Freeport-McMoRan 2014 Annual Report Download - page 44

MANAGEMENT’S DISCUSSION AND ANALYSIS
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Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses totaled
$592 million in 2014, $657 million in 2013 and $431 million in 2012.
Excluding amounts for our oil and gas operations, which totaled
$207 million in 2014 and $120 million for the seven-month period
from June 1, 2013, to December 31, 2013, selling, general and
administrative expenses were lower in 2014, compared with 2013,
primarily because of transaction and related costs totaling
$80 million incurred during 2013 associated with the oil and gas
acquisitions. Higher selling, general and administrative expenses
in 2013, compared with 2012, primarily reflected the addition of
costs associated with oil and gas operations, and transaction and
related costs associated with the oil and gas acquisitions.
Consolidated selling, general and administrative expenses
exclude capitalized general and administrative expenses at our oil
and gas operations totaling $143 million in 2014 and $67 million for
the seven-month period from June 1, 2013, to December 31, 2013.
Mining Exploration and Research Expenses
Consolidated exploration and research expenses for our mining
operations totaled $126 million in 2014, $210 million in 2013 and
$285 million in 2012. Our exploration activities are generally near
our existing mines with a focus on opportunities to expand
reserves and resources to support development of additional
future production capacity in the large mineral districts where we
currently operate. Exploration results continue to indicate
opportunities for what we believe could be significant future
potential reserve additions in North and South America, and in
the Tenke minerals district. The drilling data in North America also
continue to indicate the potential for significantly expanded
sulfide production. Drilling results and exploration modeling in
North America have identified large-scale potential sulfide
resources in the Morenci and Safford/Lone Star districts,
providing a long-term pipeline for future growth in reserves and
production capacity in an established minerals district.
For the year 2015, mining exploration and research
expenditures are expected to total approximately $140 million,
including approximately $100 million for exploration. As further
discussed in Note 1, under the full cost method of accounting,
exploration costs for our oil and gas operations are capitalized to
oil and gas properties.
Environmental Obligations and Shutdown Costs
Environmental obligation costs (credits) reflect net revisions to
our long-term environmental obligations, which will vary from
period to period because of changes to environmental laws
and regulations, the settlement of environmental matters and/or
circumstances affecting our operations that could result in
significant changes in our estimates (refer to “Critical Accounting
Estimates — Environmental Obligations“ for further discussion).
Shutdown costs include care and maintenance costs and any
litigation, remediation or related expenditures associated with
closed facilities or operations. Net charges (credits) for
environmental obligations and shutdown costs totaled $119 million
in 2014, compared with $66 million in 2013 and $(22) million in
2012. Refer to Note 12 for further discussion of environmental
obligations and litigation matters.
Goodwill Impairment
We performed a goodwill assessment in fourth-quarter 2014,
which resulted in an impairment charge of $1.7 billion for
the full carrying value of goodwill. Refer to Notes 1 and 2, and
“Critical Accounting Estimates — Impairment of Goodwill“
for further discussion.
Net Gain on Sales of Assets
Net gain on sales of assets totaled $717 million for the year 2014,
primarily related to the sale of Candelaria/Ojos. Refer to Note 2 for
further discussion.
Interest Expense, Net
Consolidated interest expense (excluding capitalized interest)
totaled $866 million in 2014, $692 million in 2013 and $267 million
in 2012. Increased interest expense in 2014 and 2013 was primarily
associated with acquisition-related debt and assumed debt of
PXP. Refer to Note 8 for further discussion.
Capitalized interest is related to the level of expenditures for
our development projects and average interest rates on our
borrowings, and totaled $236 million in 2014, compared with
$174 million in 2013 and $81 million in 2012.
Net Gain (Loss) on Early Extinguishment of Debt
During 2014, we recorded net gains on early extinguishment of
debt totaling $73 million primarily related to the senior note
redemptions and tender offers. During 2013, we recorded net
losses on early extinguishment of debt totaling $35 million
associated with the termination of the bridge loan facilities for the
oil and gas acquisitions, partly offset by a gain on the redemption
of McMoRan Exploration Co.’s (MMR) remaining outstanding
11.875% Senior Notes. During 2012, we recorded losses on early
extinguishment of debt totaling $168 million associated with the
redemption of our remaining 8.375% Senior Notes. Refer to Note
8 for further discussion of these transactions.
Gain on Investment in MMR
During 2013, we recorded a gain totaling $128 million related
to the carrying value of our preferred stock investment in
and the subsequent acquisition of MMR. Refer to Note 2 for
further discussion.