 

 

   

 

 

   

 

 

 

Molybdenum mines

     215        167        51   

Other mining & eliminationsb

     6,425        4,594        626   
  

 

 

   

 

 

   

 

 

 

Total mining

     6,640        4,761        677   

U.S. oil & gas operations

     1,069        564        1,015   

Corporate, other & eliminations

     —          5        7   
  

 

 

   

 

 

   

 

 

 

As reported in FCX’s consolidated financial statements

   $ 7,709      $ 5,330      $ 1,699   
  

 

 

   

 

 

   

 

 

 

 

a. Reflects sales of the Molybdenum mines’ production to FCX’s molybdenum sales company at market-based pricing. On a consolidated basis, realizations are based on the actual contract terms for sales to third parties; as a result, FCX’s consolidated average realized price per pound of molybdenum will differ from the amounts reported in this table.
b. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII. Also includes amounts associated with FCX’s molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North and South America copper mines.

 

XXIX


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

U.S. Oil & Gas Product Revenues, Cash Production Costs and Realizations

 

Three Months Ended June 30, 2016

                           
(In millions)                            
     Oil      Natural
Gas
     NGLs      Total  

Oil and gas revenues

   $ 356       $ 39       $ 10       $ 405   

Cash production costs

              (186
           

 

 

 

Cash operating margin

              219   

DD&A

              (218

Impairment of oil and gas properties

              (290

Accretion and other costs

              (703 )a 

Other revenue

              5   
           

 

 

 

Gross loss

            $ (987
           

 

 

 

Oil (MMBbls)

     8.7            

Gas (Bcf)

        18.8         

NGLs (MMBbls)

           0.6      

Oil Equivalents (MMBOE)

              12.4   
     Oil      Natural Gas      NGLs         
     (per barrel)      (per MMBtu)      (per barrel)      Per BOE  

Oil and gas revenues

   $ 41.10       $ 2.04       $ 18.00       $ 32.70   

Cash production costs

              (15.00
           

 

 

 

Cash operating margin

              17.70   

DD&A

              (17.61

Impairment of oil and gas properties

              (23.46

Accretion and other costs

              (56.76 )a 

Other revenue

              0.42   
           

 

 

 

Gross loss

            $ (79.71
           

 

 

 
Reconciliation to Amounts Reported  
(In millions)    Revenues      Production
and Delivery
     DD&A      Impairment of
Oil and Gas
Properties
 

Totals presented above

   $ 405       $ 186       $ 218       $ 290   

Accretion and other costs

     —           703         —           —     

Other revenue

     5         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

U.S. oil & gas operations

     410         889         218         290   

Total miningb

     2,924         2,057         410         —     

Corporate, other & eliminations

     —           10         4         1   
  

 

 

    

 

 

    

 

 

    

 

 

 

As reported in FCX’s consolidated financial statements

   $ 3,334       $ 2,956       $ 632       $ 291   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. Includes charges of $692 million ($55.91 per BOE) primarily for the termination and settlement of drillship contracts and inventory write downs.
b. Represents the combined total for mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XXX


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

U.S. Oil & Gas Product Revenues, Cash Production Costs and Realizations

 

Three Months Ended June 30, 2015

                          
(In millions)                           
     Oil     Natural
Gas
     NGLs      Total  

Oil and gas revenues before derivatives

   $ 480      $ 63       $ 12       $ 555   

Cash gains on derivative contracts

     101        —           —           101   
  

 

 

   

 

 

    

 

 

    

 

 

 

Realized revenues

   $ 581      $ 63       $ 12         656   
  

 

 

   

 

 

    

 

 

    

Cash production costs

             (249
          

 

 

 

Cash operating margin

             407   

DD&A

             (485

Impairment of oil and gas properties

             (2,686

Accretion and other costs

             (32 )a 

Net noncash mark-to-market losses on derivative contracts

             (95

Other revenue

             8   
          

 

 

 

Gross loss

           $ (2,883
          

 

 

 

Oil (MMBbls)

     8.6           

Gas (Bcf)

       23.5         

NGLs (MMBbls)

          0.6      

Oil Equivalents (MMBOE)

             13.1   
     Oil     Natural Gas      NGLs         
     (per barrel)     (per MMBtu)      (per barrel)      Per BOE  

Oil and gas revenues before derivatives

   $ 55.82      $ 2.66       $ 20.50       $ 42.31   

Cash gains on derivative contracts

     11.79        —           —           7.73   
  

 

 

   

 

 

    

 

 

    

 

 

 

Realized revenues

   $ 67.61      $ 2.66       $ 20.50         50.04   
  

 

 

   

 

 

    

 

 

    

Cash production costs

             (19.04
          

 

 

 

Cash operating margin

             31.00   

DD&A

             (36.99

Impairment of oil and gas properties

             (204.91

Accretion and other costs

             (2.46 )a 

Net noncash mark-to-market losses on derivative contracts

             (7.26

Other revenue

             0.61   
          

 

 

 

Gross loss

           $ (220.01
          

 

 

 
Reconciliation to Amounts Reported  
(In millions)    Revenues     Production
and Delivery
     DD&A      Impairment of
Oil and Gas
Properties
 

Totals presented above

   $ 555      $ 249       $ 485       $ 2,686   

Cash gains on derivative contracts

     101        —           —           —     

Net noncash mark-to-market losses on derivative contracts

     (95     —           —           —     

Accretion and other costs

     —          32         —           —     

Other revenue

     8        —           —           —     
  

 

 

   

 

 

    

 

 

    

 

 

 

U.S. oil & gas operations

     569        281         485         2,686   

Total miningb

     3,369        2,368         345         —     

Corporate, other & eliminations

     —          2         3         —     
  

 

 

   

 

 

    

 

 

    

 

 

 

As reported in FCX’s consolidated financial statements

   $ 3,938      $ 2,651       $ 833       $ 2,686   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

a. Includes charges of $22 million ($1.72 per BOE) primarily for idle rig costs and inventory write downs.
b. Represents the combined total for mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XXXI


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

U.S. Oil & Gas Product Revenues, Cash Production Costs and Realizations

 

Six Months Ended June 30, 2016

                           
(In millions)                            
     Oil      Natural
Gas
     NGLs      Total  

Oil and gas revenues

   $ 597       $ 78       $ 19       $ 694   

Cash production costs

              (378
           

 

 

 

Cash operating margin

              316   

DD&A

              (473

Impairment of oil and gas properties

              (4,061

Accretion and other costs

              (918 ) a 

Other revenue

              11   
           

 

 

 

Gross loss

            $ (5,125
           

 

 

 

Oil (MMBbls)

     17.0            

Gas (Bcf)

        38.4         

NGLs (MMBbls)

           1.2      

Oil Equivalents (MMBOE)

              24.5   
     Oil      Natural Gas      NGLs         
     (per barrel)      (per MMBtu)      (per barrel)      Per BOE  

Oil and gas revenues

   $ 35.21       $ 2.02       $ 16.44       $ 28.29   

Cash production costs

              (15.42
           

 

 

 

Cash operating margin

              12.87   

DD&A

              (19.27

Impairment of oil and gas properties

              (165.56

Accretion and other costs

              (37.41 ) a 

Other revenue

              0.45   
           

 

 

 

Gross loss

            $ (208.92
           

 

 

 
Reconciliation to Amounts Reported  
(In millions)    Revenues      Production
and Delivery
     DD&A      Impairment of
Oil and Gas
Properties
 

Totals presented above

   $ 694       $ 378       $ 473       $ 4,061   

Accretion and other costs

     —           918         —           —     

Other revenue

     11         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

U.S. oil & gas operations

     705         1,296         473         4,061   

Total miningb

     5,871         4,146         814         —     

Corporate, other & eliminations

     —           13         7         17   
  

 

 

    

 

 

    

 

 

    

 

 

 

As reported in FCX’s consolidated financial statements

   $ 6,576       $ 5,455       $ 1,294       $ 4,078   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. Includes charges of $892 million ($36.36 per BOE) primarily for the termination and settlement of drillship contracts and inventory write downs.
b. Represents the combined total for mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XXXII


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

U.S. Oil & Gas Product Revenues, Cash Production Costs and Realizations

 

Six Months Ended June 30, 2015

                          
(In millions)    Oil     Natural
Gas
     NGLs      Total  

Oil and gas revenues before derivatives

   $ 853      $ 125       $ 24       $ 1,002   

Cash gains on derivative contracts

     201        —           —           201   
  

 

 

   

 

 

    

 

 

    

 

 

 

Realized revenues

   $ 1,054      $ 125       $ 24         1,203   
  

 

 

   

 

 

    

 

 

    

Cash production costs

             (503
          

 

 

 

Cash operating margin

             700   

DD&A

             (1,015

Impairment of oil and gas properties

             (5,790

Accretion and other costs

             (61 )a 

Net noncash mark-to-market losses on derivative contracts

             (143

Other revenue

             9   
          

 

 

 

Gross loss

           $ (6,300
          

 

 

 

Oil (MMBbls)

     17.0           

Gas (Bcf)

       45.3         

NGLs (MMBbls)

          1.1      

Oil Equivalents (MMBOE)

             25.6   
     Oil     Natural Gas      NGLs         
     (per barrel)     (per MMbtu)      (per barrel)      Per BOE  

Oil and gas revenues before derivatives

   $ 50.25      $ 2.75       $ 21.71       $ 39.08   

Cash gains on derivative contracts

     11.88        —           —           7.87   
  

 

 

   

 

 

    

 

 

    

 

 

 

Realized revenues

   $ 62.13      $ 2.75       $ 21.71         46.95   
  

 

 

   

 

 

    

 

 

    

Cash production costs

             (19.62
          

 

 

 

Cash operating margin

             27.33   

DD&A

             (39.59

Impairment of oil and gas properties

             (225.89

Accretion and other costs

             (2.39 )a 

Net noncash mark-to-market losses on derivative contracts

             (5.60

Other revenue

             0.34   
          

 

 

 

Gross loss

           $ (245.80
          

 

 

 
Reconciliation to Amounts Reported  
(In millions)    Revenues     Production
and Delivery
     DD&A      Impairment of
Oil and Gas
Properties
 

Totals presented above

   $ 1,002      $ 503       $ 1,015       $ 5,790   

Cash gains on derivative contracts

     201        —           —           —     

Net noncash mark-to-market losses on derivative contracts

     (143     —           —           —     

Accretion and other costs

     —          61         —           —     

Other revenue

     9        —           —           —     
  

 

 

   

 

 

    

 

 

    

 

 

 

U.S. oil & gas operations

     1,069        564         1,015         5,790   

Total miningb

     6,640        4,761         677         —     

Corporate, other & eliminations

     —          5         7         —     
  

 

 

   

 

 

    

 

 

    

 

 

 

As reported in FCX’s consolidated financial statements

   $ 7,709      $ 5,330       $ 1,699       $ 5,790   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

a. Includes charges of $39 million ($1.54 per BOE) primarily for idle rig costs and inventory write downs.
b. Represents the combined total for mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XXXIII


Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

The Exhibits included as part of this Current Report are listed in the attached Exhibit Index.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

FREEPORT-McMoRan INC.
By:  

/s/ Kathleen L. Quirk

  Kathleen L. Quirk
  Executive Vice President, Chief Financial Officer & Treasurer (authorized signatory and Principal Financial Officer)

Date: July 27, 2016


Freeport-McMoRan Inc.

