Cemex 2012 Annual Report Download - page 116

Notes to the
consolidated
financial
statements
116
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• In August 2005, a lawsuit was filed against a subsidiary of CEMEX Colombia and other members of the Asociación Colombiana
de Productores de Concreto, or ASOCRETO, a union formed by all the ready-mix concrete producers in Colombia. The lawsuit
claimed that CEMEX Colombia and other ASOCRETO members were liable for the premature distress of the roads built
for the mass public transportation system in Bogotá using ready-mix concrete supplied by CEMEX Colombia and other
ASOCRETO members. The plaintiffs alleged that the base material supplied for the road construction failed to meet the
quality standards offered by CEMEX Colombia and the other ASOCRETO members and/or that they provided insucient
or inaccurate information in connection with the product. The plaintiffs sought the repair of the roads and estimated that
the cost of such repair would be approximately 100 billion Colombian pesos (US$57 or $732). In January 2008, CEMEX
Colombia was subject to a court order, sequestering a quarry called El Tunjuelo, as security for a possible future money
judgment to be rendered against CEMEX Colombia in these proceedings. The court determined that in order to lift this
attachment and prevent further attachments, CEMEX Colombia would be required to deposit with the court 337.8 billion
Colombian pesos (US$191 or $2,454) in cash. CEMEX appealed this decision and also requested that the guarantee be
covered by all defendants in the case. In March 2009, the Superior Court of Bogotá allowed CEMEX to offer security in the
amount of 20 billion Colombian pesos (US$11 or $141). CEMEX deposited the security and, in July 2009, the attachment
was lifted. The preliminary hearing to dismiss was unsuccessful and the final argument stage concluded on August 28, 2012.
On October 10, 2012, the court nullified the accusation made against two ASOCRETO ocials, but the judgment convicted
the former director of the Urban Development Institute, and legal representatives of the builder and the auditor to a prison
term of 85 months and a fine of 32 million Colombian Pesos ($18 thousand dollars). As a consequence of the annulment
the judge ordered a restart of the proceedings against the ASOCRETO ocers. The ruling can be appealed, but the practical
effect of this decision is that the criminal action against ASOCRETO ocers will prescribe and therefore there will be no
condemnation against CEMEX. As of December 31, 2012, CEMEX Colombia has not recorded any provision as it feels it has
sucient arguments to overcome this action, but if adversely resolved it could have a negative effect on CEMEX’s liquidity
and financial position.
As of December 31, 2012, CEMEX is involved in various legal proceedings of minor impact that have arisen in the ordinary course
of business. These proceedings involve: 1) product warranty claims; 2) claims for environmental damages; 3) indemnification
claims relating to acquisitions; 4) claims to revoke permits and/or concessions; and 5) other diverse civil actions. CEMEX considers
that in those instances in which obligations have been incurred, CEMEX has accrued adequate provisions to cover the related
risks. CEMEX believes these matters will be resolved without any significant effect on its business, financial position or results of
operations. In addition, in relation to certain ongoing legal proceedings, CEMEX is sometimes able to make and disclose reasonable
estimates of the expected loss or range of possible loss, as well as disclose any provision accrued for such loss, but for a limited
number of ongoing legal proceedings, CEMEX may not be able to make a reasonable estimate of the expected loss or range of
possible loss or may be able to do so but believes that disclosure of such information on a case-by-case basis would seriously
prejudice CEMEX’s position in the ongoing legal proceedings or in any related settlement discussions. Accordingly, in these cases,
CEMEX has disclosed qualitative information with respect to the nature and characteristics of the contingency, but has not
disclosed the estimate of the range of potential loss.
25) Related parties
All significant balances and transactions between the entities that constitute the CEMEX group have been eliminated in the
preparation of the consolidated financial statements. These balances with related parties resulted primarily from: (i) the sale and
purchase of goods between group entities; (ii) the sale and/or acquisition of subsidiaries’ shares within the CEMEX group; (iii)
the invoicing of administrative services, rentals, trademarks and commercial name rights, royalties and other services rendered
between group entities; and (iv) loans between related parties. Transactions between group entities were conducted on arm’s
length terms based on market prices and conditions.
The definition of related parties includes entities or individuals outside the CEMEX group, which, pursuant to their relationship
with CEMEX, may take advantage of being in a privileged situation. Likewise, this applies to cases in which CEMEX may take
advantage of such relationships and obtain benefits in its financial position or operating results.
CEMEX’s transactions with related parties are executed under market conditions. CEMEX has identified the following transactions
between related parties:
• Mr. Bernardo Quintana Isaac, a member of the board of directors of CEMEX, S.A.B. de C.V., is the current chairman of the
board of directors of Empresas ICA, S.A.B. de C.V. (“Empresas ICA”). Empresas ICA is one of the most important engineering
and construction companies in Mexico. In the ordinary course of business, CEMEX extends financing to Empresas ICA in
connection with the purchase of CEMEX’s products, on the same credit conditions that CEMEX awards to other customers.