Cemex 1999 Annual Report Download - page 64

62
D) EFFECTS OF INFLATION
The effects of inflation on the majority interest stockholders’ equity as of December 31, 1999 are summarized as
follows:
HISTORICAL INFLATION
COST ADJUSTMENT TOTAL
Common stock $ 49,312 2,737,610 2,786,922
Additional paid-in capital 9,255,558 9,480,277 18,735,835
Deficit in equity restatement — (39,490,802) (39,490,802)
Retained earnings 29,637,268 28,363,393 58,000,661
Net income of the year 9,178,227 70,819 9,249,046
E) FOREIGN CURRENCY TRANSLATION
Net foreign currency translation results, amounting to $(229,244), $2,864,866 and $229,670 in 1999, 1998 and 1997,
respectively, have been recorded directly to stockholders’ equity, and are summarized as follows:
1999 1998 1997
Foreign currency translation adjustment $ (825,736) 5,877,309 676,599
Foreign exchange gain (loss) (1) 596,492 (3,012,443) (446,929)
$ (229,244) 2,864,866 229,670
The foreign currency translation adjustment includes foreign exchange results from financing related to the acquisition
of foreign subsidiaries generated by the subsidiary of the Company in Spain for $(1,876,891), $452,978 and
$(852,571), in 1999, 1998 and 1997, respectively.
(1) Foreign exchange losses from the financing identified with the acquisitions of foreign subsidiaries in accordance with Bulletin B-15.
F) OTHER EQUITY TRANSACTIONS
In May 1998, a subsidiary of the Company in Spain issued US dollars 250 million of preferred shares (“Putable Capital
Securities”) at an annual dividend rate of 9.66% per year. The Company has an option to repurchase the balance of
the instrument on November 15, 2004, or on any other subsequent dividend payment date. Additionally, the holders
of the instrument have the right to sell the instrument to the Company on May 15, 2005.
As of December 31, 1999 there are financial transactions totaling US dollars 604.6 million ($5,749.8 million), some
of which include guarantees, which have been offset for presentation purposes in the Company’s consolidated
balance sheet. These financial transactions have been offset as follows: US dollars 500 million for a minority interest
without voting rights or dividend rights of the subsidiary in Spain; and US dollars 104.6 million for the transfer of
assets to a trust. These financial transactions require certain collateral guarantees. The maturity of the described
transactions varies between the year 2000 and 2007, and the Company has the option to reacquire the related assets
at different dates. As of December 31, 1998, US dollars 78 million were compensated with stock of the Parent
Company, amount that was refinanced in 1999 as a part of the transaction, which includes stock of the subsidiary in
Spain.
As of December 31, 1999, the Company has recognized valuation effects in the stockholder’s equity for $523,433,
derived from investments available for sale (see note 3H).
15.- DERIVATIVE FINANCIAL INSTRUMENTS
As of December 31, 1999, the Company has entered into various derivative financial instrument transactions in order
to reduce its risks resulting from changes in interest rates (see note 11), foreign exchange rates and the price of its
common shares. These instruments have been negotiated with major domestic and international institutions and
corporations, which have a solid financial capacity. Therefore, the Company considers that the risk of non-compliance
of the obligations agreed upon by such counterparties is minimum. The notional amount, as well as the estimated
fair value of the derivative instruments as of December 31, 1999 and 1998, is as follows:
THOUSANDS OF US DOLLARS
1999 1998
NOTIONAL NOTIONAL
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
a) Equity forward contracts 222,719 89,650 220,638 (48,011)
b) Foreign exchange forward contracts 410,000 12,423 250,000 (60,848)
c) Call options 51,530 (15,427) — —
d) Warrants related forward contracts 606,005 122,690 — —
a) The Company has entered into forward agreements and has sold (put) options related to its outstanding
common stock at an established price that covers up to approximately US dollars 106 and 137 million as of
December 31, 1999 and 1998, respectively. At maturity, these agreements provide for physical or net cash
settlement, at the Company’s option, and the gains or losses are recognized in stockholder’s equity. In addition,
the Company has forwards related to its ADS’s, in order to fully cover its voluntary stock option plans for
employees for up to US dollars 116 and US dollars 84 million, in 1999 and 1998, respectively. Through these
programs, the Company’s executives elected to purchase options to buy 7,293,675 ADS’s of the Company.