Exhibit Index

 

Exhibit

Number

    
  5.1    Opinion of Davis Polk & Wardwell LLP
10.1    Distribution Agreement, dated as of July 27, 2016, by and among Freeport-McMoRan Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BBVA Securities Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., BTIG, LLC, CIBC World Markets Corp., Citigroup Global Markets Inc., HSBC Securities (USA) Inc., Mizuho Securities USA Inc., MUFG Securities Americas Inc., RBC Capital Markets, LLC, Santander Investment Securities Inc., Scotia Capital (USA) Inc., SMBC Nikko Securities America, Inc., TD Securities (USA) LLC and Wells Fargo Securities, LLC
23.1    Consent of Davis Polk & Wardwell LLP (contained in Exhibit 5.1)

Exhibit 5.1

 

  

New York

Menlo Park

Washington DC

São Paulo

London

  

Paris

Madrid

Tokyo

Beijing

Hong Kong

   LOGO      

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, NY 10017

  

212 450 4000 tel

212 701 5800 fax

  

July 27, 2016

Freeport-McMoRan Inc.

333 North Central Avenue

Phoenix, Arizona 85004-2189

Ladies and Gentlemen:

Freeport-McMoRan Inc., a Delaware corporation (the “Company”), has filed with the Securities and Exchange Commission a Registration Statement on Form S-3 (File No. 333-206257) (the “Registration Statement”) for the purpose of registering under the Securities Act of 1933, as amended (the “Securities Act”), certain securities, including up to $1,500,000,000 aggregate amount of the Company’s common stock, par value $0.10 per share (the “Securities”) to be sold pursuant to the Distribution Agreement dated July 27, 2016 (the “Distribution Agreement”) among the Company and the several agents named therein.

We, as your counsel, have examined originals or copies of such documents, corporate records, certificates of public officials and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion.

In rendering the opinion expressed herein, we have, without independent inquiry or investigation, assumed that (i) all documents submitted to us as originals are authentic and complete, (ii) all documents submitted to us as copies conform to authentic, complete originals, (iii) all signatures on all documents that we reviewed are genuine, (iv) all natural persons executing documents had and have the legal capacity to do so, (v) all statements in certificates of public officials and officers of the Company that we reviewed were and are accurate and (vi) all representations made by the Company as to matters of fact in the documents that we reviewed were and are accurate.

Based upon the foregoing, and subject to the additional assumptions and qualifications set forth below, we advise you that, in our opinion, assuming the terms of any sale of Securities pursuant to the Distribution Agreement are approved by the designated officers of the Company or their designees pursuant to the authority delegated to them by the Company’s board of directors, when the Securities have been issued and delivered against payment therefor in accordance with the terms of the Distribution Agreement, the Securities will be validly issued, fully paid and non-assessable.


Freeport-McMoRan Inc.    July 27, 2016    pg. 2

We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the General Corporation Law of the State of Delaware.

We hereby consent to the filing of this opinion as an exhibit to a report on Form 8-K to be filed by the Company on the date hereof and its incorporation by reference into the Registration Statement and further consent to the reference to our name under the caption “Legal Matters” in the prospectus supplement dated July 27, 2016, which is a part of the Registration Statement. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act.

Very truly yours,

/s/ Davis Polk & Wardwell LLP

Davis Polk & Wardwell LLP

Exhibit 10.1

DISTRIBUTION AGREEMENT

July 27, 2016

J.P. Morgan Securities LLC

383 Madison Avenue

New York, New York 10179

Merrill Lynch, Pierce, Fenner & Smith

                    Incorporated

One Bryant Park

New York, New York 10036

BBVA Securities Inc.

1345 Avenue of the Americas, 44th Floor

New York, New York 10105

BMO Capital Markets Corp.

3 Times Square

New York, New York 10036

BNP Paribas Securities Corp.

787 Seventh Avenue

New York, New York 10019

BTIG, LLC

825 3rd Avenue, 6th Floor

New York, New York 10022

CIBC World Markets Corp.

300 Madison Avenue, 5th Floor

New York, NY 10017

Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York 10013

HSBC Securities (USA) Inc.

452 Fifth Avenue

New York, New York 10018

Mizuho Securities USA Inc.

320 Park Avenue, 12th Floor

New York, New York 10020

MUFG Securities Americas Inc.

1221 Avenue of the Americas, 6th Floor

New York, New York 10020


RBC Capital Markets, LLC

200 Vesey Street, 8th Floor

New York, New York 10281

Santander Investment Securities Inc.

45 East 53rd Street

New York, New York 10022

Scotia Capital (USA) Inc.

250 Vesey Street, 24th Floor

New York, New York 10281

SMBC Nikko Securities America, Inc.

277 Park Avenue, 5th floor

New York, New York 10172

TD Securities (USA) LLC

31 West 52nd Street

New York, New York 10019

Wells Fargo Securities

375 Park Avenue

New York, New York 10152

Ladies and Gentlemen:

Freeport-McMoRan Inc., a Delaware corporation (the “Company”), confirms its agreement with each of J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BBVA Securities Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., BTIG, LLC, CIBC World Markets Corp., Citigroup Global Markets Inc., HSBC Securities (USA) Inc., Mizuho Securities USA Inc., MUFG Securities Americas Inc., RBC Capital Markets, LLC, Santander Investment Securities Inc., Scotia Capital (USA) Inc., SMBC Nikko Securities America, Inc., TD Securities (USA) LLC and Wells Fargo Securities, LLC, as agent and/or principal under any Terms Agreement (as defined in Section 1(a) below) (each, an “Agent”, and, collectively, the “Agents”), with respect to the issuance and sale from time to time by the Company, in the manner and subject to the terms and conditions described below in this Distribution Agreement (this “Agreement”), of shares (the “Shares”) of common stock, $0.10 par value per share (the “Common Stock”), of the Company having an aggregate Gross Sales Price (as defined in Section 2(b) below) of up to $1,500,000,000 (the “Maximum Amount”) on the terms set forth in Section 1 of this Agreement. The Shares are described in the Prospectus referred to below.

The Company has filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-3 (No. 333-206257) that became automatically effective upon filing with the Commission on August 10, 2015 for the registration of the Shares and other securities of the Company under the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Act”); the


Registration Statement (as defined below) sets forth the material terms of the offering, sale and plan of distribution of the Shares and contains additional information concerning the Company and its business. Except where the context otherwise requires, “Registration Statement”, as used herein, means the registration statement, as amended at the time of such registration statement’s effectiveness for purposes of Section 11 of the Act, as such section applies to the Agents, including (1) all documents filed as a part thereof or incorporated, or deemed to be incorporated, by reference therein and (2) any information contained or incorporated by reference in a prospectus filed with the Commission pursuant to Rule 424(b) under the Act, to the extent such information is deemed, pursuant to Rule 430B or Rule 430C under the Act, to be part of the registration statement at the effective time. Except where the context otherwise requires, “Basic Prospectus”, as used herein, means the prospectus dated August 10, 2015, filed as part of the Registration Statement, including the documents incorporated by reference therein as of the date of such prospectus. Except where the context otherwise requires, “Prospectus Supplement”, as used herein, means the most recent prospectus supplement relating to the Shares, to be filed by the Company with the Commission pursuant to Rule 424(b) under the Act on or before the second business day after the date of its first use in connection with a public offering or sale of Shares pursuant hereto (or such earlier time as may be required under the Act), in the form furnished by the Company to the Agents in connection with the offering of the Shares. Except where the context otherwise requires, “Prospectus”, as used herein, means the Prospectus Supplement (and any additional prospectus supplement prepared in accordance with the provisions of Sections 4(b) or 4(h) of this Agreement and filed in accordance with the provisions of Rule 424(b)) together with the Basic Prospectus attached to or used with the Prospectus Supplement. “Permitted Free Writing Prospectuses”, as used herein, has the meaning set forth in Section 3(b). Any reference herein to the Registration Statement, the Basic Prospectus, the Prospectus Supplement, the Prospectus or any Permitted Free Writing Prospectus shall, unless otherwise stated, be deemed to refer to and include the documents, if any, incorporated, or deemed to be incorporated, by reference therein (the “Incorporated Documents”), including, unless the context otherwise requires, the documents, if any, filed as exhibits to such Incorporated Documents. Any reference herein to the terms “amend”, “amendment” or “supplement” with respect to the Registration Statement, the Basic Prospectus, the Prospectus Supplement, the Prospectus or any Permitted Free Writing Prospectus shall, unless stated otherwise, be deemed to refer to and include the filing of any document under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Exchange Act”) on or after the initial effective date of the Registration Statement or the date of the Basic Prospectus, the Prospectus Supplement, the Prospectus or such Permitted Free Writing Prospectus, as the case may be, and deemed to be incorporated therein by reference.

The Company and each Agent agree as follows:

1. Issuance and Sale.

 

  (a)

Upon the basis of the representations and warranties and subject to the terms and conditions set forth herein, on any Exchange Business Day (as defined below) selected by the Company, the Company and such Agent shall enter into an agreement in accordance with Section 2 hereof regarding the number of Shares to be placed by such Agent, as agent, and the manner in which and other terms upon


  which such placement is to occur (each such transaction being referred to as an “Agency Transaction”). Pursuant to an Agency Transaction, the Company may submit its orders to any Agent selected by the Company as the Agents’ representative in writing (the “Direct Seller”) to sell Shares with respect to which the Direct Seller has agreed to act as agent, including Shares it has agreed to sell on behalf of other Agents. The Company may also offer to sell the Shares directly to an Agent, as principal, in which event such parties will enter into a separate agreement (each, a “Terms Agreement”) in substantially the form of Exhibit E hereto (with such changes thereto as may be agreed upon by the Company and such Agent to accommodate a transaction involving more than one Agent), relating to such sale in accordance with Section 2(g) of this Agreement. As used in this Agreement, (i) the “Term” shall be the period commencing on the date hereof and ending on the earlier of (x) the date on which the Gross Sales Price of Shares issued and sold pursuant to this Agreement and any Terms Agreement is equal to the Maximum Amount and (y) the termination of this Agreement pursuant to Section 8 or 9 hereof (the “Termination Date”), (ii) an “Exchange Business Day” means any day during the Term that is a trading day for the Exchange, and (iii) “Exchange” means the New York Stock Exchange.

