Cemex 2009 Annual Report Download - page 62

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In 2008 and 2007, the consolidated financial ratios remained in effect until negotiation of the CWEA and were replaced upon completion of the Financing
Agreement. In 2007, as a result of the modification of certain clauses in the credit contracts entered into between CEMEX and its creditors, the leverage
ratio of 3.5 times remained without effect as of December 31, 2007, being reactivated on September 30, 2008, on which CEMEX was in compliance.
Afterwards, on December 19, 2008, CEMEX and its creditors agreed on new modifications to the credit contracts, including changes to the calculation
formula and the increase to the leverage ratio to 4.5 times for December 31, 2008 and March 31, 2009, increasing to 4.75 times on June 30, 2009,
decreasing to 4.5 times at the end of September and December 2009, decreasing to 4.25 times for the closing of March and June 2010, decreasing to
4 times on September 30, 2010, decreasing to 3.75 for the closing of December 2010, March and June 2011 and returning to 3.5 on September 30, 2011
and thereafter. All ratios after June 30, 2009 however were superseded by the Financing Agreement ratios. CEMEX and its creditors also agreed to modify
the credit contracts of its subsidiary in Spain to increase the leverage ratio, which did not include certain maturities of such subsidiary during the first
months of 2009 and whereby CEMEX obtained required waivers from its creditors. As of December 31, 2008 and 2007, considering the amendments to the
credit contracts and the waivers obtained, CEMEX, S.A.B. de C.V. and its subsidiaries were in compliance with the restrictive covenants imposed by its debt
contracts. As of December 31, 2008 and 2007, the main consolidated financial ratios were as follows:
Consolidated financial ratios 2008 2007
Leverage ratio 1, 2 Limit =< 4.5 =< 3.5
Calculation 4.04 3.54
Operating EBITDA to financial expenses ratio 3 Limit > 2.5 > 2.5
Calculation 4.82 5.79
1 The leverage ratio was calculated by dividing net debt by pro forma operating EBITDA for the last twelve months as of the calculation date. Pursuant to the debt contracts,
net debt was calculated using total debt plus the negative fair value or minus the positive fair value of cross currency swap derivative financial instruments associated with
debt, minus cash and temporary investments.
2 For purposes of the leverage ratio, the pro forma operating EBITDA represents, calculated in pesos, operating income plus depreciation and amortization, plus financial
income, plus the portion of operating EBITDA (operating income plus depreciation and amortization) referring to such twelve-month period of any significant acquisition
made in the period before its consolidation in CEMEX‘s financial statements, minus operating EBITDA (operating income plus depreciation and amortization) referring to
such twelve-month period of any significant disposal that had already been liquidated, all calculated in pesos. Beginning with the calculation as of December 31, 2008, the
monthly-consolidated amounts in pesos were translated into U.S. dollars using the respective monthly closing exchange rates, and were translated again into pesos at the
closing exchange rate as of the balance sheet date. Until September 30, 2008, calculations were determined with constant pesos coming from the financial statements.
3 The operating EBITDA to financial expense ratio was calculated using the peso amounts arising from the financial statements, by dividing thepro forma operating EBITDA
by the financial expense for the last twelve months as of the calculation date. For purposes of the coverage ratio, for all periods, pro forma operating EBITDA represents
operating income plus depreciation and amortization for the last twelve months, plus financial income.
CEMEX will classify all of its outstanding debt as current debt in the Company’s balance sheet: 1) as of any relevant measurement date on which CEMEX
fails to comply with financial ratios agreed upon under the Financing Agreement; or 2) as of any date prior to a subsequent measurement date on which
the Company expects not to be in compliance with its financial ratios agreed upon under the Financing Agreement, in the absence of: a) amendments
and/or waivers covering the next succeeding 12 months; b) high probability that the violation will be cured during any agreed upon remediation period
and be sustained for the next succeeding 12 months; and/or c) a signed refinancing agreement to refinance the relevant debt on a long-term basis. The
aforementioned classification of debt in the short-term could have a material adverse effect on CEMEX’s liquidity and financial position.
13B) Fair value of assets, financial instruments and derivative financial instruments
Assets and financial instruments
CEMEX’s carrying amounts of cash, trade accounts receivable, other accounts receivable, trade accounts payable, other accounts payable and accrued
expenses, as well as short-term debt, approximate their corresponding estimated fair values due to the short-term maturity and revolving nature of these
financial assets and liabilities. Temporary investments (cash equivalents) and long-term investments are recognized at fair value, considering quoted
market prices for the same or similar instruments.
The estimated fair value of long-term debt is either based on estimated market prices for such or similar instruments, considering interest rates currently
available for CEMEX to negotiate debt with the same maturities, or determined by discounting future cash flows using interest rates currently available
to CEMEX. As of December 31, 2009 and 2008, the carrying amounts of long-term debt (including current maturities) and their respective fair values were
as follows:
2009 2008
Carrying Carrying
amounts Fair value amounts Fair value
Bank loans $ 137,783 137,783 160,485 160,302
Notes payable 69,909 68,503 59,680 73,652
Derivative financial instruments
CEMEX has negotiated interest rate swaps, cross currency swaps (“CCS”), forward contracts and other foreign exchange derivative instruments, as well
as forward contracts and other derivative instruments on CEMEX’s own shares and third parties’ shares, with the objective, depending in each case on:
a) changing the profile of the interest rates and/or the interest rates and currencies originally negotiated in a portion of the debt; b) changing the mix of
currencies of the debt; c) hedging certain net investments in foreign subsidiaries; d) changing the risk profile associated with the price of raw materials and
other energy projects; and e) other corporate purposes.