Freeport-McMoRan 2007 Annual Report Download - page 87

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Financial & Operating Information 85
Notes to Consolidated Financial Statements
NOTE 6. PROPERTY, PLANT, EQUIPMENT AND DEVELOPMENT
COSTS, NET
The components of net property, plant, equipment and development
costs follow:
December 31, 2007 2006
Proven and probable reserves $ 13,797 $ –
VBPP 2,103 –
Development and other 2,516 1,538
Buildings and infrastructure 2,300 1,501
Machinery and equipment 6,023 2,261
Mobile equipment 2,106 757
Construction in progress 1,197 162
Property, plant, equipment and development costs 30,042 6,219
Accumulated depreciation, depletion and amortization (4,327) (3,120)
Property, plant, equipment and development costs, net $ 25,715 $ 3,099
FCX recorded $2,196 million for VBPP in connection with the Phelps
Dodge acquisition and transferred $93 million to proven and probable
reserves during 2007.
FCX’s capitalized interest totaled $147 million in 2007, $11 million in
2006 and $4 million in 2005. Capitalized interest in 2007 primarily related
to development projects at Safford and Tenke Fungurume.
NOTE 7. GOODWILL, AND INTANGIBLE ASSETS AND LIABILITIES
Goodwill. Changes in the carrying amount of goodwill for the year ended
December 31, 2007, follows:
At January 1, 2007 $ –
Acquisition of Phelps Dodge 6,265
Additionsa 21
Disposal of PDIC (see Note 4) (181)
At December 31, 2007 $ 6,105
a. In 2007, FCX acquired minority shareholders’ interests in several of its subsidiaries, which were
subsequently included in the sale of PDIC.
FCX recorded goodwill in connection with the Phelps Dodge acquisition.
This amount represents the excess of the purchase price over the fair
value of assets acquired and liabilities assumed and is subject to
adjustment as FCX finalizes its analysis of these fair values in the first
quarter of 2008. In accordance with accounting rules, goodwill resulting
from a business combination is assigned to the acquiring entity’s reporting
units that are expected to benefit from the business combination.
Adjustments to the recorded values of the assets acquired and liabilities
assumed in the acquisition of Phelps Dodge may occur until such values
are finalized. Accordingly, the allocation of goodwill to reporting units,
which FCX has determined will include its individual mines, will be
completed when FCX finalizes the purchase price allocation in the first
quarter of 2008.
Goodwill has an indefinite useful life and is not amortized, but rather is
tested for impairment at least annually, unless events occur or
circumstances change between annual tests that would more likely than
not reduce the fair value of a related reporting unit below its carrying
amount. Although the allocation of goodwill to reporting units has not yet
been finalized, FCX performed an initial impairment evaluation in the
fourth quarter of 2007 based on a preliminary allocation and concluded
that there was no impairment of goodwill as of December 31, 2007.
Intangible Assets and Liabilities. Intangible assets (included in other
assets) and intangible liabilities (included in other liabilities – see Note 10)
at December 31, 2007, which were acquired in connection with the
acquisition of Phelps Dodge, follow:
Gross Net
Carrying Accumulated Book
Value Amortization Value
Water rights $ 220 $ (1) $ 219
Power contracts 169 (38) 131
Patents and process technology 48 (2) 46
Royalty payments 39 (2) 37
Tire contracts 39 (4) 35
Other intangibles 4 – 4
Total intangible assets $ 519 $ (47) $ 472
Treatment and refining terms in sales contracts $ (52) $ 9 $ (43)
Molybdenum sales contracts (115) 111 (4)
Total intangible liabilities $ (167) $ 120 $ (47)
Amortization of intangible assets recognized in production and delivery
costs was $47 million in 2007, and amortization of intangible liabilities
recognized in revenues totaled $120 million in 2007. The estimated
net amortization expense for the next five years totals $53 million in
2008, $26 million in 2009, $27 million in 2010, $25 million in 2011
and $31 million in 2012.
NOTE 8. TRUST ASSETS
The following is a detail of trust assets at December 31, 2007, which were
acquired in connection with the acquisition of Phelps Dodge:
Global reclamation and remediation $ 544a
Rabbi trust 23
Change of control 21
Non-qualified retirement benefits 18
Total trust assets $ 606
a. Includes $106 million of legally restricted funds for AROs at the Chino, Tyrone and Cobre mines
(see Note 15).