Item 8. Financial Statements and Supplementary Data.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Freeport-McMoRan Inc.’s (the Company’s) management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;

•	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of the end of the fiscal year covered by this annual report on Form 10-K. In making this assessment, our management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Based on its assessment, management concluded that, as of December 31, 2017, our Company’s internal control over financial reporting is effective based on the COSO criteria.

Ernst & Young LLP, an independent registered public accounting firm, who audited the Company’s consolidated financial statements included in this Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting, which is included herein.

/s/ Richard C. Adkerson		/s/ Kathleen L. Quirk
Richard C. Adkerson		Kathleen L. Quirk
Vice Chairman of the Board,		Executive Vice President,
President and Chief Executive Officer		Chief Financial Officer and Treasurer

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF

FREEPORT-McMoRan INC.

Opinion on Internal Control over Financial Reporting

We have audited Freeport-McMoRan Inc.’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Freeport-McMoRan Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Freeport-McMoRan Inc. as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes of the Company and our report dated February 20, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Phoenix, Arizona

February 20, 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF

FREEPORT-McMoRan INC.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Freeport-McMoRan Inc. (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 20, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2002.

Phoenix, Arizona

February 20, 2018

FREEPORT-McMoRan INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2017				2016				2015
	(In millions, except per share amounts)
Revenues	$	16,403			$	14,830			$	14,607
Cost of sales:
Production and delivery	10,300				10,697				10,693
Depreciation, depletion and amortization	1,714				2,530				3,240
Impairment of oil and gas properties	—				4,317				13,144
Metals inventory adjustments	8				36				338
Total cost of sales	12,022				17,580				27,415
Selling, general and administrative expenses	484				607				558
Mining exploration and research expenses	94				64				107
Environmental obligations and shutdown costs	251				20				78
Net gain on sales of assets	(81		)		(649		)		(39		)
Total costs and expenses	12,770				17,622				28,119
Operating income (loss)	3,633				(2,792		)		(13,512		)
Interest expense, net	(801		)		(755		)		(617		)
Net gain on early extinguishment and exchanges of debt	21				26				—
Other income, net	49				49				1
Income (loss) from continuing operations before income taxes and equity in affiliated companies’ net earnings (losses)	2,902				(3,472		)		(14,128		)
(Provision for) benefit from income taxes	(883		)		(371		)		1,951
Equity in affiliated companies’ net earnings (losses)	10				11				(3		)
Net income (loss) from continuing operations	2,029				(3,832		)		(12,180		)
Net income (loss) from discontinued operations	66				(193		)		91
Net income (loss)	2,095				(4,025		)		(12,089		)
Net income attributable to noncontrolling interests:
Continuing operations	(274		)		(227		)		(27		)
Discontinued operations	(4		)		(63		)		(79		)
Gain on redemption and preferred dividends attributable to redeemable noncontrolling interest	—				161				(41		)
Net income (loss) attributable to common stockholders	$	1,817			$	(4,154	)		$	(12,236	)
Basic and diluted net income (loss) per share attributable to common stockholders:
Continuing operations	$	1.21			$	(2.96	)		$	(11.32	)
Discontinued operations	0.04				(0.20		)		0.01
	$	1.25			$	(3.16	)		$	(11.31	)
Weighted-average common shares outstanding:
Basic	1,447				1,318				1,082
Diluted	1,454				1,318				1,082
Dividends declared per share of common stock	$	—			$	—			$	0.2605

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

FREEPORT-McMoRan INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Years Ended December 31,
	2017				2016				2015
	(In millions)
Net income (loss)	$	2,095			$	(4,025	)		$	(12,089	)
Other comprehensive income (loss), net of taxes:
Unrealized gains on securities	1				2				—
Defined benefit plans:
Actuarial gains (losses) arising during the period, net of taxes	14				(88		)		(5		)
Amortization or curtailment of unrecognized amounts included in net periodic benefit costs	54				44				38
Foreign exchange (losses) gains	—				(1		)		8
Other comprehensive income (loss)	69				(43		)		41
Total comprehensive income (loss)	2,164				(4,068		)		(12,048		)
Total comprehensive income attributable to noncontrolling interests	(286		)		(292		)		(106		)
Gain on redemption and preferred dividends attributable to
redeemable noncontrolling interest	—				161				(41		)
Total comprehensive income (loss) attributable to common stockholders	$	1,878			$	(4,199	)		$	(12,195	)

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

FREEPORT-McMoRan INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Years Ended December 31,
		2017				2016				2015
		(In millions)
Cash flow from operating activities:
Net income (loss)		$	2,095			$	(4,025	)		$	(12,089	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		1,714				2,610				3,497
U.S. tax reform benefit		(393		)		—				—
Net charges for Cerro Verde royalty dispute		355				—				—
Payments for Cerro Verde royalty dispute		(53		)		(30		)		(34		)
Impairment of oil and gas properties		—				4,317				13,144
Oil and gas noncash drillship settlement costs and other adjustments		(33		)		803				137
Oil and gas contract settlement payments		(70		)		—				—
Metals inventory adjustments		8				36				338
Mining asset impairments and restructuring		40				20				119
Net gain on sales of assets		(81		)		(649		)		(39		)
Stock-based compensation		71				86				85
Net charges for environmental and asset retirement obligations, including accretion		383				191				209
Payments for environmental and asset retirement obligations		(131		)		(242		)		(198		)
Net charges for defined pension and postretirement plans		120				113				105
Pension plan contributions		(174		)		(57		)		(140		)
Net gain on early extinguishment and exchanges of debt		(21		)		(26		)		—
Deferred income taxes		76				239				(2,039		)
(Gain) loss on disposal of discontinued operations		(57		)		198				—
Decrease (increase) in long-term mill and leach stockpiles		224				10				(212		)
Other, net		20				48				(70		)
Changes in working capital and other tax payments, excluding disposition amounts:
Accounts receivable		427				(175		)		813
Inventories		(393		)		117				379
Other current assets		(28		)		37				97
Accounts payable and accrued liabilities		110				(28		)		(217		)
Accrued income taxes and timing of other tax payments		473				136				(665		)
Net cash provided by operating activities		4,682				3,729				3,220
Cash flow from investing activities:
Capital expenditures:
North America copper mines		(167		)		(102		)		(355		)
South America		(115		)		(382		)		(1,722		)
Indonesia		(875		)		(1,025		)		(901		)
Molybdenum mines		(5		)		(2		)		(13		)
Other, including oil and gas operations		(248		)		(1,302		)		(3,362		)
Proceeds from sales of:
Tenke Fungurume mine		—				2,664				—
Deepwater Gulf of Mexico and onshore California oil and gas properties		—				2,272				—
Additional interest in Morenci joint venture		—				996				—
Other assets		72				423				160
Other, net		(25		)		8				(53		)
Net cash (used in) provided by investing activities		(1,363		)		3,550				(6,246		)
Cash flow from financing activities:
Proceeds from debt		955				3,681				8,272
Repayments of debt		(3,812		)		(7,625		)		(6,677		)
Net proceeds from sale of common stock		—				1,515				1,936
Cash dividends and distributions paid:
Common stock		(2		)		(6		)		(605		)
Noncontrolling interests, including redemption		(174		)		(693		)		(120		)
Stock-based awards net payments		(10		)		(6		)		(4		)
Debt financing costs and other, net		(12		)		(32		)		(16		)
Net cash (used in) provided by financing activities		(3,055		)		(3,166		)		2,786
Net increase (decrease) in cash and cash equivalents		264				4,113				(240		)
(Increase) decrease in cash and cash equivalents in assets held for sale		(62		)		(45		)		119
Cash and cash equivalents at beginning of year		4,245				177				298
Cash and cash equivalents at end of year		$	4,447			$	4,245			$	177

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

FREEPORT-McMoRan INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2017				2016
	(In millions, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	4,447			$	4,245
Trade accounts receivable	1,246				1,126
Income and other tax receivables	325				879
Inventories:
Materials and supplies, net	1,305				1,306
Mill and leach stockpiles	1,422				1,338
Product	1,166				998
Other current assets	270				199
Assets held for sale	598				344
Total current assets	10,779				10,435
Property, plant, equipment and mine development costs, net	22,836				23,219
Oil and gas properties, subject to amortization, less accumulated amortization and impairments of $27,445 and $27,433, respectively	8				74
Long-term mill and leach stockpiles	1,409				1,633
Other assets	2,270				1,956
Total assets	$	37,302			$	37,317
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	2,321			$	2,393
Current portion of debt	1,414				1,232
Accrued income taxes	565				66
Current portion of environmental and asset retirement obligations	388				369
Liabilities held for sale	350				205
Total current liabilities	5,038				4,265
Long-term debt, less current portion	11,703				14,795
Environmental and asset retirement obligations, less current portion	3,631				3,487
Deferred income taxes	3,622				3,768
Other liabilities	2,012				1,745
Total liabilities	26,006				28,060
Equity:
Stockholders’ equity:
Common stock, par value $0.10, 1,578 shares and 1,574 shares issued, respectively	158				157
Capital in excess of par value	26,751				26,690
Accumulated deficit	(14,722		)		(16,540		)
Accumulated other comprehensive loss	(487		)		(548		)
Common stock held in treasury – 130 shares and 129 shares, respectively, at cost	(3,723		)		(3,708		)
Total stockholders’ equity	7,977				6,051
Noncontrolling interests	3,319				3,206
Total equity	11,296				9,257
Total liabilities and equity	$	37,302			$	37,317

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

FREEPORT-McMoRan INC.

CONSOLIDATED STATEMENTS OF EQUITY

	Stockholders’ Equity
	Common Stock											(Accumulated Deficit) Retained Earnings				Accumu- lated Other Compre-hensive Loss				Common Stock Held in Treasury							Total Stock- holders’ Equity
	Number of Shares			At Par Value				Capital in Excess of Par Value						Number of Shares			At Cost					Non- controlling Interests				Total Equity
	(In millions)
Balance at January 1, 2015	1,167			$	117			$	22,281			$	128			$	(544	)		128			$	(3,695	)		$	18,287			$	4,187			$	22,474
Sale of common stock	206			20				1,916				—				—				—			—				1,936				—				1,936
Exercised and issued stock-based awards	1			—				3				—				—				—			—				3				—				3
Stock-based compensation, including tax reserve and the tender of shares	—			—				90				—				—				—			(7		)		83				7				90
Dividends	—			—				—				(279		)		—				—			—				(279		)		(91		)		(370		)
Changes in noncontrolling interests	—			—				(7		)		—				—				—			—				(7		)		7				—
Net loss attributable to common stockholders	—			—				—				(12,236		)		—				—			—				(12,236		)		—				(12,236		)
Net income attributable to noncontrolling interests, including discontinued operations	—			—				—				—				—				—			—				—				106				106
Other comprehensive income	—			—				—				—				41				—			—				41				—				41
Balance at December 31, 2015	1,374			137				24,283				(12,387		)		(503		)		128			(3,702		)		7,828				4,216				12,044
Issuance of common stock	197			20				2,346				—				—				—			—				2,366				—				2,366
Exercised and issued stock-based awards	3			—				—				—				—				—			—				—				—				—
Stock-based compensation, including tax reserve and the tender of shares	—			—				61				—				—				1			(6		)		55				—				55
Forfeited dividends	—			—				—				1				—				—			—				1				(90		)		(89		)
Change in noncontrolling interests	—			—				—				—				—				—			—				—				(6		)		(6		)
Sale of interest in TF Holdings Limited	—			—				—				—				—				—			—				—				(1,206		)		(1,206		)
Net loss attributable to common stockholders	—			—				—				(4,154		)		—				—			—				(4,154		)		—				(4,154		)
Net income attributable to noncontrolling interests, including discontinued operations	—			—				—				—				—				—			—				—				290				290
Other comprehensive (loss) income	—			—				—				—				(45		)		—			—				(45		)		2				(43		)
Balance at December 31, 2016	1,574			157				26,690				(16,540		)		(548		)		129			(3,708		)		6,051				3,206				9,257
Exercised and issued stock-based awards	4			1				5				—				—				—			—				6				—				6
Stock-based compensation, including the tender of shares	—			—				56				—				—				1			(15		)		41				1				42
Forfeited dividends	—			—				—				1				—				—			—				1				(174		)		(173		)
Net income attributable to common stockholders	—			—				—				1,817				—				—			—				1,817				—				1,817
Net income attributable to noncontrolling interests, including discontinued operations	—			—				—				—				—				—			—				—				278				278
Other comprehensive income	—			—				—				—				61				—			—				61				8				69
Balance at December 31, 2017	1,578			$	158			$	26,751			$	(14,722	)		$	(487	)		130			$	(3,723	)		$	7,977			$	3,319			$	11,296

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

FREEPORT-McMoRan INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation. The consolidated financial statements of Freeport-McMoRan Inc. (FCX) include the accounts of those subsidiaries where it directly or indirectly has more than 50 percent of the voting rights and has the right to control significant management decisions. As of December 31, 2017, the most significant entities that FCX consolidates include its 90.64 percent-owned subsidiary PT Freeport Indonesia (PT-FI), and the following wholly owned subsidiaries: Freeport Minerals Corporation (FMC) and Atlantic Copper, S.L.U. (Atlantic Copper).

FCX acquired mining assets in North America, South America and Africa when it acquired Phelps Dodge Corporation (now known as FMC) in 2007. FCX acquired oil and gas operations when it acquired Plains Exploration & Production Company (PXP) and McMoRan Exploration Co. (MMR), collectively known as FCX Oil & Gas LLC (FM O&G, formerly FCX Oil & Gas Inc.), in 2013. Subsequent to the acquisitions, FCX completed sales of its Africa mining operations and substantially all of its oil and gas operations. Refer to Note 2 for further discussion.

FCX’s unincorporated joint ventures with Rio Tinto plc (Rio Tinto), Sumitomo Metal Mining Arizona, Inc. (Sumitomo) and SMM Morenci, Inc. (an affiliate of Sumitomo Metal Mining Co., Ltd.) are reflected using the proportionate consolidation method (refer to Note 3 for further discussion). Investments in unconsolidated companies owned 20 percent or more are recorded using the equity method. Investments in companies owned less than 20 percent, and for which FCX does not exercise significant influence, are carried at cost. All significant intercompany transactions have been eliminated. Dollar amounts in tables are stated in millions, except per share amounts.

Business Segments. FCX has organized its mining operations into four primary divisions – North America copper mines, South America mining, Indonesia mining and Molybdenum mines, and operating segments that meet certain thresholds are reportable segments. FCX’s reportable segments include the Morenci, Cerro Verde and Grasberg (Indonesia mining) copper mines, the Rod & Refining operations and Atlantic Copper Smelting & Refining. Refer to Note 16 for further discussion.

Use of Estimates. The preparation of FCX’s financial statements in conformity with accounting principles generally accepted in the United States (U.S.) requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. The more significant areas requiring the use of management estimates include minerals reserve estimation; asset lives for depreciation, depletion and amortization; environmental obligations; asset retirement obligations; estimates of recoverable copper in mill and leach stockpiles; deferred taxes and valuation allowances; reserves for contingencies and litigation; asset impairment, including estimates used to derive future cash flows associated with those assets; pension benefits; and valuation of derivative instruments. Actual results could differ from those estimates.

Functional Currency. The functional currency for the majority of FCX’s foreign operations is the U.S. dollar. For foreign subsidiaries whose functional currency is the U.S. dollar, monetary assets and liabilities denominated in the local currency are translated at current exchange rates, and non-monetary assets and liabilities, such as inventories, property, plant, equipment and mine development costs, are translated at historical rates. Gains and losses resulting from translation of such account balances are included in other income, net, as are gains and losses from foreign currency transactions. Foreign currency (losses) gains totaled $(5) million in 2017, $32 million in 2016 and $(90) million in 2015.

Cash Equivalents. Highly liquid investments purchased with maturities of three months or less are considered cash equivalents.

Inventories. Inventories include materials and supplies, mill and leach stockpiles, and product inventories. Inventories are stated at the lower of weighted-average cost or net realizable value (NRV).

Mill and Leach Stockpiles. Mill and leach stockpiles are work-in-process inventories for FCX’s mining operations. Mill and leach stockpiles contain ore that has been extracted from an ore body and is available for copper recovery. Mill stockpiles contain sulfide ores, and recovery of metal is through milling, concentrating and smelting and refining or, alternatively, by concentrate leaching. Leach stockpiles contain oxide ores and certain secondary sulfide ores and recovery of metal is through exposure to acidic solutions that dissolve contained copper and deliver it in solution to extraction processing facilities (i.e., solution extraction and electrowinning (SX/EW)). The recorded cost of mill and leach stockpiles includes mining and haulage costs incurred to deliver ore to stockpiles, depreciation,

depletion, amortization and site overhead costs. Material is removed from the stockpiles at a weighted-average cost per pound.

Because it is impracticable to determine copper contained in mill and leach stockpiles by physical count, reasonable estimation methods are employed. The quantity of material delivered to mill and leach stockpiles is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blasthole cuttings determine the estimated copper grade of the material delivered to mill and leach stockpiles.

Expected copper recovery rates for mill stockpiles are determined by metallurgical testing. The recoverable copper in mill stockpiles, once entered into the production process, can be produced into copper concentrate almost immediately.

Expected copper recovery rates for leach stockpiles are determined using small-scale laboratory tests, small- to large-scale column testing (which simulates the production process), historical trends and other factors, including mineralogy of the ore and rock type. Total copper recovery in leach stockpiles can vary significantly from a low percentage to more than 90 percent depending on several variables, including processing methodology, processing variables, mineralogy and particle size of the rock. For newly placed material on active stockpiles, as much as 80 percent of the total copper recovery may occur during the first year, and the remaining copper may be recovered over many years.

Processes and recovery rates for mill and leach stockpiles are monitored regularly, and recovery rate estimates are adjusted periodically as additional information becomes available and as related technology changes. Adjustments to recovery rates will typically result in a future impact to the value of the material removed from the stockpiles at a revised weighted-average cost per pound of recoverable copper.

Product Inventories. Product inventories include raw materials, work-in-process and finished goods. Raw materials are primarily unprocessed concentrate at Atlantic Copper’s smelting and refining operations. Work-in-process inventories are primarily copper concentrate at various stages of conversion into anode and cathode at Atlantic Copper’s operations. Atlantic Copper’s in-process inventories are valued at the weighted-average cost of the material fed to the smelting and refining process plus in-process conversion costs. Finished goods for mining operations represent salable products (e.g., copper and molybdenum concentrate, copper anode, copper cathode, copper rod, copper wire, molybdenum oxide, and high-purity molybdenum chemicals and other metallurgical products). Finished goods are valued based on the weighted-average cost of source material plus applicable conversion costs relating to associated process facilities. Costs of finished goods and work-in-process (i.e., not raw materials) inventories include labor and benefits, supplies, energy, depreciation, depletion, amortization, site overhead costs and other necessary costs associated with the extraction and processing of ore, including, depending on the process, mining, haulage, milling, concentrating, smelting, leaching, solution extraction, refining, roasting and chemical processing. Corporate general and administrative costs are not included in inventory costs.

Property, Plant, Equipment and Mine Development Costs. Property, plant, equipment and mine development costs are carried at cost. Mineral exploration costs, as well as drilling and other costs incurred for the purpose of converting mineral resources to proven and probable reserves or identifying new mineral resources at development or production stage properties, are charged to expense as incurred. Development costs are capitalized beginning after proven and probable mineral reserves have been established. Development costs include costs incurred resulting from mine pre-production activities undertaken to gain access to proven and probable reserves, including shafts, adits, drifts, ramps, permanent excavations, infrastructure and removal of overburden. Additionally, interest expense allocable to the cost of developing mining properties and to constructing new facilities is capitalized until assets are ready for their intended use.

Expenditures for replacements and improvements are capitalized. Costs related to periodic scheduled maintenance (i.e., turnarounds) are charged to expense as incurred. Depreciation for mining and milling life-of-mine assets, infrastructure and other common costs is determined using the unit-of-production (UOP) method based on total estimated recoverable proven and probable copper reserves (for primary copper mines) and proven and probable molybdenum reserves (for primary molybdenum mines). Development costs and acquisition costs for proven and probable mineral reserves that relate to a specific ore body are depreciated using the UOP method based on estimated recoverable proven and probable mineral reserves for the ore body benefited. Depreciation, depletion and amortization using the UOP method is recorded upon extraction of the recoverable copper or molybdenum from the ore body, at which time it is allocated to inventory cost and then included as a component of cost of goods sold.

Other assets are depreciated on a straight-line basis over estimated useful lives of up to 39 years for buildings and three to 30 years for machinery and equipment, and mobile equipment.

Included in property, plant, equipment and mine development costs is value beyond proven and probable mineral reserves (VBPP), primarily resulting from FCX’s acquisition of FMC in 2007. The concept of VBPP may be interpreted differently by different mining companies. FCX’s VBPP is attributable to (i) mineralized material, which includes measured and indicated amounts, that FCX believes could be brought into production with the establishment or modification of required permits and should market conditions and technical assessments warrant, (ii) inferred mineral resources and (iii) exploration potential.

Carrying amounts assigned to VBPP are not charged to expense until the VBPP becomes associated with additional proven and probable mineral reserves and the reserves are produced or the VBPP is determined to be impaired. Additions to proven and probable mineral reserves for properties with VBPP will carry with them the value assigned to VBPP at the date acquired, less any impairment amounts. Refer to Note 5 for further discussion.

Impairment of Long-Lived Mining Assets. FCX assesses the carrying values of its long-lived mining assets for impairment when events or changes in circumstances indicate that the related carrying amounts of such assets may not be recoverable. In evaluating long-lived mining assets for recoverability, estimates of pre-tax undiscounted future cash flows of FCX’s individual mines are used. An impairment is considered to exist if total estimated undiscounted future cash flows are less than the carrying amount of the asset. Once it is determined that an impairment exists, an impairment loss is measured as the amount by which the asset carrying value exceeds its fair value. The estimated undiscounted cash flows used to assess recoverability of long-lived assets and to measure the fair value of FCX’s mining operations are derived from current business plans, which are developed using near-term price forecasts reflective of the current price environment and management’s projections for long-term average metal prices. In addition to near- and long-term metal price assumptions, other key assumptions include estimates of commodity-based and other input costs; proven and probable mineral reserves estimates, including the timing and cost to develop and produce the reserves; VBPP estimates; and the use of appropriate discount rates in the measurement of fair value. FCX believes its estimates and models used to determine fair value are similar to what a market participant would use. As quoted market prices are unavailable for FCX’s individual mining operations, fair value is determined through the use of after-tax discounted estimated future cash flows (i.e., Level 3 measurement).

Oil and Gas Properties. FCX follows the full cost method of accounting specified by the U.S. Securities and Exchange Commission’s (SEC) rules whereby all costs associated with oil and gas property acquisition, exploration and development activities are capitalized into a cost center on a country-by-country basis. Such costs include internal general and administrative costs, such as payroll and related benefits and costs directly attributable to employees engaged in acquisition, exploration and development activities. General and administrative costs associated with production, operations, marketing and general corporate activities are charged to expense as incurred. Capitalized costs, along with estimated future costs to develop proved reserves and asset retirement costs that are not already included in oil and gas properties, net of related salvage value, are amortized to expense under the UOP method using engineers’ estimates of the related, by-country proved oil and natural gas reserves.

The costs of unproved oil and gas properties were excluded from amortization until the properties were evaluated. Costs were transferred into the amortization base on an ongoing basis as the properties were evaluated and proved oil and natural gas reserves were established or if impairment was determined. Unproved oil and gas properties were assessed periodically, at least annually, to determine whether impairment had occurred. FCX assessed unproved oil and gas properties for impairment on an individual basis or as a group if properties were individually insignificant. The assessment considered the following factors, among others: intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of proved reserves, the economic viability of development if proved reserves were assigned and other current market conditions. During any period in which these factors indicated an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs were transferred to the full cost pool and were then subject to amortization. Including amounts determined to be impaired, FCX transferred $4.9 billion of costs associated with unevaluated properties to the full cost pool in 2016 and $6.4 billion in 2015. The transfer of costs into the amortization base involved a significant amount of judgment. Costs not subject to amortization consisted primarily of capitalized costs incurred for undeveloped acreage and wells in progress pending determination, together with capitalized interest for these projects. Following the completion of the sales of oil and gas properties discussed in Note 2, FCX had no unproved oil and gas properties in the consolidated balance sheets at December 31, 2017 or 2016. Interest costs totaling $7 million in 2016 and $58 million in 2015 were capitalized on oil and gas properties not subject to amortization and in the process of development.

Proceeds from the sale of oil and gas properties are accounted for as reductions to capitalized costs unless the reduction causes a significant change in proved reserves, which, absent other factors, is generally described as a 25 percent or greater change, and significantly alters the relationship between capitalized costs and proved reserves attributable to a cost center, in which case a gain or loss is recognized.

Impairment of Oil and Gas Properties. Under the SEC full cost accounting rules, FCX reviews the carrying value of its oil and gas properties in the full cost pool for impairment each quarter on a country-by-country basis. Under these rules, capitalized costs of oil and gas properties (net of accumulated depreciation, depletion, amortization and impairment, and related deferred income taxes) for each cost center may not exceed a “ceiling” equal to:

•	the present value, discounted at 10 percent, of estimated future net cash flows from the related proved oil and natural gas reserves, net of estimated future income taxes; plus

•	the cost of the related unproved properties not being amortized; plus

•	the lower of cost or estimated fair value of the related unproved properties included in the costs being amortized (net of related tax effects).

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

In 2016 and 2015, net capitalized costs with respect to FCX’s proved oil and gas properties exceeded the related ceiling test limitation; therefore, impairment charges of $4.3 billion were recorded in 2016 and $13.1 billion in 2015, primarily because of the lower twelve-month average of the first-day-of-the-month historical reference oil price and reserve revisions. The twelve-month average WTI reference oil price was $51.34 per barrel at December 31, 2017, compared with $42.75 per barrel at December 31, 2016, and $50.28 per barrel at December 31, 2015.

Deferred Mining Costs. Stripping costs (i.e., the costs of removing overburden and waste material to access mineral deposits) incurred during the production phase of a mine are considered variable production costs and are included as a component of inventory produced during the period in which stripping costs are incurred. Major development expenditures, including stripping costs to prepare unique and identifiable areas outside the current mining area for future production that are considered to be pre-production mine development, are capitalized and amortized using the UOP method based on estimated recoverable proven and probable reserves for the ore body benefited. However, where a second or subsequent pit or major expansion is considered to be a continuation of existing mining activities, stripping costs are accounted for as a current production cost and a component of the associated inventory.

Environmental Obligations. Environmental expenditures are charged to expense or capitalized, depending upon their future economic benefits. Accruals for such expenditures are recorded when it is probable that obligations have been incurred and the costs can be reasonably estimated. Environmental obligations attributed to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) or analogous state programs are considered probable when a claim is asserted, or is probable of assertion, and FCX, or any of its subsidiaries, have been associated with the site. Other environmental remediation obligations are considered probable based on specific facts and circumstances. FCX’s estimates of these costs are based on an evaluation of various factors, including currently available facts, existing technology, presently enacted laws and regulations, remediation experience, whether or not FCX is a potentially responsible party (PRP) and the ability of other PRPs to pay their allocated portions. With the exception of those obligations assumed in the acquisition of FMC that were initially recorded at estimated fair values (refer to Note 12 for further discussion), environmental obligations are recorded on an undiscounted basis. Where the available information is sufficient to estimate the amount of the obligation, that estimate has been used. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used. Possible recoveries of some of these costs from other parties are not recognized in the consolidated financial statements until they become probable. Legal costs associated with environmental remediation (such as fees to outside law firms for work relating to determining the extent and type of remedial actions and the allocation of costs among PRPs) are included as part of the estimated obligation.

Environmental obligations assumed in the acquisition of FMC, which were initially recorded at fair value and estimated on a discounted basis, are accreted to full value over time through charges to interest expense. Adjustments arising from changes in amounts and timing of estimated costs and settlements may result in increases and decreases in these obligations and are calculated in the same manner as they were initially estimated. Unless these adjustments qualify for capitalization, changes in environmental obligations are charged to operating income when they occur.

FCX performs a comprehensive review of its environmental obligations annually and also reviews changes in facts and circumstances associated with these obligations at least quarterly.

Asset Retirement Obligations. FCX records the fair value of estimated asset retirement obligations (AROs) associated with tangible long-lived assets in the period incurred. Retirement obligations associated with long-lived assets are those for which there is a legal obligation to settle under existing or enacted law, statute, written or oral contract or by legal construction. These obligations, which are initially estimated based on discounted cash flow estimates, are accreted to full value over time through charges to cost of sales. In addition, asset retirement costs (ARCs) are capitalized as part of the related asset’s carrying value and are depreciated over the asset’s respective useful life.

For mining operations, reclamation costs for disturbances are recognized as an ARO and as a related ARC (included in property, plant, equipment and mine development costs) in the period of the disturbance and depreciated primarily on a UOP basis. FCX’s AROs for mining operations consist primarily of costs associated with mine reclamation and closure activities. These activities, which are site specific, generally include costs for earthwork, revegetation, water treatment and demolition.

