UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934

September 1, 2015

Date of Report (Date of earliest event reported)

OWENS-ILLINOIS, INC.

(Exact name of registrant as specified in its charter)

(567) 336-5000

(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o                Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o                Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o                Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o                Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE

On September 3, 2015, Owens-Illinois, Inc. (“OI Inc.”) filed a Current Report on Form 8-K (the “Original Report”) reporting that Owens-Brockway Glass Container Inc. (“OBGC”), an indirect, wholly-owned subsidiary of OI Inc., had completed the previously announced acquisition (the “Vitro Acquisition”) of the food and beverage glass containers business as conducted in the United States, Mexico and Bolivia of Vitro, S.A.B. de C.V., a Mexican sociedad anónima bursátil de capital variable, Distribuidora Álcali, S.A. de C.V., a Mexican sociedad anónima de capital variable, and Vitro Packaging, LLC, a U.S. limited liability company (the “Vitro Business”), pursuant to a stock purchase agreement, dated as of May 12, 2015.

This Amendment No. 1 to the Original Report (“Amendment No. 1”) is being filed to amend and supplement the Original Report to provide the financial information required under Item 9.01, which is permitted to be filed by amendment no later than 71 days after the due date of the Original Report. No other modifications to the Original Report are being made by this Amendment No. 1. This Amendment No. 1 should be read in connection with the Original Report.

ITEM 9.01.                               FINANCIAL STATEMENTS AND EXHIBITS.

(a)                                                                                 Financial Statements of Businesses Acquired.

The audited carve-out combined financial statements of the Vitro Business as of and for the years ended December 31, 2014, 2013 and 2012 and unaudited condensed carve-out combined financial statements of the Vitro Business as of and for the six months ended June 30, 2015 and 2014, required to be filed pursuant to this Item 9.01(a), are filed as Exhibits 99.2 and 99.3, respectively, to this Amendment No. 1 and are incorporated herein by reference.

(b)                                                                                 Pro Forma Financial Information.

The pro forma financial information reflecting the Vitro Acquisition, required to be filed pursuant to this Item 9.01(b),  is filed as Exhibit 99.4 to this Amendment No. 1 and is incorporated herein by reference.

(d)                                                                                 Exhibits

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*   Previously Filed with the Original Report.

** Filed herewith.

3

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

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EXHIBIT INDEX

*   Previously Filed with the Original Report.

** Filed herewith.

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EXHIBIT 23.1

OWENS-ILLINOIS, INC.

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the following Registration Statements:

(1)         Registration Statements (Forms S-8 No. 333-69624 and 333-170220) pertaining to the Amended and Restated Owens-Illinois, Inc. Stock Purchase and Savings Program, the Amended and Restated Owens-Illinois, Inc. Long-Term Savings Plan, and the Owens-Illinois de Puerto Rico Long-Term Savings Plan,

(2)         Registration Statement (Form S-8 No. 333-47691) pertaining to the Amended and Restated 1997 Equity Participation Plan of Owens-Illinois, Inc.,

(3)         Registration Statement (Form S-3 No. 333-99741) pertaining to the Amended and Restated 1997 Equity Participation Plan of Owens-Illinois, Inc.,

(4)         Registration Statement (Form S-8 No. 333-142886) pertaining to the 2004 Equity Incentive Plan for Directors of Owens-Illinois, Inc.,

(5)         Registration Statements (Forms S-8 No. 333-133074, 333-170221, and 333-197743) pertaining to the Owens-Illinois, Inc. 2005 Incentive Award Plan,

of our report dated June 22, 2015 relating to the carve-out combined financial statements of Vitro S.A.B. de C.V.’s glass containers operations as of December 31, 2012, 2013 and 2014 appearing in this Amendment No. 1 to the Form 8-K/A of Owens-Illinois, Inc. dated September 22, 2015.

Galaz, Yamazaki, Ruiz Urquiza, S.C.

Member of Deloitte Touche Tohmatsu

Exhibit 99.2

Carve-out Combined Financial Statements of Vitro’s Glass Container Operations as of and for the years ended December 31, 2012, 2013 and 2014

We have audited the accompanying carve-out combined financial statements of Vitro S.A.B. de C.V.’s (“Vitro”) glass containers operations (the “Group”), which comprise the combined statements of financial position as of December 31, 2012, 2013 and 2014, and the combined statements of profit or loss and other comprehensive income, cash flows and changes in invested equity for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Group’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the carve-out combined financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2012, 2013 and 2014, and the results of their operations and cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of a matter

As described in note 3, the Group adopted IFRS as issued by the International Accounting Standards Board in 2014 using the carrying amounts that were included in Vitro’s consolidated financial statements, based on Vitro’s date of transition to IFRS (January 1, 2011).

Galaz, Yamazaki, Ruiz Urquiza, S.C.

Member of Deloitte Touche Tohmatsu Limited

2

Carve-out Combined Statements of Financial Position (1)

As of December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

(1)         The accompanying Carve-out Combined Financial Statements comprise the combination of Vitro’s Glass Containers operations (together the “Group”).  The scope of the combination is presented in note 1.

See accompanying notes to the carve-out combined financial statements.

3

Carve-out Combined Statements of Financial Position (1)

As of December 31, 2012, 2013 and 2014

(Millions of Mexican Pesos)

(1)    The accompanying Carve-out Combined Financial Statements comprise the combination of Vitro’s Glass Containers operations (together the “Group”).  The scope of the combination is presented in note 1.

See accompanying notes to the carve-out combined financial statements.

4

Carve-out Combined Statements of Profit or Loss and Other Comprehensive Income (1)

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

(1)    The accompanying Carve-out Combined Financial Statements comprise the combination of Vitro’s Glass Containers operations (together the “Group”).  The scope of the combination is presented in note 1.

See accompanying notes to the carve-out combined financial statements.

5

Carve-out Combined Statements of Cash Flows (1)

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

(1)    The accompanying Carve-out Combined Financial Statements comprise the combination of Vitro’s Glass Containers operations (together the “Group”).  The scope of the combination is presented in note 1.

See accompanying notes to the carve-out combined financial statements.

6

Carve-out Combined Statements of Cash Flows (1)

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

(1)    The accompanying Carve-out Combined Financial Statements comprise the combination of Vitro’s Glass Containers operations (together the “Group”).  The scope of the combination is presented in note 1.

See accompanying notes to the carve-out combined financial statements.

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Carve-out Combined Statements of Changes in Invested Equity (1)

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

(1)    The accompanying Carve-out Combined Financial Statements comprise the combination of Vitro’s Glass Containers operations (together the “Group”).  The scope of the combination is presented in note 1.

