<PAGE>
EXHIBIT (A)(1)(A)
Offer To Purchase For Cash
All Outstanding Shares of Common Stock
(Including the Related Rights to Purchase Preferred Stock)
of
Southdown, Inc.
at
U.S.$73.00 Net Per Share
by
CENA Acquisition Corp.,
an indirect subsidiary of
CEMEX, S.A. de C.V.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:01 A.M., NEW YORK CITY TIME,
ON FRIDAY, NOVEMBER 3, 2000, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS BEING MADE PURSUANT TO THE AGREEMENT AND PLAN OF MERGER, DATED
AS OF SEPTEMBER 28, 2000 (THE "MERGER AGREEMENT"), AMONG CEMEX, S.A. DE C.V., A
CORPORATION ORGANIZED UNDER THE LAWS OF UNITED MEXICAN STATES ("CEMEX"), CENA
ACQUISITION CORP., A DELAWARE CORPORATION AND AN INDIRECT SUBSIDIARY OF CEMEX
("PURCHASER"), AND SOUTHDOWN, INC., A LOUISIANA CORPORATION ("SOUTHDOWN" OR THE
"COMPANY").
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED (OTHER THAN BY GUARANTEED DELIVERY WHERE ACTUAL DELIVERY HAS NOT TAKEN
PLACE) AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES OF COMMON STOCK, PAR VALUE $1.25 PER SHARE, OF THE COMPANY, INCLUDING
THE RELATED RIGHTS TO PURCHASE PREFERRED STOCK (COLLECTIVELY, THE "SHARES"),
WHICH REPRESENTS AT LEAST TWO-THIRDS OF THE THEN OUTSTANDING SHARES ON A FULLY
DILUTED BASIS AND (2) ANY WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST
IMPROVEMENTS ACT OF 1976, AS AMENDED, AND THE REGULATIONS THEREUNDER HAVING
EXPIRED OR BEEN TERMINATED. THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER
CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE. PLEASE READ SECTIONS 1 AND 15
WHICH SET FORTH IN FULL THE CONDITIONS TO THE OFFER.
THE COMPANY'S BOARD OF DIRECTORS, AT A SPECIAL MEETING HELD ON SEPTEMBER 28,
2000, UNANIMOUSLY (1) DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, ARE FAIR TO THE
SHAREHOLDERS AND IN THE BEST INTERESTS OF THE COMPANY AND THE COMPANY'S
SHAREHOLDERS; (2) APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER; AND (3)
RECOMMENDED THAT THE COMPANY'S SHAREHOLDERS ACCEPT THE OFFER AND, IF
SHAREHOLDER APPROVAL IS NECESSARY, APPROVE THE MERGER AGREEMENT AND THE MERGER.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU ACCEPT THE OFFER AND
TENDER ALL OF YOUR SHARES OF THE COMPANY'S COMMON STOCK PURSUANT TO THE OFFER.
IMPORTANT
Any shareholder of the Company wishing to tender Shares in the Offer must
(1) complete and sign the Letter of Transmittal (or a facsimile thereof) in
accordance with the instructions in the Letter of Transmittal and mail or
deliver the Letter of Transmittal or such facsimile and all other required
documents to the Depositary (as defined herein) together with certificates
representing the Shares tendered or follow the procedure for book-entry
transfer set forth in Section 3 or (2) request such shareholder's broker,
dealer, commercial bank, trust company or other nominee to effect the
transaction for the shareholder. A shareholder whose Shares are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
must contact such person if such shareholder wishes to tender such Shares.
Any shareholder of the Company who wishes to tender Shares and cannot
deliver certificates representing such Shares and all other required documents
to the Depositary on or prior to the Expiration Date (as defined herein) or who
cannot comply with the procedures for book-entry transfer on a timely basis may
tender such Shares pursuant to the guaranteed delivery procedure set forth in
Section 3.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth on the back cover of this Offer to Purchase. Additional copies of
this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed
Delivery and other related materials may be obtained from the Information Agent
or from brokers, dealers, commercial banks, trust companies or other nominees.
The Dealer Manager for the Offer is:
Salomon Smith Barney
October 5, 2000
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TABLE OF CONTENTS
<TABLE>
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Page
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<C> <S> <C>
SUMMARY TERM SHEET...................................................... 1
INTRODUCTION............................................................ 6
THE TENDER OFFER........................................................ 9
1. Terms of the Offer.............................................. 9
2. Acceptance for Payment and Payment for Shares................... 11
3. Procedures for Accepting the Offer and Tendering Shares......... 12
4. Withdrawal Rights............................................... 15
5. Certain United States Federal Income Tax Consequences........... 15
6. Price Range of Shares; Dividends................................ 16
7. Certain Information Concerning the Company...................... 17
8. Certain Information Concerning CEMEX and Purchaser.............. 17
9. Source and Amount of Funds...................................... 18
10. Background of the Offer; Past Contacts or Negotiations with the
Company......................................................... 22
11. The Merger Agreement and the Confidentiality Agreement.......... 22
12. Purpose of the Offer; Plans for the Company..................... 39
13. Certain Effects of the Offer.................................... 40
14. Dividends and Distributions..................................... 41
15. Certain Conditions of the Offer................................. 42
16. Certain Legal Matters; Regulatory Approvals..................... 44
17. Fees and Expenses............................................... 46
18. Miscellaneous................................................... 46
Schedule I -- Information Concerning Directors and Executive Officers of
CEMEX and Purchaser................................................... I-1
Annex A -- Financial Statements of CEMEX, S.A. de C.V................... F-1
</TABLE>
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SUMMARY TERM SHEET
CENA Acquisition Corp. is offering to purchase all of the outstanding common
stock of Southdown, Inc. for $73.00 per share in cash. The following are some
of the questions you, as a shareholder of Southdown, may have and answers to
those questions. We urge you to read carefully the remainder of this Offer to
Purchase and the Letter of Transmittal because the information in this summary
term sheet is not complete. Additional important information is contained in
the remainder of this Offer to Purchase and the Letter of Transmittal.
WHO IS OFFERING TO BUY MY SECURITIES?
We are CENA Acquisition Corp, a newly formed Delaware corporation and an
indirect subsidiary of CEMEX. We have been formed for the purpose of making a
tender offer for all of the common stock of Southdown and have carried on no
activities other than in connection with the merger agreement among CEMEX,
Southdown and ourselves. CEMEX is a corporation organized under the laws of the
United Mexican States. CEMEX is the third largest cement company in the world.
See the "Introduction" and Section 1.
WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER?
We are seeking to purchase all of the issued and outstanding shares of
common stock of Southdown, including the related rights to purchase preferred
stock. See the "Introduction" and Section 1.
HOW MUCH ARE YOU OFFERING TO PAY? WHAT IS THE FORM OF PAYMENT? WILL I HAVE TO
PAY ANY FEES OR COMMISSIONS?
We are offering to pay $73.00 per share, net to you, in cash, without
interest. If you are the record owner of your shares and you tender your shares
to us in the offer, you will not have to pay brokerage fees or similar
expenses. If you own your shares through a broker or other nominee, and your
broker tenders your shares on your behalf, your broker or nominee may charge
you a fee for doing so. You should consult your broker or nominee to determine
whether any charges will apply. See "Introduction."
DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
CEMEX, our parent company, will provide us with sufficient funds to purchase
all shares validly tendered and not withdrawn in the tender offer and to
provide funding for the merger that is expected to follow the successful
completion of the tender offer. CEMEX has arranged for $1.5 billion of our
funding to come from a bridge equity facility and the remainder through a $1.4
billion Senior Credit Facility. However, our obligation to purchase the shares
of common stock, including the related rights to purchase preferred stock, is
not conditioned on any financing or subject to any financing condition. See
Section 9 for a description of our financing arrangements.
IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN THE OFFER?
We do not think our financial condition is relevant to your decision whether
to tender in the offer because the form of consideration consists solely of
cash and our offer is not contingent upon our receipt of financing. See Section
9 for a description of our financing arrangements.
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
You will have until 12:01 a.m., New York City time, on Friday, November 3,
2000, to tender your shares in the offer, unless the offer is extended. If you
cannot deliver everything that is required in order to make a valid tender by
that time, you may be able to use a guaranteed delivery procedure, which is
described later in this Offer to Purchase. See Sections 1 and 3.
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CAN THE OFFER BE EXTENDED AND UNDER WHAT CIRCUMSTANCES?
We expressly reserve the right, subject to the terms of the merger agreement
and applicable law, to extend the period of time during which the offer remains
open. We have agreed in the merger agreement that we may extend the offer if
(a) certain conditions to the offer have not been satisfied,
(b) any rule, regulation, interpretation or position of the Securities and
Exchange Commission or its staff applicable to the offer requires an
extension,
(c) immediately before the scheduled or extended expiration date of the
offer, the shares tendered and not withdrawn constitute more than 80%
and less then 90% of the issued and outstanding shares of Southdown
common stock, or
(d) in some circumstances, we receive written notice from Southdown with
respect to a third party proposal to purchase all of the shares of
Southdown's common stock that Southdown's board of directors decides is
superior to Southdown and you from a financial point of view.
If any condition to the tender offer is not satisfied or waived on any
scheduled or extended expiration date of the tender offer, subject to the terms
of the merger agreement, CENA Acquisition Corp. must extend the tender offer,
if such condition or conditions could reasonably be expected to be satisfied,
until such conditions are satisfied or waived.
If all conditions to the offer have been satisfied or waived but the
Southdown common stock tendered and not withdrawn pursuant to the offer
constitutes less than 90% of the outstanding common stock, we have the right to
accept for payment and pay for all shares validly tendered and not withdrawn at
such time (which shares may not thereafter be withdrawn) and extend the offer
to provide a "subsequent offering period" during which time shareholders whose
shares have not been accepted for payment may tender their shares and receive
the offer consideration. There will be no withdrawal rights during the
subsequent offering period. In addition, if we elect to provide a subsequent
offering period, the federal securities laws require a subsequent offering
period of three business days to 20 business days during which the tenders can
be accepted.
See Section 1 and "Termination" of Section 11 of this Offer to Purchase for
more details on our ability to extend the offer.
HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?
If we extend the offer, we will inform Citibank, N.A. (the depositary for
the offer) of that fact and will make a public announcement of the extension
not later than 9:00 a.m., New York City time, on the next business day after
the day on which the offer was scheduled to expire. See Section 1.
WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER?
. We are not obligated to purchase any shares that are validly tendered
unless the number of shares validly tendered (other than by guaranteed
delivery where actual delivery has not occurred) and not withdrawn before
the expiration date of the offer represents at least two-thirds of the
then outstanding shares on a fully diluted basis (after giving effect to
the conversion or exercise of all outstanding options, warrants and other
rights and securities exercisable or convertible into shares of Southdown
common stock, whether or not exercised or converted at the time of
determination). See "Introduction" and Section 11.
. We are not obligated to purchase shares that are validly tendered if
there is a change in the business, assets, liabilities, financial
condition, capitalization, operations or results of operations of
Southdown that has had or would reasonably be expected to have a material
adverse effect on Southdown and its subsidiaries, taken as a whole, or
its ability to complete the transactions under the merger agreement.
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. We are not obligated to purchase shares that are validly tendered if the
applicable waiting period under the Hart-Scott-Rodino Act has not expired
or been terminated. See Section 16.
. We are not obligated to purchase shares that are validly tendered if all
filings and consents required in connection with all federal, state,
local and foreign permits and licenses from governmental authorities are
not made or obtained, and the failure of which to make or obtain prior to
the closing of the offer would reasonably be expected to have (a) an
adverse effect on the continued operation following the offer and the
merger of Southdown's operations in all material respects as it is
presently conducted or (b) a material adverse effect on (i) the ability
of Southdown to perform in all material respects its obligations under
the merger agreement or to consummate the transactions contemplated by
the merger agreement or (ii) the business, assets, liabilities, results
of operations or financial condition of Southdown and its subsidiaries,
taken as a whole.
. We are not obligated to purchase shares that are validly tendered if (a)
necessary consents or approvals from the United States Maritime
Administration are not received with respect to the transfer or
termination of the capital construction fund and any transfer of vessels
or continued use of vessels owned and operated by Southdown or any of its
subsidiaries that are operated in the coastwise trade or (b) consents
from (or amendments to agreements with) the lenders under Southdown's
debt agreements (other than the Company's Series B 10% Senior
Subordinated Notes due 2006) to waive until the earlier of (i) the
effective time of the closing of the merger and (ii) March 31, 2000 any
"change of control" defaults that may occur thereunder by reason of the
closing of the offer and to defer any right to repayment thereunder by
reason of a "change of control" until the effective time of the closing
of the merger.
. We are not obligated to purchase shares that are validly tendered if
there shall have occurred (1) any general suspension of trading in, or
limitation on prices for, securities in the New York Stock Exchange
(excluding any coordinated trading halt triggered solely as a result of a
specified decrease in a market index and excluding any suspension or
limitation resulting from physical damage or interference with any
exchange not related to market conditions), (2) a declaration of a
banking moratorium or any suspension of payments in respect of banks in
the United States or the Republic of Mexico (whether or not mandatory),
(3) a commencement or escalation of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States or the Republic of Mexico which materially adversely
affects or delays the offer, (4) any limitation (whether or not
mandatory) by any governmental authority on the extension of credit by
banks or other financial institutions in a manner which prohibits the
extension of funds to CEMEX or us, (5) a change in general financial bank
or capital market conditions which materially or adversely affects the
ability of financial institutions in the European Union, the United
States or the Republic of Mexico to extend credit or syndicate loans or
(6) in the case of any of the foregoing existing at the time of the
commencement of the tender offer, a material acceleration or worsening
thereof.
The offer is also subject to a number of other conditions. We can waive some
of the conditions to the offer without Southdown's consent; however, we cannot
waive the minimum condition without Southdown's written consent. See Sections 1
and 15.
Our obligation to purchase shares under the offer is not conditioned on any
financing arrangements or subject to any financing condition. See Section 9 for
information about our financing arrangements.
HOW DO I TENDER MY SHARES?
To tender shares:
. You must deliver the certificates representing your shares, together with
a completed letter of transmittal and any other documents required by the
letter of transmittal, to Citibank, N.A., the depositary for the offer,
not later than the time the tender offer expires.
3
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. If your shares are held in street name, your shares can be tendered by
your nominee through Citibank, N.A.
. If you are unable to deliver any required document or instrument to the
depositary by the expiration of the offer, you may gain some extra time
by having a broker, a bank or other fiduciary that is an eligible
institution guarantee that the missing items will be received by the
depositary within three New York Stock Exchange trading days. For the
tender to be valid, however, the depositary must receive the missing
items within that three trading day period.
See Section 3.
UNTIL WHAT TIME MAY I WITHDRAW PREVIOUSLY TENDERED SHARES?
You may withdraw shares at any time until the offer has expired. You may
not, however, withdraw any shares that are tendered during the subsequent
offering period, if there is one. See Section 4.
HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
To withdraw shares, you must deliver a written notice of withdrawal, or a
facsimile of one, with the required information to Citibank, N.A. while you
still have the right to withdraw the shares. See Section 4.
WHAT DOES SOUTHDOWN'S BOARD OF DIRECTORS RECOMMEND REGARDING THE OFFER?
We are making the offer pursuant to the merger agreement, which has been
unanimously approved by Southdown's board of directors. Southdown's board of
directors, at a special meeting held on September 28, 2000, unanimously:
(a) determined that the merger agreement and the transactions contemplated
thereby, including the tender offer and the merger, are fair to
Southdown's shareholders and in the best interests of Southdown and its
shareholders;
(b) approved and adopted the merger agreement and the transactions
contemplated by the merger agreement, including the tender offer and
the merger; and
(c) recommended that Southdown's shareholders (i) accept the tender offer
and (ii) if shareholder approval is necessary, approve the merger
agreement and the merger.
Accordingly, Southdown's board of directors recommends that you accept the
offer and tender all of your shares of common stock pursuant to the offer. See
"Introduction."
IF TWO-THIRDS OF THE SHARES ARE TENDERED AND ACCEPTED FOR PAYMENT, WILL
SOUTHDOWN CONTINUE AS A PUBLIC COMPANY?
No. Following the purchase of shares in the offer we expect to consummate
the merger. If the merger takes place, Southdown will no longer be publicly
owned. Even if for some reason the merger does not take place, if we purchase
all of the tendered shares, there may be so few remaining shareholders and
publicly held shares that Southdown common stock will no longer be eligible to
be traded on the New York Stock Exchange, there may not be a public trading
market for Southdown common stock, and Southdown may cease making filings with
the SEC or otherwise cease being required to comply with the SEC rules relating
to publicly held companies. See Section 13.
WILL THE TENDER OFFER BE FOLLOWED BY A MERGER IF ALL OF THE SOUTHDOWN SHARES
ARE NOT TENDERED IN THE OFFER?
Yes. If the number of shares of Southdown tendered represent at least two-
thirds of the shares of Southdown on a fully diluted basis, we will be merged
with and into Southdown. If that merger takes place,
4
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CEMEX will indirectly own all of the shares of Southdown, and all remaining
shareholders of Southdown (other than shareholders properly exercising
dissenters' rights) will receive $73.00 per share in cash (or any higher price
per share that is paid in the offer). See "Introduction."
IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES?
If the merger described above takes place, shareholders not tendering in the
offer will receive the same amount of cash per share that they would have
received had they tendered their shares in the offer, subject to any
dissenters' rights properly exercised under Louisiana law. Therefore, if the
merger takes place and you do not exercise dissenters' rights, the only
difference to you between tendering your shares and not tendering your shares
is that you will be paid earlier if you tender your shares. If the merger does
not take place, however, the number of shareholders and the number of shares of
Southdown common stock that are still in the hands of the public may be so
small that there no longer will be an active public trading market (or,
possibly, there may not be any public trading market) for Southdown common
stock. Also, as described above, Southdown may cease making filings with the
SEC or otherwise may not be required to comply with the SEC rules relating to
publicly held companies. See "Introduction" and Sections 12 and 13.
WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE?
On September 28, 2000, the last trading day before we announced the
acquisition, the last sale price of Southdown common stock reported on the New
York Stock Exchange was $56.00 per share. On October 4, 2000, the last trading
day before we commenced the tender offer, the last sale price of Southdown
common stock reported on the New York Stock Exchange was $71.25. We encourage
you to obtain a recent quotation for shares of Southdown common stock in
deciding whether to tender your shares. See Section 6.
GENERALLY, WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
TENDERING SHARES?
The receipt of cash for shares pursuant to the tender offer or the merger
will be a taxable transaction for United States federal income tax purposes and
possibly for state, local and foreign income tax purposes as well. See Section
5. We encourage you to seek independent tax advise regarding the tax
consequences of tendering your shares.
TO WHOM MAY I SPEAK IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
You may call MacKenzie Partners, Inc. at (800) 322-2885 (toll free) or
Salomon Smith Barney Inc. at (877) 755-4456 (toll free). MacKenzie Partners,
Inc. is acting as the information agent and Salomon Smith Barney Inc. is acting
as the dealer manager for our tender offer. See the back cover of this Offer to
Purchase.
5
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To the Holders of Shares of Common Stock
of Southdown, Inc.:
INTRODUCTION
CENA Acquisition Corp. ("Purchaser"), a Delaware corporation and an indirect
subsidiary of CEMEX, S.A. de C.V., a corporation organized under the laws of
the United Mexican States ("CEMEX"), hereby offers to purchase all of the
issued and outstanding shares of common stock, par value $1.25 per share (the
"Company Common Stock"), of Southdown, Inc., a Louisiana corporation (the
"Company" or "Southdown"), including the related rights to purchase preferred
stock (the "Rights") issued pursuant to the Rights Agreement, dated March 4,
1991, as amended as of September 28, 2000 (the "Rights Agreement"), between the
Company and American Stock Transfer and Trust Company (the shares of the
Company Common Stock and any related Rights are herein referred to as the
"Shares"), at a purchase price of $73.00 per Share (the "Offer Price"), net to
the seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (the "Letter of Transmittal"), (which, together with this Offer to
Purchase and any amendments or supplements hereto or thereto, collectively
constitute the "Offer").
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of September 28, 2000 (the "Merger Agreement") among CEMEX, Purchaser, and
the Company. Capitalized terms used herein and not otherwise defined have the
meanings ascribed to them in the Merger Agreement. The Merger Agreement
provides that, following the Offer, Purchaser will be merged with and into the
Company (the "Merger"), with the Company continuing as the surviving
corporation (the "Surviving Corporation"). The Company will be an indirect
subsidiary of CEMEX. Pursuant to the Merger, at the effective time of the
Merger (the "Effective Time") each Share outstanding immediately prior to the
Effective Time (other than Shares owned by CEMEX, Purchaser, the Company or any
of their respective subsidiaries, all of which will be cancelled, and other
than Shares that are held by shareholders, if any, who properly exercise their
dissenters' rights under the Louisiana Business Corporation Law (the "LBCL"))
will be converted into the right to receive $73.00 or any greater per Share
price paid in the Offer in cash, without interest (the "Merger Consideration").
Without limiting the foregoing, effective upon acceptance for payment of Shares
pursuant to the Offer in accordance with the terms hereof, the holder of such
Shares will sell and assign to Purchaser all right, title and interest in and
to all of the Shares tendered (including, but not limited to, such holder's
right to any and all dividends and distributions with a record date before, and
a payment date after, the scheduled or extended expiration date). The Merger
Agreement is more fully described in Section 11.
Tendering shareholders who are record owners of their Shares and tender
directly to the Depositary (as defined below) will not be obligated to pay
brokerage fees or commissions or, except as otherwise provided in Instruction 6
of the Letter of Transmittal, stock transfer taxes with respect to the purchase
of Shares by Purchaser pursuant to the Offer. Shareholders who hold their
Shares through a broker or bank should consult such institution as to whether
it charges any service fees. CEMEX or Purchaser will pay all charges and
expenses of Salomon Smith Barney Inc. ("Salomon Smith Barney"), as dealer
manager (the "Dealer Manager"), Citibank, N.A., as depositary (the
"Depositary"), and MacKenzie Partners, Inc., as information agent (the
"Information Agent"), incurred in connection with the Offer. See Section 17.
The Company's Board of Directors, at a special meeting held on September 28,
2000, unanimously (1) determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are fair to the
Company's shareholders and in the best interests of the Company and the
Company's shareholders; (2) approved and adopted the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger; and (3)
recommended that the Company's shareholders (A) accept the Offer and (B) if
shareholder approval is necessary, approve the Merger Agreement and the Merger.
Accordingly, the Company's Board of Directors recommends that you accept the
Offer and tender all of your Shares pursuant to the Offer.
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Lehman Brothers Inc. ("Lehman Brothers"), the financial advisor to the
Company's Board of Directors, has delivered its written opinion, dated
September 28, 2000, to the effect that, as of the date of the opinion, the
consideration to be received by the Company's shareholders is fair, from a
financial point of view, to the Company's shareholders (other than CEMEX and
any of its affiliates). The full text of Lehman Brothers' written opinion,
which describes the assumptions made, procedures followed, matters considered
and limitations on the review undertaken, is included as Annex I to the
Company's Tender Offer Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), which is being mailed to shareholders concurrently with
this Offer to Purchase. Shareholders are urged to read the full text of such
opinion carefully in its entirety.
The Offer is conditioned upon, among other things, (1) there being validly
tendered (other than by guaranteed delivery where actual delivery has not
occurred) and not withdrawn prior to the expiration of the Offer that number of
Shares which represents at least two-thirds of the then outstanding shares on a
fully diluted basis, after giving effect to the conversion or exercise of all
outstanding options, warrants and other rights and securities exercisable or
convertible into common stock, whether or not exercised or converted at the
time of determination (the "Minimum Condition") and (2) any waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the regulations thereunder having expired or been terminated. The Offer is also
subject to certain other conditions contained in Section 15. Please read
Section 15, which sets forth in full the conditions to the Offer. Purchaser's
obligation to purchase Shares under the Offer is not conditioned on any
financing arrangements or subject to any financing condition. See Section 9 for
a description of Purchaser's financing arrangements.
The Company has represented to CEMEX that, as of September 30, 2000, there
were 35,954,927 Shares issued and outstanding, 2,012,683 Shares reserved for
issuance under outstanding stock options, no shares of the Company's preferred
stock issued and outstanding, and 4,083,645 Shares issued and held in the
treasury of the Company. Accordingly, the Minimum Condition will be satisfied
if 25,311,740 Shares are tendered in the Offer and not withdrawn. See Section
11.
The Merger Agreement provides that promptly upon the purchase of and payment
for not less than a majority of the outstanding Shares on a fully diluted basis
by Purchaser pursuant to the Offer, CEMEX shall be entitled to designate for
appointment or election to the Company's Board of Directors, upon written
notice to the Company, such number of directors, rounded up to the next whole
number, on such Board of Directors such that the percentage of its designees on
such Board of Directors shall equal the percentage of the Shares beneficially
owned by Purchaser and its affiliates. In furtherance thereof, the Company
shall, upon request of Purchaser, use its reasonable best efforts promptly to
cause CEMEX's designees (and any replacement designees in the event that any
designee shall no longer be on the Company's Board of Directors) to be so
elected to the Company's Board of Directors, and in furtherance thereof, to the
extent necessary, increase the size of such Board of Directors or use its
reasonable best efforts to obtain the resignation of such number of its current
directors as is necessary to give effect to the foregoing provision. At such
time, the Company shall also, upon the request of Purchaser, use its reasonable
best efforts to cause Persons designated by CEMEX to constitute at least the
same percentage (rounded up to the next whole number) as is on the Company's
Board of Directors of (i) each committee of the Company's Board of Directors,
(ii) each board of directors (or similar body) of each subsidiary of the
Company and (iii) each committee (or similar body) of each such board (or, with
respect to clause (ii) and (iii) in the case of the Kosmos Cement Company, a
partnership (the "Partnership")). The Merger Agreement provides that, until the
Effective Time, the Company's Board of Directors will have at least three
directors who are directors of the Company on the date of the Merger Agreement
and who are not officers or affiliates of the Company or any of its
subsidiaries ("Independent Directors"); provided, however, that notwithstanding
the foregoing,
(a) in no event shall the requirement to have at least three Independent
Directors result in CEMEX's designees constituting less than a majority
of the Company's Board of Directors unless CEMEX shall have failed to
designate a sufficient number of persons to constitute at least a
majority and
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(b) if the number of Independent Directors shall be reduced below three for
any reason whatsoever (or if immediately following consummation of the
Offer there are not at least three then-existing directors of the
Company who (1) are Qualified Persons (as defined below) and (2) are
willing to serve as Independent Directors), then the number of
Independent Directors required under the Merger Agreement shall be
reduced to equal to the number of then-serving Independent Directors,
unless the remaining Independent Director(s) are able to identify a
person(s) who are not officers or affiliates of the Company, CEMEX or
any of their respective subsidiaries (any such person being referred to
in the Merger Agreement as a "Qualified Person") willing to serve as an
Independent Director, in which case such remaining Independent
Director(s) shall be entitled to designate any such Qualified Person(s)
to fill such vacancies and such designated Qualified Person shall be
deemed to be an Independent Director for purposes of the Merger
Agreement, or if no Independent Directors then remain, the other
Directors shall be entitled to designate three Qualified Persons to
fill such vacancies, and such persons shall be deemed to be Independent
Directors for purposes of the Merger Agreement.
See Section 11.
The Merger is subject to the satisfaction or waiver of certain conditions,
including, if required, the approval and adoption of the Merger Agreement by
the affirmative vote of the holders of the greater of (a) two-thirds of the
shares of Company Common Stock present at the shareholders' meeting and (b) not
less than a majority of the vote of all outstanding shares of the Company
Common Stock. If the Minimum Condition is satisfied, Purchaser would have
sufficient voting power to approve the Merger without the affirmative vote of
any other shareholder of the Company. The Company has agreed, if required, to
cause a meeting of its shareholders to be held as promptly as practicable
following consummation of the Offer for the purposes of considering and taking
action upon the approval and adoption of the Merger Agreement. See Section 11.
This Offer to Purchase and the related Letter of Transmittal contain
important information that should be read carefully before any decision is made
with respect to the Offer.
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THE TENDER OFFER
1. Terms of the Offer.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of such extension or
amendment), Purchaser will accept for payment and pay for all Shares validly
tendered (other than by guaranteed delivery where actual delivery has not
occurred) on or prior to the Expiration Date and not properly withdrawn as
permitted under Section 4. The term "Expiration Date" means 12:01 a.m., New
York City time, on Friday, November 3, 2000, unless Purchaser, in accordance
with the Merger Agreement, extends the period during which the Offer is open,
in which event the term "Expiration Date" means the latest time and date on
which the Offer, as so extended (other than any extension with respect to the
Subsequent Offering Period described below), expires.
The Offer is conditioned upon the satisfaction of the Minimum Condition and
the other conditions set forth in Section 15. Subject to the provisions of the
Merger Agreement, Purchaser may waive any or all of the conditions to its
obligation to purchase Shares pursuant to the Offer (other than the Minimum
Condition). If by the initial Expiration Date or any extended Expiration Date
any of the conditions to the Offer have not been satisfied or waived, subject
to the provisions of the Merger Agreement, Purchaser may elect to (i) subject
to Purchaser's obligation to extend the Offer described below, terminate the
Offer and return all tendered Shares to tendering shareholders, (ii) waive all
of the unsatisfied conditions (other than the Minimum Condition) and, subject
to any required extension, purchase all Shares validly tendered by the
Expiration Date and not properly withdrawn or (iii) extend the Offer and,
subject to the right of shareholders to withdraw Shares until the new
Expiration Date, retain the Shares that have been tendered until the expiration
of the Offer as extended.
Under the terms of the Merger Agreement, Purchaser may not, without the
prior written consent of the Company (i) waive or change the Minimum Condition
or (ii) change the form of consideration to be paid, decrease the Offer Price,
decrease the number of Shares sought in the Offer, add to or modify any of the
conditions to the Offer set forth in Section 15, make any other change in the
terms and conditions of the Offer that is in any manner adverse to the
shareholders of the Company, or (except as provided in the next paragraph)
change the expiration date of the Offer.
Subject to the terms of the Merger Agreement, Purchaser may, without the
consent of the Company, extend the expiration date of the Offer:
(i) if, at the scheduled or extended expiration date of the Offer, any of
the conditions to the Offer will not have been satisfied or, to the
extent permitted, waived, until such conditions are satisfied or
waived;
(ii) for any period required by any rule, regulation, interpretation or
position of the U.S. Securities and Exchange Commission (the "SEC") or
the staff thereof applicable to the Offer or any period required by
applicable law; and
(iii) for up to 10 additional business days in increments of not more than
two business days each (but in no event beyond the Termination Date
(as defined below)), if, immediately prior to the scheduled or
extended expiration date of the Offer, the Shares tendered and not
withdrawn pursuant to the Offer constitute more than 80% and less
than 90% of the outstanding Shares, notwithstanding that all
conditions to the Offer are satisfied as of such expiration date of
the Offer; or (iv) as contemplated in paragraph (c)(i) of
"Termination" in Section 11;
provided, that, in the case of any extension under clause (iii), CEMEX and
Purchaser may not thereafter assert the failure of any of the conditions
provided for in clauses (a)(iii), (a)(iv), (a)(v), and (b)(ii) of Section 15
hereof, or for purposes of clause (b)(iii) or (c) of Section 15, a Company
Material Adverse Effect (as defined in "Representations and Warranties" of
Section 11) or a material breach of a representation or warranty, in each such
case, by reasons of an event other than a breach of a covenant by the Company
occurring after the initial extension under clause (iii).
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Rule 14d-11 under the Exchange Act permits Purchaser, subject to certain
conditions, to provide a subsequent offering period following the expiration of
the Offer on the Expiration Date (a "Subsequent Offering Period"). A Subsequent
Offering Period is an additional period of time from three business days to 20
business days in length, beginning after Purchaser purchases Shares tendered in
the Offer, during which stockholders may tender, but not withdraw, their Shares
and receive the Offer Price.
Purchaser has the right to include a Subsequent Offering Period in the event
that the Minimum Condition has been satisfied but the Shares tendered and not
withdrawn pursuant to the Offer constitute less than 90% of the outstanding
Company Common Stock as of the Expiration Date. Pursuant to Rule 14d-7 under
the Exchange Act, no withdrawal rights apply to Shares tendered during a
Subsequent Offering Period and no withdrawal rights apply during the Subsequent
Offering Period with respect to Shares tendered in the Offer and accepted for
payment. During a Subsequent Offering Period, Purchaser will promptly purchase
and pay for all Shares tendered at the same price paid in the Offer.
As agreed in the Merger Agreement, if any condition to the Offer is not
satisfied or waived on any scheduled or extended expiration date of the Offer,
Purchaser shall extend the Offer, if such condition or conditions could
reasonably be expected to be satisfied, from time to time until such conditions
are satisfied or waived; provided, that Purchaser shall not be required to
extend the Offer beyond, and in the case of clause (z) of this paragraph may
terminate the Offer upon, the earliest to occur of (x) the Termination Date,
(y) ten business days following satisfaction of the condition provided for in
clause (a) (ii) of Section 15 or (z) five business days following the public
announcement of any Takeover Proposal (as defined in "No Solicitation" of
Section 11) or amended Takeover Proposal that has not been publicly rejected by
the Company at the time of such expiration or termination (except that
Purchaser may not terminate the Offer pursuant to this clause (z) prior to the
twentieth business day following commencement of the Offer). For purposes of
the Merger Agreement, "Termination Date" means December 31, 2000; provided,
however, that if the expiration or termination of the applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 has not occurred
on or prior to December 31, 2000, then the Termination Date shall be extended
until ten business days after such expiration or termination has occurred, but
in no event shall such date be extended beyond February 28, 2001.
The rights reserved by Purchaser with respect to extending, delaying and
terminating the Offer are in addition to Purchaser's rights pursuant to Section
15. Any extension, delay, termination, waiver or amendment will be followed as
promptly as practicable by public announcement thereof, such announcement in
the case of an extension to be made no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date,
in accordance with the public announcement requirements of Rule 14e-1(d) under
the Exchange Act. Subject to applicable law (including Rules 14d-4(d) and 14d-
6(c) under the Exchange Act, which require that material changes be promptly
disseminated to shareholders in a manner reasonably designed to inform them of
such changes) and without limiting the manner in which Purchaser may choose to
make any public announcement, Purchaser shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a press release to the Dow Jones News Service.
If Purchaser extends the Offer or if Purchaser is delayed in its acceptance
for payment of or payment for Shares or it is unable to pay for Shares pursuant
to the Offer for any reason, then, without prejudice to Purchaser's rights
under the Offer, the Depositary may retain tendered Shares on behalf of
Purchaser, and such Shares may not be withdrawn except to the extent tendering
shareholders are entitled to withdrawal rights as described herein under
Section 4. However, the ability of Purchaser to delay the payment for Shares
that Purchaser has accepted for payment is limited by (i) Rule 14e-1(c) under
the Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of shareholders promptly after
the termination or withdrawal of such bidder's offer, unless such bidder elects
to offer a Subsequent Offering Period and pays for the Shares tendered during
the Subsequent Offering Period in accordance with Rule 14d-11 under the
Exchange Act, and (ii) the terms of the Merger Agreement, which
10
<PAGE>
require that Purchaser pay for Shares that are tendered pursuant to the Offer
as soon as practicable after the Offer.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will disseminate additional tender offer materials and extend
the Offer to the extent required by Rules 14d-4(d), 14d-6(c) and 14e-1 under
the Exchange Act. The minimum period during which an offer must remain open
following material changes in the terms of the Offer, other than a change in
price, percentage of securities sought or inclusion of or changes to a dealer's
soliciting fee, will depend upon the facts and circumstances, including the
materiality, of the changes. In the SEC's view, an offer should remain open for
a minimum of five business days from the date the material change is first
published, sent or given to shareholders and, if material changes are made with
respect to information that approaches the significance of price and share
levels, a minimum of ten business days may be required to allow for adequate
dissemination to shareholders. Accordingly, if, prior to the Expiration Date,
Purchaser decreases the number of Shares being sought or increases or decreases
the consideration offered pursuant to the Offer, and if the Offer is scheduled
to expire at any time earlier than the tenth business day from the date that
notice of such increase or decrease is first published, sent or given to
shareholders, the Offer will be extended at least until the expiration of such
tenth business day.
The Company has provided Purchaser with the Company's shareholder list and
security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase, the related Letter of Transmittal
and other relevant materials will be mailed to record holders of Shares whose
names appear on the Company's shareholder list and will be furnished, for
subsequent transmittal to beneficial owners of Shares, to brokers, dealers,
commercial banks, trust companies and similar persons whose names, or the names
of whose nominees, appear on the shareholder list or, if applicable, who are
listed as participants in a clearing agency's security position listing.
2. Acceptance for Payment and Payment for Shares.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment) and the satisfaction or earlier waiver of all the conditions to the
Offer set forth in Section 15, Purchaser will accept for payment and will pay
for all Shares validly tendered (other than by guaranteed delivery where actual
delivery has not occurred) on or prior to the Expiration Date and not properly
withdrawn pursuant to the Offer as soon as it is permitted to do so under
applicable law. Subject to the Merger Agreement and compliance with Rule 14e-
1(c) under the Exchange Act, Purchaser expressly reserves the right to delay
payment for Shares in order to comply in whole or in part with any applicable
law. See Section 16.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (1) the
certificates evidencing such Shares (the "Share Certificates") or confirmation
(a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the
Depositary's account at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in Section 3, (2) the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed,
with any required signature guarantees or, in the case of a book-entry
transfer, an Agent's Message (as defined below) in lieu of the Letter of
Transmittal and (3) any other documents required by the Letter of Transmittal.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered (other than by
guaranteed delivery where actual delivery has not occurred) and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares pursuant to the
Offer. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of
the Offer Price therefor with the Depositary, which will act as agent for
tendering shareholders for the purpose of receiving payments from Purchaser and
transmitting such payments to tendering shareholders whose Shares
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<PAGE>
have been accepted for payment. If, for any reason whatsoever, acceptance for
payment of any Shares tendered pursuant to the Offer is delayed, or Purchaser
is unable to accept for payment Shares tendered pursuant to the Offer, then,
without prejudice to Purchaser's rights under Section 1 hereof, the Depositary
may, nevertheless, on behalf of Purchaser, retain tendered Shares, and such
Shares may not be withdrawn, except to the extent that the tendering
shareholders are entitled to withdrawal rights as described in Section 4 and as
otherwise required by Rule 14e-1(c) under the Exchange Act.
Under no circumstances will interest on the Offer Price for Shares be paid,
regardless of any delay in making such payment.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are
submitted evidencing more Shares than are tendered, Share Certificates
evidencing unpurchased Shares will be returned, without expense to the
tendering shareholder (or, in the case of Shares tendered by book-entry
transfer into the Depositary's account at the Book-Entry Transfer Facility
pursuant to the procedure set forth in Section 3, such Shares will be credited
to an account maintained at the Book-Entry Transfer Facility), as promptly as
practicable following the expiration or termination of the Offer.
Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of its affiliates, the right to purchase all or
any portion of the Shares tendered pursuant to the Offer, but any such transfer
or assignment will not relieve Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering shareholders to receive
payment for Shares validly tendered and accepted for payment pursuant to the
Offer.
3. Procedures for Accepting the Offer and Tendering Shares.
Valid Tenders. In order for a shareholder validly to tender Shares pursuant
to the Offer, either (1) the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, together with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message in
lieu of the Letter of Transmittal) and any other documents required by the
Letter of Transmittal must be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase and either the
Share Certificates evidencing tendered Shares must be received by the
Depositary at such address or such Shares must be tendered pursuant to the
procedure for book-entry transfer described below and a Book-Entry Confirmation
must be received by the Depositary, in each case on or prior to the Expiration
Date, or (2) the tendering shareholder must comply with the guaranteed delivery
procedures described below.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, that states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Purchaser may enforce such
agreement against such participant.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at the Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in the system of the Book-Entry
Transfer Facility may make a book-entry delivery of Shares by causing the Book-
Entry Transfer Facility to transfer such Shares into the Depositary's account
at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer at the Book-Entry Transfer
Facility, either the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, together with any required signature guarantees,
or an Agent's Message in lieu of the Letter of Transmittal, and any other
required documents, must, in any case, be received by the Depositary at one of
its addresses set forth on the back cover of this Offer to Purchase prior to
the Expiration Date, or the tendering shareholder must comply with the
guaranteed delivery procedure described below.
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Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Depositary.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal (1) if the Letter of Transmittal is signed by the registered holder
of the Shares tendered therewith, unless such holder has completed either the
box entitled "Special Delivery Instructions" or the box entitled "Special
Payment Instructions" on the Letter of Transmittal or (2) if the Shares are
tendered for the account of a firm that is participating in the Security
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (each, an
"Eligible Institution" and collectively the "Eligible Institutions"). In all
other cases, all signatures on a Letter of Transmittal must be guaranteed by an
Eligible Institution. See Instruction 1 of the Letter of Transmittal. If a
Share Certificate is registered in the name of a person or persons other than
the signer of the Letter of Transmittal, or if payment is to be made or
delivered to, or a Share Certificate not accepted for payment or not tendered
is to be issued, in the name of, a person other than the registered holder(s),
then the Share Certificate must be endorsed or accompanied by appropriate duly
executed stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear on the Share Certificate, with the signature(s) on
such Share Certificate or stock powers guaranteed by an Eligible Institution as
provided in the Letter of Transmittal. See Instructions 1 and 5 of the Letter
of Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and the Share Certificates evidencing such shareholder's Shares are
not immediately available or such shareholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such shareholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered; provided that all of the following conditions are satisfied:
(1) such tender is made by or through an Eligible Institution;
(2) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by Purchaser, is received
prior to the Expiration Date by the Depositary as provided below; and
(3) the Share Certificates (or a Book-Entry Confirmation) evidencing all
tendered Shares, in proper form for transfer, in each case together
with the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees
(or, in the case of a book-entry transfer, an Agent's Message), and any
other documents required by the Letter of Transmittal are received by
the Depositary within three New York Stock Exchange trading days after
the date of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mailed to the Depositary and must include a guarantee
by an Eligible Institution in the form set forth in the form of Notice of
Guaranteed Delivery made available by Purchaser.
In all cases, Shares will not be deemed validly tendered unless a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) is
received by the Depositary.
The method of delivery of Share Certificates, the Letter of Transmittal and
all other required documents, including delivery through the Book-Entry
Transfer Facility, is at the option and risk of the tendering shareholder, and
the delivery will be deemed made only when actually received by the Depositary
(including, in the case of a book-entry transfer, receipt of a Book-Entry
Confirmation). If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. In all cases, sufficient time
should be allowed to ensure timely delivery.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tender of Shares will be determined by Purchaser in its sole discretion, which
determination shall be final and binding on all parties. Purchaser reserves the
absolute right to reject any and all
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tenders determined by it not to be in proper form or the acceptance for payment
of which may, in the opinion of its counsel, be unlawful. Purchaser also
reserves the absolute right to waive any defect or irregularity in the tender
of any Shares of any particular shareholder, whether or not similar defects or
irregularities are waived in the case of other shareholders. No tender of
Shares will be deemed to have been validly made until all defects and
irregularities have been cured or waived to the satisfaction of Purchaser. None
of CEMEX, Purchaser, the Dealer Manager, the Depositary, the Information Agent
or any other person will be under any duty to give notification of any defects
or irregularities in tenders or incur any liability for failure to give any
such notification. Purchaser's interpretation of the terms and conditions of
the Offer (including the Letter of Transmittal and the instructions thereto)
will be final and binding.
Other Requirements. By executing the Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of Purchaser as
such shareholder's proxies, each with full power of substitution, in the manner
set forth in the Letter of Transmittal, to the full extent of such
shareholder's rights with respect to the Shares tendered by such shareholder
and accepted for payment by Purchaser (including, with respect to any and all
other Shares or other securities issued or issuable in respect of such Shares
on or after the date of this Offer to Purchase). All such proxies shall be
considered coupled with an interest in the tendered Shares. Such appointment
will be effective when, and only to the extent that, Purchaser accepts such
Shares for payment. Upon such acceptance for payment, all prior proxies given
by such shareholder with respect to such Shares (and such other Shares and
securities) will be revoked without further action, and no subsequent proxies
may be given nor any subsequent written consent executed by such shareholder
(and, if given or executed, will not be deemed to be effective) with respect
thereto. The designees of Purchaser will, with respect to the Shares and other
securities for which the appointment is effective, be empowered to exercise all
voting and other rights of such shareholder as they in their sole discretion
may deem proper at any annual or special meeting of the Company's shareholders
or any adjournment or postponement thereof, by written consent in lieu of any
such meeting or otherwise. Purchaser reserves the right to require that, in
order for Shares to be deemed validly tendered, immediately upon Purchaser's
payment for such Shares, Purchaser must be able to exercise full voting rights
with respect to such Shares.
The tender of Shares pursuant to any one of the procedures described above
will constitute the tendering shareholder's acceptance of the Offer, as well as
the tendering shareholder's representation and warranty that such shareholder
has the full power and authority to tender and assign the Shares tendered, as
specified in the Letter of Transmittal. Purchaser's acceptance for payment of
Shares tendered pursuant to the Offer will constitute a binding agreement
between the tendering shareholder and Purchaser upon the terms and subject to
the conditions of the Offer.
Backup Withholding. Under the "backup withholding" provisions of United
States federal income tax law, the Depositary may be required to withhold 31%
of the amount of any payments made pursuant to the Offer or the Merger, as the
case may be. In order to prevent backup federal income tax withholding with
respect to payments to certain shareholders of the Offer Price or Merger
Consideration, as the case may be, for Shares purchased pursuant to the Offer
or the Merger, as the case may be, each such shareholder must provide the
Depositary with such shareholder's correct taxpayer identification number
("TIN") and certify that such shareholder is not subject to backup withholding
by completing the Substitute Form W-9 in the Letter of Transmittal. Certain
shareholders (including, among others, all corporations and certain foreign
individuals and entities) are not subject to backup withholding. If a
shareholder does not provide its correct TIN or fails to provide the
certifications described above, the Internal Revenue Service may impose a
penalty on the shareholder and payment of cash to the shareholder pursuant to
the Offer or the Merger, as the case may be, may be subject to backup
withholding. All shareholders surrendering Shares pursuant to the Offer or the
Merger, as the case may be, should complete and sign the Substitute Form W-9
included in the Letter of Transmittal to provide the information necessary to
avoid backup withholding. Non-corporate foreign shareholders should complete
and sign a Form W-8, Certificate of Foreign Status (a copy of which may be
obtained from the Depositary) in order to avoid backup withholding. See
Instruction 8 of the Letter of Transmittal.
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4. Withdrawal Rights.
Tenders of Shares made pursuant to the Offer are irrevocable, except that
such Shares tendered pursuant to the Offer may be withdrawn at any time prior
to the Expiration Date. However, Shares tendered in any Subsequent Offering
Period may not be withdrawn.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover page of this Offer to
Purchase. Any such notice of withdrawal must specify the name, address and
taxpayer identification number of the person who tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and the name of the registered
holder of such Shares, if different from that of the person who tendered such
Shares. If Share Certificates evidencing Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then, prior to the
physical release of such Share Certificates, the serial numbers shown on such
Share Certificates must be submitted to the Depositary and the signature(s) on
the notice of withdrawal must be guaranteed by an Eligible Institution, unless
such Shares have been tendered for the account of an Eligible Institution. If
Shares have been tendered pursuant to the procedure for book-entry transfer as
set forth in Section 3, any notice of withdrawal must also specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Shares.
If Purchaser extends the Offer, is delayed in its acceptance for payment of
Shares or is unable to accept Shares for payment pursuant to the Offer for any
reason, then, without prejudice to Purchaser's rights under the Offer, the
Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares,
and such Shares may not be withdrawn except to the extent that tendering
shareholders are entitled to withdrawal rights as described herein.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by Purchaser, in its sole discretion,
whose determination will be final and binding. None of CEMEX, Purchaser, the
Dealer Manager, the Depositary, the Information Agent or any other person will
be under duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn
will thereafter be deemed not to have been validly tendered for purposes of the
Offer. However, withdrawn Shares may be re-tendered at any time prior to the
Expiration Date or during the Subsequent Offering Period by following one of
the procedures described in Section 3.
No withdrawal rights will apply to Shares tendered into a Subsequent
Offering Period and no withdrawal rights apply during the Subsequent Offering
Period with respect to the Shares tendered in the Offer and accepted for
payment. See Section 1.
5. Certain United States Federal Income Tax Consequences.
The following is a summary of certain United States federal income tax
consequences of the Offer and the Merger to shareholders of the Company whose
Shares are tendered and accepted for payment pursuant to the Offer or whose
Shares are converted into the right to receive cash in the Merger. The
discussion is for general information only and does not purport to consider all
aspects of United States federal income taxation that might be relevant to
shareholders of the Company. The discussion is based on current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), existing, proposed
and temporary regulations promulgated thereunder and administrative and
judicial interpretations thereof, all of which are subject to change, possibly
with a retroactive effect. The discussion applies only to shareholders of the
Company who hold their Shares as capital assets within the meaning of Section
1221 of the Code. This discussion does not apply to Shares received pursuant to
the exercise of employee stock options or otherwise as compensation, or to
certain types of shareholders (such as insurance companies, tax-exempt
organizations, financial institutions, broker-dealers
15
<PAGE>
and shareholders who have acquired the Shares as part of a straddle, hedge,
conversion transaction or other integrated investment) who may be subject to
special rules. This discussion does not discuss the United States federal
income tax consequences to any shareholder of the Company who, for United
States federal income tax purposes, is a non-resident alien individual, a
foreign corporation, a foreign partnership or a foreign estate or trust, nor
does it consider the effect of any foreign, state or local tax laws.
Because individual circumstances may differ, each shareholder should consult
his or her own tax advisor to determine the applicability of the rules
discussed below and the particular tax effects of the Offer and the Merger, on
a beneficial holder of Shares, including the application and effect of the
alternative minimum tax, and any state, local and foreign tax laws and of
changes in such laws.
The exchange of Shares for cash pursuant to the Offer or the Merger will be
a taxable transaction for United States federal income tax purposes and
possibly for state, local and foreign income tax purposes as well. In general,
a shareholder who sells Shares pursuant to the Offer or receives cash in
exchange for Shares pursuant to the Merger will recognize gain or loss for
United States federal income tax purposes equal to the difference, if any,
between the amount of cash received and the shareholder's adjusted tax basis in
the Shares sold pursuant to the Offer or exchanged for cash pursuant to the
Merger. Gain or loss will be determined separately for each block of Shares
(i.e., Shares acquired at the same cost in a single transaction) tendered
pursuant to the Offer or exchanged for cash pursuant to the Merger. Such gain
or loss will be long-term capital gain or loss provided that a shareholder's
holding period for such Shares is more than one year at the time of
consummation of the Offer or the Merger, as the case may be. Capital gains
recognized by an individual upon a disposition of a Share that has been held
for more than one year generally will be subject to a maximum United States
federal income tax rate of 20% or, in the case of a Share that has been held
for one year or less, will be subject to tax at ordinary income tax rates.