For oil and gas properties, the fair value of the legal obligation is recognized as an ARO and as a related ARC (included in oil and gas properties) in the period in which the well is drilled or acquired and is amortized on a UOP basis together with other capitalized costs. Substantially all of FCX’s oil and gas leases require that, upon termination of economic production, the working interest owners plug and abandon non-producing wellbores; remove platforms, tanks, production equipment and flow lines; and restore the wellsite.

At least annually, FCX reviews its ARO estimates for changes in the projected timing of certain reclamation and closure/restoration costs, changes in cost estimates and additional AROs incurred during the period. Refer to Note 12 for further discussion.

Revenue Recognition. FCX sells its products pursuant to sales contracts entered into with its customers. Revenue for all FCX’s products is recognized when title and risk of loss pass to the customer and when collectibility is reasonably assured. The passing of title and risk of loss to the customer are based on terms of the sales contract, generally upon shipment or delivery of product.

Revenues from FCX’s concentrate and cathode sales are recorded based on a provisional sales price or a final sales price calculated in accordance with the terms specified in the relevant sales contract. Revenues from concentrate sales are recorded net of treatment and all refining charges and the impact of derivative contracts. Moreover, because a portion of the metals contained in copper concentrate is unrecoverable as a result of the smelting process, FCX’s revenues from concentrate sales are also recorded net of allowances based on the quantity and value of these unrecoverable metals. These allowances are a negotiated term of FCX’s contracts and vary by customer. Treatment and refining charges represent payments or price adjustments to smelters and refiners that are generally fixed.

Under the long-established structure of sales agreements prevalent in the mining industry, copper contained in concentrate and cathode are generally provisionally priced at the time of shipment. The provisional prices are finalized in a specified future month (generally one to four months from the shipment date) based on quoted monthly average spot copper prices on the London Metal Exchange (LME) or the Commodity Exchange Inc. (COMEX), a division of the New York Mercantile Exchange. FCX receives market prices based on prices in the specified future month, which results in price fluctuations recorded to revenues until the date of settlement. FCX records revenues and invoices customers at the time of shipment based on then-current LME or COMEX prices, which results in an embedded derivative (i.e., a pricing mechanism that is finalized after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale of the metals contained in the concentrate or cathode at the then-current LME or COMEX price. FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host contract in its

concentrate or cathode sales agreements since these contracts do not allow for net settlement and always result in physical delivery. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through earnings each period, using the period-end forward prices, until the date of final pricing.

Gold sales are priced according to individual contract terms, generally the average London Bullion Market Association (London) price for a specified month near the month of shipment.

The majority of FCX’s molybdenum sales are priced based on the average published Metals Week price, plus conversion premiums for products that undergo additional processing, such as ferromolybdenum and molybdenum chemical products, for the month prior to the month of shipment. In 2015, FCX incorporated changes in the commercial pricing structure for its molybdenum-based chemical products to enable continuation of chemical-grade production.

PT-FI concentrate sales and Sociedad Minera Cerro Verde S.A.A. (Cerro Verde, a subsidiary of FMC) metal sales are subject to certain royalties, which are recorded as a reduction to revenues. In addition, PT-FI concentrate sales are also subject to export duties since 2014, which are recorded as a reduction to revenues. Refer to Note 13 for further discussion.

Oil and gas revenue from FCX’s interests in producing wells is recognized upon delivery and passage of title, net of any royalty interests or other profit interests in the produced product. Oil sales are primarily under contracts with prices based upon regional benchmarks. Gas sales are generally priced daily based on prices in the spot market. Gas revenue is recorded using the sales method for gas imbalances. If FCX’s sales of production volumes for a well exceed its portion of the estimated remaining recoverable reserves of the well, a liability is recorded. No receivables are recorded for those wells on which FCX has taken less than its ownership share of production unless the amount taken by other parties exceeds the estimate of their remaining reserves. There were no material gas imbalances at December 31, 2017.

Stock-Based Compensation. Compensation costs for share-based payments to employees are measured at fair value and charged to expense over the requisite service period for awards that are expected to vest. The fair value of stock options is determined using the Black-Scholes-Merton option valuation model. The fair value for stock-settled restricted stock units (RSUs) is based on FCX’s stock price on the date of grant. Shares of common stock are issued at the vesting date for stock-settled RSUs. The fair value of performance share units (PSUs) are determined using FCX’s stock price and a Monte-Carlo simulation model. The fair value for liability-classified awards (i.e., cash-settled stock appreciation rights (SARs), cash-settled RSUs and cash-settled PSUs) is remeasured each reporting period using the Black-Scholes-Merton option valuation model for SARs and FCX’s stock price for cash-settled RSUs and cash-settled PSUs. FCX has elected to recognize compensation costs for stock option awards and SARs that vest over several years on a straight-line basis over the vesting period, and for RSUs and cash-settled PSUs on the graded-vesting method over the vesting period. Refer to Note 10 for further discussion.

Earnings Per Share. FCX calculates its basic net income (loss) per share of common stock under the two-class method and calculates its diluted net income (loss) per share of common stock using the more dilutive of the two-class method or the treasury-stock method. Basic net income (loss) per share of common stock was computed by dividing net income (loss) attributable to common stockholders (after deducting accumulated dividends and undistributed earnings to participating securities) by the weighted-average shares of common stock outstanding during the year. Diluted net income (loss) per share of common stock was calculated by including the basic weighted-average shares of common stock outstanding adjusted for the effects of all potential dilutive shares of common stock, unless their effect would be anti-dilutive.

Reconciliations of net income (loss) and weighted-average shares of common stock outstanding for purposes of calculating basic and diluted net income (loss) per share for the years ended December 31 follow:

	2017				2016				2015
Net income (loss) from continuing operations	$	2,029			$	(3,832	)		$	(12,180	)
Net income from continuing operations attributable to noncontrolling interests	(274		)		(227		)		(27		)
Gain on redemption and preferred dividends attributable to redeemable noncontrolling interest	—				161				(41		)
Accumulated dividends and undistributed earnings allocated to participating securities	(4		)		(3		)		(3		)
Net income (loss) from continuing operations attributable to common stockholders	$	1,751			$	(3,901	)		$	(12,251	)
Net income (loss) from discontinued operations	66				(193		)		91
Net income from discontinued operations attributable to noncontrolling interests	(4		)		(63		)		(79		)
Net income (loss) from discontinued operations attributable to common stockholders	$	62			$	(256	)		$	12
Net income (loss) attributable to common stockholders	$	1,813			$	(4,157	)		$	(12,239	)
Basic weighted-average shares of common stock outstanding (millions)	1,447				1,318				1,082
Add shares issuable upon exercise or vesting of dilutive stock options and RSUs (millions)	7				—			a	—			a
Diluted weighted-average shares of common stock outstanding (millions)	1,454				1,318				1,082
Basic and diluted net income (loss) per share attributable to common stockholders:
Continuing operations	$	1.21			$	(2.96	)		$	(11.32	)
Discontinued operations	0.04				(0.20		)		0.01
	$	1.25			$	(3.16	)		$	(11.31	)

a.	Excludes approximately 12 million in 2016 and 9 million in 2015 associated with outstanding stock options with exercise prices less than the average market price of FCX’s common stock and RSUs that were anti-dilutive.

Outstanding stock options with exercise prices greater than the average market price of FCX’s common stock during the year are excluded from the computation of diluted net income (loss) per share of common stock. Stock options for 41 million shares of common stock were excluded in 2017, 46 million in 2016 and 45 million in 2015.

New Accounting Standards. In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that provides a single comprehensive revenue recognition model, which replaces most existing revenue recognition guidance, and also requires expanded disclosures. The core principle of the model is that revenue is recognized when control of goods or services has been transferred to customers at an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. FCX adopted this ASU January 1, 2018, under the modified retrospective approach applied to contracts that remain in force at the adoption date. FCX’s revenue is primarily derived from arrangements in which the transfer of risks and rewards coincides with the fulfillment of performance obligations, and FCX has concluded that the adoption of this ASU does not result in changes to its existing revenue recognition policies or processes, and does not result in any financial statement impacts. FCX will begin making the required revenue recognition disclosures under the ASU beginning with its March 31, 2018, quarterly report on Form 10-Q.

In January 2016, FASB issued an ASU that amends the current guidance on the classification and measurement of financial instruments. This ASU makes limited changes to existing guidance and amends certain disclosure requirements. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2017. FCX adopted this ASU effective January 1, 2018, and adoption did not have a material impact on its financial statements.

In February 2016, FASB issued an ASU that will require lessees to recognize most leases on the balance sheet. This ASU allows lessees to make an accounting policy election to not recognize a lease asset and liability for leases with a term of 12 months or less and do not have a purchase option that is expected to be exercised. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. This ASU must be applied using the modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. FCX is currently evaluating the impact this guidance will have on its financial statements.

In June 2016, FASB issued an ASU that changes the impairment model for most financial assets and certain other instruments, and will also require expanded disclosures. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The provisions of the ASU must be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. FCX is currently evaluating the impact this ASU will have on its financial statements.

In November 2016, FASB issued an ASU that amends the classification and presentation of restricted cash and restricted cash equivalents on the statement of cash flows. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2017. FCX adopted this ASU effective January 1, 2018, and the statements of cash flows will be adjusted for all periods presented beginning with its March 31, 2018, quarterly report on Form 10-Q. The adoption of this ASU did not have a material impact on FCX’s financial statements.

In March 2017, FASB issued an ASU that changes how entities with a defined benefit pension or other postretirement benefit plans present net periodic benefit cost in the income statement. This ASU requires the service cost component of net periodic benefit cost to be presented in the same income statement line item or items as other compensation costs for those employees who are receiving the retirement benefit. In addition, only the service cost component is eligible for capitalization when applicable (i.e., as a cost of inventory or an internally constructed asset). The other components of net periodic benefit cost are required to be presented separately from the service cost component and outside of operating income. These other components of net periodic benefit cost are not eligible for capitalization, and the income statement line item or items must be disclosed. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2017. FCX adopted this ASU effective January 1, 2018, and its statements of operations will be adjusted for all periods presented beginning with its March 31, 2018, quarterly report on Form 10-Q. The adoption of this ASU did not have a material impact on FCX’s financial statements.

NOTE 2. DISPOSITIONS

TF Holdings Limited - Discontinued Operations. FCX had a 70 percent interest in TF Holdings Limited (TFHL), which owns 80 percent of Tenke Fungurume Mining S.A. (TFM or Tenke) located in the Democratic Republic of Congo (DRC). On November 16, 2016, FCX completed the sale of its interest in TFHL to China Molybdenum Co., Ltd. (CMOC) for $2.65 billion in cash (before closing adjustments) and contingent consideration of up to $120 million in cash, consisting of $60 million if the average copper price exceeds $3.50 per pound and $60 million if the average cobalt price exceeds $20 per pound, both during calendar years 2018 and 2019. One-half of the proceeds from this transaction was used to repay borrowings under FCX’s unsecured bank term loan. The contingent consideration is considered a derivative, and the fair value will be adjusted through December 31, 2019. The fair value of the contingent consideration derivative (included in other assets in the consolidated balance sheets) was $74 million at December 31, 2017, and $13 million at December 31, 2016. Gains resulting from changes in the fair value of the contingent consideration derivative ($61 million in 2017 and $13 million in 2016) are included in net income (loss) from discontinued operations and primarily resulted from higher cobalt prices. Future changes in the fair value of the contingent consideration derivative will continue to be recorded in discontinued operations.

In October 2016, La Générale des Carrières et des Mines (Gécamines), which is wholly owned by the DRC government and holds a 20 percent non-dilutable interest in TFM, filed an arbitration proceeding with the International Chamber of Commerce International Court of Arbitration challenging the sale of TFHL. In January 2017, a settlement agreement was entered into with Gécamines that resolved all claims brought by Gécamines against FCX, including the arbitration proceeding. The parties to the settlement are FCX, CMOC, Lundin Mining Corporation, TFHL, TFM, BHR Newwood Investment Management Limited and Gécamines. The settlement resulted in a charge of $33 million to the 2016 loss on disposal.

In accordance with accounting guidance, FCX reported the results of operations of TFHL as discontinued operations in the consolidated statements of operations because the disposal represents a strategic shift that had a major effect on operations. The consolidated statements of comprehensive income (loss) were not impacted by discontinued operations as TFHL did not have any other comprehensive income (loss), and the consolidated statements of cash flows are reported on a combined basis without separately presenting discontinued operations.

Net income (loss) from discontinued operations in the consolidated statements of operations consists of the following:

	Years Ended December 31,
	2017				2016				2015
Revenuesa	$	13			$	959			$	1,270
Costs and expenses:
Production and delivery costs	—				833				852
Depreciation, depletion and amortization	—				80			b	257
Interest expense allocated from parentc	—				39				28
Other costs and expenses, net	—				10				26
Income (loss) before income taxes and net gain (loss) on disposal	13				(3		)		107
Net gain (loss) on disposal	57			d	(198		)	e	—
Net income (loss) before income taxes	70				(201		)		107
(Provision for) benefit from income taxes	(4		)		8				(16		)
Net income (loss) from discontinued operations	$	66			$	(193	)		$	91

a.	In accordance with accounting guidance, amounts are net of recognition (eliminations) of intercompany sales totaling $13 million in 2017, $(157) million in 2016 and $(114) million in 2015.

b.	In accordance with accounting guidance, depreciation, depletion and amortization was not recognized subsequent to classification as assets held for sale, which occurred in May 2016.

c.	In accordance with accounting guidance, interest associated with FCX’s unsecured bank term loan that was required to be repaid as a result of the sale of TFHL has been allocated to discontinued operations.

d.	Includes a gain of $61 million associated with the change in the fair value of contingent consideration.

e.	Includes a charge of $33 million associated with the settlement agreement entered into with Gécamines, partly offset by a gain of $13 million for the fair value of contingent consideration.

Cash flows from discontinued operations included in the consolidated statements of cash flows follow:

	Years Ended December 31,
		2016				2015
Net cash provided by operating activities		$	241			$	217
Net cash used in investing activities		(73		)		(253		)
Net cash used in financing activities		(123		)		(82		)
Increase (decrease) in cash and cash equivalents		$	45			$	(118	)

Oil and Gas Operations. On July 31, 2017, FM O&G sold certain property interests in the Gulf of Mexico Shelf for cash consideration of $62 million (before closing adjustments from the April 1, 2017, effective date). On March 17, 2017, FM O&G sold property interests in the Madden area in central Wyoming for cash consideration of $17.5 million, before closing adjustments. Under the full cost accounting rules, the sales resulted in the recognition of gains of $49 million in 2017 because the reserves associated with these properties were significant to the full cost pool.

On December 30, 2016, FM O&G completed the sale of its onshore California oil and gas properties to Sentinel Peak Resources California LLC (Sentinel) for cash consideration of $592 million (before closing adjustments from the July 1, 2016, effective date) and contingent consideration of up to $150 million, consisting of $50 million per year for 2018, 2019 and 2020 if the price of Brent crude oil averages over $70 per barrel in each of these calendar years. The contingent consideration is considered a derivative, and the fair value will be adjusted through the year 2020. The fair value of the contingent consideration derivative (included in other assets in the consolidated balance sheets) was $34 million at December 31, 2017, and $33 million at December 31, 2016. Future changes in the fair value of the contingent consideration derivative will continue to be recorded in operating income. Sentinel assumed abandonment obligations associated with the properties.

On December 15, 2016, FM O&G completed the sale of its Deepwater Gulf of Mexico (GOM) oil and gas properties to Anadarko Petroleum Corporation (Anadarko) for cash consideration of $2.0 billion (before closing adjustments from the August 1, 2016, effective date) and up to $150 million in contingent payments. The contingent payments were recorded under the loss recovery approach, whereby contingent gains are recorded up to the amount of any loss on the sale, and reduced the loss on the sale in 2016. The contingent payments were included in other current assets ($24 million) and other assets ($126 million) at December 31, 2017, and in other assets ($150 million) at December 31, 2016, in the consolidated balance sheets. The contingent payments will be received over time as Anadarko realizes future cash flows in connection with a third-party production handling agreement for an offshore platform. Anadarko assumed abandonment obligations associated with these properties. A portion of the proceeds from this transaction was used to repay FCX’s remaining outstanding borrowings under its unsecured bank term loan.

Under the full cost accounting rules, the sales of the Deepwater GOM and onshore California oil and gas properties required gain (loss) recognition (net loss of $9 million in 2016, which was net of $150 million for contingent payments associated with the Deepwater GOM sale and $33 million for the fair value of contingent consideration from the onshore California sale) because of their significance to the full cost pool.

In connection with the sale of the Deepwater GOM oil and gas properties, FM O&G entered into an agreement to amend the terms of the Plains Offshore Preferred Stock that was reported as redeemable noncontrolling interest on FCX’s financial statements. The amendment provided FM O&G the right to call these securities for $582 million. FM O&G exercised this option in December 2016 and recorded a $199 million gain on redemption to retained earnings.

On July 25, 2016, FM O&G sold its Haynesville shale assets for cash consideration of $87 million, before closing adjustments. On June 17, 2016, FM O&G sold certain oil and gas royalty interests to Black Stone Minerals, L.P. for cash consideration of $102 million, before closing adjustments. Under the full cost accounting rules, the proceeds from these transactions were recorded as a reduction of capitalized oil and gas properties, with no gain or loss recognition in 2016 because the reserves were not significant to the full cost pool.

Morenci. On May 31, 2016, FCX sold a 13 percent undivided interest in its Morenci unincorporated joint venture to SMM Morenci, Inc. for $1.0 billion in cash. FCX recorded a $576 million gain on the transaction and used losses to offset cash taxes on the transaction. A portion of the proceeds from the transaction was used to repay borrowings under FCX’s unsecured bank term loan and revolving credit facility.

The Morenci unincorporated joint venture was owned 85 percent by FCX and 15 percent by Sumitomo. As a result of the transaction, the unincorporated joint venture is owned 72 percent by FCX, 15 percent by Sumitomo and 13 percent by SMM Morenci, Inc.

Timok. On May 2, 2016, FMC sold an interest in the Timok exploration project in Serbia to Global Reservoir Minerals Inc. (now known as Nevsun Resources, Ltd.) for consideration of $135 million in cash and contingent consideration of up to $107 million payable to FCX in stages upon achievement of defined development milestones. As a result of this transaction, FCX recorded a gain of $133 million in 2016, and no amounts were recorded for contingent consideration under the loss recovery approach. A portion of the proceeds from the transaction was used to repay borrowings under FCX’s unsecured bank term loan.

Assets Held for Sale. Freeport Cobalt includes the large-scale cobalt refinery in Kokkola, Finland, and the related sales and marketing business, in which FCX owns an effective 56 percent interest. Kisanfu is a copper and cobalt exploration project, located near Tenke, in which FCX owns a 100 percent interest. As a result of the sale of TFHL, FCX expects to sell its interest in Freeport Cobalt and Kisanfu, and the assets and liabilities of Freeport Cobalt and Kisanfu are classified as held for sale in the consolidated balance sheets. A $110 million estimated loss on disposal was included in net gain on sales of assets in 2016 in the consolidated statements of operations. FCX continues to market the Freeport Cobalt and Kisanfu assets and evaluate the fair value of these assets. During 2017, the fair value evaluations resulted in an increase to the estimated fair value less costs to sell of $13 million (included in net gain on sales of assets in the consolidated statements of operations).

NOTE 3. OWNERSHIP IN SUBSIDIARIES AND JOINT VENTURES

Ownership in Subsidiaries. FMC produces copper and molybdenum, with mines in North America and South America. At December 31, 2017, FMC’s operating mines in North America were Morenci, Bagdad, Safford, Sierrita and Miami located in Arizona; Tyrone and Chino located in New Mexico; and Henderson and Climax located in Colorado. FCX has a 72 percent interest (subsequent to the sale of a 13 percent undivided interest on May 31, 2016) in Morenci (refer to “Joint Ventures – Sumitomo and SMM Morenci, Inc.”) and owns 100 percent of the other North America mines. At December 31, 2017, operating mines in South America were Cerro Verde (53.56 percent owned) located in Peru and El Abra (51 percent owned) located in Chile. At December 31, 2017, FMC’s net assets totaled $16.0 billion and its accumulated deficit totaled $14.0 billion. FCX had no loans outstanding to FMC at December 31, 2017.

FCX’s direct ownership in PT-FI totals 81.28 percent. PT Indocopper Investama, an Indonesian company, owns 9.36 percent of PT-FI, and FCX owns 100 percent of PT Indocopper Investama. Refer to “Joint Ventures - Rio Tinto” for discussion of the unincorporated joint venture. At December 31, 2017, PT-FI’s net assets totaled $6.3 billion and its retained earnings totaled $6.0 billion. FCX had no loans outstanding to PT-FI at December 31, 2017.

FCX owns 100 percent of the outstanding Atlantic Copper common stock. At December 31, 2017, Atlantic Copper’s net liabilities totaled $40 million and its accumulated deficit totaled $452 million. FCX had $365 million in intercompany loans outstanding to Atlantic Copper at December 31, 2017.

FCX owns 100 percent of FM O&G, which, as of December 31, 2017, has oil and gas assets that primarily includes oil and natural gas production onshore in South Louisiana and on the GOM Shelf and oil production offshore California. At December 31, 2017, FM O&G’s net liabilities totaled $13.7 billion and its accumulated deficit totaled $25.3 billion. FCX had $9.9 billion in intercompany loans outstanding to FM O&G at December 31, 2017.

Joint Ventures. FCX has the following unincorporated joint ventures.

Rio Tinto. PT-FI and Rio Tinto have established an unincorporated joint venture pursuant to which Rio Tinto has a 40 percent interest in PT-FI’s Contract of Work (COW) and the option to participate in 40 percent of any other future exploration projects in Papua, Indonesia.

Pursuant to the joint venture agreement, Rio Tinto has a 40 percent interest in certain assets and future production exceeding specified annual amounts of copper, gold and silver through 2022 in Block A of PT-FI’s COW, and, after 2022, a 40 percent interest in all production from Block A. All of PT-FI’s proven and probable reserves and all its mining operations are located in the Block A area. PT-FI receives 100 percent of production and related revenues from reserves established as of December 31, 1994 (27.1 billion pounds of copper, 38.4 million ounces of gold and 75.8 million ounces of silver), divided into annual portions subject to reallocation for events causing changes in the anticipated production schedule. Production and related revenues exceeding those annual amounts (referred to as incremental expansion revenues) are shared 60 percent PT-FI and 40 percent Rio Tinto. Operating, nonexpansion capital and administrative costs are shared 60 percent PT-FI and 40 percent Rio Tinto based on the ratio of (i) the incremental expansion revenues to (ii) total revenues from production from Block A, with PT-FI responsible for the rest of such costs. PT-FI will continue to receive 100 percent of the cash flow from specified annual amounts of copper, gold and silver through 2022 calculated by reference to its proven and probable reserves as of December 31, 1994, and 60 percent of all remaining cash flow. Expansion capital costs are shared 60 percent PT-FI and 40 percent Rio Tinto. The payable to Rio Tinto for its share of joint venture cash flows was $30 million at December 31, 2017, and $10 million at December 31, 2016.

Sumitomo and SMM Morenci, Inc. FMC owns a 72 percent undivided interest in Morenci via an unincorporated joint venture. The remaining 28 percent is owned by Sumitomo (15 percent) and SMM Morenci, Inc. (13 percent). Each partner takes in kind its share of Morenci’s production. FMC purchased 218 million pounds of Morenci’s copper cathode from Sumitomo and SMM Morenci, Inc. at market prices for $610 million during 2017. FMC had receivables from Sumitomo and SMM Morenci, Inc. totaling $18 million at December 31, 2017, and $15 million at December 31, 2016.

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

The components of inventories follow:

	December 31,
	2017				2016
Current inventories:
Total materials and supplies, neta	$	1,305			$	1,306
Mill stockpiles	$	360			$	259
Leach stockpiles	1,062				1,079
Total current mill and leach stockpiles	$	1,422			$	1,338
Raw materials (primarily concentrate)	$	265			$	255
Work-in-process	154				114
Finished goods	747				629
Total product inventories	$	1,166			$	998
Long-term inventories:
Mill stockpiles	$	300			$	487
Leach stockpiles	1,109				1,146
Total long-term inventoriesb	$	1,409			$	1,633

a.	Materials and supplies inventory was net of obsolescence reserves totaling $29 million at December 31, 2017 and 2016.

b.	Estimated metals in stockpiles not expected to be recovered within the next 12 months.

FCX recorded charges for adjustments to metals inventory carrying values of $8 million in 2017 and $36 million in 2016 (primarily for molybdenum inventories), and $338 million in 2015 ($215 million for copper inventories and $123 million for molybdenum inventories). Refer to Note 16 for metals inventory adjustments by business segment.

NOTE 5. PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT COSTS, NET

The components of net property, plant, equipment and mine development costs follow:

	December 31,
	2017				2016
Proven and probable mineral reserves	$	3,974			$	3,863
VBPP	447				559
Mine development and other	6,212				5,755
Buildings and infrastructure	7,520				7,479
Machinery and equipment	12,201				11,744
Mobile equipment	3,764				3,725
Construction in progress	2,964				2,831
Property, plant, equipment and mine development costs	37,082				35,956
Accumulated depreciation, depletion and amortization	(14,246		)		(12,737		)
Property, plant, equipment and mine development costs, net	$	22,836			$	23,219

FCX recorded $1.6 billion for VBPP in connection with the FMC acquisition in 2007 (excluding $634 million associated with mining operations that were sold or included in assets held for sale) and transferred $112 million to proven and probable mineral reserves during 2017 and $640 million prior to 2017 (none in 2016). Cumulative impairments of VBPP total $485 million, which were primarily recorded in 2008.

Capitalized interest, which primarily related to FCX’s mining operations’ capital projects, totaled $121 million in 2017, $92 million in 2016 and $157 million in 2015.

In connection with the decline in copper and molybdenum prices and revised operating plans at FCX’s mining operations, FCX evaluated its long-lived assets (other than indefinite-lived intangible assets) for impairment during 2015 and as of December 31, 2015, as described in Note 1. FCX’s evaluations of its copper mines at December 31, 2015, were based on near-term price assumptions reflecting prevailing copper future prices, which ranged from $2.15 per pound to $2.17 per pound for COMEX and from $2.13 per pound to $2.16 per pound for LME, and a long-term average price of $3.00 per pound. FCX’s evaluations of its molybdenum mines at December 31, 2015, were based on near-term price assumptions that were consistent with then-current market prices for molybdenum and a long-term average price of $10.00 per pound.

FCX’s evaluations of long-lived assets (other than indefinite-lived intangible assets) resulted in the recognition of a charge to production costs for the impairment of the Tyrone mine totaling $37 million in 2015, net of a revision to Tyrone’s ARO.

During 2016 and 2017, FCX concluded there were no events or changes in circumstances that would indicate that the carrying amount of its long-lived mining assets might not be recoverable. Additionally, copper and molybdenum prices have improved. The LME copper spot prices were $3.25 per pound and $2.50 per pound at December 31, 2017 and 2016, respectively, which were higher than the LME spot price of $2.13 per pound at December 31, 2015; the weekly average prices for molybdenum were $10.15 per pound and $6.74 per pound at December 31, 2017 and 2016, respectively, which were higher than the weekly average price of $5.23 per pound at December 31, 2015.

NOTE 6. OTHER ASSETS

The components of other assets follow:

	December 31,
	2017				2016
Disputed tax assessments:a
PT-FI	$	417			$	331
Cerro Verde	185				277
Long-term receivable for taxesb	445				129
Intangible assetsc	306				305
Investments:
Assurance bondd	123				120
PT Smeltinge	61				83
Available-for-sale securities	30				50
Other	48				50
Contingent consideration associated with sales of assetsf	234				196
Legally restricted fundsg	189				182
Rio Tinto’s share of ARO	68				71
Long-term employee receivables	20				32
Other	144				130
Total other assets	$	2,270			$	1,956

a.	Refer to Note 12 for further discussion.

b.	Includes tax overpayments and refunds not expected to be realized within the next 12 months (primarily in the U.S. associated with U.S. tax reform, refer to Note 11).

c.	Indefinite-lived intangible assets totaled $215 million at December 31, 2017, and $217 million at December 31, 2016. Definite-lived intangible assets were net of accumulated amortization totaling $46 million at December 31, 2017, and $37 million at December 31, 2016.

d.	Relates to PT-FI’s commitment for smelter development in Indonesia (refer to Note 13 for further discussion).

e.

PT-FI’s 25 percent ownership in PT Smelting (smelter and refinery in Gresik, Indonesia) is recorded using the equity method. Amounts were reduced by unrecognized profits on sales from PT-FI to PT Smelting totaling $68 million at December 31, 2017, and $39 million at December 31, 2016. Trade accounts receivable from PT Smelting totaled $308 million at December 31, 2017, and $283 million at December 31, 2016.

f.	Refer to Note 2 for further discussion.

g.	Includes $180 million at December 31, 2017, and $173 million at December 31, 2016, held in trusts for AROs related to properties in New Mexico (refer to Note 12 for further discussion).

NOTE 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The components of accounts payable and accrued liabilities follow:

	December 31,
	2017				2016
Accounts payable	$	1,380			$	1,540
Salaries, wages and other compensation	235				225
Accrued interesta	168				129
Accrued taxes, other than income taxes	129				90
Pension, postretirement, postemployment and other employee benefitsb	111				76
Deferred revenue	91				82
Accrued mining royalties	68				46
Other	139				205
Total accounts payable and accrued liabilities	$	2,321			$	2,393

a.	Third-party interest paid, net of capitalized interest, was $565 million in 2017, $743 million in 2016 and $570 million in 2015.

b.	Refer to Note 9 for long-term portion.

