INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2012

Income before income taxes and equity in affiliated companies' net earnings

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



	2012		2011		2010
United States	$	1,539	$	2,112	$	1,307
Foreign	3,948		6,706		7,205
Total	$	5,487	$	8,818	$	8,512

Provision for (benefit from) income taxes

FCX’s provision for income taxes for the years ended December 31 consists of the following:



	2012				2011				2010
Current income taxes:
Federal	$	238			$	394			$	207
State	7				21				27
Foreign	1,002				1,934				2,500
Total current	1,247				2,349				2,734

Deferred income taxes (benefits):
Federal	87				82				20
State	18				(19		)		(10		)
Foreign	363				622				239
Total deferred	468				685				249

Changes in Peruvian taxes	(205		)	^a,b	53			^c	—

Provision for income taxes	$	1,510			$	3,087			$	2,983

In July 2012, Sociedad Minera Cerro Verde S.A.A. (Cerro Verde) signed a new 15-year mining stability agreement with the Peruvian government, which is expected to become effective when the current mining stability agreement expires on December 31, 2013. In connection with the new mining stability agreement, Cerro Verde's income tax rate will increase from 30 percent to 32 percent. As a result of the change in the income tax rate, FCX recognized additional deferred tax expense of $29 million ($25 million net of noncontrolling interests) in 2012, which relates primarily to the assets recorded in connection with the 2007 acquisition of FMC.

With the exception of TFM, FCX has not elected to permanently reinvest earnings from its foreign subsidiaries and has recorded deferred tax liabilities for foreign earnings that are available to be repatriated to the U.S. Cerro Verde previously recorded deferred Peruvian income tax liabilities for income taxes that would become payable if the reinvested profits used to fund the initial Cerro Verde sulfide expansion are distributed prior to the expiration of Cerro Verde's current stability agreement on December 31, 2013. Because reinvested profits at Cerro Verde are not expected to be distributed prior to December 31, 2013, a net deferred income tax liability of $234 million ($123 million net of noncontrolling interests) was reversed and recognized as an income tax benefit in 2012.

In September 2011, Peru enacted a new mining tax and royalty regime and also created a special mining burden that companies with stability agreements can elect to pay. Cerro Verde elected to pay this special mining burden during the remaining term of its stability agreement. As a result, Cerro Verde recognized additional current ($14 million) and deferred ($39 million) tax expense totaling $53 million ($49 million net of noncontrolling interests) for the year 2011. The deferred portion of this accrual related primarily to the assets recorded in connection with the 2007 acquisition of FMC.

Reconciliation of the U.S. federal statutory tax rate to effective income tax rate

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



	2012						2011					2010
	Amount				Percent		Amount			Percent		Amount			Percent
U.S. federal statutory tax rate	$	1,920			35	%	$	3,086		35	%	$	2,979		35	%
Foreign tax credit limitation	110				2		163			2		93			1
Percentage depletion	(263		)		(5	)	(283		)	(3	)	(263		)	(3	)
Withholding and other impacts on
foreign earnings	(221		)	^a	(4	)	170			2		174			2
Valuation allowance on minimum
tax credits	(9		)		—		(47		)	(1	)	18			—
State income taxes	17				—		—			—		17			—
Other items, net	(44		)		—		(2		)	—		(35		)	—
Provision for income taxes	$	1,510			28	%	$	3,087		35	%	$	2,983		35	%


a.	Included the reversal of Cerro Verde's deferred income tax liability of $234 million.

Components of deferred tax assets and liabilities

The components of deferred taxes follow:



	December 31,
	2012			2011
Deferred tax assets:
Foreign tax credits	$	2,022		$	2,011
Accrued expenses	910			962
Minimum tax credits	474			406
Net operating loss carryforwards	343			356
Employee benefit plans	315			245
Inventory	118			161
Other	256			276
Deferred tax assets	4,438			4,417
Valuation allowances	(2,443		)	(2,393		)
Net deferred tax assets	1,995			2,024

Deferred tax liabilities:
Property, plant, equipment and development costs	(4,563		)	(4,227		)
Undistributed earnings	(884		)	(1,010		)
Other	(60		)	(72		)
Total deferred tax liabilities	(5,507		)	(5,309		)
Net deferred tax liabilities	$	(3,512	)	$	(3,285	)

Reserve for unrecognized tax benefits, interest and penalties

A summary of the activities associated with FCX’s reserve for unrecognized tax benefits, interest and penalties follows:



	Unrecognized Tax Benefits			Interest			Penalties
Balance at January 1, 2011	$	200		$	33		$	—
Additions:
Prior year tax positions	25			*			*
Current year tax positions	16			*			*
Interest and penalties	—			7			—
Decreases:
Prior year tax positions	(34		)	*			*
Current year tax positions	(8		)	*			*
Lapse of statute of limitations	(53		)	*			*
Interest and penalties	—			(6		)	—
Balance at December 31, 2011	146			34			—
Additions:
Prior year tax positions	17			*			*
Current year tax positions	24			*			*
Interest and penalties	—			3			—
Decreases:
Prior year tax positions	(37		)	*			*
Current year tax positions	—			*			*
Settlements with tax authorities	(11		)	*			*
Lapse of statute of limitations	(1		)	*			*
Interest and penalties	—			(6		)	—
Balance at December 31, 2012	$	138		$	31		$	—

* Amounts not allocated.

Summary of income tax examinations

The tax years for FCX's major tax jurisdictions that remain subject to examination are as follows:



Jurisdiction	Years Under Examination	Additional Open Years
U.S. Federal	2007-2010	2011-2012
Indonesia	2005-2008, 2011	2009-2010, 2012
Peru	2002-2010	2011-2012
Chile	2010-2011	2012

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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- Definition

Tabular disclosure of income tax examinations that an enterprise is currently subject to or that have been completed in the current period typically including a description of the examination, the jurisdiction conducting the examination, the tax year(s) under examination, the likelihood of an unfavorable settlement, the range of possible losses, the liability recorded, the increase or decrease in the liability from the prior period, and any penalties and interest that have been recorded.

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