Certain limitations apply to the use of a shareholder's capital losses.
A shareholder whose Shares are purchased in the Offer or the Merger, as the
case may be, may be subject to 31% backup withholding unless certain
information is provided to the Depositary or an exemption applies. See Section
3.
6. Price Range of Shares; Dividends.
The Shares are listed and traded on the New York Stock Exchange (the "NYSE")
under the symbol "SDW". The following table sets forth, for the quarters
indicated, the high and low sale prices per Share as well as the dividends paid
to shareholders for the periods indicated. Share prices are as reported on the
NYSE based on published financial sources.
<TABLE>
<CAPTION>
Common Stock
-----------------------
High Low Dividends
------ ------ ---------
<S> <C> <C> <C>
Fiscal Year 1998:
First Quarter...................................... $72.50 $55.31 $0.10
Second Quarter..................................... 74.00 63.06 0.10
Third Quarter...................................... 73.75 42.25 0.10
Fourth Quarter..................................... 61.06 36.44 0.15
Fiscal Year 1999:
First Quarter...................................... $59.25 $45.88 $0.15
Second Quarter..................................... 69.94 53.63 0.15
Third Quarter...................................... 65.88 48.56 0.15
Fourth Quarter..................................... 58.00 45.38 0.15
Fiscal Year 2000:
First Quarter...................................... $60.25 $47.81 $0.15
Second Quarter..................................... 67.19 56.50 0.15
Third Quarter...................................... 65.38 52.75 0.15
Fourth Quarter (through October 4, 2000)........... 71.31 71.25 --
</TABLE>
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<PAGE>
On September 28, 2000, the last full day of trading before the public
announcement of the execution of the Merger Agreement, the last sale price of
the Shares on the NYSE was $56.00 per Share. On October 4, 2000, the last full
day of trading before the commencement of the Offer, the closing price of the
Shares on the NYSE was $71.25 per Share. Shareholders are urged to obtain a
current market quotation for the Shares.
7. Certain Information Concerning the Company.
General. Southdown is a Louisiana corporation with its principal offices
located at 1200 Smith Street, Suite 2400, Houston, Texas 77002-4486. The
telephone number of the Company is (713) 650-6200. According to the Company's
Form 10-K for the fiscal year ended December 31, 1999 (the "1999 10-K"), the
Company engages primarily in three business segments related to the production
of cement. Southdown operates twelve portland cement manufacturing plants
located in Alabama, California, Colorado, Florida, Georgia, Kentucky, Michigan,
Ohio, Pennsylvania, Tennessee and Texas, plus an extensive network of cement
distribution terminals. The Company also mines, processes and sells
construction aggregates and specialty mineral products in the eastern half of
the United States, in Florida and in California and installs highway safety
systems such as guardrails, traffic signals, highway signage and lighting. In
addition, the Company markets ready-mixed concrete products in two of its
largest cement markets, California and Florida.
Available Information. The Shares are registered under the Exchange Act.
Accordingly, the Company is subject to the informational reporting requirements
of the Exchange Act and, in accordance therewith, is required to file periodic
reports, proxy statements and other information with the SEC relating to its
business, financial condition and other matters. Information as of particular
dates concerning the Company's directors and officers, their remuneration,
stock options granted to them, the principal holders of the Company's
securities and any material interest of such persons in transactions with the
Company is required to be disclosed in proxy statements distributed to the
Company's shareholders and filed with the SEC. Such reports, proxy statements
and other information can be inspected and copied at the public reference
facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Information
regarding the public reference facilities may be obtained from the SEC by
telephoning 1-800-SEC-0330. The Company's filings are also available to the
public on the SEC's Internet site (http://www.sec.gov). Copies of such
materials may also be obtained by mail from the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
8. Certain Information Concerning CEMEX and Purchaser.
General. CEMEX, S.A. de C.V. is a stock corporation with variable capital
organized under the laws of the United Mexican States with its principal
offices located at Ave. Constitucion 444 Pte., Monterrey, Mexico 64000. The
telephone number of CEMEX is (011-528) 328-3000 or (800) 462-3639. CEMEX is the
third largest cement company in the world, based on installed capacity as of
December 31, 1999, of approximately 65.4 million tons, and is the world's
largest trader of cement and clinker, having traded over 13 million tons of
cement and clinker in 1999. CEMEX engages, through its operating subsidiaries,
primarily in the production, distribution, marketing and sale of cement, ready-
mix concrete and clinker. It is a global cement manufacturer, with operations
in North, Central and South America, Europe, the Carribean, Asia and Africa. As
of December 31, 1999, CEMEX had worldwide assets of $11.8 billion. On June 21,
2000, CEMEX had an equity market capitalization of approximately $5.8 billion.
The historical consolidated financial statements of CEMEX for the fiscal year
ended December 31, 1999 and the six months ended June 30, 2000 are attached to
this Offer to Purchase as Annex A.
Purchaser is a newly incorporated Delaware corporation organized in
connection with the Offer and the Merger. The principal offices of Purchaser
are located at One Riverway, Suite 2200, Houston, Texas 77056. The telephone
number of Purchaser is (713) 881-1000. Purchaser is an indirect subsidiary of
CEMEX. Purchaser has not carried on any activities other than in connection
with the Merger Agreement.
17
<PAGE>
The name, citizenship, principal business address, business phone number,
principal occupation or employment and five-year employment history for each of
the directors and executive officers of CEMEX and Purchaser and certain other
information are set forth in Schedule I hereto. None of the persons listed in
Schedule I has, during the past five years, been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors). None of the
persons listed in Schedule I has, during the past five years, been a party to
any judicial or administrative proceeding (except for matters that were
dismissed without sanction or settlement) that resulted in a judgment, decree
or final order enjoining the person from future violations of, or prohibiting
activities subject to, federal or state securities laws, or a finding of any
violation of federal or state securities laws.
Except as described in this Offer to Purchase, neither Purchaser nor, to the
best knowledge of CEMEX and Purchaser, any of the persons listed in Schedule I
to this Offer to Purchase or any associate or majority-owned subsidiary of
CEMEX or Purchaser or any of the persons so listed beneficially owns or has any
right to acquire, directly or indirectly, any Shares. Furthermore, none of
CEMEX, Purchaser nor, to the best knowledge of CEMEX and Purchaser, any of the
persons or entities referred to above nor any director, executive officer or
subsidiary of any of the foregoing has effected any transaction in the Shares
during the past 60 days. Please see Section 11 for a description of the Merger
Agreement.
Except as provided in the Merger Agreement, none of CEMEX, Purchaser nor, to
the best knowledge of CEMEX and Purchaser, any of the persons listed in
Schedule I to this Offer to Purchase, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
such securities, finder's fees, joint ventures, loan or option arrangements,
puts or calls, guarantees of loans, guarantees against loss, guarantees of
profits, division of profits or loss or the giving or withholding of proxies.
On June 22, 2000, a U.S. subsidiary of CEMEX and the Company entered into an
arm's length cement supply agreement whereby the subsidiary agreed to make
certain volumes of cement available to the Company's California concrete
operations. The agreement provides for certain quantities of cement to be made
available from the subsidiary's terminal located in Long Beach, California from
June 1, 2000 through September 30, 2001. The Company agreed to pay for
approximately half of the cement in cash at specified prices and for the
remainder by making available to the subsidiary certain tonnages of cement from
the Company's cement plant in Victorville, California. The prices to be paid
are based on market prices and, at present, total payments over the life of
this agreement are not expected to exceed U.S.$10 million.
Except as set forth above, none of CEMEX, Purchaser nor, to the best
knowledge of CEMEX and Purchaser, any of the persons listed on Schedule I
hereto, has had any business relationship or transaction with the Company or
any of its executive officers, directors or affiliates that is required to be
reported under the rules and regulations of the SEC applicable to the Offer.
Except as set forth in this Offer to Purchase, there have been no material
contacts, negotiations or transactions between CEMEX or any of its subsidiaries
or, to the best knowledge of CEMEX and Purchaser, any of the persons listed in
Schedule I to this Offer to Purchase, on the one hand, and the Company or its
affiliates, on the other hand, concerning a merger, consolidation or
acquisition, tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets.
9. Source and Amount of Funds.
Purchaser's obligation to purchase Shares under the Offer is not conditioned
on any financing arrangements or subject to any financing condition. The total
amount of funds required by Purchaser to consummate the Offer and the Merger
and to pay related fees and expenses is estimated to be approximately US$2.85
billion. Purchaser will obtain all necessary funds from a new credit facility
and from CEMEX or certain of CEMEX's subsidiaries. CEMEX expects to fund any
necessary capital contributions or intra-company loans to Purchaser from new
borrowing arrangements for which CEMEX has obtained commitments from several
financial institutions, which include a US$1.5 Billion Equity Swap Facility and
US$1.4 Billion in
18
<PAGE>
Senior Unsecured Credit Facilities, certain terms and conditions of which are
described below. The terms and conditions of the definitive documentation
entered into in connection with these facilities may differ in certain respects
from those described below.
US$1.5 Billion Equity Swap Facility. On September 28, 2000, CEMEX, The Chase
Manhattan Bank, Deutsche Bank AG London, Chase Manhattan PLC and Deutsche Bank
Securities Inc. (collectively, "Chase/Deutsche") signed a commitment letter
(the "Chase/Deutsche Commitment Letter") pursuant to which Chase/Deutsche
agreed, subject to the satisfaction of specified conditions, to establish a
term loan facility in the amount of US$1.5 billion (the "Swap Facility"). The
Swap Facility consists of an 18-month US$1.5 billion term loan facility to be
provided to a newly formed special purpose company in which CEMEX will not have
any interest (together with its subsidiaries, the "Swap Borrower"), pursuant to
facility documentation (the "Facility Documentation") to be entered into on
terms set forth in the Chase/Deutsche Commitment Letter.
The Swap Borrower will use the funds advanced under the Swap Facility to
acquire preference shares (together with other preference shares of Dutch
Holdco subscribed for by the Swap Borrower, the "Preference Shares") of a newly
formed Dutch company ("Dutch Holdco"), a wholly owned subsidiary of Sunward
Acquisitions NV ("Sunward"), a Dutch company and wholly owned subsidiary of
CEMEX. Concurrently with the Swap Borrower's acquisition of the Preference
Shares, Sunward will contribute its 85.15% interest in Compenia Valenciana de
Cementos Portland, S.A., the Spanish holding company through which CEMEX holds
its non-Mexican businesses ("Valenciana"), to Dutch Holdco in exchange for all
of the ordinary shares of Dutch Holdco (the "Ordinary Shares"). The $1.5
billion received from the Swap Borrower for the issuance of Preference Shares
will be used in connection with the Offer and the Merger. The Swap Facility
will be non-recourse to CEMEX and its subsidiaries. It is anticipated that all
debt service payments to be made by the Swap Borrower will be derived from
payments made in respect of the Preference Shares in Dutch Holdco acquired by
the Swap Borrower.
Dutch Holdco and the Swap Borrower will enter into agreements that regulate
Sunward's and the Swap Borrower's interests in Dutch Holdco and that set forth
each of their respective rights under the Preference Shares and the Ordinary
Shares (the "Dutch Holdco Documentation"). Under the Dutch Holdco
Documentation, Sunward will have options to acquire the Preference Shares at a
purchase price sufficient to enable the Swap Borrower to repay all amounts due
under the Swap Facility. There will be no recourse against Sunward or any other
CEMEX entity in the event that Sunward fails to exercise any of these options.
However, among other things, the Dutch Holdco Documentation will permit Dutch
Holdco to be liquidated in the event that these options are not exercised.
These liquidation procedures contemplate selling Dutch Holdco's assets
(principally the Valenciana shares) at market prices in an amount sufficient to
satisfy the liquidation preference of the Preference Shares.
The availability of funds from the Swap Facility will be subject to the
satisfaction of specified conditions including:
. the Facility Documentation and the Dutch Holdco Documentation in form and
substance acceptable to the underwriters and arrangers having been
executed prior to or on November 30, 2000;
. the absence of either (i) any material adverse change in the operations,
condition or prospects (financial or otherwise) of CEMEX and its
subsidiaries including the Company and its subsidiaries or (ii) a
material disruption of or material adverse change in the financial,
banking or capital market conditions, in either case which may have an
adverse effect on the successful syndication of the Swap Facility;
. receipt by lenders of evidence that all regulatory and other approvals
for the closing of the Offer and the Merger have been obtained; and
. no material regulatory conditions or undertakings having been required of
CEMEX and its subsidiaries (including any divestment obligation) and none
of the conditions of the Offer relating to price, acceptances and
regulatory matters having been waived without in any such case the prior
written consent of at least 51% of the lenders having been obtained.
19
<PAGE>
The Swap Facility shall be repaid:
(a) as to US$300,000,000, in installments of the following amounts on the
following dates after the first drawdown:
. US$100,000,000 on the ninth month;
. US$100,000,000 on the twelfth month;
. US$100,000,000 on the fifteenth month; and
(b) as to the balance on the date falling 18 months after the execution of
the definitive agreement governing the Swap Facility.
The interest rate will be the London Interbank Offered Rate ("LIBOR")
(determined by reference to the applicable screen page for US dollars) plus the
Applicable Margin (as defined below) and any applicable additional costs rate.
Interest shall be paid on the last day of each interest period and will be
calculated on the basis of actual days elapsed and a year of 360 days. The
"Applicable Margin" will be determined by the ratio of Total Debt to EBITDA
(each as defined in the Chase/Deutsche Commitment Letter), tested quarterly.
The Swap Borrower may prepay all or, subject to an appropriate minimum
amount and multiple, any part of the Swap Facility upon 30 banking days' notice
without penalty, fee or premium unless the prepayment is otherwise than on the
last day of an interest period in which case the prepayment will be subject to
an indemnity for broken funding costs. Under certain circumstances, the Swap
Facility shall require mandatory prepayments, including:
. in full, on an initial public offering ("IPO") of Valenciana or, with
certain exceptions, any of its subsidiaries (together with Valenciana,
the "Valenciana Group") or on a change of control or sale of
substantially all of the business or assets of any material member of the
Valenciana Group;
. in full, on CEMEX ceasing to be the owner, directly or indirectly, of
100% of the issued capital of Sunward; and
. to the extent such application is legally permitted, from the net
proceeds of any disposal of assets or shares by any members of the
Valenciana Group in excess of an amount to be agreed to the extent that
such net proceeds are not reinvested by any member of the Valenciana
Group in the ordinary course of business or used to permanently repay
borrowed money of the Valenciana Group, within three months of the
receipt of such net proceeds.
The Swap Facility will contain representations and warranties, affirmative
covenants, financial covenants, negative covenants and events of default that
are usual and customary for facilities similar to the Swap Facility.
Neither CEMEX nor Purchaser has made any formal plans concerning the
repayment or refinancing of the Swap Facility.
US$1.4 Billion Senior Unsecured Credit Facilities. On September 28, 2000,
CEMEX, Salomon Smith Barney and Citibank, N.A. ("Citibank," and together with
Salomon Smith Barney, "Citi/SSB") signed a commitment letter (the "Citi/SSB
Commitment Letter" and, together with the Chase/Deutsche Commitment Letter, the
"Commitment Letters") pursuant to which Citi/SSB agreed to establish for
Purchaser and, following the Merger, the Surviving Corporation (the
"Borrower"):
(a) a Senior Unsecured US$350,000,000 364-Day Revolving Credit Facility,
(b) a Senior Unsecured US$500,000,000 364-Day Revolving Credit Facility,
and
(c) a Senior Unsecured US$550,000,000 5-Year Term Loan (each such loan, a
"Tranche" and collectively, the "Loan Facilities").
The Borrower's obligations under the Loan Facilities will be supported by a
guarantee of the Borrower's direct parent, Valenciana. Following the
consummation of the Offer and prior to the consummation of the Merger,
Valenciana will use best efforts to cause the Company to become a guarantor.
20
<PAGE>
The funds from the Loan Facilities are to be used in connection with the
Offer and the Merger, and shall be made available for the Offer and the Merger
on and from the satisfaction of certain conditions including:
. the preparation, execution and delivery of mutually acceptable loan
documentation, including a guarantee of the Loan Facilities provided by
Valenciana (the "Operative Documents");
. no law, regulation or decree that imposes materially adverse conditions
upon the Borrower; and neither the Loan Facilities nor the transactions
contemplated by the Loan Facilities will conflict with, violate or result
in a default under any contract, agreement or instrument to which the
Borrower is a party;
. no material change in the business, condition (financial or otherwise),
operations, performance, properties or prospects of Valenciana and the
Company taken as a whole; and
. the Borrower shall have received, or will receive on the date the Loan
Facilities are advanced, no less than US$1.5 billion as a capital
contribution from the Valenciana from the proceeds of the Swap Facility.
At the Borrower's option, any advance under the facilities made to it will
be available at the following rates:
(a) Base Rate: a fluctuating rate equal to Citibank's base rate plus the
applicable margin, which is zero basis points per annum; and
(b) Eurodollar Rate: a periodic fixed rate equal to LIBOR plus the
applicable margin, which is an amount that will vary based on a pricing
grid with applicable spreads based on the long-term senior unsecured
non-credit-enhanced debt ratings of Valenciana until the consummation
of the Merger, and thereafter, on the long-term unsecured debt ratings
of the Surviving Corporation taking into account the guarantee of
Valenciana.
Upon the occurrence of an event of default under the Loan Facilities and
during the continuance of any event of default, each Eurodollar Rate will
convert to a Base Rate at the end of the interest period then in effect for
such Eurodollar Rate advance. The Borrower shall make interest payments at the
end of each interest period for each advance under a Tranche.
The Borrower may request that Citibank solicit competitive bids from the
lenders under the Loan Facilities for advances under the two revolving credit
facilities with requested maturities of 30 days or more. Each lender will bid
at its discretion. The Borrower may accept one or more bids, provided that the
aggregate outstanding advances of all lenders on the date of, and giving effect
to, any advance under a competitive bid ("Competitive Bid Advance") may not
exceed the aggregate commitments for the applicable Tranche at such time.
Advances (other than Competitive Bid Advances) may be prepaid without
penalty, on the same day notice of the Base Rate advances and two business
days' notice for Eurodollar Rate advances, in minimum amounts of US$10,000,000
and increments of US$1,000,000 in excess thereof. Competitive Bid Advances
cannot be prepaid.
The Loan Facilities will contain representations and warranties, affirmative
covenants, financial covenants, negative covenants and events of default that
are usual and customary for facilities similar to the Loan Facilities.
Neither CEMEX nor Purchaser has made any formal plans concerning the
repayment or refinancing of the Loan Facilities.
The Commitment Letters have each been filed as an exhibit to the Tender
Offer Statement on Schedule TO filed by CEMEX and Purchaser pursuant to Rule
14d-3 of the General Rules and Regulations under the Exchange Act with the SEC
in connection with the Offer (the "Schedule TO"). The summaries of the
Commitment Letters are qualified in their entirety by reference to the
Commitment Letters, which are deemed to be incorporated by reference herein.
No alternative financing plans or arrangements have been made in the event
CEMEX is unable to finalize the credit facilities or the guarantee described
above in connection with the Offer and the Merger.
21
<PAGE>
10. Background of the Offer; Past Contacts or Negotiations with the Company.
For a number of years, CEMEX and the Company have had occasional contacts,
including discussions related to antidumping litigation in which the Company
was a member of a plaintiff group and CEMEX was a defendant. From time to time,
CEMEX and the Company discussed a possible settlement of this litigation. In
the fall of 1999, the Company unilaterally withdrew as a plaintiff in the
antidumping litigation. During the same period, the Company and CEMEX also
discussed the possible formation of a joint venture to hold a portion of their
respective ready-mix operations in California. These discussions terminated
without any agreement being reached.
Following the Company's engagement of Lehman Brothers Inc. as its financial
advisor, Mr. Comer contacted Lorenzo Zambrano, the President and CEO of CEMEX,
to determine CEMEX's possible interest in an acquisition by CEMEX of the
Company. While dollar amounts were not specifically discussed, Mr. Comer did
mention the valuation multiples paid by other foreign cement manufacturers for
cement assets recently acquired in the United States. Mr. Zambrano subsequently
indicated that CEMEX would not be interested in acquiring the Company at those
levels.
On April 5, 2000, Mr. Zambrano met with Mr. Comer in Houston, where they
again discussed CEMEX's possible interest in an acquisition of the Company. Mr.
Zambrano indicated that there was probably a price at which CEMEX would be
interested in an acquisition of the Company, a price at which it would probably
be neutral, and a price at which it would be uninterested. Based on the
analysis CEMEX had done, Mr. Zambrano indicated that at a price of
approximately U.S.$65 per share CEMEX would be interested in acquiring the
Company. Mr. Comer said that he believed that the price at which the Company
might consider an acquisition would be in the range where CEMEX was either
neutral or uninterested, and that at the level indicated by Mr. Zambrano the
Company would not be interested in pursuing more serious discussions.
In July 2000, Jim Rowe, a financial advisor to CEMEX, contacted Mr. Comer
and indicated that while CEMEX was interested in an acquisition of the Company,
it had been unable to develop valuations consistent with the speculations of
analysts and the financial press. Mr. Rowe suggested a meeting to discuss Mr.
Rowe's financial acquisition model and valuation of the Company. On July 28,
2000, Mr. Rowe met with Mr. Comer in Houston to review the assumptions
underlying Mr. Rowe's financial acquisition model. Mr. Comer discussed those
assumptions with Mr. Rowe and suggested certain revisions. Mr. Rowe indicated
that he would adjust his model, discuss the revised financial model with Mr.
Zambrano, and contact Mr. Comer shortly.
As a result of the discussions with Mr. Rowe, in early August 2000, Mr.
Comer and Mr. Zambrano again discussed CEMEX's possible interest in acquiring
the Company. They also discussed Mr. Rowe's valuation model. Mr. Zambrano
suggested that the parties sign a confidentiality agreement that granted CEMEX
an exclusive period of time in which to develop an acquisition proposal and
commence due diligence activities. Mr. Comer indicated that in view of the
current state of the Company's discussions with other parties, the Company was
not in a position to grant CEMEX an exclusive negotiating arrangement.
On August 11, 2000, the Company and CEMEX entered into a confidentiality
agreement. Thereafter representatives of CEMEX and the Company met in Houston
to discuss various aspects of the Company's operations and exchange relevant
information. The Company agreed to permit CEMEX to tour the Company's plants,
subject to CEMEX proposing a range of values that might be acceptable to the
Company's senior management and the Company's Board of Directors.
During a meeting in Houston later in August 2000, Mr. Zambrano indicated to
Mr. Comer that CEMEX would be interested in pursuing an acquisition of the
Company in the range of U.S.$68 to U.S.$72 per Share, but that in order to
pursue such an acquisition CEMEX would need to conduct a thorough due diligence
investigation of the Company as well as explore financing arrangements. Mr.
Zambrano also indicated that this process would likely take until the end of
September. Mr. Comer indicated that it was highly unlikely that the Company's
Board of Directors would accept a price below U.S.$70 per share, and that there
was no assurance
22
<PAGE>
that the Company's Board of Directors would accept a proposal at the higher end
of Mr. Zambrano's suggested range. During this meeting Mr. Zambrano agreed that
CEMEX would be interested in pursuing the acquisition of the Company in the
range of U.S.$70 to U.S.$72 per Share. Subsequently, representatives of CEMEX
visited the Company's manufacturing facilities and conducted additional in-
depth financial, environmental and operations due diligence.
In early September, Mr. Zambrano reviewed with Mr. Comer the preliminary
results of CEMEX's due diligence investigation and potential financing
discussions. Mr. Zambrano told Mr. Comer that he was encouraged by the progress
of both and believed that CEMEX would be in a position to make a definitive
acquisition proposal earlier than had been planned. Messrs. Zambrano and Comer
agreed that it would be appropriate to begin discussions concerning the form
the necessary merger agreement would take in the event that CEMEX made, and the
Company accepted, an acquisition proposal. These discussions began soon
thereafter and continued through the time of execution of the Merger Agreement.
During a conversation initiated by Mr. Comer on September 22, 2000, Mr.
Zambrano confirmed that CEMEX would be prepared to pay U.S.$73 per share if the
discussions concerning the Merger Agreement could be brought to a prompt and
successful conclusion and approval of the Company's Board of Directors promptly
obtained. The parties continued these discussions and CEMEX's acquisition
proposal was considered by the Company's Board of Directors at a meeting on
September 27, 2000. Late in the Company's Board of Directors meeting on
September 27, 2000, Mr. Comer called Mr. Zambrano and asked if CEMEX would
raise its offer from U.S.$73 per share. Mr. Zambrano responded that U.S.$73 was
the most CEMEX would pay. The Company's Board of Directors subsequently
adjourned until the afternoon of September 28, 2000. Representatives of the
Company and CEMEX continued to negotiate the terms of the Merger, and at a
meeting late in the afternoon of September 28, 2000, the Company's Board of
Directors ultimately approved the transaction, following which the parties
executed the Merger Agreement and publicly announced the transaction the next
morning.
Additionally, during the periods described above, representatives of Lehman
Brothers and Salomon Smith Barney, the financial advisors of the Company and
CEMEX, respectively, remained in periodic contact relating to the discussions
and negotiations between their clients.
11. The Merger Agreement and the Confidentiality Agreement.
General. The following is a summary of the material provisions of the Merger
Agreement, a copy of which is filed as an exhibit to the Schedule TO. The
summary is qualified in its entirety by reference to the Merger Agreement,
which is deemed to be incorporated by reference herein.
The Offer. The Merger Agreement provides for the making of the Offer. The
obligation of Purchaser to accept for payment and pay for Shares tendered
pursuant to the Offer is subject to the satisfaction of the Minimum Condition
and certain other conditions that are described in Section 15.
The Merger. The Merger Agreement provides that upon the terms and subject to
the conditions set forth therein, at the Effective Time Purchaser will be
merged with and into the Company with the Company being the Surviving
Corporation in the Merger. Following the Merger, the separate corporate
existence of Purchaser will cease, and the Company will continue as the
Surviving Corporation and become an indirect subsidiary of CEMEX.
If required by the LBCL, the Company will call and hold a meeting of its
shareholders promptly following consummation of the Offer for the purpose of
voting upon the approval of the Merger Agreement. At any such meeting all
Shares then owned by CEMEX or Purchaser or any subsidiary of CEMEX will be
voted in favor of adopting the Merger Agreement.
Pursuant to the Merger Agreement, each Share outstanding at the Effective
Time (other than Shares owned by CEMEX, Purchaser, the Company or any of their
respective subsidiaries, all of which will be cancelled, and
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other than Shares that are held by shareholders, if any, who properly exercise
their dissenters' rights under the LBCL) will be converted into the right to
receive the Merger Consideration. Shareholders who perfect their dissenters'
rights under the LBCL will be entitled to the amounts determined pursuant to
such proceedings. See Section 12.
Representations and Warranties. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to CEMEX and
Purchaser. The representations and warranties made by the Company include:
. representations relating to the Company's and its subsidiaries due
organization, good standing and corporate power, authorization and
validity of the Merger Agreement, the Company's capitalization, the
Company's reports and financial statements, broker's or finder's fees,
state takeover statutes, voting requirements and approval by the
Company's board of directors, the opinion of the Company's financial
advisor, and the Rights Agreement, and each such representation must be
true and correct in all material respects as of the date of the Merger
Agreement and as of any scheduled or extended expiration date of the
Offer as though made on such date (or, in each case, if made as of a
specified date, as of such date) (the "Absolute Representations"); and
. representations relating to the Company having the necessary consents and
approvals, no violations, information to be supplied, the absence of
certain events with respect to the Company, litigation, the Company's
title to properties and encumbrances on the Company's property,
compliance with laws, Company employee benefit plans, taxes, intellectual
property, environmental matters, contracts, the Company's books and
records, the Company's plant and equipment and labor and employment
matters ("Qualified Representations"), which must be true and correct as
of the date of the Merger Agreement and as of any scheduled or extended
expiration date of the Offer as though made on such date (or, in each
case, if made as of a specified date, as of such date). The Qualified
Representations shall be deemed untrue or incorrect for any purpose under
the Merger Agreement or the Offer and no party to the Merger Agreement
shall be deemed to have breached any such representation or warranty for
any purpose under the Merger Agreement, in any case as a consequence of
the existence or absence of any fact, circumstance or event unless such
fact, circumstance or event, individually or when taken together with all
other facts, circumstances or events inconsistent with any such
representations or warranties of the Company contained in Article VI of
the Merger Agreement has had or would reasonably be expected to have a
Company Material Adverse Effect (as defined below). The Merger Agreement
defines a "Company Material Adverse Effect" as a material adverse effect
on (a) the ability of the Company to perform in all material respects its
obligations under the Merger Agreement or to consummate the transactions
contemplated hereby or (b) the business, assets, liabilities, results of
operations or financial condition of the Company and its subsidiaries,
taken as a whole; provided, however, that any effect directly relating to
the economy in general or affecting the United States cement industry
generally shall be excluded for purposes of determining whether a Company
Material Adverse Effect has occurred.
Pursuant to the Merger Agreement, CEMEX and Purchaser have made customary
representations and warranties to the Company. The representations and
warranties made by CEMEX and Purchaser include representations relating to
their due organization, good standing and corporate power, authorization and
validity of the Merger Agreement, information to be supplied by them, broker's
or finder's fees, their obtaining consents and approvals, no violations, their
ownership of capital stock, Purchaser's activities prior to the signing of the
Merger Agreement and the availability of sufficient funds.
Covenants. The Merger Agreement contains various covenants of the parties
thereto. A description of certain of these covenants follows:
Company Conduct of Business Covenants. The Merger Agreement provides that,
prior to the Effective Time and except as may be agreed in writing by CEMEX,
and except as disclosed in or expressly contemplated or permitted by the Merger
Agreement:
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(a) the Company and its subsidiaries will conduct their respective
operations only according to their ordinary and usual course of
business consistent with past practice and shall use their reasonable
best efforts to preserve intact their respective business
organizations, keep available the services of their officers and
employees and maintain satisfactory relationships with licensors,
suppliers, distributors, customers, clients, joint venture partners and
others having significant business relationships with them;
(b) neither the Company nor any of its subsidiaries will:
(1) make any change in or amendment to its articles of incorporation
or its by-laws or similar organizational documents;
(2) issue or sell, or authorize to issue or sell, any shares of its
capital stock or any other securities, voting debt, or issue or
sell, or authorize to issue or sell, any securities convertible
into, or options, warrants or rights to purchase or subscribe for,
or enter into any arrangement or contract with respect to the
issuance or sale of, any shares of its capital stock, voting debt,
or any other securities, or make any other changes in its capital
structure, other than (A) the issuance of Shares upon the exercise
of stock options outstanding on the date of the Merger Agreement,
in accordance with their terms and (B) subject to the continued
accuracy of the Company's representation regarding the Rights
Agreement and compliance with its covenants with respect to the
Rights Agreement, dividends with rights pursuant to a Permitted
Replacement Rights Agreement (see "--Rights Agreement");
(3) declare, pay or set aside any dividend or other distribution or
payment with respect to, or split, combine, redeem or reclassify,
or purchase or otherwise acquire, any shares of its capital stock
or its other securities, other than (A) normal quarterly cash
dividends not in excess of $0.15 per share declared and paid in
accordance with the Company's past dividend policy, including as
to the timing of the declaration, record and payment dates,
provided that no such cash dividends shall be declared after the
consummation of the Offer, or (B) dividends payable by a wholly
owned subsidiary of the Company to the Company or another wholly
owned subsidiary of the Company and (C) pro-rata distributions in
the ordinary course of business consistent with past practice by
the Partnership, to its partners;
(4) incur any capital expenditures or any obligations or liabilities
in respect thereof, except (A) with respect to expansion projects,
for expenditures for such projects which are consistent in amount
and scope with the 2000 Capital Budget and the 2001 Capital
Spending Forecast (provided that any such expenditure included in
the 2000 Capital Budget that is not made prior to January 1, 2001
may be made on or after January 1, 2001 provided that it is
consistent in amount and scope with the 2000 Capital Budget), (B)
those required for maintenance and replacement in the ordinary
course of business not to exceed (x) during the period from the
date of the Merger Agreement to December 31, 2000, the amounts
provided for matters other than expansion projects in the 2000
Capital Budget that have not been spent as of the date of the
Merger Agreement and (y) $23.5 million following December 31,
2000, or (C) those required for maintenance and replacement in the
ordinary course of business in excess of the amounts permitted by
clause (B) but not to exceed in the case of this clause (C)
$3,600,000 in the aggregate after the date of this Agreement;
(5) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, joint
venture, association or other business organization of division
thereof (including any of the Company's subsidiaries) or (B) any
assets, including real estate, except (x) purchases of inventory,
equipment, other non-material assets in the ordinary course of
business consistent with past practice or (y) expenditures
consistent with the Company's Capital Budget;
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(6) (A) except in the ordinary course of business consistent with past
practice and except to the extent required under existing employee
and director benefit plans, agreements or arrangements as in
effect on the date of the Merger Agreement, increase the
compensation or fringe benefits of any of its directors, officers
or employees or grant any severance or termination pay not
currently required to be paid under existing severance plans or
(B) enter into (x) any employment or consulting agreement or
arrangement with any present or former director or officer of the
Company or any of its subsidiaries, or any employment or
consulting agreement with any other employee of the Company or any
of its Subsidiaries or (y) or severance agreement or arrangement
with any present or former director, officer or other employee of
the Company or any of its subsidiaries, except the Company or its
subsidiaries may enter into a severance agreement or arrangement
consistent with past practice where the Company and its
subsidiaries would not have any obligation or liability for the
payment of any amount in excess of U.S.$50,000 in any individual
case or U.S.$250,000 in the aggregate; or (C) hire or agree to
hire, or enter into any employment agreement or arrangement with,
any new or additional employee or officer (x) having an annual
base salary of U.S.$100,000 or more and (y) in the case of any new
or additional officer (or employee performing similar functions),
if the aggregate annual salaries of all such new officers and
employees performing similar functions would exceed U.S.$500,000;
(7) except as required to comply with applicable law or expressly
provided in the Merger Agreement, (A) adopt, enter into, terminate
or amend any Company Benefit Plan (as defined herein), collective
bargaining agreement or other arrangement for the current or
future benefit or welfare of any director, officer or current or
former employee, except to the extent necessary to coordinate any
such Company Benefit Plans with the terms of the Merger Agreement,
(B) pay any benefit not provided for under any Company Benefit
Plan, accelerate the payment, right of payment or vesting of any
bonus, severance, profit sharing, retirement, deferred
compensation, stock option, insurance or other compensation or
benefits, (C) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Company
Benefit Plan (including the grant of stock options, stock
appreciation rights, stock based or stock related awards,
performance units or restricted stock, or the removal of existing
restrictions in any Company Benefit Plans or agreements or awards
made thereunder) or (D) except as required by the current terms
thereof take any action to fund or in any other way secure the
payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or Company Benefit Plan;
(8) transfer, lease (as lessor), license, sell, mortgage, pledge,
dispose of, encumber or subject to any lien, any assets, other
than in the ordinary course of business and consistent with past
practice, except (x) as described below in "--Vessels Engaged in
Coastwide Trade" and (y) for the disposition in the ordinary
course of business of dormant real property;
(9) except as required by applicable law or GAAP, make any change in
its methods of accounting;
(10) adopt or enter into a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of
its subsidiaries (other than the Merger), except as contemplated
by the Merger Agreement (see "--No Solicitation");
(11) (A) incur or assume any long-term debt (other than under existing
revolving credit facilities, as may be amended as contemplated by
the Merger Agreement), or except in the ordinary course of
business consistent with past practice, incur or assume any short-
term indebtedness; (B) incur or modify any material indebtedness
or other liability; (C) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or
otherwise) for the obligations or indebtedness of any other person
(other than any wholly owned direct or indirect subsidiary in the
ordinary course of business and consistent with past practice),
except in the ordinary course
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of business and consistent with past practice and except for
guarantees by subsidiaries of the Company of indebtedness permitted
under the preceding clause (A); (D) make any loans, advances or
capital contributions to, or investments in, any other person (other
than in or to wholly owned subsidiaries of the Company or the
Partnership (in the ordinary course of business and consistent with
past practice), or by wholly owned subsidiaries to the Company, or
customary loans or advances to employees in accordance with past
practice); (E) settle any claims against the Company or any of its
subsidiaries (x) outside the ordinary course of business consistent
with past practice or (y) where the amounts payable by the Company
and its subsidiaries would exceed U.S.$1.0 million, in each such
case, without admission of liability; or (F) enter into any material
commitment or transaction other than in the ordinary course of
business;
(12) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of
any such claims, liabilities or obligations, in the ordinary
course of business and consistent with past practice, or of
claims, liabilities or obligations reflected or reserved against
in, or contemplated by, the audited and reaudited financial
statements (or the notes thereto) of the Company and its
consolidated subsidiaries;
(13) enter into any agreement, understanding or commitment that
contains any material prohibition on the conduct of any business
or line of business, or any material limitation on the scope of
business that may be conducted, by the Company or any of its
subsidiaries, including geographic limitations on the Company's or
any of its subsidiaries' activities;
(14) (A) announce, implement or effect any material reduction in labor
force, lay-off, early retirement program, severance program or
other program or effort concerning the termination of employment
of employees of the Company or its subsidiaries (other than
routine employee terminations for cause which are not subject to
this provision) or (B) terminate the employment of any officer of
the Company other than for cause or agree that any voluntary
termination of employment by an officer of the Company occurring
prior to the Effective Time shall be treated as having been with
"good reason";
(15) take any action including, without limitation, the adoption of any
shareholder rights plan or amendments to its articles of
incorporation or by-laws (or comparable governing documents),
which would, directly or indirectly, restrict or impair the
ability of CEMEX to vote, or otherwise to exercise the rights and
receive the benefits of a shareholder with respect to, securities
of the Company acquired by Purchaser in the Offer or, except with
respect to the exercise of stock options issued and outstanding on
the date of the Merger Agreement, permit any shareholder to
acquire securities of the Company on a basis not available to
CEMEX or Purchaser in the event that CEMEX or Purchaser were to
acquire any additional Shares (subject to the Company's right to
take action specifically permitted by the Merger Agreement prior
to the consummation of the Offer); provided, however, that prior
to the acceptance for payment of Shares pursuant to the Offer, the
Company may adopt a Permitted Replacement Rights Plan (as defined
in "--Rights Agreement") to replace the existing Rights Agreement
and authorize sufficient shares of preferred stock of the Company
issuable thereunder, provided that the record date for the
dividend of the rights under any such Permitted Replacement Rights
Plan shall not occur before March 1, 2001 (see "--Rights
Agreement");
(16) terminate or materially modify or amend any material contract to
which it is a party or waive or assign any of its material rights
or claims except in the ordinary course of business consistent
with past practice;
(17) other than consistent with past practice or as required by a
change of law or required by law because of a change in facts,
make any tax election or enter into any settlement or compromise
of any tax liability that in either case is material;
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(18) permit any insurance policy naming it as a beneficiary or a loss
payable payee to be cancelled or terminated, other than pursuant
to an expiration in accordance with its terms, unless a new policy
with substantially similar coverage is in effect as of the date of
such cancellation or termination, except policies providing
coverage for losses not in excess of U.S.$250,000; or
(19) agree or commit, in writing or otherwise, to take any of the
foregoing actions.
For purposes of the Company's conduct of business covenants (other than clause
(13)), references to "material" (but not "materially") mean material to the
Company and its subsidiaries, taken as a whole.
(c) The Company (i) shall not, and shall not permit any of its subsidiaries
to, take any action that would, or would reasonably be expected to,
result in (A) any of the conditions of the Offer set forth in the
Merger Agreement not being satisfied or (B) a Company Material Adverse
Effect and (ii) shall not knowingly take, or permit any of its
subsidiaries to take, any action that would or would reasonably be
expected to, result in any of its representations and warranties set
forth in the Merger Agreement becoming untrue in any respect.
Special Meeting; Proxy Statement. As promptly as practicable following
acceptance for payment and purchase of Shares pursuant to the Offer and the
expiration of the Offer, if required by applicable law in order to consummate
the Merger, the Company, acting through its Board of Directors, will, in
accordance with applicable law:
(a) call, give notice of, convene and hold a special meeting of its
shareholders (the "Special Meeting") for the purposes of considering
and taking action upon the approval of the Merger and adoption of the
Merger Agreement;
(b) prepare and file with the SEC a preliminary proxy or information
statement relating to the Merger and the Merger Agreement (the "Proxy
Statement") and obtain and furnish the information required to be
included by the SEC in the Proxy Statement and, after consultation with
CEMEX, respond promptly to any comments made by the SEC with respect to
the preliminary proxy or information statement and cause a definitive
proxy or information statement, to be mailed to its shareholders at the
earliest practicable date, provided that no amendments or supplements
to the Proxy Statement will be made by the Company without consultation
with CEMEX and its counsel;
(c) include in the Proxy Statement the recommendation of the Board of
Directors of the Company that shareholders of the Company vote in favor
of approval of the Merger and adoption of the Merger Agreement; and
(d) use reasonable best efforts to take all action necessary to solicit
from its shareholders proxies, and shall take all other action
necessary and advisable, to secure the vote of shareholders required by
applicable law and the Company's Restated Articles of Incorporation or
By-Laws to obtain the approval for the Merger Agreement and the Merger.
CEMEX will vote, or cause to be voted, all of the Shares acquired in the
Offer or otherwise then owned by it, Purchaser or any of CEMEX's other
subsidiaries in favor of the approval and adoption of the Merger Agreement.
In the event that Purchaser acquires, in the aggregate, at least 90% of the
outstanding shares of each class of capital stock of the Company pursuant to
the Offer or otherwise, the parties hereto will, subject to the conditions to
the Merger set forth in the Merger Agreement, take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition, without a meeting of shareholders of the
Company, in accordance with Section 253 of the General Corporation Law of the
State of Delaware and Section 112G of the LBCL.
Reasonable Best Efforts. The Merger Agreement provides that CEMEX, Purchaser
and the Company will use all reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to
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assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Offer and the Merger, and the other transactions
contemplated by the Merger Agreement, including:
(a) the obtaining of all necessary actions or nonactions, waivers, consents
and approvals from any court, tribunal, arbitrator, authority, agency,
commission, official or other instrumentality of the United States, any
foreign country or any domestic or foreign state, county, city or other
political subdivision ("Governmental Authority") and the making of all
necessary registrations and filings (including filings with any
Governmental Authority, if any) and the taking of all reasonable steps
as may be necessary to obtain an approval or waiver from, or to avoid
an action or proceeding by, any Governmental Authority;
(b) the obtaining of all necessary consents, approvals or waivers from
third parties;
(c) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging the Merger Agreement or the
consummation of any of the transactions contemplated by the Merger
Agreement, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Authority vacated or
reversed; and
(d) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the
purposes of, the Merger Agreement; provided, however, that no loan
agreement or contract for borrowed money entered into by the Company or
any of its subsidiaries shall be repaid except as currently required by
its terms, in whole or in part, and no contract shall be amended to
increase the amount payable thereunder or otherwise to be more
burdensome to the Company or any of its subsidiaries in order to obtain
any such consent, approval or authorization without first obtaining the
written approval of CEMEX (which approval shall not be unreasonably
withheld).
In addition to the obligations presented above, the Company shall cooperate
with CEMEX's reasonable requests in connection with CEMEX's efforts to finalize
the financing, on terms reasonably satisfactory to CEMEX, necessary to provide
CEMEX and Purchaser with sufficient funds to purchase at the Offer Price all of
the Shares outstanding on a fully diluted basis, including the Company's
providing financial statements and financial and other business information
reasonably required to be disclosed by CEMEX in connection therewith.
The Merger Agreement provides that the Company shall give prompt notice to
CEMEX of (i) any representation or warranty made by it contained in the Merger
Agreement becoming untrue or incorrect in any respect, subject in the case of
Qualified Representations to the standard described under "--Representations
and Warranties" (including the Company receiving knowledge of any fact, event
or circumstance which may cause any representation qualified as to the
knowledge of the Company to be or become untrue or incorrect, subject in the
case of Qualified Representations to the standard described under "--
Representations and Warranties") in any respect that would cause the condition
to the Offer set forth in clause (c)(2) in Section 15 hereof to fail to be
satisfied; or (ii) the failure by the Company to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under the Merger Agreement. However, no such notification shall
affect the representations, warranties, covenants or agreements of the Company
or the conditions to the obligations of the parties under the Merger Agreement.
The Company acknowledges that if after the date of the Merger Agreement the
Company receives knowledge of any fact, event or circumstance that would cause
any representation or warranty that is conditioned as to the knowledge of the
Company to be or become untrue or incorrect (subject in the case of Qualified
Representations to the standard described under "--Representations and
Warranties" and in the case of Absolute Representations, subject to such
Absolute Representation becoming untrue or incorrect in any material respect),
the receipt of such knowledge shall mean that such representation or warranty
shall be deemed to have become untrue or incorrect as of the date of such
receipt.
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CEMEX also agrees to give prompt notice to the Company of (i) any
representation or warranty made by CEMEX contained in the Merger Agreement
becoming untrue or inaccurate in any material respect or (ii) the failure by
CEMEX or Purchaser to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
the Merger Agreement; provided that no such notification shall affect the
representations, warranties, covenants or agreements of CEMEX or Purchaser or
the conditions to the obligations of the parties under the Merger Agreement.
Stock Options. The Company, the Company's Board of Directors and each
relevant committee of the Company's Board of Directors shall (i) cause any
option or right to purchase, acquire or receive shares of Company Common Stock
granted under any Stock Option Plan (as defined below) to any employee,
consultant or director of the Company or any of its subsidiaries (each a "Stock
Option) that is outstanding upon consummation of the Offer, whether granted
under any Company Stock Plan, or otherwise, to become fully exercisable and
(ii) take action to permit each such Stock Option to be exercisable for a
period (the "Option Exercise Period") beginning promptly following the
acceptance for payment and purchase of the Shares by Purchaser pursuant to the
Offer and ending on the day prior to the Effective Time in accordance with the
terms and conditions of the Company Stock Plans. For purposes of each Stock
Option, the Company shall cause the Company's Board of Directors or each
relevant committee of the Company's Board of Directors acting as administrator
of each such Company Stock Plan to determine prior to the consummation of the
Offer that the consummation of the Offer and the Merger constitute a single
"Change in Control" occurring at the time of acceptance for payment of Shares
pursuant to the Offer. The Company shall cause each Stock Option that is
outstanding immediately prior to the Effective Time to be cancelled in exchange
for an amount in cash, payable at the Effective Time, equal to the product of
(i) the number of shares of Company Common Stock subject to such Stock Option
and (ii) the excess, if any, of the Merger Consideration over the per share
exercise price of such Stock Option. The Company, the Company's Board of
Directors or the relevant committee of the Company's Board of Directors acting
as administrator of a Company Stock Plan, as appropriate, shall obtain the
written consent of the holder of each Stock Option to such cancellation, if
required in accordance with the terms and conditions of the Company Stock Plans
to such cancellation. Subject to having obtained any necessary consents from
the holders of Stock Options, the Company shall cause the Company's Board of
Directors or each relevant committee of the Company's Board of Directors to
make any amendments to the Company Stock Plans or stock option agreements
thereunder which may be needed or desirable to implement such cancellation. For
purposes of the Merger Agreement, "Company Stock Plan" means the Company's 1987
Stock Option Plan, as amended, 1989 Stock Option Plan, as amended, 1991
Nonqualified Stock Option Plan for Non-employee Directors, as amended, Phantom
Stock and Deferred Compensation Plan for Non-employee Directors, 1999 Phantom
Stock Plan for Non-employee Directors, 1999 Restricted Stock Grants Plan, as
amended, and any other stock-based incentive plan, program, agreement, grant or
arrangement, sponsored, maintained, entered into or made by the Company or any
of its Subsidiaries for the benefit of any employee, consultant or director
thereof.
Except as provided in the next sentence, all Company Stock Plans shall
terminate as of the Effective Time and the provisions in any other Company
benefit plan or any other plan providing for the issuance, transfer or grant of
any capital stock of the Company or any interest in respect of any capital
stock of the Company shall be deleted as of the Effective Time, and the Company
shall ensure that following the Effective Time no holder of a Stock Option or
any participant in any Company Stock Plan or Company benefit plan or any other
plan shall have any right thereunder to acquire any capital stock of the
Company, CEMEX or the Surviving Corporation. Notwithstanding the foregoing and
the prior paragraph, (i) promptly following the execution and delivery of the
Merger Agreement, the Company shall take all action necessary to terminate each
of the Phantom Stock and Deferred Compensation Plan for Non-employee Directors
and the 1999 Phantom Stock Plan for Non-employee Directors as promptly as
practicable in accordance with their respective terms (but in no event shall
such termination occur later than the fifth day after the date of the Merger
Agreement) and for shares of Company Common Stock to be distributed to the
participants in such plans in accordance with their terms, and (ii) the
consummation of the Offer shall constitute a "change of control" under the 1999
Restricted Stock Grants Plan and the related agreements, and the shares of
Company Common Stock issued thereunder
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shall become Transferable Shares (as provided therein) and shall be delivered
to the participants in such plan in accordance with their terms.
No Solicitation. The Merger Agreement provides that the Company shall, and
shall use its reasonable best efforts to cause its affiliates, officers,
directors, employees, financial advisors, attorneys and other advisors,
representatives and agents to, immediately cease any existing activities,
discussions or negotiations conducted with any third parties other than CEMEX
or Purchaser with respect to any Takeover Proposal (as defined below). The
Company shall not, nor shall it authorize or permit any of its affiliates to,
nor shall it authorize or permit any officer, director or employee of or any
financial advisor, attorney or other advisor, representative or agent of it or
any of its affiliates, to
(i) directly or indirectly solicit, facilitate, initiate or encourage the
making or submission of, any Takeover Proposal (including, without
limitation, the taking of any action which would make Section 133 of
the LBCL inapplicable to a Takeover Proposal),
(ii) enter into any agreement, arrangement or understanding with respect to
any Takeover Proposal or enter into any agreement, arrangement or
understanding requiring it to abandon or terminate the Merger
Agreement or to fail to consummate the Merger or any other transaction
contemplated by the Merger Agreement,
(iii) initiate or participate in any way in any discussions or negotiations
regarding, or furnish or disclose to any person (other than a party
to the Merger Agreement) any information with respect to, or take any
other action to facilitate or in furtherance of any inquiries or the
making of any proposal that constitutes, or could reasonably be
expected to lead to, any Takeover Proposal, or
(iv) grant any waiver or release under any standstill or similar agreement
with respect to any class of the Company's equity securities (other
than to permit the Company to receive an Takeover Proposal that did
not result from a breach of this provision);
provided that prior to the acceptance for payment of shares of the Shares
pursuant to the Offer, in response to a Takeover Proposal that did not result
from the breach of this provision and following delivery to CEMEX of notice of
the Takeover Proposal in compliance with its obligations under this provision,
the Company may participate in discussions or negotiations with or furnish
information (pursuant to a confidentiality/standstill agreement with customary
terms as reasonably determined in good faith by the Company after consultation
with outside counsel; provided that each such agreement is at least as limiting
as any such agreement between CEMEX and the Company) to any third party which
makes a bona fide written Takeover Proposal if (A) the Company's Board of
Directors reasonably determines in good faith (after consultation with its
financial advisor) that taking such action would be reasonably likely to lead
to the delivery to the Company of a Superior Proposal and (B) the Company's
Board of Directors determines in good faith (after consultation with outside
legal counsel) that it is necessary to take such actions in order to comply
with its fiduciary duties under applicable law. Without limiting the foregoing,
the Company agrees that any violation of the restrictions set forth in this
provision directly or indirectly by any of its, or any of its subsidiaries',
officers, affiliates or directors or any advisor, representative, consultant or
agent retained by the Company or any of its subsidiaries or affiliates in
connection with the transactions contemplated in the Merger Agreement, whether
or not such Person is purporting to act on behalf of the Company or any of its
subsidiaries, shall constitute a breach of this provision by the Company. The
Company will take all actions necessary or advisable to inform the appropriate
individuals or entities referred to in the prior sentence of the obligations
undertaken in this provision. For purposes of this provision, a person shall be
deemed to have facilitated or encouraged an action or result only if any act or
omission by such person (i) would reasonably be expected to facilitate or
encourage such action or result or (ii) was intended by such person to
facilitate or encourage such action or result.