NOTE 8. DEBT

FCX’s debt at December 31, 2017, included additions of $97 million ($179 million at December 31, 2016) for unamortized fair value adjustments (primarily from the 2013 oil and gas acquisitions), and is net of reductions of $85 million ($100 million at December 31, 2016) for unamortized net discounts and unamortized debt issuance costs. The components of debt follow:

	December 31,
	2017				2016
Revolving credit facility	$	—			$	—
Cerro Verde credit facility	1,269				1,390
Cerro Verde shareholder loans	—				261
Senior notes and debentures:
Issued by FCX:
2.15% Senior Notes due 2017	—				500
2.30% Senior Notes due 2017	—				728
2.375% Senior Notes due 2018	1,408				1,480
6.125% Senior Notes due 2019	—				186
3.100% Senior Notes due 2020	997				996
6½% Senior Notes due 2020	—				583
6.625% Senior Notes due 2021	—				242
4.00% Senior Notes due 2021	596				595
6.75% Senior Notes due 2022	427				432
3.55% Senior Notes due 2022	1,884				1,882
67/8% Senior Notes due 2023	776				784
3.875% Senior Notes due 2023	1,914				1,912
4.55% Senior Notes due 2024	845				844
5.40% Senior Notes due 2034	740				739
5.450% Senior Notes due 2043	1,842				1,842
Issued by FMC:
71/8% Debentures due 2027	115				115
9½% Senior Notes due 2031	127				128
61/8% Senior Notes due 2034	116				116
Issued by Freeport-McMoRan Oil & Gas LLC (FM O&G LLC):
6.125% Senior Notes due 2019	—				60
6½% Senior Notes due 2020	—				69
6.625% Senior Notes due 2021	—				35
6.75% Senior Notes due 2022	—				48
67/8% Senior Notes due 2023	54				55
Other	7				5
Total debt	13,117				16,027
Less current portion of debt	(1,414		)		(1,232		)
Long-term debt	$	11,703			$	14,795

Revolving Credit Facility. FCX, PT-FI and FM O&G LLC have a senior unsecured $3.5 billion revolving credit facility that matures on May 31, 2019, with $500 million available to PT-FI. At December 31, 2017, FCX had no borrowings outstanding and $13 million of letters of credit issued under the revolving credit facility, resulting in availability of approximately $3.5 billion, of which $1.5 billion could be used for additional letters of credit.

Interest on the revolving credit facility (London Interbank Offered Rate (LIBOR) plus 2.25 percent or an alternate base rate (ABR) plus 1.25 percent at December 31, 2017) is determined by reference to FCX’s credit ratings and leverage ratio.

Cerro Verde Credit Facility. In March 2014, Cerro Verde entered into a five-year, $1.8 billion senior unsecured credit facility that is nonrecourse to FCX and the other shareholders of Cerro Verde. In June 2017, Cerro Verde’s credit facility was amended (balance outstanding at the time of amendment was $1.275 billion) to increase the commitment by $225 million to $1.5 billion, to modify the amortization schedule and to extend the maturity date to June 19, 2022. The amended credit facility amortizes in four installments, with $225 million due on December 31, 2020 (of which $220 million was prepaid during 2017), $225 million due on June 30, 2021, $525 million due on December 31, 2021, and the remaining balance due on the maturity date of June 19, 2022. All other terms, including the interest rates, remain the same. Interest under the term loan is based on LIBOR plus a spread (1.9 percent at December 31, 2017) based on Cerro Verde’s total net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio as defined in the agreement. The interest rate on Cerro Verde’s credit facility was 3.47 percent at December 31, 2017.

Cerro Verde Shareholder Loans. In December 2014, Cerro Verde entered into loan agreements with three of its shareholders for borrowings up to $800 million. In June 2017, Cerro Verde used the proceeds from its amended credit facility plus available cash to repay the balance of its outstanding shareholder loans. The remaining availability for borrowing under these agreements totals $200 million.

Senior Notes issued by FCX. In December 2016, FCX completed an exchange offer and consent solicitation associated with FM O&G LLC senior notes. Holders representing 89 percent of the outstanding FM O&G LLC senior notes tendered their notes and received new FCX senior notes. Each series of newly issued FCX senior notes have an interest rate that is identical to the interest rate of the applicable series of FM O&G LLC senior notes. The newly issued FCX senior notes are senior unsecured obligations of FCX and rank equally in right of payment with all other existing and future senior unsecured indebtedness of FCX. A summary of the tenders follows:

	Principal Amount Outstanding				Principal Amount Tendered				Book Value of New FCX Senior Notes
6.125% Senior Notes due 2019	$	237			$	179			$	186
6½% Senior Notes due 2020	617				552				583
6.625% Senior Notes due 2021	261				228				242
6.75% Senior Notes due 2022	449				404				432
67/8% Senior Notes due 2023	778				728				785
	$	2,342			$	2,091			$	2,228

The principal amounts were increased by $151 million to reflect the remaining unamortized acquisition-date fair market value adjustments associated with the PXP acquisition. In addition, FCX paid $14 million in cash consideration for FM O&G LLC’s senior notes that were tendered, which reduced the book value of the new FCX senior notes. All of these senior notes, except the 6.75% Senior Notes due 2022 and the 67/8% Senior Notes due 2023, were redeemed during 2017 (refer to Early Extinguishment and Exchanges of Debt in this note). The 6.75% Senior Notes due 2022 are currently redeemable in whole or in part, at the option of FCX, at a specified redemption price. The 67/8% Senior Notes due 2023 are redeemable in whole or in part, at the option of FCX, at a make-whole redemption price prior to February 15, 2020, and at a specified redemption price thereafter. As of December 31, 2017, the book value of these senior notes totaled $1.2 billion, which reflects the remaining unamortized acquisition-date fair market value adjustments ($81 million) and the cash consideration ($9 million) that are being amortized over the term of these senior notes and recorded as a net reduction of interest expense.

In November 2014, FCX sold $750 million of 2.30% Senior Notes due 2017 (which matured and were repaid in 2017), $600 million of 4.00% Senior Notes due 2021, $850 million of 4.55% Senior Notes due 2024 and $800 million of 5.40% Senior Notes due 2034 for total net proceeds of $2.97 billion. In March 2013, in connection with the financing of FCX’s acquisitions of PXP and MMR, FCX issued $6.5 billion of unsecured senior notes in four tranches. FCX sold $1.5 billion of 2.375% Senior Notes due March 2018, $1.0 billion of 3.100% Senior Notes due March 2020, $2.0 billion of 3.875% Senior Notes due March 2023 and $2.0 billion of 5.450% Senior Notes due March 2043 for total net proceeds of $6.4 billion. In February 2012, FCX sold $500 million of 2.15% Senior Notes due 2017 (which matured and were repaid in 2017) and $2.0 billion of 3.55% Senior Notes due 2022 for total net proceeds of $2.47 billion.

The 2.375% Senior Notes due 2018, 3.100% Senior Notes due 2020 and 4.00% Senior Notes due 2021 are redeemable in whole or in part, at the option of FCX, at a make-whole redemption price. The senior notes listed below are redeemable in whole or in part, at the option of FCX, at a make-whole redemption price prior to the dates stated below, and beginning on the dates stated below at 100 percent of principal.

Debt Instrument		Date
3.55% Senior Notes due 2022		December 1, 2021
3.875% Senior Notes due 2023		December 15, 2022
4.55% Senior Notes due 2024		August 14, 2024
5.40% Senior Notes due 2034		May 14, 2034
5.450% Senior Notes due 2043		September 15, 2042

These senior notes rank equally with FCX’s other existing and future unsecured and unsubordinated indebtedness.

Senior Notes issued by FM O&G LLC. In May 2013, in connection with the acquisition of PXP, FCX assumed unsecured senior notes with a stated value of $6.4 billion, which was increased by $716 million to reflect the acquisition-date fair market value of these senior notes. After redemptions discussed below and the 2016 exchange offer and consent solicitation discussed above, as of December 31, 2017, the 67/8% Senior Notes due 2023 are the only remaining FM O&G LLC senior notes, and these senior notes are currently redeemable in whole or in part, at the option of FM O&G LLC, at a specified redemption price.

Early Extinguishment and Exchanges of Debt. During 2017, FCX redeemed in full or purchased in open-market transactions certain senior notes. A summary of these debt extinguishments follows:

	Principal Amount				Net Adjustments				Book Value				Redemption Value				Gain
2.375% Senior Notes due 2018	$	74			$	—			$	74			$	74			$	—
FCX 6.125% Senior Notes due 2019	179				5				184				182				2
FM O&G LLC 6.125% Senior Notes due 2019	58				2				60				59				1
FCX 6½% Senior Notes due 2020	552				23				575				562				13
FM O&G LLC 6½% Senior Notes due 2020	65				3				68				66				2
FCX 6.625% Senior Notes due 2021	228				12				240				234				6
FM O&G 6.625% Senior Notes due 2021	33				2				35				34				1
FM O&G 6.750% Senior Notes due 2022	45				2				47				46				1
	$	1,234			$	49			$	1,283			$	1,257			$	26

Partially offsetting the $26 million gain was a net loss of $5 million, primarily associated with the modification of Cerro Verde’s credit facility in June 2017 and Cerro Verde’s prepayment in December 2017.

During 2016, FCX redeemed certain senior notes in exchange for its common stock (refer to Note 10 for further discussion) and purchased certain senior notes in open-market transactions. A summary of these transactions follows:

	Principal Amount				Net Adjustments				Book Value				Redemption Value				Gain
2.30% Senior Notes due 2017	$	20			$	—			$	20			$	20			$	—
2.375% Senior Notes due 2018	18				—				18				18				—
3.55% Senior Notes due 2022	108				(1		)		107				96				11
3.875% Senior Notes due 2023	77				—				77				68				9
5.40% Senior Notes due 2034	50				(1		)		49				41				8
5.450% Senior Notes due 2043	134				(2		)		132				106				26
	$	407			$	(4	)		$	403			$	349			$	54

Partially offsetting the $54 million gain was $28 million in losses, primarily related to deferred debt issuance costs for an unsecured bank term loan that was repaid and costs associated with the December 2016 senior note exchange offer and consent solicitation.

Guarantees. In connection with the acquisition of PXP, FCX guaranteed the PXP senior notes, and the guarantees by certain PXP subsidiaries were released. Refer to Note 17 for a discussion of FCX’s senior notes guaranteed by FM O&G LLC.

Restrictive Covenants. FCX’s revolving credit facility contains customary affirmative covenants and representations, and also a number of negative covenants that, among other things, restrict, subject to certain exceptions, the ability of FCX’s subsidiaries that are not borrowers or guarantors to incur additional indebtedness (including guarantee obligations) and FCX’s ability or the ability of FCX’s subsidiaries to: create liens on assets; enter into sale and leaseback transactions; engage in mergers, liquidations and dissolutions; and sell assets. FCX’s revolving credit facility also contains financial ratios governing maximum total leverage and minimum interest coverage. FCX’s leverage ratio (Net Debt/EBITDA, as defined in the credit agreement) cannot exceed 3.75x, and the minimum interest coverage ratio (ratio of consolidated EBITDA, as defined in the credit agreement, to consolidated cash interest expense) is 2.25x. The pricing under the revolving credit facility is a function of credit ratings and the leverage ratio. FCX’s senior notes contain limitations on liens. At December 31, 2017, FCX was in compliance with all of its covenants.

Maturities. Maturities of debt instruments based on the principal amounts and terms outstanding at December 31, 2017, total $1.4 billion in 2018, none in 2019, $1.0 billion in 2020, $1.4 billion in 2021, $2.8 billion in 2022 and $6.5 billion thereafter.

NOTE 9. OTHER LIABILITIES, INCLUDING EMPLOYEE BENEFITS

The components of other liabilities follow:

	December 31,
	2017				2016
Pension, postretirement, postemployment and other employment benefitsa	$	1,154			$	1,345
Cerro Verde royalty dispute	368				—
Provision for tax positions	291				167
Legal matters	81				77
Insurance claim reserves	47				51
Accrued oil and gas contract commitments	—				43
Other	71				62
Total other liabilities	$	2,012			$	1,745

a.	Refer to Note 7 for current portion.

Pension Plans. Following is a discussion of FCX’s pension plans.

FMC Plans. FMC has U.S. trusteed, non-contributory pension plans covering substantially all of its U.S. employees and some employees of its international subsidiaries hired before 2007. The applicable FMC plan design determines the manner in which benefits are calculated for any particular group of employees. Benefits are calculated based on final average monthly compensation and years of service or based on a fixed amount for each year of service. Non-bargained FMC employees hired after December 31, 2006, are not eligible to participate in the FMC U.S. pension plan.

FCX’s funding policy for these plans provides that contributions to pension trusts shall be at least equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended, for U.S. plans; or, in the case of international plans, the minimum legal requirements that may be applicable in the various countries. Additional contributions also may be made from time to time.

FCX’s policy for determining asset-mix targets for the FMC plan assets held in a master trust (Master Trust) includes the periodic development of asset allocation studies and review of the liabilities to determine expected long-term rates of return and expected risk for various investment portfolios. FCX’s retirement plan administration and investment committee considers these studies in the formal establishment of asset-mix targets defined in the investment policy. FCX’s investment objective emphasizes diversification through both the allocation of the Master Trust assets among various asset classes and the selection of investment managers whose various styles are fundamentally complementary to one another and serve to achieve satisfactory rates of return. Diversification, by asset class and by investment manager, is FCX’s principal means of reducing volatility and exercising prudent investment judgment. FCX’s present target asset allocation approximates 50 percent equity investments (primarily global equities), 43 percent fixed income (primarily long-term treasury STRIPS or “separate trading or registered

interest and principal securities”; long-term U.S. treasury/agency bonds; global fixed income securities; long-term, high-credit quality corporate bonds; high-yield and emerging markets fixed income securities; and fixed income debt securities) and 7 percent alternative investments (private real estate, real estate investment trusts and private equity).

The expected rate of return on plan assets is evaluated at least annually, taking into consideration asset allocation, historical and expected future performance on the types of assets held in the Master Trust, and the current economic environment. Based on these factors, FCX expects the pension assets will earn an average of 6.5 percent per annum beginning January 1, 2018. The 6.5 percent estimation was based on a passive return on a compound basis of 6.0 percent and a premium for active management of 0.5 percent reflecting the target asset allocation and current investment array.

For estimation purposes, FCX assumes the long-term asset mix for these plans generally will be consistent with the current mix. Changes in the asset mix could impact the amount of recorded pension costs, the funded status of the plans and the need for future cash contributions. A lower-than-expected return on assets also would decrease plan assets and increase the amount of recorded pension costs in future years. When calculating the expected return on plan assets, FCX uses the market value of assets.

Among the assumptions used to estimate the pension benefit obligation is a discount rate used to calculate the present value of expected future benefit payments for service to date. The discount rate assumption for FCX’s U.S. plans is designed to reflect yields on high-quality, fixed-income investments for a given duration. The determination of the discount rate for these plans is based on expected future benefit payments for service to date together with the Mercer Pension Discount Curve - Above Mean Yield. The Mercer Pension Discount Curve - Above Mean Yield is constructed from the bonds in the Mercer Pension Discount Curve that have a yield higher than the regression mean yield curve. The Mercer Pension Discount Curve consists of spot (i.e., zero coupon) interest rates at one-half-year increments for each of the next 30 years and is developed based on pricing and yield information for high-quality corporate bonds. Changes in the discount rate are reflected in FCX’s benefit obligation and, therefore, in future pension costs.

SERP Plan. FCX has an unfunded Supplemental Executive Retirement Plan (SERP) for its chief executive officer. The SERP provides for retirement benefits payable in the form of a joint and survivor annuity, life annuity or an equivalent lump sum, which is determined on January 1 of the year in which the participant completed 25 years of credited service. The annuity will equal a percentage of the participant’s highest average compensation for any consecutive three-year period during the five years immediately preceding the completion of 25 years of credited service. The SERP benefit will be reduced by the value of all benefits from current and former retirement plans (qualified and nonqualified) sponsored by FCX, by FM Services Company, FCX’s wholly owned subsidiary, or by any predecessor employer (including FCX’s former parent company), except for benefits produced by accounts funded exclusively by deductions from the participant’s pay.

PT-FI Plan. PT-FI has a defined benefit pension plan denominated in Indonesian rupiah covering substantially all of its Indonesian national employees. PT-FI funds the plan and invests the assets in accordance with Indonesian pension guidelines. The pension obligation was valued at an exchange rate of 13,480 rupiah to one U.S. dollar on December 31, 2017, and 13,369 rupiah to one U.S. dollar on December 31, 2016. Indonesian labor laws require that companies provide a minimum level of benefits to employees upon employment termination based on the reason for termination and the employee’s years of service. PT-FI’s pension benefit obligation includes benefits related to this law. PT-FI’s expected rate of return on plan assets is evaluated at least annually, taking into consideration its long-range estimated return for the plan based on the asset mix. Based on these factors, PT-FI expects its pension assets will earn an average of 7.75 percent per annum beginning January 1, 2018. The discount rate assumption for PT-FI’s plan is based on the Mercer Indonesian zero coupon bond yield curve derived from the Indonesian Government Security Yield Curve. Changes in the discount rate are reflected in PT-FI’s benefit obligation and, therefore, in future pension costs.

Plan Information. FCX uses a measurement date of December 31 for its plans. Information for those plans where the accumulated benefit obligations exceed the fair value of plan assets follows:

	December 31,
	2017				2016
Projected benefit obligation	$	2,287			$	2,127
Accumulated benefit obligation	2,163				2,014
Fair value of plan assets	1,521				1,312

Information on the FCX (FMC and SERP plans) and PT-FI plans as of December 31 follows:

	FCX								PT-FI
	2017				2016				2017				2016
Change in benefit obligation:
Benefit obligation at beginning of year	$	2,135			$	2,104			$	374			$	318
Service cost	44				27				20				27
Interest cost	91				93				23				29
Actuarial losses (gains)	188				92				(61		)		2
Foreign exchange losses (gains)	3				(4		)		(2		)		8
Curtailmenta	—				—				(62		)		—
Benefits and administrative expenses paid	(118		)		(177		)		(52		)		(10		)
Benefit obligation at end of year	2,343				2,135				240				374
Change in plan assets:
Fair value of plan assets at beginning of year	1,329				1,379				284				204
Actual return on plan assets	230				88				11				47
Employer contributionsb	145				42				28				38
Foreign exchange gains (losses)	2				(3		)		(2		)		5
Benefits and administrative expenses paid	(118		)		(177		)		(52		)		(10		)
Fair value of plan assets at end of year	1,588				1,329				269				284
Funded status	$	(755	)		$	(806	)		$	29			$	(90	)
Accumulated benefit obligation	$	2,218			$	2,022			$	194			$	225
Weighted-average assumptions
used to determine benefit obligations:
Discount rate	3.70		%		4.40		%		6.75		%		8.25		%
Rate of compensation increase	3.25		%		3.25		%		4.00		%		8.00		%
Balance sheet classification of funded status:
Other assets	$	11			$	9			$	29			$	—
Accounts payable and accrued liabilities	(4		)		(4		)		—				—
Other liabilities	(762		)		(811		)		—				(90		)
Total	$	(755	)		$	(806	)		$	29			$	(90	)

a.	Resulted from the 2017 PT-FI reductions in workforce (refer to Restructuring Charges in this note for further discussion).

b.	Employer contributions for 2018 are expected to approximate $75 million for the FCX plans and $17 million for the PT-FI plan (based on a December 31, 2017, exchange rate of 13,480 Indonesian rupiah to one U.S. dollar).

The weighted-average assumptions used to determine net periodic benefit cost and the components of net periodic benefit cost for FCX’s pension plans for the years ended December 31 follow:

	2017				2016				2015
Weighted-average assumptions:a
Discount rate	4.40		%		4.60		%		4.10		%
Expected return on plan assets	7.00		%		7.25		%		7.25		%
Rate of compensation increase	3.25		%		3.25		%		3.25		%
Service cost	$	44			$	27			$	36
Interest cost	91				93				87
Expected return on plan assets	(93		)		(96		)		(102		)
Amortization of net actuarial losses	49				42				45
Special retirement benefitsb	—				—				22
Net periodic benefit cost	$	91			$	66			$	88

a.	The assumptions shown relate only to the FMC plans.

b.	Resulted from FMC’s 2015 revised mine operating plans and reductions in the workforce (refer to Note 5 for further discussion).

The weighted-average assumptions used to determine net periodic benefit cost and the components of net periodic benefit cost for PT-FI’s pension plan for the years ended December 31 follow:

	2017				2016				2015
Weighted-average assumptions:
Discount rate	8.25		%		9.00		%		8.25		%
Expected return on plan assets	7.75		%		7.75		%		7.75		%
Rate of compensation increase	8.00		%		9.40		%		9.00		%
Service cost	$	20			$	27			$	26
Interest cost	23				29				23
Expected return on plan assets	(21		)		(17		)		(14		)
Amortization of prior service cost	2				3				3
Amortization of net actuarial loss	—				5				6
Curtailment loss	4				—				—
Net periodic benefit cost	$	28			$	47			$	44

Included in accumulated other comprehensive loss are the following amounts that have not been recognized in net periodic pension cost as of December 31:

	2017								2016
	Before Taxes				After Taxes and Noncontrolling Interests				Before Taxes				After Taxes and Noncontrolling Interests
Net actuarial loss	$	620			$	412			$	722			$	466
Prior service costs	10				6				21				11
	$	630			$	418			$	743			$	477

Actuarial losses in excess of 10 percent of the greater of the projected benefit obligation or market-related value of plan assets are amortized over the expected average remaining future service period of the current active participants. The amount expected to be recognized in 2018 net periodic pension cost for actuarial losses is $47 million.

FCX does not expect to have any plan assets returned to it in 2018. Plan assets are classified within a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1), then to significant observable inputs (Level 2) and the lowest priority to significant unobservable inputs (Level 3).

A summary of the fair value for pension plan assets, including those measured at net asset value (NAV) as a practical expedient, associated with the FCX plans follows:

	Fair Value at December 31, 2017
	Total				NAV				Level 1				Level 2				Level 3
Commingled/collective funds:
Global equity	$	404			$	404			$	—			$	—			$	—
Fixed income securities	154				154				—				—				—
Global fixed income securities	115				115				—				—				—
Emerging markets equity	87				87				—				—				—
International small-cap equity	72				72				—				—				—
U.S. small-cap equity	67				67				—				—				—
Real estate property	50				50				—				—				—
U.S. real estate securities	45				45				—				—				—
Short-term investments	12				12				—				—				—
Fixed income:
Government bonds	208				—				—				208				—
Corporate bonds	168				—				—				168				—
Global large-cap equity securities	119				—				119				—				—
Private equity investments	20				20				—				—				—
Other investments	62				—				19				43				—
Total investments	1,583				$	1,026			$	138			$	419			$	—
Cash and receivables	21
Payables	(16		)
Total pension plan net assets	$	1,588

	Fair Value at December 31, 2016
	Total				NAV				Level 1				Level 2				Level 3
Commingled/collective funds:
Global equity	$	420			$	420			$	—			$	—			$	—
Fixed income securities	129				129				—				—				—
Global fixed income securities	107				107				—				—				—
Real estate property	72				72				—				—				—
Emerging markets equity	66				66				—				—				—
U.S. small-cap equity	60				60				—				—				—
International small-cap equity	51				51				—				—				—
U.S. real estate securities	42				42				—				—				—
Short-term investments	17				17				—				—				—
Fixed income:
Government bonds	160				—				—				160				—
Corporate bonds	141				—				—				141				—
Private equity investments	25				25				—				—				—
Other investments	36				—				1				35				—
Total investments	1,326				$	989			$	1			$	336			$	—
Cash and receivables	4
Payables	(1		)
Total pension plan net assets	$	1,329

Following is a description of the pension plan asset categories and the valuation techniques used to measure fair value. There have been no changes to the techniques used to measure fair value.

Commingled/collective funds are managed by several fund managers and are valued at the NAV per unit of the fund. For most of these funds, the majority of the underlying assets are actively traded securities. These funds (except the real estate property fund) require up to a 60-day notice for redemptions. The real estate property fund is valued at NAV using information from independent appraisal firms, who have knowledge and expertise about the current market values of real property in the same vicinity as the investments. Redemptions of the real estate property fund are allowed once per quarter, subject to available cash.

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

Common stocks included in global large-cap equity securities and preferred stocks included in other investments are valued at the closing price reported on the active market on which the individual securities are traded and, as such, are classified within Level 1 of the fair value hierarchy.

Private equity investments are valued at NAV using information from general partners and have inherent restrictions on redemptions that may affect the ability to sell the investments at their NAV in the near term.

A summary of the fair value hierarchy for pension plan assets associated with the PT-FI plan follows:

	Fair Value at December 31, 2017
	Total				Level 1				Level 2				Level 3
Government bonds	$	81			$	81			$	—			$	—
Common stocks	78				78				—				—
Mutual funds	16				16				—				—
Total investments	175				$	175			$	—			$	—
Cash and receivablesa	94
Total pension plan net assets	$	269

	Fair Value at December 31, 2016
	Total				Level 1				Level 2				Level 3
Government bonds	$	78			$	78			$	—			$	—
Common stocks	72				72				—				—
Mutual funds	16				16				—				—
Total investments	166				$	166			$	—			$	—
Cash and receivablesa	119
Payables	(1		)
Total pension plan net assets	$	284

a.	Cash consists primarily of short-term time deposits.

Following is a description of the valuation techniques used for pension plan assets measured at fair value associated with the PT-FI plan. There have been no changes to the techniques used to measure fair value.

Common stocks, government bonds and mutual funds are valued at the closing price reported on the active market on which the individual securities are traded and, as such, are classified within Level 1 of the fair value hierarchy.

The techniques described above may produce a fair value calculation that may not be indicative of NRV or reflective of future fair values. Furthermore, while FCX believes its valuation techniques are appropriate and consistent with those used by other market participants, the use of different techniques or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The expected benefit payments for FCX’s and PT-FI’s pension plans follow:

	FCX				PT-FIa
2018	$	111			$	48
2019	151				8
2020	116				15
2021	118				20
2022	120				23
2023 through 2027	635				166

a.	Based on a December 31, 2017, exchange rate of 13,480 Indonesian rupiah to one U.S. dollar.

Postretirement and Other Benefits. FCX also provides postretirement medical and life insurance benefits for certain U.S. employees and, in some cases, employees of certain international subsidiaries. These postretirement benefits vary among plans, and many plans require contributions from retirees. The expected cost of providing such postretirement benefits is accrued during the years employees render service.

The benefit obligation (funded status) for the postretirement medical and life insurance benefit plans consisted of a current portion of $14 million (included in accounts payable and accrued liabilities) and a long-term portion of $129 million (included in other liabilities) at December 31, 2017, and a current portion of $16 million and a long-term portion of $138 million at December 31, 2016. The discount rate used to determine the benefit obligation for these plans, which was determined on the same basis as FCX’s pension plans, was 3.50 percent at December 31, 2017, and 3.80 percent at December 31, 2016. Expected benefit payments for these plans total $14 million for 2018, $14 million for 2019, $13 million for 2020, $13 million for 2021, $12 million for 2022 and $50 million for 2023 through 2027.

The net periodic benefit cost charged to operations for FCX’s postretirement benefits (primarily for interest costs) totaled $5 million in 2017, $4 million in 2016 and $6 million in 2015. The discount rate used to determine net periodic benefit cost and the components of net periodic benefit cost for FCX’s postretirement benefits was 3.80 percent in 2017, 4.10 percent in 2016 and 3.60 percent in 2015. The medical-care trend rates assumed the first year trend rate was 8.00 percent at December 31, 2017, which declines over the next 15 years with an ultimate trend rate of 4.25 percent.

FCX has a number of postemployment plans covering severance, long-term disability income, continuation of health and life insurance coverage for disabled employees or other welfare benefits. The accumulated postemployment benefit consisted of a current portion of $5 million (included in accounts payable and accrued liabilities) and a long-term portion of $38 million (included in other liabilities) at December 31, 2017, and a current portion of $5 million and a long-term portion of $34 million at December 31, 2016. In connection with the retirement of one of its executive officers in December 2015, FCX recorded a charge to selling, general and administrative expenses of $16 million.

FCX also sponsors savings plans for the majority of its U.S. employees. The plans allow employees to contribute a portion of their pre-tax income in accordance with specified guidelines. These savings plans are principally qualified 401(k) plans for all U.S. salaried and non-bargained hourly employees. In these plans, participants exercise control and direct the investment of their contributions and account balances among various investment options. FCX contributes to these plans at varying rates and matches a percentage of employee pre-tax deferral contributions up to certain limits, which vary by plan. For employees whose eligible compensation exceeds certain levels, FCX provides an unfunded defined contribution plan, which had a liability balance of $46 million at December 31, 2017, and $47 million at December 31, 2016, all of which was included in other liabilities.

The costs charged to operations for employee savings plans totaled $65 million in 2017 (none of which was capitalized), $78 million in 2016 (of which $4 million was capitalized to oil and gas properties) and $98 million in 2015 (of which $13 million was capitalized to oil and gas properties). FCX has other employee benefit plans, certain of which are related to FCX’s financial results, which are recognized in operating costs.

