Note 2 - Acquisitions and other relevant events:

Transcription

1 Note 2 - Acquisitions and other relevant events: 2016 a) Acquisition Axtel On December 3, 2015, ALFA, Axtel, S. A. B. de C. V. ( Axtel ) and Onexa, S. A. de C. V. ( Onexa ) subsidiary of ALFA, and a group of its main stockholders of Axtel signed a cooperation agreement, as well as an agreement between shareholders ( the Agreements ) to merge Onexa with Axtel, subsisting the latter. Onexa is the holding company of Alestra, S. de R.L. ( Alestra ). On January 15, 2016, Axtel and Onexa held Extraordinary Meetings where the Stockholders approved the merge and the members of the Board of Directors, the General Director and the Audit and Corporate Practices Committees were appointed. After finishing the legal, operating and financial review process and obtaining the approvals from authorities, the transaction was effective on February 15, The merge allows combining the competitive advantages of both companies, including qualified human resources, new technologies and a wide service infrastructure to meet the increasing market demand. Furthermore, scale economy synergies will arise, as well as efficiency in network integration and skill transfer. The merged entity, Axtel, is a Mexican company engaged in providing fixed and comprehensive telecommunications services (data transmission services, Internet, local and long-distance telephone services) and is expected to continue to be traded in the Mexican Stock Exchange ( BMV ). Under the merger agreement, ALFA acquired 50.19% of the combined entity s voting shares, in exchange for 100% of Onexa voting shares. The Agreements established a series of rights and obligations for the parties involved in terms of corporate governance and decision making, that granted ALFA the ability to direct activities related to the merged entity, mainly due to the fact that ALFA appoints most of the members of the Board of Directors and the main Directors who hold the power to direct the merged entity s relevant operations. The Agreements were intended to reasonably anticipate likely future events of the subsidiary and their stockholders during the term of the contract and to set forth the manner accorded to them. Examples include: approval of the generality rules for the business plan; approval of the budget and of ordinary and extraordinary corporate events; changes in Axtel ownership; and resolution of disputes between the stockholders. In accordance with IFRS requirements, ALFA acquired control of Axtel, as the former has the ability to direct its most relevant activities (See Note 5). In accordance with International Financial Reporting Standard (IFRS) 3 Business Combinations (IFRS 3), the merger represents a business acquisition and has therefore been recorded by the purchase method established in IFRS 3. Axtel and Alestra operations are considered a single business for accounting purposes, in accordance with IFRS 3. This acquisition is included in Axtel s segment (See Note 31). The acquisition was recorded, distributing the total assets acquired, including intangible assets and assumed liabilities, based on the fair values determined at the date of acquisition. The acquisition cost in excess of the net fair values of the assets acquired and assumed liabilities has been recorded as goodwill.

2 Total consideration transferred by ALFA amounted to $6,851, corresponding to the fair value of its investment in Onexa (Alestra), which was merged with Axtel, and in exchange received 9,594,008,144 new common shares of the combined entity (equivalent to % of its capital) with an equivalent fair value of $ per share. This exchange resulted in a gain of $1,785, which was recognized in accumulated results, as it represents the sale of 49.81% of Onexa to the non-controlling interest. The fair value of the shares of the new combined entity issued in favor of ALFA was determined based on the market value of the Axtel share on the Mexican Stock Exchange in effect on the day before the date of the transaction. The total consideration in the amount of $6,851 includes the amount of cash and cash equivalents acquired in the amount of $1,030. At December 31, 2016, fair values of acquired assets and liabilities has been determined and the estimated allocation of the consideration is as follows: Current assets (1) Ps 4,368 Non-current assets 440 Property, plant, and equipment 14,281 Intangible assets (2) 2,283 Deferred income tax asset 2,567 Customer relations 3,047 Current liabilities (3) (4,326) Non-current liabilities (4) (644) Employees benefits (162) Deferred income tax (1,530) Debt (13,749) Total identified assets, net 6,575 Non-controlling interest (3,274) Goodwill 3,550 Total consideration transferred Ps 6,851 (1) (2) (3) (4) Current assets consist of cash Ps1,030, accounts receivable Ps2,547, fair value financial assets Ps346, advance payments Ps261 and other Ps184 Intangible assets consist of brands Ps2,162 and other intangibles Ps121. Current liabilities consist of suppliers and accounts payable Ps2,417, taxes payable Ps16, other accruals Ps1,131 and provisions Ps580. Non-current assets consist of derivative financial instruments Ps70 and other accounts