For purposes of the Merger Agreement, "Takeover Proposal" means any inquiry,
proposal or offer from any person or group relating to:
(i) any direct or indirect acquisition or purchase of 15% or more of the
assets of the Company or any of its subsidiaries or 15% or more of any
class of equity securities of the Company or any of its subsidiaries;
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(ii) any tender offer or exchange offer that, if consummated, would result
in any Person beneficially owning 15% or more of any class of equity
securities of the Company or any of its subsidiaries; or
(iii) any merger, consolidation, business combination, sale of all or any
substantial portion of the assets, recapitalization, liquidation or a
dissolution of, or similar transaction of the Company or any of its
subsidiaries other than the Offer or the Merger and except for any
transaction described in "--Vessels Engaged in Coastwise Trade."
For purposes of the Merger Agreement, "Superior Proposal" means a bona fide
written Takeover Proposal made by a third party to purchase all of the
outstanding equity securities of the Company pursuant to a tender offer,
exchange offer, merger or other business combination:
(x) on terms which the Company's Board of Directors determines in good
faith to be superior to the Company and its shareholders (other than
CEMEX, Purchaser and their affiliates), in their capacity as
shareholder) from a financial point of view (taking into account, among
other things, all legal, financial, regulatory and other aspects of the
proposal and identity of the offeror and the financial capacity of the
offeror to consummate the transaction) as compared to the transactions
contemplated in the Merger Agreement and any alternative proposed by
CEMEX or Purchaser in accordance with the Merger Agreement, such
determination having been made only after consultation with the
Company's financial advisor;
(y) which is reasonably capable of being consummated; and
(z) for which financing is committed and which financing is no more
conditional than CEMEX's financing at that time (taking into account
whether any of the conditions to CEMEX's financing shall have been
satisfied at that time).
In the Merger Agreement, the Company agrees that, except as described in the
following paragraph, neither its Board of Directors nor any committee thereof
shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to CEMEX or Purchaser, the approval or recommendation of the
Company's Board of Directors of the Offer, the Merger or the Merger Agreement,
unless the Board of Directors of the Company shall have determined in good
faith, after consultation with its outside counsel, that such withdrawal or
modification is necessary in order to satisfy its fiduciary duties to the
Company's shareholders under applicable law; (ii) approve or recommend, or, in
the case of a committee, propose publicly to the Company's Board of Directors
to approve or recommend any Takeover Proposal; or (iii) approve, recommend or
cause it to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, an "Acquisition
Agreement") related to any Takeover Proposal. For purposes of this provision,
if any such board or committee proposal is publicly disclosed, regardless of
the source of, or the circumstances surrounding, the disclosure, such board or
committee proposal shall be deemed to have been made publicly.
Prior to the acceptance for payment of the Shares pursuant to the Offer, the
Company and/or its Board of Directors may take the actions otherwise prohibited
by the Merger Agreement if (i) a third party makes a Superior Proposal, (ii)
the Company complies with its obligations under the Merger Agreement to inform
CEMEX of the Superior Proposal, (iii) all of the conditions to the Company's
right to terminate the Merger Agreement have been satisfied, and (iv)
simultaneously therewith, the Merger Agreement is terminated due to the
Company's acceptance of a Superior Proposal.
The Merger Agreement also provides that the Company will promptly notify
CEMEX in writing of any Takeover Proposal or any inquiry regarding the making
of any Takeover Proposal (but in no event more than 24 hours after receipt by
the Company of such Takeover Proposal or inquiry).
Nothing contained in the Merger Agreement prohibits the Company or the
Company's Board of Directors from at any time taking and disclosing to its
shareholders a position contemplated by Rule 14e-2 promulgated under the
Exchange Act or from making any required disclosure to the Company's
shareholders if, in the
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reasonable good faith judgment of the Company's Board of Directors, after
consultation with outside counsel, failure so to disclose would be inconsistent
with its fiduciary or disclosure obligations under applicable law.
Indemnification; Insurance. In the Merger Agreement, CEMEX, Purchaser and
the Surviving Corporation agree that all rights to indemnification existing in
favor of the present or former directors, officers, employees, fiduciaries and
agents of the Company or any of its subsidiaries (collectively, the
"Indemnified Parties") for acts or omissions of such persons occurring at or
prior to the Effective Time, as provided in the Company's Restated Articles of
Incorporation or By-Laws or the certificate or articles of incorporation, by-
laws or similar organizational documents of any of the subsidiaries and on the
terms of any existing individual indemnity agreement or other arrangement with
any director or officer, which has been disclosed to CEMEX prior to the date of
the Merger Agreement, in each case, as in effect as of the date of the Merger
Agreement, shall survive the Merger and shall continue in full force and effect
for six years after the Effective Time (without modification or amendment,
except as required by applicable law) in accordance with their terms, to the
fullest extent permitted by law, and shall be enforceable by the Indemnified
Parties against the Surviving Corporation, and the Surviving Corporation shall
also advance fees and expenses (including reasonable attorneys' fees) as
incurred to the fullest extent permitted under applicable law upon receipt of
any undertaking required by applicable law.
Purchaser or the Surviving Corporation will cause to be maintained in effect
for not less than six years from the Effective Time the current policies of the
directors' and officers' liability insurance maintained by the Company
(provided that Purchaser may substitute therefor policies of at least
equivalent coverage containing terms and conditions which are no less
advantageous) with respect to matters occurring prior to the Effective Time,
provided that in no event will Purchaser or the Surviving Corporation be
required to expend to maintain or procure insurance coverage pursuant to this
provision any amount per annum in excess of 200% of the amount currently
expended by the Company (the "Maximum Premium"), which annual amount currently
expended is U.S.$492,500. In the event the payment of the Maximum Premium for
any year is insufficient to maintain such insurance or equivalent coverage
cannot otherwise be obtained, Purchaser or the Surviving Corporation shall
purchase as much insurance as may be purchased for the amount indicated;
provided, however, if such insurance coverage cannot be obtained at all, the
Surviving Corporation shall purchase coverage for all available extended
reporting periods with respect to pre-existing insurance in an amount which,
together with all other insurance purchased pursuant to this provision, does
not exceed the Maximum Premium. The provisions of this provision shall survive
the consummation of the Merger and expressly are intended to benefit each of
the Indemnified Parties.
Nothing in the Merger Agreement is intended to, shall be construed to, or
shall release, waive or impair any rights to directors' and officers' insurance
claims under any policy that is or has been in existence with respect to the
Company or any of its subsidiaries or any of their respective officers,
directors or employees, it being understood and agreed that the indemnification
provided for in this provision is not prior to or in substitution for any such
claims under such policies.
Public Announcements. CEMEX and the Company have agreed that they will
consult with each other before issuing any press release or otherwise making
any public statements with respect to the transactions contemplated by the
Merger Agreement and shall not issue any such press release or make any such
public statement prior to such consultation and review by the other party of
such release or statement, except as may be required by law, court process or
by obligations pursuant to any listing agreement with a national securities
exchange.
Option to Acquire Additional Shares. The Merger Agreement provides that the
Company shall grant to Purchaser an irrevocable option (the "Option") to
purchase up to that number of newly issued Shares (the "Option Shares") equal
to the number of Shares that, when added to the number Shares owned by CEMEX,
Purchaser and its affiliates immediately following consummation of the Offer,
shall constitute one share more than 90% of the shares of Common Company Stock
then outstanding on a fully diluted basis (after giving effect to the issuance
of the Option Shares) for a consideration per Option Share equal to the Offer
Price. Such
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Option shall be exercisable only within five business days following the
purchase of and payment for Shares pursuant to the Offer by CEMEX or Purchaser
as a result of which CEMEX and its affiliates own beneficially at least 80% of
the outstanding Shares on a fully diluted basis. Such Option shall not be
exercisable if (i) the number of Shares subject thereto exceeds the number of
authorized Shares available for issuance, or (ii) the exercise of the Option
would violate the applicable rules of the NYSE applicable to the Company.
In the event Purchaser wishes to exercise the Option, Purchaser shall give
the Company a one-day prior written notice of its exercise of the Option
specifying the number of Shares that are or will be beneficially owned by
CEMEX, Purchaser and its affiliates immediately following consummation of the
Offer and a place and a time (which may be concurrent with the consummation of
the Offer) for the closing of such purchase. The Company shall, as soon as
practicable following receipt of the notice, deliver written notice to
Purchaser specifying the number of Option Shares. At the closing of the
purchase of the Option Shares, the portion of the purchase price owing upon
exercise of such Option which equals the product of (x) the number of Shares
purchased pursuant to such Option multiplied by (y) the Offer Price shall be
paid to the Company in cash by wire transfer or cashier's check.
Rights Agreement. Except as contemplated by the Merger Agreement or approved
in writing by CEMEX, the Company's Board of Directors shall not: (a) amend the
Rights Agreement, (b) redeem or exchange, or resolve to redeem or exchange, the
Rights, (c) permit a "Distribution Date" to occur under the Rights Agreement or
(d) take any action except as provided in clause (c) with respect to, or make
any determination under, the Rights Agreement, except, in each case, to the
extent necessary to comply with the fiduciary obligations of the Company's
Board of Directors, as determined by it in good faith after consultation with
outside counsel.
Vessels Engaged in Coastwise Trade. The Company has agreed that, prior to
consummation of the Offer, it shall, and shall cause each of its subsidiaries
to, take all actions necessary to transfer to the Company any vessels engaged
in the coastwise trade owned by such subsidiaries, including the Southdown
Conquest (Official Number 236823) and Steelton (Official Number 243587) (other
than the Southdown Challenger (Official Number 202859)(the "Ship")), and shall
obtain all consents, permits and licenses associated therewith, in each such
case without incurring tax payments (other than those occasioned by termination
of the capital construction fund) by the Company or any of its subsidiaries or
restrictions on operation of such vessels materially different than those
restrictions in place as of the date of the Merger Agreement.
The Company has agreed that, prior to consummation of the Offer, it shall,
and shall cause its subsidiaries to (i)(A) sell or transfer the Ship to a
citizen of the United States, which citizen is designated by CEMEX and entitled
to register the Ship in unrestricted coastwise trade, and (B) enter into a
leaseback or time charter agreement on terms approved by CEMEX (which approval
shall not be unreasonably withheld) and in compliance with United States
maritime law or (ii) subject to CEMEX's approval (which approval shall not be
unreasonably withheld), make such other arrangements (which may include a sale,
other transfer or disposal, lease or charter, including a transfer to a trust
that is qualified under 46 U.S.C. Section 12102(d)(2)) and agreements with
respect to the Ship as may be necessary to permit the purchase of the Shares by
Purchaser pursuant to the Offer without contravention of the United States
citizenship and other requirements of United States maritime law, without
incurring tax payments (other than those occasioned by termination of the
capital construction fund) by the Company or any of its subsidiaries or
restrictions on operation of such vessels materially different than those
restrictions in place as of the date of the Merger Agreement.
Employee Benefits Plans. From and after the first to occur (a) the date upon
which CEMEX first designates one or more directors of the Company and (b) the
date upon which the Effective Time occurs (the "Measurement Date"), the Company
and the Surviving Corporation, as the case may be, shall honor in accordance
with their respective terms (as in effect on the date of the Merger Agreement),
all the Company's written employment, severance and termination agreements,
plans and policies existing prior to the date of the Merger Agreement which are
between the Company or any of its subsidiaries and any director, officer or
employee thereof. CEMEX acknowledges and agrees that (i) the consummation of
the Offer would constitute a
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"Change in Control" (or similar relevant defined term) for all purposes
pursuant to those agreements and arrangements indicated in the Merger Agreement
and (ii) consummation of the Merger would constitute a "good reason" under
those agreements and arrangements indicated in the Merger Agreement.
For a period of not less than six months following the Measurement Date,
CEMEX shall, unless employees of the Company and its subsidiaries as of the
Measurement Date (each, a "Company Employee") shall otherwise agree or
different terms are negotiated with the relevant union representing such
employees, cause the Surviving Corporation to provide to Company Employees
employee benefits that are, in the aggregate, no less favorable than those
provided immediately prior to the Measurement Date; provided, however, that
nothing contained in this provision shall require CEMEX or Purchaser to
continue or replace, or cause to be continued or replaced, any Company Stock
Plan or any employee benefit plans, programs, policies or arrangements (each, a
"Company Benefit Plan") after the Measurement Date.
Subject to compliance with this provision, nothing contained in this
provision or elsewhere in the Merger Agreement shall be construed to prevent
the termination of employment of any Company Employee or any change in the
compensation or employee benefits available to any Company Employee or the
amendment or termination of any particular Company Benefit Plan, to the extent
permitted by its terms as in effect immediately before the Measurement Date.
For all purposes under any employee benefit plans of CEMEX and its
subsidiaries providing benefits to any Company Employee after the Effective
Time, other than CEMEX's employee stock option plan (the "CEMEX Option Plan")
(all such employee benefit plans, other than the CEMEX Option Plan, are
hereinafter referred to as the "New Plans"), each such Company Employee shall
be credited with his or her years of service with the Company and its
subsidiaries before the Effective Time, to the same extent as such employee was
entitled, before the Effective Time, to credit for such service under any
similar Company Benefit Plans for purposes of (i) eligibility to participate
and (ii) vesting, but in no event shall such service be taken into account in
determining the accrual of benefits under any New Plan, including, but not
limited to, a defined benefit plan. In addition, and without limiting the
generality of the foregoing, (x) each Company Employee shall be immediately
eligible to participate, without any waiting time, in any and all New Plans to
the extent coverage under such New Plan replaces coverage under a comparable
benefit plan of the Company in which such employee participated immediately
before the Effective Time and which plans were previously disclosed to CEMEX
and (y) for purposes of each New Plan providing medical, dental, pharmaceutical
or vision benefits to any Company Employee, CEMEX shall cause all pre-existing
condition exclusions of such New Plan to be waived for such employee and his or
her covered dependents (other than limitations or waiting periods that are
already in effect with respect to such employees and dependents and that have
not been satisfied as of the Effective Time), and CEMEX shall cause any
eligible expenses incurred by such employee and his or her covered dependents
during the portion of the plan year of the Company Benefit Plan ending on the
date such employee's participation in the corresponding New Plan begins, to be
taken into account under such New Plan for purposes of satisfying all
deductible, coinsurance and maximum out-of-pocket requirements applicable to
such employee and his or her covered dependents for the applicable plan year as
if such amounts had been paid in accordance with such New Plan.
Definitive Financing Agreements. Prior to the close of business on the
earlier to occur of the expiration date of the Offer (as it may be extended by
Purchaser as permitted by the Merger Agreement) and 60 days following the date
of the Merger Agreement (the "Delivery Date"), CEMEX and Purchaser agree to (a)
execute and deliver definitive financing agreements (the "Definitive Financing
Agreements") (i) pursuant to which financial institutions agree to provide to
CEMEX and/or Purchaser funds which, when taken together with cash otherwise
available to CEMEX and/or Purchaser, will constitute sufficient funds to
purchase the Shares accepted for payment pursuant to the Offer in accordance
with its terms and (ii) with conditions to funding no more onerous in the
aggregate to CEMEX and Purchaser than those contemplated by the Commitment
Letters and (b) deliver true, complete and correct copies of the Definitive
Financing Agreements to the Company.
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Conditions to the Merger. The Merger Agreement provides that the obligations
of CEMEX, Purchaser and the Company to consummate the Merger are subject to the
satisfaction of the following conditions:
. the Merger Agreement shall have been approved and adopted by the
requisite vote of the shareholders of the Company, if required by
applicable law, in order to consummate the Merger;
. no provision of any applicable law or regulation and no judgment,
injunction, order or decree of any Governmental Authority of competent
jurisdiction shall prohibit the consummation of the Merger; and
. Purchaser, CEMEX or any affiliate of CEMEX shall have purchased Shares
pursuant to the Offer; provided, however, that neither CEMEX nor
Purchaser shall be entitled to rely on this clause if either of them
shall have failed to purchase Shares pursuant to the Offer in breach of
their obligations under the Merger Agreement.
Pursuant to the Merger Agreement, the obligations of CEMEX and Purchaser to
consummate the Merger are subject to the satisfaction of the following further
conditions:
(a) that the Company shall have performed in all material respects all of
its obligations under the Merger Agreement required to be performed by
it at or prior to the Effective Time, except for an action or inaction
after the Measurement Date that would constitute a breach thereunder
that is approved by a majority of CEMEX's designees to the Company's
Board of Directors or is otherwise consented to by CEMEX; and
(b) the Option Exercise Period shall have commenced and shall have been in
effect for at least 30 consecutive days as of the day immediately prior
to the Effective Time; provided, however, that (x) for purposes of this
clause (b), the Option Exercise Period shall not be deemed to have
commenced until any required notice thereof shall have been provided to
participants (or their personal representatives) in accordance with the
Company Stock Plans under which Stock Options then remain unexercised
and (y) this condition shall be satisfied prior to such time if each
holder of a then-unexercised Stock Option shall have consented to the
cancellation of such Stock Option at the Effective Time in exchange for
the payment contemplated in "--Stock Options", each such consent to be
(A) in form and substance reasonably acceptable to CEMEX and (B) in
full force and effect as of the Effective Time.
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after adoption of the Merger Agreement by
shareholders:
(a) by mutual written consent of CEMEX and the Company (which, if required
by the Merger Agreement, must be approved by the Independent Directors
as provided in the Merger Agreement); or
(b) by CEMEX:
(i) if at any time prior to the acceptance for payment of Shares
pursuant to the Offer, the Company has breached any representation
or warranty, or prior to the Effective Time has breached any,
covenant or other agreement contained in the Merger Agreement,
which (A) would give rise to the failure of a condition set forth
in paragraph (c) of Section 15 of this Offer to Purchase, (B)
cannot be or has not been cured within 30 days after receipt of
notice thereof by the Company or by the Termination Date, which
ever is earlier, and (C) has not been waived by CEMEX pursuant to
the provisions of the Merger Agreement (provided that CEMEX may not
terminate the Merger Agreement pursuant to this clause (b) (i) if
either CEMEX or Purchaser is then in material breach of any
representation, warranty, covenant or other agreement contained in
the Merger Agreement);
(ii) if at any time prior to the acceptance for payment of Shares
pursuant to the Offer, (A) the Company, or its Board of Directors,
as the case may be, shall have (w) entered into any agreement
other than a confidentiality standstill agreement permitted under
the Merger Agreement with respect to any Takeover Proposal other
than the Offer or the Merger under the
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Merger Agreement, (x) amended, conditioned, qualified, withdrawn,
modified or contradicted, or, in the case of a committee, publicly
proposed to the Board of Directors, or resolved to do any of the
foregoing, in a manner adverse to CEMEX or Purchaser, its approval
and recommendation of the Offer, the Merger and the Merger Agreement
(regardless of whether such action was permitted under the Merger
Agreement), (y) approved or recommended, or, in the case of a
committee, publicly proposed to the Company's Board of Directors, to
approve or recommend, any Takeover Proposal other than the Offer or
the Merger or (z) failed to reject any Takeover Proposal or amended
Takeover Proposal within five business days following the public
announcement of such Takeover Proposal or amendment (except that
CEMEX may not terminate this Agreement pursuant to this clause (z)
prior to the twentieth business day following commencement of the
Offer), or (B) the Company or the Company's Board of Directors or any
committee thereof shall have resolved to do any of the foregoing (it
being understood and agreed that for purposes of this provision, if
any board or committee proposal is publicly disclosed, regardless of
the source of, or the circumstances surrounding, the disclosure, such
board or committee proposal shall be deemed to have been made
publicly); or
(iii) if the Company breaches in any material respect its obligations
under the Merger Agreement;
(c) by the Company:
(i) if at any time prior to the acceptance for payment of Shares
pursuant to the Offer (A) a Superior Proposal is received by the
Company and (B) the Board of Directors of the Company reasonably
determines in good faith (after consultation with outside counsel)
that it is necessary to terminate the Merger Agreement and enter
into an agreement to effect the Superior Proposal in order to comply
with its fiduciary duties to the Company's shareholders under
applicable law; provided that the Company may not terminate the
Merger Agreement pursuant to this provision unless and until
(x) five business days have elapsed following delivery to CEMEX of a
written notice of such determination by the Board of Directors
of the Company and during such five business day period the
Company has fully cooperated with CEMEX, including, without
limitation, informing CEMEX of the terms and conditions of such
Superior Proposal, and the identity of the Person making such
Superior Proposal, with the intent of enabling both parties to
agree to a modification of the terms and conditions of the
Merger Agreement so that the transactions contemplated hereby
may be effected;
(y) at the end of such five business day period the Takeover
Proposal continues to constitute a Superior Proposal and the
Board of Directors of the Company confirms its determination
(after consultation with outside counsel) that it is necessary
to terminate the Merger Agreement and enter into an agreement to
effect the Superior Proposal to comply with its fiduciary duties
under applicable law; and
(z) (1) at or prior to such termination, CEMEX has received the
Termination Fee set forth in the Merger Agreement by wire
transfer in immediately available funds and (2) immediately
following such termination the Company enters into a definitive
acquisition, merger or similar agreement to effect the Superior
Proposal;
provided, however, that, if the written notice contemplated in
clause (x) above is given to CEMEX less than five business days, but
more than two business days, prior to the then-scheduled expiration
of the Offer, then the Company will be permitted to terminate the
Merger Agreement under this provision no earlier than 24 hours
before such scheduled expiration if the Company has complied with
all of the requirements of this provision (with the five business
day period set forth in clauses (x) and (y) above being deemed to
end when such 24-hour period begins for purposes of determining such
compliance) unless, prior to the beginning of such 24-hour period,
Purchaser shall have extended the Offer to a date that is at least
five business days
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after the delivery of such notice to CEMEX, in which case the
Company's right to terminate the Merger Agreement pursuant to this
provision shall be determined without regard to this proviso;
provided, further, that it is understood and agreed that if the
written notice contemplated in clause (x) above is given to CEMEX
less than two business days prior to the then-scheduled expiration
of the Offer, the Company's right to terminate the Merger Agreement
pursuant to this provision shall be subject to compliance with all
of the requirements of this provision, including the five business
day period set forth in clauses (x) and (y) hereof without regard to
the immediately preceding provision;
(ii) provided the Company is not in material breach of its obligations
under the Merger Agreement, if CEMEX or Purchaser shall have (x)
failed to commence the Offer as provided in the Merger Agreement,
(y) failed to pay for Shares pursuant to the Offer in accordance
with Merger Agreement, or (z) breached in any material respect any
of their respective representations, warranties, covenants or
other agreements contained in the Merger Agreement, which breach
cannot be or has not been cured within 30 business days after
receipt of notice thereof by CEMEX or by the Termination Date,
whichever is earlier; or
(iii) CEMEX or Purchaser breach their obligation to execute and
deliver, and deliver to the Company copies of, the Definitive
Financing Agreements on or prior to the Delivery Date; or
(d) by either CEMEX or the Company:
(i) if the Offer has not been consummated on or before the Termination
Date; provided that the right to terminate the Merger Agreement
pursuant to this clause shall not be available to any party whose
failure to fulfill any material obligation of the Merger Agreement
or other material breach of the Merger Agreement has been the cause
of, or resulted in, the failure of the Offer to have been
consummated on or prior to the aforesaid date; or
(ii) if, as a result of the failure of any of the conditions set forth
in the Merger Agreement, the Offer shall have terminated or
expired in accordance with its terms without Purchaser having
purchased any Shares pursuant to the Offer; provided that the
right to terminate the Merger Agreement pursuant to this clause
shall not be available to any party whose failure to fulfill any
material obligation under the Merger Agreement or other material
breach of the Merger Agreement has resulted in the failure of such
condition; or
(iii) if any court of competent jurisdiction or any Governmental
Authority shall have issued an order, decree or ruling or taken
any other action permanently restricting, enjoining, restraining
or otherwise prohibiting acceptance for payment of, and payment
for, Shares pursuant to the Offer or consummation of the Merger
and such order, decree, ruling or other action shall have become
final and nonappealable.
Payment of Certain Fees and Expenses. If the Merger Agreement is terminated
by CEMEX as set forth in paragraphs (b)(ii) or (b)(iii) above or by the Company
as set forth in paragraph (c)(i) above, then the Company shall pay to CEMEX in
immediately available funds a termination fee in an amount equal to U.S.$80
million (the "Termination Fee").
If the Merger Agreement is terminated by (A) CEMEX pursuant to paragraph
(b)(i) above, (B) by CEMEX or the Company as set forth in paragraphs (d)(i) or
(d)(iii) above or (C) CEMEX or the Company pursuant to paragraph (d)(ii) above
and either the Minimum Condition or any conditions listed in paragraphs (c) of
Section 15 of this Offer shall fail to have been satisfied and (x) a Takeover
Proposal has been made and publicly announced or communicated to the Company's
shareholders after the date of the Merger Agreement and prior to the effective
date of such termination and (y) concurrently with or within 12 months of the
date of such termination a Third Party Acquisition Event (as defined below)
occurs, then the Company shall within one business day of the occurrence of
such a Third Party Acquisition Event (including any revisions or amendments
thereto), if any, pay to CEMEX the Termination Fee.
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"Third Party Acquisition Event" shall mean (i) the consummation of a
Takeover Proposal involving the purchase of a majority of either the equity
securities of the Company or of the consolidated assets of the Company and its
subsidiaries, taken as a whole, or any such transaction that, if it had been
proposed prior to the termination of the Merger Agreement would have
constituted a Takeover Proposal or (ii) the entering into by the Company or any
of its subsidiaries of a definitive agreement with respect to any such
transaction.
Effect of Termination. In the event of termination of the Merger Agreement
by CEMEX or the Company, the Merger Agreement shall forthwith become void and
there shall be no liability hereunder on the part of the Company, CEMEX or
Purchaser or their respective officers or directors (except for the
Confidentiality Agreement and the provisions described in "--Effect of
Termination," "--Payment of Certain Fees and Expenses" and "--Assignment," and
certain other provisions of the Merger Agreement relating to notices, entire
agreement, enforcement, applicable law, waiver of jury trial and CEMEX
guarantee, which shall survive the termination). However, no provision
described in "Effect of Termination" and "Payment of Certain Fees and Expenses"
shall relieve any party hereto from any liability for any breach of the Merger
Agreement.
Assignment. Neither the Merger Agreement nor any of the rights, interests or
obligations under the Merger Agreement may be assigned by any of the parties to
the Merger Agreement (CEMEX, Purchaser and the Company) without the prior
written consent of the other parties, except that Purchaser may assign and
transfer its right and obligations hereunder to any of its affiliates, provided
that such assignment will not release CEMEX of its obligations under the Merger
Agreement, including its guarantee with respect to obligations of Purchaser
under the Merger Agreement.
Amendment or Supplement. Subject to applicable law, the Merger Agreement may
be amended, modified and supplemented in writing by CEMEX, Purchaser and the
Company in any and all respects before the Effective Time (notwithstanding the
Company Shareholder Approval contemplated by the Merger Agreement), by action
taken by the respective Boards of Directors of CEMEX, Purchaser and the Company
(or, if required by the Merger Agreement, the Independent Directors) or by the
respective officers authorized by such Boards of Directors or the Independent
Directors, as the case may be. However, that after the Company Shareholder
Approval, no amendment shall be made which by law requires further approval by
the shareholders of the Company without such further approval.
Guarantee. CEMEX has guaranteed the performance of any and all obligations
and liabilities of Purchaser under or arising out of the Merger Agreement and
the transactions contemplated thereby.
Confidentiality Agreement. The following is a summary of certain provisions
of the Confidentiality Agreement, dated August 11, 2000, between the Company
and CEMEX (the "Confidentiality Agreement"). This summary is qualified in its
entirety by reference to the Confidentiality Agreement, which is incorporated
herein by reference, and a copy of which has been filed with the SEC as an
exhibit to the Schedule TO. The Confidentiality Agreement may be examined and
copies may be obtained at the places set forth in Section 7.
Pursuant to the terms of the Confidentiality Agreement, each of CEMEX and
the Company agreed to provide the other company certain non-public confidential
and proprietary information concerning the company's business, financial
condition, operations, prospects, assets and liabilities ("Evaluation
Materials"). Each of CEMEX and the Company (together with their respective
subsidiaries and affiliates that received such information) agreed among other
things:
(a) to use the Evaluation Materials solely for the purpose of evaluating a
possible transaction between the companies;
(b) to keep the Evaluation Materials confidential and that neither it nor
its respective directors, officers, employees, agents or advisors
(including, without limitation, attorneys, accountants, consultants,
bankers and financial advisors) (collectively, "Representatives") will
disclose any of the Evaluation Materials in any manner whatsoever;
provided, however, that (i) either company may make any disclosure of
such information to which the other company gives its prior written
consent, (ii) any of
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such information may be disclosed to each company's respective
Representatives who need to know such information for the sole purpose
of evaluating a possible transaction between CEMEX and the Company and
(iii) any of such information may be disclosed to the extent it is
legally required to be disclosed;
(c) that, for a period of one year from the date hereof, neither it nor any
of its affiliates will solicit to employ any of the current officers or
employees of the other company who were directly involved with the
other company in connection with the evaluation of a transaction
hereunder, so long as they are employed by the other company, without
obtaining the prior written consent of the other Company; and
(d) that, without the prior written consent of the board of directors of
the other company, for a period of two years from the date hereof, it
shall not (i) in any manner acquire, agree to acquire or make any
proposal to acquire, directly or indirectly, any equity securities, or
any direct or indirect rights to acquire any equity securities or any
property, of the other company; (ii) propose to enter into, directly or
indirectly, any merger, business combination or other extraordinary
transaction involving the other company or to purchase, directly or
indirectly, a material portion of the assets of the other company;
(iii) make, or in any way participate, in any "solicitation" of
"proxies" to vote (as those terms are used in the rules of the SEC) any
voting securities of the other company or act, alone or in concert with
others, to seek to control or influence the management, board of
directors or policies of the other company; (iv) form, join or in any
way participate in a "group" as defined in Section 13(d)(3) of the
Exchange Act in connection with any of the foregoing; (v) enter into or
disclose any intention, plan or arrangement inconsistent with the
foregoing; or (vi) advise, assist or encourage any other persons in
connection with any of the foregoing.
12. Purpose of the Offer; Plans for the Company.
Purpose of the Offer. The purpose of the Offer is to acquire control of,
and the entire equity interest in, the Company. The purpose of the Merger is
to acquire all outstanding Shares not tendered and purchased pursuant to the
Offer. If the Offer is successful, Purchaser intends to consummate the Merger
as promptly as practicable.
The Company's Board of Directors has unanimously approved the Merger and
the Merger Agreement. Depending upon the number of Shares purchased by
Purchaser pursuant to the Offer, the Company's Board of Directors may be
required to submit the Merger Agreement to the Company's shareholders for
approval and adoption at a shareholder's meeting convened for that purpose in
accordance with the LBCL. If shareholder approval is required, the Merger
Agreement must be approved by the holders of the greater of (a) two-thirds of
the shares of Company Common Stock present at the Company shareholders'
meeting or (b) not less than a majority of a vote of all outstanding shares of
Company Common Stock. If the Minimum Condition is satisfied, Purchaser will
have sufficient voting power to approve the Merger Agreement at the
shareholders' meeting without the affirmative vote of any other shareholder.
If Purchaser acquires at least 90% of the then outstanding Shares pursuant
to the Offer, the Merger may be consummated without a shareholder meeting and
without the approval of the Company's shareholders under the "short form"
merger provisions of Section 112(G) of the LBCL. The Merger Agreement provides
that Purchaser will be merged into the Company and that the Restated Articles
of Incorporation and Bylaws of the Company will be the articles of
incorporation and bylaws of the Surviving Corporation following the Merger.
Dissenters' Rights. Under Section 131 of the LBCL, holders of record of
Shares who have the right to dissent and who file a written objection to the
Merger prior to or at the meeting at which the vote on the Merger is taken,
and who vote against the Merger, may demand in writing to be paid in cash the
fair cash value of such shares, as of the day before the meeting, as
determined by agreement between such shareholder and the Company or by a state
district court in Louisiana, if the shareholder and the Company are unable to
agree upon the fair cash value. If the Merger Agreement is approved by the
holders of 80% or more of the outstanding Shares, Section 131 of the LBCL
provides that no Company shareholder will have dissenters' rights. However,
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if the Merger occurs under the "short form" merger provisions of Section 112(G)
of the LBCL, the shareholders of the Company shall have dissenters' rights
without regard to the proportion of the voting power that approved the Merger
and despite the fact that the Merger was not approved by vote of the
shareholders of the Company. In the case of a merger pursuant to Section 112(G)
of the LBCL, the dissenting shareholder need not file an objection with the
Company or vote against the Merger, but must comply with certain other
procedural requirements set forth in Section 131 of the LBCL. A person who is a
beneficial owner, but not a registered owner, of Shares who wishes to exercise
the rights of a dissenting shareholder under the LBCL cannot do so in his own
name and should have the record ownership of the shares transferred to his or
her name or instruct the record owner thereof to take all required action to
comply on his behalf with the procedures under Section 131 of the LBCL.
Any shareholder of record contemplating exercising dissenters' rights is
urged to review carefully the provisions of Section 131 of the LBCL,
particularly the procedural steps required to perfect dissenters' rights
thereunder. Dissenters' rights will be lost if the procedural requirements of
Section 131 are not fully satisfied.
Plans for the Company. Pursuant to the terms of the Merger Agreement,
promptly upon the purchase of and payment for any Shares by Purchaser pursuant
to the Offer, CEMEX currently intends to seek maximum representation on the
Company's Board of Directors, subject to the requirement in the Merger
Agreement that if Shares are purchased pursuant to the Offer, there shall be
until the Effective Time at least three Independent Directors, as described in
more detail in "Introduction."
After the Merger, CEMEX intends to operate all of its U.S. operations as a
combined entity. It is anticipated that Mr. Comer will be President and CEO of
the combined entity. CEMEX and Mr. Comer have had only preliminary discussions
with respect to this matter, and no definitive agreement with respect to the
terms on which he might be so engaged have been determined. CEMEX may reach
ongoing employment arrangements with other executive officers of the Company,
but discussions have been preliminary.
Except as otherwise set forth in this Offer to Purchase, it is expected
that, initially following the Merger, the business and operations of the
Company will be continued substantially as they are currently being conducted.
CEMEX will continue to evaluate the business and operations of the Company
during the pendency of the Offer. In addition, CEMEX intends to conduct a
comprehensive review of the Company's business, operations, capitalization,
corporate structure and management with a view to optimizing development of the
Company's potential in conjunction with CEMEX's businesses. CEMEX hopes to
realize roughly US$60 million in annual cost savings following the Merger.
Although CEMEX has preliminarily identified different areas where it may be
able to realize costs savings, it has not completed its review or made any
definitive decisions.
Except as described above or elsewhere in this Offer to Purchase, Purchaser
and CEMEX have no present plans or proposals that would relate to or result in
(i) any extraordinary corporate transaction involving the Company or any of its
subsidiaries (such as a merger, reorganization, liquidation, relocation of any
operations or sale or other transfer of a material amount of assets), (ii) any
sale or transfer of a material amount of assets of the Company or any of its
subsidiaries, (iii) any material change in the Company's capitalization or
dividend policy or (v) any other material change in the Company's corporate
structure or business.
13. Certain Effects of the Offer.
Market for the Shares. The purchase of Shares pursuant to the Offer will
reduce the number of holders of Shares and the number of Shares that might
otherwise trade publicly, which could adversely affect the liquidity and market
value of the remaining Shares held by shareholders other than Purchaser.
Purchaser cannot predict whether the reduction in the number of Shares that
might otherwise trade publicly would have an adverse or beneficial effect on
the market price for, or marketability of, the Shares or whether such reduction
would cause future market prices to be greater or less than the Offer Price.
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NYSE Listing. Depending upon the number of Shares purchased pursuant to the
Offer, the Shares may no longer meet the standards for continued listing on the
NYSE. According to the NYSE's published guidelines, the Shares would not be
eligible to be included for listing if, among other things, the number of
Shares publicly held falls below 600,000, or the number of holders of Shares
falls below 400, or the number of holders of shares falls below 1,200 and the
average monthly trading volume (for most recent 12 months) is less than 100,000
shares. If, as a result of the purchase of Shares pursuant to the Offer, the
Merger, the Merger Agreement or otherwise, the Shares no longer meet the
requirements of the NYSE for continued listing, the listing of the Shares will
be discontinued. In such event, the market for the Shares would be adversely
affected. In the event the Shares were no longer eligible for listing on the
NYSE, quotations might still be available from other sources. The extent of the
public market for the Shares and the availability of such quotations would,
however, depend upon the number of holders of such Shares remaining at such
time, the interest in maintaining a market in such Shares on the part of
securities firms, the possible termination of registration of such Shares under
the Exchange Act as described below and other factors.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. Such registration may be terminated upon application by the
Company to the SEC if the Shares are not listed on a "national securities
exchange" and there are fewer than 300 record holders. The termination of the
registration of the Shares under the Exchange Act would substantially reduce
the information required to be furnished by the Company to holders of Shares
and to the SEC and would make certain provisions of the Exchange Act, such as
the short-swing profit recovery provisions of Section 16(b) of the Exchange
Act, the requirement of furnishing a proxy statement in connection with
shareholders' meetings pursuant to Section 14(a) or 14(c) of the Exchange Act
and the related requirements of an annual report, and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions, no
longer applicable to the Shares. In addition, "affiliates" of the Company and
persons holding "restricted securities" of the Company may be deprived of the
ability to dispose of such securities pursuant to Rule 144 promulgated under
the Securities Act of 1933, as amended. If registration of the Shares under the
Exchange Act were terminated, the Shares would no longer be eligible for NYSE
reporting. Purchaser currently intends to seek to cause the Company to
terminate the registration of the Shares under the Exchange Act as soon after
consummation of the Offer as the requirements for termination of registration
are met.
Margin Regulations. The Shares are currently "margin securities," as such
term is defined under the rules of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"), which has the effect, among other
things, of allowing brokers to extend credit on the collateral of such
securities. Depending upon factors similar to those described above regarding
listing and market quotations, following the Offer it is possible that the
Shares might no longer constitute "margin securities" for purposes of the
margin regulations of the Federal Reserve Board, in which event such Shares
could no longer be used as collateral for loans made by brokers. In addition,
if registration of the Shares under the Exchange Act were terminated, the
Shares would no longer constitute "margin securities."
14. Dividends and Distributions.
As discussed in Section 11, the Merger Agreement provides that from the date
of the Merger Agreement to the Effective Time, without the prior written
approval of CEMEX, the Company will not and will not permit any of its
subsidiaries to authorize or pay any dividends on or make any distribution with
respect to its outstanding shares of capital stock other than (a) normal
quarterly cash dividends not in excess of $0.15 per share declared and paid in
accordance with the Company's past dividend policy, including as to the timing
of the declaration, record and payment dates, provided that no such cash
dividends shall be declared after the consummation of the Offer, or (b)
dividends or distributions by wholly owned subsidiaries of the Company. Without
limiting the foregoing, effective upon acceptance for payment of Shares
pursuant to the Offer in accordance with the terms hereof, the holder of such
Shares will sell and assign to Purchaser all right, title and interest in and
to all of the Shares tendered (including, but not limited to, such holder's
right to any and all dividends and distributions with a record date before, and
a payment date after, the scheduled or extended expiration date).
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15. Certain Conditions of the Offer.
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) promulgated under the Exchange
Act (relating to Purchaser's obligations to pay for or return tendered Shares
promptly after the termination or withdrawal of the Offer), pay for any shares
of Shares tendered pursuant to the Offer, and may terminate or amend the Offer
in accordance with the Merger Agreement, if:
(a) immediately prior to any scheduled or extended expiration date of the
Offer:
(i) the Minimum Condition shall not have been satisfied;
(ii) the applicable waiting period under the Hart-Scott-Rodino Act
shall not have expired or been terminated;
(iii) necessary consents or approvals from the United States Maritime
Administration are not received with respect to the transfer or
termination of the capital construction fund and any transfer of
vessels owned and operated by the Company or any of its
subsidiaries that are operated in the coastwise trade or consents
from (or amendments to agreements with) the lenders under the
Company's debt agreements (other than the Company's Series B 10%
Senior Subordinated Notes due 2006) to waive until the earlier of
(x) the Effective Time and (y) March 31, 2001 any "change of
control" defaults that may occur thereunder by reason of the
closing of the Offer and to defer any right to repayment
thereunder by reason of a "change of control" until the Effective
Time;
(iv) all filings and consents required in connection with or under the
permits of the Company, the failure of which to make or obtain
prior to the consummation of the Offer would reasonably be
expected to have an adverse effect on continued operation
following the Offer and the Merger of the Company's operations in
all material respects as they are presently conducted, shall not
have been obtained; or
(v) all consents necessary to the consummation of the Offer or the
Merger including, without limitation, consents from parties to
loans, contracts, leases or other agreements shall not have been
obtained, other than (x) consents the failure to obtain which would
not have, or be reasonably expected to have, a Company Material
Adverse Effect, (y) consents in respect of permits and (z) any
consents from lenders under the Company's debt agreements to waive
any "change of control" defaults that may occur by reason of
consummation of the Merger;
(b) immediately prior to any scheduled or extended expiration date of the
Offer, any of the following conditions exists:
(i) there shall have been any action threatened or taken, or any
statute, rule, regulation, judgment, order or injunction
promulgated, entered, enforced, enacted, issued or deemed
applicable to the Offer or the Merger by any domestic or foreign
Federal or state governmental regulatory or administrative agency
or authority or court or legislative body or commission which
directly or indirectly (l) prohibits, or imposes any material
limitations, other than limitations generally affecting the
industries in which the Company and CEMEX and their respective
subsidiaries conduct their business, on, CEMEX's or Purchaser's
ownership or operation (or that of any of their respective
subsidiaries or affiliates) of all or a material portion of the
Company's and its subsidiaries' businesses or assets as a whole, or
compels CEMEX or Purchaser or their respective subsidiaries and
affiliates to dispose of or hold separate any material portion of
the business or assets of the Company or CEMEX in each case taken
as a whole, (2) prohibits, or makes illegal, the acceptance for
payment, payment for or purchase of Shares or the consummation of
the Offer, the Merger or the other transactions contemplated by the
Merger Agreement, (3) results in the material delay in the ability
of Purchaser, or renders Purchaser
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unable, to accept for payment, pay for or purchase a material amount
of the Shares, or (4) imposes material limitations on the ability of
Purchaser or CEMEX effectively to exercise full rights of ownership
of the Shares including, without limitation, the right to vote the
Shares purchased by it on all matters properly presented to the
Company's shareholders;
(ii) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, securities in the NYSE (excluding
any coordinated trading halt triggered solely as a result of a
specified decrease in a market index and excluding any suspension
or limitation resulting from physical damage or interference with
any exchange not related to market conditions), (2) a declaration
of a banking moratorium or any suspension of payments in respect
of banks in the United States or the Republic of Mexico (whether
or not mandatory), (3) a commencement or escalation of a war,
armed hostilities or other international or national calamity
directly or indirectly involving the United States or the Republic
of Mexico which materially adversely affects or delays the Offer,
(4) any limitation (whether or not mandatory) by any Governmental
Authority on the extension of credit by banks or other financial
institutions in a manner which prohibits the extension of funds to
CEMEX or Purchaser, (5) a change in general financial bank or
capital market conditions which materially or adversely affects
the ability of financial institutions in the European Union, the
United States or the Republic of Mexico to extend credit or
syndicate loans or (6) in the case of any of the foregoing
existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof;
(iii) other than as explicitly disclosed in the Merger Agreement or the
Company's reports filed with the SEC prior to the date of the
Merger Agreement any change shall have occurred (or any
development shall have occurred) after December 31, 1999, in the
business, assets, liabilities, financial condition,
capitalization, operations or results of operations of the
Company or any of its subsidiaries that has had or would
reasonably be expected to have, individually or in the aggregate,
a Company Material Adverse Effect;
(iv) the Company's Board of Directors shall have withdrawn, or modified
or changed in a manner adverse to CEMEX or Purchaser (including by
amendment of the Schedule 14D-9) its recommendation of the Offer,
the Merger Agreement, or the Merger, or recommended another
proposal or offer regarding a Takeover Proposal, or shall have
resolved to do any of the foregoing; or
(v) the Merger Agreement shall have been terminated in accordance with
its terms; or
(c) immediately prior to any scheduled or extended expiration date of the
Offer, (i) the Company shall have breached or failed to perform in any
material respect any of its obligations under the Merger Agreement
required to have been performed at or prior to such time, or (ii) (1)
subject in the case of Qualified Representations to the standard
described under "--Representations and Warranties", the representations
and warranties of the Company set forth in the Merger Agreement (other
than the Absolute Representations) shall fail to be true and correct as
of the date of the Merger Agreement and as of any scheduled or extended
expiration date of the Offer as though made on such date (or, in each
case, if made as of a specified date, as of such date) and (2) the
Absolute Representations shall fail to be true and correct in all
material respects as of the date of the Merger Agreement and as of any
scheduled or extended expiration date of the Offer as though made on
such date (or, in each case, if made as of a specified date, as of such
date),
which conditions in the reasonable judgment of CEMEX or Purchaser but subject
to the provisions of the Merger Agreement, in any such case, and regardless of
the circumstances (including any action or inaction by CEMEX or Purchaser)
giving rise to such conditions makes it inadvisable to proceed with the Offer
and/or with such acceptance for payment of or payments for shares of Shares.
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Purchaser's obligation to purchase Shares under the Offer is not conditioned
on any financing arrangements or subject to any financing condition. See Sec-
tion 9 for a description of the financing arrangements for the Offer and the
Merger.
Subject to the provisions of the Merger Agreement, the foregoing conditions
are for the sole benefit of CEMEX and Purchaser and may be asserted by
Purchaser or, subject to the terms of the Merger Agreement, may be waived by
CEMEX or Purchaser, in whole or in part at any time and from time to time up to
the expiration of the Offer. The failure by CEMEX or Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time up to the expiration of the Offer.
16. Certain Legal Matters; Regulatory Approvals.
General. Purchaser is not aware of any pending legal proceeding relating to
the Offer. Except as described in this Section 16, based on its examination of
publicly available information filed by the Company with the SEC and other
publicly available information concerning the Company, Purchaser is not aware
of any governmental license or regulatory permit that appears to be material to
the Company's business that might be adversely affected by Purchaser's
acquisition of Shares as contemplated herein or of any approval or other action
by any governmental, administrative or regulatory authority or agency, domestic
or foreign, that would be required for the acquisition or ownership of Shares
by Purchaser or CEMEX as contemplated herein. Should any such approval or other
action be required, Purchaser currently contemplates that, except as described
below under "--State Takeover Statutes," such approval or other action will be
sought. While Purchaser does not currently intend to delay acceptance for
payment of Shares tendered pursuant to the Offer pending the outcome of any
such matter, there can be no assurance that any such approval or other action,
if needed, would be obtained or would be obtained without substantial
conditions or that if such approvals were not obtained or such other actions
were not taken, adverse consequences might not result to the Company's
business, or certain parts of the Company's business might not have to be
disposed of, any of which could cause Purchaser to elect to terminate the Offer
without the purchase of Shares thereunder under certain conditions. See Section
15.
State Takeover Statutes. A number of states have adopted laws that purport,
to varying degrees, to apply to attempts to acquire corporations that are
incorporated in, or that have substantial assets, shareholders, principal
executive offices or principal places of business or whose business operations
otherwise have substantial economic effects in, such states. The Company,
directly or through subsidiaries, conducts business in a number of states
throughout the United States, some of which have enacted such laws.
In Edgar v. MITE Corp., the Supreme Court of the United States invalidated
on constitutional grounds the Illinois Business Takeover Statute which, as a
matter of state securities law, made takeovers of corporations meeting certain
requirements more difficult. However, in 1987 in CTS Corp. v. Dynamics Corp. of
America, the Supreme Court held that the State of Indiana could, as a matter of
corporate law, constitutionally disqualify a potential acquirer from voting
shares of a target corporation without the prior approval of the remaining
shareholders where, among other things, the corporation is incorporated in, and
has a substantial number of shareholders in, the state. Subsequently, in TLX
Acquisition Corp. v. Telex Corp., a Federal District Court in Oklahoma ruled
that the Oklahoma statutes were unconstitutional insofar as they apply to
corporations incorporated outside Oklahoma in that they would subject such
corporations to inconsistent regulations. Similarly, in Tyson Foods, Inc. v.
McReynolds, a Federal District Court in Tennessee ruled that four Tennessee
takeover statutes were unconstitutional as applied to corporations incorporated
outside Tennessee. This decision was affirmed by the United States Court of
Appeals for the Sixth Circuit.
The Company is incorporated under the laws of the State of Louisiana. In
general, in the event of a "business combination" (defined to include mergers
and certain other actions) with a Louisiana corporation, Section of the 133
LBCL ("Section 133") requires the affirmative vote of at least (a) 80% of the
votes entitled to be cast by outstanding shares of voting stock of the
corporation and (b) two-thirds of the votes entitled to be cast by holders of
voting stock other than voting stock held by the "interested shareholder"
(including a person
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who has the right to acquire 10% or more of the corporation's outstanding
voting stock or an affiliate of the corporation who at any time within the two-
year period immediately prior to the date in question owned, directly or
indirectly 10% or more of the corporation's outstanding voting stock) who is a
party to the business combination. The Company's Board of Directors approved
for purposes of Section 133 the entering into by Purchaser, CEMEX and the
Company of the Merger Agreement and the consummation of the transactions
contemplated thereby and has taken all appropriate action so that Section 133,
with respect to the Company, will not be applicable to CEMEX and Purchaser by
virtue of such actions.