Restructuring Charges. As a result of the first-quarter 2017 regulatory restrictions and uncertainties regarding long-term investment stability, PT-FI took actions to adjust its cost structure, reduce its workforce and slow investments in its underground development projects and new smelter (refer to Note 13 for further discussion). These actions included workforce reductions through furlough and voluntary retirement programs. Following the furlough and voluntary retirement programs, a significant number of employees and contractors elected to participate in an illegal strike action beginning in May 2017, and were subsequently deemed to have voluntarily resigned under the existing Indonesian laws and regulations. As a result, PT-FI recorded charges in 2017 to production costs of $120 million, and selling, general and administrative costs of $5 million for employee severance and related costs, and a pension curtailment loss of $4 million included in production costs.

In early 2016, FCX restructured its oil and gas business to reduce costs and in late 2016, FCX sold substantially all of its remaining oil and gas properties. As a result, FCX recorded charges of $85 million to selling, general and administrative expenses and $6 million to production costs for net restructuring-related costs in 2016.

Because of a decline in commodity prices, FCX made adjustments to its operating plans for its mining operations in 2015 (refer to Note 5 for further discussion). As a result of these revisions to its mining operating plans, FCX recorded restructuring charges to production costs in 2015 of $45 million primarily for employee severance and benefit costs, and $22 million for special retirement benefits.

NOTE 10. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

FCX’s authorized shares of capital stock total 3.05 billion shares, consisting of 3 billion shares of common stock and 50 million shares of preferred stock.

Common Stock. In November 2016, FCX completed a $1.5 billion registered at-the-market equity offering of common stock that was announced on July 27, 2016. FCX sold 116.5 million shares of its common stock at an average price of $12.87 per share, which generated gross proceeds of $1.5 billion (net proceeds of $1.48 billion after $15 million of commissions and expenses).

During 2016, FCX issued 48.1 million shares of its common stock (with a value of $540 million, excluding $5 million of commissions paid by FCX) in connection with the settlement of two drilling rig contracts.

Also during 2016, FCX negotiated private exchange transactions exempt from registration under the Securities Act of 1933, as amended, whereby 27.7 million shares of FCX’s common stock were issued (with an aggregate value of $311 million), in exchange for $369 million principal amount of FCX’s senior notes.

In September 2015, FCX completed a $1.0 billion at-the-market equity program and announced an additional $1.0 billion at-the-market equity program. Through December 31, 2015, FCX sold 205.7 million shares of its common stock at an average price of $9.53 per share under these programs, which generated gross proceeds of $1.96 billion (net proceeds of $1.94 billion after $20 million of commissions and expenses). From January 1, 2016, through January 5, 2016, FCX sold 4.3 million shares of its common stock, which generated proceeds of $29 million (after $0.3 million of commissions and expenses). FCX used the proceeds to repay indebtedness.

The Board of Directors (the Board) declared a one-time special cash dividend of $0.1105 per share related to the settlement of the shareholder derivative litigation, which was paid in August 2015. In response to the impact of lower commodity prices, the Board authorized a decrease in the cash dividend on FCX’s common stock from an annual rate of $1.25 per share to an annual rate of $0.20 per share in March 2015, and then suspended the cash dividend in December 2015. Refer to Note 18 for discussion of the reinstated cash dividend on FCX’s common stock. The declaration of dividends is at the discretion of the Board and will depend on FCX’s financial results, cash requirements, future prospects and other factors deemed relevant by the Board.

Accumulated Other Comprehensive Loss. A summary of changes in the balances of each component of accumulated other comprehensive loss, net of tax, follows:

	Defined Benefit Plans				Unrealized Losses on Securities				Translation Adjustment				Total
Balance at January 1, 2015	$	(548	)		$	(6	)		$	10			$	(544	)
Amounts arising during the perioda,b	3				—				—				3
Amounts reclassifiedc	38				—				—				38
Balance at December 31, 2015	(507		)		(6		)		10				(503		)
Amounts arising during the perioda,b	(91		)		2				—				(89		)
Amounts reclassifiedc	44				—				—				44
Balance at December 31, 2016	(554		)		(4		)		10				(548		)
Amounts arising during the perioda,b	7				1				—				8
Amounts reclassifiedc	53				—				—				53
Balance at December 31, 2017	$	(494	)		$	(3	)		$	10			$	(487	)

a.	Includes net actuarial (losses) gains, net of noncontrolling interest, totaling $(7) million for 2015, $(79) million for 2016 and $52 million for 2017.

b.	Includes tax benefits (provision) totaling $2 million for 2015, $(11) million for 2016 and $(45) million for 2017.

c.	Includes amortization primarily related to actuarial losses, net of taxes of $16 million for 2015, $4 million for 2016 and $5 million for 2017.

Stock Award Plans. FCX currently has awards outstanding under various stock-based compensation plans. The stockholder-approved 2016 Stock Incentive Plan (the 2016 Plan) provides for the issuance of stock options, SARs, restricted stock, RSUs, PSUs and other stock-based awards for up to 72 million common shares. As of December 31, 2017, 64.7 million shares were available for grant under the 2016 Plan, and no shares were available under other plans.

Stock-Based Compensation Cost. Compensation cost charged against earnings for stock-based awards for the years ended December 31 follows:

		2017				2016				2015
Selling, general and administrative expenses		$	55			$	69			$	67
Production and delivery		16				16				17
Capitalized costs		—				4				11
Total stock-based compensation		71				89				95
Less capitalized costs		—				(4		)		(11		)
Tax benefit and noncontrolling interests’ share		(4		)	a	(3		)	a	(31		)
Impact on net income (loss) from continuing operations		$	67			$	82			$	53

a. Charges in the U.S. are not expected to generate a future tax benefit.

Stock Options and SARs. Stock options granted under the plans generally expire 10 years after the date of grant and vest in 25 percent annual increments beginning one year from the date of grant. The award agreements provide that participants will receive the following year’s vesting upon retirement. Therefore, on the date of grant, FCX accelerates one year of amortization for retirement-eligible employees. Stock options provide for accelerated vesting only upon certain qualifying terminations of employment within one year following a change of control. SARs generally expire within five years after the date of grant and vest in one-third annual increments beginning one year from the date of grant. SARs are similar to stock options, but are settled in cash rather than in shares of common stock and are classified as liability awards.

A summary of options and SARs outstanding as of December 31, 2017, including 716,469 SARs, and activity during the year ended December 31, 2017, follows:

	Number of Options and SARs			Weighted- Average Exercise Price Per Share				Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Balance at January 1	53,794,235			$	30.25
Granted	3,861,000			15.52
Exercised	(647,941	)		7.64
Expired/Forfeited	(8,992,606	)		34.24
Balance at December 31	48,014,688			28.63				4.8		$	129
Vested and exercisable at December 31	39,725,053			32.26				4.0		$	62

The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option valuation model. The fair value of each SAR is determined using the Black-Scholes-Merton option valuation model and remeasured at each reporting date until the date of settlement. Expected volatility is based on implied volatilities from traded options on FCX’s common stock and historical volatility of FCX’s common stock. FCX uses historical data to estimate future option and SAR exercises, forfeitures and expected life. When appropriate, separate groups of employees who have similar historical exercise behavior are considered separately for valuation purposes. The expected dividend rate is calculated using the annual dividend (excluding supplemental dividends) at the date of grant. The risk-free interest rate is based on Federal Reserve rates in effect for bonds with maturity dates equal to the expected term of the option or SAR.

Information related to stock options during the years ended December 31 follows:

	2017				2016				2015
Weighted-average assumptions used to value stock option awards:
Expected volatility	51.4		%		71.6		%		37.9		%
Expected life of options (in years)	5.70				5.34				5.17
Expected dividend rate	—				—				4.5		%
Risk-free interest rate	2.0		%		1.3		%		1.7		%
Weighted-average grant-date fair value (per share)	$	7.61			$	2.64			$	4.30
Intrinsic value of options exercised	$	5			$	—		a	$	1
Fair value of options vested	$	25			$	43			$	50

a. Rounds to less than $1 million.

As of December 31, 2017, FCX had $24 million of total unrecognized compensation cost related to unvested stock options expected to be recognized over a weighted-average period of approximately 2.0 years.

Stock-Settled PSUs and RSUs. Beginning in 2014, FCX’s executive officers were granted PSUs that vest after three years. For the PSUs granted to the executive officers in 2015, the final number of shares to be issued to the executive officers is based on FCX’s total shareholder return compared to the total shareholder return of a peer group. The total grant date target shares related to the PSU grants were 755 thousand in 2015, and executive officers received no shares at maturity based on FCX’s total shareholder return compared to its peers. For the PSUs granted in 2017 and 2016, the final number of shares to be issued to the executive officers will be determined based on (i) FCX’s achievement of certain financial and operational performance metrics and (ii) FCX’s total shareholder return compared to the shareholder return of a peer group. The total grant date target shares related to the PSU grants were 0.6 million for 2017 and 1.5 million for 2016, of which the executive officers will earn (i) between 0 percent and 175 percent of the target shares based on achievement of financial and operating metrics and (ii) +/- 25 percent of the target shares based on FCX’s total shareholder return compared to the peer group.

All of FCX’s executive officers are retirement eligible, and their PSU awards are therefore non-forfeitable. As such, FCX charges the estimated fair value of the PSU awards to expense at the time the financial and operational metrics are established.

FCX grants RSUs that vest over a period of three years to certain employees. FCX also grants RSUs to its directors. Beginning in December 2015, RSUs granted to directors vest on the first anniversary of the grant. Prior to December 2015, RSUs granted to directors generally vest over a period of four years. The fair value of the RSUs is amortized over the vesting period or the period until the director becomes retirement eligible, whichever is shorter. Upon a director’s retirement, all of their unvested RSUs immediately vest. For retirement-eligible directors, the fair value of RSUs is recognized in earnings on the date of grant.

The award agreements provide for accelerated vesting of all RSUs held by directors if there is a change of control (as defined in the award agreements) and for accelerated vesting of all RSUs held by employees if they experience a qualifying termination within one year following a change of control.

Dividends attributable to RSUs and PSUs accrue and are paid if the award vests. A summary of outstanding stock-settled RSUs and PSUs as of December 31, 2017, and activity during the year ended December 31, 2017, follows:

	Number of Awards			Weighted-Average Grant-Date Fair Value Per Award				Aggregate Intrinsic Value
Balance at January 1	7,218,227			$	18.08
Granted	2,062,067		a	15.37
Vested	(3,175,437	)		15.45
Forfeited	(554,233	)		11.23
Balance at December 31	5,550,624			19.27				$	105

a. Excludes 374 thousand PSUs related to 2017 grants and 497 thousand PSUs related to 2016 grants for which the performance metrics have not yet been established.

The total fair value of stock-settled RSUs and PSUs granted was $32 million during 2017, $37 million during 2016 and $46 million during 2015. The total intrinsic value of stock-settled RSUs vested was $45 million during 2017, and $22 million during both 2016 and 2015. As of December 31, 2017, FCX had $6 million of total unrecognized compensation cost related to unvested stock-settled RSUs expected to be recognized over approximately 1.4 years.

Cash-Settled RSUs and PSUs. Cash-settled RSUs are similar to stock-settled RSUs, but are settled in cash rather than in shares of common stock. These cash-settled RSUs generally vest over periods ranging from three to five years of service. The award agreements for cash-settled RSUs provide for accelerated vesting upon certain qualifying terminations of employment within one year following a change of control (as defined in the award agreements).

In 2015, certain members of FM O&G’s senior management were granted cash-settled PSUs that vest over three years. The total grant date target shares related to the 2015 cash-settled PSU grants were 582 thousand shares, of which FM O&G’s senior management earned a total of 487 thousand shares at maturity based on the achievement of applicable performance goals.

The cash-settled PSUs and RSUs are classified as liability awards, and the fair value of these awards is remeasured each reporting period until the vesting dates.

Dividends attributable to cash-settled RSUs and PSUs accrue and are paid if the award vests. A summary of outstanding cash-settled RSUs and PSUs as of December 31, 2017, and activity during the year ended December 31, 2017, follows:

	Number of Awards			Weighted-Average Grant-Date Fair Value Per Award				Aggregate Intrinsic Value
Balance at January 1	2,531,744			$	19.30
Granted	622,907			15.26
Vested	(1,796,288	)		22.43
Forfeited	(51,128	)		12.96
Balance at December 31	1,307,235			13.32				$	25

The total grant-date fair value of cash-settled RSUs was $10 million during 2017, $4 million during 2016 and $44 million during 2015. The intrinsic value of cash-settled RSUs vested was $27 million during 2017 and $15 million during 2016. The accrued liability associated with cash-settled RSUs and PSUs consisted of a current portion of $11 million (included in accounts payable and accrued liabilities) and a long-term portion of $5 million (included in other liabilities) at December 31, 2017, and a current portion of $23 million and a long-term portion of $4 million at December 31, 2016.

Other Information. The following table includes amounts related to exercises of stock options and vesting of RSUs during the years ended December 31:

	2017				2016				2015
FCX shares tendered to pay the exercise price
and/or the minimum required taxesa	1,041,937				906,120				349,122
Cash received from stock option exercises	$	5			$	—		b	$	3
Actual tax benefit realized for tax deductions	$	1			$	—		b	$	11
Amounts FCX paid for employee taxes	$	15			$	6			$	7

a.	Under terms of the related plans, upon exercise of stock options and vesting of stock-settled RSUs, employees may tender FCX shares to pay the exercise price and/or the minimum required taxes.

b.	Rounds to less than $1 million.

NOTE 11. INCOME TAXES

Geographic sources of income (losses) before income taxes and equity in affiliated companies’ net earnings (losses) for the years ended December 31 consist of the following:

	2017				2016				2015
U.S.	$	20			$	(5,179	)		$	(14,589	)
Foreign	2,882			a	1,707				461
Total	$	2,902			$	(3,472	)		$	(14,128	)

a.	As a result of the unfavorable Peruvian Supreme Court ruling on the Cerro Verde royalty dispute, FCX incurred pre-tax charges of $348 million to income from continuing operations and $7 million of net tax expense for the year 2017. Refer to Note 12 for further discussion.

Income taxes are provided on the earnings of FCX’s material foreign subsidiaries under the assumption that these earnings will be distributed. FCX has not provided deferred income taxes for other differences between the book and tax carrying amounts of its investments in material foreign subsidiaries as FCX considers its ownership positions to be permanent in duration, and quantification of the related deferred tax liability is not practicable.

FCX’s (provision for) benefit from income taxes for the years ended December 31 consist of the following:

	2017				2016				2015
Current income taxes:
Federal	$	(3	)		$	164			$	89
State	(10		)		17				2
Foreign	(1,426		)		(352		)		(160		)
Total current	(1,439		)		(171		)		(69		)
Deferred income taxes:
Federal	64				137				3,403
State	10				41				154
Foreign	89				(451		)		(163		)
Total deferred	163				(273		)		3,394
Adjustments	393			a	13			b	(1,374		)	c
Operating loss carryforwards	—				60				—
(Provision for) benefit from income taxes	$	(883	)		$	(371	)		$	1,951

a.	Reflects provisional tax credits associated with the Tax Cuts and Jobs Act (the Act), including reversal of valuation allowances associated with anticipated refunds of alternative minimum tax (AMT) credits ($272 million, net of reserves) and a decrease in corporate income tax rates ($121 million). Refer to “Tax Reform” below for further discussion.

b.	Benefit related to changes in Peruvian tax rules.

c.	Adjustments include net provisions of $1.2 billion associated with an increase in the beginning of the year valuation allowance related to the impairment of U.S. oil and gas properties and $0.2 billion resulting from the termination of PT-FI’s Delaware domestication.

A reconciliation of the U.S. federal statutory tax rate to FCX’s effective income tax rate for the years ended December 31 follows:

	2017							2016							2015
	Amount				Percent			Amount				Percent			Amount				Percent
U.S. federal statutory tax rate	$	(1,016	)		(35	)%		$	1,215			(35	)%		$	4,945			(35	)%
Valuation allowance, net	28			a	1			(1,680		)	b	48			(2,955		)	b	21
Foreign tax credit limitation	(159		)		(5	)		(598		)		17			(228		)		2
Tax reform	393				14			—				—			—				—
Mining royalty dispute	(129		)		(5	)		—				—			—				—
Impairment of oil and gas properties	—				—			520			c	(15	)		—				—
Percentage depletion	227				8			211				(6	)		186				(1	)
Withholding and other impacts on
foreign earnings	(216		)		(7	)		(93		)		3			(193		)		1
Effect of foreign rates different than the U.S.
federal statutory rate	17				1			45				(1	)		12				—
State income taxes	(5		)		(1	)		46			b	(1	)		105			b	(1	)
Other items, net	(23		)		(1	)		(37		)		1			79				(1	)
(Provision for) benefit from income taxes	$	(883	)	d	(30	)%		$	(371	)	e	11	%		$	1,951			(14	)%

a.	Refer to “Valuation Allowance” below for further discussion of current year changes.

b.	Includes tax charges totaling $1.6 billion in 2016 and $3.3 billion in 2015 as a result of the impairment to U.S. oil and gas properties to establish valuation allowances against U.S. federal and state deferred tax assets that will not generate a future benefit.

c.	Reflects a loss under U.S. federal income tax law related to the impairment of investments in oil and gas properties.

d.

Includes net charges of $7 million associated with the Cerro Verde mining royalties dispute, consisting of tax charges of $136 million for disputed royalties and other related mining taxes for the period October 2011 through the year 2013 (when royalties were determined based on operating income), mostly offset by a tax benefit of $129 million associated with disputed royalties and other related mining taxes for the period December 2006 through the year 2013. Refer to Note 12 for further discussion.

e.	Includes a net tax benefit related to changes in Peruvian tax rules of $13 million.

FCX paid federal, state and foreign income taxes totaling $702 million in 2017, $203 million in 2016 (including $27 million for discontinued operations) and $893 million in 2015 (including $187 million for discontinued operations). FCX received refunds of federal, state and foreign income taxes of $329 million in 2017, $247 million in 2016 and $334 million in 2015.

The components of deferred taxes follow:

	December 31,
	2017				2016
Deferred tax assets:
Foreign tax credits	$	2,129			$	2,094
Accrued expenses	789				923
Oil and gas properties	236				346
AMT credits	—				444
Net operating losses	2,043				2,898
Employee benefit plans	248				403
Other	259				485
Deferred tax assets	5,704				7,593
Valuation allowances	(4,575		)		(6,058		)
Net deferred tax assets	1,129				1,535
Deferred tax liabilities:
Property, plant, equipment and mine development costs	(3,710		)		(4,326		)
Undistributed earnings	(811		)		(779		)
Other	(226		)		(195		)
Total deferred tax liabilities	(4,747		)		(5,300		)
Net deferred tax liabilities	$	(3,618	)		$	(3,765	)

Tax Attributes. At December 31, 2017, FCX had (i) U.S. foreign tax credits of $2.1 billion that will expire between 2018 and 2027, (ii) U.S. federal net operating losses of $6.4 billion that expire between 2032 and 2036, (iii) U.S. federal capital losses of $160 million that expire in 2021 and 2022, (iv) U.S. state net operating losses of $10.6 billion that expire between 2018 and 2037 and (v) Spanish net operating losses of $566 million that can be carried forward indefinitely.

Valuation Allowance. On the basis of available information at December 31, 2017, including positive and negative evidence, FCX has provided valuation allowances for certain of its deferred tax assets where it believes it is more likely than not that some portion or all of such assets will not be realized. Valuation allowances totaled $4.6 billion at December 31, 2017, and $6.1 billion at December 31, 2016, and covered all of FCX’s U.S. foreign tax credits, U.S. federal net operating losses, U.S. federal capital losses, foreign net operating losses, and substantially all of its U.S. state net operating losses. FCX’s valuation allowances at December 31, 2016, also covered substantially all of its U.S. AMT credits.

The valuation allowance related to FCX’s U.S. foreign tax credits totaled $2.1 billion at December 31, 2017. FCX has operations in tax jurisdictions where statutory income taxes and withholding taxes are in excess of the U.S. federal income tax rate. Valuation allowances are recorded on foreign tax credits for which no benefit is expected to be realized.

The valuation allowance related to FCX’s U.S. federal, state and foreign net operating losses totaled $2.1 billion at December 31, 2017, including $280 million related to FCX’s U.S. federal and state deferred tax assets. Deferred tax assets represent future deductions for which a benefit will only be realized to the extent these deductions offset future income. FCX develops an estimate of which future tax deductions will be realized and provides a valuation allowance to the extent these deductions are not expected to be realized in future periods.

Valuation allowances will continue to be carried on U.S. foreign tax credits and U.S. federal, state and foreign net operating losses until such time that (i) FCX generates taxable income against which any of the assets, credits or net operating losses can be used, (ii) forecasts of future income provide sufficient positive evidence to support reversal of the valuation allowances or (iii) FCX identifies a prudent and feasible means of securing the benefit of the assets, credits or net operating losses that can be implemented.

The $1.5 billion net decrease in the valuation allowances during 2017 primarily related to a $1.1 billion decrease associated with a reduction in the corporate income tax rate applicable to U.S. federal deferred tax assets (refer to “Tax Reform” below for further discussion) and $371 million for the reversal of valuation allowances on U.S. federal

AMT credits. FCX will continue to assess whether its valuation allowances are effected by various aspects of the Act.

Tax Reform. The Act, which was enacted on December 22, 2017, includes significant modifications to existing U.S. tax laws and creates many new complex tax provisions. The Act reduces the corporate income tax rate to 21 percent, eliminates the corporate AMT, provides for a refund of AMT credits, maintains hard minerals percentage depletion, allows for immediate expensing of certain qualified property and generally broadens the tax base. The Act also creates a territorial tax system (with a one-time mandatory tax on previously deferred foreign earnings), creates anti-base erosion rules that require companies to pay a minimum tax on foreign earnings and disallows certain payments from U.S. corporations to foreign related parties.

As further described below, FCX has made reasonable estimates of the tax effects related to its existing deferred tax balances, AMT credit refunds and the transition tax. While FCX has not completed its analysis, its 2017 income tax provision includes provisional net tax benefits associated with the Act totaling $393 million, which includes $272 million (net of reserves) for the reversal of valuation allowances associated with anticipated refunds of AMT credits and $121 million for the decrease in corporate income tax rates. For certain provisions of the Act, FCX has not been able to make a reasonable estimate. For these items, FCX’s accounting continues to be based on existing income tax accounting guidance and the provisions of the tax laws that were in effect immediately prior to enactment of the Act. FCX will continue to refine its calculations as it gains a more thorough understanding of the Act.

Elimination of Corporate AMT and Refund of AMT Credits. For tax years beginning after December 31, 2017, the corporate AMT was repealed. FCX has historically incurred an AMT liability in excess of regular tax liability, resulting in accumulated AMT credits totaling $490 million as of December 31, 2017. The Act allows the use of existing corporate AMT credits to offset regular tax liability for tax years after December 31, 2017. AMT credits in excess of regular liability are refundable in the years 2018 through 2021.

At December 31, 2016, FCX had estimated a $72 million benefit for AMT credits, and during 2017 recognized a $38 million benefit, all of which was expected to be refunded under prior tax law. As a result of the Act, FCX recognized an additional net benefit of $272 million in 2017, consisting of a $380 million tax benefit for additional historical AMT credits expected to be refunded, partially offset by a $108 million tax charge to establish a reserve for uncertain tax positions. FCX will continue to refine these provisional amounts as historical data is gathered and analyzed.

Reduction in Corporate Income Tax Rate. The Act reduces the U.S. federal corporate income tax rate from 35 percent to 21 percent. While applicable for years after December 31, 2017, existing income tax accounting guidance requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. In fourth-quarter 2017, FCX recognized this change in the federal statutory rate and recorded a net benefit of $121 million, consisting of a $1.1 billion tax benefit associated with changes in related valuation allowances, partly offset by a $975 million tax charge related to existing net U.S. federal deferred tax assets and liabilities. FCX will continue to refine these provisional amounts as further analysis of the laws’ impacts are completed, including effects on U.S. state income taxes and the realizability of deferred tax assets in future years.

Transition Tax on Previously Deferred Foreign Earnings. Under the Act, U.S. shareholders owning at least 10 percent of a foreign subsidiary generally must recognize taxable income equal to the shareholder’s pro rata share of accumulated post-1986 historical Earnings and Profits (E&P). The portion of any E&P associated with cash or cash equivalents is taxed at a rate of 15.5 percent, while any remaining E&P is taxed at a reduced rate of 8 percent. The resulting tax liability (Transition Tax) may be reduced by available foreign tax credits. Because FCX operates in foreign jurisdictions with statutory tax rates in excess of the U.S. historical statutory tax rate of 35 percent, the Transition Tax is fully offset by foreign tax credits generated in the current year. Although its 2017 income tax provision was not impacted by this one-time Transition Tax liability, FCX has yet to complete its final calculation of the total accumulated post-1986 E&P. As a result, FCX’s estimate of Transition Tax may change when the underlying calculations are finalized.

Anti-Base Erosion Rules. For tax years that begin after December 31, 2017, applicable taxpayers are required to pay the Base Erosion Anti-Abuse Tax (BEAT). BEAT is an alternative tax calculation that disallows deduction of certain amounts paid or accrued by a U.S. taxpayer to a foreign related party. The new BEAT rules are complex and FCX is evaluating this provision in the context of its global structure and operations and existing tax accounting guidance. Based on FCX’s current evaluations, it is unclear if BEAT will impact FCX and no adjustments were made related to BEAT in its 2017 income tax provision.

The Act also includes provisions to tax a new class of income called Global Intangible Low-Taxed Income (GILTI). Because of the complexity of the new GILTI tax rules, FCX is continuing to evaluate this provision of the Act and the application of existing income tax accounting guidance. Under U.S. generally accepted accounting principles, FCX is allowed to make an accounting policy choice of either (i) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred or (ii) factoring such amounts into the measurement of deferred taxes. FCX has not made a policy decision regarding whether to record deferred taxes on GILTI, and the selection of an accounting policy will depend, in part, on analyzing its global income to determine whether FCX expects to have future U.S. inclusions and, if so, what impact is expected. No adjustments were made related to potential GILTI tax in FCX’s 2017 income tax provision.

Executive Compensation Limitation. For tax years beginning after December 31, 2017, tax deductible compensation of covered employees is limited to $1 million. In addition, the definition of covered employees is revised to include the principal executive officer, the principal financial officer, and the three other highest paid officers. If an individual is a covered employee for a tax year beginning after December 31, 2016, the individual remains a covered employee for all future years. Under a transition rule, the changes do not apply to any remuneration under specified contracts in effect on November 2, 2017. FCX is continuing to analyze the impacts of this provision. No adjustments were made related to the future disallowance of executive compensation in FCX’s 2017 income tax provision.

Other. As of December 31, 2017, FCX has offset $5.3 billion of foreign source income with U.S. source losses. Under existing U.S. tax law, FCX has the ability to re-characterize $5.3 billion of future U.S. source income into foreign source income. While utilization of U.S. foreign tax credits is dependent upon FCX generating future U.S. tax liabilities within the carryforward period, this re-sourcing may permit FCX to utilize up to $1.1 billion of the $2.1 billion foreign tax credits that would otherwise expire unused. FCX continues to evaluate the impact of the Act on these income re-sourcing provisions.

Other Events. In October 2017, the Peruvian Supreme Court issued a ruling in favor of SUNAT, Peru’s national tax authority, that the assessments of royalties for the year 2008 on ore processed by the Cerro Verde concentrator were proper under Peruvian law. SUNAT has assessed mining royalties on ore processed by the Cerro Verde concentrator for the period December 2006 to December 2011, which Cerro Verde has contested on the basis that its 1998 stability agreement exempts from royalties all minerals extracted from its mining concessions, irrespective of the method used for processing those minerals. As a result of the unfavorable Peruvian Supreme Court decision, FCX incurred pre-tax charges of $348 million and $7 million of net income tax expense for the year 2017, consisting of tax charges of $136 million for disputed royalties and other related mining taxes for the period October 2011 through the year 2013 (when royalties were determined based on operating income), mostly offset by a tax benefit of $129 million associated with disputed royalties and other related mining taxes for the period December 2006 through the year 2013. Refer to Note 12 for further discussion.

In December 2016, the Peruvian parliament passed tax legislation that, in part, modified the applicable tax rates established in its December 2014 tax legislation, which progressively decreased the corporate income tax rate from 30 percent in 2014 to 26 percent in 2019 and thereafter, and also increased the dividend tax rate on distributions from 4.1 percent in 2014 to 9.3 percent in 2019 and thereafter. Under the tax legislation, which was effective January 1, 2017, the corporate income tax rate was 29.5 percent, and the dividend tax rate on distributions of earnings was 5 percent. Cerro Verde’s current mining stability agreement subjects FCX to a stable income tax rate of 32 percent through the expiration of the agreement on December 31, 2028. The tax rate on dividend distributions is not stabilized by the agreement.

During 2015, PT-FI’s Delaware domestication was terminated. As a result, PT-FI is no longer a U.S. income tax filer, and tax attributes related to PT-FI, which were fully reserved with a related valuation allowance, are no longer available for use in FCX’s U.S. federal consolidated income tax return. There was no resulting net impact to FCX’s consolidated statement of operations. PT-FI remains a limited liability company organized under Indonesian law.