payable Ps574 The net assets given in exchange through the investment in Onexa (Alestra) amounted to Ps3,320; however, under the terms of IFRS 3, these net assets are not part of the table above and are recorded at their carrying amount. Goodwill is mainly comprised of the market share obtained through expanded capacity of the Company s asset base. It arises from the acquisition and represents the compensation transferred in excess of the fair value of the identifiable assets acquired and liabilities assumed at the date of the acquisition. The goodwill recorded is not deductible for tax purposes. The non-controlling interest was recognized based on the proportional interest of Axtel s net assets acquired. No contingent liability has arisen from this acquisition that would require posting, and there are no contingent compensation agreements in place. Costs related to the association totaled $835 and were recognized in the statement of income for the year ended December 31, 2016, in the other expenses line item. As part of the merger, on the same date of the transaction was effective, in a separate transaction but related to the acquisition, and based on the agreements, ALFA and Alestra paid a group of relevant shareholders of Axtel the amount of $1,233 (US $ 67.5 million) as consideration for them to assume certain obligations to do and not to do (confidentiality and to refrain from certain activities, among others) against those, which have been recorded as intangible assets in the consolidated statement of financial position of ALFA, as of December 31, The aforementioned agreements included certain payments for compensation in the event of non-compliance by any of the parties, for example: consequence of lack of integrity, inaccuracy or falsity, only with respect to their own declarations and / or breach of their respective obligations. Based on the foregoing and in accordance with the obligations assumed by Axtel and the group of relevant shareholders mentioned above of the agreements mentioned above, it was agreed that ALFA would receive the compensation of the negative economic effects that caused the uncollectability of certain accounts receivable for an amount of Ps984, which qualifies as an adjustment to the consideration transferred, since Axtel has the obligation to pay. Revenues contributed by Axtel assets included in the consolidated statement of income from the acquisition date through December 31, 2016 amounted to Ps13,744, and a net loss of Ps1,752. If the acquisition had taken place on January 1, 2016, the revenues would have increased by Ps974 and net income by Ps1,938, approximately.

3 b) Debt refinancing process During May 2016, Sigma carried out a debt financing through the issuance of senior notes in the amount of US$1,000 million in foreign exchange markets. The notes were sold in the U.S., on behalf and for the benefit of U.S. citizens, except for qualified institutional buyers in relation with the exceptions of the registration provided by Rule 144A under the U.S. Securities Act of 1933 and to certain investors outside the U.S. under Regulation S of such Act. The proceeds from that note offering were used to repay in advance short-and long-term existing debt. The following is a summary of the maturity dates stated in dollars, immediately prior and subsequent to that offering and the use of proceeds there from: Subsequent to refinancing Prior to refinancing Debt level US$ 997 US$ 1,041 Maturity Interest rate 4.125% 1.77% General conditions Guarantee and Guarantee and endorsements of endorsements of some subsidiaries some subsidiaries c) Share purchase agreement of Petroquimic SUAPE and CITEPE On December 28, 2016, the Company through its subsidiary Alpek signed a share purchase agreement with Petróleo Brasileiro S.A. ( Petrobras ) for the acquisition of its 100% stake in Companhia Petroquímica de Pernambuco ( Petroquímica Suape ) and Companhia Integrada Têxtil de Pernambuco ( Citepe ). Petroquimica Suape and Citepe operate an integrated PTA-PET facility in Ipojuca, Pernambuco, Brazil with an installed capacity of 700 and 450 thousand tons per year PTA and PET, respectively. Citepe also operates a 90 thousand tons per year texturized polyester filament plant on site. The agreed upon price for Petrobras 100% stake in Petroquimica Suape and Citepe is U.S. $385 million. This amount is payable in Reais at the closing date and is subject to adjustments in working capital and current debt, among others. The closing of this transaction will require further corporate approvals and is subject to several condition precedents, including approval by the appropriate governmental authorities. This contract establishes a maximum period to specify the transaction of fifteen months from the date of the contract. At the date of issuance of the financial statements the approvals and conditions are in the process of being fulfilled. d) Acquisition of Cevher Döküm On November 1, 2016, Nemak acquired all the shares representing of the capital stock of CEVHER DÖKÜM SANAYİİ A.Ş ( Cevher ), a producer company of aluminum castings for the manufacture of automotive components. The acquired entity operates a production plant in Turkey and a trading company. The acquisition of the business is included in the Nemak segment, see Note 31. As of December 31, 2016, the Company is in the process of concluding the purchase price allocation of fair values of acquired assets because valuation is reviewed by independent experts and will be concluded within a period not to exceed twelve months as of the acquisition date. The preliminar balance is shown as follows: Current assets Ps 366 Property, plant, and equipment 1,287 Intangible assets 26 Current liabilities (747) Debt (603) Deferred income tax (80) Other non-current liability (193) Book value of the acquired business Ps 56 Consideration paid (56) Goodwill Ps -

4 The amount paid for this business was Ps56 (EUR 2.5) in cash. No contingent liability has arisen from this acquisition that should be recorded. Neither exist contingent consideration agreements. Nemak is not responsible for environmental liabilities except for those that may originate on or after the date of acquisition. Costs related to the association totaled Ps14.58 and were recognized in the statement of income for the year ended December 31, 2016, in the other expenses line item. In addition, the entity changed its name to Nemak Izmir Dökum Sanayii, A. S. Revenues contributed by Cevher assets included in the consolidated statement of income from the acquisition date through December 31, 2016 amounted to Ps182, and a net loss of Ps a) Agreements between Alpek and BASF for the expanded polystyrene (EPS) and polyurethane (PU) businesses During July 2014, Alpek ( Alpek ) and BASF ( BASF ) signed the agreements related to the expanded polystyrene (EPS) and polyurethane (PU) businesses previously held through their joint venture Polioles, S.A de C.V. ( Polioles ) in México, as well as the EPS business of BASF in North and South America, except for the Neopor (gray EPS) of BASF business. Alpek acquired all EPS business activities from Polioles, including an EPS plant in Altamira, Mexico. Likewise, BASF acquired all PU business activities from Polioles, including certain assets located in Lerma, Mexico s facility, as well as all marketing and sales rights for the PU, isocyanate and polyol systems. Once the transaction was completed, Polioles continued operating as a joint venture between Alpek and BASF, with a product portfolio comprising of industrial chemicals and specialties. Alpek also acquired the EPS business of BASF in North and South America, including: EPS sales and distribution channels of BASF in North and South America The EPS plants of BASF in Guaratinguetá, Brazil and General Lagos, Argentina, and The EPS transformation business of BASF in Chile (Aislapol, S. A.) The combined capacity of all EPS production units acquired by Alpek is approximately 230,000 tons a year. This figure includes 165,000 tons a year of Polioles plant in Altamira, Mexico. Approximately 440 employees work in the businesses subject to the agreements, 380 of them in the EPS businesses and 60 in the PU businesses. Most of them continue performing their roles under the new ownership framework. A series of transactions can be carried out in order to form a business combination in the most economically effective manner. Under IFRS, an agreement to acquire a business through a series of related transactions is a business combination, and the form of its recognition should be as if it were a single transaction. Therefore, the aforementioned events were considered as transactions that are related and were accounted for in combination as a single agreement with reference to the fair values corresponding to each one of the businesses. Transactions included in this agreement were as follows: PU business sale to BASF In March 2015, through its subsidiary Polioles, Alpek completed the sale to BASF MEXICANA of all the polyurethane (PU) business activities, including assets selected in the Lerma, Mexico plant, as well as all marketing and sales rights of PU, isocyanate and polyol systems. From Alpek s standpoint, the PU business sold was not considered as a business line or segment; therefore, IFRS 5 Noncurrent Assets Held for Sale and Discontinued Operations dispositions respect to the presentation as a discontinued operation, are not applicable. Rather, the transaction was carried out through the sale of a group of assets at market terms, and the total consideration received was Ps407; net book value transferred was Ps26. This transaction resulted in a gain of Ps381, which was recorded in the income statement as other income (expense), net. Mexico EPS business sale to Styropek On March 31, 2015, Alpek transferred all its EPS business activities of Polioles, including the EPS plant in Altamira, Mexico to its subsidiary Grupo Styropek, S. A. de C. V. (Styropek). Since BASF has 50% equity in Polioles, the transaction between stockholders for the EPS business resulted in a Ps150 reduction in the controlling interest and an increase in the non-controlling interest for the same amount. This transaction had no accounting effects over the financial statements of Alpek, since they were transactions among entities under common control, except for the increase in non-controlling interest of Ps150.

