UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission file number __1-14946_____________________________________
CEMEX, S.A. de C.V.
_______________________________________________________________________________
(Exact name of the registrant as specified in its charter)
CEMEX MEXICO, S.A. de C.V.
EMPRESAS TOLTECA DE MEXICO, S.A. de C.V.
_______________________________________________________________________________
(Exact names of co-registrants and guarantors as specified in their
respective charters)
CEMEX CORPORATION
_______________________________________________________________________________
(Translation of registrant's name into English)
CEMEX MEXICO CORPORATION
EMPRESAS TOLTECA DE MEXICO CORPORATION
_______________________________________________________________________________
(Translation of co-registrants' and guarantors' names into English)
United Mexican States
_______________________________________________________________________________
(Jurisdiction of incorporation or organization)
Av. Constitucion 444 Pte. Monterrey, Nuevo Leon, Mexico 64000
_______________________________________________________________________________
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
___________________________ ________________________________________________
American Depositary Shares ("ADSs"), each ADS
representing five Ordinary Participation
Certificates (Certificados de Participacion
Ordinarios) ("CPOs"),
Each CPO representing two Series A shares and
one Series B share. New York Stock Exchange
_______________________________________________________________________________
American Depositary Warrants ("ADWs"), each ADW
representing five Appreciation Warrants
(Titulos Opcionales) ("Appreciation Warrants") New York Stock Exchange
_______________________________________________________________________________
Securities registered or to be registered pursuant to Section 12(g)
of the Act.
Not applicable
________________________________________________________________________________
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.
Title of each class Name of each exchange on
which registered
_______________________________________________________________________________
9.625% Notes due 2009 guaranteed by
CEMEX Mexico, S.A. de C.V. and Empresas
Tolteca de Mexico, S.A. de C.V. Not applicable
_______________________________________________________________________________
Guarantees of the 9.625% Notes due 2009
by CEMEX Mexico, S.A. de C.V. and Empresas
Tolteca de Mexico, S.A. de C.V. Not applicable
_______________________________________________________________________________
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by
the annual report.
1,579,765,572 CPOs
3,331,300,154 Series A shares (including Series A shares
underlying CPOs)
1,665,650,077 Series B shares (including Series B
shares underlying CPOs)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes |X| No____
Indicate by check mark which financial statement item the registrant
has elected to follow.
Item 17 Item 18 |X|
TABLE OF CONTENTS
Page
PART I
Item 1 - Identity of Directors, Senior Management and Advisors...........2
Item 2 - Offer Statistics and Expected Timetable.........................2
Item 3 - Key Information.................................................2
Risk Factors.............................................................2
Cautionary Statement Regarding Forward Looking Statements................7
Mexican Peso Exchange Rates..............................................8
Selected Consolidated Financial Information..............................9
Item 4 - Information on the Company.....................................13
Business Overview.......................................................13
Our Business Strategy...................................................17
Our Corporate Structure.................................................20
North America...........................................................21
Europe, Asia and Africa.................................................28
South America, Central America and the Caribbean........................37
Our Trading Operations..................................................46
Regulatory Matters and Legal Proceedings................................47
Item 5 - Operating and Financial Review and Prospects...................53
Critical Accounting Policies............................................54
Consolidation of Our Results of Operations..............................56
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001...58
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000...65
Liquidity and Capital Resources.........................................70
Qualitative and Quantitative Market Disclosure..........................77
Investments, Acquisitions and Divestitures..............................82
The Euro Conversion.....................................................84
U.S. GAAP Reconciliation................................................84
Newly issued accounting pronouncements under U.S. GAAP..................84
Item 6 - Directors, Senior Management and Employees.....................87
Senior Management and Directors.........................................87
Board Practices.........................................................92
Compensation of Our Directors and Members of Our Senior Management......93
Employees...............................................................96
Share Ownership.........................................................97
Item 7 - Major Shareholders and Related Party Transactions..............98
Major Shareholders......................................................98
Related Party Transactions..............................................99
Item 8 - Financial Information.........................................100
Consolidated Financial Statements and Other Financial Information......100
Legal Proceedings......................................................100
CEMEX Dividends........................................................100
Significant Changes....................................................101
Item 9 - Offer and Listing.............................................102
Market Price Information...............................................102
i
Item 10 - Additional Information........................................103
Articles of Association and By-Laws....................................103
Material Contracts.....................................................109
Exchange Controls......................................................112
Taxation...............................................................113
Documents on Display...................................................117
Item 11 - Quantitative and Qualitative Disclosures About Market Risk....118
Item 12 - Description of Securities Other than Equity Securities........118
PART II
Item 13 - Defaults, Dividend Arrearages and Delinquencies...............119
Item 14 - Material Modifications to the Rights of Security
Holders and Use of Proceeds...................................119
Item 15 - Controls and Procedures.......................................119
Item 16 - [Reserved]....................................................119
PART III
Item 17 - Financial Statements..........................................120
Item 18 - Financial Statements..........................................120
Item 19 - Exhibits......................................................120
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES ................F-1
SCHEDULE I - Parent Company Only Financial Statements....................S-2
SCHEDULE II - Valuation and Qualifying Accounts..........................S-10
ii
INTRODUCTION
CEMEX, S.A. de C.V. is incorporated as a stock corporation with
variable capital organized under the laws of the United Mexican States. As
used in this annual report and except as the context otherwise may require,
"CEMEX" refers to CEMEX, S.A. de C.V., its consolidated subsidiaries and,
except for accounting purposes, its non-consolidated affiliates. For
accounting purposes, "CEMEX" refers solely to CEMEX, S.A. de C.V. and its
consolidated subsidiaries. See note 1 to our consolidated financial statements
included elsewhere in this annual report.
PRESENTATION OF FINANCIAL INFORMATION
Our consolidated financial statements included elsewhere in this
annual report have been prepared in accordance with Generally Accepted
Accounting Principles in Mexico ("Mexican GAAP"), which differ in significant
respects from U.S. GAAP. We are required, pursuant to Mexican GAAP, to present
our financial statements in constant Pesos representing the same purchasing
power for each period presented. Accordingly, all financial data presented
below and, unless otherwise indicated, elsewhere in this annual report are
stated in constant Pesos as of December 31, 2002. See note 23 to our
consolidated financial statements included elsewhere in this annual report for
a description of the principal differences between Mexican GAAP and U.S. GAAP
as they relate to us. Non-Peso amounts included in those statements are first
translated into Dollar amounts, in each case at a commercially available or an
official government exchange rate for the relevant period or date, as
applicable. Those Dollar amounts are then translated into Peso amounts at the
CEMEX accounting rate, described under Item 3 -- "Key Information -- Mexican
Peso Exchange Rates" as of the relevant period or date, as applicable.
References in this annual report to "U.S.$" and "Dollars" are to U.S.
Dollars, references to "(euro)" are to Euros and, unless otherwise indicated,
references to "Ps," "Mexican Pesos" and "Pesos" are to constant Mexican Pesos
as of December 31, 2002. The Dollar amounts provided in the financial
statements included in this annual report and, unless otherwise indicated,
elsewhere in this annual report are translations of constant Peso amounts, at
an exchange rate of Ps10.38 to U.S.$1.00, the CEMEX accounting rate as of
December 31, 2002. However, in the case of transactions conducted in Dollars,
we have presented the Dollar amount of the transaction and the corresponding
Peso amount that is presented in our consolidated financial statements. These
translations have been prepared solely for the convenience of the reader and
should not be construed as representations that the Peso amounts actually
represent those Dollar amounts or could be converted into Dollars at the rate
indicated. See Item 3 -- "Key Information -- Selected Consolidated Financial
Information."
The noon buying rate for Pesos on December 31, 2002 was Ps10.425 to
U.S.$1.00 and on March 31, 2003 was Ps10.782 to U.S.$1.00.
EXPLANATORY NOTE
Our co-registrants are wholly-owned subsidiaries that have provided a
corporate guarantee guaranteeing payment of our 9.625% Notes due 2009. These
subsidiaries, which we refer to as our guarantors, are CEMEX Mexico, S.A. de
C.V., or CEMEX Mexico, and Empresas Tolteca de Mexico, S.A. de C.V., or
Empresas Tolteca de Mexico. The guarantors, together with their subsidiaries,
account for substantially all of our revenues and operating income. See Item 4
- -- "Information on the Company -- North America -- Our Mexican Operations."
Pursuant to Rule 12h-5 under the Securities Exchange Act of 1934, or the
Exchange Act, no separate financial statements or other disclosures concerning
the guarantors other than the narrative disclosures and financial information
set forth in note 23(x) to our consolidated financial statements have been
presented in this annual report.
PART I
Item 1 - Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2 - Offer Statistics and Expected Timetable
Not applicable.
Item 3 - Key Information
Risk Factors
Many factors could have an effect on our financial condition, cash
flows and results of operations. We are subject to various risks resulting
from changing economic, environmental, political, industry, business and
financial conditions. The principal factors are described below.
Our ability to pay dividends and repay debt depends on our subsidiaries'
ability to transfer income and dividends to us.
We are a holding company with no significant assets other than the
stock of our wholly-owned and non-wholly-owned subsidiaries and our holdings
of cash and marketable securities. Our ability to pay dividends and repay debt
depends on the continued transfer to us of dividends and other income from our
wholly-owned and non-wholly-owned subsidiaries. The ability of our
subsidiaries to pay dividends and make other transfers to us is limited by
various regulatory, contractual and legal constraints that affect our
subsidiaries.
We have incurred and will continue to incur debt, which debt could have an
adverse effect on the price of our CPOs, ADSs, Appreciation Warrants and ADWs,
result in us incurring increased interest costs and limit our ability to
distribute dividends, finance acquisitions and expansions and maintain
flexibility in managing our business activities.
We have incurred and will continue to incur significant amounts of
debt, which could have an adverse effect on the price of our Ordinary
Participation Certificates, or CPOs, and American Depositary Shares, or ADSs.
Since the values of our Appreciation Warrants and American Depositary
Warrants, or ADWs, are linked to the price of our CPOs and ADSs, their prices
could also be adversely affected by our debt levels. Our indebtedness may have
important consequences, including increased interest costs if we are unable to
refinance existing indebtedness on satisfactory terms. In addition, the debt
instruments governing a substantial portion of our indebtedness contain
various covenants that require us to maintain financial ratios, restrict asset
sales and restrict our ability to use the proceeds from a sale of assets.
Consequently, our ability to distribute dividends, finance acquisitions and
expansions and maintain flexibility in managing our business activities could
be limited. As of December 31, 2002, we had outstanding debt equal to Ps59.9
billion (U.S.$5.77 billion), not including obligations under preferred stock
transactions and under equity derivative transactions in our own stock and in
stock of our subsidiaries.
We have to service our Dollar and Yen denominated debt with revenues generated
in Pesos or other currencies, as we do not generate sufficient revenue in
Dollars and Yen from our operations to service all our Dollar and Yen
denominated debt. This could adversely affect our ability to service our debt
in the event of a devaluation or depreciation in the value of the Peso, or any
of the other currencies of the countries in which we operate.
A substantial portion of our outstanding debt is denominated in
Dollars and Yen. This debt, however, must be serviced by funds generated from
sales by our subsidiaries. Currently, we do not generate sufficient revenue in
Dollars and Yen from our operations to service all our Dollar and Yen
denominated debt. Consequently, we have to use revenues generated in Pesos or
other currencies to service our Dollar and Yen denominated debt. See Item 5
"Operating and Financial Review and Prospects--Qualitative and Quantitative
Market Disclosure -- Interest Rate
2
Risk, Foreign Currency Risk and Equity Risk -- Foreign Currency Risk." A
devaluation or depreciation in the value of the Peso, or any of the other
currencies of the countries in which we operate, compared to the Dollar or the
Yen could adversely affect our ability to service our debt. During 2002,
Mexico and Spain, our main non-U.S. Dollar denominated operations, generated
almost half of our sales (approximately 34% and 14%, respectively), before
eliminations resulting from consolidation. In 2002, approximately 24% of our
sales were generated in the United States with the remaining 28% of our sales
being generated in several countries, with a number of currencies also having
material depreciations against the Dollar and the Yen. During 2002, the Peso
depreciated 13.2% against the Dollar and depreciated 20.2% against the Yen,
while the Euro appreciated 16.1% against the Dollar and appreciated 7.6%
against the Yen.
We may not be able to continue our growth if our acquisition strategy is not
successful.
A key element of our growth strategy is to integrate our recently
acquired operations with existing operations. Our ability to realize the
expected benefits from future acquisitions depends, in large part, on our
ability to integrate the new operations with existing operations in a timely
and effective manner. We cannot assure you that these efforts will be
successful with respect to future acquisitions by us. Furthermore, our
strategy depends on our ability to identify and acquire suitable assets at
desirable prices. We cannot assure you that we will be successful in
identifying or purchasing suitable assets in the future. If we fail to make
further acquisitions, we may not be able to continue to grow in the long term
at our historic rate.
We are subject to restrictions due to minority interests in our consolidated
subsidiaries.
We conduct our business through subsidiaries. In some cases,
third-party shareholders hold minority interests in these subsidiaries.
Various disadvantages may result from the participation of minority
shareholders whose interests may not always coincide with ours. Some of these
disadvantages may, among other things, result in our inability to implement
organizational efficiencies and transfer cash and assets from one subsidiary
to another in order to allocate assets most effectively.
Our derivative instruments and other financing arrangements may have adverse
effects on the market for our securities and some of our subsidiaries'
securities, and may adversely affect our ability to achieve operating
efficiencies as a combined group.
In recent years, we have entered into several derivative instruments
and engaged in other financing transactions involving shares of our capital
stock and shares of capital stock of some of our subsidiaries under equity
forward contracts as a source of financing and as a means of meeting our
obligations that may require us to deliver significant numbers of shares of
our own stock.
We have equity forward agreements in our own stock, which estimated
fair value is linked to the market price of our CPOs or ADSs. As of December
31, 2002, the notional amount of our outstanding obligations under our equity
forward contracts was approximately U.S.$1.4 billion, with an estimated fair
value loss of U.S.$90.6 million. In addition to the estimated fair value loss
of our equity forward agreements, a portion of which corresponds to the
contracts designated as hedges of our stock option programs which are
periodically recorded in our income statements, during 2002 we had losses
amounting to approximately U.S.$98.3 million (Ps1,020.3 million) resulting
from the net settlement of prior forward contracts replaced by the new forward
transactions entered to cover our obligations under the Appreciation Warrants.
See note 16A to our consolidated financial statements included elsewhere in
this annual report. The decline in the estimated fair value of our equity
forward contracts is due to a decrease in the market price of our equity
securities. Pursuant to the terms of our equity forward contracts, if the
shares underlying our equity forward agreements suffer a substantial decrease
in market value, we could be required to compensate for the decrease in market
value. If we default in this obligation, the counterparties to our equity
forward agreements have the option of either selling the underlying shares
into the market or requiring us to repurchase the underlying shares.
As of December 31, 2002, U.S.$650 million was outstanding under a
preferred equity financing arrangement, which is payable in two tranches in
February 2004 and August 2004. Under the terms of the preferred equity
financing arrangement, our subsidiary New Sunward Holding B.V. may be
liquidated if we do not repurchase
3
the preferred equity, or if we do not make payments on the preferred equity
and in other adverse circumstances. Any such liquidation would include the
sale of its assets (mainly the CEMEX Espana shares it holds) at market prices
in an amount sufficient to satisfy the liquidation preference of the preferred
equity.
As stated above, if we default on the terms of our equity forward or
preferred equity agreements, our counterparties may sell the shares underlying
these agreements, which may:
o dilute shareholders' interests in our equity securities;
o have an adverse effect on the market for our equity
securities;
o have an adverse effect on the market for the equity
securities of some of our subsidiaries;
o reduce the amount of dividends and other distributions that
we receive from our subsidiaries;
o create public minority interests in some of our subsidiaries
that may adversely affect our ability to realize operating
efficiencies as a combined group; and
o have an adverse effect on other financing agreements.
Any of these factors could adversely affect the price of our CPOs and ADSs and
our other securities, such as our Appreciation Warrants and ADWs, whose prices
are dependent on the prices of our CPOs and ADSs.
We are subject to several anti-dumping rulings that may limit our ability to
export cement to the United States.
Our Mexican operations are subject to anti-dumping rulings by the
U.S. Commerce Department which may limit our ability to export cement to the
United States. Since April 1990, our exports of gray Portland cement and
clinker to the United States from Mexico, which represented 4.5% of total
sales volume of our Mexican operations in 2002, have been subject to U.S.
anti-dumping duties. In addition, importers of gray Portland cement and
clinker from Mexico, including our U.S. operations, have been required to pay
substantial cash deposits to the U.S. Customs Service to secure the eventual
payment of those duties.
We are disputing some tax claims an adverse resolution of which may result in
a significant additional tax expense.
We have received notices from the Mexican tax authorities of tax
claims in respect of the tax years from 1992 through 1996 for an aggregate
amount of approximately Ps5.2 billion, including interest and penalties
through December 31, 2002. An adverse resolution of these claims could
materially reduce our net income. See Item 4 -- "Information on the Company --
Regulatory Matters and Legal Proceedings -- Tax Matters."
Our operations are subject to environmental laws and regulations.
Our operations are subject to laws and regulations relating to the
protection of the environment in the various jurisdictions in which we
operate, such as regulations regarding the release of cement dust into the
air. Stricter laws and regulations, or stricter interpretation of existing
laws or regulations, may impose new liabilities on us or result in the need
for additional investments in pollution control equipment, either of which
could result in a material decline in our profitability in the short term.
4
We are an international company and are exposed to risks in the countries in
which we have significant operations or interests.
We are dependent, in large part, on the economies of the countries in
which we market our products. The economies of these countries are in
different stages of socioeconomic development. Consequently, like many other
companies with significant international operations, we are exposed to risks
from changes in foreign currency exchange rates, interest rates, inflation,
governmental spending, social instability and other political, economic or
social developments that may materially reduce our net income.
In 2002, the largest percentage of our net sales (34%) and total
assets (24%), at year-end, were in Mexico. If the Mexican economy experiences
a continued recession or if Mexican inflation and interest rates increase
significantly, our net income from our Mexican operations may decline
materially because construction activity may decrease, which may lead to a
decrease in sales of cement and ready-mix concrete. The Mexican government
does not currently restrict the ability of Mexicans or others to convert Pesos
to Dollars, or vice versa. The Mexican Central Bank has consistently made
foreign currency available to Mexican private sector entities, such as CEMEX,
to meet their foreign currency obligations. Nevertheless, if renewed shortages
of foreign currency occur, the Mexican Central Bank may not continue its
practice of making foreign currency available to private sector companies, and
we may not be able to purchase the foreign currency we need to service our
foreign currency obligations without substantial additional cost.
We also have operations in the United States (24% of net sales and
19% of total assets in 2002), Spain (14% of net sales and 9% of total assets),
Venezuela (4% of net sales and 3% of total assets), Central America and the
Caribbean (7% of net sales and 5% of total assets), Colombia (3% of net sales
and 3% of total assets), the Philippines (2% of net sales and 4% of total
assets), other Asian countries, including Thailand (2% of total assets), and
Egypt (2% of net sales and 2% of total assets). As in the case of Mexico,
adverse economic conditions in any of these countries may produce a negative
impact on our net income from our operations in that country.
In recent years, Venezuela has experienced considerable volatility
and depreciation of its currency, high interest rates, political instability
and declining asset values. In February 2002 the government abandoned its
policy of locking the Venezuelan Bolivar within an exchange rate band in favor
of a free floating exchange rate system, resulting in an immediate 35%
depreciation of the Venezuelan Bolivar. The April 2002 coup, which ousted
President Chavez for two days, marked the climax of the political instability
that continued throughout the remainder of 2002. In addition, an on-going
nation-wide general strike that began in early December 2002 has caused a
significant reduction in oil production in Venezuela, and has had a material
adverse effect on Venezuela's oil-dependent economy. In 2002, inflation in
Venezuela reached 31.2%, the Venezuelan Bolivar depreciated 85.1% against the
Dollar and Venezuela's gross domestic product (GDP) decreased 8.9%. More
recently, in response to the general strike and in an effort to shore up the
economy and control inflation, in February 2003, Venezuelan authorities
imposed foreign exchange and price controls on specified products, including
cement. Further economic stagnation in the private sector is expected to
result as a consequence of these market distortions. These developments have
had and may continue to have an adverse effect on the construction sector in
Venezuela, as a result of reduced demand for cement and ready-mix concrete,
which has adversely affected our sales and net income.
We believe that Asia represents an important market for our future
growth. However, since mid-1997, many countries in Asia in which we have made
significant investments have experienced considerable volatility and
depreciation of their currencies, high interest rates, banking sector crises,
stock market volatility, political instability and declining asset values.
These developments have had and may continue to have an adverse effect on the
Asian construction sector, as a result of reduced demand for cement and
ready-mix concrete, which has adversely affected our sales and net income.
We believe that Egypt also represents an important market for our
future growth. Rising instability in the Middle East, however, has resulted
from, among other things, civil unrest, extremism, the continued deterioration
of Israeli-Palestinian relations and the current war in Iraq. There can be no
assurance that political turbulence in the Middle East will abate at any time
in the near future or that neighboring countries, including Egypt, will not be
drawn into the conflict. In Egypt, extremists have engaged in a sometimes
violent campaign against the government
5
in recent years. There can be no assurance that extremists will not escalate
their opposition in Egypt or that the government will continue to be
successful in maintaining the prevailing levels of domestic order and
stability. Since 2000, the Egyptian government devalued the pound four times,
and in January 2003, it decided to let the pound trade as a freely floating
currency. Since then, the Egyptian pound has depreciated against the Dollar by
approximately 25.3% through March 31, 2003. Future depreciation of the
Egyptian pound relative to other currencies could create additional
inflationary pressures in Egypt by generally increasing the price of imported
products and requiring recessionary government policies to curb aggregate
demand. On the other hand, appreciation of the Egyptian pound against other
currencies may dampen export-driven growth. The potential impact of the
floating exchange rate system and of measures by the Egyptian government aimed
at improving Egypt's investment climate is uncertain. The Egyptian Central
Bank continues to monitor the exchange rate and reserves the right to
intervene without notice. Weakened investor confidence as a result of currency
instability as well as any of the other foregoing circumstances could have a
material adverse effect on the political and economic stability of Egypt and
consequently on our Egyptian operations.
The September 11, 2001 terrorist attacks on the World Trade Center
and the Pentagon temporarily disrupted the trading markets in the United
States and caused declines in major stock markets around the world. Since
those attacks, there have been terrorist attacks in Indonesia and ongoing
threats of future terrorist attacks in the United States and abroad. In
response to these terrorist attacks and threats, the United States has
instituted several anti-terrorism measures, most notably, the formation of the
Office of Homeland Security, a formal declaration of War Against Terrorism and
the current war in Iraq. Although it is not possible at this time to determine
the long-term effect of these terrorist threats and attacks and the consequent
response by the United States, including the war in Iraq, there can be no
assurance that there will not be other attacks or threats in the United States
or abroad that will lead to a further economic contraction in the United
States or any other of our major markets. In the short-term, however,
terrorist activity against the United States and the consequent response by
the United States has contributed to the uncertainty of the stability of the
United States economy as well as global capital markets. The current weakness
of the United States economy has had, and may continue to have, an adverse
effect on the private construction sector. In addition, the projected United
States budget deficits may have an adverse effect on the public construction
sector. Further economic contraction in the United States or any of our major
markets could affect domestic demand for cement and have a material adverse
effect on our operations.
On November 1, 2001, the provincial administration of the Indonesian
province of West Sumatra, in which Gresik's Padang plant is located, announced
that it had directed the management of Semen Padang, the wholly-owned
subsidiary of Gresik that owns and operates the Padang plant, to report to the
provincial authorities and that it intended to spin off the Padang subsidiary.
We believe the provincial administration lacked legal authority to direct the
affairs of Semen Padang, and we intend to defend our interests in Gresik and
its subsidiaries, including Semen Padang. We cannot predict, however, what
effect, if any, this action will have on our investment in Gresik.
Since the attempt of the West Sumatra provincial administration in
November 2001 to "take over" the management of Semen Padang, several interest
groups opposed to any further sale of the Indonesian government's stock
ownership in PT Semen Gresik to us have threatened strikes and other actions
that would affect our Indonesian operations. We have discussed our concerns
with the Indonesian government, which has demonstrated its willingness to
carry out needed changes in management as a first step to re-attain normality
in the Padang plant's operations. At an extraordinary general meeting of
shareholders held in February 2002, the Indonesian government replaced three
government-appointed commissioners and the President-Director of PT Semen
Gresik. These replacements were implemented with our approval. Gresik, as the
controlling shareholder of Semen Padang, has taken steps to convene a general
meeting of shareholders to replace the management of Semen Padang. The
management of Semen Padang has refused to convene such a meeting, and such
refusal was upheld by the District Court in Padang in September 2002. In its
ruling the District Court held that Gresik had not demonstrated that its
application to convene the shareholders' meeting had received the necessary
internal corporate approvals and that Gresik's reasons for changing management
were improper. Gresik filed a request for cassation with the Indonesian
Supreme Court on the grounds that, among other things, the District Court made
an error of law in evaluating Gresik's reasons for the proposed corporate
action, and committed a procedural error in concluding that Gresik had not
obtained the requisite internal corporate approvals to convene the meeting.
6
Cautionary Statement Regarding Forward Looking Statements
Some of the information in this annual report may constitute
forward-looking statements, which are subject to various risks and
uncertainties. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue," "plan" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. When considering such
forward-looking statements, holders of our securities should keep in mind the
factors described in "Risk Factors" and other cautionary statements appearing
in Item 5 -- "Operating and Financial Review and Prospects" and elsewhere in
this annual report. These risk factors and statements describe circumstances
that could cause actual results to differ materially from those contained in
any forward-looking statement.
This annual report also includes statistical data regarding the
production, distribution, marketing and sale of cement, ready-mix concrete and
clinker. We generated some of these data internally, and some were obtained
from independent industry publications and reports that we believe to be
reliable sources. We have not independently verified these data nor sought the
consent of any organizations to refer to their reports in this annual report.
7
Mexican Peso Exchange Rates
Mexico has had no exchange control system in place since the dual
exchange control system was abolished on November 11, 1991.
The Mexican Peso has floated freely in foreign exchange markets since
December 1994, when the Mexican Central Bank abandoned its prior policy of
having an official devaluation band. Since then, the Peso has been subject to
substantial fluctuations in value. The Peso depreciated against the Dollar by
22.7% in 1998, appreciated against the Dollar by 3.9% in 1999, depreciated
against the Dollar by 1.16% in 2000, appreciated against the Dollar by 4.68%
in 2001 and depreciated against the Dollar by 13% in 2002. These percentages
are based on the exchange rate that we use for accounting purposes, or the
CEMEX accounting rate. The CEMEX accounting rate represents the average of
three different exchange rates that are provided to us by Banco Nacional de
Mexico, S.A., Grupo Financiero, or Banamex. For any given date, the CEMEX
accounting rate may differ from the noon buying rate for Pesos in New York
City published by the U.S. Federal Reserve Bank of New York. We cannot predict
the value of the Peso or assure you that the Mexican government will not
establish new exchange controls in the future.
The following table sets forth, for the periods and dates indicated,
the end-of-period, average and high and low points of the CEMEX accounting
rate as well as the noon buying rate for Pesos, expressed in Pesos per
U.S.$1.00.
CEMEX Accounting Rate Noon Buying Rate
------------------------------------------- ----------------------------------------
Year ended December 31, End of End of
Period Average(1) High Low Period Average(1) High Low
--------- ------------- ---------- -------- --------- ------------ --------- -------
1998......................... 9.900 9.180 10.653 8.073 9.901 9.245 10.630 8.040
1999......................... 9.510 9.547 10.607 9.263 9.480 9.562 10.600 9.240
2000......................... 9.620 9.461 10.098 9.189 9.618 9.459 10.087 9.183
2001......................... 9.170 9.332 9.988 8.954 9.156 9.337 9.972 8.946
2002......................... 10.380 9.755 10.350 9.016 10.425 9.664 10.425 9.000
January 1, 2003 - March 31, 2003
January.................. 10.920 10.615 10.900 10.321 10.900 10.622 10.98 10.32
February................. 11.020 10.937 11.061 10.776 11.030 10.945 11.060 10.770
March.................... 10.780 10.904 11.224 10.668 10.782 10.914 11.235 10.661
(1) The average of the CEMEX accounting rate or the noon buying rate for
Pesos, as applicable, on the last day of each full month during the
relevant period.
The noon buying rate for Pesos on March 31, 2003 was Ps10.782 to
U.S.$1.00.
The Mexican government does not currently restrict the ability of
Mexicans or others to convert Pesos to Dollars, or vice versa. The Mexican
Central Bank has consistently made foreign currency available to Mexican
private sector entities, such as CEMEX, to meet their foreign currency
obligations. Nevertheless, if renewed shortages of foreign currency occur, the
Mexican Central Bank may not continue its practice of making foreign currency
available to private sector companies and we may not be able to purchase the
foreign currency we need to service our foreign currency obligations without
substantial additional cost.
For a discussion of the financial treatment of our operations
conducted in other currencies, See Item 3 -- "Key Information -- Selected
Consolidated Financial Information."
8
Selected Consolidated Financial Information
The financial data set forth below as of and for each of the five
years ended December 31, 2002 have been derived from our audited consolidated
financial statements. The financial data set forth below as of December 31,
2001 and 2002 and for each of the three years ended December 31, 2002, have
been derived from, and should be read in conjunction with, and are qualified
in their entirety by reference to, the consolidated financial statements and
the notes thereto included elsewhere in this annual report. These financial
statements are subject to approval by our shareholders at the 2002 annual
general meeting, scheduled to take place on April 24, 2003.
Our consolidated financial statements included elsewhere in this
annual report have been prepared in accordance with Mexican GAAP, which
differs in significant respects from U.S. GAAP. We are required, pursuant to
Mexican GAAP, to present our financial statements in constant Pesos
representing the same purchasing power for each period presented. Accordingly,
all financial data presented below and, unless otherwise indicated, elsewhere
in this annual report are stated in constant Pesos as of December 31, 2002.
See note 23 to our consolidated financial statements included elsewhere in
this annual report for a description of the principal differences between
Mexican GAAP and U.S. GAAP as they relate to us.
Non-Peso amounts included in the financial statements are first
translated into Dollar amounts, in each case at a commercially available or an
official government exchange rate for the relevant period or date, as
applicable, and those Dollar amounts are then translated into Peso amounts at
the CEMEX accounting rate, described under Item 3 - "Key Information - Mexican
Peso Exchange Rates," as of the relevant period or date, as applicable.
Under Bulletin B-15 of the Mexican Institute of Public Accountants,
each time we report results for the most recently completed period, the Pesos
previously reported in prior periods should be adjusted to Pesos of constant
purchasing power as of the most recent balance sheet by multiplying the
previously reported Pesos by a weighted average inflation index. This index is
calculated based upon the inflation rates of the countries in which we operate
and the changes in the exchange rates of each of these countries, weighted
according to the proportion our assets in each country represent of our total
assets. The following table reflects the factors that have been used to
restate the originally reported Pesos to Pesos of constant purchasing power as
of December 31, 2002:
Cumulative Weighted
Annual Weighted Average Factor to
Average Factor December 31, 2002
---------------------- -------------------------
1998..................... 1.0145 1.1110
1999..................... 1.0134 1.0952
2000..................... 0.9900 1.0807
2001..................... 1.0916 1.0916
- -----------------------------------------------------------------------------
The Dollar amounts provided below and, unless otherwise indicated,
elsewhere in this annual report are translations of constant Peso amounts at
an exchange rate of Ps10.38 to U.S.$1.00, the CEMEX accounting rate as of
December 31, 2002. However, in the case of transactions conducted in Dollars,
we have presented the Dollar amount of the transaction and the corresponding
Peso amount that is presented in our consolidated financial statements. These
translations have been prepared solely for the convenience of the reader and
should not be construed as representations that the Peso amounts actually
represent those Dollar amounts or could be converted into Dollars at the rate
indicated. The noon buying rate for Pesos on December 31, 2002 was Ps10.425 to
U.S.$1.00 and on March 31, 2003 was Ps10.782 to U.S.$1.00. From December 31,
2002 through March 31, 2003, the Peso depreciated by approximately 3.42%
against the Dollar, based on the noon buying rate for Pesos.
9
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
Selected Consolidated Financial Information
As of and for the year ended December 31,
-------------------------------------------------------------------------
1998 1999 2000 2001 2002 2002
--------- ---------- --------- ---------- --------- -----------
(in millions of constant Pesos as of December 31, 2002 and
Dollars, except ratios and share and per share amounts)
Income Statement Information:
Net sales............................... Ps47,308 Ps 50,790 Ps58,436 Ps 69,302 Ps 67,918 U.S.$6,543
Cost of sales(1)........................ 27,354 28,297 32,653 38,981 37,944 3,656
Gross profit............................ 19,955 22,492 25,783 30,321 29,974 2,887
Operating expenses...................... 7,043 7,380 8,588 13,772 16,371 1,577
Operating income........................ 12,911 15,112 17,195 16,549 13,603 1,310
Comprehensive financing income (cost),
net(2)............................. (1,449) (304) (1,807) 2,649 (3,419) (329)
Other income (expense), net............. (1,668) (3,123) (2,436) (4,174) (4,041) (389)
Income before income tax, business
assets tax, employees' statutory
profit sharing and equity in
income of affiliates............... 9,794 11,685 12,952 15,024 6,143 592
Minority interest(3).................... 433 593 811 1,535 385 37
Majority interest net income............ 8,806 10,231 10,389 11,790 5,400 520
Earnings per share(4)(5)................ 2.32 2.71 2.52 2.76 1.20 0.12
Dividends per share(4)(6) (7)........... 0.49 0.56 0.65 0.70 - -
Number of shares outstanding(4)(8)...... 3,774 4,098 4,169 4,379 4,562 4,562
Balance Sheet Information:
Cash and temporary investments.......... 4,460 3,434 3,203 4,288 3,749 361
Net working capital investment(9)....... 6,999 7,350 9,627 9,336 7,260 699
Property, machinery and equipment, net.. 67,336 72,815 93,920 89,493 93,037 8,963
Total assets............................ 114,673 124,810 163,837 162,464 165,400 15,934
Short-term debt......................... 12,124 10,836 30,791 10,286 14,463 1,393
Long-term debt.......................... 34,384 35,141 28,164 43,492 45,401 4,374
Minority interest(3)(10)................ 13,715 13,177 24,927 19,774 12,526 1,207
Stockholders' equity (excluding
minority interest)(11)............. 42,618 54,515 54,591 61,828 59,626 5,744
Book value per share(4)(8).............. 11.29 13.31 13.09 14.12 13.07 1.26
Other Financial Information:
Operating margin........................ 27.3% 29.8% 29.4% 23.9% 20.0% 20.0%
EBITDA(12).............................. 16,275 18,846 21,101 22,579 19,899 1,917
Ratio of EBITDA to interest expense,
capital securities dividends and
preferred equity dividends(13)..... 2.96 3.50 4.00 4.39 5.23 5.23
Investment in property, machinery and
equipment, net..................... 3,574 2,796 4,141 5,113 4,401 424
Depreciation and amortization........... 4,307 4,561 5,084 7,935 7,943 765
Net resources provided by operating
activities(14)..................... 13,346 16,218 18,092 23,626 17,269 1,664
Basic earnings per CPO(4) (5)........... 6.96 8.13 7.56 8.28 3.60 0.36
As of and for the year ended December 31,
-----------------------------------------------------------------
2000 2001 2002 2002
------------- ------------- ------------- --------------
(in millions of constant Pesos as of December 31, 2002 and
Dollars, except per share amounts)
U.S. GAAP(15):
Income Statement Information:
Majority net sales........................... Ps 59,040 Ps 66,459 Ps 67,278 U.S.$ 6,482
Operating income............................. 14,370 10,623 10,874 1,048
Majority net income.......................... 9,169 10,633 5,648 544
Basic earnings per share..................... 2.23 2.50 1.26 0.12
Diluted earnings per share................... 2.19 2.44 1.26 0.12
Balance Sheet Information:
Total assets................................. 174,220 163,322 169,556 16,335
Total long-term debt......................... 30,282 39,361 41,222 3.971
Minority interest............................ 7,135 8,023 5,195 500
Other mezzanine items (16)................... 24,541 17,001 13,091 1,261
Total majority stockholders' equity.......... 46,073 49,135 51,696 4,980
(footnotes on next page)
11
______________
(1) Cost of sales includes depreciation.
(2) Comprehensive financing income (cost), net, includes financial expenses,
financial income, gain (loss) on marketable securities, foreign exchange
result, net and monetary position result. See Item 5 -"Operating and
Financial Review and Prospects."
(3) In connection with an equity swap transaction involving 24.8% of the
shares of our subsidiary, CEMEX Espana, S.A., the balance sheet item
minority interest in 1998 and 1999 includes the value of these shares as
if owned by a third party. In September 2000, we terminated this
transaction and repurchased the shares of CEMEX Espana. See Item 5
-"Operating and Financial Review and Prospects -Derivatives and Other
Hedging Instruments."
(4) On September 15, 1999, we effected a stock split. For every one of our
shares of any series we issued two Series A shares and one Series B
share. All share and per share amounts have been adjusted to give
retroactive effect to this stock split. Concurrently with the stock
split, we also consummated an exchange offer to exchange ADSs and CPOs
for our then existing A shares, B shares and ADSs and converted our then
existing CPOs into CPOs. As of December 31, 2002, approximately 94.84% of
our outstanding share capital was represented by CPOs.
(5) Earnings per share are calculated based upon the weighted average number
of shares outstanding during the year, as described in note 20 to the
consolidated financial statements included elsewhere in this annual
report. Basic earnings per CPO is determined by multiplying each year's
basic earnings per share by three (the number of shares underlying each
CPO). Basic earnings per CPO is presented solely for the convenience of
the reader and does not represent a measure under Mexican GAAP.
(6) Dividends declared at each year's annual shareholders' meeting are
reflected as dividends of the preceding year. (7) In recent years, our
board of directors has proposed, and our shareholders have approved,
dividend proposals, whereby our
shareholders have had a choice between stock dividends or cash dividends
declared in respect of the prior year's results, with the stock issuable
to shareholders who elect the stock dividend over the cash dividend being
issued at a 20% discount from then current market prices. The dividends
declared per share or per CPO in these years, expressed in constant Pesos
as of December 31, 2002, were as follows: 1999, Ps.49 per share (or
Ps1.47 per CPO); 2000, Ps1.66 per CPO (or Ps.56 per share); 2001 Ps1.96
per CPO (or Ps.65 per share); and 2002 Ps2.09 per CPO (or Ps.70 per
share). As a result of dividend elections made by shareholders, in 1999,
Ps288 million in cash was paid and 142 million additional shares were
issued in respect of dividends declared for the 1998 fiscal year; in
2000, Ps282 million in cash was paid and 59 million additional CPOs were
issued in respect of dividends declared for the 1999 fiscal year; in
2001, Ps84 million is cash was paid and 70 million additional CPOs were
issued in respect of dividends declared for the 2000 fiscal year; and in
2002, Ps233 million in cash was paid and 64.4 million additional CPOs
were issued in respect of dividends declared for 2001. For purposes of
the table, dividends declared at each year's annual shareholders' meeting
for each period are reflected as dividends for the preceding year. Our
2002 annual shareholders' meeting is scheduled to take place on April 24,
2003. It is expected that our board of directors will recommend that the
shareholders approve a dividend program, similar in structure and amount
to those implemented over the last 5 years. Shareholders should be
entitled to receive the dividend in either stock or cash consistent with
our past practices.
(8) Based upon the total number of shares outstanding at the end of each
period, expressed in millions of shares, and includes shares subject to
financial derivative transactions, but does not include shares held by
our subsidiaries.
(9) Net working capital investment equals trade receivables plus inventories
less trade payables.
(10) In connection with the preferred equity transaction relating to the
financing of our acquisition of Southdown, Inc., now named CEMEX, Inc.,
the balance sheet item minority interest at December 31, 2002 includes a
notional amount of U.S.$650 million (Ps6,747.0 million) of issued
preferred equity. In addition, minority interest net income in 2002
includes preferred dividends in the amount of approximately U.S.$23.2
million (Ps235.0 million). Of the U.S.$650 million of preferred equity
outstanding as of December 31, 2002, U.S.$195 million is due in February
2004 and U.S.$455 million is due in August 2004.
(11) In December 1999, we entered into forward contracts with a number of
banks covering 21,000,000 ADSs, which has increased to 24,008,313 as a
result of stock dividends received in respect of such ADSs through June
2002. In December 2002, we agreed with the banks to settle those forward
contracts for cash and simultaneously entered into new forward contracts,
having a December 2003 maturity, with the same banks with respect to the
underlying ADSs on similar terms to the original forward transactions. As
a result of this net settlement, we recognized a decrease of
approximately US$98.3 million (Ps1,020.3 million) in our stockholders'
equity, arising from changes in the valuation of the ADSs. These ADSs are
considered to have been sold to the banks, and, therefore, future changes
in the fair value of the ADSs will not be recorded until settlement of
the new forward contracts. When we repurchase the ADSs upon settlement,
the purchase price of the forward contracts relating to our ADSs will be
recorded as a decrease in stockholders' equity.
(12) EBITDA equals operating income before amortization expense and
depreciation. Under Mexican GAAP, amortization of goodwill is not
included in operating income, but instead is recorded in other income
(expense). EBITDA and the ratio of EBITDA to interest expense, capital
securities dividends and preferred equity dividends are presented herein
because we believe that they are widely accepted as financial indicators
of the our ability to internally fund capital expenditures and service or
incur debt and preferred equity. EBITDA and such ratios should not be
considered as indicators of our financial performance, as alternatives to
cash flow, as measures of liquidity or as being comparable to other
similarly titled measures of other companies. EBITDA is reconciled below
to operating income, which we consider to be the most comparable measure
as determined under Mexican GAAP. We are not required to prepare a
statement of cash flows under Mexican GAAP and, therefore do not have
such Mexican GAAP cash flow measures to present as comparable to EBITDA.
For the year ended December 31,
------------------------------------------------------------------
1998 1999 2000 2001 2002 2002
--------- ------------ ---------- ---------- --------- ---------
(in millions of constant Pesos as of December 31, 2002 and Dollars)
Reconciliation of EBITDA
to operating income
EBITDA 16,275 18,846 21,101 22,579 19,899 1,917
Less:
Depreciation and
amortization expense 3,364 3,734 3,906 6,030 6,296 607
--------- ------------ ---------- ---------- --------- ---------
Operating Income 12,911 15,112 17,195 16,549 13,603 1,310
========= ============ ========== ========== ========= =========
11
(13) Capital securities dividends consist of accrued dividends on the 9.66%
Putable Capital Securities issued by one of our subsidiaries in May 1998.
These capital securities were initially issued in an aggregate
liquidation amount of U.S.$250 million. In April 2002, approximately
U.S.$184 million in aggregate liquidation amount of these capital
securities were tendered to, and accepted by, us in a tender offer.
(14) Net resources provided by operating activities equals majority interest
net income plus items not affecting cash flow plus investment in working
capital excluding effects from acquisitions. In accordance with Mexican
GAAP, operating activities include gain and loss from trading in
marketable securities, including realized gain or loss from trading in
our capital stock.
(15) We have restated the information at and for the years ended December 31,
2001 and 2002 under U.S. GAAP using the inflation factor derived from the
national consumer price index, or NCPI, in Mexico. See note 23 to our
consolidated financial statements included elsewhere in this annual
report for a description of the principal differences between Mexican
GAAP and U.S. GAAP as they relate to CEMEX.
(16) For financial reporting under U.S. GAAP, elements that do not meet either
the definition of equity, or the definition of debt, are presented under
a third group, commonly referred to as "mezzanine items." These elements,
as they relate to us, include our U.S.$650 million of preferred equity
described in note 10 above, our U.S.$66 million of 9.66% Putable Capital
Securities described in note 13 above and our U.S.$448.4 million
obligation under the forward contracts described in note 11 above, in
each case as of December 31, 2002. For a more detailed description of
these elements, see notes 14(E), 14(F) and 23(O) to our consolidated
financial statements included elsewhere in this annual report.
12
Item 4 - Information on the Company
Unless otherwise indicated, references in this annual report to our
sales and assets, including percentages, for a country or region are
calculated before eliminations resulting from consolidation, and thus include
intercompany balances between countries and regions. These intercompany
balances are eliminated when calculated on a consolidated basis.
Business Overview
We are a stock corporation with variable capital, or sociedad anonima
de capital variable, organized under the laws of the United Mexican States
("Mexico") with our principal executive offices in Av. Constitucion 444 Pte.,
Monterrey, Nuevo Leon, Mexico 64000. Our main phone number is (011-5281)
8328-3000. CEMEX's agent for service, exclusively for actions brought by the
Securities and Exchange Commission pursuant to the requirements of the United
States Federal securities laws, is CEMEX Corp., located at 1200 Smith Street,
Suite 2400, Houston, Texas 77002.
CEMEX was founded in 1906 and was registered with the Mercantile
Section of the Public Register of Property and Commerce in Monterrey, N.L.,
Mexico, on June 11, 1920 for a period of 99 years. At the 2002 annual
shareholders' meeting, this period was extended to the year 2100.
CEMEX is the third largest cement company in the world, based on
installed capacity as of December 31, 2002 of approximately 80.9 million tons.
We are one of the world's largest traders of cement and clinker, having traded
over 10.2 million tons of cement and clinker in 2002. We are a holding company
engaged, through our operating subsidiaries, primarily in the production,
distribution, marketing and sale of cement, ready-mix concrete and clinker. We
are a global cement manufacturer with operations in North, Central and South
America, Europe, the Caribbean, Asia and Africa. As of December 31, 2002, we
had worldwide assets of Ps165.4 billion (U.S.$15.9 billion). On March 31,
2003, we had an equity market capitalization of approximately Ps57.5 billion
(U.S.$5.3 billion).
As of December 31, 2002, our main cement production facilities were
located in Mexico, Spain, Venezuela, Colombia, the United States, Egypt, the
Philippines, Thailand, Costa Rica, the Dominican Republic, Panama, Nicaragua
and Puerto Rico. As of December 31, 2002, our assets, cement plants and
installed capacity, on an unconsolidated basis, were as set forth below.
Installed capacity, which refers to theoretical annual production capacity,
represents gray cement equivalent capacity, which counts each ton of white
cement capacity as approximately two tons of gray cement capacity. It also
includes our proportional interest in the installed capacity of companies in
which we hold a minority interest.
As of December 31, 2002
-----------------------------------------------
Assets Number Installed
--------------- Capacity
(in billions of (millions
of constant Cement of tons
Pesos) Plants per annum)
North America
Mexico................................................. Ps 57.0 15 27.2
United States.......................................... 44.7 12 13.6
Europe, Asia and Africa
Spain.................................................. 21.5 8 10.8
Asia................................................... 12.1 4 10.9
Egypt.................................................. 5.7 1 4.9
South America, Central America and the Caribbean
Venezuela.............................................. 7.9 3 4.6
Colombia............................................... 6.0 5 4.8
Central America and the Caribbean...................... 10.7 5 4.1
Cement and Clinker Trading Assets and Other Operations...... 71.9 -- --
___________
13
In the above table, "Asia" includes our Asian subsidiaries, and, for
purposes of the columns labeled "Assets" and "Installed Capacity," includes
our 25.5% interest, as of December 31, 2002, in PT Semen Gresik, or Gresik, an
Indonesian cement producer. In addition to the three cement plants owned by
our Asian subsidiaries, Gresik operated four cement plants with an installed
capacity of 17.2 million tons, as of December 31, 2002. In the above table,
"Central America and the Caribbean" includes our subsidiaries in Costa Rica,
the Dominican Republic, Panama, Nicaragua, Puerto Rico and other assets in the
Caribbean region. In the above table, "Cement and Clinker Trading Assets and
Other Operations" includes in the column labeled "Assets" our 11.9% interest
in Cementos Bio Bio, a Chilean cement producer having three cement plants with
an installed capacity of approximately 2.2 million tons at December 31, 2002,
and intercompany accounts receivable of CEMEX (the parent company only) in the
amount of Ps33.9 billion, which would be eliminated if these assets were
calculated on a consolidated basis.
During the last decade, we embarked on a major geographic expansion
program to diversify our cash flows and enter markets whose economic cycles
within the cement industry largely operate independently from that of Mexico
and which offer long-term growth potential. We have built an extensive network
of marine and land-based distribution centers and terminals that give us
marketing access around the world. The following have been our most
significant acquisitions over the last five years:
o In July and August 2002, through a tender offer and
subsequent merger, we acquired 100% of the outstanding
shares of Puerto Rican Cement Company, Inc., or PRCC. The
aggregate value of the transaction was approximately
U.S.$180.2 million, not including the amount of net debt
assumed of approximately U.S.$100.8 million.
o On July 12, 2002, we purchased 25,429 shares of common stock
(approximately 0.25% of the outstanding share capital) of
CEMEX Asia Holdings, Ltd., or CAH, from a CAH investor for a
purchase price of approximately U.S.$2.3 million, increasing
our equity interest in CAH to 77.67%. CAH is a subsidiary
originally created to co-invest with institutional investors
in Asian cement operations. At the same time, we entered
into agreements to purchase an additional 1,483,365 shares
of CAH common stock (approximately 14.58% of the outstanding
share capital) from several other CAH investors in exchange
for 28,195,213 CEMEX CPOs (subject to anti-dilution
adjustments). The exchange of 84,763 of the CAH shares for
CEMEX CPOs is scheduled to take place in four equal
quarterly tranches commencing on March 31, 2003, and the
exchange of the reamining 1,398,602 of the CAH shares for
CEMEX CPOs is scheduled to take place in four equal
quarterly tranches commencing on March 31, 2004. For
accounting purposes, the CAH shares to be received by us in
exchange for CEMEX CPOs are considered to be owned by us
effective as of July 12, 2002. As a result of this
transaction and pending its successful consummation, we will
have increased our stake in CAH to 92.25%. For recent
developments regarding the exchange of CAH shares for CEMEX
CPOs, please see Item 5-- "Operating and Financial Review
and Prospects-- Liquidity and Capital Resources-- Recent
Developments."
o In May 2001, we acquired, through CAH, a 100% economic
interest in Saraburi Cement Company Ltd., a cement company
based in Thailand with an installed capacity of
approximately 700 thousand metric tons, for a total
consideration of approximately U.S.$73 million. In July
2002, Saraburi Cement Company changed its legal name to
CEMEX (Thailand) Co. Ltd., or CEMEX (Thailand).
o In November 2000, through a tender offer and subsequent
merger, we acquired 100% of the outstanding shares of common
stock of Southdown, Inc., or Southdown, a U.S. cement
producer. The total cost of the acquisition of Southdown was
approximately U.S.$2.8 billion. In March 2001, through a
corporate restructuring, we integrated the Southdown
operations with our other U.S. operations and "Southdown"
changed its legal name to CEMEX, Inc.
o In November 1999, we acquired a 77% interest in Assiut
Cement Company, or Assiut, an Egyptian cement producer, and
in 2000, we increased our interest to 92.9%. In January
2001, we further increased our interest in Assiut to 95.8%.
14
o In June 1999, we acquired an 11.9% interest in Cementos Bio
Bio, Chile's largest cement producer.
o In April 1999, we acquired a 15.8% interest in Cementos del
Pacifico, a Costa Rican cement producer. In September 1999,
we increased our interest in Cementos del Pacifico to 95.3%.
As of December 31, 2002, we had increased our interest in
Cementos del Pacifico to approximately 98.4%.
o In February 1999, we acquired a 99.9% economic interest in
APO Cement Corporation, or APO, a Philippine cement
producer. In September 1999, we contributed our interest in
APO to CAH.
o In October 1998, we purchased from the Indonesian government
a 14% interest in Gresik, Indonesia's largest cement
producer. In 1999, we increased our interest in Gresik to
approximately 25.5%. In October 2000, by means of capital
contributions made by us and the minority investors, CAH
acquired our interest in Gresik.
o In 1998, we increased our economic interest in Rizal Cement
Company, or Rizal (now, Solid Cement Corporation, or Solid,
as a result of the merger of Rizal into Solid on December
23, 2002), a Philippine cement producer, from 30% to 70%. In
September 1999, we contributed our interest in Rizal to CAH.
On July 31, 2002, we purchased, through a wholly-owned
subsidiary, the remaining 30% economic interest that was not
previously acquired by CAH in Rizal (now, Solid), for
approximately U.S.$95 million. At December 31, 2002, as a
consequence of this transaction and the increase of our
stake in CAH, as described above, our proportionate economic
interest in Solid (formerly, Rizal) was approximately
94.58%.
o In 1998, we increased our equity interest in Cementos
Diamante, S.A. (now, CEMEX Colombia, S.A., or CEMEX
Colombia, as a result of a legal name change in August
2002), to approximately 78% and integrated the operations of
CEMEX Colombia and Industrias e Inversiones Samper, S.A.,
into a single company, making CEMEX Colombia the second
largest cement producer in Colombia. In 1999 and 2000, we
increased our equity interest in CEMEX Colombia to
approximately 98.2% of total shares and 99.3% of ordinary
shares.
For the year ended December 31, 2002, our net sales, before
eliminations resulting from consolidation, were divided among the countries in
which we operate as follows:
15
[GRAPHIC OMITTED]
For a description of a breakdown of total revenues by geographic
markets for each of the years ended December 31, 2000, 2001 and 2002, please
see Item 5 -- "Operating and Financial Review and Prospects."
Our Production Process
Cement is a binding agent, which, when mixed with sand, stone or
other aggregates and water, produces either ready-mix concrete or mortar.
Mortar is the mixture of cement with finely ground limestone used in some
construction applications. Ready-mix concrete is the mixture of cement,
aggregates such as sand and gravel and water.
We manufacture cement through a closely controlled chemical process,
which begins with the mining and crushing of limestone and clay, and, in some
instances, other raw materials. The clay is then pre-homogenized, a process
which consists of combining different types of clay in different proportions
in a large storage area. The clay is usually dried by the application of heat
in order to remove humidity acquired in the quarry. The crushed raw
16
materials are fed in pre-established proportions, which vary depending on the
type of cement to be produced, into a grinding process, which mixes the
various materials more thoroughly and reduces them further in size in
preparation for the kiln. In the kiln, the raw materials are calcined, or,
processed at a very high temperature, to produce clinker. Clinker is the
intermediate product used in the manufacture of cement obtained from the
mixture of limestone and clay with iron oxide.
There are two primary processes used to manufacture cement, the dry
process and the wet process. The dry process is more fuel efficient. As of
December 31, 2002, 46 of our 53 operating production plants used the dry
process, five used the wet process and two used both processes. Three of the
seven production plants that use the wet process are located in Venezuela. The
remaining four production plants that use the wet process are located in
Colombia, Nicaragua, and the Philippines. In the wet process, the raw
materials are mixed with water to form slurry which is fed into the kiln. Fuel
costs are greater in the wet process than in the dry process because the water
that is added to the raw materials to form slurry must be evaporated during
the clinker manufacturing process. In the dry process, the addition of water
and the formation of slurry are eliminated, and clinker is formed by calcining
the dry raw materials. In the most modern application of this dry process
technology, the raw materials are first blended in a homogenizing silo and
processed through a pre-heater tower that utilizes exhaust heat generated by
the kiln to pre-calcine the raw materials before they are calcined to produce
clinker. Finally, clinker and gypsum are fed in pre-established proportions
into a cement grinding mill where they are ground into an extremely fine
powder to produce finished cement.
User Base
In most of the markets in which we compete, cement is the primary
building material in the industrial and residential construction sectors. The
lack of available cement substitutes further enhances the marketability of our
product. The primary end-users of cement in each region in which we operate
vary but usually include, among others, wholesalers, ready-mix concrete
producers, industrial customers and contractors in bulk.
Our Business Strategy
We seek to continue to strengthen our leadership position in the
cement industry and to maximize our overall performance by employing the
following strategies:
Reduce overall costs related to cement production.
By continuing to produce cement at a low cost we believe that we will
continue to generate the necessary cash flows to support our present and
future growth. We strive to reduce our overall cement production related costs
through strict cost management and a constant search for efficiencies. By
taking actions such as the use of alternative energy sources and the
incorporation of technological improvements at the plant level we have reduced
and expect to continue to reduce costs.
We plan to continue to eliminate redundancies at all levels,
streamline corporate structures and centralize administrative functions to
increase our efficiency and lower costs. In addition, in the last few years,
we have carried out various procedures to improve the environmental impact of
our activities as well as our overall product quality. With each international
acquisition, we have refined the implementation of both the technological and
managerial processes required to rapidly integrate acquisitions into our
existing corporate structure.
We have implemented the "CEMEX Way" as part of this process. The
CEMEX Way is a program designed to develop efficiencies and improved ways of
working, which will further reduce our costs, streamline our processes and
extract synergies from our global operations going forward. As a result, we
have developed centralized management information systems, including
administrative, accounting, purchasing, customer management, budget
preparation and control systems, which have been implemented throughout our
operations and that are expected to assist us in lowering costs.
17
Develop new competitive advantages.
We continue to focus on developing new competitive advantages that
will differentiate ourselves from our competitors, and we are strengthening
our commercial and corporate brands in this highly competitive industry in an
effort to further enhance the subjective value of our products in our final
customers. Our lower cost combined with our higher quality service has allowed
us to make significant inroads in these areas.
We believe our Construrama branding and our other marketing
strategies in Mexico will strengthen our distribution network, foster greater
loyalty among distributors and further fortify our commercial network. With
Construrama, we are enhancing the operating and service standards of our
distributors, providing them with training, a standard image and national
publicity, while our other strategy, which we call "Multiproductos," helps our
distributors offer a wider array of construction materials and reinforces the
subjective value of our products in their customers. In Spain, we have
implemented several initiatives to increase the value of our services to our
clients such as mobile access to account information, 24-hour bulk cement
dispatch capability, night delivery of ready-mix cement, and a customer
loyalty incentive program.
Expand into selected new markets.
Subject to economic conditions that may affect our ability to
consummate acquisitions, we intend to continue adding assets to our existing
portfolio. By selectively participating in markets that have long-term growth
potential, in most cases we have been able to increase our cash flow and
return on equity. We evaluate potential acquisitions in light of our three
primary investment principles:
? the potential for increasing the acquired entity's value should be
principally driven by factors that we can influence, particularly the
application of our management and turnaround expertise;
o the acquisition should not compromise our financial
strength; and
o the acquisition should offer a higher long-term return on
our investment than our cost of capital.
In order to minimize our capital commitment and to maximize our
return on stockholders' equity, we will continue to analyze the potential
capital raising sources available in connection with acquisitions, including
sources of local financing and possible joint ventures. We normally consider
opportunities for, and routinely engage in preliminary discussions concerning,
acquisitions.
Strengthening our financial structure.
We believe our strategy of cost-cutting initiatives, increased value
proposition and geographic expansion will translate into growing operating
cash flows. Our objective is to strengthen our financial structure by:
o optimizing our borrowing costs and debt maturities;
o increasing our access to various capital sources; and
o maintaining the financial flexibility needed to pursue
future growth opportunities.
We intend to continue monitoring our credit risk while maintaining
the flexibility to support our business strategy.
Optimize distribution of our products through global coordination.
Through a worldwide import and export strategy, we will continue to
optimize capacity utilization and maximize profitability by directing our
products from countries experiencing downturns in their respective economies
to target export markets where demand may be greater. Our global trading
system enables us to
18
coordinate our export activities globally and to take advantage of demand
opportunities and price movements worldwide.
Focusing on attracting, retaining and developing a diverse,
experienced and motivated management team.
We will continue to focus on recruiting and retaining motivated and
knowledgeable professional managers.
Our senior management encourages managers to continually review our
processes and practices, and to identify innovative management and business
approaches to improve our operations. By rotating our managers from one
country to another and from one area of our operations to another, we increase
their diversity of experience. We provide our senior management with ongoing
training throughout their careers. In addition, through our stock-based
compensation program, our senior management has a stake in our financial
success.
The implementation of our business strategy demands effective
dynamics within our organization. Our corporate infrastructure is based on
internal collaboration and global management platforms. We will continue to
strengthen and develop this infrastructure to effectively support our
strategy.
19
Our Corporate Structure
We are a holding company and operate our business through
subsidiaries that, in turn, hold interests in our cement and ready-mix
concrete operating companies, as well as other businesses. The following chart
summarizes our corporate structure as of December 31, 2002. The chart also
shows, for each company, our approximate direct or indirect percentage equity
or economic ownership interest. The chart has been simplified to show only our
major holding companies in the principal countries in which we operate and
does not include our intermediary holding companies and our operating company
subsidiaries.
[OBJECT OMITTED]
20
North America
As of and for the year ended December 31, 2002, North America, which
includes our operations in Mexico and the United States, represented
approximately 58% of our net sales, 50% of our total installed capacity and
43% of our total assets.
Our Mexican Operations
Overview
Our Mexican operations represented approximately 34% of our net sales
in 2002.
At December 31, 2002, we owned or had economic rights to 100% of the
outstanding capital stock of CEMEX Mexico, including an approximate 0.6%
interest held by a Mexican trust for our benefit. CEMEX Mexico is a direct
subsidiary of CEMEX and is both a holding company for some of our operating
companies in Mexico and an operating company involved in the manufacturing and
marketing of cement, plaster, gypsum, groundstone and other construction
materials and cement by-products in Mexico. CEMEX Mexico, indirectly, is also
the holding company for our international operations.
At December 31, 2002, CEMEX Mexico owned approximately 100% of the
outstanding capital stock of Empresas Tolteca de Mexico. Empresas Tolteca de
Mexico is a holding company for some of our operating companies in Mexico.
CEMEX Mexico and Empresas Tolteca de Mexico, together with their
subsidiaries, account for substantially all the revenues and operating income
of our Mexican operations.
Since the early 1970s, we have pursued a growth strategy designed to
strengthen our core operations and to expand our activities beyond our
traditional market in northeastern Mexico. This strategy has transformed our
Mexican operations from a regional participant into the leading Mexican cement
manufacturer. The process was largely completed with our acquisition of
Cementos Tolteca, S.A. de C.V. in 1989, which increased our installed capacity
for cement production by 6.5 million tons. Since the Cementos Tolteca
acquisition, we have added 5.5 million tons of installed capacity in Mexico
through acquisitions, expansion, modernization and the construction of new
plants. Our largest new construction project in Mexico in the 1990s was the
Tepeaca plant, which began operations in 1995 and had an installed capacity as
of December 31, 2002 of 3.3 million tons. During the second quarter of 2002,
the production operations at our oldest plant (Hidalgo) were temporarily
halted pending our review of the cost effectiveness of continued production
operations at this plant. We do not presently foresee any significant capacity
expansion in our Mexican operations in 2003.
In 2001, we launched the Construrama program, a registered brand name
for construction material stores. Through the Construrama program, we offer to
an exclusive group of our Mexican distributors the opportunity to sell a
variety of products under the Construrama brand name, a concept that includes
the standardization of stores, image, marketing, products and services. By the
end of 2002, 740 independent concessionaries with more than 2,000 stores were
integrated into the Construrama program in more than 100 cities throughout
Mexico. During 2003, we expect to make the Construrama program available to
more distributors.
The Mexican Cement Industry
Cement in Mexico is sold principally through distributors with the
remaining balance sold through ready-mix concrete producers, manufacturers of
contract products and construction contractors. Cement sold through
distributors is mixed with aggregates and water by the end user at the
construction site to form concrete. Ready-mix concrete producers mix the
ingredients of concrete in plants and deliver it to local construction sites
in mixer trucks, which pour the concrete. Unlike more developed economies,
where purchases of cement are concentrated in the commercial and industrial
sectors, retail sales of cement through distributors typically account for
around 75% of Mexico's private sector demand. Individuals who purchase bags of
cement for their own housing and other basic construction are a significant
component of the retail sector. We estimate that as much as 50% of house
building in
21
Mexico is performed by individuals who undertake their own construction. We
believe that this large retail sales base is a factor that contributes
significantly to the overall performance of the Mexican cement market.
Competition. As recently as the early 1970s, the Mexican cement
industry was regionally fragmented. However, over the last 30 years, the
Mexican cement industry has consolidated into a national market, thus becoming
increasingly competitive. As of December 31, 2002, according to publicly
available information, the major cement producers in Mexico are CEMEX; Apasco,
an affiliate of Holcim; Sociedad Cooperativa Cruz Azul, a Mexican operator;
and Cementos Moctezuma, an associate of Ciments Molins, which is partially
owned by Lafarge.
Potential entrants into the Mexican cement market face various
impediments to entry including:
o the extensive capital investment requirements;
o the length of time required for construction of new plants
(approximately two years); and
o the lack of port infrastructure and the high inland
transportation costs resulting from the low value-to-weight
ratio of cement.
The latter is particularly significant in Mexico because of the
distance from ports to major consumption centers and the presence of
significant natural barriers, such as mountain ranges, which border Mexico's
east and west coasts. New entrants also face the significant time-consuming
and expensive process of establishing a retail distribution network and
developing the brand identification necessary to succeed in the retail market,
which represents the bulk of the domestic market.
Our Mexican Operating Network
[GRAPHIC OMITTED]
(1) In 2002, production operations at the Hidalgo cement plant were
temporarily halted pending our review of the cost effectiveness of continued
production operations at this plant.
Currently, we operate 14 plants (not including Hidalgo) and 75
distribution centers (67 land terminals and 8 marine terminals) located
throughout Mexico. We operate modern plants on Mexico's Atlantic and Pacific
coasts, allowing us to take advantage of low-cost maritime transportation to
the Asian, Caribbean, Central and South American and U.S. markets.
We believe that geographic diversification in Mexico is important
because:
22
o it decreases the effect of regional cyclicality on total
demand for our Mexican operations' products;
o it places our Mexican operations in physical proximity to
customers in each major region of Mexico, allowing more
cost-effective distribution; and
o it allows us to optimize production processes by shifting
output to those facilities better suited to service the
areas with the highest demand and prices.
Products and Distribution Channels
Our domestic cement sales represented approximately 93% in 2000, 96%
in 2001, and 97% in 2002 of our total Mexican cement sales revenues.
Cement. As a result of the retail nature of the Mexican market, our
Mexican operations are not dependent on a limited number of large customers.
In 2002, our Mexican operations sold approximately 75% of their cement sales
volume through more than 5,200 distributors throughout the country, most of
whom work on a regional basis. The five most important distributors in the
aggregate accounted for approximately 4% of our Mexican operations' total
sales by volume for 2002.
The retail nature of the Mexican cement market also enables us to
foster brand loyalty, which distinguishes us from other worldwide producers
selling primarily in bulk in the commodity market. We own the registered
trademarks for our major brands in Mexico, such as "Monterrey," "Tolteca" and
"Anahuac." We believe that these brand names are important in Mexico since
cement is principally sold in bags to retail customers who may develop brand
loyalty based on differences in quality and service. Our domestic cement sales
volumes grew 5% in 2000, declined 7% in 2001, and grew 4% in 2002. In
addition, we own the registered trademark for the "Construrama" brand name for
construction material stores. See "Our Mexican Operations - Overview" above
for a description of our recently launched Construrama program.
Ready-Mix Concrete. Ready-mix concrete sales volumes by our Mexican
operations grew 13% in 2000, decreased 3% in 2001 and increased 10% in 2002.
Although traditionally ready-mix concrete has not been an important product in
Mexico because of the availability of low-cost labor and the relatively small
size of private sector construction projects, for the year ended December 31,
2002, ready-mix concrete sales represented 10% of our Mexican operations'
total cement sales volume.
Demand for ready-mix concrete in Mexico depends on various factors
over which we have no control. These include the overall rate of growth of the
Mexican economy and plans of the Mexican government regarding major
infrastructure and housing projects.
Exports. Our Mexican operations export a portion of their cement
production. Exports of cement and clinker by our Mexican operations decreased
2% in 2000, decreased 10% in 2001, and decreased 25% in 2002. In 2002, 36% of
our exports from Mexico were to Central America and the Caribbean, 63% to the
United States, and 1% to South America.
Our Mexican operations' cement and clinker exports to the U.S. are
marketed through wholly-owned subsidiaries of CEMEX Corp., the holding company
of CEMEX, Inc. All transactions between CEMEX and the subsidiaries of CEMEX
Corp., which act as our U.S. importers, are conducted on an arm's-length
basis. Imports of cement and clinker into the U.S. from Mexico are subject to
anti-dumping duties. See Item 4 -- "Information on the Company -- Regulatory
Matters and Legal Proceedings -- U.S. Anti-Dumping Rulings -- Mexico."
Production Costs
Our Mexican operations' cement plants primarily utilize residual fuel
oil, but several are designed to switch to natural gas with minimum downtime.
Pursuant to a 20-year contract entered into with Pemex, or Petroleos
Mexicanos, Pemex has agreed to supply us with 900 thousand tons of petcoke per
year, commencing in 2002.
23
Petcoke is petroleum coke, a solid or fixed carbon substance that remains
after the distillation of hydrocarbons in petroleum and that may be used as
fuel in the production of cement. We expect the Pemex petcoke contract to
reduce the volatility of our fuel costs and provide us with a consistent
source of petcoke throughout its 20-year term. In addition, since 1992, our
Mexican operations have begun to use alternate fuels, reducing the consumption
of residual fuel oil and natural gas to 24% (based on a yearly average) of the
total fuel consumption for our Mexican operations in 2002.
In 1999, CEMEX, through a subsidiary, reached an agreement with ABB
Alstom Power and Sithe Energies, Inc., requiring that Alstom and Sithe
finance, build and operate Termoelectrica del Golfo, a 230 megawatt energy
plant in Tamuin, San Luis Potosi, Mexico and supply electricity to CEMEX for a
period of 20 years. The total cost of the project is approximately U.S.$360
million. CEMEX is obligated to supply Alstom with 650 thousand tons of petcoke
per year over the same period and will buy all the electricity produced by the
plant. We expect to meet our petcoke delivery requirements to Alstom through
our petcoke supply contract with Pemex. CEMEX may also be obligated to
purchase the power plant upon the occurrence of specified material defaults or
events, such as failure to pay when due, bankruptcy or insolvency, and
revocation of permits necessary to operate the facility. We expect this
project to reduce the volatility of our energy costs and to provide
approximately 100% of the electricity needs of 11 of our cement plants in
Mexico once the plant is operational, which we currently anticipate will be
during the first half of 2003.
We have from time to time purchased hedges from third parties to
reduce the effect of volatility in energy prices in Mexico. See Item 5 --
"Operating and Financial Review and Prospects -- Liquidity and Capital
Resources."
Description of Properties, Plants and Equipment
As of December 31, 2002, we operated 14 wholly-owned cement plants
(not including Hidalgo) located throughout Mexico, with a total installed
capacity of 27.2 million tons per year. Our Mexican operations' most
significant gray cement plants are the Huichapan, Tepeaca and Barrientos
plants, which serve the central region of Mexico, the Monterrey, Valles and
Torreon plants, which serve the northern region of Mexico, and the Guadalajara
and Yaqui plants, which serve the Pacific region of Mexico. We have exclusive
access to limestone quarries and clay reserves near each of our plant sites in
Mexico. We estimate that these limestone and clay reserves have an average
life of more than 60 years, assuming 2002 production levels. As of December
31, 2002, all our production plants in Mexico utilized the dry process.
As of December 31, 2002, we had a network of 67 land distribution
centers in Mexico, which are supplied through a fleet of our own trucks and
rail cars, as well as leased trucks and rail facilities and eight marine
terminals. In addition, we had 220 ready-mix concrete plants throughout 77
cities in Mexico and 1,211 ready-mix concrete delivery trucks.
Capital Investments
We made capital expenditures of approximately U.S.$94.8 million in
2002 in our Mexican operations. We currently expect to make capital
expenditures of approximately U.S.$115 million during 2003.
24
Our U.S. Operations
Overview
Our U.S. operations represented approximately 24% of our net sales in
2002. As of December 31, 2002, we had a cement manufacturing capacity of
approximately 13.6 million metric tons per year in our United States
operations, including nearly 600 thousand metric tons in proportional
interests through minority holdings.
As of December 31, 2002, we operated a geographically diverse base of
12 cement plants located in Alabama, California, Colorado, Florida, Georgia,
Kentucky, Michigan, Ohio, Pennsylvania, Tennessee and Texas. As of that date,
we also had 51 rail or water served active distribution terminals in the
United States and one in Canada. We also market ready-mix concrete products in
four of our largest cement markets, California, Arizona, Texas, and Florida.
In addition, we mine, process and sell construction aggregates in California,
Arizona, Texas and Florida.
The Cement Industry in the United States
Competition. As a result of the lack of product differentiation and
the commodity nature of cement, the cement industry in the U.S. is highly
competitive. We compete with national and regional cement producers in the
U.S. CEMEX, Inc.'s principal competitors in the United States are Holcim,
Lafarge, Buzzi-Dyckerhoff, Heidelberg Cement and Ash Grove Cement.
According to the Portland Cement Association's U.S. and Canadian
Plant Information Summary as of December 31, 2001 (released fourth quarter
2002), we ranked first in total active cement manufacturing capacity among the
31 cement producers (including joint ventures) that comprise the U.S. market.
The U.S. ready-mix concrete industry is highly fragmented, and few
producers have annual sales in excess of U.S.$3 million or have a fleet of
more than 20 mixers. Given that the concrete industry has historically
consumed approximately 70% of all cement produced annually in the U.S., many
cement companies choose to be vertically integrated.
Aggregates are widely used throughout the U.S. for all types of
construction because they are the most basic materials for building activity.
The U.S. aggregates industry is highly fragmented and geographically
dispersed. According to the U.S. Geological Survey, in 2002, approximately
4,000 companies operated approximately 6,300 quarries and pits.
25
Our United States Operating Network
[GRAPHIC OMITTED]
(1) In 2001, production operations at the Pittsburgh cement plant were
shut down. It now operates as a distribution terminal.
Products and Distribution Channels
CEMEX, Inc. delivers a substantial portion of cement by rail.
Occasionally, these rail shipments go directly to customers. Otherwise,
shipments go to distribution terminals where customers pick up the product by
truck or CEMEX, Inc. delivers the product by truck. The majority of our cement
sales are made directly to users of gray Portland and masonry cements,
generally within a radius of approximately 200 miles of each plant. As
discussed below, cement demand in the United States has become less dependent
upon the more cyclical residential and commercial sectors. Because of the
distribution of operations across the U.S., we are able to achieve stability
of cash flows should market conditions deteriorate in any one region of the
U.S.
Cement. Our cement operations represented approximately 69% of our
2002 U.S. operations revenues. Our U.S. operations sales volumes increased 30%
in 2000, 183% in 2001, mainly because of the Southdown , now named CEMEX,
Inc., acquisition, and decreased 5.3% in 2002 due to the economic downturn in
the United States, which has resulted in a decreased demand for cement in the
commercial, industrial and infrastructure sectors. High levels of construction
activity in most regions of the United States during the last several years
resulted in favorable market dynamics for cement, which in turn resulted in
higher prices.
Demand for cement is derived from the demand for ready-mix concrete
and concrete products which, in turn, is dependent on the demand for
construction. According to estimates of the Portland Cement Association, the
three construction sectors that are the major components of cement consumption
are public works construction, commercial and industrial construction, and
residential construction.
Cement demand has recently been much less vulnerable to a downturn
than in previous cycles due to increased public infrastructure spending.
In 2002, according to our estimates, public infrastructure spending
26
accounted for 54% of the total cement consumption in the U.S. Strong cement
demand over the past decade has driven industry capacity utilization up to
maximum levels. According to the Portland Cement Association, domestic
capacity utilization reached 98.7% in 2000, 95.5% in 2001 and 93.3% in 2002.
Ready-Mix Concrete. Concrete operations represented approximately 24%
of our 2002 revenues in the U.S. We have ready-mix operations in California,
Arizona, Texas and Florida. Our concrete operations in those states purchase
most of their cement requirements from our cement operations in the U.S.
Aggregates. Our construction aggregates operations include mining,
processing and selling construction aggregates in California, Arizona, Texas
and Florida. Aggregates operations represented approximately 6% of our 2002
U.S. revenues. At 2002 production levels, it is anticipated that 95% of our
construction aggregates reserves in the U.S. will last from 10 years to more
than 50 years.
Production Costs
The largest cost components of our plants are electricity and fuel,
which accounted for approximately 35% of CEMEX, Inc.'s total production costs
in 2002. The majority of our U.S. plants use coal as primary fuel, which has
maintained a relatively stable price. CEMEX, Inc. has a limited exposure to
coal price increases, as most of its coal requirements have been secured
through long-term contracts that were executed prior to recent price increases.
Therefore, increases in fuel prices have not had a material impact on CEMEX,
Inc.'s production costs. In addition, CEMEX, Inc. is currently implementing an
alternative fuels program to gradually replace coal with more economic fuels
such as petcoke and tires, which will result in reduced energy costs. By
retrofitting our cement plants to handle alternative fuels, we will gain more
flexibility in supplying our energy needs and become less vulnerable to
potential price spikes. Power costs in 2002 represented approximately 19% of
the cash manufacturing cost, which represents production cost before
depreciation. We have improved the efficiency of CEMEX, Inc.'s electricity
usage, concentrating our manufacturing activities in off-peak hours and
negotiating lower rates with electricity suppliers.
Description of Properties, Plants and Equipment
As of December 31, 2002, we operated 12 cement manufacturing plants
in the U.S., with a total installed capacity of 13.6 million metric tons per
year, including 600 thousand metric tons in proportional interests through
minority holdings. All our cement production facilities are wholly owned
except for the Balcones plant, which is leased, and the Louisville plant and
Pittsburgh terminal. The Louisville and Pittsburgh facilities are owned by
Kosmos Cement Company, a joint venture in which CEMEX, Inc. owns 75% and a
subsidiary of Dyckerhoff AG owns 25% of the interests.
During the fourth quarter of 2001, we substantially completed a
capacity expansion project at our Victorville manufacturing facility, which
resulted in a net capacity increase of approximately one million metric tons
per year.
As of December 31, 2002, we operated a concrete distribution network
of 86 ready-mix concrete plants, 52 cement terminals, four of which are
deep-water terminals, and 23 aggregate locations throughout the U.S.
Capital Investment
We made capital expenditures of approximately U.S.$65 million in
2000, U.S.$179.5 million in 2001 and U.S.$95.9 million in 2002 in our U.S.
operations. We currently expect to make capital expenditures in our U.S.
operations of approximately U.S.$103 million during 2003.
27
Europe, Asia and Africa
As of December 31, 2002, our business in Europe, Asia and Africa,
which included our majority-owned operations in Spain, the Philippines,
Thailand and Egypt, as well as our minority interests in Indonesia and other
Asian investments, represented approximately 18% of our net sales, 33% of our
total installed capacity and 17% of our total assets.
Our Spanish Operations
Overview
Our Spanish operations represented approximately 14% of our net sales
in 2002. We conduct our Spanish operations through our operating subsidiary
CEMEX Espana, S.A. or CEMEX Espana, formerly named Compania Valenciana de
Cementos Portland, S.A. CEMEX Espana is also a holding company for most of our
international operations. Our cement activities are conducted by CEMEX Espana
itself and Cementos Especiales de las Islas, S.A. Our ready-mix concrete
activities and our aggregates activities are conducted by Hormicemex, S.A. and
Aricemex S.A., respectively.
The Spanish Cement Industry
In 2002, the construction sector of the Spanish economy grew 4.5%,
primarily as a result of the growth of construction in the residential sector
of the Spanish economy. Cement consumption in Spain increased approximately
11.1% 2000, 9.1% in 2001 and 4.6% in 2002. Our domestic cement and clinker
sales volumes in Spain increased 12.4% in 2000, 4.1% in 2001, and 2.5% in
2002.
During the past several years, the level of cement imports into Spain
has been influenced by the strength of domestic demand and the relative
weakness or strength of the Euro against the Dollar. Cement imports increased
9.5% in 2000, 22.2% in 2001 and 2.1% in 2002. Clinker imports increased 16.5%
in 2000, 43.6% in 2001 and 6.9% in 2002. Imports primarily had an impact on
coastal zones, since transportation costs make it less profitable to sell
imported cement in inland markets. Nonetheless, sales from imports have been
increasing in the center of Spain in recent years.
In the past, Spain has traditionally been one of the leading
exporters of cement in the world exporting up to 6 million tons per year.
Nevertheless, exports of producers in Spain have been reduced in recent years
to 1.4 million tons in 2002 to meet strong domestic demand. Our Spanish
operations' cement and clinker export volumes decreased by 57% in 2000, and
42% in 2001, as a result of the strong domestic demand. In 2002, they
increased 3.7%.
Competition. In 2002, the world's largest producer, the Lafarge group
of France, sold two cement plants with an aggregate of 1.6 million tons of
total cement capacity and a grinding mill in the south of Spain to Cimpor, a
Portuguese company. According to the Asociacion de Fabricantes de Cemento de
Espana, or OFICEMEN, the Spanish cement trade organization, as of December 31,
2002, approximately 60% of installed capacity for production of cement in
Spain was owned by five multinational groups, including CEMEX.
Competition in the ready-mix concrete industry is particularly
intense in large urban areas. Our subsidiary Hormicemex has achieved a sizable
market presence in areas such as Baleares, Canarias, Levante and Aragon. In
other areas, such as the central and Cataluna regions, our market share
remains smaller due to greater competition in the relatively larger urban
areas. The overall high degree of competition in the Spanish ready-mix
concrete industry has led to weak pricing, which, in turn, has affected
Hormicemex's profitability. Despite this fact, the distribution of ready-mix
concrete remains a key component of CEMEX Espana's business strategy.
The Spanish ready-mix concrete industry is subject to increasingly
stringent regulations regarding safety, environment, licenses and quality of
products. Compliance, however, is not strongly enforced, which permits
independent local ready-mix concrete producers to circumvent so-called
production norms and offer low quality products at lower prices. Nevertheless,
we expect that the more rigorous ready-mix concrete regulations of the
28
European Union will have to be strictly complied with in Spain in the near
future and that the operating costs of small independent ready-mix concrete
producers will increase, thereby dampening their ability to compete as
effectively as they do now.
Our Spanish Operating Network
OFICEMEN reported that, based on 2002 sales, CEMEX Espana had a
market share of approximately 22% in gray and white cement, making us the
leader in the Spanish cement industry. We believe that we maintain this
leading market position because of our customer service and our geographic
diversification, which includes extensive distribution channels that enable us
to cope with downturns in demand more effectively than many of our competitors
because we are able to shift our production to serve areas with the strongest
demand and prices.
[GRAPHIC OMITTED]
Products and Distribution Channels. CEMEX Espana offers various types
of cement, targeting specific products to specific markets and users. In 2002,
approximately 20% of CEMEX Espana's domestic sales volumes consisted of bagged
cement through distributors, and the remainder of CEMEX Espana's domestic
sales volumes consisted of bulk cement, primarily to ready-mix concrete
operators, which include CEMEX Espana's own subsidiaries, as well as
industrial customers that use cement in their production processes and
construction companies.
Exports. In general, despite increases in domestic demand in recent
years, we have been able to export excess capacity through collaboration
between CEMEX Espana and our trading network. Export prices, however, are
usually lower than domestic market prices, and costs are usually higher for
export sales. In 2002, 37% of our exports from Spain were to the United
States, 20% to Europe and the Middle East, 39% to Africa and 4% to the
Caribbean.
Production Costs
We have improved the profitability of our Spanish operations by
introducing technological improvements that have significantly reduced our
energy costs, including the use of alternative fuels, in accordance with our
cost reduction policy. We reduced the clinker-cement ratio (the proportion of
clinker used in the production of cement) by 4.8 percentage points over the
last four years, including a 1.6 percentage point reduction in 2002 compared
to 2001. Additionally, the increased capacity in 2002 of the San Vicente plant
(approximately 400 thousand tons) has
29
allowed us to reduce the clinker transportation costs between plants and the
need for imported clinker. In 2002 we burned meal flour as fuel, achieving a
1% substitution rate for petcoke. During 2003, in addition to burning meal
flour, we expect to initiate the burning of tires.
Description of Properties, Plants and Equipment
As of December 31, 2002, our Spanish operations operated eight plants
located in Spain, with a cement equivalent capacity of 10.8 million tons,
including 850 thousand tons of white cement (the equivalent of approximately
1.7 million tons of gray cement). We also operated 81 ready-mix concrete
plants, including 16 aggregate and nine mortar plants. CEMEX Espana also owns
two cement mills, one of which is operated through a joint venture 50%-owned
by CEMEX Espana, and 27 distribution centers, including nine land and 18
marine terminals.
As of December 31, 2002, CEMEX Espana owned eight limestone quarries
located in close proximity to its plants, which have useful lives ranging from
10 to 30 years, assuming 2002 production levels. Additionally, we have rights
to expand those reserves to 50 years of limestone reserves, assuming 2002
production levels.
Capital Investments
We made capital expenditures of approximately U.S.$61.1 million in
2002 in our Spanish operations. We currently expect to make capital
expenditures in our Spanish operations of approximately U.S.$58 million during
2003.
Our Asian Operations
As of December 31, 2002, our business in Asia, which includes our
operations in the Philippines and Thailand, as well as our minority interests
in Indonesia and other assets in Asia, represented approximately 2% of our net
sales, 13.5% of our total installed capacity and 5% of our total assets.
Our Philippine Operations
The Philippine Cement Industry
During 2002, cement consumption in the Philippine market totaled 12.8
million tons. Since there is currently overcapacity in the Philippines, we
intend to use our trading network to export a substantial amount of our
Philippine cement production.
The primary nature of the Philippine cement market is retail, similar
to Mexico. Approximately 85% of Philippine cement volume is typically sold in
bags through distributors and retailers. The balance is sold through ready-mix
concrete producers, large and small contractors and hollow block
manufacturers.
After four years of continual decline since the 1997 Asian economic
recession, cement demand in the Philippines started to recover during 2002 as
the overall economy showed a slight improvement. As a result, the cement
industry experienced growth of 7.4% in sales volume in 2002 compared to 2001.
However, despite this improvement, demand growth is lagging when compared to
other countries in the region and is below pre-crisis levels in Asia.
Competition. As of December 31, 2002, the Philippine cement industry
had a total of 20 cement plants and three cement grinding mills with an annual
installed capacity of 26.4 million tons, according to the Philippine Cement
Manufacturers Corporation. Major global cement producers own nearly 87% of
this capacity.
Our major competitors in the Philippine cement market are Holcim,
which has interests in five local cement plants, and Lafarge, which has
interests in eight local cement plants.
30
Our Philippine Operating Network
[GRAPHIC OMITTED]
*Solid consists of two plants in Manila.
Our Philippine operations have three cement plants with a total of
eight production lines, three utilizing the dry process (75% of our capacity)
and five utilizing the wet process (25% of our capacity), as well as
distribution centers in Batangas and Iloilo.
Production Costs
Costs of production include energy, labor, transportation, raw
materials, maintenance and packaging. We estimate that we have mining rights
for at least 15 years plus an option for another 15 years in Solid and 40
years in APO of limestone and clay reserves available to supply our Philippine
operations at 2002 levels of production. Other raw materials, such as gypsum
and iron ore, which are used in smaller quantities than limestone and clay,
are purchased from outside suppliers.
Our three plants have their own electricity generating capacity,
which allows us to reduce our production costs since our self-generated
electricity cost is usually cheaper than electricity supplied by either
government-owned or privately-owned grids. However, one of our Manila plants
can still avail itself of electricity from local suppliers when production
reaches its peak or when rates are economically attractive.
Description of Properties, Plants and Equipment
Our Philippine operations include three plants with a total capacity
of 5.8 million tons per year and two marine distribution terminals. Our cement
plants include two Solid plants, with five wet process production lines and
one dry process production line and an installed capacity of 2.6 million tons,
serving the Manila metropolitan region; and the APO plant, with two dry
process production lines and an installed capacity of 3.2 million tons,
serving the Visayas, North Mindanao and South of Luzon regions.
31
Capital Investments
We made approximately U.S.$12.1 million of capital expenditures in
2002 in our Philippine operations. We currently expect to make capital
expenditures of approximately U.S.$5.0 million during 2003.
Our Indonesian Equity Investment
Overview
In October 1998, we purchased from the Indonesian government a 14%
interest in Gresik, Indonesia's largest cement producer. In 1999, we increased
our interest in Gresik to approximately 25.5%. The Indonesian government
retains a 51% interest in Gresik. In October 2000, by means of capital
contributions made by us and the minority investors, CAH acquired our interest
in Gresik. As a result of this transaction and the increase of our stake in
CAH, as described above, at December 31, 2002, our proportionate economic
interest through CAH in Gresik was approximately 23.5%. Currently, we hold two
seats on both the board of directors and the board of commissioners of Gresik,
as well as the right to approve Gresik's business plan jointly with the
Indonesian government.
Gresik owns (directly or indirectly through its subsidiaries) and
operates four cement plants in Indonesia with a total installed capacity of
17.3 million tons.
On November 1, 2001, the provincial administration of the Indonesian
province of West Sumatra, in which Gresik's Padang plant is located, announced
that it had directed the management of Semen Padang, the wholly-owned
subsidiary of Gresik that owns and operates the Padang plant, to report to the
provincial authorities and that it intended to spin off the Padang subsidiary.
We believe the provincial administration lacked legal authority to direct the
affairs of Semen Padang, and we intend to defend our interests in Gresik and
its subsidiaries, including Semen Padang. We cannot predict, however, what
effect, if any, this action will have on our investment in Gresik.
Since the attempt of the West Sumatra provincial administration in
November 2001 to "take over" the management of Semen Padang, several interest
groups opposed to any further sale of the Indonesian government's stock
ownership in PT Semen Gresik to us have threatened strikes and other actions
that would affect our Indonesian operations. We have discussed our concerns
with the Indonesian government, which has demonstrated its willingness to
carry out needed changes in management as a first step to re-attain normality
in the Padang plant's operations. At an extraordinary general meeting of
shareholders held in February 2002, the Indonesian government replaced three
government-appointed commissioners and the President-Director of PT Semen
Gresik. These replacements were implemented with our approval. Gresik, as the
controlling shareholder of Semen Padang, has taken steps to convene a general
meeting of shareholders to replace the management of Semen Padang. The
management of Semen Padang has refused to convene such a meeting, and such
refusal was upheld by the District Court in Padang in September 2002. In its
ruling, the District Court held that Gresik had not demonstrated that its
application to convene the shareholders' meeting had received the necessary
internal corporate approvals and that Gresik's reasons for changing management
were improper. Gresik filed a request for cassation with the Indonesian
Supreme Court on the grounds that, among other things, the District Court made
an error of law in evaluating Gresik's reasons for the proposed corporate
action, and committed a procedural error in concluding that Gresik had not
obtained the requisite internal corporate approvals to convene the meeting.
The Indonesian Cement Industry
The Indonesian cement industry is one of the two largest in South
East Asia, accounting for about 30% of the approximately 90 million tons of
cement consumed in South East Asia in 2002, according to our estimates.
Despite the recent economic and political problems experienced by Indonesia,
we believe the Indonesian cement market is important to our Asian expansion
strategy due to its strategic location, size, potential as an anchor for our
South East Asian trading network and the significant growth potential of the
Indonesian economy.
32
Indonesian cement domestic demand increased 14.2% in 2001 and
increased 6.8% in 2002. However, as of December 31, 2002, the Indonesian
cement industry still had an excess capacity of approximately 55%, which has
required Indonesian producers to seek export markets.
Competition. Indonesia had 13 cement plants with a combined installed
capacity of approximately 50 million tons as of December 31, 2002. Foreign
companies continue their efforts to increase their participation in the
industry. Lafarge holds a majority position in P.T. Semen Andalas,
Heidelberger holds a majority interest in Indocement and Holcim holds a
majority interest in Cibinong.
33
Gresik's Indonesian Operating Network
[GRAPHIC OMITTED]
Gresik, with an installed capacity of 17.3 million tons, is
Indonesia's largest cement producer. Gresik's production facilities include
four plants with twelve dry production lines and one wet production line, with
access to most of Indonesia's regions.
As of December 31, 2002, Gresik was operating at approximately 72%
capacity utilization. In 1998, CEMEX reached an agreement in principle with
Gresik to buy at least 1.5 million tons of cement from Gresik during each of
the years 2000, 2001 and 2002. Gresik undertook an upgrade of its port
infrastructure in order to increase its export capacity. However, in light of
the growth in the domestic market during the last two years, Gresik's need for
increased export capacity has diminished significantly.
Exports. During 2002, Gresik exported more than 18% of its cement
production, mainly through its own efforts. Gresik exports mainly to Egypt,
Bangladesh and Sri Lanka.
Description of Properties, Plants and Equipment
As of December 31, 2002, Gresik operated four cement plants with an
installed capacity of 17.3 million tons, and 12 land distribution centers and
10 marine terminals. Gresik's cement plants include the Padang plant, with one
production line that utilizes the wet process and four production lines that
utilize the dry process and an installed capacity of 5.6 million tons; the
Gresik plant, which has two production lines that utilize the dry process and
an installed capacity of 1.3 million tons; the Tuban plant, which has three
production lines that utilize the dry process and an installed capacity of 6.9
million tons; and the Tonasa plant, which has three production lines that
utilize the dry process and an installed capacity of 3.5 million tons.
Our Thai Operations
Overview
In May 2001, through CAH, we acquired a 100% economic interest in
Saraburi Cement Co. Ltd., a cement producer based in Thailand. The company was
later renamed CEMEX (Thailand) Co., Ltd. Our proportionate economic interest
in CEMEX (Thailand) through CAH is approximately 92.3% as of December 31,
2002.
The Thai Cement Industry
According to our estimates, at December 31, 2002, the cement industry
in Thailand had a total of 13 cement plants, with an aggregate annual
installed capacity of approximately 54.1 million tons. We estimate that
34
there are five major cement producers in Thailand, four of which represent 99%
of installed capacity and 97% of the market.
Competition. Our major competitors in the Thailand market, which, we
have a significantly larger presence than CEMEX (Thailand), are Siam Cement,
Holcim, TPI Polene and Italcementi.
Our Thai Operating Network
[GRAPHIC OMITTED]
Description of Properties, Plant and Equipment
CEMEX (Thailand) owns one dry process cement plant located north of
Bangkok and has been operating at full capacity. As of December 31, 2002,
CEMEX (Thailand) had an installed capacity of approximately 720,000 metric
tons.
Capital Investments
We made approximately U.S.$7.1 million of capital expenditures in our
Thai operations in 2002. We currently expect to make capital expenditures of
approximately U.S.$2.1 million during 2003.
Other Asian Investments
As part of our strategy to strengthen our presence in South Asia, in
May 2000, we committed to invest approximately U.S.$34 million in the
construction of a new grinding mill near Dhaka, Bangladesh. The grinding mill
began operating in April 2001 and produced 174,000 tons during 2002. In
addition, we sold an additional 175,000 tons of bagged cement in Bangladesh in
2002. We are supplying the mill with clinker from Gresik in Indonesia and from
other countries in the region.
In March 2001, we acquired a cement terminal in Sukematsu Port,
Izumiotsu City, near Osaka, Japan for U.S.$2.8 million. The terminal is
situated on land leased for a period of 30 years and has a storage capacity of
9,000 metric tons. Additional investments will be required to make the
terminal operational. We have not yet made these investments pending our
review of the Japanese cement industry. The terminal has potential annual
throughput volume of approximately 300,000 tons.
35
To further support our trading activities in the Asia region, as of
June 2001, we acquired a 100% interest in Tunwoo Co. Ltd., a company based in
Taiwan, for a total consideration of approximately U.S.$27 million. Tunwoo
owns a license to operate a cement terminal in the port of Taichung located on
the west coast of Taiwan. The import terminal has cement storage capacity of
60 thousand tons.
Our Egyptian Operations
Overview
As of December 31, 2002, we had a 95.8% interest in Assiut, which has
an installed capacity of approximately 4.9 million tons.
The Egyptian Cement Industry
The Egyptian cement market consumed approximately 27.0 million tons
of cement during 2002. Cement consumption increased by 0.8% in 2002, despite a
slowdown in the Egyptian economy and the diminishing availability of foreign
currency in Egypt which has affected most sectors of the Egyptian economy, in
particular the Egyptian construction sector.
Competition. As of December 31, 2002, the Egyptian cement industry
had a total of ten cement producers, with an aggregate annual installed
capacity of approximately 36 million tons. We estimate that, as of December
31, 2002, Holcim (Egyptian Cement Company), Lafarge (Alexandria Portland
Cement and Beni Suef Cement) and CEMEX (Assiut Cement Company), the three
largest cement producers in the world, were responsible for 45.6% of the total
cement sales in Egypt. Other competitors in the Egyptian market are Suez and
Tourah Cement Companies (Italcementi) and Helwan Portland Cement Company. In
addition, cement prices in Egypt are controlled to a significant degree by the
Egyptian government, which controls almost 50% of the industry's capacity
Our Egyptian Operating Network
[GRAPHIC OMITTED]
Distribution Channels
As a result of the retail nature of the Egyptian market, over 90% of
our cement sales volumes are typically sold in bags. Through our commercial
strategy we have been able to serve retail customers throughout the country
directly without having to depend on wholesalers and distributors.
36
Description of Properties, Plant and Equipment
As of December 31, 2002, Assiut operated one cement plant with an
installed capacity of approximately 4.9 million tons and three dry process
production lines. Assiut's cement plant serves upper Egypt as well as Cairo
and the Delta region, Egypt's main cement market.
Capital Investments
We made capital expenditures of approximately U.S.$27.2 million in
our Egyptian operations in 2002. We currently expect to make capital
expenditures of approximately U.S.$20 million during 2003.
South America, Central America and the Caribbean
As of December 31, 2002, our business in South America, Central
America and the Caribbean, which includes our operations in Venezuela,
Colombia, Costa Rica, the Dominican Republic, Panama, Nicaragua and Puerto
Rico, as well as other assets in the Caribbean, represented approximately 14%
of our net sales, 17% of our total installed capacity and 9% of our total
assets.
Our Venezuelan Operations
Overview
Our Venezuelan operations represented approximately 4% of our net
sales in 2002. As of December 31, 2002, we held a 75.7% interest in CEMEX
Venezuela, S.A.C.A., or CEMEX Venezuela, a company listed on the Caracas Stock
Exchange. CEMEX Venezuela also serves as the holding company for our interests
in Chile, the Dominican Republic and Panama. CEMEX Venezuela is the largest
cement producer in Venezuela, based on an installed capacity of 4.6 million
tons as of December 31, 2002.
The Venezuelan Cement Industry
Cement consumption in Venezuela fell 19% in 2002 compared to 2001
according to our estimates, due to Venezuela's political and economic turmoil.
During 2002 Venezuela experienced considerable volatility and depreciation of
its currency, high interest rates, political instability and declining asset
values in 2002. In February 2002, the government abandoned its policy of
locking the Venezuelan Bolivar within an exchange rate band in favor of a free
floating exchange rate system, resulting in an immediate 35% depreciation of
the Venezuelan Bolivar. The April 2002 coup, which ousted President Chavez for
two days, marked the climax of the political instability that continued
throughout the remainder of 2002. In addition, an on-going nation-wide general
strike that began in early December 2002 has caused significant reduction in
oil production in Venezuela, and has had a material adverse effect on
Venezuela's oil-dependent economy. As a consequence, in 2002, inflation in
Venezuela reached 31.2%, the Venezuelan Bolivar depreciated 85.1% against the
Dollar and Venezuela's gross domestic product (GDP) decreased 8.9%. More
recently, in response to the general strike and in an effort to shore up the
economy and control inflation, in February 2003, Venezuela authorities imposed
foreign exchange controls and are still implementing price controls, which are
announced to include cement. Further economic stagnation in the private sector
is expected to come as a consequence of these market distortions. The adverse
economic situation in Venezuela has dampened the formal construction sector,
as a result of reduced demand for cement and ready-mix concrete.
Competition. As of December 31, 2002, the Venezuelan cement industry
included five cement producers, with a total installed capacity of
approximately 9.5 million tons, according to our estimates. We estimate that
CEMEX Venezuela's installed capacity in 2002 represented approximately 49% of
that total, almost twice that of its next largest competitor.
Our global competitors, Holcim and Lafarge, have acquired controlling
interests in Venezuela's second and third largest cement producers,
respectively.
37
In 2002, the ready-mix concrete market accounted for only about 13%
of cement consumption in Venezuela, according to our estimates. We believe
that Venezuela's construction companies, which prefer to install their own
ready-mix concrete plants on-site, are the most significant barrier to
penetration of the ready-mix concrete sector, with the result that on-site
ready-mix concrete mixing represents a high percentage of total ready-mix
concrete production.
Other than CEMEX Venezuela, the ready-mix concrete market is
concentrated in two companies, Premezclado Caribe, which is owned by Holcim,
and Premex, which is owned by Lafarge. The rest of the ready-mix concrete
sector in Venezuela is highly fragmented.
Our Venezuelan Operating Network
As shown below, CEMEX Venezuela's three cement plants and one
grinding facility are located near the major population centers and the coast
of Venezuela.
[GRAPHIC OMITTED]
As of December 31, 2002, CEMEX Venezuela was the leading Venezuelan
domestic supplier of cement, based on our estimates of sales of gray and white
cement in Venezuela. In addition, CEMEX Venezuela was also the leading
domestic supplier of ready-mix concrete in 2002 with 30 ready-mix production
plants throughout Venezuela. During 2002, CEMEX Venezuela achieved production
of 3.4 million tons of clinker.
Distribution Channels
Transport by land is handled primarily by CEMEX Venezuela. During
2002, approximately 36% of CEMEX Venezuela's total domestic sales were
transported through its own fleet of trucks. CEMEX Venezuela also serves a
significant number of its retail customers directly through its wholly-owned
distribution centers.
Exports
During 2002, exports from Venezuela represented approximately 17.2%
of CEMEX Venezuela's net sales. CEMEX Venezuela's main export markets
historically have been the Caribbean and the east coast of the United States.
In 2002, 65% of our exports from Venezuela were to the United States, and 35%
were to the Caribbean and South America.
38
Description of Properties, Plants and Equipment
As of December 31, 2002, CEMEX Venezuela operated three wholly-owned
cement plants, Lara, Mara and Pertigalete, with a combined installed capacity
of clinker production of approximately 4.3 million tons. CEMEX Venezuela also
operates the Guayana grinding facility with a cement capacity of 360 thousand
tons. All the plants are strategically located to serve both domestic areas
with the highest levels of cement consumption and export markets. CEMEX
Venezuela also owns 30 ready-mix concrete production facilities and 14
distribution centers. CEMEX Venezuela owns four limestone quarries with
reserves sufficient for over 100 years at 2002 production levels.
The Lara and Mara plants and one production line at the Pertigalete
plant utilize the wet process; the other production line at the Pertigalete
plant utilizes the dry process. All the plants utilize natural gas as fuel.
CEMEX Venezuela has its own electricity generating facilities, which are
powered by natural gas and diesel fuel.
As of December 31, 2002, CEMEX Venezuela owned and operated four port
facilities, three marine terminals and one river terminal. One port facility
is located at the Pertigalete plant, one at the Mara plant, one at the Catia
La Mar terminal on the Caribbean Sea near Caracas, and one at the Guayana
Plant on the Orinoco River in the Guayana Region. CEMEX Venezuela's cement is
transported either in bulk or in bags.
Capital Investments
We made capital expenditures of approximately U.S.$13.6 million in
2002 in our Venezuelan operations. We currently expect to make capital
expenditures of approximately U.S.$19 million during 2003.
Our Colombian Operations
Overview
Our Colombian operations represented approximately 3% of our net
sales in 2002.
As of December 31, 2002, CEMEX Colombia was the second-largest cement
producer in Colombia, based on installed capacity of 4.8 million tons,
according to the Colombian Institute of Cement Producers, or ICPC.
CEMEX Colombia has a significant market share in the cement and
ready-mix concrete market in the so-called "Urban Triangle" of Colombia
comprising the cities of Bogota, Medellin and Cali. During 2002, these three
metropolitan areas accounted for approximately 70% of Colombia's cement
consumption. CEMEX Colombia's Ibague plant, which uses the dry process and is
strategically located between Bogota, Cali and Medellin, is Colombia's largest
and had an installed capacity of 3.1 million tons as of December 31, 2002.
CEMEX Colombia, through its Bucaramanga and Cucuta plants, is also an active
participant in Colombia's northeastern market. CEMEX Colombia's strong
position in the Bogota ready-mix concrete market is largely due to its access
to a ready supply of aggregate deposits in the Bogota area.
The Colombian Cement Industry
Competition. The Colombian cement industry has been dominated by the
Sindicato Antioqueno, or Argos, which either owns or has interests in nine of
Colombia's twelve cement companies. Argos has established a leading position
in the Colombian coastal markets through Cementos Caribe in Barranquilla,
Compania Colclinker in Cartagena and Tolcemento in Sincelejo. The other
principal cement producer is Cementos Boyaca, an affiliate of Holcim.
39
Our Colombian Operating Network
[GRAPHIC OMITTED]
CEMEX Colombia owns quarries with minimum reserves sufficient for
over 100 years at 2002 production levels. In addition to mining its own raw
materials, CEMEX Colombia also purchases raw materials from third parties. The
majority of CEMEX Colombia's cement is distributed through independent
distributors.
CEMEX Colombia's principal concrete product is ready-mix concrete,
produced to client specifications and delivered directly to job sites. CEMEX
Colombia also produces other specialized cement-based building materials,
including mortars, shotcrete (sprayable concrete) and pre-fabricated concrete
construction products.
CEMEX Colombia operates its ready-mix concrete business through 20
ready-mix plants. CEMEX Colombia also uses portable ready-mix plants, which
allow concrete to be mixed at major building sites, reducing transportation
costs and eliminating the need to acquire additional permanent ready-mix
concrete sites.
Description of Properties, Plants and Equipment
As of December 31, 2002, CEMEX Colombia owned five cement plants
having a total installed capacity of 4.8 million tons per year and one
grinding mill. Two of these plants utilize the wet process and three utilize
the dry process. The Ibague and Tolima plants serve the Urban Triangle, while
Cucuta and Bucaramanga plants, located in the northeastern part of the
country, serve local and coastal markets. The La Esperanza cement plant and
the Santa Rosa clinker mill are close to Bogota. CEMEX Colombia also has an
internal electricity generating capacity of 24.7 megawatts through a leased
facility. In addition, CEMEX Colombia owns seven land distribution centers,
one mortar plant, 20 ready-mix concrete plants, one concrete products plant
and seven aggregate plants.
Capital Investments
We made capital expenditures of approximately U.S.$5.2 million in
2002 in our Colombian operations. We currently expect to make capital
investments of approximately U.S.$9.7 million during 2003.
Other South American Investments
Our Equity Investment in Chile
We hold a 11.9% interest in Cementos Bio Bio, S.A., Chile's largest
cement producer according to our estimates, with an installed capacity as of
December 31, 2002 of approximately 2.25 million tons. Cementos Bio Bio owns
and operates three cement plants. Two of the cement plants are located in the
Santiago-Concepcion corridor, and the third plant is located in the northern
Antofogasta region. Cementos Bio Bio's primary market is
40
the Concepcion market. In addition, Cementos Bio Bio has 1.05 million cubic
meters of ready-mix concrete production capacity.
Central America and the Caribbean
As for the year ended December 31, 2002, Central America and the
Caribbean, which includes our operations in Costa Rica, the Dominican
Republic, Panama, Nicaragua, Puerto Rico and other assets in the Caribbean,
represented approximately 7% of our net sales, 5% of our total installed
capacity and 5% of our total assets.
Through our investments in Costa Rica, Panama and Nicaragua, we have
established a strategic presence in the mainland markets of Central America.
Our Costa Rican Operations
Overview. As of December 31, 2002, we held a 98.4% interest in
Cementos del Pacifico.
The Costa Rican Cement Industry
Approximately 1.17 million tons of cement were sold in Costa Rica
during 2002, according to Camara de la Construccion de Costa Rica, the Costa
Rican construction industry association. The Costa Rican cement market is a
predominantly retail market, and we estimate that over three quarters of
cement sold is bagged cement.
Competition. The Costa Rican cement industry includes two producers,
Cementos del Pacifico (CEMEX) and Industria Nacional de Cemento, an affiliate
of Holcim. We estimate that the two companies control roughly equal
proportions of the market.
Our Costa Rican Operating Network. Cementos del Pacifico owns and
operates one cement plant in northwest Costa Rica and one grinding mill
located in San Jose.
[GRAPHIC OMITTED]
Products and Distribution Channels. Cementos del Pacifico has five
strategically located distribution centers, two on the Pacific coast and three
in the metropolitan areas, where 64% of total 2002 sales were made.
41
Exports. During 2002, exports of cement by our Costa Rican operations
represented approximately 26% of our total cement production in Costa Rica. In
2002, 15% of our exports from Costa Rica were to Nicaragua, 18% to El Salvador
and 67% to Guatemala.
Production Costs. In January 2001, we commenced using petcoke as fuel
in the production of cement to reduce our production costs. During 2002,
energy costs decreased approximately 30% in Costa Rica.
Description of Properties, Plant and Equipment. Our Costa Rican
operations' cement plant has one dry process production line with an installed
capacity of 850 thousand tons. Our grinding mill has a grinding capacity of
150 thousand tons.
Capital Investments. We made capital expenditures of approximately
U.S.$5.2 million in 2002 in our Costa Rican operations. We currently expect to
make capital expenditures of approximately U.S.$5.8 million during 2003.
Our Dominican Republic Operations
Overview. Our Dominican Republic operations represented approximately
2% of our net sales in 2002.
As of December 31, 2002, we owned 99.9% of Cementos Nacionales, a
cement producer in the Dominican Republic with an installed capacity of 2.4
million tons of cement, 12 distribution centers, and a concrete, aggregate and
gypsum operation through a 25 year lease with the Dominican Republic
government, which enables us to supply all local and regional gypsum
requirements.
The Dominican Republic Cement Industry
In 2002, Dominican Republic cement consumption reached 3.3 million
metric tons, and some cement imports were necessary to fulfill domestic
demand, according to our estimates.
Competition. Cementos Nacionales serves the cement market throughout
the Dominican Republic. Its principal competitors are Cementos Cibao, a local
competitor, and Cemento Colon, an affiliate of Holcim.
Our Dominican Republic Operating Network. As of December 31, 2002,
Cementos Nacionales was the leading cement producer in the Dominican Republic,
based on installed capacity as reported by International Cement Review in the
Global Cement Report. Cementos Nacionales' sales network covers the country's
main consumption areas, which are Santo Domingo, Santiago de los Caballeros,
La Vega, San Pedro de Macoris and Azua.
[GRAPHIC OMITTED]
Production Costs. Cementos Nacionales uses a dry production process.
As of December 31, 2002, Cementos Nacionales had an internal electricity
generating capacity of approximately 23.4 megawatts and obtained 17.7
megawatts of electricity from an external supplier (Bersal), which sells
electric energy to us at competitive
42
rates. Our generating capacity combined with our ability to negotiate
competitive prices for our remaining energy needs in the Dominican Republic
affords Cementos Nacionales an inexpensive source of energy relative to its
competition, which is critical to competitive production margins.
Cementos Nacionales maintains its own limestone and clay quarries,
which we expect will provide sufficient reserves for up to 150 years at 2002
production levels. Sand and other auxiliary raw materials are purchased on the
domestic market.
Description of Properties, Plant and Equipment. Cementos Nacionales
currently owns one dry process cement plant in San Pedro de Macoris with an
installed capacity of 0.66 million tons per year of clinker, in addition to
five ready-mix concrete production plants, three grinding mills with an
installed capacity of 2.4 million tons per year, 12 distribution centers
located throughout the country and two marine terminals. During 2002, our
Dominican Republic clinker plant operated at full capacity and our Dominican
Republic cement plant operated at 75% capacity. As the economy improves, we
expect that our Dominican Republic cement plant will operate at increased
capacity.
Capital Investments. We made capital expenditures of approximately
U.S.$9.0 million in 2002 in our Dominican Republic operations. We currently
expect to make capital investments of approximately U.S.$10.4 million during
2003.
Our Panamanian Operations
Overview. As of December 31, 2002, we owned a 99.2% interest in
Cemento Bayano. The Panamanian Cement Industry
Approximately 508,390 cubic meters of cement were sold in Panama
during 2002, according to the General Comptroller of the Republic of Panama
(Contraloria General de la Republica de Panama). Cement consumption increased
3.6% in 2002, according to our estimates.
Competition. The Panamanian cement industry includes two cement
producers, Cemento Bayano and Cemento Panama, S.A., an affiliate of Holcim.
Our Panamanian Operating Network. As of December 31, 2002, Cemento
Bayano had an installed capacity for cement production of approximately 402
thousand tons per year. As of December 31, 2002, we operated a distribution
network of six ready-mix concrete plants. In January 2003, we acquired an
additional ready-mix facility. Our cement plant utilizes the dry process.
[GRAPHIC OMITTED]
43
Production Costs. Panama has one of the highest energy costs of any
country in which CEMEX has operations. In response, Cemento Bayano has taken
significant steps to reduce energy costs. Cemento Bayano now runs on a more
cost-efficient mix of fuels (15% alternative fuels, which have completely
replaced fuel oil, and 85% petcoke). Currently, fuel oil is just used in start
up.
Cemento Bayano also reduced its energy cost per ton, a critical cost
of our manufacturing process, by securing a consistent supply of electric
energy and decreasing prices per kwh through negotiating the bulk purchase of
electric energy in the "spot market" as a "great consumer." Cemento Bayano's
efficiency improvements have been instrumental in increasing its exports of
clinker to the Caribbean as part of CEMEX's Caribbean cement strategy.
Description of Properties, Plant and Equipment. Our operations in
Panama include one dry production process cement plant, with an installed
clinker capacity of 382 thousand tons per year. In addition, Cemento Bayano
owns and operates five ready-mix concrete facilities; two in Panama City, one
in Colon, one in Aguadulce and one in Chiriqui.
Capital Investments. We made capital expenditures of approximately
U.S.$3.9 million in 2002 in our Panamanian operations. We currently expect to
make capital expenditures of approximately U.S.$7.0 million during 2003.
Our Nicaragua Operations
Overview. Nicaraguan cement consumption during 2002 fell 16% compared
to 2001, due to political turmoil, including the conviction of former
President Aleman of corruption charges in 2002, which adversely affected the
economy and both private and public investment. In order to offset local
market contraction, 31,000 tons of cement produced by CEMEX Nicaragua, S.A.
were exported to El Salvador during 2002, and a total of 86,500 tons of
clinker were sold to other cement producers.
The Nicaraguan Cement Industry
Approximately 0.5 million tons of cement were sold in Nicaragua
during 2002, according to our estimates.
Competition. The Nicaraguan cement industry includes two producers,
CEMEX Nicaragua and a company related to Holcim. Our market share in Nicaragua
in 2002 was 56% according to our estimates. Our competitive position relies on
high brand recognition; our CANAL brand has been used to market cement in
Nicaragua since 1942. Holcim started operations in Nicaragua in 1997.
Our Nicaraguan Operating Network. CEMEX Nicaragua leases and operates
one cement plant, located in San Rafael del Sur, approximately 50 kilometers
southwest of the capital Managua.
[GRAPHIC OMITTED]
44
Description of Properties, Plant and Equipment. Our Nicaraguan leased
cement plant has five kilns utilizing the wet production process with an
installed milling capacity of 0.47 million tons.
Capital Investments. During 2002, new burners were installed in three
kilns to allow petcoke to be burned instead of bunker fuel. Since June,
petcoke substitution reached 75%. We made capital expenditures of
approximately U.S.$3.9 million in 2002 in our Nicaraguan operations. We
currently expect to make capital expenditures of approximately U.S.$4.6
million during 2003.
Our Puerto Rico Operations
Overview. Our Puerto Rican operations, acquired in the third quarter
of 2002, represented approximately 10% of our cement sales volumes in the
Caribbean region in 2002.
As of December 31, 2002, we owned 100% of Puerto Rican Cement
Company, Inc., or PRCC.
The Puerto Rican Cement Industry
In 2002, Puerto Rican cement consumption reached 1,850 tons.
Competition. PRCC serves the cement market throughout Puerto Rico.
The Puerto Rican cement industry in 2002 includes two cement producers, PRCC,
which we estimate has 51% market share, and San Juan Cement Co., an affiliate
of Italcementi, which we estimate has 35% market share. In addition, we
estimate an independent cement importer, Antilles Cement Co., has a 14% market
share.
Our Puerto Rican Operating Network. As of December 31, 2002, PRCC had
an installed capacity for cement production of approximately 1.1 million tons
per year. PRCC utilizes the dry process. In addition, we operate a
distribution network of ten ready-mix concrete plants and three distribution
centers.
[GRAPHIC OMITTED]
Production Costs. At the time of acquisition, PRCC had one of the
highest energy costs of any region in which CEMEX has operations. In response,
we have taken significant steps to reduce energy cost.
PRCC has focused on reducing its energy cost per ton, a critical cost
of our manufacturing process, by:
o securing a consistent supply of electric energy and
decreasing prices per kwh through negotiating the bulk
purchase of electric energy,
45
o negotiating energy tariffs charged during both peak and
off-peak hours, and
o rationalizing the use of energy in accordance with CEMEX
"best practices" standards for low average energy
consumption.
PRCC has also committed to invest U.S.$750,000 during 2003 in an electric
sub-station.
Description of Properties, Plant and Equipment. Our operations in
Puerto Rico include one 100%-owned cement plant utilizing the dry production
process, with an installed clinker capacity of approximately 1.2 million tons
per year. In addition, Puerto Rican Cement owns and operates ten ready-mix
concrete facilities, mainly serving the sector of the Puerto Rican market
located on the eastern part of the island.
Capital Investments. We made capital expenditures of approximately
U.S.$14.8 million in 2002 in our Puerto Rican operations. We currently expect
to make capital investments of approximately U.S.$17.4 million during 2003.
Our Other Caribbean Operations
We are a party to a strategic alliance in Trinidad and Tobago,
through which we have the right to participate jointly in the production and
sale of cement from these islands and from the Arawak plant on the island of
Barbados to customers in various countries in the eastern Caribbean. We
operate in the Bahamas, Bermuda, the Cayman Islands and Haiti through one of
our subsidiaries.
We believe that the Caribbean region holds considerable strategic
importance because of its geographic location, which facilitates exports from
our operations in Mexico, Venezuela, Costa Rica, Spain, Colombia and Panama as
well as other countries through a network of nine land distribution centers
and six marine terminals.
Our Trading Operations
We traded more than 10.2 million tons of cement and clinker in 2002.
Approximately 41.5% of this amount consisted of exports from our operations in
Mexico, Venezuela, Costa Rica, Spain, Colombia, Puerto Rico and the
Philippines. Approximately 58.5% was purchased from third parties in countries
such as Turkey, Thailand, Korea, the United States, Taiwan, Lebanon, China,
Peru, Cyprus, Indonesia, Russia, Romania, Iran, Malaysia, Morocco, Colombia,
Egypt and France. During 2002, we conducted trading activities in 69
countries.
Our trading network enables us to maximize the capacity utilization
of our facilities worldwide while reducing our exposure to the inherent
cyclicality of the cement industry. We are able to distribute excess capacity
to regions around the world where there is demand.
46
Regulatory Matters and Legal Proceedings
A description of material regulatory and legal matters affecting us
is provided below.
Tariffs
Mexican tariffs on imported goods vary by product and have been as
high as 40%. In recent years, import tariffs have been substantially reduced,
and currently range from none at all for raw materials to 20% for finished
products, with an average weighted tariff for Mexican industry of
approximately 10%. As a result of the North American Free Trade Agreement, or
NAFTA, as of January 1, 1998, the tariff on cement imported into Mexico from
the United States or Canada was eliminated. However, a tariff that may range
from 13% ad valorem will continue to be imposed on cement produced in all
other countries unless tariff reduction treaties are implemented or the
Mexican government unilaterally reduces that tariff. While the reduction in
tariffs could lead to increased competition from imports in our Mexican
markets, we anticipate that the cost of transportation from most producers
outside Mexico to central Mexico, the region of highest demand, will remain an
effective barrier to entry.
Spain, as a member of the European Union, is subject to the uniform
European Union commercial policy. There is no tariff on cement imported into
Spain from another European Union country or on cement exported from Spain to
another member country. For cement imported into a member country from a
non-member country, the tariff is currently 1.7% of the customs value. Any
country with preferential treatment with the European Union is subject to the
same tariffs as members of the European Union. Most Eastern European producers
who export cement into Spain currently pay no tariff.
Environmental Matters
We use processes that are designed to protect the environment
throughout all the production stages in all our operations worldwide. We
believe that we are in substantial compliance with all material environmental
laws applicable to us.
European Union directives imposing stricter environmental standards
are expected to be implemented in Spain by 2007. For the purpose of adopting
the directives, on July 3, 2002 Spain promulgated Law 16/2002 for the
prevention and integrated control of pollution. This new law came into force
on July 3, 2002 but will have a transitional period for existing industries
until October 30, 2007. We already comply or believe that we would be able to
comply with those standards, if necessary, without significant expenditures.
We are not aware of any material environmental liabilities with respect to our
Spanish operations.
CEMEX Venezuela's cement production plants are subject to and comply
with Venezuelan environmental regulations. CEMEX Venezuela has decreased the
emission levels of cement dust, through dust extraction equipment installed in
all its cement plants.
We were one of the first industrial groups in Mexico to sign an
agreement with the Secretaria del Medio Ambiente y Recursos Naturales, or
SEMARNAT, the Mexican government's environmental ministry, to carry out
voluntary environmental audits in our 15 Mexican cement plants, including our
Hidalgo plant, under a government-run program. In 2001, the Mexican
environmental agency in charge of the voluntary environmental auditing
program, the Procuraduria Federal de Proteccion al Ambiente, or PROFEPA, which
is part of SEMARNAT, completed auditing our 15 cement plants and awarded all
our plants, including our Hidalgo plant, which temporarily halted operations
in 2002, a Certificado de Industria Limpia, Clean Industry Certificate,
certifying that our plants are in compliance with environmental laws. The
Clean Industry Certificates are strictly renewed every two years. For over a
decade, the technology for recycling used tires into an energy source has been
employed in our Ensenada and Huichapan plants. Since September 2002, our
Monterrey plant also started using tires as an energy source. Collection
centers in Tijuana, Mexicali and Ensenada currently enable us to recycle an
estimated one million tires per year. During 2002, approximately 8.5% of the
total fuel consumed in the Ensenada plant was provided by this alternative
fuel. The Huichapan plant also substituted approximately 0.3% of the total
fuel used with this alternative fuel.
47
Between 1998 and 2002, our Mexican operations have invested
approximately U.S.$14.3 million in the acquisition of environmental protection
equipment and the implementation of the ISO 14001 environmental management
standards of the International Organization for Standardization, or ISO.
Currently, our 15 cement plants in Mexico, including our Hidalgo plant, have
been awarded the ISO 14001 certification for environmental management systems.
As of December 31, 2002, our 8 cement plants in Spain have received
the ISO 14001 certification for environmental management systems.
CEMEX, Inc. is subject to a wide range of U.S. Federal, state and
local laws, regulations and ordinances dealing with the protection of human
health and the environment. These laws are strictly enforced and can lead to
significant monetary penalties for noncompliance. These laws regulate water
discharges, noise, and air emissions, including dust, as well as the handling,
use and disposal of hazardous and non-hazardous waste materials. These laws
also create a shared liability by responsible parties for the cost of cleaning
up or correcting releases to the environment of designated hazardous
substances. We therefore may have to remove or mitigate the environmental
effects of the disposal or release of these substances at CEMEX, Inc.'s
various operating facilities or elsewhere. We believe that our current
procedures and practices for handling and managing materials are generally
consistent with the industry standards and legal and regulatory requirements
and that we take appropriate precautions to protect employees and others from
harmful exposure to hazardous materials.
Several of CEMEX, Inc.'s previously owned and currently owned
facilities have become the subject of various local, state or Federal
environmental proceedings and inquiries in the past. While some of these
matters have been settled, others are in their preliminary stages and may not
be resolved for years. The information developed to date on these matters is
not complete. CEMEX, Inc. does not believe it will be required to spend
significantly more on these matters than the amounts already recorded in our
consolidated financial statements included elsewhere in this annual report.
However, it is impossible for CEMEX, Inc. to determine the ultimate cost that
it might incur in connection with such environmental matters until all
environmental studies and investigations, remediation work, negotiations with
other parties that may be responsible, and litigation against other potential
sources of recovery have been completed. With respect to known environmental
contingencies, CEMEX, Inc. has recorded provisions for estimated probable
liabilities and does not believe that the ultimate resolution of such matters
will have a material adverse effect on CEMEX's financial results.
U.S. Anti-Dumping Sunset Reviews
Under the U.S. anti-dumping and countervailing duty laws, the
Commerce Department and the International Trade Commission are required to
conduct ``sunset reviews'' of outstanding anti-dumping and countervailing duty
orders and suspension agreements every five years. At the conclusion of these
reviews, the Commerce Department is required to terminate the order or
suspension agreement unless the agencies have found that termination is likely
to lead to continuation or recurrence of dumping, or a subsidy in the case of
countervailing duty orders, and material injury. Under special transition
rules, the first sunset reviews commenced in August 1999 for cases involving
gray Portland cement and clinker from Mexico and Venezuela (described below),
which had orders and agreements issued before 1995, and were concluded by the
Commerce Department in July 2000 and by the ITC in October 2000.
In July 2000, the Commerce Department determined not to revoke the
anti-dumping order on imports from Mexico. On October 5, 2000, the ITC found
likelihood of injury to the U.S. industry and determined not to revoke this
anti-dumping order. Thus, the order remains in place. On September 19, 2001,
CEMEX filed a petition for a "changed circumstances" review. The International
Trade Commission decided in December 2001 not to initiate such a review. CEMEX
has appealed the ITC's decision in the "sunset review" and the "changed
circumstances" review to NAFTA.
On October 5, 2000, the ITC determined that terminating the
Anti-Dumping Suspension Agreement involving imports from Venezuela would not
likely lead to a continuation or recurrence of injury to the U.S. market, and
voted to terminate the agreement. Consequently, on November 8, 2000, the
Commerce Department issued a notice terminating the Anti-Dumping Suspension
Agreement.
48
On March 13, 2002, the United States Court of International Trade
scheduled oral arguments in the U.S. industry's challenge to the ITC's sunset
decision in the Venezuela case. CEMEX Venezuela argued in defense of the ITC's
decision. As of March 31, 2003, no further decisions had been rendered.
U.S. Anti-Dumping Rulings--Mexico
Our exports of Mexican gray cement from Mexico to the United States
are subject to an anti-dumping order that was imposed by the Commerce
Department on August 30, 1990. Pursuant to this order, firms that import gray
Portland cement from us in the United States must make cash deposits with the
U.S. Customs Service to guarantee the eventual payment of anti-dumping duties.
Mexican importers' deposits are being liquidated in stages, as
appeals are exhausted for each annual review period. When the final
anti-dumping rate for any review period causes the amount due to exceed the
amount that was deposited, then Mexican importers are required to pay the
difference with interest.
As of December 31, 2002, CEMEX Corp., as the parent company to our
U.S. subsidiaries that import Mexican cement into the United States, had
accrued liabilities of U.S.$112 million, including accrued interest, for the
difference between the amount of anti-dumping duties paid on imports and the
latest findings by the Commerce Department in its administrative reviews.
The Commerce Department has published its final dumping
determinations for the first, second, third and fourth review periods. The
Commerce Department's final results of its final determinations for the fifth,
sixth, seventh, eighth, ninth, tenth and eleventh review periods have also
been published, but have been suspended pending review by NAFTA panels.
The latest final determination by the Commerce Department covering
the eleventh review period, commencing on August 1, 2000 and ending on July
31, 2001, was issued on January 8, 2003. The Commerce Department determined
that the antidumping margin was 73.74% ad valorem. The final results for the
eleventh review establish the cash deposit rate for imports of gray Portland
cement and cement clinker from Mexico made on or after May 14, 2003. The
73.74% cash deposit rate will remain in effect until the final results of the
twelfth review are published.
49
The status of each period still under review or appeal is as follows:
Period Cash Deposits Status
- ---------------- --------------------------------- ----------------------------------------------------------
8/1/94-7/31/95 42.74%, 61.85% (effective 73.69% determined by the Commerce Department upon review.
5/19/95) Liquidation suspended pending appeal to NAFTA panel review.
8/1/95-7/31/96 61.85% 37.49% determined by the Commerce Department upon review.
Liquidation suspended pending NAFTA panel review.
8/1/96-7/31/97 61.85%, 73.69% (effective 49.58% determined by the Commerce Department upon review.
5/5/97) Liquidation suspended pending NAFTA panel review.
8/1/97-7/31/98 73.69%, 35.88% and 37.49% 45.98% determined by the Commerce Department upon review.
(effective 5/4/98) Liquidation suspended pending NAFTA panel review.
8/1/98-7/31/99 37.49%, 49.58% (effective 38.65% determined by the Commerce Department upon review.
3/17/99) Liquidation suspended pending NAFTA panel review.
8/1/99-7/31/00 49.58%, 45.98% (effective 50.98% determined by the Commerce Department upon review.
3/16/2000) Liquidation suspended pending appeal to NAFTA panel review.
8/1/00-7/31/01 49.58%, 38.65% (effective 73.74% determined by the Commerce Department upon review.
5/14/2001) Liquidation suspended pending appeal to NAFTA panel review.
8/1/01-7/31/02 38.65%, 50.98% Currently under review by the Commerce Department.
(effective 3/19/2002)
8/1/02 - to date 50.98%, 73.74% (effective Subject to review by the Commerce Department.
1/14/2003)
U.S. Anti-Dumping Rulings--Venezuela
On May 21, 1991, U.S. producers of gray cement and clinker filed
petitions with the Commerce Department and the International Trade Commission,
or ITC, claiming that imports of gray cement and clinker from Venezuela were
subsidized by the Venezuelan government and were being dumped into the U.S.
market. The producers asked the U.S. government to impose anti-dumping and
countervailing duties on these imports. These claims arose prior to our
acquisition of our Venezuelan operations in 1994, but for purposes of the
following discussion, we refer to the actions taken by the predecessor company
as actions taken by CEMEX Venezuela. CEMEX Venezuela contested the dumping
claim and the countervailing duty claim, and both cases were suspended.
The Commerce Department's preliminary determination regarding the
dumping claim was published on November 4, 1991. The Commerce Department
initially found that CEMEX Venezuela had a dumping margin of 49.2%. Rather
than proceeding with the final Commerce Department and ITC determinations,
CEMEX Venezuela and the Commerce Department entered into an Anti-Dumping
Suspension Agreement on February 11, 1992. Under the Anti-Dumping Suspension
Agreement, CEMEX Venezuela agreed not to sell gray cement or clinker in the
United States at a price less than the ``foreign market value.'' The foreign
market value was determined by the Commerce Department based on information
provided by CEMEX Venezuela each quarter. CEMEX Venezuela was required to
report to the Commerce Department sales in the U.S. market, costs of
production and related data.
50
During its sunset review of the Anti-Dumping Suspension Agreement, the ITC
determined that terminating the agreement would not likely lead to a
continuation or recurrence of injury to the U.S. market, and voted to
terminate the Anti-Dumping Suspension Agreement on October 5, 2000.
Consequently, on November 8, 2000, the Commerce Department issued a notice
terminating the Anti-Dumping Suspension Agreement.
On March 13, 2002, the United States Court of International Trade
scheduled oral arguments in the U.S. industry's challenge to the ITC's sunset
decision in the Venezuela case. CEMEX Venezuela argued in defense of the ITC's
decision. As of March 31, 2003, no further decisions had been rendered.
Anti-Dumping in Taiwan
Five Taiwanese cement producers--Asia Cement Corporation, Taiwan
Cement Corporation, Lucky Cement Corporation, Hsing Ta Cement Corporation and
China Rebar--filed before the Tariff Commission under the Ministry of Finance
(MOF) of Taiwan an anti-dumping case involving imported gray Portland cement
and clinker from the Philippines and Korea.