 

  (b) Subject to the terms and conditions set forth below, the Company appoints each Agent as agent in connection with the offer and sale of Shares in any Agency Transactions entered into hereunder. Each Agent will use its respective commercially reasonable efforts to sell such Shares in accordance with the terms and conditions hereof and of the applicable Transaction Acceptance (as defined below). Neither the Company nor any Agent shall have any obligation to enter into an Agency Transaction. The Company shall be obligated to issue and sell through the Agents, and each Agent shall be obligated to use its respective commercially reasonable efforts, consistent with its normal trading and sales practices and as provided herein and in the applicable Transaction Acceptance, to place Shares issued by the Company only if and when the Company makes a Transaction Proposal (as defined below) to such Agent related to such an Agency Transaction and a Transaction Acceptance related to such Agency Transaction has been delivered to the Company by such Agent as provided in Section 2 below.

 

  (c) Each Agent, as agent in any Agency Transaction, hereby covenants and agrees, severally and not jointly, not to make any sales of the Shares on behalf of the Company pursuant to this Agreement other than (i) by means of ordinary brokers’ transactions between members of the Exchange that qualify for delivery of a Prospectus in accordance with Rule 153 under the Act and meet the definition of an “at the market offering” under Rule 415(a)(4) under the Act (such transactions are hereinafter referred to as “At the Market Offerings”) and (ii) such other sales of the Shares on behalf of the Company in its capacity as agent of the Company as shall be agreed by the Company and such Agent in writing.

 

  (d)

If Shares are to be sold in an Agency Transaction in an At the Market Offering, the applicable Agent will confirm in writing to the Company the number of Shares sold in such Agency Transaction on any Exchange Business Day, the


  aggregate Gross Sales Price and the aggregate Net Sales Price (as each of such terms is defined in Section 2(b) below) for all Shares sold in such Agency Transaction on such date no later than the opening of trading on the day immediately following such Exchange Business Day.

 

  (e) If the Company shall default on its obligation to deliver Shares to an Agent pursuant to the terms of any Agency Transaction or any Terms Agreement, (i) the Company shall hold such Agent harmless against any loss, claim or damage arising from or as a result of such default by the Company and (ii) notwithstanding such default, pay to such Agent any commission or fee to which such Agent would otherwise be entitled in connection with such sale.

 

  (f) The Company acknowledges and agrees that (i) there can be no assurance that an Agent will be successful in selling the Shares, (ii) no Agent shall incur any liability or obligation to the Company or any other person or entity if it does not sell Shares for any reason other than a failure by such Agent to use its commercially reasonable efforts consistent with its normal trading and sales practices and applicable law and regulations to sell such Shares in accordance with the terms of this Agreement, and (iii) no Agent shall be under any obligation to purchase Shares on a principal basis pursuant to this Agreement, except as may otherwise be specifically agreed by such Agent and the Company in a Terms Agreement.

2. Transaction Acceptances.

 

  (a) The Company may, from time to time during the Term, propose to an Agent that the Company and such Agent enter into an Agency Transaction, to be executed on a specified Exchange Business Day or over a specified period of Exchange Business Days, which proposal shall be made to such Agent by any means permissible under Section 11 hereof and shall set forth the information below (each, a “Transaction Proposal”). If such Agent agrees to the terms of such proposed Agency Transaction, then such Agent shall promptly send to the Company by any means permissible under Section 11 hereof a notice (each, a “Transaction Acceptance”), confirming the agreed terms of such proposed Agency Transaction as set forth in such Transaction Proposal whereupon such Agency Transaction shall become a binding agreement between the Company and such Agent. Each Transaction Proposal shall specify:

(i) the Exchange Business Day(s) on which the Shares subject to such Agency Transaction are intended to be sold (each, a “Purchase Date”);

(ii) the maximum number of Shares to be sold by such Agent (the “Specified Number of Shares”) on, or over the course of, such Purchase Date(s);

(iii) if such Agent will be acting as the Direct Seller with respect to the Shares subject to such Agency Transaction; and


(iv) the lowest price (if any) at which the Company is willing to sell Shares on each such Purchase Date (each, a “Floor Price”).

The Company shall have responsibility for maintaining records with respect to the aggregate Gross Sales Price for all Shares sold hereunder or under any Terms Agreement, or for otherwise monitoring the availability of Shares for sale under the Registration Statement. In the event that more than one Transaction Acceptance with respect to any Purchase Date(s) is delivered by the applicable Agent to the Company, the latest Transaction Acceptance shall govern any sales of Shares for the relevant Purchase Date(s), except to the extent of any action occurring pursuant to a prior Transaction Acceptance and prior to the delivery to the Company of the latest Transaction Acceptance. The Company or the applicable Agent may, upon notice to the other by any means permissible under Section 11 hereof, suspend or terminate the offering of the Shares pursuant to any Agency Transaction; provided, however, that such suspension or termination shall not affect or impair the Company’s or such Agent’s respective obligations with respect to the Shares sold hereunder prior to the giving of such notice. Notwithstanding the foregoing, if the terms of any Agency Transaction contemplate that Shares shall be sold on more than one Purchase Date, then the Company and the applicable Agent shall mutually agree to such additional terms and conditions as they deem necessary in respect of such multiple Purchase Dates, and such additional terms and conditions shall be set forth in the relevant Transaction Proposal and confirmed by the relevant Transaction Acceptance and be binding to the same extent as any other terms contained therein.

 

  (b) The Purchase Date(s) of the Shares deliverable pursuant to any Transaction Acceptance shall be set forth in the relevant Transaction Proposal and confirmed by the relevant Transaction Acceptance. An Agent’s commission for any Agency Transaction shall be a percentage, not to exceed 1.50%, of the actual sales price of the Shares (the “Gross Sales Price”) sold through such Agent in such Agency Transaction pursuant to this Agreement (the Gross Sales Price less such Agent’s commission is referred to herein at the “Net Sales Price”) and such rate of compensation shall not apply when such Agent acts as principal, which terms will be separately agreed.

 

  (c) Payment of the Net Sales Price for Shares sold by the Company on any Purchase Date pursuant to a Transaction Acceptance shall be made to the Company by federal funds wire transfer to the account of the Company, the details of which are set forth on Schedule III hereto, against delivery of such Shares to the applicable Agent’s account, or an account of such Agent’s designee, at The Depository Trust Company through its Deposit and Withdrawal at Custodian System (“DWAC”), or by such other means of delivery as may be agreed to by the Company and such Agent. Such payment and delivery shall be made at or about 10:00 a.m., local time in New York, New York, on the third Exchange Business Day (or such other day as may, from time to time, become standard industry practice for settlement of such a securities issuance) following each Purchase Date (each, a “Closing Date”).


  (d) If, as provided in the related Transaction Acceptance, a Floor Price has been agreed to by the parties with respect to a Purchase Date, and the applicable Agent thereafter determines and notifies the Company that the Gross Sales Price for such Agency Transaction would not be at least equal to such Floor Price, then the Company shall not be obligated to issue and sell through such Agent, and such Agent shall not be obligated to place, the Shares proposed to be sold pursuant to such Agency Transaction on such Purchase Date.

 

  (e) Under no circumstances shall the Gross Sales Price of the Shares sold pursuant to this Agreement and any Terms Agreements exceed the Maximum Amount.

 

  (f) If any party hereto has reason to believe that the exemptive provisions set forth in Rule 101(c)(1) of Regulation M under the Exchange Act are not satisfied with respect to the Shares, it shall promptly notify the other parties hereto and sales of the Shares under this Agreement, any Transaction Acceptance or any Terms Agreement shall be suspended until that or other exemptive provisions have been satisfied in the judgment of each party hereto. On or prior to the delivery of a prospectus that is required (whether physically or through compliance with Rule 172 under the Act or any similar rule) in connection with the offering or sale of the Shares, the applicable Agent with respect to such sale of the Shares shall calculate the average daily trading volume (as defined by Rule 100 of Regulation M under the Exchange Act) of the Common Stock based on market data provided by Bloomberg L.P. or such other sources as agreed upon by such Agent and the Company.

 

  (g) (i) If the Company wishes to issue and sell the Shares pursuant to this Agreement but other than as set forth in Section 2(a) of this Agreement (each such sale, a “Placement”), it will notify the applicable Agent of the proposed terms of such Placement. If such Agent, acting as principal, wishes to accept such proposed terms (which it may decline to do for any reason in its sole discretion) or, following discussions with the Company, wishes to accept amended terms, such Agent and the Company will enter into a Terms Agreement setting forth the terms of such Placement.

(ii) The terms set forth in a Terms Agreement will not be binding on the Company or an Agent unless and until the Company and such Agent have each executed such Terms Agreement accepting all of the terms of such Terms Agreement. In the event of a conflict between the terms of this Agreement and the terms of a Terms Agreement, the terms of such Terms Agreement will control.

 

  (h)

Each sale of the Shares to an Agent in a Placement shall be made in accordance with the terms of this Agreement and a Terms Agreement, which will provide for the sale of such Shares to, and the purchase thereof by, such Agent. A Terms Agreement may also specify certain provisions relating to the reoffering of such Shares by such Agent. The commitment of an Agent to purchase the Shares pursuant to any Terms Agreement shall be deemed to have been made on the basis of the representations and warranties of the Company herein contained and


  shall be subject to the terms and conditions herein set forth. Any such Terms Agreement shall specify the number of the Shares to be purchased by the applicable Agent pursuant thereto, the price to be paid to the Company for such Shares, any provisions relating to rights of, and default by, underwriters, if any, acting together with such Agent in the reoffering of the Shares, the time and date (each such time and date being referred to herein as a “Time of Delivery”) and the place of delivery of and payment for such Shares.

 

  (i) The Company agrees that any offer to sell, any solicitation of an offer to buy, or any sales of Shares or any other equity security of the Company shall only be effected by or through only one of the Agents on any single given day, and in no event by more than one Agent, and the Company shall in no event request that more than one Agent sell Shares on the same day; provided, however, that the foregoing limitation shall not apply to (i) the exercise of any option, warrant, right or any conversion privilege set forth in the instrument governing such security or (ii) sales solely to employees or security holders of the Company or its subsidiaries, or to a trustee or other person acquiring such securities for the accounts of such persons.

 

  (j) Notwithstanding any other provision of this Agreement, the Company shall not offer, sell or deliver, or request the offer or sale, of any Shares pursuant to this Agreement (whether in an Agency Transaction or a Placement) and, by notice to each Agent given by telephone (confirmed promptly by email), shall cancel any instructions for the offer or sale of any Shares, and no Agent shall be obligated to, and if so notified by the Company shall not, offer or sell any Shares, (i) during any period in which the Company is in possession of material non-public information or (ii) at any time from and including the date on which the Company shall issue a press release containing, or shall otherwise publicly announce, its earnings, revenues or other results of operations for a quarterly or annual period (an “Earnings Announcement”) through and including the time that is 24 hours after the time that the Company files a Quarterly Report on Form 10-Q or an Annual Report on Form 10-K that includes consolidated financial statements as of and for the same period or periods, as the case may be, covered by such Earnings Announcement.