Sections 135 through 140.2 of the LBCL provide generally that in the event
that any person acquires shares entitling the person to exercise at least one-
fifth of the voting power of a corporation that is an "issuing public
corporation" (a "control share acquisition"), the shares so acquired have only
the voting rights that are conferred by the shareholders of the corporation by
a vote of the shareholders, unless the corporation's articles of incorporation
or bylaws in effect prior to the control share acquisition provide that the
provisions of Sections 135 through 140.2 of the LBCL do not apply to control
share acquisitions of shares of the corporation. Immediately prior to the
execution of the Merger Agreement, Southdown's Board of Directors adopted an
amendment to Southdown's bylaws providing that the provisions of Sections 135
through 140.2 of the LBCL do not apply to control share acquisitions of shares
of Southdown. Accordingly, the provisions of Sections 135 through 140.2 of the
LBCL will not apply to the Shares acquired by Purchaser pursuant to the Offer.
If any government official or third party should seek to apply any state
takeover law to the Offer or the Merger or other business combination between
Purchaser or any of its affiliates and the Company, Purchaser will take such
action as then appears desirable, which action may include challenging the
applicability or validity of such statute in appropriate court proceedings. In
the event it is asserted that one or more state takeover statutes is applicable
to the Offer or the Merger and an appropriate court does not determine that it
is inapplicable or invalid as applied to the Offer or the Merger, Purchaser
might be required to file certain information with, or to receive approvals
from, the relevant state authorities or holders of Shares, and Purchaser might
be unable to accept for payment or pay for Shares tendered pursuant to the
Offer, or be delayed in continuing or consummating the Offer or the Merger. In
such case, Purchaser may not be obligated to accept for payment or pay for any
tendered Shares. See Section 15.
United States Antitrust Compliance. Under the Hart-Scott-Rodino Act and the
rules that have been promulgated thereunder by the Federal Trade Commission
(the "FTC"), certain acquisition transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the FTC and certain
waiting period requirements have been satisfied. The purchase of Shares
pursuant to the Offer is subject to such requirements.
Pursuant to the requirements of the Hart-Scott-Rodino Act, Purchaser expects
to file a Notification and Report Form with respect to the Offer and Merger
with the Antitrust Division and the FTC not later than October 10, 2000. The
waiting period applicable to the purchase of Shares pursuant to the Offer will
expire at 11:59 p.m., New York City time, fifteen days after such filing.
However, prior to such time, the Antitrust Division or the FTC may extend the
waiting period by requesting additional information or documentary material
relevant to the Offer from Purchaser. If such a request is made, the waiting
period will be extended until 11:59 p.m., New York City time, on the tenth day
after substantial compliance by Purchaser with such request. Thereafter, such
waiting period can be extended only by court order.
The Antitrust Division and the FTC scrutinize the legality under the
antitrust laws of transactions such as the acquisition of Shares by Purchaser
pursuant to the Offer. At any time before or after the consummation of any such
transactions, the Antitrust Division or the FTC could take such action under
the antitrust laws of the United States as it deems necessary or desirable in
the public interest, including seeking to enjoin the purchase of Shares
pursuant to the Offer or seeking divestiture of the Shares so acquired or
divestiture of substantial assets of CEMEX or the Company. Private parties
(including individual States) may also bring legal actions under the antitrust
laws of the United States. Purchaser does not believe that the consummation of
the Offer or the Merger will result in a violation of any applicable antitrust
laws. However, there can be no assurance that a
46
<PAGE>
challenge to the Offer or the Merger on antitrust grounds will not be made, or
if such a challenge is made, what the result will be. See Section 15, including
conditions with respect to litigation and certain governmental actions and
Section 11 for certain termination rights.
Other Filings. CEMEX and the Company each conduct operations in a number of
foreign countries, and filings may have to be made with foreign governments
under their pre-merger notification statutes. The filing requirements of
various nations are being analyzed by the parties and, where necessary, such
filings will be made.
17. Fees and Expenses.
Salomon Smith Barney is acting as Dealer Manager for the Offer and as
financial advisor to CEMEX in connection with the Offer and the Merger, for
which services Salomon Smith Barney will receive customary compensation. In
addition, Salomon Smith Barney and its affiliates will be participating in the
financing of the Offer and the Merger, for which services Salomon Smith Barney
and its affiliates also will receive customary compensation. CEMEX has agreed
to reimburse Salomon Smith Barney for reasonable travel and other expenses
incurred by Salomon Smith Barney in performing its services, including
reasonable fees and expenses of its legal counsel, and to indemnify Salomon
Smith Barney and certain related parties against certain liabilities, including
liabilities under the federal securities laws, arising out of its engagement.
In the ordinary course of business, Salomon Smith Barney and its affiliates may
actively trade or hold the securities of the Company and CEMEX for their own
account or for the account of customers and, accordingly, may at any time hold
a long or short position in such securities.
CEMEX and Purchaser have retained MacKenzie Partners, Inc. to be the
Information Agent and Citibank, N.A. to be the Depositary in connection with
the Offer. The Information Agent may contact holders of Shares by mail,
telephone, telegraph and personal interview and may request banks, brokers,
dealers and other nominees to forward materials relating to the Offer to
beneficial owners of Shares.
The Information Agent and the Depositary each will receive reasonable and
customary compensation for their respective services in connection with the
Offer, will be reimbursed for reasonable out-of-pocket expenses and will be
indemnified against certain liabilities and expenses in connection therewith,
including certain liabilities under federal securities laws.
Neither CEMEX nor Purchaser will pay any fees or commissions to any broker
or dealer or to any other person (other than to the Dealer Manager, the
Depositary and the Information Agent) in connection with the solicitation of
tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and
trust companies will, upon request, be reimbursed by Purchaser for customary
mailing and handling expenses incurred by them in forwarding offering materials
to their customers.
18. Miscellaneous.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of
such jurisdiction. However, Purchaser may, in its discretion, take such action
as it may deem necessary to make the Offer in any such jurisdiction and extend
the Offer to holders of Shares in such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF CEMEX OR PURCHASER NOT CONTAINED HEREIN OR IN THE
LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
47
<PAGE>
Purchaser and CEMEX have filed with the SEC a Tender Offer Statement on
Schedule TO pursuant to Rule 14d-3 of the General Rules and Regulations under
the Exchange Act, together with exhibits furnishing certain additional
information with respect to the Offer, and may file amendments thereto. In
addition, the Company has filed with the SEC a Tender Offer
Solicitation/Recommendation Statement on Schedule 14D-9, together with
exhibits, pursuant to Rule 14d-9 under the Exchange Act, setting forth the
recommendation of the Company's Board of Directors with respect to the Offer
and the reasons for such recommendation and furnishing certain additional
related information. A copy of such documents, and any amendments thereto, may
be examined at, and copies may be obtained from, the SEC (but not the regional
offices of the SEC) in the manner set forth under Section 7 above.
CENA Acquisition Corp.
October 5, 2000
48
<PAGE>
SCHEDULE I
INFORMATION CONCERNING
DIRECTORS AND EXECUTIVE OFFICERS
OF CEMEX AND THE PURCHASER
1. Directors and Executive Officers of CEMEX.
The following tables set forth the name, present principal occupation or
employment and material occupations, positions, offices or employments for the
past five years for each member of the Board of Directors and each executive
officer of CEMEX. Unless indicated otherwise, each person is a citizen of
Mexico with a principal business address at Ave. Constitucin 444 Pte.,
Monterrey, Mexico 64000.
<TABLE>
<CAPTION>
Principal Occupation or Employment and
Material Positions Held During the Past
Name Title Five Years
---- ----- ---------------------------------------
<S> <C> <C>
Lorenzo H. Zambrano..... Chairman, Chief Chairman of the Board of Directors of
Executive CEMEX since 1995, Director since 1979
Officer and Director and Chief Executive Officer of CEMEX
since 1985. Mr. Zambrano is 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., Cydsa, S.A., Vitro, S.A., and
Grupo Televisa, S.A. He is Chairman of
the Board of Directors of Consejo de
EnseZanza 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 board
of directors and of the executive
committee of Grupo Financiero Banamex
Accival, S.A. de C.V. In addition, he is
a member of the board of directors of
The Museum of Modern Art, The Economic
Development Institute of the World Bank,
Americas Society, Inc., Museo de Arte
Contemporaneo, and the Mexico-United
States Commission for Educational and
Cultural Exchange.
Armando J. Garcia Director, Executive Vice Director since 1983 and Executive Vice
Segovia................ President of Development President of Development of CEMEX since
1996. Mr. Segovia was Director of
Development of CEMEX from 1994 to 1996.
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, Confederacibn
Patronal de la Repdblica Mexicana,
Centro Patronal de Nuevo Leon, and
Instituto Mexicano del Cemento y del
Concreto. He is also Chairman of the
Board of Directors of Centro de Estudios
del Sector Privado para el Desarrollo
Sostenible.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Marcelo Zambrano Director Honorary Chairman of the Board of
Hellion................ Directors of CEMEX since 1995 and
Director since 1957. Mr. Hellion is
President of Ceramica Industrial de
Monterrey, S.A., de C.V., since 1979 and
General de Ceramica, S.A., since 1979.
He was Chairman of the Board of
Directors of CEMEX from 1979 to 1995. He
is currently a member of the board of
directors of Consejo Industrial de Nuevo
Leon, Consejo Empresarial de America
Latina, Seguros La Comercial, S.A., Club
Industrial, A.C. and Grupo Serfin-OBSA
(Regional Board).
Eduardo Brittingham Director Director since 1967. Mr. Sumner is
Sumner................. currently General Director of Laredo
Autos, S.A. de C.V., since 1988, and of
Auto Express Rapido Nuevo Laredo, S.A.
de C.V., since 1980 He is a member of
the board of directors of Consorcio
Industrial de Exportacion, S.A. de C.V.
since 1988, and an alternate member of
the board of directors of Vitro, S.A.
Lorenzo Milmo Director Director since 1977. Mr. Zambrano is
Zambrano............... General Director of Inmobiliaria Ermiza,
S.A. de C.V., since 1988 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).
Rodolfo Garcia Muriel... Director Director since 1985. Mr. Muriel is the
Chief Executive Officer of Compania
Industrial de Parras, S.A. de C.V.,
since 1996 and its Chairman of the Board
of Directors since 1996. Mr. Muriel is
also Chairman of the Board of Directors
of Parras Cone de Mexico, S.A. de C.V.,
since 1993, Hilapar, S.A. de C.V., since
1996 and Vice-Chairman of the Board of
Directors of the Camara Nacional de la
Industria Textil since 1994. He is also
a member of the board of directors of
Parras Williamson, S.A. de C.V., Telas
de Parras, S.A. de C.V., Prendas
Textiles, S.A. de C.V., Iusacell, S.A.
de C.V., Iusa-GE, S. de R.L., Cambridge
Lee Industries Inc., Industrias Unidas,
S.A., Apollo Operadora de Sociedades de
Inversion, S.A. de C.V., and Sinkro,
S.A. de C.V.
Rogelio Zambrano Director Director since 1987. Mr. Lozano is
Lozano................. General Director of Carza S.A. de C.V.,
since 1985 and Plaza Sesamo S.A. de
C.V., since 1992. Mr. Lozano is also a
member of the consultive board of Grupo
Financiero Banamex Accival, S.A. de C.V.
Zona Norte.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
Roberto Zambrano Director Director since 1987. Mr. Villarreal is
Villarreal............. Chairman of the Board of Directors of
Desarrollo Integrado, S.A. de C.V.,
since 1994, Pronatura S.A. de C.V.,
since 1997, Administracion Ficap, S.A.
de C.V., since 1994, Aero Zano, S.A. de
C.V., since 1994, Ciudad Villamonte,
S.A. de C.V., Focos, S.A. de C.V., since
1994, C & I Capital, S.A. de C.V., since
1997, Industrias Diza, S.A. de C.V.,
since 1994, Inmobiliaria Sanni, S.A. de
C.V., since 1994, Inmuebles Trevisa,
S.A. de C.V., since 1994, Servicios
TJcnicos Hidraulicos, S.A. de C.V.,
since 1994, and Mantenimiento Integrado,
S.A. de C.V. since 1993. He is a member
of the board of directors of S.L.I. de
Mexico, S.A. de C.V., CompaZia de Vidrio
Industrial, S.A. de C.V., Radio Digital
220, S.A. de C.V., Eicon, S.A. de C.V.
and Telecomunicaciones Publicas y
Privadas, S.A. de C.V.
Bernardo Quintana Director Director since 1990. Mr. Isaac is
Isaac.................. Chairman of the Board of Directors of
Grupo ICA, S.A. de C.V., and its Chief
Executive Officer since 1994. He is also
a member of the board of directors of
TelJfonos 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 the Consejo Mexicano de
Hombres de Negocios.
Dionisio Garza Medina... Director Director since 1995. Mr. Medina is
Chairman of the Board and Chief
Executive Officer of Alfa, S.A. de C.V.,
since 1990. He is Chairman of the Board
of Hylsamex, S.A. de C.V., since 1993
and of Sigma Alimentos, S.A. de C.V.,
since 1990. He is also a member of the
board of directors of Vitro, S.A.,
Cydsa, S.A., Seguros Comercial America,
S.A., and Grupo Financiero Bancomer,
S.A. de C.V. He is also a member of
Consejo Mexicano de Hombres de Negocios,
the consultive committee of the School
of Business of Harvard University, and
the David Rockefeller Center for Latin
American Studies 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...... Director Director since 1995. Mr. Garza is
Chairman of the Board of Directors and
Chief Executive Officer of Pulsar
Internacional, S.A. de C.V., since 1984,
Chairman of the Board of Directors and
Chief Executive Officer of Savia, S.A.
de C.V., since 1986, Chairman of the
Board of Directors and Chief Executive
Officer of Seguros Comercial America,
S.A. de C.V., since 1989, Chairman of
the Board of Directors and Chief
Executive Officer of Empaques Ponderosa,
S.A. de C.V., since 1994, and Chairman
of the Board of Directors and Chief
Executive Officer of Seminis Inc., since
1996. He is also a member of the board
of Nacional de Drogas, S.A. de C.V. and
Grupo Maseca S.A. de C.V. He is an
external advisor of the World Bank Board
for Latin America and the Caribbean, and
member of the board of directors of The
Donald Danford Plant Science Center.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
Jorge Garcia Segovia.... Alternate Director Alternate Director since 1985. Mr.
Segovia was Retail Banking Executive
Director of Banca Sefin (North Region)
from 1995 to 1998. Since 1998, he has
served as Director of Vector Casa de
Bolsa, S.A. de C.V. He is also a member
of the board of directors of Compania
Industrial de Parras., S.A. de C.V.,
Vitro Vidrio Plano, S.A., ABA Seguros,
S.A., and director of Vector Casa de
Bolsa, S.A. de C.V.
Tomas Brittingham Alternate Director Alternate Director since 1987. He is the
Longoria............... Chief Executive Officer of Laredo Autos,
S.A. de C.V., since 1983.
Mauricio Zambrano Alternate Director Alternate Director since 1995. Mr.
Villareal.............. Villareal is General Vice-President of
Desarrollo Integrado, S.A. de C.V.,
since 1978. He is also 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
TJcnicos 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.
Luis Santos de la Board Examiner Board Examiner since 1989 and Alternate
Garza.................. Director from 1987 to 1988. He was a
Senator of Mexico for the State of Nuevo
Leon from 1997 to 2000. He is also a
member of the board of directors of
Grupo Industrial Ramirez, S.A. de C.V.,
since 1981 and Productora de Papel, S.A.
de C.V., since 1985. He was a founding
partner of Bufete de Abogados Santos-
Elizondo-Cantd-Rivera-Gonzalez-De la
Garza, S.C.
Fernando Ruiz Alternate Board Examiner Alternate Board Examiner since 1981.
Arredondo..............
Hector Medina........... Executive Vice President Executive Vice President of Planning and
of Planning and Finance Finance of CEMEX since 1996. Mr. Medina
was President of CEMEX Mexico from 1994
to 1996.
Rodrigo Trevino......... Chief Financial Officer Chief Financial Officer of CEMEX since
1997. Prior to joining CEMEX, Mr.
Trevino was the Country Corporate
Officer for Citicorp/Citibank Chile from
1995 to 1996.
Ramiro G. Villarreal.... General Counsel General Counsel of CEMEX since 1987.
Although not a director, Mr. Villarreal
has served as Secretary of the Board of
Directors since 1995.
Mario de la Garza....... Vice President of Vice President of Administration of
Administration CEMEX since 1996. Mr. de la Garza was
Director of Administration of CEMEX from
1994 to 1996.
Francisco Garza......... President of CEMEX North President of CEMEX North America and
America and Trading Trading since 1998. Mr. Garza was
President of CEMEX Mexico and CEMEX USA
from 1996 to 1998 and President of
Vencemos and Cemento Bayano from 1994 to
1996.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
Jose Luis Saenz de President of CEMEX President of the Europe and Asia region
Miera.................. Europe and Asia since 1998. Mr. de Miera was President
of Valenciana from 1994 to 1998.
Victor Romo............. President of CEMEX South President of the South American and
America and the Caribbean region since 1998. Mr. Romo
Caribbean was President of Vencemos from 1996 to
1998 and General Director of
Administration and Finance of Valenciana
from 1994 to 1996.
Gilberto Perez.......... President of CEMEX USA President of CEMEX USA since 1998. Prior
to that time, Mr. Perez of was Vice
President of Planning and Marketing for
CEMEX Mexico and Planning Vice President
of CEMEX Venezuela. Mr. Perez has been
employed with CEMEX since 1989.
</TABLE>
2. Directors and Executive Officers of Purchaser
The following tables set forth the name, present principal occupation or
employment and material occupations, positions, offices or employments for the
past five years for each member of the Board of Directors and each executive
officer of Purchaser. Unless indicated otherwise, each person is a citizen of
Mexico with a principal business address at One Riverway, Suite 2200, Houston,
Texas 77056.
<TABLE>
<CAPTION>
Principal Occupation or Employment;
Material
Name Title Positions Held During the Past Five Years
---- ----- -----------------------------------------
<S> <C> <C>
Jill Simeone............ Director, Chief Director and Chief Executive Officer of
Executive Officer Purchaser since 2000. Ms. Simeone is
General Counsel of CEMEX USA since 1999.
From 1998 to 1999, Ms. Simeone was a
visiting law professor at the Facultad
Libre Derecho in Monterrey and a
Fulbright Scholar at ITESM in Monterrey,
Mexico, as from 1998 to 1999, From 1993
to 1998, she was a prosecutor in the
Manhattan District Attorney's office.
Ms. Simeone is a citizen of the United
States of America.
Jeffrey H. Smith........ Director, Treasurer Director and Treasurer of Purchaser
since 2000. Mr. Smith is Senior Vice
President of Administration of CEMEX USA
since 1994. Mr. Smith is a citizen of
the United States of America.
Andrew M. Miller........ Director, Secretary Director and Secretary of Purchaser
since 2000. Mr. Miller is Senior Vice
President of Human Resources of CEMEX
USA. He was Vice President of Human
Resources of Molex, Inc., from 1996 to
1998. He was also Vice President of
Human Resources of Little Tikes, Inc., a
division of Rubbermaid, Inc. from 1995
to 1996. Prior to that time, Mr. Miller
was Vice President of Human Resources of
Rubbermaid Specialty Products. He
currently serves on the Development
Board of the Diocese of Galveston-
Houston, Texas. Mr. Miller is a citizen
of the United States of America.
Lorenzo Milmo President See--Directors and Executive Officers of
Zambrano............... CEMEX above. Mr. Zambrano's principal
business address is Ave. Constitucion
444 Pte. Monterrey, Mexico 64000.
Rodrigo Trevino......... Vice President See--Directors and Executive Officers of
CEMEX above. Mr. Trevino's principal
business address is Ave. Constitucion
444 Pte. Monterrey, Mexico 64000.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
Francisco Garza......... Vice President See--Directors and Executive Officers of
CEMEX above. Mr. Garza's principal
business address is Ave. Constitucion
444 Pte. Monterrey, Mexico 64000.
Hector Medina........... Vice President See--Directors and Executive Officers of
CEMEX above. Mr. Medina's principal
business address is Ave. Constitucion
444 Pte. Monterrey, Mexico 64000.
</TABLE>
6
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CEMEX, S.A. de C.V. and subsidiaries:
Independent Auditors' Report--KPMG Cardenas Dosal, S.C................... F-2
Audited consolidated balance sheets at December 31, 1998 and 1999 and
June 30, 2000 (unaudited)............................................... F-3
Audited consolidated statements of income for the years ended December
31, 1997, 1998 and 1999 and the six month periods ended June 30, 1999
and 2000 (unaudited).................................................... F-4
Audited statements of changes in stockholders' equity for the years ended
December 31, 1997, 1998 and 1999 and the six month periods ended June
30, 2000 (unaudited).................................................... F-5
Audited statements of changes in stockholders' equity, consolidated
comprehensive net income for the years ended December 31, 1997, 1998 and
1999.................................................................... F-6
Audited consolidated statements of changes in financial position for the
years ended December 31, 1997, 1998 and 1999 and the six month periods
ended June 30, 1999 and 2000 (unaudited)................................ F-7
Notes to the consolidated financial statements........................... F-8
Reports of Other Independent Accountants--PricewaterhouseCoopers (for
which the financial statements are not separately presented)............ F-83
</TABLE>
F-1
<PAGE>
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, 1998 and 1999, 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,
1999. 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 did not audit the consolidated financial
statements of certain consolidated subsidiaries which were audited by other
auditors. The financial statements of these subsidiaries reflect total assets
of 12% and 11% in 1998 and 1999, respectively, and total revenues constituting
9%, 9% and 9% in 1997, 1998 and 1999, respectively, of the related consolidated
totals. Our opinion expressed herein, in so far 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 generally accepted auditing
standards in Mexico which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatements and are prepared in accordance with generally accepted
accounting principles. An audit consists of 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.
As discussed in note 3B to the consolidated financial statements, Bulletin
B-15 issued by the Mexican Institute of Public Accountants requires the
restatement of prior periods consolidated financial statements to constant
pesos as of the most recent balance sheet presented by applying a weighted
average index that takes into consideration the inflation rates of the
countries in which the subsidiaries operate and the exchange rate related to
the Mexican peso. The above mentioned consolidated financial statements have
been restated from amounts previously presented to reflect the purchasing power
of the Mexican peso as of June 30, 2000.
In our opinion, based upon our audits and 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, 1999 and 1998, 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, 1999, in accordance with generally accepted accounting principles
in Mexico.
Generally accepted accounting principles in Mexico vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected results of operations for each of the years
in the three-year period ended December 31, 1999, and stockholders' equity as
of December 31, 1998 and 1999, to the extent summarized in note 23 to the
consolidated financial statements.
KPMG Cardenas Dosal, S.C.
Rafael Gomez Eng
Monterrey, N.L., Mexico
January 17, 2000, except for the restatement
described in the third paragraph of this
report which is as of September 1, 2000 and
note 23 which is as of June 7, 2000.
F-2
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of constant Mexican pesos as of June 30, 2000)
<TABLE>
<CAPTION>
December 31,
-------------------------- (Unaudited)
1998 1999 June 30, 2000
Assets ------------- ----------- -------------
<S> <C> <C> <C>
Current Assets
Cash and temporary investments...... Ps4,147,606 3,193,079 3,297,769
Trade accounts receivable, less
allowance for doubtful accounts
Ps623,978 in 1998 and Ps525,728 in
1999............................... 5,141,485 5,189,379 6,296,946
Other receivables (note 4).......... 2,150,453 2,299,651 1,932,935
Inventories (note 5)................ 4,498,463 5,436,085 5,454,156
Other current assets (note 6)....... 819,281 594,404 783,903
------------- ----------- -----------
Total current assets............ 16,757,288 16,712,598 17,765,709
------------- ----------- -----------
Investments And Noncurrent
Receivables (note 7)
Investments in affiliated
companies.......................... 3,919,249 6,014,024 5,347,787
Other investments................... 270,356 808,514 855,450
Other accounts receivable........... 236,688 879,315 1,019,569
------------- ----------- -----------
Total investments and noncurrent
receivables.................... 4,426,293 7,701,853 7,222,806
------------- ----------- -----------
Property, Machinery And Equipment
(note 8)
Land and buildings.................. 29,629,305 32,774,118 33,443,635
Machinery and equipment............. 90,487,643 94,146,827 91,158,603
Accumulated depreciation............ (61,095,482) (62,184,559) (62,666,973)
Construction in progress............ 3,597,107 2,978,065 3,476,291
------------- ----------- -----------
Total property, machinery and
equipment...................... 62,618,573 67,714,451 65,411,556
------------- ----------- -----------
Deferred Charges (note 9)............ 22,837,557 23,938,653 25,550,076
------------- ----------- -----------
Total Assets.................... Ps106,639,711 116,067,555 115,950,147
============= =========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Bank loans (note 10)................ Ps4,085,923 1,876,448 648,363
Notes payable (note 10)............. 834,535 407,792 326,014
Current maturities of long-term
debt (notes 10 and 11)............. 6,354,481 7,792,561 8,019,922
Trade accounts payable.............. 3,131,743 3,791,039 4,528,201
Other accounts payable and accrued
expenses........................... 3,928,771 3,998,260 4,115,580
------------- ----------- -----------
Total current liabilities....... 18,335,453 17,866,100 17,638,080
------------- ----------- -----------
Long-Term Debt (note 11)
Bank loans.......................... 20,242,455 22,677,087 21,960,600
Notes payable....................... 18,087,447 17,795,420 16,723,911
Current maturities of long-term
debt............................... (6,354,481) (7,792,561) (8,019,902)
------------- ----------- -----------
Total long-term debt............ 31,975,421 32,679,946 30,664,609
------------- ----------- -----------
Other Noncurrent Liabilities
Pension and seniority premium (note
12)................................ 986,178 543,576 259,858
Deferred income taxes (note 15)..... 1,106,552 1,077,053 6,275,098
Other noncurrent liabilities........ 1,850,174 951,223 1,166,553
------------- ----------- -----------
Total other noncurrent
liabilities.................... 3,942,904 2,571,852 7,701,509
------------- ----------- -----------
Total liabilities............... 54,253,778 53,117,898 56,004,198
------------- ----------- -----------
Stockholders' Equity (note 13)
Majority interest:
Common stock-historical cost
basis............................ 47,619 49,312 51,291
Common stock-accumulated inflation
adjustments...................... 2,860,636 2,860,792 2,860,793
Additional paid-in capital........ 17,477,797 19,563,959 21,391,863
Deficit in equity restatement..... (42,360,557) (40,957,792) (47,916,266)
Retained earnings................. 53,417,438 59,665,281 66,902,720
Net income........................ 8,189,321 9,514,494 4,719,708
------------- ----------- -----------
Total majority interest......... 39,632,254 50,696,046 48,010,109
------------- ----------- -----------
Minority interest................... 12,753,679 12,253,611 11,935,840
------------- ----------- -----------
Total stockholders' equity...... 52,385,933 62,949,657 59,945,949
------------- ----------- -----------
Total Liabilities and
Stockholders' Equity........... Ps106,639,711 116,067,555 115,950,147
============= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Income
(Thousands of constant Mexican pesos as of June 30, 2000, except for Earnings
Per Share)
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
Years ended on December 31, June 30,
--------------------------------------- ------------------------
1997 1998 1999 1999 2000
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.............. Ps 39,611,572 43,994,866 47,231,676 22,958,756 26,140,145
Cost of sales.......... (24,273,649) (25,437,568) (26,315,262) (12,763,820) (14,456,104)
------------- ----------- ----------- ----------- -----------
Gross profit.......... 15,337,923 18,557,298 20,916,414 10,194,936 11,684,041
------------- ----------- ----------- ----------- -----------
Operating expenses:
Administrative........ (4,049,499) (4,735,603) (5,115,880) (2,417,379) (2,895,675)
Selling............... (1,928,265) (1,813,716) (1,747,398) (851,320) (876,330)
------------- ----------- ----------- ----------- -----------
Total operating
expenses............. (5,977,764) (6,549,319) (6,863,278) (3,268,699) (3,772,005)
------------- ----------- ----------- ----------- -----------
Operating income....... 9,360,159 12,007,979 14,053,136 6,926,237 7,912,036
------------- ----------- ----------- ----------- -----------
Comprehensive financing
income (cost):
Financial expenses.... (5,332,829) (4,948,604) (4,772,402) (2,351,927) (2,328,828)
Financial income...... 1,081,876 109,473 398,841 138,770 115,758
Foreign exchange
result, net.......... (123,636) (2,257,656) 269,996 637,531 (227,525)
Monetary position
result............... 6,033,910 5,749,015 3,820,556 2,431,447 1,551,080
------------- ----------- ----------- ----------- -----------
Net comprehensive
financing income
(cost)............... 1,659,321 (1,347,772) (283,009) 855,821 (889,515)
------------- ----------- ----------- ----------- -----------
Other expense, net..... (1,438,101) (1,551,054) (2,904,148) (1,586,489) (985,355)
------------- ----------- ----------- ----------- -----------
Income before income
taxes, employees'
statutory profit
sharing and equity in
income of
affiliates........... 9,581,379 9,109,153 10,865,979 6,195,569 6,037,166
------------- ----------- ----------- ----------- -----------
Income tax and business
assets tax, net (note
15)................... (523,394) (471,083) (668,985) (421,234) (995,705)
Employees' statutory
profit sharing (note
15)................... (170,675) (206,162) (374,536) (144,250) (167,437)
------------- ----------- ----------- ----------- -----------
Total income tax,
business assets tax
and employees'
statutory profit
sharing.............. (694,069) (677,245) (1,043,521) (565,484) (1,163,142)
------------- ----------- ----------- ----------- -----------
Income before equity
in income of
affiliates.......... 8,887,310 8,431,908 9,822,458 5,630,085 4,874,024
Equity in income of
affiliates............ 182,821 159,786 243,382 81,636 94,091
------------- ----------- ----------- ----------- -----------
Consolidated net
income............... 9,070,131 8,591,694 10,065,840 5,711,721 4,968,115
Minority interest net
income............... 1,115,010 402,373 551,346 282,533 248,407
------------- ----------- ----------- ----------- -----------
Majority interest net
income............... Ps 7,955,121 8,189,321 9,514,494 5,429,188 4,719,708
============= =========== =========== =========== ===========
Basic Earnings Per
Share (note 2A and
note 19)............. Ps 2.06 2.16 2.52 2.61 2.16
Diluted Earnings Per
Share (note 2A and
note 19)............. Ps 2.03 2.16 2.51 2.60 2.15
============= =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
Statements of Changes in Stockholders' Equity
(Thousands of constant Mexican pesos as of June 30, 2000)
<TABLE>
<CAPTION>
Common stock Additional Deficit in Total
----------------------- paid-in equity Retained Majority Minority stockholders'
Series A Series B capital restatement earnings Net income interest Interest Equity
------------ --------- ---------- ----------- ---------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1996............ Ps 1,783,702 1,124,253 16,042,281 (31,052,440) 37,766,270 10,626,449 36,290,515 10,877,236 47,167,751
Acquisition of
shares under
repurchase
program......... (469) (678) -- -- (1,238,785) -- (1,239,932) -- (1,239,932)
Appropriation of
net income from
prior year...... -- -- -- -- 10,626,449 (10,626,449) -- -- --
Issuance of
common stock
(note 13B)...... -- 26 18,796 -- -- -- 18,822 -- 18,822
Result from
holding
nonmonetary
assets.......... -- -- -- (4,021,661) -- -- (4,021,661) -- (4,021,661)
Updating of
investments and
other
transactions
relating to
minority
interest........ -- -- -- -- -- -- -- 357,407 357,407
Investment by
subsidiaries
(note 7)........ -- -- -- (2,249,557) -- -- (2,249,557) -- (2,249,557)
Net income...... -- -- -- -- -- 7,955,121 7,955,121 1,115,010 9,070,131
------------ --------- ---------- ----------- ---------- ----------- ---------- ---------- ----------
Balances at
December 31,
1997............ 1,783,233 1,123,601 16,061,077 (37,323,658) 47,153,934 7,955,121 36,753,308 12,349,653 49,102,961
Dividends
declared (Ps0.41
pesos per
share).......... 1,407 -- 1,406,585 -- (1,691,617) -- (283,625) -- (283,625)
Appropriation of
net income from
prior year...... -- -- -- -- 7,955,121 (7,955,121) -- -- --
Issuance of
common stock
(note 13B)...... -- 14 10,135 -- -- -- 10,149 -- 10,149
Result from
holding
nonmonetary
assets.......... -- -- -- (950,238) -- -- (950,238) -- (950,238)
Updating of
investments and
other
transactions
relating to
minority
interest........ -- -- -- -- -- -- -- 1,653 1,653
Investment by
subsidiaries
(note 7)........ -- -- -- (4,086,661) -- -- (4,086,661) -- (4,086,661)
Net income...... -- -- -- -- -- 8,189,321 8,189,321 402,373 8,591,694
------------ --------- ---------- ----------- ---------- ----------- ---------- ---------- ----------
Balances at
December 31,
1998............ 1,784,640 1,123,615 17,477,797 (42,360,557) 53,417,438 8,189,321 39,632,254 12,753,679 52,385,933
Dividends
(Ps0.45 pesos
per share)...... 1,726 -- 1,752,140 -- (1,941,478) -- (187,612) -- (187,612)
Appropriation of
net income from
prior year...... -- -- -- -- 8,189,321 (8,189,321) -- -- --
Issuance of
common stock
(note 13B)...... -- 123 91,948 -- -- -- 92,071 -- 92,071
Issuance of
appreciation
warrants (note
2C)............. -- -- 242,074 -- -- -- 242,074 -- 242,074
Result from
holding
nonmonetary
assets.......... -- -- -- (2,979,075) -- -- (2,979,075) -- (2,979,075)
Updating of
investments and
other
transactions
relating to
minority
interest........ -- -- -- -- -- -- -- (1,051,414) (1,051,414)
Investment by
subsidiaries
(note 7)........ -- -- -- 4,381,840 -- -- 4,381,840 -- 4,381,840
Net income...... -- -- -- -- -- 9,514,494 9,514,494 551,346 10,065,840
------------ --------- ---------- ----------- ---------- ----------- ---------- ---------- ----------
Balances at
December 31,
1999............ 1,786,366 1,123,738 19,563,959 (40,957,792) 59,665,281 9,514,494 50,696,046 12,253,611 62,949,657
Dividends
(Ps0.50 pesos
per share)
(Unaudited)..... 1,965 -- 1,898,446 -- (2,277,055) -- (376,644) -- (376,644)
Appropriation of
net income from
prior year
(Unaudited)..... -- -- -- -- 9,514,494 (9,514,494) -- -- --
Issuance of
common stock
(Unaudited)..... -- 15 12,119 -- -- -- 12,134 -- 12,134
Issuance of
appreciation
warrants
(Unaudited)..... -- -- (82,661) -- -- -- (82,661) -- (82,661)
Result from
holding
nonmonetary
assets
(Unaudited)..... -- -- -- 833,151 -- -- 833,151 -- 833,151
Updating of
investments and
other
transactions
relating to
minority
interest
(Unaudited)..... -- -- -- -- -- -- -- (566,178) (566,178)
Accumulated
effect of income
tax............. -- -- -- (3,575,914) -- -- (3,575,914) -- (3,575,914)
Investment by
subsidiaries
(Unaudited)..... -- -- -- (4,215,711) -- -- (4,215,711) -- (4,215,711)
Net income
(Unaudited)..... -- -- -- -- -- 4,719,708 4,719,708 248,407 4,968,115
------------ --------- ---------- ----------- ---------- ----------- ---------- ---------- ----------
Balances at June
30, 2000
(Unaudited)..... 1,788,331 1,123,753 21,391,863 (47,916,266) 66,902,720 4,719,708 48,010,109 11,935,840 59,945,949
============ ========= ========== =========== ========== =========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
Statements of Changes in Stockholders' Equity, continued
Consolidated Comprehensive Net Income
(Thousands of constant Mexican pesos as of June 30, 2000)
For U.S. GAAP purposes, SFAS 130 requires the display of certain items
resulting from the change in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owners to be
presented as a separate component of stockholders' equity and net income. The
following table illustrates the comprehensive income and accumulated other
comprehensive income under Mexican GAAP as of and for the years ended December
31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Years ended on December 31,
----------------------------------------
1997 1998 1999
-------------- ----------- -----------
<S> <C> <C> <C>
Majority interest net income......... Ps 7,955,121 8,189,321 9,514,494
Other comprehensive income:
Foreign currency translation
adjustment......................... 696,017 6,045,988 (849,435)
Foreign exchange gains (losses)
accounted as a hedge of a net
Investment......................... (459,755) (3,098,900) 613,612
Effects from holding non-monetary
assets............................. (2,924,251) (1,447,780) (2,467,756)
Other hedge derivative instruments.. (198,659) (289,320) (146,744)
Bulletin B-15 constant pesos
adjustment......................... (1,135,013) (2,160,226) (128,752)
-------------- ----------- -----------
Other comprehensive income (loss)... (4,021,661) (950,238) (2,979,075)
-------------- ----------- -----------
Comprehensive income (loss) for the
year............................... 3,933,460 7,239,083 6,535,419
-------------- ----------- -----------
Accumulated other comprehensive
income:
Balance at beginning of year......... (16,372,761) (20,394,422) (21,344,660)
-------------- ----------- -----------
Balance at end of year............... Ps (20,394,422) (21,344,660) (24,323,735)
============== =========== ===========
</TABLE>
For the periods ended June 30, 1999 and 2000, other comprehensive income
amounts (loss) income of Ps(2,270,068) and Ps286,472 respectively (unaudited).
The comprehensive income for the periods ended June 30, 1999 and 2000 was
Ps3,159,121 and Ps5,006,180 respectively (unaudited).
The Company has not presented the individual components of the accumulated
balance of other comprehensive income disclosure requirements of SFAS 130 as
permitted when it is impracticable to obtain this information.
For Mexican GAAP purposes, deficit in equity restatement includes (i)
foreign currency translation adjustments, (ii) foreign exchange losses derived
from debt identified as hedge of a net investment, (iii) the accumulated effect
of holding non-monetary assets, (iv) certain other hedge derivative instruments
and (v) investments by subsidiaries in the Parent Company. For SFAS 130
purposes, all of the foregoing, except for investments by subsidiaries in the
Parent Company, are considered to be part of comprehensive income.
F-6
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Changes in Financial Position
(Thousands of constant Mexican pesos as of June 30, 2000)
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
Years ended on December 31, June 30,
------------------------------------- ----------------------
1997 1998 1999 1999 2000
------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating activities
Majority interest net
income................ Ps 7,955,121 8,189,321 9,514,494 5,429,188 4,719,708
Charges to operations
which did not require
resources (note 18)... 5,448,015 4,555,066 5,498,947 2,290,251 2,546,367
------------ ---------- ----------- ---------- ----------
Resources provided by
operating
activities........... 13,403,136 12,744,387 15,013,441 7,719,439 7,266,075
------------ ---------- ----------- ---------- ----------
Changes in working
capital, excluding
effect of acquisitions:
Trade accounts
receivable, net...... (271,973) (814,332) 501,916 (355,462) (1,204,549)
Other receivable and
other assets......... 286,372 (322,756) 107,310 111,732 186,446
Inventories........... (287,944) (532,227) 101,440 391,764 (190,337)
Trade accounts
payable.............. 744,911 387,635 325,412 393,266 683,570
Other accounts payable
and accrued
Expenses.............. (638,128) 949,053 (968,115) (320,082) 63,929
------------ ---------- ----------- ---------- ----------
Net change in working
capital.............. (166,762) (332,627) 67,963 221,218 (460,941)
------------ ---------- ----------- ---------- ----------
Net resources provided
by operating
activities........... 13,236,374 12,411,760 15,081,404 7,940,657 6,805,134
------------ ---------- ----------- ---------- ----------
Financing activities
Proceeds from bank
loans (repayments),
net................... (81,429) 3,133,018 (3,179,979) 1,684,698 (830,208)
Notes payable, net,
excluding foreign
exchange effect (note
3E)................... (4,281,751) (7,167,794) (4,220,764) (313,702) (1,817,268)
Investment by
subsidiaries.......... (747,918) (2,537,345) 4,891,479 55,186 (1,190,640)
Dividends paid......... -- (1,691,617) (1,941,478) (1,955,393) (2,277,055)
Issuance of common
stock from
reinvestment of
dividends............. -- 1,407,992 1,753,866 1,754,537 1,900,411
Issuance of preferred
stock by
subsidiaries.......... -- 2,548,833 -- -- --
Other financing
activities, net....... (491,968) (436,778) (3,345,024) (979,977) 1,102,679
Acquisition of shares
under repurchase
program............... (1,239,932) -- -- -- --
Issuance of common
stock................. 18,822 10,149 334,145 50,864 (70,527)
------------ ---------- ----------- ---------- ----------
Resources used in
financing
activities........... (6,824,176) (4,733,542) (5,707,755) 296,213 (3,182,608)
------------ ---------- ----------- ---------- ----------
Investing activities
Property, machinery and
equipment, net........ (3,499,610) (3,324,203) (2,600,880) 204,013 (1,387,440)
Acquisitions, net of
cash acquired......... (970,633) (2,587,522) (9,666,931) (5,648,531) (532,616)
Disposal of assets..... -- 2,456,775 -- 70,363 1,172,895
Minority interest...... (1,066,549) (882,191) (1,424,189) (968,053) (40,900)
Deferred charges....... (690,962) (41,577) (900,011) 15,073 227,910
Other investments and
monetary foreign
currency effect....... (652,858) (3,128,624) 4,263,835 (2,448,197) (2,957,685)
------------ ---------- ----------- ---------- ----------
Resources used in
investing
activities........... (6,880,612) (7,507,342) (10,328,176) (8,775,332) (3,517,836)
------------ ---------- ----------- ---------- ----------
(Decrease) increase in
cash and temporary
investments.......... (468,414) 170,876 (954,527) (538,462) 104,690
Cash and temporary
investments at
beginning of year.... 4,445,144 3,976,730 4,147,606 4,147,606 3,193,079
------------ ---------- ----------- ---------- ----------
Cash and temporary
investments at end of
year................. Ps 3,976,730 4,147,606 3,193,079 3,609,144 3,297,769
============ ========== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
1.DESCRIPTION OF BUSINESS
Cemex, S.A. de C.V. (Cemex or the Company) is a Mexican parent company of
entities engaged in the production and marketing of cement and concrete in the
construction industry. The Company also has subsidiaries that participate in
the tourism industry.
2. OUTSTANDING EVENTS DURING 1999
A) EXCHANGE OF SHARES FOR THE NEW ORDINARY PARTICIPATION CERTIFICATE ("CPO")
On September 14, 1999, the Company concluded an exchange offer of its old
series "A" and "B" shares, and its old Ordinary Participation Certificates
("CPOs"), for new CPOs. As a result, most of the holders of the old series "A"
and "B" shares and old CPOs, received for each of those securities a new CPO,
which represents, the participation in two new series "A" shares and one new
series "B" share of the Company. As a part of the exchange offer, on September
15, 1999, the Company effected a stock split of two series "A" shares and one
series "B" share, for each of the old shares of any series. The proportional
equity interest participation of the shareholders in the Company's common stock
did not change as a result of the exchange offer and the stock split mentioned
above.
Earnings per share, prices per share, and the number of shares outstanding
disclosed in these notes to the financial statements for the years ended
December 31, 1997 and 1998, as well as the transactions occurred in 1999 prior
to September 14, have been restated to give effect to the stock split mentioned
in the preceding paragraph.
B) REGISTRATION IN THE NEW YORK STOCK EXCHANGE
On September 15, 1999, the Company successfully completed its registration
before the United States Securities and Exchange Commission ("SEC") and the
listing of the new American Depositary Shares ("ADS") on the New York Stock
Exchange ("NYSE"), as well as the exchange process of the new CPO mentioned in
note 2A. On that same date, the new CPOs began trading on the Mexican Stock
Exchange ("BMV") and of the new ADSs in the NYSE under the stock symbol CX.
Each new ADS represents 5 new CPOs. As a result of the Company's registration
with the SEC and the listing of the new ADS in the NYSE, beginning in the year
2000, the Company is required to file with the SEC, financial information
according to the rules established by the SEC, including the annual financial
statements with the reconciliation of stockholders' equity and net income to
Generally Accepted Accounting Principles in the United States ("US GAAP").
C) PUBLIC OFFER OF WARRANTS
During December 1999, through a simultaneous public offer in the Mexican
Stock Exchange ("BMV") and the New York Stock Exchange ("NYSE"), the Company
issued 105 million warrants at a subscription price of Ps3.3750 per warrant.
The warrants allow the holder to benefit from the future increment in the
market price of the Company's CPO above the strike price of $ 6.20 per warrant,
within certain limits. The benefit, if any, will be paid in CPOs of the
Company. The warrants were issued for a term of three years and are exercisable
at maturity. The warrants were subscribed as American Depositary Warrants
("ADWs") in the NYSE, each ADW is equivalent to 5 warrants.
As part of the same transaction, the Company carried out a hedge transaction
in order to cover the future obligations for the warrants exercise. Through
this transaction, 105 million CPOs of the Company and
F-8
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
33,751,566 shares of Compania Valenciana de Cementos Portland, S.A.
("Valenciana"), a subsidiary of the Company in Spain, were sold to a group of
foreign banks. Simultaneously, a subsidiary of the Company entered into forward
contracts with the same group of banks, to repurchase the basket of shares with
a three-year maturity and prepaid approximately $ 439.9 million of the forward
purchase price to the bank
As a result of the overall transaction, the Company received proceeds for
the subscription of the warrants and the sale of the basket of shares of
approximately $ 490.9 million, after applying the prepayment to the banks under
the forward, fees and other expenses related to this transaction.
3. 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.
The corresponding notes have been revised from the notes originally prepared
under Mexican GAAP in order to comply with the disclosure requirements of
Accounting Principles Generally Accepted in the United States of America (U.S.
GAAP) and with the regulations of the U.S. Securities and Exchange Commission
(SEC).
When reference is made to pesos or "Ps", it means Mexican pesos; when
reference is made to dollars or "$", it means currency of the United States of
America.
When reference is made to "CPOs", it is the Ordinary Participation
Certificates of the Company, which include two series "A" shares and one series
"B" share per each CPO. When reference is made to "ADS's", it is the "American
Depositary Shares" of the Company. Each ADS includes 5 CPO's.
B) PRESENTATION OF COMPARATIVE FINANCIAL STATEMENTS
In accordance with Bulletin B-15, "Foreign Currency Transactions and
Translation of Foreign Currency Financial Statements", the inflation
restatement factors applied to the financial statements of prior periods were
calculated based upon a weighted average index, which takes into consideration
the inflation rates of the countries in which the subsidiaries operate, and the
fluctuations in the exchange rate of each country vis-a-vis the Mexican peso.
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1998 1999 2000
------------ ------------ --------
<S> <C> <C> <C>
Inflation restatement factor using
weighted average index................ 1.2581 1.0011 1.0287
Inflation restatement factor for
inflation in Mexico................... 1.1861 1.1232 1.0442
</TABLE>
The inflation restatement adjustments for common stock and additional paid-
in capital are determined by using the Mexican inflation. The weighted average
restatement index was used for all other inflation restatement adjustments to
stockholders' equity.
F-9
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
C) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include those of Cemex and the
subsidiary companies in which Cemex holds a majority interest and/or has
control. All significant intercompany balances and transactions have been
eliminated in consolidation.
The main subsidiaries are:
. Cemex Mexico, S. A. de C.V.
. Beeston Investments Holdings Limited
. Compania Valenciana de Cementos Portland, S.A.
. Corporacion Venezolana de Cementos, S.A.C.A.
. Cemex USA, Inc.
. Cementos Diamante, S.A.
. Cemento Bayano, S.A.
. Cementos Nacionales, S.A.
. Rizal Cement Company, Inc.
. APO Cement Corporation
. Assiut Cement Company
. Cementos del Pacifico, S.A.
. Turismo Cemex, S.A. de C.V.
D) ADMINISTRATIVE IMPROVEMENT PROGRAM DURING 1999
During 1999, as part of an administrative improvement program, the Company
integrated within the structure of one entity the cement and concrete
operations in Mexico in order to eliminate redundant processes and take
advantage of synergies. This administrative process included mergers, as well
as sales-purchases of companies within the Cemex group, for which the
following actions were taken:
1) Effective July 31, 1999, the Company changed the legal name of Cemex
Control, S.A. de C.V. ("Control") to Empresas Tolteca de Mexico, S.A. de
C.V. ("ETM").
2) Effective December 31, 1999, a merger took place of most of the cement
subsidiaries in Mexico, including Tolmex, S.A. de C.V. ("Tolmex"). The
merging entity was Serto Construcciones, S.A. de C.V. ("Serto"), company
which before the merger was a direct subsidiary of Tolmex. Likewise, on
December 10, 1999, the legal name of Serto was changed to Cemex Mexico,
S.A. de C.V. ("Cemex Mexico").
3) Effective December 31, 1999, a merger took place of most of the concrete
subsidiaries in Mexico. The merging entity was Cemex Concretos, S.A. de
C.V., before named Concretos de Alta Calidad y Agregados, S.A. de C.V.
4) Additionally, on December 15, 1999, through a sale and purchase of
shares within the Group, ETM became a direct subsidiary of Cemex Mexico.
F-10
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Through these mergers and the intercompany sale of ETM (see note 22), from
January 1, 2000, the cement and concrete operations of the Company in Mexico
are integrated in Cemex Mexico and subsidiaries.
E) 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 as part of the
comprehensive financing income (cost) or as a charge directly to the
stockholders' equity when the indebtedness is directly related to the
acquisition of a foreign subsidiary.
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 to Mexican 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 Mexican peso against the U.S. dollar used by the
Company is based upon the weighted average of free market rates available to
settle its overall foreign currency transactions.
F) CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments include fixed-income marketable securities
investments with original maturities of three months or less. Investments in
marketable securities are stated at market value. Gains or losses resulting
from changes in market values and the effects of inflation are included in the
accompanying statements of income as part of the comprehensive financing income
or cost.
G) INVENTORIES AND COST OF SALES (note 5)
Inventories are stated at the lower of replacement cost or market value.
Replacement cost is based upon the latest purchase price or production cost.
The cost of sales reflects replacement cost of inventories at the time of sale,
expressed in constant pesos as of the date of the latest balance sheet.
H) INVESTMENTS AND NONCURRENT RECEIVABLES (note 7)
In the consolidated financial statements, investments in affiliated
companies in which the Company holds between 10% and 50% of the issuer's
capital stock are accounted for by the equity method. Under the equity method,
the investments are stated at cost, adjusted for the Company's equity in the
investee's earnings after acquisition and the effects of inflation on the
investee's equity.
Investments available for sale for which the Company has no intention to
sell in the short-term are carried at market value, and valuation effects are
recognized in the stockholders' equity. The application of the accumulated
effect to the income statement will occur at the moment of sale.
