XML 90 R16.htm IDEA: XBRL DOCUMENT
v2.4.1.9

INCOME TAXES: | 12 Months Ended
--- | ---
Dec. 31, 2014
INCOME TAXES: |
INCOME TAXES: | NOTE 7-INCOME TAXES: The components of the provision for income taxes are as follows:
|  | Years ended December 31, |
(in millions) |  | 2014 |  | 2013 |  | 2012 |
U.S. federal and state: |  |  |  |  |  |  |
Current |  | $ | — |  | $ | — |  | $ | (0.1 | )
Deferred |  | (194.1 | ) | (139.3 | ) | (108.6 | )
Uncertain tax positions |  | 10.7 |  | — |  | 147.4 |
|  | (183.4 | ) | (139.3 | ) | 38.7 |
Foreign (Peru and Mexico): |  |  |  |  |  |  |
Current |  | 987.1 |  | 866.3 |  | 1,025.1 |
Deferred |  | (49.1 | ) | 42.3 |  | 17.1 |
|  | 938.0 |  | 908.6 |  | 1,042.2 |
Total provision for income taxes |  | $ | 754.6 |  | $ | 769.3 |  | $ | 1,080.9 |
The source of income is as follows:
|  | For the years ended December 31, |
(in millions) |  | 2014 |  | 2013 |  | 2012 |
Earnings by location: |  |  |  |  |  |  |
U.S. |  | $ | (1.7 | ) | $ | 0.1 |  | $ | (0.1 | )
Foreign |  |  |  |  |  |  |
Peru |  | 605.8 |  | 773.8 |  | 846.0 |
Mexico |  | 1,464.6 |  | 1,598.7 |  | 2,127.6 |
|  | 2,070.4 |  | 2,372.5 |  | 2,973.6 |
Earnings before taxes on income |  | $ | 2,068.7 |  | $ | 2,372.6 |  | $ | 2,973.5 |
The reconciliation of the statutory income tax rate to the effective tax rate is as follows (in percentage points):
|  | For the years ended December 31, |
|  | 2014 |  | 2013 |  | 2012 |
Expected tax at U.S. statutory rate |  | 35.0 | % | 35.0 | % | 35.0 | %
Foreign tax at other than statutory rate, net of foreign tax credit benefit |  | (0.9 | ) | (0.2 | ) | (0.5 | )
Percentage depletion |  | (5.2 | ) | (5.0 | ) | (4.2 | )
Other permanent differences |  | 4.6 |  | 3.5 |  | 3.7 |
Increase (decrease) in unrecognized tax benefits for uncertain tax positions |  | 0.5 |  | — |  | 5.0 |
Repatriated foreign earnings |  | (0.4 | ) | (1.4 | ) | (1.7 | )
Amounts (over) / under provided in prior years |  | 2.2 |  | 0.4 |  | (0.6 | )
Other |  | 0.7 |  | 0.1 |  | (0.4 | )
Effective income tax rate |  | 36.5 | % | 32.4 | % | 36.3 | %
The Company files income tax returns in three jurisdictions, Peru, Mexico and the United States. For the three years presented above, the statutory income tax rates for Peru and Mexico were 30% and 35% for the United States. While the largest components of income taxes are the Peruvian and Mexican taxes, the Company is a domestic U.S. entity. Therefore, the rate used in the above reconciliation is the U.S. statutory rate. For all of the years presented, both the Peruvian branch and Minera Mexico filed separate tax returns in their respective tax jurisdictions. Although the tax rules and regulations imposed in the separate tax jurisdictions may vary significantly, similar permanent items exist, such as items which are nondeductible or nontaxable. Some permanent differences relate specifically to SCC such as the allowance in the United States for percentage depletion. SCC’s taxable income for the fiscal years 2012 through 2014, was, or will be, included in the U.S. federal income tax return of AMC, its parent company; see U.S. tax matters, below. For financial reporting and presentation purposes SCC is providing current and deferred income taxes, as if it remains a separate U.S. tax filer apart from AMC. Deferred taxes include the U.S., Peruvian and Mexican tax effects of the following types of temporary differences and carryforwards:
|  | As of December 31, |
(in millions) |  | 2014 |  | 2013 |
Assets: |  |  |  |  |
Inventories |  | $ | 32.5 |  | $ | 18.7 |
Capitalized exploration expenses |  | 27.8 |  | 29.4 |
U.S. foreign tax credit carryforward, net of FIN 48 liability |  | 144.8 |  | 52.6 |
U.S. tax effect of Peruvian deferred tax liability |  | 251.4 |  | 68.0 |
Reserves |  | 101.7 |  | 35.0 |
Other |  | 19.8 |  | 27.9 |
Total deferred tax assets |  | 578.0 |  | 231.6 |
Liabilities: |  |  |  |  |
Property, plant and equipment |  | (213.0 | ) | (105.8 | )
Deferred charges |  | (74.9 | ) | (79.6 | )
Mexican tax on consolidated dividends |  | (5.7 | ) | (31.5 | )
Outside basis difference |  | — |  | (7.4 | )
Other |  | (9.8 | ) | (0.1 | )
Total deferred tax liabilities |  | (303.4 | ) | (224.4 | )
Total net deferred tax assets / (liabilities) |  | $ | 274.6 |  | $ | 7.2 |
