Descargar - Elementia

Transcription

OFFERING MEMORANDUM
CONFIDENTIAL
US$425,000,000
Elementia, S.A. de C.V.
5.500% Senior Unsecured Notes due 2025
We are offering US$425,000,000 aggregate principal amount of our 5.500% Senior Unsecured Notes due 2025. We will pay interest on the notes
semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2015. The notes will mature on January 15, 2025, unless
previously redeemed.
The notes will rank at least pari passu in the right of payment with all unsecured and unsubordinated debt, subject to certain obligations given
preferential treatment pursuant to applicable law, including tax and labor obligations. The notes will rank effectively junior in right of payment to any
of our existing and future secured indebtedness to the extent the value of the assets securing such indebtedness and structurally junior to debt
obligations of our subsidiaries that are not guarantors of the notes. The notes will be issued in registered form in denominations of US$200,000 and
integral multiples of U.S$1,000 in excess therof.
At our option, on or after January 15, 2020, we may redeem the notes, in whole or in part, at the redemption prices set forth in this offering
memorandum, plus accrued and unpaid interest, if any, plus additional amounts payable to the date of redemption. Prior to January 15, 2020, we may
redeem the notes, in whole or in part, by paying the principal amount of the notes, plus the applicable “make-whole” premium and accrued and
unpaid interest. Prior to January 15, 2018, we may also redeem up to 35% of the notes with the proceeds of certain equity offerings. See “Description
of the Notes—Optional Redemption.” If a change of control triggering event as described in this offering memorandum under the heading
“Description of Notes—Redemption upon Change of Control” occurs, we may be required to offer to purchase the notes from the holders. In
addition, we may redeem the notes, in whole, but not in part, at a price equal to 100% of their outstanding principal amount, plus any additional
amounts then payable, and accrued and unpaid interest, in the event of certain changes in Mexican tax laws applicable to the notes.
No public market currently exists for the notes. Application will be made to admit the notes to listing on the Official List of the Luxembourg
Stock Exchange and for trading on the Euro Multilateral Trading Facility Market, or the “Euro MTF Market,” of the Luxembourg Stock Exchange.
However, we cannot assure you that such listing application will be approved.
Investing in the notes involves risks. See “Risk Factors” section beginning on page 18 of this offering memorandum.
Issue price: 98.087% plus accrued interest, if any, from November 26, 2014.
THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE MEXICAN NATIONAL SECURITIES
REGISTRY (REGISTRO NACIONAL DE VALORES, OR “RNV”) MAINTAINED BY THE MEXICAN NATIONAL BANKING AND
SECURITIES COMMISSION (COMISIÓN NACIONAL BANCARIA Y DE VALORES, OR “CNBV”), AND MAY NOT BE OFFERED
PUBLICLY IN MEXICO, EXCEPT TO MEXICAN INSTITUTIONAL AND QUALIFIED INVESTORS PURSUANT TO THE
PRIVATE PLACEMENT EXEMPTION SET FORTH IN ARTICLE 8 OF THE MEXICAN SECURITIES MARKET LAW (LEY DEL
MERCADO DE VALORES). WE WILL NOTIFY THE CNBV OF THE TERMS AND CONDITIONS OF THIS OFFERING TO
COMPLY WITH ARTICLE 7, SECOND PARAGRAPH, OF THE MEXICAN SECURITIES MARKET LAW AND FOR STATISTICAL
AND INFORMATIONAL PURPOSES ONLY. DELIVERY OR RECEIPT OF SUCH NOTICE DOES NOT CONSTITUTE OR IMPLY
A CERTIFICATION AS TO THE INVESTMENT QUALITY OF THE NOTES, OUR SOLVENCY, LIQUIDITY OR CREDIT
QUALITY OR THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH IN THIS OFFERING
MEMORANDUM. THIS OFFERING MEMORANDUM IS SOLELY OUR RESPONSIBILITY AND HAS NOT BEEN REVIEWED
OR AUTHORIZED BY THE CNBV. IN MAKING AN INVESTMENT DECISION, ALL INVESTORS, INCLUDING ANY MEXICAN
INVESTORS, WHO MAY ACQUIRE NOTES FROM TIME TO TIME, MUST RELY ON THEIR OWN EXAMINATION OF
ELEMENTIA, S.A. DE C.V.
The notes have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), any state securities
laws, or the securities laws of any other jurisdiction and may not be offered or sold in the United States or to U.S. persons (as defined in Regulation S under
the Securities Act, or “Regulation S,” except in transactions exempt from, or not subject to, the registration requirements of the Securities Act.
Accordingly, the notes are being offered and sold in the United States only to qualified institutional buyers in compliance with Rule 144A under the
Securities Act, or “Rule 144A,” and to persons other than U.S. persons outside the United States in compliance with Regulation S under the Securities Act.
Prospective purchasers that are qualified institutional buyers are hereby notified that the seller of the notes may be relying on the exemption from the
provisions of Section 5 of the Securities Act provided by Rule 144A. For a description of eligible offerees and certain restrictions on transfer of the notes,
see “Transfer Restrictions.”
The notes are being offered pursuant to an exemption from the requirement to publish a prospectus under Directive 2003/71/EC (as amended
and supplemented from time to time, the “Prospectus Directive”), of the European Union, and this offering memorandum has not been approved by a
competent authority within the meaning of the Prospectus Directive.
The notes will be ready for delivery to investors in book-entry form only through the facilities of The Depository Trust Company, or “DTC,” for
the accounts of its direct and indirect participants, including Euroclear Bank S.A./N.V., as operator of the Euroclear System, or “Euroclear,” and
Clearstream Banking, société anonyme, Luxembourg, or “Clearstream,” on or about November 26, 2014.
Global Coordinators
Credit Suisse
Morgan Stanley
Joint Bookrunners
Credit Suisse
Morgan Stanley
Citigroup
November 20, 2014
HSBC
Santander
TABLE OF CONTENTS
Page
Notice to Prospective Investors in the United States ..................................................................................................... ii
Notice to New Hampshire Residents ............................................................................................................................iii
Notice to Prospective Investors in the United Kingdom ..............................................................................................iii
Service of Process and Enforcement of Civil Liabilities ..............................................................................................iii
Available Information .................................................................................................................................................. iv
Forward-Looking Statements ....................................................................................................................................... iv
Presentation of Financial and Certain Other Information ............................................................................................. vi
Glossary of Terms and Definitions .............................................................................................................................viii
Summary ....................................................................................................................................................................... 1
The Offering ................................................................................................................................................................ 10
Summary Consolidated Financial and Other Information ........................................................................................... 15
Risk Factors ................................................................................................................................................................. 18
Use of Proceeds ........................................................................................................................................................... 37
Capitalization .............................................................................................................................................................. 38
Exchange Rates ........................................................................................................................................................... 39
Selected Consolidated Financial and Other Information ............................................................................................. 40
Management’s Discussion and Analysis of Our Results of Operation and Financial Condition ................................ 43
Industry ....................................................................................................................................................................... 70
Business ....................................................................................................................................................................... 78
Management .............................................................................................................................................................. 121
Principal Shareholders ............................................................................................................................................... 127
Related Party Transactions ........................................................................................................................................ 128
Description of the Notes ............................................................................................................................................ 131
Taxation..................................................................................................................................................................... 184
Plan of Distribution ................................................................................................................................................... 189
Transfer Restrictions ................................................................................................................................................. 195
Legal Matters............................................................................................................................................................. 198
Independent Auditors ................................................................................................................................................ 199
Index to Consolidated Financial Statements ............................................................................................................. F-1
All references to “we,” “us,” “our,” “our company” or the “issuer” in this offering memorandum are to
Elementia, S.A. de C.V., and, unless otherwise indicated or the context requires otherwise, its consolidated
subsidiaries. All references to “Mexico” in this offering memorandum are to the United Mexican States. All
references to the “United States” or “U.S.” in this offering memorandum are to the United States of America.
We have not, and the initial purchasers have not, authorized anyone to provide you with information that
is different from or additional to that contained in this offering memorandum, and we and the initial
purchasers take no responsibility for, and can provide no assurance as to the reliability of, any other
information that others may give you. You should assume that the information in this offering memorandum
is accurate only as of the date on the front cover of this offering memorandum, regardless of time of delivery
of this offering memorandum or any sale of the notes. Our business, financial condition, results of operations
and prospects may change after the date on the front cover of this offering memorandum. This offering
memorandum may only be used where it is legal to sell the notes. Neither we nor any of the initial purchasers
is making an offer to sell the notes in any jurisdiction where such an offer is not permitted.
This offering memorandum is confidential. This offering memorandum has been prepared by us solely for use
in connection with the proposed offering of the securities described in this offering memorandum. This offering
memorandum is personal to each offeree and does not constitute an offer to any other person or to the public
generally to subscribe for or otherwise acquire securities. You are authorized to use this offering memorandum
solely for the purpose of considering the purchase of our notes. Distribution of this offering memorandum to any
person other than the prospective investor and any person retained to advise such prospective investor with respect
to its purchase is unauthorized, and any disclosure of any of its contents, without our prior written consent, is
prohibited. Each prospective investor, by accepting delivery of this offering memorandum, agrees to the foregoing
i
and to make no photocopies of this offering memorandum or any documents referred to in this offering
memorandum.
We are relying upon an exemption from registration under the Securities Act for an offer and sale of securities
that do not involve a public offering in the United States. By purchasing the notes, you will be deemed to have made
the acknowledgements, representations and agreements described under “Transfer Restrictions” in this offering
memorandum. You should understand that you may be required to bear the financial risks of your investment for an
indefinite period of time.
In making an investment decision, prospective investors must rely on their own examination of the company,
our business and the terms of the offering, including the merits and risks involved. Prospective investors should not
construe anything in this offering memorandum as legal, business or tax advice. The notes have not been
recommended by the United States Securities and Exchange Commission, or the “SEC,” or any state securities
commission, the CNBV, or any other regulatory authority. Furthermore, these authorities have not confirmed the
accuracy or determined the adequacy of this offering memorandum. Any representation to the contrary is a criminal
offense. Each prospective investor should consult its own advisors as needed to make its investment decision and to
determine whether it is legally permitted to purchase the securities under applicable legal investment or similar laws
or regulations.
We have furnished the information in this offering memorandum. You acknowledge and agree that the initial
purchasers make no representation or warranty, express or implied, as to the accuracy or completeness of such
information, and nothing contained in this offering memorandum is, or shall be relied upon as, a promise or
representation by the initial purchasers. This offering memorandum contains summaries believed to be accurate with
respect to certain documents, but reference is made to the actual documents for complete information. All such
summaries are qualified in their entirety by such reference. Copies of documents referred to herein will be made
available to prospective investors upon request to us or the initial purchasers.
The distribution of this offering memorandum and the offering and sale of the notes in certain jurisdictions may
be restricted by law. We and the initial purchasers require persons into whose possession this offering memorandum
comes to inform themselves about and to observe any such restrictions. This offering memorandum does not
constitute an offer of, or an invitation to purchase, any of the notes in any jurisdiction in which such offer or sale
would be unlawful. No one has taken any action that would permit a public offering to occur in any jurisdiction.
We reserve the right to withdraw the offering at any time and, to the extent permitted by law, we and the initial
purchasers reserve the right to reject any commitment to subscribe for the notes in whole or in part and to allot to
any prospective investor less that the full amount of notes sought by that investor. The initial purchasers and certain
related entities may acquire for their own accounts a portion of the notes.
NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED STATES
Neither the SEC nor any state securities commission has approved or disapproved of these securities or
determined if this offering memorandum is truthful or complete. Any representation to the contrary is a criminal
offense.
The notes are subject to restrictions on transferability and resale and may not be transferred or resold except as
permitted under the Securities Act and the applicable state securities laws pursuant to registration or exemption
therefrom. As a prospective purchaser, you should be aware that you may be required to bear the financial risks of
this investment for an indefinite period of time. Please refer to the sections in this offering memorandum entitled
“Plan of Distribution” and “Transfer Restrictions.”
ii
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED
STATUTES, OR “RSA”, WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE IMPLIES THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE
AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT ANY EXEMPTION OR
EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE
SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF,
OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT
IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER,
CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF
THIS PARAGRAPH.
NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED KINGDOM
Our notes may not be offered or sold to any person in the United Kingdom, other than to persons whose
ordinary activities involve the acquiring, holding, managing or disposing of investments (as principal or agent) for
the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of
investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom.
SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES
We are a sociedad anónima de capital variable (variable capital stock corporation) organized under the laws of
Mexico. All of our directors, officers, controlling persons, and certain other persons named in this offering
memorandum reside outside the territory of the United States and all or a significant portion of the assets of the
directors and officers and certain other persons named in this offering memorandum and substantially all of our
assets are located outside the territory of the United States. As a result, it may not be possible for investors to effect
service of process upon such persons or entities outside the territory of Mexico, as the case may be, or to enforce
against such parties any judgment obtained in courts located outside the territory of Mexico predicated on civil
liabilities under the laws of jurisdictions other than Mexico, including judgments predicated on the civil liability
provisions of the U.S.federal securities laws or other laws of the United States.
We have been advised by our Mexican counsel, DRB Consultores Legales, S.C., that no treaty exists between
the United States and Mexico for the reciprocal enforcement of judgments issued in the other country. Generally,
Mexican courts would enforce final judgments rendered in the United States if certain requirements are met,
including the review in Mexico of the U.S. judgment to ascertain compliance with certain basic principles of due
process and the non-violation of Mexican law or public policy (orden público), provided that U.S. courts would
grant reciprocal treatment to Mexican judgments. Additionally, there is doubt as to the enforceability, in original
actions in Mexican courts or in actions for enforcement of judgments obtained in courts of jurisdictions outside
Mexico, of liabilities predicated, in whole or in part, on U.S. federal securities laws or similar laws of any
jurisdiction outside Mexico and as to the enforceability in Mexican courts of judgments of U.S. courts obtained in
actions predicated on the civil liability provisions of U.S. federal securities laws. See “Risk Factors.”
In the event that proceedings are brought in Mexico seeking to enforce our obligations in respect of the notes,
we would not be required to discharge such obligations in a currency other than the Mexican peso. Pursuant to
Mexican law, an obligation in a currency other than the Mexican peso, which is payable in Mexico, may be satisfied
in Mexican currency at the rate of exchange in effect on the date on which payment is made. Such rate of exchange
is currently determined by the Mexican Central Bank (Banco de México) each business day in Mexico and published
the following banking-business day in the Mexican Federal Official Gazette (Diario Oficial de la Federacíon).
In connection with the issuance of the notes, we have appointed Maxitile, Inc. as our authorized agent upon
whom process may be served in connection with any action instituted in any United States federal or state court
having subject matter jurisdiction in the Borough of Manhattan in New York arising out of or based upon the
indenture governing the notes or the guarantee of the subsidiary guarantor. See “Description of the Notes.”
iii
AVAILABLE INFORMATION
We are not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the
“Exchange Act.” To permit compliance with Rule 144A under the Securities Act in connection with resales of notes,
we will be required under the indenture under which the notes are issued (the “Indenture”), upon the request of a
holder of Rule 144A notes or Regulation S notes (during the restricted period, as defined in the legend included
under “Transfer Restrictions”), to furnish to such holder and any prospective purchaser designated by such holder
the information required to be delivered under Rule 144A(d)(4) under the Securities Act, unless we either furnish
information to the SEC in accordance with Rule 12g3-2(b) under the Exchange Act or furnish information to the
SEC pursuant to Section 13 or 15(d) of the Exchange Act. Any such request may be made to us in writing at our
corporate offices located at Mario Pani, No. 400, Piso 3, Col. Lomas de Santa Fe, C.P. 05300, México, Distrito
Federal, Mexico, Attention: Mr. Juan Francisco Sánchez Kramer.
FORWARD-LOOKING STATEMENTS
This offering memorandum contains forward-looking statements. Examples of such forward-looking statements
include, but are not limited to: (i) statements regarding our results of operations and financial position;
(ii) statements of plans, objectives or goals, including those related to our operations; and (iii) statements of
assumptions underlying such statements. Words such as “aim,” “anticipate,” “believe,” “could,” “estimate,”
“expect,” “forecast,” “guidance,” “intend,” “may,” “may have,” “plan,” “potential,” “predict,” “seek,” “should,”
“will,” “would” and similar expressions are intended to identify forward-looking statements but are not the
exclusive means of identifying such statements.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and
specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be
achieved. We caution investors that a number of important factors could cause actual results to differ materially
from the plans, objectives, expectations, estimates and intentions expressed or implied in such forward-looking
statements, including the following factors:

general economic, political and business conditions in Mexico and the other markets in which we operate;

the effects of global financial markets and economic crises;

competition in our industry and markets;

reviews by management of its expectations and estimates regarding our future financial performance, our
plans and funding programs;

limitations on our access to sources of financing on competitive terms or otherwise, and compliance with
covenants by which we are bound;

our ability to service our debt;

our capital expenditure plans;

the performance of financial markets and our ability to refinance our debt obligations, as necessary;

fluctuations in exchange rates, market interest rates or rates of inflation or the conversion of currencies;

existing and future laws and governmental regulations, including environmental laws, and liabilities or
obligations arising thereunder and adverse administrative or judicial rulings relating to us;

policies and interpretations in respect of acquisitions;

increases in insurance premiums;

changes in market prices, demand and consumer preferences and competitive conditions;

cyclicality and seasonality in our results of operations;
iv

our ability to implement our strategy;

increases in the prices of goods and/or services supplied to us and fluctuations in the prices of raw materials
in commodities markets;

the imposition of price controls on the products we sell;

trade barriers;

technological innovations;

the costs, difficulties, uncertainties and regulations related to mergers, acquisitions or joint ventures;

our ability to complete acquisitions and to successfully integrate the operations of our acquired businesses;

liability claims including claims related to health, safety and environmental matters and claims arising from
class action laws in Mexico or other jurisdictions in which we operate;

failures in our information technology systems, including our data and communications systems;

the effect of changes in accounting principles, new legislation, actions by regulatory authorities,
government bulletins and monetary or fiscal policy in Mexico and the other markets in which we operate;

declines in sales of our products by independent distributors;

our ability to retain certain key personnel and to hire additional key personnel;

our ability to realize synergies from our mergers and acquisitions activity;

delays by our suppliers or the inability to source, on terms acceptable to us otherwise, inputs required by us
to produce the products which we sell;

investigations by governmental authorities; and

the other risk factors discussed under “Risk Factors.”
Should one or more of these factors or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated,
expected, forecast or intended.
Prospective investors should read the sections of this offering memorandum entitled “Summary,” “Risk
Factors,” “Selected Financial and Other Information,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” “Business” and “Management” for a more complete discussion of the factors
that could affect our future performance and the markets and industry sectors in which we operate.
In light of these risks, uncertainties and assumptions, the forward-looking statements described in this offering
memorandum may not occur. These forward-looking statements speak only as to the date of this offering
memorandum and we undertake no obligation to update or revise any forward-looking statement, whether as a result
of new information or future events or developments. Additional factors affecting our business emerge from time to
time and it is not possible for us to predict all of these factors, nor can we assess the impact of all such factors on our
business or the extent to which any factor, or the combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statement. Although we believe the plans, intentions and expectations
reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that those plans,
intentions or expectations will be achieved. In addition, you should not interpret statements regarding past trends or
activities as assurances that those trends or activities will continue in the future. All written, oral and electronic
forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety
by this cautionary statement.
v
PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION
Financial Statements
Elementia
This offering memorandum includes our audited annual consolidated financial statements as of and for the years
ended December 31, 2013, 2012 and 2011, together with the notes thereto, and our unaudited interim condensed
consolidated financial statements as of and for the three-month and nine-month periods ended September 30, 2014
and September 30, 2013, together with the notes thereto, prepared in accordance with IAS 34.
The financial information in this offering memorandum has been prepared in accordance with International
Financial Reporting Standards, or “IFRS”, as required commencing on January 1, 2012, for public entities in
Mexico in accordance with the amendments to the Rules for Public Companies and other Market Participants in the
Mexican Securities Market, established by the CNBV on January 27, 2009.
Beginning on January 1, 2011, we adopted IFRS and the related rules and interpretations issued by the
International Accounting Standards Board, or “IASB.” The financial information presented in this offering
memorandum for prior fiscal years was prepared in accordance with Mexican financial reporting standards and
therefore is not comparable to the financial information presented beginning on January 1, 2011.
Acquisitions and Comparability of Our Financial Statements
We have certain non-comparable financial information as a result of various acquisitions and dispositions
consummated during the periods covered in this offering memorandum that may affect the financial analysis of our
figures.
In 2009, we acquired a majority stake in Trituradora y Procesadora de Materiales Santa Anita, S.A. de C.V., or
“Trituradora,” which built a plant for the manufacture and marketing of cement. The new cement plant commenced
operations in 2013. On January 8, 2013, Trituradora and ELC Tenedora Cementos, S.A.P.I. de C.V., or “ELC
Tenedora Cementos,” both of which are subsidiaries of Elementia, and Elementia entered into an agreement, or the
“Contribution Agreement,” with Lafarge S.A. and Financière Lafarge, S.A.S., collectively, “Lafarge,” and Lafarge
Cementos (entities engaged in the manufacture and marketing of cement) whereby, among other things, we agreed
to create a joint venture with Financière Lafarge, S.A.S., through ELC Tenedora Cementos, for cement production
in Mexico beginning on July 31, 2013. Pursuant to the Contribution Agreement, the share capital of each of
Trituradora and Lafarge Cementos was transferred to ELC Tenedora Cementos and we acquired a 53% ownership in
ELC Tenedora Cementos, which gave us control over ELC Tenedora Cementos and its subsidiaries, Trituradora and
Lafarge Cementos, and Financière Lafarge, S.A.S. retained a 47% shareholding. This transaction generated goodwill
in the amount of approximately Ps$1,150 million. For purposes of this offering memorandum, the term “Lafarge
Joint Venture” refers to ELC Tenedora Cementos, a subsidiary of Elementia, in which Elementia owns 53% and
Lafarge 47% of its capital stock.
On September 19, 2014, we signed a share purchase agreement to acquire the 47% minority stake in the Lafarge
Joint Venture for a purchase price of US$225 million. The payments will be made in two installments: (i) an initial
payment of US$180 million at the close of the transaction, once the applicable regulatory approvals have been
obtained, and (ii) a second payment of US$45 million, without interest, on the first anniversary of the closing date of
the transaction. Following this acquisition, we will hold 100% of the shares of ELC Tenedora Cementos. We expect
to fund the acquisition of Lafarge’s minority interest in the Lafarge Joint Venture in part using US$180 million of
the net proceeds from the offering. The transaction has been approved by the Mexican Federal Economic
Competition Commission (Comisión Federal de Competencia Económica) and is subject to customary closing
conditions. Pursuant to the share purchase agreement, Lafarge is required to indemnify us for breach of their
representations under such contract during a period of one year from the acquisition. Elementia, in turn, will be
required to maintain the confidentiality of the information obtained from Lafarge during the Lafarge Joint Venture
until September 19, 2017.
On December 19, 2013, our subsidiary Plycem USA, Inc. signed an acquisition agreement with Saint-Gobain to
acquire the fiber cement business of its affiliate, CertainTeed Corporation, one of the principal manufacturers of
construction materials in North America. This acquisition was completed on January 31, 2014.
vi
EBITDA
References to “EBITDA” are to consolidated net income for the period, plus or minus: losses from discontinued
operations, income tax expense, equity in income of the associated entity, exchange rate results, interest income,
interest expense, banking fees and depreciation and amortization. EBITDA should not be interpreted as a substitute
for net income, cash flow from operations or other measures of our liquidity or financial performance. Our
presentation of EBITDA may not be comparable to similarly titled measures provided by other companies either in
Mexico or in other jurisdictions. EBITDA is not a measure recognized under IFRS and does not have a standardized
meaning. In addition, we have not calculated EBITDA in accordance with the guidelines adopted by the SEC on
presentation of non-GAAP financial measures. See “Selected Financial and Other Information” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
Currency and Other Information
Unless otherwise stated, the financial information appearing in this offering memorandum is presented in
Mexican pesos. References herein to “pesos” or “Ps$” are to Mexican pesos, and references to “U.S. dollars” or
“US$” are to U.S. dollars. Solely for the convenience of the reader, certain amounts presented in Mexican pesos in
this offering memorandum as of and for the nine months ended September 30, 2014 and as of and for the year ended
December 31, 2013 have been translated into U.S. dollars at specified exchange rates. Unless otherwise indicated,
the exchange rate used in translating Mexican pesos into U.S. dollars to calculate these convenience translations was
determined by reference to the exchange rate published by the Mexican Central Bank (Banco de México) in the
Mexican Federal Official Gazette (Diario Oficial de la Federacíon) as the rate for the payment of obligations
denominated in U.S. dollars payable in Mexico on such dates, which was Ps$13.4541 and Ps$13.0765 per U.S.
dollar, respectively. You should not construe these convenience translations as representations that the Mexican
peso amounts actually represent the U.S. dollar amounts presented, or that they could be converted into U.S. dollars
at the rate or at the dates indicated. See “Exchange Rates.”
In this offering memorandum, information is presented in thousands, millions or billions of pesos or thousands,
millions or billions of U.S. dollars. Amounts lower than a thousand, a million or a billion, as the case may be, have
been rounded unless specified otherwise. All percentages are rounded to the nearest percent, a tenth of one percent
or one hundredth of one percent, as appropriate. In some cases, the amounts and percentages in the tables in this
offering memorandum may not add up due to these rounding adjustments.
We own or have rights to trademarks or trade names that we use in conjunction with the operation of our
business. Solely for convenience, trademarks and trade names referred to in this offering memorandum may appear
without the ™ or ® symbols, but such references are not intended to indicate, in any way, that we will not assert, to
the fullest extent of the law, our rights or the rights of the applicable licensor to these trademarks and trade names. In
this offering memorandum, we also refer to product names, trademarks, trade names and service marks that are the
property of other companies. Each of the trademarks, trade names or service marks of other companies appearing in
this offering memorandum belongs to its owners. Our use or display of other companies’ product names,
trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement
or sponsorship by us of, the product, trademark, trade name or service mark owner, unless we otherwise indicate.
Industry and Market Data
The market information as well as other statistical information (other than information relative to our financial
results and performance) used throughout this offering memorandum is based on independent industry publications,
government publications, reports issued by market research firms or other published independent sources. Certain
information is also based on our estimates, which are derived from our review of internal surveys and analyses, as
well as from independent sources. Although we believe these sources to be reliable, we have not independently
verified the information and cannot guarantee its accuracy or completeness. In addition, these sources may use
different definitions for relevant markets to those presented by us.
vii
GLOSSARY OF TERMS AND DEFINITIONS
Unless otherwise indicated by the context, the following terms will, for purposes of this offering memorandum,
have the meanings ascribed to them below, whether used in singular or plural form.
“ASTM” means the American Society for Testing and Materials.
“Autoclave Process” means a technology used in the fiber cement industry by which polymer-based
composites are manufactured by applying intense heat and pressure to eliminate moisture from fiber cement
materials.
“Banco Inbursa” means Banco Inbursa, S.A., Institución de Banca Múltiple, Grupo Financiero Inbursa.
“BASC” means the Business Alliance for Secure Commerce.
“BMV” or “Mexican Stock Exchange” means the Bolsa Mexicana de Valores, S.A.B. de C.V.
“Building Systems Division” means the Elementia subsidiaries and operations related to the production and
marketing of fiber cement products, including sheets, roofing tiles, panels, boards, trims and pipes, among others.
“CAGR” means compound annual growth rate.
“Cathode” means the negative terminal in an electrolytic cell where copper is deposited during the electrolytic
refining process. Copper so deposited is referred to as the cathode and is typically 99.99% pure.
“Cement Division” means the Elementia subsidiary and operations related to the production and marketing of
cement.
“Certificados Bursátiles Program” means the revolving bond program established by the Company and
authorized by the CNBV (reference no. 153/3778/2010) on September 24, 2010, in the amount of up to
Ps$5,000 million.
“CERTIMEX” means Certificación Mexicana, S.C.
“CNBV” means Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de
Valores).
“COMECOP” means Compañía Mexicana de Concreto Pretensado Comecop, S.A. de C.V.
“COMEX” means Commodity Exchange Inc.
“CONAGUA” means the Mexican National Water Commission (Comisión Nacional del Agua).
“CONAPO” means the Mexican National Population Counsel (Consejo Nacional de Población).
“CONAVI” means the Mexican National Housing Commission (Comisión Nacional de Vivienda).
“Corporations Law” means the Mexican General Corporations Law (Ley General de Sociedades
Mercantiles).
“CPVC” means Chlorinated Polyvinyl Chloride.
“CSTB” means the Scientific and Technical Center for Building (Centre Scientifique et Technique du
Batimênt).
“ELC Tenedora Cementos” means ELC Tenedora Cementos, S.A.P.I. de C.V., a subsidiary of Elementia,
through which the Company integrates its Cement Division.
“Elementia”, “the Company” or “the issuer” means Elementia, S.A. de C.V. and its subsidiaries.
viii
“El Palmar” means the cement plant constructed in Santiago de Anaya, in the State of Hidalgo, Mexico.
“EIU” means the Economist Intelligence Unit.
“Fiber cement” a composite material created through the bonding of natural and synthetic fibers and other
minerals into a cement matrix, used in the manufacture of roofing tiles, pipes, panels, boards, trims and pipes,
among others.
“Fibraforte” means Industrias Fibraforte, S.A.
“Fibraforte Acquisition” means the acquisition of Fibraforte, a company engaged in the manufacture and
marketing of marketing of polypropylene and polycarbonate roofs in accordance with the share purchase and sale
agreement dated July 22, 2010, which became effective on that date.
“Frigocel” means Frigocel, S.A. de C.V.
“Frigocel Acquisition” means the acquisition of Frigocel and Frigocel Mexicana, companies engaged in the
manufacture of plastic products, in accordance with the share purchase and sale agreement dated December 8, 2009,
which became effective on that date.
“Frigocel Mexicana” means Frigocel Mexicana, S.A. de C.V.
“General Issuers’ Rules” means certain general regulations applicable to issuers and other securities market
participants (Disposiciones de carácter general aplicables a las emisoras de valores y otros participantes del
mercado de valores) issued by the CNBV.
“Group” means Elementia, S.A. de C.V. and its subsidiaries.
“Grupo Carso” means Grupo Carso, S.A.B. de C.V.
“Grupo Kaluz” means Kaluz, S.A. de C.V.
“Holding” means Elementia, S.A. de C.V. and subsidiaries that do not belong to or are grouped with one of the
four divisions described in this offering memorandum and are presented as corporate entities together with
“IAS 34” means International Accounting Standard No. 34, Interim Financial Reporting, issued by the
International Accounting Standards Board.
“IETU” means the Single Rate Business Tax (Impuesto Empresarial a Tasa Única).
“IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards
Board.
“IMPI” means the Mexican Patent and Trademark Office (Instituto Mexicano de la Propiedad Industrial).
“Independent Auditors” means Galaz, Yamazaki, Ruiz Urquiza, S.C. (member of Deloitte Touche Tohmatsu
Limited).
“”INEGI” means Mexico’s National Institute of Statistics and Geography (Instituto Nacional de Estadística y
Geografía).
“ISR” means Mexican Income Tax (Impuesto Sobre la Renta).
“IVA” means value-added tax in Mexico (Impuesto al Valor Agregado).
“Lafarge” means, collectively, Lafarge S.A. and Financière Lafarge, S.A.S.
“LGSM” means the Mexican General Law of Business Corporations (Ley General de Sociedades Mercantiles).
ix
“LMV” means the Mexican Securities Market Law (Ley del Mercado de Valores).
“Metals Division” means the Elementia subsidiaries and companies related to the production and marketing of
copper and copper alloys used in the construction, automotive, pharmaceutical, food and electronics industries, in
agriculture and in minting coins.
“Mexalit Industrial” means Mexalit Industrial, S.A. de C.V.
“México” means the United Mexican States (Estados Unidos Mexicanos).
“Nacobre” means Nacional de Cobre, S.A. de C.V.
“Nacobre Acquisition” means the acquisition of the Nacobre Subsidiaries, companies engaged in the
manufacture of copper and aluminum, in accordance with the share purchase and sale agreement dated November 7,
2008, which became effective on June 1, 2009.
“Nacobre Subsidiaries” means, jointly, Nacional de Cobre, S. A. de C. V., Aluminio Holdings, S. A. de C. V.,
Almexa Aluminio, S. A. de C. V. (these last two subsidiaries were sold in April 2012), Operadora de Inmuebles
Elementia, S. A. de C. V., Grupo Aluminio, S. A. de C. V. (until its merger into Elementia, S. A. B. de C. V. in
November 2011), Productos Nacobre, S. A. de C. V. (until its merger with Nacional de Cobre, S. A. de C. V. in
August 2011), Copper & Brass International, Industrializadora Conesa, S. A. de C. V. and Aluminio Conesa, S. A.
de C. V. (these last two subsidiaries were sold in June 2011).
“NAFTA” means the North American Free Trade Agreement (Tratado de Libre Comercio de América del
Norte).
“NCPI” means the Mexican National Consumer Price Index (Índice Nacional de Precios al Consumidor).
“OSHA” means the U.S. Occupational Safety and Health Administration.
“ONNCCE” means the Mexican National Standardization and Certification Organization for Building and
Construction (Organización Nacional de Normalización y Certificación de la Construcción y Edificación, S.C.).
“Peso”, “Pesos”, “Ps”, “Ps$” or “$” means Mexican Pesos, the legal tender of Mexico.
“Plastics Division” means the Elementia subsidiaries and companies related to the production and marketing of
expandable and extruded polystyrene used in construction, agriculture and food industries as well as the
transformations of polypropylene, polyethylene and polycarbonate resins into roofs and tanks primarily.
“Plycem” means The Plycem Company, Inc.
“PROFEPA” means the Mexican Attorney General for Environmental Protection (Procuraduría Federal de
Protección al Ambiente).
“PTU” means Employee Participation in Profit Sharing (Participación de los Trabajadores en las Utilidades).
“PVA” means polivinyl alcohol.
“RNV” means the National Securities Registry (Registro Nacional de Valores) maintained by the CNBV.
“SEDESOL” means the Mexican Ministry of Social Development (Secretaría de Desarrollo Social).
“SEMARNAT” means the Mexican Ministry of Environment and Natural Resources (Secretaría de Medio
Ambiente y Recursos Naturales).
“SHF” means the Mexican Federal Mortgage Agency (Sociedad Hipotecaria Federal).
“Tenedora” means Tenedora de Empresas de Materiales de Construcción, S.A. de C.V. (previously known as
Industrias Nacobre, S.A. de C.V.).
x
“TIIE” means the Mexican benchmark interbank money market rate published daily by the Bank of Mexico in
the Official Gazette or any successor or substitute rate.
“Trituradora” means Trituradora y Procesadora de Materiales Santa Anita, S.A. de C.V., engaged in the
manufacture of cement and concrete.
“Trituradora Acquisition” means the acquisition of Trituradora y Procesadora de Materiales Santa Anita, S.A.
de C.V., which is currently part of the Cement Division.
“UDIs” or Unidades de Inversión means a peso-equivalent unit of account indexed for Mexican inflation whose
value in pesos is published by the Bank of Mexico in the Official Gazette.
“U.S.” means the Unites States of America.
“U.S. dollars”, “Dollars” or “US$” means dollars, the legal tender of the United States of America.
xi
(This Page Intentionally Left Blank)
SUMMARY
This summary highlights selected information contained elsewhere in this offering memorandum. This offering
memorandum includes a description of our business and detailed financial information. Unless otherwise expressly
indicated, the terms “we,” “our,” the “Company” and “Elementia” each refer to Elementia, S.A. de C.V., and its
subsidiaries. This summary does not contain all of the information you should consider before investing in our
notes. You should read the entire offering memorandum carefully, especially the risks of investing in our notes
discussed under “Risk Factors,” our audited annual consolidated financial statements and the notes thereto and our
unaudited interim condensed consolidated financial statements and the notes thereto included elsewhere in this
offering memorandum.
Our Business
We are a leading provider of comprehensive building systems in Latin America based on installed capacity,
according to internal estimates and publicly available information. We have a total of 26 manufacturing plants
located in Mexico, the United States, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Honduras and Peru. Our
products are exported to over 40 countries through 5 distribution centers, 13 warehouses and a sales office
strategically located in Houston, Texas in the United States. We specialize mainly in the construction and industrial
sectors, providing integrated solutions in metals, fiber cement, cement and plastics. We have achieved disciplined
growth with consistent profitability driven by our customer-, market- and vertical integration-oriented strategies.
Our net sales and EBITDA increased from Ps$3,584 million and Ps$211 million, respectively, in 2008 to Ps$12,929
million and Ps$1,913 million, respectively, in 2013. The growth during this five year period is evidence of our
business potential and the integration of our divisions. During the nine months ended September 30, 2014, we
generated net sales of Ps$11,500 million and EBITDA of Ps$2,062 million, an increase of 20% and 67%,
respectively, compared to net sales of Ps$9,618 million and EBITDA of Ps$1,232 million recorded for the same
period in 2013.
Through our four business divisions, Metals, Building Systems, Cement and Plastics, we offer a broad range of
products, mainly for the construction industry, in the markets where we operate. In addition, our Metals Division
products have a wide range of industrial applications including, among others, in the marine, military, and oil and
gas industries, air conditioning, key blanks, white goods, bullets and cartridges, musical instruments, coins, heat
exchange equipment, automotive/industrial radiators and electronics. We have significant expansion plans in
Mexico, including the expansion in the production capacity of our Cement Division, as well as continued investment
and growth in other Latin American countries and the United States. We expect that this will generate significant
revenue and earnings growth.
We operate our businesses through four divisions:

Metals Division. The Metals Division represented 48%, 54%, 60% and 65% of our net sales in the nine
months ended September 30, 2014 and fiscal years 2013, 2012 and 2011, respectively. EBITDA in the
Metals Division represented 32%, 35%, 38% and 50% of our consolidated EBITDA in the nine months
ended September 30, 2014 and fiscal years 2013, 2012 and 2011, respectively. According to internal
estimates, publicly available information about our competitors, information from our customers and other
public sources, we operate one of the few brass mills in Latin America, allowing us to market a broad range
of copper and copper-alloy products. We are the only producer of copper-nickel alloy tubes and pipes in the
Americas, and one of the top five global producers according to internal estimates and publicly available
information. We are also one of the main suppliers of nickel tubing used by the United States defense
industry, a strategic supplier for the Mexican currency-minting industry and the largest producer of special
brass and refractory alloys in metal strips and sheets in Latin America according to internal estimates and
publicly available information about our competitors, as well as other publicly available information. This
division’s principal products are tubes and pipes, strips, bars, forged and machined parts, wire and fittings.
We manufacture and distribute these products at three vertically integrated manufacturing plants in Mexico
with a total production capacity of approximately 84 thousand tons per annum. We sell our products in
Mexico, the United States, Latin America and Europe through distributors and directly to end users under
the Nacobre and Cobrecel brands. In 2013, based on internal estimates, our average market share in
Mexico for copper products was approximately 45%. Within the Metals Division, the construction,
industrial, government and manufacturing end-markets accounted for approximately 26%, 64%, 6% and
1
4%, respectively, of our net sales for the division with a focus on tailor made products to meet our
customers’ requirements.

Building Systems Division. The Building Systems Division represented 34%, 31%, 31% and 30% of our
net sales in the nine months ended September 30, 2014 and fiscal years 2013, 2012 and 2011, respectively.
EBITDA in the Building Systems Division represented 36%, 42%, 47% and 41% of our consolidated
EBITDA in the nine months ended September 30, 2014 and fiscal years 2013, 2012 and 2011, respectively.
Our Building Systems Division has a product portfolio marketed under eight internationally recognized
brands and has more than 80 years of experience serving diverse end-market segments in the Americas.
This division’s main products include roofing sheets, flat boards, sidings, trims and pipes. We manufacture
our Building Systems products at 15 manufacturing plants located in the United States, Mexico, Bolivia,
Colombia, Costa Rica, Ecuador, El Salvador and Honduras. Our operations are divided into three regions:
North, Central and South America. We sell our Building Systems products primarily through distributors,
wholesalers and retailers under the Mexalit, Eureka, Cempanel, Maxitile, Eternit, Duralit, Allura and
Plycem brand names. Within the Building Systems Division, construction and government infrastructure
end-markets accounted for 92% and 8%, respectively, of our net sales for the division. The Building
Systems Division acquired the fiber cement business of CertainTeed from Saint-Gobain in January 2014,
significantly expanding our market presence in the U.S. market. In 2013, based on internal estimates, our
Building Systems Division represented approximately: (i) 35% of the Mexican market, (ii) 16% of the U.S.
fiber cement market, (iii) 90% of the market for lightweight fiber cement construction materials in Central
America, and (iv) 55% of the residential construction materials market in Colombia, Bolivia and Ecuador.

Cement Division. The Cement Division represented 11% and 8% of our net sales in the nine months ended
September 30, 2014 and fiscal year 2013, respectively. EBITDA in the Cement Division represented 20%
and 12% of our consolidated EBITDA in the nine months ended September 30, 2014 and fiscal year 2013,
respectively. The Cement Division commenced operations in 2013 upon the conclusion of the construction
of the El Palmar cement plant. We expect our Cement Division to become a more significant contributor to
both revenue and EBITDA. The primary products of our Cement Division are gray cement, white cement
and mortar. In March 2013, we commenced operations at our new cement plant, El Palmar, with the
production and marketing of cement under the brand name Cementos Fortaleza. Furthermore, on July 31,
2013, we established the Lafarge Joint Venture, whereby we contributed our El Palmar plant and Lafarge
contributed its operations in Tula and Vito, State of Hidalgo, Mexico to the Lafarge Joint Venture. Our
Cement Division’s platforms now consist of three plants, which are located in the State of Hidalgo,
Mexico. We currently hold a 53% stake in the Lafarge Joint Venture. On September 19, 2014, we entered
into a share purchase agreement to acquire the 47% minority stake in the Lafarge Joint Venture, which has
been approved by the Mexican Federal Economic Competition Commission (Comisión Federal de
Competencia Económica) and is subject to customary closing conditions. The combination of the industrial
assets allows the Lafarge Joint Venture to have an estimated production capacity of approximately two
million tons of cement per annum. In 2013, its first year of operations as a producer, and in conjunction
with the Lafarge Joint Venture, this division recorded net sales of Ps$1,046 million, or 8.1% of our
consolidated net sales for the period. In 2013, this division sold approximately 0.8 million tons of cement,
representing a capacity utilization of 41% for the period during which the Lafarge Joint Venture was in
operation (See “Business—Cement Division”). We believe that the additional capacity represents the
potential for significant revenue and EBITDA growth. We sell our Cement Division products primarily
through distributors under the Cementos Fortaleza and Lafarge brands (we will cease using the Lafarge
brand after the closing of the transaction). We currently sell more than 70% of our production in 50 kg bags
as a result of the nature of our end-markets, which are primarily skewed towards the retail segment. Bags
command higher prices and yield better profitability than bulk. In 2013, based on our internal estimates, our
market participation in the relevant region (based on the 15 states in Mexico in which the Cement Division
operates) was approximately 7%, while our market participation in Mexico was approximately 5%.

Plastics Division. The Plastics Division represented 5%, 6%, 6% and 5% of our net sales in the nine
Plastics Division represented 6%, 7%, 7% and 6% of our consolidated EBITDA in the nine months ended
September 30, 2014 and fiscal years 2013, 2012 and 2011, respectively. The product portfolio includes a
variety of complete plastic products solutions in four main categories: polystyrene (plastic rolls, sheets and
2
molds), polyvinyl chloride (roofing sheets), polyethylene (water tanks and accessories) and polypropylene
(roofing sheets). These products are produced and distributed through ten plants located in Mexico, Peru,
Colombia and Bolivia, five of which are shared with the Building Systems Division in order to maximize
synergies between the Company’s divisions. The operations are divided geographically into two regions:
North and South America. We sell our Plastics Division products through approximately 1,493 distributors
and 233 customers (that is, clients to whom we sell directly) under the Eureka, Frigocel, Duralit, Eternit
and Fibraforte brands. Within the Plastics Division, construction and industrial end-markets accounted for
approximately 79% and 21%, respectively, of our net sales for the division. In 2013, based on internal
estimates, our Plastics Division represented approximately: (i) 16% of the rural Mexican market, (ii) 50%
of the Central American suspended ceiling market, and (iii) 30% of the plastics market in Colombia,
Bolivia and Ecuador.
The following tables show our net sales and EBITDA by division and as a percentage of the consolidated totals
for the periods indicated.
Net sales in millions of pesos
Nine months ended
September 30,
2014
Year ended December 31,
2013
Metals Division ........ $ 5,471 $
Building Systems
Division ...............
3,946
Cement Division ......
1,262
Plastics Division.......
603
Holding and
218
eliminations(1).....
Total ........................ $ 11,500 $
EBITDA in millions of pesos
Nine months ended
September 30,
2013
2012
2011
5,382 $
6,919 $
8,085 $
9,438
2,948
514
571
3,981
1,046
743
4,162
8
797
4,376
128
708
2014
$
662
2013
$
752
406
115
203
240
454
(145)
127
9,618 $ 12,929 $ 13,506 $ 14,505 $ 2,062
2013
427
$
516
147
106
$
36
1,232
658
2012
$
716
806
238
137
$
74
1,913
2011
$
865
883
(3)
122
159
1,877
$
719
128
100
$
(63)
1,749
(1) Includes income from corporate services, recovery of expenses and rent charged to our subsidiaries, as well as intercompany
eliminations.
Net sales as % of total
Nine months ended
September 30,
2013
2012
2011
48%
56%
54%
60%
65%
32%
35%
35%
38%
50%
34%
11%
5%
31%
5%
6%
31%
8%
6%
31%
0%
6%
30%
1%
5%
36%
20%
6%
42%
12%
9%
42%
12%
7%
47%
0%
7%
41%
7%
6%
2%
100%
2%
100%
1%
100%
3%
100%
(1)%
100%
6%
100%
2%
100%
4%
100%
8%
100%
(4)%
100%
2014
Metals Division .........
Building Systems
Division ................
Cement Division .......
Plastics Division........
Holding and
eliminations(1)......
Total .........................
EBITDA as % of total
Nine months ended
September 30,
2013
2012
2011
2014
2013
2013
eliminations.
Our Competitive Strengths
We consistently focus on generating superior value for our shareholders, customers, suppliers, employees and
the communities in which we are present by leveraging the following differentiated competitive strengths:
Highly Diversified Product Portfolio of Strong and Leading Brands
We aim to be a “one-stop shop” for our customers in the construction and industrial sectors by offering a large
number of integrated solutions through our diversified product portfolio of leading brands. Our sales are diversified
by product type and end-markets. In 2013, we sold over 1.5 million tons of products. We estimate that the
construction, infrastructure and industrial end-markets accounted for approximately 53%, 10%, and 37%,
respectively, of our net sales in 2013. We believe that our diversification allows us to mitigate the effects of
economic downturns in any one industry in which we operate and the potential loss of any given customer.
3
In the Building Systems Division, we have focused our resources on developing comprehensive solutions for
lightweight commercial and residential construction systems, including products for both exterior and interior walls,
storefronts, roofs and ceilings. We believe that, due to our product portfolio, quality, brands and distribution
network, we are well positioned to benefit from the trend towards increasing lightweight building systems use.
Lightweight building systems are increasingly being used because of the vertical development of urban areas. Land
is scarce, and the only way to build in these areas is vertically. We believe lightweight building systems are wellpositioned to replace traditional building systems primarily due to their lower weight (90% lighter), ease of dry
construction (drywall), resistance to inclement weather, sound and heat insulation properties, reduced costs and
shorter construction time.
In the Metals Division, we provide comprehensive copper products for solutions for the conduction of fluids
(primarily water and gas), including piping, valves, fittings and chrome taps and products for kitchens and
bathrooms, among others. We operate one of the few brass mills in Latin America that produces a complete range of
brass-related products. We are the only producer of copper-nickel alloy tubes in the Americas and the only supplier
to the U.S. government of such tubes for use in the marine industry. The quality of our products meets and often
exceeds the technical standards and specifications of our customers. We own certain well-known brands in the
metals market, such as Nacobre and Cobrecel, which are widely recognized for their high quality and performance
by our clients. We believe we have become the market standard in copper products in Mexico and certain foreign
markets as a result of our over 60 years of experience selling to over 36 countries. In 2013, based on internal
estimates, our average market share in Mexico for copper products was approximately 45% with a 65% share in key
product categories. We provide the construction industry with a large number of products, such as M-, L-, K- and
DWV-type flexible and rigid copper tubing, fittings, tools and accessories used in hydraulic and gas facilities, water
and solar heaters, and drains. For the manufacturing sector, we offer complete mountings for radiators, water heaters
or coolers and oil coolers for trucks.
These offerings of our Metals Division and Building Systems Division are complemented by the products
manufactured by our Cement Division and Plastics Division that are requested by our construction and industrial
sector customers. By providing a one-stop shop for our customers, we aim to develop customer loyalty and crosssell new products to existing customers.
Our product development and engineering departments, supplemented by technical pre-sale agreements with
research institutes, such as the Centro de Investigación y Desarrollo Carso (the Carso Research and Development
Center) and the Centro Tecnológico de Concreto (the Concrete Technology Center), design and develop new
products and solutions that address our customers’ needs as they are able to design products specifically tailored to
meet the needs of individual customers. For example, in the Metals Division, we have the ability to produce new
metal alloys required by our customers through technological innovations and by adapting processing technologies,
such as new alloys for the manufacture of coins, nuclear submarine tubes, heat exchangers, capillary tubes and pipes
for the oil industry, among others. In order to provide specialized solutions, our technicians regularly visit and
advise customers on product specifications design. The cost in terms of time and expense to our customers to
substitute our specialized solutions with those of our competitors can be significant, which generates barriers to
entry.
Unique Regional Footprint and Distribution Capabilities
We have 26 manufacturing plants in nine countries across the Americas. Sales to North America, Central
America and South America represented 76%, 5%, and 16% of our total net sales in 2013, respectively. With over
70 years of experience in our main business divisions, we believe we are a market leader in most of the countries in
which we operate. Our leadership position enables us to secure better terms and conditions for the purchase of
inputs, meet the volume demands of our customers, have a broad distribution reach for our products and maintain an
effective pricing strategy with respect to our customers and suppliers. We believe our geographic diversification also
allows us to mitigate the effects of an economic downturn in any of the countries or regions in which we operate.
We have developed an extensive distribution network comprised of over 5,200 distributors and end users, which
represent a large network of points of sale, supported by 5 company-operated distribution centers, 13 warehouses
and one sales office strategically located in Houston, Texas. Most of our sales are made through distributors (except
in the Metals Division, where most of our sales are to end users) and, in some cases, we are the exclusive supplier of
the products sold by the distributors to the end users. Through our independent distributors, we have been able to
4
increase the distribution of our products with minimal costs, thereby preserving operational flexibility and allowing
us to penetrate new markets quickly and to expand our geographic footprint. We believe that our broad distribution
network also allows us to service large customers with broad geographic scope better than our competitors. We
believe our significant penetration in the United States is due to the good quality of our products, competitive prices
and services, and our ability to be responsive to our customers’ needs.
We believe the high quality, innovation and performance of our products coupled with our commitment to
customer service have enabled us to build long-standing relationships with our distribution customers in our main
business divisions and establish a distribution network that enables us to identify opportunities and quickly respond
to the needs of our customers by offering new solutions. We believe that our integrated distribution network ensures
the timely delivery of our products and streamlines our operations by allowing us to control the process from the
time of order to delivery to the customer. We believe that our established distribution network in growing Latin
American markets and a recovering U.S. market allows us to add new products from acquired companies to these
networks quickly and enhance our growth and development.
Strong Financial Performance and Successful Track Record of Disciplined Growth Through Organic and
M&A Initiatives
We have consistently delivered EBITDA growth and free cash flow and expect to continue to yield strong
financial results. Our EBITDA margin has consistently grown in the past several years to 15%, 14% and 12% in
2013, 2012 and 2011, respectively. Our strong cash flow generation has supported our disciplined investments in
growth initiatives. Our capital expenditures in 2013 represented 16% of net sales, primarily for the El Palmar cement
plant and integration of the Lafarge Joint Venture, which is in line with our strategy of focusing on higher valueadded, higher-margin products and optimizing our production processes. We will evaluate our liquidity and leverage
levels on an ongoing basis. We seek to maintain adequate levels of liquidity and sources of funding to take
advantage of investment opportunities as they arise. A strong balance sheet is an element of our strategy to achieve
sustained growth in sales and EBITDA. Our net debt to EBITDA ratio has decreased significantly from 2.30x in
2013 to 1.54x for the nine months ended September 30, 2014. Our corporate policy targets a net debt to EBITDA
ratio for the medium and long-term of approximately 2.0x.
We have grown rapidly in recent years through several strategic acquisitions that have expanded our product
portfolio and enhanced our positioning in markets with high potential for growth and profitability. For example, as a
result of the Nacobre Acquisition in 2009, we significantly expanded our metals product portfolio and substantially
increased net sales. In the same year, through the Frigocel Acquisition, we acquired Frigocel and Frigocel Mexicana
in Mexico, both of which manufacture plastic products, and in 2010, we acquired Fibraforte, a Peruvian company
dedicated to the manufacture of polypropylene and polycarbonate roofing. Through these acquisitions, we
strengthened our Plastics Division and increased our participation in the construction sector in Mexico. In 2013, we
developed our Cement Division, where we believe there are attractive long-term market fundamentals offering high
potential for growth. We are targeting a production capacity of two million tons of cement this year. Most recently,
in 2014, we acquired the fiber cement business of a Saint-Gobain affiliate, CertainTeed Corporation, one of the
principal manufacturers of construction materials in North America, and launched the Allura fiber cement brand. We
expect that this acquisition will further reinforce our presence in the United States with the integration of the
operations of CertainTeed’s three production plants. In part due to these acquisitions, our net sales and EBITDA
increased from Ps$3,584 million and Ps$211 million, respectively, in 2008 to Ps$12,929 million and Ps$1,913
million, respectively, in 2013. The growth during this five year period is evidence of our business potential and the
integration of our divisions. During the nine months ended September 30, 2014, we generated net sales of
Ps$11,500 million and EBITDA of Ps$2,062 million, an increase of 20% and 67%, respectively, compared to the net
sales of Ps$9,618 million and EBITDA of Ps$1,232 million recorded for the same period in 2013.
Exposure to Favorable Macroeconomic and Industry Fundamentals
Most countries where we operate have favorable estimated future growth, according to the Economist
Intelligence Unit, or “EIU.” The expected real GDP CAGR for 2013 through 2016 of Colombia (4.5%), Peru
(5.5%), Mexico (3.4%) and Central America and others (defined as Bolivia, Ecuador, Costa Rica, El Salvador and
Honduras) (4.1%), countries in which we have a presence, is higher than the average expected real GDP CAGR for
the Latin America region (3.0%). The growth in these countries is generally based on factors such as increasing
foreign, public and private direct investment, growing consumer spending, supportive fiscal policies and inflationary
5
environment. Foreign direct investment in Mexico, Colombia, Peru and Central America and others (defined as
Bolivia, Ecuador, Panama, Costa Rica, El Salvador and Honduras) has grown substantially since 2010, and it is
expected to continue growing at rates of 8.3%, 18.0%, 3.8% and 11.4%, respectively, through 2016. Positive GDP
growth is also driven by a growing middle class in Latin America. For example, in Mexico, the middle class
expanded by 11 million people from 2000 (representing 30% of the total population) to 2012 (representing 36% of
the total population), according to INEGI. Other countries in Latin America, such as Colombia and Peru, have also
experienced upward social mobility in the last decade.
During the past four years, our net sales and results of operations have been primarily driven by the growth of
the construction sector, mainly residential. We believe the building and industrial sectors in Latin America will
expand significantly in the medium term, offering us the opportunity to continue growing our business. Several
countries in Latin America have launched national infrastructure plans, including Colombia, Mexico, Ecuador and
Peru, that we expect will lead to increased demand in the construction and infrastructure industries. For example, in
July 2013, Mexico released its US$596 billion National Infrastructure Plan, which included over 740 projects to be
developed between 2014 and 2018 in areas including energy, urban development and housing, telecom and
transport, water utilities, tourism and health. Similarly, the Colombian government issued the 2010–2014 National
Development Plan (Plan Nacional de Desarrollo 2010–2014), with the goal of increasing the number of government
housing units from approximately 560,000 existing units in 2010 to one million units in 2014. Additionally, in
September 2013, the Colombian government approved the 4G Concession Plan aiming to build or upgrade over
8,000 km of roads and 3,500 km of four-lane highways throughout Colombia. In 2013, the Peruvian government
launched an infrastructure projects tender program aiming to award approximately US$12 billion between 2014 and
2015. There is an estimated current infrastructure deficit of approximately US$88 billion in Peru concentrated in the
utilities and transportation sectors. Planned projects include roads, ports, airports and railroads. In addition, the
Peruvian government is expected to invest approximately US$20 billion in infrastructure projects over the next two
years.
Solid Shareholder Base with Highly Experienced Management Team
Our principal shareholders are Kaluz, S.A. de C.V., or “Grupo Kaluz,” and Tenedora, which is indirectly
controlled by Grupo Carso, S.A.B. de C.V., or “Grupo Carso”, which own 51% and 46% of our common shares,
respectively. Grupo Kaluz and Grupo Carso are among the strongest and most respected business groups in Latin
America. Grupo Kaluz, which is controlled by the del Valle family, controls and operates a diversified group of
companies in the industrial and petrochemical sectors, including Mexichem, S.A.B. de C.V. Grupo Kaluz operates
globally with businesses in the Americas, Europe and Asia. The del Valle family also participates in the Mexican
real estate and financial sectors. The Slim family controls Grupo Carso and controls a diversified group of
companies in the telecom, finance, industrial, mining, retail, and infrastructure sectors including América Móvil
S.A.B. de C.V., Grupo Financiero Inbursa S.A.B. de C.V., Minera Frisco, S.A.B. de C.V., Grupo Sanborns S.A.B.de
C.V., and Impulsora del Desarrollo y el Empleo en América Latina, S.A.B. de C.V., among others. We benefit from
the corporate longstanding support of our principal shareholders, which have proven track records of value creation.
For example, in 2012, our shareholders contributed a portion of the necessary capital to build our El Palmar cement
plant.
Our senior management team has an average of 20 years of experience in the cement, building systems, plastics
and metal sectors in Latin America and the United States. Our Chief Executive Officer, Eduardo Musalem Younes,
has over 17 years of experience at Elementia including serving as Chief Executive Officer of Nacobre from 2001 to
2008. Our Chief Administration and Financial Officer, Víctor Hugo Ibarra, has over 32 years of experience in the
consumer, mining, manufacturing and industrial sectors, and previously served as Chief Administration and
Financial Officer of Grupo Lala, Carso Infraestructura y Construcción and for Pepsi and its bottlers in Mexico. Our
Cement Division Director, Antonio Tarecena Sosa, has over 21 years of experience in the cement industry and
previously served as Chief Executive Officer of Corporación Moctezuma. Our Metals Division Director, Gustavo
Arce del Pozo, has over 27 years of experience at Elementia. Fernando Ruíz Jacques, our Building Systems and
Plastics Division Director has over six years of experience with Elementia and over 18 years of experience in the
consumer, construction and housing industries. Our senior management team has been instrumental in developing
the business strategies that have led to the improvements in our operating and financial performance as well as
integrating our acquisitions. Senior management has also demonstrated the ability to respond promptly and
effectively to the challenges posed by the recent global economic crisis. Our senior management oversees seasoned
and knowledgeable operating and technical managers in each of our business divisions.
6
Our Key Strategies
Our mission is to achieve sustained yet disciplined growth in sales, earnings and market share by developing
and offering integrated, high-quality solutions for the construction and industrial sectors. We focus on achieving that
mission through maximizing operating efficiencies, innovating and exceeding quality standards, to generate value
for our shareholders, customers, suppliers, employees and community.
Increase the Participation of the Cement Business in our Product Portfolio Mix
We are in the process of seeking significant synergies to foster our growth in this division, including operating,
logistics, distribution and marketing synergies. We also plan to increase the production capacity of our Cement
Division, which may be funded with a portion of the proceeds from the offering and with cash flow from operations.
We believe that this investment will allow us to increase our market share in the Mexican cement sector.
Optimize Sales Mix and Broaden Product Offerings to Further Enhance Market Position
In order to further improve both profitability levels and the growth profile of our Cement Division, we aim at
targeting 80% to 20% higher-margin bagged versus bulk cement sales. In addition, we launched ready-mix concrete
production operations in October 2014 to access new market segments and establish a vertical integration model
within this division.
In the Metals Division, we intend to focus on delivering innovative value-added solutions to clients. Currently,
approximately 65% of our manufactured metals products are tailor-made to client specifications. We also intend to
increase the amount of customer operations done internally at our plants, which increases our value-added offerings
for clients and differentiates our company, resulting in higher operating margins and customer loyalty. We intend to
continue expanding our Metals Division’s market share in the domestic and international markets by entering new
product categories and further developing high value added products. We will continue to undertake strategic
investments in technologies such as cast and roll, forge presses and new steel profiles and leverage our production
capabilities and distribution network to increase our penetration and market share in key markets.
In the Building Systems Division, we intend to strengthen our position as a leading integrated building systems
solutions provider by developing highly specialized, value added new products and solutions. In addition, we are
focused on improving our position in the markets for governmental construction and tenders for social assistance
housing programs by offering new products and solutions. We will focus on developing urban and environmentally
efficient construction markets with new, innovative and environmentally friendly solutions. In the United States, we
are seeking to boost our market share by means of our acquisition of the fiber cement business of a Saint-Gobain
affiliate, CertainTeed Corporation, one of the principal manufacturers of construction materials in North America.
We intend to improve our positioning in the Plastics Division in the government, construction and industrial end
markets by offering new products and solutions. In addition, we expect to continue to expand our footprint in the
high-potential North American, Central American and South American markets with a strong focus on innovation
through our research and development activities.
Continue Vertical Integration and Streamline Operations to Improve Margins
Through our vertical integration, our plants are positioned to cast and process raw materials into finished
products, thereby eliminating dependence on third parties during our production process. In addition, our vertical
integration positions us as a low cost producer, while downstream vertical integration allows us to focus on value
added specialty products. So far, we have successfully integrated certain raw materials such as silica and calcium
carbonate through investments in certain mills. Likewise, we have been able to generate energy in our Honduras
plant through biomass power generation. We intend to further streamline our Cement Division operations by
increasing the use of alternative fuels to run the plant and by continuing to implement cost reduction strategies. In
our Metals Division, we expect to see the benefit of our capital investment programs undertaken over the last several
years, including minimizing metallurgical losses and improving metal yields, focusing on lean manufacturing,
optimizing the level of inventory and maximizing the potential of full vertical integration across all plants,
facilitating our casting of raw materials into finished goods, which allows us to maintain under our control key
strategic factors. While optimizing operations, we are committed to maintaining an unwavering focus on highquality products. In our Building Systems Division, we aim to continue to vertically integrate our product lines.
Although our cement production also represents an opportunity to vertically integrate, we also target downstream
7
vertical integration to focus on increased value added products. We will continue to seek synergies between the
Plastics Division and our other divisions similar to the ones we have already achieved by positioning the Plastics
Division products facilities within the Building Systems Division plants to achieve leaner cost structures and more
efficient operations.
Sustained and Value Accretive Growth Through Strategic Acquisitions and Their Successful Integration
We have complemented our organic growth through strategic acquisitions that have allowed us to achieve
consistent growth in net sales and EBITDA (the Fibraforte Acquisition for Ps$442 million, the Frigocel Acquisition
for Ps$175 million and the acquisition of CertainTeed Corporation, a subsidiary of Saint-Gobain, in January 2014
for Ps$329 million). Our net sales and EBITDA in 2008 were Ps$3,584 million and Ps$211 million, respectively.
Our growth during the following five years demonstrates our business potential and the integration of our divisions,
with our net sales and EBITDA in 2013 amounting to Ps$12,929 million and Ps$1,913 million, respectively, a
CAGR of 29% and 55%, respectively, from 2008 to 2013. During the nine months ended September 30, 2014, we
respectively, compared to the net sales of Ps$9,618 million and EBITDA of Ps$1,232 million recorded for the same
period in 2013. We will seek to maintain our leadership through strategic acquisitions in market segments and
regions in Latin America with potential for high growth and profitability in order to continue growing our net sales,
operating profits, market share and product portfolio. Through acquisitions, we will seek to further vertically
integrate our production processes and increase operating efficiencies. We believe that economies of scale and
investment in new and better technologies and processes will result in higher value-added products and improved
customer solutions, which in turn will optimize our operations and reduce our costs and expenses. On September 19,
2014, we entered into a share purchase agreement whereby we agreed to acquire the remaining 47% stake in the
Lafarge Joint Venture. After the closing of the transaction, we will hold all of the shares of ELC Tenedora
Cementos, which will strengthen our position in the Mexican cement industry through the Cementos Fortaleza
brand. The transaction is subject to customary regulatory approvals.
Our Corporate Structure
Grupo Kaluz and members of the del Valle family own 51% of our share capital and Tenedora, which is
indirectly controlled by Grupo Carso, owns 46%, with the remaining shares (3%) held by minority investors. Grupo
Kaluz, which is controlled by the del Valle family, is a Mexican conglomerate with significant investments in the
petrochemical and industrial sectors. Grupo Carso, which is controlled by the Slim family, belongs to one of
Mexico’s largest conglomerates. In addition, the Slim family participates in the retail, industrial,
telecommunications and manufacturing, and infrastructure and construction sectors.
We are a holding company and conduct our business through our subsidiaries. The following chart shows our
current corporate structure and our principal operating subsidiaries.
8
Our History
We were incorporated on April 28, 1952 in Mexico City, with a duration of 99 years under the name “Productos
Mexalit, S.A.,” in accordance with Mexican law. Our name was changed to “Mexalit, S.A.” in 1979 and then to
“Elementia, S.A.” in February 2009, as a result of branding changes aimed at reflecting recent acquisitions. On
June 13, 2011, we became a variable capital corporation, and since then we have operated under the name of
“Elementia, S.A. de C.V.”
Since 1952, when we commenced our business as a fiber cement roofing products manufacturer, we have grown
by building up our manufacturing capacity and acquiring other fiber cement and other products manufacturers
throughout North, Central and South America.
Through several acquisitions between 2001 and 2009, we expanded our product offerings in what is now our
Building Systems Division. Between 2001 and 2008 we acquired Eureka Servicios Industriales, Eternit Ecuatoriana,
Industrias Duralit and Plycem, all industry leaders in the production and manufacture of fiber cement roofing and
water tanks in the South American and Central American regions. Continuing our expansion, in 2006 we built the
Nuevo Laredo plant where we develop products that are mainly marketed in the United States using the Maxitile
brand. Through these acquisitions and capital investments we have greatly diversified our fiber cement product
offerings for the Building Systems Division.
Since 2009, we have further expanded our product portfolio and geographic reach through several strategic
acquisitions. On June 1, 2009, we purchased the Nacobre Subsidiaries, which manufactured and distributed copper
and aluminum products, providing the basis for what is now our Metals Division. As a result of the acquisition,
Grupo Carso, the ultimate parent of the Nacobre Subsidiaries, indirectly acquired 49% of our share capital, which
has been reduced to 46% as of the date of this offering memorandum. During 2012, we sold our interests in the
Nacobre Subsidiaries that produced aluminum products, and now the Nacobre Subsidiaries produce and distribute
only copper products. On December 8, 2009, we acquired Frigocel and Frigocel Mexicana in Mexico, both of which
manufacture plastic products, and on July 22, 2010, we acquired Fibraforte, a Peruvian company dedicated to the
manufacture of polypropylene and polycarbonate roofing. Through these acquisitions, we developed our Plastics
Division. In 2009, we commenced the construction project for the El Palmar cement plant, resulting in the creation
of our Cement Division.
In 2012, we decided to discontinue our fiber cement A.C. piping line from our Mexalit Industrial plant in
Chihuahua, Mexico. Today, it only produces water tanks and cisterns. In the second half of 2013, our subsidiary
Trituradora opened our new El Palmar cement plant. On January 8, 2013, we entered into the Lafarge Joint Venture
for the production of cement in Mexico which became effective on July 31, 2013. We hold 53% of the Lafarge Joint
Venture, while Lafarge holds the remaining 47%. However, on September 19, 2014, we entered into a share
purchase agreement to acquire the remaining 47% stake in the Lafarge Joint Venture, which has been approved by
the Mexican Federal Economic Competition Commission and is subject to customary closing conditions. During
2013, we commenced operations at a second autoclave in Colombia, increasing our annual production of fiber
cement sheet products by 1,200 tons. We also transferred our copper operations at our former plant in Toluca, State
of Mexico, Mexico to our plant at Celaya, Guanajuato, Mexico, as part of a process of consolidation. On January 31,
2014, our subsidiary Plycem USA acquired the fiber cement business of CertainTeed Corporation, an affiliate of
Saint-Gobain and one of the principal manufacturers of construction materials in North America. Through this
transaction we acquired various assets related to the fiber cement business and strengthened our North American
coverage and United States presence.
Today, we are a diversified company with over 6,200 employees, offering integrated solutions in metals, fiber
cement, cement and plastics products manufactured at our 26 plants located in Mexico, the United States, Bolivia,
Colombia, Costa Rica, Ecuador, El Salvador, Honduras and Peru.
The marketing name for our company is “Elementia” and our principal executive offices are located at Mario
Pani, No. 400, Piso 3, Col. Lomas de Santa Fe, C.P. 05300, México, Distrito Federal, and our phone number is +52
(55) 5728-5300.
9
THE OFFERING
This summary highlights information presented in greater detail elsewhere in this offering memorandum. This
summary is not complete and does not contain all the information you should consider before investing in our notes.
You should carefully read this entire offering memorandum before investing in our notes, including “Risk Factors”
and our consolidated financial statements. For a more complete description of the terms of the notes, see
“Description of the Notes.”
Issuer .............................................................................
Guarantors .....................................................................
(i) Nacional de Cobre, S. A. de C. V., (ii) Mexalit
Industrial, S.A. de C.V., (iii) Frigocel, S.A. de C.V.,
(iv) Plycem Construsistemas Costa Rica, S.A.,
(v) Plycem Construsistemas El Salvador, S.A. de C.V.,
(vi) Eternit Colombiana S.A., (vii) Eternit Pacifico S.A.,
(viii) Eternit Atlantico S.A., (ix) Eternit Ecuatoriana
S.A., (x) Industrias Duralit S.A., (xi) Industrias
Fibraforte S.A., and (xii) as soon as our acquisition of
the 47% minority stake in the joint venture closes, ELC
Tenedora Cementos, S.A.P.I. de C.V., provided that
each of the subsidiaries named in clauses (iv) through
(xi) will be released and relieved of its respective
obligations under its guarantee at such time as ELC
Tenedora Cementos guarantees the notes.
Securities Offered ..........................................................
US$425,000,000 aggregate principal amount of 5.500%
notes due January 15, 2025.
Issue Price .....................................................................
The issue price of the notes is 98.087% plus accrued
interest, if any, from November 26, 2014.
Interest ...........................................................................
The notes will bear interest from and including
November 26, 2014 at the rate of 5.500% per annum,
payable semi-annually in arrears.
Interest Payment Dates ..................................................
January 15 and July 15 of each year, commencing on
July 15, 2015.
Maturity .........................................................................
January 15, 2025.
Taxation.........................................................................
Withholding taxes apply to interest and amounts deemed
interest under the notes. For a summary of the Mexican
federal income tax consequences and the U.S. federal
income tax consequences of an investment in the notes,
see “Taxation.”
Additional Amounts .....................................................
We are required by Mexican law to deduct and pay to
the Mexican tax authorities, Mexican withholding taxes
from payments of interest (and amounts deemed interest,
such as any discount on the principal amount of the
notes) made to holders who are not residents of Mexico
for tax purposes, at a rate of 4.9%, if certain
requirements under Mexican law are met, see
“Taxation.” We will pay additional amounts in respect
of those payments of interest (and amounts deemed
interest) so that the amounts holders receive after such
withholding taxes will equal the amounts that they
10
would have received if no such withholding taxes had
been applicable, subject to the limitations and exceptions
described under “Description of the Notes—Payment of
Additional Amounts.”
Optional Redemption ....................................................
We may redeem the notes, in whole at any time or in
part from time to time, on and after January 15, 2020, at
the redemption prices specified in this offering
memorandum, expressed as percentages of the principal
amount thereof, if redeemed during the twelve-month
period commencing on January 15 of any year.
At any time prior to January 15, 2020, we may redeem
any of the notes, in whole or in part, at a redemption
price equal to the greater of (1) 100% of the principal
amount of such notes and (2) the sum of the present
value at such redemption date of (a) the redemption
price of the notes at January 15, 2020, plus (b) all
required interest payments on the notes through January
15, 2020 (excluding accrued but unpaid interest to the
date of redemption) discounted to the redemption date
on a semi-annual basis (assuming a 360 day year
consisting of twelve 30 day months) at the Treasury Rate
plus 50 basis points, plus in each case any accrued but
unpaid interest on the principal amount of the notes to,
but excluding, the date of redemption; provided,
however, that no partial redemption of the notes may
occur if the aggregate outstanding amount of notes after
such redemption would be less than US$150 million.
See “Description of Notes—Optional Redemption—
General Optional Redemption.”
Tax Redemption ............................................................
In the event that as a result of a change to applicable
Mexican tax laws, we are required to pay withholding
taxes in respect of interest or amounts deemed interest
on the notes, at a rate exceeding 4.9%, we will have the
right to redeem all, but not less than all, of the notes, at a
price equal to the aggregate principal amount of the
notes, plus accrued and unpaid interest, plus additional
amounts, by providing to holders of the notes notice in
writing, no less than sixty (60) days from the date
selected for redemption.
Change of Control Redemption .....................................
Upon a change of control (as defined under “Description
of the Notes”), the Company will be required to make an
offer to purchase the notes. The purchase price will
equal 101% of the principal amount of the notes on the
date of purchase plus accrued and unpaid interest. The
Company may not have sufficient funds available at the
time of any change of control to make any required debt
repayment (including repurchases of the notes). See
“Risk Factors—Risks Related to this Offering and the
Notes—We may not be able to repurchase the Notes
upon a Change of Control.”
11
Form and Denomination ................................................
The notes will be issued in book-entry form only in
denominations of US$200,000 and integral multiples of
US$1,000 in excess thereof. The notes will be
represented by one or more Global Notes registered in
the name of a nominee of The Depository Trust
Company, or “DTC,” as depositary, for the accounts of
its direct and indirect participants, including Euroclear
Bank S.A./N.V., or “Euroclear,” as operator of the
Euroclear system, and Clearstream Banking, société
anonyme, Luxembourg, or “Clearstream.” See
“Description of the Notes.”
Payments; Transfers ......................................................
Payment of interest and principal with respect to interests
in Global Notes will be credited by DTC, Euroclear or
Clearstream, as the case may be, to the account of the
holders of such interests with DTC, Euroclear or
Clearstream, as the case may be. Transfers of interests in
notes held through DTC, Euroclear or Clearstream will
be conducted in accordance with the rules and operating
procedures of the relevant system. There will be a
Luxembourg paying agent.
Ranking .........................................................................
The notes will rank pari passu in priority of payment
with all unsecured and unsubordinated obligations of the
issuer, subject to obligations given priority under statute,
including tax and labor obligations.
Certain Covenants .........................................................
The terms and conditions of the notes will limit the
issuer’s ability and the ability of restricted subsidiaries
to, among other things:








