Freeport-McMoRan 2007 Annual Report Download - page 99

Financial & Operating Information 97
Notes to Consolidated Financial Statements
The components of deferred taxes follow:
December 31, 2007 2006
Deferred tax assets:
Foreign tax credits $ 1,004 $ 745
Net operating loss carryforwards 164 90
Minimum tax credits 323 90
Accrued expenses 812 –
Intercompany profit elimination 65 71
Deferred compensation 45 43
Postretirement benefits 35 –
Other 77 –
Deferred tax assets 2,525 1,039
Valuation allowances (1,165) (925)
Net deferred tax assets 1,360 114
Deferred tax liabilities:
Property, plant, equipment and development costs (7,441) (723)
Undistributed earnings (603) (184)
Inventory (458) –
Employee benefit plans (75) –
Other (142) (7)
Total deferred tax liabilities (8,719) (914)
Net deferred tax liabilities $ (7,359) $ (800)
At December 31, 2007, FCX had U.S. foreign tax credit carryforwards from
continuing operations of $1.0 billion that will expire between 2009 and
2017. In addition, FCX had U.S. minimum tax credits carryforwards from
continuing operations of $323 million. These credits can be carried
forward indefinitely, but may be used only to the extent that regular tax
exceeds the alternative minimum tax in any given year.
At December 31, 2007, FCX had Spanish net operating loss
carryforwards from continuing operations of $387 million that expire
through the year 2022. FCX also has Peruvian net operating loss
carryforwards from continuing operations of $32 million that expire in 2008.
In addition, FCX has U.S. state net operating loss carryforwards from
continuing operations of $514 million that expire between 2008 and 2028.
On the basis of available information at December 31, 2007, FCX has
provided valuation allowances for certain of its deferred tax assets where
FCX believes it is likely that the related tax benefits will not be realized. At
December 31, 2007, valuation allowances totaled $1.2 billion and covered
all of FCX’s U.S. foreign tax credit carryforwards, a portion of its foreign
net operating loss carryforwards and a portion of its U.S. state net operating
loss carryforwards. At December 31, 2006, valuation allowances totaled
$925 million and covered all of FCX’s U.S. foreign tax credit carryforwards,
all of its U.S. minimum tax credits carryforwards and all of its foreign
net operating loss carryforwards. The $240 million increase in the valuation
allowance during 2007 was primarily because of additional valuation
allowances recorded against U.S foreign tax credit carryforwards.
Income taxes are provided on the earnings of FCX’s material foreign
subsidiaries under the assumption that these earnings will be distributed.
FCX has not provided for other differences between the book and tax
carrying amounts of these investments as FCX considers its ownership
position to be permanent in duration and quantification of the related
deferred tax liability is not practicable.
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 statue of limitations (2) * *
Associated with interest and penalties – (5) (2)
Balance at December 31, 2007 $ 202 $ 19 $ –
* Amounts not allocated.
The reserve for unrecognized tax benefits of $202 million at December
31, 2007, includes $138 million ($125 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 uncertain tax filing
requirements associated with FCX’s acquisition of Phelps Dodge and
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 disposition of subsidiaries and
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:
Jurisdiction Years Under Examination Additional Open Years
U.S. Federal 2003-2005 2006, 2007
Indonesia 2005, 2006 2003, 2004, 2007
Peru 2003 2002, 2004-2007
Chile – 2006-2007
Arizona – 2003-2007
New Mexico – 2004-2007