See accompanying notes to the carve-out combined financial statements.

8

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

1.                  Activities and background

Vitro, S.A.B. de C.V. (“Vitro”) and together with its subsidiaries, is mainly engaged in the production and commercialization of glass containers in any presentation for local and foreign markets; in addition, Vitro is a holding company whose subsidiaries are engaged in the manufacture of glass and offer products to satisfy the needs of two types of business: glass containers and flat glass.  Vitro and its subsidiaries process, distribute and commercialize a broad range of: (a) glass containers for food and beverage, wine, liquors market; (b) other glass containers for cosmetics and pharmaceutical markets; and (c) flat glass goods for architectural and automotive use; similarly, they are engaged in the manufacture of raw material, equipment and capital goods for industrial use.

These carve-out combined financial statements comprise the combination of Vitro’s food and beverage, wine and liquors glass containers operations (together the “Group” and defined as Vitro’s “glass containers operations” in these combined financial statements).  In the past, the Group has not formed a separate legal group.  The carve-out combined financial statements presented herein reflect the assets and liabilities, income and expenses, and cash flows of those operations that have been carved out from Vitro’s consolidated financial statements.

The carve-out combined financial statements have been prepared in accordance with the basis of preparation and accounting policies set out below.

2.                  Significant events

a)        Entering into derivative financial instrument

During November and December, 2014, Vitro entered into a derivative financial instrument (“DFI”) with Macquarie Bank Limited (“Macquarie”) on a contract for 9,600,000 of Million British Thermal Units (“MMBTU”) at an average price of US$3.89 in order to continue hedging its needs for natural gas in its production processes for the year that will end on December 31, 2015.  Likewise, during November and December, 2014 Vitro entered into a new DFI with the same counterparty to hedge its needs for natural gas for the year ending December 31, 2016, on a contract for 5,400,000 MMBTU at an average price of US$3.91 (notes 3b and 13v).

b)       New contract with Constellation Brands

On August 14, 2014 the Group announced that it had signed a new contract with Constellation Brands for a seven-year period, triplicating the current volume of Vitro’s production for the beer market.  As a result, the Group will invest about US$100 for the construction of a new furnace at its Monterrey plant, which is expected to start operations by the end of 2015 or the start of 2016.

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Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

c)        Accounts receivable financing program

On November 15, 2013, the Group completed its issuance of new Stock Exchange Trust Certificates of $593 at the interbank equilibrium interest rate (“TIIE”), plus 1.7% for a three-year term. These certificates are backed up by accounts receivable (collection rights) of the Group (note 6).  With this new accounts receivable financing program, the previous program was prepaid.

3.                  Basis of preparation and combination

a)        Basis of preparation

These carve-out combined financial statements of the Group were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).  These carve-out combined financial statements are the first IFRS financial statements issued by the Group, and IFRS 1 (“First time adoption of International Financial Reporting Standards”) has been applied, hence these combined financial statements have been prepared using the carrying amounts that were included in Vitro´s consolidated financial statements, based on Vitro’s date of transition to IFRS (January 1, 2011).

The carve-out combined financial statements have been prepared on a carve-out basis using the historical assets and liabilities, income and expenses, and cash flows attributable to operations subject of the carve-out combined transaction as described in note 1.

The accompanying carve-out financial statements have been prepared on a going concern basis and under the historical cost convention, except for certain financial instruments which are recorded based on their amortized cost or fair value.  The historical cost is generally based on the fair value of the consideration granted in exchange of the related assets.

The carve-out combined financial statements may not be indicative of the Group’s future performance and they do not necessarily reflect what its combined results of operations, financial position and cash flows would have been, had the Group operated as an independent group and had it presented stand-alone financial statements during the periods presented.

IFRS does not provide guidance for the preparation of carve-out financial statements, and accordingly in preparing the carve-out combined financial statements certain accounting conventions commonly used for the preparation of historical financial statements have been applied. The application of these conventions has been described under “Principles applied in preparing the carve-out combined financial statements” below.

The accompanying carve-out combined financial statements are presented in Mexican pesos (“Mx. peso”).  When these combined financial statements and notes thereto refer to Mexican pesos or “$”, they refer to millions of Mexican pesos, and when they refer to U.S. dollars or “US$,” they refer to millions of United States of America dollars.

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Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

b)        Principles applied in preparing the carve-out combined financial statements

The following summarizes the accounting and other principles applied in preparing the carve-out combined financial statements.  Vitro’s management considers that the allocations described below have been made on a reasonable basis, but are not necessarily indicative of the costs that would have been incurred if the Group had been a stand-alone entity.

Cash and cash equivalents

Cash and cash equivalents that are directly attributable to the operations of the Group are included in the carve-out combined financial statements.

Financial debt

Financial debt that is directly attributable to the operations of the Group, and interest expenses relating to its financing arrangements are included in the carve-out combined financial statements.  Financial debt and interest expenses directly attributable to the carve-out operations mainly corresponds to the portion of the accounts receivable securitization programs entered into by the glass containers’ operations, among others.

Since the carve-out combined financial statements are prepared based on separating out the operations subject of the transaction, financial debt maintained directly by Vitro S.A.B. de C.V., has not been subject to allocation to the carve-out combined entity.

Intercompany transactions and transactions with related parties

Intercompany balances with entities outside of the Group other than intercompany tax obligations, resulting from tax consolidation with Vitro, have been eliminated in full as they are not considered to be associated with the operations subject to the carve-out transaction.

Derivative financial instruments

In the ordinary course of business, Vitro has historically contracted swaps and other derivative instruments in order to mitigate and to hedge its exposure to fluctuations in the price of natural gas.  The percentage of hedged estimated natural gas consumption has varied from 10% to 100%.  The percentage of consumption hedged and hedged prices constantly change according to the conditions of the market based on Vitro’s needs and to the use of alternative fuels in their production processes.

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Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

Derivative financial instruments (“DFI’s”) that Vitro has entered into include are natural gas swap contracts, which were acquired to hedge the fluctuation in the price of natural gas used by its operations.  These DFI’s have not been designated as a hedge for accounting purposes; therefore, the fluctuation in the fair value is recognized in profit or loss of the period within net financial cost.  The impacts of DFI’s (assets, liabilities and related net income effects) entered into Vitro have been allocated to the Group based their natural gas consumption.

Income tax

The income taxes associated with the Group’s carve-out combined financial statements have been calculated as if it had operated as a separate taxpayer.  Therefore, the income tax expense for the period is the amount of tax payable or refundable based on the Group’s hypothetical tax returns, and is presented as current tax expense.