5 EPS business acquisition from BASF On March 31, 2015, through Styropek, Alpek finalized the acquisition of BASF s EPS business in Argentina, Brazil, USA, Canada, and Chile. This acquisition included the working capital. A total of 450 employees work in the EPS line of business. The consolidated financial statements include the financial information of BASF s EPS business starting in March 31, This business is included in Alpek segment. See Note 31. At December 31, 2015, final purchase price allocation to fair values of acquired assets and assumed liabilities is as follows: Current assets (1) Ps 622 Property, plant and equipment 424 Current liabilities (2) (183) Debt (140) Deferred income tax (88) Other liabilities (30) Purchase consideration Ps 605 (1) (2) Current assets consist mainly of accounts receivable and inventories amounting to Ps333 and Ps289, respectively. Current liabilities consist mainly of suppliers in the amount of Ps101. Total purchase consideration was paid in cash. Value of accounts receivable acquired approximates fair value due to its short-term maturity. Accounts receivable acquired are estimated to be recovered in the short term. No contingent liability has resulted from this acquisition that requires recognition. Neither are there contingent consideration agreements. Costs related to the acquisition amounted to Ps22 and were recorded in income as other expense, net. Revenues contributed by BASF assets included in the consolidated statement of income since the acquisition date through December 31 amounted to Ps5,482 and net income to Ps732. If the acquisition had taken place on January 1, 2015, revenues would have increased by Ps1,600 and net income by Ps185, approximately. b) Public Offer - Nemak During July 2015, Nemak, S. A. de C. V. made an initial public offer of shares ( IPO ) in Mexico and a private offer of shares in the international markets (jointly denominated as Global Offer ), as follows: On June 15, 2015 Nemak, S. A. de C. V. held a General Ordinary and Extraordinary Stockholders Meeting wherein it approved, among other corporate acts, the following: the issuance of capital stock, the change of legal regime to a Sociedad Anónima Bursatil de Capital Variable (Stock Corporation with Variable Stock), this was conditioned to the placement of new shares, the amendment of corporate by-laws, appointment of new Board of Directors, incorporation of an Audit and Corporate Practices Committee, appointment of committee members, among others. On July 1, 2015 Nemak S. A. B. de C. V. carried out the Global Offer corresponding to the issuance of 537,600,000 shares at a placement price of Mexican pesos. This offer included an over-allocation option of up to 80,640,000 shares. The total amount of this offer was Ps10,752. On July 29, 2015, following up on the Global Offer, the underwriters, in Mexico as well as abroad, executed the over-allocation options agreed. The total amount of over-allocations was Ps1,145 corresponding to 57,232,845 shares at a placement price of Ps20.00 each. Derived from the aforementioned, total resources obtained by Nemak as a result of the Global Offer amounted to Ps11,469, net of issuance costs amounting to Ps428. Subsequent to the Global Offer, the subscribed and paid-in capital of Nemak is represented by a total of 3,080,747,324 Series A shares. As a result of the aforementioned events, the equity in the capital stock of Nemak was diluted from 93% to 75% and the monetary effects are shown in non-controlling interest changes item in the statements of cash flows and of changes in stockholders equity. This stock dilution effect resulted in an increase in retained earnings of Ps7,514 and an increase in the non-controlling interest of Ps3,955.

6 c) Strategic alliance between Sigma Alimentos, S. A. de C. V. and Kinesis Food Service, S. A. de C. V. On July 31, 2015, the strategic alliance framework agreement was signed between Sigma Alimentos, S. A. de C. V. and Kinesis Food Service, S.A. de C.V. ( Kinesis ), a company that through its subsidiaries (collectively identified as PACSA ), is leader in the distribution of meat and dairy products by means of a food service cannel in certain regions of the Mexican Republic, mainly in the Southeast of Mexico. This transaction complements Sigma s expansion strategy in Mexico through the food service channel. According to the agreement, Sigma acquires total control over PACSA s operations, subscribing substantially all of PACSA s shares with the right to vote. In accordance with the International Financial Reporting Standard 3, Business Combinations ( IFRS 3 ), this alliance represents a business combination; therefore, it has been recorded using the acquisition method established in IFRS 3. This alliance is included in Sigma s segment. Sigma s contribution to this alliance amounted to Ps494, which was paid in cash. At the agreement signature date, the Company had determined goodwill of Ps74 (difference between the amount of Sigma s contribution and PACSA s net assets). At December 31, 2016, final purchase price allocation to fair values of acquired assets and assumed liabilities is as follows: Current assets (1) Ps 204 Property, plant, and equipment 105 Intangible assets (2) 379 Current liabilities (3) (121) Employee benefits (7) Debt (9) Deferred income tax (131) Goodwill 74 Consideration paid Ps 494 (1) (2) (3) Current assets consist of cash Ps13, accounts receivable Ps77, inventories of Ps107 and sundry debtors and other current items Ps7. Intangible assets consist of brands Ps3, non-competition agreements Ps49, customer relations Ps326 and other Ps1. Current liabilities consist of suppliers and accounts payable Ps82, taxes payable Ps3, short-term debt Ps34 and employee benefits Ps2. *Certain balances of the previous year related to the distribution of the purchase price were modified in 2016 to recognize the final fair values of the acquired assets and assumed liabilities. As of December 31, 2016, the Company reclassified certain items of the statement of financial position that had previously been presented as part of the goodwill. The reclassified amounts were adjusted by increasing the value of non-current assets by Ps201; Increasing the balance of non-current liabilities by Ps61 and decreasing the value of goodwill by Ps140. For comparative purposes, the Company did not perform these reclassifications retrospectively considering that the aforementioned adjustments do not modify the value of total assets significantly of short- and long-term liabilities and stockholders equity as of December 31, The previous reclassification had no significant impact on the consolidated financial statements of results, stockholders equity and cash flows. Goodwill is mainly comprised of the market share obtained through expanded capacity of the Company s asset base. It arises from the acquisition and represents the compensation transferred in excess of the fair value of the identifiable assets acquired and liabilities assumed at the date of the acquisition. The goodwill recorded is not deductible for tax purposes. No contingent liability has arisen from this alliance that requires recognition. Neither are there contingent payment agreements. Costs related to the alliance amounted to Ps3 and were recorded in the income statement in other expenses, net, caption. Revenues contributed by PACSA s assets included in the consolidated statement of income since the agreement signing date through December 31, 2015 amounted to Ps356 and net income to Ps27. If the acquisition had taken place on January 1, 2015, the revenues would have increased by Ps534 and net income by Ps11, approximately. d) Acquisition of Elaborados Cárnicos, S. A. (ECARNI) On August 31, 2015, the Company through its subsidiary Sigma acquired the total of the representative shares of the capital stock of Elaborados Cárnicos, S. A., a company dedicated to the breeding of cattle, swine, sheep, as well as the industrialization and marketing of derivatives of the aforementioned livestock, in Ecuador. This transaction complements to Sigma s expansion strategy in Latin America. The total consideration paid amounted to Ps883 (US$53) in cash, includes a restricted cash in favor of Sigma of Ps 77 which constitutes a guarantee deposit with the previous shareholders of ECARNI. Restricted cash will be fully released two years after the acquisition, being able to have partial releases during the mentioned period of two years according to the conditions established in each contract.

7 At December 31, 2016, final purchase price allocation to fair values of acquired assets and assumed liabilities is as follows: Current assets (1) Ps 247 Property, plant, and equipment 160 Intangible assets (2) 470 Current liabilities (3) (67) Employee benefits (51) Debt (23) Deferred income taxes (92) Goodwill 239 Purchase consideration Ps 883 (1) (2) (3) Current assets consist of cash Ps20, accounts receivable Ps95, inventories Ps98, sundry debtors Ps27 and other current items Ps7. Intangible assets consist of brands Ps62, non-competition agreements Ps72 and customer relations Ps336. Current liabilities consist of suppliers and accounts payable Ps53, taxes payable Ps11 and short-term debt Ps3. * Certain balances of the previous year related to the distribution of the purchase price were modified in 2016 to recognize the final fair values of the acquired assets and assumed liabilities. As of December 31, 2016, the Company reclassified certain items of the financial position that had previously been presented as part of the goodwill. The reclassified amounts were adjusted by increasing the value of non-current assets by Ps176; Increasing the balance of non-current liabilities by Ps36 and decreasing the value of goodwill by Ps110. For comparative purposes, the Company did not perform these reclassifications retrospectively considering that the aforementioned adjustments do not modify the value of total assets significantly of short- and long-term liabilities and stockholders equity as of December 31, The previous reclassification had no significant impact on the consolidated financial statements of results, stockholders equity and cash flows. Goodwill is mainly comprised of the market share obtained through expanded capacity of the Company s asset