In a letter dated July 19, 2001, the MOF informed the petitioners and
the respondent producers in exporting countries that a formal investigation
had been initiated. Among the respondents in the petition are APO Cement
Corporation or APO, Rizal and Solid, indirect subsidiaries of CEMEX, which
received their anti-dumping questionnaires from the International Trade
Commission under the Ministry of Economic Affairs (ITC-MOEA) on August 2,
2001, and from the MOF on August 16, 2001.
Rizal and Solid replied to the ITC-MOEA by confirming that they were
not exporting cement/clinker during the covered period. On the other hand, in
its position paper filed on August 18, 2001 and in the public hearing held on
August 20, 2001, APO contested the allegation of "injury" in the anti-dumping
proceedings before the ITC-MOEA.
In a letter dated October 2, 2001, the ITC-MOEA notified the
respondent producers about the result of the preliminary injury investigation
and its determination that there is a reasonable indication that the domestic
industry in Taiwan was materially injured by reason of imports of Portland
cement and clinker from South Korea and the Philippines that are alleged to be
sold in Taiwan at less than normal value. In keeping with the implementing
regulations on the imposition of antidumping duties in Taiwan, the ITC-MOEA
has transferred the case to the MOF for further investigation.
On October 12, 2001 and November 2, 2001, APO filed its replies to
the MOF questionnaire to contest the allegation of "dumping" in the
anti-dumping proceedings before the MOF. In a letter dated January 22, 2002,
the MOF notified the petitioner and respondents that it adopted on January 15,
2002 a resolution preliminarily finding that there was "dumping" and resolving
that investigation on the issue of "dumping" would continue, but that no
provisional anti-dumping duty would be imposed.
In a letter dated June 26, 2002, the ITC-MOEA notified respondent
producers that its final injury investigation concluded that the imports from
South Korea and the Philippines have caused material injury to the domestic
industry in Taiwan.
In a letter dated July 12, 2002, the MOF notified the respondent
producers that a dumping duty would be imposed on Portland cement and clinker
imports from the Philippines and South Korea commencing from July 19, 2002.
The duty rate imposed on imports from APO, Rizal and Solid was 42%.
On September 17, 2002, APO, Rizal and Solid filed before the Taipei
High Administrative Court an appeal in opposition to the anti-dumping duty
imposed by the MOF. We are awaiting a final determination of the appeal.
Tax Matters
As of December 31, 2002, we and some of our Mexican subsidiaries have
been notified of several tax assessments determined by the Mexican tax office
with respect to the tax years from 1992 through 1996 in a total
51
amount of Ps5,229.8 million. With respect to the tax years from 1993 through
1996, the tax assessments are based primarily on: (i) recalculations of the
inflationary tax deduction, since the tax authorities claim that "Advance
Payments to Suppliers" and "Guaranty Deposits" are not by their nature
credits, (ii) disallowed restatement of tax loss carryforwards in the same
period in which they occurred, (iii) disallowed determination of tax loss
carryforwards, and (iv) disallowed amounts of business asset tax, commonly
referred to as BAT, creditable against the controlling entity's income tax
liability on the grounds that the creditable amount should be in proportion to
the equity interest that the controlling entity has in its relevant controlled
entities. We have filed an appeal for each of these tax claims before the
Mexican federal tax court, and the appeals are pending resolution. With
respect to the 1992 tax year, on October 24, 2002, the Mexican tax office
notified us of a tax assessment in the amount of Ps613.5 million, included in
the total tax assessment mentioned at the beginning of this paragraph, which
is primarily based, according to the Mexican tax office, on an improper
calculation of tax losses. Although we have not received an opinion of
counsel, based on our experience with regard to the resolution of a number of
similar claims, we believe that these claims will not have a material adverse
effect on us. However, an adverse resolution of these claims could have a
material adverse effect on our results of operations.
Other Legal Proceedings
In May 1999, several companies filed a civil liability suit in the
civil court of the circuit of Ibague, Colombia, against two of our Colombian
subsidiaries, alleging that these subsidiaries were responsible for
deterioration in the rice production capacity of land of the plaintiffs,
caused by pollution emanating from our cement plants located in Ibague,
Colombia. The plaintiffs have asked for relief in an amount of Colombian Pesos
equivalent to approximately U.S.$8.8 million, based on the exchange rate
prevailing as of December 31, 2002. This proceeding has reached the
evidentiary stage. Typically, proceedings of this nature continue for several
years before final resolution.
In March 2001, 42 transporters filed a civil liability suit in the
civil court of Ibague, Colombia, against three of our Colombian subsidiaries.
The plaintiffs contend that these subsidiaries are responsible for the alleged
damages caused by breach of raw material transportation contracts. The
plaintiffs asked for relief in the amount of approximately U.S.$60 million; as
of December 31, 2002, as a result of the depreciation of the Colombian Peso,
this amount has decreased to approximately U.S.$45.8 million. This proceeding
has not yet reached the evidentiary stage, as our subsidiaries have filed a
defense to plaintiffs' complaint. Upon resolution thereof, the evidentiary
stage will begin. Typically, proceedings of this nature continue for several
years before final resolution.
As of December 31, 2002, CEMEX, Inc. had accrued liabilities
specifically relating to environmental matters in the aggregate amount of
U.S.$23.9 million. The environmental matters relate to (i) the disposal of
various materials in accordance with past industry practice, which might be
categorized as hazardous substances or wastes, and (ii) the cleanup of sites
used or operated by CEMEX, Inc., including discontinued operations, in regard
to the disposal of hazardous substances or wastes, either individually or
jointly with other parties. Most of the proceedings are in the preliminary
stage, and a final resolution might take several years. For purposes of
recording the provision, CEMEX, Inc. considers that it is probable that a
liability has been incurred and the amount of the liability is reasonably
estimable, whether or not claims have been asserted, and without giving effect
to any possible future recoveries. Based on information developed to date,
CEMEX, Inc. does not believe it will be required to spend significant sums on
these matters in excess of the amounts previously recorded. Until all
environmental studies, investigations, remediation work, and negotiations with
or litigation against potential sources of recovery have been completed, the
ultimate cost that might be incurred to resolve these environmental issues
cannot be assured.
In December 2002, an ex-maritime broker for Puerto Rican Cement
Company, Inc. filed a civil liability lawsuit in Puerto Rico against CEMEX,
S.A. de C.V., PRCC and other unaffiliated entities, including Puerto Rican
authorities. The plaintiff contends that the defendants conspired to violate
state and federal antitrust laws so that one of the defendants, who is not
affiliated with us, could gain control of the maritime broker market in Port
of Ponce, Puerto Rico. The plaintiff has asked for relief in the amount of
approximately U.S.$18 million. We are currently in the process of determining
an appropriate legal strategy for responding to this lawsuit. Typically,
proceedings of this nature continue for several years before a final
resolution.
52
In the ordinary course of our business, we are party to various legal
proceedings. Other than as disclosed herein, we are not currently involved in
any litigation or arbitration proceedings, including any such proceedings
which are pending, which we believe will have, or have had, a material adverse
effect on us, nor, so far as we are aware, are any proceedings of that kind
threatened.
Item 5 - Operating and Financial Review and Prospects
The following discussion should be read in conjunction with our
consolidated financial statements included elsewhere in this annual report.
Our financial statements have been prepared in accordance with Mexican GAAP,
which differ in significant respects from U.S. GAAP. See note 23 to our
consolidated financial statements, included elsewhere in this annual report,
for a description of the principal differences between Mexican GAAP and U.S.
GAAP as they relate to us.
Mexico experienced annual inflation rates of 9.03% in 2000, 4.56% in
2001 and 5.59% in 2002. Mexican GAAP requires that our consolidated financial
statements recognize the effects of inflation. Consequently, financial data
for all periods in our consolidated financial statements and throughout this
annual report, except as otherwise noted, have been restated in constant
Mexican Pesos as of December 31, 2002. See note 2B to our consolidated
financial statements included elsewhere in this annual report.
The percentage changes in cement sales volumes described in this
annual report for our operations in a particular country include the number of
tons of cement sold to our operations in other countries. Likewise, unless
otherwise indicated, the net sales financial information presented in this
annual report for our operations in each country include the Mexican Peso
amount of sales derived from sales of cement to our operations in other
countries, which have been eliminated in the preparation of our consolidated
financial statements included elsewhere in this annual report.
The following table sets forth selected financial information for
each of the three years ended December 31, 2000, 2001, and 2002 by principal
geographic area expressed as an approximate percentage of our total
consolidated group before eliminations resulting from consolidation. We
operate in countries with economies in different stages of development and
structural reform, some of which are subject to fluctuations in exchange
rates, inflation and interest rates. These economic factors may affect our
results of operations and financial condition depending upon the depreciation
or appreciation of the exchange rate of each country in which we operate
compared to the Mexican Peso and the rate of inflation of each these
countries. The variations in (1) the exchange rates used in the translation of
the local currency to Mexican Pesos, and (2) the rates of inflation used for
the restatement of our financial information to constant Mexican Pesos, as of
the latest balance sheet presented, may affect the comparability of our
results of operations and consolidated financial position from period to
period.
%
Central
% America
% United % % % % % and the %
Mexico States Spain Venezuela Colombia Egypt Philippines Caribbean Others Total Elimination Consolidated
------ ------ ----- --------- -------- ----- ----------- --------- ------ ----- ----------- ------------
(in millions of constant Mexican Pesos except percentages)
Net Sales For the
Period Ended:
December 31, 2000 44% 13% 14% 8% 3% 3% 2% 8% 5% 64,192 (5,756) 58,436
December 31, 2001 35% 26% 10% 6% 3% 2% 2% 6% 10% 77,228 (7,926) 69,302
December 31, 2002 34% 24% 14% 4% 3% 2% 2% 7% 10% 75,294 (7,376) 67,918
Operating Income
For the Period
Ended:
December 31, 2000 70% 7% 15% 8% 5% 4% 1% 5% -15% 17,195 -- 17,195
December 31, 2001 65% 19% 12% 9% 6% 2% 1% 4% -18% 16,549 -- 16,549
December 31, 2002 72% 21% 18% 8% 6% 1% --- 7% -33% 13,603 --- 13,603
Total Assets at:
December 31, 2000 25% 23% 10% 6% 4% 3% 4% 3% 22% 203,115 (39,278) 163,837
December 31, 2001 22% 17% 7% 4% 3% 3% 3% 3% 38% 282,877 (120,413) 162,464
December 31, 2002 24% 19% 9% 3% 3% 2% 4% 5% 31% 237,568 (72,168) 165,400
53
Critical Accounting Policies
Our consolidated financial statements included elsewhere in this
annual report have been prepared in accordance with Mexican GAAP, which differ
in significant respects from U.S. GAAP. See note 23 to our consolidated
financial statements, included elsewhere in this annual report, for a
description of the principal differences between Mexican GAAP and U.S. GAAP as
they relate to us.
We have identified below the accounting policies we have applied under
Mexican GAAP that are critical to understanding the overall financial reporting
of CEMEX.
Income Taxes
Our operations are subject to taxation in many different
jurisdictions throughout the world. Under Mexican GAAP, we recognize deferred
tax assets and liabilities using a balance sheet methodology which requires a
determination of the permanent and temporary differences between the financial
statements carrying amounts and the tax basis of assets and liabilities. Our
worldwide tax position is highly complex and subject to numerous laws which
require interpretation and application and which are not consistent among the
countries in which we operate. Our overall strategy is to structure our
worldwide operations to take greatest advantage of opportunities provided
under the tax laws of the various jurisdictions to minimize or defer the
payment of income taxes on a consolidated basis.
Many of the activities we undertake in pursuing this tax reduction
strategy are highly complex and involve interpretations of tax laws and
regulations in multiple jurisdictions and are subject to review by the
relevant taxing authorities. It is possible that the taxing authorities could
challenge our application of these regulations to our operations and
transactions. The taxing authorities have in the past challenged
interpretations that we have made and have assessed additional taxes. Although
we have from time to time paid some of these additional assessments, in
general we believe that these assessments have not been material and that we
have been successful in sustaining our positions. No assurance can be given,
however, that we will continue to be as successful as we have been in the past
or that pending appeals of current tax assessments will be judged in our
favor. Significant judgment is required to appropriately assess the amounts of
tax assets. We record tax assets when we believe that the recoverability of
the asset is determined to be more likely than not in accordance with
established accounting principles. If this determination cannot be made, a
valuation allowance is established to reduce the carrying value of the asset.
Recognition of the effects of inflation
Under Mexican GAAP, the financial statements of each subsidiary are
restated to reflect the loss of purchasing power (inflation) of their
functional currency. The inflation effects arising from holding monetary
assets and liabilities are reflected in the income statements as monetary
position result. Inventories, fixed assets and deferred charges, with the
exception of fixed assets of foreign origin and the equity accounts, are
restated to account for inflation using the consumer price index applicable in
each country. The result is reflected as an increase in the carrying value of
each item. Fixed assets of foreign origin are restated using the inflation
index of the assets' origin country and the variation in the foreign exchange
rate between the country of origin currency and the functional currency. The
difference between the inflation of the country and the factor utilized to
restate a fixed asset of foreign origin is presented in consolidated
stockholders' equity in the line item Effects from Holding Non-Monetary
Assets. Income statement accounts are also restated for inflation into
constant Mexican Pesos as of the reporting date.
In the event of a sudden increase in the rate of inflation in Mexico,
the adjustment that the market makes on the exchange rate of the Mexican Peso
against other currencies resulting from such inflation is not immediate and
may take several months, if it occurs at all. In this situation, the value
expressed in the consolidated financial statements for fixed assets of foreign
origin will be understated in terms of Mexican inflation, given that the
restatement factor arising from the inflation of the assets' origin country
and the variation in the foreign exchange rate between the country of origin
currency and the Mexican Peso will not offset the Mexican inflation.
A sudden increase in inflation could also occur in other countries in
which we operate.
54
Foreign currency translation
As mentioned above, the financial statements of consolidated foreign
subsidiaries are restated for inflation in their functional currency based on
the subsidiary country's inflation rate. Subsequently, the restated financial
statements are translated into Mexican Pesos using the foreign exchange rate at
the end of the corresponding reporting period for balance sheet and income
statement accounts.
In the event of an abrupt and deep depreciation of the Mexican Peso
against the U.S. Dollar, which would not be aligned with a corresponding
inflation of the same magnitude, the carrying amounts of the Mexican assets,
when presented in convenience translation into U.S. Dollars, will show a
decrease in value, in terms of Dollars, by the difference between the
devaluation rate and the inflation rate.
Derivative financial instruments
As mentioned in note 2N to our consolidated financial statements
included elsewhere in this annual report, in compliance with the controls and
procedures established by our departments or units associated with our
financial risk management, we use derivative financial instruments such as
interest rate and currency swaps, currency and stock forward contracts,
options and futures, in order to reduce risks associated with changes in
interest rates and foreign exchange rates of debt agreements and as a vehicle
to reduce financing costs, as well as: (i) hedges of forecasted transactions
to purchase fuels and electric power, (ii) hedges of CEMEX's net investments
in foreign subsidiaries, (iii) hedges of the future exercise of options under
our stock option programs, and (iv) as an alternative source of financing.
These instruments have been negotiated with institutions and corporations with
significant financial capacity; therefore, we consider that the risk of
non-compliance with the obligations agreed to by such counterparties to be
minimal. Some of these instruments have been designated as hedges of CEMEX's
raw materials costs as well as debt or equity instruments.
Effective January 1, 2001, we adopted Bulletin C-2 Financial
Instruments ("Bulletin C-2"), which requires the recognition of all derivative
financial instruments in the balance sheet as assets or liabilities, at their
estimated fair value, and the recognition of changes in such values in the
income statement for the period in which they occurred. There are several
exemptions to the general rule when derivatives are qualified as accounting
hedges (see note 2N to our consolidated financial statements included
elsewhere in this annual report). Premiums paid or received on hedge
derivative instruments are deferred and amortized over the life of the
underlying hedged instrument or immediately when they are settled; in other
cases, premiums are recorded in the income statement, at the time that they
are received or paid. See notes 11, 12 and 16 to our consolidated financial
statements included elsewhere in this annual report.
Pursuant to the accounting principles established by Bulletin C-2,
our balance sheets and income statements are subject to volatility arising
from variations in interest rates, exchange rates, share prices and other
conditions established in our derivative instruments. The estimated fair value
represents a valuation effect at the reporting date, and the final cash
inflows or outflows that we will receive or make to our counterparties will
not be known until settlement of the derivative instruments occurs. The
estimated fair values of derivative instruments, used by us for recognition
and disclosure purposes in the financial statements and their notes, are
supported by confirmations of these values received from the counterparties to
these financial instruments; nonetheless, significant judgment is required to
account appropriately for the effects of derivative financial instruments in
the financial statements.
Also, the estimated fair values of derivative financial instruments
may fluctuate over time, and are based on estimated settlement costs or quoted
market prices. In many cases, determination of estimated fair values involves
significant judgments by us. These values should be viewed in relation to the
fair values of the underlying instruments or transactions, and as part of
CEMEX's overall exposure to fluctuations in foreign exchange rates, interest
rates and prices of shares. The notional amounts of derivative instruments do
not necessarily represent amounts exchanged by the parties and, therefore, are
not a direct measure of CEMEX's exposure through its use of derivatives. The
amounts exchanged are determined on the basis of the notional amounts and
other items included in the derivative instruments.
55
Impairment of long-lived assets
Our balance sheet reflects significant amounts of goodwill and fixed
assets associated with our operations throughout the world. Many of these
amounts have resulted from past acquisitions, which required us to reflect
these assets at their fair market values at the dates of acquisition. As
discussed herein, we have made a significant number of acquisitions in recent
years. We assess the recoverability of our long-lived assets periodically or
whenever events or circumstances arise that we believe trigger a requirement
to review such carrying values. This determination requires substantial
judgment and is highly complex when considering the myriad of countries in
which we operate, each of which has its own economic circumstances that have
to be monitored. Additionally, we monitor the lives assigned to these
long-lived assets for purposes of depreciation and amortization. This
determination is subjective and is integral to the determination of whether an
impairment has occurred.
Transactions in our own stock
We have entered into various transactions involving our own stock.
These transactions have been designed to achieve various financial goals but
were primarily executed to give us a means of satisfying future transactions
that may require us to deliver significant numbers of shares of our own stock.
These transactions are described in detail in the notes to our consolidated
financial statements included elsewhere in this annual report. We view these
transactions as hedges against future exposure even though they do not meet
the definition of hedges under accounting principles. There is significant
judgment necessary to properly account for these transactions. Additionally,
there is the possibility that these transactions will require us to acquire
substantial numbers of our own shares without having a converse need to
deliver such shares to other parties. Also, in some cases, the obligations
underlying two related transactions are required to be reflected at market
value, with the changes in such value reflected in our statement of
operations. There is the possibility that we could be required to reflect
losses on the transactions in our own shares without having a converse
reflection of gains on the transactions under which we would deliver such
shares to others.
Consolidation of Our Results of Operations
Our consolidated financial statements, included elsewhere in this
annual report, include those subsidiaries in which we hold a majority interest
or which we otherwise exercise control. All significant intercompany balances
and transactions have been eliminated in consolidation.
For the periods ended December 31, 2000, 2001 and 2002, our
consolidated results reflect the following transactions:
o In July and August 2002, through a tender offer and
subsequent merger, we acquired 100% of the outstanding
shares of Puerto Rican Cement Company, Inc., or PRCC. The
aggregate value of the transaction was approximately
U.S.$180.2 million, not including the amount of net debt
assumed of approximately U.S.$100.8 million.
o On July 12, 2002, we purchased 25,429 shares of common stock
(approximately 0.25% of the outstanding share capital) of
CAH, from a CAH investor for a purchase price of
approximately U.S.$2.3 million, increasing our equity
interest in CAH to 77.67%. CAH is a subsidiary originally
created to co-invest with institutional investors in Asian
cement operations. At the same time, we entered into
agreements to purchase an additional 1,483,365 shares of CAH
common stock (approximately 14.58% of the outstanding share
capital) from several other CAH investors in exchange for
28,195,213 CEMEX CPOs (subject to anti-dilution
adjustments). The exchange of 84,763 of the CAH shares for
CEMEX CPOs is scheduled to take place in four equal
quarterly tranches commencing on March 31, 2003, and the
exchange of the reamining 1,398,602 of the CAH shares for
CEMEX CPOs is scheduled to take place in four equal quarterly
tranches commencing on March 31, 2004. For accounting
purposes, the CAH shares to be received by us in exchange
for CEMEX CPOs are considered to be owned by us effective as
of July 12, 2002. As a result of this transaction and
pending its successful consummation, we will have increased
our stake in CAH to 92.25%. For recent developments
regarding the exchange of CAH shares for CEMEX CPOs, please
see Item 5
56
-- "Operating and Financial Review and Prospects-- Liquidity
and Capital Resources--Recent Developments."
o On July 31, 2002, we purchased, through a wholly-owned
indirect subsidiary, the remaining 30% economic interest
that was not previously acquired by CAH in Solid, for
approximately U.S.$95 million. At December 31, 2002, as a
consequence of this transaction and the increase of our
stake in CAH, as described above, our diluted economic
interest in Solid was approximately 94.58%.
o In May 2001, we acquired through CAH a 100% economic
interest in Saraburi Cement Company, now known as CEMEX
(Thailand) Co. Ltd. or CEMEX (Thailand), a cement company
based in Thailand with an installed capacity of
approximately 700 thousand metric tons, for a total
consideration of approximately U.S.$73 million.
o In November 2000, we acquired 100% of the outstanding shares
of common stock of Southdown, now CEMEX, Inc., in the United
States. Our consolidated financial statements for the year
ended December 31, 2000 include the results of operations of
CEMEX, Inc. for the two-month period ended December 31,
2000. See note 8A to our consolidated financial statements
included elsewhere in this annual report.
o In October 2000, CAH acquired our interest in Gresik. As a
result of this transaction and the increase of our stake in
CAH as described above, at December 31, 2002, our diluted
economic interest in Gresik was 23.5%.
o In May 2000, we committed to invest U.S.$34 million to begin
the construction of a new grinding mill near Dhaka,
Bangladesh. The mill is being constructed with a production
capacity of approximately 500 thousand metric tons per year.
The facility began operations in April 2001. We are
supplying this mill with clinker from Gresik in Indonesia
and from other countries in the region.
o In November 1999, we acquired a 77% interest in Assiut for
approximately U.S.$318.8 million. In 2000, we increased our
interest in Assiut to 92.9%. In March 2001, we further
increased our interest in Assiut to 95.8%.
57
Results of Operations
The following table sets forth selected consolidated income statement
data for CEMEX for each of the three years ended December 31, 2000, 2001, and
2002 expressed as a percentage of net sales.
------------------------------------------
Year Ended December 31,
------------------------------------------
2000 2001 2002
---- ---- ----
Net sales......................................................... 100.0 100.0 100.0
Cost of sales..................................................... (55.9) (56.2) (55.9)
Gross profit................................................. 44.1 43.8 44.1
Operating expenses:
Administrative................................................. (11.1) (11.4) (12.6)
Selling........................................................ (3.6) (8.5) (11.5)
Total operating expenses..................................... (14.7) (19.9) (24.1)
Operating income............................................... 29.4 23.9 20.0
Net comprehensive financing income (cost):
Financial expense.............................................. (8.3) (5.9) (5.1)
Financial income............................................... 0.4 0.6 0.7
Foreign exchange gain (loss), net.............................. (0.5) 2.2 (1.2)
Gain (loss) on valuation of marketable securities and other
investments.................................................. (0.1) 2.9 (4.8)
Monetary position gain......................................... 5.4 4.0 5.4
Net comprehensive financing income (cost)...................... (3.1) 3.8 (5.0)
Other expenses, net............................................... 4.2 (6.0) (5.9)
Income before income tax, business assets tax, employees'
statutory profit sharing and equity in income of affiliates.. 22.1 21.7 9.0
Income tax and business assets tax, net........................... (2.8) (2.4) (0.8)
Employees' statutory profit sharing............................... (0.6) (0.4) (0.2)
Total income taxes, business assets tax and employees' statutory
profit sharing............................................... (3.4) (2.8) (1.0)
Income before equity in income of affiliates................... 18.7 18.9 8.0
Equity in income of affiliates.................................... 0.5 0.3 0.5
Consolidated net income........................................... 19.2 19.2 8.5
Minority interest net income (loss)............................... 1.4 2.2 0.6
Majority interest net income...................................... 17.8 17.0 8.0
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Overview
During 2002, we experienced significant declines in our consolidated
results of operations as a consequence of unfavorable market conditions in
several of the countries in which we have operations. In addition, as a result
of the general decline in global capital markets as well as the volatility in
the interest rate and currency markets, during 2002, we experienced
significant valuation losses in our income statement, arising from our
derivative financial instruments portfolio. These factors have had, and may
continue to have, a direct negative impact on cement sales volumes and prices
in the individual countries in which we have operations and could result in
future valuation losses.
These unfavorable economic conditions have been partially offset by:
58
o our ability to enter into new markets in the Caribbean,
through our acquisition of Puerto Rican Cement Company, Inc.
in July 2002, and
o favorable markets in several of the countries in which we
operate, particularly in Spain, which experienced robust
spending in public works and strong residential construction
activity.
Summarized in the table below are the percentage (%) increases (+)
and decreases (-) in 2002 compared to 2001 in our net sales, before
eliminations resulting from consolidation, sales volumes and prices for the
major countries in which we have operations. Variations in net sales
determined on the basis of constant Mexican Pesos include the appreciation or
depreciation occurred during the period between the country's local currency
vis-a-vis the Mexican Peso, as well as the effects of inflation as applied to
the Mexican Peso amounts using CEMEX's weighted average inflation factor;
therefore, such variations substantially differ from those based solely on the
country's local currency:
- -----------------------------------------------------------------------------------------------------------------------
Net Sales
- -----------------------------------------------------------------------------------------------------------------------
Approximate Domestic Sales Volumes Export Sales Average Domestic
currency Variations Volumes Prices in local
Variations fluctuations, in constant currency
in local net of Mexican Cement Ready-Mix Cement Cement Ready-Mix
Country currency inflation Pesos
effects
- -----------------------------------------------------------------------------------------------------------------------
Mexico -1.0% -3.0% -4.0% +4% +10% -25% -6% -8%
- -----------------------------------------------------------------------------------------------------------------------
United States -7.7% -2.0% -9.7% -5% Flat N/A -1% +1%
- -----------------------------------------------------------------------------------------------------------------------
Spain +3.5% +25.8% +29.3% +2% +6% +5% +1% -1%
- -----------------------------------------------------------------------------------------------------------------------
Venezuela -7.8% -24.4% -32.2% -17% -23% -15% +12% +5%
- -----------------------------------------------------------------------------------------------------------------------
Colombia +9.4% -16.4% -7.0% +2% -3% N/A +9% +3%
- -----------------------------------------------------------------------------------------------------------------------
Central +16.5% +0.8% +17.3% +14% +152% N/A +5% N/A
America and
the Caribbean
- -----------------------------------------------------------------------------------------------------------------------
Philippines -8.2% +8.3% +0.1% +36% -68% -33% -23% Flat
- -----------------------------------------------------------------------------------------------------------------------
Egypt +10.1% +1.0% +11.1% +18% N/A N/A -8% N/A
- -----------------------------------------------------------------------------------------------------------------------
N/A = Not Applicable
On a consolidated basis, our cement sales volumes increased 1%, from
61.2 million tons in 2001 to 61.8 million tons in 2002, and our ready-mix
concrete sales volumes increased 6%, from 18.2 million cubic meters in 2001 to
19.2 million cubic meters in 2002. However, our net sales decreased 2% from
Ps69,302 million in 2001 to Ps67,918 million in 2002 in constant Peso terms,
and our operating income decreased 18% from Ps16,549 million in 2001 to
Ps13,603 million in 2002 in constant Peso terms.
Net Sales
Our net sales decrease of 2% in constant Peso terms during 2002 was
primarily attributable to unfavorable economic conditions in many of our
markets, which affected cement sales volumes and prices in those markets. A
decrease in weighted average cement prices and weighted average ready-mix
concrete prices in 2002 compared to 2001 accounted for approximately, 4% and
1%, respectively, of our various markets' negative impact on net sales. These
decreases were partially offset by a 1% positive effect resulting from the
increase in cement sales volumes, a 1% positive effect resulting from the
increase in ready-mix concrete sales volumes and a 1% positive effect
resulting from the consolidation of our newly acquired operations in Puerto
Rico. Additionally, set forth below is a quantitative and qualitative analysis
of the effects of the various factors affecting our net sales on a
country-by-country basis.
59
Mexico
Our Mexican operations' domestic gray cement sales volumes increased
4% in 2002 compared to 2001, and ready-mix concrete sales volumes increased
10% during the same period. The increase in sales volumes resulted primarily
from increased demand in the public sector, while the self-construction sector
remained stable during the year. However, lower cement prices and lower
ready-mix concrete prices in Mexico offset the sales volumes increases. The
average cement price in Mexico decreased 6% in constant Peso terms in 2002
compared to 2001, and the average ready-mix concrete price decreased 8% in
constant Peso terms over the same period (1.5% and 3.5% in nominal Peso terms,
respectively). The principal reason for the decrease in our average cement
price and our average ready-mix concrete price, both in constant Peso terms
and nominal Peso terms, is due to increased competition.
The increase in our domestic cement sales volumes was also offset by
a significant decrease in cement export volumes. Our Mexican operations'
cement export volumes, which represented 7% of our Mexican cement sales
volumes in 2002, decreased 25% in 2002 compared to 2001 due mainly to the
weakness of the U.S. market, our most important foreign consumer. Of our
Mexican operations' cement export volumes during 2002, 36% was shipped to
Central America and the Caribbean, 63% to the United States and 1% to South
America.
As a result of the decline in average cement and ready-mix prices and
the decline in cement export volumes, net sales in Mexico, in constant Peso
terms using Mexican inflation, declined 1% in 2002 compared to 2001, despite
increases in domestic cement sales volumes and ready-mix concrete sales
volumes.
United States
Our United States operations' cement sales volumes, which include
cement purchased from our other operations decreased 5% in 2002 compared to
2001. Ready-mix concrete sales volumes remained flat. The decrease in cement
sales volumes is attributable to the general weakness of the United States
economy. Industrial and commercial construction declined as a result of
continued weakness in the manufacturing and commercial sectors of the economy,
while the cement-intensive public works sector, in particular highway
construction, our strongest source of cement demand, did not grow as much as
in prior years. In addition, the average sales price of cement decreased 1% in
Dollar terms during 2002 compared to 2001. This decrease was only partially
offset by a corresponding 1% increase in the average price of ready-mix
concrete.
As a result of the decline in cement sales volumes and average cement
prices, net sales in the United States declined 7.7% in U.S. Dollar terms in
2002 compared to 2001.
Spain
Our Spanish operations' domestic cement sales volumes increased 2% in
2002 compared to 2001, and ready-mix concrete sales volumes increased 6%
during the same period. The increase in sales volumes was primarily driven by
increased spending in public works and strong residential construction
activity, combined with the effects of a strong Euro. Our Spanish operations'
cement export volumes, which represented 4% of our Spanish cement sales
volumes in 2002, increased 5% in 2002 compared to 2001 (despite the strong
Euro) due to our Spanish operations' expansion into new markets in Mauritania
(Africa) and the Caribbean during the second half of 2002. Of our Spanish
operations' total cement export volumes during 2002, 20% was shipped to Europe
and the Middle East, 39% to Africa, 37% to the United States and 4% to the
Caribbean region. In addition, the average sales price of cement increased 1%
in Euro terms during 2002 compared to 2001. This increase was only partially
offset by a corresponding 1% decrease in the average price of ready-mix
concrete.
As a result of the increase in cement sales volumes and prices, net
sales in Spain, in Euro terms, increased 3.5% in 2002 compared to 2001.
60
Venezuela
Our Venezuelan operations' domestic cement sales volumes decreased
17% in 2002 compared to 2001, while ready-mix concrete sales volumes decreased
23% during the same period. The decreases in sales volumes and ready-mix
concrete sales volumes were mainly driven by the downturn in construction
activity in Venezuela, which was the direct consequence of the political and
economic turmoil in Venezuela during 2002. In addition, the on-going
nation-wide general strike that began in early December 2002 caused
significant reduction in oil production in Venezuela and brought Venezuela's
oil-dependent economy virtually to a halt.
Our Venezuelan operations' cement export volumes, which represented
50% of our Venezuelan cement sales volumes in 2002, decreased 15% in 2002
compared to 2001. The decrease was due in part to the weakness of the economy
in the United States, which is the main destination of Venezuelan exports. Of
our Venezuelan operations' total cement export volumes during 2002, 65% was
shipped to North America and 35% to the Caribbean and South America.
Our Venezuelan operations' average domestic sales price of cement
increased 12% in constant Bolivar terms in 2002 compared to 2001, while the
average domestic sales price of ready-mix concrete increased approximately 5%
in constant Bolivar terms over the same period. However, these increases in
average prices were not sufficient to offset the decrease in sales volumes;
therefore, net sales in Venezuela, in constant Bolivar terms, declined 7.8% in
2002 compared to 2001.
During the end of the second and beginning of the third quarter of
2002, we experienced a 36 day labor strike in the Pertigalete plant, our major
cement plant in Venezuela. However, local market supply was met by existing
inventory, and our trading network covered volumes, which otherwise would have
been exported from Venezuela.
Colombia
Our Colombian operations' domestic sales volumes increased 2% in 2002
compared to 2001. This increase was primarily attributable to a recovery in
the public works sector, which increased toward the end of 2002, and our
increased penetration in the residential construction sector. Ready-mix
concrete sales volumes decreased 3% in 2002 compared to 2001, due primarily to
reduced construction activity during the first half of 2002.
Our Colombian operations' average sales price of cement increased 9%
in Colombian Peso terms in 2002 compared to 2001, while the average domestic
sales price of ready-mix concrete increased 3% in Colombian Peso terms over
the same period. As a result of the increases in cement sales volumes and
average cement and ready-mix concrete prices, slightly offset by the decrease
in ready-mix concrete volumes, our net sales in Colombia, in Colombian Peso
terms, increased 9.4% in 2002 compared to 2001.
Central America and the Caribbean
Our Central American and Caribbean operations consist of our
operations in Costa Rica, the Dominican Republic, Panama, Nicaragua and Puerto
Rico, as well as our trading operations in the Caribbean region. Most of these
trading operations consist of the resale in the Caribbean region of cement
produced by our operations in Spain, Venezuela and Mexico. Our Central
American and Caribbean operations' domestic cement sales volumes increased
approximately 12% (or approximately 15%, excluding our trading operations in
the Caribbean region) in 2002 compared to 2001, primarily as a result of our
acquisition of Puerto Rican Cement Company, Inc. in August 2002, which
represented 9% of our total cement sales volume in that region during 2002.
Our Central American and Caribbean operations' ready-mix concrete sales
volumes increased approximately 152% in 2002 compared to 2001, primarily due
to the inclusion of our Puerto Rican operations, and the beginning of
ready-mix concrete sales in Costa Rica in the third quarter of 2002.
Our operations in Panama and in the Dominican Republic increased
their ready-mix sales volumes by 23% and 7%, respectively, in 2002 compared to
2001, and our Caribbean region trading operations' cement sales volumes
61
increased approximately 2% in 2002 compared to 2001, despite the political and
economic turmoil in Venezuela because we were able to supply the Caribbean
trading market with exports from Spain.
Lastly, our Central American and Caribbean operations' average
domestic cement sales price increased 5% in Dollar terms in 2002 compared to
2001, primarily due to increases in the average sales prices of cement in
Costa Rica, the Dominican Republic and Nicaragua of 5%, 9% and 12%,
respectively, as a result of strong domestic demand, while the average sales
price of cement decreased 5% in Panama.
As a result of the increase in cement sales volumes and prices,
combined with the inclusion of our Puerto Rican operations, net sales in the
Central American and Caribbean region, in U.S. Dollar terms, increased 16.5%
in 2002 compared to 2001.
The Philippines
Our Philippines domestic cement sales volumes increased 36% in 2002
compared to 2001, which was partially offset by a 23% decrease in Philippine
Peso terms in the average domestic sales price of cement during the same
period. Our Philippine operations' domestic cement sales volumes increase was
primarily a result of our commercial marketing programs and our increased
market participation in the country due to fewer cement imports from our
competitors. The construction sector of the economy, however, remained weak as
a result of reductions in public spending and private investments. Our
Philippines ready-mix concrete business, which began in 2001, is still under
development. Our ready-mix sales volumes in the Philippines decreased 68% in
2002 compared to 2001, but, in contrast to sharply declining prices for
cement, the average ready-mix concrete price remained flat. The decrease in
ready-mix concrete sales volumes was also attributable to the weak economic
environment in the country.
Principally as a result of the decrease in the average cement prices
and the weak ready-mix concrete operations, which was partially offset by the
increase in domestic cement sales volumes, our net sales in the Philippines,
in Philippine Peso terms, decreased 8.2% in 2002 compared to 2001.
Thailand
Our Thai operations include Saraburi, now named CEMEX (Thailand),
which we acquired in May 2001 through our 92.25%-owned subsidiary CEMEX Asia
Holdings, Ltd. Accordingly, CEMEX (Thailand)'s results of operations are
consolidated in our results of operations for all of 2002, but only for seven
months in 2001. CEMEX (Thailand)'s net sales accounted for approximately 0.2%
of our consolidated net sales for the seven-month period ended December 31,
2001 and approximately 0.3% of our consolidated net sales for the year ended
December 31, 2002.
Egypt
Our Egyptian operations' domestic cement sales volumes increased 18%
in 2002 compared to 2001, primarily as a result of our higher penetration in
Lower Egypt and a strong self-construction sector. The increase in domestic
sales volumes was partially offset by a 8% decrease, in Egyptian pound terms,
in the average domestic sales price of cement, also the result of increased
sales in Lower Egypt, where prices are lower due to the high concentration
of competitors in the region. In addition to being subject to market
pressures, cement prices in Egypt are controlled to a significant degree by
the Egyptian government as a result of the government's control of almost 50%
of the industry's capacity.
In addition, the Egyptian pound has undergone four devaluations since
late 2000 (most recently, in February 2003 when it began trading as a freely
floating currency). Devaluations of the Egyptian pound relative to the U.S.
dollar create inflationary pressures in Egypt by generally increasing the
price of imported products and requiring recessionary government policies to
curb aggregate demand.
62
As a result of the increase in cement sales volumes combined with the
offsetting decline in domestic cement sales prices, net sales in Egypt, in
Egyptian pound terms, increased 10.1% in 2002 compared to 2001.
Cost of Sales
Our cost of sales, including depreciation, decreased 3% from Ps38,981
million in 2001 to Ps37,944 million in 2002 in constant Peso terms, as a
result of the reclassification of the expenses related to distribution of our
products as operating expenses in the income statement for the full year in
2002 and partially in 2001. During 2001, approximately Ps1,561 million of such
expenses were included in cost of sales. During 2002, the reclassification of
expenses accounted for substantially all the 3% decrease in cost of sales. As
a percentage of sales, cost of sales decreased from 56.2% in 2001 to 55.9% in
2002.
Gross Profit
Our gross profit decreased by 1% from Ps30,321 million in 2001 to
Ps29,974 million in 2002 in constant Peso terms. Our gross margin increased
slightly from 43.8% in 2001 to 44.1% in 2002, reflecting the reclassification
of distribution expenses discussed above. The decrease in our gross profit is
mainly attributable to the 2% decrease in net sales, partially offset by the
3% decrease in cost of sales from 2001 to 2002.
Operating Expenses
Our operating expenses increased 19% from Ps13,772 million in 2001 to
Ps16,371 million in 2002 in constant Peso terms. This increase was primarily a
result of our rollout expenses related to the implementation of the CEMEX Way,
which included increased efforts to strengthen our commercial and distribution
network worldwide in an effort to lower our costs in the future and make our
business processes more efficient. Also affecting operating expenses was the
reclassification of the expenses related to distribution of our products as
operating expenses in the income statement for the full year in 2002 and
partially in 2001; during 2001, approximately Ps1,561 million of such expenses
were included in cost of sales, representing approximately 37% of the increase
in operating expenses discussed above. As a percentage of sales, our
administrative and selling expenses increased from 19.9% in 2001 to 24.1% in
2002.
Operating Income
The 18% decrease in our operating income in 2002 compared to 2001 is
a result of a 2% decrease in net sales combined with a 19% increase in
operating expenses, partially offset by a 3% decrease in our cost of sales
from 2001 to 2002.
Comprehensive Financing Income (Expense)
Pursuant to Mexican GAAP, the comprehensive financing result should
measure the real cost (gain) of an entity's financing, net of the foreign
currency fluctuations and the inflationary effects on monetary assets and
liabilities. In periods of high inflation or currency depreciation,
significant volatility may arise and is reflected under this caption. For
presentation purposes, comprehensive financing income (expense) includes:
o financial or interest expense on borrowed funds;
o financial income on cash and temporary investments;
o appreciation or depreciation resulting from the valuation of
financial instruments, including derivative instruments and
marketable securities, as well as the realized gain or loss
from the sale or liquidation of such instruments or
securities;
o foreign exchange gains or losses associated with monetary
assets and liabilities denominated in foreign currencies;
and
o gains and losses resulting from having monetary liabilities
or assets exposed to inflation (monetary position result).
63
Year Ended December 31,
--------------------------------
2001 2002
-------------- -------------
(in millions of constant Pesos)
Net comprehensive financing income (expense):
Financial expense.......................................... Ps (4,122 ) Ps(3,452)
Financial income........................................... 408 463
Foreign exchange gain (loss), net.......................... 1,540 (800)
Gain (loss) on valuation and liquidation of financial
instruments............................................. 1,999 (3,285)
Monetary position gain..................................... 2,824 3,655
-------------- -------------
Net comprehensive financing income (expense)........... Ps 2,649 Ps(3,419)
============== =============
Our net comprehensive financing income (expense) decreased from income of
Ps2,649 million in 2001 to an expense of Ps3,419 million in 2002. The
components of the change are shown above. Our financial expense was Ps3,452
million for 2002, a decrease of 16% from Ps4,122 million in 2001. The decrease
was primarily attributable to lower average interest rates as a result of
market conditions. Our financial income increased 14% from Ps408 million in
2001 to Ps463 million in 2002 as a result of a higher level of investments in
fixed rate instruments during the year. Our net foreign exchange results
amounted to a loss of Ps800 million in 2002 compared to a gain of Ps1,540
million in 2001. The foreign exchange loss in 2002 is primarily attributable
to the appreciation of the Japanese Yen and the Dollar against the Peso and
the effect that such appreciation had in our Japanese Yen and Dollar
denominated debt. Our gain (loss) from valuation and liquidation of financial
instruments decreased from a gain of Ps1,999 million in 2001 to a loss of
Ps3,285 million in 2002, primarily attributable to a non-recurring gain
obtained in 2001 through the sale of marketable securities of approximately
Ps1,333.7 million, combined with valuation losses in 2002 on our derivative
financial instruments portfolio (discussed below). See notes 11, 12, and 16 to
our consolidated financial statements included elsewhere in this annual
report. Our monetary position gain (generated by the recognition of inflation
effects over monetary assets and liabilities) increased from Ps2,824 million
during 2001 to Ps3,655 million during 2002, as a result of the increase in the
weighted average inflation index in 2002 compared to 2001.
Derivative Financial Instruments
Our derivative financial instruments that have a potential impact on our
Comprehensive Financing Result consist of equity forward contracts designated
as hedges of our executive stock option programs (see notes 15 and 16 to our
consolidated financial statements included elsewhere in this annual report),
foreign exchange derivative instruments, excluding our foreign exchange
forward contracts designated as hedges of our net investment in foreign
subsidiaries, interest rate swaps, cross currency swaps, interest rate swap
options (swaptions), other interest rate derivatives, fuel and energy
derivatives and third party equity forward contracts. We suffered valuation
losses in most of these financial derivatives in 2002 compared to 2001, which
accounted for substantially all the loss recorded in 2002 under the line item
valuation and liquidation of financial instruments presented above. See
"Qualitative and Quantitative Market Disclosure --Our Derivative Financial
Instruments" and "Qualitative and Quantitative Market Disclosure -- Interest
Rate Risk, Foreign Currency Risk and Equity Risk." See also note 16A to our
consolidated financial statements included elsewhere in this annual report.
The decline in the estimated fair value of our equity forward contracts that
hedge the potential exercise of our executive stock option programs is
primarily attributable to a decrease in the market price of our listed
securities (ADSs and CPOs). The decline in the estimated fair market value of
our interest rate derivatives is primarily attributable to the continuing
decline in market interest rates, as CEMEX has fixed its interest rate profile
in a level above current market rates. With respect to our cross currency
swaps, the decrease in our estimated fair value is primarily attributable to
the appreciation of the Yen against the Mexican Peso during 2002. During 2003,
we cannot predict if the factors that led to the declines previously discussed
will continue to affect our derivative financial instruments valuation.
Other Expenses, Net
Our other expenses for 2002 were Ps4,041 million, a 3% decrease from
Ps4,174 million in 2001. The decrease was primarily attributable to expenses
related to a voluntary exchange program of options under our stock
64
option program during 2001. See note 15C to our consolidated financial
statements included elsewhere in this annual report. This decrease was
partially offset by the expense incurred during 2002 as a result of the
premium paid on our cash tender offer for our 12 3/4% notes due 2006, the
consent fee paid in connection with our consent solicitation for our 9.625%
notes due 2009 and a non-recurring expense related to the termination of our
distribution agreement in Taiwan. See note 21F to our consolidated financial
statements included elsewhere in this annual report.
Income Taxes, Business Assets Tax and Employees' Statutory
Profit Sharing
Our effective tax rate was 9.3% in 2002 compared to 11.1% in 2001.
Our tax expense, which primarily consists of income taxes and business assets
tax, decreased 66% from Ps1,670 million in 2001 to Ps569 million in 2002.
Approximately 32% of the decrease was attributable to lower taxable income in
2002 as compared to 2001, and 34% of the decrease resulted from the
recognition of the deferred income taxes for the year that was an income of
Ps393.5 million in 2002 as compared to an expense of Ps200.1 million in 2001
due mainly to the change in the enacted income tax ratio in Mexico which
decreased to 34% in 2002 from 35% in 2001, and also to variations in temporary
differences between book and taxable amounts that occurred during 2002. Our
average statutory income tax rate was approximately 34% in 2002 and
approximately 35% in 2001.
Employees' statutory profit sharing decreased from Ps236 million
during 2001 to Ps107 million during 2002 due to lower taxable income for
profit sharing purposes in Mexico and Venezuela. See note 17C to our
consolidated financial statements included elsewhere in this annual report.
Majority Interest Net Income
Majority interest net income represents the difference between our
consolidated net income and minority interest net income, which is the portion
of our consolidated net income attributable to those of our subsidiaries in
which non-affiliated third parties hold interests. Changes in minority
interest net income in any period reflect changes in the percentage of the
stock of our subsidiaries held by non-affiliated third parties as of the end
of each month during the relevant period and consolidated net income
attributable to those subsidiaries.
For the reasons described above, our consolidated net income (before
deducting the portion allocable to minority interest) for 2002 decreased 57%,
from Ps13,325 million in 2001 to Ps5,785 million in 2002. The percentage of
our consolidated net income allocable to minority interests decreased from 12%
in 2001 to 7% in 2002, as a result of our prepayment of a portion of the
preferred equity balance of the preferred equity transaction related to the
financing of our acquisition of Southdown, now renamed CEMEX, Inc., in 2000.
Majority interest net income decreased by 54%, from Ps11,790 million in 2001
to Ps5,400 million in 2002, mainly as a result of our decrease in net sales,
the increase in operating expenses and the increase in our valuation losses on
derivative financial instruments, partially offset by our reductions in cost
of sales, interest expense and income taxes and the increase in our monetary
position gain. As a percentage of net sales, majority interest net income
decreased from 17% in 2001 to 8% in 2002.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net Sales
Our net sales increased 18.6% from Ps58,436 million in 2000 to
Ps69,302 million in 2001. The increase was attributable to stronger pricing,
greater domestic cement demand in many of our markets and the consolidation of
the results of operations of Southdown, now CEMEX, Inc., in the United States
for the entire year in 2001 compared to just two months in 2000. Our cement
sales volumes increased 17.9%, from 51.9 million tons in 2000 to 61.2 million
tons in 2001. Ready-mix concrete sales volumes increased 15%, from 15.8
million cubic meters in 2000 to 18.2 million cubic meters in 2001.
Our Mexican operations' domestic cement sales volumes decreased 7% in
2001 compared to 2000, and ready-mix concrete sales volumes decreased 3%
during the same period. These decreases in sales volumes were
65
primarily attributable to decreased demand from both the commercial and retail
construction sectors as a result of the slowdown in economic growth during
2001. Our Mexican operations' cement export volumes, which represented 10% of
our Mexican cement sales volumes in 2001, decreased 10% in 2001 compared to
2000 due mainly to a stronger Mexican Peso. Of our Mexican operations' cement
export volumes during 2001, 36% was shipped to Central America and the
Caribbean, 63% to the United States and 1% to South America. The average
cement price in Mexico decreased 4% in constant Peso terms in 2001 compared to
2000, and the average ready-mix concrete price decreased 6% in constant Peso
terms over the same period.
Our United States operations include CEMEX, Inc., formerly Southdown,
which we acquired in November 2000. CEMEX, Inc.'s results of operations were
consolidated into our results of operations for all of 2001, but only for the
last two months of 2000. Our United States operations' cement sales volumes,
which include cement purchased from our other operations, increased 183% in
2001 compared to 2000, and ready-mix concrete sales volumes increased 81%
during the same period. The increase in cement sales volumes and ready-mix
concrete sales volumes was primarily as a result of our acquisition of
Southdown in the United States, which accounted for substantially all the
increase, as well as increased demand in the public works sector, particularly
in highway construction, which continues to be the strongest source for cement
demand growth. Our United States operations' average sales price of cement
increased 1% in Dollar terms in 2001 compared to 2000, and the average price
of ready-mix concrete increased 7% in Dollar terms over the same period as a
result of market conditions.
Our Spanish operations' domestic cement sales volumes increased 4% in
2001 compared to 2000, and ready-mix concrete sales volumes increased 5%
during the same period. The increase in sales volumes was primarily driven by
increased public works spending and the non-residential private sector, which
grew in 2001, while residential construction slowed due to less private sector
spending and lower real wages. Our Spanish operations' cement export volumes,
which represented 4% of our Spanish cement sales volumes in 2001, decreased
42% in 2001 compared to 2000 as cement production was targeted to meet high
domestic demand. Of our Spanish operations' total cement export volumes during
2001, 28% was shipped to Europe and the Middle East, 33% to Africa and 39% to
the United States. In addition, the average domestic sales price of cement
increased 2% in Peseta terms during 2001 compared to 2000 due to changes in
product mix. Over the same period, the average sales price of ready-mix
concrete increased 5% in Peseta terms, as a result of strong domestic demand.
Our Venezuelan operations' domestic cement sales volumes increased 4%
in 2001 compared to 2000, and ready-mix concrete sales volumes decreased 7%
during the same period. The increase in domestic cement sales volumes was
mainly driven by the self-construction sector. The decrease in ready-mix
concrete sales volumes was primarily attributable to reduced spending on
public works and the formal sector. Our Venezuelan operations' cement export
volumes, which represented 47% of our Venezuelan cement sales volumes in 2001,
decreased 17% in 2001 compared to 2000, primarily as a result of a decrease in
exports to the Caribbean region. Of our Venezuelan operations' total cement
export volumes during 2001, 64% was shipped to the United States, 30% to
Central America and the Caribbean and 6% to South America. In addition, our
Venezuelan operations' average domestic sales price of cement decreased 1% in
constant Bolivar terms for 2001 compared to 2000, and the average sales price
of ready-mix concrete decreased 3% in constant Bolivar terms over the same
period as a result of increased competition in Venezuela.
Our Colombian operations' domestic cement sales volumes in 2001
decreased 8% compared to 2000, and ready-mix concrete sales volumes decreased
3% during the same period. The decrease in domestic cement sales volumes was
due to a reduction in the construction activity resulting mainly from slower
economic activity, a higher unemployment rate and a lower number of home
mortgage loans. The decrease in ready-mix concrete sales volume was primarily
due to declining demand in the public sector as a result of the conclusion of
major projects. A higher unemployment rate and lower disposable income
resulted in lower demand in the private sector, despite a slight increase in
private investment in residential and non-residential projects. During 2001,
our Colombian operations' average sales price of cement increased by
approximately 17% in Colombian Peso terms compared to 2000. This increase in
prices followed several years of declining prices following the Colombian
economic recession. The average sales price of ready-mix concrete increased
19% in Colombian Peso terms for the same period, partially in response to
strong domestic demand in the first quarter of 2001 and partially as a result
of demand for concrete with higher quality specifications related to a public
works project. Even though there was a moderate increase in cement demand in
Colombia in 2001, significant excess cement production capacity still existed
in the Colombian market.
66
Our Central American and Caribbean operations consist of our
operations in the Dominican Republic, Panama, Costa Rica, Puerto Rico (acquired
in 2002) and Nicaragua, as well as our trading operations in the Caribbean
region. Most of these trading operations consist of the resale in the Caribbean
region of cement produced by our operations in Mexico, Venezuela, Costa Rica,
Colombia and Panama. Our Central American and Caribbean operations' domestic
cement sales volumes increased 6% in 2001 compared to 2000. Excluding our
trading operations in the Caribbean region, our Central American and Caribbean
operations' domestic cement sales volumes increased 7% in 2001 compared to 2000
as a result of the inclusion of operations in Nicaragua, which accounted for
approximately 11% of cement sales volumes in the region, and an increase in
sales volume in Costa Rica. Our Central American and Caribbean operations'
ready-mix concrete sales volumes decreased 22% in 2001 compared to 2000,
primarily as a result of a 29% decrease in our Panamanian operations, and a 15%
decrease in our Dominican Republic operations during the same period, which
were primarily attributable to economic recession in both countries. In
addition, our Caribbean region trading operations' cement sales volumes
increased approximately 2% in 2001 compared to 2000 due to continued demand
from public infrastructure projects, as well as private commercial and tourist
development projects. Our Central American and Caribbean operations' average
domestic sales price of cement decreased 8% in Dollar terms in 2001 compared to
2000, primarily as a result of decreased prices in the Dominican Republic.
Our Philippines operations' domestic cement sales volumes decreased
by 11% in 2001 compared to 2000 due to the continuing negative political and
economic environment in the Philippines and increased competition from
imports, particularly from Taiwan, Japan and the People's Republic of China.
The construction sector of the economy remained weak as a result of reduced
public spending and cautious investor sentiment. Our Philippine operations'
average domestic sales price of cement increased 14% in Philippine Peso terms
during 2001 compared to 2000.
Our Thai operations include CEMEX (Thailand), which we acquired in
May 2001 through CAH, our 77.67%-owned subsidiary. CEMEX (Thailand)'s results
of operations are consolidated into our results of operations for the last
seven months of 2001 only. Our Thai operations had net sales of U.S.$20.5
million and operating income of U.S.$4.3 million in 2001. Cement prices in
Thailand are indirectly controlled by the Thai government. According to the
Thailand Fellowship of Cement Manufacturers (TCFM), cement domestic
consumption increased 2.2%, from 17 million tons in 2000 to 17.3 million tons
in 2001.
Our Egyptian operations' domestic cement sales volumes increased by
5% in 2001 compared to 2000. The increase in domestic cement sales volumes was
primarily attributable to sales in southern Egypt during the fourth quarter of
2001, in which we had no presence in 2000, and by successful marketing
programs. Public spending in Egypt remained stable during 2001 while the
private sector remained depressed. Our Egyptian operations' average sales
price of cement decreased by approximately 4% in Egyptian Pound terms during
2001 compared to 2000, as a result of sales in southern Egypt, which command
lower prices. Egyptian cement prices are indirectly controlled by the Egyptian
government as a result of the government's control of almost 50% of the
industry's capacity. Cement consumption in Egypt, according to our estimates,
rose 1.3% in 2001.
Cost of Sales
Our cost of sales, including depreciation, increased 19% from
Ps32,653 million in 2000 to Ps38,981 million in 2001, primarily attributable
to an increase in sales volumes and the consolidation of the results of
operations of CEMEX, Inc. in the United States for the entire year in 2001
compared to just two months in 2000. These increases were partially offset by
the reclassification, beginning in 2001, of the expenses related to
distribution of our products as operating expenses in the income statement.
During 2000, such expenses were accounted for on the income statement as cost
of sales totaling approximately Ps2,371. As a percentage of sales, cost of
sales increased from 55.9% in 2000 to 56.2% in 2001.
Gross Profit
For the reasons mentioned above, our gross profit increased by 18%
from Ps25,783 million in 2000 to Ps30,321 million in 2001. Our gross margin
decreased from 44.1% in 2000 to 43.8% in 2001. This decrease reflects the
consolidation of CEMEX, Inc.'s results into our results of operations for the
entire year in 2001
67
compared to just two months in 2000. Historically, CEMEX, Inc.'s gross margins
have been less than our company-wide average gross margins. The decrease also
reflects changes in our product mix and higher energy costs.
Operating Expenses
Our operating expenses increased 60% from Ps8,588 million in 2000 to
Ps13,772 million in 2001. This increase primarily results from the
reclassification, beginning in 2001, of the expenses related to distribution of
our products as selling expenses in the income statement. During 2000, such
expenses were accounted for in the income statement as cost of sales for
approximately Ps2,371 million. In addition, a portion of the increase is
related to the consolidation of CEMEX, Inc.'s results into our results of
operations for the entire year in 2001 compared to just two months in 2000. As
a percentage of sales, our administrative and selling expenses increased from
14.7% in 2000 to 19.9% in 2001.
The reclassification mentioned in the paragraph above had no effect
on operating income, net income and/or earnings per share for the year ended
December 31, 2000.
Operating Income
For the reasons described above, our operating income decreased 4%
from Ps17,195 million in 2000 to Ps16,549 million in 2001.
Comprehensive Financing Income (Expense)
Pursuant to Mexican GAAP, the comprehensive financing result should
measure the real cost (gain) of an entity's financing, net of the foreign
currency fluctuations and the inflationary effects on monetary assets and
liabilities. In periods of high inflation or currency depreciation,
significant volatility may arise and is reflected under this caption. For
presentation purposes, comprehensive financing income (expense) includes:
o financial expense on borrowed funds;
o financial income on cash and temporary investments, results
from valuation and liquidation of financial instruments,
including marketable securities and the realized gain or
loss from the sale of investments;
o foreign exchange gains or losses associated with monetary
assets and liabilities denominated in foreign currencies;
and
o gains and losses resulting from having monetary liabilities
or assets exposed to inflation.
Year Ended December 31,
--------------------------------
2000 2001
-------------- -------------
(in millions of constant Pesos)
Net comprehensive financing income (expense):
Financial expense.......................................... Ps (4,854) Ps(4,122)
Financial income........................................... 256 408
Foreign exchange gain (loss), net.......................... (313) 1,540
Gain (loss) on valuation and liquidation of financial
instruments............................................. (80) 1,999
Monetary position gain..................................... 3,184 2,824
-------------- -------------
Net comprehensive financing income (expense)........... Ps (1,807 ) Ps 2,649
============== =============
Our net comprehensive financing income (expense) increased from a
loss of Ps1,807 million in 2000 to a gain of Ps2,649 million in 2001. The
components of the net increase are set forth below. Our financial expense was
Ps4,122 million for 2001, a decrease of 15% from Ps4,854 million in 2000. The
decrease was primarily attributable to lower average interest rates and debt
reduction. Our financial income increased 60% from Ps256 million in 2000 to
Ps408 million in 2001. Our net foreign exchange results increased to a gain of
Ps1,540 million in 2001 from a
68
loss of Ps313 million in 2000. The foreign exchange gain in 2001 is mainly
attributable to an appreciation of the Peso against the Dollar in 2001 as
compared to 2000 and the depreciation of the Yen during 2001. Our gain (loss)
from valuation and liquidation of financial instruments increased from a loss
of Ps80 million in 2000 to a gain of Ps1,999 million in 2001, primarily as a
result of the recognition, beginning in 2001, of the estimated fair value of
our derivative instruments portfolio (see notes 11, 12 and 16 to our
consolidated financial statements included elsewhere in this annual report)
and a one-time gain of approximately U.S.$131 million from the sale of our
shares of Grupo Financiero Banamex Accival. Our monetary position gain
decreased 11% from Ps3,184 million during 2000 to Ps2,824 million during 2001,
as a result of a lower average debt level and a lower weighted average
inflation index in 2001 as compared to 2000.
Other Expenses, Net
Our other expenses for 2001 were Ps4,174 million, a 71% increase from
Ps2,436 million in 2000. The increase was primarily attributable to higher
amortization of goodwill from newly acquired operations, mainly CEMEX, Inc.,
which was consolidated for the full year 2001 as compared to two months in
2000, and to expenses related to a voluntary exchange program of options under
our stock option program. See notes 15C and 23(m) to our consolidated
financial statements included elsewhere in this annual report.
Income Taxes, Business Assets Tax and Employees' Statutory Profit Sharing
Our tax expense, consisting of income taxes and business assets tax,
increased from Ps1,642 million in 2000 to Ps1,670 million in 2001. Our average
statutory income tax rate in 2001 was approximately 35%. Our effective tax
rate was 11.1% in 2001 compared to 12.7% in 2000. The decrease in the
effective tax rate primarily resulted from a lower amount of non-deductible
expenses in 2001 compared to 2000. Employees' statutory profit sharing
decreased from Ps372 million during 2000 to Ps236 million during 2001. As in
2000, in 2001 we were able to benefit from the difference between book and tax
inflation. As a result of tax law changes, we will not be able to take
advantage of this benefit in future periods.
In 2000, we adopted the provisions of Bulletin D-4 "Income Tax,
Business Assets Tax and Employees' Profit Sharing" issued by the Mexican
Institute of Public Accountants. Beginning January 1, 2000, companies
reporting under Mexican GAAP are required to provide for deferred taxes using
the balance sheet methodology. Under this methodology, deferred tax assets or
liabilities are recognized by applying the statutory tax rate to the net
amount of temporary differences between the book value of assets and
liabilities as compared to the corresponding value for tax purposes, applying
when available the tax loss carry-forwards, as well as the business asset tax
balances or other tax credits to be recovered. See note 17C to our
consolidated financial statements included elsewhere in this annual report.
Majority Interest Net Income
Majority interest net income represents the difference between our
consolidated net income and minority interest net income, which is the portion
of our consolidated net income attributable to those of our subsidiaries in
which non-affiliated third parties hold interests. Changes in minority
interest net income in any period reflect changes in the percentage of the
stock of our subsidiaries held by non-affiliated third parties as of the end
of each month during the relevant period and consolidated net income
attributable to those subsidiaries.
For the reasons described above, our consolidated net income (before
deducting the portion allocable to minority interest) for 2001 increased 19%,
from Ps11,200 million in 2000 to Ps13,325 million in 2001. The percentage of
our consolidated net income allocable to minority interests increased from 7%
in 2000 to 12% in 2001, partially as a result of the preferred equity dividend
from the financing of our acquisition of Southdown at the end of 2000.
Majority interest net income increased by 13%, from Ps10,389 million in 2000
to Ps11,790 million in 2001. As a percentage of net sales, majority interest
net income decreased from 17.8% in 2000 to 17.0% in 2001.
69
Liquidity and Capital Resources
Operating Activities
We have satisfied our operating liquidity needs primarily through
operations of our subsidiaries and expect to continue to do so for both the
short-term and long-term. Although cash flow from our operations has
historically overall met our liquidity needs for operations, servicing debt
and funding acquisitions, our subsidiaries are exposed to risks from changes
in foreign currency exchange rates, price and currency controls, interest
rates, inflation, governmental spending, social instability and other
political, economic or social developments in the countries in which they
operate, any one of which may materially reduce our net income and cash from
operations. Consequently, we also rely on cost-cutting and continual operating
improvements to optimize capacity utilization and maximize profitability as
well as to offset the risks associated with having worldwide operations. Our
consolidated net resources provided by operating activities were Ps18.1
billion in 2000, Ps 23.6 billion in, 2001 and Ps17.3 billion in 2002. (See our
Statement of Changes in the Financial Position included elsewhere in this
annual report.)
Our Indebtedness
As of December 31, 2002, we had approximately U.S.$5.8 billion
(Ps59.9 billion) of total debt, of which approximately 24% was short-term and
76% was long-term. Approximately 42% of our long-term debt, or U.S.$1.85
billion (Ps19.2 billion), is to be paid in 2004, unless extended. As of
December 31, 2002, 68.7% of our consolidated debt was Dollar-denominated,
14.5% was Japanese Yen-denominated, 12.0% was Euro-denominated, 3.6% was
Mexican peso-denominated, 1.2% was Egyptian Pound-denominated and immaterial
amounts denominated in other currencies, after giving effect to our cross
currency swap arrangements discussed elsewhere in this annual report. The
weighted average interest rates paid by us in 2002 in our main currencies were
4.8% on our Dollar-denominated debt, 3.98% on our Euro or Peseta-denominated
debt and 2.98% on our Yen-denominated debt. The ratio of total indebtedness,
including certain transactions that do not qualify as debt instruments under
Mexican GAAP and that are used to calculate this ratio for financial covenant
purposes, to total capitalization as of December 31, 2002 was approximately
47.5% and as of December 31, 2001 was approximately 42.8%.
From time to time, as part of our financing activities, we and our
subsidiaries have entered into various financing agreements, including bank
loans, credit facilities, sale-leaseback transactions, forward contracts,
forward lending facilities and equity swap transactions. Additionally, we and
our subsidiaries have issued notes, commercial paper, bonds, preferred equity
and putable capital securities.
Most of our outstanding indebtedness has been incurred to finance our
acquisitions and to finance our capital investment programs. CEMEX Mexico and
Empresas Tolteca de Mexico, two of our principal Mexican subsidiaries, have
provided guarantees of our indebtedness in the amount of U.S.$2.3 billion
(Ps23.9 billion), as of December 31, 2002. See Item 3 -- "Key Information --
Risk Factors -- Our ability to pay dividends and repay debt depends on our
ability to transfer income and dividends from our subsidiaries," "--We have
incurred and will continue to incur debt, which could have an adverse effect
on the price of our CPOs, ADSs, Appreciation Warrants and ADWs," and note 23 to
our consolidated financial statements included elsewhere in this annual
report.
As of December 31, 2002, we and our subsidiaries had lines of credit
totaling Ps30.4 billion at annual rates of interest ranging from 1.45% to
15.6%, in accordance with the currency in which they were negotiated, which do
not require compensating balances. The unused amounts of those lines of credit
totaled approximately Ps12.7 billion as of December 31, 2002. In addition to
these lines of credit, from time to time we borrow money from banks and other
financial institutions.
In September 1994, one of our subsidiaries leased a cement plant in
New Braunfels, Texas. The lease expires on September 9, 2009, and lease
payments vary from year to year. Our subsidiary has an option to purchase the
plant at the termination of the lease at fair value.
Some of the debt instruments in respect of our and our subsidiaries'
indebtedness contain various covenants, which, among other things, require us
and them to maintain specific financial ratios, restrict asset sales
70
and dictate the use of proceeds from the sale of assets. These restrictions
may adversely affect our ability to finance our future operations or capital
needs or to engage in other business activities, such as acquisitions, which
may be in our interest. From time to time, we have sought and obtained waivers
and amendments to some of our and our subsidiaries' debt agreements,
principally in connection with acquisitions. Our failure to obtain any
required waivers may result in the acceleration of the affected indebtedness
and could trigger our obligations to make payments of principal, interest and
other amounts under our other indebtedness, which could have a material
adverse effect on our financial condition. We believe that we have good
relations with our lenders and the lenders to our subsidiaries, and nothing
has come to our attention that would lead us to believe that any future
waivers, if required, would not be forthcoming. However, we cannot assure you
that future waivers would be forthcoming, if requested. As of December 31,
2002, we were in compliance with all the financial covenants in our own and
our subsidiaries' debt instruments.
In addition, a considerable amount of our debt is subject to credit
ratings triggers that require us to pay a step-up in the coupon rate of the
affected notes in the event that certain minimum credit ratings are not
maintained. Significantly, the CEMEX, Inc. Note and Guarantee Agreement, dated
March 15, 2001, described under Item 10 "-- Additional Information -- Material
Contracts," requires us to make all reasonable efforts to ensure that the
notes issued pursuant to that agreement maintain a private letter rating of at
least BBB- by Standard & Poor's and Baa3 by Moody's. If the notes fail to
maintain this required rating, we would have to pay a step-up in the coupon
rate and, if, after a continuous period of two years, the notes have not
re-attained these ratings, we would have to repay them or obtain a waiver of
this requirement. As of December 31, 2002, the notes were rated BBB- by
Standard & Poor's and Baa3 by Moody's.
Our Preferred Equity Arrangements
In November 2000, we formed a Dutch subsidiary which issued preferred
equity for an amount of U.S.$1.5 billion (Ps15.6 billion) to provide funds for
our acquisition of Southdown on terms we believe are advantageous. This
structure was designed to strengthen the capital structure of CEMEX Espana
while providing financing on favorable terms. The preferred equity grants its
holders 10% of the subsidiary's voting rights, as well as the right to receive
a preferred dividend. Under the terms of the preferred equity financing
arrangements described under Item 10 "-- Additional Information -- Material
Contracts," Sunward Acquisitions N.V., or Sunward Acquisitions, our indirect
Dutch subsidiary, contributed its 85.15% interest in CEMEX Espana to New
Sunward Holding B.V., or New Sunward Holding, our newly formed Dutch
subsidiary, in exchange for all its ordinary shares. A special purpose entity,
which is neither owned nor controlled by us, borrowed U.S.$1.5 billion from a
syndicate of banks and New Sunward Holding issued preferred equity to the
special purpose entity in exchange for the U.S.$1.5 billion, which was used to
subscribe for further shares in CEMEX Espana. Repayments of the special
purpose entity's borrowings under its loan are derived from payments made by
New Sunward Holding to the special purpose entity by way of distribution of
interim dividends on, and/or repayments of, the preferred equity. This special
purpose entity uses the funds to repay its loan to its parent, which in turn
uses the funds to repay the banks. Sunward Acquisitions has the option to
purchase from the special purpose entity the remaining preferred equity in an
aggregate amount not exceeding the outstanding balance of the entity's loan.
Under the terms of this transaction, New Sunward Holding may be liquidated if
we do not repurchase the preferred equity, if we do not make payments on the
preferred equity and in other specified circumstances. Any such liquidation
would include the sale of its assets (mainly the CEMEX Espana shares it holds)
at market prices in an amount sufficient to satisfy the amount outstanding
under the preferred equity. During 2001, we redeemed a portion of the
then-outstanding preferred stock in the amount of U.S.$600 million, and at
year-end 2001, the balance outstanding was U.S.$900 million. In February 2002,
we refinanced this preferred equity transaction, the new terms of which allow,
under certain circumstances, preferred equity to be issued by New Sunward
Holding up to U.S.$1.2 billion. Additionally, pursuant to the refinancing, we
redeemed U.S.$250 million of the outstanding preferred equity and extended the
termination date on the remaining U.S.$650 million with U.S.$195 million, due
in February 2004 and U.S.$455 million due in August 2004.
For accounting purposes under Mexican GAAP, the preferred equity is
recorded as a minority interest on our balance sheet. Any dividends paid on
the preferred equity are recorded as a minority interest on our income
statement. For the years ended December 31, 2000, 2001 and 2002, preferred
equity dividends amounted to approximately U.S.$17 million, U.S.$76 million
and U.S.$23.2 million, respectively.
71
In May 1998, a subsidiary of CEMEX Espana issued U.S.$250 million
aggregate liquidation amount of 9.66% Putable Capital Securities. In April
2002, approximately U.S.$184 million in aggregate liquidation amount of these
capital securities were tendered to, and accepted by, us in a tender offer.
The Putable Capital Securities are guaranteed on a subordinated basis by CEMEX
Espana. We have an option to repurchase the Putable Capital Securities from
the holders on November 15, 2004, or on any subsequent dividend payment date.
We are required to make an offer to purchase the Putable Capital Securities
from their holders on May 15, 2005 and after the occurrence of specified put
events, which include, among other things, a payment default or a deferral of
dividends by the issuer of the Putable Capital Securities. Our obligation to
purchase the Putable Capital Securities is guaranteed by CEMEX Mexico and
Empresas Tolteca de Mexico. As of December 31, 2002, we had U.S.$66 million of
the Putable Capital Securities outstanding.
For accounting purposes under Mexican GAAP, the Putable Capital
Securities are recorded as a minority interest on our balance sheet. Any
dividends paid on the Putable Capital Securities are recorded as a minority
interest on our income statement. For the years ended December 31, 2000, 2001
and 2002, Putable Capital Securities dividends amounted to approximately
U.S.$24.2 million, U.S.$24.2 million and U.S.$11.9 million, respectively.
Our Equity Arrangements
In December 1995, we entered into a financial transaction in which
one of our Mexican subsidiaries transferred some of its cement assets to a
trust, while simultaneously a third party purchased a beneficial interest in
the trust for approximately U.S.$123.5 million in exchange for notes issued by
the trust. We have the right to reacquire these assets on various dates until
2007. As of December 31, 2002, U.S.$90.6 million (Ps940.3 million) was
outstanding under this transaction.
Since inception, the assets subject to this transaction have been
considered as owned by third parties; therefore, for accounting purposes under
Mexican GAAP, this transaction is included as minority interest in our balance
sheet. For the years ended December 31, 2000, 2001 and 2002, the expense
generated by retaining the option to re-acquire the assets amounted to
approximately U.S.$14.4 million, U.S.$13.8 million and U.S.$13.2 million,
respectively, and was included as financial expense in our income statements.
In December 1999, we issued to our shareholders, members of our board
of directors and other executives 105 million Appreciation Warrants maturing
on December 13, 2002, at a subscription price in pesos of Ps3.2808 per
Appreciation Warrant. A portion of the Appreciation Warrants was subscribed as
American Depositary Warrants, or ADWs, each ADW representing five Appreciation
Warrants.
In November 2001, we launched a voluntary public exchange offer of
new Appreciation Warrants and new ADWs maturing on December 21, 2004, for our
existing Appreciation Warrants and our existing ADWs on a one-for-one basis.
Of the total 105 million Appreciation Warrants originally issued, 103,790,945,
or 98.85%, were tendered in exchange for the new Appreciation Warrants. Both
the old Appreciation Warrants and the new Appreciation Warrants were designed
to allow the holder to benefit from future increases in the market price of
our CPOs, with any appreciation value to be received in the form of our CPOs
or ADSs, as applicable. The old Appreciation Warrants expired on December 13,
2002 in accordance with their terms without any payments to the holders. See
note 14F to our consolidated financial statements included elsewhere in this
annual report and "-- Our Equity Derivative Forward Arrangements."
Our Equity Derivative Forward Arrangements
In connection with our Appreciation Warrants transaction, during
1999, we entered into equity forward contracts with a number of banks and
other financial institutions with an original maturity in December 2002,
pursuant to which the banks purchased our ADSs and shares of common stock of
CEMEX Espana (formerly Compania Valenciana de Cementos Portland, S.A.), our
Spanish subsidiary. In December 2002, we agreed with the
72
banks to settle the forward transactions for cash and simultaneously enter
into new forward transactions with the same banks on similar terms to the
original forward transactions with respect to the underlying ADSs and CEMEX
Espana shares, with a December 12, 2003 maturity. These ADSs are considered to
have been sold to the banks, and, therefore, future changes in the fair value
of the ADSs will not be recorded until settlement of the new forward
contracts. In connection with the termination of the original forward
contracts, we made a final advance payment of approximately U.S.$20.9 million
to the banks toward the forward settlement price, and as of the termination
date, the adjusted forward settlement price of the original forward contracts
was U.S.$448.4 million. Under the new forward contracts, the banks retain the
24,008,313 ADSs and 33,751,566 CEMEX Espana shares underlying the original
forward contracts, for which they agreed to pay us an aggregate price of
approximately U.S.$828.5 million, or the notional amount. We agreed with the
banks that the purchase price payable to us under the new forward contracts
would be netted against the adjusted forward settlement price of the original
forward contracts and any advance payments made by us in connection with the
closing of the new forward contracts. Upon closing of the new forward
transactions, we made an advance payment to the banks of approximately
U.S.$380.1 million of the forward purchase price, U.S.$285 million of which
represented payment in full of the portion of the forward purchase price
relating to the CEMEX Espana shares and U.S.$95.1 million of which was an
advance payment against the final forward purchase price. As of December 13,
2002, the adjusted forward settlement price of the new forward contracts was
U.S.$448.4 million. In December 2002, as a result of the net settlement and
renegotiation of the forward contracts, we recognized, in accordance with
Mexican GAAP, a decrease of approximately U.S.$98.3 million (Ps1,020.3
million) in our stockholders' equity, arising from changes in the valuation of
the underlying shares.
Absent a default under the forward contracts, the banks are required
to deliver to us on December 12, 2003 a number of ADSs and CEMEX Espana shares
equal to the number of ADSs and CEMEX Espana shares subject to the forward
contracts against payment of the forward purchase price. The forward purchase
price payable at any time under the forward contracts is the present value of
the adjusted forward settlement price. The adjusted forward settlement price
is the future value of the notional amount minus the future value of all
prepayments under the forward contracts. The forward contracts provide for
early delivery of ADSs and CEMEX Espana shares to us in specified
circumstances. We are required to make periodic payments during the life of
the forward contracts and upon the occurrence of specified events. During the
life of the forward contracts, we are required to make additional periodic
prepayments if the current market value of the ADSs and CEMEX Espana shares
subject to the contracts is less than 120% of the mark-to-market of the
discounted remaining forward purchase price.
For accounting purposes under Mexican GAAP, whether we settle the
forward transactions for cash or physically by repurchasing the ADSs, the
portion of the forward contracts relating to our ADSs are considered to be
equity transactions. Therefore, changes in the fair value of the ADSs have not
been and will not be recorded until settlement and the cost of the forward
contracts relating to our ADSs will be recorded as a decrease in stockholders'
equity. With respect to the portion of the forward contracts relating to CEMEX
Espana shares, the sale of the CEMEX Espana shares to the banks was not
considered to be a sale under Mexican GAAP, since we continue to retain the
economic and voting rights associated with these shares and are obligated to
repurchase them upon termination of the forward contracts, and in view of the
fact that our obligations to the banks relating to those shares have been
offset on our balance sheet against the portion of the forward purchase price
that we prepaid to the banks. As a result, absent a default under the forward
contracts, the transaction does not and will not have any effect on minority
interests, in either our income statements or our balance sheets.
Although our obligations under the forward contracts are not treated
as debt on our balance sheet under Mexican GAAP, our obligations under the
forward contracts are included as debt in the calculation of our debt to total
capitalization ratio covenants contained in our principal financing
agreements. The other forward contracts discussed below are not included as
debt in the calculation of our debt to total capitalization ratio covenants
contained in our principal financing agreements.
As of December 31, 2001 and 2002, we were also subject to equity
forward contracts with different maturities until October 2006, for a notional
amount of U.S.$408.3 million and U.S.$338.7 million, respectively, covering a
total of 15,986,689 ADSs in 2001 and 12,379,377 ADSs in 2002, negotiated to
hedge the future exercise of options granted under our executive stock option
73
programs. See note 15 to our consolidated financial statements included
elsewhere in this annual report. Starting in 2001, we recorded the changes in
the estimated fair value of these contracts in the balance sheet as an asset
or liability against the income statement, in addition to the costs originated
by our option programs, which these forwards are hedging. As of December 31,
2001 and 2002, the estimated fair value of these contracts was a gain of
approximately U.S.$3.3 million (Ps33.1 million) and a loss of approximately
U.S.$32.8 million (Ps340.5 million), respectively.
Additionally, as of December 31, 2001 and 2002, we were subject to
equity forward contracts with different maturities until May 2003, for a
notional amount of U.S.$101.8 million and U.S.$97.4 million, respectively,
covering a total of 4,699,061 ADSs in 2001 and 3,626,243 ADSs in 2002,
negotiated to hedge the future exercise of options granted under our voluntary
employee stock option programs. See note 15 to our consolidated financial
statements included elsewhere in this annual report. Starting in 2001, we have
recognized the changes in the estimated fair value of these contracts in the
balance sheet as an asset or liability against the income statement, in
addition to the costs originated by the options. As of December 31, 2001 and
2002, the estimated fair value was a gain of approximately U.S.$25.4 million
(Ps254.2 million) and a loss of approximately U.S.$14.2 million (Ps147.4
million), respectively.
As of December 31, 2002, in relation to the acquisition of 1,483,365
shares of CAH common stock, we had forward contracts for a notional amount of
U.S.$95 million, covering 21,510,500 CPOs, maturing in August and September
2003 hedging the acquisition of CAH shares to be acquired in exchange for CEMEX
CPOs, with the exchanges of CAH shares and CEMEX XPOs scheduled to take place
in four equal quarterly tranches commencing on March 31, 2003 with respect to
84,763 of the CAH shares and in four equal quarterly tranches commencing on
March 31, 2004 with respect to 1,398,602 of the CAH shares. The effects to be
generated upon settlement of the forward contracts will be recognized as an
adjustment to the acquisition cost of the CAH shares. As of December 31, 2002,
the estimated fair value of these contracts, which is not periodically
recorded, had an approximate loss of U.S.$2.1 million (Ps21.8 million). See
note 8A to our consolidated financial statements included elsewhere in this
annual report.
Finally, as of December 31, 2001 and 2002, we had forward contracts
with different maturities until February 2006, for an approximate notional
amount of U.S.$394.8 million and U.S.$452.7 million, respectively, covering a
total of 13,069,855 ADSs in 2001 and 15,316,818 ADSs in 2002. Based on our
intention to settle these contracts physically at maturity, the estimated fair
value of these contracts is not periodically recognized. The effects
originated by these contracts will be recognized at maturity as an adjustment
to our stockholders' equity. As of December 31, 2001 and 2002, the estimated
fair value of these contracts represented losses of approximately U.S.$46.5
million and U.S.$110.6 million, respectively.
Our Receivables Financing Arrangements
We have established sales of trade accounts receivable programs with
financial institutions, referred to as securitization programs. These programs
were negotiated by CEMEX Mexico and CEMEX Concretos, S.A. de C.V. during 2002,
by CEMEX, Inc. in the United States during 2001 and by CEMEX Espana in 2000.
Through the securitization programs, our subsidiaries effectively surrender
control, risks and the benefits associated to the accounts receivable sold;
therefore, the amount of receivables sold is recorded as a sale of financial
assets and the balances are removed from the balance sheet at the moment of
sale, except for the amounts that the counterparties have not paid, which are
reclassified to other accounts receivable. See note 4 to our consolidated
financial statements included elsewhere in this annual report. The balances of
receivables sold pursuant these securitization programs as of December 31,
2001 and 2002 were Ps2,993.0 million (U.S.$299.0 million) and Ps5,045.9
million (U.S.$486.1 million), respectively. The accounts receivable qualifying
for sale do not include amounts over certain days past due or concentrations
over certain limit to any one customer, according to the terms of the
programs. Expenses incurred under these programs, originated by the discount
granted to the acquirers of the accounts receivable, are recognized in the
income statements and were approximately Ps83.1 million (U.S.$8.3 million) in
2001 and Ps108.5 million (U.S.$10.5 million) in 2002. The proceeds obtained
through these programs have been used primarily to reduce net debt.
Summary of our Material Contractual Obligations and Commercial Commitments
As of December 31, 2002, our subsidiaries have future commitments for
the purchase of raw materials for an approximate amount of U.S.$86.4 million.
74
In March 1998, we entered into a 20-year contract with Pemex
providing that Pemex will supply us with 900 thousand tons of petcoke per
year, commencing in 2002. We expect the Pemex petcoke contract to reduce the
volatility of our fuel costs and provide us with a consistent source of
petcoke throughout its 20-year term.
In 1999, we, through a subsidiary, reached an agreement with ABB
Alstom Power and Sithe Energies, Inc., requiring that Alstom and Sithe
finance, build and operate Termoelectrica del Golfo, a 230 megawatt energy
plant in Tamuin, San Luis Potosi, Mexico and supply electricity to us for a
period of 20 years. In return, we will supply Alstom with 650 thousand tons of
petcoke per year over the same period and will buy all the electricity
produced by the plant. Our supply of petcoke will be derived from our contract
with Pemex. We expect this project to reduce the volatility of our energy
costs and to provide approximately 100% of the electricity needs of 11 of our
cement plants in Mexico. We estimate the plant will begin operations by the
first half of 2003.
For purposes of presenting the approximate cash flows that will be
required to meet our other material contractual obligations, the following
table presents a summary of those obligations, as of December 31, 2002:
Payments Due by Period
--------------------------------------------------------
(In millions of U.S. Dollars)
Within 2-3 4-5 After
Contractual Financing Obligations (1) Total 1 Year Years Years 5 Years
- ------------------------------------------------------- -------- -------- ------- -------- ----------
Bank Loans and Notes Payable........................... 4,995 642 2,466 838 1,049
Capital Lease Obligations.............................. 30 9 5 6 10
Total Debt (2)......................................... 5,025 651 2,471 844 1,059
Operating Leases (3)................................... 369 60 106 78 125
Preferred Equity (4)................................... 716 - 716 - -
Other Equity Transactions (5).......................... 91 26 32 33 -
-------- -------- ------- -------- ----------
Equity forward contracts
- -------------------------------------------------------
Unconditional Purchase Obligations (6)................. 1,445 1,182 26 237 -
(1) The data set forth in this table are expressed in nominal terms and
do not include financing expenses, preferred dividends on Preferred
Equity and Putable Capital Securities or the cost of retaining the
option to reacquire our subsidiaries' cement assets included under
"Other equity transactions."
(2) Total long-term debt including maturities is presented in note 12 to
our consolidated financial statements included elsewhere in this
annual report. In addition, As of December 31, 2002, we had lines of
credit totaling approximately U.S.$2.9 billion, of which the
available portion amounts to approximately U.S.$1.2 billion.
(3) Operating leases have not been calculated on the basis of net present
value instead they are presented in the basis of nominal future cash
flows. See note 21D to our consolidated financial statements included
elsewhere in this annual report.
(4) Refers to the preferred equity transaction issued in connection with
the financing required for the Southdown (now named CEMEX, Inc.)
acquisition and the putable capital securities issued by our
subsidiary in Spain. See note 14E to our consolidated financial
statements included elsewhere in this annual report.
(5) Refers to the transaction pursuant to which in 1995 we contributed
assets of our subsidiary to a trust in exchange of U.S.$123.5
million. See note 14F to our consolidated financial statements
included elsewhere in this annual report.
(6) The scenario under which the amounts presented under this line item
are determined assumes that, upon settlement of our equity forward
contracts, we will repurchase all the underlying CPOs. Even when this
scenario is possible, we consider that it is not probable considering
that in order for such a repurchase to take place, all the underlying
transactions to which the equity forward contracts are related, such
as the warrants and our employee stock option programs, would expire
unexercised (out of the money). Also, the scenario does not take into
account that we may elect to make a net cash settlement at maturity
of the equity forward contracts and permit our counterparties to sell
the underlying CPOs into the market, in which case, the expected cash
flow would be materially different. As of December 31, 2002, the
aggregate estimated fair value of these contracts was a loss of
approximately U.S.$91 million.
Of the total amount of U.S.$1,182 million due in the short-term,
approximately U.S.$461 million is related to the equity forwards that
hedge the warrant transaction, approximately U.S.$95.5 million is
related to the contracts that hedge our forward exchange transaction
of CAH shares, and approximately U.S.$216 million is related to the
contracts that hedge our employee stock option programs. We expect
that these contracts will be refinanced from time to time relative to
the underlying hedged items.
In addition, we have provided third party standby letters of credit
for the benefit of our counterparties in the equity forward contracts
and other financial transactions in the amount of U.S.$175 million at
December 31, 2002, in order to reduce their overall exposure.
75
For accounting purposes these letters of credit represent contingent
obligations. See note 21A to our consolidated financial statements
included elsewhere in this annual report.
Stock Repurchase Program
In September 2000, our board of directors approved a stock repurchase
program in an amount of up to U.S.$500 million which was implemented between
October 2000 and December 2001. During 2001 and 2000, under this program, a
total of 4,978,000 CPOs and 3,086,000 CPOs, respectively, were acquired and
cancelled, resulting in a capital stock reduction of Ps0.2 million in 2001 and
Ps0.1 million in 2000, and in the repurchase reserve of Ps222.1 million in
2001 and Ps130.9 million in 2000.
In connection with our 2001 annual stockholders' meeting held on
April 25, 2002, our stockholders approved, among other resolutions, a stock
repurchase program in an amount of up to Ps5 billion (approximately U.S.$482
million) to be implemented between April 2002 and December 2003. See note 14A
to our consolidated financial statements included elsewhere in this annual
report. We intend to permanently cancel all CPOs repurchased under this
program. During 2002, we purchased 7.6 million CPOs for a total of Ps355.0
million.
In connection with our 2002 annual stockholders' meeting scheduled on
April 24, 2003, our shareholders will be asked to approve a stock repurchase
program in an amount and on terms similar to previous years.
Recent Developments
In April 2003, we amended the terms of the July 12, 2002 agreements
pursuant to which we had agreed to exchange 28,195,213 CEMEX CPOs for
1,483,365 shares of CAH common stock. The terms of the exchange have been
modified with respect to 1,398,602 of the CAH shares. Instead of purchasing
those CAH shares in four equal quarterly tranches commencing on March 31,
2003, we have now agreed to purchase those CAH shares in four equal quarterly
tranches commencing on March 31, 2004. Notwithstanding the amendments, for
accounting purposes, the CAH shares to be received by us pursuant to the
exchanges are considered to be owned by us effective as of July 12, 2002.
Pending the successful consummation of this transaction, we will have
increased our stake in CAH to 92.25%.
On March 6, 2003, we issued an additional tranche under a Mexican
domestic medium term promissory notes program established in August 2002. The
tranche consists of Ps1,200 million in nominal pesos with a maturity of three
years and a rate per annum equal to the TIIE (the Interbank Offering Rate in
Mexico) plus 80 basis points. We used the proceeds of the transaction to repay
debt.
On March 26, 2003 we prepaid U.S.$225 million under the U.S.$550
million credit agreement agreement relating to the Southdown (now named CEMEX,
Inc.) acquisition. Funds for the pre-payment were obtained from various
existing lines of credit.
In March 2003, U.S.$800 million of the U.S.$1,000 million notional
amount of interest rate swap options (swaptions) held by us as of December 31,
2002 matured, and we entered into interest rate swaps for a notional amount of
U.S.$800 million in connection with the counterparties' election under the
swaptions to receive from us fixed interest rates and pay to us floating
interest rates for a five-year period. See note 11 to our consolidated
financial statements included elsewhere in this annual report. The remaining
swaptions for a notional amount of U.S.$200 million mature in October 2004.
Qualitative and Quantitative Market Disclosure
Our Derivative Financial Instruments
In compliance with the procedures and controls established by our
departments or units associated with our financial risk management team, we
have entered into various derivative financial instrument transactions in
order to manage our exposure to market risks resulting from changes in
interest rates, foreign exchange rates and the price of our common stock. We
actively evaluate the creditworthiness of the financial institutions and
corporations that are
76
counterparties to our derivative financial instruments, and we believe that
they have the financial capacity to meet their obligations in relation to
these instruments.
The fair value of derivative financial instruments is based on
estimated settlement costs or quoted market prices and are supported by
confirmations of these values received from the counterparties to these
financial instruments. The notional amounts of derivative financial instrument
agreements are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss.
(U.S.$ millions)
----------------------------------------------------------------
At December 31, 2001 At December 31, 2002
---------------------- ----------------------
Notional Estimated Notional Estimated
Derivative Instruments amount fair value amount fair value Maturity Date
- ------------------------------- --------- ----------- --------- ---------- --------------
Equity forward contracts....... 1,395.9 81.0 1,445.1 (90.6) Apr 2003 - Oct 2006
Foreign exchange forward
contracts...................... 424.0 4.4 1,325.7 (201.4) Jan 2003 - Nov 2007
Interest rates swaps........... 2,583.0 4.6 1,106.0 (72.5) Dec 2005 - Aug 2007
Cross currency swaps........... 1,205.8 251.8 1,847.9 234.6 Jan 2003 - Dec 2008
Interest rate swap options..... 1,506.0 (30.1) 1,000.0 (140.9) Mar 2003 - Oct 2004
Other interest rate derivatives 800.0 (68.8) 1,361.0 (157.7) Jan 2003 - Mar 2008
Fuel and energy derivatives.... 177.0 (4.6) 177.0 (0.5) May 2017
Third party equity forward
contracts...................... -- -- 7.1 (0.1) Jun 2003
Our Equity Derivative Forward Contracts
Our equity derivative forward contracts, including the Appreciation
Warrant-related forward contracts in the table above, are accounted for as
equity instruments, and gains and losses are recognized as an adjustment to
stockholders' equity upon settlement, with the exception of a portion of our
equity forward contracts as of December 31, 2001 and 2002 with a notional
amount of U.S.$510.1 million and U.S.$436.1 million, respectively, which,
beginning in 2001, have been designed as hedges of a portion of our executive
stock option plans, and for which changes in their estimated fair value have
been recognized through the income statement, in addition to the costs
generated by the stock option programs. The estimated fair value of these
forwards represented a gain of approximately U.S.$28.7 million and a loss of
U.S.$47.0 million, as of December 31, 2001 and 2002, respectively. See "--
Liquidity and Capital Resources -- Our Equity Derivative Forward Arrangements"
and notes 15 and 16 to our consolidated financial statements included
elsewhere in this annual report.
Our Foreign Exchange Forward Contracts
The foreign exchange forward contracts are accounted for at their
estimated market value as hedge instruments for our net investments in foreign
subsidiaries. Gains or losses are recognized as an adjustment to stockholders'
equity within the related foreign currency translation adjustment. In addition,
during 2002, we negotiated foreign exchange options for a notional amount of
U.S.$59.7 million maturing in November 2004 and recorded an estimated fair
value loss as of December 31, 2002 of approximately U.S.$44.4 million (Ps460.9
million) in the income statement. See note 16 to our consolidated financial
statements included elsewhere in this annual report.
Our Interest Rate Swaps
As of December 31, 2001 and 2002, we were parties to interest rate
swaps for a notional amount of U.S.$2,583 million and U.S.$ 1,106 million,
respectively, entered into in order to reduce the financial cost of debt
negotiated at fixed rates and, in some cases, hedge contractual cash flows
(interest payments) of underlying debt negotiated at floating rates. These
interest rate swaps are accounted for as hedge instruments for the financing
cost of the underlying short-term and long-term debt transactions, and
periodic payments under the contracts are recognized in the income statements
as an adjustment to the effective interest rate of the related debt. For the
year ended December 31, 2002, changes in the estimated fair value of the
interest rate swaps that hedge the contractual cash flows (interest payments)
of the underlying short-term and long-term debt, amounting to a loss of
approximately U.S.$72.5 million, was recorded in the balance sheet as
liabilities against stockholders' equity. This amount will be reversed through
the income statement as the financial expense of the related financing debt is
accrued. For the year ended December 31, 2001, the estimated fair value of the
swaps outstanding as of such date, was neither recorded in the balance sheet
77
nor in the income statement. See notes 11 and 12A to our consolidated
financial statements included elsewhere in this annual report.
During 2002, in agreement with our financial counterparty, we settled
all the interest rate swap contracts we held as of December 31, 2001. At
settlement, the fair value of such instruments was received, representing
income of approximately U.S.$14.5 million (Ps150.5 million), which was
recorded in our 2002 comprehensive financing result.
Our Cross Currency Swaps
As of December 31, 2001, related to our long-term financial debt
portfolio, we held cross currency swap contracts for a notional amount of
U.S$1,105.8 million. As of December 31, 2002, we held cross currency swap
contracts related to our short-term and long-term financial debt portfolio for
a notional amount of U.S$1,743.4 million. Through these contracts, we carried
out the exchange of the originally contracted currencies and interest rates,
over a determined amount of underlying debt. During the life of these
contracts, the cash flows originated by the exchange of interest rates under
the cross currency swap contracts match the interest payment dates and
conditions of the underlying debt. Likewise, at maturity of the contracts and
the underlying debt, we will exchange with the counterparty notional amounts
provided by the contracts so that we will receive an amount of cash flow equal
to cover our primary obligation under the underlying debt. In exchange, we
will pay the notional amount in the exchanged currency. As a result, we have
effectively exchanged the risks related to interest rates and foreign exchange
variations of the underlying debt to the rates and currencies negotiated in
the cross currency swap contracts. See notes 11 and 12B to our consolidated
financial statements included elsewhere in this annual report.
The periodic cash flows on the cross currency swap instruments
arising from the exchange of interest rates are recorded in the comprehensive
financing result as part of the effective interest rate of the related debt.
We recognize the estimated fair value of the cross currency swap contracts as
assets or liabilities in the balance sheet, with changes in the estimated fair
value being recognized through the income statement. All financial assets and
liabilities with the same maturity, for which our intention is to
simultaneously realize or settle, have been offset for presentation purposes,
in order to reflect the cash flows that we expect to receive or pay upon
settlement of the financial instruments.
In respect of the estimated fair value recognition of the cross
currency swap contracts, as of December 31, 2001, we recorded a net asset of
U.S.$242.9 million (Ps2,431.4 million) against the Comprehensive Financing
Result, of which a gain of approximately U.S.$175.9 million (Ps1,760.7
million) directly related to variations in exchange rates between the
inception of the cross currency swaps and the balance sheet date was offset
for presentation purposes as part of the underlying debt carrying amount and a
gain of approximately U.S.$14.8 million (Ps148.1 million) related to periodic
cash flow exchanges (interest payments) was recognized as an adjustment of the
related financing interest payable. The remaining net asset of U.S.$52.2
million (Ps522.5 million) was recognized in the consolidated balance sheet
within other long-term receivables. See note 12B to our consolidated financial
statements included elsewhere in this annual report.
As of December 31, 2002, we recognized a net asset of U.S.$241.4
million (Ps2,505.7 million) related to the estimated fair value of the
short-term and long-term cross currency swap contracts, of which,
o U.S.$194.2 million (Ps2,015.8 million) relates to a
prepayment made to a Yen obligation under a cross currency
swap, thereby decreasing the carrying amount of the related
debt, and
o U.S.$47.2 million (Ps489.9 million) represents the
contracts' estimated fair value before prepayment effects
and includes:
o a loss of approximately U.S.$20.0 million (Ps207.6
million), which is directly related to variations
in exchange rates between the inception of the
contracts and the balance sheet date, and which was
offset for presentation purposes as part of the
related debt carrying amount,
78
o a gain of approximately U.S.$25.9 million (Ps268.8
million), identified with the periodic cash flows
for the interest rates swap, and which was
recognized as an adjustment of the related
financing interest payable, and
o a remaining net asset of U.S.$41.3 million (Ps428.7
million), which was recognized within other short-
and long-term receivables in the amount of
U.S.$11.0 million (Ps114.2 million) and U.S.$30.3
million (Ps314.5 million), respectively. See notes
11 and 12B to our consolidated financial
statements included elsewhere in this annual report.
As of December 31, 2001 and 2002, the effect on our balance sheet
arising from the accounting assets and liabilities offset, was that the book
value of the financial liabilities directly related to the cross currency swap
contracts is presented as if such financial liabilities had been effectively
negotiated in the exchange currency instead of in the originally contracted
currency. For the years ended December 31, 2002 and 2001, the changes in the
estimated fair value of our cross currency swap contracts, excluding
prepayment effects in 2002, resulted in a loss of approximately U.S.$192.2
million (Ps1,995.0 million) and a gain of approximately U.S.$191.6 million
(Ps1,917.9 million), respectively, which were recognized within the
Comprehensive Financing Result.
Additionally, as of December 31, 2001 and 2002, we held other
currency instruments with notional amounts of U.S.$100 million and U.S.$104.5
million, respectively, maturing in July and August 2003, related to financial
debt expected to be negotiated in the near future. These contracts had an
estimated fair value gain of U.S.$8.9 million (Ps89.1 million) in 2001 and a
loss of U.S.$6.8 million (Ps70.6 million) in 2002, recognized within the
Comprehensive Financing Result.
Our Interest Rate Swap Options
As of December 31, 2001 and 2002, we held call option contracts
negotiated with financial institutions to exchange floating for fixed interest
rates (swaptions) for a notional amount of U.S.$1,506 million and U.S.$1,000
million, respectively. For the sale of these options, we received premiums of
approximately U.S.$12.2 million (Ps126.6 million) in 2001 and U.S.$57.6
million (Ps597.9 million) in 2002. In March 2003, U.S.$800 million of the
U.S.$1,000 million notional amount of the swaptions held by us as of December
31, 2002 matured, and we entered into interest rate swaps for a notional
amount of U.S.$800 million in connection with the counterparties' election
under the swaptions to receive from us fixed interest rates and pay to us
floating interest rates for a five-year period. The remaining swaptions for a
notional amount of U.S.$200 million mature in October 2004, and grant the
counterparties the option to elect, at maturity of the options and at current
market rates, to receive from CEMEX fixed rates and pay to CEMEX variable
rates for a five-year period or request net settlement in cash. For recent
developments relating to the swaptions, please see Item 5 -- "Operating and
Financial Review and Prospects -- Liquidity and Capital Resources -- Recent
Developments." As of December 31, 2001 and 2002, premiums received, as well as
the changes in the estimated fair value of these contracts, which represented
losses of approximately U.S.$30.1 million (Ps312.4 million) and U.S.$110.9
million (Ps1,151.1 million), respectively, were recognized in the
comprehensive financing result. During 2001 and 2002, the call options that
expired resulted in losses of approximately U.S.$3.4 million (Ps35.3) and
U.S.$92.3 million (Ps958.1), respectively, which were recognized in the
comprehensive financing result. See note 11 to our consolidated financial
statements included elsewhere in this annual report.
Our Other Interest Rate Derivatives
As of December 31, 2001 and 2002, we held forward rate agreement
contracts for a notional amount of U.S.$800 million and U.S.$650 million,
respectively, entered into to fix the interest rate of debt that had not yet
been obtained as of the balance sheet date, but was expected to be negotiated
in the near future. As of December 31, 2001 and December 31, 2002, we also
held floor and cap option contracts for a notional amount of U.S.$711 million
linked to an interest rate swap for the same notional amount. The forward rate
agreement contracts have different maturities ranging up to June 2003, and the
floor and cap option contracts mature in March 2008. The interest rate swap
79
linked to the floor and cap option contracts was settled during 2002. The
changes in the estimated fair value of the forward rate agreement contracts
and the floor and cap option contracts represented losses of approximately
U.S.$68.8 million (Ps688.7 million) in 2001 and U.S.$88.9 million (Ps922.8
million) in 2002, and were recognized in the balance sheet against the
comprehensive financing result, except for a loss in 2002 of approximately
U.S.$42.4 million (Ps440.1 million) related solely to the forward rate
agreement contracts, which was recognized in stockholders' equity given that
it corresponded to the change in valuation after the forward rate agreement
contracts were designated as an accounting hedge of forecasted cash flows
(interest payments) related to new debt issuances. The U.S.$42.4 million
(Ps440.1 million), which was recognized in stockholders' equity in 2002, will
be recognized in the income statement as the effects of the related forecasted
debt have an impact on the financial expense through accrued interest or
immediately when there is evidence that the new debt will not be contracted.
See note 12A to our consolidated financial statements included elsewhere in
this annual report.
Our Fuel and Energy Derivatives
As of December 31, 2001, we had fuel oil forward contracts for a
notional amount of U.S.$9.5 million (Ps95.0 million), with an estimated fair
value of U.S.$26 thousand (Ps0.3 million). During 2002, we settled these
forward contracts with no material impact to our financial results.
As of December 31, 2001 and 2002, we had an interest rate swap
maturing in May 2017, for a notional amount of U.S.$177 million in both years,
negotiated to exchange floating for fixed interest rates, in connection with
agreements we entered into for the acquisition of electric energy for a
20-year period starting in 2003 See note 21F to our consolidated financial
statements included elsewhere in this annual report. During the life of the
derivative contract and over its notional amount, we will pay LIBOR rates and
received a 7.33% fixed rate until February 2003 and will receive a 7.53% fixed
rate from March 2003 to May 2017. In addition, during 2001 we sold a floor
option for a notional amount of U.S.$177 million, related to the interest rate
swap contract, pursuant to which, starting in 2003 and until 2017, we will pay
the difference between the 7.53% fixed rate and the LIBOR rates. Through the
sale of this option, we received a premium of approximately U.S.$22 million
(Ps220.2 million) in 2001. As of December 31, 2001 and 2002, the premium
received and the combined estimated fair value of the swap and floor
contracts, amounting to approximate losses of U.S.$4.6 million and U.S.$0.5
million, respectively, were recorded in the comprehensive financing result for
each period. As of December 31, 2001 and 2002, the notional amount of both
contracts is not aggregated, considering that there is only one notional
amount with exposure to changes in interest rates and the effects of one
instrument are proportionally inverse to the changes in the other one. See
note 16D to our consolidated financial statements included elsewhere in this
annual report.
Our Third Party Equity Forwards
As of December 31, 2002, we had a third party equity forward contract
for a notional amount of U.S.$7.1 million, and the estimated fair value of
this contract was an approximate loss of U.S.$0.1 million (Ps1.1 million).
Interest Rate Risk, Foreign Currency Risk and Equity Risk
Interest Rate Risk
The table below presents tabular information of our fixed and
floating rate long-term foreign currency-denominated debt as of December 31,
2002. It includes the effects generated by the interest rate swaps and the
cross currency swap contracts that we have entered into, covering a portion of
our financial debt originally negotiated in Mexican Pesos and U.S. Dollars.
See notes 11 and 12 to our consolidated financial statements included
elsewhere in this annual report. Average floating interest rates are
calculated based on forward rates in the yield curve as of December 31, 2002.
Future cash flows represent contractual principal payments. The fair value of
our floating rate long-term debt is determined by discounting future cash
flows using borrowing rates currently available to us as of December 31, 2002
and is summarized as follows:
Expected maturity dates as of December 31, 2002
--------------------------------------------------------------------
After Fair
Debt 2003 2004 2005 2006 2007 2007 Total Value
- ----------------------------- ------- ------- ------- ------- -------- ------- ------- -------
(Millions of U.S. Dollars equivalents of debt denominated in foreign currencies)
80
Variable rate................ 637 1,412 131 130 189 305 2,804 2,804
Average interest rate........ 3.1% 4.1% 4.9% 5.5% 5.9% 6.5% -- --
Fixed rate................... 14 442 486 474 51 754 2,221 2,333
Average interest rate........ 6.1% 6.4% 6.9% 7.3% 7.2% 6.1% -- --
As of December 31, 2002, we were subject to the volatility of the
floating interest rates, which, if such rates were to increase, may adversely
affect our financing cost and our net income. As of December 31, 2002, 56% of
our foreign currency-denominated long-term debt bears floating rates at a
weighted average interest rate of LIBOR plus 126 basis points, after giving
effect to our interest rate swaps and cross currency swaps.
As previously mentioned, as of December 31, 2002, we had entered into
interest rate swaps as part of a strategy intended to reduce our overall
financing cost. See "-- Our Derivative Financial Instruments." At that date
the estimated fair value of our interest rate swaps accounted for to hedge a
portion of our financial debt was a loss of approximately U.S.$72.6 million.
The potential change in the fair value as of December 31, 2002 of these
contracts that would result from a hypothetical, instantaneous decrease of 50
basis points in the interest rates would be a loss of approximately U.S.$22.8
million (Ps236.7 million).
In addition, as mentioned above, we have entered into interest rate
swap options. See "-- Our Derivative Financial Instruments." As of December
31, 2002, the estimated fair value of these instruments was a loss of
approximately U.S.$140.9 million. The potential change in the fair value as of
December 31, 2002 of these contracts that would result from a hypothetical,
instantaneous decrease of 50 basis points in the interest rates would be a
loss of approximately U.S.$24.0 million (Ps249.1 million).
Finally, as mentioned above, we have entered into forward rate
agreement contracts. See "-- Our Derivative Financial Instruments." As of
December 31, 2002, the estimated fair value of these instruments was a loss of
approximately U.S.$157.7 million. The potential change in the fair value as of
December 31, 2002 of these contracts that would result from a hypothetical,
instantaneous decrease of 50 basis points in the interest rates would be a
loss of approximately U.S.$28.5 million (Ps295.8 million).
Foreign Currency Risk
Due to our geographic diversification, our revenues are generated in
various countries and settled in different currencies. However, some of our
production costs, including fuel and energy, and some of our cement prices,
are periodically adjusted to take into account fluctuations in the Dollar/Peso
exchange rate. For the year ended December 31, 2002, approximately 34% of our
sales, before eliminations resulting from consolidation, were generated in
Mexico, 24% in the United States, 14% in Spain, 4% in Venezuela, 7% in Central
America and the Caribbean, 3% in Colombia, 2% in the Philippines, 2% in Egypt
and 10% from other regions and our cement and clinker trading activities. As
of December 31, 2002, our debt, considering the effects in the original
currencies generated by our cross currency swaps, amounted to Ps59.9 billion,
of which approximately 68.7% was Dollar-denominated, 14.5% was Yen-denominated
and 12.0% was Euro-denominated; therefore, we have a foreign currency exposure
arising from the Dollar-denominated debt, the Yen-denominated debt and the
Euro-denominated debt, versus the currencies in which our revenues are settled
in most countries in which we operate. See "-- Liquidity and Capital Resources
- -- Our Indebtedness," Item 10 -- "Additional Information -- Material
Contracts" and "Risk Factors -- We have to pay our Dollar and Yen denominated
debt with revenues generated in Pesos or other currencies, as we do not
generate sufficient revenue in Dollars and Yen from our operations to service
all our Dollar and Yen denominated debt, which could adversely affect our
ability to service our debt in the event of a devaluation or depreciation in
the value of the Peso, or any of the other currencies of the countries in
which we operate." Although we also have a small portion of our debt in other
currencies, we have generated enough cash flow in those currencies to service
that debt. Therefore, we believe there is no material foreign currency risk
exposure with respect to that debt.
As previously mentioned, we have entered into cross currency swap
contracts, designed to change the original profile of interest rates and
currencies over a portion of our financial debt. See "-- Our Derivative
Financial Instruments." As of December 31, 2002, the estimated fair value of
these instruments was a gain of approximately U.S.$ 241.4 million (Ps2,505.7
million), of which U.S.$194.2 million (Ps2,015.8 million) relates to a
prepayment made to a Yen obligation under a swap contract, thereby decreasing
the carrying amount of the related
81
debt. The potential change in the fair value of these contracts as of December
31, 2002 that would result from a hypothetical, instantaneous appreciation of
10% in the exchange rate of the Yen against the Dollar, combined with a
depreciation of 10% of the Mexican Peso against the Dollar, would be a loss of
approximately U.S.$198.0 million (Ps2,055.2 million).
Additionally, as previously mentioned, we have entered into foreign
exchange forward contracts designed to hedge our net investment in foreign
subsidiaries, as well as other currency derivative instruments. See "-- Our
Derivative Financial Instruments." The combined estimated fair value of our
foreign exchange forwards and our other currency derivatives as of December
31, 2002 was a loss of approximately U.S.$201.4 million. The potential change
in the fair value as of December 31, 2002 that would result from a
hypothetical, instantaneous depreciation of 10% in the exchange rate of the
Peso against the Dollar would be a loss of approximately U.S.$139.3 million
(Ps1,445.9 million), which would be offset by a corresponding foreign
translation gain as a result of our net investment in foreign subsidiaries.
Equity Risk
We have entered into equity forward contracts on our own stock. Upon
liquidation and at our option, the equity forward contracts provide for
physical settlement or net cash settlement of the estimated fair value, and
the effects are recognized in the income statement or as part of the
stockholders' equity, depending upon their designation and the underlying
instrument or program being hedged. At maturity, if these forward contracts
are not settled or replaced, or if we default on these agreements, our
counterparties may sell the shares underlying the contracts. Such sales may
have an adverse effect on our stock market price and our subsidiaries' stock
market price. It may also reduce the amount of dividends and other
distributions that we would receive from our subsidiaries and/or may create a
public minority interest that may adversely affect our ability to realize
operating efficiencies as a combined group.
As previously discussed, we have entered into equity forward
contracts on our own stock, pursuing different goals such as hedging our old
and new Appreciation Warrants program and our several stock option plans. See
"-- Liquidity and Capital Resources." As of December 31, 2002, the estimated
fair market value of our equity forward contracts was a loss of approximately
U.S.$90.6 million. The potential change in the fair value as of December 31,
2002 that would result from a hypothetical, instantaneous decrease of 10% in
the market value of our stock would be a loss of approximately U.S.$128.3
million (Ps1,331.8 million).
Investments, Acquisitions and Divestitures
The transactions described below represent our principal investments,
acquisitions and divestitures completed during 2000, 2001, and 2002.
Investments and Acquisitions
In July and August 2002, through a tender offer and subsequent
merger, we acquired 100% of the outstanding shares of Puerto Rican Cement
Company, Inc., or PRCC. The aggregate value of the transaction was
approximately U.S.$180.2 million, not including the amount of net debt assumed
of approximately U.S.$100.8 million.
On July 12, 2002, we purchased 25,429 shares of common stock
(approximately 0.25% of the outstanding share capital) of CAH, from a CAH
investor for a purchase price of approximately U.S.$2.3 million, increasing
our equity interest in CAH to 77.67%. CAH is a subsidiary originally created
to co-invest with institutional investors in Asian cement operations. At the
same time, we entered into agreements to purchase an additional 1,483,365
shares of CAH common stock (approximately 14.58% of the outstanding share
capital) from several other CAH investors in exchange for 28,195,213 CEMEX
CPOs (subject to anti-dilution adjustments). The exchange of 84,763 of the CAH
shares for CEMEX CPOs is scheduled to take place in four equal quarterly
tranches commencing on March 31, 2003, and the exchange of the remaining
1,398,602 of the CAH shares for CEMEX CPOs is scheduled to take place in four
equal quarterly tranches commencing on March 31, 2004. For accounting
purposes, the CAH shares to be received by us in exchange for CEMEX CPOs are
considered to be owned by us effective as of July 12, 2002. As a result of
this transaction and pending its successful consummation, we will have
increased our stake in CAH to 92.25%. For recent developments regarding
82
the exchange of CAH shares for CEMEX CPOs, please see Item 5 --
"Operating and Financial Review and Prospects -- Liquidity and Capital
Resources -- Recent Developments" and note 8A to our consolidated financial
statements included elsewhere in this annual report.
On July 31, 2002, we purchased, through a wholly-owned subsidiary,
the remaining 30% economic interest that was not previously acquired by CAH in
Solid, for approximately U.S.$95 million. At December 31, 2002, as a
consequence of this transaction and the increase of our stake in CAH, as
described above, our proportionate economic interest in Solid was
approximately 94.58%.
In May 2001, we acquired through CAH a 100% economic interest in
Saraburi Cement Company, now known as CEMEX (Thailand) Co. Ltd. or CEMEX
(Thailand), a cement company based in Thailand with an installed capacity of
approximately 700 thousand metric tons, for a total consideration of
approximately U.S.$73 million. As a result of the increase of our stake in
CAH, as described above, at December 31, 2002, our proportionate economic
interest in CEMEX (Thailand) through CAH was approximately 92.3%.
In November 2000, we acquired 100% of the outstanding shares of
common stock of Southdown, now CEMEX, Inc., in the United States.
In October 2000, CAH acquired our interest in Gresik. As a result of
this transaction and the increase of our stake in CAH as described above, at
December 31, 2002, our proportionate economic interest in Gresik was 23.5%.
In May 2000, we committed to invest U.S.$34 million to begin the
construction of a new grinding mill near Dhaka, Bangladesh. The mill is being
constructed with a production capacity of approximately 500 thousand metric
tons per year. The facility began operations in April 2001. We are supplying
this mill with clinker from Gresik in Indonesia and from other countries in
the region.
In 2000, we increased our interest in Assiut from 77% to 92.9%. In
March 2001, we further increased our interest in Assiut to 95.8%.
In addition to the above-mentioned acquisitions, our net investment
in property, machinery and equipment, as reflected in our consolidated
statements of changes in financial position included elsewhere in this annual
report, excluding acquisitions of equity interests in subsidiaries and
affiliates, was approximately Ps4,141 million (U.S.$399 million) in 2000,
Ps5,113 million (U.S.$493 million) in 2001 and Ps4,401 million (U.S.$424
million) in 2002. This net investment in property, machinery and equipment has
been applied to the construction and upgrade of plants and equipment, to the
maintenance of plants and equipment, including environmental controls and
technology updates.
Divestitures
During 2001 CEMEX, Inc., our subsidiary in the United States, sold
its Eastern aggregates business, composed of several quarries in Kentucky and
one in Missouri, and other related assets for approximately U.S.$42 million.
During 2002, CEMEX, Inc. sold its specialty mineral products business,
composed of one quarry in each of Virginia, New Jersey and Massachusetts and
two quarries in Pennsylvania, and other related assets for approximately
U.S.$49 million.
In June 2000, we sold to Marriott International for U.S.$113 million,
properties in the tourism industry, including our 100% equity interest in the
Marriott Casa Magna hotels in Cancun and Puerto Vallarta. As of December 31,
2000, our consolidated income statements include the hotels' operating results
for the five-month period ended May 31, 2000.
See note 8A to our consolidated financial statements included
elsewhere in this annual report for additional information regarding our
acquisitions and divestitures that occurred during 2000, 2001 and 2002.
83
The Euro Conversion
We have operations in Spain, which adopted the common Euro currency
on January 1, 1999. Since January 1, 2002, the Euro is the official currency
of all Euro zone countries.
We have examined the risks of the Euro for our Spanish operations'
business and markets. We do not believe that the Euro conversion has had a
material short-term impact on our business, our Spanish operations' exposure
to currency risk, or our market position, although we believe that the Euro
will contribute to the ongoing convergence of prices in Europe over the longer
term. In 2002, our Spanish sales amounted to 14% of our net sales. As of
December 31, 2002, 12% of our consolidated debt was Euro-denominated.
U.S. GAAP Reconciliation
Our consolidated financial statements included elsewhere in this
annual report and in the documents incorporated in this annual report by
reference have been prepared in accordance with Mexican GAAP, which differ in
some significant respects from U.S. GAAP. Mexican companies, including CEMEX,
are required, pursuant to Mexican GAAP (Bulletin B-10 and Bulletin B-15), to
present their financial statements in constant Pesos representing the same
purchasing power for each period presented. The reconciliation to U.S. GAAP
includes reconciling items for the reversal of the effect of applying Bulletin
B-15 for the restatement to constant pesos as of December 31, 1999, of prior
years and to reflect the effects of applying the Fifth Amendment to Bulletin
B-10. These reconciling items have been included because these provisions of
inflation accounting under Mexican GAAP do not meet the consistent reporting
currency requirements of the SEC. Our reconciliation to U.S. GAAP does not
include the reversal of other Mexican GAAP inflation accounting adjustments,
as these represent a comprehensive measure of the effects of price level
changes in the inflationary Mexican economy and, as such, is considered a more
meaningful presentation than historical cost-based financial reporting for
both Mexican GAAP and U.S. GAAP.
Majority net income under U.S. GAAP for the years ended December 31,
2000, 2001, and 2002 amounted to Ps9,169.4 million, Ps10,632.4 million and
Ps5,647.6 million, respectively, compared to majority net income under Mexican
GAAP for the years ended December 31, 2000, 2001 and 2002 of Ps10,389.1
million, Ps11,789.8 million and Ps5,400.4 million, respectively. See note 23
to our consolidated financial statements included elsewhere in this annual
report for a description of the principal differences between Mexican GAAP and
U.S. GAAP as they relate to us and the effects that newly issued accounting
pronouncements have had in our financial position.
Newly issued accounting pronouncements under U.S. GAAP
Effective January 1, 2002, for purposes of the reconciliation to U.S.
GAAP, CEMEX adopted SFAS 142 "Goodwill and Other Intangible Assets" and SFAS
144 "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 142
eliminates the amortization of goodwill and indefinite-lived intangible
assets, and addresses the amortization of intangible assets with finite lives
and impairment testing and recognition for goodwill and intangible assets.
SFAS 144 establishes a single model for the impairment of long-lived assets
and broadens the presentation of discontinued operations to include disposal
of an individual business. As a result of such adoption, beginning January 1,
2002, amortization ceased for goodwill under U.S. GAAP.
In connection with SFAS 142's transitional goodwill impairment
evaluation, the statement requires a company to perform an assessment of
whether there was an indication that goodwill is impaired as of the date of
adoption. To accomplish this, we were required to identify our reporting units
and determine the carrying value of each reporting unit by assigning the
assets and liabilities, including the existing goodwill and intangible assets,
to those reporting units as of January 1, 2002. We were required to determine
the fair value of each reporting unit and compare it into the carrying amount
of the reporting unit within six months of January 1, 2002. To the extent the
fair value of the reporting unit exceeds its corresponding carrying amount
there is no requirement to recognize an impairment loss. No impairment charges
were required as a result of the transitional goodwill impairment evaluation
performed for the recorded goodwill as of January 1, 2002.
84
In compliance with the new accounting rules set forth by SFAS, we
assess goodwill and indefinite-lived intangibles for impairment annually
unless events occur that require more frequent reviews. Long-lived assets,
including amortizable intangibles, are tested for impairment if impairment
triggers occur. Discounted cash flow analyses are used to assess the possible
impairment of non-amortizable intangible assets, while undiscounted cash flow
analyses are used to assess long-lived asset impairment. If an assessment
indicates impairment, the impaired asset is written down to its fair market
value based on the best information available. Estimated fair market value is
generally measured with discounted estimated future cash flows. The useful
lives of amortizable intangibles are evaluated periodically, and subsequent to
impairment reviews, to determine whether revision is warranted. If cash flows
related to a non-amortizable intangible are not expected to continue for the
foreseeable future, a useful life would be assigned. Considerable management
judgment is necessary to estimate undiscounted and discounted future cash
flows. Assumptions used for these cash flows are consistent with internal
forecasts and industry practices. In addition, during 2002, there were no
impairment charges other than the impairment expense disclosed in note 2U to
our consolidated financial statements included elsewhere in this annual report
for approximately Ps93.1 million (U.S.$9.0 million), which was generated by
the reporting unit engaged in our software development projects for both
Mexican and U.S. GAAP.
In June 2001, the FASB issued SFAS 143 "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires an entity to record the fair
value of an asset retirement obligation as a liability in the period in which
it incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development,
and/or normal use of the assets. Such liability would be recorded against a
corresponding asset that is depreciated over the life of the long-lived asset.
Subsequent to the initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect the passage
of time and changes in the estimated future cash flows underlying the
obligation. We are required to adopt SFAS 143 on January 1, 2003. The adoption
of SFAS 143 is not expected to have a material effect on our financial
statements.
In April 2002, the FASB issued SFAS 145 "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 amends existing guidance on reporting gains and
losses on the extinguishment of debt to prohibit the classification of the
gain or loss as extraordinary, as the use of such extinguishments have become
part of the risk management strategy of many companies. SFAS No. 145 also
amends SFAS No. 13 to require sale-leaseback accounting for certain lease
modifications that have economic effects similar to sale-leaseback
transactions. The provisions of the statement related to the rescission of
Statement No. 4 are applied in fiscal years beginning after May 15, 2002.
Earlier application of these provisions is encouraged. The provisions of the
statement related to Statement No. 13 were effective for transactions
occurring after May 15, 2002, with early application encouraged. The adoption
of SFAS No. 145 is not expected to have a material effect on our financial
statements.
In June 2002, the FASB issued SFAS 146 "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity." The provisions of this statement are effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged. The adoption of SFAS 146 is not expected to have a
material effect on our financial statements.
In November 2002, the FASB issued Interpretation 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements 5,
57 and 107 and a rescission of FASB Interpretation 34." This interpretation
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees issued. The
interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on our financial
statements. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002.
In connection with the disclosure requirements of Interpretaion 45,
related to the energy generating plant agreement discussed in note 21F, we may
also be obligated to purchase the power plant upon the occurrence of specified
material defaults or events, such as failure to pay when due, bankruptcy or
insolvency, and revocation of
85
permits necessary to operate the facility. Through December 31, 2002, for
accounting purposes under Mexican and U.S. GAAP, we have considered this
agreement in a manner similar to an operating lease, based on the contingent
characteristics of our obligation and given that, absent a default under the
agreement, our obligations are limited to the purchase of energy from, and the
supply of fuel to, the plant. Currently, in light of interpretations 45 and 46,
we are reviewing the accounting treatment. A final assessment is expected no
later than June 30, 2003.
In December 2002, the FASB issued SFAS 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123." This statement amends FASB Statement 123 "Accounting for
Stock-Based Compensation" to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this statement amends the disclosure
requirements of Statement 123 to require prominent disclosures in both annual
and interim financial statements. Certain of the disclosure modifications are
required for fiscal years ending after December 15, 2002 and are included in
the notes to our consolidated financial statements included elsewhere in this
annual report.
In January 2003, the FASB issued Interpretation 46 "Consolidation of
Variable Interest Entities, an interpretation of ARB 51". This interpretation
addresses the consolidation by business enterprises of variable interest
entities as defined in the interpretation. The interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. Currently, we are performing a review of our
transactions for which the accounting treatment under U.S. GAAP could be
affected by this interpretation, in order to determine the effect of this
interpretation on our financial statements. Our final assessment is expected
no later than June 30, 2003. The interpretation requires certain disclosures
in financial statements issued after January 31, 2003 if it is reasonably
possible that we will consolidate or disclose information about variable
interest entities when the interpretation becomes effective.
86
Item 6 - Directors, Senior Management and Employees
Senior Management and Directors
Senior Management
Set forth below is the name and position of each of our executive
officers as of December 31, 2002. Where applicable, we have indicated recently
announced appointments and retirements that will become effective as of May 1,
2003. The terms of office of the executive officers are indefinite.
Lorenzo H. Zambrano, Joined CEMEX in 1968. During
Chief Executive Officer his career with CEMEX, Mr.
Zambrano has been involved in
all operational aspects of
our business. He held several
positions in CEMEX prior to
his appointment as chief
executive officer in 1985.
Mr. Zambrano is a graduate of
Instituto Tecnologico y de
Estudios Superiores de
Monterrey, A.C., or ITESM,
with a degree in mechanical
engineering and
administration and holds an
M.B.A. from Stanford
University. Lorenzo H.
Zambrano is a first cousin of
Lorenzo Milmo Zambrano and
Rogelio Zambrano Lozano, both
members of our board of
directors, as well as of
Rodrigo Trevino, our chief
financial officer. He is also
the second cousin of Roberto
Zambrano Villareal and
Mauricio Zambrano Villareal,
both members of our board of
directors.
Mr. Zambrano has been a
member of our board of
directors since 1979 and
chairman of our board of
directors since 1995. He is
also a member of the board of
directors of Fomento
Economico Mexicano, S.A. de
C.V., Empresas ICA, S.A. de
C.V., Alfa, S.A. de C.V.,
Grupo Financiero Banamex,
Cydsa, S.A., Vitro, S.A. and
Grupo Televisa, S.A. He is
chairman of the board of
directors of Consejo de
Ensenanza e Investigacion
Superior, A.C., which manages
ITESM. He is also a member of
the Stanford Business
School's advisory group and a
member of the International
Advisory Board of Salomon
Smith Barney, Inc. and of the
Chairman's Council of Daimler
Chrysler AG. In addition, he
is member of the board of
directors of The Museum of
Modern Art, Americas Society,
Inc. and Museo de Arte
Contemporaneo de Monterrey
A.C.
Hector Medina,
Executive Vice President of Joined CEMEX in 1988. He has
Planning and Finance held several positions in
CEMEX , including director of
strategic planning from 1991
to 1994, president of CEMEX
Mexico from 1994 to 1996, and
has served as executive vice
president of planning and
finance since 1996. He is a
graduate of ITESM with a
degree in chemical
engineering and dministration.
He also received a Masters of
Science degree in management
studies from the management
Center of the University of
Bradford in England and a
Masters of Science diploma in
Operations Research from the
Escuela de Organizacion
Industrial in Spain in 1975.
Among the positions he
previously held are those of
Project Director at Grupo
Protexa, S.A. de C.V.,
Administrative Director at
Grupo Xesa, S.A. de C.V.,
Commercial Director at
Direcplan, S.A. and
Industrial Relations
Sub-Director at Hylsa, S.A.
de C.V. Mr. Medina is a
member of the board of
Cementos Chihuahua, Cia
Minera Autlan, Mexifrutas,
S.A. de C.V. and Chocota
Productos del Mar, S.A. de
C.V. and member of the
("consejo de vigilancia") of
Ensenanza e Investigacion
Superior A.C. and ITESM A.C
87
Armando J. Garcia Segovia, Initially joined CEMEX in
Executive Vice President of 1975 and rejoined CEMEX in
Development 1985. He has served as
director of operational and
strategic planning from 1985
to 1988, director of
operations from 1988 to 1991,
director of corporate
services and affiliate
companies from 1991 to 1994,
director of development from
1994 to 1996, and executive
vice president of development
since 1996. He is a graduate
of ITESM with a degree in
mechanical engineering and
administration and holds an
M.B.A. from the University of
Texas. He was employed at
Conek, S.A. de C.V. from 1981
to 1985 and Cydsa, S.A. from
1979 to 1981. He is a brother
of Jorge Garcia Segovia, an
alternate member of our board
of directors, and a first
cousin of Rodolfo Garcia
Muriel, a member of our board
of directors.
Armando J. Garcia Segovia has
been a member of our board of
directors since 1983. He also
serves as a member of the
board of directors of
Materiales Industriales de
Chihuahua, S.A. de C.V.,
Calhidra y Mortero de
Chihuahua, S.A. de C.V.,
Cementos de Chihuahua, S.A.
de C.V., Construcentro de
Chihuahua, S.A. de C.V.,
Control Administrativo
Mexicano, S.A. de C.V.,
Compania Industrial de
Parras, S.A. de C.V., Fabrica
La Estrella, S.A. de C.V.,
Prendas Textiles, S.A. de
C.V., Telas de Parras, S.A.
de C.V., Canacem,
Confederacion Patronal de la
Republica Mexicana, Centro
Patronal de Nuevo Leon, and
Instituto Mexicano del
Cemento y del Concreto. He is
chairman of the board of
Centro de Estudios del Sector
Privado para el Desarrollo
Sostenible and member of the
board of the World
Environmental Center.
Victor Romo, Joined CEMEX in 1985 and has
Executive Vice President of Administration, served as director of
Effective May 1, 2003 administration of CEMEX
Espana from 1992 to 1994,
general director of
administration and finance of
CEMEX Espana from 1994 to
1996, president of CEMEX
Venezuela from 1996 to 1998,
and president of the South
American and Caribbean region
since 1998. Effective May 1,
2003, he will serve as
Executive Vice President of
Administration. He is a
graduate in public accounting
and holds a master's degree
in administration and finance
from ITESM. Previously, he
worked for Grupo Industrial
Alfa, S.A. de C.V. from 1979
to 1985.
Mario de la Garza, Joined CEMEX in 1965 and has
Vice President of held several positions in
Administration CEMEX, including director of
accounting from 1985 to 1989,
director of affiliates from
1989 to 1994, and director of
administration from 1994 to
1996, when he was named vice
president of administration.
Effective May 1, 2003, he
will retire from CEMEX. He is
a graduate in philosophy and
C.P.A. from Universidad
Autonoma de Nuevo Leon and
attended the ``Programa de
Alta Direccion de Empresas,
AD2'' IPADE (Instituto
Panamericano de Alta
Direccion de Empresas).
Francisco Garza, Joined CEMEX in 1988 and has
President of CEMEX served as director of trading
North America Region and from 1988 to 1992, president
Trading of CEMEX Corp. from 1992 to
1994, president of CEMEX
Venezuela and Cemento Bayano
from 1994 to 1996, president
of CEMEX Mexico and CEMEX
Corp. from 1996 to 1998, when
he was appointed president of
the North American region and
trading. He is a graduate in
business administration of
88
ITESM and holds an M.B.A.
from the Johnson School of
Management at Cornell
University.
Jose Luis Saenz de Miera, Joined CEMEX Espana in 1993
President of CEMEX as general manager of
Europe, administration and finance,
Africa and Asia and in 1994 he was appointed
president of CEMEX Espana.
Mr. Saenz de Miera has served
as president of the Europe,
Africa and Asia region since
October 1998. He studied
economic sciences in
Universidad Complutense de
Madrid and is a certified
public accountant from
Instituto de Censores Jurados
de Cuentas in Spain.
Previously, he was employed
from 1973 to 1993 at KPMG
Peat Marwick, since 1982 as
partner and between 1988 and
1993 as deputy senior
partner.
Fernando Gonzalez, Joined CEMEX in 1989 and has
President of CEMEX South America and served as vice-president-human
the Caribbean, Effective May 1, 2003 resources from 1992 to
1994, vice-president-
strategic planning from 1994
to 1998, president of CEMEX
Venezuela from 1998 to 2000,
and president of CEMEX Asia
since then. He is a graduate
in business administration
and holds a master's degree
in administration from ITESM.
Previously, he worked for
Grupo Industrial Alfa, S.A.
de C.V. from 1976 to 1989.
Rodrigo Trevino, Joined CEMEX in 1997 and has
Chief Financial Officer served as chief financial
officer since then. He holds
both bachelor and master of
science degrees in industrial
engineering from Stanford
University. Prior to joining
CEMEX, he served as the
country corporate officer for
Citicorp/Citibank Chile from
1995 to 1996, and prior to
that, he worked at Citibank,
N.A. from 1979 to 1994.
Rodrigo Trevino is a first
cousin of Lorenzo H.
Zambrano, our chief executive
officer and chairman of our
board of directors.
Ramiro G. Villarreal, Joined CEMEX in 1987 and has
General Counsel served as general counsel
since then, and also has
served as secretary of our
board of directors since
1995. He is a graduate of the
Universidad Autonoma de Nuevo
Leon with a degree in law. He
also received a masters of
science degree in finance
from the University of
Wisconsin. Prior to joining
CEMEX, he served as assistant
general director of Grupo
Financiero Banpais from 1985
to 1987.
Board of Directors
Set forth below are the names of the members of the our board of
directors. The members of our board of directors serve for one-year terms.
Lorenzo H. Zambrano, See "--Senior Management."
Chairman
Lorenzo Milmo Zambrano Has been a member of our
board of directors since
1977. He also serves as
general director of
Inmobiliaria Ermiza, S.A. de
C.V. and as a member of the
board of directors of Seguros
La Comercial, S.A., Banco
Santander Mexicano, S.A.
(Regional), Nacional
Financiera S.N.C. and
Bancomer, S.A. (Regional). He
is a first cousin of Lorenzo
H. Zambrano, chairman of our
board of directors and our
chief executive officer, and
a first cousin of Rogelio
Zambrano
89
Lozano, a member of our board
of directors.
Armando J. Garcia Segovia See "--Senior Management."
Rodolfo Garcia Muriel Has been a member of our
board of directors since
1985. He is also the chief
executive officer of Compania
Industrial de Parras, S.A. de
C.V. and Parras Cone de
Mexico, S.A. de C.V. He is
member of the board of
directors of Parras
Williamson, S.A. de C.V.,
Telas de Parras, S.A. de
C.V., Sinkro, S.A. de C.V.,
IUSA-GE, S. de R.L.,
Industrias Unidas, S.A.,
Apolo Operadora de Sociedades
de Inversion, S.A. de C.V.
and Cambridge Lee Industries,
Inc. Mr. Garcia Muriel is
also vice president of Camara
Nacional de la Industria
Textil. Rodolfo Garcia Muriel
is a first cousin of Armando
J. Garcia Segovia, executive
vice president of development
of CEMEX and a member of our
board of directors, and Jorge
Garcia Segovia, an alternate
member of our board of
directors.
Rogelio Zambrano Lozano Has been a member of our
board of directors since
1987. He is also a member of
the consultive board of
Grupo Financiero Banamex
Accival, S.A. de C.V. Zona
Norte. Rogelio Zambrano
Lozano is a first cousin of
Lorenzo H. Zambrano,
chairman of our board of
directors and our chief
executive officer, and of
Lorenzo Milmo Zambrano, a
member of our board of
directors.
Roberto Zambrano Villarreal Has been a member of our
board of directors since
1987. He is chairman of the
board of directors of
Desarrollo Integrado, S.A.
de C.V., Administracion
Ficap, S.A. de C.V., Aero
Zano, S.A. de C.V.,
Villamonte, S.A. de C.V.,
Focos, S.A. de C.V., C & I
Capital, S.A. de C.V.,
Industrias Diza, S.A. de
C.V., Inmobiliaria Sanni,
S.A. de C.V., Inmuebles
Trevisa, S.A. de C.V.,
Servicios Tecnicos
Hidraulicos, S.A. de C.V.,
Mantenimiento Integrado,
S.A. de C.V., Execujet
Mexico, Pilatus PC-12 Center
de Mexico, S.A. de C.V., and
Pronatura, A.C. He is a
member of the board of
directors of S.L.I. de
Mexico, S.A. de C.V., and
Compania de Vidrio
Industrial, S.A. de C.V. He
is a brother of Mauricio
Zambrano Villarreal, a
member of our board of
directors.
Bernardo Quintana Isaac Has been a member of our
board of directors since
1990. He is chief executive
officer and chairman of the
board of directors of
Empresas ICA Sociedad
Controladora, S.A. de C.V.,
and a member of the board of
directors of Telefonos de
Mexico, S.A. de C.V., Grupo
Financiero Banamex Accival,
S.A. de C.V., Grupo
Financiero Inbursa, S.A. de
C.V., Grupo Carso, S.A. de
C.V., and Grupo Maseca, S.A.
de C.V. He is also a member
of Consejo Mexicano de
Hombres de Negocios,
Fundacion UNAM, Fundacion
ICA and Patronato UNAM. He
is a founding associate of
Fundacion Octavio Paz.
Dionisio Garza Medina Has been a member of our
board of directors since
1995. He is also chairman of
the board and chief
executive officer of Alfa,
S.A. de C.V. and chairman of
the board of Hylsamex, S.A.
de C.V. He is a member of
the board of directors of
Vitro, S.A., Cydsa, S.A.,
ING Mexico, and Autoliv. He
is also a member of Consejo
Mexicano de Hombres de
Negocios, the consultive
committee of the School of
90
Business, the David
Rockefeller Center for Latin
American Studies of Harvard
University and the
consultive committee of the
New York Stock Exchange. He
is also chairman of the
executive board of the
Universidad de Monterrey,
A.C.
Alfonso Romo Garza Has been a member of our
board of directors since
1995. He is chairman of the
board and chief executive
officer of Savia, S.A. de
C.V. and Seminis, Inc., and
chairman of the board of ING
Mexico. He is also a member
of the board of Nacional de
Drogas, S.A. de C.V., Grupo
Maseca, S.A. de C.V., and
Grupo Comercial Chedraui,
S.A. de C.V. He is an
external advisor of the
World Bank Board for Latin
America and the Caribbean,
and a member of the board of
The Donald Danforth Plant
Science Center.
Mauricio Zambrano Villarreal Has been a member of our
board of directors since
2001. Mr. Zambrano
Villarreal served as an
alternate member of our
board of directors from 1995
to 2001. He is also general
vice-president of Desarrollo
Integrado, S.A. de C.V.,
chairman of the board of
directors of Empresas
Falcon, S.A. de C.V. and
Trek Associates, Inc.,
secretary of the board of
directors of Administracion
Ficap, S.A. de C.V., Aero
Zano, S.A. de C.V., Ciudad
Villamonte, S.A. de C.V.,
Focos, S.A. de C.V.,
Compania de Vidrio
Industrial, S.A. de C.V., C
& I Capital, S.A. de C.V.,
Industrias Diza, S.A. de
C.V., Inmobiliaria Sanni,
S.A. de C.V., Inmuebles
Trevisa, S.A. de C.V.,
Praxis Accesorios, S.A. de
C.V. and Servicios Tecnicos
Hidraulicos, S.A. de C.V.,
and a member of the board of
directors of Sylvania
Lighting International
Mexico, S.A. de C.V.,
Invercap, S.A. de C.V. and
Precision Auto Care, Inc. He
is a brother of Roberto
Zambrano Villarreal, a
member of our board of
directors.
Tomas Brittingham Longoria Has been a member of our
board of directors since
2002. Previously served as
an alternate member of our
board of directors from 1987
until 2002. He is also the
chief executive officer of
Laredo Autos, S.A. de C.V.
He is a son of Eduardo
Brittingham Sumner, an
alternate member of our
board of directors.
Alternate Directors
Set forth below are the names of the alternate members of our board
of directors. The alternate members of our board serve for one-year terms.
Eduardo Brittingham Sumner Has been an alternate member
of our board of directors
since 2002. Previously
served as a regular member
of our board of directors
from 1967 until 2002. He is
also general director of
Laredo Autos, S.A. de C.V.,
Auto Express Rapido Nuevo
Laredo, S.A. de C.V,
Consorcio Industrial de
Exportacion, S.A. de C.V.,
and an alternate member of
the board of directors of
Vitro, S.A. He is father of
Tomas Brittingham Longoria,
a member of our board of
directors.
Tomas Milmo Santos Has been an alternate member
of our board of directors
since 2001. He is Chief
Executive Officer and member
of the board of directors of
Axtel, S.A. de C.V., a
telecommunications company
that operates in the local,
long distance and data
transfer market. He is also
91
a member of the board of
directors of Coparmex, Cemex
Mexico and the Universidad
de Monterrey. Mr. Milmo
Santos is nephew of Lorenzo
H. Zambrano, our chief
executive officer and
chairman of our board of
directors, and a nephew of
Lorenzo Milmo Zambrano, a
member of our board of
directors.
Jorge Garcia Segovia Has been an alternate member
of our board of directors
since 1985. He is also a
member of the board of
directors of Compania
Industrial de Parras, S.A.
de C.V. and director of
Vector Casa de Bolsa, S.A.
de C.V. He is a brother of
Armando J. Garcia Segovia
and a first cousin of
Rodolfo Garcia Muriel, both
members of our board of
directors.
Examiner
Luis Santos de la Garza Was an alternate director of
our board from 1987 to 1988,
and has been our examiner
since 1989. He is a member
of the board of directors of
Grupo Industrial Ramirez,
S.A. de C.V. and Productora
de Papel, S.A. de C.V., and
founding partner of Bufete
de Abogados Santos-Elizondo-
Cantu-Rivera-Gonzalez-De
la Garza, S.C. From 1997 to
2000 he served as Senator
from the State of Nuevo
Leon. He is also an advisor
to the Mexican President's
legal counsel.
Alternate Examiner
Fernando Ruiz Arredondo Has been our alternate
examiner since 1981. He is
also an alternate member of
the board of directors of
Value Grupo Financiero, S.A.
de C.V.
Board Practices
In compliance with amendments to Mexican securities laws enacted in
2001, our shareholders approved, at a general extraordinary meeting of
shareholders held on April 25, 2002, a proposal to amend various articles of
CEMEX's by-laws, or estatutos sociales, in order to improve our standards of
corporate governance and transparency, among other matters. The amendments
require that at least 25% of our directors qualify as independent directors;
that our board of directors, at its first meeting after the adoption of the
amendments, establish an audit committee; and that shareholders representing
at least 10% of our shares have the right to designate an examiner and an
alternate examiner. The audit committee shall be responsible for reviewing
related party transactions and is required to submit an annual report of its
activities to our board of directors. The audit committee is also responsible
for the appointment, compensation and oversight of our auditors. The audit
committee also must establish procedures for handling complaints regarding our
accounting or internal control matters, including confidential methods for
addressing concerns raised by employees. Under our articles and by-laws, the
majority of the members of the audit committee, including its president, are
required to be independent directors.
At a meeting of the audit committee held on January 30, 2002, the
members unanimously voted to elect Jose Manuel Rincon Gallardo as an
independent financial expert to advise and assist the audit committee. Mr.
Rincon Gallardo may not vote at meetings of the audit committee.
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Audit Committee Members
Set forth below are the names of the members of the CEMEX's audit
committee. The terms of the members of our audit committee are indefinite, and
they may only be removed by a resolution of the board of directors.
Roberto Zambrano Villarreal See "--Board of Directors."
President
Lorenzo H. Zambrano, See "--Senior Management."
Chief Executive Officer
Lorenzo Milmo Zambrano See "--Board of Directors."
Alfonso Romo Garza See "--Board of Directors."
Tomas Brittingham Longoria See "--Board of Directors."
Compensation of Our Directors and Members of Our Senior Management
For the year ended December 31, 2002, the aggregate amount of
compensation we paid, or our subsidiaries paid, to all members of our board of
directors, alternate members of our board of directors, statutory auditors and
senior managers, as a group, was approximately U.S.$17,966,515. Approximately
U.S.$3,925,921 of this amount was paid pursuant to a bonus plan based on our
performance. During 2002, as part of the compensation, the members of our
board of directors, alternate members of our board of directors, statutory
auditors and senior managers, as a group, received options to acquire
4,272,266 CPOs at a weighted average nominal exercise price of U.S.$5.2055 per
CPO. These options expire in 2011 and 2012. As of December 31, 2002,
anti-dilution provisions embedded in these options increased the number of
underlying CPOs to 4,349,546 and the adjusted weighted average exercise price
per CPO was U.S.$5.3676.
In addition, approximately U.S.$197,882 was set aside or accrued to
provide pension, retirement or similar benefits.
Employee Stock Option Plan (ESOP)
In 1995, we adopted an employee stock option program, or ESOP, under
which we are authorized to grant members of our board of directors, members of
our senior management and other eligible employees options to acquire our
CPOs. Our obligations under the plan are covered by shares held in a trust
created for such purpose (initially 216,300,000 shares). As of December 31,
2002, after giving effect to the exchange program implemented in November 2001
described below, a total of 6,575,525 options to acquire 7,722,915 CPOs remain
outstanding under this program, with a weighted average nominal exercise price
of approximately Ps30.19 per CPO. As of December 31, 2002, the outstanding
options under this program had a weighted average remaining tenure of
approximately 4.2 years.
In November 2001, we implemented a voluntary exchange program to
offer participants in our ESOP new options intended to better align employee
interests with those of shareholders in exchange for their existing options.
The 2001 options have an escalating strike price in U.S. Dollars and are fully
hedged, while the old options have a fixed strike price in Pesos. The
executives who participated in this program exchanged their options to
purchase CPOs at a weighted average strike price of Ps34.11 per CPO, for cash
equivalent to the intrinsic value on the exchange date and 2001 options to
purchase CPOs with an escalating dollar strike price set at U.S.$4.93 per CPO
as of December 31, 2001, growing by 7% per annum less dividends on the CPOs.
Of the old options, 57,448,219 (approximately 90.1%) were exchanged for 2001
options in the voluntary exchange program and 8,695,396 were not exchanged. In
the context of the program, 81,630,766 of the 2001 options were issued, in
addition to 7,307,039 of the 2001 options that were purchased by participants
under a voluntary purchase option that was also part of the exchange. As of
December 31, 2002, considering the options granted as a result of the exchange
program
93
implemented in November 2001 and the options granted thereunder, a total
of 98,592,824 options to acquire 102,043,077 CPOs remain outstanding under
this program, with a weighted average nominal exercise price of approximately
U.S.$5.14 (Ps53.35) per CPO. As of December 31, 2002, the outstanding options
under this program had a weighted average remaining tenure of approximately
9.1 years.
Stock options activity during 2001 and 2002, the balance of options
outstanding as of December 31, 2001 and 2002 and other general information
regarding our stock option programs is presented in note 15 to our
consolidated financial statements included elsewhere in this annual report.
Certain key executives also participate in a plan that distributes a
bonus pool based on actual business results. This bonus is calculated and paid
annually, 50% in cash and 50% under an ESOP.
As of December 31, 2002, the following ESOP options to acquire our
securities were outstanding:
Title of security Number of securities Exercise price per
underlying options underlying options Expiration Date security
------------------ -------------------- --------------- ------------------
CPOs (Pesos) 7,722,915 2005-2011 Ps16.52 - 41.78
CPOs (Dollars) 102,043,077 2011-2012 U.S.$5.08 - 5.61
ADSs 992,755 2011-2012 U.S.$22.62 - 27.22
As of December 31, 2002, our senior management and directors held the
following ESOP options to acquire our securities:
Title of security Number of securities Exercise price per
underlying options underlying options Expiration Date security
- ------------------- -------------------- --------------- ------------------
CPOs 2,191,817 2005-2011 Ps16.52 - 41.78
CPOs 35,163,883 2011-2012 U.S.$5.08 - 5.61
ADSs 0 2011-2012 U.S.$22.62 - 27.22
As of December 31, 2002, our employees, other than senior management
and directors, held the following ESOP options to acquire our securities:
Number of
securities
Title of security underlying Exercise price per
underlying options options Expiration Date security
- -------------------- ------------ --------------- ------------------
CPOs 5,531,098 2005-2011 Ps16.52 - 41.78
CPOs 66,879,193 2011-2012 U.S.$5.08 - 5.61
ADSs 992,755 2011-2012 U.S.$22.62 - 27.22
Voluntary Employee Stock Option Plan (VESOP)
During 1998 and 1999, we established voluntary employee stock option
plans, or VESOPs, pursuant to which managers and senior executives elected to
purchase options to acquire up to 36,468,375 CPOs. These VESOP options,
exercisable quarterly over a period of five years, have a predefined exercise
price which increases
94
quarterly in U.S. Dollars, thereby taking into account the funding cost in the
market. As of December 31, 2002, options to acquire 13,928,910 CPOs were
outstanding.
During 2002, we established an additional VESOP, pursuant to which
managers and senior executives elected to purchase, on a monthly basis, new
options for up to a number equivalent to those exercised in the same period
within the new program initiated in November 2001. During 2002, we sold
2,120,395 options and received a premium equivalent to a percentage of the CPO
price, which amounted to U.S.$1.5 million (Ps15.6 million). As of December 31,
2002, anti-dilution provisions in these options increased the number of
underlying CPOs to 2,204,574 CPOs.
The options under this program maintain the remaining tenure as those
being exercised and have an exercise price equivalent to the price of the CPO
on the issuance date plus half the intrinsic value of the options exercised.
As of December 31, 2002, the following VESOP options to acquire our
securities were outstanding:
Title of security Number of CPOs Per CPO exercise
underlying options underlying options Expiration Date Purchase Price price of options
- --------------------- ------------------ --------------- ----------------- ------------------
CPOs 463,730 2003 U.S.$0.31 U.S.$ 5.57
CPOs 9,236,550 2003 U.S.$0.29 U.S.$ 5.07
CPOs 4,228,630 2004 U.S.$0.19 U.S.$ 3.16
CPOs 2,204,574 2011 U.S.$0.63 - 0.76 U.S.$5.48 - 5.71
As of December 31, 2002, our senior management and directors held the
following VESOP options to acquire our securities:
Title of security Number of CPOs Per CPO exercise
underlying options underlying options Expiration Date Purchase Price price of options
------------------ ------------------ --------------- ----------------- ------------------
CPOs 0 2003 U.S.$0.31 U.S.$ 5.57
CPOs 4,150,476 2003 U.S.$0.29 U.S.$ 5.07
CPOs 3,280,886 2004 U.S.$0.19 U.S.$ 3.16
CPOs 1,159,681 2011 U.S.$0.63 - 0.76 U.S.$5.48 - 5.71
As of December 31, 2002, our employees, other than senior management
and directors, held the following VESOP options to acquire our securities:
Title of security Number of CPOs Per CPO exercise
underlying options underlying options Expiration Date Purchase Price price of options
------------------ ------------------ --------------- --------------- -----------------
CPOs 463,730 2003 U.S.$0.31 U.S.$ 5.57
CPOs 5,085,804 2003 U.S.$0.29 U.S.$ 5.07
CPOs 947,744 2004 U.S.$0.19 U.S.$ 3.16
CPOs 1,044,893 2011 U.S.$0.63 - 0.76 U.S.$5.48 - 5.71
In January 2003, we established a new VESOP and offered new options
under this VESOP to those of our employees who held options under our old
VESOPs, as well as to members of our senior management and other eligible
executives. Through this offer, employees and directors elected to purchase
options to acquire up to
95
38,583,989 CPOs. These new VESOP options are exercisable monthly over a period
of five years and have a predefined exercise price which increases monthly in
U.S. Dollars, thereby taking into account the funding cost to CEMEX of hedging
these options in the market. Employees and directors who exercise their
options under the new VESOP will receive the corresponding gain in CPOs, which
they will be obligated to hold in their entirety for a period of two years
after exercise. Following the second anniversary of the exercise date, one
half of the CPOs acquired under the VESOP may be sold by the holder, and the
remaining CPOs may be sold following the third anniversary of the exercise
date.
In connection with the new VESOP program, in March 2003, we
repurchased 29,001,358 Appreciation Warrants from several of the eligible
executives, at a price per Appreciation Warrant of Ps3.70, the market price
for our Appreciation Warrants on February 6, 2003, the date of the offer to
purchase Appreciation Warrants from the executives. Executives with
outstanding loans from CEMEX used the proceeds from the repurchase of
5,942,724 Appreciation Warrants to repay these loans. The remaining proceeds
were used to partially pay for the subscription for options under our new
VESOP program. Also, as part of the new VESOP program, in March 2003, we
repurchased from some of the eligible employees and directors 294,074 options
under our old VESOPs at a price per option of U.S.$ 0.0096, and 8,158,574
options under our old VESOPs at a price per option of U.S.$0.1164. These
prices represented a fraction of the theoretical value of the options on
January 6, 2003, the date of the offer to purchase the options from the
employees and directors. The proceeds from the repurchase of the options under
the old VESOPs were used to subscribe for options under our new VESOP, as
mandated by the new VESOP program.
As a result of these transactions, as well as the expiration of some
options under our old VESOPs, at March 31, 2003, the aggregate amount of
options under our old VESOPs held by our directors and members of our senior
management was reduced to 3,317,870; the aggregate amount of options under our
old VESOPs held by our employees, other than senior management and directors,
was reduced to 1,988,735; the aggregate amount of options under our new VESOP
held by our directors and members of our senior management was 25,450,683; and
the aggregate amount of options under our new VESOP held by our employees,
other than senior management and directors, was 13,133,306.
Employees
As of December 31, 2002, we had approximately 26,452 employees
worldwide, which represented an increase of 2.06% from year-end 2001.
The following table sets forth the number of our full-time employees
and a breakdown of their geographic location at the end of each of the last
three fiscal years:
Central
America
United And the
Mexico States Spain Venezuela Colombia Egypt Philippines Thailand Caribbean Others Total
------ ------ ----- --------- -------- ----- ----------- -------- --------- ------ ------
2000 9,436 5,273 2,805 2,936 1,116 997 1,056 - 1,132 1,133 25,884
2001 8,740 5,056 3,114 2,576 932 749 734 221 1,512 2,285 25,919
2002 9,184 4,608 3,035 2,334 858 891 692 220 2,569 2,361 26,452
Employees in Mexico have collective bargaining agreements on a
plant-by-plant renewable on an annual basis in respect of salaries and on a
biannual basis in respect of benefits basis. Approximately one fourth of our
employees in the United States are represented by unions, with the largest
number being members of the International Brotherhood of Boilermakers. With
the exception of the non-union facility located in Florida, collective
bargaining agreements are in effect at all our U.S. cement plants and have
various expiration dates ending in 2005. Our Spanish union employees have
contracts that are renewable every two to three years on a company-by-company
basis. During 2002, each of our subsidiary companies operating CEMEX
Venezuela's plants negotiated three-year labor contracts with the union
employees of the relevant plants. There are separate unions at each of
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CEMEX Venezuela's plants, and each plant individually negotiates the labor
contracts. After a 36-day labor strike in 2002 at the Pertigalete plant, one
of CEMEX Venezuela's main plants, a three-year labor agreement was reached
with the union employees of the Pertigalete plant. A single union represents
the union employees of all of CEMEX Colombia's plants and negotiates labor
contracts on their behalf. Our Panamanian union employees have one labor
contract that is renewable every four years. Our Philippine union employees
are represented by three unions and have collective bargaining agreements that
have a term of five years and are typically renegotiated in the third and
fifth years of the term. Our Egyptian union employees are represented by one
union. Assiut has adopted new internal regulations that govern the labor union
arrangements. We consider labor relations with our employees to be
satisfactory, but we have experienced minor disruptions of our operations in a
few plants in Mexico and internationally as a result of labor disagreements
from time to time. Currently, approximately 1,800 former union employees in
Egypt are parties to a lawsuit against Assiut claiming unfair employment
practices relating to the implementation of an employee early retirement
program. We do not consider the amount sought by the plaintiffs, approximately
U.S.$550,000, material to our operations in Egypt.
Share Ownership
As of December 31, 2002, our senior management and directors and
their immediate families owned, collectively, approximately 5.8% of our
outstanding shares, including shares underlying CPOs. This percentage does not
include shares held by the extended families of members of our senior
management and directors, since to the best of our knowledge, no voting
arrangements or other agreements exist with respect to those shares.
As of December 31, 2002, Fernando Ruiz Arredondo, our alternate
examiner, beneficially owned 29,657,481 CPOs, which represented 1.88% of our
outstanding CPOs, and 602,000 Appreciation Warrants. Other than Mr. Ruiz
Arredondo, no individual director or member of our senior management
beneficially owned one percent or more of any class of our outstanding capital
stock.
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Item 7 - Major Shareholders and Related Party Transactions
Major Shareholders
Other than the CPO trust and the shares and CPOs owned by our
subsidiaries, we are not aware of any person that is the beneficial owner of
five percent or more of any class of our voting securities.
As of March 31, 2003, our outstanding capital stock consisted of
3,331,308,318 Series A shares and 1,665,654,159 Series B shares, in each case
including shares held by our subsidiaries.
As of March 31, 2003, a total of 3,144,318,442 Series A shares and
1,572,159,221 Series B shares were held by the CPO trust. Each CPO represents
two Series A shares and one Series B share. A portion of the CPOs is
represented by ADSs. Under the terms of the CPO trust agreement, non-Mexican
holders of CPOs and ADSs have no voting rights with respect to the A shares
underlying those CPOs and ADSs. All ADSs are deemed to be held by non-Mexican
nationals. At every shareholders' meeting, the A shares held in the CPO trust
are voted in accordance with the vote cast by holders of the majority of A
shares held by Mexican nationals and B shares voted at that meeting of
shareholders.
As of March 31, 2003, through our subsidiaries, we owned
approximately 145 million CPOs, representing approximately 9.21% of our
outstanding CPOs and 8.70% of our outstanding voting stock An additional 318
million CPOs, representing approximately 20.22% of our outstanding CPOs and
19.09% of our outstanding voting stock, were held subject to equity derivative
and other transactions. These CPOs are voted at the direction of our
management. From time to time, our subsidiaries are active participants in the
trading market for our capital stock; as a result, the levels of our CPO and
share ownership by those subsidiaries are likely to fluctuate. Our voting
rights over those CPOs are the same as those of any other CPO holder.
Our by-laws, or estatutos sociales, provide that our board of
directors must authorize in advance any transfer of voting shares of our
capital stock that would result in any person, or group acting in concert,
becoming a holder of 2% or more of our voting shares.
In addition, as of March 31, 2003, through our subsidiaries, we owned
approximately 5.79% of our outstanding Appreciation Warrants. If the average
price of our CPOs reaches specified levels on or prior to December 21, 2004,
the Appreciation Warrants will be redeemed for CPOs or ADSs at specified
appreciation values. See Item 5 -- "Operating and Financial Review and
Prospects -- Qualitative and Quantitative Market Disclosure -- Equity
Derivative Financing Transactions" for a description of the Appreciation
Warrants.
Mexican securities authority regulations provide that our
majority-owned subsidiaries may neither directly or indirectly invest in our
CPOs nor other securities representing our capital stock. The Mexican
securities authority could require any disposition of the CPOs or of other
securities representing our capital stock so owned and/or impose fines on us
if it were to determine that the ownership of our CPOs or of other securities
representing our capital stock by our subsidiaries, in most cases, negatively
affects the interests of our shareholders. The Mexican securities authority
has not instituted any proceedings nor, to the best of our knowledge,
threatened to levy any fines or to take any action that would require
disposition of the CPOs or of any other securities representing our capital
stock. Notwithstanding the foregoing, the exercise of all rights pertaining to
our CPOs or to other securities representing our capital stock in accordance
with the instructions of our subsidiaries does not violate any provisions of
our bylaws or the bylaws of our subsidiaries. The holders of these CPOs or of
other securities representing our capital stock are entitled to exercise the
same rights relating to their CPOs or their other securities representing our
capital stock, including all voting rights, as any other holder of the same
series.
As of March 31, 2003, we had 249 ADS holders and 18 ADW holders of
record in the United States, holding approximately 60.6% of our outstanding
CPOs and 26.6% of our outstanding Appreciation Warrants. Since a substantial
number of ADSs and ADWs are held in nominee form, including the nominee of the
Depository Trust Company, the number of beneficial owners of our ADSs and ADWs
is substantially greater than the number of record holders of these
securities.
98
Related Party Transactions
Mr. Bernardo Quintana Isaac, a member of our board of directors, is
chief executive officer and chairman of the board of directors of Grupo ICA,
S.A. de C.V., a large Mexican construction company. In the ordinary course of
our business, we extend financing to Grupo ICA for varying amounts at market
rates as we do to our customers.
We have extended loans to our directors and executives in the past
for varying amounts at market rates. During 2002 the largest aggregate amount
of outstanding loans that we had vis-a-vis our directors and members of our
senior management was approximately Ps15,080,447, and as of March 15, 2003,
the amount outstanding was Ps606,497 with an average interest rate of 6.26%
per annum. See "Compensation of Our Directors and Members of Our Senior
Management - Voluntary Employee Stock Option Plan (VESOP)."
99
Item 8 - Financial Information
Consolidated Financial Statements and Other Financial Information
See Item 18-- "Financial Statements" and "Index to Consolidated
Financial Statements."
Legal Proceedings
See Item 4-- "Information on the Company-- Regulatory Matters and
Legal Proceedings"
CEMEX Dividends
A declaration of any dividend by CEMEX is made by our shareholders at
a general ordinary meeting. Any dividend declaration is usually based upon the
recommendation of our board of directors. However, the shareholders are not
obligated to approve the board's recommendation. We may only pay dividends
from retained earnings included in financial statements that have been
approved by our shareholders and after all losses have been paid for, a legal
reserve equal to 5% of our paid-in capital has been created and our
shareholders have approved the relevant dividend payment. According to 1999
Mexican tax reforms, all shareholders, excluding Mexican corporations, that
receive a dividend in cash or in any other form are subject to a withholding
tax. See Item 10 -- "Additional Information -- Taxation -- Mexican Tax
Considerations." Since we conduct our operations through our subsidiaries, we
have no significant assets of our own except for our investments in those
subsidiaries. Consequently, our ability to pay dividends to our shareholders
is dependent upon our ability to receive funds from our subsidiaries in the
form of dividends, management fees, or otherwise. Some of our credit
agreements and debt instruments and some of those of our subsidiaries contain
provisions restricting our ability, and that of our subsidiaries, as the case
may be, to pay dividends if financial covenants are not maintained. As of
December 31, 2002, we and our subsidiaries were in compliance with, or had
obtained waivers in connection with, those covenants. See Item 3 -- "Key
Information -- Risk Factors -- We have incurred and will continue to incur
debt, which could have an adverse effect on the price of our CPOs, ADSs,
Appreciation Warrants and ADWs" and "-- Our use of equity derivative financing
may have adverse effects on the market for our securities and our
subsidiaries' securities and may adversely affect our ability to achieve
operating efficiencies as a combined group."
Although our board of directors currently intends to continue to
recommend an annual dividend on the common stock, the recommendation whether
to pay and the amount of those dividends will continue to be based upon, among
other things, earnings, cash flow, capital requirements and our financial
condition and other relevant factors.
Owners of ADSs on the applicable record date will be entitled to
receive any dividends payable in respect of the A shares and the B shares
underlying the CPOs represented by those ADSs. The ADS depositary will fix a
record date for the holders of ADSs in respect of each dividend distribution.
Unless otherwise stated, the ADS depositary has agreed to convert cash
dividends received by it in respect of the A shares and the B shares
underlying the CPOs represented by ADSs from Pesos into Dollars and, after
deduction or after payment of expenses of the ADS depositary, to pay those
dividends to holders of ADSs in Dollars. We cannot assure holders of our ADSs
that the ADS depositary will be able to convert dividends received in Pesos
into Dollars.
100
The following table sets forth the amounts of annual cash dividends
paid in Pesos, on a per share basis, and a convenience translation of those
amounts into Dollars based on the CEMEX accounting rate as of December 31,
2002.
Dividends Per Share
-------------------
Constant Pesos Dollars
-------------- -------
1998..................................... 0.40 0.04
1999..................................... 0.49 0.05
2000..................................... 0.56 0.05
2001..................................... 0.65 0.06
2002..................................... 0.70 0.07
Dividends declared at each year's annual shareholders' meeting are in
respect of dividends for the preceding year. In recent years, our board of
directors has proposed, and our shareholders have approved, dividend
proposals, whereby our shareholders have had a choice between stock dividends
or cash dividends declared in respect of the prior year's results, with the
stock issuable to shareholders who elect the stock dividend over the cash
dividend being issued at a 20% discount from then current market prices. The
dividends declared per share or per CPO in recent years, expressed in constant
Pesos as of December 31, 2002, were as follows: 1998, Ps.40 per share (or
Ps1.20 per CPO); 1999, Ps.49 per share (or Ps1.47 per CPO); 2000, Ps1.66 per
CPO (or Ps.56 per share); 2001 Ps1.96 per CPO (or Ps.65 per share); and 2002
Ps2.09 per CPO (or Ps.70 per share). As a result of dividend elections made by
shareholders, in 1998, Ps343 million was paid in cash and 98.6 million
additional shares were issued in respect of dividends declared for the 1997
fiscal year; in 1999, Ps288 million in cash was paid and 142 million
additional shares were issued in respect of dividends declared for the 1998
fiscal year; in 2000, Ps282 million in cash was paid and 59 million additional
CPOs were issued in respect of dividends declared for the 1999 fiscal year; in
2001, Ps84 million in cash was paid and 70 million additional CPOs were issued
in respect of dividends declared for the 2000 fiscal year; and in 2002, Ps233
million in cash was paid and 64.4 million additional CPOs were issued in
respect of dividends declared for 2001.
In connection with our 2002 annual shareholders' meeting, which is
scheduled to take place on April 24, 2003, we expect that our board of
directors will recommend that the stockholders approve a dividend program
similar in structure and amount to those implemented over the last five years.
Shareholders should be entitled to receive the dividend in either stock or
cash consistent with our past practices.
Significant Changes
No significant change has occurred since the date of our consolidated
financial statements included in this annual report.
101
Item 9 - Offer and Listing
Market Price Information
Our CPOs and Appreciation Warrants are listed on the Mexican Stock
Exchange. Our CPOs trade under the symbol "CEMEX.CPO," and our Appreciation
Warrants trade under the symbol "CMX412E-DC062." As a result of the 1999
exchange offer of CPOs for A shares and B shares, the trading of our A shares
and B shares substantially declined and were last traded on the Mexican Stock
Exchange on December 28, 1999, under the symbols "CEMEX.A" and "CEMEX.B,"
respectively. On September 28, 2001, the A shares and B shares were delisted
from the Mexican Stock Exchange due to the lack of trading volume. Our ADSs,
each of which represents five CPOs, and our ADWs, each of which represents five
Appreciation Warrants, are listed on the NYSE. Our ADSs trade under the symbol
"CX" and our ADWs trade under the symbol "CX.WSB." Following our November 2001
exchange offer of new Appreciation Warrants and new ADWs for our old
Appreciation Warrants and old ADWs, the trading of our old Appreciation
Warrants and old ADWs substantially declined and formally ceased upon their
expiration on December 13, 2002. The following table sets forth, for the
periods indicated, the reported highest and lowest market quotations in
nominal Pesos for CPOs, old Appreciation Warrants and new Appreciation
Warrants on the Mexican Stock Exchange and the high and low sales prices in
Dollars for ADSs, old ADWs and new ADWs on the NYSE.
Calendar Period A Shares(1) B Shares(1) CPOs(1)
- ---------------- ------------ ----------- -------
1998........... 14.27 5.31 17.13 6.10 43.40 16.00
1999........... 16.60 5.97 16.77 6.63 53.10 17.90
2000 -- -- -- -- 53.80 32.50
2001
First
quarter........ -- -- -- -- 45.34 34.50
Second
quarter........ -- -- -- -- 49.90 39.25
Third
quarter........ -- -- -- -- 51.65 37.58
Fourth
quarter........ -- -- -- -- 49.00 38.61
2002
First
quarter........ -- -- -- -- 55.01 43.90
Second
quarter........ -- -- -- -- 61.82 51.50
Third
quarter........ -- -- -- -- 53.80 40.25
Fourth
quarter........ -- -- -- -- 48.64 39.10
October.. -- -- -- -- 44.20 39.10
November. -- -- -- -- 47.32 41.24
December. -- -- -- -- 48.64 43.81
2003
First
quarter........ -- -- -- -- 48.66 35.65
January..... -- -- -- -- 48.66 36.90
February.... -- -- -- -- 48.66 39.75
March....... -- -- -- -- 39.80 35.65
(Continued)
Old New
appreciation appreciation
Calendar Period ADSs(2) warrants(3) Old ADWs(4) warrants New ADWs(6)
- ---------------- -------- ------------ -----------
1998........... -- -- -- -- -- -- -- -- -- --
1999........... U.S.$28.13 U.S.$19.2 Ps8.26 Ps5.00 U.S$4.13 U.S.$2.56 -- -- -- --
2000 28.75 17.19 8.50 2.00 -- -- 4.75 1.00 -- --
2001
First
quarter........ 23.48 17.63 4.20 2.00 -.- -.- 2.15 1.00 -- --
Second
quarter........ 27.75 20.67 4.80 2.80 -.- -.- 2.60 1.50 -- --
Third
quarter........ 28.30 19.80 4.85 2.30 -.- -.- 2.85 - -- --
Fourth
quarter........ 26.85 20.35 4.50 2.00 4.50 4.00 2.40 1.20 -- --
2002
First
quarter........ 30.37 24.00 6.00 3.00 7.60 3.80 2.50 1.00 4.40 2.35
Second
quarter........ 33.00 25.70 5.00 5.00 8.50 6.50 3.88 2.52 4.60 3.30
Third
quarter........ 27.27 19.71 4.60 4.50 6.50 3.00 2.60 0.20 3.30 1.35
Fourth
quarter........ 24.07 19.25 -.- -.- 4.20 3.00 0.25 0.01 2.05 1.22
October.. 21.90 19.25 -.- -.- 3.62 3.00 0.25 0.20 1.80 1.22
November. 23.36 19.95 -.- -.- 4.20 3.11 0.25 0.05 1.82 1.50
December. 24.07 21.41 -.- -.- 4.20 3.80 0.02 0.01 2.05 1.55
2003
First
quarter........ 23.35 16.31 -.- -.- 4.00 2.50 -.- -.- 1.80 0.95
January..... 23.35 16.73 -.- -.- 4.00 3.42 -.- -.- 1.80 1.10
February.... 23.35 18.10 -.- -.- 4.00 3.50 -.- -.- 1.80 1.30
March....... 18.35 16.31 -.- -.- 2.50 2.50 -.- -.- 1.14 0.95
_______________
Source: Based on data of the Mexican Stock Exchange and the NYSE.
(1) As of December 31, 2002, approximately 93.57% of our outstanding share
capital was represented by CPOs.
(2) The ADSs began trading on the NYSE on September 15, 1999.
(3) The old Appreciation Warrants began trading on the Mexican Stock
Exchange on December 13, 1999 and expired on December 13, 2002.
(4) The old ADWs began trading on the NYSE on December 13, 1999 and expired
on December 13, 2002.
(5) The new Appreciation Warrants began trading on the Mexican Stock
Exchange on December 24, 2001.
(6) The new ADWs began trading on the NYSE on December 24, 2001.
The last reported closing price for CPOs on March 31, 2003 was
Ps37.78 per CPO on the Mexican Stock Exchange and U.S.$17.44 per ADS on the
NYSE. The last reported closing price for Appreciation Warrants on March 31,
2003 was Ps2.50 per Appreciation Warrant and U.S.$0.95 per ADW on the NYSE.
102
Item 10 - Additional Information
Articles of Association and By-laws
General
Pursuant to the requirements of Mexican corporation law, our articles
of association and by-laws, or estatutos sociales, have been registered with
the Mercantile Section of the Public Register of Property and Commerce in
Monterrey, Mexico, under the entry number 21 since June 11, 1920. We are a
holding company engaged, through our operating subsidiaries, primarily in the
production, distribution, marketing and sale of cement, ready-mix concrete and
clinker. Our objectives and purposes can be found in article 2 of our by-laws.
We are a global cement manufacturer, with operations in North, Central and
South America, Europe, the Caribbean, Asia and Africa. We plan to continue
focusing on the production and sale of cement and ready-mix concrete, as we
believe that this strategic focus has enabled us to grow our existing
businesses and to expand our operations internationally.
We have two series of common stock, the series A common stock, with
no par value, or A shares, which can only be owned by Mexican nationals, and
the series B common stock, with no par value, or the B shares, which can be
owned by both Mexican and non-Mexican nationals. Our by-laws state that the A
shares may not be held by non-Mexican persons, groups, units or associations
that are foreign or have participation by foreign governments or their
agencies. Our by-laws also state that the A shares shall at all times account
for a minimum of 64% of our total outstanding voting stock. Other than as
described herein, holders of the A shares and the B shares have the same
rights and obligations.
In 1994, we changed from a fixed capital corporation to a variable
capital corporation in accordance with Mexican corporation law and effected a
three-for-one split of all our outstanding capital stock. As a result, we
changed our corporate name from CEMEX, S.A. to CEMEX, S.A. de C.V.,
established a fixed capital account and a variable capital account and issued
one share of variable capital stock of the same series for each eight shares
of fixed capital stock held by any shareholder, after giving effect to the
stock split.
Each of our fixed and variable capital accounts are comprised of A
shares and B shares. Any holder of shares representing variable capital is
entitled to have those shares redeemed at that holder's option for a price
equal to the lower of:
o 95% of the average market value of those shares on the
Mexican Stock Exchange obtained for a period of 30 trading
days preceding the date on which the exercise of the
redemption option is effective; and
o the book value of those shares at the end of the fiscal year
that includes the date that shareholder exercises its option
to have its shares redeemed as set forth in our annual
financial statements approved at the ordinary meeting of the
shareholders.
If a shareholder exercises its redemption option during the first
three quarters of a fiscal year, that exercise is effective at the end of that
fiscal year, but if a shareholder exercises its redemption option during the
fourth quarter, that exercise is effective at the end of the next succeeding
fiscal year. The redemption price is payable as of the day following the
annual ordinary meeting of shareholders at which the relevant annual financial
statements were approved. Shareholder authorization is required to increase or
decrease either the fixed capital account or the variable capital account.
Shareholder authorization to increase or decrease the fixed capital account
must be obtained at an extraordinary meeting of shareholders. Shareholder
authorization to increase or decrease the variable capital account must be
obtained at an ordinary general meeting of shareholders.
On September 15, 1999, we effected a further stock split. For every
one of our shares of any series we issued two series A shares and one series B
share. Concurrently with this stock split, we also consummated an exchange
offer to exchange new CPOs and new ADSs representing the new CPOs for our then
existing A shares, B shares and ADSs and converted our then existing CPOs into
the new CPOs. As of December 31, 2002, approximately 94.84% of our outstanding
share capital was represented by CPOs, a portion of which is represented by
ADSs.
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As of December 31, 2002, our capital stock consisted of 5,421,340,089
issued shares. Series A shares represented 66.6% of our capital stock, or
3,614,226,726 shares, of which 3,331,300,154 shares were subscribed and paid,
151,182,076 shares were treasury shares, 15,218,400 were repurchased shares
which have been subscribed and paid but have not yet been cancelled and
116,526,096 were authorized for issuance pursuant to our stock option plans,
but which had not yet been paid. B shares represented 33.4% of our capital
stock, or 1,807,113,363 shares, of which 1,665,650,077 were subscribed and
paid, 75,591,038 shares were treasury shares, 7,609,200 were repurchased
shares which have been subscribed and paid but have not yet been cancelled and
58,263,048 were authorized for issuance pursuant to our employee stock option
plans, but which had not yet been paid. Of the total of our A shares and B
shares, 3,267,000,000 shares correspond to the fixed portion of our capital
stock and 2,154,340,089 shares correspond to the variable portion of our
capital stock.
As of June 1, 2001, the Mexican securities law (Ley de Mercado de
Valores) was amended in order to increase the protection granted to minority
shareholders of Mexican listed companies and to bring corporate governance
procedures of Mexican listed companies in line with international standards.
On February 6, 2002, the Mexican securities authority (Comision
Nacional Bancaria y de Valores) issued an official notice numbered
DGA-13813138, authorizing the amendment of our by-laws to incorporate
additional provisions in order to comply with the new provisions of the
Mexican securities law. Following approval from our shareholders at our 2002
annual shareholders meeting, we amended and restated our by-laws to
incorporate these additional provisions, which consist of, among other things,
protective measures to prevent share acquisitions, hostile takeovers, and
direct or indirect changes of control. As a result of the amendment and
restatement of our by-laws, the expiration of our corporate term of existence
was extended from 2019 to 2100.
Changes in Capital Stock and Preemptive Rights
Our by-laws allow for a change in the amount of our capital stock if
it is approved by our shareholders at a shareholders' meeting, as long as the
A shares represent at least 64% of our ordinary common stock. Additional
shares of our capital stock, having no voting rights or limited voting rights,
are authorized by our by-laws and may be issued upon the approval of our
shareholders at a shareholders' meeting, with the prior approval of the
Mexican securities authority.
Our by-laws provide that shareholders have preemptive rights in
proportion to the number of shares of our capital stock they possess, before
any increase in the number of outstanding A shares, B shares, or any other
existing series of shares, as the case may be, except in the case of common
stock issued in connection with mergers or upon the conversion of convertible
notes and debentures or as set forth in Article 81 of the Mexican Securities
law. Preemptive rights give shareholders the right, upon any issuance of
shares by CEMEX, to purchase a sufficient number of shares to maintain their
existing ownership percentages. Preemptive rights must be exercised within the
period and under the conditions established for that purpose by the
shareholders, and the by-laws provide that this period must be within 15 days
following the publication of the notice of the capital increase in the
Periodico Oficial del Estado. With the prior approval of the Mexican
securities authority, an extraordinary shareholders' meeting may approve the
issuance of common stock to be issued in connection with a public offering. At
that meeting, holders of our common stock may waive preemptive rights by the
affirmative vote of 50% of the capital stock, and the resolution duly adopted
in this manner will be effective for all shareholders. If holders of at least
25% of our capital stock vote against the resolution, an increase cannot be
effected.
Pursuant to Article 7 and Article 10 of our by-laws, significant
acquisitions of shares of our capital stock and changes of control of CEMEX
require
o prior approval from our board of directors for any
acquisition of shares of our capital stock representing 20%
or more of our capital stock and, in the event approval is
granted, the acquirer has an obligation to make a public
offer to purchase all of the outstanding shares of that
class of capital stock being purchased;
o the establishment of formulas to determine how shares of our
capital stock are grouped in order to determine if specified
thresholds are met; and
104
o the establishment of penalties for failure to comply with
the above requirements, as regards the shares of stock which
are the subject matter of the transaction in question,
namely:
1. the deprivation of shareholder rights;
2. the disqualification of shares of our capital stock
for the purposes of determining voting quorums; and
3. the invalidation of transfers in our shareholders'
ledger.
There is a general exemption from the provisions of the foregoing
Article 7 and Article 10 for the purposes of issuing CPOs to the public.
In accordance with our by-laws, our board of directors must authorize
in advance any transfer of voting shares of our capital stock that would
result in any person or group becoming a holder of 2% of more of our shares.
If our board of directors denies that authorization, it must designate an
alternative buyer for those shares, at a price equal to the price quoted on
the Mexican Stock Exchange. Our by-laws require the stock certificates
representing shares of our capital stock to make reference to the provisions
in our charter documents relating to the prior approval or the board of
directors for share transfers and the requirements for recording share
transfers in our corporate ledger. In addition, shareholders are responsible
for informing us whenever their shareholdings exceeds 5%, 10%, 15% and 20% of
the outstanding shares of a particular class of securities. We are required to
maintain a transactions ledger, and whoever should meet or exceed these
thresholds must be recorded in this ledger if the shareholder is to be
recognized or represented at any shareholders' meeting.
Failure to inform us as indicated above or to make the appropriate
log entry in the referred ledger may result in the following:
o the shares of capital stock which is the subject matter of
the transaction will not be represented at any
shareholders' meeting; and
o the transactions made, or which otherwise cause such
thresholds to be met or exceeded, will be of no effect
whatsoever and will not be binding before on us.
Repurchase Obligation
In accordance with Mexican securities authority regulations, our
majority shareholders are obligated to make a public offer for the purchase of
stock to the minority shareholders if the listing of our stock with the
Mexican Stock Exchange is canceled, either by resolution of CEMEX or by an
order of the Mexican securities authority. The price at which the stock must
be purchased by the majority shareholders is the higher of:
o the average quotation price for the 30 days prior to the
date of the offer; or
o the book value, as reflected in the last quarterly report
filed with the Mexican securities authority and the Mexican
Stock Exchange.
The majority shareholders are not bound to make the repurchase if all
our shareholders agree to waive that right. This provision has been included
in our by-laws, and may not be amended without the consent of holders of at
least 95% of our capital stock and the prior approval of the Mexican
securities authority.
Shareholders' Meetings and Voting Rights
Shareholders' meetings may be called by:
o our board of directors or statutory auditors;
o shareholders representing at least 10% of the then
outstanding shares of our capital stock by requesting our
board of directors or the statutory auditors to call a
meeting;
105
o any shareholder if no meeting has been held for two
consecutive years or when the matters referred to in Article
181 of the General Law of Commercial Companies (Ley General
de Sociedades Mercantiles) have not been dealt with; or
o a Mexican court in the event our board of directors or the
statutory auditors do not comply with the valid request of
the shareholders indicated above.
Notice of shareholders' meetings must be published in the official
gazette for the state of Nuevo Leon, Mexico or any major newspaper located in
the City of Monterrey, Nuevo Leon, Mexico. That notice must be published at
least 15 days prior to the date of any shareholders' meeting. Consistent with
Mexican law, our by-laws further require that all information and documents
relating to the shareholders meeting be available to shareholders from the
date the summons is published.
General shareholders' meetings can be ordinary or extraordinary. At
every general shareholders' meeting, each holder of A shares and B shares is
entitled to one vote per share. Shareholders may vote by proxy duly appointed
in writing. Under the CPO trust agreement, holders of CPOs who are not Mexican
nationals cannot exercise voting rights corresponding to the A shares
represented by their CPOs.
An annual general ordinary shareholders' meeting must be held during
the first four months after the end of each of our fiscal years to consider
the approval of a report of our board of directors regarding our performance
and our financial statements for the preceding fiscal year and to determine
the allocation of the profits for the preceding year. At the annual general
shareholders' meeting, any shareholder or group of shareholders representing
10% or more of our outstanding voting stock has the right to appoint one
regular and one alternate director in addition to the directors elected by the
majority. The alternate director appointed by the minority holders may only
substitute for the director appointed by that minority.
Extraordinary shareholders' meetings may be called at any time to
deal with any of the matters specified by Article 182 of the General Law of
Commercial Companies, which include, among other things:
o extending our corporate existence;
o our early dissolution;
o increasing or reducing our fixed capital stock;
o changing our corporate purpose;
o changing our country of incorporation;
o changing our capital structure;
o a proposed merger;
o issuing preferred shares;
o redeeming our own shares and issuing preferred shares;
o any other amendment to our by-laws; and
o any other matter for which a special quorum is required by
law or by our by-laws.
The above-mentioned matters may only be dealt with at extraordinary
shareholders' meetings.
In order to vote at a meeting of shareholders, shareholders must
appear on the list that Indeval, and the Indeval participants holding shares
on behalf of the shareholders, prepare prior to the meeting or must deposit
prior to that meeting the certificates representing their shares at our
offices or in a Mexican credit institution or brokerage house, or foreign bank
approved by our board of directors to serve this function. The certificate of
deposit with respect to the share certificates must be presented to our
company secretary at least 48 hours before a meeting of
106
shareholders. Our company secretary verifies that the person in whose favor
any certificate of deposit was issued is named in our share registry and
issues an admission pass authorizing that person's attendance at the meeting
of shareholders.
Our by-laws provide that a shareholder may only be represented by
proxy in a shareholders' meeting with a duly completed form provided by us
authorizing the proxy's presence. In addition, our by-laws require that the
secretary presiding at the shareholders' meeting publicly affirm the
compliance by all proxies of this new requirement.
A shareholders' resolution is required to take action on any matter
presented at a shareholders' meeting. At an ordinary meeting of shareholders,
the affirmative vote of the holders of a majority of the shares present at the
meeting is required to adopt a shareholders' resolution. At an extraordinary
meeting of shareholders, the affirmative vote of at least 50% of the capital
stock is required to adopt a shareholders' resolution, except that when
amending Article 45 of our by-laws (which requires that in the case of
cancellation of the registration of our shares in the national securities
registry (Registro Nacional de Valores) of the Mexican securities authority
(Comision Nacional Bancaria y de Valores), the controlling shareholders of
CEMEX are required to buy the outstanding shares through a public offering,
unless they have the consent of all the shareholders), the previous consent of
the Mexican securities authority is needed together with the affirmative vote
of at least 95% of the voting stock and when amending Article 22 of our
by-laws (which provides for the list of persons who are not eligible to be
appointed as a director or an examiner) the affirmative vote of at least 75%
of the voting stock is needed. Our by-laws also require the approval of 75% of
the voting shares of our capital stock to amend the provisions in our by-laws
relating to the prior approval of the board of directors for share transfers
and the requirements for recording share transfers in our corporate ledger.
The quorum for a first ordinary meeting of shareholders is 50% of our
outstanding and fully paid stock, and for the second ordinary meeting of
shareholders is any number of our outstanding and fully paid stock. The quorum
for the first extraordinary shareholders meeting is 75% of our outstanding and
fully paid stock and for the second extraordinary shareholders meeting the
quorum is 50% of our outstanding and fully paid stock.
Our by-laws provide that holders of at least 10% of our capital stock
are entitled to demand the postponement of the voting on any resolution for
which they deem they have not been adequately informed.
Under Mexican law, holders of at least 20% of our outstanding capital
stock entitled to vote on a particular matter may seek to have any shareholder
action with respect to that matter set aside, by filing a complaint with a
court of law within 15 days after the close of the meeting at which that
action was taken and showing that the challenged action violates Mexican law
or our by-laws. Relief under these provisions is only available to holders who
were entitled to vote on, or whose rights as shareholders were adversely
affected by, the challenged shareholder action and whose shares were not
represented when the action was taken or, if represented, voted against it.
Under Mexican law, an action for civil liabilities against directors
may be initiated by a shareholders' resolution. In the event shareholders
decide to bring an action of this type, the persons against whom that action
is brought will immediately cease to be directors. Additionally, shareholders
representing not less than 20% of the outstanding shares may directly exercise
that action against the directors; provided that:
o those shareholders shall not have voted against exercising
such action at the relevant shareholders' meeting; and
o the claim covers all of the damage alleged to have been
caused to CEMEX and not merely the damage suffered by the
plaintiffs.
Any recovery of damage with respect to these actions will be for the
benefit of CEMEX and not that of the shareholders bringing the action.
107
Registration and Transfer
Our common stock is evidenced by share certificates in registered
form with registered dividend coupons attached. Our shareholders may hold
their shares in the form of physical certificates or through institutions that
have certificates deposited with Indeval. Accounts may be maintained at
Indeval by brokers, banks and other entities approved by the Mexican
securities authority. We maintain a stock registry, and, in accordance with
Mexican law, only those holders listed in the stock registry and those holding
certificates issued by Indeval indicating ownership are recognized as our
shareholders.
Redemption
Our capital stock is subject to redemption upon approval of our
shareholders at an extraordinary shareholders' meeting.
Directors' and Shareholders' Conflict of Interest
Under Mexican law, any shareholder that has a conflict of interest
with CEMEX with respect to any transaction is prohibited from voting on that
transaction. A shareholder who violates this prohibition may be liable for
damages if the relevant transaction would not have been approved without that
shareholder's vote.
Under Mexican law, any director who has a conflict of interest with
CEMEX in any transaction must disclose that fact to the other directors and is
prohibited from voting on that transaction. Any director who violates this
prohibition will be liable for damages. Additionally, our directors and
statutory auditors may not represent shareholders in the shareholders'
meetings.
Withdrawal Rights
Whenever the shareholders approve a change of corporate purposes,
change of nationality of the corporation or transformation from one form of
corporate organization to another, the General Law of Commercial Companies
provides that any shareholder entitled to vote on that change that has voted
against it may withdraw from CEMEX and receive the amount calculated as
specified in the General Law of Commercial Companies attributable to its
shares, provided that it exercises that right within 15 days following the
adjournment of the meeting at which the change was approved. For further
details on the calculation of the withdrawal right, see "- General."
Dividends
At the annual ordinary general meeting of shareholders, our board of
directors submits our financial statements together with a report on them by
our board of directors and the statutory auditors, to our shareholders for
approval. The holders of our shares, once they have approved the financial
statements, determine the allocation of our net income, after provision for
income taxes legal reserve and statutory employee profit sharing payments, for
the preceding year. All shares of our capital stock outstanding and fully paid
at the time a dividend or other distribution is declared are entitled to share
equally in that dividend or other distribution.
Liquidation Rights
In the event we are liquidated, the surplus assets remaining after
payment of all our creditors will be divided among our shareholders in
proportion to the respective shares held by them. The liquidator may, with the
approval of our shareholders, distribute the surplus assets in kind among our
shareholders, sell the surplus assets and divide the proceeds among our
shareholders or put the surplus assets to any other uses agreed to by a
majority of our shareholders voting at an extraordinary shareholders' meeting.
108
Repurchase Option
If our shareholders decide at a general shareholders' meeting that we
should do so, we may purchase our outstanding shares for cancellation. We may
also repurchase our equity securities on the Mexican Stock Exchange at the
then prevailing market prices in accordance with the Mexican securities law.
Our by-laws provide for the possibility of share redemptions, where approved
by our board of directors. When we make a share repurchase, our capital stock
must be reduced accordingly. The requirements described in this paragraph do
not apply to purchases of our equity securities by our subsidiaries and
affiliates.
Material Contracts
On August 26, 2002, in connection with our U.S.$275 million
commercial paper program for the sale and issuance of commercial paper
promissory notes in the United States, we entered into a Reimbursement and
Credit Agreement and a related Depositary Agreement with several lenders.
Under the Reimbursement and Credit Agreement, the issuing bank agreed to issue
an irrevocable direct-pay letter of credit in the amount of U.S.$275 million
to provide credit support for the commercial paper program, and the other
lenders committed to make loans to us in the event of certain market
disruptions of up to the same amount. In addition, under the Reimbursement and
Credit Agreement we obtained a standby letter of credit facility with a
sub-limit of U.S.$100 million for the issuance of standby letters of credit in
support of certain of our and any of our subsidiaries' obligations, including
in support of contingent liabilities arising in connection with forward sale
contracts, leases, insurance contracts and arrangements, service contracts,
equipment contracts, financing transactions and other payment obligations. The
total amount available under the commercial paper program, the letters of
credit and any loans under the Reimbursement and Credit Agreement cannot
exceed U.S.$275 million. CEMEX Mexico and Empresas Tolteca de Mexico acted as
guarantors.
On July 11, 2002, we entered into an Agreement and Plan of Merger
with Puerto Rican Cement Company, Inc., or PRCC, pursuant to which we
acquired, through a tender offer and subsequent merger, 100% of the
outstanding shares of PRCC. The aggregate value of the transaction was
approximately U.S.$180.2 million, not including the amount of net debt assumed
of approximately U.S.$100.8 million.
On October 29, 2001, CEMEX Espana signed a three-year revolving
credit facility arranged by Banco Bilbao Vizcaya Argentaria, S.A., Salomon
Brothers International Limited, and Deutsche Bank AG as mandated lead
arrangers. The facility amounts to (euro)800 million. A total of 38 banks
participated in this transaction. The proceeds of the facility must be used
for general corporate purposes.
On June 11, 2001, we entered into a credit agreement with Bank of
America Securities LLC and J.P. Morgan Securities Inc. for an aggregate
principal amount of U.S.$600 million. The proceeds of this credit agreement
were applied to refinance indebtedness.
On March 15, 2001, CEMEX, Inc., as issuer, CEMEX Espana, as parent
guarantor and Sandworth Plaza Holding B.V., Cemex Caracas Investments B.V.,
Cemex Caribe Investments B.V., Cemex Manila Investments B.V., Valcem
International B.V., as subsidiary guarantors, and several institutional
purchasers, entered into a Note and Guarantee Agreement in connection with the
private placement and issuance by CEMEX, Inc. of U.S.$315,000,000 aggregate
principal amount of Series A Guaranteed Senior Notes due 2006,
(euro)50,000,000 aggregate principal amount of Series B Guaranteed Senior
Notes due 2006 and U.S.$396,000,000 aggregate principal amount of Series C
Guaranteed Senior Notes due 2008 to the institutional purchasers. The proceeds
of the private placement were used to repay debt.
On September 28, 2000, we entered into an Agreement and Plan of
Merger, or the Merger Agreement, with CENA Acquisition Corp., a Delaware
corporation and indirect subsidiary of CEMEX, and Southdown. Pursuant to the
terms of the Merger Agreement, we acquired Southdown as an indirect
subsidiary.
109
On November 20, 2000, CEMEX Espana, formerly named Compania
Valenciana de Cementos Portland, and its subsidiaries Hormicemex, S.A. and
Aricemex, S.A., entered into a receivables assignment agreement. Under this
transaction, CEMEX Espana and its subsidiaries, are committed to sell by
assignment of credits, on a monthly basis, all their Eligible Receivables (as
defined in the assignment agreement) to Compass Traderec V L.L.C., a
commercial paper conduit sponsored by Westdeutsche Landesbank Girozentrale.
The receivables are removed from our consolidated balance sheet at the time
they are sold to Compass Traderec V L.L.C. CEMEX Espana and its subsidiaries
continue to act as collection agents for the receivables purchased by Compass
Traderec V L.L.C., although they can be removed upon the occurrence of certain
events of default. This agreement is scheduled to terminate in November 2005.
On November 6, 2000, we established U.S.$1.5 billion in preferred
equity financing arrangements to provide funds for our acquisition of
Southdown, of which U.S.$650 million remained outstanding as of December 31,
2002. The preferred equity financing arrangements were amended and restated on
February 6, 2002. The preferred equity financing arrangements consist of:
o a framework agreement among CEMEX, Sunward Acquisitions, New
Sunward Holding, CEMEX Espana, Stichting
Administratiekantoor Aandelen New Sunward Holding B.V., Rey
Holdings (Jersey) Limited, a newly formed special purpose
company in which CEMEX does not have any interest, Rey
Holdings (Luxembourg) S.A., a special purpose company in
which CEMEX does not have any interest and a subsidiary of
Rey Holdings (Jersey), and JP Morgan Limited (formerly Chase
Manhattan International Limited), as investor agent;
o a 30-month U.S.$650 million term loan facility agreement
among Rey Holdings (Jersey), as borrower, Rey Holdings
(Luxembourg), the banks and financial institutions referred
to therein, as lenders and JP Morgan Europe Limited
(formerly Chase Manhattan International Limited), as
facility agent and as the security trustee; and
o an approximately U.S.$530 million intercompany loan
agreement between Rey Holdings (Jersey), as lender, and Rey
Holdings (Luxembourg), as borrower.
Under the original facility agreement, Rey Holdings (Jersey) borrowed
U.S.$1.5 billion from a group of banks. Rey Holdings (Jersey) applied these
borrowings to (1) make a U.S.$1.38 billion loan to Rey Holdings (Luxembourg)
pursuant to the intercompany loan agreement, and (2) subscribe for shares in
Rey Holdings (Luxembourg) for U.S.$120 million. Under the framework agreement,
Rey Holdings (Luxembourg) used these funds to subscribe for preferred equity
of New Sunward Holding. Prior to Rey Holdings (Luxembourg)'s acquisition of
the preferred equity, Sunward Acquisitions contributed its 85.15% interest in
CEMEX Espana to New Sunward Holding in exchange for all of the ordinary shares
of New Sunward Holding. The U.S.$1.5 billion received by New Sunward Holding
from Rey Holdings (Luxembourg) for the issuance of the preferred equity was
used by New Sunward Holding to subscribe for further shares in CEMEX Espana.
CEMEX Espana, in turn, used these funds in connection with our acquisition of
Southdown.
The preferred equity financing arrangements are non-recourse to CEMEX
and its subsidiaries, except in respect of indemnification obligations on the
part of CEMEX. In addition, in the framework agreement, CEMEX and some of its
subsidiaries have given various representations, warranties and undertakings
to JP Morgan Europe Limited (formerly Chase Manhattan International Limited),
in its capacity as investor agent, Rey Holdings (Jersey), Rey Holdings
(Luxembourg), the lenders under the facility agreement and JP Morgan Europe
Limited (formerly Chase Manhattan International Limited) in its capacity as
facility agent and security trustee. All debt service payments to be made by
Rey Holdings (Jersey) under the facility agreement will be derived from
payments made in respect of the preferred equity in New Sunward Holding
acquired by Rey Holdings (Luxembourg), and by the debt service payments to be
made by Rey Holdings (Luxembourg) to Rey Holdings (Jersey) pursuant to the
intercompany loan agreement.
Sunward Acquisitions and Rey Holdings (Luxembourg) are bound by the
provisions of the framework agreement, New Sunward Holding's Articles of
Association regulating Sunward Acquisitions' and Rey Holdings
110
(Luxembourg)'s interests in New Sunward Holding and setting forth each of
their respective rights under the preferred equity and the ordinary shares.
The framework agreement provides for the liquidation of New Sunward Holding
upon the occurrence of a notice event, which includes the failure to make
payments with respect to the preferred equity, a change of control of CEMEX
Espana or CEMEX, a sale of substantially all of the business or assets of
CEMEX Espana or any of its material subsidiaries (other than in certain
limited circumstances), CEMEX ceasing to own directly or indirectly 100% of
Sunward Acquisitions, non-compliance with financial tests, the occurrence of a
material adverse change and other breaches of representations and agreements.
Sunward Acquisitions has the option to acquire the preferred equity at a
purchase price sufficient to enable Rey Holdings (Luxembourg) to repay all
amounts due under the intercompany loan agreement and, therefore, to enable
Rey Holdings (Jersey) to repay all amounts due under the facility agreement.
This option may be exercised at any time up to the banking day preceding the
date of the meeting of New Sunward Holding convened to consider the resolution
to put it into liquidation. The liquidation procedures triggered by the
occurrence of a notice event contemplate selling New Sunward Holding's assets
(principally the CEMEX Espana shares) at market prices in an amount sufficient
to satisfy the amount outstanding under the preferred equity.
Rey Holdings (Jersey)'s borrowings under the facility agreement were
repaid as follows:
o U.S.$600 million in July 2001;
o U.S.$250 million in February 2002; and
In February 2002, we refinanced the preferred equity transaction, as
a result of which CEMEX redeemed U.S.$250 million of the outstanding preferred
equity and extended the termination date on the remaining U.S.$650 million,
with a further redemption of U.S.$195 million due in February 2004 and the
balance of the preferred equity of U.S.$455 million due in August 2004. The
facility may be increased up to U.S.$1.2 billion. However, such an
increase is subject to the ability of CEMEX to obtain commitments from
additional participants to subscribe for more preferred equity. This would
involve further tranches of debt being drawn from our new existing lenders
under the facility agreement. These further tranches can be used to refinance
existing indebtedness under the facility agreement, or to finance future
acquisitions. Any further drawings will be used by Rey Holdings (Jersey) to
make additional loans to Rey Holdings (Luxembourg) and subscribe for
additional preferred equity.
The framework agreement provides for corresponding payments to be
made by New Sunward Holding to Rey Holdings (Luxembourg) on the same dates by
way of distribution of interim dividends and/or repayments from New Sunward
Holding's share premium reserves from free distributable reserves. In
addition, corresponding payments are to be made by Rey Holdings (Luxembourg)
to Rey Holdings (Jersey) on the same dates pursuant to the intercompany loan
agreement, provided that, the balance of the loan outstanding under that
agreement, is to be paid in August 2004, unless extended.
The interest rate payable on Rey Holdings (Jersey)'s borrowing under
the existing tranche of the facility agreement and on Rey Holdings
(Luxembourg)'s borrowing under the intercompany loan agreement is the
aggregate of the London Interbank Offered Rate, or LIBOR, plus the applicable
margin referred to below, plus applicable regulatory capital costs. The
applicable margin set at 125 basis points from February 2002, and, absent a
notice event, it will fluctuate quarterly between 100 basis points and 175
basis points depending on CEMEX Espana's Total Debt to EBITDA ratio.
Corresponding payments are to be made by New Sunward Holding to Rey Holdings
(Luxembourg) in respect of the preferred equity. Additional future tranches of
the facility agreement may have different margins applicable.
Sunward Acquisitions has the option to purchase from Rey Holdings
(Luxembourg) preferred equity in an aggregate amount not exceeding the
outstanding balance of any loan made by Rey Holdings (Jersey) to Rey Holdings
(Luxembourg) or all the loans made pursuant to the intercompany loan
agreement. Any payment received by Rey Holdings (Luxembourg) upon exercise of
this option is to be used by it to repay an equal amount of its borrowings
under the intercompany loan agreement, and, in turn, by Rey Holdings (Jersey)
to repay an equal amount of its borrowings under the facility agreement. The
framework agreement requires New Sunward Holding to make mandatory payments on
the preferred equity from the net proceeds of any disposal of assets or shares
by
111
CEMEX Espana or any of its subsidiaries in excess of U.S.$25 million to the
extent that such net proceeds are not used to acquire fixed assets to replace
the assets disposed of or used to repay borrowed money.
Exchange Controls
See Item 3-- "Key Information-- Mexican Peso Exchange Rates."
112
Taxation
Mexican Tax Considerations
General
The following is a summary of certain Mexican federal income tax
considerations relating to the ownership and disposition of our CPOs or ADSs,
and the ownership and disposition, mandatory redemption and maturity of the
Appreciation Warrants or ADWs.
This summary is based on Mexican income tax law that is in effect on
the date of this annual report, which is subject to change. This summary is
limited to non-residents of Mexico, as defined below, who own our CPOs, ADSs,
Appreciation Warrants or ADWs. This summary does not address all aspects of
Mexican income tax law. Holders are urged to consult their tax counsel as to
the tax consequences that the purchase, ownership, disposition, mandatory
redemption or redemption at maturity of the Appreciation Warrants or the ADWs,
or the purchase, ownership and disposition of our CPOs or ADSs, may have.
For purposes of Mexican taxation, an individual is a resident of
Mexico if he or she has established his or her home in Mexico, unless he or
she has resided in another country for more than 183 calendar days during the
calendar year and can demonstrate that he or she has become a resident of that
country for tax purposes. A legal entity is a resident of Mexico if it is
organized under the laws of Mexico or if it maintains the principal
administration of its business or the effective location of its management in
Mexico. A Mexican citizen is presumed to be a resident of Mexico for tax
purposes unless such person or entity can demonstrate otherwise. If a legal
entity or an individual is deemed to have a permanent establishment in Mexico
for tax purposes, such individual or entity shall be required to pay taxes in
Mexico on income attributable to such permanent establishment, in accordance
with relevant tax provisions. A non-resident of Mexico is a legal entity or
individual that does not satisfy the requirements to be considered a resident
of Mexico for Mexican federal income tax purposes. The term U.S. Shareholder
shall have the same meaning ascribed below under the section "-- U.S. Federal
Income Tax Considerations."
Taxation of Dividends
Dividends, either in cash or in any other form, paid to non-residents
of Mexico with respect to A shares or B shares represented by the CPOs (or in
the case of holders who hold CPOs represented by ADSs), will not be subject to
withholding tax in Mexico.
Disposition of CPOs or ADSs
Gains on the sale or disposition of ADSs by a holder who is a
non-resident of Mexico will not be subject to Mexican taxation.
Gains on the sale or disposition of CPOs by a holder who is a
non-resident of Mexico generally will be exempt from Mexican taxation,
provided that such sale or disposition is executed on the Mexican Stock
Exchange.
This exemption is not applicable to transactions not executed on the
Mexican Stock Exchange, including protected or registered transactions, even
though The Comision Nacional Banacaria y de Valores, the Mexican National
Banking and Securities Commission, views these protected or registered
transactions as if they were executed on the Mexican Stock Exchange.
Additionally, the exemption is not applicable to the sale or disposition of
CPOs through a public offer, where the offerees are not allowed to accept more
competitive offers to those received before or within the public offer, and
would be subject to a penalty were they to accept such offers.
113
If the exemption is not applicable, the non-resident of Mexico will
be subject to a 5% withholding tax on the gross proceeds. As an alternative to
the 5% withholding tax on the gross proceeds, the non-resident of Mexico may
elect a 20% withholding tax on the gain upon the sale or disposition of the
CPOs, provided that the applicable rules and regulations promulgated under
Mexican law are followed.
Notwithstanding the above, under the Convention Between the United
States and Mexico for Avoidance of Double Taxation and Prevention of Fiscal
Evasion with Respect to Income Taxes, and a Protocol thereto, the U.S.-Mexico
Income Tax Treaty, a U.S. Shareholder who owns less than 25% of our stock and
is otherwise eligible for benefits under such tax treaty will not be subject
to Mexican tax on any gain derived from the disposition of ADSs or CPOs. In
the case of non-residents of Mexico, other than U.S. Shareholders, gains
derived from the disposition of ADSs or CPOs may also be exempt, in whole or
in part, from Mexican taxation under a treaty to which Mexico is a party.
Deposits of CPOs in exchange for ADSs and withdrawals of CPOs in
exchange for ADSs will not give rise to any Mexican tax or transfer duties.
Commissions paid in brokerage transactions for the sale of CPOs on
the Mexican Stock Exchange are subject to a value-added tax of 15%.
Estate and Gift Taxes
There are no Mexican inheritance, gift, succession or value-added
taxes applicable to the ownership, transfer, exchange or disposition of ADSs
or CPOs by holders that are non-residents of Mexico, although gratuitous
transfers of CPOs may, in some circumstances, cause a Mexican federal tax to
be imposed upon a recipient (who is a Mexican resident). There are no Mexican
stamp, issue, registration or similar taxes or duties payable by holders of
ADSs or CPOs.
Disposition of Appreciation Warrants or ADWs
Because the Appreciation Warrants have been registered for trading on
the Mexican Stock Exchange, gains on the sale or other disposition of
Appreciation Warrants by non-residents of Mexico will, under the Mexican
Income Tax Law, generally be subject to a 25% withholding tax on the gross
sale price. Alternative to the 25% withholding tax, the seller, resident of a
qualifying country, including, among others, the United States, who appoints a
representative in Mexico for income tax purposes related to the sale may elect
to pay Mexican federal income tax at a rate of 34% of the gain on the sale,
provided that certain conditions are met.
Notwithstanding the preceding paragraph, the general rules issued by
the Mexican Ministry of Finance and Public Credit currently effectively exempt
the gain upon the sale or other disposition of Appreciation Warrants by
non-residents of Mexico to the same extent the exemption described above under
"Disposition of CPOs or ADSs" is available, i.e., the sale or disposition of
the Appreciation Warrants is executed on the Mexican Stock Exchange.
It is important to mention that the general rules issued by the
Mexican Ministry of Finance and Public Credit are renewed on a yearly basis
and, therefore, it is important to confirm on a yearly basis whether such
rules continue to be in force.
Gains on the sale or disposition of ADWs by a holder who is a
non-resident of Mexico will not be subject to Mexican tax.
Mandatory redemption, maturity and purchase of Appreciation Warrants or ADWs
The Mexican tax consequences applicable to the disposition of
Appreciation Warrants or ADWs explained in the previous section, will be also
applicable to the mandatory redemption, maturity and purchase of Appreciation
Warrants or ADWs.
114
U.S. Federal Income Tax Considerations
General
The following is a summary of the material U.S. Federal income tax
consequences relating to the ownership and disposition of our CPOs and ADSs,
including CPOs or ADSs received upon mandatory redemption or redemption at
maturity of the Appreciation Warrants or ADWs, and the ownership, disposition,
mandatory redemption, redemption at maturity of and lapse of Appreciation
Warrants or ADWs.
This summary is based on provisions of the U.S. Internal Revenue Code
of 1986, as amended (the "Code"), U.S. Treasury regulations promulgated under
the Code, and administrative rulings, and judicial interpretations of the
Code, all as in effect on the date of this annual report and all of which are
subject to change, possibly retroactively. This summary is limited to U.S.
Shareholders (as defined below) who hold our ADSs, CPOs, Appreciation
Warrants, or ADWs, as the case may be, as capital assets. This summary does
not discuss all aspects of U.S. Federal income taxation which may be important
to an investor in light of its individual circumstances, for example, an
investor subject to special tax rules (e.g., banks, thrifts, real estate
investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, expatriates, tax-exempt investors, or
holders whose functional currency is not the Dollar or U.S. Shareholders who
hold a CPO or an ADS, or Appreciation Warrants or an ADW as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset). In addition, this summary does not address any aspect of
state, local or foreign taxation.
For purposes of this summary, a "U.S. Shareholder" means a beneficial
owner of CPOs, ADSs, Appreciation Warrants, or ADWs who is for U.S. Federal
income tax purposes:
o an individual who is a citizen or resident of the United
States for U.S. Federal income tax purposes;
o a corporation, or other entity taxable as a corporation that
is created or organized in the United States or under the
laws of the United States or any state thereof (including
the District of Columbia);
o an estate the income of which is includible in gross income
for U.S. Federal income tax purposes regardless of its
source; or
o a trust if a court within the United States is able to
exercise primary supervision over the administration of such
trust and one or more United States persons have the
authority to control all substantial decisions of such
trust.
If a partnership (including any entity treated as a partnership for
U.S. Federal income tax purposes) is the beneficial owner of CPOs, ADSs,
Appreciation Warrants, or ADWs, the U.S. Federal income tax treatment of a
partner in such partnership will generally depend upon the status of the
partner and the activities of the partnership.
Ownership of CPOs or ADSs in general
In general, for U.S. Federal income tax purposes, U.S. Shareholders
who own ADSs will be treated as the beneficial owners of the CPOs represented
by those ADSs, and each CPO will represent a beneficial interest in two A
shares and one B share.
Taxation of dividends with respect to CPOs and ADSs
Distributions of cash or property with respect to the A shares or B
shares represented by CPOs, including CPOs represented by ADSs, generally will
be includible in the gross income of a U.S. Shareholder as foreign source
115
dividend income on the date the distributions are received by the CPO trustee
or successor thereof, to the extent paid out of our current or accumulated
earnings and profits, as determined under U.S. Federal income tax principles.
These dividends will not be eligible for the dividends-received deduction
allowed to corporate U.S. Shareholders. To the extent, if any, that the amount
of any distribution by us exceeds our current and accumulated earnings and
profits as determined under U.S. Federal income tax principles, it will be
treated first as a tax-free return of the U.S. Shareholder's adjusted tax
basis in the CPOs or ADSs and thereafter as capital gain.
Dividends paid in Pesos, including the amount of Mexican withholding
tax thereon, will be includible in the income of a U.S. Shareholder in a
Dollar amount calculated by reference to the exchange rate in effect the day
the Pesos are received by the CPO trustee or successor thereof whether or not
they are converted into Dollars on that day. Generally, any gain or loss
resulting from currency exchange fluctuations during the period from the date
the dividend payment is includible in income to the date such payment is
converted into U.S. Dollars will be treated as ordinary income or loss. Such
gain or loss will generally be income from sources within the United States
for foreign tax credit limitation purposes.
A U.S. Shareholder may elect to deduct in computing its taxable
income or, subject to specific complex limitations on foreign tax credits
generally, credit against its U.S. Federal income tax liability, Mexican
withholding tax at the rate applicable to such shareholder. For purposes of
calculating the U.S. foreign tax credit, dividends paid by us generally will
constitute foreign source "passive income," or in the case of some U.S.
Shareholders, "financial services income." U.S. Shareholders should consult
their tax advisors regarding the availability of, and limitations on, any such
foreign tax credit.
Taxation of capital gains on disposition of CPOs or ADSs
The sale or exchange of CPOs or ADSs will result in the recognition
of gain or loss by a U.S. Shareholder for U.S. Federal income tax purposes in
an amount equal to the difference between the amount realized and the U.S.
Shareholder's tax basis therein. That gain or loss recognized by a U.S.
Shareholder will be long-term capital gain or loss if the U.S. Shareholder's
holding period for the CPOs or ADSs exceeds one year at the time of
disposition. Gain from the sale or exchange of the CPOs or ADSs usually will
be treated as U.S. source for foreign tax credit purposes; losses will
generally be allocated against U.S. source income. Deposits and withdrawals of
CPOs by U.S. Shareholders in exchange for ADSs will not result in the
realization of gain or loss for U.S. Federal income tax purposes.
Ownership, disposition, mandatory redemption and maturity of Appreciation
Warrants or ADWs
In general, for U.S. Federal income tax purposes, a U.S. Shareholder
will be treated as the beneficial owner of the Appreciation Warrants
represented by the ADWs.
A U.S. Shareholder generally will recognize gain or loss on the sale
or exchange of Appreciation Warrants or ADWs measured by the difference
between the amount realized and the tax basis of the Appreciation Warrants or
ADWs, as applicable. Any gain or loss generally will be capital gain or loss
and will be long-term capital gain or loss if the U.S. Shareholder's holding
period of the Appreciation Warrants or ADWs exceeds one year at the time of
the sale or exchange.
A U.S. Shareholder generally should not recognize taxable income on
receipt of CPOs or ADSs upon the mandatory redemption or maturity of the
Appreciation Warrants or ADWs, except to the extent cash is received in lieu
of a fractional CPO or ADS. Such U.S. Shareholder's tax basis in the CPOs or
ADSs so acquired should be equal to the tax basis of the Appreciation Warrants
or ADWs redeemed, as applicable, less the portion of such tax basis, if any,
allocable to any fractional CPO or ADS for which cash is received. The holding
period of the CPOs and ADSs so acquired generally should include the holding
period of the Appreciation Warrants or ADWs redeemed therefor. The use of the
word "should" in this paragraph is intended to convey that the likelihood that
the receipt of CPOs or ADWs will be tax-free to participating U.S.
Shareholders is stronger than "more likely than not" but less than the degree
of certainty typically associated with a "will" opinion.
116
There can be no assurance that the U.S. Internal Revenue Service, or
IRS, will not take, and a court would not sustain the IRS in taking, the
position that the receipt of CPOs or ADSs upon a mandatory redemption or
maturity of Appreciation Warrants or ADWs results in the recognition of
taxable gain or loss. If a U.S. Shareholder is required to recognize gain or
loss upon a mandatory redemption or maturity of the Appreciation Warrants or
ADWs, the determination of the amount of gain or loss is uncertain, and such
U.S. Shareholder should consult its tax advisor for such determination.
A U.S. Shareholder who receives cash, including cash in lieu of
acquiring a fractional CPO or ADS upon the mandatory redemption or maturity of
the Appreciation Warrants or ADWs, generally will recognize gain or loss in an
amount equal to the difference between the amount of cash received and the
U.S. Shareholder's allocable tax basis in the fractional interest for which
cash was received. Any gain or loss generally will be capital gain or loss and
will be long-term if the U.S. Shareholder's holding period of the Appreciation
Warrants or ADWs exceeds one year at the time of the receipt of cash.
If the U.S. Shareholder's Appreciation Warrants or ADWs have not been
previously redeemed and expire on the maturity date without payment, the U.S.
Shareholder will recognize a loss equal to the amount of the basis of the
Appreciation Warrants or ADWs, as applicable. Such expiration will be deemed a
sale or exchange as of the maturity date and the loss, if any, will be
considered a loss from the sale or exchange of property which has the same
character as would the CPOs or ADSs if acquired by the U.S. Shareholder. Any
loss upon the expiration of the Appreciation Warrants or ADWs will be
long-term if the U.S. Shareholder's holding period of the Appreciation
Warrants or ADWs exceeds one year at the time of expiration.
Adjustments to the Strike Price
Certain adjustments to the strike price of the Appreciation Warrants
or ADWs may result in a deemed distribution taxable to U.S. Shareholders of
Appreciation Warrants or ADWs pursuant to Section 305 of the Code if the
Adjustments have the effect of increasing the U.S. Shareholder's proportionate
interest in the earnings and profits or assets of CEMEX. U.S. Shareholders
should consult their tax advisors with respect to the potential application of
Section 305 of the Code.
United States Backup Withholding and Information Reporting
A U.S. Shareholder may, under certain circumstances, be subject to
information reporting with respect to some payments to that U.S. Shareholder
such as dividends or the proceeds of a sale or other disposition of the CPOs,
Appreciation Warrants, ADSs or ADWs. Backup withholding also may apply to
amounts paid to such holder unless such holder (i) is a corporation or comes
within certain exempt categories, and demonstrates this fact when so required,
or (ii) provides a correct taxpayer identification number and otherwise
complies with applicable requirements of the backup withholding rules. Any
amount withheld under these rules will be creditable against the U.S.
Shareholder's Federal income tax liability.
Documents on Display
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance with these requirements, file reports
and information statements and other information with the Securities and
Exchange Commission. These reports and information statements and other
information filed by us with the Securities and Exchange Commission can be
inspected and copied at the Public Reference Section of the Securities and
Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
117
Item 11 - Quantitative and Qualitative Disclosures About Market Risk
See Item 5 -- "Operating and Financial Review and Prospects --
Derivatives and Other Hedging Instruments."
Item 12 - Description of Securities Other than Equity Securities
Not applicable.
118
PART II
Item 13 - Defaults, Dividend Arrearages and Delinquencies
None.
Item 14 - Material Modifications to the Rights of Security Holders and Use
of Proceeds
None.
Item 15 - Controls and Procedures
CEMEX, S.A. de C.V.
(a) Evaluation of Disclosure Controls and Procedures. The Chief
Executive Officer and Executive Vice President of Planning and Finance of
CEMEX, S.A. de C.V. ("CEMEX") have evaluated the effectiveness of CEMEX's
disclosure controls and procedures (as such term is defined in Rules 13a-14(c)
and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"). Based on such evaluation, such officers
have concluded that, as of the Evaluation Date, CEMEX's disclosure controls
and procedures are effective in alerting them on a timely basis to material
information relating to CEMEX (including its consolidated subsidiaries)
required to be included in CEMEX's reports filed or submitted under the
Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there
have not been any significant changes in CEMEX's internal controls or in
other factors that could significantly affect such controls.
CEMEX Mexico, S.A. de C.V.
(a) Evaluation of Disclosure Controls and Procedures. The Chief
Executive Officer and Executive Vice President of Planning and Finance of
CEMEX Mexico, S.A. de C.V. ("CEMEX Mexico") have evaluated the effectiveness of
CEMEX Mexico's disclosure controls and procedures (as such term is defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"). Based on such evaluation,
such officers have concluded that, as of the Evaluation Date, CEMEX Mexico's
disclosure controls and procedures are effective in alerting them on a timely
basis to material information relating to CEMEX Mexico (including its
consolidated subsidiaries) required to be included in CEMEX Mexico's reports
filed or submitted under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there
have not been any significant changes in CEMEX Mexico's internal controls or in
other factors that could significantly affect such controls.
Empresas Tolteca de Mexico, S.A. de C.V.
(a) Evaluation of Disclosure Controls and Procedures. The Chief
Executive Officer and Executive Vice President of Planning and Finance of
Empresas Tolteca de Mexico, S.A. de C.V. ("CEMEX Tolteca") have evaluated the
effectiveness of CEMEX Tolteca's disclosure controls and procedures (as such
term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days
prior to the filing date of this annual report (the "Evaluation Date"). Based
on such evaluation, such officers have concluded that, as of the Evaluation
Date, CEMEX Tolteca's disclosure controls and procedures are effective in
alerting them on a timely basis to material information relating to CEMEX
Tolteca (including its consolidated subsidiaries) required to be included in
CEMEX Tolteca's reports filed or submitted under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have
not been any significant changes in CEMEX Tolteca's internal controls or in
other factors that could significantly affect such controls.
Item 16 - [Reserved]
119
PART III
Item 13 - Financial Statements
Not applicable.
Item 14 - Financial Statements
See pages F-1 through F-80, incorporated herein by reference.
Item 15 - Exhibits
1.1 Amended and Restated By-laws of CEMEX, S.A. de C.V.(a)
2.1 Form of Trust Agreement between CEMEX, S.A. de C.V., as founder of
the trust, and Banco Nacional de Mexico, S.A. regarding the CPOs(b)
2.2 Amendment Agreement, dated as of November 21, 2002, amending the
Trust Agreement between CEMEX, S.A. de C.V., as founder of the trust,
and Banco Nacional de Mexico, S.A. regarding the CPOs(b)
2.3 Form of CPO Certificate(b)
2.4 Form of Second Amended and Restated Deposit Agreement (A and B share
CPOs), dated as of August 10, 1999, among CEMEX, S.A. de C.V.,
Citibank, N.A. and holders and beneficial owners of American
Depositary Shares(b)
2.5 Form of American Depositary Receipt (included in Exhibit 2.3)
evidencing American Depositary Shares. (b)
2.6 Form of Certificate for shares of Series A Common Stock of CEMEX,
S.A. de C.V. (b)
2.7 Form of Certificate for shares of Series B Common Stock of CEMEX,
S.A. de C.V. (b)
2.8 Form of appreciation warrant deed(b)
2.9 Form of CPO Purchasing and Disbursing Agreement(c)
2.10 Form of appreciation warrant certificate(c)
2.11 Form of Warrant Deposit Agreement among CEMEX, S.A. de C.V.,
Depositary and holders and beneficial owners of American Depositary
Warrants(c)
2.12 Form of American Depositary Warrant Receipt (included in Exhibit
2.10) (c)
4.1 Indenture, dated as of July 18, 2000 by and among CEMEX, S.A. de C.V.
as Issuer, CEMEX Mexico, S.A. de C.V. and Empresas Tolteca de Mexico,
S.A. de C.V. as guarantors, and U.S. Bank Trust National Association,
as trustee, relating to the issuance of U.S.$500,000,000 principal
amount of 8.625% Notes due 2003. (d)
4.2 Agreement and Plan of Merger, dated as of September 28, 2000, among
CEMEX, S.A. de C.V., CENA Acquisition Corp. and Southdown, Inc. (e)
4.3 Amended and restated U.S.$550,000,000 Credit Agreement, dated as of
December 21, 2000, by and among Southdown, Inc., as borrower,
Citibank, N.A., as administrative agent, The Chase Manhattan Bank, as
syndication agent, Banco Bilbao Vizcaya Argentaria, S.A., Deutsche
Bank Securities Inc., and Bank of America, N.A. as documentation
agents, and Salomon Smith Barney Inc., and Chase Securities Inc. as
joint lead arrangers and the lenders named therein. (d)
4.4 Note and Guarantee Agreement dated as of March 15, 2001, by and among
CEMEX, Inc., as issuer, Valenciana, as parent guarantor and Sandworth
Plaza Holding B.V., Cemex Caracas Investments B.V., Cemex Caribe
Investments B.V., Cemex Manila Investments B.V., Valcem International
B.V., as subsidiary guarantors, and the several purchasers named
therein, in connection with the offering and issuance by CEMEX, Inc.
of U.S.$315,000,000 aggregate principal amount of Series A Guaranteed
Senior Notes due 2006,(euro)50,000,000 aggregate principal amount of
Series B Guaranteed Senior Notes due 2006 and U.S.$396,000,000
aggregate principal amount of Series C Guaranteed Senior Notes due
2008. (f)
4.5 Credit Agreement dated as of June 11, 2001, by and among, CEMEX, S.A.
de C.V., as borrower, Bank of America, N.A., as administrative agent,
J.P. Morgan Securities Inc., as documentation agent, Bank of America
Securities LLC and J.P. Morgan Securities Inc., as co-syndication
agents, joint lead arrangers and joint bookruners, and the several
banks and other financial institutions named therein, as lenders, for
an aggregate principal amount of U.S.$600,000,000. (d)
120
4.6 Credit facility dated as of October 29, 2001, by and among Compania
Valenciana de Cementos Portland, S.A., as borrower, Banco Bilbao
Vizcaya Argentaria, S.A., Salomon Brothers International Limited, and
Deutsche Bank AG as mandated lead arrangers and the several banks and
other financial institutions named therein, as lenders, for an
aggregate amount of(euro)800 million. (g)
4.7 Amended and Restated Framework Agreement, dated as of February 15,
2002, by and among CEMEX, S.A. de C.V., Sunward Acquisitions N.V.,
Sunward Holdings B.V., Stichting Administratie Kantoor Aandelen New
Sunward Holding B.V., New Sunward Holding B.V., Rey Holdings (Jersey)
Limited, Rey Holdings (Luxembourg) S.A., Compania Valenciana de
Cementos Portland, S.A., and J.P. Morgan Europe Limited (formerly
Chase Manhattan International Limited). (g)
4.11 Amended and Restated Facility Agreement, dated as of February 15,
2002, by and among Rey Holdings (Jersey) Limited, Rey Holdings
(Luxembourg) S.A., the Banks and Financial Institutions referenced
therein as Lenders, the Lead Arrangers, and J.P. Morgan Europe
Limited (formerly Chase Manhattan International Limited) as Facility
Agent and Security Trustee, relating to credit facilities for up to
U.S.$1,200,000,000 provided to Rey Holdings (Jersey) Limited. (g)
4.9 Agreement and Plan of Merger, dated as of June 11, 2002, among CEMEX,
S.A. de C.V., Tricem Acquisition, Corp. and the Puerto Rican Cement
Company, Inc. (h)
4.10 Reimbursement and Credit Agreement dated as of August 26, 2002, by
and among, CEMEX, S.A. de C.V., as Issuer, CEMEX Mexico, S.A. de C.V.
and Empresas Tolteca de Mexico, S.A. de C.V., as Guarantors, Barclays
Bank PLC, New York Branch, as Issuing Bank, Documentation Agent and
Administrative Agent, the several lenders party thereto and Barclays
Capital, The Investment Banking Division of Barclays Bank PLC, as
Joint Arranger and Banc of America Securities LLC, as Joint Arranger
and Syndication Agent., for an aggregate principal amount of
U.S.$275,000,000. (a)
4.11 ABN AMRO Special Corporate Services B.V. Forward Contract, dated as
of December 13, 2002 (a)
4.12 Citibank, N.A. Forward Contract, dated as of December 13, 2002 (a)
4.13 Credit Suisse First Boston International Forward Contract, dated as
of December 13, 2002 (a)
4.14 Deutsche Bank AG, London Branch, Forward Contract, dated as of
December 13, 2002 (a)
4.15 ING Bank, N.V. Forward Contract, dated as of December 13, 2002 (a)
4.16 JPMorgan Chase Bank Forward Contract, dated as of December 13, 2002
(a)
4.17 Societe Generale Forward Contract, dated as of December 13, 2002 (a)
8.1 List of subsidiaries of CEMEX, S.A. de C.V.. (a)
10.1 Certification of Principal Executive and Financial Officers of CEMEX,
S.A. de C.V. pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (a)
10.2 Certification of Principal Executive and Financial Officers of CEMEX
Mexico, S.A. de C.V. pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (a)
10.3 Certification of Principal Executive and Financial Officers of
Empresas Tolteca de Mexico, S.A. de C.V. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (a)
10.4 Consent of KPMG Cardenas Dosal, S.C. to the incorporation by
reference into the effective registration statements of CEMEX, S.A.
de C.V. under the Securities Act of 1933 of their report with respect
to the consolidated financial statements of CEMEX, S.A. de C.V.,
which appears in this Annual Report on Form 20-F. (a)
10.5 Consent of PricewaterhouseCoopers to the incorporation by reference
into the effective registration statements of CEMEX, S.A. de C.V.
under the Securities Act of 1933 of their reports with respect to the
financial statements of certain consolidated subsidiaries of CEMEX,
S.A. de C.V., which appear in this Annual Report on Form 20-F. (a)
_______________
(a) Filed herewith.
(b) Incorporated by reference to the Registration Statement on Form F-4
of CEMEX, S.A. de C.V. (Registration No. 333-10682), filed with the
Securities and Exchange Commission on August 10, 1999.
(c) Incorporated by reference to Amendment No. 2 to the Registration
Statement on Form F-4 of CEMEX, S.A. de C.V. (Registration No.
333-13956), filed with the Securities and Exchange Commission on
November 19, 2001.
121
(d) Incorporated by reference to the annual report on Form 20-F of CEMEX,
S.A. de C.V. filed with the Securities and Exchange Commission on
June 29, 2001.
(e) Incorporated by reference to Exhibit 2.1 to Southdown Inc.'s Current
Report on Form 8-K (Commission File No. 1-6117), filed with the
Securities and Exchange Commission on September 29, 2000.
(f) Incorporated by reference to Amendment No. 1 to the annual report on
Form 20-F/A of CEMEX, S.A. de C.V. filed with the Securities and
Exchange Commission on November 19, 2001.
(g) Incorporated by reference to the annual report on Form 20-F of CEMEX,
S.A. de C.V. filed with the Securities and Exchange Commission on
April 8, 2002.
(h) Incorporated by reference to the Tender Offer Statement on Schedule
TO of Tricem Acquisition, Corp. and CEMEX, S.A. de C.V. filed with
the Securities and Exchange Commission on July 1, 2002.
122
SIGNATURES
CEMEX, S.A. de C.V. hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign the annual report on its behalf.
CEMEX, S.A. de C.V.
By: /s/ Lorenzo H. Zambrano
------------------------------
Name: Lorenzo H. Zambrano
Title: Chief Executive Officer
Date: April 8, 2003.
CERTIFICATIONS
I, Lorenzo H. Zambrano, certify that:
1. I have reviewed this annual report on Form 20-F of CEMEX, S.A. de C.V.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: April 8, 2003
/s/ Lorenzo H. Zambrano
-----------------------------------
Lorenzo H. Zambrano
Chief Executive Officer
124
CERTIFICATIONS
I, Hector Medina, certify that:
1. I have reviewed this annual report on Form 20-F of CEMEX, S.A. de C.V.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: April 8, 2003
/s/ Hector Medina
---------------------------------
Hector Medina
Executive Vice President of
Planning and Finance
SIGNATURES
CEMEX Mexico, S.A. de C.V. hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign the annual report on its behalf.
CEMEX Mexico, S.A. de C.V.
By: /s/ Lorenzo H. Zambrano
--------------------------------
Name: Lorenzo H. Zambrano
Title: Chief Executive Officer
Date: April 8, 2003
CERTIFICATIONS
I, Lorenzo H. Zambrano, certify that:
1. I have reviewed this annual report on Form 20-F of CEMEX Mexico, S.A. de
C.V.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: April 8, 2003
/s/ Lorenzo H. Zambrano
-------------------------------
Lorenzo H. Zambrano
Chief Executive Officer
CERTIFICATIONS
I, Hector Medina, certify that:
1. I have reviewed this annual report on Form 20-F of CEMEX Mexico, S.A. de
C.V.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: April 8, 2003
/s/ Hector Medina
-------------------------------
Hector Medina
Executive Vice President of
Planning and Finance
SIGNATURES
Empresas Tolteca de Mexico, S.A. de C.V. hereby certifies that it
meets all of the requirements for filing on Form 20-F and that it has duly
caused and authorized the undersigned to sign the annual report on its behalf.
Empresas Tolteca de Mexico, S.A. de C.V.
By: /s/ Lorenzo H. Zambrano
------------------------------------
Name: Lorenzo H. Zambrano
Title: Chief Executive Officer
Date: April 8, 2003
CERTIFICATIONS
I, Lorenzo H. Zambrano, certify that:
7. I have reviewed this annual report on Form 20-F of Empresas Tolteca de
Mexico, S.A. de C.V.;
8. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
9. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
10. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
11. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
12. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: April 8, 2003
/s/ Lorenzo H. Zambrano
--------------------------------
Lorenzo H. Zambrano
Chief Executive Officer
CERTIFICATIONS
I, Hector Medina, certify that:
7. I have reviewed this annual report on Form 20-F of Empresas Tolteca de
Mexico, S.A. de C.V.;
8. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
9. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
10. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
11. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
12. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: April 8, 2003
/s/ Hector Medina
----------------------------------
Hector Medina
Executive Vice President of
Planning and Finance
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
-----
CEMEX, S.A. de C.V. and subsidiaries:
Independent Auditors' Report--KPMG Cardenas Dosal, S.C.......................... F-2
Audited consolidated balance sheets as of December 31, 2001 and 2002............ F-3
Audited consolidated statements of income for the years ended
December 31, 2000, 2001 and 2002................................................ F-4
Audited statements of changes in stockholders' equity for the years
ended December 31, 2000, 2001 and 2002.......................................... F-5
Audited consolidated statements of changes in financial position for
the years ended December 31, 2000, 2001 and 2002................................ F-6
Notes to the audited consolidated financial statements.......................... F-7
Reports of Other Independent Accountants--PricewaterhouseCoopers
(for which the financial statements are not separately presented)............... F-71
SCHEDULES
Independent Auditors' Report on Schedules - KPMG Cardenas Dosal, S.C............ S-1
Schedule I - Parent company financials only..................................... S-2
Schedule II - Valuation and qualifying accounts................................. S-11
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CEMEX, S.A. de C.V.:
We have audited the consolidated balance sheets of CEMEX, S.A. de C.V. and
subsidiaries as of December 31, 2001 and 2002, and the related
consolidated statements of income, changes in stockholders' equity and
changes in financial position for each of the years in the three-year
period ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. As
of December 31, 2000, we did not audit the consolidated financial
statements of certain consolidated subsidiaries, which statements reflect
total assets and revenues of 2% and 0%, respectively, of the related
consolidated totals. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion insofar as it relates
to the amounts included for such subsidiaries, is based solely upon the
reports of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America and Mexico. Those standards
require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatements.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors,
the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of CEMEX, S.A. de C.V. and
subsidiaries at December 31, 2001 and 2002, and the consolidated results
of their operations, the changes in their stockholders' equity and the
changes in their financial position for each of the years in the
three-year period ended December 31, 2002, in accordance with accounting
principles generally accepted in Mexico.
Accounting principles generally accepted in Mexico vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Application of accounting principles generally
accepted in the United States of America would have affected results of
operations for each of the years in the three-year period ended December
31, 2002, and stockholders' equity as of December 31, 2001 and 2002, to
the extent summarized in note 23 to the consolidated financial statements.
KPMG Cardenas Dosal, S.C.
/s/Rafael Gomez Eng
Rafael Gomez Eng
Monterrey, N.L., Mexico
January 15, 2003, except for note 23,
which is as of March 24, 2003
F-2
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Balance Sheets
(Millions of constant Mexican pesos as of December 31, 2002)
Assets December 31,
------------------------------
Current Assets 2001 2002
--------------- --------------
Cash and investments (note 3).................................................... Ps 4,288.1 3,748.8
Trade accounts receivable, less allowance for doubtful accounts (note 4)......... 6,127.2 4,160.9
Other receivables (note 5)....................................................... 4,194.2
5,006.2
Inventories (note 6)............................................................. 7,336.0
6,815.5
Other current assets (note 7).................................................... 828.9
979.2
--------------- --------------
Total current assets......................................................... 23,216.2 20,268.8
--------------- --------------
Investments and Noncurrent Receivables (note 8) ....................................
Investments in affiliated companies.............................................. 5,172.9 5,809.8
Other noncurrent accounts receivable............................................. 1,941.1 1,552.7
--------------- --------------
Total investments and noncurrent receivables................................. 7,114.0 7,362.5
--------------- --------------
Properties, Machinery and Equipment (note 9)
Land and buildings .............................................................. 39,698.2 45,687.1
Machinery and equipment ......................................................... 116,763.0 126,267.2
Accumulated depreciation ........................................................ (71,981.4) (83,198.1)
Construction in progress......................................................... 5,013.2 4,281.1
--------------- --------------
Net properties, machinery and equipment...................................... 89,493.0 93,037.3
--------------- --------------
Deferred Charges (notes 10 and 13).................................................. 42,640.4 44,731.3
--------------- --------------
Total Assets................................................................. Ps 162,463.6 165,399.9
=============== ==============
Liabilities and Stockholders' Equity
Current Liabilities
Bank loans (note 11)............................................................. Ps 1,678.4 4,487.6
Notes payable (note 11).......................................................... 2,151.7 3,222.0
Current maturities of long-term debt (notes 11 and 12) .......................... 6,455.6 6,753.2
Trade accounts payable........................................................... 3,606.8 4,236.8
Other accounts payable and accrued expenses (note 5)............................. 9,597.1 11,963.6
--------------- --------------
Total current liabilities ................................................... 23,489.6 30,663.2
--------------- --------------
Long-Term Debt (note 12)
Bank loans ...................................................................... 24,531.1 25,692.1
Notes payable ................................................................... 25,416.5 26,462.1
Current maturities of long-term debt ............................................ (6,455.6) (6,753.2)
--------------- --------------
Total long-term debt ........................................................ 43,492.0 45,401.0
--------------- --------------
Other Noncurrent Liabilities
Deferred income taxes (note 17).................................................. 11,259.7 11,317.4
Other noncurrent liabilities .................................................... 5,865.9
2,620.7
--------------- --------------
Total other noncurrent liabilities .......................................... 13,880.4 17,183.3
--------------- --------------
Total Liabilities............................................................ 80,862.0 93,247.5
--------------- --------------
Stockholders' Equity (note 14)
Majority interest:
Common stock-historical cost basis............................................. 53.5 55.5
Common stock-accumulated inflation adjustments ................................ 3,305.8 3,305.8
Additional paid-in capital..................................................... 27,742.3 30,897.4
Deficit in equity restatement ................................................. (54,858.5) (61,861.3)
Cumulative initial deferred income tax effects (notes 2K and 17)............... (5,196.8) (5,196.8)
Retained earnings ............................................................. 78,991.5 87,025.0
Net income..................................................................... 11,789.8 5,400.4
--------------- --------------
Total majority interest ..................................................... 61,827.6 59,626.0
Minority interest (note 14E)..................................................... 19,774.0 12,526.4
--------------- --------------
Total stockholders' equity .................................................. 81,601.6 72,152.4
--------------- --------------
Total Liabilities and Stockholders' Equity................................... Ps 162,463.6 165,399.9
=============== ==============
See accompanying notes to consolidated financial statements.
F-3
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Income
(Millions of constant Mexican pesos as of December 31, 2002, except for earnings per share)
Years ended December 31,
------------------------------------------------
2000 2001 2002
----------------- -------------- ---------------
Net sales......................................................... Ps 58,435.1 69,302.3 67,917.5
Cost of sales..................................................... (32,652.8) (38,981.4) (37,944.2)
----------------- -------------- ---------------
Gross profit................................................... 25,782.3 30,320.9 29,973.3
----------------- -------------- ---------------
Operating expenses:
Administrative .............................................. (6,461.3) (7,906.0) (8,538.1)
Selling...................................................... (2,127.5) (5,865.0) (7,833.2)
----------------- -------------- ---------------
Total operating expenses................................... (8,588.8) (13,771.0) (16,371.3)
----------------- -------------- ---------------
Operating income............................................... 17,193.5 16,549.9 13,602.0
----------------- -------------- ---------------
Comprehensive financing result:
Financial expense............................................ (4,853.6) (4,121.6) (3,451.6)
Financial income............................................. 255.7 407.7 463.0
Results from valuation and liquidation of financial
instruments............................................... (80.0) 1,999.2 (3,285.1)
Foreign exchange result, net................................. (312.9) 1,539.6 (800.3)
Monetary position result..................................... 3,183.9 2,824.5 3,655.2
----------------- -------------- ---------------
Net comprehensive financing result......................... (1,806.9) 2,649.4 (3,418.8)
----------------- -------------- ---------------
Other expense, net................................................ (2,435.8) (4,173.8) (4,040.7)
----------------- -------------- ---------------
Income before income taxes, employees' statutory profit sharing
and equity in income of affiliates........................... 12,950.8 15,025.5 6,142.5
----------------- -------------- ---------------
Income tax and business assets tax, net (note 17)................ (1,642.0) (1,669.8) (569.2)
Employees' statutory profit sharing (note 17)..................... (372.2) (236.4) (106.9)
----------------- -------------- ---------------
Total income tax, business assets tax and employees' statutory
profit sharing............................................... (2,014.2) (1,906.2) (676.1)
----------------- -------------- ---------------
Income before equity in income of affiliates .................. 10,936.6 13,119.3 5,466.4
Equity in income of affiliates ................................... 263.0 205.2 318.7
----------------- -------------- ---------------
Consolidated net income........................................ 11,199.6 13,324.5 5,785.1
Minority interest net income................................... 810.5 1,534.7 384.7
----------------- -------------- ---------------
Majority interest net income .................................. Ps 10,389.1 11,789.8 5,400.4
================= ============== ===============
Basic earnings per share (see notes 2A and 20)................ Ps 2.52 2.76 1.20
Diluted earnings per share (see notes 2A and 20)............... Ps 2.51 2.74 1.20
================= ============== ==============
See accompanying notes to consolidated financial statements.
F-4
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
Statements of Changes in Stockholders' Equity
(Millions of constant Mexican pesos as of December 31, 2002)
Additional Deficit in Cumulative
Common paid-in equity initial deferred Retained
stock capital restatement income tax effects earnings
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1999..................Ps 3,354.7 22,553.2 (45,783.9) - 74,390.8
Dividends (Ps0.56 pesos per share)........... 2.2 2,188.7 - - (2,386.2)
Issuance of common stock (note 14A) ......... 0.1 52.1 - - -
52.2
Issuance of appreciation warrants (note 14F). - (63.2) - - -
Share repurchase program (note 14A) ......... (0.1) - - - (130.9)
Restatement of investments and other
transactions relating to minority interest. - - - - -
Investment by subsidiaries (note 8) ......... - - (1,876.0) - -
Comprehensive net income (loss) (note 14G)... - - (2,903.1) (5,196.8) 10,389.1
--------------------------------------------------------------------------------
Balances at December 31, 2000................ 3,356.9 24,730.8 (50,563.0) (5,196.8) 82,262.8
Dividends (Ps0.65 pesos per share) .......... 2.5 2,900.5 - - (3,049.2)
Issuance of common stock (note 14A) ......... 0.1 111.0 - - -
Share repurchase program (note 14A) ......... (0.2) - - - (222.1)
Restatement of investments and other
transactions relating to minority interest. - - - - -
Investment by subsidiaries (note 8) ......... - - 63.6 - -
Comprehensive net income (loss) (note 14G)... - - (4,359.1) - 11,789.8
--------------------------------------------------------------------------------
Balances at December 31, 2001................ 3,359.3 27,742.3 (54,858.5) (5,196.8) 90,781.3
Dividends (Ps0.70 pesos per share) .......... 2.2 3,082.2 - - (3,394.1)
Issuance of common stock (note 14A) ......... 0.1 72.9 - - -
Share repurchase program (note 14A).......... (0.3) - - - (362.2)
Restatement of investments and other
transactions relating to minority interest. - - - - -
Investment by subsidiaries (note 8) ......... - - 246.3 - -
Comprehensive net income (loss) (note 14G)... - - (7,249.1) - 5,400.4
--------------------------------------------------------------------------------
Balances at December 31, 2002..............Ps 3,361.3 30,897.4 (61,861.3) (5,196.8) 92,425.4
--------------------------------------------------------------------------------
(Continued)
Total Total
majority Minority stockholders'
interest interest equity
- ------------------------------------------------------------------------------------------------
Balances at December 31, 1999..................Ps 54,514.8 13,176.6 67,691.4
Dividends (Ps0.56 pesos per share)........... (195.3) - (195.3)
Issuance of common stock (note 14A) ......... - 52.2
Issuance of appreciation warrants (note 14F). (63.2) - (63.2)
Share repurchase program (note 14A) ......... (131.0) - (131.0)
Restatement of investments and other
transactions relating to minority interest. - 10,939.8 10,939.8
Investment by subsidiaries (note 8) ......... (1,876.0) - (1,876.0)
Comprehensive net income (loss) (note 14G)... 2,289.2 810.5 3,099.7
---------------------------------------------
Balances at December 31, 2000................ 54,590.7 24,926.9 79,517.6
Dividends (Ps0.65 pesos per share) .......... (146.2) - (146.2)
Issuance of common stock (note 14A) ......... 111.1 - 111.1
Share repurchase program (note 14A) ......... (222.3) - (222.3)
Restatement of investments and other
transactions relating to minority interest. - (6,687.6) (6,687.6)
Investment by subsidiaries (note 8) ......... 63.6 - 63.6
Comprehensive net income (loss) (note 14G)... 7,430.7 1,534.7 8,965.4
---------------------------------------------
Balances at December 31, 2001................ 61,827.6 19,774.0 81,601.6
Dividends (Ps0.70 pesos per share) .......... (309.7) - (309.7)
Issuance of common stock (note 14A) ......... 73.0 - 73.0
Share repurchase program (note 14A).......... (362.5) - (362.5)
Restatement of investments and other
transactions relating to minority interest. - (7,632.3) (7,632.3)
Investment by subsidiaries (note 8) ......... 246.3 - 246.3
Comprehensive net income (loss) (note 14G)... (1,848.7) 384.7 (1,464.0)
---------------------------------------------
Balances at December 31, 2002..............Ps 59,626.0 12,526.4 72,152.4
---------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Changes in Financial Position
(Millions of constant Mexican pesos as of December 31, 2002)
Years ended December 31,
2000 2001 2002
------------------------------------------------
Operating activities
Majority interest net income ...................................... Ps 10,389.1 11,789.8 5,400.4
Charges to operations which did not require resources:
Depreciation of properties, machinery and equipment.............. 3,862.0 5,386.6 5,420.7
Amortization of deferred charges and credits, net................ 1,221.6 2,548.7 2,522.5
Impairment of assets.............................................. - - 93.1
Pensions, seniority premium and other postretirement benefits.... 312.6 315.8 206.4
Deferred income tax charged to results........................... 650.8 213.3 (412.0)
Equity in income of affiliates................................. (263.0) (205.2) (318.7)
Minority interest................................................ 810.5 1,534.7 384.7
------------------------------------------------
Resources provided by operating activities..................... 21,583.7 13,297.1
16,983.6
Changes in working capital, excluding acquisition effects:
Trade accounts receivable, net................................... 673.0 765.9 2,225.3
Other accounts receivable and other assets........................ (72.7) (2,267.0) 1,078.4
Inventories...................................................... 178.7 578.9 (328.9)
Trade accounts payable........................................... 942.3 (1,100.2) 527.6
Other accounts payable and accrued expenses....................... (613.0) 4,064.9 469.2
------------------------------------------------
Net change in working capital................................. 1,108.3 2,042.5 3,971.6
------------------------------------------------
Net resources provided by operating activities................. 18,091.9 23,626.2 17,268.7
------------------------------------------------
Financing activities
Proceeds from bank loans (repayments), net......................... 8,238.0 (8,600.6) 2,604.5
Notes payable, net, excluding foreign exchange effect (note 2D).... 2,790.6 3,863.5 (309.4)
Investment by subsidiaries.......................................... (1,767.3) (229.2) (4.5)
Dividends paid...................................................... (2,386.2) (3,049.2) (3,394.1)
Issuance of common stock from reinvestment of dividends............ 2,190.9 2,903.0 3,084.4
Issuance of common stock under stock option programs............... 52.2 111.1 73.0
Issuance (repurchase) of preferred stock by subsidiaries........... .. 15,730.9 (6,585.3) (4,191.5)
Acquisition of common stock under repurchase program................ (131.0) (222.3) (362.5)
Other financing activities, net..................................... (2,923.9) (2,164.4) 3,062.2
------------------------------------------------
Resources provided by (used in) financing activities........... 21,794.2 (13,973.4) 562.1
------------------------------------------------
Investing activities
Properties, machinery and equipment, net........................... (4,140.5) (5,112.7) (4,401.1)
Acquisition of subsidiaries and affiliates.......................... (27,107.2) (2,013.1) (2,735.4)
Disposal of assets................................................. 1,448.3 732.1 557.0
Minority interest................................................... (5,508.5) (102.2) (2,959.9)
Deferred charges.................................................... (346.9) (4,060.3) (1,928.4)
Other investments and monetary foreign currency effect.............. (4,462.0) 1,988.6 (6,902.3)
------------------------------------------------
Resources used in investing activities......................... (40,116.8) (8,567.6) (18,370.1)
------------------------------------------------
Increase (decrease) in cash and investments (230.7) 1,085.2 (539.3)
Cash and investments at beginning of year..................... 3,433.6 3,202.9 4,288.1
------------------------------------------------
Cash and investments at end of year............................Ps 3,202.9 4,288.1 3,748.8
------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 2000, 2001 and 2002
(Millions of constant Mexican Pesos as of December 31, 2002)
1. DESCRIPTION OF BUSINESS
CEMEX, S.A. de C.V. (CEMEX or the Company) is a Mexican holding
company (parent) of entities whose main activities are oriented to the
construction industry, through the production and marketing of cement and
ready-mix concrete.
2. SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION AND DISCLOSURE
The accompanying financial statements have been prepared in accordance with
Generally Accepted Accounting Principles in Mexico ("Mexican GAAP"), which
include the recognition of the effects of inflation on the financial
information.
For purposes of disclosure, when reference is made to pesos or "Ps", it means
Mexican pesos; when reference is made to dollars or U.S.$, it means currency
of the United States of America ("United States"). Except when specific
references are made to "U.S. dollar millions", "U.S. dollar thousands",
"earnings per share" and "number of shares", all amounts included in these
notes are stated in millions of constant Mexican pesos as of the balance sheet
date.
When reference is made to "CPO" or "CPOs", it means the Company's "Ordinary
Participation Certificates". Each CPO represents the participation in two
series "A" shares and one series "B" share of the Company's common stock.
"ADS" or "ADSs" refer to the Company's "American Depositary Shares", listed on
the New York Stock Exchange ("NYSE"). Each ADS represents 5 CPOs.
Certain amounts reported in the notes to the consolidated financial statements
as of December 31, 2000 and 2001 have been reclassified to conform to the 2002
presentation.
In 2002 and partially during 2001, the expenses related to the Company's
products distribution were classified as selling expenses in the income
statement. Fully during 2000 and partially during 2001, such expenses were
recognized as part of cost of sales for an approximate amount of Ps3,889.7 and
Ps1,560.6, respectively. This reclassification has no effect on operating
income, net income and/or earnings per share for the years ended December 31,
2000 and 2001, if the mentioned expenses had been recognized consistently with
the 2002 classification.
B) PRESENTATION OF COMPARATIVE FINANCIAL STATEMENTS
The restatement factors applied to the financial statements of prior periods
were calculated based upon the weighted average inflation and the fluctuation
in the exchange rate of each country in which the Company operates relative to
the Mexican peso.
2000 2001 2002
---------------- --------------- ---------------
Restatement factor using weighted average inflation.............. 1.0236 0.9900 1.0916
Restatement factor using Mexican inflation....................... 1.0903 1.0456 1.0559
---------------- --------------- ---------------
Common stock and additional paid-in capital are restated by Mexican inflation.
The weighted average inflation factor is used for all other restatement
adjustments to stockholders' equity.
C) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include those of CEMEX and the
subsidiary companies in which the Company holds a majority interest and/or has
control. All significant balances and transactions between related parties
have been eliminated in consolidation.
F-7
The main operating subsidiaries, ordered by holding company, and the
percentage of equity interest directly held by their immediate holding
company, are as follows:
Subsidiary Country % Equity interest
- ------------------------------------------------------------- -------------------------- ----------------------
CEMEX Mexico, S.A. de C.V....................................1 Mexico 100.0
CEMEX Espana, S.A. .........................................2 Spain 99.5
CEMEX Venezuela, S.A.C.A.................................. Venezuela 75.7
CEMEX, Inc................................................3 United States 100.0
Cementos del Pacifico, S.A. .............................. Costa Rica 98.4
Assiut Cement Company.....................................4 Egypt 95.8
CEMEX Colombia, S.A. .....................................5 Colombia 98.2
Cemento Bayano, S.A. ..................................... Panama 99.2
Cementos Nacionales, S.A.................................. Dominican Republic 99.9
Puerto Rican Cement Company, Inc.......................... Puerto Rico 100.0
CEMEX Asia Holdings Ltd...................................6 Singapore 92.3
Solid Cement Corporation................................7 Philippines 94.6
APO Cement Corporation..................................7 Philippines 99.9
CEMEX Thailand Co. Ltd..................................7 Thailand 100.0
Latin Networks Holdings, B.V..................................8 Netherlands 100.0
- ----------------------------------------------------------------------------------------------------------------------
1. As of December 31, 2002, includes an approximately 0.6% equity interest
held by a trust in benefit of the Company (see note 14F). CEMEX Mexico,
S.A. de C.V. ("CEMEX Mexico"), an entity created during 1999 as a result
of a merger of most of the cement subsidiaries in Mexico, holds 100% of
the shares of Empresas Tolteca de Mexico, S.A. de C.V. ("ETM") and Centro
Distribuidor de Cemento, S.A. de C.V. ("CEDICE"). In January 2001, CEMEX
Mexico acquired from the Company a majority interest in CEDICE, which
indirectly holds the Company's operations in foreign countries. As a
result, as of December 31, 2001 and 2002, CEMEX Mexico indirectly holds
CEMEX Espana, S.A. and subsidiaries.
2. In June 2002, Compania Valenciana de Cementos Portland, S.A.
("Valenciana") changed its legal name to CEMEX Espana, S.A. ("CEMEX
Espana"). CEMEX Espana is a subsidiary of New Sunward Holdings, B.V., a
holding company in which the Company holds a 90% equity interest. In
addition, the Company's ownership includes a 6.82% equity interest of
CEMEX Espana, related to a financial transaction, pursuant to which the
Company retains 100% of the economic benefits related to such 6.82%
interest (see note 16A).
3. CEMEX, Inc. was created as a result of a merger between Southdown, Inc.
and CEMEX USA, Inc. (see note 8A).
4. In October 2001, CEMEX Espana made a capital contribution to Assiut
Cement Company in exchange for 79.87% of the common stock of such entity,
becoming its indirect parent company.
5. In August 2002, Cementos Diamante, S.A. changed its legal name to CEMEX
Colombia, S.A. ("CEMEX Colombia"). The 98.2% equity interest includes the
Company's ownership of 99.3% of the total ordinary shares.
6. In July 2002, as a result of a shares exchange transaction (see note 8A),
for accounting purposes beginning in July 2002, the Company's equity
interest in CEMEX Asia Holdings Ltd. ("CAH") increased to 92.25%.
7. Represents the Company's indirect economic benefits held through CAH. As
a result of a shares acquisition in July 2002, the indirect economic
benefits of the Company in Rizal Cement Company ("Rizal") increased to
94.58% (see note 8A). On December 23, 2002, Rizal was merged with its
subsidiary Solid Cement Corporation ("Solid"), where the surviving
corporation was Solid. In July 2002, Saraburi Cement Company Ltd. changed
its legal name to CEMEX (Thailand) Co. Ltd.
8. Latin Networks Holdings B.V. is the holding company of entities engaged
in the development of the Company's Internet strategy.
F-8
D) FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION OF FOREIGN CURRENCY FINANCIAL
STATEMENTS
Transactions denominated in foreign currencies are recorded at the exchange
rates prevalent on the dates of their execution or liquidation. Monetary
assets and liabilities denominated in foreign currencies are adjusted into
pesos at the exchange rates prevailing at the balance sheet date. The
resulting foreign exchange fluctuations are reflected in the results of
operations, except for the exchange fluctuations arising from foreign currency
indebtedness directly related to the acquisition of foreign entities and the
fluctuations associated with related parties balances denominated in foreign
currency that are of a long-term investment nature, which are recorded against
stockholders' equity, as part of the foreign currency translation adjustment
of foreign subsidiaries.
The financial statements of consolidated foreign subsidiaries are restated for
inflation in their functional currency based on the subsidiary country's
inflation rate and subsequently translated into pesos by using the foreign
exchange rate at the end of the corresponding reporting period for balance
sheet and income statement accounts. The exchange rate of the peso against the
U.S. dollar used by the Company is based on a weighted average of the free
market rates available to settle its foreign currency transactions.
E) CASH AND INVESTMENTS (note 3)
Investments include fixed-income securities with original maturities of three
months or less, as well as marketable securities readily convertible into
cash.
Investments in fixed-income securities are recorded at cost plus accrued
interest. Investments in marketable securities are recorded at market value.
Gains or losses resulting from changes in market values, accrued interest and
the effects of inflation are included in the income statements as part of the
Comprehensive Financing Result.
F) INVENTORIES AND COST OF SALES (note 6)
Inventories are recognized at the lower of replacement cost or market value.
Replacement cost is based upon the latest purchase price or production cost.
Cost of sales reflects replacement cost of inventories at the time of sale,
expressed in constant pesos as of the balance sheet date.
G) INVESTMENTS AND NONCURRENT RECEIVABLES (note 8)
Investments in affiliated companies are accounted for by the equity method,
when the Company holds between 10% and 50% of the issuer's capital stock, and
does not have effective control. Under the equity method, after acquisition,
the investment's original cost is adjusted for the proportional interest of
the holding company in the affiliate's equity and earnings, considering the
effects of inflation.
In May 2001, an available for sale investment recorded under the caption other
investments was sold. As a result, the income statement for the year ended
December 31, 2001, presents the reversal of the valuation effects that were
accrued in equity (see note 8B).
H) PROPERTIES, MACHINERY AND EQUIPMENT (note 9)
Properties, machinery and equipment are presented at their restated values
using the inflation index of the assets' origin country and the variation in
the foreign exchange rate between the country of origin currency and the
functional currency.
Interest incurred during the construction or installation period of fixed
asset, which is part of the Comprehensive Financing Result, is capitalized as
part of the carrying value of such assets.
Depreciation of properties, machinery and equipment is provided on the
straight-line method over the estimated useful lives of the assets. The useful
lives of the assets are as follows:
Years
---------------
Administrative buildings................................. 50
Industrial buildings, machinery and equipment............ 10 to 35
---------------
I) DEFERRED CHARGES AND AMORTIZATION (note 10)
F-9
Deferred charges are adjusted by inflation to reflect constant values.
Amortization of deferred charges is determined using the straight-line method
based on the restated value of the assets.
The excess of cost over the book value of subsidiaries acquired ("goodwill")
is amortized under the present worth or sinking fund method, which is intended
to provide a better matching of the goodwill amortization with the revenues
generated from the acquired companies. The amortization periods are as
follows:
Years
---------------
Goodwill from acquisitions in years before 1992......... 40
Goodwill from acquisitions since January 1, 1992........ 20
---------------
Deferred financing costs, associated with the Company's financing operations,
are amortized as part of the effective interest rate of each transaction over
its maturity. These costs include discounts on debt issuance, fees paid to
attorneys, printers and consultants, as well as commissions paid to banks in
the structuring process. Deferred financing costs are adjusted by inflation to
reflect constant values.
Likewise, the Company capitalizes the direct costs incurred in the development
stage of computer software for internal use. The capitalized amounts are
adjusted to reflect constant values and are amortized to the results of
operations during the estimated useful life of the software, which is
estimated as approximately 4 years.
J) PENSION PLANS, SENIORITY PREMIUM AND OTHER POSTRETIREMENT BENEFITS (note
13)
The costs related to benefits to which employees are entitled by pension
plans, seniority premiums and other postretirement benefits, legally or by
Company grant, are recognized in the results of operations on the basis of the
present value of the benefits determined under actuarial estimations, as
services are rendered. The amortization of unrecognized prior service cost,
changes in assumptions and adjustments based on experience that have not been
recognized, is based on the employee's estimated active service life. Other
benefits to which employees may be entitled, principally severance benefits
and vacations, are recognized as an expense in the year in which they are
paid. In some circumstances, however, provisions have been made for these
benefits.
As part of the established pension plans, in some cases, certain irrevocable
trust funds have been created to cover future benefit payments under these
plans. The actuarial assumptions upon which the Company's employee benefit
liabilities are determined consider the use of real rates (nominal rates
discounted by inflation).
K) INCOME TAX ("IT"), BUSINESS ASSETS TAX ("BAT"), EMPLOYEES' STATUTORY PROFIT
SHARING ("ESPS") AND DEFERRED INCOME TAXES (note 17)
IT, BAT and ESPS expense recognizes the amounts incurred during the period,
and the effects of deferred IT and ESPS, in accordance with Bulletin D-4,
Accounting treatment of income tax, business assets tax and employees' profit
sharing ("Bulletin D-4"), effective January 1, 2000. Bulletin D-4 requires the
determination of deferred IT by applying the enacted statutory income tax rate
to the total temporary differences resulting from comparing the book and
taxable values of the assets and liabilities, considering when available, and
subject to a recoverability analysis, tax loss carryforwards as well as other
recoverable taxes and tax credits. Bulletin D-4 also requires a determination
of the effect of deferred ESPS for those temporary differences, which are of
non-recurring nature, arising from the reconciliation of the net income of the
period and the taxable income of the period for ESPS.
The cumulative initial deferred IT effects, arising from the adoption of the
Bulletin, were recognized on January 1, 2000 against stockholders' equity as
the "Cumulative initial deferred income tax effects". The effect of a
statutory tax rate change is recognized in the income statement of the period
in which the change occurs and is officially declared.
Consolidated balances of assets and liabilities and their corresponding
taxable amounts substantially differ from those of the Parent Company. The
difference between the Parent Company's accumulated initial effect of deferred
income taxes and the corresponding consolidated initial effects, which
represents the sum of the initial effects determined in each subsidiary, is
presented in the consolidated balance sheets under the caption "Deficit in
equity restatement". For disclosure purposes, the consolidated cumulative
initial deferred income tax effects are presented in the statements of changes
in stockholders' equity.
L) MONETARY POSITION RESULT
F-10
The monetary position result, which represents the gain or loss from holding
monetary assets and liabilities in inflationary environments, is calculated by
applying the inflation rate of each country in which the Company has
operations to the net monetary position in that country (difference between
monetary assets and liabilities).
M) DEFICIT IN EQUITY RESTATEMENT (note 14)
The deficit in equity restatement includes: i) the accumulated effect from
holding non-monetary assets; ii) the foreign currency translation effects from
foreign subsidiaries' financial statements, considering the exchange
fluctuations arising from foreign currency indebtedness directly related with
the acquisition of foreign subsidiaries, and the related parties foreign
currency balances that are of a long-term investment nature (see notes 2D and
14D) ; and iii) valuation and liquidation effects of certain derivative
financial instruments that qualify as hedge instruments, which are recorded
temporarily or permanently in stockholders' equity (see note 2N).
N) DERIVATIVE FINANCIAL INSTRUMENTS (notes 11, 12 and 16)
In compliance with the controls and procedures established by the units
associated with the financial risk management, the Company uses derivative
financial instruments such as interest rate and currency swaps, currency and
stock forward contracts, options and futures, in order to reduce risks
associated with changes in interest rates and foreign exchange rates of debt
agreements and as a vehicle to reduce financing costs (see notes 12A and B),
as well as hedges of: (i) forecasted transactions to purchase fuels and
electric power, (ii) the Company's net assets in foreign subsidiaries, (iii)
the future exercise of options under the Company's stock option programs, and
(iv) as an alternative source of financing (see note 16). These instruments
have been negotiated with institutions and corporations with significant
financial capacity; therefore, the Company considers that the risk of
non-compliance with the obligations agreed to by such counterparties to be
minimal. Some of these instruments have been designated as hedges of raw
materials costs as well as debt or equity instruments.