Deferred tax is recorded using the assets and liabilities method, which compares the accounting and tax basis of the Group’s assets and liabilities and deferred taxes are recognized with respect to the temporary differences between such basis.  No deferred taxes are recognized for the following temporary differences: the initial recognition of assets and liabilities in a transaction other than a business acquisition and that does not affect the accounting or tax result, and differences related to investments in subsidiaries and joint ventures to the extent it is probable that they will not be reversed in a foreseeable future. In addition, deferred taxes for taxable temporary differences arising from the initial recognition of goodwill are not recognized.  Deferred taxes are calculated using rates that are expected to apply to temporary differences when they are reversed, based on enacted laws or which have been substantially enacted at the reporting date.  Deferred taxes are calculated using rates that are expected to apply to temporary differences when they are reversed, based on enacted laws or which have been substantially enacted at the reporting date.  The tax amounts recorded in the carve-out combined income statements are not necessarily representative of the tax amounts that may arise in the future.

Value added tax (“VAT”)

VAT represents a consumption tax (not an income tax).  From the perspective of the buyer of products and services, it is a tax based on the purchase price.  The seller receives the VAT as a component of the consideration paid for the products or services and remits it to the tax authorities in full (no income statement impact for the seller). VAT balances (receivable for amounts paid for the purchase of goods and services and payable for amounts received for the sale of purchase of good and services) have been allocated to the carve-out financial statements based on the revenues and costs of the glass container’s operations within the Group.

Employee benefits

Post-employment benefits and their respective portion of the plan liabilities, plan assets, interest and service costs have been allocated to the Group based on the employees that form part of its operations for the purpose of preparing these carve-out combined financial statements.

12

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

Centralized services

Vitro has historically recharged centrally provided services from its subsidiaries. Historically these recharged costs have been allocated to Vitro’s subsidiaries, and are included in the carve-out combined financial statements.

Leases

In the carve-out combined financial statements the non-cancellable operating leases allocated to the Group include lease agreements with third parties.

Exit and transaction costs

In connection with the carve-out process, the Group has incurred in costs that are specifically related to the carve-out transaction, such as accounting, tax and legal fees.  These costs have been allocated in its entirety to the carve-out financial statements in the periods incurred.

Other working capital accounts

Working capital items such as accounts receivable, accounts payable and inventories that are directly attributable to the operations of the Group are included in the carve-out combined financial statements.

Invested equity

The Group has not previously formed a separate legal group nor presented any stand-alone financial statements, and accordingly it is not conceivable to present share capital or an analysis of equity reserves.  The net assets of the Group are represented by capital invested in the Group and shown as “invested equity”.

c)         New and revised IFRSs issued effective as of January 1, 2014

This year, the Group applied a series of new and amended IFRSs issued by the IASB, which are described as follows.

Amendments to IAS 32, Offsetting Financial Assets and Financial Liabilities

Amendments to IAS 32, “Offsetting Financial Assets and Financial Liabilities”, clarify existing application issues relating to the offsetting requirements.  Specifically, the amendments clarify the meaning of “currently has a legally enforceable right of set-off’ and ‘simultaneous realization and settlement.

The Group adopted these amendments and there were not any significant impacts in the financial instruments subject to offsetting in the consolidated statements of financial position, mainly because such instruments meet the definition of having a legal right recognized to be offset and intention is to settle them on a net basis. Additionally, no financial instruments were identified as not previously offset and for which the amendments to the standard have represented offsetting in the reporting period.

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Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

Amendments to IAS 36, Impairment of assets

Amendments to IAS 36 “Impairment of Assets”, reduce the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed, clarify the disclosures required, and introduce an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where recoverable amount (based on fair value less costs of disposal) is determined using a present value technique.

The adoption of these amendments did not have impacts in the Group’s carve-out combined financial statements, since the value in use of its cash-generating units represented the recoverable amount, in accordance with the accounting policy described in note 4i).

Amendments to IAS 39, Financial Instruments: Recognition and Measurement

Amendments to IAS 39 “Financial Instruments: Recognition and Measurement” clarify that there is no need to discontinue hedge accounting if a hedging derivative is novated, provided certain criteria are met.  A novation indicates an event where the original parties to a derivative agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to each of the parties.  In order to apply the amendments and continue hedge accounting, novation to a central counterparty must happen as a consequence of laws or regulations or the introduction of laws or regulations.

The Group adopted these amendments but had no impacts in their carve-out combined financial statements, as it does not have derivative financial instruments for purposes of hedging that are novated.

IFRIC 21, Levies

IFRIC 21 Levies, provides guidance on when to recognize a liability for a levy imposed by a government, both for levies that are accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and those where the timing and amount of the levy is certain.  The Interpretation identifies the obligating event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the relevant legislation.  It provides guidance on recognition of a liability to pay levies, where the liability is recognized progressively if the obligating event occurs over a period of time; and if an obligation is triggered on reaching a minimum threshold, the liability is recognized when that minimum threshold is reached.

The adoption of this interpretation did not have any impact in the Group’s carve-out combined financial statements, since the levies to which it is subject, other than income and consumption taxes, are recognized at the time the obligating event to settle the obligation arises.

Additionally, the Group early adopted a series of new and amended IFRS issued by the IASB in the current year:

14

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

Amendments to IAS 19, Employee benefits

Amendments to IAS 19 (2011) “Employee Benefits”, in regards to employee contributions on defined benefit plans, clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service.  In addition, it permits a practical expedient if the amount of the contributions is independent of the number of years of service, in that contributions can, but are not required, to be recognized as a reduction in the service cost in the period in which the related service is rendered.  These amendments did not represent an impact to the Group’s carve-out combined financial statements as the employees do not make contributions to the defined benefit plans.

Annual Improvements 2010-2012 Cycle

Annual Improvements 2010-2012 Cycle makes amendments to: IFRS 13 “Fair value measurement”, clarifying that issuing IFRS 13 and amending IFRS 9 and IAS 39 did not remove the ability to measure certain short-term receivables and payables on an undiscounted basis (amends basis for conclusions only); and IAS 24 “Related party Disclosures”, clarifying how payments to entities providing management services are to be disclosed.  The adoption of these improvements did not represent any impacts in the Group’s carve-out combined financial statements.

Annual Improvements 2011-2013 Cycle

Annual Improvements 2011-2013 Cycle makes amendments to the following standards: IFRS 1 “First-time adoption of IFRS” clarifying which versions of IFRSs can be used on initial adoption (amends basis for conclusions only);  IFRS 13, clarifying the scope of the portfolio exception of paragraph 52, which permits an entity to measure the fair value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position for a particular risk exposure or to transfer a net short position for a particular risk exposure in an orderly transaction between market participants at the measurement date under current market conditions. The Group did not have any impacts in its carve-out combined financial statements arising from the early adoption of these improvements.

