Freeport-McMoRan 2008 Annual Report Download - page 95

Notes to Consolidated Financial Statements
2008 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 93
A summary of the activities associated with FCX’s FIN 48
reserve for unrecognized tax benefits, interest and penalties
follows:
Unrecognized
Tax Benefits Interest Penalties
Balance at January 1, 2007 $ 41 $ 11 $ –
Additions:
Acquisition of Phelps Dodge 169 7 2
Prior year tax positions 9 * *
Current year tax positions 38 * *
Associated with interest and penalties – 6 –
Decreases:
Prior year tax positions (53) * *
Lapse of statute of limitations (2) * *
Associated with interest and penalties – (5) (2)
Balance at December 31, 2007 202 19 –
Additions:
Prior year tax positions 14 * *
Current year tax positions 32 * *
Associated with interest and penalties – 5 –
Decreases:
Prior year tax positions (3) * *
Lapse of statute of limitations (7) * *
Associated with interest and penalties – (1) –
Balance at December 31, 2008 $ 238 $ 23 $ –
* Amounts not allocated.
The reserve for unrecognized tax benefits of $238 million at
December 31, 2008, includes $143 million ($84 million net of
income tax benefits) that, if recognized, would reduce FCX’s
provision for income taxes.
Changes in the reserve for unrecognized tax benefits
associated with current year tax positions were primarily related
to uncertainties associated with FCX’s cost recovery methods.
Changes in the reserve for unrecognized tax benefits associated
with prior year tax positions were primarily related to the
refinement of estimated information to actual.
It is reasonably possible that FCX will experience a $25 million
to $35 million decrease in its reserve for unrecognized tax
benefits within the next twelve months. FCX would experience
this decrease in relation to uncertainties associated with
its cost recovery methods if a settlement is reached with
taxing authorities.
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 and its significant subsidiaries that remain
subject to examination are as follows:
Years Under Additional
Jurisdiction Examination Open Years
U.S. Federal 2003-2005 2006-2008
Indonesia 2005-2006 2004, 2007-2008
Peru 2002-2005 2006-2008
Chile 2007 2005-2006, 2008
Arizona – 2003-2008
New Mexico – 2003-2008
NOTE 15. CONTINGENCIES
Environmental. FCX incurred aggregate environmental capital
expenditures and other environmental costs, including
joint venture partners’ share, totaling $468 million in 2008,
$320 million in 2007 and $63 million in 2006.
FCX subsidiaries that operate in the U.S. are subject to various
federal, state and local environmental laws and regulations
that govern emissions of air pollutants; discharges of water
pollutants; and generation, handling, storage and disposal of
hazardous substances, hazardous wastes and other toxic
materials. FCX subsidiaries that operate in the U.S. also are
subject to potential liabilities arising under CERCLA or similar
state laws that impose responsibility on persons who arranged
for the disposal of hazardous substances, and on current and
previous owners and operators of a facility for the cleanup
of hazardous substances released from the facility into the
environment, including damages to natural resources. With the
passage of CERCLA in 1980, companies like FMC became legally
responsible for environmental remediation on properties
previously owned or operated by them, irrespective of when the
damage to the environment occurred or who caused it. That
liability often is shared on a joint and several basis with all other
owners and operators, meaning that each owner or operator of
the property is fully responsible for the clean-up, although in
many cases 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
Phelps Dodge in 2007, many of the subsidiary companies FCX
now owns are responsible for a wide variety of environmental
remediation projects throughout the U.S. 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
several 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.
As of December 31, 2008, FCX had more than 100 active
remediation projects in the U.S. in approximately 25 states.
FCX is also subject to claims where the release of hazardous
substances is alleged to have damaged natural resources.