F-11
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
I) PROPERTY, MACHINERY AND EQUIPMENT (note 8)
Property, machinery and equipment are restated for inflation in accordance
with the fifth amendment to Bulletin B-10, by using the inflation index of the
country of origin of the assets and the change in the foreign exchange rate
between the country of origin and the functional currency.
Net comprehensive financing cost incurred during the construction or
installation period of fixed asset additions is capitalized, as part of the
value of the assets.
Depreciation of property, machinery and equipment is provided on the
straight-line method over the estimated useful lives of the assets less salvage
value. The useful lives of the assets are as follows:
<TABLE>
<CAPTION>
Years
--------
<S> <C>
Administrative buildings............................................ 50
Industrial buildings, machinery and equipment....................... 10 to 35
</TABLE>
The Company continuously evaluates the physical state and performance of its
machinery and equipment, as well as the impact of its sales and production
forecasts, in order to determine if there are judgement elements indicating
that the book value of these assets need to be adjusted for impairment. An
impairment loss would be recorded in the income statement of the period if such
determination is made (see note 8).
J) DEFERRED CHARGES AND AMORTIZATION (note 9)
Deferred charges are adjusted to reflect current values. Amortization of
deferred charges is determined using the straight-line method based on the
current value of the assets.
Amortization of the excess of cost over book value of subsidiaries acquired
(goodwill) is determined under the present worth or sinking fund method, which
intends a better matching of the amortization of goodwill with the revenues
generated from the acquired affiliated companies. The amortization periods are
as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Goodwill from years before 1992........................................ 40
Goodwill from acquisitions starting January 1, 1992.................... 20
</TABLE>
At each balance sheet date, the Company evaluates the recoverability of
goodwill based on an evaluation of factors such as the occurrence of a
significant adverse event, change in the environment in which the business
operates and expectations of operating results for each subsidiary, this to
determine if there are judgement elements to believe that the goodwill balance
would not be recovered. An impairment loss would be recorded in the period if
such determination is made.
Deferred financing costs originated from our financing operations are
amortized over the term in which the related transactions are outstanding, in
proportion to their maturity dates. These costs include the expenses incurred
for fees paid to lawyers, printers and consultants, as well as commissions paid
to banks in the credit approval process. Deferred financing costs are adjusted
to reflect current values.
K) PENSION PLANS AND SENIORITY PREMIUM (note 12)
Pension benefits and accumulated seniority premium rights to which employees
are legally entitled are recognized in the results of operations on the basis
of the present value of the benefit determined under
F-12
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
actuarial estimations. The amortization of unrecognized prior service cost is
based on the employee's estimated active service life. As of December 31, 1999,
the estimated active service life of the personnel's under benefit plan is
approximately 22 years.
Some subsidiaries have established pension plans supplementary to the
benefits provided by law. The obligations under these plans are determined
based on actuarial calculations and, in some cases, certain irrevocable trust
funds have been established for these plans. The actuarial assumptions utilized
in these calculations are based upon "real" rates (nominal rates reduced by
inflation).
Other benefits to which employees may be entitled are recognized as an
expense in the year in which they are paid. These benefits consist principally
of severance benefits and vacation.
L) INCOME TAX AND EMPLOYEES' STATUTORY PROFIT SHARING (note 15)
Income Tax and Employees' Statutory Profit Sharing expense recognize the
amounts incurred, and the effects of material timing differences between tax
and book income on which it may be reasonably estimated that, over a defined
period, a benefit or liability will arise.
M) MONETARY POSITION GAIN OR LOSS
The monetary position gain or loss is calculated by applying the inflation
rate of each country in which the Company has operations to the average net
monetary assets or liabilities in that country.
N) DEFICIT IN EQUITY RESTATEMENT
The deficit in equity restatement includes the accumulated effect from
holding non-monetary assets as well as the effects of translation of financial
statements of foreign subsidiaries.
O) DERIVATIVE FINANCIAL INSTRUMENTS (note 14)
The Company uses derivative financial instruments such as interest rate
swaps, forward contracts, options and future contracts in order to reduce its
exposure to market risks from changes in interest rates, foreign exchange
rates, the price of the Company's shares and the price of energy. Some
financial instruments have been designated as hedges of the Company's costs,
debt or equity and their economic effects are recognized as part of the cost of
sales, comprehensive financing income (cost) or in stockholders' equity,
according to their designation. Premiums paid or received on derivative
instruments, are deferred and amortized to the income statement or
stockholders' equity, depending on their destination, over the life of the
underlying hedge instrument or immediately when they are settled.
Equity derivatives on the Company's common stock are accounted for as equity
instruments and gains and losses are recognized as an adjustment to
stockholders' equity. At maturity, these contracts provide for physical or net
cash settlement at the Company's option.
Currency forward instruments that have been designated as, and are effective
as, a hedge of the Company's net investments in foreign subsidiaries are
recorded at their estimated fair value in the balance sheet. The realized or
unrealized gains or losses are recognized in stockholders' equity as part of
foreign currency translation gain or loss.
F-13
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
The results of derivative instruments contracted as a hedge of interest
rates are accounted for as part of the effective interest rate of the related
debt within the financial expense. At settlement, the results are deferred and
recognized over the shorter term of the remaining contractual life of the
derivative instrument or the remaining life of the liability as an adjustment
to interest expense.
P) REVENUE RECOGNITION
Revenue is recorded upon shipment of the cement and ready-mix concrete to
customers.
Q) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from these estimates.
R) RECLASSIFICATIONS
Certain amounts reported in the notes to the consolidated financial
statements as of December 31, 1997 and 1998 have been reclassified to conform
to the 1999 presentation.
4. OTHER RECEIVABLES
Other current receivables consist of:
<TABLE>
<CAPTION>
December 31, (Unaudited)
--------------------- June 30,
1998 1999 2000
----------- --------- -----------
<S> <C> <C> <C>
Non-trade receivables..................... Ps1,321,516 1,581,597 1,550,946
Refundable income tax..................... 653,471 399,368 381,989
Other refundable taxes.................... 175,466 318,686 --
----------- --------- ---------
Ps2,150,453 2,299,651 1,932,935
=========== ========= =========
</TABLE>
As of December 31, 1998 and 1999, non trade receivables consisted primarily
of interest receivable, notes receivable, advances to employees for travel
expenses, loans made to employees and receivable from the sale of assets.
5. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, (Unaudited)
--------------------- June 30,
1998 1999 2000
----------- --------- -----------
<S> <C> <C> <C>
Finished goods............................. Ps1,027,325 765,997 941,726
Work-in-process............................ 499,634 603,303 642,230
Raw materials.............................. 523,773 528,908 516,961
Supplies and spare parts................... 2,045,907 2,833,428 2,669,125
Advances to suppliers...................... 175,300 430,419 386,316
Inventory in transit....................... 31,979 121,196 202,655
Real estate held for sale.................. 194,545 152,834 95,143
----------- --------- ---------
Ps4,498,463 5,436,085 5,454,156
=========== ========= =========
</TABLE>
F-14
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
As of December 31, 1998 and 1999, real estate held for sale corresponds to
undeveloped land in different tourist locations in Mexico, originally acquired
by the Company for future tourism projects. Currently, this real estate is
held for sale in the short-term. In accordance to the Fifth Amendment to
Bulletin B-10, until December 31, 1996, independent appraisers determined the
amounts, which represented their estimated realizable value. Beginning in
1997, such amounts have been restated using the inflation factors arising from
the NCPI.
6. OTHER CURRENT ASSETS
Other current assets include Ps486,915 and Ps132,470, as of December 31,
1998 and 1999, respectively and Ps134,191 as of June 30, 2000 (unaudited), of
non-cement related assets which are intended to be sold in the short-term, and
that are stated at their estimated realizable value. These assets include
securities and assets for lines of business other than the Company's, which
are mainly originated from (i) non-cement related assets acquired in the
acquisition of our international subsidiaries, and (ii) assets held for sale
including land and buildings received from customers as payment of trade
receivables.
As of December 31, 1998, within non-cement related assets acquired as part
of the acquisition of subsidiaries, were included approximately Ps432.9
million for an uncompleted real estate project in Spain. During 1999, the
Company sold part of this asset in Spain, recording a net loss of
approximately Ps165 million in the caption Other Expenses, net. Additionally,
as of December 31, 1999, the Company recognized an impairment allowance
related to this asset for approximately Ps38.6 million in the income
statement. The fair value of the remaining non-cement assets in Spain as of
December 31, 1999 is approximately Ps29.3 million and was reclassified to
fixed assets.
7. INVESTMENTS AND NONCURRENT RECEIVABLES
Investments in shares of affiliated companies are accounted for by the
equity method, which considers the results of operations and the stockholders'
equity of the investee's. Investment in shares of affiliated companies are
summarized as follows:
<TABLE>
<CAPTION>
December 31, (Unaudited)
--------------------- June 30,
1998 1999 2000
----------- --------- -----------
<S> <C> <C> <C>
Contribution or book value at acquisition
date........................................ Ps2,534,811 4,383,583 4,064,838
Equity in income and other changes in
stockholders' equity of subsidiaries and
affiliated companies........................ 1,384,438 1,630,441 1,282,949
----------- --------- ---------
Ps3,919,249 6,014,024 5,347,787
=========== ========= =========
</TABLE>
Investment held by subsidiaries in the Parent Company amounting to
Ps4,469,334 (171,064,911 CPO's) and Ps6,318,929 (113,625,709 CPO's and
3,663,615 warrants) as of December 31, 1998 and 1999, respectively, are offset
against majority interest stockholders' equity in the accompanying financial
statements. As part of the hedge transaction carried out by the Company during
1999 (see notes 2C and 14(d)), a total of 105 million CPOs held by
subsidiaries in the Parent Company were sold.
a) On November 22, 1999, the Company acquired from the Egyptian government
a 77% equity interest in Assiut Cement, Co. ("Assiut"), the largest
cement-producing company in Egypt, for $318.8 million (Ps3,119
million). Additionally, the Company has an option until June 30, 2000
to acquire an additional
F-15
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
13% equity interest for an approximate amount of $53.8 million. As of
December 31, 1999, the consolidated financial statements of the Company
include the balance sheet of Assiut with figures as of November 30,
1999, and the results of the one-month period ended November 30, 1999.
b) During 1999, the Company entered into capitalization and subscription of
shares agreements with institutional investors in Asia, represented by
AIG Asian Infrastructure Fund II, L.P. and GIC Special Investments Pte
Ltd., to co-invest in Cemex Asia Holdings Ltd. ("CAH"), a subsidiary of
the Company created to make cement investments in Asia. Based on the
agreements, on September 30, 1999, the investors in Asia contributed
capital to CAH of approximately $87 million, and the Company, through
subsidiaries, contributed to CAH its direct participation and its
economic benefits in Rizal Cement and APO Cement, subsidiaries in the
Philippines. As a result of this transaction, on September 30, 1999, the
direct participation and economic benefits of the Company in Rizal and
APO decreased to 60% and 86%, respectively. Due to this transaction, a
minority interest increase in the consolidated stockholders' equity was
reflected.
c) On September 21, 1999, the Company successfully completed a tender offer
for the acquisition of the Costa Rican cement producer, Cementos del
Pacifico, S.A. ("Cempasa"). Through this transaction, a subsidiary of
the Company acquired an additional 79.5% of the shares outstanding of
Cempasa for approximately $72 million (Ps704 million), increasing the
equity interest of the Company in Cempasa to 95.3%. As of December 31,
1999 the consolidated financial statements of the Company, include the
balance sheet of Cempasa with figures as of December 31, 1999, and the
results for the three-month period ended December 31, 1999.
d) In June 1999, the Company acquired an 11.92% equity interest in Cementos
Bio Bio, S.A., the largest cement producer of Chile. The total of this
transaction amounted to approximately $34 million. As of December 31,
1999, the investment in Cementos Bio Bio was accounted for under the
equity method of accounting, and is included in the investments in
affiliated companies' caption for Ps302,567.
e) In February 1999, a subsidiary of the company acquired 99.9% interest in
the economic benefits of APO Cement Corporation ("APO"), a Philippine
cement producer, for approximately $400 million. As of December 31,
1999, the consolidated financial statements of the Company include the
balance sheet and results of APO for the year ended December 31, 1999.
f) Through transactions carried out in 1998 and 1999 for approximately
$114.6 and $126 million, respectively, a subsidiary of the Company
acquired 25.53% of the common stock of PT Semen Gresik (Persero), Tbk.
("Gresik"), an Indonesian company with several cement plants. As of
December 31, 1999, the investment in Gresik was included in the
consolidated financial statements under the equity method of accounting,
and is included in the investments in affiliated companies' caption for
Ps2,793,724. As of December 31, 1998, the investment in Gresik was
accounted under the cost method of accounting and totaled Ps1,203,009.
Under the terms of the Company's agreement, entered into with the
Indonesian government in connection with the Company's investment in
Gresik, the Indonesian government has an option until October 2001 to
require the Company to purchase its 51% interest in Gresik for a
purchase price of approximately $418 million (Ps4,113 million), plus
accrued interests since October 1998 at 8.2% per annum.
g) In December 1998, through a public offering, the Company acquired an
additional 21.96% of the shares representative of the capital stock of
its Colombian subsidiary. Through this acquisition, the Company's
investment in this subsidiary increased from a 68.7% to 90.7%. This
transaction amounted to approximately $47.3 million (approximately Ps
482 million).
F-16
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
h) In November 1998, a subsidiary of the Company increased its equity
interest in Rizal Cement, Inc. ("Rizal"), a Philippine cement producer
to 40%, for an approximate amount of $130 million. Likewise, as part of
this transaction, a Philippine investor, through the subscription of a
special series of shares, purchased an additional 30% of Rizal. The
Philippine investor and Cemex formed an alliance that grants the
Company control of the operations not reserved for nationals under
Philippine law, and the administration of Rizal. Through these
transactions, the Company has 70% of the economic benefits of Rizal. As
of December 31, 1999, the consolidated financial statements include the
balance sheet and results of Rizal for the year 1999. As of December
31, 1998, the investment in Rizal was accounted for by the purchase
method of accounting and the accounts of Rizal are included in the
Company's consolidated financial statements based upon Rizal's November
30, 1998 amounts.
Certain condensed financial information of the balance sheets and income
statements of the acquired companies during 1999, for the periods mentioned
above, are presented below:
<TABLE>
<CAPTION>
a) Assiut c) Cempasa e) APO
----------- ---------- ---------
<S> <C> <C> <C>
Total assets.................................. Ps4,187,915 655,051 3,686,583
Total liabilities............................. 2,789,953 261,611 1,214,783
Stockholders' equity.......................... 1,397,962 393,440 2,471,800
----------- ------- ---------
Sales......................................... Ps 141,638 93,812 634,753
Operating income.............................. 15,834 20,676 114,258
Net (loss) income............................. (7,407) (18,237) 75,318
----------- ------- ---------
</TABLE>
8. PROPERTY, MACHINERY AND EQUIPMENT
During 1999, through the analysis of the economic and market conditions
prevailing in the countries where the Company operates, the marketing plans,
as well as the future production needs, the Company decided to cease
operations in 4 operating cement assets located in Mexico and Colombia, as
well as to partially close 4 other operating cement assets located in the same
countries, in order to avoid a production overload. Based on this analysis,
the Company estimated that the expected future cash flows to be generated by
such assets would not be sufficient to recover their book value.
As a result of the above and, according to the guidelines established in
Bulletin C-6 "Property, Machinery and Equipment", during 1999, the Company
determined an impairment provision of approximately $63.1 million (Ps617.3
million), which is reflected in the consolidated income statement under the
caption Other Expenses, net. As of December 31, 1999, the assets subject to
impairment described above are valued at their estimated realizable value, net
of the expenses estimated for their disposal and, their depreciation has been
suspended. The remaining book value of these assets is approximately Ps322
million and it is the Company's intention to dispose of those that were
completely closed. The impact at December 31, 1999 of having suspended
depreciation of these assets on the 1999 results was approximately Ps31.07
million.
The Company continues with the assessment process of its subsidiaries'
fixed assets; therefore, the possibility of future provisions for impairment
of additional assets exists.
In 1998, the Company sold a cement plant and its related assets of its
Spanish subsidiary for approximately $260 million (Ps2,651million), resulting
in a gain in the consolidated income statement of approximately Ps335 million.
The sale included the ready-mix concrete, mortar and aggregates operations
related to that plant.
F-17
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
9. DEFERRED CHARGES
Deferred charges are summarized as follows:
<TABLE>
<CAPTION>
December 31, (Unaudited)
------------------------ June 30,
1998 1999 2000
------------ ---------- -----------
<S> <C> <C> <C>
Excess of cost over book value of
subsidiaries and affiliated companies
acquired............................... Ps23,693,664 25,040,419 25,090,683
Terminal installation costs and other
intangible assets...................... 47,207 60,822 73,728
Deferred financing costs................ 427,685 547,953 595,743
Others.................................. 3,020,599 3,532,609 5,170,730
Accumulated amortization................ (4,351,598) (5,243,150) (5,380,808)
------------ ---------- ----------
Ps22,837,557 23,938,653 25,550,076
============ ========== ==========
</TABLE>
As of December 31, 1999, as a result of the acquisitions made by the Company
during 1999 (see note 7), goodwill increased approximately $249 million
(Ps2,436 million), in relation to the prior year.
10. SHORT-TERM BANK LOANS AND NOTES PAYABLE
Short-term debt is summarized by currency as of December 31, 1998 and 1999,
as follows:
<TABLE>
<CAPTION>
1998 Rate 1999 Rate
------------ ------------ ---------- -------------
<S> <C> <C> <C> <C>
US Dollars................... Ps10,532,324 5.8% - 10.0% 8,047,747 5.4% - 10.8%
Euros........................ -- -- 907,792 3.5% - 4.1%
Egyptian Pounds.............. -- -- 693,394 10.5%
Philippine Pesos............. 201,969 16.8% 233,217 13.0% - 15.7%
Spanish Pesetas.............. 392,672 3.9% - 5.8% 189,057 3.8%
Colombian Pesos.............. 147,974 19.8% 5,594 19.8%
------------ ----------
Ps11,274,939 10,076,801
============ ==========
</TABLE>
F-18
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
11. LONG-TERM BANK LOANS AND NOTES PAYABLE
The consolidated long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1998 Rate 1999 Rate
------------ ------------ ---------- ------------
A) Bank Loans
<S> <C> <C> <C> <C>
1. Syndicated loans
denominated in foreign
currency, due from
2000 to 2006.......... Ps 9,779,892 6.1% - 8.2% 13,839,623 4.1% - 9.5%
2. Bank loans denominated
in foreign currency,
due from 2000 to
2007.................. 5,466,849 3.9% - 19.8% 4,924,289 3.5% - 15.7%
3. Revolving line of
credit in foreign
currency, due from
2001 to 2002.......... 4,995,714 6.6% 3,913,175 7.1%
------------ ----------
20,242,455 22,677,087
============ ==========
B) Notes Payable
4. Euro medium-term Notes
denominated in foreign
currency, due from
2000 to 2006.......... 13,403,353 8.5% - 12.8% 14,523,925 8.5% - 12.8%
5. Commercial paper
denominated in foreign
currency with
revolving maturities
every one or two
years................. 1,977,895 5.3% - 7.7% 1,633,751 7.3%
6. Yankee Notes, due in
2003.................. 1,785,812 8.4% 805,136 8.4%
7. Other notes
denominated in foreign
currency, due from
2000 to 2009.......... 920,387 6.7% - 9.8% 832,608 7.1% - 8.9%
------------ ----------
18,087,447 17,795,420
------------ ----------
38,329,902 40,472,507
Current maturities.... (6,354,481) (7,792,561)
------------ ----------
Ps31,975,421 32,679,946
============ ==========
</TABLE>
1. Syndicated loans denominated in foreign currency had a weighted average
floating interest rate of 6.8% in 1998 and 6.2% in 1999. These loans
had a weighted average spread based on LIBOR of 132 basis points in
1998 and 98 in 1999.
2. Bank loans denominated in foreign currency, of which 93% in 1998 and
48% in 1999 were floating rate with a weighted average interest rate of
6.5% in 1998 and 5.4% in 1999. These loans had a weighted average
spread based on LIBOR of 122 basis points in 1998 and 45 basis points
in 1999.
3. Revolving line of credit in foreign currency with an average floating
rate of 6.6% in 1998 and 7.1% in 1999. These loans had a spread based
on LIBOR of 125 basis points.
4. Euro medium-term Notes denominated in foreign currency with a weighted
average fixed rate of 10.5% in 1998 and 10.3% in 1999.
5. Commercial paper denominated in foreign currency with revolving
maturities every one or two years with a weighted average floating
interest rate of 6.0% in 1998 and 7.3% in 1999. These loans had a
spread based on LIBOR of 73 basis points in 1998 and 116 basis points
in 1999.
6. Yankee Notes had a fixed rate of 8.375% in 1998 and 1999.
F-19
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
7. Other notes denominated in foreign currency of which Ps412,057 and
Ps124,170 were floating rate with a weighted average interest rate of
6.9% and 5.9% in 1998 and 1999, respectively. These loans had a
weighted average spread based on LIBOR of 162 basis points in 1998 and
16 basis point in 1999. The remaining Ps482,652 in 1998 and Ps685,209
in 1999 were fixed rate with a weighted average interest rate of 8.9%
and 6.4% in 1998 and 1999, respectively.
Long-term debt is summarized by currency as of December 31, 1998 and 1999
as follows:
<TABLE>
<CAPTION>
Consolidated 1998 1999
------------ ------------ ----------
<S> <C> <C>
US Dollars........................................... Ps31,087,266 25,840,051
Euros................................................ -- 4,479,781
Egyptian Pounds...................................... -- 1,604,900
Philippine Pesos..................................... 141,793 203,075
Spanish Pesetas...................................... 687,259 512,299
Colombian Pesos...................................... 13,989 39,840
Venezuela Bolivars................................... 45,114 --
------------ ----------
Ps31,975,421 32,679,946
============ ==========
</TABLE>
As of December 31, 1999, the Company has interest rate swap contracts for
up to $450 million (Ps4,428 million), exchanging fixed for floating rates.
Additionally, the Company has interest rate collars for 7,500 million pesetas
(Ps426 million) and $50 million (Ps492 millions) in 1998 and 2,500 million
pesetas (Ps141 million) in 1999, related to the debt negotiated at variable
rates in a range of LIBOR and MIBOR. Furthermore, there are forward range swap
contracts covering up to $405 million (Ps3,985 million) and $80 million (Ps787
million) in 1998 and 1999, respectively, to protect the financial cost of debt
negotiated at variable rates.
The Company has these interest rate hedge instruments and derivative
instruments as part of its strategy to manage the overall cost of borrowing.
The results of these instruments are recognized as part of the financial
expense.
As of December 31, 1999, the Company's maturity dates, interest rates being
hedged, current interest rates and estimated market value of interest rate
collars and swaps related to the debt hedged as described above are presented
as follows:
<TABLE>
<CAPTION>
Interest rate
Maturity hedged or Effective Estimated
date exchanged interest rate market value
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Debt denominated in
Pesetas................ April 2000 3.11% 3.68% Ps (479)
Debt denominated in US
dollars................ March 2001 6.51% 6.33% (2,319)
Debt denominated in US
dollars................ June 2002 9.25% 8.19% (56,105)
Debt denominated in US
dollars................ October 2009 9.63% 8.47% (59,324)
----------
Ps(118,227)
==========
</TABLE>
As of December 31, 1998, the estimated market value of these instruments
showed a loss of approximately Ps(225,100).
The estimated market value of the interest rate collars and swaps will
fluctuate over time and will be determined by the market future pricing of the
rates. Fair values should not be viewed in isolation, but rather in relation
to the fair values of the underlying transactions and the overall reduction in
the Company's exposure to
F-20
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
fluctuations in interest 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 for the use
of these derivatives. The amounts exchanged are calculated on the basis of the
notional amounts and the other items included in the derivative instruments.
The maturities of long-term debt as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Total
------------
<S> <C>
2001............................................................ Ps 9,772,968
2002............................................................ 8,490,719
2003............................................................ 3,576,631
2004............................................................ 3,227,391
2005 and thereafter............................................. 7,612,237
------------
Ps32,679,946
============
</TABLE>
As of December 31, 1998, the subsidiaries that guaranteed indebtedness of
the Company for an aggregate of $2,010 million were: Tolmex, S.A. de C.V.,
Serto Construcciones, S.A. de C.V., Cemento Portland Nacional, S.A. de C.V.,
Cementos Mexicanos, S.A. de C.V. and Cemex Control, S.A. de C.V. As of December
31, 1999, Cemex Mexico, S.A. de C.V. and Empresas Tolteca de Mexico, S.A. de
C.V., guaranteed indebtedness of the Company for an aggregate amount of $2,090
million. The change of the subsidiaries, which guaranteed the Company's
indebtedness resulted from the mergers mentioned in note 3D. The combined
summarized financial information of these guarantors as of December 31, 1998
and 1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
------------ ----------
<S> <C> <C>
Assets............................................... Ps64,825,009 47,914,331
Liabilities.......................................... 13,636,454 30,036,240
Stockholders' equity................................. 51,188,555 17,878,091
------------ ----------
Net sales............................................ Ps 8,780,028 19,808,271
Operating income..................................... 2,638,008 9,084,215
Net income........................................... 3,839,882 6,419,143
------------ ----------
</TABLE>
As of December 31, 1999, the Company and its subsidiaries have the following
lines of credit, both committed and subject to the bank's availability, at
annual interest rates ranging from 5.4% to 12.8%, in accordance with the
negotiated currency:
<TABLE>
<CAPTION>
Line of
Credit Available
------------ ----------
<S> <C> <C>
Euro medium-term Notes ($1,250 million).............. Ps12,228,671 8,415,087
European commercial paper ($600 million)............. 5,869,762 4,236,012
US commercial paper ($250 million)................... 2,445,734 2,445,734
Current line of credit ($250 million)................ 2,445,734 2,445,734
Lines of credit of foreign subsidiaries.............. 5,606,503 3,707,155
Other lines of credit from Mexican banks............. 5,531,154 4,632,944
Other lines of credit from foreign banks............. 4,324,481 2,358,138
------------ ----------
Ps38,452,039 28,240,804
============ ==========
</TABLE>
At December 31, 1998 and 1999 in the consolidated balance sheets there are
current liabilities amounting to $168 million and $226 million, respectively,
classified as long-term debt due to the ability and intention of the Company to
refinance such indebtedness with the available amounts of the long-term lines
of credit.
F-21
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
As of December 31, 1999, the Company established deposits in trusts
amounting to $120 million (Ps1,174 million). Such deposits are committed to the
repayment of $30 million in short-term debt and $90 million in long-term debt,
to repay part of the Yankee Bond purchase offer (see note 22). These deposits
have been offset for presentation purposes.
Certain credit agreements are guaranteed by the Company and/or some of its
subsidiaries and contain restrictive covenants that limit the sale of assets,
maintain control of the shares of certain subsidiaries, establish liens and
require the Company to comply with certain financial ratios. When a default
event has occurred, the Company has obtained the respective waivers.
12. PENSION PLANS AND SENIORITY PREMIUM
The net periodic pension cost of the pension plans and seniority premium and
the actuarial present value of the benefit obligation and the funded status of
the plans described in note 3K, were determined based on computations prepared
by independent actuaries as of December 31, 1998 and 1999, and are summarized
as follows:
<TABLE>
<CAPTION>
1998 1999
------------ ---------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation ("PBO") at beginning of year...... Ps 594,439 1,358,899
Service cost........................................ 158,956 175,600
Interest cost....................................... 130,483 116,904
Amendments.......................................... 590,393 1,068
Actuarial results................................... 262 82,174
Acquisitions........................................ 13,084 4,022
Foreign exchange rate changes and inflation
adjustments........................................ (48,164) 48,761
Benefits paid....................................... (80,553) (84,177)
------------ ---------
Benefit obligation ("PBO") at end of year............ 1,358,900 1,703,251
------------ ---------
Change in plan asset:
Fair value of plan assets at beginning of year....... 66,570 189,346
Actuarial return on plan assets..................... 5,761 24,217
Actuarial differences............................... 5,628 166,310
Acquisitions........................................ 10,670 823
Foreign exchange rate changes and inflation
adjustments........................................ -- 25,732
Employer contribution............................... 100,717 339,162
Benefits paid from the funds........................ -- --
------------ ---------
Fair value of plan assets at end of year............. 189,346 745,590
------------ ---------
Amounts recognized in the statements of financial
position consist of:
Funded status....................................... (1,169,554) (957,661)
Unrecognized prior service cost..................... 575,201 631,293
Unrecognized net actuarial results.................. (42,187) (82,976)
------------ ---------
Accrued benefit liability.......................... (636,540) (409,344)
Additional minimum liability....................... (349,638) (134,232)
------------ ---------
Net liability recognized in the consolidated
balance sheet.................................... Ps (986,178) (543,576)
============ =========
</TABLE>
F-22
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
The Actuarial Present Obligation ("APO") as of December 31, 1998 and 1999
amounted to Ps1,171,440 and Ps1,407,681, respectively. Of these APO amounts,
the vested portion was Ps645,430 in 1998 and Ps703,061 in 1999. As of December
31, 1997, the net cost derived from the pension plans and seniority premium
was Ps141,805.
As of December 31, 1998 and 1999, the plan assets are mainly composed by
fixed return instruments and stock of companies traded in formal stock
exchanges.
The most significant assumptions used in the determination of the net
periodic costs were the following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Range of discount rates used to reflect the
obligations present value............................ 4.5% - 6.0% 4.5% - 6.0%
Rate of return on plan assets......................... 7% 6%
</TABLE>
Commencing in January 1998, most of the subsidiaries of the Company in
Mexico were incorporated to include pension plans. Therefore, the initial
actuarial valuation of the labor obligation for all Mexican subsidiaries under
the plan benefits was made as of January 1, 1998. As mentioned in note 3K, the
Company applies real rates (nominal rates discounted for inflation) in the
actuarial assumptions used to determine the pension plans and seniority
premium liabilities. With the use of real rates, there is a decrease in the
difference between the APO and the PBO. As a result of the use of real rates
and the initial valuation in Mexico as of January 1, 1998, and according to
generally accepted accounting principles, the Company recognizes a minimum
liability against an intangible asset, which as of December 31, 1998 and 1999
was Ps349,638 and Ps134,232, respectively.
13. STOCKHOLDERS' EQUITY
A) CAPITAL STOCK
The previously reported share and per share amounts corresponding to 1998
and the 1999 changes done before September 14, 1999, have been restated to
give effect to the stock split made during 1999 (see note 2A).
Capital stock of the Company as of December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Series A (1) Series B (2)
------------- -------------
<S> <C> <C>
Subscribed and paid shares........................ 2,959,216,418 1,479,608,209
Treasury shares................................... 105,241,768 52,620,884
Unissued shares authorized for Executive Stock
Option Plans..................................... 132,350,424 66,175,212
------------- -------------
3,196,808,610 1,598,404,305
============= =============
</TABLE>
--------
(1) Series "A" or Mexican shares represent at least 64% of capital stock.
(2) Series "B" or free subscription shares represent at most 36% of capital
stock.
Of the total shares, 3,267,000,000 correspond to the fixed portion and
1,528,212,915 correspond to the variable portion.
During 1999, at the annual stockholders' meeting, a dividends program was
established through which shareholders elected between receiving a dividend in
cash of Ps0.45 per share or reinvesting such dividend in
F-23
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
the subscription of new shares representative of the capital stock. As a result
of the program, cash dividends were declared in the amount of Ps1,941,478. Of
the total of dividends declared, shareholders reinvested Ps1,753,866;
therefore, a total of 94,758,232 series "A" shares and 47,379,116 series "B"
shares were subscribed and paid, generating an additional paid-in capital of
Ps1,752,140.
B) EXECUTIVE STOCK OPTION PLAN (see note 2A)
The Company has adopted a Stock Option Plan for shares of the variable
portion of the common stock. Through this program, the Company grants to
eligible executives, designated by a technical committee, stock option "rights"
to subscribe up to 72,100,000 new CPO's. As of December 31, 1998 and 1999 the
option balances were as follows:
<TABLE>
<CAPTION>
1998 1999
-------------------- --------------------
Number of Exercise Number of Exercise
options price * options price *
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Granted............................... 30,399,005 32.92 47,000,318 35.09
Canceled.............................. -- -- (55,608) 43.43
Exercised............................. (2,481,194) 26.42 (5,924,788) 26.32
---------- ----------
Outstanding........................... 27,917,811 41,019,922
========== ==========
</TABLE>
--------
* Weighted average exercise price per CPO
The option rights may be exercised up to 25% of the total number of options
during the first four years after having been granted. The option rights expire
after a maximum of ten years or when the employee leaves the Company. A portion
of the options has an exercise maturity period of five years, which can be
extended to ten years if certain conditions are met during the first five
years. Under the Stock Option Plan, the Company has no obligation to recognize
a liability for the amount of options.
During 1998 and 1999, options were granted to purchase 9,246,120 and
16,601,313 CPOs at a weighted average purchase price per option of Ps43.47 and
Ps39.16 per CPO, respectively. The options exercised were 234,671 and 3,443,594
at a weighted average purchase price per CPO of Ps24.20 and Ps25.40 for 1998
and 1999, respectively. The balance of CPOs available for the Stock Option Plan
as of December 31, 1998 and 1999 were 41,700,995 CPOs and 25,099,682 CPOs,
respectively. As of December 31, 1999 the outstanding options have a remaining
average exercise period of approximately 7.3 years.
The CPOs issued upon the exercise of options were paid at their purchase
price per CPO, generating an additional paid-in capital of Ps10,135 and
Ps91,948 in 1998 and 1999, respectively.
The Company's is obligated under the Stock Option Plan, to issue CPOs
representing the capital stock of the Company, on each exercise date, which
represents an increase in such capital.
C) RETAINED EARNINGS
Retained earnings as of December 31, 1999 include Ps43,815,683 earnings
generated by subsidiaries and affiliated companies, which may be distributed by
the Company when the respective dividends are declared by these companies.
Furthermore, retained earnings include a reserve to repurchase the Company's
shares in the amount of Ps11,004,774.
F-24
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Net income of the year is subject to a 5% allocation to constitute a legal
reserve, until such reserve equals one fifth of the capital stock. As of
December 31, 1999, the legal reserve amounted to Ps1,268,318.
Earnings distributed as dividends in excess of tax earnings will be subject
to tax as defined by the Mexican Income Tax Law, in which case, only 65% of
retained earnings may be distributed to the shareholders.
D) EFFECTS OF INFLATION
The effects of inflation on the majority interest stockholders' equity as of
December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------
Historical Inflation
cost adjustment Total
------------ ----------- -----------
<S> <C> <C> <C>
Common stock.......................... Ps 49,312 2,860,792 2,910,104
Additional paid-in capital............ 9,255,558 10,308,401 19,563,959
Deficit in equity restatement......... -- (40,957,792) (40,957,792)
Retained earnings..................... 29,637,268 30,028,013 59,665,281
Net income of the year................ 9,178,227 336,267 9,514,494
============ =========== ===========
<CAPTION>
(Unaudited) June 30, 2000
-------------------------------------
Historical Inflation
cost adjustment Total
------------ ----------- -----------
<S> <C> <C> <C>
Common stock.......................... Ps 51,291 2,860,793 2,912,084
Additional paid-in capital............ 11,317,341 10,074,522 21,391,863
Deficit in equity restatement......... -- (47,916,266) (47,916,266)
Retained earnings..................... 36,538,440 30,364,280 66,902,720
Net income of the year................ 4,600,541 119,167 4,719,708
============ =========== ===========
</TABLE>
E) FOREIGN CURRENCY TRANSLATION
Net foreign currency translation results, amounting to Ps236,262,
Ps2,947,088 and Ps(235,823) in 1997, 1998 and 1999, respectively and for the
six months ended in 1999 and 2000 Ps(50,587) (unaudited) and Ps1,351,600
(unaudited), respectively, have been recorded directly to stockholders' equity,
and are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
-------------------------------- -------------------
1997 1998 1999 1999 2000
---------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Foreign currency
translation
adjustment............. Ps 696,017 6,045,988 (849,435) (817,547) 1,856,324
Foreign exchange gain
(loss) (1)............. (459,755) (3,098,900) 613,612 766,960 (504,724)
---------- ---------- -------- -------- ---------
Ps 236,262 2,947,088 (235,823) (50,587) 1,351,600
========== ========== ======== ======== =========
</TABLE>
--------
(1) Foreign exchange losses from the financing identified with the
acquisitions of foreign subsidiaries in accordance with Bulletin B-15.
F-25
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
The foreign currency translation adjustment includes foreign exchange
results from financing related to the acquisition of foreign subsidiaries by a
subsidiary of the Company in Spain for Ps(877,040), Ps465,978 and
Ps(1,930,758), in 1997, 1998 and 1999, respectively and Ps(1,598,932) and
Ps(391,179) for the six month periods ended June 30, 1999 and 2000
(unaudited), respectively.
F) OTHER EQUITY TRANSACTIONS
In May 1998, a subsidiary of the Company in Spain issued $250 million of
preferred shares ("Putable Capital Securities") at a dividend rate of 9.66%
per year. The Company has an option to repurchase the balance on November 15,
2004, or on any other subsequent dividend payment date. Additionally, the
holders of the instrument have the right to sell the instrument to the Company
on May 15, 2005.
As of December 31, 1999 there are financial transactions totaling $604.6
million (Ps5,949.3 million), some of which include guarantees, which have been
offset for presentation purposes in the Company's consolidated balance sheet.
These financial transactions have been offset as follows: $500 million for a
minority interest without voting rights or dividend rights of the subsidiary
in Spain and $104.6 million for the transfer of assets to a trust. These
financial transactions require certain collateral guarantees. The maturity of
the described transactions varies between the year 2000 and 2007, and the
Company has the option to reacquire the related assets at different dates. As
of December 31, 1998, $78 million were compensated with stock of the Parent
Company, amount that was refinanced in 1999 as a part of the transaction,
which includes stock of the subsidiary in Spain.
As of December 31, 1999, the Company has recognized valuation effects in
the stockholders' equity for Ps538,456, derived from investments available for
sale (see note 3H).
14. DERIVATIVE FINANCIAL INSTRUMENTS
As of December 31, 1999, the Company has entered into various derivative
financial instrument transactions in order to reduce its risks resulting from
changes in interest rates (see note 11), foreign exchange rates and the price
of its common shares. These instruments have been negotiated with major
domestic and international institutions and corporations, which have a solid
financial capacity. Therefore, the Company considers that the risk of non-
compliance of the obligations agreed upon by such counterparties is minimum.
The notional amount, as well as the estimated fair value of the derivative
instruments as of December 31, 1998 and 1999, is as follows:
<TABLE>
<CAPTION>
December 31, December 31, (Unaudited)
1998 1999 June 30, 2000
---------------- ---------------- ----------------
Notional Fair Notional Fair Notional Fair
amount value amount value amount value
-------- ------- -------- ------- -------- -------
(Thousands of US dollars)
<S> <C> <C> <C> <C> <C> <C>
a) Equity forward
contracts........... 220,638 (48,011) 222,719 89,650 427,116 70,272
b) Foreign exchange
forward contracts... 250,000 (60,848) 410,000 12,423 200,000 1,498
c) Call options........ -- -- 51,530 (15,427) 24,493 (10,862)
d) Warrants related
forward contracts... -- -- 606,005 122,690 579,850 25,924
------- ------- ------- ------- ------- -------
</TABLE>
--------
a) The Company has entered in to forward agreements and has sold (put)
options related to its outstanding common stock at an established price
that covers up to approximately $137 and $106 million as of December 31,
1998 and 1999, respectively. At maturity, these agreements provide for
physical or net cash settlement,
F-26
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
at the Company's option, and the gains or losses are recognized in
stockholders' equity. In addition, the Company has forwards related to its
ADSs, in order to fully cover its voluntary stock option plans for
employees for up to $84 and $116 million, in 1998 and 1999, respectively.
Through these programs, the Company's executives elected to purchase
options to buy 7,293,675 ADSs of the Company. These options are exercisable
quarterly over a period of 5 years, and they have an 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 option price at the beginning of the
program. As of December 31, 1999, the Company had voluntary stock options
outstanding for 4,527,369 ADS's.
b) The Company has entered into foreign exchange forward contracts in order
to protect itself from variations in foreign exchange rates. These
contracts have been designated as a hedge on the Company's net investment
in foreign subsidiaries for up to $250 and $410 million as of December 31,
1998 and 1999, respectively. The fair value effects arising from these
instruments are recorded for as part of the translation effect of foreign
subsidiaries (see note 13 E).
c) At December 31, 1999 the Company has outstanding call options for
1,229,260 of its ADSs. The Company may exercise these call options until
October 15, 2000, at a weighted average strike price of $41.89 per ADS.
d) Regarding the public offer for warrants' subscription made by the Company
during December 1999, and the related sale of CPOs and shares of a
subsidiary mentioned in note 2C, the Company, through a subsidiary,
carried out a hedge transaction by means of which forward contracts were
entered into to repurchase the total of CPOs and shares over a period of
three years, and prepaid approximately $439.9 million (Ps4,303.5 million)
of the forward purchase price. At maturity, the forward contracts provide
for the physical exchange of the shares, and the effects are recognized as
part of stockholders' equity. In the financial statements as of December
31, 1999, anticipated effect has been given to the liquidation of the
forward for the portion corresponding to the shares of the subsidiary, due
to the prepayment of the forward and the withholding of all economic and
voting rights over such shares. Therefore, a net prepayment of
approximately $51.7 million (Ps505.8 million), is reflected in Other Long-
Term Accounts Receivable corresponding to the CPO's portion.
Additionally, during 1999, the Company terminated a derivative transaction
from which gains or losses, depended on the performance of its common shares
in relation to the Price and Quotation Index in Mexico. The effects derived
from this transaction are included in the statements of income.
The estimated fair values of derivative financial instruments used to hedge
the Company's risks will fluctuate over time, and are based on estimated
settlement costs or quoted market prices. Fair values should not be viewed in
isolation, but rather in relation to the fair values of the underlying hedge
transactions and the overall reduction in the Company's exposure to adverse
fluctuations in foreign exchange rates and price of shares. The notional
amounts of derivatives summarized above do not necessarily represent amounts
exchanged by the parties and, therefore, are not a direct measure of the
exposure of the Company though its use of derivatives. The amounts exchanged
are calculated on the basis of the notional amounts and the other items of the
derivatives, which relate to interest rates, exchange rates or other financial
index.
15. INCOME TAX ("IT"), BUSINESS ASSETS TAX ("BAT"), EMPLOYEES' STATUTORY
PROFIT SHARING ("ESPS") AND DEFERRED TAXES
In accordance with present 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 in a manner different from generally accepted accounting
principles. Employees' Statutory Profit Sharing ("ESPS") is calculated on a
similar basis as Income Tax, but without recognizing the effects of inflation.
F-27
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
A) IT, BAT AND ESPS
The Company and its subsidiaries in Mexico consolidate for IT and BAT
purposes. Beginning in 1999, the determination of the consolidated IT for the
Mexican companies considered 100% of the taxable income or tax loss of the
holding company, and a maximum of 60% of the taxable income or tax loss of each
of the subsidiaries. For the period of 1999 and after, the taxable income of
the subsidiaries that have tax loss carryforwards generated before 1999, will
be taken according to its equity participation at the end of the period.
Therefore, the amounts of these items included in the accompanying financial
statement, in respect of 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.
Income Tax benefit (expense) is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1997 1998 1999
------------ ---------- ----------
<S> <C> <C> <C>
Current Income Tax................... Ps(1,561,382) (1,541,753) (4,125,769)
Received from subsidiaries........... -- -- --
Deferred taxes....................... -- -- (5,394)
Utilization of tax loss
carryforwards....................... 999,415 1,005,250 3,452,098
Effects of inflation (note 3B)....... 38,573 65,420 10,080
------------ ---------- ----------
Ps (523,394) (471,083) (668,985)
============ ========== ==========
</TABLE>
Total IT includes Ps247,493, Ps298,723 and Ps349,842 from foreign
subsidiaries and Ps275,901, Ps172,360 and Ps319,143 from Mexican subsidiaries
for 1997, 1998 and 1999, respectively. The Company, as a holding company,
prepares its IT and BAT returns on a consolidated basis for its operations in
Mexico, which resulted in tax benefits of Ps793,889 in 1997, Ps1,838,812 in
1998 and Ps67,669 in 1999.
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
generally accepted accounting principles used by the Company. These effects, as
well as other differences between the accounting and the income tax basis,
arising from the several income tax rates and laws to which the Company is
entitled in the countries in which it has operations, give rise to temporary
differences between the statutory tax rate and the effective tax rate presented
in the income statement:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998 1999
----- ----- -----
% % %
<S> <C> <C> <C>
Statutory tax rate.................................... 34.0 34.0 35.0
Utilization of tax loss carryforwards................. (14.2) (14.9) (27.9)
Additional deductions and tax credits for income tax
purposes............................................. (12.9) (20.0) 8.0
Expenses and other non-deductible items............... 4.8 5.9 (9.1)
Non-taxable sale of marketable securities and fixed
assets............................................... (3.6) 0.4 (2.4)
Difference between book and tax inflation............. (6.7) (6.9) 2.4
Business assets tax................................... 3.5 2.1 3.7
Depreciation.......................................... (0.3) 2.8 3.5
Inventories........................................... (0.1) (1.5) (6.6)
Others................................................ 1.0 3.3 (0.4)
----- ----- -----
Effective consolidated tax rate....................... 5.5 5.2 6.2
===== ===== =====
</TABLE>
F-28
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
The Company, for its operations in Mexico has accumulated tax loss
carryforwards regarding IT, which may be offset against taxable income in the
succeeding ten years according to the Income Tax Law:
<TABLE>
<CAPTION>
Amount of Year of
Year in which tax loss occurred carryforwards expiration
------------------------------- ------------- ----------
<S> <C> <C>
1995................................................ Ps892,939 2005
</TABLE>
For the year ending December 31, 1999, the Company utilized accumulated tax
loss carryforwards against the period's taxable income of its operations in
Mexico in the amount of Ps9,863,136, which generated a benefit of Ps3,452,098.
The Company and its subsidiaries in Mexico must generate returns to keep the
benefit of the tax loses carryforwards generated from 1999 and future years.
The BAT Law establishes a 1.8% tax levy on assets, indexed for inflation in
the case of inventory, property, plant and equipment after deducting certain
liabilities.
The 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 levied
exceeds BAT levied in such period. The recoverable BAT as of December 31, 1999
is as follows:
<TABLE>
<CAPTION>
Year in which Business Assets Tax exceeded Income Amount of Year of
Tax carryforwards expiration
------------------------------------------------- ------------- ----------
<S> <C> <C>
1997............................................. Ps 139,269 2007
1999............................................. 328,296 2009
----------
Ps 467,565
==========
</TABLE>
B) DEFERRED INCOME TAX
As of December 31, 1999, the Company has created a deferred income tax
provision for the temporary differences of results, over which it is reasonably
estimated that in a defined period a benefit or liability is originated for tax
effects in the amount of Ps1,077 million.
During 1999, the Mexican Institute of Public Accountants ("IMCP"), issued
the new Bulletin D-4 Accounting treatment of income tax, business assets tax
and employees' profit sharing ("Bulletin D-4"). Bulletin D-4 requires the
determination of deferred IT through the application of the statutory IT rate,
to the amount of temporary differences resulting from comparing the book and
taxable value of the assets and liabilities, applying when available the tax
loss carryforwards, as well as the BAT balances or other tax credits to be
recovered. Likewise, it is required to determine the effect of deferred ESPS
for those temporary differences arising from the reconciliation of the net
income of the period and the taxable income for ESPS, of a non-recurring
nature.
The provisions of Bulletin D-4 are mandatory starting January 1, 2000. The
beginning net accumulated effect from deferred income tax derived from the
adoption of the Bulletin, must be recognized in the financial statements
affecting the stockholders' equity in the account named "Accumulated Effect of
Income Tax".
So far, the Company is in the process of determining the final effect that
Bulletin D-4 will generate on the financial statements in 2000, for such
purpose, an estimated consolidated calculation was determined, which can be
representative of the position as of December 31, 1999. Through this
calculation, the Company estimated that due to the adoption of the new Bulletin
D-4, it would be necessary recognize an additional deferred income tax
liability for an approximate amount of Ps3,908 million. Such additional
liability would be recorded against stockholders' equity.
F-29
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
As of June 30, 2000, resulting from the new accounting rule on deferred
taxes in Mexico, the Company recorded a deferred tax liability of approximately
$98 million. The initial balance of this provision, amounting to approximately
$363 million was recorded directly to stockholders' equity; $29 million, which
represents the deferred income tax expense for the period was recorded in the
income statement (unaudited).
16. FOREIGN CURRENCY POSITION
The exchange rate of the Mexican peso to the U.S. dollar as of December 31,
1997, 1998, 1999 and as of June 30, 2000 (unaudited) was Ps8.07, Ps9.90, Ps9.51
and Ps9.84 per dollar, respectively. As of January 17, 2000, the exchange rate
was Ps9.43 per dollar.
As of December 31, 1999 and for the year then ended, the principal balances
denominated in foreign currencies, as well as non-monetary assets in Mexico of
foreign origin are presented as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, 1999 June 30, 2000
--------------------------------- -----------------------------
Mexico Foreign Total Mexico Foreign Total
---------- --------- --------- --------- --------- ---------
(Thousands of U.S. dollars)
<S> <C> <C> <C> <C> <C> <C>
Current assets.......... $ 123,376 939,677 1,063,053 129,872 1,172,798 1,302,670
Non-current assets...... 693,858(1) 5,840,472 6,534,330 697,795 5,633,289 6,331,084
---------- --------- --------- --------- --------- ---------
Total assets.......... $ 817,234 6,780,149 7,597,383 827,667 6,806,087 7,633,754
========== ========= ========= ========= ========= =========
Current liabilities..... $ 804,253 856,126 1,660,379 676,385 1,028,085 1,704,470
Long-term liabilities... 1,848,675 1,641,939 3,490,614 1,580,647 1,433,288 3,013,935
---------- --------- --------- --------- --------- ---------
Total liabilities..... $2,652,928 2,498,065 5,150,993 2,257,032 2,461,373 4,718,405
========== ========= ========= ========= ========= =========
</TABLE>
--------
(1) Non-monetary assets in Mexico of foreign origin.