Annual Improvements 2012-2014 Cycle

Annual Improvements 2012-2014 Cycle makes amendments to the following standards: IFRS 7 “Financial Instruments: Disclosures” clarifying (1) whether a servicing contract is continuing involvement in a transferred asset for the purpose of determining the disclosures required and (2) the applicability of the amendments to IFRS 7 on offsetting disclosures to condensed interim financial statements; IAS 19 “Employee Benefits” indicating that the high quality corporate bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid.  The Group did not have any impacts in its carve-out combined financial statements arising from the early adoption of these improvements.

15

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

Amendments to IAS 16 and IAS 38, Property, Plant and Equipment and Intangible Assets

Amendments to IAS 16 “Property, Plant and Equipment” and IAS 38 “Intangible Assets”, clarify that “the use of revenue-based methods to calculate the depreciation or amortization of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset.  The Group did not have any impacts in its carve-out combined financial statements, as it does not use a revenue-based method to calculate either depreciation or amortization of its assets.

Amendments to IAS 1, Disclosure Initiative

The amendments include changes regarding materiality, clarifying that (1) information should not be obscured by aggregating or by providing immaterial information, (2) materiality considerations apply to the all parts of the financial statements, and (3) even when a standard requires a specific disclosure, materiality considerations do apply.  Regarding the statement of financial position and statement of profit and loss and other comprehensive income, the amendments (1) introduce a clarification that the list of line items to be presented in these statements can be disaggregated and aggregated as relevant and additional guidance on subtotals in these statements and (2) clarify that an entity’s share of OCI of equity-accounted associates and joint ventures should be presented in aggregate as single line items based on whether or not it will subsequently be reclassified to profit or loss.  As well, regarding the notes to the financial statements, the amendments add additional examples of possible ways of ordering the notes to clarify that understandability and comparability should be considered when determining the order of the notes and to demonstrate that the notes need not be presented in the order so far listed in paragraph 114 of IAS 1.

The Group did not have any impacts in its carve-out combined financial statements arising from the early adoption of these amendments.

d)        New and revised IFRS’s issued but not yet effective

The Group has not applied the following new and revised IFRS that have been issued, but that are not yet effective for periods beginning on January 1, 2014.

IFRS 9, Financial Instruments

IFRS 9, “Financial Instruments” issued in July 2014, is the replacement of IAS 39 “Financial Instruments: Recognition and Measurement”. This standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. This version supersedes all previous versions and is mandatorily effective for periods beginning on or after January 1, 2018, with early adoption being permitted. IFRS 9 (2014) does not replace the requirements for portfolio fair value hedge accounting for interest rate risk since this face of the project was separated from the IFRS 9 project.

16

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

IFRS 9 (2014) is a complete standard that includes the requirements previously issued and the additional amendments to introduce a new expected loss impairment model and limited changes to the classification and measurement requirements for financial assets.  More specifically, the new impairment model is based on expected credit losses rather than incurred losses, and will apply to debt instruments measured at amortized cost or FVTOCI, lease receivables, contract assets and certain written loan commitments and financial guarantee contracts.  Regarding the new measurement category of FVTOCI, it will apply for debt instruments held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets.

The Group is in the process of assessing the potential impacts from the adoption of this standard in their financial statements.

IFRS 15, Revenue from Contracts with Customers

IFRS 15, “Revenue from Contracts with Customers”, was issued in May 2014 and applies to annual reporting periods beginning on or after 1 January 2017, earlier application is permitted.  Revenue is recognized as control is passed, either over time or at a point in time.  The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In applying the revenue model to contracts within its scope, an entity will: 1) Identify the contract(s) with a customer ; 2) Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations in the contract; 5) Recognize revenue when (or as) the entity satisfies a performance obligation.  Also, an entity needs to disclose sufficient 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.

The Group is in the process of assessing the potential impacts from the adoption of this standard in their consolidated financial statements.

e)         Use of estimates and judgments

The accompanying carve-out financial statements have been prepared in conformity with IFRS, which require that management make certain estimates and use certain assumptions that affect the amounts reported in the financial statements and their related disclosures. The Group’s management, upon applying professional judgment, considers that estimates made and assumptions used were adequate under the circumstances; however, actual results may differ from such estimates.

The related estimates and assumptions are reviewed continuously.  Changes to accounting estimates are recognized in the period in which the estimate is changed if the change affects solely that period, or the current period and future periods if the review affects both current and future periods.

17

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

Critical accounting judgments and key uncertainty sources, when applying the estimates performed as of the date of the carve-out combined financial statements, and that have a significant risk of resulting in an adjustment to the carrying amount of assets and liabilities during the following financial period are as follows:

i.             Evaluations to determine the recoverability of accounts receivable

The Group performs an evaluation of the reasonableness of the allowance for doubtful accounts, considering its internal control process and factors such as the customers’ financial and operating situation, and the economic conditions of the country. Such allowance is reviewed periodically and the condition of accounts due is determined considering terms and conditions set forth in the agreements.

ii.          Evaluations to determine obsolete and slow-moving inventories

The Group performs an evaluation of the reasonableness of the reserve for obsolete and/or slow-moving inventories, considering its internal control process and operating and market factors of its products.  This reserve is reviewed periodically and is determined considering the turnover and consumption of raw materials, work-in-process and finished goods, which are affected by changes in production process and by changes in the market conditions in which the Group operates.

iii.       Evaluations to determine recoverability of deferred tax assets

As part of the tax analysis carried out by the Group, the projected tax result is determined annually based on the judgments and estimates of future transactions to conclude on the likelihood of recoverability of deferred tax assets.

iv.      Useful lives of intangible assets, land, buildings, machinery and equipment

Useful lives of intangible assets, land, buildings, machinery and equipment are used to determine the amortization and depreciation of assets and are defined according to the analysis by internal and external specialists.  Useful lives are periodically reviewed, at least once a year, and are based on the current conditions of assets and the estimate of the period during which they will continue to generate economic benefits to the Group.  If there are changes in the estimate of useful lives, the carrying amount of assets is affected prospectively, as well as the amortization or depreciation expense, as applicable.

v.         Impairment of long-lived assets

The carrying amount of long-lived assets is reviewed for impairment in case that situations or changes in the circumstances indicate that it is not recoverable.  If there are impairment indicators, a review is carried out to determine whether the carrying amount exceeds is recoverability value and whether it is impaired.  In the impairment evaluation, assets are grouped in the cash generating unit to which they belong.  The recoverable amount of the cash generating unit is calculated as the present value of future cash flows that the assets are expected to produce.  There will be impairment if the recoverable value is less than the carrying amount.