U.S. Tax Matters— In September 2013 the Internal Revenue Service (“IRS”) issued the final Tangible Property Regulations. These regulations are effective January 1, 2014 with some elective retroactive application available. These regulations look to provide a framework for distinguishing capital expenditures from deductible business expenses and they attempt to find the middle ground where taxpayers and the IRS often disagreed. The Company has reviewed these regulations and has concluded that they should not have a material effect on its financial statements. As of December 31, 2014, the Company considers its ownership of the stock of Minera Mexico to be essentially permanent in duration. The excess of the amount for financial reporting over the tax basis of the investment in this stock is estimated to be at least $5.3 billion. As of December 31, 2014, $37.7 million of the Company’s cash, cash equivalents, restricted cash and short-term investments of $722.0 million was held by foreign subsidiaries. The cash, cash equivalents and short-term investments maintained in the Company’s foreign operations are generally used to cover local operating and investment expenses. The Company had provided a deferred tax liability of $7.4 million as of December 31, 2013 for the U.S. income tax effects of $76.2 million of foreign earnings that may potentially be repatriated in the future. At December 31, 2014 Minera Mexico has determined that it has no remittable earnings available for dividends to the United States due to its internal financial obligations and current expansion, and that at the end of 2014 it has met the indefinite reversal criteria of ASC 740-30-25-17 that it intends to reinvest its earnings indefinitely. Any distribution of earning from the Company’s Mexican subsidiaries to the United States is subject to a U.S. federal income tax that equates to approximately 10% of the amount of the distribution, after considering foreign tax credit utilization. Distributions of earnings from the Company’s Peruvian branch to the United States are not subject to repatriation taxes. The Company’s Peruvian operations are not foreign subsidiaries. Rather they are mainly comprised of operations that are treated as a branch of the Company’s U.S. operations from a tax perspective. At December 31, 2014, there were $447.0 million of foreign tax credits available for carryback or carryforward. These credits have a one year carryback and a ten year carryforward period and can only be used to reduce U.S. income tax on foreign earnings. There were no other unused U.S. tax credits at December 31, 2014. These credits can expire as follows:
Year |  | Amount |
2016 |  | $ | 19.0 |
2018 |  | 20.4 |
2019 |  | 63.7 |
2020 |  | 42.0 |
2021 |  | 11.7 |
2022 |  | 84.1 |
2023 |  | 69.2 |
2024 |  | 136.9 |
Total |  | $ | 447.0 |
These foreign tax credits are presented above on a gross basis and have not been reduced here for any unrecognized tax benefits. ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” is effective prospectively for the Company’s fiscal year beginning January 1, 2014. In accordance with ASU 2013-11 The Company has recorded $302.2 million of an unrecognized tax benefit as an offset to our deferred tax asset for foreign tax credits. The remaining foreign tax credits of $144.8 million will be used to offset future liabilities but can expire if not utilized by 2023 ($7.9M) and 2024 ($136.9M). Since March 2009, Grupo Mexico, through its wholly-owned subsidiary AMC, owns an interest in excess of 80% of SCC. Accordingly, SCC’s results are included in the consolidated results of the Grupo Mexico subsidiary for U.S. federal income tax reporting. SCC provides current and deferred income taxes, as if it were filing a separate income tax return. Peruvian Tax Matters- The Company obtains income tax credits in Peru for value-added taxes paid in connection with the purchase of goods and services employed in its operations and capital equipment and records these credits as a prepaid expense. Under current Peruvian law, the Company is entitled to use the credits against its Peruvian income tax liability or to receive a refund. The carrying value of these Peruvian tax credits approximates their net realizable value. Royalty mining charge: In 2011, the Peruvian congress approved an amendment to the mining royalty charge. The mining royalty charge is based on operating income margins with graduated rates ranging from 1% to 12% of operating profits, with a minimum royalty charge assessed at 1% of net sales. If the operating income margin is 10% or less, the royalty charge is 1% and for each 5% increment in the operating income margin, the royalty charge rate increases by 0.75%, up to a maximum of 12%. For 2014 hereinafter, the minimum