Grupo México, S. A. B. de C. V. and Subsidiaries

Transcription

1 Grupo México, S. A. B. de C. V. and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2014 and 2013 and Independent Auditors Report Dated April 20, 2015

2 Grupo México, S. A. B. de C. V. and Subsidiaries Independent Auditors Report and Consolidated Financial Statements for 2014 and 2013 Table of contents Page Independent Auditors Report 1 Consolidated Balance Sheets 3 Consolidated Statements of Income 5 Consolidated Statements of Comprehensive Income 6 Consolidated Statements of Stockholders Equity 7 Consolidated Statements of Cash Flows 8 Notes to Consolidated Financial Statements 10

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5 Grupo México, S. A. B. de C. V. and Subsidiaries Consolidated Balance Sheets As of December 31, 2014 and 2013 (In thousands of U.S. dollars) Assets Current assets: Cash and cash equivalents $ 1,300,766 $ 2,380,339 Restricted cash 91,745 55,529 Short-term investments 339, ,725 Trade accounts receivable 887, ,018 Other accounts receivable 418, ,153 Inventories Net 1,286,389 1,158,116 Prepaid expenses and other 18,423 19,226 Deferred income tax 235, ,194 Total current assets 4,578,873 5,341,300 Restricted cash 139, ,106 Property, plant and equipment Net 12,760,255 11,465,160 Leachable material Net 563, ,489 Other intangible assets Net 392, ,845 Deferred income tax 1,118, ,742 Other assets 292, ,524 Concession titles Net 184, ,976 Investment in shares of associated companies and other investments 848,190 1,075,007 Total assets $ 20,877,730 $ 20,209,149 Liabilities and Stockholders' Equity Current liabilities: Bank loan and current portion of long-term debt $ 388,208 $ 367,071 Accounts payable and accrued liabilities 914, ,096 Due to related parties 15,125 13,907 Income tax payable 231,035 36,704 Deferred income tax 13,360 - Employees' statutory profit sharing 241, ,473 Total current liabilities 1,803,797 1,585,251 Long-term debt 5,559,700 5,443,772 Labor liabilities 553, ,555 Deferred income tax 1,042,497 1,003,723 Other liabilities and reserves 311, ,131 Total liabilities 9,270,411 8,735,432 (Continues) 3

6 Stockholders' equity: Stockholders' equity of Grupo México, S. A. B. de C. V. Common stock (shares authorized and issued: 2014 and 2013, 7,785,000,000) 2,003,496 2,003,496 Reserve for purchase of shares 243, ,306 Additional paid-in capital 9,043 9,043 Treasury stock (1,665,482) (1,059,380) Accumulated other comprehensive income (loss) gain (264,787) 125,697 Retained earnings 9,503,553 8,235,712 Stockholders' equity of Grupo México, S. A. B. de C. V. 9,829,129 9,557,874 Noncontrolling interest 1,778,190 1,915,843 Total stockholders' equity 11,607,319 11,473,717 Total liabilities and stockholders' equity $ 20,877,730 $ 20,209,149 See accompanying notes to these consolidated financial statements. (Concluded) 4

7 Grupo México, S. A. B. de C. V. and Subsidiaries Consolidated Statements of Income For the years ended December 31, 2014 and 2013 (In thousands of U.S. dollars, except for income per share amounts) Income: Net product sales $ 7,033,622 $ 7,279,454 Service revenue 2,290,431 2,077,591 9,324,053 9,357,045 Costs and operating expenses: Cost of product sales (exclusive of depreciation, amortization and depletion) 3,845,049 3,797,265 Cost of services (exclusive of depreciation and amortization) 1,213,772 1,272,014 General expenses 279,437 97,056 Environmental remediation 91,350 - Depreciation, amortization and depletion 806, ,900 Exploration 79,445 57,599 6,315,220 5,915,834 Income from operations 3,008,833 3,441,211 Interest expense 353, ,966 Capitalized interest (147,257) (95,165) Interest income (53,785) (49,851) (Gain) loss on investments in equity securities (157,727) 51,247 Foreign exchange gain (loss) 9,183 (3,604) 3, ,593 Income before income taxes 3,004,845 3,203,618 Income taxes 953, ,170 Equity in the results of associated companies and other unconsolidated subsidiaries 31,517 27,290 Consolidated net income 2,082,498 2,273,738 Less: net income attributable to noncontrolling interest (377,568) (428,806) Net income attributable to Grupo México, S. A. B. de C. V. $ 1,704,930 $ 1,844,932 Net earnings - basic and diluted income per share $ 0.22 $ 0.24 Dividends paid $ 0.09 $ 0.09 Weighted average shares outstanding ( 000) 7,785,000 7,785,000 See accompanying notes to these consolidated financial statements. 5

8 Grupo México, S. A. B. de C. V. and Subsidiaries Consolidated Statements of Comprehensive Income For the years ended December 31, 2014 and 2013 (In thousands of U.S. dollars) Consolidated net income $ 2,082,498 $ 2,273,738 Other comprehensive income (loss) of controlling interests before tax: Derivative instruments classified as cash flow hedges: Net unrealized gain in the year Defined benefit plans: Net (loss) gain in pension plan during the year (59,256) 69,038 Net (loss) gain in other post retirement plans during the year (147,979) 119,379 (207,235) 188,417 Foreign currency translation and other (257,871) 60,726 Net unrealized gain (loss) on marketable securities 560 (95) Other comprehensive (loss) income of controlling interest before tax (464,449) 249,108 Other comprehensive loss of noncontrolling interest (36,354) (45,362) Income tax (provision) benefit related to items of other comprehensive income 73,965 (66,667) Total other comprehensive (loss) income, net of tax (426,838) 137,079 Total comprehensive income 1,655,660 2,410,817 Total comprehensive income attributable to noncontrolling interest 341, ,444 Total comprehensive income attributable to Grupo México, S. A. B. de C. V. $ 1,314,446 $ 2,027,373 See accompanying notes to consolidated financial statements. 6

9 Grupo México, S. A. B. de C. V. and Subsidiaries Consolidated Statements of Stockholders Equity For the years ended December 31, 2014 and 2013 (In thousands of U.S. dollars) Stockholders' equity of Outstanding shares in thousands Common stock Reserve for shares purchase Additional paid-in capital Treasury stock Accumulated other comprehensive loss Retained earnings Grupo Mexico, S. A. B. de CV Noncontrolling interest Total Balances as of beginning of ,785,000 $ 2,003,496 $ 243,306 $ 9,043 $ (805,373) $ (56,744) $ 6,947,898 $ 8,341,626 $ 1,748,117 $ 10,089,743 Dividends paid (557,118) (557,118) (171,917) (729,035) Increase in treasury stock (254,007) - - (254,007) (43,801) (297,808) Comprehensive result: Consolidated net income ,844,932 1,844, ,806 2,273,738 Other comprehensive income , ,441 (45,362) 137, ,441 1,844,932 2,027, ,444 2,410,817 Balances as of December 31, ,785,000 2,003, ,306 9,043 (1,059,380) 125,697 8,235,712 9,557,874 1,915,843 11,473,717 Dividends paid (577,274) (577,274) (174,576) (751,850) Increase in treasury stock (606,102) - - (606,102) (78,060) (684,162) Disolution of shares , ,085 (150,085) - Acquisition of noncontrolling interest (9,900) (9,900) (76,146) (86,046) Comprehensive result: Consolidated net income ,704,930 1,704, ,568 2,082,498 Other comprehensive loss (390,484) - (390,484) (36,354) (426,838) (390,484) 1,704,930 1,314, ,214 1,655,660 Balances as of December 31, ,785,000 $ 2,003,496 $ 243,306 $ 9,043 $ (1,665,482) $ (264,787) $ 9,503,553 $ 9,829,129 $ 1,778,190 $ 11,607,319 See accompanying notes to these consolidated financial statements. 7

10 Grupo México, S. A. B. de C. V. and Subsidiaries Consolidated Statements of Cash Flows For the years ended December 31, 2014 and 2013 (In thousands of U.S. dollars) Operating: Consolidated net income $ 2,082,498 $ 2,273,738 Charges (credits) not requiring (providing) resources: Seniority premiums and compensation for retirement benefits 194,546 (189,581) Foreign exchange loss (gain) (44,783) 12,440 Depreciation, amortization and depletion 806, ,900 Equity in the results of associated companies and other unconsolidated subsidiaries (31,517) (27,290) Deferred income tax and employees' statutory profit sharing (294,782) (33,274) Loss on sale of property 35,917 40,700 (Gain) loss on investments in equity securities (157,727) 51,247 2,590,319 2,819,880 Changes in operating assets and liabilities: Accounts receivable (69,542) 405,996 Inventories (248,284) (163,251) Accounts receivable and payable, accrued liabilities and other liabilities 195,957 (180,586) Net cash provided by operating activities 2,468,450 2,882,039 Investing: Additions to property and equipment (2,433,199) (2,858,110) Decrease in (acquisition of) of other permanent investments 226,817 (20,796) Sale of property and equipment 4,924 4,618 Restricted cash 99, ,609 Purchase of short-term investments (130,879) (73,636) Stock reimbursement in permanent shares 30,286 - Net cash used in investing activities (2,202,338) (2,733,315) Financing: Proceeds from notes payable 384, ,874 Acquisition of non-controlling interest in subsidiary (115,192) - Debt repaid (191,595) (164,355) Dividends paid to controlling and noncontrolling stockholders (751,850) (729,035) Increase in treasury stock (684,162) (297,808) Net cash used in financing activities (1,358,779) (798,324) Decrease in cash and cash equivalents (1,092,667) (649,600) Effect of exchange rate changes on cash and cash equivalents 13,094 (27,539) (1,079,573) (677,139) Cash and cash equivalents at beginning of year 2,380,339 3,057,478 Cash and cash equivalents at end of year $ 1,300,766 $ 2,380,339 (Continues) 8

11 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 325,943 $ 292,402 Income taxes $ 971,982 $ 963,557 Employees statutory profit sharing $ 255,892 $ 310,106 See accompanying notes to these consolidated financial statements. 9

12 Grupo México, S. A. B. de C. V. and Subsidiaries Notes to Consolidated Financial Statements For the years ended December 31, 2014 and 2013 (In millions of U.S. dollars) 1. Nature of business and significant events: Nature of business - The operating companies that comprise Grupo México, S. A. B. de C. V. and subsidiaries (collectively thecompany or GMEXICO) are engaged in the exploration, mining and processing of metallic and nonmetallic minerals, providing multi-use freight railway services and providing infrastructure services. The Company s mining operations are provided by its wholly owned subsidiary Americas Mining Corporation (AMC), which in turn is parent company of Southern Copper Corporation (SCC) and Asarco Inc. (Asarco). SCC and subsidiaries comprise an integrated producer of copper and other minerals, which operates mining, smelting and refining facilities in Peru and Mexico. SCC and subsidiaries conduct their Peruvian operations through a registered branch (thebranch). The Branch is not a corporation separate from SCC. The Company's Mexican operations are conducted through Minera México, S. A. de C. V. and subsidiaries (MM). The Branch produces copper and other minerals through the operation of two mining facilities, a smelting facility, two solvent extraction/electro winning (SX/EW) facilities and a refining facility, all located in southern Peru. MM and its subsidiaries produce copper in Mexico through the operation of two major open-pit mines, three SX-EW facilities, one smelting facilities and a refining facility, one precious metals refining facility and one copper wire facility. MM s operations also include five underground mining facilities producing, zinc and copper concentrates, one zinc refining facility, one coal mine and one coke plant. Asarco produces copper in the United State of America (EUA), through its operation of three major open-pit mines, one smelting facilities, one of which is currently on standby, two SX-EW facilities, a refining facility and a copper wire facility. The Company s railway system operations are carried out by Infraestructura y Transportes México, S. A. de C. V. (ITM), in which GMEXICO owns 75%. The remaining 25% of ITM is owned by Sinca Inbursa, S. A. de C. V. and Grupo Carso, S. A. B. de C. V. ITM owns 74% of Grupo Ferroviario Mexicano, S. A. de C. V. (GFM), which, owns 100% of Ferrocarril Mexicano, S. A. de C. V. (Ferromex). The remaining 26% of GFM is owned by Union Pacific. On November 24, 2005, the Company reported that ITM, through its recently incorporated subsidiary, Infraestructura y Transportes Ferroviarios, S. A. de C. V. (ITF), acquired 99.99% of the capital stock of Ferrosur, S. A. de C. V. (Ferrosur) from Sinca Inbursa, S. A. de C. V. (Sinca) and Grupo Condumex, S. A. de C. V. (GCondumex). In accordance with guidance set forth in Accounting Standards Codification (ASC) Topic 805, tbusiness Combinations, given that it was a condition precedent, in order to consolidate Ferrosur, ITF needed to obtain authorization of the purchase from the Federal Antitrust Commission. On November 8, 2006, the Federal Antitrust Commission denied the acquisition of Ferrosur by ITF. As a result, ITM and ITF legally challenged the resolution proposed by the Federal Tax and Administrative Justice Court. On March 25, 2011, the First Collegiate Circuit Court in Administrative Matters ruled in favor of ITM and ITF and approved the acquisition. Accordingly, Ferrosur is consolidated as from April 1, 2011, prior to which it was accounted for using the equity method. On September 6, 2011 the Federal Competition Commission (COFECO) definitively closed the investigation into the alleged monopolistic practices of Ferromex and Ferrosur. With this development, the fines were wiaved and all legal actions that were generated in connection with the acquisition of Ferrosur in 2005 were concluded. 10

13 ITM, through its wholly owned subsidiary, GFM, was formed to participate in the privatization of the Mexican Railway System. The main subsidiary of GFM is Ferromex, which is engaged in providing freight and multi-modal railroad services and related activities, including land transportation, storage and other complementary railroad transportation services. The Mexican Federal Government granted Ferromex a 50-year concession (exclusive for 30 years) to operate the railroad tracks known as North-Pacific and the Ojinaga-Topolobampo Short Line. The concession is renewable, subject to certain conditions, for a similar period. The Mexican Federal Government also sold certain fixed assets and the materials necessary to operate Ferromex, plus 25% of the shares of Ferrocarril y Terminal del Valle de México, S. A. de C. V. (FTVM), the entity responsible for operating the México City Railway Terminal. GFM accounts for this 25% investment in FTVM under the equity method. In August 1999, Ferromex obtained the rights to operate the Nogales - Nacozari Short Line concession for 30 years, renewable for a period not exceeding 50 years, beginning on September 1, In addition, ITM through its subsidiary, Ferrosur, operates the Southeast railroad track concession granted by the government. The Company s infrastructure operations are carried out by México Proyectos y Desarrollos, S.A. de C.V. (MPD), which owns 100% of Controladora de Infraestrutura Petrolera México, S.A. de C.V. (CIPEME), Controladora de Infraestrutura Energética México, S.A. de C.V. (CIEM), and México Compañía Constructora, S.A. de C.V. (MCC). CIPEME s principal activity is to provide oil well drilling and related services. As of December 31, 2014, CIPEME has provided services to Petróleos Mexicanos (PEMEX) for over 50 years. CIPEME has overseas well drilling jack ups and additionally provides cement engineering, and directional drilling services and leases modular drills. CIPEME also provides water well drilling services for the mining industry in Mexico. The main operation of CIEM through its subsidiaries is the construction of power plants (Caridad I Plant, II Plant and Wind Farm). Caridad I plant began operations in December As of December 31, 2014, Caridad Plant II was generating test energy to start operations in 2015 and Wind Farm, began operations in August These buildings provide electricity to the mining division. The main operation of MCC is to provide directly or indirectly construction services on public and private infrastructure projects, the construction of storage and hydroelectric dams, waterways and irrigation systems, roads, thermoelectric plants, railroad projects, mining projects, manufacturing plants, petrochemical plants, and housing projects. The operations under MM, ITF, GFM and MPD and their respective subsidiaries are collectively referred to as the Mexican Operations. The operations under the Branch and SCC are collectively referred to as the Peruvian Operations. Asarco s operations are referred to as the American Operations. Significant Events - i. Fitch confirms ratings for GMexico and Subsidiaries.- In October 2014, the credit rating agency Fitch confirmed its BBB+ ratings for GMexico, AMC, and SCC. Fitch also confirmed its ratings of BBB+ for GFM and AAA (mex) for Ferromex. These ratings are a clear reflection of our solid financial structure, cost discipline, and efficiency in the allocation of our capital expenditures. ii. iii. Toquepala receives approval for the Environmental Impact Assessment (EIA).- The Peruvian Ministry of Energy and Mines approved the EIA for Toquepala on December 17, This project represents an investment of approximately $1,200.0 and will have an annual production capacity of 100,000 tons of copper content and 3,100 tons of molybdenum. Acquisition Silver Bell.- The Silver Bell mine is owned and operated by Silver Bell Mining, L.L.C. (SBM), a wholly owned subsidiary of AR Silver Bell, Inc. (AR SB), a wholly owned subsidiary of ASARCO. Prior to September 22, 2014, SBM was owned 75% by AR SB and the non-controlling interests of 12.5% each were owned by Ginrei, Inc., a wholly owned subsidiary of Mitsui & Co., Inc. and Mitsui & Co., Ltd. (collectively, Mitsui). On September 22, 2014, AR SB purchased the noncontrolling 25% interest from Mitsui for $ The purchase was a taxable event for income tax purposes. Equity was reduced by $9.9 reflecting the $39.0 difference between the $115.2 paid for the 25% interest and the book value of $76.0, offset by related deferred taxes of $

14 SBM is engaged in the mining and processing of oxide copper ore through its operation of a SX/EW facility. Most of its revenues are derived from the mining and processing of copper, which is sold as high-grade copper cathode. During the time Mitsui owned a 25% interest in SBM, they had the right to purchase, at fair market value, 25% of all products produced by SBM. After to transaction Mitsui lost the right to purchase a fair market value. iv. Tia Maria receives approval of the EIA.- On August 1, 2014 theperuvian Ministry of Energy and Mines approved the EIA for our Tia Maria project located in the Arequipa region, which will produce 120,000 tons of electrolyte copper per year through a highly efficient and economic leaching process (SX/EW). The total investment for the project is estimated at $1, v. ITM increases US border crossing activity.- ITM experienced a 12% growth in international traffic in 2014, operating 50% of the railroad crossings with the US, while there was a 0.4% decrease in truck crossings at the California, Arizona, and Texas borders. ITM continues to invest in order to capitalize on this traffic in different sectors, and also in its intermodal corridors from Hermosillo, Chihuahua, Monterrey, and Bajio to various US markets. vi. vii. viii. Consolidation of the most important fleet of locomotives and rolling stock in Mexico.- Thirty-four locomotives were purchased in June 2014 to bring the total fleet to 828 locomotives. ITM also purchased 325 bi-level locomotive cars to continue to increase the traffics within the Automotive Industry. ITM s fleet is now 25,377 units. Campeche platform starts operations.- The jack-up platform, Campeche, with a 400 foot flow depth and drilling capacity of 35,000 feet, arrived in the Gulf of Mexico on September 8, 2014 and was positioned on November 15, 2014 to start a 7-year contract with Pemex. First Section of the Salamanca-Leon Highway Opens.- Section I of the Salamanca-Leon highway, consisting of 28.6 km, was opened on December 12, At December close, 97,212 vehicles had traveled on this section of the highway, confirming the favorable expectations for the project. Construction of the entire Salamanca-Leon highway is 76% complete. To date, $274.0 has been invested from a total expected capital budget of $ The second 52.9 km section is expected to open in third quarter to Consolidation principles.- The consolidated financial statements include the financial statements of GMEXICO (as parent and holding company) and those of its subsidiaries, over which the Company exercises control. All significant intercompany transactions and balances have been eliminated in consolidation. These consolidated financial statements were prepared under accounting principles generally accepted in the United States of America (USGAAP). The Company s direct consolidated subsidiaries are shown below: Company Ownership Percentage Activity Americas Mining Corporation Exploration and extraction of minerals. Infraestructura y Transportes Mexico, S. A. de C. V México Proyectos y Desarrollos, S. A. de C. V Freight and multimodal railway services. Public and private infrastructure and construction. Grupo México Servicios, S. A. de C. V. (GMS) Administrative and personnel services. Infraestructura de Transportes Aéreos México, S. A. de C. V. (1) (ITAM) Holding of airway transportation companies. Air Finance, LLC Merchandising services. 12