Effective January 1, 2001, the Company adopted Bulletin C-2 Financial
Instruments ("Bulletin C-2"), which requires the recognition of all derivative
financial instruments as assets and/or liabilities at their estimated fair
value, and the recognition of changes in such values in the income statement
for the period in which they occurred. The exceptions to the rule, as they
relate to the Company, are the following:
a) Beginning in 2002, changes in the estimated fair value of interest rate
derivative instruments, designated as accounting hedges of contractual
cash flows associated with debt reported on the balance sheet, as well
as those instruments negotiated to hedge the interest rate at which
certain forecasted or existing indebtedness is expected to be contracted
or renegotiated, are recognized in stockholders' equity (see note 14G)
and are reclassified to the income statement as the financial expense of
the hedged financing items is accrued. For the year ended December 31,
2001, the effects of hedge-like instruments were recognized according to
the following paragraph. See notes 11 and 12.
b) In 2002 and 2001, derivative instruments negotiated to exchange fixed
for floating interest rates were accounted for using the same valuation
criteria applied to the hedged liabilities; therefore, the derivative
instruments' effects were recognized in the income statement, net of the
interest expense generated by the hedged liabilities, based on their
accrued amounts.
c) The estimated fair value, and changes in such value, of the foreign
currency forwards designated as hedges of the Company's net investments
in foreign subsidiaries are recorded in the balance sheet as assets or
liabilities against stockholders' equity, as part of the foreign
currency translation result (see notes 2D and 14D). The accumulated
effect on stockholder's equity will be reversed through the income
statement upon disposition of the foreign investment.
d) The results derived from equity forward contracts on the Company's own
shares, as well as from other equity derivative instruments, such as the
appreciation warrants, are recognized in stockholders' equity upon
settlement. Beginning in 2001, changes in the estimated fair value of
those equity forward contracts that cover the executive stock option
programs are recorded through the income statement, in addition to the
costs related to such programs. See notes 15 and 16.
As of December 31, 2001 and 2002, for balance sheet presentation purposes, the
portion of the assets or liabilities resulting from the recognition of the
estimated fair value of the derivative instruments of interest rates and
currency (Cross Currency Swaps) negotiated to change the profile of interest
rate and currency of existing financing debt,
F-11
required to present the indebtedness as if it had been originally negotiated
in the exchanged interest rates and currencies, is reclassified as part of the
carrying amount of the underlying debt instruments, thereby reflecting the
cash flows expected to be received or paid upon liquidation of such
instruments. The non-reclassified portion, resulting from the difference
between the forward exchange rates implicit in the contracts and those in
effect as of the balance sheet date, is recognized as other assets or other
liabilities, both short and long term, depending on the maturity of the
contracts.
Until December 31, 2000, the results of the derivative financial instruments
described above were recorded in the income statement at the moment cash flows
were incurred or at settlement, except for foreign currency forwards
designated as accounting hedges of the net investment in foreign subsidiaries
and the equity forward contracts on the Company's own shares that were treated
equally as of December 31, 2001 and 2002.
The estimated fair value represents the amount at which a financial asset
could be bought or sold, or a financial liability could be extinguished,
between willing parties in an arm's length transaction. Occasionally, there is
a reference market that provides the estimated fair value; in the absence of a
market such value is determined using valuation techniques such as the net
present value of projected cash flows or through mathematical valuation
models. The estimated fair values of derivative instruments, used by the
Company for recognition and disclosure purposes in the financial statements
and their notes, are supported by the confirmations of these values received
from the financial counterparties.
Premiums paid or received on hedge derivative instruments are deferred and
amortized over the life of the underlying hedged instrument or immediately
when they are settled; in other cases, premiums are recorded in the income
statement at the moment in which they are received or paid.
O) REVENUE RECOGNITION
Revenue is recorded upon shipment of cement and ready-mix concrete to
customers. Income from activities other than the Company's main line of
business is recognized when the revenue has been realized and there is no
condition or uncertainty implying a reversal thereof.
P) CONTINGENCIES AND COMMITMENTS
Obligations or material losses, related to contingencies and commitments, are
recognized when present obligations exist, as a result of past events, it is
probable that the effects will materialize and there are reasonable elements
for quantification. If there are no reasonable elements for quantification, a
qualitative disclosure is included in the notes to the financial statements.
The Company does not recognize contingent revenues, income or assets.
Q) COMPREHENSIVE NET INCOME (note 14G)
Beginning in 2001, Bulletin B-4 Comprehensive Net Income ("Bulletin B-4"),
requires the comprehensive net income presentation as a single item in the
Statement of Changes in Stockholders' Equity. Comprehensive net income
represents the change in stockholders' equity during a period for transactions
and other events not representing contributions, reductions or distributions
of capital.
R) USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities at the
financial statements date and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from these estimates.
S) CONCENTRATION OF CREDIT RISK
The Company sells its products primarily to distributors in the construction
industry, with no specific geographic concentration within the countries in
which the Company operates. No single customer accounted for a significant
amount of the Company's sales in 2000, 2001 and 2002, and there were no
significant accounts receivable from a single customer for the same periods.
In addition, there is no significant concentration of a specific supplier
relating to the purchase of raw materials.
T) OTHER INCOME AND EXPENSE
F-12
Other income and expense consists primarily of goodwill amortization,
anti-dumping duties, results from the sales of fixed assets, impairment
charges of long-lived assets, results from the early extinguishment of debt
and, in 2001, the costs related to the restructuring of the executive stock
option programs (see note 15).
U) IMPAIRMENT OF LONG LIVED ASSETS
The Company periodically evaluates the physical state and performance of its
machinery and equipment, and analyzes the impact that its sales and production
forecasts may have over the expected future cash flows, in order to determine
if there are elements indicating that the restated book values of these assets
need to be adjusted for impairment. The provision for impairment is recorded
in the income statement during the period when it is determined. The
adjustment is determined by the excess of the carrying amount of the assets or
group of assets over the net present value of estimated cash flows expected to
be generated by such assets.
Likewise, the Company continually evaluates the balances of goodwill and other
investments to establish if factors such as the occurrence of significant
adverse events, changes in the environment in which the business operates and
expectations of operating results for each business unit or affiliated
entities, provide, in the judgment of the Company, elements indicating that
the book value of goodwill or the investments may not be recovered, in which
case an impairment loss is recorded in the period when such determination is
made, resulting from the excess of the carrying amount of goodwill or the
investments over net present value of estimated cash flows. For the year ended
December 31, 2002, the Company recognized in the income statement within other
expenses, net, an impairment loss of U.S.$9.0 million (Ps93.1) from goodwill
related to the business unit engaged in the software development projects.
3. CASH AND INVESTMENTS
Consolidated cash and investments as of December 31, 2001 and 2002 consists
of:
2001 2002
------------------- --------------------
Cash and bank accounts........................ Ps 2,808.1 1,760.1
Fixed-income securities....................... 1,457.0 1,987.8
Investments in marketable securities.......... 23.0 0.9
------------------- --------------------
Ps 4,288.1 3,748.8
------------------- --------------------
4. TRADE ACCOUNTS RECEIVABLE
The Company evaluates each of its customers' credit and risk profiles in order
to establish the required allowance for doubtful accounts. Trade accounts
receivable as of December 31, 2001 and 2002 include allowances for doubtful
accounts of Ps503.0 and Ps478.5, respectively.
The Company has established sales of trade accounts receivable programs with
financial institutions ("securitization programs"). These programs were
negotiated in Mexico during 2002, in the United States during 2001 and in
Spain in 2000. Through the securitization programs, the Company effectively
surrenders control, risks and the benefits associated to the accounts
receivable sold; therefore, the amount of receivables sold is recorded as a
sale of financial assets and the balances are removed from the balance sheet
at the moment of sale, except for the amounts that the counterparties have not
paid, which are reclassified to other accounts receivable (see note 5). The
balances of receivables sold pursuant the securitization programs as of
December 31, 2001 and 2002 were Ps2,993.0 (U.S.$299.0 million) and Ps5,045.9
(U.S.$486.1 million), respectively. The accounts receivable qualifying for
sale do not include amounts over certain days past due or concentrations over
certain limits to any one customer, according to the terms of the programs.
Expenses incurred under these programs, originated by the discount granted to
the acquirers of the accounts receivable, are recognized in the income
statements and were approximately Ps83.1 (U.S.$8.3 million) in 2001 and
Ps108.5 (U.S.$10.5 million) in 2002.
F-13
5. OTHER ACCOUNTS RECEIVABLE AND OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Other accounts receivable consist of:
December 31,
----------------------------------------
2001 2002
------------------ ------------------
Non-trade receivables................................................... Ps 1,430.4 1,122.4
Prepayments and valuation of derivative financial instruments........... 1,649.5 1,305.3
Interest and notes receivable........................................... 348.3 898.3
Advances for travel expenses and loans to employees..................... 428.8 379.0
Refundable income tax................................................... 992.9 -
Other refundable taxes.................................................. 156.3 489.2
------------------ ------------------
Ps 5,006.2 4,194.2
================== ==================
As of December 31, 2001 and 2002, non-trade receivables primarily consist of
accounts receivable from the sale of fixed assets. Included in prepayments and
valuation of derivative financial instruments as of December 31, 2001 and
2002, are advanced payments toward the final price of forward contracts and
that will be settled at maturity of approximately Ps1,519.5 and Ps989.2 (see
note 16A), respectively. Included in interest and notes receivables are
amounts collectible by financial institutions, arising from the securitization
programs (see note 4) for approximately Ps179.5 (U.S.$17.9 million) and
Ps872.3 (U.S.$84.0 million) as of December 31, 2001 and 2002, respectively.
Additionally, other refundable taxes as of December 31, 2002 includes Ps273.9
corresponding to a final resolution related to a business assets tax lawsuit.
Other accounts payable and accrued expenses consist of:
December 31,
----------------------------------------
2001 2002
------------------ -----------------
--
Other accounts payable and accrued expenses............................. Ps 3,473.4 2,981.6
Interest payable........................................................ 1,065.4 992.2
Tax payable............................................................. 2,065.9 1,157.8
Dividends payable....................................................... 56.1 60.2
Provisions.............................................................. 1,787.5 2,368.7
Advances from customers................................................. 584.3 704.4
Prepayments and valuation of derivative financial instruments........... 564.5 3,698.7
----------------- -----------------
Ps 9,597.1 11,963.6
================== =================
6. INVENTORIES
Inventories are summarized as follows:
December 31,
----------------------------------------
-- ---
2001 2002
--------------- -- -------------- --
-------------- --
Finished goods........................................................... Ps 1,945.9 1,452.0
Work-in-process.......................................................... 796.1 1,558.0
Raw materials............................................................ 678.4 623.9
Supplies and spare parts................................................. 2,891.3 3,150.4
Advances to suppliers.................................................... 333.8 341.8
Inventory in transit..................................................... 170.0 209.9
----------------- -----------------
Ps 6,815.5 7,336.0
================== ==================
F-14
7. OTHER CURRENT ASSETS
Other current assets consist of:
December 31,
----------------------------------------
2001 2002
------------------ -----------------
Advanced payments........................................................ Ps 631.9 466.7
Non-cement related assets................................................ 347.3 362.2
------------------ -----------------
Ps 979.2 828.9
================== ==================
The non-cement related assets are stated at their estimated realizable value
and mainly consist of (i) non-cement related assets acquired in business
combinations, (ii) various assets held for sale received from customers as
payment of trade receivables, and (iii) real estate held for sale.
During 2000, the Company recognized in other expenses net, an approximate loss
of Ps27.6 from the sale of real estate in Puerto Vallarta, Mexico.
8. INVESTMENTS AND NONCURRENT RECEIVABLES
A) INVESTMENTS IN SUBSIDIARIES AND AFFILIATED COMPANIES
Investments in affiliated companies accounted for by the equity method are
summarized as follows:
December 31,
-----------------------------------------
2001 2002
------------------ ------------------
Book value at acquisition date........................................ Ps 2,919.8 3,254.1
Equity in income and other changes in stockholders' equity of
subsidiaries and affiliated companies............................... 2,253.1 2,555.7
----------------- ------------------
Ps 5,172.9 5,809.8
================== ==================
Investments held by subsidiaries in the Company's shares, amounting to
Ps7,383.6 (146,868,013 CPOs and 1,791,695 appreciation warrants) and Ps6,517.6
(144,870,296 CPOs and 1,793,725 appreciation warrants) as of December 31, 2001
and 2002, respectively, are offset against majority interest stockholders'
equity in the accompanying financial statements.
The Company's principal acquisitions and divestitures during 2000, 2001 and
2002, are the following:
I. On July 30, 2002, through a public tender offer and subsequent merger, a
subsidiary of the Company acquired 100% of the outstanding shares of
Puerto Rican Cement Company, Inc. ("PRCC"), a Puerto Rican cement
producer, for approximately U.S.$180.2 million (U.S. $35 per share).
The consolidated financial statements include the balance sheet of
PRCC and the results of operations as of and for the five-month period
ended December 31, 2002.
II. On July 12, 2002, a subsidiary of CEMEX acquired 1,508,794 common shares
(approximately 15.1%) of CEMEX Asia Holdings Ltd. ("CAH"). Of this total,
25,429 shares were acquired for cash of approximately U.S.$2.3 million,
while the remaining 1,483,365 shares were acquired through a forward
contract requiring delivery of 28,195,213 CEMEX CPOs in four equal
quarterly transactions beginning on March 31, 2003. For accounting
purposes, the CAH shares to be received under the forward are considered
as owned by the Company and are consolidated effective July 12, 2002,
generating an account payable for approximately U.S.$140 million, the
price of 28,195,213 CPOs on the date of the exchange agreements. The
consolidation of the CAH shares was deemed appropiate since the exchange
price was fixed, the physical delivery is a firm commitment and the CAH
shareholders relinquished their risks of ownership of the CAH shares. As a
result of these transactions, including the forward exchange, the indirect
equity interest of the Company in CAH increased to 92.25%. Before these
transactions, the indirect equity interest of CEMEX in CAH was 77.4%. CAH
is a subsidiary created in 1999 by CEMEX and institutional investors in
Asia to jointly invest in the region.
During 2000, the CAH investors and CEMEX contributed capital of
approximately U.S.$73 million and U.S.$251 million, respectively, in
order for CAH to acquire from a subsidiary of the Company its 25.5%
equity interest in
F-15
PT Semen Gresik, Tbk. ("Gresik"), an Indonesian cement company, as well
as other cement assets in Asia. In 1999, the minority investors
contributed capital to CAH of approximately U.S.$142.9 million, and the
Company, through its subsidiaries, contributed to CAH the economic
benefit interest it held in its Philippines subsidiaries, Solid
(formerly Rizal) and APO Cement Corporation ("APO"), amounting 70.0% and
99.9%, respectively. As a result , as of December 31, 2001 and 2000, the
indirect participation of the Company in Solid and APO decreased to
54.2% and 77.3%, respectively.
III. In July 2002, a Company's subsidiary acquired the 30% remaining economic
interest of Solid from third parties for approximately U.S.$95 million.
As a result of this acquisition and the increase in CAH's equity
interest previously detailed, as of December 31, 2002, the approximate
indirect economic interest of CEMEX in Solid is 94.58%. Prior to this
acquisition, the Company had a 70% economic interest in Solid through
CAH.
IV. During 2001 and 2002, CEMEX, Inc., a subsidiary of the Company in the
United States, sold aggregate quarries and other equipment for
approximately U.S.$42 million and U.S.$49 million, respectively. In
March 2001, CEMEX, Inc. was formed as a result of the merger of
Southdown, Inc. ("Southdown") and CEMEX USA, Inc. In November 2000,
through a public tender offer and subsequent merger, a subsidiary of the
Company acquired 100% of Southdown's outstanding shares at a price of
U.S.$73 per share. The total amount paid for the shares was
approximately U.S.$2,628.3 million (Ps27,281.8). For the year ended
December 31, 2000, the consolidated income statements included
Southdown's results of operations for the two-month period ended
December 31, 2000.
V. In May 2001, CAH acquired a 100% economic interest in CEMEX (Thailand)
Co. Ltd. ("CEMEX Thailand") (formerly Saraburi Cement Company Ltd.), a
Thai cement producer, for approximately U.S.$73 million, of which
U.S.$13.7 million was contributed by the CAH minority investors. At
December 31, 2001, the consolidated financial statements include CEMEX
Thailand's balance sheet and the results of operations for the
eight-month period.
VI. In addition, during 2001, the Company acquired majority interests in
companies in diverse locations, for an approximate amount of U.S.$141.5
million, including real estate entities whose principal assets are land
and buildings. The consolidated financial statements as of December 31,
2001, include the balance sheets of the acquired companies at the same
date and the operating results of such companies for the periods from
the acquisition date to year-end.
VII. In January 2001, the Company increased to 95.8% its equity interest in
Assiut Cement, Co. ("Assiut"), its subsidiary in Egypt. Previously, in
November and June 2000, a 2.9% equity interest was acquired from
Assiut's employees and a 13% interest from the Egyptian government,
respectively, for an aggregate of U.S.$66.8 million, increasing the
Company's equity interest to 92.9%. In November 1999, the Company
acquired from the Egyptian government 77% of Assiut's outstanding stock
for approximately U.S.$318.8 million.
VIII. In June 2000, the Company sold to Marriott International, for U.S.$113
million, properties in the tourism industry, including its 100% equity
interest in the Marriott Casa Magna hotels in Cancun and Puerto
Vallarta, resulting a net loss of approximately Ps68.7, which was
recorded in other expenses, net. In the year ended December 31, 2000,
the consolidated income statements of the Company include the hotels'
operating results for the five-month period ended May 31, 2000.
Certain condensed financial information of the companies acquired during 2001
and 2002, and that were consolidated in the Company's financial statements in
the year of acquisition, is presented below:
2001 2002
---------------------------------- ----------------------------------
Saraburi Others PRCC Others
--------------- --------------- ---------------- --------------
Total assets.............................. Ps 353.1 2,337.1 3,782.6 216.4
Total liabilities......................... 131.0 932.2 3,495.5 25.5
Stockholders' equity...................... 222.1 1,404.9 287.1 190.9
--------------- --------------- ---------------- --------------
Sales..................................... Ps 141.3 284.0 641.2 2.2
Operating income (loss)................... 24.0 (8.2) 25.2 (5.7)
Net income (loss)......................... (9.8) 127.7 25.1 (70.3)
--------------- --------------- ---------------- --------------
As of December 31, 2001 and 2002, the information of the main affiliated
companies, and the restated investment recognized in the consolidated balance
sheet are as follows:
F-16
Activity Country Equity 2001 2002
interest %
---------- ---------- ----------- ----------- ----------
PT Semen Gresik, Tbk.............................. Cement Indonesia 25.5 Ps 2,064.2 2,415.4
Control Administrativo Mexicano, S.A. de C.V...... Cement Mexico 49.0 1,420.0 1,640.4
Trinidad Cement Limited........................... Cement Trinidad 20.0 311.9 307.9
Cementos Bio Bio, S.A............................. Cement Chile 11.9 257.6 300.5
Cancem, S.A. de C.V............................... Cement Mexico 10.0 141.9 158.3
Lehigh White Cement Company....................... Cement U.S. 24.5 125.8 128.4
Societe des Ciments Antillais..................... Cement Antilles 26.1 86.9 108.5
Caribbean Cement Company Limited.................. Cement Jamaica 5.0 68.3 70.9
Others............................................ - - - 696.3 679.5
----------- ----------
Ps 5,172.9 5,809.8
=========== ==========
B) NONCURRENT ACCOUNTS RECEIVABLE
As of December 31, 2001 and 2002, approximately U.S.$105.3 million (Ps1,093.0)
and U.S.$71.4 million (Ps741.3), respectively, was recognized in the balance
sheet, representing the estimated fair value of the Company's long-term
derivative financial instruments (see notes 12B and 16).
In May 2001, CEMEX sold to Citigroup, in accordance with the terms and
conditions of a public tender offer launched in Mexico, its Banacci shares
that were held in its long-term investments portfolio. The sale amount was
approximately U.S.$162.4 million (Ps1,685.7) and generated a gain of
approximately U.S.$131 million (Ps1,333.7) recognized in the Comprehensive
Financing Result at December 31, 2001. Of this gain, approximately Ps794.1
corresponds to the reversal of unrealized valuation gains previously recorded
in stockholders' equity.
9. PROPERTIES, MACHINERY AND EQUIPMENT
As of December 31, 2001 and 2002, the Company has assets in Mexico and
Colombia that were adjusted for impairment during 1999. The assets subject to
impairment are valued at their estimated realizable value, net of the expenses
estimated for their disposal, and their depreciation has been suspended. As of
December 31, 2002, the remaining book value of these assets is approximately
Ps312.0, and it is the Company's intention to dispose of those that were
completely closed. The impact of having suspended depreciation of these assets
on 2000, 2001 and 2002 results was approximately Ps36.8, Ps38.2 and Ps36.9,
respectively.
10. DEFERRED CHARGES
Deferred charges are summarized as follows:
December 31,
-------------------------------------
2001 2002
---------------- ----------------
Goodwill................................................................... Ps 41,405.6 43,570.9
Cost of internally developed software...................................... 1,455.3 2,454.7
Prepaid pension costs (note 13)............................................ 723.5 385.9
Additional minimum liability (note 13)..................................... 349.2 600.0
Deferred financing costs................................................... 722.2 1,039.8
Deferred income taxes...................................................... 1,517.8 2,328.3
Others..................................................................... 4,732.1 4,772.2
Accumulated amortization................................................... (8,265.3) (10,420.5)
---------------- ----------------
Ps 42,640.4 44,731.3
---------------- ----------------
F-17
11. SHORT-TERM BANK LOANS AND NOTES PAYABLE
As of December 31, 2001 and 2002, consolidated short-term debt by type of
financing and currency, as well as the weighted-average interest rates, which
include the effects of derivative financial instruments negotiated to exchange
interest rates as well as interest rates and currencies (see note 12), are
summarized as follows:
2001 2002
---------------- ----------------
Current maturities of Euro medium-term notes ............................. Ps 2,702.7 4,754.0
Revolving lines of credit................................................. 2,002.0 4,475.2
Commercial paper programs................................................. 1,801.8 3,107.8
Current maturities of other notes payable................................. 1,329.0 102.9
Syndicated loans.......................................................... 851.9 703.8
Other loans and notes payable............................................. 1,598.3 1,319.1
---------------- ----------------
Ps 10,285.7 14,462.8
================ ================
2001 Weighted average 2002 Weighted average
interest rate interest rate
-------------- ----------------- -------------- ------------------
Dollar...................................Ps 8,929.6 4.56% 6,586.6 3.10%
Japanese Yen............................... - - 6,279.9 3.15%
Euros...................................... 880.4 4.07% 593.5 3.66%
Mexican Pesos.............................. - - 675.0 8.79%
Egyptian Pounds............................ 354.7 11.42% 319.5 11.01%
Other currencies........................... 121.0 12.99% 8.3 8.72%
-------------- --------------
Ps 10,285.7 14,462.8
-------------- --------------
As of December 31, 2001 and 2002, in order to: i) hedge contractual cash flows
of certain financial debt with floating rates or, exchange floating for fixed
interest rates of a portion of debt, and ii) reduce the financial cost of a
portion of financial debt originally contracted in dollars or pesos, the
Company has contracted derivative financial instruments related to short-term
debt, which are listed below:
As of December 31, 2001, related to short-term debt, there were interest rate
swaps to exchange fixed for floating interest rates, with a notional amount of
U.S.$300 million and an estimated fair value gain of U.S.$0.2 million (Ps2.1),
which was not recognized in the balance sheet or in the income statement
pursuant to their hedging characteristics (see note 2N). These instruments
were settled during 2002, realizing an approximate loss of U.S.$0.3 million
(Ps3.1), recognized as part of the Comprehensive Financing Result. Likewise,
as of December 31, 2002, the Company held interest rate swaps to exchange
floating for fixed interest rates, negotiated and designated as accounting
hedges of contractual cash flows (interest payments) of the related debt, with
a notional amount of U.S.$306 million and an estimated fair value loss of
U.S.$24.4 million (Ps253.3), recognized in other short-term accounts payable
against stockholders' equity. This amount will be reversed through the income
statement as the financial expense of the related financing debt is accrued.
Periodic cash flows generated by interest rate swaps are recorded in financial
expense as an adjustment to the effective interest rate of the related debt.
As of December 31, 2001 and 2002, outstanding interest rate swaps covered
approximately 34% and 48%, respectively, of the short-term debt denominated in
dollars.
As of December 31, 2002, there are Cross Currency Swaps ("CCS"), through which
the Company exchanges the originally contracted interest rates and currencies
on certain notional amounts of short-term debt, and are described below:
Currencies Interest rates
------------------------- ----------------------------------------------
Effective
(Amounts in millions) Notional Amount in new CEMEX CEMEX interest Estimated
Related debt Maturity dates amount currency receives* pays rate fair value
- ------------------------------- --------------- ----------- ------------- ----------- ----------- ----------- ----------
Mexican peso to dollar
Short-term notes................Jan 03 - Jun 03 Ps1,500 U.S.$145 TIIE+5bps L +29bps 2.25% U.S.$(9.6)
Dollar to Yen
Short-term notes................Jun 03 - Jun 05 U.S.$180 Yen 20,459 L + 183bps 3.16% 3.16% 6.1
----------
U.S.$(3.5)
==========
* TIIE refers to Interbank Offering Rate in Mexico. LIBOR ("L") represents
the London Interbank Offering Rate. Basis points ("bps") are decimals of
interest rate, i.e., 1% = 100 basis points.
F-18
The periodic cash flows of CCS, arising from the exchange of interest rates as
determined over the notional amounts in the new currencies, are recorded in
financial expense as part of the effective interest rate of the related debt.
The CCS have not been designated as accounting hedges; therefore, the Company
recognizes the estimated fair value of the CCS as either assets or liabilities
in the balance sheet and the changes in fair value through the income
statement. Likewise, all financial assets and liabilities with the same
maturity and that are intended to be settled simultaneously, have been offset
for presentation purposes, in order to reflect the cash flows that the Company
expects to receive or pay upon settlement of these financial instruments.
In respect to the estimated fair value of the short-term CCS as of December
31, 2002, a net liability of U.S.$3.5 million (Ps36.3) was recognized, of
which a loss of approximately U.S.$2.9 million (Ps30.1), directly related to
variations in exchange rates between the inception of the CCS and the balance
sheet date, was offset for presentation purposes as part of the carrying
amount of the underlying debt, and income of U.S.$0.5 million (Ps5.2),
identified with the periodic cash flows for the interest rate swaps, was
recognized as an adjustment of the related financing interest payable. The
remaining liability of U.S.$1.1 million (Ps11.4) is presented in the
consolidated balance sheet, decreasing other short-term receivables.
In addition, as of December 31, 2001 and 2002, there are call option contracts
negotiated with financial institutions to exchange floating for fixed interest
rates (swaptions) for a notional amount of U.S.$1,506 million and U.S.$1,000
million, respectively. For the sale of these options, the Company received
premiums of approximately U.S.$12.2 million (Ps126.6) in 2001 and U.S.$57.6
million (Ps597.9) in 2002. These options have varying maturities until March
2003, and grant the counterparties the option to elect, at maturity of the
options and on market conditions, to receive from CEMEX fixed rates and pay to
CEMEX variable rates for a five-year period or request net settlement in cash.
As of December 31, 2001 and 2002, premiums received, as well as the changes in
the estimated fair value of these contracts, which represented losses of
approximately U.S.$30.1 million (Ps312.4) and U.S.$110.9 million (Ps1,151.1),
respectively, were recognized in the Comprehensive Financing Result. During
2001 and 2002, the call options that expired resulted in losses of
approximately U.S.$3.4 million (Ps35.3) and U.S.$92.3 million (Ps958.1),
respectively, which were recognized in the Comprehensive Financing Result.
Currently, the Company cannot predict if market conditions prevailing at
maturity of these options would cause the counterparties to exercise them or
to elect for a cash settlement.
12. LONG-TERM BANK LOANS AND NOTES PAYABLE
As of December 31, 2001 and 2002, the consolidated long-term debt and interest
rates, including the effects of derivative financial instruments negotiated to
exchange interest rates as well as interest rates and currencies, is
summarized as follows (note 12A and B):
Weighted- Determination of
Original average weighted-average
2001 rate interest rate rate
-------------- --------- ------------- --------------------
Bank loans
Syndicated loans, 2002 to 2005..................Ps 14,973.4 Floating 3.75% A LIBOR + 103 bps
Bank loans, 2002 to 2006........................ 9,259.0 Floating 3.54% LIBOR + 87 bps
Bank loans, 2002 to 2005........................ 298.7 Fixed 7.30% A -
--------------
24,531.1
Notes payable
Euro medium-term notes, 2002 to 2009............. 11,611.5 B Fixed 7.30% -
Medium-term notes, 2002 to 2008.................. 9,058.6 B Floating 3.65% A LIBOR + 204 bps
Medium-term notes, 2002 to 2008.................. 3,495.0 B Fixed 1.81% A -
Other notes, 2002 to 2011........................ 647.1 Floating 2.04% LIBOR + 11 bps
Other notes, 2002 to 2011........................ 604.3 Fixed 8.56% -
--------------
25,416.5
--------------
49,947.6
Current maturities............................ (6,455.6)
--------------
Ps 43,492.0
==============
F-19
Weighted- Determination of
Original average weighted-average
2001 rate interest rate rate
-------------- --------- ------------- --------------------
Bank loans
Syndicated loans, 2003 to 2007................... Ps 9,207.6 Floating 2.31% A LIBOR + 86 bps
Syndicated loans, 2003 to 2005................... 8,304.0 Fixed 4.13% -
Bank loans, 2003 to 2007......................... 7,919.0 Floating 2.59% A LIBOR + 120 bps
Bank loans, 2003 to 2009......................... 261.5 Fixed 6.50% -
---------------
25,692.1
Notes payable
Euro medium-term notes, 2003 to 2009.......... 7,535.8 B Fixed 10.61% -
Medium-term notes, 2003 to 2009.................. 7,424.9 B Floating 2.19% LIBOR + 80 bps
Medium-term notes, 2003 to 2008.................. 10,489.5 B Fixed 4.00% -
Other notes, 2003 to 2006........................ 52.8 Floating 2.45% LIBOR + 96 bps
Other notes, 2003 to 2009........................ 959.1 Fixed 4.20% -
---------------
26,462.1
---------------
52,154.2
Current maturities............................ (6,753.2)
---------------
Ps 45,401.0
===============
In April 2002, the Company completed a tender offer for the early redemption
of the Company's 12.7% U.S.$300 million notes, maturing in 2006, pursuant to
which approximately U.S.$208.4 million principal amount was redeemed. As of
December 31, 2002, the outstanding balance of these notes is U.S.$91.6
million. In 2002, related to the early redemption, an expense of approximately
U.S.$54 million (Ps560.5) was recognized in other expenses, net.
As of December 31, 2001 and 2002, consolidated long-term debt by currency,
including the CCS effects, is summarized as follows (note 12B):
2001 2002
---------------- ----------------
Dollars..................................... Ps 31,701.8 34,562.4
Euros....................................... 3,479.8 6,580.1
Japanese Yen................................ 7,547.9 2,387.4
Mexican Pesos............................... - 1,499.9
Egyptian Pounds............................. 680.7 367.9
Other currencies............................ 81.8 3.3
---------------- ----------------
Ps 43,492.0 45,401.0
================ ================
As of December 31, 2001 and 2002, the Yen to Dollar exchange rates were 131.57
and 118.80, respectively, and the Euro to Dollar exchange rates were 1.135 and
0.952, respectively.
The maturities of long-term debt as of December 31, 2002 are as follows:
Consolidated
----------------
2004................................................ Ps 19,244.4
2005................................................ 6,408.5
2006................................................ 6,272.5
2007................................................ 2,485.5
2008 and thereafter ................................ 10,990.1
----------------
Ps 45,401.0
----------------
As of December 31, 2002, the Company and its subsidiaries have the following
lines of credit, both committed and subject to the banks' availability, at
annual interest rates ranging from 1.45% to 15.6%, depending on the negotiated
currency:
F-20
Line of Credit Available
---------------- -----------------
European commercial paper (U.S.$600 million)............................... Ps 6,228.0 5,013.5
U.S. commercial paper (U.S.$275 million)................................... 2,854.5 934.2
Mexican commercial paper (Ps2,500 million)................................. 2,500.0 650.0
Syndicated loan (U.S.$400 million)......................................... 4,152.0 -
Promissory notes (Ps5,000 million)......................................... 5,000.0 3,346.0
Lines of credit of foreign subsidiaries.................................... 4,407.6 2,102.3
Other lines of credit from Mexican banks................................... 830.4 -
Other lines of credit from foreign banks................................... 4,463.4 721.4
---------------- -----------------
Ps 30,435.9 12,767.4
================ =================
In the consolidated balance sheet at December 31, 2001 and 2002, there were
short-term debt transactions amounting to U.S.$546 million (Ps5,465.4) and
U.S.$450 million (Ps4,671.0), classified as long-term debt due to the
Company's ability and the intention to refinance such indebtedness with the
available amounts of the committed long-term lines of credit.
As of December 31, 2001 and 2002, in order to: i) hedge contractual cash flows
of certain financial debt with floating rates or exchange floating for fixed
interest rate of a portion of debt (see note 12A), and ii) reduce the
financial cost of debt originally contracted in dollars or pesos (see note
12B), the Company has negotiated derivative financial instruments related to
long-term debt, which are described below:
A) Interest Rate Swap Contracts.
The information of interest rate swaps related to long-term financial debt is
summarized as follows:
(U.S. dollars millions)
Effective
Notional Debt CEMEX CEMEX interest Estimated
Related debt amounts currency Maturity date receives* pays rate fair value
- ---------------------------------------------------------------------------------------------------------------------------
Interest rate swaps in 2001
Medium-term notes.............. 711 Dollar Mar 06 - Mar 08 7.80% L + 249 bps 4.18% U.S.$ 5.7
Bank loans...................... 850 Dollar Oct 2002 L + 33.5 bps 2.71% 4.52% (1.2)
Syndicated loans................ 722 Euro Dec 2004 E + 77 bps L + 24 bps 2.06% (0.1)
----------- ------------
2,283 U.S.$ 4.4
=========== ===========
Interest rate swaps in 2002
Bank loans...................... 300 Dollar Jul 2007 LIBOR 4.15% 5.53% U.S.$(20.1)
Syndicated loans................ 500 Dollar Aug 2007 LIBOR 4.07% 4.07% (28.0)
------------ ------------
800 U.S.$(48.1)
============ ============
* EURIBOR ("E") represents the Euro Interbank Offering Rate. LIBOR ("L")
represents the London Interbank Offering Rate. Basis points ("bps") are
decimals of interest rate, i.e., 1% = 100 basis points.
Periodic cash flows generated by these instruments are recorded in interest
expense, as part of the effective interest rate of the related debt. As of
December 31, 2001, the estimated fair value gain of the interest rate swaps
was not recognized for accounting purposes given their hedge characteristics
(see note 2N), except for a portion of the estimated fair value loss of the
swap related to the Euro, given that the line of credit in Euros equivalent to
U.S.$722 million was not entirely withdrawn. As of December 31, 2002, the
estimated fair value of the interest rate swaps to exchange floating for fixed
rates, designated as accounting hedges to the contractual cash flows of the
related debt (interest payments), had an approximate loss of U.S.$48.1 million
(Ps499.3) that was recognized in other long-term accounts payables against
stockholders' equity, and will be reversed through the income statement as the
financial expense of the related financing debt is accrued. During 2001 and
2002, in agreement with the financial counterparties, the Company settled the
swap contracts it had outstanding at the end of the prior year, realizing
approximate gains of U.S.$20.5 million (Ps212.8) in 2001 and U.S.$14.5 million
(Ps150.5) in 2002, equivalent to the estimated fair value as of the
liquidation date, and which were recorded in the Comprehensive Financing
Result.
As of December 31, 2001 and 2002, the Company held Forward Rate Agreement
contracts ("FRAs") for a notional amount of U.S.$800 million and U.S.$650
million, respectively, with maturities on different dates until June 2003,
negotiated to fix the interest rate of debt issuances that are expected to be
negotiated in the short-term. Likewise, there are floor and cap option
contracts for a notional amount of U.S.$711 million in both years, with
maturity in March
F-21
2008, structured as part of an interest rate swap for the same notional amount
that was settled during 2002. The changes in the estimated fair value of these
contracts represented losses of approximately U.S.$68.8 million (Ps688.7) in
2001 and U.S.$88.9 million (Ps922.8) in 2002, and were recognized in the
balance sheet against the Comprehensive Financing Result, except for a loss in
2002 of approximately U.S.$42.4 million (Ps440.1), which was recognized in
stockholders' equity given that it corresponds to the change in valuation
after these contracts were designated as accounting hedge of forecasted cash
flows (interest payments) related to new debt issuances. This amount will be
recognized in the income statement as the effects of the related forecasted
debt have an impact on the financial expense through the accrued interest or
immediately when there is evidence that the new debt will not be contracted.
B) Cross Currency Swap Contracts.
As of December 31, 2001 and 2002, there are Cross Currency Swaps ("CCS"),
through which the Company exchanges the originally contracted interest rates
and currencies on notional amounts of related long-term debt. During the life
of the contracts, the cash flows originated by the exchange of interest rates
under the CCS, match, in interest payment dates and conditions, those of the
underlying debt. If there is no early settlement, at maturity of the contracts
and the underlying debt, the Company and the counterparty will exchange
notional amounts, so the Company will receive the cash flow in the currency of
the underlying debt necessary to cover its primary obligation, and will pay
the notional amount in the exchanged currency. As a result, the original
financial risk profile related to interest rates and foreign exchange
variations of the underlying debt has been effectively exchanged. The CCS
information is as follows:
Currencies Interest rates
------------------------------------------------------------
(Amounts in millions) Effective
Notional Amount in CEMEX CEMEX interest Estimated
Related debt Maturity date Amount new currency Receives Pays rate fair value
- -------------------------------- --------------- ----------- ------------- ------------ ----------- --------- -----------
CCS in 2001
Mexican peso to dollar
Medium-term notes................ Nov 04 - Nov 06 Ps1,800 U.S.$194 12.20% L+63 bps 1.73% U.S.$ 13.7
Mexican peso to yen
Medium-term notes................ Jan 05 - Jan 06 Ps3,004 Yen 34,739 13.32% 2.65% 0.52% 83.7
Dollar to yen
Euro medium-term notes........... Jun 03 - Jul 03 U.S.$600 Yen 64,468 7.77% 3.18% 3.98% 145.5
-----------
U.S.$242.9
===========
CCS in 2002
Mexican peso to dollar
Medium-term notes................ Nov 04 - Dec 08 Ps2,465 U.S.$230 TIIE+54bps L+101 bps 2.86% U.S.$ 16.0
Mexican peso to dollar
Medium-term notes................ Apr 05 - Apr 07 Ps4,225 U.S.$377 10.93% L+26 bps 1.34% 51.8
Mexican peso to yen
Medium-term notes................ Jun 05 - Jan 06 Ps3,058 Yen 27,308 11.76% 2.55% 3.78% 83.4
Dollar to yen
Euro medium-term notes........... Jul 2003 U.S.$500 Yen 51,442 8.75% 3.14% 3.14% 93.7
-----------
U.S.$244.9
===========
The periodic cash flows on these instruments arising from the exchange of
interest rates, as determined over the new currency amounts, are recorded in
interest expense as part of the effective interest rate of the related debt.
The CCS have not been designated as accounting hedges; therefore, the Company
recognizes the estimated fair values of the CCS as assets or liabilities in
the balance sheet, and the changes in such estimated fair values through the
income statement. All financial assets and liabilities with the same maturity
and that are intended to be settled simultaneously have been offset for
presentation purposes in order to reflect the cash flows that the Company
expects to receive or pay upon settlement of the financial instruments.
As of December 31, 2001, in respect of the estimated fair value recognition of
the CCS, the Company recorded a net asset of U.S.$242.9 million (Ps2,431.4)
against the Comprehensive Financing Result, of which a gain of approximately
U.S.$175.9 million (Ps1,760.7) directly related to variations in exchange
rates between the inception of the CCS and the balance sheet date was offset
for presentation purposes as part of the underlying debt carrying amount and a
gain of approximately U.S.$14.8 million (Ps148.1) related to periodic cash
flow exchanges (interest payments) was recognized
F-22
as an adjustment of the related financing interest payable. The remaining net
asset of U.S.$52.2 million (Ps522.5) was recognized in the consolidated
balance sheet within other long-term receivables.
As of December 31, 2002, related to the estimated fair value of the CCS, the
Company recognized a net asset of U.S.$244.9 million (Ps2,542.1), of which
U.S.$194.2 million (Ps2,015.8) relates to a prepayment made to a yen
obligation and is presented decreasing the carrying amount of the related
debt, while U.S.$50.7 million (Ps526.3), which represents the CCS' estimated
fair value before prepayment effects, includes a loss of approximately
U.S.$17.1 million (Ps177.5), which is directly related to variations in
exchange rates between the inception of the CCS and the balance sheet date,
and was offset for presentation purposes as part of the related debt carrying
amount, and a gain of approximately U.S.$25.4 million (Ps263.6), identified
with the periodic cash flows for the interest rates swap, was recognized as an
adjustment of the related financing interest payable. The remaining net asset
of U.S.$42.4 million (Ps440.1) was recognized within other short and long-term
receivables for U.S.$12.1 million (Ps125.6) and U.S.$30.3 million (Ps314.5),
respectively. For the years ended December 31, 2001 and 2002, the changes in
the CCS' estimated fair value, excluding prepayment effects in 2002, resulted
in a gain of approximately U.S.$191.6 million (Ps1,917.9) and a loss of
approximately U.S.$192.2 million (Ps1,995.0), respectively, which were
recognized within the Comprehensive Financing Result.
As of December 31, 2001 and 2002, the effect of having made the accounting
assets and liabilities offset, mentioned above, is that the book value of the
financial indebtedness directly related to the CCS is presented as if it had
been effectively negotiated in the exchanged currencies instead of in the
originally negotiated currencies. Assuming the early liquidation of the CCS,
the financial liabilities and related financial expense in respect of the
underlying financial indebtedness, would be established beginning as of the
settlement, in the rates and currencies originally contracted.
Additionally, as of December 31, 2001 and 2002, there are other currency
instruments with notional amounts of U.S.$100 million and U.S.$104.5 million,
respectively, maturing in July and August 2003, related to financial debt
expected to be negotiated in the near future. These contracts had an estimated
fair value gain of U.S.$8.9 million (Ps89.1) in 2001 and a loss of U.S.$6.8
million (Ps70.6) in 2002, recognized within the Comprehensive Financing
Result.
The estimated fair values of derivative instruments used for the exchange of
interest rates and/or currencies fluctuate over time and will be determined by
future interest rates and currency prices. These values should be viewed in
relation to the fair values of the underlying transactions and as part of the
overall Company's exposure to fluctuations in interest rates and foreign
exchange rates. The notional amounts of derivative instruments do not
necessarily represent amounts exchanged by the parties and consequently, there
is no direct measure of the Company's exposure to the use of these
derivatives. The amounts exchanged in cash are determined based on the basis
of the notional amounts and other terms included in the derivative financial
instruments.
C) Guaranteed Debt.
As of December 31, 2001 and 2002, CEMEX Mexico and ETM jointly, fully and
unconditionally guarantee indebtedness of the Company for an aggregate amount
of U.S.$2,196 million and U.S.$2,339 million, respectively. The combined
summarized financial information of these guarantors as of December 31, 2001
and 2002 is as follows:
2001 2002
---------------- -----------------
Assets...................................... Ps 120,912.8 114,023.5
Liabilities................................. 101,124.6 54,378.2
Stockholders' equity........................ 19,788.2 59,645.3
---------------- -----------------
Net sales................................... Ps 22,604.3 21,753.3
Operating income............................ 1,616.6 3,405.4
Net income.................................. 10,357.6 434.2
---------------- -----------------
Certain debt contracts guaranteed by the Company and/or some of its
subsidiaries, contain restrictive covenants limiting sale of assets,
maintenance of controlling interest on certain subsidiaries, limiting liens,
and requiring compliance with financial ratios. The Company obtains waivers
prior to the occurrence of events of default.
F-23
13. PENSION PLANS, SENIORITY PREMIUM AND OTHER POSTRETIREMENT BENEFITS
The net periodic cost of pension plans, seniority premium and other
postretirement benefits, for the years ended December 31, 2000, 2001 and 2002
(see note 2J), are as follows:
Components of net periodic cost: 2000 2001 2002
-------------- ------------ -------------
Service cost...................................................... Ps 230.2 325.0 274.4
Interest cost..................................................... 162.6 289.3 282.7
Actuarial return on plan assets................................... (109.2) (348.0) (362.0)
Amortization of prior service cost, changes in assumptions and 0 5 4
experience adjustments.......................................... 29. 49. 55.
Results from extinguishment obligations........................... - - (44.1)
-------------- ------------ -------------
Ps 312.6 315.8 206.4
-------------- ------------ -------------
The following table presents the reconciliation of the actuarial value of
postretirement benefit obligations and the funded status (see note 2J), as of
December 31, 2001 and 2002:
2001 2002
------------- -------------
Change in benefit obligation:
Projected benefit obligation ("PBO") at beginning of year......................... Ps 4,840.7 5,219.8
Service cost...................................................................... 325.0 274.5
Interest cost..................................................................... 289.3 282.7
Actuarial result.................................................................. 15.5 195.9
Acquisitions...................................................................... - 397.5
Initial valuation of other postretirement benefits................................ 155.6 10.8
Foreign exchange fluctuations and inflation adjustments........................... (15.3) 63.0
Extinguishment of obligations..................................................... - (159.4)
Benefits paid..................................................................... (391.0) (326.7)
------------- -------------
Projected benefit obligation ("PBO") at end of year............................... 5,219.8 5,958.1
------------- -------------
--
Change in plan assets:
Fair value of plan assets at beginning of year.................................... 4,008.2 4,770.9
Real return on plan assets........................................................ 389.7 (281.1)
Acquisitions...................................................................... - 292.8
Foreign exchange fluctuations and inflation adjustments........................... (65.6) 68.4
Employer contributions............................................................ 636.5 101.4
Extinguishment of obligations..................................................... - (177.7)
Benefits paid from the funds...................................................... (197.9) (192.1)
------------- -------------
Fair value of plan assets at end of year.......................................... 4,770.9 4,582.6
------------- -------------
Amounts recognized in the balance sheets consist of:
Funded status..................................................................... 448.9 1,375.5
Unrecognized prior service cost................................................... (858.1) (782.7)
Unrecognized net actuarial results................................................ (663.5) (1,578.7)
------------- -------------
Accrued benefit liability (prepayment).......................................... (1,072.7) (985.9)
Additional minimum liability.................................................... 349.2 600.0
------------- -------------
Net liability (prepayment) recognized in the balance sheet.................. Ps (723.5) (385.9)
============= =============
As of December 31, 2001 and 2002, the actual benefit obligation ("ABO"),
equivalent to the PBO not considering salaries increases, amounted to
Ps4,442.6 and Ps4,603.7, respectively, of which the vested portion was
Ps1,101.3 as of December 31, 2001 and Ps1,168.6 in 2002.
The Company recognizes an additional minimum liability and an intangible asset
or charge to stockholders' equity in those individual cases when the net
projected liability (funded status less amortizing items) exceeds the net
actual liability (ABO less plan assets). As of December 31, 2001 and 2002, the
Company recognized a minimum liability and an intangible asset of Ps349.2 and
Ps600.0, respectively.
F-24
As of December 31, 2001 and 2002, the net periodic cost and the actuarial
value of postretirement benefits, include the cost and obligations of
postretirement benefits other than pensions, such as seniority premiums
granted by law, as well as health care and life insurance benefits that the
Company has granted to retirees. For the years ended December 31, 2001 and
2002, the net periodic cost includes Ps49.1 and Ps75.3, representing the
approximate cost corresponding to postretirement benefits other than pensions,
respectively.
Prior service cost and net actuarial results are amortized over the estimated
service life of the employees under plan benefits. The estimated service life
for pension plans is 18 years and for other postretirement benefits is 13
years.
As of December 31, 2001 and 2002, the plan assets are mainly composed of fixed
return instruments and stock of companies traded in formal stock exchanges.
The Company applies real rates (nominal rates discounted for inflation) in the
actuarial assumptions used to determine postretirement benefit obligations.
The most significant assumptions used during the last three years in the
determination of net periodic cost were the following:
2000 2001 2002
------------ ------------- -------------
Range of discount rates used to reflect the obligations' present value 3.5 % - 7.8% 3.5 % - 7.1% 3.0% - 7.0%
Weighted average rate of return on plan assets..................... 8% 8% 7.8%
------------ ------------- -------------
During 2002, the subsidiary of CEMEX in Spain, in agreement with its
employees, changed the structure of most of its defined benefit plans,
replacing them with defined contribution structures. In connection to this
change, the subsidiary contributed, on behalf of its employees covered by the
new plans, assets for an amount equivalent to the obligation value as of the
date of the exchange. These assets were already restricted within the previous
plans. As a result of writing off the projected benefit obligations and the
non-amortized items, net of the assets contributed, as of December 31, 2002,
for the change in the plans' structure, no significant effect was reflected in
the income statement.
14. STOCKHOLDERS' EQUITY
A) CAPITAL STOCK
The authorized capital stock of the Company as of December 31, 2002 is as
follows:
Series A (1) Series B (2)
----------------- -----------------
Subscribed and paid shares................................................ 3,331,300,154 1,665,650,077
Treasury shares (3)....................................................... 166,400,476 83,200,238
Unissued shares authorized for Executive Stock Option Plans............... 116,526,096 58,263,048
----------------- -----------------
3,614,226,726 1,807,113,363
----------------- -----------------
(1) Series "A" or Mexican shares must represent at least 64% of capital
stock.
(2) Series "B" or free subscription shares must represent at most
36% of capital stock.
(3) Includes the shares acquired under the share repurchase program, and
those shares authorized by the Ordinary Stockholders' Meeting of April
25, 2002, which have not been subscribed.
Of the total number of shares, 3,267,000,000 correspond to the fixed portion
and 2,154,340,089 correspond to the variable portion.
On April 25, 2002, the Annual Stockholders' Meeting approved: (i) a reserve
for share repurchase of up to Ps5,000.0 (nominal amount), under which, as of
December 31, 2002, shares equivalent to 7,609,200 CPOs have been repurchased,
representing a reduction in the repurchase reserve of Ps362.2; (ii) an
increase in the variable capital stock through the capitalization of retained
earnings for up to Ps3,213.1 (nominal amount), by the issuance of shares, as a
stock dividend, equivalent to up to 140,000,000 CPOs, at a subscription value
of Ps46.336 (nominal amount) per CPO, or instead, stockholders could have
chosen to receive Ps2.00 (nominal amount) in cash for each CPO. As a result,
shares equivalent to 64,408,962 CPOs were subscribed and paid, representing an
increase in common stock of Ps2.2 and in additional paid-in capital of
Ps3,082.2, while a cash payment of approximately Ps232.5 was made during 2002;
and (iii) the cancellation of 169,206,112 Series "A" shares and 84,603,056
Series "B" shares that were held in the Company's treasury.
In September 2000, the Company established a share repurchase program through
the Mexican Stock Exchange ("MSE"), approved by its board of directors, for up
to U.S.$500 million. This program was effective from October 2000 to December
F-25
2001. During 2000 and 2001, under this program, a total of 3,086,000 CPOs and
4,978,000 CPOs, respectively, were acquired, resulting in a common stock
reduction of Ps0.1 in 2000 and Ps0.2 in 2001, and in the repurchase reserve of
Ps130.9 in 2000 and Ps222.1 in 2001. On April 26, 2001, at the Annual
Stockholders' Meeting, shares equivalent to 3,086,000 CPOs were cancelled. The
4,978,000 remaining CPOs were acquired in 2001 after the meeting.
B) RETAINED EARNINGS
Retained earnings as of December 31, 2002, include Ps69,885.4 of earnings
generated by subsidiaries and affiliated companies that are not available to
be paid as dividends by CEMEX until these entities distribute such amounts to
CEMEX. Additionally, retained earnings include a share repurchase reserve in
the amount of Ps5,137.5. Net income for the year is subject to a 5% allocation
toward a legal reserve until such reserve equals one fifth (20%) of the common
stock. As of December 31, 2002, the legal reserve amounted to Ps1,249.6.
Earnings distributed as dividends in excess of tax earnings will be subject to
tax payment at a 34% rate, in which case, only 66% of retained earnings may be
distributed to the shareholders.
C) EFFECTS OF INFLATION
The effects of inflation on majority interest stockholders' equity as of
December 31, 2002 are as follows:
Historical Inflation Total
cost adjustment
-------------- ---------------- ---------------
Common stock............................................... Ps 55.5 3,305.8 3,361.3
Additional paid-in capital................................. 16,983.8 13,913.6 30,897.4
Deficit in equity restatement.............................. - (61,861.3) (61,861.3)
Cumulative initial deferred income tax effects............. (4,697.9) (498.9) (5,196.8)
Retained earnings.......................................... 50,097.8 36,927.2 87,025.0
Net income................................................. Ps 5,339.9 60.5 5,400.4
-============= ================ ===============
D) FOREIGN CURRENCY TRANSLATION
The foreign currency translation results recorded in stockholders' equity for
the years ended December 31, are summarized as follows:
2000 2001 2002
-------------- ---------------- ---------------
--
Foreign currency translation adjustment.................... Ps (872.4) (2,438.5) 6,370.2
Foreign exchange gain (loss) (1) .......................... (181.8) 751.3 (2,576.7)
-------------- ---------------- ---------------
Ps (1,054.2) (1,687.2) 3,793.5
============== ================ ===============
(1) Foreign exchange results from the financing identified with the
acquisitions of foreign subsidiaries.
The foreign currency translation adjustment includes foreign exchange results
of financing related to the acquisition of foreign subsidiaries made by the
Company's subsidiary in Spain of expenses of Ps659.9 in 2000 and Ps44.8 in
2001 and income of Ps151.4 in 2002.
F-26
E) PREFERRED STOCK
In February 2002, the Company renegotiated the preferred stock issued in
November 2000 by a Dutch subsidiary for U.S.$1,500 million with an original
maturity in May 2002; as a result, preferred stock in the amount of U.S.$250
million was redeemed and the maturity of the balance outstanding as of
December 31, 2002 of U.S.$650 million (Ps6,747) was extended, of which
U.S.$195 million will mature in February 2004 and U.S.$455 million will mature
in August 2004. The Company also negotiated the possibility of increasing the
program up to U.S.$1,200 million. During 2001, the Company redeemed a portion
of the then outstanding preferred stock in the amount of U.S.$600 million, and
at year-end 2001, the balance outstanding was U.S.$900 million (Ps9,834.2).
The preferred stock, which is mandatorily redeemable upon maturity, grants its
holders 10% of the subsidiary's voting rights, as well as the right to receive
a guaranteed variable preferred dividend. Holders of the preferred stock have
the option, in certain circumstances, to subscribe for additional preferred
stock or common shares for up to 51% of the subsidiary's voting rights. This
transaction is included as minority interest. Preferred dividends declared
during 2000, 2001 and 2002 of approximately U.S.$17 million (Ps174.6), U.S.$76
million (Ps778.5) and U.S.$23.2 million (Ps235.0), respectively, were
recognized as part of minority interest in the consolidated income statements.
Related to the capital securities issued in 1998 by a subsidiary of CEMEX in
Spain for U.S.$250 million with an annual dividend rate of 9.66%, in April
2002, through a tender offer, U.S.$184 million of capital securities were
redeemed. The amount paid to the holders in excess of the nominal amount of
the capital securities pursuant the early redemption of approximately U.S.$20
million (Ps207.6) was recorded against stockholders' equity. The balance
outstanding at December 31, 2001 and 2002 was U.S.$250 million (Ps2,502.5) and
U.S.$66 million (Ps685.1), respectively. The Company has an option to
repurchase the remaining securities on November 15, 2004, or on any subsequent
dividend payment date. Additionally, the holders have the right to sell them
to the Company on May 15, 2005. This transaction is recorded as minority
interest. Preferred dividends declared on the capital securities during 2000,
2001 and 2002 of approximately U.S.$24.2 million (Ps253.1), U.S.$24.2 million
(Ps245.6) and U.S.$11.9 million (Ps120.0), respectively, were recognized as
part of the minority interest in the consolidated income statements.
F) OTHER EQUITY TRANSACTIONS
In December 2001, the Company concluded a simultaneous and voluntary public
purchase and sale offer for its warrants and an exchange offer for its ADWs,
outstanding as of the offer date, in exchange for new warrants and new ADWs
maturing in December 2004, under a one for one exchange ratio. Of the total
105 million warrants and ADWs, originally issued in December 1999 by means of
a public offer in the MSE and the NYSE for a term of three years maturing in
December 2002, 103,790,945, representing 98.85% of the total warrants under
this program, were presented and exchanged for new warrants and ADWs. The new
warrants and new ADWs trade on the MSE and the NYSE, respectively, meeting the
distribution requirements of both exchanges, while the old warrants and old
ADWs that were not exchanged expired in December 2002. During 2001, except for
the normal fees required to carry out the previously mentioned public offer,
the Company did not incur any gain or loss on this transaction. The warrants
permit the holders to benefit from the future increases in the market price of
the Company's CPO above the strike price, which originally was 6.20 dollars
per warrant, within certain limits and subject to technical adjustments. The
benefit, should any exist, will be paid in CPOs of the Company. The warrants
were subscribed as American Depositary Warrants ("ADWs") listed on the NYSE;
each ADW is equivalent to 5 warrants. All the CPOs and ADSs required to cover
the warrants future exercises, for the old program and the new warrants, are
available through equity forward contracts with financial institutions (see
note 16A).
As of December 31, 2001 and 2002, there is a transaction totaling U.S.$96.3
million (Ps964.0) and U.S.$90.6 million (Ps940.3), respectively, through
which, in December 1995, the Company transferred financial assets to a trust,
while simultaneously investors contributed U.S.$123.5 million in exchange for
notes representing a beneficial interest in the trust. The Company has the
option to reacquire the related assets at different dates until maturity in
2007. This transaction is included as minority interest. The Company's cost of
retaining its option to reacquire the related assets during 2000, 2001 and
2002 was approximately U.S.$14.4 million (Ps149.7), U.S.$13.8 million
(Ps138.1) and U.S.$13.2 million (Ps136.8), respectively, and was recorded as
part of the financial expense in the consolidated income statements.
F-27
G) COMPREHENSIVE NET INCOME (LOSS)
The main items included in the comprehensive net income (loss) for the years
ended December 31, 2000, 2001 and 2002 are as follows:
2000 2001 2002
-------------- ------------- -------------
Majority interest net income....................................... Ps 10,389.1 11,789.8 5,400.4
Deficit in equity restatement:
Effects from holding non-monetary assets.......................... (2,958.5) (2,629.4) (9,680.7)
Foreign currency translation adjustment........................... (872.4) (2,438.5) 6,370.2
Capitalized foreign exchange result (note 14D).................... (181.8) 751.3 (2,576.7)
Additional minimum liability...................................... (208.4) 208.4 -
Valuation of investments available for sale (note 8B)............. 215.2 (794.1) -
Hedge derivative instruments (notes 11,12 and 16)................. 92.3 - (2,171.0)
Deferred income tax of the year charged directly to
stockholders'equity (note 17)................................... 1,016.9 439.9 1,016.7
Equity instruments' early redemption results...................... - - (207.6)
Inflation effect on equity 1...................................... (6.4) 103.8 -
-------------- ------------- -------------
Deficit in equity restatement................................... (2,903.1) (4,359.1) (7,249.1)
Cumulative initial deferred income tax effects..................... (5,196.8) - -
-------------- ------------- -------------
Other comprehensive income (loss)............................... (8,099.9) (4,359.1) (7,249.1)
-------------- ------------- -------------
Majority comprehensive net income (loss)........................ 2,289.2 7,430.7 (1,848.7)
Minority interest............................................... 810.5 1,534.7 384.7
-------------- ------------- -------------
Total comprehensive net income (loss)........................... Ps 3,099.7 8,965.4 (1,464.0)
============== -============ =============
1. Corresponds to the adjustment resulting from the use of the weighted
average index for the restatement of stockholders' equity and for the use
of the index of inflation in Mexico to restate common stock and additional
paid-in capital (see note 2B).
15. EXCECUTIVE STOCK OPTION PROGRAMS
The information relating to stock option programs, presented in terms of
equivalent CPOs and considering the effect of the options' exchange program
described below, are summarized as follows:
Fixed program Special program Variable Voluntary
Options (A) (B) program (C) programs (D)
- ---------------------------------------- ------------------ ---------------- ----------------- ---------------
As of December 31, 2000............... 56,468,650 - - 22,077,878
Changes in 2001:
Granted............................... 13,040,992 - 88,937,805 -
Redeemed.............................. (57,448,219) - - -
Canceled.............................. (237,538) - - -
Exercised............................. (3,128,489) - - (1,861,918)
------------------ ---------------- ----------------- ---------------
As of December 31, 2001............... 8,695,396 - 88,937,805 20,215,960
Changes in 2002:
Granted............................... - 4,963,775 16,949,800 2,120,395
Exercised............................. (2,119,871) - (7,294,781) (6,287,050)
------------------ ---------------- ----------------- ---------------
As of December 31, 2002............... 6,575,525 4,963,775 98,592,824 16,049,305
================== ================ ================= ===============
Exercise prices in 2002:
Exercise price in pesos *............. 28.86 - - -
Exercise price in dollars *........... - 5.01 5.04 4.78
================== ================ ================= ===============
At December 31, 2002:
Exercise price in pesos *............. 30.19 - - -
Exercise price in dollars *........... - 5.01 5.14 4.65
Exercise price........................ Fixed Fixed Floating Floating
Remaining average life................ 4.2 years 9.0 years 9.1 years 1.8 years
================== ================ ================= ===============
* Weighted average exercise price per CPO.
A) Fixed program
F-28
Through October 31, 2001, the Company had granted to its executives a stock
option program ("fixed program") for the acquisition of the Company's common
stock in the form of CPOs. This program was replaced in November 2001 through
a voluntary exchange program (see "variable program"). In 1995, the Company
was authorized to grant to eligible executives, stock option rights, for a 10
year tenure after issuance, to subscribe for up to 72,100,000 CPOs, which
would be issued through the exercise of the options, increasing the balance of
common stock, additional paid-in capital and the outstanding number of shares.
The exercise price of the options granted, established in Mexican pesos and
fixed throughout the life of the program, was equivalent to the market price
of the CPO at the grant date. Exercise prices reflect technical antidilution
adjustments for stock dividends. The executives' option rights may be
exercised up to 25% annually during the first four years after having been
granted. The CPOs issued upon the exercise of options were paid at their
assigned exercise prices, generating additional paid-in capital of Ps111.0 and
Ps72.9 during 2001 and 2002, respectively.
B) Special program
During 2002, as part of the agreements resulting from the acquisition of
CEMEX, Inc. (formerly Southdown), a stock option program to purchase CEMEX
ADSs ("special program"), was established for CEMEX, Inc.'s executives. The
options granted have a fixed exercise price in dollars, equivalent to the
market price of the ADS as of the grant date, and have a 10 year tenure. The
executives' option rights may be exercised up to 25% annually during the first
four years after having been granted. The options exercises are hedged with
shares currently owned by subsidiaries, potentially increasing the
stockholders' equity balance and the outstanding number of shares.
C) Variable program
In order to better align the executives' interests with those of the
shareholders, in November 2001, the Company implemented a voluntary options
exchange to establish a stock option program with exercise prices denominated
in U.S. dollars with annual increases during the option's life ("variable
program"), reflecting the funding cost in the market, and with a 10 year
tenure. The participating executives in the options exchange, representing
57,448,219 options, resigned their rights to subscribe and/or acquire shares
of the Company's common stock, by the issuance of new CPOs, in exchange for
cash equivalent to the intrinsic value of their options at the exchange date
and the issuance of new options, equivalent in number to the time value of
their redeemed options, determined by the appropriate valuation model for each
particular executive, which resulted in 2001 in the issuance of 88,937,805
options under the variable program. Except for the options issued through the
exchange, where 50% of the option's exercise rights were vested, with an
additional 25% annual vesting over the next two anniversaries, for subsequent
option grants, executives' option rights may be exercised up to 25% annually
during the first four years after having been granted. During 2001, by means
of the exchange program, a compensatory cost of approximately Ps659.9 was
recognized in other expenses, net.
D) Voluntary programs
During 1998 and 1999, the Company established voluntary stock option programs
("voluntary programs"), through which the executives elected to purchase
options covering a total of 36,468,375 CPOs (7,293,675 ADSs). These options
are exercisable quarterly over a 5-year period and have a predefined exercise
price which increases quarterly in dollars, taking into account the funding
cost in the market. For the sale of the options, the Company received a
premium equivalent to a percentage of the CPO price.
Likewise, during 2002, a voluntary stock option program was established,
through which the executives elect to purchase, on a monthly basis, new
options for up to a number equivalent to those exercised in the same period
within the variable program and that were originated by the exchange. During
2002, the Company sold 2,120,395 options and received a premium equivalent to
a percentage of the CPO price, which amounted to U.S.$1.5 million (Ps15.6).
The options under this program begin with the same characteristics, regarding
remaining tenure, as those exercised within the variable program and with an
exercise price equivalent to the price of the CPO on the issuance date of the
options.
E) Options hedging activities
The potential exercise of options under the variable and voluntary programs
require the Company to have availability of the CPOs or ADSs underlying the
options; therefore, the Company has negotiated equity forward contracts in its
own stock (see note 16A) in order to guarantee that shares would be available
at prices equivalent to those established in the options, without the
necessity of issuing new CPOs into the market; therefore, these programs do
not increase the number of shares outstanding and consequently do not result
in dilution in basic earnings per share.
Beginning in 2001, the Company recognizes the appreciation of the options
under the variable and voluntary programs, resulting from the difference
between the market price of the CPOs and the exercise prices established in
the options, as
F-29
a compensation cost in the income statement, which for the years ended
December 31, 2001 and 2002 was U.S.$14.7 million (Ps147.7) and U.S.$5.0
million (Ps51.9), respectively. Likewise, the Company recognizes through the
income statement, the changes in the estimated fair value of the equity
forward contracts designated as hedges of these plans (see note 16A), which
resulted in a gain of approximately U.S.$28.7 million (Ps287.3) and a loss of
approximately U.S.$47.1 million (Ps488.9) as of December 31, 2001 and 2002,
respectively.
16. DERIVATIVE FINANCIAL INSTRUMENTS
As of December 31, 2001 and 2002, the derivative financial instruments
negotiated by the Company, other than those related to financial debt (see
notes 11 and 12), are summarized as follows:
In millions of U.S. dollars 2001 2002
--------------------------------- -----------------------------------
Notional Estimated fair Notional amount Estimated fair
amount value value
------------ ---------------- --------------- ----------------
A) Equity forward contracts.................. 1,395.9 81.0 1,445.1 (90.6)
B) Foreign exchange instruments ............. 424.0 4.4 1,325.7 (201.4)
C) Derivatives on fuel oil................... 9.5 - - -
D) Derivatives related to energy projects.... 177.0 (4.6) 177.0 (0.5)
------------ ---------------- --------------- ----------------
Upon liquidation and at the Company's option, the equity forward contracts
provide for physical settlement or net cash settlement of the estimated fair
value, and the effects at settlement are recognized in the income statement or
as part of stockholders' equity, according to their designation and the
underlying instrument or program being hedged. At maturity, if these forward
contracts are not settled or replaced, or if the Company defaults on the
agreements established with the financial counterparties, such counterparties
may sell the shares underlying the contracts. If any such sale were to occur,
it may have an adverse effect on CEMEX and/or its subsidiaries' stock market
price, may reduce the amount of dividends and other distributions that the
Company would receive from its subsidiaries, and/or may create public minority
interests that may adversely affect the Company's ability to realize operating
efficiencies as a combined group.
A) As of December 31, 2001 and 2002, CEMEX had forward contracts for notional
amounts of U.S.$491.0 million and U.S.$461.1 million, respectively, with
an original maturity in December 2002 that was extended until December
2003, covering 21,000,000 ADSs (105,000,000 CPOs) in 2001 and 24,008,392
ADSs (120,041,960 CPOs) in 2002 as well as 33.8 million of CEMEX Spain's
shares in both years. These contracts were negotiated to hedge future
exercises under the 105 million warrants program, which maturity was
extended to December 2004 (see note 14F). The shares underlying these
forward contracts were sold by the Company during 1999 for approximately
U.S.$905.7 million, and simultaneously approximately U.S.$439.9 million
toward the forwards' final price was prepaid. Until December 2002, when
the contracts were renegotiated to extend their maturity, prepayments
toward the forwards final price of approximately U.S.$193.6 million were
made. In December 2002, in order to conclude the renegotiation, the
estimated fair value of the forwards was settled resulting in the
recognition in stockholders' equity of a loss of approximately U.S.$98.3
million (Ps1,020.3), arising from changes in the value of the underlying
shares. In the financial statements as of December 31, 2001 and 2002,
anticipated effect has been given to the liquidation of the forwards for
the portion corresponding to CEMEX Spain's shares, due to the prepayment
on the forwards and the withholding of all economic and voting rights over
such shares. All additional effects arising from these contracts will be
recognized at maturity as an adjustment to stockholders' equity. As of
December 31, 2001 and 2002, the estimated fair value of these contracts
was a gain of approximately U.S.$98.8 million and U.S.$69.1 million,
respectively. As of the same dates, considering the renegotiation
adjustments in 2002, prepayments of approximately U.S.$151.8 million
(Ps1,519.5) and U.S.$95.3 million (Ps989.2), respectively, have been made
and are included in other short-term accounts receivable (see note 5).
As of December 31, 2001 and 2002, there are forward contracts with
different maturities until October 2006, for notional amounts of
U.S.$408.3 million and U.S.$338.7 million, respectively, covering
15,986,689 ADSs in 2001 and 12,379,377 ADSs in 2002 negotiated to hedge
the future exercise of the options under the variable stock option
programs (see note 15). Starting in 2001 the estimated fair value of these
contracts is recognized in the balance sheet as assets or liabilities
against the income statement, in addition to the costs generated by the
option programs, which the forwards are hedging. As of December 31, 2001
and 2002, the estimated fair value of these contracts was a gain of
approximately U.S.$3.3 million (Ps33.1) and a loss of approximately
U.S.$32.8 million (Ps340.5), respectively.
As of December 31, 2001 and 2002, there are forward contracts with
different maturities until May 2003, for a notional amount of U.S.$101.8
million and U.S.$97.4 million, respectively, covering a total of 4,699,061
ADSs in 2001 and 3,626,243 ADSs in 2002 negotiated to hedge the future
exercise of the options granted under the voluntary stock option programs
(see note 15). Starting in 2001, the estimated fair value of these
contracts is recognized in the
F-30
balance sheet as assets or liabilities against the income statement, in
addition to the costs generated by the option programs. As of December 31,
2001 and 2002, the estimated fair value was a gain of approximately
U.S.$25.4 million (Ps254.2) and a loss of approximately U.S.$14.2 million
(Ps147.4), respectively.
As of December 31, 2002, there are forward contracts maturing in August
and September 2003, for a notional amount of U.S.$95.5 million covering
21,510,500 CPOs, negotiated to hedge the purchase of CAH shares through
the exchange for CEMEX CPOs that will be liquidated during 2003 (see note
8A). The effects to be generated upon settlement of the forward contracts
will be recognized as an adjustment to the purchase price for the CAH
shares. As of December 31, 2002, the estimated fair value of these
contracts, which is not periodically recorded, had an approximate loss of
U.S.$2.1 million (Ps21.8).
As of December 31, 2001 and 2002, there are forward contracts for notional
amounts of U.S.$394.8 million and U.S.$452.4 million, respectively, with
different maturities until February 2006, covering a total of 13,069,855
ADSs in 2001 and 15,316,818 ADSs in 2002. Based on the Company's intention
at maturity, which is to physically settle these contracts, the estimated
fair value of these contracts is not periodically recognized. The effects
of these contracts will be recognized at maturity as an adjustment to
stockholders' equity. As of December 31, 2001 and 2002, the estimated fair
value of these contracts reflected losses of approximately U.S.$46.5
million and U.S.$110.6 million, respectively. In addition, as of December
31, 2002, the Company had a third party equity forward contract for a
notional amount of U.S.$7.1 million, with an estimated fair value loss of
approximately U.S.$0.1 million (Ps1.1).
B) In order to protect itself from variations in foreign exchange rates, the
Company has entered into foreign exchange forward contracts for an
approximate amount of U.S.$424.0 million and U.S.$1,266.0 million as of
December 31, 2001 and 2002, respectively, with different maturities until
July 2006. These contracts have been designated as hedges of the Company's
net investment in foreign subsidiaries. The estimated fair value of these
instruments is recorded in stockholders' equity as part of the foreign
currency translation effect (see note 14D). In addition, during 2002, the
Company negotiated foreign exchange options for a notional amount of
U.S.$59.7 million with maturity in November 2004, and an estimated fair
value loss as of December 31, 2002 of approximately U.S.$44.4 million
(Ps460.9), which was recorded in the Comprehensive Financing Result.
C) As of December 31, 2001, there were fuel oil forward contracts for a
notional amount of U.S.$9.5 million (Ps98.6), with an estimated fair value
of U.S.$26 thousand (Ps0.3).
D) As of December 31, 2001 and 2002, the Company had an interest rate swap
maturing in May 2017, for a notional amount of U.S.$177 million in both
years, negotiated to exchange floating for fixed interest rates, in
connection with agreements entered into by the Company for the acquisition
of electric energy for a 20-year period starting in 2003 (see note 21F).
During the life of the derivative contract and over its notional amount,
the Company will pay LIBOR rates and will receive a 7.33% fixed rate until
February 2003 and a 7.53% fixed rate from March 2003 to May 2017. In
addition, during 2001 the Company sold a floor option for a notional
amount of U.S.$177 million, related to the interest rate swap contract,
pursuant to which, starting in 2003 and until 2017, the Company will pay
the difference between the 7.53% fixed rate and the LIBOR rates. Through
the sale of this option, the Company received a premium of approximately
U.S.$22 million (Ps220.2). As of December 31, 2001 and 2002, the premium
received and the combined estimated fair value of the swap and floor
contracts, amounting to approximate losses of U.S.$4.6 million and
U.S.$0.5 million, respectively, were recorded in the Comprehensive
Financing Result for each period. As of December 31, 2001 and 2002, for
purposes of the table above, the notional amount of both contracts is not
aggregated, considering that there is only one notional amount with
exposure to changes in interest rates and the effects of one instrument
are proportionally inverse to the changes in the other one.
The estimated fair values of derivative financial instruments fluctuate over
time, and are based on estimated settlement costs or quoted market prices.
These values should be viewed in relation to the fair values of the underlying
instruments or transactions, and as part of the Company's overall exposure to
fluctuations in foreign exchange rates, interest rates and prices of shares.
The notional amounts of derivative instruments do not necessarily represent
amounts exchanged by the parties and, therefore, are not a direct measure of
the exposure of the Company through its use of derivatives. The amounts
exchanged are determined on the basis of the notional amounts and other terms
included in the derivative instruments.
17. INCOME TAX (IT), BUSINESS ASSETS TAX (BAT), EMPLOYEES' STATUTORY PROFIT
SHARING (ESPS) AND DEFERRED INCOME TAXES
In accordance with the effective tax legislation in Mexico, corporations must
pay either income tax ("IT") or business assets tax ("BAT") depending on which
amount is greater for their operations in Mexico. Both taxes recognize the
F-31
effects of inflation, though in a manner different from Mexican GAAP. ESPS is
calculated on similar basis as IT, but without recognizing the effects of
inflation.
A) IT, BAT AND ESPS
The Company and its Mexican subsidiaries, for purposes of the Income Tax Law,
generate IT or BAT on a consolidated basis; therefore, the amounts of these
items included in the accompanying financial statements, with respect to the
Mexican subsidiaries, represent the consolidated result of these taxes. For
ESPS purposes, the amount presented is the sum of the individual results of
each company. Beginning in 1999, the determination of the consolidated IT for
the Mexican companies considers a maximum of 60% of the taxable income or loss
of each of the subsidiaries. In addition, commencing in 1999, the taxable
income of those subsidiaries that have tax loss carryforwards generated before
1999 have been included according to equity ownership at the end of the
period. Beginning in 2002, in the determination of consolidated IT, 60% of the
taxable result of the controlling entity should be considered, unless such
entity obtains taxable income, in which case 100% should be considered, until
the restated balance of the individual tax loss carryforwards before 2001 are
amortized. Beginning in 2002, a new IT law became effective in Mexico,
establishing that the IT rate will be decreased by 1% each year, beginning in
2003 until it reaches 32% in 2005.
The IT (expense) benefit, presented in the accompanying income statements, is
summarized as follows:
For the years ended December 31,
------------------------------------------------------
2000 2001 2002
---------------- --------------- ---------------
Current income tax...................................... Ps (1,063.3) (1,421.7) (962.7)
Deferred IT............................................. (601.3) (200.1) 393.5
Effects of inflation (note 2B).......................... 22.6 (48.0) -
---------------- --------------- ---------------
Ps (1,642.0) (1,669.8) (569.2)
================ =============== ===============
Total consolidated IT includes Ps1,238.2, Ps1,380.5 and Ps778.7 from foreign
subsidiaries, and Ps403.8, Ps289.3 and (Ps209.5) from Mexican subsidiaries,
for 2000, 2001 and 2002, respectively. In addition, the Company recognized a
consolidated tax benefit, without including deferred taxes, of Ps310.3 in
2000, Ps677.7 in 2001 and Ps931.7 in 2002.
For its operations in Mexico, the Company has accumulated IT loss
carryforwards which, restated for inflation, can be amortized against taxable
income in the succeeding ten years according to Income Tax Law. The Company
and its subsidiaries in Mexico must generate taxable income to preserve the
benefit of the tax loss carryforwards generated beginning in 1999.
The tax loss carryforwards at December 31, 2002 are as follows:
Amount of Year of
Year in which tax loss occurred carryforwards expiration
---------------- -----------------
1995.................................................................... Ps 1,754.4 2005
2000.................................................................... 623.9 2010
2001.................................................................... 4,110.8 2011
2002.................................................................... 3,260.0 2012
----------------
Ps 9,749.1
----------------
The BAT Law establishes a 1.8% tax levy on assets, restated for inflation in
the case of inventory and fixed assets, and deducting certain liabilities. BAT
levied in excess of IT for the period may be recovered, restated for
inflation, in any of the succeeding ten years, provided that the IT incurred
exceeds BAT in such period.The recoverable BAT as of December 31, 2002 is as
follows:
Amount of Year of
Year in which BAT exceeded IT carryforwards expiration
------------------ ----------------
1997.................................................................. Ps 160.5 2007
1999.................................................................. 57.9 2009
F-32
------------------
Ps 218.4
==================
B) DEFERRED IT AND ESPS (see note 2K)
The deferred income tax result in the income statement represents the
difference between the beginning of year balance and the year-end balance of
the deferred tax assets or liabilities, and is recognized in nominal pesos.
The tax effects of the main temporary differences that generate the
consolidated deferred tax assets and liabilities are presented below:
2001 2002
----------------- ----------------
Deferred tax assets:
Tax loss carryforwards and other tax credits...................................... Ps 1,662.6 4,350.8
Accounts payable and accrued expenses............................................. 208.8 243.1
Trade accounts receivable......................................................... 46.7 24.0
Properties, plant and equipment................................................... (29.8) (38.3)
Others............................................................................ 41.4 69.8
----------------- ----------------
Total deferred tax assets....................................................... 1,929.7 4,649.4
Less - Valuation allowance..................................................... (412.0) (2,321.1)
----------------- ----------------
Net deferred tax assets....................................................... 1,517.7 2,328.3
----------------- ----------------
Deferred tax liabilities:
Tax loss carryforwards and other tax credits...................................... 3,106.4 6,151.2
Accounts payable and accrued expenses............................................. 886.1 4,259.6
Trade accounts receivable......................................................... 13.4 85.9
Properties, plant and equipment................................................... (12,605.8) (17,410.7)
Inventories....................................................................... (1,399.5) (1,227.2)
Others............................................................................ (546.7) (916.4)
----------------- ----------------
Total deferred tax liabilities.................................................. (10,546.1) (9,057.6)
Less - Valuation allowance................................................... (713.6) (2,259.8)
----------------- ----------------
Net deferred tax liabilities...................................................... (11,259.7) (11,317.4)
----------------- ----------------
Net deferred tax.................................................................. (9,742.0) (8,989.1)
Less - Deferred IT of acquired subsidiaries at the acquisition date.......... (3,626.3) (4,044.3)
----------------- ----------------
Total effect of deferred income tax in stockholders' equity....................... (6,115.7) (4,944.8)
Less - Deferred IT recognized as of December 31, 1999........................... (1,158.2) (1,158.2)
Less - Accumulated initial effect of deferred IT in equity...................... (5,196.8) (5,196.8)
----------------- ----------------
Change in deferred IT for the period............................................ Ps 239.3 1,410.2
================= ================
The components of consolidated deferred income tax for the period are as
follows:
C
2001 2002
---------------- -----------------
Deferred income tax charged (credited) to the income statement.............. Ps (200.1) 393.5
Deferred income tax applied directly to stockholders' equity................ 439.4 1,016.7
---------------- -----------------
Ps 239.3 1,410.2
================ =================
Bulletin D-4 states that all items whose effects are recorded directly in
stockholders' equity should be recognized net of their deferred income tax
effects. Bulletin D-4 does not allow the offsetting of deferred tax assets and
liabilities relating to different tax jurisdictions.
Management considers that there is existing evidence that in the future, the
Company will generate sufficient taxable income to realize the tax benefits
associated with the deferred income tax assets, and the tax loss
carryforwards, prior to their expiration. In the event that present conditions
change, and it is determined that future operations would not generate enough
taxable income, or that tax strategies are no longer viable, the deferred tax
assets' valuation allowance would be increased against the income statement.
Additionally, for the years ended December 31, 2001 and 2002, temporary
differences between the net income of the period and taxable income for ESPS
generated a deferred ESPS expense of Ps13.2 and Ps18.5, respectively,
reflected in the income statement.
F-33
C) EFFECTIVE TAX RATE
The effects of inflation are not recognized for income tax purposes in some
countries in which the Company operates or are recognized differently from the
methodology used for financial reporting. These effects, as well as other
differences between the book and the income tax basis, arising from the
several income tax rates and laws to which the Company is subject in the
countries in which it has operations, give rise to permanent differences
between the approximated statutory tax rate and the effective tax rate
presented in the consolidated income statement, as follows:
December 31,
---------------------------------------
2000 2001 2002
---------- ---------- ---------
% % %
Approximated consolidated statutory tax rate.............................. 35.0 35.0 34.0
Additional deductions and tax credits................................. (1.9) (1.8) (6.6)
Expenses and other non deductible items............................... 3.4 0.8 1.0
Non-taxable sale of marketable securities and fixed assets............ 0.2 - (10.2)
Difference between book and tax inflation............................. (15.0) (15.8) (5.6)
Minimum taxes......................................................... (0.1) 0.2 -
Depreciation.......................................................... 0.3 (0.6) -
Inventories........................................................... 0.2 - -
IT effect on stockholders' equity..................................... (5.0) (1.4) (5.3)
Others (1)............................................................ (4.4) (5.3) 2.0
---------- ---------- ---------
Effective consolidated tax rate........................................... 12.7 11.1 9.3
========== ========== =========
(1) Includes the effects generated by differences among income tax rates and
laws to which the Company is subject in the countries in which it has
operations.
18. FOREIGN CURRENCY POSITION
The exchange rate of the Mexican peso to the dollar as of December 31, 2000,
2001 and 2002 was Ps9.62, Ps9.17 and Ps10.38 pesos per dollar, respectively.
As of January 15, 2003, the exchange rate was Ps10.51 pesos per dollar.
As of December 31, 2002, the principal balances denominated in foreign
currencies, as well as non-monetary assets in Mexico of foreign origin, are
presented as follows:
In millions of U.S. dollars
------------------------------------------------------
Mexico Foreign Total
---------------- ---------------- --------------
Current assets......................................... 560.0 2,133.2 2,693.2
Noncurrent assets...................................... 816.3 (1) 9,051.3 9,867.6
---------------- ---------------- --------------
Total assets......................................... 1,376.3 11,184.5 12,560.8
================ ================ ==============
Current liabilities.................................... 1,376.4 1,221.2 2,597.6
Long-term liabilities.................................. 2,216.7 3,278.8 5,495.5
---------------- ---------------- --------------
Total liabilities.................................... 3,593.1 4,500.0 8,093.1
================ ================ ===============
(1) Non-monetary assets in Mexico of foreign origin.
Additionally, transactions of the Company's Mexican operations denominated in
foreign currencies during 2000, 2001 and 2002, are summarized as follows:
In millions of U.S. dollars 2000 2001 2002
--------------- ---------------- --------------
Export sales........................................... 105.1 83.2 72.1
Import purchases....................................... 18.6 41.8 92.5
Financial income....................................... 17.4 105.1 11.1
Financial expense...................................... 191.3 302.1 275.6
--------------- ---------------- --------------
19. GEOGRAPHIC SEGMENT DATA
F-34
The Company is engaged principally in the construction industry segment
through the production and marketing of cement and ready-mix concrete. The
following tables present in accordance with the information analyzed for
decision-making by the Company's management, selected condensed financial
information of the Company by geographic area for the years ended December 31,
2000, 2001 and 2002:
Net Sales Operating Income
------------------------------------------- ---------------------------------------------
2000 2001 2002 2000 2001 2002
----------- ------------ ------------ ------------ ------------ -------------
Mexico................ Ps 28,093.2 26,843.6 25,774.2 12,042.9 10,728.7 9,842.8
Spain................. 8,934.0 7,896.1 10,211.8 2,519.8 1,923.1 2,381.7
United States......... 8,096.5 20,122.6 18,167.6 1,220.7 3,203.2 2,800.0
Venezuela............. 4,885.1 4,651.2 3,151.4 1,356.5 1,550.4 1,020.2
Colombia.............. 2,186.3 2,164.1 2,013.0 883.2 917.9 839.6
Caribbean and Central
America.............. 4,892.2 4,434.7 5,202.7 783.0 671.8 978.8
Philippines........... 1,473.6 1,352.6 1,354.2 129.1 129.2 (65.5)
Egypt................. 1,795.2 1,400.1 1,555.5 665.8 345.2 200.7
Others................ 3,835.1 8,363.9 7,863.3 (2,407.5) (2,919.6) (4,396.3)
----------- ------------ ------------ ------------ ------------ -------------
64,191.2 77,228.9 75,293.7 17,193.5 16,549.9 13,602.0
Eliminations.......... (5,756.1) (7,926.6) (7,376.2) - - -
----------- ------------ ------------ ------------ ------------ -------------
Consolidated.......... Ps 58,435.1 69,302.3 67,917.5 17,193.5 16,549.9 13,602.0
=========== ============ ============ ============ ============ =============
In order to present integrally the operations of each geographic area, net
sales between geographic areas are presented under the caption "eliminations".
Depreciation and Amortization
-------------------------------------------
2000 2001 2002
----------- ------------ ------------
Mexico................ Ps 1,341.2 1,710.4 1,610.7
Spain................. 842.4 790.4 1,018.3
United States......... 682.5 2,205.6 1,748.8
Venezuela............. 751.5 656.3 525.5
Colombia.............. 546.6 504.6 481.0
Caribbean and Central 3 3 3
America............... 249. 375. 401.
Philippines........... 281.0 357.1 421.4
Egypt................. 221.6 475.0 440.3
Others................ 167.5 860.6 1,295.9
----------- ------------ ------------
Consolidated.......... Ps 5,083.6 7,935.3 7,943.2
=========== ============ ============
For purposes of the table above, goodwill amortization reported by holding
companies has been allocated to the business geographic segment that
originated such goodwill amounts. Therefore, this information is not directly
comparable with the information of the individual entities, which are
comprised in each segment. Additionally, in the Company's consolidated income
statement, goodwill amortization is recognized as part of other expenses, net.
Total assets and investment in fixed assets by geographic segment are
summarized as follows:
Total Assets Investment in Fixed Assets (2)
----------------------------------------- ------------------------------------------
2001 2002 2001 2002
---------------- ------------------ ------------------ -----------------
Mexico......................Ps 63,187.9 57,015.3 886.4 972.5
Spain........................ 9,504.9. 21,786.2 551.4 625.6
United States................ 8,163.7 44,715.0 1,825.4 1,022.8
Venezuela.................... 11,648.1 7,857.5 285.8 138.2
Colombia..................... 8,466.7 6,020.2 57.5 52.8
Caribbean and Central
America.................... 7,367.1 10,666.5 370.8 292.3
F-35
Philippines................ 7,958.2 8,467.7 240.6 123.5
Other Asian................ 3,279.3 3,656.4 117.7 108.1
Egypt...................... 8,364.2 5,714.4 373.3 276.1
Others (1)................. 104,936.9 71,668.3 236.2 618.6
------------- ----------- --------------- --------------
282,877.0 237,567.5 4,945.1 4,230.5
Eliminations.......................(120,413.4) (72,167.6) - -
------------- ----------- --------------- --------------
Consolidated................Ps......162,463.6 165,399.9 4,945.1 4,230.5
------------- ----------- --------------- --------------
(1) Includes, in addition to trade maritime operating assets and other
assets, related party balances of the Parent Company of Ps73,193.1 and
Ps33,909.2 in 2001 and 2002, respectively, which are eliminated in
consolidation.
(2) Corresponds to fixed assets investments not considering the effects of
inflation. As a result, this balance differs from the amount presented as
investing activities in the Statement of Changes in the Financial
Position in "Properties, machinery and equipment, net", which considers
the inflation effects in accordance with Bulletin B-10.
As of December 31, 2001 and 2002, of the consolidated financial debt amounting
to Ps53,777.7 and Ps59,863.8, respectively, approximately 55% in 2001 and 57%
in 2002 is in the Parent Company, 26% and 24% in United States, 11% and 12% in
Spain and 8% and 7% in other countries, respectively.
20. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing majority interest net
income for the year by the weighted average number of common shares
outstanding during the year. Diluted earnings per share reflects on the
weighted average number of common shares outstanding, the effects of any
transactions carried out by the Company which have a potentially dilutive
effect on such number of shares.
The weighted-average number of shares utilized in the calculation is as
follows:
Majority Basic Diluted
Basic number of Diluted number interest net earnings earnings
shares of shares income per share per share
---------------- ---------------- ------------ -------- ---------
December 31, 2000........................ 4,123,703,259 4,143,760,773 Ps 10,389.2 Ps 2.52 Ps 2.51
December 31, 2001..................... 4,264,724,371 4,299,689,171 11,789.8 2.76 2.74
December 31, 2002..................... 4,487,527,392 4,496,213,613 5,400.4 1.20 1.20
---------------- ---------------- ------------ -------- ---------
The difference between the basic and diluted average number of shares in 2000,
2001 and 2002 is attributable to the additional shares to be issued under the
Company's executive stock option fixed program (see note 15).
21. CONTINGENCIES AND COMMITMENTS
A) GUARANTEES
As of December 31, 2002, CEMEX, S.A. de C.V. has signed as guarantor of loans
made to certain subsidiaries for approximately U.S.$55.2 million. As of the
same date, the Company and certain subsidiaries have guaranteed the risks
associated with certain financial transactions, assuming contingent
obligations under standby letters of credit, issued by financial institutions
for a total of U.S.$175.0 million.
B) TAX ASSESSMENTS
As of December 31, 2002, CEMEX and some of its subsidiaries in Mexico have
been notified of several tax assessments determined by the Tax Authorities
related to different tax periods. These tax assessments total approximately
Ps5,229.8. The tax assessments result primarily from: (i) recalculations of
the inflationary tax deduction, since the tax authorities claim that "Advance
Payments to Suppliers" and "Guaranty Deposits" are not by their nature
credits, (ii) disallowed restatement of tax loss carryforwards in the same
period in which they occurred, (iii) disallowed determination of tax loss
carryforwards, and (iv) disallowed amounts of business asset tax, commonly
referred to as BAT, creditable against the controlling entity's income tax
liability on the grounds that the creditable amount should be in proportion to
the equity interest that the controlling entity has in its relevant controlled
entities. The companies involved are using all available defense actions
granted by law in order to cancel the tax claims.
C) ANTI-DUMPING DUTIES
F-36
In 1990, the United States Department of Commerce ("DOC") imposed an
anti-dumping duty order on imports of gray Portland cement and clinker from
Mexico. As a result, certain of the Company's subsidiaries, as importers of
record, have been subject to payment of anti-dumping duty deposits estimated
on imports of gray Portland cement and clinker from Mexico since April 1990.
The order is likely to continue for an indefinite period, until the United
States government determines, taking into consideration the World Trade
Organization new rules, that conditions for imposing the order no longer
exist; the cancellation or suspension of the order would follow. In the last
quarter of 2000, the United States government continued the order, a
resolution that will prevail until it makes a new review. During December
2001, the United States government (International Trade Commission) denied the
Company's request to initiate a new review.
As of December 31, 2002, the Company has accrued a liability of U.S.$112
million, including accrued interest, for the difference between the amount of
anti-dumping duties paid on imports and the latest findings by the DOC in its
administrative reviews for all periods under review.
As of December 31, 2002, the Company is in the twelfth administrative review
period by the DOC and expects a preliminary resolution in the second half of
2003. The United States government published, during September 2002, the
preliminary determination with respect to the eleventh administrative review
period, and the final resolution was issued on January 8, 2003. With respect
to the first four review periods, the DOC has issued a final resolution of the
anti-dumping duties. Referring to the remaining review periods, the final
resolutions are suspended until all the procedures before the North America
Free Trade Agreement Panel are concluded. As a result, the final amounts may
be different from those recorded in the accompanying consolidated financial
statements. The Company and its subsidiaries have defended their position in
this matter and will continue to do so through available means in order to
determine the actual dumping margins within each period of the administration
reviews carried out by the DOC.
During 2001, five Taiwanese cement producers filed before the Tariff
Commission under the Ministry of Finance ("MOF") of Taiwan an anti-dumping
case involving imported gray Portland cement and clinker from the Philippines
and Korea. In July 2001, the MOF informed the petitioners and the producers
that a formal investigation had been initiated. Among the producers are the
Company's subsidiaries, APO Cement Corporation, Rizal Cement Co. Inc.
("Rizal") and Solid Cement Corporation ("Solid"), which received their
anti-dumping questionnaires from the International Trade Commission under the
Ministry of Economic Affairs ("ITC-MOEA") and the MOF in August 2001. Rizal
and Solid replied to the ITC-MOEA by confirming that they have not been
exporting cement or clinker during the review period. Furthermore, APO
contested the allegation of "injury" in the anti-dumping proceedings before
the ITC-MOEA. On December 23, 2002, Rizal was merged into its subsidiary
Solid.
In a communication dated October 2001, the ITC-MOEA informed the petitioners
and the producers about the results of the preliminary investigation, and it
was determined that there are reasonable indicators that the Taiwanese
industry has incurred material damage due to imports of cement and clinker
from South Korea and the Philippines that allegedly is sold in Taiwan at a
price below market price. In order to comply with regulations of anti-dumping
duties in Taiwan, the ITC-MOEA transferred this investigation to the MOF. In
November 2001, APO received supplemental questionnaires by the MOF. The answer
to these questionnaires was presented by APO during November and December
2001. In January 2002, the MOF gave notice the petitioners and the producers,
on a preliminary resolution, of findings that there might be dumping and that
the investigation would continue, but without imposing any anti-dumping duty.
In June 2002, the ITC-MOEA informed in its final resolution that the imports
from South Korea and the Philippines had caused material damage to the
Taiwanese industry. In July 2002, the MOF informed of a cement and clinker
import duty of 42%, on imports from South Korea and the Philippines, beginning
on July 19, 2002. In September 2002, these entities appealed the anti-dumping
duty before the Taipei High Administrative Council (THAC).
D) LEASES
The Company has entered into various non-cancelable operating leases,
primarily for the lease of operating facilities, cement storage and
distribution facilities and certain transportation and other equipment, in
which it is required to make annual rental payments plus the payment of
certain operating expenses. Future minimum rental payments due under such
leases are summarized as follows:
U.S. dollars
Year ending December 31, million
- ----------------------------------------------------------------------------------------------------- -----------------
2003............................................................................................... 60.0
2004............................................................................................... 56.1
2005............................................................................................... 49.8
2006............................................................................................... 40.1
F-37
2007............................................................................................... 37.5
2008 and thereafter................................................................................ 125.9
-----------------
369.4
-----------------
Rental expense for the years ended December 31, 2000, 2001, and 2002 was
approximately U.S.$52 million, U.S.$67 million and U.S.$57 million,
respectively.
E) PLEDGE ASSETS
At December 31, 2002 there are liabilities amounting to U.S.$80.8 million
secured by properties, machinery and equipment.
F) COMMITMENTS
As of December 31, 2002, subsidiaries of the Company have future commitments
for the purchase of raw materials for an approximate amount of U.S.$86.4
million.
During 1999, the Company entered into agreements with an international
partnership, which contracted to build and operate an electrical energy
generating plant. These agreements establish that when the plant begins
operations, CEMEX will purchase, starting in 2003, all the energy generated by
the plant for a term of no less than 20 years. As part of these agreements,
CEMEX has committed to supply the electrical energy plant with all fuel
necessary for its operations, a commitment that has been hedged through a
20-year agreement entered into by the Company with Petroleos Mexicanos. By
means of this transaction, CEMEX expects to have significant decreases in its
electrical energy costs, and the supply is expected to be sufficient to cover
approximately 60% of the electrical energy needs of 12 cement plants in
Mexico. The Company is not required to make any capital investment in the
project.
On December 14, 2001, the put option held by the Indonesian government to
require the Company to purchase its 51% interest in Gresik for approximately
U.S.$418 million, plus accrued interest from October 1998 at 8.2% per annum,
expired without being exercised.
In March 2002, the distribution contract in Taiwan that the Company had with
Universal Company since March 31, 2000, was terminated. As a result, for the
year ended December 31, 2002, CEMEX recognized an approximate loss of U.S$17.3
million (Ps179.6) within the caption other expenses, net.
G) OTHER CONTINGENCIES
At December 31, 2002, CEMEX, Inc. has accrued liabilities specifically
relating to environmental matters in the amount of U.S.$23.9 million. The
environmental matters relate to a) in the past, in accordance with industry
practice, disposing of various materials, which might be categorized as
hazardous substances or wastes, and b) the cleanup of sites used or operated
by the Company, including discontinued operations, in regard to the disposal
of hazardous substances or wastes, either individually or jointly with other
parties. Most of the proceedings are in the preliminary stage, and a final
resolution might take several years. For purposes of recording the provision,
the subsidiary considers that it is probable that a liability has been
incurred and the amount is reasonably estimable, whether or not claims have
been asserted, and without giving effect to any possible future recoveries.
Based on information developed to date, the subsidiary does not believe it
will be required to spend significant sums on these matters in excess of the
amounts recorded. Until all environmental studies, investigations, remediation
work, and negotiations with or litigation against potential sources of
recovery have been completed, however, the ultimate cost that might be
incurred to resolve these environmental issues cannot be assured.
In December 2002, an ex-maritime broker for Puerto Rican Cement Company, Inc.
("PRCC"), the main subsidiary of CEMEX in Puerto Rico, filed a lawsuit in
Puerto Rico against CEMEX, PRCC and other individuals not affiliated with
CEMEX, including Puerto Rican authorities. The plaintiff contends that the
defendants conspired to break antitrust laws so that one of the defendants,
who is not a CEMEX related party, could have control of the maritime broker
market in Port of Ponce, Puerto Rico. The plaintiff has asked for relief in
the amount of approximately U.S.$18 million. The CEMEX companies involved are
in the process of determining the appropriate legal strategy for a response.
Typically, proceedings of this nature take several years before a final
resolution is reached.
F-38
In May 2001, a subsidiary of the Company in Colombia received a civil
liability suit from 42 transporters, alleging that this subsidiary is
responsible for alleged damages caused by the alleged breach of provision of
raw materials contracts. The plaintiffs have asked for relief in the amount of
U.S.$45.8 million. The Company filed a timely defense response. This
proceeding is in a preliminary stage. Typically, proceedings of this nature
take several years before a final resolution is reached.
In May 1999, several companies filed a lawsuit against two subsidiaries of the
Company based in Colombia, alleging that the Ibague plants were causing
capacity production damage to their lands due to the pollution they generate.
The plaintiffs demand relief in the amount of U.S.$8.8 million. This
proceeding is in the evidentiary stage. Typically, proceedings of this nature
take several years before a final resolution is reached.
22. NEW ACCOUNTING PRONOUNCEMENTS
In December 2001, the Mexican Institute of Public Accountants issued the new
Bulletin C-9, "Liabilities, Accruals, Contingent Assets and Liabilities and
Commitments". This Bulletin is effective January 1, 2003 and supersedes former
Bulletin C-9, "Liabilities" and Bulletin C-12, "Contingencies and
Commitments". New Bulletin C-9 establishes additional guidance clarifying the
accounting for liabilities, accruals and contingent assets and liabilities,
and establishes new standards for the use of present value techniques to
measure liabilities, and the accounting for the early settlement of
liabilities and convertible debt. Additionally, new Bulletin C-9 establishes
new rules for disclosing commitments arising from current business operations.
In January 2002, the Mexican Institute of Public Accountants issued the new
Bulletin C-8, "Intangible Assets", which is effective January 1, 2003 and
supersedes former Bulletin C-8, "Intangibles". New Bulletin C-8 establishes
that development costs should be capitalized as intangible assets if the
criteria for intangible asset recognition are met. The main elements for
capitalization are that costs incurred should be properly identified, there
are expected future benefits, and that the company has control over such
benefits. Expenditures not meeting the new criteria and incurred after the
effective date of new Bulletin C-8 should be expensed as incurred.
Pre-operating expenses previously recognized under former Bulletin C-8 will
continue to be amortized, subject to periodic impairment evaluations.
Development costs incurred in a pre-operating stage may be capitalized after
meeting the new criteria under new Bulletin C-8. In addition, this Bulletin
also requires that intangible assets acquired in a business combination be
accounted for at fair value at the date of the purchase and be separately
reported, unless their cost cannot be reasonably determined, in which case
they should be reported as goodwill. Also, if there is no active market for
these assets, they should be reduced to the amount of goodwill (excess of cost
over book value) or to zero. These assets are also subject to periodic
impairment evaluations. Amortization of goodwill should be reported in
operating expenses.
The Company estimates that the adoption of the new Bulletins C-8 and C-9 will
not have a material effect on its net assets; however, regarding the
classification of goodwill amortization within operating expenses implied by
the new Bulletin C-8, amortization which as of December 31, 2000, 2001 and
2002, the Company reported within other expenses, net, beginning in 2003,
arising from this new classification, there would be a decrease in operating
income in the amount of this non-cash item; however, such classification would
not have an impact on stockholders' equity, net income or earnings per share.
F-39
23. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES ACCOUNTING PRINCIPLES
The Company's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in Mexico (Mexican GAAP), which
differ in certain significant respects from those applicable in the United
States (U.S. GAAP).
The Mexican GAAP consolidated financial statements include the effects of
inflation as provided for under Bulletin B-10 and Bulletin B-15, whereas
financial statements prepared under U.S. GAAP are presented on a historical
cost basis. The reconciliation to U.S. GAAP includes (i) a reconciling item
for the reversal of the effect of applying Bulletin B-15 for the restatement
to constant pesos for the years ended December 31, 2000 and 2001, and (ii) a
reconciling item to reflect the difference in the carrying value of machinery
and equipment of foreign origin and related depreciation between the
methodology set forth by the fifth amendment to Bulletin B-10 (modified) and
the amounts that would be determined by using the historical cost/constant
currency method. As described below, these provisions of inflation accounting
under Mexican GAAP do not meet the requirements of Rule 3-20 of Regulation S-X
of the Securities and Exchange Commission. The reconciliation does not include
the reversal of other Mexican GAAP inflation accounting adjustments as these
adjustments represent a comprehensive measure of the effects of price level
changes in the inflationary Mexican economy and, as such, is considered a more
meaningful presentation than historical cost-based financial reporting for
both Mexican and U.S. accounting purposes.
The other principal differences between Mexican GAAP and U.S. GAAP, and their
effect on consolidated net income and consolidated stockholders' equity, with
an explanation of the adjustments, are presented below:
Year ended December 31,
--------------------------------------
2000 2001 2002
----------- ------------ ------------
Net income as reported under Mexican GAAP.............................. Ps 10,389.1 11,789.8 5,400.4
NCPI inflation adjustment (II)......................................... 224.6 (385.7) -
----------- ------------ ------------
Net income as reported under Mexican GAAP after NCPI adjustments....... 10,613.7 11,404.1 5,400.4
Approximate U.S. GAAP adjustments:
1. Amortization of goodwill (see 23(a)).................................... (69.7) (528.9) 1,665.0
2. Deferred income taxes (see 23(b))....................................... (99.7) (275.2) 2,230.5
3. Deferred employees' statutory profit sharing (see 23(b))................ (76.2) (183.7) (187.2)
4. Other employee benefits (see 23(c))..................................... (45.2) (9.3) (30.6)
5. Capitalized interest (see 23(d))........................................ (80.8) 14.5 (38.5)
6. Minority interest (see 23(e)):
a) Financing transactions............................................... 72.5 292.3 (160.8)
b) Effect of U.S. GAAP adjustments...................................... 194.5 130.3 32.3
7. Hedge accounting (see 23(l))............................................ (1,551.6) 609.7 (2,460.1)
8. Depreciation (see 23(f))................................................ (56.3) (17.4) 12.6
9. Accruals for contingencies (see 23(g)).................................. (122.6) (9.2) 7.3
10. Equity in net income of affiliated companies (see 23(h))................ (62.3) 0.6 11.5
11. Inflation adjustment of machinery and equipment (see 23(i))............. (448.2) (463.4) (363.1)
12. Temporary equity from forward contracts (see 23(j))..................... (488.7) (444.4) (518.0)
13. Derivative financial instruments (see 23(l))............................ - 31.1 -
14. Other U.S. GAAP adjustments (see 23(k))................................. 192.2 (395.3) (475.9)
15. Monetary effect of U.S. GAAP adjustments................................ 1,197.8 476.6 522.2
----------- ------------ ------------
Total approximate U.S. GAAP adjustments................................ (1,444.3) (771.7) 247.2
----------- ------------ ------------
Approximate net income under U.S. GAAP................................. Ps 9,169.4 10,632.4 5,647.6
=========== ============ ============
Basic U.S. GAAP earnings per share..................................... Ps 2.23 2.50 1.26
Diluted U.S. GAAP earnings per share................................... Ps 2.19 2.44 1.26
=========== ============ ============
F-40
Year ended December 31,
--------------------------------------
2001 2002
------------------ -------------------
Total stockholders' equity reported under Mexican GAAP................. Ps 81,601.6 72,152.4
NCPI inflation adjustment (II)......................................... (2,668.8) -
------------------ -------------------
Total stockholders' equity after NCPI adjustment....................... 78,932.8 72,152.4
Approximate U.S. GAAP adjustments:
1. Goodwill net (see 23(a))............................................... (4,909.6) (1,865.9)
2. Deferred income taxes (see 23(b))...................................... (4,238.4) (855.5)
3. Deferred employees' statutory profit sharing (see 23(b))............... (3,182.5) (3,190.7)
4. Other employee benefits (see 23(c)).................................... (302.8) (316.1)
5. Capitalized interest (see 23(d))....................................... (409.6) (462.6)
6. Minority interest--effect of financing transactions (see 23(e))......... (932.1) (940.3)
7. Minority interest--U.S. GAAP presentation (see 23(e))................... (19,365.7) (12,626.8)
8. Depreciation (see 23(f))............................................... (18.8) (200.3)
9. Accruals for contingencies (see 23(g))................................. 84.6 116.4
10. Investment in net assets of affiliated companies (see 23(h))........... (75.4) (210.1)
11. Inflation adjustment for machinery and equipment (see 23(i))........... 9,339.2 6,118.1
12. Temporary equity from forward contracts (see 23(j)).................... (5,865.8) (5,659.5)
13. Derivative financial instruments (see 23(l))........................... 31.3 -
14. Other U.S. GAAP adjustments (see 23(k))................................ 48.3 (363.3)
------------------ -------------------
Total approximate U.S. GAAP adjustments................................ (29,797.3) (20,456.6)
------------------ -------------------
Total approximate stockholders' equity under U.S. GAAP................. Ps 49,135.5 51,695.8
================== ===================
(II) The reconciling item presented in the preceding tables relates to the amount required to reverse the
restatement of prior years into constant pesos as of December 31, 2002, using the Company's weighted
average inflation factor (see note 2B), and to restate such prior periods into constant pesos as of
December 31, 2002, using the Mexican-only inflation factor, in order to comply with current requirements
of Regulation S-X. Likewise, for purposes of the financial information presented throughout note 23, the
Mexican and U.S. GAAP prior years' amounts have been restated using the Mexican inflation index instead
of the weighted average inflation index, as described in note 2B, with the exception of those Mexican
GAAP amounts of prior years that are previously disclosed in the Company's Mexican GAAP notes 1 to 22.
Such amounts were not restated in note 23 using the Mexican inflation index, pursuing more
straightforward cross-references between note 23 and the other Mexican GAAP notes.
The term "SFAS" as used herein refers to Statements of Financial Accounting
Standards.
(a) Goodwill
The Company's goodwill recognized under Mexican GAAP has been adjusted for
U.S. GAAP purposes for (i) the effect of the U.S. GAAP adjustments as of the
dates of acquisition on the goodwill of the subsidiaries acquired; (ii) until
December 31, 2001, for the difference between sinking fund amortization of
goodwill over 20 to 40 years for Mexican GAAP purposes (see note 2(I)) and the
straight-line method over 40 years for U.S. GAAP purposes; beginning January
1, 2002, SFAS 142 "Goodwill and Other Intangible Assets", eliminates the
amortization of goodwill under U.S. GAAP, see note 23(s), and (iii) the
conversion of goodwill applicable to foreign subsidiaries in accordance with
SFAS 52 "Foreign Currency Translation", utilizing inflation of each country to
restate the goodwill for inflation purposes. In addition, for purposes of the
condensed financial information under U.S. GAAP for the years ended December
31, 2000 and 2001 presented in note 23(o), amortization of goodwill is
reflected as an operating expense for U.S. GAAP versus other expense, net for
Mexican GAAP.
For purposes of the reconciliation to U.S. GAAP, the Company adopted in 2002,
SFAS 142 and SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (see note 23(s)). As a result of this adoption, effective
January 1, 2002, amortization ceased for goodwill under U.S. GAAP; therefore,
beginning in 2002, goodwill amortization recorded under Mexican GAAP is
adjusted for purposes of the reconciliation of net income and stockholders'
equity to U.S. GAAP.
The Company assesses goodwill for impairment annually unless events occur that
require more frequent reviews. Discounted cash flow analyses are used to
assess goodwill impairment (see note 23(s)). If an assessment indicates
F-41
impairment, the impaired asset is written down to its fair market value based
on the best information available. Estimated fair market value is generally
measured with discounted estimated future cash flows. Considerable management
judgment is necessary to estimate discounted future cash flows. Assumptions
used for these cash flows are consistent with internal forecasts.
(b) Deferred Income Taxes and Employees' Statutory Profit Sharing
For U.S. GAAP purposes, the Company accounts for income taxes utilizing SFAS
109 "Accounting for Income Taxes", which requires the asset and liability
method of accounting for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences of "temporary differences", which result from applying the
enacted statutory tax rates applicable in future years to differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities and operating loss carryforwards. The deferred income tax
charged or credited to operations is determined by the difference between the
beginning and the year-end balance of the deferred tax assets or liabilities,
and is recognized in nominal pesos. The effect on deferred taxes of a change
in tax rates is recognized in income in the period that includes the enactment
date.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities under U.S.
GAAP at December 31, 2001 and 2002 are presented below:
December 31,
------------------------
2001 2002
------------ -----------
Deferred tax assets:
Net operating loss and assets tax carryforwards........................................ Ps 4,613.0 6,953.0
Trade accounts receivable.............................................................. 58.2 109.9
Investment in affiliated companies..................................................... - 291.7
Accounts payable and accrued expenses.................................................. 603.2 4,300.8
Other.................................................................................. 717.3 603.1
------------ -----------
Total gross deferred tax assets........................................................ 5,991.7 12,258.5
Less valuation allowance............................................................... 1,088.7 1,031.9
------------ -----------
Total deferred tax assets under U.S. GAAP............................................ 4,903.0 11,226.6
------------ -----------
Deferred tax liabilities:
Property, plant and equipment.......................................................... 18,497.5 21,039.4
Inventories............................................................................ 1,353.2 1,226.1
Other.................................................................................. 882.5 870.2
------------ -----------
Total deferred tax liability under U.S. GAAP......................................... 20,733.2 23,135.7
------------ -----------
Net deferred tax liability under U.S. GAAP............................................. 15,830.2 11,909.1
Deferred tax recognized under Mexican GAAP affecting equity (see note 17B)............. 6,115.7 4,944.8
------------ -----------
Excess of liability under U.S. GAAP over that recognized under Mexican GAAP............ 9,714.5 6,964.3
Less--U.S. GAAP deferred income taxes of acquired subsidiaries at date of acquisition.. 5,647.4 6,108.8
Inflation adjustment (note 2B)......................................................... 171.3 -
------------ -----------
Net adjustment to stockholders' equity under U.S. GAAP................................. Ps 4,238.4 855.5
============ ===========
Management considers that there is existing evidence that, in the future, the
Company will generate sufficient taxable income to realize the tax benefits
associated with the deferred tax assets, and the tax loss carryforwards, prior
to their expiration. In the event that present conditions change, and it is
determined that future operations would not generate enough taxable income, or
that tax strategies are no longer viable, the deferred tax assets' valuation
allowance would be increased by a charge to income.
The Company records a valuation allowance for the estimated amount of the
recoverable tax on assets, which may not be realized due to the expiration of
the tax loss carryforwards. Through its continual evaluation of the effects of
tax strategies, among other economic factors, during 2001 the Company
increased the valuation allowance by approximately Ps465.6.
As mentioned in notes 2K and 17B, beginning in 2000, Bulletin D-4 requires the
determination of deferred income tax through the asset and liability method,
in a manner similar to U.S. GAAP. Nonetheless, there are certain specific
differences in the application of Bulletin D-4 as compared to the calculation
under SFAS 109 that give rise to differences in the reconciliation to U.S.
GAAP. These differences arise from (i) the recognition of the accumulated
initial balance as of
F-42
January 1, 2000, which is recorded directly to stockholders' equity and,
therefore, does not consider the provisions of APB Opinion 16 for the deferred
tax consequences in business combinations made before January 1, 2000; (ii) the
effects of deferred tax on the reconciling items between Mexican and U.S. GAAP,
and (iii) for the years ended December 31, 2000 and 2001, some adjustments to
Mexican GAAP recorded in the foreign subsidiaries for consolidation purposes
were treated as permanent differences. For Mexican GAAP presentation purposes,
deferred tax assets and liabilities are long-term items.
As of December 31, 2001 and 2002, net deferred tax liabilities under Bulletin
D-4 of Ps6,115.7 and Ps4,944.8, respectively, affecting the Company's Mexican
GAAP stockholders' equity after considering the deferred income tax effects of
subsidiaries acquired recognized in Goodwill, were reversed for purposes of
the U.S. GAAP reconciliation of stockholders' equity. In the reconciliation of
net income for the years ended December 31, 2000, 2001 and 2002, deferred tax
expenses of Ps601.3, Ps200.1 and income of Ps393.5, respectively, arising from
Bulletin D-4 were reversed.
The Company also recorded a deferred tax liability for U.S. GAAP purposes,
related to employees' statutory profit sharing ("ESPS") in Mexico, under the
asset and liability method at the statutory rate of 10%. The principal effects
of temporary differences that give rise to significant portions of the
deferred ESPS liabilities at December 31, 2001 and 2002 are presented below:
December 31,
------------------------------
2001 2002
-------------- --------------
Deferred assets:
Employee benefits.................................. Ps 39.8 47.6
Trade accounts receivable.......................... 13.9 14.4
Other.............................................. 40.8 53.5
-------------- --------------
Gross deferred assets under U.S. GAAP................. 94.5 115.5
-------------- --------------
Deferred liabilities:
Property, plant and equipment...................... 2,960.5 2,896.7
Inventories........................................ 121.5 142.7
Other.............................................. 195.0 266.8
-------------- --------------
Gross deferred liabilities under U.S. GAAP............ 3,277.0 3,306.2
-------------- --------------
Net deferred liabilities under U.S. GAAP.............. Ps 3,182.5 3,190.7
============== ==============
For purposes of the condensed financial information presented under U.S. GAAP
in note 23(o), ESPS expense, both current and deferred, is included in the
determination of operating income. For Mexican GAAP presentation, ESPS
expense, both current and deferred, is considered as a separate line item
equivalent to income tax.
Bulletin D-4, for Mexican GAAP purposes, requires recognition of deferred ESPS
for those temporary differences arising from the reconciliation of net income
of the period and the taxable income for ESPS. In the reconciliation of net
income to U.S. GAAP, a deferred ESPS expense of Ps49.5 in 2000 and Ps13.2 in
2001 and income of Ps18.5 in 2002, determined under Mexican GAAP, were
reversed.
(c) Other Employee Benefits
Vacations
Under Mexican GAAP, vacation expense is recognized when taken rather than
during the period the employees earn it. In order to comply with SFAS 43, for
the years ended December 31, 2000, 2001 and 2002, the vacation expense
recorded for U.S. GAAP purposes was Ps8.9, Ps1.7 and Ps5.5, respectively, with
an accrual of Ps54.2 and Ps56.5 at December 31, 2001 and 2002, respectively.
Severance
Mexican GAAP (Bulletin D-3) establishes that severance payments should be
recognized in income in the period, in which they are paid, unless such
payments are used by an entity as a substitution of pension benefits, in which
case, such benefits should be considered as a pension plan. Under U.S. GAAP,
post-employment benefits for former or inactive employees, excluding
retirement benefits, are accounted for under the provisions of SFAS 112, which
requires the
F-43
Company to accrue the cost of certain benefits, including severance, over an
employee's service life. For the years ended December 31, 2000, 2001 and 2002,
the severance provisions recorded for U.S. GAAP purposes were expense of
Ps41.5, Ps7.6 and Ps25.1, respectively, with an accrual of Ps248.6 and Ps259.6
at December 31, 2001 and 2002, respectively. Severance payments relating to any
specific event or restructuring are excluded from the SFAS 112 calculation.
Pension and other benefits
The Company accounts for employee pension benefits under Bulletin D-3, based
on the net present value of the obligations determined by independent
actuaries (see notes 2J and 13), in a manner similar to SFAS 87 "Employers'
Accounting for pensions" under U.S. GAAP. Nonetheless, certain differences in
assumptions led to minor differences in prior years between the amounts
recognized under Mexican GAAP and their corresponding equivalents under U.S.
GAAP. These discrepancies were eliminated in the actuarial computations of
2000. For purposes of the U.S. GAAP reconciliation of net income, the Company
recognized income of Ps5.2 in 2000, which was required to reverse the accrued
adjustment.
In addition, as a result of the Company's acquisition of CEMEX, Inc. (formerly
Southdown (see note 8A)) in 2000 and Puerto Rican Cement Company, Inc.
("PRCC") in 2002, the Company assumed a package of employee benefits, which
include Pension, Retirement Savings Plan, Supplemental Executive Retirement
Plan and Health and Life Insurance benefits. The benefit obligation and the
net pension cost arising from CEMEX, Inc.'s and PRCC's employee benefits, have
been recorded under Mexican GAAP and are included in the consolidated
information with respect to the Company's pension plans, seniority premium and
other postretirement benefits (see note 13).
Most of the Company's health care benefits are self-insured and administered
on cost plus fee arrangements with major insurance companies or provided
through health maintenance organizations. The Company also provides life
insurance benefits to its active and retired employees. Generally, life
insurance benefits for retired employees are reduced over a number of years
from the date of retirement to a minimum level.
(d) Capitalized Interest
Under Mexican GAAP, the Company capitalizes interest on assets under
construction. Mexican GAAP states that the amount of financing cost to be
capitalized during the construction period of property, machinery and
equipment must be comprehensively measured in order to include properly the
effects of inflation. Therefore, the amount capitalized includes: (i) the
interest cost of the debt incurred, plus (ii) any foreign currency
fluctuations that results from the related debt, and less (iii) the related
monetary position result recognized on the debt incurred to finance the
construction project. Under U.S. GAAP, only interest is to be considered an
additional cost of constructed assets to be capitalized in property, machinery
and equipment and depreciated over the lives of the related assets.
The U.S. GAAP reconciliation removes the foreign currency gain or loss and the
monetary position result capitalized for Mexican GAAP derived from borrowings
denominated in foreign currency.
(e) Minority Interest
Financing Transactions
For U.S. GAAP presentation purposes (see note 23(o)), the preferred stock
described in note 14E for a notional amount of U.S.$900 million (Ps9,834.2)
and U.S.$650 million (Ps6,747.0) at December 31, 2001 and 2002, respectively,
is a separate component of mezzanine items. Under Mexican GAAP this instrument
is presented as part of the minority interest stockholders' equity. Preferred
dividends declared in 2000, 2001 and 2002 (see note 14E) were recognized as
part of the minority interest in the consolidated income statements under both
Mexican and U.S. GAAP.
For U.S. GAAP presentation purposes (see note 23(o)), the capital securities
described in note 14E for a notional amount of U.S.$250 million (Ps2,502.5)
and U.S.$66 million (Ps685.1) at December 31, 2001 and 2002, respectively, are
a separate component of mezzanine items. Under Mexican GAAP these instruments
are presented as part of the minority interest in stockholders' equity.
Capital securities dividends declared in 2000, 2001 and 2002 (see note 14E)
were recorded as part of the minority interest in the consolidated income
statements under both Mexican and U.S. GAAP.
F-44
As described in note 14F, related to a transaction entered into in December
31, 1995, the Company had outstanding obligations of U.S.$96.3 million
(Ps964.0) and U.S.$90.6 million (Ps940.3) at December 31, 2001 and 2002,
respectively. For U.S. GAAP purposes the amount outstanding under this
arrangement is treated as debt. Under Mexican GAAP this transaction has been
treated as minority interest. The Company's cost of retaining its option to
reacquire the contributed assets in 2000, 2001 and 2002 (see note 14F) was
recorded as part of the financial expense in the consolidated income
statements under both Mexican and U.S. GAAP.
U.S. GAAP adjustments on minority interest
Under Mexican GAAP the minority interest in consolidated subsidiaries is
presented as a separate component within the stockholders' equity section in
the consolidated balance sheets. According to U.S. GAAP, minority interest is
excluded from consolidated stockholders' equity and classified as a separate
component between total liabilities and stockholders' equity in the
consolidated balance sheets (see note 23(o)). The U.S. GAAP adjustment to
stockholders' equity included herein represents the minority interests in the
Company's subsidiaries determined in accordance with U.S. GAAP.
(f) Depreciation
One of the Company's subsidiaries in Colombia records depreciation expense
utilizing the sinking fund method. This methodology for depreciation was in
place before CEMEX acquired the subsidiary in 1997. For Mexican GAAP purposes,
the Company has decided to maintain this accounting practice due to tax
consequences in Colombia arising from a change in methodology, and the
immateriality of the effects in the Company's consolidated results. For U.S.
GAAP purposes, depreciation is calculated on a straight-line basis over the
estimated useful lives of the assets. As a result of this accounting
difference, for the years ended December 31, 2000, 2001 and 2002, expense of
Ps83.9, expense of Ps42.8 and income of Ps12.6, respectively, have been
reflected in the reconciliation of net income to U.S. GAAP.
Additionally, as a result of the application of APB 16 in the acquisition of
Solid (formerly Rizal), one of the Company's subsidiaries in the Philippines,
for U.S. GAAP purposes, the Company reduced the value of its fixed assets by
Ps207.7 in 2001, net of depreciation, corresponding to the portion of the
appraisal value, determined at the acquisition date, related to the minority
owners. The change in the fixed assets amount under U.S. GAAP resulted in a
decrease in the depreciation expense under U.S. GAAP of Ps27.6 in 2000 and
Ps25.4 in 2001. As mentioned in note 8A, during 2002 CEMEX acquired the
remaining 30% economic interest in Solid from the minority shareholders. As a
result, the Company reversed the adjustment made to the fixed assets appraised
amount against minority interest, given that the reversed amount is part of
the proportional net assets fair value assigned to the 30% economic interest
acquired. As a result of the minority interest during 2002, there is no
further effect on earnings under U.S. GAAP related to the decrease in the
depreciation expense and the adjustment was eliminated in 2002.
(g) Accruals for Contingencies
For Mexican GAAP purposes, the Company has recorded accruals for certain
contingencies that do not meet the accrual criteria of SFAS 5 of U.S. GAAP.
Our Spanish subsidiary has recorded a liability for guarantees given to third
parties by former subsidiaries and other general accruals. At the balance
sheet dates the likelihood of a loss occurring is considered to be possible
but not probable. Therefore, the Company does not consider that the criteria
of SFAS 5 "Accounting for Contingencies" for accrual was met, and the recorded
liabilities were reversed for U.S. GAAP purposes.
In addition, with respect to the contingencies described in note 21, for which
an accrual has not been provided under Mexican GAAP, as of December 31, 2001
and 2002, the Company considers that while it is reasonably possible for a
loss to occur as a result of these assessments, the likelihood of a loss is
not probable. Therefore, the Company does not consider that the criteria of
SFAS 5 for accrual were met.
(h) Affiliated Companies
The Company has adjusted its investment and equity in the earnings of
affiliated companies for the Company's share of the approximate U.S. GAAP
adjustments applicable to these affiliates.
(i) Inflation Adjustment of Machinery and Equipment
F-45
For purposes of the reconciliation to U.S. GAAP, fixed assets of foreign
origin are restated by applying the inflation rate of the country that holds
the assets, regardless of the assets' origin countries, instead of using the
methodology of Bulletin B-10, under which fixed assets of foreign origin are
restated by applying a factor that considers the inflation of the asset's
origin country, not the inflation of the country that holds the asset, and the
fluctuation of the functional currency (currency of the country that holds the
asset) against the currency of the asset's origin country. Depreciation
expense is based upon the revised amounts.
(j) Temporary Equity from Forward Contracts
As mentioned in notes 14F and 16A to the financial statements, during 1999 the
Company entered into equity forward contracts with an original maturity in
December 2002, in connection with its appreciation warrants transaction. In
December 2002, prior to their expiration, CEMEX renegotiated the extension of
the forward contracts until December 2003. As a condition of this extension,
the Company agreed to pay U.S$98.3 million (Ps1,020.3) to the counterparties,
amount charged to stockholders' equity under Mexican GAAP, representing the
difference between the cash redemption amount of the forward contracts and the
market value of the underlying shares at the date of the agreements. The
U.S.$98.3 million was deducted by the counterparties from the prepayments that
the Company made periodically toward the forwards final price since the
inception of the contracts. According to EITF 00-19, forward contracts
involving the Company's own stock that will be physically settled by
delivering cash should be initially measured at fair value and recorded in
permanent equity, and an amount equivalent to the cash redemption at the date
of reporting, should be reclassified to temporary equity, which is to be
considered as a mezzanine item for balance sheet presentation under U.S. GAAP.
As a result, for purposes of reconciliation, the Company presents a reduction
to its stockholders' equity under Mexican GAAP of approximately Ps5,865.8
(U.S.$605.8) in 2001 and Ps5,659.5 (U.S.$545.2) in 2002, which represents the
cash obligation plus the advanced payments of the Company under the forward
contracts at the reporting date and is presented as a mezzanine item for
purposes of note 23(o). Under Mexican GAAP, since inception, the shares sold
to the counterparties have been treated as permanent equity.
Under Mexican GAAP, since inception, these forward contracts have been treated
as equity transactions, and gains or losses are recognized upon settlement as
an adjustment to stockholders' equity. Under Mexican GAAP the difference
between the original proceeds of the sale and the forward price, which is
periodically paid to the counterparties, is treated as a prepayment toward the
forward contracts' final price and is presented as accounts receivable. For
purposes of the reconciliation to U.S. GAAP, the amount prepaid and considered
as accounts receivable, has been also considered as a preferred dividend, in a
manner similar to a mandatorily redeemable preferred stock, and has been
charged to net income under U.S. GAAP against stockholders' equity, resulting
in an expense for the years ended December 31, 2000, 2001 and 2002 of
approximately Ps488.7, Ps444.4 and Ps518.0, respectively (Ps412.3, Ps368.7 and
Ps430.0, respectively, after the related deferred income tax effect). The
amount of US$98.3 recognized as a loss in stockholders' equity under Mexican
GAAP during 2002 was not reclassified through net income in the reconciliation
to U.S. GAAP, since such amount has been periodically charged to earnings
under U.S. GAAP as part of the preferred dividends. At maturity of the forward
contracts, assuming the shares are repurchased, the reacquired shares will be
treated as an equivalent of treasury shares.
(k) Other U.S. GAAP Adjustments
Inventory costs--Until December 31, 1999, as permitted by Mexican GAAP,
certain inventories of manufactured product were valued under the direct cost
system, which includes material, labor and other direct costs. For purposes of
complying with U.S. GAAP, inventories must be valued under the full absorption
cost method, including all costs and expenses necessary for the manufacturing
process. Beginning January 1, 2000, the Company adopted the full absorption
cost method in all its producing facilities; therefore, for the year ended
December 31, 2000, the reconciling item arising from this difference was
eliminated, recognizing an expense of Ps69.4 in the reconciliation of net
income to U.S. GAAP.
Capitalization of costs of computer development under U.S. GAAP--Statement of
Position 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", requires that certain costs related to the
development or purchase of internal-use software be capitalized and amortized
over the estimated useful life of the software and that costs related to the
preliminary project stage and the post-implementation/operations stage (as
defined in SOP 98-1) in an internal-use computer software development project
be expensed as incurred. The estimated average useful lives period to amortize
these capitalized costs is between 3 and 5 years.
F-46
For the years ended December 31, 2000, 2001 and 2002, the effect of
capitalizing these costs in the reconciliation of net income to U.S. GAAP, net
of amortization, led to income of Ps125.6 and expense of Ps220.1 and Ps196.0,
respectively, with an effect of income in the stockholders' equity
reconciliation to U.S. GAAP at December 31, 2001 and 2002 of Ps425.1 and
Ps262.5, respectively. Beginning in 2001, in connection with the Company's
decision to significantly enhance and/or replace, on a worldwide basis, all of
its critical software systems under an effort denominated "CEMEX Way", for
accounting purposes under Mexican GAAP, the Company began the capitalization
of costs associated with developing and implementing new software (see note 9)
resulting in a capitalization under Mexican GAAP for the years ended December
31, 2001 and 2002 of Ps1,407.7 and Ps1,672.9, net of amortization. As a
result, in the reconciliation of net income to U.S. GAAP for the years ended
December 31, 2001 and 2002, the reconciling item refers exclusively to the
amortization of the accrued capitalized amount until December 2000.
Deferred charges--Other deferred charges, net of accumulated amortization,
that did not qualify for deferral under U.S. GAAP were reversed through
earnings under U.S. GAAP in the period incurred, resulting in income of
Ps136.0 in 2000, expense of Ps175.2 in 2001 and expense of Ps279.9 in 2002.
The net effect in the stockholders' equity reconciliation to U.S. GAAP was a
decrease of Ps376.8 and Ps625.8 at December 31, 2001 and 2002, respectively.
Mexican GAAP allowed the deferral of these items.
Monetary position result--Monetary position result of the U.S. GAAP
adjustments is determined by (i) applying the annual inflation factor to the
net monetary position of the U.S. GAAP adjustments at the beginning of the
period, plus (ii) the monetary position effect of the adjustments during the
period, determined in accordance with the weighted average inflation factor
for the period.
Reclassifications--Non-cement related assets under Mexican GAAP (see note 7)
of Ps347.3 and Ps362.2, as of December 31, 2001 and 2002, respectively, were
reclassified to long-term assets for purposes of the condensed financial
information under U.S. GAAP in note 23(o). These assets are stated at their
estimated fair value. Estimated costs to sell these assets are not
significant.
(l) Financial Instruments
Derivative Financial Instruments (see notes 2N, 11, 12 and 16)
Effective January 1, 2001, companies reporting under U.S. GAAP adopted SFAS
133 "Accounting for Derivative Instruments and Hedging Activities", as
amended, which establishes that all derivative instruments (including certain
derivative instruments embedded in other contracts) should be recognized in
the balance sheet as assets or liabilites at their fair values and changes in
fair value are recognized immediately in earnings, unless the derivatives
qualify as hedges of future cash flows. For derivatives qualifying as hedges
of future cash flows, the effective portion of changes in fair value is
recorded temporarily in equity, and then recognized in earnings along with the
related effects of the hedged items. Any ineffective portion of a hedge is
reported in earnings as it occurs.
Under Mexican GAAP, effective January 1, 2001, the Company adopted Bulletin
C-2 "Financial Instruments" (see note 2N), which establishes a methodology
similar to that of SFAS 133. The main differences between SFAS 133 and
Bulletin C-2 relate to the rules for hedge accounting. SFAS 133 provides
specific rules for qualifying for hedge accounting and is precise as to which
transactions are outside the scope of the statement, while under Bulletin C-2,
hedge accounting is based on the Company's intention and designation,
providing that the underlying hedged asset or liability is already recognized
in the balance sheet. Bulletin C-2 does not provide guidance for hedging
forecasted transactions, for cash flow hedges, for own equity derivative
instruments nor for risk management instruments entered into to protect the
Company's net investment in foreign subsidiaries; therefore, such contracts
have been accounted for in accordance to SFAS 133 or with other U.S. GAAP
accounting pronouncements as appropriate. Fair value hedges as defined by U.S.
GAAP are precluded by Mexican GAAP since it is not permitted to record primary
hedged instruments at fair value.
As of December 31, 2002 and 2001, the differences in derivative instruments
hedge accounting between Mexican and U.S. GAAP, as they relate to the Company,
led to certain adjustments in the reconciliation of stockholders' equity and
the reconciliation of net income to U.S. GAAP, as well as reclassifications in
the condensed financial information under U.S. GAAP of note 23(o), which are
explained as follows:
o During 2001, the estimated fair value of interest rate swaps negotiated to
exchange fixed for floating rates, or vice versa, designated as hedges of
underlying debt transactions under Mexican GAAP, was not recognized in the
balance sheet pursuant to the hedge designation (see note 2N). For the
year ended and as of December 31, 2001, for purposes of the reconciliation
of stockholders' equity and net income to U.S. GAAP, the Company did not
F-47
designate these interest rate swaps as accounting hedges under SFAS 133;
therefore, the estimated fair value was recognized, resulting in income of
approximately Ps31.1 (U.S.$3.2 million) (see notes 11 and 12A). Beginning
in 2002, the Company applied under Mexican GAAP the accounting provisions
of cash flow hedges, in a manner equivalent to the rules set forth in SFAS
133. As a result, after fulfilling the hedging documentation requirements
and effectiveness tests, beginning as of the designation date in June 30,
2002, the estimated fair value of the hedging instruments and changes
thereon have been recognized in the balance sheet against the deficit in
equity restatement within stockholders' equity, which is equivalent in
Mexico to Other Comprehensive Income ("OCI") as defined in U.S. GAAP (see
notes 11 and 12). For the year ended December 31, 2002, changes in the
estimated fair value of interest rate derivatives, other than those
designated as cash flow hedges, have been recorded through the income
statement under Mexican GAAP (see notes 11 and 12), consistently with U.S.
GAAP.
o As discussed in notes 11 and 12B, the Company recorded a net asset of
U.S.$242.9 million (Ps2,431.4) in 2001 and U.S.$244.9 million (Ps2,542.1)
in 2002, related to the fair value adjustments of certain Cross Currency
Swaps. Under U.S. GAAP, the amounts do not qualify for net presentation
and thus have been shown gross for purposes of the condensed financial
information under U.S. GAAP presented in note 23(o).
As a result of the reversal, under U.S. GAAP as of December 31, 2001,
long-term debt increased U.S.$175.9 million (Ps1,760.7) against
non-current assets, representing the portion of the estimated fair value
attributable to the changes in the exchange rates between the beginning
of the CCS and year-end; and U.S.$14.8 million (Ps148.1), corresponding
to the portion of the estimated fair value attributable to accrued
interest, was reclassified and increased current liabilities against
current assets. Likewise, at December 31, 2002, in respect to the portion
of the estimated fair value attributable to changes in the exchange
rates, short-term debt decreased U.S.$2.9 million (Ps30.1) against
current assets and long-term debt increased U.S.$177.1 million
(Ps1,838.3), including prepayments, against non-current assets; while in
respect of the portion of the estimated fair value attributable to
accrued interest, current liabilities increased U.S.$25.9 million
(Ps268.8) against current assets.
All other derivative instruments, with the exception of those described above
and the equity forwards described in note 23(j), entered into by the Company
and disclosed in notes 11, 12 and 16, have been accounted under Mexican GAAP
consistently with the provisions of U.S. GAAP. In respect to the interest rate
derivative instruments that hedge forecasted debt transactions (see note 12A),
as of December 31, 2002, the maximum length of time over which the Company is
hedging its exposure to the variability in future cash flows associated with
the interest rates of new debt issuances or debt renegotiations is up to six
months between the settlement date of the instrument and the occurrence of the
underlying debt transaction.
For all hedging relationships for accounting purposes, the Company formally
documents the hedging relationship and its risk-management objective and
strategy for undertaking the hedge, the hedging instrument, the item, the
nature of the risk being hedged, how the hedging instrument's effectiveness in
offsetting the hedged risk will be assessed, and a description of the method
of measuring ineffectiveness. This process includes linking all derivatives
that are designated as fair-value, cash-flow, or foreign-currency hedges to
specific assets and liabilities on the balance sheet or to specific firm
commitments or forecasted transactions. As of December 31, 2002 and 2001, the
Company has not designated any derivative instrument as a fair value hedge for
accounting purposes under both Mexican GAAP and U.S. GAAP. The Company also
formally assesses, both at the hedge's inception and on an ongoing basis,
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows of hedged items. When it is
determined that a derivative is not highly effective as a hedge or that it has
ceased to be a highly effective hedge, the Company discontinues hedge
accounting prospectively.
Fair Value of Financial Instruments
The carrying amount of cash, trade accounts receivable, other accounts
receivable, trade accounts payable, other accounts payable and accrued
expenses and short-term debt, approximates fair value because of the
short-term maturity of these financial assets and liabilities.
Marketable securities and long-term investments are accounted for at fair
value, which is based on quoted market prices for these or similar
instruments.
The carrying value of the Company's long-term debt and the related fair value
based on quoted market prices for the same or similar instruments or on
current rates offered to the Company for debt of the same remaining maturities
(or
F-48
determined by discounting future cash flows using borrowing rates
currently available to the Company) at December 31, 2002 is summarized as
follows:
Carrying Estimated
Amount Fair value
-------------------------------
Bank loans...........................Ps 25,692.1 25,680.1
Notes payable........................ 26,462.1 26,479.4
-------------------------------
As discussed in notes 2D and 14D, the Company has designated certain debt as
hedges of its investment in foreign subsidiaries and, for Mexican GAAP
purposes, records foreign exchange fluctuations on such debt in equity. For
purposes of the U.S. GAAP net income reconciliation, expense of Ps1,551.6 in
2000, income of Ps609.7 in 2001 and expense of Ps2,460.1 in 2002, were
recognized as foreign exchange results since the related debt does not meet
the conditions set forth in SFAS 52 for hedge accounting purposes, given that
the currencies involved do not move in tandem.
(m) Stock Option Programs
Beginning in 2001, for financial reporting under Mexican GAAP, the Company
accounts for its stock option programs (see note 15) using a methodology that
is consistent with the rules set forth by APB Opinion No. 25 ("APB 25") under
U.S GAAP. According to APB 25, compensation cost should be recognized in the
financial statements under the intrinsic cost method, which represents the
difference between the strike price and the market price of the stock at the
reporting date, for all plans that do not meet the following characteristics:
(i) the exercise price established in the option is equal to the quoted market
price of the stock at the measurement date, (ii) the exercise price is fixed
for the option's life, and (iii) the option's exercise is hedged through the
issuance of new shares of common stock. After taking into account these
characteristics, no compensation cost is recognized for the Company's fixed
program (see note 15A), while compensation cost is periodically determined,
beginning in 2001, for the Company's variable program (see note 15C) and
voluntary programs (see note 15D) and beginning in 2002, for its special
program (see note 15B). Stock options activity during 2001 and 2002, the
balance of options outstanding as of December 31, 2001 and 2002 and other
general information regarding the Company's stock option programs is presented
in note 15.
The Company covers the potential future exercise of its programs, with the
exception of the fixed program, through equity forward contracts in the
Company's own stock that have been designed as hedges of the programs. For the
years ended December 31, 2001 and 2002, the Company recognized in the income
statement under Mexican GAAP a gain of approximately U.S.$28.7 million
(Ps287.3) and a loss of approximately U.S.$47.1 million (Ps488.9),
respectively, from changes in the estimated fair value of the forward
contracts.
Under U.S. GAAP, SFAS 123 "Accounting for Stock-Based Compensation" requires
that compensation cost for stock option plans should be determined based on
the options' fair value at the grant date, using a qualified option-pricing
model, and recorded in results of operations during the options vesting period
after which no further recognition is required.
F-49
For the years ended December 31, 2000, 2001 and 2002, had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS 123, using the Black-Scholes pricing model, the
Company's net income would have been reduced to the pro forma amounts
indicated below:
2001
-----------------------------------------
2000 Fixed Variable Total
program program
------------ -----------------------------------------
Net income, as reported (Mexican GAAP)...................... Ps 10,389.1 11,789.8
Cost of options granted according to SFAS 123............. (211.0) (271.5) (205.0) (476.5)
Result from voluntary exchange program, net (note 15)..... - 221.9 - 221.9
Reversal of cost recognized under APB 25.................. - - 147.2 147.2
------------ ------------ ------------ --------------
Approximate net income, pro forma........................... 10,178.1 11,682.4
------------ --------------
Basic earnings per share, as reported....................... Ps 2.76
2.52
------------ --------------
Basic earnings per share, pro forma......................... Ps 2.74
2.47
------------ --------------
2002
------------------------------------------------------
Special Variable Voluntary Total
program program programs
------------ -----------------------------------------
Net income, as reported (Mexican GAAP)...................... Ps 5,400.4
Cost of options granted according to SFAS 123............. (9.3) (158.7) (17.9) (185.9)
Reversal of cost recognized under APB 25.................. - - 51.9 51.9
------------ ------------ ------------ --------------
Approximate net income, pro forma........................... 5,236.4
--------------
Basic earnings per share, as reported....................... Ps 1.20
--------------
Basic earnings per share, pro forma......................... Ps 1.17
--------------
The net amount of income in the pro forma calculations of Ps221.9, presented
in 2001 under the line "Result from voluntary exchange program, net",
represents the difference between the amount paid to the executives for the
repurchase of their options of approximately Ps659.9, recorded as an expense
under Mexican GAAP in 2001, equivalent to the intrinsic value of the options
at the exchange date, and the expense determined under SFAS 123 of
approximately Ps438.0, representing the options unvested fair value at the
date of issuance, which was accelerated as a result of the exchange program.
The reason for the reversal in the pro forma calculations, of the expense
recognized under Mexican GAAP, is because such amount had been previously
expensed in the pro forma calculations as part of the cost under SFAS 123 in
prior years and as part of the accelerated amortization of the unrecognized
cost discussed above.
The assumptions for the Black-Scholes model for the options granted during
each year were:
2000 2001 2002
-------------- -------------- --------------
Expected dividend yield................... 2% 2% 2%
Volatility................................ 30% 25% 25%
Range of risk free interest rates......... 12.5% 4.9% - 9.8% 3.6% - 4.8%
Weighted average tenure................... 10 years 10 years 9.8 years
-------------- -------------- --------------
(n) Supplemental Cash Flow Information Under U.S. GAAP
Under Mexican GAAP, statements of changes in financial position, in which are
identified the sources and uses of resources based upon the differences
between beginning and ending financial statements in constant pesos, require
that monetary position result and unrealized foreign exchange result be
treated as cash items in the determination of resources provided by
operations. U.S. GAAP, under SFAS 95, requires a statement of cash flow
presenting only cash items and excluding non-cash items. SFAS 95 does not
provide any guidance with respect to inflation-adjusted financial statements.
The nature of the differences between Mexican GAAP and U.S. GAAP in the
amounts reported is mainly due to (i) the elimination of inflationary effects
of monetary assets and liabilities from financing and investing activities
against the corresponding monetary position result in operating activities,
(ii) the elimination of foreign exchange results from financing and investing
activities against the corresponding unrealized foreign exchange result
included in operating activities and (iii) the recognition in operating,
financing and investing activities of the U.S. GAAP adjustments.
The following table summarizes the cash flow items as required under SFAS 95
provided by (used in) operating, financing and investing activities for the
years ended December 31, 2000, 2001 and 2002, giving effect to the U.S.
F-50
GAAP adjustments, excluding the effects of inflation required by Bulletin B-10
and Bulletin B-15. The following information is presented in millions of pesos
on a historical peso basis and is not presented in pesos of constant purchasing
power.
Years ended December 31,
-----------------------------------------------------
2000 2001 2002
------------------ ----------------------------------
Net cash provided by operating activities.................. Ps 9,651.4 18,786.5 9,526.4
Net cash provided by (used in) financing activities........ 19,136.6 (9,250.1) (1,323.7)
Net cash used in investing activities...................... (29,930.8) (8,433.3) (8,380.4)
------------------ ----------------------------------
Net cash flow from operating activities reflects cash payments for interest
and income taxes as follows:
Years ended December 31,
-----------------------------------------------------
2000 2001 2002
------------------ ----------------------------------
Interest paid.............................................. Ps 4,491.3 3,594.9 3,467.1
Income taxes paid.......................................... 1,106.3 559.2 1,350.3
------------------ ----------------------------------
Non-cash activities are comprised of the following:
1. Acquisition of fixed assets through capital leases amounting to
Ps749.8 in 2000 and Ps23.2 in 2001. The Company did not acquire assets
through capital leases during 2002.
2. Liabilities assumed through the acquisition of businesses (see note 8A)
were Ps5,984.6 in 2000, Ps275.6 in 2001
and Ps1,873.7 in 2002.
(o) Condensed Financial Information under U.S. GAAP
The following table presents consolidated condensed income statements for the
years ended December 31, 2000, 2001 and 2002, prepared under U.S. GAAP, and
includes all differences described in this note as well as certain other
reclassifications required for purposes of U.S. GAAP:
Years ended December 31,
------------------------------------------------------
Statements of income 2000 2001 2002
------------------- ---------------- -----------------
Net sales................................................. Ps 59,039.8 66,459.4 67,278.3
Gross profit.............................................. 25,079.3 28,049.9 29,055.6
Operating income.......................................... 14,370.2 10,623.3 10,874.2
Comprehensive financial income (cost)..................... (2,802.8) 3,282.3 (5,903.0)
Other expenses, net....................................... (438.8) (624.4) (959.0)
Income tax (including deferred)........................... (1,790.4) (1,863.1) 1,579.9
Equity in income of affiliates............................ 379.7 321.9 454.5
------------------- ---------------- -----------------
Consolidated net income................................... 9,717.9 11,740.0 6,046.6
------------------- ---------------- -----------------
Minority interest net income.............................. 548.5 1,107.6 399.0
------------------- ---------------- -----------------
Majority interest net income.............................. Ps 9,169.4 10,632.4 5,647.6
------------------- ---------------- -----------------
F-51
The following table presents consolidated condensed balance sheets at December
31, 2001 and 2002, prepared under U.S. GAAP, including all differences and
reclassifications as compared to Mexican GAAP described in this note 23:
At December 31,
----------------------------------
Balance sheets 2001 2002
---------------- -----------------
Current assets............................................................ Ps 22,059.4 19,932.5
Investments and non-current assets........................................ 8,958.0 7,556.9
Property, machinery and equipment......................................... 94,988.3 98,121.1
Deferred charges.......................................................... 37,316.5 43,945.5
---------------- -----------------
---------------- -----------------
Total assets.......................................................... 163,322.2 169,556.0
---------------- -----------------
---------------- -----------------
Current liabilities....................................................... 28,473.4 36,149.0
Long-term debt............................................................ 39,361.3 41,222.3
Other non-current liabilities............................................. 21,328.2 22,202.6
---------------- -----------------
Total liabilities..................................................... 89,162.9 99,573.9
---------------- -----------------
Mezzanine items:
Putable capital securities (see note 14E)............................. 2,420.7 685.1
Temporary equity...................................................... 5,865.8 5,659.5
Preferred equity (see note 14F)....................................... 8,714.3 6,747.0
Minority interest..................................................... 8,023.0 5,194.7
---------------- -----------------
Total mezzanine items............................................. 25,023.8 18,286.3
---------------- -----------------
Stockholders' equity...................................................... 49,135.5 51,695.8
---------------- -----------------
---------------- -----------------
Total liabilities and stockholders' equity............................ Ps 163,322.2 169,556.0
---------------- -----------------
For purposes of the consolidated condensed financial statements presented in
the tables above, the 2000 and 2001 figures were restated to constant pesos at
December 31, 2002 using the Mexican inflation rate, in order to comply with
current requirements of Regulation S-X, instead of the weighted average
inflation factor used by the Company under Mexican GAAP (see note 2B).
(p) Restatement to Constant Pesos of Prior Years
The following table presents summarized financial information under Mexican
GAAP of the consolidated income statements for the years ended December 31,
2000 and 2001 and balance sheet information at December 31, 2001, in Mexican
pesos of equivalent constant purchasing power of December 31, 2002 using the
Mexican inflation rate:
2000 2001
------------------ ------------------
Sales..................................................................Ps 59,698.5 67,035.8
Gross profit........................................................... 26,339.7 29,329.3
Operating income....................................................... 17,565.7 16,008.6
Majority interest net income........................................... 10,613.7 11,404.2
------------------ ------------------
------------------ ------------------
Current assets......................................................... Ps 22,456.9
Non-current assets..................................................... 134,693.3
Current liabilities....................................................
Non-current
assets 22,721.3
Non-current liabilities................................................ 55,495.9
Majority interest stockholders' equity................................. 59,805.6
Minority interest stockholders' equity................................. 19,127.3
------------------
(q) Environmental Costs
Environmental expenditures related to current operations are expensed or
capitalized, as appropriate. Remediation costs related to an existing
condition caused by past operations are accrued when it is probable that these
costs will be incurred and can be reasonably estimated. CEMEX accrues for
losses associated with environmental remediation obligations when such losses
are probable and reasonably estimable. Costs of future expenditures for
environmental remediation obligations are not discounted to their present
value. Recoveries of environmental remediation costs from other parties are
recorded as assets when their receipt is deemed probable. Other than those
contingencies disclosed in note 21G, the Company is not currently facing other
material situations, which might result in the recognition of an environmental
remediation liability.
F-52
(r) Supplemental Debt Information
At December 31, 2001 and 2002, due to the Company's ability and its intention
to refinance short-term debt with the available amounts of the committed
long-term lines of credit, U.S.$546 million (Ps5,465.4) and U.S.$450 million
(Ps4,671.0), respectively, were reclassified from short-term debt to long-term
debt under Mexican GAAP (see note 12). For purposes of the condensed
information under U.S. GAAP of note 23(o), this reclassification was reversed
given that under U.S. GAAP, the reclassification is precluded when the
long-term agreements contain "Material Adverse Events" clauses, which in the
case of the Company are customary covenants.
(s) Impairment of Long Lived Assets
As noted at the beginning of note 23, for purposes of the reconciliation to
U.S. GAAP, CEMEX adopted SFAS 142 and SFAS 144 effective January 1, 2002. SFAS
142 eliminates the amortization of goodwill and indefinite-lived intangible
assets, and addresses the amortization of intangible assets with finite lives
and impairment testing and recognition for goodwill and intangible assets.
SFAS 144 establishes a single model for the impairment of long-lived assets
and broadens the presentation of discontinued operations to include disposal
of an individual business. As a result of such adoption, beginning January 1,
2002, amortization ceased for goodwill under U.S. GAAP.
In connection with SFAS 142's transitional goodwill impairment evaluation, the
statement requires an assessment of whether there was an indication that
goodwill is impaired as of the date of adoption. To accomplish this, the
Company was required to identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting
units as of January 1, 2002. The Company was also required to determine the
fair value of each reporting unit and compare it to the its related carrying
amount within six months of January 1, 2002. To the extent the fair value of
the reporting unit exceeds its corresponding carrying amount there is no
requirement to recognize an impairment loss. Upon adoption, SFAS 142 required
the Company to determine its reporting units, as defined, for purposes of
assessing fair value in determining the potential impairment at transition and
in future periods. The Company's geographical segments under SFAS 131 are also
its reporting units under SFAS 142, based on the similarities as defined in
SFAS 142 of the components of the operating segments (cement, ready-mix
concrete, aggregates and other construction materials). No impairment charges
were required as a result of the transitional goodwill impairment evaluation
performed for the recorded goodwill as of January 1, 2002.
As a result of the implementation of SFAS 142 and 144 during 2002, pursuant to
which goodwill is defined as an intangible asset with indefinite life and is
no longer amortized, the Company ceased the amortization of the net amounts of
goodwill as of December 31, 2001; therefore such amounts will be fixed and
subject to the impairment test as required by the new rules. For the year
ended December 31, 2002, goodwill under Mexican GAAP continued to be an
amortizable intangible asset. In compliance with the accounting rules set
forth by SFAS, the Company assesses goodwill and indefinite-lived intangibles
for impairment annually unless events occur that require more frequent
reviews. Long-lived assets, including amortizable intangibles, are tested for
impairment if impairment triggers occur. Discounted cash flow analyses are
used to assess the possible impairment of both, amortizable and
non-amortizable intangible assets, while undiscounted cash flow analyses are
used to assess long-lived asset impairment.
As previously discussed in note 23(a), for U.S. GAAP purposes, goodwill
amounts are carried in the reporting unit's functional currency and restated
by the inflation factor of the reporting unit's country and then translated
into Mexican pesos at the exchange rates prevailing at the reporting date.
Under Mexican GAAP, goodwill amounts are carried in the currencies of the
reporting units' holding companies, are translated into pesos and restated by
Mexican inflation.
If an assessment indicates impairment, the impaired asset is written down to
its fair market value based on the best information available. Estimated fair
market value is generally measured with discounted estimated future cash
flows. The useful lives of amortizable intangibles are evaluated periodically,
and subsequent to impairment reviews, to determine whether revision is
warranted. If cash flows related to a nonamortizable intangible are not
expected to continue for the foreseeable future, a useful life would be
assigned. Considerable management judgment is necessary to estimate
undiscounted and discounted future cash flows. Assumptions used for these cash
flows are consistent with internal forecasts and industry practices. In
addition, during 2002, there were no impairment charges except for the
impairment expense disclosed in note 2U, which was attributable to the
reporting unit engaged in software development projects for both Mexican and
U.S. GAAP.
As of December 31, 2002, the Company's approximate goodwill by reporting unit
under U.S. GAAP, net of amortization accrued until December 31, 2001, is as
follows:
F-53
January 1, 2002 Goodwill Impairment Inflation and December 31,
currency
(1) acquired (2) losses fluctuation (3) 2002
----------------- ---------------- ---------------- ---------------- ---------------
United States................ Ps 13,845.2 - - 997.2 14,842.4
Mexico....................... 6,048.3 - - - 6,048.3
Spain........................ 6,394.0 - - 2,027.7 8,421.7
Colombia..................... 3,342.9 - - (217.7) 3,125.2
The Philippines.............. 1,052.1 628.0 - 72.3 1,752.4
Dominican Republic........... 332.2 - - 54.1 386.3
Thailand..................... 363.4 - - 36.0 399.4
The Caribbean................ 346.9 - - 33.6 380.5
Venezuela.................... 286.0 - - (23.5) 262.5
Egypt........................ 256.3 - - 17.4 273.7
Costa Rica................... 263.2 - - 13.4 276.6
Other reporting units (4).... 326.9 371.3 (93.1) 96.1 701.2
Affiliates (see note 8A)..... 314.7 209.7 - 7.8 532.2
----------------- ---------------- ---------------- ---------------- ---------------
Ps
33,172.1 1,209.0 (93.1) 3,114.4 37,402.4
----------------- ---------------- ---------------- ---------------- ---------------
1. This column presents goodwill by reporting unit; net of amortization accrued until December 31, 2001,
presented in constant pesos as of December 31, 2002, using the Mexican inflation rate.
2. The acquired goodwill represents the difference between the purchase price and the estimated fair value
of the acquired entity at the acquisition date, determined in the subsidiary's or the affiliate's
currency and presented in Mexican pesos at the balance sheet date. For the acquisitions during 2002, no
intangible assets, both of definite or indefinite life, were identified and determined other than
goodwill. As mentioned in note 8A, in 2002, CEMEX acquired: (i) from the minority shareholders the
remaining 30% economic interest in Solid for approximately U.S.$95 million (Ps986.1); (ii) through a
tender offer and a subsequent merger, a 100% equity interest in Puerto Rican Cement Company for
approximately U.S.$180.2 million (Ps1,870.5); and (iii) for cash and pursuant to a forward purchase
agreement, a 15.1% equity interest in CAH, for approximately U.S.$142.3 million. In addition, during
2002, CEMEX also made other minor acquisitions for approximately U.S.$60 million.
3. The amounts presented in this column represent the difference between the goodwill amounts as determined
in the reporting units' functional currencies, restated by the reporting unit's inflation rates and
translated into pesos at the exchange rates prevailing at the reporting date, as compared to the same
amounts of goodwill at the beginning of the year, translated into Mexican pesos at the exchange rates of
December 31, 2001, restated into constant pesos as of December 31, 2002 using Mexican inflation.
4. Other reporting units are mainly integrated by the Company's cement operations in Puerto Rico and Panama,
the ready-mix concrete operations in France and Italy and the reporting unit engaged in software
development projects.
The following table reflects the impact that SFAS 142 would have had on prior
years net income under U.S. GAAP and earnings per share if adopted for all
historical periods presented:
Years Ended December 31,
--------------------------------------
2000 2001
------------------ -------------------
Approximate net income under U.S. GAAP, as reported ...................... Ps 9,169.4 10,632.4
Cease goodwill amortization............................................ 965.7 2,239.4
------------------ -------------------
Adjusted net income under U.S. GAAP....................................... Ps 10,135.1 12,871.8
------------------ -------------------
------------------ -------------------
Basic U.S. GAAP earnings per share........................................ Ps 2.23 2.50
Cease goodwill amortization............................................ 0.24 0.52
------------------ -------------------
Adjusted basic U.S. GAAP earnings per share............................... Ps 2.47 3.02
------------------ -------------------
------------------ -------------------
Diluted U.S. GAAP earnings per share...................................... Ps 2.19 2.44
Cease goodwill amortization............................................ 0.23 0.51
------------------ -------------------
Adjusted diluted U.S. GAAP earnings per share............................. Ps 2.42 2.95
------------------ -------------------
------------------ -------------------
(t) Business Combinations
As mentioned in note 8A, during November 2000, CEMEX acquired a majority
equity interest in CEMEX, Inc. (formerly Southdown). For purposes of
disclosure under U.S. GAAP according to APB 16, companies must provide on a
pro forma
F-54
basis, the effects of certain information as if the acquired companies were
consolidated since the beginning of the reported period. Therefore, the Company
is providing pro forma selected income statement amounts for the consolidation
of CEMEX, Inc., as if it had been consolidated for the full year 2000.
In order to make the information comparable with the reported amounts of the
Company in its financial statements under Mexican GAAP, the pro forma amounts
presented in the table below corresponding to 2000, have been restated to
constant pesos as of December 31, 2002, using the weighted average inflation
index (see note 2B). The approximated amounts are as follows:
Year Ended December 31, 2000
--------------------------------------------------------------------------
CEMEX as CEMEX, Inc. CEMEX, Inc. CEMEX
ten-months pro
ten-months as orma adjustments
reported (1) reported (2) f (3) pro forma
----------------- ------------------- ------------------- ----------------
Net sales............................... Ps 58,435.1 11,594.8 - 70,029.9
Operating income........................ 17,193.5 2,939.0 (481.7) 19,650.8
Majority interest net income (loss)..... 10,389.1 1,304.6 (2,545.4) 9,148.3
----------------- ------------------- ------------------ ----------------
Basic earnings per share................ Ps 2.52 2.21
Diluted earnings per share.............. Ps 2.51 2.20
----------------- ----------------
1) Includes results of operations of CEMEX, Inc. for the two-month period
ended December 31, 2000 (see note 8A).
2) CEMEX, Inc.'s ten-month period ended October 31, 2000 is reported in its
2000 annual audited financial statements.
3) For purposes of the pro forma information presented in the table above,
"CEMEX, Inc. ten-months pro forma adjustments" column, reflect the
acquisition of CEMEX, Inc. for the ten months ended October 31, 2000, as
if it had occurred at the beginning of that year. The summary of the pro
forma adjustments is as follows:
3.1)The anticipated interest expense of U.S.$88.5 million in 2000,
resulting from the U.S.$1,328 million debt financing assumed in
connection with CEMEX, Inc. acquisition, which was determined with a
weighted average interest rate of 8%, representative of the borrowing
conditions.
3.2)The estimated amortization expense of U.S.$53.8 million in 2000,
arising from the U.S.$1,161.9 million goodwill recorded in the
acquisition, resulting from the allocation of the net purchase price
of U.S.$2,720.3 million, including adjusting assets and liabilities
to fair value at the date of the acquisition. The purchase price
includes approximately U.S.$2,628.3 million to acquire 100% of the
outstanding shares of common stock and approximately U.S.$48 million
to liquidate stock options of CEMEX, Inc., while the remainder
relates primarily to change of control payments, investment banking
fees and other transaction costs.
3.3)The additional estimated depreciation expense of U.S.$46.3 million
in 2000 resulting from the revaluation of property, machinery and
equipment.
3.4) The income tax benefit at the statutory rate of U.S.$47.2
million in 2000 resulting from the additional
depreciation and interest expense.
3.5) The anticipated preferred dividends of U.S.$103.3 million in 2000
resulting from U.S.$1.5 billion preferred equity financing
transaction used by CEMEX for the acquisition (see note 14F).
As mentioned in note 8A, during 2001 the Company acquired CEMEX Thailand
(formerly Saraburi) and other acquisitions for an aggregate amount of
U.S$214.5 million, and during 2002 the Company acquired Puerto Rican Cement
Company and other minor acquisitions for an aggregate of U.S.$242.3 million,
not including approximately U.S.$235 million spent to acquire minority
interests, of which U.S.$95 million is related to Solid and U.S.$142.3 million
relates to the forward acquisition of CAH shares. For purposes of disclosure
under APB 16 for the years ended December 31, 2001 and 2002, the Company
determined that the impact of such acquisitions on the Company's consolidated
amounts was not material.
(u) Sale of Accounts Receivable
The Company accounts for transfers of receivables under Mexican GAAP
consistently with the rules set forth by SFAS 140 "Accounting for Transfers
and Surveying of Financial Assets and Extinguishments of Liabilities". Under
SFAS
F-55
140, transactions that meet the criteria for surrender of control are
recorded as sales of receivables and their amounts are removed from the
consolidated balance sheet at the time they are sold (see note 4).
(v) Newly Issued Accounting Pronouncements under U.S. GAAP
In June 2001, FASB issued SFAS 143 "Accounting for Asset Retirement
Obligations". SFAS No. 143 requires an entity to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development, and/or normal use
of the assets. Such liability would be recorded against a corresponding asset
that is depreciated over the life of the long-lived asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation will be
adjusted at the end of each period to reflect the passage of time and changes
in the estimated future cash flows underlying the obligation. The Company is
required to adopt SFAS 143 on January 1, 2003. The adoption of SFAS 143 is not
expected to have a material effect on the Company's financial statements.
In April 2002, the FASB issued SFAS 145 "Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishment of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
statement related to the rescission of Statement No. 4 are applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early
application encouraged. The adoption of SFAS No. 145 is not expected to have a
material effect on the Company's financial statements.
In June 2002, the FASB issued SFAS 146 "Accounting for Costs Associated with
Exit or Disposal Activities". SFAS 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity".
The provisions of this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002, with early application encouraged.
The adoption of SFAS 146 is not expected to have a material effect on the
Company's financial statements.
In November 2002, the FASB issued Interpretation 45 "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements 5, 57 and 107 and
a rescission of FASB Interpretation 34". This interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. The interpretation
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the interpretation are
applicable to guarantees issued or modified after December 31, 2002 and are
not expected to have a material effect on the Company's financial statements.
The disclosure requirements are effective for financial statements of interim
or annual periods ending after December 15, 2002.
In connection with the disclosure requirements of Interpretaion 45, related to
the energy generating plant agreement discussed in note 21F, the Company may
also be obligated to purchase the power plant upon the occurrence of specified
material defaults or events, such as failure to pay when due, bankruptcy or
insolvency, and revocation of permits necessary to operate the facility.
Through December 31, 2002, for accounting purposes under Mexican and U.S.
GAAP, the Company has considered this agreement in a manner similar to an
operating lease, based on the contingent characteristics of the Company's
obligation and given that, absent a default under the agreement, the Company's
obligations are limited to the purchase of energy from, and the supply of fuel
to, the plant. Currently, in light of interpretations 45 and 46, the Company is
reviewing the accounting treatment. a final assessment is expected no later
than June 30, 2003.
In December 2002, the FASB issued SFAS 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123". This statement amends FASB Statement 123 "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure
F-56
requirements of Statement 123 to require prominent disclosures in both annual
and interim financial statements. Certain of the disclosure modifications are
required for fiscal years ending after December 15, 2002 and are included in
the notes to these consolidated financial statements.
In January 2003, the FASB issued Interpretation 46 "Consolidation of Variable
Interest Entities, an interpretation of ARB 51". This interpretation addresses
the consolidation by business enterprises of variable interest entities as
defined in the interpretation. The interpretation applies immediately to
variable interests in variable interest entities created after January 31,
2003, and to variable interests in variable interest entities obtained after
January 31, 2003. Currently, the Company is performing a review of
transactions which accounting treatment could be affected by this
interpretation, in order to determine the effect on the Company's financial
statements. A final assessment is expected no later than June 30, 2003. The
interpretation requires certain disclosures in financial statements issued
after January 31, 2003 if it is reasonably possible that the Company will
consolidate or disclose information about variable interest entities when the
interpretation becomes effective.
(w) Recent Developments (unaudited)
In April 2003, the Company amended the terms of the July 12, 2002 agreements
pursuant to which it had agreed to exchange 28,195,213 CEMEX CPOs for
1,483,365 shares of CAH common stock (see note 8A). The terms of the exchange
have been modified with respect to 1,398,602 of the CAH shares. Instead of
purchasing those CAH shares in four equal quarterly tranches commencing on
March 31, 2003, the Company has now agreed to purchase those CAH shares in
four equal quarterly tranches commencing on March 31, 2004. Notwithstanding
the amendments, for accounting purposes, the CAH shares to be received by the
Company pursuant to the exchanges are considered to be owned by the Company
effective as of July 12, 2002, as the former holders of the CAH shares have no
risks or rewards as a result of the CAH operations. Pending the successful
consummation of this transaction, the Company will have increased its stake in
CAH to 92.25%.
In March 2003, U.S.$800 million of the U.S.$1,000 million notional amount of
interest rate swap options (swaptions) held by the Company as of December 31,
2002 matured, and the Company entered into interest rate swaps for a notional
amount of U.S.$800 million in connection with the counterparties' election
under the swaptions to receive from the Company fixed interest rates and pay
to the Company floating interest rates for a five-year period. See note 11.
The remaining swaptions for a notional amount of U.S.$200 million mature in
October 2004.
F-57
(x) Guaranteed debt
In June 2000, CEMEX concluded the issuance of up to U.S.$200 million aggregate
principal amount of 9.625% Exchange Notes due 2009 in a registered public
offering in the United States of America in exchange for U.S.$200 million
aggregate principal amount of its then outstanding 9.625% Notes due 2009. The
Exchange Notes are fully and unconditionally guaranteed, on a joint and
several basis, as to payment of principal and interest by two of the Company's
Mexican subsidiaries: CEMEX Mexico and Empresas Tolteca de Mexico, S.A. de
C.V. ("ETM"). These two companies, together with their subsidiaries, account
for substantially all of the revenues and operating income of CEMEX's Mexican
operations. During 1999, through a series of mergers, the cement and ready-mix
concrete operations of the Company in Mexico were integrated into CEMEX Mexico
(see note 2C). CEMEX Mexico is also the holding company for the Company's
non-Mexican operations.
As mentioned in note 12, as of December 31, 2001 and 2002, indebtedness of the
Company in an aggregate amount of U.S.$ 2,196 million and U.S.$2,339 million,
respectively, is fully and unconditionally guaranteed, on a joint and several
basis, by CEMEX Mexico and ETM. The Company's indebtedness guaranteed by these
two subsidiaries did not increase as a result of the exchange offer described
above.
As of December 31, 2001 and 2002, the Company owned a 100% equity interest in
CEMEX Mexico, including a 2% and a 0.6% equity interest, respectively, held by
a Mexican trust in connection with an equity financing transaction due in 2007
(see note 14F), and CEMEX Mexico owned a 100% equity interest in 2001 and 2002
in ETM. During October and November 2001, CEMEX Mexico and ETM carried out
individually, a reverse stock split. Through this operation, stockholders of
CEMEX Mexico and ETM were entitled to receive one new share for each 130
million old shares and one new share for each 20 million old shares,
respectively. Pursuant to these transactions, the shares of any shareholder
not meeting the minimum number required for the reverse stock split, were
liquidated and converted into the right to receive a cash liquidation. As a
result, as of December 31, 2001, in the consolidated balance sheet of the
Company, an account payable of Ps411.9 million was created in favor of the old
shareholders against CEMEX Mexico and ETM stockholders' equity. During 2002,
CEMEX Mexico and ETM paid no material amounts to the old shareholders. On
December 7, 2002, the period granted by Mexican law for the old shareholders
to claim their rights under the reverse stock split expired. As prescribed by
law, the unclaimed amount after the expiration date should be reimbursed to
the entity's stockholders' equity; as a result, the account payable as of the
expiration date was cancelled against stockholders' equity as of December 31,
2002. In addition, resulting from the reverse stock split, the equity interest
of the Company in both subsidiaries increased to 100%.
For purposes of the accompanying condensed consolidated balance sheets, income
statements and statements of changes in financial position under Mexican GAAP,
the first column, "CEMEX," corresponds to the parent company issuer, which has
no material operations other than its investments in subsidiaries and
affiliated companies. The second column, "Combined Guarantors", represents the
combined amounts of CEMEX Mexico and ETM on a Parent Company-only basis, after
adjustments and eliminations relating to their combination. The third column,
"Combined non-guarantors", represents the amounts of the Company's
international subsidiaries, CEMEX Mexico and ETM non-Guarantor subsidiaries,
and other immaterial Mexican non-guarantor subsidiaries of the Company. The
fourth column, "Adjustments and eliminations", includes all the amounts
resulting from consolidation of CEMEX, the Guarantors and the non-guarantor
subsidiaries, as well as the corresponding constant pesos adjustment as of
December 31, 2002, for the periods ended December 31, 2000 and 2001 described
below. The fifth column, "CEMEX Consolidated", represents the Company's
consolidated amounts as reported in the audited consolidated financial
statements. Additionally, all the amounts presented under the line item
"Investments in affiliates" for both the balance sheet and the income
statement are accounted for by the equity method.
As mentioned in note 2B, according to Mexican GAAP's Bulletin B-15, the
financial statements of those entities with foreign consolidated subsidiaries
should be presented in constant pesos as of the latest balance sheet
presented, considering the inflation of each country in which the entity
operates, as well as the changes in the exchange rate between the functional
currency of each country vis-a-vis the reporting currency (in this case, the
Mexican peso). As a result of the aforementioned, for comparability purposes
the condensed financial information of CEMEX, the "Combined Guarantors" and
the "Combined non-guarantors" amounts have been adjusted to reflect constant
pesos as of December 31, 2002, using the Mexican inflation index arising from
the NCPI. Therefore, the corresponding inflation adjustment derived from the
application of Bulletin B-15 in the consolidated amounts is presented within
the "Adjustments and eliminations" column.
F-58
The condensed consolidated financial information is as follows:
Condensed consolidated balance sheets:
Adjustments CEMEX
Combined Combined and
As of December 31, 2001 CEMEX Guarantors non-guarantors eliminations Consolidated
--------------------------------------------- ---------------------------------------------------------------------------
Current assets............................... Ps 15,590.7 15,849.2 48,319.5 (56,543.2) 23,216.2
Investment in affiliates..................... 17,995.1 67,294.7 9,938.7 (90,055.6) 5,172.9
Other non-current assets..................... 57,519.1 1,133.0 5,903.5 (62,614.5) 1,941.1
Property, machinery and equipment............ 1,695.8 26,004.9 59,079.4 2,712.9 89,493.0
Deferred charges............................. 4,574.1 5,983.9 72,341.8 (40,259.4) 42,640.4
------------- ------------- ------------- ------------- -------------
Total assets.............................. 97,374.8 116,265.7 195,582.9 (246,759.8) 162,463.6
------------- ------------- ------------- ------------- -------------
Current liabilities.......................... 8,953.9 23,824.5 26,618.6 23,489.6
Long-term debt............................... 25,931.4 240.9 8,752.5 8,567.2 43,492.0
Other non-current liabilities................ 661.9 74,688.1 23,169.1 (84,638.7) 13,880.4
------------- ------------- ------------- ------------- -------------
Total liabilities.......................... 35,547.2 98,753.5 58,540.2 (111,978.9) 80,862.0
------------- ------------- ------------- ------------- -------------
Majority interest stockholders' equity....... 61,827.6 17,512.2 61,827.6
------------- ------------- ------------- ------------- -------------
Minority interest.......................... 19,289.6 484.4 19,774.0
------------- ------------- ------------- ------------- -------------
Stockholders' equity under Mexican GAAP...... 61,827.6 17,512.2 137,042.7 (134,780.9) 81,601.6
------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders' equity... Ps 97,374.8 116,265.7 195,582.9 (246,759.8) 162,463.6
------------- ------------- ------------- ------------- -------------
Adjustments CEMEX
Combined Combined and
As of December 31, 2002 CEMEX Guarantors non-guarantors Eliminations Consolidated
- --------------------------------------------- ---------------------------------------------------------------------------
Current assets............................... Ps 20,847.3 10,106.9 57,527.3 (68,212.7) 20,268.8
Investment in affiliates..................... 76,387.2 76,310.4 8,165.9 (155,053.7) 5,809.8
Other non-current assets..................... 17,082.2 491.7 1,329.3 (17,350.5) 1,552.7
Property, machinery and equipment............ 1,689.3 27,537.7 63,666.0 144.3 93,037.3
Deferred charges............................. 6,012.4 6,027.6 80,268.9 (47,577.6) 44,731.3
------------- ------------- ------------- ------------- --------------
Total assets.............................. 122,018.4 120,474.3 210,957.4 (288,050.2) 165,399.9
------------- ------------- ------------- ------------- --------------
Current liabilities.......................... 23,910.8 8,732.4 22,446.1 (24,426.1) 30,663.2
Long-term debt............................... 37,086.6 6.3 15,089.8 (6,781.7) 45,401.0
Other non-current liabilities................ 1,395.0 49,539.0 17,214.5 (50,965.2) 17,183.3
------------- ------------- ------------- ------------- --------------
Total liabilities.......................... 62,392.4 58,277.7 54,750.4 (82,173.0) 93,247.5
------------- ------------- ------------- ------------- --------------
Majority interest stockholders' equity....... 59,626.0 62,196.6 141,950.2 (204,146.8) 59,626.0
------------- ------------- ------------- ------------- --------------
Minority interest.......................... - - 14,256.8 (1,730.4) 12,526.4
------------- ------------- ------------- ------------- --------------
Stockholders' equity under Mexican GAAP...... 59,626.0 62,196.6 156,207.0 (205,877.2) 72,152.4
------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- --------------
Total liabilities and stockholders' equity... Ps 122,018.4 120,474.3 210,957.4 (288,050.2) 165,399.9
------------- ------------- ------------- ------------- --------------
Condensed consolidated income statements:
For the year ended December 31, 2000
Adjustments CEMEX
Combined Combined and
CEMEX Guarantors non-guarantors Eliminations Consolidated
- ----------------------------------------------- --------------------------------------------------------------------------
Sales....................................... Ps - 23,519.4 42,624.5 (7,708.8) 58,435.1
Operating income............................ (101.2) 6,323.7 6,305.2 4,665.8 17,193.5
Comprehensive financing result.............. 110.0 (1,748.1) (3,118.6) 2,949.8 (1,806.9)
Other income (expense), net................. 3,212.6 (872.3) (883.4) (3,892.7) (2,435.8)
Income tax.................................. 940.7 (133.7) (2,624.0) (197.2) (2,014.2)
Equity in income of affiliates.............. 6,227.0 (245.0) 103.4 (5,822.4) 263.0
------------- ------------- ------------ ------------ -------------
Consolidated net income..................... 10,389.1 3,324.6 (217.4) (2,296.7) 11,199.6
------------- ------------- ------------ ------------ -------------
Minority interest......................... - - (759.8) 1,570.3 810.5
------------- ------------- ------------ ------------ -------------
------------- ------------- ------------ ------------ -------------
Majority net income......................... Ps 10,389.1 3,324.6 542.4 (3,867.0) 10,389.1
------------- ------------- ------------ ------------ -------------
F-59
Adjustments CEMEX
Combined Combined and
For the year ended December 31, 2001 CEMEX Guarantors non-guarantors eliminations Consolidated
- ----------------------------------------------- --------------------------------------------------------------------------
Sales....................................... Ps - 21,865.0 52,477.2 (5,039.9) 69,302.3
Operating income............................ (86.7) 1,563.8 5,881.6 9,191.2 16,549.9
Comprehensive financing result.............. 32.7 1,403.5 2,559.5 (1,346.3) 2,649.4
Other income (expense), net................. 105.4 2,006.5 3,255.9 (9,541.6) (4,173.8)
Income tax.................................. 1,337.3 583.7 (2,163.7) (1,906.2)
Equity in income of affiliates.............. 10,401.1 2,618.1 356.4 (13,170.4) 205.2
------------- ------------- ------------ ------------ -------------
Consolidated net income..................... 11,789.8 8,175.6 10,389.9 (17,030.8) 13,324.5
------------- ------------- ------------ ------------ -------------
Minority interest......................... - - 1,144.3 390.4 1,534.7
------------- ------------- ------------ ------------ -------------
------------- ------------- ------------ ------------ -------------
Majority net income......................... Ps 11,789.8 8,175.6 9,245.6 (17,421.2) 11,789.8
------------- ------------- ------------ ------------ -------------
Adjustments CEMEX
Combined Combined and
For the year ended December 31, 2002 CEMEX Guarantors non-guarantors eliminations Consolidated
- ----------------------------------------------- --------------------------------------------------------------------------
Sales....................................... Ps - 21,753.3 48,827.6 (2,663.4) 67,917.5
Operating income............................ (106.3) 3,209.7 5,428.0 5,070.6 13,602.0
Comprehensive financing result.............. (1,373.9) (6,383.0) (3,660.1) 7,998.2 (3,418.8)
Other income (expense), net................. 124.8 (328.3) 6,090.9 (9,928.1) (4,040.7)
Income tax.................................. 2,208.9 (1,249.2) (1,254.4) (381.4) (676.1)
Equity in income of affiliates.............. 4,546.9 1,596.0 (2.3) (5,821.9) 318.7
------------- ------------- ------------ ------------ -------------
Consolidated net income..................... 5,400.4 (3,154.8) 6,602.1 (3,062.6) 5,785.1
------------- ------------- ------------ ------------ -------------
Minority interest......................... - - 84.8 299.9 384.7
------------- ------------- ------------ ------------ -------------
------------- ------------- ------------ ------------ -------------
Majority net income......................... Ps 5,400.4 (3,154.8) 6,517.3 (3,362.5) 5,400.4
------------- ------------- ------------ ------------ -------------
Condensed consolidated statements of changes in financial position:
Adjustments CEMEX
Combined Combined and
For the year ended December 31, 2000 CEMEX Guarantors non-guarantors eliminations Consolidated
- ---------------------------------------------- -------------------------------------------------------------------------
Operating activities:
Majority net income......................... Ps 10,389.1 3,324.6 542.4 (3,867.0) 10,389.1
Non-cash items.............................. (6,680.3) 780.0 7,836.8 4,658.0 6,594.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Resources provided by operations......... 3,708.8 4,104.6 8,379.2 791.0 16,983.6
Net change in working capital............... (8,921.6) 4,478.3 6,022.1 (470.5) 1,108.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Resources provided by operations, net.... (5,212.8) 8,582.9 14,401.3 320.5 18,091.9
Financing activities:
Bank loans and notes payable, net........... 2,106.7 (778.6) 10,761.3 (1,060.8) 11,028.6
Dividends paid.............................. (2,386.2) - (511.5) 511.5 (2,386.2)
Issuance of common stock.................... 2,243.1 - - - 2,243.1
Issuance of preferred stock by subsidiaries. - - 16,071.1 (340.2) 15,730.9
Others...................................... (169.3) (822.5) (478.6) (3,351.8) (4,822.2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Resources used in financing activities.... 1,794.3 (1,601.1) 25,842.3 (4,241.3) 21,794.2
Investing activities:
Property, machinery and equipment, net...... - (523.3) (2,227.1) 58.2 (2,692.2)
Acquisitions, net of cash acquired.......... (9,402.9) (4,016.8) (18,338.0) 4,650.5 (27,107.2)
Dividends received.......................... 511.6 - - (511.6) -
Minority interest........................... - - (5,627.7) 119.2 (5,508.5)
Deferred charges and others................. 12,304.3 (3,141.9) (14,241.7) 270.4 (4,808.9)
-------------------------------------------------------------------------
Resources used in investing activities.... 3,413.0 (7,682.0) (40,434.5) 4,586.7 (40,116.8)
Change in cash and investments............ (5.5) (700.2) (190.9) 665.9 (230.7)
Cash and investments initial balance...... 66.0 2,528.5 2,900.6 (2,061.5) 3,433.6
------------- ----------- ------------ ------------- --------------
------------- ----------- ------------ ------------- --------------
Cash and investments ending balance....... Ps 60.5 1,828.3 2,709.7 (1,395.6) 3,202.9
------------- ----------- ------------ ------------- --------------
F-60
Adjustments CEMEX
Combined Combined and
For the year ended December 31, 2001 CEMEX Guarantors non-guarantors eliminations Consolidated
- ---------------------------------------------- -------------------------------------------------------------------------
Operating activities:
Majority net income......................... Ps 11,789.8 8,175.6 9,245.6 (17,421.2) 11,789.8
Non-cash items.............................. (10,415.2) (1,737.3) 3,075.8 18,870.6 9,793.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Resources provided by operations......... 1,374.6 6,438.3 12,321.4 1,449.4 21,583.7
Net change in working capital............... (7,600.7) 5,955.5 2,213.1 1,474.6 2,042.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Resources provided by operations, net.... (6,226.1) 12,393.8 14,534.5 2,924.0 23,626.2
Financing activities:
Bank loans and notes payable, net........... 1,801.7 (55.9) (15,070.1) 8,587.2 (4,737.1)
Dividends paid.............................. (3,049.2) - 8,742.0 (8,742.0) (3,049.2)
Issuance of common stock.................... 3,014.1 - - - 3,014.1
Issuance of preferred stock by subsidiaries. (6,369.9)
- - (6,369.9) (215.4) (6,585.3)
Others...................................... 382.4 47,255.4 (9,451.4) (40,802.3) (2,615.9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Resources used in financing activities.... 2,149.0 47,199.5 (22,149.4) (41,172.5) (13,973.4)
Investing activities:
Property, machinery and equipment, net...... - (775.5) (4,170.0) 564.9 (4,380.6)
Acquisitions, net of cash acquired.......... 40,841.1 (60,290.2) (21,951.5) 39,387.5 (2,013.1)
Minority interest........................... - - (98.8) (3.4) (102.2)
Deferred charges and others................. (36,661.0) 696.6 33,406.9 485.8 (2,071.7)
-------------------------------------------------------------------------
Resources used in investing activities.... 4,180.1 (60,369.1) 7,186.6 40,434.8 (8,567.6)
Change in cash and investments............ 103.0 (775.8) (428.3) 2,186.3 1,085.2
Cash and investments initial balance...... 60.5 1,828.3 2,709.7 (1,395.6) 3,202.9
------------- ----------- ------------ ------------- --------------
------------- ----------- ------------ ------------- --------------
Cash and investments ending balance....... Ps
163.5 1,052.5 2,281.4 790.7 4,288.1
------------- ----------- ------------ ------------- --------------
Adjustments CEMEX
Combined Combined and
For the year ended December 31, 2002 CEMEX Guarantors non-guarantors eliminations Consolidated
- ---------------------------------------------- -------------------------------------------------------------------------
Operating activities:
Majority net income......................... Ps 5,400.4 (3,154.8) 6,517.3 (3,362.5) 5,400.4
Non-cash items.............................. (5,631.2) 1,063.8 19,716.4 (7,252.3) 7,896.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Resources provided by operations......... (230.8) (2,091.0) 26,233.7 (10,614.8) 13,297.1
Net change in working capital............... 1,089.9 5,032.4 (27,128.3) 24,977.6 3,971.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Resources provided by operations, net.... 859.1 2,941.4 (894.6) 14,362.8 17,268.7
Financing activities:
Bank loans and notes payable, net........... 7,299.5 63.8 (5,068.2) - 2,295.1
Dividends paid.............................. (3,394.1) (2,171.5) 2.4 2,169.1 (3,394.1)
Issuance of common stock.................... 3,157.4 51,460.6 14,502.1 (65,962.7) 3,157.4
Issuance of preferred stock by subsidiaries. - - (4,191.5) - (4,191.5)
Others...................................... 370.6 (51,632.3) 53,956.9 - 2,695.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Resources used in financing activities.... 7,433.4 (2,279.4) 59,201.7 (63,793.6) 562.1
Investing activities:
Property, machinery and equipment, net...... - (1,063.6) (2,780.5) - (3,844.1)
Acquisitions, net of cash acquired.......... (63,299.0) 11,507.1 562.4 48,494.1 (2,735.4)
Dividends received.......................... 2,169.1 - - (2,169.1) -
Minority interest........................... - - (2,959.9) - (2,959.9)
Deferred charges and others................. 53,042.0 (10,321.1) (52,266.5) 714.9 (8,830.7)
-------------------------------------------------------------------------
Resources used in investing activities.... (8,087.9) 122.4 (57,444.5) 47,039.9 (18,370.1)
Change in cash and investments............ 204.6 784.4 862.6 (2,390.9) (539.3)
Cash and investments initial balance...... 163.5 1,052.5 2,281.4 790.7 4,288.1
------------- ----------- ------------ ------------- --------------
------------- ----------- ------------ ------------- --------------
Cash and investments ending balance....... Ps 368.1 1,836.9 3,144.0 (1,600.2) 3,748.8
------------- ----------- ------------ ------------- --------------
F-61
The tables below present consolidated balance sheets as of December 31, 2001
and 2002, and income statements and statements of changes in financial
position for each of the three-year periods ended December 31, 2002 for the
Guarantors. Such information presents in separate columns each individual
Guarantor on a Parent Company-only basis, consolidation adjustments and
eliminations, and the combined Guarantors. All significant related parties
balances and transactions between the Guarantors have been eliminated in the
"Combined Guarantors" column.
The amounts presented in the column "Combined Guarantors" are readily
comparable with the information of the Guarantors included in the condensed
consolidated financial information. As previously described, amounts presented
under the line item "Investments in affiliates" for both the balance sheets
and income statements, include the net investment in affiliates accounted for
by the equity method. In addition, the Guarantors' reconciliation of net
income and stockholders' equity to U.S. GAAP are presented below:
Guarantors' Combined Balance Sheets:
F-62
December 31, 2001 Guarantors (Parent Company-only)
-----------------------------------------------------------------
ETM Adjustments Combined
and
Assets CEMEX Mexico eliminations Guarantors
---------------- -------------- --------------- ---------------
Current Assets
Cash and investments................................. Ps 401.9 650.6 - 1,052.5
Trade accounts receivable, net....................... 1,828.2 - - 1,828.2
Other receivables and other current assets........... 1,602.8 1,535.9 - 3,138.7
Related parties receivables.......................... 8,644.0 17,687.3 (17,845.7) 8,485.6
Inventories.......................................... 1,344.2 - - 1,344.2
---------------- -------------- --------------- ---------------
Total current assets.............................. 13,821.1 19,873.8 (17,845.7) 15,849.2
---------------- -------------- --------------- ---------------
Other Investments
Investments in subsidiaries and affiliates........... 91,762.7 15,691.2 (40,159.2) 67,294.7
Long-term related parties receivables................ 841.6 - - 841.6
Other investments.................................... 155.4 136.0 - 291.4
---------------- -------------- --------------- ---------------
Total other investments........................... 92,759.7 15,827.2 (40,159.2) 68,427.7
---------------- -------------- --------------- ---------------
---------------- -------------- --------------- ---------------
Property, plant and equipment........................ 26,004.9 - - 26,004.9
---------------- -------------- --------------- ---------------
Deferred Charges..................................... 1,973.5 4,814.0 (803.6) 5,983.9
---------------- -------------- --------------- ---------------
---------------- -------------- --------------- ---------------
Total Assets..........................................Ps.. 134,559.2 40,515.0 (58,808.5) 116,265.7
---------------- -------------- --------------- ---------------
---------------- -------------- --------------- ---------------
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of long-term debt.................... 5.1 - - 5.1
Trade accounts payable.................................. 382.0 - - 382.0
Other accounts payable and accrued expenses.............. 2,146.8 167.3 - 2,314.1
Related parties payables................................. 38,803.5 165.3 (17,845.5) 21,123.3
---------------- -------------- --------------- ---------------
Total current liabilities............................ 41,337.4 332.6 (17,845.5) 23,824.5
---------------- -------------- --------------- ---------------
---------------- -------------- --------------- ---------------
Total long-term debt................................... 240.9 - - 240.9
---------------- -------------- --------------- ---------------
Other Noncurrent Liabilities
Deferred income taxes................................... 6,361.3 - (803.8) 5,557.5
Others.................................................. - 23.2 - 23.2
Long-term related parties payables...................... 69,107.4 - - 69,107.4
---------------- -------------- --------------- ---------------
Total other noncurrent liabilities................... 75,468.7 23.2 (803.8) 74,688.1
---------------- -------------- --------------- ---------------
Total Liabilities 117,047.0 355.8 (18,649.3) 98,753.5
---------------- -------------- --------------- ---------------
Stockholders' equity.................................... 9,336.6 38,583.6 (38,583.6) 9,336.6
Net income.............................................. 8,175.6 1,575.6 (1,575.6) 8,175.6
---------------- -------------- --------------- ---------------
Total stockholders' equity........................... 17,512.2 40,159.2 (40,159.2) 17,512.2
---------------- -------------- --------------- ---------------
---------------- -------------- --------------- ---------------
Total Liabilities and Stockholders' Equity.......... Ps 134,559.2 40,515.0 (58,808.5) 116,265.7
---------------- -------------- --------------- ---------------
Guarantors' Combined Balance Sheets:
December 31, 2002 Guarantors (Parent Company-only)
-----------------------------------------------------------------
ETM Adjustments Combined
and
Assets CEMEX Mexico eliminations Guarantors
---------------- -------------- --------------- ---------------
Current Assets
Cash and investments................................. Ps 1,245.2 591.7 - 1,836.9
Trade accounts receivable, net....................... 329.3 - - 329.3
Other receivables and other current assets........... 845.4 884.6 (49.2) 1,680.8
Related parties receivables.......................... 2,918.0 4,585.1 (2,781.7) 4,721.4
Inventories.......................................... 1,538.5 - - 1,538.5
---------------- -------------- --------------- ---------------
Total current assets.............................. 6,876.4 6,061.4 (2,830.9) 10,106.9
---------------- -------------- --------------- ---------------
Other Investments
Investments in subsidiaries and affiliates........... 99,880.6 14,676.3 (38,246.5) 76,310.4
Long-term related parties receivables................ 289.9 13,563.5 (13,563.5) 289.9
Other investments.................................... 201.8 - - 201.8
---------------- -------------- --------------- ---------------
Total other investments........................... 100,372.3 28,239.8 (51,810.0) 76,802.1
---------------- -------------- --------------- ---------------
---------------- -------------- --------------- ---------------
Property, plant and equipment........................ 27,537.7 - - 27,537.7
---------------- -------------- --------------- ---------------
Deferred Charges..................................... 2,039.8 4,072.6 (84.8) 6,027.6
---------------- -------------- --------------- ---------------
---------------- -------------- --------------- ---------------
Total Assets..........................................Ps.. 136,826.2 38,373.8 (54,725.7) 120,474.3
---------------- -------------- --------------- ---------------
---------------- -------------- --------------- ---------------
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of long-term debt.................... 251.8 - - 251.8
Trade accounts payable.................................. 391.6 - - 391.6
Other accounts payable and accrued expenses.............. 1,208.3 75.8 (49.3) 1,234.8
Related parties payables................................. 9,635.9 - (2,781.7) 6,854.2
---------------- -------------- --------------- ---------------
Total current liabilities............................ 11,487.6 75.8 (2,831.0) 8,732.4
---------------- -------------- --------------- ---------------
---------------- -------------- --------------- ---------------
Total long-term debt................................... 6.3 - - 6.3
---------------- -------------- --------------- ---------------
Other Noncurrent Liabilities
Deferred income taxes................................... 7,492.6 - (84.8) 7,407.8
Others.................................................. - 51.5 - 51.5
Long-term related parties payables...................... 55,643.1 - (13,563.4) 42,079.7
---------------- -------------- --------------- ---------------
Total other noncurrent liabilities................... 63,135.7 51.5 (13,648.2 49,539.0
---------------- -------------- --------------- ---------------
Total Liabilities 74,629.6 127.3 (16,479.2) 58,277.7
---------------- -------------- --------------- ---------------
Stockholders' equity.................................... 65,351.4 39,514.2 (39,514.2) 65,351.4
Net income.............................................. (3,154.8) (1,267.7) 1,267.7 (3,154.8)
---------------- -------------- --------------- ---------------
Total stockholders' equity........................... 62,196.6 38,246.5 (38,246.5) 62,196.6
---------------- -------------- --------------- ---------------
---------------- -------------- --------------- ---------------
Total Liabilities and Stockholders' Equity.......... Ps 136,826.2 38,373.8 (54,725.7) 120,474.3
---------------- -------------- --------------- ---------------
F-63
Guarantors' Combined Income Statements:
Guarantors (Parent Company-only)
-----------------------------------------------------------
-----------------------------------------------------------
For the year ended December 31, 2000 CEMEX Mexico ETM Adjustments Combined
and
eliminations Guarantors
------------- ------------- ------------- -------------
Net sales................................................ Ps - -
23,519.4 23,519.4
Cost of sales............................................ (10,279.4) - - (10,279.4)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Gross profit.......................................... - -
13,240.0 13,240.0
Total operating expenses..............................
(6,915.7) (0.6) - (6,916.3)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Operating income.................................... -
6,324.3 (0.6) 6,323.7
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net comprehensive financing result...................... -
(1,596.3) (151.8) (1,748.1)
------------- ------------- ------------- -------------
Other income (expense), net..............................
(966.9) 94.6 - (872.3)
------------- ------------- ------------- -------------
Income before IT, BAT, ESPS and equity in affiliates.......
3,761.1 (57.8) - 3,703.3
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total IT, BAT and ESPS................................... -
(86.8) (46.9) (133.7)
------------- ------------- ------------- -------------
Income before equity in income of affiliates.............. - 3,569.6
3,674.3 (104.7)
Equity in income of affiliates.........................
(349.7) (27.5) 132.2 (245.0)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income.............................................. Ps
3,324.6 (132.2) 132.2 3,324.6
------------- ------------- ------------- -------------
Guarantors (Parent Company-only)
-----------------------------------------------------------
-----------------------------------------------------------
For the year ended December 31, 2001 CEMEX Mexico ETM Adjustments Combined
and
eliminations Guarantors
------------- ------------- ------------- -------------
Net sales.................................................. Ps 21,865.0 - - 21,865.0
Cost of sales.............................................. (7,317.8) - - (7,317.8)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Gross profit............................................ - - 14,547.2
14,547.2
Total operating expenses................................ (12,981.3) (2.1) - (12,983.4)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Operating income...................................... 1,565.9 - 1,563.8
(2.1)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net comprehensive financing result........................ 724.8 678.7 - 1,403.5
------------- ------------- ------------- -------------
Other income (expense), net................................ 2,065.1 2,006.5
(58.6) -
------------- ------------- ------------- -------------
Income before IT, BAT, ESPS and equity in affiliates........ 4,355.8 618.0 - 4,973.8
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total IT, BAT and ESPS..................................... 743.1 (159.4) -
583.7
------------- ------------- ------------- -------------
Income before equity in income of affiliates................ 5,098.9 458.6 - 5,557.5
Equity in income of affiliates........................... 1,117.0
3,076.7 (1,575.6) 2,618.1
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income................................................ Ps 8,175.6 1,575.6 (1,575.6) 8,175.6
7,742.8
------------- ------------- ------------- -------------
Guarantors (Parent Company-only)
-----------------------------------------------------------
-----------------------------------------------------------
For the year ended December 31, 2002 CEMEX Mexico ETM Adjustments Combined
and
eliminations Guarantors
------------- ------------- ------------- -------------
Net sales.................................................. Ps 21,753.3 - - 21,753.3
Cost of sales.............................................. (7,468.3) - - (7,468.3)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Gross profit............................................ 14,285.0 - - 14,285.0
Total operating expenses................................ (11,075.1) (0.2) - (11,075.3)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Operating income...................................... 3,209.9 (0.2) - 3,209.7
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net comprehensive financing result........................ (5,867.1) (515.9) - (6,383.0)
------------- ------------- ------------- -------------
Other income (expense), net................................ (321.7) (6.6) - (328.3)
------------- ------------- ------------- -------------
Income before IT, BAT, ESPS and equity in affiliates........ (2,978.9) (522.7) - (3,501.6)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total IT, BAT and ESPS..................................... (530.4) (718.8) - (1,249.2)
------------- ------------- ------------- -------------
Income before equity in income of affiliates................ (3,509.3) (1,241.5) - (4,750.8)
Equity in income of affiliates........................... 354.5 (26.2) 1,267.7 1,596.0
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income................................................ Ps (3,154.8) (1,267.7) 1,267.7 (3,154.8)
------------- ------------- ------------- -------------
Guarantors' Combined Statements of Changes in Financial Position:
F-64
Guarantors (Parent Company-only)
------------------------------------------------------------
ETM Adjustments Combined
and
For the year ended December 31, 2000 CEMEX Mexico eliminations Guarantors
------------- -------------- ------------- --------------
Operating activities
Net income...............................................Ps 3,324.6 (132.2) 132.2 3,324.6
Charges to operations which did not require resources.... 1,840.2 (15.7) (1,044.5) 780.0
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Resources provided by operating activities............... 5,164.8 (147.9) (912.3) 4,104.6
Net change in working capital......................... 5,155.5 (677.2) - 4,478.3
-------------- ------------- ------------- --------------
Net resources provided by operating activities.... 10,320.3
10,320.3 (825.1) (912.3) 8,582.9
-------------- ------------- ------------- --------------
Financing activities
Bank loans and notes payable, net..................... (778.6) - - (778.6)
Dividends.................................................. - 8,714.4 (8,714.4) -
Long-term related parties receivables and payables, net.... 4,843.2 - (4,843.2) -
Other noncurrent assets and liabilities, net............... - (822.5) - (822.5)
-------------- ------------- ------------- --------------
Resources used in financing activities..................... 4,064.6 7,891.9 (13,557.6) (1,601.1)
-------------- ------------- ------------- --------------
Investing activities
Property, plant and equipment, net......................... (523.3) - - (523.3)
Investments in subsidiaries and affiliates............... (13,692.4)
48.8 9,626.8 (4,016.8)
Deferred charges........................................ (164.5) - - (164.5)
Other investments....................................... (254.6) (7,565.9) 4,843.1 (2,977.4)
-------------- ------------- ------------- --------------
Resources used in investing activities................ (14,634.8) (7,517.1) 14,469.9 (7,682.0)
-------------- ------------- ------------- --------------
Change in cash and investments....................... (249.9) (450.3) (700.2)
Cash and investments initial balance................. 752.9 1,775.6 - 2,528.5
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Cash and investments ending balance.................. Ps 503.0 1,325.3 - 1,828.3
-------------- ------------- ------------- --------------
Guarantors (Parent Company-only)
------------------------------------------------------------
For the year ended December 31, 2001 CEMEX Mexico ETM Adjustments Combined
and
eliminations Guarantors
------------- -------------- ------------- --------------
Operating activities
Net income...............................................Ps 8,175.6 1,575.6 (1,575.6) 8,175.6
Charges to operations which did not require resources.... (2,387.0) (939.3) 1,589.0 (1,737.3)
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Resources provided by operating activities............... 5,788.6 636.3 13.4 6,438.3
Net change in working capital......................... 16,600.4 (10,684.9) 40.0 5,955.5
-------------- ------------- ------------- --------------
Net resources provided by operating activities.... 22,389.0 (10,048.6) 53.4 12,393.8
-------------- ------------- ------------- --------------
Financing activities
Bank loans and notes payable, net...................... (55.9) 40.0 (40.0) (55.9)
Dividends................................................... - - - -
Long-term related parties receivables and payables, net..... 39,325.8 8,072.4 - 47,398.2
Other noncurrent assets and liabilities, net................ (142.8) (110.3) 110.3 (142.8)
-------------- ------------- ------------- --------------
Resources used in financing activities...................... 39,127.1 8,002.1 70.3 47,199.5
-------------- ------------- ------------- --------------
Investing activities
Property, plant and equipment, net.. (775.5) - - (775.5)
Investments in subsidiaries and affiliates............... (60,251.6) 71.7 (110.3) (60,290.2)
Deferred charges........................................ (434.7) 23.3 (13.4) (424.8)
Other investments....................................... (155.4) 1,276.8 - 1,121.4
-------------- ------------- ------------- --------------
Resources used in investing activities................ (61,617.2) 1,371.8 (123.7) (60,369.1)
-------------- ------------- ------------- --------------
Change in cash and investments....................... (101.1) (674.7) - (775.8)
Cash and investments initial balance................. 503.0 1,325.3 - 1,828.3
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Cash and investments ending balance.................. Ps 401.9 650.6 - 1,052.5
-------------- ------------- ------------- --------------
Guarantors' Combined Statements of Changes in Financial Position:
F-65
Guarantors (Parent Company-only)
------------------------------------------------------------
For the year ended December 31, 2002 CEMEX Mexico ETM Adjustments Combined
and
eliminations Guarantors
------------- -------------- ------------- --------------
Operating activities
Net income...............................................Ps (3,154.8) (1,267.7) 1,267.7 (3,154.8)
Charges to operations which did not require resources.... 1,551.7 779.8 (1,267.7) 1,063.8
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Resources provided by operating activities............... (1,603.1) (487.9) - (2,091.0)
Net change in working capital......................... 4,622.7 (25.2) 434.9 5,032.4
-------------- ------------- ------------- --------------
Net resources provided by operating activities.... 3,019.6 (513.1) 434.9 2,941.4
-------------- ------------- ------------- --------------
Financing activities
Bank loans and notes payable, net...................... 12.3 51.5 - 63.8
Dividends................................................... (2,171.5) - - (2,171.5)
Long-term related parties receivables and payables, net..... (51,632.3) - - (51,632.3)
Other noncurrent assets and liabilities, net................ 51,460.6 - - 51,460.6
-------------- ------------- ------------- --------------
Resources used in financing activities...................... (2,330.9) 51.5 - (2,279.4)
-------------- ------------- ------------- --------------
Investing activities
Property, plant and equipment, net.. (1,063.6) - - (1,063.6)
Investments in subsidiaries and affiliates............... (10,372.9) 319.9 62.2 (9,990.8)
Deferred charges........................................ (212.5) (16.9) (100.9) (330.3)
Other investments....................................... 11,803.6 99.7 (396.2) 11,507.1
-------------- ------------- ------------- --------------
Resources used in investing activities................ 154.6 402.7 (434.9) 122.4
-------------- ------------- ------------- --------------
Change in cash and investments....................... 843.3 (58.9) - 784.4
Cash and investments initial balance................. 401.9 650.6 - 1,052.5
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Cash and investments ending balance.................. Ps 1,245.2 591.7 - 1,836.9
-------------- ------------- ------------- --------------
Guarantors--Cash and investments
At December 31, 2001 and 2002, ETM's temporary investments are mainly
comprised of CEMEX CPOs.
Guarantors--Investment in affiliates
At December 31, 2001 and 2002, of the Guarantors' total investment in
affiliates, which are accounted for under the equity method, Ps67,117.0 and
Ps76,112.7, respectively, correspond to investments in non-guarantors, and
Ps177.7 in 2001 and Ps197.8 in 2002 are related to minority investments in
third parties.
At December 31, 2002, the main Guarantors' investments in non-guarantors are
in CEMEX Concretos, S.A. de C.V and CEMEX Internacional, S.A. de C.V., which
together integrate the ready-mix concrete operations and export trading
activities of the Company in Mexico; and CEDICE, which is the parent company
of the international operations of CEMEX. In January 2001, CEMEX Mexico
acquired from CEMEX the majority interest in CEDICE for approximately U.S.$3.9
billion.
Guarantors--Indebtedness
At December 31, 2001 and 2002, the Guarantors had total indebtedness of
U.S.$25.4 million (Ps246.0) and U.S.$24.9 million (Ps258.1), respectively. At
December 31, 2002, the average interest rate of this indebtedness was
approximately 7.8%. Of the total indebtedness of the Guarantors at December
31, 2002, approximately U.S.$24.3 million (Ps251.8) matures in 2003 and
U.S.$0.6 million (Ps6.3) matures in 2004.
F-66
Guarantors--Balances and transactions with related parties
Balances with related parties result primarily from (i) the sale and purchase
of cement and clinker to and from affiliates, (ii) the sale and/or acquisition
of subsidiaries' shares within the CEMEX group, (iii) the invoicing of
administrative and other services received or provided from and to affiliated
companies, and (iv) the transfer of funds between the Guarantors, their
respective parents and certain affiliates. The related parties balance detail
is as follows:
2001
--------------------------------------------------------------------
Assets Liabilities
-------------------------------- --------------------------------
Guarantors Short-Term Long-Term Short-Term Long-Term
-------------- -------------- ------------- ---------------
Centro Distribuidor de Cemento, S.A. de C.V........ Ps 2,861.7 - - -
CEMEX Concretos, S.A. de C.V....................... 2,511.5 - - -
CEMEX Central, S.A. de C.V......................... 2,293.4 - - -
Proveedora Mexicana de Materiales, S.A. de C.V..... 214.2 - - -
Aviacion Comercial de America, S.A. de C.V......... 135.9 - - -
Inversora en Cales, S.A. de C.V.................... 127.4 - - -
Impra Cafe, S.A. de C.V............................ 113.2 - - -
CEMEX, S.A. de C.V. ............................... - - 9,065.4 56,997.6
CEMEX International Finance Company ............... - - 7,011.8 4,631.9
Petrocemex, S.A. de C.V............................ - - 1,790.2 2,903.7
Maquinas Industrias y Equipos, S.A. de C.V......... - - 683.5 -
Ultracril, S.A. de C.V............................. - - 578.5 -
CEMEX Internacional, S.A. de C.V................... - - 570.3 -
Inmobiliaria Rio la Silla, S.A. de C.V............. - - 482.8 -
Maquindustrias, S.A. de C.V........................ - - 315.7 -
Turismo CEMEX, S.A. de C.V......................... - - 243.0 -
Landmark la Silla, S.A. de C.V. ..................... - 841.6 - -
CEMEX Trademarks Worldwide Ltd..................... - - - 3,171.2
Sunward Acquisitions N.V........................... - - - 1,403.0
Others............................................. 228.3 - 382.1 -
-------------- -------------- ------------- ---------------
-------------- -------------- ------------- ---------------
Ps 8,485.6 841.6 21,123.3 69,107.4
-------------- -------------- ------------- ---------------
2002
--------------------------------------------------------------------
Assets Liabilities
-------------------------------- --------------------------------
Guarantors Short-Term Long-Term Short-Term Long-Term
-------------- -------------- ------------- ---------------
CEMEX, S.A. de C.V................................. Ps 1,803.2 - - 32,968.6
CEMEX Central, S.A. de C.V......................... 905.6 - - -
CEMEX Concretos, S.A. de C.V....................... 471.0 - - -
Impra Cafe, S.A. de C.V. .......................... 374.8 - - -
Proveedora Mexicana de Materiales, S.A. de C.V..... 225.3 - - -
Servicio CEMEX Mexico, S.A. de C.V. ............... 217.9 - - -
Poveedora de Fibras Textiles, S.A. de C.V. ........ 176.8 - - -
Inversora en Cales, S.A. de C.V. .................. 171.4 - - -
Carbonifera San Patricio, S.A. de C.V. ............ 79.4 - - -
Inmobiliaria Rio la Silla, S.A. de C.V............. 69.4 289.9 - -
Aviacion Comercial de America, S.A. de C.V. ....... 34.5 - - -
Centro Distribuidor de Cemento, S.A. de C.V. ...... - - - 6,361.1
CEMEX International Finance Company................ - - 4,662.6 -
Petrocemex, S.A. de C.V............................ - - 682.0 2,750.0
CEMEX Internacional, S.A. de C.V................... - - 585.3 -
Turismo CEMEX, S.A. de C.V.. ........................ - - 255.4 -
Neoris de Mexico, S.A. de C.V...................... - - 215.2 -
MEXCEMENTO Holdings S.A. de C.V.................... - - 109.0 -
Others............................................. 192.1 - 344.7 -
-------------- -------------- ------------- ---------------
-------------- -------------- ------------- ---------------
Ps 4,721.4 289.9 6,854.2 42,079.7
-------------- -------------- ------------- ---------------
F-67
The principal transactions carried out with affiliated companies are:
December 31,
----------------------------------------------
Guarantors 2000 2001 2002
------------- ------------ ------------
Net sales.....................................................Ps 3,612.8 3,555.1 3,363.2
Purchases...................................................... (1,095.2) (539.0) (985.8)
Selling and administrative expenses ........................... (5,080.6) (9,161.3) (7,197.2)
Financial expense.............................................. (3,396.7) (5,957.7) (4,275.3)
Financial income ............................................ . 145.5 1,072.2 576.9
Other expense, net .......................................... Ps 72.3 (69.9) (56.6)
------------- ------------ ------------
Net sales--The Guarantors sell cement and clinker to affiliated companies in
arms-length transactions. Purchases--The Guarantors purchase raw materials
from affiliates in arms-length transactions. Selling and administrative
expenses--The Company allocates part of its corporate expense to the
Guarantors, which also incur rental and trademark rights expenses payable to
the Company.
Financial income and expense is recorded on receivables from and payables to
affiliated companies as described above. Additionally, the Guarantors receive
financial income on their temporary investment position, invested in the
non-guarantor treasury company.
Guarantors--U.S. GAAP reconciliation of net income and stockholders' equity:
As discussed at the beginning of this note 23, the following reconciliation to
U.S. GAAP does not include the reversal of Mexican GAAP inflation accounting
adjustments, as these adjustments represent a comprehensive measure of the
effects of price level changes in the inflationary Mexican economy, which is
considered a more meaningful presentation than historical cost-based financial
reporting for both Mexican and U.S. accounting purposes. The other principal
differences between Mexican GAAP and U.S. GAAP and the effect on net income
and stockholders' equity are presented below, with an explanation of the
adjustments.
Year ended December 31,
--------------------------------------------
2000 2001 2002
----------- ------------ --------------
Net income reported under Mexican GAAP........................... Ps 3,324.6 8,175.6 (3,154.8)
Approximate U.S. GAAP adjustments:
1. Amortization of pushdown goodwill (see note A)................ (196.6) (191.0) -
2. Deferred income taxes and ESPS (see note B)................... (323.2) (1,217.8) 1,934.0
3. Other employees' benefits (see note C)........................ (25.3) (4.8) (13.5)
4. Inflation adjustment of machinery and equipment (see note D).. (163.1) (240.1) (183.0)
5. Other U.S. GAAP adjustments (see note E)...................... (1,709.5) (1,239.5) 303.0
6. Monetary position result (see note F)......................... 614.7 222.9 494.3
----------- ------------ --------------
Total approximate U.S. GAAP adjustments...................... (1,803.0) (2,670.3) 2,534.8
----------- ------------ --------------
----------- ------------ --------------
Total approximate net income under U.S. GAAP................. Ps 1,521.6 5,505.3 (620.0)
----------- ------------ --------------
Year ended December 31,
-----------------------------------
2001 2002
---------------- ---------------
Total stockholders' equity under Mexican GAAP............................. Ps 17,512.2 62,196.6
Approximate U.S. GAAP adjustments:
1. Effect of pushdown of goodwill, net (see note A)...................... 2,126.9 1,943.1
2. Deferred income taxes and ESPS (see note B)........................... (5,297.4) (2,196.3)
3. Other employees' benefits (see note C)................................ (159.8) (164.7)
4. Inflation adjustment for machinery and equipment (see note D).......... 5,586.9 3,935.8
5. Other U.S. GAAP adjustments (see note E).............................. (7,417.5) (6,160.4)
---------------- ---------------
Total approximate U.S. GAAP adjustments.............................. (5,160.9) (2,642.5)
---------------- ---------------
---------------- ---------------
Total approximate stockholders' equity under U.S. GAAP............... Ps 12,351.3 59,554.1
---------------- ---------------
Guarantors--Notes to the U.S. GAAP reconciliation:
A. Business Combinations
F-68
In 1989 and 1990, through an exchange of its shares with the Company, CEMEX
Mexico acquired substantially all its Mexican subsidiaries from CEMEX. The
original excess of the purchase price paid by CEMEX over the fair value of the
net assets of these subsidiaries was Ps7,174.1, of which Ps3,710.8, were
recorded in ETM under Mexican GAAP at the time of the acquisition. The net
adjustment in the Guarantors stockholders' equity reconciliation to U.S. GAAP
arising from this pushed-down goodwill, after eliminating the amounts recorded
under Mexican GAAP, was Ps1,331.6 in 2001 and Ps1,153.4 in 2002.
In addition, during 1995 CEMEX acquired an additional 24.2% equity interest in
TOLMEX, S.A. de C.V. ("TOLMEX"), through a public exchange offer where CEMEX
exchanged its own shares for TOLMEX's shares. TOLMEX merged during 1999 with
other Mexican subsidiaries creating CEMEX Mexico. The excess of the purchase
price paid by CEMEX over the fair value of the net assets of TOLMEX was
Ps888.5. The net adjustment in the Guarantors stockholders' equity
reconciliation to U.S. GAAP arising from this pushed-down goodwill was Ps795.3
in 2001 and Ps789.7 in 2002. Amortization expense related to these pushed-down
goodwill amounts was recognized for purposes of the net income reconciliation
to U.S. GAAP through 2001. As mentioned in note 23(a), for purposes of the
reconciliation to U.S. GAAP, the Company adopted SFAS 142 and SFAS 144 in
2002. As a result of this adoption, effective January 1, 2002, amortization
ceased for goodwill under U.S. GAAP; therefore, beginning in 2002, goodwill
amortization recorded under Mexican GAAP is adjusted for purposes of the
reconciliation of net income and stockholders' equity.
B. Deferred income taxes and Employees' Statutory Profit Sharing
Deferred income taxes adjustment in the stockholders' equity reconciliation to
U.S. GAAP, at December 31, 2001 and 2002, represented expenses of Ps2,561.8
and income of Ps495.5, respectively. In addition, deferred ESPS adjustment to
U.S. GAAP was an expense of Ps2,735.6 in 2001 and Ps2,691.8 in 2002.
C. Other employees' benefits
The Guarantors do not accrue for vacation expense and severance payments;
these items are recognized when vacation is taken or when retirements occur,
respectively. For purposes of the U.S. GAAP reconciliation, a vacation
liability has been determined in an amount of Ps28.5 and Ps29.4, at December
31, 2001 and 2002, respectively. In addition, the Guarantors recognized, for
purposes of the U.S. GAAP reconciliation, a liability for severance benefits
for Ps131.3 in 2001 and Ps135.3 in 2002.
D. Inflation Adjustment of Machinery and Equipment
As previously mentioned in note 23(i), for purposes of the U.S. GAAP
reconciliation, fixed assets of foreign origin were restated using the
inflation factor arising from the Consumer Price Index ("CPI") of each
country, and depreciation is based upon the revised amounts.
E. Other U.S. GAAP adjustments
Deferred charges--For U.S. GAAP purposes, other deferred charges net of the
accumulated amortization that did not qualify for deferral under U.S. GAAP
have been charged to expense, with a net effect in the net income
reconciliation to U.S. GAAP of income of Ps132.8, expense of Ps26.3 and
expense of Ps268.9 in 2000, 2001 and 2002, respectively. The net effect in the
stockholders' equity reconciliation to U.S. GAAP was expenses of Ps238.2 and
Ps494.5 in 2001 and 2002, respectively, from the partial reversal of the
adjustment. Mexican GAAP allowed the deferral of these expenses.
Subsidiary companies--The Guarantors have adjusted their investment and their
equity in the earnings of subsidiary companies for the share of the
approximate U.S. GAAP adjustments applicable to these affiliates. The net
effect in the stockholders' equity reconciliation to U.S. GAAP was expense of
Ps7,179.3 and expense of Ps5,665.9 in 2001 and 2002, respectively. The net
effect in the net income reconciliation to U.S. GAAP was expense of
Ps(1,842.3), expense of Ps1,213.2 and Ps571.9 in 2000, 2001 and 2002,
respectively. From the U.S. GAAP adjustments to subsidiary companies in the
Guarantors' reconciliation of stockholders' equity, expense of Ps5,208.5 in
2001, and expense of Ps 2,196.3 in 2002, are related to deferred income taxes
and deferred ESPS.
As discussed in note 2C, in January 2001, CEMEX Mexico acquired from CEMEX a
majority equity interest in CEDICE, the indirect parent of CEMEX Espana
(formerly Valenciana). For U.S. GAAP purposes the transaction was accounted
for as a reorganization of entities under common control (similar to a pooling
of interest). As such, the reconciliation to U.S. GAAP of the Guarantors'
financial information is presented as if the transaction had occurred on
F-69
January 1, 2000. The effect in the reconciliation of net income to U.S. GAAP
was a loss of Ps2,172.6 for the year ended December 31, 2000, resulting from
the equity in the net income (loss) of the acquired companies under US GAAP in
that year. Under Mexican GAAP, this transaction was accounted for as a
purchase business combination effective from the date of the transaction.
Also, under Mexican GAAP, the sale resulted in a difference between the net
book value of the acquired companies and the purchase price on the separate
accounts of CEMEX Mexico. The transaction had no effect on the consolidated
accounts of the Company.
F. Monetary position result
Monetary position result of the U.S. GAAP adjustments is determined by (i)
applying the annual inflation factor to the net monetary position of the U.S.
GAAP adjustments at the beginning of the period, plus (ii) the monetary
position effect of the adjustments during the period, determined in accordance
with the CPI inflation factor for the period.
Supplemental Guarantors' Cash Flow Information under U.S. GAAP
The classifications of cash flows under Mexican GAAP and U.S. GAAP are
basically the same in respect of the transactions presented under each
caption. The nature of the differences between Mexican GAAP and U.S. GAAP in
the amounts reported is mainly due to (i) the elimination of inflationary
effects in the variations of monetary assets and liabilities arising from
financing and investing activities, against the corresponding monetary
position result in operating activities, (ii) the elimination of exchange rate
fluctuations resulting from financing and investing activities, against the
corresponding unrealized foreign exchange gain or loss included in operating
activities, and (iii) the recognition in operating, financing and investing
activities of the U.S. GAAP adjustments.
For the Guarantors, the following table summarizes the cash flow items as
required under SFAS 95 provided by (used in) operating, financing and
investing activities for the years ended December 31, 2000, 2001 and 2002,
giving effect to the U.S. GAAP adjustments, excluding the effects of inflation
required by Bulletin B-10 and Bulletin B-15. The following information is
presented, in millions of pesos, on a historical peso basis and it is not
presented in pesos of constant purchasing power:
Years ended December 31,
-----------------------------------------------
2000 2001 2001
-------------- --------------- --------------
Net cash provided by operating activities.................. Ps 1,063.8 (2,336.9) 2,001.4
Net cash provided by (used in) financing activities........ (1,645.9) (25.4) 2,418.5
Net cash used in investing activities...................... 418.7 2,287.0 (3,555.4)
-------------- --------------- --------------
Net cash flow from operating activities reflects cash payments for interests and income taxes as follows:
Years ended December 31,
-----------------------------------------------
2000 2001 2002
-------------- --------------- --------------
Interest paid.............................................. Ps 265.9 20.5 263.5
Income taxes paid.......................................... 3.4 - -
-------------- --------------- --------------
Guarantors' non-cash activities are comprised of the following:
During 2000 and 2001, the Guarantors acquired, from CEMEX, equity interests in
CEDICE for an amount of Ps4,780.1 and Ps37,466.4, which were credited against
accounts payable owed by CEMEX to the Guarantors at the end of each year,
respectively.
Dividends declared to CEMEX amounting to Ps2,171.5 in 2002 were recognized by
the Guarantors as accounts payable to CEMEX as of December 31, 2002.
Contingent liabilities of the Guarantors
As of December 31, 2001 and 2002, CEMEX Mexico and ETM guaranteed debt of
CEMEX in the amount of US$2,196.0 million and US$2,339.0 million (see note
12).
F-70
REPORT OF INDEPENDENT ACCOUNTANTS
Monterrey, N.L., January 11, 2001
To the Stockholders of
Compania Minera Atoyac, S.A. de C.V.
We have audited the balance sheets of Compania Minera Atoyac, S.A. de C.V. as
of December 31, 2000 and 1999, and the related statements of income, of
changes in stockholders' equity and of changes in financial position for the
three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Mexico and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and that
they were prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 2.C to the financial statements, as from the year ended
December 31, 2000 the Company adopted the standards contained in Statement D-4
Revised, "Accounting for Income Tax, Asset Tax and Employees' Profit Sharing,"
issued by the Mexican Institute of Public Accountants, with the effects
described in such note.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Compania Minera Atoyac, S.A. de
C.V. at December 31, 2000 and 1999, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial position
for the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in Mexico.
/s/ PRICEWATERHOUSECOOPERS
Hector Puente S.
F-71
REPORT OF INDEPENDENT ACCOUNTANTS
Monterrey, N.L., January 11, 2001
To the Stockholders of
Cementos Anahuac, S.A.
We have audited the balance sheets of Cementos Anahuac, S.A. as of December
31, 2000 and 1999, and the related statements of income, of changes in
stockholders' equity and of changes in financial position for the three years
in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Mexico and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and that
they were prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 2.C to the financial statements, as from the year ended
December 31, 2000 the Company adopted the standards contained in Statement D-4
Revised, "Accounting for Income Tax, Asset Tax and Employees' Profit Sharing,"
issued by the Mexican Institute of Public Accountants, with the effects
described in such note.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Cementos Anahuac, S.A. at
December 31, 2000 and 1999, and the results of its operations, the changes in
its stockholders' equity and the changes in its financial position for the
three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in Mexico.
/s/ PRICEWATERHOUSECOOPERS
Hector Puente S.
F-72
REPORT OF INDEPENDENT ACCOUNTANTS
Monterrey, N.L., January 11, 2001
To the Stockholders of
Cementos del Norte, S.A. de C.V.
We have audited the balance sheets of Cementos del Norte, S.A. de C.V. as of
December 31, 2000 and 1999, and the related statements of income, of changes
in stockholders' equity and of changes in financial position for the three
years in the period ended December 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Mexico and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and that
they were prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 2.C to the financial statements, as from the year ended
December 31, 2000 the Company adopted the standards contained in Statement D-4
Revised, "Accounting for Income Tax, Asset Tax and Employees' Profit Sharing,"
issued by the Mexican Institute of Public Accountants, with the effects
described in such note.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Cementos del Norte, S.A. de C.V.
at December 31, 2000 and 1999, and the results of its operations, the changes
in its stockholders' equity and the changes in its financial position for the
three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in Mexico.
/s/ PRICEWATERHOUSECOOPERS
Hector Puente S.
F-73
REPORT OF INDEPENDENT ACCOUNTANTS
Monterrey, N.L., January 11, 2001
To the Stockholders of
Proveedora Mexicana de Materiales, S.A. de C.V.
We have audited the balance sheets of Proveedora Mexicana de Materiales, S.A.
de C.V. (as a separate legal entity) as of December 31, 2000 and 1999, and the
related statements of income, of changes in stockholders' equity and of
changes in financial position for the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management and are to be submitted for approval by the General Meeting of
Stockholders; therefore, they include the investment in subsidiary for by the
equity method. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Mexico and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and that
they were prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 2.G to the financial statements, as from the year ended
December 31, 2000 the Company adopted the standards contained in Statement D-4
Revised, "Accounting for Income Tax, Asset Tax and Employees' Profit Sharing,"
issued by the Mexican Institute of Public Accountants, with the effects
described in such note.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Proveedora Mexicana de
Materiales, S.A. de C.V. (as a separate legal entity) at December 31, 2000 and
1999, and the results of its operations, the changes in its stockholders'
equity and the changes in its financial position for the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in Mexico.
/s/ PRICEWATERHOUSECOOPERS
Hector Puente S.
F-74
REPORT OF INDEPENDENT ACCOUNTANTS
Monterrey, N.L., January 11, 2001
To the Stockholders of
Compania de Transportes del Mar de Cortes, S.A. de C.V.
We have audited the balance sheets of Compania de Transportes del Mar de
Cortes, S.A. de C.V. as of December 31, 2000 and 1999, and the related
statements of income, of changes in stockholders' equity and of changes in
financial position for the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Mexico and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and that
they were prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 2.G to the financial statements, as from the year ended
December 31, 2000 the Company adopted the standards contained in Statement D-4
Revised, "Accounting for Income Tax, Asset Tax and Employees' Profit Sharing,"
issued by the Mexican Institute of Public Accountants, with the effects
described in such note.
As mentioned in Note 1 to the financial statements, a portion of the company's
income and operating costs and expenses arise from transactions with related
parties. Therefore, conditions of these transactions may not be similar to
those of transactions carried out with third parties.
As indicated in Note 2E, to the financial statements, based on a study carried
out in 1999, management decided to modify the technical useful lives of
property, plant and equipment; basically, since the related wear and tear has
been lower than the originally estimated. The effect of this change
represented a reduction in the depreciation charged to income for the year of
approximately Ps5,075,357.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Compania de Transportes del Mar
de Cortes, S.A. de C.V. at December 31, 2000 and 1999, and the results of its
operations, the changes in its stockholders' equity and the changes in its
financial position for the three years in the period ended December 31, 2000,
in conformity with accounting principles generally accepted in Mexico.
/s/ PRICEWATERHOUSECOOPERS
Hector Puente S.
F-75
REPORT OF INDEPENDENT ACCOUNTANTS
Monterrey, N.L., January 11, 2001
To the Stockholders of
Cementos Guadalajara, S.A. de C.V.
We have audited the balance sheets of Cementos Guadalajara, S.A. de C.V. as of
December 31, 2000 and 1999, and the related statements of income, of changes
in stockholders' equity and of changes in financial position for the three
years in the period ended December 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Mexico and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and that
they were prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 2.D to the financial statements, as from the year ended
December 31, 2000 the Company adopted the standards contained in Statement D-4
Revised, "Accounting for Income Tax, Asset Tax and Employees' Profit Sharing,"
issued by the Mexican Institute of Public Accountants, with the effects
described in such note.
As mentioned in Note 1 to the financial statements, a significant portion of
the company's income and operating costs and expenses arise from transactions
with related parties. Therefore, conditions of these transactions may not be
similar to those of transactions with third parties.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Cementos Guadalajara, S.A. de
C.V. at December 31, 2000 and 1999, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial position
for the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in Mexico.
/s/ PRICEWATERHOUSECOOPERS
Hector Puente S.
F-76
REPORT OF INDEPENDENT ACCOUNTANTS
Monterrey, N.L., January 11, 2001
To the Stockholders of
Cementos de Oriente, S.A. de C.V.
We have audited the balance sheets of Cementos de Oriente, S.A. de C.V. as of
December 31, 2000 and 1999, and the related statements of income, of changes
in stockholders' equity and of changes in financial position for the three
years in the period ended December 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Mexico and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and that
they were prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 2.F to the financial statements, as from the year ended
December 31, 2000 the Company adopted the standards contained in Statement D-4
Revised, "Accounting for Income Tax, Asset Tax and Employees' Profit Sharing,"
issued by the Mexican Institute of Public Accountants, with the effects
described in such note.
As mentioned in Note 1 to the financial statements, a significant portion of
the company's income (basically financial income) arises from transactions
with related parties. Therefore, conditions of these transactions may not be
similar to those of transactions with third parties.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Cementos de Oriente, S.A. de C.V.
at December 31, 2000 and 1999, and the results of its operations, the changes
in its stockholders' equity and the changes in its financial position for the
three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in Mexico.
/s/ PRICEWATERHOUSECOOPERS
Hector Puente S.
F-77
REPORT OF INDEPENDENT ACCOUNTANTS
Monterrey, N.L., January 11, 2001
To the Stockholders of
Autotransportes de Huichapan, S.A. de C.V.
We have audited the balance sheets of Autotransportes de Huichapan, S.A. de
C.V. as of December 31, 2000 and 1999, and the related statements of income,
of changes in stockholders' equity and of changes in financial position for
the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Mexico and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and that
they were prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 2.F to the financial statements, as from the year ended
December 31, 2000 the Company adopted the standards contained in Statement D-4
Revised, "Accounting for Income Tax, Asset Tax and Employees' Profit Sharing,"
issued by the Mexican Institute of Public Accountants, with the effects
described in such note.
As mentioned in Note 1 to the financial statements, a portion of the company's
income and operating costs and expenses arise from transactions with related
parties. Therefore, conditions of these transactions may not be similar to
those of transactions with third parties.
As indicated in Note 2.D to the financial statements, based on a study carried
out in 1999, management decided to modify the technical useful lives of
property, plant and equipment; basically, since the related wear and tear has
been lower than the original estimated. The effect of this change represented
a reduction in the depreciation charged to income for the year of
approximately Ps808,483.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Autotransportes de Huichapan,
S.A. de C.V. at December 31, 2000 and 1999, and the results of its operations,
the changes in its stockholders' equity and the changes in its financial
position for the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in Mexico.
/s/ PRICEWATERHOUSECOOPERS
Hector Puente S.
F-78
REPORT OF INDEPENDENT ACCOUNTANTS
Monterrey, N.L., January 11, 2001
To the Stockholders of
CEMEX Concretos, S.A. de C.V.
We have audited the balance sheets of CEMEX Concretos, S.A. de C.V. as of
December 31, 2000 and 1999, and the related statements of income, of changes
in stockholders' equity and of changes in financial position for the three
years in the period ended December 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Mexico and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and that
they were prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 2.H to the financial statements, as from the year ended
December 31, 2000 the Company adopted the standards contained in Statement D-4
Revised, "Accounting for Income Tax, Asset Tax and Employees' Profit Sharing,"
issued by the Mexican Institute of Public Accountants, with the effects
described in such note.
As described in Note 1 to the financial statements, on November 13, 2000 the
stockholders resolved to spin-off certain operations for which purpose a new
company was incorporated effective from such date onwards. Certain assets,
liabilities and capital stock were allocated to the new company as described
in such note.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of CEMEX Concretos, S.A. de C.V. at
December 31, 2000 and 1999, and the results of its operations, the changes in
its stockholders' equity and the changes in its financial position for the
three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in Mexico.
/s/ PRICEWATERHOUSECOOPERS
Hector Puente S.
F-79
REPORT OF INDEPENDENT ACCOUNTANTS
Monterrey, N.L., January 11, 2001
To the Stockholders of
Granos y Terrenos, S.A. de C.V.
We have audited the balance sheets of Granos y Terrenos, S.A. de C.V. as of
December 31, 2000 and 1999, and the related statements of income, of changes
in stockholders' equity and of changes in financial position for the three
years in the period ended December 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Mexico and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and that
they were prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 2.C to the financial statements, as from the year ended
December 31, 2000 the Company adopted the standards contained in Statement D-4
Revised, "Accounting for Income Tax, Asset Tax and Employees' Profit Sharing,"
issued by the Mexican Institute of Public Accountants, with the effects
described in such note.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Granos y Terrenos, S.A. de C.V.
at December 31, 2000 and 1999, and the results of its operations, the changes
in its stockholders' equity and the changes in its financial position for the
three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in Mexico.
/s/ PRICEWATERHOUSECOOPERS
Hector Puente S.
F-80
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
The Board of Directors and Stockholders
CEMEX, S.A. de C.V.:
Under the date of January 15, 2003, we reported on the consolidated balance
sheets of CEMEX, S.A. de C.V. and subsidiaries as of December 31, 2001 and
2002, and the related consolidated statements of income, changes in
stockholders' equity and changes in financial position for each of the years
in the three-year period ended December 31, 2002, which are included in the
annual report on Form 20-F. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedules in the annual report. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG Cardenas Dosal, S.C.
/s/ Rafael Gomez Eng
Rafael Gomez Eng
Monterrey, N.L. Mexico
January 15, 2003
S-1
SCHEDULE I
CEMEX, S.A. DE C.V. (PARENT COMPANY ONLY)
Balance Sheets
(Millions of constant Mexican pesos as of December 31, 2002)
December 31,
----------------- -- ---------------
Assets 2001 2002
----------------- ---------------
Current Assets
Cash and investments.................................................... Ps 163.5 368.1
Other receivables (note 3).............................................. 1,482.9 1,082.0
Related parties receivables (note 7).................................... 13,944.3 19,397.2
----------------- ---------------
Total current assets................................................ 15,590.7 20,847.3
----------------- ---------------
----------------- ---------------
Investments and Noncurrent Receivables
Investments in subsidiaries and affiliated companies ................... 17,995.1 76,387.2
Other investments....................................................... 52.9 81.5
Other noncurrent accounts receivable.................................... 611.2 492.6
Long-term related parties receivables (note 7).......................... 56,855.0 16,508.1
----------------- ---------------
----------------- ---------------
Total investments and noncurrent receivables........................ 75,514.2 93,469.4
----------------- ---------------
----------------- ---------------
----------------- ---------------
Land and Buildings......................................................... 1,695.8 1,689.3
----------------- ---------------
Deferred Charges (note 5).................................................. 4,574.1 6,012.4
----------------- ---------------
Total Assets........................................................ Ps 97,374.8 122,018.4
================= ===============
================= ===============
Liabilities and Stockholders' Equity
Current Liabilities
Bank loans (note 6).........................................................Ps 286.1 6,717.0
Notes payable (note 6)...................................................... 1,742.9 3,069.1
Current maturities of long-term debt (note 6)............................... 4,357.5 5,415.4
Other accounts payable and accrued expenses ................................ 979.7 2,852.9
Related parties payable (note 7)............................................ 1,587.7 5,856.4
----------------- ----------------
----------------- ----------------
Total current liabilities............................................... 8,953.9 23,910.8
----------------- ----------------
----------------- ----------------
Long-Term Debt (notes 6 and 7)
Long-term debt.............................................................. 22,058.4 20,542.9
Long-term related parties payables.......................................... 3,873.0 16,543.7
----------------- ----------------
----------------- ----------------
Total long-term debt.................................................... 25,931.4 37,086.6
Other long-term liabilities............................................. 661.9 1,395.0
----------------- ----------------
----------------- ----------------
Total Liabilities.............................................................. 35,547.2 62,392.4
----------------- ----------------
----------------- ----------------
----------------- ----------------
Stockholders' Equity........................................................... 61,827.6 59,626.0
----------------- ----------------
Total Liabilities and Stockholders' Equity..............................Ps 97,374.8 122,018.4
================= ================
See accompanying notes to financial statements.
S-2
SCHEDULE I (continued)
CEMEX, S.A. DE C.V. (PARENT COMPANY ONLY)
Statements of Income
(Millions of constant Mexican pesos as of December 31, 2002, except for earnings per share)
Years ended December 31,
--------------- -- -------------- -- ---------------
2000 2001 2002
--------------- -------------- ---------------
Total revenues ..............................................Ps 9,123.6 12,561.3 5,009.0
Administrative expenses......................................... (101.2) (86.7) (106.3)
--------------- -------------- ---------------
--------------- -------------- ---------------
Operating income............................................. 9,022.4 12,474.6 4,902.7
--------------- -------------- ---------------
--------------- -------------- ---------------
Net comprehensive financing result....................... 110.0 32.7 ( 1,373.9)
Other income ( expense ), net.................................. ( 2,054.8) ( 337.3)
316.0
--------------- -------------- ---------------
Income before income taxes................................... 9,448.4 10,452.5 3,191.5
Income tax benefit and business assets tax, net (note 8)........ 940.7 1,337.3 2,208.9
--------------- -------------- ---------------
Net income...................................................Ps 10,389.1 11,789.8 5,400.4
=============== ============== ===============
=============== ============== ===============
Basic earnings per share.....................................Ps 2.52 2.76 1.20
Diluted earnings per share...................................Ps 2.51 2.74 1.20
=============== ============== ===============
See accompanying notes to financial statements.
S-3
SCHEDULE I (continued)
CEMEX, S.A. DE C.V. (PARENT COMPANY ONLY)
Statements of Changes in Financial Position
(Millions of constant Mexican pesos as of December 31, 2002)
Years ended December 31,
--------------- - --------------- - ---------------
2000 2001 2002
--------------- --------------- ---------------
--------------- --------------- ---------------
Operating activities
Net income.......................................................... Ps 10,389.1 11,789.8 5,400.4
Charges to operations which did not require resources (note 9)...... (6,680.3) (10,415.2) (5,631.2)
--------------- --------------- ---------------
Resources (used in) provided by operating activities............ 3,708.8 1,374.6 (230.8)
Net change in working capital....................................... (8,921.6) (7,600.7) 1,089.9
--------------- - --------------- - ---------------
--------------- - --------------- - ---------------
Net resources provided by (used in) operating activities........ (5,212.8) (6,226.1) 859.1
--------------- - --------------- - ---------------
--------------- - --------------- - ---------------
Financing activities
Proceeds from bank loans (repayments), net......................... (2,304.9) 6,806.6 3,218.6
Notes payable...................................................... 4,411.6 (5,004.9) 4,080.9
Dividends paid..................................................... (2,386.2) (3,049.2) (3,394.1)
Issuance of common stock from reinvestment of dividends............ 2,190.9 2,903.0 3,084.4
Issuance of common stock under stock option plan................... 52.2 111.1 73.0
Acquisition of shares under repurchase program..................... (131.0) (222.3) (362.5)
Other financing activities, net.................................... (38.3)
604.7 733.1
--------------- --------------- ---------------
--------------- --------------- ---------------
Resources provided by financing activities..................... 2,149.0 7,433.4
1,794.3
--------------- --------------- ---------------
--------------- --------------- ---------------
Investing activities
Long-term related parties receivables, net......................... 11,342.6 (37,163.2) 53,017.6
Net change in investment in subsidiaries........................... (9,402.9) 40,841.1 (63,299.0)
Dividends received................................................. 511.6 - 2,169.1
Deferred charges................................................... 961.7 1,113.4 (94.2)
Other noncurrent accounts receivable............................... - (611.2) 118.6
--------------- --------------- ---------------
Resources (used in) provided by investing activities........... 3,413.0 4,180.1 (8,087.9)
--------------- --------------- ---------------
Increase (decrease) in cash and investments.................... (5.5) 103.0 204.6
Cash and investments at beginning of year...................... 66.0 60.5 163.5
--------------- --------------- ---------------
--------------- --------------- ---------------
Cash and investments at end of year............................ Ps 60.5 163.5 368.1
=============== =============== ===============
See accompanying notes to financial statements.
S-4
SCHEDULE I (continued)
CEMEX, S.A. DE C.V.
NOTES TO THE PARENT COMPANY ONLY FINANCIAL STATEMENTS
December 31, 2000, 2001 and 2002
(Millions of constant Mexican pesos as of December 31, 2002)
1. DESCRIPTION OF BUSINESS
CEMEX, S.A. de C.V. (CEMEX or the Company) is a Mexican holding company
(parent) of entities whose main activities are oriented to the construction
industry, through the production and marketing of cement and ready-mix
concrete.
2. SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION AND DISCLOSURE
The accompanying financial statements have been prepared in accordance with
Generally Accepted Accounting Principles in Mexico ("Mexican GAAP"), which
include the recognition of the effects of inflation on the financial
information.
B) PRESENTATION OF COMPARATIVE FINANCIAL STATEMENTS
The restatement factors for the Parent Company-only financial statements of
prior periods were calculated based upon Mexican inflation.
2000 2001 2002
---------------- ---------------- -----------------
Restatement factor using Mexican inflation................... 1.0903 1.0456 1.0559
---------------- ---------------- -----------------
C) CASH AND INVESTMENTS
Investments include fixed-income securities with original maturities of three
months or less, as well as marketable securities easily convertible into cash.
Investments in fixed-income securities are recorded at cost plus accrued
interest. Investments in marketable securities are recorded at market value.
Gains or losses resulting from changes in market values, accrued interest and
the effects of inflation are included in the income statements as part of the
Comprehensive Financing Result.
D) INVESTMENTS IN SUBSIDIARIES AND AFFILIATED COMPANIES
Investments in common stock representing between 10% and 100% of the issuer's
common stock are accounted for by the equity method. Under the equity method,
after acquisition, the investments original cost are adjusted for the
proportional interest of the holding company in the affiliates equity and
earnings, considering the inflation effects.
E) LAND AND BUILDINGS
Land and buildings are presented at their restated values using the Mexican
inflation index.
Depreciation of buildings is provided on the straight-line method over the
estimated useful lives of the assets. The useful lives of administrative
buildings are approximately 50 years.
S-5
F) DEFERRED CHARGES AND AMORTIZATION (note 5)
Deferred charges are adjusted by inflation to reflect constant values.
Amortization of deferred charges is determined using the straight-line method
based on the restated value of the assets.
The excess of cost over book value of subsidiaries acquired ("goodwill") is
amortized under the present worth or sinking fund method, which is intended to
provide a better matching of the goodwill amortization with the revenues
generated from the acquired companies. The amortization periods are as
follows:
Years
---------------
Goodwill from years before 1992........................ 40
Goodwill from acquisitions since January 1, 1992...... 20
---------------
Deferred financing costs associated with the Company's financing operations
are amortized as part of the effective interest rate of each transaction over
its maturity. These costs include discounts on debt issuance, fees paid to
attorneys, printers and consultants, as well as commissions paid to banks in
the structuring process. Deferred financing costs are adjusted by inflation to
reflect constant values.
G) MONETARY POSITION RESULT
The monetary position result, which represents the gain or loss from holding
monetary assets and liabilities in inflationary environments, is calculated by
applying the Mexican inflation rate on the Company's net monetary position.
H) DEFICIT IN EQUITY RESTATEMENT
The deficit in equity restatement includes the accumulated effect from
holding non-monetary assets as well as the foreign currency translation
effects from foreign subsidiaries' financial statements.
I) CONTINGENCIES AND COMMITMENTS
Obligations or material losses, related to contingencies and commitments, are
recognized when present obligations exist, as a result of past events, it is
probable that the effects will materialize and there are reasonable elements
for quantification. If there are no reasonable elements for quantification, a
qualitative disclosure is included in the notes to the financial statements.
The Company does not recognize contingent revenues, income or assets.
J) USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities at the
financial statements date and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from these estimates.
S-6
3. OTHER RECEIVABLES
As of December 31, 2001 and 2002, other current receivables consist of:
2001 2002
----------------- ---------------
Non-trade receivables............................................ Ps 132.2 157.3
Refundable income tax............................................ 1,260.0 650.2
Other refundable taxes........................................... 90.7 274.5
----------------- ---------------
----------------- ---------------
Ps 1,482.9 1,082.0
================= ===============
4. INVESTMENTS IN SUBSIDIARIES AND AFFILIATED COMPANIES
As of December 31, 2001 and 2002, investments in subsidiaries and affiliated
companies accounted for by the equity method, are summarized as follows:
2001 2002
----------------- ---------------
Book value at acquisition date................................... Ps 8,350.5 63,790.4
Equity in income and other changes in stockholders' equity of
subsidiaries and affiliated companies.......................... 9,644.6 12,596.8
----------------- ---------------
----------------- ---------------
Ps 17,995.1 76,387.2
================= ===============
5. DEFERRED CHARGES
As of December 31, 2001 and 2002, deferred charges are summarized as follows:
2001 2002
----------------- --------------
----------------- --------------
Goodwill.......................................................... Ps 1,942.2 1,935.6
Deferred financing costs.......................................... 652.2 733.4
Deferred income taxes............................................. 2,279.9 3,571.5
Others............................................................ 1,146.9 1,445.6
Accumulated amortization.......................................... (1,447.1) (1,673.7)
----------------- --------------
----------------- --------------
Ps 4,574.1 6,012.4
================= ==============
S-7
6. SHORT AND LONG-TERM BANK LOANS AND NOTES PAYABLE
A total of 100% and 95.6% of the Parent Company-only short-term debt is
denominated in dollars in 2001 and 2002, respectively.
Of the Parent Company-only long-term debt, approximately 61% and 77% is
denominated in dollars in 2001 and 2002, respectively; the remaining debt in
2002 is primarily denominated in Mexican pesos and in yen in 2001.
The maturities of long-term debt as of December 31, 2002 are as follows:
Parent
---------------------
2004............................. 6,863.7
Ps
2005............................. 1,916.9
2006............................. 2,412.2
2007............................. 3,113.4
2008 and thereafter.............. 6,236.7
---------------------
---------------------
20,542.9
Ps
=====================
In the Parent Company-only balance sheet at December 31, 2002, there were
short-term debt transactions amounting to U.S.$ 100 million ($1,038.0),
classified as long-term debt, due to the Company's ability and the intention
to refinance such indebtedness with the available amounts of the committed
long-term lines of credit.
7. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
The main balances receivable and payable with related parties as of December
31, 2001 and 2002 are:
Parent Company 2001
-------------------------------------------------------------------
Assets Liabilities
------------------------------ --------------------------------
Short-Term Long-Term Short-Term Long-Term
------------- ------------ -------------- -------------
CEMEX Mexico, S.A. de C.V.......................Ps 12,984.3 56,855.0 - -
Assiut Cement Company................................. 323.1 - - -
Centro Distribuidor de Cemento, S.A. de C.V........ 594.9 - - -
Sunbelt Trading, S.A. ............................... 41.0 - - -
CEMEX Concretos, S.A. de C.V. ....................... - - 764.3 -
Empresas Tolteca de Mexico, S.A. de C.V. ............ - - 1.6 3,873.0
CEMEX Central, S.A. de C.V. .......................... - - 819.0 -
Other................................................ 1.0 - 2.8 -
------------- ------------ -------------- -------------
------------- ------------ -------------- -------------
Ps 13,944.3 56,855.0 1,587.7 3,873.0
============= ============ ============== =============
S-8
Parent Company 2002
-------------------------------------------------------------------
Assets Liabilities
------------------------------ --------------------------------
Short-Term Long-Term Short-Term Long-Term
------------- ------------ -------------- -------------
CEMEX Mexico, S.A. de C.V........................Ps 19,301.8 16,139.6 - -
CEMEX International Finance Co........................ 261.8 10,775.6
CEMEX Trademarks Worldwide Ltd........................ 150.2 5,768.1
Empresas Tolteca de Mexico, S.A. de C.V. ............ - - 4,273.9 -
CEMEX Central, S.A. de C.V. .......................... - - 695.4 -
Assiut Cement Company................................. - - 380.4 -
International Investors LLC.......................... - 368.5
CEMEX Asia PTE. Ltd.................................. - - 71.1 -
Centro Distribuidor de Cemento, S.A. de C.V........ - - 15.6 -
Sunbelt Trading, S.A. ............................... 43.9 - - -
CEMEX Concretos, S.A. de C.V. ....................... 23.1 - - -
PT CEMEX Indonesia ................................... 13.7
Other................................................ 14.7 - 8.0 -
------------- ------------ -------------- -------------
------------- ------------ -------------- -------------
Ps 19,397.2 16,508.1 5,856.4 16,543.7
============= ============ ============== =============
The main transactions carried out during the last three years with related
parties are:
2000 2001 2002
--------------- -------------- ----------------
Rental income.............................................. 310.0 290.7 277.4
Ps
License fees............................................... 2,586.6 1,869.5 184.7
Financial expense.......................................... (774.3) (618.5) (802.9)
Financial income........................................... 2,443.4 4,773.8 3,112.3
Dividends received......................................... 511.6 - 2,169.1
=============== ============== ================
8. INCOME TAX (IT), BUSINESS ASSETS TAX (BAT)
In accordance with the effective tax legislation in Mexico, corporations must
pay either income tax ("IT") or business assets tax ("BAT") depending on which
amount is greater for their operations in Mexico. Both taxes recognize the
effects of inflation, though in a manner different from Mexican GAAP.
The IT benefit, presented in the accompanying income statements, is summarized
as follows:
2000 2001 2002
-------------- ------------- -------------
-------------- ------------- -------------
Current income tax........................................ Ps (441.6) - -
Received from subsidiaries................................ 751.9 677.7 931.7
Deferred IT............................................... 630.4 659.6 1,277.2
-------------- ------------- -------------
Ps 940.7 1,337.3 2,208.9
============== ============= =============
S-9
Arising from its Mexican subsidiaries, the Company has accumulated IT loss
carry forwards which, restated for inflation, can be amortized against taxable
income in the succeeding ten years according to Income Tax Law:
Year in which tax loss occurred Amount of Year of
carryforwards expiration
---------------- ----------------
1995.................................. Ps 1,754.4 2005
2000.................................. 623.9 2010
2001.................................. 4,110.8 2011
2002.................................. 3,260.0 2012
----------------
----------------
Ps 9,749.1
================
The Company and its subsidiaries in Mexico must generate taxable income to
preserve the benefit of the tax loss carryforwards generated beginning in
1999.
The BAT Law establishes a 1.8% tax levy on assets, restated for inflation in
the case of inventory and fixed assets, and deducting certain liabilities. BAT
levied in excess of IT for the period may be recovered, restated for
inflation, in any of the succeeding ten years, provided that the IT incurred
exceeds BAT in such period.
The recoverable BAT as of December 31, 2002 is as follows:
Year in which
BAT exceeded IT
Amount of Year of
carryforwards expiration
------------------- -----------------
1997.................... Ps 160.5 2007
1999.................... 57.9 2009
-------------------
Ps 218.4
===================
9. ITEMS NOT AFFECTING CASH FLOWS
Items charged or credited to the results of operations, which did not
generated the use of resources, are summarized as follows:
2000 2001 2002
------------- ------------- ------------
------------- ------------- ------------
Depreciation of properties................................... 4.9 5.0 5.0
Amortization of deferred charges and credits, net............ 172.1 640.5 187.9
Deferred income tax credited to results...................... (630.3) (659.6) (1,277.2)
Equity in income of subsidiaries and affiliates.............. (6,227.0) (10,401.1) (4,546.9)
------------- ------------- ------------
------------- ------------- ------------
(6,680.3) (10,415.2) (5,631.2)
============= ============= ============
10. CONTINGENCIES AND COMMITMENTS
As of December 31, 2002, CEMEX has signed as guarantor of loans made to
certain subsidiaries for approximately U.S.$55.2 million. As of the same date,
the Company and certain subsidiaries have guaranteed the risks associated with
certain financial transactions, assuming contingent obligations under standby
letters of credit, issued by financial institutions for a total of U.S.$175.0
million.
S-10
SCHEDULE II
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
December 31, 2000, 2001 and 2002
(Millions of constant Mexican pesos as of December 31, 2002)
Valuation and Qualifying Accounts as of December 31, 2000,
2001 and 2002, is a follows:
Balance at Charged to
Beginning of Costs and Balance at
Description Period Expenses Deductions Other(s) End of Period
--------------- ---------------- --------------- ---------------------------------
Year ended December 31, 2000:
--------------- ---------------- --------------- ---------------- ---------------
Allowance for doubtful accounts 565.3 111.1 145.4 (59.1) 471.9
--------------- ---------------- --------------- ---------------- ---------------
Year ended December 31, 2001:
--------------- ---------------- --------------- ---------------- ---------------
Allowance for doubtful accounts 471.9 76.0 39.7 (5.2) 503.0
--------------- ---------------- --------------- ---------------- ---------------
Year ended December 31, 2002:
--------------- ---------------- --------------- ---------------- ---------------
Allowance for doubtful accounts 503.0 242.0 285.0 18.5 478.5
--------------- ---------------- --------------- ---------------- ---------------
S-11
Exhibit 1.1
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 1
CORPORATE BY-LAWS
CEMEX, S.A. DE C.V.
ARTICLE 1. The company is an anonymous corporation of commercial
nature, and shall be named "CEMEX", and this name shall always be followed by
the words "Sociedad Anonima de Capital Variable" or their abbreviation, "S.A.
de C.V."
ARTICLE 2. The purpose of the company shall be: I. The industrial
production and commercial operation of Portland cement; II. The industrial
production and commercial operation of a similar product to Portland cement,
or related in any way to the production or sale of Portland cement; III. The
commercial operation of clay, rocks, sands and similar substances located in
the properties of the Company, or in any other place in which the Company has
rights over such properties; IV. To carry on with related operations to the
purposes listed above, or that directly or indirectly may favor their
performance; V. To acquire by purchase, contribution, exchange, lease or
otherwise, machinery, tools, equipment, constructions materials, land, etc.,
when necessary or convenient for the most ample
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 2
development and benefit of the Company, or that directly or indirectly may
achieve its corporate purpose without limitation; the Company may organize or
install other industrial plants in any place, to acquire or subscribe shares,
and to participate in the capital or management of other companies engaged in
similar or different activities than the ones listed in sections I, II, III
and IV of this article; VI. The corporation in which Cemex, S.A. de C.V.
participates in the majority of shares or equity interest, may not, directly
or indirect, invest in shares of such company, nor in any other company if the
holding company is a shareholder of such company; VII. The issuance,
endorsement, aval or in any way the subscription of negotiable instruments and
the performance of any kind of operations related to such instruments; VIII.
To guarantee, bond or in general to guarantee with any kind of liens,
including pledge or mortgage, obligations of its own or from third parties,
with or without compensation, and consequently, to subscribe negotiable
instruments, agreements and other documents that are necessary to perfect such
guarantees.
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 3
ARTICLE 3. The domicile of the company is the city of Monterrey,
Nuevo Leon, Mexico, and the Company may establish branches or offices in any
other place within the Mexican Republic or abroad as determined by the Board
of Directors.
ARTICLE 4. The duration of the company shall be for a term beginning
from May 28, twenty-eight, 1920, one thousand nine hundred twenty, and shall
conclude May 27, twenty-seven, 2100, twenty-one hundred.
ARTICLE 5. The company is Mexican. Any foreigner, that at the time of
incorporation of the company or thereafter acquires a participation or becomes
the owner of one or more shares of the company shall be considered as Mexican
with respect to that participation or ownership, and may not invoke the
protection of its own government. Failure to comply with the foregoing
paragraph may result in the forfeiture of such participation or ownership in
favor of the Mexican State. The text of this article shall be transcribed in
its entirely in the stock certificates or provisional stock certificates
representing equity participation in the
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 4
Company. The Company obtained from the Secretary of Foreign Relations the
approval number 267, two hundred sixty seven, issued as of February 4, four,
1927, one thousand nine hundred twenty seven, further to the Organic Law of
Section I of Article 27 of the Constitution and its Regulations.
ARTICLE 6. The corporate capital of the company shall be variable.
The Minimum Fixed, not redeemable, part of such capital shall be the amount of
$36,300,000.00 (thirty six million three hundred and 00/100 Mexican Pesos),
represented by 3,267,000,000 (three thousand two hundred sixty seven million)
common, nominative shares, without par value, and the Variable Capital, which
is subject to redemption, shall never exceed an amount equal to ten times the
Minimum Fixed Capital. The Common Corporate Stock, as well as the capital
represented by class stock, whether in the fixed or the variable part, shall
be represented by Series of Nominative Shares without par value, together with
their respective sub-series. Each time these By-laws make reference to a
particular Series, either fixed or variable capital, shall be intended to
making reference to the Sub-series issued, and shall be identified with the
same letter
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 5
that identify the Series and a number beginning with number 1 (one) and so on,
as the case may be.
The Common Capital Stock shall be represented by two Series, the
Fixed Part as well as the Variable Part. The Series "A" shall represent at
least the (64%) sixty-four percent of the common capital stock, and the Series
"B", or of unrestricted subscription, shall represent a maximum of (36%)
thirty-six percent of such capital. In the event of class shares, unless an
approval to consider them as neutral investment further to the Foreign
Investment Law, the capital stock represented by this kind of shares shall
also be for a minimum of (64%) sixty-four percent, subject to the same holding
restrictions than the series "A" common stock. The common stock, in the fixed
part, shall be represented by 3,267,000,000 (three thousand two hundred and
sixty seven million) shares, out of which 2,178,000,000 (two thousand one
hundred and seventy-eight million) correspond to the Series "A", and
1,089,000,000 (one thousand eighty-nine million) correspond to the Series "B".
All the shares of stock that form the capital stock of the Company, except for
the holdings restrictions for each Series and the portion of the
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 6
capital stock that such shares represent, shall entitle to their holders the
same rights and duties. At all times, directly or indirectly, the Series "A"
shares may not be acquired by: (i) foreign individuals or corporations, or
Mexican corporations without foreign exclusion clause, provided that such
clause shall be included in their corporate by-laws of the acquirer, as well
as in the by-laws of a company or partnership that participates in the
corporate capital of such acquirer; (ii) by groups, units or associations that
admit foreigners or that are foreign; (iii) by foreign governments or
sovereign foreign entities. Class stock may be acquired further to the terms
and conditions set forth by the shareholders meeting authorizing the
respective issuance. In the event of a violation of these restrictions, the
acquisition shall be void and the Company shall not recognize the acquirer as
title owner, and such person shall not exercise their corporate rights
associated to the shares.
For purposes of these by-laws, "Class Shares" shall mean the shares
not entitled to vote, as well as the shares with limited corporate rights, and
the shares with restrictive voting rights.
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 7
ARTICLE 7. I. The Company may acquire Shares representing capital
stock of the Company. The acquisition shall be done in accordance to the
following: (a) through the Stock Exchanges in which the shares are traded; (b)
against Company's net worth while such shares belong to the Company; (c) in
the event such shares are converted into treasury shares, the corresponding
capital stock reduction shall be performed, and such conversion or reduction
of capital shall require no action or resolution from the Shareholders
Meeting; (d) the Ordinary Shareholders Meeting shall expressly resolve, for
each fiscal year, the maximum amount of resources to be used for the
acquisition of Shares. The sum of the resources to be used for such purposes,
shall never exceed the net profits of the company, including the undistributed
profits, as determined in the financial statements approved by the Ordinary
Shareholders Meeting; (e) while such Shares belong to the Company, such Shares
can not be represented during Shareholders Meeting of any class; and (f) the
Shares, including the Treasury Shares referred to in this article, acquired by
the Company, notwithstanding the provisions set forth in the General Law of
Commercial
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 8
Companies, may be placed among public investors, and the corresponding capital
stock increase shall need no action or resolution from the Shareholders
Meeting or the Board of Directors with respect to their placement. II.- Any
Shareholder, Holder or group of shareholders or holders which by any act,
agreement, contract or arrangement should act together, intending to acquire,
purchase, encumber or affect in any way shares or rights that are vested on
such shares in their capacity of Holder with respect to their Shares,
representing 2% of the Capital Stock, regardless if such acts or transactions
are made directly or indirectly, in one or several transactions, simultaneous
or successive or otherwise, shall obtain the prior approval from the Board of
Directors of the Company, and the Board shall resolve the request within 90
(ninety) calendar days from the date of the approval request, which request
shall be addressed to the Chairman or Secretary of the Board of Directors. If
the Board of Directors denies approval, it shall designate one or more buyers
for the Shares, and such buyers shall pay to the Shareholders or Holders the
corresponding price, which shall be equal to the average purchase price in the
Mexican Stock Exchange during the ten days prior to the date of the
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 9
transaction, provided that there were transactions in the Mexican Stock
Exchange. In the event that the Board grants the approval, the transaction
shall be completed within the 10 business days following the date in which the
Board of Directors notified its resolution; otherwise the approval shall
become void. III. In order to acquire Title of Shares representing 20% or more
of the capital stock of the Company, it shall be required the approval of the
Board of Directors of the Company, which shall be granted before the
consummation of the transaction, public offer, or act that may trigger the
obtaining of or exceeding such percentage; and the Board of Directors shall
resolve within the 90 (ninety) calendar days following the date of the
approval request addressed to the Chairman or the Secretary of the Board of
Directors. If the Board of Directors approval is obtained, the holder or
holders, Shareholder or Shareholders or the Purchaser or Purchasers intending
to acquire Title over Shares that represent or exceed such percentage, shall
be obligated to make a public offer to purchase all the Shares of common stock
outstanding of the Company. IV.- In the event that the requirements set forth
in sections (II) and (III) are not met, the Holders shall not exercise the
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 10
corporate rights vested on the shares, and such shares shall not be taken into
account to determine a quorum for purposes of shareholders meetings, and the
Company shall refrain from recording such Holders in the Shareholders Ledger
referred to in the General Law of Commercial Companies, and the registry kept
by the Securities Depositary Institution shall be ineffective.
To determine if the percentage referred to in section III above is
obtained or exceeded, it will be grouped the following Shares, in addition to
the Shares of the persons participating in any way, or owned by the persons
that act together by virtue of any act, agreements, contract in the
transaction, act, agreement, public offer or agreement that triggered or
caused the events described in such section (such participant or participants,
an "Acquirer", as the case requires singular or plural): (i) the ones intended
to be acquired; (ii) the ones held by entities in which the Acquirer, or the
persons referred to in section (iv) have direct or indirect participation, or
with whom the Acquirer or the persons listed in section (iv) have an
arrangement, agreement or contract, either directly or indirectly, by
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 11
virtue of which they can influence the exercise of rights of such entities by
virtue of their Holdings; (iii) the ones held by means of a Trust or similar
structures under other jurisdiction, in which trust or structures participate
the Acquirer, the relatives referred to in section (iv) or any person acting
on the account of, or by virtue of an agreement, contract with the Acquire or
said relatives; (iv) the ones held by relatives up top the second degree (by
blood or by law) in straight line or cross line (including the adopted persons
or persons under custody) of the Acquirer; and (v) the ones held by
individuals by virtue of a mandate (of any kind) or by any other act,
agreement or contract with the Acquirer or by any persons listed in section
(ii) or (iv), or with respect any such persons may influence or determine the
exercise of rights or authority corresponding to such Holdings. Any reference
to "Acquirer", in the event they are more than one, shall be construed, as
including the plural, and the text shall be adapted accordingly if context so
requires.
For purposes of the provisions contained in these By-laws: (i) Each
time reference is made to "Shares" (including
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 12
the plural or singular) shall be construed as the shares representing capital
stock of the Company, and in the case of the Ordinary Participation
Certificates or any other security (including receipts or similar documents)
issued or to be issued with reference to the Shares, including any type of
securities, depositary receipts o similar documents issued based on such
Certificates or other securities, the reference shall apply to the shares
representing Capital Stock of the Company referred by said certificates or
securities; (ii) the limitations to the transfer, encumbrance or acquisition
of portions of the capital stock of the Company referred to in this article,
shall be construed as extensive to the certificates or securities mentioned
herein; and (iii) "Holdings" (including references to "Holder") shall mean
with respect to Shares, having any kind of (directly or indirectly) property
(even in the event of usufruct, as owner subject to a usufruct or
usufructuary, by a loan as lender or debtor; borrowing of securities, as
granting or receiving such borrowing; or pledge, as pledgor or pledgee);
possession; fiduciary property or rights derived from trusts or similar
structures under other jurisdictions; the right to exercise, or to determine
the exercise of, any shareholder
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 13
right, or the right to determine the sale, transfer or otherwise to affect or
encumber the Shares or the rights vested in such shares, or to determine the
application, or to have the rights to receive the benefits or proceeds of the
sale, transfer or encumbrance of the shares, or the rights vested in such
shares.
In the event of Trusts established by the Company, for the issuance
of Ordinary Participation Certificates to be placed among the public
investors, the fiduciary institution shall not be bound to the provisions of
this article and the provisions of Article 10 (ten).
ARTICLE 8. To increase, reduce the Capital Stock or to redeem
outstanding shares with distributable earnings, with the exception of the
provisions of Article 7 of these By-laws and the exercise of Redemption
Rights, in the event of variable capital, it shall be proceeded as follows:
The capital stock in the fixed not redeemable part shall only be increased or
decreased by resolution of the General Extraordinary Shareholders Meeting, and
such meeting shall also approve the amortization of the shares with
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 14
distributable earnings and the modifications in the limits of the variable
capital. The capital stock in the variable part may be increased or decreased
by a resolution of the ordinary Shareholders Meeting, and the amortization of
shares outstanding representing such variable part shall be accomplished with
distributable earnings; in the event of capital increases in the variable
part, the Shareholders Meeting may delegate to the Board of Directors the
terms and conditions under the which the issuance, payment and subscription of
the new shares shall take place, and such shares once they are issued but are
unsubscribed shall remain as Treasury Shares. In the event of a capital stock
reduction in the variable part, the Board of Directors, in compliance with the
applicable legal provisions, shall be entitled to set forth the terms and
conditions for its implementation. The amortization of shares with
distributable earnings shall be done further to the provisions of the General
Law of Commercial Companies.
In accordance with the provisions of the Securities Market Law and
further to the requirements established by the Nationals Securities
Commission, the Company may increase its
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 15
capital stock by issuing non-voting shares, as well as shares with limited
corporate rights, and shares with restricted voting rights. The issuance of
these kinds of shares shall not exceed the percentage of Capital Stock set
forth by the National Securities Commission or the Securities Market Law, and
may represent the fixed part or the variable part of the capital stock.
The non-voting shares shall not be counted to determine the
attendance and voting quorums during Shareholders Meetings, meanwhile shares
with limited corporate rights and shares with restricted voting rights shall
be counted to determine attendance and voting quorums only in the shareholders
meetings held to discuss items in which they are entitled to vote.
The Class Shares that may be issued shall form one or more Series and
their respective Sub-series, each Series shall be identified by two alphabet
letters, one of which shall be the letter "A", the "B" or the "N",
respectively, and further to the holdings restrictions set forth in Article 6
of these By-laws regarding the Series "A", Common Stock; or
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 16
unrestricted common stock as described in Article 6 for the Series "B", or if
they are considered as neutral investment and unrestricted shares shall be
identified with the letter "N", adding a progressive number for each Sub
series issued.
In the event of capital stock increases, except in the case of
offerings of previously repurchased shares by the Company and in the event of
a waiver of preemptive rights to perfect a public offering further to the
terms of the Securities Market Law, the holders of shares of stock of the
Company shall have the preferential right to subscribe, in proportion of their
holdings, the shares issued. The proportion shall be determined considering
only the capital stock outstanding. This preemptive right may only be
exercised with respect of shares of the same kind or class that the
shareholder owns and within the 15 (fifteen) days following the publication of
the resolutions of the shareholders meeting; the publication shall be done
through the means set fort on these by-laws for the calls to the shareholders
meetings. For purposes of this section, "Public Offer" shall mean an offer
addressed to one or more groups of
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 17
undetermined but identified persons in base of one or more common
characteristics.
The Shareholders shall have the right to receive the shares issued as
a result of capitalization of reserves or earnings, provided that if for such
concepts are issued, all the shares of capital stock outstanding shall be
entitled to receive shares. The Shareholders Meeting shall determine the
nature or the class of shares that shall represent the capital stock increases
as a result of capitalization of reserves or earnings, and only the holders of
common stock or class stock, as the case may be, shall have the right to
receive the shares issued in proportion to their holdings.
The Company may issue unsubscribed shares to conduct an offering
among Public Investors, and shall keep such shares in custody in an Authorized
Depositary Institution in accordance with the provisions of the Securities
Market Law.
The outstanding shares representing the Variable Part of the Capital
Stock shall have redeemable rights, which shall be exercised further to the
terms set forth in the
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 18
General Law of Commercial Companies, with the following conditions: The
redemption price that the Company shall pay to its shareholders shall be equal
to the lesser value of: a).- the 95% of the quoted price for the shares,
obtained as an average of the stock operations traded during the thirty days
prior to the redemption date; or b).- the book value of the shares of the
Company, as determined in the most recent financial statements as of the close
of the fiscal year in which the redemption shall take place, which financials
shall be approved by the General Shareholders Meeting. Payment of the
redemption price shall be payable by the Company beginning the following day
following the date of the shareholders meeting that approved the financial
statements.
The Company shall keep a Book, which shall be authorized by the
Chairman of the Secretary of the Company or by any other officer authorized
for such purposes. In such Book shall be recorded the Increases or Reductions
if the Capital Stock in the Variable Part.
ARTICLE 9. The certificates representing the shares of stock, whether
provisional certificates or the definitive
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 19
certificates, shall comply with the requirements set forth in the General Law
of Commercial Companies, Articles 5, 7 (with respect to the restrictions to
transfer Shares or to acquire significant amounts of the capital stock), the
last two paragraphs of article 8, and 10 regarding to the obligation to notify
and to keep a record of material holdings, and shall contain the authentic
signatures of either two directors appointed by the Board of Directors (or one
Director and the Secretary if not a member of the Board); the Chairman and the
Secretary of the Board of Directors may use facsimile signatures in accordance
with the provisions of the General Law of Commercial Companies, and shall bear
coupons for the exercise of pre-emptive and dividends rights. The Board of
Directors shall determine the number of shares covered by each certificate,
the coupons to be affixed to them.
ARTICLE 10. The Company shall have a shareholder ledger containing:
a).- The name, nationality and the domicile of the Shareholder, and an
indication of the shares owned by such shareholder, indicating the numbers,
series, classes and other related information; b) Indications
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 20
regarding payments of the shares; c) Pledges over Shares and rights affecting
the title and transfer made pursuant to the General Law of Commercial
Companies, and the second paragraph of Article 7 of these by-laws. The
Shareholders Ledger shall be signed by the Chairman or by the Secretary of the
Board of Directors, or by any other officer specifically appointed by the
Board of Directors for such purposes. The Company shall consider as the holder
of the Shares the person appearing in the Shareholder Ledger referred to in
this article. For such purposes, the Company shall record at the request of
any holder, the transfers, limitations or encumbrances affecting the shares.
In the event that the Shares are deposited in one of the approved Securities
Depositary Institutions pursuant to the Securities Market Law, transfer of
deposited Shares shall be made in accordance to the provisions of said law. In
addition, if someone becomes a Holder of Shares representing the following
percentages (or if they exceed such percentages), shall inform the Company
within 5 (five) business days after they obtain, reach or exceed the holding
of 5%, 10%, 15% and 20%, respectively.
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 21
For the purposes described in this article, the provisions regarding
the grouping of shares contained in Article 7, section III shall apply.
The obligation described in this article regarding the notice of a
significant share ownership shall be applicable to all persons (individually
or as a group) with respect to whom the shares are grouped.
In the notice sent to the Company, such notice shall indicate the
name of the person or persons holding title and the rights acquired, the
information regarding the approval of the Board of Directors as set forth in
Article 7 (Seven) of these by-laws, and the information to identify the
persons in which such shares should be grouped.
In the event the provisions of this article regarding the notice to
the Company are not complied, the corresponding Shares shall not be
represented during Shareholder Meetings.
The Company shall have a Significant Holdings Ledger, in which the
Company shall record the names, nationality and
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 22
domicile of the persons under which the shares or certificates are issued, the
relationship, agreement or contract between such persons, and any other
information to verify the strict compliance with these by-laws. Only the
persons appearing in such ledger shall be entitled to represent their
respective Shares during Shareholders Meetings. If these provisions are not
complied, the Company shall not record the transactions, and the transactions
made shall have no legal effect before the Company.
ARTICLE 11. The General Shareholders Meeting shall be the supreme
power of the Company, and the Meeting may resolve or ratify any and all acts
of the Company. Its authority shall have limited only to the extent of
applicable law and these By-laws.
In the event that the Capital Stock of the Company, in addition to
the Common, ordinary shares, was represented by shares of other classes, any
action that may affect the rights conferred to the holders of such classes of
stock, shall be accepted previously by the affected class shares gathered in
Special Assembly, in which it will be required
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 23
an attendance and voting quorum as set forth for the Extraordinary Meetings,
and shall be calculated with reference to the total amount of the shares of
the respective class.
The class shareholders meetings shall gather in the corporate
domicile an the provisions set forth in articles 13, 14 and 15 of these
By-laws shall apply, and shall be presided by the shareholder appointed by the
attending shareholders, and the Secretary of the Company shall act as
secretary, and in the event of his absence, the secretary shall be the person
appointed by the attending shareholders.
ARTICLE 12. Ordinary Shareholders Meetings shall gathered at least
once a year at the corporate domicile, in the date determined by the Board of
Directors within the first four months following the end of each fiscal year.
The Ordinary Shareholders Meeting shall also resolve the items referred in
Article 181 of the General Law of Commercial Companies, and shall present to
the Shareholders the report referred to in the general statement of Article
172 of the General Law of Commercial Companies, regarding the fiscal
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 24
year immediately preceding of the company or companies that the Company is the
majority shareholder, when the value of the investment in each of them exceeds
20% of the net worth, in accordance with the most recent financial statements
of the holding company as of the end of the corresponding fiscal year, and
shall gather at any time when called further to the provisions of these
by-laws. Extraordinary Shareholders Meetings shall gather at any time they are
called.
ARTICLE 13. The call for the General Ordinary or Extraordinary
Shareholders Meetings shall be made by the Board of Directors or by the
Statutory Auditors, regardless of the rights conferred by law to the
shareholders to obtained a call made by the court. The call shall be made by
means of a publication in the State's Official Newspaper or in any of the
newspaper of wide distribution within the corporate domicile, with at least 15
days before the date of the meeting. The call shall include the place, date
and hour for the meeting and shall contain the Agenda for the Meeting. If all
the shares of stock outstanding are represented and such circumstance extends
to the time of the vote, a meeting may be conducted without need of a call. If
the required
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 25
quorum is not met, minutes shall be prepared and shall attest such
circumstance, and shall be signed by the President, the Secretary, the
attending Statutory Auditor and the appointed tellers, stating the date of
publication of the call. In this event, a second call shall be published
stating such fact, by a sole time, in the State's Official Newspaper or in any
of the newspaper of wide distribution within the corporate domicile, with at
least 15 days before the date of the meeting.
The holders of voting Shares, including the limited voting or
restricted voting shares, representing at least 10% (ten percent) of the
Capital Stock issued and outstanding, shall be entitled to request a call of
the General Shareholders Meeting in accordance with the provisions of the
General Law of Commercial Companies and these By-laws.
Beginning from the publication of the Call to the Shareholders
Meeting, all the documents and related documentation for every item of the
Agenda shall be made immediately available and without cost to the
shareholders.
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 26
ARTICLE 14. To attend any Shareholders Meeting and to take part
during such meetings, the shareholders shall deposit their shares in the
Secretary of the Company, or in a credit institution or Institution for the
Deposit of Securities through a broker in the securities market further to the
Securities Market Law. The Certificate of Deposit shall be delivered to the
Secretary at least with 48 hours in advance of the Meeting. In addition, it
shall be necessary with respect to the Shares intended to be represented in
the Meeting, the compliance with the provisions of Articles 7 and 10 of these
By-laws. Upon the delivery of such Certificate, the list and the verification
of compliance of Articles 7 and 10, the Secretary shall issue a record stating
the status of shareholder and the number of shares represented. Such written
record shall authorize the person in favor of whom it was issued to attend the
meeting. The deposited shares or the Certificates shall be returned to the
shareholders until the termination of the meeting and upon delivery of the
written record issued by the Secretary of the Company. The Secretary shall
make available to the appointed Tellers the documentation referred in this
section, in order for them to
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 27
prepare the list of attending shareholders with voting rights.
ARTICLE 15. Any shareholder shall be entitled to attend the General
Shareholders Meeting personally or by means of a General or Special
Attorney-in-fact. In this last event, the special attorney-in-fact shall
evidence its legal capacity by means of a Proxy prepared in accordance with
the formats prepared by the Company and made available to the shareholders,
including the brokers in the Securities Market, during the term set forth in
Article 173 of the Securities Market Law. The proxy formats shall contain the
following requirements: (a) to establish in a clear manner the name of the
Company, the Agenda for the Meeting, which shall not include a "General
Matters" item the items referred to in Articles 181 and 182 of the General Law
of Commercial Companies, and b) it shall contain a space for the instructions
to be issued by the shareholders granting the authority.
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 28
The Secretary of the Board of Directors shall verify the compliance
of this Article and shall inform the Meeting in this respect.
ARTICLE 16. For the Ordinary Shareholders Meeting to be considered
legally installed by virtue of the first call, it shall be represented at
least 50% (fifty percent) of the capital stock outstanding. In the event of a
second call, the Ordinary Shareholders Meeting shall be legally installed
irrespective of the number of shares represented. For the Extraordinary
Shareholders Meeting to be considered legally installed by virtue of a first
call, it shall be represented at least three quarters of the capital stock
outstanding. In the event of a second call, the Extraordinary Shareholders
Meeting shall be installed if at least 50% of the voting shares representing
the capital stock outstanding are represented.
ARTICLE 17. The meeting shall be presided by the Chairman of the
Board of Directors or by the person covering its absences, or in their absence
by the individual appointed by the absolute majority of attending
shareholders. The
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 29
Secretary of the Meeting shall be the Secretary of the Board of Directors, and
in his absence, it shall be the individual appointed by the absolute majority
of attending shareholders. Voting shall be economic, unless the shareholders
representing at least 20% of the capital stock request to be by certificate.
The President of the Meeting shall appoint two (2) tellers, and such
designation may be made in writing upon the publication of the call. In the
event of absences of the Tellers, a new appointed may be made. The attending
Tellers shall certify, based on the documentation made available to them and
the attendance list prepared for such purposes the number of shares
represented. If for any reason all the items contained in the Agenda are not
discussed during the time of the meeting, the remaining items of the Agenda
may be discussed in following days until all the items are covered.
The Holders of voting Shares, including the limited voting or
restricted voting shares, duly represented during a Shareholders Meeting and
representing at least 10% (ten percent) of the Capital Stock outstanding,
shall be entitled to request the adjournment in the voting of an item in which
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 30
they considered themselves as not sufficiently informed, in accordance with
the applicable provisions of the General Law of Commercial Companies.
ARTICLE 18. During Shareholders Meetings, each share of common stock
shall be entitled to one vote. This principle shall be subject to the
applicable legal provisions and the provisions of these by-laws, and shall
have as exceptions the shares repurchased by the Company referred to in the
first paragraph of article 7 and the shares without voting rights, as well as
the shares with limited voting rights, and the shares with restricted voting
rights further to the Securities Market Law and the shareholders meeting that
approved the issuance of such shares. During Ordinary Shareholders Meetings,
resolutions shall be valid by simple majority of votes represented. In the
event of Extraordinary Shareholders Meetings, resolutions shall be adopted by
the favorable vote of at least 50% of the capital stock outstanding, except in
the event of amendments to article 45, in which the previous consent issued by
the Mexican National Securities and Banking Commission and the approval of
(95%) ninety-five percent of the shares entitled to vote; and in
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 31
the event of amendments to the provisions of Articles 7 (except with respect
to repurchase of Shares), 10 and 22, it shall be required approval of (75%)
seventy-five percent of the shares entitled to vote. The Tellers shall be
responsible to verify the compliance of these quorums. The Holders of voting
Shares, including the limited voting or restricted voting shares, representing
at least 20% (twenty percent) of the Capital Stock outstanding, shall be
entitled to judicially object to the resolutions of the General Shareholders
Meeting, with respect to the items in which they are entitled to vote,
provided that the requirements set forth in the General Law of Commercial
Companies are complied for such purposes.
ARTICLE 19. Management of the Company shall be entrusted to a Board
of Directors formed by a minimum number of 5 (five) members and a maximum of
20 (twenty) members, and at least 25% (twenty five percent) of such members
(in the event of fractions rounded to immediately lower whole number) shall be
independent directors in accordance to the definition set forth in the
Securities Market Law. If determined by the respective shareholders meeting,
such
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 32
meeting may appoint alternate directors. Alternate directors shall cover
the temporary or permanent absences of the members of the board. The
Shareholders Meeting shall appoint the Chairman of the Board of Directors, and
such Meeting may also appoint the Secretary, which may not be a member of the
Board. The members of the Board of Directors and their Alternates shall be in
office until the persons designated by the Shareholders Meeting to substitute
them take possession of the office. The alternate directors, in the order of
their appointments, shall cover the absences of the directors; in the event
that the number of the alternate directors is less than the number of
directors, each alternate director shall cover the absences of the directors
in such order, once designated the alternate directors, the procedure shall be
repeated until each member of the board has it respective alternate.
Consequently, alternate directors may cover absences of different members of
the board, provided, however, that the Alternate Directors of the Independent
Directors shall have the same character. The Directors shall be covered in
their absences by the corresponding Alternate Director in accordance with
their appointment.
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 33
ARTICLE 20. The members of the Board of Directors shall be appointed
by the Ordinary Shareholders Meeting by majority vote. The shareholders that
during a shareholder meeting represented a minority and dissented of the
opinion of the majority shall have, provided that the number of shares that
they represent is at least the percentage determined by the General
Corporation Law, the right to appoint one Director, and its respective
alternate, which shall only cover the absences of such minority Director. In
this event, the minority shareholders shall abstain from taking part of the
election of the Directors referred to in Article 19 (formerly 18) of the
By-laws, limiting themselves to appoint by majority vote one Director and its
Alternate.
Any minority group of Shareholders holding restricted voting shares,
other that the ones set forth in the General Law of Commercial Companies, or
shares with limited voting shares as provided in such Law, representing at
least 10% (ten percent) or more of the outstanding Capital Stock, in one or
both classes of shares, shall have the right to appoint one Director and its
respective alternate; in the absence of this minority designation, the holders
of such
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 34
class of stock shall have the right to appoint 2 (two) Directors and
their respective alternates, corresponding one Director to each class. In the
second case, the appointments, as well as the removal or substitution of
Directors shall be made during a Special Meeting; in the first case, removal
of the minority director shall only take place when all remaining directors
have been removed, except for the ones appointed during a Special Meeting.
For purposes of the provisions of this Article, if minority directors
are appointed or a Special Meeting is held for such purposes, the Board of
Directors shall be increased with the number of appointed directors.
ARTICLE 21. When the General Shareholders Meeting so determines, it
may appoint a Honorary Chairman of the Company to honor a person that deserves
to hold such position based on his merits.
ARTICLE 22. The following individuals shall not be appointed as
Directors or Examiners of the Company: a) the individuals that do not have the
legal capacity to bind
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 35
themselves; b) individuals that are involved in bankruptcy procedures, and
such procedure is not lifted, c) the individuals that the Company has
outstanding or matured debts against them, and such obligations are not duly
guaranteed.- d) Persons who (either continuous or otherwise) have held
position or office in, or have been legal representatives in any way of, or
have been shareholders (directly or indirectly) in 5% or more of the Capital
Stock or net worth of, or have rendered any kind of services to: persons or
entities (incorporated or not) (except such Companies in which CEMEX, S.A. de
C.V. has a direct or indirect participation of at least 40% (forty percent) of
theirs capital stock) engaged in the production or distribution of cement or
its related products (persons or entities shall include the persons that are
shareholders or otherwise participate in the management, directly or
indirectly, of such person or entity engaged in such activities, as well as
entities in which such persons are shareholders or directly or indirectly
participate in their management); or e) persons that have participated in any
act that constitutes a violation to these By-laws, applicable law or
regulations. If any Director after their designation falls into any of the
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 36
events described above, shall cease in his function, and shall not act as
directors again until a new election is made and provided the impediment has
disappeared.
ARTICLE 23. The Board of Directors shall gather in ordinary meeting
at least once every three months. The Chairman, at least 25% (twenty-five
percent) of the members of the Board, or any of the Statutory Auditors, shall
be entitled to call a Board of Directors Meeting.
It shall be validly installed a meeting of the Board of Directors
with the presence of the majority of its members appointed by the Ordinary
Shareholders Meeting, and the Board of Directors resolutions shall be valid if
they are approved by an absolute majority of the attendant members. Minutes
for every meeting shall be prepared which shall contained the items discussed
and shall be signed by the President and the Secretary of the Meeting. The
Board of Directors may adopt resolutions in lieu of a meeting. These
resolutions shall be confirmed in writing.
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 37
ARTICLE 24. The Chairman shall preside the Shareholders Meetings and
the Board of Directors Meetings; the Chairman shall represent the Company
before any authority or corporations; shall have the casting vote during Board
of Directors Meetings in the event of a tie; shall watch out for the corporate
operations and shall ensure compliance of these by-laws, the internal
regulations and the resolutions adopted by the Shareholders and the Board of
Directors. The Chairman shall be the executor of the resolutions of the Board,
notwithstanding any authority granted to the Chief Executive Officer or the
Manager appointed for such purposes. The member of the Board appointed by the
Board shall cover the absences of the Chairman.
ARTICLE 25. The Board shall appoint a Secretary, which may not be a
Board member, and such appointment may be revoked at any time.
ARTICLE 26. The Shareholder Meeting may establish the obligation to
the members of the Board, Officers and Managers to guarantee the duly
performance of their respective duties.
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 38
The persons Holders of shares representing at least 15% (fifteen
percent) of the Capital Stock outstanding, shall be entitled to directly start
a civil responsibility action against the members of the Board, the Statutory
Auditors or the members of the Auditing Committee, provided that the
requirements set forth in the General Law of Commercial Companies are
satisfied.
ARTICLE 27. The Board of Directors shall have the following
authority: a) To Manage the business and affairs of the Company with the most
ample General Power for Management Acts, further to the terms set forth in the
second paragraph of Article (2554) two thousand five hundred fifty four of the
Civil Code for the Federal District in common matters and applicable in the
whole Mexican Republic for federal matters, and its correlative article (2448)
two thousand four hundred forty eight of the Civil Code of the State of Nuevo
Leon,- b) General Power for Ownership Acts, further to the terms set forth in
the third paragraph of Article (2554) two thousand five hundred fifty four of
the Civil Code for the Federal District in common matters and applicable in
the whole
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 39
Mexican Republic for federal matters, and its correlative article (2448) two
thousand four hundred forty eight of the Civil Code of the State of Nuevo
Leon, with the only limitation that the Board shall not have the authority to
dispose of industrial units of the Company.- c) To represent the Company
before any kind of administrative or judicial authority of the County, State
or the Federation, as well as before any labor authority or otherwise, with
all general and special powers which by law require a special clause according
to law without any limitation, as provided for in the first paragraph of
Article Articles (2554) two thousand five hundred fifty four of the Civil Code
for the Federal District in common matters and applicable in the whole Mexican
Republic for federal matters, and its correlative article (2448) two thousand
four hundred forty eight of the Civil Code of the State of Nuevo Leon, and
shall be empowered to participate in any kind of judicial proceedings, either
Civil, Commercial, Tax, Administrative, Criminal or Labor, including Amparo
proceedings, to follow such lawsuits and drop them if convenient for the
Company; to file recourses against decision of authorities; to consent
favorable rulings and appeal not favorable rulings; to present answers in any
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 40
lawsuits filed against the Company, to file and ratify accusations or
complaints before criminal authorities, being empowered to establish the
Company as co-party with the public prosecutor in criminal processes and grant
pardon when applicable; d)- To issue and subscribe any kind of negotiable
instruments in the name and stead of the Company, to contribute property,
personal or real estate, to other companies and to subscribe shares of stock
or other equity interest in companies.- e).- To grant avales, bonds or other
guarantees, including pledge and mortgage, obligations of third parties, with
or without consideration, and consequently to subscribe negotiable
instruments, agreements and any other instrument to perfect such guarantees.-
f) To appoint the Chief Executive Officer, and shall be empowered to appoint
Managers and Deputy as representatives of the Company as necessary.- g) To
hire specially trained technicians or other companies, the rendering of
services, as a consultant or employees.- h) To execute the resolutions adopted
by the Shareholders Meeting, and in general, to carry on the acts and
operations necessary or convenient for the corporate purposes of the Company,
except the ones reserved by law to the Shareholders Meeting by law or
otherwise
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 41
provided in these by-laws.- i) Further to the terms set forth in these
by-laws, to authorize or deny approval for the transfer, encumbrance or to
perform any act that restricts, encumber or otherwise transfer any rights or
duties of the Shareholders, directly or indirectly, with respect to the Shares
representing Capital Stock of the Company.
The following authority of the Board of Directors to approve the
following transactions shall not be subject of delegation: (a) transactions
that are not in the ordinary course of business of the Company, that are being
considered to enter into the Company and its shareholders, with persons that
are part of the management of the Company or with persons that such
individuals have patrimonial nexus, or otherwise have kinship (either by blood
or by law) up to the second degree, the spouse or concubinary; (b) the
purchase or sale of 10% (ten percent) or more of the total Assets of the
Company; (c) the issuance of a warranty or avales for an amount exceeding 30%
(thirty percent) of the total Assets of the Company, and (d) any other
transaction that is different from the listed above that represents more than
1% (one percent) of the total Assets of the Company. For purposes of
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 42
sections (b), (c) and (d) above, reference shall be made to the value of the
assets in accordance with the consolidated Financial Statements for the
quarter immediately ended before the date of the corresponding approval.
The members of the Board of Directors shall be responsible for the
resolutions adopted further to the provisions of the last paragraph, except
for the event set forth in Article 159 of the General Law of Commercial
Companies.
In addition, only the Board of Directors of the Company shall
determine the direction of the vote of the Shares that are the property of the
Company, representing a majority of the capital stock of such issuer company.
The Board of Directors shall be entitled to delegate authority,
except for the duties not subject to delegation in accordance to these
by-laws, in favor of legal representatives, and such legal representatives
shall be empowered to delegate once again the authority granted to them.
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 43
ARTICLE 28. The Chief Executive Officer shall be appointed by the
Board, and shall execute the resolution adopted by the Board, and shall hold
the signature of the Company, and shall have the following duties and powers:
I.- To organize, manage and direct the personnel, the property and affairs of
the Company further to the instructions of the Board of Directors, and to make
collections and payments.- II.- To execute agreements, to execute negotiable
instruments, and to guarantee them, and in general, to execute any kind of
written instrument related to the above-referenced situations and to execute
any acts necessary in the ordinary course of business.- III.- To establish the
hiring and the removal of employees and to watch out for their performance.-
IV.- To direct and to sign the correspondence of the Company.- V.- To grant
and revoke special or general powers of attorney, granting authority deemed
convenient, including substitution authority.- and VI.- To represent the
Company before any kind of administrative or judicial authorities, Municipal,
State, Federal or otherwise in the same extent as the powers of the
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 44
Board referred to in Article 26. The Board of Directors shall increase or
reduce the powers of the Chief Executive Officer.
ARTICLE 29. The Board of Directors may appoint Managers and Deputy
Managers, which shall be under the direct orders of the Chief Executive
Officer, and such officer shall distribute among them their corresponding
duties, and the Managers and Deputy Managers shall have the corresponding
corporate authority granted to them.
ARTICLE 30. The Board of Directors may appoint, among its members,
including the Secretary in the event the Secretary is not a member of the
Board, one or more delegates to execute specific actions. The Secretary shall
be authorized, in the event the Secretary is not a member of the Board, to
sign in accordance to these by-laws, the provisional certificates of the share
certificates representing shares of stock of the Company.
ARTICLE 31. The Board of Directors during its first meeting shall
appoint a consulting committee formed by four members of the Board, and shall
remain in office for two
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 45
years. Resolutions of the committee shall be taken by a majority of its
members.
ARTICLE 32. The Board of Directors during its first meeting shall
proceed to form an Auditing Committee, which shall be formed by the number of
members of the Board determined by the Board of Directors, provided that the
majority of appointed members are Independent and one of them, as determined
by the Board, shall be the Chairman of the auditing committee. The secretary
of the Auditing Committee shall be the Secretary of the Board of Directors.
The Company shall keep a minute book to record the meetings of the
Auditing Committee, which minutes shall be sighed by the Chairman and
Secretary of the Committee.
The Annual Report of the Auditing Committee shall be presented to the
Ordinary Shareholders Meeting as required by the Securities Market Law.
ARTICLE 33. The Auditing Committee shall have the following duties:
(a) to prepare an Annual Report of its
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 46
activities and shall submit such report to the Board of Directors; (b) to
issue an opinion regarding the transactions referred to in section (a) of
Article 27 of these by-laws; and (c) to propose the Board of Directors to hire
independent specialists in the event the committee deems it convenient, in
order to obtain their opinion on the transactions referred to in section (b)
above.
The Auditing Committee shall meet as many times as necessary, and its
meetings shall be called by the Chairman of the Board of Directors, a group
representing 25 % (twenty-five percent) of the members of the Board, by any of
the Statutory Auditors or by the Chairman of the Auditing Committee. The
decisions shall be adopted by majority votes of the attending members, and the
Chairman of the Committee shall have a casting vote in the event of a tie; the
Committee shall require the attendance of the majority of its members to have
a valid meeting. The Alternates of the members of the Board of Directors that
form part of the Auditing Committee shall have the same character with respect
to the integration of such committee.
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 47
ARTICLE 34. The members and alternate members of the Board of
Directors, and the Statutory Auditor and Alternate Statutory Auditor shall
receive the compensations for their services established by the General
Shareholders Meeting.
ARTICLE 35. The surveillance of the operations of the Company shall
be entrusted to Statutory Auditors appointed by the General Shareholders
Meeting, and Alternate Statutory Auditors may be appointed to cover the
temporary or permanent absences of the Statutory Auditors.
The shareholders holding 10% or more of any class of shares of
capital stock shall be entitled to appoint one Statutory Auditor and its
respective alternate, in which event the number of Statutory Auditors shall be
increased with the one appointed by the minority shareholders.
The Statutory Auditors and their Alternates shall remain in office
until the General Shareholders Meeting appoints their substitutes and such
persons take office; provided, however, that the appointment of the Statutory
Auditors appointed by minority shareholders shall not be
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 48
revoked unless all the appointments of Statutory Auditors are revoked.
The Statutory Auditors shall attend the meetings of the Board of
Directors, the meetings of the Auditing Committee, and the meetings of such
consulting intermediating bodies in which the Board of Directors delegated any
authority. For such purposes, the persons making the call for such meetings
shall also call the Statutory Auditors for their attendance.
ARTICLE 36. The General Shareholders Meeting may establish the
requirement for the Statutory Auditor to guarantee the duly performance of its
duties.
ARTICLE 37. The fiscal years shall last one calendar year, running
from January 1st to December 31st of each year.
ARTICLE 38. The net profits obtained annually shall be applied in the
following order: 1.- 5% shall be reserved to form the Legal Reserve up to an
amount not less that 20% (twenty percent) of the capital stock. If by any
event such
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 49
amount is reduced, the reserve shall be reconstituted in the way described
above.- 2.- The amount determined by the Shareholders Meeting shall be
segregated to for special reserves.- 3.- The remaining profits shall be
distributed in equal parts to the shareholders in proportion to their holdings
of shares, unless the law or the Shareholders Meeting determine in their
issuance, a special class of stock. The payment of dividends shall be further
to the terms set forth in applicable laws
ARTICLE 39. The founders of the company do not reserve any special
participation or special benefits in the profits of the company.
ARTICLE 40. If there were losses, such losses shall be shared by the
shareholders in proportion to their ownership and up to the value of their
respective shares in the proportion they represent in the capital stock
paid-in and outstanding.
ARTICLE 41. The company shall be dissolved upon the occurrence of in
any of the cases contemplated in Sections
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 50
II, III, IV and V of Article 229 (two hundred twenty nine) of The General
Law of Commercial Companies.
ARTICLE 42. Once the company is dissolved, the Shareholders' Meeting
by majority vote shall appoint three Liquidators. The Shareholders Meeting
shall determine the term to conclude with the liquidation process and the
compensation the liquidators shall receive.
ARTICLE 43. The liquidators shall adopt their resolutions by majority
of votes. The liquidations shall be performed in accordance to the following
guidelines: I.- Conclusion of the pending affairs in the way the liquidators
deem convenient.- II.- The liquidators shall collect the loans, shall pay the
credits and shall transfer the assets of the Company that are necessary for
such purposes.- III.- The liquid assets resulting from the final balance to be
formed by the liquidators, and approved by the Shareholders Meeting, shall be
distributed among the shareholders in kind or sold and distributing the
proceeds in accordance to the resolutions of the Shareholders Meeting.- The
distribution of the liquid assets shall be in proportion of the amount of
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 51
capital stock paid in, and with respect to the preferential rights of the
holders of special classes of stock.
ARTICLE 44. During the liquidation process the shareholders meeting
shall have the necessary authority to determine the rules that, in addition to
the authority set fort in applicable law of the provisions of these by-laws,
shall govern the performance of the liquidator or liquidators, including the
authority to revoke the appointment of liquidators and to appoint new ones.
The Meeting shall be called during the liquidation process by the liquidators
or the Statutory Auditor, and the Statutory Auditor shall have the same duties
and obligations that they normally perform during the term of the company,
with respect to the board of directors.
ARTICLE 45. In the event of cancellation of the registration of the
shares issued by the Company in the Securities Section of the National
Registry of Securities and Intermediaries, either by means of a request of the
Company or by resolutions adopted by the National Securities Commission in
accordance to law, the shareholders that hold
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 52
the control of the Company shall make a public offer to purchase, previously
to the cancellation of the registration and at the higher price resulting from
the average at the closing of the operations made during the last thirty (30)
days in which such shares were traded and prior to the offer, or the book
value of such shares further to the last quarterly report presented to the
National Securities Commission and the Mexican Stock Exchange before the
offer. The majority shareholders of the Company shall not be obligated to
carry on the public offer in the consent of all the shareholders was obtained
to proceed with the deregistration of the shares.
SOLE TRANSITORY PROVISION. The individuals or entities that as of
April 25 (twenty-five), 2002 (two thousand and two), which is the date in
which the General Extraordinary Shareholders Meeting that approved the
amendment of several provisions of the By-laws of Cemex, S.A. de C.V., which
fall within the provisions set forth in the amendments to Articles 7 or 10,
shall have a term of 6 (six) months beginning from the date of such
shareholders meeting, to comply with the approvals, notices and other
formalities
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 53
referred to in such amended articles 7 and 10. Such persons shall not
exercise any rights derived from such shares, until they strictly comply
with such formalities.
OFFICIAL TRANSLATION, David A. Gonzalez Vessi, Authorized Translator from
English-Spanish, Spanish-English, Approval Number 644/2003 dated as of January
31, 2003.
Page 54
CERTIFICATION
The undersigned, DAVID A. GONZALEZ VESSI, Official Translator for documents to
be translated from English to Spanish, and from Spanish to English, authorized
by the Superior Court of the State of Nuevo Leon, further to Approval number
644/2003 issued as of January 31, 2003, HEREBY CERTIFIES THAT:
The preceding document is a true and accurate translation from the SPANISH
language to the ENGLISH language of the Corporate By-laws of CEMEX, S.A. DE
C.V.. This certification is issued for any and all legal purposes.
Monterrey, N.L., as of March 20, 2003
DAVID A GONZALEZ VESSI
Exhibit 2.2
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
[Banamex Letterhead]
AMENDMENT AGREEMENT
TO THE TRUST AGREEMENT NUMBER 111033-9 ENTERED INTO BY AND BETWEEN CEMEX, S.A.
DE C.V., REPRESENTED HEREIN BY MR. RAMIRO VILLARREAL MORALES, IN HIS CAPACITY
OF SECRETARY OF THE BOARD OF DIRECTORS AND GENERAL ATTORNEY-IN-FACT OF THE
COMPANY, HEREINAFTER AND FOR THE PURPOSES OF THIS AGREEMENT REFERRED TO AS
"CEMEX", AND BANCO NACIONAL DE MEXICO, S.A., GRUPO FINANCIERO BANAMEX,
REPRESENTED HEREIN BY MESSRS. FRANCISCO JOSE BALTAZAR RODRIGUEZ AND MARIA DE
LOS ANGELES MONTEMAYOR GARZA, IN THEIR CAPACITY OF TRUST OFFICERS OF SUCH
INSTITUTION, HEREINAFTER AND FOR THE PURPOSES OF THIS AGREEMENT REFERRED TO AS
THE "TRUSTEE", WHO AGREE TO FORMALIZE THEIR AGREEMENT PURSUANT TO THE
FOLLOWING STATEMENTS AND CLAUSES.
---WITNESSETH---
I. The Parties hereby declare:
A) That they mutually acknowledge the legal capacity with which they
appear to execute this Agreement, having the authority to bind
their represented parties under the terms and conditions set forth
herein.
B) That on September 6, 1999, they entered into a Trust Agreement
registered under number 111033-9 to issue the Non-Redeemable
Ordinary Participation Certificates denominated "CEMEX.CPO",
referred to herein and for the effects of this Agreement only as
the "Trust".
C) That they ratify the rights and obligations set forth in the Trust.
D) That on April 25, 2002, "Cemex, Sociedad Anonima de Capital
Variable", held n Extraordinary General Shareholders Meeting,
whereby it was agreed to amend certain articles of its bylaws to
adequate its language and comply with the new provisions of the
Securities Market Law ("Ley del Mercado de Valores"), as well as to
include in its bylaws, additional provisions to those set forth in
the General Law of Commercial Companies ("Ley General de Sociedades
Mercantiles") to introduce measures to prevent the acquisition of
stock that grant the control of the corporation, either directly or
indirectly, having been protocolized through public deed number
75,536 dated July 4th, 2002, granted before Mr. Juan Manuel Garcia
Garcia, Notary Public Number 129, practicing in the city of San
Pedro Garza Garcia, Nuevo Leon, which was duly recorded in the
Public Registry of Commerce of the corporate address of
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
CEMEX. A certified copy of such public deed is attached to this
amendment agreement in the form of "Exhibit A".
E) That in the above-mentioned Meeting, the company was authorized to
amend trust agreement number 111033-9 in which Banco Nacional de
Mexico, S.A. acts as Trustee, to amend its clauses to the statutory
amendments and agreements adopted in the Extraordinary Meeting,
authorizing the Chairman and Secretary of the Board of Directors,
who may act jointly or severally, to formalize the amendment to the
trust agreement issuing the "CEMEX.CPO".
F) That the Technical Committee of the TRUST, in its session dated
November 7, 2002, agreed to instruct the TRUSTEE, authorizing it to
formalize the amendment to the above-referenced trust agreement, in
order to comply with the resolutions adopted in the Extraordinary
General Shareholders Meeting of Cemex, S.A. de C.V., held on April
25, 2002. A certified copy of the corresponding minutes is attached
to this amendment agreement in the form of "Exhibit B".
G) That on November 5, 2002 a General Meeting of Non-Redeemable
Ordinary Participation Certificate "CEMEX.CPO" Holders was held,
whereby it was agreed to amend clauses Seven, Eight and Nine of the
issuance deed of the Non-Redeemable Ordinary Participation
Certificates "CEMEX.CPO", as well as clauses Fourth, Fifth and
Eleventh of trust agreement number 111033-9, having been
protocolized through public deed number 29.688 dated November 14,
2002, granted before Mr. Francisco Garza Calderon, Notary Public
Number 75, practicing in the city of San Pedro Garza Garcia, Nuevo
Leon. A certified copy of such public deed is attached to this
amendment agreement in the form of "Exhibit C".
H) That the TRUSTEE and CEMEX jointly filed a document before the
National Banking and Securities Commission ("Comision Nacional
Bancaria y de Valores") requesting its approval for the amendment
of clauses Seven, Eight and Nine of the issuance certificate of the
Non-Redeemable Ordinary Participation Certificates "CEMEX.CPO", as
well as clauses Fourth, Fifth and Eleventh of trust agreement
number 111033-9.
I) That they freely enter into this Agreement, pursuant to the
following:
---CLAUSES---
FIRST: PURPOSE OF THE AGREEMENT.
This Agreement is being executed for purposes of expressly evidencing the
amendments to the rights and obligations of each of the parties appearing
under any capacity in the TRUST, binding them to subject themselves to the
terms and conditions that arise as a result of the execution of this
instrument.
2
Amendment Agreement to Trust Agreement Number 111033-9
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
SECOND: OF THE TOTAL ASSETS AND ITS INCREMENTS.
The parties hereby agree to amend clauses Fourth, Fifth and Eleventh of the
TRUST, which shall read as follows:
"FOURTH: RIGHTS AND OBLIGATIONS:
a. HOLDERS OF "CPO's": The individuals or legal entities, bodies,
trusts or companies, either Mexican or foreign, that acquire
the "CPO's" issued pursuant to this "TRUST", and the
individuals or legal entities, bodies, trusts or companies,
either Mexican or foreign, that adhere to it by means of a
contribution of "SHARES".
The persons referred to in the preceding paragraph, by the mere
fact of acquiring and holding the "CPO's", and for the mere
contribution of the "SHARES", shall be subject to the terms,
conditions and provisions contained in this Agreement and its
respective amendments to be implemented, and the respective
Issuance Deed and the certificate or certificates that
represent the "CPO's", and in according with the provisions of
Articles 7 (seven) and 10 (ten) of the Corporate Bylaws of
"CEMEX", in connection with the "CPOs" transfer restrictions or
for the acquisition of material portions of the capital of
"CEMEX".
b. "CEMEX" AND THE "ADHESIVE SETTLORS OF THE TRUST": Regarding
"CEMEX", it shall have the sole and only right to receive from
"THE TRUSTEE", the proceeds from the placement through a public
offering of the issuance of "CPO's", provided that the "SHARES"
have been previously contributed as a result of the issuance or
repurchase of said "SHARES" in accordance with applicable Law,
and "CEMEX" shall also have the right to receive the proceeds
of the placement of "CPO's" that "THE TRUSTEE" may have
repurchased with funds contributed by "CEMEX" or that "THE
TRUSTEE" may have directly repurchased; and in connection with
the "ADHESIVE SETTLORS OF THE TRUST" that contributed "SHARES"
for purposes of placing such "SHARES" among the investing
public, they shall have the right to receive from "THE TRUSTEE"
the proceeds of the offerings through the issuance of "CPO's".
c. The "SETTLORS" that adhere to this Agreement to obtain "CPO's"
with respect to the "SHARES" contributed to the "TRUST", as
well as the persons, bodies or legal entities that acquire
"CPO's", shall have, subject to the provisions of this
agreement, the economic and voting rights with respect to THE
"SHARES" that represent their respective "CPO's" holding
proportions regarding the total assets of the "TRUST". In
addition, the holders of "CPO's" shall have the right to
receive the net proceeds resulting from the sale of "THE
3
Amendment Agreement to Trust Agreement Number 111033-9
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
SHARES" that form the corresponding proportion of the Total
Assets of the "TRUST" corresponding to each "CPO", or such
"SHARES" or participation certificates issued by the "MASTER
TRUST" in strict compliance with the terms and conditions
agreed in this Agreement."
"FIFTH: PURPOSES OF THE "TRUST".
The purposes of the Trust are:
a. That "THE TRUSTEE" acquires and maintains the trust property of
the "SHARES" that form part of the assets of this "TRUST".
b. That "THE TRUSTEE":
b.1 subscribe the "SHARES" to be issued or repurchased by
"CEMEX" for purposes of their public offering in
compliance with the applicable legal provisions, through
the contribution of "CPO's" to this Trust, and in such
event deliver to "CEMEX" the value of such "SHARES" with
the proceeds of the offering; furthermore, that "THE
TRUSTEE", with the proceeds contributed by "CEMEX" for
such purposes, reacquires "CPO's" for purposes of their
further offering in the terms of applicable law.
b.2 To acquire the trust property of those "SHARES"
contributed by the "ADHESIVE SETTLORS OF THE TRUST", and
b.3 To acquire the trust property of those "SHARES" resulting
from (i) capital stock increases derived from
capitalization of reserves or earnings, and restructuring
of the "SHARES", or (ii) in the event of the shares
resulting from mergers or spin-offs in which "CEMEX"
participates, and (iii) additionally to subscribe and
pay, conditioned to the previous contribution of the
funds required therefor by the BENEFICIARIES, the
"SHARES" resulting from capital stock increases by means
of additional contributions or reinvestment of
distributed earnings.
c. That, further to the terms of this Agreement, "THE TRUSTEE"
issues "CPO's" to be acquired by the individuals or legal
entities, of either Mexican or foreign nationality, provided
that "THE TRUSTEE" may only issue one CPO per three common
ordinary "SHARES" of "CEMEX" stock, two of which shall be
Series "A" shares, and one shall be Series "B" shares,
contributed to this Trust and that form part of the capital of
this "TRUST", consequently, an equal part of the Trust Assets
that will correspond to each "CPO" shall be conformed by two
Series "A" shares and one Series "B" shares, representing the
common, ordinary
4
Amendment Agreement to Trust Agreement Number 111033-9
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
capital stock of "CEMEX"; provided that such
equal part may be amended by virtue of capitalization,
reinvestment of distributed earnings, restructuring of
"SHARES", reductions of capital, amortization of "SHARES", or
by mergers or spin-offs in which "CEMEX" participates.
d. That "THE TRUSTEE" shall transfer, through S.D. Indeval, S.A.
de C.V., the "CPO's" to be issued with respect of "THE SHARES",
to the corresponding national or foreign investors who are
entitled to such "CPO's", and in the same manner to the
national or foreign investors that have contributed "SHARES"
owned by them, to the "TRUST".
e. That `"THE TRUSTEE"', through S.D. Indeval, S.A. de C.V., shall
keep "SHARES" in deposit, provided that such deposit may be
accomplished through one or more other institutions for the
deposit of securities in accordance with the provisions of
applicable Law.
f. That "THE TRUSTEE" shall exercise the economic and corporate
rights vested on "SHARES", provided that the voting rights
shall be exercised through the respective attorneys-in-fact,
further to the following guidelines:
f.1 The "BENEFICIARIES" of Mexican Nationality shall have the
right to attend the Shareholders Meetings of "CEMEX"
either personally or by means of an attorney-in-fact for
purposes of representing and exercising the corporate
rights vested in "THE SHARES" that conform the respective
portion of the Total Assets of the "TRUST" which
corresponds to their respective "CPO" holdings, and for
these purposes it shall be sufficient to give an
instruction addressed to "THE TRUSTEE" with at least 72
(seventy-two) hours in advance to the date and time set
for the Shareholders Meeting of "CEMEX", and shall
jointly submit sufficient evidence, at the discretion of
"THE TRUSTEE", regarding their current "CPO's" holdings,
the nationality of the holder and the nationality of the
effective beneficiary of the "CPO's" in accordance with
the terms and conditions contained in this agreement; on
the other hand, in the event that it may be legally
applicable, "THE TRUSTEE" will issue in favor of the
corresponding "BENEFICIARY" or his respective
attorney-in-fact, the written document evidencing the
number of "SHARES" entitled to vote which islegally
entitled to represent at such Shareholders Meeting,
granting the corresponding Proxy.
f.2 The "BENEFICIARIES" shall be entitled to exercise the
voting rights of THE "SHARES" that conform the Total
Assets of the "TRUST", subject to the terms and
conditions set forth below.
5
Amendment Agreement to Trust Agreement Number 111033-9
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
f.2(i) The "BENEFICIARIES" of Mexican Nationality shall
exercise the voting rights with the
representation granted in its case by "THE
TRUSTEE" further to the terms of Section f.1
above.
For purposes of this Agreement, "BENEFICIARIES" of
Mexican Nationality shall mean: (i) the individuals
of Mexican nationality, and (ii) the legal entities
whose By-laws include the Foreign Investors
Exclusion Clause, understood as the agreement or
express pact that, either directly or indirectly, no
foreign shareholders or partner or corporations with
foreign investment admission clause, shall be
admitted to participate in such entities.
f.2(ii) The "BENEFICIARIES" of Foreign Nationality
and the "BENEFICIARIES" which are Mexican
entities that directly or indirectly admit the
participation of foreign individuals, entities,
trusts, funds, Governments or any other legal
entities with or without personality, or whose
By-laws include a foreign investment admission
clause, shall be entitled to attend the
Shareholders Meetings of "CEMEX" in the terms of
paragraph (f.1), solely for the purposes of
representing and exercising the voting right of
the Series "B" shares (or shares with
unrestricted circulation) that conform the
respective portion of the total assets of this
"TRUST" corresponding to their "CPO's" holdings,
which shall be fully evidenced jointly with
their nationality, at the time in which they
deliver to "THE TRUSTEE" the respective
instruction with within the anticipation set
forth in this Agreement.
f.2(iii) The instructions to the given by the
"BENEFICIARIES" pursuant to this section (f.1)
shall be in written form, and shall indicate in
every case the complete name, nationality (such
nationality shall be duly proven with a public
document), evidence of being the lawful holder
of the "CPO's", the number of "CPO's" that such
holder is recognized to own, and in the event
that they elect that "THE TRUSTEE" represent THE
"SHARES" corresponding to their "CPO's"
holdings, the direction of the vote in each and
every item to be discussed during the
Shareholders Meeting of "CEMEX", in accordance
with the agenda set forth in the call for the
respective meeting, and any other information
and/or documentation necessary or convenient
that "THE TRUSTEE" requests for identification
or
6
Amendment Agreement to Trust Agreement Number 111033-9
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
verification purposes. For purposes of the
provisions set forth in the Corporate By-laws of
"CEMEX" with respect to the acquisition,
holdings, ownership and transfer of "SHARES",
the "BENEFICIARIES" upon acquiring the "CPO's"
as a result by any act or legal form, shall do
so in a manner that, in respect of "THE SHARES"
conforming the corresponding proportion of the
"CPO's" acquired, complies with such provisions
of the by-laws, in addition to the provisions of
this Agreement, consequently all acquisitions of
"CPO's" shall be deemed as an acquisition and
transfer of "THE SHARES" that conform the "TOTAL
ASSETS" of "THE TRUST" corresponding to such
"CPO's", and if the provisions of the Corporate
By-laws of "CEMEX" or the terms of this
Agreements are not complied with, the respective
"BENEFICIARIES" will lack capacity to instruct
"THE TRUSTEE" with respect to the vote, nor will
they shall have the right to represent and vote
"THE SHARES" conforming the corresponding
proportion of the Total Assets of the "TRUST"
that correspond to their "CPO" holdings. The
"BENEFICIARIES" may freely use letters, telefax
or any other electronic mean, either through
computer or any other telecommunication devices,
to send their instructions, but at all times
complying with the terms and conditions set
forth in this Agreement.
f.2(iv) "THE TRUSTEE" will vote of the Series "A"
"SHARES" (and such shares that may only be
acquired by persons of Mexican Nationality) that
conform the total assets of the "TRUST", which
proportionally correspond to the "CPO's" held by
foreign "BENEFICIARIES", in the same direction
expressed by the Shareholders that represent the
majority of the Capital Stock entitled to vote.
f.2(v) "THE TRUSTEE" will attend the Shareholders
Meetings of "CEMEX" to represent and vote "THE
SHARES" of any Series or class that conform the
total assets of the "TRUST" and in respect of
which no instructions were received from the
"BENEFICIARIES" further to the terms and
conditions deemed appropriate, except for the
provisions of the preceding paragraph.
f.3 In connection with the representation of "THE SHARES" at
any intended Shareholders Meeting of "CEMEX", it will be
necessary that
7
Amendment Agreement to Trust Agreement Number 111033-9
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
the "BENEFICIARIES" and "THE TRUSTEE" comply with the
provisions of Articles 7 (seven) and 10 (ten) of the
Corporate Bylaws of "CEMEX" in connection with the "CPO"
transfer restrictions or to acquire material portions of
the capital stock of "CEMEX".
g. That "THE TRUSTEE", through S.D. Indeval, S.A. de C.V., shall
subscribe the approved increases in the capital stock of
"CEMEX", in accordance with the provisions of clause Eighth
below, provided that "THE TRUSTEE" timely receives the
necessary funds from the Holders that desire to increase their
"CPO's" with the subscription to be made by "THE TRUSTEE".
h. That "THE TRUSTEE", through S.D. Indeval, S.A. de C.V., collect
the cash dividends approved by "CEMEX" and distribute such
dividends among the "CPO's" Holders in proportion with their
holdings. With respect to "THE SHARES" issued as a result of
capital increases derived from capitalization of reserves or
earnings, or derived from restructuring of the shares that form
the capital stock of "CEMEX", or resulting from the
reinvestment of earnings or shares delivered by mergers or
spin-offs in which "CEMEX" participates, "THE TRUSTEE" shall
receive and subscribe such "SHARES", and make them a part of
the total assets of "THE TRUST", which in such case shall
conform a part of the respective portion corresponding to each
CPO.
i. That "THE TRUSTEE" shall proceed, further to the provisions of
clause Ninth below, to withdraw from circulation the
corresponding "CPO's" in the event that "CEMEX" redeems "THE
SHARES" or reduces the Capital Stock by means of the respective
reimbursement.
j. That at the expiration of the term of this Agreement, and
further to the terms of clause Eleventh herein, "THE TRUSTEE"
shall proceed:
j.1 In the case of the "BENEFICIARIES" of Mexican
nationality, as defined in section f.2 of this clause, to
withdraw from circulation and to cancel the "CPO's",
awarding in favor of such "BENEFICIARIES" the
proportional part of the total assets of the "TRUST" in
accordance with their proportional holdings.
j.2. In the case of the "BENEFICIARIES" of foreign
nationality, as well as the "BENEFICIARIES" which are
Mexican entities that directly or indirectly admit the
participation of foreign governments, individuals, or
legal entities, acting with or without individual
capacity, to withdraw from circulation and cancel the
"CPO's", (i) to transfer in favor of such "BENEFICIARIES"
only the Series "B" shares (or shares of unrestricted
circulation) that form part of the total assets of
8
Amendment Agreement to Trust Agreement Number 111033-9
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
the "TRUST" and that proportionally correspond to their
"CPO" holdings, and (ii) with respect to the Series "A"
Shares (or those shares whose holdings are limited to
Mexican nationals) that form part of the total assets of
the "TRUST" and proportionally correspond to their "CPO"
holdings, to contribute such "SHARES" to Trust No. 771-7
named "Master Trust for Neutral Investments" executed by
Nacional Financiera, S.N.C. as trustee, on November 24,
1989 (hereinafter, and for identification purposes, this
trust shall be referred to as the "MASTER "TRUST"), in
accordance with the approvals that are to be granted by
the relevant authorities, and shall proceed to exchange
the Ordinary Participation Certificates to be issued
based on said Trust to the respective "BENEFICIARIES",
through S.D. Indeval, S.A. de C.V., in accordance with
the provisions of Clause Eleventh herein.
j.3 The provisions of sections j.1 and j.2 above shall not be
applicable in the cases in which the transfer implies the
acquisition, transfer or encumbrance in any way of shares
or the rights inherent thereto with respect to the CPO's
or Shares which represent 2% (two percent) of the Capital
Stock of "CEMEX", or that, in the event of an acquisition
of the Property of "CPOs" or Shares represents 20%
(twenty percent) or more of the Capital Stock of "CEMEX",
in which case and for these purposes, "THE TRUSTEE" shall
be bound to the provisions of Articles 7 (seven) and 10
(ten) of the Corporate Bylaws of "CEMEX" in connection
with the "CPO" transfer restrictions or to acquire
material portions of the capital stock of "CEMEX".
k. That "THE TRUSTEE" shall proceed, further to the instructions
received from the Technical Committee designated hereinbelow,
to exchange the Securities that are representing "CPO's" that
are outstanding, for the new Securities in the event that the
Total Assets of "THE TRUST" is modified as a result of
capitalization, reinvestment of distributed earnings,
restructuring of "SHARES", reductions of capital stock of
"CEMEX", redemption of "SHARES", or by mergers or spin-offs in
which "CEMEX" participates. Furthermore, in the event the terms
and conditions under which such "CPO's" should be issued are
amended.
l. That "THE TRUSTEE", upon receipt of the required funds from
"CEMEX", shall temporarily acquire the "CPO's" issued, further
to the terms and conditions that the Technical Committee
instructs in writing, subject to the provisions of article 14
Bis 3, section I, of the Securities Market Law ("Ley del
Mercado de Valores") and the related general applicable
provisions issued by the Comision Nacional Bancaria y de
Valores.
9
Amendment Agreement to Trust Agreement Number 111033-9
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
m. That "THE TRUSTEE", further to the instructions of the
Technical Committee, shall proceed with the exchange referred
to in Clause First herein; and proceed to apply for the
registration of the "CPO's" in the National Registry of
Securities ("Registro Nacional de Valores"), and before the
applicable authorities and regulatory bodies of other countries
with recognized markets, for purposes of registry and listing
the "CPO's" in the Securities Exchanges of Mexico and other
countries with recognized Markets."
"ELEVENTH: TERM.
The term of this Agreement shall be thirty (30) years counted since September
six (6), nineteen hundred and ninety-nine (1999), date of if its execution. As
long as this Trust and the trust referred to in the next paragraph remain in
effect, the Total Assets of the Trust shall remain devoted to the stated
purposes; both Trust are irrevocable.
Simultaneously with the termination date of the "TRUST", and with the
participation of the Common Representative of the "CPO" Holders, shall proceed
to settle an Irrevocable Trust with a fiduciary institution expressly
authorized for such effects in accordance with applicable laws and subject to
the terms and conditions set forth from time to time by the Technical
Committee, to which "THE TRUSTEE" shall contribute the "SHARES" which are part
of the total assets of the "TRUST", provided that the new Trust shall contain
the purposes, term, rights and obligations which as of such date are set forth
in this "TRUST". For these purposes, the trustee of the new Trust shall
proceed, further to the instructions given by the technical committee, to
substitute the outstanding "CPO's" with the "CPO's" which in its case may be
issued by the institution acting as Trustee for the new Trust.
The "TRUST" may be terminated by any of the events set forth in article 392
(three hundred and ninety-two) of the General Law of Negotiable Instruments
and Credit Transactions ("Ley General de Titulos y Operaciones de Credito")
and which is compatible with this "TRUST", and in such event "THE TRUSTEE",
with the participation of the Common Representative of the `"CPOs" Holders,
and further to the provisions of Clause Fifth section (j), shall proceed as
follows:
a. Shall carry-out the necessary acts to withdraw the "CPO's" that
are owned by Mexican individuals or by Mexican Legal Entities
whose by-laws contain the "Foreign Investment Exclusion Clause"
directly or indirectly (through other corporations or legal
entities) from the market, for purposes of delivering to such
persons the corresponding portion of the total assets of the
"TRUST" with respect to their holdings, with the exception of
the occurrence of any of the events set forth in Articles 7
(seven) and 10 (ten) of the Corporate By-laws of "CEMEX",
referred to in Clause Fifth, Section j.3 (in connection with
the restrictions for the transfer of shares or to acquire
material portions of the Capital Stock) in which event shall
proceed further to the terms of such article. The exchange of
the "CPO's" and the delivery of the "SHARES" that conform
10
Amendment Agreement to Trust Agreement Number 111033-9
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
the total assets of the "TRUST" shall be done through S.D.
Indeval, S.A. de C.V.
b. Shall carry-out the necessary acts to withdraw the "CPO's" that
are held by foreign persons or by Mexican Entities that do not
have, directly and indirectly (through other corporations or
entities), the "Foreign Investment Exclusions Clause", from the
market, and proceed as follows:
b.1 Regarding the Series "A" Shares (or shares with
restricted circulation whose holdings are limited to
Mexican nationals) that are part of the total assets of
the "TRUST", shall contribute in trust to the "MASTER
TRUST" the corresponding part with respect to the ones
such "CPO's" were issued, provided that per each of the
"CPO's", Nacional Financiera, S.N.C. shall deliver to the
"BENEFICIARIES" the Ordinary Participation Certificates
issued based on the "MASTER TRUST" and that legally
correspond the such holders in proportion to their
holdings;
b.2 Regarding the Series "B" Shares (or shares with
unrestricted circulation) that are part of the total
assets of the "TRUST", shall deliver to such
"BENEFICIARIES" the corresponding portion of the total
assets of the "TRUST" with respect to their holdings,
with the exception set forth in paragraph a) of this
clause; and
b.3 in the absence of, and at the request of the
"BENEFICIARIES" referred to in this paragraph, shall
proceed to transfer the necessary and sufficient Series
"A" shares (or shares with restricted circulation whose
holdings are limited to Mexican nationals) forming part
of the "TRUST" assets to deliver to such "BENEFICIARIES"
the corresponding portion of the proceeds of the sale,
with respect to their holdings.
b.4 The exchange of the "CPO's", the delivery of the Ordinary
Participation Certificates issued based on the "MASTER
TRUST", the delivery of the Series "B" Shares (or shares
with unrestricted circulation) that are part of the total
assets of the "TRUST" and, as the case may be, the
delivery of the sale proceeds of the Series "A" Shares
(or shares with restricted circulation whose holdings are
limited to Mexican nationals) contributed to the Trust
and that legally corresponds to them in according to
their proportions, shall be done through S.D. Indeval,
S.A. de C.V. or '"THE TRUSTEE"', when legally applicable.
11
Amendment Agreement to Trust Agreement Number 111033-9
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
In any of these events "THE TRUSTEE" shall timely proceed with the
cancellation of the "CPO's" once "THE TRUSTEE" has performed the corresponding
legal actions.
With respect to the provisions of paragraph b.1 above, "THE TRUSTEE" is hereby
bound to perform the necessary actions in order for Nacional Financiera,
S.N.C., in its capacity as Trustee of the "MASTER TRUST", to issue
non-redeemable ordinary participation certificates based on such "MASTER
TRUST", in order that such Certificates may be delivered to the
"BENEFICIARIES" referred to in such paragraph b.1 above.
The termination of this Agreement shall be subject, in any event, to the
provisions of article 228t (two hundred twenty-eight letter t) of the General
Law of Negotiable Instruments and Credit Transactions, which reads as follows:
"ARTICLE 228t.- The trust pursuant to which the issuance us being made shall
not be extinguished while there are unpaid balances as a result of credits
against the trust capital, the certificates or a participation in the products
or earnings"."
THIRD: TERM AND CONTINUITY.
The parties agree to be bound by all the terms set forth in the TRUST and this
Agreement; the rights and obligations of all of the parties in such documents
shall remain in effect, there being no novation of the TRUST. This Agreement
is effective between the parties as of its execution date.
HAVING THIS AGREEMENT BEEN READ BY THE PARTIES WHO HAVE BEEN MADE AWARE OF ITS
CONTENTS AND LEGAL EFFECT, IT IS EXECUTED IN SAN PEDRO GARZA GARCIA, NUEVO
LEON, ON NOVEMBER 21, 2002.
CEMEX
[Illegible Signature]
Cemex, S.A. de C.V.
Mr. Ramiro Villarreal Morales. Secretary of the Board
of Directors and Attorney-In-Fact.
THE TRUSTEE
Banco Nacional de Mexico, S.A.
Grupo Financiero Banamex
[Illegible Signature] [Illegible Signature]
Mr. Francisco Jose Baltazar Rodriguez. Ms. Maria de los Angeles Montemayor Garza.
Trust Officer. Trust Officer.
12
Amendment Agreement to Trust Agreement Number 111033-9
[Translation note: On the upper left side of each page
appears a seal in which, among other, the following text
may be identified: "Lic. Erick Salvador Pullian Aburto.
Notary Public No. 196, Mexico, Federal District."]
[Translation note: On each page appears
a seal in which the following text may be
identified:"Notary Public No. 120, Principal.
Lic. Jose Luis Farias Montemayor.
Monterrey, N.L. Mex. First District."]
I, ATTORNEY-IN-FACT JOSE LUIS FARIAS MONTEMAYOR, Notary Public Number 120 with
authorization to practice in the First Registration District, hereby evidence
and CERTIFY: That this copy is integrated by eleven pages being a legitimate
reproduction of its original which I have before me and I issue for the
benefit of the interested party, registering this document under number
59333/2002 of the Open Minute Registry Book, in Monterrey, Nuevo Leon, United
Mexican States on the 22nd day of the month of November, 2002. IN WITNESS
WHEREOF.
[Illegible Signature]
JOSE LUIS FARIAS MONTEMAYOR
Notary Public Number 120
FAML-371126-IE0
13
Amendment Agreement to Trust Agreement Number 111033-9
Exhibit 4.10
EXECUTION COPY
=============================================================================
REIMBURSEMENT AND CREDIT AGREEMENT
AMONG
CEMEX, S.A. DE C.V.,
AS ISSUER
CEMEX MEXICO, S.A. DE C.V.,
AS GUARANTOR
EMPRESAS TOLTECA DE MEXICO, S.A. DE C.V.,
AS GUARANTOR
BARCLAYS BANK PLC,
NEW YORK BRANCH,
AS ISSUING BANK, DOCUMENTATION AGENT AND
ADMINISTRATIVE AGENT
AND
THE SEVERAL LENDERS PARTY HERETO,
AND
BARCLAYS CAPITAL,
THE INVESTMENT BANKING DIVISION
OF BARCLAYS BANK PLC,
AS JOINT ARRANGER
AND
BANC OF AMERICA SECURITIES LLC
AS JOINT ARRANGER AND SYNDICATION AGENT
U.S.$275,000,000
DATED AS OF AUGUST 26, 2002
=============================================================================
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS...................................................................................2
1.01 Certain Definitions...........................................................................2
1.02 Other Definitional Provisions................................................................18
1.03 Accounting Terms and Determinations..........................................................19
ARTICLE II THE LETTER OF CREDIT FACILITY................................................................19
2.01 Issuance of the Letter of Credit.............................................................19
2.02 Reimbursement Obligations....................................................................19
2.03 Obligations Absolute.........................................................................20
2.04 Participating Interests......................................................................21
2.05 Limited Liability of the Issuing Bank........................................................24
2.06 Defaulting Lenders...........................................................................24
2.07 Non-Default Disruption Event.................................................................26
2.08 Maximum Interest Rate........................................................................27
ARTICLE III THE LOAN FACILITY............................................................................28
3.01 Commitments to Lend..........................................................................28
3.02 Notice of Borrowing..........................................................................29
3.03 Notice to Lenders; Funding of Loans..........................................................30
3.04 Notes........................................................................................31
3.05 Conversion and Continuation of Loans.........................................................32
3.06 Maturity of Loans............................................................................33
3.07 Interest Rates...............................................................................33
3.08 Computation of Interest......................................................................33
3.09 Optional Prepayments.........................................................................34
3.10 Mandatory Prepayments........................................................................34
3.11 Maximum Interest Rate........................................................................35
ARTICLE IV THE STANDBY L/C FACILITY.....................................................................35
4.01 Issuance of the Standby L/C..................................................................35
4.02 Reimbursement Obligations....................................................................36
4.03 Obligations Absolute.........................................................................36
4.04 Participating Interests......................................................................37
4.05 Limited Liability of the Issuing Bank........................................................40
ARTICLE V TERMINATION AND REDUCTION OF COMMITMENTS; FEES, TAXES, PAYMENT PROVISIONS....................40
5.01 Termination or Reduction of Commitments......................................................40
5.02 Extension of Commitments.....................................................................42
5.03 Fees.........................................................................................42
(a) Participation Fee.......................................................................42
(b) Letter of Credit Fees...................................................................42
(c) Standby L/C Fees........................................................................42
(d) Agency Fees.............................................................................42
(e) Arrangement Fees........................................................................43
(f) Depositary Fees.........................................................................43
(g) Up-Front Fee............................................................................43
5.04 Computation of Fees..........................................................................43
5.05 Taxes........................................................................................43
5.06 General Provisions as to Payments............................................................45
5.07 Funding Losses...............................................................................46
5.08 Basis for Determining Interest Rate Inadequate or Unfair.....................................46
5.09 Illegality...................................................................................46
5.10 Increased Costs; Capital Adequacy............................................................46
5.11 Substitute Lenders...........................................................................48
5.12 Sharing of Payments, Etc.....................................................................48
ARTICLE VI CONDITIONS PRECEDENT.........................................................................49
6.01 Conditions to Effectiveness..................................................................49
(a) Agreement...............................................................................49
(b) Notes...................................................................................49
(c) Depositary Agreement and Dealer Agreements..............................................49
(d) Opinions of Issuer's and each Guarantor's Counsel.......................................49
(e) Opinion of Counsel to the Administrative Agent..........................................49
(f) Opinion of Counsel to the Issuing Bank..................................................49
(g) Opinions of Counsel to the Depositary...................................................50
(h) Governmental Approvals..................................................................50
(i) Organizational Documents of the Issuer and the Guarantors...............................50
(j) Agent for Service of Process............................................................50
(k) Ratings.................................................................................50
(l) Fees and Expenses.......................................................................50
(m) No Default..............................................................................51
(n) Representations and Warranties..........................................................51
(o) No Material Adverse Effect..............................................................51
(p) Other Documents.........................................................................51
6.02 Conditions Precedent to the Issuance of Commercial Paper Notes...............................51
6.03 Conditions Precedent to Borrowings, Continuation or Conversion of the Loans and Standby L/Cs.52
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE ISSUER.................................................53
7.01 Corporate Existence and Power................................................................53
7.02 Power and Authority; Enforceable Obligations.................................................53
7.03 Compliance with Law and Other Instruments....................................................53
7.04 Governmental Approvals.......................................................................54
ii
7.05 Financial Information........................................................................54
7.06 Litigation...................................................................................54
7.07 No Immunity..................................................................................54
7.08 Investment Company Act.......................................................................55
7.09 Direct Obligations; Pari Passu; Liens........................................................55
7.10 Subsidiaries.................................................................................55
7.11 Ownership of Property........................................................................55
7.12 No Recordation Necessary.....................................................................55
7.13 Taxes........................................................................................56
7.14 Compliance with Laws.........................................................................56
7.15 Absence of Default...........................................................................56
7.16 Full Disclosure..............................................................................56
7.17 Choice of Law; Submission to Jurisdiction and Waiver of Sovereign Immunity...................56
ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS.............................................57
8.01 Corporate Existence and Power................................................................57
8.02 Power and Authority; Enforceable Obligations.................................................57
8.03 Compliance with Law and Other Instruments....................................................57
8.04 Governmental Approvals.......................................................................57
8.05 No Immunity..................................................................................58
8.06 Direct Obligations; Pari Passu; Liens........................................................58
8.07 No Recordation Necessary.....................................................................58
8.08 Choice of Law; Submission to Jurisdiction and Waiver of Sovereign Immunity...................58
ARTICLE IX AFFIRMATIVE COVENANTS........................................................................58
9.01 Financial Reports and Other Information......................................................59
9.02 Notice of Default and Litigation.............................................................59
9.03 Compliance with Laws and Contractual Obligations, Etc........................................60
9.04 Payment of Obligations.......................................................................60
9.05 Maintenance of Insurance.....................................................................60
9.06 Conduct of Business and Preservation of Corporate Existence..................................60
9.07 Books and Records............................................................................61
9.08 Maintenance of Properties, Etc...............................................................61
9.09 Use of Proceeds..............................................................................61
9.10 Pari Passu Ranking...........................................................................61
9.11 Transactions with Affiliates.................................................................61
9.12 Maintenance of Governmental Approvals........................................................61
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ARTICLE X NEGATIVE COVENANTS...........................................................................62
10.01 The Commercial Paper Notes...................................................................62
10.02 Securities Act...............................................................................62
10.03 Offering Statements..........................................................................62
10.04 Depositary; Dealers; Depositary Agreement....................................................62
10.05 Financial Conditions.........................................................................63
10.06 Liens........................................................................................63
10.07 Consolidations and Mergers...................................................................64
10.08 Sales of Assets, Etc.........................................................................65
10.09 Change in Nature of Business.................................................................65
10.10 Margin Regulations...........................................................................66
ARTICLE XI OBLIGATIONS OF GUARANTORS....................................................................66
11.01 The Guaranty.................................................................................66
11.02 Nature of Liability..........................................................................66
11.03 Unconditional Obligations....................................................................66
11.04 Independent Obligation.......................................................................67
11.05 Waiver of Notices............................................................................67
11.06 Waiver of Defenses...........................................................................67
11.07 Bankruptcy and Related Matters...............................................................68
11.08 No Subrogation...............................................................................69
11.09 Right of Contribution........................................................................69
11.10 General Limitation on Guaranty...............................................................70
11.11 Covenants of the Guarantors..................................................................70
ARTICLE XII EVENTS OF DEFAULT............................................................................70
12.01 Events of Default............................................................................70
(a) Payment Defaults........................................................................70
(b) Representation and Warranties...........................................................70
(c) Specific Defaults.......................................................................71
(d) Other Defaults..........................................................................71
(e) Defaults under Other Agreements.........................................................71
(f) Voluntary Bankruptcy....................................................................71
(g) Involuntary Bankruptcy..................................................................71
(h) Monetary Judgment.......................................................................71
(i) Pari Passu..............................................................................72
(j) Validity of Agreement...................................................................72
(k) Governmental Authority..................................................................72
(l) Expropriation, Etc......................................................................72
(m) Moratorium; Availability of Foreign Exchange............................................72
(n) Material Adverse Effect.................................................................72
(o) Attachments of Accounts.................................................................72
iv
(p) Change of Ownership or Control..........................................................72
12.02 Remedies.....................................................................................73
12.03 Notice of Default............................................................................74
12.04 Default Interest.............................................................................74
ARTICLE XIII THE ADMINISTRATIVE AGENT.....................................................................74
13.01 Appointment and Authorization................................................................74
13.02 Delegation of Duties.........................................................................75
13.03 Liability of Administrative Agent............................................................75
13.04 Reliance by Administrative Agent.............................................................75
13.05 Notice of Default............................................................................76
13.06 Credit Decision..............................................................................76
13.07 Indemnification..............................................................................77
13.08 Administrative Agent in Individual Capacity..................................................77
13.09 Successor Administrative Agent...............................................................77
ARTICLE XIV THE ISSUING BANK.............................................................................78
14.01 Appointment..................................................................................78
14.02 Liability of Issuing Bank....................................................................78
14.03 Reliance by Issuing Bank.....................................................................79
14.04 Credit Decision..............................................................................79
14.05 Indemnification..............................................................................80
14.06 Issuing Bank in Its Individual Capacity......................................................80
14.07 Notice of Default............................................................................80
ARTICLE XV THE ARRANGERS................................................................................81
15.01 The Arrangers................................................................................81
15.02 Liability of Arrangers.......................................................................81
15.03 Arrangers in their respective Individual Capacities..........................................81
15.04 Credit Decision..............................................................................81
ARTICLE XVI MISCELLANEOUS................................................................................82
16.01 Notices......................................................................................82
16.02 Amendments and Waivers.......................................................................82
16.03 No Waiver; Cumulative Remedies...............................................................83
16.04 Payment of Expenses, Etc.....................................................................84
16.05 Indemnification..............................................................................84
16.06 Successor and Assigns........................................................................85
16.07 Right of Set-off.............................................................................87
16.08 Confidentiality..............................................................................87
16.09 Use of English Language......................................................................87
16.10 GOVERNING LAW................................................................................87
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16.11 Submission to Jurisdiction...................................................................88
16.12 Appointment of Agent for Service of Process..................................................88
16.13 Waiver of Sovereign Immunity.................................................................89
16.14 Judgment Currency............................................................................89
16.15 Counterparts.................................................................................89
16.16 Effect of Termination of Commitments.........................................................90
16.17 Severability.................................................................................90
16.18 Survival of Agreements and Representations...................................................90
SCHEDULES
Schedule 1.01(a) Commitments
Schedule 1.01(b) Lending Offices
Schedule 7.06 Litigation
Schedule 7.10 Subsidiaries
Schedule 10.06 Liens
EXHIBITS
Exhibit A Form of Letter of Credit
Exhibit B Form of Note
Exhibit C Form of Depositary Agreement
Exhibit D Form of Notice of Borrowing
Exhibit E Form of Notice of Continuation/Conversion
Exhibit F Form of Assignment and Assumption Agreement
Exhibit G Form of Opinion of Special New York Counsel to the Issuer and the Guarantors
Exhibit H Form of Opinion of Mexican Counsel to the Issuer and the Guarantors
Exhibit I Form of Standby Letter of Credit
vi
REIMBURSEMENT AND CREDIT AGREEMENT
REIMBURSEMENT AND CREDIT AGREEMENT, dated as of August 26,
2002 among CEMEX, S.A. DE C.V., a sociedad anonima de capital variable
organized and existing pursuant to the laws of the United Mexican States (the
"Issuer"), CEMEX MEXICO, S.A. DE C.V., a sociedad anonima de capital variable
organized and existing pursuant to the laws of the United Mexican States,
EMPRESAS TOLTECA DE MEXICO, S.A. DE C.V., a sociedad anonima de capital
variable organized and existing pursuant to the laws of the United Mexican
States (each a "Guarantor" and together, the "Guarantors"), BARCLAYS BANK PLC,
NEW YORK BRANCH, as Issuing Bank, Documentation Agent and Administrative
Agent, the several Lenders party hereto, and BARCLAYS CAPITAL, THE INVESTMENT
BANKING DIVISION OF BARCLAYS BANK PLC, as a Joint Arranger and BANC OF AMERICA
SECURITIES LLC, as a Joint Arranger and Syndication Agent.
RECITALS
(1) The Issuer proposes to issue and sell its
promissory notes in the United States commercial paper market supported by a
letter of credit issued by the Issuing Bank, and, to provide liquidity support
therefor in the event of certain market disruptions, the Issuer desires to
obtain from the Lenders commitments to make loans in an aggregate principal
amount (together with any outstanding commercial paper notes and outstanding
Standby L/Cs (as defined herein) and unreimbursed drawings under the letters
of credit issued hereunder) not in excess of U.S.$275,000,000 at any one time
outstanding.
(2) The Issuer wishes the Stated Amount (as defined
herein) to include a sublimit of U.S.$100,000,000 for the issuance of standby
letters of credit in accordance with the provisions of this Agreement in
support of certain obligations of the Issuer and any of its Subsidiaries,
including, without limitation, standby letters of credit in support of
contingent liabilities arising in connection with forward sale contracts,
leases, insurance contracts and arrangements, service contracts, equipment
contracts, financing transactions and other payment obligations.
(3) Upon the terms and subject to the conditions set
forth below, the Issuing Bank is willing to issue an irrevocable direct-pay
letter of credit in the stated amount of U.S.$275,000,000 to provide for the
repayment of outstanding commercial paper notes of the Issuer issued in the
United States commercial paper market, in accordance with the provisions of
this Agreement and the Depositary Agreement and to issue standby letters of
credit to provide support for obligations of the Issuer and its Subsidiaries
in accordance with the terms of this agreement.
(4) The Lenders are willing to participate in the
letters of credit issued by the Issuing Bank and to make loans to the Issuer
upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, the Issuer, the Issuing Bank, the Lenders,
the Administrative Agent and the Joint Arrangers hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Definitions. As used in this Agreement,
the following terms shall have the following meanings:
"Acquired Subsidiary" means any Subsidiary acquired by the
Issuer or any other Subsidiary after the date hereof in an
Acquisition, and any Subsidiaries of such Acquired Subsidiary on the
date of such Acquisition.
"Acquiring Subsidiary" means any Subsidiary formed by the
Issuer or one of its Subsidiaries solely for the purpose of
participating as the acquiring party in any Acquisition, and any
Subsidiaries of such Acquiring Subsidiary acquired in such
Acquisition.
"Acquisition" means any merger, consolidation, acquisition
or lease of assets, acquisition of securities or business combination
or acquisition, or any two or more of such transactions, if upon the
completion of such transaction or transactions, the Issuer or any
Subsidiary thereof has acquired an interest in any Person who is
deemed to be a Subsidiary under this Agreement and was not a
Subsidiary prior thereto.
"Adjusted Consolidated Net Tangible Assets" means, with
respect to any Person, the total assets of such Person and its
Subsidiaries (less applicable depreciation, amortization and other
valuation reserves), including any write-ups or restatements required
under Mexican GAAP (other than with respect to items referred to in
clause (ii) below), after deducting therefrom (i) all current
liabilities of such Person and its Subsidiaries (excluding the
current portion of long-term debt) and (ii) all goodwill, trade
names, trademarks, licenses, concessions, patents, unamortized debt
discount and expense and other intangibles, all as determined on a
consolidated basis in accordance with Mexican GAAP.
"Administrative Agent" means Barclays Bank PLC, New York
Branch, in its capacity as administrative agent for the Issuing Bank
and the Lenders, and its successors in such capacity.
"Administrative Agent's Payment Office" means the
Administrative Agent's address for payments set forth on the
signature pages hereof or such other address as the Administrative
Agent may from time to time specify to the other parties hereto
pursuant to the terms of this Agreement.
"Affected Lender" has the meaning specified in Section
5.10(a).
"Affiliate" of any specified Person means any other Person
who directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with such
specified Person. For the purposes of this definition, "control" when
used with respect to any specified Person means the power to direct
the management and policies of such Person, directly or indirectly,
whether through the
2
ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Aggregate Reported Proceeds" means the aggregate net sales
price of any Commercial Paper Notes, i.e., the Face Amount thereof
less discount for interest and fees.
"Agreement" means this Reimbursement and Credit Agreement,
as from time to time amended, supplemented or otherwise modified.
"Arrangers" or "Joint Arrangers" means Barclays Capital, the
Investment Banking Division of Barclays Bank PLC, and Banc of America
Securities LLC, in their capacity as joint arrangers hereunder, and
each of their successors in such capacity.
"Assignee" has the meaning specified in Section 16.06(b).
"Assignment and Assumption Agreement" means an assignment
and assumption agreement in substantially the form of Exhibit F.
"Available Commitments" has the meaning specified in Section
3.01(f).
"Available Standby L/C Sublimit" means, at any time, the
lesser of (a)(i) U.S.$100,000,000 minus (ii) the Standby L/C Exposure
at such time, and (b) the Available Commitments.
"Base Rate" means, for any day, the higher of (a) the Prime
Rate or (b) the Federal Funds Rate plus 1/2% per annum, in each case
as in effect for such day. Any change in the Prime Rate announced by
Bank of America, N.A. shall take effect at the opening of business on
the day specified in the public announcement of such change.
"Base Rate Loan" means any Loan made or maintained at a rate
of interest calculated with reference to the Base Rate.
"Borrowing" means the aggregate amount of Loans hereunder to
be made to the Issuer pursuant to Article III on a particular date by
the Lenders pro rata in accordance with their respective
Participation Percentages.
"Business Day" means any day other than a Saturday or Sunday
or other day on which commercial banks in New York City are
authorized or required by law to close.
"Capital Adequacy Regulation" means any guideline, request
or directive of any central bank or other similar Governmental
Authority, or any other law, rule or regulation, whether or not
having the force of law, in each case, regarding capital adequacy of
the Issuing Bank or any Lender.
"Capital Lease" means, as to any Person, the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or
a combination thereof, which obligations are required to
3
be classified and accounted for as capital leases on a balance sheet
of such Person under Mexican GAAP and, for the purposes of this
Agreement, the amount of such obligations at any time shall be the
capitalized amount thereof at such time determined in accordance with
Mexican GAAP.
"Capital Stock" means any and all shares, interests,
participations or other equivalents (however designed) of capital
stock of a corporation, any and all equivalent ownership interests in
a Person (other than a corporation) and any and all warrants, rights
or options to purchase any of the foregoing.
"Commercial Paper Account" means a special purpose account
established by the Depositary for the benefit of the Issuing Bank
pursuant to the Depositary Agreement.
"Commercial Paper Notes" means, collectively, the promissory
notes of the Issuer in book-entry form represented by the master note
in the form of Annex A to the Depositary Agreement, in each case
issued in accordance with the terms of the Depositary Agreement.
"Commitment" means, with respect to each Lender, the amount
set forth opposite the name of such Lender in Schedule 1.01(a) or in
any Assignment and Assumption Agreement, as such amount may be
reduced from time to time pursuant to Section 5.01 or 16.06 or
increased pursuant to Section 5.02, 5.11 or 16.06. The aggregate
amount of the Commitments of all the Lenders is referred to as the
"Commitments".
"Confidential Information" means information that the Issuer
or a Guarantor furnishes to the Administrative Agent or the Arrangers
or any Lender in a writing designated as confidential, but does not
include any such information that is or becomes generally available
to the public or that is or becomes available to the Administrative
Agent or the Arrangers or such Lender from a source other than the
Issuer or a Guarantor that is not, to the best of the Administrative
Agent's, the Arrangers' or such Lender's knowledge, acting in
violation of a confidentiality agreement with the Issuer or Guarantor
or any other Person.
"Consolidated" refers to the consolidation of accounts in
accordance with Mexican GAAP.
"Consolidated EBITDA" means, for any period, the sum for the
Issuer and its Subsidiaries, determined on a consolidated basis of
(a) operating income (utilidad de operacion), (b) cash interest
income and (c) depreciation and amortization expense, in each case
determined in accordance with Mexican GAAP consistently applied for
such period. For the purposes of calculating Consolidated EBITDA for
any period of four consecutive fiscal quarters (each, a "Reference
Period") pursuant to any determination of the Consolidated Leverage
Ratio (but not Consolidated Fixed Charge Coverage Ratio), (i) if at
any time during such Reference Period the Issuers or any of its
Subsidiaries shall have made any Material Disposition, the
Consolidated EBITDA for such Reference Period shall be reduced by an
amount equal to the Consolidated EBITDA (if positive) attributable to
the property that is the subject of such Material Disposition for
such
4
Reference Period and (ii) if at any time during such Reference
Period the Issuer or any of its Subsidiaries shall have made any
Material Acquisition, Consolidated EBITDA for such Reference Period
shall be calculated after giving pro forma effect thereto (including
the incurrence or assumption of any Debt) as if such Material
Acquisition had occurred on the first day of such Reference Period.
Additionally, if since the beginning of such Reference Period any
Person that subsequently shall have become a Subsidiary or was merged
or consolidated with the Issuer or any of its Subsidiaries as a
result of a Material Acquisition occurring during such Reference
Period shall have made any Disposition or Acquisition of property
that would have required an adjustment pursuant to clause (i) or (ii)
above if made by the Issuer or any of its Subsidiaries during such
Reference Period, Consolidated EBITDA for such period shall be
calculated after giving pro forma effect thereto as if such
Disposition or Acquisition had occurred on the first day of such
period.
"Consolidated Fixed Charges" means, for any period, means
the sum (without duplication) of (a) Consolidated Interest Expense
for such period, (b) mandatory dividend payments during such period
in respect of preferred Capital Stock of the Issuer or any of its
Subsidiaries and (c) to the extent not included in (a) above,
payments during such period in respect of the financing costs of
financial derivatives in the form of equity swaps.
"Consolidated Fixed Charge Coverage Ratio" means, for any
period, the ratio of (a) Consolidated EBITDA for such period to (b)
Consolidated Fixed Charges for such period.
"Consolidated Interest Expense" means, for any period, the
total gross interest expense of the Issuer and its consolidated
Subsidiaries allocable to such period in accordance with Mexican
GAAP.
"Consolidated Leverage Ratio" means, at any time during any
fiscal quarter, the ratio of (a) Consolidated Net Debt at such time
to (b) Consolidated EBITDA for the four consecutive fiscal quarters
immediately preceding such fiscal quarter.
"Consolidated Net Debt" means, at any date, the sum (without
duplication) of (a) the aggregate amount of all Debt of the Issuer
and its Subsidiaries at such date, plus (b) to the extent not
included in Debt the aggregate amount of all derivative financing in
the form of equity swaps outstanding at such date plus (c) to the
extent not included in Debt, all payment obligations of such Person
under (i) the 9.66% Puttable Capital Securities issued by CEMEX
International Capital LLC on May 14, 1998 or (ii) the Framework
Agreement, dated November 6, 2000, relating to the financing of the
subscription by New Sunward Holdings B.V. of the equivalent in euro
of U.S.$1,500,000,000 for common stock of Cia. Valenciana de Cementos
Portland, S.A. in connection with the acquisition of Southdown, Inc.
(the "Framework Agreement"), the Facility Agreement (as such term is
defined in the Framework Agreement) and the other documents and
instruments executed in connection with the Framework Agreement, or
under any transaction similar to (i) or (ii), minus (d) all Temporary
Investment of the Issuer and its Subsidiaries at such date.
5
"Contractual Obligation" means, as to any Person, any
provision of any security issued by such Person or of any indenture,
mortgage, deed of trust, loan agreement or other agreement to which
such Person is a party or by which it or any of its property or
assets is bound.
"CP Disruption Event" has the meaning specified in the
definition of "Non-Default Disruption Event" in this Section 1.01.
"Dealer" means Banc of America Securities LLC., Barclays
Capital Inc. and any other dealer or placement agent of the
Commercial Paper Notes appointed by the Issuer and approved by the
Arrangers and the Issuing Bank.
"Dealer Agreement" means any agreement between the Issuer
and any Dealer with respect to the issue and sale or placement of
Commercial Paper Notes, as amended, modified or supplemented from
time to time.
"Debt" of any Person means, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations
of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable
arising in the ordinary course of business, (iv) all obligations of
such Person as lessee under Capital Leases, (v) all Debt of others
secured by a Lien on any asset of such Person, up to the value of
such asset, as recorded in such Person's most recent balance sheet,
(vi) all obligations of such Person with respect to product invoices
incurred in connection with export financing, and (vii) all
obligations of such Person under repurchase agreements for the stock
issued by such Person or another Person.
"Default" means any condition, event or circumstance which,
with the giving of notice or lapse of time or both, would, unless
cured or waived, become an Event of Default.
"Defaulting Lender" has the meaning specified in Section
2.06(a).
"Depositary" means U.S. Bank Trust National Association, in
its capacity as depositary, issuing agent and paying agent under the
Depositary Agreement and any successor depositary appointed in
accordance with the terms hereof and thereof.
"Depositary Agreement" means the Depositary Agreement among
the Issuer, the Issuing Bank, the Administrative Agent and the
Depositary in substantially the form of Exhibit C, as from time to
time amended, supplemented or otherwise modified.
"Disbursement Date" means, with respect to a Drawing, the
Business Day on which such Drawing is paid by the Issuing Bank, with
respect to a Standby L/C Drawing, the Business Day on which such
Standby L/C Drawing is paid by the Issuing Bank and, with respect to
a Loan under Section 3.01(f), the date on which such Loan is made.
6
"Disposition" means, with respect to any property, any sale,
lease, sale and leaseback, assignment, conveyance, transfer or other
disposition thereof. The terms "Dispose" and "Disposed of" shall have
correlative meanings.
"Dollars" and "U.S.$" each means the lawful currency of the
United States.
"Dow Jones Page 3750" means the display designated as page
"3750" on the Dow Jones Market Screen (formerly known as the Telerate
Service) or such other page as may replace the "3750" page on that
service or such other service or services as may be nominated by the
British Bankers' Association for the purpose of displaying London
interbank offered rates for Dollar deposits.
"Downgrading Event" has the meaning set forth in the
definition of "Non-Default Disruption Event" in this Section 1.01.
"Drawing" means a drawing made by the Depositary under the
Letter of Credit.
"Effective Date" has the meaning specified in Section 6.01.
"Environmental Action" means any audit procedure, action,
suit, demand, demand letter, claim, notice of non-compliance or
violation, notice of liability or potential liability, investigation,
proceeding, consent order or consent agreement relating in any way to
any Environmental Law, Environmental Permit or Hazardous Materials or
arising from alleged injury or threat of injury to health, safety or
the environment, including (a) by any Governmental Authority for
enforcement, cleanup, removal, response, remedial or other actions or
damages and (b) by any Governmental Authority or any third party for
damages, contribution, indemnification, cost recovery, compensation
or injunctive relief.
"Environmental Law" means any federal, state, local or
foreign statute, law, ordinance, rule, regulation, technical standard
(norma tecnica or norma oficial Mexicana), code, order, judgment,
decree or judicial agency interpretation, policy or guidance relating
to pollution or protection of the environment, health, safety or
natural resources, including those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials.
"Environmental Permit" means any permit, approval,
identification number, license or other authorization required under
any Environmental Law.
"Eurocurrency Liabilities" means, with respect to the
Issuing Bank or any Lender, the full reserve requirement percentage
imposed in respect of "Eurocurrency liabilities", as such term is
defined in Regulation D (or any successor provision) (including any
marginal, emergency, supplemental, special or other reserves) of the
Federal Reserve Board, applicable to the Issuing Bank or such Lender
for any day during an Interest Period.
7
"Eurodollar Business Day" means any Business Day on which
commercial banks are open in London for the transaction of
international business, including dealings in Dollar deposits in the
international interbank markets.
"Eurodollar Loan" means any Loan made or maintained at a
rate of interest calculated with reference to LIBOR.
"Events of Default" has the meaning specified in Section
12.01.
"Face Amount" of any Commercial Paper Note means the full
amount thereof payable at maturity.
"Federal Funds Rate" means, for any relevant day, the
overnight Federal funds rate as published for such day in the Federal
Reserve Statistical Release H.15 (519) or any successor publication,
or, if such rate is not published for any day, the rate for such day
will be the rate set forth in the daily statistical release
designated as the Composite 3:30 p.m. Quotation for U.S. Government
Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the
"Composite 3:30 p.m. Quotation" for such day under the caption
"Federal Funds Effective Rate"). If on any relevant day the
appropriate rate for such previous day is not yet published in either
H.15 (519) or the Composite 3:30 p.m. Quotations, the rate for such
day will be the arithmetic mean as determined by the Administrative
Agent of the rates for the last transaction in overnight Federal
funds arranged prior to 9:00 a.m. (New York City time) on that day by
each of three leading brokers of recognized standing of Federal funds
transactions in New York City selected by the Administrative Agent.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System of the United States.
"Fee Letter" means any written agreement as to the payment
of fees referred to in Section 5.03.
"Foreign Financial Institution" means an institution
registered as a foreign financial institution with the Ministry of
Finance in the Mexican Banking and Financial Institutions, Pensions,
Retirement and Foreign Investment Funds Registry for purposes of
Article 154 of the Mexican Income Tax Law.
"Governmental Authority" means any branch of power or
government or any state, department or other political subdivision
thereof, or any governmental body, agency, authority (including any
central bank or taxing authority), any entity or instrumentality
(including any court or tribunal) exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government.
"Guarantor" shall have the meaning specified in the preamble
hereto.
"Hazardous Materials" means (a) radioactive materials,
asbestos-containing materials, polychlorinated biphenyls, radon gas
and (b) any other chemicals, materials or
8
substances designated, classified or regulated as hazardous or toxic
or as a pollutant or contaminant under any applicable Environmental
Law.
"Illegality Event" has the meaning set forth in the
definition of "Non-Default Disruption Event" in this Section 1.01.
"Indemnified Party" has the meaning specified in Section
16.05.
"Interest Period" means, with respect to each Borrowing of
Eurodollar Loans, the period (i) commencing (A) on the date of such
Borrowing or conversion of Base Rate Loans into Eurodollar Loans or
(B) in the case of the continuation of Eurodollar Loans for a further
Interest Period, on the last day of the immediately preceding
Interest Period and (ii) ending one, two or three months thereafter
as the Issuer may elect in the applicable Notice of Borrowing or
Notice of Continuation/Conversion; provided, however, that:
(a) any Interest Period which would otherwise end on a day
which is not a Eurodollar Business Day shall, subject to paragraph
(c) below, be extended to the next succeeding Eurodollar Business Day
unless such Eurodollar Business Day falls in another calendar month,
in which case such Interest Period shall end on the immediately
preceding Eurodollar Business Day;
(b) any Interest Period which begins on the last Eurodollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of
such Interest Period) shall, subject to paragraph (c) below, end on
the last Eurodollar Business Day of a calendar month;
(c) any Interest Period which would otherwise end after the
last day of the Loan Period shall end on the last day of the Loan
Period; and
(d) any Interest Period which would otherwise end after the
Maturity Date shall end on the Maturity Date.
"Issuer" has the meaning specified in the preamble hereto.
"Issuer Deposit Amount" has the meaning specified in Section
2.02(d).
"Issuing Bank" means Barclays Bank PLC, New York Branch, in
its capacity as issuer of the Letter of Credit and of Standby L/Cs,
and its successors in such capacity.
"Lender" means each financial institution listed on the
signature pages hereof, each Assignee which becomes a Lender pursuant
to Section 5.02(b) or 16.06(b), each Substitute Lender and each of
their respective successors or assigns.
"Lending Office" means, with respect to any Lender, (a) the
office or offices of such Lender specified as its "Lending Office" or
"Lending Offices" in Schedule 1.01(b) or (b) such other office or
offices of such Lender as it may designate as its Lending
9
Office by notice to the Issuer and the Administrative Agent and with
the consent of the Issuing Bank (which shall not be unreasonably
withheld).
"Letter of Credit" means the irrevocable direct-pay letter
of credit of the Issuing Bank in substantially the form of Exhibit A,
issued to the Depositary, as the Letter of Credit may be amended or
replaced from time to time pursuant to the terms of this Agreement.
"Letter of Credit Account" has the meaning specified in the
Depositary Agreement.
"Letter of Credit Exposure" means, at any time, the sum,
without duplication, of (a) all Outstanding Commercial Paper Notes
plus (b) the aggregate unpaid amount at such time of all unreimbursed
Drawings made under the Letter of Credit which have not been
converted into Loans pursuant to Article III.
"Letter of Credit Facility" means the Letter of Credit, any
drafts presented thereunder, any Drawings (including any unreimbursed
Drawings), any obligations of the Issuer in respect of the foregoing
and any payments received by the Issuing Bank in respect of any of
the foregoing.
"Letter of Credit Fees" has the meaning specified in Section
5.03(b).
"LIBOR", applicable to any Interest Period, means the rate
for deposits in Dollars for a period equal to such Interest Period
quoted on the second Eurodollar Business Day prior to the first day
of such Interest Period, as such rate appears on Dow Jones Page 3750
as of 11:00 a.m. (London time) on such date as determined by the
Administrative Agent and notified to the Lenders and the Issuer on
such second prior Eurodollar Business Day. If LIBOR cannot be
determined based on the Dow Jones Page 3750, LIBOR means the
arithmetic mean (rounded upwards to the nearest 1/16%) of the rates
per annum, as supplied to the Administrative Agent, quoted by the
Reference Banks to prime banks in the London interbank market for
deposits in Dollars at approximately 11:00 a.m. (London time) two
Eurodollar Business Days prior to the first day of such Interest
Period in an amount approximately equal to the principal amount of
the Loans to which such Interest Period is to apply and for a period
of time comparable to such Interest Period.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in
respect of such asset. The Issuer or any Subsidiary of the Issuer
shall be deemed to own, subject to a Lien, any asset that it has
acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, Capital Lease or other title
retention lease relating to such asset, or any account receivable
transferred by it with recourse (including any such transfer subject
to a holdback or similar arrangement that effectively imposes the
risk of collectability on the transferor).
"Loan" has the meaning specified in Section 3.01(a).
10
"Loan Period" has the meaning specified in Section 3.01(a).
"Material Acquisition" any (a) acquisition of property or
series of related acquisitions of property that constitutes assets
comprising all or substantially all of an operating unit, division or
line of business or (b) acquisition of or other investment in the
Capital Stock of any Subsidiary or any Person which becomes a
Subsidiary or is merged or consolidated with the Issuer or any of its
Subsidiaries, in each case, which involves the payment of
consideration by the Issuer and its Subsidiaries in excess of
U.S.$25,000,000 (or the equivalent in other currencies).
"Material Adverse Effect" means a material adverse effect on
(a) the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Issuer and its
Subsidiaries taken as a whole, (b) the rights and remedies of the
Administrative Agent or any Lender under this Agreement or any Note
or (c) the ability of the Issuer and/or the Guarantors to perform
their Obligations under this Agreement or any other Transaction
Document.
"Material Debt" means Debt (other than the Notes, the Letter
of Credit Exposure and the Standby L/C Exposure) of the Issuer and/or
one or more of its Subsidiaries, arising in one or more related or
unrelated transactions, in an aggregate principal amount outstanding
exceeding U.S.$50,000,000 (or the equivalent thereof in other
currencies).
"Material Disposition" means any Disposition of property or
series of related Dispositions of property that yields gross proceeds
to the Issuer or any of its Subsidiaries in excess of U.S.$25,000,000
(or the equivalent in other currencies).
"Material Subsidiary" means, at any date, (a) each
Subsidiary of the Issuer (if any) (i) the assets of which, together
with those of its Subsidiaries, on a consolidated basis, without
duplication, constitute 5% or more of the consolidated assets of the
Issuer and its Subsidiaries as of the end of the then most recently
ended fiscal quarter or (ii) the operating profit of which, together
with that of its Subsidiaries, on a consolidated basis, without
duplication, constitutes 5% or more of the consolidated operating
profit of the Issuer and its Subsidiaries for the then most recently
ended fiscal quarter and (b) each Guarantor.
"Maturity Date" means, with respect to any Loan, the earlier
of (a) the Termination Date and (b) the last day of the Loan Period.
"Mexican GAAP" means, generally accepted accounting
principles in Mexico as in effect from time to time, except that for
purposes of Section 10.05, Mexican GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent
with those used in the preparation of the most recent audited
financial statements referred to in Section 7.05. In the event that
any change in Mexican GAAP shall occur and such change results in a
change in the method of calculation of financial covenants, standards
or terms in this Agreement, then the Issuer and the Administrative
Agent agree to enter into negotiations in order to amend such
provisions of this Agreement so as to equitably reflect such change
in Mexican GAAP with the desired
11
result that the criteria for evaluating the Issuer's financial
condition shall be the same after such change as if such change had
not been made. Until such time as such an amendment shall have been
executed and delivered by the Issuer, the Administrative Agent and
the Required Lenders, all financial covenants, standards and terms in
this Agreement shall continue to be calculated or construed as if
such change in Mexican GAAP had not occurred.
"Mexico" means the United Mexican States.
"Ministry of Finance" means the Ministry of Finance and
Public Credit of Mexico.
"Moody's" means Moody's Investors Service, Inc. or any
successor to the rating business thereof.
"Non-Default Disruption Date" means the first date to occur
which is both (a) a Disbursement Date and (b) a date on which a
Non-Default Disruption Event has occurred or is continuing.
"Non-Default Disruption Event" means (a) that for any reason
the cost of funds to the Issuer (which shall include all costs
associated with a borrowing, including commitment fees, Letter of
Credit Fees, Mexican withholding tax and all other out-of-pocket
costs actually incurred by or supported by the Issuer directly
related to the borrowing of funds which are customarily included in
determining the all-in cost of funds) from the issuance of Commercial
Paper Notes exceeds the cost to the Issuer of borrowing Loans or as a
result of a disruption in the market for Commercial Paper Notes the
Issuer is unable to sell new Commercial Paper Notes to repay maturing
Commercial Paper Notes (a "CP Disruption Event") as notified in
writing by the Issuer to the Issuing Bank, the Arrangers and the
Administrative Agent in accordance with the terms and provisions of
Section 2.07(a); or (b) (i) any introduction of, or change in, or
change in the interpretation or application of, any Requirement of
Law by any Governmental Authority that would make it unlawful for the
Issuing Bank to issue or maintain the Letter of Credit or (ii) any
declaration of a general banking moratorium by any of the United
States, the State of New York or Mexican banking authority (an
"Illegality Event"); or (c) a downgrading of the Issuing Bank's
short-term credit rating below A-2 by S&P or below P-2 by Moody's, as
notified by the Issuing Bank or the Administrative Agent to the
Issuer and the Dealers (a "Downgrading Event"); provided, however,
that so long as any Default or Event of Default has occurred and is
continuing, no Non-Default Disruption Event shall be deemed to exist.
"Note" means a promissory note of the Issuer in
substantially the form of Exhibit B, evidencing the obligation of the
Issuer to repay the Loans made by a Lender.
"Notice of Acceleration" means a notice from the
Administrative Agent to the Depositary pursuant to Section 12.02(b)
in substantially the form of Annex F to the Letter of Credit.
"Notice of Borrowing" has the meaning specified in Section
3.02(a).
12
"Notice of Continuation/Conversion" has the meaning
specified in Section 3.05(b).
"Notice of Default" means a notice from the Issuing Bank to
the Issuer and the Depositary pursuant to Section 12.02(a) in
substantially the form of Annex E-1 to the Letter of Credit.
"Notice of Default Reduction" means a notice from the
Depositary to the Issuing Bank pursuant to Section 12.02(a) in
substantially the form of Annex E-2 to the Letter of Credit.
"Notice of Reduction of Stated Amount" means a notice from
the Issuing Bank to the Depositary pursuant to Section 2.06(d),
5.01(c) or 5.11 in substantially the form of Annex G to the Letter of
Credit.
"Notice of Termination" means a notice from the Issuing Bank
to the Issuer and the Depositary pursuant to Section 12.02(a) in
substantially the form of Annex D to the Letter of Credit.
"Obligations" means, (a) as to the Issuer, all of the
indebtedness, obligations and liabilities of the Issuer to the
Lenders, the Issuing Bank, the Arrangers and the Administrative Agent
now or in the future existing under or in connection with the
Transaction Documents, whether direct or indirect, absolute or
contingent, due or to become due and (b) as to each Guarantor, all
the indebtedness, obligations and liabilities of such Guarantor to
the Lenders the Issuing Bank, the Arrangers and the Administration
Agent now or in the future existing under or in connection with this
Agreement, whether direct or indirect, absolute or contingent, due or
to become due.
"Obligor" means the Issuer and each Guarantor.
"OECD Bank shall mean any bank organized under the laws of a
member of the Organization for Economic Cooperation and Development.
"Offering Statements" means (a) the Commercial Paper
Offering Memoranda of Barclays Capital Inc. and Banc of America
Securities LLC., relating to the offering of the Commercial Paper
Notes and any amendment or supplement thereto and (b) each other
document used by a Dealer in offering Commercial Paper Notes for
sale.
"Other Taxes" means any present or future stamp or
documentary taxes or any other excise or property taxes, charges,
imposts, duties, fees, deductions, withholdings or similar levies
which arise from any payment made hereunder or under the Notes or
from the execution, delivery, registration, performance or
enforcement of, or otherwise with respect to, this Agreement or any
other Transaction Document and which are imposed, levied, collected
or withheld by any Governmental Authority.
"Outstanding" means all or any Commercial Paper Notes issued
at any time under the Depositary Agreement, except Commercial Paper
Notes (a) that have been paid through the Depositary or (b) that have
matured but have not been presented for payment
13
on the date of such maturity, but as to which funds for payment are
available in the Letter of Credit Account or as to which the
Presentment Deadline has passed. Funds which are subject to any writ,
order, judgment, warrant of attachment, execution or similar process
or which the Depositary determines were deposited in the Letter of
Credit Account in error shall be deemed not to be available for
payment in the Letter of Credit Account.
"Participant" has the meaning specified in Section 16.06(d).
"Participation Fee" has the meaning specified in Section
5.03(a).
"Participation Percentage" means, for any Lender, at any
time of determination thereof, a fraction having (a) as its numerator
the Total Exposure of such Lender as in effect at such time and (b)
as its denominator the aggregate amount of the Total Exposures of all
of the Lenders as in effect at such time.
"Permitted Liens" has the meaning specified in Section
10.06.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, limited liability company,
trust, unincorporated association, joint venture or other business
entity or Governmental Authority, whether or not having a separate
legal personality.
"Presentment Deadline" means, as to any Commercial Paper
Note, the date which is two Business Days after the maturity date
thereof.
"Prime Rate" means the rate of interest publicly announced
by Bank of America N.A. from time to time as its Prime Rate in New
York City, the Prime Rate to change as and when such designated rate
changes. The Prime Rate is not intended to be the lowest rate of
interest charged by Bank of America N.A. or any Lender in connection
with extensions of credit to debtors of any class, or generally.
"Process Agent" has the meaning specified in Section
16.12(a).
"Qualified Receivables Transaction" means any transaction or
series of transactions that may be entered into by the Issuer or any
Subsidiary pursuant to which the Issuer or any Subsidiary may sell,
convey or otherwise transfer to a Special Purpose Vehicle (in the
case of a transfer by the Issuer or any other Seller) and any other
person (in the case of a transfer by a Special Purpose Vehicle), or
may grant a security interest in, any Receivables Program Assets
(whether now existing or arising in the future); provided that:
(a) no portion of the indebtedness or any other obligations
(contingent or otherwise) of a Special Purpose Vehicle (i) is
guaranteed by the Issuer or any other Seller or (ii) is recourse to
or obligates the Issuer or any other Seller in any way such that the
requirements for off balance sheet treatment under Financial
Accounting Standards Bulletin 140 are not satisfied; and
14
(b) the Issuer and the other Sellers do not have any
obligation to maintain or preserve the financial condition of a
Special Purpose Vehicle or cause such entity to achieve certain
levels of operating results.
"Rating Agencies" means Moody's and S&P.
"Receivables" means all rights of the Issuer or any other
Seller to payments (whether constituting accounts, chattel paper,
instruments, general intangibles or otherwise, and including the
right to payment of any interest or finance charges), which rights
are identified in the accounting records of the Issuer or such Seller
as accounts receivable.
"Receivables Documents" means (a) a receivables purchase
agreement, pooling and servicing agreement, credit agreement,
agreements to acquire undivided interests or other agreement to
transfer, or create a security interest in, Receivables Program
Assets, in each case as amended, modified, supplemented or restated
and in effect from time to time entered into by the Issuer, another
Seller and/or a Special Purpose Vehicle, and (b) each other
instrument, agreement and other document entered into by the Issuer,
any other Seller or a Special Purpose Vehicle relating to the
transactions contemplated by the items referred to in clause (a)
above, in each case as amended, modified, supplemented or restated
and in effect from time to time.
"Receivables Program Assets" means (a) all Receivables which
are described as being transferred by the Issuer, another Seller or a
Special Purpose Vehicle pursuant to the Receivables Documents, (b)
all Receivables Related Assets in respect of such Receivables, and
(c) all collections (including recoveries) and other proceeds of the
assets described in the foregoing clauses.
"Receivables Program Obligations" means (a) notes, trust
certificates, undivided interests, partnership interests or other
interests representing the right to be paid a specified principal
amount from the Receivables Program Assets and (b) related
obligations of the Issuer, a Subsidiary of the Issuer or a Special
Purpose Vehicle (including, without limitation, rights in respect of
interest or yield hedging obligations, breach of warranty claims and
expense reimbursement and indemnity provisions).
"Receivables Related Assets" means with respect to any
"Receivables" (i) any rights arising under the documentation
governing or relating to such Receivables (including rights in
respect of liens securing such Receivables), (ii) any proceeds of
such Receivables, (iii) other assets which are customarily
transferred or in respect of which security interests are customarily
granted in connection with asset securitization transactions
involving accounts receivable.
"Reference Banks" means Bank of America N.A. and Barclays
Bank PLC.
"Required Lenders" means, at any time, Lenders (other than
Defaulting Lenders) having more than 50% of the sum of the Total
Exposures of all of the Lenders (other than Defaulting Lenders) at
such time.
15
"Requirement of Law" means, as to any Person, any law,
ordinance, rule, regulation or requirement of any Governmental
Authority, in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.
"Responsible Officer" of any Person means the Chief
Financial Officer, the Corporate Planning and Finance Director, the
Finance Director or the Comptroller of such Person.
"Seller" means the Issuer and any Subsidiary or other
affiliate of the Issuer (other than a Subsidiary or affiliate that is
a Special Purpose Vehicle) which is a party to a Receivables
Document.
"Settlement Limits" has the meaning specified in Section
10.01.
"S&P" means Standard & Poor's Ratings Corporation or any
successor to the rating agency business thereof.
"Special Purpose Vehicle" means a trust, partnership or
other special purpose person established by the Issuer and/or its
Subsidiaries to implement a Qualified Receivables Transaction.
"Standby L/Cs" means the standby letters of credit of the
Issuing Bank in substantially the form of Exhibit I, as they may be
amended or replaced from time to time pursuant to the terms of this
Agreement.
"Standby L/C Drawing" means a drawing made under a Standby
L/C.
"Standby L/C Exposure" means, at any time, the sum of (a)
the aggregate undrawn amount at such time of all outstanding Standby
L/Cs plus (b) the aggregate unpaid amount at such time of all
unreimbursed Standby L/C Drawings under all outstanding Standby L/Cs.
"Standby L/C Facility" means the Standby L/Cs, any Standby
L/C Drawing (including any unreimbursed Standby L/C Drawing), any
obligations of the Issuer in respect of the foregoing and the
payments received by the Issuing Bank in respect of any of the
foregoing.
"Stated Amount" means the stated amount of the Letter of
Credit, initially, U.S.$275,000,000, as such amount may be reduced,
increased or reinstated from time to time in accordance with the
terms of the Letter of Credit.
"Stated Termination Date" means, at any time, the date
specified in the Letter of Credit as the Stated Termination Date,
initially August 25, 2004.
"Subsidiary" means with respect to any Person, any
corporation, partnership, joint venture, limited liability company,
trust, estate or other entity of which (or in which) more than 50% of
(a) in the case of a corporation, the issued and outstanding capital
16
stock having ordinary voting power to elect a majority of the board
of directors of such corporation (irrespective of whether at the time
capital stock of any other class or classes of such corporation shall
or might have voting power upon the occurrence of any contingency not
in the control of such Person), (b) in the case of a limited
liability company, partnership or joint venture, the interest in the
capital or profits of such limited liability company, partnership or
joint venture or (c) in the case of a trust or estate, the beneficial
interest in such trust or estate, is at the time directly or
indirectly owned or controlled by (X) such Person, (Y) such Person
and one or more of its other Subsidiaries or (Z) one or more of such
Person's other Subsidiaries. For purposes of determining whether a
trust formed in connection with a Qualified Receivables Transaction
is a Subsidiary, notes, trust certificates, undivided interests,
partnership interests or other interests of the type described in
clause (a) of the definition of Receivables Program Obligations shall
be counted as beneficial interests in such trust.
"Substitute Lender" means a commercial bank or other
financial institution, acceptable to the Issuer, the Issuing Bank and
the Administrative Agent, each in its sole discretion, and approved
by the Arrangers (including such a bank or financial institution
which is already a Lender hereunder) which assumes all or a portion
of the Commitment of a Lender pursuant to the terms of this
Agreement.
"Taxes" means any and all present or future income, stamp,
sales or other taxes, levies, imposts, duties, deductions, fees,
charges or withholdings, and all liabilities with respect thereto
collected, withheld or assessed by any Governmental Authority,
excluding, (a) in the case of each Lender, the Issuing Bank and the
Administrative Agent, such taxes (including income taxes or franchise
taxes) as are imposed on or measured by its net income by the
jurisdiction (or any political subdivision thereof) under the laws of
which such Lender, the Issuing Bank or the Administrative Agent, as
the case may be, is organized or maintains a Lending Office or its
principal office or performs its functions as Administrative Agent or
as are imposed on the Lender, the Issuing Bank and the Administrative
Agent (as the case may be) as a result of a present or former
connection between the Lender, the Issuing Bank and the
Administrative Agent and the jurisdiction of the Governmental
Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising
solely from the Lender, the Issuing Bank or such Administrative Agent
having executed, delivered or performed its obligations or received a
payment under, or enforced, the Transaction Documents) and (b) any
taxes, levies, imposts, deductions, charges or withholdings imposed
by reason of any Lender's failure to (i) register as a Foreign
Financial Institution with the Ministry of Finance and (ii) be a
resident (or have a principal office which is a resident, if such
Lender lends through a branch or agency) for tax purposes of a
jurisdiction with which Mexico has in effect a treaty for the
avoidance of double taxation (but only in respect of those taxes
payable in excess of taxes that would have been payable had such
Lender complied with those conditions).
"Temporary Investments" means, at any date, all amounts that
would, in conformity with Mexican GAAP consistently applied, be set
forth opposite the caption "cash and cash equivalent" ("efectivo y
equivalentes de efectivo") or "temporary
17
investments" ("inversiones temporales") on a consolidated balance
sheet of the Issuer at such date.
"Termination Date" means the date which is the earliest of
(a) the date on which the Letter of Credit is surrendered by the
Depositary to the Issuing Bank for cancellation, (b) the Stated
Termination Date and (c) the date specified in a Notice of
Termination or a Notice of Default delivered by the Issuing Bank in
accordance with the terms of this Agreement.
"Total Exposure" means at any time, as to any Lender, the
amount of its Commitment at such time, or, if the Commitments shall
have terminated, its Total Outstandings at such time.
"Total Outstandings" means at any time, as to any Lender,
the sum of the aggregate outstanding principal amount of such
Lender's Loans, its share of the aggregate outstanding Letter of
Credit Exposure and its share of the aggregate outstanding Standby
L/C Exposure.
"Transaction Documents" means this Agreement, the Notes, the
Letter of Credit, the Standby L/Cs, the Depositary Agreement, the
Commercial Paper Notes and the Dealer Agreements.
"United States" means the United States of America,
including the States and the District of Columbia, but excluding its
territories and possessions.
"Up-Front Fee" has the meaning specified in Section 5.03(g).
1.02 Other Definitional Provisions.
(a) The terms "including" and "include" are not limiting and
mean "including but not limited to" and "include but are not limited
to".
(b) The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement refer to this Agreement
as a whole and not to any particular provision of this Agreement, and
Article, Section, paragraph, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(c) The meanings given to terms defined herein are equally
applicable to both the singular and plural forms of such terms.
(d) In this Agreement, in the computation of periods of time
from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each means
"to but excluding". Periods of days referred to in this Agreement
shall be counted in calendar days unless Business Days or Eurodollar
Business Days are expressly prescribed.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation
of this Agreement.
18
1.03 Accounting Terms and Determinations. All accounting
and financing terms not specifically defined herein shall be construed in
accordance with Mexican GAAP.
ARTICLE II
THE LETTER OF CREDIT FACILITY
2.01 Issuance of the Letter of Credit.
(a) Upon at least one Business Day's prior notice from the
Issuer to the Issuing Bank, the Issuing Bank agrees, on the terms and subject
to the conditions hereinafter set forth, to issue and deliver the Letter of
Credit to the Depositary (with a copy to the Administrative Agent and the
Issuer) on the Effective Date, in the Stated Amount and expiring on or,
subject to the terms and conditions thereof, before the Stated Termination
Date.
(b) Each Lender hereby irrevocably authorizes the Issuing Bank
to issue the Letter of Credit under and in accordance with this Agreement, to
pay the amount of any draft presented under the Letter of Credit in accordance
with the terms and conditions thereof, to receive from the Issuer
reimbursement for Drawings and to take such action on its behalf under the
provisions of this Agreement and the Depositary Agreement and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of the Issuing Bank by the terms hereof and thereof,
together with such powers as are reasonably incidental thereto.
2.02 Reimbursement Obligations.
(a) The Issuer agrees to reimburse the Issuing Bank (or cause
the Issuing Bank to be reimbursed as provided in the Depositary Agreement by
applying to such reimbursement the Aggregate Reported Proceeds of the sale of
new Commercial Paper Notes and any other amount deposited in the Commercial
Paper Account in accordance with paragraph (d) of this Section 2.02) for the
full amount of any Drawing paid by the Issuing Bank on the Disbursement Date;
provided, however, that in no event shall such reimbursement be made prior to
the time such Drawing is paid by the Issuing Bank.
(b) If a Non-Default Disruption Event occurs or continues to
exist on a Disbursement Date, the unreimbursed amount of the Drawing honored
on such date may, during the Loan Period and subject to the conditions of
Section 6.03, be converted into Loans in accordance with Section 3.01, and, at
the time such conversion becomes effective, the obligation of the Issuer to
reimburse the Issuing Bank under paragraph (a) above shall be discharged in an
amount equal to the aggregate principal amount paid by the Lenders to the
Administrative Agent for the account of the Issuing Bank pursuant to Section
3.03(b) and retained by the Issuing Bank. Any Drawing not converted into Loans
in accordance with Section 3.01 shall remain an unconditional and immediate
payment obligation of the Issuer.
(c) If the amount of any Drawing is not reimbursed in full on
the Disbursement Date (or as of the Disbursement Date as provided in Section
3.03(e)), then the amount thereof which is not so reimbursed shall bear
interest from the Disbursement Date until the date of actual payment
19
thereof or the date of conversion into Loans pursuant to Section 3.01 at a
rate per annum equal to the Base Rate plus 2.10%, payable on demand.
(d) Except as otherwise provided in Sections 2.02(b) and 3.01,
the Issuer agrees that it will meet its obligations under paragraph (a) above
by causing to be deposited on each maturity date of any Commercial Paper Note
in the Commercial Paper Account in immediately available funds an amount equal
to the aggregate Face Amount of all Commercial Paper Notes scheduled to mature
on such day less the Aggregate Reported Proceeds payable on or before 4:30
p.m. (New York City time) on account of the purchase price of Commercial Paper
Notes duly issued and delivered on such day in accordance with the provisions
of this Agreement and the Depositary Agreement and to be deposited in the
Commercial Paper Account (the amount to be so deposited by the Issuer in the
Commercial Paper Account being the "Issuer Deposit Amount").
(e) Except for the first issuance of Commercial Paper Notes
under the Depositary Agreement after the Effective Date, each issuance of
Commercial Paper Notes pursuant to the provisions of the Depositary Agreement
shall be deemed (i) an unconditional, irrevocable and absolute assignment by
the Issuer to the Issuing Bank of the proceeds of the sale of such Commercial
Paper Notes in an amount not to exceed the amount required to reimburse the
Issuing Bank in respect of any Drawing made on the same day under the Letter
of Credit and otherwise not reimbursed by the Issuer and (ii) an irrevocable
and absolute assignment by the Issuer to the Administrative Agent of any
remaining proceeds of the sale of such Commercial Paper Notes; provided,
however, that, the Administrative Agent shall remit or instruct the Depositary
to remit to the Issuer a portion of such remaining proceeds in an amount equal
to the excess of such remaining proceeds over such amount as the
Administrative Agent may instruct the Depositary to apply to payment of
principal and interest due and payable with respect to the Loans or any other
amounts due and payable under this Agreement (including any amounts due under
Section 12.02(c)).
2.03 Obligations Absolute.
(a) The obligations of the Issuer to reimburse the Issuing Bank
shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including the following circumstances:
(i) any lack of validity or enforceability of any
Transaction Document;
(ii) any amendment to or waiver of or any consent to
departure from the terms of any Transaction Document;
(iii) the existence of any claim, set-off, defense or other
right which the Issuer may have at any time against the Depositary or
any transferee of the Letter of Credit (or any Person for whom the
Depositary or any such transferee may be acting), any Dealer, the
Administrative Agent, the Issuing Bank or any Lender or any other
Person, whether in connection with this Agreement, any other
Transaction Document or any unrelated transaction;
20
(iv) any draft, statement or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue
or inaccurate in any respect whatsoever; or
(v) payment by the Issuing Bank under the Letter of Credit
against presentation of a draft or document which does not comply
with the terms of the Letter of Credit.
(b) The Issuing Bank shall not be responsible to any Person:
(i) for the validity, genuineness or legal effect of any
document submitted to the Issuing Bank by any Person in connection
with the issuance of, or any Drawing under, the Letter of Credit;
provided, however, that nothing in this clause (i) shall relieve the
Issuing Bank from its obligations to honor a Drawing under the Letter
of Credit that strictly complies with the terms of the Letter of
Credit;
(ii) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher;
(iii) for any loss or delay in the transmission or otherwise
of any document required in order to make a Drawing under the Letter
of Credit or of the proceeds thereof;
(iv) for the misapplication by the beneficiary of the Letter
of Credit of the proceeds of any Drawing under the Letter of Credit;
or
(v) for any consequences arising from causes beyond the
control of the Issuing Bank (including, any acts of any Governmental
Authority);
provided, however, that the provisions of this Section 2.03 shall not limit
any right or claim the Issuer may have against the Issuing Bank to the extent
of any direct, as opposed to consequential or special, damages suffered by the
Issuer which the Issuer proves were caused by the Issuing Bank's gross
negligence or willful misconduct, it being understood that the existence of
any such right or claim shall not in any way affect the obligation of the
Issuer to reimburse the Issuing Bank for all Drawings under the Letter of
Credit.
2.04 Participating Interests.
(a) Each Lender, by its execution and delivery of this
Agreement, severally purchases from the Issuing Bank, without recourse to the
Issuing Bank, and the Issuing Bank hereby sells to each Lender, an undivided
interest, to the extent of such Lender's Participation Percentage, in the
Letter of Credit, all Drawings, all interest thereon and all other rights of
the Issuing Bank hereunder and under the Letter of Credit with respect
thereto.
(b) The liability of each Lender to the Issuing Bank as
described in Section 2.04(a) shall be absolute, irrevocable and unconditional
under any and all circumstances whatsoever and shall not be affected by any
circumstance, including:
21
(i) any set-off, counterclaim, defense or other right which
such Lender or any other Person may have against the Administrative
Agent, the Issuing Bank or any other Person for any reason
whatsoever;
(ii) the occurrence or continuance of a Default or Event of
Default or the termination of the Commitments or the expiration of
the Letter of Credit;
(iii) any adverse change in the condition (financial or
otherwise) of the Issuer;
(iv) any breach of any Transaction Document by any party
thereto;
(v) the fact that any condition precedent to the issuance of
Commercial Paper Notes was not in fact met;
(vi) any violation or asserted violation of law by any
Lender or any affiliate thereof;
(vii) the failure of any Lender to perform its obligations
hereunder; or
(viii) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing;
provided, however, that no Lender shall be liable for any portion of such
liability resulting from the Issuing Bank's gross negligence or willful
misconduct.
(c) As promptly as practicable upon becoming aware that the
Issuer has not reimbursed or will not reimburse or cause the Issuing Bank to
be reimbursed in full for any Drawing under the Letter of Credit in accordance
with Section 2.02(a) or 2.02(b) on any Disbursement Date, the Issuing Bank
shall notify the Administrative Agent which shall promptly notify each Lender
to such effect and each Lender shall (i) not later than 4:30 p.m. (New York
City time) on the Business Day such notice is received from the Administrative
Agent (if such notice is received at or prior to 12:00 noon (New York City
time)) or (ii) not later than 11:00 a.m. (New York City time) on the Business
Day following receipt of such notice (if such notice is received after 12:00
noon (New York City time)) pay to the Administrative Agent, at the
Administrative Agent's Payment Office, for the account of the Issuing Bank, an
amount equal to such Lender's Participation Percentage of such unreimbursed
Drawing. Notwithstanding clause (ii) of this paragraph (c), if a Lender does
not make available to the Administrative Agent on the Disbursement Date such
Lender's Participation Percentage of any unreimbursed Drawing, such Lender
shall be required to pay interest to the Administrative Agent for the account
of the Issuing Bank on its Participation Percentage of the amount of such
unreimbursed Drawing at the Federal Funds Rate from such Disbursement Date
until the date payment is received by the Administrative Agent; provided,
however, that if the Federal Funds Rate does not cover the Issuing Bank's cost
of funds, the applicable rate of interest shall be such rate as determined by
the Issuing Bank, in good faith, to be equal to its cost of funds; and
provided, further, that if any amount remains unpaid by any Lender for more
than five Business Days after receipt of notice, such Lender shall, commencing
on the day next following such fifth Business Day, pay interest to the
Administrative Agent for the account of the Issuing Bank at a rate per annum
equal to the
22
Federal Funds Rate plus 2%. Upon receipt of any such funds, the
Administrative Agent shall promptly pay such funds to the Issuing Bank.
(d) If the Administrative Agent receives a Lender's
Participation Percentage of any unreimbursed Drawing on the Disbursement Date
therefor, or if the Administrative Agent receives such payment together with
interest thereon in accordance with the provisions of the preceding paragraph
(c), such Lender shall be entitled to receive interest on its Participation
Percentage of such Drawing, as provided in paragraph (e)(ii) below, from the
Disbursement Date.
(e) The Issuing Bank agrees to pay promptly upon receipt to the
Administrative Agent for the account of each Lender (i) such Lender's
Participation Percentage of all amounts received from the Issuer directly or
indirectly (from the Commercial Paper Account or otherwise) in payment, in
whole or in part, of any unreimbursed Drawing, but only to the extent that
such Lender has paid in full its Participation Percentage of such Drawing to
the Administrative Agent for the account of the Issuing Bank pursuant to
paragraph (c) above and (ii) such Lender's Participation Percentage of any
interest received from the Issuer with respect to any such unreimbursed
Drawing, but only to the extent such Lender has paid in full its Participation
Percentage of such Drawing to the Administrative Agent for the account of the
Issuing Bank pursuant to paragraph (c) above.
(f) If, on account of the bankruptcy, insolvency, concurso
mercantil or governmental intervention (or similar event) of the Issuer, the
Issuing Bank or the Administrative Agent is required at any time (whether
before or after the Termination Date) to return to the Issuer or to a trustee,
receiver, liquidator, custodian or other similar official or any other Person,
any portion of the payments made by (or on behalf of) the Issuer to the
Administrative Agent for the account of the Issuing Bank (or directly to the
Issuing Bank) in reimbursement of any unreimbursed Drawing and interest
thereon, each Lender shall, on demand of the Issuing Bank or the
Administrative Agent, forthwith return to the Issuing Bank or the
Administrative Agent for the account of the Issuing Bank any amounts
transferred to such Lender by the Issuing Bank or the Administrative Agent in
respect thereof pursuant to the terms hereof plus such Lender's pro rata share
of any interest on such payments required to be paid to the Person recovering
such payments plus interest on all amounts so demanded from the day such
amounts are returned by the Issuing Bank or the Administrative Agent, as the
case may be, to the day such amounts are returned by such Lender to the
Issuing Bank or the Administrative Agent at a rate per annum for each day
equal to the Federal Funds Rate; provided, however, that if the Federal Funds
Rate does not cover the Issuing Bank's or the Administrative Agent's cost of
funds, the applicable rate of interest shall be such rate as determined by the
Issuing Bank or the Administrative Agent, in good faith, to be equal to its
cost of funds; and provided, further, that if any amount remains unpaid by any
Lender for more than five Business Days after demand, such Lender shall,
commencing on the day next following such fifth Business Day, pay interest to
the Issuing Bank or the Administrative Agent, as the case may be, at a rate
per annum equal to the Federal Funds Rate plus 2%. In any case when an amount
is returned to any Person pursuant to this paragraph (f), the reimbursement
obligation of the Issuer contained in Section 2.02(a) will be reinstated as of
the original date such reimbursement obligation arose.
23
(g) The Issuer hereby confirms and acknowledges that each Lender
shall have a direct claim against the Issuer for the principal of and interest
on each portion of any unreimbursed Drawing advanced by such Lender to the
Issuing Bank and that each Lender shall to the extent applicable be entitled
to all the rights of the Issuing Bank against the Issuer (to the extent not
exercised by the Issuing Bank) as if such Lender had funded its Participation
Percentage of the Drawing directly to the Depositary.
(h) The Issuing Bank and each Lender, with respect to the
amounts payable to it in respect of any unreimbursed Drawing, and the
Administrative Agent, with respect to all amounts payable in respect of
unreimbursed Drawings, shall maintain on its books in accordance with its
usual practice, loan accounts, setting forth its Participation Percentage of
each Drawing, the applicable interest rate and the amounts of principal and
interest paid and payable by the Issuer from time to time hereunder with
respect thereto; provided, however, that the failure by the Issuing Bank, any
Lender or the Administrative Agent to record any such amount on its books or
any error in such recordation shall not affect the obligations of the Issuer
with respect thereto. In the case of any dispute, action or proceeding
relating to any amount payable in respect of any unreimbursed Drawings, the
entries in each such account shall be prima facie evidence of such amount. In
case of any discrepancy between the entries in the Administrative Agent's
books and a Lender's books, such Lender's books shall be considered correct in
the absence of manifest error. In the case of any discrepancy between the
entries in the Issuing Bank's books and any Lender's books or the
Administrative Agent's books, the Issuing Bank's books shall be considered
correct in the absence of manifest error.