In September 2014, the Chilean legislature approved a tax reform package that implemented a dual tax system, which was amended in January 2016. Under previous rules, FCX’s share of income from Chilean operations was subject to an effective 35 percent tax rate allocated between income taxes and dividend withholding taxes. Under the amended tax reform package, FCX’s Chilean operation is subject to the “Partially-Integrated System,” resulting in FCX’s share of income from El Abra being subject to progressively increasing effective tax rates of 35 percent through 2019 and 44.5 percent in 2020 and thereafter. In November 2017, the progression of increasing tax rates was delayed by the Chilean legislature so that the 35 percent rate continues through 2021 increasing to 44.5 percent in 2022 and thereafter.

In 2010, the Chilean legislature approved an increase in mining royalty taxes to help fund earthquake reconstruction activities, education and health programs. Mining royalty taxes at FCX’s El Abra mine were 4 percent for the years 2013 through 2017. Beginning in 2018 and through 2023, rates move to a sliding scale of 5 to 14 percent (depending on a defined operational margin).

Uncertain Tax Positions. FCX accounts for uncertain income tax positions using a threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FCX’s policy associated with uncertain tax positions is to record accrued interest in interest expense and accrued penalties in other income and expense rather than in the provision for income taxes. A summary of the activities associated with FCX’s reserve for unrecognized tax benefits for the years ended December 31 follows:

	2017				2016				2015
Balance at beginning of year	$	101			$	110			$	104
Additions:
Prior year tax positions	302				5				7
Current year tax positions	6				28				11
Decreases:
Prior year tax positions	(1		)		(3		)		(6		)
Settlements with taxing authorities	(17		)		—				—
Lapse of statute of limitations	(1		)		(39		)		(6		)
Balance at end of year	$	390			$	101			$	110

The total amount of accrued interest and penalties associated with unrecognized tax benefits included in the consolidated balance sheets was $22 million at December 31, 2017, $19 million at December 31, 2016, and $16 million at December 31, 2015.

The reserve for unrecognized tax benefits of $390 million at December 31, 2017, included $344 million ($272 million net of income tax benefits and valuation allowances) that, if recognized, would reduce FCX’s provision for income taxes. Changes to the reserve for unrecognized tax benefits associated with current year tax positions were primarily related to uncertainties associated with FCX’s tax treatment of social welfare payments. Changes in the reserve for unrecognized tax benefits associated with prior year tax positions were primarily related to uncertainties associated with royalties and other related mining taxes and AMT credit refunds. Changes to the reserve for unrecognized tax benefits associated with the lapse of statute of limitations were primarily related to social welfare payments. There continues to be uncertainty related to the timing of settlements with taxing authorities, but if additional settlements are agreed upon during 2018, FCX could experience a change in its reserve for unrecognized tax benefits.

FCX or its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The tax years for FCX’s major tax jurisdictions that remain subject to examination are as follows:

Jurisdiction		Years Subject to Examination		Additional Open Years
U.S. Federal		N/A		2014-2017
Indonesia		2008, 2011-2016		2017
Peru		2012		2013-2017
Chile		2015-2016		2017

NOTE 12. CONTINGENCIES

Environmental. FCX subsidiaries are subject to various national, state and local environmental laws and regulations that govern emissions of air pollutants; discharges of water pollutants; generation, handling, storage and disposal of hazardous substances, hazardous wastes and other toxic materials; and remediation, restoration and reclamation of environmental contamination. FCX subsidiaries that operate in the U.S. also are subject to potential liabilities arising under CERCLA and similar state laws that impose responsibility on current and previous owners and operators of a facility for the remediation of hazardous substances released from the facility into the environment, including damages to natural resources, in some cases irrespective of when the damage to the environment occurred or who caused it. Remediation liability also extends to persons who arranged for the disposal of hazardous substances or transported the hazardous substances to a disposal site selected by the transporter. These liabilities are often shared on a joint and several basis, meaning that each responsible party is fully responsible for the remediation, if some or all of the other historical owners or operators no longer exist, do not have the financial ability to respond or cannot be found. As a result, because of FCX’s acquisition of FMC in 2007, many of the subsidiary companies FCX now owns are responsible for a wide variety of environmental remediation projects throughout the U.S., and FCX expects to spend substantial sums annually for many years to address those remediation issues. Certain FCX subsidiaries have been advised by the U.S. Environmental Protection Agency (EPA), the Department of the Interior, the Department of Agriculture and various state agencies that, under CERCLA or similar state laws and regulations, they may be liable for costs of responding to environmental conditions at a number of sites that have been or are being investigated to determine whether releases of hazardous substances have occurred and, if so, to develop and implement remedial actions to address environmental concerns. FCX is also subject to claims where the release of hazardous substances is alleged to have damaged natural resources (NRD) and to litigation by individuals allegedly exposed to hazardous substances. As of December 31, 2017, FCX had more than 100 active remediation projects, including NRD claims, in 26 U.S. states.

A summary of changes in estimated environmental obligations for the years ended December 31 follows:

	2017				2016				2015
Balance at beginning of year	$	1,221			$	1,215			$	1,174
Accretion expensea	84				81				78
Additions	241				26				33
Reductionsb	(43		)		(43		)		(3		)
Spending	(64		)		(58		)		(67		)
Balance at end of year	1,439				1,221				1,215
Less current portion	(134		)		(129		)		(100		)
Long-term portion	$	1,305			$	1,092			$	1,115

a.	Represents accretion of the fair value of environmental obligations assumed in the 2007 acquisition of FMC, which were determined on a discounted cash flow basis.

b.	Reductions primarily reflect revisions for changes in the anticipated scope and timing of projects and other noncash adjustments.

Estimated future environmental cash payments (on an undiscounted and unescalated basis) total $134 million in 2018, $132 million in 2019, $117 million in 2020, $119 million in 2021, $88 million in 2022 and $2.7 billion thereafter. The amount and timing of these estimated payments will change as a result of changes in regulatory requirements, changes in scope and timing of remediation activities, the settlement of environmental matters and as actual spending occurs.

At December 31, 2017, FCX’s environmental obligations totaled $1.4 billion, including $1.3 billion recorded on a discounted basis for those obligations assumed in the FMC acquisition at fair value. On an undiscounted and unescalated basis, these obligations totaled $3.3 billion. FCX estimates it is reasonably possible that these obligations could range between $2.8 billion and $3.7 billion on an undiscounted and unescalated basis.

At December 31, 2017, the most significant environmental obligations were associated with the Pinal Creek site in Arizona; the Newtown Creek site in New York City; historical smelter sites principally located in Arizona, Indiana, Kansas, Missouri, New Jersey, Oklahoma and Pennsylvania; and uranium mining sites in the western U.S. The recorded environmental obligations for these sites totaled $1.3 billion at December 31, 2017. FCX may also be subject to litigation brought by private parties, regulators and local governmental authorities related to these historical sites. A discussion of these sites follows.

Pinal Creek. The Pinal Creek site was listed under the Arizona Department of Environmental Quality’s (ADEQ) Water Quality Assurance Revolving Fund program in 1989 for contamination in the shallow alluvial aquifers within the Pinal Creek drainage near Miami, Arizona. Since that time, environmental remediation was performed by members of the Pinal Creek Group, consisting of FM Miami, Inc. (Miami), a wholly owned subsidiary of FCX, and two other companies. Pursuant to a 2010 settlement agreement, Miami agreed to take full responsibility for future groundwater remediation at the Pinal Creek site, with limited exceptions. Remediation work mainly consisting of groundwater extraction and treatment continues and is expected to continue for many years in the future.

Newtown Creek. From the 1930s until 1964, Phelps Dodge Refining Corporation (PDRC), a subsidiary of FCX, operated a copper smelter, and from the 1930s until 1984 operated a copper refinery, on the banks of Newtown Creek (the creek), which is a 3.5-mile-long waterway that forms part of the boundary between Brooklyn and Queens in New York City. Heavy industrialization along the banks of the creek and discharges from the City of New York’s sewer system over more than a century resulted in significant environmental contamination of the waterway. In 2010, EPA notified PDRC, four other companies and the City of New York that EPA considers them to be PRPs under CERCLA. The notified parties began working with EPA to identify other PRPs, and EPA proposed that the notified parties perform a remedial investigation/feasibility study (RI/FS) at their expense and reimburse EPA for its oversight costs. EPA is not expected to propose a remedy until after the RI/FS is completed. Additionally, in 2010, EPA designated the creek as a Superfund site, and in 2011, PDRC and five other parties entered an Administrative Order on Consent (AOC) to perform the RI/FS to assess the nature and extent of environmental contamination in the creek and identify potential remedial options. The parties’ RI/FS work under the AOC and their efforts to identify other PRPs are ongoing. EPA recently identified eight additional parties as PRPs for the creek. The draft RI was submitted to EPA in November 2016, and the draft FS is expected to be submitted to EPA by the end of 2020. EPA’s remedial decision could be made in 2021 and remedial design could begin in 2022, with the actual remediation construction starting several years later. The actual costs of fulfilling this remedial obligation and the allocation of costs among PRPs are uncertain and subject to change based on the results of the RI/FS, the remediation remedy ultimately selected by EPA and related allocation determinations. The overall cost and the portion ultimately allocated to PDRC could be material to FCX. During 2017, FCX recorded charges of $138 million for revised cost estimates for the Newtown Creek environmental obligation.

Historical Smelter Sites. FCX subsidiaries and their predecessors at various times owned or operated copper, zinc and lead smelters or refineries in states including Arizona, Indiana, Kansas, Missouri, New Jersey, Oklahoma and Pennsylvania. For some of these former processing sites, certain FCX subsidiaries have been advised by EPA or state agencies that they may be liable for costs of investigating and, if appropriate, remediating environmental conditions associated with these former processing facilities. At other sites, certain FCX subsidiaries have entered into state voluntary remediation programs to investigate and, if appropriate, remediate onsite and offsite conditions associated with the facilities. The historical processing sites are in various stages of assessment and remediation. At some of these sites, disputes with local residents and elected officials regarding alleged health effects or the effectiveness of remediation efforts have resulted in litigation of various types, and similar litigation at other sites is possible.

From 1920 until 1986, United States Metal Refining Company (USMR), an indirect wholly owned subsidiary of Cyprus Amax Minerals Company, owned and operated a copper smelter and refinery in the Borough of Carteret, New Jersey. Since the early 1980s, the site has been the subject of environmental investigation and remediation, primarily under the supervision of the New Jersey Department of Environmental Protection. On January 30, 2017, a class action titled Juan Duarte, Betsy Duarte and N.D., Infant, by Parents and Natural Guardians Juan Duarte and Betsy Duarte, Leroy Nobles and Betty Nobles, on behalf of themselves and all others similarly situated v. United States Metals Refining Company, Freeport-McMoRan Copper & Gold Inc. and Amax Realty Development, Inc., Docket No. 734-17, was filed in the Superior Court of New Jersey against USMR, FCX, and Amax Realty Development, Inc. The defendants have removed this litigation to the U.S. District Court for the District of New Jersey, where it remains pending. Pursuant to an amendment of the complaint in December of 2017, FCX is no longer a party to the lawsuit and FMC has been added to the lawsuit. The suit alleges that USMR generated and disposed of smelter waste at the site and allegedly released contaminants onsite and offsite through discharges to surface water and air emissions over a period of decades and seeks unspecified damages for economic losses, including loss of property value, medical monitoring, punitive damages and other damages. FCX intends to vigorously defend this matter.

As a result of recent off-site soil sampling in public and private areas near the former Carteret smelter, FCX increased its associated environmental obligation for known and potential off-site environmental remediation by

recording a $59 million charge to operating income in 2017. Additional sampling is ongoing and could result in additional adjustments to the related environmental remediation obligation.

Uranium Mining Sites. During a period between 1940 and the early 1970s, certain FCX subsidiaries and their predecessors were involved in uranium exploration and mining in the western U.S., primarily on federal and tribal lands in the Four Corners region of the southwest. Similar exploration and mining activities by other companies have also caused environmental impacts warranting remediation. In January 2017, the Department of Justice, EPA, Navajo Nation, and two FCX-related subsidiaries reached an agreement regarding the financial contribution of the U.S. Government and the FCX subsidiaries and the scope of the environmental investigation and remediation work for the cleanup of 94 former uranium mining sites on tribal lands. The settlement terms are outlined in a Consent Decree that was filed on January 17, 2017, in the U.S. District Court for the District of Arizona. Under the Consent Decree, which the government valued at over $600 million, FCX subsidiaries are in the process of performing the environmental investigation and remediation work at 94 sites, and the United States contributed $335 million into a trust fund to cover the government’s initial share of the costs. The program is expected to take more than 20 years to complete. Based on updated cash flow and timing estimates, FCX reduced its associated obligation for that contingency by recording a $41 million credit to operating income in second-quarter 2017 after receiving court approval of the Consent Decree. In addition to uranium activities on tribal lands, FCX is conducting site surveys of historical uranium mining claims associated with FCX subsidiaries on non-tribal federal lands in the Four Corners region. Under a memorandum of understanding with the U.S. Bureau of Land Management (BLM), site surveys are being performed on over 5,000 mining claims, ranging from undisturbed claims to claims with mining features. Based on these surveys, BLM may provide no further action determinations for undisturbed claims or requests for additional assessment or closure activities for others.

AROs. FCX’s ARO estimates are reflected on a third-party cost basis and are based on FCX’s legal obligation to retire tangible, long-lived assets. A summary of changes in FCX’s AROs for the years ended December 31 follows:

	2017				2016				2015
Balance at beginning of year	$	2,635			$	2,771			$	2,744
Liabilities incurred	14				12				97
Settlements and revisions to cash flow estimates, net	(112		)		529			a	(69		)
Accretion expense	124				137				131
Dispositions	(10		)		(626		)	b	—
Spending	(71		)		(188		)		(132		)
Balance at end of year	2,580				2,635				2,771
Less current portion	(254		)		(240		)		(172		)
Long-term portion	$	2,326			$	2,395			$	2,599

a.	Revisions to cash flow estimates were primarily related to revised estimates for an overburden stockpile in Indonesia and at certain oil and gas properties.

b.	Primarily reflects the sale of certain oil and gas properties.

ARO costs may increase or decrease significantly in the future as a result of changes in regulations, changes in engineering designs and technology, permit modifications or updates, changes in mine plans, settlements, inflation or other factors and as reclamation spending occurs. ARO activities and expenditures for mining operations generally are made over an extended period of time commencing near the end of the mine life; however, certain reclamation activities may be accelerated if legally required or if determined to be economically beneficial. The methods used or required to plug and abandon non-producing oil and gas wellbores; remove platforms, tanks, production equipment and flow lines; and restore wellsites could change over time.

Financial Assurance. New Mexico, Arizona, Colorado and other states, as well as federal regulations governing mine operations on federal land, require financial assurance to be provided for the estimated costs of mine reclamation and closure, including groundwater quality protection programs. FCX has satisfied financial assurance requirements by using a variety of mechanisms, primarily involving parent company performance guarantees and financial capability demonstrations, but also including trust funds, surety bonds, letters of credit and other collateral. The applicable regulations specify financial strength tests that are designed to confirm a company’s or guarantor’s financial capability to fund estimated reclamation and closure costs. The amount of financial assurance FCX is required to provide will vary with changes in laws, regulations, reclamation and closure requirements, and cost estimates. At December 31, 2017, FCX’s financial assurance obligations associated with these U.S. mine closure and reclamation/restoration costs totaled $1.2 billion, of which $703 million was in the form of guarantees issued by FCX and FMC. At December 31, 2017, FCX had trust assets totaling $180 million (included in other assets), which

are legally restricted to be used to satisfy its financial assurance obligations for its mining properties in New Mexico. In addition, FCX has financial assurance obligations for its oil and gas properties associated with plugging and abandoning wells and facilities totaling $614 million. Where oil and gas guarantees associated with the Bureau of Ocean Energy Management do not include a stated cap, the amounts reflect management’s estimates of the potential exposure.

New Mexico Environmental and Reclamation Programs. FCX’s New Mexico operations are regulated under the New Mexico Water Quality Act and regulations adopted by the Water Quality Control Commission (WQCC). In connection with discharge permits, the New Mexico Environment Department (NMED) has required each of these operations to submit closure plans for NMED’s approval. The closure plans must include measures to assure meeting applicable groundwater quality standards following the closure of discharging facilities and to abate groundwater or surface water contamination to meet applicable standards. In 2013, the WQCC adopted Supplemental Permitting Requirements for Copper Mining Facilities, which became effective on December 1, 2013, and specify closure requirements for copper mine facilities. The rules were adopted after an extensive stakeholder process in which FCX participated and were jointly supported by FCX and NMED. The rules are currently being challenged in the New Mexico Supreme Court by certain environmental organizations and the New Mexico Attorney General. Finalized closure plan requirements, including those resulting from application of the 2013 rules or the application of different standards if the rules are invalidated by the New Mexico Supreme Court, could result in material increases in closure costs for FCX’s New Mexico operations.

FCX’s New Mexico operations also are subject to regulation under the 1993 New Mexico Mining Act (the Mining Act) and the related rules that are administered by the Mining and Minerals Division (MMD) of the New Mexico Energy, Minerals and Natural Resources Department. Under the Mining Act, mines are required to obtain approval of plans describing the reclamation to be performed following cessation of mining operations. At December 31, 2017, FCX had accrued reclamation and closure costs of $453 million for its New Mexico operations. As stated above, additional accruals may be required based on the state’s periodic review of FCX’s updated closure plans and any resulting permit conditions, and the amount of those accruals could be material.

Arizona Environmental and Reclamation Programs. FCX’s Arizona properties are subject to regulatory oversight in several areas. ADEQ has adopted regulations for its aquifer protection permit (APP) program that require permits for, among other things, certain facilities, activities and structures used for mining, leaching, concentrating and smelting, and require compliance with aquifer water quality standards at an applicable point of compliance well or location during both operations and closure. The APP program also may require mitigation and discharge reduction or elimination of some discharges.

An application for an APP requires a proposed closure strategy that will meet applicable groundwater protection requirements following cessation of operations and an estimate of the cost to implement the closure strategy. An APP may specify closure requirements, which may include post-closure monitoring and maintenance. A more detailed closure plan must be submitted within 90 days after a permitted entity notifies ADEQ of its intent to cease operations. A permit applicant must demonstrate its financial ability to meet the closure costs approved by ADEQ. In 2014, the state enacted legislation requiring closure costs for facilities covered by APPs to be updated no more frequently than every five years and financial assurance mechanisms to be updated no more frequently than every two years. While some closure cost updates have occurred in the normal course as modifications to APPs, ADEQ has not yet formally notified FCX regarding the timetable for updating other closure cost estimates and financial assurance mechanisms for FCX’s Arizona mine sites. In 2016, ADEQ approved a closure plan update for Sierrita, which resulted in increased closure costs. FCX may be required to begin updating its closure cost estimates at other Arizona sites in 2018.

Portions of Arizona mining facilities that operated after January 1, 1986, also are subject to the Arizona Mined Land Reclamation Act (AMLRA). AMLRA requires reclamation to achieve stability and safety consistent with post-mining land use objectives specified in a reclamation plan. Reclamation plans must be approved by the State Mine Inspector and must include an estimate of the cost to perform the reclamation measures specified in the plan along with financial assurance. During 2016, Safford submitted an update to its reclamation plan, which increased its reclamation costs. FCX will continue to evaluate options for future reclamation and closure activities at its operating and non-operating sites, which are likely to result in adjustments to FCX’s ARO liabilities, and those adjustments could be material. At December 31, 2017, FCX had accrued reclamation and closure costs of $346 million for its Arizona operations.

Colorado Reclamation Programs. FCX’s Colorado operations are regulated by the Colorado Mined Land Reclamation Act (Reclamation Act) and regulations promulgated thereunder. Under the Reclamation Act, mines are required to obtain approval of plans for reclamation of lands affected by mining operations to be performed during mining or upon cessation of mining operations. During 2016, at the request of the Colorado Division of Reclamation Mining & Safety, the Climax mine submitted a revised cost estimate for its current reclamation plan, which did not materially change the closure plan cost. As of December 31, 2017, FCX had accrued reclamation and closure costs of $56 million for its Colorado operations.

Chilean Reclamation and Closure Programs. In July 2011, the Chilean senate passed legislation regulating mine closure, which established new requirements for closure plans. FCX’s El Abra operation submitted updated closure cost estimates based on the existing approved closure plan in November 2014, which were approved in August 2015. At December 31, 2017, FCX had accrued reclamation and closure costs of $58 million for its El Abra operation.

Peruvian Reclamation and Closure Programs. Cerro Verde is subject to regulation under the Mine Closure Law administered by the Peruvian Ministry of Energy and Mines. Under the closure regulations, mines must submit a closure plan that includes the reclamation methods, closure cost estimates, methods of control and verification, closure and post-closure plans, and financial assurance. The latest closure plan and cost estimate for the Cerro Verde mine expansion were submitted to the Peruvian regulatory authorities in November 2013 and approved in August 2014. At December 31, 2017, Cerro Verde had accrued reclamation and closure costs of $108 million.

Indonesian Reclamation and Closure Programs. The ultimate amount of reclamation and closure costs to be incurred at PT-FI’s operations will be determined based on applicable laws and regulations and PT-FI’s assessment of appropriate remedial activities in the circumstances, after consultation with governmental authorities, affected local residents and other affected parties and cannot currently be projected with precision. Some reclamation costs will be incurred during mining activities, while the remaining reclamation costs will be incurred at the end of mining activities, which are currently estimated to continue for approximately 24 years. At the end of 2016, PT-FI revised its estimates for an overburden stockpile to address ongoing erosion that occurred during 2016, a design change that increased the volume and updated cost estimates reflecting more recent productivity and costs at the overburden stockpile, which resulted in an increase in the ARO of $372 million. At December 31, 2017, PT-FI had accrued reclamation and closure costs of $977 million.

In December 2009, PT-FI submitted its revised mine closure plan to the Department of Energy and Mineral Resources for review and addressed comments received during the course of this review process. In December 2010, the Indonesian government issued a regulation regarding mine reclamation and closure, which requires a company to provide a mine closure guarantee in the form of a time deposit placed in a state-owned bank in Indonesia. In accordance with its COW, PT-FI continues to work with the Department of Energy and Mineral Resources to review the application of these requirements, including discussion of other options for satisfaction of the mine closure guarantee. During 2017, PT-FI funded $22 million into a restricted time deposit account for mine closure guarantees and $7 million for reclamation guarantees.

In October 2017, Indonesia’s Ministry of Environment and Forestry (the Ministry) notified PT-FI of administrative sanctions related to certain activities the Ministry indicated are not reflected in its environmental permit. The Ministry also notified PT-FI that certain operational activities were inconsistent with factors set forth in its environmental permitting studies and that additional monitoring and improvements need to be undertaken related to air quality, water drainage, treatment and handling of certain wastes, and tailings management. PT-FI has been engaged in a process to update its permits through submissions and dialogue with the Ministry, which began in late 2014. PT-FI believes that it has submitted the required documentation to update its permits and is in the process of addressing other points raised by the Ministry.

Oil and Gas Properties. Substantially all of FM O&G’s oil and gas leases require that, upon termination of economic production, the working interest owners plug and abandon non-producing wellbores, remove equipment and facilities from leased acreage, and restore land in accordance with applicable local, state and federal laws. Following several sales transactions in 2016 and 2017, FM O&G’s remaining operating areas include the GOM shelf, offshore California, the Gulf Coast and the Rocky Mountain area as of December 31, 2017. FM O&G AROs cover approximately 250 wells and 140 platforms and other structures. At December 31, 2017, FM O&G had accrued $553 million associated with its AROs.

Litigation. FCX is involved in numerous legal proceedings that arise in the ordinary course of business or are associated with environmental issues arising from legacy operations conducted over the years by FMC and its affiliates as discussed in this note under “Environmental.” FCX is also involved periodically in reviews, inquiries, investigations and other proceedings initiated by or involving government agencies, some of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Management does not believe, based on currently available information, that the outcome of any legal proceeding will have a material adverse effect on FCX’s financial condition, although individual outcomes could be material to FCX’s operating results for a particular period, depending on the nature and magnitude of the outcome and the operating results for the period.

Asbestos Claims. Since approximately 1990, FMC and various subsidiaries have been named as defendants in a large number of lawsuits that claim personal injury either from exposure to asbestos allegedly contained in electrical wire products produced or marketed many years ago or from asbestos contained in buildings and facilities located at properties owned or operated by FMC affiliates, or from alleged asbestos in talc products. Many of these suits involve a large number of codefendants. Based on litigation results to date and facts currently known, FCX believes there is a reasonable possibility that losses may have been incurred related to these matters; however, FCX also believes that the amounts of any such losses, individually or in the aggregate, are not material to its consolidated financial statements. There can be no assurance, however, that future developments will not alter this conclusion.

Tax and Other Matters. FCX’s operations are in multiple jurisdictions where uncertainties arise in the application of complex tax regulations. Some of these tax regimes are defined by contractual agreements with the local government, while others are defined by general tax laws and regulations. FCX and its subsidiaries are subject to reviews of its income tax filings and other tax payments, and disputes can arise with the taxing authorities over the interpretation of its contracts or laws. The final taxes paid may be dependent upon many factors, including negotiations with taxing authorities. In certain jurisdictions, FCX must pay a portion of the disputed amount to the local government in order to formally appeal the assessment. Such payment is recorded as a receivable if FCX believes the amount is collectible.

Cerro Verde Royalty Dispute. SUNAT, the Peru national tax authority, has assessed mining royalties on ore processed by the Cerro Verde concentrator, which commenced operations in late 2006, for the period December 2006 to December 2011. Cerro Verde contested these assessments because it believes that its 1998 stability agreement exempts from royalties all minerals extracted from its mining concession, irrespective of the method used for processing those minerals. No assessments have been issued for the period from January 2012 through December 2013, and no assessments can be issued for years after 2013, as Cerro Verde began paying royalties on all of its production in January 2014 under its new 15-year stability agreement. Since 2014, Cerro Verde has been paying the disputed assessments for the period from December 2006 through December 2008 under an installment program ($142 million paid by Cerro Verde through December 31, 2017).

In October 2017, the Peruvian Supreme Court issued a ruling in favor of SUNAT that the assessments of royalties for the year 2008 on ore processed by the Cerro Verde concentrator were proper under Peruvian law.

As a result of the unfavorable Peruvian Supreme Court ruling on the 2008 royalty dispute, Cerro Verde recorded pre-tax charges totaling $348 million ($355 million including net tax charges and $186 million net of noncontrolling interests) in 2017, consisting of $244 million in royalty assessments, $151 million of penalties and interest related to the December 2006 to December 2008 assessments, and $89 million for related items (primarily associated with the special mining tax and net assets tax) that Cerro Verde would have incurred under the view that its concentrator was not stabilized.

A summary of the charges recorded in 2017 for the Cerro Verde royalty dispute follows (in millions):

Royalty and related assessment charges:
	Production and delivery		$	203		a
	Interest expense, net		145
	Provision for income taxes		7			b
Net loss attributable to noncontrolling interests			(169		)
			$	186

a.	Includes $175 million related to disputed royalty assessments for the period from December 2006 to September 2011 (when royalties were determined based on revenues), $6 million of penalties related to the December 2006 to December 2008 royalty assessments and $22 million of related charges primarily associated with the net assets tax.

b.	Includes tax charges of $136 million for disputed royalties ($69 million) and other related mining taxes ($67 million) for the period October 2011 through the year 2013 when royalties were determined based on operating income, mostly offset by a tax benefit of $129 million associated with disputed royalties and other related mining taxes for the period December 2006 through December 2013.

Cerro Verde acted in good faith in applying the provisions of its 1998 stability agreement and continues to evaluate alternatives to defend its rights. Cerro Verde intends to seek a waiver available under Peruvian law of penalties and interest associated with this matter and has not recorded charges for potential penalties and interest totaling $385 million ($206 million net of noncontrolling interests) at December 31, 2017, as FCX believes that Cerro Verde can obtain a waiver under Peruvian law and a loss is not probable. Cerro Verde also intends to file a reimbursement claim with SUNAT for penalties and interest paid under the installment plan for the December 2006 to December 2008 assessments, and may have claims for reimbursement of payments it would not have made in the absence of the stabilization agreement, such as the overpayments made for a special (voluntary) levy (GEM), import duties and civil association contributions. No amounts have been recorded for these potential gain contingencies at December 31, 2017.

Other Peruvian Tax Matters. Cerro Verde has also received assessments from SUNAT for additional taxes, penalties and interest related to various audit exceptions for income and other taxes. Cerro Verde has filed or will file objections to the assessments because it believes it has properly determined and paid its taxes. A summary of these assessments follows:

Tax Year		Tax Assessment				Penalty and Interest Assessment				Total
2003 to 2005		$	16			$	54			$	70
2006		7				59				66
2007 to 2008		33				31				64
2009		59				49				108
2010		66				107				173
2011, 2014 to 2017		72				64				136
		$	253			$	364			$	617

As of December 31, 2017, Cerro Verde had paid $288 million on these disputed tax assessments. A reserve has been applied against these payments totaling $103 million, resulting in a net receivable of $185 million (included in other assets), which Cerro Verde believes is collectible.