3. Representations and Warranties of the Company. The Company represents and warrants to each Agent, on and as of (i) the date hereof, (ii) each date on which the Company receives a Transaction Acceptance (a “Time of Acceptance”), (iii) each Time of Sale (as defined below) and (iv) each Closing Date (each such date listed in (i) through (iv), a “Representation Date”) that:

 

  (a)

There is no order preventing or suspending the use of the Registration Statement or the Prospectus; the Registration Statement complied when it initially became effective, complies as of the date hereof and, as amended or supplemented, at each Representation Date will comply, in all material respects, with the requirements of the Act; the conditions to the use of Form S-3 in connection with the offering and sale of the Shares as contemplated hereby have been satisfied; the


  Registration Statement meets, and the offering and sale of the Shares as contemplated hereby comply with, the requirements of Rule 415 under the Act (including, without limitation, Rule 415(a)(5)); the Prospectus complied or will comply, at the time it was or will be filed with the Commission, and will comply, as then amended or supplemented, as of each Representation Date, in all material respects, with the requirements of the Act; the Registration Statement did not, as of the time of its initial effectiveness, and does not or will not, as then amended or supplemented, as of each Representation Date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; as of each Representation Date, the Prospectus, as then amended or supplemented, together with all of the then issued Permitted Free Writing Prospectuses, if any, will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representation or warranty with respect to any statement contained in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus in reliance upon and in conformity with information concerning the Agents and furnished in writing by or on behalf of the Agents expressly for use in the Registration Statement, the Prospectus or such Permitted Free Writing Prospectus, which consists of the information set forth on Schedule II hereto (the “Agent Information”). “Time of Sale” means, (i) with respect to each offering of Shares pursuant to this Agreement, the time of the Agents’ initial entry into contracts with investors for the sale of such Shares and (ii) with respect to each offering of Shares pursuant to any relevant Terms Agreement, the time of sale of such Shares.

 

  (b)

Prior to the execution of this Agreement, the Company has not, directly or indirectly, offered or sold any of the Shares by means of any “prospectus” (within the meaning of the Act) or used any “prospectus” (within the meaning of the Act) in connection with the offer or sale of the Shares, in each case other than the Basic Prospectus. The Company represents and agrees that, unless it obtains the prior consent of the Agents, until the termination of this Agreement, it has not made and will not make any offer relating to the Shares that would constitute an “issuer free writing prospectus”, as defined in Rule 433 under the Act, or that would otherwise constitute a “free writing prospectus”, as defined in Rule 405 under the Act. Any such free writing prospectus relating to the Shares consented to by the Agents is hereinafter referred to as a “Permitted Free Writing Prospectus”. The Company represents that it has complied and will comply in all material respects with the requirements of Rule 433 under the Act applicable to any Permitted Free Writing Prospectus, including timely filing with the Commission where required, legending and record keeping. The conditions set forth in one or more of subclauses (i) through (iv), inclusive, of Rule 433(b)(1) under the Act are satisfied, and the registration statement relating to the offering of the Shares contemplated hereby, as initially filed with the Commission, includes a prospectus that, other than by reason of Rule 433 or Rule 431 under the Act, satisfies the requirements of Section 10 of the Act; neither the Company nor


  the Agents are disqualified, by reason of subsection (f) or (g) of Rule 164 under the Act, from using, in connection with the offer and sale of the Shares, “free writing prospectuses” (as defined in Rule 405 under the Act) pursuant to Rules 164 and 433 under the Act; the Company is not an “ineligible issuer” (as defined in Rule 405 under the Act) as of each eligibility determination date for purposes of Rules 164 and 433 under the Act with respect to the offering of the Shares contemplated by the Registration Statement.

 

  (c) The Incorporated Documents, when they were filed with the Commission, conformed in all material respects to the requirements of the Act or the Exchange Act, as applicable, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and any further documents so filed and incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, when such documents become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act or the Exchange Act, as applicable.

 

  (d) The consolidated financial statements of the Company and its subsidiaries and the related notes thereto included or incorporated by reference in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus comply in all material respects with the applicable requirements of the Act and the Exchange Act, as applicable, and present fairly the financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods covered thereby, except as otherwise disclosed in the financial statement footnotes, and the supporting schedules included or incorporated by reference in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus present fairly the information required to be stated therein; the other financial information included or incorporated by reference in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus has been derived from the accounting records of the Company and its subsidiaries and presents fairly the information shown thereby; and any pro forma financial information and the related notes thereto included or incorporated by reference in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus have been prepared in accordance with the applicable requirements of the Act and the Exchange Act, as applicable, and the assumptions underlying such pro forma financial information are reasonable and are included or incorporated by reference in the Registration Statement, the Prospectus and any such Permitted Free Writing Prospectus.

 

  (e)

Since the date of the most recent financial statements of the Company included or incorporated by reference in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus, (i) no material change in the capital stock or


  long-term debt of the Company or any of its subsidiaries has occurred, (ii) no dividend or distribution of any kind has been declared, set aside for payment, paid or made by the Company on any class of capital stock, (iii) there has not been any material adverse change, nor any development that would reasonably be expected to have a material adverse change, in or affecting the business, properties, management, financial position, results of operations or prospects of the Company and its subsidiaries, taken as a whole, (iv) neither the Company nor any of its subsidiaries has entered into any transaction or agreement that is material to the Company and its subsidiaries, taken as a whole, or incurred any liability or obligation, direct or contingent, that is material to the Company and its subsidiaries, taken as a whole, and (v) neither the Company nor any of its subsidiaries has sustained any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority that, in the case of this clause (v), individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect (as defined in Section 3(f)), except, in each case (i) through (v), as otherwise disclosed in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus.

 

  (f) The Company and each of its Identified Subsidiaries (as defined below) have been duly organized and are validly existing and in good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, except where the failure to be so qualified, in good standing or have such power or authority would not, individually or in the aggregate, have a material adverse effect on the business, properties, management, financial position, results of operations or prospects of the Company and its subsidiaries taken as a whole (a “Material Adverse Effect”). As used in this Agreement, “Identified Subsidiary” means the subsidiaries listed in Schedule I to this Agreement. The Company does not have any significant subsidiaries that are not listed on Schedule I hereto.

 

  (g)

The Company has an authorized capitalization as set forth in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus; all the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights; except as described in or expressly contemplated by the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interests in the Company or any of its subsidiaries, nor any contracts, commitments, agreements, understandings or arrangements of any kind relating to the issuance of any capital stock of the Company or any such subsidiary, any such convertible or


  exchangeable securities or any such rights, warrants or options; the capital stock of the Company conforms in all material respects to the description thereof contained in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus; and all the outstanding shares of capital stock or other equity interests of each Identified Subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable (except, in the case of any foreign subsidiary, for directors’ qualifying shares) and are owned directly or indirectly by the Company, free and clear of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party (except as otherwise described in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus).

 

  (h) The Company has full right, power and authority to execute and deliver this Agreement and any Terms Agreement and perform its obligations hereunder or thereunder; and all action required to be taken for the due and proper authorization, execution and delivery by it of this Agreement and any Terms Agreement and the consummation by it of the transactions contemplated hereby and thereby has been duly and validly taken (or, in the case of any Terms Agreement, such action will have been duly and validly authorized), subject, in the case of the issuance and sale of Shares, to the delivery of a Transaction Proposal by the persons specified in the resolutions of the pricing committee of the Company’s board of directors.

 

  (i) This Agreement has been, and any Terms Agreement will have been, duly authorized, executed and delivered by the Company.

 

  (j) This Agreement conforms in all material respects to the description thereof contained in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus.

 

  (k) The Shares to be issued and sold by the Company hereunder or under any Terms Agreement have been duly authorized by the Company and, when issued and delivered and paid for as provided herein or in any Terms Agreement, will be duly and validly issued, will be fully paid and nonassessable and will conform to the description thereof in the Registration Statement, the Prospectus, and any Permitted Free Writing Prospectus; the Shares and all other shares of outstanding capital stock of the Company conform to the description thereof contained in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus; and the shareholders of the Company do not have any preemptive or similar rights with respect to the Shares.

 

  (l)

Neither the Company nor any of its subsidiaries is (i) in violation of its charter or by-laws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a


  party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

 

  (m) The execution, delivery and performance by the Company of this Agreement or any Terms Agreement, the issuance and sale of the Shares, the compliance by the Company with the terms hereof or of any Terms Agreement and the consummation of the transactions contemplated hereby or by any Terms Agreement will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (ii) result in any violation of the provisions of the charter or by-laws or similar organizational documents of the Company or any of its Identified Subsidiaries or (iii) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation or default that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

 

  (n) No consent, approval, authorization, order, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance by the Company of this Agreement or any Terms Agreement, the issuance and sale of the Shares and compliance by the Company with the terms hereof or of any Terms Agreement and the consummation of the transactions contemplated hereby or by any Terms Agreement, except for those that have been obtained and for the registration of the Shares under the Act and such consents, approvals, authorizations, orders and registrations or qualifications as may be required under applicable state securities laws.

 

  (o)

Except as described in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, there are no legal, governmental or regulatory investigations, actions, suits or proceedings pending to which the Company or any of its subsidiaries is a party or to which any property of the Company or any of its subsidiaries is the subject that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; to the best knowledge of the Company, no such investigations, actions, suits or proceedings are threatened or contemplated by any governmental or regulatory authority or threatened by others; and (i) there are no current or pending legal, governmental or regulatory


  actions, suits or proceedings that are required under the Act to be described in the Registration Statement or the Prospectus that are not so described in the Registration Statement or the Prospectus and (ii) there are no statutes, regulations or contracts or other documents that are required under the Act to be filed as exhibits to the Registration Statement or described in the Registration Statement or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statement or the Prospectus.

 

  (p) Ernst & Young LLP, who have audited certain consolidated financial statements of the Company and its subsidiaries are independent public accountants with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Act.

 

  (q) The Company and its subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real and personal property that are material to the businesses of the Company and its subsidiaries, taken as a whole, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except those that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries, (ii) are disclosed in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus or (iii) would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

 

  (r) The Company and its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct, in all material respects, of their businesses, taken as a whole; and the conduct of their businesses, taken as a whole, will not conflict in any material respect with any such rights of others, and the Company and its subsidiaries have not received any notice of any material claim of infringement or conflict with any such rights of others.

 

  (s) No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries, on the one hand, and the directors, officers, stockholders or other affiliates of the Company or any of its subsidiaries, on the other, that is required by the Act to be described in the Registration Statement or the Prospectus and that is not so described in such documents.

 

  (t)

Neither the Company nor any of its subsidiaries is, and after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, will not be an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment


  Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder.

 

  (u) The Company and its subsidiaries have filed all federal, state, local and foreign tax returns required to be filed or have requested extensions of the filing deadlines therefore, except in any case where the failure to so file would not reasonably be expected to have a Material Adverse Effect; the Company and its subsidiaries have paid all federal, state, local and foreign taxes required to be paid through the date hereof, except any such taxes that are being contested in good faith by appropriate proceedings and for which the Company, to the extent required by GAAP, has set aside on its books adequate reserves, except for any inadequate reserves that would not, individually or in the aggregate, have a Material Adverse Effect; and except as otherwise disclosed in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, there is no tax deficiency that has been, or would reasonably be expected to be, asserted against the Company or any of its subsidiaries or any of their respective properties or assets, except those as would not, individually or in the aggregate, have a Material Adverse Effect.

 

  (v) The Company and its subsidiaries possess all licenses, certificates, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus, except where the failure to possess or make the same would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and except as described in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, neither the Company nor any of its subsidiaries has received notice of any revocation or modification of any such license, certificate, permit or authorization or has any reason to believe that any such license, certificate, permit or authorization will not be renewed in the ordinary course, except where such revocation, modification or renewal would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

 

  (w) Except as described in the Registration Statement, Prospectus or any Permitted Free Writing Prospectus, no labor disturbance by or dispute with employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is contemplated or threatened, except for those as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

 

  (x)

(i) Except as described in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, the Company and its subsidiaries (A) are, and at all prior times were, in compliance with any and all applicable federal, state, local and foreign laws, rules, regulations, requirements, decisions and orders relating to the protection of human health or safety, the environment, natural


  resources, hazardous or toxic substances or wastes, pollutants or contaminants (collectively, “Environmental Laws”), (B) have received and are in compliance with all permits, licenses, certificates or other authorizations or approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (C) have not received notice of any actual or potential liability under or relating to any Environmental Laws, including for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, and have no knowledge of any event or condition that would reasonably be expected to result in any such notice, and (ii) except as described in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, there are no costs or liabilities associated with Environmental Laws of or relating to the Company or its subsidiaries, except in the case of each of clauses (i) and (ii) above, for any such failure to comply, or failure to receive required permits, licenses or approvals, or cost or liability, as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

 

  (y) (i) Each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), for which the Company or any member of its “Controlled Group” (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the “Code”)) would have any liability (each, a “Plan”) has been maintained in material compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Code; (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan excluding transactions effected pursuant to a statutory or administrative exemption; (iii) for each Plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, no “accumulated funding deficiency” as defined in Section 412 of the Code, whether or not waived, has occurred or is reasonably expected to occur; (iv) the fair market value of the assets of each Plan exceeds the present value of all benefits accrued under such Plan (determined based on those assumptions used to fund such Plan), except for any liability as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; (v) no “reportable event” (within the meaning of Section 4043(c) of ERISA) has occurred or is reasonably expected to occur, except for any reportable event as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (vi) neither the Company nor any member of its Controlled Group has incurred, nor reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the Pension Benefit Guaranty Corporation, in the ordinary course and without default) in respect of a Plan (including a “multiemployer plan”, within the meaning of Section 4001(a)(3) of ERISA), except for any liability as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.


  (z) The Company maintains an effective system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure. The Company has carried out evaluations of the effectiveness of its disclosure controls and procedures as required by Rule 13a-15 of the Exchange Act.

 

  (aa) The Company maintains systems of “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that comply with the requirements of the Exchange Act and have been designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; (iv) interactive data in eXtensible Business Reporting Language (“XBRL Data”) included or incorporated by reference in the Registration Statement fairly presents the information called for in all material respects and is prepared in accordance with the Commission’s rules and guidelines applicable thereto; and (v) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, there are no material weaknesses in the Company’s internal control over financial reporting.

 

  (bb) The Registration Statement and the documents incorporated by reference therein include and incorporate by reference all XBRL Data required to be included therein; and the XBRL Data included or incorporated by reference in the Registration Statement or the documents incorporated by reference therein fairly presents the information called for in all material respects and has been prepared in accordance with the Commission’s rules and guidelines applicable thereto.

 

  (cc)

The Company and its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, including business interruption insurance, which insurance is in amounts and insures against such losses and risks as the Company believes in its reasonable judgment are adequate to protect the Company and its subsidiaries and their respective businesses; and neither the Company nor any of its subsidiaries has (i) received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required


  or necessary to be made in order to continue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business, except where such notice or non-renewal would not reasonably be expected to have a Material Adverse Effect.

 

  (dd) Neither the Company nor any of its subsidiaries nor, to the knowledge of the Company, any director, officer, employee, agent, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) used any funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment or benefit to any foreign or domestic government or regulatory official or employee, including of any government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under any other applicable anti-bribery or anti-corruption laws; or (iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit. The Company and its subsidiaries have instituted, maintain and enforce, and will continue to maintain and enforce policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws.

 

  (ee) The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of all jurisdictions where the Company or any of its subsidiaries conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental or regulatory agency (collectively, the “Anti-Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental or regulatory agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

 

  (ff)

Neither the Company nor any of its subsidiaries, nor, to the knowledge of the Company, any director, officer, or employee, agent, or affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries is currently the subject or the target of any sanctions administered or enforced by the U.S. government, (including, without limitation, the Office of Foreign Assets


  Control of the U.S. Department of the Treasury (“OFAC”) or the U.S. Department of State and including, without limitation, the designation as a “specially designated national” or “blocked person”), the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority (collectively, “Sanctions”), nor is the Company, any of its subsidiaries located, organized or resident in a country or territory that is the subject or the target of Sanctions, including, without limitation, Cuba, Burma (Myanmar), Iran, North Korea, Sudan, Syria and Crimea (each, a “Sanctioned Country”); and the Company will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or the target of Sanctions, (ii) to fund or facilitate any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions. For the past five years, the Company and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not engage in, any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.

 

  (gg) No subsidiary of the Company is currently prohibited, directly or indirectly, under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s properties or assets to the Company or any other subsidiary of the Company, except, in each case, as described in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus.

 

  (hh) Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that would reasonably be expected to give rise to a valid claim against the Company or any of its subsidiaries or any of the Agents for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Shares.

 

  (ii) No person has the right to require the Company or any of its subsidiaries to register any securities for sale under the Act by reason of the filing of the Registration Statement with the Commission or the issuance and sale of the Shares.

 

  (jj) The Company has not taken, directly or indirectly, any action designed to or that would reasonably be expected to cause or result in any stabilization or manipulation of the price of the Shares.


  (kk) Neither the issuance, sale and delivery of the Shares nor the application of the proceeds thereof by the Company as described in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus will violate Regulation T, U or X of the Board of Governors of the Federal Reserve System or any other regulation of such Board of Governors.

 

  (ll) No forward-looking statement (within the meaning of Section 27A of the Act and Section 21E of the Exchange Act) included or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

 

  (mm)  Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included or incorporated by reference in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus is not based on or derived from sources that are reliable and accurate in all material respects.

 

  (nn) There is and has been no failure on the part of the Company or any of the Company’s directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith, including Section 402 related to loans and Sections 302 and 906 related to certifications.

 

  (oo) The Company is not an “ineligible issuer” and is a “well-known seasoned issuer”, in each case as defined under the Act and at the times specified in the Act in connection with the offering of the Shares. The Company has paid the registration fee for this offering pursuant to Rule 457 under the Act.

 

  (pp) The Common Stock is registered pursuant to Section 12(b) of the Exchange Act, and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the Exchange nor has the Company received any notification that the Commission or the Exchange is contemplating terminating such registration or listing. The outstanding shares of the Common Stock have been approved for listing and the Shares being sold hereunder have been approved for listing, subject only to official notice of issuance, on the Exchange.

 

  (qq) There are no transfer taxes or other similar fees or charges under U.S. federal law or the laws of any state thereof, or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Agreement or the issuance and sale by the Company of the Shares.

 

  (rr) The Common Stock is an “actively-traded security” excepted from the requirements of Rule 101 of Regulation M under the Exchange Act by subsection (c)(1) of such rule.


  (ss) Any certificate signed by any officer of the Company or any subsidiary of the Company delivered to the Agents or to counsel for the Agents pursuant to or in connection with this Agreement shall be deemed a representation and warranty by the Company to the Agents as to the matters covered thereby.

4. Certain Covenants of the Company. The Company hereby agrees with each Agent:

 

  (a) For so long as the delivery of a prospectus is required (whether physically or through compliance with Rule 172 under the Act or any similar rule) in connection with the offering or sale of the Shares, before amending or supplementing the Registration Statement or the Prospectus (in each case, other than due to the filing of an Incorporated Document), (i) to furnish to each Agent a copy of each such proposed amendment or supplement within a reasonable period of time before filing any such amendment or supplement with the Commission, (ii) that the Company will not use or file any such proposed amendment or supplement to which an Agent reasonably objects, unless the Company’s legal counsel has advised the Company that filing such document is required by law, and (iii) that the Company will not use or file any Permitted Free Writing Prospectus to which an Agent reasonably objects.

 

  (b) To prepare a Prospectus Supplement with respect to any Shares sold by the Company pursuant to this Agreement in a form previously approved by the Agents and to file such Prospectus Supplement pursuant to Rule 424(b) under the Act (and within the time periods required by Rule 424(b) and Rules 430A, 430B or 430C under the Act) and to file any Permitted Free Writing Prospectus to the extent required by Rule 433 under the Act and to provide copies of the Prospectus and such Prospectus Supplement and each Permitted Free Writing Prospectus (to the extent not previously delivered or filed on the Commission’s Electronic Data Gathering, Analysis and Retrieval system or any successor system thereto (collectively, “EDGAR”)) to the Agents via e-mail in “.pdf” format on such filing date to an e-mail account designated by each Agent and, at an Agent’s request, to also furnish copies of the Prospectus and such Prospectus Supplement to each exchange or market on which sales were effected as may be required by the rules or regulations of such exchange or market. The Company and the Agents hereby agree that any “free writing prospectus” (as defined in Rule 405 under the Act) listed on Schedule IV hereto is a Permitted Free Writing Prospectus.

 

  (c)

To file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act for so long as the delivery of a prospectus is required (whether physically or through compliance with Rule 172 under the Act or any similar rule) in connection with the offering or sale of the Shares, and during such same period to advise the Agents, promptly after the Company receives notice thereof, (i) of the time when any amendment to the Registration Statement has been filed or has become effective or any supplement to the Prospectus, any Permitted Free Writing Prospectus or any amended


  Prospectus has been filed with the Commission, (ii) of the issuance by the Commission of any stop order or any order preventing or suspending the use of any prospectus relating to the Shares or the initiation or threatening of any proceeding for that purpose, pursuant to Section 8A of the Act, (iii) of any objection by the Commission to the use of Form S-3ASR by the Company pursuant to Rule 401(g)(2) under the Act, (iv) of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, (v) of any request by the Commission for the amendment of the Registration Statement or the amendment or supplementation of the Prospectus or for additional information, (vi) of the occurrence of any event as a result of which the Prospectus or any Permitted Free Writing Prospectus as then amended or supplemented includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus or any such Permitted Free Writing Prospectus is delivered to a purchaser, not misleading and (vii) of the receipt by the Company of any notice of objection of the Commission to the use of the Registration Statement or any post-effective amendment thereto.

 

  (d) In the event of the issuance of any such stop order or of any such order preventing or suspending the use of any such prospectus or suspending any such qualification, to use promptly its commercially reasonable efforts to obtain its withdrawal.

