Cemex 2009 Annual Report Download - page 38

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES
As of December 31, 2009, 2008 and 2007
(Millions of Mexican pesos)
1. DESCRIPTION OF BUSINESS
CEMEX, S.A.B. de C.V. is a Mexican corporation, a holding company (parent) of entities whose main activities are oriented to the construction industry,
through the production, marketing, distribution and sale of cement, ready-mix concrete, aggregates and other construction materials. CEMEX is a public
stock corporation with variable capital (S.A.B. de C.V.) organized under the laws of the United Mexican States, or Mexico.
CEMEX, S.A.B. de C.V. was founded in 1906 and was registered with the Mercantile Section of the Public Register of Property and Commerce in Monterrey,
N.L., Mexico in 1920 for a period of 99 years. In 2002, this period was extended to the year 2100. The shares of CEMEX, S.A.B. de C.V. are listed on the
Mexican Stock Exchange (“MSE”) as Ordinary Participation Certificates (“CPOs”). Each CPO represents two series “A” shares and one series “B” share
of common stock of CEMEX, S.A.B. de C.V. In addition, CEMEX, S.A.B. de C.V. shares are listed on the New York Stock Exchange (“NYSE”) as American
Depositary Shares or “ADSs” under the symbol “CX.” Each ADS represents ten CPOs.
The terms “CEMEX, S.A.B. de C.V.” or the “Parent Company” used in these accompanying notes to the financial statements refer to CEMEX, S.A.B. de C.V.
without its consolidated subsidiaries. The terms the “Company” or “CEMEX” refer to CEMEX, S.A.B. de C.V. together with its consolidated subsidiaries.
The issuance of Parent Company only and consolidated financial statements was authorized by the Company’s management on January 29, 2010, and they
will be submitted for approval in the next stockholders’ meeting.
2. OUTSTANDING EVENTS DURING 2009
CEMEX concludes global financing agreement
As detailed in note 13A, on August 14, 2009, CEMEX entered into a Financing Agreement with its major creditors (the “Financing Agreement”), which
extended the maturity of approximately 14,961 million U.S. dollars of syndicated and bilateral loans and private placement obligations. The Financing
Agreement contains several restrictive covenants and limitations detailed in note 13A, including restrictions on CEMEX’s ability to incur additional debt,
enter into acquisitions or make investments in joint ventures (in each case, subject to negotiated baskets, exceptions and carve-outs), and a requirement to
apply any cash on hand in excess of 650 million U.S. dollars, for any period for which it is being calculated, to prepay debt. Likewise, as part of the Financing
Agreement, CEMEX is also prohibited from making aggregate capital expenditures in excess of 600 million U.S. dollars in 2009 (plus an additional 50 million
U.S. dollars contingency to account for currency fluctuations and certain additional costs and expenses), 700 million U.S. dollars in 2010 and 800 million
U.S. dollars beginning in 2011 and each year thereafter until the debt under the Financing Agreement has been repaid in full. This Financing Agreement
completed a partial debt renegotiation made on January 27, 2009.
On December 10, 2009, CEMEX completed its offer to exchange promissory notes (Certificados Bursátiles) issued in Mexico (“CBs”) with maturities between
2010 and 2012, into mandatorily convertible securities for approximately $4,126 (315 million U.S. dollars). The securities issued are mandatorily convertible
into CEMEX’s CPOs and are scheduled to mature in ten years. In accordance with Mexican Financial Reporting Standards (“MFRS”), approximately 50% of
the new issuance represented an increase in stockholders’ equity (notes 13A and 17A).
In addition, in order to prepay a portion of the amounts due in 2011 under the Financing Agreement, on December 14, 2009, CEMEX completed the issuance
of US dollar-denominated and euro-denominated notes for an aggregate amount of approximately 1,750 million U.S. dollars, which are scheduled to mature
in 7 and 8 years, respectively (notes 13A and 23).
Equity offering
On September 28, 2009, through a global offering in Mexico and the United States, CEMEX sold CPOs and ADSs for an aggregate amount of approximately
1,782 million U.S. dollars (note 17A). Pursuant to the Financing Agreement, the net proceeds obtained from the global equity offering were used to repay debt.
Sale of australian assets
As described in note 4B, on October 1, 2009, CEMEX completed the sale of its entire Australian assets for approximately 2,020 million Australian dollars
(approximately 1,700 million U.S. dollars). CEMEX used the proceeds obtained from the sale primarily for the repayment of debt under the requirements of the
Financing Agreement. The consolidated income statements present the results of operations of the Australian assets, net of income tax, for the nine-month
period ended September 30, 2009, the twelve-month period ended December 31, 2008 and the six-month period ended December 31, 2007 in a single line item
as “Discontinued operations.” Accordingly, the consolidated statement of cash flows for the year ended December 31, 2008 was reclassified.
3. SIGNIFICANT ACCOUNTING POLICIES
A) Basis of presentation and disclosure
The Parent Company-only financial statements and their accompanying notes (note 25), complementary to CEMEX’s consolidated financial statements, are
presented herein to comply with requirements to which CEMEX, S.A.B. de C.V. is subject as an independent legal entity.
The financial statements are prepared in accordance with MFRS issued by the Mexican Board for Research and Development of Financial Reporting
Standards (“CINIF”), which recognized the effects of inflation on the financial information until December 31, 2007. Changes in inflationary accounting
effective beginning on January 1, 2008 are detailed below.
Inflationary accounting
Beginning on January 1, 2008, pursuant to MFRS B-10, “Inflation Effects” (“MFRS B-10”), the financial statements subject to restatement are those related
to an entity whose functional currency corresponds to a country in which the cumulative inflation rate over the preceding three years equals or exceeds
26% (i.e., a high-inflation environment). Until 2007, inflationary accounting was applied to all CEMEX subsidiaries regardless of the inflation level of their
respective countries. Designation of a country as operating in a high-inflation environment takes place at the end of each year, and inflation restatement
is applied prospectively. In 2009, CEMEX restated the financial statements of its subsidiaries in Egypt, Nicaragua, Latvia and Costa Rica, and in 2008, the
financial statements of CEMEX’s subsidiaries in Costa Rica and Venezuela were restated.