2.05 Limited Liability of the Issuing Bank. As between
the Issuing Bank on the one hand, and the Issuer on the other, the Issuer
assumes all risks of any acts or omissions of the Depositary with respect to
its use of the Letter of Credit or the proceeds thereof. Neither the Issuing
Bank nor any of its employees, officers, directors or agents shall be liable
or responsible for any acts or omissions of the Depositary in connection
therewith.
2.06 Defaulting Lenders.
(a) If any Lender (i) fails to reimburse the Issuing Bank as
provided in Sections 2.04(c) and 4.04(c) or to make available its
Participation Percentage of any Borrowing as provided in Section 3.03(b)
within five Business Days after the Disbursement Date, (ii) is in receivership
or liquidation, (iii) advises the Issuing Bank or the Administrative Agent or
the Issuer that it will be unable or unwilling to fund its Participation
Percentage of any future unreimbursed Drawing or Standby L/C Drawing, as the
case may be, or make available its Participation Percentage of any future
Borrowing or (iv) is prohibited by the central bank having jurisdiction over
such Lender from performing its obligations hereunder (any such Lender, a
"Defaulting Lender"), then the Issuing Bank may (but shall not be obligated
to) acquire, in exchange for the sum or sums due to it from such Defaulting
Lender, such Defaulting Lender's Participation Percentage of the unreimbursed
amount, without, however, relieving such Defaulting Lender from any liability
to the Issuing Bank as a result of its failure to reimburse the Issuing Bank
or make funds available to the Issuing Bank. Subject to paragraph (b) below,
the Issuing Bank, until repaid in full, shall be entitled to receive all
subsequent payments which the Defaulting Lender would otherwise have received
with respect to principal or interest on its Participation Percentage of any
unreimbursed Drawing, Standby L/C Drawing or any Loan, as
24
the case may be, or any fees or other amounts otherwise payable to it
hereunder, in each case to the extent the Issuing Bank has acquired such
participation. If a Lender shall fail, for any reason, to fund its
participation in any Drawing or Standby L/C Drawing, as the case may be, or
make available its Participation Percentage of any Borrowing, no other Lender
shall be obligated to purchase such Defaulting Lender's participation or make
funds available for such Defaulting Lender's Participation Percentage of any
Borrowing and no such failure shall release the Issuer from its obligation to
reimburse the Issuing Bank.
(b) Upon a Lender becoming a Defaulting Lender, the Arrangers,
at the request of the Issuer, shall use their commercially reasonable efforts
to find one or more Substitute Lenders willing to assume the Commitment of the
Defaulting Lender and, if applicable, purchase such Defaulting Lender's
Participation Percentage of any unreimbursed Drawings or Standby L/C Drawing,
as the case may be, or any outstanding Loans hereunder and become an Assignee
of such Defaulting Lender in accordance with the provisions of Section
16.06(b). Upon such assignment, the Defaulting Lender shall no longer be a
party hereto or have any rights hereunder and the Substitute Lender or
Substitute Lenders shall succeed to the rights and obligations of the
Defaulting Lender hereunder, including the obligation to reimburse the Issuing
Bank in accordance with Section 2.04(c) and 4.04(c) or to make Loans pursuant
to Section 3.03(b) except that such Defaulting Lender shall continue (i) to
have the rights of a Lender that survive assignment as provided in Section
16.18(b) and (ii) to be entitled to be paid for all amounts previously
advanced by it not theretofore paid and not assigned to the Substitute Lender
and to be paid interest thereon and any other amounts to which such Lender is
entitled in accordance with this Agreement.
(c) No Lender shall be deemed to be a Defaulting Lender solely
as a result of its inability to fund its Participation Percentage of any
unreimbursed Drawing or Standby L/C Drawing, as the case may be, or to make
available its Participation Percentage of any Borrowing in a timely manner as
a result of a difference in time zones or a breakdown or delay in the wire
transfer of funds.
(d) In the event a Lender has become a Defaulting Lender and the
Arrangers have been unable to find a Substitute Lender therefor within fifteen
Business Days after payment was due to the Issuing Bank, the Arrangers shall
so notify the Issuer and the Issuing Bank. At the request of the Issuing Bank,
upon delivery of a Notice of Reduction of Stated Amount, the Commitments will
be reduced by an amount equal to the Commitment of the Defaulting Lender with
respect to Commercial Paper Notes and Standby L/Cs thereafter issued and the
Participation Percentage of each other Lender shall be increased with respect
to Commercial Paper Notes and Standby L/Cs thereafter issued so as to equal
the percentage equivalent of a fraction, the numerator of which is the
Commitment of such other Lender and the denominator of which is the
Commitments of the Lenders other than the Defaulting Lender. No such reduction
in the Commitments shall in any way release any Defaulting Lender from any of
its direct or indirect obligations under Section 2.04 in respect of any
Commercial Paper Notes issued prior to the termination of its Commitment and
under Section 4.04 in respect of Standby L/Cs issued prior to the termination
of its Commitment. Upon the termination of the Commitment of the Defaulting
Lender and the payment of all Commercial Paper Notes issued prior to such
termination, the Issuing Bank shall cause the Stated Amount of the Letter of
Credit to be reduced, each time Commercial Paper Notes mature until an amount
equal to the Defaulting Lender's Commitment
25
is reached, by submitting to the Depositary a Notice of Reduction of Stated
Amount. Notwithstanding any reduction of the Commitments pursuant hereto, the
Arrangers will continue to use its commercially reasonable efforts to find a
Substitute Lender to replace the Defaulting Lender in the manner described in
Section 2.06(b). If a Substitute Lender is found, the total Commitments will
be increased by an amount equal to the Commitment of the Substitute Lender and
the Participation Percentage of each other Lender shall be reduced to a
fraction, the numerator of which is the Commitment of such other Lender and
the denominator of which equals the Commitments of all the Lenders, including
the Substitute Lender. Upon a subsequent increase in the Commitments as a
result of a Substitute Lender becoming a party hereto, the Stated Amount of
the Letter of Credit shall be increased by an amount equal to the Commitment
of the Substitute Lender but in no event by more than the Commitment of the
Defaulting Lender being replaced. The Issuing Bank may deliver a new Letter of
Credit to the Depositary in the reduced or increased Stated Amount or deliver
an amendment to the same effect.
(e) In the event a Lender has become a Defaulting Lender and the
Arrangers have been unable to find a Substitute Lender therefor within ten
Business Days after such Lender became a Defaulting Lender, the Issuer shall
pay to the Administrative Agent for the account of the Issuing Bank within
five Business Days after demand from the Issuing Bank all amounts then owing
by such Defaulting Lender to the Issuing Bank, together with interest thereon
at the Federal Funds Rate from the date such amounts became due; provided,
however, that if any amount remains unpaid by the Issuer for more than five
Business Days after demand, the Issuer shall, commencing on the day next
following such fifth Business Day, pay interest to the Issuing Bank at a rate
per annum equal to the Federal Funds Rate plus 2%.
2.07 Non-Default Disruption Event.
(a) If, based upon information provided by the Dealers regarding
prevailing interest rates in the United States commercial paper market, the
Issuer shall determine on any Business Day that a CP Disruption Event shall
have occurred, the Issuer shall cease issuing Commercial Paper Notes, and
written notice of such determination shall be given to the Issuing Bank, the
Arrangers and the Administrative Agent by the Issuer not later than 11:00
a.m., New York City time, on such Business Day. The Administrative Agent as
promptly thereafter as is possible under the circumstances shall give notice
of such determination to the Lenders. The Issuer shall also give notice to the
Depositary pursuant to the Depositary Agreement not to issue and deliver any
Commercial Paper Notes.
(b) If the Issuing Bank shall determine on any Business Day that
a Downgrading Event or an Illegality Event shall have occurred, then the
Issuing Bank shall immediately give notice to the Depositary pursuant to the
Depositary Agreement not to issue and deliver any Commercial Paper Notes. The
Issuing Bank shall give notice of such determination to the Issuer, the
Arrangers, the Administrative Agent and the Dealers as promptly thereafter as
is possible under the circumstances. The Administrative Agent as promptly as
is possible under the circumstances shall give notice of such determination to
the Lenders.
(c) In the event that the issuance of Commercial Paper Notes by
the Issuer is suspended as a result of this Section 2.07, the Issuer may incur
Loans in accordance with the
26
terms and provisions of Sections 3.01 and 3.02 by submitting to the
Administrative Agent a Notice of Borrowing.
(d) If the Dealers shall have advised the Issuer that a CP
Disruption Event has ceased to exist, then notice of such advice or
determination shall be given to the Issuing Bank, the Arrangers and the
Depositary and, if applicable, the Issuing Bank and the Administrative Agent
as soon as practicable. If any Loans are then outstanding, the Issuer shall
promptly either repay such Loans with its own funds or, if the Termination
Date has not yet occurred, instruct the Depositary and the Dealers to
recommence issuing Commercial Paper Notes and apply the Aggregate Reported
Proceeds of such issuance to fully repay the Loans and so notify the
Administrative Agent and the Administrative Agent shall in turn promptly
notify the Lenders and the Issuing Bank; provided, however, that if such Loans
are Eurodollar Loans, the Issuer shall not be required to repay such Loans
prior to the end of the applicable Interest Period therefor.
(e) If the Issuing Bank shall determine that a Downgrading Event
or an Illegality Event, as the case may be, shall have ceased to exist, then
the Issuing Bank shall immediately give written notice of such determination
to the Depositary, the Arrangers, the Administrative Agent, the Dealers, the
Lenders and the Issuer, whereupon the Issuer may recommence issuing Commercial
Paper Notes and the Issuing Bank shall revoke forthwith any instructions to
the Depositary not to issue and deliver Commercial Paper Notes. If any Loans
are then outstanding, the Issuer shall promptly either repay such Loans with
its own funds or, if the Termination Date has not yet occurred, instruct the
Depositary and the Dealers to recommence issuing Commercial Paper Notes and
apply the Aggregate Reported Proceeds of such issuance to fully repay the
Loans and so notify the Administrative Agent and the Administrative Agent
shall in turn promptly notify the Lenders and the Issuing Bank; provided,
however, that if such Loans are Eurodollar Loans, the Issuer shall not be
required to repay such Loans prior to the end of the applicable Interest
Period therefor.
(f) No suspension or termination of the issuance of Commercial
Paper Notes pursuant to this Section 2.07 shall affect, terminate or reduce
(i) the liability of the Issuing Bank under the Letter of Credit with respect
to Commercial Paper Notes validly issued in accordance with the Depositary
Agreement, (ii) the liability of the Issuer with respect to any Drawing under
the Letter of Credit, any Standby L/C Drawing under a Standby L/C or any Loan
hereunder or (iii) the liability of the Lenders to reimburse the Issuing Bank
for any unreimbursed Drawings or any unreimbursed Standby L/C Drawing.
2.08 Maximum Interest Rate. Anything in this Agreement
or any other Transaction Document to the contrary notwithstanding, (a) the
Issuer shall not issue any Commercial Paper Notes if the discount factor
thereof would be in excess of the maximum permitted by applicable law and (b)
if the interest rate provided for in Sections 2.02(c) or 4.04(c) would exceed
the maximum rate permitted by applicable law, such interest rate shall be
automatically reduced to the maximum rate legally allowable.
27
ARTICLE III
THE LOAN FACILITY
3.01 Commitments to Lend.
(a) If at any time during the term of this Agreement there shall
occur a Non-Default Disruption Event, then, on the terms and subject to the
conditions of this Agreement, including the conditions precedent specified in
Section 6.03, each Drawing paid by the Issuing Bank on any Disbursement Date
while such Non-Default Disruption Event is in existence in respect of
Commercial Paper Notes issued and Outstanding on such Non-Default Disruption
Date may be reimbursed by loans made pursuant to this Article III (such loans,
together with any Loans made pursuant to Section 3.01(f), being referred to
herein, collectively, as the "Loans"); provided, however, that no Loans may be
made, based on such Non-Default Disruption Event, after the end of the period
beginning on the Non-Default Disruption Date and ending on the date which is
the earlier of (i) the Stated Termination Date, (ii) 90 days after the
Non-Default Disruption Date and (iii) the date such Non-Default Disruption
Event ceases to exist and; provided, further, that there may be only one
Non-Default Disruption Event during the term of this Agreement (such period,
the "Loan Period").
(b) Each Lender severally agrees, on the terms and subject to
the conditions set forth in this Agreement, to make a Loan to the Issuer
pursuant to this Section 3.01, on the Disbursement Date in respect of each
Drawing made during the Loan Period, in an amount such that:
(i) the Total Outstandings of such Lender at any time will
not exceed the amount of its Commitment at such time; and
(ii) the amount of any Borrowing will not exceed the amount
of any Drawing being reimbursed with the proceeds of such Borrowing.
(c) The proceeds of Loans made under Section 3.01(a) hereof
shall be used solely to reimburse the Issuing Bank for payments made under the
Letter of Credit during the Loan Period (i) to pay Commercial Paper Notes
maturing on the Non-Default Disruption Date or (ii) during the continuance of
the Non-Default Disruption Event existing on the Non-Default Disruption Date,
to pay as they mature Commercial Paper Notes that were issued and Outstanding
on the Non-Default Disruption Date.
(d) The commitment of each Lender hereunder to make Loans is not
revolving in nature and any amounts borrowed hereunder during a Loan Period
and repaid or prepaid prior to the end of such Loan Period may not be
reborrowed during such Loan Period.
(e) Each Borrowing shall be made from the several Lenders
ratably in accordance with their Participation Percentages.
(f) During the existence of a Non-Default Disruption Event and
prior to the earlier of (i) the Stated Termination Date, (ii) 90 days after
the Non-Default Disruption Date and (iii) the date such Non-Default Disruption
Event ceases to exist, on the terms and subject to the conditions set forth in
this Agreement, including the conditions precedent specified in
28
Section 6.03, the Issuer may borrow Loans other than under Section 3.01(a)
above under the Available Commitments (as defined below) in a minimum amount
of U.S.$5,000,000 or in integral multiples of U.S.$1,000,000 in excess thereof
on any Business Day; provided that the Issuer shall give the Administrative
Agent notice as provided in Section 3.02. As used in this paragraph (f),
"Available Commitments" shall mean, as of any date, the total amount of the
Commitments minus the sum of (A) the aggregate principal amount of Commercial
Paper Notes Outstanding and unreimbursed Drawings, (B) the aggregate principal
amount of any Loans made under this Section 3.01 (whether or not still
outstanding) and (C) the Standby L/C Exposure.
3.02 Notice of Borrowing.
(a) Upon the occurrence of a Non-Default Disruption Event, the
Issuer may (but shall not be obligated to) request under Section 3.01(a) that
an amount up to the amount of any Drawing or Drawings made during the Loan
Period be converted into Loans by giving notice to the Administrative Agent on
or prior to 12:00 Noon (New York City time) on the date of any such Drawing.
In addition, the Issuer may (but shall not be obligated to) request Loans
under Section 3.01(f) by giving notice to the Administrative Agent by 3:00
p.m. (New York City time) at least three Business Days prior to the date of
Borrowing. Each such notice (a "Notice of Borrowing") may be made by telephone
to the Administrative Agent, if promptly confirmed in writing in substantially
the form of Exhibit D, and may be made by facsimile transmission to the
Administrative Agent in substantially the form of Exhibit D.
(b) The Notice of Borrowing shall specify (i) the aggregate
amount of such Borrowing, which shall be in a minimum amount equal to
U.S.$5,000,000 or multiples of U.S.$1,000,000 in excess thereof, or such
lesser amount, if necessary, pursuant to Section 3.01(b), (ii) whether the
Loans comprising such Borrowing shall bear interest based on the Base Rate or
LIBOR (provided that, in the case of Loans made under Section 3.01(a), all
such Loans will be Base Rate Loans during the initial period of at least three
Eurodollar Business Days after the date of the Notice of Borrowing) and (iii)
if such Loans are to be made as (in the case of Loans made under Section
3.01(f)) or converted into (in the case of any Loans made under Section
3.01(a)) Eurodollar Loans, the commencement date and the duration of the
initial Interest Period applicable to such Loans. The Notice of Borrowing
shall further certify that as of the date of such Notice of Borrowing:
(A) in the case of Loans made under Section 3.01(a), the
amount of such Borrowing does not exceed the aggregate amount of the
unreimbursed Drawing made on or prior to the date of such Notice of
Borrowing and that the Issuer elects to make a Borrowing in order to
reimburse the amount of such Drawing;
(B) no Default or Event of Default has occurred and is
continuing on such date or will result from such Borrowing;
(C) the representations and warranties of the Issuer
contained in this Agreement are true and correct in all material
respects on and as of such date; and
(D) a Non-Default Disruption Event has occurred and is
continuing.
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The Notice of Borrowing shall not be revocable by the Issuer
after the Administrative Agent has notified any Lender thereof.
3.03 Notice to Lenders; Funding of Loans.
(a) Upon receipt of a Notice of Borrowing, the Administrative
Agent shall promptly notify each Lender of the contents thereof and of such
Lender's Participation Percentage of such Borrowing.
(b) On the date of each Borrowing, each Lender shall, to the
extent such Lender has not already funded its Participation Percentage of the
corresponding unreimbursed Drawing being converted into Loans pursuant to
Section 2.04(c), make available its Participation Percentage of such
Borrowing, in immediately available funds, to the Administrative Agent at the
Administrative Agent's Payment Office not later than 3:00 p.m. (New York City
time) on the date notice is received from the Administrative Agent pursuant to
paragraph (a) above (if such notice is received at or prior to 1:30 p.m. (New
York City time)) or not later than 12:00 noon (New York City time) on the
Business Day following such notice (if such notice is received after 1:30 p.m.
(New York City time)). Unless the Administrative Agent determines that any
applicable condition specified in Section 6.03 has not been satisfied, the
funds so received from the Lenders shall be paid on the date of such Borrowing
(i) in the case of a Borrowing under Section 3.01(a), to the Issuing Bank on
behalf of the Issuer of the then outstanding unreimbursed Drawing and (ii) in
the case of a Borrowing under Section 3.01(f), to the Issuer by transfer to
the Issuer's account with the Administrative Agent. Upon receipt of such
funds, the Administrative Agent shall promptly pay such funds to the Issuing
Bank or to the Issuer, as the case may be.
(c) Unless the Administrative Agent shall have received notice
from a Lender prior to the date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's Participation
Percentage of such Borrowing, the Administrative Agent may assume that such
Lender has made its Participation Percentage available to the Administrative
Agent on the date of such Borrowing in accordance with paragraph (b) above and
the Administrative Agent may (but shall not be required to do so), in reliance
upon such assumption, make available to the Issuing Bank or the Issuer, as the
case may be, on such date a corresponding amount. If such amount is made
available to the Administrative Agent on a date after the date on which the
Administrative Agent pays the proceeds of the Borrowing to the Issuing Bank or
the Issuer, as the case may be, such Lender shall pay to the Administrative
Agent on demand interest on such amount at the Federal Funds Rate for the
period from the date of such payment until such amount is made available to
the Administrative Agent. If such amount is not made available to the
Administrative Agent within five Business Days after the date of such payment,
the Issuer agrees to pay such amount to the Administrative Agent together with
interest thereon from the date of such payment at a rate per annum equal to
the Federal Funds Rate plus 2%; provided, however, that in the case of a
Borrowing under Section 3.01(a), if the Issuer fails to pay such amount to the
Administrative Agent within five Business Days after demand, the Issuing Bank
will return to the Administrative Agent the funds made available to it
together with interest thereon at the Federal Funds Rate from the date of
payment to it. If such Lender shall pay to the Administrative Agent such
corresponding amount, such amount so paid shall constitute such Lender's Loan
included in such Borrowing for purposes of this Agreement. Nothing contained
in this paragraph (c) shall be construed to excuse any Lender from performing
30
its obligations under this Agreement or to relieve any Lender from any
liability it may have to the Issuing Bank or the Issuer for any default by
such Lender in the performance of its obligations hereunder. Upon receipt of
such funds, the Administrative Agent shall promptly pay such funds to the
Issuing Bank or the Issuer, as the case may be.
(d) If and to the extent that any Lender is a Defaulting Lender,
the provisions of paragraphs (a), (b) and (e) of Section 2.06 shall apply and
(i) the Issuing Bank shall be entitled to receive all payments which the
Defaulting Lender would otherwise have received in respect of its unfunded
Participation Percentage of the Loans, (ii) the Arrangers, at the request of
the Issuer, may seek one or more Substitute Lenders willing to assume the
Commitment of the Defaulting Lender and to become an Assignee of such
Defaulting Lender in accordance with the provisions of Section 16.06(b) and
(iii) the Issuer shall reimburse the Issuing Bank as provided in paragraph (e)
of Section 2.06 without releasing the Defaulting Lender from any liability to
the Issuer for the default in the performance of its obligations hereunder.
(e) All Loans made to the Issuer shall be deemed made as of the
relevant Disbursement Date. If for any reason a Lender does not fund any Loan
to be made by it under Section 3.01(a) on such Disbursement Date (because
notice from the Administrative Agent was received after 1:30 p.m. (New York
City time) on such date or for any other reason) and the Administrative Agent
does not make the corresponding funds available to the Issuing Bank pursuant
to paragraph (c), such Lender shall also pay interest to the Administrative
Agent for the account of the Issuing Bank on its Participation Percentage of
the unreimbursed Drawing accrued from the Disbursement Date to the date of
payment by such Lender at the Federal Funds Rate; provided, however, that if
the Federal Funds Rate does not cover the Issuing Bank's cost of funds, the
applicable rate of interest shall be such rate as determined by the Issuing
Bank, in good faith, to be equal to its cost of funds; and provided, further,
however, that if any such amount remains unpaid by any Lender for more than
five Business Days after the Disbursement Date, such Lender shall, commencing
on the day next following such fifth Business Day, pay interest to the
Administrative Agent for the account of the Issuing Bank at a rate per annum
equal to the Federal Funds Rate plus 2%. Upon receipt of any such funds, the
Administrative Agent shall promptly pay such funds to the Issuing Bank.
3.04 Notes. The Loans made by each Lender shall be
evidenced by a Note appropriately completed, representing the obligation of
the Issuer to pay to such Lender the unpaid principal amount of all Loans made
by such Lender pursuant to Section 3.01, plus interest thereon as provided in
Section 3.07. The date, type, and principal amount of each Loan made by such
Lender and the date and amount of each payment or prepayment of the principal
amount of each such Loan, the date of each conversion and each continuation
pursuant to Section 3.05 and, in the case of Eurodollar Loans, the rate of
interest with respect thereto, shall be recorded by such Lender on the
Schedules annexed to its Note and such Schedules shall constitute prima facie
evidence of the accuracy of the information so recorded; provided, however,
that the failure of any Lender to make such recordation (or any error in such
recordation) shall not affect the obligations of the Issuer hereunder or under
the Notes.
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3.05 Conversion and Continuation of Loans.
(a) All Loans made under Section 3.01(a) shall initially be made
as Base Rate Loans. If so specified in the applicable Notice of Borrowing,
Loans made under Section 3.01(a) will be converted into Eurodollar Loans on or
after the third Eurodollar Business Day after the date of such Borrowing as
provided in the Notice of Borrowing.
(b) (i) All Eurodollar Loans shall initially have the
Interest Period specified by the Issuer in the applicable Notice of Borrowing.
Subject to the conditions set forth in Section 6.03, on the last day of the
Interest Period for such Loans, (A) provided such day is at least one month
prior to the end of the Loan Period, the Issuer may from time to time elect to
continue such Loans as Eurodollar Loans for an additional identical or
different Interest Period or (B) the Issuer may elect to convert such
Eurodollar Loans into Base Rate Loans.
(ii) Subject to the conditions set forth in Section
6.03, on any Eurodollar Business Day prior to the Maturity Date of any Base
Rate Loans, provided such day is at least one month prior to the end of the
Loan Period, the Issuer may elect to convert such Base Rate Loans into
Eurodollar Loans with an Interest Period ending no later than the last day of
the Loan Period.
(iii)....Each election to convert or continue any Loans
shall be made by giving the Administrative Agent irrevocable notice in
substantially the form of Exhibit E (a "Notice of Continuation/Conversion")
not later than 11:00 a.m. (New York City time) at least three Eurodollar
Business Days before the date on which continuation or conversion selected in
such notice is to be effective.
(iv) Each Notice of Continuation/Conversion shall specify:
(A) the Loans to which such notice applies;
(B) the date on which the continuation or conversion
selected in such notice is to be effective; and
(C) the duration of the Interest Period to be applicable to
the Loans to be continued as, or converted into, Eurodollar Loans
(which must comply with the provisions of the definition of Interest
Period); provided, however, that if the Issuer fails to select the
duration of any Interest Period, it will be deemed to have selected
an Interest Period of one month.
(c) If the Issuer fails to deliver a Notice of
Continuation/Conversion to the Administrative Agent for any Eurodollar Loans
on or prior to the third Eurodollar Business Day before the end of the
Interest Period therefor, the Issuer will be deemed to have elected to
continue such Eurodollar Loans for a further Interest Period of one month or,
if the last day of such Interest Period is less than one month prior to the
end of the Loan Period, to convert such Eurodollar Loans to Base Rate Loans.
If the conditions of Section 6.03 have not been satisfied, such Loans shall
automatically become due and payable on the last day of the then current
Interest Period.
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(d) Upon receipt of a Notice of Continuation/Conversion from the
Issuer, the Administrative Agent shall promptly notify the Lenders thereof.
3.06 Maturity of Loans. Each Loan included in any
Borrowing shall mature, and the principal amount thereof shall be due and
payable, on the Maturity Date.
3.07 Interest Rates.
(a) Each Base Rate Loan shall bear interest on the unpaid
principal amount thereof at a rate per annum equal to the sum of the Base Rate
plus 0.10%.
(b) Each Eurodollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a
rate per annum equal to the sum of LIBOR plus 1.10%.
(c) If all or a portion of the principal amount of any Loan
shall not be paid when due (whether at maturity, by acceleration or
otherwise), (i) all Eurodollar Loans then outstanding shall be converted to
Base Rate Loans at the end of the then current Interest Period with respect
thereto and until such conversion shall bear interest at a rate per annum
equal to the sum of LIBOR plus 3.10% and (ii) the principal amount of all Base
Rate Loans (including any Eurodollar Loans converted to Base Rate Loans
pursuant to this paragraph (c)) shall bear interest at a rate per annum equal
to the sum of the Base Rate plus 2.10% from the date of non-payment (or the
date of conversion) until paid in full (after as well as before judgment) and
shall be payable on demand. If all or any portion of (A) any interest payable
on the principal amount of any Loan or (B) any fee or other amount payable
hereunder shall not be paid when due, such overdue amount shall bear interest
at a rate per annum equal to the sum of the Base Rate plus 2.10% from the date
of such non-payment until such amount is paid in full (after as well as before
judgment) and shall be payable on demand.
(d) Except as otherwise provided in paragraph (c) above,
interest shall be payable in arrears on the Maturity Date of each Loan, on the
last day of each Interest Period therefor, on the date of conversion of Base
Rate Loans into Eurodollar Loans pursuant to Section 3.05(a) or 3.05(b) and on
each date of prepayment or repayment of any Loans on the amount prepaid or
repaid.
3.08 Computation of Interest.
(a) All computations of interest for Base Rate Loans when the
Base Rate is determined by reference to the Prime Rate shall be made on the
basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed. All other computations of interest shall be made on the basis of a
360-day year and actual days elapsed. Interest shall accrue during each period
during which interest is computed from the first day thereof to the last day
thereof.
(b) Each determination of an interest rate by the Administrative
Agent shall be conclusive and binding on the Issuer and the Lenders in the
absence of demonstrable error.
3.09 Optional Prepayments.
(a) The Issuer may, without premium or penalty, (i) upon at
least three Business Days' prior notice to the Administrative Agent prepay
Base Rate Loans in whole or in part and (ii) subject to the provisions of
Section 5.07, upon at least three Eurodollar Business Days' prior notice to
the Administrative Agent, prepay Eurodollar Loans, in whole or in part, by
paying the principal amount to be prepaid together with accrued interest
thereon to the date of prepayment. Each such optional prepayment shall be
applied to prepay the Loans to the Lenders ratably based on their
Participation Percentages. Amounts so applied to the prepayment or repayment
of Loans shall be applied first, if the payment date is the last day of an
Interest Period for any Loans, to pay such Loans until paid in full; and
second to pay such other Loans as the Issuer may, by notice to the
Administrative Agent, elect (or if the Issuer fails to give timely notice of
such election, as the Required Lenders at such time may select).
(b) Upon receipt of a notice of prepayment pursuant to this
Section 3.09, the Administrative Agent shall promptly notify each Lender of
the contents thereof and of such Lender's Participation Percentage of such
prepayment, and such notice of prepayment shall not thereafter be revocable by
the Issuer.
(c) Optional prepayments of Loans shall be in a minimum amount
equal to U.S.$5,000,000 and in integral multiples of U.S.$1,000,000 in excess
thereof or, if less, the aggregate principal amount of the Loans then
outstanding.
3.10 Mandatory Prepayments.
(a) If at any time the aggregate Total Outstandings of the
Lenders exceed the Commitments then in effect, the Issuer shall immediately
prepay outstanding Loans, repay unreimbursed Drawings, if any, and repay
unreimbursed Standby L/C Drawings, if any, to the extent of such excess,
ratably among the Lenders.
(b) Upon determination that a Non-Default Disruption Event has
ceased to exist and any Loans are then outstanding, the Issuer shall, as
provided in Sections 2.07(d) or (e), either repay such Loans with its own
funds or, if the Termination Date has not already occurred, instruct the
Depositary and the Dealers to recommence issuing Commercial Paper Notes as
soon as practicable (provided, that, in the case of Eurodollar Loans, the
Issuer shall recommence issuing Commercial Paper Notes not later than the last
day of the then current Interest Period therefor) and apply the Aggregate
Reported Proceeds of such issuance to repay such Loans. For so long as any
Loans are outstanding hereunder, the Issuer shall prepay or repay, on each
date that the Issuer issues Commercial Paper Notes, an aggregate principal
amount of Loans equal to the Aggregate Reported Proceeds of issuance of such
Commercial Paper Notes less the Face Amount of the Commercial Paper Notes, if
any, maturing on that date. All such prepayments or repayments shall be made
together with accrued and unpaid interest to the date of payment.
(c) Amounts applied to the prepayment or repayment of Loans
pursuant to this Section 3.10 shall be applied to prepay or repay the Loans of
the Lenders ratably in accordance with their Participation Percentages.
Amounts so applied to the prepayment or repayment of Loans shall be applied
first, if the payment date is the last day of an Interest Period for any
34
Loans, to pay such Loans until paid in full; and second to pay such other
Loans as the Issuer may, by notice to the Administrative Agent, elect (or if
the Issuer fails to give timely notice of such election, as the Required
Lenders at such time may select).
(d) Any prepayments of Eurodollar Loans pursuant to this Section
3.10 shall be subject to the provisions of Section 5.07.
3.11 Maximum Interest Rate. Anything in this Agreement
or any other Transaction Document to the contrary notwithstanding, (a) the
interest rate on any Loan or other amount due hereunder shall in no event be
in excess of the maximum permitted by applicable law and (b) if the interest
rate provided for in this ARTICLE III would exceed the maximum rate permitted
by applicable law, such interest rate shall be automatically reduced to the
maximum rate legally allowable.
ARTICLE IV
THE STANDBY L/C FACILITY
4.01 Issuance of the Standby L/C.
(a) Subject to the terms and conditions set forth herein,
including but not limited to the conditions precedent specified in Section
6.03, and so long as no Default or Event of Default shall have occurred and be
continuing, the Issuer may request the Issuing Bank to issue, in support of
certain obligations of the Issuer and any of its Subsidiaries including,
without limitation, contingent liabilities arising in connection with forward
sales contracts, leases, insurance contracts and arrangements, service
contracts, equipment contracts, financing transactions and other payment
obligations, and the Issuing Bank agrees to issue at any time from time to
time during the period from and including the Effective Date to but excluding
the date that is five Business Days prior to the Termination Date, a Standby
L/C denominated in Dollars for the Issuer's own account, and having a stated
amount not exceeding the Available Standby L/C Sublimit at the time of
issuance; provided, however, that the issuance of such requested Standby L/C
shall not cause the Issuing Bank to violate any law or regulation to which it
is subject.
(b) To request the issuance of a Standby L/C, the Issuer shall
deliver notice to the Issuing Bank requesting the issuance of a Standby L/C,
specifying the date of issuance (which shall be a Business Day that is no
earlier than either (i) the Business Day following the Business Day on which
the Issuing Bank shall have received the request for the issuance of the
Standby L/C, if such request is received by the Issuing Bank prior to
11:00a.m. (New York City time), or (ii) the Business Day that is two (2)
Business Days following the Business Day on which the Issuing Bank shall have
received the request for the issuance of the Standby L/C, if such request is
received is by the Issuing Bank after 11:00a.m. (New York City time) but
before 5:00p.m. (New York City time); provided however, that the Issuing Bank,
in its sole discretion and on a request by request basis, may elect to accept
a request for issuance of a Standby L/C specifying an issuance date not
complying with the terms of this parenthetical), the date on which such
Standby L/C is to expire, the amount of such Standby L/C, the name and address
of the beneficiary thereof and any such other information as shall be
necessary to prepare such Standby L/C. On the requested date of issuance, the
Issuing Bank shall, subject to the terms and
35
conditions set forth herein and so long as no Default or Event of Default
shall have occurred or be continuing, issue a Standby L/C in accordance with
the Issuer's request pursuant to this clause (b).
(c) Each Standby L/C shall have a minimum stated amount equal to
U.S.$3,000,000 and shall expire at or prior to the close of business on the
earlier of (a) the date that is 360 days after the date of issuance of such
Standby L/C and (b) the date that is five Business Days prior to the Stated
Termination Date.
(d) Each Lender hereby irrevocably authorizes the Issuing Bank
to issue Standby L/Cs under and in accordance with this Agreement, to pay the
amount of any draft presented under any Standby L/C in accordance with the
terms and conditions thereof, to receive from the Issuer reimbursement for
Standby L/C Drawings and to take such action on its behalf under the
provisions of this Agreement and the other Transaction Documents and to
exercise such powers and to perform such duties hereunder and thereunder as
are specifically delegated to or required of the Issuing Bank by the terms
hereof or thereof, together with such powers as are reasonably incidental
thereto.
4.02 Reimbursement Obligations.
(a) The Issuer agrees to reimburse the Issuing Bank for the full
amount of any Standby L/C Drawing paid by the Issuing Bank on the Disbursement
Date; provided, however, that in no event shall such reimbursement be made
prior to the time such Standby L/C Drawing is paid by the Issuing Bank.
(b) If the amount of any Standby L/C Drawing is not reimbursed
in full on the Disbursement Date, then the amount thereof which is not so
reimbursed shall bear interest from the Disbursement Date until the date of
actual payment thereof at a rate per annum equal to the Base Rate plus 2.10%,
payable on demand.
4.03 Obligations Absolute.
(a) The obligations of the Issuer to reimburse the Issuing Bank
shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including the following circumstances:
(i) any lack of validity or enforceability of any
Transaction Document;
(ii) any amendment to or waiver of or any consent to
departure from the terms of any Transaction Document;
(iii) the existence of any claim, set-off, defense or other
right which the Issuer may have at any time against the beneficiary
of any Standby L/C or any transferee of any Standby L/C (or any
Person for whom any such transferee may be acting), the
Administrative Agent, the Issuing Bank or any Lender or any other
Person, whether in connection with this Agreement, any other
Transaction Document or any unrelated transaction;
36
(iv) any draft, statement or any other document presented
under the a Standby L/C proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever; or
(v) payment by the Issuing Bank under a Standby L/C against
presentation of a draft or document which does not comply with the
terms of such Standby L/C.
(b) The Issuing Bank shall not be responsible to any Person:
(i) for the validity, genuineness or legal effect of any
document submitted to the Issuing Bank by any Person in connection
with the issuance of, or any Standby L/C Drawing under, any Standby
L/C; provided, however, that nothing in this clause (i) shall relieve
the Issuing Bank from its obligations to honor a Standby L/C Drawing
under a Standby L/C that strictly complies with the terms of such
Standby L/C;
(ii) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher;
(iii) for any loss or delay in the transmission or otherwise
of any document required in order to make a Standby L/C Drawing under
a Standby L/C or of the proceeds thereof;
(iv) for the misapplication by the beneficiary of a Standby
L/C of the proceeds of a Standby L/C Drawing under such Standby L/C;
or
(v) for any consequences arising from causes beyond the
control of the Issuing Bank (including, any acts of any Governmental
Authority);
provided, however, that the provisions of this Section 4.03 shall not limit
any right or claim the Issuer may have against the Issuing Bank to the extent
of any direct, as opposed to consequential or special, damages suffered by the
Issuer which the Issuer proves were caused by the Issuing Bank's gross
negligence or willful misconduct, it being understood that the existence of
any such right or claim shall not in any way affect the obligation of the
Issuer to reimburse the Issuing Bank for all Standby L/C Drawings under
Standby L/Cs.
4.04 Participating Interests.
(a) Upon the issuance of each Standby L/C, without further
action on the part of the Issuing Bank and the Lenders, each Lender severally
purchases from the Issuing Bank, without recourse to the Issuing Bank, and the
Issuing Bank hereby sells to each Lender, an undivided interest, to the extent
of such Lender's Participation Percentage, in such Standby L/C, all
corresponding Standby L/C Drawings, all interest thereon and all other rights
of the Issuing Bank hereunder and under such Standby L/C with respect thereto.
(b) The liability of each Lender to the Issuing Bank as
described in Section 4.04(a) shall be absolute, irrevocable and unconditional
under any and all circumstances whatsoever and shall not be affected by any
circumstance, including:
37
(i) any set-off, counterclaim, defense or other right which
such Lender or any other Person may have against the Administrative
Agent, the Issuing Bank or any other Person for any reason
whatsoever;
(ii) the occurrence or continuance of a Default or Event of
Default or the termination of the Commitments or the expiration the
applicable Standby L/C;
(iii) any adverse change in the condition (financial or
otherwise) of the Issuer;
(iv) any breach of any Transaction Document by any party
thereto;
(v) any violation or asserted violation of law by any Lender
or any affiliate thereof;
(vi) the failure of any Lender to perform its obligations
hereunder; or
(vii) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing;
provided, however, that no Lender shall be liable for any portion of such
liability resulting from the Issuing Bank's gross negligence or willful
misconduct.
(c) As promptly as practicable upon becoming aware that the
Issuer has not reimbursed or will not reimburse or cause the Issuing Bank to
be reimbursed in full for a Standby L/C Drawing under any Standby L/C in
accordance with Section 4.02(a) or 4.02(b) on applicable Disbursement Date,
the Issuing Bank shall notify the Administrative Agent which shall promptly
notify each Lender to such effect and each Lender shall (i) not later than
4:30 p.m. (New York City time) on the Business Day such notice is received
from the Administrative Agent (if such notice is received at or prior to 12:00
noon (New York City time)) or (ii) not later than 11:00 a.m. (New York City
time) on the Business Day following receipt of such notice (if such notice is
received after 12:00 noon (New York City time)) pay to the Administrative
Agent, at the Administrative Agent's Payment Office, for the account of the
Issuing Bank, an amount equal to such Lender's Participation Percentage of
such unreimbursed Standby L/C Drawing. Notwithstanding clause (ii) of this
paragraph (c), if a Lender does not make available to the Administrative Agent
on the applicable Disbursement Date such Lender's Participation Percentage of
any unreimbursed Standby L/C Drawing, such Lender shall be required to pay
interest to the Administrative Agent for the account of the Issuing Bank on
its Participation Percentage of the amount of such unreimbursed Standby L/C
Drawing at the Federal Funds Rate from such Disbursement Date until the date
payment is received by the Administrative Agent; provided, however, that if
the Federal Funds Rate does not cover the Issuing Bank's cost of funds, the
applicable rate of interest shall be such rate as determined by the Issuing
Bank, in good faith, to be equal to its cost of funds; and provided, further,
that if any amount remains unpaid by any Lender for more than five Business
Days after receipt of notice, such Lender shall, commencing on the day next
following such fifth Business Day, pay interest to the Administrative Agent
for the account of the Issuing Bank at a rate per annum equal to the Federal
Funds Rate plus 2%. Upon receipt of any such funds, the Administrative Agent
shall promptly pay such funds to the Issuing Bank.
38
(d) If the Administrative Agent receives a Lender's
Participation Percentage of an unreimbursed Standby L/C Drawing on the
corresponding Disbursement Date therefor, or if the Administrative Agent
receives such payment together with interest thereon in accordance with the
provisions of the preceding paragraph (c), such Lender shall be entitled to
receive interest on its Participation Percentage of such Standby L/C Drawing,
as provided in paragraph (e)(ii) below, from the applicable Disbursement Date.
(e) The Issuing Bank agrees to pay promptly upon receipt to the
Administrative Agent for the account of each Lender (i) such Lender's
Participation Percentage of all amounts received from the Issuer in payment,
in whole or in part, of an unreimbursed Standby L/C Drawing, but only to the
extent that such Lender has paid in full its Participation Percentage of such
Standby L/C Drawing to the Administrative Agent for the account of the Issuing
Bank pursuant to paragraph (c) above and (ii) such Lender's Participation
Percentage of any interest received from the Issuer with respect to any such
unreimbursed Standby L/C Drawing, but only to the extent such Lender has paid
in full its Participation Percentage of such Standby L/C Drawing to the
Administrative Agent for the account of the Issuing Bank pursuant to paragraph
(c) above.
(f) If, on account of the bankruptcy, insolvency, concurso
mercantil or governmental intervention (or similar event) of the Issuer, the
Issuing Bank or the Administrative Agent is required at any time (whether
before or after the Termination Date) to return to the Issuer or to a trustee,
receiver, liquidator, custodian or other similar official or any other Person,
any portion of the payments made by (or on behalf of) the Issuer to the
Administrative Agent for the account of the Issuing Bank (or directly to the
Issuing Bank) in reimbursement of any unreimbursed Standby L/C Drawing and
interest thereon, each Lender shall, on demand of the Issuing Bank or the
Administrative Agent, forthwith return to the Issuing Bank or the
Administrative Agent for the account of the Issuing Bank any amounts
transferred to such Lender by the Issuing Bank or the Administrative Agent in
respect thereof pursuant to the terms hereof plus such Lender's pro rata share
of any interest on such payments required to be paid to the Person recovering
such payments plus interest on all amounts so demanded from the day such
amounts are returned by the Issuing Bank or the Administrative Agent, as the
case may be, to the day such amounts are returned by such Lender to the
Issuing Bank or the Administrative Agent at a rate per annum for each day
equal to the Federal Funds Rate; provided, however, that if the Federal Funds
Rate does not cover the Issuing Bank's or the Administrative Agent's cost of
funds, the applicable rate of interest shall be such rate as determined by the
Issuing Bank or the Administrative Agent, in good faith, to be equal to its
cost of funds; and provided, further, that if any amount remains unpaid by any
Lender for more than five Business Days after demand, such Lender shall,
commencing on the day next following such fifth Business Day, pay interest to
the Issuing Bank or the Administrative Agent, as the case may be, at a rate
per annum equal to the Federal Funds Rate plus 2%. In any case when an amount
is returned to any Person pursuant to this paragraph (f), the reimbursement
obligation of the Issuer contained in Section 4.02(a) will be reinstated as of
the original date such reimbursement obligation arose.
(g) The Issuer hereby confirms and acknowledges that each Lender
shall have a direct claim against the Issuer for the principal of and interest
on each portion of any unreimbursed Standby L/C Drawing advanced by such
Lender to the Issuing Bank and that each Lender shall to the extent applicable
be entitled to all the rights of the Issuing Bank against the Issuer (to the
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extent not exercised by the Issuing Bank) as if such Lender had funded its
Participation Percentage of the Standby L/C Drawing directly to the
beneficiary of the applicable Standby L/C.
(h) The Issuing Bank and each Lender, with respect to the
amounts payable to it in respect of any unreimbursed Standby L/C Drawing, and
the Administrative Agent, with respect to all amounts payable in respect of
unreimbursed Standby L/C Drawings, shall maintain on its books in accordance
with its usual practice, loan accounts, setting forth its Participation
Percentage of each Standby L/C Drawing, the applicable interest rate and the
amounts of principal and interest paid and payable by the Issuer from time to
time hereunder with respect thereto; provided, however, that the failure by
the Issuing Bank, any Lender or the Administrative Agent to record any such
amount on its books or any error in such recordation shall not affect the
obligations of the Issuer with respect thereto. In the case of any dispute,
action or proceeding relating to any amount payable in respect of any
unreimbursed Standby L/C Drawings, the entries in each such account shall be
prima facie evidence of such amount. In case of any discrepancy between the
entries in the Administrative Agent's books and a Lender's books, such
Lender's books shall be considered correct in the absence of manifest error.
In the case of any discrepancy between the entries in the Issuing Bank's books
and any Lender's books or the Administrative Agent's books, the Issuing Bank's
books shall be considered correct in the absence of manifest error.
4.05 Limited Liability of the Issuing Bank. As between
the Issuing Bank on the one hand, and the Issuer on the other, the Issuer
assumes all risks of any acts or omissions of the beneficiaries of Standby
L/Cs with respect to their use of the Standby L/Cs or the proceeds thereof.
Neither the Issuing Bank nor any of its employees, officers, directors or
agents shall be liable or responsible for any acts or omissions of the
beneficiaries in connection therewith.
ARTICLE V
TERMINATION AND REDUCTION OF
COMMITMENTS; FEES, TAXES, PAYMENT PROVISIONS
5.01 Termination or Reduction of Commitments.
(a) Subject to Section 5.02, the Commitments shall terminate on
the Stated Termination Date.
(b) Upon at least five Business Days' notice to the
Administrative Agent, the Arrangers, the Issuing Bank and the Depositary (with
a copy thereof to each Dealer and each of Moody's and S&P), but no sooner than
six months after the Effective Date unless a Non-Default Disruption Event has
occurred and is continuing, in which case such termination may occur at any
time upon five Business Days' prior notice, the Issuer may terminate the
Letter of Credit Facility by instructing the Depositary to surrender the
Letter of Credit to the Issuing Bank for cancellation; provided, however, that
in connection with an extension of the term of this Agreement pursuant to
Section 5.02 occurring not earlier than 90 days prior to the then Stated
Termination Date, the Issuer may terminate the existing Commitments upon five
Business Days' prior notice; and provided, further, however, that the Letter
of Credit shall not be surrendered for cancellation so long as any Commercial
Paper Note is Outstanding. Upon at least five Business
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Days prior notice to the Administrative Agent and the Issuing Bank, the Issuer
may terminate any Standby L/C, in accordance with its terms, by surrendering,
or causing the beneficiary thereof to surrender, such Standby L/C to the
Issuing Bank for cancellation.
(c) Upon at least five Business Days' prior notice to the
Administrative Agent, the Arrangers, the Issuing Bank and the Depositary (with
a copy thereof to each Dealer and each of Moody's and S&P), but no sooner than
six months after the Effective Date, the Issuer may permanently reduce the
Commitments and the Stated Amount of the Letter of Credit by a minimum amount
of U.S.$5,000,000 or any integral multiple of U.S.$1,000,000 in excess thereof
by causing the Issuing Bank to deliver a Notice of Reduction of Stated Amount
and instructing the Depositary either (i) to surrender the Letter of Credit to
the Issuing Bank for cancellation in exchange for a new Letter of Credit
having the reduced Stated Amount and otherwise having the same terms as the
Letter of Credit being cancelled or (ii) to obtain an amendment to the Letter
of Credit to the same effect; provided, however, that the Stated Amount of the
Letter of Credit shall not as a result of any reduction be reduced below the
aggregate Face Amount of all Commercial Paper Notes then Outstanding. Any
reduction of the Stated Amount pursuant to this paragraph (c) shall be
irrevocable. Upon at least five Business Days' prior notice to the
Administrative Agent and the Issuing Bank, the Issuer may reduce the stated
amount of any Standby L/C to be reduced, in accordance with its terms, by
surrendering, or causing the beneficiary thereof to surrender, such Standby
L/C to the Issuing Bank for cancellation in exchange for a new Standby L/C
having the reduced stated amount and otherwise having the same terms as the
Standby L/C being cancelled; provided, however, that the stated amount of any
Standby L/C shall not as a result of such reduction be reduced below
U.S.$3,000,000.
(d) (i) Any reduction in the Stated Amount pursuant to
paragraph (c) above shall cause the Commitments to be reduced by the same
amount.
(ii) Any reduction of the Commitments shall reduce the
Commitment of each Lender pro rata in accordance with the respective
Participation Percentages of the Lenders.
(iii) No reduction of the Stated Amount will be permitted
if, after giving effect thereto, the Commitments would be less than
U.S.$100,000,000.
(e) The Stated Amount shall be automatically reduced or
reinstated, as the case may be, as specified in the Letter of Credit.
(f) The Letter of Credit may be terminated and the Stated Amount
may also be reduced as provided in Section 2.06 and 12.02(a).
(g) No reduction or termination of the Commitments shall in any
event release any Lender from any of its direct or indirect obligations to the
Issuer or the Issuing Bank in respect of (i) any Commercial Paper Notes issued
prior to such termination or reduction or (ii) any Drawing made under the
Letter of Credit or (iii) any Standby L/C Drawing under the Standby L/Cs.
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5.02 Extension of Commitments.
(a) The Commitment of each Lender will expire on the Stated
Termination Date then in effect; provided, however, that the term of this
Agreement may be extended by agreement of the Issuer, the Issuing Bank, and,
subject to paragraph (c) below, all the Lenders, the Administrative Agent and
the Arrangers not earlier than 90 days prior to the Stated Termination Date on
such terms and conditions as such parties may agree in writing.
(b) In connection with the extension of the Stated Termination
Date, the Arrangers may at the request of the Issuer and with the consent of
the Issuing Bank, in the Issuing Bank's sole discretion, invite each Lender to
increase its Commitment by amending and restating this Agreement by executing
a counterpart of such amendment and restatement. Nothing contained in this
Section 5.02 shall obligate any Lender to extend its Commitment or to increase
its Commitment without its consent.
(c) If, in connection with an extension of the term of this
Agreement, this Agreement is amended and restated and any Lender elects not to
extend its Commitment, such Lender agrees that such amendment and restatement
will become effective without the signature of such Lender subject to the
termination of its Commitment on the effective date of such amendment and
restatement, the payment of all amounts owed to such Lender under this
Agreement and the payment by such Lender of all amounts owed by it to the
Issuing Bank hereunder.
5.03 Fees.
(a) Participation Fee. The Issuer agrees to pay to the
Administrative Agent for the account of the Lenders ratably in accordance with
their Participation Percentages a participation fee (the "Participation Fee")
at the rate of 0.60% per annum on the amount of the Commitments as from time
to time in effect less the aggregate amount of (i) any unreimbursed Drawings
not converted into Loans (ii) any unreimbursed Standby L/C Drawing and (iii)
any outstanding Loans. The Participation Fee shall accrue from August 26, 2002
to the Termination Date and shall be payable in arrears on the 26th day in
each of November, February, May and August and on the Termination Date
commencing on November 26, 2002, provided that if any day or the Termination
Date is not a Business Day, then the Participation Fee shall be payable on the
next preceding Business Day.
(b) Letter of Credit Fees. The Issuer will pay to the Issuing
Bank Letter of Credit administration fees (the "Letter of Credit Fees") in the
amounts and at the times agreed to by the Issuing Bank and the Issuer in a
separate fee letter among the Administrative Agent and the Issuer, dated
August 26, 2002 (the "Fee Letter").
(c) Standby L/C Fees. The Issuer will pay to the Issuing Bank
Standby L/C administration fees (the "Standby L/C Fees") in the amounts and at
the times agreed to by the Issuing Bank and the Issuer in the Fee Letter.
(d) Agency Fees. The Issuer will pay to the Administrative
Agent, for the sole account of the Administrative Agent, an agency fee (the
"Agency Fees") in the amount and at the times agreed to by the Administrative
Agent and the Issuer in the Fee Letter.
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(e) Arrangement Fees. The Issuer will pay to the Arrangers, for
the sole account of the Arrangers, the arrangement fees (the "Arrangement
Fees") and other fees in the amounts and at the times agreed to by the
Arrangers and the Issuer in the Fee Letter.
(f) Depositary Fees. The Issuer will pay to the Depositary, for
the sole account of the Depositary, a depositary fee (the "Depositary Fees")
in the amount and at the times agreed to by the Depositary and the Issuer in a
separate fee letter (the "Depositary Fee Letter").
(g) Up-Front Fee. The Issuer will pay to the Administrative
Agent, for the account of the Lenders, an up-front fee (the "Up-front Fee")
payable on the Effective Date in accordance with the Summary of Terms and
Conditions agreed to by the Issuer and the Arrangers on June 25, 2002.
5.04 Computation of Fees. All fees calculated on a per
annum basis shall be computed on the basis of a year of 360 days and paid for
the actual number of days elapsed.
5.05 Taxes.
(a) Any and all payments by the Issuer or the Guarantor, as the
case may be, to any Lender, the Issuing Bank or the Administrative Agent under
this Agreement and the other Transaction Documents shall be made free and
clear of, and without deduction or withholding for or on account of, any
Taxes. In addition, the Issuer shall promptly pay all Other Taxes.
(b) The Issuer and the Guarantors agree to indemnify and hold
harmless each Lender, the Issuing Bank and the Administrative Agent for the
full amount of Taxes or Other Taxes (including any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 5.05) paid
by or assessed against any Lender, the Issuing Bank or the Administrative
Agent in respect of any sum payable hereunder and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted unless such penalties, interest or addition to tax are
incurred solely as a result of any gross negligence or willful misconduct of
such Lender, Issuing Bank or Administrative Agent, as the case may be. Payment
under this indemnification shall be made within 30 days after the date any
Lender, the Issuing Bank or the Administrative Agent makes written demand
therefor.
(c) If the Issuer or the Guarantors, as the case may be, shall
be required by law to deduct or withhold any Taxes or Other Taxes from or in
respect of any sum payable hereunder to any Lender, the Issuing Bank or the
Administrative Agent, then:
(i) the sum payable shall be increased as necessary so that
after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable
under this Section 5.05), such Lender, the Issuing Bank or the
Administrative Agent receives an amount equal to the sum it would
have received had no such deductions or withholdings been made;
provided, that, the Issuer shall not be required to increase any
amounts payable to such Lender or Issuing Bank to the extent such
amounts would be in excess of amounts that would have been payable to
such Lender or Issuing Bank had such Lender, Issuing Bank or
Administrative Agent complied with the requirements of paragraph (f)
of this section;
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(ii) the Issuer or the Guarantors, as the case may be, shall
make such deductions and withholdings; and
(iii) the Issuer or the Guarantors, as the case may be,
shall pay the full amount deducted or withheld to the relevant taxing
authority or other authority in accordance with applicable law.
(d) Within 30 days after the date of any payment by the Issuer
or the Guarantors, as the case may be, of Taxes or Other Taxes, the Issuer or
the Guarantors, as the case may be, shall furnish to the Administrative Agent
the original or a certified copy of a receipt evidencing payment thereof or
other evidence of payment satisfactory to the Administrative Agent.
(e) If the Issuer or the Guarantors, as the case may be, is
required to pay additional amounts to any Lender or the Issuing Bank pursuant
to paragraph (c) of this Section 5.05, then such Lender or the Issuing Bank,
as the case may be, shall use reasonable efforts (consistent with legal and
regulatory restrictions) to change the jurisdiction of its Lending Office or
issuing office, as the case may be, so as to eliminate the obligation of the
Issuer or the Guarantor, as the case may be, to pay any such additional
amounts which may thereafter accrue or to indemnify such Lender or the Issuing
Bank in the future, if such change in the reasonable judgment of such Lender
or the Issuing Bank is not otherwise disadvantageous to such Lender or the
Issuing Bank.
(f) The Issuing Bank and each Lender shall, from time to time at
the request of the Issuer or the Administrative Agent, promptly furnish to the
Issuer and the Administrative Agent, such forms, documents or other
information (which shall be accurate and complete) as may be reasonably
required to establish any available exemption from, or reduction in the amount
of, otherwise applicable Taxes; provided, however, that neither the Issuing
Bank nor any Lender shall be obliged to disclose information regarding its tax
affairs or computations to the Issuer in connection with this paragraph (f).
Each of the Issuer and the Administrative Agent shall be entitled to rely upon
the accuracy of any such forms, documents or other information furnished to it
by any Person and shall have no obligation to make any additional payment or
indemnify any Person for any Taxes, interest or penalties that would not have
become payable by such Person had such documentation been accurate.
(g) If the Issuing Bank, the Administrative Agent or any Lender
receives a refund or credit in respect of Taxes or Other Taxes as to which it
has been indemnified by the Issuer or a Guarantor, as the case may be,
pursuant to Section 5.05(b) and such refund or credit is directly and clearly
attributable to this Agreement, it shall notify the Issuer or such Guarantor,
as the case may be, of the amount of such refund or credit and shall return to
the Issuer or such Guarantor, as the case may be, such refund or the benefit
of such credit; provided, however, that (A) the Issuing Bank, the
Administrative Agent or such Lender, as the case may be, shall not be
obligated to make any effort to obtain such refund or credit or to provide the
Issuer or the Guarantors with any information on or justification for the
arrangement of its tax affairs or otherwise disclose to the Issuer, the
Guarantors or any other Person any information that it considers to be
proprietary or confidential ,and (B) the Issuer or such Guarantor, as the case
may be, upon the request of the Issuing Bank, the Administrative Agent or such
Lender, as the case may be, shall return the amount of such refund or the
benefit of such credit to the Issuing Bank, the
44
Administrative Agent or such Lender, as the case may be, if the Issuing Bank,
the Administrative Agent or such Lender, as the case may be, is required to
repay the amount of such refund or the benefit of such credit to the relevant
authorities within six years of the date the Issuer or such Guarantor, as the
case may be, is paid such amount by the Issuing Bank, the Administrative Agent
or such Lender, as the case may be.
5.06 General Provisions as to Payments.
(a) All payments to be made by the Issuer or the Guarantors, as
the case may be, shall be made without set-off, counterclaim or other defense.
Except as otherwise expressly provided herein and in the Depositary Agreement,
all payments by the Issuer shall be made to the Administrative Agent for the
account of the Lenders or the Issuing Bank, as the case may be, at the
Administrative Agent's Payment Office, and shall be made in Dollars and in
immediately available funds, no later than 3:30 p.m. (New York City time) (but
not earlier than 11:30 a.m. (New York City time)) in respect of any Drawing
under the Letter of Credit or any Standby L/C Drawing under a Standby L/C, on
the dates specified herein but in no event prior to the payment by the Issuing
Bank of such Drawing or Standby L/C Drawing, as the case may be, to be
reimbursed. The Administrative Agent will promptly distribute to the Issuing
Bank or to each Lender its Participation Percentage (or other applicable share
as expressly provided herein) of each payment in like funds as received. Any
payment received by the Administrative Agent later than 3:30 p.m. (New York
City time) shall be deemed to have been received on the following Business Day
and any applicable interest or fee shall continue to accrue until such
following Business Day.
(b) Except and to the extent otherwise specifically provided
herein, whenever any payment to be made hereunder is due on a day which is not
a Business Day, the date for payment thereof shall be extended to the
immediately following Business Day and, if interest is stated to be payable in
respect thereof, interest shall continue to accrue to such immediately
following Business Day.
(c) Unless the Administrative Agent shall have received notice
from the Issuer prior to the date on which any payment is due to the Issuing
Bank or the Lenders hereunder that the Issuer will not make such payment in
full, the Administrative Agent may assume that the Issuer has made such
payment in full to the Administrative Agent on such date and the
Administrative Agent may (but shall not be so required), in reliance upon such
assumption, cause to be distributed to the Issuing Bank or each Lender, as the
case may be, on such due date an amount equal to the amount then due the
Issuing Bank or such Lender. If and to the extent that the Issuer shall not
have made such payment, the Issuing Bank or each Lender, as the case may be,
shall repay to the Administrative Agent forthwith on demand such amount
distributed to the Issuing Bank or such Lender together with accrued interest
thereon, for each day from the date such amount is distributed to the Issuing
Bank or such Lender until the date the Issuing Bank or such Lender repays such
amount to the Administrative Agent, at the Federal Funds Rate; provided,
however, that if any amount remains unpaid by the Issuing Bank or any Lender
for more than five Business Days after the Administrative Agent has made a
demand for such amount, the Issuing Bank or such Lender shall,
45
commencing on the day next following such fifth Business Day, pay interest to
the Administrative Agent at a rate per annum equal to the Federal Funds Rate
plus 1%, and, provided further, that if any such amount remains unpaid by the
Issuing Bank or any Lender for more than ten Business Days, the Issuing Bank or
such Lender shall, commencing on the day next following such tenth Business Day,
pay interest to the Administrative Agent at a rate per annum equal to the
Federal Funds Rate plus 2%.
5.07 Funding Losses. If the Issuer makes any payment of
principal with respect to any Eurodollar Loan on any day other than the last
day of the Interest Period applicable thereto (including a prepayment pursuant
to Section 3.09, 3.10 or 12.02), or if the Issuer fails to borrow any
Eurodollar Loans after notice has been given to any Lender in accordance with
Section 3.02 or to convert or continue a Loan as a Eurodollar Loan after a
Notice of Continuation/Conversion has been delivered by the Issuer pursuant to
Section 3.05, or if the Issuer fails to prepay any Eurodollar Loans after
notice has been given pursuant to Section 3.09, the Issuer shall reimburse
each Lender within 15 days after demand for any resulting loss or expense
incurred by it, including any loss incurred in obtaining, liquidating or
reemploying deposits bearing interest by reference to LIBOR from third
parties, provided such Lender shall have delivered to the Issuer a certificate
setting forth in reasonable detail the computations for the amount of such
loss or expense, which certificate shall be conclusive in the absence of
manifest error.
5.08 Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period for any
Eurodollar Loan:
(a) the Administrative Agent determines that by reason of
circumstances affecting the London interbank market, adequate means do not
exist for ascertaining LIBOR applicable to such Interest Period or that
deposits in Dollars (in the applicable amounts) are not being offered in the
London interbank market for such Interest Period, or
(b) the Required Lenders advise the Administrative Agent that
LIBOR as determined by the Administrative Agent will not adequately and fairly
reflect the cost to such Lenders of funding their Loans for such Interest
Period, the Administrative Agent shall forthwith give notice thereof to the
Issuer and the Lenders. Thereafter, for so long as paragraph (a) or paragraph
(b) above applies, all Loans hereunder shall be made or continued as Base Rate
Loans.
5.09 Illegality. If any Requirement of Law or any change
therein or in the interpretation or application thereof shall make it unlawful
for any Lender to make or maintain Loans as contemplated by this Agreement,
(a) the obligation of such Lender hereunder to make Loans shall forthwith be
cancelled to the extent required by law and (b) all outstanding Loans, if any,
shall (i) if so required by law be repaid or (ii) in the case of Eurodollar
Loans, if so permitted by law, at the option of the Issuer either (A) be
repaid or (B) be converted to Base Rate Loans, in each case, on the last day
of the Interest Period therefor. If any such repayment or conversion of a
Eurodollar Loan is made on a day which is not the last day of the Interest
Period therefor, the Issuer shall pay to such Lender such amounts, if any, as
may be required pursuant to Section 5.07.
5.10 Increased Costs; Capital Adequacy.
(a) If the Issuing Bank or any Lender determines that due to
either (x) the introduction of any Requirement of Law, including any Capital
Adequacy Regulation, or any change in any Requirement of Law or in the
interpretation thereof (including those relating to
46
reserves, special deposits, the basis of taxation, capital adequacy or
Eurocurrency Liabilities or any other form of banking or monetary requirements
or controls) or (y) compliance therewith by the Issuing Bank or any Lender:
(i) the cost to the Issuing Bank or such Lender of
maintaining its Commitment or maintaining the Letter of Credit or
maintaining the Standby L/Cs or making or maintaining its Loans or
its participation in the Letter of Credit Facility or Standby L/C
Facility is increased;
(ii) the Issuing Bank or such Lender incurs a cost or
suffers a reduction in yield (including the cost of, or reduction in
yield arising from, complying with such taxation, reserve, special
deposit, cash ratio, liquidity, capital adequacy, Eurocurrency
Liabilities or other requirement or control as aforesaid) as a result
of its having agreed to issue the Letter of Credit, to participate in
the Letter of Credit Facility, to issue the Standby L/Cs or to
participate in the Standby L/C Facility or to give effect to its
obligations contemplated hereunder; or
(iii) the Issuing Bank or such Lender makes any additional
payment or suffers a reduction in yield or forgoes any interest or
other return on or calculated by reference to any amount received or
receivable by it hereunder or calculated by reference to the amount
of its Loans, its issuance of the Letter of Credit or its
participation in the Letter of Credit Facility, its issuance of
Standby L/Cs, or participation in the Standby L/C Facility or its
Commitment;
then and in each such case:
(A) the Issuing Bank or such Lender (an "Affected Lender")
shall notify the Issuer through the Administrative Agent in writing
of such event promptly upon its becoming aware of the event entitling
it to make a claim; provided, however, that the failure to give such
notice shall not affect the rights of any Affected Lender under this
Section 5.10(a); and
(B) upon demand from time to time by such Affected Lender
through the Administrative Agent, the Issuer shall pay to the
Administrative Agent for the account of such Affected Lender such
amount as shall compensate such Affected Lender for such increased
cost, reduction in yield, or shortfall in return, additional payment
or forgone interest or other return. The certificate of such Affected
Lender specifying the amount of such compensation shall be conclusive
except in the case of manifest error.
(b) The Issuing Bank and each Lender agree that, upon the
occurrence of any event giving rise to the operation of paragraph (a) above as
to it, it will, if so requested by the Issuer, use its commercially reasonable
efforts to avoid or minimize the consequences of such event; provided,
however, that such action shall not, in the judgment of the Issuing Bank or
such Lender, as the case may be, be illegal or economically or otherwise
disadvantageous to it.
(c) It is understood that paragraph (a) above does not apply to
the introduction of or any increase in the income or franchise taxes of the
Issuing Bank or any Lender levied by any jurisdiction (or political
subdivision or taxing authority thereof) under the laws of which the
47
Issuing Bank or any Lender is organized or in which a Lending Office or the
principal place of business of the Issuing Bank or such Lender is located.
5.11 Substitute Lenders. If any Lender has demanded
compensation pursuant to Section 5.05(c) or to Section 5.10(a), and such
Lender does not waive its right to future additional compensation pursuant to
Section 5.05(c) or Section 5.10(a), the Issuer shall have the right (a) to
replace such Lender with a Substitute Lender or Substitute Lenders that shall
succeed to the rights of such Lender under this Agreement upon execution of an
Assignment and Assumption Agreement and payment by the Issuer of the related
processing fee of U.S.$3,500 to the Administrative Agent and a fee of
U.S.$1,500 payable directly to the Issuing Bank; or (b) to remove such Lender,
reduce the Commitments by the amount of the Commitment of such Lender, adjust
the Participation Percentage of each Lender in the manner set forth in Section
2.06 and, by requesting the Issuing Bank to submit a Notice of Reduction of
Stated Amount to cause the Stated Amount of the Letter of Credit to be reduced
by an amount equal to the Commitment of such Lender; provided, however, that
such Lender shall not be replaced or removed hereunder until such Lender has
been repaid in full all amounts owed to it pursuant to this Agreement and the
other Transaction Documents (including Section 5.05(c) and Section 5.10(a))
unless any such amount is being contested by the Issuer in good faith and;
provided, further, however, that no such reduction shall be permitted if after
giving effect thereto, the sum of the aggregate Face Amount of Commercial
Paper Notes Outstanding, any unreimbursed Drawings, the Standby L/C Exposure
and any Loans then outstanding would exceed the Commitments as so reduced or
the Commitments as so reduced would aggregate less than U.S.$100,000,000.
5.12 Sharing of Payments, Etc.
(a) If, other than as expressly provided elsewhere herein, any
Lender shall obtain on account of the Obligations owing to it any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) in excess of its Participation Percentage of payments on account
of the Obligations obtained by all the Lenders (an "excess payment"), such
Lender shall forthwith (i) notify the Administrative Agent of such fact, and
(ii) purchase from the other Lenders such participations in such Obligations
owing to them as shall be necessary to cause such purchasing Lender to share
the excess payment ratably with each of them; provided, however, that if all
or any portion of such excess payment is thereafter recovered from the
purchasing Lender, such purchase shall to that extent be rescinded and each
other Lender shall repay to the purchasing Lender the purchase price paid
therefor, together with an amount equal to such paying Lender's Participation
Percentage (according to the proportion of (A) the amount of such paying
Lender's required repayment to (B) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The
Administrative Agent will keep records (which shall be conclusive and binding
in the absence of demonstrable error) of participations purchased pursuant to
this Section 5.12 and will in each case notify the Lenders following any such
purchases.
(b) If any Lender shall commence any action or proceeding in any
court to enforce its rights hereunder after consultation with the other
Lenders and, as a result thereof or in connection therewith, it shall receive
any excess payment, then such Lender shall not be required
48
to share any portion of such excess payment with any Lender which has the legal
right to, but does not, join in any such action or proceeding or commence and
diligently prosecute a separate action or proceeding to enforce its rights in
another court.
(c) The Issuer agrees that any Lender so purchasing a
participation from another Lender pursuant to this Section 5.12 may exercise
all its rights of set-off with respect to such participation as fully as if
such Lender were the direct creditor of the Issuer in the amount of such
participation.
ARTICLE VI
CONDITIONS PRECEDENT
6.01 Conditions to Effectiveness. The obligation of the
Issuing Bank to issue the Letter of Credit is subject to the satisfaction or
waiver of the following conditions precedent (the date on which all such
conditions precedent are satisfied or waived being the "Effective Date"):
(a) Agreement. The Administrative Agent shall have received
counterparts of this Agreement duly executed by each party hereto.
(b) Notes. All the Notes shall have been duly executed and
delivered by the Issuer to the Administrative Agent.
(c) Depositary Agreement and Dealer Agreements. The
Administrative Agent shall have received (i) counterparts of the Depositary
Agreement duly executed by each party thereto together with evidence from the
Depositary that the Commercial Paper Account and the Letter of Credit Account
have been established at the office of the Depositary and copies of all
documents to be delivered pursuant to the Depositary Agreement, (ii) copies of
each Dealer Agreement duly executed by the parties thereto and (iii) evidence
reasonably satisfactory to it that each Dealer has approved the Offering
Statement to be used in connection with the issuance and sale of the
Commercial Paper Notes.
(d) Opinions of Issuer's and each Guarantor's Counsel. The
Administrative Agent shall have received (i) the opinion of Skadden, Arps,
Slate, Meagher & Flom LLP, New York counsel to the Issuer and the Guarantors,
in substantially the form of Exhibit G, (ii) the opinion of Lic. Ramiro G.
Villareal Morales, Mexican counsel to the Issuer, in substantially the form of
Exhibit H and (iii) a favorable opinion of Skadden, Arps, Slate, Meagher &
Flom LLP, New York counsel to the Issuer and the Guarantors, as to certain
securities laws issues as the Dealers may request and bankruptcy law issues as
the Rating Agencies may request.
(e) Opinion of Counsel to the Administrative Agent. The
Administrative Agent shall have received a favorable opinion of Basham, Ringe
y Correa, special Mexican counsel to the Administrative Agent.
(f) Opinion of Counsel to the Issuing Bank. The Administrative
Agent shall have received (i) the opinion of Lovells, English counsel to the
Issuing Bank, and (ii) the opinion of
49
Hughes Hubbard & Reed LLP, New York counsel to the Issuing Bank, each as to the
enforceability of the Letter of Credit.
(g) Opinions of Counsel to the Depositary. The Administrative
Agent shall have received the opinion of Emmet, Marvin & Martin, LLP, counsel
to the Depositary, as to the due authorization and delivery of the Depositary
Agreement and the validity and enforceability of the Depositary Agreement
against the Depositary.
(h) Governmental Approvals. The Administrative Agent shall have
received certified copies of all necessary approvals, authorizations, or
consents of, or notices to, or registrations with, any Governmental Authority
required for the Issuer and each Guarantor to enter into, or perform its
obligations under, the Transaction Documents, including the approval of the
Mexican National Banking and Securities Commission (Comision Nacional Bancaria
y de Valores) for the registration of the Commercial Paper Notes with the
Special Section of the National Registry of Securities and Intermediaries
(Registro Nacional de Valores e Intermediarios).
(i) Organizational Documents of the Issuer and the Guarantors.
The Administrative Agent shall have received certified copies of (i) the acta
constitutiva and estatutos sociales in effect on the Effective Date of the
Issuer and each Guarantor, (ii) the powers-of-attorney of each Person
executing any Transaction Document on behalf of the Issuer and each Guarantor,
together with specimen signatures of such Person and (iii) all documents
evidencing other necessary corporate action and governmental approvals, if
any, with respect to the authorization for the execution, delivery and
performance of each such Transaction Document and the transactions
contemplated hereby and thereby. All certificates shall state that the
resolutions or other information referred to in such certificates have not
been amended, modified, revoked or rescinded as of the date of such
certificates (which shall not be earlier than five Business Days before the
Effective Date).
(j) Agent for Service of Process. The Administrative Agent shall
have received a power of attorney, notarized under Mexican law, granted by the
Issuer and each Guarantor to the Process Agent in respect of the Transaction
Documents together with evidence that the Process Agent has accepted its
appointment as Process Agent pursuant to Section 16.12.
(k) Ratings. The Administrative Agent shall have received copies
of letters, addressed to the Issuer and delivered by the Issuer to each
Dealer, from Moody's and S&P confirming that upon the issuance of the Letter
of Credit the Commercial Paper Notes will be rated at least P-1 by Moody's and
A-1 by S&P or similarly rated by another nationally recognized rating agency
mutually acceptable to the Issuer and the Arrangers.
(l) Fees and Expenses. The Issuer shall have paid (i) to the
Administrative Agent, the Agency Fees and the Up-Front Fee due on the
Effective Date, (ii) to the Arrangers the fees specified in the Fee Letter due
on the Effective Date, (iii) to the Issuing Bank the Letter of Credit Fees due
on the Effective Date, (iv) to the Depositary, the fees specified in the
Depositary Fee Letter due on the Effective Date, and (v) all other reasonable
fees and amounts payable by the Issuer hereunder pursuant to Section 16.04 on
or prior to the Effective Date and as otherwise agreed.
50
(m) No Default. No Default or Event of Default shall have
occurred and be continuing as of the Effective Date and the Issuer and each
Guarantor shall have provided a certificate from a Responsible Officer of the
Issuer to such effect to the Administrative Agent.
(n) Representations and Warranties. The representations and
warranties of the Issuer and of each Guarantor contained in this Agreement and
each other Transaction Document shall be true on and as of the Effective Date
and the Issuer and each Guarantor shall have provided a certificate to such
effect to the Administrative Agent.
(o) No Material Adverse Effect. No Material Adverse Effect shall
have occurred since December 31, 2001 and there shall have occurred no
circumstance and/or event of a financial, political or economic nature in
Mexico which has a reasonable likelihood of having a material adverse effect
on the ability of the Issuer or the Guarantors to perform their obligations
under this Agreement and the other Transaction Documents.
(p) Other Documents. The Administrative Agent shall have
received such other certificates, powers of attorney and other documents and
undertakings relating to the authority for, and the execution, delivery and
validity of, the Transaction Documents, as may be reasonably requested by the
Administrative Agent or the Issuing Bank or any Lender through the
Administrative Agent.
6.02 Conditions Precedent to the Issuance of Commercial
Paper Notes. Each issuance of Commercial Paper Notes is subject to the
satisfaction of the following conditions precedent on the date of issuance:
(a) other than in connection with the first issuance of
Commercial Paper Notes on the Effective Date, the Issuer shall have deposited
or caused to be deposited in the Commercial Paper Account an amount equal to
the Issuer Deposit Amount for such date;
(b) immediately after giving effect to such issuance, the
aggregate Face Amount of all Commercial Paper Notes issued and Outstanding
shall not be greater than the Stated Amount of the Letter of Credit;
(c) immediately after giving effect to such issuance, the
aggregate Face Amount of all Commercial Paper Notes Outstanding shall not
exceed an amount equal to (i) the amount of the Commitments at such time less
(ii) the sum of (A) the aggregate principal amount of all outstanding Loans,
(B) the aggregate amount of all unreimbursed Drawings not converted into Loans
and (C) the Standby L/C Exposure;
(d) immediately before and after such issuance, no Default or
Event of Default shall have occurred and be continuing;
(e) (i) no Notice of Termination or Notice of Default shall have
been delivered by the Issuing Bank, (ii) no Notice of Acceleration shall have
been delivered by the Administrative Agent and (iii) no instruction to cease
issuing Commercial Paper Notes shall have been delivered to the Depositary by
the Administrative Agent, the Issuer or the Issuing Bank pursuant to Section
2.07 or 12.02(e) or as provided in the Depositary Agreement;
51
(f) no writ, order, judgment, warrant of attachment, execution
or similar process or stay or legal restraint shall have been imposed on the
Commercial Paper Account or the Letter of Credit Account or on the proceeds of
the Commercial Paper Notes;
(g) the Commercial Paper Notes shall be rated at least P-2 by
Moody's and A-2 by S & P;
(h) no Non-Default Disruption Event shall have occurred and be
continuing; and
(i) each of the representations and warranties made by the
Issuer in or pursuant to the Transaction Documents shall be true and correct
in all material respects on and as of such date as if made on and as of such
date.
6.03 Conditions Precedent to Borrowings, Continuation or
Conversion of the Loans and Issuances of Standby L/Cs. The obligation of any
Lender to make a Loan on the occasion of any Borrowing or to continue or
convert any Loan or for the Issuing Bank to issue a Standby L/C is subject to
the satisfaction of the following conditions:
(a) in the case of Borrowings, continuance or conversion of
Loans, the Administrative Agent shall have received a Notice of Borrowing or a
Notice of Continuation/Conversion as required by Section 3.02 or 3.05
respectively and, in the case of issuances of Standby L/Cs, the Issuing Bank
shall have received the notice and all other documents, instruments and
agreements referred to in Section 4.01(b);
(b) in the case of Borrowings continuance or conversion of
Loans, (i) the Issuer shall have certified to the Administrative Agent no
later than 11:00 a.m. (New York City time) on the date of such Borrowing or
continuation or conversion of any Loan that a CP Disruption Event has occurred
and is continuing or that the CP Disruption Event which existed on the
Non-Default Disruption Date is continuing to exist or (ii) the Issuing Bank
shall have confirmed to the Administrative Agent that a Downgrading Event or
an Illegality Event, as the case may be, has occurred and is continuing or
that the Downgrading Event or the Illegality Event, as the case may be, which
existed on the Non-Default Disruption Date is continuing to exist;
(c) immediately after such Borrowing (after giving effect to the
payment of any unreimbursed Drawing with the proceeds of such Borrowing), the
continuation or conversion of any Loan or the issuance of the Standby L/C, as
the case may be, the Total Outstandings of any Lender shall not exceed the
Commitment of such Lender;
(d) in the case of Borrowings of Loans pursuant to Section
3.01(a), the amount of such Borrowing shall not exceed the amount of the
payment under the Letter of Credit in respect of a Drawing being reimbursed
with the proceeds of such Borrowing;
(e) in the case of issuances of Standby L/Cs, the stated amount
of the Standby L/C subject of such issuance shall not exceed the Available
Standby Sublimit.
(f) immediately before and after such Borrowing or the
continuation or conversion of any Borrowing or the issuance of such Standby
L/C, no Default or Event of Default shall have
52
occurred and be continuing and such Borrowing or continuation or conversion of
any Loan or issuance of a Standby L/C thereof will not cause or result in a
Default or Event of Default; and
(g) the representations and warranties of the Issuer contained
in this Agreement and in each other Transaction Document and of each Guarantor
contained in this Agreement shall be true and correct in all material respects
on and as of the date of any Borrowing, continuation or conversion of any Loan
or issuance of a Standby L/C thereof.
(h) in the case of issuances of Standby L/Cs the Issuer shall
have paid to the Issuing Bank all of the Standby L/C Fees due and payable on
or before the issuance of such Standby L/C.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
The Issuer represents and warrants that:
7.01 Corporate Existence and Power.
(a) The Issuer is a corporation (sociedad anonima de capital
variable) duly incorporated, validly existing and in good standing under the
laws of Mexico and has all requisite corporate power and authority (including
all governmental licenses, permits and other approvals except for such
licenses, permits and approvals the absence of which will not have a Material
Adverse Effect) to own its assets and carry on its business as now conducted
and as proposed to be conducted.
(b) All of the outstanding stock of the Issuer has been validly
issued and is fully paid and non-assessable.
7.02 Power and Authority; Enforceable Obligations.
(a) The execution, delivery and performance by the Issuer of
each Transaction Document to which it is or will be a party, and the
consummation of the transactions contemplated hereby and thereby, are within
the Issuer's corporate powers and have been duly authorized by all necessary
corporate action pursuant to the estatutos sociales of the Issuer.
(b) This Agreement and the other Transaction Documents to which
the Issuer is a party have been duly executed and delivered by the Issuer and
constitute, and each Commercial Paper Note, when executed by the Issuer,
countersigned by the Depositary as provided in the Depositary Agreement, and
delivered, will constitute, legal, valid and binding obligations of the Issuer
enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable concurso mercantil, bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or general equity principles.
7.03 Compliance with Law and Other Instruments. The
execution, delivery and performance of this Agreement and any of the other
Transaction Documents to which the Issuer is a party and the consummation of
the transactions herein or therein contemplated, and
53
compliance with the terms and provisions hereof and thereof, do not and will not
(a) conflict with, or result in a breach or violation of, or constitute a
default under, or result in the creation or imposition of any Lien upon the
assets of the Issuer pursuant to, any Contractual Obligation of the Issuer or
(b) result in any violation of the estatutos sociales of the Issuer or any
provision of any Requirement of Law applicable to the Issuer.
7.04 Governmental Approvals. No order, permission,
consent, approval, license, authorization, registration or validation of, or
notice to or filing with, or exemption by, any Governmental Authority is
required to authorize, or is required in connection with, the execution,
delivery and performance by the Issuer of this Agreement and the other
Transaction Documents to which the Issuer is a party or the taking of any
action contemplated hereby or by any other Transaction Document except for the
registration of the Commercial Paper Notes with the Special Section of the
Registro Nacional de Valores e Intermediarios of the Comision Nacional
Bancaria y de Valores, in respect of which an authorization has been obtained
and is in full force and effect.
7.05 Financial Information.
(a) The consolidated balance sheet of the Issuer and its
Subsidiaries as at December 31, 2001, and the related consolidated statements
of income and cash flows of the Issuer and its Subsidiaries for the fiscal
year then ended, accompanied by an opinion of KPMG Cardenas Dosal, S.C.,
independent public accountants, and the consolidated balance sheet of the
Issuer and its Subsidiaries as at June 30, 2002, and the related consolidated
statements of income and cash flows of the Issuer and its Subsidiaries for the
six months then ended, duly certified by the chief financial officer of the
Issuer, copies of which have been furnished to each Lender, fairly present,
subject, in the case of said balance sheet as at June 30, 2002, and said
statements of income and cash flows for the six months then ended, to year-end
audit adjustments, the consolidated financial condition of the Issuer and its
Subsidiaries as at such dates and the consolidated results of the operations
of the Issuer and its Subsidiaries for the periods ended on such dates, all in
accordance with Mexican GAAP, consistently applied.
(b) Since December 31, 2001 there has been no development or
event which has had or is reasonably likely to have a Material Adverse Effect.
7.06 Litigation. Except as set forth in Schedule 7.06,
there is no pending or threatened action, suit, investigation, litigation or
proceeding, including any Environmental Action, affecting the Issuer or any of
its Subsidiaries before any court, Governmental Authority or arbitrator that
(a) would be reasonably likely to have a Material Adverse Effect or (b)
purports to affect the legality, validity or enforceability of any Transaction
Document or the consummation of the transactions contemplated thereby, and
there has been no adverse change in the status, or financial effect on the
Issuer or any of its Subsidiaries, of the litigation described in Schedule
7.06.
7.07 No Immunity. The Issuer is subject to civil and
commercial law with respect to its obligations under this Agreement and each
other Transaction Document to which it is a party and the execution, delivery
and performance of this Agreement or any such other Transaction Document by
the Issuer constitute private and commercial acts rather than public or
54
governmental acts. Under the laws of Mexico neither the Issuer nor any of its
property has any immunity from jurisdiction of any court or any legal process
(whether through service or notice, attachment prior to judgment or attachment
in aid of execution).
7.08 Investment Company Act. The Issuer is not, and is
not controlled by, an "investment company" within the meaning of the United
States Investment Company Act of 1940, as amended.
7.09 Direct Obligations; Pari Passu; Liens.
(a) (i) This Agreement constitutes a direct, unconditional
unsubordinated and unsecured obligation of the Issuer, and (ii) the Notes and
the Commercial Paper Notes, when issued and delivered, will constitute direct,
unconditional unsubordinated and unsecured obligations of the Issuer.
(b) The obligations of the Issuer under this Agreement and the
Notes rank and will rank in priority of payment at least pari passu with all
other senior unsecured Debt of the Issuer.
(c) There are no Liens on the property of the Issuer or any of
its Subsidiaries other than Permitted Liens.
7.10 Subsidiaries. All Material Subsidiaries of the
Issuer are listed on Schedule 7.10.
7.11 Ownership of Property. Except as, in the aggregate,
could not reasonably be expected to have a Material Adverse Effect, each of
the Issuer and its Subsidiaries has title in fee simple to, or a valid
leasehold interest in, all its real property, and good title to, or a valid
leasehold interest in, all its other property, and none of such property is
subject to any Lien except Permitted Liens.
7.12 No Recordation Necessary.
(a) This Agreement and the Notes are in proper legal form under
the law of Mexico for the enforcement thereof against the Issuer under the law
of Mexico. Except for the registration referred to in Section 7.04, to ensure
the legality, validity, enforceability or admissibility in evidence of this
Agreement and each other Transaction Document in Mexico, it is not necessary
that this Agreement or any other Transaction Document be filed or recorded
with any Governmental Authority in Mexico or that any stamp or similar tax be
paid on or in respect of this Agreement or any other document to be furnished
under this Agreement; provided, however, that in the event any legal
proceedings are brought in the courts of Mexico, an official Spanish
translation of the documents required in such proceedings, including this
Agreement, would have to be approved by the court after the defendant is given
an opportunity to be heard with respect to the accuracy of the translation,
and proceedings would thereafter be based upon the translated documents.
(b) It is not necessary (i) in order for the Administrative
Agent, the Issuing Bank or any Lender to enforce any rights or remedies under
the Transaction Documents or (ii) solely by reason of the execution, delivery
and performance of this Agreement by the Administrative
55
Agent, the Issuing Bank or any Lender, that the Administrative Agent, the
Issuing Bank or such Lender be licensed or qualified with any Mexican
Governmental Authority or be entitled to carry on business in Mexico.
7.13 Taxes.
(a) Each Obligor has filed all material tax returns which are
required to be filed by it and has paid all taxes due pursuant to such returns
or pursuant to any assessment received by the Issuer, except where the same
may be contested in good faith by appropriate proceedings and as to which such
Obligor maintains reserves to the extent it is required to do so by law or
pursuant to Mexican GAAP. The charges, accruals and reserves on the books of
each Obligor in respect of taxes or other governmental charges are, in the
opinion of the Issuer, adequate.
(b) Except for tax imposed by way of withholding on interest,
fees and commissions remitted from Mexico, there is no tax (other than taxes
on, or measured by, income or profits), levy, impost, deduction, charge or
withholding imposed, levied, charged, assessed or made by or in Mexico or any
political subdivision or taxing authority thereof or therein either (i) on or
by virtue of the execution or delivery of this Agreement or any of the other
Transaction Documents or (ii) on any payment to be made by the Issuer pursuant
to this Agreement or any of the other Transaction Documents. The Issuer is
permitted to pay any additional amounts payable pursuant to Section 5.05.
7.14 Compliance with Laws. The Issuer and its
Subsidiaries are in compliance in all material respects with all applicable
Requirements of Law (including with respect to the licenses, certificates,
permits, franchises, and other governmental authorizations necessary to the
ownership of their respective properties or to the conduct of their respective
businesses, antitrust laws or Environmental Laws and the rules and regulations
and laws with respect to social security, workers' housing funds, and pension
funds obligations), except where the failure to so comply would not have a
Material Adverse Effect.
7.15 Absence of Default. No Default or Event of Default
has occurred and is continuing.
7.16 Full Disclosure. All information heretofore
furnished by the Issuer to the Administrative Agent, the Arrangers, the
Issuing Bank or any Lender for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all such information
hereafter furnished by the Issuer to the Administrative Agent, the Arrangers,
the Issuing Bank or any Lender will be, true and accurate in all material
respects on the date as of which such information is stated or certified. The
Issuer has disclosed to the Lenders in writing any and all facts which may
have a Material Adverse Effect.
7.17 Choice of Law; Submission to Jurisdiction and
Waiver of Sovereign Immunity. In any action or proceeding involving the Issuer
arising out of or relating to this Agreement in any Mexican court or tribunal,
a Lender, the Issuing Bank, the Arrangers and the Administrative Agent would
be entitled to the recognition and effectiveness of the choice of law,
submission to jurisdiction and waiver of sovereign immunity provisions of
Sections 16.10, 16.11 and 16.13.
56
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS
Each of the Guarantors separately represents and warrants
that:
8.01 Corporate Existence and Power.
(a) Such Guarantor is a corporation (sociedad anonima de capital
variable) duly incorporated, validly existing and in good standing under the
laws of Mexico and has all requisite corporate power and authority (including
all governmental licenses, permits and other approvals except for such
licenses, permits and approvals the absence of which will not have a Material
Adverse Effect) to own its assets and carry on its business as now conducted
and as proposed to be conducted.
(b) All of the outstanding stock of such Guarantor has been
validly issued and is fully paid and non-accessible.
8.02 Power and Authority; Enforceable Obligations.
(a) The execution, delivery and performance by such Guarantor of
each Transaction Document to which it is or will be a party, and the
consummation of the transactions contemplated hereby and thereby, are within
such Guarantor's corporate powers and have been duly authorized by all
necessary corporate action pursuant to the estatutos sociales of such
Guarantor.
(b) This Agreement and the other Transaction Documents to which
such Guarantor is a party have been duly executed and delivered by such
Guarantor and constitute legal, valid and binding obligations of such
Guarantor enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable concurso mercantil, bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or general equity principals.
8.03 Compliance with Law and Other Instruments. The
execution, delivery and performance of this Agreement and any of the other
Transaction Documents to which such Guarantor is a party and the consummation
of the transactions herein or therein contemplated, and compliance with the
terms and provisions hereof and thereof, do not and will not (a) conflict
with, or result in a breach or violation of, or constitute a default under, or
result in the creation or imposition of any Lien upon the assets of such
Guarantor pursuant to, any Contractual Obligation of such Guarantor or (b)
result in any violation of the estatutos sociales of such Guarantor or any
provision of any Requirement of Law applicable to such Guarantor.
8.04 Governmental Approvals. No order, permission,
consent, approval, license, authorization, registration or validation of, or
notice to or filing with, or exemption by, any Governmental Authority is
required to authorize, or is required in connection with, the execution,
delivery and performance by such Guarantor of this Agreement and the other
Transaction Documents to which such Guarantor is a party or the taking of any
action contemplated hereby or by any other Transaction Document except for the
registration of the Commercial Paper Notes with the Special Section of the
Registro Nacional de Valores e
57
Intermediarios of the Comision Nacional Bancaria y de Valores, in respect of
which an authorization has been obtained and is in full force and effect.
8.05 No Immunity. Such Guarantor is subject to civil and
commercial law with respect to its obligations under this Agreement and each
other Transaction Document to which it is a party and the execution, delivery
and performance of this Agreement or any such other Transaction Document by
such Guarantor constitute private and commercial acts rather than public or
governmental acts. Under the laws of Mexico neither such Guarantor nor any of
its property has any immunity from jurisdiction of any court or any legal
process (whether through service or notice, attachment prior to judgment or
attachment in aid of execution).
8.06 Direct Obligations; Pari Passu; Liens.
(a) This Agreement constitutes a direct, unconditional
unsubordinated and unsecured obligation of such Guarantor.
(b) The obligations of such Guarantor under this Agreement rank
and will rank in priority of payment at least pari passu with all other senior
unsecured Debt of such Guarantor.
8.07 No Recordation Necessary. This Agreement is in
proper legal form under the law of Mexico for the enforcement thereof against
such Guarantor under the law of Mexico. Except for the registration referred
to in Section 8.04, to ensure the legality, validity, enforceability or
admissibility in evidence of this Agreement and each other Transaction
Document in Mexico, it is not necessary that this Agreement or any other
Transaction Document be filed or recorded with any Governmental Authority in
Mexico or that any stamp or similar tax be paid on or in respect of this
Agreement or any other document to be furnished under this Agreement;
provided, however, that in the event any legal proceedings are brought in the
courts of Mexico, an official Spanish translation of the documents required in
such proceedings, including this Agreement, would have to be approved by the
court after the defendant is given an opportunity to be heard with respect to
the accuracy of the translation, and proceedings would thereafter be based
upon the translated documents.
8.08 Choice of Law; Submission to Jurisdiction and
Waiver of Sovereign Immunity. In any action or proceeding involving such
Guarantor arising out of or relating to this Agreement in any Mexican court or
tribunal, a Lender, the Issuing Bank, the Arrangers and the Administrative
Agent would be entitled to the recognition and effectiveness of the choice of
law, submission to jurisdiction and waiver of sovereign immunity provisions of
Sections 16.10, 16.11 and 16.13.
ARTICLE IX
AFFIRMATIVE COVENANTS
The Issuer covenants and agrees that for so long as any
Obligation under this Agreement or any other Transaction Document remains
unpaid, the Letter of Credit remains outstanding, any Standby L/Cs remain
outstanding or any Lender has any Commitment hereunder:
58
9.01 Financial Reports and Other Information. The Issuer
will deliver to the Administrative Agent (with a copy for each Lender):
(a) as soon as available and in any event within 120 days after
the end of each fiscal year of the Issuer, a copy of the annual audit report
for such year for the Issuer and its Subsidiaries containing consolidated and
consolidating balance sheets of the Issuer and its Subsidiaries, as of the end
of such fiscal year and consolidated statements of income and cash flows of
the Issuer and its Subsidiaries, for such fiscal year, in each case
accompanied by an opinion acceptable to the Required Lenders by KPMG Cardenas
Dosal, S.C. or other independent public accountants of recognized standing
acceptable to the Required Lenders, together with (i) a certificate of such
accounting firm to the Lenders stating that in the course of the regular audit
of the business of the Issuer and its Subsidiaries, which audit was conducted
by such accounting firm in accordance with Mexican GAAP, such accounting firm
has obtained no knowledge that a Default or Event of Default has occurred and
is continuing, or if, in the opinion of such accounting firm a Default or
Event of Default has occurred and is continuing, a statement as to the nature
thereof and (ii) a certificate of a Responsible Officer of the Issuer, stating
that no Default or Event of Default has occurred and is continuing or, if a
Default or Event of Default has occurred and is continuing, a statement as to
the nature thereof and the action that the Issuer has taken and proposes to
take with respect thereto; provided that in the event of any change in the
Mexican GAAP used in the preparation of such financial statements, the Issuer
shall also provide, for informational purposes only, a statement of
reconciliation conforming such financial statements to Mexican GAAP consistent
with those applied in the preparation of the financial statements referred to
in Section 7.05 and provided further that all such documents will be prepared
in English; and
(b) as soon as available and in any event within 60 days after
the end of each of the first three quarters of each fiscal year of the Issuer,
consolidated balance sheets of the Issuer and its Subsidiaries, as of the end
of such quarter and consolidated statements of income and cash flows of the
Issuer and its Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, duly certified
(subject to year-end audit adjustments) by any Responsible Officer of the
Issuer as having been prepared in accordance with Mexican GAAP and together
with a certificate of a Responsible Officer of the Issuer, as to compliance
with the terms of this Agreement and stating that no Default or Event of
Default has occurred and is continuing or, if a Default or Event of Default
has occurred and is continuing, a statement as to the nature thereof and the
action that the Issuer has taken and proposes to take with respect thereto;
provided that in the event of any change in the Mexican GAAP used in the
preparation of such financial statements, the Issuer shall also provide, for
informational purposes only, a statement of reconciliation conforming such
financial statements to Mexican GAAP consistent with those applied in the
preparation of the financial statements referred to in Section 7.05 and
provided further that all such documents will be prepared in English.
9.02 Notice of Default and Litigation. The Issuer will
furnish to the Administrative Agent (and the Administrative Agent will notify
the Issuing Bank, each Lender, the Depositary and each Dealer):
(a) as soon as practicable and in any event within five days
after the occurrence of each Default or Event of Default continuing on the
date of such statement, a statement of the
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chief financial officer of the Issuer setting forth details of such Default or
Event of Default and the action that the Issuer has taken and proposes to take
with respect thereto; and
(b) promptly after the commencement thereof, notice of all
actions and proceedings before any court, Governmental Authority or arbitrator
affecting the Issuer or any of its Subsidiaries of the type described in
Section 7.06.
9.03 Compliance with Laws and Contractual Obligations,
Etc. The Issuer will comply, and cause each of its Subsidiaries to comply, in
all material respects, with all applicable Requirements of Law (including with
respect to the licenses, approvals, certificates, permits, franchises,
notices, registrations and other governmental authorizations necessary to the
ownership of its respective properties or to the conduct of its respective
business, antitrust laws or Environmental Laws and laws with respect to social
security and pension funds obligations) and all material Contractual
Obligations, except where the failure to so comply could not reasonably be
expected to have a Material Adverse Effect.
9.04 Payment of Obligations. The Issuer will pay and
discharge, and cause each of its Subsidiaries to pay and discharge, before the
same shall become delinquent, (a) all taxes, assessments and governmental
charges or levies assessed, charged or imposed upon it or upon its property
and (b) all lawful claims that, if unpaid, might by law become a Lien upon its
property, except where the failure to make such payments or effect such
discharges could not reasonably be expected to have a Material Adverse Effect;
provided, however, that neither the Issuer nor any of its Subsidiaries shall
be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim that is being contested in good faith and by
proper proceedings and as to which appropriate reserves are being maintained,
unless and until any Lien resulting therefrom attaches to its property and
becomes enforceable against its other creditors.
9.05 Maintenance of Insurance. The Issuer will maintain,
and cause each of its Subsidiaries to maintain, insurance with reputable
insurance companies or associations in such amounts and covering such risks as
is usually carried by companies of established reputation engaged in similar
businesses and owning similar properties in the same general areas in which
the Issuer or such Subsidiary operates.
9.06 Conduct of Business and Preservation of Corporate
Existence. The Issuer will continue to engage in business of the same general
type as now conducted by the Issuer and will preserve and maintain, and cause
each of its Material Subsidiaries to preserve and maintain, its corporate
existence, rights (charter and statutory), licenses, consents, permits,
notices or approvals and franchises deemed material to its business; provided
that neither the Issuer nor any of its Subsidiaries shall be required to
maintain its corporate existence in connection with a merger or consolidation
in compliance with Section 10.07; and provided, further that neither the
Issuer nor any of its Subsidiaries shall be required to preserve any right or
franchise if the Issuer or any such Subsidiary shall in its good faith
judgment, determine that the preservation thereof is no longer in the best
interests of the Issuer or such Subsidiary, as the case may be, and that the
loss thereof could not reasonably be expected to have a Material Adverse
Effect.
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9.07 Books and Records. The Issuer will keep, and cause
each of its Subsidiaries to keep, proper books of record and account, in which
full and correct entries shall be made of all financial transactions and the
assets and business of the Issuer and each such Subsidiary in accordance with
Mexican GAAP, consistently applied.
9.08 Maintenance of Properties, Etc. The Issuer will:
(a) maintain and preserve, and cause each of its Subsidiaries to
maintain and preserve, all of its properties that are used or useful in the
conduct of its business in good working order and condition, ordinary wear and
tear excepted, and
(b) maintain, preserve and protect all intellectual property and
all necessary governmental and third party approvals, franchises, licenses and
permits, material to the business of the Issuer or its Subsidiaries, provided
neither paragraph (a) nor this paragraph (b) shall prevent the Issuer or any
of its Subsidiaries from discontinuing the operation and maintenance of any of
its properties or allowing to lapse certain approvals, licenses or permits
which discontinuance is desirable in the conduct of its business and which
discontinuance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
9.09 Use of Proceeds.
(a) the Issuer will use the proceeds of the Commercial Paper
Notes and the proceeds of Loans made under Section 3.01(f) for general
corporate purposes, including but not limited to the repayment of short term
debt.
(b) The Issuer will use the proceeds of the Loans made under
Section 3.01(a) to reimburse the Issuing Bank as provided in Section 3.01(c).
9.10 Pari Passu Ranking. The Issuer will ensure that at
all times the Obligations of the Issuer under the Transaction Documents and
the Obligations of the Guarantors under this Agreement constitute
unconditional general obligations of such Obligor ranking in priority of
payment at least pari passu with all other senior unsecured, unsubordinated
Debt of such Obligor.
9.11 Transactions with Affiliates. The Issuer will
conduct, and cause each of its Subsidiaries to conduct, all transactions
otherwise permitted under this Agreement with any of its Affiliates on terms
that are commercially reasonable and no less favorable to the Issuer or such
Subsidiary than it would obtain in a comparable arm's-length transaction with
a Person not an Affiliate.
9.12 Maintenance of Governmental Approvals. The Issuer
will maintain in full force and effect at all times all approvals of and
filings with any Governmental Authority required under applicable law for the
conduct of its business (including, without limitation, antitrust laws or
Environmental Laws) and the performance of the Obligors' obligations hereunder
and under the other Transaction Documents by the Issuer and/or the Guarantors,
as applicable, and for the validity or enforceability hereof and thereof,
except where failure to maintain any such approvals or filings could not
reasonably be expected to have a Material Adverse Effect.
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ARTICLE X
NEGATIVE COVENANTS
The Issuer covenants and agrees that for so long as any
Obligation under this Agreement or any other Transaction Document remains
unpaid, the Letter of Credit remains outstanding, any Standby L/C remain
outstanding or any Lender has any Commitment hereunder:
10.01 The Commercial Paper Notes. The Issuer shall not
permit (a) any Commercial Paper Note to have a stated date of maturity more
than 360 days after its date of issuance, (b) any Commercial Paper Notes to
mature after the Stated Termination Date or (c) Commercial Paper Notes having
an aggregate Face Amount in excess of an amount equal to the product of (i)
50% and (ii) the Stated Amount to mature on any one Business Day (the
"Settlement Limits"); provided, however, that in connection with an extension
of the Stated Termination Date, the aggregate Face Amount of all Commercial
Paper Notes Outstanding may mature on one Business Day on or prior to such
Stated Termination Date and provided, further, notwithstanding any provision
contained herein to the contrary, these Settlement Limits are for the benefit
of the Issuing Bank, which may in its sole discretion waive these requirements
without the prior written consent of any party to any Transaction Document.
10.02 Securities Act. The Issuer shall not take or permit
to be taken, to the extent within the control of the Issuer, any action that
would result in the issuance and sale of the Commercial Paper Notes being
subject to the registration requirements of the United States Securities Act
of 1933, as amended.
10.03 Offering Statements. The Issuer shall not issue
Commercial Paper Notes except pursuant to an Offering Statement and shall not
include in any Offering Statement in connection with the issuance, sale and
distribution of the Commercial Paper Notes any information with respect to the
Issuing Bank, the Letter of Credit, the Standby L/Cs, the Administrative Agent
or any Lender unless the same shall have been previously approved in writing,
in the case of the Issuing Bank, the Letter of Credit and the Standby L/Cs, by
the Issuing Bank or, in the case of the Administrative Agent or a Lender, by
the Administrative Agent or such Lender, as the case may be, prior to the
inclusion in such Offering Statement.
10.04 Depositary; Dealers; Depositary Agreement.
(a) The Issuer shall not replace, or agree to any replacement
of, the Depositary without the prior consents of the Issuing Bank and the
Administrative Agent, which consents shall not be unreasonably withheld or
delayed.
(b) The Issuer shall not appoint or replace any Dealer without
the approvals of the Issuing Bank and the Arrangers, which approvals shall not
be unreasonably withheld or delayed.
(c) The Issuer shall not agree to any amendment to the
Depositary Agreement or waive any of its rights thereunder without the consent
of the Administrative Agent, which consent shall not be unreasonably withheld
or delayed.
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10.05 Financial Conditions.
(a) The Issuer shall not permit the Consolidated Leverage Ratio
at any time to exceed 3.5 to 1.
(b) The Issuer shall not permit the Consolidated Fixed Charge
Coverage Ratio for any period of four consecutive fiscal quarters to be less
than 2.5 to 1.
(c) Concurrently with the delivery by the Issuer of any
financial statements pursuant to Section 9.01 the Issuer shall deliver to
Administrative Agent (with a copy to each Lender) a certificate from a
Responsible Officer containing all information and calculations necessary for
determining compliance by the Issuer with Sections 10.5(a) and (b) above.
10.06 Liens. The Issuer shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
permit to exist any Lien on or with respect to any property or asset of the
Issuer or any Subsidiary, whether now owned or held or hereafter acquired,
other than the following Liens ("Permitted Liens"):
(a) Liens for taxes, assessments and other governmental charges
the payment of which is being contested in good faith by appropriate
proceedings promptly initiated and diligently conducted and for which such
reserves or other appropriate provision, if any, as shall be required by
Mexican GAAP shall have been made;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics and materialmen incurred in the ordinary course of
business for sums not yet due or the payment of which is being contested in
good faith by appropriate proceedings promptly initiated and diligently
conducted and for which such reserves or other appropriate provision, if any,
as shall be required by Mexican GAAP shall have been made;
(c) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security;
(d) any attachment or judgment Lien, unless the judgment it
secures shall not, within 60 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall not have been
discharged within 60 days after the expiration of any such stay;
(e) Liens existing on the date of this Agreement as described in
Schedule 10.06 hereto;
(f) any Lien on property acquired by the Issuer after the date
hereof that was existing on the date of acquisition of such property; provided
that such Lien was not incurred in anticipation of such acquisition, and any
Lien created to secure all or any part of the purchase price, or to secure
Debt incurred or assumed to pay all or any part of the purchase price, of
property acquired by the Issuer or any of its Subsidiaries after the date
hereof; provided, further, that (A) any such Lien permitted pursuant to this
clause (f) shall be confined solely to the item or items of property so
acquired (including, in the case of any Acquisition of a corporation through
the acquisition of 51% or more of the voting stock of such corporation, the
stock and assets of any Acquired Subsidiary or Acquiring Subsidiary) and, if
required by the terms of the instrument
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originally creating such Lien, other property which is an improvement to, or is
acquired for specific use with, such acquired property; and (B) if applicable,
any such Lien shall be created within nine months after, in the case of
property, its acquisition, or, in the case of improvements, their completion;
(g) any Lien renewing, extending or refunding any Lien permitted
by clause (f) above; provided that the principal amount of Debt secured by
such Lien immediately prior thereto is not increased or the maturity thereof
reduced and such Lien is not extended to other property;
(h) any Liens created on shares of capital stock of the Issuer
or any of its Subsidiaries solely as a result of the deposit or transfer of
such shares into a trust or a special purpose vehicle (including any entity
with legal personality) of which such shares constitute the sole assets;
provided that (A) any shares of Subsidiary stock held in such trust,
corporation or entity could be sold by the Issuer; and (B) proceeds from the
deposit or transfer of such shares into such trust, corporation or entity and
from any transfer of or distributions in respect of the Issuer's or any
Subsidiary's interest in such trust, corporation or entity are applied as
provided under Section 10.08; and provided, further that such Liens may not
secure Debt of the Issuer or any Subsidiary (unless permitted under another
clause of this Section 10.06);
(i) any Liens on securities securing repurchase obligations in
respect of such securities;
(j) any Liens in respect of any Receivables Program Assets which
are or may be sold or transferred pursuant to a Qualified Receivables
Transaction; and
(k) in addition to the Liens permitted by the foregoing clauses
(a) through (j), Liens securing Debt of the Issuer and its Subsidiaries (taken
as a whole) not in excess of 5% of the Adjusted Consolidated Net Tangible
Assets of the Issuer and its Subsidiaries;
unless, in each case, the Issuer has made or caused to be made effective
provision whereby the Obligations hereunder are secured equally and ratably
with, or prior to, the Debt secured by such Liens (other than Permitted Liens)
for so long as such Debt is so secured.
10.07 Consolidations and Mergers. The Issuer shall not,
and shall not permit any Material Subsidiary to, in one or more related
transactions, (x) consolidate with or merge into any other Person or permit
any other Person to merge into it or (y), directly or indirectly, transfer,
convey, sell, lease or otherwise dispose of all or substantially all of its
properties or assets to any Person, unless, with respect to any transaction
described in clause (x) or (y), immediately after giving effect to such
transaction:
(a) the Person formed by any such consolidation or merger, if it
is not the Issuer or such Material Subsidiary, or the Person that acquires by
transfer, conveyance, sale, lease or other disposition all or substantially
all of the properties and assets of the Issuer or such Material Subsidiary
(any such Person, a "Successor") (i) shall be a corporation organized and
validly existing under the laws of its place of incorporation, which in the
case of a Successor to the Issuer shall be Mexico, the United States, Canada,
France, Belgium, Germany, Italy, Luxembourg, the Netherlands, Portugal, Spain,
Switzerland or the United Kingdom, or any
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political subdivision thereof, (ii) in the case of a Successor to the Issuer,
shall expressly assume, pursuant to a written agreement in form and substance
satisfactory to the Required Lenders, the Obligations of the Issuer pursuant to
this Agreement and the performance of every covenant on part of the Issuer to be
performed and observed and (iii) in the case of a Successor to any Guarantor,
shall expressly assume, pursuant to a written agreement in form and substance
satisfactory to the Required Lenders, the performance of every covenant of this
Agreement on part of such Guarantor to be performed and observed;
(b) in the case of any such transaction involving the Issuer or
any Guarantor, the Issuer or such Guarantor, or the Successor of any thereof,
as the case may be, shall expressly agree to indemnify each Lender, the
Administrative Agent and the Issuing Bank against any tax, levy, assessment or
governmental charge payable by withholding or deduction thereafter imposed on
such Lender, the Administrative Agent and/or the Issuing Bank solely as a
consequence of such transaction with respect to payments under the Transaction
Documents;
(c) immediately after giving effect to such transaction,
including for purposes of this clause (c) the substitution of any Successor to
the Issuer for the Issuer or the substitution of any Successor to a Subsidiary
for such Subsidiary and treating any Debt or Lien incurred by the Issuer or
any Successor to the Issuer, or by a Subsidiary of the Issuer or any Successor
to such Subsidiary, as a result of such transactions as having been incurred
at the time of such transaction, no Event of Default or an event or condition
which, after the giving of notice or lapse of time, or both, would have become
an Event of Default shall have occurred and be continuing; and
(d) the Issuer shall have delivered to the Administrative Agent
an officer's certificate and an opinion of counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a written
agreement is required in connection with such transaction, such written
agreement comply with the relevant provisions of this Article X and that all
conditions precedent provided for in this Agreement relating to such
transaction have been complied with.
10.08 Sales of Assets, Etc. The Issuer will not, and will
not permit any of its Material Subsidiaries to, sell, lease or otherwise
dispose of its assets (including the capital stock of any Subsidiary), other
than (a) inventory, trade receivables and assets surplus to the needs of the
business of the Issuer or any Subsidiary sold in the ordinary course of
business and (b) assets not used, usable or held for use in connection with
cement operations and related operations, unless the proceeds of the sale of
such assets are retained by the Issuer or such Subsidiary, as the case may be,
and, as promptly as practicable after such sale (but in any event within 180
days of such sale), the proceeds are applied to (i) expenditures for property,
plant and equipment usable in the cement industry or related industries; (ii)
the repayment of senior Debt of the Issuer or any of its Subsidiaries, whether
secured or unsecured; or (iii) investments in companies engaged in the cement
industry or related industries.
10.09 Change in Nature of Business. The Issuer shall not
make, or permit any of its Material Subsidiaries to make, any material change
in the nature of its business as carried on at the date hereof.
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10.10 Margin Regulations. The Issuer shall not use any
part of the proceeds of the Commercial Paper Notes or the Loans for any
purpose which would result in any violation (whether by the Issuer, the
Administrative Agent, the Issuing Bank or the Lenders) of Regulation T, U or X
of the Federal Reserve Board or to extend credit to others for any such
purpose. The Issuer shall not engage in, or maintain as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying any margin stock (as defined in such regulations).
ARTICLE XI
OBLIGATIONS OF GUARANTORS
11.01 The Guaranty. Each of the Guarantors jointly and
severally hereby unconditionally and irrevocably guarantee (as a primary
obligor and not merely as surety) payment in full as provided herein of all
Obligations payable by the Issuer to the Issuing Bank, each Lender, the
Administrative Agent and, the Arrangers under this Agreement and the other
Transaction Documents and any Fee Letter, as and when such amounts become
payable (whether at stated maturity, by acceleration or otherwise).
11.02 Nature of Liability. The obligations of the
Guarantors hereunder are guarantees of payment and shall remain in full force
and effect until all Obligations of the Issuer have been validly, finally and
irrevocably paid in full, and shall not be affected in any way by the absence
of any action to obtain such amounts from the Issuer or by any variation,
extension, waiver, compromise or release of any or all Obligations from time
to time therefor. Each Guarantor waives all requirements as to promptness,
diligence, presentment, demand for payment, protest and notice of any kind
with respect to this Agreement and the other Transaction Documents.
11.03 Unconditional Obligations. Notwithstanding any
contrary principles under the laws of any jurisdiction other than the State of
New York, the obligations of each of the Guarantors hereunder shall be
unconditional, irrevocable and absolute and, without limiting the generality
of the foregoing, shall not be impaired, terminated, released, discharged or
otherwise affected by the following:
(a) the existence of any claim, set-off or other right which
either of the Guarantors may have at any time against the Issuer, the
Administrative Agent, the Issuing Bank, any Lenders or any other Person,
whether in connection with this transaction or with any unrelated transaction;
(b) any invalidity or unenforceability of this Agreement or any
other Transaction Document relating to or against the Issuer or either of the
Guarantors for any reason (including for the reason that the obtaining of the
Letter of Credit or the Standby L/Cs may be in excess of the powers of the
Issuer or of its officers, directors or other agents, acting or purporting to
act on its behalf, or be in any way irregular or defective);
(c) any provision of applicable law or regulation purporting to
prohibit the payment by the Issuer of any amount payable by the Issuer under
this Agreement or any of the other
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Transaction Documents or the payment, observance, fulfillment or performance of
any other Obligations;
(d) any change in the name, purposes, business, capital stock
(including the ownership thereof) or constitution of the Issuer; or
(e) any other act or omission to act or delay of any kind by the
Issuer, the Administrative Agent, the Issuing Bank, the Lenders or any other
Person or any other circumstance whatsoever which might otherwise constitute a
legal or equitable discharge of or defense to either of the Guarantors'
obligations hereunder.
11.04 Independent Obligation. The obligations of each of
the Guarantors hereunder are independent of the Issuer's obligations under the
Transaction Documents and of any guaranty or security that may be obtained for
the Obligations. The Administrative Agent, the Issuing Bank and the Lenders
may neglect or forbear to enforce payment hereunder, under any Transaction
Document or under any guaranty or security, without in any way affecting or
impairing the liability of each Guarantor hereunder. The Administrative Agent,
the Issuing Bank or the Lenders shall not be obligated to exhaust recourse or
take any other action against the Issuer or under any agreement to purchase or
security which the Administrative Agent, the Issuing Bank or the Lenders may
hold before being entitled to payment from the Guarantors of the obligations
hereunder or proceed against or have resort to any balance of any deposit
account or credit on the books of the Administrative Agent, the Issuing Bank
or the Lenders in favor of the Issuer or each of the Guarantors. Without
limiting the generality of the foregoing, the Administrative Agent, the
Issuing Bank or the Lenders shall have the right to bring suit directly
against either of the Guarantors, either prior or subsequent to or
concurrently with any lawsuit against, or without bringing suit against, the
Issuer and/or the other Guarantor.
11.05 Waiver of Notices. Each of the Guarantors hereby
waives notice of acceptance of this Article XI and notice of any liability to
which it may apply, and waives presentment, demand for payment, protest,
notice of dishonor or nonpayment of any such liability, suit or the taking of
other action by the Administrative Agent, the Issuing Bank or the Lenders
against, and any other notice, to the Guarantors.
11.06 Waiver of Defenses. To the extent permitted by New
York law and notwithstanding any contrary principles under the laws of any
other jurisdiction, each of the Guarantors hereby waives any and all defenses
to which it may be entitled, whether at common law, in equity or by statute
which limits the liability of, or exonerates, guarantors or which may conflict
with the terms of this Article XI, including failure of consideration, breach
of warranty, statute of frauds, merger or consolidation of the Issuer, statute
of limitations, accord and satisfaction and usury. Without limiting the
generality of the foregoing, each of the Guarantors consents that, without
notice to such Guarantor and without the necessity for any additional
endorsement or consent by such Guarantor, and without impairing or affecting
in any way the liability of such Guarantor hereunder, the Administrative
Agent, the Issuing Bank and the Lenders may at any time and from time to time,
upon or without any terms or conditions and in whole or in part, (a) change
the manner, place or terms of payment of, and/or change or extend the time or
payment of, renew or alter, any of the Obligations, any security therefor, or
any liability incurred directly or indirectly in respect thereof, and this
Article XI shall apply to the
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Obligations as so changed, extended, renewed or altered; (b) exercise or refrain
from exercising any right against the Issuer or others (including the
Guarantors) or otherwise act or refrain from acting, (c) settle or compromise
any of the Obligations, any security therefor or any liability (including any of
those hereunder) incurred directly or indirectly in respect thereof or hereof,
and may subordinate the payment of all or any part thereof to the payment of any
such liability (whether due or not) of the Issuer to creditors of the Issuer
other than the Administrative Agent, the Issuing Bank and the Lenders and the
Guarantors, (d) apply any sums by whomsoever paid or howsoever realized, other
than payments of the Guarantors of the Obligations, to any liability or
liabilities of the Issuer under the Transaction Documents or any instruments or
agreements referred to herein or therein, to the Issuing Bank, the
Administrative Agent and the Lenders regardless of which of such liability or
liabilities of the Issuer under the Transaction Documents or any instruments or
agreements referred to herein or therein remain unpaid; (e) consent to or waive
any breach of, or any act, omission or default under the Obligations or any of
the instruments or agreements referred to in this Agreement and the other
Transaction Documents, or otherwise amend, modify or supplement the Obligations
or any of such instruments or agreements, including the Transaction Documents;
and/or (f) request or accept other support of the Obligations or take and hold
any security for the payment of the Obligations or the obligations of the
Guarantors under this Article XI, or allow the release, impairment, surrender,
exchange, substitution, compromise, settlement, rescission or subordination
thereof.
11.07 Bankruptcy and Related Matters.
(a) So long as any of the Obligations remain outstanding, each
of the Guarantors shall not, without the prior written consent of the
Administrative Agent (acting with the consent of the Issuing Bank), commence
or join with any other Person in commencing any bankruptcy, liquidation,
reorganization, concurso mercantil or insolvency proceedings of, or against,
the Issuer.
(b) If acceleration of the time for payment of any amount
payable by the Issuer under this Agreement or the Notes is stayed upon the
insolvency, bankruptcy, reorganization, concurso mercantil or any similar
event of the Issuer or otherwise, all such amounts otherwise subject to
acceleration under the terms of this Agreement shall nonetheless be payable by
the Guarantors hereunder forthwith on demand by the Administrative Agent made
at the request of the Lenders.
(c) The obligations of each of the Guarantors under this Article
XI shall not be reduced, limited, impaired, discharged, deferred, suspended or
terminated by any proceeding or action, voluntary or involuntary, involving
the bankruptcy, insolvency, concurso mercantil, receivership, reorganization,
marshalling of assets, assignment for the benefit of creditors, readjustment,
liquidation or arrangement of the Issuer or similar proceedings or actions or
by any defense which the Issuer may have by reason of the order, decree or
decision of any court or administrative body resulting from any such
proceeding or action. Without limiting the generality of the foregoing, the
Guarantors' liability shall extend to all amounts and obligations that
constitute the Obligations and would be owed by the Issuer but for the fact
that they are unenforceable or not allowable due to the existence of any such
proceeding or action.
(d) Each of the Guarantors acknowledges and agrees that any
interest on any portion of the Obligations which accrues after the
commencement of any proceeding or action referred to
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above in paragraph (c) (or, if interest on any portion of the Obligations ceases
to accrue by operation of law by reason of the commencement of said proceeding
or action, such interest as would have accrued on such portion of the
Obligations if said proceedings or actions had not been commenced) shall be
included in the Obligations, it being the intention of the Guarantors, the
Administrative Agent, the Issuing Bank and the Lenders that the Obligations
which are to be purchased by the Guarantors pursuant to this Article XI shall be
determined without regard to any rule of law or order which may relieve the
Issuer of any portion of such Obligations. The Guarantors will take no action to
prevent any trustee in bankruptcy, receiver, debtor in possession, assignee for
the benefit of creditors or similar person from paying the Administrative Agent,
or allowing the claim of the Administrative Agent, for the benefit of the
Administrative Agent, the Issuing Bank and the Lenders, in respect of any such
interest accruing after the date of which such proceeding is commenced, except
to the extent any such interest shall already have been paid by the Guarantors.
(e) Notwithstanding anything to the contrary contained herein,
if all or any portion of the Obligations are paid by or on behalf of the
Issuer, the obligations of the Guarantors hereunder shall continue and remain
in full force and effect or be reinstated, as the case may be, in the event
that all or any part of such payment(s) are rescinded or recovered, directly
or indirectly, from the Administrative Agent, the Issuing Bank and/or the
Lenders as a preference, preferential transfer, fraudulent transfer or
otherwise, and any such payments which are so rescinded or recovered shall
constitute Obligations for all purposes under this Article XI, to the extent
permitted by applicable law.
11.08 No Subrogation. Notwithstanding any payment or
payments made by any of the Guarantors hereunder or any set-off or application
of funds of any of the Guarantors by the Issuing Bank, the Administrative
Agent or any Lender, no Guarantor shall be entitled to be subrogated to any of
the rights of the Issuing Bank, the Administrative Agent or any Lender against
the Issuer or any other Guarantor or any collateral security or guarantee or
right of offset held by the Issuing Bank, the Administrative Agent or any
Lender for the payment of the Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the Issuer or any
other Guarantor in respect of payments made by such Guarantor hereunder, until
all amounts owing to the Issuing Bank, the Administrative Agent and the
Lenders by the Issuer on account of the Obligations shall have been
indefeasibly paid in full in cash. If any amount shall be paid to any
Guarantor on account of such subrogation rights at any time when all of the
Obligations shall not have been indefeasibly paid in full in cash, such amount
shall be held by such Guarantor in trust for the Issuing Bank, the
Administrative Agent and the Lenders, segregated from other funds of such
Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over
to the Administrative Agent in the exact form received by such Guarantor (duly
indorsed by such Guarantor to the Administrative Agent, if required), to be
applied against the Obligations, whether matured or unmatured, in such order
as the Administrative Agent may determine.
11.09 Right of Contribution. Subject to Section 11.08,
each Guarantor hereby agrees that to the extent that a Guarantor shall have
paid more than its proportionate share of any payment made hereunder, such
Guarantor shall be entitled to seek and receive contribution from and against
any other Guarantor hereunder who has not paid its proportionate share of such
payment. The provisions of this Section 11.09 shall in no respect limit the
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obligations and liabilities of any Guarantor to the Issuing Bank, the
Administrative Agent, the Arrangers and the Lenders, and each Guarantor shall
remain liable to the Issuing Bank, the Administrative Agent, the Arrangers and
the Lenders for the full amount guaranteed by such Guarantor hereunder.
11.10 General Limitation on Guaranty. In any action or
proceeding involving any applicable corporate law, or any applicable
bankruptcy, insolvency, reorganization, concurso mercantil or other law
affecting the rights of creditors generally, if the obligations of any
Guarantor under this Section 11.01 would otherwise, taking into account the
provisions of Section 11.09, be held or determined to be void, invalid or
unenforceable, or subordinated to the claims of any other creditors, on
account of the amount of its liability under Section 11.01, then,
notwithstanding any other provision hereof to the contrary, the amount of such
liability shall, without any further action by such Guarantor, any Lender, the
Administrative Agent, the Issuing Bank or any other Person, be automatically
limited and reduced to the highest amount that is valid and enforceable and
not subordinated to the claims of other creditors as determined in such action
or proceeding.
11.11 Covenants of the Guarantors. Each Guarantor hereby
covenants and agrees that, so long as any Obligations under this Agreement and
any other Transaction Document remains unpaid, the Letter of Credit remain
outstanding, any Standby L/C remain outstanding or any Lender has any
Commitment hereunder, it shall comply with the covenants contained or
incorporated by reference in this Agreement to the extent applicable to it as
a Subsidiary of the Issuer.
ARTICLE XII
EVENTS OF DEFAULT
12.01 Events of Default. The following specified events
shall constitute "Events of Default" for the purposes of this Agreement:
(a) Payment Defaults. The Issuer shall (i) fail to reimburse any
Drawing or Standby L/C Drawing or fail to pay any principal of any Loan when
due in accordance with the terms hereof or (ii) fail to pay any interest on
any Drawing, Standby L/C Drawing or any Loan, any fee or any other amount
payable under this Agreement or any Note within three Business Days after the
same becomes due and payable; or
(b) Representation and Warranties. Any representation or
warranty made by the Issuer herein or in any other Transaction Document on or
made by either Guarantor herein or which is contained in any certificate,
document or financial or other statement furnished at any time under or in
connection with this Agreement or any other Transaction Document, as
applicable, shall prove to have been incorrect in any material respect on or
as of the date made if such failure shall remain unremedied for 30 days after
the earlier of the date on which (i) the Chief Financial Officer of the Issuer
or such Guarantor, as the case may be, becomes aware of such incorrectness or
(ii) written notice thereof shall have been given to the Issuer by the
Administrative Agent; or
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(c) Specific Defaults. The Issuer or a Guarantor, as applicable,
shall fail to perform or observe any term, covenant or agreement contained in
Section 9.01, 9.02(a), 9.06 (with respect to the Issuer's and each Guarantor's
existence only), 9.09(b) or 9.10 or ARTICLE X; or
(d) Other Defaults. The Issuer or a Guarantor, as applicable,
shall fail to perform or observe any term, covenant or agreement contained in
this Agreement or any other Transaction Document (other than as provided in
paragraphs (a) and (c) above) and such failure shall continue unremedied for a
period of 30 days after the earlier of the date on which (i) the Chief
Financial Officer of the Issuer becomes aware of such failure or (ii) written
notice thereof shall have been given to the Issuer by the Administrative Agent
at the request of any Lender; or
(e) Defaults under Other Agreements. The occurrence of a default
or event of default under any indenture, agreement or instrument relating to
any Material Debt of the Issuer or any of its Subsidiaries, and (unless any
principal amount of such Material Debt is otherwise due and payable) such
default or event of default results in the acceleration of the maturity of any
principal amount of such Material Debt prior to the date on which it would
otherwise become due and payable; or
(f) Voluntary Bankruptcy. The Issuer or any Material Subsidiary
shall commence a voluntary case or other proceeding seeking liquidation,
reorganization, concurso mercantil or other relief with respect to itself or
its debts under any bankruptcy, insolvency, suspension de pagos,
reorganization or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to
any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing or the equivalent thereof under
Mexican law (including the Ley de Concursos Mercantiles); or
(g) Involuntary Bankruptcy. An involuntary case or other
proceeding shall be commenced against the Issuer or any Material Subsidiary
seeking liquidation, reorganization, suspension de pagos or other relief with
respect to it or its debts under any bankruptcy, insolvency, concurso
mercantil or other similar law now or hereafter in effect (including but not
limited to the Ley de Concursos Mercantiles) or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
consecutive days; or an order for relief shall be entered against the Issuer
or any Material Subsidiaries under any bankruptcy, insolvency suspension de
pagos or other similar law as now or hereafter in effect; or
(h) Monetary Judgment. A final judgment or judgments or order or
orders not subject to further appeal for the payment of money in an aggregate
amount in excess of U.S.$50,000,000 shall be rendered against the Issuer
and/or any of its one or more Subsidiaries of the Issuer that are neither
discharged nor bonded in full within 30 days thereafter; or
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(i) Pari Passu. The Obligations of the Issuer under this
Agreement or the Commercial Paper Notes or of any Guarantor under this
Agreement shall fail to rank at least pari passu with all other senior
unsecured Debt of the Issuer or such Guarantor, as the case may be; or
(j) Validity of Agreement. The Issuer shall contest the validity
or enforceability of any Transaction Document or shall deny generally the
liability of the Issuer under any Transaction Documents or either Guarantor
shall contest the validity of or the enforceability of their guarantee
hereunder or any obligation of either Guarantor under ARTICLE XI hereof shall
not be (or is claimed by either Guarantor not to be) in full force and effect;
(k) Governmental Authority. Any governmental or other consent,
license, approval, permit or authorization which is now or may in the future
be necessary or appropriate under any applicable Requirement of Law for the
execution, delivery, or performance by the Issuer or either Guarantor of any
Transaction Document to which it is a party or to make such Transaction
Document legal, valid, enforceable and admissible in evidence shall not be
obtained or shall be withdrawn, revoked or modified or shall cease to be in
full force and effect or shall be modified in any manner that would have an
adverse effect on the rights or remedies of the Administrative Agent, the
Issuing Bank or Lenders; or
(l) Expropriation, Etc. Any Governmental Authority shall
condemn, nationalize, seize or otherwise expropriate all or any substantial
portion of the property of, or capital stock issued or owned by, the Issuer or
either Guarantor or take any action that would prevent the Issuer or either
Guarantor from performing its obligations under the Transaction Documents; or
(m) Moratorium; Availability of Foreign Exchange. A moratorium
shall be agreed or declared in respect of any Debt of the Issuer or either
Guarantor or any restriction or requirement not in effect on the date hereof
shall be imposed, whether by legislative enactment, decree, regulation, order
or otherwise, which limits the availability or the transfer of foreign
exchange by the Issuer or either Guarantor for the purpose of performing any
material obligation under any Transaction Document to which it is a party; or
(n) Material Adverse Effect. There shall occur any circumstance,
event or condition of a financial or other nature which the Required Lenders
determine in good faith is reasonably likely to have a material adverse effect
on the ability of the Issuer or either Guarantor to perform its obligations
under this Agreement or any of the other Transaction Documents; or
(o) Attachments of Accounts. The Commercial Paper Account or the
Letter of Credit Account or funds on deposit in, or otherwise to the credit
of, the Commercial Paper Account or the Letter of Credit Account shall be
subject to any writ, order, judgment, warrant of attachment, execution or
similar process or stay or other similar legal restraint; or
(p) Change of Ownership or Control. The beneficial ownership
(within the meaning of Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended) of 20% or
more in voting power of the outstanding voting stock of the Issuer or either
Guarantor is acquired by any Person; provided that the acquisition of
beneficial ownership of capital stock of the Issuer or either Guarantor by
Lorenzo H. Zambrano or any member of his immediate family shall not constitute
an Event of Default.