base. It arises from the acquisition and represents the compensation transferred in excess of the fair value of the identifiable assets acquired and liabilities assumed at the date of the acquisition. The goodwill recorded is not deductible for tax purposes. No contingent liabilities have arisen from this acquisition from this acquisition that require recognition. Neither are there contingent consideration agreements. Costs related to the acquisition amounted to Ps6 and were recorded in the income statement under other expenses, net, caption. Revenues contributed by ECARNI s assets included in the consolidated statement of income from the acquisition date through December 31, 2015 amounted to Ps220, and net income to Ps12. If the acquisition had taken place on January 1, 2015, the revenues would have increased by Ps380 and net income by Ps29, approximately. e) Acquisition of additional shares of Campofrío from WH Group On June 18, 2015, the Company through its subsidiary Sigma Alimentos Exterior, S. L. acquired 37% additional shares of Campofrío Food Group, S.A. The shares that up to June 3, 2015 were owned by WH Group were acquired firstly by ALFA, through the payment of a consideration of Ps5,367 (US$354), which were subsequently transferred to Sigma. Prior to the acquisition date, the accounting value of 37% was Ps2,710, consequently, a decrease in retained earnings of Ps2,657 was recorded. After this acquisition, equity in this subsidiary is shown below: Indirect equity of ALFA as of December 31, % Acquisition of shares from WH Group on June 18, % Indirect equity of Sigma as of December 31, % On June 9, 2014, ALFA obtained control over Campofrío Food Group, S. A. ( Campofrío ) as a result of: i) the end of the Public Offer of shares of Campofrío in the Spanish stock market and ii) the coming into force of the agreement signed on January 1, 2014 between ALFA and WH Group Ltd. (WH). The aforementioned agreement was concluded on June 3, As a result of the acquisition of Sigma in the equity of WH Group Ltd. in Campofrío. This agreement established several rights and obligations of the parties involved in relation with the corporate governance and the transfer of shares of Campofrío, giving ALFA the capacity to guide relevant activities. The agreement intended to fairly anticipate probable events in the future of the subsidiary and its stockholders during the effective term of the agreement and to anticipate the way in which these will be treated. Examples include: the approval of the business plan, the approval of ordinary and extraordinary corporate events; changes in the ownership of Campofrío; the need for additional capital contributions of the existing stockholders or new investors and the resolution of claims between stockholders. It also provided the flexibility to face unforeseen events, as may be maintaining the capacity to make decisions quickly and effectively; establishing termination conditions when a shareholder wishes to terminate the relationship for any reason; and basis for the solution of controversies among stockholders or to solve an agreement interpretation issue. The agreement created incentives for the parties to be able to solve the controversies through consensus, seeking to be determined as efficiently as possible so that Campofrío continues with minimum interruption.

8 The indirect equity of ALFA in Campofrío at the date the agreement became effective, accounted for using the equity method, was 45% as shown below: Equity of ALFA in Campofrío at December 31, % Acquisitions at June 9, % Sales at June 9, 2014 (4.60%) Equity of ALFA in Campofrío at June 9, % Since the acquisition and up to June 9, 2014, net income of Campofrío was not material. For business combinations made in stages, International Financial Reporting Standards (IFRS) require any previous equity of the acquiring party in an acquired party is adjusted at fair value at the acquisition date and that any resulting gain (or loss) is reported in the consolidated statement of income. IFRS also require all previously recorded amounts in the consolidated comprehensive statement of income in relation with such investments be reclassified in the consolidated income account, as if such investment had been sold. ALFA has estimated the fair value of 45% of equity in Campofrío at Ps5,498 on June 9, 2014, date when control was obtained. The effect of measuring the 45% equity ownership of Campofrío at fair value before the date when control is obtained was immaterial in the consolidated statements of income for the year ended December 31, Since no additional consideration was made by ALFA to obtain control (June 9, 2014), the fair value of 45% is considered as the acquisition price of Campofrío. The amount of the consideration paid for Campofrío at the date control was obtained amounted to Ps5,498. Assets and liabilities recorded as a result of the business combination at June 9, 2014 are as follows: Fair value Cash and cash equivalents Ps 1,576 Trade and other accounts receivable, net 2,830 Inventories 6,948 Property, plant, and equipment 14,268 Intangible 8,483 Investments recorded using the equity method 693 Other assets 3,199 Suppliers and other accounts payable (11,829) Debt (10,820) Income tax deferred and others (6,671) Employee benefits (1,144) Total identified assets, net 7,533 Non-controlling interest (4,143) Goodwill 2,108 Total consideration paid Ps 5,498 As a result of the transactions, goodwill was recorded in the amount of Ps2,108 at December 31, 2014, which was allocated to Sigma s operating segment. The factors contributing to the recognition of goodwill include scale economies through combined opportunities, obtaining better operating margins in the packaging material and the exchange of best practices. Goodwill associated to this business combination is not deductible for income tax purposes. Consolidated statements of income include revenues of Campofrío of Ps17,572 from June 9 to December 31, Campofrío contributed a net income amounting to Ps223 in the same period. If the acquisition had taken place on January 1, 2014, Campofrío s contribution to the consolidated revenues for the year ended December 31, 2014 would have amounted to Ps33,972 and net income to Ps226. The information on combined revenues and net income for the period does not include any savings in costs or other integration effects of Campofrío in ALFA. Consequently, these amounts are not necessarily indicative income had the acquisition occurred on January 1, 2014, or those that may result in the future.