incur additional indebtedness;
pay dividends on capital stock or redeem,
repurchase or retire capital stock or subordinated
indebtedness;
make investments;
create liens;
create any consensual limitation on the ability of
restricted subsidiaries to pay dividends, make
loans or transfer property;
engage in transactions with affiliates;
sell assets; and
consolidate, merge or transfer assets.
All of these covenants, limitations and restrictions are
subject to a number of significant qualifications and
exceptions. See “Description of the Notes.”
Further Issues ................................................................
In accordance with the terms of the indenture, we may,
from time to time, issue additional notes of the same
series as the notes offered hereby at a future date. See
“Description of the Notes—Further Issues of Notes.”
12
Listing ...........................................................................
Application will be made to list the notes on the Official
List of the Luxembourg Stock Exchange and for trading
on the Euro MTF Market in accordance with its rules
and regulations. The notes are not yet listed. If any
European or national legislation is adopted and is
implemented or takes effect in Luxembourg in a manner
that would impose requirements on us that we, in our
discretion, determine are impracticable or unduly
burdensome, we may de-list the notes. In these
circumstances, there can be no assurance that we would
obtain an alternative admission to listing, trading and/or
quotation for the notes by another listing authority,
exchange and/or system within or outside the European
Union. For information regarding the notice
requirements associated with any delisting decision, see
“Description of the Notes—Notices.”
Governing Law; Submission to Jurisdiction..................
The notes will be governed by the laws of the State of
New York. Elementia will submit to the jurisdiction of
the United States federal and state courts located in the
Borough of Manhattan in the City of New York in
respect of any action arising out of or based on the notes.
See “Description of the Notes—Governing Law;
Submission to Jurisdiction; Sovereign Immunity.”
Trustee, Registrar, Transfer Agent and Paying
Agent ......................................................................
Deutsche Bank Trust Company Americas
Luxembourg Paying Agent, Luxembourg Transfer
Agent, Luxembourg Listing Agent and
Luxembourg Registrar............................................
Deutsche Bank Luxembourg S.A.
Use of Proceeds .............................................................
We estimate that the net proceeds from the issuance of
the notes will be approximately US$412.8 million, or
Ps$5,554.3 million, after deducting the initial
purchasers’ discount and the payment of estimated
expenses relating to the offering. We intend to use
approximately (i) US$180 million of the net proceeds of
the offering, after deducting the initial purchasers’
discount and the payment of estimated expenses relating
to the offering, to pay a portion of the cost of the
acquisition of the 47% minority stake in the Lafarge
Joint Venture (the shares in ELC Tenedora Cementos
(Cement Division)), representing 43.6% of the net
proceeds from the offering, (ii) US$160 million of the
net proceeds to repay certain of our existing
indebtedness, and (iii) the remainder of the net proceeds
from the offering for general corporate purposes.
Transfer Restrictions .....................................................
The notes have not been and are not expected to be
registered under the Securities Act, the LMV or the
securities laws of any other jurisdiction or with any
securities regulatory authority of any U.S. state or other
jurisdiction and, accordingly, may not be offered, sold,
pledged or otherwise transferred or delivered within the
United States or to, or for the account or benefit of, U.S.
persons (as defined in Regulation S) except as set forth
13
in “Transfer Restrictions.” As a result of these
restrictions, investors are advised to consult legal
counsel prior to making any reoffering, resale, pledge or
transfer of the notes.
The notes have not been and will not be registered with
the RNV maintained by the CNBV and may not be
offered or sold publicly in Mexico. The notes may only
be offered in Mexico to Mexican institutional and
qualified investors pursuant to the private placement
exemption set forth in Article 8 of the Mexican
Securities Market Law. See “Transfer Restrictions.”
Risk Factors ...................................................................
Investing in our notes involves risks. See “Risk Factors,”
beginning on page 18 and the other information in this
offering memorandum for a discussion of factors you
should carefully consider before deciding to invest in the
notes.
14
SUMMARY CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The following tables set forth our summary consolidated financial and other information, which has been
derived from our consolidated financial statements prepared in accordance with IFRS. The financial information as
of September 30, 2014 and for the nine months ended September 30, 2014 and 2013 was obtained from the interim
unaudited consolidated financial statements included elsewhere in this offering memorandum. The financial
information as of and for the years ended December 31, 2013, 2012 and 2011 was obtained from our audited
consolidated financial statements included elsewhere in this offering memorandum.
The U.S. dollar amounts provided below are translations from the Mexican peso amounts, solely for the
convenience of the reader, at exchange rates of Ps$13.4541 and Ps$13.0765 per U.S. dollar, respectively, for the
periods ended September 30, 2014 and December 31, 2013, which are the exchange rates published by the Mexican
Central Bank (Banco de México) in the Mexican Federal Official Gazette (Diario Oficial de la Federacíon) as the
rates for the payment of obligations denominated in non-Mexican currency payable in Mexico on September 30,
2014 and December 31, 2013, respectively. You should not construe these convenience translations as
representations that the Mexican peso amounts actually represent the United States dollar amounts presented, or that
they could be converted into U.S. dollars at the rate or at the dates indicated. See “Exchange Rates.”
The consolidated financial information contained herein must be read in conjunction with our audited annual
consolidated financial statements and the notes thereto and our unaudited interim condensed consolidated financial
statements and the notes thereto included elsewhere in this offering memorandum. Furthermore, this summary
information should be read in conjunction with the explanations provided in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
For the nine months ended September 30,
2014
2014
(in millions
of U.S.
dollars)
Profit or Loss Data:
Continuing operations:
Net sales ....................................................
Cost of sales ..............................................
Gross profit ..............................................
Operating expenses ...................................
Other income, net(1) .................................
Exchange loss (income) ............................
Interest income ..........................................
Interest expense .........................................
Banking fees .............................................
Equity in income of associated entity........
Income before income taxes and
discontinued operations ......................
Income tax expense (benefit) ....................
Income from continued operations ........
Discontinued operations(2):
Loss from discontinued operations, Net ....
Consolidated net income (loss) ...............
Non-controlling interest ............................
Consolidated net income (loss)
attributable to the owners of the
Company ..............................................
2013
(in millions of pesos)
For the year ended December 31,
2013
2013
(in millions
of U.S.
dollars)
2012
2011
855
638
217
132
(15)
(2)
(4)
26
4
—
11,500
8,586
2,914
1,775
(198)
(25)
(54)
355
53
—
9,618
7,435
2,183
1,556
(115)
42
(34)
217
80
(13)
989
758
12,929
9,908
13,506
10,273
14,505
11,463
231
163
(24)
4
(4)
32
4
—
3,021
2,125
(301)
48
(46)
421
49
(4)
3,233
1,888
(21)
345
(31)
289
20
(35)
3,042
1,859
(89)
(138)
(34)
467
14
—
75
23
52
1,008
308
700
450
106
344
56
13
43
729
177
552
778
(38)
816
963
440
523
6
46
3
82
618
45
23
321
18
5
38
0
60
492
4
501
315
(10)
828
(305)
12
43
573
303
38
488
325
(317)
(1) See note 22 to our consolidated financial statements for more details.
15
2014
2014
(in millions
of U.S.
dollars)
EBITDA(1) ...............................................
2013
2013
153
2,062
1,232
147
Total stockholders’ equity ..................................
Total liabilities and stockholders’ equity ..........
2012
2011
1,913
1,877
1,749
As of December 31,
As of September 30,
Statement of Financial Position:
Current assets:
Cash and cash equivalents ....................................
Derivative financial instruments ...........................
Accounts receivable – Net ....................................
Due from related parties .......................................
Inventories – Net ..................................................
Prepaid expenses...................................................
Total current assets.............................................
Non-current assets:
Property, machinery and equipment – Net ............
Investment in shares of associated companies
and others .........................................................
Net plan assets for employee benefits at
retirement .........................................................
Intangibles and other assets – Net .........................
Long-term due from related parties and other
long-term accounts receivable ..........................
Total non-current assets .....................................
Total assets ..........................................................
Current liabilities:
Notes payable to financial institutions and
current portion of long-term debt .....................
Trade accounts payable.........................................
Direct employee benefits ......................................
Provisions .............................................................
Accrued expenses and taxes, other than
income taxes .....................................................
Due to related parties ............................................
Current portion of income tax liabilities from
consolidation ....................................................
Advances from customers .....................................
Total current liabilities .......................................
Long-term liabilities:
long-term debt ..................................................
Long-term due to related parties ...........................
Deferred income taxes ..........................................
Income taxes liabilities from consolidation ..........
Other long-term liabilities.....................................
Total long-term liabilities ...................................
Total liabilities ....................................................
2013
(in millions
of U.S.
dollars)
2014
2014
2013
(in millions
of U.S.
dollars)
(in millions
of pesos)
(in millions
of U.S.
dollars)
2013
2012
2011
161
—
267
—
186
23
637
2,161
—
3,597
2
2,509
305
8,574
151
1
268
3
172
23
618
1,973
10
3,506
41
2,250
307
8,087
1,762
9
2,926
—
2,471
592
7,760
3,540
—
3,268
55
2,186
197
9,246
1,154
15,521
1,117
14,608
11,823
11,187
1
11
1
11
813
777
24
236
319
3,170
22
243
289
3,174
239
1,108
319
838
4
1,417
2,055
54
19,075
27,646
4
1,387
2,005
54
18,136
26,223
265
14,248
22,008
51
13,172
22,418
34
235
1
53
459
3,166
15
718
15
204
2
32
193
2,663
31
421
456
2,330
19
204
120
3,221
92
157
15
15
204
197
13
13
166
173
255
206
1,056
227
0
5
1
360
1
63
7
4,830
13
12
—
304
171
158
—
3,976
5
45
—
3,520
6
24
1
4,905
441
1
87
50
0
578
939
5,935
19
1,173
679
4
7,810
12,640
473
1
83
39
1
597
901
6,185
18
1,080
513
14
7,810
11,786
5,926
40
1,490
18
25
7,499
11,019
6,266
—
1,797
124
45
8,232
13,137
1,116
2,055
15,009
27,649
1,104
2,005
14,437
26,223
10,989
22,008
9,281
22,418
16
2014
2014
(in millions
of U.S.
dollars,
except
turnover
days and
sales
volume)
Other Data:
Purchase of property and equipment .........
Depreciation and amortization for the
period ....................................................
Accounts receivable turnover (in days) .....
Accounts payable turnover (in days) .........
Inventory turnover (in days)......................
Consolidated sales volume (in
thousands of tons)
2013
2013
(in millions of pesos, except
turnover days and sales
volume)
2013
(in millions
of U.S.
dollars,
except
turnover
days and
sales
volume)
2012
2011
(in millions of pesos, except turnover days
and sales volume)
(38)
(516)
(1,303)
54
55
102
89
725
55
102
89
490
59
93
83
55
64
85
79
716
64
85
79
511
45
76
88
477
71
103
70
1,766
1,766
988
1,507
1,507
753
755
(157)
(2,059)
(2,113)
(1,835)
(1) EBITDA is not a financial measure recognized by IFRS. EBITDA is included in this offering memorandum because we
believe that it is useful to certain investors as a supplemental measure of our financial performance and our ability to service
our debt and fund capital expenditures. EBITDA should not be considered as a substitute for net income, cash flow provided
by operations or other measures of financial performance or liquidity under IFRS. The presentation of EBITDA may not be
comparable to similarly entitled measures used by other companies. The following table reconciles consolidated net income
to EBITDA:
Consolidated EBITDA Reconciliation
2014
2014
(in millions of
U.S. dollars)
Consolidated net income
(loss) ..................................... $
Plus (Less):
Loss from discontinued
operations, Net ......................
Income tax expense (benefit) ....
Equity in income of
associated entity ....................
Financing result, net(1) .............
Depreciation and
amortization for the period ....
EBITDA ................................... $
2013
2013
2013
2012
(in millions of
U.S. dollars)
2011
46 $
618 $
321 $
38 $
492 $
315 $
6
23
82
308
23
106
5
13
60
177
501
(38)
828
440
—
24
—
329
(13)
305
—
36
(4)
472
(35)
623
—
309
54
153 $
725
2,062 $
490
1,232 $
55
147 $
716
1,913 $
(1) Includes the sum of interest income, interest expense, banking fees and exchange loss (income).
17
511
1,877 $
(305)
477
1,749
RISK FACTORS
An investment in our notes involves risks. Before deciding to purchase our notes, you should carefully consider
the risks described below, as well as the additional information contained in this offering memorandum. Any of the
risks described below may materially affect our operations, business plans, financial condition or results of
operations. The risks described below are those which we currently believe could adversely affect us. Additional
risks not currently known or not considered material on the date hereof could also adversely affect our business
results of operations and financial condition.
Risk Factors Related to Our Business
The industries in which we operate are highly competitive and any increased competition could adversely affect
our financial condition.
A high degree of competition exists in the markets in which we operate. We compete with several large and
small manufacturers of construction materials, many of which are larger than us in terms of production and sales
capacity and have greater financial resources. We usually compete on price, product performance, sales, service and
marketing support. In addition, we compete with a large number of distributors of construction materials.
We also face competition in our various production divisions from alternative materials: (1) in the Metals
Division, from products such as chlorinated polyvinyl chloride, or “CPVC”, and polypropylene plastic pipes; (2) in
the Building Systems Division, from products such as galvanized steel, plastic, cardboard roofing, cement and
gypsum panels; (3) in the Plastics Division, from similar products manufactured with different resins; and (4) in the
Cement Division, from a competitive market where both domestic and international businesses compete. In Mexico,
increased competition from domestic and foreign manufacturers and alternative construction materials could
adversely affect our business, results of operations and financial condition.
We may be unable to complete or integrate our past or prospective acquisitions successfully, which could
adversely affect our results of operations and financial condition.
We have acquired in the past and, as part of our strategy, intend to continue acquiring in the future, businesses
in Mexico or elsewhere, mainly in the Americas. See “Summary—Our Strategy” and “Summary—Our History.” We
are unable to predict whether or when additional acquisitions will occur, or the likelihood of a material transaction
being completed on terms and conditions favorable to us. Our ability to continue to expand successfully through
acquisitions depends on many factors, including the availability of potential targets, and our ability to identify
acquisitions and negotiate, finance and close transactions. Even if we complete future acquisitions, these
transactions involve risks, including the following:

the acquired businesses failing to achieve expected results;

inability to successfully integrate the operations, services and products of any acquired company, or the
inability to achieve expected synergies and/or economies of scale;

unanticipated liabilities;

failure to effectively plan or manage acquisitions;

antitrust considerations and other regulatory requirements;

diversion of attention of our management; and

possible inability to retain or hire key personnel for the acquired businesses.
18
If we are unable to integrate or manage our acquired businesses successfully, we may not realize anticipated
cost savings, revenue growth, synergies and levels of integration, or be able to operate efficiently acquired
businesses, which may have an adverse effect on our business, results of operations and financial condition.
Further, approval by the Mexican Economic Competition Commission (Comisión Federal de Competencia
Económica) or other antitrust regulators in the different countries where we may pursue any other acquisition, is
required for us to acquire or sell significant businesses and to enter into significant joint ventures. We cannot assure
you that the Mexican Economic Competition Commission or such other agencies or equivalent authorities in other
jurisdictions, will authorize our proposed joint ventures or acquisitions in the future, or that it will authorize
transactions without imposing conditions or requiring that we divest portions of our business, which may adversely
affect our business, results of operations and financial condition.
Our business is subject to the risks generally associated with international business operations.
We engage in manufacturing and other business activities throughout North America, Central America and
South America. Our principal manufacturing facilities are located in Latin America. As a result, our business is and
will continue to be subject to the risks generally associated with international manufacturing and other business
operations, including:

governmental regulations applicable to manufacturing operations, including environmental regulations;

changes in social, political and economic conditions;

transportation delays;

power and other utility shutdowns or shortages;

restrictions on currency convertibility and volatility of foreign exchange markets;

limits on the supply of skilled labor and changes in local labor conditions;

changes in administrations and their policies;

guidelines and policies in respect of foreign investment and competition; and

changes in tax and other laws and regulations.
Some of the countries in which we operate have been subject to social and political instability in the past, and
interruptions in operations or terminations of operations in our foreign manufacturing facilities could occur in the
future. Our sales could be adversely affected by many of the foregoing factors, as well as by government
regulations applicable to the import, export or sale of our products and trade protection measures or to governmental
taking or expropriations.
Our operations depend on the construction, infrastructure and industrial sectors. A reduction in the activities
of these sectors could adversely affect our operations.
In 2013, our net sales were derived primarily from our sales to the construction, industrial and infrastructure
sectors, respectively, in Mexico and Latin America. A decline in the construction or industrial industries in the
countries in which we operate or a negative change in economic and demographic factors influencing the industrial
or construction industries, all of which have occurred in the past, may have a material adverse effect on our results
of operations, cash flows and financial condition.
Similarly, our historical performance has been partially tied to public sector spending on infrastructure and
housing projects and our ability to bid successfully for such contracts. Sales to the public sector represent 11% of
total sales for the Building Systems division. Public sector spending, in turn, generally has been dependent on the
relative health of the economies of the countries in which we operate. A decrease in public sector spending or a
negative change in the economic and demographic factor influencing this industry could have a material adverse
effect on our business, results of operations and financial condition.
19
The lack of development of new products and production technologies and the inability to operate efficiently
may damage our competitive position.
Our customers require ongoing advances in quality and performance, and we need to develop and market
products that meet market needs in a timely manner in order to remain competitive. If new technologies were to
emerge to which we did not have access or we are not able to produce or provide products that meet market needs in
a timely manner and at competitive prices, our results of operations could be significantly and adversely affected.
Furthermore, if our products are no longer purchased (for example, in the event that new technologies or valueadded products are developed), the costs of research and development or capital expenditures related to specific
products would not be recovered, which could adversely affect our business, results of operations and financial
condition. Although we spend a portion of our resources in research and development, no assurances may be given
that the monies and resources devoted would be sufficient for us to maintain state-of-the art technologies.
Increases in the price and decreases in the availability of raw materials may adversely affect our financial
condition.
Our results of operations are significantly affected by the cost and availability of our raw materials, including
copper (and recycled copper), pulp and plastics resins. Prices for copper are subject to market conditions, demand by
other Mexican and international manufacturers of construction materials, freight costs and prices in the international
market. All of these factors are beyond our control. Although we are currently able to pass on the cost of these raw
materials to our customers, we may not be able to pass on higher copper costs to our customers, or other costs of raw
materials that are significant and change suddenly, and there is no guarantee that we will be able to continue passing
on these costs to our customers in the future. In addition, we enter into derivative financial instruments (such as
forward and futures contracts) to hedge financial risks associated with our exposure to metals prices. However, our
hedging strategy may be insufficient or not successful.
Although we have strong business relationships with suppliers of plastics resins, the price of these resins is
denominated in U.S. dollars and depends on two hydrocarbons derived from petroleum, benzene and ethylene.
Therefore, the price of these resins depends on the price of oil, natural gas and exchange rate fluctuations. Although
we are generally able to pass on increases in the prices of these resins to our end customers, there are no assurances
that we will be able to pass on higher costs to our customers in the future.
Reliable access to, and consistent quality in the supply of, low cost pulp from the United States and Canada are
critical to our production of fiber cement building materials. The main suppliers of cellulose fiber are located in the
United States. We do not have supply agreements with our cellulose fiber suppliers. Instead, our orders are based on
the needs of our production plants and are usually placed two months in advance. Although this raw material is
readily available at prices prevailing in the global market, there is no guarantee that these materials will be readily
available in the future.
Any increase in the price of raw materials which cannot be passed on to our customers, or cannot be passed on
quickly, or mitigated through derivative financial instruments, or a reduction in the availability of such raw materials
due to market shortages or conflicts with suppliers, could adversely affect our business, results of operations and
financial condition. In addition, no assurance can be given that cost increases will not have a larger adverse impact
on our financial condition and profitability than currently anticipated.
Maintenance, upgrading and improvements related to our production capacity require significant investment,
without being able to ensure that we can achieve the expected return on these investments.
We are currently considering expanding and improving our existing facilities. See “Summary—Our Strategy.”
We may not obtain our expected return on our investments, particularly if certain adverse events were to occur,
including changes in the markets for our products, inaccurate projections, including projections regarding future
market demands, on which decisions were made regarding the timing or manner of these investments or an inability
to obtain sufficient resources to make necessary capital expenditures. This could have a material adverse effect on
our results of operations, including asset impairment charges. Furthermore, there is a possibility that existing
projects will not be completed in a timely manner or at all, due to factors such as the inability to obtain financing,
regulatory changes, failure to perform or the lack of availability of contractors and subcontractors and logistical
problems, which could hinder or prevent us from implementing our business strategy, which in turn could adversely
affect our business, results of operations and financial condition.
20
Our inability to effectively manage our growth could adversely affect our business and results of operations.
We have experienced rapid growth in our operations and employee headcount, which has required and will
continue to require a major effort by management with respect to our administrative, operational and financial
infrastructure. We anticipate requiring additional growth to continue expanding the scope of our operations and the
size of our customer base. Our continued success will depend in part on the ability of our key executives to
effectively manage this growth, including causing employees to continue to perform in accordance with our
standards and specifications.
In order to effectively manage our business and growth, we must continue to improve our internal controls,
information technology systems, operational, financial and management procedures and generally map and improve
our various processes. Furthermore, new employee hires will increase our spending, which could, in the short term,
offset increases in net sales. In the event that we fail to efficiently manage our planned growth, our costs could
increase more than expected, net sales may decrease or increase at a slower rate than anticipated and we may not be
able to implement our business strategy, which could adversely impact our business, results of operations and
financial condition.
The inability to obtain adequate capital to fund acquisitions or expansions could delay or prevent the
implementation of our business strategy.
It is expected that the expansion and continuous development of our operations will require significant capital
expenditures and operating expenses, including working capital requirements, which may not be obtainable on
acceptable terms or at all. It is possible that we will not generate sufficient cash flow from operations to meet cash
requirements. In addition, capital requirements could vary significantly as compared to our current estimates, if, for
example, revenue does not reach expected levels, or we have to incur unforeseen capital expenditures and
investments to maintain our competitive position. If this is the case, we may require additional financing sooner
than expected, certain development and expansion plans may need to be delayed or we could miss market
opportunities. We may not be able to obtain financing or debt capital in the future and even if obtained, it may not
be on favorable terms or on terms that are competitive to those that may be obtained by our competitors. It is likely
that future lending instruments, such as lines of credit, will contain various affirmative and negative covenants, and
may require us to provide assets as collateral. This could limit our ability to obtain additional financing to conduct
acquisitions and use funds on capital expenditures and to fund our strategy. The inability to raise additional capital
on satisfactory terms may delay or prevent the expansion of our operations and the taking of advantage of available
opportunities, which could adversely affect our business, results of operations and financial condition.
The lack of capacity to meet customer orders may adversely affect our competitive position and could have a
negative effect on our results of operations.
The lack of capacity to meet customer orders may adversely affect our competitive position and have a negative
effect on our results of operations. If for any reason we cannot continue with our expansion and growth plans, our
ability to market and sell our products will be limited by the production capacity of our 26 existing operating plants.
If we are continuously unable to meet customer demands, this fact will have an impact on our franchise and is likely
to adversely affect our business and results of operations.
We rely on our network of independent distributors to sell and distribute our products. If the sales of those
distributors are low or if they give preference to products of our competitors, our results of operations and
financial condition could be adversely affected.
Most of the sales of our products are made through independent distributors who sell these products to the
commercial, industrial and retail markets. Any substantial decrease in the sales of our independent distributors could
adversely affect the sales of our products sold through such distributors. Independent distributors also often carry
products that directly compete with our products. Our independent distributors may give higher priority to products
of, and/or form alliances with our competitors. If a substantial portion of our independent distributors fail to
purchase our products, or fail to provide our products with promotional support, our results of operations and
financial condition are likely to be adversely affected. Developing our own distribution network is costly and may
not happen rapidly as a means to substitute current distributors.
21
Price increases or shortages in the supply of electricity and fuel could adversely affect our results of
operations.
We consume significant amounts of electricity, gas and fuel in our operations, the cost of which has
significantly fluctuated in recent years. Energy and gas costs are affected by several factors, including weather,
product mix and price increases during peak-demand hours. In 2013, energy and gas costs collectively represented
approximately 6% of our production costs. Our financial condition or results of operations could be materially
affected by future increases in energy and fuel costs or shortages in the supply of electricity and fuel.
We depend on a limited number of suppliers.
We depend on a limited number of key suppliers to meet our raw material requirements. For example, we obtain
our raw materials, such as chrysotile fiber used in the production of certain of our Building Systems Division
products, from suppliers in Canada, Colombia, Brazil, Russia, China and Kazakhstan, among others. In our Plastics
Division, which accounts for 5.5% of our consolidated net sales, five suppliers for polystyrene resin provide a
significant percentage of this raw material. If any of our key suppliers fails to deliver or to deliver timely, we could
face limited access to raw materials, higher costs and delays resulting from the need to obtain our raw material
requirements from other suppliers. Any such situation could adversely affect our production, net sales, business,
Labor disruptions could affect our results of operations.
We have entered into 18 collective bargaining agreements with various unions. Almost all of these collective
bargaining agreements are renegotiated yearly, except for the collective bargaining agreement in Bolivia, which is
renegotiated every two years. Approximately 64.8% of our total employees are represented by labor unions. An
inability to successfully negotiate renewals may adversely affect our business and results of operations. Also, in the
event we encounter adverse financial conditions, we may have difficulty meeting the terms of such agreements,
which could have a negative impact on our business and results.
We occasionally experience pressure from unions to increase the benefits paid to our employees, which could
affect our results of operations. Similarly, there is no guarantee that relations with unionized workers will be free
from individual or collective disputes. A collective dispute accompanied by a temporary interruption or prolonged
strike by our employees could have a negative impact on our business and results of operations and may expand
throughout the different facilities in which we operate.
Our success depends on our ability to retain certain key personnel and our ability to hire additional key
personnel.
We depend on the performance of our senior management and key employees. In particular, our senior officers
have considerable experience in our business, and the loss of any of them or in our ability to attract and retain
sufficient replacements or additional qualified officers, could adversely affect our ability to continue to operate
efficiently, implement our business strategy or obtain results of operations that are consistent with prior returns.
Our future success also depends on our continued ability to identify, hire, train and retain qualified sales,
marketing, operations and administration personnel. Competition for such qualified personnel is intense. If we are
unable to attract, integrate or retain such qualified personnel, our business, financial condition and results of
operations are likely to be adversely affected.
We may be unable to protect the reputation of our brands and our intellectual property rights.
Our net sales are derived from sales of products under brands owned by us. These brand names are key business
assets. Maintaining the reputation of these brands is essential to our future success and loss of reputation could have
a material adverse effect on our business, results of operations and financial condition. We have also obtained
patents and submitted patent applications on our products, including Maxi-Therm fiber cement roofing, multiconnectors for water tanks and mineral fiber manufacturing process, which we believe distinguishes our products
from those of our competitors. We cannot assure you that we will be able to maintain the value of our brands or that
our patent applications will be successful or will not be challenged.
22
Our principal trademarks and patents are registered in Mexico and in the relevant countries where these
trademarks and patents are used. Even if we enforce our rights against third-party offenders, we cannot assure that
our actions to establish and protect our intellectual property rights are adequate to prevent imitation of our products
or use of our production systems and processes by others or to prevent others from seeking to block sales of our
products on grounds that they violate their trademarks and proprietary rights. If a competitor were to infringe our
trademarks, enforcement by us of our rights would likely be costly and would divert resources that would otherwise
be used to operate and develop the business. Although we intend to actively defend the trademark and patents in our
portfolio, we cannot assure you that we will be successful in enforcing these intellectual property rights. See
“Business—Intellectual Property.”
Unexpected equipment failures may lead to production curtailments or shutdowns.
Interruptions in our production capabilities could increase our production costs and reduce our sales and
earnings for the affected period. Our plants are subject to the risk of catastrophic loss due to unanticipated events.
Our manufacturing processes are dependent upon critical pieces of equipment, which could reduce our production
capacity or incur downtime as a result of unanticipated failures. In the future we could experience inoperability or
reduced production capabilities in our plants due to equipment failure. Unexpected interruptions in our production
capabilities would adversely affect our business, productivity and financial condition. Moreover, any interruption in
our production capability may require significant capital expenditures to remedy the problem, which would reduce
the amount of cash available for our operations. Our insurance may not cover such losses. In addition, a long-term
disruption could harm our reputation and result in a loss of customers, which could adversely affect our business,
Natural disasters, production hazards and other events could adversely affect our business.
Natural disasters, such as torrential rains, hurricanes and earthquakes, could impede operations, damage our
infrastructure or adversely affect our production facilities. We could also be subject to acts of vandalism or civil
disturbances, which could affect our infrastructure and/or our distribution network. Any of these events could
increase our capital expenditures for repairs.
Our operations are subject to hazards, such as fires, explosions and other accidents, associated with the use of
chemicals and the storage and transportation of our products. These hazards can cause personal injury and loss of
life, severe damage to or destruction of property and equipment and environmental damage. A significant accident
at one of our plants or storage facilities could force us to suspend our operations temporarily and result in significant
remediation costs, governmental penalties or fines and lost sales.
Notwithstanding that we have insured our plants against damages caused by natural disasters, accidents or other
similar events and resulting consequential damages, if losses occur we cannot assure you that losses caused by
damage to our plants will not exceed policy limits or will be covered by our policies. Damages significantly in
excess of our insurance policy limits or that were not foreseeable and covered by our policies could have a material
adverse effect on our business, results of operations, financial condition and prospects. In addition, even if we
receive insurance proceeds as a result of a natural disaster, facilities could suffer interruptions in production as we
complete repairs, which could materially and adversely affect our business, results of operations, financial condition
and prospects.
We are subject to stringent environmental laws and regulations which may impose significant costs on us.
We are subject to various environmental protection, health and safety laws and regulations governing, among
other things, the production, storage, handling, use, remediation, disposal and transportation of hazardous materials,
the emission and discharge of hazardous materials into the ground, air or water, and the health and safety of our
employees. We are required to obtain permits from governmental authorities for certain operations and have
voluntarily obtained certifications from national and international organizations for certain of our production plants.
We cannot assure you that we have been or will be at all times in compliance with such laws, regulations, permits
and certifications. If we violate or fail to comply with these laws, regulations or permits, we could be fined, be
subject to administrative and criminal procedures, have our facilities shut down or otherwise be sanctioned by
regulators, including the Secretaría del Medio Ambiente y Recursos Naturales (Mexican Ministry of Environment
and Natural Resources, or “SEMARNAT”), which oversees compliance with the Mexican federal environmental
laws through the Procuraduría Federal de Protección al Ambiente (Attorney General for Environmental Protection,
23
or “PROFEPA”), which has the authority to enforce Mexican federal environmental laws, and the U.S.
Environmental Protection Agency, or “EPA.” Under certain environmental laws, we could be held responsible for
all of the costs relating to any contamination at our or our predecessors’ past or present facilities and at third party
waste disposal sites. We may also be held liable for any and all consequences arising from human exposure to
hazardous substances or other environmental damage.
Environmental laws are complex, change frequently and have become more stringent over time. While we have
budgeted resources for future capital requirements and operating expenditures to comply with environmental laws,
we cannot assure you that environmental laws will not change, become subject to stricter interpretations by
authorities or become more stringent in the future. Changes or additions to existing laws or regulations, or stricter
enforcement or application of such laws or regulations could force us to make significant additional capital
expenditures, which could affect our profitability, financial condition and results of operations. We cannot assure
that our costs of complying with current and future environmental and health and safety laws, and our liabilities
arising from past or future releases of, or exposure to hazardous substances will not adversely affect our business,
results of operations and financial condition. See “Business—Regulation—Environmental Matters and Regulation.”
Certain of our fiber cement products contain chrysotile fiber.
Certain of our fiber cement products contain chrysotile fiber, which is a form of asbestos. Asbestos (including
chrysotile asbestos) is one of the 113 substances that are included on the International Agency for Research on
Cancer’s list of carcinogenic substances. As a result, our use of chrysotile fiber is subject to various health and
safety standards in the countries in which we operate. National and international health and safety standards could
become stricter in the future, which would require us to make substantial additional capital expenditures. Our use of
chrysotile fiber may also limit the marketability of our fiber cement products and therefore adversely affect our
growth prospects. Certain of our customers, including some customers in North America, avoid purchasing products
that contain chrysotile fibers. In some cases, we are able to substitute other fibers such as cellulose fiber and PVA
(polyvinyl alcohol fiber) for chrysotile fiber, but our use of chrysotile fiber overall remains significant. This use of
chrysotile fiber also subjects us to the risk of litigation in the future, where an adverse ruling or judgment could have
a material adverse effect on our financial condition or results of operations. See “Risk Factors—Risks Related to
Our Business—We may be subject to claims and potential liabilities related to the products we manufacture or
distribute, or to our operations.”
We may be subject to claims and potential liabilities related to the products we manufacture or distribute, or to
our operations.
We have been subject, and may be exposed in the future, to product liability claims in the event that the use of
our products is alleged to have caused injury or had other adverse effects. Currently, we maintain product liability
insurance coverage, but we may not be able to obtain such insurance on acceptable terms in the future, or such
insurance may not provide adequate coverage against potential claims. Product liability claims can be expensive to
defend and can divert management and employee resources for months or years, regardless of the ultimate outcome.
Similarly, such claims may adversely affect our reputation, which could result in a loss of customers. An
unsuccessful product liability defense could have a material adverse effect on our business, results of operations and
financial condition and may subject us to class actions that are expensive and difficult to defend. See “Business—
Legal Proceedings.”
Our insurance coverage may be insufficient to cover damages that we may incur.
Our insurance coverage may be insufficient to cover damages that we may incur if the amount of damages
surpasses the amount of coverage of our insurance policy or policies or if the damage is not covered by such policy
or policies. In addition, we cannot assure you that we will maintain our current insurance coverage or that we will be
able to contract insurance at our current cost. Uninsured losses could cause us to suffer significant unanticipated
expenses resulting in an adverse effect on our business, results of operations and financial condition.
We engage in hedging activity from time to time, which may not be successful and may result in losses to us.
We use derivative financial instruments to mitigate the volatility of prices for certain raw materials used in our
production processes, such as nickel, copper and zinc, and financial transactions we enter into from time to time.
Our materials hedging activity could cause us to lose the benefit of a decrease in raw materials prices if such prices
drop below the level of our hedge positions and the cash flows from the materials hedges can be affected by the
24
market price of the raw materials, which are not under our control. Similarly, our financial hedging activity could
cause us to lose the benefit of a decrease in interest rates. In addition, we cannot assure you that we will be
adequately protected by our hedging activities or that such hedging activities will not result in significant losses that
affect our business, financial condition and results of operations.
We hold debt that could significantly impact our strategic development.
As of September 30, 2014, our total indebtedness was Ps$6,523 million and our shareholders’ equity was
Ps$15,009 million. The level of our indebtedness may have significant consequences, including:

limit our ability to use our cash flow or obtain additional financing in the future to fund working capital,
capital expenditures, acquisitions and future general corporate requirements;

restrict our ability to pay dividends;

require a substantial portion of cash flow from operations to service debt payments, particularly in the event
of a default under one of our other debt instruments;

require that we use cash flows as a means to make prepayments instead of using such cash flow for our
capital expenditures and operations;

increase our vulnerability to adverse economic and industry conditions, including increases in interest rates,
foreign currency exchange rate fluctuations and market volatility;

limit our flexibility in planning for, or reacting to, changes in our business and industry conditions;

limit our ability to carry out additional acquisitions; and

place us at a competitive disadvantage compared to other less-leveraged competitors.
There is no guarantee that we will continue to generate sufficient cash flows to cover our debt, meet our
working capital requirements and capital expenditures or carry out our expansion plans. To the extent that we are not
able to generate sufficient operating cash flow, or in the event of our inability to apply for loans or additional
funding, we will likely be required to sell assets, reduce capital expenditures, refinance all or a portion of our
existing debt or obtain additional funding through the issuance of equity or debt, which may impact our growth and
our results of operations and financial condition. In such cases, we cannot assure you that we will be able to
refinance our debt, sell assets or obtain additional financing on terms acceptable to us. Additionally, our ability to
incur additional debt will be limited as stipulated in our credit agreements. See “Management’s Discussion and
Analysis of Our Results of Operation and Financial Condition—Liquidity and Capital Resources.”
If changes in our financial debt cause us to breach the terms of our credit agreement terms or the terms of other
loan instruments, this could lead to, among other things, restrictions in our ability to make future acquisitions or
enter into other operations (including future financing operations or refinancing of our debt), or accelerate the
repayment of our indebtedness, which could have a negative impact on our operations, results of operations and
prospects.
We are parties to several credit agreements and have issued debt in the Mexican securities market, for which we
have committed to comply with restrictive covenants and maintain certain financial ratios. If we fail to satisfy the
covenants or maintain the financial ratios set forth in these agreements, our outstanding indebtedness could be
accelerated and become immediately due and payable, thus potentially requiring us and our subsidiaries to
restructure such indebtedness, which is likely to impact our flexibility and to have an adverse impact in our financial
condition and results of operations. We cannot provide any assurance that we will remain in compliance with said
covenants and financial ratios.
We are a holding company and hold no significant assets other than shares of our subsidiaries.
We are a holding company and conduct our operations through a series of operating subsidiaries and controlling
operating companies. Accordingly, we depend on the results of operations of our subsidiary companies. Our ability
to pay dividends and service our debt and other obligations depends on the generation of cash flow by our
25
subsidiaries and their ability to make such cash available to us in the form of interest payments, debt repayment,
dividends and capital reimbursements, among others. All assets used to provide technical and administrative
services and the various concessions are held by our subsidiaries. As a result, we have no significant assets other
than the shares of our subsidiaries. Any dividends or payments that we decide to issue will be subject to the
availability of cash provided by our subsidiaries. Cash transfers from subsidiaries to us may be further limited by
corporate and legal requirements, including having absorbed losses from previous financial years, by the terms of
subordinated indebtedness or by adverse tax consequences, among others. As a result, if our subsidiaries do not pay
dividends or other distributions, we may not have sufficient funds to meet our obligations or pay dividends, which
could affect our financial condition. Our subsidiaries Nacional de Cobre, S.A. de C.V., Mexalit Industrial,
Trituradora and ELC Tenedora Cementos (our Lafarge Joint Venture) collectively hold approximately 53% of the
debt of our consolidated company.
As a holding company, our ability to meet our creditors’ claims depends on the payments we receive from our
subsidiaries and our capacity to participate in the distribution of their income. In some cases, our right, and
therefore the right of our creditors, to participate in the income distribution of our subsidiaries, may be subordinated
to the claims of certain creditors of our subsidiaries pursuant to applicable financial agreements and applicable law.
Our agreement to purchase Lafarge’s minority interest in the Lafarge Joint Venture, meaning ELC
Tenedora Cementos, may not be consummated.
On September 19, 2014, we entered into a share purchase agreement with Lafarge to acquire 47% of their
interest in the Lafarge Joint Venture. Following this acquisition, we would hold 100% of the shares in ELC
Tenedora Cementos. However, this transaction remains subject to customary closing conditions. If Elementia is not
able to obtain the necessary approvals, the agreement would not be legally binding and the Contribution Agreement
would continue unchanged.
Our completed acquisitions and divestitures may affect the comparability of our financial information.
The financial information for the nine months ended September 30, 2014 and fiscal years 2013, 2012 and 2011
included in this offering memorandum may not be comparable due to the acquisitions and divestitures we have
completed during those periods.
Risk Factors Relating to Mexico and Other Countries Where We Operate
Downturns in the Mexican economy may adversely affect us.
The majority of our customers are Mexican companies or individuals and as of September 30, 2014, 77% of our
assets and 59% of our operations were located in Mexico. For these reasons, our operations, business, results of
operations and financial condition are dependent on the level of economic activity in Mexico. Our net sales are
highly affected by the level of economic activity in Mexico and the general purchasing power of Mexican
individuals and companies. Accordingly, declines in the spending of our Mexican customers could have negative
effects on our net sales, financial condition and results of operations. Economic slowdowns in Mexico may have,
and in the case of the current slowdown, have had, additional consequences that impact our business. We also face
risks associated with the impact of economic downturns on third parties such as suppliers, financial institutions and
other parties with whom we do business. If these parties experience negative effects on their businesses due to an
economic downturn, this could adversely affect our business, our results of operations and financial condition.
Historically, Mexican inflation rates have been extremely high, although they have decreased in recent years. In
2013, 2012 and 2011, Mexico’s annual inflation, as measured in terms of the changes in the Mexican National
Consumer Price Index, or “NCPI”, was 3.8%, 4.1% and 3.4%, respectively. In addition, although Mexican GDP has
increased at the rates of 1.1%, 4.0% and 4.0% in 2013, 2012, and 2011, respectively, GDP growth in the future may
be slow or flat. The Mexican consumer confidence index reached an eight-year low in October 2009, when it
registered 77.0 points, subsequently closing the year at 80.1 points. In 2011 to 2013, there was a steady
improvement in the index, and consumer confidence at the end of that period was at 89.7 points. The global
recessionary environment has an impact on consumption. Consequently, consumer purchasing power may continue
to decrease and demand for our products may therefore decrease. A decrease in demand could affect our operations
to the extent that we are not able to reduce our costs and expenses in response to falling demand. These factors
could result in a decrease in our net sales and could adversely affect our business, results of operations and financial
condition.
26
Mexico may continue to suffer a period of violence and criminal activity which could affect our operations.
Mexico has recently experienced periods of violence and crime due to the activities of organized crime. In
response, the Mexican government has implemented various security measures and has strengthened its police and
military forces. Despite these efforts, organized crime (especially drug-related crime) continues to exist in Mexico.
These activities, their possible escalation and the violence associated with them may have a negative impact on the
Mexican economy or on our operations in the future. The social and political situation in Mexico could adversely
affect the Mexican economy, which in turn could have a material adverse effect on our business, financial condition,
results of operations and prospects.
Political and economic events in Latin American countries where we operate could adversely affect us.
Our business strategies, results of operations and financial condition could be adversely affected by changes in
government policies in Mexico or other Latin American countries in which we have a presence and other political
events that affect those countries, as well as changes in laws or administrative practices which are beyond our
control. These may include, but are not limited to:

government regulation applicable to the manufacture or distribution of our products or supplies;

existence and interpretation of environmental laws and regulations and liabilities and obligations arising
thereunder;

policies relating to foreign investment;

complications in transportation or roads;

shortages or outages of power and other services or on the availability of raw materials, including oil and
gas;

restrictions on currency conversion or devaluation of currencies;

the nationalization or expropriation of assets;

restrictions on the repatriation of funds; and

limitations on the supply of qualified personnel.
Similarly, recent GDP growth in some of these countries may not continue, and future events that affect their
economies could impair our ability to execute our business plan, or could adversely affect our business, results of
operations or financial condition.
The countries in which we operate have been exposed to political and social instability in the past. Social and
political uncertainty and instability as well as other adverse social or political developments that affect those
countries could adversely affect our business, results of operations and financial condition.
In the past, some Latin American countries in which we operate have experienced high inflation rates. A return
to higher rates of inflation could adversely affect our business, results of operations and financial condition. In
addition, the countries in which we operate have devalued their currency several times in the past and could do so in
the future. These measures and others that these countries could adopt may adversely and significantly affect our
business, results of operations and financial condition.
Mexican federal governmental policies could adversely affect our results of operations and our financial
condition.
We are incorporated in Mexico and a significant portion of our assets and operations are located in Mexico. As
a result, we are subject to political, legal and regulatory risks specific to Mexico. The Mexican federal government
has exercised, and continues to exercise, significant influence over the Mexican economy. Accordingly, Mexican
federal governmental actions and policies concerning the economy and the federal public administration entities
influence the activity of financial institutions. This could have a significant impact on private sector entities in
general and us in particular, as well as on market conditions, prices and returns on Mexican securities. In addition,
government housing and infrastructure expenditures affect our results as we are dependent on these sectors.
27
We cannot provide any assurance that future policy developments in Mexico over which we exercise no control
will not have an unfavorable impact on our business, results of operations or financial condition. Social and
political uncertainty and instability in Mexico and other adverse social or political events that influence Mexico
could affect our business, results of operations and financial condition. Political developments in Mexico could
significantly affect the Mexican economy, and consequently, our operations. Significant changes in laws, policies
and regulations, which could affect Mexico’s economic and political situation, could adversely affect our business.
A depreciation of the peso relative to the U.S.dollar and other currencies could negatively affect our business
and results of operations.
The value of the peso and other Latin American currencies relative to the U.S. dollar and other currencies has
been and may be subject to significant fluctuations resulting from crises in international markets, crises in Mexico,
speculation and other circumstances.
In order to consolidate the financial statements of foreign subsidiaries, their financial statements are translated
from the local currency to the currency of presentation, pursuant to the following methodology: (i) the closing
exchange rate in effect at the balance sheet date for all assets and liabilities; and (ii) historical exchange rates for
stockholders’ equity, as well as net sales, cost and expenses. Translation effects are recorded under other
comprehensive income (loss) within stockholders’ equity. Translation effects are reclassified from equity to profit
or loss upon the partial or complete sale of the investment.
The adjustments to goodwill and fair value generated in the acquisition of a foreign operation are treated as
assets and liabilities of the operation and translated at the exchange rate prevailing at the end of the transaction.
Foreign currency transactions are recorded at the applicable exchange rate in effect at the transaction date.
Monetary assets and liabilities denominated in foreign currency are translated into Mexican pesos at the applicable
exchange rate in effect at the balance sheet date. Exchange fluctuations are recorded as a component of net
financing result in the statements of income, except for exchange rate differences from foreign currency
denominated loans relating to assets under construction qualifying for capitalization of interest, which are included
in the cost of such assets considering them as an adjustment to interest cost on those foreign currency denominated
loans. Non-monetary items carried at fair value denominated in foreign currencies are retranslated at the exchange
rates prevailing at the date on which the fair value was determined. The recording of non-monetary items calculated
in terms of historical cost in foreign currency are not translated.
As of September 30, 2014 and December 31, 2013, we had liabilities denominated in U.S. dollars or other
currencies amounting to US$131.8 million and US$80.8 million, respectively. Therefore, any significant
depreciation of the peso versus the U.S. dollar or other currencies could affect our liquidity, results of operations and
financial condition. Also, if a significant depreciation of the peso versus the U.S. dollar or other currencies were to
occur, this depreciation could cause interest rates to rise, which could in turn affect our results of operations and
financial condition. For example, a 10% devaluation of the peso against the U.S. dollar, based on the exchange rate
and our outstanding dollar-denominated indebtedness at December 31, 2013, would result in an exchange loss of
Ps$8.4 million. See Note 9.e to our consolidated financial statements for more details.
An increase in inflation may increase our operating costs.
High levels of inflation may cause our operating costs to increase while the prices charged for our products, due
to the competitive environment, may not. Most of our operating expenses are based on short-term contracts which
may be subject to inflationary pressures. During most of the 1980s and during 1995, Mexico experienced periods of
very high levels of inflation. Inflation has led to high interest rates, devaluations of the peso and, during the 1980s,
substantial government controls over exchange rates and prices. A return to higher levels of inflation could
adversely affect our business, results of operations and financial condition.
Political events in Mexico could adversely affect our operations.
The Mexican government’s actions and policies concerning the economy, the regulatory environment or social
or political context, state-owned enterprises and state controlled, funded or influenced financial institutions could
have a significant impact on private sector entities in general and on us in particular, as well as on market
conditions, prices and returns on Mexican securities. Such actions have involved, among other measures, increases
in interest rates, changes in tax policies, price controls, currency devaluations, capital controls, limits on imports and
other actions. Our business, results of operations, financial condition and dividend payments may be adversely
28
affected by changes in governmental policies or regulations involving or affecting our management, our operations
and our tax regime.
Beginning in 2013, the Mexican Congress has approved various reforms relating to labor, education,
telecommunications, local government indebtedness, transparency, financial, tax and energy matters. We cannot
predict whether these or potential changes in Mexican governmental and economic policy will adversely affect
economic conditions in Mexico or the sector in which we operate and therefore have an adverse effect on us.
We cannot assure you that future changes in Mexican governmental and economic policies, will not adversely
affect our business, results of operations and financial condition. There can be no assurance as to whether the
government will make changes to any existing political, social, economic or other policies, whose changes may have
a material adverse effect on our business, results of operations, financial condition or prospects.
High interest rates in Mexico could increase our operating and financial costs.
Mexico historically has had high real and nominal interest rates. The interest rate on the 28-day Mexican
interbank rate (Tasa de Interés Interbancaria de Equilibrio, or “TIIE”) averaged 4.28%, 4.79% and 4.82% for 2013,
2012 and 2011, respectively, according to the Mexican Central Bank (Banco de México). We cannot assure you that
interest rates will remain at current levels. Thus, if we contract peso-denominated or variable interest rate debt in the
future, it may be at interest rates higher than current rates. See note 10.d to our consolidated financial statements for
more details. An increase in the interest rate we pay on our indebtedness would adversely affect our financial
condition and results of operations.
We obtain financing under different conditions. If the rate of interest is variable, we enter into interest rate
swaps to reduce our exposure to rate volatility risk, thus converting the interest payment profile from variable to
fixed. See “—Risk Factors Relating to Us—We engage in hedging activity from time to time which may not be
successful and may result in losses to us.” As of December 31, 2013 we had entered into financing instruments with
interest rates based on LIBOR and TIIE in the amount of Ps$6,534.9 million. As an example, if LIBOR (London
InterBank Offered Rate) and TIIE interest rates during 2013 registered an increase of 100 basis points, and all other
variables remained constant, the payment of interest expense in 2013 would have increased from Ps$420.6 million
to Ps$482.4 million.
Changes in Mexican tax laws may adversely affect us or our shareholders.
The Mexican Congress approved several tax reforms with the objective of increasing public sector revenues. On
December 11, 2013, certain reforms to Mexican tax laws were published in the Mexican Federal Official Gazette
(Diario Oficial de la Federacíon), which became effective as of January 1, 2014. While the corporate income tax
rate remained at 30%, the tax reforms (i) resulted in several amendments to corporate tax deductions, among others,
by eliminating deductions that were previously allowed for related-party payments to certain foreign entities and
narrowing tax deductions for fringe benefits paid to employees, (ii) imposed a 10% withholding income tax on
dividends paid by corporations, including our company, to shareholders who are Mexican resident individuals or
foreign residents, (iii) repealed the possibility of paying taxes on a consolidated basis, (iv) increased the value-added
tax from 11% to 16% in the border Mexican region, (v) required the use of electronic invoices and new monthly tax
reports to be provided to governmental tax authorities and (vi) established a 10% income tax payable by Mexican
resident individuals and foreign residents on the sale of stock listed on the BMV. Although we cannot currently
predict the impact of these reforms or calculate their effects on our tax liability for future years, these changes and
future changes in Mexican tax laws could increase our tax liabilities and cash tax payments, which could, in turn,
affect our results of operations and financial condition.
Antitrust laws in Mexico and other countries where we operate may limit our ability to expand our operations.
In Mexico, the Federal Economic Competition Law and related regulations could adversely affect our ability to
buy and sell operations, as well as perform operations or joint ventures with competitors. Approval by the Mexican
Federal Economic Competition Commission may be required to carry out significant acquisitions, divestments or
associations. Failure to obtain approval from the antitrust authority could restrict our ability to complete a
transaction, condition any such transaction or result in the requirement that we divest our assets. There is no
guarantee that Mexico’s antitrust authorities or those of any country in which we are to carry out future acquisitions,
will approve any or all acquisitions under review or that arise in the future or that will do so on satisfactory terms or
on terms that would not result in our obligation to divest assets.
29
A violation of laws by us or the issuance of more stringent government regulations could negatively affect us.
We are subject to various federal, state and municipal laws and regulations in the countries where we operate,
including those relating to the manufacture, use and handling of hazardous materials, environmental protection,
taxes, workplace safety and consumer protection. In order to implement projects, we are required to obtain,
maintain and regularly renew licenses, permits and approvals from various government authorities. We seek to
maintain compliance with these laws and regulations at all times. Failure to comply with the above would subject us
to fines, penalties, plant closings, cancellation of licenses, revocation of licenses or concessions or other restrictions
on the ability to operate, which could have an adverse impact on our results of operation or financial situation.
We cannot assure you that new and stricter standards will not be adopted or become applicable, or that more
stringent interpretations will not be given to existing laws and regulations. Any of these events may require us to
incur additional costs to comply to the extent possible with these new requirements, which would increase our
operating costs.
Developments in other countries could adversely affect the Mexican economy, the market price of the notes
and of other securities, as well as our results of operations.
The market price of securities of Mexican companies is affected by economic and market conditions in
developed countries and other emerging market countries. Although economic conditions in those countries may
differ significantly from economic conditions in Mexico, adverse economic conditions may expand regionally, or
investors’ reactions to developments in any of these other countries may have an adverse effect on the market values
of Mexican issuers. In recent years, for example, the prices of Mexican debt and equity have sometimes suffered
substantial declines as a result of events occurring in other countries.
Moreover, the correlation between economic conditions in Mexico and the U.S. has sharpened in recent years as
a result of NAFTA and an increase in economic activity between the two countries. As a result, a slowing in the U.S.
economy, the termination of NAFTA and other related events could have a material adverse effect on the Mexican
economy, which in turn could affect our financial condition and results of operations. These events could have an
adverse effect on our operations and revenues, which could in turn affect the liquidity and the market price of our
notes.
Risk Factors Relating to the Notes and this Offering
The Company’s indebtedness could adversely affect its financial condition and prevent it from fulfilling its
obligations under the notes.
As of September 30, 2014, on a pro forma basis, we had approximately Ps$6,523 of total indebtedness. Our
debt level could have important consequences to you. For example, it could:

negatively affect our ability to pay principal and interest on our debt, including the notes;

increase our vulnerability to general adverse economic and industry conditions;

limit our ability to fund future capital expenditures and working capital, to engage in future acquisitions or
development activities, or to otherwise realize the value of our assets and opportunities fully because of the
need to dedicate a substantial portion of our cash flow from operations to payments of interest and principal
or to comply with any restrictive terms of our debt;

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we
operate;

impair our ability to obtain additional financing or to refinance our indebtedness in the future; and

place us at a competitive disadvantage compared to our competitors that may have proportionately less
debt.
30
We may not be able to generate sufficient cash to service all of our indebtedness, including the notes, and may
be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations, including the notes, depends on
our financial condition and operating performance, which are subject to prevailing economic and competitive
conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may
be unable to maintain a level of cash flows from operating activities sufficient to permit us to fund our day-to-day
operations or to pay the principal, premium, if any, and interest on our indebtedness, including the notes.
If our cash flows and capital resources are insufficient to fund our debt service obligations and other cash
requirements, we could face substantial liquidity problems and could be forced to reduce or delay capital
expenditures or to sell assets or operations, seek additional capital or restructure or refinance our indebtedness,
including the notes. We may not be able to effect any such alternative measures, if necessary, on commercially
reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled
debt service obligations. We may not be able to consummate those dispositions or to obtain proceeds in an amount
sufficient to meet any debt service obligations then due. See “Description of the Notes.”
Our inability to generate sufficient cash flows to satisfy our debt obligations or to refinance our indebtedness on
commercially reasonable terms or at all, would materially and adversely affect our financial position and results of
operations and our ability to satisfy our obligations under the notes.
If we cannot make scheduled payments on our debt, we will be in default and, as a result, holders of notes could
declare all outstanding principal and interest to be due and payable, our lenders could terminate their commitments
to loan money, our secured lenders could foreclose against the assets securing such borrowings and we could be
forced into bankruptcy or liquidation, which in each case, could result in your losing some or all of your investment
in the notes.
Despite current indebtedness levels, we and our subsidiaries may still be able to incur more debt. This could
further exacerbate the risks described above.
We and our subsidiaries are incurring additional indebtedness in connection with the notes and may be able to
incur additional indebtedness in the future. This level of indebtedness and our other obligations may:

make it more difficult for us to comply with our obligations with respect to our outstanding indebtedness;

increase our vulnerability to general adverse economic and industry conditions, including increases in
interest rates;

require us to dedicate a larger portion of our cash flow from operations to interest and principal payments
on our indebtedness, which would reduce the availability of our cash flow to fund working capital, capital
expenditures, expansion efforts and other general corporate purposes;

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we
operate;

place us at a competitive disadvantage compared to our competitors that have less debt; and

limit our ability to borrow additional funds for working capital, capital expenditures, general corporate
purposes or acquisitions.
Although the indenture governing the notes offered hereby will contain restrictions on the incurrence of
additional indebtedness, these restrictions are and will be subject to a number of qualifications and exceptions and the
additional indebtedness incurred in compliance with these restrictions could be substantial. If we incur any
additional indebtedness that ranks equally with the notes, the holders of that debt will be entitled to share ratably with
you in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other
winding-up of the Company. In addition, to the extent any such indebtedness is secured, it will be effectively senior
to the notes, up to the value of the collateral securing such indebtedness. This may have the effect of reducing the
amount of proceeds paid to you. If new debt is added to our current debt levels, the related risks that we and our
subsidiaries now face could intensify. See “Description of the Notes.”
31
Your ability to transfer the notes may be limited by the absence of an active trading market and an active
trading market may not develop for the notes.
The notes will constitute a new issues of securities for which there is no established trading market. We expect
the notes to be eligible for trading by “qualified institutional buyers,” as defined under Rule 144A, but we do not
intend to list the notes on any national securities exchange or include the notes in any automated quotation system.
The initial purchasers of the notes have advised us that they intend to make a market in the notes as permitted by
applicable laws and regulations; however, the initial purchasers are not obligated to make a market in the notes and,
if commenced, they may discontinue their market-making activities at any time without notice.
Therefore, an active market for the notes may not develop or be maintained, which would adversely affect the
market price and liquidity of the notes. In such case, the holders of notes may not be able to sell their notes at a
particular time or at a favorable price.
Even if an active trading market for the notes does develop, there is no guarantee that it will continue.
Historically, the market for non-investment grade debt has been subject to severe disruptions that have caused
substantial volatility in the prices of securities similar to the notes. The market, if any, for the notes may experience
similar disruptions and any such disruptions may adversely affect the liquidity in such market and/or the prices at
which you may sell your notes. In addition, subsequent to their initial issuance, the notes may trade at a discount
from their initial offering price, depending upon prevailing interest rates, the market for similar notes, the
Company’s performance and other factors.
Your right to receive payments on the notes is effectively junior to the right of lenders that have a security
interest in the assets of the Company and its non-guarantor subsidiaries to the extent of the value of those
assets.
Our obligations under the notes and the guarantors’ obligations under their guarantees of the notes will be
unsecured. On a pro forma basis after giving effect to the offering of the notes and our intended use of proceeds, at
September 30, 2014, the Company and the guarantors would have had no outstanding secured debt that would have
ranked effectively senior to the notes to the extent of the value of the collateral securing such debt.
The indenture governing the notes also permits us and our subsidiaries to incur substantial additional
indebtedness in the future, including other secured indebtedness, subject to various limitations, as described in
“Description of the Notes.” If we are declared bankrupt or insolvent, or if an event of default occurs and is
continuing under our secured loans, the lenders could declare all of the funds borrowed thereunder, together with
accrued interest, to be immediately due and payable. If the Company were unable to repay such indebtedness, the
lenders could foreclose on the pledged assets to the exclusion of holders of the notes, even if an event of default
exists under the indenture governing the notes at such time. In any such event, because the notes will not be
secured, it is possible that there would be no assets remaining from which your claims could be satisfied or, if any
assets remained, they might be insufficient to satisfy your claims in full.
The notes will be structurally subordinated to all indebtedness of the Company’s existing and future
subsidiaries that do not become guarantors of the notes.
We conduct our operations through our subsidiaries, certain of which may not be guarantors of the notes or our
other indebtedness. Accordingly, repayment of our indebtedness, including the notes, is dependent on the generation
of cash flow by our subsidiaries and such subsidiaries’ ability to make such cash available to us, by dividend, debt
repayment or otherwise. Unless they are guarantors of the notes, our subsidiaries do not have any obligation to pay
amounts due on the notes or to make funds available for that purpose. Our subsidiaries may not be able to, or may
not be permitted to, make distributions to enable us to make payments in respect of our indebtedness, including the
notes. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions
may limit our ability to obtain cash from our subsidiaries. Although the indenture governing the notes will, and the
agreements governing certain of our other existing and future indebtedness may, limit the ability of certain of our
subsidiaries to incur consensual restrictions on their ability (a) to pay dividends or make other distributions to the
Company or any restricted subsidiary on its capital stock or with respect to any other interest or participation in, or
measured by, their profits or (b) to make loans or advances to the Company or any restricted subsidiary that is a
direct or indirect parent of such subsidiary, these limitations are (and in the case of future indebtedness, could be)
subject to certain qualifications and exceptions. In the event that we do not receive distributions from our
32
subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the
notes.
Not all of our subsidiaries will guarantee the notes. The notes will be structurally subordinated to all
indebtedness and other obligations of any non-guarantor subsidiary of the Company such that, in the event of
insolvency, liquidation, reorganization, dissolution or other winding-up of any such subsidiary that is not a
guarantor, all of such subsidiary’s creditors (including trade creditors and preferred stockholders, if any) would be
entitled to payment in full out of such subsidiary’s assets before holders of the notes would be entitled to any
payment. In addition, subject to certain limitations, the indenture governing the notes permits non-guarantor
subsidiaries to incur additional indebtedness and does not limit their ability to incur liabilities not constituting
indebtedness. As of the date of this offering memorandum, substantially all of the Company’s assets, debt and
operations are conducted by the Company and subsidiaries thereof which will be guarantors of the notes.
The subsidiary guarantees may not be enforceable.
The notes will be fully and unconditionally guaranteed, jointly and severally, by certain of our subsidiaries. The
subsidiary guarantees provide a basis for a direct claim against the subsidiary guarantors; however, it is possible that
the subsidiary guarantees may not be enforceable under applicable law.
While Mexican law does not prohibit the giving of subsidiary guarantees and, as a result, it does not prevent the
subsidiary guarantees of the notes from being valid, binding and enforceable against the subsidiary guarantors, in the
event that a subsidiary guarantor becomes subject to a concurso mercanti or to a quiebra, its subsidiary guarantee
may be deemed to have been a fraudulent transfer and may be declared void based upon the subsidiary guarantor
being deemed not to have received fair consideration in exchange for such subsidiary guarantee. If any such event
were to occur, the creditworthiness of the notes, and the market value of the notes in the secondary market may be
materially and adversely affected.
Payments claimed in Mexico on the notes, pursuant to a judgment or otherwise, would be in pesos.
In the event that proceedings are brought against us in Mexico, either to enforce a judgment or as a result of an
original action brought in Mexico in respect of the notes, or if payment is otherwise claimed from us in Mexico in
respect of the notes, we would not be required to discharge those obligations in a currency other than Mexican
currency. Under the Monetary Law of the United Mexican States (Ley Monetaria de los Estados Unidos
Mexicanos), an obligation, whether resulting from a judgment or by agreement, denominated in a currency other
than Mexican currency, which is payable in Mexico, may be satisfied in Mexican currency at the rate of exchange in
effect on the date on which payments are made. Such rate is currently determined by Banco de Mexico and
published every banking day in the Federal Official Gazette. As a result, you may suffer a U.S. dollar shortfall if you
obtain a judgment or a payment in Mexico in respect of the notes. You should be aware that no separate action exists
or is enforceable in Mexico for compensation for any shortfall.
Our, our subsidiary guarantors, and any future note guarantors' obligations under the notes would be converted
in the event of bankruptcy.
Under the Mexican Bankruptcy Law, if we or any of the subsidiary guarantors are declared insolvent, bankrupt
or become subject to a concurso mercantil proceeding, our obligations and the obligations of the subsidiary
guarantors under the notes (i) would be converted into pesos and then from pesos into inflation-adjusted units
(unidades de inversion, known as UDIs), (ii) would be satisfied at the time claims of all our creditors are satisfied,
(iii) would be subject to the outcome of, and priorities recognized in, the relevant proceedings, which differ from
those in other jurisdictions such as the United States, (iv) would cease to accrue interest from the date the concurso
mercantil is declared, (v) would not be adjusted to take into account any depreciation of the peso against the U.S.
dollar occurring after such declaration, and (vi) would be subject to certain statutory preferences, including tax,
social security and labor claims, and claims of secured creditors (up to the value of the collateral provided to such
creditors). There is also limited relevant legal related precedent. For such reasons, the ability of the holders of the
notes to effectively collect payments due under the notes may be compromised or subject to delay.
In addition, under Mexican law, it is possible that, in the event we are declared insolvent, bankrupt or become
subject to concurso mercantil, any amount by which the stated principal amount of the notes exceeds their accreted
value may be regarded as not matured and, therefore, claims of holders of the notes may be allowed only to the
extent of the accreted value of the notes. At present, there are very few Mexican legal precedents regarding
33
bankruptcy or concurso mercantil in Mexico on this point and, accordingly, uncertainty exists as to how a Mexican
court would measure the claims of holders of the notes.
We may not be able to make payments in U.S. dollars.
In the past, the Mexican economy has experienced balance of payments deficits and shortages in foreign
exchange reserves. While the Mexican government does not currently restrict the ability of Mexican or foreign
persons or entities to convert pesos to foreign currencies, including U.S. dollars, it has done so in the past and could
do so again in the future. We cannot assure you that the Mexican government will not implement a restrictive
exchange control policy in the future. Any such restrictive exchange control policy could prevent or restrict our
access to U.S. dollars to meet our U.S. dollar obligations and could also have a material adverse effect on our
business, financial condition and results of operations. We cannot predict the impact of any such measures on the
Mexican economy.
It may be difficult to enforce civil liabilities against us or our directors, executive officers and controlling
persons.
Our company is organized under the laws of Mexico. Substantially all of our directors, executive officers,
controlling persons and experts named in this offering memorandum are non-residents of the United States, and
substantially all of the assets of such non-resident persons and substantially all of our assets are located outside the
United States. Certain of the experts named in this offering memorandum also reside outside the United States. As a
result, it may not be possible for noteholders to effect service of process within the United States or in any other
jurisdiction outside Mexico upon such persons or us or to enforce against them or us in courts of any jurisdiction
outside Mexico judgments predicated upon the laws of any such jurisdiction, including any judgment predicated
upon the civil liability provisions of United States federal and state securities laws. In addition, we have been
advised by DRB Consultores Legales, S.C. that there is doubt as to the enforceability, in original actions in Mexican
courts or in actions for enforcement of judgments obtained in courts of jurisdictions outside Mexico, of liabilities
predicated solely on U.S. federal securities laws or the securities laws of any jurisdiction outside Mexico and as to
the enforceability in Mexican courts of judgments of U.S. courts obtained in actions predicated upon the civil
liability provisions of U.S.federal securities laws. No treaty is currently in effect between the United States and
Mexico that covers the reciprocal enforcement of foreign judgments. As a result, creditors of indebtedness incurred
under instruments governed by Mexican law may be in a better position to enforce their rights against us in
connection with judgments obtained from Mexican courts predicated on civil liabilities under Mexican laws.
We may not be able to repurchase the notes upon a Change of Control.
Upon the occurrence of specific kinds of change of control events, we will be required to offer to repurchase all
outstanding notes at 101% of their principal amount, plus accrued and unpaid interest to, but excluding, the purchase
date. The source of funds for any purchase of the notes will be the Company’s available cash or cash generated
from its subsidiaries’ operations or other sources, including borrowings, sales of assets or sales of equity. We may
not be able to repurchase the notes upon a change of control because we may not have sufficient financial resources
to purchase all of the debt securities that are tendered upon a change of control and repay our other indebtedness that
will become due. We may require additional financing from third parties to fund any such purchases, and we cannot
assure you that we would be able to obtain financing on satisfactory terms or at all. Further, our ability to
repurchase the notes may be limited by law.
The definition of Change of Control in the indenture governing the notes includes a phrase relating to the sale
of “all or substantially all” of the assets of the Company and its subsidiaries, taken as a whole. There is no precise
established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a holder of
notes to require the Company to repurchase its notes as a result of a sale of less than all of the assets of the Company
and its subsidiaries, taken as a whole, to another person may be uncertain. In addition, certain important corporate
events, may not, under the indenture governing the notes, constitute a “change of control” that would require the
Company to repurchase the notes, notwithstanding the fact that such corporate events could increase the level of the
Company’s indebtedness or otherwise adversely affect its capital structure, credit ratings or the value of the notes.
See “Description of the Notes—Change of Control.”
34
Holders of the notes will not be entitled to registration rights, and the Company does not intend to register the
notes and the guarantees under applicable U.S. securities laws. There are significant restrictions on your
ability to transfer or resell your notes.
The notes are being offered and sold pursuant to an exemption from registration under U.S. and applicable state
securities laws. The holders of the notes and the guarantees will not be entitled to require us to register the notes and
the guarantees in the United States for resale or otherwise. Therefore, you may transfer or resell the notes in the
United States only in a transaction registered under or exempt from the registration requirements of the U.S. and
applicable state securities laws, and you may be required to bear the risk of your investment for an indefinite period
of time. See “Notice to Investors.”
Federal and state fraudulent transfer laws may permit a court to void the notes and the guarantees,
subordinate claims in respect of the notes and the guarantees and require noteholders to return payments
received and, if that occurs, you may not receive any payments on the notes.
Federal and state fraudulent transfer and conveyance statutes in the United States may apply to the issuance of
the notes and the incurrence of any guarantees of the notes, including the guarantee the guarantors entered into upon
issuance of the notes. Under federal bankruptcy law and comparable provisions of state fraudulent transfer or
conveyance laws, which may vary from state to state, the notes or guarantees could be voided as a fraudulent
transfer or conveyance if (1) the Company or any of the guarantors, as applicable, issued the notes or incurred the
guarantees with the intent of hindering, delaying or defrauding creditors or (2) the Company or any of the
guarantors, as applicable, received less than reasonably equivalent value or fair consideration in return for either
issuing the notes or incurring the guarantees and, in the case of (2) only, one of the following was also true at the
time thereof:

the Company or any of the guarantors, as applicable, was insolvent on the date of the issuance of the notes
or the incurrence of the guarantees or rendered insolvent by reason of the issuance of the notes or the
incurrence of the guarantees;

the issuance of the notes or the incurrence of the guarantees left the Company or any of the guarantors, as
applicable, with an unreasonably small amount of capital to carry on the business; or

the Company or any of the guarantors intended to, or believed that the Company or such guarantor would,
incur debts beyond the Company’s or such guarantor’s ability to pay such debts as they mature.
Enforcement of any of the guarantees against any guarantor will be subject to certain defenses available to
guarantors in the relevant jurisdiction. These laws and defenses generally include those that relate to corporate
purpose or benefit, fraudulent conveyance or transfer, voidable preference, insolvency or bankruptcy challenges,
financial assistance, preservation of share capital, thin capitalization, capital maintenance or similar laws,
regulations or defenses affecting the rights of creditors generally. If one or more of these laws and defenses are
applicable, a guarantor may have no liability or decreased liability under its guarantee depending on the amounts of
its other obligations and applicable law. Limitations on the enforceability of judgments obtained in New York
courts in such jurisdictions could also limit the enforceability of any guarantee against any guarantor.
As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation,
property is transferred or a valid antecedent debt is secured or satisfied. A court could find that by virtue of the fact
that the notes were issued by the Company for its direct benefit, and only indirectly for any guarantor’s benefit, that
a guarantor did not receive reasonably equivalent benefit directly or indirectly from the issuance of the notes.
The Company cannot be certain as to the standards a court would use to determine whether or not the Company
or the guarantors were solvent at the relevant time or, regardless of the standard that a court uses, that the issuance
of the guarantees would not be subordinated to the Company’s or any of the guarantors’ other debt. Generally,
however, an entity would be considered insolvent if, at the time it incurred indebtedness:

the sum of its debts, including contingent liabilities, was greater than the fair value of all its assets;
35

the present fair saleable value of its assets was less than the amount that would be required to pay its
probable liability on its existing debts, including contingent liabilities, as they become absolute and mature;
or