Indonesia Tax Matters. PT-FI has received assessments from the Indonesian tax authorities for additional taxes and interest related to various audit exceptions for income and other taxes. PT-FI has filed objections to the assessments because it believes it has properly determined and paid its taxes. Excluding surface water and withholding tax assessments discussed below and the Indonesian government’s imposition of a 7.5 percent export duty (refer to Note 13), a summary of these assessments follows:

Tax Year		Tax Assessment				Interest Assessment				Total
2005		$	77			$	37			$	114
2007		48				24				72
2008, 2010 to 2011		56				37				93
2012		125				1				126
2013		160				80				240
2014		160				7				167
2015		169				—				169
		$	795			$	186			$	981

As of December 31, 2017, PT-FI had paid $417 million (included in other assets) on disputed tax assessments, which it believes is collectible.

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

PT-FI received assessments from the local regional tax authority in Papua, Indonesia, for additional taxes and penalties related to surface water taxes for the period from January 2011 through December 2017. PT-FI has filed or will file appeals with the Indonesia Tax Court. During 2017, the Indonesia Tax Court issued rulings against PT-FI with respect to assessments for additional taxes and penalties for the period from January 2011 through December 2015 in the amount of $400 million (based on the exchange rate as of December 31, 2017, and including $239 million in penalties). The aggregate amount of assessments received from January 2016 through December 2017 was an additional $130 million (based on the exchange rate as of December 31, 2017, and including $65 million in penalties). No charges have been recorded for these assessments as of December 31, 2017, because PT-FI believes its COW exempts it from these payments and that it has the right to contest these assessments in the Indonesia Tax Court and ultimately the Indonesia Supreme Court. FCX estimates the total exposure based on the exchange rate as of December 31, 2017, totals $530 million, including penalties. As of February 20, 2018, PT-FI has not paid and does not intend to pay these assessments unless there is a mechanism established to secure a refund for any such payments upon the final court decision. Additionally, PT-FI is seeking to address this matter in connection with the ongoing negotiations with the Indonesian government to resolve PT-FI’s long-term mining rights. If the local regional tax authority were to force PT-FI to make these payments through the threat of expropriation of assets or other measures, such amounts may not be recoverable from the local regional tax authority and may result in a charge to operating income. At this time, PT-FI does not believe that the threat of seizure of PT-FI assets is imminent.

In November 2017, PT-FI received an Indonesia Supreme Court decision that overturned a Tax Court case previously decided in favor of PT-FI related to 2005 assessments of less than $1 million for employee withholding taxes. PT-FI has other pending cases at the Indonesia Supreme Court related to withholding taxes for employees and other service providers for the year 2005 and the year 2007, which total approximately $66 million (based on the December 31, 2017, exchange rate), including penalties and interest. PT-FI believes the ruling in the case regarding the 2005 assessments is inconsistent with a ruling by the Indonesia Supreme Court in a similar case and is also inconsistent with PT-FI’s COW. PT-FI plans to continue to defend the outstanding cases and has not recorded charges for those cases because it does not believe a loss is probable. Because of a 2013 Ministry of Finance ruling that definitively defines withholding tax rates for employees and other service providers, and the statute of limitations, PT-FI does not believe it has exposure in any years after 2007.

Letters of Credit, Bank Guarantees and Surety Bonds. Letters of credit and bank guarantees totaled $283 million at December 31, 2017, primarily for environmental and asset retirement obligations, the Cerro Verde royalty dispute (refer to discussion above), workers’ compensation insurance programs, tax and customs obligations, and other commercial obligations. In addition, FCX had surety bonds totaling $326 million at December 31, 2017, primarily associated with environmental and asset retirement obligations.

Insurance. FCX purchases a variety of insurance products to mitigate potential losses, which typically have specified deductible amounts or self-insured retentions and policy limits. FCX generally is self-insured for U.S. workers’ compensation, but purchases excess insurance up to statutory limits. An actuarial analysis is performed twice a year on the various casualty insurance programs covering FCX’s U.S.-based mining operations, including workers’ compensation, to estimate expected losses. At December 31, 2017, FCX’s liability for expected losses under these insurance programs totaled $57 million, which consisted of a current portion of $10 million (included in accounts payable and accrued liabilities) and a long-term portion of $47 million (included in other liabilities). In addition, FCX has receivables of $16 million (a current portion of $2 million included in other accounts receivable and a long-term portion of $14 million included in other assets) for expected claims associated with these losses to be filed with insurance carriers.

FCX’s oil and gas operations are subject to all of the risks normally incident to the production of oil and gas, including well blowouts, cratering, explosions, oil spills, releases of gas or well fluids, fires, pollution and releases of toxic gas, each of which could result in damage to or destruction of oil and gas wells, production facilities or other property, or injury to persons. While FCX is not fully insured against all risks related to its oil and gas operations, its insurance policies provide limited coverage for losses or liabilities relating to pollution, with broader coverage for sudden and accidental occurrences. FCX is self-insured for named windstorms in the GOM.

NOTE 13. COMMITMENTS AND GUARANTEES

Operating Leases. FCX leases various types of properties, including offices and equipment. Future minimum rentals under non-cancelable leases at December 31, 2017 (excluding amounts related to assets held for sale), total $34 million in 2018, $24 million in 2019, $20 million in 2020, $18 million in 2021, $17 million in 2022 and $95 million thereafter. Minimum payments under operating leases have not been reduced by aggregate minimum sublease rentals, which are minimal. Total aggregate rental expense under operating leases was $59 million in 2017 and $71 million in both 2016 and 2015.

Contractual Obligations. Based on applicable prices at December 31, 2017, FCX has unconditional purchase obligations of $3.4 billion, primarily comprising the procurement of copper concentrate ($2.4 billion), electricity ($0.4 billion) and transportation services ($0.3 billion). Some of FCX’s unconditional purchase obligations are settled based on the prevailing market rate for the service or commodity purchased. In some cases, the amount of the actual obligation may change over time because of market conditions. Obligations for copper concentrate provide for deliveries of specified volumes to Atlantic Copper at market-based prices. Electricity obligations are primarily for long-term power purchase agreements in North America and contractual minimum demand at the South America mines. Transportation obligations are primarily for South America contracted ocean freight. Amounts exclude approximately $0.8 billion in total contractual obligations related to assets held for sale, which is primarily for the procurement of cobalt. Obligations for cobalt provide for deliveries of specified volumes to Freeport Cobalt (an asset held for sale) at market-based prices.

FCX’s unconditional purchase obligations by year total $2.4 billion in 2018, $537 million in 2019, $91 million in 2020, $92 million in 2021, $35 million in 2022 and $270 million thereafter. During the three-year period ended December 31, 2017, FCX fulfilled its minimum contractual purchase obligations.

Mining Contracts — Indonesia. FCX is entitled to mine in Indonesia under the COW between PT-FI and the Indonesian government. The original COW was entered into in 1967 and was replaced with the current COW in 1991. The initial term of the current COW expires in 2021 but can be extended by PT-FI for two 10-year periods subject to Indonesian government approval, which pursuant to the COW cannot be withheld or delayed unreasonably.

The copper royalty rate payable by PT-FI under its COW, prior to modifications discussed below as a result of the July 2014 Memorandum of Understanding (MOU), varied from 1.5 percent of copper net revenue at a copper price of $0.90 or less per pound to 3.5 percent at a copper price of $1.10 or more per pound. The COW royalty rate for gold and silver sales was at a fixed rate of 1.0 percent.

A large part of the mineral royalties under Indonesian government regulations is designated to the provinces from which the minerals are extracted. In connection with its fourth concentrator mill expansion completed in 1998, PT-FI agreed to pay the Indonesian government additional royalties (royalties not required by the COW) to provide further support to the local governments and to the people of the Indonesian province of Papua. The additional royalties were paid on production exceeding specified annual amounts of copper, gold and silver generated when PT-FI’s milling facilities operated above 200,000 metric tons of ore per day. The additional royalty for copper equaled the COW royalty rate, and for gold and silver equaled twice the COW royalty rates. Therefore, PT-FI’s royalty rate on copper net revenues from production above the agreed levels was double the COW royalty rate, and the royalty rates on gold and silver sales from production above the agreed levels were triple the COW royalty rates.

In January 2014, the Indonesian government published regulations pursuant to the 2009 mining law that, among other things, imposed a progressive export duty on copper concentrate and restricted exports of copper concentrate and anode slimes (a by-product of the refining process containing metals, including gold) after January 12, 2017. PT-FI’s COW authorizes it to export concentrate and specifies the taxes and other fiscal terms available to its operations. The COW states that PT-FI shall not be subject to taxes, duties or fees subsequently imposed or approved by the Indonesian government except as expressly provided in the COW. Additionally, PT-FI complied with the requirements of its COW for local processing by arranging for the construction and commissioning of Indonesia’s only copper smelter and refinery, which is owned by PT Smelting (refer to Note 6).

In July 2014, PT-FI entered into a MOU with the Indonesian government, under which PT-FI and the Indonesian government agreed to negotiate an amended COW to extend PT-FI’s operations beyond 2021 on acceptable terms. Subject to concluding an agreement to extend PT-FI’s operations, PT-FI agreed to: (i) construct new smelter capacity in Indonesia and provide a $115 million assurance bond to support its commitment; (ii) pay export duties until certain smelter development milestones were met (initially set at 7.5 percent, declining to 5.0 percent when

smelter development progress exceeds 7.5 percent and eliminated when development progress exceeds 30 percent); (iii) divest an additional 20.64 percent interest in PT-FI at fair market value to Indonesian participants; (iv) increase the royalty paid on copper to 4.0 percent from 3.5 percent under the COW; and (v) increase the royalty paid on gold and silver to 3.75 percent from 1.0 percent under the COW. The MOU also anticipated an amendment of the COW within six months to address other matters. In January 2015, the MOU was extended to July 25, 2015, and ultimately expired on that date. Following the expiration of the MOU, the Indonesian government has continued to require the smelter bond, and to impose the increased royalty rates and export duties. PT-FI’s royalties totaled $173 million in 2017, $131 million in 2016 and $114 million in 2015; its export duties totaled $115 million in 2017, $95 million in 2016 and $109 million in 2015.

In October 2015, the Indonesian government provided a letter of assurance to PT-FI indicating that it would revise regulations allowing it to approve the extension of PT-FI’s operations beyond 2021, and provide the same rights and the same level of legal and fiscal certainty provided under the current COW.

In January and February 2017, the Indonesian government issued new regulations pursuant to the 2009 mining law to address exports of unrefined metals, including copper concentrate and anode slimes, and other matters related to the mining sector. The new regulations permit the continuation of copper concentrate exports for a five-year period through January 2022, subject to various conditions, including conversion from a contract of work to a special mining license (known as an IUPK, which does not provide the same level of fiscal and legal protections as PT-FI’s COW, which remains in effect), a commitment to the completion of smelter construction in five years and payment of export duties to be determined by the Ministry of Finance. In addition, the new regulations enable application for an extension of mining rights five years before expiration of the IUPK and require foreign IUPK holders to divest a 51 percent interest to Indonesian interests no later than the tenth year of production. Export licenses would be valid for one-year periods, subject to review every six months, depending on smelter construction progress.

Following the issuance of the January and February 2017 regulations and discussions with the Indonesian government, PT-FI advised the government that it was prepared to convert its COW to an IUPK, subject to extension of its long-term mining rights to 2041 and obtaining an investment stability agreement providing contractual rights with the same level of legal and fiscal certainty provided under its COW, and provided that the COW would remain in effect until it is replaced by a mutually satisfactory alternative. PT-FI also committed to commence construction of a new smelter during a five-year time frame after approval of the extension of its long-term mining rights.

On January 12, 2017, PT-FI suspended exports in response to Indonesian regulations in effect at the time. In addition, as a result of labor disturbances and a delay in the renewal of its export license for anode slimes, PT Smelting’s operations were shut down from mid-January 2017 until early March 2017. On February 10, 2017, PT-FI was forced to suspend production as a result of limited storage capacity at PT-FI and PT Smelting. On April 21, 2017, the Indonesian government issued a permit to PT-FI that allowed exports to resume for a six-month period, and PT-FI commenced export shipments.

In mid-February 2017, pursuant to the COW’s dispute resolution provisions, PT-FI provided formal notice to the Indonesian government of an impending dispute listing the government’s breaches and violations of the COW, including, but not limited to, the: (i) imposition of restrictions on PT-FI’s basic right to export mining products in violation of the COW; (ii) imposition of export duties other than those taxes and other charges expressly provided for in the COW; (iii) imposition of surface water taxes in excess of the restrictions imposed by the COW (refer to Note 12 for further discussion of these assessments); (iv) requirement for PT-FI build a smelter, when no such requirement was in the COW; (v) unreasonably withholding and delaying the approval of the two successive ten-year extensions of the term of the COW; and (vi) imposition of divestment requirements not provided for in the COW. PT-FI continues to reserve its rights under these provisions.

As a result of the 2017 regulatory restrictions and uncertainties regarding long-term investment stability, PT-FI took actions to adjust its cost structure, slow investments in its underground development projects and new smelter, and place certain of its workforce on furlough programs.

In late March 2017, the Indonesian government amended the regulations to enable PT-FI to retain its COW until replaced with an IUPK accompanied by an investment stability agreement, and to grant PT-FI a temporary IUPK. In April 2017, PT-FI entered into a Memorandum of Understanding with the Indonesian government (the 2017 MOU) confirming that the COW would continue to be valid and honored until replaced by a mutually agreed IUPK and

investment stability agreement. In the 2017 MOU, PT-FI agreed to continue to pay a 5.0 percent export duty during this period. Subsequently, the Customs Office of the Minister of Finance refused to recognize the 5.0 percent export duty under the 2017 MOU and imposed a 7.5 percent export duty under the Ministry of Finance regulations, which PT-FI has paid under protest since resuming exports in April 2017. PT-FI is disputing the incremental 2.5 percent export duty while the matter is pending in Indonesia Tax Court proceedings, and amounts paid are being held in a restricted cash account or in a long-term receivable ($38 million total balance at December 31, 2017, of which $22 million was included in other current assets and $16 million in other assets in the consolidated balance sheets) that PT-FI expects to have released or refunded in full once the matter is resolved.

In August 2017, FCX and the Indonesian government reached an understanding on a framework that would replace the COW while providing PT-FI with long-term mining rights. This framework includes (i) conversion from the COW to an IUPK providing PT-FI with long-term mining rights through 2041; (ii) Indonesian government certainty of fiscal and legal terms during the term of the IUPK; (iii) PT-FI commitment to construct a new smelter in Indonesia within five years of reaching a definitive agreement; and (iv) divestment of 51 percent of the project area interests to Indonesian participants at fair market value, structured so that FCX retains control over operations and governance of PT-FI. Execution of a definitive agreement will require approval by the Board and PT-FI’s joint venture partner, Rio Tinto, as well as the modification or revocation of current regulations and the implementation of new regulations by the Indonesian government. FCX cannot currently predict whether there will be any material accounting and tax impacts associated with the divestment.

In late 2017, the Indonesian government (including the regional government of Papua Province and Mimika Regency) and PT Indonesia Asahan Aluminium (Inalum), a state-owned enterprise, which will lead the government’s consortium of investors, agreed to form a special purpose company to acquire Grasberg project area interests. Inalum is wholly owned by the Indonesian government and currently holds 9.36 percent of PT-FI’s outstanding common stock. FCX is engaged in discussions with Inalum and Rio Tinto regarding potential arrangements that would result in the Inalum consortium acquiring interests that would meet the Indonesian government’s 51 percent ownership objective in a manner satisfactory to all parties, and in a structure that would provide for continuity of FCX’s management of PT-FI’s operations and governance of the business. The parties continue to negotiate documentation on a comprehensive agreement for PT-FI’s extended operations and to reach agreement on timing, process and governance matters relating to the divestment. The parties have a mutual objective of completing negotiations and the required documentation during the first half of 2018.

In December 2017, PT-FI was granted an extension of its temporary IUPK through June 30, 2018, to enable exports to continue while negotiations on a definitive agreement proceed. In February 2018, PT-FI received an extension of its export license through February 15, 2019. On February 15, 2018, PT Smelting submitted an application to renew its anode slimes export license, which expires March 1, 2018.

Until a definitive agreement is reached, PT-FI has reserved all rights under its COW, including dispute resolution procedures. FCX cannot predict whether PT-FI will be successful in reaching a satisfactory agreement on the terms of its long-term mining rights. If PT-FI is unable to reach a definitive agreement with the Indonesian government on its long-term rights, FCX intends to reduce or defer investments significantly in underground development projects and will pursue dispute resolution procedures under the COW.

Other. In 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). Under the settlement with Noble, FCX issued 48.1 million shares of its common stock (representing a value of $540 million) during second-quarter 2016, and Noble immediately sold these shares. Under the settlement with Rowan, FCX paid $215 million in cash during 2016. FCX also agreed to provide contingent payments of up to $75 million to Noble and up to $30 million to Rowan, depending on the average price of crude oil over the 12-month period ending June 30, 2017. In January 2017, FCX paid $6 million to early settle a portion of the Rowan contingent payments and no additional payments were due when the contingency period ended on June 30, 2017. 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.

Community Development Programs. FCX has adopted policies that govern its working relationships with the communities where it operates. These policies are designed to guide its practices and programs in a manner that respects basic human rights and the culture of the local people impacted by FCX’s operations. FCX continues to make significant expenditures on community development, education, training and cultural programs.

In 1996, PT-FI established the Freeport Partnership Fund for Community Development (Partnership Fund) through which PT-FI has made available funding and technical assistance to support community development initiatives in the areas of health, education and economic development of the area. PT-FI has committed through 2018 to provide one percent of its annual revenue for the development of the local people in its area of operations through the Partnership Fund. PT-FI charged $44 million in 2017, $33 million in 2016 and $27 million in 2015 to cost of sales for this commitment.

Guarantees. FCX provides certain financial guarantees (including indirect guarantees of the indebtedness of others) and indemnities.

Prior to its acquisition by FCX, FMC and its subsidiaries have, as part of merger, acquisition, divestiture and other transactions, from time to time, indemnified certain sellers, buyers or other parties related to the transaction from and against certain liabilities associated with conditions in existence (or claims associated with actions taken) prior to the closing date of the transaction. As part of these transactions, FMC indemnified the counterparty from and against certain excluded or retained liabilities existing at the time of sale that would otherwise have been transferred to the party at closing. These indemnity provisions generally now require FCX to indemnify the party against certain liabilities that may arise in the future from the pre-closing activities of FMC for assets sold or purchased. The indemnity classifications include environmental, tax and certain operating liabilities, claims or litigation existing at closing and various excluded liabilities or obligations. Most of these indemnity obligations arise from transactions that closed many years ago, and given the nature of these indemnity obligations, it is not possible to estimate the maximum potential exposure. Except as described in the following sentence, FCX does not consider any of such obligations as having a probable likelihood of payment that is reasonably estimable, and accordingly, has not recorded any obligations associated with these indemnities. With respect to FCX’s environmental indemnity obligations, any expected costs from these guarantees are accrued when potential environmental obligations are considered by management to be probable and the costs can be reasonably estimated.

NOTE 14. FINANCIAL INSTRUMENTS

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

Commodity Contracts. From time to time, FCX has entered into derivative contracts to hedge the market risk associated with fluctuations in the prices of commodities it purchases and sells. Derivative financial instruments used by FCX to manage its risks do not contain credit risk-related contingent provisions. As a result of the acquisition of the oil and gas business in 2013, FCX assumed a variety of crude oil and natural gas commodity derivatives to hedge the exposure to the volatility of crude oil and natural gas commodity prices, all of which had matured by December 31, 2015. As of December 31, 2017 and 2016, FCX had no price protection contracts relating to its mine production. A discussion of FCX’s derivative contracts and programs follows.

Derivatives Designated as Hedging Instruments – Fair Value Hedges

Copper Futures and Swap Contracts. Some of FCX’s U.S. copper rod customers request a fixed market price instead of the COMEX average copper price in the month of shipment. FCX hedges this price exposure in a manner that allows it to receive the COMEX average price in the month of shipment while the customers pay the fixed price they requested. FCX accomplishes this by entering into copper futures or swap contracts. Hedging gains or losses from these copper futures and swap contracts are recorded in revenues. FCX did not have any significant gains or losses during the three years ended December 31, 2017, resulting from hedge ineffectiveness. At December 31, 2017, FCX held copper futures and swap contracts that qualified for hedge accounting for 41 million pounds at an average contract price of $3.02 per pound, with maturities through June 2019.

A summary of gains (losses) recognized in revenues for derivative financial instruments related to commodity contracts that are designated and qualify as fair value hedge transactions, along with the unrealized gains (losses) on the related hedged item for the years ended December 31 follows:

	2017				2016				2015
Copper futures and swap contracts:
Unrealized gains (losses):
Derivative financial instruments	$	4			$	16			$	(3	)
Hedged item – firm sales commitments	(4		)		(16		)		3
Realized gains (losses):
Matured derivative financial instruments	30				1				(34		)

Derivatives Not Designated as Hedging Instruments

Embedded Derivatives. As described in Note 1 under “Revenue Recognition,” certain FCX copper concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on the LME copper price or the COMEX copper price and the London gold price at the time of shipment as specified in the contract. Similarly, FCX purchases copper and cobalt under contracts that provide for provisional pricing. Mark-to-market price fluctuations from these embedded derivatives are recorded through the settlement date and are reflected in revenues for sales contracts and in cost of sales as production and delivery costs for purchase contracts. A summary of FCX’s embedded derivatives at December 31, 2017, follows:

	Open			Average Price Per Unit								Maturities
	Positions			Contract				Market				Through
Embedded derivatives in provisional sales contracts:
Copper (millions of pounds)	642			$	3.06			$	3.28			May 2018
Gold (thousands of ounces)	318			1,269				1,300				March 2018
Embedded derivatives in provisional purchase contracts:
Copper (millions of pounds)	120			3.02				3.28				April 2018
Cobalt (millions of pounds)a	6			22.97				26.81				March 2018

a. Relates to assets held for sale.

Crude Oil and Natural Gas Contracts. As a result of the acquisition of the oil and gas business, FCX had derivative contracts that consisted of crude oil options, and crude oil and natural gas swaps. These derivatives were not designated as hedging instruments and were recorded at fair value with the mark-to-market gains and losses recorded in revenues. The crude oil options were entered into by PXP to protect the realized price of a portion of expected future sales in order to limit the effects of crude oil price decreases. The remaining contracts matured in 2015, and FCX had no outstanding crude oil or natural gas derivative contracts as of December 31, 2017 or 2016.

As part of the terms of the agreement to sell the onshore California oil and gas properties, FM O&G entered into derivative contracts during October 2016 to hedge (i) approximately 72 percent of its forecasted crude oil sales through 2020 with fixed-rate swaps for 19.4 million barrels from November 2016 through December 2020 at a price of $56.04 per barrel and costless collars for 5.2 million barrels from January 2018 through December 2020 at a put price of $50.00 per barrel and a call price of $63.69 per barrel, and (ii) approximately 48 percent of its forecasted natural gas purchases through 2020 with fixed-rate swaps for 28.9 million British thermal units (MMBtu) from November 2016 through December 2020 at a price of $3.1445 per MMBtu related to these onshore California properties. Sentinel assumed these contracts at the time of the sale in December 2016. These derivative contracts were not designated as hedges for accounting purposes, and were recorded at fair value with the mark-to-market gains and losses recorded in revenues (oil contracts) and production costs (natural gas contracts).

Copper Forward Contracts. Atlantic Copper, FCX’s wholly owned smelting and refining unit in Spain, enters into copper forward contracts designed to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match. These economic hedge transactions are intended to hedge against changes in copper prices, with the mark-to-market hedging gains or losses recorded in cost of sales. At December 31, 2017, Atlantic Copper held net copper forward sales contracts for 4 million pounds at an average contract price of $3.11 per pound, with maturities through February 2018.

Summary of Gains (Losses). A summary of the realized and unrealized gains (losses) recognized in operating income (loss) for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, for the years ended December 31 follows:

	2017				2016				2015
Embedded derivatives in provisional copper and gold
sales contractsa	$	515			$	266			$	(406	)
Crude oil options and swapsa	—				(35		)		87
Copper forward contractsb	(15		)		5				(15		)

a.	Amounts recorded in revenues.

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

Unsettled Derivative Financial Instruments

A summary of the fair values of unsettled commodity derivative financial instruments follows:

	December 31,
	2017				2016
Commodity Derivative Assets:
Derivatives designated as hedging instruments:
Copper futures and swap contracts	$	11			$	9
Derivatives not designated as hedging instruments:
Embedded derivatives in provisional copper and gold
sales/purchase contracts	155				137
Copper forward contracts	1				—
Total derivative assets	$	167			$	146

Commodity Derivative Liabilities:
Derivatives designated as hedging instruments:
Copper futures and swap contracts	$	—			$	2
Derivatives not designated as hedging instruments:
Embedded derivatives in provisional copper and gold
sales/purchase contracts	31				56
Copper forward contracts	2				—
Total derivative liabilities	$	33			$	58

The table above excludes $24 million of embedded derivatives in provisional cobalt purchase contracts at December 31, 2017, which are reflected in liabilities held for sale.

FCX’s commodity contracts have netting arrangements with counterparties with which the right of offset exists, and it is FCX’s policy to generally offset balances by counterparty on the balance sheet. FCX’s embedded derivatives on provisional sales/purchases contracts are netted with the corresponding outstanding receivable/payable balances.

A summary of these unsettled commodity contracts that are offset in the balance sheet follows:

		Assets at December 31,								Liabilities at December 31,
		2017				2016				2017				2016
Gross amounts recognized:
Commodity contracts:
Embedded derivatives in provisional
sales/purchase contracts		$	155			$	137			$	31			$	56
Copper derivatives		12				9				2				2
		167				146				33				58
Less gross amounts of offset:
Commodity contracts:
Embedded derivatives in provisional
sales/purchase contracts		—				12				—				12
Copper derivatives		1				2				1				2
		1				14				1				14
Net amounts presented in balance sheet:
Commodity contracts:
Embedded derivatives in provisional
sales/purchase contracts		155				125				31				44
Copper derivatives		11				7				1				—
		$	166			$	132			$	32			$	44
Balance sheet classification:
Trade accounts receivable		$	151			$	119			$	—			$	13
Other current assets		11				7				—				—
Accounts payable and accrued liabilities		4				6				32				31
		$	166			$	132			$	32			$	44

The table above excludes $24 million of embedded derivatives in provisional cobalt purchase contracts at December 31, 2017, which are reflected in liabilities held for sale.

Credit Risk. FCX is exposed to credit loss when financial institutions with which it has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize the risk of such losses, FCX uses counterparties that meet certain credit requirements and periodically reviews the creditworthiness of these counterparties. FCX does not anticipate that any of the counterparties it deals with will default on their obligations. As of December 31, 2017, the maximum amount of credit exposure associated with derivative transactions was $166 million.

Other Financial Instruments. Other financial instruments include cash and cash equivalents, accounts receivable, restricted cash, investment securities, legally restricted funds, accounts payable and accrued liabilities, and long-term debt. The carrying value for cash and cash equivalents (which included time deposits of $2.9 billion at December 31, 2017, and $64 million at December 31, 2016), accounts receivable, restricted cash, and accounts payable and accrued liabilities approximates fair value because of their short-term nature and generally negligible credit losses (refer to Note 15 for the fair values of investment securities, legally restricted funds and long-term debt).

In addition, as of December 31, 2017, FCX has contingent consideration assets related to certain 2016 asset sales (refer to Note 15 for the related fair value and to Note 2 for further discussion of these instruments).

NOTE 15. FAIR VALUE MEASUREMENT

Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). FCX recognizes transfers between levels at the end of the reporting period. FCX did not have any significant transfers in or out of Level 1, 2 or 3 for 2017.

FCX’s financial instruments are recorded on the consolidated balance sheets at fair value except for contingent consideration associated with the sale of the Deepwater GOM oil and gas properties (which was recorded under the loss recovery approach) and debt. A summary of the carrying amount and fair value of FCX’s financial instruments (including those measured at NAV as a practical expedient), other than cash and cash equivalents, accounts receivable, restricted cash, and accounts payable and accrued liabilities (refer to Note 14) follows:

	At December 31, 2017
	Carrying				Fair Value
	Amount				Total				NAV				Level 1				Level 2					Level 3
Assets
Investment securities:a,b
U.S. core fixed income fund	$	25			$	25			$	25			$	—			$	—				$	—
Equity securities	5				5				—				5				—					—
Total	30				30				25				5				—					—
Legally restricted funds:a
U.S. core fixed income fund	55				55				55				—				—					—
Government bonds and notes	40				40				—				—				40					—
Corporate bonds	32				32				—				—				32					—
Government mortgage-backed securities	27				27				—				—				27					—
Asset-backed securities	15				15				—				—				15					—
Money market funds	11				11				—				11				—					—
Collateralized mortgage-backed securities	8				8				—				—				8					—
Municipal bonds	1				1				—				—				1					—
Total	189				189				55				11				123					—
Derivatives:
Embedded derivatives in provisional sales/purchase
contracts in a gross asset positionc	155				155				—				—				155					—
Copper futures and swap contractsc	11				11				—				9				2					—
Copper forward contractsc	1				1				—				—				1			—		—
Contingent consideration for the sales of TFHL
and onshore California oil and gas propertiesa	108				108				—				—				108					—
Total	275				275				—				9				266					—
Contingent consideration for the sale of the Deepwater GOM oil and gas propertiesa	150				134				—				—				—					134

Liabilities
Derivatives:c
Embedded derivatives in provisional sales/purchase
contracts in a gross liability positiond	$	31			$	31			$	—			$	—			$	31			$	—
Copper forward contracts	2				2				—				1				1				—
Total	33				33				—				1				32				—
Long-term debt, including current portione	13,117				13,269				—				—				13,269				—

	At December 31, 2016
	Carrying				Fair Value
	Amount				Total				NAV				Level 1				Level 2				Level 3
Assets
Investment securities:a,b
U.S. core fixed income fund	$	23			$	23			$	23			$	—			$	—			$	—
Money market funds	22				22				—				22				—				—
Equity securities	5				5				—				5				—				—
Total	50				50				23				27				—				—
Legally restricted funds:a
U.S. core fixed income fund	53				53				53				—				—				—
Government bonds and notes	36				36				—				—				36				—
Corporate bonds	32				32				—				—				32				—
Government mortgage-backed securities	25				25				—				—				25				—
Asset-backed securities	16				16				—				—				16				—
Money market funds	12				12				—				12				—				—
Collateralized mortgage-backed securities	8				8				—				—				8				—
Municipal bonds	1				1				—				—				1				—
Total	183				183				53				12				118				—
Derivatives:
Embedded derivatives in provisional sales/purchase
contracts in a gross asset positionc	137				137				—				—				137				—
Copper futures and swap contractsc	9				9				—				8				1				—
Contingent consideration for the sales of TFHL
and onshore California oil and gas propertiesa	46				46				—				—				46				—
Total	192				192				—				8				184				—
Contingent consideration for the sale of the
Deepwater GOM oil and gas propertiesa	150				135				—				—				—				135
Liabilities
Derivatives:c
Embedded derivatives in provisional sales/purchase
contracts in a gross liability position	$	56			$	56			$	—			$	—			$	56			$	—
Copper futures and swap contracts	2				2				—				2				—				—
Total	58				58				—				2				56				—
Contingent payments for the settlements of drilling rig contractsf	23				23				—				—				23				—
Long-term debt, including current portione	16,027				15,196				—				—				15,196				—

a.	Current portion included in other current assets and long-term portion included in other assets.

b.

Excludes time deposits (which approximated fair value) included in (i) other current assets of $52 million at December 31, 2017, and $28 million at December 31, 2016, and (ii) other assets of $123 million at December 31, 2017, and $122 million at December 31, 2016, primarily associated with an assurance bond to support PT-FI’s commitment for smelter development in Indonesia (refer to Note 13 for further discussion).

c.	Refer to Note 14 for further discussion and balance sheet classifications.

d.	Excludes $24 million of embedded derivatives in provisional cobalt purchase contracts (refer to Note 14 for further discussion).

e.	Recorded at cost except for debt assumed in acquisitions, which are recorded at fair value at the respective acquisition dates. In addition, debt excludes $112 million at December 31, 2017, and $98 million at December 31, 2016, related to assets held for sale (which approximated fair value).

f.	Included in accounts payable and accrued liabilities.

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

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

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

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

FCX’s embedded derivatives on provisional copper concentrate, copper cathode and gold purchases and sales are valued using only quoted monthly LME or COMEX copper forward prices and the London gold forward price at each reporting date based on the month of maturity (refer to Note 14 for further discussion); however, FCX’s contracts themselves are not traded on an exchange. As a result, these derivatives are classified within Level 2 of the fair value hierarchy.

FCX’s embedded derivatives on provisional cobalt purchases are valued using quoted monthly LME cobalt forward prices or average published Metals Bulletin cobalt prices, subject to certain adjustments as specified by the terms of the contracts, at each reporting date based on the month of maturity (Level 2).

FCX’s derivative financial instruments for copper futures and swap contracts and copper forward contracts that are traded on the respective exchanges are classified within Level 1 of the fair value hierarchy because they are valued using quoted monthly COMEX or LME prices at each reporting date based on the month of maturity (refer to Note 14 for further discussion). Certain of these contracts are traded on the over-the-counter market and are classified within Level 2 of the fair value hierarchy based on COMEX and LME forward prices.

The fair value of contingent consideration for the sales of TFHL and onshore California oil and gas properties (refer to Note 2 for further discussion) is calculated based on average commodity price forecasts through applicable maturity dates using a Monte Carlo simulation model. The models use various observable inputs, including Brent crude oil forward prices, historical copper and cobalt prices, volatilities, discount rates and settlement terms. As a result, these contingent consideration assets are classified within Level 2 of the fair value hierarchy.

The fair value of contingent consideration for the sale of Deepwater GOM oil and gas properties (refer to Note 2 for further discussion) is calculated based on a discounted cash flow model using inputs that include third-party reserve estimates, production rates, production timing and discount rates. Because significant inputs are not observable in the market, the contingent consideration is classified within Level 3 of the fair value hierarchy.

The December 31, 2016, fair value of contingent payments for the settlements of drilling rig contracts (refer to Note 13 for further discussion) was calculated based on the average price forecasts of WTI crude oil over the 12-month period ending June 30, 2017, using a mean-reverting model. The model used various observable inputs, including WTI crude oil forward prices, volatilities, discount rate and settlement terms. As a result, these contingent payments were classified within Level 2 of the fair value hierarchy.

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

The techniques described above may produce a fair value calculation that may not be indicative of NRV or reflective of future fair values. Furthermore, while FCX believes its valuation techniques are appropriate and consistent with those used by other market participants, the use of different techniques or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the techniques used at December 31, 2017.

A summary of the changes in the fair value of FCX’s Level 3 instruments for the years ended December 31 follows:

	Contingent Considerationa								Crude Oil Options
	2017				2016				2015
Balance at beginning of year	$	135			$	—			$	316
Net realized gains	—				—				86			b
Net unrealized (losses) gains related to assets still held at the end of the year	(1		)		135				—
Net settlements	—				—				(402		)	c
Balance at the end of the year	$	134			$	135			$	—

a.	Reflects contingent consideration associated with the sale of the Deepwater GOM oil and gas properties in December 2016 (refer to Note 2 for further discussion).

b.	Includes net realized gains of $87 million recorded in revenues and interest expense associated with deferred premiums of $1 million.

c.	Includes interest payments of $4 million.

Refer to Notes 1 and 5 for a discussion of the fair value estimates utilized in the impairment assessments for mining operations, which were determined using inputs not observable in the market and thus represent Level 3 measurements.

NOTE 16. BUSINESS SEGMENT INFORMATION

Product Revenues. FCX revenues attributable to the products it produced for the years ended December 31 follow:

	2017				2016				2015
Copper in concentratea	$	5,373			$	4,502			$	2,927
Copper cathode	4,557				3,925				4,159
Rod, and other refined copper products	2,272				1,963				2,481
Gold	2,032				1,512				1,540
Molybdenum	889				651				783
Oil	73				1,304				1,694
Other	1,207				973				1,023
Total	$	16,403			$	14,830			$	14,607

a.	Amounts are net of treatment and refining charges totaling $536 million in 2017, $652 million in 2016 and $485 million in 2015.

Geographic Area. Information concerning financial data by geographic area follows:

	December 31,
	2017				2016				2015
Long-lived assets:a
Indonesia	$	8,938			$	8,794			$	7,701
U.S.	8,312				8,282			b	16,569
Peru	7,485				7,981				8,432
Chile	1,221				1,269				1,387
Other	257				248				4,706			c
Total	$	26,213			$	26,574			$	38,795

a.	Long-lived assets exclude deferred tax assets and intangible assets.

b.	Decrease in 2016 is primarily because of impairment charges related to oil and gas properties and asset dispositions (refer to Notes 1 and 2 for further discussion).

c.	Includes long-lived assets held for sale totaling $4.4 billion at December 31, 2015, primarily associated with TFHL discontinued operations. Refer to Note 2 for further discussion.

	Years Ended December 31,
	2017				2016				2015
Revenues:a
U.S.	$	5,344			$	5,896			$	6,842
Indonesia	2,023				1,402				1,054
Japan	1,882				1,350				1,246
Switzerland	1,200				1,147				618
China	1,136				1,125				688
Spain	1,086				878				960
India	782				553				532
Philippines	378				261				169
Korea	364				219				177
Chile	248				250				397
Bermuda	226				273				159
United Kingdom	226				204				83
Other	1,508				1,272				1,682
Total	$	16,403			$	14,830			$	14,607

a.	Revenues are attributed to countries based on the location of the customer.

Major Customers and Affiliated Companies. Copper concentrate sales to PT Smelting totaled 12 percent of FCX’s consolidated revenues for the year ended December 31, 2017, which is the only customer that accounted for 10 percent or more of FCX’s consolidated revenues during the three years ended December 31, 2017.

Consolidated revenues include sales to the noncontrolling interest owners of FCX’s South America mining operations totaling $1.1 billion in 2017 and $1.0 billion in both 2016 and 2015, and PT-FI’s sales to PT Smelting totaling $2.0 billion in 2017, $1.4 billion in 2016 and $1.1 billion in 2015.

Labor Matters. As of December 31, 2017, approximately 40 percent of FCX’s global labor force was covered by collective bargaining agreements, and approximately 15 percent was covered by agreements that expired and are currently being negotiated or will expire within one year.

Business Segments. FCX has organized its mining operations into four primary divisions – North America copper mines, South America mining, Indonesia mining and Molybdenum mines, and operating segments that meet certain thresholds are reportable segments. Separately disclosed in the following tables are FCX’s reportable segments, which include the Morenci, Cerro Verde and Grasberg (Indonesia Mining) copper mines, the Rod & Refining operations and Atlantic Copper Smelting & Refining.

FCX’s reportable segments previously included U.S. Oil & Gas operations. During 2016, FCX completed the sales of its Deepwater GOM, onshore California and Haynesville oil and gas properties. As a result, beginning in 2017, the U.S. Oil & Gas operations no longer qualify as a reportable segment, and oil and gas results for all periods presented have been included in Corporate, Other & Eliminations in the following tables. Refer to Note 2 for further discussion of these sales.

Intersegment sales between FCX’s business segments are based on terms similar to arms-length transactions with third parties at the time of the sale. Intersegment sales may not be reflective of the actual prices ultimately realized because of a variety of factors, including additional processing, timing of sales to unaffiliated customers and transportation premiums. In addition, intersegment sales from Tenke to FCX’s other consolidated subsidiaries have been eliminated in discontinued operations (refer to Note 2).

FCX defers recognizing profits on sales from its mines to other divisions, including Atlantic Copper (FCX’s wholly owned smelter and refinery in Spain) and on 25 percent of PT-FI’s sales to PT Smelting (PT-FI’s 25-percent-owned smelter and refinery in Indonesia), until final sales to third parties occur. Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices result in variability in FCX’s net deferred profits and quarterly earnings.

FCX allocates certain operating costs, expenses and capital expenditures to its operating divisions and individual segments. However, not all costs and expenses applicable to an operation are allocated. U.S. federal and state income taxes are recorded and managed at the corporate level (included in Corporate, Other & Eliminations), whereas foreign income taxes are recorded and managed at the applicable country level. In addition, most mining exploration and research activities are managed on a consolidated basis, and those costs along with some selling, general and administrative costs, are not allocated to the operating divisions or individual segments. Accordingly, the following segment information reflects management determinations that may not be indicative of what the actual financial performance of each operating division or segment would be if it was an independent entity.

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. The North America copper mines include open-pit mining, sulfide ore concentrating, leaching and SX/EW operations. A majority of the copper produced at the North America copper mines is cast into copper rod by FCX’s Rod & Refining segment. In addition to copper, certain of FCX’s North America copper mines also produce molybdenum concentrate, gold and silver.

The Morenci open-pit mine, located in southeastern Arizona, produces copper cathode and copper concentrate. In addition to copper, the Morenci mine also produces molybdenum concentrate. The Morenci mine produced 49 percent of FCX’s North America copper during 2017.

South America Mining. South America mining includes two operating copper mines – Cerro Verde in Peru and El Abra in Chile. These operations include open-pit mining, sulfide ore concentrating, leaching and SX/EW operations.

The Cerro Verde open-pit copper mine, located near Arequipa, Peru, produces copper cathode and copper concentrate. In addition to copper, the Cerro Verde mine also produces molybdenum concentrate and silver. The Cerro Verde mine produced 86 percent of FCX’s South America copper during 2017.

Indonesia Mining. Indonesia mining includes PT-FI’s Grasberg minerals district that produces copper concentrate that contains significant quantities of gold and silver.

Molybdenum Mines. Molybdenum mines include the wholly owned Henderson underground mine and 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.

Rod & Refining. The Rod & Refining segment consists of copper conversion facilities located in North America, and includes a refinery, three rod mills and a specialty copper products facility, which are combined in accordance with segment reporting aggregation guidance. These operations process copper produced at FCX’s North America copper mines and purchased copper into copper cathode, rod and custom copper shapes. At times these operations refine copper and produce copper rod and shapes for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to FCX’s facilities for processing into a product that is returned to the customer, who pays FCX for processing its material into the specified products.

Atlantic Copper Smelting & Refining. Atlantic Copper smelts and refines copper concentrate and markets refined copper and precious metals in slimes. During 2017, Atlantic Copper purchased 18 percent of its concentrate requirements from the North America copper mines and 15 percent from the South America mining operations, with the remainder purchased from third parties.

Corporate, Other & Eliminations. Corporate, Other & Eliminations consists of FCX’s other mining and eliminations, oil and gas operations and other corporate and elimination items. Other mining and eliminations include the Miami smelter (a smelter at FCX’s Miami, Arizona, mining operation), Freeport Cobalt (a cobalt chemical refinery in Kokkola, Finland), molybdenum conversion facilities in the U.S. and Europe, five non-operating copper mines in North America (Ajo, Bisbee, Tohono, Twin Buttes and Christmas in Arizona) and other mining support entities.

Financial Information by Business Segment

	North America Copper Mines												South America
																																					Atlantic				Corporate,
																																					Copper				Other
													Cerro												Indonesia				Molybdenum				Rod &				Smelting				& Elimi-				FCX
	Morenci				Other				Total				Verde				Other				Total				Mining				Mines				Refining				& Refining				nationsa				Total
Year Ended December 31, 2017
Revenues:
Unaffiliated customers	$	228			$	180			$	408			$	2,811			$	498			$	3,309			$	4,445			$	—			$	4,456			$	2,031			$	1,754		b	$	16,403
Intersegment	1,865				2,292				4,157				385				—				385				—				268				26				1				(4,837		)		—
Production and delivery	1,052				1,715				2,767				1,878			c	366				2,244				1,743			d	229				4,470				1,966				(3,119		)		10,300
Depreciation, depletion and amortization	178				247				425				441				84				525				556				76				10				28				94				1,714
Metals inventory adjustments	—				2				2				—				—				—				—				1				—				—				5				8
Selling, general and administrative expenses	2				2				4				9				—				9				126			d	—				—				18				327				484
Mining exploration and research expenses	—				2				2				—				—				—				—				—				—				—				92				94
Environmental obligations and shutdown costs	—				—				—				—				—				—				—				—				—				—				251				251
Net gain on sales of assets	—				—				—				—				—				—				—				—				—				—				(81		)		(81		)
Operating income (loss)	861				504				1,365				868				48				916				2,020				(38		)		2				20				(652		)		3,633
Interest expense, net	3				1				4				212			c	—				212				4				—				—				18				563				801
Provision for (benefit from) income taxes	—				—				—				436			c	10				446				869				—				—				5				(437		)	e	883
Total assets at December 31, 2017	2,861				4,241				7,102				8,878				1,702				10,580				10,911				1,858				277				822				5,752			f	37,302
Capital expenditures	114				53				167				103				12				115				875				5				4				41				203				1,410
Year Ended December 31, 2016
Revenues:
Unaffiliated customers	$	444			$	240			$	684			$	2,241			$	510			$	2,751			$	3,233			$	—			$	3,833			$	1,825			$	2,504		b,g	$	14,830
Intersegment	1,511				2,179				3,690				187				—				187				62				186				29				5				(4,159		)		—
Production and delivery	1,169				1,763				2,932				1,351				407				1,758				1,794				199				3,836				1,712				(1,534		)	h	10,697
Depreciation, depletion and amortization	217				313				530				443				110				553				384				68				10				29				956				2,530
Impairment of oil and gas properties	—				—				—				—				—				—				—				—				—				—				4,317				4,317
Metals inventory adjustments	—				1				1				—				—				—				—				15				—				—				20				36
Selling, general and administrative expenses	2				3				5				8				1				9				90				—				—				17				486			h	607
Mining exploration and research expenses	—				3				3				—				—				—				—				—				—				—				61				64
Environmental obligations and shutdown costs	—				—				—				—				—				—				—				—				—				—				20				20
Net gain on sales of assets	(576		)		—				(576		)		—				—				—				—				—				—				—				(73		)		(649		)
Operating income (loss)	1,143				336				1,479				626				(8		)		618				1,027				(96		)		16				72				(5,908		)		(2,792		)
Interest expense, net	3				1				4				82				—				82				—				—				—				15				654				755
Provision for (benefit from) income taxes	—				—				—				222				(6		)		216				442				—				—				9				(296		)		371
Total assets at December 31, 2016	2,863				4,448				7,311				9,076				1,533				10,609				10,493				1,934				220				658				6,092			f	37,317
Capital expenditures	77				25				102				380				2				382				1,025				2				1				17				1,284			i	2,813

a.	Includes U.S. oil and gas operations, which were previously a reportable segment.

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

c.	Includes net charges of $203 million in production and delivery costs, $145 million in interest expense and $7 million in provision for income taxes associated with disputed royalties for prior years.

d.	Includes net charges of $120 million in production and delivery costs and $5 million in selling, general and administrative expenses for PT-FI workforce reductions.

e.	Includes provisional tax credits totaling $393 million related to U.S. tax reform, primarily for the reversal of valuation allowances associated with the anticipated refund of AMT credits and a decrease in corporate income tax rates.

f.	Includes (i) assets held for sale totaling $598 million at December 31, 2017, and $344 million at December 31, 2016, primarily associated with Freeport Cobalt and the Kisanfu exploration project and (ii) includes assets associated with oil and gas operations totaling $271 million at December 31, 2017, and $467 million at December 31, 2016.

g.	Includes net mark-to-market losses of $35 million associated with oil derivative contracts, which were entered into as part of the terms to sell the onshore California oil and gas properties in 2016.

h.	Includes net charges for oil and gas operations totaling $1.0 billion in production and delivery costs, primarily for drillship settlements/idle rig and contract termination costs, inventory adjustments, asset impairments and other net charges, and $85 million in selling, general and administrative expenses for net restructuring charges.

i.	Includes $1.2 billion associated with oil and gas operations and $73 million associated with discontinued operations. Refer to Note 2 for a summary of the results of discontinued operations.

	North America Copper Mines												South America
																																					Atlantic				Corporate,
																																					Copper				Other
													Cerro												Indonesia				Molybdenum				Rod &				Smelting				& Elimi-				FCX
	Morenci				Other				Total				Verde				Other				Total				Mining				Mines				Refining				& Refining				nationsa				Total
Year Ended December 31, 2015
Revenues:
Unaffiliated customers	$	558			$	351			$	909			$	1,065			$	808			$	1,873			$	2,617			$	—			$	4,125			$	1,955			$	3,128		b,c	$	14,607
Intersegment	1,646				2,571				4,217				68				(7		)	d	61				36				348				29				15				(4,706		)		—
Production and deliverye	1,523				2,276				3,799				815				623				1,438				1,808				312				4,129				1,848				(2,641		)	f	10,693
Depreciation, depletion and amortization	217				343				560				219				133				352				293				97				9				39				1,890				3,240
Impairment of oil and gas properties	—				—				—				—				—				—				—				—				—				—				13,144				13,144
Metals inventory adjustments	—				142				142				—				73				73				—				11				—				—				112				338
Selling, general and administrative expenses	3				3				6				3				1				4				103				—				—				16				429				558
Mining exploration and research expenses	—				7				7				—				—				—				—				—				—				—				100				107
Environmental obligations and shutdown costs	—				3				3				—				—				—				—				—				—				—				75				78
Net gain on sales of assets	—				(39		)		(39		)		—				—				—				—				—				—				—				—				(39		)
Operating income (loss)	461				187				648				96				(29		)		67				449				(72		)		16				67				(14,687		)		(13,512		)
Interest expense, net	2				2				4				16				—				16				—				—				—				10				587				617
Provision for (benefit from) income taxes	—				—				—				13				(9		)		4				195				—				—				4				(2,154		)		(1,951		)
Total assets at December 31, 2015	3,567				4,878				8,445				9,445				1,661				11,106				9,306				1,999				219				612				14,890			g	46,577
Capital expenditures	253				102				355				1,674				48				1,722				901				13				4				23				3,335			g	6,353

a.	Includes U.S. oil and gas operations, which were previously a reportable segment.

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

c.	Includes net mark-to-market gains associated with crude oil and natural gas derivative contracts totaling $87 million.

d.	Reflects net reductions for provisional pricing adjustments to prior open sales.

e.	Includes asset impairment and restructuring charges totaling $145 million, including $99 million at other North America copper mines, and restructuring charges totaling $13 million at South America mines, $7 million at Molybdenum mines, $3 million at Rod & Refining and $23 million at Corporate, Other & Eliminations.

f.	Includes charges for oil and gas operations totaling $188 million primarily for idle/terminated rig costs, inventory adjustments, asset impairments and other charges.

g.	Includes (i) assets held for sale totaling $4.9 billion and (ii) capital expenditures totaling $229 million associated with discontinued operations. Refer to Note 2 for a summary of the results of discontinued operations.

NOTE 17. GUARANTOR FINANCIAL STATEMENTS

All of the senior notes issued by FCX and discussed in Note 8 are fully and unconditionally guaranteed on a senior basis jointly and severally by FM O&G LLC, as guarantor, which is a 100-percent-owned subsidiary of FM O&G and FCX. The guarantee is an unsecured obligation of the guarantor and ranks equal in right of payment with all existing and future indebtedness of FM O&G LLC, including indebtedness under FCX’s revolving credit facility. The guarantee ranks senior in right of payment with all of FM O&G LLC’s future subordinated obligations and is effectively subordinated in right of payment to any debt of FM O&G LLC’s subsidiaries. The indentures provide that FM O&G LLC’s guarantee may be released or terminated for certain obligations under the following circumstances: (i) all or substantially all of the equity interests or assets of FM O&G LLC are sold to a third party; or (ii) FM O&G LLC no longer has any obligations under any FM O&G senior notes or any refinancing thereof and no longer guarantees any obligations of FCX under the revolving credit facility or any other senior debt or, in each case, any refinancing thereof.

The following condensed consolidating financial information includes information regarding FCX, as issuer, FM O&G LLC, as guarantor, and all other non-guarantor subsidiaries of FCX. Included are the condensed consolidating balance sheets at December 31, 2017 and 2016, and the related condensed consolidating statements of comprehensive income (loss) and the condensed consolidating statements of cash flows for the three years ended December 31, 2017, which should be read in conjunction with FCX’s notes to the consolidated financial statements.

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2017

	FCX				FM O&G LLC				Non-guarantor								Consolidated
	Issuer				Guarantor				Subsidiaries				Eliminations				FCX
ASSETS
Current assets	$	75			$	671			$	10,823			$	(790	)		$	10,779
Property, plant, equipment and mine development costs, net	14				11				22,821				(10		)		22,836
Oil and gas properties subject to amortization, less accumulated amortization and impairments	—				—				8				—				8
Investments in consolidated subsidiaries	19,570				—				—				(19,570		)		—
Other assets	943				48				3,179				(491		)		3,679
Total assets	$	20,602			$	730			$	36,831			$	(20,861	)		$	37,302
LIABILITIES AND EQUITY
Current liabilities	$	1,683			$	220			$	4,073			$	(938	)		$	5,038
Long-term debt, less current portion	10,021				6,512				5,440				(10,270		)		11,703
Deferred income taxes	748			a	—				2,874				—				3,622
Environmental and asset retirement obligations, less current portion	—				201				3,430				—				3,631
Investments in consolidated subsidiary	—				853				10,397				(11,250		)		—
Other liabilities	173				3,340				1,987				(3,488		)		2,012
Total liabilities	12,625				11,126				28,201				(25,946		)		26,006
Equity:
Stockholders’ equity	7,977				(10,396		)		5,916				4,480				7,977
Noncontrolling interests	—				—				2,714				605				3,319
Total equity	7,977				(10,396		)		8,630				5,085				11,296
Total liabilities and equity	$	20,602			$	730			$	36,831			$	(20,861	)		$	37,302

a.	All U.S.-related deferred income taxes are recorded at the parent company.

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2016

	FCX				FM O&G LLC				Non-guarantor								Consolidated
	Issuer				Guarantor				Subsidiaries				Eliminations				FCX
ASSETS
Current assets	$	230			$	1,790			$	11,675			$	(3,260	)		$	10,435
Property, plant, equipment and mine development costs, net	19				24				23,176				—				23,219
Oil and gas properties subject to amortization, less accumulated amortization and impairments	—				—				74				—				74
Investments in consolidated subsidiaries	21,110				—				—				(21,110		)		—
Other assets	1,985				47				3,522				(1,965		)		3,589
Total assets	$	23,344			$	1,861			$	38,447			$	(26,335	)		$	37,317
LIABILITIES AND EQUITY
Current liabilities	$	3,895			$	308			$	3,306			$	(3,244	)		$	4,265
Long-term debt, less current portion	12,517				6,062				11,297				(15,081		)		14,795
Deferred income taxes	826			a	—				2,942				—				3,768
Environmental and asset retirement obligations, less current portion	—				200				3,287				—				3,487
Investments in consolidated subsidiary	—				893				8,995				(9,888		)		—
Other liabilities	55				3,393				1,784				(3,487		)		1,745
Total liabilities	17,293				10,856				31,611				(31,700		)		28,060
Equity:
Stockholders’ equity	6,051				(8,995		)		4,237				4,758				6,051
Noncontrolling interests	—				—				2,599				607				3,206
Total equity	6,051				(8,995		)		6,836				5,365				9,257
Total liabilities and equity	$	23,344			$	1,861			$	38,447			$	(26,335	)		$	37,317

a.	All U.S.-related deferred income taxes are recorded at the parent company.

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Year Ended December 31, 2017
	FCX				FM O&G LLC				Non-guarantor								Consolidated
	Issuer				Guarantor				Subsidiaries				Eliminations				FCX
Revenues	$	—			$	52			$	16,351			$	—			$	16,403
Total costs and expenses	42				78				12,640				10				12,770
Operating (loss) income	(42		)		(26		)		3,711				(10		)		3,633
Interest expense, net	(467		)		(227		)		(455		)		348				(801		)
Net gain (loss) on early extinguishment of debt	22				5				(6		)		—				21
Other income (expense), net	339				—				58				(348		)		49
(Loss) income before income taxes and equity in affiliated companies’ net earnings (losses)	(148		)		(248		)		3,308				(10		)		2,902
Benefit from (provision for) income taxes	220				(108		)		(998		)		3				(883		)
Equity in affiliated companies’ net earnings (losses)	1,745				10				(337		)		(1,408		)		10
Net income (loss) from continuing operations	1,817				(346		)		1,973				(1,415		)		2,029
Net income from discontinued operations	—				—				66				—				66
Net income (loss)	1,817				(346		)		2,039				(1,415		)		2,095
Net income attributable to noncontrolling interests:
Continuing operations	—				—				(150		)		(124		)		(274		)
Discontinued operations	—				—				(4		)		—				(4		)
Net income (loss) attributable to common stockholders	$	1,817			$	(346	)		$	1,885			$	(1,539	)		$	1,817
Other comprehensive income (loss)	61				—				61				(61		)		61
Total comprehensive income (loss)	$	1,878			$	(346	)		$	1,946			$	(1,600	)		$	1,878

Year Ended December 31, 2016
	FCX				FM O&G LLC				Non-guarantor								Consolidated
	Issuer				Guarantor				Subsidiaries				Eliminations				FCX
Revenues	$	—			$	379			$	14,451			$	—			$	14,830
Total costs and expenses	75				3,074			a	14,463			a	10				17,622
Operating loss	(75		)		(2,695		)		(12		)		(10		)		(2,792		)
Interest expense, net	(534		)		(56		)		(498		)		333				(755		)
Net gain on early extinguishment and exchanges of debt	26				—				—				—				26
Other income (expense), net	271				—				70				(292		)		49
(Loss) income before income taxes and equity in affiliated companies’ net (losses) earnings	(312		)		(2,751		)		(440		)		31				(3,472		)
(Provision for) benefit from income taxes	(2,233		)		1,053				821				(12		)		(371		)
Equity in affiliated companies’ net (losses) earnings	(1,609		)		(3,101		)		(4,790		)		9,511				11
Net (loss) income from continuing operations	(4,154		)		(4,799		)		(4,409		)		9,530				(3,832		)
Net loss from discontinued operations	—				—				(154		)		(39		)		(193		)
Net (loss) income	(4,154		)		(4,799		)		(4,563		)		9,491				(4,025		)
Net income, and gain on redemption and preferred dividends attributable to noncontrolling interests:
Continuing operations	—				—				—				(66		)		(66		)
Discontinued operations	—				—				(63		)		—				(63		)
Net (loss) income attributable to common stockholders	$	(4,154	)		$	(4,799	)		$	(4,626	)		$	9,425			$	(4,154	)
Other comprehensive (loss) income	(45		)		—				(45		)		45				(45		)
Total comprehensive (loss) income	$	(4,199	)		$	(4,799	)		$	(4,671	)		$	9,470			$	(4,199	)

a.	Includes impairment charges totaling $1.5 billion at the FM O&G LLC Guarantor and $2.8 billion at the non-guarantor subsidiaries related to FCX’s oil and gas properties pursuant to full cost accounting rules.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

Year Ended December 31, 2015
	FCX				FM O&G LLC				Non-guarantor								Consolidated
	Issuer				Guarantor				Subsidiaries				Eliminations				FCX
Revenues	$	—			$	613			$	13,994			$	—			$	14,607
Total costs and expenses	60				5,150			a	22,920			a	(11		)		28,119
Operating (loss) income	(60		)		(4,537		)		(8,926		)		11				(13,512		)
Interest expense, net	(489		)		(8		)		(272		)		152				(617		)
Other income (expense), net	225				1				(86		)		(139		)		1
(Loss) income before income taxes and equity in affiliated companies’ net (losses) earnings	(324		)		(4,544		)		(9,284		)		24				(14,128		)
(Provision for) benefit from income taxes	(3,227		)		1,718				3,469				(9		)		1,951
Equity in affiliated companies’ net (losses) earnings	(8,685		)		(9,976		)		(12,838		)		31,496				(3		)
Net (loss) income from continuing operations	(12,236		)		(12,802		)		(18,653		)		31,511				(12,180		)
Net income from discontinued operations	—				—				91				—				91
Net (loss) income	(12,236		)		(12,802		)		(18,562		)		31,511				(12,089		)
Net income and preferred dividends attributable to noncontrolling interests:
Continuing operations	—				—				(35		)		(33		)		(68		)
Discontinued operations	—				—				(79		)		—				(79		)
Net (loss) income attributable to common stockholders	$	(12,236	)		$	(12,802	)		$	(18,676	)		$	31,478			$	(12,236	)
Other comprehensive income (loss)	41				—				41				(41		)		41
Total comprehensive (loss) income	$	(12,195	)		$	(12,802	)		$	(18,635	)		$	31,437			$	(12,195	)

a.	Includes impairment charges totaling $4.2 billion at the FM O&G LLC Guarantor and $8.9 billion at the non-guarantor subsidiaries related to ceiling test impairment charges for FCX’s oil and gas properties pursuant to full cost accounting rules and a goodwill impairment charge.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Year Ended December 31, 2017
	FCX				FM O&G LLC				Non-guarantor								Consolidated
	Issuer				Guarantor				Subsidiaries				Eliminations				FCX
Net cash (used in) provided by operating activities	$	(156	)		$	(467	)		$	5,305			$	—			$	4,682
Cash flow from investing activities:
Capital expenditures	—				(25		)		(1,385		)		—				(1,410		)
Intercompany loans	(777		)		—				—				777				—
Dividends from (investments in) consolidated subsidiaries	3,226				(15		)		120				(3,331		)		—
Asset sales and other, net	—				57				(10		)		—				47
Net cash provided by (used in) investing activities	2,449				17				(1,275		)		(2,554		)		(1,363		)
Cash flow from financing activities:
Proceeds from debt	—				—				955				—				955
Repayments of debt	(2,281		)		(205		)		(1,326		)		—				(3,812		)
Intercompany loans	—				663				114				(777		)		—
Cash dividends paid and distributions received, net	(2		)		—				(3,440		)		3,266				(176		)
Other, net	(10		)		(10		)		(67		)		65				(22		)
Net cash (used in) provided by financing activities	(2,293		)		448				(3,764		)		2,554				(3,055		)
Net (decrease) increase in cash and cash equivalents	—				(2		)		266				—				264
Increase in cash and cash equivalents in assets held for sale	—				—				(62		)		—				(62		)
Cash and cash equivalents at beginning of year	—				2				4,243				—				4,245
Cash and cash equivalents at end of year	$	—			$	—			$	4,447			$	—			$	4,447

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

Year Ended December 31, 2016
	FCX				FM O&G LLC				Non-guarantor								Consolidated
	Issuer				Guarantor				Subsidiaries				Eliminations				FCX
Net cash (used in) provided by operating activities	$	(137	)		$	(271	)		$	4,135			$	2			$	3,729
Cash flow from investing activities:
Capital expenditures	—				(567		)		(2,248		)		2				(2,813		)
Intercompany loans	481				(346		)		—				(135		)		—
Dividends from (investments in) consolidated subsidiaries	1,469				(45		)		176				(1,600		)		—
Asset sales and other, net	2				1,673				4,692				(4		)		6,363
Net cash provided by (used in) investing activities	1,952				715				2,620				(1,737		)		3,550
Cash flow from financing activities:
Proceeds from debt	1,721				—				1,960				—				3,681
Repayments of debt	(5,011		)		—				(2,614		)		—				(7,625		)
Intercompany loans	—				(332		)		197				135				—
Net proceeds from sale of common stock	1,515				—				3,388				(3,388		)		1,515
Cash dividends and distributions paid, including redemption	(6		)		(107		)		(5,555		)		4,969				(699		)
Other, net	(34		)		(3		)		(20		)		19				(38		)
Net cash (used in) provided by financing activities	(1,815		)		(442		)		(2,644		)		1,735				(3,166		)
Net increase in cash and cash equivalents	—				2				4,111				—				4,113
Increase in cash and cash equivalents in assets held for sale	—				—				(45		)		—				(45		)
Cash and cash equivalents at beginning of year	—				—				177				—				177
Cash and cash equivalents at end of year	$	—			$	2			$	4,243			$	—			$	4,245

Year Ended December 31, 2015
	FCX				FM O&G LLC				Non-guarantor								Consolidated
	Issuer				Guarantor				Subsidiaries				Eliminations				FCX
Net cash (used in) provided by operating activities	$	(167	)		$	262			$	3,112			$	13			$	3,220
Cash flow from investing activities:
Capital expenditures	(7		)		(847		)		(5,486		)		(13		)		(6,353		)
Intercompany loans	(1,812		)		(1,310		)		—				3,122				—
Dividends from (investments in) consolidated subsidiaries	852				(71		)		130				(913		)		(2		)
Asset sales and other, net	(21		)		(2		)		111				21				109
Net cash (used in) provided by investing activities	(988		)		(2,230		)		(5,245		)		2,217				(6,246		)
Cash flow from financing activities:
Proceeds from debt	4,503				—				3,769				—				8,272
Repayments of debt	(4,660		)		—				(2,017		)		—				(6,677		)
Intercompany loans	—				2,038				1,084				(3,122		)		—
Net proceeds from sale of common stock	1,936				—				—				—				1,936
Cash dividends and distributions paid	(605		)		—				(924		)		804				(725		)
Other, net	(19		)		(71		)		(18		)		88				(20		)
Net cash provided by (used in) financing activities	1,155				1,967				1,894				(2,230		)		2,786
Net decrease in cash and cash equivalents	—				(1		)		(239		)		—				(240		)
Decrease in cash and cash equivalents in assets held for sale	—				—				119				—				119
Cash and cash equivalents at beginning of year	—				1				297				—				298
Cash and cash equivalents at end of year	$	—			$	—			$	177			$	—			$	177

NOTE 18. SUBSEQUENT EVENTS

In February 2018, the Board reinstated a cash dividend on FCX’s common stock. The Board intends to declare a quarterly dividend of $0.05 per share, with the initial dividend expected to be paid May 1, 2018.

FCX evaluated events after December 31, 2017, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.

NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
2017
Revenues	$	3,341			$	3,711			$	4,310			$	5,041			$	16,403
Operating income	580				669				917				1,467				3,633
Net income from continuing operations	268				326				242				1,193				2,029
Net income from discontinued operations	38				9				3				16				66
Net income	306				335				245				1,209				2,095
Net (income) loss attributable to noncontrolling interests:
Continuing operations	(75		)		(66		)		35				(168		)		(274		)
Discontinued operations	(3		)		(1		)		—				—				(4		)
Net income attributable to common stockholders	228				268				280				1,041				1,817
Basic net income per share
attributable to common stockholders:
Continuing operations	$	0.13			$	0.18			$	0.19			$	0.71			$	1.21
Discontinued operations	0.03				—				—				0.01				0.04
	$	0.16			$	0.18			$	0.19			$	0.72			$	1.25
Basic weighted-average shares outstanding	1,446				1,447				1,448				1,448				1,447
Diluted net income per share
attributable to common stockholders:
Continuing operations	$	0.13			$	0.18			$	0.19			$	0.70			$	1.21
Discontinued operations	0.03				—				—				0.01				0.04
	$	0.16			$	0.18			$	0.19			$	0.71			$	1.25
Diluted weighted-average shares outstanding	1,454				1,453				1,454				1,455				1,454

Following summarizes significant charges (credits) included in FCX’s net income attributable to common stockholders for the 2017 quarters:

•

Net charges at Cerro Verde related to Peruvian government claims for disputed royalties (refer to Note 12 for further discussion) totaled $186 million to net income attributable to common stock or $0.13 per share for the year (consisting of $203 million to operating income, $145 million to interest expense and $7 million to provision for income taxes, net of $169 million to noncontrolling interests), most of which was recorded in the third quarter.

•	Net charges associated with PT-FI workforce reductions for the year totaled $125 million to operating income ($66 million to net income attributable to common stockholders or $0.04 per share) and included $21 million in the first quarter, $87 million in the second quarter, $9 million in the third quarter and $8 million in the fourth quarter.

•	Net adjustments to environmental obligations and related litigation reserves totaled $210 million to operating income and net income attributable to common stockholders ($0.14 per share) for the year, and included net charges (credits) totaling $19 million in the first quarter, $(30) million in the second quarter, $64 million in the third quarter and $157 million in the fourth quarter.

•

Net gains on sales of assets totaling $81 million to operating income and net income attributable to common stockholders ($0.06 per share) for the year were mostly associated with sales of oil and gas properties, and included $23 million in the first quarter, $10 million in the second quarter, $33 million in the third quarter and $15 million in the fourth quarter. Refer to Note 2 for further discussion of asset dispositions.

•	Net tax credits totaling $438 million to net income attributable to common stockholders ($0.30 per share) for the year were mostly associated with provisional tax credits associated with U.S. tax reform ($393 million), which were recorded in the fourth quarter. Refer to Note 11 for further discussion.

•

In November 2016, FCX completed the sale of its interest in TFHL (refer to Note 2 for further discussion), and the results of TFHL are reported as discontinued operations for all periods presented. Net income from discontinued operations for the 2017 periods primarily reflects adjustments to the fair value of the potential contingent consideration related to the sale, which will continue to be adjusted through December 31, 2019.

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
2016
Revenues	$	3,242			$	3,334			$	3,877			$	4,377			$	14,830
Operating (loss) income	(3,872		)		18				359				703				(2,792		)
Net (loss) income from continuing operations	(4,097		)		(229		)		292				202				(3,832		)
Net loss from discontinued operations	(4		)		(181		)		(6		)		(2		)		(193		)
Net (loss) income	(4,101		)		(410		)		286				200				(4,025		)
Net income, and gain on redemption and preferred dividends attributable to noncontrolling interests:
Continuing operations	(73		)		(57		)		(47		)		111				(66		)
Discontinued operations	(10		)		(12		)		(22		)		(19		)		(63		)
Net (loss) income attributable to common stockholders	(4,184		)		(479		)		217				292				(4,154		)
Basic and diluted net (loss) income per share attributable to common stockholders:
Continuing operations	$	(3.34	)		$	(0.23	)		$	0.18			$	0.22			$	(2.96	)
Discontinued operations	(0.01		)		(0.15		)		(0.02		)		(0.01		)		(0.20		)
	$	(3.35	)		$	(0.38	)		$	0.16			$	0.21			$	(3.16	)
Basic weighted-average shares outstanding	1,251				1,269				1,346				1,403				1,318
Diluted weighted-average shares outstanding	1,251				1,269				1,351				1,410				1,318

Following summarizes significant charges (credits) included in FCX’s net (loss) income attributable to common stockholders for the 2016 quarters:

•	Impairment of oil and oil and gas properties pursuant to full cost accounting rules (refer to Note 1 for further discussion) totaled $4.3 billion to operating (loss) income and net (loss) income attributable to common stockholders ($3.28 per share) for the year, and included $3.8 billion in the first quarter, $291 million in the second quarter and $239 million in the third quarter.

•

Other oil and gas charges for the year totaled $1.1 billion to operating (loss) income and net (loss) income attributable to common stockholders ($0.84 per share) mostly associated with drillship settlements/idle rig costs (refer to Note 13 for further discussion of drillship settlements), inventory adjustments, other asset impairment and restructuring charges, and included $201 million in the first quarter, $729 million in the second quarter, $50 million in the third quarter and $142 million in the fourth quarter.

•

During 2016, FCX completed several asset sale transactions, including the sale of substantially all of its oil and gas properties and the sale of an additional undivided interest in the Morenci minerals district (refer to Note 2 for further discussion of these and other 2016 asset dispositions). Net gains (losses) on the sales of assets totaled $649 million to operating (loss) income and net (loss) income attributable to common stockholders ($0.49 per share) for the year, and included $749 million in the second quarter, $13 million in the third quarter and $(113) million in the fourth quarter.

•	Net tax credits of $374 million to net (loss) income attributable to common stockholders ($0.28 per share) for the year were primarily associated with AMT credits, changes to valuation allowances and net operating loss claims, and included net tax (charges) credits totaling $(42) million in the second quarter, $332 million in the third quarter and $84 million in the fourth quarter.

•

Net loss from discontinued operations for the 2016 periods reflects the results of TFHL and includes charges for allocated interest expense associated with the portion of a bank term loan that was required to be repaid as a result of the sale of FCX’s interest in TFHL. The 2016 periods also include charges for the loss on disposal totaling $198 million ($0.15 per share) for the year, consisting of $177 million in the second quarter, $5 million in the third quarter and $16 million in the fourth quarter. Refer to Note 2 for further discussion of the sale of FCX’s interest in TFHL.

•	Net (loss) income attributable to common stockholders in the fourth quarter and for the year included a gain on redemption of noncontrolling interest for the settlement of FCX’s preferred stock obligation at its Plains Offshore subsidiary totaling $199 million ($0.15 per share for the year). Refer to Note 2 for further discussion.

NOTE 20. SUPPLEMENTARY MINERAL RESERVE INFORMATION (UNAUDITED)

Recoverable proven and probable reserves have been calculated as of December 31, 2017, in accordance with Industry Guide 7 as required by the Securities Exchange Act of 1934. FCX’s proven and probable reserves may not be comparable to similar information regarding mineral reserves disclosed in accordance with the guidance in other countries. Proven and probable reserves were determined by the use of mapping, drilling, sampling, assaying and evaluation methods generally applied in the mining industry, as more fully discussed below. The term “reserve,” as used in the reserve data presented here, means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The term “proven reserves” means reserves for which (i) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; (ii) grade and/or quality are computed from the results of detailed sampling; and (iii) the sites for inspection, sampling and measurements are spaced so closely and the geologic character is sufficiently defined that size, shape, depth and mineral content of reserves are well established. The term “probable reserves” means reserves for which quantity and grade are computed from information similar to that used for proven reserves but the sites for sampling are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.

FCX’s reserve estimates are based on the latest available geological and geotechnical studies. FCX conducts ongoing studies of its ore bodies to optimize economic values and to manage risk. FCX revises its mine plans and estimates of proven and probable mineral reserves as required in accordance with the latest available studies.

Estimated recoverable proven and probable reserves at December 31, 2017, were determined using $2.00 per pound for copper, $1,000 per ounce for gold and $10 per pound for molybdenum. For the three-year period ended December 31, 2017, LME spot copper prices averaged $2.50 per pound, London PM gold prices averaged $1,223 per ounce and the weekly average price for molybdenum quoted by Metals Week averaged $7.12 per pound.

The recoverable proven and probable reserves presented in the table below represent the estimated metal quantities from which FCX expects to be paid after application of estimated metallurgical recovery rates and smelter recovery rates, where applicable. Recoverable reserves are that part of a mineral deposit that FCX estimates can be economically and legally extracted or produced at the time of the reserve determination.

	Recoverable Proven and Probable Mineral Reserves
	Estimated at December 31, 2017
	Coppera (billion pounds)			Gold (million ounces)			Molybdenum (billion pounds)
North America	33.5			0.3			2.22
South America	28.1			—			0.62
Indonesiab	25.1			23.2			—
Consolidatedc	86.7			23.5			2.84
Net equity interestd	71.3			21.3			2.56

a.	Consolidated recoverable copper reserves included 2.1 billion pounds in leach stockpiles and 0.7 billion pounds in mill stockpiles.

b.	Recoverable proven and probable reserves reflect estimates of minerals that can be recovered through the end of 2041 (refer to Note 13 for discussion of PT-FI’s COW).

c.

Consolidated reserves represent estimated metal quantities after reduction for joint venture partner interests at the Morenci mine in North America and the Grasberg minerals district in Indonesia (refer to Note 3 for further discussion of FCX’s joint ventures). Excluded from the table above were FCX’s estimated recoverable proven and probable reserves of 273.4 million ounces of silver, which were determined using $15 per ounce.

d.	Net equity interest reserves represent estimated consolidated metal quantities further reduced for noncontrolling interest ownership (refer to Note 3 for further discussion of FCX’s ownership in subsidiaries). Excluded from the table above were FCX’s estimated recoverable proven and probable reserves of 218.2 million ounces of silver.

		Recoverable Proven and Probable Mineral Reserves
		Estimated at December 31, 2017
					Average Ore Grade Per Metric Tona									Recoverable Proven and Probable Reservesb
		Orea (million metric tons)			Copper (%)			Gold (grams)			Molybdenum (%)			Copper (billion pounds)			Gold (million ounces)			Molybdenum (billion pounds)
North America
Developed and producing:
Morenci		3,134			0.26			—			—		c	11.8			—			0.14
Sierrita		2,245			0.23			—		c	0.03			9.9			0.1			1.01
Bagdad		1,405			0.31			—		c	0.02			7.5			0.1			0.36
Safford, including Lone Stard		662			0.45			—			—			5.0			—			—
Chino, including Cobred		276			0.46			0.02			—		c	2.4			0.1			0.01
Climax		160			—			—			0.15			—			—			0.50
Henderson		74			—			—			0.17			—			—			0.24
Tyrone		9			0.42			—			—			0.1			—			—
Miami		—			—			—			—			0.1			—			—
South America
Developed and producing:
Cerro Verde		3,577			0.37			—			0.01			25.6			—			0.62
El Abra		394			0.44			—			—			2.5			—			—
Indonesiae
Developed and producing:
Deep Mill Level Zone		437			0.91			0.76			—			7.7			8.5			—
Deep Ore Zone		79			0.54			0.76			—			0.9			1.6			—
Big Gossan		58			2.22			0.93			—			2.6			1.2			—
Grasberg open pit		34			1.29			2.64			—			1.1			2.7			—
Under development:
Grasberg Block Cave		963			1.01			0.72			—			18.1			14.5			—
Undeveloped:
Kucing Liar		360			1.25			1.07			—			8.4			5.4			—
Total 100% basis		13,867												103.7			34.2			2.88
Consolidatedf														86.7			23.5			2.84
FCX’s equity shareg														71.3			21.3			2.56

a.	Excludes material contained in stockpiles.

b.	Includes estimated recoverable metals contained in stockpiles.

c.	Amounts not shown because of rounding.

d.	The Lone Star oxide project is under development, and the Cobre ore body is undeveloped.

e.	Recoverable proven and probable reserves reflect estimates of minerals that can be recovered through the end of 2041 (refer to Note 13 for discussion of PT-FI’s COW).

f.	Consolidated reserves represent estimated metal quantities after reduction for joint venture partner interests at the Morenci mine in North America and the Grasberg minerals district in Indonesia. Refer to Note 3 for further discussion of FCX’s joint ventures.

g.	Net equity interest reserves represent estimated consolidated metal quantities further reduced for noncontrolling interest ownership. Refer to Note 3 for further discussion of FCX’s ownership in subsidiaries.

NOTE 21. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)

Following the sales of substantially all of FCX’s oil and gas properties, including the sale of its Deepwater GOM, onshore California and Haynesville oil and gas properties in 2016, along with the sales of its property interests in the Madden area in central Wyoming and certain property interests in the GOM Shelf in 2017, FCX’s oil and gas producing activities are not considered significant beginning in 2017. Refer to Note 2 for further discussion.

Costs Incurred. A summary of the costs incurred for FCX’s oil and gas acquisition, exploration and development activities for the years ended December 31, 2016 and 2015, follows:

	2016				2015
Property acquisition costs for unproved properties	$	7			$	61
Exploration costs	22				1,250
Development costs	749				1,442
	$	778			$	2,753

These amounts included increases (decreases) in AROs of $37 million in 2016 and $(80) million in 2015; capitalized general and administrative expenses of $78 million in 2016 and $124 million in 2015; and capitalized interest of $7 million in 2016 and $58 million in 2015.

Capitalized Costs. The aggregate capitalized costs subject to amortization for oil and gas properties and the aggregate related accumulated amortization as of December 31 follow:

		2016				2015
Properties subject to amortization		$	27,507			$	24,538
Accumulated amortizationa		(27,433		)		(22,276		)
		$	74			$	2,262

a.	Includes charges of $4.3 billion in 2016 and $13.1 billion in 2015 to reduce the carrying value of oil and gas properties pursuant to full cost accounting rules.

The average amortization rate per barrel of oil equivalents (BOE) was $17.58 in 2016 and $33.46 in 2015.

Costs Not Subject to Amortization. Including amounts determined to be impaired, FCX transferred $4.9 billion of costs associated with unevaluated properties to the full cost pool in 2016. Sales of unevaluated properties totaled $1.6 billion in 2016. Following FCX’s disposition of its Deepwater GOM and onshore California oil and gas properties in fourth-quarter 2016, the carrying value of all of FCX’s remaining oil and gas properties was included in the amortization base at December 31, 2017 and 2016.

Results of Operations for Oil and Gas Producing Activities. The results of operations from oil and gas producing activities for the years ended December 31, 2016 and 2015, presented below, exclude non-oil and gas revenues, general and administrative expenses, interest expense and interest income. Income tax benefit was determined by applying the statutory rates to pre-tax operating results:

	2016				2015
Revenues from oil and gas producing activities	$	1,513			$	1,994
Production and delivery costs	(1,829		)	a	(1,215		)
Depreciation, depletion and amortization	(839		)		(1,772		)
Impairment of oil and gas properties	(4,317		)		(13,144		)
Income tax benefit (based on FCX’s U.S. federal statutory tax rate)	—			b	5,368
Results of operations from oil and gas producing activities	$	(5,472	)		$	(8,769	)

a.	Includes $926 million in charges related to drillship settlements/idle rig and contract termination costs.

b.	FCX has provided a full valuation allowance on losses associated with oil and gas activities in 2016.

Proved Oil and Natural Gas Reserve Information. The following information summarizes the net proved reserves of oil (including condensate and natural gas liquids (NGLs)), and natural gas and the standardized measure as described below for the years ended December 31, 2016 and 2015. All of FCX’s oil and natural gas reserves are located in the U.S.

Management believes the reserve estimates presented herein are reasonable and prepared in accordance with guidelines established by the SEC as prescribed in Regulation S-X, Rule 4-10. However, there are numerous uncertainties inherent in estimating quantities and values of proved reserves and in projecting future rates of production and the amount and timing of development expenditures, including many factors beyond FCX’s control. Reserve engineering is a subjective process of estimating the recovery from underground accumulations of oil and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Because all oil and natural gas reserve estimates are to some degree subjective, the quantities of oil and natural gas that are ultimately recovered, production and operating costs, the amount and timing of future development expenditures, and future crude oil and natural gas sales prices may all differ from those assumed in these estimates. In addition, different reserve engineers may make different estimates of reserve quantities and cash flows based upon the same available data. Therefore, the standardized measure of discounted future net cash flows (Standardized Measure) shown below represents estimates only and should not be construed as the current market value of the estimated reserves attributable to FCX’s oil and gas properties. In this regard, the information set forth in the following tables includes revisions of reserve estimates attributable to proved properties acquired from PXP and MMR, and reflects additional information from subsequent development activities, production history of the properties involved and any adjustments in the projected economic life of such properties resulting from changes in product prices.

Estimated Quantities of Oil and Natural Gas Reserves. The following table sets forth certain data pertaining to proved, proved developed and proved undeveloped reserves, all of which are in the U.S., for the years ended December 31, 2016 and 2015.

		Oil			Gas			Total
		(MMBbls)a,b			(Bcf)a			(MMBOE)a
2016
Proved reserves:
Balance at beginning of year		207			274			252
Extensions and discoveries		—			—			—
Acquisitions of reserves in-place		—			—			—
Revisions of previous estimates		1			—			1
Sale of reserves in-place		(168	)		(118	)		(187	)
Production		(36	)		(69	)		(48	)
Balance at end of year		4			87			18
Proved developed reserves at December 31, 2016		4			87			18
Proved undeveloped reserves at December 31, 2016		—			—			—

2015
Proved reserves:
Balance at beginning of year		288			610			390
Extensions and discoveries		11			43			17
Acquisitions of reserves in-place		—			—			—
Revisions of previous estimates		(54	)		(287	)		(102	)
Sale of reserves in-place		—			(2	)		—
Production		(38	)		(90	)		(53	)
Balance at end of year		207			274			252
Proved developed reserves at December 31, 2015		129			245			169
Proved undeveloped reserves at December 31, 2015		78			29			83

a.	MMBbls = million barrels; Bcf = billion cubic feet; MMBOE = million BOE

b.	Includes NGL proved reserves of 1 MMBbls (all developed) at December 31, 2016, and 9 MMBbls (6 MMBbls of developed and 3 MMBbls of undeveloped) at December 31, 2015.

For the year ended December 31, 2015, FCX had a total of 17 MMBOE of extensions and discoveries, including 14 MMBOE in the Deepwater GOM, primarily associated with the development at Horn Mountain, and 3 MMBOE in the Haynesville shale assets resulting from drilling that extended and developed FCX’s proved acreage.

For the year ended December 31, 2015, FCX had net negative revisions of 102 MMBOE primarily related to lower oil and gas price realizations.

The average realized sales prices used in FCX’s reserve reports as of December 31, 2016, were $34.26 per barrel of crude oil and $2.40 per one thousand cubic feet (Mcf) of natural gas. Excluding the impact of crude oil derivative contracts, as of December 31, 2015, the average realized sales prices used in FCX’s reserve report were $47.80 per barrel of crude oil and $2.55 per Mcf.

For the year ended December 31, 2016, FCX sold reserves in-place totaling 187 MMBOE, primarily representing all of its Deepwater GOM, onshore California and Haynesville properties.

Standardized Measure. The Standardized Measure (discounted at 10 percent) from production of proved oil and natural gas reserves has been developed in accordance with SEC guidelines. FCX estimated the quantity of proved oil and natural gas reserves and the future periods in which they were expected to be produced based on year-end economic conditions. Estimates of future net revenues from FCX’s proved oil and gas properties and the present value thereof were made using the twelve-month average of the first-day-of-the-month historical reference prices as adjusted for location and quality differentials, which were held constant throughout the life of the oil and gas properties, except where such guidelines permit alternate treatment, including the use of fixed and determinable contractual price escalations (excluding the impact of crude oil derivative contracts). Future gross revenues were reduced by estimated future operating costs (including production and ad valorem taxes) and future development and abandonment costs, all of which were based on current costs in effect at December 31, 2016 and 2015, and held constant throughout the life of the oil and gas properties. Future income taxes were calculated by applying the statutory federal and state income tax rate to pre-tax future net cash flows, net of the tax basis of the respective oil and gas properties and utilization of FCX’s available tax carryforwards related to its oil and gas operations.

The Standardized Measure related to proved oil and natural gas reserves as of December 31, 2016 and 2015, follows:

	2016				2015
Future cash inflows	$	345			$	10,536
Future production expense	(175		)		(4,768		)
Future development costsa	(439		)		(4,130		)
Future income tax expense	—				—
Future net cash flows	(269		)		1,638
Discounted at 10% per year	32				(246		)
Standardized Measure	$	(237	)		$	1,392

a.	Includes estimated asset retirement costs of $0.4 billion at December 31, 2016, and $1.9 billion at December 31, 2015.

A summary of the principal sources of changes in the Standardized Measure for the years ended December 31, 2016 and 2015, follows:

		2016				2015
Balance at beginning of year		$	1,392			$	6,421
Changes during the year:
Sales, net of production expenses		(831		)		(928		)
Net changes in sales and transfer prices, net of production expenses		(341		)		(7,766		)
Extensions, discoveries and improved recoveries		—				45
Changes in estimated future development costs, including timing and other		146				1,287
Previously estimated development costs incurred during the year		295				985
Sales of reserves in-place		(1,049		)		—
Revisions of quantity estimates		12				(1,170		)
Accretion of discount		139				797
Net change in income taxes		—				1,721
Total changes		(1,629		)		(5,029		)
Balance at end of year		$	(237	)		$	1,392