royalty charge assessed at 1% of net sales is recorded as cost of sales and those amounts assessed against operating income are included in the income tax provision. The Company has accrued $32.4 million, $34.8 million and $51.0 million of royalty charge in 2014, 2013 and 2012, respectively, of which $7.5 million was included in income taxes in 2014. Special Mining tax: In 2011, the Peruvian government enacted a tax for the mining industry. This tax is based on operating income and its rate ranges from 2% to 8.4%. It begins at 2% for operating income margin up to 10% and increases by 0.4% of operating income for each additional 5% of operating income until 85% of operating income is reached. The Company made provision for this tax of $35.3 million, $25.5 million and $49.6 million in 2014, 2013 and 2012, respectively. These provisions are included as “income taxes” in the consolidated statement of earnings. As of December 31, 2014, the income tax rate was 30% and the dividend tax rate was 4.1%. In the last quarter of 2014, the Peruvian congress enacted tax law changes to both the income tax and dividend tax rates that become effective on January 1, 2015. The new rates are as follows:
Year |  | Income Tax Rate |  | Dividend Tax Rate |
2015- 2016 |  | 28 | % | 6.8 | %
2017- 2018 |  | 27 | % | 8.0 | %
2019 and later |  | 26 | % | 9.3 | %
The recalculation of the deferred tax liability for the Peruvian jurisdiction using the new tax rates did not have a material effect on the deferred tax liability or the financial statements of the Company. Mexican Tax Matters- In 2013, the Mexican Congress enacted tax law changes that became effective on January 1, 2014. Among others, this new law establishes:
| · |  | A mining royalty at the rate of 7.5% on taxable Earnings Before Taxes adjusted as defined by Mexican tax regulations; that had a net after tax cost of $79.3 million.
| · |  | An additional royalty of 0.5% over gross income from sales of gold, silver and platinum;
| · |  | The replacement of the consolidation tax regime that creates a more restrictive tax consolidation regimen;
| · |  | A 10% withholding on dividends distributed to Mexican individuals or foreign residents (individuals or corporations) and applies to net income generated after 2013;
| · |  | A new environmental tax on the sale and importation of fossil fuels that had an annual estimated cost of approximately $9.4 million, and was included in cost of fuel
| · |  | Limits (at 47 or 53%) deductions for tax-exempt salaries as well as for contributions to pension plans;
| · |  | The requirement to maintain the Mexican statutory income tax rate at 30% thereby eliminating the scheduled reductions for 2014 and 2015; and
| · |  | The elimination of the flat tax.
Related to these tax changes, in 2013 the Company recognized a deferred income tax provision of $34.7 million. Accounting for Uncertainty in Income Taxes- The total amount of unrecognized tax benefits in 2014, 2013 and 2012, was as follows (in millions):
|  | 2014 |  | 2013 |  | 2012 |
Unrecognized tax benefits, opening balance |  | $ | 221.2 |  | $ | 221.2 |  | $ | 70.6 |
Gross increases — tax positions in prior period |  | 55.1 |  | — |  | 39.7 |
Gross decreases — tax positions in prior period |  | — |  | — |  | 0.2 |
Gross increases — current-period tax positions |  | 43.1 |  | — |  | 110.7 |
|  | 98.2 |  | — |  | 150.6 |
Unrecognized tax benefits, ending balance |  | $ | 319.4 |  | $ | 221.2 |  | $ | 221.2 |
The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $319.4 million and $221.2 million at December 31, 2014 and 2013, respectively. These amounts relate entirely to U.S. income tax matters. The Company has no unrecognized Peruvian or Mexican tax benefits. As of December 31, 2014 and 2013, the Company’s liability for uncertain tax positions included no amount for accrued interest and penalties due to the excess foreign tax credits. The following tax years remain open to examination and adjustment in the Company’s three major tax jurisdictions:
Peru: | 2011 up to 2014 (years 2011 and 2012 are being examined in 2015)
U.S.: | 2008 and all subsequent years
Mexico: | 2010 and all subsequent years
Management does not expect that any of the open years will result in a cash payment within the upcoming twelve months ending December 31, 2015. The Company’s reasonable expectations about future resolutions of uncertain items did not materially change during the year ended December 31, 2014.

X
- Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration