app/code/core/Mage/Shipping/Model/Carrier/Freeshipping.php

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<?php
/**
 * Magento
 *
 * NOTICE OF LICENSE
 *
 * This source file is subject to the Open Software License (OSL 3.0)
 * that is bundled with this package in the file LICENSE.txt.
 * It is also available through the world-wide-web at this URL:
 * http://opensource.org/licenses/osl-3.0.php
 * If you did not receive a copy of the license and are unable to
 * obtain it through the world-wide-web, please send an email
 * to license@magentocommerce.com so we can send you a copy immediately.
 *
 * DISCLAIMER
 *
 * Do not edit or add to this file if you wish to upgrade Magento to newer
 * versions in the future. If you wish to customize Magento for your
 * needs please refer to http://www.magentocommerce.com for more information.
 *
 * @category   Mage
 * @package    Mage_Shipping
 * @copyright  Copyright (c) 2008 Irubin Consulting Inc. DBA Varien (http://www.varien.com)
 * @license    http://opensource.org/licenses/osl-3.0.php  Open Software License (OSL 3.0)
 */


/**
 * Free shipping model
 *
 * @category   Mage
 * @package    Mage_Shipping
 * @author      Magento Core Team <core@magentocommerce.com>
 */
class Mage_Shipping_Model_Carrier_Freeshipping
    extends Mage_Shipping_Model_Carrier_Abstract
    implements Mage_Shipping_Model_Carrier_Interface
{

    protected $_code = 'freeshipping';

    /**
     * FreeShipping Rates Collector
     *
     * @param Mage_Shipping_Model_Rate_Request $request
     * @return Mage_Shipping_Model_Rate_Result
     */
    public function collectRates(Mage_Shipping_Model_Rate_Request $request)
    {
        if (!$this->getConfigFlag('active')) {
            return false;
        }

        $result = Mage::getModel('shipping/rate_result');
//      $packageValue = $request->getBaseCurrency()->convert($request->getPackageValueWithDiscount(), $request->getPackageCurrency());
        $packageValue = $request->getPackageValueWithDiscount();

        $this->_updateFreeMethodQuote($request);

        $allow = ($request->getFreeShipping())
            || ($packageValue >= $this->getConfigData('free_shipping_subtotal'));

        if ($allow) {
            $method = Mage::getModel('shipping/rate_result_method');

            $method->setCarrier('freeshipping');
            $method->setCarrierTitle($this->getConfigData('title'));

            $method->setMethod('freeshipping');
            $method->setMethodTitle($this->getConfigData('name'));

            $method->setPrice('0.00');
            $method->setCost('0.00');

            $result->append($method);
        }

        return $result;
    }

    /**
     * Allows free shipping when all product items have free shipping (promotions etc.)
     *
     * @param Mage_Shipping_Model_Rate_Request $request
     * @return void
     */
    protected function _updateFreeMethodQuote($request)
    {
        $freeShipping = false;
        $items = $request->getAllItems();
        $c = count($items);
        for ($i = 0; $i < $c; $i++) {
            if ($items[$i]->getProduct() instanceof Mage_Catalog_Model_Product) {
                if ($items[$i]->getFreeShipping()) {
                    $freeShipping = true;
                } else {
                    return;
                }
            }
        }
        if ($freeShipping) {
            $request->setFreeShipping(true);
        }
    }

    public function getAllowedMethods()
    {
        return array('freeshipping'=>$this->getConfigData('name'));
    }

}

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