Freeport-McMoRan 2010 Annual Report Download - page 31

MANAGEMENT’S DISCUSSION AND ANALYSIS
During fourth-quarter 2008, we concluded that the then-current
economic environment and significant declines in copper and
molybdenum prices represented significant adverse changes in our
business and evaluated our long-lived assets for impairment.
Projected metal prices represented the most significant assumption
used in the cash flow estimates to assess recoverability and measure
fair value of our individual mining operations. Our evaluation resulted
in the recognition of asset impairment charges totaling $10.9 billion
($6.6 billion to net loss attributable to FCX common stockholders or
$8.67 per share) for 2008. Refer to Note 17 for further discussion of
the 2008 asset impairment charges.
Additionally, goodwill was recorded in connection with the March
2007 acquisition of Phelps Dodge and was assigned to the
reporting units, or individual mines, that were expected to benefit
from the business combination. Goodwill is required to be
evaluated for impairment at least annually and at any other time if
an event or change in circumstances indicates that the fair value of
a reporting unit is below its carrying amount. Our annual goodwill
impairment test was performed in fourth-quarter 2008, which
resulted in the full impairment of goodwill and the recognition of
charges totaling $6.0 billion ($6.0 billion to net loss attributable to
FCX common stockholders or $7.84 per share). Refer to Note 5 for
further discussion.
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
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carryforwards and U.S. state net operating loss carryforwards, and
a portion of our foreign net operating loss carryforwards and U.S.
minimum tax credit carryforwards. These valuation allowances
include $59 million and $44 million, respectively, relating to tax
benefits that, if recognized, would be credited directly to other
comprehensive income. The $69 million increase in the valuation
allowance during 2010 was primarily the result of an increase in
foreign tax credit carryforwards, partially offset by a decrease in
minimum tax credit carryforwards.
Refer to Note 12 for further discussion.
Impairment of Assets. We evaluate our long-lived assets (to be held
and used) for impairment when events or changes in circumstances
indicate that the related carrying amount of such assets may not be
recoverable. In evaluating our long-lived assets for recoverability,
estimates of after-tax undiscounted future cash flows of our individual
mining operations are used, with impairment losses measured by
reference to fair value. As quoted market prices are unavailable for
our individual mining operations, fair value is determined through the
use of discounted estimated future cash flows. The estimated cash
flows used to assess recoverability of our long-lived assets and
measure fair value of our mining operations are derived from current
business plans, which are developed using near-term price forecasts
reflective of the current price environment and management’s
projections for long-term average metal prices. In addition to near
and long-term metal price assumptions, other key estimates include
commodity-based and other input costs; proven and probable
reserves, including the timing and cost to develop and produce the
reserves; and the use of appropriate escalation and discount rates.
Because the cash flows used to assess recoverability of our
long-lived assets and measure fair value of our mining operations
require us to make several estimates and assumptions that are
subject to risk and uncertainty, changes in these estimates and
assumptions could result in the impairment of our long-lived assets
values. Events that could result in impairment of our long-lived assets
include, but are not limited to, decreases in future metal prices,
decreases in estimated recoverable proven and probable reserves and
any event that might otherwise have a material adverse effect on
mine site production levels or costs.