18

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

The Group defines the cash generating units and also estimates the periodicity and cash flows that it should generate. Subsequent changes in grouping cash generating units, or changes in the assumptions underlying the estimate of cash flows or the discount rate, could impact the carrying amounts of the respective assets.

The value-in-use calculations require the Group to determine future cash flows generated by cash generating units and an appropriate discount rate to calculate the present value thereof.  The Group uses income cash flows projections using market condition estimates, future pricing determination of its products and volumes of production and sales. In addition, for the purposes of the discount and perpetuity growth rate, the Group uses market risk premium indicators and long-term growth expectations in the market it operates.

The Group estimates a discount rate before taxes for the purposes of the goodwill impairment test, which reflects current evaluations of the time value of money and the specific risks to the asset for which estimates of future cash flows have not been adjusted.  The discount rate estimated by the Group is based on the weighted average cost of capital of similar entities.  In addition, the discount rate estimated by the Group reflects the return that investors would require if they had to take an investment decision on an equivalent asset in generation of cash flows, time and risk profile.

The Group annually reviews the circumstances that give rise to an impairment loss to determine whether such circumstances have changed or have generated reversal conditions.  If affirmative, the recoverable value is calculated and, if applicable, the reversal of the impairment previously recognized.

Internal and external indicators are subject to evaluation annually.

vi.      Employee retirement benefits

The Group uses assumptions to determine the best estimate for these benefit obligations. Assumptions and estimates are established in conjunction with independent actuaries. These assumptions include demographic hypothesis, discount rates and expected increases in remunerations and future permanence, among others. Although the assumptions are deemed appropriate, a change in such assumptions could affect the value of the employee benefit liability and the results of the period in which it occurs.

vii.   Functional currency

In order to determine the functional currency of the Group, management evaluates the economic environment in which primarily generates and expends cash. Therefore, factors related to revenues, costs, funding sources and cash flows generated from operations are considered.

19

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

viii.          Carve-out assumptions

As disclosed in note 3b, the Group’s management made certain assumptions and estimates in preparing the carve-out combined financial statements.

f)           Classification of costs and expenses

Costs and expenses presented in the combined statements of profit and loss and other comprehensive income were classified according to their function.

4.                  Summary of significant accounting policies

The significant accounting policies of the Group are as follows:

a)        Recognition of the effects of inflation

The Group recognizes the effects of inflation in hyperinflationary economies where there are economic characteristics such as: a) the interest rates, wages and prices are linked to a price index, b) the population does not consider monetary amounts in terms of the local currency, but it does so in terms of a relatively stable foreign currency, c) the accumulated inflation rate of the past three years approximates or exceeds 100%, among others.  These features are not restrictive to the analysis made by the Group to determine if the economy in which it operates is considered hyperinflationary.

The Group did not recognize inflationary effects for the years ended December 31, 2012, 2013 and 2014, given that economic conditions in which it operates do not represent those of a hyperinflationary economy.

b)        Foreign currency

Operations that form part of the Group may have different functional currencies which represent their primary economic environment to operate.  To include the carve-out combined financial statements of foreign entities, they are translated from the functional currency into the Group’s reporting currency (Mexican peso).  The financial statements are translated into Mexican pesos (reporting currency), considering the following methodology:

·                  The transactions where the recording and functional currency is the same, translate their financial statements using the following exchange rates: (i) the closing exchange rate for assets and liabilities and (ii) the weighted average historical exchange rate for revenues, costs and expenses, as they are deemed representative of the existing conditions at the transactions date. Translation effects resulting from this process are recorded in other components of comprehensive income (loss). The adjustments related to goodwill and fair value generated from the acquisition of a foreign transaction are deemed assets and liabilities of such transaction and are translated at the exchange rate in effect at yearend.

·                  Non-monetary items recorded at fair value denominated in foreign currency, are reconverted to the exchange rates in effect at the date the fair value was determined.  Non-monetary items calculated in terms of historical cost, in foreign currency, are not reconverted.

20

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

·                  Foreign currency transactions are recorded at the exchange rate in effect at the applicable translation date.  Monetary assets and liabilities denominated in foreign currency are stated at the exchange rate in effect at the balance sheet date. Exchange fluctuations are recorded in the statements of comprehensive income.

c)         Cash and cash equivalents

Cash and cash equivalents consist mainly of bank deposits in checking accounts and short-term investments in securities, highly liquid and easily convertible into cash in a period no longer than three months from the date of acquisition.  Cash is stated at nominal value and cash equivalents are valued at fair value.  Any cash equivalent which liquidity is longer than three months is presented on the other current assets line item. Any cash equivalent that cannot be disposed of is classified as restricted cash.

d)        Financial instruments

Financial assets and liabilities are measured at fair value. The costs of the transaction that are directly attributable to the acquisition or issuance of a financial asset or liability (different from financial assets and liabilities recognized at fair value through profit or loss) are added to or deducted from the fair value of the financial assets and liabilities at their initial recognition. The costs of the transaction directly attributable to the acquisition of financial assets or liabilities that are recognized at fair value through profit or loss are recognized immediately in the income or loss of the year.

Financial assets

All financial assets are recognized and written off at the trade date, where a purchase or sale of a financial asset is under an agreement, which terms require the delivery of the asset within a term that is generally established by the corresponding market, and are initially valued at fair value, plus the transaction costs, except for those financial assets classified as at fair value with changes through profit or loss, which are initially valued at fair value, without including the transaction costs.

Financial assets are classified within the following specific categories: “financial assets valued at fair value through profit or loss,” “financial assets held to maturity,” “loans and accounts receivable,” “financial assets available for sale” and “other”. The classification depends on the nature and purpose of the financial assets and is determined upon initial recognition.

Financial assets and liabilities are offset and the net amount is presented in the statement of financial situation when, and solely when, the Group has the legal right to offset the amounts and intends to either settle on a net basis, or realize the asset and settle the liability simultaneously.