Additionally, the Mexican operations in foreign currencies during 1997, 1998
and 1999, are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
Six months
ended June
December 31, 30,
------------------------ -------------
1997 1998 1999 1999 2000
-------- ------- ------- ------ ------
(Thousands of U.S. dollars)
<S> <C> <C> <C> <C> <C>
Export sales............................. $131,773 92,170 83,190 40,226 55,938
Import purchases......................... 43,452 36,563 29,954 9,402 9,907
Interest income.......................... 12,652 24,035 14,575 7,675 11,069
Interest expense......................... 225,300 202,748 221,057 88,042 92,053
======== ======= ======= ====== ======
</TABLE>
F-30
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
17. GEOGRAPHIC SEGMENT DATA
The Company is engaged principally in one industry segment, which is the
construction industry through the production and marketing of cement and
concrete. The following table presents information about the Company by
geographic area for 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Net Sales
------------------------------------------------------------
(Unaudited)
Six months ended
December 31, June 30,
------------------------------------ ----------------------
1997 1998 1999 1999 2000
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Mexico.................. Ps17,964,512 19,875,254 22,814,207 10,606,180 12,439,073
Spain................... 7,655,259 9,165,612 7,545,849 3,892,531 4,392,150
Venezuela............... 4,835,060 5,321,484 4,701,741 2,382,711 2,183,411
United States........... 4,612,626 5,511,346 5,840,563 2,950,018 2,821,392
Colombia................ 3,873,409 2,687,358 1,644,889 865,349 978,389
Caribbean and Central
America................ 2,429,500 2,691,937 3,609,846 1,640,658 2,226,060
Philippines............. -- -- 1,197,894 620,307 754,223
Egypt................... -- -- 141,638 -- 838,674
Others.................. 3,158,965 2,824,574 3,806,838 1,881,118 1,921,208
------------ ---------- ---------- ---------- ----------
44,529,331 48,077,565 51,303,465 24,838,872 28,554,580
Eliminations............ (4,917,759) (4,082,699) (4,071,789) (1,880,116) (2,414,435)
------------ ---------- ---------- ---------- ----------
Consolidated............ Ps39,611,572 43,994,866 47,231,676 22,958,756 26,140,145
============ ========== ========== ========== ==========
<CAPTION>
Operating Income
------------------------------------------------------------
(Unaudited)
Six months ended
December 31, June 30,
------------------------------------ ----------------------
1997 1998 1999 1999 2000
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Mexico.................. Ps 5,327,762 8,029,867 10,103,561 4,806,643 5,505,813
Spain................... 1,648,158 2,492,978 2,455,522 1,254,344 1,292,626
Venezuela............... 1,674,214 1,786,217 1,283,321 656,623 496,912
United States........... 292,774 774,452 1,205,804 614,814 495,822
Colombia................ 855,618 113,855 389,632 157,532 378,883
Caribbean and Central
America................ 625,762 451,094 660,516 331,854 382,760
Philippines............. -- -- 24,564 (13,623) 121,618
Egypt................... -- -- 15,834 -- 308,998
Others.................. (1,064,129) (1,640,484) (2,085,618) (881,950) (1,071,396)
------------ ---------- ---------- ---------- ----------
9,360,159 12,007,979 14,053,136 6,926,237 7,912,036
Eliminations............ -- -- -- -- --
------------ ---------- ---------- ---------- ----------
Consolidated............ Ps9,360,159 12,007,979 14,053,136 6,926,237 7,912,036
============ ========== ========== ========== ==========
</TABLE>
F-31
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
<TABLE>
<CAPTION>
Depreciation and Amortization
------------------------------------------------------------
(Unaudited)
Six months ended
December 31, June 30,
--------------------------------------- -------------------
1997 1998 1999 1999 2000
------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Mexico.................. Ps 1,552,967 1,483,980 1,489,793 725,236 616,836
Spain................... 1,003,972 799,482 579,270 301,825 262,751
Venezuela............... 539,360 533,363 569,295 251,389 307,661
United States........... 230,754 206,973 223,862 101,186 116,346
Colombia................ 552,651 535,678 312,582 165,124 219,376
Caribbean and Central
America................ 176,861 176,510 190,780 80,391 82,991
Philippines............. -- -- 237,036 127,851 115,208
Egypt................... -- -- 20,897 -- 111,921
Others.................. 317,455 270,090 618,077 340,094 414,340
------------- ----------- ----------- --------- ---------
Consolidated............ Ps 4,374,020 4,006,076 4,241,592 2,093,096 2,247,430
============= =========== =========== ========= =========
<CAPTION>
Total Assets
---------------------------------------
(Unaudited)
December 31, June 30,
-------------------------- -----------
1998 1999 2000
------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Mexico.................. Ps 55,767,156 48,062,234 50,846,443
Spain................... 22,855,017 20,743,883 21,105,013
Venezuela............... 10,711,602 10,920,583 11,204,426
United States........... 6,866,424 6,867,835 7,079,885
Colombia................ 10,983,596 8,406,318 7,919,659
Caribbean and Central
America................ 4,244,931 5,712,525 6,482,320
Philippines............. 3,277,128 7,946,087 7,703,034
Others Asian............ 1,203,009 2,313,160 2,316,575
Egypt................... -- 6,173,543 6,610,686
Others.................. 8,220,400 28,652,603 27,864,327
------------- ----------- -----------
124,129,263 145,798,771 149,132,368
Eliminations............ (17,489,552) (29,731,216) (33,182,221)
------------- ----------- -----------
Consolidated............ Ps106,639,711 116,067,555 115,950,147
============= =========== ===========
</TABLE>
F-32
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
<TABLE>
<CAPTION>
Investment in Fixed Assets*
---------------------------------------
(Unaudited)
December 31, June 30,
--------------------- -----------------
1998 1999 1999 2000
----------- --------- ------- ---------
<S> <C> <C> <C> <C>
Mexico.......................... Ps 622,968 884,302 220,972 397,110
Spain........................... 375,741 328,883 140,512 136,664
Venezuela....................... 618,612 363,266 98,100 69,194
United States................... 159,009 158,851 49,885 45,767
Colombia........................ 1,144,650 177,761 122,883 12,737
Caribbean and Central America... 169,900 245,370 70,506 222,057
Philippines..................... -- 177,624 27,119 162,803
Others Asian.................... -- -- -- --
Egypt........................... -- -- -- 172,509
Others.......................... 460,692 242,767 75,954 154,584
----------- --------- ------- ---------
3,551,572 2,578,824 805,931 1,373,425
Eliminations.................... -- -- -- --
----------- --------- ------- ---------
Consolidated.................... Ps3,551,572 2,578,824 805,931 1,373,425
=========== ========= ======= =========
</TABLE>
--------
* Corresponds to investments in fixed assets without considering the effects of
inflation.
18. CHARGES TO OPERATIONS NOT REQUIRING RESOURCES
Items charged or credited to the results of operations, which did not
generate the use of resources, are summarized as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- --------- ---------
<S> <C> <C> <C>
Depreciation of property, machinery and
equipment................................. Ps3,117,496 3,089,617 3,397,798
Amortization of deferred charges and
credits, net.............................. 1,256,524 916,459 843,794
Impairment of assets....................... -- -- 651,845
Seniority premium.......................... 141,805 306,403 297,546
Equity in income of subsidiaries and
affiliates................................ (182,820) (159,786) (243,382)
Minority interest.......................... 1,115,010 402,373 551,346
----------- --------- ---------
Ps5,448,015 4,555,066 5,498,947
=========== ========= =========
</TABLE>
19. 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 net earnings per share reflects the effects of the stock options not
exercised on the weighted average number of common shares outstanding (see note
13B).
F-33
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
The weighted average number of shares utilized in the calculations is as
follows:
<TABLE>
<CAPTION>
Basic Diluted
------------- -------------
<S> <C> <C>
June 30, 2000(1) (unaudited)........................ 4,073,005,495 4,097,328,615
June 30, 1999(1) (unaudited)........................ 3,750,321,732 3,761,416,902
December 31, 1997................................... 3,851,983,824 3,908,702,910
December 31, 1998................................... 3,786,281,775 3,797,376,945
December 31, 1999................................... 3,767,646,462 3,787,200,759
============= =============
</TABLE>
Included in 1997 and 1998, are 187,733,226 and 118,919,607 shares related
to financial transactions, respectively, (see note 13F).
(1) For purposes of calculating earnings per share as of June 30, 1999 and
2000, net income for a twelve month period was determined, amounting
to Ps9,784,926 and Ps8,805,014 (unaudited), respectively.
The difference between the basic and diluted average number of shares for
1997, 1998 and 1999 above is attributable to the additional shares issued
under the Company's executive stock option plan (see note 13B).
20. CONTINGENCIES AND COMMITMENTS
A) GUARANTEES
At December 31, 1999, Cemex, S.A. de C.V. has signed as guarantor for loans
made to certain subsidiaries for approximately $101 million.
B) TAX ASSESSMENTS
As of December 31, 1999, the Company and some of its subsidiaries in Mexico
have been notified of several tax assessments determined by the Tax
Authorities related to years prior to 1996. These tax assessments total
approximately Ps2,732 million. The tax assessments result primarily from: (i)
disallowed deductions resulting from employee benefit plans; and (ii)
recalculation of the inflationary tax deduction, since the tax authorities
purport that "Advance Payments to Suppliers" are not by their nature credits.
The companies involved have legally contested the assessments by seeking legal
remedies available before the courts.
During 1998, three indirect subsidiaries of the Company in Colombia,
acquired as a part of the purchase of Cementos Diamante, S.A., were
individually notified by the Domestic Taxes and Costumes Office of Colombia
("DIAN"), of special assessments corresponding to income taxes of the 1995
fiscal year, for approximately $143 million (Ps1,407 million). The Colombian
subsidiaries filed a timely response to such special assessments within the
required legal period. During 1999, the DIAN issued a formal deficiency note
and the Colombian subsidiaries made a motion for reconsideration against such
assessments within the required legal period. The Company estimates that the
final resolution of these procedures may delay as long as 2 years, so far, it
can not be established if the reconsideration resources will succeed.
C) ANTI-DUMPING DUTIES
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 subsidiaries of the Company as importers of record, have
been subject to payment of anti-dumping duty deposits estimated on imports of
gray
F-34
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Portland cement and clinker from Mexico since April 1990. The order is likely
to continue for an indefinite period, however, it will be reviewed by the
United States government no later than July 2001, taking into consideration the
World Trade Organization new rules in order to determine whether the conditions
for imposing the order still exist. The Company and its subsidiaries have used
the available legal means in this matter and will continue to do so in order to
determine the actual dumping margins within each period of the administration
reviews carried out by the DOC.
As of December 31, 1999, the Company has accrued a liability of $37 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 of the reviewed periods.
As of December 31, 1999, the Company finds itself in the ninth
administrative review period by the DOC, and will expect a preliminary
resolution in the second semester of the year 2000. With respect of the first 4
review periods, the DOC has issued a final resolution of the anti-dumping
duties. With respect of the remaining review periods, the final resolutions are
suspended until all the procedures before the NAFTA Panel have been concluded,
for which, the final results may be different form those registered in the
accompanying consolidated financial statements.
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, which
require annual rental payments plus the payment of certain operating expenses.
Future minimum annual rentals due under such leases are summarized as follows:
<TABLE>
<CAPTION>
(Thousands of
Year ending December 31, U.S. dollars)
------------------------ -------------
<S> <C>
2000......................................................... 32,811
2001......................................................... 38,560
2002......................................................... 32,891
2003......................................................... 30,472
2004......................................................... 27,272
2005 and thereafter.......................................... 130,333
-------
292,339
=======
</TABLE>
Rental expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $22, $25 and $41 million, respectively.
E) PLEDGE ASSETS
At December 31, 1999 there are liabilities amounting to $91 million secured
by property, plant and equipment.
F) COMMITMENTS
As of December 31, 1999, subsidiaries of the Company have future commitments
for the purchase of raw material for an approximate amount of $38 million.
F-35
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
As of December 31, 1999, the Company has entered into agreements with an
international partnership, which will build and operate an electrical energy
generating plant. These agreements establish that when the plant begins
operations, the Company will acquire, starting the second half of 2002, all the
electrical energy generated by such plant for a term no less than 20 years. As
part of these agreements, the Company has agreed to supply the electric plant
with enough fuel for its operation. This commitment will be covered through an
20-year agreement that the Company has with Petroleos Mexicanos. By means of
this transaction, the Company expects to have enough decreases in the
electrical energy costs, and the supply will be enough to cover approximately
60% of the electrical energy use of 12 cement plants in Mexico. For effect of
these agreements, the Company is not required to make capital investment in the
project.
21. YEAR 2000 PROGRAM
The CEMEX 2000 program was completed according to the schedule. The Company
achieved its objective of maintaining continuous operations in all its
manufacturing plants, technological platforms and information systems according
to the work plan. During the transition period to the year 2000, all operations
have been performing normally and during the following months, the Company will
continue monitoring the performance of all Y2K sensitive elements its worldwide
operations.
The Company invested approximately 400 thousand man-hours and a budget of
$36 million (Ps352.2 million) in the Y2K preparation.
The Company has undertaken the necessary efforts to ensure business as usual
during the year 2000 and beyond.
22. SUBSEQUENT EVENTS
As a result of the natural disaster occurred in Venezuela, country where the
Company operates, during December 1999, an approximate amount of $2.6 million
was recorded in the results under the caption other expenses, net. This
provision corresponds to the book value of the portion of assets of the
subsidiary in Venezuela, which as of December 31, 1999 are estimated to be
unrecoverable. These assets include accounts receivable from clients,
inventory, investments in shares, as well as fixed assets. As of the date of
the financial statements, the Company cannot assure that it will not be
necessary to record extraordinary losses in addition to those recognized during
1999, due to the effects of the natural disaster mentioned above, since some of
the effects are not yet known.
Regarding the sale of shares mentioned in note 3D with effects as of
December 31, 1999, Cemex Mexico required consent of 51% or more of the holders
of the 8.375% Yankee Notes, in order to modify certain restrictions in the
indenture that limited the Company's ability to complete the transaction. For
this purpose, on January 3, 2000, the Company announced a purchase offer for
the notes outstanding, through which the holders were offered a premium
equivalent to 2% of the value of the notes in exchange for their consent, and
simultaneously the redemption of the notes at 98% of their nominal value. In
case the consent was not obtained from 51% or more of the note holders, the
trading of shares would have been invalid, since it was conditioned upon
receipt of such consent. The term to receive the consent expired January 14,
while the term for the purchase of the notes expired on February 2, 2000.
As of the date of the financial statements, the Company obtained consent of
approximately 85% of the note holders, and therefore validated the sale of
shares with retroactive effects to December 31, 1999. For the
F-36
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Company, the consent received from the note holders represents the redemption
of notes for approximately $148.8 million before the due date in 2003; however,
such amount could be increased until the purchase offer expires on February 2,
2000.
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 as of December 31, 1997 and 1998, 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 requirement 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.
F-37
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
The other principal differences between Mexican GAAP and U.S. GAAP and the
effect on consolidated net income and consolidated stockholders' equity are
presented below, with an explanation of the adjustments.
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
Year ended December 31, June 30,
------------------------------------ -----------------------
1997 1998 1999 1999 2000
------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net income as reported
under Mexican GAAP..... Ps 7,955,121 8,189,321 9,514,494 Ps5,429,188 4,719,708
NCPI inflation
adjustment............. 586,249 1,137,260 143,360 258,179 --
------------ ---------- ---------- ----------- ----------
Net income as reported
under Mexican GAAP
after NCPI adjustment.. 8,541,370 9,326,581 9,657,854 5,687,367 4,719,708
Approximate U.S. GAAP
adjustments:
1. Amortization of
goodwill (see 23
(a))................ 197,101 403,979 (64,634) (116,930) 29,469
2. Deferred income
taxes (see 23 (b)).. (2,318,612) (2,138,660) (3,338,896) (384,767) (42,705)
3. Deferred employees'
statutory profit
sharing (see
23(b)).............. (317,497) (451,105) (349,570) (261,538) (129,330)
4. Other employee
benefits (see
23(c)).............. (57,970) 6,512 (74,481) (41,501) (42,619)
5. Marketable
securities (see
23(d)).............. (152,540) 324,533 -- -- --
6. Capitalized interest
(see 23(e))......... (40,316) (4,250) 80,951 6,308 (4,264)
7. Minority interest
(see 23(f)):
a) Financing
Transactions........ 795,821 (210,773) 222,657 165,720 11,213
b) Effect of U.S. GAAP
adjustments......... 448,178 34,375 (23,572) 85,155 50,398
8. Hedge accounting
(see 23(m))......... (1,231,914) (3,256,190) (1,745,225) (837,713) (1,145,204)
9. Depreciation (see
23(g)): 6,946 57,872 144,923 81,540 103,679
10. Accruals for
Contingencies (see
23(h)).............. 111,870 (34,432) (2,745) 5,457 (947)
11. Equity in net income
of affiliated
companies (see 23
(i))................ (56,583) (61,376) (23,456) (25,639) --
12. Inflation adjustment
of machinery and
equipment (see
23(j)).............. (235,053) (91,647) (399,051) (231,525) (205,297)
13. Other U.S. GAAP
adjustments (see
23(l)).............. 70,873 109,277 (113,428) (180,630) 37,689
14. Monetary effect of
U.S. GAAP
adjustments......... 1,638,788 1,853,217 1,628,023 985,524 674,397
------------ ---------- ---------- ----------- ----------
Total approximate U.S.
GAAP adjustments....... (1,140,908) (3,458,668) (4,058,504) (750,539) (663,521)
------------ ---------- ---------- ----------- ----------
Approximate net income
under U.S. GAAP........ Ps 7,400,462 5,867,913 5,599,350 Ps4,936,828 4,056,187
============ ========== ========== =========== ==========
Basic U.S. GAAP earnings
per share.............. Ps 1.92 1.55 1.48 Ps 1.31 1.00
============ ========== ========== =========== ==========
Diluted U.S. GAAP
earnings per share..... Ps 1.83 1.54 1.47 Ps 1.30 0.99
============ ========== ========== =========== ==========
</TABLE>
F-38
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
<TABLE>
<CAPTION>
Year ended December 31, (Unaudited)
-------------------------- Six months ended
1998 1999 June 30, 2000
------------- ----------- ----------------
<S> <C> <C> <C>
Total stockholders' equity
reported under Mexican GAAP..... Ps 52,385,933 62,949,657 59,945,949
NCPI inflation adjustment........ 7,274,896 948,498 --
------------- ----------- -----------
Total stockholders' equity after
NCPI adjustment................. 59,660,829 63,898,155 59,945,949
Approximate U.S. GAAP
adjustments:
1. Goodwill net (see 23(a))..... (2,242,948) (3,031,272) (2,730,639)
2. Deferred income taxes (see
23(b))....................... (6,528,022) (8,783,144) (4,839,782)
3. Deferred employees' statutory
profit sharing (see 23(b))... (2,910,838) (2,939,077) (2,940,259)
4. Other employee benefits (see
23(c))....................... (193,370) (249,008) (279,963)
5. Capitalized interest (see
23(e))....................... (44,894) (458,755) (428,143)
6. Minority interest--effect of
financing transactions
(see 23(f)).................. (6,160,186) (6,004,128) (5,911,135)
7. Minority interest--U.S. GAAP
presentation (see 23(f))..... (9,181,511) (9,118,507) (9,154,732)
8. Depreciation (see 23(g))..... 11,929 157,229 217,934
9. Accruals for contingencies
(see 23(h)).................. 321,888 233,552 220,130
10. Investment in net assets of
affiliated companies
(see 23(i)).................. (543,642) (497,414) (24,365)
11. Inflation adjustment for
machinery and equipment
(see 23(j)).................. 3,595,821 8,469,542 8,278,679
12. Temporary equity from forward
contracts (see 23(k))........ -- (5,113,768) (5,041,271)
13. Other U.S. GAAP adjustments
(see 23(l)).................. 485,319 297,573 302,286
------------- ----------- -----------
Total approximate U.S. GAAP
adjustments..................... (23,390,454) (27,037,177) (22,331,260)
------------- ----------- -----------
Total approximate stockholders'
equity under U.S. GAAP.......... Ps 36,270,375 36,860,978 37,614,689
============= =========== ===========
</TABLE>
For purposes of the following notes, the Mexican GAAP prior years amounts
have been restated using the Mexican inflation rate instead of the weighted
average index described in note 3B. Therefore the amounts shown for prior years
in these notes do not agree with the amounts shown in footnotes 1 to 22.
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) the
difference between sinking fund amortization of goodwill over 20 to 40 years
for Mexican GAAP purposes (see note 3J) and the straight line method over 40
years for U.S. GAAP purposes and (iii) the conversion of goodwill applicable to
foreign subsidiaries in accordance with SFAS 52, utilizing inflation of each
country to restate the goodwill for inflation purposes. In addition,
amortization of goodwill is reflected as an operating expense for U.S. GAAP
purposes versus other income and expense for Mexican GAAP purposes.
For U.S. GAAP purposes, the Company assesses the recoverability of goodwill
by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost
F-39
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
of funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(b) Deferred Income Taxes and Employees' Statutory Profit Sharing
Until December 31, 1999, Mexican GAAP provided that deferred taxes should
not be recorded for those temporary differences whose origin is not
specifically identifiable or whose realization is not presently
determinable because upon turnaround they will be replaced by other temporary
differences of a similar nature and amount.
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 asset and liabilities are recognized for the future tax
consequences of "temporary differences" by applying 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 amount of deferred income taxes charged or
credited to operations in each period for U.S. GAAP is based upon the
difference between the beginning and ending balances of the deferred tax assets
or liabilities for each period, expressed in nominal pesos. A monetary position
gain or loss of the deferred tax assets or liabilities was also recognized. The
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
F-40
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1998 and 1999 are presented below.
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
------------ ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss and assets tax carryforwards..... Ps 5,178,015 2,404,076
Trade accounts receivable........................... 440,054 417,266
Investment in affiliated companies.................. 341,742 479
Accounts payable and accrued expenses............... 679,268 513,303
Other............................................... 397,871 160,899
------------ ----------
Total gross deferred tax assets..................... 7,036,950 3,496,023
Less valuation allowance............................ 244,442 195,615
------------ ----------
Net deferred tax assets under U.S. GAAP............. 6,792,508 3,300,408
------------ ----------
Deferred tax liabilities:
Property, plant and equipment....................... 15,143,876 14,714,639
Inventories......................................... 682,365 420,510
Other............................................... 335,788 162,190
------------ ----------
Total gross deferred tax liability under U.S. GAAP.. 16,162,029 15,297,339
------------ ----------
Net deferred tax liability under U.S. GAAP.......... 9,369,521 11,996,931
Deferred tax liability recognized under Mexican
GAAP............................................... 1,106,552 1,077,053
------------ ----------
Excess of liability recognized under U.S. GAAP over
that recognized under
Mexican GAAP....................................... 8,262,969 10,919,878
Less--U.S. GAAP deferred income taxes of acquired
subsidiaries at date of
Acquisition........................................ 1,581,278 2,120,506
Inflation adjustment (note 3B)...................... (153,669) (16,228)
------------ ----------
U.S. GAAP adjustment to stockholders' equity........ Ps 6,528,022 8,783,144
============ ==========
</TABLE>
As of June 30, 1999 and 2000 (unaudited), deferred income tax expense
amounts to Ps384,767 and Ps42,705, respectively, with a net effect in
stockholders' equity under U.S. GAAP of Ps(4,839,782) at June 30, 2000
(unaudited).
Management believes that it is more likely than not that it will generate
taxable income sufficient to realize the tax benefit associated with future
deductible temporary differences and operating tax loss carryforwards prior to
their expiration. If the Company is unable to generate sufficient taxable
income in the future through operating results, or alternative tax strategies
are no longer viable, a valuation allowance will be required through a charge
to expense.
The Company has recorded a valuation allowance for the estimated amount of
the recoverable tax on assets, which may not be realized due to their
expiration during the carryforwards period. However, through the continuous
evaluation of the effects of tax strategies, among other economic factors,
during 1999 the Company canceled a net effect on the valuation allowance of
approximately Ps22 million.
F-41
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Effective December 31, 1998, the income tax rate increased from 34% to 35%
for temporary differences in Mexico to give effect to the enactment of the new
income tax law in Mexico. This resulted in an additional deferred tax expense
of Ps257,729 for U.S. GAAP purposes in 1998.
Deferred income taxes for interim periods are measured by the use of an
estimated annual effective tax rate for the annual periods.
The Company also recorded a deferred liability for U.S. GAAP purposes,
related to employees' statutory profit sharing 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
employees' profit sharing liabilities at December 31, 1998 and 1999 are
presented below:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
----------- ---------
<S> <C> <C>
Deferred assets:
Employee benefits........................................ Ps 15,414 44,095
Trade accounts receivable................................ 130,005 11,578
Other.................................................... -- --
----------- ---------
Gross deferred assets under U.S. GAAP..................... 145,419 55,673
----------- ---------
Deferred liabilities:
Property, plant and equipment............................ 2,931,981 2,841,333
Inventories.............................................. 106,285 134,743
Other.................................................... 17,991 18,674
----------- ---------
Gross deferred liabilities under U.S. GAAP................ 3,056,257 2,994,750
----------- ---------
Net deferred liabilities under U.S. GAAP.................. Ps2,910,838 2,939,077
=========== =========
</TABLE>
As of June 30, 1999 and 2000 (unaudited), deferred employees profit sharing
expense amounts to Ps261,538 and Ps129,330, respectively, with a net effect in
stockholders' equity under U.S. GAAP of Ps(2,940,259) at June 30, 2000
(unaudited).
For purposes of the condensed financial information presented under U.S.
GAAP in note 23(p), employees' statutory profit sharing expense, both current
and deferred, is deducted in the determination of operating income.
Additionally, as it is mentioned in note 15B, beginning in the year 2000,
new Bulletin D-4, requires the determination of deferred income tax through the
balance sheet methodology. Even when Bulletin D-4 establishes a methodology
similar to US GAAP, in the application of the Bulletin, differences will
prevail in the reconciliation to US GAAP, arising from i) the recognition of
the initial balance as of January 1, 2000 will be recorded directly to
stockholders' equity, ii) certain adjustments to Mexican GAAP recorded in the
foreign subsidiaries for consolidation purposes, are to be treated as permanent
differences, iii) the treatment of deferred tax consequences in business
combinations under Mexican GAAP, does not consider the provisions of APB
Opinion 16, and iv) for Mexican GAAP purposes, deferred tax assets and
liabilities, should be considered as long-term items. For Mexican GAAP
purposes, it is required to determine the effect of deferred ESPS for those
temporary differences arising from the reconciliation of the net income of the
period and the taxable income for ESPS, of a non-recurring nature.
F-42
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
As of June 30, 2000, a net deferred tax liability under Bulletin D-4 of
Ps4,904,463, has been canceled for purposes of the U.S. GAAP reconciliation of
stockholders' equity. The net effect in the reconciliation of net income
arising from the cancelation of Bulletin D-4 amounts to Ps292,002 of a deferred
tax expense as of June 30, 2000 (unaudited).
(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, as of
December 31, 1997, 1998, 1999 and as of June 30, 1999 and 2000 (unaudited), the
vacation expense recorded for U.S. GAAP purposes was Ps4,717, Ps9,103, Ps8,501,
Ps6,619 and Ps7,617, respectively with an accrual of Ps39,439, Ps43,564 and
Ps49,147 at December 31, 1998, 1999 and June 30, 2000 (unaudited) respectively.
Severance
Before 1997, under Mexican GAAP, postemployment benefit expenses other than
pension benefits were recorded when retirement occurred and the Company did not
provide for any severance benefits. Beginning in 1997, in accordance with
Mexican GAAP (Circular 50), SFAS 112 is the supplementary accounting standard
for postemployment benefits. As of December 31, 1998, 1999 and June 30 2000,
the Company did not accrue a provision for these benefits for Mexican GAAP due
to their insignificance. However, under U.S. GAAP, postemployment benefits for
former or inactive employees excluding retirement benefits, are accounted for
under the provisions of SFAS 112, which requires the Company to accrue the cost
of certain benefits, including severance over an employee's service life. As of
December 31, 1997, 1998, 1999 and as of June 30, 1999 and 2000 (unaudited), the
severance provisions recorded for U.S. GAAP purposes were an expense of
Ps21,684, Ps41,829, Ps39,063, Ps30,427 and Ps35,002, respectively with an
accrual of Ps181,227, Ps200,181 and Ps225,833 at December 31, 1998, 1999 and
June 30, 2000 (unaudited), respectively. Severance payments relating to any
specific event or restructuring are excluded from the SFAS 112 calculation.
SFAS 106, requires accrual of these benefits during the years an employee
provides services. The Company does not provide to its employees any
postretirement benefits subject to the provisions of SFAS 106.
Pension Benefits
The Company records liabilities for employee pension benefits determined by
actuarial computations, which are similar to SFAS 82 under U.S. GAAP. The
pension benefits recorded for U.S. GAAP purposes were an expense of Ps31,569 in
1997, an income of Ps57,444 in 1998, an expense of Ps26,917 in 1999 and an
expense of Ps 4,455 as of June 30 1999 (unaudited), with an additional (asset)
liability of Ps(27,296) in 1998, Ps5,263 in 1999 and Ps4,983 at June 30, 2000
(unaudited), respectively.
(d) Marketable Securities
Included in other investments at December 31, 1998 are Ps270,356 of an
investment in common stock of a third party company. This investment is
recorded at market value based upon its quoted price. Although the Company does
not have the intention to sell these shares, this investment is classified as
available-for-sale for purposes of complying with SFAS 115. Unrealized holding
loss of Ps152,540 and gain of Ps324,533 (loss
F-43
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Ps114,560 and gain of Ps227,835, after the related deferred income tax effect
which has been credited directly to stockholders' equity) for the years ended
December 31, 1997 and 1998, respectively, are included as a component of
stockholders' equity for purposes of the Company's reconciliation to U.S. GAAP.
Beginning in January 1, 1999, the Company adopted the provisions of SFAS 115
under Mexican GAAP, therefore, no additional reclassification is needed for
purposes of the net income reconciliation.
(e) Capitalized Interest
Under Mexican GAAP, the Company is allowed, but no required, to capitalize
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
exchange loss 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, interest must 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
capitalized for Mexican GAAP derived from borrowings denominated in foreign
currency.
(f) Minority Interest
Financing Transactions
As of December 31, 1998 the Company had $422.5 million and $500 million, as
of December 31, 1999 and June 30, 2000 (unaudited), of an outstanding equity
financing transaction involving shares of its Spanish subsidiary. The
transferred shares represented 25.4% in 1998 and 24.8% in 1999 and June 30,
2000 (unaudited) of the outstanding capital stock of this subsidiary. The
Company has considered the shares involved in this transaction, as if those
were owned by a third party and therefore, has recorded a minority interest in
the consolidated balance sheet under Mexican GAAP. For U.S. GAAP purposes, this
financing transaction had been classified as debt in the amount of Ps4,905
million, Ps4,965 million and Ps4,920 million at December 31, 1998, 1999 and
June 30, 2000 (unaudited), respectively. For Mexican GAAP purposes, the costs
related to this transaction are recorded as part of the net financing cost in
the income statement. Differences between the amount of minority interest
recognized for Mexican GAAP purposes and the amount of net debt for U.S. GAAP
purposes for this financing transaction are reflected as a reconciliation of
Mexican GAAP stockholders' equity. This financing transaction bears interest at
3 month-LIBOR plus 100 basis points (approximately 7.0% and 8.0% at December
31, 1999 and June 30, 2000 (unaudited), respectively), and matures with $125
million of the principal due in July 2000, $125 million in December 2000, and
the remaining $250 million due in June 2001. This transaction was terminated in
August 31, 2000 (unaudited) (see note 23X).
For purposes of U.S. GAAP presentation, Putable Capital Securities described
in note 13(F) are presented as a separate component of minority interest. Under
Mexican GAAP these instruments are presented as part of the minority interest
in stockholders' equity. Dividends declared are recorded as part of the
minority interest in the consolidated statements of income under both Mexican
GAAP and U.S. GAAP.
In December 1995, the Company entered into a financial transaction in which
a subsidiary transferred some of its cement assets to a trust, while
simultaneously a third party purchased a beneficial interest in the trust for
approximately $123.5 million in exchange for notes issued by the trust. The
Company has the right to
F-44
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
reacquire these assets on various dates until 2007. As of December 31, 1998,
1999 and June 30, 2000 (unaudited), $108 million (Ps1,255 million), $104.6
million (Ps1,039 million) and $100.7 million (Ps991 million), respectively,
were outstanding under this transaction. 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 (see note 13(F)).
U.S. GAAP adjustments
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. 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.
(g) 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. During the
year 2000, the Company will evaluate changing the depreciation methodology of
this subsidiary, in order to align all subsidiary practices to the Company's
policy for depreciation. 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, as of December 31, 1997, 1998, 1999 and
as of June 30, 1999 and 2000 (unaudited) Ps6,946, Ps57,872, Ps122,049, Ps81,540
and Ps93,204 respectively, have been credited to income in the U.S. GAAP
reconciliation.
Additionally, as a result of the application of APB 16 in the acquisition of
Rizal for U.S. GAAP purposes, at December 31, 1999, the Company reduced the
value of its fixed assets by Ps264,156, corresponding to the portion of the
appraisal value related to the minority owners. The change in the fixed assets'
amount for under U.S. GAAP arising from this concept, led to a decrease in the
depreciation expense under U.S. GAAP of Ps22,874 during 1999 and Ps10,475 as of
June 30, 2000 (unaudited).
(h) 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
for accrual were met and the recorded liabilities were reversed for U.S. GAAP
purposes.
In addition, with respect to the Mexican and Colombian tax assessments
described in note 20(B), the Company believes 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 (see also note 23(v)). In January 2000,
the company had a final resolution on the Colombian tax assesment (see note
23x).
F-45
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
(i) Affiliated Companies
The Company has adjusted its investment in and its equity in the earnings of
affiliated companies for the Company's share of the approximate U.S. GAAP
adjustments applicable to these affiliates.
(j) Inflation Adjustment of Machinery and Equipment
On December 2, 1997, the International Practices Task Force of the American
Institute of Certified Public Accountants encouraged Mexican companies to
restate their fixed assets of foreign origin by applying the inflation rate of
each country in which the Company operates, instead of using the methodology
included in the fifth amendment to Bulletin B-10, which consists of restating
the fixed assets of foreign origin on the basis of the devaluation of the
functional currency against the currency of origin and applying a factor of
inflation in such foreign country. 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.
(k) Temporary Equity from Forward Contracts
As mentioned in notes 2C and 14D to the financial statements, the Company
has entered in to forward contracts in connection with its warrant offering
transaction. According to EITF 96-13, 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 the balance sheet presentation under U.S. GAAP. As a result, for purposes
of reconciliation the Company presents an adjustment to its stockholders'
equity under Mexican GAAP for Ps5,113,768 in 1999 and Ps5,041,271 at June 30,
2000 (unaudited), which represents the cash obligation of the Company in the
forward contract at the reporting date. This amount is presented as a mezzanine
for purposes of note 23(p).
(l) Other U.S. GAAP Adjustments
Inventory costs--As permitted by Mexican GAAP, certain inventories are
valued under the direct cost system, which includes material, labor and other
direct costs. For purposes of complying with U.S. GAAP, inventories have been
valued under the full absorption cost method, including all costs and expenses
necessary for the manufacturing process. At December 31, 1998 and 1999, the
Company recognized an income of Ps293,861 and Ps108,338, respectively, in the
stockholders' equity reconciliation to U.S. GAAP. Beginning January 1, 2000,
the company has adopted the full absorption cost method for al its producing
facilities, therefore, as of June 30, 2000 (unaudited) the reconciling item
arising from this concept has been cancelled, recognizing an expense of
Ps65,446 in the net income reconciliation 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", provides guidance on accounting for the costs of
computer software developed or obtained for internal use. SOP 98-1 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. SOP 98-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 1998. The estimated average useful lives period to amortize these
capitalized costs is
F-46
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
between 3 and 5 years. The cumulative effect recognized an income in
stockholders' equity reconciliation to U.S. GAAP at December 31, 1998, 1999 and
June 30, 2000 (unaudited) is Ps345,454, Ps513,876 and Ps613,185, respectively.
Sale of own stock--In 1997, the Company had a gain in the sale of its own
stock of Ps62,189, recorded in the income statement under Mexican GAAP, which
has been reclassified to stockholders' equity for purposes of the U.S. GAAP
reconciliation of net income.
Deferred charges--For U.S. GAAP purposes other deferred charges net of
accumulated amortization, that did not qualified for deferral under U.S. GAAP
had been charged to expense in the year or period incurred for Ps102,278 in
1998, Ps188,642 in 1999 and Ps101,476 as of June 30, 1999 (unaudited). The net
effect in the stockholders' equity reconciliation to U.S. GAAP is Ps153,996,
Ps324,641 and Ps310,899 at December 31, 1998, 1999and June 30, 2000
(unaudited), respectively. Mexican GAAP allowed the deferral of these expenses.
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 with a weighted average inflation factor for the period.
Reclassifications--Real estate held for sale amounting to Ps194,543 in 1998,
Ps152,834 in 1999 and Ps95,143 at June 30, 2000 (unaudited), and non-cement
related assets amounting to Ps486,915 in 1998, Ps132,470 in 1999 and Ps134,191
at June 30, 2000 (unaudited), have been reclassified to long-term assets for
purposes of U.S. GAAP presentation in note 23(p). These assets are stated at
their estimated fair value. Estimated costs to sell, are not significant.
(m) Financial Instruments
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 the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities (or determined by discounting future cash flows using borrowing
rates currently available to the Company) at December 31, 1999 is summarized as
follows:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair value
------------ ----------
<S> <C> <C>
Bank loans.............................................. Ps22,677,087 22,673,771
Notes payable........................................... 17,795,420 18,358,606
============ ==========
</TABLE>
F-47
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
As discussed in note 3E, the Company has designated certain debt as hedges
of its investment in foreign subsidiaries and for Mexican GAAP purpose, records
foreign exchange fluctuations on such debt in equity. For purposes of the U.S.
GAAP net income reconciliation, Ps1,231,914, Ps3,256,190 and Ps1,745,225 for
1997, 1998 and 1999, respectively, and Ps837,713 and Ps1,145,204 as of June 30,
1999 and 2000 respectively (unaudited), were recognized as foreign exchange
losses since the related debt does not meet the conditions set forth in SFAS 52
for hedge accounting purposes.
Concentration of Credit Risk
The Company sells its products primarily to distributors for 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 and there were no significant account
receivables from a single customer at December 31, 1998, 1999 and June 30,
2000. The Company performs evaluations of its customers' credit histories and
establishes an allowance for doubtful accounts based upon the credit risk of
specific customers and historical trends. In addition, there is no
concentration of suppliers for the purchases of raw materials.
(n) Stock Option Programs
As described in note 13B, pursuant to the Company's Stock Option Plan to
which eligible officers and key employee's are entitled to the Company's Boards
of Directors may grant stock options for up to 216,300,000 shares of authorized
but unissued Series "A" and "B" common stock. Stock option activity during the
periods is indicated in note 13B.
The Company applies APB Opinion No. 25 ("APB 25") in accounting for its Plan
under U.S. GAAP. According to APB 25, the Company's Plan fulfills the type of a
compensatory for services plan, where the price required from the employee at
the measurement date, is materially equal to the quoted market price of the
stock, therefore, no compensation cost has been recognized for its stock
options in the financial statements. 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 proforma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
----------- --------- ---------
<S> <C> <C> <C>
Net income, as reported (Mexican GAAP).......... Ps7,955,121 8,189,321 9,514,494
Net income, proforma............................ 7,788,609 7,929,620 9,317,603
----------- --------- ---------
Basic earnings per share, as reported........... Ps 2.06 2.16 2.52
----------- --------- ---------
Basic earnings per share, proforma.............. Ps 2.02 2.09 2.47
=========== ========= =========
</TABLE>
--------
* See note 2A.
The assumptions for the Black-Scholes model were:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Expected dividend yield.............................. 2% 2% 2%
Volatility........................................... 30% 30% 30%
Risk free interest rate.............................. 22% 22% 15%
Tenure............................................... 10 years 10 years 10 years
</TABLE>
F-48
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
(o) Supplemental Cash Flow Information Under U.S. GAAP
The Company presents a consolidated statement of changes in financial
position under Mexican GAAP in accordance with Bulletin B-12, which identifies
the sources and uses of resources determined based upon the differences
between beginning and ending financial statements balances in constant pesos.
It also requires monetary position result and unrealized foreign exchange gain
and loss to be treated as cash items in the determination of resources
provided by operations. U.S. GAAP requires a statement of cash flow presenting
only cash movements and excluding non-cash items. SFAS 95 does not provide any
specific guidance with respect to inflation-adjusted financial statements.
The classifications of cash flows under Mexican GAAP and U.S. GAAP are
basically the same, in respect to 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 of monetary assets and liabilities from financing and investing
activities variations, against the corresponding monetary position result in
operating activities, (ii) the elimination of exchange rates fluctuations from
financing and investing activities variations, 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.
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, 1997, 1998 and 1999, 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 on a historical peso
basis and it is not presented in constant purchasing power.
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
Years ended December 31, June 30,
------------------------------------- ----------------------
1997 1998 1999 1999 2000
------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities... Ps 7,677,497 11,779,184 10,275,197 4,332,227 5,438,583
Net cash provided by
(used in) financing
activities............. (3,697,605) (2,821,576) 148,447 2,208,518 (3,572,379)
Net cash used in
investing activities... (4,691,195) (8,027,317) (10,351,043) (6,783,690) (2,911,897)
------------ ---------- ----------- ---------- ----------
</TABLE>
Net cash flow from operating activities reflects cash payments for
interests and income taxes as follows:
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
Years ended December 31, June 30,
------------------------------- -------------------
1997 1998 1999 1999 2000
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest paid............... Ps4,269,714 3,652,444 3,291,193 1,764,718 2,277,346
Income taxes paid........... 311,859 321,372 431,144 65,656 551,629
----------- --------- --------- --------- ---------
</TABLE>
Non-cash activities are comprised of the following:
. Acquisition of property and equipment through capital leases amounted to
Ps77 in 1997, Ps24,150 in 1998 and Ps159,480 in 1999.
. Liabilities assumed through the acquisition of businesses (see note 7)
was Ps498,834 in 1998 and Ps4,147,318 in 1999.
F-49
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
(p) Condensed Financial Statements under U.S. GAAP
The following table presents consolidated condensed balance sheets at
December 31, 1998 and 1999 and statements of income at December 31, 1997, 1998
and 1999 of the Company as prepared under U.S. GAAP. This summarized financial
information includes all differences described in this footnote as well as
certain other reclassifications required for purposes of U.S. GAAP:
<TABLE>
<CAPTION>
At December 31, (Unaudited)
------------------------- At June 30,
1998 1999 2000
------------- ----------- -----------
<S> <C> <C> <C>
Balance sheets
Current assets....................... Ps 18,387,873 17,747,462 17,274,824
Investments and non-current assets... 4,802,358 7,567,962 7,473,093
Property, machinery and equipment.... 75,205,472 76,562,289 73,255,249
Deferred charges..................... 26,003,775 23,877,138 24,176,109
------------- ----------- -----------
Total assets........................ 124,399,478 125,754,851 122,179,275
============= =========== ===========
Current liabilities.................. 22,818,586 23,538,841 24,954,561
Long-term debt....................... 40,585,068 35,306,001 29,859,238
Other non-current liabilities........ 15,543,938 16,102,966 15,807,829
------------- ----------- -----------
Total liabilities................... 78,947,592 74,947,808 70,621,628
------------- ----------- -----------
Mezzanine items:
Putable Capital Securities (see note
13F)............................... 2,902,792 2,482,586 2,460,000
Temporary equity.................... -- 5,113,768 5,041,271
Minority interest................... 6,278,719 6,349,711 6,441,687
------------- ----------- -----------
9,181,511 13,946,065 13,942,958
------------- ----------- -----------
Stockholders' equity................. 36,270,375 36,860,978 37,614,689
------------- ----------- -----------
Total liabilities and stockholders'
equity............................. Ps124,399,478 125,754,851 122,179,275
============= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
Six months
As of December 31, ended June 30,
------------------------------------ ----------------------
1997 1998 1999 1999 2000
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statements of income
Net sales............... Ps42,014,290 49,446,465 47,305,572 23,712,692 25,832,913
Gross profit............ 15,385,647 20,314,461 19,368,106 9,493,156 11,205,365
Operating income........ 7,342,267 11,076,690 10,487,745 4,853,357 6,725,553
Comprehensive financial
income (cost).......... 2,673,833 (3,080,340) (301,113) 1,098,041 (1,414,637)
Other expenses, net..... 318,648 526,830 (636,922) (289,552) (266,831)
Income tax (including
deferred).............. (2,838,551) (2,581,223) (3,972,872) (804,901) (1,018,570)
Equity in income of
affiliates............. 266,968 305,160 425,945 179,195 183,375
------------ ---------- ---------- ---------- ----------
Consolidated net
income................. 7,763,165 6,247,117 6,002,783 5,036,140 4,208,890
------------ ---------- ---------- ---------- ----------
Minority net income..... 362,703 379,204 403,433 99,312 152,703
------------ ---------- ---------- ---------- ----------
Majority net income..... Ps7,400,462 5,867,913 5,599,350 4,936,828 4,056,187
============ ========== ========== ========== ==========
</TABLE>
F-50
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
For purposes of the consolidated condensed financial statements, the 1997
and 1998 figures were updated to constant pesos at December 31, 1999 using the
Mexican inflation rate, in order to comply with current requirements of
Regulation S-X.
(q) Restatement to Constant Pesos of Prior Years
The following table presents summarized financial information under Mexican
GAAP of the consolidated statements of income for the years ended December 31,
1997 and 1998 and of the consolidated balance sheet at December 31, 1998, in
Mexican pesos of equivalent constant purchasing power of December 31, 1999
using the Mexican inflation rate:
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
June 30,
1997 1998 1999 1999
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Sales................... Ps42,530,726 50,104,482 47,943,342 25,124,263
Gross profit............ 16,468,244 21,134,371 21,231,573 12,787,083
Operating income........ 10,049,952 13,675,541 14,264,882 8,658,312
Majority net income..... 8,541,370 9,326,581 9,657,854 5,941,276
------------ ------------ ------------ ----------
Current assets.......... Ps19,084,393 Ps16,964,416
Non-current assets...... 102,364,495 100,851,993
Current liabilities..... 20,881,718 18,135,298
Non-current
liabilities............ 40,906,342 35,782,957
Majority interest
stockholders' equity... 45,136,033 51,459,911
Minority interest
stockholders' equity... 14,524,795 12,438,243
------------ ------------
</TABLE>
(r) 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. The Company 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. Prior to its
acquisition in 1989, one subsidiary of the Company in the United States
employed the use of underground storage tanks in their operations.
Subsequently, the use of those tanks resulted in environmental remediation
liabilities for several of the subsidiary's plant sites. Per a 1996 settlement
agreement with the former owners, the subsidiary is responsible for 10% of
remediation costs at one of the plant sites and 100% of remediation costs for
the remaining sites.
As of December 31, 1998 and 1999, the subsidiary had accrued its best
estimate of its obligation with respect to the sites of approximately Ps9
million in 1998 and Ps8 million in 1999, which are included in accrued
liabilities.
In May 1999, several companies filed a civil liability suit against two of
our Colombian subsidiaries, alleging that these subsidiaries were responsible
for deterioration in the rice producing capacity of certain land of the
plaintiffs, caused by pollution emanating from our cement plants located in
Ibague, Colombia. The plaintiffs have asked for relief in the amount of U.S.
$12.6 million. This proceeding has not yet reached the
F-51
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
evidentiary stage, since both parties have appealed the court's evidentiary
decree. Upon resolution of the appeals, the evidentiary stage will begin. We
estimate that this proceeding will continue for approximately six years before
final resolution. For accounting purposes under both Mexican and U.S. GAAP, the
Company believes that the accrual criteria, has not been met in connection with
this civil action (unaudited).
The Company is not currently facing other situation as those described above
which might result in the recognition of an environmental remediation
liability.
(s) Supplemental Debt Information
Classification of Short-term debt Expected to be Refinanced--In accordance
with U.S. GAAP, and for purposes of the condensed information of note 23(p), at
December 31, 1998, 1999 and June 30, 2000 (unaudited), $168 million (Ps1,950
million), $226 million (Ps2,243 million) and $178 million (Ps1,752 million),
respectively, were reclassified from long-term debt to short-term debt for U.S.
GAAP purposes.
(t) Impairment of Long Lived Assets
In accordance with the provisions of SFAS 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Off" long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value, less costs to sell
(see note 8).
For Mexican GAAP purposes the impairment provisions are reported in other
income and expense. For purposes of note 23(p), these provisions are reported
as a component of operating income.
(u) Business combinations
As mentioned in note 7, during September 1999, the Company acquired a
majority equity interest in Cempasa, and during November 1999 acquired a
majority equity interest in Assiut Cement Co. For purposes of disclosure under
U.S. GAAP according to APB 16, companies must provide in proforma basis, the
effects of having being consolidating the acquired companies since the
beginning of the reported period. In respect to APO, the Company consolidated
for Mexican GAAP purposes, its results of operations for the twelve-month
period ended December 31, 1999. Therefore, for purposes of compliance with APB
16 disclosure requirement, the Company is providing proforma selected income
statement amounts for the consolidation of Cempasa and Assiut, as if they were
consolidated for the full year 1999.
F-52
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
The approximated amounts are as follows:
<TABLE>
<CAPTION>
Assiut Cempasa
Cemex as twelve- twelve- Cemex
reported months months Elimination proforma
------------ --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... Ps47,231,676 1,928,358 406,348 (235,449) 49,330,933
Operating income........ 14,053,136 486,989 40,995 (36,511) 14,544,609
Majority interest net
income (loss).......... 9,514,494 277,173 (1,809) 25,644 9,815,502
============ ========= ======= ======== ==========
Basic earnings per
share.................. Ps 2.52 2.60
Diluted earnings per
share.................. Ps 2.51 2.59
============ ==========
</TABLE>
For purposes of the table above, the "Elimination" column represents the sum
of the Assiut's one-month period results, and Cempasa's three-month period
results, that were included in to the Company's consolidated income statement
under Mexican GAAP as of December 31, 1999.
(v) Guaranteed debt
In June 2000 the Company 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 outstanding 9.625% Notes due 2009
(unaudited). 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, S.A. de C.V. (formerly, TOLMEX,
S.A. de C.V.), and Empresas Tolteca de Mexico, S.A. de C.V. (formerly, CEMEX
Control, S.A. de C.V.). These two companies, together with their subsidiaries,
account for substantially all the revenues and operating income of the
Company's Mexican operations.
As described in note 3D, through a series of mergers during 1999, the cement
and ready-mix concrete operations of the Company in Mexico were integrated into
CEMEX Mexico, S.A. de C.V. ("CEMEX Mexico"). Prior to these mergers, Tolmex,
S.A. de C.V., Serto Construcciones, S.A. de C.V., Cemento Portland Nacional,
S.A. de C.V., Cementos Mexicanos, S.A. de C.V. and CEMEX Control, S.A. de C.V.
were the guarantors of part of the indebtedness of the Company (the
"Guarantors"). Concurrent with this merging process, the legal name of CEMEX
Control, S.A. de C.V. was changed to Empresas Tolteca de Mexico, S.A. de C.V.