 

  (e) To furnish such information as may be required and otherwise to cooperate in qualifying the Shares for offering and sale under the securities or blue sky laws of such states as an Agent may reasonably designate and to maintain such qualifications in effect so long as required for the distribution of the Shares; provided that the Company shall not be required to qualify as a foreign corporation, become a dealer of securities, or become subject to taxation in, or to consent to the service of process under the laws of, any such state.

 

  (f) To make available to the Agents at their offices in New York City, without charge, as soon as practicable after the Registration Statement becomes effective, and thereafter from time to time to furnish to the Agents, as many copies of the Prospectus and the Prospectus Supplement (or of the Prospectus or Prospectus Supplement as amended or supplemented if the Company shall have made any amendments or supplements thereto and documents incorporated by reference therein after the effective date of the Registration Statement) and each Permitted Free Writing Prospectus as the Agents may reasonably request for so long as the delivery of a prospectus is required (whether physically or through compliance with Rule 172 under the Act or any similar rule); and for so long as this Agreement is in effect, the Company will prepare and file promptly such amendment or amendments to the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus as may be necessary to comply with the requirements of Section 10(a)(3) of the Act.


  (g) To furnish or make available to the Agents during the term of this Agreement and for a period of two years thereafter (i) copies of any reports or other communications which the Company shall send to its stockholders or shall from time to time publish or publicly disseminate and (ii) copies of all annual, quarterly and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar form as may be designated by the Commission, and to furnish to the Agents from time to time during the term of this Agreement such other information as the Agents may reasonably request regarding the Company or its subsidiaries, in each case as soon as such reports, communications, documents or information becomes available or promptly upon the request of the Agents, as applicable; provided, however, that the Company shall have no obligation to provide the Agents with any document filed on EDGAR or included on the Company’s Internet website.

 

  (h) If, at any time during the term of this Agreement, any event shall occur or condition shall exist as a result of which it is necessary in the reasonable opinion of counsel for the Agents or counsel for the Company, to further amend or supplement the Prospectus or any Free Writing Prospectus as then amended or supplemented in order that the Prospectus or any such Free Writing Prospectus will not include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading, in light of the circumstances existing at the time the Prospectus or any such Free Writing Prospectus is delivered to a purchaser, or if it shall be necessary, in the reasonable opinion of either such counsel, to amend or supplement the Registration Statement, the Prospectus or any Free Writing Prospectus in order to comply with the requirements of the Act, in the case of such a determination by counsel for the Company, immediate notice shall be given, and confirmed in writing, to the Agents to cease the solicitation of offers to purchase the Shares in the Agents’ capacity as agents, and, in either case, the Company will promptly prepare and file with the Commission such amendment or supplement, whether by filing documents pursuant to the Act, the Exchange Act or otherwise, as may be necessary to correct such untrue statement or omission or to make the Registration Statement, the Prospectus or any such Free Writing Prospectus comply with such requirements.

 

  (i) To generally make available to its security holders as soon as reasonably practicable, but not later than 90 days after the close of the period covered thereby, an earnings statement (in a form complying with the provisions of Section 11(a) under the Act and Rule 158 of the Commission promulgated thereunder) covering the twelve-month period beginning not later than the first day of the Company’s fiscal quarter next following the “effective date” (as defined in such Rule 158) of the Registration Statement.

 

  (j) To apply the net proceeds from the sale of the Shares in the manner described in the Registration Statement or the Prospectus under the caption “Use of Proceeds”.


  (k) The Company will not, and will cause its subsidiaries not to, take, directly or indirectly, any action designed to cause or result in, or that constitutes or might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares; provided that nothing herein shall prevent the Company from filing or submitting reports under the Exchange Act or issuing press releases in the ordinary course of business.

 

  (l) (i) Except as otherwise agreed between the Company and the Agents, to pay all costs, expenses, fees and taxes in connection with (A) the preparation and filing of the Registration Statement (including registration fees pursuant to Rule 456(b)(1)(i) under the Act), the Prospectus, any Permitted Free Writing Prospectus and any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to the Agents and to dealers (including costs of mailing and shipment), (B) the registration, issue and delivery of the Shares, (C) the preparation, printing and delivery to the Agents of this Agreement, the Shares, and such other documents as may be required in connection with the offer, purchase, sale, issuance or delivery of the Shares and any cost associated with electronic delivery of any of the foregoing by the Agents to investors, (D) the qualification of the Shares for offering and sale under state laws and the determination of their eligibility for investment under state law as aforesaid (including the reasonable legal fees and filing fees and other disbursements of counsel for the Agents in connection therewith) and the printing and furnishing of copies of any blue sky surveys or legal investment surveys to the Agents, (E) the listing of the Shares on the Exchange and any registration thereof under the Exchange Act, (F) any filing for review of the public offering of the Shares by FINRA, (G) the fees and disbursements of counsel to the Company and (H) the performance of the Company’s other obligations hereunder; provided that the Agents shall be responsible for any transfer taxes on resale of Shares by the Agents, any costs and expenses associated with the sale and marketing of the Shares and fees of the Agents’ counsel other than as specifically provided above or elsewhere in this Agreement.

(ii) If Shares having an aggregate Gross Sales Price of $100,000,000 or more have not been offered and sold under this Agreement and all Terms Agreements by December 31, 2016 (or such earlier date at which the Company terminates this Agreement), the Company shall reimburse the Agents for all of the Agents’ out-of-pocket expenses, including the reasonable fees and disbursements of a single counsel for the Agents incurred by the Agents in connection with the offering contemplated by this Agreement; provided that the Company will not be obligated to reimburse any expenses pursuant to this clause 4(l)(ii) in excess of $350,000.

 

  (m) The Company will not, and each Agent covenants that it will not, distribute any offering material in connection with the offer and sale of the Shares, other than the Registration Statement, the Prospectus, any Permitted Free Writing Prospectus and other materials permitted by the Act or the rules and regulations promulgated thereunder.


  (n) During each period commencing on the date of each Transaction Proposal and ending after the close of business on the Purchase Date for the related Agency Transaction, the Company will not (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file with the Commission a registration statement under the Act (other than a registration statement on Form S-8) relating to, any shares of its Common Stock or any securities convertible into, or exercisable or exchangeable for, such shares or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of such shares, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of shares or such other securities, in cash or otherwise, without the prior written consent of the applicable Agent with respect to such Agency Transaction, other than the Shares to be sold hereunder and any securities of the Company issued pursuant to, or upon the exercise or conversion of any securities of the Company that are outstanding at the time such Transaction Proposal is delivered and issued pursuant to, the Company’s equity incentive plans disclosed in the Prospectus.

 

  (o) The Company will, pursuant to reasonable procedures developed in good faith, retain copies of each Permitted Free Writing Prospectus that is not filed with the Commission in accordance with Rule 433 under the Act.

 

  (p) To use its reasonable efforts to cause the Shares to be listed on the Exchange.

 

  (q) That it consents to each Agent trading in the Common Stock for such Agent’s own account and for the account of its clients at the same time as sales of the Shares occur pursuant to this Agreement.

 

  (r) If immediately prior to the third anniversary (the “Renewal Deadline”) of the initial effective date of the Registration Statement, the aggregate Gross Sales Price of Shares sold by the Company is less than the Maximum Amount and this Agreement has not expired or been terminated, the Company will, prior to the Renewal Deadline, file, if it has not already done so and is eligible to do so, a new automatic shelf registration statement relating to the Shares, in a form satisfactory to the Agents. If the Company is no longer eligible to file an automatic shelf registration statement, the Company will, prior to the Renewal Deadline, if it has not already done so, file a new shelf registration statement relating to the Shares, in a form satisfactory to the Agents, and will use its best efforts to cause such registration statement to be declared effective within 60 days after the Renewal Deadline. The Company will take all other action necessary or appropriate to permit the issuance and sale of the Shares to continue as contemplated in the expired registration statement relating to the Shares. References herein to the Registration Statement shall include such new automatic shelf registration statement or such new shelf registration statement, as the case may be.


5. Execution of Agreement. Each Agent’s obligation to execute this Agreement shall be subject to the satisfaction of the following conditions in connection with, and on the intended date of the execution of, this Agreement:

 

  (a) the Company shall have delivered to the Agents:

(i) an officer’s certificate signed by one of its executive officers certifying as to the matters set forth in Exhibit A hereto;

(ii) an opinion of the General Counsel or a Deputy or Assistant General Counsel of the Company, addressed to the Agents and dated the date of this Agreement, in the form of Exhibit B hereto;

(iii) an opinion and a 10b-5 statement of Davis Polk & Wardwell LLP, special counsel for the Company, addressed to the Agents and dated the date of this Agreement, in the form of Exhibit C hereto;

(iv) a letter of Ernst & Young LLP, dated the date of this Agreement and addressed to the Agents, in a form reasonably satisfactory to the Agents and the Agents’ counsel;

(v) evidence reasonably satisfactory to the Agents and the Agents’ counsel that the Registration Statement is effective;

(vi) evidence reasonably satisfactory to the Agents and the Agents’ counsel that the Shares have been approved for listing on the Exchange, subject only to notice of issuance on or before the date hereof;

(vii) resolutions duly adopted by the Company’s board of directors, and certified by an officer of the Company, authorizing the Company’s execution of this Agreement and the consummation by the Company of the transactions contemplated hereby, including the issuance of the Shares; and

(viii) such other documents as the Agents shall reasonably request; and

 

  (b) the Agents shall have received the favorable opinion of Cravath, Swaine & Moore LLP, special counsel for the Agents, as to the matters set forth in Exhibit D hereto.

6. Additional Covenants of the Company. The Company further covenants and agrees with each Agent as follows:

 

  (a)

Each Transaction Proposal made by the Company that is accepted by an Agent by means of a Transaction Acceptance and each execution and delivery by the Company of a Terms Agreement shall be deemed to be (i) an affirmation that the representations and warranties of the Company herein contained and contained in any certificate delivered to the Agents pursuant hereto are true and correct at the Time of Acceptance or the date of such Terms Agreement, as the case may be,


  and (ii) an undertaking that such representations and warranties will be true and correct on any Time of Sale, any Closing Date and at the time of delivery to the applicable Agent of Shares pursuant to the Transaction Proposal and Transaction Acceptance or the Time of Delivery, as applicable, as though made at and as of each such time (it being understood that such representations and warranties shall relate to the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus as amended and supplemented to the time of such Transaction Acceptance or Terms Agreement, as the case may be).

 

  (b) Each time that (i) the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus shall be amended or supplemented (including, except as noted in the proviso at the end of this subsection (b), by the filing of any Incorporated Document, but excluding any prospectus supplement filed pursuant to Section 4(b) hereof) or (ii) the Shares are delivered to an Agent pursuant to a Terms Agreement, in each case, the Company shall, unless the Agents agree otherwise, furnish or cause to be furnished to the Agents forthwith a certificate, dated the date of filing with the Commission or the date of effectiveness of such amendment or supplement, as applicable, as to the matters set forth in Exhibit A hereto at the time of the filing or effectiveness of such amendment or supplement, as applicable, as though made at and as of such time (except that such statements shall be deemed to relate to the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus as amended and supplemented to such time) or, in lieu of such certificate, a certificate of the same tenor as the certificate referred to in Section 5(a)(i) hereof, modified as necessary to relate to the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus as amended and supplemented to the time of delivery of such certificate; provided, however, that the Company will not be required to furnish such a certificate to the Agents in connection with the filing of a Current Report on Form 8-K unless (A) such Current Report on Form 8-K is filed at any time during which either a Transaction Acceptance is binding or a prospectus relating to the Shares is required to be delivered under the Act and (B) the Agents have reasonably requested such a certificate based upon the event or events reported in such Current Report on Form 8-K.