21

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

i.            Financial assets valued at fair value through profit or loss (FVTPL)

A financial asset is presented at fair value through profit or loss if it is classified as held for trading purposes or if it is designated as such at its initial recognition. Financial assets are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value and according to the Group’s investment or risk management. In the initial recognition, the costs attributable to the transaction are recognized in profit or loss as incurred.  Financial assets at fair value through profit or loss are valued at fair value, and changes in fair value are recognized in profit or loss.

ii.        Financial assets held to maturity

If the Group intends and is able to hold to maturity debt instruments that are traded in an active market, then such financial assets are classified as held to maturity. Financial assets held to maturity are initially recognized at fair value plus costs directly attributable to the transaction. Subsequent to the initial recognition, the financial assets held to maturity are valued at amortized cost using the effective interest method, less impairment losses.

iii.    Loans and accounts receivable

Loans and accounts receivable are financial assets with fixed or determined payments, which are not traded in an active market. Such assets are initially recognized at fair value plus costs directly attributable to the transaction. Subsequent to the initial recognition, the loans and accounts receivable are measured at amortized cost using the effective interest method, less impairment losses.  Interest income is recognized applying the effective interest rate, except for short-term accounts receivable, in case interest recognition is insignificant.

iv.      Financial assets available for sale

Financial assets available for sale are non-derivative financial assets designated as held for sale and that are not classified in any of the aforementioned categories, such as equity instruments and certain debt instruments. Such assets are initially recognized at fair value plus the costs directly attributable to the transaction. After the initial recognition, they are valued at fair value and changes other than impairment losses or exchange differences in equity instruments available for sale are recognized in comprehensive income within stockholders’ equity. When an investment is written off or it is impaired, the accumulated loss or gain of the comprehensive income account is transferred to profit or loss.

v.          Other

Investment in equity instruments that are not traded in any stock exchange are valued mainly using valuation techniques such as analysis of discounted cash flows, option price setting models and comparisons to other transactions and instruments that are substantially equal.  In cases where fair value cannot be measured reliably, investments are recorded at cost less impairment losses.

22

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

Impairment of financial assets

Financial assets other than the financial assets valued at fair value through profit or loss are subject to impairment tests at the end of each reporting period.  Financial assets are deemed impaired when there is objective evidence that, as a consequence of one or more events occurring after the initial recognition of the financial asset, the estimated future cash flows of the financial asset have been affected.

For traded equity instruments classified as held for sale, a significant or extended fall of the fair value of values below their cost is deemed objective impairment evidence.

For all the other financial assets, the objective impairment evidence could include:

·                  Significant financial difficulties of the issuer or counterpart,

·                  Default on payment of interest or principal, or

·                  It is probable that the borrower will go bankrupt or have a financial reorganization.

For certain categories of financial assets, such as trade accounts receivable, the assets that have been subject to impairment tests and have not been impaired individually, are included in the impairment evaluation on a collective basis. Within the objective evidence that an account receivable portfolio could be impaired, the Group’s past experience with respect to collection, an increase in the number of late payments that exceed the average loan period, and the changes observed in the international and local economic conditions correlated to the default on payments, could be included.

For financial assets recorded at amortized cost, the amount of impairment loss recognized is the difference between the carrying amount of the asset and the present value of future collections, discounted at the original effective interest rate of the financial asset. The carrying amount of the financial asset is reduced for the impairment loss for all financial assets, except for trade accounts receivable, where the carrying amount is reduced through an account for allowance doubtful accounts. When a doubtful account is deemed uncollectible, it is eliminated against the allowance. The subsequent recovery of the previously eliminated amounts is converted to credits against the allowance. Changes in the carrying amount of the allowance account are recognized in profit or loss.

When a financial asset deemed held for sale is impaired, the accumulated gains or losses previously recognized in other comprehensive income are reclassified to current earnings.  Except for equity instruments held for sale, if in a subsequent period, the amount of impairment loss is decreased and such decrease can be objectively related to an event occurring after the recognition of the impairment, the previously recognized impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment was reversed does not exceed the amortized cost that would result if the impairment had not been recognized.

With respect to equity instruments held for sale, impairment losses previously recognized in profit or loss are not reversed through them.  Any increase in the fair value after the recognition of the impairment loss is recognized in other comprehensive income.

23

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

Financial liabilities

Financial liabilities at fair value with changes through profit or loss

A financial liability at fair value with changes through profit or loss is a financial liability classified as held for trade purposes or is designated as at fair value with changes through profit or loss.

A financial liability is classified as held for trade purposes if:

·                  It is acquired mainly in order to repurchase it in the near future; or

·                  It is part of an identified financial instruments portfolio managed jointly, and for which there is evidence of a recent pattern of taking short-term profits; or

·                  It is a derivative that has not been designated as a hedging instrument or does not meet the conditions to be effective.

A financial liability that is not a financial liability held for trade purposes could be designated as a financial liability at fair value with changes through profit or loss at the initial recognition time if:

·                  Thereby any inconsistency in the valuation or in the recognition that otherwise would arise from its valuation on different basis is significantly eliminated or reduced; or

·                  The return from financial liabilities or a group of assets and financial liabilities are managed and assessed based on their fair value, according to an investment or risk management strategy that the entity has documented, and information is internally provided on that group, based on its value; or

·                  It is part of an agreement that includes one or more embedded derivative instruments, and IAS 39 “Financial Instruments: Recognition and Measurement” allows that the entire hybrid agreement (asset or liability) is designated as at fair value with changes through profit or loss.

Financial liabilities at fair value with changes through profit or loss are recorded at fair value, recognizing any gain or loss arising from the remeasurement in the statements of comprehensive income.

Other financial liabilities

Other financial liabilities, including loans, are initially valued at fair value, net of costs of the transaction, and are subsequently valued at amortized cost using the effective interest method, and interest expenses are recognized on an effective return base.

The effective interest rate method is a method for the calculation of the amortized cost of a financial liability and of the assignment of the financial expense along the period concerned.  The effective interest rate is the rate that exactly discounts the estimated cash payments along the expected life of the financial liability (or, where adequate, in a shorter period) which represents the net amount in books of the financial liability at its initial recognition.

24

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

Derecognition of financial liabilities

The Group derecognizes financial liabilities if, and solely if, the obligations are met, cancelled or expired.

e)         Inventories

Inventories are valued at the average purchase price or average production cost, provided they do not exceed the net realizable value.  Cost of sales is determined applying these averages upon sale.

Net realizable value is the sale value estimated during the regular course of business, less estimated termination costs and costs of sale.

The Group uses the absorption cost system to determine the cost of inventories of work-in-process and finished goods, which includes both direct costs and those indirect costs and expenses related to production processes.

f)           Lands, buildings, machinery and equipment

Lands, buildings, machinery and equipment held for use in production for rendering services or for administrative purposes are recognized in the statement of financial position at historical costs, less accumulated depreciation or accumulated impairment losses.

Depreciation is recorded in earnings and is calculated using the straight-line method based on the remaining useful lives of the assets, which are reviewed every year jointly with the residual values, and the effect of any change in the recorded estimate is recognized on a prospective basis.  The assets related to capital leases are depreciated in the shorter period between the lease and their useful lives, unless it is reasonably certain that the Group will obtain the ownership at the end of the lease period.

