Freeport-McMoRan 2008 Annual Report Download - page 82

Notes to Consolidated Financial Statements
80 FREEPORT-McMoRan COPPER & GOLD INC. 2008 Annual Report
NOTE 7. GOODWILL, AND INTANGIBLE ASSETS
AND LIABILITIES
Goodwill. Changes in the carrying amount of goodwill for the
years ended December 31, 2008 and 2007, follow:
Balance at January 1, 2007 $ –
Acquisition of Phelps Dodge 6,265
Additions
a
21
Disposal of PDIC (see Note 4) (181)
Balance at December 31, 2007 6,105
Purchase accounting adjustment (57)
Deferred tax liability adjustment associated with the
purchase of Phelps Dodge
b
(61)
Impairment losses (5,987)
Balance at December 31, 2008 $ –
a. In 2007, FCX acquired minority shareholders’ interests in several of its subsidiaries,
which were subsequently included in the sale of PDIC.
b. Adjustment was allocated to the Morenci mine.
FCX recorded goodwill in connection with the Phelps Dodge
acquisition, which primarily related to the requirement to
recognize a deferred tax liability for the difference between the
assigned values and the tax basis of assets acquired and liabilities
assumed in a business combination. 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. The allocation
of goodwill to the reporting units, which FCX determined included
its individual mines, was completed 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. FCX performed its annual
goodwill impairment testing in the fourth quarter of 2008. FCX’s
evaluations were based on current business plans developed
using near-term price forecasts reflective of the current price
environment and management’s projections for long-term
average metal prices. These evaluations resulted in the
recognition of impairment charges of $6.0 billion ($6.0 billion
to net loss or $15.69 per diluted share) to eliminate the full
carrying value of goodwill (see Note 2 for further discussion of
assumptions used in determining fair value).
Intangible Assets and Liabilities. The components of intangible
assets and intangible liabilities (included in other liabilities) as
of December 31, 2008, follow:
December 31, 2008
Gross Net
Carrying Accumulated Book
Value
a
Amortization
a
Value
Indefinite-lived water rights $ 256 $ – $ 256
Patents and process technology 48 (6) 42
Royalty payments 47 (7) 40
Power contracts 26 (11) 15
Tire contracts 9 (2) 7
Other intangibles 4 – 4
Total intangible assets $ 390 $ (26) $ 364
December 31, 2008
Gross Net
Carrying Accumulated Book
Value
a
Amortization
a
Value
Treatment and refining terms in
sales contracts $ 52 $ (15) $ 37
Molybdenum sales contracts 108 (108) –
Total intangible liabilities $ 160 $ (123) $ 37
a. After impairments recorded in 2008.
In connection with the decline in copper and molybdenum prices
and the deterioration of the economic environment during the
fourth quarter of 2008, FCX evaluated its long-lived assets for
impairment as of December 31, 2008. FCX’s evaluations were
based on current business plans developed using near-term price
forecasts reflective of the current price environment and
management’s projections for long-term average metal prices.
These evaluations resulted in the recognition of asset impairment
charges of $119 million ($74 million to net loss or $0.19 per diluted
share) to reduce the carrying values of definite-lived intangible
assets (see Note 2 for further discussion).
Indefinite-lived intangible assets are tested for impairment at
least annually, unless events occur or circumstances change
between annual tests that would more likely than not reduce the
indefinite-lived intangible asset’s fair value below its carrying
value. FCX performed its annual impairment testing in the fourth
quarter of 2008 and concluded that there was no impairment of
indefinite-lived intangible assets.
The components of intangible assets and intangible liabilities
(included in other liabilities) as of December 31, 2007, follow:
December 31, 2007
Gross Net
Carrying Accumulated Book
Value Amortization Value
Indefinite-lived water rights $ 200 $ – $ 200
Patents and process technology 48 (2) 46
Royalty payments 39 (2) 37
Power contracts 169 (38) 131
Tire contracts 39 (4) 35
Other intangibles 24 (1) 23
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 $63 million in 2008 and $47 million in 2007.
Amortization of intangible liabilities recognized in revenues
totaled $3 million in 2008 and $120 million in 2007. The estimated
net amortization expense for the next five years totals $7 million
in 2009, $9 million in 2010, $5 million in 2011, $5 million in 2012
and $3 million in 2013.