v2.4.0.6
Document and Entity Information
12 Months Ended
Dec. 31, 2016
Document and Entity Information [abstract]  
Entity registrant name CEMEX, S.A.B. de C.V.
Trading symbol CX
Document period end date Dec. 31, 2016
Current fiscal year end date --12-31
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Consolidated Statement of Operations (MXN $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Income Statement [abstract]      
Net sales $ 250,909 $ 220,326 $ 199,942
Cost of sales (161,883) (146,068) (134,742)
Gross profit 89,026 74,258 65,200
Operating expenses (53,762) (47,769) (43,347)
Operating earnings before other expenses, net 35,264 26,489 21,853
Other expenses, net (1,646) (3,043) (5,045)
Operating earnings 33,618 23,446 16,808
Financial expense (21,468) (19,767) (21,483)
Other financial income (expense), net 4,441 (1,235) 2,531
Share of profit of equity accounted investees 688 738 294
Earnings (loss) before income tax 17,279 3,182 (1,850)
Income tax (3,096) (2,328) (3,920)
Net income (loss) from continuing operations 14,183 854 (5,770)
Discontinued operations 1,024 1,279 90
CONSOLIDATED NET INCOME (LOSS) 15,207 2,133 (5,680)
Non-controlling interest net income 1,174 932 1,103
CONTROLLING INTEREST NET INCOME (LOSS) $ 14,033 $ 1,201 $ (6,783)
Basic earnings (loss) per share $ 0.33 $ 0.03 $ (0.16)
Basic earnings (loss) per share of continuing operations $ 0.31    $ (0.16)
Diluted earnings (loss) per share $ 0.33 $ 0.03 $ (0.16)
Diluted earnings (loss) per share of continuing operations $ 0.31    $ (0.16)
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Consolidated Statements of Comprehensive Income (Loss) (MXN $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Statement Of Comprehensive Income [abstract]      
CONSOLIDATED NET INCOME (LOSS) $ 15,207 $ 2,133 $ (5,680)
Items that will not be reclassified subsequently to profit or loss      
Net actuarial losses from remeasurement of defined benefit pension plans (4,019) (748) (3,025)
Income tax recognized directly in other comprehensive income 788 183 486
Other comprehensive income net of tax gains losses on remeasurement of defined benefit plans (3,231) (565) (2,539)
Items that are o may be reclassified subsequently to profit or loss      
Effects from available-for-sale investments and derivative financial instruments designated as cash flow hedges 36 335 (94)
Currency translation of foreign subsidiaries 11,629 7,967 501
Income tax recognized directly in other comprehensive income (696) 453 (85)
Other comprehensive income that will be reclassified to profit or loss net of tax 10,969 8,755 322
Total items of other comprehensive income (loss) 7,738 8,190 (2,217)
TOTAL COMPREHENSIVE INCOME (LOSS) 22,945 10,323 (7,897)
Non-controlling interest comprehensive income 5,164 3,221 2,129
CONTROLLING INTEREST COMPREHENSIVE INCOME (LOSS) 17,781 7,102 (10,026)
COMPREHENSIVE INCOME (LOSS) FROM DISCONTINUED OPERATIONS 1,965 1,352 721
COMPREHENSIVE INCOME (LOSS) FROM CONTINUING OPERATIONS $ 15,816 $ 5,750 $ (10,747)
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Consolidated Balance Sheets (MXN $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
CURRENT ASSETS    
Cash and cash equivalents $ 11,555 $ 15,280
Trade accounts receivables, net 29,949 27,774
Other accounts receivables 5,179 4,817
Inventories, net 17,862 17,716
Assets held for sale 25,193 5,391
Other current assets 2,292 2,687
Total current assets 92,030 73,665
NON-CURRENT ASSETS    
Equity accounted investees 10,484 12,150
Other investments and other non-current accounts receivable 7,049 6,549
Property, machinery and equipment, net 227,111 214,133
Goodwill and intangible assets, net 247,020 220,318
Deferred income taxes 16,034 15,449
Total non-current assets 507,698 468,599
TOTAL ASSETS 599,728 542,264
CURRENT LIABILITIES    
Short-term debt 1,216 218
Other financial obligations 11,658 15,587
Trade payables 39,903 28,709
Income tax payable 5,421 6,619
Other current liabilities 22,452 20,769
Liabilities directly related to assets held for sale 1,466 673
Total current liabilities 82,116 72,575
NON-CURRENT LIABILITIES    
Long-term debt 235,016 229,125
Other financial obligations 25,972 23,268
Employee benefits 23,365 18,269
Deferred tax liabilities 19,594 20,385
Other non-current liabilities 16,940 14,874
Total non-current liabilities 320,887 305,921
TOTAL LIABILITIES 403,003 378,496
STOCKHOLDERS EQUITY    
Controlling interest:      
Common stock and additional paid-in capital 127,336 119,624
Other equity reserves 24,793 15,273
Retained earnings 1,612 7,381
Net income (loss) 14,033 1,201
Total controlling interest 167,774 143,479
Non-controlling interest and perpetual debentures 28,951 20,289
TOTAL STOCKHOLDERS EQUITY 196,725 163,768
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 599,728 $ 542,264
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Consolidated Statements of Cash Flows (MXN $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
OPERATING ACTIVITIES      
Consolidated net income (loss) $ 15,207 $ 2,133 $ (5,680)
Discontinued operations 1,024 1,279 90
Net income (loss) from continuing operations 14,183 854 (5,770)
Non-cash items:         
Depreciation and amortization of assets 16,147 14,865 13,703
Impairment losses and remeasurement of assets held for sale 2,516 1,526 3,848
Share of profit of equity accounted investees (688) (738) (294)
Results on sale of subsidiaries, other disposal groups and others (2,116) (194) (389)
Financial items, net 17,027 21,002 18,952
Income taxes 3,096 2,328 3,920
Changes in working capital, excluding income taxes 11,023 3,541 1,475
Net cash flow provided by operating activities from continuing operations before interest, coupons on perpetual debentures and income taxes 61,188 43,184 35,445
Financial expense and coupons on perpetual debentures paid (18,129) (17,865) (16,844)
Income taxes paid (5,183) (7,437) (7,678)
Net cash flow provided by operating activities from continuing operations 37,876 17,882 10,923
Net cash flow provided by operating activities from discontinued operations 1,194 1,213 1,069
Net cash flows provided by operating activities 39,070 19,095 11,992
INVESTING ACTIVITIES      
Property, machinery and equipment, net (4,500) (8,872) (5,965)
Disposal of subsidiaries and other disposal groups, net 1,424 2,722 167
Intangible assets and other deferred charges (1,427) (908) (902)
Long term assets and others, net (899) (766) 199
Net cash flows used in investing activities from continuing operations (5,402) (7,824) (6,501)
Net cash flows provided by (used in) investing activities from discontinued operations 2 (153) (161)
Net cash flows used in investing activities (5,400) (7,977) (6,662)
FINANCING ACTIVITIES      
Sale of non-controlling interests in subisidiares 9,777      
Derivative instruments 399 1,098 1,561
Repayment of debt, net (37,050) (11,473) (6,714)
Other financial obligations, net (9,773) 177 (4,396)
Securitization of trade receivables (999) (506) 2,052
Non-current liabilities, net (1,972) (1,763) (1,128)
Net cash flows used in financing activities (39,618) (12,467) (8,625)
Decrease in cash and cash equivalents from continuing operations (7,144) (2,409) (4,203)
Increase in cash and cash equivalents from discontinued operations 1,196 1,060 908
Cash conversion effect, net 2,223 4,040 708
Cash and cash equivalents at beginning of the year 15,280 12,589 15,176
CASH AND CASH EQUIVALENT AT END OF YEAR 11,555 15,280 12,589
Changes in working capital, excluding income taxes:        
Trade receivables, net (4,353) (3,384) (3,348)
Other accounts receivable and other assets (276) (1,961) 1,255
Inventories (1,174) (1,299) (2,716)
Trade payables 13,619 7,207 3,807
Other accounts payable and accrued expenses 3,207 2,978 2,477
Changes in working capital, excluding income taxes $ 11,023 $ 3,541 $ 1,475
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Statements of Changes in Stockholders Equity (MXN $)
In Millions, unless otherwise specified
Total
Common stock [member]
Additional paid-in capital [member]
Other equity reserves [member]
Retained earnings [member]
Total controlling interest [member]
Non-controlling interest [member]
TOTAL STOCKHOLDERS EQUITY at Dec. 31, 2013 $ 148,318 $ 4,143 $ 84,800 $ 15,037 $ 29,399 $ 133,379 $ 14,939
Statement of changes in equity [line items]              
Net income (loss) (5,680)          (6,783) (6,783) 1,103
Total other items of other comprehensive income (loss) (2,217)       (3,243)    (3,243) 1,026
Effects of early conversion and issuance of convertible subordinated notes 7,440 4 8,037 (601)    7,440   
Capitalization of retained earnings    4 7,614    (7,618)      
Stock-based compensation 730    765 (35)    730   
Effects of perpetual debentures (420)       (420)    (420)   
TOTAL STOCKHOLDERS EQUITY at Dec. 31, 2014 148,171 4,151 101,216 10,738 14,998 131,103 17,068
Statement of changes in equity [line items]              
Net income (loss) 2,133          1,201 1,201 932
Total other items of other comprehensive income (loss) 8,190       5,901    5,901 2,289
Effects of early conversion and issuance of convertible subordinated notes 5,051 3 5,982 (934)    5,051   
Capitalization of retained earnings    4 7,613    (7,617)      
Stock-based compensation 655    655       655   
Effects of perpetual debentures (432)       (432)    (432)   
TOTAL STOCKHOLDERS EQUITY at Dec. 31, 2015 163,768 4,158 115,466 15,273 8,582 143,479 20,289
Statement of changes in equity [line items]              
Net income (loss) 15,207          14,033 14,033 1,174
Total other items of other comprehensive income (loss) 7,738       3,748    3,748 3,990
Capitalization of retained earnings    4 6,966    (6,970)      
Stock-based compensation 742    742       742   
Effects of perpetual debentures (507)       (507)    (507)   
Changes in non-controlling interest 9,777       6,279    6,279 3,498
TOTAL STOCKHOLDERS EQUITY at Dec. 31, 2016 $ 196,725 $ 4,162 $ 123,174 $ 24,793 $ 15,645 $ 167,774 $ 28,951
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1)Description of business
12 Months Ended
Dec. 31, 2016
Description of business [abstract]  
Disclosure of notes and other explanatory information

1)       DESCRIPTION OF BUSINESS

 

CEMEX, S.A.B. de C.V., a public stock corporation with variable capital (S.A.B. de C.V.) organized under the laws of the United Mexican States, or Mexico, is a holding company (parent) of entities whose main activities are oriented to the construction industry, through the production, marketing, distribution and sale of cement, ready-mix concrete, aggregates and other construction materials. In addition, in order to facilitate the acquisition of financing and to run its operations in Mexico more efficiently considering that there are efficiency and improvement opportunities; beginning on April 1, 2014, CEMEX, S.A.B. de C.V. integrated and carries out all businesses and operational activities of the cement and aggregates sectors in Mexico. Moreover, beginning on January 1, 2015, CEMEX, S.A.B. de C.V. completed the transition, integrated and carries all operating activities related to the sale of ready-mix concrete in Mexico.

 

CEMEX, S.A.B. de C.V. was founded in 1906 and was registered in the Public Register of Property and Commerce in Monterrey, N.L., Mexico in 1920 for a period of 99 years. In 2002, this period was extended to the year 2100. The shares of CEMEX, S.A.B. de C.V. are listed on the Mexican Stock Exchange (“MSE”) as Ordinary Participation Certificates (“CPOs”) under the symbol “CEMEXCPO”. Each CPO represents two series “A” shares and one series “B” share of common stock of CEMEX, S.A.B. de C.V. In addition, CEMEX, S.A.B. de C.V.'s shares are listed on the New York Stock Exchange (“NYSE”) as American Depositary Shares (“ADSs”) under the symbol “CX. Each ADS represents ten CPOs.