The estimated useful lives for the main classes of fixed assets that correspond to current and comparative periods are as follows:

When components of a building, machinery and/or equipment have different useful lives, they are recorded as separate items (significant components) of buildings, machinery and equipment.

25

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

Gains or losses from the sale of a land, building, machinery and equipment item are determined comparing the gain or loss obtained from the sale to the carrying amount of such item; such gain or loss is recognized net within other (income) expenses.

Construction in process are recorded at cost less any impairment loss recognized. The cost of assets constructed by the own entity include the cost of materials and direct labor, any other cost directly attributable to the process of making to asset be suitable for the use foreseen, as well as the cost for dismantling, removing items, restoring the place where they are located, and borrowing costs, according to the Group’s policy. The depreciation of these assets, as in other properties, commences when the assets are ready for use in the place and conditions necessary to be able to operate in the way intended by the Group’s management.

g)        Leases

Leases are classified as capital leases when the terms of the lease substantially transfer to the lessee all the risks and benefits inherent to the property. All the other leases are classified as operating leases.

Assets under capital leases are recognized as assets of the group at fair value at the beginning of the lease, or at present value of the minimum lease payments, the least.  The liability corresponding to the lessor is included in the statements of financial situation as part of long-term debt.

Lease payments are distributed between the financial costs and the reduction of the lease obligation so as to achieve a constant rate on the remaining balance of the liability. Financial expenses are expensed directly, unless they are directly attributable to qualifying assets, in which case are capitalized in accordance with the Group’s policy borrowing costs.

Payments for operating lease rents are expenses using the straight-line method during the lease term, unless another systematic sharing basis results more representative to reflect more adequately the pattern of lease benefits to the user.

h)        Intangible assets

Intangible assets with finite lives

Intangible assets that are acquired by the Group, and which have finite useful lives, are recorded at cost less accumulated amortization and accumulated impairment losses; they are mainly included in the cost of software for administrative use. The estimated useful lives and amortization method are reviewed at the end of each year, and the effect of any change in the recorded estimate is recognized prospectively.

26

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

i)           Impairment of tangible and intangible assets, excluding goodwill

The Group reviews the book values of its tangible and intangible assets to determine if there is any indicator that those assets have suffered any impairment loss. If there is any indicator, the recoverable amount of the asset is calculated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which such asset belongs. When you can identify a reasonable and consistent basis of distribution, corporate assets are also assigned to the individual cash generating units, or otherwise, are assigned to the smallest group of cash generating units for which a reasonable and sound distribution base can be identified. The intangible assets that have an indefinite useful life are subject to impairment tests at least annually, and whenever there is an indicator that the asset may have been impaired.

The recoverable amount is the higher between the fair value less cost to sell it and the value in use. In assessing value in use, estimated future cash flows are discounted at their present value using a discount rate before taxes that reflects the current market assessment with respect to the time value of money and the specific risks of the asset for which future cash flows estimates have not been adjusted.

If it is estimated that the recoverable amount of an asset (or cash-generating unit) is less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount.  Impairment losses are recognized in earnings.

When an impairment loss is reversed subsequently, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, in such a way that the increased carrying amount does not exceed the carrying amount that would have been determined if an impairment loss had not been recognized for such asset (or cash-generating unit) in prior years.

j)           Derivative financial instruments

The Group’s activities expose it to a variety of financial risks, including: foreign exchange risk, interest rates and price risk, such as generic goods, mainly that of natural gas.

The Group’s policy is to enter into DFI’s and non- derivative financial instruments in order to mitigate and hedge the exposure to which it is exposed, given its productive and financial transactions. The Group designates these instruments either as fair value hedges, cash flow hedges or hedge of a net investment in a foreign operation.

There is a Risk Committee which is responsible for enforcing risk management policies, as well as for monitoring the proper use of financial instruments contracted by the Group.  The Committee is composed by several of the Group’s officials.

27

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

The Group recognizes all derivatives in the statement of financial position at fair value, regardless of the intention of its holding. In the case of hedging derivatives, the accounting treatment depends on whether the hedging is of fair value or cash flow. DFI’s agreements may include master netting arrangements, in which case, the resulting amounts are presented on a net basis, given that the Group would have the contractual ability and intent to settle on a net basis.

The fair value of financial instruments is determined by recognized market prices and when instruments are not traded in a market; it is determined by technical valuation models recognized in the financial field using inputs such as price, interest rate and exchange rate curves, which are obtained from different sources of reliable information.

When derivatives are contracted in order to hedge risks and comply with all the hedge accounting requirements, their designations are documented describing the purpose, features, accounting recognition and how the measurement of effectiveness will be carried out.

The designated hedging derivative recognizes changes in fair value as follows: (1) in fair value, the fluctuations both of the derivative and the hedged item are valued against profit or loss,  (2) in cash flows, they are temporarily recognized in comprehensive income and are reclassified to profit or loss when the hedged item affects them.  The ineffective portion of the change in fair value is recognized in the profit or loss of the period, within the net financial cost if it is a derivative financial instrument and, if it is not, it is recognized in comprehensive income (loss) until the investment is sold or transferred.

Derivative financial instruments, which the Group maintains, have not been designated as a hedge for accounting purposes. The fluctuation in the fair value of these derivative financial instruments is recognized in current earnings within net financial cost.

k)         Embedded derivatives

The Group reviews all the contracts entered into to identify embedded derivatives that must be separated from the host contract for their valuation and accounting recording purposes. When an embedded derivative is identified in another financial instruments or in a contract (host contracts), it is treated as a separate derivative when its risks and characteristics are not closely related to the host contract and when such contract is not recorded at its fair value with changes through profit or loss.

An embedded derivative is presented as a long-term asset or liability if the remaining maturity date of the hybrid instrument to which is related is 12 months or more, and its realization or realization is not expected during those 12 months. Other embedded derivatives are presented as assets or liabilities in the short term.  The Group has no embedded derivatives for any reporting period.

28

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

l)           Provisions

Provisions are recognized for current obligations that arise from a past event, that will probably result in the use of economic resources, and that can be reasonably estimated. For the purpose of accounting records, provisions are discounted to present value when the discount effect is material. Provisions are classified as current or non-current according to the estimated time period to meet the obligations that are covered.  When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

m)      Income tax

Income tax (“ISR”) and, through December 31, 2013, the business flat tax (“IETU”) (both are considered income taxes for purposes of IFRS) include current taxes and deferred taxes.  As described in note 3b, the income taxes associated with the Group’s carve-out combined financial statements have been calculated as it had operated as a separate taxpayer.  Current taxes and deferred taxes are recognized in earnings, except when they are related to a business combination, or items recognized directly in stockholders’ equity, or in the comprehensive income account

Current income tax is the tax expected to be paid or received.  The income tax payable in the fiscal year is determined according to the legal and tax requirements, applying tax rates enacted or substantially enacted as of the report date, and any adjustment to the tax payable with respect to prior years.

