10-QPeriod: Q1 FY2016

FREEPORT-MCMORAN INC Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 10, 2016For Securities:FCX

Summary

Freeport-McMoRan Inc. (FCX) reported a significant net loss for the first quarter of 2016, heavily influenced by a substantial impairment charge of $3.8 billion related to its oil and gas properties. This impairment was driven by lower commodity prices, particularly for oil, and a reassessment of unevaluated properties. Despite the large net loss, the company is actively pursuing strategic asset sales and debt reduction initiatives to strengthen its financial position. Several significant agreements were announced or completed in early 2016, including the sale of an interest in the Morenci joint venture and agreements to sell interests in Timok exploration project and TF Holdings Limited. These efforts are aimed at improving liquidity and deleveraging the balance sheet, with total debt remaining elevated at $20.8 billion.

Financial Highlights

45 data points
Beta

Revenue

$3.24B

-114.3% Gross Margin

Net Income

-$4.18B

-129.1% Net Margin

EPS (Diluted)

$-3.35

Total Assets

$42.66B

Cash & Equivalents

$231.00M

Free Cash Flow

$740.00M

Financial Statements
Beta
Revenue$3.24B
Cost of Revenue$6.95B
Gross Profit-$3.71B
SG&A Expenses$138.00M
Operating Expenses$7.11B
Operating Income-$3.87B
Net Income-$4.18B
EPS (Basic)$-3.35
Shares Outstanding (Basic)1.25B
Shares Outstanding (Diluted)1.25B

Key Highlights

  • 1Reported a net loss of $4.18 billion ($3.35 per share) for Q1 2016, compared to a loss of $2.47 billion ($2.38 per share) in Q1 2015.
  • 2Recorded a significant impairment charge of $3.8 billion on oil and gas properties due to lower oil prices and full cost accounting rules.
  • 3Total debt remained high at $20.8 billion as of March 31, 2016.
  • 4The company is actively engaged in asset sales to reduce debt, announcing or completing several transactions including interests in Morenci, Timok, and TF Holdings.
  • 5Cash flow from operating activities improved to $740 million from $717 million in the prior year, driven by working capital changes.
  • 6Capital expenditures decreased significantly to $982 million from $1.9 billion in the prior year, reflecting reduced investment in major projects and oil and gas operations.
  • 7The company's revolving credit facility and term loan were amended in February 2016 to provide additional flexibility regarding financial covenants.

Frequently Asked Questions

The primary driver of the substantial net loss was a $3.8 billion impairment charge recognized on the company's oil and gas properties. This impairment was primarily due to the continued decline in oil prices and the application of full cost accounting rules, which necessitate periodic reviews of property carrying values against 'ceiling' limitations based on future cash flows.

Freeport-McMoRan is prioritizing debt reduction through strategic asset sales. The company announced or completed several significant transactions in early 2016, including the sale of interests in its Morenci joint venture, the Timok exploration project, and an agreement to sell its interest in TF Holdings Limited. Proceeds from these sales are intended to repay borrowings and strengthen the balance sheet.

Lower commodity prices, particularly for copper and oil, negatively impacted the company's revenues and profitability. The average realized price for copper was 20% lower than in the prior year, and oil prices also declined significantly, contributing to the impairment charges and reduced revenue.

The oil and gas segment recorded a significant impairment charge, highlighting the challenges posed by low commodity prices and capital availability. While the company is exploring strategic alternatives for the business, including asset sales, management is also implementing cost reduction measures and workforce reductions to preserve asset values in the interim.