 

  (c)

Each time that (i) the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus shall be amended or supplemented (including, except as noted in the proviso at the end of this subsection (c), by the filing of any Incorporated Document, but excluding any prospectus supplement filed pursuant to Section 4(b) hereof) or (ii) the Shares are delivered to an Agent pursuant to a Terms Agreement, in each case, the Company shall, unless the Agents agree otherwise, furnish or cause to be furnished forthwith to the Agents and to counsel for the Agents the written opinions of (A) Davis Polk & Wardwell LLP, special counsel for the Company, and (B) the General Counsel of the Company, a Deputy or Assistant General Counsel of the Company or other counsel satisfactory to the Agents, dated the date of filing with the Commission or the date of effectiveness of such amendment or supplement, as applicable, in form and substance reasonably satisfactory to the Agents, of the same tenor as the opinions referred to


  in Section 5(a)(iii) and Section 5(a)(ii) hereof, respectively, but modified as necessary to relate to the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus as amended and supplemented to the time of delivery of such opinions or, in lieu of such opinions, counsel last furnishing such opinions to the Agents shall furnish the Agents with letters substantially to the effect that the Agents may rely on such last opinions to the same extent as though they were dated the date of such letters authorizing reliance (except that statements in such last opinions shall be deemed to relate to the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus as amended and supplemented to the time of delivery of such letters authorizing reliance); provided, however, that the Company will not be required to furnish such opinions to the Agents in connection with the filing of a Current Report on Form 8-K unless (1) such Current Report on Form 8-K is filed at any time during which either a Transaction Acceptance is binding or a prospectus relating to the Shares is required to be delivered under the Act and (2) the Agents have reasonably requested such opinions based upon the event or events reported in such Current Report on Form 8-K.

 

  (d) Each time that (i) the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus shall be amended or supplemented (including, except as noted in the proviso at the end of this subsection (d), by the filing of any Incorporated Document, but excluding any prospectus supplement filed pursuant to Section 4(b) hereof) or (ii) the Shares are delivered to an Agent pursuant to a Terms Agreement, in each case, the Company shall, unless the Agents agree otherwise, cause Ernst & Young LLP promptly to furnish to the Agents a letter, dated the date of filing with the Commission or the date of effectiveness of such amendment or supplement, as applicable, of the same tenor as the letter referred to in Section 5(a)(iv) hereof, but modified to relate to the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus as amended and supplemented to the date of such letter; provided, however, that the Company will not be required to cause Ernst & Young LLP to furnish such letter to the Agents in connection with the filing of a Current Report on Form 8-K unless (A) such Current Report on Form 8-K is filed at any time during which either a Transaction Acceptance is binding or a prospectus relating to the Shares is required to be delivered under the Act and (B) the Agents have reasonably requested such a letter based upon the event or events reported in such Current Report on Form 8-K.

 

  (e) To disclose in its quarterly reports on Form 10-Q, in its annual report on Form 10-K and/or, in prospectus supplements, the number of the Shares sold through the Agents under this Agreement, the net proceeds to the Company from the sale of the Shares and the compensation paid by the Company with respect to sales of the Shares pursuant to this Agreement during the relevant quarter.

 

  (f) The Company shall reasonably cooperate with any reasonable due diligence review requested by the Agents or the Agents’ counsel from time to time in connection with the transactions contemplated hereby or any Terms Agreement.


7. Conditions of the Agents’ Obligation. Each Agent’s obligation to solicit purchases on an agency basis for the Shares or otherwise take any action pursuant to a Transaction Acceptance and to purchase the Shares pursuant to any Terms Agreement shall be subject to the satisfaction of the following conditions:

 

  (a) At the Time of Acceptance, at the time of the commencement of trading on the Exchange on the Purchase Date and at the time of closing on the Closing Date or, with respect to a transaction pursuant to a Terms Agreement, at the Time of Sale and at the Time of Delivery:

(i) The representations and warranties on the part of the Company herein contained or contained in any certificate of an officer or officers of the Company delivered pursuant to the provisions hereof shall be true and correct in all respects.

(ii) The Company shall have performed and observed its covenants and other obligations hereunder and/or under any Terms Agreement, as the case may be, in all material respects.

(iii) With respect to an Agency Transaction, from the Time of Acceptance until the Closing Date, or, with respect to a transaction pursuant to a Terms Agreement, from the Time of Sale until the Time of Delivery, trading in the Common Stock on the Exchange shall not have been suspended.

(iv) From the date of this Agreement, no event or condition of a type described in Section 3(e) hereof shall have occurred or shall exist, which event or condition is not described in any Permitted Free Writing Prospectus (excluding any amendment or supplement thereto) or the Prospectus (excluding any amendment or supplement thereto) and the effect of which in the judgment of the Agents makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or at the Time of Delivery, as the case may be, on the terms and in the manner contemplated by this Agreement or any Terms Agreement, as the case may be, any Permitted Free Writing Prospectus and the Prospectus.

(v) The Shares to be issued pursuant to the Transaction Acceptance or pursuant to a Terms Agreement, as applicable, shall have been approved for listing on the Exchange, subject only to notice of issuance.

(vi) (A) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date or as of the Time of Delivery, as the case may be, prevent the issuance or sale of the Shares and (B) no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date or as of the Time of Delivery, as the case may be, prevent the issuance or sale of the Shares.


(vii) (A) No order suspending the effectiveness of the Registration Statement shall be in effect, and no proceeding for such purpose or pursuant to Section 8A under the Act shall be pending before or threatened by the Commission; (B) the Prospectus and each Permitted Free Writing Prospectus shall have been timely filed with the Commission under the Act (in the case of any Permitted Free Writing Prospectus, to the extent required by Rule 433 under the Act); (C) all requests by the Commission for additional information shall have been complied with to the satisfaction of the Agents; and (D) no suspension of the qualification of the Shares for offering or sale in any jurisdiction, and no initiation or threatening of any proceedings for any of such purposes, will have occurred and be in effect at the time of a Transaction Acceptance.

(viii) No amendment or supplement to the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus shall have been filed to which the Agents shall have reasonably objected in writing.

(ix) Subsequent to the relevant Time of Acceptance or, in the case of a Placement, subsequent to execution of the applicable Terms Agreement, (A) no downgrading shall have occurred in the rating accorded any debt securities or preferred equity securities of or guaranteed by the Company or any of its subsidiaries by any “nationally recognized statistical rating organization”, as such term is defined by the Commission for purposes of Section 3(a)(62) of the Exchange Act and (B) no such organization shall have publicly announced that it has under surveillance or review, or has changed its outlook with respect to, its rating of any debt securities or preferred equity securities of or guaranteed by the Company or any of its subsidiaries (other than an announcement with positive implications of a possible upgrading) in each case that has not been described in any Permitted Free Writing Prospectus issued prior to any related Time of Sale.

 

  (b) At every date specified in Sections 6(b), 6(c) and 6(d) hereof and on such other dates as reasonably requested by the Agents, the Agents shall have received the officer’s certificates, opinions of counsel and accountants’ letters provided for under Sections 6(b), 6(c) and 6(d), respectively.

8. Termination by the Agents.

 

  (a) If the solicitation of purchases on an agency basis of the Shares, as contemplated by this Agreement, is not carried out by any Agent for any reason permitted under this Agreement or if such sale is not carried out because the Company is unable to comply in all material respects with any of the terms of this Agreement or any Terms Agreement, the Company shall not be under any obligation or liability under this Agreement to such Agent (except to the extent provided in Sections 4(l) and 10 hereof) and such Agent shall be under no obligation or liability to the Company under this Agreement (except to the extent provided in Section 10 hereof) or to one another hereunder.


  (b) Each Agent may terminate this Agreement with respect to itself for any reason upon giving prior written notice to the Company. Any such termination shall be without liability of any party to any other party, except that the provisions of Sections 4(g) and 4(i) (to the extent any Shares have been sold pursuant to this Agreement) and Sections 4(l) and 10 hereof shall remain in full force and effect notwithstanding such termination.

 

  (c) In the case of any purchase by an Agent pursuant to a Terms Agreement, the obligations of such Agent pursuant to such Terms Agreement shall be subject to termination at any time at or prior to the Time of Delivery, if, (a) since the time of execution of the Terms Agreement or the respective dates as of which information is given in the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus, (i) trading generally shall have been materially suspended or materially limited on or by, as the case may be, either the Exchange or the NASDAQ Global Select Market, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities, (iv) there shall have occurred any attack on, or outbreak or escalation of hostilities or act of terrorism involving, the United States, or any change in financial markets or any calamity or crisis that, in each case, in such Agent’s judgment, is material and adverse or (v) any material disruption of settlements of securities or clearance services in the United States that would materially impair settlement and clearance with respect to the Shares and (b) in the case of any of the events specified in clauses (a)(i) through (v), such event singly or together with any other such event specified in clauses (a)(i) through (v) makes it, in such Agent’s judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. If such Agent elects to terminate its obligations pursuant to this paragraph, the Company shall be notified promptly in writing.

9. Termination by Company. The Company may terminate this Agreement in its sole discretion at any time upon prior written notice to the Agents; provided that, with respect to any pending sale through a Direct Seller, the obligations of the Company, including, without limitation, the provisions of Section 1(e) and 5(l), shall remain in full force and effect notwithstanding such termination.

10. Indemnity and Contribution.

 

  (a)

The Company agrees to indemnify and hold harmless each Agent, each Agent’s affiliates, the directors and officers of each Agent and each Agent’s affiliates, and each person, if any, who controls such Agent within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, reasonable out of pocket legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred) that arise out of, or are based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or caused by


  any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus (or any amendment or supplement thereto), any Permitted Free Writing Prospectus (or any amendment or supplement thereto) or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any Agent Information, it being understood and agreed that the only such information furnished by the Agents consists of the information described as such in subsection (b) below.

 

  (b) Each Agent agrees, severally and not jointly, in proportion to the commissions the Agent is entitled to receive with respect to the sale of the Shares, to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any losses, claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to the Agents furnished to the Company in writing by the Agents expressly for use in the Registration Statement, the Basic Prospectus, the Prospectus (or any amendment or supplement thereto) or any Permitted Free Writing Prospectus, it being understood and agreed that the only such information furnished by the Agents consists of the information set forth on Schedule II attached hereto.