 

The terms “CEMEX, S.A.B. de C.V.” and/or the “Parent Company” used in these accompanying notes to the financial statements refer to CEMEX, S.A.B. de C.V. without its consolidated subsidiaries. The terms the “Company” or “CEMEX” refer to CEMEX, S.A.B. de C.V. together with its consolidated subsidiaries. The issuance of these consolidated financial statements was authorized by the Board of Directors of CEMEX, S.A.B. de C.V. on February 2, 2017.

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2)Significant Accounting Policies
12 Months Ended
Dec. 31, 2016
Significant accounting policies [abstract]  
Disclosure of summary of significant accounting policies

2)       SIGNIFICANT ACCOUNTING POLICIES

 

2A)       BASIS OF PRESENTATION AND DISCLOSURE

 

The consolidated financial statements as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014, were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

 

Presentation currency and definition of terms

 

The presentation currency of the consolidated financial statements is the Mexican peso, currency in which the Company reports periodically to the MSE. When reference is made to pesos or “$” it means Mexican pesos. The amounts in the financial statements and the accompanying notes are stated in millions, except when references are made to earnings (loss) per share and/or prices per share. When reference is made to “US$” or “dollars”, it means dollars of the United States of America (“United States”). When reference is made to “€” or “euros, it means the currency in circulation in a significant number of European Union (“EU”) countries. When it is deemed relevant, certain amounts in foreign currency presented in the notes to the financial statements include between parentheses a convenience translation into dollars and/or into pesos, as applicable. Previously reported convenience translations of prior years are not restated unless the transaction is still outstanding, in which case those are restated using the closing exchange rates as of the reporting date. These translations should not be construed as representations that the amounts in pesos or dollars, as applicable, actually represent those peso or dollar amounts or could be converted into pesos or dollars at the rate indicated. As of December 31, 2016 and 2015, translations of pesos into dollars and dollars into pesos, were determined for balance sheet amounts using the closing exchange rates of $20.72 and $17.23 pesos per dollar, respectively, and for statements of operations amounts, using the average exchange rates of $18.72, $15.98 and $13.37 pesos per dollar for 2016, 2015 and 2014, respectively. When the amounts between parentheses are the peso and the dollar, the amounts were determined by translating the euro amount into dollars using the closing exchange rates at year-end and then translating the dollars into pesos as previously described.

 

Amounts disclosed in the notes in connection with tax or legal proceedings (notes 19D and 24), which are originated in jurisdictions which currencies are different to the peso or the dollar, are presented in dollar equivalents as of the closing of the most recent year presented. Consequently, without any change in the original currency, such dollar amounts will fluctuate over time due to changes in exchange rates.

 

Statements of operations

 

CEMEX includes the line item titled “Operating earnings before other expenses, net” considering that it is a relevant measure for CEMEX's management as explained in note 4C. Under IFRS, the inclusion of certain subtotals such as “Operating earnings before other expenses, net” and the display of the statement of operations vary significantly by industry and company according to specific needs.

 

The line item “Other expenses, net” in profit or loss consists primarily of revenues and expenses not directly related to CEMEX's main activities, or which are of an unusual and/or non-recurring nature, including impairment losses of long-lived assets, results on disposal of assets and restructuring costs, among others (note 6).

 

Considering the disposal of entire reportable operating segments, for the years 2016, 2015 and 2014, CEMEX presents in the single line item of discontinued operations, the results of its operations in Bangladesh and Thailand, sold in May 2016; for the years 2015 and 2014, the results of its operations in Austria and Hungary, sold in October 2015; for the years 2016, 2015 and 2014, the results of its operations in Croatia, including assets in Bosnia and Herzegovina, Montenegro and Serbia, as well as the results of its Concrete Pipe Business operations in the United States, expected to be sold in the short-term subject to the authorization of the respective authorities (note 4A). As a result, the statements of operations of 2015 and 2014 originally reported were restated. Discontinued operations are presented net of income tax.

 

Statements of comprehensive income (loss)

 

The statements of comprehensive income (loss) for 2015 and 2014 were restated in order to give effect to the discontinued operations mentioned above.

 

Statements of cash flows

 

The statements of cash flows for 2015 and 2014 were restated in order to give effect to the discontinued operations mentioned above. The statements of cash flows exclude the following transactions that did not represent sources or uses of cash:

 

  • In 2016, 2015 and 2014, the increases in common stock and additional paid-in capital associated with: (i) the capitalization of retained earnings for $6,970, $7,617 and $7,618, respectively (note 20A); and (ii) CPOs issued as part of the executive share-based compensation programs for $742, $655 and $765, respectively (note 20A);

     

  • In 2016, 2015 and 2014, the increases in property, plant and equipment for approximately $7, $63 and $108, respectively, associated with the negotiation of capital leases during the year (note 14);

     

  • In 2016, the increase in debt and in other current accounts receivable for approximately $148, in connection with a guarantee signed by CEMEX Colombia, S.A. (“CEMEX Colombia”) over the debt of a trust committed to the development of housing projects in Colombia and the related beneficial interest that in turn holds CEMEX Colombia in the assets of such trust, which are comprised by land;

     

  • In 2015, the decrease in debt for $4,517, the net decrease in other equity reserves for $934, the increase in common stock for $3 and the increase in additional paid-in capital for $5,982, in connection with the issuance of optional convertible subordinated notes due in 2020, which involved, among others, the exchange and early conversion of optional convertible subordinated notes due in 2016, as well as the issuance of approximately 42 million ADSs (note 16B);

     

  • In 2015, the decrease in other current and non-current liabilities and in deferred tax assets in connection with changes in the tax legislation in Mexico effective as of December 31, 2015 (notes 19C and 19D); and

     

  • In 2014, the decrease in debt for $6,483, the decrease in other equity reserves for $601, the increase in common stock for $4 and the increase in additional paid-in capital for $8,037, in connection with several early conversions of optional convertible subordinated notes due in 2015, incurred in different dates during the year (note 16B)

2B)       PRINCIPLES OF CONSOLIDATION

 

The consolidated financial statements include those of CEMEX, S.A.B. de C.V. and those of the entities in which the Parent Company exercises control, including structured entities, by means of which the Parent Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee's relevant activities. Balances and operations between related parties are eliminated in consolidation.

 

Equity accounted investees are initially recorded at cost, and are subsequently accounted for by the equity method when CEMEX has significant influence, which is generally presumed with a minimum equity interest of 20%, unless it is proven in unusual cases that significant influence is achieved with a lower percentage. The equity method reflects in the financial statements, the investee's original cost and CEMEX's share of the investee's equity and earnings after acquisition. The financial statements of joint ventures, which relate to those arrangements in which CEMEX and other third-party investors have joint control and have rights to the net assets of the arrangements, are recognized under the equity method. During the reported periods, CEMEX did not have joint operations, referring to those cases in which the parties that have joint control of the arrangement have rights over specific assets and obligations for specific liabilities relating to the arrangements. The equity method is discontinued when the carrying amount of the investment, including any long-term interest in the investee or joint venture, is reduced to zero, unless CEMEX has incurred or guaranteed additional obligations of the investee or joint venture.

 

Other permanent investments where CEMEX holds equity interests of less than 20% and/or there is no significant influence are carried at their historical cost.

 

2C)       USE OF ESTIMATES AND CRITICAL ASSUMPTIONS

 

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements; as well as the reported amounts of revenues and expenses during the period. These assumptions are reviewed on an ongoing basis using available information. Actual results could differ from these estimates. The main items subject to estimates and assumptions by management include, among others, impairment tests of long-lived assets, allowances for doubtful accounts and obsolescence of inventories, recognition of deferred income tax assets, as well as the measurement of financial instruments at fair value, and the assets and liabilities related to employee benefits. Significant judgment is required by management to appropriately assess the amounts of these concepts.

 

2D)       FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS

 

Transactions denominated in foreign currencies are recorded in the functional currency at the exchange rates prevailing on the dates of their execution. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date, and the resulting foreign exchange fluctuations are recognized in earnings, except for exchange fluctuations arising from: 1) foreign currency indebtedness associated to the acquisition of foreign entities; and 2) fluctuations associated with related parties' balances denominated in foreign currency, which settlement is neither planned nor likely to occur in the foreseeable future and as a result, such balances are of a permanent investment nature. These fluctuations are recorded against “Other equity reserves”, as part of the foreign currency translation adjustment (note 20B) until the disposal of the foreign net investment, at which time, the accumulated amount is recycled through the statement of operations as part of the gain or loss on disposal.

 

The financial statements of foreign subsidiaries, as determined using their respective functional currency, are translated to pesos at the closing exchange rate for balance sheet accounts and at the closing exchange rates of each month within the period for statements of operations accounts. The functional currency is that in which each consolidated entity primarily generates and expends cash. The corresponding translation effect is included within “Other equity reserves” and is presented in the statement of other comprehensive income (loss) for the period as part of the foreign currency translation adjustment (note 20B) until the disposal of the net investment in the foreign subsidiary.

 

Considering its integrated activities, for purposes of functional currency, the Parent Company is considered to have two divisions, one related with its financial and holding company activities, in which the functional currency is the dollar for all assets, liabilities and transactions associated with these activities, and another division related with the Parent Company's operating activities in Mexico, in which the functional currency is the peso for all assets, liabilities and transactions associated with these activities.

 

During the reported periods, there were no subsidiaries whose functional currency was the currency of a hyperinflationary economy, which is generally considered to exist when the cumulative inflation rate over the last three years is approaching, or exceeds, 100%. In a hyperinflationary economy, the accounts of the subsidiary's statements of operations should be restated to constant amounts as of the reporting date, in which case, both the balance sheet accounts and profit or loss accounts would be translated to pesos at the closing exchange rates of the year.

 

The most significant closing exchange rates and the approximate average exchange rates for balance sheet accounts and statement of operations accounts as of December 31, 2016, 2015 and 2014, were as follows:

   2016 2015 2014
              
 Currency Closing Average Closing Average Closing Average
 Dollar  20.7200 18.7200 17.2300 15.9800 14.7400 13.3700
 Euro  21.7945 20.6564 18.7181 17.6041 17.8386 17.6306
 British Pound Sterling  25.5361 25.0731 25.4130 24.3638 22.9738 21.9931
 Colombian Peso 0.0069 0.0062 0.0055 0.0058 0.0062 0.0066
 Egyptian Pound 1.1234 1.8261 2.2036 2.0670 2.0584 1.8824
 Philippine Peso 0.4167 0.3927 0.3661 0.3504 0.3296 0.3009

The financial statements of foreign subsidiaries are initially translated from their functional currencies into dollars and subsequently into pesos. Therefore, the foreign exchange rates presented in the table above between the functional currency and the peso represent the implied exchange rates resulting from this methodology. The peso to U.S. dollar exchange rate used by CEMEX is an average of free market rates available to settle its foreign currency transactions. No significant differences exist, in any case, between the foreign exchange rates used by CEMEX and those exchange rates published by the Mexican Central Bank.

 

2E)       CASH AND CASH EQUIVALENTS (note 8)

 

The balance in this caption is comprised of available amounts of cash and cash equivalents, mainly represented by highly-liquid short-term investments, which are easily convertible into known amounts of cash, and which are not subject to significant risks of changes in their values, including overnight investments, which yield fixed returns and have maturities of less than three months from the investment date. These fixed-income investments are recorded at cost plus accrued interest. Accrued interest is included in profit or loss as part of “Other financial income (expense), net”.

 

The amount of cash and cash equivalents in the balance sheet includes restricted cash and investments, comprised of deposits in margin accounts that guarantee certain of CEMEX's obligations, to the extent that the restriction will be lifted in less than three months from the balance sheet date. When the restriction period is greater than three months, such restricted cash and investments are not considered cash equivalents and are included within short-term or long-term “Other accounts receivable”, as appropriate. When contracts contain provisions for net settlement, these restricted amounts of cash and cash equivalents are offset against the liabilities that CEMEX has with its counterparties.

 

2F)       FINANCIAL INSTRUMENTS

 

Trade accounts receivable and other current accounts receivable (notes 9 and 10)

 

Instruments under these captions are classified as “loans and receivables” and are recorded at their amortized cost representing the net present value (“NPV”) of the consideration receivable or payable as of the transaction date. Due to their short-term nature, CEMEX initially recognizes these receivables at the original invoiced amount less an estimate of doubtful accounts. Allowances for doubtful accounts as well as impairment of other current accounts receivable, are recognized against administrative and selling expenses.

 

Trade receivables sold under securitization programs, in which CEMEX maintains a residual interest in the trade accounts receivable sold in case of recovery failure, as well as continued involvement in such assets, do not qualify for derecognition and are maintained on the balance sheet.

 

Other investments and non-current receivables (note 13B)

 

As part of the category of “loans and receivables”, non-current accounts receivable, as well as investments classified as held to maturity are initially recognized at their amortized cost. Subsequent changes in NPV are recognized in profit or loss as part of “Other financial income (expense), net”.

 

Investments in financial instruments held for trading, as well as those investments available for sale, are recognized at their estimated fair value, in the first case through profit or loss as part of “Other financial income (expense), net”, and in the second case, changes in valuation are recognized as part of “Other comprehensive income (loss) of the period” within “Other equity reserves” until their time of disposition, when all valuation effects accrued in equity are reclassified to “Other financial income (expense), net, in profit or loss. These investments are tested for impairment upon the occurrence of a significant adverse change or at least once a year during the last quarter.

 

Debt and other financial liabilities (notes 16A and 16B)

 

Bank loans and notes payable are recognized at their amortized cost. Interest accrued on financial instruments is recognized in the balance sheet within “Other accounts payable and accrued expenses” against financial expense. During the reported periods, CEMEX did not have financial liabilities voluntarily recognized at fair value or associated to fair value hedge strategies with derivative financial instruments. Direct costs incurred in debt issuances or borrowings, as well as debt refinancing or non-substantial modifications to debt agreements that did not represent an extinguishment of debt by considering that the holders and the relevant economic terms of the new instrument are not substantially different to the replaced instrument, adjust the carrying amount of related debt are amortized as interest expense as part of the effective interest rate of each transaction over its maturity. These costs include commissions and professional fees. Costs incurred in the extinguishment of debt, as well as debt refinancing or modifications to debt agreements when the new instrument is substantially different to the old instrument according to a qualitative and quantitative analysis are recognized in profit or loss within “Financial expense” as incurred.

 

Capital leases are recognized as financing liabilities against a corresponding fixed asset for the lesser of the market value of the leased asset and the NPV of future minimum lease payments, using the contract's implicit interest rate to the extent available, or the incremental borrowing cost. The main factors that determine a capital lease are: a) ownership title of the asset is transferred to CEMEX at the expiration of the contract; b) CEMEX has a bargain purchase option to acquire the asset at the end of the lease term; c) the lease term covers the majority of the useful life of the asset; and/or d) the NPV of minimum payments represents substantially all the fair value of the related asset at the beginning of the lease.

 

Financial instruments with components of both liabilities and equity (note 16B)

 

The financial instrument that contains components of both liability and equity, such as notes convertible into a fixed number of the issuer's shares and denominated its same functional currency, each component is recognized separately in the balance sheet according to the specific characteristics of each transaction. In the case of instruments mandatorily convertible into shares of the issuer, the liability component represents the NPV of interest payments on the principal amount using a market interest rate, without assuming any early conversion, and is recognized within “Other financial obligations, whereas the equity component represents the difference between the principal amount and the liability component, and is recognized within “Other equity reserves”, net of commissions. In the case of instruments that are optionally convertible into a fixed number of shares, the liability component represents the difference between the principal amount and the fair value of the conversion option premium, which reflects the equity component (note 2N). When the transaction is denominated in a currency different than the functional currency of the issuer, the conversion option is accounted for as a derivative financial instrument at fair value in the statement of operations.

 

Derivative financial instruments (note 16D)

 

CEMEX recognizes all derivative instruments as assets or liabilities in the balance sheet at their estimated fair values, and the changes in such fair values are recognized in profit or loss within “Other financial income (expense), net” for the period in which they occur, except for the effective portion of changes in fair value of derivative instruments associated with cash flow hedges, in which case, such changes in fair value are recognized in stockholders' equity, and are reclassified to earnings as the interest expense of the related debt is accrued, in the case of interest rate swaps, or when the underlying products are consumed in the case of contracts on the price of raw materials and commodities. Likewise, in hedges of the net investment in foreign subsidiaries, changes in fair value are recognized in stockholders' equity as part of the foreign currency translation result (note 2D), which reversal to earnings would take place upon disposal of the foreign investment. During the reported periods, CEMEX did not designate fair value hedges. Derivative instruments are negotiated with institutions with significant financial capacity; therefore, CEMEX believes the risk of non-performance of the obligations agreed to by such counterparties to be minimal.

 

CEMEX reviews its different contracts to identify the existence of embedded derivatives. Identified embedded derivatives are analyzed to determine if they need to be separated from the host contract and recognized in the balance sheet as assets or liabilities, applying the same valuation rules used for other derivative instruments.

 

Put options granted for the purchase of non-controlling interests and associates

 

Represent agreements by means of which a non-controlling interest has the right to sell, at a future date using a predefined price formula or at fair market value, its shares in a subsidiary of CEMEX. When the obligation should be settled in cash or through the delivery of other financial asset, CEMEX recognizes a liability for the NPV of the redemption amount as of the reporting date against the controlling interest within stockholders' equity. A liability is not recognized under these agreements when the redemption amount is determined at fair market value at the exercise date and CEMEX has the election to settle using its own shares.

 

In respect of a put option granted for the purchase of an associate, CEMEX would recognize a liability against a loss in the statements of operations whenever the estimated purchase price exceeds the fair value of the net assets to be acquired by CEMEX, had the counterparty exercised its right to sell.

 

Fair value measurements (note 16C)

 

Under IFRS, fair value represents an “Exit Value” which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, considering the counterparty's credit risk in the valuation. The concept of Exit Value is premised on the existence of a market and market participants for the specific asset or liability. When there is no market and/or market participants willing to make a market, IFRS establishes a fair value hierarchy that gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

  • Level 1.- represent quoted prices (unadjusted) in active markets for identical assets or liabilities that CEMEX has the ability to access at the measurement date. A quote price in an active market provides the most reliable evidence of fair value and is used without adjustment to measure fair value whenever available.
  • Level 2.- are inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly, and are used mainly to determine the fair value of securities, investments or loans that are not actively traded. Level 2 inputs included equity prices, certain interest rates and yield curves, implied volatility and credit spreads, among others, as well as inputs extrapolated from other observable inputs. In the absence of Level 1 inputs, CEMEX determined fair values by iteration of the applicable Level 2 inputs, the number of securities and/or the other relevant terms of the contract, as applicable.
  • Level 3.- inputs are unobservable inputs for the asset or liability. CEMEX used unobservable inputs to determine fair values, to the extent there are no Level 1 or Level 2 inputs, in valuation models such as Black-Scholes, binomial, discounted cash flows or multiples of Operative EBITDA, including risk assumptions consistent with what market participants would use to arrive at fair value.

 

2G)       INVENTORIES (note 11)

 

Inventories are valued using the lower of cost or net realizable value. The cost of inventories includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. CEMEX analyzes its inventory balances to determine if, as a result of internal events, such as physical damage, or external events, such as technological changes or market conditions, certain portions of such balances have become obsolete or impaired. When an impairment situation arises, the inventory balance is adjusted to its net realizable value, whereas, if an obsolescence situation occurs, the inventory obsolescence reserve is increased. In both cases, these adjustments are recognized against the results of the period. Advances to suppliers of inventory are presented as part of other current assets.

 

2H)       PROPERTY, MACHINERY AND EQUIPMENT (note 14)

 

Property, machinery and equipment are recognized at their acquisition or construction cost, as applicable, less accumulated depreciation and accumulated impairment losses. Depreciation of fixed assets is recognized as part of cost and operating expenses (note 5), and is calculated using the straight-line method over the estimated useful lives of the assets, except for mineral reserves, which are depleted using the units-of-production method. As of December 31, 2016, the maximum average useful lives by category of fixed assets were as follows:

   Years
    
 Administrative buildings 34
 Industrial buildings  32
 Machinery and equipment in plant  18
 Ready-mix trucks and motor vehicles  7
 Office equipment and other assets  6

CEMEX capitalizes, as part of the related cost of fixed assets, interest expense from existing debt during the construction or installation period of significant fixed assets, considering CEMEX's corporate average interest rate and the average balance of investments in process for the period.

 

All waste removal costs or stripping costs incurred in the operative phase of a surface mine in order to access the mineral reserves are recognized as part of the carrying amount of the related quarries. The capitalized amounts are further amortized over the expected useful life of exposed ore body based on the units of production method.

 

Costs incurred in respect of operating fixed assets that result in future economic benefits, such as an extension in their useful lives, an increase in their production capacity or in safety, as well as those costs incurred to mitigate or prevent environmental damage, are capitalized as part of the carrying amount of the related assets. The capitalized costs are depreciated over the remaining useful lives of such fixed assets. Periodic maintenance on fixed assets is expensed as incurred. Advances to suppliers of fixed assets are presented as part of other long-term accounts receivable.

 

The depreciation methods, useful lives and residual values of property, machinery and equipment are reviewed at each reporting date and adjusted if appropriate.

 

2I)       BUSINESS COMBINATIONS, GOODWILL, OTHER INTANGIBLE ASSETS AND DEFERRED CHARGES (note 15)

 

Business combinations are recognized using the purchase method, by allocating the consideration transferred to assume control of the entity to all assets acquired and liabilities assumed, based on their estimated fair values as of the acquisition date. Intangible assets acquired are identified and recognized at fair value. Any unallocated portion of the purchase price represents goodwill, which is not amortized and is subject to periodic impairment tests (note 2J), can be adjusted for any correction to the preliminary assessment given to the assets acquired and/or liabilities assumed within the twelve-month period after purchase. Costs associated with the acquisition are expensed in profit or loss as incurred.

 

CEMEX capitalizes intangible assets acquired, as well as costs incurred in the development of intangible assets, when future economic benefits associated are identified and there is evidence of control over such benefits. Intangible assets are presented at their acquisition or development cost. Indefinite life intangible assets are not amortized since the period in which the benefits associated with such intangibles will terminate cannot be accurately established. Definite life intangible assets are amortized on straight-line basis as part of operating costs and expenses (note 5).

 

Startup costs are recognized in profit or loss as they are incurred. Costs associated with research and development activities (“R&D activities”), performed by CEMEX to create products and services, as well as to develop processes, equipment and methods to optimize operational efficiency and reduce costs are recognized in the operating results as incurred. Direct costs incurred in the development stage of computer software for internal use are capitalized and amortized through the operating results over the useful life of the software, which on average is approximately 5 years.

 

Costs incurred in exploration activities such as payments for rights to explore, topographical and geological studies, as well as trenching, among other items incurred to assess the technical and commercial feasibility of extracting a mineral resource, which are not significant to CEMEX, are capitalized when future economic benefits associated with such activities are identified. When extraction begins, these costs are amortized during the useful life of the quarry based on the estimated tons of material to be extracted. When future economic benefits are not achieved, any capitalized costs are subject to impairment.

 

CEMEX's extraction rights have maximum useful lives that range from 30 to 100 years, depending on the sector, and the expected life of the related reserves. As of December 31, 2016, except for extraction rights and/or as otherwise indicated, CEMEX's intangible assets are amortized on a straight line basis over their useful lives that range on average from 3 to 20 years.

 

2J)       IMPAIRMENT OF LONG-LIVED ASSETS (notes 14 and 15)

 

Property, machinery and equipment, intangible assets of definite life and other investments

 

These assets are tested for impairment upon the occurrence of factors such as the occurrence of a significant adverse event, changes in CEMEX's operating environment or in technology, as well as expectations of lower operating results, in order to determine whether their carrying amounts may not be recovered. An impairment loss is recorded in profit or loss for the period within “Other expenses, net,” for the excess of the asset's carrying amount over its recoverable amount, corresponding to the higher of the fair value less costs to sell of the asset, and the asset's value in use, the latter represented by the NPV of estimated cash flows related to the use and eventual disposal of the asset. The main assumptions utilized to develop estimates of NPV are a discount rate that reflects the risk of the cash flows associated with the assets and the estimations of generation of future income. Those assumptions are evaluated for reasonableness by comparing such discount rates to available market information and by comparing to third-party expectations of industry growth, such as governmental agencies or industry chambers.

 

When impairment indicators exist, for each intangible asset, CEMEX determines its projected revenue streams over the estimated useful life of the asset. In order to obtain discounted cash flows attributable to each intangible asset, such revenues are adjusted for operating expenses, changes in working capital and other expenditures, as applicable, and discounted to NPV using the risk adjusted discount rate of return. The most significant economic assumptions are: a) the useful life of the asset; b) the risk adjusted discount rate of return; c) royalty rates; and d) growth rates. Assumptions used for these cash flows are consistent with internal forecasts and industry practices. The fair values of these assets are very sensitive to changes in such significant assumptions. Certain key assumptions are more subjective than others. In respect of trademarks, CEMEX considers that the most subjective key assumption is the royalty rate. In respect of extraction rights and customer relationships, the most subjective assumptions are revenue growth rates and estimated useful lives. CEMEX validates its assumptions through benchmarking with industry practices and the corroboration of third-party valuation advisors. Significant judgment by management is required to appropriately assess the fair values and values in use of the related assets, as well as to determine the appropriate valuation method and select the significant economic assumptions.

 

Impairment of long-lived assets- Goodwill

 

Goodwill is tested for impairment when required due to significant adverse changes or at least once a year, during the last quarter of such year. CEMEX determines the recoverable amount of the group of cash-generating units (“CGUs”) to which goodwill balances were allocated, which consists of the higher of such group of CGUs fair value less cost to sell and its value in use, the later represented by the NPV of estimated future cash flows to be generated by such CGUs to which goodwill was allocated, which are generally determined over periods of 5 years. However, in specific circumstances, when CEMEX considers that actual results for a CGU do not fairly reflect historical performance and most external economic variables provide confidence that a reasonably determinable improvement in the mid-term is expected in their operating results, management uses cash flow projections over a period of up to 10 years, to the point in which future expected average performance resembles the historical average performance, to the extent CEMEX has detailed, explicit and reliable financial forecasts and is confident and can demonstrate its ability, based on past experience, to forecast cash flows accurately over that longer period. If the value in use of a group of CGUs to which goodwill has been allocated is lower than its corresponding carrying amount, CEMEX determines the fair value of such group of CGUs using methodologies generally accepted in the market to determine the value of entities, such as multiples of Operating EBITDA and by reference to other market transactions, among others. An impairment loss is recognized within “Other expenses, net”, if the recoverable amount is lower than the net book value of the group of CGUs to which goodwill has been allocated. Impairment charges recognized on goodwill are not reversed in subsequent periods.

 

The geographic operating segments reported by CEMEX (note 4C), represent CEMEX's groups of CGUs to which goodwill has been allocated for purposes of testing goodwill for impairment, considering: a) that after the acquisition, goodwill was allocated at the level of the geographic operating segment; b) that the operating components that comprise the reported segment have similar economic characteristics; c) that the reported segments are used by CEMEX to organize and evaluate its activities in its internal information system; d) the homogeneous nature of the items produced and traded in each operative component, which are all used by the construction industry; e) the vertical integration in the value chain of the products comprising each component; f) the type of clients, which are substantially similar in all components; g) the operative integration among components; and h) that the compensation system of a specific country is based on the consolidated results of the geographic segment and not on the particular results of the components. In addition, the country level represents the lowest level within CEMEX at which goodwill is monitored for internal management purposes.

 

Impairment tests are significantly sensitive to, among other factors, the estimation of future prices of CEMEX's products, the development of operating expenses, local and international economic trends in the construction industry, the long-term growth expectations in the different markets, as well as the discount rates and the growth rates in perpetuity applied. For purposes of estimating future prices, CEMEX uses, to the extent available, historical data plus the expected increase or decrease according to information issued by trusted external sources, such as national construction or cement producer chambers and/or in governmental economic expectations. Operating expenses are normally measured as a constant proportion of revenues, following past experience. However, such operating expenses are also reviewed considering external information sources in respect of inputs that behave according to international prices, such as oil and gas. CEMEX uses specific pre-tax discount rates for each group of CGUs to which goodwill is allocated, which are applied to discount pre-tax cash flows. The amounts of estimated undiscounted cash flows are significantly sensitive to the growth rate in perpetuity applied. Likewise, the amounts of discounted estimated future cash flows are significantly sensitive to the weighted average cost of capital (discount rate) applied. The higher the growth rate in perpetuity applied, the higher the amount of undiscounted future cash flows by group of CGUs obtained. Conversely, the higher the discount rate applied, the lower the amount of discounted estimated future cash flows by group of CGUs obtained.

 

2K)       PROVISIONS

 

CEMEX recognizes provisions when it has a legal or constructive obligation resulting from past events, whose resolution would imply cash outflows or the delivery of other resources owned by the Company. As of December 31, 2016 and 2015 some significant proceedings that gave rise to a portion of the carrying amount of CEMEX's other current and non-current liabilities and provisions are detailed in note 24A.

 

Considering guidance under IFRS, CEMEX recognizes provisions for levies imposed by governments until the obligating event or the activity that triggers the payment of the levy has occurred, as defined in the legislation.

Restructuring (note 17)

 

CEMEX recognizes provisions for restructuring when the restructuring detailed plans have been properly finalized and authorized by management, and have been communicated to the third parties involved and/or affected by the restructuring prior to the balance sheet date. These provisions may include costs not associated with CEMEX's ongoing activities.

 

Asset retirement obligations (note 17)

 

Unavoidable obligations, legal or constructive, to restore operating sites upon retirement of long-lived assets at the end of their useful lives are measured at the NPV of estimated future cash flows to be incurred in the restoration process, and are initially recognized against the related assets' book value. The increase to the assets' book value is depreciated during its remaining useful life. The increase in the liability related to adjustments to NPV by the passage of time is charged to the line item “Other financial income (expense), net.” Adjustments to the liability for changes in estimations are recognized against fixed assets, and depreciation is modified prospectively. These obligations are related mainly to future costs of demolition, cleaning and reforestation, so that quarries, maritime terminals and other production sites are left in acceptable condition at the end of their operation.

 

Costs related to remediation of the environment (notes 17 and 24)

 

Provisions associated with environmental damage represent the estimated future cost of remediation, which are recognized at their nominal value when the time schedule for the disbursement is not clear, or when the economic effect for the passage of time is not significant; otherwise, such provisions are recognized at their discounted values. Reimbursements from insurance companies are recognized as assets only when their recovery is practically certain. In that case, such reimbursement assets are not offset against the provision for remediation costs.

 

Contingencies and commitments (notes 23 and 24)

 

Obligations or losses related to contingencies are recognized as liabilities in the balance sheet only when present obligations exist resulting from past events that are expected to result in an outflow of resources and the amount can be measured reliably. Otherwise, a qualitative disclosure is included in the notes to the financial statements. The effects of long-term commitments established with third parties, such as supply contracts with suppliers or customers, are recognized in the financial statements on an incurred or accrued basis, after taking into consideration the substance of the agreements. Relevant commitments are disclosed in the notes to the financial statements. The Company does not recognize contingent revenues, income or assets, unless their realization is virtually certain.

 

2L)       PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS (note 18)

 

Defined contribution pension plans

 

The costs of defined contribution pension plans are recognized in the operating results as they are incurred. Liabilities arising from such plans are settled through cash transfers to the employees' retirement accounts, without generating future obligations.

 

Defined benefit pension plans and other post-employment benefits

 

The costs associated with employees' benefits for: a) defined benefit pension plans; and b) other post-employment benefits, basically comprised of health care benefits, life insurance and seniority premiums, granted by CEMEX and/or pursuant to applicable law, are recognized as services are rendered, based on actuarial estimations of the benefits' present value with the advice of external actuaries. For certain pension plans, CEMEX has created irrevocable trust funds to cover future benefit payments (“plan assets”). These plan assets are valued at their estimated fair value at the balance sheet date. The actuarial assumptions and accounting policy consider: a) the use of nominal rates; b) a single rate is used for the determination of the expected return on plan assets and the discount of the benefits obligation to present value; c) a net interest is recognized on the net defined benefit liability (liability minus plan assets); and d) all actuarial gains and losses for the period, related to differences between the projected and real actuarial assumptions at the end of the period, as well as the difference between the expected and real return on plan assets, are recognized as part of “Other comprehensive income or loss” within stockholders' equity.

 

The service cost, corresponding to the increase in the obligation for additional benefits earned by employees during the period, is recognized within operating costs and expenses. The net interest cost, resulting from the increase in obligations for changes in NPV and the change during the period in the estimated fair value of plan assets, is recognized within “Other financial income (expense), net”.

 

The effects from modifications to the pension plans that affect the cost of past services are recognized within operating costs and expenses over the period in which such modifications become effective to the employees or without delay if changes are effective immediately. Likewise, the effects from curtailments and/or settlements of obligations occurring during the period, associated with events that significantly reduce the cost of future services and/or reduce significantly the population subject to pension benefits, respectively, are recognized within operating costs and expenses.

 

Termination benefits

 

Termination benefits, not associated with a restructuring event, which mainly represent severance payments by law, are recognized in the operating results for the period in which they are incurred.

 

2M)       INCOME TAXES (note 19)

 

The effects reflected in profit or loss for income taxes include the amounts incurred during the period and the amounts of deferred income taxes, determined according to the income tax law applicable to each subsidiary. Consolidated deferred income taxes represent the addition of the amounts determined in each subsidiary by applying the enacted statutory income tax rate to the total temporary differences resulting from comparing the book and taxable values of assets and liabilities, considering tax assets such as loss carryforwards and other recoverable taxes, to the extent that it is probable that future taxable profits will be available against which they can be utilized. The measurement of deferred income taxes at the reporting period reflects the tax consequences that follow the manner in which CEMEX expects to recover or settle the carrying amount of its assets and liabilities. Deferred income taxes for the period represent the difference between balances of deferred income taxes at the beginning and the end of the period. Deferred income tax assets and liabilities relating to different tax jurisdictions are not offset. According to IFRS, all items charged or credited directly in stockholders' equity or as part of other comprehensive income or loss for the period are recognized net of their current and deferred income tax effects. The effect of a change in enacted statutory tax rates is recognized in the period in which the change is officially enacted.

 

Deferred tax assets are reviewed at each reporting date and are reduced when it is not deemed probable that the related tax benefit will be realized, considering the aggregate amount of self-determined tax loss carryforwards included in its income tax returns in each country that CEMEX believes, based on available evidence, will not be rejected by the tax authorities; and the likelihood of recovering such tax loss carryforwards prior to their expiration through an analysis of estimated future taxable income. If it is probable that the tax authorities would reject a self-determined deferred tax asset, CEMEX would decrease such asset. When it is considered that a deferred tax asset will not be recovered before its expiration, CEMEX would not recognize such deferred tax asset. Both situations would result in additional income tax expense for the period in which such determination is made. In order to determine whether it is probable that deferred tax assets will ultimately be recovered, CEMEX takes into consideration all available positive and negative evidence, including factors such as market conditions, industry analysis, expansion plans, projected taxable income, carryforward periods, current tax structure, potential changes or adjustments in tax structure, tax planning strategies, future reversals of existing temporary differences, etc. Likewise, every reporting period, CEMEX analyzes its actual results versus the Company's estimates, and adjusts, as necessary, its tax asset valuations. If actual results vary from CEMEX's estimates, the deferred tax asset and/or valuations may be affected and necessary adjustments will be made based on relevant information. Any adjustments recorded will affect CEMEX's statements of operations in such period.

 

The income tax effects from an uncertain tax position are recognized when is probable that the position will be sustained based on its technical merits and assuming that the tax authorities will examine each position and have full knowledge of all relevant information, and they are measured using a cumulative probability model. Each position has been considered on its own, regardless of its relation to any other broader tax settlement. The high probability threshold represents a positive assertion by management that CEMEX is entitled to the economic benefits of a tax position. If a tax position is considered not probable of being sustained, no benefits of the position are recognized. Interest and penalties related to unrecognized tax benefits are recorded as part of the income tax in the consolidated statements of operations.

 

The effective income tax rate is determined by dividing the line item “Income Tax”, in profit or loss within the line item “Earnings (loss) before income tax. This effective tax rate is further reconciled to CEMEX's statutory tax rate applicable in Mexico (note 19C). During 2014, CEMEX has experienced consolidated losses before income tax. In any given period whereas a loss before income tax is reported, the reference statutory tax rate to which CEMEX reconciles its effective income tax rate is shown as a negative percentage. A significant effect in CEMEX's effective tax rate and consequently in the aforementioned reconciliation of CEMEX's effective tax rate, relates to the difference between the statutory income tax rate in Mexico of 30% against the applicable income tax rates of each country where CEMEX operates.

 

For the years ended December 31, 2016, 2015 and 2014, the statutory tax rates in CEMEX's main operations were as follows:

 

Country2016 2015 2014
Mexico30.0% 30.0% 30.0%
United States35.0% 35.0% 35.0%
United Kingdom20.0% 20.3% 21.5%
France34.4% 38.0% 38.0%
Germany28.2% 29.8% 29.8%
Spain25.0% 28.0% 30.0%
Philippines30.0% 30.0% 30.0%
Colombia40.0% 39.0% 34.0%
Egypt22.5% 22.5% 30.0%
Switzerland9.6% 9.6% 9.6%
Others7.8% -39.0% 7.8% -39.0% 10.0% -39.0%

CEMEX's current and deferred income tax amounts included in profit or loss for the period are highly variable, and are subject, among other factors, to taxable income determined in each jurisdiction in which CEMEX operates. Such amounts of taxable income depend on factors such as sale volumes and prices, costs and expenses, exchange rates fluctuations and interest on debt, among others, as well as to the estimated tax assets at the end of the period due to the expected future generation of taxable gains in each jurisdiction.

 

2N)       STOCKHOLDERS' EQUITY

 

Common stock and additional paid-in capital (note 20A)

 

These items represent the value of stockholders' contributions, and include increases related to the capitalization of retained earnings and the recognition of executive compensation programs in CEMEX's CPOs as well as decreases associated with the restitution of retained earnings.

 

Other equity reserves (note 20B)

 

Groups the cumulative effects of items and transactions that are, temporarily or permanently, recognized directly to stockholders' equity, and includes the comprehensive income (loss), which reflects certain changes in stockholders' equity that do not result from investments by owners and distributions to owners. The most significant items within “Other equity reserves” during the reported periods are as follows:

 

Items of “Other equity reserves” included within other comprehensive income (loss):

 

  • Currency translation effects from the translation of foreign subsidiaries, net of: a) exchange results from foreign currency debt directly related to the acquisition of foreign subsidiaries; and b) exchange results from foreign currency related parties balances that are of a long-term investment nature (note 2D);
  • The effective portion of the valuation and liquidation effects from derivative instruments under cash flow hedging relationships, which are recorded temporarily in stockholders' equity (note 2F);
  • Changes in fair value during the tenure of available-for-sale investments until their disposal (note 2F); and
  • Current and deferred income taxes during the period arising from items whose effects are directly recognized in stockholders' equity.

     

    Items of “Other equity reserves” not included in comprehensive income (loss):

     

  • Effects related to controlling stockholders' equity for changes or transactions affecting non-controlling interest stockholders in CEMEX's consolidated subsidiaries;
  • Effects attributable to controlling stockholders' equity for financial instruments issued by consolidated subsidiaries that qualify for accounting purposes as equity instruments, such as the interest expense paid on perpetual debentures;
  • The equity component of securities which are mandatorily or optionally convertible into shares of the Parent Company (notes 2F and 16B). Upon conversion, this amount will be reclassified to common stock and additional paid-in capital; and
  • The cancellation of the Parent Company's shares held by consolidated entities.

Retained earnings (note 20C)

 

Retained earnings represent the cumulative net results of prior years including the effects generated form initial adoption of IFRS as of January 1, 2010, net of: a) dividends declared; b) capitalization of retained earnings; and c) restitution of retained earnings when applicable.

 

Non-controlling interest and perpetual debentures (note 20D)

 

This caption includes the share of non-controlling stockholders in the results and equity of consolidated subsidiaries. This caption also includes the nominal amount as of the balance sheet date of financial instruments (perpetual notes) issued by consolidated entities that qualify as equity instruments considering that there is: a) no contractual obligation to deliver cash or another financial asset; b) no predefined maturity date; and c) an unilateral option to defer interest payments or preferred dividends for indeterminate periods.

 

2O)              REVENUE RECOGNITION (note 3)

 

CEMEX's consolidated net sales represent the value, before tax on sales, of revenues originated by products and services sold by consolidated subsidiaries as a result of their ordinary activities, after the elimination of transactions between related parties, and are quantified at the fair value of the consideration received or receivable, decreased by any trade discounts or volume rebates granted to customers.

 

Revenue from the sale of goods and services is recognized when goods are delivered or services are rendered to customers, there is no condition or uncertainty implying a reversal thereof, and they have assumed the risk of loss. Revenue from trading activities, in which CEMEX acquires finished goods from a third party and subsequently sells the goods to another third-party, are recognized on a gross basis, considering that CEMEX assumes the total risk on the goods purchased, not acting as agent or broker.

 

Revenue and costs related to construction contracts are recognized in the period in which the work is performed by reference to the contract's stage of completion at the end of the period, considering that the following have been defined: a) each party's enforceable rights regarding the asset under construction; b) the consideration to be exchanged; c) the manner and terms of settlement; d) actual costs incurred and contract costs required to complete the asset are effectively controlled; and e) it is probable that the economic benefits associated with the contract will flow to the entity.

 

The stage of completion of construction contracts represents the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs or the surveys of work performed or the physical proportion of the contract work completed, whichever better reflects the percentage of completion under the specific circumstances. Progress payments and advances received from customers do not reflect the work performed and are recognized as a short or long term advanced payments, as appropriate.

 

2P)              COST OF SALES AND OPERATING EXPENSES (note 5)

 

Cost of sales represents the production cost of inventories at the moment of sale. Such cost of sales includes depreciation, amortization and depletion of assets involved in production, expenses related to storage in production plants and freight expenses of raw material in plants and delivery expenses of CEMEX's ready-mix concrete business.

 

Administrative expenses represent the expenses associated with personnel, services and equipment, including depreciation and amortization, related to managerial activities and back office for the Company's management.

 

Sales expenses represent the expenses associated with personnel, services and equipment, including depreciation and amortization, involved specifically in sales activities.

 

Distribution and logistics expenses refer to expenses of storage at points of sales, including depreciation and amortization, as well as freight expenses of finished products between plants and points of sale and freight expenses between points of sales and the customers' facilities.

 

2Q)              EXECUTIVE SHARE-BASED COMPENSATION (note 21)

 

Share-based payments to executives are defined as equity instruments when services received from employees are settled by delivering shares of the Parent Company and/or a subsidiary; or as liability instruments when CEMEX commits to make cash payments to the executives on the exercise date of the awards based on changes in CEMEX's own stock (intrinsic value). The cost of equity instruments represents their estimated fair value at the date of grant and is recognized in profit or loss during the period in which the exercise rights of the employees become vested. In respect of liability instruments, these instruments are valued at their estimated fair value at each reporting date, recognizing the changes in fair value through the operating results. CEMEX determines the estimated fair value of options using the binomial financial option-pricing model.

 

2R)              EMISSION RIGHTS

 

In certain countries where CEMEX operates, such as EU countries, mechanisms aimed at reducing carbon dioxide emissions (“CO2”) have been established by means of which, the relevant environmental authorities have granted certain number of emission rights (“certificates”) free of cost to the different industries releasing CO2, which must submit to such environmental authorities at the end of a compliance period, certificates for a volume equivalent to the tons of CO2 released. Companies must obtain additional certificates to meet deficits between actual CO2 emissions during the compliance period and certificates received, or they can dispose of any surplus of certificates in the market. In addition, the United Nations Framework Convention on Climate Change (“UNFCCC”) grants Certified Emission Reductions (“CERs”) to qualified CO2 emission reduction projects. CERs may be used in specified proportions to settle emission rights obligations in the EU. CEMEX actively participates in the development of projects aimed to reduce CO2 emissions. Some of these projects have been awarded with CERs.

 

CEMEX does not maintain emission rights, CERs and/or enter into forward transactions with trading purposes. CEMEX accounts for the effects associated with CO2 emission reduction mechanisms as follows:

 

  • Certificates received free of cost are not recognized in the balance sheet. Revenues from the sale of any surplus of certificates are recognized by decreasing cost of sales. In forward sale transactions, revenues are recognized upon physical delivery of the emission certificates.
  • Certificates and/or CERs acquired to hedge current CO2 emissions are recognized as intangible assets at cost, and are further amortized to cost of sales during the compliance period. In the case of forward purchases, assets are recognized upon physical reception of the certificates.
  • CEMEX accrues a provision against cost of sales when the estimated annual emissions of CO2 are expected to exceed the number of emission rights, net of any benefit obtained through swap transactions of emission rights for CERs.
  • CERs received from the UNFCCC are recognized as intangible assets at their development cost, which are attributable mainly to legal expenses incurred in the process of obtaining such CERs.

 

During 2016, 2015 and 2014, there were no sales of emission rights to third parties. In addition, in certain countries, the environmental authorities impose levies per ton of CO2 or other greenhouse gases released. Such expenses are recognized as part of cost of sales as incurred.

 

2S)              CONCENTRATION OF CREDIT

 

CEMEX sells its products primarily to distributors in the construction industry, with no specific geographic concentration within the countries in which CEMEX operates. As of and for the years ended December 31, 2016, 2015 and 2014, no single customer individually accounted for a significant amount of the reported amounts of sales or in the balances of trade receivables. In addition, there is no significant concentration of a specific supplier relating to the purchase of raw materials.

2T)       NEWLY ISSUED IFRS NOT YET ADOPTED

 

There are a number of IFRS issued as of the date of issuance of these financial statements but which have not yet been adopted, which are listed below. Except as otherwise indicated, CEMEX expects to adopt these IFRS when they become effective.

 

  • IFRS 9, Financial instruments: classification and measurement (“IFRS 9”). IFRS 9 sets forth the guidance relating to the classification and measurement of financial assets and liabilities, to the accounting for expected credit losses on an entity's financial assets and commitments to extend credits, as well as the requirements related to hedge accounting; and will replace IAS 39, Financial instruments: recognition and measurement (“IAS 39”) in its entirety. IFRS 9 requires an entity to recognize a financial asset or a financial liability when, and only when, the entity becomes party to the contractual provisions of the instrument. At initial recognition, an entity shall measure a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability, and includes a category of financial assets at fair value through other comprehensive income (loss) for simple debt instruments. In respect to impairment requirements, IFRS 9 eliminates the threshold set forth in IAS 39 for the recognition of credit losses. Under the impairment approach in IFRS 9 it is no longer necessary for a credit event to have occurred before credit losses are recognized, instead, an entity always accounts for expected credit losses, and changes in those expected losses through profit or loss. In respect to hedging activities, the requirements of IFRS 9 align hedge accounting more closely with an entity's risk management through a principles-based approach, by means of which, among other changes; the current range of 0.8 to 1.25 to declare and maintain a hedge is eliminated, and in its place, under IFRS 9, a hedging instrument will be declared only if it supports the entity's risk management strategy. Nonetheless, the IASB provided entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 or continuing to apply the existing hedge accounting requirements in IAS 39; until the IASB completes its project on the accounting for macro hedging.

     

    CEMEX is currently evaluating the impact that IFRS 9 will have on the classification and measurement of its financial assets and financial liabilities, impairment of financial assets and hedging activities. Preliminarily: a) CEMEX does not maintain fixed income investments held to maturity; and b) it is considered that the expected loss on trade receivables will replace the current allowance for doubtful accounts. The Company is considering the full adoption of IFRS 9 on January 1, 2018, including hedge accounting. CEMEX does not expect any significant effect in its results from the adoption of IFRS 9. Nonetheless, CEMEX is not considering an early application of IFRS 9.

     

  • In May 2014, the IASB issued IFRS 15, Revenue from contracts with customers (“IFRS 15”). Under IFRS 15, an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, following a five step model: Step 1: Identify the contract(s) with a customer, which is an agreement between two or more parties that creates enforceable rights and obligations; Step 2: Identify the performance obligations in the contract, considering that if a contract includes promises to transfer distinct goods or services to a customer, the promises are performance obligations and are accounted for separately; Step 3: Determine the transaction price, which is the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer; Step 4: Allocate the transaction price to the performance obligations in the contract, on the basis of the relative stand-alone selling prices of each distinct good or service promised in the contract; and Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation, by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). IFRS 15 also includes disclosure requirements that would provide users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts with customers. IFRS 15 will supersede all existing guidance on revenue recognition. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted considering certain additional disclosure requirements.

     

    CEMEX started in 2015 the evaluation of the impact that IFRS 15 will have on its accounting and disclosures related to its revenue. As of the reporting date, CEMEX has analyzed its contracts with customers in all countries in which it operates in order to indentify the several performance obligations and other offerings (discounts, loyalty programs, etc.) included in such contracts, among other aspects, aimed to determine potential differences in the accounting recognition of revenues in respect to current IFRS. In addition, CEMEX has provided training in IFRS 15 to key personnel with the support of external experts and has developed an online training. Preliminarily, considering its assessments at the reporting date, the nature of its business, its main transactions and current accounting policies, the fact that the transaction price is allocated toxb goods delivered or services rendered to customers when customers have assumed the risk of loss, CEMEX does not expect a significant effect in the timing of its accounting of its revenue from the adoption of IFRS 15. During 2017, CEMEX plans to complete its assessment and quantify any adjustment that would be necessary if certain portion of revenue that currently is being recognized at the transaction date or deferred during time, as applicable, should otherwise be recognized differently upon the adoption of IFRS 15. Beginning January 1, 2018, CEMEX plans to adopt IFRS 15 using the full retrospective approach. CEMEX is not considering the early application of IFRS 15.

     

  • On January 13, 2016, the IASB issued IFRS 16, Leases (“IFRS 16”), which will supersede all current standards and interpretations related to lease accounting. IFRS 16, defines leases as any contract or part of a contract that conveys to the lessee the right to use an asset for a period of time in exchange for consideration and the lessee directs the use of the identified asset throughout that period. In summary, IFRS 16 introduces a single lessee accounting model, and requires a lessee to recognize, for all leases with a term of more than 12 months, unless the underlying asset is of low value, assets for the right-of-use the underlying asset against a corresponding financial liability, representing the NPV of estimated lease payments under the contract, with a single income statement model in which a lessee recognizes depreciation of the right-of-use asset and interest on the lease liability. A lessee shall present either in the balance sheet, or disclose in the notes, right-of-use assets separately from other assets, as well as, lease liabilities separately from other liabilities. IFRS 16 is effective beginning January 1, 2019, with early adoption permitted considering certain requirements.

 

As of the reporting date, CEMEX has performed an assessment of its main outstanding operating and finance lease contracts, in order to inventory the most relevant characteristics of such contracts (type of assets, committed payments, maturity dates, renewal clauses, etc.). During 2017, CEMEX expects to define its future policy under IFRS 16 in connection with the exemption for short-term leases and low value assets in order to set the basis and be able to start quantifying the required adjustments for the proper recognition of the assets for the “right-of-use” and the corresponding financial liability, with a plan to adopt IFRS 16 beginning January 1, 2019 full retrospectively. Preliminarily, based on its assessment as of the reporting date, CEMEX considers that upon adoption of IFRS 16; most of its outstanding operating leases will be recognized on balance sheet increasing assets and liabilities, with no significant initial effect on CEMEX's net assets. CEMEX is not considering the early application of IFRS 16.

 

  • On January 29, 2016, the IASB issued amendments to IAS 7, Statement of cash flows, which are effective beginning January 1, 2017. The amendments aim to enable users of financial statements to evaluate changes in liabilities arising from financing activities. To achieve this objective, the IASB requires that the following changes in liabilities arising from financing activities are disclosed (to the extent necessary): (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes. The amendments state that one way to fulfill the new disclosure requirement is to provide a rollforward between the opening and closing balances in the statement of financial position for liabilities arising from financing activities. Finally, the amendments state that changes in liabilities arising from financing activities must be disclosed separately from changes in other assets and liabilities. CEMEX does not expect a significant effect from the adoption of these amendments.
Back to reports
v2.4.0.6
3)Revenues and construction contracts
12 Months Ended
Dec. 31, 2016
Revenue [Abstract]  
DisclosureOfRevenueExplanatory

3)       REVENUES AND CONSTRUCTION CONTRACTS

 

For the years ended December 31, 2016, 2015 and 2014, net sales, after sales and eliminations between related parties resulting from consolidation, were as follows:

 

  2016 2015 2014
From the sale of goods associated to CEMEX’s main activities 1 $ 240,379 212,019 192,518
From the sale of services 2   3,110 2,811 2,618
From the sale of other goods and services 3   7,420 5,496 4,806
 $ 250,909 220,326 199,942

 

 

1       Includes in each period those revenues generated under construction contracts that are presented in the table below.

2       Refers mainly to revenues generated by Neoris N.V., a subsidiary involved in providing information technology solutions and services.

3        Refers mainly to revenues generated by subsidiaries not individually significant operating in different lines of business.

 

 

For the years ended December 31, 2016, 2015 and 2014, revenues and costs related to construction contracts in progress were as follows:

 

   Recognized to      
   date 12016 2015 2014
Revenue from construction contracts included in consolidated          
 net sales 2 $ 4,066 1,033 994 1,507
Costs incurred in construction contracts included in consolidated          
 cost of sales 3   (3,185) (1,133) (919) (1,332)
 Construction contracts operating profit (loss)$ 881 (100) 75 175

1       Revenues and costs recognized from inception of the contracts until December 31, 2016 in connection with those projects still in progress.

 

2       Revenues from construction contracts during 2016, 2015 and 2014, determined under the percentage of completion method, were mainly obtained in Mexico and Colombia.

 

3       Refers to actual costs incurred during the periods. The oldest contract in progress as of December 31, 2016 started in 2010.

 

As of December 31, 2016 and 2015, amounts receivable for progress billings to customers of construction contracts and/or advances received by CEMEX from these customers were not significant.

Back to reports
v2.4.0.6
4)Discontinued Operations, Sale of Other Disposal Groups and Selected Financial Information by Geographic Operating Segments
12 Months Ended
Dec. 31, 2016
Disclosure Of Operating Segments [abstract]  
Disclosure of entitys reportable segments

4)       DISCONTINUED OPERATIONS, SALE OF OTHER DISPOSAL GROUPS AND SELECTED FINANCIAL INFORMATION BY GEOGRAPHIC OPERATING SEGMENT

 

4A)       DISCONTINUED OPERATIONS

 

On November 28, 2016, CEMEX announced that one of its subsidiaries in the United States signed a definitive agreement to divest its Concrete Reinforced Pipe Manufacturing Business (“Concrete Pipe Business”) in the United States to Quikrete Holdings, Inc. (“Quikrete”) for approximately US$500 plus an additional US$40 contingent consideration based on future performance. The closing of this transaction is subject to the satisfaction of certain conditions, including approval from regulators. CEMEX currently expects to finalize this sale during the first quarter of 2017. Considering the disposal of the entire concrete pipe division, the operations of the Pipe Business for the years ended December 31, 2016, 2015 and 2014, included in CEMEX's statements of operations were reclassified to the single line item “Discontinued operations”. In addition, the balance sheet of CEMEX's Pipe Business as of December 31, 2016 was reclassified to assets held for sale and directly related liabilities on the face of the consolidated balance sheet, including approximately US$260 ($5,369) of goodwill associated to the reporting segment in the United States that was proportionally allocated to these net assets based on their relative fair values (see note 26).

 

On May 26, 2016, CEMEX closed the sale of its operations in Bangladesh and Thailand to Siam City Cement Public Company Ltd. for approximately US$70 ($1,450), generating a net gain on sale of approximately US$24 ($424) and included in the statement of operations in 2016 within the line item “Discontinued operations, which includes the reclassification of foreign currency translation gains associated with these operations accrued in equity until disposal for approximately US$7 ($122).

 

With effective date October 31, 2015, after all agreed upon conditions precedent were satisfied, CEMEX completed the process for the sale of its operations in Austria and Hungary that started on August 12, 2015 to the Rohrdorfer Group for approximately €165 (US$179 or $3,090), after final adjustments negotiated for changes in cash and working capital balances as of the transfer date. The combined operations in Austria and Hungary consisted of 29 aggregate quarries and 68 ready-mix plants. The operations in Austria and Hungary for the ten-month period ended October 31, 2015 and the year ended December 31, 2014, included in CEMEX's statements of operations, were reclassified to the single line item “Discontinued operations, which includes, in 2015, a gain on sale of approximately US$45 ($741). Such gain on sale includes the reclassification to the statement of operations of foreign currency translation gains accrued in equity until October 31, 2015 for an amount of approximately US$10 ($215).

 

In addition, on August 12, 2015, CEMEX agreed with Duna-Dráva Cement, the sale of its Croatia operations, including assets in Bosnia and Herzegovina, Montenegro and Serbia, for approximately €231 (US$243 or $5,032), amount that is subject to final adjustments negotiated for changes in cash and working capital balances as of the change of control date. The operations in Croatia, including assets in Bosnia and Herzegovina, Montenegro and Serbia, mainly consist of three cement plants with aggregate annual production capacity of approximately 2.4 million tons of cement, two aggregates quarries and seven ready-mix plants. As of December 31, 2016, after the compliance of customary conditions precedent agreed by the parties, the closing of this transaction is still subject to approval from the relevant authorities. CEMEX expects to conclude the sale of its operations in Croatia, including assets in Bosnia and Herzegovina, Montenegro and Serbia, in the short-term. The operations in Croatia, including assets in Bosnia and Herzegovina, Montenegro and Serbia, for the years ended December 31, 2016, 2015 and 2014, included in CEMEX's statements of operations were reclassified, to the single line item “Discontinued operations.

 

The following table presents condensed combined information of the statement of operations of CEMEX's discontinued operations in Bangladesh and Thailand for the five-months period ended May 31, 2016 and for the years ended December 31, 2015 and 2014, in Austria and Hungary for the ten-months period ended October 31, 2015 and for the year ended December 31, 2014; as well as of CEMEX's operations in Croatia, including assets in Bosnia and Herzegovina, Montenegro and Serbia, and the Pipe Business in the United States for the years ended December 31, 2016, 2015 and 2014:

  2016 2015 2014
Sales $ 8,016  10,861  10,081
Cost of sales and operating expenses   (7,198)  (10,251)  (9,750)
Other products (expenses), net   (15)  33  (83)
Interest expenses, net and others  (25)  (65)  (55)
Earnings before income tax  778 578 193
Income tax   (130)  (34)  (103)
Net income  648 544 90
Net income of non-controlling interest  1 6 
Net income of controlling interest $647 538 90
       

 

 

As of December 31, 2016 and 2015, the balance sheets of CEMEX's Croatian discontinued operations, including its assets in Bosnia and Herzegovina, Montenegro and Serbia, were reclassified to current assets and current liabilities held for sale. In addition, as mentioned above, the balance sheet of CEMEX's Pipe Business as of December 31, 2016 was reclassified to current assets and current liabilities held for sale. Selected combined condensed financial information of balance sheet of these operations was as follows:

 

  2016 2015
Current assets $ 1,570 438
Property, machinery and equipment, net  5,798 2,562
Intangible assets, net and other non-current assets   6,222 446
Total assets held for sale  13,590 3,446
Current liabilities  599 442
Non-current liabilities  694 231
Total liabilities held for sale   1,293 673
Net assets held for sale $12,297 2,773
     

The balance sheet of CEMEX as of December 31, 2015 was not restated as a result of the expected sale of its Concrete Pipe Business nor for the sale of the operations in Bangladesh and Thailand described above. Selected condensed combined financial information of balance sheet at this date of CEMEX's Concrete Pipe Business, Bangladesh and Thailand was as follows:

 

  2015
Current assets $832
Property, machinery and equipment, net  2,446
Intangible assets, net and other non-current assets  4,921
Total assets held for sale  8,199
Current liabilities  70
Non-current liabilities  387
Total liabilities held for sale  457
Net assets held for sale $7,742
   

4B)       OTHER DISPOSAL GROUPS

 

On November 18, 2016, a subsidiary of CEMEX in the United States closed the sale to an affiliate of Grupo Cementos de Chihuahua, S.A.B. de C.V. (“GCC”) of certain assets consisting in CEMEX's cement plant in Odessa, Texas, two cement terminals and the building materials business in El Paso, Texas and Las Cruces, New Mexico, for an amount of approximately US$306 ($6,340). Odessa plant has an annual production capacity of approximately 537 thousand tons. The transfer of control was effective on November 18, 2016. As a result of the sale of these assets, CEMEX recognized a net gain of approximately US$104 ($2,159) as part of “Other expenses, net” in the statement of operations, which includes an expense related to the proportional write off of goodwill associated to CEMEX's reporting segment in the United States based on their relative fair values for approximately US$161 ($3,340) and the reclassification of proportional foreign currency translation gains associated with these net assets accrued in equity until disposal for approximately US$65 ($1,347).

 

On September 12, 2016, CEMEX announced that one of its subsidiaries in the United States signed a definitive agreement for the sale of its Fairborn, Ohio cement plant and cement terminal in Columbus, Ohio to Eagle Materials Inc. (“Eagle Materials”) for approximately US$400 ($8,288). Fairborn plant has an annual production capacity of approximately 730 thousand tons. The closing of this transaction is subject to the satisfaction of certain conditions, including approval from regulators. CEMEX currently expects to finalize this divestiture during the first quarter of 2017. The balance sheet of these assets as of December 31, 2016 was reclassified to assets held for sale and liabilities directly related to assets held for sale (note 12A), including approximately US$211 ($4,365) of goodwill associated to the reporting segment in the United States that was proportionally allocated to these net assets based on their relative fair values.

 

The operations of the net assets sold to GCC on November 18, 2016 and those expected to be sold to Eagle Materials, mentioned above, did not represent discontinued operations and were consolidated by CEMEX line-by-line for all the periods presented in the statement of operations. In arriving to this conclusion, CEMEX evaluated: a) the Company's ongoing cement operations on its CGUs in Texas and the East coast; and b) the relative size of the net assets sold and held for sale in respect to the Company's remaining overall ongoing cement operations in the United States. Moreover, as a reasonability check, CEMEX measured the materiality of such net assets using a threshold of 5% of consolidated net sales, operating earnings before other expenses, net gain (loss) and total assets. In no case was the 5% threshold reached.

 

For 2016, 2015 and 2014, selected combined statement of operations information of the net assets sold to GCC on November 18, 2016 and those expected to be sold to Eagle Materials was as follows:

  201620152014
Net sales$ 3,122 3,538 4,465
Operating costs and expenses  (2,450) (2,795) (3,240)
Operating earnings before other expenses, net$ 672 743 1,225
     

As of December 31, 2016, the condensed balance sheet of the net assets expected to be sold to Eagle Materials was as follows:

 

  2016
Current assets$ 123
Non-current assets  5,834
Total assets of the disposal group  5,957
Current liabilities  6
Non-current liabilities  158
Total liabilities directly related to disposal group  164
Total net assets of disposal group$ 5,793

In addition, on December 2, 2016, CEMEX agreed the definite transfer of its assets and activities related to the ready-mix concrete pumping in Mexico to Cementos Españoles de Bombeo, S. de R.L., subsidiary in Mexico of Pumping Team S.L.L. (“Pumping Team”), specialist in the supply of ready-mix concrete pumping services based in Spain, for US$80 ($1,658), which includes the sale of fixed assets upon closing of the transaction for approximately US$15 ($311) plus administrative and client and market development services, as well as the lease of facilities that CEMEX will supply to Pumping Team over a period of ten years with the possibility to extend for three additional years, for an aggregate initial amount of approximately US$65 ($1,347), plus a contingent revenue subject to results for up to US$29 ($601) linked to annual metrics beginning in the first year and up to the fifth year of the agreement. As of December 31, 2016, the closing of the transaction is subject to certain conditions, including approval by the Mexican authorities. CEMEX expects to conclude this transaction during the first quarter of 2017.

 

Effective January 1, 2015, as part of a series of related transactions agreed on October 31, 2014 with Holcim Ltd. (“Holcim”), then a global producer of building materials based in Switzerland, currently LafargeHolcim after the merger of Holcim with Lafarge, S.A., during 2015, CEMEX sold to Holcim its assets in the western region of Germany, consisting of one cement plant, two cement grinding mills, one slag granulator, 22 aggregates quarries and 79 ready-mix plants for approximately 171 (US$207 or $3,047), while CEMEX maintained its operations in the northern, eastern and southern regions of the country. The operations of the net assets sold by CEMEX to Holcim were consolidated by CEMEX line-by-line for the year ended December 31, 2014, considering that this transaction did not represent the disposal of entire reportable operating segment. In arriving to this conclusion, CEMEX evaluated: a) the Company's remaining operations in the North, East and South regions of Germany; and b) the relative size of the net assets sold in respect to the Company's remaining overall ongoing operations in such country. Moreover, as a reasonability check, CEMEX measured the materiality of such net assets using a threshold of 5% of consolidated net sales, operating earnings before other expenses, net, net income (loss) and total assets. In any case the 5% threshold was reached.

 

For the year 2014, selected combined statement of operations information of the net assets sold in Germany was as follows:

  2014
Net sales$6,655
Operating costs and expenses  (6,428)
Operating earnings before other expenses, net$227

During 2014, CEMEX sold significantly all the operating assets of Readymix plc (“Readymix”), CEMEX's main operating subsidiary in the Republic of Ireland, and an indirect subsidiary of CEMEX España, for €19 (US$23 or $339), recognizing a loss on sale of approximately €14 (US$17 or $250).

 

4C)       SELECTED FINANCIAL INFORMATION BY GEOGRAPHIC OPERATING SEGMENT

 

Geographic operating segments represent the components of CEMEX that engage in business activities from which CEMEX may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's top management to make decisions about resources to be allocated to the segments and assess their performance, and for which discrete financial information is available.

 

CEMEX's main activities are oriented to the construction industry segment through the production, distribution, marketing and sale of cement, ready-mix concrete, aggregates and other construction materials. CEMEX operates geographically on a regional basis. Effective January 1, 2016, according to an announcement made by CEMEX's Chief Executive Officer (“CEO”), the Company's operations were reorganized into five geographical regions, each under the supervision of a regional president, as follows: 1) Mexico, 2) United States, 3) Europe, 4) South, Central America and the Caribbean, and 5) Asia, Middle East and Africa. Each regional president supervises and is responsible for all the business activities in the countries comprising the region. These activities refer to the production, distribution, marketing and sale of cement, ready-mix concrete, aggregates and other construction materials, the allocation of resources and the review of their performance and operating results. All regional presidents report directly to CEMEX's CEO. The country manager, who is one level below the regional president in the organizational structure, reports the performance and operating results of its country to the regional president, including all the operating sectors. CEMEX's top management internally evaluates the results and performance of each country and region for decision-making purposes and allocation of resources, following a vertical integration approach considering: a) that the operating components that comprise the reported segment have similar economic characteristics; b) that the reported segments are used by CEMEX to organize and evaluate its activities in its internal information system; c) the homogeneous nature of the items produced and traded in each operative component, which are all used by the construction industry; d) the vertical integration in the value chain of the products comprising each component; e) the type of clients, which are substantially similar in all components; f) the operative integration among components; and g) that the compensation system for employees of a specific country is based on the consolidated results of the geographic segment and not on the particular results of the components. In accordance with this approach, in CEMEX's daily operations, management allocates economic resources and evaluates operating results on a country basis rather than on an operating component basis. The financial information by geographic operating segment reported in the tables below for the years ended December 31, 2015 and 2014 was restated in order to give effect to: a) the discontinued operations described in note 4A, and b) the new geographical operating organization described above. Until December 31, 2015, CEMEX's operations were organized into six geographical regions, also each under the supervision of a regional president: 1) Mexico, 2) United States, 3) Northern Europe, 4) Mediterranean, 5) South, Central America and the Caribbean, and 6) Asia. Under the current operating organization, the geographical operating segments under the former Mediterranean region were incorporated into the current Europe region or the Asia, Middle East and Africa region, as corresponded.

 

Considering the financial information that is regularly reviewed by CEMEX's top management, each of the five geographic regions in which CEMEX operates and the countries that comprise such regions represent reportable operating segments. However, for disclosure purposes in the notes to the financial statements, considering similar regional and economic characteristics and/or the fact that certain countries do not exceed certain materiality thresholds to be reported separately, such countries have been aggregated and presented as single line items as follows: a) “Rest of Europe” is mainly comprised of CEMEX's operations in the Czech Republic, Poland and Latvia, as well as trading activities in Scandinavia and Finland; b) “Rest of South, Central America and the Caribbean” is mainly comprised of CEMEX's operations in Costa Rica, Panama, Puerto Rico, the Dominican Republic, Nicaragua, Jamaica and other countries in the Caribbean, Guatemala, and small ready-mix concrete operations in Argentina; and c) “Rest of Asia, Middle East and Africa” is mainly comprised of CEMEX's operations in the United Arab Emirates, Israel and Malaysia. The segment “Others” refers to: 1) cement trade maritime operations, 2) Neoris N.V., CEMEX's subsidiary involved in the development of information technology solutions, 3) the Parent Company and other corporate entities, and 4) other minor subsidiaries with different lines of business.

 

The main indicator used by CEMEX's management to evaluate the performance of each country is “Operating EBITDA” representing operating earnings before other expenses, net, plus depreciation and amortization, considering that such amount represents a relevant measure for CEMEX's management as an indicator of the ability to internally fund capital expenditures, as well as a widely accepted financial indicator to measure CEMEX's ability to service or incur debt (note 16). Operating EBITDA should not be considered as an indicator of CEMEX's financial performance, as an alternative to cash flows, as a measure of liquidity, or as being comparable to other similarly titled measures of other companies. This indicator, which is presented in the selected financial information by geographic operating segment, is consistent with the information used by CEMEX's management for decision-making purposes. The accounting policies applied to determine the financial information by geographic operating segment are consistent with those described in note 2. CEMEX recognizes sales and other transactions between related parties based on market values.

 

Selected information of the consolidated statements of operations by geographic operating segment for the years ended December 31, 2016, 2015 and 2014 was as follows:

  Net sales       Less: Operating      
  (including Less:     Depreciation earnings Other   Other
  related Related   Operating and before other expenses, Financial financing
2016 parties) parties Net sales EBITDA amortization expenses, net net Expense items, net
                   
Mexico$ 53,579  (848)  52,731  19,256  2,390  16,866  (608)  (339)  2,695
United States  68,553   68,553  11,159  6,605  4,554  2,911  (489)  (205)
Europe                  
United Kingdom  21,153   21,153  3,606  1,047  2,559  711  (63)  (393)
Germany  9,572  (1,385)  8,187  553  464  89  (64)  (15)  (85)
France  14,535   14,535  669  484  185  (110)  (53)  2
Spain  6,563  (841)  5,722  814  663  151  (112)  (37)  (9)
Rest of Europe  10,881  (629)  10,252  1,420  914  506  (63)  (23)  203
South, Central America and                  
the Caribbean (“SAC”)                  
Colombia  12,415  (1)  12,414  3,975  489  3,486  (575)  46  38
Rest of SAC 1   18,820  (1,252)  17,568  6,126  892  5,234  (1,255)  (65)  (150)
Asia, Middle East                  
Africa (“AMEA”)                  
Egypt  6,950  (5)  6,945  2,454  539  1,915  (213)  (78)  (253)
Philippines 2   9,655   9,655  2,687  530  2,157  21  (1)  (24)
Rest of AMEA  12,676  (12)  12,664  1,607  325  1,282  (122)  (27)  (33)
Others   19,128  (8,598)  10,530  (2,915)  805  (3,720)  (2,167)  (20,324)  2,655
                   
Continuing operations  264,480  (13,571)  250,909  51,411  16,147  35,264  (1,646)  (21,468)  4,441
Discontinued operations  8,223  (207)  8,016  1,355  537  818  (15)  (29)  4
Total $ 272,703  (13,778)  258,925  52,766  16,684  36,082  (1,661)  (21,497)  4,445

1       CEMEX Latam Holdings, S.A. (“CLH”), entity incorporated in Spain which since 2012 trades its ordinary shares in the Colombian Stock Exchange under the symbol CLH is the indirect holding company of CEMEX's operations in Colombia, Panama, Costa Rica, Guatemala, El Salvador and Brazil. At year end 2016, there is a non controlling interest in CLH of approximately 26.72% of its ordinary shares, excluding shares held in CLH's treasury.

2       CEMEX's operations in the Philippines are conducted through CEMEX Holdings Philippines, Inc. (“CHP”), subsidiary incorporated in the Philippines which since July 2016 trades its ordinary shares in the Philippines Stock Exchange under the symbol CHP (note 20D). At year end 2016, there is a non-controlling interest in CHP of 45.0% of its ordinary shares.

  Net sales       Less: Operating      
  (including Less:     Depreciation earnings Other   Other
  related Related   Operating and before other expenses, Financial financing
2015 parties) parties Net sales EBITDA amortization expenses, net net expense items, net
                   
Mexico$ 50,260  (5,648)  44,612  15,362  2,399  12,963  (684)  (210)  915
United States  58,668  (18)  58,650  8,080  5,865  2,215  252  (439)  (159)
Europe                  
United Kingdom  20,227   20,227  2,705  1,004  1,701  (147)  (95)  (299)
Germany  8,285  (1,276)  7,009  542  389  153  49  (14)  (61)
France  12,064   12,064  670  438  232  (8)  (48)  (10)
Spain  6,151  (755)  5,396  1,031  604  427  (735)  (72)  (2)
Rest of Europe  10,010  (767)  9,243  1,419  972  447  (182)  (57)  (75)
South, Central America and the Caribbean (“SAC”)                  
Colombia  11,562  (2)  11,560  4,041  500  3,541  (88)  (50)  (570)
Rest of SAC  19,169  (2,285)  16,884  5,211  844  4,367  (267)  (43)  (113)
Asia, Middle East and Africa (“AMEA”)                  
Egypt  6,923  (5)  6,918  1,777  536  1,241  (254)  (115)  114
Philippines  8,436  (4)  8,432  2,206  447  1,759  (12)  (20)  19
Rest of AMEA  11,025   11,025  1,264  277  987  (69)  (23)  97
Others  17,058  (8,752)  8,306  (2,954)  590  (3,544)  (898)  (18,581)  (1,091)
Continuing operations  239,838  (19,512)  220,326  41,354  14,865  26,489  (3,043)  (19,767)  (1,235)
Discontinued operations  10,918  (57)  10,861  1,381  771  610  33  (33)  (32)
Total  250,756  (19,569)  231,187  42,735  15,636  27,099  (3,010)  (19,800)  (1,267)
                   

  Net sales       Less: Operating      
  (including Less:     Depreciation earnings Other   Other
  related Related   Operating and before other expenses, Financial financing
2014 parties) parties Net sales EBITDA amortization expenses, net net expense items, net
                   
Mexico $ 51,412  (10,143)  41,269  13,480  2,420  11,060  734  (262)  481
United States   45,691  (33)  45,658  4,962  5,296  (334)  (352)  (411)  (123)
Europe                  
United Kingdom   17,071   17,071  1,672  1,004  668  1,062  (33)  (378)
Germany   14,138  (1,247)  12,891  869  625  244  (797)  (29)  (122)
France   12,914   12,914  852  516  336  (94)  (72)  (4)
Spain  4,717  (559)  4,158  363  571  (208)  (2,107)  (29)  (4)
Rest of Europe   9,101  (921)  8,180  1,080  667  413  (367)  (26)  (56)
South, Central America and the Caribbean (“SAC”)                  
Colombia   13,242  (1)  13,241  4,838  476  4,362  52  (90)  (353)
Rest of SAC   16,292  (1,865)  14,427  4,767  688  4,079  (101)  (44)  9
Asia, Middle East and Africa (“AMEA”)                  
Egypt  7,123  (12)  7,111  2,664  474  2,190  (209)  (28)  15
Philippines   5,912  (2)  5,910  1,374  338  1,036  40  (5)  (8)
Rest of AMEA  9,694  (6)  9,688  1,098  254  844  (147)  (19)  27
Others   13,531  (6,107)  7,424  (2,463)  374  (2,837)  (2,759)  (20,435)  3,047
Continuing operations   220,838  (20,896)  199,942  35,556  13,703  21,853  (5,045)  (21,483)  2,531
Discontinued operations   10,134  (53)  10,081  1,084  753  331  (83)  (18)  (37)
Total $ 230,972  (20,949)  210,023  36,640  14,456  22,184  (5,128)  (21,501)  2,494

 

 

The information of share of profits of equity accounted investees by geographic operating segment for the years ended December 31, 2016, 2015 and 2014 is included in the note 13A.

 

As of December 31, 2016 and 2015, selected balance sheet information by geographic segment was as follows:

 

  Equity          
  accounted Other segment Total Total  Net assets  Additions to
2016 investees assets assets liabilities by segment fixed assets 1
             
Mexico $ 490  70,012  70,502  20,752  49,750  1,651
United States   1,587  287,492  289,079  30,118  258,961  3,760
Europe            
United Kingdom   104  32,469  32,573  22,914  9,659  599
Germany   74  8,396  8,470  6,694  1,776  507
France   909  16,855  17,764  6,829  10,935  379
Spain   13  27,251  27,264  3,206  24,058  490
Rest of Europe  276 16223 16499 4643 11856 440
South, Central America and the Caribbean             
Colombia    26,532  26,532  11,548  14,984  3,633
Rest of South, Central America and the Caribbean  28  22,321  22,349  5,931  16,418  637
Asia, Middle East and Africa            
Egypt  1  5,512  5,513  2,907  2,606  381
Philippines   6  12,308  12,314  2,696  9,618  341
Rest of Asia, Middle East and Africa    12,347  12,347  6,994  5,353  394
Others   6,996  26,333  33,329  276,305  (242,976)  67
             
Continuing operations   10,484  564,051  574,535  401,537  172,998  13,279
Assets held for sale and directly related liabilities             
(note 12A)  4  25,189  25,193  1,466  23,727  (1)
Total $ 10,488  589,240  599,728  403,003  196,725  13,278

  Equity          
  accounted Other segment Total Total  Net assets  Additions to
2015 investees assets assets liabilities by segment fixed assets 1
Mexico $ 438  75,215  75,653  16,936  58,717  1,177
United States   1,228  260,847  262,075  22,832  239,243  3,453
Europe            
United Kingdom   103  32,339  32,442  19,054  13,388  925
Germany   64  7,278  7,342  5,988  1,354  362
France   582  14,577  15,159  6,704  8,455  515
Spain  94  23,544  23,638  2,810  20,828  281
Rest of Europe   291  15,043  15,334  4,025  11,309  594
South, Central America and the Caribbean            
Colombia    19,499  19,499  8,959  10,540  2,601
Rest of South, Central America and the Caribbean   24  21,714  21,738  5,110  16,628  965
Asia, Middle East and Africa            
Egypt  11  9,310  9,321  4,499  4,822  762
Philippines   6  10,447  10,453  2,907  7,546  329
Rest of Asia, Middle East and Africa   12,055  12,055  6,205  5,850  288
Others   9,309  22,855  32,164  271,794  (239,630)  61
Continuing operations   12,150  524,723  536,873  377,823  159,050  12,313
Assets held for sale and directly related liabilities            
(note 12A)  4  5,387  5,391  673  4,718  154
Total $ 12,154  530,110  542,264  378,496  163,768  12,467

 

1       In 2016 and 2015, the total “Additions to fixed assets” includes capital expenditures of approximately $12,676 and $11,454, respectively (note 14).

 

Total consolidated liabilities as of December 31, 2016 and 2015 included debt of $236,232 and $229,343, respectively. Of such balances, as of December 31, 2016 and 2015, approximately 73% and 71% was in the Parent Company, less than 1% and 1% was in Spain, 25% and 27% was in finance subsidiaries in the Netherlands, Luxembourg and the United States, and 2% and 1% was in other countries, respectively. The Parent Company and the finance subsidiaries mentioned above are included within the segment “Others.

Net sales by product and geographic segment for the years ended December 31, 2016, 2015 and 2014 were as follows:

2016 Cement Concrete Aggregates Others Eliminations Net sales
             
Mexico $ 37,647  13,664  3,156  11,773  (13,509)  52,731
United States   28,585  36,452  15,296  7,999  (19,779)  68,553
Europe            
United Kingdom   5,267  7,830  8,195  7,889  (8,028)  21,153
Germany   3,416