9 After taking control of Campofrío, ALFA acquired additional indirect equity, as shown below: Indirect equity of ALFA at June 9, 2014: 45.00% Acquisitions at December 31, 2014: 12.52% Indirect equity of ALFA at December 31, 2014: 57.52% The acquisitions item at December 31, 2014 corresponds mainly to the acquisition of shares of Campofrío made after the Public Offer of the non-controlling interest. Since control over Campofrío was obtained as a result of the agreement with WH, these transactions have been accounted for as acquisitions of non-controlling interest. The difference between the accounting value of the non-controlling interest acquired and the price paid was recorded in retained earnings. Additionally, expenses derived from transaction costs related to the acquisition were made in the amount of Ps84. Campofrío s shares were listed in the Spanish Stock Exchange up to September 19, 2014, when they were unlisted. f) Investment in Pacific Exploration & Production, Corporation (formerly Pacific Rubiales Energy) During 2014, ALFA acquired 59,897,800 ordinary shares from Pacific Exploration & Production, Corporation (PRE), which represents approximately 19% of the total outstanding shares, in the amount of Ps14,135. The shares were acquired in the Toronto, Canada stock market. PRE is a public company engaged in the exploration and production of oil and gas in Colombia, listed in Toronto and Canada s stock markets. This investment was recorded as Financial assets available for sale, and is shown as current assets and recorded at fair value. The changes in such value are recorded directly in stockholders equity. The accumulated effects of changes in the fair value are reclassified to income, when is sold or when there is an impairment in the value. An analysis of the available objective evidence, based on the significant drop in the market price of the PRE share in the market, concluded that there is an impairment in the investment, therefore, the value of this investment was impaired as of December 31, For the years ended December 31, 2016 and 2015, the Company recorded an impairment loss of Ps1,270 and Ps4,203, respectively, corresponding to the investment in PRE. This impairmen is presented in the statement of income, as part of the net financial result. g) IntegRex technology license and signature of a supply agreement with M&G During 2015, Alpek through its subsidiary Alpek held a licensing agreement for IntegRex PTA technology and another PTA-PET supply agreement with Grupo M&G ( M&G ). These agreements will allow M&G to use the IntegRex PTA technology in the PTA-PET integrated plant to be constructed in Corpus Christi, Texas in the United States (the Plant). On the other hand, Alpek will pay US$435 million to M&G during the construction of the Plant according to an established calendar and in compliance with certain milestones, by which Alpek will obtain supply rights of the Plant for 500 thousand tons of PET (manufactured with 420,000 tons of PTA) per year for a period of five years starting from the first day of the month in which the plant is completed and ready to manufacture and sale their products. In accordance to the supply agreement, Alpek will supply raw materials for the manufacturing of its PTA-PET volume. It is estimated that the M&G plant in Corpus Christi will start stepped operations at the beginning of 2017 and At December 31, 2016, Alpek has made payments amounting to US$435, of which Ps7,439 (US$ 360) are recorded in the intangible assets caption and correspond to the before mentioned supply rights and will be amortized once the PET supply begins, and Ps1,570 (US$75) as a prepayment of inventory within the non-current asset caption.