it could not pay its debts as they become due.
If a court were to find that the issuance of the notes or the incurrence of a guarantee was a fraudulent transfer or
conveyance, the court could void the payment obligations under the notes or such guarantee or subordinate the notes
or such guarantee to presently existing and future indebtedness of the Company or of the related guarantor, or
require the holders of the notes to repay any amounts received with respect to such guarantee. In the event of a
finding that a fraudulent transfer or conveyance occurred, you may not receive any repayment on the notes (or the
guarantees).
Although each guarantee will contain a provision intended to limit that guarantor’s liability to the maximum
amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent
transfer, this provision may not be effective to protect those guarantees from being voided under fraudulent transfer
law, or may reduce that guarantor’s obligation to an amount that effectively makes its guarantee worthless. For
example, in a Florida bankruptcy case, which has recently been reinstated by the United States Court of Appeals for
the 11th Circuit on other grounds, this kind of provision was found to be ineffective to protect the guarantees.
Furthermore, in the event that a bankruptcy case were to be commenced under the bankruptcy code, the
Company could be subject to claims, with respect to any payments made within 90 days prior to the commencement
of such a case, that it or any of the guarantors were insolvent at the time any such payments were made and that all
or a portion of such payments, which could include repayments of amounts due under the notes or the guarantees
might be deemed to constitute a preference, under the Bankruptcy Code, and that such payments should be voided
by the bankruptcy court and recovered from the recipients for the benefit of the entire bankruptcy estate.
This offering memorandum may not include all of the information that would be required if this offering were
being registered with the SEC.
This offering memorandum may not include all of the information that would be required if we were registering
the offering of the notes with the SEC, including, among other things (i) the presentation of non- GAAP financial
measures for which the SEC has issued rules to regulate the use of such non-GAAP financial measures in filings;
and (ii) the omission of certain information relating to our subsidiaries and guarantor information. This lack of
information could impair your ability to evaluate your investment in the notes. We cannot assure you that its
historical financial information as set forth in this offering memorandum will be indicative of its future financial
performance or its ability to meet its obligations, including repayment of the notes.
36
USE OF PROCEEDS
We estimate that the net proceeds from the issuance of the notes will be approximately US$412.8 million, or
Ps$5,554.3 million, after deducting the initial purchasers’ discount and the payment of estimated expenses relating
to the offering.
We plan to use the net proceeds from the notes primarily to pay a portion of the cost of the acquisition of
Lafarge’s minority stake in the Lafarge Joint Venture (that is, 47% of the shares of ELC Tenedora Cementos), for a
total purchase price of US$225 million. Payments will be made in two installments: (i) an initial payment of
US$180 million at the close of the transaction which is expected to be near the end of 2014, once applicable
regulatory approvals have been obtained, and (ii) a second payment of US$45 million, without interest, on the first
anniversary of the closing date of the transaction. We intend to use approximately (i) US$180 million of the net
proceeds from the notes for such initial payment, representing 43.6% of net proceeds from the notes, (ii) US$160
million of the net proceeds from the notes to repay certain of our existing indebtedness, and (iii) the remainder for
general corporate purposes.
37
CAPITALIZATION
The following table sets forth our capitalization and indebtedness as of September 30, 2014, and as adjusted to
give effect to (i) the sale of the notes after fees and commissions to the initial purchasers and (ii) the application of
the proceeds to repay debt on the Issue Date. You should read this table together with the information under the
section entitled “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of
Operations”, “Selected Financial and Other Information” and our financial statements included elsewhere in this
offering memorandum.
As of September 30, 2014
Cash and cash equivalents .........................
Current portion of long-term debt ..............
Long-term debt:
Notes payable to financial
institutions and long-term debt(2) .......
Long-term debt due to related parties .....
Senior Notes offered hereby ......................
Total debt ..................................................
Total stockholders’ equity..........................
Total capitalization ....................................
Actual
As Adjusted
Actual
As Adjusted
(in millions of
pesos)
(in millions of
pesos)
(in millions of U.S.
dollars)(1)
(in millions of U.S.
dollars)
2,161
459
5,570
459
161
34
414
34
5,935
19
—
6,413
15,009
21,422
3,781
19
5,718
9,977
15,009
24,986
441
1
—
476
1,116
1,592
281
1
425
741
1,116
1,857
(1) Converted, for convenience purposes only, using the exchange rate for pesos into U.S. dollars of Ps$13.4541 to
US$1.00 reported by the Mexican Central Bank for September 30, 2014.
(2) Includes the current issuance of the Certificados Bursátiles ELEM 10 (currently, ELEMENT 10) for Ps$3,000
million, with the remainder in bank debt.
38
EXCHANGE RATES
The following table sets forth, for the periods indicated, the period-end, average, high and low exchange rates
published by the Mexican Central Bank (Banco de México) expressed in pesos per U.S. dollar. The average annual
rates presented in the following table were calculated by using the average of the exchange rates on the last day of
each month during the relevant period. The rates shown below are in nominal pesos that have not been restated in
constant currency units. No representation is made that the peso amounts referred to in this offering circular could
have been or could be converted into U.S. dollars at any particular rate or at all.
We cannot assure you that the Mexican government will maintain its current policies with respect to the peso or
that the peso will not appreciate or depreciate significantly in the future. On November 11, 2014 the Mexican
Central Bank (Banco de México) exchange rate expressed in pesos per U.S. dollar was Ps$13.5528 to US$1.00.
Banco de México Exchange Rate(1)
Period-End
Average
High
Low
(pesos per U.S. dollar)
2013 ..................................................................................
2012 ..................................................................................
2011 ..................................................................................
2010 ..................................................................................
2009 ..................................................................................
Month Ended
November 30, 2014 (through November 11) ...................
October 31, 2014 ..............................................................
September 30, 2014 ..........................................................
August 31, 2014 ...............................................................
July 31, 2014 ....................................................................
June 30, 2014....................................................................
May 31, 2014....................................................................
April 30, 2014 ..................................................................
Source: Banco de México.
39
13.0765
13.0101
13.9787
12.3571
13.0587
12.8210
13.1661
12.5511
12.6409
13.5723
13.4394
14.3949
14.2443
13.1819
15.3650
11.9807
12.6299
11.5023
12.1575
12.5969
13.5528
13.4239
13.4541
13.1109
13.0578
13.0323
12.8462
13.1356
13.5649
13.4745
13.2113
13.1500
12.9730
12.9757
12.9562
13.0771
13.6173
13.5701
13.4541
13.2716
13.0578
13.1007
13.1039
13.1371
13.4773
13.3789
13.0763
13.0505
12.9286
12.8462
12.8462
12.9642
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The following tables set forth our selected consolidated financial and other information, which has been derived
from our consolidated financial statements prepared in accordance with IFRS. The financial information as of
September 30, 2014 and for the nine months ended September 30, 2014 and 2013 was obtained from the interim
unaudited consolidated financial statements included elsewhere in this offering memorandum. The financial
information as of and for the years ended December 31, 2013, 2012 and 2011 was obtained from our audited
consolidated financial statements included elsewhere in this offering memorandum.
The U.S. dollar amounts provided below are translations from the Mexican peso amounts, solely for the
convenience of the reader, at exchange rates of Ps$13.4541 and Ps$13.0765 per U.S. dollar, respectively, for the
periods ended September 30, 2014 and December 31, 2013, which are the exchange rates published by the Mexican
Central Bank (Banco de México) in the Mexican Federal Official Gazette (Diario Oficial de la Federacíon) as the
rates for the payment of obligations denominated in non-Mexican currency payable in Mexico on September 30,
2014 and December 31, 2013, respectively. You should not construe these convenience translations as
representations that the Mexican peso amounts actually represent the United States dollar amounts presented, or that
they could be converted into U.S. dollars at the rate or at the dates indicated. See “Exchange Rates.”
The consolidated financial information contained herein must be read in conjunction with our audited annual
consolidated financial statements and the notes thereto and our unaudited interim condensed consolidated financial
statements and the notes thereto included elsewhere in this offering memorandum. Furthermore, this selected
information should be read in conjunction with the explanations provided in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
2014
(in millions
of U.S.
dollars)
Profit or Loss Data:
Net sales ....................................................
Cost of sales ..............................................
Gross profit ..............................................
Operating expenses ...................................
Other income, net(1) .................................
Exchange loss (income) ............................
Interest income ..........................................
Interest expense .........................................
Banking fees .............................................
Equity in income of associated entity........
Income before income taxes and
discontinued operations ......................
Income tax expense (benefit) ....................
Income from continued operations ........
Discontinued operations(2):
Loss from discontinued operations, Net ....
Consolidated net income (loss) ...............
Non-controlling interest ............................
attributable to the owners of the
Company ..............................................
2014
2013
2013
(in millions
of U.S.
dollars)
2013
2012
2011
855
638
217
132
(15)
(2)
(4)
26
4
—
11,500
8,586
2,914
1,775
(198)
(25)
(54)
355
53
—
9,618
7,435
2,183
1,556
(115)
42
(34)
217
80
(13)
989
758
231
163
(24)
4
(4)
32
4
—
3,021
2,125
(301)
48
(46)
421
49
(4)
75
23
52
1,008
308
700
450
106
344
56
13
43
729
177
552
778
(38)
816
963
440
523
6
46
3
82
618
45
23
321
18
5
38
0
60
492
4
501
315
(10)
828
(305)
12
43
573
303
38
488
325
(317)
40
12,929
9,908
13,506
10,273
3,233
1,888
(21)
345
(31)
289
20
(35)
14,505
11,463
3,042
1,859
(89)
(138)
(34)
467
14
—
2014
2014
(in millions
of U.S.
dollars)
EBITDA(1) ...............................................
2013
2013
153
2,062
1,232
147
As of September 30,
Statement of Financial Position:
Current assets:
Cash and cash equivalents ....................................
Accounts receivable – Net ....................................
Due from related parties .......................................
Inventories – Net ..................................................
Prepaid expenses...................................................
Total current assets.............................................
Non-current assets:
Property, machinery and equipment – Net ............
Investment in shares of associated companies
and others .........................................................
Net plan assets for employee benefits at
retirement .........................................................
Intangibles and other assets – Net .........................
Long-term due from related parties and other
long-term accounts receivable ..........................
Total non-current assets .....................................
Total assets ..........................................................
current portion of long-term debt .....................
Trade accounts payable.........................................
Direct employee benefits ......................................
Provisions .............................................................
Accrued expenses and taxes, other than
income taxes .....................................................
Due to related parties ............................................
consolidation ....................................................
Advances from customers .....................................
Total current liabilities .......................................
long-term debt ..................................................
Long-term due to related parties ...........................
Deferred income taxes ..........................................
Income taxes liabilities from consolidation ..........
Other long-term liabilities.....................................
Total long-term liabilities ...................................
Total liabilities ....................................................
Total stockholders’ equity ..................................
Total liabilities and stockholders’ equity ..........
2013
(in millions
of U.S.
dollars)
2012
2011
1,913
1,877
1,749
As of December 31,
2014
2014
2013
2013
(in millions
of U.S.
dollars)
(in millions
of pesos)
(in millions
of U.S.
dollars)
2012
2011
161
—
267
—
186
23
637
2,161
—
3,597
2
2,509
305
8,574
151
1
268
3
172
23
618
1,973
10
3,506
41
2,250
307
8,087
1,762
9
2,926
—
2,471
592
7,760
3,540
—
3,268
55
2,186
197
9,246
1,154
15,521
1,117
14,608
11,823
11,187
1
11
1
11
813
777
24
236
319
3,170
22
243
289
3,174
239
1,108
319
838
4
1,417
2,055
54
19,075
27,646
4
1,387
2,005
54
18,136
26,223
265
14,248
22,008
51
13,172
22,418
34
235
1
53
459
3,166
15
718
15
204
2
32
193
2,663
31
421
456
2,330
19
204
120
3,221
92
157
15
15
204
197
13
13
166
173
255
206
1,056
227
0
5
1
360
1
63
7
4,830
13
12
—
304
171
158
—
3,976
5
45
—
3,520
6
24
1
4,905
441
1
87
50
0
578
939
5,935
19
1,173
679
4
7,810
12,640
473
1
83
39
1
597
901
6,185
18
1,080
513
14
7,810
11,786
5,926
40
1,490
18
25
7,499
11,019
6,266
—
1,797
124
45
8,232
13,137
1,116
2,055
15,009
27,649
1,104
2,005
14,437
26,223
10,989
22,008
9,281
22,418
41
2014
2014
(in millions
of U.S.
dollars,
except
turnover
days and
sales
volume)
Other Data:
Purchase of property and equipment .........
Depreciation and amortization for the
period ....................................................
Accounts receivable turnover (in days) .....
Accounts payable turnover (in days) .........
Inventory turnover (in days)......................
Consolidated sales volume (in
thousands of tons)
2013
2013
(in millions of pesos, except
turnover days and sales
volume)
2013
(in millions
of U.S.
dollars,
except
turnover
days and
sales
volume)
2012
2011
(in millions of pesos, except turnover days
and sales volume)
(38)
(516)
(1,303)
54
55
102
89
725
55
102
89
490
59
93
83
55
64
85
79
716
64
85
79
511
45
76
88
477
71
103
70
1,766
1,766
988
1,507
1,507
753
755
(157)
(2,059)
(2,113)
(1,835)
(1) EBITDA is not a financial measure recognized by IFRS. EBITDA is included in this offering memorandum because we
believe that it is useful to certain investors as a supplemental measure of our financial performance and our ability to service
our debt and fund capital expenditures. EBITDA should not be considered as a substitute for net income, cash flow provided
by operations or other measures of financial performance or liquidity under IFRS. The presentation of EBITDA may not be
comparable to similarly entitled measures used by other companies. The following table reconciles consolidated net income
to EBITDA:
Consolidated EBITDA Reconciliation
2014
2014
(in millions of
U.S. dollars)
(loss) ..................................... $
Plus (Less):
operations, Net ......................
Income tax expense (benefit) ....
Equity in income of
associated entity ....................
Financing result, net(1) .............
Depreciation and
amortization for the period ....
EBITDA ................................... $
2013
2013
46 $
618 $
321 $
6
82
23
23
308
106
—
—
(13)
24
329
305
54
153
$
725
2,062
$
2013
2012
(in millions of
U.S. dollars)
490
1,232 $
38 $
492 $
315 $
(305)
5
13
60
177
501
(38)
828
440
—
36
(4)
472
(35)
623
—
309
55
147 $
716
1,913
(1) Includes the sum of interest income, interest expense, banking fees and exchange loss (income).
42
2011
$
511
1,877
$
477
1,749
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OUR RESULTS OF OPERATION AND
FINANCIAL CONDITION
Overview
period in 2013.
Significant Events and Factors Affecting Comparability of Our Results for Each Reporting Period
Acquisitions and Dispositions
On June 6, 2011, we sold 100% of the shares of Aluminio Conesa, S.A. de C.V., a subsidiary in our Metals
Division, to Cuprum, which manufactures and sells aluminum products. At the same time, we received as payment
20% of the shares of Cuprum, which we subsequently sold on December 17, 2013 as described below.
On April 20, 2012, we sold 100% of the shares of Almexa Aluminio, S.A. de C.V., a subsidiary in our Metals
Division, to Industria Mexicana del Aluminio, S.A. de C.V., a subsidiary of Grupo Vasconia, S.A. de C.V.
In 2012, we decided to discontinue certain operations because we determined that the projects of certain entities
were not viable in accordance with our new business plans. The following entities were dedicated to the
manufacture and marketing of reinforced and pre-stressed concrete pipes: Compañía Mexicana de Concreto
Pretensado Comecop, S.A. de C.V., Construsistemas Servicios Administrativos, S.A. de C.V. and Operadora de
Aguas, S.A. de C.V. Similarly, we decided to discontinue our Mexalit Industrial, S.A. de C.V. plant located in the
State of Chihuahua, Mexico.
On January 8, 2013, Trituradora and ELC Tenedora Cementos, both of which are subsidiaries of Elementia,
signed the Contribution Agreement with Lafarge and Lafarge Cementos (engaged in the manufacturing and
marketing of cement) whereby, among other things, it was agreed to create the Lafarge Joint Venture for cement
production in Mexico. Pursuant to the Contribution Agreement, the share capital of each of Trituradora and Lafarge
Cementos was transferred to ELC Tenedora Cementos and we acquired a 53% ownership in ELC Tenedora
Cementos, which gave us control over ELC Tenedora Cementos and its subsidiaries, Trituradora and Lafarge
Cementos, and Financière Lafarge, S.A.S. retained a 47% shareholding. This transaction generated goodwill in the
amount of approximately Ps$1,150 million. This transaction was subject to the fulfillment of several conditions
specified in the Contribution Agreement, which were met on July 31, 2013. On that date, several annexes to the
Contribution Agreement were finalized and a shareholders’ meeting was held, pursuant to which the shares were
transferred to our subsidiary ELC Tenedora Cementos. Beginning on August 1, 2013, we commenced joint
operations and the results of the Lafarge Joint Venture were included in our consolidated financial statements.
43
However, on September 19, 2014, we entered into a share purchase agreement to acquire the remaining 47% stake in
the Lafarge Joint Venture, which is subject to customary regulatory approvals.
On December 17, 2013, we sold our 42.5 million shares in Cuprum for Ps$584 million, representing 20% of
Cuprum’s share capital. The sale was made in equal proportions to Tenedora and Controladora GEK, S.A.P.I. de
C.V.
On December 18, 2013, we signed an acquisition agreement with the external products division of Saint-Gobain
to acquire the fiber cement business of its affiliate, CertainTeed Corporation, one of the principal manufacturers of
construction materials in North America. On January 31, 2014, we completed the acquisition of the fiber cement
business of CertainTeed Corporation. We subsequently rebranded this business under our new Allura brand. We
expect that this acquisition will strengthen our presence in the United States upon the integration of the operations of
three production plants to increase our coverage and growth in that country.
Principal Factors Affecting Our Financial Condition and Results of Operations
Optimization of Operations
In recent years, we have made investments to increase our capacity and modernize and streamline our
production processes, which has resulted in significant savings for us.
In 2013, we completed the construction and launch of our El Palmar cement plant, which began operations in
2013 and gave rise to the creation of our Cement Division. Pursuant to the Contribution Agreement with Lafarge
and Lafarge Cementos, we strengthened this division by adding the synergies of the three plants that currently
comprise it. The investments made in this division in 2013 totaled Ps$876 million.
We have made significant investments in machinery and equipment in the Metals Division in recent years.
These investments have improved and modernized the production processes of its plants, for example by means of
the continuous casting process, which means having constant metal smelting 24 hours per day, 365 days per year. It
has also divested its non-core businesses, as a result of which the Metals Division has become one of the leaders in
this business segment. This division made investments in 2013 totaling Ps$387 million.
Similarly, we have invested in the Building Systems Division, acquiring businesses in Latin America and
recently acquiring the fiber cement business of CertainTeed Corporation, a subsidiary of Saint-Gobain, in
January 2014. This acquisition significantly expanded our presence in the U.S. market, which has permitted us to
have a presence with CertainTeed Corporation’s brands and the quality of their products. Furthermore, we have
continued to make investments in the production facilities in order to modernize and expand its production lines.
The Building Systems Division made investments totaling Ps$258 million in 2013.
We have strengthened the Plastics Division through the acquisition in the last five years of the operations of
Frigocel and Frigocel Mexicana in Mexico and Fibraforte in Peru. At the same time, this division has been investing
in each of the productions lines of its operations, increasing capacity and achieving efficiencies in its production
processes. The investment made in this division totaled Ps$105 million in 2013.
Process Improvements
We distinguish ourselves by our continuous improvements in our processes, not only on the production side, but
also in areas such as sales, logistics, purchasing and administration. For example, we have made investments since
2011 to switch to the SAP systems platform, with which we have been able to integrate the operations, marketing
and distribution of our products, as well as the administration and reporting thereof, thereby having reliable and
timely information for decision-making.
Global Macroeconomic Conditions
Our business is affected by general economic conditions of several industries, including the construction,
manufacturing, infrastructure, automotive and refrigeration industries. We have manufacturing and distribution
operations in a number of countries throughout the Americas, including Mexico, Colombia, Bolivia, Costa Rica,
Ecuador, El Salvador, Honduras and the United States. As a result, our activities, business, financial condition and
44
results of operations are largely dependent upon the general economic and financial environment in each of the
countries in which we operate.
The countries that contribute most significantly to our results of operations are Mexico, the United States and
Colombia. In 2013, our sales derived from these countries represented 58.2%, 18.2% and 10.3%, respectively, of our
consolidated sales. In the past, the economies of these countries have been affected by a number of factors,
including:

Each country’s economic cycles in the commercial, construction, automotive, agricultural and industrial
industries, among others. The following table shows real GDP growth for these countries for the last five
years.
GDP Growth
2013
Colombia......................................................................
United States ................................................................
Mexico .........................................................................
4.3%
1.9%
1.1%
2012
4.0%
2.8%
3.9%
2011
6.6%
1.8%
4.0%
2010
4.0%
2.5%
5.1%
2009
1.7%
(2.8)%
(4.7)%
Source: World Bank

Uncertainty with respect to future political, social and economic conditions, particularly during the years
immediately preceding presidential and legislative elections;

Volatility and uncertainty in the global credit and capital markets;

The potential devaluation of local currencies with respect to the United States dollar or the euro, and the
potential imposition of foreign exchange restrictions; and

Significant increases in inflation and interest rates in these countries.
In addition, in recent years, countries such as Colombia, Ecuador and Bolivia have experienced significant
growth in the housing industry, similar to that experienced by Mexico.
Pricing Strategy
We sell metal products on a cost-plus mark-up basis. Our pricing strategy consists of maintaining strong
margins throughout the various stages of the relevant production cycles and adjusting our product prices periodically
to compensate for short-term disparities between the price of our principal raw materials and the price of our
finished products.
With respect to our Metals Division exports, we enter into derivative financial instruments (such as forward and
futures contracts) to hedge financial risks associated with the prices of certain metal products, such as copper, zinc
and nickel. These transactions are not speculative in nature and are based on the actual requirements of our
customers. The hedging instruments that we enter into relating to copper are quoted primarily on COMEX, and
those relating to zinc and nickel are quoted primarily on the London Metal Exchange.
For example, when a customer submits a purchase order for products affected by the prices of relevant metals,
we request a COMEX quote for such metals’ prices and provide the customer with a price based on the COMEX
quote plus a margin. If the customer agrees to the price, we then execute the COMEX contract. We conduct daily
reviews of our contracts against the price of each metal daily and make adjustments to our accounts as necessary.
Foreign Sales
Our reporting currency is the Mexican peso. However, our net sales are generated and denominated in various
currencies. Our transactions denominated in U.S. dollars include net sales derived from our operations in the United
States, Ecuador and El Salvador, which accounted for 24% and 22% of our consolidated net sales in the nine months
ended September 30, 2014 and 2013, respectively. Net sales denominated in Mexican pesos accounted for 59% and
57% of our consolidated net sales in the nine months ended September 30, 2014 and 2013, respectively. In addition,
9% and 10% of our net sales were denominated in Colombian pesos and 3% and 3% of our net sales were
45
denominated in Costa Rican colones in the nine months ended September 30, 2014 and 2013, respectively. Net
sales denominated in other currencies represented 5% and 6% of our net sales in the nine months ended
September 30, 2014 and in 2013, respectively.
Impact of Foreign Currency Fluctuations
Fluctuations in currency exchange rates relative to the Mexican peso expose us to foreign currency translation
risk. As of September 30, 2014 and December 31, 2013, 11% and 12%, respectively, of our total indebtedness was
denominated in U.S. dollars while 89% and 88%, respectively, was denominated in Mexican pesos. Interest expense
on our U.S. dollar-denominated indebtedness, as expressed in Mexican pesos in our financial statements, varies with
currency exchange fluctuations. Given that the Mexican peso is our functional currency, we are exposed to the risk
of foreign currency translation, the depreciation of our results and increases in our interest expense on a Mexican
peso basis. We record currency exchange gains or losses with respect to the U.S. dollar-denominated net monetary
position of assets and liabilities when the peso appreciates or depreciates in relation to the U.S. dollar. Our foreign
exchange results were a gain of Ps$25 million in the nine months ended September 30, 2014 and a loss of Ps$48
million, a loss of Ps$345 million and a gain of Ps$138 million in 2013, 2012 and 2011, respectively.
Our management has established a policy which requires our subsidiaries to manage their currency risk with
respect to their functional currency. Our subsidiaries must cover all or a portion of their respective exposure to
currency risk, either directly or through our treasury.
Competition
Some of the markets in which we and our subsidiaries operate are highly competitive. For example, in our
Building Systems Division, we compete with many large and small manufacturers. We also compete with many
large and small manufacturers in the Mexican cement market, where we are the newest market participant. We
usually compete on price, product performance, sales, service and marketing support. In our capacity as distributor,
we also compete with many large and small distributors of construction materials.
We also face competition in our various business divisions from alternative materials: (i) in the Metals Division,
from products such as polystyrene and polypropylene plastic pipes, (ii) in the Building Systems Division, from
products such as natural wood and its derivatives, vinyl, stucco, masonry and plaster and (iii) in the Plastics
Division, from products such as plates, cups and cardboard packaging. We also face competition in Mexico from
foreign manufacturers, however, we estimate that high importation and transportation costs increase the costs of
foreign manufacturers’ products, thereby giving us a competitive advantage.
Critical Accounting Policies
We have identified the policies below as critical to our business operations and to understanding our results of
operations. Preparation of our consolidated financial statements requires us to make estimates and assumptions that
affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our
financial statements and the reported amounts of revenue and expenses during the period. Actual results may differ
from those estimated. We believe the following accounting policies used in the preparation of our consolidated
financial statements involve significant judgments and estimates.
Classification of Lafarge Cementos, S.A. de C.V.as a Business Acquisition
As a result of the analysis of the contractual agreement between Trituradora and ELC Tenedora Cementos, our
subsidiaries, and Lafarge, based on the legal structure of the joint venture vehicle and according to the terms of the
Contribution Agreement, we have concluded that we have the capacity to unilaterally control the relevant activities
of Lafarge Cementos, and therefore have control over Lafarge Cementos.
Inventory and Accounts Receivables
We use estimates to determine inventory and accounts receivables. The factors that we consider for purposes of
determining inventory reserves are production and sales volumes, as well as changes in demand for certain products.
The factors that we consider in estimating uncollectible accounts receivable are principally the risk relating to the
client’s financial situation, unsecured accounts and significant delays in collection according to the established credit
limits.
46
Property, Machinery and Equipment
We review the estimated useful life of property, machinery and equipment at the end of each annual period.
The level of uncertainty related to the estimates of useful lives is related to the changes in the market and the use of
assets according to production volumes, as well as technological developments.
Impairment of Long-lived Assets
The carrying value of long-lived assets is reviewed for impairment if there are situations or changes in
circumstances indicating that the carrying value is not recoverable. If there is evidence of impairment, we perform a
review to determine if the carrying value of the asset exceeds its recoverable value and is impaired. To perform
impairment testing of assets, we estimate the value-in-use assigned to our property, machinery and equipment, and
cash generating units in the case of certain assets. The value-in-use calculations require us to determine the
future cash flows that are expected to arise from the cash generating units and the appropriate discount rate to
calculate the present value. We use revenue cash flow projections using estimates of market conditions, pricing, and
production and sales volumes.
Valuation of Derivative Financial Instruments
We use valuation techniques for our derivative financial instruments, which include information that is not always
based on observable market data, in order to estimate the fair value of certain financial instruments. Note 11 to our
audited financial statements includes detailed information about the key assumptions we consider in determining fair
value of our financial instruments, as well as a detailed sensitivity analysis relating to these assumptions. Our
management considers that the valuation techniques and the assumptions used are appropriate for determining the
fair value of our financial instruments.
Contingencies
Due to the nature of our operations, we are subject to transactions and contingent events with respect to which
we must utilize our professional judgment in developing estimates of the probability of occurrence. The factors that
we consider in making such estimates are the actual legal situation at the date of estimate and the opinion of our
legal advisors.
Employee Benefit Retirement Assets
We use assumptions to determine employee retirement benefits and to calculate the best estimate of these
benefits on an annual basis. These estimates, as well as the assumptions, are established in conjunction with
independent actuaries. These assumptions include demographic assumptions, discount rates and the expected
increases in salaries and future service, among others. Although we estimate that the assumptions we have used are
appropriate, a change in them could affect the value of the assets (liabilities) for these employee benefits and the
statement of comprehensive income in the period in which they occur.
Financial Information by Division, Region and Destination
The following tables set forth our sales volumes and net sales by division, region and destination for the periods
presented below. The information by division presented below differs from that presented in note 28 to our audited
financial statements included elsewhere in this offering memorandum as a consequence of the criteria used for
eliminating intercompany transactions.
47
Sales by Division
Nine months ended September 30,
2014
2013
Net Sales
Volume
Volume
% Change
Net Sales
Volume
Net Sales
(in thousands of tons and millions of pesos)
Metals ....................................................
Building Systems ...................................
Cement ..................................................
Plastics...................................................
Holding and eliminations ......................
Total ......................................................
49
578
1,122
17
—
1,766
Ps$ 5,471
3,946
1,262
603
218
Ps$ 11,500
47
457
467
16
—
987
Ps$ 5,382
2,948
514
571
203
Ps$ 9,618
4%
26%
140%
0%
—
79%
2%
34%
146%
6%
7%
20%
2012
2013
Volume
Metals ..........................................
Building Systems .........................
Cement ........................................
Plastics.........................................
Holding and eliminations ............
Total ............................................
60
608
818
21
–
1,507
2011
Net Sales
Volume
Net Sales
Volume
Ps$
6,919
3,981
1,046
743
240
Ps$ 12,929
64
667
–
22
–
753
Ps$
8,085
4,162
8
797
454
Ps$ 13,506
Nine months ended
September 30,
Ps$ 9,438
4,376
128
708
(145)
Ps$ 14,505
2013
2014
83
652
–
20
–
755
Net Sales
2013
2012
2011
(as a percentage of net sales)
Metals ..........................................................
Building Systems .........................................
Cement ........................................................
Plastics.........................................................
Holding and eliminations ............................
Total ............................................................
48%
34%
11%
5%
2%
100%
56%
31%
5%
6%
2%
100%
54%
31%
8%
6%
1%
100%
60%
31%
0%
6%
3%
100%
65%
30%
1%
5%
(1)%
100%
Sales by Region
The following tables set forth our net sales by region both in value and as a percentage for the periods indicated
below.
Nine months ended
September 30,
2013
2014
2013
2012
2011
North America(1) ........................................... Ps$ 9,202 Ps$
Central America(2) ........................................
534
South America(3) ...........................................
1,546
218
Holding and eliminations
Ps$
11,500
Ps$
Total .............................................................
48
7,275 Ps$ 9,882 Ps$ 9,776 Ps$ 11,534
562
683
816
664
1,578
2,124
2,460
2,452
203
240
454
(145)
9,618 Ps$ 12,929 Ps$ 13,506 Ps$ 14,505
Nine months ended
September 30,
2013
2014
2013
2012
2011
(as a percentage of total net sales)
North America(1) ...........................................
Central America(2).........................................
South America(3) ...........................................
Total .............................................................
(1)
80%
5%
13%
2%
100%
76%
6%
16%
2%
100%
77%
5%
16%
2%
100%
73%
6%
18%
3%
100%
79%
5%
17%
(1)%
100%
Includes the results of our Metals Division, the Plastics Division, and the results of the North American region of our Building Systems
Division, which covers Mexico and the United States.
(2)
Includes the results of the Central American region of our Building Systems Division, which covers Costa Rica, El Salvador and Honduras.
(3)
Includes the results of the South American region of our Building Systems Division, which covers Bolivia, Colombia and Ecuador.
Destination
The following tables set forth our domestic and export sales (excluding sales among our subsidiaries) on a
consolidated basis in terms of volume and net sales, and as a percentage of our total net sales:
2013
2014
Volume(2)
Domestic(1) ...................................................
Exports .........................................................
Total ............................................................
1,715
51
1,766
Net Sales(3)
% of Total
Net Sales
Ps$ 10,145
1,137
218
Ps$11,500
Volume(1)
88%
10%
2%
100%
935
52
987
Net Sales(2)
Ps$ 8,392
1,023
203
Ps$ 9,618
% of Total
Net Sales
87%
11%
2%
100%
2012
2013
Volume(2)
Domestic(1) ..............
Exports ....................
Holding and
eliminations
Total .....................
Net
Sales(3)
% of Total
Net Sales Volume(1)
Net
Sales(2)
2011
% of Total
Net Sales Volume(1)
Net
Sales(2)
% of Total
Net Sales
1,397 Ps$ 10,681
110
2,008
83%
15%
663 Ps$ 11,176
90
1,876
83%
14%
667 Ps$ 12,550
88
2,100
87%
14%
240
1,507 Ps$12,929
2%
100%
454
753 Ps$13,506
3%
100%
(145)
755 Ps$14,505
(1)%
100%
(1)
Includes products sold domestically within each country where they are manufactured or produced.
(2)
In thousands of tons.
(3)
In millions of pesos.
49
Results of Operations
Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013
The following table sets forth certain financial information with respect to our results of operations for the
periods indicated.
2014
2013
% Change
Net sales ........................................................................................................ Ps$ 11,500
8,586
Cost of sales ..................................................................................................
Gross profit ..................................................................................................
2,914
1,775
Operating expenses........................................................................................
(198)
Other income, net(1)......................................................................................
(25)
Exchange income, net....................................................................................
(54)
Interest income ..............................................................................................
355
Interest expense .............................................................................................
53
Banking fees ..................................................................................................
—
Participation in the results of associated entities ...........................................
Income before income taxes and discontinued operations.......................
1,008
308
Income taxes ..................................................................................................
Income from continued operations ............................................................
700
Discontinued operations:
82
Loss from discontinued operations, Net .......................................................
Consolidated net income ............................................................................. Ps$
618
EBITDA(2) ................................................................................................... Ps$ 2,062
(1)
(2)
Ps$
Ps$
Ps$
9,618
7,435
2,183
1,556
(115)
42
(34)
217
80
(13)
450
106
344
20%
15%
33%
14%
72%
(160)%
59%
64%
(34)%
(100)%
124%
191%
103%
23
321
1,232
257%
93%
67%
See note 16 to our consolidated financial statements for more details.
EBITDA is not a financial measure recognized by IFRS. EBITDA should not be considered as a substitute for net income, cash flow
provided by operations or other measures of financial performance or liquidity under IFRS. Our presentation of EBITDA may not be
comparable to similarly titled measures provided by other companies.
Net Sales
In the nine months ended September 30, 2014, net sales amounted to Ps$11,500 million, an increase of 20%
compared to net sales of Ps$9,618 million during the same period in 2013. This increase was primarily due to the
inclusion of the sales of the Cement Division, as well as the increases in volume in the Building Systems Division.
Consolidated sales volumes in the nine months ended September 30, 2014 were 1,766 thousand tons,
representing an increase of 79% over the same period last year. By business division, volumes performed as
follows: in Metals, 49 thousand tons, an increase of 4%; in Building Systems, 578 thousand tons, an increase of
26%, mainly as a result of an increase in sales volume in the United States due to the inclusion of the Allura brand;
in Cement, 1,122 thousand tons, an increase of 140%, due to the commencement of operations at the El Palmar
cement plant and the consolidation of the Lafarge Joint Venture, which began in August 2013; and in Plastics, 17
thousand tons, without variation, in each case as compared to the same period in 2013. As a percentage of net sales,
in the nine months ended September 30, 2014, the Metals Division represented 48%, the Building Systems Division
34%, the Cement Division 11% and the Plastics Division 5%, while in the nine months ended September 30, 2013,
the Metals Division represented 56%, the Building Systems Division 31%, the Cement Division 5% and the Plastics
Division 6%. We expect to continue experiencing constant growth across all of our divisions through organic
growth or potential future acquisitions.
Net sales by business division in the nine months ended September 30, 2014 were Ps$5,471 million for Metals,
Ps$3,946 million for Building Systems, Ps$1,262 million for Cement and Ps$603 million for Plastics, compared
with the following amounts for the same period in 2013: Ps$5,382 million for Metals, Ps$2,948 million for Building
Systems, Ps$514 million for Cement and Ps$571 for Plastics. The increase in net sales in the Metals Division in the
nine months ended September 30, 2014 was due to an increase in the sales volume of 4% compared to the same
50
period in 2013. Net sales in the Building Systems Division increased due to increases in volume and average price.
In the Cement Division, the increase in net sales was primarily due to the commencement of operations at the El
Palmar plant and the consolidation of the Lafarge Joint Venture. Volume in the Plastics Division remained
unchanged, although there was an increase of 5% in the average price.
Cost of Sales
Cost of sales in the nine months ended September 30, 2014 was Ps$8,586 million, an increase of 15% or
Ps$1,151 million as compared with Ps$7,435 million in the nine months ended September 30, 2013. The increase in
cost of sales was mainly due to (i) an increase in the volume sold due to the full operation of the Cement Division in
the nine months ended September 30, 2014, whose variable costs increase or decrease relative to the volume in
terms of raw materials, labor, fuel, energy and manufacturing costs, and (ii) the expansion of operations in the
United States, primarily our Allura brand from March to September 2014. The cost of sales as a percentage of net
sales improved slightly to 75% in the nine months ended September 30, 2014 as compared to 77% in the nine
months ended September 30, 2013, due to the better margin of the products in the Cement Division. Additionally,
we can experience significant changes in our cost of sales due to the peso-U.S. dollar exchange rate or fluctuations
in the price of metals, which are generally passed through proportionally in net sales.
Gross Profit
The incorporation of the Cement Division, along with its better margins and the consequent increase in volume
and net sales as compared to our other divisions drove gross profit in the nine months ended September 30, 2014 to
Ps$2,914 million, an increase of 33% compared to gross profit of Ps$2,183 million in the same period in 2013. The
margin with respect to net sales improved in the nine months ended September 30, 2014, reaching 25% as compared
to 23% in the nine months ended September 30, 2013. Our higher gross margins are driven primarily by the Cement
Division, which should improve due to volume growth in the division. However, the increase experienced in the
prior period will be difficult to replicate unless we engage in additional business acquisitions or invest in capacity
expansion.
Operating Expenses
Operating expenses (including cost of sales, and distribution, marketing and administrative costs) in the nine
months ended September 30, 2014 were Ps$1,775 million, an increase of 14% or Ps$219 million as compared to
operating expenses of Ps$1,556 million in the same period in 2013. The increase in operating expenses was mainly
due to the consolidation of the Cement Division, as well as the increase in expenses of the Building Systems
Division due to the greater sales volume of the operations in the United States upon incorporation of the Allura
brand. Operating expenses (including marketing, distribution and administrative) increased as compared to the same
period in the previous year, due to the incorporation and growth of the Cement Division, due to both the
consolidation of the Lafarge Joint Venture and the acquisition of the fiber cement business of CertainTeed
Corporation in the United States. We expect these operating expenses to be recurring and could see an increase due
to organizational growth or further acquisitions
Other Income, Net
In the nine months ended September 30, 2014, we recorded other income, net of Ps$198 million, an increase of
Ps$83 million compared to Ps$115 million recorded in the same period in 2013. The increase in other income, net
was primarily due to the bargain purchase gain from the acquisition of CertainTeed Corporation, offsetting other
litigation expenses, asset retirement costs and others. This bargain purchase gain is preliminary and it remains
subject to change or adjustment due to our continued review of the valuation of the assets acquired in the
transaction. As a result, such gain may vary due to a change in the final valuation, which is not expected to be
significant.
Financing Result, Net
The financing result, net for the nine months ended September 30, 2014 was Ps$329 million, an increase of
Ps$24 million compared to Ps$305 million for the same period in 2013. The increase in net financing expense was
primarily due to the capitalizing of interest and commissions paid to financial institutions during construction of the
El Palmar plant in 2013, which commenced operations in March 2013. This capitalization concluded on June 30,
2013.
51
The following table shows a breakdown of the net financing result for the periods indicated:
2014
2013
% Change
Interest income ......................................................................
Banking fees ..........................................................................
Interest expense .....................................................................
Exchange income (loss), net ..................................................
Total financing result, net ...................................................
(54)
53
355
(25)
329
(34)
80
217
42
305
59%
(34)%
64%
(160)%
8%
Income Taxes
Current and deferred income taxes amounted to Ps$308 million in the nine months ended September 30, 2014,
an increase of Ps$202 million compared to current and deferred income taxes of Ps$106 million for the same period
in 2013. This increase was a consequence of the increase in income before income taxes in the 2014 period.
Consolidated Net Income
Consolidated net income in the nine months ended September 30, 2014 was Ps$618 million, an increase of 93%
or Ps$297 million compared to consolidated net income in the nine months ended September 30, 2013, which
amounted to Ps$321 million. The increase in consolidated net income was due to the increase in the operations of
our three principal divisions, Cement, Building Systems and Metals, which obtained incremental net income that
contributed to our consolidated results.
EBITDA
EBITDA in the nine months ended September 30, 2014 was Ps$2,062 million, an increase of Ps$830 million or
67% compared to the same period in 2013. The EBITDA margin to net sales was 18% in the nine months ended
September 30, 2014 as compared to a margin of 13% in the nine months ended September 30, 2013. This increase
was generated by the greater sales volume in the divisions and the better income margin in the Cement and Building
Systems Divisions.
Division Information for Nine Months Ended September 30, 2014 Compared to Nine Months Ended
September 30, 2013
Building Systems
Metals
Nine months ended
September 30,
2014
2013
(millions of pesos)
Net sales ........... 5,471
Gross profit ...... 564
Operating
expenses ...... 340
EBITDA(1) ...... 661
(1)
Nine months ended
September 30,
2014
(%
change)
2013
(millions of pesos)
Cement
Plastics
Nine months ended
September 30,
Nine months ended
September 30,
2014
(%
change)
2013
(millions of pesos)
2014
2013
(%
change)
(millions of pesos)
(%
change)
5,382
493
2%
14%
3,946
1,448
2,948
1,061
34%
36%
1,262
353
514
189
146%
87%
603
166
571
152
6%
9%
311
427
9%
55%
903
752
744
516
21%
46%
170
406
122
147
39%
176%
86
115
72
106
19%
9%
Metals Division
For the nine months ended September 30, 2014, the Metals Division reported a sales volume of 49 thousand
tons, an increase of 4% compared to the volume in the nine months ended September 30, 2013, mainly due to the
increased sales volume in sheets and piping. Net sales amounted to Ps$5,471 million, an increase of 2% as
compared to Ps$5,382 million in the same period in 2013, despite the decrease in the value of metals, primarily
52
copper, whose average international quoted price in the nine months ended September 30, 2014 was US$3.17 per
pound, compared to the quoted price for the same period in 2013, which was US$3.36 per pound, which represents a
decrease of 6% in the price of the metal, affecting a decrease in the average price of our products by 3%. In the
industrial sector, we increased our market participation in tubes as well as sheets for benches and connections. Also,
in Mexico the demand in the construction sector continued to contract resulting in less volume for piping and
connections, adding to the effect of aggressive pricing on the part of our principal competitors, IUSA and Golden
Dragon. We believe that our competitors may continue to employ aggressive pricing schemes.
Gross profit in the nine months ended September 30, 2014 of the Metals Division increased by Ps$71 million,
or 14%, to Ps$564 million compared to Ps$493 million for the same period in 2013. This increase was due to the
reduction in the cost of sales as a result of (i) increased efficiency in the use of our metals, (ii) an improved
production process due to the implementation of a continuous casting process (24/365), and (iii) a decrease in costs
due to increased synergies resulting from the closing of the Toluca plant in the State of Mexico, Mexico, and
transferring its operations to the Celaya plant in Guanajuato, Mexico. Operating expenses in the nine months ended
September 30, 2014 amounted to Ps$340 million, an increase of 9% as compared to expenses for the same period in
2013, which amounted to Ps$311 million. EBITDA in the nine months ended September 30, 2014 amounted to
Ps$661 million, compared to Ps$427 million in the nine months ended September 30, 2013, representing an increase
of 55% or Ps$234 million. This increase in EBITDA is mainly due to increased efficiencies in the cost of
production, as well as costs and expenses synergies resulting from the closing of the Toluca plant and the transfer of
its operations to the Celaya plant in Guanajuato, Mexico.
Building Systems Division
Sales volumes in the nine months ended September 30, 2014 for the Building Systems Division amounted to
578 thousand tons, an increase of 26% compared to the same period in 2013, primarily due to the greater volume
sold in the North America region (United States) due to the inclusion of Allura. Net sales in the nine months ended
September 30, 2014 were Ps$3,946 million, an increase of 34% or Ps$998 million compared to Ps$2,948 million in
the same period in 2013, mainly due to the increased sales volume in several products, including trims, sidings and
sheets.
The Building Systems Division in the nine months ended September 30, 2014 recorded gross profit of Ps$1,448
million, an increase of 36% or Ps$387 million compared to gross profit recorded in the nine months ended
September 30, 2013 of Ps$1,061 million, as a result of the increase in volume reflected in net sales, primarily due to
the incorporation of the Allura brand and the 1% decrease in marginal cost of sales. Operating expenses in the nine
months ended September 30, 2014 were Ps$903 million, an increase of 21% or Ps$159 million compared to
operating expenses of Ps$744 million in the same period in 2013. This increase was only due to the greater volume
of sales of the operations in the United States upon the incorporation of the Allura brand, resulting in an increase in
selling, distribution, marketing and administrative expenses for this division. EBITDA for the nine months ended
September 30, 2014 amounted to Ps$752 million, an increase of Ps$236 million or 46% compared to the same
period in 2013, a result of higher sales volume due to the incorporation of the Allura brand and the improvement in
gross operating margin. The EBITDA margin to net sales was 19% in the nine months ended September 30, 2014,
compared to a margin of 18% for the nine months ended September 30, 2013.
Cement Division
The volume of sales for the nine months ended September 30, 2014 of the Cement Division was 1,122 thousand
tons, an increase of 140% compared to 467 thousand tons in the same period in 2013. The increase in volume as
compared to 2013 was due to the commencement of operations of the El Palmar plant and the consolidation of the
Lafarge Joint Venture, which commenced in August 2013. Sales in the nine months ended September 30, 2014
amounted to Ps$1,262 million, compared to Ps$514 million in the same period in 2013.
The Cement Division in the nine months ended September 30, 2014 recorded gross profit of Ps$353 million, an
increase of 87% or Ps$164 million compared to the gross profit generated in the nine months ended September 30,
2013 of Ps$189 million. This was a result of the increase in volume reflected in net sales. Operating expenses in the
nine months ended September 30, 2014 of this division amounted to Ps$170 million, an increase of Ps$48 million
compared to operating expenses of Ps$122 million for the same period in 2013. This increase was due to the greater
sales volume. EBITDA in the nine months ended September 30, 2014 was Ps$406 million, an increase of Ps$259
53
million or 176% compared to the same period in 2013. The EBITDA margin to net sales amounted to 32% for the
nine months ended September 30, 2014.
Plastics Division
The volume sold in the Plastics Division in the nine months ended September 30, 2014 and the nine months
ended September 30, 2013 was 17 thousand tons and 16 thousand tons, respectively. Due to the change in the mix of
volume and prices of products, mainly water tanks and plastic sheets, net sales amounted to Ps$603 million in the
nine months ended September 30, 2014 compared to Ps$571 million in the nine months ended September 30, 2013,
an increase of 6%.
This division in the nine months ended September 30, 2014 recorded gross profit of Ps$166 million, an increase
of 9% compared to Ps$152 million for the same period in 2013, primarily due to the increase in sales. Operating
expenses in the nine months ended September 30, 2014 of this division were Ps$86 million, compared to Ps$72
million for the same period in 2013. EBITDA of this division in the nine months ended September 30, 2014 and
2013 was Ps$115 million and Ps$106 million, respectively, or 19% as a margin to net sales for both periods.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
periods indicated.
2013
2012
% Change
Continued operations:
Net sales ................................................................................ Ps$ 12,929
9,908
Cost of sales ..........................................................................
Gross profit ..........................................................................
3,021
Operating expenses................................................................
2,125
Other income, net(1)..............................................................
(301)
Exchange loss ........................................................................
48
Interest income ......................................................................
(46)
421
Banking fees ..........................................................................
49
(4)
Participation in the results of associated entities ..................
Income before income taxes and discontinued
operations .........................................................................
729
177
Income taxes ..........................................................................
Income from continued operations ....................................
552
60
Loss from discontinued operations, Net ................................
Consolidated net income for the year ................................ Ps$
492
EBITDA(2) ............................................................................ Ps$ 1,913
(1)
(2)
Ps$ 13,506
10,273
3,233
1,888
(21)
345
(31)
289
20
(35)
(4)%
(4)%
(7)%
13%
1,333%
(86)%
47%
46%
145%
(89)%
778
(38)
816
(6)%
566%
(32)%
Ps$
Ps$
501
315
1,877
(88)%
56%
2%
Net Sales
Net sales in 2013 were Ps$12,929 million, a decrease of 4% compared to 2012. Net sales decreased primarily
due to a fall in the prices of metals. The average price of copper decreased 7.5% in 2013 as compared to 2012,
which directly impacted the sales prices of our Metals Division products. In addition, the volume of sales decreased
6% in the Metals Division, where we experienced a consistent decrease in sales, both domestically and in exports,
mainly with regard to sheets.
54
The decrease in net sales was also due the governments of Mexico and Colombia continuing to delay their
infrastructure and construction projects, which negatively affected sales volume and in turn caused a proportionate
decrease in net sales and cost of sales in the Building Systems Division. Also in this division, the selling prices of
our products increased 5% in 2013 relative to 2012. The decreases in net sales in the two aforementioned divisions
was offset in part by the incorporation of the results of the new Cement Division.
Cost of Sales
The cost of products sold on a consolidated basis in 2013 was Ps$9,908 million, a decrease of 4% compared to
2012. Cost of sales decreased by a lower proportion than sales due to the increase in depreciation in 2013 as
compared to 2012 due to the revaluation of assets and the depreciation arising out of the incorporation of the assets
of the Cement Division into our continuing operations.
Gross Profit
Gross profit decreased by Ps$212 million mainly due to the decrease in net sales. Gross profit represented 23%
of sales in 2013, a margin which is almost unchanged from 24% in 2012.
Operating Expenses
In 2013, operating expenses amounted to Ps$2,125 million, an increase of 13% compared to Ps$1,888 million in
2012, due to the expenses for the commencement of operations of the new Cement Division, for which we incurred
significant marketing expenses, including with respect to a significant marketing campaign to position the Cementos
Fortaleza brand in a competitive market, as well as the development of almost 800 distributors. For the same reason,
wages and salary expenses also increased as well as depreciation and amortization charged to expenses.
Other Income, Net
Other income increased by Ps$280 million in 2013 compared to 2012, primarily due to the sale of property,
plant and equipment (see Note 12 to our consolidated financial statements for more details) and similarly due to
income from recovery of the Tax on Assets (Impuesto al Activo) and other income from cancellation of balance
sheet accounts from reconciliation thereof.
The composition of other income, net in 2013 and 2012 was as follows:
2012
2013
Sale of property, plant and equipment .....................................................
Recovery of the Tax on Assets ................................................................
Discharge of debt.....................................................................................
Deterioration of long-term assets ............................................................
Cancellation of balance sheet accounts ...................................................
Provision for contingencies .....................................................................
Total ........................................................................................................
(215)
(26)
–
–
(60)
–
(301)
(118)
–
(22)
40
29
50
(21)
The financing result, net in 2013 was Ps$473 million, a decrease of Ps$151 million compared to Ps$622 million
in 2012. The net financing expense decreased primarily due to a decrease in the exchange loss in the amount of
Ps$296 million, from the effect of conversion of the functional currency of the Metals Division, and an increase of
Ps$132 million in the expense for payment of interest, which was due to the capitalizing of interest and
commissions paid to financial institutions for the construction of the El Palmar plant during 2012 and up to the first
half of 2013. During the second half of 2013, after the commencement of operations at El Palmar, these interest
payments were recognized within results as interest expense.
55
2013
2012
% Change
Interest income ......................................................................
Banking fees ..........................................................................
Exchange loss, net .................................................................
Total financing result, net ...................................................
(46)
48
421
49
473
(31)
19
289
345
622
48%
145%
46%
(86)%
(24)%
Income Taxes
Income taxes increased mainly due to the current income tax in 2013 in the amount of Ps$616 million,
compared to the tax of Ps$229 million in 2012, due to the effect of tax deconsolidation which was recognized and
should be paid in the five fiscal years beginning in fiscal year 2014. This effect was offset by the increase in the
recording of a deferred tax benefit of Ps$394 million, due to the benefit from amortization of the loss from the sale
of shares that was obtained in 2012, as a result of which this tax asset benefit was recognized.
Consolidated Net Income
Consolidated net income in 2013 amounted to Ps$492 million, an increase of 56% compared to Ps$315 million
in 2012. Consolidated net income increased due to the decrease in losses from discontinued operations from a loss
of Ps$501 million in 2012 to a loss of Ps$60 million in 2013 (see Note 26 to our consolidated financial statements
for more details), as well as an increase in net income in the Metals and Cement Divisions. The net income margin
in 2013 was 4% compared to 2% in 2012.
EBITDA
EBITDA in 2013 was Ps$1,913 million, an increase of 2% compared to Ps$1,877 million in 2012 and with a
margin to sales of 15% and 14%, respectively. This was due to the commencement of operations of the Cement
Division in 2013.
Division Information for Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Building Systems
Metals
Year ended
December 31,
2013
2012
(millions of pesos)
Cement
Year ended
December 31,
2013
(%
change)
2012
( millions of pesos)
Plastics
Year ended
December 31,
2013
(%
change)
Year ended
December 31,
2012
2013
(%
change)
2012
(%
change)
Net sales ........... 6,919
8,085
(14)%
3,981
4,162
(4)%
1,046
8
12,975%
743
797
(7)%
Gross profit ......
Operating
expenses ......
692
1,019
(32)%
1,421
1,489
(5)%
451
6
7,417%
177
232
(24)%
508
671
(24)%
872
819
7%
350
9
3,789%
79
129
(39)%
EBITDA(1) ......
658
716
(8)%
806
883
(9)%
238
(3)
8,033%
137
122
12%
(1)
56
Metals Division
This division reported net sales of Ps$6,919 million in 2013, a decrease of 14% compared to Ps$8,085 million
in 2012. In general, the Metals Division decreased its volume of sales, from 64 thousand tons in 2012 to 60
thousand tons in 2013, or a decrease of 6%. In addition, the sales prices decreased significantly by 9% on average, a
reflection of the international prices of metals during 2013. The greater participation in plastic tubing in the
construction sector and the price of copper compared to the price of plastic generated the main decrease in volume
of this division. On the other hand, we were able to offset this effect in part by increasing our participation in
different sectors of the market, including the industrial and automotive sectors.
Gross profit in 2013 for the Metals Division was Ps$692 million compared to Ps$1,019 million in 2012.
Operating expenses in 2013 were Ps$508 million, a decrease of 24% compared to Ps$671 million in 2012. EBITDA
in 2013 amounted to Ps$658 million compared to Ps$716 million in 2012, due to the decreased volume and prices in
this division.
The sales volume in 2013 in the Building Systems Division amounted to 608 thousand tons compared to 667
thousand tons in 2012. The decrease in sales volume was mainly due to the fact the governments of Mexico and
Colombia postponed their infrastructure and construction contracts, which affected net sales in the Building Systems
Division, which were Ps$3,981 million and Ps$4,162 million in 2013 and 2012, respectively.
In 2013, the Building Systems division had gross profit of Ps$1,421 million compared to gross profit in 2012 of
Ps$1,489 million as a result of the decrease in the sales volumes, primarily in Mexico and Colombia. Operating
expenses amounted to Ps$872 million in 2013 and Ps$819 million in 2012, increasing due to annual inflation and the
change in the sales structures. EBITDA was Ps$806 million with a margin of 20% and Ps$883 million with a margin
of 21% in 2013 and 2012, respectively, decreasing primarily due to the lower sales in this division.
Cement Division
The Cement Division commenced operations in 2013 upon the conclusion of the construction of the El Palmar
cement plant. Similarly, the Lafarge Joint Venture was consolidated, which commenced in August 2013. The sales
volume in this division amounted to 818 thousand tons, translating into net sales of Ps$1,046 million.
Gross profit in the first year of operations amounted to Ps$451 million, representing a margin to net sales of
43%. Operating expenses of this division were Ps$350 million, corresponding to the volume sold in 2013 and a
significant investment in expenses for promotion and publicity focused on the launch of the Cementos Fortaleza
brand and the development of a distribution network in its zone of influence. Operations in 2013 of the Cement
Division resulted in EBITDA of Ps$238 million with a margin to net sales of 23%.
Plastics Division
Net sales in 2013 in the Plastics Division were Ps$743 million compared to Ps$797 million in 2012. The sales
volume of this division decreased approximately one thousand tons to 21 thousand tons sold in 2013 compared to
22 thousand tons sold in 2012. The reduction in net sales was due to a change in the mix of volume and price of
products sold, mainly water tanks, and extrusion and expansion products.
Gross profit was Ps$177 million in 2013, compared to Ps$232 million in 2012, originating from the decrease in
net sales. Operating expenses decreased from Ps$129 million in 2012 to Ps$79 million in 2013, due to the reduction
in administrative services provided to our subsidiaries. EBITDA in the Plastics Division in 2013 was Ps$137 million
compared to Ps$122 million in 2012, an increase of 12% due mainly to the decrease in operating expenses. EBITDA
margins to net sales were 18% in 2013 and 15% in 2012.
57
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
periods indicated.
2012
2011
% Change
Continued operations:
Net sales ................................................................................ Ps$ 13,506
10,273
Cost of sales ..........................................................................
Gross profit ..........................................................................
3,233
1,888
Operating expenses................................................................
Other income, net(1)..............................................................
(21)
Exchange loss (income).........................................................
345
Interest income ......................................................................
(31)
289
Banking fees ..........................................................................
20
(35)
Participation in the results of associated entities ..................
Income before income taxes and discontinued
operations .........................................................................
778
(38)
Income taxes ..........................................................................
Income from continued operations ....................................
816
501
Loss from discontinued operations, Net ................................
315
Consolidated net income (loss) for the year ...................... Ps$
EBITDA(2) ............................................................................ Ps$ 1,877
(1)
(2)
Ps$ 14,505
11,463
3,042
1,859
(89)
(138)
(34)
467
14
–
Ps$
Ps$
(7)%
(10)%
6%
2%
(76)%
(350)%
(9)%
(38)%
43%
N/A
963
440
523
(19)%
(109)%
56%
828
(305)
1,749
(39)%
203%
7%
Net Sales
Net sales in 2012 were Ps$13,506 million compared to Ps$14,505 million in 2011. Notwithstanding the
decrease in net sales, sales volume remained constant and without a significant variation in 2012 and 2011, however,
sales volume increased in the Building Systems Division, while decreasing 23% in the Metals Division mainly due
to the divestment of Almexa Aluminio, S.A. de C.V., as well as the decreases in the prices of metals (copper 10%,
zinc 11% and nickel 27%), which impacted the sales price of the products in the Metals Division, decreasing 13%
on average. Additionally, during 2012 countries such as Mexico and Colombia postponed their infrastructure and
construction projects. The Building Systems Division experienced a decrease in its net sales due to a change in the
mix of volume sold, including lower sales volume and prices for fiber cement tubing, soffits and others, as well as a
decrease in the sales prices in some countries, primarily in Mexico. The Plastics Division contributed to net sales in
2012, with an increase its net sales by Ps$89 million, an increase of 13% with respect to 2011, mainly due to the sale
of expansion and extrusion products, and sheets in Mexico and Peru, respectively.
Cost of Sales
Cost of sales in 2012 was Ps$10,273 million, compared to Ps$11,463 million in 2011, representing a decrease
of 10% compared to 2011. This decrease is a reflection of the decrease in the cost of the Metals Division, which is
related directly to the price of metals, which permitted cost of sales as a percentage of net sales to remain practically
constant in both years for the Metals Division. Similarly, the Building Systems Division reflects a lower cost of
sales correlating strongly with its net sales, with lower consumption of cement in 2012 than in 2011 resulting from
decreased production and sales of fiber cement tubing, maintaining the percentages of net sales at 64% for 2012 as
well as 2011. In the Plastics Division, the cost of sales increased in 2012 as compared to 2011 due to a higher
volume of products sold in 2012.
58
Gross Profit
Gross profit in 2012 amounted to Ps$3,233 million, increasing 6% in comparison with the gross profit in
2011 of Ps$3,042 million. This was the result of a lower cost of sales of the products in the Plastics Division that
contributed to gross profit with Ps$62 million, an increase of 37% compared to 2011, as a result of which the
consolidated margin with respect to consolidated net sales improved in 2012 at 24% compared to 21% in 2011.
Similarly, the Cement Division registered an increase of Ps$121 million, corresponding to sales to Grupo Kaluz.
Operating Expenses
Operating expenses in 2012 were Ps$1,888 million compared to Ps$1,859 million in 2011, which was a
reflection of the annual increase in inflation and due to the increased volume of sales in the Plastics Division, which
generated a variety of increased costs. Among these costs were costs of sales, distribution, marketing and
administration. These costs were offset by a Ps$149 million reduction in operating costs in the Metals Division due
to a 14% decrease in sales as compared to 2011. Expenses as a percentage of sales were 14% and 13% in 2012 and
2011, respectively.
Other Income, Net
In 2012, other income, net was Ps$21 million, compared to Ps$89 million in 2011 mainly due to the sale of
fixed assets. See Note 12 to our consolidated financial statements for more details.
The composition of other income, net for 2012 and 2011 was as follows:
2012
2011
Sale of property, plant and equipment .....................................................
Discharge of debt.....................................................................................
Deterioration of long-term assets ............................................................
Cancellation of balance sheet accounts ...................................................
Provision for contingencies .....................................................................
Total ........................................................................................................
(118)
(22)
40
29
50
(21)
(238)
–
142
7
–
(89)
Financing result, net was Ps$623 million and Ps$309 million in 2012 and 2011, respectively. Net financing
expense increased due to interest costs and exchange losses capitalized in fixed assets related to the Ps$150 million
construction of the El Palmar cement plant in 2012. Similarly, in the second half of 2011 a planned prepayment of
syndicated credit took place, being replaced by a similar credit facility that produced greater financial flexibility and
allowed for a reduction in financing costs during 2012. Net financing expenses also increased due to an exchange
loss fluctuation from the conversion of the functional currency in the Metals Division.
2012
2011
% Change
Interest income .....................................................................
Banking fees .........................................................................
Interest expense ....................................................................
Exchange loss (income), net .................................................
Total financing result, net ..................................................
59
(31)
20
289
345
623
(34)
14
467
(138)
309
(9)%
43%
(38)%
350%
102%
Income Taxes
The current and deferred income tax amounted to income of Ps$38 million in 2012, compared to an expense of
Ps$440 million in 2011. Income from income taxes increased mainly due to the amortization of losses from the sale
of shares that were amortized in consolidation in 2012.
Consolidated Net Income (Loss)
In 2012, we had consolidated net income of Ps$315 million, compared to consolidated net loss of Ps$305
million in 2011, primarily due to the decrease of the tax between 2012 and 2011 and a decrease of Ps$327 million in
the loss from discontinued operations from a loss from discontinued operations of Ps$828 million in 2011 to a loss
from discontinued operations of Ps$501 million in 2012. See Note 26 to our consolidated financial statements for
more details.
EBITDA
We increased EBITDA by 7%, reaching Ps$1,877 million in 2012 compared to Ps$1,749 million in 2011. The
EBITDA margin to net sales was 14% in 2012 and 12% in 2011. This result is derived from the better operations of
the Building Systems, which resulted from a reduction in operating costs due to the partial closing of the Mexalit
Plant in Chihuahua, Mexico (specifically, the A.C. tubing production line), and of the Plastics Division, which
resulted from an increase in sales.
Division Information for Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Building Systems
Metals
Year ended
December 31,
2012
Year ended
December 31,
2011
(millions of pesos)
Plastics
2012
(% change)
Year ended
December 31,
2011
2012
(% change)
2011
(% change)
Net sales ...............
8,085
9,438
(14)%
4,162
4,376
(5)%
797
708
13%
Gross profit ..........
Operating costs.....
1,019
671
1,292
820
(21)%
(18)%
1,489
819
1,554
996
(4)%
(18)%
232
129
170
77
36%
68%
EBITDA(1) ..........
716
865
(17)%
883
719
23%
122
100
22%
(1)
Metals Division
Net sales in the Metals Division amounted to Ps$8,085 million in 2012 compared to Ps$9,438 million in 2011.
This decrease was primarily due to the fall in the price of the metals (copper 10%, zinc 11% and nickel 27%), which
directly impacted the sales price of Metals Divisions products by 11%, on average. Net sales also decreased because
of a 23% reduction in the volume sold in this division, principally due to the divestment of its subsidiary, Almexa
Aluminio, S.A. de C.V., and a reduction in the sale of tubing.
Gross profit in 2012 of the Metals Division was Ps$1,019 million, compared to Ps$1,292 million in 2011. This
decrease corresponds primarily to the decrease in the prices of the metals, which was offset by a proportional
decrease in the cost of sales, also due to the fall in metals prices. The margin of gross profit to net sales was 13% in
2012 and 14% in 2011. Operating expenses of this division were Ps$671 million, a decrease of 18% compared to
Ps$820 million in 2011 due to a significant cut in expenses for administration, primarily due to corporate
restructuring. As a result of the foregoing, EBITDA was Ps$716 million with a margin to net sales of 9% and
Ps$865 million with a margin to net sales of 9% in 2012 and 2011, respectively.
60
The Building Systems division had net sales of Ps$4,162 million and Ps$4,376 million in 2012 and 2011,
respectively, representing a 2% increase in volume of sales over 2011, largely due to an increase in sales of sheeting,
tiles and molding, paneling and siding. Net sales did not increase due to a change in the mix of volume and price of
products sold, with an increase in the volume of paneling and siding sold and a decrease in sales of framing, A.C.
piping and other products in Mexico.
Gross profit was Ps$1,489 million with a margin to net sales of 36% in 2012, compared with Ps$1,554 million
with a margin to net sales of 36% in 2011. Operating expenses in this division amounted to Ps$819 million in 2012
and Ps$996 million in 2011, representing a decrease of 18%, derived from a significant cut in expenses for
administration that resulted from the partial closing of the Mexalit plant in Chihuahua, Mexico (specifically, the
A.C. piping production line). EBITDA of the Building Systems Division in 2012 was Ps$883 million and Ps$719
million in 2011, representing an increase of 23% that resulted from a reduction in operating costs due to the partial
closing of the Mexalit plant and caused the margin to net sales to improve from 16% in 2011 to 21% in 2012.
Plastics Division
Net sales in the Plastics Division were Ps$797 million in 2012, an increase of 13% compared to Ps$708 million
in 2011. The volume of products sold increased by 10% due to increased volume of sales of water tanks and
extrusion and expansion products, while the average sales price of its products remained constant. This division had
gross profit of Ps$232 million with a margin to net sales of 29% in 2012 and Ps$170 million with a margin to net
sales of 24% in 2011. Operating expenses of the Plastics Division were Ps$129 million in 2012 and Ps$77 million
in 2011, as a result of the increase in sales volume, which caused increases in costs of sales, distribution, marketing
and administration. EBITDA of this division reached Ps$122 million in 2012 and Ps$100 million in 2011, an
increase of 22% that was largely caused by increased sales volume, with margins to net sales of 15% in 2012 and
14% in 2011.
Liquidity and Capital Resources
Our financial condition and liquidity is and will continue to be influenced by a variety of factors, including:

our ability to generate cash flow from our operations;

the level of our outstanding indebtedness and the interest we are obliged to pay on this indebtedness;

changes in exchange rates which will impact our generation of cash flows from operations when measured
in U.S. dollars; and

our capital expenditure requirements.
Our main sources of financing consist of bank facilities and capital contributions carried out by our
shareholders. We have generated cash flows from operations in the normal course of our business, and have made
use of credit facilities and issued debt securities traded and listed on the BMV, as well as received capital
contributions from our shareholders.
In addition to the Ps$3,000 million five-year term notes raised through issuance of ELEMENT 10 Certificados
Bursátiles, we have access to long-term capital markets financing of up to Ps$2,000 million through our long-term
CEBURES Elementia program.
We intend to enter into foreign exchange hedging arrangements with regards to the notes.
As of September 30, 2014, our financial liabilities consisted of Ps$494 million of short-term liabilities and
Ps$6,029 million of long-term liabilities. As of December 31, 2013, our financial liabilities consisted of Ps$193
million of short-term liabilities and Ps$6,342 million of long-term liabilities.
61
The table below sets forth our liquidity ratios as of the dates indicated.
As of December 31,
As of September 30,
Liquidity Ratios
2014
2013
2013
2012
2011
Current assets / short-term liabilities .................................
Current assets – inventories / short-term liabilities ...........
Current assets / total liabilities ..........................................
Liquid assets(1) / short-term liabilities ..............................
1.78
1.26
0.68
0.45
1.93
1.44
0.65
0.47
2.03
1.47
0.69
0.50
2.20
1.50
0.70
0.50
1.88
1.44
0.70
0.72
(1)
Liquid assets include cash and cash equivalents.
Indebtedness
The following table presents our indebtedness as of September 30, 2014 and December 31, 2013 in Mexican
pesos, unless otherwise noted.
September 30,
2014
December 31,
2013
(in thousands of pesos)
Certificados bursátiles (CEBUR) in the amount of Ps$3 billion, accruing
monthly interest at a rate of TIIE plus 2.75 basis points, maturing on October
22, 2015 ..................................................................................................................... Ps$ 3,000,000
Banamex (Nacional de Cobre, S.A. de C.V. and Mexalit Industrial, S.A. de
C.V.) promissory notes accruing monthly interest at a rate of TIIE plus 1.5
basis points, principal payable beginning in June 2015 and interest in monthly
installments beginning in April 2013, with maturity in 2018. Elementia, S.A.
de C.V. and Frigocel, S.A. de C.V. subsidiaries are guarantors .................................
406,034
BBVA Bancomer (Nacional de Cobre, S.A. de C.V. and Mexalit Industrial,
S.A. de C.V.) promissory notes accruing monthly interest at a rate of TIIE plus
1.5 basis points, principal payable beginning in June 2015 and interest in
monthly installments beginning in April 2013, maturing in April 2018.
Elementia, S.A. de C.V. and Frigocel, S.A. de C.V. subsidiaries are guarantors .......
406,034
Banco HSBC (Nacional de Cobre, S.A. de C.V. and Mexalit Industrial, S.A. de
C.V.) promissory notes accruing monthly interest at a rate of TIIE plus 1.5
installments beginning in April 2013, maturing in April 2018. Elementia, S.A.
406,034
Banco Inbursa (Nacional de Cobre, S.A. de C.V. and Mexalit Industrial, S.A.
de C.V.) promissory notes accruing monthly interest at a rate of TIIE plus 1.5
installments beginning in April 2013, maturing in April 2018. Elementia, S.A.
406,034
Banco Santander (Nacional de Cobre, S.A. de C.V. and Mexalit Industrial,
S.A. de C.V.) promissory notes accruing monthly interest at a rate of TIIE plus
1.5 basis points, principal payable beginning in June 2015 and interest in
monthly installments beginning in April 2013, maturing in April 2018.
Elementia, S.A. de C.V. and Frigocel, S.A. de C.V. subsidiaries are guarantors .......
406,034
Banco HSBC (ELC Tenedora Cementos, S.A.P.I. de C.V.) promissory notes
accruing quarterly interest at a rate of TIIE plus 1.5 basis points and maturing
in 2018. Elementia, S.A. de C.V., Trituradora y Procesadora de Materiales
Santa Anita, S.A. de C.V. and Lafarge Cementos, S.A. de C.V. are guarantors ........
650,000
Banco HSBC PLC Sucursal España HSBC (Trituradora y Procesadora de
Materiales Santa Anita, S.A. de C.V.) promissory notes in U.S. dollars
accruing interest at a rate of 3.05 percentage points, payable in a maximum
term of 10 years after the date of launch of the project. Elementia, S.A. de
C.V. and subsidiaries are guarantors ..........................................................................
502,405
Banco HSBC PLC Sucursal España HSBC (Trituradora y Procesadora de
Materiales Santa Anita, S.A. de C.V.) promissory notes in U.S. dollars
accruing interest on a biannual basis at a rate of 6-month LIBOR plus 1.3 basis
points, payable in a maximum term of 10 years after the date of launch of the
project. Elementia, S.A. de C.V. and subsidiaries are guarantors .............................
180,664
62
Ps$ 3,000,000
406,034
406,034
406,034
406,034
406,034
650,000
545,677
196,252
September 30,
2014
December 31,
2013
Banco HSBC México, S.A. Institución de Banca Múltiple (Trituradora y
Procesadora de Materiales Santa Anita, S.A. de C.V.) promissory notes in U.S.
dollars accruing interest at a rate of 3 percentage points, payable on July 31,
2014. Elementia, S.A. de C.V. and subsidiaries are guarantors ................................
—
Banco BX+ (Elementia, S.A. de C.V.). Revolving credit facility through
promissory notes accruing monthly interest at a rate of TIIE plus 1.5 basis
points and maturing in 2014. Mexalit Industrial, S.A. de C.V. is a guarantor ...........
40,000
Loan corresponding to Industrias Duralit, S. A. (foreign subsidiary) granted by
Banco Bisa for US$1.9 million, maturing in 2014, at an average rate of TRE
(index rate calculated by Banco Central de Bolivia) plus 5.50% with quarterly
payments ....................................................................................................................
—
Banco HSBC (ELC Tenedora Cementos, S.A.P.I. de C.V.) promissory notes
accruing interest every 28 days at a rate of TIIE plus 1.5 basis points, maturing
120,000
in March 2015. ...........................................................................................................
Total debt .................................................................................................................. Ps$ 6,523,239
(458,820)
Less – Short-term bank loans and current portion of debt......................................
Long-term debt.........................................................................................................
6,064,419
(129,115)
Less – Expenses for placement of short-term debt .................................................
Long-term debt, excluding current portion and expenses for placement............ Ps$ 5,935,304
19,485
90,000
3,281
—
Ps$ 6,534,865
(192,533)
6,342,332
(157,150)
Ps$ 6,185,182
We are up to date in all scheduled principal and interest payments for our loans and liabilities.
Refinancings
On June 30, 2011, we announced the repayment of our syndicated loan in the amount of approximately
Ps$2,700 million, which was refinanced with a club loan. The new loan has more favorable interest rate and
maturity profile, resulting in greater financial flexibility and a reduction in financing expense of approximately
US$11.4 million. The prepayment of the syndicated loan resolved our non-compliance with the leverage limit under
such loan, for which we had obtained a waiver on March 15, 2011.
On March 21, 2013, we announced the repayment of our syndicated loan in the amount of Ps$2,593 million,
through the refinancing with a new syndicated loan in the amount of approximately Ps$3,730 million. The new loan
has a more favorable interest rate and maturity profile, resulting in greater financial flexibility.
Restrictions Relating to Indebtedness
Certain of our credit agreements contain restrictive covenants, that if violated could result in the acceleration of
repayment of our respective indebtedness. Among the most significant of these restrictions are limitations on the
payment of dividends, compliance with certain financial ratios, insurance of secured assets, limitations on sale and
disposal of assets and limitations on the acquisition of contingent liabilities or other contractual liabilities.
The table below shows our financial ratios as of September 30, 2014 and December 31, 2013:
Financial Ratios of Loans
September 30, 2014
December 31, 2013
1.54
4.90
Ps$15,009
Leverage Ratio
Interest Coverage Ratio
Consolidated Equity (millions of pesos)
2.30
4.58
Ps$14,436
Certificados Bursátiles ELEMENT 10. The Certificados Bursátiles ELEMENT 10 impose the following terms
on us, in accordance with their terms as well as the modifications approved by the general meetings of holders that
took place on July 21, 2011, December 4, 2012 and September 3, 2013:
Unless the holders of a majority of the Certificados Bursátiles ELEMENT 10 consent to in writing:

The proceeds from the issuance must be used exclusively for the specified use of proceeds.
63

We must deliver to the CNBV, the BMV and the other applicable governmental authorities and institutions,
the information and documentation required by applicable law and regulations.

We must comply with the following financial ratios, as applicable:
Period
Maximum leverage ratio (1)
From and including January 1, 2012 until March 31, 2014 .................................
From and including April 1, 2014 until March 31, 2015.....................................
From and including April 1, 2015 until the maturity date ...................................
(1)
3.50x to 1.0
3.30x to 1.0
2.75x to 1.0
Modified in accordance with the meeting of holders held on September 3, 2013. Ratio is equivalent to: (a) the total consolidated net debt of
the Company and its subsidiaries as of the relevant date; and (b) consolidated EBITDA (income from operations plus depreciation and
amortization) of the Company and its subsidiaries corresponding to the four prior calendar quarters.
Applicable Quarter
Minimum interest coverage ratio(1)
From the issuance date until the second quarter of 2011.....................................
From July 1, 2011 until and including June 30, 2012 .........................................
From July 1, 2012 to maturity .............................................................................
(1)
3.01 to 1.0
3.0 to 1.0
3.5 to 1.0
Modified in accordance with the meeting of holders held on July 21, 2011. Ratio is equivalent to: (a) the consolidated EBITDA (operating
income plus depreciation and amortization) of the Company and its subsidiaries for such period; and (b) the consolidated financing expense
of the Company and its subsidiaries for such period.
In 2012, due to our corporate restructuring, including mergers of several subsidiaries with our Company, and
the sale of several other subsidiaries, the holders of the Certificados Bursátiles ELEMENT 10 approved that the
Certificados Bursátiles ELEMENT 10 be guaranteed by Nacional de Cobre, S.A. de C.V., Mexalit Industrial, S.A. de
C.V., The Plycem Company Inc., Compañía Mexicana de Concreto Pretensado Comecop, S.A. de C.V. and
Frigocel.
Syndicated loan. We are required to maintain the following consolidated financial ratios:

Interest Coverage Ratio, on a consolidated basis, greater than 3.0:1.0.

Net Debt to Consolidated EBITDA Ratio (a) less than 3.5:1.0 from the closing date to and including
March 31, 2014; (b) less than 3.3:1.0 from and including April 1, 2014 to and including March 31, 2015;
and (c) less than 2.75:1.0 from and including April 1, 2015 to and including the maturity date.

Consolidated Equity not less than Ps$10,695 million; such sum may be adjusted to reflect the net effect
from a sale or permitted disposition in accordance with the Crédito Sindicado 2013.
The syndicated loan also includes several affirmative and negative covenants that restrict some of our activities.
As of the date of this offering memorandum, we are in compliance with the financial ratios and covenants.
As of December 20, 2013, we had prepaid Ps$1,700 million of the loans under the syndicated loan.
ELC Tenedora Loan. ELC Tenedora Cementos, S.A.P.I. de C.V. has a loan agreement with Banco HSBC,
which at December 31, 2013, had an outstanding balance of Ps$650 million and a 10 year maturity from the date of
launch of the new cement plant project, “El Palmar.” The loan is guaranteed by us, Trituradora and Lafarge
Cementos, S.A. de C.V. Under the loan contract, we and our subsidiaries must comply with affirmative and negative
covenants, including maintaining the following financial ratios:

Interest Coverage Ratio greater than 3.0:1.0;

Net Debt to Consolidated EBITDA Ratio (a) less than 4.75:1.0 from the closing date to and including
March 31, 2014; (b) less than 4.50:1.0 from and including April 1, 2014 to and including June 30, 2014; (c)
less than 3.50:1.0 from and including July 1, 2014 to and including September 30, 2014; (d) less than
3.30:1.0 from and including October 1, 2014 to and including March 31, 2015; and (e) less than 2.75:1.0
from and including April 1, 2015 to and including the maturity date; and

Consolidated Equity of ELC Tenedora Cementos not less than Ps$3,900 million.
64
The loan to ELC Tenedora Cementos also includes various affirmative and negative covenants applicable to
ELC Tenedora Cementos, S.A.P.I. de C.V. and its co-guarantors, among them Elementia (applying on a
consolidated basis), including restrictions on (i) the transfer or sale of assets, (ii) mergers, splits or transformations
of their line of business, (iii) the creation of mortgages, liens or other security interests (other than permitted liens),
(iv) entering into derivative financial instruments for speculative purposes, (v) payment of dividends or other
distributions, and (vi) transactions with related parties.
As of the date of this offering memorandum, we are in compliance with the financial ratios and covenants.
Cash Flows
Sources and Uses of Cash
The following table sets forth our cash flows for the periods indicated:
For the Nine Months Ended
September 30,
2014
2013
For the Years Ended
December 31,
2013
2012
2011
Net cash flow provided by (used in) operating activities ......................
Net cash flow provided by (used in) investing activities ......................
Net cash provided by (used in) financing activities ..............................
1,397
(743)
(339)
(352)
(1,020)
1,297
1,829
(511)
(1,272)
(1,974)
(943)
867
2,373
(866)
201
Net cash flow provided by (used in) operating activities
The increase in net cash flow provided by operating activities in the nine months ended September 30, 2014 to
Ps$1,397 million from Ps$352 million used in operating activities in the comparable period of 2013 was primarily
the result of improved EBITDA and better management of working capital, specifically using resources obtained via
our accounts receivable to cover our obligations to our suppliers and creditors.
The increase in net cash flow provided by operating activities in 2013 compared to 2012 was net cash flow
provided by operating activities of Ps$1,829 million in 2013 compared to net cash flow used in operating activities
of Ps$1,974 million in 2012, primarily resulting from an increase in EBITDA and better use of working capital,
specifically using resources obtained via our accounts receivable to cover our obligations to our suppliers and
creditors. The increase in net cash used in operating activities in 2012 compared with net cash provided by operating
activities of Ps$2,373 million in 2011 was due to increased financing of providers in 2011, the result of using
factoring contracts with various banking institutions to pay off supplier debts.
Net cash flow used in investing activities
Net cash flow used in investing activities in the nine months ended September 30, 2014 and 2013 was Ps$743
million and Ps$1,020 million, respectively, representing investments in property, plant and equipment and the
acquisition of the fiber cement business of CertainTeed in the United States in 2014 and in the nine months ended
September 30, 2013, investments in property, plant and equipment in the construction of the El Palmar cement plant.
The capital expenditures represented in net cash flow used in investing activities in 2013, 2012 and 2011
amounted to Ps$511 million, Ps$943 million and Ps$866 million, respectively. In 2013, these represented mainly
capital expenditures in property, plant and equipment, sales of property, plant and equipment and sale of a nonstrategic shareholding (Cuprum). With respect to 2012, investments in property, plant and equipment also
predominated, primarily the construction of the El Palmar cement plant and sales of property, plant and equipment,
as well as the sale of the non-strategic aluminum business (Almexa Aluminio, S.A. de C.V.). In 2011, cash flows
reflected capital expenditures in property, plant and equipment and sales of property, plant and equipment.
Net cash (used in) provided by financing activities
Net cash used in financing activities in the nine months ended September 30, 2014 amounted to Ps$339 million
and mainly represented the repayment of bank loans net of the payment of a portion of such loans and the payment
of interest for servicing debt. Net cash flow provided by financing activities in the nine months ended
65
September 30, 2013 amounted to Ps$1,297 million, mainly from the restructuring in this period by paying a
syndicated loan and substituting it with a loan for a greater amount with a better term and interest rate.
Net cash used in financing activities was Ps$1,272 million in 2013, compared to net cash provided by financing
activities of Ps$867 million and Ps$201 million in 2012 and 2011, respectively. These represent the restructuring of
the syndicated loan in 2013, where the amount paid was greater than the availability at the close of 2013. With
respect to 2012, it represents the disposition and payment of loans and interest for servicing debt, net of a capital
increase of Ps$1,159 million from our shareholders in 2012. In 2011, a syndicated loan was paid and was
substituted for a new syndicated loan, which is presented in the balance sheet net of costs of debt issuance.
Contractual Obligations and Capital Expenditures
Contractual Obligations
The maturities of the long-term portion of our debt as of September 30, 2014 are as set forth in the following
table.
Debt Maturities
To be paid from:
October 2015 to September 2016 .................................................................................................................. Ps$
October 2016 to September 2017 ..................................................................................................................
October 2017 and later ..................................................................................................................................
Total ............................................................................................................................................................. Ps$
3,689
842
1,498
6,029
The following table sets forth the breakdown of our debt obligations by term of maturity as of September 30,
2014:
As of
Short-term
Long-term
Total
September 30, 2014 ........................................................................................... Ps$494
Ps$6,029
Ps$6,523
Capital Expenditures
Estimated Capital
Expenditures
(in millions of pesos)(1)
Year:
2015 .............................................................................................................................................................. Ps$
2016 ..............................................................................................................................................................
2017 ..............................................................................................................................................................
2018 ..............................................................................................................................................................
(1)
1,623
2,418
784
596
Assumes an exchange rate of Ps$13.4541 per US$1.00 as of September 30, 2014. See “Exchange Rates.”
Our principal capital expenditures include investments in new technologies and upgrades to our manufacturing
plants, as well as the expansion of our existing production capacity.
In the nine months ended September 30, 2014, we made capital expenditures totaling Ps$845 million for fixed
assets and the purchase of the fiber cement business of CertainTeed in the United States. The investments were
funded with cash from operations.
In 2013, we made capital expenditures totaling Ps$2,059 million for the acquisition of fixed assets, primarily
relating to new technologies, equipment upgrades and efficiency improvements.
In 2012, we made capital expenditures totaling Ps$2,113 million, primarily related to the construction of the El
Palmar cement plant, which commenced operations in 2013, investments in property, plant and equipment in the
divisions and the implementation of the ERP SAP system.
66
In 2011, capital expenditures totaled Ps$1,835 million for the El Palmar cement plant project, equipment
upgrades and the commencement of the implementation of the ERP SAP system.
We have authorized the investment of Ps$680 million in 2014, which will be applied as follows: Ps$412 million
to increase productive capacity, Ps$253 million for repositioning and maintenance of equipment, Ps$13 million for
productivity and quality improvements and Ps$2 million for security and environmental matters.
Off-Balance Sheet Arrangements
As of September 30, 2014, no transactions have been effected by us or our subsidiaries that have not been
adequately recorded in our accounting records, which serve as a basis to prepare our individual and consolidated
financial statements. Furthermore, no events have occurred after the date of our financial statements and through the
date of this offering memorandum that could require adjustments or disclosures in the individual and consolidated
financial statements.
Research and Development
We continually strive to develop new and advanced production processes to improve our operating efficiency
and so that our products satisfy the changing needs of our clients. The planning and budget for research and
development is prepared in accordance with the strategy determined by our Board of Directors. The plans and
budget are prepared and approved in three-year cycles and the budget for the following year is approved during the
third quarter of the year, prepared through the combined effort of the officers of the various business areas. Our
technical management department centralizes our research and development activities and sets our budget and
priorities. During the nine months ended September 30, 2014, we invested Ps$17 million in research and
development. We invested Ps$13 million in research and development in 2013. We did not make significant
investments in research and development during 2012 or 2011.
Risk Management
Derivative Financial Instruments
We use valuation techniques for our derivative financial instruments, which include information that is not
always based on observable market data, in order to estimate the fair value of certain financial instruments. Note 11
to our audited financial statements includes detailed information about the key assumptions we consider in
determining fair value of our financial instruments, as well as a detailed sensitivity analysis relating to these
assumptions. Our management considers that the valuation techniques and the assumptions used are appropriate for
determining the fair value of our financial instruments.
Our internal policies dictate that we limit the use of derivative financial instruments for hedging purposes only.
We use derivative financial instruments to hedge certain price exposures arising from movements in metal prices
that could affect the value of our assets or liabilities or our future cash flows. Specifically, we use hedges for
changes in the prices of copper, zinc and nickel.
Copper is the main raw material for the production of products in our Metals Division. The price of copper may
experience price volatility. Given its importance to our production costs, we entered into fixed price contracts to
hedge our cash flows with certain clients. Our goal for the use of hedging instruments is to obtain a price level of
such metals that allows us to maintain a predictable cost of production and achieve the profitability level established
in our strategic plan. We use futures and swaps for the purchase of certain metals. See “—Principal Factors
Affecting Our Financial Condition and Results of Operations—Pricing Strategy.”
On September 20, 2013, an interest rate swap derivative contract was entered into to manage the risk of longterm bank debt. For this hedging instrument, our objective is to manage interest rates in order to reach the level of
profitability established in our strategic plan.
Until October 2013, the Cement Division used forward currency contracts to partially cover the financial risks
of currency fluctuations related to the sales of petroleum derivatives, though they were contracted to hedge from an
economic perspective, as these were already contracted for with its previous holding entity. At the moment, due to
the diversification of our business it has not been necessary to contract for forwards as our diversification serves as
a natural hedge.
67
Our finance department determines for what amounts and for which primary positions it believes prudent to
contract for a derivative hedging instrument, with the aim of mitigating the possible risks generated by transactions
associated with the primary positions, taking into account market conditions.
Negotiation with derivatives is carried out only with institutions which are considered solvent and principally
with those with which there is an existing business relationship. It should be mentioned that the derivatives we use
are for common use in the markets and thus can be listed with two or more financial institutions in order to ensure
the best procurement conditions. The hedging instruments relating to copper are principally listed on COMEX and
those relating to zinc and nickel are principally listed on the London Metal Exchange.
To obtain the calculation or valuation of the derivatives, we have a policy of obtaining the valuation of the
counterparty with whom we have entered into the derivatives agreement as well as, in some cases, obtaining an
independent third party valuation, using prestigious and well-known institutions in the market. Our risk
management staff also analyzes the valuations and revises them as necessary.
The contracting of, and use of, derivatives, is carried out in accordance with established internal policies. Prior
to the execution of a contract of this type, our finance department and the client determine the amount and targets on
the primary positions for which it is believed suitable to contract for a derivative hedging instrument. The
evaluation and definition are presented to the client for their final review and approval. At the end of the prescribed
period the client is responsible for the decision on said contract and for the subsequent delivery of their order.
In accordance with applicable regulations, we are required to have an independent external auditor opine on our
annual financial statements. As part of the audit process, the external auditors have not reported any qualifications in
their opinion with respect to derivative financial instrument.
General description of valuation techniques
We have a department which continuously calculates and evaluates the current position of the aforementioned
hedges. Due to the simplicity of those instruments and the aim of having a fixed or maximum input price, the
valuation carried out by us and the clients that request it, has the effect of carrying out the accounting simulation of
the differential in the market price versus the agreed fixed price.
The fair value is determined using acceptable market practices. Hedging instruments valuation is performed by
the counterparty and validated by our risk management department.
The effectiveness of hedging is measured by changes in fair value or cash flow of the hedging instruments
within this range. To comply with financial practices, we measure the efficiency of the derivative financial
instruments on a monthly basis.
For accounting purposes, the Company applies the provisions of IAS 39 “Financial Instruments.” IAS 39
establishes the characteristics financial instruments must meet in order to be considered derivatives and hedging
instruments, as well as defines the concept of effectiveness and designates the valuation rules and accounting
treatment for changes in their value.
We recognize all assets and liabilities that result from transactions with derivative financial instruments in the
balance sheet at fair value. Since derivatives are contracted for the purpose of hedging risks and satisfy all of the
hedging requirements, they are designated as such at the beginning of the hedging transaction, documenting their
objective, characteristics, accounting treatment and how the measurement of effectiveness will be carried out.
Liquidity sources
On a monthly basis, we perform operating cash flow projections which incorporate cash flows related to
derivative instruments. For hedging transactions, the sources of liquidity come from the client and the risk is
transferred to each client that requests it, therefore credit lines or additional resources are not required.
68
Exposure, risks and contingencies
The identified risks are related to the variations in the pricing of the commodities market. Given the direct
relationship that exists between the primary positions and the hedging instruments, and that the latter do not have
contractual optionality elements which could affect the effectiveness of the hedge, the Company to date is not
exposed to any risk with which these hedges differ from the purpose for which they were entered into.
Our risk emanates from the agreed price of the hedge. We would be negatively impacted in a scenario where
the market price is less than the one agreed to in the hedging contract. Another risk we face is related to the demand
for the underlying commodity in the contract. The effectiveness of the hedge would be negatively impacted if the
demand is less than the amounts agreed to in our hedging contract.
In our hedging transactions, we limit our risk to the maximum payment of the price agreed upon.
Quantitative information
The amount represented by our derivative financial instruments is not significant. On September 30, 2014, the
fair value of the derivative financial instruments which we had contracted for was approximately Ps$7,190 thousand,
a sum that is less than 0.03% of our total assets, 0.06% of our total liabilities, 0.05% of our total capital and 0.06%
of our quarterly sales (for the quarter ending on September 30, 2014). On December 31, 2013, the fair value of the
derivative financial instruments which we had contracted for was approximately Ps$9,810 thousand, a sum that is
less than 0.04% of our total assets, 0.08% of our total liabilities, 0.07% of our total capital and 0.08% of our
quarterly sales (for the quarter ending on December 31, 2013). On December 31, 2012, the fair value of the
derivative financial instruments which we had contracted for was approximately Ps$8,549 thousand, a sum that is
less than 0.04% of our total assets, 0.08% of our total liabilities, 0.08% of our total capital and 0.06% of our annual
sales (for the quarter ending on December 31, 2012).
We have not had margin calls on September 30, 2014 for the contracted financial instruments and have not
defaulted under those instruments.
The following tables summarize our derivative financial instruments as of September 30, 2014:
GRUPO NACOBRE
As of September 30, 2014 (in thousands of Mexican pesos)
Type of
derivative,
security or
contract
Hedging Purpose or
Other Purpose such
as Trading
Future ............ Hedging Copper ........
Future ............ Hedging Zinc ............
Future ............ Hedging Nickel .........
Nominal
Amount
287,305
10,164
13,778
311,247
Value of Underlying Asset /
Reference Variable
Fair Value
Current
Quarter
Current
Quarter
287,305
10,164
13,778
311,247
Prior Quarter
281,240
17,768
5,710
304,718
281,472
10,760
11,826
304,058
Prior Quarter
293,775
18,793
5,938
318,506
Collateral/
Credit Lines/
Securities
given as
guarantee
0
Amount of
Maturities per
Year
0
Sensitivity analysis
For derivatives whose only purpose is hedging, sensitivity analysis is not applied.
For additional information about our risk management, including our use of derivative financial instruments and
our treasury policy, see notes 9, 10, and 11 to our consolidated financial statements.
69
INDUSTRY
Sector Overview
Our operations are primarily focused on manufacturing products used in the industrial, construction and
housing, and infrastructure sectors. Our production processes are oriented toward different segments of the industry
and are classified according to product type.
The following is a brief description of the sectors in which we operate.
Industrial Sector
The industrial sector represents one of the most important markets for our products, representing approximately
37% of our net sales in 2013. We operate in a broad range of industries that we consider part of the industrial sector,
including the oil and gas, HVAC (heating, ventilation and air conditioning), equipment, defense, minting and
transportation industries, among others. Demand for our products from the industrial sector is highly correlated with
the macroeconomic environment in the countries in which we operate. The World Bank estimates that Latin
America will experience moderate growth in coming years, particularly in markets targeted by our company. Given
these conditions, we believe that demand for our products in the industrial sector will continue to increase.
The following table shows estimates of Real GDP and Industrial growth for selected countries and regions
through 2016.
Industrial Growth(1)
Real GDP Growth
2013
2014E
2015E
2016E
2013
2014E
2015E
2016E
Bolivia..........................................
Chile.............................................
Colombia......................................
Costa Rica ....................................
Honduras ......................................
Mexico .........................................
Nicaragua .....................................
Peru ..............................................
Panama .........................................
6.5%
4.2%
4.3%
3.5%
2.6%
1.1%
4.6%
5.8%
8.0%
5.3%
3.3%
4.6%
3.7%
3.0%
2.3%
4.5%
4.0%
6.8%
4.3%
4.5%
4.5%
4.3%
3.5%
3.5%
4.4%
5.6%
6.2%
3.9%
5.0%
4.4%
4.6%
4.0%
4.0%
4.4%
6.0%
6.4%
6.6%
2.8%
2.1%
3.7%
1.0%
0.0%
6.6%
4.0%
7.2%
4.8%
2.7%
2.6%
4.6%
2.7%
3.6%
7.1%
4.8%
6.6%
4.4%
3.5%
3.0%
4.7%
3.1%
3.8%
7.9%
4.7%
4.3%
4.1%
3.9%
3.2%
4.7%
3.1%
3.8%
4.0%
5.0%
4.3%
OECD Countries ..........................
Euro Area .....................................
United States ................................
Latin America & Caribbean .........
1.3%
(0.4%)
1.9%
2.4%
2.0%
1.1%
2.1%
1.9%
2.4%
1.8%
3.0%
2.9%
2.4%
1.9%
3.0%
3.5%
n/a
n/a
2.4%
0.2%
n/a
n/a
2.7%
2.6%
n/a
n/a
2.9%
3.5%
n/a
n/a
2.4%
3.0%
Source: World Bank - Data as of July 2014; EIU.
(1) Includes Real Industry and Real Manufacturing GDP growth, as defined by EIU.
According to the Instituto Nacional de Estadística y Geografía (Mexican National Statistic and Geographic
Institute, or “INEGI”), Mexico’s industrial sector accounted for over approximately 35% of its GDP in 2013. EIU
estimates that Mexico will experience a 3.4% Real GDP CAGR through 2016. Depending on the rate of growth of
the U.S. economy, Mexico’s proximity to, and strong correlation with the, U.S. economy could cause Mexico’s
growth to be slightly lower than the rates of other emerging economies in the region, such as Colombia, Chile and
Peru. However, acceleration in the U.S. economy could have a significant positive impact on Mexico, as the
Mexican economy is dependent on exports, and the United States is the destination for approximately 76% of its
exports.
The Mexican political outlook for 2014 is promising after the presidential administration was able to pass a
slate of critical reforms through congress – energy, education, telecom, banking, fiscal, among others – leading to a
sovereign credit rating upgrade both from Moody’s and Standard and Poor’s, making Mexico the second country in
Latin America with an “A” rating.
In Colombia and Peru, domestic demand and consumption coupled with increasing public and private spending
are the main drivers of the economies’ continued growth. Consumer confidence remains strong and unemployment
is showing a clear downward trend, according to EIU thus supporting the expectation that consumption will grow in
70
coming years. The growth of the industrial and business sectors has been driven by economic stability; however,
there are strong appreciation pressures on the local currency, due primarily to an increase in foreign direct
investment and the weakness of the U.S. dollar.
Construction and Housing Sectors
The construction and housing sectors represent a very important market for our products, particularly for the
Building Systems Division. In 2013, approximately 53% of our net sales were derived from the construction and
housing sectors. We believe there are significant opportunities to continue to grow our business through our
lightweight building systems products for the construction and housing sectors. Continued government support for
reducing the housing deficit in Mexico and other key target markets, lower interest rates, and supportive frameworks
to promote mortgage financing contribute to what we believe are promising growth opportunities.
Factors Providing Significant Growth Opportunities in the Housing Sector
The housing market in Mexico is determined by various social, economic, political and industry factors,
including housing supply, demographics, government policies and the availability of mortgage financing.
Ongoing Housing Deficit. According to the Consejo Nacional de Población (National Population Counsel, or
“CONAPO”), existing housing in Mexico totaled 28.6 million households as of the 2010 census. Nevertheless, in
2012 the Inter-American Development Bank estimated that Mexico had a housing deficit of approximately 34% of
total households. Further, in 2012, the Sociedad Hipotecaria Federal (Federal Mortgage Agency, or “SHF”)
estimated that Mexico had a housing shortage of approximately 9.75 million units.
The housing deficit is usually composed of two categories: Quantitative deficit, which accounts for the number
of households that either live in inadequate homes or the number of households that share their home with another
household; and the Qualitative deficit, which measures the number of households that live in unsafe conditions, with
housing units built with waste materials or that have no connections to basic services.
Favorable and Sustainable Demographic Trends. Demographic trends in Mexico also contribute to increased
demand for housing. Mexico’s population as of December 31, 2013 was estimated at approximately 117.6 million,
according to INEGI. According to CONAPO and INEGI, the total population of Mexico grew 2.4% between
2011 and 2013. Moreover, according to the same institutions, Mexico’s population in the 25 to 50 age range is
forecasted to grow from 41.4 million in 2013 to 47.8 million in 2030, which is expected to contribute to an increased
demand for housing in Mexico.
Supportive Government Policies. In order to address the housing deficit in Mexico, the Mexican federal
government has implemented certain policies designed to increase affordable housing supply. In Mexico, mortgage
financing for affordable and middle-income housing has been made available primarily through government social
housing programs or government-sponsored institutions, such as the Instituto del Fondo Nacional de la Vivienda
para los Trabajadores (National Fund for Workers’ Housing, or “INFONAVIT”), the SHF and the Fondo de la
Vivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (Housing Fund of the
State’s Employees’ Social Security and Social Services Institute, or “FOVISSSTE”), and to a lesser extent by
commercial and mortgage banks and loan providers, including limited-purpose and multi-purpose finance
companies. According to CONAVI, the target of the various housing programs for 2014 is 1 million home loans.
Furthermore, INFONAVIT and other mortgage providers have launched several mortgage securitization programs in
order to increase liquidity in the mortgage industry through the capital markets.
Considerable housing deficit is an issue present in most of the countries in Latin America and it represents a
future growth opportunity for our company. According to the Inter-American Development Bank, the housing
deficit in Colombia, Peru and Bolivia was 37%, 72% and 75% respectively of total households and those markets
represent an attractive prospect for future growth for our Building Systems Division.
U.S. Housing Market
The U.S. economy has shown slow but steady grow in the last couple of years, after emerging from one of the
worse recessions in its history. According to the World Bank, the U.S. economy grew 1.8% in 2011, 2.8% in
2012 and 1.9% in 2013, while the Bureau of Labor Statistics indicates that the primary unemployment rate stands at
5.9% as of September 2014, the lowest in the last five years. Housing starts rose 22% year-over-year through
71
July 2014 to an annual rate of approximately 1.1 million units. Fannie Mae’s Economic & Strategic Research, or
“ESR,” forecasts that total housing starts will recover to a “normal” level of approximately 1.6 million units per year
in 2016.
Colombian Housing Market
The Colombian economy has experienced among the lightest levels of homes economic growth in the South
American region. According to the World Bank, the Colombian economy expanded 6.6% in 2011, 4.1% in
2012 and 4.3% in 2013. Colombia’s strengthening economy has led to a growing demand for new houses and an
increase in investment in social housing programs. This momentum led to an 8.2% year-over-year growth in the
construction industry, including an 11.5% growth for homebuilders, in 2013. Despite these tailwinds, according to
the Departamento Administrativo Nacional de Estadistica (DANE) and current population estimates, there is a
housing deficit of approximately 4,590,158 houses in the country.
Infrastructure Sector
In order to continue their economic development and increase their competitiveness, Latin American countries
will need to make a substantial investment in infrastructure, and to that end, several Latin American governments
have implemented public investment initiatives in recent years and have established tax incentives and favorable
financing structures for investment in infrastructure projects. Currently, the governments of Brazil, Colombia,
Mexico, Panama and Peru, among others, have devoted significant resources to modernizing their infrastructure in
order to keep pace with other emerging regions. These policies represent opportunities for sales of our products.
The following chart provides information on infrastructure levels in Latin America as compared to the rest of
the world.
Quality of Infrastructure
(Scores measured on a 1-to-7 scale, higher is better, indexed to 100)
100
Bolivia
Argentina Colombia Peru
Brazil
Venezuela
Uruguay
El Salvador
Guatemala Chile
Mexico
75
50
25
0
Source: The Global Competitiveness Report 2014-2015. World Economic Forum.
The governments of Mexico and other Latin American countries are actively promoting policies to grant
concessions to private enterprises for the construction, operation and maintenance of infrastructure projects. The
granting of these concessions allow governments to promote infrastructure development without committing public
sector resources, while stimulating private investment in their economies.
In 2013, President Enrique Peña Nieto announced a national six-year National Infrastructure Plan which
included an investment of US$102 billion in thousands of miles of new roads, railways, telecom infrastructure and
ports and airports in an aim to boost competitiveness for exporters and stimulate growth. The stated goal of this plan
is to deploy the telecom and transportation infrastructure by 2018. The plan calls for significant public and private
investment, both domestic and foreign, and could add up to 1.9% of GDP growth between 2014 and 2018.
72
Along with the Telecom and Transportation Investment plan, the government announced a US$300 billion
Energy Investment plan backed up by an extensive Energy Reform. This is considered the most significant overhaul
of the country’s energy industry since 1938. These changes became law in December 2013. In May 2014, the
administration introduced into congress the proposed secondary laws that would implement the reforms, which were
approved in August 2014.
In addition, the Peruvian government has an investment program in place for major infrastructure focused on
roads, water treatment plants and energy. Colombia has also announced major investments in infrastructure,
including roads, energy, transportation and water treatment.
Market Overview
In general, our operations focus on industries that use copper, fiber cement, plastic, and cement. The following
is a brief description of the markets for the various types of products we manufacture.
Copper Products
In the Metals Division, we produce copper and copper alloy, strips and sheets, rods, tubes, pipe fittings, forged
and machined parts used in the construction, refrigeration, HVAC, automotive, electrical, electronics, minting,
ammunition, white goods and personal products industries. In 2013, copper products represented approximately
54% of our net sales. To manufacture these products, we acquire newly refined copper and scrap copper from a
variety of suppliers in Mexico and other parts of the world. As we sell the majority of our products at a cost-plus
markup basis, our customers bear the risk of volatility in copper prices.
The copper industry can be affected by different variables, many of which are beyond our control. These
variables include general trends in economies, population, construction and infrastructure sector activity and the
automotive industry, among others. Copper is used in residential and commercial building projects, which in turn are
affected by interest rates, consumer confidence and general business cycles. Copper consumption also depends on
growth in energy consumption and the production of manufactured products, such as industrial machinery and
electronics. The use of alternative materials, such as bimetallics, aluminum, iron and plastics, also affects copper
demand.
The retail and general merchandise sectors are a key factor driving the current demand for copper, and one of
the leading causes is the increased global production of air conditioners. It is estimated that the copper used in air
conditioners covers about half of the copper tubing market.
Copper consumption can be divided into three main segments: wire, copper products and copper alloy
products. Wire represents approximately 55% of the global consumption of copper. Due to its high electrical
conductivity, copper is often used for cabling and wiring. Wire is used in construction, electrical and electronic
products, industrial machinery and transportation equipment among others. Of these, construction is the largest
segment, accounting for 31% of total copper consumption.
73
The following table shows the primary uses of copper in 2013 by end use region and sector.
Primary Uses for Copper: Use by End Use Region and Sector, 2013
Base: Copper content, thousand metric tons
Thousands
of Tons
China ......................................
Japan.......................................
South Korea ............................
India .......................................
Taiwan ....................................
North America ........................
LatAm & Caribbean ...............
Mexico ...................................
Europe ....................................
Russia .....................................
Africa .....................................
Global Total ...........................
11,487
1,473
1,104
780
680
2,606
1,116
336
4,789
753
263
26,790
Construction
32.9%
Equipment
Manufacturing
52.3%
Infrastructure
14.8%
Plumbing
6.0%
Electric Supply
11.5%
Industrial
Construction
0.6%
Industrial
12.4%
Telecommunications
Automotive
7.2%
1.2%
Other Commercial
/ Residential
1.5%
Other
Transportation
4.4%
Other
2.0%
General and
Consumer
Products
8.2%
Communications
0.9%
Electric generation
& transmission
23.9%
Refrigeration
6.0%
Other
0.04%
Electronics
1.2%
Other
12.9%
Source: Wood Mackenzie.
Note: Breakdown by final use based on 2010 International Copper Study Group report.
According to Brook Hunt, the consumption of copper in the United States and the European Union is expected
to increase over the next 15 years. Although global consumption grew by 3.4% during 2013, it is expected to grow
at a higher rate in 2014, close to 5.0%. In Latin America, the consumption of copper is expected to grow at an
annual average rate of 3.2% from 2014 to 2025, which would represent an increase in consumption from
approximately 1,159 thousand tons in 2014 to approximately 1,641 thousand tons in 2025. In the case of Mexico,
consumption is expected to increase at an annual rate above 3.0% during the same period, from approximately
353 thousand tons in 2014 to approximately 498 thousand tons in 2025.
2014E
Copper Consumption
(thousands of tons)
Brazil..........................................................
549
Chile...........................................................
97
Mexico .......................................................
353
160
Other ..........................................................
Total Latin America ................................. 1,159
Year-over-year change ...............................
3.8%
% of global consumption
4.1%
2015E
2016E
2017E
2018E
2019E
2020E
2025E
578
101
364
165
1,207
4.2%
4.2%
605
103
376
170
1,254
3.9%
4.2%
628
106
388
175
1,297
3.4%
4.2%
651
109
400
181
1,340
3.3%
4.3%
673
112
412
185
1,383
3.2%
4.3%
695
115
426
190
1,426
3.1%
4.3%
801
129
498
213
1,641
2.7%
4.6%
Source: Wood Mackenzie
74
20142025 CA
GR
3.5%
2.6%
3.2%
2.6%
3.2%
Trends in the Consumption of Secondary (Recycled) Copper
Definition of Recycled Copper
Recycled copper is classified into two main categories, new and old recycled copper. New recycled copper is
generated during the manufacture of copper products and returned to production lines to be reused or sold, but is not
considered a new supply source. A copper-producing plant can generate up to 60% recycled copper in its various
processes. If the new recycled copper is generated internally and reused, it is not included in statistics regarding
acquisition of recycled copper. Old recycled copper is derived from obsolete or deteriorated products and is
considered a new source of supply.
The supply of old recycled copper is linked to the volume of copper and the life cycle of products destined for
recycling. The overall average lifespan of copper is 15 to 20 years, but it varies depending on its specific use. For
example, the average lifespan of copper is 30-35 years in electronic equipment and machinery, 15 years in nonelectronic equipment, 35 to 37 years in residential construction and 10 years in transportation. The value of old
recycled copper and its availability depends not only on the life cycles of copper products, but is also affected by the
sensitivity of recycled prices in relation to market prices. Over the past 20 years, the volume of new recycled copper
has not kept pace with industrial demand because the sector has become much more efficient and the generation of
new recycled copper has fallen by 50% during this period.
Use of Recycled Copper
The majority of old recycled copper must be processed again through smelting, refining, and, where
appropriate, electronic extraction in order to achieve a purified copper product. Certain products, such as brass rods
(produced with 80-90% recycled) may contain a high amount of recycled copper compared to other products,
although they can still maintain the basic quality of the product. Others, like wire, must contain fewer impurities
(usually 5%) because impurities could compromise their structure and cause them to warp. New recycled copper is
usually ready for use in producing copper and brass pipes. Because recycled copper requires very little maintenance
for reuse, it is also known as “direct smelt” or “recycled 1”. In general, recycled 1 is present in recycled copper
products and copper alloys, but not in wiring. The purchase of recycled copper is based on the production levels of
the target regions and on the price differential between cathode and recycled 1, and not on the actual price of copper.
In positive economic cycles, the supply of recycled copper increases, since industrial production levels also increase,
and during negative economic cycles, recycled copper supply decreases, and producers are forced to purchase more
cathodes given the restricted supply.
Low copper prices from 1997 to 2003 led to a reduction in the availability of high quality recycled copper and a
significant decrease in demand, especially in the United States and Europe. In China, however, the use of high
quality recycled copper has been increasing. Environmental factors have also played an important role, with the cost
of environmental compliance often resulting in the closure of plants, especially in the United States, even though the
cost of retrieving a ton of recycled copper is approximately half that of traditional copper processing.
Consumption of Recycled Copper
During 2013, 9.9 million tons of copper produced from recycled, a decrease of 4.4% compared to 2012,
representing 36.8% of total copper consumption. Copper produced from recycled decreased in 2013 due to the
sluggish state of the economic activity in Europe and North America.
Fiber Cement Products
The Building Systems Division’s main fiber cement products include roofing, wall boards, tiles, flat boards,
trims, siding and pipes, among other products, and this division represented 30.8% of our net sales for 2013.
Fiber Cement in the Construction Industry
Fiber cement products are used in the residential and commercial construction industries, in applications such as
exterior siding, interior walls, roofing, ceilings, floors and soffits, among other products. The residential
construction industry represents the largest market for fiber cement products and the demand for fiber cement
products is affected by many factors such as the level of new home construction, renovation activity and government
expenditures.
75
Fiber cement products provide increased performance, consistency and cost advantages as compared to its
substitutes. The primary attribute of fiber cement is its durability in outdoor applications, especially in comparison
to galvanized metal, plastic, wood and wood-based alternatives. Fiber cement creates a similar aesthetic to wood or
wood-based products, but with greater resistance to the damaging effects of moisture, heat, wear and tear and
termites. Although vinyl coated products generally have better durability than wood products, they usually are less
aesthetically appealing than wood or fiber cement products.
We believe that fiber cement has good potential for long-term growth due to the benefits of
lightweight construction products and framing construction as compared to traditional (brick and mortar)
construction. We also believe that the option of replacing wood, vinyl and metal products with fiber cement
products will appeal to consumers aesthetically and economically.
Fiber Cement Industry in the United States
In the United States, the largest demand for fiber cement products is found in the exterior siding industry.
Siding usually occupies more square footage than any other construction component. The selection of siding
materials is based on several factors, including the cost of installation, durability, aesthetics, strength, weather
resistance, maintenance requirements and cost, and insulating properties. Different regions in the United States show
marked preferences for certain siding materials according to economic conditions, climate, availability of materials
and local preferences. The primary siding materials are vinyl, stucco, fiber cement, brick and solid wood. Vinyl has
the largest share of the U.S. siding market according to The Fredonia Group in their Siding to 2018 report. In
recent years, fiber cement has been gaining market share as compared to vinyl for several reasons, including its
aesthetic appeal and durability.
Cement Products
Cement is the key ingredient in concrete. Modern cement is made from mixtures of naturally occurring
minerals that contain calcium oxide (usually from limestone) and silicon dioxide (usually from clay). The minerals
are heated to extremely high temperatures (1450°C), which chemically transforms them into hard marble-like
nodules called clinker. The clinker is then ground into an extremely fine powder; there are more than 200 billion
grains of cement powder in a kilogram of cement. When cement is mixed with water, it forms very strong bonds
with sand and other aggregates. Cement is a binding agent, which, when mixed with sand, stone or other aggregates
and water, produces either ready-mix concrete or mortar. The raw materials used for cement are limestone, clay,
gypsum, granulated slag, pyrinite cinder and coal.
Cement Industry Outlook
The construction industry, and specially the cement industry, is closely tied to the general economic activity of
the country. All of our sales occur in Mexico, therefore there is a high correlation between our revenues and the
Mexican economy.
The combination of Mexican GDP and increasing private and foreign investments are expected to support
cement consumption growth in Mexico during the next few years. The following table shows projected cement
consumption in Mexico through 2018 (estimated).
35.5
36.3
37.5
2010
2011
2012
34.4
35.5
36.8
2013
2014E
2015E
Cement Consumption Mexico - MM Tonnes
Source: CANACEM and Elementia Company Management.
76
38.7
40.6
2016E
2017E
43.0
2018E
Plastics Products
Plastics Industry Outlook
Plastics are used in a variety of products, but have become crucial in the home construction industry. With the
evolution of technology, plastics have gained ground against other natural components such as wood and steel.
According to the U.S. Department of Energy estimates that the use of plastic foam insulation in homes and building
each year could save over 60 million of barrels of oil over other kinds of insulation.
Sales in our Plastics Division are highly correlated to economic activity; most of our sales in the plastic industry
are derived from the construction of houses. Economic growth results in higher housing construction spending,
therefore increasing sales for the Plastics Division. The housing deficits remain a focal issue for local governments
in our markets and housing starts are expected to grow at a significant number in the coming years, as governments
implement housing programs in order to increase the construction of houses.
Duties on Foreign Trade
NAFTA became effective on January 1, 1994. NAFTA provided for the progressive elimination over a period
of ten years of duties formerly in effect on raw materials imported into Mexico from the United States and Canada,
and on the finished goods exported to those markets. There is currently no duty applicable to the imports of our raw
materials from the United States or Canada, nor to the imports of our finished products to such countries,
particularly of our metal products.
The Mexico-European Union Free Trade Agreement, or “MEFTA”, became effective on July 1, 2000. MEFTA
provides for the progressive elimination of Mexican duties for steel producers that are members of the European
Union over a period of 6.5 years. Although we do not have imports from this region, this agreement provided an
opportunity to increase our exports to European countries that are parties to MEFTA, following elimination of their
duties on the imports of our finished products, particularly of our metal products.
Mexico has also signed several free trade agreements with certain Latin American countries under which
imports of our fiber cement products into those countries are exempt from import duties.
Certain of our markets, however, are not under free trade agreements, and various duties and tariffs apply.
77
BUSINESS
Our Business
period in 2013.
We operate our businesses through four divisions:

Metals Division. The Metals Division represented 48%, 54%, 60% and 65% of our net sales in the nine
Metals Division represented 32%, 35%, 38% and 50% of our consolidated EBITDA in the nine months
ended September 30, 2014 and fiscal years 2013, 2012 and 2011, respectively. According to internal
estimates, publicly available information about our competitors, information from our customers and other
public sources, we operate one of the few brass mills in Latin America, allowing us to market a broad range
of copper and copper-alloy products. We are the only producer of copper-nickel alloy tubes and pipes in the
Americas, and one of the top five global producers according to internal estimates and publicly available
information. We are also one of the main suppliers of nickel tubing used by the United States defense
industry, a strategic supplier for the Mexican currency-minting industry and the largest producer of special
brass and refractory alloys in metal strips and sheets in Latin America according to internal estimates and
publicly available information about our competitors, as well as other publicly available information. This
division’s principal products are tubes and pipes, strips, bars, forged and machined parts, wire and fittings.
We manufacture and distribute these products at three vertically integrated manufacturing plants in Mexico
with a total production capacity of approximately 84 thousand tons per annum. We sell our products in
Mexico, the United States, Latin America and Europe through distributors and directly to end users under
the Nacobre and Cobrecel brands. In 2013, based on internal estimates, our average market share in
Mexico for copper products was approximately 45%. Within the Metals Division, the construction,
industrial, government and manufacturing end-markets accounted for approximately 26%, 64%, 6% and
4%, respectively, of our net sales for the division with a focus on tailor made products to meet our
customers’ requirements.

Building Systems Division. The Building Systems Division represented 34%, 31%, 31% and 30% of our
net sales in the nine months ended September 30, 2014 and fiscal years 2013, 2012 and 2011, respectively.
EBITDA in the Building Systems Division represented 36%, 42%, 47% and 41% of our consolidated
EBITDA in the nine months ended September 30, 2014 and fiscal years 2013, 2012 and 2011, respectively.
Our Building Systems Division has a product portfolio marketed under eight internationally recognized
brands and has more than 80 years of experience serving diverse end-market segments in the Americas.
This division’s main products include roofing sheets, flat boards, sidings, trims and pipes. We manufacture
78
our Building Systems products at 15 manufacturing plants located in the United States, Mexico, Bolivia,
Colombia, Costa Rica, Ecuador, El Salvador and Honduras. Our operations are divided into three regions:
North, Central and South America. We sell our Building Systems products primarily through distributors,
wholesalers and retailers under the Mexalit, Eureka, Cempanel, Maxitile, Eternit, Duralit, Allura and
Plycem brand names. Within the Building Systems Division, construction and government infrastructure
end-markets accounted for 92% and 8%, respectively, of our net sales for the division. The Building
Systems Division acquired the fiber cement business of CertainTeed from Saint-Gobain in January 2014,
significantly expanding our market presence in the U.S. market. In 2013, based on internal estimates, our
Building Systems Division represented approximately: (i) 35% of the Mexican market, (ii) 16% of the U.S.
fiber cement market, (iii) 90% of the market for lightweight fiber cement construction materials in Central
America, and (iv) 55% of the residential construction materials market in Colombia, Bolivia and Ecuador.

Cement Division. The Cement Division represented 11% and 8% of our net sales in the nine months ended
September 30, 2014 and fiscal year 2013, respectively. EBITDA in the Cement Division represented 20%
and 12% of our consolidated EBITDA in the nine months ended September 30, 2014 and fiscal year 2013,
respectively. The Cement Division commenced operations in 2013 upon the conclusion of the construction
of the El Palmar cement plant. We expect our Cement Division to become a more significant contributor to
both revenue and EBITDA. The primary products of our Cement Division are gray cement, white cement
and mortar. In March 2013, we commenced operations at our new cement plant, El Palmar, with the
production and marketing of cement under the brand name Cementos Fortaleza. Furthermore, on July 31,
2013, we established the Lafarge Joint Venture, whereby we contributed our El Palmar plant and Lafarge
contributed its operations in Tula and Vito, State of Hidalgo, Mexico to the Lafarge Joint Venture. Our
Cement Division’s platforms now consist of three plants, which are located in the State of Hidalgo,
Mexico. We currently hold a 53% stake in the Lafarge Joint Venture. On September 19, 2014, we entered
into a share purchase agreement to acquire the 47% minority stake in the Lafarge Joint Venture, which has
been approved by the Mexican Federal Economic Competition Commission (Comisión Federal de
Competencia Económica) and is subject to customary closing conditions. The combination of the industrial
assets allows the Lafarge Joint Venture to have an estimated production capacity of approximately two
million tons of cement per annum. In 2013, its first year of operations as a producer, and in conjunction
with the Lafarge Joint Venture, this division recorded net sales of Ps$1,046 million, or 8.1% of our
consolidated net sales for the period. In 2013, this division sold approximately 0.8 million tons of cement,
representing a capacity utilization of 41% for the period during which the Lafarge Joint Venture was in
operation (See “Business—Cement Division”). We believe that the additional capacity represents the
potential for significant revenue and EBITDA growth. We sell our Cement Division products primarily
through distributors under the Cementos Fortaleza and Lafarge brands (we will cease using the Lafarge
brand after the closing of the transaction). We currently sell more than 70% of our production in 50 kg bags
as a result of the nature of our end-markets, which are primarily skewed towards the retail segment. Bags
command higher prices and yield better profitability than bulk. In 2013, based on our internal estimates, our
market participation in the relevant region (based on the 15 states in Mexico in which the Cement Division
operates) was approximately 7%, while our market participation in Mexico was approximately 5%.

Plastics Division. The Plastics Division represented 5%, 6%, 6% and 5% of our net sales in the nine
Plastics Division represented 6%, 7%, 7% and 6% of our consolidated EBITDA in the nine months ended
September 30, 2014 and fiscal years 2013, 2012 and 2011, respectively. The product portfolio includes a
variety of complete plastic products solutions in four main categories: polystyrene (plastic rolls, sheets and
molds), polyvinyl chloride (roofing sheets), polyethylene (water tanks and accessories) and polypropylene
(roofing sheets). These products are produced and distributed through ten plants located in Mexico, Peru,
Colombia and Bolivia, five of which are shared with the Building Systems Division in order to maximize
synergies between the Company’s divisions. The operations are divided geographically into two regions:
North and South America. We sell our Plastics Division products through approximately 1,493 distributors
and 233 customers (that is, clients to whom we sell directly) under the Eureka, Frigocel, Duralit, Eternit
and Fibraforte brands. Within the Plastics Division, construction and industrial end-markets accounted for
approximately 79% and 21%, respectively, of our net sales for the division. In 2013, based on internal
estimates, our Plastics Division represented approximately: (i) 16% of the rural Mexican market, (ii) 50%
of the Central American suspended ceiling market, and (iii) 30% of the plastics market in Colombia,
Bolivia and Ecuador.
79
The following tables show our net sales and EBITDA by division and as a percentage of the consolidated totals
for the periods indicated.
Net sales in millions of pesos
Nine months ended
September 30,
2014
2013
2013
Metals Division ........ $ 5,471 $ 5,382
Building Systems
Division ...............
3,946
2,948
Cement Division ......
1,262
514
Plastics Division.......
603
571
Holding and
203
218
eliminations(1).....
Total ........................ $ 11,500 $ 9,618
EBITDA in millions of pesos
Nine months ended
September 30,
$
2012
2011
6,919 $
8,085 $
9,438
3,981
1,046
743
4,162
8
797
4,376
128
708
2014
$
662
2013
$
2013
427
752
406
115
516
147
106
240
454
(145)
127
$ 12,929 $ 13,506 $ 14,505 $ 2,062
36
$ 1,232
$
658
2012
$
716
806
238
137
$
74
1,913
2011
$
865
883
(3)
122
159
1,877
$
719
128
100
$
(63)
1,749
eliminations.
Net sales as % of total
Nine months ended
September 30,
2014
Metals Division .........
48%
Building Systems
Division ................
34%
Cement Division .......
11%
Plastics Division........
5%
Holding and
2%
eliminations(1)......
Total ......................... 100%
EBITDA as % of total
Nine months ended
September 30,
2013
2013
2012
2011
2014
2013
2013
2012
2011
56%
54%
60%
65%
32%
35%
35%
38%
50%
31%
5%
6%
31%
8%
6%
31%
0%
6%
30%
1%
5%
36%
20%
6%
42%
12%
9%
42%
12%
7%
47%
0%
7%
41%
7%
6%
2%
100%
1%
100%
3%
100%
(1)%
100%
6%
100%
2%
100%
4%
100%
8%
100%
(4)%
100%
eliminations.
Our Competitive Strengths
We consistently focus on generating superior value for our shareholders, customers, suppliers, employees and
the communities in which we are present by leveraging the following differentiated competitive strengths:
Highly Diversified Product Portfolio of Strong and Leading Brands
We aim to be a “one-stop shop” for our customers in the construction and industrial sectors by offering a large
number of integrated solutions through our diversified product portfolio of leading brands. Our sales are diversified
by product type and end-markets. In 2013, we sold over 1.5 million tons of products. We estimate that the
construction, infrastructure and industrial end-markets accounted for approximately 53%, 10%, and 37%,
respectively, of our net sales in 2013. We believe that our diversification allows us to mitigate the effects of
economic downturns in any one industry in which we operate and the potential loss of any given customer.
In the Building Systems Division, we have focused our resources on developing comprehensive solutions for
lightweight commercial and residential construction systems, including products for both exterior and interior walls,
storefronts, roofs and ceilings. We believe that, due to our product portfolio, quality, brands and distribution
network, we are well positioned to benefit from the trend towards increasing lightweight building systems use.
Lightweight building systems are increasingly being used because of the vertical development of urban areas. Land
is scarce, and the only way to build in these areas is vertically. We believe lightweight building systems are wellpositioned to replace traditional building systems primarily due to their lower weight (90% lighter), ease of dry
construction (drywall), resistance to inclement weather, sound and heat insulation properties, reduced costs and
shorter construction time.
In the Metals Division, we provide comprehensive copper products for solutions for the conduction of fluids
(primarily water and gas), including piping, valves, fittings and chrome taps and products for kitchens and
80
bathrooms, among others. We operate one of the few brass mills in Latin America that produces a complete range of
brass-related products. We are the only producer of copper-nickel alloy tubes in the Americas and the only supplier
to the U.S. government of such tubes for use in the marine industry. The quality of our products meets and often
exceeds the technical standards and specifications of our customers. We own certain well-known brands in the
metals market, such as Nacobre and Cobrecel, which are widely recognized for their high quality and performance
by our clients. We believe we have become the market standard in copper products in Mexico and certain foreign
markets as a result of our over 60 years of experience selling to over 36 countries. In 2013, based on internal
estimates, our average market share in Mexico for copper products was approximately 45% with a 65% share in key
product categories. We provide the construction industry with a large number of products, such as M-, L-, K- and
DWV-type flexible and rigid copper tubing, fittings, tools and accessories used in hydraulic and gas facilities, water
and solar heaters, and drains. For the manufacturing sector, we offer complete mountings for radiators, water heaters
or coolers and oil coolers for trucks.
These offerings of our Metals Division and Building Systems Division are complemented by the products
manufactured by our Cement Division and Plastics Division that are requested by our construction and industrial
sector customers. By providing a one-stop shop for our customers, we aim to develop customer loyalty and crosssell new products to existing customers.
Our product development and engineering departments, supplemented by technical pre-sale agreements with
research institutes, such as the Centro de Investigación y Desarrollo Carso (the Carso Research and Development
Center) and the Centro Tecnológico de Concreto (the Concrete Technology Center), design and develop new
products and solutions that address our customers’ needs as they are able to design products specifically tailored to
meet the needs of individual customers. For example, in the Metals Division, we have the ability to produce new
metal alloys required by our customers through technological innovations and by adapting processing technologies,
such as new alloys for the manufacture of coins, nuclear submarine tubes, heat exchangers, capillary tubes and pipes
for the oil industry, among others. In order to provide specialized solutions, our technicians regularly visit and
advise customers on product specifications design. The cost in terms of time and expense to our customers to
substitute our specialized solutions with those of our competitors can be significant, which generates barriers to
entry.
Unique Regional Footprint and Distribution Capabilities
We have 26 manufacturing plants in nine countries across the Americas. Sales to North America, Central
America and South America represented 76%, 5%, and 16% of our total net sales in 2013, respectively. With over
70 years of experience in our main business divisions, we believe we are a market leader in most of the countries in
which we operate. Our leadership position enables us to secure better terms and conditions for the purchase of
inputs, meet the volume demands of our customers, have a broad distribution reach for our products and maintain an
effective pricing strategy with respect to our customers and suppliers. We believe our geographic diversification also
allows us to mitigate the effects of an economic downturn in any of the countries or regions in which we operate.
We have developed an extensive distribution network comprised of over 5,200 distributors and end users, which
represent a large network of points of sale, supported by 5 company-operated distribution centers, 13 warehouses
and one sales office strategically located in Houston, Texas. Most of our sales are made through distributors (except
in the Metals Division, where most of our sales are to end users) and, in some cases, we are the exclusive supplier of
the products sold by the distributors to the end users. Through our independent distributors, we have been able to
increase the distribution of our products with minimal costs, thereby preserving operational flexibility and allowing
us to penetrate new markets quickly and to expand our geographic footprint. We believe that our broad distribution
network also allows us to service large customers with broad geographic scope better than our competitors. We
believe our significant penetration in the United States is due to the good quality of our products, competitive prices
and services, and our ability to be responsive to our customers’ needs.
We believe the high quality, innovation and performance of our products coupled with our commitment to
customer service have enabled us to build long-standing relationships with our distribution customers in our main
business divisions and establish a distribution network that enables us to identify opportunities and quickly respond
to the needs of our customers by offering new solutions. We believe that our integrated distribution network ensures
the timely delivery of our products and streamlines our operations by allowing us to control the process from the
time of order to delivery to the customer. We believe that our established distribution network in growing Latin
81
American markets and a recovering U.S. market allows us to add new products from acquired companies to these
networks quickly and enhance our growth and development.
Strong Financial Performance and Successful Track Record of Disciplined Growth Through Organic and
M&A Initiatives
We have consistently delivered EBITDA growth and free cash flow and expect to continue to yield strong
financial results. Our EBITDA margin has consistently grown in the past several years to 15%, 14% and 12% in
2013, 2012 and 2011, respectively. Our strong cash flow generation has supported our disciplined investments in
growth initiatives. Our capital expenditures in 2013 represented 16% of net sales, primarily for the El Palmar cement
plant and integration of the Lafarge Joint Venture, which is in line with our strategy of focusing on higher valueadded, higher-margin products and optimizing our production processes. We will evaluate our liquidity and leverage
levels on an ongoing basis. We seek to maintain adequate levels of liquidity and sources of funding to take
advantage of investment opportunities as they arise. A strong balance sheet is an element of our strategy to achieve
sustained growth in sales and EBITDA. Our net debt to EBITDA ratio has decreased significantly from 2.30x in
2013 to 1.54x for the nine months ended September 30, 2014. Our corporate policy targets a net debt to EBITDA
ratio for the medium and long-term of approximately 2.0x.
We have grown rapidly in recent years through several strategic acquisitions that have expanded our product
portfolio and enhanced our positioning in markets with high potential for growth and profitability. For example, as a
result of the Nacobre Acquisition in 2009, we significantly expanded our metals product portfolio and substantially
increased net sales. In the same year, through the Frigocel Acquisition, we acquired Frigocel and Frigocel Mexicana
in Mexico, both of which manufacture plastic products, and in 2010, we acquired Fibraforte, a Peruvian company
dedicated to the manufacture of polypropylene and polycarbonate roofing. Through these acquisitions, we
strengthened our Plastics Division and increased our participation in the construction sector in Mexico. In 2013, we
developed our Cement Division, where we believe there are attractive long-term market fundamentals offering high
potential for growth. We are targeting a production capacity of two million tons of cement this year. Most recently,
in 2014, we acquired the fiber cement business of a Saint-Gobain affiliate, CertainTeed Corporation, one of the
principal manufacturers of construction materials in North America, and launched the Allura fiber cement brand. We
expect that this acquisition will further reinforce our presence in the United States with the integration of the
operations of CertainTeed’s three production plants. In part due to these acquisitions, our net sales and EBITDA
increased from Ps$3,584 million and Ps$211 million, respectively, in 2008 to Ps$12,929 million and Ps$1,913
million, respectively, in 2013. The growth during this five year period is evidence of our business potential and the
integration of our divisions. During the nine months ended September 30, 2014, we generated net sales of
Ps$11,500 million and EBITDA of Ps$2,062 million, an increase of 20% and 67%, respectively, compared to the net
sales of Ps$9,618 million and EBITDA of Ps$1,232 million recorded for the same period in 2013.
Exposure to Favorable Macroeconomic and Industry Fundamentals
Most countries where we operate have favorable estimated future growth, according to the Economist
Intelligence Unit, or “EIU.” The expected real GDP CAGR for 2013 through 2016 of Colombia (4.5%), Peru
(5.5%), Mexico (3.4%) and Central America and others (defined as Bolivia, Ecuador, Costa Rica, El Salvador and
Honduras) (4.1%), countries in which we have a presence, is higher than the average expected real GDP CAGR for
the Latin America region (3.0%). The growth in these countries is generally based on factors such as increasing
foreign, public and private direct investment, growing consumer spending, supportive fiscal policies and inflationary
environment. Foreign direct investment in Mexico, Colombia, Peru and Central America and others (defined as
Bolivia, Ecuador, Panama, Costa Rica, El Salvador and Honduras) has grown substantially since 2010, and it is
expected to continue growing at rates of 8.3%, 18.0%, 3.8% and 11.4%, respectively, through 2016. Positive GDP
growth is also driven by a growing middle class in Latin America. For example, in Mexico, the middle class
expanded by 11 million people from 2000 (representing 30% of the total population) to 2012 (representing 36% of
the total population), according to INEGI. Other countries in Latin America, such as Colombia and Peru, have also
experienced upward social mobility in the last decade.
During the past four years, our net sales and results of operations have been primarily driven by the growth of
the construction sector, mainly residential. We believe the building and industrial sectors in Latin America will
expand significantly in the medium term, offering us the opportunity to continue growing our business. Several
countries in Latin America have launched national infrastructure plans, including Colombia, Mexico, Ecuador and
Peru, that we expect will lead to increased demand in the construction and infrastructure industries. For example, in
82
July 2013, Mexico released its US$596 billion National Infrastructure Plan, which included over 740 projects to be
developed between 2014 and 2018 in areas including energy, urban development and housing, telecom and
transport, water utilities, tourism and health. Similarly, the Colombian government issued the 2010–2014 National
Development Plan (Plan Nacional de Desarrollo 2010–2014), with the goal of increasing the number of government
housing units from approximately 560,000 existing units in 2010 to one million units in 2014. Additionally, in
September 2013, the Colombian government approved the 4G Concession Plan aiming to build or upgrade over
8,000 km of roads and 3,500 km of four-lane highways throughout Colombia. In 2013, the Peruvian government
launched an infrastructure projects tender program aiming to award approximately US$12 billion between 2014 and
2015. There is an estimated current infrastructure deficit of approximately US$88 billion in Peru concentrated in the
utilities and transportation sectors. Planned projects include roads, ports, airports and railroads. In addition, the
Peruvian government is expected to invest approximately US$20 billion in infrastructure projects over the next two
years.
Solid Shareholder Base with Highly Experienced Management Team
Our principal shareholders are Grupo Kaluz and Tenedora, which is indirectly controlled by Grupo Carso,
which own 51% and 46% of our common shares, respectively. Grupo Kaluz and Grupo Carso are among the
strongest and most respected business groups in Latin America. Grupo Kaluz, which is controlled by the del Valle
family, controls and operates a diversified group of companies in the industrial and petrochemical sectors, including
Mexichem, S.A.B. de C.V. Grupo Kaluz operates globally with businesses in the Americas, Europe and Asia. The
del Valle family also participates in the Mexican real estate and financial sectors. The Slim family controls Grupo
Carso and controls a diversified group of companies in the telecom, finance, industrial, mining, retail, and
infrastructure sectors including América Móvil S.A.B. de C.V., Grupo Financiero Inbursa S.A.B. de C.V., Minera
Frisco, S.A.B. de C.V., Grupo Sanborns S.A.B.de C.V., and Impulsora del Desarrollo y el Empleo en América
Latina, S.A.B. de C.V., among others. We benefit from the corporate longstanding support of our principal
shareholders, which have proven track records of value creation. For example, in 2012, our shareholders contributed
a portion of the necessary capital to build our El Palmar cement plant.
Our senior management team has an average of 20 years of experience in the cement, building systems, plastics
and metal sectors in Latin America and the United States. Our Chief Executive Officer, Eduardo Musalem Younes,
has over 17 years of experience at Elementia including serving as Chief Executive Officer of Nacobre from 2001 to
2008. Our Chief Administration and Financial Officer, Víctor Hugo Ibarra, has over 32 years of experience in the
consumer, mining, manufacturing and industrial sectors, and previously served as Chief Administration and
Financial Officer of Grupo Lala, Carso Infraestructura y Construcción and for Pepsi and its bottlers in Mexico. Our
Cement Division Director, Antonio Tarecena Sosa, has over 21 years of experience in the cement industry and
previously served as Chief Executive Officer of Corporación Moctezuma. Our Metals Division Director, Gustavo
Arce del Pozo, has over 27 years of experience at Elementia. Fernando Ruíz Jacques, our Building Systems and
Plastics Division Director has over six years of experience with Elementia and over 18 years of experience in the
consumer, construction and housing industries. Our senior management team has been instrumental in developing
the business strategies that have led to the improvements in our operating and financial performance as well as
integrating our acquisitions. Senior management has also demonstrated the ability to respond promptly and
effectively to the challenges posed by the recent global economic crisis. Our senior management oversees seasoned
and knowledgeable operating and technical managers in each of our business divisions.
Our Key Strategies
Our mission is to achieve sustained yet disciplined growth in sales, earnings and market share by developing
and offering integrated, high-quality solutions for the construction and industrial sectors. We focus on achieving that
mission through maximizing operating efficiencies, innovating and exceeding quality standards, to generate value
for our shareholders, customers, suppliers, employees and community.
Increase the Participation of the Cement Business in our Product Portfolio Mix
We are in the process of seeking significant synergies to foster our growth in this division, including operating,
logistics, distribution and marketing synergies. We also plan to increase the production capacity of our Cement
Division, which may be funded with a portion of the proceeds from the offering and with cash flow from operations.
We believe that this investment will allow us to increase our market share in the Mexican cement sector.
83
Optimize Sales Mix and Broaden Product Offerings to Further Enhance Market Position
In order to further improve both profitability levels and the growth profile of our Cement Division, we aim at
targeting 80% to 20% higher-margin bagged versus bulk cement sales. In addition, we launched ready-mix concrete
production operations in October 2014 to access new market segments and establish a vertical integration model
within this division.
In the Metals Division, we intend to focus on delivering innovative value-added solutions to clients. Currently,
approximately 65% of our manufactured metals products are tailor-made to client specifications. We also intend to
increase the amount of customer operations done internally at our plants, which increases our value-added offerings
for clients and differentiates our company, resulting in higher operating margins and customer loyalty. We intend to
continue expanding our Metals Division’s market share in the domestic and international markets by entering new
product categories and further developing high value added products. We will continue to undertake strategic
investments in technologies such as cast and roll, forge presses and new steel profiles and leverage our production
capabilities and distribution network to increase our penetration and market share in key markets.
In the Building Systems Division, we intend to strengthen our position as a leading integrated building systems
solutions provider by developing highly specialized, value added new products and solutions. In addition, we are
focused on improving our position in the markets for governmental construction and tenders for social assistance
housing programs by offering new products and solutions. We will focus on developing urban and environmentally
efficient construction markets with new, innovative and environmentally friendly solutions. In the United States, we
are seeking to boost our market share by means of our acquisition of the fiber cement business of a Saint-Gobain
affiliate, CertainTeed Corporation, one of the principal manufacturers of construction materials in North America.
We intend to improve our positioning in the Plastics Division in the government, construction and industrial end
markets by offering new products and solutions. In addition, we expect to continue to expand our footprint in the
high-potential North American, Central American and South American markets with a strong focus on innovation
through our research and development activities.
Continue Vertical Integration and Streamline Operations to Improve Margins
Through our vertical integration, our plants are positioned to cast and process raw materials into finished
products, thereby eliminating dependence on third parties during our production process. In addition, our vertical
integration positions us as a low cost producer, while downstream vertical integration allows us to focus on value
added specialty products. So far, we have successfully integrated certain raw materials such as silica and calcium
carbonate through investments in certain mills. Likewise, we have been able to generate energy in our Honduras
plant through biomass power generation. We intend to further streamline our Cement Division operations by
increasing the use of alternative fuels to run the plant and by continuing to implement cost reduction strategies. In
our Metals Division, we expect to see the benefit of our capital investment programs undertaken over the last several
years, including minimizing metallurgical losses and improving metal yields, focusing on lean manufacturing,
optimizing the level of inventory and maximizing the potential of full vertical integration across all plants,
facilitating our casting of raw materials into finished goods, which allows us to maintain under our control key
strategic factors. While optimizing operations, we are committed to maintaining an unwavering focus on highquality products. In our Building Systems Division, we aim to continue to vertically integrate our product lines.
Although our cement production also represents an opportunity to vertically integrate, we also target downstream
vertical integration to focus on increased value added products. We will continue to seek synergies between the
Plastics Division and our other divisions similar to the ones we have already achieved by positioning the Plastics
Division products facilities within the Building Systems Division plants to achieve leaner cost structures and more
efficient operations.
Sustained and Value Accretive Growth Through Strategic Acquisitions and Their Successful Integration
We have complemented our organic growth through strategic acquisitions that have allowed us to achieve
consistent growth in net sales and EBITDA (the Fibraforte Acquisition for Ps$442 million, the Frigocel Acquisition
for Ps$175 million and the acquisition of CertainTeed Corporation, a subsidiary of Saint-Gobain, in January 2014
for Ps$329 million). Our net sales and EBITDA in 2008 were Ps$3,584 million and Ps$211 million, respectively.
Our growth during the following five years demonstrates our business potential and the integration of our divisions,
with our net sales and EBITDA in 2013 amounting to Ps$12,929 million and Ps$1,913 million, respectively, a
84
CAGR of 29% and 55%, respectively, from 2008 to 2013. During the nine months ended September 30, 2014, we
respectively, compared to the net sales of Ps$9,618 million and EBITDA of Ps$1,232 million recorded for the same
period in 2013. We will seek to maintain our leadership through strategic acquisitions in market segments and
regions in Latin America with potential for high growth and profitability in order to continue growing our net sales,
operating profits, market share and product portfolio. Through acquisitions, we will seek to further vertically
integrate our production processes and increase operating efficiencies. We believe that economies of scale and
investment in new and better technologies and processes will result in higher value-added products and improved
customer solutions, which in turn will optimize our operations and reduce our costs and expenses. On September 19,
2014, we entered into a share purchase agreement whereby we agreed to acquire the remaining 47% stake in the
Lafarge Joint Venture. After the closing of the transaction, we will hold all of the shares of ELC Tenedora
Cementos, which will strengthen our position in the Mexican cement industry through the Cementos Fortaleza
brand. The transaction is subject to customary regulatory approvals.
Our Corporate Structure
Grupo Kaluz and members of the del Valle family own 51% of our share capital and Tenedora, which is
indirectly controlled by Grupo Carso, owns 46%, with the remaining shares (3%) held by minority investors. Grupo
Kaluz, which is controlled by the del Valle family, is a Mexican conglomerate with significant investments in the
petrochemical and industrial sectors. Grupo Carso, which is controlled by the Slim family, belongs to one of
Mexico’s largest conglomerates. In addition, the Slim family participates in the retail, industrial,
telecommunications and manufacturing, and infrastructure and construction sectors.
We are a holding company and conduct our business through our subsidiaries. The following chart shows our
current corporate structure and our principal operating subsidiaries.
Our History
We were incorporated on April 28, 1952 in Mexico City, with a duration of 99 years under the name “Productos
Mexalit, S.A.,” in accordance with Mexican law. Our name was changed to “Mexalit, S.A.” in 1979 and then to
“Elementia, S.A.” in February 2009, as a result of branding changes aimed at reflecting recent acquisitions. On
June 13, 2011, we became a variable capital corporation, and since then we have operated under the name of
“Elementia, S.A. de C.V.”
85
Since 1952, when we commenced our business as a fiber cement roofing products manufacturer, we have grown
by building up our manufacturing capacity and acquiring other fiber cement and other products manufacturers
throughout North, Central and South America.
Through several acquisitions between 2001 and 2009, we expanded our product offerings in what is now our
Building Systems Division. Between 2001 and 2008 we acquired Eureka Servicios Industriales, Eternit Ecuatoriana,
Industrias Duralit and Plycem, all industry leaders in the production and manufacture of fiber cement roofing and
water tanks in the South American and Central American regions. Continuing our expansion, in 2006 we built the
Nuevo Laredo plant where we develop products that are mainly marketed in the United States using the Maxitile
brand. Through these acquisitions and capital investments we have greatly diversified our fiber cement product
offerings for the Building Systems Division.
Since 2009, we have further expanded our product portfolio and geographic reach through several strategic
acquisitions. On June 1, 2009, we purchased the Nacobre Subsidiaries, which manufactured and distributed copper
and aluminum products, providing the basis for what is now our Metals Division. As a result of the acquisition,
Grupo Carso, the ultimate parent of the Nacobre Subsidiaries, indirectly acquired 49% of our share capital, which
has been reduced to 46% as of the date of this offering memorandum. During 2012, we sold our interests in the
Nacobre Subsidiaries that produced aluminum products, and now the Nacobre Subsidiaries produce and distribute
only copper products. On December 8, 2009, we acquired Frigocel and Frigocel Mexicana in Mexico, both of which
manufacture plastic products, and on July 22, 2010, we acquired Fibraforte, a Peruvian company dedicated to the
manufacture of polypropylene and polycarbonate roofing. Through these acquisitions, we developed our Plastics
Division. In 2009, we commenced the construction project for the El Palmar cement plant, resulting in the creation
of our Cement Division.
In 2012, we decided to discontinue our fiber cement A.C. piping line from our Mexalit Industrial plant in
Chihuahua, Mexico. Today, it only produces water tanks and cisterns. In the second half of 2013, our subsidiary
Trituradora opened our new El Palmar cement plant. On January 8, 2013, we entered into the Lafarge Joint Venture
for the production of cement in Mexico which became effective on July 31, 2013. We hold 53% of the Lafarge Joint
Venture, while Lafarge holds the remaining 47%. However, on September 19, 2014, we entered into a share
purchase agreement to acquire the remaining 47% stake in the Lafarge Joint Venture, which has been approved by
the Mexican Federal Economic Competition Commission and is subject to customary closing conditions. During
2013, we commenced operations at a second autoclave in Colombia, increasing our annual production of fiber
cement sheet products by 1,200 tons. We also transferred our copper operations at our former plant in Toluca, State
of Mexico, Mexico to our plant at Celaya, Guanajuato, Mexico, as part of a process of consolidation. On January 31,
2014, our subsidiary Plycem USA acquired the fiber cement business of CertainTeed Corporation, an affiliate of
Saint-Gobain and one of the principal manufacturers of construction materials in North America. Through this
transaction we acquired various assets related to the fiber cement business and strengthened our North American
coverage and United States presence.
Today, we are a diversified company with over 6,200 employees, offering integrated solutions in metals, fiber
cement, cement and plastics products manufactured at our 26 plants located in Mexico, the United States, Bolivia,
Colombia, Costa Rica, Ecuador, El Salvador, Honduras and Peru.
Metals Division
General
Our Metals Division manufactures a variety of copper and copper alloys, strips and sheets, rods, wires, tubes,
pipes fittings, forge and machined parts used in the construction, refrigeration, HVAC, automotive, electrical,
electronics, minting, ammunition, white goods and personal products industries, among other industries. We
established the Metals Division in June 2009 following the Nacobre Acquisition. We manufacture our metal
products in three plants located in Mexico and distribute our metals products through eight warehouses in Mexico
that also sell to over 36 countries, and one sales office in the United States. The Metals Division had net sales of
Ps$6,919 million and EBITDA of Ps$658 million in 2013, representing 54% and 35%, respectively, of our
consolidated totals for the year. In the nine months ended September 30, 2014, the Metals Division generated net
sales of Ps$5,471 million and EBITDA of Ps$662 million, representing 48% and 32%, respectively, of our
consolidated totals for the period.
86
Revenues from the sale of metal products are generally not affected by seasonality, although they do tend to
track the activity levels of the industrial and construction sectors. In addition, because our metals products are sold
on a cost-plus mark-up basis, we are generally able to adjust pricing to maintain our margins independent of the
volatility of international copper prices.
Products
Our Metals Division manufactures a variety of copper and copper alloy products, which are used by our
customers in the manufacturing processes of their finished products. We believe we have a competitive advantage
over our competitors due to our rigorous manufacturing standards and strong technical know-how, which should
allow us to expand into the manufacture of higher value-added, higher margin products. We believe we also have a
leading market position in copper and copper alloy products: we are one of the primary global manufacturers in the
world of copper-nickel tubes, which are highly specialized products sold to shipbuilding customers in the United
States as well as Europe.
Copper
We currently produce various specifications of copper and copper alloys, strips and sheets, rods, wires, tubes,
pipes fittings, forge and machined parts varying in length, thickness, size and purity. Our copper products are used
primarily in the industrial and manufacturing sectors. Our principal copper products include:

Tubes, which are used primarily in the construction, refrigeration and HVAC, electricity and oil and gas
exploration industries to convey fluids and gases under high pressure and temperature conditions. We
produce various sizes of copper tubes ranging from 0.072” to 10” in diameter. We manufacture copper
tubes according to different local and/or international standards, including the American Society for
Testing and Materials, or “ASTM”, mechanical specifications, including EN, DIN, JIS and MIL-T.

Strips and sheets. We produce a large selection of flat rolled products using copper-based alloys, which are
used primarily in the electronics, automotive, decorative, electricity, key blanks and minting industries. We
produce these products in various gauges with widths of up to 36 inches, all in compliance with ASTM
standards.

Solid copper products, such as bars and rods, which are used primarily in the industrial manufacturing and
automotive industries. We manufacture solid copper products in round, square, hexagonal and special
shapes.

Wires, which are used primarily in the electronics, telecommunications, electricity, apparel, musical
instruments and personal products industries. We produce various types of wires, including square, halfround, flat, round and electro-erosion wires. We manufacture wires to different local and/or ASTM
mechanical specifications, including ASTM-B-134, ASTM-B-206 and ASTM-B-187.

Fittings, which are used primarily in the construction and industrial manufacturing industries. We produce
various types of copper and brass fittings, including threaded and wrought fittings for water, gas and
industrial uses. Our line of products also includes valves for use in the construction and industrial sectors.
We manufacture fittings to different local and/or ASTM mechanical specifications.

Brass bars and rods, which are used primarily in the industrial transformation industry for electrical panels
and boards, rivets and screws, and automotive sector, refrigeration and a wide variety of special forgings.
We produce several types of bars and rods, including solid, hollow and special shaped bars, to different
local and/or ASTM mechanical specifications, including ASTM B-455, ASTM B-152 and ASTM B-187.
87
The following table sets forth sales volumes and net sales from our principal copper products for the periods
presented.
Volume
2013
2014
Net Sales
Volume
2013
Net Sales
Volume
2012
Net Sales
Volume
2011
Net Sales
Volume
Net Sales
Mexico and USA
Tubes ..............................................
Sheets ..............................................
Solid copper ....................................
Wires ...............................................
Fittings ............................................
Framing ...........................................
Rolls ................................................
Other ...............................................
Subtotal......................................
Exports
Tubes ..............................................
Sheets ..............................................
Solid copper ....................................
Wires ...............................................
Fittings ............................................
Other ...............................................
Subtotal......................................
Total ......................................
15 $ 1,975
14
1,364
6
478
3
283
3
494
-
16 $ 2,131
12
1,135
6
487
3
277
3
567
-
21 $ 2,472
15
1,481
8
813
3
364
4
390
-
22 $ 2,818
18
1,974
8
875
4
413
4
463
-
24
17
7
3
4
5
13
$ 2,883
1,724
587
434
526
305
811
1
42
1
35
41 $ 4,632
1
52
56
73
473
$ 7,743
925
363
36
46
15
7
3
0
0
0
$ 1,141
476
30
37
11
0
$ 1,385
$ 8,085
0
10
83
0
$ 1,695
$ 9,438
25
$ 4,619
5 $
2
0
0
0
7
49
622
192
16
18
3
1
$ 852
$ 5,471
4 $
2
0
0
0
518
184
16
25
6
1
6 $
750
47 $ 5,382
90
$ 5,610
6 $
2
0
0
0
742
375
39
146
4
0
3
8 $ 1,309
60 $ 6,919
157
$ 6,700
6 $
2
0
0
0
0
8
64
Raw Materials and Suppliers
The primary raw materials used in the manufacture of our metal products are copper, nickel, zinc and lead,
which together accounted for approximately 82% of this division’s production costs in 2013. We have two sources
of raw materials for our metal products: newly refined virgin metal and recycled metal, both of which are sourced
from Mexican suppliers.
No single metal supplier accounted for more than 15% of the total amount of metal raw materials purchased by
us in 2013 and we are not dependent on any individual supplier for our metal raw materials. Our primary recycled
metal suppliers are Grupo de Metales Tulpetec, S.A. de C.V., Recuperaciones Industriales Internacionales, S.A. de
C.V., Victor Systems, S.A. de C.V., Texsisa and Válvulas y Aceros del Norte; however, we obtain recycled metal
from a large number of suppliers. Our primary suppliers of newly refined virgin metal (cathode) are Recuperaciones
Industriales Internacionales, S.A. de C.V., Industrial Minera Mexico, S.A. de C.V., Cobre de México, S.A. de C.V.,
Operadora de Minas e Instalaciones, Vale Americas Inc. and Gerald Metals Mexico, S. de R.L. de C.V.
Our Metals Division products are sold on a metal cost-plus mark-up basis, which means that customers absorb
the risk of price volatility of raw materials.
Manufacturing Plants
We manufacture our copper products at our Vallejo, San Luis Potosí and Celaya plants, all of which are located
in Mexico. During 2013, we concluded our transition from the Toluca plant to Celaya, consolidating our operations
in the three manufacturing plants mentioned above.
Product Quality
Our Metals Division’s manufacturing plants have quality control departments responsible for ensuring
compliance with our raw material and finished product specifications and for overseeing the production process. All
of our testing methods are based on international standards, such as the ASTM, as well as Mexican standards
developed by technical committees under the direction of Mexican federal agencies, or “NMX.”
88
Our Metals Division products comply with the technical standards and quality required by domestic and foreign
markets. Applicable standards and specifications vary according to product type and are established by various
international institutions and associations. Our manufacturing plants in this division have certifications from the ISO
for quality management (ISO-9001). In addition, PROFEPA has granted some of our manufacturing plants the
Industria Limpia (Clean Industry) certification, which certifies full compliance with Mexican environmental laws.
Our manufacturing plants in our Metals Division have the following certifications:
Manufacturing Plants in the Metals Division
Certifications
Vallejo ................................................................................. Clean Industry, ISO 9001:2008, ISO 14401:2004
Celaya .................................................................................. ISO 9001:2008; UL certification for Pigtail MH1956-1
and Regulators: Environmental Management System ISO
14001:2004
San Luis Potosí .................................................................... ISO 9001:2000, Clean Industry
Manufacturing Processes
We utilize several manufacturing processes, ranging from metal casting and drawing, to lamination or
extrusion, to reach the final product which can be flat rolled, tube or a custom shape according to customer
specifications.
Smelting Process: In this part of the process, the raw material, whether in pure or recycled form, is melted in
order to produce blocks or 8-inch thick cakes made of copper or copper alloys (which can be copper-nickel, brass,
zinc or nickel-silver). These blocks are melted into a sheet or coil. There are two types of casting:

Caster or continuous smelting, from which rolls and mother tube are made, or

Digi-smelting, from which a cake/ingot is produced.
Lamination Process: In this part of the process, the block or cake obtained by smelting the raw material is
subjected to high temperatures and passed through rollers, which fashion it into a sheet or coil. The sheet or coil is
immersed in chemicals to remove rust, and then cold force and pressure are applied to it to reach a specified
thickness.
Extrusion Process: In this part of the process, the block or cake obtained by smelting the raw material is
subjected to high temperatures and placed in an extrusion press, where pressure is applied to generate a tube. The
width and thickness of this tube is then adjusted through a stretching/drawing process.
The manufacturing process for copper piping and its alloys includes smelting and extruding the metal in order
to produce water pipes, tubes for HVAC, capillary tubes and fittings, among other products.
The manufacturing process for copper, coil and sheeting and its alloys includes smelting and sheeting, after
which the customer processes it to mint coins and produce cartridges for the military industry, electrical terminals,
keys and automotive parts, transformers, appliances and other products.
General
Our Building Systems Division produces fiber cement roofing sheets, flat boards, siding, trims and pipes,
among other products. This division’s products are sold to customers in the construction and infrastructure
industries. The Building Systems Division is divided into three regions: North America, Central America and South
America.
89
We manufacture and market our Building Systems products through the following subsidiaries:



North America Region:

Mexalit Industrial, S.A. de C.V. (Mexico)

Maxitile Inc. (U.S.)

Plycem U.S.A. “Allura” (U.S.)
Central American Region:

Plycem Construsistemas Honduras, S.A. de C.V. (Honduras)

Plycem Construsistemas El Salvador, S.A. de C.V. (El Salvador)

Plycem Construsistemas Costa Rica, S.A. (Costa Rica)
South American Region:

Eternit Colombiana, S.A. (Colombia)

Eternit Atlántico, S.A. (Colombia)

Eternit Pacífico, S.A. (Colombia)

Eternit Ecuatoriana, S.A. (Ecuador)

Industrias Duralit, S.A. (Bolivia)
This division has 15 manufacturing plants across 8 countries, including Mexico, Colombia, Ecuador, Costa
Rica, Honduras, El Salvador, Bolivia and the United States. Our Building Systems products are sold through
approximately 2,600 distributors. This division had net sales of Ps$3,981 million and EBITDA of Ps$806 million in
2013, representing 31% and 42%, respectively, of our consolidated totals for the year. In the nine months ended
September 30, 2014, this division had net sales of Ps$3,946 million and EBITDA of Ps$752 million, representing
34% and 36%, respectively, of our consolidated totals for the period.
Our revenue from the sale of building systems has usually followed the trends of the construction industry.
Historically, our Building Systems Division has had higher sales during the summer and lower sales during the
winter, reflecting the seasonality of construction activity.
On December 19, 2013, we signed an acquisition agreement with the external products division of Saint-Gobain
to acquire the fiber cement business of its affiliate, CertainTeed Corporation, one of the principal manufacturers of
construction materials in the United States. On January 31, 2014, we completed the acquisition of the fiber cement
business of CertainTeed Corporation. We subsequently rebranded this business under our new Allura brand. We
expect that this acquisition will strengthen our presence in the United States. These plants will geographically
complement the operations of our Nuevo Laredo plant, which is focused on the U.S. market.
Pursuant to the acquisition agreement relating to the fiber cement business of CertainTeed Corporation, we will
not be liable for, among other things, (i) any liabilities arising from, or relating to, claims made by any person due
to, or attributable to, the actual or alleged exposure to asbestos that occurred prior the purchase or (ii) any
environmental liabilities relating to, or arising from, events or circumstances occurring or existing prior to the
consummation of the agreement, including all liabilities relating to environmental, health and safety laws.
90
Products
The primary building systems products that we manufacture are the following:

Corrugated roofing sheets from fiber cement, which are used primarily in residential construction and
which can also be used as decorative ornaments or as a complement to concrete slabs. These roofing sheets
are cost-effective, versatile and an architectural solution. We manufacture different sizes and profiles of
corrugated sheets for different applications. We produce the most common profiles used in the market (P3,
P4, P7, P10 and Channel C90) in various lengths ranging from 1.22 to 3.66 meters with widths ranging
from 0.91 to 1.1 meters and thicknesses ranging from 4 to 6 millimeters. We manufacture corrugated sheets
for the local construction business and the export market, and our management system has been certified
based on the requirements specified in ISO 9001:2008.

Roofs or suspended ceilings from fiber cement flat sheets, which are used primarily in residential and
commercial construction. We manufacture flat sheets in lengths of 0.61 meters, 1.22 meters and 2.44
meters, with widths of 1.22 meters and thicknesses from 4 to 20 millimeters. We manufacture flat sheets to
different local and/or ASTM mechanical specifications, such as ISO 8336 and ASTM-C-1186.

Siding fiber cement boards, which are used primarily in the housing and construction industries to
weatherproof and enhance the aesthetic quality of facades and for modern architectural designs. These
products have a high level of dimensional stability, resistance and durability. The boards come in a variety
of shapes and sizes, may be used for interiors and exteriors.

Trims, which are used primarily in the residential and commercial construction industries. Trims come in a
variety of shapes and sizes and may be used for corners, fascia, windows, doors, column wraps, rakes,
friezes, decorative trim and other non-structural architectural elements to add decorative elements to homes
and buildings. We manufacture trims to different local and/or ASTM mechanical specifications, such as
ISO 8336 and ASTM-C-1186.

Fiber cement panels for internal and external walls, and floors, which are used primarily in residential and
commercial construction. We produce panels in lengths of 2.44 meters, with widths of 1.22 meters and
thicknesses ranging from 6.0 to 20.0 millimeters. The panels are versatile and can be used in a broad
spectrum of buildings and construction types. Our panels offer resistance to moisture, are immune to woodboring insects, are load-bearing, are non-combustible and are available in different finishes. We
manufacture panels to different local and/or ASTM mechanical specifications, such as ISO 8336 and
ASTM-C-1186.

Fiber cement pipes, or “F.C. pipes”, which are used primarily in the infrastructure industry for water and
sewage systems. We manufacture F.C. pipes in “A” and “B” classes in lengths of 5 meters, widths of 1.07
meters and thicknesses ranging from 2.4 to 27.4 centimeters for class “A” pipes, and from 2.8 to 16.7
centimeters for class “B” pipes. F.C. pipes are manufactured to different local/ASTM mechanical
specifications, such as NMX-C-012-ONNCCE-2007 and NMX-C-039-ONNCCE-2004.
We also manufacture a range of fiber cement products based on customer specifications, such as light building
systems and remodeling accessories, as well as a range of energy saving products, such as Maxi-Therm fiber cement
sheets.
91
Below are images of some of the products in our building systems division:
Suspended Ceilings from fiber Cement
Flat Sheets
The following tables set forth our sales volumes and net sales from our principal fiber cement products for the
periods indicated.
2013
2014
Volume
Net Sales
Volume
Net Sales
(in thousands of tons and millions of Ps$)
North America
Sheets, tiles and moldings ..............................................................
Suspended ceilings .........................................................................
Panels .............................................................................................
Trims/Sidings .................................................................................
F.C. pipes .......................................................................................
Others .............................................................................................
Subtotal .........................................................................................
102 $
20
139
7
269 $
791
163
1,008
81
126
2,169
72 $
28
52
9
161 $
479
221
261
99
41
1,100
Central America
Suspended ceilings .........................................................................
Panels .............................................................................................
Trims/Sidings .................................................................................
F.C. pipes .......................................................................................
Others .............................................................................................
Subtotal .........................................................................................
8 $
11
54
74 $
57
67
385
24
534
5 $
14
53
73 $
33
81
374
75
562
92
2013
2014
Net Sales
Volume
Volume
Net Sales
South America
Suspended Ceilings ........................................................................
Panels .............................................................................................
Trims/Sidings .................................................................................
F.C. pipes .......................................................................................
Others .............................................................................................
Subtotal .........................................................................................
Total .....................................................
204 $
2
27
1
2
235 $
578 $
1,046
7
143
6
40
1,243
3,946
195
2
21
1
4
223 $
457 $
1,054
11
112
6
103
1,286
2,948
2012
2013
Net Sales
Volume
Volume
2011
Net Sales
Volume
Net Sales
North America
Sheets, tiles and moldings ............................
Suspended ceilings ......................................
Panels ...........................................................
Trims/Sidings ...............................................
F.C. pipes .....................................................
Others ...........................................................
Subtotal ...................................................
115 $
796


20
162
64
467
11
123
0
19
210 $ 1,567
128 $

19
59
14
0
221 $
679

156
408
73
11
1,327
121 $

22
54
16
0
213 $
691

285
448
205
1
1,630
Central America
Suspended ceilings .......................................
Panels ...........................................................
Trims/Sidings ...............................................
F.C. pipes .....................................................
Others ...........................................................
Subtotal ...................................................
9 $
19
72


0
100 $
43
113
480


47
683
5 $
22
82



109 $
34
128
541


113
816
4 $
40
61
1


106 $
24
257
355
10

19
665
South America
Suspended ceilings .......................................
Panels ...........................................................
Trims/Sidings ...............................................
F.C. pipes .....................................................
Others ...........................................................
Subtotal ...................................................
Total .....................................................
261 $
3
29
1

4
298 $
608 $
1,444
12
156
10

109
1,731
3,981
303
3
27
1

3
337 $
667 $
1,722
16
143
7

131
2,019
4,162
297
2
28


6
333 $
652 $
1,547
20
103
1

410
2,081
4,376
The principal raw materials used in the manufacture of products in the Building Systems Division are cement,
water, calcium carbonate, silica, chrysotile, other natural/synthetic fibers and mineral pigments. These raw materials
represented approximately 47.5% of this division’s production costs in 2013.
We obtain the raw materials used in our Building Systems Division from a large number of suppliers, and we
are not dependent on any individual source for the raw materials that we purchase.
93
Our principal suppliers (i) for chrysotile fiber are Sama-Mineração de Amianto, Ltda. and Ural Asbest; (ii) for
cement are Cemex, S.A. de C.V. in Mexico, and Cementos Apasco, S.A. de C.V. and Lafarge Cementos S.A. de
C.V. in Central America and South America, respectively; and (iii) for cellulose fiber are Celulosa Arauco and
Constitución S.A.
Cement. Currently, we do not have long-term supply agreements for cement, but we set prices on a yearly basis
and obtain discounts and special prices for specific government export and infrastructure projects. This raw material
is readily accessible in global markets, showing low volatility in recent years.
Chrysotile Fiber. In the North and South American regions, chrysotile fiber is used to manufacture certain fiber
cement products that are marketed locally. Products that are exported to the United States are manufactured using
other fibers such as cellulose fiber and PVA and we have never exported products manufactured using chrysotile
into the United States. Chrysotile fiber is acquired from suppliers located in Brazil and Russia, among other
countries. Our use of chrysotile fiber is compliant with the local health and safety regulations in the countries in
which we operate as well as international standards such as the Responsible Use of Chrysotile Asbestos. This raw
material is readily accessible and our market and prices have remained broadly stable during the past three years.
Cellulose Fiber. Reliable access to, and consistent quality of, low cost pulp from the United States and Canada
are critical to the production of fiber cement building materials. The main suppliers of cellulose fiber are located in
the United States. We do not have supply agreements with our cellulose fiber suppliers. Instead, our orders are based
on the needs of our production plants and are usually placed two months in advance. This raw material is readily
available at prices prevailing in the global market.
PVA Fiber. We acquire PVA fiber from suppliers located in Japan. PVA fiber is used only in the manufacture
of certain custom-made products. Although the current price of this raw material is high, we do not anticipate
difficulties obtaining this raw material in the future. In addition, we are also working with PP (polypropylene) fiber
and have obtained adequate product results and performance.
Silica. We obtain silica from suppliers located in Mexico and from the different regions where silica is used.
We have traditionally negotiated and set prices on an annual basis, but we currently have an agreement for the
supply of this raw material through 2015. Silica is a readily available material with a number of suppliers available
to us. In some of our plants, we have also invested in silica mills.
The manufacturing operations of the Building Systems Division are located in several countries, including the
United States of America, Mexico, El Salvador, Costa Rica, Honduras, Colombia, Ecuador and Bolivia, which
makes us an integrated producer with a truly regional platform.
Product Quality
Each of our manufacturing plants in the Building Systems Division has a quality assurance department
responsible for ensuring the compliance with our raw material and finished product specifications, and for
overseeing the production process, allowing us to develop products with significant brand value. Additionally, these
departments supervise the manufacturing processes. All of our testing methods are based on international norms,
such as the ASTM and Mexican NMX.
Our manufacturing plants in this division have certifications under national and international norms, including
certifications from the ISO for quality management (ISO-9001) and environmental quality and safety (ISO-14001),
and from the Occupational Safety and Health Administration, or “OSHA”, for occupational health and safety
management (OSHAS-18000). Moreover, many of our manufacturing plants are certified by the Organización
Nacional de Normalización y Certificación de la Construcción y Edificación (National Organization of
Standardization and Certification of Building and Construction, or “ONNCCE”), Comisión Nacional del Agua
(National Water Commission, or “CONAGUA”), Certificación Mexicana, S.C., or “CERTIMEX”, Centre
Scientifique et Technique du Bâtiment (International Code Council, or “CSTB”) and Business Alliance for Secure
Commerce, or “BASC.” In addition, PROFEPA has granted many of our manufacturing plants in Mexico the
Industria Limpia certification, which certifies full compliance with Mexican environmental laws.
94
Manufacturing Plants in the Building Systems Division
Certifications
Santa Clara .......................................................... ISO 9001:2008, ISO 14001:2004, Clean Industry, NMX-C-012,
NMX-C-039, NMX-C-374, NOM-006-CONAGUA, ICC, CSTB,
Pacto Global
Guadalajara.......................................................... ISO 9001:2008, ISO 14001:2004, OSHAS 18001:2007, Clean
Industry, NMX-C-374, NOM-006-CONAGUA, ICC, Pacto Global
Nuevo Laredo ...................................................... ISO 9001:2008, ICC
Villahermosa ....................................................... ISO 9001:2008, Pacto Global
North Carolina ..................................................... ISO 14001 (expired)
Oregon ................................................................. ISO 14001
Indiana ................................................................. N/A
Cartago ................................................................ ISO 9001, ISO 14001, OSHAS 18001
San Pedro Sula .................................................... ISO 9001, ISO 14001, OSHAS 18001
El Salvador .......................................................... ISO 9001, ISO 14001, OSHAS 18001
Eternit Colombiana.............................................. ISO 9001:2008, ISO 14001:2004, OSHAS 18001:2007, BASC
Version 3-2008
Eternit Pacífico .................................................... ISO 9001:2008, ISO 14001:2004, OSHAS 18001:2007 (Bureau
Veritas) and BASC V4-2012 (WBO)
Eternit Atlántico .................................................. Bureau Veritas, ISO 9001, ISO 14001, OSHAS 18000, BASC V42012
Eternit Ecuatoriana .............................................. INEN 1320 Tipo III, INEN 1320 Tipo IV, ISO 9001, ISO 14001,
OSHAS:18001
Duralit Bolivia ..................................................... ISO 9001:2000, IBNORCA (Instituto Boliviano de Normalización
y Calidad, Certificado de Sello de Producto NB 673:2010,
Certificado de Aprobación. Renewed on 02/07/2011)
Manufacturing Processes
Our Building Systems Division currently offers the broadest portfolio of solutions for lightweight building
systems in fiber cement. The manufacturing plants in the Building Systems Division have production lines for
manufacturing roofing sheets, tiles, pipes and panels.
The manufacturing process begins with the mixing of raw materials. The production lines then stretch the
mixture using rollers, in order to form slabs that will subsequently be shaped into the desired product. These plates
are then subjected to various processes:

Autoclaving, which cures the cement at an accelerated pace under high pressure and temperature.

Carbonation, which accelerates the curing of cement, but which does not result in the final baking.

Natural, whereby the cement sets by itself in the shade.

Painting, whereby the product is brought to a painting line.
95
Cement Division
General
During 2013, our new El Palmar cement plant began operations. Its cost of construction was US$315 million.
We began distribution of the cement product in the Mexican market under the trade name Cementos Fortaleza, with
the goal of meeting demand in the self-construction sector of the central Mexican region. This plant has a
production capacity of approximately one million tons per year. As it is usual with the startup of a new cement
plant, capacity utilization is expected to ramp up over a period of time, and during 2013 and the nine months ended
September 30, 2014, the El Palmar plant continued to increase production. We estimate that the plant will operate at
or close to full capacity in 2016.
In 2013, we and Financière Lafarge S.A.S. entered into Contribution Agreement for the production of cement in
México. In accordance with the Contribution Agreement, all of the shares of capital stock of Trituradora and
Lafarge Cementos were transferred to ELC Tenedora Cementos, and Elementia assumed control of 53% of
the shares, with Financière Lafarge, S.A.S., retaining 47%. We anticipate the Lafarge Joint Venture will service
between 4% and 5% of the national market, reinforced by the launching of the new Cementos Fortaleza brand and
marketing campaign. The combination of cement assets from the Lafarge Joint Venture parties allows them to have
a production capacity of approximately two million tons of cement per year. On September 19, 2014, we entered
into a share purchase agreement in which we agreed to purchase Lafarge’s remaining 47% of the shares in the
Lafarge Joint Venture for a price of US$225 million. Following this acquisition we will own 100% of the shares of
ELC Tenedora Cementos. We plan to use US$180 million of the purchase price for Lafarge’s minority share of ELC
Tenedora from the net proceeds of the notes. This agreement remains subject to customary closing conditions.
In the nine months ended September 30, 2014, this division had net sales of Ps$1,262 million and EBITDA of
Ps$406 million, representing 11% and 20%, respectively, of our consolidated totals for the period.
Products
The cement division produces a portfolio of products including:

Portland compound cement CPC30R, a rapid resistance class 30 cement, suitable for the construction of
structural elements, in situations where there are no special requirements, demonstrating a good
performance with respect to setting, resistance and yield. It meets the Mexican cement quality standards
set forth in NMX-C-414-ONNCCE.

Portland compound cement CPC40, a resistant class 40 cement, suitable for the construction of concrete
elements and structures, demonstrating good performance with respect to setting and yield, highlighted by
its initial and final resistance. It meets the Mexican cement quality standards set forth in NMX-C-414ONNCCE.

Portland ordinary white cement CPO30R, a resistant class 30 cement, suitable for the manufacture of
(i) white or clear cement, (ii) ceramic adhesives and (iii) sinks, tiles and mosaics. It meets the Mexican
cement quality standards set forth in NMX-C-414-ONNCCE.

Mortar or masonry cement, suitable for masonry work related to the construction industry. It meets the
Mexican cement quality standards set forth in NMX-C-021-ONNCCE.
Our Cement Division reported net sales of Ps$1,046 million for white, gray and mortar cement in its first year
of operations in 2013.
96
The following table sets forth our sales volumes and net sales from our principal cement products for the
periods indicated.
2013
2014
Volume
Net Sales
Volume
2013
Net Sales
Volume
Net Sales
Gray Cement .................................................
White Cement ................................................
Mortar ............................................................
Others ............................................................
Total .......................................................
923 $
76
123
—
1,122 $
1,006
145
101
10
1,262
400 $
15
52
—
467 $
438
29
43
4
514
688 $
38
92
—
818 $
737
70
74
165
1,046
The principal raw material used in the cement production process is limestone, which represents approximately
80% of the volume. Iron ore, clay, gypsum, plaster, pozzolana and shale are also used in the production of cement.
The majority of the raw materials that we used in our Cement Division are sourced through mines and fields
owned by Elementia. These mines and fields are fully integrated with our cement production facilities. We estimate
that we have enough resources to last for 50 years at current production capacity.
The principal energy sources utilized to transform raw materials into clinker and clinker into cement are electric
energy and petroleum coke.
In addition to the limestone which we obtain from our own quarries, our major suppliers of raw materials are
the Comisión Federal de Electricidad (Federal Electric Commission), ADN Energía, S. de R.L. de C.V. and TPC
Petcoke Corporation.
Facilities
Our Cement Division uses three facilities: El Palmar, Tula and Vito, all of which are located in Hidalgo,
Mexico. El Palmar was completed and inaugurated in 2013 by Elementia, while Tula (completed in 2006) and Vito
(completed in 1946, with modifications through the 1980s) were contributed by Lafarge.
Product Quality
Our Cement Division products comply with the technical and quality standard requirements of the Mexican
national market. Our cement production facilities have obtained the following certifications:
Cement Division Facilities
Certifications
El Palmar ................................................................ N/A
Tula ........................................................................ Clean Audit Industry (PROFEPA)
Vito ......................................................................... Clean Audit Industry (PROFEPA)
Efficient Industrial Processes
Our production process allows us to achieve high levels of quality and efficiency, achieving among other
benefits a faster curing process for cement. In addition to emphasizing environmental safety by investing in dust
collection and water treatment systems since commencing operations, we have implemented the following
processes:

Exploitation of raw materials: our quarries have rehabilitation plans, including reforestation and species
relocation efforts undertaken since we began operations.

Grinding and homogenization of raw powders: effectively using the heat from the clinkerization process to
dry raw materials.
97

Clinker production: optimization of electric and heat energy to maximize equipment performance.

Container: our customers have several different container size delivery options (50 kg bag, 25 kg bag, “big
bag” and bulk).
Cement Plant Specifications
El Palmar

Total capacity: 1 million tons per annum, or “TPA.”

Process: Uses a dry process, featuring a short rotary kiln and five-story preheat tower, with a capacity
of 2,200 tons per day, or “TPD,” capacity.

Inputs: Inputs include oil (195 tons per hour or “TPH”), solid fuels (11 TPH) and rawmix (130 TPH).

Packing: Has a cement packing process capable of 3,000 TPD. The process features two packing
machines, each with a 120 TPH capacity and bag applicator; two bag palletizers; one big bag loader;
two bulk loaders; and two cement silos, each with a 12,000 ton capacity.

Cement products: The plant produces three types of gray cement: CPC30R, CPC40 and mortar.
Tula

Total capacity: 700 thousand TPA.

Process: Uses a dry process, featuring a short rotary kiln and five-story preheat tower, with a 1,700
TPD capacity.

Inputs: Inputs include oil (140 TPH), solid fuels (11 TPH) and rawmix (84 TPH).

Packing: Has a cement packing process capable of 2,300 TPD. The process features two packing
machines, each with a 120 TPH; one bag palletizer; one bulk loader; and two cement silos, each with a
4,000 ton capacity.

Cement products: The plant produces CPC30R, CPC30RRS, CPC40 and CPC40RS gray cements.

Total capacity: 300 thousand TPA (170 thousand TPA of mortar cement and 130 thousand TPA of
white cement).

Process: Uses a dry process, featuring a long rotary kiln and one-story preheat tower, with a 435 TPD
capacity.

Inputs: oil (60 TPH); white rawmix (26 TPH) or mortar rawmix (22 TPH)

Packing: The process features one packing machine for white cement with 50 TPH capacity; one
packing machine for mortar cement with 30 TPH capacity; one silo for white cement with 2,500 ton
total capacity and a bulk loader; two silos for mortar cement with 200 ton capacity each and a bulk
loader.

Cement products: The plant produces mortar cement and CPO30RB white cement.
Vito
98
Plastics Division
General
This division transforms polystyrene (extruded and expandable), polyethylene (rotomolding and injected),
polypropylene and polyvinyl chloride products in a wide variety of measures, colors, dimensions, densities and
capacities.
We manufacture and market these products through the following operating subsidiaries:

Frigocel Mexicana, S.A. de C.V. (Mexico)

Mexalit Industrial, S.A. de C.V. (Mexico)

Frigocel, S.A. de C.V. (Mexico)

Industrias Fibraforte, S.A. (Peru)

Eternit Colombiana, S.A. (Colombia)

Eternit Atlántico, S.A. (Colombia)

Eternit Pacífico, S.A. (Colombia)

Industrias Duralit, S.A. (Bolivia)
We established the Plastics Division on December 8, 2009, following the Frigocel Acquisition, and expanded it
through the Fibraforte Acquisition on July 22, 2010. Our Plastics Division manufactures its products through ten
plants located throughout Mexico and South America. Our operations in Peru are focused on polypropylene sheets
and, to a lesser extent, polycarbonate sheeting. In the nine months ended September 30, 2014, the Plastics Division
had net sales of Ps$603 million and EBITDA of Ps$115 million, representing 5% and 6%, respectively, of our
consolidated totals for the period. The Plastics Division had net sales of Ps$743 million and EBITDA of Ps$137
million in 2013, representing 6% and 7%, respectively, of our consolidated totals for the year.
Products
The main products that we produce in this division are the following:

Polystyrene rolls, which are primarily used in the food industry. We sell polystyrene in rolls and the
customer produces its own thermoformed bottles or cans, injecting the roll into its mold. We produce these
rolls to different local and mechanical specifications according to custom specifications. These products are
manufactured using extrusion.

Polystyrene plastic sheet, which is mainly used in advertising stands. We produce the sheeting according to
custom specifications. These products are manufactured using expansion.

Thermoformed products, such as plastic cups and plates, which are used primarily in the food industry and
are sold under the Festy brand. These products are manufactured using extrusion.

Coffers, slabs, plates, panel strips, medium rods and plastic moldings, which are mainly used in the
construction industry. We produce these products to different specifications according to the densities of
the product and its end use, depending on whether it is used for filler, thermal insulation, support or
decoration material. These products are manufactured using expansion.

Refrigerated storage room panels, which are used primarily in the industrial sector. We produce panels for
industrial refrigeration chambers for thermal insulation. These panels are manufactured to different
specifications according to the dimensions of the client’s refrigerated storage chambers. These products are
manufactured using expansion.
99

Trays or seed trays, which are used primarily in the agricultural industry, mainly in greenhouses. We
produce trays and seed trays to different custom specifications. These products are manufactured using
expansion.

Polypropylene sheeting, which is used in the construction industry. In Mexico, in the fourth quarter of
2013, we began the manufacturing process of polypropylene for corrugated sheet extrusion and injected
water tank covers (sheets, tiles and molding).

Polyethylene water tanks and cisterns, which are primarily used in the housing industry for the storage of
water. We produce water tanks and cisterns in a variety of sizes, ranging from a capacity of 450 liters to
10,000 liters. We manufacture tanks to different local and/or ASTM mechanical specifications, such as
NMX-C-374-ONNCCE-2000.
Below are images of some of the products in our plastics division:
Polypropylene sheeting
100
The following tables set forth our sales volumes and net sales from our principal plastics products for the
following periods:
2013
2014
Net Sales
Volume
Volume
Net Sales
4 $
6
4
3
17 $
Industrial extrusion and expansion products ........................................
Sheets, tiles and moldings ....................................................................
Water tanks ...........................................................................................
Others ...................................................................................................
Total ..............................................................................................
193
173
177
60
603
5
6
3
2
16
$
192
177
145
57
571
$
2012
2013
Volume
Net Sales
Volume
2011
Net Sales
Volume
Net Sales
Products
Industrial extrusion and expansion
products .....................................................
Sheets, tiles and moldings .............................
6
11
Water tanks ....................................................
Others ............................................................
Total .......................................................
4
0
21
$
$
234
316
7
11
191
2
743
4
0
22
$
$
265
325
6
10
177
30
797
3
1
20
$
229
284
164
31
708
$
The following table shows our Plastics Division’s net sales by country:
Nine months ended
September 30,
2013
2014
2013
2012
2011
Net Sales (in millions of pesos )
Mexico ............................................................................ $ 300
Peru ................................................................................
173
130
Colombia and Bolivia .....................................................
Total ........................................................................ $ 603
$
$
279
178
114
571
$
$
350
240
153
743
$
$
355
284
158
797
$
$
338
232
138
708
The primary raw materials used in the manufacture of our plastics products are polystyrene crystal resin, highimpact polystyrene resin, expandable polystyrene resin, polypropylene resin and polyethylene resin, depending on
the type of product that is manufactured with them.
The raw materials used in our plastic products are sourced from a large number of suppliers. We do not depend
on any one single supplier for any of these products.
The primary suppliers of polystyrene crystal resin and high-impact polystyrene resin are Styrolution Mexicana
SA de CV, Resirene S.A. de C.V. and Polímeros Nacionales S.A. de C.V. The primary supplier of polystyrene
expandable resin is Poliestireno y Derivados, S.A. de C.V. Polímeros Mexicanos S.A. de C.V. is our primary
supplier for polyethylene resin, and for polypropylene resin our primary suppliers are Polímeros Nacionales S.A. de
C.V., Polipetrosur, S. de R.L de C.V. and Arpema Plásticos S.A. de C.V.
Polystyrene and polyethylene resins. We have access to raw resins without restrictions as we have strong
business relationships with polystyrene and polyethylene suppliers, they have a surplus of installed capacity and we
have access to this material as a preferred customer. The price is denominated in U.S. dollars and depends on two
hydrocarbons derived from petroleum, benzene and ethylene. Therefore, the price of these resins depends on the
101
price of oil, natural gas and exchange rate fluctuations. However, we are generally able to pass on increases in the
cost of raw materials to our end customers.
Polypropylene resin. Virgin polypropylene is widely available, but there is limited supply for recycled
polypropylene. Polypropylene resin is the thermoplastic polymer, partially crystalline, obtained from the
polymerization of propylene (or propane). It belongs to the group of polyolefins and is used in a broad range of
applications including food packaging, textiles, laboratory equipment, automotive components and transparent films.
Polypropylene has strong resistance to several chemical solvents as well as alkalis and acids. Principal suppliers
include Polipropileno del Caribe (Cartagena Colombia); Muehlstein (United States, Asia); and Petroquim (Chile).
In recent years, there has been an over-supply in the market, although its price has been affected by the market price
of oil.
We manufacture our plastic products through 10 plants, five of which are shared with the Building Systems
Division. Seven are located in Mexico and the remaining three are in Peru, Colombia and Bolivia, which makes us
an integrated producer with a truly regional platform.
Product Quality
The products manufactured by the Plastics Division meet technical and quality standards required by domestic
and foreign markets, allowing us to develop products with significant brand value. The manufacturing plants in this
division operate pursuant to ISO-9000 certification procedures and quality systems. Although this certification has
not been renewed, we continue to use the same procedures established to obtain it. This division’s manufacturing
plants located in Mexico have obtained Clean Industry and Socially Responsible Business certifications. We also
sell polystyrene raw materials to companies in the food industry, which convert it into packaging for food products,
which meet the guidelines issued by the U.S. Food and Drug Administration.
For construction products, we have obtained certifications from the ONNCCE.
Plastics Division Manufacturing Plants
Expansion La Luz
Extrusion Cuamatla
Industrias Fibraforte
Chihuahua
Monterrey
Santa Clara
Guadalajara
Villahermosa
Eternit Colombiana
Duralit Bolivia
Certifications
NOM-018, Pacto Global
Pacto Global
ISO 9001:2000 ICONTEC
Pacto Global
Pacto Global
ISO 9001:2008, ISO 14001:2004, Clean Industry, NMX-C012, NMX-C-039, NMX-C-374, NOM-006-CONAGUA, ICC,
CSTB, Pacto Global
ISO 9001:2008, ISO 14001:2004, OSHAS 18001:2007, Clean
Industry, NMX-C-374, NOM-006-CONAGUA, ICC, Pacto
Global
ISO 9001:2008, Pacto Global
ISO 9001:2008, ISO 14001:2004, OSHAS 18001:2007, BASC
V3-2008
ISO 9001:2000, IBNORCA (Bolivian Institute of
Standardization and Quality, Certified with Product Seal NB
673:2010, Certificate of Approval, renewed on 02/07/2011)
Industrial Processes
In this division, we use the following manufacturing processes:
The Plastics Division acquires a diversity of raw materials and through the processes of rotomolding
transformation, extrusion, thermoforming, expansion and injection, obtains and markets, among its principal
products, deposits (water tanks, cisterns, tanks), laminate (sheets and rolls), disposable (cups and plates), lightening
and isolation (block, coffer, plate, slab, cooling panel for cameras) and packaging (seedling and forest nurseries)
products which are primarily used in the construction, food, publicity, agricultural, decorative and refrigeration
102
industries. These products are manufactured and distributed through ten plants located in Mexico (five), Colombia
(three), Bolivia (one) and Peru (one).
Extrusion process. We use high-impact polystyrene resin as a raw material for the manufacture of roll and sheet
plastic. The polystyrene resin is fed into an extruding machine that applies mechanical heat and friction. As a result
of this process, a soft material is obtained that passes through a die and rollers which give the product the desired
thickness and physical characteristics. In the case of sheet plastic, this sheet is cut into the desired dimensions to
produce the final product and, in the case of roll, it is coiled for delivery.
Expansion process. We use polystyrene beads as a raw material to manufacture expandable polyethylene block.
The expandable polystyrene bead is inserted into a pre-expansion machine, which adds pressure, temperature and
movement. The paste is poured into a mold and the material is melted into a solid block via pressure and hot steam
that is called a molded product. This block undergoes an extrusion process to produce coffers, slabs, moldings and
panel strips.
Polypropylene Process. The manufacturing process for corrugated polypropylene roofing consists of: (1)
transport, melting and homogenization of its compounds at high pressure and temperature; (2) lamination to ensure
uniform thickness and smooth finish; (3) corrugation to provide a corrugated shape by providing mechanical action
and temperature; and finally, (4) the sheet is cut automatically, according to standard lengths.
Subsidiaries
The following table lists our primary direct and indirect subsidiaries as of September 30, 2014, indicating the
percentage of our direct or indirect holding in each:
Name of Subsidiary
Country
Year of
Incorporation
Percentage
Owned
Nacional de Cobre, S.A.
de C.V.
Mexico
1979
99.99%
Manufacture of copper products for the
construction industry
Operadora de Inmuebles
(formerly Almexa, S.A.
de C.V.)
Mexico
1944
99.99%
Asset leasing
U.S.
1988
100.00% Distribution and sale of copper and
aluminum products for the construction
industry in the United States of
America
Mexalit Industrial, S.A.
de C.V.
Mexico
1943
99.99%
Manufacture and distribution of fiber
cement construction products
Mexalit Servicios
Administrativos, S.A. de
C.V. (formerly Eureka
Servicios Industriales,
S.A. de C.V.)
Mexico
2000
83.17%
Administrative services
Distribuidora Promex, S.A.
de C.V. and subsidiaries
Mexico
1965
99.99%
Investments in shares of fiber cement
construction products and pipes.
Eternit Atlántico, S.A.
Colombia
1945
96.69%
Eternit Colombiana, S.A.
Colombia
1942
94.85%
Copper & Brass
International Corp.
103
Products/Services
Country
Year of
Incorporation
Percentage
Owned
Colombia
1945
98.21%
Ecuador
1956
100.00% Manufacture and distribution of fiber
cement and construction products
U.S.
1985
100.00% Manufacture and distribution of fiber
Nacobre Servicios
C.V. (formerly Maxitile
Servicios Industriales,
S.A. de C.V.)
Mexico
2005
99.80%
Compañía Mexicana de
Concreto Pretensado
Comecop, S.A. de C.V.
Mexico
1974
99.95%
Manufacture and sale of pre-stressed
concrete pipes.
The Plycem Company Inc.
Costa Rica and
Central America
2004
100.00% Holding Entity of Central America
entities and production of light
construction systems (construsistemas)
in Latin America.
U.S.
2008
100.00% Commercialization of fiber cement
products
Frigocel, S.A. de C.V.
Mexico
1959
99.99%
Distribution and sale of plastic
products
ELC Tenedora Cementos,
S.A.P.I. de C.V.
Mexico
2012
53.00%
Holding company
General de Bebidas y
Alimentos, S.A. and
subsidiaries
Panama
2003
100.00% Holding company
Elementia USA, Inc.
U.S.
2014
100.00% Holding company
Industrias Fibraforte, S.A.
Peru
1993
100.00% Manufacture of light polypropylene
and polycarbonate covers
Name of Subsidiary
Eternit Pacífico, S.A.
Eternit Ecuatoriana, S.A.
Maxitile Inc.
Plycem USA Inc.
Products/Services
cement and construction products
We provide financing to certain of our subsidiaries for their investment or working capital needs. These loan
documents are drafted on similar terms and conditions to those used by us for financing or on market terms and
conditions. Similarly, through certain of our subsidiaries, we provide technical assistance, financial and treasury,
legal, accounting and tax services, economic studies, human resources and corporate planning to other subsidiaries.
104
Distribution Channels
We sell our products through an extensive distribution network of over 5,200 distributors and end users who
comprise a large network of points of sale for our products, supported by five company-operated distribution
facilities.
Our distributors are not only an important part of our distribution strategy, but are also considered one of our
most important customer groups. In addition to enhancing our ability to penetrate the markets in which we operate,
our distributors allow us to understand the evolving needs of the end consumers for our products.
Independent distributors form the industry’s primary distribution channel for our products. Our distribution
partners are carefully selected based on their ability to drive sales of our products, deliver high-quality customer
service and meet other performance criteria. While we do not enter into distribution agreements with our
independent distributors, we have a strict credit policy and require that our independent distributors document their
creditworthiness and provide guarantees in the form of promissory notes. Independent distributors must also acquire
credit insurance with Euler Hermes Seguros de Credito S.A. de C.V. We use third-party trucking companies to
transport all of our products from our manufacturing plants to distribution centers, stores, independent distributors
and customers.
We believe that our use of independent distributors provides us with a high level of operational flexibility,
because it allows us to penetrate key markets and expand our geographic reach without incurring the expense of a
company-operated distribution network. This reach also allows us to service larger customers with a broader
geographic scope, as these independent distributors have their own formal and structured distribution network and
their own distribution centers. In addition, this allows us to reach the greatest number of clients, some of which
prefer to visit the distribution facility directly to purchase their products. We support our distribution network with
marketing and promotional programs that include product sample cases, sales literature, product videos and other
sales and promotional materials.
We believe that distributing our products through our five distribution centers, thirteen warehouses and a sales
office strategically located in Houston, Texas enables us to build long-standing customer relationships; monitor
developments in local customer preferences; ensure product availability through integrated logistics between our
manufacturing and distribution facilities; offer “one-stop” shopping to our customers; and target our marketing
efforts.
Metals Division
We market our copper and copper alloy products through an extensive distribution network comprised of
approximately 1,800 clients. We have a sales office strategically located in the United States.
Products in the Metals Division are marketed through eight warehouses. Our warehouses are strategically
located within Mexico in the following territories:
Location
Monterrey ...............................................................
Guadalajara.............................................................
Puebla .....................................................................
Juarez......................................................................
Tijuana....................................................................
Houston, Texas .......................................................
Laredo, Texas .........................................................
Monterrey ...............................................................
Mexico City ............................................................
San Luis Potosí .......................................................
Format
Warehouse
Warehouse
Warehouse
Warehouse
Warehouse
Sales Office
Warehouse
Warehouse
Warehouse
Warehouse
We also market our copper products in the United States and Canadian markets through our wholly owned
office in the United States, located in Houston, Texas.
105
We market our Building Systems Division products to approximately 3,100 distributors, who in turn manage
their own distribution networks. We have sales offices in our manufacturing plants throughout Mexico and Latin
America, three distribution centers and a sales office in the United States.
Location
Houston, Texas .......................................................
Medellin, Colombia ................................................
Arequipa, Peru ........................................................
Chiclayo, Peru ........................................................
Format
Sales Office
Distribution Center
Distribution Center
Distribution Center
In this division, we also manage highly specialized products for the infrastructure sector. These products are
manufactured pursuant to customer specifications and needs. The distribution of building systems products to the
United States is primarily performed through our subsidiary Maxitile Inc. We operate a plant in Nuevo Laredo,
Tamaulipas, near the border with Laredo, Texas, which facilitates the distribution of building systems products to
the United States. The products manufactured at the Nuevo Laredo plant are sold through Maxitile Inc., which is
also in charge of transporting these products to two independent stores, which service customers in the United
States.
Cement Division
Our Cement Division distributes its products through an extensive network covering approximately 500
kilometers across 15 Mexican states inhabited by approximately 73 million people. Our cement distribution
network reaches the market through over 800 points of sale located throughout 15 states in Mexico.
Plastics Division
Sales in the Plastics Division are primarily realized by sales through 1,725 customers, of which 1,493 are
distributors. We have two distribution centers in Ecuador, in Guayaquil and Cuenca.
Major Customers
We believe that our distributors are not only an important part of our distribution strategy, but are also
considered one of our most important customer groups as, in addition to enhancing our ability to penetrate the
markets in which we operate, they provide us with valuable insight on the needs of our end consumers.
In 2013, our ten largest customers for the Metals, Building Systems, Cement and Plastics Divisions accounted
for approximately 3.8%, 2.1%, 3.5% and 1.2%, respectively, of our net sales and none individually accounted for
more than 1.3% of our net sales.
Our products are exported to over 40 countries in the Americas, Europe and Asia. In the nine months ended
September 30, 2014, sales by the Metals, Building Systems, Plastics and Cement Divisions in Mexico represented
40%, 32%, 5% and 11% of our net domestic sales and exports represented 7%, 2%, 0% and 0%, respectively, of
such division’s net sales. In 2013, domestic sales by the Metals, Building Systems, Plastics and Cement Divisions in
Mexico represented 43%, 25%, 6% and 8% of our net sales and exports represented 10%, 5%, 0% and 0%,
respectively, of such division’s net sales.
106
The following table sets forth our sales volumes and net sales by product division in the nine months ended
September 30, 2014 and 2013 and in 2013, 2012 and 2011.
Volume
2013
2014
Net Sales
Volume
2013
Net Sales
Volume
2012
Net Sales
Volume
2011
Net Sales
Volume
Net Sales
49 $ 5,471
578
3,946
1,122
1,262
17
603
Metals ....................
Building Systems ...
Cement...................
Plastics...................
Holding and
Eliminations ......
Total ......................
218
$ 11,500
1,766
47 $ 5,382
457
2,948
467
514
16
571
987
$
203
9,618
60
608
818
21
$ 6,919
3,981
1,046
743
64
667
22
$
8,085
4,162
8
797
1,507
240
$ 12,929
753
454
$ 13,506
83 $
652
20
9,438
4,376
128
708
(145)
755 $ 14,505
The following table sets forth our exports by product division (excluding the Cement Division, which currently
does not export any of its products) in the nine months ended September 30, 2014 and 2013 and in 2013, 2012 and
2011.
Volume
2013
2014
Net Sales
Volume
2013
Net Sales
Volume
2012
Net Sales
Volume
2011
Net Sales
Volume
Net Sales
Metals ..................
Building
Systems ...........
Cement ................
Plastics.................
Total....................
7
$
852
6
44
0
51 $
284
1
1,137
46
0
52
$
750
8
$
272
1
1,023
102
0
110
$
1,309
$
699
0
2,008
8 $
81
1
90
$
1,385
468
23
1,876
10 $
78
0
88
$
1,695
403
2
2,100
We provide trade finance to our customers. Prior to extending financing, such customers must submit a credit
application and evidence of the respective customer’s incorporation and authorization, and must provide certain
guarantees to support the credit granted in merchandise. We request credit studies through Dun & Bradstreet for all
new customers and for material transactions with pre-existing customers. The credit limit is set on an individual
basis depending on the characteristics of each potential customer. In the case of the Metals Division, 63% of
accounts receivable are insured against default by independent distributors and 90% of each individual account is
insured through a credit insurance policy with Euler Hermes Seguros de Crédito S.A. de C.V. Customers are
generally granted a repayment period of 30 to 45 days, but government entities are given 60 days and some
industrial customers purchasing products such as fiber cement pipe and metals are given 90 days.
Metals Division
In the nine months ended September 30, 2014, 84% of our metal products were sold in Mexico and the United
States and 16% were sold in other countries. In 2013, 81% of our metal products were sold in Mexico and the
United States and 19% were sold in other countries.
In this division, we generally do not negotiate long-term contracts with any customers and our sales are
primarily made through purchase orders from independent distributors or customers, which allows us to respond to
changes in metal prices and mitigate the risks of price volatility. Most of our sales in Mexico are also made through
independent distributors who then resell the products in the commercial, industrial and retail sectors. Some sales are
made directly to industrial customers.
Most of our sales are made through independent distributors, who then resell the products to customers in the
commercial, industrial and retail sectors. Some of these sales are made directly to industrial customers. Additionally,
107
we sell lining, remodeling and covering products to companies working on large construction projects for the
government, hotels and shopping centers.
North American Region
In the nine months ended September 30, 2014, 55% of our Building Systems products were sold in North
America. In 2013, 39% of our Building Systems products were sold in North America, while in 2012 and 2011,
Building Systems products sold in North America represented 32% and 37% of division sales, respectively.
Most of our sales in North America are made through independent distributors who then resell the products in
the commercial, industrial and retail sectors. Additionally, we sell made-to-order piping and fittings to companies
working on extensive water and road infrastructure products. Some sales are made directly to industrial customers.
Central American Region
In the nine months ended September 30, 2014, 14% of our Building Systems products were sold in Central
America. In 2013, 17% of our Building Systems products were sold in Central America, while in 2012 and 2011,
Building Systems products sold in Central America represented 20% and 15% of division sales, respectively.
Most of our sales in Mexico are made through independent distributors who then resell the products in the
commercial, industrial and retail sectors. Additionally, we sell remodeling products to companies working on
extensive construction projects for the government, hotels and shopping centers. Some sales are made directly to
industrial customers.
South American Region
In the nine months ended September 30, 2014, 31% of our Building Systems products were sold in South
America. In 2013, 44% of our Building Systems products were sold in the South American region, while in 2012
and 2011, Building Systems products sold in the South American region represented 48% and 48% of division sales,
respectively.
Most of our sales in this region are made through independent distributors who then resell the products in the
commercial, industrial, housing and retail sectors.
Cement Division
Our Cement Division began operations in 2013 and markets its products through distributors in central Mexico
and primarily focuses on the self-construction market. Most of our sales in the Cement Division are made through
independent distributors who then resell the products in local markets.
Plastics Division
Our Plastics Division manufactures all of its products in Mexico, Colombia, Bolivia and Peru, primarily
marketing in the respective markets.
The sales in this division are made directly to industrial customers and other end consumers, as well as to
independent distributors who then resell the products in the commercial, industrial, construction and retail sectors.
Competition
Our operations focus on the manufacturing of products used in the construction, housing, infrastructure and
industrial sectors. Our product groups are focused on different industrial sectors and are classified according to
product type. In general, our operations focus on industries that use copper, fiber cement, cement and plastic, and
we manufacture products used by the construction, housing, infrastructure and industrial sectors. Across our various
markets and products, we compete with domestic, regional and foreign companies that manufacture products similar
to ours, as well as products that serve as alternatives to ours. We compete on the basis of quality, reliability, price
and service.
108
Metals Division
Our main competitors in the copper industry in Mexico are Golden Dragon, Grupo IUSA, S.A. de C.V., Mueller
Comercial de Mexico S. de R.L. de C.V. and Luvata Monterrey, S. de R.L. de C.V.
Our main competitors in countries other than Mexico are Olin Brass (flat rolled), Golden Dragon (tube),
Mueller Industries (tubes and fittings), Kobe Wieland (tubes and sheets), Chase Brass (bars), Cerro Cooper (tubes
and fittings), Elkhart and Nibco (fittings).
We compete with other Mexican and foreign fiber cement producers. During 2013, we led the Mexican fiber
cement market, as we are the only fiber cement producer in Mexico, but certain competitors offer alternative
products that can be substituted for ours. In Mexico, we compete against products made of cement, steel, gypsum,
concrete, carton, polycarbonate and clay.
North American Region
There are no existing competitors in the fiber cement market in Mexico; however, our competitors offer
products made from different raw materials, such as galvanized steel, plastic roofing, cement and gypsum panels.
These competitors include Ternium México S.A. de C.V., Galvasid S.A. de C.V., Grupo Villacero S.A. de C.V. and
Onduline Materiales de Construcción S. de R.L. de C.V. in light ceilings; Ladrillera Mecanizada S.A. de C.V. and
handcrafted clay tile in tiles, Stabilit S.A. de C.V. in plastic roofs; and USG México S.A. de C.V., Panel Rey S.A.
and Comex Lafarge S.A. de C.V. (Plaka Comex) in gypsum board.
Our main competitors in countries other than Mexico are James Hardie Building Products Inc. (United States),
Nichiha Inc. (United States), Duralit S.A. (El Salvador), Toptec (Ecuador) and Colombit S.A. (Colombia).
Central American Region
Our main competitors in the Central American region are Duralita, S.A. and Metpapan, S.A. Other competitors,
such as Panel Rey Mexicana, S.A., USG, S.A., Grupo Panel, S.A., Toptec, S.A., and Colombit, S.A., import their
products from other countries and market them in the countries where we are located. We face competition from
products sold under the following competing brands: Gypsum, Durock, Densglass and Metapan.
South American Region
In the South American region, our principal competitors are Colombit, S.A., Toptec, S.A., Manilit S.A., Ajover,
S.A., Gerfor, Rotoplast, S.A. Huera, Cornejo, Quiroz, Prodimexito and Tubasec, S.A.
Cement Division
Our main competitors in the Cement Division are Cemex México, S.A. de C.V., Cooperativa La Cruz Azul,
S.A. de C.V., Cementos Moctezuma, S.A. de C.V., Cementos de Chihuahua, S.A. de C.V. and Holcim Apasco, S.A.
de C.V.
Plastics Division
In the Plastics Division, we face competition from Mexican and foreign plastic producers. Our primary
competitors in this division are Coexpan, S.A., CEDAP, S.A., Grupo Industrial de Poliestireno, S.A., Formacel de
México, S.A. de C.V., Grupo Gama (CEMPOSA), Rotoplast S.A. de C.V., Ajover S.A., Qualy Panel Covintec S.A.
de C.V., Lamidos Extruidos Plásticos, S.A. de C.V., Laplex S.A. de C.V., KP Extrusiones de México, Spartech and
Espumado de Estireno, S.A.
Research and Development
We continually strive to develop new and advanced production processes to increase operational efficiency and
develop products that meet customers’ changing needs. Plans and budgets for research and development are
prepared according to the strategy set by our Board of Directors. Plans and budgets are prepared and approved for
three-year cycles and the following year’s budget during the third quarter of the year, prepared through the joint
109
effort of directors of the various business divisions. The technical direction department centralizes our research and
development activities and sets the budget and our main priorities.
During the nine months ended September 30, 2014, we invested Ps$17 million in research and development.
We invested Ps$13 million in research and development in 2013. We did not make significant investments in
research and development in 2012 or 2011.
Intellectual Property
Patents
We have obtained 28 registered patents, 2 in Mexico and 26 in foreign countries, and have 3 patent applications
pending with the Instituto Mexicano de la Propiedad Industrial (Mexican Patent and Trademark Office, or “IMPI”).
We have also submitted patent applications in the jurisdictions where such patents are used. These patents are
related to several diverse systems and processes, which we believe distinguishes our products from those of our
competitors.
Trademarks
The strong name-brand recognition of our brands is crucial to the development of our business. We have
registered approximately 986 trademarks in Mexico and abroad, of which 371 are registered with IMPI and 615 are
registered in the various foreign jurisdictions in which we operate. Our Mexican trademarks have ten-year,
renewable terms. As of the date of this offering memorandum, all of our trademarks are valid and none is close to
expiring.
The following table highlights our primary trademarks and their underlying products.
Trademark
Products
Elementia ............................................................................. Corporate name
Cementos Fortaleza ............................................................. Cement
Mexalit ................................................................................ Fiber cement products: sheets, tiles and tubing
Maxitile ............................................................................... Fiber cement products: walls or siding.
Prestressed concrete pipes without steel cylinders,
Comecop.............................................................................. reinforced pipes and special parts
Eternit .................................................................................. Fiber cement tiles and accessories
Duralit ................................................................................. Fiber cement products
Plycem ................................................................................. Fiber cement products
Allura................................................................................... Sheets for fiber cement walls and ceilings
Cempanel ............................................................................. Fiber cement panels
Colorcel ............................................................................... Paints, pastes and coatings
Ecoplast ............................................................................... Plastic tanks
Eterboard ............................................................................. Flat fiber cement plate
Etercoat ............................................................................... Putties for joint treatment
Eterglas ................................................................................ Putties for joint treatment
Fachada Tek ........................................................................ Fiber cement products
Fibrocel ............................................................................... Fiber cement ceilings
Fibrolit ................................................................................. Fiber cement ceilings and interiors
Flexxowall ........................................................................... Fiber cement interiors and exteriors
Ichsa .................................................................................... Tubing with lead cylinder and special parts
MaxiDeck ............................................................................ Sheets for fiber cement walls
MaxiLite P10 ....................................................................... Sheets for fiber cement ceilings
MaxiPanel............................................................................ Sheets for fiber cement walls
MaxiPlank ........................................................................... Sheets for fiber cement walls
MaxiRoofing ....................................................................... Sheets for fiber cement ceilings
MaxiShake ........................................................................... Sheets for fiber cement ceilings
MaxiShingle ........................................................................ Sheets for fiber cement walls
MaxiSlate ............................................................................ Sheets for fiber cement ceilings
MaxiSoffit ........................................................................... Sheets for fiber cement walls
110
Trademark
Products
MultiShake .......................................................................... Sheets for fiber cement walls
Plyrock ................................................................................ Fiber cement interiors
Plystone ............................................................................... Fiber cement exteriors, ceilings and flooring
Plyteck ................................................................................. Fiber cement products
Siding .................................................................................. Fiber cement exterior and interiors
Teja Barroca ........................................................................ Tiles for fiber cement ceiling
Teja Eureka ......................................................................... Tiles for fiber cement ceiling
Metals Division
Cobrecel .............................................................................. Copper products and connections
Nacobre ............................................................................... Copper and copper alloy products
Plastics Division
Carpitecho ........................................................................... Opaque polypropylene corrugated sheets
Ecotecho .............................................................................. Opaque polypropylene corrugated sheets
Water tanks, polyethylene and polypropylene corrugated
Eureka ................................................................................. sheets
Festy .................................................................................... Polystyrene products: glasses, plates and containers
Fibraforte ............................................................................. Polypropylene sheets for roofing.
Flexiforte ............................................................................. Opaque polypropylene corrugated sheets
Laminarsa ............................................................................ Polystyrene sheets
Narsa ................................................................................... Disposable polystyrene cups and plates
Teja Opaca........................................................................... Opaque polypropylene corrugated sheets
Techolit ............................................................................... PVC tiles
Regulation
In Mexico, the Ministry of Economy regulates our products and we are subject to continuous audits of our
processes and practices.
In Mexico, some of the principal laws that apply to us relate to business, corporate governance and
environmental regulation, such as the Commercial Code (Código de Comercio), the General Business Corporations
Law (Ley General de Sociedades Mercantiles), the LMV, the General Law for Ecological Balance and
Environmental Protection (Ley General del Equilibrio Ecológico y Protección del Ambiente), the National Waters
Law (Ley de Aguas Nacionales) and the General Law for the Prevention and Management of Waste (Ley General
para la Prevención y Gestión Integral de los Residuos). We are also subject to the Federal Consumer Protection
Law (Ley Federal de Protección al Consumidor), the Federal Labor Law (Ley Federal del Trabajo), the Social
Security Law (Ley del Seguro Social), the Federal Appropriations Law (Ley Federal de Derechos), the Customs
Law (Ley Aduanera), the Mining Law (Ley Minera), the General Health Law (Ley General de Salud) and the
Industrial Property Law (Ley de la Propiedad Industrial).
In Bolivia, some of the principal laws applicable to us are the Environmental Law (Ley del Medio Ambiente),
the Master Mother Earth and Development for Living Well Law (Ley Marco de la Madre Tierra y Desarrollo
Integral para Vivir Bien), the Supreme Regulatory Decree of Environmental Law No. 1333 (Decreto Supremo
Reglamentación de la Ley No. 1333 del Medio Ambiente), the Supreme Regulatory Decree on Environmental
Control and Protection (Decreto Supremo Reglamento de Prevención y Control Ambiental), Industrial Sector
Environmental Regulation (Reglamento Ambiental del Sector Industrial) and the Safe Asbestos Usage Agreement
(Convenio sobre Utilización del Asbestos en Condiciones de Seguridad).
In Colombia, some of the principal laws applicable to us are Law 99, which created the Environmental
Protection Ministry; Resolution 941, which created the Renewable Resource Usage Information Subsystem; Decree
2811, which laid out the National Code of Renewable Resources and Environmental Protection; and Law 373,
which established the program for the efficient use of water.
In Costa Rica, some of the principal laws applicable to us are the Waters Law (Ley de Aguas), General Health
Law (Ley General de Salud), Organic Environmental Law (Ley Orgánica del Ambiente), Waste Management Law
(Ley para la Gestión Integral de Residuos), Forest Law (Ley Forestal) and Soil Use, Management and Conservation
Law (Ley de Uso, Manejo y Conservación de Suelos).
We consider, in general terms, that we are in compliance with the legislation to which we are subject.
111
Tax Regulation
We are subject to the payment of ISR on our profits, calculated as revenues less official deductions. We make
monthly ISR payments into our annual tax account. The applicable ISR rate for the fiscal year 2014 is 30%.
We are also subject to the IVA. The IVA is an indirect tax that we pass on to our clients. The actual IVA rate is
16% of the value of the services and products we sell.
In addition to Mexican tax regulations discussed above, we are also subject to the tax regulations of the other
countries in which we operate. See “Taxation—Mexican Federal Tax Considerations.”
Antitrust Regulation
We are subject to antitrust and competition laws and regulations governing our business and acquisitions. As of
the date of this offering memorandum, we believe that we are in compliance with such laws and regulations and
none of our recent acquisitions is under review by the Mexican Federal Economic Competition Commission or other
regulatory or economic authorities of the other jurisdictions in which we operate. Approval of the Mexican Federal
Competition Commission or other regulatory or economic authorities of other jurisdictions may be required for us to
enter into significant acquisitions, dispositions or joint ventures in the future. Failure to obtain the approval of the
Mexican Federal Competition Commission or other economic authorities in the other jurisdictions in which we
operate may result in the imposition of fines on us or the divestiture or sale of assets. As the opportunities to expand
our operations continue, it is possible that we will face greater scrutiny from antitrust regulators in the countries in
which we operate. See “Risk Factors—Risk Factors Relating to Mexico and Other Countries Where We Operate—
Antitrust laws in Mexico and other countries in which we operate may limit our ability to expand our operations.”
Environmental Matters and Regulation
We are subject to various environmental laws and regulations related to, among other things, the production,
storage, handling, use, remediation, disposal, treatment and transportation of hazardous materials and wastes, the
emission and discharge of hazardous materials into the ground, air or water, and the health and safety of our
employees.
These environmental laws also require us to obtain permits for some of our operations from governmental
authorities. These authorities can modify or revoke our permits and can enforce compliance through fines and
injunctions. We cannot assure you that we have been or will be at all times in complete compliance with such laws,
regulations and permit requirements. If we violate or fail to comply with these laws, regulations and permit
requirements, we could be fined or otherwise sanctioned by regulators. Environmental authorities may inspect any
facility and, either as part of such inspection or in response to inspection findings, may bring administrative and
criminal proceedings against companies that violate environmental laws. They have the authority to close facilities,
revoke required environmental permits and impose sanctions and fines. These standards expose us to the risk of
substantial environmental costs and liabilities.
We could also be held liable for any and all consequences arising out of human exposure to hazardous materials
or other environmental damage. Mexico permits class actions to be initiated in connection with environmental
liabilities. Certain environmental laws assess liability on current or previous owners or operators of real property for
the cost of removal or remediation of hazardous materials. Environmental laws often impose liability even if the
owner or operator did not know of, or was not responsible for, the release of hazardous substances. Persons who
arrange for the disposal or treatment of hazardous substances also may be responsible for the cost of removal or
remediation of these substances, even if such persons never owned or operated any disposal or treatment facility.
We cannot assure you that our costs of complying with current and future environmental and health and safety laws,
and our liabilities arising from past or future releases of, or exposure to, hazardous materials will not adversely
affect our business, results of operations or financial condition. See “Risk Factors—Risks Relating to Us—We are
subject to stringent environmental laws and regulations which may impose significant costs on us.”
We endeavor to have our management systems in place at our production facilities comply with national and
international standards, including ISO-9001 for quality management, ISO 14001 for environmental management and
OHSAS 18001 for workplace safety and occupational health management. Further, many of our manufacturing
plants are certified by ONNCCE, CONAGUA, CERTIMEX, International Code Council, CSTB and BASC. In
112
addition, PROFEPA has granted many of our manufacturing plants in Mexico the Clean Industry Certification,
which certifies compliance with Mexican environmental laws.
Our manufacturing processes incorporate certain hazardous materials, which can be toxic to employees if
allowed to become airborne in high concentrations. We have incorporated safety controls and procedures into our
manufacturing processes designed to maximize the safety of our employees and the area surrounding our
manufacturing plants. We have a comprehensive program to train our employees in the proper handling of these
materials, as well as in pollution prevention and control, natural resource management and waste management.
Each of our plants has an Environmental, Safety and Health Manager that is responsible for the implementation of,
and compliance with, our safety controls and procedures.
For example, certain of our fiber cement products are manufactured using chrysotile fiber, which is a form of
asbestos. Asbestos (including chrysotile asbestos) is one of the substances considered by the International Agency
for Research on Cancer to be carcinogenic. Our use of chrysotile fiber is subject to various health and safety
standards in the countries in which we operate or sell our products. We currently operate below permissible
exposure levels in each country in which we manufacture products containing asbestos, and we do not manufacture
in or export to the United States any products containing asbestos. We implement extensive measures to minimize
the risk from asbestos in our manufacturing process: we only use asbestos to manufacture certain products and each
facility where asbestos is used features advanced designs and engineering controls to minimize the exposure to
asbestos. As a result, the systems and procedures at each facility are certified by national and international
organizations as being optimized to limit health and safety risks. Due to these systems and procedures, we do not
believe our manufacturing process poses an unacceptable health or safety risk to our employees. However, our
employees who work with chrysotile fibers are entitled to workers’ compensation from the Instituto Mexicano del
Seguro Social (Mexican Social Security Institute) in case of injury or illness sustained in the course of their
employment. Such employees would also be entitled to initiate a class action against us. Our finished products that
are manufactured using chrysotile fiber do not pose an unacceptable risk to our customers because they contain very
low percentages of chrysotile fibers and such fibers are contained within the products rather than released into the
air due to the density of the finished products.
In Mexico, the use of chrysotile asbestos is regulated by various standards and regulations, such as NOM 125SSA1, which are enforced by various institutions and government authorities, such as the Ministry of Health and the
Federal Commission for Sanitary Risks and Protection. In Colombia, the Ministry of Health and Social Protection
regulates the use, management, utilization, manipulation and risk control mechanisms of asbestos.
In addition, we generate certain by-product residues that are classified as non-hazardous, but must be properly
controlled and disposed of under applicable environmental laws. Among the laws to which we are subject are the
Ley General del Equilibrio Ecológico y la Protección al Ambiente (Mexican General Law of Ecological Balance
and Environmental Protection), the Ley de Aguas Nacionales (National Water Law), the Ley General para la
Prevención y Gestión Integral de los Residuos (General Law for the Prevention and Integral Management of Waste),
and their related regulations. The Ministry of Environment and Natural Resources (SEMARNAT), PROFEPA and
the National Water Commission (CAN) are the principal governmental agencies responsible for supervising,
monitoring and enforcing Mexican environmental regulations. We are also subject to local and municipal
regulations related to non-hazardous waste, land use and wastewater discharges into sewers and/or drainage.
Newly acquired businesses are integrated into our environmental management plans, including training,
corporate policy compliance and ensuring compliance with all applicable environmental regulations.
Every year, all of our facilities carry out environmental improvement projects. Among the most noteworthy
projects completed during 2013 were the following:

the Nuevo Laredo plant implemented a responsible water usage program in 2013, through which they
stopped using potable water for irrigating green areas, saving a total of 1,891 cubic meters of water, cleared
all fines, infractions and charges brought by local water regulators, and in total saved 9,362 cubic meters of
drinking water;

Nacobre’s Celaya Plant installed a cistern, allowing them to recycle 7,330 cubic meters of water;
113

Mexalit Industrial’s Santa Clara plant achieved its goal of producing no fiber cement sewage sludge
emissions;

the Eternit Colombiana plant reduced its carbon footprint through a greater than 50% reduction in gas
usage, achieved through various plant improvement projects;

the Eternit Atlántico plant worked with three local water treatment plants—two residential and one
industrial—to implement an efficient water usage program that permitted water recycling in production and
irrigation processes, helping to prevent pollution of groundwater. The plant also updated its particulate
filtration systems and achieved zero air emissions;

the Eternit Pacífico plant reduced its energy consumption by 15% and updated its train cars to reduce air
emissions;

the Eternit Ecuatoriana plant obtained an Environmental Manager license for handling fiber cement waste
as well as full approval from Quito of its two-year Environmental Management program; and

the Honduras plant finalized its biomass project, reducing its overall carbon footprint by replacing diesel
with biomass fuel, and culminated its high quality pulper project, which permitted a reduction in electricity
consumption.
Employees and Labor Relations
As of September 30, 2014, we had 6,257 employees, all of whom were full-time employees. Approximately
61.9% were union employees and 38.1% were non-union employees. We have entered into 18 collective bargaining
agreements with various unions and confederations. Collective bargaining agreements are usually renegotiated every
year, except for the Bolivian collective bargaining agreement that has a two-year term. We believe that we are
proactive in establishing and fostering a climate of positive relations and we have historically enjoyed good relations
with unions and our employees. We have not had any strikes in our plants that have materially affected our
operations. See “Risk Factors—Risks Relating to Us—Labor disruptions could affect our results of operations.”
In addition to full-time employees, we have contracts with companies that secure the services of temporary
employees. As of September 30, 2014 we had approximately 217 temporary production employees. As of
December 31, 2013 we had 230 temporary production employees.
The following table shows the breakdown of our employees by division, as of September 30, 2014.
Division
Cement ............................................................................................................
Building Systems .............................................................................................
Metals ..............................................................................................................
Plastics.............................................................................................................
Corporate .........................................................................................................
Total ............................................................................................................
114
Unionized
NonUnionized
142
1,402
2,219
108
0
3,871
237
1,337
498
194
120
2,386
Total
379
2,739
2,717
302
120
6,257
The following table shows the breakdown of our employees, including temporary production employees, by
country.
As of
September 30,
2013
2012
2011
206
655
211
128
224
146
4,294
156
237
6,257
204
611
215
162
229
176
4,221
148
18
5,984
207
620
197
140
193
168
4,185
156
17
5,883
197
529
203
143
180
188
4,380
176
9
6,005
Employees(1)
Bolivia .......................................................................................
Colombia ...................................................................................
Costa Rica .................................................................................
Ecuador .....................................................................................
El Salvador ................................................................................
Honduras ...................................................................................
Mexico .......................................................................................
Peru ...........................................................................................
United States .............................................................................
Total ......................................................................................
(1)
As of December 31,
2014
Includes temporary production employees.
In all jurisdictions in which we operate, we provide the standard employee benefits required under local laws.
Property, Plant and Equipment
We own all of our plants, warehouses and offices. The total installed capacity of our plants in our Metals,
Building Systems, Plastics and Cement Divisions amounted to 84 thousand tons, 1,529 thousand tons, 38 thousand
tons and 2 million tons per year, respectively. In 2013, our utilization rate for our plants was 77% for the Metals
Division, 63% for the Building Systems Division, 57% for the Plastics Division and 62% for the Cement Division.
Our principal assets include the following manufacturing plants:
Division and Plant
Country
Commencement
of Operations
Estimated
Maximum
Installed
Capacity(1)
Utilization
Rate in
2013(%)
Products
Certifications
Copper sheets
and strips,
copper foil
Copper wire;
Copper bars;
copper profiles;
round wires.
Connectors and
valves for water
and gas,
regulators,
pigtail,
industrial
connectors,
original
equipment
machinery,
forged parts
Copper and
copper alloys,
pipe and tube,
and fittings
Industria Limpia, ISO
9001:2008, ISO
14401:2004
ISO9001:2008; UL
pigtail certification;
Environmental
Management System
ISO 14001:2004
Metals:
Vallejo.................................................... Mexico
1950
Celaya .................................................... Mexico
1980
San Luis Potosí ...................................... Mexico
1981
21,600
31, 200
31,000
115
78%
70
83
ISO 9001:2000,
Industria Limpia
Division and Plant
Country
Commencement
of Operations
Estimated
Maximum
Installed
Capacity(1)
Utilization
Rate in
2013(%)
Products
Building Systems:
Santa Clara ............................................. Mexico
1954
173,400
55
Fiber- cement
pipes, fiber
cement sheets,
tiles and
polyethylene
tanks and
cisterns
Guadalajara ........................................... Mexico
1960
96,000
52
Nuevo Laredo......................................... Mexico
Villahermosa .......................................... Mexico
2006
1977
79,200
45,000
46
40
North Carolina(2) .................................... USA
1997
119,000
40
Oregon(2) ................................................ USA
1999
135,300
19
Indiana(2) ................................................ USA
Cartago ................................................... Costa Rica
2008
1964
258,500
63,000
0
74
San Pedro Sula ....................................... Honduras
1980
52,000
59
El Salvador ............................................. El Salvador
1986
63,000
98
Eternit Colombiana ................................ Colombia
1942
131,000
69
Polyethylene
tanks and
cisterns, fiber
cement flat
boards,
corrugated
sheets and tiles.
Siding
Structural
sheets, tiles and
roofing
products,
polystyrene
tanks, cisterns
and septic tanks
Fiber cement lap
and panel siding
Fiber cement
siding backer
shapes
N/A
Fiber cement
boards for tile
floors, walls,
ceilings, Fiber
cement boards
for facades and
fiber cement
exterior walls,
panels, and
soffits.
Panels for
interior and
exterior
flooring,
suspended
ceilings, ceiling
and trim basis.
Fiber cement
sheeting for
roofs and walls,
corners, shapes
and accessories
for ceilings.
Tiles for fiber
cement roofing,
suspended
ceiling panels,
flooring,
autoclaved fiber
cement, fiber
cement sheets,
paint, plastic
water tanks,
translucent PVC
tile
116
Certifications
ISO9001:2008,
ISO14001:2004,
Industria Limpia,
NMX-C-012, NMXC-039, NMX-C-374,
NOM-006CONAGUA, ICC,
CSTB, Pacto Global
ISO 9001:2008, ISO
14001:2004, OHSAS
18001:2007, Industria
Limpia, NMX-C-374,
Pacto Global
ISO 9001-2008, ICC
ISO 9001-2008; Pacto
Global
ISO 14001 (expired)
ISO 14001
N/A
ISO 9001, ISO 14001,
OSHAS 18001
ISO 9001, ISO 14001,
OSHAS 18001
ISO 9001, ISO 14001,
OSHAS 18001
ISO 9001:2008, ISO
14001:2004, OHSAS
18001:2007, BASC
Version 4-2012
Division and Plant
Country
Commencement
of Operations
Estimated
Maximum
Installed
Capacity(1)
Utilization
Rate in
2013(%)
Eternit Pacífico....................................... Colombia
1945
79,000
77
Eternit Atlántico ..................................... Colombia
1945
80,000
71
Eternit Ecuatoriana ................................. Ecuador
1978
73,000
45
Duralit Bolivia ....................................... Bolivia
1977
82,000
84
Cement:
El Palmar................................................ Mexico
Tula ........................................................ Mexico
2013
2006
1,008,000
720,000
Vito ........................................................ Mexico
1944
Plastics:
Expansión La Luz .................................. Mexico
Products
Certifications
Tiles for fiber
cement roofing,
sheets and
panels for
ceiling panels
and paintings
Tiles for fiber
cement roofing,
sheets and
panels for
ceiling panels,
paints and
plastic water
tanks
Fiber cement
flat and
corrugated
sheeting, tiles,
fixtures, and
gutters, drainage
pipes, skylights
and paints.
Flat and
corrugated fiber
cement sheets,
tiles, plastic
water tanks,
septic tanks and
paints.
ISO 9001:2008, ISO
14001:2004, OHSAS
18001:2007 (Bureau
Veritas) and BASC
V4-2012 (WBO)
60
74
Gray cement
Gray cement
156,000
132,000
62
44
White cement
Gray Cement
N/A
Clean Industry Audit
(PROFEPA)
Clean Industry Audit
(PROFEPA)
1983
4,080
44
Extrusión Cuamatla ................................ Mexico
1980
7,440
59
Industrias Fibraforte ............................... Peru
1993
9,613
96
Monterrey............................................... Mexico
2013
780
30
Construction
products,
expanded
polystyrene,
partitions for
shoring plates,
fillings, panel
strips, moldings,
panels for cold
rooms and
incubators.
Industrial
polystyrene
plant for sheet
and
thermoformed
products, rolls,
sheets, plates,
cups, and
industrial
containers.
Polypropylene
and
polycarbonate
sheets
Polyethylene
water tanks
117
Bureau Veritas, ISO
9001, ISO 14001,
OSHAS 18000, BASC
V4 del 2012
INEN 1320 Type III,
INEN
1320 Type IV, ISO
9001, ISO14001,
OSHAS:18001
ISO 9001:2000,
IBNORCA (Instituto
Boliviano de
Normalización y
Calidad) Certificado
de Sello de Producto
NB 673:2010,
Certificado de
Aprobacion. Renewed
on 02/07/2011
NOM-018, Pacto
Global
Pacto Global
ISO 9001: 2000
ICONTEC
Pacto Global
Division and Plant
Country
Commencement
of Operations
Estimated
Maximum
Installed
Capacity(1)
Utilization
Rate in
2013(%)
Products
Certifications
Santa Clara ............................................. Mexico
1954
4,200
23
Polyethylene
water tanks and
cisterns
ISO9001:2008,
ISO14001:2004,
Industria Limpia,
NMX-C-012, NMXC-039, NMX-C-374,
CSTB, Pacto Global
Guadalajara
Mexico
1960
3,600
17
Polyethylene
water tanks and
cisterns
ISO 9001:2008, ISO
14001:2004, OHSAS
18001:2007, Industria
Limpia, NMX-C-374,
Pacto Global
Villahermosa .......................................... Mexico
1977
1,080
46
ISO 9001-2008; Pacto
Global
Chihuahua .............................................. Mexico
1962
648
47
Polyethylene
water tanks,
cisterns and
septic tanks
Polyethylene
tanks
Eternit Colombiana ................................ Colombia
1942
6,300
59
Duralit Bolivia ....................................... Bolivia
1977
163
41
Industria Limpia,
ONNCCE, ISO 9000,
CERTIMEX,
CONAGUA
Plastic water
ISO 9001:2008, ISO
tanks,
14001:2004, OHSAS
translucent PVC 18001:2007, BASC
tile
Version 4-2012
Septic tanks,
ISO 9001:2000,
plastic water
IBNORCA (Instituto
tanks, paints
Boliviano de
Normalización y
Calidad) Certificado
de Sello de Producto
NB 673:2010,
Certificado de
Aprobación. Renewed
on 02/07/2001
(1)
In tons per year.
(2)
The utilization rate for these plants has been calculated on usage between February and June of 2014.
Depreciation of property, plant and equipment is calculated using the straight-line method based on
management’s estimates of the useful lives of these assets. The average useful lives of our main group of assets are
listed below:
Asset
Average useful life
Buildings .............................................................................
Machinery and equipment ...................................................
Transportation equipment ...................................................
Furniture and office equipment ...........................................
Computing equipment ........................................................
40 and 60 years
20-30 years
4 and 5 years
10 years
3 years
118
Distribution Centers, Stores and Sales Offices
We market our products through an extensive distribution network composed of distribution centers,
warehouses and sales offices.
Location
Guadalajara, Mexico ......
Puebla, Mexico ...............
Ciudad Juárez, Mexico ...
Tijuana, Mexico .............
Houston, Texas ..............
Laredo, Texas ................
Monterrey, Mexico .........
Mexico City, Mexico ......
San Luis Potosí, Mexico .
Savannah, Georgia .........
Oakland, California .......
Chiclayo, Peru ...............
Arequipa, Peru ...............
Medellin, Colombia ........
Guayaquil, Ecuador ........
Cuenca, Ecuador.............
Lima, Peru ......................
Cochabamba, Bolivia .....
Format
Warehouse
Warehouse
Warehouse
Warehouse
Sales Office
Warehouse
Warehouse
Warehouse
Warehouse
Warehouse
Warehouse
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Warehouse
Warehouse
Products/Division
Metals
Metals
Metals
Metals
Metals/Building Systems
Metals
Metals
Metals
Metals
Building Systems
Building Systems
Plastics
Plastics
Plastics /Building Systems
Building Systems
Building Systems
Plastics
Building Systems
Leased/Owned
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Insurance
Currently, we hold various insurance policies that protect our plants and distribution centers against different
types of risk. We consider these policies to be appropriate for the type of industries in which we operate and typical
for companies in the industries in which we operate.
Guarantees
As of the date of this offering memorandum, Elementia does not secure any of its credit agreements.
Notwithstanding, the following subsidiaries issue, directly or indirectly, our Certificados Bursátiles ELEMENT
10: Nacional de Cobre, S.A. de C.V., Mexalit Industrial, S.A. de C.V., The Plycem Company Inc., Compañía
Mexicana de Concreto Pretensado Comecop, S.A. de C.V. and Frigocel. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Investments
As of September 30, 2014, we had made investments in an amount of Ps$845 million, of which Ps$516 million
was for fixed assets and Ps$329 million was for the acquisition of the fiber cement business of CertainTeed
Corporation in the United States.
Legal Proceedings
We are party to several administrative and judicial proceedings in civil, labor, and tax matters that are incidental
to the normal course of our business. In the opinion of our management, none of these proceedings is reasonably
likely to have a material adverse effect on our results of operations or financial condition.
Nacobre, one of our subsidiaries, was involved in an anti-dumping investigation initiated by the U.S.
Department of Commerce, or “DOC”, with respect to certain copper products from China and Mexico. As a result
of this investigation, an anti-dumping duty was established at a rate of 27.16% on the declared value of our exports
to the United States. We believe that we have complied with the DOC’s ruling, but we cannot assure you that further
proceedings will not be initiated in the future. On December 31, 2011, in its first revision, the DOC formally began
reviewing all of Nacobre’s sales made during the period from November 22, 2010 to October 31, 2011. After the
119
first revision, the DOC concluded that during the reviewed period there was no evidence of the contemplated
weighted-average dumping margin with respect to Nacobre’s sales that were the subject of the review. On
December 30, 2012, in its second revision, the DOC formally began reviewing all of Nacobre’s sales made during
the period from November 1, 2011 to October 31, 2012. On June 30, 2014, as a result of the second revision, the
DOC determined a dumping margin of 0.58%.
On May 22, 2013, the Canada Border Services Agency, or “CBSA”, initiated an anti-dumping investigation into
the importing of copper tubing originating from Brazil, Greece, China, Korea and Mexico during the period from
May 1, 2012 to April 30, 2013. On August 20, 2013, the CBSA issued a preliminary resolution whereby it
determined an estimated dumping margin of 17.6% by Nacobre. On November 18, 2013, the CBSA issued a final
resolution whereby it determined a dumping margin of 23.5% by Nacobre and it fixed market prices for all future
exports, which shall remain in force until the CBSA initiates a reinvestigation. A reinvestigation is normally
conducted upon annualized export quantity and price change information, making it difficult to predict when a
reinvestigation will take place.
On September 13, 2014, our subsidiaries Eternit Colombiana and Eternit Pacífico, along with other third parties,
were joined to a class action lawsuit brought forth in Colombia against a mine that supplies us with chrysotile
(Minera Las Brisas) and two Colombian officials. The lawsuit alleges that the mine’s exploitation and
commercialization of asbestos has caused damage to the environment and ecological balance. On September 17,
2014 we filed a statement of opposition to the joinder, arguing that it derived from a suit brought in 2005 against a
third party whose only relationship with us was as our supplier. In October 2014, the court ruled against us, and we
are preparing our defense.
To our knowledge, none of our shareholders, directors or senior management is party to any judicial proceeding
which could adversely affect our results of operations or our financial position. Moreover, neither we nor our
subsidiaries are party to any tax proceeding which could adversely affect our results of operations or our financial
position.
120
MANAGEMENT
Our Board of Directors
Our board of directors is composed of 11 directors and alternates, which were appointed at a general
shareholders’ meeting. More than 25% of the board members are independent directors. The members of our
current board of directors were appointed at our shareholders’ meeting on September 30, 2014, for a one-year term
and they may be reelected for subsequent one-year terms.
According to our by-laws (estatutos sociales), the board of directors is granted the broadest authority and
powers to perform all matters inherent to our corporate purpose, except for those expressly reserved for
shareholders.
Set forth below are the names of the persons who will be appointed as directors, their principal occupation and
their business experience.
Name
Francisco Javier del Valle Perochena .........
Antonio del Valle Perochena .....................
Eduardo Domit Bardawil ...........................
Jaime Ruiz Sacristán ..................................
Eugenio Clariond Rangel(1) ........................
Divo Milán Haddad(1) .................................
José Kuri Harfush(1) ....................................
Gerardo Kuri Kaufmann.............................
Alfonso Salem Slim ...................................
Antonio Gómez García ..............................
Juan Rodríguez Torres(1)(3) .........................
Juan Pablo del Río Benítez ........................
Santiago Bernard Covelo ...........................
Walter Fraschetto Valdés
(1)
Position
Chairman and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Secretary(2)
Deputy Secretary(2)
Statutory Examiner (Comisario)
Age
Member Since
44
46
50
65
46
58
65
30
52
53
75
46
40
60
2000
2000
2012
2007
2014
2014
2009
2009
2009
2009
2014
2009
2014
2009
Independent director
(2)
Not a member of the Board of Directors
(3)
Financial expert
Francisco Javier del Valle Perochena is the Chairman of our Board of Directors and has been a member of the
Board of Directors since 2000. Mr. Francisco Javier del Valle Perochena graduated with a degree in Business
Administration from Universidad Anáhuac. He is currently the general manager of Controladora GEK, S.A.P.I. de
C.V. and a member of the board of directors of Mexichem, S.A.B. de C.V., Grupo Kaluz, Banco Ve por Más, S.A.
Institución de Banca Múltiple, Grupo Financiero Ve por Más and Grupo Pochteca, S.A.B. de C.V. Mr. Francisco
Javier del Valle Perochena is the brother of Mr. Antonio del Valle Perochena and nephew of Mr. Jaime Ruíz
Sacristán.
Antonio del Valle Perochena has been a member of our Board of Directors since 2000. He graduated with a
degree in Business Administration from Universidad Anáhuac in 1992 and he holds a A-D-2 in Senior Management
from the Instituto Panamericano de Alta Dirección de Empresa, or “IPADE.” He is currently the Chairman of the
Board of Grupo Kaluz and of Grupo Financiero Ve por Más, S.A. de C.V., as well as a member of the boards of
Mexichem, S.A.B. de C.V., Casa de Bolsa Ve por Más, S.A. de C.V., Grupo Financiero Ve por Más y Arrendadora
Ve por Más, S.A. de C.V., Sociedad Financiera de Objeto Múltiple, Entidad Regulada, Grupo Financiero Ve por
Más and Grupo Pochteca, S.A.B. de C.V. Mr. Antonio del Valle Perochena is the brother of Mr. Antonio del Valle
Ruiz; brother of Mr. Francisco Javier del Valle Perochena and nephew of Mr. Jaime Ruíz Sacristán.
121
Eduardo Domit Bardawil has been a member of our Board of Directors since 2012. He graduated with a degree
in Civil Engineering from Universidad Anáhuac and has a Master’s in Business Administration from the Instituto
Tecnológico Autónomo de México. Mr. Eduardo Domit Bardawil is the brother-in-law of Messrs. Francisco Javier
and Antonio del Valle Perochena.
Jaime Ruiz Sacristán has been a member of our Board of Directors since 2007. He graduated with a degree in
Business Administration from Universidad Anahuac in 1972, and has a Masters in Finance from Northwestern
University (1974). Mr. Ruiz is a former President of the Bankers Association of Mexico and is Chairman of the
Board of Banco Ve por Más, S.A., Institución de Banca Múltiple, Grupo Financiero Ve por Más, Grupo Financiero
Ve por Más, S.A. de C.V., Casa de Bolsa Ve por Más, S.A. de C.V., Grupo Financiero Ve por Más, Arrendadora Ve
por Más, S.A. de C.V., SOFOM, E.R., Grupo Financiero Ve por Más, Mexichem, S.A.B. de C.V. and Grupo Kaluz.
Mr. Jaime Ruíz Sacristán is the uncle of Messrs. Antonio and Francisco Javier del Valle Perochena.
Eugenio Clariond Rangel is a member of our Board of Directors. Eugenio Clariond Rangel holds a degree in
Chemical Engineering and Systems from the Instituto Tecnológico y de Estudios Superiores de Monterrey, a
Master’s of Business Administration from the University of Texas at Austin and has participated in the International
Program for Administration at IPADE, in Florida. He has held various positions in industrial companies, among
them: General Manager at Stahl; Chief of Planning and Projects at IMSALUM; Chief Operating Officer at Cuprum;
and currently the Chief Executive Officer of Grupo Cuprum. He has held multiple positions in businesses,
institutions and academic and social associations, among them: Chairman of the Chamber of Commerce for the
Transformation of Nuevo León (CAINTRA); Vice Chairman of the Confederation of Chambers of Commerce
(CONCAMIN); Chairman of the Mexican Institute of Aluminum A.C. (IMEDAL); Member of the Executive
Committee and Board of “The Aluminum Association”; Vice Chairman and Director of the Mexican Council on
Foreign Trade, Northeast (COMCE); Member of the Council of COPARMEX Nuevo León; Member and Director
of the Credit Committee of Banco Ve por Más; Member of the Board of Directors of Mexichem S.A.B. de C.V.;
Chairman of the Commission on Finances, Fundraising and Institutional Relations for the Nuevo León State Council
of Wild Flora and Fauna; Member of the Board of XIGNUX, S.A. de C.V.; Member of the Board of the University
of Monterrey (UDEM); and Member of the Boards of PROITESM and Supera A.C.
Divo Milán Haddad is a member of our Board of Directors. Divo Milán Haddad has a degree in Law and a
Masters in Administration from the Universidad Iberoamericana. He has a diploma in Securities Regulation and
Transnational Business Problems Negotiation from Harvard University. He has also completed studies in senior
business management from the IPADE. He is currently the General Director of Grupo C.N.I., Investigación
Estratégica, Pro-Invest, Promotora Eco, S.A. de C.V., Servicios de Comercio Electrónico, S.A. de C.V., Dab-Invest
and Dimmag, S.A. de C.V. (a Panamanian company). He also serves as president of the Board of Directors of
Inmobiliaria del Norte, Grupo C.N.I. and Plu Mil and as a director for New Dawn Mining, Pro-Invest, Mexichem,
S.A.B. de C.V., Banco Ve por Más, S.A., Institución de Banca Múltiple, Gurpo Financiero Ve por Más, Círculo de
Crédito, Grupo Financiero Ve por Más, S.A. de C.V. and Grupo Kaluz.
José Kuri Harfush has been a member of our Board of Directors since 2009. Mr. Jóse Kuri Harfush has a
degree in Business Administration and a Masters in Business Administration from the Universidad Anáhuac. He is
currently Director General of Janel, S.A. de C.V. and is a director at Grupo Carso, Teléfonos de Mexico, S.A.B. de
C.V., Grupo Financiero Inbursa, S.A.B. de C.V.; Banco Inbursa, S.A., Institución de Banca Múltiple, Grupo
Financiero Inbursa; Banco Inbursa; Seguros Inbursa, S.A., Grupo Financiero Inbursa; and Impulsora del Desarrollo
y el Empleo en América Latina, S.A.B. de C.V. (IDEAL). Mr. José Kuri Harfush is the father of Mr. Gerardo Kuri
Kaufmann.
Gerardo Kuri Kaufmann has been a member of our Board of Directors since 2009. Mr. Gerardo Kuri
Kaufmann has a degree in Industrial Engineering from Universidad Anáhuac and is currently Chief Executive
Officer at Inmuebles Carso S.A.B. de C.V. Mr. Geraro Kuri Kaufmann is the son of Mr. José Kuri Harfush.
Alfonso Salem Slim has been a member of our Board of Directors since 2009. Mr. Alfonso Salem Slim is a
Civil Engineer from the Universidad Anahuac, graduate from the class of 1984. Throughout his career, Mr. Salem
Slim has served as: Expansion Director of Sanborns Hermanos S.A. de C.V., Chief Executive Officer of Carso’s
Shopping Center, Real Estate Director of Inbursa, Chief Executive Officer of Hoteles Calinda, Chief Executive
Officer of Grupo PC Constructores, Chief Executive Officer of IDEAL and, now, Vice President of the Board of
Directors of IDEAL and President of Inmuebles Incarso, S.A.B. de C.V. He also participates as a member of the
Boards of Directors of the following companies: Grupo Carso, IDEAL, Carso Infraestructura y Construcción,
122
S.A.B. de C.V., Inmuebles Carso, S.A.B. de C.V., SEARS Operadora México, S.A. de C.V., Grupo Gigante
S.A.B. de C.V., Gas Natural and Fundación del Centro Histórico de la Ciudad de México, A.C.
Antonio Gómez García has been a member of our Board of Directors since 2009. Mr. Gómez García has a
degree in Industrial Engineering from Universidad Iberoamericana. He is currently Chief Executive Officer of
Grupo Carso, Carso Infraestructura y Construcción, S.A.B. de C.V. and Grupo Condumex, and a board member of
Grupo Carso, Grupo Idesa S.A. de C.V. and Grupo Frisco S.A.B. de C.V.
Juan Rodríguez Torres is a member of our Board of Directors. Mr. Rodríguez Torres is a Civil Engineer and
has completed Master’s studies in planning and operations research at the Universidad Nacional Autonoma de
México (UNAM). He has also completed management studies form IPADE and has a diploma in prestressed
concrete from Paris, France. He is currently a member of several boards of directors such as Minera Frisco S.A.B.
de C.V., Grupo Sanborns S.A.B. de C.V., Procorp, Inmobiliaria Baita S.A. de C.V. and an advisory director of
Banamex-Citi.
Juan Pablo del Río Benítez, is our Secretary since 2009. Mr. Juan Pablo del Rio Benítez holds a law degree
from Universidad Anáhuac and is currently a partner of DRB Consultores Legales, S.C. He has been a member of
the Mexican Bar Association since 2002.
Walter Giovanni Fraschetto Valdés has been our Statutory Examiner since 2009. Walter Giovanni Fraschetto
Valdés has a degree in accounting from Universidad Iberoamericana, has been a partner with Galaz, Yamazaki, Ruiz
Urquiza S.C. (Deloitte) since 1988 and has been Director of Corporate Governance of Galaz, Yamazaki, Ruiz
Urquiza S.C. (Deloitte) since 2008.
Senior Management
Set forth below are the names of our current senior management members, their main occupation, their business
experience, including other directorships, and their years of service in their current position. Our senior managers
are appointed by the Board of Directors for indefinite terms.
Name
Position
Eduardo Musalem Younes ............................ Chief Executive Officer
Víctor Hugo Ibarra Alcázar ........................... Chief Administration and Financial Officer
Juan Francisco Sánchez Kramer .................... Director of Investor Relations
Santiago Bernard Covelo............................... Legal Director
Luis Antonio García Lima ............................. Director of Internal Audit
Antonio Taracena Sosa .................................. Director, Cement Division
Gustavo Arce del Pozo .................................. Director, Metals Division
Director, Building Systems and Plastics
Fernando Benjamín Ruiz Jacques ................. Division
Age
Years with
the Company
54
49
45
40
43
62
52
17
2
1
2
1
3
27
41
6
Eduardo Musalem Younes is our Chief Executive Officer. He has a degree in Business Administration from
Instituto Tecnológico Autónomo de México and 29 years of professional experience. Mr. Eduardo Musalem
Younes was Chief Executive Officer of Nacobre from 2001 to 2008, and of Almaco from 2009 to 2011. He has
been President of the board of directors of the Mexican Aluminum Institute, Chairman and director of Industrias
Nacobre and Grupo Condumex, and a director of Primex, P.C. Construcciones, Galas de México and Artes Gráficas
Unidas.
Víctor Hugo Ibarra Alcázar is our Chief Administration and Financial Officer. He is a Public Accountant and
has a Master’s degree in Economics from Instituto Tecnológico y de Estudios Superiores de Monterrey. He has
32 years of experience in the mining, auto parts, infrastructure, construction, manufacturing and consumer products
industries. He was Chief Administration and Financial Officer of Grupo Lala, S.A.B. de C.V, of Carso
Infraestructura y Construcción and of Pepsi and its bottlers in Mexico.
Juan Francisco Sánchez Kramer is our Director of Investor Relations. He has 20 years of experience in the
industry, including three years with Mexichem and two years with Grupo Kaluz. His background also includes
heading areas such as sales, strategic planning, financial planning, business development, supply chain and investor
relations. Mr. Sánchez Kramer has a degree in Industrial Engineering from Universidad del Valle de México and
123
postgraduate degrees in General Marketing and Administration from Instituto Tecnológico y de Estudios Superiores
de Monterrey.
Santiago Bernard Covelo is our Legal Director. He has a degree in Law and a Master’s degree in Civil Law,
both from the Universidad La Salle, as well as a Diploma in International Arbitration from the Escuela Libre de
Derecho and the International Chamber of Commerce and a Diploma from the Administration for Lawyers Program
at Yale University. He has over 19 years of professional experience, primarily with companies in the
pharmaceutical, retail and telecommunications sectors.
Luis Antonio García is our Director of Internal Audit. He has a degree in accounting from the Universidad La
Salle as well as 25 years of experience in finance, primarily in Internal Audit but also in Finances, Administration,
Auditing and Internal Control. He has worked for companies in the service, consulting, electronics, lighting,
medical equipment, personal care, retail, manufacturing, consumer products and pharmaceutical sectors, at both the
national and international levels. Some of the companies he has worked for include Ernst & Young, Productos de
Maíz - Unilever, Philips Mexicana, Avon Cosmetics and Carnot Laboratorios.
Antonio Jesús Taracena Sosa is our General Director for the Cement Division. He has a degree in chemical
engineering from the Universidad Autónoma de México (UNAM) and a Master’s degree in Business Administration
from the IPADE. He has over 21 years of experience in the cement industry and has served as our Cement Division
director since 2012. He has previously served as Chief Executive Officer of Corporación Moctezuma, Vicepresident of Confederación de Cámaras Industriales (CONCAMIN), President of the Cement Chamber, and as a
member of the following: Peñón, Instituto Mexicano del Seguro Social (IMSS), Chemistry UNAM School and
Instituto Tecnológico de Monterrey (ITESM) Morelos Campus.
Gustavo Arce del Pozo is our General Director for the Metals Division. He has a degree in Administration and
over 27 years of experience with us. He has worked in various positions, mainly in the Metals Division, monitoring
the national and international markets for aluminum, copper and copper alloys.
Fernando Benjamín Ruiz Jacques is our General Director for the Building Systems and Plastics Division. He
has a degree in Civil Engineering from Universidad Iberoamericana and a Masters in Business Administration from
University of California Berkeley, as well as a Masters in Finance from Universidad Anáhuac. He has six years of
experience at our Company and 18 years of experience in the construction and retail industries.
Committees
Oversight of our management and operations, as well as the entities controlled by us, is headed by our Board of
Directors, with the assistance of our Audit Committee created by resolution of the Board of Directors on April 16,
2012, as well as our external auditors.
Audit Committee
The Audit Committee must be composed of at least three independent members of the board of directors. As of
today, our Audit Committee is composed of Juan Rodríguez Torres, Eugenio Clariond Rangel and Divo Milán
Haddad. Our Chief Executive Officer, Chief Financial Officer, the Audit Director and the partner or partners of our
external audit firm are permanent invitees to meetings of this Committee.
The duties of the Audit Committee, as established by the Board of Directors which created it, are the following:

issue opinions to the Board of Directors regarding matters of its authority pursuant to the LMV;

assess the performance of our external auditor, and analyze the report, opinions or judgments prepared by
the external auditor. The committee may meet with the external auditor whenever it deems appropriate,
notwithstanding that a meeting should be held at least once a year;

discuss our financial statements with parties responsible for their preparation and review, and recommend
or not their approval to the Board of Directors;

inform the Board of Directors of the condition of our internal control and internal audit systems or those
corresponding to the entities controlled by us, including, as appropriate, irregularities that it detects;
124

draft the opinion referenced in article 28, section IV, subparagraph (c) of the LMV and submit it to the
Board of Directors for their consideration, for its subsequent submission to the general shareholders’
meeting, using the external audit report as a backup. This opinion must state: (i) whether the accounting
and information policies and criteria we follow are adequate and sufficient, considering our specific
circumstances; (ii) whether such policies and criteria have been consistently applied to the information
submitted by our Chief Executive Officer; and (iii) whether, as a result of the above, the information
submitted by our Chief Executive Officer reasonably reflects our financial position and results of operation;

support the Board of Directors in the preparation of the reports refered to in Article 28, section IV,
subparagraph (d) and (e) of the LMV;

supervise that transactions of the kind referenced in article 28, section III and article 47 of the LMV are
carried out in accordance with the standards therein established, as well as their corresponding policies;

request an opinion from independent experts in the cases it deems appropriate, for the adequate
performance of its duties;

require reports regarding the preparation of financial information and any other information it deems
necessary in the exercise of its duties from the relevant directors and other employees or entities controlled
by us;

investigate possible non-compliance of operations, guidelines and operational policies, internal control
systems, internal audits and accounting records, either from us or entities controlled by us, for which it must
examine the documents, records and other confirming evidence in the degree and extent necessary for such
supervision;

receive comments submitted by shareholders, directors, relevant officers, employees and, generally, any
third party, regarding matters referenced by the preceding subparagraph, and act as it deems appropriate
with respect to such comments;

request periodic meetings with pertinent executive officers, and submit any type of information related to
internal controls and our internal audit or entities controlled by us;

inform the Board of Directors with regard to significant irregularities detected as a result of the performance
of its duties, and, where appropriate, the corrective actions adopted or proposed;

conve ne general shareholders’ meetings and request the inclusion in the agend a of the mat ters it
deems relevant;

monitor compliance by the Chief Executive Officers with the resolutions of the general shareholders
meetings and the Board of Directors, in accordance with the instructions that, in its case, such corporate
bodies dictate;

supervise the implementation of mechanisms and internal controls to ensure that our actions and
transactions and those of our controlled entities adhere to applicable norms, and implement methodologies
that enable monitoring of the above-referenced compliance; and

other provided by the by-laws consistent with the functions assigned by the LMV.
Since May 2012 we have had a Policies and Proceedings Manual that addresses our Ethical Principles and Code
of Conduct. The purpose of the manual is to inform all employees of the Company, its subsidiaries and affiliated
businesses of the proper conduct to achieve the Company’s goals of improving the quality of our service,
guaranteeing compliance with laws and regulations and establishing appropriate behavioral standards within the
organization. The policies described in the manual include the universal values of faith, discretion, efficacy,
efficiency, honesty, impartiality, integrity, transparency, service, prudence and simplicity.
125
Benefits and Compensation of Directors and Senior Management
The total compensation paid to our senior management during 2013 was Ps$43 million. Each member of our
Board of Directors receives Ps$35 thousand for attending each meeting of the Board of Directors, except for the
Chairman, who receives Ps$70 thousand for attending each meeting.
Further, we have a pension plan that benefits all employees. Compensation under the pension plan is based on
years of service and the respective employee’s salary. We make annual contributions to the pension plan. The total
anticipated or accrued amount for pension plans for relevant directors is Ps$17 million.
The employee incentive plan is based on a system of variable compensation linked to the achievement of sales
targets, EBITDA and cash flow generation, measured and paid quarterly to reward the achievement of such
objectives and represents 20 days per quarter.
126
PRINCIPAL SHAREHOLDERS
The table below sets forth certain information regarding the ownership of our capital structure as of the date of
this offering memorandum.
Number of Shares
Name of shareholder
Number
Tenedora(1) ...............................................................................
Grupo Kaluz(2) .........................................................................
Others ........................................................................................
Total.......................................................................................
13,436,086
14,896,459
876,265
29,208,810
%
46.00%
51.00%
3.00%
100.00%
(1)
Tenedora is an indirect subsidiary of Grupo Carso which, in turn, is directly or indirectly controlled by Mr. Carlos Slim Helú and the Slim
Domit brothers.
(2)
Grupo Kaluz is a corporation controlled by the del Valle Perochena brothers, none of whom individually holds a controlling interest in us.
This number includes the shareholdings of the del Valle Perochena brothers.
127
RELATED PARTY TRANSACTIONS
In the ordinary course of business, we enter into transactions with certain affiliates and related parties. The table
below sets forth related party transactions entered into in the normal course of business during 2013, 2012 and 2011
and through September 30, 2014:
Nine months
ended
Years ended December 31,
September 30,
2014
2013
2012
2011
Revenues from:
Sales .................................................................
Sales of shares .................................................
Sales of Litho project .......................................
Sales of fixed assets .........................................
Interest received ...............................................
Leases ..............................................................
Corporate tax ...................................................
Contractual penalties .......................................
Other income ...................................................
Services............................................................
Total.................................................................
Expenses:
Technical assistance received ..........................
Purchase of materials .......................................
Purchase of finished products ..........................
Shipping and handling .....................................
Interest paid .....................................................
SAP implementation ........................................
Donations .........................................................
Leases ..............................................................
Payroll services ................................................
Fixed asset purchases .......................................
Factory construction ........................................
Insurance..........................................................
Other expense ..................................................
Paid services ....................................................
Total ................................................................
$
$
3,388
—
—
—
—
1,606
—
—
686
—
5,680
$
110,332
153,864
—
—
3,285
10,240
7,009
549
—
—
—
5,867
13,346
5,395
$ 309,887
$
$
$
$
6,668
582,818
—
156,533
—
1,490
74,351
18,664
—
80
840,604
$
130,267
60,594
—
79
54
22,991
—
6,333
7,763
—
79,941
8,592
—
37,714
354,327
$
$
$
15,866
—
—
37,562
733
145
—
—
—
5,312
59,618
162,802
3,422
—
—
25,322
21,519
—
—
—
37,867
27,573
8,537
—
7,121
294,163
$
$
$
$
9,628
—
128,049
—
—
—
—
—
—
1,100
138,777
140,741
198,049
—
126,777
4,865
31,341
6,000
—
—
—
—
—
—
356
508,129
Our related parties are Grupo Kaluz, Controladora GEK, S.A.P.I. de C.V., Fundación Kaluz, A.C., Inmobilaria
Patriotismo, S.A., Grupo Carso, Mexichem Servicios Administrativos, S.A. de C.V., Logtec, S.A. de C.V., Servicios
Condumex, S.A. de C.V., Mexicana de Servicios para la Vivienda, S.A. de C.V., Cobre de México, S.A. de C.V.,
Pochteca Materias Primas, S.A.de C.V., Precitubo, S.A. de C.V., PAM, S.A. de C.V., Mexichem Soluciones
Integrales, S.A. de C.V., Nacional de Conductores Eléctricos, S.A. de C.V., Mexichem Compuestos, S.A. de C.V.,
Mexichem Colombia, S.A.S., Mexichem Honduras, S.A., Mexichem Guatemala, S.A., Mexichem El Salvador, S.A.,
Mexichem Panamá, S.A., Mexichem Costa Rica, S.A., and Grupo Financiero Inbursa, S.A. de C.V.
We have carried out certain transactions, primarily factoring transactions, with Banco Ve por Más, S.A.,
Institución de Banca Múltiple, Grupo Financiero Ve por Más and Casa de Bolsa Ve por Más, S.A. de C.V., Grupo
Financiero Ve por Más. These transactions have been entered into pursuant to market conditions and at market
values.
128
We conduct business with related companies under various contractual agreements. The following table sets
forth amounts due to and from our related parties:
As of
September 30,
2014
As of December 31,
2012
2013
2011
Due from related parties:
Inmuebles General, S.A. de C.V. ........................... $
Grupo Kaluz ..........................................................
Other ......................................................................
Total short term ................................................... $
Long-term account receivable Grupo
Carso(1).............................................................
Due to related parties:
Grupo Kaluz ..........................................................
Fundación Kaluz, A.C. ..........................................
Inmobiliaria Patriotismo, S.A. ...............................
Grupo Carso,.(2) ....................................................
Cobre de México, S.A. de C.V. .............................
Radiomovil Dipsa, S.A. de C.V. ............................
PAM, S.A. de C.V. ...............................................
Conductores Mexicanos Eléctricos de
Telecomunicación, S.A. de C.V. ........................
Precitubo, S.A. de C.V...........................................
Pochteca Materias Primas, S.A. de C.V.................
Conticon, S.A. de C.V. ..........................................
Telgua, El Salvador, Honduras y Nicaragua ..........
Nacional de Conductores Eléctricos, S.A. de
C.V. ....................................................................
Mexichem Soluciones Integrales ...........................
Mexichem Compuestos, S.A. de C.V. ...................
Mexichem Colombia, S.A.S. .................................
Mexichem Servicios Administrativos, S.A. de
C.V.(3) ...............................................................
Mexichem Honduras, S.A. ....................................
Mexichem Costa Rica, S.A. ...................................
Mexichem, S.A.B. de C.V. ....................................
Mexichem El Salvador, S.A. ................................
Cordaflex, S.A. de C.V. .........................................
Logtec, S.A. de C.V. ..............................................
Financière Lafarge, S.A.S. .....................................
Otros Kaluz ............................................................
Total short-term: .................................................
Long-term account payable Mexichem
Servicios Administrativos, S.A. de C.V.(3) ........
— $
—
2,466
2,466 $
40,000 $
—
944
40,944 $
— $
—
—
— $
—
54,979
—
54,979
$
53,703 $
53,851 $
50,553 $
50,553
$
9,763 $
—
—
127,120
—
—
—
6,926 $
—
460
125,980
394
—
—
6,543 $
1,000
693
150,266
558
5,034
273
—
—
1,232
215,369
—
—
—
—
—
40
—
—
—
—
624
—
24
9,083
7,730
30
41
769
—
—
—
—
—
—
—
415
—
50
—
—
147
48
43
288
18
—
—
—
—
$
11,358
39
—
1,518
12
—
—
46,091
1,057
197,413 $
20,598
46
74
1,455
—
2,580
99
—
13,901
173,358 $
19,895
—
—
1,392
—
—
—
—
2,214
205,918 $
—
—
10,394
—
—
—
—
—
227,159
$
18,597 $
18,075 $
40,462 $
—
(1)
Corresponds to the corporate tax paid by Productos Nacobre, S.A. de C.V., Grupo Aluminio, S.A. de C.V. and Almexa Aluminio, S.A. de
C.V. to Grupo Carso as majority shareholders under the fiscal consolidation through 2009, which they had the right to recover upon
deconsolidation.
(2)
The account payable to Grupo Carso includes corporate tax of Ps$120,129; Ps$145,687 and Ps$172,465 as of December 31, 2013, 2012 and
2011, respectively.
(3)
The account payable to Mexichem Servicios Administrativos, S.A. de C.V. corresponds to the indefinite use of SAP licenses inventoried in
February 2013 and will be paid in trimester installments over a five year period.
129
In the past we have engaged in, and expect that in the future we will continue to engage in, transactions with our
directors, officers, principal shareholders and their respective affiliates or subsidiaries, including, without limitation,
the transactions described below. The terms of these transactions are typically negotiated by one or more of our
employees who are not related parties, taking into account the same business considerations that would apply to
transactions with unrelated third parties, and are subject to meeting the relevant market price for the transaction. We
believe that these arrangements are generally on terms at least as favorable as those that we could obtain from an
unaffiliated third party, to the extent there are third parties which could provide comparable services.
We have an ongoing contract for the provision of business development services with Grupo Empresarial
Kaluz, S.A. de C.V., whereby Kaluz performs consulting services regarding economic, financial, commercial and
negotiation matters and business strategy. We pay a monthly fee to Kaluz of 0.54% of our consolidated monthly net
sales, plus the value-added tax.
We also have an ongoing contract for the provision of business development services with Grupo Carso,
whereby Grupo Carso performs consulting services regarding our economic, financial, commercial and negotiation
matters and business strategy. This fee is subject to change based on Grupo Carso’s interest in our stockholders’
equity. As from August 17, 2010, the fee equals to 0.46% of our consolidated monthly net sales, plus the valueadded tax. This fee is subject to change based on Grupo Carso’s shareholding.
130
DESCRIPTION OF THE NOTES
The notes will be issued under the indenture (the “Indenture”) dated November 26, 2014 among us, the
Subsidiary Guarantors (as defined below), Deutsche Bank Trust Company Americas, as trustee (the “Trustee”),
paying agent, registrar and transfer agent, and Deutsche Bank Luxembourg SA, as Luxembourg paying agent,
Luxembourg registrar and Luxembourg transfer agent.
We summarize below certain provisions of the Indenture, but do not restate that agreement in its entirety.
We urge you to read the Indenture because it, and not this description, defines your rights. You may obtain a copy
of the Indenture in the manner described under “Available Information” in this offering memorandum, and, for so
long as the notes are listed on the Official List of the Luxembourg Stock Exchange for trading on the Euro
Multilateral Trading Facility Market, at the office of the paying agent in Luxembourg.
You will find the definitions of capitalized terms used in this section under “—Certain definitions.” For
purposes of this section of this offering memorandum, when we refer to:

“we,” “us,” “our,” “the Company” or “Elementia,” we mean Elementia, S.A. de C.V. and not its
Subsidiaries;

the “Subsidiary Guarantors,” we mean the existing and future Subsidiaries of the Company that will
issue guarantees of the notes, which initially are those Subsidiaries identified under “—General”; and

the “notes,” we mean the notes offered pursuant to this offering memorandum and, unless the context
otherwise requires, any additional notes, as described in “—General” below.
General
The notes will:

be senior unsecured obligations of the Company and the Subsidiary Guarantors;

rank equal in right of payment with all other existing and future senior unsecured indebtedness of the
Company and the Subsidiary Guarantors (subject to certain labor and tax obligations for which
preferential treatment is given under applicable law);

rank senior in right of payment to all existing and future subordinated indebtedness of the Company
and the Subsidiary Guarantors, if any;

be effectively subordinated to all existing and future secured indebtedness of the Company and the
Subsidiary Guarantors to the extent of the value of the assets securing such indebtedness;

be initially unconditionally and irrevocably guaranteed by the following direct and indirect
Subsidiaries of the Company: (i) Nacional de Cobre, S. A. de C. V., (ii) Mexalit Industrial, S.A. de
C.V., (iii) Frigocel, S.A. de C.V., (iv) Plycem Construsistemas Costa Rica, S.A., (v) Plycem
Construsistemas El Salvador, S.A. de C.V., (vi) Eternit Colombiana S.A., (vii) Eternit Pacifico S.A.,
(viii) Eternit Atlantico S.A., (ix) Eternit Ecuatoriana S.A., (x) Industrias Duralit S.A., (xi) Industrias
Fibraforte S.A., and (xii) as soon as our acquisition of Lafarge’s 47% stake in the joint venture closes,
ELC Tenedora Cementos S.A.P.I. de C.V., provided that each of the Subsidiaries named in
clauses (iv) through (xi) will be released and relieved of its respective obligations under its guarantee
at such time as ELC Tenedora Cementos S.A.P.I. de C.V. guarantees the notes, and (xiii) any
Restricted Subsidiary that provides a Subsidiary Guarantee after the Issue Date (collectively, the
“Subsidiary Guarantors”). As of September 30, 2014 and for the year ended December 31, 2013, we
and the Subsidiary Guarantors accounted for 55% of our total assets and 84% of our EBITDA on a
consolidated basis, and pro forma for the inclusion of ELC Tenedora Cementos and the removal of the
Subsidiaries named in clauses (iv) through (xi) above, we and the Subsidiary Guarantors accounted for
74% of our total assets and 83% of our EBITDA on a consolidated basis; and

be structurally subordinated to claims of creditors (including trade creditors and preferred
stockholders, if any) of each of the Company’s Subsidiaries that is not a Subsidiary Guarantor.
131
The Company may, subject to the limitations set forth under “—Covenants—Limitation on Incurrence of
Additional Indebtedness,” issue an unlimited principal amount of securities under the Indenture. The Company
may, without your consent, issue additional notes (“Additional Notes”) in one or more transactions, which have
substantially identical terms (other than issue price, issue date and date from which the interest will accrue) as notes
issued on the Issue Date. Such Additional Notes may be issued in one or more series and with the same or different
CUSIP number; provided, however, that unless such Additional Notes are issued under a separate CUSIP number,
such Additional Notes must be fungible with the notes for U.S. federal income tax purposes. Any Additional Notes
will be consolidated and form a single class with the notes issued on the Issue Date, so that, among other things,
Holders of any Additional Notes will have the right to vote together with Holders of notes issued on the Issue Date
as one class.
The notes will be issued in the form of global notes without coupons, registered in the name of a nominee
of DTC, as depositary. The notes will be issued in minimum denominations of US$200,000 and integral multiples
of US$1,000 in excess thereof. See “—Book-Entry; Delivery and Form” below.
Ranking of Notes and Guarantees
The notes will constitute our direct senior unsecured obligations. The notes rank pari passu in priority of
payment with each other and will rank at least pari passu in priority of payment with all our other existing and
future senior unsecured indebtedness.
In the event of a bankruptcy, concurso mercantil, quiebra or liquidation proceeding by or against us, our
obligations under the notes will rank equal in right of payment to all other of our existing and future senior
unsecured indebtedness and junior to certain obligations given preference under applicable law, including labor and
tax claims.
The Subsidiary Guarantors will fully, jointly and severally, unconditionally and irrevocably guarantee the
full and punctual payment of principal, premium, if any, interest, including any Additional Amounts, and any other
amounts that may become due and payable by us in respect of the Indenture and the notes. The Obligations of each
Subsidiary Guarantor in respect of its Subsidiary Guarantee will be limited to the maximum amount as will result in
the Obligations not constituting a fraudulent conveyance, fraudulent transfer or similar illegal transfer under
applicable law.
The Subsidiary Guarantors will waive any defenses provided under applicable law, including as required
under Mexican law.
The Subsidiary Guarantors’ guarantees of the notes will not be secured by any of their assets or properties.
As a result, if the Subsidiary Guarantors are required to pay under the guarantees, Holders of the notes would be
unsecured creditors of the Subsidiary Guarantors. The guarantees will not be subordinated to any of the Subsidiary
Guarantors’ other unsecured debt obligations. In the event of a bankruptcy, concurso mercantil, quiebra or
liquidation proceeding against any of the Subsidiary Guarantors, the guarantees would rank equally in right of
payment with all of such Subsidiary Guarantors’ other unsecured and unsubordinated debt.
None of our Subsidiaries other than the existing Subsidiary Guarantors will have any obligations with
respect to the notes unless they become guarantors. As a result, the notes and guarantees of the notes will be
effectively subordinated to claims of creditors (including trade creditors and preferred stockholders, if any) of each
of our Subsidiaries other than the Subsidiary Guarantors. As of September 30, 2014, we and our Subsidiaries had
total consolidated indebtedness of Ps$6,523.2 million (US$484.9 million), Ps$2,030.2 million (US$150.9 million) of
which was unsecured indebtedness of the Subsidiary Guarantors as of the Issue Date and Ps$1,453.1 million
(US$108.0 million) of which was unsecured indebtedness of our non-guarantor Subsidiaries as of the Issue Date. As
of September 30, 2014, none of the Company, any Subsidiary Guarantor or any non-guarantor Subsidiary had any
secured indebtedness.
The Company will cause any existing or future Wholly-Owned Restricted Subsidiary that for any twelvemonth period ending as of the last day of the most recent fiscal quarter, individually represents at least 5% of the
Consolidated Adjusted EBITDA of the Company and its Restricted Subsidiaries as determined in accordance with
IFRS, to become a Subsidiary Guarantor, execute a supplemental indenture and deliver an Opinion of Counsel as to
the due authorization, execution and delivery thereof and as to its validity, legality and binding effect; provided,
132
however, that if for the relevant twelve-month period, the Company and the then-existing Subsidiary Guarantors
collectively represent at least 50% of the total assets and at least 80% of the Consolidated Adjusted EBITDA of the
Company and the then-existing Restricted Subsidiaries, then such Wholly-Owned Restricted Subsidiary will not be
required to become a Subsidiary Guarantor; and provided further that if the Company provides the Trustee with an
Officers’ Certificate as of the last day of the applicable fiscal quarter certifying that any such Restricted Subsidiary
is prevented by local law from guaranteeing the notes, then such Restricted Subsidiary will not be required to
become a Subsidiary Guarantor. If subsequently such Restricted Subsidiary is no longer prevented from
guaranteeing the notes, the Company will promptly cause such Restricted Subsidiary to become a Subsidiary
Guarantor by executing a supplemental indenture, but only if the Company and the then-existing Subsidiary
Guarantors do not satisfy the test set forth in the first proviso to the first sentence of this paragraph.
A Subsidiary Guarantor’s guarantee of the notes will be released as set forth in “—Release of Subsidiary
Guarantees.”
Principal, Maturity and Interest
The notes will mature on January 15, 2025, unless earlier redeemed in accordance with the terms of the
notes. See “—Optional Redemption” below.
The notes will not be entitled to the benefit of any mandatory sinking fund.
Interest on the notes will begin to accrue from November 26, 2014. Interest on the notes will accrue at the
rate of 5.500% per year and will be payable semi-annually in arrears on January 15 and July 15 of each year,
commencing on July 15, 2015. Payments of interest will be made to the persons who are registered Holders at the
close of business on the January 1 and July 1, as the case may be (whether or not a Business Day), immediately
preceding the applicable interest payment date.
Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
Initially, the Trustee will act as registrar, transfer agent and paying agent for the notes. The Company may
change the registrar, transfer agent and paying agent without notice to Holders.
Payments of principal and interest in respect of each global note will be paid by wire transfer of
immediately available funds to DTC. If a Holder of definitive, non-global notes in an aggregate principal amount of
at least US$1.0 million has given wire transfer instructions to the Company and the Trustee, then the Trustee, as
paying agent, will make all principal, premium, if any, and interest payments in respect of those notes in accordance
with those instructions. All other payments on the definitive, non-global notes will be made at the office or agency
of the paying agent in New York City unless the Company elects to make interest payments by check mailed to the
registered Holders at their registered addresses.
The Company will, to the extent permitted by law, ensure that it maintains a paying agent in a Member
State of the European Union that is not obliged to withhold or deduct tax pursuant to European Council
Directive 2003/48/EC or any other Directive implementing the conclusions of the European Union Council of
Economic and Finance (“ECOFIN”) council meeting of November 26-27, 2000 on the taxation of savings income or
any law implementing or complying with, or introduced in order to conform to, such Directive. In addition, as long
as the notes are listed on the Official List of the Luxembourg Stock Exchange for trading on the Euro MTF Market
and the rules of the exchange so require, the Company will also maintain a transfer agent and a paying agent in
Luxembourg.
Additional Amounts
We will be required by Mexican law to deduct Mexican withholding taxes at a rate of 4.9% from payments
of interest and amounts deemed interest (such as original issue discount) to investors who are not residents of
Mexico for tax purposes, if we satisfy certain requirements, and we will pay additional amounts in respect of those
payments, so that Holders of notes receive an amount equal to the amount each of them would have received, had no
such withholdings being applicable (“Additional Amounts”).
133
The Company and each of the Subsidiary Guarantors will pay to Holders of the notes such Additional
Amounts as may be necessary so that every net payment of interest (including any premium paid upon redemption
of the notes and any discount deemed interest under Mexican law) or principal to the Holders will not be less than
the amount provided for in the notes, it being understood that for tax purposes, the payment of such Additional
Amounts will be deemed and construed as additional interest. By net payment, we mean the amount that we, any
Subsidiary Guarantor or our paying agent pay any Holder after deducting or withholding an amount for or on
account of any present or future taxes, duties, assessments or other governmental charges imposed with respect to
that payment by Mexico or any political subdivision or taxing authority thereof or therein or any jurisdiction through
which payments are made by or at the direction of the Company in respect of the note (each, a “Taxing
Jurisdiction”).
Our obligation to pay Additional Amounts is subject to several important exceptions. The Company and
any Subsidiary Guarantor will not be required to pay Additional Amounts to any Holder for or on account of any of
the following:

any taxes, duties, assessments or other governmental charges imposed solely because at any time there
is or was a connection between the Holder and the Taxing Jurisdiction (other than the mere receipt of a
payment, the ownership or holding of a note or the enforcement of rights under a note); including such
Holder (i) being or having been a citizen or resident thereof; or (ii) maintaining or having maintained
an office, a permanent establishment or branch subject to taxation therein;

any estate, inheritance, gift, sales, transfer, personal property or similar tax, duty, assessment or other
governmental charge imposed with respect to the notes;

any taxes, duties, assessments or other governmental charges imposed solely because the Holder or any
other Person fails to comply with any certification, identification, information, documentation or other
reporting requirement concerning the nationality, residence, identity or connection with the Taxing
Jurisdiction, for tax purposes, of the Holder or any beneficial owner of the note if compliance is
required by law, regulation, published administrative guidance or by an applicable income tax treaty to
which the Taxing Jurisdiction is a party, as a precondition to exemption from, or reduction in the rate
of, the tax, assessment or other governmental charge and we have given the Holders at least 30 days’
notice that Holders will be required to provide such information and identification;

any tax, duty, assessment or other governmental charge payable otherwise than by deduction or
withholding from payments on the notes;

any taxes, duties, assessments or other governmental charges with respect to a note presented for
payment more than 30 days after the date on which the payment became due and payable or the date
on which payment thereof is duly provided for and notice thereof given to Holders, whichever occurs
later, except to the extent that the Holder of such note would have been entitled to such Additional
Amounts on presenting such note for payment on any date during such 30-day period;

any tax, assessment, withholding or deduction required by sections 1471 through 1474 of the
U.S. Internal Revenue Code of 1986, as amended (“FATCA”), any current or future Treasury
regulations or rulings promulgated thereunder, any law, regulation or other official guidance enacted in
any jurisdiction implementing FATCA, any intergovernmental agreement between the United States
and any other jurisdiction to implement FATCA or any law enacted by such other jurisdiction to give
effect to such agreement, or any agreement with the U.S. Internal Revenue Service under FATCA;

any withholding or deduction imposed on a payment to or for the benefit of an individual that is
required to be made pursuant to European Council Directive 2003/48/EC or any other Directive on the
taxation of savings implementing the conclusion of the ECOFIN council meeting on November 26-27,
2000, or any law implementing or complying with, or introduced in order to conform to, such
Directive;
134

any withholding or deduction that is imposed on a note presented for payment by or on behalf of a
beneficial owner who would have been able to avoid the withholding or deduction by presenting the
note to another paying agent in a Member State of the European Union;

any payment on the note to a Holder that is a fiduciary or partnership or a person other than the sole
beneficial owner of any such payment, to the extent that a beneficiary or settlor with respect to such
fiduciary, a member of such a partnership or the beneficial owner of the payment would not have been
entitled to the Additional Amounts had the beneficiary, settlor, member or beneficial owner been the
Holder of the note; or

any combination of any of the above.
The limitations on our obligations to pay Additional Amounts stated in the third bullet point above will not
apply if the provision of information, documentation or other evidence described in the applicable bullet point would
be materially more onerous, in form, in procedure or in the substance of information disclosed, to a Holder or
beneficial owner of a note than comparable information or other reporting requirements imposed under U.S. tax law
(including the United States-Mexico Income Tax Treaty), regulations and administrative practice.
The limitations on our obligations to pay Additional Amounts stated in the third bullet point above also will
not apply if, with respect to taxes imposed by Mexico or any political subdivision or taxing authority thereof or
therein, Article 166, Section II, paragraph a), of the Mexican income tax law (or a substitute or equivalent provision)
is in effect, unless (a) the provision of the information, documentation or other evidence described in the third bullet
point is expressly required by the applicable Mexican laws and regulations in order to apply such Article 166,
Section II, paragraph a) (or substitute or equivalent provision), (b) we cannot obtain the information, documentation
or other evidence necessary to comply with the applicable Mexican laws and regulations on our own through
reasonable diligence and (c) we otherwise would meet the requirements for application of the applicable Mexican
laws and regulations.
In addition, the third bullet point above does not and shall not be construed to require that any Person,
including any non-Mexican pension fund, retirement fund or financial institution, provide information to the
Mexican Tax Management Service (Servicio de Administración Tributaria) or the Mexican Ministry of Finance and
Public Credit to establish eligibility for an exemption from, or a reduction of, Mexican withholding tax.
We will also pay any present or future stamp, court or documentary taxes or any other excise or property
taxes, charges or similar levies, and any penalties, additions to tax or interest due with respect thereto, which arise in
any jurisdiction from the execution, delivery or registration in respect of the notes, excluding any such taxes,
charges or similar levies outside of a Taxing Jurisdiction (with the exception of those resulting from, or required to
be paid in connection with, the enforcement of the notes following occurrence of any Event of Default).
Upon request, the Company will provide the Trustee with documentation reasonably satisfactory to the
Trustee evidencing the payment of taxes in respect of which we have paid any Additional Amount. We will make
copies of such documentation available to the Holders of the notes or the relevant paying agent upon request.
Any reference in this offering memorandum, the Indenture or the notes to principal, premium, interest or
any other amount payable in respect of the notes by us will be deemed also to refer to any Additional Amount that
may be payable with respect to that amount under the obligations referred to in this section.
Following any merger or other transaction described and permitted under “—Limitation on Merger,
Consolidation and Sale of Assets” below, in which the Company or the Surviving Entity is organized under the laws
of a Permitted Jurisdiction other than Mexico, all references to Mexico, Mexican law or regulations, and Mexican
political subdivisions or taxing authorities under this “Additional Amounts” section will be deemed to also include
such Permitted Jurisdiction and any political subdivision therein or thereof, such Permitted Jurisdiction’s law or
regulations, and any taxing authority of such Permitted Jurisdiction or any political subdivision therein or thereof,
respectively.
135
Optional Redemption
General Optional Redemption
Except as stated below, the Company may not redeem the notes prior to January 15, 2020. The Company
may redeem the notes, at its option, in whole at any time or in part from time to time, on and after January 15, 2020,
at the following redemption prices, expressed as percentages of the principal amount thereof, if redeemed during the
twelve-month period commencing on January 15 of any year set forth below:
Year
Percentage
102.750%
2020.............................................................
2021.............................................................
2022.............................................................
2023 and thereafter ..............................
101.833%
100.917%
100.000%
At any time prior to January 15, 2020, the Company will have the right, at its option, to redeem any of the
notes, in whole or in part, at a redemption price equal to the greater of (1) 100% of the principal amount of such
notes and (2) the sum of the present value at such redemption date of (a) the redemption price of the notes at January
15, 2020 (such redemption price being set forth in the table above) plus (b) all required interest payments on the
notes through January 15, 2020 (excluding accrued but unpaid interest to the date of redemption) discounted to the
redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the
Treasury Rate plus 50 basis points (the “Make-Whole Amount”), plus in each case any accrued but unpaid interest
on the principal amount of the notes to, but excluding, the date of redemption; provided, however, that no partial
redemption of the notes may occur if the aggregate outstanding amount of notes after such redemption would be less
than US$150 million.
“Treasury Rate” means, with respect to any redemption date, the rate per annum, as determined by an
Independent Investment Banker, equal to the semi-annual equivalent yield to maturity or interpolated maturity (on a
day count basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.
“Comparable Treasury Issue” means the United States Treasury security or securities selected by an
Independent Investment Banker as having an actual or interpolated maturity that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a
maturity of
,
.
“Independent Investment Banker” means one of the Reference Treasury Dealers appointed by the
Company.
“Comparable Treasury Price” means, with respect to any redemption date, (1) the average of the Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference
Treasury Dealer Quotation or (2) if the Independent Investment Banker obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations.
“Reference Treasury Dealer” means Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC,
Citigroup Global Markets Inc., HSBC Securities (USA) Inc. and Santander Investment Securities Inc. or their
affiliates which are primary United States government securities dealers and not less than two other leading primary
United States government securities dealers in New York City reasonably designated by the Company; provided that
if any of the foregoing cease to be a primary United States government securities dealer in New York City (a
“Primary Treasury Dealer”), the Company will substitute therefor another Primary Treasury Dealer.
“Reference Treasury Dealer Quotation” means, with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by the Independent Investment Banker, of the bid and asked price for
the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to
the Independent Investment Banker by such Reference Treasury Dealer at 3:30 p.m. New York time on the
third Business Day preceding such redemption date.
136
Optional Redemption Upon Eligible Equity Offerings
At any time, or from time to time, prior to or on January 15, 2018, the Company may, at its option, use an
amount not to exceed the net cash proceeds of one or more Eligible Equity Offerings to redeem up to 35% of the
aggregate principal amount of the outstanding notes (including any Additional Notes) at a redemption price equal to
105.500% of the principal amount on the redemption date, plus any accrued and unpaid interest to, but excluding,
the redemption date; provided that:

after giving effect to any such redemption, at least 65% of the aggregate principal amount of the notes
(including any Additional Notes) issued under the Indenture remains outstanding; and

the Company will make such redemption not more than 60 days after the consummation of such
Eligible Equity Offering.
“Eligible Equity Offering” means the issuance and sale for cash of Qualified Capital Stock of the Company
to any Person other than an Affiliate of the Company pursuant to (i) a public offering in accordance with U.S. or
Mexican laws, rules and regulations, or (ii) a private offering in accordance with Rule 144A and Regulation S under
the Securities Act.
Optional Redemption Upon Tax Event
If, as a result of any amendment to, or change in, the laws (or any rules or regulations thereunder) of a
Taxing Jurisdiction affecting taxation, or any amendment to or change in an official interpretation or application of
such laws, rules or regulations, which amendment to or change of such laws, rules or regulations becomes effective
on or after the date of this offering memorandum, we or a Subsidiary Guarantor would be obligated, after taking all
reasonable measures to avoid this requirement, to pay any Additional Amounts in excess of those attributable to a
Mexican withholding tax rate of 4.9% with respect to payments of interest or amounts deemed interest under the
notes (see “—Additional Amounts” and “Taxation—Mexican Federal Taxation”), then, at our option, all, but not
less than all, of the notes may be redeemed at any time at a redemption price equal to 100% of the outstanding
principal amount, plus any accrued and unpaid interest and any Additional Amounts to the redemption date due
thereon up to but not including the date of redemption; provided that (1) no notice of redemption for tax reasons
may be given earlier than 60 days prior to the earliest date on which we or, as the case may be, a Subsidiary
Guarantor would be obligated to pay these Additional Amounts if a payment on the notes were then due, (2) at the
time such notice of redemption is given such obligation to pay such Additional Amounts remains in effect, and
(3) in the case of a Subsidiary Guarantor, such amount cannot be paid by the Company or another Subsidiary
Guarantor without the obligation to pay Additional Amounts in excess of those attributable to a Mexican
withholding tax rate of 4.9% on payments of interest or amounts deemed interest.
Prior to giving any notice of redemption to the Holders pursuant to this provision, we will deliver to the
Trustee:

an Officers’ Certificate stating that we are entitled to effect the redemption and setting forth a
statement of facts showing that the conditions precedent to our right to redeem have occurred; and

an Opinion of Counsel from legal counsel in the relevant Taxing Jurisdiction (which may be our
counsel) of recognized standing to the effect that we or a Subsidiary Guarantor have or will become
obligated to pay such Additional Amounts as a result of such change or amendment.
We will give notice of any redemption at least 30 days (but not more than 60 days) before the redemption
date to Holders of notes as described in “—Notices” below. We will give notice of any redemption to the Trustee
no later than 15 days (unless a shorter period is acceptable to the Trustee) prior to the date such notice is to be given
to the Holders of the notes. This notice, once delivered by us to the Trustee, will be irrevocable.
Following any merger or other transaction described and permitted under “—Limitation on Merger,
Consolidation and Sale of Assets” below, in which the Company or the Surviving Entity is organized under the laws
of a Permitted Jurisdiction other than Mexico, all references to Mexico, Mexican law or regulations, and Mexican
political subdivisions or taxing authorities under this “—Optional Redemption Upon Tax Event” section will be
deemed also to include such other Permitted Jurisdiction, such other Permitted Jurisdiction’s law or regulations, and
137
any taxing authority of such other Permitted Jurisdiction or any political subdivision therein or thereof, respectively;
provided, that for this purpose, the above reference to an amendment to or change of laws, rules or regulations
occurring “on or after the date of this offering memorandum” shall instead be deemed to refer only to such
amendments or changes occurring after the effective date of such merger or other transaction, and the above
reference to “a Mexican withholding tax rate of 4.9%” shall instead refer to the applicable withholding rate of such
other Permitted Jurisdiction as of the effective date of such merger or other transaction.
Optional Redemption Procedures
In the event that less than all of the notes are to be redeemed at any time, selection of notes for redemption
will be made by the Trustee in compliance with the requirements governing redemptions of the principal securities
exchange, if any, on which the notes are listed or if such securities exchange has no requirement governing
redemption or the notes are not then listed on a securities exchange, by any method as may be required by DTC in
accordance with its applicable procedures. No notes of a principal amount of US$200,000 or less may be redeemed
in part, and notes of a principal amount in excess of US$200,000 may be redeemed in part in multiples of US$1,000
only.
We will give notice of any redemption at least 30 days (but not more than 60 days) before the redemption
date to Holders of notes as described in “—Notices” below. If notes are to be redeemed in part only, the notice of
redemption will state the portion of the principal amount thereof to be redeemed. For so long as the notes are listed
on the Official List of the Luxembourg Stock Exchange for trading on the Euro MTF Market and the rules of the
exchange require, the Company will cause notices of redemption to also be published as described in “—Notices”
below. We will give notice of any redemption to the Trustee no later than 15 days (unless a shorter period is
acceptable to the Trustee) prior to the date such notice is to be given to the Holders of the notes. This notice, once
delivered by us to the Trustee, will be irrevocable, but may, at the Company’s discretion, be subject to one or more
conditions precedent, including the completion of any related Eligible Equity Offering. A new note in a principal
amount equal to the unredeemed portion thereof, if any, will be issued in the name of the Holder thereof upon
cancellation of the original note (or appropriate adjustments to the amount and beneficial interests in a global note
will be made, as appropriate).
Notes called for redemption will become due on the date fixed for redemption. The Company will pay the
redemption price for any note together with accrued and unpaid interest thereon to, but excluding, the date of
redemption. On and after the redemption date, interest will cease to accrue on notes or portions thereof called for
redemption as long as the Company has deposited with the paying agent funds in satisfaction of the applicable
redemption price pursuant to the Indenture. Upon redemption of any notes by the Company, such redeemed notes
will be cancelled.
Change of Control
Upon the occurrence of a Change of Control that results in a Ratings Decline (the “Change of Control
Event”), each Holder will have the right to require that the Company purchase all or a portion (in integral multiples
of US$1,000, provided that the principal amount of such Holder’s note will not be less than US$200,000) of the
Holder’s notes at a purchase price equal to 101% of the principal amount thereof, plus any accrued and unpaid
interest thereon through the purchase date (the “Change of Control Payment”).
Within 30 days following the date upon which the Change of Control Event occurs, the Company must
deliver a notice to each Holder, with a copy to the Trustee, offering to purchase the notes as described above (a
“Change of Control Offer”) and, for so long as the notes are listed on the Official List of the Luxembourg Stock
Exchange for trading on the Euro MTF Market and the rules of the exchange so require, publish such notice as
described in “—Notices” below. The Change of Control Offer will state, among other things, the purchase date,
which must be at least 30 days but not more than 60 days from the date the notice is given, other than as may be
required by law (the “Change of Control Payment Date”).
On the Business Day prior to the Change of Control Payment Date, the Company shall, to the extent lawful,
deposit with the Trustee or a paying agent funds in an amount equal to the Change of Control Payment in respect of
all notes or portions thereof so tendered.
138
On the Change of Control Payment Date, the Company will, to the extent lawful:
(1)
accept for payment all notes or portions thereof properly tendered and not withdrawn pursuant to
the Change of Control Offer; and
(2)
deliver or cause to be delivered to the Trustee the notes so accepted together with an Officers’
Certificate stating the aggregate principal amount of notes or portions thereof being purchased by
the Company.
If only a portion of a note is purchased pursuant to a Change of Control Offer, a new note in a principal
amount equal to the portion thereof not purchased will be issued in the name of the Holder thereof upon cancellation
of the original note (or appropriate adjustments to the amount and beneficial interests in a global note will be made,
as appropriate). Notes (or portions thereof) purchased pursuant to a Change of Control Offer will be cancelled and
cannot be reissued.
The Company will not be required to make a Change of Control Offer upon a Change of Control Event if a
third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases
all notes validly tendered and not withdrawn under such Change of Control Offer.
In the event that the holders of not less than 90% of the aggregate principal amount of the outstanding notes
accept a Change of Control Offer and the Company or a third party purchases all of the notes held by such holders,
the Company will have the right, on not less than 30 nor more than 60 days’ prior notice, given not more than
30 days following the purchase pursuant to the Change of Control Offer described above, to redeem all of the notes
that remain outstanding following such purchase at the purchase price equal to the Change of Control Payment plus,
to the extent not included in the Change of Control Payment, accrued and unpaid interest, if any, on the notes that
remain outstanding, to the date of redemption (subject to the right of holders on the relevant record date to receive
any interest due on the relevant interest payment date).
The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other
applicable securities laws and regulations in connection with the purchase of notes in connection with a Change of
Control Offer. To the extent that the provisions of any applicable securities laws or regulations conflict with the
Change of Control Event provisions of the Indenture, the Company will comply with such securities laws and
regulations and will not be deemed to have breached its obligations under the Indenture by doing so.
Other existing and future indebtedness of the Company may contain prohibitions on the occurrence of
events that would constitute a Change of Control or require that Indebtedness be purchased upon a Change of
Control. Moreover, the exercise by the Holders of their right to require the Company to repurchase the notes upon a
Change of Control Event may cause a default under such indebtedness even if the Change of Control Event itself
does not.
If a Change of Control Offer occurs, the Company may not have available funds sufficient to make the
Change of Control Payment for all the notes that might be delivered by Holders seeking to accept the Change of
Control Offer. In the event the Company is required to purchase outstanding notes pursuant to a Change of Control
Offer, the Company expects that it would seek third-party financing to the extent it does not have available funds to
meet its purchase obligations and any other obligations in respect of Senior Indebtedness. However, we cannot
assure you that the Company would be able to obtain necessary financing, and the terms of the Indenture may
restrict the ability of the Company to obtain such financing.
Holders will not be entitled to require the Company to purchase their notes in the event of a takeover,
recapitalization, leveraged buyout or similar transaction which is not a Change of Control Event.
Covenants in the Indenture restricting the ability of the Company and its Restricted Subsidiaries to incur
additional Indebtedness, to grant Liens on property, to make Restricted Payments and to make Asset Sales may also
make more difficult or discourage a takeover of the Company, whether favored or opposed by the management or its
Board of Directors. Consummation of any Asset Sale may, in certain circumstances, require redemption or
repurchase of the notes, and the Company or the acquiring party may not have sufficient financial resources to affect
such redemption or repurchase. In addition, restrictions on transactions with Affiliates may, in certain
circumstances, make more difficult or discourage any leveraged buyout of the Company or any of its Subsidiaries.
139
While these restrictions cover a wide variety of arrangements that have traditionally been used to effect highly
leveraged transactions, the Indenture may not afford the Holders protection in all circumstances from the adverse
aspects of a highly leveraged transaction, reorganization, restructuring, merger, recapitalization or similar
transaction.
One of the events that constitutes a Change of Control under the Indenture is the disposition of “all or
substantially all” of the Company’s assets under certain circumstances. This term varies based upon the facts and
circumstances of the subject transaction and has not been interpreted under New York State law (which is the
governing law of the Indenture) to represent a specific quantitative test. As a consequence, in certain circumstances
there may be uncertainty in ascertaining whether a particular transaction involved a disposition of “all or
substantially all” of the assets of a Person. In the event that Holders elect to require the Company to purchase the
notes and the Company contests such election, there can be no assurance as to how a court interpreting New York
State law would interpret the phrase under certain circumstances.
Covenants
Suspension of Covenants
During any period of time that (i) the notes have Investment Grade Ratings from at least two of the three
Rating Agencies and (ii) no Event of Default has occurred and is continuing (the occurrence of the events described
in the foregoing clauses (i) and (ii) being collectively referred to as a “Covenant Suspension Event”), the Company
and its Restricted Subsidiaries will not be subject to the provisions of the Indenture described under:

“—Covenants—Limitation on Incurrence of Additional Indebtedness”;

“—Covenants—Limitation on Restricted Payments”;

“—Covenants—Limitation on Asset Sales”;

“—Covenants—Limitation on Transactions with Affiliates”;

“—Covenants—Designation of Unrestricted Subsidiaries”;

“—Covenants—Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries”;

clause 1(A) and clause (2) of “—Covenants—Limitation on Sale and Leaseback Transactions”;

“—Covenants—Conduct of Business”; and

clause (b) of “—Covenants—Limitation on Merger, Consolidation and Sale of Assets”
(collectively, the “Suspended Covenants”).
In the event that the Company and its Restricted Subsidiaries are not subject to the Suspended Covenants
for any period of time as a result of the foregoing, and on any subsequent date (the “Reversion Date”) one of the
two Rating Agencies withdraws its Investment Grade Rating or downgrades its rating assigned to the notes below an
Investment Grade Rating, then the Company and its Restricted Subsidiaries will thereafter again be subject to the
Suspended Covenants. The period of time between the Suspension Date and the Reversion Date is referred to as the
“Suspension Period.” Notwithstanding that the Suspended Covenants may be reinstated, no Default or Event of
Default will be deemed to have occurred as a result of a failure to comply with the Suspended Covenants during the
Suspension Period (or upon termination of the Suspension Period or after that time based solely on events that
occurred during the Suspension Period).
On the Reversion Date, all Indebtedness incurred during the Suspension Period will be classified as having
been incurred pursuant to section (1) of “—Certain Covenants— Limitation on Incurrence of Additional
Indebtedness” below or one of the clauses set forth in section (2) of “—Certain Covenants— Limitation on
140
Incurrence of Additional Indebtedness” below (to the extent such Indebtedness would be permitted to be incurred
thereunder as of the Reversion Date and after giving effect to Indebtedness incurred prior to the Suspension Period
and outstanding on the Reversion Date). To the extent such Indebtedness would not be so permitted to be incurred
pursuant to sections (1) or (2) of “—Certain Covenants— Limitation on Incurrence of Additional Indebtedness,”
such Indebtedness will be deemed to have been outstanding on the Issue Date, so that it is classified as permitted
under clause (d) of section (2) of “—Certain Covenants— Limitation on Incurrence of Additional Indebtedness.”
Calculations made after the Reversion Date of the amount available to be made as Restricted Payments under “—
Certain Covenants—Limitation on Restricted Payments” will be made as though the covenant described under “—
Certain Covenants—Limitation on Restricted Payments” had been in effect prior to, but not during, the Suspension
Period.
The Company shall give the Trustee prompt written notice of any Covenant Suspension Event. In the
absence of such notice, the Trustee shall assume the Suspended Covenants apply and are in full force and effect.
The Company shall give the Trustee prompt written notice of any occurrence of a Reversion Date and in any event,
not later than 15 days after such Reversion Date. Upon receipt of such notice, the Trustee shall assume the
Suspended Covenants apply and are in full force and effect. In the absence of such notice, the Trustee shall assume
the Suspended Covenants continue to be suspended.
There can be no assurance that the notes will ever achieve or maintain Investment Grade Ratings.
Limitation on Incurrence of Additional Indebtedness
(1)
The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly
or indirectly, Incur any Indebtedness (including Acquired Indebtedness) except that the Company
and its Restricted Subsidiaries may Incur Indebtedness if, at the time of and immediately after
giving pro forma effect to the Incurrence thereof and the application of the net proceeds therefrom,
the Company’s Consolidated Fixed Charge Coverage Ratio is greater than or equal to 2.0 to 1.0.
(2)
Notwithstanding clause (1) above, the Company and its Restricted Subsidiaries, as applicable,
may, at any time, Incur the following Indebtedness (“Permitted Indebtedness”):
(a)
Indebtedness in respect of the notes (excluding Additional Notes);
(b)
Guarantees by any Restricted Subsidiary of Indebtedness of the Company or any other
Restricted Subsidiary, in each case permitted under the Indenture;
(c)
other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the
Issue Date;
(d)
Hedging Obligations entered into by the Company and its Restricted Subsidiaries for
bona fide hedging purposes and not for speculative purposes;
(e)
intercompany Indebtedness between or among the Company and any Restricted
Subsidiary or between or among any Restricted Subsidiaries; provided, however, that:
(f)
(1)
if the Company or any Subsidiary Guarantor is the obligor on such Indebtedness
and the obligee is a Person other than the Company or a Subsidiary Guarantor,
such Indebtedness must be expressly subordinated to the prior payment in full of
all obligations then due under the notes, in the case of the Company, or the
Subsidiary Guarantee, in the case of a Subsidiary Guarantor; and
(2)
in the event that at any time any such Indebtedness ceases to be held by the
Company or a Restricted Subsidiary, such Indebtedness will be deemed to be
Incurred by the Company or the relevant Restricted Subsidiary, as the case may
be, and not permitted by this clause (e) at the time such event occurs;
Indebtedness of the Company or any of its Restricted Subsidiaries arising from (1) the
honoring by a bank or other financial institution of a check, draft or similar instrument
(including daylight overdrafts paid in full by the close of business on the day such
141
overdraft was Incurred) drawn against insufficient funds in the ordinary course of
business; provided that such Indebtedness is extinguished within five Business Days of
Incurrence, or (2) any cash pooling or other cash management agreements in place with a
bank or financial institution but only to the extent of offsetting credit balances of the
Company or any of its Restricted Subsidiaries pursuant to such cash pooling or other cash
management agreement;
(g)
Indebtedness of the Company or any of its Restricted Subsidiaries represented by
bankers’ acceptances or letters of credit for the account of the Company or any Restricted
Subsidiary, as the case may be, in order to provide security for workers’ compensation
claims, payment obligations in connection with self-insurance or similar requirements in
the ordinary course of business;
(h)
Indebtedness consisting of letters of credit, bankers’ acceptances, deposits, promissory
notes, self-insurance obligations, performance bonds, appeal bonds, surety bonds, custom
bonds, bid bonds and other similar bonds, reimbursement obligations, completion
guarantees and Guarantees Incurred by the Company or any Restricted Subsidiary in the
ordinary course of business;
(i)
Indebtedness of the Company or any of its Restricted Subsidiaries to the extent the net
proceeds thereof are promptly used to redeem the notes in part or in full or deposited to
defease or discharge the notes or to make a Change of Control Offer, in each case in
accordance with the Indenture;
(j)
Refinancing Indebtedness in respect of:
(1)
Indebtedness (other than Indebtedness owed to the Company or any Subsidiary
of the Company) Incurred pursuant to clause (1) above (it being understood that
no Indebtedness outstanding on the Issue Date is Incurred pursuant to such
clause (1)); or
(2)
Indebtedness Incurred pursuant to clause (a), (b), (c), (i), (j), (l), (m) or (n) (in
each case, excluding Indebtedness owed to the Company or a Subsidiary of the
Company);
(k)
Indebtedness arising from agreements of the Company or a Restricted Subsidiary
providing for indemnification, adjustment of purchase price or similar obligations, or
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to such
agreements, in each case, incurred in connection with the disposition of any business,
assets or Subsidiary, other than Guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or Subsidiary for the purpose of
financing such acquisition; provided that the maximum aggregate liability in respect of
all such Indebtedness will at no time exceed the gross proceeds actually received by the
Company and the Restricted Subsidiary in connection with such disposition;
(l)
Indebtedness of Persons that are acquired by the Company or any of its
Restricted Subsidiaries or merged into the Company or a Restricted Subsidiary in
accordance with the terms of the Indenture; provided that such Indebtedness is not
Incurred in contemplation of such acquisition or merger or to provide all or a portion of
the funds or credit support required to consummate such acquisition or merger; and
provided, further, that after giving effect to such acquisition and the Incurrence of such
Indebtedness either:
(1)
the Company will be able to Incur at least US$1.00 of additional Indebtedness
pursuant to clause (1) above; or
142
(2)
(3)
(4)
the Company’s Consolidated Fixed Charge Coverage Ratio is not less than the
Company’s Consolidated Fixed Charge Coverage Ratio immediately prior to
such acquisition;
(m)
Capitalized Lease Obligations and Purchase Money Indebtedness of the Company or any
Restricted Subsidiary in an aggregate principal amount not to exceed the greater of
(1) US$25 million (or the equivalent in other currencies) and (2) 2.5% of Consolidated
Net Tangible Assets, at any one time outstanding;
(n)
Indebtedness Incurred by a Securitization Subsidiary in a Permitted Receivables
Financing;
(o)
in addition to Indebtedness referred to in clauses (a) through (n) above, Indebtedness of
the Company or any Restricted Subsidiary in an aggregate principal amount not to exceed
the greater of (1) US$100 million (or the equivalent in other currencies) and (2) 10% of
Consolidated Net Tangible Assets, at any one time outstanding.
For purposes of determining compliance with, and the outstanding principal amount of, any
particular Indebtedness Incurred pursuant to and in compliance with this covenant:
(a)
the outstanding principal amount of any item of Indebtedness will be counted only once;
(b)
in the event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (2) (a) through (o) above or is
entitled to be incurred pursuant to clause (1) above, the Company may, in its sole
discretion, divide and classify (or at any time reclassify) such item of Indebtedness in any
manner that complies with this covenant;
(c)
Indebtedness permitted by this covenant need not be permitted solely by reference to one
provision permitting such Indebtedness, but may be permitted in part by such provision
and in part by one or more other provisions of this covenant permitting such
Indebtedness;
(d)
the amount of Indebtedness issued at a price that is less than the principal amount thereof
will be equal to the amount of the liability in respect thereof determined in accordance
with IFRS;
(e)
Guarantees of, or obligations in respect of letters of credit or similar instruments relating
to, Indebtedness which is otherwise included in the determination of particular amount of
Indebtedness will not be included; and
(f)
the accrual of interest, the accretion or amortization of original issue discount, the
payment of regularly scheduled interest in the form of additional Indebtedness of the
same instrument or the payment of regularly scheduled dividends on Disqualified Capital
Stock in the form of additional Disqualified Capital Stock with the same terms will not be
deemed to be an Incurrence of Indebtedness for purposes of this covenant; provided that
any such outstanding additional Indebtedness or Disqualified Capital Stock paid in
respect of Indebtedness Incurred pursuant to any provision of clause (2) above will be
counted as Indebtedness outstanding thereunder for purposes of any future Incurrence
under such provision.
For purposes of determining compliance with any U.S. dollar-denominated restriction on the
Incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness
denominated in a non-U.S. currency will be calculated based on the relevant currency exchange
rate in effect on the date such Indebtedness was Incurred or, in the case of revolving credit
Indebtedness, first committed; provided that if such Indebtedness is Incurred to refinance other
Indebtedness denominated in a non-U.S. currency, and such refinancing would cause the
applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency
exchange rate in effect on the date of such refinancing, such U.S. dollar-denominated restriction
143
will be deemed not to have been exceeded so long as the principal amount of such Refinancing
Indebtedness does not exceed the principal amount of such Indebtedness being refinanced. The
principal amount of any Indebtedness Incurred to refinance other Indebtedness, if Incurred in a
different currency from the Indebtedness being refinanced, will be calculated based on the
currency exchange rate applicable to the currencies in which such Refinancing Indebtedness is
denominated that is in effect on the date of such refinancing.
Limitation on Restricted Payments
The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, take any of the following actions (each, a “Restricted Payment”):
(a)
(b)
declare or pay any dividend or return of capital or make any distribution on or in respect of shares
of Capital Stock of the Company or any Restricted Subsidiary to holders of such Capital Stock,
other than:

dividends or distributions payable in Qualified Capital Stock of the Company;

dividends or distributions payable to the Company and/or a Restricted Subsidiary; or

dividends, distributions or returns of capital made on a pro rata basis to the Company and its
Restricted Subsidiaries, on the one hand, and minority holders of Capital Stock of a Restricted
Subsidiary, on the other hand (or on a less than pro rata basis to any minority holder);
purchase, redeem or otherwise acquire or retire for value:

any Capital Stock of the Company; or

any Capital Stock of any Restricted Subsidiary held by an Affiliate of the Company or any
Preferred Stock of a Restricted Subsidiary, except for Capital Stock held by the Company or a
Restricted Subsidiary or purchases, redemptions, acquisitions or retirements for value of
Capital Stock on a pro rata basis from the Company and/or any Restricted Subsidiaries, on
the one hand, and minority holders of Capital Stock of a Restricted Subsidiary, on the other
hand;
(c)
make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire
or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled
sinking fund payment, as the case may be, any Subordinated Indebtedness, except for the principal
payment, purchase, defeasance, redemption, prepayment or other acquisition of such Subordinated
Indebtedness (1) from the Company or any of its Restricted Subsidiaries or (2) made in
anticipation of satisfying a sinking fund obligation, a principal installment or a final maturity, in
each case due within one year from the date of such principal payment, purchase, defeasance,
redemption prepayment or other acquisition; or
(d)
make any Investment (other than Permitted Investments),
if at the time of the Restricted Payment and immediately after giving pro forma effect thereto:
(1)
an Event of Default has occurred and is continuing;
(2)
the Company is not able to Incur at least US$1.00 of additional Indebtedness pursuant to
paragraph (1) of “—Limitation on Incurrence of Additional Indebtedness”; or
(3)
the aggregate amount (the amount expended for these purposes, if other than in cash,
being the Fair Market Value of the relevant property) of the proposed Restricted Payment
and all other Restricted Payments made subsequent to the Issue Date up to the date
thereof will exceed the sum of:
144
(A)
50% of cumulative Consolidated Net Income of the Company or, if such
cumulative Consolidated Net Income of the Company is a loss, minus 100% of
the loss, accrued during the period, treated as one accounting period, beginning
on January 1, 2014 and ending on the last day of the most recent fiscal quarter
for which consolidated financial information of the Company is available; plus
(B)
100% of the aggregate net cash proceeds received (or deemed received pursuant
to the third bullet below) by the Company from any Person:

from any contribution to the Capital Stock of the Company not representing
an interest in Disqualified Capital Stock or issuance and sale of Qualified
Capital Stock of the Company, in each case subsequent to the Issue Date; or

from any Indebtedness of the Company or its Restricted Subsidiaries issued
subsequent to the Issue Date that is reduced on the Company’s balance
sheet upon the conversion or exchange of any Indebtedness for borrowed
money of the Company or any Restricted Subsidiary for Qualified Capital
Stock of the Company (less the amount of any cash, or the Fair Market
Value of any other property, distributed by the Company upon such
conversion or exchange); or

upon the sale, liquidation or repayment of any Investment or, in the case of
a Guarantee, the amount of the Guarantee upon the unconditional release of
the Company and its Restricted Subsidiaries in full, less any payments
previously made by the Company or any Restricted Subsidiary in respect of
such Guarantee,
excluding, in each case, any net cash proceeds:
(x)
received from a Subsidiary of the Company;
(y)
used to acquire Capital Stock or other assets from an Affiliate
of the Company; or
(z)
applied in accordance with clause (5) or (6) of the second
paragraph of this covenant; plus
(C)
The Fair Market Value of any investment in an Unrestricted Subsidiary that is
sold for cash; plus
(D)
in the case of a Revocation of the Designation of an Unrestricted Subsidiary, an
amount equal to the greater of:
(E)
(i)
the portion of the Fair Market Value of the net assets of such
Unrestricted Subsidiary that is proportionate to the Company’s equity
interest in such Unrestricted Subsidiary, in each case at the time of such
Revocation; and
(ii)
the Designation Amount with respect to such Unrestricted Subsidiary
upon its Designation.
in the event that the Company or any of its Restricted Subsidiaries makes an
Investment in a Person that, as a result of or in connection with such Investment,
becomes a Restricted Subsidiary of the Company, an amount equal to the
Company’s or such Restricted Subsidiary’s existing Investment in such Person;
provided that any amount added pursuant to this clause (E) shall not exceed the
amount of such Investment previously made and treated as a Restricted Payment
and not previously added pursuant to this clause (3).
145
Notwithstanding the preceding paragraph, this covenant does not prohibit:
(1)
the granting of loans and advances to employees in an aggregate principal amount not to
exceed US$5.0 million (or the equivalent in other currencies) at any one time
outstanding;
(2)
the payment of any dividend within 60 days after the date of declaration of such dividend
if the dividend would have been permitted on the date of declaration pursuant to the
preceding paragraph;
(3)
the acquisition of any shares of Capital Stock of the Company,
(4)
(x)
in exchange for Qualified Capital Stock of the Company; or
(y)
through the application of the net cash proceeds received by the Company from
a substantially concurrent sale of Qualified Capital Stock of the Company or a
contribution to the equity capital of the Company not representing an interest in
Disqualified Capital Stock, in each case not received from a Subsidiary of the
Company;
the voluntary prepayment, purchase, defeasance, redemption or other acquisition or
retirement for value of any Subordinated Indebtedness solely in exchange for, or through
the application of net cash proceeds of a substantially concurrent sale, other than to a
Subsidiary of the Company, of:
(x) Qualified Capital Stock of the Company; or
(y) Refinancing Indebtedness for such Subordinated Indebtedness;
(5)
the repurchase of any Subordinated Indebtedness at a purchase price not greater than (x)
101% of the principal amount thereof in the event of a change of controlpursuant to a
provision no more favorable to the holders thereof than “Change of Control” or (y) 100%
of the principal amount thereof in the event of an Asset Sale pursuant to a provision no
more favorable to the holders thereof than “Covenants—Limitation on Asset Sales,”
provided that, in each case, prior to the repurchase, the Company has made an Offer to
Purchase and repurchased all notes issued under the indenture that were validly tendered
for payment in connection with the offer to purchase;
(6)
repurchases of Capital Stock deemed to occur upon the exercise of stock options or
warrants if the Capital Stock represent all or a portion of the exercise price thereof (or
related withholding taxes), and Restricted Payments by the Company to allow the
payment of cash in lieu of the issuance of fractional shares upon the exercise of options
or warrants or upon the conversion or exchange of Capital Stock of the Company;
(7)
if no Event of Default (other than solely pursuant to clause (3) thereof) has occurred and
is continuing, the declaration and payment of dividends or distributions to holders of any
class or series of Disqualified Capital Stock of the Company issued or Incurred in
accordance with the covenant described under “—Limitation on Incurrence of Additional
Indebtedness” to the extent such payments are included in “Consolidated Fixed Charges”;
(8)
repurchases by the Company of Capital Stock of the Company or options, warrants or
other securities exercisable or convertible into Capital Stock of the Company from
employees or directors of the Company or any of its Subsidiaries or their authorized
representatives upon the death, disability or termination of employment or directorship of
the employees or directors, in an amount not to exceed US$2.5 million (or the equivalent
in other currencies) in any calendar year and US$5 million (or the equivalent in other
currencies) in the aggregate; provided that the amounts in any calendar year may be
increased by an amount not to exceed (x) the cash proceeds received by the Company or
its Subsidiaries from the sale of Capital Stock of the Company to any present or former
146
employees, directors, officers or consultants (or their respective permitted transferees) of
the Company or any of its Subsidiaries; and
(9)
if no Event of Default has occurred and is continuing or would exist after giving pro
forma effect thereto, other Restricted Payments in an amount of up to US$30.0 million
(or the equivalent in other currencies).
In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date, amounts
expended pursuant to clauses (2) (without duplication for the declaration of the relevant dividend) and (8) above will
be included in such calculation and amounts expended pursuant to clauses (1), (3), (4), (5), (6), (7) and (9) above
will not be included in such calculation.
The amount of any Restricted Payments not in cash will be the Fair Market Value on the date of such
Restricted Payment of the property, assets or securities proposed to be paid, transferred or issued by the Company or
the relevant Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment.
Limitation on Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale
unless:
(a)
the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time
of the Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed
of; and
(b)
at least 75% of the consideration received for the assets sold by the Company or the Restricted
Subsidiary, as the case may be, in the Asset Sale is in the form of (1) cash or Cash Equivalents;
(2) assets (other than current assets as determined in accordance with IFRS or Capital Stock) to be
used by the Company or any Restricted Subsidiary in a Permitted Business; (3) Capital Stock in a
Person principally engaged in a Permitted Business that will become a Restricted Subsidiary as a
result of such Asset Sale or (4) a combination of cash, Cash Equivalents, such assets and such
Capital Stock.
Solely for the purposes of this covenant, the following are deemed to be cash or Cash Equivalents: (x) the
assumption of Indebtedness of the Company or any Restricted Subsidiary by any Person and the release of the
Company or such Restricted Subsidiary from any liability in connection with the Asset Sale; and (y) any securities
received by the Company or any Restricted Subsidiary that are promptly converted by the Company or any
Restricted Subsidiary into cash or Cash Equivalents.
The Company or such Restricted Subsidiary, as the case may be, may apply the Net Cash Proceeds of any
such Asset Sale within 365 days thereof to:
(1)
repay, prepay or purchase any Senior Indebtedness of the Company or any Restricted Subsidiaries,
in each case for borrowed money or constituting a Capitalized Lease Obligation and permanently
reduce the commitments with respect thereto without Refinancing; or
(2)
purchase (or enter into a binding agreement to purchase; provided that such purchase is
consummated within 90 days after the date that is 365 days after such Asset Sale):
(3)
(A)
assets (other than current assets as determined in accordance with IFRS or Capital Stock)
to be used by the Company or any Restricted Subsidiary in a Permitted Business; or
(B)
Capital Stock of a Person principally engaged in a Permitted Business that will become,
upon purchase, a Restricted Subsidiary, from a Person other than the Company and its
Restricted Subsidiaries; or
make capital expenditures (including refurbishments) to be used by the Company or any
Restricted Subsidiary in a Permitted Business.
147
To the extent all or a portion of the Net Cash Proceeds of any Asset Sale are not applied within the
365 days of the Asset Sale as described in clause (1), (2) or (3) of the immediately preceding paragraph (or, if a
binding agreement has been entered into as set forth in clause (2) of such paragraph, the date of the expiration of the
90-day period set forth in such clause (2)), the Company will make an offer to purchase notes (the “Asset Sale
Offer”), at a purchase price equal to 100% of the principal amount of the notes to be purchased, plus any accrued
and unpaid interest thereon, to the purchase date (the “Asset Sale Offer Amount”). The Company will purchase
pursuant to an Asset Sale Offer from all tendering Holders on a pro rata basis, and, at the Company’s option, on a
pro rata basis with the holders of any other Senior Indebtedness with similar provisions requiring the Company to
offer to purchase the other Senior Indebtedness with the proceeds of Asset Sales, that principal amount (or accreted
value in the case of Indebtedness issued with original issue discount) of notes and the other Senior Indebtedness to
be purchased equal to such unapplied Net Cash Proceeds. The Company may satisfy its obligations under this
covenant with respect to the Net Cash Proceeds of an Asset Sale by making an Asset Sale Offer prior to the
expiration of the relevant 365-day period.
The purchase of notes pursuant to an Asset Sale Offer will occur not less than 20 Business Days following
the date of the related Asset Sale, or any longer period as may be required by applicable law or regulation, nor more
than 60 days following the 365th day following the Asset Sale (or, if a binding agreement has been entered into as set
forth in clause (2) of the third paragraph of this covenant, not more than 60 days following the date of the expiration
of the 90-day period set forth in such clause (2)). The Company may, however, defer an Asset Sale Offer until there
is an aggregate amount of unapplied Net Cash Proceeds from one or more Asset Sales equal to or in excess of
US$25 million (or the equivalent in other currencies). At that time, the entire amount of unapplied Net Cash
Proceeds, and not just the amount in excess of US$25 million (or the equivalent in other currencies), will be applied
as required pursuant to this covenant.
Each notice of an Asset Sale Offer will be given to the record Holders as shown on the register of Holders
no later than 20 days following such 365th day (or, if a binding agreement has been entered into as set forth in
clause (2) of third paragraph of this covenant, within 20 days following the date of the expiration of the 90-day
period set forth in such clause (2)), with a copy to the Trustee offering to purchase the notes as described above.
Each notice of an Asset Sale Offer will state, among other things, the purchase date, which must be at least 30 days
and not more than 60 days from the date the notice is given, other than as may be required by law (the “Asset Sale
Offer Payment Date”). Upon receiving notice of an Asset Sale Offer, Holders may elect to tender their notes in
whole or in part in integral multiples of US$1,000 in exchange for cash; provided that the principal amount of such
tendering Holder’s note will not be less than US$200,000.
On the Business Day prior to the Asset Sale Offer Payment Date, the Company shall, to the extent lawful,
deposit with the Trustee or a paying agent funds in an amount equal to the Asset Sale Offer Amount in respect of all
notes or portions thereof so tendered.
On the Asset Sale Offer Payment Date, the Company will, to the extent lawful:
(1)
accept for payment all notes or portions thereof properly tendered pursuant to the Asset Sale
Offer; and
(2)
deliver or cause to be delivered to the Trustee the notes so accepted together with an Officers’
Certificate stating the aggregate principal amount of notes or portions thereof being purchased by
the Company.
To the extent that Holders of notes and holders of other Senior Indebtedness, if any, which are the subject
of an Asset Sale Offer properly tender and do not withdraw notes or the other Senior Indebtedness in an aggregate
amount exceeding the amount of unapplied Net Cash Proceeds, the Company will purchase the notes and the other
Senior Indebtedness on a pro rata basis (based on amounts tendered). If only a portion of a note is purchased
pursuant to an Asset Sale Offer, a new note in a principal amount equal to the portion thereof not purchased will be
issued in the name of the Holder thereof upon cancellation of the original note (or appropriate adjustments to the
amount and beneficial interests in a global note will be made, as appropriate). Notes (or portions thereof) purchased
pursuant to an Asset Sale Offer will be cancelled and cannot be reissued.
Upon completion of an Asset Sale Offer, the amount of Net Cash Proceeds will be reset at zero.
Accordingly, to the extent that the aggregate amount of notes and other Senior Indebtedness tendered pursuant to an
148
Asset Sale Offer is less than the aggregate amount of unapplied Net Cash Proceeds, the Company may use any
remaining Net Cash Proceeds for any corporate purposes of the Company and its Restricted Subsidiaries to the
extent permitted by the Indenture.
In the event of the transfer of substantially all (but not all) of the property and assets of the Company and
its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under “—Limitation on Merger,
Consolidation and Sale of Assets,” the Surviving Entity will be deemed to have sold the properties and assets of the
Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and will comply with the
provisions of this covenant with respect to the deemed sale as if it were an Asset Sale. In addition, the Fair Market
Value of properties and assets of the Company or its Restricted Subsidiaries so deemed to be sold will be deemed to
be Net Cash Proceeds for purposes of this covenant.
If at any time any non-cash consideration received by the Company or any Restricted Subsidiary, as the
case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any non-cash consideration), the conversion or disposition will be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof will be applied in accordance with this
covenant within 365 days of conversion or disposition.
The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other
applicable securities laws in connection with the purchase of notes pursuant to an Asset Sale Offer. To the extent
that the provisions of any applicable securities laws or regulations conflict with the “Asset Sale” provisions of the
Indenture, the Company will comply with these laws and regulations and will not be deemed to have breached its
obligations under the “Asset Sale” provisions of the Indenture by doing so.
Limitation on Designation of Unrestricted Subsidiaries
The Company may designate after the Issue Date any Subsidiary of the Company as an “Unrestricted
Subsidiary” under the Indenture (a “Designation”) only if:
(1)
no Default or Event of Default has occurred and is continuing at the time of or after giving effect
to such Designation and any transactions between the Company or any of its Restricted
Subsidiaries and such Unrestricted Subsidiary are in compliance with “—Limitation on
Transactions with Affiliates”;
(2)
at the time of and after giving effect to such Designation, the Company could Incur US$1.00 of
additional Indebtedness pursuant to clause (1) of “—Limitation on Incurrence of Additional
Indebtedness”; and
(3)
the Company would be permitted to make an Investment at the time of Designation (assuming the
effectiveness of such Designation and treating such Designation as an Investment at the time of
Designation) as a Restricted Payment pursuant to the first paragraph of “—Limitation on
Restricted Payments” in an amount (the “Designation Amount”) equal to the amount of the
Company’s Investment in such Subsidiary on such date.
The Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a “Revocation”)
only if:
(1)
no Event of Default has occurred and is continuing at the time of and after giving effect to such
Revocation; and
(2)
all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following
such Revocation would, if Incurred at such time, have been permitted to be Incurred for all
purposes of the Indenture.
The Designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be deemed to include
the Designation of all of the Subsidiaries of such Subsidiary. All Designations and Revocations must be evidenced
by Board Resolutions of the Company’s Board of Directors and an Officers’ Certificate delivered to the Trustee
certifying compliance with the preceding provisions.
149
Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
(a)
(b)
Except as provided in paragraph (b) below, the Company will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1)
pay dividends or make any other distributions on or in respect of its Capital Stock to the
Company or any other Restricted Subsidiary or pay any Indebtedness owed to the
Company or any other Restricted Subsidiary;
(2)
make loans or advances to, or Guarantee any Indebtedness or other obligations of, or
make any Investment in, the Company or any other Restricted Subsidiary; or
(3)
transfer any of its property or assets to the Company or any other Restricted Subsidiary.
Paragraph (a) above of this covenant will not apply to encumbrances or restrictions existing under
or by reason of:
(1)
applicable law or governmental rule, regulation or order;
(2)
the Indenture, the notes and the Subsidiary Guarantees;
(3)
the terms of any Indebtedness outstanding on the Issue Date, and any amendments or
restatements thereof; provided that any amendment or restatement is not materially more
restrictive with respect to such encumbrances or restrictions than those in existence on
the Issue Date;
(4)
the terms of any shareholder agreement with respect to ELC Tenedora Cementos,
S.A.P.I. de C.V. relating to its Capital Stock or assets in effect on the Issue Date, and any
amendments or restatements thereof; provided that any amendment or restatement is not
materially more restrictive with respect to such encumbrance or restrictions than those in
existence on the Issue Date;
(5)
any agreement governing Acquired Indebtedness, not incurred in connection with, or in
anticipation or contemplation of, the relevant acquisition, merger or consolidation, which
encumbrance or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person or the properties or assets of the Person so acquired;
(6)
restrictions on the transfer of assets subject to any Permitted Lien;
(7)
customary provisions restricting the ability of any Restricted Subsidiary to undertake any
action described in clauses (a)(1) through (a)(3) above in joint venture agreements, asset
sale agreements, stock sale agreements and other similar agreements entered into in the
ordinary course of business and with the approval of the Company’s Board of Directors;
(8)
restrictions in other Indebtedness incurred by a Restricted Subsidiary of the Company in
compliance with the covenant described under “—Limitation on Incurrence of Additional
Indebtedness”; provided that such restrictions are not materially more restrictive with
respect to such encumbrances and restrictions than those applicable to Restricted
Subsidiaries in agreements related to Indebtedness referenced in clause (2) above;
(9)
customary restrictions on cash or other deposits imposed by customers under contracts or
other arrangements entered into or agreed to in the ordinary course of business;
(10)
customary non-assignment provisions of any license agreement or other contract and
customary provisions restricting assignment or subletting in any lease governing a
leasehold interest of any Restricted Subsidiary, or any customary restriction on the ability
of a Restricted Subsidiary to dividend, distribute or otherwise transfer any asset that is
150
subject to a Lien that secures Indebtedness, in each case permitted to be Incurred under
the Indenture;
(11)
restrictions with respect to a Restricted Subsidiary of the Company imposed pursuant to a
binding agreement which has been entered into for the sale or disposition of Capital
Stock or assets of such Restricted Subsidiary; provided that such restrictions apply solely
to the Capital Stock or assets of such Restricted Subsidiary being sold;
(12)
customary restrictions imposed on the transfer of copyrighted or patented materials;
(13)
Purchase Money Indebtedness for property or assets acquired in the ordinary course of
business and Capitalized Lease Obligations permitted under the Indenture on the property
or assets so acquired that impose encumbrances and restrictions only on the property or
assets so acquired or subject to lease;
(14)
customary restrictions pursuant to any Permitted Receivables Financing;
(15)
mortgages, pledges or other security agreements permitted under the Indenture securing
Indebtedness of the Company or any of its Restricted Subsidiaries to the extent such
encumbrances or restrictions restrict the transfer of the property subject to such
mortgages, pledges or other security agreements;
(16)
encumbrances or restrictions arising or agreed to in the ordinary course of business, not
relating to Indebtedness, and that do not, individually or in the aggregate, detract from the
value of the property or assets of the Company or any of its Restricted Subsidiaries in any
manner material to the Company and its Restricted Subsidiaries taken as a whole
(17)
Liens that secure Indebtedness otherwise permitted to be Incurred under the provisions of
the covenant described under “—Limitation on Liens” and that limit the right of the
debtor to dispose of the assets subject to such Liens;
(18)
standard loan documentation in connection with loans from any international or
multilateral development bank, government-sponsored agency, export-import bank or
official export-import credit insurer; and
(19)
any Indebtedness or contractual requirements Incurred with respect to a Permitted
Receivables Financing relating exclusively to a Securitization Subsidiary that, in the good
faith determination of the Company, are necessary to effect such Permitted Receivables
Financing;
(20)
an agreement covering Indebtedness Incurred to Refinance the Indebtedness issued,
assumed or Incurred pursuant to an agreement referred to in clauses (1) to (19) of this
paragraph (b); provided that such Refinancing agreement is not materially more
restrictive with respect to such encumbrances or restrictions than those contained in the
agreement referred to in such clauses (1) to (19).
Limitation on Liens
The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, Incur any Liens of any kind (except for Permitted Liens) against or upon any of their respective properties
or assets, whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, to secure any
Indebtedness, unless contemporaneously therewith effective provision is made to secure the notes, any Subsidiary
Guarantees and all other amounts due under the Indenture equally and ratably with such Indebtedness or other
obligation (or, in the event that such Indebtedness is subordinated in right of payment to the notes or any Subsidiary
Guarantee prior to such Indebtedness or other obligation) with a Lien on the same properties and assets securing
such Indebtedness or other obligation for so long as such Indebtedness or other obligation is secured by such Lien.
151
Limitation on Sale and Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback
Transaction with respect to any property or asset unless:
(1)
the Company or the Restricted Subsidiary would be entitled to
(A)
Incur Indebtedness in an amount equal to the Attributable Indebtedness with repect to
such Sale and Leaseback Transaction pursuant to the covenant described under the caption “—Limitation
on Incurrence of Additional Indebtedness”, and
(B)
Create a Lien on such property or asset securing such Attributable Indebtedness without
equally and ratably securing the notes pursuant to the covenant described under the caption “—Limitation
on Liens”,
in which case, the corresponding Indebtedness and Lien will be deemed incurred pursuant to those provisions, and
(2)
The Company complies with the fourth and fifth paragraphs of the covenant described under the
caption “Limitation on Asset Sales” in respect of such transaction.
Limitation on Merger, Consolidation and Sale of Assets
The Company will not, in a single transaction or series of related transactions, consolidate or merge with or
into any Person (whether or not the Company is the surviving or continuing Person), or sell, assign, transfer, lease,
convey or otherwise dispose of (or cause or permit any Restricted Subsidiary to sell, assign, transfer, lease, convey
or otherwise dispose of) all or substantially all of the Company’s properties and assets (determined on a consolidated
basis for the Company and its Restricted Subsidiaries), to any Person unless:
(a)
(b)
either:
(1)
the Company is the surviving or continuing corporation; or
(2)
the Person (if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of the Company and of the
Company’s Restricted Subsidiaries substantially as an entirety (the “Surviving Entity”):
(A)
is a corporation organized and validly existing under the laws of Mexico, the
United States of America, any State thereof or the District of Columbia or any
other OECD member country (each such country, a “Permitted Jurisdiction”);
and
(B)
expressly assumes, by supplemental indenture (in form and substance
satisfactory to the Trustee), executed and delivered to the Trustee, the due and
punctual payment of the principal of, and premium, if any, and interest on all of
the notes and the performance and observance of the covenants of the notes and
the Indenture on the part of the Company to be performed or observed;
immediately after giving effect to such transaction and the assumption contemplated by
clause (a)(2)(B) above (including giving effect on a pro forma basis to any Indebtedness
(including any Acquired Indebtedness) Incurred or anticipated to be Incurred in connection with or
in respect of such transaction), the Company or such Surviving Entity, as the case may be, will
either:
(1)
be able to Incur at least US$1.00 of additional Indebtedness pursuant to clause (1) of “—
Limitation on Incurrence of Additional Indebtedness”; or
152
(2)
have a Consolidated Fixed Charge Coverage Ratio of not less than the Consolidated
Fixed Charge Coverage Ratio of the Company and its Restricted Subsidiaries
immediately prior to such transaction;
(c)
immediately before and immediately after giving effect to such transaction and the assumption
contemplated by clause (a)(2)(B) above (including, without limitation, giving effect on a pro
forma basis to any Indebtedness (including any Acquired Indebtedness) Incurred or anticipated to
be Incurred and any Lien granted in connection with or in respect of the transaction), no Event of
Default has occurred or is continuing;
(d)
any Subsidiary Guarantor (including Persons that are required to provide Subsidiary Guarantees as
a result of the transaction) has confirmed by supplemental indenture that its Subsidiary Guarantee
will apply for the Obligations of the Surviving Entity in respect of the Indenture and the notes;
(e)
if the Company is organized under the laws of a Permitted Jurisdiction or any political subdivision
thereof or therein, and (i) the Company merges with a corporation organized under the laws of
any other Permitted Jurisdiction or any political subdivision thereof or therein, or (ii) the
Surviving Entity is organized under the laws of any other Permitted Jurisdiction or any political
subdivision thereof or therein, then the Company or the Surviving Entity will have delivered to the
Trustee an Opinion of Counsel from each such Permitted Jurisdiction to the effect that, as
applicable:
(f)
(1)
the Holders of the notes will not recognize income, gain or loss for purposes of the
income tax of either Permitted Jurisdiction as a result of the transaction and will be taxed
in the Holder’s home jurisdiction in the same manner and on the same amounts
(assuming solely for this purpose that no Additional Amounts are required to be paid on
the notes) and at the same times as would have been the case if the transaction had not
occurred;
(2)
any payment of interest or principal under or relating to the notes or any Subsidiary
Guarantee will be paid in compliance with any requirements under the section “—
Additional Amounts”; and
(3)
no other taxes on income, including capital gains, will be payable by Holders of the notes
under the laws of either Permitted Jurisdiction relating to the acquisition, ownership or
disposition of the notes, including the receipt of interest or principal thereon; provided
that the Holder is not a tax resident of either Permitted Jurisdiction, as applicable, and
does not use or hold, and is not deemed to use or hold the notes in carrying on a business
in either Permitted Jurisdiction, as applicable;
and
the Company or the Surviving Entity has delivered to the Trustee an Officers’ Certificate and an
Opinion of Counsel, each stating that the consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if required in connection with such transaction, the
supplemental indenture, comply with the applicable provisions of the Indenture and that all
conditions precedent in the Indenture relating to the transaction have been satisfied.
For purposes of this covenant, the transfer (by lease, assignment, sale or otherwise, in a single transaction
or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries
of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the
Company (determined on a consolidated basis for the Company and its Restricted Subsidiaries), will be deemed to
be the transfer of all or substantially all of the properties and assets of the Company.
The provisions of clause (b) above will not apply to:
(1)
any transfer of the properties or assets of a Restricted Subsidiary to the Company or to another
Restricted Subsidiary;
(2)
any merger of a Restricted Subsidiary into the Company or another Restricted Subsidiary; or
153
(3)
any merger of the Company into an Affiliate of the Company incorporated solely for the purpose
of reincorporating the Company in another jurisdiction,
so long as, in each case, the Indebtedness of the Company and its Restricted Subsidiaries taken as a whole is not
increased thereby.
Upon any consolidation, combination or merger or any transfer of all or substantially all of the properties
and assets of the Company and its Restricted Subsidiaries in accordance with this covenant, in which the Company
is not the continuing Person, the Surviving Entity formed by such consolidation or into which the Company is
merged or to which such conveyance, lease or transfer is made will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture and the notes with the same effect as if such
Surviving Entity had been named as such. For the avoidance of doubt, compliance with this covenant will not affect
the obligations of the Company (including a Surviving Entity, if applicable) under “—Change of Control,” if
applicable.
Limitation on Transactions with Affiliates
(1)
(2)
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into any transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for
the benefit of, any of its Affiliates (each an “Affiliate Transaction”), unless:
(a)
the terms of such Affiliate Transaction are not materially less favorable than those that
could reasonably be expected to be obtained in a comparable transaction at such time on
an arm’s-length basis from a Person that is not an Affiliate of the Company;
(b)
in the event that such Affiliate Transaction involves aggregate payments, or transfers of
property or services with a Fair Market Value, in excess of US$10.0 million (or the
equivalent in other currencies), the terms of such Affiliate Transaction will be set forth in
an Officers’ Certificate delivered to the Trustee stating that such transaction complies
with clause (a) above;
(c)
equivalent in other currencies), the terms of such Affiliate Transaction will be approved
by a majority of the members of the Company’s Board of Directors (including a majority
of the disinterested members thereof), the approval to be evidenced by a Board
Resolution stating that the Board of Directors has determined that such transaction
complies with clause (a) above; and
(d)
equivalent in other currencies), the Company will, prior to the consummation thereof,
obtain a favorable opinion as to the fairness of such Affiliate Transaction to the Company
and any such Restricted Subsidiary, if any, from a financial point of view from an
Independent Financial Advisor and file the same with the Trustee.
Paragraph (1) above will not apply to:
(a)
Affiliate Transactions with or among the Company and any Restricted Subsidiary or
between or among Restricted Subsidiaries;
(b)
reasonable fees and compensation paid to, and any indemnity provided on behalf of,
officers, directors and employees of the Company or any Restricted Subsidiary as
determined in good faith by the Company’s Board of Directors;
(c)
Affiliate Transactions undertaken pursuant to the terms of any agreement or arrangement
to which the Company or any of its Restricted Subsidiaries is a party as of or on the Issue
Date, as these agreements or arrangements may be amended, modified, supplemented,
154
extended, renewed or replaced from time to time; provided that any future amendment,
modification, supplement, extension, renewal or replacement entered into after the Issue
Date will be permitted to the extent that its terms are not materially more
disadvantageous to the Holders of the notes as a whole than the terms of the agreements
or arrangements in effect on the Issue Date;
(d)
any Restricted Payments made in compliance with “—Limitation on Restricted
Payments”;
(e)
loans and advances to officers, directors and employees of the Company or any
Restricted Subsidiary in the ordinary course of business and not exceeding
US$5.0 million (or the equivalent in other currencies) outstanding at any one time;
(f)
any issuance or sale of Capital Stock;
(g)
sales of Accounts Receivable, or participations therein, or any related transaction, in
connection with any Permitted Receivables Financing;
(h)
any payment of fees to Grupo Carso, S.A.B. de C.V. and Grupo Empresarial Kaluz, S.A.
de C.V. pursuant to agreements in effect on the Issue Date, or any replacement or
amendment thereto, in accordance with past practice;
(i)
the entering into of a customary agreement providing registration rights to the
shareholders of the Company and the performance of such agreements;
(j)
any Permitted Investment permitted to be made pursuant to the Indenture
(k)
transactions or payments, including grants of securities, stock options and similar rights,
pursuant to any employee, officer or director compensation or benefit plans or
arrangements entered into in the ordinary course of business or approved by the
Company’s Board of Directors
(l)
any transaction between the Company and any of its Restricted Subsidiaries or between
Restricted Subsidiaries of the Company, and any Guarantee issued by the Company or
any of its Restricted Subsidiaries for the benefit of the Company or a Restricted
Subsidiary of the Company, as the case may be, in accordance with the covenant
described under “—Limitation on Incurrence of Additional Indebtedness”
(m)
transactions permitted by and complying with the provisions of the covenant described
under “—Limitation on Merger, Consolidation and Sale of Assets”;
(n)
transactions with customers, clients, suppliers or purchasers or sellers of goods or
services, in each case, in the ordinary course of business of the Company or any of its
Restricted Subsidiaries and otherwise in compliance with the terms of the Indenture;
provided the terms of such Affiliate Transaction are no less favorable than those that
could reasonably be expected to be obtained in a comparable transaction at such time on
an arm’s-length basis from a Person that is not an Affiliate of the Company; and
(o)
transactions or payments, including grants of securities, stock options and similar rights,
pursuant to any employee, officer or director compensation or benefit plans or
arrangements entered into in the ordinary course of business or approved by the
Company’s Board of Directors in good faith.
Conduct of Business
The Company and its Restricted Subsidiaries will not engage in any business other than a Permitted
Business.
155
Reports to Holders
The Company will provide the Trustee and, upon request, the Holders of the notes, with the following
reports:
(a)
an English language version in electronic format of our annual audited consolidated financial
statements prepared in accordance with IFRS promptly upon such financial statements becoming
available but not later than 120 days after the close of each fiscal year;
(b)
an English language version in electronic format of our unaudited quarterly financial statements
prepared in accordance with IFRS, promptly upon such financial statements becoming available
but not later than 60 days after the close of each fiscal quarter (other than the last fiscal quarter of
each fiscal year);
(c)
at any time after we have conducted an IPO, English language versions or summaries of any
publicly available submissions or filings made to any exchange on which our Capital Stock is
listed or which are submitted to or filed with any securities regulator of the Company, including
the SEC and the Mexican Comisión Nacional Bancaria y de Valores; provided, however, that we
shall not be required to furnish such information to the extent such information is available on our
website; and
(d)
so long as we are not subject to Section 13 or Section 15(d) of the Exchange Act and we are not
exempt from reporting pursuant to Rule 12g3-2(b) of the Exchange Act, upon request, to any
Holder and any prospective purchaser of the notes, the information required pursuant to
Rule 144A(d)(4) under the Securities Act.
Simultaneously with the delivery of each set of financial statements referred to in clause (a) above, the
Company will provide the Trustee with an Officers’ Certificate stating whether a Default or Event of Default
occurred during the fiscal year covered by such financial statements or exists on the date of such certificate and, if a
Default or Event of Default exists, setting forth the details thereof and the action which we are taking or propose to
take with respect thereto. Promptly following any of our directors or officers becoming aware of the existence of a
Default or Event of Default or any event by reason of which payments of either principal or interest on the notes are
prohibited, the Company will provide the Trustee with an Officers’ Certificate setting forth the details thereof and
the action we are taking or propose to take with respect thereto.
Delivery of the reports referred to in clauses (a), (b), (c) and (d) above to the Trustee is for informational
purposes only and the Trustee’s receipt of such reports will not constitute constructive notice of any information
contained therein or determinable from information contained therein, including our compliance with any covenant
in the Indenture (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates).
Notices
Notices to Holders of (a) non-global, definitive notes will be given to them by first-class mail, postage
prepaid, at their registered addresses set forth in the register maintained by the registrar and (b) global notes will be
given to them by delivery of such notices to DTC in accordance with its applicable procedures.
In addition, from and after the date the notes are listed on the Official List of the Luxembourg Stock
Exchange for trading on the Euro MTF Market and so long as it is required by the rules of such exchange, all notices
to Holders of the notes will be published in English:
(1)
in a leading newspaper having a general circulation in Luxembourg (which currently is expected to
be the Luxembourg Wort); or
(2)
if such Luxembourg publication is not practicable, in one other leading English language
newspaper being published on each day in morning editions, whether or not it will be published in
Saturday, Sunday or holiday editions.
Notices will be deemed to have been given on the date given or of publication as aforesaid or, if published
on different dates, on the date of the first such publication. In lieu of the foregoing, the Company may publish
156
notices to Holders via the website of the Luxembourg Stock Exchange at www.bourse.lu provided such method of
publication satisfies the rules of such exchange.
Events of Default
The following are “Events of Default” with respect to the notes:
(1)
default in the payment when due of the principal of or premium, if any, (including, in each case,
any related Additional Amounts) on any notes, including the failure to make a required payment to
purchase notes tendered pursuant to an optional redemption, Change of Control Offer or an Asset
Sale Offer;
(2)
default for 30 days or more in the payment when due of interest (including any related Additional
Amounts) on any notes;
(3)
the failure to perform or comply with any of the provisions described under “—Covenants—
Limitation on Merger, Consolidation and Sale of Assets,” which failure to perform or comply is
not remedied within the period of 30 days following such failure to perform or comply;
(4)
the failure by the Company or any Restricted Subsidiary to comply with any other covenant or
agreement contained in the Indenture or the notes for 60 days or more after written notice to the
Company from the Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the outstanding notes;
(5)
default by the Company or any Restricted Subsidiary under any Indebtedness which:
(a)
is caused by a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of any applicable grace period provided in such
Indebtedness on the date of such default; or
(b)
results in the acceleration of such Indebtedness prior to its Stated Maturity;
and the principal or accreted amount of Indebtedness covered by clause (a) or (b) at the relevant
time, aggregates US$30.0 million (or the equivalent in other currencies) or more;
(6)
failure by the Company or any of its Restricted Subsidiaries to pay one or more final judgments
against any of them, aggregating US$30.0 million (or the equivalent in other currencies) or more,
which are not paid, discharged or stayed for a period of 60 days or more (to the extent not covered
by a reputable and creditworthy insurance company that has acknowledged liability therefor in
writing);
(7)
certain events of bankruptcy affecting the Company or any of its Significant Subsidiaries that are
Restricted Subsidiaries; or
(8)
except as permitted by the Indenture, any Subsidiary Guarantee is held to be unenforceable or
invalid in a judicial proceeding or ceases for any reason to be in full force and effect or any
Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary Guarantee.
If an Event of Default (other than an Event of Default specified in clause (7) above with respect to the
Company) has occurred and is continuing, the Trustee or the Holders of at least 25% in principal amount of
outstanding notes may declare the unpaid principal of and premium, if any, and accrued and unpaid interest on all
the notes to be immediately due and payable by notice in writing to the Company (and the Trustee, if given by the
Holders) specifying the Event of Default and that it is a “notice of acceleration.” If an Event of Default specified in
clause (7) above occurs with respect to the Company, then the unpaid principal of and premium, if any, and accrued
and unpaid interest on all the notes will become immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
157
At any time after a declaration of acceleration with respect to the notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the outstanding notes may rescind and cancel such
declaration and its consequences:
(1)
if the rescission would not conflict with any judgment or decree;
(2)
if all existing Events of Default have been cured or waived, except nonpayment of principal or
interest that has become due solely because of the acceleration; and
(3)
if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for
its reasonable expenses, disbursements, costs, indemnities and advances.
No rescission will affect any subsequent Default or impair any rights relating thereto.
The Holders of a majority in principal amount of the outstanding notes may waive any existing Default or
Event of Default under the Indenture, and its consequences, except a Default or Event of Default in the payment of
the principal of, premium, if any, or interest on any notes.
The Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request,
order or direction of any of the Holders, unless such Holders have offered to the Trustee indemnity and/or security
reasonably satisfactory to it. Subject to all provisions of the Indenture and applicable law, the Holders of a majority
in aggregate principal amount of the then outstanding notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the
Trustee.
No Holder of any notes will have any right to institute any proceeding with respect to the Indenture or for
any remedy thereunder, unless:
(1)
such Holder gives to the Trustee written notice of a continuing Event of Default;
(2)
Holders of at least 25% in principal amount of the then outstanding notes make a written request
to pursue the remedy;
(3)
such Holders of the notes provide to the Trustee satisfactory indemnity and/or security;
(4)
the Trustee does not comply within 60 days; and
(5)
during such 60 day period the Holders of a majority in principal amount of the outstanding notes
do not give the Trustee a written direction which, in the opinion of the Trustee, is inconsistent with
the request;
provided that a Holder of a note may institute suit for enforcement of payment of the principal of and premium, if
any, or interest on such note on or after the respective due dates expressed in such note.
The Company is required, upon any of its directors or officers becoming aware of any Default or Event of
Default, to deliver promptly to the Trustee written notice of such Default or Event of Default, the status thereof and
what action the Company is taking or proposes to take in respect thereof. The Indenture provides that if a Default or
Event of Default occurs, is continuing and a Responsible Officer of the Trustee has received written notification, the
Trustee must give to each Holder notice of the Default or Event of Default within 45 days after such Default or
Event of Default is actually known to a responsible officer of the Trustee. Except in the case of a Default or Event
of Default in the payment of principal of, premium, if any, or interest on any note, the Trustee may withhold notice
if and so long as a committee of its trust officers in good faith determines that withholding notice is in the interests
of the Holders. The Trustee shall not be deemed to have notice of any Default or Event of Default unless written
notice of any event which is in fact such a Default or Event of Default is received by a Responsible Officer of the
Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and the Indenture.
158
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have its obligations discharged with respect to the
notes and all obligations of the Subsidiary Guarantors discharged with respect to the Subsidiary Guarantees (“Legal
Defeasance”). Legal Defeasance means that the Company will be deemed to have paid and discharged the entire
indebtedness represented by the outstanding notes on the 91st day after the deposit specified in clause (1) of the
second following paragraph, except for:
(1)
the rights of Holders to receive payments in respect of the principal of, premium, if any, and
interest on, the notes when such payments are due;
(2)
the Company’s obligations with respect to the notes concerning issuing temporary notes,
mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payments;
(3)
the rights, powers, trust, duties, indemnities and immunities of the Trustee and the Company’s
(and each Subsidiary Guarantor’s) obligations in connection therewith; and
(4)
the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have its obligations released with
respect to the covenants that are described under “—Covenants” (other than “Limitation on Merger, Consolidation
and Sale of Assets”) (“Covenant Defeasance”) and thereafter any omission to comply with such obligations will not
constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain
events (other than non-payment and bankruptcy, receivership, reorganization and insolvency events) described
under “—Events of Default” will no longer constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders
cash in U.S. dollars, U.S. Government Obligations, or a combination thereof, in such amounts as
will be sufficient without reinvestment, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and interest (including
Additional Amounts) on the notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
(2)
in the case of Legal Defeasance, the Company has delivered to the Trustee an Opinion of Counsel
from U.S. counsel reasonably acceptable to the Trustee and independent of the Company to the
effect that:
(a)
the Company has received from, or there has been published by, the Internal Revenue
Service a ruling; or
(b)
since the Issue Date, there has been a change in the applicable U.S. federal income tax
law,
in either case to the effect that, and based thereon such Opinion of Counsel shall state that, the
Holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of
such Legal Defeasance and will be subject to U.S. federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal Defeasance had not
occurred;
(3)
in the case of Covenant Defeasance, the Company has delivered to the Trustee an Opinion of
Counsel from U.S. counsel reasonably acceptable to the Trustee and independent of the Company
to the effect that the Holders will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax
on the same amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
159
(4)
in the case of Legal Defeasance or Covenant Defeasance, the Company has delivered to the
Trustee (a) an Opinion of Counsel from Mexican counsel reasonably acceptable to the Trustee and
independent of the Company to the effect that, based upon Mexican law then in effect, Holders
will not recognize income, gain or loss for Mexican tax purposes, including withholding tax
except for withholding tax then payable on interest payments due, as a result of such Legal
Defeasance or Covenant Defeasance, as the case may be, and will be subject to Mexican taxes on
the same amounts and in the same manner and at the same time as would have been the case if
such Legal Defeasance or Covenant Defeasance, as the case may be, had not occurred or (b) a
ruling directed to the Trustee received from tax authorities of Mexico to the same effect as the
Opinion of Counsel described in clause (a) above;
(5)
no Default or Event of Default has occurred and is continuing on the date of the deposit pursuant
to clause (1) of this paragraph (except any Default or Event of Default resulting from any failure
to comply with “—Covenants—Limitation on Incurrence of Additional Indebtedness” as a result
of the borrowing of the funds required to effect such deposit);
(6)
the Company has delivered to the Trustee an Officers’ Certificate stating that such Legal
Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a
default under, the Indenture or any other material agreement or instrument to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;
(7)
the Company has delivered to the Trustee an Officers’ Certificate stating that the deposit was not
made by the Company with the intent of preferring the Holders over any other creditors of the
Company or any Subsidiary of the Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others;
(8)
the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel from
U.S. counsel reasonably acceptable to the Trustee and independent of the Company, each stating
that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(9)
the Company has delivered to the Trustee an Opinion of Counsel from U.S. counsel reasonably
acceptable to the Trustee and independent of the Company to the effect that the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors’ rights generally; and
(10)
the Company has delivered to the Trustee an Opinion of Counsel from U.S. counsel reasonably
acceptable to the Trustee and independent of the Company to the effect that the trust resulting
from the deposit does not constitute, or is qualified as, a regulated investment company under the
U.S. Investment Company Act of 1940, as amended.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or
registration of transfer or exchange of the notes and the rights, powers, trust, duties, immunities and indemnities of
the Trustee and the obligations of the Company and the Subsidiary Guarantors with respect thereto, as expressly
provided for in the Indenture) as to all outstanding notes when:
(1)
either:
(a)
all the notes theretofore authenticated and delivered (except lost, stolen or destroyed
notes which have been replaced or paid and notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust) have been delivered to
the Trustee for cancellation; or
(b)
all notes not theretofore delivered to the Trustee for cancellation (i) have become due and
payable or (ii) are subject to irrevocable instructions that have been given for redemption
within 60 days under arrangements satisfactory to the Trustee for the giving of notice of
160
redemption by the Trustee, in the form delivered to the Trustee by the Company, in the
name, and at the expense, of the Company, and, in each case, the Company has
irrevocably deposited or caused to be deposited with the Trustee funds and/or U.S.
Government Obligations without reinvestment to pay and discharge the entire
Indebtedness on the notes not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the notes to the date of deposit (in the case
of notes that have become due and payable) or to the maturity or redemption date, as the
case may be, together with irrevocable instructions from the Company directing the
Trustee to apply such funds to the payment;
(2)
the Company has paid all other sums payable under the Indenture and the notes by it; and
(3)
the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel
stating that all conditions precedent under the Indenture relating to the satisfaction and discharge
of the Indenture have been complied with.
Release of Subsidiary Guarantees
Each Subsidiary Guarantor will be released and relieved of its Obligations under its Subsidiary Guarantee
in the event that:
(1)
there is a sale or other disposition of such Subsidiary Guarantor in accordance with the Indenture
(whether by merger, consolidation, the sale of its Capital Stock or the sale of all or substantially all
of its assets), following which such Subsidiary Guarantor is no longer a direct or indirect
Subsidiary of the Company;
(2)
such Subsidiary Guarantor is designated as an Unrestricted Subsidiary in accordance with “—
Covenants—Limitation on Designation of Unrestricted Subsidiaries”; or
(3)
there is a Legal Defeasance or Covenant Defeasance of the notes or upon satisfaction and
discharge of the Indenture,
provided that such transaction is carried out pursuant to, and in accordance with, the applicable provisions of the
Indenture.
Modification of the Indenture
From time to time, the Company, the Subsidiary Guarantors and the Trustee, without the consent of the
Holders, may amend, modify or supplement the Indenture, the notes and the Subsidiary Guarantees for the following
purposes:
(1)
to cure any ambiguity, defect or inconsistency contained therein;
(2)
to provide for the assumption by a successor Person of the obligations of the Company or a
Subsidiary Guarantor under the Indenture;
(3)
to add Subsidiary Guarantees or additional Guarantees with respect to the notes or release the
Subsidiary Guarantee of a Subsidiary Guarantor in accordance with the terms of the Indenture;
(4)
to secure the notes;
(5)
to add to the covenants of the Company for the benefit of the Holders or surrender any right or
power conferred upon the Company;
(6)
to provide for the issuance of Additional Notes in accordance with the Indenture;
(7)
to conform the terms of the Indenture, the notes or the Subsidiary Guarantees with the description
thereof set forth in this “Description of the Notes” to the extent that such description was intended
to be a verbatim recitation of a provision of the Indenture, the notes or the Subsidiary Guarantees;
161
(8)
to evidence the replacement of the Trustee as provided for under the Indenture;
(9)
if necessary, in connection with any release of any security permitted under the Indenture; or
(10)
to make any other change that does not adversely affect the rights of any Holder in any material
respect.
In entering into any such amendment, modification or supplement, the Trustee will be entitled to rely on
such evidence as it deems appropriate, including, without limitation, solely on an Opinion of Counsel and an
Officers’ Certificate.
Other modifications to, amendments of, and supplements to, the Indenture, the notes or the Subsidiary
Guarantees may be made with the consent of the Holders of a majority in principal amount of the then outstanding
notes issued under the Indenture, except that, without the consent of each Holder affected thereby, no amendment
may:
(1)
reduce the percentage of the principal amount of the notes whose Holders must consent to an
amendment, supplement or waiver;
(2)
reduce the rate of or change or have the effect of changing the time for payment of interest on any
notes;
(3)
reduce the principal of or change or have the effect of changing the fixed maturity of any notes, or
change the date on which any notes may be subject to redemption, or reduce the redemption price
therefor;
(4)
make any notes payable in money, or change the place of payment, other than as stated in the
notes;
(5)
make any change in provisions of the Indenture entitling each Holder to receive payment of
principal of, premium, if any, and interest on such notes on or after the due date thereof or to bring
suit to enforce such payment, or permitting Holders of a majority in principal amount of
outstanding notes to waive Defaults or Events of Default;
(6)
amend, change or modify in any material respect the obligation of the Company to make and
consummate a Change of Control Offer in respect of a Change of Control Event that has occurred
or make and consummate an Asset Sale Offer with respect to any Asset Sale that has been
consummated;
(7)
eliminate or modify in any manner a Subsidiary Guarantor’s obligations with respect to its
Subsidiary Guarantee which adversely affects Holders in any material respect, except as
contemplated in the Indenture;
(8)
make any change in the provisions of the Indenture described under “—Additional Amounts” that
adversely affects the rights of any Holder or amend the terms of the notes in a way that would
result in a loss of exemption from any applicable taxes; and
(9)
make any change to the provisions of the Indenture or the notes that adversely affect the ranking
of the notes; provided that it is deemed that any change to the Limitation on Liens covenant shall
not affect the ranking of the notes.
Governing Law; Jurisdiction
The Indenture and the notes will be governed by, and construed in accordance with, the law of the State of
New York.
The Company and each Subsidiary Guarantor will submit to the jurisdiction of the U.S. federal and New
York state courts located in The City of New York, Borough of Manhattan and will appoint Maxitile, Inc. as our
agent for service of process with respect to any actions brought in these courts arising out of or based on the
Indenture, the notes or any Subsidiary Guarantee.
162
The Trustee
Deutsche Bank Trust Company Americas is the Trustee under the Indenture. Its address is 60 Wall Street,
16th Floor, New York, New York, 10005.
Except during the continuance of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such
rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent
man would exercise or use under the circumstances in the conduct of his own affairs.
The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the
Company, to obtain payments of claims in certain cases or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; provided that if
the Trustee acquires any conflicting interest, it must eliminate such conflict or resign.
The Trustee may resign at any time by so notifying the Company. In addition, the Holders of a majority in
aggregate principal amount of the notes then outstanding may remove the Trustee by so notifying the Trustee and
may appoint a successor Trustee. The Company will remove the Trustee if (1) the Trustee is no longer eligible;
(2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or
its property; or (4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of a majority in aggregate principal
amount of the notes then outstanding and such Holders do not reasonably promptly appoint a successor Trustee, or if
a vacancy exists in the office of Trustee for any reason, the Company will promptly appoint a successor Trustee. If
the Company does not appoint, or is not capable of appointing, a successor Trustee within 60 days of the resignation
or removal of the Trustee, then the Company or the Trustee may petition a court of competent jurisdiction for the
appointment of a successor Trustee. The successor Trustee will give notice of its succession to the Holders of the
notes and, as long as the notes are listed on the Official List of the Luxembourg Stock Exchange for trading on the
Euro MTF Market and the rules of the exchange so require, the successor Trustee will also publish notice as
described under “—Notices.”
Notwithstanding any other provision herein to the contrary, we and our affiliates may from time to time
enter into normal banking and trustee relationships with the Trustee and its affiliates.
No Personal Liability
No past, present or future incorporator, director, officer, employee, shareholder or controlling Person, as
such, of the Company or any Subsidiary Guarantor will have any liability for any obligations of the Company under
the notes, the Indenture or any Subsidiary Guarantee or for any claims based on, in respect of or by reason of such
obligations or their creation. By accepting a note, each Holder waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive
liabilities under the U.S. federal securities laws or under Mexican corporate law, and it is the view of the SEC that
such a waiver may be contrary to public policy.
Currency Indemnity
The Company and the Subsidiary Guarantors will pay all sums payable under the Indenture, the notes or
such Subsidiary Guarantee solely in U.S. dollars. Any amount that any recipient receives or recovers in a currency
other than U.S. dollars in respect of any sum expressed to be due from the Company and Subsidiary Guarantors will
only constitute a discharge to us, to the greatest extent permitted under applicable law, to the extent of the U.S.
dollar amount which the recipient is able to purchase with the amount received or recovered in that other currency
on the date of the receipt or recovery or, if it is not practicable to make the purchase on that date, on the first date on
which the recipient is able to do so. If the U.S. dollar amount is less than the U.S. dollar amount expressed to be due
from the Company and the Subsidiary Guarantors, then the Company and Subsidiary Guarantors will indemnify the
recipient against any loss the recipient sustains as a result. In any event, the Company will indemnify the recipient
against the cost of making any purchase of U.S. dollars. For the purposes of this paragraph, it will be sufficient for
the recipient to certify in a satisfactory manner that the recipient would have suffered a loss had an actual purchase
of U.S. dollars been made with the amount received in that other currency on the date of receipt or recovery or, if it
was not practicable to make the purchase on that date, on the first date on which the recipient was able to do so. In
163
addition, the recipient will also be required to certify in a satisfactory manner the need for a change of the purchase
date.
The indemnities described above:

constitute a separate and independent obligation from the other obligations of the Company and the
Subsidiary Guarantors;

will give rise to a separate and independent cause of action;

will apply irrespective of any indulgence granted by any Holder; and

will continue in full force and effect despite any other judgment, order, claim or proof for a liquidated
amount in respect of any sum due under any note.
Listing
In the event that the notes are listed on the Official List of the Luxembourg Stock Exchange for trading on
the Euro MTF Market, the Company will use its commercially reasonable efforts to maintain such listing; provided
that if, as a result of the European Union regulated market amended Directive 2001/34/EC (the “Transparency
Directive”) or any legislation implementing the Transparency Directive or other directives or legislation, the
Company could be required to publish financial information either more regularly than it otherwise would be
required to or according to accounting principles which are materially different from the accounting principles
which the Company would otherwise use to prepare its published financial information, the Company may delist the
notes from the Official List of the Luxembourg Stock Exchange in accordance with the rules of the exchange and
seek an alternative admission to listing, trading and/or quotation for the notes on a different section of the
Luxembourg Stock Exchange or by such other listing authority, stock exchange and/or quotation system inside or
outside the European Union as the Company’s Board of Directors may decide.
Certain Definitions
The following sets forth certain of the defined terms used in the Indenture. Reference is made to the
Indenture for full disclosure of all such terms, as well as any other terms used herein for which no definition is
provided.
“Accounts Receivable” means (1) accounts receivable, (2) royalty and other similar payments made related
to the use of trade names and other intellectual property, business support, training and other services and
(3) revenues related to distribution of the products of the Company and its Restricted Subsidiaries.
“Acquired Indebtedness” means Indebtedness of a Person or any of its Subsidiaries existing at the time
such Person becomes a Restricted Subsidiary or at the time it merges or consolidates with the Company or any of its
Restricted Subsidiaries or is assumed in connection with the acquisition of assets from such Person. Acquired
Indebtedness will be deemed to have been Incurred at the time such Person becomes a Restricted Subsidiary or at
the time it merges or consolidates with the Company or a Restricted Subsidiary or at the time such Indebtedness is
assumed in connection with the acquisition of assets from such Person.
“Additional Amounts” has the meaning set forth under “—Additional Amounts” above.
“Additional Notes” has the meaning set forth under “—General” above.
“Affiliate” means, with respect to any specified Person, any other Person who directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person.
Solely for purposes of this definition, the term “control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a
Person will be deemed to be control. For purposes of this definition, the terms “controlling,” “controlled by” and
“under common control with” have correlative meanings.
164
“Asset Acquisition” means:
(1)
an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which
such Person will become a Restricted Subsidiary, or will be merged with or into the Company or
any Restricted Subsidiary; or
(2)
the acquisition by the Company or any Restricted Subsidiary of the assets of any Person (other
than a Subsidiary of the Company) which constitute all or substantially all of the assets of such
Person or comprise any division or line of business of such Person or any other properties or assets
of such Person other than in the ordinary course of business; or
(3)
any Revocation with respect to an Unrestricted Subsidiary.
“Asset Sale” means any direct or indirect sale, disposition, issuance, conveyance, transfer, lease,
assignment or other transfer, including, without limitation, a Sale and Leaseback Transaction (each, a “disposition”),
by the Company or any Restricted Subsidiary of:
(a)
any Capital Stock other than Capital Stock of the Company; or
(b)
any property or assets (other than cash, Cash Equivalents or Capital Stock) of the
Company or any Restricted Subsidiary;
Notwithstanding the preceding, the following items will not be deemed to be Asset Sales:
(1)
the disposition of all or substantially all of the assets of the Company and its Restricted
Subsidiaries as permitted under “—Covenants—Limitation on Merger, Consolidation and Sale of
Assets” or any disposition which constitutes a Change of Control;
(2)
the sale of property or equipment that, in the reasonable determination of the Company, has
become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary;
(3)
sales or other dispositions of equipment, inventory, accounts receivable or other assets in the
(4)
for purposes of “—Covenants—Limitation on Asset Sales” only, the making of a Restricted
Payment permitted under “—Covenants—Limitation on Restricted Payments”;
(5)
a disposition to the Company or a Restricted Subsidiary, including a Person that is or will become
a Restricted Subsidiary immediately after the disposition;
(6)
the creation of a Permitted Lien;
(7)
dispositions of receivables and related assets or interests in connection with the compromise,
settlement or collection thereof in the ordinary course of business or in bankruptcy or similar
proceedings and exclusive of factoring or similar arrangements;
(8)
the licensing or sublicensing of intellectual property or other general intangibles in the ordinary
course of business;
(9)
a Sale and Leaseback Transaction within one year of the acquisition of the relevant asset in the
(10)
the sale of land and warehouses in an amount not to exceed US$30.0 million; and
(11)
any transaction or series of related transactions involving property or assets with a Fair Market
Value not in excess of US$25.0 million (or the equivalent in other currencies).
“Asset Sale Offer” has the meaning set forth under “—Covenants—Limitation on Asset Sales.”
165
“Asset Sale Transaction” means any Asset Sale and, whether or not constituting an Asset Sale, (1) any sale
or other disposition of Capital Stock, (2) any Designation with respect to an Unrestricted Subsidiary and (3) any sale
or other disposition of property or assets excluded from the definition of Asset Sale by clause (4) of that definition.
“Attributable Indebtedness” means, in respect of a Sale and Leaseback Transaction, the present value,
discounted at the interest rate implicit in the Sale and Leaseback Transaction, of the total obligations of the lessee
for rental payments during the remaining term of the lease in the Sale and Leaseback Transaction.
“Board of Directors” means, with respect to any Person, the board of directors or similar governing body of
such Person or any duly authorized committee thereof.
“Board Resolution” means, with respect to any Person, a copy of a resolution certified by the Secretary or
an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be
in full force and effect on the date of such certification, and delivered to the Trustee.
“Business Day” means a day other than a Saturday, Sunday or any day on which banking institutions are
authorized or required by law to close in New York City, United States or in Mexico City (Distrito Federal),
Mexico.
“Capital Stock” means, with respect to any Person, any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in (however designated and whether or not
voting) of equity of such Person, including each class of Common Stock, Preferred Stock, limited liability interests
or partnership interests, but excluding any debt securities convertible into such equity.
“Capitalized Lease Obligations” means, as to any Person, the obligations of such Person under a lease that
are required to be classified and accounted for as capital lease obligations under IFRS. For purposes of this
definition, the amount of such obligations at any date will be the capitalized amount of such obligations at such date,
determined in accordance with IFRS.
“Cash Equivalents” means:
(1)
any investment in direct obligations of the United States government or any agency thereof or
obligations guaranteed by the United States government or any agency thereof;
(2)
investments in time deposit accounts, certificates of deposit and money market deposits with
maturities of one year or less from the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits, aggregating in excess of US$500 million or the foreign currency
equivalent thereof and has outstanding debt which is rated “A”, or such similar equivalent rating,
or higher by at least one nationally recognized statistical rating organization, as defined in
Rule 436 under the Securities Act; provided that in the case of Argentina, Brazil, India and China,
a minimum local rating of “A” from Standard & Poor’s Ratings Services, Inc. or from Moody’s
Investors Service, Inc. shall be required (or if no financial institution has a minimum local rating
of “A”, the highest available credit rating in such country shall be required) or demand deposits
maintained in the ordinary course of business with any of the Lenders or any other top tier
commercial banks maintaining deposit accounts in countries where the Borrower and its
Subsidiaries have operating facilities if such accounts with such other commercial banks are
limited to amounts customary for working capital purposes for operations in such country;
(3)
repurchase obligations with a term of not more than 360 days for underlying securities of the types
described in clause (1) above entered into with a bank meeting the qualifications described in
clause (2) above;
(4)
investments in demand deposits and commercial paper with maturities of one year or less from the
date of acquisition, issued by a corporation other than an Affiliate of the Company, organized and
in existence under the laws of the United States of America or any foreign country recognized by
the United States of America with a rating at the time as of which any investment therein is made
of at least “P-1” according to Moody’s or “A-1” according to S&P;
166
(5)
investments in securities with maturities of one year or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States of America, or by
any political subdivision or taxing authority thereof, with a rating at the time at which any
investment therein is made of at least “A” by S&P or “A” by Moody’s;
(6)
Cetes or Bonos de Desarrollo del Gobierno Federal or Bonos Ajustables del Gobierno Federal or
other similar securities issued by the Mexican government and maturing not more than 180 days
after the acquisition thereof, and debt instruments issued by the Mexican government which are
denominated and payable in U.S. dollars and maturing not later than one year after the acquisition
thereof;
(7)
Investments in money market funds substantially all of whose assets are comprised of securities of
the types described in clauses (1) through (6) above; and
(8)
investments in demand deposits, certificates of deposit, bank promissory notes and bankers’
acceptances denominated in Pesos, maturing not more than 180 days after the acquisition thereof
and issued or Guaranteed by any one of the five largest banks (based on assets as of the
immediately preceding December 31) organized under the laws of Mexico and which are not
under intervention or controlled by the Fondo Bancario de Protección al Ahorro or any successor
thereto.
“Change of Control” means the occurrence of one or more of the following events:
(1)
the consummation of any transaction (including without limitation any merger or consolidation)
the result of which is that any “person” or “group” (as defined in Sections 13(d) and 14(d) under
the Exchange Act), other than the Permitted Holders is or becomes the “beneficial owner” (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the aggregate
of 35.0% or more of the total voting power of the Voting Stock of the Company; provided that the
Permitted Holders are the “beneficial owners” (as defined above), directly or indirectly, in the
aggregate of a lesser percentage of the total voting power of the Voting Stock of the Company (or
its successor by merger, consolidation or purchase of all or substantially all of its assets) than such
other ”person” or “group” and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of Directors of the Company or
such successor (for the purposes of this clause (1), such other “person” or “group” shall be deemed
to be the beneficial owner of any Voting Stock of a specified entity wholly owned by a parent
entity, if such other ”person” or “group” is the “beneficial owner” (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of more than 35.0% of the voting power of
the Voting Stock of such parent entity and the Permitted Holders are the “beneficial owner” (as
defined above), directly or indirectly, in the aggregate of a lesser percentage of the voting power
of the Voting Stock of such parent entity and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the Board of Directors of such
parent entity);
(2)
the sale, conveyance, assignment, transfer, lease or other disposition of all or substantially all of
the assets of the Company, determined on a consolidated basis, to any “person” (as defined above)
other than the Permitted Holders or any of their respective Affiliates, whether or not otherwise in
compliance with the Indenture; and
(3)
the approval by the holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company, whether or not otherwise in compliance with the
indenture.
Notwithstanding the foregoing, a transaction will not be deemed to involve a Change of Control if
(i)(A) the Company becomes a wholly-owned subsidiary, directly or indirectly, of a holding company and (B) the
holders of the Voting Stock of such holding company immediately following that transaction are substantially the
same as the holders of the Company’s Voting Stock immediately prior to that transaction, (ii) pursuant to a
transaction in which the shares of the Company’s Voting Stock outstanding immediately prior to such transaction
constitute, or are converted into or exchanged for, a majority of the Voting Stock of the surviving person
167
immediately after giving effect to such transaction or (iii) the “person” referenced in clause (1) or (2) of the
preceding sentence previously became the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) of the Company’s Voting Stock so as to have constituted a Change of Control in respect of which a
Change of Control Offer was made (or otherwise would have required a Change of Control Offer in the absence of
the waiver of such requirement by the holders of the notes).
“Change of Control Event” means the occurrence of a Change of Control that results in a Ratings Decline.
“Change of Control Payment” has the meaning set forth under “—Change of Control.”
“Change of Control Payment Date” has the meaning set forth under “—Change of Control.”
“Commodity Agreement” means, with respect to any Person, any commodity or raw material futures
contract or any other agreement designed to protect against fluctuations in prices of any commodity or raw material
used in a Permitted Business.
“Common Stock” means, with respect to any Person, any and all shares, interests or other participations in,
and other equivalents (however designated and whether voting or non-voting) of such Person’s common equity
interests, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common equity interests.
“Consolidated Adjusted EBITDA” means, with respect to any Person for any period, Consolidated Net
Income for such Person for such period, plus the following (without duplication) to the extent deducted or added in
calculating such Consolidated Net Income:
(1)
Consolidated Interest Expense for such Person for such period;
(2)
Consolidated Income Tax Expense for such Person for such period;
(3)
Consolidated Non-cash Charges for such Person for such period;
(4)
the amount of loss on any sale of Accounts Receivable and related assets to a Securitization
Subsidiary in connection with a Permitted Receivables Financing; and
(5)
any non-operating and/or non-recurring charges, expenses or losses of such Person and its
Subsidiaries (Restricted Subsidiaries in the case of the Company) for such period.
less (x) all non-cash credits and gains increasing Consolidated Net Income for such Person for such period and
(y) all cash payments made by such Person and its Subsidiaries (Restricted Subsidiaries in the case of the Company)
during such period relating to non-cash charges that were added back in determining Consolidated Adjusted
EBITDA in any prior period.
Notwithstanding the foregoing, the items specified in clauses (1) and (3) above for any Subsidiary
(Restricted Subsidiary in the case of the Company) will be added to Consolidated Net Income in calculating
Consolidated Adjusted EBITDA for any period:
(a)
in proportion to the percentage of the total Capital Stock of such Subsidiary (Restricted
Subsidiary in the case of the Company) held directly or indirectly by such Person at the
date of determination; and
(b)
to the extent that a corresponding amount would be permitted at the date of determination
to be distributed to such Person by such Subsidiary (Restricted Subsidiary in the case of
the Company) pursuant to its charter and bylaws (estatutos sociales) and each law,
regulation, agreement or judgment applicable to such distribution.
“Consolidated Fixed Charge Coverage Ratio” means, with respect to any Person as of any date of
determination, the ratio of the aggregate amount of Consolidated Adjusted EBITDA of such Person for the
four most recent full fiscal quarters for which financial statements are available ending prior to the date of such
determination (the “Four-Quarter Period”) to Consolidated Fixed Charges for such Person for such Four-Quarter
Period.
168
For purposes of this definition, Consolidated Adjusted EBITDA and Consolidated Fixed Charges will be
calculated after giving effect on a pro forma basis in good faith for the period of such calculation for the following:
(1)
the Incurrence, repayment or redemption of any Indebtedness (including Acquired Indebtedness)
of such Person or any of its Subsidiaries (Restricted Subsidiaries in the case of the Company) and
the application of the proceeds thereof, including the Incurrence of any Indebtedness (including
Acquired Indebtedness), and the application of the proceeds thereof, giving rise to the need to
make such determination, occurring during such Four-Quarter Period and at any time subsequent
to the last day of such Four-Quarter Period and prior to or on such date of determination, as if such
Incurrence, and the application of the proceeds thereof, repayment or redemption occurred on the
first day of such Four-Quarter Period; and
(2)
any Asset Sale Transaction or Asset Acquisition by such Person or any of its Subsidiaries
(Restricted Subsidiaries in the case of the Company), including any Asset Sale or Asset
Acquisition giving rise to the need to make such determination, occurring during the Four-Quarter
Period or at any time subsequent to the last day of the Four-Quarter Period and prior to or on such
date of determination, as if such Asset Sale Transaction or Asset Acquisition occurred on the
first day of such Four-Quarter Period.
For purposes of making such pro forma computation:
(a)
interest on any Indebtedness bearing a floating rate of interest will be calculated as if the
rate in effect on the applicable date of determination had been the applicable rate for the
entire Four-Quarter Period (taking into account any Interest Rate Agreements applicable
to such Indebtedness);
(b)
interest on any Indebtedness under a revolving credit facility will be computed based
upon the average daily balance of such Indebtedness during such Four-Quarter Period, or
if such facility was created after the end of such Four-Quarter Period, the average daily
balance of such Indebtedness during the period from the date of creation of such facility
to the date of such calculation; and
(c)
interest on Indebtedness that may optionally be determined at an interest rate based upon
a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate,
will be deemed to have been based upon the rate actually chosen, or, if none, then based
upon such optional rate chosen as the Company may designate.
“Consolidated Fixed Charges” means, for any Person for any period, the sum (without duplication) of:
(1)
Consolidated Interest Expense for such Person for such period, plus
(2)
the product of:
(a)
the amount of all cash and non-cash dividend payments on any series of Preferred Stock
or Disqualified Capital Stock of such Person (other than dividends paid in Qualified
Capital Stock) or any Subsidiary of such Person (Restricted Subsidiary in the case of the
Company) paid, accrued or scheduled to be paid or accrued during such period, excluding
dividend payments on Preferred Stock or Disqualified Capital Stock paid, accrued or
scheduled to be paid to such Person or another Subsidiary (Restricted Subsidiary in the
case of the Company), times
(b)
a fraction, the numerator of which is one and the denominator of which is one minus the
then current effective income tax rate of such Person in its principal taxpaying
jurisdiction (Mexico, in the case of the Company), expressed as a decimal.
“Consolidated Income Tax Expense” means, with respect to any Person for any period, the provision for
any income taxes payable by such Person and its Subsidiaries (Restricted Subsidiaries in the case of the Company)
for such period as determined on a consolidated basis in accordance with IFRS (including, for purposes of this
169
definition, any alternative taxes payable in lieu of income taxes, such as the Mexican Impuesto Empresarial a Tasa
Unica (IETU)).
“Consolidated Interest Expense” means, with respect to any Person for any period, the sum (without
duplication) determined on a consolidated basis in accordance with IFRS of:
(1)
(2)
the aggregate of cash and non-cash interest expense of such Person and its Subsidiaries (Restricted
Subsidiaries in the case of the Company) for such period determined on a consolidated basis in
accordance with IFRS, including, without limitation, the following (whether or not interest
expense in accordance with IFRS):
(a)
any amortization or accretion of debt discount or any interest paid on Indebtedness of
such Person and its Subsidiaries (Restricted Subsidiaries in the case of the Company) in
the form of additional Indebtedness;
(b)
any amortization of deferred financing costs;
(c)
the net costs under Hedging Obligations (including amortization of fees) in respect of
Indebtedness or that are otherwise treated as interest expense or equivalent under IFRS;
provided that if Hedging Obligations result in net benefits rather than costs, such benefits
will be credited to reduce Consolidated Interest Expense unless, pursuant to IFRS, such
net benefits are otherwise reflected in Consolidated Net Income;
(d)
all capitalized interest;
(e)
the interest portion of any deferred payment obligation;
(f)
any interest expense on Indebtedness of another Person that is Guaranteed by such Person
or one of its Subsidiaries (Restricted Subsidiaries in the case of the Company) or secured
by a Lien on the assets of such Person or one of its Subsidiaries (Restricted Subsidiaries
in the case of the Company), whether or not such Guarantee or Lien is called upon; and
the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid
or accrued by such Person and its Subsidiaries (Restricted Subsidiaries in the case of the
Company) during such period.
“Consolidated Net Income” means, with respect to any Person for any period, the aggregate net income (or
loss) of such Person and its Subsidiaries (after deducting (or adding) the portion of such net income (or loss)
attributable to minority interests in Subsidiaries of such Person) for such period on a consolidated basis, determined
in accordance with IFRS; provided that there will be excluded therefrom to the extent reflected in such aggregate net
income (loss):
(1)
net after-tax gains or losses from Asset Sale Transactions or abandonments or reserves relating
thereto;
(2)
net after-tax items classified as extraordinary gains or losses;
(3)
the net income (or loss) of any Person, other than such Person and any Subsidiary of such Person
(Restricted Subsidiary in the case of the Company); except that the Company’s equity in the net
income of any Person will be included up to the aggregate amount of cash actually distributed by
such Person during such period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to
the limitations contained in clause (4) below); and except further that the Company’s equity in the
net loss of any Person will be included to the extent such loss have been funded with cash from the
Company or a Restricted Subsidiary;
(4)
the net income (but not loss) of any Subsidiary of such Person (Restricted Subsidiary in the case of
the Company) to the extent that a corresponding amount could not be distributed to such Person at
the date of determination as a result of any restriction pursuant to the constituent documents of
170
such Subsidiary (Restricted Subsidiary in the case of the Company) or any law, regulation,
agreement or judgment applicable to any such distribution;
(5)
any restoration to income of any contingency reserve, except to the extent that provision for such
reserve was made out of Consolidated Net Income accrued at any time following the Issue Date;
(6)
any gain (or loss) from foreign exchange translation or change in net monetary position;
(7)
any net gain or loss (after any offset) resulting in such period from Hedging Obligations entered
into for bona fide hedging purposes and not for speculative purposes; provided that the net effect
on income or loss (including in any prior periods) will be included upon any termination or early
extinguishment of such Hedging Obligations, other than any Hedging Obligations with respect to
Indebtedness (that is not itself a Hedging Obligation) and that are extinguished concurrently with
the termination or other prepayment of such Indebtedness; and
(8)
the cumulative effect of changes in accounting principles.
“Consolidated Net Tangible Assets” of any Person means the aggregate amount of assets (less applicable
reserves and other properly deductible items) after deducting therefrom (a) all current liabilities and (b) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense (to the extent included in said aggregate
amount of assets) and other like intangibles, as shown on the balance sheet of such Person for the most recently
ended fiscal quarter for which financial statements are available, determined on a consolidated basis in accordance
with IFRS. Consolidated Net Tangible Assets shall be determined as of the time of the occurrence of the event(s)
giving rise to the requirement to determine Consolidated Net Tangible Assets and after giving effect to such
event(s).
“Consolidated Non-cash Charges” means, with respect to any Person for any period, the aggregate
depreciation, amortization and other non-cash expenses or losses of such Person and its Subsidiaries (Restricted
Subsidiaries in the case of the Company) for such period, determined on a consolidated basis in accordance with
IFRS (excluding any such charge which constitutes an accrual of or a reserve for cash charges for any future period
or the amortization of a prepaid cash expense paid in a prior period).
“Covenant Defeasance” has the meaning set forth under “—Legal Defeasance and Covenant Defeasance.”
“Credit Facilities” means one or more debt facilities, commercial paper facilities or Debt Issuances, in each
case with banks, investment banks, insurance companies, mutual funds and/or other institutional lenders or
institutional investors providing for revolving credit loans, term loans, letters of credit or Debt Issuances, in each
case, as amended, extended, renewed, restated, Refinanced (including Refinancing with Debt Issuances),
supplemented or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions,
covenants and other provisions) from time to time.
“Currency Agreement” means, with respect to any Person, any foreign exchange contract, currency swap
agreement or other similar agreement as to which such Person is a party designed solely to hedge foreign currency
risk of such Person.
“Debt Issuances” means, with respect to the Company or any Restricted Subsidiary, one or more issuances
after the Issue Date of Indebtedness evidenced by notes, debentures, bonds or other similar securities or instruments.
“Default” means an event or condition the occurrence of which is, or with the lapse of time or the giving of
notice or both would be, an Event of Default.
“Designation” and “Designation Amount” have the meanings set forth under “Covenants—Limitation on
Designation of Unrestricted Subsidiaries” above.
171
“Disqualified Capital Stock” means that portion of any Capital Stock which, by its terms (or by the terms of
any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon
the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the sole option of the holder thereof, in any case, prior to or on the 91st day after the
final maturity date of the notes.
“Eligible Equity Offering” means the issuance and sale for cash of Qualified Capital Stock of the Company
to any Person other than an Affiliate of the Company pursuant to (i) a public offering in accordance with U.S. or
Mexican laws, rules and regulations, or (ii) a private offering in accordance with Rule 144A, Regulation S or
another exemption under the Securities Act.
“Event of Default” has the meaning set forth under “—Events of Default.”
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, or any successor statute or
statutes thereto.
“Fair Market Value” means, with respect to any asset, the price (after taking into account any liabilities
relating to such assets) which could be negotiated in an arm’s-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any compulsion to complete the transaction.
The Fair Market Value of any such asset or assets will be determined conclusively by the Board of Directors of the
Company acting in good faith; provided that, with respect to a value of less than US$5.0 million (or the equivalent
in other currencies), such determination may be made by two or more officers of the Company and such
determination shall be set forth in an Officers’ Certificate delivered to the Trustee.
“Fitch” means Fitch Ratings Ltd. and its successors and assigns.
“Four-Quarter Period” has the meaning set forth in the definition of Consolidated Fixed Charge Coverage
Ratio above.
“Guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly
guaranteeing any Indebtedness of any other Person:
(1)
to purchase or pay, or advance or supply funds for the purchase or payment of, such Indebtedness
of such other Person, whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise; or
(2)
entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the
payment thereof or to protect such obligee against loss in respect thereof, in whole or in part;
provided that “Guarantee” will not include endorsements for collection or deposit in the ordinary course of business.
“Guarantee,” when used as a verb, has a corresponding meaning.
“Hedging Obligations” means the obligations of any Person pursuant to any Interest Rate Agreement,
Currency Agreement or Commodity Agreement.
“Holder” means the Person in whose name a note is registered in the note register pursuant to the terms of
the Indenture.
“IFRS” means International Financial Reporting Standards as adopted by the International Accounting
Standards Board, and any financial reporting standards authorized by the Mexican Comisión Nacional Bancaria y de
Valores and applied by the Company.
“Incur” means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur
(including by conversion, exchange or otherwise), assume, Guarantee or otherwise become liable in respect of such
Indebtedness or other obligation on the balance sheet of such Person. “Incurrence,” “Incurred” and “Incurring” have
corresponding meanings.
172
“Indebtedness” means, with respect to any Person, without duplication:
(1)
the principal amount (or, if less, the accreted value) of all obligations of such Person for borrowed
money;
(2)
the principal amount (or, if less, the accreted value) of all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments;
(3)
all Capitalized Lease Obligations of such Person;
(4)
all obligations of such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any title retention agreement (but excluding
trade accounts payable in the ordinary course of business);
(5)
letters of credit, banker’s acceptances or similar credit transactions, including reimbursement
obligations in respect thereof (except to the extent reimbursement obligations relate to trade
payables in the ordinary course of business and such obligation is satisfied within 20 Business
Days of Incurrence);
(6)
Guarantees and other contingent obligations of such Person in respect of Indebtedness referred to
in clauses (1) through (5) above and clauses (8) through (10) below;
(7)
all Indebtedness of any other Person of the type referred to in clauses (1) through (6) above which
is secured by any Lien on any property or asset of such Person, the amount of such Indebtedness
being deemed to be the lesser of the Fair Market Value of such property or asset and the amount of
the Indebtedness so secured;
(8)
all net obligations under Hedging Obligations of such Person (the amount of any such obligations
to be equal at any time to the termination value of such agreement or arrangement giving rise to
such obligation that would be payable by such Person at such time); and
(9)
all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented
by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but excluding (i) accrued
dividends, if any, and (ii) any shares of a Mexican company that are part of the variable portion of
its Capital Stock and that are redeemable, under the Mexican General Law of Business
Corporations (Ley General de Sociedades Mercantiles); provided that:
(a)
if the Disqualified Capital Stock does not have a fixed repurchase price, such maximum
fixed repurchase price will be calculated in accordance with the terms of the Disqualified
Capital Stock as if the Disqualified Capital Stock were purchased on any date on which
Indebtedness will be required to be determined pursuant to the Indenture; and
(b)
if the maximum fixed repurchase price is based upon, or measured by, the fair market
value of the Disqualified Capital Stock, the fair market value will be the Fair Market
Value thereof.
“Independent Financial Advisor” means an accounting firm, appraisal firm, investment banking firm or
consultant of internationally recognized standing that is, in the judgment of the Company’s Board of Directors,
qualified to perform the task for which it has been engaged and which is independent in connection with the relevant
transaction.
“Interest Rate Agreement” means, with respect to any Person, any interest rate protection agreement
(including, without limitation, interest rate swaps, caps, floors, collars, derivative instruments and similar
agreements) and/or other types of hedging agreements designed solely to hedge interest rate risk of such Person.
173
“Investment” means, with respect to any Person, any:
(1)
direct or indirect loan, advance or other extension of credit (including, without limitation, a
Guarantee) to any other Person (other than advances or extensions of credit to customers in the
ordinary course of business);
(2)
capital contribution to (by means of any transfer of cash or other property to others or any
payment for property or services for the account or use of others) to any other Person; or
(3)
any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person.
“Investment” will exclude accounts receivable, trade credits, advances to customers, commissions, travel or similar
advances to employees or consultants or deposits arising in the ordinary course of business. “Invest,” “Investing”
and “Invested” have corresponding meanings.
For purposes of the “—Limitation on Restricted Payments” covenant, the Company will be deemed to have
made an “Investment” in an Unrestricted Subsidiary at the time of its Designation, which will be valued at the Fair
Market Value of the sum of the net assets of such Unrestricted Subsidiary at the time of its Designation and the
amount of any Indebtedness of such Unrestricted Subsidiary or owed to the Company or any Restricted Subsidiary
immediately following such Designation. Any property transferred to or from an Unrestricted Subsidiary will be
valued at its Fair Market Value at the time of such transfer. If the Company or any Restricted Subsidiary sells or
otherwise disposes of any Capital Stock of a Restricted Subsidiary (including any issuance and sale of Capital Stock
by a Restricted Subsidiary) such that, after giving effect to any such sale or disposition, such Restricted Subsidiary
would cease to be a Subsidiary of the Company, the Company will be deemed to have made an Investment on the
date of any such sale or disposition equal to sum of the Fair Market Value of the Capital Stock of such former
Restricted Subsidiary held by the Company or any Restricted Subsidiary immediately following such sale or other
disposition and the amount of any Indebtedness of such former Restricted Subsidiary Guaranteed by the Company
or any Restricted Subsidiary or owed to the Company or any other Restricted Subsidiary immediately following
such sale or other disposition.
“Investment Grade Rating” means a rating equal to or higher than (i) BBB- (or the equivalent) by Fitch,
(ii) Baa3 (or the equivalent) by Moody’s or (iii) BBB- (or the equivalent) by S&P, or, if any such entity ceases to
rate the notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from
any other Rating Agency.
“IPO” means an underwritten public offering of the Company’s Common Stock in accordance with U.S. or
Mexican laws, rules and regulations.
“Issue Date” means the first date of issuance of the notes under the Indenture.
“Legal Defeasance” has the meaning set forth under “—Legal Defeasance and Covenant Defeasance.”
“Lien” means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any
kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest); provided that the lessee in respect of a Capitalized Lease Obligation or Sale
and Leaseback Transaction will be deemed to have Incurred a Lien on the property leased thereunder.
“Moody’s” means Moody’s Investors Service, Inc., or any successor thereto.
“Net Cash Proceeds” means, with respect to any Asset Sale, the proceeds in the form of cash or Cash
Equivalents, including payments in respect of deferred payment obligations when received in the form of cash or
Cash Equivalents received by the Company or any of its Restricted Subsidiaries from such Asset Sale, net of:
(1)
out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and sales commissions);
174
(2)
taxes paid or payable in respect of such Asset Sale after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and any tax sharing
arrangements;
(3)
repayment of Indebtedness secured by a Lien permitted under the Indenture that is required to be
repaid in connection with such Asset Sale;
(4)
all distributions and other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Sale; and
(5)
appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may
be, as a reserve, in accordance with IFRS, against any liabilities associated with such Asset Sale
and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, but excluding any reserves with respect to Indebtedness.
“Obligations” means, with respect to any Indebtedness, any principal, interest (including, without
limitation, Post-Petition Interest), premium, Additional Amounts, penalties, fees, indemnifications, reimbursements,
damages, and other liabilities payable under the documentation governing such Indebtedness, including in the case
of the notes and any Subsidiary Guarantees, the Indenture.
“OECD” means the Organization for Economic Cooperation and Development or any successor thereto.
“Officers’ Certificate” means a certificate signed on behalf of the Company or a Subsidiary Guarantor, as
the case may be, by two officers of the Company or such Subsidiary Guarantor, as applicable, one of whom must be
the principal executive officer, principal financial officer, treasurer, or principal accounting officer of the Company
or the Subsidiary Guarantor, as applicable, that meets the requirements set forth in the Indenture.
“Opinion of Counsel” means a written opinion of counsel, who may be an employee of or counsel for the
Company or any of its Affiliates (except as otherwise provided in the Indenture) and who is reasonably acceptable to
the Trustee.
“Permitted Business” means the business or businesses conducted by the Company and its Restricted
Subsidiaries as of the Issue Date and any business related, ancillary or complementary thereto, or any business
determined in good faith by its Board of Directors to be in the interest of the Company.
“Permitted Holder” means (1) each of Kaluz, S.A. de C.V., Grupo Carso, S.A.B. de C.V., Tenedora de
Empresas de Materiales de Construcción, S.A. de C.V., Antonio del Valle, Francisco Javier del Valle Perochena,
Juan Pablo del Valle Perochena, Antonio del Valle Perochena, Carlos Slim Helú, Carlos Slim Domit, Marco
Antonio Slim Domit, Patrick Slim Domit or any Related Party of any thereof and (2) each Person at least 51% of the
total voting power of the Voting Stock of which (or, in the case of a trust, the beneficial interests in which) is owned
directly or indirectly by one or more Persons specified in clause (1) of this definition.
“Permitted Indebtedness” has the meaning set forth under clause (2) of “—Covenants—Limitation on
Incurrence of Additional Indebtedness.”
“Permitted Investments” means:
(1)
Investments by the Company or any Restricted Subsidiary in any Person that is, or that result in
any Person becoming, immediately after such Investment, a Restricted Subsidiary or constituting a
merger or consolidation of such Person into the Company or with or into a Restricted Subsidiary;
(2)
Investments by any Restricted Subsidiary in the Company;
(3)
Investments in cash and Cash Equivalents;
175
(4)
any Investment acquired from a Person which is merged with or into the Company or any of its
Restricted Subsidiaries, or any Investment of any Person existing at the time such Person becomes
a Restricted Subsidiary of the Company;
(5)
Investments by the Company or any Restricted Subsidiary in any Notes or other debt securities of
the Company or any Restricted Subsidiary that rank equal in right of payment with the Notes;
(6)
Investments in existence, or made pursuant to written agreements existing on, the Issue Date;
(7)
any extension, modification or renewal of any Investments existing on, or made pursuant to
written agreements existing on, the Issue Date (but not Investments involving additional advances,
contributions or other investments of cash or property or other increases thereof, other than as a
result of the accrual or accretion of interest or original issue discount or payment-in-kind pursuant
to the terms of such Investment as of the Issue Date);
(8)
Investments permitted pursuant to clause (2)(b) or (e) of “—Covenants—Limitation on
Transactions with Affiliates”;
(9)
Investments received as a result of the bankruptcy or reorganization of any Person or taken in
settlement of or other resolution of claims or disputes, and, in each case, extensions, modifications
and renewals thereof;
(10)
Investments acquired by the Company or any of its Restricted Securities as a result of a
foreclosure by the Company or any of its Restricted Securities with respect to any secured
Investment or other transfer of title with respect to any secured Investment in default;
(11)
Investments made by the Company or its Restricted Subsidiaries as a result of non-cash
consideration (a) permitted to be received in connection with an Asset Sale made in compliance
with the covenant described under “—Covenants—Limitation on Asset Sales” and (b) received
from a sale, lease, transfer or other disposition not constituting an Asset Sale;
(12)
Investments in the form of Hedging Obligations permitted under clause 2(e) of “—Covenants—
Limitation on Incurrence of Additional Indebtedness”;
(13)
receivables owing to the Company or any Restricted Subsidiary created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary trade terms;
provided that such trade terms may include such concessionary trade terms as the Company or any
such Restricted Subsidiary deems reasonable under the circumstances;
(14)
Investments consisting of payroll, travel and similar advances to cover matters that are expected at
the time of such advances ultimately to be treated as expenses for accounting purposes and that are
made in the ordinary course of business;
(15)
Investments in Capital Stock, obligations or securities received in settlement of debts created in
the ordinary course of business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments;
(16)
Investments arising as a result of any Permitted Receivables Financing;
(17)
payroll, travel, moving and other loans or advances to, or Guarantees issued to support the
obligations of, officers and employees, in each case in the ordinary course of business;
(18)
extensions of credit and prepayment of expenses to customers, suppliers, utility providers,
licensees, franchisees and other trade creditors in the ordinary course of business;
(19)
Lease, utility and workers’ compensation, performance and other similar deposits made in the
ordinary course of business by the Company or a Restricted Subsidiary of the Company;
(20)
any Investment in any Subsidiary or any joint venture in connection with intercompany cash
management arrangements or related activities arising in the ordinary course of business;
176
(21)
Guarantees of Indebtedness permitted under the covenant described under “—Limitation on
Incurrence of Additional Indebtedness”;
(22)
Investments to the extent made with Capital Stock of the Company (other than Disqualified
Capital Stock);
(23)
any acquisition and holding of (a) Mexican federal and state tax credits acquired solely to pay
amounts owed by the Company or any of its Restricted Subsidiaries to Mexican tax authorities and
(b) discounted obligations of any Mexican governmental authority acquired solely to pay tax
amounts owed by the Company or any of its Restricted Subsidiaries to such Mexican
governmental authority;
(24)
Investments in the Capital Stock of any Person other than a Restricted Subsidiary of the Company
that are required to be held pursuant to an involuntary governmental order of consideration,
nationalization, seizure or expropriation or other similar order with respect to Capital Stock of
such Person (prior to which order such Person was a Subsidiary of the Company);
(25)
repurchases of the notes, Additional Notes or pari passu Indebtedness;
(26)
Investments in marketable securities or instruments to fund the Company’s or its Restricted
Subsidiary’s pension and other employee-related obligations pursuant to compensation
arrangements approved by the Board of Directors or senior management of the Company;
(27)
loans or advances to employees or directors of the Company or any Restricted Subsidiary of the
Company the proceeds of which are used to purchase Capital Stock of the Company, in an
aggregate amount not in excess of US$2.5 million (or the equivalent in other currencies) at any
one time outstanding;
(28)
Investments in connection with pledges, deposits, payments or performance bonds made or given
in the ordinary course of business in connection with or to secure statutory, regulatory or similar
obligations, including obligations under health, safety or environmental obligations;
(29)
advances made to customers, clients, distributors, suppliers or purchasers or sellers of goods or
services, in each case, in the ordinary course of business;
(30)
Investments made pursuant to a commitment that, when entered into, would have complied with
the provisions of the Indenture;
(31)
Investments in negotiable instruments received in the ordinary course and held for collection;
(32)
Investments in the Capital Stock of any Person engaged in a Permitted Business having an
aggregate Fair Market Value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value) that are at the time outstanding, that do not exceed
5.0% of the Company’s Consolidated Net Tangible Assets; provided that any cash return on
capital in any such Permitted Investment (including through any dividend, distribution, repayment,
redemption, payment of interest or other transfer) made pursuant to this clause (32) will reduce the
amount of any such Permitted Investment for purposes of calculating the amount of Permitted
Investments under this clause (32) and will be excluded from clauses 3(A) and (D) of the first
paragraph of the covenant described under the caption “—Covenants—Limitation on Restricted
Payments”; and
(33)
in addition to the Investments permitted by the foregoing clauses (1) through (32), any Investment
by the Company or any of its Restricted Subsidiaries that, when taken together with all other
Investments pursuant to this clause (33), have an aggregate Fair Market Value at the time of such
Investment not exceeding the greater of (a) US$50 million (or the equivalent in other currencies)
and (b) 5.0% of Consolidated Net Tangible Assets outstanding at any one time (with the Fair
Market Value of each such Investment being measured at the time made and without giving effect
to subsequent changes in value).
177
“Permitted Jurisdiction” has the meaning set forth under “—Covenants—Limitation on Merger,
Consolidation and Sale of Assets.”
“Permitted Liens” means any of the following Liens:
(1)
Liens existing on the Issue Date and any extension, renewal or replacement thereof or of any other
Permitted Lien;
(2)
statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of
business for sums that are not more than 60 days past due or are being contested in good faith, if
such reserve or other appropriate provision, if any, as shall be required by IFRS shall have been
made in respect thereof;
(3)
Liens Incurred or deposits made in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(4)
Liens upon specific items of inventory or other goods and proceeds of any Person securing such
Person’s obligations in respect of bankers’ acceptances issued or created for the account of such
Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(5)
Liens securing reimbursement obligations with respect to commercial letters of credit which
encumber documents and other property relating to such letters of credit and products and
proceeds thereof;
(6)
Liens encumbering deposits made to secure obligations arising from statutory, regulatory,
contractual, or warranty requirements of the Company or a Restricted Subsidiary, including rights
of offset and set-off;
(7)
Liens for taxes, assessments or other governmental charges not yet subject to penalties for
non-payment or which are being contested in good faith by appropriate proceedings promptly
initiated and diligently conducted, provided that appropriate reserves required pursuant to IFRS, if
any, have been made in respect thereof;
(8)
encumbrances, ground leases, easements or reservations of, or rights of others for, licenses, rights
of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning,
building codes or other restrictions (including, without limitation, minor defects or irregularities in
title and similar encumbrances) as to the use of real properties or liens incidental to the conduct of
the business of such Person or to the ownership of its properties which do not in the aggregate
materially adversely affect the value of said properties or materially impair their use in the
operation of the business of such Person;
(9)
judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded
and any appropriate legal proceedings which may have been duly initiated for the review of such
judgment have not been finally terminated or the period within which such proceeding may be
initiated has not expired;
(10)
Liens arising solely by virtue of any statutory or common law provisions relating to banker’s
Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds
maintained with a depositary institution;
(11)
Liens securing Hedging Obligations so long as the related Indebtedness is, and is permitted to be
under the Indenture, secured by Liens on the same assets securing such Hedging Obligations;
178
(12)
Liens to secure any Refinancing Indebtedness which is Incurred to Refinance any Indebtedness
which has been secured by a Lien permitted under the Indenture;
(13)
Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Company
or of one or more Restricted Subsidiaries and/or the Company to one or more Restricted
Subsidiary and permitted to be Incurred under the Indenture;
(14)
Liens securing Acquired Indebtedness Incurred in accordance with “—Covenants—Limitation on
Incurrence of Additional Indebtedness” not incurred in connection with, or in anticipation or
contemplation of, the relevant acquisition, merger or consolidation; provided that
(15)
(a)
such Liens secured such Acquired Indebtedness at the time of and prior to the Incurrence
of such Acquired Indebtedness by the Company or a Restricted Subsidiary and were not
granted in connection with, or in anticipation of the Incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and
(b)
such Liens do not extend to or cover any property of the Company or any Restricted
Subsidiary other than the property that secured the Acquired Indebtedness prior to the
time such Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary and are no more favorable to the lienholders than the Liens securing the
Acquired Indebtedness prior to the Incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary;
Liens securing Purchase Money Indebtedness, Capitalized Lease Obligations or Attributable
Indebtedness Incurred to finance the acquisition or leasing of property or to acquire Capital Stock
of Person; provided that:
(a)
The aggregate principal amount of the Indebtedness secured by such Liens will not
exceed (but may be less than) the value of the property so financed; and
(b)
such Liens will extend only to the assets (including land and real estate properties)
purchased or financed with such Indebtedness and any improvements on or additions to
such assets;
provided, further, that to the extent that the property or asset acquired is Capital Stock, the Lien
may also encumber other property of the Person so acquired;
(16)
Liens in favor of the Company or any Restricted Subsidiary;
(17)
Liens incurred in the ordinary course of business with respect to obligations that do not exceed
US$2.0 million (or the equivalent in other currencies) at any one time outstanding;
(18)
Liens securing Indebtedness to acquire, construct or improve property;
(19)
(a) licenses, sublicenses, leases or subleases granted by the Company or any of its Restricted
Subsidiaries to other Persons not materially interfering with the conduct of the business of the
Company or any of its Restricted Subsidiaries and (b) any interest or title of a lessor, sublessor or
licensor under any lease or license agreement permitted by the Indenture to which the Company or
any Restricted Subsidiary is a party;
(20)
Liens on patents, trademarks, service marks, trade names, copyrights, technology, know-how and
processes to the extent such Liens arise from the granting of license to use such patents,
trademarks, service marks, trade names, copyrights, technology, know-how and processes to any
Person in the ordinary course of business of the Company or any of its Restricted Subsidiaries;
(21)
deposits in the ordinary course of business securing liability for reimbursement obligations of
insurance carriers providing insurance to the Company or its Restricted Subsidiaries and any Liens
thereon;
179
(22)
Liens arising under any Permitted Receivables Financing;
(23)
Liens on the Capital Stock of any Unrestricted Subsidiary;
(24)
deposits for the payment of rent;
(25)
Liens securing Indebtedness (and Refinancing Indebtedness Incurred in respect thereof) for the
purpose of financing all or part of cost of the acquisition, construction or development of a project;
provided, however, that the Liens in respect of such Indebtedness are limited to assets (including
Capital Stock of the project entity) and/or revenues of such project; provided, further, that the Lien
is Incurred before, or within 365 days after the completion of, the acquisition, construction or
development and does not apply to any other property or assets of the Company or any of its
Restricted Subsidiaries;
(26)
Liens existing on any property or assets of any Person before that Person’s acquisition (in whole
or in part) by, merger into or consolidation with the Company or any Restricted Subsidiary after
the Issue Date;
(27)
Liens encumbering goods and documents of title with respect to such goods and arising in the
ordinary course of business in connection with the issue of documentary letters of credit, in each
case not incurred or made in connection with the borrowing of money or the obtaining of advances
or similar credit, and Liens arising out of title retention provisions in a supplier’s standard
condition of supply of goods acquired in the ordinary course of business;
(28)
any Liens granted to secure borrowings from, directly or indirectly, any international or
multilateral development bank, government-sponsored agency, export-import bank or official
export-import credit insurer;
(29)
any encumbrance or restriction (including, but not limited to, put and call arrangements) with
respect to Capital Stock of joint ventures or similar arrangements pursuant to any joint venture or
similar agreement other than encumbrances or restrictions resulting from Indebtedness for
borrowed money of such joint venture Guaranteed by the Company or any of its Restricted
Subsidiaries; and
(30)
in addition to the foregoing Liens set forth in clauses (1) through (29) above, Liens securing an
amount of Indebtedness outstanding at any one time not to exceed the greater of (i) US$50 million
(or the equivalent in other currencies) and (ii) (a) 5.0% of Consolidated Net Tangible Assets and
(b) upon a Covenant Suspension Event, 15.0% of Consolidated Net Tangible Assets, in each case
at the time of incurrence of such Indebtedness.
“Permitted Receivables Financing” means any receivables financing facility or arrangement pursuant to
which a Securitization Subsidiary purchases or otherwise acquires Accounts Receivable of the Company or any
Restricted Subsidiaries and enters into a third-party financing thereof on terms that the Board of Directors has
concluded are customary and market terms fair to the Company and its Restricted Subsidiaries.
“Person” means an individual, partnership, limited partnership, corporation, company, limited liability
company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision
thereof.
“Post-Petition Interest” means all interest accrued or accruing after the commencement of any insolvency
or liquidation proceeding (and interest that would accrue but for the commencement of any insolvency or liquidation
proceeding) in accordance with and at the contract rate (including, without limitation, any rate applicable upon
default) specified in the agreement or instrument creating, evidencing or governing any Indebtedness, whether or
not, pursuant to applicable law or otherwise, the claim for such interest is allowed as a claim in such insolvency or
liquidation proceeding.
“Preferred Stock” means, with respect to any Person, any Capital Stock of such Person that has preferential
rights over any other Capital Stock of such Person with respect to dividends, distributions or redemptions or upon
liquidation.
180
“Purchase Money Indebtedness” means Indebtedness Incurred for the purpose of financing all or any part
of the purchase price, or other cost of construction or improvement of any property; provided that the aggregate
principal amount of such Indebtedness does not exceed the lesser of the Fair Market Value of such property or such
purchase price or cost, including any Refinancing of such Indebtedness that does not increase the aggregate principal
amount (or accreted amount, if less) thereof as of the date of the Refinancing.
“Qualified Capital Stock” means any Capital Stock that is not Disqualified Capital Stock and any warrants,
rights or options to purchase or acquire Capital Stock that is not Disqualified Capital Stock that are not convertible
into or exchangeable into Disqualified Capital Stock.
“Rating Agencies” means (i) Fitch, (ii) Moody’s and (iii) S&P or (iv) if any of Fitch, Moody’s or S&P shall
not make a rating of the notes publicly available, a nationally recognized United States securities rating agency or
agencies, as the case may be, selected by the Company, which shall be substituted for any of Fitch, Moody’s or
S&P, as the case may be.
“Ratings Decline” means that at any time within 90 days (which period shall be extended so long as the
rating of the notes is under publicly announced consideration for possible downgrade by S&P or Fitch (or any rating
agency) or a substitute or successor of any thereof) after the date of public notice of a Change of Control, of an
arrangement that could result in a Change of Control, or of the Company’s intention or that of any other person to
effect a Change of Control, the then-applicable rating of the Notes is decreased by either S&P or Fitch (or any other
rating agency) or a substitute or successor any thereof; provided that any such rating decline is in whole or in part in
connection with a Change of Control.
“Refinance” means, in respect of any Indebtedness, to issue any Indebtedness in exchange for or to
refinance, replace, defease or refund such Indebtedness in whole or in part. “Refinanced” and “Refinancing” have
correlative meanings.
“Refinancing Indebtedness” means Indebtedness of the Company or any Restricted Subsidiary issued to
Refinance any other Indebtedness of the Company or a Restricted Subsidiary so long as:
(1)
the aggregate principal amount (or initial accreted value, if applicable) of such new Indebtedness
as of the date of such proposed Refinancing does not exceed the aggregate principal amount (or
initial accreted value, if applicable) of the Indebtedness being Refinanced (plus the amount of any
premium required to be paid under the terms of the instrument governing such Indebtedness and
the amount of reasonable expenses incurred by the Company in connection with such
Refinancing);
(2)
such new Indebtedness has:
(3)
(a)
a Weighted Average Life to Maturity that is equal to or greater than the Weighted
Average Life to Maturity of the Indebtedness being Refinanced; and
(b)
a final maturity that is equal to or later than the final maturity of the Indebtedness being
Refinanced; and
if the Indebtedness being Refinanced is Subordinated Indebtedness, then such Refinancing
Indebtedness will be subordinate to the notes or any relevant Subsidiary Guarantee, if applicable,
at least to the same extent and in the same manner as the Indebtedness being Refinanced.
“Related Party” means, with respect to any Person, (1) any Subsidiary, spouse, descendant or other
immediate family member (which includes any child, stepchild, parent, stepparent, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law) in the case of an individual, of such
Person, (2) any estate, trust, corporation, partnership or other entity, the beneficiaries and stockholders, partners or
owners of which consist solely of one or more Permitted Holders and/or such other Persons referred to in the
immediate preceding clause (1), or (3) any executor, administrator, trustee, manager, director or other similar
fiduciary of any Person referred to in the immediately preceding clause (2), acting solely in such capacity.
181
“Responsible Officer” means, when used with respect to the Trustee, any officer within the corporate trust
department of the Trustee, having direct responsibility for the administration of this Indenture, or to whom any
corporate trust matter is referred because of such Person’s knowledge of and familiarity with the particular subject.
“Restricted Payment” has the meaning set forth under “—Covenants—Limitation on Restricted Payments.”
“Restricted Subsidiary” means any Subsidiary of the Company which at the time of determination is not an
Unrestricted Subsidiary.
“Revocation” has the meaning set forth under “—Covenants—Limitation on Designation of Unrestricted
Subsidiaries.”
“Sale and Leaseback Transaction” means any direct or indirect arrangement with any Person or to which
any such Person is a party providing for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or
is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person by
whom funds have been or are to be advanced on the security of such property.
“S&P” means Standard & Poor’s Ratings Services, a division of McGraw Hill Financial, Inc. and its
successors.
“SEC” means the U.S. Securities and Exchange Commission.
“Securitization Subsidiary” means a Subsidiary of the Company
(1)
that is designated a “Securitization Subsidiary” by the Board of Directors,
(2)
that does not engage in, and whose charter prohibits it from engaging in, any activities other than
Permitted Receivables Financings and any activity necessary, incidental or related thereto,
(2)
no portion of the Indebtedness or any other obligation, contingent or otherwise, of which
(3)
(a)
is Guaranteed by the Company or any Restricted Subsidiary of the Company,
(b)
is recourse to or obligates the Company or any Restricted Subsidiary of the Company in
any way, or
(c)
subjects any property or asset of the Company or any Restricted Subsidiary of the
Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof,
with respect to which neither the Company nor any Restricted Subsidiary of the Company (other
than a Restricted Subsidiary) has any obligation to maintain or preserve its financial condition or
cause it to achieve certain levels of operating results
other than, in respect of clauses (3) and (4), pursuant to customary representations, warranties, covenants and
indemnities entered into in connection with a Permitted Receivables Financing.
“Senior Indebtedness” means the notes and the Subsidiary Guarantees and any other Indebtedness of the
Company or any Restricted Subsidiary that ranks equal in right of payment with the notes or the relevant Subsidiary
Guarantee, as the case may be.
“Significant Subsidiary” means a Subsidiary of the Company that would constitute a “Significant
Subsidiary” of the Company in accordance with Rule 1-02 under Regulation S-X under the Securities Act in effect
on the Issue Date.
“Stated Maturity” means, with respect to any security, the date specified in such security as the fixed date
on which the final payment of principal of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase of such security at the option of the
holder thereof upon the happening of any contingency unless such contingency has occurred).
182
“Subordinated Indebtedness” means, with respect to the Company or any Subsidiary Guarantor, any
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be, which is expressly subordinated in
right of payment to the notes or the relevant Subsidiary Guarantee, as the case may be.
“Subsidiary” means, with respect to any Person, any other Person of which such Person owns, directly or
indirectly, more than 50% of the voting power of the other Person’s outstanding Voting Stock.
“Subsidiary Guarantee” means the unconditional Guarantee, on a joint and several basis, of the full and
prompt payment of all Obligations of the Company under the Indenture and the notes, in accordance with the terms
of the Indenture.
“Surviving Entity” has the meaning set forth under “—Covenants—Limitation on Merger, Consolidation
and Sale of Assets.”
“Unrestricted Subsidiary” means any Subsidiary of the Company Designated as an Unrestricted Subsidiary
pursuant to “—Covenants—Limitation on Designation of Unrestricted Subsidiaries.” Any such Designation may be
revoked by a Board Resolution of the Company, subject to the provisions of such covenant. On the Issue Date, the
Unrestricted Subsidiaries are Elementia Servicios Administrativos, S.A. de C.V., Mexalit Servicios
Administrativos, S.A. de C.V., Nacobre Servicios Administrativos, S.A. de C.V., Construsistemas Servicios
Administrativos, S.A. de C.V. and Procenal Servicios, S.A. de C.V.
“U.S. Government Obligations” means direct obligations (or certificates representing an ownership interest
in such obligations) of the United States of America (including any agency or instrumentality thereof) for the
payment of which the full faith and credit of the United States of America is pledged and which are not callable or
redeemable at the issuer’s option.
“Voting Stock” means, with respect to any Person, securities of any class of Capital Stock of such Person
then outstanding and normally entitled to vote in the election of members of the Board of Directors (or equivalent
governing body) of such Person. The term “normally entitled” means without regard to any contingency.
“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of
years (calculated to the nearest one-twelfth) obtained by dividing:
(1)
the then outstanding aggregate principal amount or liquidation preference, as the case may be, of
such Indebtedness into
(2)
the sum of the products obtained by multiplying:
(a)
the amount of each then remaining installment, sinking fund, serial maturity or other
required payment of principal or liquidation preference, as the case may be, including
payment at final maturity, in respect thereof, by
(b)
the number of years (calculated to the nearest one-twelfth) which will elapse between
such date and the making of such payment.
“Wholly-Owned Restricted Subsidiary” means, with respect to any Restricted Subsidiary, a Restricted
Subsidiary all of the outstanding Capital Stock of which (other than any director’s qualifying shares) is owned by
the Company and one or more Wholly-Owned Restricted Subsidiaries (or a combination thereof).
183
TAXATION
General
The following summary contains a description of the material United States and Mexican federal income tax
consequences of the purchase, ownership and disposition of the notes, by holders that are non-residents of Mexico
for tax purposes.
This summary is based upon the federal tax laws of the United States and Mexico as in effect on the date of this
offering memorandum, including the provisions of the income tax treaty between the United States and Mexico,
which we refer to in this offering memorandum as the Tax Treaty, all of which are subject to change, including
retroactively. This summary does not purport to be a comprehensive description of all the United States or Mexican
federal tax considerations that may be relevant to a decision to purchase, hold or dispose of the notes. The summary
does not address any tax consequences under the laws of any state, municipality or locality of Mexico or the United
States or the laws of any taxing jurisdiction other than the federal laws of Mexico and the United States.
Prospective investors should consult their own tax advisors as to the Mexican and United States tax
consequences of the purchase, ownership and disposition of notes, including, in particular, the effect of any foreign
(non-Mexican and non-United States), state, municipal or local tax laws.
Mexico has also entered into or is negotiating several double taxation treaties with various countries that may
have an impact on the tax treatment of the purchase, ownership or disposition of notes. Prospective purchasers of
notes should consult their own tax advisors as to the tax consequences, if any, of the application of any such treaties.
Mexican Federal Tax Considerations
General
The following is a general summary of the principal Mexican federal income tax consequences of the purchase,
ownership and disposition of the notes, by holders that are not residents of Mexico for Mexican federal income tax
purposes, and that do not hold such notes through a permanent establishment for tax purposes in Mexico, to which
income under the notes is attributable; for purposes of this summary, each such holder is referred to as a foreign
holder.
This summary is based on the Mexican Income Tax Law and the Mexican Federal Tax Code (Código Fiscal de
la Federación) and regulations in effect on the date of this offering memorandum, all of which are subject to change,
possibly with retroactive effect, or to new or different interpretations, which could affect the continued validity of
this general summary.
This summary does not constitute tax advice, does not address all of the Mexican tax consequences that may be
applicable to specific holders of the notes and does not purport to be a comprehensive description of all the Mexican
tax considerations that may be relevant to a decision to purchase, own or dispose of the notes. In particular, this
summary does not describe any tax consequences arising under the laws of any state, municipality or taxing
jurisdiction other than certain federal laws of Mexico.
Potential investors should consult with their own tax advisors regarding the particular consequences of
the purchase, ownership or disposition of the notes under the laws of Mexico, including federal, state and
municipal laws, or the laws of any other jurisdiction or under any applicable double taxation treaty to which
Mexico is a party, which is in effect.
For purposes of Mexican taxation, an individual or corporation that does not satisfy the requirements to be
considered a resident of Mexico for tax purposes, as specified below, is deemed as a non-resident of Mexico for tax
purposes and a foreign holder for purposes of this summary.
Tax residency is a highly technical definition that involves the application of a number of factors that are
described in the Mexican Federal Tax Code. An individual is a resident of Mexico for tax purposes if such
individual has established his/her home in Mexico. When the individual in question has a home in another country,
the individual will be deemed a resident in Mexico if his/her center of vital interests is located in Mexican territory.
This will be deemed to occur if (i) more than 50.0% of the aggregate income realized by such individual in the
184
calendar year is from a Mexican source or (ii) the principal center of his/her professional activities is located in
Mexico. Mexican nationals who filed a change of tax residence to a country or jurisdiction that does not have a
comprehensive exchange of information agreement with Mexico and where his/her income is subject to a preferred
tax regime as defined by Mexican law, will be considered Mexican residents for tax purposes during the fiscal year
of the filing of notice of such residence change and during the following three fiscal years. Unless otherwise proven,
a Mexican national is deemed a resident of Mexico for tax purposes.
A legal entity is a resident of Mexico if it maintains the principal administration of its business or the effective
location of its management in Mexico.
If a legal entity or an individual is deemed to have a permanent establishment in Mexico for Mexican tax
purposes or is deemed a resident of Mexico for tax purposes, any and all income attributable to that permanent
establishment will be subject to Mexican income taxes, and all income on a worldwide basis will be taxable for
Mexican income tax purposes in accordance with applicable tax Mexican laws, respectively.
Payments of Interest
Pursuant to the Mexican Income Tax Law, payments of interest on the notes (including original issue discount,
which is deemed to be interest) made by us or the subsidiary guarantors to foreign holders of the notes will be
subject to Mexican withholding tax at a rate of 4.9%, if, as expected, the following requirements are met (which we
plan to meet):