(this subsidiary was not part of the merging process described above). As of
December 31, 1998, the Guarantors fully, unconditionally, jointly and severally
guaranteed indebtedness of the Company in an aggregate amount of US dollars
$2,010 million (see note 11).
As mentioned in note 11, as of December 31, 1999, indebtedness of the
Company in an aggregate amount of US dollars $2,090 million is fully and
unconditionally guaranteed, on a joint and several basis, by CEMEX Mexico and
Empresas Tolteca de Mexico, S.A. de C.V. ("ETM"). The Company's indebtedness
guaranteed by these two subsidiaries will not increase as a result of the
exchange offer described above.
As of December 31, 1999, the Company owned a 99.8% equity interest in CEMEX
Mexico, including a 2.5% equity interest held by a Mexican trust in connection
with an equity financing transaction due in 2007 (see note 13F), and CEMEX
Mexico owned a 99.9% equity interest in ETM. The current "General Law of
Commercial Corporations" in Mexico prescribes a minimum participation of two
shareholders on the equity of a Mexican corporation; therefore, no single
company or person can own 100% equity interest of another entity.
F-53
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
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 other material operations than its investments in subsidiaries and
affiliated companies. The second column, "Combined Guarantors", represents the
combined amounts of CEMEX Mexico and ETM, after adjustments and eliminations
relating to their consolidation. As mentioned above, the Guarantors represent
substantially all the Company's Mexican operations. The third column, "Combined
non-guarantors", represents the amounts of the international subsidiaries of
the Company, 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 the Company, the Guarantors and the non-guarantor
subsidiaries, as well as the corresponding constant pesos adjustment as of June
30, 2000, for the periods ended December 31, 1997, 1998 and 1999 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.
The accompanying condensed consolidating financial information as of
December 31, 1998 and for the years ended December 31, 1997 and 1998, reflects
the total combined equity of the Guarantors and related transactions as if the
mergers described in the previous paragraphs had been completed on January 1,
1997, as a reorganization of entities under common control (similar to pooling
of interest). All significant intercompany balances and transactions between
the Guarantors and the merged entities have been eliminated in the "Combined
Guarantors" column. Such information is presented in Mexican GAAP, and net
income and stockholders' equity have also been reconciled to US GAAP.
As mentioned in note 3B, according the Mexican GAAP 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 "non-
guarantors" amounts have been adjusted to reflect constant pesos as of June 30,
2000, 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-54
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
The information is as follows:
Condensed consolidating balance sheets:
<TABLE>
<CAPTION>
Combined Adjustments
Combined non- and CEMEX
1998 CEMEX Guarantors guarantors eliminations Consolidated
---- ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets.......... Ps 2,562,379 19,361,219 15,226,137 (20,392,447) 16,757,288
Investment in
affiliates............. 73,533,652 2,329,802 2,813,683 (74,757,888) 3,919,249
Other non-current
assets................. 1,153,993 -- 428,732 (1,075,681) 507,044
Property, machinery and
equipment.............. 1,486,057 29,994,194 39,721,469 (8,583,147) 62,618,573
Deferred charges........ 2,335,649 5,834,207 20,102,428 (5,434,727) 22,837,557
------------ ---------- ---------- ------------ -----------
Total assets........... 81,071,730 57,519,422 78,292,449 (110,243,890) 106,639,711
------------ ---------- ---------- ------------ -----------
Current liabilities..... 19,578,735 2,869,464 16,836,641 (20,949,387) 18,335,453
Long-term debt.......... 21,819,177 2,144,834 16,590,489 (8,579,079) 31,975,421
Other non-current
liabilities............ 41,564 31,289,376 526,270 (27,914,306) 3,942,904
------------ ---------- ---------- ------------ -----------
Total liabilities...... 41,439,476 36,303,674 33,953,400 (57,442,772) 54,253,778
------------ ---------- ---------- ------------ -----------
Majority interest
stockholders' Equity... 39,632,254 21,215,748 31,494,384 (52,710,132) 39,632,254
------------ ---------- ---------- ------------ -----------
Minority interest....... -- -- 12,844,665 (90,986) 12,753,679
------------ ---------- ---------- ------------ -----------
Stockholders' equity
under Mexican GAAP..... Ps39,632,254 21,215,748 44,339,049 (52,801,118) 52,385,933
============ ========== ========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Combined Adjustments
Combined non- and CEMEX
1999 CEMEX Guarantors guarantors eliminations Consolidated
---- ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets.......... Ps 783,483 9,417,876 17,117,195 (10,605,956) 16,712,598
Investment in
affiliates............. 45,648,605 5,139,659 4,391,445 (49,165,685) 6,014,024
Other non-current
assets................. 23,570,972 513,919 1,346,410 (23,743,472) 1,687,829
Property, machinery and
equipment.............. 1,483,846 25,687,234 41,568,909 (1,025,538) 67,714,451
Deferred charges........ 4,474,684 5,081,912 16,674,353 (2,292,296) 23,938,653
------------ ---------- ---------- ----------- -----------
Total assets........... 75,961,590 45,840,600 81,098,312 (86,832,947) 116,067,555
------------ ---------- ---------- ----------- -----------
Current liabilities..... 9,395,768 3,774,951 15,089,499 (10,394,118) 17,866,100
Long-term debt.......... 15,848,084 295,150 16,423,223 113,489 32,679,946
Other non-current
liabilities............ 21,692 24,689,939 1,751,846 (23,891,625) 2,571,852
------------ ---------- ---------- ----------- -----------
Total liabilities...... 25,265,544 28,760,040 33,264,568 (34,172,254) 53,117,898
------------ ---------- ---------- ----------- -----------
Majority interest
stockholders' equity... 50,696,046 17,080,560 36,692,183 (53,772,743) 50,696,046
------------ ---------- ---------- ----------- -----------
Minority interest....... -- -- 11,141,561 1,112,050 12,253,611
------------ ---------- ---------- ----------- -----------
Stockholders' equity
under Mexican GAAP..... Ps50,696,046 17,080,560 47,833,744 (52,660,693) 62,949,657
============ ========== ========== =========== ===========
</TABLE>
F-55
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
<TABLE>
<CAPTION>
Combined Adjustments
Combined non- and CEMEX
June 30, 2000 CEMEX Guarantors guarantors eliminations Consolidated
------------- ------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets.......... Ps 2,005,493 7,555,618 15,867,759 (7,663,161) 17,765,709
Investment in
affiliates............. 42,759,295 4,465,164 4,162,902 (46,039,574) 5,347,787
Other non-current
assets................. 21,030,720 3,492,265 5,680,149 (28,328,115) 1,875,019
Property, machinery and
equipment.............. 1,481,654 25,250,858 38,650,554 28,490 65,411,556
Deferred charges........ 4,568,601 5,503,171 16,259,351 (781,047) 25,550,076
------------- ---------- ---------- ----------- -----------
Total assets.......... 71,845,763 46,267,076 80,620,715 (82,783,407) 115,950,147
------------- ---------- ---------- ----------- -----------
Current liabilities..... 7,662,584 3,777,669 14,504,018 (8,306,191) 17,638,080
Long-term debt.......... 16,159,628 251,345 14,638,073 (384,437) 30,664,609
Other non-current
liabilities............ 13,442 28,941,998 5,379,490 (26,633,421) 7,701,509
------------- ---------- ---------- ----------- -----------
Total liabilities..... 23,835,654 32,971,012 34,521,581 (35,324,049) 56,004,198
------------- ---------- ---------- ----------- -----------
Majority interest
stockholders' equity... 48,010,109 13,296,064 34,818,601 (48,114,665) 48,010,109
------------- ---------- ---------- ----------- -----------
Minority interest....... -- -- 11,280,533 655,307 11,935,840
------------- ---------- ---------- ----------- -----------
Stockholders' equity
under Mexican
GAAP................... Ps 48,010,109 13,296,064 46,099,134 (47,459,358) 59,945,949
============= ========== ========== =========== ===========
Condensed consolidating income statements:
<CAPTION>
Combined Adjustments
Combined non- and CEMEX
1997 CEMEX Guarantors guarantors eliminations Consolidated
---- ------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales................... Ps -- 18,404,732 30,500,582 (9,293,742) 39,611,572
Operating income........ (99,625) 5,370,337 4,639,471 (550,024) 9,360,159
Comprehensive financing
result................. 923,143 4,287,743 1,117,282 (4,668,847) 1,659,321
Other income (expense),
net.................... 120,315 744,758 (595,413) (1,707,761) (1,438,101)
Income tax.............. 793,889 (1,901,614) (331,871) 745,527 (694,069)
Equity in income of
affiliates............. 6,217,399 (427,037) (1,116,675) (4,490,866) 182,821
------------- ---------- ---------- ----------- -----------
Consolidated net
income................. 7,955,121 8,074,187 3,712,794 (10,671,971) 9,070,131
------------- ---------- ---------- ----------- -----------
Minority interest....... -- -- 1,216,695 (101,685) 1,115,010
------------- ---------- ---------- ----------- -----------
Majority net income..... Ps 7,955,121 8,074,187 2,496,099 (10,570,286) 7,955,121
============= ========== ========== =========== ===========
<CAPTION>
Combined Adjustments
Combined non- and CEMEX
1998 CEMEX Guarantors guarantors eliminations Consolidated
---- ------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales................... Ps -- 19,956,766 30,783,288 (6,745,188) 43,994,866
Operating income........ (121,510) 8,552,216 4,596,916 (1,019,643) 12,007,979
Comprehensive financing
result................. (593,030) (505,311) 134,102 (383,533) (1,347,772)
Other income (expense),
net.................... 39,285 (1,323,784) 108,876 (375,431) (1,551,054)
Income tax.............. 1,838,812 (2,089,144) (721,955) 295,042 (677,245)
Equity in income of
affiliates............. 7,025,764 81,940 (436,744) (6,511,174) 159,786
------------- ---------- ---------- ----------- -----------
Consolidated net
income................. 8,189,321 4,715,917 3,681,195 (7,994,739) 8,591,694
------------- ---------- ---------- ----------- -----------
Minority interest....... -- -- 396,028 6,345 402,373
------------- ---------- ---------- ----------- -----------
Majority net income..... Ps 8,189,321 4,715,917 3,285,167 (8,001,084) 8,189,321
============= ========== ========== =========== ===========
</TABLE>
F-56
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
<TABLE>
<CAPTION>
Combined Adjustments
Combined non- and CEMEX
1999 CEMEX Guarantors guarantors eliminations Consolidated
---- ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales................... Ps -- 20,106,733 31,724,423 (4,599,480) 47,231,676
Operating income........ (111,650) 9,218,339 5,295,527 (349,080) 14,053,136
Comprehensive financing
result................. 893,707 5,011,910 2,621,773 (8,810,399) (283,009)
Other income (expense),
net.................... (636,555) (3,814,170) (1,245,474) 2,792,051 (2,904,148)
Income tax.............. 67,669 (487,972) (668,718) 45,500 (1,043,521)
Equity in income of
affiliates............. 9,301,323 507,945 (265,102) (9,300,784) 243,382
------------ ---------- ---------- ----------- ----------
Consolidated net
income................. 9,514,494 10,436,052 5,738,006 (15,622,712) 10,065,840
------------ ---------- ---------- ----------- ----------
Minority interest....... -- -- 346,901 204,445 551,346
------------ ---------- ---------- ----------- ----------
Majority net income..... Ps 9,514,494 10,436,052 5,391,105 (15,827,157) 9,514,494
============ ========== ========== =========== ==========
<CAPTION>
Combined Adjustments
Combined non- and CEMEX
June 30, 1999 CEMEX Guarantors guarantors eliminations Consolidated
------------- ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales................... Ps -- 9,902,998 15,491,842 (2,436,084) 22,958,756
Operating income........ (60,019) 4,785,676 2,829,582 (629,002) 6,926,237
Comprehensive financing
result................. 607,825 4,199,448 70,520 (4,021,972) 855,821
Other income (expense),
net.................... (38,143) (1,286,059) (817,254) 554,967 (1,586,489)
Income tax.............. -- (422,173) (421,568) 278,257 (565,484)
Equity in income of
affiliates............. 4,919,525 427,727 (77,870) (5,187,746) 81,636
------------ ---------- ---------- ----------- ----------
Consolidated net
income................. 5,429,188 7,704,619 1,583,410 (9,005,496) 5,711,721
------------ ---------- ---------- ----------- ----------
Minority interest....... -- -- -- 282,533 282,533
------------ ---------- ---------- ----------- ----------
Majority net income..... Ps 5,429,188 7,704,619 1,583,410 (9,288,029) 5,429,188
============ ========== ========== =========== ==========
<CAPTION>
Combined Adjustments
Combined non- and CEMEX
June 30, 2000 CEMEX Guarantors guarantors eliminations Consolidated
------------- ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales................... Ps -- 10,294,232 17,869,132 (2,023,219) 26,140,145
Operating income........ (34,777) 5,146,146 3,145,927 (345,260) 7,912,036
Comprehensive financing
result................. 364,902 (1,270,002) (262,483) 278,068 (889,515)
Other income (expense),
net.................... 384,795 (1,633,079) (246,630) 509,559 (985,355)
Income tax.............. -- (302,079) (682,693) (178,370) (1,163,142)
Equity in income of
affiliates............. 4,004,788 (135,504) (81,506) (3,693,687) 94,091
------------ ---------- ---------- ----------- ----------
Consolidated net
income................. 4,719,708 1,805,482 1,872,615 (3,429,690) 4,968,115
------------ ---------- ---------- ----------- ----------
Minority interest....... -- -- -- 248,407 248,407
------------ ---------- ---------- ----------- ----------
Majority net income..... Ps 4,719,708 1,805,482 1,872,615 (3,678,097) 4,719,708
============ ========== ========== =========== ==========
</TABLE>
F-57
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Condensed consolidating statements of changes in financial position:
<TABLE>
<CAPTION>
Combined Adjustments
Combined Non- and CEMEX
1997 CEMEX Guarantors guarantors eliminations Consolidated
---- ------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Majority net income..... Ps 7,955,121 8,074,187 2,496,099 (10,570,286) 7,955,121
Non-cash items.......... (5,491,560) 1,975,231 (789,688) 9,754,032 5,448,015
------------- ---------- ---------- ----------- ----------
Resources provided by
operating Activities.. 2,463,561 10,049,418 1,706,411 (816,254) 13,403,136
Net change in working
capital................ 14,837,433 (3,944,085) 2,109,806 (13,169,916) (166,762)
------------- ---------- ---------- ----------- ----------
Resources provided by
operating activities,
net................... 17,300,994 6,105,333 3,816,217 (13,986,170) 13,236,374
------------- ---------- ---------- ----------- ----------
Financing activities:
Bank loans and notes
payable, net........... (4,286,784) (160,639) (237,661) 321,904 (4,363,180)
Dividends paid.......... -- (804,712) -- 804,712 --
Issuance (repurchase) of
common Stock........... (1,221,110) -- -- -- (1,221,110)
Others.................. -- (3,888,467) 2,258,547 390,034 (1,239,886)
------------- ---------- ---------- ----------- ----------
Resources used in
financing Activities.. (5,507,894) (4,853,818) 2,020,886 1,516,650 (6,824,176)
------------- ---------- ---------- ----------- ----------
Investing activities:
Property, machinery and
equipment, net......... -- (732,742) (3,024,770) 257,902 (3,499,610)
Acquisitions, net of
cash acquired.......... (13,086,221) -- (1,042,163) 13,157,751 (970,633)
Dividends received...... 804,729 -- -- (804,729) --
Minority interest....... -- -- (1,145,148) 78,599 (1,066,549)
Deferred charges........ (47,594) (237,526) (511,998) 106,156 (690,962)
Others.................. -- -- (699,307) 46,449 (652,858)
------------- ---------- ---------- ----------- ----------
Resources used in
investing Activities.. (12,329,086) (970,268) (6,423,386) 12,842,128 (6,880,612)
------------- ---------- ---------- ----------- ----------
Change in cash and
temporary
Investments........... (535,986) 281,247 (586,283) 372,608 (468,414)
Cash and temporary
investments initial
balance............... 547,899 313,797 4,253,951 (670,503) 4,445,144
------------- ---------- ---------- ----------- ----------
Cash and temporary
investments ending
balance............... Ps 11,913 595,044 3,667,668 (297,895) 3,976,730
============= ========== ========== =========== ==========
</TABLE>
F-58
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Condensed consolidating statements of changes in financial position:
<TABLE>
<CAPTION>
Combined Adjustments
Combined Non- and CEMEX
1998 CEMEX Guarantors guarantors eliminations Consolidated
---- ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Majority net income..... Ps 8,189,321 4,715,917 3,285,167 (8,001,084) 8,189,321
Non-cash items.......... (6,207,732) 1,405,221 3,164,363 6,193,214 4,555,066
------------ ---------- ---------- ---------- ----------
Resources provided by
operating activities.. 1,981,589 6,121,138 6,449,530 (1,807,870) 12,744,387
Net change in working
capital................ (1,650,345) (1,252,735) (986,006) 3,556,459 (332,627)
------------ ---------- ---------- ---------- ----------
Resources provided by
operating activities,
net................... 331,244 4,868,403 5,463,524 1,748,589 12,411,760
------------ ---------- ---------- ---------- ----------
Financing activities:
Bank loans and notes
payable, net........... (4,221,319) (1,166,999) 793,230 560,312 (4,034,776)
Dividends paid.......... (1,691,617) (3,035,677) -- 3,035,677 (1,691,617)
Issuance (repurchase) of
common stock........... 1,418,141 -- -- -- 1,418,141
Others.................. (122,520) 937,071 687,744 (1,927,585) (425,290)
------------ ---------- ---------- ---------- ----------
Resources used in
financing activities.. (4,617,315) (3,265,605) 1,480,974 1,668,404 (4,733,542)
------------ ---------- ---------- ---------- ----------
Investing activities:
Property, machinery and
equipment, net......... -- (509,384) (478,504) 120,460 (867,428)
Acquisitions, net of
cash acquired.......... 6,019,091 -- (2,946,856) (5,659,757) (2,587,522)
Minority interest....... -- -- (1,004,702) 122,511 (882,191)
Deferred charges........ (383,629) (481,228) 486,383 336,897 (41,577)
Others.................. (1,143,191) -- (3,366,159) 1,380,726 (3,128,624)
------------ ---------- ---------- ---------- ----------
Resources used in
investing activities.. 4,492,271 (990,612) (7,309,838) (3,699,163) (7,507,342)
------------ ---------- ---------- ---------- ----------
Change in cash and
temporary
investments........... 206,200 612,186 (365,340) (282,170) 170,876
Cash and temporary
investments initial
balance............... 11,913 595,044 3,667,668 (297,895) 3,976,730
------------ ---------- ---------- ---------- ----------
Cash and temporary
investments ending
balance............... Ps 218,113 1,207,230 3,302,328 (580,065) 4,147,606
============ ========== ========== ========== ==========
</TABLE>
F-59
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Condensed consolidating statements of changes in financial position:
<TABLE>
<CAPTION>
Combined Adjustments
Combined Non- and CEMEX
1999 CEMEX Guarantors guarantors eliminations Consolidated
---- ------------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Majority net income..... Ps 9,514,494 10,436,052 5,391,105 (15,827,157) 9,514,494
Non-cash items.......... (7,754,197) 1,857,853 (4,620,405) 16,015,696 5,498,947
------------- ----------- ---------- ----------- -----------
Resources provided by
operating activities.. 1,760,297 12,293,905 770,700 188,539 15,013,441
Net change in working
capital............... (6,945,275) 11,577,034 1,720,002 (6,283,798) 67,963
------------- ----------- ---------- ----------- -----------
Resources provided by
operating activities,
net................... (5,184,978) 23,870,939 2,490,702 (6,095,259) 15,081,404
------------- ----------- ---------- ----------- -----------
Financing activities:
Bank loans and notes
payable, net........... (6,967,864) (2,105,559) 1,561,168 111,512 (7,400,743)
Dividends paid.......... (1,941,478) (12,160,438) -- 12,160,438 (1,941,478)
Issuance (repurchase) of
common stock........... 2,088,011 -- -- -- 2,088,011
Others.................. 7,038 (6,599,435) 1,158,638 6,980,214 1,546,455
------------- ----------- ---------- ----------- -----------
Resources used in
financing activities.. (6,814,293) (20,865,432) 2,719,806 19,252,164 (5,707,755)
------------- ----------- ---------- ----------- -----------
Investing activities:
Property, machinery and
equipment, net......... -- (398,980) (2,241,089) 39,189 (2,600,880)
Acquisitions, net of
cash acquired.......... 23,857,456 -- (6,275,956) (27,248,431) (9,666,931)
Dividends received...... 12,656,483 -- (496,045) (12,160,438) --
Minority interest....... -- -- (1,445,647) 21,458 (1,424,189)
Deferred charges........ (2,257,334) 418,812 780,208 158,303 (900,011)
Others.................. (22,418,163) (2,039,091) 3,681,934 25,039,155 4,263,835
------------- ----------- ---------- ----------- -----------
Resources used in
investing activities.. 11,838,442 (2,019,259) (5,996,595) (14,150,764) (10,328,176)
------------- ----------- ---------- ----------- -----------
Change in cash and
temporary
investments........... (160,829) 986,248 (786,087) (993,859) (954,527)
Cash and temporary
investments initial
balance............... 218,113 1,207,230 3,302,328 (580,065) 4,147,606
------------- ----------- ---------- ----------- -----------
Cash and temporary
investments ending
balance............... Ps 57,284 2,193,478 2,516,241 (1,573,924) 3,193,079
============= =========== ========== =========== ===========
</TABLE>
F-60
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
<TABLE>
<CAPTION>
Combined Adjustments
Combined Non- and CEMEX
June 30, 1999 CEMEX Guarantors guarantors eliminations Consolidated
------------- ------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Majority net income..... Ps 5,429,188 7,704,619 1,583,410 (9,288,029) 5,429,188
Non-cash items.......... (4,287,425) 221,753 (7,792,404) 14,148,327 2,290,251
------------ ----------- ---------- ----------- ----------
Resources provided by
operating activities.. 1,141,763 7,926,372 (6,208,994) 4,860,298 7,719,439
Net change in working
capital................ (9,145,574) 12,750,789 2,498,272 (5,882,269) 221,218
------------ ----------- ---------- ----------- ----------
Resources provided by
operating activities,
net................... (8,003,811) 20,677,161 (3,710,722) (1,021,971) 7,940,657
Financing activities:
Bank loans and notes
payable, net........... (4,319,431) (579,701) 6,270,128 -- 1,370,996
Dividends paid.......... (1,955,393) (12,877,845) 213,465 12,664,380 (1,955,393)
Issuance (repurchase) of
common stock........... 1,805,401 -- -- -- 1,805,401
Others.................. (10,820) (4,601,177) 2,858,854 828,352 (924,791)
------------ ----------- ---------- ----------- ----------
Resources used in
financing activities.. (4,480,243) (18,058,723) 9,342,447 13,492,732 296,213
------------ ----------- ---------- ----------- ----------
Investing activities:
Property, machinery and
equipment, net......... -- (22,222) 226,235 -- 204,013
Acquisitions, net of
cash acquired.......... (731,709) -- (5,578,168) 731,709 (5,578,168)
Dividends received...... 12,664,380 -- -- (12,664,380) --
Minority interest....... -- -- (968,053) -- (968,053)
Deferred charges........ 210,195 (118,914) (402,276) 326,068 15,073
Others.................. 131,462 (1,761,635) (782,218) (35,806) (2,448,197)
------------ ----------- ---------- ----------- ----------
Resources used in
investing activities.. 12,274,328 (1,902,771) (7,504,480) (11,642,409) (8,775,332)
------------ ----------- ---------- ----------- ----------
Change in cash and
temporary
investments........... (209,726) 715,667 (1,872,755) 828,352 (538,462)
Cash and temporary
investments initial
balance............... 218,113 1,207,230 3,302,328 (580,065) 4,147,606
------------ ----------- ---------- ----------- ----------
Cash and temporary
investments ending
balance............... Ps 8,387 1,922,897 1,429,573 248,287 3,609,144
============ =========== ========== =========== ==========
<CAPTION>
Combined Adjustments
Combined Non- and CEMEX
June 30, 2000 CEMEX Guarantors guarantors eliminations Consolidated
------------- ------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Majority net income..... Ps 4,719,708 1,805,482 1,872,615 (3,678,097) 4,719,708
Non-cash items.......... (3,803,840) 623,292 1,770,868 3,956,047 2,546,367
------------ ----------- ---------- ----------- ----------
Resources provided by
operating activities.. 915,868 2,428,774 3,643,483 277,950 7,266,075
Net change in working
capital................ (2,000,227) 2,106,730 77,669 (645,113) (460,941)
------------ ----------- ---------- ----------- ----------
Resources provided by
operating activities,
net................... (1,084,359) 4,535,504 3,721,152 (367,163) 6,805,134
Financing activities:
Bank loans and notes
payable, net........... (2,053,557) (644,757) 50,838 -- (2,647,476)
Dividends paid.......... (2,277,055) -- (441,662) 441,662 (2,277,055)
Issuance (repurchase) of
common stock........... 1,829,884 -- -- -- 1,829,884
Others.................. (283) (3,308,973) 4,373,432 (1,152,137) (87,961)
------------ ----------- ---------- ----------- ----------
Resources used in
financing activities.. (2,501,011) (3,953,730) 3,982,608 (710,475) (3,182,608)
------------ ----------- ---------- ----------- ----------
Investing activities:
Property, machinery and
equipment, net......... -- (220,432) 5,887 -- (214,545)
Acquisitions, net of
cash acquired.......... (139,251) -- (532,616) 139,251 (532,616)
Dividends received...... 441,662 -- -- (441,662) --
Minority interest....... -- -- (40,900) -- (40,900)
Deferred charges........ (145,120) (445,381) 371,728 446,683 227,910
Others.................. 3,430,635 (190,363) (7,282,020) 1,084,063 (2,957,685)
------------ ----------- ---------- ----------- ----------
Resources used in
investing activities.. 3,587,926 (856,176) (7,477,921) 1,228,335 (3,517,836)
------------ ----------- ---------- ----------- ----------
Change in cash and
temporary
investments........... 2,556 (274,402) 225,839 150,697 104,690
Cash and temporary
investments initial
balance............... 57,284 2,193,478 2,516,241 (1,573,924) 3,193,079
------------ ----------- ---------- ----------- ----------
Cash and temporary
investments ending
balance............... Ps 59,840 1,919,076 2,742,080 (1,423,227) 3,297,769
============ =========== ========== =========== ==========
</TABLE>
F-61
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
In addition to the information presented above, the tables below present
consolidating balance sheets as of December 31, 1998 and 1999, and income
statements and statements of changes in financial position for each of the
three-year period ended December 31, 1999 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 intercompany balances and transactions, between the Guarantors
and the merged entities have been eliminated in the "Combined Guarantors"
column.
The amounts presented in the column "Combined Guarantors" are readily
comparable with the information on the Guarantors included in the condensed
consolidating 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:
F-62
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Balance Sheets:
December 31, 1998
<TABLE>
<CAPTION>
Guarantors
(Parent Company Only) Adjustments
------------------------- and Combined
CEMEX Mexico ETM eliminations Guarantors
------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and temporary
investments.............. Ps 809,881 397,349 -- 1,207,230
Trade accounts
receivable, net.......... 1,433,396 -- -- 1,433,396
Other receivables and
other current assets..... 1,413,633 2,621 (81,030) 1,335,224
Intercompany
receivables.............. 14,881,216 7,306,391 (7,958,297) 14,229,310
Inventories............... 1,156,059 -- -- 1,156,059
------------- ---------- ----------- -----------
Total current assets.... 19,694,185 7,706,361 (8,039,327) 19,361,219
------------- ---------- ----------- -----------
Other Investments
Investments in
subsidiaries and
affiliates............... 17,043,509 20,600,959 (35,314,666) 2,329,802
Long-term intercompany
receivables.............. -- 595,311 (595,311) --
Other investments......... -- -- -- --
------------- ---------- ----------- -----------
Total other
investments............ 17,043,509 21,196,270 (35,909,977) 2,329,802
------------- ---------- ----------- -----------
Property, Plant and
Equipment
Property, plant and
equipment................ 61,549,653 -- -- 61,549,653
Accumulated
depreciation............. (31,555,459) -- -- (31,555,459)
------------- ---------- ----------- -----------
Total property, plant
and equipment.......... 29,994,194 -- -- 29,994,194
------------- ---------- ----------- -----------
Deferred Charges........... 1,362,110 4,472,097 -- 5,834,207
------------- ---------- ----------- -----------
Total Assets............ Ps 68,093,998 33,374,728 (43,949,304) 57,519,422
============= ========== =========== ===========
Liabilities and
Stockholders' Equity
Current Liabilities
Bank loans and notes
payable.................. Ps 290,276 -- -- 290,276
Current maturities of
long-term debt........... 96,972 -- -- 96,972
Trade accounts payable.... 484,704 -- -- 484,704
Other accounts payable
and accrued expenses..... 811,847 174,688 (120,097) 866,438
Intercompany payables..... 10,247,118 517,149 (9,633,193) 1,131,074
------------- ---------- ----------- -----------
Total current
liabilities............ 11,930,917 691,837 (9,753,290) 2,869,464
------------- ---------- ----------- -----------
Long-Term Debt
Notes payable............. 2,241,806 -- -- 2,241,806
Current maturities of
long-term debt........... (96,972) -- -- (96,972)
------------- ---------- ----------- -----------
Total long-term debt.... 2,144,834 -- -- 2,144,834
------------- ---------- ----------- -----------
Other Noncurrent
Liabilities
Pension and seniority
premium.................. 221,142 -- -- 221,142
Deferred income taxes..... 1,223,468 -- -- 1,223,468
Long-term intercompany
payables................. 30,437,955 -- (593,189) 29,844,766
Other noncurrent
liabilities.............. -- 51,947 (51,947) --
------------- ---------- ----------- -----------
Total other noncurrent
liabilities............ 31,882,565 51,947 (645,136) 31,289,376
------------- ---------- ----------- -----------
Total Liabilities....... 45,958,316 743,784 (10,398,426) 36,303,674
------------- ---------- ----------- -----------
Stockholders' Equity
Stockholders' equity....... 19,585,100 28,253,958 (31,339,227) 16,499,831
Net income................. 2,550,582 4,376,986 (2,211,651) 4,715,917
------------- ---------- ----------- -----------
Total stockholders'
equity................. 22,135,682 32,630,944 (33,550,878) 21,215,748
------------- ---------- ----------- -----------
Total Liabilities and
Stockholders' Equity... Ps 68,093,998 33,374,728 (43,949,304) 57,519,422
============= ========== =========== ===========
</TABLE>
F-63
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Balance Sheets:
December 31, 1999
<TABLE>
<CAPTION>
Guarantors (Parent
Company Only) Adjustments
------------------------- and Combined
CEMEX Mexico ETM eliminations Guarantors
------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and temporary
investments............. Ps 653,148 1,540,330 -- 2,193,478
Trade accounts
receivable, net......... 1,430,109 -- -- 1,430,109
Other receivables and
other current assets.... 766,343 92,260 -- 858,603
Intercompany
receivables............. 3,108,486 7,131,012 (7,115,756) 3,123,742
Inventories.............. 1,811,944 -- -- 1,811,944
------------- ---------- ----------- -----------
Total current assets.... 7,770,030 8,763,602 (7,115,756) 9,417,876
------------- ---------- ----------- -----------
Other Investments
Investments in
subsidiaries and
affiliates.............. 17,742,032 16,563,453 (29,165,826) 5,139,659
Long-term intercompany
receivables............. -- 446,817 (446,817) --
Other investments........ -- 513,919 -- 513,919
------------- ---------- ----------- -----------
Total other
investments............ 17,742,032 17,524,189 (29,612,643) 5,653,578
------------- ---------- ----------- -----------
Property, Plant and
Equipment
Property, plant and
equipment............... 53,716,407 -- -- 53,716,407
Accumulated
depreciation............ (28,029,173) -- -- (28,029,173)
------------- ---------- ----------- -----------
Total property, plant
and equipment.......... 25,687,234 -- -- 25,687,234
------------- ---------- ----------- -----------
Deferred Charges......... 1,563,522 3,518,390 -- 5,081,912
------------- ---------- ----------- -----------
Total Assets............ Ps 52,762,818 29,806,181 (36,728,399) 45,840,600
============= ========== =========== ===========
Liabilities and
Stockholders' Equity
Current Liabilities
Bank loans and notes
payable................. Ps 619,178 -- -- 619,178
Current maturities of
long-term debt.......... 26,112 -- -- 26,112
Trade accounts payable... 722,186 -- -- 722,186
Other accounts payable
and accrued expenses.... 637,842 123,441 -- 761,283
Intercompany payables.... 9,034,776 516,915 (7,905,499) 1,646,192
------------- ---------- ----------- -----------
Total current
liabilities............ 11,040,094 640,356 (7,905,499) 3,774,951
------------- ---------- ----------- -----------
Long-Term Debt
Bank loans and notes
payable................. 321,262 -- -- 321,262
Current maturities of
long-term debt.......... (26,112) -- -- (26,112)
------------- ---------- ----------- -----------
Total long-term debt.... 295,150 -- -- 295,150
------------- ---------- ----------- -----------
Other Noncurrent
Liabilities
Pension and seniority
premium................. 39,031 -- -- 39,031
Deferred income taxes
(note 15)............... 1,089,273 -- -- 1,089,273
Long-term intercompany
payables................ 24,008,452 -- (446,817) 23,561,635
Other noncurrent
liabilities............. -- -- -- --
------------- ---------- ----------- -----------
Total other noncurrent
liabilities............ 25,136,756 -- (446,817) 24,689,939
------------- ---------- ----------- -----------
Total Liabilities....... 36,472,000 640,356 (8,352,316) 28,760,040
------------- ---------- ----------- -----------
Stockholders' Equity
Stockholders' equity..... 6,635,880 24,984,992 (24,976,364) 6,644,508
Net income............... 9,654,938 4,180,833 (3,399,719) 10,436,052
------------- ---------- ----------- -----------
Total stockholders'
equity................. 16,290,818 29,165,825 (28,376,083) 17,080,560
------------- ---------- ----------- -----------
Total Liabilities and
Stockholders' Equity... Ps 52,762,818 29,806,181 (36,728,399) 45,840,600
============= ========== =========== ===========
</TABLE>
F-64
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Balance Sheets:
June 30, 2000
<TABLE>
<CAPTION>
Guarantors
(Parent Company Only) Adjustments
------------------------- and Combined
CEMEX Mexico ETM eliminations Guarantors
------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and temporary
investments.............. Ps 329,679 1,589,397 -- 1,919,076
Trade accounts
receivable, net.......... 1,271,440 -- -- 1,271,440
Other receivables and
other current assets..... 348,807 88,549 -- 437,356
Intercompany
receivables.............. 2,327,151 7,397,869 (7,576,578) 2,148,442
Inventories............... 1,779,304 -- -- 1,779,304
------------- ---------- ----------- -----------
Total current assets.... 6,056,381 9,075,815 (7,576,578) 7,555,618
------------- ---------- ----------- -----------
Other Investments
Investments in
subsidiaries and
affiliates............... 21,883,777 15,634,435 (33,053,048) 4,465,164
Long-term intercompany
receivables.............. -- 3,503,608 (900,000) 2,603,608
Other investments......... 165,778 722,879 -- 888,657
------------- ---------- ----------- -----------
Total other
investments............ 22,049,555 19,860,922 (33,953,048) 7,957,429
------------- ---------- ----------- -----------
Property, Plant and
Equipment
Property, plant and
equipment................ 53,116,349 -- -- 53,116,349
Accumulated
depreciation............. (27,865,491) -- -- (27,865,491)
------------- ---------- ----------- -----------
Total property, plant
and equipment.......... 25,250,858 -- -- 25,250,858
------------- ---------- ----------- -----------
Deferred Charges 2,001,501 4,205,655 (703,985) 5,503,171
------------- ---------- ----------- -----------
Total Assets............ 55,358,295 33,142,392 (42,233,611) 46,267,076
============= ========== =========== ===========
Liabilities and
Stockholders' Equity
Current Liabilities
Bank loans and notes
payable.................. Ps 39,897 -- -- 39,897
Current maturities of
long-term debt........... 4,657 -- -- 4,657
Trade accounts payable.... 873,461 -- -- 873,461
Other accounts payable
and accrued expenses..... 490,589 66,590 -- 557,179
Intercompany payables..... 9,856,299 22,754 (7,576,578) 2,302,475
------------- ---------- ----------- -----------
Total current
liabilities............ 11,264,903 89,344 (7,576,578) 3,777,669
------------- ---------- ----------- -----------
Long-Term Debt
Bank loans and notes
payable.................. 256,002 -- -- 256,002
Current maturities of
long-term debt........... (4,657) -- -- (4,657)
------------- ---------- ----------- -----------
Total long-term debt.... 251,345 -- -- 251,345
------------- ---------- ----------- -----------
Other Noncurrent
Liabilities
Pension and seniority
premium.................. -- -- -- --
Deferred income taxes
(note 15)................ 6,765,263 -- (703,985) 6,061,278
Long-term intercompany
payables................. 23,780,720 -- (900,000) 22,880,720
Other noncurrent
liabilities.............. -- -- -- --
------------- ---------- ----------- -----------
Total other noncurrent
liabilities............ 30,545,983 -- (1,603,985) 28,941,998
------------- ---------- ----------- -----------
Total Liabilities....... 42,062,231 89,344 (9,180,563) 32,971,012
------------- ---------- ----------- -----------
Stockholders' Equity
Stockholders' equity....... 11,490,582 33,030,892 (33,030,892) 11,490,582
Net income................. 1,805,482 22,156 (22,156) 1,805,482
------------- ---------- ----------- -----------
Total stockholders'
equity................. 13,296,064 33,053,048 (33,053,048) 13,296,064
------------- ---------- ----------- -----------
Total Liabilities and
Stockholders' Equity... Ps 55,358,295 33,142,392 (42,233,611) 46,267,076
============= ========== =========== ===========
</TABLE>
F-65
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Income Statements:
December 31, 1997
<TABLE>
<CAPTION>
Guarantors
(Parent Company Only) Adjustments
------------------------ and Combined
CEMEX Mexico ETM eliminations Guarantors
------------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales.................. Ps 19,161,737 -- (757,005) 18,404,732
Cost of sales.............. (12,002,342) -- 774,997 (11,227,345)
------------- --------- --------- -----------
Gross profit.............. 7,159,395 -- 17,992 7,177,387
------------- --------- --------- -----------
Operating expenses:
Administrative............ 985,222 394 3,054 988,670
Selling................... 802,230 -- 16,150 818,380
------------- --------- --------- -----------
Total operating
expenses................ 1,787,452 394 19,204 1,807,050
------------- --------- --------- -----------
Operating income......... 5,371,943 (394) (1,212) 5,370,337
------------- --------- --------- -----------
Comprehensive financing
income (cost):
Financial expenses........ (1,974,312) (57,124) 712,617 (1,318,819)
Financial income.......... 2,814,079 636,746 (712,971) 2,737,854
Foreign exchange result,
net...................... (738,731) 56,100 -- (682,631)
Monetary position result.. 4,145,658 (594,319) -- 3,551,339
------------- --------- --------- -----------
Net comprehensive
financing income
(cost).................. 4,246,694 41,403 (354) 4,287,743
------------- --------- --------- -----------
Other income (expense),
net....................... (1,154,664) 1,001,082 898,340 744,758
------------- --------- --------- -----------
Income before income
taxes, business assets
tax, employees' statutory
profit sharing and equity
in income of affiliates.. 8,463,973 1,042,091 896,774 10,402,838
------------- --------- --------- -----------
Income tax and business
assets tax, net........... (1,486,172) (345,721) -- (1,831,893)
Employees' statutory profit
sharing................... (69,721) -- -- (69,721)
------------- --------- --------- -----------
Total income tax,
business assets tax and
employees' statutory
profit sharing.......... (1,555,893) (345,721) -- (1,901,614)
------------- --------- --------- -----------
Income before equity in
income of affiliates.... 6,908,080 696,370 896,774 8,501,224
Equity in income of
affiliates............. (630,855) 2,843 200,975 (427,037)
------------- --------- --------- -----------
Net income................. Ps 6,277,225 699,213 1,097,749 8,074,187
============= ========= ========= ===========
</TABLE>
F-66
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Income Statements:
December 31, 1998
<TABLE>
<CAPTION>
Guarantors
(Parent Company Only) Adjustments
----------------------- and Combined
CEMEX Mexico ETM eliminations Guarantors
------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales.................... Ps19,956,766 -- -- 19,956,766
Cost of sales................ (9,403,760) -- (24,096) (9,427,856)
------------ --------- ---------- ----------
Gross profit............... 10,553,006 -- (24,096) 10,528,910
------------ --------- ---------- ----------
Operating expenses:
Administrative............. 1,173,602 3,276 2,754 1,179,632
Selling.................... 782,432 -- 14,630 797,062
------------ --------- ---------- ----------
Total operating
expenses................ 1,956,034 3,276 17,384 1,976,694
------------ --------- ---------- ----------
Operating income......... 8,596,972 (3,276) (41,480) 8,552,216
------------ --------- ---------- ----------
Comprehensive financing
income (cost):
Financial expenses......... (2,742,584) (87,994) 1,065,791 (1,764,787)
Financial income........... 4,178,291 1,074,270 (1,066,128) 4,186,433
Foreign exchange result,
net....................... (6,909,534) 335,812 -- (6,573,722)
Monetary position result... 4,526,922 (880,157) -- 3,646,765
------------ --------- ---------- ----------
Net comprehensive
financing income
(cost).................. (946,905) 441,931 (337) (505,311)
------------ --------- ---------- ----------
Other income (expense), net.. (3,305,868) 4,088,729 (2,106,645) (1,323,784)
------------ --------- ---------- ----------
Income before income taxes,
business assets tax,
employees' statutory
profit sharing and equity
in income of affiliates... 4,344,199 4,527,384 (2,148,462) 6,723,121
------------ --------- ---------- ----------
Income tax and business
assets tax, net............. (1,648,292) (539,642) 170,483 (2,017,451)
Employees' statutory profit
sharing..................... (71,693) -- -- (71,693)
------------ --------- ---------- ----------
Total income tax, business
assets tax and employees'
statutory profit sharing.. (1,719,985) (539,642) 170,483 (2,089,144)
------------ --------- ---------- ----------
Income before equity in
income of affiliates...... 2,624,214 3,987,742 (1,977,979) 4,633,977
Equity in income of
affiliates.............. (73,632) 389,244 (233,672) 81,940
------------ --------- ---------- ----------
Net income................... Ps 2,550,582 4,376,986 (2,211,651) 4,715,917
============ ========= ========== ==========
</TABLE>
F-67
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Income Statements:
December 31, 1999
<TABLE>
<CAPTION>
Guarantors
(Parent Company Only) Adjustments
----------------------- and Combined
CEMEX Mexico ETM eliminations Guarantors
------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales.................... Ps20,106,733 -- -- 20,106,733
Cost of sales................ (8,718,669) -- -- (8,718,669)
------------ --------- ---------- ----------
Gross profit............... 11,388,064 -- -- 11,388,064
------------ --------- ---------- ----------
Operating expenses:
Administrative............. 1,480,067 638 2,755 1,483,460
Selling.................... 686,265 -- -- 686,265
------------ --------- ---------- ----------
Total operating
expenses................ 2,166,332 638 2,755 2,169,725
------------ --------- ---------- ----------
Operating income......... 9,221,732 (638) (2,755) 9,218,339
------------ --------- ---------- ----------
Comprehensive financing
income (cost):
Financial expenses......... (2,448,619) (21,754) 1,589,537 (880,836)
Financial income........... 2,323,834 1,743,012 (1,589,537) 2,477,309
Foreign exchange result,
net....................... 797,115 6,036 -- 803,151
Monetary position result... 3,599,466 (987,180) -- 2,612,286
------------ --------- ---------- ----------
Net comprehensive
financing income
(cost).................. 4,271,796 740,114 -- 5,011,910
------------ --------- ---------- ----------
Other income (expense), net.. (3,676,247) 389,268 (527,191) (3,814,170)
------------ --------- ---------- ----------
Income before income taxes,
business assets tax,
employees' statutory
profit sharing and equity
in income of affiliates... 9,817,281 1,128,744 (529,946) 10,416,079
------------ --------- ---------- ----------
Income tax and business
assets tax, net............. (315,169) (47,135) -- (362,304)
Employees' statutory profit
sharing..................... (125,668) -- -- (125,668)
------------ --------- ---------- ----------
Total income tax, business
assets tax and employees'
statutory profit sharing.. (440,837) (47,135) -- (487,972)
------------ --------- ---------- ----------
Income before equity in
income of affiliates...... 9,376,444 1,081,609 (529,946) 9,928,107
Equity in income of
affiliates................ 278,494 3,099,224 (2,869,773) 507,945
------------ --------- ---------- ----------
Net income................... Ps 9,654,938 4,180,833 (3,399,719) 10,436,052
============ ========= ========== ==========
</TABLE>
F-68
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Income Statements:
June 30, 1999
<TABLE>
<CAPTION>
Guarantors
(Parent Company Only) Adjustments
--------------------- and Combined
CEMEX Mexico ETM eliminations Guarantors
------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales.................... Ps 9,902,998 -- -- 9,902,998
Cost of sales................ (4,116,357) -- -- (4,116,357)
------------ --------- ---------- ----------
Gross profit............... 5,786,641 -- -- 5,786,641
------------ --------- ---------- ----------
Operating Expenses:
Administrative............. 656,418 561 656,979
Selling.................... 343,986 -- -- 343,986
------------ --------- ---------- ----------
Total operating
expenses................ 1,000,404 561 -- 1,000,965
------------ --------- ---------- ----------
Operating income......... 4,786,237 (561) -- 4,785,676
------------ --------- ---------- ----------
Comprehensive financing
income (cost):
Financial expenses......... (1,049,433) (39,503) 864,232 (224,704)
Financial income........... 1,653,706 880,483 (864,232) 1,669,957
Foreign exchange result,
net....................... 1,462,805 822 1,463,627
Monetary position result... 1,842,368 (551,800) -- 1,290,568
------------ --------- ---------- ----------
Net comprehensive
financing income
(cost).................. 3,909,446 290,002 -- 4,199,448
------------ --------- ---------- ----------
Other income (expense), net.. (1,543,811) 257,752 -- (1,286,059)
------------ --------- ---------- ----------
Income before income taxes,
business assets tax,
employees' statutory
profit sharing and equity
in income of affiliates... 7,151,872 547,193 -- 7,699,065
------------ --------- ---------- ----------
Income tax and business
assets tax, net............. (243,510) (24,327) -- (267,837)
Employees' statutory profit
sharing..................... (154,336) -- -- (154,336)
------------ --------- ---------- ----------
Total income tax, business
assets tax and employees'
statutory profit
sharing................... (397,846) (24,327) -- (422,173)
------------ --------- ---------- ----------
Income before equity in
income of affiliates...... 6,754,026 522,866 -- 7,276,892
Equity in income of
affiliates................ 950,593 1,828,985 (2,351,851) 427,727
------------ --------- ---------- ----------
Net income................. Ps 7,704,619 2,351,851 (2,351,851) 7,704,619
============ ========= ========== ==========
</TABLE>
F-69
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Income Statements:
June 30, 2000
<TABLE>
<CAPTION>
Guarantors
(Parent Company Only) Adjustments
---------------------- and Combined
CEMEX Mexico ETM eliminations Guarantors
------------ -------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales..................... Ps10,294,232 -- -- 10,294,232
Cost of sales................. (4,399,199) -- -- (4,399,199)
------------ -------- -------- ----------
Gross profit................ 5,895,033 -- -- 5,895,033
------------ -------- -------- ----------
Operating expenses:
Administrative.............. 485,724 134 -- 485,858
Selling..................... 263,029 -- -- 263,029
------------ -------- -------- ----------
Total operating expenses.. 748,753 134 -- 748,887
------------ -------- -------- ----------
Operating income.......... 5,146,280 (134) -- 5,146,146
------------ -------- -------- ----------
Comprehensive financing income
(cost):
Financial expenses.......... (1,783,512) (318,315) 507,899 (1,593,928)
Financial income............ 175,532 604,121 (507,899) 271,754
Foreign exchange result,
net........................ (916,500) 98,053 -- (818,447)
Monetary position result.... 1,269,643 (399,024) -- 870,619
------------ -------- -------- ----------
Net comprehensive
financing income (cost).. (1,254,837) (15,165) -- (1,270,002)
------------ -------- -------- ----------
Other income (expense), net... (1,836,624) 203,545 -- (1,633,079)
------------ -------- -------- ----------
Income before income taxes,
business assets tax,
employees' statutory profit
sharing and equity in
income of affiliates....... 2,054,819 188,246 -- 2,243,065
------------ -------- -------- ----------
Income tax and business assets
tax, net..................... (115,471) (105,232) -- (220,703)
Employees' statutory profit
sharing...................... (81,376) -- -- (81,376)
------------ -------- -------- ----------
Total income tax, business
assets tax and employees'
statutory profit sharing... (196,847) (105,232) -- (302,079)
------------ -------- -------- ----------
Income before equity in
income of affiliates....... 1,857,972 83,014 -- 1,940,986
Equity in income of
affiliates................. (52,490) (60,858) (22,156) (135,504)
------------ -------- -------- ----------
Net income.................... Ps 1,805,482 22,156 (22,156) 1,805,482
============ ======== ======== ==========
</TABLE>
F-70
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Statements of Changes in Financial Position:
December 31, 1997
<TABLE>
<CAPTION>
Guarantors
(Parent Company Only) Adjustments
----------------------- and Combined
CEMEX Mexico ETM eliminations Guarantors
------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
Operating activities
Net income.................. Ps 6,277,225 699,213 1,097,749 8,074,187
Charges to operations which
did not require resources.. 2,179,049 (2,843) (200,975) 1,975,231
------------ --------- ---------- ----------
Resources provided by
operating activities....... 8,456,274 696,370 896,774 10,049,418
------------ --------- ---------- ----------
Changes in working capital:
Trade accounts receivable,
net....................... (149,649) -- -- (149,649)
Other receivables and other
current assets............ 52,170 81,334 2,032,580 2,166,084
Intercompany receivables
and payables, net......... (2,494,002) 298,287 (91,847) (2,287,562)
Inventories................ (836,273) -- 89,548 (746,725)
Trade accounts payable..... (101,857) -- (21) (101,878)
Other accounts payable and
accrued expenses.......... (763,977) (27,824) (2,032,554) (2,824,355)
------------ --------- ---------- ----------
Net change in working
capital.................. (4,293,588) 351,797 (2,294) (3,944,085)
------------ --------- ---------- ----------
Net resources provided by
operating activities..... 4,162,686 1,048,167 894,480 6,105,333
------------ --------- ---------- ----------
Financing activities
Bank loans and notes
payable, net............... (160,639) -- -- (160,639)
Dividends................... -- -- (804,712) (804,712)
Long-term intercompany
receivables and payables,
net........................ (3,859,914) -- 110,591 (3,749,323)
Other noncurrent assets and
liabilities, net........... (139,144) -- -- (139,144)
------------ --------- ---------- ----------
Resources used in financing
activities................. (4,159,697) -- (694,121) (4,853,818)
------------ --------- ---------- ----------
Investing activities
Property, plant and
equipment, net............. (732,742) -- -- (732,742)
Investments in subsidiaries
and affiliates............. 545,678 (345,319) (200,359) --
Deferred charges............ 145,579 (383,105) -- (237,526)
Other investments........... -- -- -- --
------------ --------- ---------- ----------
Resources used in investing
activities................. (41,485) (728,424) (200,359) (970,268)
------------ --------- ---------- ----------
Change in cash and temporary
investments................ (38,496) 319,743 -- 281,247
Cash and temporary
investments initial
balance.................... 584,775 (270,978) -- 313,797
------------ --------- ---------- ----------
Cash and temporary
investments ending
balance.................... Ps 546,279 48,765 -- 595,044
============ ========= ========== ==========
</TABLE>
F-71
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Statements of Changes in Financial Position:
December 31, 1998
<TABLE>
<CAPTION>
Guarantors
(Parent Company Only) Adjustments
------------------------ and Combined
CEMEX Mexico ETM eliminations Guarantors
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Operating activities
Net income................. Ps 2,550,582 4,376,986 (2,211,651) 4,715,917
Charges to operations which
did not require
resources................. 1,543,142 (371,123) 233,202 1,405,221
------------ ---------- ---------- ----------
Resources provided by
operating activities...... 4,093,724 4,005,863 (1,978,449) 6,121,138
------------ ---------- ---------- ----------
Changes in working capital:
Trade accounts receivable,
net...................... (162,409) -- -- (162,409)
Other receivables and
other current assets..... (1,036,957) 129,544 (51,342) (958,755)
Intercompany receivables
and payables, net........ 4,411,558 (4,257,227) (117,696) 36,635
Inventories............... 82,614 -- (101,306) (18,692)
Trade accounts payable.... 26,791 221,830 (221,832) 26,789
Other accounts payable and
accrued expenses......... (358,462) -- 182,159 (176,303)
------------ ---------- ---------- ----------
Net change in working
capital................. 2,963,135 (3,905,853) (310,017) (1,252,735)
------------ ---------- ---------- ----------
Net resources provided by
operating activities.... 7,056,859 100,010 (2,288,466) 4,868,403
------------ ---------- ---------- ----------
Financing activities
Bank loans and notes
payable, net.............. (1,166,999) -- -- (1,166,999)
Dividends.................. (3,035,677) -- -- (3,035,677)
Long-term intercompany
receivables and payables,
net....................... 879,123 108,267 2,123 989,513
Other noncurrent assets and
liabilities, net.......... (52,442) 254,851 (254,851) (52,442)
------------ ---------- ---------- ----------
Resources used in financing
activities................ (3,375,995) 363,118 (252,728) (3,265,605)
------------ ---------- ---------- ----------
Investing activities
Property, plant and
equipment, net............ (509,384) -- -- (509,384)
Investments in subsidiaries
and affiliates............ (2,426,650) (114,544) 2,541,194 --
Deferred charges........... (481,228) -- -- (481,228)
Other investments.......... -- -- -- --
------------ ---------- ---------- ----------
Resources used in investing
activities................ (3,417,262) (114,544) 2,541,194 (990,612)
------------ ---------- ---------- ----------
Change in cash and
temporary investments..... 263,602 348,584 -- 612,186
Cash and temporary
investments initial
balance................... 546,279 48,765 -- 595,044
------------ ---------- ---------- ----------
Cash and temporary
investments ending
balance................... Ps 809,881 397,349 -- 1,207,230
============ ========== ========== ==========
</TABLE>
F-72
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Statements of Changes in Financial Position:
December 31, 1999
<TABLE>
<CAPTION>
Guarantors (Parent
Company Only) Adjustments
------------------------- and Combined
CEMEX Mexico ETM eliminations Guarantors
------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Operating activities
Net income............... Ps 9,654,938 4,180,833 (3,399,719) 10,436,052
Charges to operations
which did not require
resources............... 1,119,757 1,864,881 (1,126,785) 1,857,853
------------- ---------- ---------- -----------
Resources provided by
operating activities.... 10,774,695 6,045,714 (4,526,504) 12,293,905
------------- ---------- ---------- -----------
Changes in working
capital:
Trade accounts
receivable, net........ 3,287 -- -- 3,287
Other receivables and
other current assets... 669,984 (89,640) (81,030) 499,314
Intercompany receivables
and payables, net...... 10,537,696 175,145 885,151 11,597,992
Inventories............. (655,884) -- -- (655,884)
Trade accounts payable.. 237,481 -- -- 237,481
Other accounts payable
and accrued expenses... (174,006) (51,247) 120,097 (105,156)
------------- ---------- ---------- -----------
Net change in working
capital............... 10,618,558 34,258 924,218 11,577,034
------------- ---------- ---------- -----------
Net resources provided
by operating
activities............ 21,393,253 6,079,972 (3,602,286) 23,870,939
------------- ---------- ---------- -----------
Financing activities
Bank loans and notes
payable, net............ (1,591,641) -- (513,918) (2,105,559)
Dividends................ (12,386,179) (5,091,265) 5,317,006 (12,160,438)
Long-term intercompany
receivables and
payables, net........... (6,429,145) 148,493 (2,121) (6,282,773)
Other noncurrent assets
and liabilities, net.... (316,662) (513,919) 513,919 (316,662)
------------- ---------- ---------- -----------
Resources used in
financing activities.... (20,723,627) (5,456,691) 5,314,886 (20,865,432)
------------- ---------- ---------- -----------
Investing activities
Property, plant and
equipment, net.......... (398,980) -- -- (398,980)
Investments in
subsidiaries and
affiliates.............. (330,264) 571,646 (2,280,473) (2,039,091)
Deferred charges......... (97,115) -- 515,927 418,812
Other investments........ -- (51,946) 51,946 --
------------- ---------- ---------- -----------
Resources used in
investing activities.... (826,359) 519,700 (1,712,600) (2,019,259)
------------- ---------- ---------- -----------
Change in cash and
temporary investments... (156,733) 1,142,981 -- 986,248
Cash and temporary
investments initial
balance................. 809,881 397,349 -- 1,207,230
------------- ---------- ---------- -----------
Cash and temporary
investments ending
balance................. Ps 653,148 1,540,330 -- 2,193,478
============= ========== ========== ===========
</TABLE>
F-73
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Statements of Changes in Financial Position:
June 30, 1999
<TABLE>
<CAPTION>
Guarantors
(Parent Company Only) Adjustments
------------------------- and Combined
CEMEX Mexico ETM eliminations Guarantors
------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Operating activities
Net income............... Ps 7,704,619 2,351,851 (2,351,851) 7,704,619
Charges to operations
which did not require
resources............... (310,447) 3,053,203 (2,521,003) 221,753
------------- ---------- ---------- -----------
Resources provided by
operating activities.... 7,394,172 5,405,054 (4,872,854) 7,926,372
------------- ---------- ---------- -----------
Changes in working
capital:
Trade accounts
receivable, net........ (24,501) -- -- (24,501)
Other receivables and
other current assets... 1,106,178 (1,933) (80,585) 1,023,660
Intercompany receivables
and payables, net...... 8,852,415 (142,226) 1,665,711 10,375,900
Inventories............. (230,797) -- -- (230,797)
Trade accounts payable.. 106,230 -- -- 106,230
Other accounts payable
and accrued expenses... 1,285,252 95,607 119,438 1,500,297
------------- ---------- ---------- -----------
Net change in working
capital............... 11,094,777 (48,552) 1,704,564 12,750,789
------------- ---------- ---------- -----------
Net resources provided
by operating
activities............ 18,488,949 5,356,502 (3,168,290) 20,677,161
------------- ---------- ---------- -----------
Financing activities
Bank loans and notes
payable, net............ (579,701) -- -- (579,701)
Dividends................ (13,169,877) (5,089,803) 5,381,835 (12,877,845)
Long-term intercompany
receivables and
payables, net........... (4,510,637) (468,183) 589,936 (4,388,884)
Other noncurrent assets
and liabilities, net.... (183,073) (51,662) 22,442 (212,293)
------------- ---------- ---------- -----------
Resources used in
financing activities.... (18,443,288) (5,609,648) 5,994,213 (18,058,723)
------------- ---------- ---------- -----------
Investing activities
Property, plant and
equipment, net.......... (22,222) -- -- (22,222)
Investments in
subsidiaries and
affiliates.............. (203,834) 1,274,743 (2,832,544) (1,761,635)
Deferred charges......... (118,914) -- -- (118,914)
Other investments........ -- -- -- --
------------- ---------- ---------- -----------
Resources used in
investing activities... (344,970) 1,274,743 (2,832,544) (1,902,771)
------------- ---------- ---------- -----------
Change in cash and
temporary investments.. (299,309) 1,021,597 (6,621) 715,667
Cash and temporary
investments initial
balance................ 805,439 395,170 6,621 1,207,230
------------- ---------- ---------- -----------
Cash and temporary
investments ending
balance................ Ps 506,130 1,416,767 -- 1,922,897
============= ========== ========== ===========
</TABLE>
F-74
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Guarantors' Combined Statements of Changes in Financial Position:
June 30, 2000
<TABLE>
<CAPTION>
Guarantors
(Parent Company Only) Adjustments
------------------------ and Combined
CEMEX Mexico ETM eliminations Guarantors
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Operating activities
Net income................. Ps 1,805,482 22,156 (22,156) 1,805,482
Charges to operations which
did not require
resources................. 1,248,854 71,327 (696,889) 623,292
------------ ---------- ---------- ----------
Resources provided by
operating activities...... 3,054,336 93,483 (719,045) 2,428,774
------------ ---------- ---------- ----------
Changes in working capital:
Trade accounts receivable,
net...................... 130,087 -- 8,171 138,258
Other receivables and
other current assets..... 413,333 3,206 4,905 421,444
Intercompany receivables
and payables, net........ 1,635,352 (797,281) 793,852 1,631,923
Inventories............... (42,080) -- 10,353 (31,727)
Trade accounts payable.... 155,235 -- (4,126) 151,109
Other accounts payable and
accrued expenses......... (143,754) (56,174) (4,349) (204,277)
------------ ---------- ---------- ----------
Net change in working
capital................. 2,148,173 (850,249) 808,806 2,106,730
------------ ---------- ---------- ----------
Net resources provided by
operating activities.... 5,202,509 (756,766) 89,761 4,535,504
------------ ---------- ---------- ----------
Financing activities
Bank loans and notes
payable, net.............. (639,385) -- (5,372) (644,757)
Dividends.................. -- -- -- --
Long-term intercompany
receivables and payables,
net....................... (96,091) (3,059,241) (134,616) (3,289,948)
Other noncurrent assets and
liabilities, net.......... (18,802) 3,943,200 (3,943,423) (19,025)
------------ ---------- ---------- ----------
Resources used in financing
activities................ (754,278) 883,959 (4,083,411) (3,953,730)
------------ ---------- ---------- ----------
Investing activities
Property, plant and
equipment, net............ (367,192) -- 146,760 (220,432)
Investments in subsidiaries
and affiliates............ (3,926,511) 134,501 3,802,386 10,376
Deferred charges........... (474,416) -- 29,035 (445,381)
Other investments.......... (3,581) (212,627) 15,469 (200,739)
------------ ---------- ---------- ----------
Resources used in investing
activities................ (4,771,700) (78,126) 3,993,650 (856,176)
------------ ---------- ---------- ----------
Change in cash and
temporary investments..... (323,469) 49,067 -- (274,402)
Cash and temporary
investments initial
balance................... 653,148 1,540,330 -- 2,193,478
------------ ---------- ---------- ----------
Cash and temporary
investments ending
balance................... Ps 329,679 1,589,397 -- 1,919,076
============ ========== ========== ==========
</TABLE>
Guarantors--Investment in affiliates
At December 31, 1998 and 1999, of the Guarantors' total investment in
affiliates, which are accounted for under the equity method, Ps2,199,497 and
Ps5,001,284, respectively, correspond to investments in non-guarantors, and
Ps130,305 in 1998 and Ps138,376 in 1999, are related to minority investments in
third parties.
At December 31, 1999, 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, respectively; and Centro Distribuidor de
Cemento, S.A. de C.V., which is the parent company of the international
operations of the Company.
F-75
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Indebtedness of the guarantors
At December 31, 1998, 1999 and June 30, 2000 (unaudited), the Guarantors had
total indebtedness of $218.1 million (Ps2,532.1 million), $94.7 million
(Ps940.4 million) and $30.1 million (Ps295.9 million), respectively. At
December 31 1999, the average interest rate of this indebtedness was
approximately 8.3%. Of the total indebtedness of the Guarantors at December 31,
1999, approximately $65.0 million (Ps645.3 million) matures in 2000 and $29.7
million (Ps295.1 million) matures in different dates from 2001 until 2003. As
mentioned in note 22, approximately $148.8 million of the total indebtedness of
the Guarantors at December 31, 1999 was prepaid during February 2000 as a
result of the purchase offer conducted in connection with the consent
solicitation of the 8.375% Yankee Notes. At December 31, 1999, of this $148.8
million prepaid in February 2000, $90 million in cash were invested and
committed to the repayment of this debt by the creation of an irrevocable
trust; such amount was considered extinguished for balance sheet presentation
under Mexican GAAP. At the same date, the remaining $58.8 million, were
reclassified to short-term debt.
Guarantors--Balances and transactions with related parties
At December 31, 1998, 1999 and June 30, 2000 (unaudited), included in
current assets, the Guarantors had intercompany receivables amounting to
approximately Ps14,229.3 million, Ps3,123.7 million and Ps2,148.4 million,
respectively. As of June 30, 2000, the guarantors had long term intercompany
receivables amounting to approximately Ps2,603.6 million (unaudited). Within
Guarantors' current liabilities, the Guarantors had intercompany payables
amounting to approximately Ps1,131.1 million in 1998, Ps1,646.2 in 1999 and
Ps2,302.5 million as of June 30, 2000. At December 31, 1998, 1999 and June 30,
2000 (unaudited), included in Guarantors' other non-current liabilities, there
are intercompany payables of Ps29,844.8 million, Ps23,561.6 million and
Ps22,880.7 million, respectively.
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,
its parent and certain affiliates. The intercompany balance detail is as
follows:
<TABLE>
<CAPTION>
1998
----------------------------------
Assets Liabilities
------------ ---------------------
Guarantors Short-Term Short-Term Long-Term
---------- ------------ ---------- ----------
<S> <C> <C> <C>
Cemex, S.A. de C.V......................... Ps 9,978,103 -- 29,844,766
Petrocemex, S.A. de C.V. .................. 1,732,052 -- --
Cemex Concretos, S.A. de C.V............... 1,255,694 -- --
Sunbelt Enterprises........................ 778,480 -- --
Cemex Central, S.A. de C.V................. 182,214 -- --
Cemex Internacional, S.A. de C.V........... -- 710,338 --
Aviacion Comercial de America, S.A. de
C.V. ..................................... -- 97,988 --
Productora de Bolsas de Papel, S.A. de
C.V. ..................................... -- 48,912 --
Inmobiliaria Valiant, S.A. de C.V. ........ -- 48,175 --
Turismo Cemex, S.A. de C.V. ............... -- 47,725 --
Inmobiliaria Canopo, S.A. de C.V........... -- 32,270 --
Compania de Transportes del Mar de Cortes,
S.A. de C.V. ............................. -- 25,029 --
Others..................................... 302,767 120,637 --
------------ --------- ----------
Ps14,229,310 1,131,074 29,844,766
============ ========= ==========
</TABLE>
F-76
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
<TABLE>
<CAPTION>
1999
---------------------------------
Assets Liabilities
----------- ---------------------
Guarantors Short-Term Short-Term Long-Term
---------- ----------- ---------- ----------
<S> <C> <C> <C>
Cemex Concretos, S.A. de
C.V.................... Ps1,188,607 -- --
Beeston Investments
Holdings Limited....... 1,124,294 -- --
Cemex Central, S.A. de
C.V.................... 524,062 -- --
Cemex, S.A. de C.V...... -- 94,227 23,561,635
Petrocemex, S.A. de
C.V.................... -- 618,961 --
Cemex Internacional,
S.A. de C.V............ -- 505,165 --
Turismo Cemex, S.A. de
C.V.................... -- 104,189 --
Productora de Bolsas de
Papel, S.A. de C.V..... -- 80,291 --
Inmobiliaria Valiant,
S.A. de C.V............ -- 71,542 --
Others.................. 286,779 171,817 --
----------- --------- ----------
Ps3,123,742 1,646,192 23,561,635
=========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
(unaudited) As of June 30, 2000
---------------------------------------------
Short Term Long Term
----------------------- ---------------------
Assets Liabilities Assets Liabilities
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Cemex, S.A. de C.V. ............ Ps1,172,191 -- -- 20,130,720
Centro Distribuidor de Cemento,
S.A. de C.V. .................. 459,134 -- 100,000 --
Cemex Central, S.A. de C.V. .... 181,365 -- 569,000 --
Proveedora Mexicana de
Materiales, S.A. de C.V. ...... 111,283 -- -- --
Beeston Investments Holdings
Limited........................ -- 1,061,272 -- --
Petrocemex, S.A. de C.V. ....... -- 362,814 -- 2,750,000
Cemex Concretos, S.A. de C.V. .. -- 262,901 1,787,608 --
Turismo Cemex, S.A. de C.V. .... -- 155,946 -- --
Productora de Bolsas de Papel,
S.A. de C.V. .................. -- 107,617 -- --
Cemex Internacional, S.A. de
C.V. .......................... -- 102,267 -- --
Aviacion Comercial de America,
S.A. de C.V. .................. -- 67,661 147,000 --
Others.......................... 224,469 181,997 -- --
----------- --------- --------- ----------
Ps2,148,442 2,302,475 2,603,608 22,880,720
=========== ========= ========= ==========
</TABLE>
The principal transactions carried out with affiliated companies are:
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------------- ----------------------
Guarantors 1997 1998 1999 1999 2000
---------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... Ps2,443,314 2,364,118 2,276,837 915,236 1,686,670
Purchases............... (902,465) (812,684) (837,833) (165,147) (424,055)
Selling and
administrative
expenses............... -- (39,791) (41,118) (24,755) (27,930)
Financial expense....... (478,034) (469,858) (587,287) (11,651) (1,174,276)
Financial income........ 2,201,517 3,250,735 2,355,069 1,613,202 270,102
Other expense, net...... -- -- (2,661,189) (1,067,379) 1,444,245
=========== ========= ========== ========== ==========
</TABLE>
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.
F-77
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Selling and administrative expenses--The Company allocates part of its
corporate expense to the Guarantors.
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.
Other expense, net--The Guarantors incur rental and trade mark rights
expenses payable to the 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.
<TABLE>
<CAPTION>
(Unaudited) Periods
Year ended December 31, ended June 30,
----------------------------------- ---------------------
1997 1998 1999 1999 2000
----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net income reported
under Mexican GAAP..... Ps8,074,187 4,715,917 10,436,052 7,704,619 1,805,482
Approximate U.S. GAAP
adjustments:
1. Amortization of
pushdown goodwill
(see note 1)........ (169,360) (167,656) (167,004) (83,163) (83,690)
2. Deferred income
taxes and ESPS
(see note 2)........ (1,134,863) (1,570,442) (1,660,511) (1,165,616) (416,394)
3. Other employees'
benefits (see note
3).................. (13,493) (24,503) (25,059) (25,534) (25,762)
4. Inflation adjustment
for machinery and
equipment (see note
4).................. (122,267) 1,804 (125,997) (85,329) (67,652)
5. Other U.S. GAAP
adjustments (see
note 5)............. 203,020 254,787 (170,661) 66,684 233,245
6. Monetary position
result (see note
6).................. 1,389,958 1,614,349 1,093,321 637,292 363,456
----------- ---------- ---------- ---------- ---------
Total approximate U.S.
GAAP adjustments..... 152,995 108,339 (1,055,911) (655,666) 3,203
----------- ---------- ---------- ---------- ---------
Total approximate net
income under
U.S. GAAP............ Ps8,227,182 4,824,256 9,380,141 7,048,953 1,808,685
=========== ========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, (Unaudited)
------------------------ June 30,
1998 1999 2000
------------ ---------- -----------
<S> <C> <C> <C>
Total stockholders' equity under Mexican
GAAP.................................... Ps21,215,748 17,080,560 13,296,064
Approximate U.S. GAAP adjustments:
1. Effect of pushdown of goodwill, net
(see note 1)......................... 1,390,885 1,126,833 1,099,585
2. Deferred income taxes and ESPS (see
note 2).............................. (9,157,474) (9,813,533) (5,270,616)
3. Other employees' benefits (see note
3)................................... (116,950) (129,182) (149,476)
4. Inflation adjustment for machinery
and equipment (see note 4)........... (43,761) 2,984,977 3,024,088
5. Other U.S. GAAP adjustments (see note
5)................................... (1,745,265) (1,933,484) (152,982)
------------ ---------- ----------
Total approximate U.S. GAAP
adjustments........................... (9,672,565) (7,764,389) (1,449,401)
------------ ---------- ----------
Total approximate stockholders' equity
under U.S. GAAP....................... Ps11,543,183 9,316,171 11,846,663
============ ========== ==========
</TABLE>
F-78
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
Footnotes to the U.S. GAAP reconciliation:
1. Business Combinations
In 1989 and 1990, through an exchange of its shares with the Company, CEMEX
Mexico (formerly Tolmex) acquired substantially all its 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 Ps6,223,287. In addition,
during 1995 CEMEX acquired through a public exchange offer, where the Company
exchanged its own shares for Tolmex' shares, a 24.2% equity interest in Tolmex.
The excess of the purchase price paid by CEMEX over the fair value of the net
assets of Tolmex was Ps805,918. These goodwill amounts have been pushed-down to
CEMEX Mexico for purposes of the U.S. GAAP reconciliation. Amortization expense
related to these pushed-down goodwill amounts is recognized for purposes of the
net income reconciliation to U.S. GAAP in each period.
The amounts shown in the above table relative to this adjustment for the
years ended December 31, 1998 and 1999 have been restated by Ps3,141,892 and
Ps3,236,750, respectively from amounts previously reported to reflect the
correction of an error in the original calculations. As a result, total
approximate stockholders' equity under US GAAP at December 31, 1998 and 1999 is
lower by those amounts than what was previously reflected." For purposes of
U.S. GAAP presentation, Ps966,605 and Ps966,643 as of December 31, 1998 and
1999, respectively, were reclassified from goodwill to investments in
subsidiaries. This, however, has no effect in stockholders' equity under U.S.
GAAP.
2. Deferred income taxes and Employees' Statutory Profit Sharing
Deferred income taxes provision at December 31, 1998, 1999 and June 30, 2000
(unaudited) for the Guarantors amounts to Ps6,639,220, Ps7,268,959 and
Ps2,696,263, respectively. In addition, deferred Employees' Statutory Profit
Sharing ("ESPS") provision amounts to Ps2,518,254 in 1998 and Ps2,544,574 in
1999 and Ps2,574,353, as of June 30, 2000 (unaudited).
3. 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 Ps20,901, Ps23,087 and Ps26,714,
at December 31, 1998, 1999 and June 30, 2000 (unaudited), respectively. In
addition, the Guarantors recognized, for purposes of the U.S. GAAP
reconciliation, a liability for severance benefits for Ps96,049 in 1998,
Ps106,095 in 1999 and Ps122,762, as of June 30, 2000 (unaudited).
4. Inflation Adjustment of Machinery and Equipment
On December 2, 1997, the International Practices Task Force of the American
Institute of Certified Public Accountants encouraged Mexican companies to
restate their fixed assets of foreign origin by applying the inflation rate of
each country in which companies operate, instead of using the methodology
included in the fifth amendment to Bulletin B-10, which consists of restating
the fixed assets of foreign origin on the basis of the devaluation of the
functional currency against the currency of origin and applying a factor of
inflation in such foreign country. 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.
F-79
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
5. Other U.S. GAAP adjustments
Deferred charges--For U.S. GAAP purposes, other deferred charges net of
accumulated amortization generated during 1999, that did not qualify for
deferral under U.S. GAAP have been charged to expense, with a net effect on the
stockholders' equity and in the net income reconciliation to U.S. GAAP of
Ps(183,785) in 1999 and Ps(100,836), as of June 30, 1999 (unaudited). As of
June 30, 2000, the guarantors recognize a decrease of Ps176,005 in their
stockholders' equity reconciliation to U.S. GAAP. Mexican GAAP allowed the
deferral of these expenses.
Inventory costs--As permitted by Mexican GAAP, certain inventories are
valued under the direct cost system, which includes material, labor and other
direct costs. For purposes of the reconciliation to U.S. GAAP, inventories have
been valued under the full absorption cost method, including all costs and
expenses necessary for the manufacturing process. At December 31, 1998, the
Guarantors recognized an increase of Ps138,539 in their stockholders' equity
reconciliation to U.S. GAAP. For purposes of the net income reconciliation to
U.S. GAAP, the Guarantors recognized income of Ps33,986 in 1997, income of
Ps23,449 in 1998, expense of Ps123,343 in 1999 and expense of Ps118,898 as of
June 30, 1999 (unaudited), respectively.
Subsidiary companies--The Guarantors have adjusted their investment in 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
Ps(1,883,804), Ps(1,749,699) and Ps23,023 in 1998, 1999 and June 30, 2000
(unaudited), respectively. The net effect in the net income reconciliation to
U.S. GAAP was benefits of Ps169,034, Ps231,338, Ps136,467, Ps286,418 and
Ps233,245 in 1997, 1998, 1999 and June 30, 1999 and 2000 (unaudited),
respectively. From the U.S. GAAP adjustments to subsidiary companies in the
Guarantor's reconciliation of stockholders' equity, Ps(2,594,077) in 1998,
Ps(2,710,190) in 1999, and Ps(1,157,348) as of June 30, 2000 (unaudited) are
related to deferred income taxes and deferred ESPS.
6. 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 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 to 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.
F-80
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
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, 1997, 1998 and 1999,
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 on a historical Peso basis and it is not presented in constant
purchasing power.
<TABLE>
<CAPTION>
(Unaudited)
----------------------
Years ended December 31, Period ended June 30,
------------------------------------ ----------------------
1997 1998 1999 1999 2000
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities... Ps 798,653 2,617,994 2,464,265 315,728 3,194,850
Net cash provided by
(used in) financing
activities............. 3,718,702 (159,044) 277,668 1,133,652 (1,020,905)
Net cash used in
investing activities... (4,284,536) (2,161,902) (2,847,880) (1,703,955) (2,342,406)
------------ ---------- ---------- ---------- ----------
Net cash flow from operating activities reflects cash payments for
interests and income taxes as follows:
<CAPTION>
(Unaudited)
----------------------
Six months ended
Years ended December 31, June 30,
------------------------------------ ----------------------
1997 1998 1999 1999 2000
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest paid........... Ps 565,022 659,394 799,594 150,014 132,941
Income taxes paid....... 669,874 1,501,030 145,501 85,084 318,560
------------ ---------- ---------- ---------- ----------
</TABLE>
Guarantors' non-cash activities are comprised of the following:
During 1999, the Guarantors acquired from CEMEX, an equity interest in
Centro Distribuidor de Cemento, S.A. de C.V. for an amount of Ps1,952,779,
which was compensated against an account payable owed by CEMEX to the
Guarantors.
Dividends declared to CEMEX amounting to Ps578,479 in 1997 and Ps11,645,698
in 1999 and as of June 30, 1999 (unaudited), are recognized by the Guarantors
as accounts payable to the Company at the end of the corresponding year.
Contingent liabilities of the guarantors
At December 31, 1999, Cemex Mexico, S.A. de C.V. and Empresas Tolteca de
Mexico, S.A. de C.V., had guaranteed debt of CEMEX, S.A. de C.V. in the amount
of US dollars $2,090 million (see note 11).
(w) Newly Issued Accounting Pronouncements
In June 1998, The Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which requires entities to recognize all derivatives in their financial
statements as either assets or liabilities measured at fair value. SFAS 133
also specifies new methods of accounting for hedging transactions, prescribes
the items and transactions that may be hedged and specifies detailed criteria
to be met to qualify for hedge accounting. SFAS 133 is currently scheduled to
be effective for fiscal years beginning after June 15, 2000. We are currently
evaluating the impact that SFAS 133 will have on our consolidated financial
statements and disclosures.
F-81
<PAGE>
CEMEX, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Thousands of constant Mexican pesos as of June 30, 2000)
(x) Subsequent events under U.S. GAAP (unaudited)
In June 2000, we exercised an option to acquire an additional 13% of Assiut
Cement Co. for approximately U.S.$56 million, increasing the Company's interest
in Assiut to 90%.
On May 31, 2000, the Company sold its 100% interest in the Marriott Casa
Magna hotels in Cancun and Puerto Vallarta, Mexico, to Marriott International,
as well as a land property in Puerto Vallarta, for a total of US$116 million.
As a result of this transaction, for Mexican and U.S. GAAP purposes, the
Company will record under the line item Other Income and Expense, net, a loss
of approximately $9 million, before the related tax benefits.
In April 2000, the Company agreed to invest $20 million for an ownership
interest of 80% in PuntoCom Holdings, an e-business development accelerator of
several Internet projects for Latin America. Additionally, the Company agreed
to invest $30 million for a 100% ownership interest in PuntoCom Investments, a
Delaware fund that will make e-business investments in Latin America, this
company has the right to co-invest in PuntoCom Holdings portfolio companies.
The Company expects to begin the consolidation of PuntoCom Holdings and
PuntoCom Investments during the second quarter of year 2000.
In April 2000, the Company through its Philippine affiliate formalized an
exclusive long-term distributorship agreement with Universe Cement of Taiwan.
This agreement signals the Company's entrance into the Taiwan cement market,
and reinforces its presence in Southeast Asia. The agreement covers an
estimated 900,000 metric tons per year in sales in one of Southeast Asia's most
dynamic markets.
In March 2000, the Company agreed to invest $26 million to begin the
construction of a new grinding mill near Dhaka, Bangladesh. The facility is
expected to begin operations in March 2001.
In February 2000, the Company through a subsidiary, entered into
shareholders and subscription agreements with institutional investors, whom
subscribed for approximately 8.8% ownership interest in Cemex Asia Holdings
("CAH") for approximately $56 million. As a result of this transaction, our
ownership interest in CAH was reduced to 77.4%, therefore, our economic
interest in Rizal and APO were reduced to approximately 54% and 77%,
respectively.
On January 26, 2000, the Company obtained a favorable resolution by the
Domestic and Customs Office of Colombia, dismissing the tax assessment that was
served on three of our Colombian subsidiaries in 1998. (see note 20B).
On September 5, 2000, we were notified of a tax assessment in respect of the
1994 tax year for approximately Ps460 million.
In September 2000, one of our subsidiaries, Latin Networks Holding, BV,
launched CXNetworks, an e-business project with the objective of developing,
managing and deploying several e-business networks relating to online
construction websites with an internet based marketplace, an e-procurement
marketplace and the expansion of our existing information technology company
Cemtec, S.A. de C.V., which will provide information technology solution and
its related services to e-business industry. We have committed to invest US$100
million during these projects each year.
In September 2000, we terminated the Equity Swap transaction subject to the
24.8% of the outstanding capital stock of Valenciana through a bridge loan for
US$400 million, contracted in August 2000; we repurchased Valenciana's shares
subject to it for US$500 million, through one of our subsidiaries.
F-82
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey N.L., January 12, 2000
To the Stockholders of
Cal Guadalajara, S.A. de C.V.
(formerly Simifa, S.A. de C.V.)
We have audited the balance sheets of Cal Guadalajara, S.A. de C.V. as of
December 31, 1999 and 1998, and the related statements of income, of changes in
stockholders' equity and of changes in financial position for the years then
ended. 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. 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.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Cal Guadalajara, S.A. de C.V.
at December 31, 1999 and 1998, 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 then ended, in conformity with accounting principles
generally accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-83
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Productora de Bolsas de Papel, S.A.
We have audited the balance sheets of Productora de Bolsas de Papel, S.A. as
of December 31, 1999 and 1998, and the related statements of income, of changes
in stockholders' equity and of changes in financial position for the years then
ended. 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. 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.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Productora de Bolsas de Papel,
S.A. at December 31, 1999 and 1998, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial position
for the years then ended, in conformity with accounting principles generally
accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-84
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Cemtec, S.A. de C.V.
We have audited the balance sheets of Cemtec, S.A. de C.V. as of December
31, 1999 and 1998, and the related statements of income, of changes in
stockholders' equity and of changes in financial position for the years then
ended. 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. 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.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Cemtec, S.A. de C.V. at
December 31, 1999 and 1998, and the results of its operations, the changes in
its stockholders' equity and the changes in its financial position for the
years then ended, in conformity with accounting principles generally accepted
in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-85
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Agregados y Triturados Monterrey, S.A. de C.V.
1. We have audited the balance sheets of Agregados y Triturados Monterrey, S.A.
de C.V. as of December 31, 1999 and 1998, and the related statements of
income, of changes in stockholders' equity and of changes in financial
position for the years then ended. 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. 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.
2. As described in Note 1 to the financial statements, at a meeting held on
December 6, 1999, the stockholders resolved to merge the company with Cemex
Concretos, S.A. de C.V. (formerly Concretos de Alta Calidad y Agregados,
S.A. de C.V., a related party), the former company being absorbed by the
latter. Consequently, Agregados y Triturados Monterrey, S.A. de C.V.
terminates operations. This merger is effective from December 31, 1999
onwards.
3. In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Agregados y Triturados
Monterrey, S.A. de C.V. at December 31, 1999 and 1998, and the results of
its operations, the changes in its stockholders' equity and the changes in
its financial position for the years then ended, in conformity with
accounting principles generally accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-86
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Petrocemex, S.A. de C.V.
1. We have audited the balance sheets of Petrocemex, S.A. de C.V. as of
December 31, 1999 and 1998, and the related statements of income, of
changes in stockholders' equity and of changes in financial position for
the years then ended. 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. 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.
2. As described in Note 1 to the financial statements, at a meeting held on
May 18, 1999, the stockholders resolved to merge the company with Dinek and
Badenoch, affiliated companies, both latter companies being absorbed by
Petrocemex, S.A. de C.V. This merger is effective from July 1, 1999
onwards.
3. In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Petrocemex, S.A. de C.V.
at December 31, 1999 and 1998, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial
position for the years then ended, in conformity with accounting principles
generally accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-87
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Cemex Concretos, S.A. de C.V.
(formerly Concretos de Alta Calidad y Agregados, S.A. de C.V.)
1. We have audited the balance sheets of Cemex Concretos, S.A. de C.V. as of
December 31, 1999 and 1998, and the related statements of income, of changes
in stockholders' equity and of changes in financial position for the years
then ended. 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. 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.
2. As described in Note 1 to the financial statements, at a meeting held on
December 6, 1999, the stockholders resolved to merge the company with
Agregados y Triturados Monterrey, S.A. de C.V., Arenera de Occidente, S.A.
de C.V., Concreto Premezclado Nacional, S.A. de C.V., Concreto y Precolados,
S.A. de C.V. and Pavimentos Mexicanos de Concreto, S.A. de C.V. (affiliated
companies), all latter companies being absorbed by the company. This merger
is effective from December 31, 1999 onwards.
3. 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, 1999 and 1998, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial
position for the years then ended, in conformity with accounting principles
generally accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-88
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Cementos del Noreste, S.A. de C.V.
(formerly Polycemex, S.A. de C.V.)
1. We have audited the balance sheets of Cementos del Noreste, S.A. de C.V. (as
a separate legal entity) as of December 31, 1999 and 1998, and the related
statements of income, of changes in stockholders' equity and of changes in
financial position for the years then ended. 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 subsidiaries accounted for by the equity method, as determined
on the basis of the unaudited financial statements. 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. 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.
2. As described in Note 1 to the financial statements, at a meeting held on
December 7, 1999, the stockholders resolved to merge the company with Cemex
Mexico, S.A. de C.V. (formerly Serto Construcciones, S.A. de C.V., a related
party), the former company being absorbed by the latter. This merger is
effective from December 31, 1999 onwards.
3. In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Cementos del Noreste, S.A.
de C.V. (as a separate legal entity) at December 31, 1999 and 1998, and the
results of its operations, the changes in its stockholders' equity and the
changes in its financial position for the years then ended, in conformity
with accounting principles generally accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-89
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Cementos Monterrey, S.A. de C.V.
(formerly Polimeros Cemex, S.A. de C.V.)
1. We have audited the balance sheets of Cementos Monterrey, S.A. de C.V. (as
a separate legal entity) as of December 31, 1999 and 1998, and the related
statements of income, of changes in stockholders' equity and of changes in
financial position for the years then ended. 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 subsidiaries accounted for by the equity method, as
determined on the basis of the unaudited financial statements. 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. 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.
2. As described in Note 1 to the financial statements, at a meeting held on
March 15, 1999 the stockholders resolved to merge the company with Ceser,
S.A. and Maritima del Golfo, S.A. (related parties) both latter companies
being absorbed by Cementos Monterrey, S.A. de C.V. this merger is effective
from March 31, 1999, onwards. At a meeting held on December 7, 1999, the
stockholders resolved to merge the company with Cemex Mexico, S.A. de C.V.
(formerly Serto Construcciones, S.A. de C.V., a related party) the former
company being absorbed by the latter. Consequently, Cementos Monterrey,
S.A. de C.V. terminates operations. This merger is effective from December
31, 1999 onwards.
3. In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Cementos Monterrey, S.A.
de C.V. (as a separate legal entity) at December 31, 1999 and 1998, and the
results of its operations, the changes in its stockholders' equity and the
changes in its financial position for the years then ended, in conformity
with accounting principles generally accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-90
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Cementos Anahuac, S.A. de C.V.
(formerly Immobiliaria Angela Segovia, S.A.)
We have audited the balance sheets of Cementos Anahuac, S.A. as of December
31, 1999 and 1998, and the related statements of income, of changes in
stockholders' equity and of changes in financial position for the years then
ended. 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. 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.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Cementos Anahuac, S.A. at
December 31, 1999 and 1998, and the results of its operations, the changes in
its stockholders' equity and the changes in its financial position for the
years then ended, in conformity with accounting principles generally accepted
in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-91
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Cementos del Norte, S.A. de C.V.
(formerly Immobiliaria ZP Triangular, S.A. de C.V.)
We have audited the balance sheets of Cementos del Norte, S.A. de C.V. as of
December 31, 1999 and 1998, and the related statements of income, of changes in
stockholders' equity and of changes in financial position for the years then
ended. 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. 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.
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, 1999 and 1998, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial position
for the years then ended, in conformity with accounting principles generally
accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-92
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
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, 1999 and 1998, and the related statements of income, of
changes in stockholders' equity and of changes in financial position for the
years then ended. 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. 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.
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, 1999 and 1998, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial position
for the years then ended, in conformity with accounting principles generally
accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-93
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
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, 1999 and 1998, and the related statements of income, of changes in
stockholders' equity and of changes in financial position for the years then
ended. 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. 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.
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, 1999 and 1998, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial position
for the years then ended, in conformity with accounting principles generally
accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-94
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Productos Calcareos, S.A. de C.V.
We have audited the balance sheets of Productos Calcareos, S.A. de C.V. as
of December 31, 1999 and 1998, and the related statements of income, of changes
in stockholders' equity and of changes in financial position for the years then
ended. 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. 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.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Productos Calcareos, S.A. de
C.V. at December 31, 1999 and 1998, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial position
for the years then ended, in conformity with accounting principles generally
accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-95
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
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, 1999 and 1998, and
the related statements of income, of changes in stockholders' equity and of
changes in financial position for the years then ended. 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 accounted 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. 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.
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, 1999 and
1998, and the results of its operations, the changes in its stockholders'
equity and the changes in its financial position for the years then ended, in
conformity with accounting principles generally accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-96
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Pavimentos Mexicanos de Concreto, S.A. de C.V.
We have audited the balance sheets of Pavimentos Mexicanos de Concreto, S.A.
de C.V. as of December 31, 1999 and 1998, and the related statements of income,
of changes in stockholders' equity and of changes in financial position for the
years then ended. 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. 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 mentioned in Note 1 to the financial statements, at the stockholders'
meeting held on December 6, 1999, the stockholders approved the merger of the
company into Cemex Concreto, S.A. de C.V. This merger became effective as from
December 31, 1999, which means that all the company's rights and obligation
were transferred to the merging company.
As mentioned in Note 2E to the financial statements, on the basis of a study
carried out in 1999, the company decided to modify the technical useful lives
of the plant and equipment, particularly as concerns a lower rate of wear and
tear as compared to the rate originally considered. The result of this change
was a reduction in depreciation charged to income amounting to approximately
Ps1,300,000.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Pavimentos Mexicanos de
Concreto, S.A. de C.V. at December 31, 1999 and 1998, and the results of its
operations, the changes in its stockholders' equity and the changes in its
financial position for the years then ended, in conformity with accounting
principles generally accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-97
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Explotadora de Canteras, S.A. de C.V.
We have audited the balance sheets of Explotadora de Canteras, S.A. de C.V.
as of December 31, 1999 and 1998, and the related statements of income, of
changes in stockholders' equity and of changes in financial position for the
years then ended. 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. 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 mentioned in Note 1 to the financial statement, income and operating cost
and expenses, arise from transactions with related parties. In view of the
before going, these transactions may not be considered to be the same as those
that would be carried out with independent parties in comparable transactions.
As mentioned in Note 1 to the financial statements, at the stockholders'
meeting held on December 6, 1999, the stockholders approved the merger of the
company into Cemex Mexicana, S.A. de C.V. This merger became effective as from
December 31, 1999, which means that all the company's rights and obligation
were transferred to the merging company.
As mentioned in Note 2D. to the financial statements, on the basis of a
study carried out in 1999, the company decided to modify the technical useful
lives of the property, plant and equipment, particularly as concerns a lower
rate of wear and tear as compared to the rate originally considered. The result
of this change was a reduction in depreciation charged to income amounting to
approximately Ps8,179,000.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Explotadora de Canteras, S.A.
de C.V. at December 31, 1999 and 1998, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial position
for the years then ended, in conformity with accounting principles generally
accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-98
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Arenera del Oriente, S.A. de C.V.
We have audited the balance sheets of Arenera del Oriente, S.A. de C.V. as
of December 31, 1999 and 1998, and the related statements of income, of changes
in stockholders' equity and of changes in financial position for the years then
ended. 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. 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 mentioned in Note 1 to the financial statements, income and operating
cost and expenses arise from transactions with related parties. In view of the
before going, these transactions may not be considered to be the same as those
that would be carried out with independent parties in comparable transactions.
As mentioned in Note 1 to the financial statements, at the stockholders'
meeting held on December 6, 1999, the stockholders approved the merger of the
company into Cemex Concreto, S.A. de C.V. This merger became effective as from
December 31, 1999, which means that all the company's rights and obligation
were transferred to the merging company.
As mentioned in Note 2E. to the financial statements, on the basis of a
study carried out in 1999, the company decided to modify the technical useful
lives of the property, plan and equipment, particularly as concerns a lower
rate of wear and tear as compared to the rate originally considered. The result
of this change was a reduction in depreciation charged to income amounting to
approximately Ps9,482,000.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Arenera del Oriente, S.A. de
C.V. at December 31, 1999 and 1998, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial position
for the years then ended, in conformity with accounting principles generally
accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-99
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Compania de Transporte del Mar de Cortes, S.A. de C.V.
We have audited the balance sheets of Compania de Transporte del Mar de
Cortes, S.A. de C.V. as of December 31, 1999 and 1998, and the related
statements of income, of changes in stockholders' equity and of changes in
financial position for the years then ended. 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. 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 mentioned in Note 1 to the financial statements, income and operating
cost and expenses arise from transactions with related parties. In view of the
before going, these transactions may not be considered to be the same as those
that would be carried out with independent parties in comparable transactions.
As mentioned in Note 2D. to the financial statements, on the basis of a
study carried out in 1999, the company decided to modify the technical useful
lives of the plant and equipment, particularly as concerns a lower rate of wear
and tear as compared to the rate originally considered. The result of this
change was a reduction in depreciation charged to income amounting to
approximately Ps4,658,000.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Compania de Transporte del Mar
de Cortes, S.A. de C.V. at December 31, 1999 and 1998, and the results of its
operations, the changes in its stockholders' equity and the changes in its
financial position for the years then ended, in conformity with accounting
principles generally accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-100
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N. L., January 12, 2000
To the Stockholders of
Cementos Guadalajara, S.A. de C.V.
(formerly Inmobiliaria Industrial Mazatleca, S.A. de C.V.)
We have audited the balance sheets of Cementos Guadalajara, S.A. de C.V. as
of December 31, 1999 and 1998, and the related statements of income, of changes
in stockholders' equity and of changes in financial position for the years then
ended. 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. 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 mentioned in Note 1 to the financial statements, income and operating
cost and expenses, arise from transactions with related parties. In view of the
before going, these transactions may not be considered to be the same as those
that would be carried out with independent parties in comparable transactions.
As mentioned in Note 1 to the financial statements, at the stockholders'
meeting held on June 30, 1999 it was decided to change the name of the company
from Inmobiliaria Industrial Mazatleca, S.A. de C.V. to Cementos Guadalajara,
S.A. de C.V.
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, 1999 and 1998, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial position
for the years then ended, in conformity with accounting principles generally
accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-101
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Cementos de Oriente S.A. de C.V.
(formerly Maquiladora y Distribuidora
de Materiales para la Construccion, S.A. de C.V.)
We have audited the balance sheets of Cementos de Oriente, S.A. de C.V. as
of December 31, 1999 and 1998, and the related statements of income, of changes
in stockholders' equity and of changes in financial position for the years then
ended. 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. 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 mentioned in Note 1 to the financial statements, income and operating
cost and expenses arise from transactions with related parties. In view of the
beforegoing, this transaction may not be considered to be the same as those
that would be carried out with independent parties in comparable transactions.
As mentioned in Note 1 to the financial statements, at the stockholders'
meeting held on August 31, 1999, it was decided to change to the name of the
company from Maquiladora y Distribuidora de Materiales para la Construccion,
S.A. de C.V. to Cementos de Oriente, S.A. de C.V.
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, 1999 and 1998, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial position
for the years then ended, in conformity with accounting principles generally
accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-102
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
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, 1999 and 1998, and the related statements of income, of
changes in stockholders' equity and of changes in financial position for the
years then ended. 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. 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 mentioned in Note 1 to the financial statements, income and operating
cost and expenses arise from transactions with related parties. In view of the
before going, these transactions may not be considered to be the same as those
that would be carried out with independent parties in comparable transactions.
As mentioned in Note 2D. to the financial statements, on the basis of a
study carried out in 1999, the company decided to modify the technical useful
lives of the property, plant and equipment, particularly as concerns a lower
rate of wear and tear as compared to the rate originally considered. The result
of this change was a reduction in depreciation charged to income amounting to
approximately Ps742,000.
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, 1999 and 1998, and the results of its operations,
the changes in its stockholders' equity and the changes in its financial
position for the years then ended, in conformity with accounting principles
generally accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-103
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Concretos y Precolados, S.A. de C.V.
We have audited the balance sheets of Concretos y Precolados, S.A. de C.V.
as of December 31, 1999 and 1998, and the related statements of income, of
changes in stockholders' equity and of changes in financial position for the
years then ended. 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. 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 mentioned in Note 1 to the financial statements, at the stockholders'
meeting held on December 6, 1999, the stockholders approved the merger of the
company into Cemex Concreto, S.A. de C.V. This merger became effective as from
December 31, 1999, which means that all the company's rights and obligations
were transferred to the merging company.
As mentioned in Note 2E. to the financial statements, on the basis of a
study carried out in 1999, the company decided to modify the technical useful
lives of the property, plant and equipment, particularly as concerns a lower
rate of wear and tear as compared to the rate originally considered. The result
of this change was a reduction in depreciation charged to income amounting to
approximately Ps10,355,000.
As mentioned in Note 1 to the financial statements, at the extraordinary
stockholders' meeting held on November 19, 1998, it was agreed that as from
December 31, 1998, Concretos y Derivados, S.A. de C.V. would be merged into the
company.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Concretos y Precolados, S.A.
de C.V. at December 31, 1999 and 1998, and the results of its operations, the
changes in its stockholders' equity and the changes in its financial position
for the years then ended, in conformity with accounting principles generally
accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-104
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Monterrey, N.L., January 12, 2000
To the Stockholders of
Concreto Premezclado Nacional, S.A. de C.V.
We have audited the balance sheets of Concreto Premezclado Nacional, S.A. de
C.V. as of December 31, 1999 and 1998, and the related statements of income, of
changes in stockholders' equity and of changes in financial position for the
years then ended. 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. 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 mentioned in Note 1 to the financial statements, at the stockholders'
meeting held on December 6, 1999, the stockholders approved the merger of the
company into Cemex Concreto, S.A. de C.V. This merger became effective as from
December 31, 1999, which means that all the company's rights and obligation
were transferred to the merging company.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Concreto Premezclado Nacional,
S.A. de C.V. at December 31, 1999 and 1998, and the results of its operations,
the changes in its stockholders' equity and the changes in its financial
position for the years then ended, in conformity with accounting principles
generally accepted in Mexico.
PricewaterhouseCoopers
Hector Puente S.
F-105
<PAGE>
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Manually signed facsimile copies of the Letter of Transmittal, properly
completed and duly executed, will be accepted. The Letter of Transmittal,
certificates for Shares and any other required documents should be sent or
delivered by each shareholder of the Company or such shareholder or his broker,
dealer, commercial bank, trust company or other nominee to the Depositary at
one of the addresses set forth below:
The Depositary for the Offer is:
Citibank, N.A.
By Facsimile Transmission
(for Eligible Institutions only):
(212) 505-2248
Confirm by Telephone:
(800) 270-0808
<TABLE>
<S> <C> <C>
By Courier: By Mail: By Hand:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
915 Broadway, 5th Floor P.O. Box 685 Corporate Trust Window
New York, N.Y. 10010 Old Chelsea Station 111 Wall Street, 5th Floor
New York, N.Y. 10113 New York, N.Y. 10043
</TABLE>
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth below. Requests for copies of this Offer to Purchase, the Letter of
Transmittal, the Notice of Guaranteed Delivery and all other tender offer
materials may be directed to the Information Agent as set forth below and will
be furnished promptly at Purchaser's expense. Purchaser will not pay fees or
commissions to any broker or dealer or any other person (other than the Dealer
Manager) for soliciting tenders of Shares pursuant to the Offer. Shareholders
may also contact their broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
[MACKENZIE LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll Free (800) 322-2885
The Dealer Manager for the Offer is:
Salomon Smith Barney
388 Greenwich Street
New York, New York 10013
Call Toll Free (877) 755-4456
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