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12.02 Remedies. If any Event of Default has occurred and
is continuing, the Administrative Agent shall, at the request of, or may, with
the consent of, the Required Lenders, do any or all of the following:
(a) direct the Issuing Bank (i) if and only if no Commercial
Paper Notes are Outstanding, to deliver a Notice of Termination to the Issuer
and the Depositary (with a copy to the Administrative Agent and each Dealer)
whereupon the Letter of Credit shall terminate upon the terms and subject to
the conditions stated in the Letter of Credit and the Notice of Termination
and whereupon the Commitments shall terminate or (ii) if any Commercial Paper
Notes are Outstanding, to deliver a Notice of Default to the Issuer and the
Depositary (with a copy to the Administrative Agent and each Dealer) whereupon
(A) the Stated Amount shall be reduced, as directed by the Depositary pursuant
to a Notice of Default Reduction delivered to the Issuing Bank, such that the
Stated Amount equals the aggregate Face Amount of the Commercial Paper Notes
then Outstanding, (B) no amounts shall be reinstated to the Stated Amount of
the Letter of Credit and (C) the Letter of Credit shall expire and the
Commitments shall terminate two Business Days following the date which the
Depositary advises the Issuing Bank is the latest maturity date of any
Commercial Paper Note Outstanding on the date of such Notice of Default;
(b) deliver a Notice of Acceleration to the Depositary with a
copy to the Issuer, the Issuing Bank and each Dealer directing the Depositary
to make a Drawing under the Letter of Credit in the aggregate amount required
to pay in full all Outstanding Commercial Paper Notes entitled to the benefit
of the Letter of Credit upon maturity, the proceeds of such Drawing to be
deposited in the Letter of Credit Account, and require from the Issuer
immediate reimbursement for payments pursuant to such Drawing;
(c) if no Notice of Acceleration has been delivered pursuant to
paragraph (b) above, direct the Issuer immediately to pay into an account
specified by the Administrative Agent, and under the exclusive dominion and
control of the Administrative Agent, an amount in immediately available funds
(to which neither the Issuing Bank nor the Lenders shall have any right in
respect of any Drawing until the Issuing Bank shall have honored the same)
equal to the Stated Amount or, if less, the aggregate Face Amount of all
Commercial Paper Notes Outstanding, whereupon such amount shall become
immediately due and payable without presentment, demand, protest or other
notice, all of which are hereby expressly waived;
(d) declare by notice to the Issuer the principal amount of all
outstanding Loans to be forthwith due and payable, whereupon such principal
amount, together with accrued interest thereon and any fees and all other
Obligations accrued hereunder, shall become immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived; provided, however, that in the case of any Event
of Default specified in paragraph (f) or (g) of Section 12.01, without notice
or any other act by the Lenders, the Loans (together with accrued interest
thereon) and all other Obligations of the Issuer hereunder shall become
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Issuer;
(e) notify the Issuer, the Depositary and each Dealer (which
notice may be by telephone to be confirmed in writing within two Business
Days) that an Event of Default has occurred and is continuing and in such
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notice direct the Issuer and the Depositary not to issue any Commercial Paper
Notes from and after the actual receipt by the Depositary of such notice until
such Event of Default has been waived or cured and such notice has been
rescinded in writing; and/or
(f) direct the Issuer immediately to pay into an account
specified by the Administrative Agent, and under the exclusive dominion and
control of the Administrative Agent, an amount in immediately available funds
(to which neither the Issuing Bank nor the Lenders shall have any right in
respect of any Standby L/C Drawing until the Issuing Bank shall have honored
the same) equal to the aggregate stated amount of all Standby L/Cs issued and
outstanding hereunder, whereupon such amount shall become immediately due and
payable without presentment, demand, protest or other notice, all of which are
hereby expressly waived.
provided, however, that nothing in this Section 12.02 shall (x) impair the
obligation of the Issuing Bank to make payments in accordance with the Letter
of Credit with respect to maturing Commercial Paper Notes or in accordance
with the Standby L/Cs or (y) impair the obligation of the Issuer to reimburse
the Issuing Bank for, or the obligation of any Lender to fund its
participation in, any Drawing or Standby L/C Drawing, as the case may be, made
subsequent to the time any remedy provided in this paragraph shall have been
exercised and, provided, further, that nothing in this Section 12.02 shall
give the Issuing Bank the right to request the Depositary to debit the
Commercial Paper Account on any Business Day until after such time as the
Issuing Bank shall have honored any demand for payment under the Letter of
Credit required to be paid on such Business Day.
12.03 Notice of Default. The Administrative Agent shall
give notice to the Issuer of any event occurring under Section 12.01(b) or (d)
promptly upon being requested to do so by any Lender and shall thereupon
notify all the Lenders thereof.
12.04 Default Interest. In the event of default by the
Issuer in the payment on the due date of any sum due under this Agreement, the
Issuer shall pay interest on demand on such sum from the date of such default
to the day of actual receipt of such sum by the Administrative Agent (as well
after as before judgment) at the rate specified in Section 2.02(c), 3.07(c) or
4.02(c). So long as the default continues, the default interest rate shall be
recalculated on the same basis at intervals of such duration as the
Administrative Agent may select, provided that the amount of unpaid interest
at the above rate accruing during the preceding period (or such longer period
as may be the shortest period permitted by applicable law for the
capitalization of interest) shall be added to the amount in respect of which
the Issuer is in default.
ARTICLE XIII
THE ADMINISTRATIVE AGENT
13.01 Appointment and Authorization. Each Lender and the
Issuing Bank hereby irrevocably designate and appoint Barclays Bank PLC, New
York Branch as the Administrative Agent of such Lender and the Issuing Bank
under this Agreement, and each Lender and the Issuing Bank hereby irrevocably
authorize the Administrative Agent to take such action on its behalf under the
provisions of this Agreement and each other Transaction Document and to
exercise such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement or any other Transaction
Document,
74
together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Transaction Document, the Administrative Agent shall
not have any duties or responsibilities, except those expressly set forth
herein, nor shall the Administrative Agent have or be deemed to have any
fiduciary relationship with any Lender or the Issuing Bank, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Transaction Document or otherwise exist
against the Administrative Agent.
13.02 Delegation of Duties. The Administrative Agent may
execute any of its duties under this Agreement or any other Transaction
Document by or through agents, employees or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such
duties. The Administrative Agent shall not be responsible for the negligence
or misconduct of any agent or attorney-in-fact that it selects with reasonable
care.
13.03 Liability of Administrative Agent. Neither the
Administrative Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates shall (a) be liable for any action taken or
omitted to be taken by it or any such Person under or in connection with this
Agreement or any other Transaction Document or the transactions contemplated
hereby (except for its or such Person's own gross negligence or willful
misconduct), or (b) be responsible in any manner to any of the Lenders or the
Issuing Bank for any recital, statement, representation or warranty made by
the Issuer, the Guarantors or any officer thereof contained in this Agreement
or in any other Transaction Document, or in any certificate, report, statement
or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, this Agreement or any other
Transaction Document, or for the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Transaction
Document, or for any failure of the Issuer, the Guarantors or any other party
to any Transaction Document to perform its obligations hereunder or
thereunder. Except as otherwise expressly stated herein, the Administrative
Agent shall not be under any obligation to any Lender or the Issuing Bank to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other
Transaction Document, or to inspect the properties, books or records of the
Issuer or the Guarantors.
13.04 Reliance by Administrative Agent.
(a) The Administrative Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or
teletype message, statement, order or other document or telephone conversation
believed by it in good faith to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons, and upon advice and
statements of legal counsel, independent accountants and other experts
selected by the Administrative Agent. The Administrative Agent shall be fully
justified in failing or refusing to take any action under this Agreement or
any other Transaction Document unless it shall first receive such advice or
concurrence of the Required Lenders as it deems appropriate and, if it so
requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by
reason of failing to take, taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Transaction Document
in accordance with a request
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or consent of the Required Lenders (or when expressly required hereby, all the
Lenders), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders.
(b) For purposes of determining compliance with the conditions
specified in Section 6.01, each Lender that has executed this Agreement shall
be deemed to have consented to, approved or accepted or to be satisfied with,
each document or other matter sent by the Administrative Agent to such Lender
for consent, approval, acceptance or satisfaction on or before the Effective
Date.
13.05 Notice of Default. The Administrative Agent shall
not be deemed to have knowledge or notice of the occurrence of any Default or
Event of Default (except with respect to defaults in the payment of principal,
interest and fees required to be paid to the Administrative Agent for the
account of the Issuing Bank and the Lenders) unless the Administrative Agent
shall have received written notice from a Lender, the Issuing Bank or the
Issuer referring to this Agreement and describing such Default or Event of
Default and stating that such notice is a "Notice of Default". The
Administrative Agent shall promptly notify the Issuing Bank and the Lenders of
its receipt of any such notice. The Administrative Agent shall take such
action with respect to such Default or Event of Default as may be requested by
the Required Lenders; provided, however, that unless and until the
Administrative Agent has received any such request, the Administrative Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall deem
advisable or in the best interest of the Lenders and the Issuing Bank.
13.06 Credit Decision. Each Lender expressly acknowledges
that neither the Administrative Agent nor any of its Affiliates, officers,
directors, employees, agents or attorneys-in-fact has made any representation
or warranty to it, and that no act by the Administrative Agent hereafter
taken, including any review of the affairs of the Issuer, the Guarantors, or
any of their Affiliates, shall be deemed to constitute any representation or
warranty by the Administrative Agent to any Lender. Each Lender acknowledges
to the Administrative Agent that it has, independently and without reliance
upon the Administrative Agent or any other Lender, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial
and other condition and creditworthiness of the Issuer, the Guarantors, and
their Affiliates and all applicable Lender regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking
or not taking action under this Agreement and the other Transaction Documents,
and to make such investigations as it deems necessary to inform itself as to
the business, prospects, operations, property, financial and other condition
and creditworthiness of the Issuer or the Guarantors. Except for notices,
reports and other documents expressly herein required to be furnished to the
Lenders by the Administrative Agent, the Administrative Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of the Issuer or the
Guarantors which may come
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into the possession of the Administrative Agent or any of its Affiliates,
officers, directors, employees, agents or attorneys-in-fact.
13.07 Indemnification. Whether or not the transactions
contemplated hereby are consummated, the Lenders agree to indemnify upon
demand the Administrative Agent and its Affiliates, directors, officers,
agents and employees (to the extent not reimbursed by the Issuer and without
limiting the obligation of the Issuer to do so), ratably according to the
respective amounts of their Participation Percentages in effect on the date
the cause for indemnification arose, from and against any and all claims,
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at
any time (including at any time following the payment of the Obligations or
the Termination Date) be imposed on, incurred by or asserted against the
Administrative Agent (or any of its Affiliates, directors, officers, agents
and employees) in any way relating to or arising out of this Agreement or any
other Transaction Document, or any documents contemplated by or referred to
herein or the transactions contemplated hereby or any action taken or omitted
by the Administrative Agent under or in connection with any of the foregoing;
provided, however, that no Lender shall be liable for the payment of any
portion of such claims, liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements to the extent it
results from the gross negligence or willful misconduct of the Administrative
Agent or its Affiliates, directors, officers, agents or employees. Without
limitation of the foregoing, each Lender shall reimburse the Administrative
Agent upon demand for its ratable share of any reasonable and documented costs
or out-of-pocket expenses (including legal fees) incurred by the
Administrative Agent in connection with the preparation, execution,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Transaction Document, or any
document contemplated by or referred to herein, to the extent that the
Administrative Agent is not reimbursed for such expenses by or on behalf of
the Issuer.
13.08 Administrative Agent in Individual Capacity.
Barclays Bank PLC, New York Branch may make loans to, issue letters of credit
for the account of, accept deposits from and generally engage in any kind of
banking, trust, financial advisory, underwriting or other business with the
Issuer, the Guarantors or any of their Affiliates as though Barclays Bank PLC,
New York Branch were not the Administrative Agent hereunder and without notice
to or consent of the Lenders. The Lenders acknowledge that, pursuant to such
activities, Barclays Bank PLC, New York Branch or its Affiliates may receive
information regarding the Issuer, the Guarantors and their Affiliates
(including information that may be subject to confidentiality obligations in
favor of the Issuer or the Guarantors) and acknowledge that the Administrative
Agent shall be under no obligation to provide such information to them. With
respect to the Obligations, Barclays Bank PLC, New York Branch shall have the
same rights and powers under this Agreement as any other Lender and may
exercise the same as though it were not the Administrative Agent, and the
terms "Lender" and "Lenders" include Barclays Bank PLC, New York Branch in its
individual capacity.
13.09 Successor Administrative Agent. The Administrative
Agent may, and at the request of the Required Lenders shall, resign as
Administrative Agent upon 30 days' notice to the Lenders and the Issuer. If
the Administrative Agent resigns under this Agreement, the Required Lenders
shall appoint from among the Lenders a successor agent for the Lenders,
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which appointment shall be subject to the approval of the Issuer, such approval
not to be unreasonably withheld (unless a Default or Event of Default shall have
occurred and be continuing, in which case such approval shall not be required).
If no successor agent is appointed prior to the effective date of the
resignation of the Administrative Agent, the Administrative Agent may appoint,
after consulting with the Lenders and the Issuer, a successor agent from among
the Lenders. Upon the acceptance of its appointment as successor agent
hereunder, such successor agent shall succeed to all the rights, powers and
duties of the retiring Administrative Agent and the term "Administrative Agent"
shall mean such successor agent effective upon its appointment, and the retiring
Administrative Agent's rights, powers and duties as Administrative Agent shall
be terminated, without any other or further act on the part of such retiring
Administrative Agent. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of this ARTICLE XIII and
Sections 16.04 and 16.05 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent under this
Agreement. If no successor Administrative Agent has accepted the appointment as
Administrative Agent by the date which is 30 days following a retiring
Administrative Agent's notice of resignation, the retiring Administrative
Agent's resignation shall nevertheless thereupon become effective and either the
Issuer or the retiring Administrative Agent may, on behalf of the Lenders,
appoint a successor Administrative Agent, which shall be a commercial bank
organized or licensed under the laws of the United States or of any State
thereof and having a combined capital and surplus of at least U.S.$250,000,000.
ARTICLE XIV
THE ISSUING BANK
14.01 Appointment. Each Lender hereby irrevocably
designates and appoints Barclays Bank PLC, New York Branch, as the Issuing
Bank under this Agreement, and each Lender hereby irrevocably authorizes
Barclays Bank PLC, New York Branch, as the Issuing Bank, to take such action
under the provisions of this Agreement and each other Transaction Document and
to exercise such powers and perform such duties as are expressly delegated to
the Issuing Bank by the terms of this Agreement or any other Transaction
Document, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement or in any other Transaction Document, the Issuing Bank shall not
have any duties or responsibilities, except those expressly set forth herein
or in any other Transaction Document, nor shall the Issuing Bank have or be
deemed to have any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Transaction Document or
otherwise exist against the Issuing Bank; provided, however, that nothing
contained in this ARTICLE XIV shall be deemed to limit or impair the rights
and obligations of the Issuing Bank under the Letter of Credit or Standby L/Cs
issued hereunder.
14.02 Liability of Issuing Bank. Neither the Issuing Bank
nor any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall (a) be liable for any action taken or omitted to be taken by
it or any such Person under or in connection with this Agreement or any other
Transaction Document (except for its or such Person's own gross negligence or
willful misconduct), or (b) be responsible in any manner to any Lender for any
recital, statement, representation or warranty made by the Issuer or any
officer thereof contained in this Agreement
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or in any other Transaction Document, or in any certificate, report, statement
or other document referred to or provided for in, or received by the Issuing
Bank under or in connection with, this Agreement or any other Transaction
Document, or for the validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Transaction Document, or for any
failure of the Issuer or any other party to any Transaction Document to perform
its obligations hereunder or thereunder. Except as otherwise expressly stated
herein, and except for the obligation to examine all documents stipulated in the
Letter of Credit or any Standby L/C issued hereunder, in accordance with the
Uniform Customs and Practice for Documentary Credits and applicable law, the
Issuing Bank shall not be under any obligation to any Lender to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or any other Transaction Document, or to
inspect the properties, books or records of the Issuer or the Guarantors.
14.03 Reliance by Issuing Bank. The Issuing Bank shall be
entitled to rely, and shall be fully protected in relying, upon any writing,
resolution, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or teletype message, statement, order or other document or
telephone conversation believed by it in good faith to be genuine and correct
and to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel, independent accountants and other
experts selected by the Issuing Bank. Except for the issuance of the Letter of
Credit, or any Standby L/Cs issued hereunder, in accordance with the terms of
this Agreement and the payment of Drawings or Standby L/C Drawings, as the
case may be, thereunder, the Issuing Bank shall be fully justified in failing
or refusing to take any action under this Agreement or any other Transaction
Document unless it shall first receive such advice or concurrence of the
Required Lenders as the Issuing Bank deems appropriate and, if it so requests,
it shall first be indemnified to its satisfaction by the Lenders against any
and all liability and expense which may be incurred by it by reason of failing
to take, taking or continuing to take any such action. The Issuing Bank shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement and the other Transactions Documents in accordance with a
request of the Required Lenders, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders.
14.04 Credit Decision. Each Lender expressly acknowledges
that neither the Issuing Bank nor any of its Affiliates, officers, directors,
employees, agents or attorneys-in-fact has made any representation or warranty
to it, and that no act by the Issuing Bank hereafter taken, including any
review of the affairs of the Issuer, the Guarantors or any of their
Affiliates, shall be deemed to constitute any representation or warranty by
the Issuing Bank to any Lender. Each Lender acknowledges to the Issuing Bank
that it has, independently and without reliance upon the Issuing Bank, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of the Issuer,
the Guarantors and their Affiliates and all applicable bank regulatory laws
relating to the transactions contemplated hereby, and made its own decision to
enter into this Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon the Issuing Bank, and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit analysis, appraisals and decisions in taking or not
taking action under this Agreement and the other Transaction Documents, and to
make such investigations as it deems necessary to
79
inform itself as to the business, prospects operations, property, financial and
other condition and creditworthiness of the Issuer and the Guarantors.
14.05 Indemnification. Whether or not the transactions
contemplated hereby are consummated, the Lenders agree to indemnify upon
demand the Issuing Bank and its Affiliates, directors, officers, agents and
employees (to the extent not reimbursed by the Issuer and without limiting the
obligation of the Issuer to do so in accordance with Section 16.05), ratably
according to the respective amounts of their Participation Percentages in
effect on the date the cause for indemnification arose, from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever
which may at any time (including at any time following the payment of the
Obligations or the Termination Date) be imposed on, incurred by or asserted
against the Issuing Bank (or any of its Affiliates, directors, officers,
agents or employees) in any way relating to or arising out of this Agreement
or any other Transaction Document, or any documents contemplated by or
referred to herein or the transactions contemplated hereby or any action taken
or omitted by the Issuing Bank under or in connection with any of the
foregoing; provided, however, that no Lender shall be liable for (a) the
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements to the
extent it results from the Issuing Bank's gross negligence or willful
misconduct or (b) any untrue statement of a material fact in the material
furnished in writing by the Issuing Bank to the Issuer for inclusion in any
Offering Statement or any omission in such Offering Statement to state a
material fact required to be stated therein in light of the circumstances
under which they were made. Notwithstanding the foregoing, no Lender shall be
required to fund any other Lender's portion of an unreimbursed Drawing or
Standby L/C Drawing, as the case may be, which such other Lender fails to fund
hereunder.
14.06 Issuing Bank in Its Individual Capacity. Barclays
Bank PLC and its Affiliates may make loans to, issue letters of credit for the
account of, accept deposits from and generally engage in any kind of banking,
trust, financial advisory, underwriting or other business with the Issuer or
any of its Affiliates as though Barclays Bank PLC, New York Branch were not
the Issuing Bank hereunder and without notice to or consent of the Lenders.
The Lenders acknowledge that, pursuant to such activities, the Issuing Bank or
its Affiliates may receive information regarding the Issuer, the Guarantors
and their Affiliates (including information that may be subject to
confidentiality obligations in favor of the Issuer or the Guarantors) and
acknowledge that the Issuing Bank shall be under no obligation to provide such
information to them. With respect to the Obligations, Barclays Bank PLC, New
York Branch shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not the Issuing Bank,
and the terms "Lender" and "Lenders" shall include Barclays Bank PLC, New York
Branch in its individual capacity.
14.07 Notice of Default. The Issuing Bank shall not be
deemed to have knowledge or notice of any Default or Event of Default unless
the Issuing Bank shall have received written notice from the Administrative
Agent, any Lender, the Issuer or a Guarantor referring to this Agreement and
describing such Default or Event of Default.
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ARTICLE XV
THE ARRANGERS
15.01 The Arrangers. The Issuer hereby confirms the
designation of Barclays Capital, the Investment Banking Division of Barclays
Bank PLC, and Banc of America Securities LLC, as arrangers and book-runners of
the Letter of Credit Facility and the Standby L/C Facility. The Arrangers
assume no responsibility or obligation hereunder for servicing, enforcement or
collection of the Obligations, or any duties as agent for the Lenders. The
title "Arranger" or "Book-runner" implies no fiduciary responsibility on the
part of the Arrangers to the Administrative Agent, the Issuing Bank or the
Lenders and the use of either such title does not impose on the Arrangers any
duties or obligations under this Agreement except as may be expressly set
forth herein.
15.02 Liability of Arrangers. Neither the Arrangers nor
any of their respective officers, directors, employees, agents,
attorneys-in-fact or Affiliates shall (a) be liable for any action lawfully
taken or omitted to be taken by them or any such Person under or in connection
with this Agreement or any other Transaction Document (except for the
Arrangers or such Person's own gross negligence or willful misconduct), or (b)
be responsible in any manner to any Lender for any recital, statement,
representation or warranty made by the Issuer or any officer thereof,
contained in this Agreement or in any other Transaction Document, or in any
certificate, report, statement or other document referred to or provided for
in, or received by the Arrangers under or in connection with, this Agreement
or any other Transaction Document or for the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other
Transaction Document or for any failure of the Issuer or any other party to
any other Transaction Document to perform its obligations hereunder or
thereunder. Except as otherwise expressly stated herein, the Arrangers shall
not be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Transaction Document, or to inspect the
properties, books or records of the Issuer.
15.03 Arrangers in their respective Individual
Capacities. Each of Barclays Capital, the Investment Banking Division of
Barclays Bank PLC and its Affiliates, and Banc of America Securities LLC, and
its Affiliates may make loans to, accept deposits from and generally engage in
any kind of business with the Issuer or any of its Affiliates as though they
were not the Arrangers or Book-runners hereunder.
15.04 Credit Decision. Each Lender expressly acknowledges
that neither the Arrangers nor any of their respective Affiliates, officers,
directors, employees, agents or attorneys-in-fact have made any representation
or warranty to it, and that no act by the Arrangers hereafter taken, including
any review of the affairs of the Issuer or the Guarantors, shall be deemed to
constitute any representation or warranty by the Arrangers to any Lender. Each
Lender acknowledges to the Arrangers that it has, independently and without
reliance upon the Arrangers, and based on such documents and information as it
has deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Issuer or the Guarantors and their Affiliates and made
its own decision to enter into this Agreement. Each Lender also acknowledges
that it will, independently and without reliance upon the Arrangers, and based
on such documents and
81
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Transaction Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Issuer or the Guarantors. The Arrangers shall not have
any duty or responsibility to provide any Lender with any information concerning
the business, prospects, operations, property, financial and other condition or
creditworthiness of the Issuer which may come into the possession of the
Arrangers or any of their respective officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
ARTICLE XVI
MISCELLANEOUS
16.01 Notices.
(a) Except as otherwise expressly provided herein, all notices,
requests, demands or other communications to or upon any party hereunder shall
be in writing (including facsimile transmission) and shall be sent by an
overnight courier service, transmitted by facsimile or delivered by hand to
such party: (i) in the case of the Issuer, the Guarantors, the Issuing Bank,
the Arrangers or the Administrative Agent, at its address or facsimile number
set forth on the signature pages hereof or at such other address or facsimile
number as such party may designate by notice to the other parties hereto and
(ii) in the case of any Lender, at its address or facsimile number set forth
in Schedule 1.01(b) or at such other address or facsimile number as such
Lender may designate by notice to the Issuer, the Issuing Bank, the Arrangers
and the Administrative Agent.
(b) Unless otherwise expressly provided for herein, each such
notice, request, demand or other communication shall be effective (i) if sent
by overnight courier service or delivered by hand, upon delivery, (ii) if
given by facsimile, when transmitted to the facsimile number specified
pursuant to paragraph (a) above and confirmation of receipt of a legible copy
thereof is received, or (iii) if given by any other means, when delivered at
the address specified pursuant to paragraph (a) above; provided, however, that
notices to the Administrative Agent under ARTICLE II or III or IV or ARTICLE
XIII shall not be effective until received.
16.02 Amendments and Waivers. No amendment or waiver of
any provision of this Agreement, and no consent to any departure by the Issuer
or any Guarantor from the terms of this Agreement, shall in any event be
effective unless the same shall be in writing, consented to by the Issuer or
the applicable Guarantors, as the case may be, and acknowledged by the
Administrative Agent (which shall be a purely ministerial action), and signed
or consented to by the Required Lenders, and then such amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no amendment, waiver or
consent shall:
(a) (i) except as specifically provided herein, increase or
decrease the Commitment of any Lender;
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(ii) extend the maturity of any of the Obligations, extend
the time of payment of interest thereon, or, other than as provided
in Section 5.02, extend the Stated Termination Date;
(iii) forgive any Obligation, reduce the principal amount of
the Obligations, reduce the rate of interest thereon, or reduce the
amount or change the method of calculation of any Fee hereunder
(other than the Letter of Credit Fees, Standby L/C Fees, Agency Fees
or Arrangement Fees);
in each case without the consent of the Issuer and each Lender directly affected
thereby;
(b) (i) amend, modify or waive any provision of this
Section 16.02;
(ii) change the percentage specified in the definition of
Required Lenders or the number of Lenders which shall be required for
the Lenders or any of them to take any action under this Agreement;
or
(iii) amend, modify or waive any provision of Section 6.01;
(iv) amend or modify the definition of "Available Standby
L/C Sublimit" in Section 1.01 hereof;
(v) amend, modify or waive any provision of Section 5.12; or
(vi) amend, modify or waive any provision of Section 16.06;
in each case without the consent of the Issuer and all the Lenders;
(c) amend, modify or waive any provision of ARTICLE XIII without
the written consent of the Administrative Agent;
(d) amend, modify or waive any provision of ARTICLE II, IV, V or
XIV or any other provision of this Agreement (including an increase in the
initial Stated Amount and waiver of the Settlement Limits in Section 10.01)
affecting the Issuing Bank without the consent of the Issuing Bank; or
(e) amend, modify or waive any provision of ARTICLE XV without
the consent of the Arrangers.
In addition, no amendment, waiver or consent to or under
this Agreement which could reasonably be expected to affect adversely the
rights of the holders of Commercial Paper Notes will become effective unless
Moody's and S&P have confirmed that such amendment, waiver or consent will not
cause their rating of the Commercial Paper Notes to be lowered or withdrawn.
16.03 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Issuing Bank, the
Administrative Agent or any Lender, any right, remedy, power or privilege
hereunder or under any other Transaction Document shall operate as
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a waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law.
16.04 Payment of Expenses, Etc. The Issuer agrees to
pay on demand
(a) all reasonable and documented out-of-pocket costs and
expenses (including reasonable legal fees and disbursements of special Mexican
counsel to the Administrative Agent, English and New York counsel to the
Issuing Bank and the allocated cost of in-house counsel to the Administrative
Agent), syndication (including printing, distribution and bank meetings),
travel, telephone and duplication expenses and other reasonable and documented
costs and out of- pocket expenses in connection with the arrangement,
documentation, negotiation and closing of the Transactions Documents, subject
to the maximum amount set forth in a letter agreement between the Issuer and
the Arrangers;
(b) all reasonable and documented out-of-pocket costs and
expenses incurred by the Administrative Agent and the Issuing Bank in
connection with any amendment to, waiver of, or consent to any Transaction
Document or the transactions contemplated hereby, including the reasonable
fees and reasonable and documented out-of-pocket expenses of counsel for the
Administrative Agent and the Issuing Bank and the allocated cost of in-house
counsel thereof; and
(c) all reasonable and documented out-of-pocket costs and
expenses incurred by the Administrative Agent, the Issuing Bank or any Lender
in connection with the enforcement of and/or preservation of any rights under
this Agreement or any other Transaction Document (whether through
negotiations, legal proceedings or otherwise), including the reasonable fees
and reasonable and documented out-of-pocket expenses of counsel for the
Administrative Agent, the Issuing Bank or such Lender and the allocated costs
of in-house counsel thereof.
16.05 Indemnification. The Issuer agrees to indemnify and
hold harmless the Arrangers, the Administrative Agent, the Issuing Bank and
each Lender and each of their Affiliates and their officers, directors,
employees, agents and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities and expenses (including
reasonable fees and expenses of counsel and the allocated cost of in-house
counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of (including in connection with any investigation, litigation or
proceeding or preparation of a defense in connection therewith) (a) the
Transaction Documents, any of the transactions contemplated herein or the
actual or proposed use of the proceeds of the Commercial Paper Notes or (b) or
any Environmental Action relating in any way to the Issuer or any of its
Subsidiaries, except to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence
or willful misconduct or to have been incurred by reason of any untrue
statement contained in information furnished in writing by the Indemnified
Party expressly for use in an Offering Statement. In the case of an
investigation, litigation or other proceeding to which the indemnity in this
Section 16.05 applies, such indemnity shall be effective whether or not such
investigation, litigation or proceeding is brought
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by the Issuer, its directors, shareholders or creditors or an Indemnified Party
or any other Person or any Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated hereby are consummated. The Issuer
also agrees not to assert any claim against the Arrangers, the Administrative
Agent, the Issuing Bank, any Lender, any of their Affiliates, or any of their
respective directors, officers, employees, attorneys and agents, on any theory
of liability, for special, indirect, consequential or punitive damages arising
out of or otherwise relating to the Transaction Documents, any of the
transactions contemplated herein or the actual or proposed use of the proceeds
of the Transaction Documents. Neither the Arranger, the Administrative Agent,
the Issuing Bank nor any Lender shall be deemed to have any fiduciary
relationship with the Issuer or the Guarantor.
16.06 Successor and Assigns.
(a) The provisions of this Agreement shall be binding upon the
Issuer, the Guarantors, their successors and assigns and shall inure to the
benefit of the Issuing Bank, the Arrangers, the Administrative Agent and the
Lenders and their respective successors and assigns, except that the Issuer
and the Guarantors may not assign or otherwise transfer any of their rights or
obligations under this Agreement without the prior written consent of all
Lenders except pursuant to the terms of this Agreement.
(b) Any Lender (other than the Issuing Bank in its capacity as
Issuing Bank) may at any time, and any Lender, if demanded by the Issuer or
the Issuing Bank pursuant to Section 2.06 or Section 5.11 upon at least five
Business Days' notice to such Lender and the Administrative Agent, shall,
assign to one or more commercial banks (i) registered as a Foreign Financial
Institution and (ii) resident (or having its principal office as a resident,
if lending through a branch or agency) for tax purposes in a jurisdiction that
is a party to an income tax treaty to avoid double taxation with Mexico on the
date of such assignment, qualified to receive the benefits of said treaty
(each an "Assignee") all, or a proportionate part of all, of its Commitment
and its rights and obligations under this Agreement and the Notes, and such
Assignee shall assume such rights and obligations, pursuant to an Assignment
and Assumption Agreement executed by such Assignee and such transferor Lender,
with (and subject to) the subscribed consent of the Issuer and the
Administrative Agent (which consents shall not be unreasonably withheld and
shall not be required by the Issuer if a Default or an Event of Default has
occurred and is continuing) and the Issuing Bank (which consent may be
withheld for any reason; except that where such Assignee is an OECD Bank,
consent may not be unreasonably withheld); provided, however, that if an
Assignee is an Affiliate of such transferor Lender, which Affiliate is
registered as a Foreign Financial Institution and meets the tax residence and
qualification requirements of clause (ii) above and, at the time of such
assignment, the additional amounts payable with respect to Taxes to such
Assignee will not exceed such amounts payable to the transferor Lender, no
such consent shall be required other than from the Issuing Bank; and provided
further that, in the case of an assignment of only part of such rights and
obligations, the Assignee shall acquire a Total Exposure of not less than
U.S.$3,000,000 and integral multiples of U.S.$1,000,000 in excess thereof.
Upon execution and delivery of an Assignment and Assumption Agreement and
payment by the Assignee to the transferor Lender of an amount equal to the
purchase price agreed between such transferor Lender and such Assignee, such
Assignee shall be a Lender party to this Agreement and shall have all the
rights and obligations of a Lender with a Commitment as set forth in such
instrument of assumption (in addition to any
85
Commitment previously held by it), and the transferor Lender shall be released
from its obligations hereunder to a corresponding extent (except to the extent
the same arose prior to the assignment), and no further consent or action by any
party shall be required. Upon the consummation of any assignment pursuant to
this paragraph (b), the transferor Lender, the Administrative Agent and the
Issuer shall make appropriate arrangements so that a new Note is issued to the
Assignee at the expense of the Assignee. In connection with any such assignment
(other than a transfer by a Lender to one of its Affiliates), the transferor
Lender (or in the case of Section 2.06(b) or 5.11, the Issuer), without
prejudice to any claims the Issuer may have against any Defaulting Lender, shall
pay to the Administrative Agent an administrative fee for processing such
assignment in the amount of U.S.$2,000 and to the Issuing Bank a fee of
U.S.$1,000.
(c) Nothing herein shall prohibit any Lender from pledging or
assigning any Note to any Federal Reserve Bank of the United States in
accordance with applicable law and without compliance with the foregoing
provisions of this Section 16.06; provided, however, that such pledge or
assignment shall not release such Lender from its obligations hereunder.
(d) Any Lender may, without any consent of the Issuer, the
Administrative Agent, the Issuing Bank or any other third party at any time
grant to one or more banks or other institutions (i) registered as a Foreign
Financial Institution and (ii) resident (or having its principal office as a
resident, if lending through a branch or agency) for tax purposes in a
jurisdiction that is a party to an income tax treaty to avoid double taxation
with Mexico on the date of such assignment and qualified to receive the
benefits of said treaty and having (at the time such Lender or financial
institution becomes a Participant) a withholding tax rate under such treaty
applicable to payments hereunder no higher than that applicable to payments to
such Lender (each a "Participant") participating interests in its Commitment
or any or all of its Loans or its share of the Letter of Credit Exposure or
its share of the Standby L/C Exposure. In the event of any such grant by a
Lender of a participating interest to a Participant, whether or not upon
notice to the Issuer, the Issuing Bank and the Administrative Agent, such
Lender shall remain responsible for the performance of its obligations
hereunder, and the Issuer and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights
and obligations under this Agreement. Any agreement pursuant to which any
Lender may grant such a participating interest shall provide that such Lender
shall retain the sole right and responsibility to enforce the obligations of
the Issuer hereunder, including the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided, however,
that such participation agreement may provide that such Lender will not agree
to any modification, amendment or waiver of this Agreement extending the
maturity of any Obligation in respect of which the participation was granted,
or reducing the rate or extending the time for payment of interest thereon or
reducing the principal thereof, or reducing the amount or basis of calculation
of any fees to accrue in respect of the participation, without the consent of
the Participant. The Issuer agrees that each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of
Sections 5.07 and 5.10 with respect to its participating interest as if it
were a Lender named herein; provided, however, that the Issuer shall not be
required to pay any greater amounts pursuant to such Sections than it would
have been required to pay but for the sale to such Participant of such
Participant's participation interest. An assignment or other transfer which is
not permitted by paragraph (b) or (c) above shall be given
86
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this paragraph (d).
(e) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
16.06, disclose to the Assignee or Participant or proposed Assignee or
Participant, any information relating to the Issuer furnished to such Lender
by or on behalf of the Issuer; provided that, prior to any such disclosure,
the Assignee or Participant or proposed Assignee or Participant shall agree to
preserve the confidentiality of any Confidential Information relating to the
Issuer received by it from such Lender.
16.07 Right of Set-off. In addition to any rights and
remedies of the Lenders and the Issuing Bank provided by law, each Lender and
the Issuing Bank shall have the right, without prior notice to the Issuer or
the Guarantors, any such notice being expressly waived by the Issuer and the
Guarantors to the extent permitted by applicable law, upon any amount becoming
due and payable by the Issuer or the Guarantors hereunder (whether at the
stated maturity, by acceleration or otherwise) to set-off and appropriate and
apply against such amount any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender or the Issuing Bank, as the case may be, or any branch or
agency thereof to or for the credit or the account of the Issuer or the
Guarantors. Each Lender and the Issuing Bank agree promptly to notify the
Issuer, or such Guarantor, as the case may be, and the Administrative Agent
after any such set-off and application made by such Lender or the Issuing
Bank, provided that the failure to give such notice shall not affect the
validity of such set-off and application.
16.08 Confidentiality. Neither the Administrative Agent,
the Issuing Bank nor any Lender shall disclose any Confidential Information to
any other Person without the prior written consent of the Issuer, other than
(a) to the Administrative Agent's, the Issuing Bank's or such Lender's
Affiliates and their officers, directors, employees, agents and advisors and,
as contemplated by Section 16.06(e), to actual or prospective Assignees and
Participants, and then only on a confidential basis, (b) as required by any
law, rule or regulation (including as may be required in connection with an
audit by the Administrative Agent's, the Issuing Bank's or such Lender's
independent auditors) or as may be required by or necessary in connection with
any judicial process and (c) as requested by any state, federal or foreign
authority or examiner regulating banks or banking.
16.09 Use of English Language. All certificates, reports,
notices and other documents and communications given or delivered pursuant to
this Agreement shall be in the English language (other than the documents
required to be provided pursuant to Sections 6.01(i)(i), (ii) and (iii) which
shall be in the English language or in the Spanish language accompanied by an
English translation or summary). Except in the case of the laws of, or
official communications of, Mexico, the English language version of any such
document shall control the meaning of the matters set forth therein.
16.10 GOVERNING LAW. THIS AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAW OF THE STATE OF NEW YORK.
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16.11 Submission to Jurisdiction
(a) Each of the parties hereto hereby irrevocably and
unconditionally submits to the non-exclusive jurisdiction of the United States
District Court for the Southern District of New York and of any New York State
court located in the Borough of Manhattan in New York City and any appellate
court thereof and, with respect to the Issuer and the Guarantors, to the
competent courts of their own corporate domicile for purposes of any suit,
legal action or proceeding arising out of or relating to this Agreement, any
other Transaction Document or the transactions contemplated hereby, and each
of the parties hereto hereby irrevocably agrees that all claims in respect of
such suit, action or proceeding may be heard and determined in such federal or
New York State court and, with respect to the Issuer and the Guarantors, as
well as in the competent court of their own corporate domicile.
(b) Each of the parties hereto hereby irrevocably waives, to the
fullest extent it may effectively do so, any objection that it may now or
hereafter have to the laying of venue of any such suit, action or proceeding
in any such federal or New York State court or, with respect to the Issuer and
the Guarantors, any such competent court in the place of their corporate
domicile and irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of any such suit, action
or proceeding.
(c) Each of the parties hereto irrevocably waives the right to
object, with respect to such claim, suit, action or proceeding brought in any
such court, that such court does not have jurisdiction over it.
(d) Each of the parties hereto agrees, to the fullest extent it
may effectively do so under applicable law, that a final judgment in any suit,
action or proceeding of the nature referred to in paragraph (a) above brought
in any such court shall be conclusive and binding upon such party and may be
enforced in other jurisdictions by suit on the judgment or in any manner
provided by law.
(E) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT OR THE ACTIONS OF THE ARRANGER, THE ADMINISTRATIVE AGENT, THE
ISSUING BANK OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR
ENFORCEMENT THEREOF.
16.12 Appointment of Agent for Service of Process.
(a) The Issuer and each Guarantor hereby irrevocably appoints CT
Corporation System, with an office on the date hereof at 111 Eighth Avenue,
13th Floor, New York, New York 10011, as its agent (the "Process Agent") to
receive on behalf of itself and its property, service of copies of the summons
and complaint and any other process which may be served in any such action or
proceeding brought in any New York State or federal court sitting in New York
City. Such service may be made by delivering a copy of such process to
88
the Issuer or the Guarantor, as the case may be, in care of the Process Agent at
its address specified above, and the Issuer or the Guarantor, as the case may
be, hereby authorizes and directs the Process Agent to accept such service on
its behalf. The appointment of the Process Agent shall be irrevocable until the
appointment of a successor Process Agent. The Issuer and each Guarantor, further
agrees to promptly appoint a successor Process Agent in New York City prior to
the termination for any reason of the appointment of the initial Process Agent.
(b) Nothing in Section 16.11 or in this Section 16.12 shall
affect the right of any party hereto to serve process in any manner permitted
by law or limit any right that any party hereto may have to enforce in any
lawful manner a judgment obtained in one jurisdiction in any other
jurisdiction.
16.13 Waiver of Sovereign Immunity. To the extent that
the Issuer or a Guarantor has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether through service
or notice, attachment prior to judgment, attachment in aid of execution, or
otherwise) with respect to itself or its property, the Issuer or the
Guarantor, as the case may be, hereby irrevocably waives such immunity in
respect of its obligations hereunder to the extent permitted by applicable
law. Without limiting the generality of the foregoing, the Issuer and each
Guarantor agrees that the waivers set forth in this Section 16.13 shall have
force and effect to the fullest extent permitted under the Foreign Sovereign
Immunities Act of 1976 of the United States and are intended to be irrevocable
for purposes of such Act.
16.14 Judgment Currency.
(a) All payments made under this Agreement and the other
Transaction Documents shall be made in Dollars. If for the purposes of
obtaining judgment in any court it is necessary to convert a sum due from the
Issuer in Dollars into another currency, the parties hereto agree to the
fullest extent that they may legally and effectively do so that the rate of
exchange used shall be that at which in accordance with normal banking
procedures (based on quotations from four major dealers in the relevant
market) the Administrative Agent, the Issuing Bank or each Lender, as the case
may be, could purchase Dollars with such currency at or about 11:00 a.m. (New
York City time) on the Business Day preceding that on which final judgment is
given.
(b) The Obligations in respect of any sum due to any Lender, the
Issuing Bank or the Administrative Agent hereunder or under any other
Transaction Document shall, to the extent permitted by applicable law
notwithstanding any judgment expressed in a currency other than Dollars, be
discharged only to the extent that on the Business Day following receipt by
such Lender, the Issuing Bank or the Administrative Agent of any sum adjudged
to be so due in such other currency such Lender, the Issuing Bank or the
Administrative Agent may in accordance with normal banking procedures purchase
Dollars with such other currency. If the amount of Dollars so purchased is
less than the sum originally due to the Issuing Bank, such Lender or the
Administrative Agent, the Issuer and each of the Guarantors agree, to the
fullest extent it may legally do so, as a separate obligation and
notwithstanding any such judgment, to indemnify the Issuing Bank, such Lender
or the Administrative Agent against such resulting loss.
16.15 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one
89
and the same agreement. Delivery of an executed counterpart of a signature page
to this Agreement by facsimile shall be effective as delivery of a manually
executed counterpart of this Agreement.
16.16 Effect of Termination of Commitments. Any
Commercial Paper Notes issued and sold in accordance with the terms of the
Transaction Documents and which are Outstanding on the date of the termination
of any Commitment hereunder shall remain valid obligations of the Issuer and
shall be entitled to the benefits of the Letter of Credit to the extent
provided therein.
16.17 Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction, and the remaining portion of such provision and all other
remaining provisions hereof will be construed to render them enforceable to
the fullest extent permitted by law.
16.18 Survival of Agreements and Representations.
(a) All representations and warranties made herein or in any
other Transaction Document shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
(b) The covenants and agreements contained in Sections 5.05,
5.07, 5.09, 5.10, 16.04, 16.05, 16.08, 16.09, 16.11 and 16.12, and the
obligations of the Lenders under Sections 13.07 and 14.05, shall survive the
termination of the Commitments, the expiration of Standby L/Cs and the
expiration of the Letter of Credit and, in the case of any Lender that may
assign any interest in its Commitment or obligations hereunder, with respect
to matters occurring before such assignment, shall survive the making of such
assignment to the extent any claim arising thereunder relates to any period
prior to such assignment, notwithstanding that such assigning Lender may cease
to be a "Lender" hereunder.
4.11
EXECUTION COPY
CONFIRMATION
Date: December 13, 2002
To: Empresas Tolteca de Mexico, S.A. de C.V. (Counterparty)
Telecopy No.: (528) 328 7162
Attention: Rodrigo Trevino
From: ABN Amro Special Corporate Services B.V. (Bank)
Telecopy No.: +31-20-40 64611
Transaction Reference Number: [____________]
The purpose of this communication is to set forth the terms and conditions of
the above-referenced transaction entered into on the Trade Date specified
below (the Transaction) between you and us. This communication constitutes a
"Confirmation" as referred to in the Agreement specified below.
1. Master Agreement
This Confirmation supplements, forms a part of, and is subject to,
the ISDA Master Agreement dated as of December 13, 1999 (as amended
and supplemented from time to time, the Agreement), between you and
us. All provisions contained in the Agreement shall govern this
Confirmation except as expressly modified below.
2. Incorporation of Terms
Except as expressly set forth herein and except as the context
otherwise requires, the terms of the Transaction (the First
Transaction) described in the Confirmation dated December 13, 1999
(the First Confirmation) between Counterparty and Bank, as modified
and supplemented and in effect immediately prior to the date hereof
and immediately prior to the execution of Amendment No. 2 hereto,
are hereby incorporated by reference, notwithstanding the fact that
the First Transaction shall be terminated on or prior to the date
hereof. In the event of any conflict between the terms of the First
Confirmation and this Confirmation, this Confirmation shall
prevail.
3. Certain Terms
The terms of the particular Transaction to which this Confirmation
relates are as follows:
Trade Date: December 11, 2002
Effective Date: December 13, 2002, which shall be the
effective date under each of the Group
Confirmations
Termination Date: December 12, 2003
Notional Amount: USD88,943,071.47
Forward
Payment Amount: USD91,505,505.53 (subject to the "Early
Termination by Counterparty" provision
below).
The paragraphs across from the captions "Cemex ADS Purchase
Procedures" and "Valenciana Shares Purchase Procedures" in
Paragraph 3 of the First Confirmation shall not apply except for
purposes of providing definitions for terms used but not defined
elsewhere in the First Confirmation.
4. Additional Payments by Counterparty:
(a) On the Effective Date, Counterparty shall pay to Bank
USD40,803,687.24 as a partial prepayment of the Forward Payment
Amount (the amount of such payment, the Initial Forward Payment
Amount).
(b) On June 13, 2003 (the Intermediate Forward Payment Date),
Counterparty shall make an Intermediate Forward Payment to Bank of
the Intermediate Forward Payment Amount payable on the Intermediate
Forward Payment Date.
5. Conditions Precedent
The obligations of the parties under this Confirmation shall be
subject to the conditions precedent that
(i) each "Participant" identified in the Calculation Agency
and Interbank Agreement shall have executed and delivered
a Confirmation (as described therein); and
(ii) Bank shall have received:
(A) an opinion of Ritch, Heather y Mueller, S.C., as
special Mexican counsel to Bank, in form and
substance satisfactory to Bank, with respect to the
matters addressed in the opinion delivered by such
counsel in connection with the First Transaction;
and
(B) an opinion of Freshfields Bruckhaus Deringer LLP,
as special U.S. counsel to Bank, in form and
substance satisfactory to Bank, with
respect to the matters addressed in the opinion
delivered by such counsel in connection with the
First Transaction.
6. Representations and Agreements Annex:
The Representations and Agreements Annex attached as Exhibit II to
the First Confirmation is hereby incorporated into this
Confirmation as if set forth in full herein, and the
representations contained therein are representations for purposes
of Section 3(d) of the Agreement.
7. Definitions
For purposes of this Confirmation, the following terms shall have
the following meanings:
Adjusted Forward Payment Amount means the USD amount as determined
by the Calculation Agent according to the following formula:
PV of (a - b - c - d)
where
a = Forward Payment Amount
b = USD41,979,234.20 (FV1 of the Initial Forward Payment
Amount)
c = The FV2 of the Intermediate Forward Payment Amount
d = Aggregate of all FV2 of the Advanced Forward Payment
Amount
provided that, on and after the Termination Date, the "Adjusted
Forward Payment Amount" will be the amount determined by the
Calculation Agent to be equal to (a) the Forward Payment Amount
less (b) USD41,979,234.20 less (c) the FV2 of the Intermediate
Forward Payment Amount less (d) the Aggregate of all FV2 of the
Advanced Forward Payment Amount
Calculation Agency and Interbank Agreement means the Calculation
Agency and Interbank Agreement dated as of December 13, 1999
between Empresas Tolteca de Mexico, S.A. de C.V., the Calculation
Agent, and each of the banks or other financial institutions party
thereto, as amended on December 13, 2002 and as further modified
and supplemented and in effect from time to time.
FV2 means, with respect to any Advanced Forward Payment Amount or
Intermediate Forward Payment Amount, the value on the Termination
Date that, when discounted to the date of payment of such amount
(on a 30/360 basis compounded quarterly) at the Swap Rate, equals
such Advanced Forward Payment Amount or such Intermediate Forward
Payment Amount, as the case may be. As used in this definition,
Swap Rate means, as of any date of payment referred to above, the
fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including the date of payment
of such amount to but excluding the Termination Date, to
three-month USD-LIBOR-BBA plus 125 bps (computed on a 30/360 basis
compounded quarterly) based upon the zero coupon swap curve in
effect on the date of payment of such amount, as determined by the
Calculation Agent in accordance with Section 3(b) of the
Calculation Agency and Interbank Agreement.
Intermediate Forward Payment Amount means, with respect to any
Intermediate Forward Payment Date, the USD688,519.72 (the USD
amount as determined by the Calculation Agent according to the
following formula:
(Notional Amount - Initial Forward Payment
Amount)*((1+r/4)^2 - 1)
where
"r" = the fixed rate of interest (computed on a 30/360
basis) equivalent, for the period from and including the
Effective Date to but excluding the Termination Date, to
three-month USD LIBOR plus 125 bps (computed on a 30/360
basis compounded quarterly) based upon the zero coupon
swap curve in effect on the Effective Date).
Minimum Advanced Forward Payment Amount means USD1,238,000.00 (the
USD amount equal to (i) 2.5% multiplied by (ii) the Forward Payment
Amount minus the FV1 of the Initial Forward Payment Amount).
PV means, with respect to any Valuation Date and any specified
amount, the present value of such specified amount, discounted from
the Termination Date to such Valuation Date at a discount rate per
annum equal to the fixed rate of interest (computed on a 30/360
basis) equivalent, for the period from and including such Valuation
Date to but excluding the Termination Date, to three-month USD
LIBOR plus 125 bps (computed on a 30/360 basis compounded
quarterly) based upon the zero coupon swap curve in effect on such
Valuation Date.
Valuation Dates means each of (i) December 20, 2002 and thereafter
the last Business Day of each week up to and including December 12,
2003, (ii) any Early Termination Date, (iii) any Voluntary Early
Termination Date and (iv) the Termination Date.
8. Agreement to Deliver Documents:
For the purpose of Section 4(a)(ii) of the Agreement, each party
agrees to deliver the following documents, as applicable:
---------------------- -------------------------------------- ------------------------------- --------------------------
Covered by
Party required to Form/Document/ Date by which to Section 3(d)
deliver document Certificate be delivered Representation
---------------------- -------------------------------------- ------------------------------- --------------------------
Bank and Counterparty Evidence of the authority, Upon the execution by such Yes
incumbency and specimen signature of party or any Credit Support
each person executing any document Provider of this
upon behalf of such party or any Confirmation, any Credit
Credit Support Provider of such Support Document with respect
party (including, in the case of to such party or any other
Counterparty and each Credit Support documentation relating to the
Provider, notarized copies of the Agreement or any such Credit
by-laws of and powers of attorney Support Document
given by Counterparty or such
Credit Support Provider to its
officers, as the case may be)
---------------------- -------------------------------------- ------------------------------- --------------------------
Counterparty Evidence of the appointment of an Upon the execution by such Yes
agent of service of process for the party or any Credit Support
Counterparty and each Credit Support Provider of this
Provider (including copies of Confirmation, any Credit
appointment and acceptance Support Document with
letters and powers of attorney respect to such party or
(executed in the presence of a any other documentation
Mexican notary) granted by relating to the
Counterparty and each Credit Agreement or any such
Support Provider in favor Credit Support Document
of the process agent)
---------------------- -------------------------------------- ------------------------------- --------------------------
Counterparty The Amendment to the Credit Support On or prior to the execution Yes
Document with respect to such party by such party of this
specified in Paragraph 9 of this Confirmation
Confirmation
---------------------- -------------------------------------- ------------------------------- --------------------------
Bank and Counterparty The Amendment to the Calculation On or prior to the execution Yes
Agency and Interbank Agreement of this Confirmation
---------------------- -------------------------------------- ------------------------------- --------------------------
Counterparty Opinion of internal legal counsel of On the Effective Date Yes
Counterparty and each of its Credit
Support Providers, in form and
substance satisfactory to Bank, with
respect to the matters addressed in
the opinion delivered by such
counsel in connection with the First
Transaction
---------------------- -------------------------------------- ------------------------------- --------------------------
Counterparty Opinion of Skadden, Arps, Slate, On the Effective Date No
Meagher & Flom LLP, as counsel to
Cemex, in form and substance
satisfactory to Bank, with respect
to the matters addressed in the
opinion delivered by such counsel in
connection with the First
Transaction
---------------------- -------------------------------------- ------------------------------- --------------------------
Counterparty Opinion of Skadden, Arps, Slate, Not later than the tenth Yes
Meagher & Flom LLP, as counsel to Business Day immediately
Cemex, in form and substance succeeding the effectiveness
satisfactory to Bank, certifying of the Registration Statement
that the Registration Statement with
respect to the Cemex ADS is
effective and that no refusal or
stop order has been issued by the
United States Securities and
Exchange Commission
---------------------- -------------------------------------- ------------------------------- --------------------------
Counterparty Evidence of receipt of any necessary On or prior to the execution Yes
Mexican approvals by Counterparty of this Confirmation
and each of its Credit Support
Providers
---------------------- -------------------------------------- ------------------------------- --------------------------
9. Credit Support:
For purposes of this Transaction only, each of Cemex and Cemex
Mexico, S.A. de C.V. shall be a Credit Support Provider in relation
to Counterparty, and the Guarantee, dated as of December 13, 1999
and amended as of December 13, 2002, made by the Credit Support
Providers in favor of Bank shall be a Credit Support Document in
relation to Counterparty.
10. Representations:
In connection with this Confirmation, the Transaction to which this
Confirmation relates and any other documentation relating to the
Agreement, each party to this Confirmation (and, with respect to
Counterparty, Cemex) makes to the other party the representations
and acknowledgements set forth in Paragraph 15 of the First
Confirmation. In addition, each party to this Confirmation
represents and warrants to the other party to this Confirmation
that it is an "eligible contract participant" as such term is
defined in Section 1a(12) of the U.S. Commodity Exchange Act.
Counterparty hereby agrees (a) to check this Confirmation carefully and
immediately upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing correctly sets
forth the terms of the agreement between
us with respect to the particular Transaction to which this Confirmation
relates, by manually signing this Confirmation and providing any other
information requested herein and immediately returning an executed copy to
Eelco Holst at +31-20-40 64611. Hard copies should be returned to Atrium
Building, 7th floor, Strawinskylaan 3105, 1077 ZX Amsterdam, The Netherlands,
Attention: Eelco J. Holst (AV4000).
Yours sincerely,
ABN AMRO SPECIAL CORPORATE SERVICES B.V.
By: /s/ R. van Doorn
-----------------------------------
Name: R. van Doorn
Title: Managing Director
By: /s/ R.H.I. de Jong
------------------------------------
Name: R.H.I. de Jong
Title: Managing Director
Confirmed as of the
date first above written:
EMPRESAS TOLTECA DE MEXICO, S.A. DE C.V.
By: /s/ Humberto Moreira
------------------------------------
Name: Humberto Moreira
Title: Attorney-in-fact
Acknowledged and Agreed solely for
purposes of Paragraphs 2, 6, 9 and 10:
CEMEX, S.A. DE C.V.
By: /s/ Mario de la Garza
----------------------------------
Name: Mario de la Garza
Title: Attorney-in-fact
Acknowledged and Agreed solely for
purposes of Paragraph 9:
CEMEX MEXICO, S.A. de C.V.
By: /s/ Victor Naranjo
---------------------------------
Name: Victor Naranjo
Title: Attorney-in-fact
EXHIBIT 4.12
EXECUTION COPY
CONFIRMATION
Date: December 13, 2002
To: Empresas Tolteca de Mexico, S.A. de C.V. (Counterparty)
Telecopy No.: (528) 328 7162
Attention: Rodrigo Trevino
From: Citibank, N.A. (Bank)
Telecopy No.: (212) 723-8674
Transaction Reference Number: [____________]
The purpose of this communication is to set forth the terms and conditions of
the above-referenced transaction entered into on the Trade Date specified below
(the Transaction) between you and us. This communication constitutes a
"Confirmation" as referred to in the Agreement specified below.
1. Master Agreement
This Confirmation supplements, forms a part of, and is subject to, the
ISDA Master Agreement dated as of December 13, 1999 (as amended and
supplemented from time to time, the Agreement), between you and us. All
provisions contained in the Agreement shall govern this Confirmation
except as expressly modified below.
2. Incorporation of Terms
Except as expressly set forth herein and except as the context
otherwise requires, the terms of the Transaction (the First
Transaction) described in the Confirmation dated December 13, 1999 (the
First Confirmation) between Counterparty and Bank, as modified and
supplemented and in effect immediately prior to the date hereof and
immediately prior to the execution of Amendment No. 2 hereto, are
hereby incorporated by reference, notwithstanding the fact that the
First Transaction shall be terminated on or prior to the date hereof.
In the event of any conflict between the terms of the First
Confirmation and this Confirmation, this Confirmation shall prevail.
3. Certain Terms
The terms of the particular Transaction to which this Confirmation
relates are as follows:
Trade Date: December 11, 2002
Effective Date: December 13, 2002, which shall be the
effective date under each of the Group
Confirmations
Termination Date: December 12, 2003
Notional Amount: USD154,625,513.40
Forward
Payment Amount: USD159,080,246.91 (subject to the "Early
Termination by Counterparty" provision
below).
The paragraphs across from the captions "Cemex ADS Purchase Procedures"
and "Valenciana Shares Purchase Procedures" in Paragraph 3 of the First
Confirmation shall not apply except for purposes of providing
definitions for terms used but not defined elsewhere in the First
Confirmation.
4. Additional Payments by Counterparty:
(a) On the Effective Date, Counterparty shall pay to Bank USD70,936,238.67
as a partial prepayment of the Forward Payment Amount (the amount of
such payment, the Initial Forward Payment Amount).
(b) On June 13, 2003 (the Intermediate Forward Payment Date), Counterparty
shall make an Intermediate Forward Payment to Bank of the Intermediate
Forward Payment Amount payable on the Intermediate Forward Payment
Date.
5. Conditions Precedent
The obligations of the parties under this Confirmation shall be subject
to the conditions precedent that
(i) each "Participant" identified in the Calculation Agency and
Interbank Agreement shall have executed and delivered a
Confirmation (as described therein); and
(ii) Bank shall have received:
(A) an opinion of Ritch, Heather y Mueller, S.C., as special
Mexican counsel to Bank, in form and substance
satisfactory to Bank, with respect to the matters
addressed in the opinion delivered by such counsel in
connection with the First Transaction; and
(B) an opinion of Freshfields Bruckhaus Deringer LLP, as
special U.S. counsel to Bank, in form and substance
satisfactory to Bank, with
respect to the matters addressed in the opinion
delivered by such counsel in connection with the
First Transaction.
6. Representations and Agreements Annex:
The Representations and Agreements Annex attached as Exhibit II to the
First Confirmation is hereby incorporated into this Confirmation as if
set forth in full herein, and the representations contained therein are
representations for purposes of Section 3(d) of the Agreement.
7. Definitions
For purposes of this Confirmation, the following terms shall have the
following meanings:
Adjusted Forward Payment Amount means the USD amount as determined by
the Calculation Agent according to the following formula:
PV of (a - b - c - d)
where
a = Forward Payment Amount
b = USD72,979,899.07(FV1 of the Initial Forward Payment
Amount) c = The FV2 of the Intermediate Forward Payment Amount
d = Aggregate of all FV2 of the Advanced Forward Payment
Amount
provided that, on and after the Termination Date, the "Adjusted Forward
Payment Amount" will be the amount determined by the Calculation Agent
to be equal to (a) the Forward Payment Amount less (b) USD72,979,899.07
less (c) the FV2 of the Intermediate Forward Payment Amount less (d)
the Aggregate of all FV2 of the Advanced Forward Payment Amount
Calculation Agency and Interbank Agreement means the Calculation Agency
and Interbank Agreement dated as of December 13, 1999 between Empresas
Tolteca de Mexico, S.A. de C.V., the Calculation Agent, and each of the
banks or other financial institutions party thereto, as amended on
December 13, 2002 and as further modified and supplemented and in
effect from time to time.
FV2 means, with respect to any Advanced Forward Payment Amount or
Intermediate Forward Payment Amount, the value on the Termination Date
that, when discounted to the date of payment of such amount (on a
30/360 basis compounded quarterly) at the Swap Rate, equals such
Advanced Forward Payment Amount or such Intermediate Forward Payment
Amount, as the case may be. As used in this definition, Swap Rate
means, as of any date of payment referred to above, the fixed rate of
interest (computed on a 30/360 basis)
equivalent, for the period from and including the date of payment of
such amount to but excluding the Termination Date, to three-month
USD-LIBOR-BBA plus 125 bps (computed on a 30/360 basis compounded
quarterly) based upon the zero coupon swap curve in effect on the date
of payment of such amount, as determined by the Calculation Agent in
accordance with Section 3(b) of the Calculation Agency and Interbank
Agreement.
Intermediate Forward Payment Amount means, with respect to any
Intermediate Forward Payment Date, the USD1,196,976.60 (the USD amount
as determined by the Calculation Agent according to the following
formula:
(Notional Amount - Initial Forward Payment
Amount)*((1+r/4)^2 - 1)
where
"r" = the fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including the Effective
Date to but excluding the Termination Date, to three-month USD
LIBOR plus 125 bps (computed on a 30/360 basis compounded
quarterly) based upon the zero coupon swap curve in effect on
the Effective Date).
Minimum Advanced Forward Payment Amount means USD2,152,000.00 (the USD
amount equal to (i) 2.5% multiplied by (ii) the Forward Payment Amount
minus the FV1 of the Initial Forward Payment Amount).
PV means, with respect to any Valuation Date and any specified amount,
the present value of such specified amount, discounted from the
Termination Date to such Valuation Date at a discount rate per annum
equal to the fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including such Valuation Date to
but excluding the Termination Date, to three-month USD LIBOR plus 125
bps (computed on a 30/360 basis compounded quarterly) based upon the
zero coupon swap curve in effect on such Valuation Date.
Valuation Dates means each of (i) December 20, 2002 and thereafter the
last Business Day of each week up to and including December 12, 2003,
(ii) any Early Termination Date, (iii) any Voluntary Early Termination
Date and (iv) the Termination Date.
8. Agreement to Deliver Documents:
For the purpose of Section 4(a)(ii) of the Agreement, each party agrees
to deliver the following documents, as applicable:
-------------------- ------------------------------- --------------------------- ----------------------
Party required to Form/Document/ Date by which to be Covered by Section
deliver document Certificate delivered 3(d) Representation
-------------------- ------------------------------- --------------------------- ----------------------
Bank and Evidence of the authority, Upon the execution by Yes
Counterparty incumbency and specimen such party or any Credit
signature of each person Support Provider of this
executing any document upon Confirmation, any Credit
behalf of such party or any Support Document with
Credit Support Provider of respect to such party or
such party (including, in the any other documentation
case of Counterparty and each relating to the Agreement
Credit Support Provider, or any such Credit
notarized copies of the Support Document
by-laws of and powers of
attorney given by
Counterparty or such Credit
Support Provider to its
officers, as the case may be)
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Evidence of the appointment Upon the execution by Yes
of an agent of service of such party or any Credit
process for the Counterparty Support Provider of this
and each Credit Support Confirmation, any Credit
Provider (including copies of Support Document with
appointment and acceptance respect to such party or
letters and powers of any other documentation
attorney (executed in the relating to the Agreement
presence of a Mexican notary) or any such Credit
granted by Counterparty and Support Document
each Credit Support Provider
in favor of the process agent)
-------------------- ------------------------------- --------------------------- ----------------------
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty The Amendment to the Credit On or prior to the Yes
Support Document with respect execution by such party
to such party specified in of this Confirmation
Paragraph 9 of this
Confirmation
-------------------- ------------------------------- --------------------------- ----------------------
Bank and The Amendment to the On or prior to the Yes
Counterparty Calculation Agency and execution of this
Interbank Agreement Confirmation
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of internal legal On the Effective Date Yes
counsel of Counterparty and
each of its Credit Support
Providers, in form and
substance satisfactory to
Bank, with respect to the
matters addressed in the
opinion delivered by such
counsel in connection with
the First Transaction
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of Skadden, Arps, On the Effective Date No
Slate, Meagher & Flom LLP, as
counsel to Cemex, in form and
substance satisfactory to
Bank, with respect to the
matters addressed in the
opinion delivered by such
counsel in connection with
the First Transaction
-------------------- ------------------------------- --------------------------- ----------------------
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of Skadden, Arps, Not later than the tenth Yes
Slate, Meagher & Flom LLP, as Business Day immediately
counsel to Cemex, in form and succeeding the
substance satisfactory to effectiveness of the
Bank, certifying that the Registration Statement
Registration Statement with
respect to the Cemex ADS is
effective and that no refusal
or stop order has been issued
by the United States
Securities and Exchange
Commission
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Evidence of receipt of any On or prior to the Yes
necessary Mexican approvals execution of this
by Counterparty and each of Confirmation
its Credit Support Providers
-------------------- ------------------------------- --------------------------- ----------------------
9. Credit Support:
For purposes of this Transaction only, each of Cemex and Cemex Mexico,
S.A. de C.V. shall be a Credit Support Provider in relation to
Counterparty, and the Guarantee, dated as of December 13, 1999 and
amended as of December 13, 2002, made by the Credit Support Providers
in favor of Bank shall be a Credit Support Document in relation to
Counterparty.
10. Representations:
In connection with this Confirmation, the Transaction to which this
Confirmation relates and any other documentation relating to the
Agreement, each party to this Confirmation (and, with respect to
Counterparty, Cemex) makes to the other party the representations and
acknowledgements set forth in Paragraph 15 of the First Confirmation.
In addition, each party to this Confirmation represents and warrants to
the other party to this Confirmation that it is an "eligible contract
participant" as such term is defined in Section 1a(12) of the U.S.
Commodity Exchange Act.
Counterparty hereby agrees (a) to check this Confirmation carefully and
immediately upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing correctly sets
forth the terms of the agreement between
us with respect to the particular Transaction to which this Confirmation
relates, by manually signing this Confirmation and providing any other
information requested herein and immediately returning an executed copy to Luis
Miraglia at (212) 723-8674. Hard copies should be returned to 399 Park Avenue,
New York, New York 10022.
Yours sincerely,
CITIBANK, N.A.
By: /s/ Kurt Vogt
------------------------------
Name: Kurt Vogt
Title: Managing Director
Confirmed as of the date first above written:
EMPRESAS TOLTECA DE MEXICO, S.A. DE C.V.
By: /s/ Humberto Moreira
---------------------------
Name: Humberto Moreira
Title: Attorney-in-fact
Acknowledged and Agreed solely for purposes of Paragraphs 2, 6, 9 and 10:
CEMEX, S.A. DE C.V.
By: /s/ Mario de la Garza
---------------------------
Name: Mario de la Garza
Title: Attorney-in-fact
Acknowledged and Agreed solely for
purposes of Paragraph 9:
CEMEX MEXICO, S.A. de C.V.
By: /s/ Victor Naranjo
---------------------------
Name: Victor Naranjo
Title: Attorney-in-fact
Exhibit 4.13
EXECUTION COPY
CONFIRMATION
Date: December 13, 2002
To: Empresas Tolteca de Mexico, S.A. de C.V. (Counterparty)
Telecopy No.: (528) 328 7162
Attention: Rodrigo Trevino
From: Credit Suisse First Boston Corporation, solely in its capacity
as Agent (Bank)
Telecopy No.: (212) 325-8175
Transaction Reference Number: 8118223
The purpose of this communication is to set forth the terms and conditions of
the above-referenced transaction entered into on the Trade Date specified
below (the Transaction) between you and us. This communication constitutes a
"Confirmation" as referred to in the Agreement specified below.
1. Master Agreement
This Confirmation supplements, forms a part of, and is subject to, the
ISDA Master Agreement dated as of December 13, 1999 (as amended and
supplemented from time to time, the Agreement), between you and us. All
provisions contained in the Agreement shall govern this Confirmation
except as expressly modified below.
2. Incorporation of Terms
Except as expressly set forth herein and except as the context otherwise
requires, the terms of the Transaction (the First Transaction) described
in the Confirmation dated December 13, 1999 (the First Confirmation)
between Counterparty and Bank, as modified and supplemented and in
effect immediately prior to the date hereof and immediately prior to the
execution of Amendment No. 2 hereto, are hereby incorporated by
reference, notwithstanding the fact that the First Transaction shall be
terminated on or prior to the date hereof. In the event of any conflict
between the terms of the First Confirmation and this Confirmation, this
Confirmation shall prevail.
3. Certain Terms
The terms of the particular Transaction to which this Confirmation
relates are as follows:
Trade Date: December 11, 2002
Effective Date: December 13, 2002, which shall be the effective
date under each of the Group Confirmations
Termination Date: December 12, 2003
Notional Amount: USD133,414,581.69
Forward
Payment Amount: USD137,258,232.04 (subject to the "Early
Termination by Counterparty" provision below).
The paragraphs across from the captions "Cemex ADS Purchase Procedures"
and "Valenciana Shares Purchase Procedures" in Paragraph 3 of the First
Confirmation shall not apply except for purposes of providing
definitions for terms used but not defined elsewhere in the First
Confirmation.
4. Additional Payments by Counterparty:
(a) On the Effective Date, Counterparty shall pay to Bank USD61,205,488.04
as a partial prepayment of the Forward Payment Amount (the amount of
such payment, the Initial Forward Payment Amount).
(b) On June 13, 2003 (the Intermediate Forward Payment Date), Counterparty
shall make an Intermediate Forward Payment to Bank of the Intermediate
Forward Payment Amount payable on the Intermediate Forward Payment Date.
5. Conditions Precedent
The obligations of the parties under this Confirmation shall be subject
to the conditions precedent that
(i) each "Participant" identified in the Calculation Agency and
Interbank Agreement shall have executed and delivered a
Confirmation (as described therein); and
(ii) Bank shall have received:
(A) an opinion of Ritch, Heather y Mueller, S.C., as special Mexican
counsel to Bank, in form and substance satisfactory to Bank,
with respect to the matters addressed in the opinion delivered
by such counsel in connection with the First Transaction; and
(B) an opinion of Freshfields Bruckhaus Deringer LLP, as special
U.S. counsel to Bank, in form and substance satisfactory to
Bank, with respect to the matters addressed in the opinion
delivered by such counsel in connection with the First
Transaction.
6. Representations and Agreements Annex:
The Representations and Agreements Annex attached as Exhibit II to the
First Confirmation is hereby incorporated into this Confirmation as if
set forth in full herein, and the representations contained therein are
representations for purposes of Section 3(d) of the Agreement.
7. Definitions
For purposes of this Confirmation, the following terms shall have the
following meanings:
Adjusted Forward Payment Amount means the USD amount as determined by
the Calculation Agent according to the following formula:
PV of (a - b - c - d)
where
a = Forward Payment Amount
b = USD62,968,807.26 (FV1 of the Initial Forward Payment Amount)
c = The FV2 of the Intermediate Forward Payment Amount
d = Aggregate of all FV2 of the Advanced Forward Payment Amount
provided that, on and after the Termination Date, the "Adjusted Forward
Payment Amount" will be the amount determined by the Calculation Agent
to be equal to (a) the Forward Payment Amount less (b) USD62,968,807.26
less (c) the FV2 of the Intermediate Forward Payment Amount less (d) the
Aggregate of all FV2 of the Advanced Forward Payment Amount
Calculation Agency and Interbank Agreement means the Calculation Agency
and Interbank Agreement dated as of December 13, 1999 between Empresas
Tolteca de Mexico, S.A. de C.V., the Calculation Agent, and each of the
banks or other financial institutions party thereto, as amended on
December 13, 2002 and as further modified and supplemented and in effect
from time to time.
FV2 means, with respect to any Advanced Forward Payment Amount or
Intermediate Forward Payment Amount, the value on the Termination Date
that, when discounted to the date of payment of such amount (on a 30/360
basis compounded quarterly) at the Swap Rate, equals such Advanced
Forward Payment Amount or such Intermediate Forward Payment Amount, as
the case may be. As used in this definition, Swap Rate means, as of any
date of payment referred to above, the fixed rate of interest (computed
on a 30/360 basis) equivalent, for the period from and including the
date of payment of such amount to but excluding the Termination Date, to
three-month USD-LIBOR-BBA plus 125 bps (computed on a 30/360 basis
compounded quarterly) based upon the zero coupon swap curve in effect on
the date of payment of such amount, as determined by the Calculation
Agent in accordance with Section 3(b) of the Calculation Agency and
Interbank Agreement.
Intermediate Forward Payment Amount means, with respect to any
Intermediate Forward Payment Date, the USD1,032,779.83 (the USD amount
as determined by the Calculation Agent according to the following
formula:
(Notional Amount - Initial Forward Payment Amount)*((1+r/4)^2 - 1)
where
"r" = the fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including the Effective Date to
but excluding the Termination Date, to three-month USD LIBOR plus
125 bps (computed on a 30/360 basis compounded quarterly) based
upon the zero coupon swap curve in effect on the Effective Date).
Minimum Advanced Forward Payment Amount means USD1,857,000.00 (the USD
amount equal to (i) 2.5% multiplied by (ii) the Forward Payment Amount
minus the FV1 of the Initial Forward Payment Amount).
PV means, with respect to any Valuation Date and any specified amount,
the present value of such specified amount, discounted from the
Termination Date to such Valuation Date at a discount rate per annum
equal to the fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including such Valuation Date to but
excluding the Termination Date, to three-month USD LIBOR plus 125 bps
(computed on a 30/360 basis compounded quarterly) based upon the zero
coupon swap curve in effect on such Valuation Date.
Valuation Dates means each of (i) December 20, 2002 and thereafter the
last Business Day of each week up to and including December 12, 2003,
(ii) any Early Termination Date, (iii) any Voluntary Early Termination
Date and (iv) the Termination Date.
8. Agreement to Deliver Documents:
For the purpose of Section 4(a)(ii) of the Agreement, each party agrees
to deliver the following documents, as applicable:
-------------------- ------------------------------- --------------------------- ----------------------
Party required to Form/Document/ Date by which to be Covered by Section
deliver document Certificate delivered 3(d) Representation
-------------------- ------------------------------- --------------------------- ----------------------
Bank and Evidence of the authority, Upon the execution by Yes
Counterparty incumbency and specimen such party or any Credit
signature of each person Support Provider of this
executing any document upon Confirmation, any Credit
behalf of such party or any Support Document with
Credit Support Provider of respect to such party or
such party (including, in the any other documentation
case of Counterparty and each relating to the Agreement
Credit Support Provider, or any such Credit
notarized copies of the Support Document
by-laws of and powers of
attorney given by
Counterparty or such
Credit Support Provider to
its officers, as the case
may be)
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Evidence of the appointment Upon the execution by Yes
of an agent of service of such party or any Credit
process for the Counterparty Support Provider of this
and each Credit Support Confirmation, any Credit
Provider (including copies of Support Document with
appointment and acceptance respect to such party or
letters and powers of any other documentation
attorney (executed in the relating to the Agreement
presence of a Mexican notary) or any such Credit
granted by Counterparty and Support Document
each Credit Support Provider
in favor of the process agent)
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty The Amendment to the Credit On or prior to the Yes
Support Document with respect execution by such party
to such party specified in of this Confirmation
Paragraph 9 of this
Confirmation
-------------------- ------------------------------- --------------------------- ----------------------
Bank and The Amendment to the On or prior to the Yes
Counterparty Calculation Agency and execution of this
Interbank Agreement Confirmation
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of internal legal On the Effective Date Yes
counsel of Counterparty and
each of its Credit Support
Providers, in form and
substance satisfactory to
Bank, with respect to the
matters addressed in the
opinion delivered by such
counsel in connection with
the First Transaction
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of Skadden, Arps, On the Effective Date No
Slate, Meagher & Flom LLP, as
counsel to Cemex, in form and
substance satisfactory to
Bank, with respect to the
matters addressed in the
opinion delivered by such
counsel in connection with
the First Transaction
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of Skadden, Arps, Not later than the tenth Yes
Slate, Meagher & Flom LLP, as Business Day immediately
counsel to Cemex, in form and succeeding the
substance satisfactory to effectiveness of the
Bank, certifying that the Registration Statement
Registration Statement with
respect to the Cemex ADS is
effective and that no refusal
or stop order has been issued
by the United States
Securities and Exchange
Commission
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Evidence of receipt of any On or prior to the Yes
necessary Mexican approvals execution of this
by Counterparty and each of Confirmation
its Credit Support Providers
-------------------- ------------------------------- --------------------------- ----------------------
9. Credit Support:
For purposes of this Transaction only, each of Cemex and Cemex Mexico,
S.A. de C.V. shall be a Credit Support Provider in relation to
Counterparty, and the Guarantee, dated as of December 13, 1999 and
amended as of December 13, 2002, made by the Credit Support Providers in
favor of Bank shall be a Credit Support Document in relation to
Counterparty.
10. Representations:
In connection with this Confirmation, the Transaction to which this
Confirmation relates and any other documentation relating to the
Agreement, each party to this Confirmation (and, with respect to
Counterparty, Cemex) makes to the other party the representations and
acknowledgements set forth in Paragraph 15 of the First Confirmation. In
addition, each party to this Confirmation represents and warrants to the
other party to this Confirmation that it is an "eligible contract
participant" as such term is defined in Section 1a(12) of the U.S.
Commodity Exchange Act.
Counterparty hereby agrees (a) to check this Confirmation carefully and
immediately upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing correctly sets
forth the terms of the agreement between
us with respect to the particular Transaction to which this Confirmation
relates, by manually signing this Confirmation and providing any other
information requested herein and immediately returning an executed copy to the
Agent via facsimile at (212) 325-8175. Hard copies should be returned to
Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, New
York 10010, Attention: Ricardo Harewood.
Yours sincerely,
CREDIT SUISSE FIRST BOSTON CORPORATION,
solely in its capacity as Agent
By: /s/ Debra Tageldein
-----------------------------------
Name: Debra Tageldein
Title:Assistant Vice President
Confirmed as of the date first above written:
EMPRESAS TOLTECA DE MEXICO, S.A. DE C.V.
By: /s/ Humberto Moreira
-------------------------------------------
Name: Humberto Moreira
Title: Attorney-in-fact
Acknowledged and Agreed solely for purposes of Paragraphs 2, 6, 9 and 10:
CEMEX, S.A. DE C.V.
By: /s/ Mario de la Garza
-------------------------------------------
Name: Mario de la Garza
Title: Attorney-in-fact
Acknowledged and Agreed solely for
purposes of Paragraph 9:
CEMEX MEXICO, S.A. de C.V.
By: /s/ Victor Naranjo
-------------------------------------------
Name: Victor Naranjo
Title: Attorney-in-fact
Exhibit 4.14
EXECUTION COPY
CONFIRMATION
Date: December 13, 2002
To: Empresas Tolteca de Mexico, S.A. de C.V. (Counterparty)
Telecopy No.: (528) 328 7162
Attention: Rodrigo Trevino
From: Deutsche Bank AG London (Bank)
Telecopy No.: (646) 324-4682
Transaction Reference Number: [____________]
The purpose of this communication is to set forth the terms and conditions of
the above-referenced transaction entered into on the Trade Date specified
below (the Transaction) between you and us. This communication constitutes a
"Confirmation" as referred to in the Agreement specified below.
1. Master Agreement
This Confirmation supplements, forms a part of, and is subject to, the
ISDA Master Agreement dated as of December 13, 1999 (as amended and
supplemented from time to time, the Agreement), between you and us. All
provisions contained in the Agreement shall govern this Confirmation
except as expressly modified below.
2. Incorporation of Terms
Except as expressly set forth herein and except as the context otherwise
requires, the terms of the Transaction (the First Transaction) described
in the Confirmation dated December 13, 1999 (the First Confirmation)
between Counterparty and Bank, as modified and supplemented and in
effect immediately prior to the date hereof and immediately prior to the
execution of Amendment No. 2 hereto, are hereby incorporated by
reference, notwithstanding the fact that the First Transaction shall be
terminated on or prior to the date hereof. In the event of any conflict
between the terms of the First Confirmation and this Confirmation, this
Confirmation shall prevail.
3. Certain Terms
The terms of the particular Transaction to which this Confirmation
relates are as follows:
Trade Date: December 11, 2002
Effective Date: December 13, 2002, which shall be the effective
date under each of the Group Confirmations
Termination Date: December 12, 2003
Notional Amount: USD154,625,513.40
Forward
Payment Amount: USD159,080.246.91 (subject to the "Early
Termination by Counterparty" provision below).
The paragraphs across from the captions "Cemex ADS Purchase Procedures"
and "Valenciana Shares Purchase Procedures" in Paragraph 3 of the First
Confirmation shall not apply except for purposes of providing
definitions for terms used but not defined elsewhere in the First
Confirmation.
4. Additional Payments by Counterparty:
(a) On the Effective Date, Counterparty shall pay to Bank USD70,936,238.67
as a partial prepayment of the Forward Payment Amount (the amount of
such payment, the Initial Forward Payment Amount).
(b) On June 13, 2003 (the Intermediate Forward Payment Date), Counterparty
shall make an Intermediate Forward Payment to Bank of the Intermediate
Forward Payment Amount payable on the Intermediate Forward Payment Date.
5. Conditions Precedent
The obligations of the parties under this Confirmation shall be subject
to the conditions precedent that
(i) each "Participant" identified in the Calculation Agency and
Interbank Agreement shall have executed and delivered a
Confirmation (as described therein); and
(ii) Bank shall have received:
(A) an opinion of Ritch, Heather y Mueller, S.C., as special Mexican
counsel to Bank, in form and substance satisfactory to Bank,
with
respect to the matters addressed in the opinion delivered
by such counsel in connection with the First Transaction; and
(B) an opinion of Freshfields Bruckhaus Deringer LLP, as special
U.S. counsel to Bank, in form and substance satisfactory to
Bank, with respect to the matters addressed in the opinion
delivered by such counsel in connection with the First
Transaction.
6. Representations and Agreements Annex:
The Representations and Agreements Annex attached as Exhibit II to the
First Confirmation is hereby incorporated into this Confirmation as if
set forth in full herein, and the representations contained therein are
representations for purposes of Section 3(d) of the Agreement.
7. Definitions
For purposes of this Confirmation, the following terms shall have the
following meanings:
Adjusted Forward Payment Amount means the USD amount as determined by
the Calculation Agent according to the following formula:
PV of (a - b - c - d)
where
a = Forward Payment Amount
b = USD72,979,899.07(FV1 of the Initial Forward Payment Amount)
c = The FV2 of the Intermediate Forward Payment Amount
d = Aggregate of all FV2 of the Advanced Forward Payment Amount
provided that, on and after the Termination Date, the "Adjusted Forward
Payment Amount" will be the amount determined by the Calculation Agent
to be equal to (a) the Forward Payment Amount less (b) USD72,979,899.07
less (c) the FV2 of the Intermediate Forward Payment Amount less (d) the
Aggregate of all FV2 of the Advanced Forward Payment Amount
Calculation Agency and Interbank Agreement means the Calculation Agency
and Interbank Agreement dated as of December 13, 1999 between Empresas
Tolteca de Mexico, S.A. de C.V., the Calculation Agent, and each of the
banks or other financial institutions party thereto, as amended on
December 13, 2002 and as further modified and supplemented and in effect
from time to time.
FV2 means, with respect to any Advanced Forward Payment Amount or
Intermediate Forward Payment Amount, the value on the Termination Date
that, when discounted to the date of payment of such amount (on a 30/360
basis compounded quarterly) at the Swap Rate, equals such Advanced
Forward Payment Amount or such Intermediate Forward Payment Amount, as
the case may be. As used in this definition, Swap Rate means, as of any
date of payment referred to above, the fixed rate of interest (computed
on a 30/360 basis) equivalent, for the period from and including the
date of payment of such amount to but excluding the Termination Date, to
three-month USD-LIBOR-BBA plus 125 bps (computed on a 30/360 basis
compounded quarterly) based upon the zero coupon swap curve in effect on
the date of payment of such amount, as determined by the Calculation
Agent in accordance with Section 3(b) of the Calculation Agency and
Interbank Agreement.
Intermediate Forward Payment Amount means, with respect to any
Intermediate Forward Payment Date, the USD1,196,976.60 (the USD amount
as determined by the Calculation Agent according to the following
formula:
(Notional Amount - Initial Forward Payment Amount)*((1+r/4)^2 - 1)
where
"r" = the fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including the Effective Date to
but excluding the Termination Date, to three-month USD LIBOR plus
125 bps (computed on a 30/360 basis compounded quarterly) based
upon the zero coupon swap curve in effect on the Effective Date).
Minimum Advanced Forward Payment Amount means USD2,152,000.00 (the USD
amount equal to (i) 2.5% multiplied by (ii) the Forward Payment Amount
minus the FV1 of the Initial Forward Payment Amount).
PV means, with respect to any Valuation Date and any specified amount,
the present value of such specified amount, discounted from the
Termination Date to such Valuation Date at a discount rate per annum
equal to the fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including such Valuation Date to but
excluding the Termination Date, to three-month USD LIBOR plus 125 bps
(computed on a 30/360 basis compounded quarterly) based upon the zero
coupon swap curve in effect on such Valuation Date.
Valuation Dates means each of (i) December 20, 2002 and thereafter the
last Business Day of each week up to and including December 12, 2003,
(ii) any Early Termination Date, (iii) any Voluntary Early Termination
Date and (iv) the Termination Date.
8. Agreement to Deliver Documents:
For the purpose of Section 4(a)(ii) of the Agreement, each party agrees
to deliver the following documents, as applicable:
-------------------- ------------------------------- --------------------------- ----------------------
Party required to Form/Document/ Date by which to be Covered by Section
deliver document Certificate delivered 3(d) Representation
-------------------- ------------------------------- --------------------------- ----------------------
Bank and Evidence of the authority, Upon the execution by Yes
Counterparty incumbency and specimen such party or any Credit
signature of each person Support Provider of this
executing any document upon Confirmation, any Credit
behalf of such party or any Support Document with
Credit Support Provider of respect to such party or
such party (including, in the any other documentation
case of Counterparty and each relating to the Agreement
Credit Support Provider, or any such Credit
notarized copies of the Support Document
by-laws of and powers of
attorney given by
Counterparty or such
Credit Support Provider to
its officers, as the case
may be)
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Evidence of the appointment Upon the execution by Yes
of an agent of service of such party or any Credit
process for the Counterparty Support Provider of this
and each Credit Support Confirmation, any Credit
Provider (including copies of Support Document with
appointment and acceptance respect to such party or
letters and powers of any other documentation
attorney (executed in the relating to the Agreement
presence of a Mexican notary) or any such Credit
granted by Counterparty and Support Document
each Credit Support Provider
in favor of the process agent)
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty The Amendment to the Credit On or prior to the Yes
Support Document with respect execution by such party
to such party specified in of this Confirmation
Paragraph 9 of this
Confirmation
-------------------- ------------------------------- --------------------------- ----------------------
Bank and The Amendment to the On or prior to the Yes
Counterparty Calculation Agency and execution of this
Interbank Agreement Confirmation
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of internal legal On the Effective Date Yes
counsel of Counterparty and
each of its Credit Support
Providers, in form and
substance satisfactory to
Bank, with respect to the
matters addressed in the
opinion delivered by such
counsel in connection with
the First Transaction
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of Skadden, Arps, On the Effective Date No
Slate, Meagher & Flom LLP, as
counsel to Cemex, in form and
substance satisfactory to
Bank, with respect to the
matters addressed in the
opinion delivered by such
counsel in connection with
the First Transaction
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of Skadden, Arps, Not later than the tenth Yes
Slate, Meagher & Flom LLP, as Business Day immediately
counsel to Cemex, in form and succeeding the
substance satisfactory to effectiveness of the
Bank, certifying that the Registration Statement
Registration Statement with
respect to the Cemex ADS is
effective and that no refusal
or stop order has been issued
by the United States
Securities and Exchange
Commission
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Evidence of receipt of any On or prior to the Yes
necessary Mexican approvals execution of this
by Counterparty and each of Confirmation
its Credit Support Providers
-------------------- ------------------------------- --------------------------- ----------------------
9. Credit Support:
For purposes of this Transaction only, each of Cemex and Cemex Mexico,
S.A. de C.V. shall be a Credit Support Provider in relation to
Counterparty, and the Guarantee, dated as of December 13, 1999 and
amended as of December 13, 2002, made by the Credit Support Providers in
favor of Bank shall be a Credit Support Document in relation to
Counterparty.
10. Representations:
In connection with this Confirmation, the Transaction to which this
Confirmation relates and any other documentation relating to the
Agreement, each party to this Confirmation (and, with respect to
Counterparty, Cemex) makes to the other party the representations and
acknowledgements set forth in Paragraph 15 of the First Confirmation. In
addition, each party to this Confirmation represents and warrants to the
other party to this Confirmation that it is an "eligible contract
participant" as such term is defined in Section 1a(12) of the U.S.
Commodity Exchange Act.
Counterparty hereby agrees (a) to check this Confirmation carefully and
immediately upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing correctly sets
forth the terms of the agreement between
us with respect to the particular Transaction to which this Confirmation
relates, by manually signing this Confirmation and providing any other
information requested herein and immediately returning an executed copy to
Katherine Andrews at (646) 324-4682. Hard copies should be returned to 31 West
52nd Street, New York, NY 10019.
Yours sincerely,
DEUTSCHE BANK AG LONDON
By: /s/ Jeffrey Chambers
-------------------------------------
Name: Jeffrey Chambers
Title:
By: /s/ Elisabeth Lee
-------------------------------------
Name: Elisabeth Lee
Title:
Confirmed as of the
date first above written:
EMPRESAS TOLTECA DE MEXICO, S.A. DE C.V.
By: /s/ Humberto Moreira
-------------------------------------------
Name: Humberto Moreira
Title: Attorney-in-fact
Acknowledged and Agreed solely for
purposes of Paragraphs 2, 6, 9 and 10:
CEMEX, S.A. DE C.V.
By: /s/ Mario de la Garza
-------------------------------------------
Name: Mario de la Garza
Title: Attorney-in-fact
Acknowledged and Agreed solely for
purposes of Paragraph 9:
CEMEX MEXICO, S.A. de C.V.
By: /s/ Victor Naranjo
-------------------------------------------
Name: Victor Naranjo
Title: Attorney-in-fact
Exhibit 4.15
EXECUTION COPY
CONFIRMATION
Date: December 13, 2002
To: Empresas Tolteca de Mexico, S.A. de C.V. (Counterparty)
Telecopy No.: (528) 328 7162
Attention: Rodrigo Trevino
From: ING Bank, N.V. (Bank)
Telecopy No.: +525 259 2701
Transaction Reference Number: FC7114-Emptolmex
The purpose of this communication is to set forth the terms and conditions of
the above-referenced transaction entered into on the Trade Date specified
below (the Transaction) between you and us. This communication constitutes a
"Confirmation" as referred to in the Agreement specified below.
1. Master Agreement
This Confirmation supplements, forms a part of, and is subject to, the
ISDA Master Agreement dated as of December 13, 1999 (as amended and
supplemented from time to time, the Agreement), between you and us. All
provisions contained in the Agreement shall govern this Confirmation
except as expressly modified below.
2. Incorporation of Terms
Except as expressly set forth herein and except as the context otherwise
requires, the terms of the Transaction (the First Transaction) described
in the Confirmation dated December 13, 1999 (the First Confirmation)
between Counterparty and Bank, as modified and supplemented and in
effect immediately prior to the date hereof and immediately prior to the
execution of Amendment No. 2 hereto, are hereby incorporated by
reference, notwithstanding the fact that the First Transaction shall be
terminated on or prior to the date hereof. In the event of any conflict
between the terms of the First Confirmation and this Confirmation, this
Confirmation shall prevail.
3. Certain Terms
The terms of the particular Transaction to which this Confirmation
relates are as follows:
Trade Date: December 11, 2002
Effective Date: December 13, 2002, which shall be the effective
date under each of the Group Confirmations
Termination Date: December 12, 2003
Notional Amount: USD154,625,513.40
Forward
Payment Amount: USD159,080,246.91 (subject to the "Early
Termination by Counterparty" provision below).
The paragraphs across from the captions "Cemex ADS Purchase Procedures"
and "Valenciana Shares Purchase Procedures" in Paragraph 3 of the First
Confirmation shall not apply except for purposes of providing
definitions for terms used but not defined elsewhere in the First
Confirmation.
4. Additional Payments by Counterparty:
(a) On the Effective Date, Counterparty shall pay to Bank USD70,936,238.67
as a partial prepayment of the Forward Payment Amount (the amount of
such payment, the Initial Forward Payment Amount).
(b) On June 13, 2003 (the Intermediate Forward Payment Date), Counterparty
shall make an Intermediate Forward Payment to Bank of the Intermediate
Forward Payment Amount payable on the Intermediate Forward Payment Date.
5. Conditions Precedent
The obligations of the parties under this Confirmation shall be subject
to the conditions precedent that
(i) each "Participant" identified in the Calculation Agency and
Interbank Agreement shall have executed and delivered a
Confirmation (as described therein); and
(ii) Bank shall have received:
(A) an opinion of Ritch, Heather y Mueller, S.C., as special Mexican
counsel to Bank, in form and substance satisfactory to Bank,
with respect to the matters addressed in the opinion delivered
by such counsel in connection with the First Transaction; and
(B) an opinion of Freshfields Bruckhaus Deringer LLP, as special
U.S. counsel to Bank, in form and substance satisfactory to
Bank, with
respect to the matters addressed in the opinion
delivered by such counsel in connection with the First
Transaction.
6. Representations and Agreements Annex:
The Representations and Agreements Annex attached as Exhibit II to the
First Confirmation is hereby incorporated into this Confirmation as if
set forth in full herein, and the representations contained therein are
representations for purposes of Section 3(d) of the Agreement.
7. Definitions
For purposes of this Confirmation, the following terms shall have the
following meanings:
Adjusted Forward Payment Amount means the USD amount as determined by
the Calculation Agent according to the following formula:
PV of (a - b - c - d)
where
a = Forward Payment Amount
b = USD72,979,899.07 (FV1 of the Initial Forward Payment Amount)
c = The FV2 of the Intermediate Forward Payment Amount
d = Aggregate of all FV2 of the Advanced Forward Payment Amount
provided that, on and after the Termination Date, the "Adjusted Forward
Payment Amount" will be the amount determined by the Calculation Agent
to be equal to (a) the Forward Payment Amount less (b) USD72,979,899.07
less (c) the FV2 of the Intermediate Forward Payment Amount less (d) the
Aggregate of all FV2 of the Advanced Forward Payment Amount
Calculation Agency and Interbank Agreement means the Calculation Agency
and Interbank Agreement dated as of December 13, 1999 between Empresas
Tolteca de Mexico, S.A. de C.V., the Calculation Agent, and each of the
banks or other financial institutions party thereto, as amended on
December 13, 2002 and as further modified and supplemented and in effect
from time to time.
FV2 means, with respect to any Advanced Forward Payment Amount or
Intermediate Forward Payment Amount, the value on the Termination Date
that, when discounted to the date of payment of such amount (on a 30/360
basis compounded quarterly) at the Swap Rate, equals such Advanced
Forward Payment Amount or such Intermediate Forward Payment Amount, as
the case may be. As used in this definition, Swap Rate means, as of any
date of payment referred to above, the fixed rate of interest (computed
on a 30/360 basis) equivalent, for the period from and including the
date of payment of such amount to but excluding the Termination Date, to
three-month USD-LIBOR-BBA plus 125 bps (computed on a 30/360 basis
compounded quarterly) based upon the zero coupon swap curve in effect on
the date of payment of such amount, as determined by the Calculation
Agent in accordance with Section 3(b) of the Calculation Agency and
Interbank Agreement.
Intermediate Forward Payment Amount means, with respect to any
Intermediate Forward Payment Date, the USD1,196,976.60 (the USD amount
as determined by the Calculation Agent according to the following
formula:
(Notional Amount - Initial Forward Payment Amount)*((1+r/4)^2 - 1)
where
"r" = the fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including the Effective Date to
but excluding the Termination Date, to three-month USD LIBOR plus
125 bps (computed on a 30/360 basis compounded quarterly) based
upon the zero coupon swap curve in effect on the Effective Date).
Minimum Advanced Forward Payment Amount means USD2,152,000.00 (the USD
amount equal to (i) 2.5% multiplied by (ii) the Forward Payment Amount
minus the FV1 of the Initial Forward Payment Amount).
PV means, with respect to any Valuation Date and any specified amount,
the present value of such specified amount, discounted from the
Termination Date to such Valuation Date at a discount rate per annum
equal to the fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including such Valuation Date to but
excluding the Termination Date, to three-month USD LIBOR plus 125 bps
(computed on a 30/360 basis compounded quarterly) based upon the zero
coupon swap curve in effect on such Valuation Date.
Valuation Dates means each of (i) December 20, 2002 and thereafter the
last Business Day of each week up to and including December 12, 2003,
(ii) any Early Termination Date, (iii) any Voluntary Early Termination
Date and (iv) the Termination Date.
8. Agreement to Deliver Documents:
For the purpose of Section 4(a)(ii) of the Agreement, each party agrees
to deliver the following documents, as applicable:
-------------------- ------------------------------- --------------------------- ----------------------
Party required to Form/Document/ Date by which to be Covered by Section
deliver document Certificate delivered 3(d) Representation
-------------------- ------------------------------- --------------------------- ----------------------
Bank and Evidence of the authority, Upon the execution by Yes
Counterparty incumbency and specimen such party or any Credit
signature of each person Support Provider of this
executing any document upon Confirmation, any Credit
behalf of such party or any Support Document with
Credit Support Provider of respect to such party or
such party (including, in the any other documentation
case of Counterparty and each relating to the Agreement
Credit Support Provider, or any such Credit
notarized copies of the Support Document
by-laws of and powers of
attorney given by
Counterparty or such
Credit Support Provider to
its officers, as the case
may be)
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Evidence of the appointment Upon the execution by Yes
of an agent of service of such party or any Credit
process for the Counterparty Support Provider of this
and each Credit Support Confirmation, any Credit
Provider (including copies of Support Document with
appointment and acceptance respect to such party or
letters and powers of any other documentation
attorney (executed in the relating to the Agreement
presence of a Mexican notary) or any such Credit
granted by Counterparty and Support Document
each Credit Support Provider
in favor of the process agent)
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty The Amendment to the Credit On or prior to the Yes
Support Document with respect execution by such party
to such party specified in of this Confirmation
Paragraph 9 of this
Confirmation
-------------------- ------------------------------- --------------------------- ----------------------
Bank and The Amendment to the On or prior to the Yes
Counterparty Calculation Agency and execution of this
Interbank Agreement Confirmation
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of internal legal On the Effective Date Yes
counsel of Counterparty and
each of its Credit Support
Providers, in form and
substance satisfactory to
Bank, with respect to the
matters addressed in the
opinion delivered by such
counsel in connection with
the First Transaction
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of Skadden, Arps, On the Effective Date No
Slate, Meagher & Flom LLP, as
counsel to Cemex, in form and
substance satisfactory to
Bank, with respect to the
matters addressed in the
opinion delivered by such
counsel in connection with
the First Transaction
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of Skadden, Arps, Not later than the tenth Yes
Slate, Meagher & Flom LLP, as Business Day immediately
counsel to Cemex, in form and succeeding the
substance satisfactory to effectiveness of the
Bank, certifying that the Registration Statement
Registration Statement with
respect to the Cemex ADS is
effective and that no refusal
or stop order has been issued
by the United States
Securities and Exchange
Commission
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Evidence of receipt of any On or prior to the Yes
necessary Mexican approvals execution of this
by Counterparty and each of Confirmation
its Credit Support Providers
-------------------- ------------------------------- --------------------------- ----------------------
9. Credit Support:
For purposes of this Transaction only, each of Cemex and Cemex Mexico,
S.A. de C.V. shall be a Credit Support Provider in relation to
Counterparty, and the Guarantee, dated as of December 13, 1999 and
amended as of December 13, 2002, made by the Credit Support Providers in
favor of Bank shall be a Credit Support Document in relation to
Counterparty.
10. Representations:
In connection with this Confirmation, the Transaction to which this
Confirmation relates and any other documentation relating to the
Agreement, each party to this Confirmation (and, with respect to
Counterparty, Cemex) makes to the other party the representations and
acknowledgements set forth in Paragraph 15 of the First Confirmation. In
addition, each party to this Confirmation represents and warrants to the
other party to this Confirmation that it is an "eligible contract
participant" as such term is defined in Section 1a(12) of the U.S.
Commodity Exchange Act.
Counterparty hereby agrees (a) to check this Confirmation carefully and
immediately upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing correctly sets
forth the terms of the agreement between
us with respect to the particular Transaction to which this Confirmation
relates, by manually signing this Confirmation and providing any other
information requested herein and immediately returning an executed copy to
Alejandro Aguilar at +525 259 2701. Hard copies should be returned to Bosque
de Alisos, 45-B, Piso 4, Bosques de las Lomas.
Yours sincerely,
ING BANK, N.V.
By: /s/ A. B. Rosaria
--------------------------------
Name: A. B. Rosaria
Title:Risk Manager
By: /s/ A.C. Zulia
--------------------------------
Name: A. C. Zulia
Title:Sr. Manager Transaction Processing
Confirmed as of the
date first above written:
EMPRESAS TOLTECA DE MEXICO, S.A. DE C.V.
By: /s/ Humberto Moreira
-------------------------------------------
Name: Humberto Moreira
Title: Attorney-in-fact
Acknowledged and Agreed solely for
purposes of Paragraphs 2, 6, 9 and 10:
CEMEX, S.A. DE C.V.
By: /s/ Mario de la Garza
-------------------------------------------
Name: Mario de la Garza
Title: Attorney-in-fact
Acknowledged and Agreed solely for
purposes of Paragraph 9:
CEMEX MEXICO, S.A. de C.V.
By: /s/ Victor Naranjo
-------------------------------------------
Name: Victor Naranjo
Title: Attorney-in-fact
Exhibit 4.16
EXECUTION COPY
CONFIRMATION
Date: December 13, 2002
To: Empresas Tolteca de Mexico, S.A. de C.V. (Counterparty)
Telecopy No.: (528) 328 7162
Attention: Rodrigo Trevino
From: JPMorgan Chase Bank (Bank)
Telecopy No.: (212) 834-6608
Transaction Reference Number: [____________]
The purpose of this communication is to set forth the terms and conditions of
the above-referenced transaction entered into on the Trade Date specified
below (the Transaction) between you and us. This communication constitutes a
"Confirmation" as referred to in the Agreement specified below.
1. Master Agreement
This Confirmation supplements, forms a part of, and is subject to, the
ISDA Master Agreement dated as of December 13, 1999 (as amended and
supplemented from time to time, the Agreement), between you and us. All
provisions contained in the Agreement shall govern this Confirmation
except as expressly modified below.
2. Incorporation of Terms
Except as expressly set forth herein and except as the context otherwise
requires, the terms of the Transaction (the First Transaction) described
in the Confirmation dated December 13, 1999 (the First Confirmation)
between Counterparty and Bank, as modified and supplemented and in
effect immediately prior to the date hereof and immediately prior to the
execution of Amendment No. 2 hereto, are hereby incorporated by
reference, notwithstanding the fact that the First Transaction shall be
terminated on or prior to the date hereof. In the event of any conflict
between the terms of the First Confirmation and this Confirmation, this
Confirmation shall prevail.
3. Certain Terms
The terms of the particular Transaction to which this Confirmation
relates are as follows:
Trade Date: December 11, 2002
Effective Date: December 13, 2002, which shall be the effective
date under each of the Group Confirmations
Termination Date: December 12, 2003
Notional Amount: USD71,154,430.55
Forward
Payment Amount: USD73,204,377.02 (subject to the "Early
Termination by Counterparty" provision below).
The paragraphs across from the captions "Cemex ADS Purchase Procedures"
and "Valenciana Shares Purchase Procedures" in Paragraph 3 of the First
Confirmation shall not apply except for purposes of providing
definitions for terms used but not defined elsewhere in the First
Confirmation.
4. Additional Payments by Counterparty:
(a) On the Effective Date, Counterparty shall pay to Bank USD32,642,907.82
as a partial prepayment of the Forward Payment Amount (the amount of
such payment, the Initial Forward Payment Amount).
(b) On June 13, 2003 (the Intermediate Forward Payment Date), Counterparty
shall make an Intermediate Forward Payment to Bank of the Intermediate
Forward Payment Amount payable on the Intermediate Forward Payment Date.
5. Conditions Precedent
The obligations of the parties under this Confirmation shall be subject
to the conditions precedent that
(i) each "Participant" identified in the Calculation Agency and
Interbank Agreement shall have executed and delivered a
Confirmation (as described therein); and
(ii) Bank shall have received:
(A) an opinion of Ritch, Heather y Mueller, S.C., as special Mexican
counsel to Bank, in form and substance satisfactory to Bank,
with respect to the matters addressed in the opinion delivered
by such counsel in connection with the First Transaction; and
(B) an opinion of Freshfields Bruckhaus Deringer LLP, as special
U.S. counsel to Bank, in form and substance satisfactory to
Bank, with
respect to the matters addressed in the opinion
delivered by such counsel in connection with the First
Transaction.
6. Representations and Agreements Annex:
The Representations and Agreements Annex attached as Exhibit II to the
First Confirmation is hereby incorporated into this Confirmation as if
set forth in full herein, and the representations contained therein are
representations for purposes of Section 3(d) of the Agreement.
7. Definitions
For purposes of this Confirmation, the following terms shall have the
following meanings:
Adjusted Forward Payment Amount means the USD amount as determined by
the Calculation Agent according to the following formula:
PV of (a - b - c - d)
where
a = Forward Payment Amount
b = USD33,583,344.18 (FV1 of the Initial Forward Payment Amount)
c = The FV2 of the Intermediate Forward Payment Amount
d = Aggregate of all FV2 of the Advanced Forward Payment Amount
provided that, on and after the Termination Date, the "Adjusted Forward
Payment Amount" will be the amount determined by the Calculation Agent
to be equal to (a) the Forward Payment Amount less (b) USD33,583,344.18
less (c) the FV2 of the Intermediate Forward Payment Amount less (d) the
Aggregate of all FV2 of the Advanced Forward Payment Amount
Calculation Agency and Interbank Agreement means the Calculation Agency
and Interbank Agreement dated as of December 13, 1999 between Empresas
Tolteca de Mexico, S.A. de C.V., the Calculation Agent, and each of the
banks or other financial institutions party thereto, as amended on
December 13, 2002 and as further modified and supplemented and in effect
from time to time.
FV2 means, with respect to any Advanced Forward Payment Amount or
Intermediate Forward Payment Amount, the value on the Termination Date
that, when discounted to the date of payment of such amount (on a 30/360
basis compounded quarterly) at the Swap Rate, equals such Advanced
Forward Payment Amount or such Intermediate Forward Payment Amount, as
the case may be. As used in this definition, Swap Rate means, as of any
date of payment referred to above, the fixed rate of interest (computed
on a 30/360 basis) equivalent, for the period from and including the
date of payment of such amount to but excluding the Termination Date, to
three-month USD-LIBOR-BBA plus 125 bps (computed on a 30/360 basis
compounded quarterly) based upon the zero coupon swap curve in effect on
the date of payment of such amount, as determined by the Calculation
Agent in accordance with Section 3(b) of the Calculation Agency and
Interbank Agreement.
Intermediate Forward Payment Amount means, with respect to any
Intermediate Forward Payment Date, the USD550,816.00 (the USD amount as
determined by the Calculation Agent according to the following formula:
(Notional Amount - Initial Forward Payment Amount)*((1+r/4)^2 - 1)
where
"r" = the fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including the Effective Date to
but excluding the Termination Date, to three-month USD LIBOR plus
125 bps (computed on a 30/360 basis compounded quarterly) based
upon the zero coupon swap curve in effect on the Effective Date).
Minimum Advanced Forward Payment Amount means USD990,000.00 (the USD
amount equal to (i) 2.5% multiplied by (ii) the Forward Payment Amount
minus the FV1 of the Initial Forward Payment Amount).
PV means, with respect to any Valuation Date and any specified amount,
the present value of such specified amount, discounted from the
Termination Date to such Valuation Date at a discount rate per annum
equal to the fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including such Valuation Date to but
excluding the Termination Date, to three-month USD LIBOR plus 125 bps
(computed on a 30/360 basis compounded quarterly) based upon the zero
coupon swap curve in effect on such Valuation Date.
Valuation Dates means each of (i) December 20, 2002 and thereafter the
last Business Day of each week up to and including December 12, 2003,
(ii) any Early Termination Date, (iii) any Voluntary Early Termination
Date and (iv) the Termination Date.
8. Agreement to Deliver Documents:
For the purpose of Section 4(a)(ii) of the Agreement, each party agrees
to deliver the following documents, as applicable:
-------------------- ------------------------------- --------------------------- ----------------------
Party required to Form/Document/ Date by which to be Covered by Section
deliver document Certificate delivered 3(d) Representation
-------------------- ------------------------------- --------------------------- ----------------------
Bank and Evidence of the authority, Upon the execution by Yes
Counterparty incumbency and specimen such party or any Credit
signature of each person Support Provider of this
executing any document upon Confirmation, any Credit
behalf of such party or any Support Document with
Credit Support Provider of respect to such party or
such party (including, in the any other documentation
case of Counterparty and each relating to the Agreement
Credit Support Provider, or any such Credit
notarized copies of the Support Document
by-laws of and powers of
attorney given by
Counterparty or such
Credit Support Provider to
its officers, as the case
may be)
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Evidence of the appointment Upon the execution by Yes
of an agent of service of such party or any Credit
process for the Counterparty Support Provider of this
and each Credit Support Confirmation, any Credit
Provider (including copies of Support Document with
appointment and acceptance respect to such party or
letters and powers of any other documentation
attorney (executed in the relating to the Agreement
presence of a Mexican notary) or any such Credit
granted by Counterparty and Support Document
each Credit Support Provider
in favor of the process agent)
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty The Amendment to the Credit On or prior to the Yes
Support Document with respect execution by such party
to such party specified in of this Confirmation
Paragraph 9 of this
Confirmation
-------------------- ------------------------------- --------------------------- ----------------------
Bank and The Amendment to the On or prior to the Yes
Counterparty Calculation Agency and execution of this
Interbank Agreement Confirmation
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of internal legal On the Effective Date Yes
counsel of Counterparty and
each of its Credit Support
Providers, in form and
substance satisfactory to
Bank, with respect to the
matters addressed in the
opinion delivered by such
counsel in connection with
the First Transaction
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of Skadden, Arps, On the Effective Date No
Slate, Meagher & Flom LLP, as
counsel to Cemex, in form and
substance satisfactory to
Bank, with respect to the
matters addressed in the
opinion delivered by such
counsel in connection with
the First Transaction
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of Skadden, Arps, Not later than the tenth Yes
Slate, Meagher & Flom LLP, as Business Day immediately
counsel to Cemex, in form and succeeding the
substance satisfactory to effectiveness of the
Bank, certifying that the Registration Statement
Registration Statement with
respect to the Cemex ADS is
effective and that no refusal
or stop order has been issued
by the United States
Securities and Exchange
Commission
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Evidence of receipt of any On or prior to the Yes
necessary Mexican approvals execution of this
by Counterparty and each of Confirmation
its Credit Support Providers
-------------------- ------------------------------- --------------------------- ----------------------
9. Credit Support:
For purposes of this Transaction only, each of Cemex and Cemex Mexico,
S.A. de C.V. shall be a Credit Support Provider in relation to
Counterparty, and the Guarantee, dated as of December 13, 1999 and
amended as of December 13, 2002, made by the Credit Support Providers in
favor of Bank shall be a Credit Support Document in relation to
Counterparty.
10. Representations:
In connection with this Confirmation, the Transaction to which this
Confirmation relates and any other documentation relating to the
Agreement, each party to this Confirmation (and, with respect to
Counterparty, Cemex) makes to the other party the representations and
acknowledgements set forth in Paragraph 15 of the First Confirmation. In
addition, each party to this Confirmation represents and warrants to the
other party to this Confirmation that it is an "eligible contract
participant" as such term is defined in Section 1a(12) of the U.S.
Commodity Exchange Act.
Counterparty hereby agrees (a) to check this Confirmation carefully and
immediately upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing correctly sets
forth the terms of the agreement between
us with respect to the particular Transaction to which this Confirmation
relates, by manually signing this Confirmation and providing any other
information requested herein and immediately returning an executed copy to
Peter Turk at (212) 834-6608. Hard copies should be returned to Peter Turk at
270 Park Avenue, 6th Floor, New York, New York 10017, USA, with a copy to
Francisco Lopez, 260 Park Avenue, 11th Floor, New York, New York 10017, USA.
Yours sincerely,
JPMORGAN CHASE BANK
By: /s/ Peter Turk
-----------------------------------
Name: Peter Turk
Title: Vice President
Confirmed as of the
date first above written:
EMPRESAS TOLTECA DE MEXICO, S.A. DE C.V.
By: /s/ Humberto Moreira
-------------------------------------------
Name: Humberto Moreira
Title: Attorney-in-fact
Acknowledged and Agreed solely for
purposes of Paragraphs 2, 6, 9 and 10:
CEMEX, S.A. DE C.V.
By: /s/ Mario de la Garza
-------------------------------------------
Name: Mario de la Garza
Title: Attorney-in-fact
Acknowledged and Agreed solely for
purposes of Paragraph 9:
CEMEX MEXICO, S.A. de C.V.
By: /s/ Victor Naranjo
-------------------------------------------
Name: Victor Naranjo
Title: Attorney-in-fact
Exhibit 4.17
EXECUTION COPY
CONFIRMATION
Date: December 13, 2002
To: Empresas Tolteca de Mexico, S.A. de C.V. (Counterparty)
Telecopy No.: (528) 328 7162
Attention: Rodrigo Trevino
From: Societe Generale (Bank)
Telecopy No.: +1 212 278 5463
Transaction Reference Number: [____________]
The purpose of this communication is to set forth the terms and conditions of
the above-referenced transaction entered into on the Trade Date specified
below (the Transaction) between you and us. This communication constitutes a
"Confirmation" as referred to in the Agreement specified below.
1. Master Agreement
This Confirmation supplements, forms a part of, and is subject to, the
ISDA Master Agreement dated as of December 13, 1999 (as amended and
supplemented from time to time, the Agreement), between you and us. All
provisions contained in the Agreement shall govern this Confirmation
except as expressly modified below.
2. Incorporation of Terms
Except as expressly set forth herein and except as the context otherwise
requires, the terms of the Transaction (the First Transaction) described
in the Confirmation dated December 13, 1999 (the First Confirmation)
between Counterparty and Bank, as modified and supplemented and in
effect immediately prior to the date hereof and immediately prior to the
execution of Amendment No. 2 hereto, are hereby incorporated by
reference, notwithstanding the fact that the First Transaction shall be
terminated on or prior to the date hereof. In the event of any conflict
between the terms of the First Confirmation and this Confirmation, this
Confirmation shall prevail.
3. Certain Terms
The terms of the particular Transaction to which this Confirmation
relates are as follows:
Trade Date: December 11, 2002
Effective Date: December 13, 2002, which shall be the effective
date under each of the Group Confirmations
Termination Date: December 12, 2003
Notional Amount: USD71,154,430.55
Forward
Payment Amount: USD73,204,377.02 (subject to the "Early
Termination by Counterparty" provision below).
The paragraphs across from the captions "Cemex ADS Purchase Procedures"
and "Valenciana Shares Purchase Procedures" in Paragraph 3 of the First
Confirmation shall not apply except for purposes of providing
definitions for terms used but not defined elsewhere in the First
Confirmation.
4. Additional Payments by Counterparty:
(a) On the Effective Date, Counterparty shall pay to Bank USD32,642,907.82
as a partial prepayment of the Forward Payment Amount (the amount of
such payment, the Initial Forward Payment Amount).
(b) On June 13, 2003 (the Intermediate Forward Payment Date), Counterparty
shall make an Intermediate Forward Payment to Bank of the Intermediate
Forward Payment Amount payable on the Intermediate Forward Payment Date.
5. Conditions Precedent
The obligations of the parties under this Confirmation shall be subject
to the conditions precedent that
(i) each "Participant" identified in the Calculation Agency and
Interbank Agreement shall have executed and delivered a
Confirmation (as described therein); and
(ii) Bank shall have received:
(A) an opinion of Ritch, Heather y Mueller, S.C., as special Mexican
counsel to Bank, in form and substance satisfactory to Bank,
with respect to the matters addressed in the opinion delivered
by such counsel in connection with the First Transaction; and
(B) an opinion of Freshfields Bruckhaus Deringer LLP, as special
U.S. counsel to Bank, in form and substance satisfactory to
Bank, with
respect to the matters addressed in the opinion
delivered by such counsel in connection with the First
Transaction.
6. Representations and Agreements Annex:
The Representations and Agreements Annex attached as Exhibit II to the
First Confirmation is hereby incorporated into this Confirmation as if
set forth in full herein, and the representations contained therein are
representations for purposes of Section 3(d) of the Agreement.
7. Definitions
For purposes of this Confirmation, the following terms shall have the
following meanings:
Adjusted Forward Payment Amount means the USD amount as determined by
the Calculation Agent according to the following formula:
PV of (a - b - c - d)
where
a = Forward Payment Amount
b = USD33,583,344.18 (FV1 of the Initial Forward Payment Amount)
c = The FV2 of the Intermediate Forward Payment Amount
d = Aggregate of all FV2 of the Advanced Forward Payment Amount
provided that, on and after the Termination Date, the "Adjusted Forward
Payment Amount" will be the amount determined by the Calculation Agent
to be equal to (a) the Forward Payment Amount less (b) USD33,583,344.18
less (c) the FV2 of the Intermediate Forward Payment Amount less (d) the
Aggregate of all FV2 of the Advanced Forward Payment Amount
Calculation Agency and Interbank Agreement means the Calculation Agency
and Interbank Agreement dated as of December 13, 1999 between Empresas
Tolteca de Mexico, S.A. de C.V., the Calculation Agent, and each of the
banks or other financial institutions party thereto, as amended on
December 13, 2002 and as further modified and supplemented and in effect
from time to time.
FV2 means, with respect to any Advanced Forward Payment Amount or
Intermediate Forward Payment Amount, the value on the Termination Date
that, when discounted to the date of payment of such amount (on a 30/360
basis compounded quarterly) at the Swap Rate, equals such Advanced
Forward Payment Amount or such Intermediate Forward Payment Amount, as
the case may be. As used in this definition, Swap Rate means, as of any
date of payment referred to above, the fixed rate of interest (computed
on a 30/360 basis) equivalent, for the period from and including the
date of payment of such amount to but excluding the Termination Date, to
three-month USD-LIBOR-BBA plus 125 bps (computed on a 30/360 basis
compounded quarterly) based upon the zero coupon swap curve in effect on
the date of payment of such amount, as determined by the Calculation
Agent in accordance with Section 3(b) of the Calculation Agency and
Interbank Agreement.
Intermediate Forward Payment Amount means, with respect to any
Intermediate Forward Payment Date, the USD550,816.00 (the USD amount as
determined by the Calculation Agent according to the following formula:
(Notional Amount - Initial Forward Payment Amount)*((1+r/4)^2 - 1)
where
"r" = the fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including the Effective Date to
but excluding the Termination Date, to three-month USD LIBOR plus
125 bps (computed on a 30/360 basis compounded quarterly) based
upon the zero coupon swap curve in effect on the Effective Date).
Minimum Advanced Forward Payment Amount means USD990,000.00 (the USD
amount equal to (i) 2.5% multiplied by (ii) the Forward Payment Amount
minus the FV1 of the Initial Forward Payment Amount).
PV means, with respect to any Valuation Date and any specified amount,
the present value of such specified amount, discounted from the
Termination Date to such Valuation Date at a discount rate per annum
equal to the fixed rate of interest (computed on a 30/360 basis)
equivalent, for the period from and including such Valuation Date to but
excluding the Termination Date, to three-month USD LIBOR plus 125 bps
(computed on a 30/360 basis compounded quarterly) based upon the zero
coupon swap curve in effect on such Valuation Date.
Valuation Dates means each of (i) December 20, 2002 and thereafter the
last Business Day of each week up to and including December 12, 2003,
(ii) any Early Termination Date, (iii) any Voluntary Early Termination
Date and (iv) the Termination Date.
8. Agreement to Deliver Documents:
For the purpose of Section 4(a)(ii) of the Agreement, each party agrees
to deliver the following documents, as applicable:
-------------------- ------------------------------- --------------------------- ----------------------
Party required to Form/Document/ Date by which to be Covered by Section
deliver document Certificate delivered 3(d) Representation
-------------------- ------------------------------- --------------------------- ----------------------
Bank and Evidence of the authority, Upon the execution by Yes
Counterparty incumbency and specimen such party or any Credit
signature of each person Support Provider of this
executing any document upon Confirmation, any Credit
behalf of such party or any Support Document with
Credit Support Provider of respect to such party or
such party (including, in the any other documentation
case of Counterparty and each relating to the Agreement
Credit Support Provider, or any such Credit
notarized copies of the Support Document
by-laws of and powers of
attorney given by
Counterparty or such
Credit Support Provider to
its officers, as the case
may be)
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Evidence of the appointment Upon the execution by Yes
of an agent of service of such party or any Credit
process for the Counterparty Support Provider of this
and each Credit Support Confirmation, any Credit
Provider (including copies of Support Document with
appointment and acceptance respect to such party or
letters and powers of any other documentation
attorney (executed in the relating to the Agreement
presence of a Mexican notary) or any such Credit
granted by Counterparty and Support Document
each Credit Support Provider
in favor of the process agent)
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty The Amendment to the Credit On or prior to the Yes
Support Document with respect execution by such party
to such party specified in of this Confirmation
Paragraph 9 of this
Confirmation
-------------------- ------------------------------- --------------------------- ----------------------
Bank and The Amendment to the On or prior to the Yes
Counterparty Calculation Agency and execution of this
Interbank Agreement Confirmation
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of internal legal On the Effective Date Yes
counsel of Counterparty and
each of its Credit Support
Providers, in form and
substance satisfactory to
Bank, with respect to the
matters addressed in the
opinion delivered by such
counsel in connection with
the First Transaction
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of Skadden, Arps, On the Effective Date No
Slate, Meagher & Flom LLP, as
counsel to Cemex, in form and
substance satisfactory to
Bank, with respect to the
matters addressed in the
opinion delivered by such
counsel in connection with
the First Transaction
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Opinion of Skadden, Arps, Not later than the tenth Yes
Slate, Meagher & Flom LLP, as Business Day immediately
counsel to Cemex, in form and succeeding the
substance satisfactory to effectiveness of the
Bank, certifying that the Registration Statement
Registration Statement with
respect to the Cemex ADS is
effective and that no refusal
or stop order has been issued
by the United States
Securities and Exchange
Commission
-------------------- ------------------------------- --------------------------- ----------------------
Counterparty Evidence of receipt of any On or prior to the Yes
necessary Mexican approvals execution of this
by Counterparty and each of Confirmation
its Credit Support Providers
-------------------- ------------------------------- --------------------------- ----------------------
9. Credit Support:
For purposes of this Transaction only, each of Cemex and Cemex Mexico,
S.A. de C.V. shall be a Credit Support Provider in relation to
Counterparty, and the Guarantee, dated as of December 13, 1999 and
amended as of December 13, 2002, made by the Credit Support Providers in
favor of Bank shall be a Credit Support Document in relation to
Counterparty.
10. Representations:
In connection with this Confirmation, the Transaction to which this
Confirmation relates and any other documentation relating to the
Agreement, each party to this Confirmation (and, with respect to
Counterparty, Cemex) makes to the other party the representations and
acknowledgements set forth in Paragraph 15 of the First Confirmation. In
addition, each party to this Confirmation represents and warrants to the
other party to this Confirmation that it is an "eligible contract
participant" as such term is defined in Section 1a(12) of the U.S.
Commodity Exchange Act.
Counterparty hereby agrees (a) to check this Confirmation carefully and
immediately upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing correctly sets
forth the terms of the agreement between
us with respect to the particular Transaction to which this Confirmation
relates, by manually signing this Confirmation and providing any other
information requested herein and immediately returning an executed copy to Luc
Francois at +1 212 278 5463. Hard copies should be returned to 1221 Avenue of
the Americas, Equity Derivatives, 6th floor, New York, NY 10020, Attention:
Luc Francois.
Yours sincerely,
SOCIETE GENERALE
By: /s/ Luc Francois
-------------------------------------------
Name: Luc Francois
Title: Deputy Head of Equity Derivatives
Confirmed as of the
date first above written:
EMPRESAS TOLTECA DE MEXICO, S.A. DE C.V.
By: /s/ Humberto Moreira
-------------------------------------------
Name: Humberto Moreira
Title: Attorney-in-fact
Acknowledged and Agreed solely for purposes of Paragraphs 2, 6, 9 and 10:
CEMEX, S.A. DE C.V.
By: /s/ Mario de la Garza
-------------------------------------------
Name: Mario de la Garza
Title: Attorney-in-fact
Acknowledged and Agreed solely for
purposes of Paragraph 9:
CEMEX MEXICO, S.A. de C.V.
By: /s/ Victor Naranjo
-------------------------------------------
Name: Victor Naranjo
Title: Attorney-in-fact
Exhibit 8.1
List of Subsidiaries
The following is a list of the significant subsidiaries of CEMEX,
S.A. de C.V., including the name of each subsidiary and its country of
incorporation:
CEMEX Mexico, S.A. De C.V........................... Mexico
Empresas Tolteca De Mexico, S.A. De C.V.............. Mexico
Centro Distribuidor De Cemento, S.A. De C.V.......... Mexico
CEMEX International Finance Company.................. Ireland
CEMEX Trademarks Holding Ltd......................... Switzerland
CEMEX Trademarks Worldwide Ltd....................... Switzerland
Mexcement Holdings, S.A. De C.V...................... Mexico
Sunward Acquisitions N.V............................. Netherlands
Sunward Holdings B.V................................ Netherlands
New Sunward Holding B.V.............................. Netherlands
CEMEX Espana, S.A.................................... Spain
CEMEX Caracas Investments B.V........................ Netherlands
CEMEX Colombia, S.A.................................. Colombia
CEMEX Corp........................................... United States (DE)
CEMEX, Inc........................................... United States (LA)
CEMEX Hungary Kft.................................... Hungary
Exhibit 10.1
Certification of Principal Executive and Financial Officers
Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 20-F of CEMEX, S.A. de C.V. (the
"Company") for the year ended December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), Lorenzo H.
Zambrano, as Chief Executive Officer of the Company, and Hector Medina, as
Executive Vice President of Planning and Finance of the Company, each hereby
certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of
the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Lorenzo H. Zambrano
- -------------------------------------
Name: Lorenzo H. Zambrano
Title: Chief Executive Officer
Date: April 8, 2003
/s/ Hector Medina
- -------------------------------------
Name: Hector Medina
Title: Executive Vice President of
Planning and Finance
Date: April 8, 2003
This certification accompanies the Report pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
ss.18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been
provided to CEMEX, S.A. de C.V. and will be retained by CEMEX, S.A. de C.V.
and furnished to the Securities and Exchange Commission or its staff upon
request.
Exhibit 10.2
Certification of Principal Executive and Financial Officers
Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 20-F of CEMEX Mexico, S.A. de
C.V. (the "Company") for the year ended December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), Lorenzo
H. Zambrano, as Chief Executive Officer of the Company, and Hector Medina, as
Executive Vice President of Planning and Finance of the Company, each hereby
certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of
the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Lorenzo H. Zambrano
- -------------------------------------
Name: Lorenzo H. Zambrano
Title: Chief Executive Officer
Date: April 8, 2003
/s/ Hector Medina
- -------------------------------------
Name: Hector Medina
Title: Executive Vice President of
Planning and Finance
Date: April 8, 2003
This certification accompanies the Report pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
ss.18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been
provided to CEMEX Mexico, S.A. de C.V. and will be retained by CEMEX Mexico,
S.A. de C.V. and furnished to the Securities and Exchange Commission or its
staff upon request.
Exhibit 10.3
Certification of Principal Executive and Financial Officers
Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 20-F of Empresas Tolteca de
Mexico, S.A. de C.V. (the "Company") for the year ended December 31, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Lorenzo H. Zambrano, as Chief Executive Officer of the Company, and
Hector Medina, as Executive Vice President of Planning and Finance of the
Company, each hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of
his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Lorenzo H. Zambrano
- -------------------------------------
Name: Lorenzo H. Zambrano
Title: Chief Executive Officer
Date: April 8, 2003
/s/ Hector Medina
- -------------------------------------
Name: Hector Medina
Title: Executive Vice President of
Planning and Finance
Date: April 8, 2003
This certification accompanies the Report pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
ss.18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been
provided to Empresas Tolteca de Mexico, S.A. de C.V. and will be retained by
Empresas Tolteca de Mexico, S.A. de C.V. and furnished to the Securities and
Exchange Commission or its staff upon request.
Exhibit 10.4
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference into (i) Post-Effective
Amendment No. 3 to the Registration Statement on Form F-3 (File No. 333-11382)
of CEMEX, S.A. de C.V., (ii) the Registration Statement on Form F-3 (File No.
333-86700) of CEMEX, S.A. de C.V., (iii) the Registration Statement on Form
S-8 (File No. 333-13970) of CEMEX, S.A. de C.V. and (iv) the Registration
Statement on Form S-8 (File No. 333-83962) of CEMEX, S.A. de C.V., of our
report, dated January 15, 2003 (except for note 23, which is as of March 24,
2003), with respect to the consolidated balance sheets of CEMEX, S.A. de C.V.
and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of income, changes in stockholders' equity and changes
in financial position for each of the years in the three year period ended
December 31, 2002, which report appears in this Annual Report on Form 20-F of
CEMEX, S.A. de C.V.
KPMG Cardena Dosal, S.C.
/s/ Leandro Castillo Parada
- ----------------------------------
Leandro Castillo Parada
Monterrey, N.L., Mexico
April 8, 2003
Exhibit 10.5
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference into (i) Post-Effective
Amendment No. 3 to the Registration Statement on Form F-3 (File No. 333-11382)
of CEMEX, S.A. de C.V., (ii) the Registration Statement on Form F-3 (File No.
333-86700) of CEMEX, S.A. de C.V., (iii) the Registration Statement on Form
S-8 (File No. 333-13970) of CEMEX, S.A. de C.V. and (iv) the Registration
Statement on Form S-8 (File No. 333-83962) of CEMEX, S.A. de C.V., of our
reports dated January 11, 2001 relating to the financial statements of
Compania Minera Atoyac, S.A. de C.V., Cementos Anahuac, S.A. de C.V., Cementos
del Norte, S.A. de C.V., Proveedora Mexicana de Materiales, S.A. de C.V.,
Compania de Transportes del Mar de Cortes, S.A. de C.V., Cementos Guadalajara,
S.A. de C.V., Cementos de Oriente, S.A. de C.V., Autotransportes de Huichapan,
S.A. de C.V., Cemex Concretos, S.A. de C.V. and Granos y Terrenos, S.A. de
C.V., which reports appear in this Annual Report on Form 20-F of CEMEX, S.A. de
C.V.
PricewaterhouseCoopers
/s/ Hector Puente S.
- ------------------------------
Hector Puente S.
Monterrey, N.L.
Mexico
April 7, 2003
