Freeport-McMoRan 2013 Annual Report Download - page 93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2013 ANNUAL REPORT | 91
second-quarter 2013. Fair value was calculated using the closing
quoted market price of MMR’s common stock on June 3, 2013, of
$16.75 per share (i.e., Level 1 measurement) and a valuation
model using observable inputs (i.e., Level 2 measurement) for the
preferred stock. Following is a summary of the $3.1 billion
purchase price for MMR:
Number of shares of MMR common stock acquired (millions) 112.362
a
Cash consideration of $14.75 per share $ 14.75
Cash consideration paid by FCX $ 1,657
Employee stock-based awards 63
Total 1,720
Fair value of FCX’s investment in 51 million shares of
MMR common stock acquired on May 31, 2013,
through the acquisition of PXP 854
Fair value of FCX’s investment in MMR’s 5.75%
Convertible Perpetual Preferred Stock, Series 2 554
Total purchase price $ 3,128
a. Excluded 51 million shares of MMR common stock owned by FCX through its acquisition of
PXP on May 31, 2013.
The following table summarizes the preliminary purchase price
allocations for PXP and MMR as of December 31, 2013:
In the MMR acquisition, for each MMR share owned, MMR
shareholders received $14.75 in cash and 1.15 units of a royalty
trust, which holds a 5 percent overriding royalty interest in future
production from MMR’s Inboard Lower Tertiary/Cretaceous
exploration prospects that existed as of December 5, 2012, the
date of the merger agreement. MMR conveyed the royalty
interests to the royalty trust immediately prior to the effective
time of the merger, and they were “carved out” of the mineral
interests that were acquired by FCX and not considered part of
purchase consideration.
Prior to June 3, 2013, FCX owned 500,000 shares of MMR’s
5.75% Convertible Perpetual Preferred Stock, Series 2, which was
accounted for under the cost method and recorded on FCX’s
balance sheet at $432 million on May 31, 2013. Through its
acquisition of PXP on May 31, 2013, FCX acquired 51 million shares
of MMR’s common stock, which had a fair value of $848 million
on that date based upon the closing market price of MMR’s
common stock ($16.63 per share, i.e., Level 1 measurement). As a
result of FCX obtaining control of MMR on June 3, 2013, FCX
remeasured its ownership interests in MMR to a fair value of
$1.4 billion, resulting in a gain of $128 million that was recorded in
PXP MMR Eliminations Total
Current assets $ 1,193 $ 98 $ — $ 1,291
Oil and gas properties – full cost method:
Subject to amortization
11,447 756 — 12,203
Not subject to amortization. 9,401 1,686 — 11,087
Property, plant and equipment 261 1 — 262
Investment in MMR
a
848 — (848) —
Other assets 12 423 — 435
Current liabilities (906) (174) — (1,080)
Debt (current and long-term) (10,631) (620) — (11,251)
Deferred income taxes
b
(3,916) — — (3,916)
Other long-term liabilities (799) (262) — (1,061)
Redeemable noncontrolling interest (708) (259) — (967)
Total fair value, excluding goodwill 6,202 1,649 (848) 7,003
Goodwill
c
437 1,479 — 1,916
Total purchase price $ 6,639 $ 3,128 $ (848) $ 8,919
a. PXP owned 51 million shares of MMR common stock, which was eliminated in FCX’s consolidated balance sheet at the acquisition date of MMR.
b. Deferred income taxes have been recognized based on the estimated fair value adjustments to net assets using a 38 percent tax rate, which reflected the 35 percent federal statutory rate and
a 3 percent weighted-average of the applicable statutory state tax rates (net of federal benefit).
c. During the fourth quarter of 2013, FCX conducted a qualitative goodwill impairment assessment by examining relevant events and circumstances that could have a negative impact on FCX’s
goodwill, such as macroeconomic conditions, industry and market conditions, cost factors that have a negative effect on earnings and cash flows, overall financial performance, dispositions
and acquisitions, and any other relevant events or circumstances. After assessing the relevant events and circumstances for the qualitative impairment assessment, FCX determined that
performing a quantitative goodwill impairment test was unnecessary, and no goodwill impairment was recognized.
replacement cost for similar capacity for certain fixed assets;
market rate assumptions for contractual obligations; appropriate
discount rates and growth rates, and crude oil and natural gas
forward prices. The excess of the total consideration over the
estimated fair value of the amounts initially assigned to the
identifiable assets acquired, liabilities assumed and redeemable
noncontrolling interest has been recorded as goodwill. Goodwill
In accordance with the acquisition method of accounting, the
purchase price from FCX’s acquisitions of both PXP and MMR has
been allocated to the assets acquired, liabilities assumed and
redeemable noncontrolling interest based on their estimated fair
values on the respective acquisition dates. The fair value
estimates were based on, but not limited to, quoted market prices,
where available; expected future cash flows based on estimated
reserve quantities; costs to produce and develop reserves; current