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
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
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
2014 2013Current assets:
Cash and cash equivalents $ 1,300,766 $ 2,380,339
Restricted cash 91,745 55,529
Short-term investments 339,604 208,725 Trade accounts receivable 887,705 910,018 Other accounts receivable 418,811 326,153 Inventories – Net 1,286,389 1,158,116 Prepaid expenses and other 18,423 19,226 Deferred income tax 235,430 283,194 Total current assets 4,578,873 5,341,300 Restricted cash 139,177 275,106 Property, plant and equipment – Net 12,760,255 11,465,160 Leachable material – Net 563,500 443,489 Other intangible assets – Net 392,211 302,845 Deferred income tax 1,118,037 701,742
Other assets 292,856 387,524
Concession titles – Net 184,631 216,976 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 914,981 948,096 Due to related parties 15,125 13,907 Income tax payable 231,035 36,704 Deferred income tax 13,360 - Employees' statutory profit sharing 241,088 219,473 Total current liabilities 1,803,797 1,585,251 Long-term debt 5,559,700 5,443,772 Labor liabilities 553,101 358,555 Deferred income tax 1,042,497 1,003,723 Other liabilities and reserves 311,316 344,131 Total liabilities 9,270,411 8,735,432 (Continues)
2014 2013
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 243,306 243,306 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.
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)
2014 2013
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 806,167 691,900
Exploration 79,445 57,599
6,315,220 5,915,834 Income from operations 3,008,833 3,441,211 Interest expense 353,574 334,966 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)
3,988 237,593 Income before income taxes 3,004,845 3,203,618
Income taxes 953,864 957,170
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
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)
2014 2013
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 97 60 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 341,214 383,444 Total comprehensive income attributable to Grupo México, S. A. B. de
C. V. $ 1,314,446 $ 2,027,373
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)
Outstanding shares
in thousands Common stock
Reserve for shares purchase
Additional
paid-in capital Treasury stock
Accumulated other
comprehensive loss Retained earnings
Stockholders' equity of Grupo Mexico,
S. A. B. de CV Noncontrolling interest Total
Balances as of beginning of 2013 7,785,000 $ 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 - - - - 1,844,932 1,844,932 428,806 2,273,738 Other comprehensive income - - - - - 182,441 - 182,441 (45,362) 137,079 - - - - - 182,441 1,844,932 2,027,373 383,444 2,410,817 Balances as of December 31, 2013 7,785,000 2,003,496 243,306 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 - - - - 150,085 150,085 (150,085) - Acquisition of noncontrolling interest - - - - (9,900) (9,900) (76,146) (86,046) Comprehensive result:
Consolidated net income - - - - 1,704,930 1,704,930 377,568 2,082,498 Other comprehensive loss - - - - - (390,484) - (390,484) (36,354) (426,838)
- - - - - (390,484) 1,704,930 1,314,446 341,214 1,655,660 Balances as of December 31, 2014 7,785,000 $ 2,003,496 $ 243,306 $ 9,043 $ (1,665,482) $ (264,787) $ 9,503,553 $ 9,829,129 $ 1,778,190 $ 11,607,319
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)
2014 2013
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 806,167 691,900 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 99,713 214,609
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 384,020 392,874 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)
2014 2013
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
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.
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, 1999. 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 2013. As of December 31, 2014, Caridad Plant II was generating test energy to start operations in 2015 and Wind Farm, began operations in August 2014- 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. Toquepala receives approval for the Environmental Impact Assessment (EIA).- The Peruvian
Ministry of Energy and Mines approved the EIA for Toquepala on December 17, 2014. 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.
iii. 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 non-controlling 25% interest from Mitsui for $115.2. 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 $29.1.
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 $1,400.0.
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. 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 25,377units.
vii. 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.
viii. 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, 2014. 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 $364.0. The second 52.9 km section is expected to open in third quarter to 2015.
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 2014 2013
Americas Mining Corporation 100 100 Exploration and extraction of minerals. Infraestructura y Transportes Mexico, S.
A. de C. V. 74.9 74.9
Freight and multimodal railway services.
México Proyectos y Desarrollos,
S. A. de C. V. 100 100
Public and private infrastructure and construction.
Grupo México Servicios, S. A. de
C. V. (GMS) 100 100 Administrative and personnel services. Infraestructura de Transportes Aéreos
México, S. A. de C. V. (1) (ITAM) - 100
Holding of airway transportation companies.
(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, 2014.
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:
2014 2013
Mexican pesos (Ps.) per one U.S. dollar:
Current exchange rate at December 31 Ps. 14.7180 Ps. 13.0765 Weighted average exchange rate for the year ended Ps. 13.2982 Ps. 12.7674 Peruvian nuevos soles (Pns.) per one U.S. dollar:
Current exchange rate at December 31 Pns. 2.9890 Pns. 2.7960 Weighted average exchange rate for the year ended Pns. 2.8370 Pns. 2.7020
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.
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 815-30 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.
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.
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 13 – 15 Drilling equipment 15 – 25
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.
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.
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. 2013-11, 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, 2014. As a result of the adoption of ASU No. 2013-11 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 2013-11, 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.
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.
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 2013-02, 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 2011-05 (issued in June 2011) and 2011-12 (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. 2013-11, 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.
Recently issued accounting pronouncements pending adoption
In February 2013, the Financial Accounting Standards Board (FASB) issued the Accounting Standard Updates (ASU) 2013-04, 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, 2014. 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 2014-09 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 2014-09, 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 2018.