 

  (c)

If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such person (the “Indemnified Person”) shall promptly notify the person against whom such indemnification may be sought (the “Indemnifying Person”) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under this Section 10 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under this Section 10. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 10 that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel


  related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be paid or reimbursed as they are incurred. Any such separate firm for the Agents, their affiliates, directors and officers and any control persons of the Agents shall be designated in writing by the Agents or, if applicable, the Direct Seller, and any such separate firm for the Company, its directors, its officers who signed the Registration Statement and any control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but, if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (A) such settlement is entered into more than 30 days after receipt by the Indemnifying Person of such request and (B) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.

 

  (d)

If the indemnification provided for in paragraphs (a) and (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such


  paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the applicable Agents, on the other, from the offering of the Shares or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company, on the one hand, and the applicable Agents, on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the applicable Agents, on the other, shall be deemed to be in the same respective proportions as the net proceeds (before deducting expenses) received by the Company from the sale of the Shares and the total discounts and commissions received by the applicable Agents in connection therewith bear to the aggregate Gross Sales Price of such Shares. The relative fault of the Company, on the one hand, and the applicable Agents, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by the applicable Agents, on the other, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

  (e) The Company and the Agents agree that it would not be just and equitable if contribution pursuant to this Section 10 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of this Section 10, in no event shall an Agent be required to contribute any amount in excess of the amount by which the total discounts and commissions received by such Agent with respect to the offering of the Shares exceeds the amount of any damages that such Agent has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

  (f) The remedies provided for in this Section 10 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity.

11. Notices. All notices and other communications under this Agreement and any Terms Agreement shall be in writing and shall be deemed to have been duly given if mailed or


transmitted and confirmed by any standard form of communication, and shall be sufficient in all respects if delivered or sent to(a) if to an Agent, the applicable Agent at the address set forth in Schedule V hereto; and, (b) if to the Company, shall be sufficient in all respects if delivered or sent to the Company at the offices of the Company at 333 North Central Avenue, Phoenix, Arizona 85004, to the attention of the Chief Financial Officer (email [email protected]), with copies to Monique A. Cenac at Jones Walker LLP, 333 N. Central Avenue, 25th Floor, Phoenix, Arizona 85004 (email [email protected]) and Richard D. Truesdell, Jr. at David Polk & Wardwell LLP, 450 Lexington Avenue, New York, New York 10017 (email [email protected]). Notwithstanding the foregoing, Transaction Proposals shall be delivered by the Company to the Agents via e-mail in “.pdf” format to the applicable Agent as set forth in Schedule VI hereto, and Transaction Acceptances shall be delivered by the Agents to the Company via e-mail in “.pdf” format to: Kathleen L. Quirk (email: [email protected]), with copies to Dionne M. Rousseau (email: [email protected]) and Monique A. Cenac (email: [email protected]).

12. No Fiduciary Relationship. The Company acknowledges and agrees that each Agent is acting solely in the capacity of an arm’s length contractual counterparty to the Company with respect to the offering of Shares contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company or any other person. Additionally, no Agent is advising the Company or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Company shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and no Agent shall have any responsibility or liability to the Company with respect thereto. Any review by the Agents of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Agents and shall not be on behalf of the Company.

13. Governing Law; Construction. This Agreement, any Terms Agreement and any claim, counterclaim or dispute of any kind or nature whatsoever arising out of or in any way relating to this Agreement or any Terms Agreement (“Claim”), directly or indirectly, shall be governed by, and construed in accordance with, the laws of the State of New York, other than rules governing choice of applicable law. The Section headings in this Agreement and any Terms Agreement have been inserted as a matter of convenience of reference and are not a part of this Agreement or any Terms Agreement.

14. Submission to Jurisdiction. Except as set forth below, no Claim may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have exclusive jurisdiction over the adjudication of such matters, and the Company consents to the jurisdiction of such courts and personal service with respect thereto. Each of the Agents and the Company, on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates, waives all right to trial by jury in any action, proceeding or counterclaim, whether based upon contract, tort or otherwise, in any way arising out of or relating to this Agreement or any Terms Agreement. The Company agrees that a final and non-appealable judgment in any such action, proceeding or counterclaim brought in any such court shall be conclusive and binding upon the Company and


may be enforced in any other courts in the jurisdiction of which the Company is or may be subject, by suit upon such judgment.

15. Parties in Interest. The agreements set forth herein and in any Terms Agreement have been and are made solely for the benefit of the Agents and the Company and, to the extent provided in Section 10 hereof, the controlling persons, directors and officers referred to in such section, and their respective successors, assigns, heirs, personal representatives and executors and administrators. No other person, partnership, association or corporation (including a purchaser, as such purchaser, from any of the Agents) shall acquire or have any right under or by virtue of this Agreement or any Terms Agreement.

16. Counterparts. This Agreement and any Terms Agreement may be signed in counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument.

17. Successors and Assigns. This Agreement shall be binding upon the Agents and the Company and their respective successors and assigns and any successor or assign of any substantial portion of the Company’s and the Agents’ respective businesses and/or assets.

18. Survival. The respective indemnities, rights of contribution, representations, warranties and agreements of the Company and the Agents contained in this Agreement or made by or on behalf of the Company or the Agents pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Shares and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of the Company or the Agents.

19. Certain Defined Terms. For purposes of this Agreement, (a) except where otherwise expressly provided, the term “affiliate” has the meaning set forth in Rule 405 under Act and (b) the term “significant subsidiary” has the meaning set forth in Rule 1-02 of Regulation S-X under the Exchange Act.

20. Amendments or Waivers. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.

21. Miscellaneous.

 

  (a) Certain of the Agents may be direct or indirect subsidiaries of banks. Such Agents are not banks and are separate from any bank affiliated thereto. Because such Agents are separately incorporated entities, each such Agent is solely responsible for its own contractual obligations and commitments, including obligations with respect to sales and purchases of securities. Securities sold, offered or recommended by such Agents are not deposits, are not insured by the Federal Deposit Insurance Corporation, are not guaranteed by a branch or agency of any bank affiliated therewith and are not otherwise an obligation or responsibility of a branch or agency of any bank affiliated therewith.


(b) Lending affiliates of the Agents may have lending relationships with issuers of securities underwritten or privately placed by the Agents. To the extent required under the securities laws, prospectuses and other disclosure documents for securities underwritten or privately placed by such Agents will disclose the existence of any such lending relationships and whether the proceeds of the issue will be used to repay debts owed to affiliates of such Agents.

(c) The Agents and one or more of their respective affiliates may make markets in the Common Stock or other securities of the Company, in connection with which they may buy and sell, as agent or principal, for long or short account, shares of the Common Stock or other securities of the Company, at the same time that the Agents are acting as agents pursuant to this Agreement; provided that each Agent acknowledges and agrees that any such transactions are not being, and shall not be deemed to have been, undertaken at the request or direction of, or for the account of, the Company, and that the Company has and shall have no control over any decision by such Agents and their respective affiliates to enter into any such transactions.

(d) Each Agent acknowledges and agrees that the arrangements among the Agents in connection with the transactions contemplated by this Agreement shall be governed by J.P. Morgan Securities LLC’s Master Agreement Among Underwriters (the “MAAU”) (whether or not each such Agent has previously signed the MAAU), and any Direct Seller may act on behalf of the other Agents hereunder in connection with the sales of the Shares and otherwise as if it is the Manager (as defined in the MAAU). It is agreed and understood that the application of the MAAU to the transactions contemplated by this Agreement is solely for purposes of convenience and shall not create any implication that the Agents are underwriters for purposes of the Act or otherwise.

(e) Except as may otherwise be provided in a Terms Agreement, if an Agent is appointed as a Direct Seller, each of the Agents represents to the Company that such Direct Seller is authorized to act on behalf of the several Agents in connection with making any determination or judgment to be made by the Agents pursuant to this Agreement, and the Company shall be entitled to act and rely upon any request, notice, consent, waiver or agreement purportedly given on behalf of the Agents when the same shall have been given by such Direct Seller; provided, however, that at such time as an Agent is party to a Transaction Acceptance at that time in effect, the consent, approval, determination, judgment or similar action by such Agent shall also be required to the extent provided by this Agreement.

[Signature pages follow]


If the foregoing correctly sets forth the understanding between the Company and the Agents, please so indicate in the space provided below for the purpose, whereupon this letter and your acceptance shall constitute a binding agreement between the Company and each Agent.

 

Very truly yours,

 

FREEPORT-MCMORAN INC.

By:  

/s/ Kathleen L. Quirk

Name:   Kathleen L. Quirk
Title:   Executive Vice President, Chief Financial Officer and Treasurer


Accepted and agreed to as of the

date first above written:

J.P. MORGAN SECURITIES LLC

By:

 

/s/ Adam S. Rosenbluth

Name:

 

Adam S. Rosenbluth

Title:

 

Executive Director

MERRILL LYNCH, PIERCE, FENNER & SMITH

                        INCORPORATED

By:   /s/ Mitch Theiss
Name:   Mitch Theiss
Title:   Managing Director

 

BBVA SECURITIES INC.
By:   /s/ Jim Brodt
Name:   Jim Brodt
Title:   Executive Director

 

BMO CAPITAL MARKETS CORP.
By:   /s/ Lori Begley
Name:   Lori Begley
Title:   Managing Director


BNP PARIBAS SECURITIES CORP.
By:  

/s/ Chris Innes

Name:   Chris Innes
Title:   Managing Director

 

BTIG, LLC
By:  

/s/ Charles E. Mather

Name:   Charles E. Mather
Title:   Managing Director

 

CIBC WORLD MARKETS CORP.
By:  

/s/ James Kemp

Name:   James Kemp
Title:   Managing Director

 

CITIGROUP GLOBAL MARKETS INC.

By:

 

/s/ Robert G. Leonard

Name:

 

Robert G. Leonard

Title:

 

Managing Director

 

HSBC SECURITIES (USA) INC.
By:  

/s/ Jeffrey Nicklas

Name:   Jeffrey Nicklas
Title:   Director

 

MIZUHO SECURITIES USA INC.
By:  

/s/ Paul Gaydes

Name:   Paul Gaydes
Title:   Director of Syndicate


MUFG SECURITIES AMERICAS INC.
By:  

/s/ Brian Cogliandro

Name:   Brian Cogliandro
Title:   Managing Director
RBC CAPITAL MARKETS, LLC
By:  

/s/ Andrew James

Name:   Andrew James
Title:   Director
SANTANDER INVESTMENT SECURITIES INC.
By:  

/s/ Troy Goldberg

Name:   Troy Goldberg
Title:   Executive Director
SCOTIA CAPITAL (USA) INC.
By:  

/s/ Richard Agata

Name:   Richard Agata
Title:   Director, Counsel and Chief Compliance Officer
SMBC NIKKO SECURITIES AMERICA, INC.
By:  

/s/ Michelle Petropoulos

Name:   Michelle Petropoulos
Title:   Managing Director
TD SECURITIES (USA) LLC
By:  

/s/ Matthew Main

Name:   Matthew Main
Title:   Managing Director


WELLS FARGO SECURITIES, LLC
By:  

/s/ Elizabeth Alvarez

Name:   Elizabeth Alvarez
Title:   Managing Director


Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In





Related Categories

SEC Filings