15 (1) In December 19, 2014, the stockholders' meeting approved the merger of ITAM with GMS, the latter acting as the merging company and acquiring all of the rights and obligations of the absorbed company. The merger went into effect as at December 31, Investments in the entities in which control is exercised are consolidated in these financial statements because shareholdings or other contractual rights grant the Company the power to govern the Company's financial and operating policies. Investments over which the Company does not exercise control are recognized by the equity method. Foreign currency financial statements - In accordance with local laws, the Peruvian branch mantains its accounting books in Peruvian nuevos soles and MM, ITM and MPD in Mexican pesos. In the mining division and at CIPEME from the infrastructure division, the functional currency is the U.S. dollar, therefore, foreign currency assets and liabilities are remeasured into U.S. dollars at current exchange rates except for non-monetary items such as inventory, property, plant and equipment, intangible assets, other assets and stockholders' equity which are remeasured at historical exchange rates. Revenues and expenses are generally translated at actual exchange rates in effect during the period, except for those revenues and expenses associated with non-monteary items, which are remeasured at historical exchange rates. Gains and losses from foreign currency remeasurement are included in consolidated earnings of the period. The gains and losses resulting from foreign currency transactions are included in Cost of sales (exclusive of depreciation, amortization and depletion). The functional currency of ITM, ITF, GFM and MCC is the Mexican peso. Therefore, these entities translate all assets and liabilities using the year-end exchange rate, while capital stock continues to be translated at historical exchange rates. The components of the statements of income, including foreign exchange gains and losses recorded in Mexican pesos as a result of fluctuations in the exchange rate between the Mexican pesos and the U.S. dollars for transactions carried out in U.S. dollars, are translated at the average exchange rate for the period. The effects of translation are reflected as a component of accumulated other comprehensive loss within stockholders' equity. The gains and losses from foreign currency transactions are shown in the consolidated statements of income. Relevant exchange rates used in the preparation of these consolidated financial statements were as follows. The consolidated financial statements should not be construed as representations that Mexican pesos had been, could have been or may be converted in the future into dollars at such rates or any other rates: Mexican pesos (Ps.) per one U.S. dollar: Current exchange rate at December 31 Ps Ps Weighted average exchange rate for the year ended Ps Ps Peruvian nuevos soles (Pns.) per one U.S. dollar: Current exchange rate at December 31 Pns Pns Weighted average exchange rate for the year ended Pns Pns Use of estimates - The preparation of consolidated financial statements in conformity with USGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes the estimates and assumptions used in the preparation of these consolidated financial statements were appropriate in the circumstances, actual results could differ from those estimates and assumptions. 13

16 Reclassifications - Certain amounts in the consolidated financial statements as of and for the year ended December 31, 2013 have been reclassified in order to conform to the presentation of the consolidated financial statements as of and for the year ended December 31, 2014 (see Note 19). 2. Significant accounting policies: A summary of the significant accounting policies used in the preparation of the accompanying consolidated financial statements is as follows: a. Revenue recognition - Substantially all of AMC copper is sold under annual or other longer-term contracts. Revenue is recognized when title passes to the customer. The passing of title is based on terms of the contract, generally upon shipment. Copper revenue is determined based on the monthly average of prevailing commodity prices according to the terms of the contracts. AMC provides allowances for doubtful accounts based upon historical bad debt, claims experience and periodic evaluation of specific customer accounts. For certain of AMC sales of copper and molybdenum products, customer contracts allow for pricing based on a month subsequent to shipping, in most cases within the following three months and occasionally in some cases a few additional months. In such cases, revenue is recorded at a provisional price at the time of shipment. The provisionally priced copper sales are adjusted to reflect forward in the London Metal Exchange (LME) or in the Commodities Exchange in New York (COMEX) copper prices at the end of each month until a final adjustment is made to the price of the shipments upon settlement with customers pursuant to the terms of the contract. In the case of molybdenum sales, for which there are no published forward prices, the provisionally priced sales are adjusted to reflect the market prices at the end of each month until a final adjustment is made to the price of the shipments upon settlement with customers pursuant to the terms of the contract. These provisional pricing arrangements are accounted for separately from the contract as an embedded derivative instrument under ASC Derivatives and Hedging Cash Flows Hedges. AMC sells copper in concentrate, rod, anode, cathode, electrolytic and electrowon form at industry standard commercial terms. ITM and subsidiaries recognize revenue as transportation services in the period services are rendered as the shipment moves from origin. MCC recognize revenues based on the percentage of completion method, in which revenue is recognized based on the cumulative costs incurred as a percentage of total estimated costs required to complete the project. If the most recent cost estimate exceeds the total contract revenue, a loss is recorded to income of the period. CIPEME recognizes income from rental of platforms and equipment in the month they accrue and according to the relevant lease contracts. CIEM recognizes revenue for energy contracts based on the transmitted kilowatts and prices published by the CFE, hourly and based on the geographical area where energy is transmitted. b. Shipping and handling fees and costs - Amounts billed to customers for shipping and handling, are classified as sales. Amounts incurred for shipping and handling are included in cost of sales (exclusive of depreciation, amortization and depletion). c. Cash and cash equivalents - The Company considers all highly-liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. 14

17 d. Restricted cash - Restricted cash consists of cash in the custody of the Company for which the use in whole or in part is restricted for specific purposes pursuant to binding agreements. The restricted cash, including both current and long-term balances at December 31, 2014 and 2013, were $230.9 and $330.6, respectively. The carrying value approximates fair value and is classified as Level 1 inputs in the fair value hierarchy (See Note 22 for definition of Level 1). e. Short - term investments - The Company classifies investments as trading, held-to-maturity, or available-for-sale at the time of purchase and reassesses such classifications as of each balance sheet date. Investments classified as trading securities are acquired and held principally for the purpose of selling them in the near term. Trading securities are stated at fair value with any unrealized gains or losses recognized within earnings. Held-to-maturity investments are those which the Company has both the ability and intent to hold until maturity and are carried at amortized cost. Available-for-sale securities include investments that are classified neither as trading nor held-to-maturity and are stated at fair value with any unrealized gains and losses recorded as a component of other comprehensive income within stockholders equity and reclassified to current earnings upon their sale or maturity. Financial investments classified as held-to-maturity and available-for-sale are subject to annual impairment tests in which the Company evaluates if any events have occurred or economic conditions exist that would indicate that an impairment loss exists and if such loss is other than temporary. The Company considers various factors including, but not limited to, the severity and duration of the loss, the financial condition and future prospects of the issuer and the intent to sell and the Company s ability to maintain the instrument until maturity. If there is evidence that the reduction in fair value is other than temporary, the impairment is recognized in earnings. f. Inventories - Metal inventories, consisting of work- in-process and finished goods, are carried at the lower of average cost or market. Costs incurred in the production of metal inventories exclude general and administrative costs. Once molybdenum, silver, zinc and other by-products are identified, they are transferred to their respective production facilities and the incremental cost required to complete production is assigned to their inventory value. Work-in-process inventories represent materials that are in the process of being converted into a saleable product. Conversion processes vary depending on the nature of the copper ore and the specific mining operation. For sulfide ores, processing includes milling and concentrating and results in the production of copper and molybdenum concentrates. Molybdenum in-process inventory includes the cost of molybdenum concentrates and the costs incurred to convert those concentrates into various high-purity molybdenum chemicals or metallurgical products. Finished goods include saleable products (e.g., copper concentrates, copper anodes, blister copper, copper cathodes, copper rod, molybdenum concentrates and other metallurgical products). Materials and supplies consist of operating and maintenance supplies that are carried in warehouses at various operating sites. These inventories are valued at average acquisition cost, less a reserve for obsolescence and excess inventory. ITM inventories consist primarily of rails, railroad ties and other materials for maintenance of property and equipment, as well as diesel fuel used in providing railroad services. Inventories are stated at the lower of cost or net realizable value, using the average cost method. Cost of sales is recognized at historical cost of the purchased inventories. Values thus determined do not exceed their market value. The allowance for obsolete inventories is considered sufficient to absorb losses on those items, which is determined according to studies performed by the Company management. 15

18 g. Leachable material - The leaching process is an integral part of the mining operations carried out at the Company s open-pit mines. The Company capitalizes the production cost of leachable material in their mines at Toquepala, La Caridad, Buenavista, Ray, Silver Bell, recognizing it as inventory or long-term leachable material. The estimates of recoverable mineral content contained in the leaching dumps are supported by engineering studies. As the production cycle of the leaching process is significantly longer than the conventional process of concentrating, smelting and electrolytic refining, the Company includes on its balance sheet, current leach inventory (included in work-in-process inventories) and long-term leach inventory. Through 2013, the cost attributed to the leach material is charged to cost of sales generally over a five-year period. During the fourth quarter of 2014, the Company completed the construction of a new plant that has resulted in increased efficiency in production and use of leachable material. Accordingly, the Company changed its method of amortization to the units of production method. This change in estimate effected by a change in accounting principle will result in a better matching of costs to revenues as a result of the improved production levels expected from the new plant and will result in a better estimate of current and long-term leachable material inventory. As the plant entered into operation in the fourth quarter of 2014, the impact to results in 2014 was not considered significant and totaled approximately $17.0 recognized within cost of sales. The Company anticipates that the impact in future periods will be significant as a result of expected increased production levels. As of December 31, 2014 the Company has leachable inventory of $864.3 of which $300.8 was classified as a current asset. h. Property, plant and equipment - Property, plant and equipment are recorded at acquisition cost, net of accumulated depreciation and amortization. Cost includes major expenditures for improvements and replacements, which extend useful lives or increase capacity and interest costs associated with significant capital additions. Depreciation and amortization are calculated using the straight-line method, based on the estimated useful lives of the related assets, as follows: Useful Life (Years) Buildings and equipment 4 44 Locomotives and freight cars 9 33 Rails and structures Drilling equipment Buildings and equipment are depreciated on the straight-line method over their estimated lives ranging from 5 to 40 years or the estimated life of the mine if shorter. The Mexican railway operation uses the straight-line method based on the estimated useful lives of the related assets estimated by the administration. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of an asset is not recoverable when the estimated future undiscounted cash flows expected to result from the use of the asset are less than the carrying value of the asset. The Company measures an impairment loss as the difference between the carrying value of the asset and its fair value. i. Mine development - Mine development, included within property, plant and equipment includes primarily the cost of acquiring land rights to an exploitable ore body, pre-production stripping costs at new mines that are commercially exploitable, costs associated with bringing new mineral properties into production and removal of overburden to prepare unique and identifiable areas outside the current mining area for such future production. Mine development costs are amortized on a unit of production basis over the remaining life of the mines. 16

19 Drilling and other associated costs incurred in the Company's efforts to delineate new resources, whether near mine or Greenfield are expensed as incurred. These costs are classified as mineral exploration costs. Once the Company determines through feasibility studies that proven and probable reserves exist and that the drilling and other associated costs embody a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflow, the costs are classified as mine development costs. These mine development costs incurred prospectively to develop the property are capitalized as incurred, until the commencement of production, and are amortized using the units of production method over the estimated life of the ore body. During the production stage, drilling and other related costs incurred to maintain production are included in production cost in the period in which they are incurred. Drilling and other related costs incurred in the Company's efforts to delineate a major expansion of reserves at an existing production property are expensed as incurred. Once the Company determines through feasibility studies that proven and probable incremental reserves exist and that the drilling and other associated costs embody a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflow, then the costs are classified as mine development costs. These incremental mine development costs are capitalized as incurred, until the commencement of production and amortized using the units of production method over the estimated life of the ore body. A major expansion of reserves is one that increases total reserves at a property by approximately 10%. For the years ended December 31, 2014 and 2013 the Company did not capitalize any drilling and related costs. The net balance of capitalized mine development costs at December 31, 2014 and 2013 were $34.8 and $36.2, respectively. j. Ore reserves - AMC periodically reevaluates estimates of its ore reserves, included in property, plant and equipment, which represent the Company's estimate as to the amount of unmined copper remaining in its existing mine locations that can be produced and sold at a profit. Such estimates are based on engineering evaluations derived from samples of drill holes and other openings, combined with assumptions about copper market prices and production costs at each of the respective mines. AMC updates its estimate of ore reserves at the beginning of each year. In this calculation AMC uses current metal prices which are defined as the average metal price over the preceding three years. The current price per pound of copper, as defined, was $3.36 dollars and $3.65 dollars at the end of 2014 and 2013, respectively. The ore reserve estimates are used to determine the amortization of mine development and intangible assets as well as future expected cash flows for impairment testing. Once AMC determines through feasibility studies that proven and probable reserves exist and that the drilling and other associated costs embody a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflow, then the costs are classified as mine development costs and AMC discloses the related ore reserves. k. Value Beyond Proven and Probable Ore Reserves - Included as a component of property, plant and equipment on the consolidated balance sheets at December 31, 2014 and 2013, are values for ore bodies beyond proven and probable reserves (VBPP). VBPP is attributable to (i) mineralized material, which includes measured and indicated amounts that the Company believes could be brought into production with the modification of existing permits and should market conditions and technical assessments warrant, (ii) inferred mineral resources, and (iii) exploration potential. Mineralized material is a mineralized body that has been delineated by appropriately spaced drilling and/or underground sampling to support reported tonnage and average grade of minerals. Such a deposit does not qualify as proven and probable reserves until legal and economic feasibility are confirmed based upon a comprehensive evaluation of development costs, unit costs, grades, recoveries and other material factors. Inferred mineral resources are those parts of a mineral resource for which the overall tonnages, grades, and mineral contents can be estimated with a reasonable level of confidence based on evidence and apparent geological and grade continuity after applying economic parameters. An inferred mineral resource has a lower level of confidence than that applying to an indicated mineral resource. Exploration potential is the estimated value of potential mineral deposits that the Company has the legal right to access. Carrying amounts assigned to VBPP are not charged to expense until the asset becomes associated with additional proven and probable reserves and they are produced or the asset is determined to be impaired. Transfers from VBPP to proven reserves are recorded at the carrying value. 17

20 l. Railway improvements and maintenance and overhauls - Railway improvements and maintenance are capitalized in the caption Rails and structures, when the components of more than 20% of a track section are changed. The capitalized items are depreciated at an average rate between 3.3% and 6.6%. When maintenance or repairs do not require changing the components of more than 20% of one section of a track, the cost is expensed as incurred. Regular maintenance and repair costs are expensed as incurred. The costs of a locomotive overhauls, which extend the useful life, are capitalized and amortized over a term ranging from 4 to 10 years, depending on the type of overhaul. m. Concession titles - Concessions related to railroad activities are recorded at their adjudication cost. Amortization is calculated using the straight-line method, based on the remaining estimated useful life of the fixed assets under concession, which was an average of 30.3, 50 and 20 years for Ferromex, Ferrosur and Transgolfo, S. A. de C. V. (TTG), respectively, (as determined by independent experts) as of the date the concessions were granted. n. Asset retirement obligations (reclamation and remediation costs) - The fair value of a liability for asset retirement obligations is recognized in the period in which the liability is incurred. The liability is measured at fair value and is adjusted to its present value in subsequent periods as accretion expense is recorded. The corresponding asset retirement costs are capitalized as part of the carrying value of the related long-lived assets and depreciated over the asset's useful life. o. Debt issuance costs - Debt issuance costs, which are included in other assets, are amortized using the effective interest method over the term of the related debt. p. Intangible assets - Intangible assets include primarily the excess amount paid over the carrying value for investment shares of the Branch and mining and engineering development studies. Intangible assets are carried at its acquisition cost, net of accumulated amortization and are amortized principally on a unit of production basis over the estimated remaining life of the mines. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. q. Exploration - Costs incurred in the search for mineral properties are charged against earnings when incurred. r. Income taxes - Provisions for income tax are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the consolidated financial statements at currently enacted income tax rates applicable to the period in each jurisdiction in which the deferred tax assets and liabilities are expected to be realized and settled as prescribed in ASC Topic 740 Income Taxes. As changes in tax laws or rates are enacted in each jurisdiction, deferred tax assets and liabilities are adjusted in income in the period that the change is enacted. Deferred income tax assets are reduced by any benefits that, in the Company's opinion, are more likely than not to be realized. Accounting Standards Update (ASU) No , Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists was effective for the Company s fiscal year beginning January 1, As a result of the adoption of ASU No on January 1, 2014, liabilities associated with unrecognized tax benefits within non-current tax payable were reclassified to net against deferred income tax assets. In accordance with ASU , the Company netted unrecognized tax benefits against the foreign tax credit carryforward. The Company's operations involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on the estimate of whether, and the extent to which, additional taxes will be due. The Company follows the guidance of ASC 740 Income tax (FIN 48 Uncertain tax positions in prior literature) to record these liabilities. The Company adjusts these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the tax liabilities. 18

21 If the Company s estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. The Company classifies income tax-related interest and penalities as income taxes in the financial statements, as well as interest and penalities, if any related to unrecognized tax benefits. s. Derivative financial instruments - The Company obtains financing under different conditions; when it is at a variable rate in order to reduce exposure to the risk of volatility in interest rates, at times it contracts interest rate swap financial derivatives which convert their interest payment profile from variable to fixed rate. Trading with financial derivatives is performed only with institutions of recognized solvency and limits have been established for each institution. The Company s policy is not to carry out speculative transactions using financial derivatives. The Company recognizes all the assets or liabilities which arise from transactions with financial derivatives on the consolidated balance sheet at fair value, regardless of the purpose for which they are held. Fair value is determined based on recognized market prices, and when they are not listed in recognized market, it is determined by using valuation techniques accepted in the financial community. When the derivatives are contracted for the purpose of hedging risks and comply with all hedge requirements, the designation is documented at the beginning of the hedging relationship, describing the objective, characteristics, accounting recognition and how the effectiveness will be measured in relation to this transaction. t. Asset impairments - The Company evaluates its long-term mining, railway and infrastructure division assets when events or changes in economic circumstances indicate that the carrying amount of such assets may not be recoverable. These evaluations, in the case of the mining segment, are based on business plans that are prepared using a time horizon that is reflective of the Company's expectations of metal prices over its business cycle. The Company is currently using a long-term average copper price and an average molybdenum, reflective of the current price environment, for the impairment tests. The results of its impairment tests using these long-term copper and molybdenum prices show no impairment in the carrying value of their assets. In recent years the Company s assumptions for long-term average prices resulted in stricter evaluations for impairment analysis than would the higher three year average prices for copper and molybdenum. Should this situation reverse in the future with three year average prices below the long-term price assumption, the Company would assess the need to use the three year average prices in its evaluations. The Company uses an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life to measure whether the assets are recoverable and measures any impairment by reference to fair value. Railway segment reviews the carrying value of long-lived assets in use when the presence of any indication of impairment which could indicate that the carrying value may not be recoverable, considering the greater of the net present value of future cash flows or the net selling price in the case of its eventual disposal. The impairment loss is recognized if the carrying amount exceeds the greater of the amounts mentioned above. The impairment indicators considered for these purposes are, among others, operating losses and negative cash flows in the period if they are combined with a history or projection of losses, depreciation and amortization charged to results, which in percentage terms in relation to revenues are substantially higher than in previous, obsolescence, competition and other economic and legal factors exercises. At December 31, 2014 and 2013, there are no indications of impairment in these assets. 19

22 Infrastructure segment reviews the carrying amounts of long-lived assets in use when an impairment indicator suggests that such amounts might be not recoverable, considering the greater of the present value of future net cash flows or the net sales price upon disposal. Impairment is recorded when the carrying amounts exceed the greater of the aforementioned amounts. As of December 31, 2014 and 2013, there were no indicators of impairment noted for long-lived assets. u. Investment in shares of associated companies and other investment - Investments in shares of associated companies are valued according to the equity method. Under this method, the acquisition costs are initially recognized based on the net fair value of the entities identifiable assets and liabilities as of the date of acquisition. Such value is subsequently adjusted for the portion related both to comprehensive income (loss) of the associated company and the distribution of earnings or capital reimbursements thereof. The equity in income of associates is included in earnings. Comprehensive income attributable to associates is included in other comprehensive income. Investments in equity securities made by the Company and classified as held for trading purposes in entities over which it does not exercise control, joint control, or significant influence are initially recorded at acquisition cost and adjusted to fair value if such investments have readily determinable fair values. v. Other comprehensive income - Represents changes in equity during a period, except those resulting from investments by owners and distributions to owners. During the years ended December 31, 2014 and 2013, the components of other comprehensive income were the unrealized gain on cash flow hedge derivative instruments, the unrecognized gain (loss) on employee benefit obligations, and realized gain (loss) included in net income. w. Environmental remediation costs - It is the Company s policy to accrue a liability for environmental obligations when it is considered probable and reasonably estimable. Such accruals are adjusted as new information develops or circumstances change and are recorded at gross amounts. x. Recently adopted accounting pronouncements On January 1, 2014, the Company adopted ASU , Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this update supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASUs (issued in June 2011) and (issued in December 2011) for all public and private organizations. The amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. In July 2013, the FASB issued ASU No , Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The guidance states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward to the extent that, among others, the tax law of the applicable jurisdiction allows for the use of such tax assets to settle any additional income taxes that would result from the disallowance of a tax position. The Company adopted this in 2014; see income tax note above. 20

23 Recently issued accounting pronouncements pending adoption In February 2013, the Financial Accounting Standards Board (FASB) issued the Accounting Standard Updates (ASU) , Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation is Fixed at the Reporting Date. The amendments in this ASU require an entity to measure joint and several obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The amendments in this guidance are effective for fiscal years, and interim periods within those years, beginning after December 15, The Company will apply this guidance in any future arrangement and does not expect this guidance to have a material impact on its consolidated financial information. In May 2014, the FASB issued ASU Revenue from Contracts with Customers (Topic 606). The objective of the new revenue standard is to provide a single comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries and across capital markets. The core principle of the standard is that the Company should recognize revenue to represent the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company should apply the following five steps to achieve the core principle: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations (promises) in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the Company satisfies a performance obligation. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. Additionally, the Company should disclose sufficient qualitative and quantitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This revenue standard is effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. The Company does not expect this guidance to have a material impact on the consolidated financial information. In May 2014 the FASB issued ASU , Revenue Recognition (Topic 606) Revenue from Contracts with Customers. This ASU requires companies to recognize revenue when a customer obtains control rather than when companies have transferred substantially all risks and rewards of a good or service. In addition, the update requires expanded disclosures surrounding the Company s revenue transactions. This ASU is effective for the Company in Short-term investment The balances of short-term investments were as follows: Trading securities $ $ Weighted average interest rate 0.78% 3.78% Available for sale $ 5.9 $ 6.1 Weighted average interest rate 0.44% 0.42% Total $ $

24 Trading securities consist of bonds issued by public companies and are publicly traded. Each financial instrument is independent of the others. The Company has the intention to sell these bonds in the short-term. Available-for-sale investments consist of securities issued by public companies. Each security is independent of the others and, as of December 31, 2014 and 2013, included corporate bonds and asset and mortgage backed obligations. As of December 31, 2014 and 2013, gross unrealized gains and losses on available-forsale securities were not material. Related to these investments the Company earned interest, which was recorded as interest income in the consolidated statement of earnings. Also the Company redeemed some of these securities and recognized gains (losses) due to changes in fair value, which were recorded as general expense in the consolidated statement of income. As of December 31, contractual maturities of debt securities classified as available-for-sale are as follows: One year or less $ 1.3 $ 0.8 Maturing after five years through ten years Due after ten years Total debt securities $ 5.9 $ 6.1 The following table summarized the activity of these investments: Trading: Interest earned $ 4.9 $ 5.2 Unrealized loss 2.1 (1.9) Available for sale: Interest earned $ (*) $ (*) Investment redeemed (*) As of December 31, 2014 and 2014 are less than $0.1 in both years. 4. Other accounts receivable Recoverable taxes $ $ Prepayments Loan to workers Deferred employee participation in profit sharing Other Total $ $

25 5. Inventories Metals and minerals: Finished goods $ $ Work-in-process Materials and supplies Inventories Net $ 1,286.4 $ 1,158.1 Inventory, long-term: Leachable material Long-term $ $ As of December 31, 2014 and 2013, work in-process includes $300.8 and $191.7, respectively, of capitalized leaching costs. Total leaching costs added as long-term inventory of leachable material amounted to $529.1 and $421.2, respectively. Leachable material recognized as cost of sales amounted to $300.0 and $217.3 in 2014 and 2013, respectively. 6. Prepaid expenses and other Prepaid insurance $ 10.5 $ 10.7 Contributions $ 18.4 $ Property, plant and equipment Buildings and equipment $ 10,686.5 $ 9,459.6 Locomotives and freight cars ,046.7 Rails and structures 1, ,108.1 Drilling equipment Train yards and terminals Value beyond proven and probable reserves Other railway equipment , ,050.0 Less - Accumulated depreciation, amortization and depletion (6,787.4) (6,241.4) 8, ,808.6 Land, other than mineral 1, Construction in progress 3, ,709.4 Property, plant and equipment - Net $ 12,760.3 $ 11,465.2 Depreciation and depletion expense for the years ended December 31, 2014 and 2013 amounted to $787.8 and $676.3, respectively. 23

26 8. Concession titles Concessions are comprised of the following: North-Pacific railroad track $ 97.1 $ Southeast railroad track Nogales-Nacozari short railroad track Ojinaga-Topolobampo short railroad track South-Oaxaca short railroad track Overhauls Accumulated amortization (117.8) (124.0) Concession titles Net $ $ Amortization charged to 2014 and 2013 income amounted to $8.7 and $9.1, respectively. The value of the North-Pacific Railway concession title was determined by deducting the value of the tangible assets received from the price paid for the Ferromex shares, net of the liability arising from the capital lease of 24 locomotives that Ferrocarriles Nacionales de México (FNM) had entered into with Arrendadora Internacional, S. A. de C. V. (settled in 2001). 9. Investments in associated companies and other investments Investments in associated companies and other investments The investments in associated companies and other investments were as follows: Equity in the results from the year ended Investment at December 31, December 31, Associated companies % FTVM 50.0 $ 27.8 $ 28.1 $ 7.7 $ 6.3 TTX Company Minera Coimolache Wind Farm El Retiro Other Total $ $ $ 31.6 $ 27.2 The Company has a 44.2% participation in Coimolache S.A. (Coimolache), which it accounts for on the equity method. Coimolache owns Tantahuatay, a gold mine located in the northern part of Peru. To support the cost of the development of Tantahuatay, the Company loaned $56.6 to Coimolache. The repayment of this loan was completed in August

27 Investments in equity securities The Company s share in these investments, and their carrying amounts, are as follows: Company Share in 2014 Share in 2013 Grupo Aeroportuario del Pacífico S. A. B. de C. V % 28.03% $ $ Other intangible assets Mining concessions $ $ Infrastructure concessions Mine engineering and development studies Software Accumulated amortization (48.1) (46.2) Goodwill Intangible assets $ $ Amortization expense on intangible assets was $1.9 and $2.4 for the years ended December 31, 2014 and 2013, respectively. The estimated aggregate amortization expense for intangibles is $7.6 for the years 2015 through 2019 for an average expected annual expense of approximately $1.5 per year during this period. 11. Other noncurrent assets Patents and licenses $ 18.0 $ 13.4 Amortization (3.9) (3.5) Long - term receivable Deferred charges Advances to suppliers Others $ $

28 12. Maintenance agreements Ferromex has executed two maintenance and repairs agreements with Lámparas General Electric, S. de R. L. de C. V. (Lámparas), an agreement with Alstom Mexicana, S. A. de C. V. (ALSTOM), and another with EMD Locomotive Company de México, S. A. de C. V. (EMDL) to provide repair and maintenance services, as well as the major repairs of some locomotives of Ferromex, as follows: Number of locomotives Terms of the agreement Suplier included Initial date Expiration date Lámparas 251 August 2012 June 2017 Lámparas 159 May 1999 June 2024 and December 2026 ALSTOM 50 February 2010 February 2015 EMDL 117 Jun 2006 June 2026 Total 577 Ferromex has the right to rescind some of the maintenance contracts, assuming then the cost for early termination. The Lámparas agreement for 251 locomotives expiring in June 2017 stipulates the following payments for early termination: a) $2.7 if it occurs between July 1, 2014 and June 30, 2015, b) $1.8 if it occurs between July 1, 2015 and June 30, 2016 and c) $1.0 if it occurs between July 1, 2016 and June 30, The Lámparas agreement for 159 locomotives includes two separate fleets (AC4400 and ES44AC), the agreement for the AC4400 fleet which expires in June 2024 indicates that the Company may cancel as of July 1, 2009 and pay a penalty ranging from $2.0 in 2009 to U.S. $0.1 in June The agreement for the 100 ES44AC locomotives (EVO), indicates that the Company may cancel as of 2010, but will be subject to penalties of $2.7 to $ 0.2 in The ALSTOM agreement, with maturity in January 2015, contemplates an early termination, for which the Company would have to pay the cost of inventories and the termination benefits specified in the employement contracts of ALSTOM's personnel. The EMDL agreement may not be canceled before July 1, If Ferromex decides to conclude the contract between July 1, 2015 and June 30, 2016, it would have to pay an amount equivalent to 15 months average billing. The cancellation payment will decrease by one month for each 12 month period during the current contract. As of December 31, 2014 and 2013, Ferrosur has an agreement to receive maintenance with ALSTOM to receive maintenance, repairs and inspecting services to the transport equipment. The terms of the agreement covers a five year period starting from March 1, Maintenance and repairs - Regarding the locomotives maintenance and repair work, pursuant to the agreements, Ferromex must make monthly payments based on certain fees that include mainly preventive and corrective maintenance. These fees are recorded in the results of operations as the services are received. For the years ended December 31, 2014 and 2013, Ferromex paid $71.9 and $72.5, respectively. Overhauls - Overhauls are capitalized to property and equipment as incurred and amortized over the period between overhauls which may vary depending on the use of the railways. Generally, the costs are amortized over 5 to 8 years average. Overhauls that are carried out according to the contractual requirements of the concession titles are capitalized to the concession title asset. 26

29 13. Bank loans and long-term debt At December 31, 2014 and 2013, the Company was in compliance with the guarantees and restrictions established by the debt agreements which include financial covenants and restrictions on entering into additional debt and on certain capital expenditures. Consolidated debt was as follows: SCC $ 4,154.9 $ 4,153.8 ASARCO MM GFM/ITM MPD 1, ,185.8 Total 5, ,810.9 Less - Current portion (388.2) (367.1) Long-term debt $ 5,559.7 $ 5,443.8 The maturities of long-term debt and notes payable as of December 31, 2014 were as follows: Year Principal due * 2015 $ Thereafter 5,298.2 $ 5,993.1 (*) Total debt maturities do not include the debt discount valuation account of $45.2. Mining segment: SCC 6.375% Notes due 2015 ($200 face amount, less unamortized discount of $0.2 and $0.3 at December 31, 2014 and 2013, respectively) $ $ % Notes due 2020 ($400 face amount, less unamortized discount of $1.2 and $1.4 at December 31,2014 and 2013, respectively) % Notes due 2040 ($1,100 face amount, less unamortized discount of $7.8 and $7.9 at December 31,2014 and 2013) 1, , % Notes due 2035 ($1,000 face amount, less unamortized discount of $14.2 and $14.5 at December 31, 2014 and 2013, respectively) % Notes due 2042 ($1,200 face amount, less unamortized discount of $20.9 and $21.2 at December 31, 2014 and 2013) 1, , % Notes due 2022 ($300 face amount, less unamortized discount of $0.8 and $0.9 at December 31,2014 and 2013)

30 MM 9.250% Yankee Bonds - Series B due ASARCO 1.250% Mitsui credit agreement due 2019 ($115.6 face amount LIBOR rate plus 1.125%) Total 4, ,204.9 Less - Current portion (224.3) - Long-term debt $ 4,097.3 $ 4,204.9 The difference between the face amount and the balances as of December 31, 2014 and 2013 of the senior unsecured notes is the unamortized issuance discount, which is being amortized over the term of the related debt. The bonds, referred above as Yankee bonds, contain a covenant requiring MM to maintain a ratio of EBITDA to interest expense of not less than 2.5 to 1.0 as such terms are defined by the facility. At December 31, 2014, MM is in compliance with this covenant. Between July 2005 and November 2012 SCC issued senior unsecured notes six times totaling $4.2 billion as listed above. Interest on the notes is paid semi-annually in arrears. The notes rank pari passu with each other and rank pari passu in right of payment with all of SCC s other existing and future unsecured and unsubordinated indebtedness. The indentures relating to the notes contain certain restrictive covenants, including limitations on liens, limitations on sale and leaseback transactions, rights of the holders of the notes upon the occurrence of a change of control triggering event, limitations on subsidiary indebtedness and limitations on consolidations, mergers, sales or conveyances. Certain of these covenants cease to be applicable before the notes mature if SCC obtains an investment grade rating. SCC obtained investment grade rating in SCC has registered these notes under the Securities Act of 1933, as amended. SCC may issue additional debt from time to time pursuant to certain of the indentures. Related to these notes, SCC capitalized $28.9 of issuance costs which unamortized balance is included in Other assets, non-current on the consolidated balance sheet and are being amortized as interest expense over the life of the loans. At December 31, 2014 and 2013, the balance of capitalized debt issuance costs was $25.8 and $26.1, respectively. Amortization charged to interest expense was $0.9 and $0.8 in 2014 and 2013, respectively. If SCC experiences a Change of Control Triggering Event, SCC must offer to repurchase the notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any. A Change of Control Trigger Event means a Change of Control (as defined) and a rating decline (as defined), that is, if the rating of the notes, by at least one of the rating agencies shall be decreased by one or more gradations. At December 31, 2014, SCC was in compliance with the covenants of the notes. In September 2014, Asarco borrowed $115.6 primarily to purchase Mitsui s 25% interest in SBM. Principal payments are due quarterly starting with March 2015 and ending with September Until the debt is repaid, Asarco selects a rate and a period (one, three or six month term) for interest payments. The interest rate, set at the beginning of each payment period is either a LIBOR based rate, plus basis points or the bank s variable rate, plus basis points. The initial rate set in September 2014 for three months was 1.36%. The rate set for the three months ending March 23, 2015, is 1.37%. 28

31 The debt agreement contains restrictive covenants, including restrictions on liens on property, mergers, sales of assets, transactions with affiliates, and restricted payments. The debt agreement requires the Company to maintain compliance with certain ratio levels, such as maintaining an interest coverage ratio of 3:1. At December 31, 2014, the Company was in compliance with the terms of the debt agreement. Aggregate maturities of the outstanding borrowings at December 31, 2014, are as follows: Year Principal due (*) 2015 $ Thereafter 4, ,366.8 (*) Total debt maturities do not include the debt discount valuation account of $45.2. Railway segment: Loan from HSBC BANK PLC and EXPORT DEVELOPMENT CANADA (EDC), $2.9 with maturities every six months through November 26, 2014, subject to interest at six month LIBOR plus 0.08% (1) $ - $ 2.9 Loan from HSBC MÉXICO, S. A. COMMERCIAL BANK (HSBC), $0.5 with maturities every six months through November 26, 2014, subject to interest at six months LIBOR plus 0.40% (1) Loan from CREDIT AGRICOLE CIB (formerly CALYON EXIMBANK) with maturities every three months through June 15, 2016, subject to interest at the three month LIBOR without spread (2) Loan from CREDIT AGRICOLE CIB (formerly CALYON EXIMBANK) -, $3.5 in 2014 ($5.8 in 2013) with maturities every three months through June 15, 2016, subject to interest at three month LIBOR rate plus 0.40% to 0.50% (2) Loan from EXIMBANK-PEFCO funded in March 16, 2013, with maturities every three months through May 15, 2021, subject to interest rate at monthly LIBOR plus 0.65% (3)

32 Long-term debt contracts in Mexican pesos: Loan from Banco Nacional de México, S.A. (BANAMEX) and Export- Import United State Bank (EXIMBANK) with maturities every three months through September 15, 2015, subject to interest at the fixed rate of 8.18% (4) Loan from BANAMEX with maturities every three months through March 15, 2014, subject to interest at the fixed rate of 8.25% (4) Loan from Financial Group IXE (IXE BANK or IXE), on May 31, 2012 for Ps.450,000, subject to 91-days the Interbank Offering Rate in Mexico (Spanish acronym TIIE) of interest plus 1.35% with maturing quarterly from august 31, 2013 (5) Debt securities (certificados bursátiles) (6) Total Less - Current portion of long-term debt (28.4) (113.3) Long-term debt $ $ The maturities of notes payable as of December 31, 2014, were as follows: Year Principal due 2015 $ Thereafter $ (1) Loans from HSBC BANK PCL - EDC and HSBC, respectively contracted for the purchase of 15 SD70ACe locomotives, which are pledged for these loans. (2) Loans from CREDIT AGRICOLE CIB (formerly CALYON) - EXIM and CREDIT AGRICOLE CIB (before CALYON), respectively contracted for the purchase of 40 locomotives, which are pledged for these loans. (3) Loan from PEFCO - EXIMBANK on March 16, 2013 for $41.9, subject to interest at three-month LIBOR rate plus 0.65%, contracted for the purchase of 24 locomotives which expire on May 15, (4) Loans from BANAMEX - EXIMBANK and direct loan from BANAMEX, issued to pay, in advance the bridge loan from BANAMEX, used for the purchase of 60 locomotives, which are pledged for such loans. In the loans mentioned in the point (1), (2) and (4) Ferromex signed as guarantor. (5) Credit with IXE BANCO issued on May, 31, 2011 by Ferrosur to refinance liabilities. 30

33 (6) On October 14, 2014, the Comisión Nacional Bancaria y de Valor (Spanish acronym CNBV) authorized Ferromex a new securitization certificate program up to an amount of Ps.5,000,000,000 (nominal value), for a five-year term. On November 14, 2007, the CNBV authorized Ferromex a new securitization certificate program of up to an amount of Ps.5,000,000,000 (nominal value), for a four-year term. As of December 31, 2014 and 2013, Ferromex has issued debt under these programs with the following features and whose balances are as follows: Date of Maturity Issuance Transaction Date Annual Rate FERROMX -07 Nov 16, 2007 Nov 7, 2014 TIIE 28 days % $ - $ 76.5 FERROMX Nov 16, 2007 Oct 28, 2022 Fixed rate of 9.03% FERROMX -11 Apr 15, 2011 Apr 2, 2021 Fixed rate of 8.88% FERROMX -14 Oct 20, 2014 Oct 7, 2024 Fixed rate of 6.76% $ $ The loans and securitization certificates establish certain covenants for GFM, which as of December 31, 2014 had been fulfilled. The average annual rates for the years ended December 31, 2014 and 2013 were: 6-month LIBOR: 0. 33% and 0. 47%, 3-month LIBOR 0.24% and 0.28% and 28 day TIIE 2.52% and 3.11%, respectively. Infraestructure segment: PEMSA Bank loan with MONEX, S.A. (MONEX), with maturity on August 30, 2017, accrues interest at a rate equal to monthly LIBOR plus 2.5%.(1) $ - $ 1.4 Bank loan with IXE, with maturity on May 31, 2014, accrues interest at a rate equal to monthly LIBOR plus 4.75% (2) Bank loan with IXE, with maturity on August 6, 2014, accrues interest at a rate equal to monthly LIBOR plus 4.25% (3) CIPEME Bank loan with HSBC, with maturity on June 14, 2020, accrues interest at a rate equal to monthly LIBOR plus 2.50% (4) Bank loan with INBURSA, S.A. (INBURSA), with maturity on June 14, 2020, accrues interest at a rate equal to monthly LIBOR plus 3.25% (5) Bank loan with INBURSA, with maturity on July 2, 2020, accrues interest at a rate equal to monthly LIBOR plus 3.25% (6)

34 MCC Bank loan with BANOBRAS, S.A. (BANOBRAS), with maturity on October 1, 2032, accrues interest at a rate equal to monthly LIBOR plus 5.85% (7) MGE 5.50% Senior secured notes with New York Mellon a due in 2012 payable semi annually with a final maturity date of December 6, 2032 (8) México Generadora de Energía Eólica, S.A. de C.V. (MGEO) 5.50% Senior secured notes due in 2019 payable semi annually with a final maturity date of March 12, 2029 (9) MPD Bank loan with HSBC, with maturity on August, 2015, accrues interest at a rate equal to monthly TIIE 1.25% (10) Total 1, ,185.8 Less, current portion (135.5) (253.8) Total long-term debt $ 1,077.1 $ The maturities of notes payable as of December 31, 2014 were a follows: Year Principal due 2015 $ Thereafter $ 1,212.6 (1) Loan with MONEX, to acquire water well drilling equipment, which assets are held as collateral, with monthly amortizations through August 30, This loan was liquidated on September 5, (2) Loan from IXE contracted in 2010 for $10.0, due on May 31, 2014, to finance the continued drilling operations in Poza Rica, Veracruz on the project Aceite Terciario del Golfo (ATG), with monthly amortizations through May 31, This loan was liquidated on June 2, (3) Loan from IXE contracted in 2013 for $5.0, due on August 6, 2014, to finance the continued drilling operations in Poza Rica, Veracruz on the project ATG. (4) Mortgage loan with HSBC for the acquisition of the jack up rig Tabasco and Campeche for $ payable in 5 years. 32

35 (5) Mortgage loan with INBURSA for the acquisition of the jack up rig Zacatecas for $129.8, with monthly amortizations through June 14, (6) Mortgage loan with INBURSA for the acquisition of the jack up rig Chihuahua for $ with monthly amortizations through July 2, (7) Loan with BANOBRAS used for the construction of the highway denominated León - Salamanca in Guanajuato, Mexico, with quarterly amortizations through October 1, During 2014 increased by $35.5. (8) (9) The proceeds of the offering are used for the payment of development and construction of two naturalgas-fired combined cycled electric generating plants, with a potential net capacity of megawatts each, with by monthly amortizations through December 6, (10) The proceeds of this credit facility are used for the development and construction of a wind farm located in Juchitán, Oaxaca with a potential net capacity of 74 megawatts. Once the project is fully operating amortizations will be paid on a semi-annual basis. (11) The proceeds of this credit facility were used to finance MPD infrastructure projects while larger credit facilities with longer tenors are obtained. Principal was payable in full on April 21, This credit will be paid in full on August Interest is being paid on a monthly basis. The loans establish certain covenants, which the Company is in compliance as of December 31, Asset retirement obligation (ARO) SCC SCC maintains an estimated asset retirement obligation for its mining properties in Peru, as required by the Peruvian Mine Closure Law. In accordance with the requirements of this law, SCC s closure plans were approved by MINEM. As part of the closure plans, SCC is required to provide annual guarantees over the estimated life of the mines, based on a present value approach, and to furnish the funds for the asset retirement obligation. This law requires reviews of closing plans every five years. Currently and for the nearterm future, SCC has pledged the value of its Lima office complex as support for this obligation. The accepted value of the Lima office building, for this purpose, is $27.8. Through December 2014, SCC has provided guarantees of $17.9. The closure cost recognized for this liability includes the cost, as outlined in its closure plans, of dismantling the Toquepala and Cuajone concentrators, the smelter and refinery in Ilo, and the shops and auxilary facilities at the three units. In 2014, the Company reviewed ASC Asset Retirement Obligation rule and adjusted the liability by $36.3 at its Peruvian operations. A comparable adjustment was applied against the deferred asset recognized in property. The net effect of these adjustments did not change the Company s net income. In 2010, the Company communicated to the Mexican federal environmental authorities its closure plans for the copper smelter plant at San Luis Potosi. The Company initiated a program for plant demolition and soil remediation. In January 2014, the Company approved an increase in the budget for this program to $62.4, of which the Company has spent $46.9 through December 31, Plant demolition and construction of a confinement area at the south of the property were completed in 2012 and the Company expects to complete soil remediation and the construction of a second confinement area during the second quarter of The Company expects that once the site is remediated, a decision will be made on whether sell or develop the property. 33

36 In 2012, SCC decided to recognize an estimated asset retirement obligation for its mining properties in Mexico as part of its environmental commitment. Even though, there is currently no enacted law, statute, ordinance, or writen or oral contract requiring SCC to carry out mine closure and environmental remediation activities, SCC considers that a constructive obligation presently exists based on, among other things, the remediation caused by the closure of the San Luis Potosi smelter in Consequently, according to ASC on December 31, 2012 SCC recorded an asset retirement obligation of $25.1 on and increased net property by $20.3. The overall cost recognized for mining closure includes the estimated costs of dismantling concentrators, smelter and refinery plants, shops and other facilities. The following table summarizes the asset retirement obligation activity for the two years ended December 31, 2014 and 2013: Balance as of January 1 $ $ Changes in estimates (9.6) - Closure payments (12.2) (6.3) Accretion expense Balance as of December 31, $ $ ASARCO Accounting for reclamation and remediation obligations requires management to make estimates, unique to each mining operation, relating to the future costs anticipated to complete reclamation and remediation work that is required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required. Any such changes could materially affect the amounts charged to earnings for reclamation and remediation. As of December 31, 2014 and 2013, $21.9 and $16.6, respectively, were accrued for potential reclamation obligations. Accretion expense related to ARO s was $2.6 and $2.4 for the years ended December 31, 2014 and 2013, respectively. Asarco has approximately $6.8 and $6.7 of cash and investments pledged to secure certain ARO s, which are recorded as restricted cash and investments as of December31, 2014 and 2013, respectively. Information relating to the total obligations for ARO liabilities as of December 31, 2014 and 2013, is as follows: Balance as of January 1 $ 16.6 $ 17.3 Remediation expanditures 2.7 (3.1) Accretion expense Balance as of December 31 $ 21.9 $ Employees' statutory profit sharing SCC s operations in Peru, Mexico, and other subsidiaries of GMEXICO are subject to statutory workers participation. 34

37 In Peru, the provision for workers participation is calculated at 8% of pre-tax earnings. The current portion of this participation, which is accrued during the year, is based on Peruvian Branch s taxable income and is distributed to workers following determination of final results for the year. The annual amount payable to an individual worker is capped at the worker s salary for an 18 month period. Amounts determined in excess of the 18 months of worker s salary is no longer made as a payment to the worker and is levied first for the benefit of the Fondo Nacional de Capacitacion Laboral y de Promocion del Empleo (National Workers Training and Employment Promotion Fund) until this entity receives from all employers in its region an amount equivalent to 2,200 Peruvian taxable units (approximately $2.8 in 2014). Any remaining excess is levied as payment for the benefit of the regional governments. These levies fund worker training, employment promotion, road infrastructure and other government programs. In Mexico, workers participation is determined using the guidelines established in the Mexican income tax law (LISR for its initials in Spanish) at a rate of 10% of pre-tax earnings as adjusted by the tax law. In December 2013, the Mexican Congress approved some amendments to the tax law, as a consequence, SCC recorded a deferred workers participation provision of $16.3. The provision for workers participation is allocated in Cost of sales (exclusive of depreciation, amortization and depletion) and to General expenses in the consolidated statement of income. For the years ended December 31, 2014 and 2013, workers' participation expense was $209.8 and $233.0, respectively. 16. Related party balances and transactions Due to related parties: TTX Company $ 9.9 $ 8.4 Ferrocarril y Terminal Valle de México S. A. de C. V México Transporte Aéreos, S.A. de C.V. (Mextransport) Others Fondo Inmobiliario, S. A. de C. V $ 15.1 $ 13.9 The Company has entered into certain transactions in the ordinary course of business with parties that are controlling shareholders or their affiliates. These transactions include the lease of office space, air transportation and construction services and products and services relating to mining and refining. The Company lends and borrows funds among affiliates for acquisitions and other corporate purposes. These financial transactions bear interest and are subject to review and approval by senior management, as are all related party transactions. It is the Company s policy that the Audit Committee of the Board of Directors shall review all related party transactions. The Company is prohibited from entering or continuing a material related party transaction that has not been reviewed and approved or ratified by the Audit Committee. The Larrea family controls a majority of the capital stock of GMEXICO, and has extensive interests in other businesses, including aviation and real estate. SCC engages in certain transactions in the ordinary course of business with other companies controlled by the Larrea family relating to the lease of office space and air transportation. 35

38 The following table summarize the purchase activity with companies with relationships to SCC executive officers families in 2014 and 2013: Higher Technology S.A.C. $ 3.2 $ 2.2 Servicios y Fabricaciones Mecánicas S.A.C Sempertrans PIGOBA, S.A. de C.V Breaker, S.A. de C.V Total purchased $ 16.4 $ 7.9 SCC purchased industrial materials from Higher Technology S.A.C., and paid fees for maintenance services provided by Servicios y Fabricaciones Mecánicas S.A.C. Mr. Carlos Gonzalez, the son of SCC s Chief Executive Officer, has a proprietary interest in these companies. SCC purchased industrial material from Sempertrans France Belting Technology and Sempertrans Belchatow SP Z.O.O., in which Mr. Alejandro Gonzalez is employed as a sales representative. Also, SCC purchased industrial material from PIGOBA, S.A. de C.V., a company in which Mr. Alejandro Gonzalez has a proprietary interest. Mr. Alejandro Gonzalez is the son of SCC s Chief Executive Officer. SCC purchased industrial material and services from Breaker, S.A. de C.V., a company in which Mr. Jorge Gonzalez, son-in-law of SCC s Chief Executive Officer, has a proprietary interest, and from Breaker Peru, S.A.C., a company in which Misters Jorge González and Carlos González, son-in-law and son, respectively, of SCC s Chief Executive Officer have a proprietary interest. It is anticipated that in the future SCC will enter into similar transactions with these same parties. 17. Benefit plans Mining segment SCC - Peruvian and Mexican Operations SCC has two non-contributory defined benefit pension plans covering former salaried employees in the United States and certain former employees in Peru (theexpatriate Plan). Effective October 31, 2000, the Board of Directors amended the qualified pension plan to suspend the accrual of benefits. In October 2014, the Society of Actuaries (SOA) issued new mortality tables based on a comprehensive study of private retirement plans. Effective December 31, 2014, the Company elected to update the mortality assumption to the new SOA tables. In addition, the Company s Mexican subsidiaries have a defined contribution pension plan for salaried employees and a non-contributory defined benefit pension plan for union employees (themexican Plan). The components of net periodic benefit costs calculated in accordance with ASC 715 Compensation retirement benefits, using December 31 as a measurement date, consist of the following: Service Cost $ 1.0 $ 1.1 Interest Cost Expected return on plans assets (3.3) (3.4) Amortization of transition assets, net Amortization of net actuarial (loss) (0.4) (0.7) Amortization of net loss Net periodic benefit cost $ (1.3) $ (1.8) 36

39 The change in benefit obligation and plan assets and a reconciliation of funded status are as follows: Change in benefit obligation: Projected benefit obligation at beginning of year $ 26.8 $ 27.9 Service cost Interest cost Actuarial gain census - (0.3) Benefit paid (1.9) (2.2) Actuarial (gain)/loss (1.6) 0.3 Actuarial (gain) loss assumption changes 2.2 (1.0) Inflation adjustment (1.8) - Projected benefit obligation at end of year $ 25.8 $ 26.8 Change in plan assets: Fair value of plan assets at beginning of year $ 60.6 $ 61.9 Actual return on plan assets 3.7 (0.2) Employer contribution (0.5) 0.1 Benefits paid (1.1) (0.9) Currency exchange rate adjustment (5.0) (0.3) Fair value of plan assets at end of year $ 57.7 $ 60.6 Funded status at the end of year $ 31.9 $ 33.8 ASC 715 amounts recognized in the statement of financial position consists of: Non current assets $ 31.9 $ 33.8 ASC-715 amounts recognized in accumulated other comprehensive income (net of income taxes of $0.4 and $1.5 in as of December 31, 2014 and 2013, respectively) consists of: Net (gain) $ (1.3) $ (1.7) Prior service cost Total $ 0.3 $ (1.6) The following table summarizes the changes in accumulated other comprehensive income for the years ended December 31, related to the defined benefit pension plan, net of income tax: Reconciliation of accumulated other comprehensive income: Accumulated other comprehensive income at beginning of plan year $ (1.6) $ (3.6) Net loss amortized during the year Net loss occurring during the year Amortization of transition obligation (0.1) - Currency exchange rate adjustment Net adjustment to accumulated other comprehensive income (net income taxes of $(1.1) and $(1. 3) in 2014 and 2013, respectively) Accumulated other comprehensive income at end of plan year $ 0.3 $ (1.6) 37

40 The following table summarizes the amounts in accumulative other comprehensive income amortized and recognized as a component of net periodic benefit cost in 2014 and 2013, net of income tax: Net loss $ 0.2 $ 1.5 Amortization of net gain Amortization of transition obligation (0.1) - Total amortization expenses $ 0.2 $ 1.9 The assumptions used to determine the pension obligation are: Peruvian Operations Discount rate 3.50% 4.25% Expected long-term rate of return on plan asset 4.50% 4.50% Rate of increase in future compensation level N/A N/A Mexican Operations (*) Discount rate 6.70% 7.10% Expected long-term rate of return on plan asset 6.70% 7.10% Rate of increase in future compensation level 4.00% 4.00% (*) These rates are based on Mexican pesos as the pension obligations are related to employees in Mexico. The scheduled maturities of the benefits expected to be paid in each of the next five years, and thereafter, are as follows: Year Expected Benefit Payments 2015 $ to Total $ 21.5 Peruvian Operations Expatriate Planl SCC s funding policy is to contribute amounts to the qualified pension plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional amounts as SCC may determine to be appropriate. Plan assets are invested in stock and bond funds. Plan assets are invested in a group annuity contract (the Contract) with Metropolitan Life Insurance Company (MetLife). The Contract invests in the MetLife Broad Market Bond Fund (the Bond Fund) managed by BlackRock, Inc. (BlackRock), and the MetLife General Account Payment Fund (the Money Fund). 38

41 The Money Fund seeks to earn interest and maintain a $1.00 per share net asset value, by investing in U.S. Dollar-denominated money market securities. The Bond Fund seeks to outperform the Barclays Capital U.S. Aggregate Bond Index, net of fees, over a full market cycle. The Bond Fund invests in publicly traded, investment grade securities. These may include corporate securities, mortgage securities, treasuries and cash, agency securities, commercial mortgage backed securities and other investment vehicles. Plan assets are invested with the objective of maximizing returns with an acceptable level of risk and maintaining adequate liquidity to fund expected benefit payments. The Company s policy for determining asset mix-targets to meet investment objectives includes periodic consultation with recognized third party investment consultants. The expected long-term rate of return on plan assets is reviewed annually, taking into consideration asset allocations, historical returns and the current economic environment. Based on these factors the Company expects its assets will earn an average of 4.50% per annum assuming its long-term mix will be consistent with its current mix. Mexican Operations MM s policy for determining asset mix targets includes periodic consultation with recognized third party investment consultants. The expected long-term rate of return on plan assets is updated periodically, taking into consideration assets allocations, historical returns and the current economic environment. The fair value of plan assets is impacted by general market conditions. If actual returns on plan assets vary from the expected returns, actual results could differ. The plan assets are managed by three financial institutions, Scotiabank Inverlat, S.A. (INVERLAT), Banco Santander and IXE, S.A. 27% of the funds are invested in Mexican government securities, including treasury certificates and development bonds of the Mexican government. The remaining 73% is invested in common shares of GMEXICO. The plan assets are invested without restriction in active markets that are accessible when required and are therefore considered as level 1, in accordance with ASC 820 Fair Value Measurement. These plans accounted for approximately 30% of benefit obligations. The following table represents the asset mix of the investment portfolio as of December 31: Asset category: Equity securities Treasury bills % The amount of contributions that SCC expects to pay to the plan during 2015 is $6.3, which includes $3.4 of pending payments to former Buenavista workers. Post-retirement Health Care Plan Peru: SCC adopted the post-retirement health care plan for retired salaried employees eligible for Medicare in SCC manages the plan and is currently providing health benefits to retirees. The plan is accounted for in accordance with ASC 715 Compensation retirement benefits. 39

42 Mexico: Through 2007, the Buenavista unit provided health care services free of charge to employees and retired unionized employees and their families through its own hospital at the Buenavista unit. In 2011, SCC signed an agreement with the Secretary of Health of the State of Sonora to provide these services to its retired workers and their families. The new workers of Buenavista del Cobre, S.A. de C.V. (BVC) will receive health services from the Mexican Institute of Social Security as is the case for all Mexican workers. The components of net period benefit costs are as follows: Interest cost $ 1.3 $ 1.7 Amortization of prior service cost/(credit) (0.3) - Net periodic benefit costs $ 1.0 $ 1.7 The change in benefit obligation and a reconciliation of funded status are as follows: Change in benefit obligation: Projected benefit obligation at beginning of year $ 21.7 $ 27.2 Interest cost Actuarial (gain) claims cost (0.2) - Benefit paid (0.6) (0.1) Actuarial (gain)/loss (3.2) (6.8) Actuarial loss/(gain) assumption changes 0.4 (0.2) Inflation adjustment (2.3) (0.1) Projected benefit obligation at end of year $ 17.1 $ 21.7 Change in plan assets: Employer contributions $ 0.1 $ 0.1 Benefits paid (0.1) (0.1) Fair value of plan assets at end of year $ - $ - Funded status at the end of the year $ (17.1) $ (21.7) ASC-715 amounts recognized in statement of financial position consists of: Current liabilities $ (0.1) $ (0.1) Non-current assets (17.0) (21.6) Total $ (17.1) $ (21.7) ASC-715 amounts recognized in accumulated other comprehensive income (net of income tax) consists of: Net loss (gain) $ (4.8) (4.3) Prior service cost (credit) (0.1) (0.1) Total (net of income taxes of $3.3 and $3.0 in 2014 and 2013, respectively) $ (4.9) $ (4.4) 40

43 The following table summarizes the changes in accumulated other comprehensive income for the years ended December 31, related to the post-retirement health care plan, net of income tax: Reconciliation of accumulated other comprehensive income: Accumulated other comprehensive income at beginning of plan year $ (4.4) $ (0.3) Gain occurring during the year (1.8) (4.1) Loss amortized during the year Currency exchange rate adjustment Net adjustment to accumulated other comprehensive income (net of income taxes of $3.3 and $3.0 in 2014 and 2013, respectively) (0.5) (4.1) Accumulated other comprehensive income (loss) at end of plan year $ (4.9) $ (4.4) The following table summarizes the amounts in accumulative other comprehensive income amortized and recognized as a component of net periodic benefit cost in 2014 and 2013, net of income tax: Net/ (gain) loss $ (1.8) $ (4.1) Amortization of transition obligation Total amortization (income) expenses (1.7) (4.1) The discount rates used in the calculation of other post-retirement benefits and cost as of December 31 were: Peruvian Operations Discount rate 3.50% 4.25% Mexican Operations Discount rate 6.70% 7.10% The benefits expected to be paid in each of the next five years, and thereafter, are as follows: Year Expected Benefit Payments 2015 $ to Total $ 19.0 Peruvian operations Expatriate Planl For measurement purposes, a 5.8% annual rate of increase in the per capita cost of covered health care benefits was assumed for The rate is assumed to decrease gradually to 4.6%. 41

44 Assumed health care cost trend rates can have a significant effect on amounts reported for health care plans. However, because of the size of SCC s plan, a one percentage-point change in assumed health care trend rate would not have a significant effect. Mexican operations For measurement purposes, a 4.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2014 and remains at that level thereafter. An increase in other benefit cost trend rates have a significant effect on the amount of the reported obligations, as well as component cost of the other benefit plan. One percentage-point change in assumed other benefits cost trend rates would have the following effects: Increase One percentage point Decrease Effect on total service and interest cost components $ 1.3 $ 0.8 Effect on the post-retirement benefit obligation $ 17.2 $ 13.7 Asarco - American Operations Pension and Postretirement Plans Asarco recognizes the funded status (i.e., the difference between the fair value of plan assets and benefit obligations) of its defined benefit postretirement plans in the consolidated balance sheets, with corresponding adjustments to other comprehensive income, net of tax. These amounts are recognized as net periodic postretirement cost in accordance with Asarco s accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic postretirement cost in the same periods will be recognized as a component of other comprehensive income. These amounts will be subsequently recognized as a component of net periodic postretirement cost on the same basis as the amounts recognized in accumulated other comprehensive income. Pension Plans Asarco maintains two noncontributory defined benefit pension plans covering substantially all of its employees. Benefits for salaried plans are based on salary and years of service. Hourly plans are based on negotiated benefits and years of service. Pension costs are determined annually with the assistance of independent actuaries. Asarco s funding policy is to contribute amounts to the plans sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional tax deductible amounts as may be advisable under the circumstances. Benefit accruals under the salaried plan were frozen effective April 30, As amended, anyone who has not yet become a participant as of that date will be excluded and current participants will not accrue any credited service after April 30, 2011, for purposes of determining retirement benefits; however, participants will continue to accrue credited service for purposes of vesting and for eligibility for early retirement under the Plan. Plan assets are invested principally in commingled stock funds, mutual funds and securities issued by the U.S. government. The pension plans have a December 31 year-end. Supplemental Executive Retirement Plan (SERP) Asarco records a liability related to a SERP benefit for certain of its executives. All assumptions used to calculate the liability match the salaried plans noted above. As such, unrealized gains and losses that will arise in subsequent periods, as calculated by the actuaries, will be recognized as a component of other comprehensive income until such amounts are realized. The total present value of the SERP liability recorded as of December 31, 2014 and 2013 was $1.5 and $1.2, respectively. These amounts are in addition to the salaried plan information as presented below. 42

45 The measurement dates used to determine benefit obligations were December 31, 2014 and 2013, and are based on census data provided as of the beginning of the years of such plans. No events have occurred that would have a significant impact on those calculations and measurements. Postretirement Benefits Contributory postretirement health care coverage under Asarco s health plans is provided to substantially all U.S. retirees not eligible for Medicare. A cost-sharing Medicare supplement plan is available for retired salaried employees and life insurance coverage is provided to substantially all retirees. The plans are unfunded but exist as general corporate obligations. The postretirement health care plans have a December 31 year-end. The measurement dates used to determine benefit obligations were December 31, 2014 and 2013, and are based on census data provided as of the beginning of each plan year. No events have occurred that would have a significant impact on those calculations and measurements. Changes to Asarco s benefit plans as of December 31, 2014 and 2013, are as follows: Change in projected benefit obligation Pension Pension Postretirement Postretirement period ended December 31, 2014 Benefits salaried benefits hourly health care salaried health care hourly Total Beginning of the period January 1 $ $ $ 27.2 $ $ Service cost Interest cost Actuarial (gain) (1.3) Administrative expenses paid (1.2) (1.7) - - (2.9) Benefits paid (13.0) (13.7) (2.0) (7.0) (35.7) Benefit Obligation at December 31 $ $ $ 25.6 $ $ Accumulated Benefit Obligation $ $ The 2014 actuarial losses for the pension plans primarily result from decreases in the discount rate and from using updated mortality tables. Change in plan assets Pension Pension Postretirement Postretirement period ended benefits benefits health care health care December 31, 2014 salaried hourly salaried hourly Total Beginning of the period January 1 $ $ $ - $ - $ Actual return on plan assets Employer contributions Benefits paid (13.0) (13.7) (2.0) (7.1) (35.8) Administrative expenses (1.2) (1.7) - - (2.9) Fair Value of Plan Assets at December 31 $ $ $ - $ - $ Funded Status at December 31 $ (64.1) $ (50.7) $ (25.6) $ (410.3) 43

46 Change in projected benefit obligation period ended December 31, 2013 Pension Pension Postretirement Postretirement benefits salaried benefits hourly health care salaried health care hourly Total Beginning of the period January 1 $ $ $ 38.5 $ $ Service cost Interest cost Actuarial (gain) (19.5) (30.5) (11.5) (109.3) (170.8) Administrative expenses paid (0.8) (1.1) - - (1.9) Benefits paid (12.5) (13.6) (1.9) (7.8) (35.8) Benefit Obligation at December 31 $ $ $ 27.2 $ $ Accumulated Benefit Obligation $ $ The 2013 actuarial gains for the pension plans primarily resulted increases in the discount rates. Change in plan assets Pension Pension Postretirement Postretirement period ended December 31, 2013 benefits salaried benefits hourly health care salaried health care hourly Total Beginning of the period January 1 $ $ $ - $ - $ Actual return on plan assets Employer contributions Benefits paid (12.5) (13.6) (1.9) (7.8) (35.8) Administrative expenses (0.8) (1.0) - - (1.8) Fair Value of Plan Assets at December 31 $ $ $ - $ - $ Funded Status at December 31 $ (44.8) $ (38.4) $ (27.2) $ (245.0) Amounts recognized in the accompanying consolidated balance sheets consisted of the following: Period ended December 31, 2014 Pension benefits salaried Pension benefits hourly Postretirement health care salaried Postretirement health care hourly Total Current liabilities $ - $ - $ (1.7) $ (9.3) $ (11.0) Non-current liabilities (64.1) (50.8) (24.0) (401.0) (539.9) Net amount recognized $ (64.1) $ (50.8) $ (25.7) $ (410.3) $ (550.9) 44