Deferred income tax is recorded using the assets and liabilities method, which compares the accounting and tax basis of the Group’s assets and liabilities and deferred taxes are recognized with respect to the temporary differences between such basis. No deferred taxes are recognized for the following temporary differences: the initial recognition of assets and liabilities in a transaction other than a business acquisition and that does not affect the accounting or tax result, and differences related to investments in subsidiaries and joint ventures to the extent it is probable that they will not be reversed in a foreseeable future. In addition, deferred taxes for taxable temporary differences arising from the initial recognition of goodwill are not recognized. Deferred taxes are calculated using rates that are expected to apply to temporary differences when they are reversed, based on enacted laws or which have been substantially enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they correspond to the income tax levied by the same tax authority and to the same tax entity, or on different tax entities, but intend to settle the current tax assets and liabilities caused on a net basis or their tax assets and liabilities are simultaneously materialized.

A deferred asset is recognized for tax loss carryforwards, tax credits and deductible temporary differences, to the extent that it is probable that there is taxable income to which they can be applied. Deferred assets are reviewed at the reporting date and are reduced to the extent the realization of the corresponding tax benefit is no longer probable of being recovered.

29

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

n)        Employee benefits

i.            Defined benefit plans

A defined benefit plan is a benefit plan at the end of a labor relationship different from one of defined contributions. The Group’s net obligations with respect to the defined-benefit pension plans are calculated separately for each plan, estimating the amount of future benefit accrued by employees in return for their services in ongoing and past periods; that benefit is discounted to determine its present value, and the costs for the services that have not been recognized and the fair value of the plan assets are deducted. The discount rate is the yield at the reporting date of the government bonds that have maturity dates approximate to the maturities of the Group’s obligations which are denominated in the same currency in which benefits are expected to be paid. The calculation is performed annually by an independent actuary using the projected unit credit method. When the calculation results in a benefit for the Group, the recognized asset is limited to the net total of unrecognized past service costs and the present value of the economic benefits available in the form of future refunds from the plan or reductions in future contributions to the plan plus the plan assets.  To calculate the present value of the economic benefits, the minimum funding requirements applicable to the Group’s plan are considered.  An economic benefit is available to the Group if it can be realized during the life of the plan, or upon settlement of the plan obligations.

When the benefits of a plan are improved, the portion of the improved benefits relating to past services by employees is recognized in profit or loss using the straight-line method over the average period until it acquires the right to the benefits. In so far as the right of benefits takes place, the expense is recognized in profit or loss.

The Group recognizes actuarial remeasurements derived from defined benefit plans in the comprehensive income account, in the period in which they occur, and they are never recycled to profit and loss.

ii.        Termination benefits

Termination benefits are recognized as an expense when the Group commitment can be evidenced, without real possibility of reversing, with a detailed formal plan either to terminate employment before the normal retirement date, or else, to provide benefits for termination as a result of an offer that is made to encourage voluntary retirement.  The benefits from termination in cases of voluntary retirement are recognized as an expense, solely if the Group has made an offer of voluntary retirement, the offer is likely to be accepted, and the number of acceptances can be estimated reliably.  If the benefits are payable no later than 12 months after the reporting period, then they are discounted at present value.

iii.    Short term-benefits

Short-term employee benefit obligations are not discounted and are expensed as services are rendered.

30

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

A liability is recognized for the amount expected to be paid under short-term cash bonus plans if the Group has a legal or constructive obligation to pay these amounts as a result of past services provided by the employee and the obligation can be estimated reliably.

o)        Statutory employee profit sharing (“PTU”)

PTU is recognized in the earnings of the fiscal year in which it is incurred and is presented within operating income.

p)        Revenue recognition

Revenues and related costs are recognized in the period in which: i) the risks and rewards are transferred to customers, which generally coincides with the delivery of products to customers in satisfaction of orders; ii) there is no ownership or effective control on the goods sold; iii) revenues and related costs can be measured reliably and iv) the economic benefits to the Group are probable.

q)        Financial income and financial costs

Financial income includes interest income on invested funds, changes in the fair value of financial assets at fair value through profit or loss, and exchange gains. Interest income is recognized in income as earned, using the effective interest method.

Financing costs include interest expenses on loans, effect of the discount by the passage of time on provisions, exchange losses, changes in the fair value of financial assets at fair value through profit or loss and impairment losses recognized on financial assets. The borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset, are recognized in earnings using the effective interest method.

Exchange gains and losses are reported on a net basis.

r)          Government grants

Government grants, subsidies, incentives or concessions are not recognized until there is reasonable assurance that the Group will comply with the conditions related to them and that the grant will be received.  Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grant, subsidy, incentive or concession is intended to compensate, or subsequently if the reasonable assurance of receiving such benefit is not confirmed in the moment the expense is incurred.

Government grants, subsidies, incentives or concessions whose purpose is to compensate previously incurred costs or expenses, or those whose purpose is to financially support the Group through pardoning costs or expenses, are recognized in profit or loss of the fiscal year of the transaction, net of the expense that gave rise to such benefit.

31

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

5.                  Other current assets and other short-term liabilities

The balances of other current assets as of December 31, 2012, 2013 and 2014 as follows:

Restricted cash is as follows:

The balances of other short — term liabilities as of December 31, 2012, 2013 and 2014 are as follows:

32

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

6.                  Trade accounts receivable

Trade accounts receivable consists of the following:

(1)         Includes $948, $926 and $1,310 as of December 31, 2012, 2013 and 2014, respectively, that were contributed to a trust as a guarantee for the accounts receivable financing programs and that although they are included in the carve-out combined financial statements, they are legally independent.

(2)         Includes $199 as of December 31, 2012, which was withheld abroad according to court orders related to Vitro’s restructuring process.

7.                  Inventories

Inventories consist of the following:

Due to inventory obsolescence and slow movement, as of December 31, 2012, 2013 and 2014, inventories are reduced to their net realizable value by $47, $74 and $47, respectively; this reserve mainly decreases the finished goods, work in process and raw materials line items.

33

Notes to the Carve-out Combined Financial Statements

For the years ended December 31, 2012, 2013 and 2014

(Millions of Mexican pesos)

8.                  Land, buildings, machinery, equipment and construction in process

Below is a summary of the composition of these items: