Cemex 2009 Annual Report Download - page 76

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20. COMMITMENTS
A) Guarantees
As of December 31, 2009 and 2008, CEMEX, S.A.B. de C.V. had guaranteed loans of certain subsidiaries for approximately US$12,570 and US$1,407,
respectively.
B) Pledged assets
As of December 31, 2009 and 2008, CEMEX had liabilities amounting to US$292 and US$76, respectively, secured by property, machinery and equipment.
In addition, as of December 31, 2008, from the investment in shares of CEMEX, S.A.B. de C.V. held by subsidiaries (note 17), 586,147,722 CPOs as well as
CEMEX’s investment in Control Administrativo Mexicano, S.A. de C.V. and Cancem, S.A. de C.V. (note 10A), were held in an ownership transferring trust
for management and payment. Under this trust arrangement, CEMEX maintained its corporate and property rights, with the pledge securing the payment
of CEMEX, S.A.B. de C.V. debt in an amount of US$250 ($3,435) as of December 31, 2008, which includes quarterly amortizations starting in July 2009 and
maturing in October 2010. In the event of default, the assets would be sold and the amount applied to such debt. During 2009, CEMEX released the CPOs
and the shares of its associates in exchange for a pledge of the assets of CEMEX’s plants in Merida and Ensenada.
In addition, in connection with the Financing Agreement (note 13A), CEMEX transferred the shares of several of its main subsidiaries, including CEMEX
México, S.A. de C.V. and CEMEX to a trust for the benefit of the bank lenders, note holders and other creditors having the benefit of negative pledge clauses,
España, S.A., in order to guarantee payment obligations under the Financing Agreement and other financial transactions.
C) Commitments
As of December 31, 2009 and 2008, CEMEX had commitments for the purchase of raw materials for an approximate amount of US$172 and US$194,
respectively.
In 2006, in order to take advantage of the high wind potential in the “Tehuantepec Isthmus,” CEMEX and the Spanish company ACCIONA formed an alliance
to develop a wind farm project for the generation of 250 Megawatts (MW) in the Mexican state of Oaxaca. CEMEX acted as promoter of the project, which
was named EURUS. ACCIONA provided the required financing, constructed the facility and currently operates the wind farm. The installation of 167 wind
turbines in the farm was finished on November 15, 2009. The agreements between CEMEX and ACCIONA established that CEMEX’s plants in Mexico
should acquire a portion of the energy generated by the wind farm for a period of at least 20 years, beginning on the date in which the 250 MW would be
interconnected with the grid of the national utility company in Mexico (CFE). As of December 31, 2009, EURUS had not reached the committed limit capacity
to declare the beginning of the commercial operation and operated on a testing phase.
In 1999, CEMEX entered into agreements with an international partnership, which built and operated an electrical energy generating plant in Mexico
called Termoeléctrica del Golfo (“TEG”). In 2007, another international company replaced the original operator. The agreements established that CEMEX
would purchase the energy generated for a term of no less than 20 years, which started in April 2004. Likewise, CEMEX committed to supply TEG all fuel
necessary for its operations, a commitment that has been hedged through a 20-year agreement entered with Petróleos Mexicanos, which terminates in
2024. With the change of the operator, in 2007, CEMEX extended the term of its agreement with TEG until 2027. Consequently, for the last 3 years of the
TEG fuel supply contract, CEMEX intends to purchase the required fuel in the market. CEMEX is not required to make any capital expenditure in the project.
For the years ended December 31, 2009, 2008 and 2007, TEG supplied (unaudited) 73.7%, 60.4% and 59.7%, respectively, of CEMEX’s 15 plants’ electricity
needs in Mexico during such year.
In 2007, CEMEX Ostzement GmbH (“COZ”), CEMEX’s subsidiary in Germany, entered into a long-term energy supply contract with the recently renamed
entity, Vattenfall Europe New Energy Ecopower (“VENEE”), pursuant to which VENEE has been committed to supply energy to CEMEX’s Rüdersdorf plant
for a period of 15 years starting on January 1, 2008. Based on the contract, each year COZ has the option to fix in advance the volume of energy that it
will acquire from VENEE, with the option to adjust the purchase amount once on a monthly and quarterly basis. According to the contract, COZ acquired
28 MW in 2008 and 2009, and will acquire 27 MW per year between 2010 and 2013, and expects to acquire between 26 and 28 MW per year starting
in 2014 and thereafter. The contract, which establishes a price mechanism for the energy acquired, based on the price of energy future contracts quoted
on the European Energy Exchange, does not require initial investments and is expected to be performed at a future date. Based on its terms, this contract
qualified as a financial instrument under MFRS. However, as the contract is for CEMEX’s own use and CEMEX sells any energy surplus as soon as actual
energy requirements are known, regardless of changes in prices and thereby avoiding any intention of trading in energy, such contract is not recognized
at its fair value.
In April 2008, Citibank entered into put option transactions on CEMEX’s CPOs with a Mexican trust that CEMEX established on behalf of its Mexican
pension fund and certain of CEMEX’s directors and current and former employees (“the participating individuals”). The transaction was structured with two
main components. Under the first component, the trust sold, for the benefit of CEMEX’s Mexican pension fund, put options to Citibank in exchange for a
premium of approximately US$38. The premium was deposited into the trust and was used to purchase, on a prepaid forward basis, securities that track
the performance of the Mexican Stock Exchange. Under the second component, the trust sold, on behalf of the participating individuals, additional put
options to Citibank in exchange for a premium of approximately US$38, which was used to purchase prepaid forward CPOs. These prepaid forward CPOs,
together with additional CPOs representing an equal amount in U.S. dollars, were deposited into the trust by the participating individuals as security for
their obligations, and represent the maximum exposure of the participating individuals under this transaction. The put options gave Citibank the right to
require the trust to purchase, in April 2013, approximately 112 million CPOs at a price of US$3.2086 per CPO (120% of initial CPO price in dollars). If the
value of the assets held in the trust (28.6 million CPOs and the securities that track the performance of the Mexican Stock Exchange) were insufficient to
cover the obligations of the trust, a guarantee would be triggered and CEMEX, S.A.B. de C.V. would be required to purchase in April 2013 the total CPOs at
a price per CPO equal to the difference between U.S$3.2086 and the market value of the assets of the trust. The purchase price per CPO in dollars and the
corresponding number of CPOs under this transaction are subject to dividend adjustments. CEMEX recognizes a liability for the fair value of the guarantee
and changes in valuation are recorded in the income statement (note 13C).
In connection with CEMEX’s alliance with Ready Mix USA (note 10A), after the third year of the alliance starting on June 30, 2008, and each year for an
approximate 22-year period, Ready Mix USA will have the right but not the obligation, to sell to CEMEX its interest in both entities at a predetermined
price, based on the greater of: a) eight times the operating cash flow of the trailing twelve months, b) eight times the average of the companies’ operating
cash flow for the previous three years, or c) the net book value. As of December 31, 2009 and 2008, CEMEX has not recognized a liability as the fair value
of the assets would exceed the cost of the option if the option were exercised.