47 Period ended December 31, 2013 Pension benefits salaried Pension benefits hourly Postretirement health care salaried Postretirement health care hourly Total Current liabilities $ - $ - $ (1.9) $ (8.6) $ (10.5) Non-current liabilities (44.8) (38.5) (25.3) (236.4) (345.0) Net amount recognized $ (44.8) $ (38.5) $ (27.2) $ (245.0) $ (355.5) Amounts recognized in other comprehensive income (loss) during the periods consisted of the following: Period ended December 31, 2014 Pension Pension Postretirement Postretirement benefits benefits health care health care salaried hourly salaried hourly Total Net loss $ 30.9 $ 26.6 $ 0.5 $ $ Period ended December 31, 2013 Pension Pension Postretirement Postretirement benefits benefits health care health care salaried hourly salaried hourly Total Net loss $ (26.6) $ (40.1) $ (10.2) $ (109.1) $ (186.0) Amounts recorded in accumulated other comprehensive income consisted of the following: Period ended December 31, 2014 Pension Pension Postretirement Postretirement benefits benefits health care health care salaried hourly salaried hourly Total Beginning balance $ 12.8 $ 1.6 $ (16.6) $ (76.7) $ (78.9) Amortization of net gain Net gain / (loss) (1.3) Net amount recorded $ 43.8 $ 28.2 $ (16.1) $ 70.8 $ Period ended December 31, 2013 Pension Pension Postretirement Postretirement benefits benefits health care health care salaried hourly salaried hourly Total Beginning balance $ 39.3 $ 41.7 $ (6.4) $ 32.4 $ Amortization of net gain (2.2) (1.3) (2.2) Net gain / (loss) (24.3) (38.7) (11.5) (109.2) (183.7) Net amount recorded $ 12.8 $ 1.7 $ (16.7) $ (76.7) $ (78.9) 45

48 The components of net periodic benefit cost for the years ended December 31, 2014 and 2013, are as follows: Period ended December 31, 2014 Pension Pension Postretirement Postretirement benefits benefits health care health care salaried hourly salaried hourly Total Service cost $ 0.9 $ 5.9 $ 0.6 $ 11.8 $ 19.2 Interest cost Expected return on plan assets (11.9) (16.3) - - (28.2) Recognized loss (gain) - - (1.8) (1.0) (2.8) Total net periodic benefit cost $ (0.9) $ 2.5 $ (0.1) $ 24.7 $ 26.2 Period ended December 31, 2013 Pension Pension Postretirement Postretirement benefits benefits health care health care salaried hourly salaried hourly Total Service cost $ 0.9 $ 7.3 $ 0.9 $ 15.7 $ 24.8 Interest cost Expected return on plan assets (11.7) (15.6) - - (27.3) Recognized loss (gain) (1.2) (0.1) 2.2 Total net periodic benefit cost $ 0.6 $ 4.8 $ 0.8 $ 26.5 $ 32.7 The actuarial assumptions used to determine end of period benefit obligations were as follows: Period ended December 31, 2014 Pension Pension Postretirement Postretirement benefits benefits health care health care salaried hourly salaried hourly Discount rate 4.05% 4.15% 3.95% 3.90% Expected return on assets 6.75% 6.75% N/A N/A Rate of compensation increase N/A 3.50% N/A N/A Period ended December 31, 2013 Pension Pension Postretirement Postretirement benefits benefits health care health care salaried hourly salaried hourly Discount rate 4.85% 4.95% 4.70% 5.05% Expected return on assets 7.25% 7.25% N/A N/A Rate of compensation increase N/A 3.50% N/A N/A Weighted-average assumptions used to determine net period benefit costs as follows: Period ended December 31, 2014 Pension Pension Postretirement Postretirement benefits benefits health care health care salaried hourly salaried hourly Discount rate 4.85% 4.95% 4.70% 5.05% Expected return on assets 7.25% 7.25% N/A N/A Rate of compensation increase N/A 3.5% N/A N/A 46

49 Period ended December 31, 2013 Pension Pension Postretirement Postretirement benefits benefits health care health care salaried hourly salaried hourly Discount rate 3.95% 4.05% 3.80% 4.05% Expected return on assets 7.50% 7.50% N/A N/A Rate of compensation increase N/A 4.00% N/A N/A Plan Assets Asarco s investment policy is to actively manage certain asset classes where potential exists to outperform the broader market while maintaining acceptable risk levels inherent in specific benchmarks used to measure performance for each asset class. To develop an expected long term rate of return on assets assumption, Asarco considered the historical returns and the future expectations for returns for each asset class as well as the target asset allocation of the pension portfolio. Prior to November 2013, the assets of the Salaried and Hourly Pension Plans were combined in a single master investment trust. In November 2013, Asarco split the assets of the master investment trust between a trust for the Salaried Pension Plan and a trust for the Hourly Pension Plan, based on each Plan s interest in the master investment trust. The split allows Asarco to better tailor a trust s investment strategy to meet the needs of each Plan. Asarco s policy for determining asset allocation targets includes periodic consultation with recognized thirdparty investment consultants. The fair value of plan assets is affected by general market conditions. If actual returns on plan assets vary from the expected returns, actual results could differ. The allocations as of December 31, 2014 and 2013, were as follows: Asset allocation and fair value hierarchy 2014 Level 1 Level 2 Level 3 Common and collective trusts: U.S. equity composite $ % 60.0% - International equity composite % 12.0% - Bond composite % 95.0% - Global real estate composite % 67.0% - Hedge fund composite % Cash and cash equivalents % - - Total asset allocation $ % 60.0% 10.0% Asset allocation and fair value hierarchy 2013 Level 1 Level 2 Level 3 Common and collective trusts: U.S. equity composite $ % 59.5% - International equity composite % 11.0% - Bond composite % 89.8% - Global real estate composite % 24.4% - Registered investment company % - - Partnership/ Join venture hedge fund composite % Cash and cash equivalents % - - Total asset allocation $ % 53.0% 4.0% 47

50 Investments in commingled composite funds are recorded at fair value based on the net asset value of the fund as provided by the fund manager or general partner. Investments in these funds are specific to asset allocation strategies. The classifications include both direct investments in debt and equity securities as well as investments in privately held entities that manage an underlying portfolio of marketable debt and equity securities. The changes in fair values for pension assets measured at Level 3 in the fair value hierarchy are: Beginning balance at January 1 $ 27.6 $ 20.7 Purchases Sales (11.4) (10.1) Actual return on assets still held at December Ending balanace at December 31 $ 44.6 $ 27.6 There were no transfers in/out of the Level 3 category during the years ended December 31, 2014, and For the year ended December 31, 2014, the health care cost trend rate assumptions have a significant effect on the amounts for postretirement health care costs and obligations, as follows: Salaried Hourly Annual effect on total service and interest cost component 1% increase $ 0.2 $ 6.1 1% decrease (0.2) (4.7) Effect on postretirement benefit obligation 1% increase $ 2.7 $ % decrease (2.3) (62.3) At December 31, 2014, assumed health care cost trend rates were: Salaried Pre-65 Medical Post-65 Medical Trend Trend Hourly Pre-65 Medical Post-65 Medical Trend Trend Health care trend rate for % 6.40% 6.30% 6.50% Health care trend rate assumed for % 6.00% 5.90% 6.00% Ultimate health care trend rate assumed 4.50% 4.80% 4.40% 4.60% Year that the rate reaches the ultimate trend rate Cash Inflows and Outflows Asarco contributed approximately $27.6 and $21.9 to the pension plans in 2014 and 2013, respectively, and expects to contribute approximately $28.2 to the combined pension plans in The Medicare Prescription Drug, Improvement and Modernization Act of 2003 was reflected as of December 31, 2014 and 2013, assuming that Asarco will continue to provide a prescription drug benefit to retirees that is at least actuarially equivalent to Medicare Part D. The benefit payments listed in the following table are shown net of the expected Medicare Part D subsidy. 48

51 Asarco projects benefit payments to be paid by the combined plans as follows: Pension Benefits Postretirement Health Care 2015 $ 31.4 $ $ $ Employee Savings Plan Asarco maintains employee savings plans for salaried and hourly employees that permit employees to make contributions by payroll deductions pursuant to section 401(k) of the Internal Revenue Code (IRC). Asarco matches contributions up to 6% of compensation for its employees. As of April 30, 2011, in conjunction with the salaried pension plan freeze, Asarco increased the matching contributions for employees who were active participants in the salaried plan, from 6% to 9% of compensation. In connection with the required match, Asarco s contributions, for both the salaried and hourly plans, charged against earnings were $4.5 and $4.4 in 2014 and 2013, respectively. Copper Basin 401(k) Plan Copper Basin also maintains a defined contribution plan that permits eligible employees to make contributions by payroll deductions pursuant to Section 401(k) of the IRC, which includes a matching Company contribution up to 6% of compensation. The contributions charged against earnings in 2014 and 2013, were $0.1. ITM - Defined Benefit Pension Plans In ITM and subsidiaries the liabilities and costs pertaining to the seniority premiums to which employees are entitled after 15 years of service are recognized on the basis of actuarial studies performed by independent experts. ITM has also established plans to cover dismissal indemnities on the basis of actuarial studies, performed by independent experts. At 2014 and 2013 labor liabilities were immaterial. GMS - Corporate Services Grupo México Servicios, S. A. de C. V., direct subsidiary of GMEXICO provides various professional services to its affiliates. Currently GMS has 63 executives. As of December 31, 2014 and 2013 the labor liabilities were immaterial. 18. Stockholders' equity Common stock: At December 31, 2014 and 2013, the Company s outstanding common stock consists of 7,785,000,000, fully paid and subscribed shares, corresponding to fixed capital Series B, Class I shares. Variable capital is limited to ten times the amount of the minimum fixed capital. 49

52 Series B consists of ordinary voting stock representing 100% of all Class I and Class II voting stock. At least 51% of the shares comprising this Series must be subscribed by private individuals or companies considered to be Mexican investors, as established by the foreign investment law. During 2014 the Board of Directors of the Company approved four dividends in accordance with the resolutions made at the Ordinary Stockholders Meeting held on April 30, 2013 amounting to a total of $577.3 paid as follows: on February 18, 2014, a Ps.0.26 per share dividend was paid equal to the amount of $152.8, on May 30, 2014, a Ps.0.20 per share dividend was paid in the amount of $121.0, on August 11, 2014, a Ps.0.26 per share dividend was paid in the amount of $154.6 and on November 6, 2014, a Ps.0.26 per share dividend was paid in the amount of $ All dividends were paid out of retained earnings. During 2013 the Board of Directors of the Company approved four dividends in accordance with the resolutions made at the Ordinary Stockholders Meeting held on April 30, 2012 amounting to a total of $557.1 paid as follows: on February 28, 2013, a Ps.0.26 per share dividend was paid equal to the amount of $157.7, on May 23, 2013, a Ps.0.26 per share dividend was paid in the amount of $164.0, on August 6, 2013, a Ps.0.13 per share dividend was paid in the amount $79.7 and on November 4, 2013, a Ps.0.26 per share dividend was paid in the amount of $ All dividends were paid out of retained earnings. Dividends paid are not subject to income tax if the dividends come from the Net Tax Profit Account (Spanish acronym CUFIN). Any dividends paid in excess of this account are subject to a tax equivalent to 38.89%. T The tax is payable by the Company and may be credited against its income tax in the same year or in the following two years. Dividends paid from previously taxed profits are not subject to tax withholding or additional tax payment. In the event of a capital reduction, any excess of stockholders' equity over capital contributions, the latter restated in accordance with the provisions of the Income Tax Law, is accorded the same tax treatment as dividends. As a result of the 2014 Mexican income tax reform, CUFIN throught December 31, 2014 is presented individually, wich amounted Ps.39,048.3 millions (equal to $2,653.1). At December 31, 2013, the consolidated CUFIN consolidated amounted to Ps.48,187.8 (equal to $3,685.1). Treasury Stock - Included in the treasury stock of SCC are shares of SCC's common stock carried at cost. Activity in treasury stock was as follows: SCC common shares Balance as of January 1 $ 1,059 $ 805 Other activity, including received dividends, interest and currency translation effect Net Balance as of December 31 $ 1,665 $ 1,059 At December 31, 2014 and 2013, SCC s treasury stock includes 71,977,964 and 49,278,536 shares of SCC s common stock, respectively with a cost of $1,693.5 and $1,011.0, respectively. In 2008, the SCC s Board of Directors (BOD) authorized a share repurchase program for $500 that has since been increased by the BOD and is currently authorized to $3,000. SCC may purchase additional shares of its common stock from time to time, based on market conditions and other factors. This repurchase program has no expiration date and may be modified or discontinued at any time. The shares of SCC are used for general corporate purposes, including, among others, for awards under the Directors' Stock Award Plan. GMEXICO's shares are used to grant awards under both the Employee Stock Purchase Plan and the Executive Stock Purchase Plan. 50

53 Directors Stock Award Plan - SCC established a stock award compensation plan for certain directors who are not compensated as employees of the Company. Under this plan, participants will receive 1,200 shares of common stock upon election and 1,200 additional shares following each annual meeting of stockholders thereafter. 600,000 shares of SCC s common stock have been reserved for this plan. The fair value of the award is measured each year at the date of the grant. Reserve for purchase of shares - In April 2005, the Company established a reserve of $201.7 to repurchase shares, of which $10.0 will be included in the share plans of the Company for future sales to employees. During 2014 and 2013, the Company repurchased $606.0 and $254.0, respectively. Common shares of Grupo Mexico - At December 31, 2014 and 2013, Grupo México has 89,950,310 and 75,262,919 shares in treasury stock. Employee Stock Purchase Plan - During 2007, the Company offered to eligible employees a stock purchase plan (the Employee Stock Purchase Plan) through a trust that acquires shares of the Company s stock for sale to its employees, employees of subsidiaries, and certain affiliated companies. The purchase price is established at the approximate fair market value on the grant date. Every two years employees will be able to acquire title to 50% of the shares paid in the previous two years. The employees will pay for shares purchased through monthly payroll deductions over the eight year period of the plan. At the end of the eight year period, the Company will grant the participant a bonus of 1 share for every 10 shares purchased by the employee. If Grupo Mexico pays dividends on shares during the eight year period, the participants will be entitled to receive the dividend in cash for all shares that have been fully purchased and paid as of the date that the dividend is paid. If the participant has only partially paid for shares, the entitled dividends will be used to reduce the remaining liability owed for purchased shares. In the case of voluntary resignation of the employee, the Company will pay to the employee the fair market sales price at the date of resignation/termination of the fully paid shares, net of costs and taxes. When the fair market sales value of the shares is higher than the purchase price, the Company will apply a deduction over the amount to be paid to the employee based on a decreasing schedule specified in the plan for each case. In case of retirement or death of the employee, the Company will render the buyer or his legal beneficiary, fair market value as of the date of retirement or death of the shares effectively paid, net of costs and taxes. The stock based compensation expense for the years ended on December 31, 2014 and 2013 and the remaining balance of the unrecognized compensation expense under the Employee Stock Purchase Plan were as follows: Stock based compensation expense $ 2.1 $ 2.1 Unrecognized compensation expense $ - $ 2.1 The following table presents the stock award activity of the Employee Stock Purchase Plan for the years ended December 31, 2014 and 2013: Shares Unit weighted average grant date fair value Outstanding shares at January 1, ,955,572 $ 1.16 Exercised (2,474,814) 1.16 Forfeited (31,159) 1.16 Outstanding shares at December 31, ,449, Exercised (150,987) 1.16 Forfeited - - Outstanding shares at December 31, ,298,

54 During 2010, the Company offered to eligible employees a new stock purchase plan (the New Employee Stock Purchase Plan) through a trust that acquires shares of the Company s stock for sale to its employees, employees of subsidiaries, and certain affiliated companies. The purchase price was established at Ps (approximately $2.05) for the initial subscription. The terms of the New Employee Stock Purchase Plan are similar to the terms of the Employee Stock Purchase Plan. The stock based compensation expense for the years ended December 31, 2014 and 2013 and the remaining balance of the unrecognized compensation expense under the New Employee Stock Purchase Plan, were as follows: Stock based compensation expense $ 0.6 $ 0.6 Unrecognized compensation expense $ 2.0 $ 2.6 The unrecognized compensation expense under this plan is expected to be recognized over the remaining four-year period. The following table presents the stock award activity of the New Employee Stock Purchase Plan for the years ended December 31, 2014 and 2013: Shares Unit weighted average grant date fair value Outstanding shares at January 1, ,944,742 $ 2.05 Granted 226, Exercised (38,098) 2.05 Forfeited (120,793) 2.05 Outstanding shares at December 31, ,012, Granted - - Exercised (724,573) 2.05 Forfeited - - Outstanding shares at December 31, ,287, Executive Stock Purchase Plan - The Company also offers a stock purchase plan for certain members of its executive management and the executive management of its subsidiaries and certain affiliated companies. Under this plan, participants will receive incentive cash bonuses which are used to purchase shares of the Company which are deposited in a trust. 19. Income taxes The components of the provision (benefit) for each jurisdiction for current and deferred income tax in 2014 and 2013 were as follows: For the year ended December México U.S. Peru Total Income tax: Current $ $ (14.0) $ $ 1,211.4 Deferred (44.8) (64.8) (167.8) (277.4) Uncertain tax positions Total provision for income tax $ $ (58.9) $ $

55 For the year ended December México U.S. Peru Total Income tax: Current $ $ 35.9 $ $ 1,017.8 Deferred 57.0 (31.8) (85.8) (60.6) Total provision for income tax $ $ 4.1 $ $ The reconciliation of the statutory income tax rate to the effective tax rate is as follows: Expected tax 35.0% 35.0% Effect of income taxed at a rate other than the statutory rate (5.4) (3.2) Depletion (4.4) (5.3) Permanent differences Peru tax on net income deemed distributed Decrease in unrecognized tax benefits for uncertain tax positions (0.2) (1.5) Other Effective income tax rate 31.7% 29.9% The Company files income tax returns in three jurisdictions, Peru, Mexico and the United States. For the years presented above, the statutory income tax rates for Peru and Mexico were 30% and 35% for the United States. While the largest components of income taxes are the Peruvian and Mexican taxes, the Company is a domestic U.S. entity. Therefore, the rate used in the above reconciliation is the U.S. statutory rate. For all of the years presented, the Peruvian branch, Minera Mexico and AMC filed separate tax returns in their respective tax jurisdictions. Although the tax rules and regulations imposed in the separate tax jurisdictions may vary significantly, similar permanent items exist, such as items which are nondeductible or nontaxable. Some permanent differences relate specifically to SCC and Asarco such as the allowance in the United States for percentage depletion. SCC s taxable income for the fiscal years 2012 through 2014,was, or will be, included in the U.S. federal income tax return of AMC. Asarco s taxable income for the fiscal year November 2000 through 2014, was, or will be, included in the U.S. federal income tax return of AMC. Deferred taxes include the U.S., Peruvian and Mexican tax effects of the following types of temporary differences and carryforwards: Temporary differences and carryforwards that gave rise to deferred tax liabilities, assets and related valuation allowances were as follows: Assets: Inventories $ 93.0 $ 33.6 Minimum tax credits Postretirement benefit obligations Pension obligations Capitalized exploration expenses Foreign tax credit carryforward, net of FIN Reserves Tax loss carryforwards Valuation allowance (50.9) (50.9) Effect on U.S. tax of Peruvian deferred tax liabilities Other Total deferred tax assets $ 1,353.5 $

56 Liabilities: Property and equipment (780.6) (737.6) Investments (34.5) (37.2) Deferred charges (75.2) (79.6) Retained earnings - (7.5) Mexican tax consolidated dividends (6.2) (31.5) Other (159.3) (110.2) Total deferred tax liabilities (1,055.8) (1,003.6) Total net deferred tax assets $ $ (18.7) AMC, Asarco and SCC/U.S. and PERU U.S. Tax Matters In September 2013 the Internal Revenue Service (IRS) issued the final Tangible Property Regulations. These regulations are effective January 1, 2014 with some elective retroactive application available. These regulations look to provide a framework for distinguishing capital expenditures from deductible business expenses and they attempt to find the middle ground where taxpayers and the IRS often disagreed. The Company has reviewed these regulations and has concluded that they should not have a material effect on its financial statements. As of December 31, 2014, AMC considers its ownership of the stock of Minera Mexico to be essentially permanent in duration. The excess of the amount for financial reporting over the tax basis of the investment in this stock is estimated to be at least $5.3 billion. As of December 31, 2014, $37.7 of the Company s cash, cash equivalents, restricted cash and short-term investments of $722.0 was held by foreign subsidiaries. The cash, cash equivalents and short-term investments maintained in the Company s foreign operations are generally used to cover local operating and investment expenses. The Company had provided a deferred tax liability of $7.4 as of December 31, 2013 for the U.S. income tax effects of $76.2 of foreign earnings that may potentially be repatriated in the future. At December 31, 2014 Minera Mexico has determined that it has no remittable earnings available for dividends to the United States due to its internal financial obligations and current expansion, and that at the end of 2014 it has met the indefinite reversal criteria of ASC that it intends to reinvest its earnings indefinitely. Any distribution of earning from the Company s Mexican subsidiaries to the United States is subject to a U.S. federal income tax that equates to approximately 10% of the amount of the distribution, after considering foreign tax credit utilization. Distributions of earnings from the Peruvian branch to the United States are not subject to repatriation taxes. The Peruvian operations are not foreign subsidiaries. Rather they are mainly comprised of operations that are treated as a branch of the SCC U.S. operations from a tax perspective. At December 31, 2014, there were $804.8 of foreign tax credit available for carryback or carryforward. These credits have limited carryback and carryforward periods and can only be used to reduce U.S. income tax on foreign earnings included in the annual U.S. consolidated income tax return. At December 31, 2014, there were $93.7 of minimum tax credits available for carryforward. A valuation allowance against the minimum tax credits of $50.9 exists because the Company does not expect to be able to utilize a portion of credits due to separate company limitations. There were no other material U.S. tax credits at December 31, These foreign tax credits are presented above on a gross basis and have not been reduced within this disclosure for any unrecognized tax benefits. ASU No , Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists is effective prospectively for the Company s fiscal year beginning January 1, In accordance with ASU the Company has recorded $285.5 of an unrecognized tax benefit as an offset to our deferred tax asset for foreign tax credits. The remaining foreign tax credits of $519.1 will be used to offset future liabilities. 54

57 Since March 2009, Grupo Mexico, through its wholly-owned subsidiary AMC, owns an interest in excess of 80% of SCC. Accordingly, SCC s results are included in the consolidated results of the Grupo Mexico subsidiary for U.S. federal income tax reporting. SCC provides current and deferred income taxes, as if it were filing a separate income tax return. Peruvian Tax Matters- SCC obtains income tax credits in Peru for value-added taxes paid in connection with the purchase of capital equipment and other goods and services, employed in its operations and records these credits as a prepaid expense. Under current Peruvian law, SCC is entitled to use the credits against its Peruvian income tax liability or to receive a refund. The carrying value of these Peruvian tax credits approximates their net realizable value. Special Mining tax- Royalty mining charge: In September 2011, the Peruvian government enacted a new tax for the mining industry. This tax is based on operating income and its rate ranges from 2% to 8.4%. It begins at 2% for operating income margin and up to 10% and increases by 0.4% of operating income for each additional 5% of operating income until 85% of operating income margin is reached. SCC made provisions for this tax of $35.3 and $25.5 in 2014 and 2013, respectively. These provisions are included as income tax in the consolidated statement of earnings. As of December 31, 2014, the income tax rate was 30% and the dividend tax rate was 4.1%. In the last quarter of 2014, the Peruvian congress enacted tax law changes to both the income tax and dividend tax rates that become effective on January 1, The new rates are as follows: Year Income Tax Rate Dividend Tax Rate % 6.8% % 8.0% 2019 and later 26% 9.3% The recalculation of the deferred tax liability for the Peruvian jurisdiction using the new tax rates did not have a material effect on the deferred tax liability or the financial statements of the company. Mexican Tax Matters In 2013, the Mexican Congress enacted tax law changes that become effective on January 1, Among others, this new law: i) establishes a mining royalty at the rate of 7.5% on taxable EBITDA adjusted as defined by Mexican tax regulations; that had a net after tax cost of $79.3, ii) an additional royalty of 0.5% over gross income from sales of gold, silver and platinum; iii) replaces the consolidation tax regime and creates a more restrictive tax consolidation regimen; iv) establishes a 10% withholding on dividends distributed to Mexican individuals or foreign residents (individuals or corporations) and applies to net income generated after 2013; v) a new environmental tax on the sale and importation or fossil fuels that had an annual estimated cost of approximately $9.4, and was included in cost of fuel, vi) limits (at 47 or 53%) deductions for tax-exempt salaries as well as for contributions to pension plans; vii) maintains the Mexican statutory income tax rate at 30% thereby eliminating the scheduled reductions for 2014 and 2015; and (viii) eliminates the flat tax. Related to these tax changes, in 2013 SCC recognized a deferred income tax charge of $

58 Accounting for Uncertainty in Income Taxes- The total amount of unrecognized tax benefits in 2014 and 2013 were as follows: Unrecognized tax benefits, opening balance $ $ Gross (decreases) increases - tax positions in prior period 80.6 (218.2) Gross increases - current-period tax positions Unrecognized tax benefits, ending balance $ $ The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $285.5 at December 31, 2014 and $197.5 at December 31, These amounts relate entirely to U.S. income tax matters. AMC has no unrecognized Peruvian or Mexican tax benefits. As of December 31, 2014 and 2013, SCC s liability for uncertain tax positions included no amount for accrued interest and penalties due to the excess foreign tax credits. The following tax years remain open to examination and adjustment by the Company s three major tax jurisdictions: Peru: 2011 up to 2014 (years 2011 and 2012 are being examinated in 2015) U.S.: 2008 and all future years Mexico: 2010 and all future years Management does not expect that any of the open years will result in a cash payment within the upcoming twelve months ending December 31, The Company s reasonable expectations about future resolutions of uncertain items did not materially change during the year ended December 31, Business segments The Company's segments are organized using the management approach by industry and geographical region, resulting in five primary reportable segments: MM, SCC, Asarco, ITM and Infraestructure. The MM segment (open pit and underground operations) produce copper, with production of by-products of molybdenum, silver and other material. The Branch and Asarco include integrated copper extraction, smelting and refining operations, produce copper, with production of by-products of molybdenum, silver and other material, mainly in Peru and the U.S., respectively. ITM carries out railway transportation activities through its subsidiaries ITF and GFM in México. Infraestructure activities are mainly performed by CIPEME, MCC and CIEM which main operations are oil well drilling services, construction services and the construction of electricity plants, respectively. The corporate and other amounts are originated from corporate activities performed in the U.S. Information by segments is shown in the same format used by the Company's management to evaluate each business. An operating segment is defined as a component of the Company dedicated to business activities from which the Company generates income and incurs costs and expenses, with respect to which information for decision-making is prepared and in respect of which the Company's management evaluates the allocation of resources periodically. The accounting policies of the segments are described in the summary of significant accounting policies. The Company assesses the performance by segment based on the operating income or (loss). 56

59 Financial information by business segment in 2014 and 2013 were as follows: 2014 MM SCC Asarco ITM Infraestructure Corporate and other Total Sales of product and services $ 3,284 $ 2,482 $ 1,268 $ 1,974 $ 316 $ - $ 9,324 Income from operations $ 1,450 $ 742 $ 152 $ 518 $ 153 $ (6) $ 3,009 General expenses $ 154 $ 73 $ (44) $ 55 $ 21 $ 20 $ 279 Depreciation and amortization $ 242 $ 203 $ 125 $ 171 $ 61 $ 4 $ 806 Net financing costs $ 3 $ 130 $ 1 $ (37) $ 33 $ (134) $ (4) Net income attributable to controlling interest $ 786 $ 341 $ 201 $ 260 $ 81 $ 36 $ 1,705 Total assets, not including investment in shares of associated companies $ 6,568 $ 4,782 $ 2,912 $ 2,691 $ 2,517 $ 560 $ 20,030 Total liabilities $ 774 $ 4,936 $ 1,150 $ 905 $ 1,410 $ 95 $ 9,270 Net adds in property, plant and equipment $ 4,701 $ 2,735 $ 1,650 $ 1,802 $ 1,824 $ 48 $ 12,760 Capital expenditures $ (1,074) $ (456) $ (132) $ (289) $ (482) $ - $ (2,433) 2013 MM SCC Asarco ITM Infraestructure Corporate and other Sales of product and services $ 3,252 $ 2,614 $ 1,413 $ 1,836 $ 242 $ - $ 9,357 Income from operations $ 1,525 $ 1,024 $ 353 $ 470 $ 80 $ (11) $ 3,441 General expenses $ 77 $ 27 $ (75) $ 60 $ 12 $ (4) $ 97 Depreciation and amortization $ 216 $ 180 $ 111 $ 151 $ 30 $ 4 $ 692 Net financing costs $ 9 $ (186) $ (10) $ (29) $ (29) $ 7 $ (238) Net income attributable to controlling interest $ 431 $ 850 $ 322 $ 197 $ 29 $ 16 $ 1,845 Total assets, not including investment in shares of associated companies $ 5,700 $ 5,271 $ 2,566 $ 3,103 $ 2,134 $ 360 $ 19,134 Total Total liabilities $ 747 $ 4,874 $ 518 $ 1,105 $ 1,413 $ 78 $ 8,735 Net investment in property, plant and equipment $ 3,953 $ 2,523 $ 1,636 $ 1,897 $ 1,410 $ 46 $ 11,465 Capital expenditures $ (1,276) $ (426) $ (168) $ (415) $ (573) $ - $ (2,858) 57

60 The Company generated sales from customers and rendered railway transportation services in the following areas: Country MM SCC Asarco ITM Infraestructure Total 2014 U.S. $ 925 $ 112 $ 1,268 $ 30 $ - $ 2,335 México 1, , ,970 Europe Peru China and Asia Latin America, except Mexico and Peru Grand total $ 3,284 $ 2,482 $ 1,268 $ 1,974 $ 316 $ 9,324 Country MM SCC Asarco ITM Infraestructure Total 2013 U.S. $ 1,002 $ 28 $ 1,413 $ - $ - $ 2,443 México 1, , ,395 Europe Peru ,057 China and Asia Latin America, except Mexico and Peru ,229 Grand total $ 3,252 $ 2,614 $ 1,413 $ 1,836 $ 242 $ 9,357 Product sales in 2014 and 2013 were as follows: Product MM SCC Asarco Eliminations Total 2014 Copper $ 2,380 $ 2,138 $ 1,240 $ (25) $ 5,733 Molybdenum Silver (34) 273 Zinc Other (9) 308 Total $ 3,306 $ 2,482 $ 1,314 $ (68) $ 7,034 Product MM SCC ASARCO Eliminations Total 2013 Copper $ 2,366 $ 2,289 $ 1,435 $ (133) $ 5,957 Molybdenum Silver (42) 396 Zinc Other (14) 335 Total $ 3,339 $ 2,614 $ 1,515 $ (189) $ 7,279 58

61 Revenues from services in the ITM and Infraestructure division in 2014 and 2013 were as follows: ITM Freight $ 1,845.6 $ 1,720.6 Passages Care-Hire Others Total $ 1,974.8 $ 1,836.0 Infraestructure Drilling $ $ Construction Energy Total $ $ Derivative instruments Ferromex interest rate swap On March 17, 2008, Ferromex contracted with BBVA Bancomer S. A. (Bancomer) an interest rate swap (for a notional amount of $80.0), with the purpose of managing interest rate risks on its outstanding loans with CRÉDIT AGRICOLE CIB-EXIMBANK (formerly CALYON) Export - Import Bank of United States (EXIM-BANK) and CREDIT AGRICOLE CIB before CALYON, through which Ferromex pays amounts based on fixed interest rates and receives amounts based on variable interest rates. The swap whose notional amount at December 31, 2014 is $16.0, expires on June 15, 2016, both the notional amount and the maturity date of the sawp coincide with the risk position). During 2014, Ferromex paid interest based on average LIBOR of %. The difference was recorded in financing cost, in addition to the variable rate that accrued on the loan. Bancomer had the option to cancel the fixed rate on March 16, 2010, however the Bank did not exercise that option, and as a result, the annual fixed rate remained at 2.8%. The valuation of interest rate swap as of December 31, 2014 is an unfavorable amount of $0.3 (($0.8) unfavorable on December 31, 2013). The effect of the difference amount the contracted rates against the swap in 2014 was ($0.6) unfavorable. 22. Financial instruments Subtopic of ASC Fair value measurement and disclosures - Overall establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under Subtopic are described below: Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 - Inputs that are observable, either directly or indirectly, but do not qualify as Level 1 inputs. (i.e., quoted prices for similar assets or liabilities). 59

62 Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable (other than accounts receivable associated with provisionally priced sales) and accounts payable approximate fair value due to their short maturities. Consequently, such financial instruments are not included in the following table that provides information about the carrying amounts and estimated fair values of other financial instruments that are not measured at fair value in the consolidated balance sheet as of December 31, 2014 and 2013: Balance at December 31, 2014 Carrying Value Fair Value Liabilities - Long-term debt (*) $ 5,947.9 $ 5,613.9 Balance at December 31, 2013 Carrying Value Fair Value Liabilities - Long-term debt (*) $ 5,810.8 $ 5,481.6 (*) Long-term debt is carried at amortized cost and its estimated fair value is based on quoted market prices classified as Level 1 in the fair value hierarchy, except for the case of the Yankee bonds and the 6.375% senior unsecured notes due date July 2015 which qualify at Level 2 in the fair value hierarchy as they are based on quoted priced in market that are not active. Fair values of assets and liabilities measured at fair value on a recurring basis were calculated as of December 31, 2014 and 2013, as follows: Quoted prices in active markets for Significant other Significant unobservable Balance at identical assets observable inputs inputs December 31, 2014 (Level 1) (Level 2) (Level 3) Assets: Short-term investments: -Trading securities $ $ $ 32.7 $ 3.8 -Available for sale debt securities: Corporate bonds Asset backed obligations Mortgage backed securities Accounts receivable: -Derivatives - Not classified as hedges: Provisionally priced sales: Copper Molybdenum Investments in equity securities Liabilities: Other current liabilities: -Liability derivatives - Classified as cash flow hedges: Swap (16.0) - (16.0) - Total $ 1,412.1 $ 1,386.7 $ 21.6 $

63 Balance at Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs December 31, 2013 (Level 1) (Level 2) (Level 3) Assets: Short-term investments: -Trading securities $ $ $ - $ 4.1 -Available for sale debt securities: Corporate bonds Asset backed obligations Mortgage backed securities Accounts receivable: -Derivatives - Not classified as hedges: Provisionally priced sales: Copper Molybdenum Investments in equity securities Liabilities: Other current liabilities: -Liability derivatives - Classified as cash flow hedges: Swap (26.7) - (26.7) - Total $ 1,221.0 $ 1,237.9 $ (21.0) $ 4.1 The Company s short-term trading securities investments are classified as Level 1 because they are valued using quoted prices of the same securities as they consist of bonds issued by public companies and publicly traded. SCC s short-term available-for-sale investments are classified as Level 2 because they are valued using quoted prices for similar investments. The Company s accounts receivables associated with provisionally priced copper sales are valued using quoted market prices based on the forward price on the LME or on the COMEX. Such value is classified within Level 1 of the fair value hierarchy. Molybdenum prices are established by reference to the publication Platt s Metals Week and are considered Level 1 in the fair value hierarchy. 23. Concentration of risk The Company operates four open-pit copper mines, five underground poly-metallic mines, two smelters and eight refineries in Peru and Mexico and substantially all of its assets are located in these countries. There can be no assurances that Company s operations and assets that are subject to the jurisdiction of the governments of Peru and Mexico will not be adversely affected by future actions of such governments. Much of Company s products are exported from Peru and Mexico to customers principally in the United States, Europe, Asia and South America. Financial instruments, which potentially subject the Company to a concentration of credit risk, consist primarily of cash and cash equivalents, short-term investments and trade accounts receivable. The Company invests or maintains available cash with various banks, principally in the United States, Mexico, Europe and Peru, or in commercial papers of highly-rated companies. As part of its cash management process, the Company regularly monitors the relative credit standing of these institutions. 61

64 At December 31, 2014, the Company had invested its cash and cash equivalents as follows: Country Amount % of total cash (1) Mexico $ % United States % Switzerland % Peru % Total cash and short-term investment $ 1, % (1) 98.7% of the Company s cash is in U.S. dollars. During the normal course of business, the Company provides credit to its customers. Although the receivables resulting from these transactions are not collateralized, the Company has not experienced significant problems with the collection of receivables. The Company is exposed to credit loss in cases where the financial institutions with which it has entered into derivative transactions (commodity, foreign exchange and currency/interest rate swaps) are unable to pay when they owe funds as a result of protection agreements with them. To minimize the risk of such losses, the Company only uses highly-rated financial institutions that meet certain requirements. The Company also periodically reviews the creditworthiness of these institutions to ensure that they are maintaining their ratings. The Company does not anticipate that any of the financial institutions will default on their obligations. The Company s largest customers as percentage of accounts receivable and total sales were as follows: Accounts receivable trade as of December 31 Five largest customers 27.5% 32.0% Largest customer 7.1% 10.5% Total sales in year Five largest customers 28.2% 23.5% Largest customer 6.7% 6.9% Asarco sells its products to a broad customer base. Mitsui, when it was the 25% minority owner of SBM, had a right of first refusal for its 25% proportionate share of the copper produced by SBM. The remaining 75% was sold through SCC s normal customer base and on the spot market. Mitsui generally exercised this right and revenues from Mitsui accounted for approximately 2% and 3% of Asarco s consolidated revenues or approximately $29.0 and $51.0 for the years ended December 31, 2014 and 2013, respectively. In 2014, in addition to sales to Mitsui, there were two customers who individually accounted for 15% and 10% of Asarco s consolidated revenues. In 2013, in addition to sales to Mitsui, there were two customers who individually accounted for 14% and 9% of Asarco s consolidated revenues. If any of these major customers discontinued purchasing products from Asarco, Asarco does not believe this would have a material adverse effect on results since other customers and markets are readily available. 24. Commitments Mining segment Peruvian Operations Power purchase agreement - Enersur In 1997, SCC signed a power purchase agreement with an independent power company, Enersur S.A. under which SCC agreed to purchase all of its power needs for its current Peruvian operations from Enersur for twenty years, through April

65 Power purchase agreement - Electroperu In June 2014, SCC signed a power purchase agreement for 120 megawatt (MW) with the state company Electroperu S.A., under which Electroperu S.A. will supply energy for the Peruvian operations for twenty years tarting on April 17, 2017 and ending on April 30, Power purchase agreement - Kallpa Generacion S.A. (Kallpa) In July 2014, SCC signed a power purchase agreement for 120MW with Kallpa, an independent Israeli owned power company, under which Kallpa will supply energy for the Peruvian operations for ten years starting on April 17, 2017 and ending on April 30, Tia Maria The EIA for the Tia Maria project was approved by MINEM in SCC expects to receive authorization to move forward with the project s construction phase in the first quarter of The project budget is $1.4.0 billion, of which $353.6 has been expended through When completed, Tia Maria is expected to produce 120,000 tons of copper per year. In connection with the Tia Maria project, in 2014 SCC established a S/.100 fund (approximately $33.0) for the benefit of social and infrastructure improvements in the neighboring communities to Tia Maria. Through December 31, 2014 S/.0.7 has been expended on improvement projects. Toquepala Concentrator Expansion The EIA for the Toquepala concentrator expansion was approved by MINEM in December SCC expects to receive authorization to move forward with the construction phase in second quarter of The project budget is $1.2 billion, of which $346.0 has been expended through When completed, this expansion project is expected to increase annual production capacity by 100,000 tons of copper and 3,100 tons of molybdenum. In connection with this project, SCC has committed to fund various social and infrastructure improvement projects in Toquepala s neighboring communities. The total amount committed for these purposes is S/ (approximately $148.9), of which S/ (approximately $15.1), has been expended through Long-term sales contracts The following are the significant outstanding long-term contracts: Under the terms of a sales contract with Mitsui & Co. Ltd. (Mitsui), SCC was required to supply Mitsui with 48,000 tons of copper cathodes annually through 2013 to the Asian Market. Premium levels were agreed upon annually based on world market terms. 90,000 tons related to a prior contract (period ) will be supplied as follows: 48,000 tons in 2014 and 42,000 tons in In 2013, a new long term copper sales agreement was signed with Mitsui for five years, with shipments beginning in Mitsui and SCC will negotiate market terms and conditions for annual contracts no later than November 30 of the year prior to shipment. The contract considers the following annual volumes of copper cathodes; 6,000 tons for 2015 and 48,000 tons for each of the years from 2016 through The contract volume would increase by 24,000 tons the year after Tia Maria reaches full production capacity. Failure to reach an agreement on market terms would cancel the annual contract but not the long-term agreement. Under the terms of the agreement all shipments would be to Asia and there are no exclusivity rights for Mitsui or commissions included. This contract may be renewed for additional five year periods, upon the agreement of both parties. 63

66 Under the terms of a sales contract with Molibdenos y Metales, S.A., SPCC Peru Branch is required to supply 30,800 tons of molybdenum concentrates from 2014 through This contract may be extended for one more calendar year during each October to maintain a three year period unless either party decides to terminate the agreement. The sale price of the molybdenum concentrates is based on the monthly average of the high and low Metals Week Dealer Oxide quotation. The roasting charge deduction is agreed based on international market terms. Under the terms of a sales contract with Molymex, S.A. de C.V., Minera Mexico is required to supply at least the 85% of its molybdenum concentrates production from 2012 through The sale price of the molybdenum concentrate is based on the monthly average of the high and low Metals Week Dealer Oxide quotation. The roasting charge deduction is negotiated based on international market terms. Mexican Operations Power purchase agreement - MGE MGE, a subsidiary of GMEXICO, has completed the construction of one of the two power plants in Mexico designed to supply power to some of MGE s Mexican operations. It is expected that MGE will supply approximately 12% of its power output to third-party energy users. These plants are natural gas-fired combined cycle power generating units, with a net total capacity of megawatts. In 2012, SCC signed a power purchase agreement with MGE through The first plant was completed in June 2013 and the second in the second quarter of MGE already has the authorization for the interconnection with the Mexican electrical system to start operations at the second plant. The first plant began to supply power to SCC in December 2013, and the second plant is ready to supply once the demand in the mine requires it. American Operations: Operating Leases Asarco has a non-cancelable operating lease for its corporate offices that expires June The Company also rents operating equipment on a short-term basis and has long-term land leases requiring royalty payments based on production. SX/EW Capital Lease SBM leased SX/EW equipment under a capital lease that expired in June The capital lease agreement contained a dismantling fee of $5.2 that was included in the capital lease asset and capital lease obligation, which were expensed over the capital lease term. When the lease expired in June 2013, SBM extended the lease for one year and treated the lease as an operating lease. In June 2014, SBM entered into a new capital lease expiring December 2028 with a fixed price purchase option at the end of the lease and no dismantling fee. In June 2014, the Company recorded a capital lease asset and capital lease obligation of $30.9. The capital lease asset was reduced by the forgiven dismantling fee obligation of $5.2, resulting in a capital lease asset of $25.8 at June The resulting capital lease asset was classified as Machinery and equipment of $6.4 and Buildings and improvements of $19.3. As of December 31, 2014, accumulated depreciation was $

67 Minimum future payments under the debt and non-cancelable leases having initial and remaining terms in excess of one year in the aggregate at December 31, 2014, are as follows: Future payments required in: Capital Lease Offices Corporate Total $ 0.9 $ Thereafter Total payments $ 49.8 $ 5.2 $ 55.0 Less imputed interest (18.5) Capital lease obligation $ 31.3 Total rental expense was $16.1 and $21.8 for the years ended December 31, 2014 and 2013, respectively, and is included in Cost of product sales in the Consolidated Statements of Income. Included in total rental expenses are land royalty payments, contingent rental fees based on production, for $10.5 and $12.1 for the years ended December 31, 2014 and 2013, respectively. In addition, for the years ended December 31, 2014 and 2013, total SX/EW lease expense was $4.0 and $5.4, respectively. Letters of Credit, Surety Bonds and Guarantees: Asarco had outstanding surety bonds totaling $13.5 and $13.8 at December 31, 2014 and 2013, respectively. These bonds are primarily associated with reclamation and permit obligations of $12.4 at December 31, 2014 and 2013, and other miscellaneous bonds of $1.1 and $1.5 as of December 31, 2014 and 2013, respectively. The underlying liabilities associated with the above-referenced financial assurances are reflected in the Consolidated Balance Sheets as asset retirement obligations. Railway segment Ferromex and Ferrosur operations are subject to Mexican federal and state laws, and to regulations related to environmental protection. Under these laws, guidelines have been issued concerning air, soil and water pollution, and studies have been carried out concerning environmental impact, noise control and hazardous residues. The Environment and Natural Resources Ministry may impose administrative and criminal sanctions against companies that breach environmental laws and it has authority to partially or entirely close any facilities that fail to comply with such regulations. As of December 31, 2014, there are seven administrative records with Procuraduría Federal de Protección al Ambiente (PROFEPA) related to material spills, in which minor economic sanctions could be imposed, remediation actions were carried out. That event did not affect Ferromex financial statements. All rail accidents with material spills affecting environment that are greater than $50.0 are covered by insurance for environmental damages. Under the terms of the concession, the Federal Government has the right to receive payments from Ferromex and Ferrosur equal to 0.5% of the gross revenue during the first 15 years of the concession and 1.25% during the remaining years of the concession. For the years ended on December 31, 2014 and 2013, such payments amounted to $23.9 and $18.7, respectively. 65

68 Under the terms of the concession, the Port Authority of Coatzacoalcos (APICOA) is entitled to receive from TTG, a monthly fee per square meter of surface of the Terminal. For the years ended on December 31, 2014 and 2013, such payments amounted to $0.4 and $0.3, respectively. Ferromex leases the building where its main offices are located, the lease agreement is for ten years beginning from April 1, In addition, Ferromex and Ferrosur lease certain equipment, such as hoppers, boxcars, flatcars and tanker cars. Commitments for minimum payments under lease agreements for the following years are as follows: Total 2015 $ Thereafter Total $ Ferromex entered into a fuel purchase agreement with PEMEX, under which Ferromex is required to purchase, at market value, a minimum of 15,705 meters and a maximum cubic 37,760 meters cubic of diesel per month, although this limit may be exceeded, without any repercussions, according to the contract of sale of first-hand petroleum products for consumption concluded between PEMEX Refining and Ferromex which took effect from September 15, The contract is valid for four years, renewable for an additional two years and thereafter renewable each year. On August 29, 2014 Ferromex signed a purchase agreement of nineteen locomotives EMD brand SD70ACe model of 4,300 h.p. with Electro-Motive Diesel, Inc. amounting $44.7. The locomotives will be received from February to May 2015 and will come to increase the Ferromex s motor power offering better services to customers. On January 5, 2001, the Company entered into a diesel fuel contract with PEMEX Refinery for its own consumption, which establishes a contractual volume in relation to any month that PEMEX Refinery is forced to sell and Ferrosur to buy, indicating a maximum contract amount and a minimum contract volume by assigned shipping dock (volume 2,075 cubic meters (m3) minimum and maximum volume 10,500 m3 in total). The contract is effective from the date above and continues in force for an indefinite term until terminated by either party at the end of any month upon notice to the other party with at least three months notice. On June 29, 2007, the contract was amended and is valid for four years, after which written request may be made to extend for a term of two years, after which subsequent one-year term renewals may be made. 25. Contingencies Mining Segment Environmental matters Peruvian and Mexican Operation SCC has instituted extensive environmental conservation programs at its mining facilities in Peru and Mexico. SCC s environmental programs include, among other features, water recovery systems to conserve water and minimize impact on nearby streams, reforestation programs to stabilize the surface of the tailings dams and the implementation of scrubbing technology in the mines to reduce dust emissions. 66

69 Environmental capital expenditures in years 2014 and 2013, were as follows: Peruvian operations $ $ 76.9 Mexican operations Total $ $ Peruvian operations: SCC s operations are subject to applicable Peruvian environmental laws and regulations. The Peruvian government, through the Environmental Ministry conducts annual audits of SCC s Peruvian mining and metallurgical operations. Through these environmental audits, matters related to environmental commitments, compliance with legal requirements, atmospheric emissions, and effluent monitoring are reviewed. SCC believes that it is in material compliance with applicable Peruvian environmental laws and regulations. Peruvian law requires that companies in the mining industry provide assurances for future closure and reclamation. In accordance with the requirements of this law SCC s closure plans were approved by MINEM. As part of the closure plans, SCC is providing guarantees to ensure that sufficient funds will be available for the asset retirement obligation. See Note 14, Asset retirement obligation, for further discussion in this matter. In 2008, the Peruvian government enacted environmental regulations establishing more stringent air quality standards (AQS) for daily sulfur dioxide (SO2) concentration for the Peruvian territory. These regulations, as amended in 2013, recognize distinct zones/areas, as atmospheric basins. As part of these regulations, MINAM was required to carry-out a 12 month ambient air monitoring period, prior to January 1, 2014, to establish SO2 levels. Those areas with a mean 24-hour SO2 concentration equal or less than 20 micrograms per cubic meter (ug/m3) are required to develop programs to maintain this level of compliance. Those areas or cities exceeding the mean 24-hour SO2 concentration of 20 ug/m3 will be required to establish an action plan to address this problem and are required to achieve the 20 ug/m3 AQS in the future. Meanwhile they are required to achieve mean 24-hour AQS equal to 80 ug/m3 of SO2. MINAM has established three atmospheric basins that require further attention to comply with 80ug/m3 of SO2. The Ilo basin is one of these three areas and the Company s smelter and refinery are part of the area. A supreme decree issued on April 8, 2014, indicates that the Company should review its compliance with these regulations and develop a modification plan to reach compliance. The Company is working with an environmental technical study group, established by a MINAM resolution to identify air quality issues and develop plans to comply with the pertinent regulations. In 2013, the Peruvian government enacted new soil environmental quality standards (SQS) applicable to any existing facility or project that generates or could generate risk of soil contamination in its area of operation or influence. In March 2014, MINAM issued a supreme decree which establishes additional provisions for the gradual implementation of SQS. Under this rule the Company has twelve months to identify contaminated sites in and around its facilities and present a report of identified contaminated sites. If such sites exist, the Company must submit a decontamination plan for approval within 24 months from the date it is notified by the authority. This decontamination plan shall include remediation actions, a schedule and compliance deadlines. Also, under this rule, if deemed necessary, the Company may request a one year extension, given sound justification. Soil confirmation tests must be carried out after completion of decontamination actions (within the approved schedule) and results must be presented to the authorities within 30 days after receiving such results. Non-compliance with this obligation or with decontamination goals will carry penalties, although no specific sanctions have been established yet. During compliance schedule, companies cannot be penalized for non-compliance with the SQS. In the fourth quarter of 2014, the Company selected the consultant to carry out soil samplings, studies and other requirements of the rules. 67

70 Mexican operations: SCC s operations are subject to applicable Mexican federal, state and municipal environmental laws, to Mexican official standards, and to regulations for the protection of the environment, including regulations relating to water supply, water quality, air quality, noise levels and hazardous and solid waste. The principal legislation applicable to SCC s Mexican operations is the Federal General Law of Ecological Balance and Environmental Protection (the General Law), which is enforced by PROFEPA. PROFEPA monitors compliance with environmental legislation and enforces Mexican environmental laws, regulations and official standards. PROFEPA may initiate administrative proceedings against companies that violate environmental laws, which in the most extreme cases may result in the temporary or permanent closing of noncomplying facilities, the revocation of operating licenses and/or other sanctions or fines. Also, according to the federal criminal code, PROFEPA must inform corresponding authorities regarding environmental noncompliance. In January 2011, Article 180 of the General Law was amended. This amendment, gives an individual or company the ability to contest administrative acts, including environmental authorizations, permits or concessions granted, without the need to demonstrate the actual existence of harm to the environment, natural resources, flora, fauna or human health, because it will be sufficient to argue that the harm may be caused. In addition in 2011, amendments to the Civil Federal Procedures Code (CFPC) were published in the Official Gazette and are now in force. These amendments establish three categories of collective actions, by means of which 30 or more people claiming injury derived from environmental, consumer protection, financial services and economic competition issues will be considered to be sufficient in order to have a legitimate interest to seek through a civil procedure restitution or economic compensation or suspension of the activities from which the alleged injury derived. The amendments to the CFPC may result in more litigation, with plaintiffs seeking remedies, including suspension of the activities alleged to cause harm. In June 2013, the Environmental Liability Federal Law was published in the Official Gazette and became effective one month thereafter. The law establishes general guidelines in order to determine which environmental actions will be considered to cause environmental harm that will give rise to administrative responsibilities (remediation or compensations) and criminal responsibilities. Also economic fines could be established. On August 6, 2014, an accidental spill of approximately 40,000 cubic meters of copper sulfate solution occurred at a leaching pond that was under construction ten kilometers away from the mine of BVC a subsidiary of SCC. The accident was caused by a rock collapse that affected the system s pumping station and by a construction defect in the seal of a pipe in the leaching system containment dam, a part of the new SX- EW III plant. This solution reached the Bacanuchi River, a branch of the Sonora River. All the immediate actions were properly taken in order to contain the spill, and to comply with all the legal requirements. On August 19, 2014, PROFEPA, as part of the administrative proceeding initiated after the spill, announced the filing of a criminal complaint against BVC and those determined to be responsible for the environmental damages. The criminal complaint filed by PROFEPA against BVC is in the procedural stages. SCC is vigorously defending against it. According to the Mexican Environmental Responsibilities Federal Law, administrative fines and sanctions could go upward to Ps.40.0 million (approximately $3.0). Additional sanctions or fines may be imposed, including the cost of cleanup and remediation of the polluted sites, as well as economic compensation to individuals who may have suffered damages as a result of the spill, provided that direct damages are proven. On September 15, 2014, BVC, in agreement with the Mexican Federal Government, established a trust of up to Ps. 2.0 billion pesos (approximately $150.0) to support the remedial efforts that BVC had already undertaken, to comply with the environmental remediation plan and to pay, as the case may be, material damages to the riverside residents of the seven counties affected by the spill. 68

71 In 2014, BVC estimated the contingent liability at $91.4, of which $16.4 had been paid previous to the establishment of the trust, and approximately Ps.1.0 billion (approximately $74.9) was deposited in the trust. These funds have been available and have been used to compensate claims as they have arisen. This deposit was classified as restricted cash and was recorded as an operating expense in the 2014 results. A technical committee was created to manage the funds, comprised of representatives from the federal government, SCC and specialists assisted by a team of environmental experts. The trust established by SCC and the administrative agreement executed with the corresponding Federal authorities, serves as an alternative mechanism for dispute resolution to mitigate public and private litigation risks. On November 27, 2014, a remediation program was presented before the Seretaría de Medio Ambiente y Recursos Naturales (Spanish acronymsemarnat), the federal agency of environment and natural resources, which was approved on January 6, On December 31, 2014, PROFEPA initiated an administrative proceeding directly derived from the spill, which is still in its initial stages. The National Commission for Water (Spanish acronym CONAGUA), and the Federal Commission for the Protection against Sanitary Risks (Spanish acronym COFEPRIS), have initiated certain proceedings, not directly linked to the spill, to monitor SCC s compliance with the applicable environmental laws. In addition, SCC has been served with three collective action lawsuits seeking damages for injuries related to the spill, which are in an early procedural stages. For a description of collective actions in Mexico refer to the 2011 amendments to the CFPC described above. SCC asserts that these lawsuits are without merit and is vigorously defending against them. SCC reasonably considers that none of the legal proceedings resulting from the spill, individually or in the aggregate, would have a material effect on its financial position or results of operations. SCC believes that all of its facilities in Peru and Mexico are in material compliance with applicable environmental, mining and other laws and regulations. SCC also believes that continued compliance with environmental laws of Mexico and Peru will not have a material adverse effect on SCC s business, properties, result of operations, financial condition or prospects and will not result in material capital expenditures. American operations Environmental Litigation and Related Matters - In connection with the matters referred to below, Asarco is working with federal and state agencies to resolve environmental issues. Asarco accrues for losses when such losses are deemed probable and reasonably estimable. Such accruals are adjusted as new information comes to Asarco s attention or circumstances change. These environmental liabilities are not discounted to present value. Recoveries of environmental remediation and related costs from insurance carriers and other parties are recorded when realized. Remedial action is being undertaken by Asarco at the following site: Hayden - The Environmental Protection Agency (EPA) notified Asarco that it was considering listing certain areas surrounding Asarco s Hayden Smelter in Hayden, Arizona, on the Federal Superfund s National Priorities List (NPL). The basis of the listing was ostensibly that emissions from the smelter have contributed to elevated levels of metals in soil. Asarco, the EPA and the Arizona Department of Environmental Quality (ADEQ) entered into negotiations to address environmental conditions at the Hayden site without resorting to such a listing. The parties participated in extensive negotiations regarding the scope of actions to be taken at the Hayden site, which resulted in an agreement regarding cleanup of the site. Pursuant thereto, Asarco has completed work on certain residential yards that the EPA deemed to be a high priority. 69

72 As required under the approved settlement agreement, Asarco established and funded a $15.0 trust on July 3, 2008, to secure its obligations. The funds in the Hayden trust are to be used to pay for (I) required cleanup of the residential areas surrounding the smelter and (II) to pay for additional investigative work at the Hayden site to identify any releases of hazardous substances if any such releases are not otherwise being addressed under any other regulatory program for cleanup. Under the settlement agreement, Asarco s liability for cleanup of the residential areas is limited to $13.5, while there is no cap on Asarco s liability for the cost of the required investigation activities of on-site remediation. The residential cleanup is substantially complete and management believes the funds in the Hayden site trust are adequate to cover the expected investigative activities. The amounts reserved in Asarco s consolidated balance sheets as of December 31, 2014 and 2013, were $0.0 and $2.0, respectively. On November 10, 2011, the EPA issued Asarco a finding of violation (FOV) stating it believed the Hayden smelter was a major source of Hazardous Air Pollutants (HAPs). In 2012 Asarco completed an anode ventilation project at the smelter and is currently evaluating additional smelter upgrades to comply with the newly implemented sulfur dioxide regulations. Asarco believes that these upgrades will reduce HAPs emissions to a verifiable degree sufficient to resolve the FOV. Further discussions and negotiations have continued with the EPA and Department of Justice on this matter through the end of Asarco has recorded a contingent liability to cover potential litigation costs in the amount of $1.0 at December 31, 2014 and 2013, respectively. Litigation matters: Peruvian operations Garcia Ataucuri and Others against SCC s Peruvian Branch: In April 1996, the Branch was served with a complaint filed in Peru by Mr. Garcia Ataucuri and approximately 900 former employees seeking the delivery of a substantial number of labor shares (acciones laborales) plus dividends on such shares, to be issued to each former employee in proportion to their time of employment with SCC s Peruvian Branch, pursuant a former Peruvian mandated profit sharing law. The labor share litigation is based on claims of former employees for ownership of labor shares that the plaintiffs state that the Branch did not issue during the 1970s until 1979 under the said former Peruvian mandated profit sharing law. In 1971, the Peruvian government enacted legislation providing that mining workers would have a 10% participation in the pre-tax profits of their employing enterprises. This participation was distributed 40% in cash and 60% in an equity interest of the enterprise. In 1978, the equity portion, which was originally delivered to a mining industry workers organization, was set at 5.5% of pre-tax profits and was delivered, mainly in the form of labor shares to individual workers. The cash portion was set at 4.0% of pre-tax earnings and was delivered to individual employees also in proportion to their time of employment with the Branch. In 1992, the workers participation was set at 8%, with 100% payable in cash and the equity participation was eliminated from the law. In relation to the issuance of labor shares by the Branch in Peru, the Branch is a defendant in the following lawsuits: 1) Mr. Garcia Ataucuri seeks delivery, to himself and each of the approximately 900 former employees of the Peruvian Branch, of the 3,876,380, old peruvian soles or 38,763, labor shares (acciones laborales), as required by Decree Law (a former profit sharing law), to be issued proportionally to each former employee in accordance with the time of employment of such employee with SCC s Branch in Peru, plus dividends on such shares. The 38,763, labor shares sought in the complaint, with a face value of old soles each, represent 100% of the labor shares issued by the Branch during the 1970s until 1979 for all of its employees during that period. The plaintiffs do not represent 100% of the Branch s eligible employees during that period. 70

73 It should be noted that the lawsuit refers to a prior Peruvian currency called sol de oro or old soles, which was later changed to the inti, and then into today s nuevo sol. Due to past period of high inflation between 1985 and 1990, one billion of old soles is equivalent to today s one nuevo sol. After lengthy proceedings before the civil courts in Peru on September 19, 2001, on appeal from the Branch, the Peruvian Supreme Court annulled the proceedings noting that the civil courts lacked jurisdiction and that the matter had to be decided by a labor court (the 2000 appeal). In October 2007, in a separate proceeding initiated by the plaintiffs, the Peruvian Constitutional Court nullified the September 19, 2001 Peruvian Supreme Court decision and ordered the Supreme Court to decide again on the merits of the case accepting or denying the Branch s 2000 appeal. In May 2009, the Supreme Court rejected the 2000 appeal of the Branch affirming the adverse decision of the appellate civil court and lower civil court. While the Supreme Court has ordered SCC s Peruvian Branch to deliver the labor shares and dividends, it has clearly stated that SCC s Peruvian Branch may prove, by all legal means, its assertion that the labor shares and dividends were distributed to the former employees in accordance with the profit sharing law then in effect, an assertion which SCC s Peruvian Branch continues to make. None of the court decisions state the manner by which the Branch must comply with the delivery of such labor shares or make a liquidation of the amount to be paid for past dividends and interest, if any. On June 9, 2009, SCC s Peruvian Branch filed a proceeding of relief before a civil court in Peru seeking the nullity of the 2009 Supreme Court decision and, in a separate proceeding, a request for a precautionary measure. The civil court rendered a favorable decision on the nullity and the precautionary measure, suspending the enforcement of the Supreme Court decision, for the reasons indicated above and other reasons. In February 2012, the Branch was notified that the civil court had reversed its prior decisions. On appeal by the Peruvian Branch the Superior Court affirmed the lower court s decisions regarding the nullity of the 2009 Supreme Court decision and the precautionary measure. As a result, the nullity of the precautionary measure became final and is not appealable. However, the nullity of the 2009 Supreme Court decision was appealed by the Branch before the Constitutional Court. On April 10, 2014, the Constitutional Court denied the Company s appeal and affirmed the lower court s decision.in view of this, SCC s Peruvian Branch continues to analyze the manner in which competent lower court will enforce the Supreme Court s decision and its financial impact 2) In addition, there are filed against SCC s Branch the following lawsuits, involving approximately 800 plaintiffs, which seek the same number of labor shares as in the Garcia Ataucuri case, plus interest, labor shares resulting from capital increases and dividends: Armando Cornejo Flores and others v. SCC s Peruvian Branch (filed May 10, 2006); Alejandro Zapata Mamani and others v. SCC s Peruvian Branch (filed June 27, 2008); Edgardo Garcia Ataucuri, in representation of 216 of SCC s Peruvian Branch former workers, v. SCC s Peruvian Branch (filed May 2011); Juan Guillermo Oporto Carpio v. SCC s Peruvian Branch (filed August 2011); Rene Mercado Caballero v. SCC s Peruvian Branch (filed November 2011); Enrique Salazar Alvarez and others v. SCC s Peruvian Branch (filed December 2011); Jesus Mamani Chura and others v. SCC s Peruvian Branch (filed March 2012); Armando Cornejo Flores, in representation of 37 of SCC s Peruvian Branch former workers v. SCC s Peruvian Branch (filed March 2012), Porfirio Ochochoque Mamani and others v. SCC s Peruvian Branch (filed July 2012); Alfonso Flores Jimenez and others v. SCC s Peruvian Branch (filed July 2013) and Micaela Laura Alvarez de Vargas and others v. SCC s Peruvian Branch (filed August 2013). SCC s Peruvian Branch has answered the complaints and denied the validity of the claims. SCC s Peruvian Branch asserts that the labor shares were distributed to the former employees in accordance with the profit sharing law then in effect. The Peruvian Branch has not made a provision for these lawsuits because it believes that it has meritorious defenses to the claims asserted in the complaints. Additionally, the amount of this contingency cannot be reasonably estimated by management at this time. 71

74 The Virgen Maria Mining Concessions of the Tia Maria Mining Project The Tia Maria project includes various mining concessions, totaling 32, hectares. One of the concessions is the Virgen Maria mining concession totaling hectares or 2.9% of the total mining concessions. Related to the Virgen Maria mining concessions, SCC is party to the following lawsuits: a) Exploraciones de Concesiones Metalicas S.A.C. (Excomet): In August 2009, a lawsuit was filed against SCC s Branch by the former stockholders of Excomet. The plaintiffs allege that the acquisition of Excomet s shares by the Branch is null and void because the $2.0 purchase price paid by the Branch for the shares of Excomet was not fairly negotiated by the plaintiffs and the Branch. In 2005, the Branch acquired the shares of Excomet after lengthy negotiations with the plaintiffs, and after the plaintiffs, which were all the stockholders of Excomet, approved the transaction in a general stockholders meeting. Excomet was at the time owner of the Virgen Maria mining concession. In October 2011, the civil court dismissed the case on the grounds that the claim had been barred by the statute of limitations. On appeal by the plaintiffs, the superior court reversed the lower court s decision. As of December 31, 2014, the case remains pending resolution without further developments. b) Sociedad Minera de Responsabilidad Limitada Virgen Maria de Arequipa (SMRL Virgen Maria): In August 2010, a lawsuit was filed against SCC s Branch and others by SMRL Virgen Maria, a company which until July 2003 owned the mining concession Virgen Maria. SMRL Virgen Maria sold this mining concession in July 2003 to Excomet (see a) above). The plaintiff alleges that the sale of the mining concession Virgen Maria to Excomet is null and void because the persons who attended the shareholders meeting of SMRL Virgen Maria, at which the purchase was agreed upon, were not the real owners of the shares. The plaintiff is also pursuing the nullity of all the subsequent acts regarding the mining property (acquisition of the shares of Excomet by SCC s Branch, noted above, and the sale of this concession to SCC s Branch by Excomet). In October 2011, the civil court dismissed the case on the grounds that the claim had been barred by the statute of limitations. Upon appeal by the plaintiffs, the superior court remanded the proceedings to the lower court, ordering the issuance of a new decision. On June 25, 2013, the lower court dismissed the case due to procedural defects. Upon appeal by the plaintiff, on December 2, 2013 the Superior Court reversed the lower court s decision due to procedural defects and ordered the issuance of a new resolution. In July 2014, once again the lower court dismissed the case on the grounds that the claim had barred by the statute of limitations. The plaintiff appealed this resolution before the Superior Court. As of December 31, 2014, the case remains pending resolution without further developments. c) Omar Nunez Melgar: In May 2011, Mr. Omar Nunez Melgar commenced a lawsuit against the Peruvian Mining and Metallurgical Institute and MINEM challenging the denial of his request of a new mining concession that conflicted with SCC s Branch s Virgen Maria mining concession. SCC s Branch has been made a party to the proceedings as the owner of the Virgen Maria concession. SCC s Branch has answered the complaint and denied the validity of the claim. As of December 31, 2014, the case remains pending resolution without further developments. SCC asserts that the lawsuits are without merit and is vigorously defending against these lawsuits. Special Regional Pasto Grande Project (Pasto Grande Project) In the last quarter of 2012, the Pasto Grande Project, an entity of the Regional Government of Moquegua, filed a lawsuit against SCC s Peruvian Branch alleging property rights over a certain area used by the Peruvian Branch and seeking the demolition of the tailings dam where SCC s Peruvian Branch has deposited its tailings from the Toquepala and Cuajone operations since The Peruvian Branch has had title to use the area in question since 1960 and has constructed and operated the tailing dams also with proper governmental authorization, since SCC s Peruvian Branch asserts that the lawsuit is without merit and is vigorously defending against the lawsuit. Upon a motion filed by the Peruvian Branch the lower court has included the Ministry of Energy and Mines as a defendant in this lawsuit. The Ministry of Energy and Mines has answered the complaint and denied the validity of the claim. As of December 31, 2014, the case remains pending resolution without further developments. 72

75 American operations Disputed Claims Reserve (DCR): Certain claims of Asarco s bankruptcy settlement, which became effective in December 2009, were not settled on the effective date; therefore, Asarco has provided funds to the Parent s plan administrator (PPA) for the ultimate settlement of contingent liabilities that relate to the following: Administrative claims, of labor unions, medical plan administration fees and other miscellaneous items; Enhancement claims, by legal firms, consulting firms and other professionals participating in the bankruptcy proceedings, and; Substantial contribution claims, by previous officers, board members and plan participants. The full face value of claims remaining in the DCR on December 31, 2014, is approximately $12.9. Asarco has recorded liabilities in the amounts of $6.7 and $18.0 at December 31, 2014 and 2013, respectively, representing management s best estimate to ultimately settle and pay these claims. The PPA has reserved cash in the DCR for future payments of these unsettled administrative general unsecured claims and any successful remaining administrative claims listed above and related administrative costs. On December 31, 2014 and 2013, the DCR restricted cash balances were $28.7 and $40.3, respectively. Any residual cash in the DCR will be returned to Asarco and any deficiency will be funded by Asarco. During 2014 and 2013, various claims and administrative fees were settled and paid in the amount of $11.5 and $4.0, respectively. As claims continue to be settled Asarco periodically petitions the Bankruptcy Court to have a portion of the DCR returned, based on the current status of the remaining unsettled claims. In December 2013, based on a court order, the PPA to return to Asarco retorden $8.0 to Asarco from the DCR. Management believes the remaining amount of restricted cash is sufficient to pay the final disputed claims in full. In addition to the above claims, there was a substantial contribution claim by Sterlite (USA), Inc., and Sterlite Industries (India) Ltd., (collectively, Sterlite) in the amount of $56.2 that was denied by the Bankruptcy Court in Asarco also filed a claim against Sterlite related to the breach of an asset purchase agreement to acquire assets of Asarco. In February 2012, the Bankruptcy Court entered judgment in favor of Asarco in the net amount of $82.8 related to the breach of an asset purchase agreement. The $82.8 Asarco was awarded includes $102.8 in interest damages, $30.0 in additional professional fees, less $50.0 representing a letter of credit Sterlite posted as security, which was previously drawn by Asarco in November In October of 2014, the Company received a final cash settlement from Sterlite related to this judgment, in the amount of $65.9, net of $16.9 in legal fees, which is reflected in general expenses on the statement of income. Labor matters: In recent years SCC has experienced a positive labor environment in its operations in Mexico and Peru which is allowing an increase productivity as well as helping to achieving the goals of its capital expansion program. Peruvian operations Approximately 69% of the Company s 4,524 Peruvian employees were unionized at December 31, There are seven separate unions, three of them at each major production area that represent the majority of the SCC s workers; and four smaller unions that represent the balance of workers. SCC conducted negotiations with the unions whose collective bargaining agreements expired in In 2013, SCC signed three-year agreements with all the unions. The agreements included, among other things, annual salary increases of 6.5% for first year and 5% for the second and third year. 73

76 Mexican operations In recent years, the Mexican operations have experienced a positive improvement of their labor environment, as its workers, opted to change their affiliation from the Sindicato Nacional de Trabajadores Mineros, Metalurgicos y Similares de la Republica Mexicana (National Union of Mine and Metal Workers and Similar Activities of the Mexican Republic or the National Mining Union) led by Napoleon Gomez Urrutia to other less politicized unions. The workers of the San Martin and Taxco mines, however, are still under the National Mining Union, have been on strike since July On December 10, 2009, a federal court confirmed the legality of the San Martin strike. In order to recover the control of the San Martin mine and resume operations, on January 27, 2011, SCC filed a court petition requesting that the court, among other things define the termination payment for each unionized worker. The court denied the petition alleging that, according to federal labor law, the union was the only legitimate party to file such petition. On appeal by SCC, on May 13, 2011, the Mexican federal tribunal accepted the petition. In July 2011, the National Mining Union appealed the favorable court decision before the Supreme Court. On November 7, 2012, the Supreme Court affirmed the decision of the federal tribunal. SCC filed a new proceeding before the labor court on the basis of the Supreme Court decision, which recognized the right of the labor court to define responsibility for the strike and the termination payment for each unionized worker. A favorable decision of the labor court in this new proceeding would have the effect of terminating the protracted strike at San Martin. As of December 31, 2014, the case remains pending resolution without further developments. In the case of the Taxco mine, following the workers refusal to allow exploration of new reserves, SCC commenced litigation seeking to terminate the labor relationship with workers of the Taxco mine (including the related collective bargaining agreement). On September 1, 2010, the federal labor court issued a ruling approving the termination of the collective bargaining agreement and all the individual labor contracts of the workers affiliated with the Mexican mining union at the Taxco mine. The mining union appealed the labor court ruling before a federal court. In September 2011, the federal court accepted the union s appeal and requested that the federal labor court review the procedure. After several legal proceedings on January 25, 2013, SCC filed a new proceeding before the labor court. On June 16, 2014 the labor court denied the petition of the SCC. The resolution issued by the labor court was challenged by the Company before a federal court. Considering the above decision of the Supreme Court, there could be grounds for a favorable decision to end the protracted strike at the Taxco Unit. As of December 31, 2014, the resolution of this case remains pending. It is expected that operations at these mines will remain suspended until these labor issues are resolved. In view of these lengthy strikes, SCC has reviewed the carrying value of the San Martin and Taxco mines to ascertain whether impairment exists. SCC concluded that there is a non-material impairment of the assets located at these mines. Other legal matters: SCC SCC is involved in various other legal proceedings incidental to its operations, but SCC does not believe that decisions adverse to it in any such proceedings, individually or in the aggregate, would have a material effect on its financial position or results of operations. 74

77 Asarco Asarco is a defendant in lawsuits in Arizona, the earliest of which commenced in 1975, involving the United States, Native Americans and other Arizona water users. These suits seek damages for usage and alleged contamination of ground water. The lawsuits could affect Asarco s use of water at its Ray Complex, Mission Complex and other Arizona operations. Asarco is also involved in multiple suits and claims against it arising from such matters as workers compensation claims and employment-related claims, among other matters. Management has analyzed the issues and has accrued approximately $9.3 and $6.3 to settle these additional litigation matters as of December 31, 2014 and 2013, respectively. Corporate and railway segment Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (GAP) On June 13, 2011, GMéxico announced that its Board of Directors had approved the (direct or indirect) acquisition of over 30% and up to 100% of the outstanding shares of Grupo Aeroportuario del Pacífico, S. A. B. de C. V. (GAP), excluding treasury shares, and that in regard to any such transaction GMéxico would have to make a mandatory public offering (OPA) for up to 100% of the outstanding shares of GAP, in accordance with the Mexican Securities Law and other applicable laws. GMéxico and ITM (the Reporting Parties) requested the CNBV authorization for an OPA. GAP and related parties filed certain lawsuits in Mexico and obtained a suspension of such public offering. The Reporting Parties appealed the ruling requesting the suspension of the CNBV s authorization and on May 29, 2012, the Reporting Parties announced that they would not request the CNBV s authorization for the OPA, which had been scheduled for June 13, On April 16, 2013, GMéxico provided a letter to certain holders of ADS and Shares (the Stockholders Letter dated April 16), requesting a favorable vote on all the proposals included on the Agenda of GAP s Annual Ordinary General Stocholders Meeting to be held on April 23, 2013 (the Stockholders Meeting held on April 23). The Stockholders Meeting held on April 23 was called by GMéxico, which also suggested all the proposals included in the agenda of such meeting. The Stockholders Letter dated April 16 had several proposals, including one whereby the bylaws that GMéxico believes to be inconsistent with applicable Mexican laws would no longer be mandatory, such as those designed to: (i) limit the ability of a stockholder other than Aeropuertos Mexicanos del Pacífico, S. A. de C. V. (AMP), GAP s majority stockholder, to own more than 10% of all outstanding shares; (ii) limit the exercise of voting rights for shares exceeding 10% of all shares outstanding of GAP, and (iii) which exclude any individual other than AMP from seeking a change in control over GAP. During the Stockholders Meeting held on April 23, GMéxico also asked GAP stockholders to approve the designation of an independent stockholder representative to perform an investigation to determine whether certain GAP directors and senior officers had been involved in illegal actions to the detriment of GAP, which may result in a liability for such directors and officers of GAP and its minority stockholders. Similarly, on December 3, 2013, and based on opinions issued by various experts, GMéxico called another Stockholders Meeting whose most significant proposal was to seek the termination of the Technical Assistance and Technology Transfer Agreement. GMéxico held and intends to continue to hold discussions with GAP management, directors, other stockholders and third parties in regard to this and other matters previously discussed. GMéxico has obtained favorable rulings at trial and appellate levels in relation to the proceeding for annulment filed against GAP, which declares that the bylaws limiting shareholding to 10% of GAP s common stock are invalid and illegal. The investigation and ruling of this matter has been filed with the First Court of the Mexican Supreme Court, which may issue a final ruling. Through joint actions or legal procedures, the Reporting Parties may at any time continue to seek the amendment of GAP s bylaws and the designation of the number of members of GAP s Board of Directors they believe they are entitled to, based on their proportional equity in the company. In 2014, the matter was filed with the Mexican Supreme Court, where it is currently being resolved. 75

78 The Reporting Parties continue exploring the possibility of additional investments in GAP, in conformity with applicable Mexican and US laws, but have not made a decision regarding the number of shares they intend to acquire in such transaction, how it will be performed or the related term. The Reporting Parties may, from time to time, acquire or sell GAP shares in the Mexican or New York Stock Exchange, publicly, privately or in any other manner, or propose changes to GAP s Board of Directors and, as determined by the Reporting Parties based on the evolution of GAP s businesses and prospects, share and ADS prices, conditions in financial and securities markets and in the industry and general economy of GAP, applicable regulatory developments and other relevant factors. Similarly, the Reporting Parties may, from time to time, hold discussions with GAP management, relevant directors and other stockholders and third parties regarding their investments, the business and its strategy. Other contingencies: Railway segment Negotiations being conducted with another Mexican railroad company. Ferromex s owed net receivables by Kansas City Southern México, S. A. de C. V. (KCSM) formerly TFM, S. A. de C. V. (TFM) accrued from 1998 to January 2010 and negotiations are currently being conducted to determine the amounts receivable by segment (interline services and trackage and haulage rights) that are not clearly defined in the concession titles. As of December 31, 2014, the net receivable balance accrued over the period from 1998 to January 2010 amounts to $23.3. As of December 31, 2014 Ferromex considers that these amounts have been properly assessed and therefore no additional contingencies have been recorded in order to take into account any contingent positive or negative results ensuing from the negotiations and legal proceedings specified below. Legal actions and administrative proceedings Ferromex is involved in various legal actions deriving from its normal operations. In regard to these actions, Ferromex and its legal counsel are of the opinion that regardless of their outcome when taken as a whole, they would have no material adverse effect on the Company s financial condition or on the results of its operations. The main legal actions in which the Ferromex is involved are the following: a. Ordinary commercial actions against KCSM. i. For the period running from February 19, 1998 to August 31, 2001, the amounts claimed at the time action was filed (nominal value) were for a total of Ps and $20.6. After being processed at all court levels, Ferromex was denied constitutional relief under a writ of amparo, although its right to sue again was safeguarded. Since due to the judgment rendered on February 3, 2005, Ferromex s right to sue again was safeguarded, it should be underscored that Ferromex is still entitled to recover the relevant amounts and therefore, these will be claimed once the Ministry of Communications and Transportation (Spanish acronym SCT) issues the new official communication whereby the compensation to be paid by concessionaires will be determined. ii. On September 19, 2006, Ferromex filed an ordinary commercial action against KCSM, seeking that accounts be rendered for the period running from January 2002 to December 2004, and claiming payment for the resulting amounts. After all motions and proceedings came to a close, the action filed by Ferromex was dismissed, and Ferromex was ordered to pay legal costs and expenses at both jurisdictional levels. This court order has not yet been enforced. At present Ferromex is awaiting for the official communication from the SCT regarding payment of compensation so as to determine the legal action that should be taken. 76

79 Actions for annulment against several official communications issued by SCT on trackage rights, and interconnection and terminal services. Currently three of these actions are being processed before the Federal Court of Administrative and Fiscal Justice (Spanish acronym TFJFA), the Supreme Court of Justice, the Collegiate Courts and the SCT. Currently the Entity is awaiting the relevant resolutions. Inquiry into Monopolistic Practices IO By means of official communication No. DGIPMARCI dated January 14, 2008, COFECO requested that ITM, GFM, Ferromex, ITF, Ferrosur and other companies submit sundry information, which Ferromex submitted on February 28, COFECO served Notices of Probable Responsibility to the companies which had participated in the stock acquisitions reported by ITM and ITF from November 2005 onwards. On January 22, 2009, a ruling was issued in this inquiry proceeding. On January 30, 2009, COFECO notified Ferromex of its ruling, finding that the Company together with other companies were responsible for monopolistic practices and imposed monetary sanctions, the one imposed on Ferromex amounting to $82.2 and GFM to $0.7. The entities subject to this inquiry appealed for reconsideration. By ruling issued on June 9, 2009, COFECO decided to uphold its ruling of January 22, This decision was challenged by an amparo action (Case File 887/2009). After several motions and actions at the different jurisdictional levels, by means of a ruling published on July 13, 2011, the Thirteenth Collegiate Circuit Court in Administrative Matters (13 TCC) took cognizance of the review motion under case file number: R.A. 262/2011. In addition, the case was also sent to the Supreme Court for it to give consideration to the matters set forth in the constitutional relief action filed regarding the unconstitutionality of section I of article 9 of the Federal Economic Competition Law (FLEC) under case file. R.A. 393/2012. This matter was resolved at the session held on October 17, 2012, where the only pronouncement of the Supreme Court dealt with the unconstitutionality of section I of article 9 of the FLEC and denied constitutional relief under the amparo, while upholding the jurisdictional control over the matter of 13 TCC, which will have to take cognizance of the matters regarding the legality or illegality of the judgment being challenged. On September 30, 2013 Ferromex was served notice of the judgment rendered in case file of the amparo action for constitutional relief under review number R.A. 262/2011, by which relief under the amparo was granted in order to reverse the resolution issued on June 9, 2009 by COFECO, under the appeal for reconsideration R.A. 08/2009 and all joined actions, ordering retrial as specified for another ruling to be rendered to cure the violations as set forth in the ruling of the Court. With respect to the amparo whereby relief was denied, it dealt with the replacement due to the absence of, and delegation of authority by, the defendant governmental party. By a ruling issued on October 10, 2013, receipt was acknowledged of official communication filed by the Head Counsel of COFECO remitting the resolution issued on October 8, 2013 regarding RA by the Plenum of COFECO, by which the judgment in the amparo action was executed under the following terms: (i)to annul the resolution issued in said case file on June 9, 2009; (ii)to reverse the challenged resolution issued in case file IO ; and (iii) to close case file IO and all joinders, since there are not sufficient elements to file action for liability against claimants. b. Indirect Litigation. These are actions in which Company is a codefendant by virtue of labor actions filed against Ferrocarriles Nacionales de México (FNM), which due to their particular characteristics cannot be quantified. Nevertheless any financial impact they may have has to be absorbed by the entity in charge of the liquidation of FNM or by the Mexican Federal Government, under terms previously agreed upon. c. Direct Litigation. These are labor-related actions filed against The Company as defendant. The amount of the entry recorded would have to be settled in the event the actions are lost and should there be no possibility of reaching a settlement. The amounts of the indemnities paid during 2014 and 2013 on labor-related actions were $1.1 and $1.6, respectively. As of December 31, 2013 the Company believes that it has adequately valued accounts receivable and payable and, therefore, did not create a further estimate to cover a possible differential in favor or against that resulted from the negotiations and judgments mentioned above. 77

80 Tax contingency matters Tax contingencies are provided for under ASC Uncertain tax position (see Note 19 Income taxes). Other The Company is involved in several lawsuits related to its operations, but it believes that any adverse legal rulings, whether jointly or individually, will not have a material effect on its financial position or operating results. Similarly, the Company does not believe that the result of lawsuits derived from alleged joint actions will have a material adverse effect on its financial position or operating results. Even though the defendants, including GMéxico and its affiliates, believe that there are no grounds to the allegations in the joint action lawsuits, the Company cannot confirm whether these or future lawsuits, if successful, will not have a negative effect on GMéxico. 26. Subsequent events On January 29, 2015 the Board of Directors approved an increase in the share repurchase program to $2 billion from $3 billion. During 2015 the Board of Directors of the Company approved a dividend in accordance with the resolutions take at Ordinary Stockholders Meeting held on January 30, 2015, whereby a Ps.0.26 per share dividend was paid on February 18, On April 20, 2015, SCC issued $2.0 billion of fixed-rate senior unsecured notes. This debt was issued in two tranches, $500.0 due 2025 at an annual interest rate of 3.875% and $1.5 billion due 2045 at an annual interest rate of 5.875%. These notes will be general unsecured obligations of SCC and will rank equally with all of its existing and future unsecured and unsubordinated debt. Net proceeds will be used for general corporate purposes, including the financing of SCC s capital expenditure program. The Company evaluated subsequent events after December 31, 2014 and through April 20, 2015, the date these consolidated financial statements were available for issuance, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these consolidated financial statements. * * * * * * 78