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Note 5 – Property and Equipment

Property and equipment, net as of September 25, 2009 and December 31, 2008 was comprised of the following:

Depreciation expense includes the amortization of assets recorded under capital leases. Depreciation expense was $7.4 million and $22.0 million for the three and nine months ended September 25, 2009, respectively, and $7.0 million and $22.1 million for the three and nine months ended September 26, 2008, respectively. Depreciation and amortization expense as presented in our condensed consolidated statements of cash flows includes the above amounts, together with amortization expense on our intangible assets. Intangible asset amortization expense was not significant for any period presented in our condensed consolidated statements of income.

Assets held under capital leases, included in Equipment and software as presented above, totaled $9.7 million (net of accumulated amortization of $5.8 million) as of September 25, 2009 and $13.0 million (net of accumulated amortization of $2.5 million) as of December 31, 2008.

4.  Properties and Equipment

Suspended Exploratory Drilling Costs    The Company’s capitalized suspended well costs at September 30, 2009 and December 31, 2008 were $581 million and $279 million, respectively. The $302 million increase primarily related to drilling in the Gulf of Mexico, Ghana, Brazil and Sierra Leone. For the nine months ended September 30, 2009, $41 million of exploratory well costs previously capitalized as suspended well costs for greater than one year were charged to dry hole expense. Also, for the nine months ended September 30, 2009, $42 million of capitalized suspended well costs were reclassified to proved properties.

Management believes projects with suspended exploratory drilling costs exhibit sufficient quantities of hydrocarbons to justify potential development and is actively pursuing efforts to assess whether reserves can be attributed to these areas. If additional information becomes available that raises substantial doubt as to the economic or operational viability of any of these projects, the associated costs will be expensed at that time.

Note 15. Property, Plant and Equipment, Net

The major categories of property, plant and equipment were as follows:

Capitalized interest was $10 million and $16 million for the nine months ended September 30, 2009 and 2008, respectively.

Note 5—Property, Plant and Equipment:

NOTE 4 – PROPERTY, PLANT, AND EQUIPMENT

The following table summarizes our property, plant, and equipment as of October 2, 2009 and December 31, 2008 (in millions):

NOTE 8—PROPERTY, PLANT AND EQUIPMENT:

The components of property, plant and equipment are as follows:

8.   Property, Plant and Equipment

Property, plant and equipment consist of (table in thousands):

Building construction in progress at September 30, 2009 includes $62.7 million for facilities not yet placed in service that we are holding for future use.

4.    Property Plant and Equipment (Exelon and Generation)

Long-Lived Asset Impairments (Exelon and Generation)

Generation evaluated its Texas plants, comprised of the Handley, Mountain Creek and LaPorte generating stations, for potential impairment as of December 31, 2008, and concluded that there was no impairment, as the plants’ estimated undiscounted future cash flows exceeded the carrying values of the plants. Due to the continued decline in forward energy prices in the first quarter of 2009, Generation again evaluated its Texas plants for recoverability as of March 31, 2009.

As the estimated undiscounted future cash flows and fair value of the Handley and Mountain Creek stations were less than the stations’ carrying values, the stations were determined to be impaired at March 31, 2009. LaPorte station was determined not to be impaired. Accordingly, the Handley and Mountain Creek stations were written down to fair value, and an impairment charge of $223 million was recorded in operating and maintenance expense in Exelon’s and Generation’s Consolidated Statements of Operations in the first quarter of 2009. The fair value of the stations was determined using the income (discounted cash flow), market (available comparables) and cost (replacement cost) valuation approaches in determining fair value.

During the second and third quarter of 2009, Generation assessed whether there had been any triggering events requiring an impairment assessment for any of its generating stations. Based on this analysis, it was determined that Generation did not have any triggering events requiring impairment assessments for any of its generating stations during the three months ended June 30, 2009 and September 30, 2009.

See Note 6 — Fair Value of Assets and Liabilities for additional disclosures.

4.    Property Plant and Equipment (Exelon and Generation)

Long-Lived Asset Impairments (Exelon and Generation)

Generation evaluated its Texas plants, comprised of the Handley, Mountain Creek and LaPorte generating stations, for potential impairment as of December 31, 2008, and concluded that there was no impairment, as the plants’ estimated undiscounted future cash flows exceeded the carrying values of the plants. Due to the continued decline in forward energy prices in the first quarter of 2009, Generation again evaluated its Texas plants for recoverability as of March 31, 2009.

As the estimated undiscounted future cash flows and fair value of the Handley and Mountain Creek stations were less than the stations’ carrying values, the stations were determined to be impaired at March 31, 2009. LaPorte station was determined not to be impaired. Accordingly, the Handley and Mountain Creek stations were written down to fair value, and an impairment charge of $223 million was recorded in operating and maintenance expense in Exelon’s and Generation’s Consolidated Statements of Operations in the first quarter of 2009. The fair value of the stations was determined using the income (discounted cash flow), market (available comparables) and cost (replacement cost) valuation approaches in determining fair value.

During the second and third quarter of 2009, Generation assessed whether there had been any triggering events requiring an impairment assessment for any of its generating stations. Based on this analysis, it was determined that Generation did not have any triggering events requiring impairment assessments for any of its generating stations during the three months ended June 30, 2009 and September 30, 2009.

See Note 6 — Fair Value of Assets and Liabilities for additional disclosures.

Note 8. Property and Equipment

Property and equipment are net of accumulated depreciation of $98.9 million and $86.5 million at September 30, 2009 and December 31, 2008, respectively.

6. Property, Plant and Equipment
Property, plant and equipment (including equipment leased to others) – net, consisted of the following.

6. Property, Plant and Equipment
Property, plant and equipment (including equipment leased to others) – net, consisted of the following.

Note 6. Property and Equipment

Property and equipment consisted of the following (in thousands):

Property and equipment consists of the following as of:

Impairment of Property and Equipment

We analyze our assets for impairment when events or circumstances occur that indicate the carrying value may not be recoverable. We consider a property to be impaired when the sum of future undiscounted cash flows during our remaining estimated holding period is less than the carrying value of the asset. For impaired assets, we record an impairment charge equal to the excess of the property’s carrying value over its fair value.

During 2009, we reviewed our hotel portfolio for impairment and identified several properties that may be sold prior to the end of their previously estimated useful lives or that had current or projected operating losses or other events or circumstances indicating a reduction in value or change in intended use. Properties exhibiting these characteristics are tested for impairment based on management’s estimate of expected future undiscounted cash flows from operations and sale during our expected remaining hold period. The fair value of these properties is generally determined based on either a discounted cash flow analysis or negotiated sales price. Based on these assessments, we have recorded non-cash impairment charges totaling $97 million for the year-to-date period ended September 11, 2009. There were no impairment charges recorded during the third quarter of 2009. Impairment charges are classified within depreciation and amortization on the accompanying condensed consolidated statements of operations. For year-to-date 2009, discontinued operations include a non-cash impairment charge of $31 million.

7. Property, Plant and Equipment

Diamond Offshore

During 2009, Diamond Offshore acquired the Ocean Courage and the Ocean Valor, two newbuild, semisubmersible drilling rigs for an aggregate cost of $950 million, exclusive of final commissioning and initial mobilization costs, drill string and other necessary capital spares. Final payment for the Ocean Valor was funded on September 30, 2009 and the purchase of the rig was completed on October 1, 2009. Therefore, the $490 million disbursed on September 30, 2009 has been presented in Construction in process.

HighMount Impairment of Natural Gas and Oil Properties

At March 31, 2009, HighMount recorded a non-cash ceiling test impairment charge of $1,036 million ($660 million after tax) related to its carrying value of natural gas and oil properties. The impairment was recorded as a credit to Accumulated depreciation, depletion and amortization. The write-down was the result of declines in commodity prices at March 31, 2009. Had the effects of HighMount’s cash flow hedges not been considered in calculating the ceiling limitation, the impairment would have been $1,230 million ($784 million after tax).

Boardwalk Pipeline Expansion Projects

In 2009, Boardwalk Pipeline placed in service its Gulf Crossing project and Fayetteville and Greenville Laterals and the remaining compression facilities associated with its Southeast Expansion project. Additionally, Boardwalk Pipeline placed into service the remaining portion of Phase III of the western Kentucky Storage expansion project. As a result, approximately $2.4 billion was transferred from Construction in process to Pipeline equipment. The assets will generally be depreciated over a term of 35 years.

10.        Property, Plant and Equipment
Exploratory well costs capitalized greater than one year after completion of drilling were $371 million as of September 30, 2009, an increase of $317 million from December 31, 2008. Our Angola Block 32 exploration project is now in this category because exploratory drilling ceased in the third quarter of 2008. The $327 million of suspended costs for this project relate to 16 successful wells that have been drilled since 2002 in this license area. We plan to drill an additional exploration well in the fourth quarter of 2009. As discussed in Note 4, we have agreed to sell an undivided 20 percent outside-operated interest in this Angola Block 32.
In addition, an exploration well drilled for $20 million in early 2008 on the Southwest Foinaven prospect in the U.K. Atlantic Margin was added in the first quarter of 2009. It is being evaluated for combined development in conjunction with nearby prospects. For the North Sea Gudrun field, $24 million was removed since engineering and design efforts commenced on its development during the second quarter of 2009.

The following table details the composition of our property and equipment balances at September 11, 2009, and January 2, 2009.

Note 8. Property, Plant and Equipment

Property, plant and equipment consisted of the following:

Effective March 1, 2009, MasterCard executed a new ten-year lease between MasterCard, as tenant, and the Missouri Development Finance Board (“MDFB”), as landlord, for MasterCard’s global technology and operations center located in O’Fallon, Missouri, called Winghaven (see Note 12 (Consolidation of Variable Interest Entity)). The lease includes a bargain purchase option and is thus classified as a capital lease. The building and land assets and capital lease obligation have been recorded at $154,000, which represents the lesser of the present value of the minimum lease payments and the fair value of the building and land assets. The Company received refunding revenue bonds issued by MDFB in the exact amount, $154,000, and with the same payment terms as the capital lease and which contain the legal right of setoff with the capital lease. The Company has netted its investment in the MDFB refunding revenue bonds and the corresponding capital lease obligation in the consolidated balance sheet. The related leasehold improvements for Winghaven will continue to be amortized over the economic life of the improvements.

As of September 30, 2009 and December 31, 2008, other capital leases of $19,527 and $46,794, respectively, were included in equipment. Accumulated amortization of these capital leases was $8,269 and $36,180 as of September 30, 2009 and December 31, 2008, respectively.

Depreciation expense for the above property, plant and equipment, including amortization for capital leases, was $19,487 and $54,891 for the three and nine months ended September 30, 2009, respectively. Depreciation expense for the above property, plant and equipment, including amortization for capital leases, was $14,560 and $43,167 for the three and nine months ended September 30, 2008, respectively.

Property, plant, and equipment, net include the following:

Note C – Property, Plant and Equipment

For companies that use the successful efforts method of accounting, exploratory well costs should continue to be capitalized when the well has found a sufficient quantity of reserves to justify its completion as a producing well and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project.

At September 30, 2009, the Company had total capitalized exploratory well costs pending the determination of proved reserves of $365.2 million. The following table reflects the net changes in capitalized exploratory well costs during the nine-month periods ended September 30, 2009 and 2008.

The following table provides an aging of capitalized exploratory well costs based on the date the drilling was completed for each individual well and the number of projects for which exploratory well costs have been capitalized. The projects are aged based on the last well drilled in the project.