3. Short-term investment
The balances of short-term investments were as follows:
2014 2013
Trading securities $ 333.7 $ 202.6 Weighted average interest rate 0.78% 3.78% Available for sale $ 5.9 $ 6.1 Weighted average interest rate 0.44% 0.42%
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-for-sale 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:
2014 2013
One year or less $ 1.3 $ 0.8 Maturing after five years through ten years 0.1 0.2
Due after ten years 4.5 5.1
Total debt securities $ 5.9 $ 6.1 The following table summarized the activity of these investments:
2014 2013
Trading:
Interest earned $ 4.9 $ 5.2
Unrealized loss 2.1 (1.9)
Available for sale:
Interest earned $ (*) $ (*)
Investment redeemed 0.8 0.8
(*) As of December 31, 2014 and 2014 are less than $0.1 in both years.
4. Other accounts receivable
2014 2013
Recoverable taxes $ 231.2 $ 155.1
Prepayments 148.8 123.5
Loan to workers 20.9 23.1
Deferred employee participation in profit sharing 11.6 14.1
Other 6.3 10.4
5. Inventories
2014 2013
Metals and minerals:
Finished goods $ 149.0 $ 150.5
Work-in-process 679.4 545.6
Materials and supplies 458.0 462.0 Inventories – Net $ 1,286.4 $ 1,158.1 Inventory, long-term:
Leachable material Long-term $ 563.5 $ 443.5 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
2014 2013
Prepaid insurance $ 10.5 $ 10.7
Contributions 7.9 8.5
$ 18.4 $ 19.2
7. Property, plant and equipment
2014 2013
Buildings and equipment $ 10,686.5 $ 9,459.6 Locomotives and freight cars 982.1 1,046.7 Rails and structures 1,206.3 1,108.1 Drilling equipment 948.3 679.9 Train yards and terminals 198.8 199.2 Value beyond proven and probable reserves 150.0 142.8 Other railway equipment 846.0 413.7 15,018.0 13,050.0 Less - Accumulated depreciation, amortization and depletion (6,787.4) (6,241.4)
8,230.6 6,808.6 Land, other than mineral 1,032.2 947.2 Construction in progress 3,497.5 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.
8. Concession titles
Concessions are comprised of the following:
2014 2013
North-Pacific railroad track $ 97.1 $ 109.3 Southeast railroad track 187.2 210.7 Nogales-Nacozari short railroad track 1.3 1.6 Ojinaga-Topolobampo short railroad track 0.2 0.2 South-Oaxaca short railroad track 0.2 0.2
Overhauls 16.4 19.0
302.4 341.0 Accumulated amortization (117.8) (124.0) Concession titles – Net $ 184.6 $ 217.0 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 % 2014 2013 2014 2013
FTVM 50.0 $ 27.8 $ 28.1 $ 7.7 $ 6.3 TTX Company 0.6 8.1 9.1 - - Minera Coimolache 44.2 66.7 57.1 23.9 20.9 Wind Farm El Retiro - 134.1 - - Other 7.5 5.0 - -
Total $ 110.1 $ 233.4 $ 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 2014.
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 2014 2013
Grupo Aeroportuario del
Pacífico S. A. B. de C. V. 20.88% 28.03% $ 738.1 $ 841.6
10. Other intangible assets
2014 2013
Mining concessions $ 121.2 $ 121.2 Infrastructure concessions 242.3 147.3 Mine engineering and development studies 6.0 6.0
Software 13.8 12.2 383.3 286.7 Accumulated amortization (48.1) (46.2) 335.2 240.5 Goodwill 57.0 62.3 Intangible assets $ 392.2 $ 302.8 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
2014 2013
Patents and licenses $ 18.0 $ 13.4
Amortization (3.9) (3.5)
14.1 9.9 Long - term receivable 112.1 226.0
Deferred charges 9.4 11.0
Advances to suppliers 61.6 34.9
Others 95.7 105.7
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 Terms of the agreement locomotives
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, 2017.
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 2024. 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 2026.
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, 2015. 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, 2010.
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.
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:
2014 2013 SCC $ 4,154.9 $ 4,153.8 ASARCO 115.6 - MM 51.1 51.1 GFM/ITM 413.7 420.2 MPD 1,212.6 1,185.8 Total 5,947.9 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 $ 388.2 2016 156.3 2017 74.8 2018 75.6 Thereafter 5,298.2 $ 5,993.1
(*) Total debt maturities do not include the debt discount valuation account of $45.2.
Mining segment:
2014 2013
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) $ 199.8 $ 199.7 5.375% Notes due 2020 ($400 face amount, less
unamortized discount of $1.2 and $1.4 at
December 31,2014 and 2013, respectively) 398.8 398.6 6.750% Notes due 2040 ($1,100 face amount, less
unamortized discount of $7.8 and $7.9 at
December 31,2014 and 2013) 1,092.2 1,092.1 7.500% Notes due 2035 ($1,000 face amount, less
unamortized discount of $14.2 and $14.5 at
December 31, 2014 and 2013, respectively) 985.8 985.5 5.250% Notes due 2042 ($1,200 face amount, less
unamortized discount of $20.9 and $21.2 at
December 31, 2014 and 2013) 1,179.1 1,178.8 3.500% Notes due 2022 ($300 face amount, less
unamortized discount of $0.8 and $0.9 at