the issuance of the notes (including the principal characteristics of the notes) is notified to the CNBV
pursuant to Article 7 of the Mexican Securities Market Law and Articles 24 Bis and 24 Bis 1 of the general
regulations applicable to issuers and other market participants issued by the CNBV;

the notes, as expected, are placed outside of Mexico through banks or brokerage houses, in a country with
which Mexico has in effect a treaty for the avoidance of double taxation which is in effect (which currently
includes the United States); and

we timely comply with the informational requirements specified from time to time by the Mexican tax
authorities under their general rules, including, after completion of the transaction described in this offering
memorandum, the filing with the Mexican Tax Administration Service (Servicio de Administración
Tributaria, or “SAT”) of certain information regarding the issuance of the notes and this offering
memorandum.
If any of the above mentioned requirements is not met, Mexican withholding taxes, as applicable to interest
payments or amounts deemed interest paid to foreign holders in respect of the notes, will be 10.0% or higher. If the
effective beneficiaries, whether acting directly or indirectly, individually or jointly with related parties, that receive
more than 5% of the interest paid under the notes (i) are persons who own, directly or indirectly, individually or with
related parties, 10% of our voting stock, or (ii) are corporations or other entities, of which 20% or more of the voting
stock is owned, directly or indirectly, jointly or severally, by persons related to us, then the Mexican withholding tax
rate applicable to payments of interest under our notes will increase to the maximum applicable rate according to the
Mexican Income Tax Law (currently 35%). For these purposes, persons will be related if:

one person holds an interest in the business of the other person;

both persons have common interests; or

a third party has an interest in the business or assets of both persons.
As of the date of this offering memorandum, the Tax Treaty is not expected to have any effect on the Mexican
tax consequences described in this summary, because, as described above, under the Mexican Income Tax Law, we
expect to be entitled to withhold taxes in connection with interest payments made to foreign holders under the notes
at a 4.9% rate.
Payments of interest on the notes made by us or the subsidiary guarantors to non-Mexican pension and
retirement funds will be exempt from Mexican withholding tax provided that:
185

the applicable fund is duly incorporated pursuant to the laws of its country of residence and is the effective
beneficiary of the interest payment;

such income is exempt from taxes in its country of residence; and

such fund provides information in accordance with rules issued by SAT for these purposes.
Holders or beneficial owners of the notes may be requested, subject to specified exceptions and limitations, to
provide certain information or documentation necessary to enable us to apply the appropriate Mexican withholding
tax rate on interest payments under the notes, made by us or any subsidiary guarantor to such holders or beneficial
owners. Additionally, the Mexican Income Tax Law provides that, in order for a foreign holder to be entitled to the
benefits under the effective treaties for the avoidance of double taxation entered into by Mexico, it is necessary for
the foreign holder to meet the procedural requirements set forth in such Law. In the event that the specified
information or documentation concerning the holder or beneficial owner, if requested, is not timely provided, we
may withhold Mexican tax from interest payments on the notes to that foreign holder or beneficial owner at the
maximum applicable rate in effect, and our obligation to pay Additional Amounts relating to those withholding taxes
will be limited as described under “Description of the Notes—Additional Amounts.”
Payments of Principal
Under Mexican Income Tax Law, payments of principal on the notes made by us or any subsidiary guarantor to
foreign holders will not be subject to any Mexican withholding tax.
Taxation of Capital Gains
Under the Mexican Income Tax Law, capital gains resulting from the sale or other disposition of the notes by a
foreign holder to another foreign holder are not taxable in Mexico. Gains resulting from the sale of the notes by a
foreign holder to a Mexican resident for tax purposes or to a foreign holder deemed to have a permanent
establishment in Mexico for tax purposes, will be subject to the Mexican taxes pursuant to the rules described above
with respect to interest payments.
Taxation of Make-Whole Amount
Under the Mexican Income Tax Law, the payment of the Make-Whole Amount as a result of the optional
redemption of the notes, as provided in “Description of the Notes—Redemption—General Optional Redemption,”
will be subject to the Mexican taxes pursuant to the rules described above with respect to interest payments.
Other Mexican Taxes
Under current Mexican tax laws, generally there are no estate, inheritance, succession or gift taxes applicable to
the purchase, ownership or disposition of the notes by a foreign holder. Gratuitous transfers of the notes in certain
circumstances may result in the imposition of a Mexican federal tax upon the recipient. There are no Mexican
stamp, issuer registration or similar taxes or duties payable by foreign holders of the notes with respect to the notes.
U.S. Federal Income Tax Considerations
The following are material U.S. federal income tax consequences of owning and disposing of notes purchased
in this offering at the “issue price,” which we assume will be the price indicated on the cover of this offering
memorandum, and held as capital assets for U.S. federal income tax purposes.
This discussion does not describe all of the tax consequences that may be relevant to you in light of your
particular circumstances, including alternative minimum tax consequences, application of “Medicare contribution
tax” and differing tax consequences that may be applicable to you if you are, for instance:

a financial institution;

a regulated investment company;

a dealer or trader in securities;
186

holding notes as part of a “straddle” or integrated transaction;

a U.S. Holder (as defined below) whose functional currency is not the U.S. dollar;

a partnership (or partners therein) or other pass-through entity or arrangement for U.S. federal income tax
purposes; or

a tax-exempt entity.
This summary is based on the Internal Revenue Code of 1986, as amended to the date hereof, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, changes to any of which
subsequent to the date of this offering memorandum may affect the tax consequences described herein. This
summary does not address any U.S. federal tax consequences other than income tax consequences, such as estate
and gift tax consequences. If you are considering the purchase of notes, you should consult your tax adviser with
regard to the application of the U.S. federal tax laws to your particular situation, as well as any tax consequences
arising under the laws of any state, local or foreign taxing jurisdiction.
This discussion applies to you if you are a “U.S. Holder.” You are a U.S. Holder if for U.S. federal income tax
purposes you are a beneficial owner of a note that is:

a citizen or individual resident of the United States;

a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the
United States, any state therein or the District of Columbia; or

an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
Payments of Interest
Stated interest paid on a note will be taxable to you as ordinary interest income at the time it accrues or is
received, in accordance with your method of accounting for U.S. federal income tax purposes. It is expected, and
this discussion assumes, that the notes will be issued without original issue discount for U.S. federal income tax
purposes.
The amount of interest taxable as ordinary income will include amounts withheld in respect of Mexican taxes
and any Additional Amounts paid pursuant to the obligations described under “Description of Notes—Additional
Amounts.” Interest income earned with respect to a note will constitute foreign-source income for U.S. federal
income tax purposes. Subject to applicable limitations, some of which may vary depending upon your particular
circumstances, Mexican income taxes withheld from interest income on a note may be creditable against your U.S.
federal income tax liability. The rules governing foreign tax credits are complex, and you should consult your tax
adviser regarding the availability of foreign tax credits in your particular circumstances.
Certain Additional Payments
There are circumstances in which we might be required to make additional payments on a note, as described
under “Description of Notes—Change of Control.” We intend to take the position that the possibility of such
payments does not result in the notes being treated as contingent payment debt instruments under the applicable
Treasury regulations. Our position is not binding on the U.S. Internal Revenue Service (the “IRS”). If the IRS takes
a position contrary to that described above, you may be required to accrue interest income based upon a
“comparable yield” (as defined in the Treasury regulations) determined at the time of issuance of the notes (which is
not expected to differ significantly from the actual yield on the notes), with adjustments to such accruals when any
contingent payments are made that differ from the payments based on the comparable yield. In addition, any income
on the sale, exchange, retirement or other taxable disposition of the notes would be treated as ordinary income rather
than as capital gain. You should consult your tax adviser regarding the tax consequences if the notes were treated as
contingent payment debt instruments. The remainder of this discussion assumes that the notes are not treated as
contingent payment debt instruments.
187
Sale or Other Taxable Disposition of the Notes
Upon the sale or other taxable disposition of a note, you will recognize taxable gain or loss equal to the
difference between the amount realized on the sale or other taxable disposition and your adjusted tax basis in the
note. Your adjusted tax basis in a note will generally equal the cost of your note. For these purposes, the amount
realized does not include any amount attributable to accrued interest, which is treated as described under “Payments
of Interest” above.
Gain or loss, if any, will generally be U.S.-source income for purposes of computing your foreign tax credit
limitation. Accordingly, if Mexican or other withholding tax is imposed on the sale or disposition of a note, a United
States person may not able to fully utilize its U.S. foreign tax credits in respect of such withholding tax unless such
United States person has other foreign-source income. Prospective investors should consult their own tax advisers as
to the U.S. tax and foreign tax credit implications of such sale or other taxable disposition of a note.
Gain or loss realized on the sale or other taxable disposition of a note will generally be capital gain or loss and
will be long term capital gain or loss if at the time of the sale or other taxable disposition the note has been held for
more than one year. Long-term capital gains recognized by non-corporate taxpayers are subject to reduced tax rates.
The deductibility of capital losses is subject to limitations.
Backup Withholding and Information Reporting
Information returns may be required to be filed with the IRS in connection with payments on the notes and
proceeds received from a sale or other disposition of the notes unless you are an exempt recipient. You may also be
subject to backup withholding on these payments in respect of your notes unless you provide your taxpayer
identification number and otherwise comply with applicable requirements of the backup withholding rules or you
provide proof of an applicable exemption. Amounts withheld under the backup withholding rules are not additional
taxes and may be refunded or credited against your U.S. federal income tax liability, provided the required
information is timely furnished to the IRS.
188
PLAN OF DISTRIBUTION
Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, Citigroup Global Markets Inc., HSBC
Securities (USA) Inc. and Santander Investment Securities Inc. are acting as the representatives of the initial
purchasers named below. Subject to the terms and conditions stated in the purchase agreement dated the date of this
offering memorandum, each initial purchaser named below has severally agreed to purchase, and we have agreed to
sell to that initial purchaser, the principal amount of the notes set forth opposite the initial purchaser’s name.
Principal Amount of
Notes
Initial Purchaser
Credit Suisse Securities (USA) LLC ................................................................................................ US$111,843,000
Morgan Stanley & Co. LLC. ...........................................................................................................
111,843,000
Citigroup Global Markets Inc. ..........................................................................................................
67,105,000
HSBC Securities (USA) Inc. ............................................................................................................
67,105,000
67,104,000
Santander Investment Securities Inc.................................................................................................
US$425,000,000
Total .............................................................................................................................................
The initial purchasers propose to resell the notes at the offering price set forth on the cover page of this offering
memorandum within the United States to qualified institutional buyers (as defined in Rule 144A) in reliance on Rule
144A and outside the United States in reliance on Regulation S. See “Transfer Restrictions.” The price at which the
notes are offered may be changed at any time without notice.
The notes have not been and will not be registered under the Securities Act or any state securities laws and may
not be offered or sold within the United States except in transactions exempt from, or not subject to, the registration
requirements of the Securities Act. See “Transfer Restrictions.” In addition, until 40 days after the commencement
of the offering, an offer or sale of notes within the United States by a dealer that is not participating in the offering
may violate the registration requirements of the Securities Act if that offer or sale is made otherwise than in
accordance with Rule 144A and Regulation S.
The Notes will constitute a new issue of securities with no established trading market. Application will be
made to list the notes on the Official List of the Luxembourg Stock Exchange and for trading on the Euro MTF
Market. However, we cannot assure you that the listing application will be approved. We have been advised by the
initial purchasers that they presently intend to make a market in the notes after completion of the offering. However,
they are under no obligation to do so and may discontinue any market-making activities at any time without any
notice. We cannot assure the liquidity of the trading market for the notes. If an active trading market for the notes
does not develop, the market price and liquidity of the notes may be adversely affected. If the notes are traded, they
may trade at a discount from their initial offering price, depending on prevailing interest rates, the market for similar
securities, our operating performance and financial condition, general economic conditions and other factors.
We expect that delivery of the notes will be made to investors on or about November 26, 2014, which will be
the fourth business day following the date of this offering memorandum (such settlement being referred to as
“T+4”). Under Rule 15c6-1 under the U.S. Securities Exchange Act of 1934, trades in the secondary market are
required to settle in three business days, unless the parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade notes prior to the delivery of the notes hereunder will be required, by
virtue of the fact that the notes initially settle in T+4, to specify an alternate settlement arrangement at the time of
any such trade to prevent a failed settlement. Purchasers of the notes who wish to trade the notes prior to their date
of delivery hereunder should consult their advisors.
We have agreed that for a period of 60 days after the date of this offering memorandum, we will not without
first obtaining the prior written consent of the representatives of the initial purchasers, directly or indirectly, sell,
offer, announce the offering of, or file any registration statement under the Securities Act in respect of, any of our
debt securities offered or sold in the Mexican or international capital markets, except for the notes sold to the initial
purchasers pursuant to the purchase agreement.
In connection with the offering, the initial purchasers may purchase and sell notes in the open market.
Purchases and sales in the open market may include short sales, purchases to cover short positions and stabilizing
purchases.
189
Purchases to cover short positions and stabilizing purchases, as well as other purchases by the initial purchasers
for their own accounts, may have the effect of preventing or retarding a decline in the market price of the notes.
They may also cause the price of the notes to be higher than the price that would otherwise exist in the open market
in the absence of these transactions. The initial purchasers may conduct these transactions in the over-the-counter
market or otherwise. If the initial purchasers commence any of these transactions, they may discontinue them at any
time.
The initial purchasers and/or their affiliates may enter into derivative transactions in connection with the notes,
acting at the order and for the account of their clients. The initial purchasers and/or their affiliates may also purchase
some of the securities in this offering as a hedge for such transactions. Such transactions may have an effect on
demand, price or other terms of the offering.
The initial purchasers are full service financial institutions engaged in various activities, which may include
securities trading, commercial and investment banking, financial advisory, investment management, principal
investment, hedging, financing and brokerage activities. Certain of the initial purchasers and their affiliates have in
the past performed commercial banking, investment banking and advisory services for us from time to time for
which they have received customary fees and reimbursement of expenses and may, from time to time, engage in
transactions with and perform services for us in the ordinary course of their businesses for which they may receive
customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the initial
purchasers and their respective affiliates may make or hold a broad array of investments and actively trade debt and
equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or
credit default swaps) for their own account and for the accounts of their customers and may at any time hold long
and short positions in such securities and instruments. Such investment and securities activities may involve our
securities and instruments (directly, as collateral securing other obligations or otherwise). The initial purchasers and
their affiliates may also make investment recommendations and/or publish or express independent research views in
respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long
and/or short positions in such securities and instruments. In addition, affiliates of some of the initial purchasers are
lenders, and in some cases agents or managers for the lenders, under our credit facility, and as such affiliates of
certain of the initial purchasers may receive proceeds from the offering if we use any of such proceeds to repay
indebtedness.
We have agreed to indemnify the initial purchasers against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the initial purchasers may be required to make because of any of
those liabilities.
Notice to Prospective Investors in Mexico
The information contained in this offering memorandum is exclusively our responsibility and has not been
reviewed or authorized by the CNBV. The Notes have not been and will not be registered with the RNV maintained
by the CNBV and, therefore, the notes may not be publicly offered or sold nor be the subject of brokerage activities
in Mexico but may be sold to Mexican institutional investors or to qualified investors pursuant to the private
placement exemption set forth in Article 8 of the LMV. As required under the LMV, we will notify the CNBV of
the terms and conditions of this offering of the notes outside of Mexico. Such notice will be delivered to the CNBV
to comply with a legal requirement and for information and statistical purposes only, and the delivery of such notice
to, and the receipt of such notice by, the CNBV, does not imply any certification as to the investment quality of the
notes, our solvency, liquidity or credit quality or the accuracy or completeness of the information set forth herein.
This offering memorandum is solely our responsibility, has not been reviewed or authorized by the CNBV may not
be publicly distributed in Mexico. The acquisition of the notes by investors, including Mexican investors, will be
made under their own responsibility.
Notice to Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area that has implemented the Prospectus Directive
(each, a “relevant member state”), with effect from and including the date on which the Prospectus Directive is
implemented in that relevant member state (the “relevant implementation date”), an offer of notes described in this
offering memorandum may not be made to the public in that relevant member state other than:

to any legal entity which is a qualified investor as defined in the Prospectus Directive;
190

to fewer than 100 or, if the relevant member state has implemented the relevant provision of the 2010 PD
Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the
Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of
the relevant Dealer or Dealers nominated by us for any such offer; or
 in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of securities shall require us or the initial purchasers to publish a prospectus
pursuant to Article 3 of the Prospectus Directive.
For purposes of this provision, the expression an “offer of securities to the public” in any relevant member state
means the communication in any form and by any means of sufficient information on the terms of the offer and the
securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the
expression may be varied in that member state by any measure implementing the Prospectus Directive in that
member state, and the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto,
including the 2010 PD Amending Directive, to the extent implemented in the relevant member state) and includes
any relevant implementing measure in each relevant member state. The expression 2010 PD Amending Directive
means Directive 2010/73/EU.
The sellers of the notes have not authorized and do not authorize the making of any offer of notes through any
financial intermediary on their behalf, other than offers made by the initial purchasers with a view to the final
placement of the notes as contemplated in this offering memorandum. Accordingly, no purchaser of the notes, other
than the initial purchasers, is authorized to make any further offer of the notes on behalf of the sellers or the initial
purchasers.
Notice to Prospective Investors in the United Kingdom
This offering memorandum is only being distributed to, and is only directed at, persons in the United Kingdom
that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also
(i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (the “Order”) or (ii) high net worth entities, and other persons to whom it may lawfully be
communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a “relevant
person”). This offering memorandum and its contents are confidential and should not be distributed, published or
reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person
in the United Kingdom that is not a relevant person should not act or rely on this offering memorandum or any of its
contents.
Notice to Prospective Investors in France
Neither this offering memorandum nor any other offering material relating to the notes described in this offering
memorandum has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the
competent authority of another member state of the European Economic Area and notified to the Autorité des
Marchés Financiers. The notes have not been offered or sold and will not be offered or sold, directly or indirectly, to
the public in France. Neither this offering memorandum nor any other offering material relating to the notes has
been or will be:

released, issued, distributed or caused to be released, issued or distributed to the public in France; or

used in connection with any offer for subscription or sale of the notes to the public in France. Such offers,
sales and distributions will be made in France only:

to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint
d’investisseurs), in each case investing for their own account, all as defined in, and in accordance with,
articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire
et financier;

to Advisors authorized to engage in portfolio management on behalf of third parties; or
191

in a transaction that, in accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et
financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des Marchés
Financiers, does not constitute a public offer (appel public à l’épargne).
The notes may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and
L.621-8 through L.621-8-3 of the French Code monétaire et financier.
Notice to Prospective Investors in Switzerland
This offering memorandum does not constitute a prospectus within the meaning of Article 652a of the Swiss
Code of Obligations. The notes may not be sold directly or indirectly in or into Switzerland except in a manner
which will not result in a public offering within the meaning of the Swiss Code of Obligations. Neither this offering
memorandum nor any other offering materials relating to the notes may be distributed, published or otherwise made
available in Switzerland except in a manner which will not constitute a public offering of the notes in Switzerland.
Notice to Prospective Investors in Hong Kong
The notes may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances
which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of
Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.
571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the
document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong)
and no advertisement, invitation or document relating to the notes may be issued or may be in the possession of any
person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the
contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under
the laws of Hong Kong) other than with respect to notes which are or are intended to be disposed of only to persons
outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance
(Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Japan
The notes offered in this offering memorandum have not been registered under the Securities and Exchange
Law of Japan. The notes have not been offered or sold and will not be offered or sold, directly or indirectly, in
Japan or to or for the account of any resident of Japan, except (i) pursuant to an exemption from the registration
requirements of the Securities and Exchange Law and (ii) in compliance with any other applicable requirements of
Japanese law.
Notice to Prospective Investors in Singapore
This offering memorandum has not been registered as a prospectus with the Monetary Authority of Singapore.
Accordingly, this offering memorandum and any other document or material in connection with the offer or sale, or
invitation for subscription or purchase, of the notes may not be circulated or distributed, nor may the notes be
offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to
Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (i)otherwise pursuant
to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to
compliance with conditions set forth in the SFA.
Where the notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business
of which is to hold investments and the entire share capital of which is owned by one or more individuals,
each of whom is an accredited investor; or

a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each
beneficiary of the trust is an individual who is an accredited investor,
192
notes, debentures and units of notes and debentures of that corporation or the beneficiaries’ rights and interest
(howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has
acquired the notes pursuant to an offer made under Section 275 of the SFA except:

to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined
in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such notes,
debentures and units of notes and debentures of that corporation or such rights and interest in that trust are
acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each
transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and
further for corporations, in accordance with the conditions specified in Section 275 of the SFA;

where no consideration is or will be given for the transfer; or

where the transfer is by operation of law.
Notice to Prospective Investors in Brazil
For purposes of Brazilian law, this offer of securities is addressed to you personally, upon your request and for
your sole benefit, and is not to be transmitted to anyone else, to be relied upon elsewhere or for any other purpose
either quoted or referred to in any other public or private document or to be filed with anyone without our prior,
express and written consent.
Therefore, as this offering memorandum does not constitute or form part of any public offering to sell or
solicitation of a public offering to buy any notes or assets, the offering and THE NOTES OFFERED HEREBY
HAVE NOT BEEN, AND WILL NOT BE, AND MAY NOT BE OFFERED FOR SALE OR SOLD IN BRAZIL
EXCEPT IN CIRCUMSTANCES WHICH DO NOT CONSTITUTE A PUBLIC OFFERING OR DISTRIBUTION
UNDER BRAZILIAN LAWS AND REGULATIONS. DOCUMENTS RELATING TO THE NOTES, AS WELL
AS THE INFORMATION CONTAINED THEREIN, MAY NOT BE SUPPLIED TO THE PUBLIC, AS A
PUBLIC OFFERING IN BRAZIL OR BE USED IN CONNECTION WITH ANY OFFER FOR SUBSCRIPTION
OR SALE OF THE NOTES TO THE PUBLIC IN BRAZIL.
Notice to Prospective Investors in Peru
The notes and the information contained in this offering memorandum are not being publicly marketed
or offered in Peru and will not be distributed or caused to be distributed to the general public in Peru.
Peruvian securities laws and regulations on public offerings will not be applicable to the offering of the notes
and therefore, the disclosure obligations set forth therein will not be applicable to us or the sellers of the notes
before or after their acquisition by prospective investors. The notes and the information contained in this
offering memorandum have not been and will not be reviewed, confirmed, approved or in any way submitted
to the SMV nor have they been registered under the Securities Market Law (Ley del Mercado de Valores) or
any other Peruvian regulations. Accordingly, the notes cannot be offered or sold within Peruvian territory
except to the extent any such offering or sale qualifies as a private offering under Peruvian regulations and
complies with the provisions on private offerings set forth therein.
The notes may not be offered or sold in Peru except in compliance with the securities law thereof.
Notice to Prospective Investors in Chile
Pursuant to Law No. 18,045 of Chile (the securities market law of Chile) and Rule (Norma de Carácter
General) No. 336, dated June 27, 2012, issued by the SVS, the notes may be privately offered in Chile to certain 12,
2008, of the SVS).
Rule 336 requires the following information to be provided to prospective investors in Chile:
1. Date of commencement of the offer: November 20, 2014. The offer of the notes is subject Rule (Norma de
Carácter General) No. 336, dated June 27, 2012, issued by the Superintendency of Securities and Insurance of
Chile (Superintendencia de Valores y Seguros de Chile or “SVS”);
193
2. the subject matter of this offer are securities not registered with the Securities Registry (Registro de Valores)
of the SVS, nor with the foreign securities registry (Registro de Valores Extranjeros) of the SVS, due to the notes
not being subject to the oversight of the SVS;
3. since the notes are not registered in Chile there is no obligation by us to make publicly available information
about the notes in Chile; and
4. the notes shall not be subject to public offering in Chile unless registered with the relevant Securities
Registry of the SVS.
Información a los Inversionistas Chilenos
De conformidad con la ley N° 18.045, de mercado de valores y la Norma de Carácter General N° 336 (la
“NCG 336”), de 27 de junio de 2012, de la Superintendencia de Valores y Seguros de Chile (la “SVS”), los
acciones pueden ser ofrecidos privadamente a ciertos “inversionistas calificados”, a los que se refiere la NCG 336
y que se definen como tales en la Norma de Carácter General N° 216, de 12 de junio de 2008, de la SVS.
La siguiente información se proporciona a potenciales inversionistas de conformidad con la NCG 336:
1. La oferta de los acciones comienza el 20 de noviembre de 2014, y se encuentra acogida a la Norma de
Carácter General N° 336, de fecha 27 de junio de 2012, de la SVS;
2. La oferta versa sobre valores no inscritos en el Registro de Valores o en el Registro de Valores Extranjeros
que lleva la SVS, por lo que tales valores no están sujetos a la fiscalización de esa Superintendencia;
3. Por tratarse de valores no inscritos en Chile no existe la obligación por parte del emisor de entregar en
Chile información pública sobre los mismos; y
4. Estos valores no podrán ser objeto de oferta pública en Chile mientras no sean inscritos en el Registro de
Valores correspondiente.
194
TRANSFER RESTRICTIONS
The notes have not been registered, and will not be registered, under the Securities Act or any state securities
laws, and the notes may not be offered or sold except pursuant to an effective registration statement or pursuant to
transactions exempt from, or not subject to, registration under the Securities Act. Accordingly, the notes are being
offered and sold only:

in the United States to qualified institutional buyers (as defined in Rule 144A) pursuant to Rule 144A under
the Securities Act; and

outside of the United States, to certain persons, other than U.S. persons (“non-U.S. purchasers,” which term
shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for
non-U.S. beneficial owners (other than an estate or trust)), in offshore transactions meeting the
requirements of Rule 903 of Regulation S under the Securities Act.
As used herein, the terms “offshore transaction,” “United States” and “U.S. person” have the respective
meanings given to them in Regulation S under the Securities Act.
Purchasers’ representations and restrictions on resale and transfer
Each purchaser of notes (other than the initial purchasers in connection with the initial issuance and sale of
notes) and each owner of any beneficial interest therein will be deemed, by its acceptance or purchase thereof, to
have represented and agreed as follows:
1. it is purchasing the notes for its own account or an account with respect to which it
exercises sole investment discretion and it and any such account is either (a) a qualified institutional
buyer and is aware that the sale to it is being made pursuant to Rule 144A or (b) a non-U.S. person that
is outside the United States (or a non-U.S. purchaser that is a dealer or other fiduciary as referred to
above);
2. it acknowledges that the notes have not been registered under the Securities Act or with
any securities regulatory authority of any U.S. state, that the notes are being offered in a transaction
that does not involve any public offering in the United States within the meaning of the Securities Act
and that the notes may not be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except as set forth below;
3. it understands and agrees that notes initially offered in the United States to qualified
institutional buyers will be represented by a Global Note and that notes offered outside the United
States pursuant to Regulation S will also be represented by a Global Note;
4. it will not resell or otherwise transfer any of such notes except (a) to us, (b) within the
United States to a qualified institutional buyer in a transaction complying with Rule 144A under the
Securities Act, (c) outside the United States in compliance with Rule 903 or 904 under the Securities
Act, (d) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if
available) or (e) pursuant to an effective registration statement under the Securities Act;
5. it agrees that it will give to each person to whom it transfers the notes notice of any
restrictions on transfer of such notes;
6. it acknowledges that prior to any proposed transfer of notes (other than pursuant to an
effective registration statement or in respect of notes sold or transferred either pursuant to (a) Rule
144A or (b) Regulation S) the holder of such notes may be required to provide certifications relating to
the manner of such transfer as provided in the indenture;
7. it acknowledges that the trustee, registrar or transfer agent for the notes will not be
required to accept for registration transfer of any notes acquired by it, except upon presentation of
evidence satisfactory to us and the trustee, registrar or transfer agent that the restrictions set forth
herein have been complied with;
195
8. it acknowledges that we will not be required to accept for registration of transfer any
notes acquired by us, except upon presentation of evidence satisfactory to us that the restrictions set
forth herein in this section have been complied with;
9. if it is a non-U.S. purchaser acquiring a beneficial interest in a Regulation S Note offered
pursuant to this offering memorandum, it acknowledges and agrees that, until the expiration of the 40
day “distribution compliance period” within the meaning of Regulation S, any offer, sale, pledge or
other transfer shall not be made by it in the United States or to, or for the account or benefit of, a U.S.
person, except pursuant to Rule 144A to a QIB taking delivery thereof in the form of a beneficial
interest in a U.S. Note;
10. it acknowledges that we, the initial purchasers and other persons will rely upon the truth
and accuracy of the foregoing acknowledgements, representations and agreements and agrees that if
any of the acknowledgements, representations and agreements deemed to have been made by its
purchase of the notes are no longer accurate, it will promptly notify us and the initial purchasers; and
11. if it is acquiring the notes as a fiduciary or agent for one or more investor accounts, it
represents that it has sole investment discretion with respect to each such account and it has full power
to make the foregoing acknowledgements, representations and agreements on behalf of each account.
Legends
The following is the form of restrictive legend which will appear on the face of the Rule 144A Global Note, and
which will be used to notify transferees of the foregoing restrictions on transfer:
“This Note has not been registered under the U.S. Securities Act of 1933, as amended (the “Securities
Act”), or any state or other securities laws. The holder hereof, by purchasing this Note, agrees for the benefit
of Elementia, S.A. de C.V. (the “Company”) that this Note or any interest or participation herein may be
offered, resold, pledged or otherwise transferred only (1) to the Company, (2) so long as this Note is eligible
for resale pursuant to Rule 144A under the Securities Act (“Rule 144A”), to a person who the seller
reasonably believes is a qualified institutional buyer (as defined in Rule 144A) in accordance with Rule 144A,
(3) in an offshore transaction in accordance with Rule 903 or 904 of Regulation S under the Securities Act, (4)
pursuant to an exemption from registration under the Securities Act afforded by Rule 144 under the
Securities Act (if available) or (5) pursuant to an effective registration statement under the Securities Act, and
in each of such cases in accordance with any applicable securities laws of any state of the United States or
other applicable jurisdiction. The holder hereof, by purchasing this Note, represents and agrees that it shall
notify any purchaser of this Note from it of the resale restrictions referred to above.”
The following is the form of restrictive legend which will appear on the face of the Regulation S Global Note
and which will be used to notify transferees of the foregoing restrictions on transfer:
“This Note has not been registered under the U.S. Securities Act of 1933, as amended (the “Securities
Act”), or any state securities laws. The holder hereof, by purchasing this Note, agrees that neither this Note
nor any interest or participation herein may be offered, resold, pledged or otherwise transferred in the
absence of such registration unless such transaction is exempt from, or not subject to, such registration and in
accordance with any applicable securities laws of any other applicable jurisdiction.
The foregoing legend may be removed from this Note after 40 days beginning on and including the later
of (a) the date on which the notes are offered to persons other than distributors (as defined in Regulation S
under the Securities Act) and (b) the original issue date of the notes.”
For further discussion of the requirements (including the presentation of transfer certificates) under the
indenture to effect exchanges or transfers of interest in global notes and certificated notes, see “Description of
Notes.”
196
Other Jurisdictions
The distribution of this offering memorandum and the offer and sale or resale of the notes may be restricted by
law in certain jurisdictions. Persons into whose possession this offering memorandum comes are required by us and
the initial purchasers to inform themselves about and to observe any such restrictions.
197
LEGAL MATTERS
Certain legal matters with respect to the notes and this international offering are being passed upon for us by
Davis Polk & Wardwell LLP, our U.S. counsel, DRB Consultores Legales, S.C., our Mexican counsel and Chévez,
Ruiz, Zamarripa y Cía, S.C., our Mexican tax counsel, and for the initial purchasers by Shearman & Sterling LLP,
U.S. counsel to the initial purchasers, and Ritch, Mueller, Heather y Nicolau, S.C., Mexican counsel to the initial
purchasers.
198
INDEPENDENT AUDITORS
Our audited consolidated financial statements of Elementia, S.A. de C.V. and subsidiaries, as of December 31,
2013, 2012 and 2011 and for the years then ended, included elsewhere in this offering memorandum, have been
audited by Galaz, Yamazaki, Ruiz Urquiza, S.C. (member of Deloitte Touche Tohmatsu Limited), independent
auditors, as stated in their report appearing herein.
199
(This Page Intentionally Left Blank)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Unaudited Condensed Consolidated Interim Financial Statements for the Nine and Three-Month
Periods Ended September 30, 2014 and 2013:
Unaudited Condensed Consolidated Interim Statements of Financial Position as of September 30,
2014 (unaudited) and December 31, 2013...................................................................................................
Unaudited Condensed Consolidated Interim Statements of Profit or Loss and Other Comprehensive
Income for the nine and three-month periods ended September 30, 2014 and 2013 ...............................
Unaudited Condensed Consolidated Interim Statements of Changes in Stockholders’ Equity for the
nine-month periods ended September 30, 2014 and 2013
Unaudited Condensed Consolidated Interim Statements of Cash Flows for the nine-month periods
ended September 30, 2014 and 2013 .......................................................................................................
Notes to the Unaudited Condensed Consolidated Interim Financial Statements for the nine-and three
month periods ended September 30, 2014 and 2013 ...............................................................................
Audited Consolidated Financial Statements for the years ended December 31, 2013, 2012, and 2011:
Independent Auditors’ Report ....................................................................................................................
Consolidated Statements of Financial Position as of December 31, 2013, 2012, and 2011 ........................
Consolidated Statements of Profit of Loss and Other Comprehensive Income for the years ended
December 31, 2013, 2012, and 2011 .......................................................................................................
Consolidated Statements of Changes in Stockholders’ Equity For the years ended December 31,
2013, 2012, and 2011 ..............................................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012, and 2011 ...........
Notes to the Consolidated Financial Statements as of December 31, 2013, 2012, and 2011 ......................
F-1
F-4
F-5
F-7
F-8
F-10
F-22
F-24
F-25
F-27
F-28
F-30
Elementia, S. A. de C. V. y
Subsidiaries
(Subsidiary of Kaluz, S. A. de C. V.)
Interim Condensed Consolidated
Financial Statements (Unaudited) for the
Nine and Three-Month Periods Ended
September 30, 2014 and 2013
F-2
Elementia, S. A. de C. V. and Subsidiaries
Interim Condensed Consolidated Financial Statements
(Unaudited) for the Nine and Three -Month Periods
Ended September 30, 2014 and 2013
Table of contents
Page
Interim Condensed Consolidated Statements of Financial Position as of September 30,
2014 (Unaudited) and December 31, 2013
F-4
Unaudited Interim Condensed Consolidated Statements of Profit or Loss and Other
Comprehensive Income for the Three and Nine-Month Periods Ended September 30,
2014 and 2013
F-5
Unaudited Interim Condensed Consolidated Statements of Changes in Stockholders’
Equity for the Nine-Month Periods Ended September 30, 2014 and 2013
F-7
Unaudited Interim Condensed Consolidated Statements of Cash Flows for the NineMonth Periods Ended September 30, 2014 and 2013
F-8
Notes to Unaudited Interim Condensed Consolidated Financial Statements
F-10
F-3
Interim Condensed Consolidated Statements of
Financial Position
As of September 30, 2014 (unaudited) and December 31, 2013
(In thousands of Mexican pesos)
Assets
Current assets:
Cash and cash equivalents
Derivative financial instruments
Accounts receivable – Net
Due from related parties – Net
Inventories – Net
Prepaid expenses
Total current assets
Non-current assets:
Property, machinery and equipment – Net
Note
5
7
September 30, 2014
(unaudited)
Ps$
17
6
8
Net plan assets for the employee benefits at retirement
Long-term due from related parties
Total non-current assets
Total assets
Ps$
15,521,379
Investment in shares of associated companies and others
Intangibles and other assets – Net
2,161,131
3,596,718
2,466
2,508,522
304,627
8,573,464
December 31,
2013
9
1,972,934
9,810
3,506,269
40,944
2,250,371
307,098
8,087,426
10,922
11,118
318,626
289,261
27,648,255
Notes payable to financial institutions and long-term debt
Long-term due to related parties
Deferred income taxes
Income tax liabilities from tax consolidation benefits
Other long-term liabilities
Total long-term liabilities
Total liabilities
13
12
September 30, 2014
(unaudited)
Ps$
11
17
7
53,851
18,136,491
Ps$
13,14
17
Commitments and contingencies (Note 19)
Stockholders’ equity:
Capital stock
Additional paid-in capital
Retained earnings
Exchange differences on translating foreign operations
Net fair value effect on hedging instruments entered into for
cash flow hedges
Gain on revaluation of property, machinery and equipment
Actuarial loss
Equity attributable to owners of the Entity
Non-controlling interest
Total stockholders’ equity
3,174,174
53,703
19,074,791
Ps$
current portion of long-term debt
Trade accounts payable
Direct employee benefits
Provisions
Accrued expenses and taxes, other than income taxes
Due to related parties
Current portion of income tax liabilities from consolidation
benefits
Advances from customers
Derivative financial instrument
Total current liabilities
Note
458,820
3,166,354
14,860
718,341
203,260
197,413
December 31,
2013
Ps$
192,533
2,663,274
30,742
420,815
168,792
173,358
862
62,926
7,190
4,830,026
170,948
157,863
3,978,325
5,935,304
18,597
1,173,155
679,096
3,563
7,809,715
12,639,741
6,185,182
18,075
1,079,537
512,845
14,087
7,809,726
11,788,051
2,012,905
4,598,877
4,181,679
1,042,133
2,012,905
4,598,877
3,608,669
1,132,766
(5,033)
141,444
(209,453)
11,762,552
3,245,962
15,008,514
6,867
84,549
(209,247)
11,235,386
3,200,480
14,435,866
14,608,087
3,170,161
17
Liabilities and stockholders’ equity
Total stockholders’ equity and liabilities
26,223,917
See accompanying notes to the unaudited condensed consolidated financial statements.
F-4
Ps$
27,648,255
Ps$
26,223,917
Unaudited Interim Condensed Consolidated
Statements of Profit or Loss and Other Comprehensive
Income
For the nine and three-month periods ended September 30, 2014 and 2013
(In thousands of Mexican pesos, except earnings (loss) per share)
Note
Net sales
Cost of sales
Gross profit
18
18
Nine-month period
ended
September 30, 2014
(unaudited)
Ps$
11,499,978
8,586,286
2,913,692
Nine-month period
ended
September 30, 2013
(unaudited)
Three-month period
ended
September 30, 2014
(unaudited)
Ps$
Ps$
9,618,304
7,434,861
2,183,443
4,096,818
2,964,060
1,132,758
Three-month period
ended
September 30, 2013
(unaudited)
Ps$
3,350,787
2,550,186
800,601
Operating expenses
Other income – Net
Exchange loss (gain) - Net
Interest income
Interest expense
Banking fees
Equity in income of associated entity
Income before income taxes
18
16
1,774,836
(198,378)
(24,935)
(53,721)
355,206
52,535
1,008,149
1,555,724
(115,410)
42,511
(34,111)
217,350
79,900
(12,600)
450,079
658,323
(32,573)
(26,968)
(18,428)
120,404
18,556
413,444
510,329
(39,308)
39,471
(24,107)
123,514
33,342
6,900
150,460
Income tax expense
Income from continuing operations
15
308,046
700,103
106,014
344,065
129,607
283,837
35,743
114,717
81,611
23,148
19,891
14,927
Loss for the period from discontinued operations, Net
Net income
Ps$
Other comprehensive income, net of income taxes:
Items that will not be reclassified subsequently to profit or
loss
Actuarial loss
Gain on revaluation of property, machinery and equipment
Items that may be reclassified subsequently to profit or loss
Net fair value loss (gain) effect on hedging instruments
entered into for cash flow hedges
Exchange difference loss (gain) loss on translating foreign
operations
Total other comprehensive loss (income) for the
period, net of income taxes
Total comprehensive income for the period
Ps$
618,492
Ps$
320,917
206
(56,895)
2,506
(2,609)
11,900
7,524
Ps$
263,946
Ps$
-
99,790
(13,927)
841
10,887
12,007
(20,070)
90,633
(468,899)
(29,638)
(337,053)
45,844
(461,478)
(31,558)
(345,395)
572,648
Ps$
782,395
Ps$
295,504
Ps$
445,185
(Continue)
F-5
Note
Net income attributable to:
Owners of the Entity
Nine-month period
ended
September 30, 2014
(unaudited)
Nine-month period
ended
September 30, 2013
(unaudited)
Three-month period
ended
September 30, 2014
(unaudited)
Three-month period
ended
September 30, 2013
(unaudited)
Ps$
573,010
45,482
Ps$
303,194
17,723
Ps$
233,357
30,589
Ps$
83,071
16,719
Ps$
618,492
Ps$
320,917
Ps$
263,946
Ps$
99,790
Ps$
527,166
45,482
Ps$
764,672
17,723
Ps$
264,915
30,589
Ps$
428,466
16,719
Ps$
572,648
Ps$
782,395
Ps$
295,504
Ps$
445,185
Ps$
22.4118
Ps$
11.7727
Ps$
8.6702
Ps$
5.7859
From discontinued operations
Ps$
(2.7941)
Ps$
(0.7925)
Ps$
(0.6810)
Ps$
(0.5110)
From continuing and discontinued operations
Ps$
19.6177
Ps$
10.3802
Ps$
7.9893
Ps$
5.2748
Total comprehensive income for the year attributable to:
Earnings per share:
From continuing operations
Weighted average shares outstanding
29,208,810
29,208,810
29,208,810
29,208,810
(Concluded)
F-6
Statements of Changes in Stockholders’ Equity
For the nine-month periods ended September 30, 2014 and 2013
Balances as of January 1, 2013
Ps$
Additional capital contribution
Net income
Other comprehensive income
Acquisition of non-controlling
interest
Capital
stock
Unpaid subscribed
capital stock
Additional paid-in
capital
2,012,905
Ps$
Ps$
(5,825)
5,825
4,598,877
Retained
earnings
Ps$
3,338,951
Exchange differences
on translating
foreign operations
Net fair value effect
on hedging
instruments entered
into for cash flow
Gain on revaluation
hedges
of property
Ps$
Ps$
900,345
5,984
-
-
-
303,194
-
468,899
-
-
-
-
-
-
-
Ps$
260,535
Actuarial
loss
Ps$
(7,524)
(144,650)
-
2,609
(2,506)
-
-
Attributable to
owners of the Entity
Ps$ 10,967,122
Non-controlling
interest
Ps$
5,825
303,194
461,478
-
Total
stockholders’
equity
21,795
Ps$ 10,988,917
17,723
-
5,825
320,917
461,478
3,174,549
3,174,549
Balances as of September 30, 2013
Ps$
2,012,905
Ps$
-
Ps$
4,598,877
Ps$
3,642,145
Ps$
1,369,244
Ps$
(1,540)
Ps$
263,144
Ps$
(147,156)
Ps$ 11,737,619
Ps$
3,214,067
Ps$ 14,951,686
Ps$
2,012,905
Ps$
-
Ps$
4,598,877
Ps$
3,608,669
Ps$
1,132,766
Ps$
6,867
Ps$
84,549
Ps$
(209,247)
Ps$ 11,235,386
Ps$
3,200,480
Ps$ 14,435,866
Net income
Other comprehensive loss
Balances as of September 30, 2014
Ps$
2,012,905
Ps$
-
Ps$
4,598,877
573,010
Ps$
4,181,679
(90,633)
Ps$
1,042,133
F-7
(11,900)
Ps$
(5,033)
56,895
Ps$
141,444
(206)
Ps$
(209,453)
573,010
(45,844)
Ps$ 11,762,552
45,482
Ps$
3,245,962
618,492
(45,844)
Ps$ 15,008,514
Statements of Cash Flows
For the nine-month periods ended September 30, 2014 and 2013
Nine-month period
ended
September 30, 2014
(unaudited)
Items related to operating activities:
Net income
Income tax expense
Labor obligations
Adjustments for items related to investing activities:
Depreciation and amortization
Interest income
Loss (gain)on disposal of fixed assets
Bargain purchase gain on business acquisition
Adjustments for items related to financing activities:
Interest expense
(Increase) decrease in:
Due from related parties
Inventories – Net
Prepaid expenses
Direct employee benefits – Net
Accounts receivable, long-term
Increase (decrease) in:
Accrued expenses and taxes
Income taxes paid
Net cash flow provided by (used in) operating activities
Items related to investing activities:
Purchase of property, machinery and equipment
Disposal of property, machinery and equipment
Acquisition of other assets
Interest received
Net cash (paid) on business combinations
Ps$
618,492
308,046
(29,365)
725,206
(53,721)
1,969
(434,605)
355,206
1,491,228
Nine-month period
ended
September 30, 2013
(unaudited)
Ps$
320,917
106,014
(34,823)
489,470
(34,111)
(12,600)
(8,490)
217,350
1,043,727
5,100
(90,449)
38,626
(258,151)
2,471
(16,088)
-
4,452
(542,200)
(83,114)
240,602
169,630
43,863
30
503,080
29,025
24,577
(94,937)
(237,317)
1,397,165
398,060
(658,248)
(902,261)
74,741
(140,843)
(351,561)
(515,523)
84,147
(36,586)
53,721
(329,067)
(1,303,233)
9,189
(20,059)
34,111
260,026
(743,308)
(1,019,966)
(Continue)
F-8
Nine-month period
ended
September 30, 2014
(unaudited)
Nine-month period
ended
September 30, 2013
(unaudited)
Items related to financing activities:
Proceeds from bank loans
Payment of borrowings
Interest paid
170,116
(153,707)
(355,206)
(338,797)
Effects of exchange rates on cash and cash equivalents
(126,863)
509,461
188,197
435,232
1,972,934
1,761,935
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Ps$
2,161,131
4,646,580
(3,137,757)
(217,350)
5,825
1,297,298
Ps$
2,197,167
(Concluded)
F-9
Notes to Unaudited Condensed Consolidated Interim
Financial Statements
For the nine-and three month periods ended September 30, 2014 and 2013
(In thousands of Mexican pesos, unless otherwise stated)
1.
General information
Elementia, S.A. de C.V. and Subsidiaries (the “Entity” or “Elementia”) is subsidiary of Kaluz, S.A. de C.V.
(“Holding Entity”); it was constituted with a duration of 99 years beginning 1952 and its main address is
Mario Pani No 400, piso 3, Col. Lomas de Santa Fe, C.P. 05300, Mexico, City. The Entity is engaged in the
manufacture and sale of fiber-cement products, copper products, cement and plastic for the construction
industry.
2.
3.
Significant events
a.
On January 31, 2014, the Entity acquired the fibro-cement business of CertainTeed Corporation
(“CertainTeed”), one of the leading manufacturers of building materials in North America. With this
acquisition, the Entity will strengthen its presence in the United States to integrate its three production
operations, which ultimately reinforces its coverage and growth in this country (See Note 10).
b.
On September 19, 2014, the Entity signed an agreement to acquire the remaining 47% of the shares of
ELC Tenedora Cementos, S.A. de C.V., a subsidiary of the Entity, which is in turn the holding entity
of Lafarge Cementos, S. A. de C. V. The close of this transaction is subject to regulatory approvals
from the relevant Mexican law and will be effective after December 16, 2014 after receiving the
respective regulatory authorizations in Mexico.
Basis of presentation
The unaudited condensed interim financial statements of the Entity for the three and nine-month periods
ended September 30, 2014 and 2013 have been prepared in accordance with International Accounting
Standard 34, Interim Financial Information (IAS 34), issued by the International Accounting Standards Board
(IASB).
The unaudited condensed interim financial statements have not been audited. It is the Entity’s management’s
opinion that all adjustments (ordinary and recurring) required for a fair presentation of the unaudited
condensed interim financial statements have been included. The profit or loss for the periods in question is not
necessarily indicative of the profit or loss for the full year.
These unaudited condensed interim financial statements should be read together with the Entity’s audited
financial statements and the respective notes for the year ended December 31, 2013.
The unaudited condensed interim financial statements were prepared on a historical cost basis, except for the
valuation of derivative financial instruments and property, machinery and equipment, which were recognized
at fair value.
Preparation of these unaudited condensed interim financial statements in accordance with IAS 34 requires the
use of certain critical accounting estimates. It also requires that management exercise its judgment in the
process of applying the Entity’s accounting policies. There have been no significant changes to
Management’s critical accounting estimates or judgments compared to those applied on the Entity’s audited
consolidated financial statements as of December 31, 2013, except as discussed in paragraph c. below.
F-10
a.
Basis of consolidation
The unaudited condensed consolidated interim financial statements include the financial statements of
Elementia, S. A. de C. V. and its subsidiaries. The Entity has control over an entity when it is exposed,
or has rights, to variable returns from its involvement with such entity and it has the ability to affect
those returns through its power over the entity.
As of September 30, 2014 Elementia’s shareholding percentage in the capital stock of its significant
subsidiaries is the same as the presented in the financial statements as of December 31, 2013.
b.
Accounting policies
The accounting policies and methods of computation applied by the Entity to these unaudited
condensed interim financial statements are the same as those applied by the Entity in its financial
statements at December 31, 2013 and for the year ended on that date.
c.
Estimates
As previously mentioned, the Entity uses the same accounting estimates except that during the first
quarter of 2014, the Entity determined that there has been a change in the underlying events and
circumstances relevant to Nacional de Cobre, S.A. de C.V. (Nacobre), a subsidiary of the Entity that
justifies a change in the functional currency considering the following factors:
i.
ii.
iii.
The currency that mainly influences sales prices for goods and services
The currency of the country whose competitive forces and regulations mainly determine the
sales prices of its goods and services.
The currency that mainly influences labour, material and other costs of providing goods or
services.
Until December 31, 2013, the functional currency of Nacobre was the United States dollar (US$). The
Entity has currently concluded that the functional currency is Mexican pesos (Ps$). The effects of this
change have been recognized prospectively beginning January 1, 2014. The exchange loss (gain) for
the three and nine-month periods ended September 30, 2013 were Ps$24,117 and Ps$67,107,
respectively.
4.
New and amended International Financial Reporting Standards (IFRS)
The following amendments, in effect as of January 1, 2014, were taken into consideration when preparing the
unaudited condensed consolidated interim financial statements and application thereof had no effects on the
Entity’s financial position or its results.
Amendments to IAS 32 - Offsetting financial assets and liabilities
Amendments to IAS 36 – Disclosures of recoverable amounts for non-financial assets
Amendments to IAS 39 - Novation of derivatives and continuation of hedge accounting
5.
September 30, 2014
(unaudited)
Cash
Cash equivalents Money market funds
Ps$
1,326,171
December 31,
2013
Ps$
834,960
Ps$
F-11
2,161,131
1,496,814
476,120
Ps$
1,972,934
6.
Inventories – Net
September 30, 2014
(unaudited)
Raw and auxiliary materials
Work in progress
Finished goods
Goods in transit
Spare parts and other inventories
December 31,
2013
Ps$
576,086
556,446
1,118,050
72,311
377,457
2,700,350
(191,828)
Ps$
613,152
464,274
938,276
65,562
302,564
2,383,828
(133,457)
Ps$
2,508,522
Ps$
2,250,371
Less- allowance for obsolete and slow movement items
The main increase in the balance is due to the actual operation of the fibro-cement business acquired
described in Note 2a. Additionally, in 2014 a subsidiary of the Entity, through a tender, signed a contract for
the purchase and distribution of fibro-cement sheet for roofing with the Secretary of Social Development,
which generated an increase in finished goods as of September 30, 2014, , in order increase stock to meet
deadlines agreed within the tender.
7.
Fair value of financial instruments
The fair value of financial instruments information presented below has been determined by the Entity using
information available in the markets or other valuation techniques consistent with those used in the financial
statements as of December 31, 2013. The assumptions used are based on market conditions existing at each
reporting date, and require Management to use judgment with respect to the inputs and other requirements of
such valuation techniques. As a result, the estimated amounts presented below are not necessarily indicative
of the amounts that the Entity could obtain in a current market exchange. The use of different assumptions
and/or estimation methods could have a material effect on the estimated amounts of fair value.
The Entity considers that the carrying amount of financial assets and liabilities approximate their fair values
except for long-term debt and Notes “Certificados Bursátiles” which fair value was Ps$7,616,844 (unaudited)
and Ps$7,762,080, as of September 30, 2014, and December 31, 2013, respectively.
Following is a discussion of the hierarchy of fair values, grouped into Levels 1 to 3 based on the degree to
which the fair value is observable:
As of September 30, 2014 (unaudited) and as of December 31, 2013, financial assets at fair value are
derivative financial instruments as shown in the statement of financial position and are classified as Level 3.
The fair value of the receivables and liabilities at amortized cost are fair value hierarchy Level 3. During the
period there were no transfers between Level 1, 2 and 3.
8.
Property, machinery and equipment
During the nine months ended September 30, 2014, the Entity acquired assets of Ps$515,523 (unaudited), and
assets from the fibro-cement business acquired, as explained in Note 2 and 10 of Ps$1,048,868 (unaudited).
Depreciation expense was Ps$644,610 (unaudited) and Ps$210,232 (unaudited) for the nine and three months
ended September 30, 2014 and Ps$415,233 (unaudited) and Ps$155,324 (unaudited) for the nine and three
months ended September 30, 2013, respectively.
F-12
During 2014, the Entity did not identify indicators of impairment (unaudited).
As of September 30, 2014 and December 31, 2013, the Entity and certain of its subsidiaries act as guarantors
or sureties with respect to certain debt. The carrying value of property, machinery and equipment relating to
those entities was Ps$11,532,899 (unaudited) and Ps$12,486,115 as of September 30, 2014 and December 31,
2013, respectively. The Entity is required to maintain insurance related to these fixed assets and can sell up to
US$25 million a year. In the event that the Entity plans to sell or dispose of fixed assets for higher amounts,
it must request approval from its creditors.
As of September 30, 2014 there have been no changes in the valuation techniques utilized to calculate the fair
value of property, plant and equipment.
9.
Intangible assets and other assets
During the nine-month period ended September 30, 2014, the Entity acquired intangible assets of
Ps$36,586 (unaudited) related to the implementation of SAP. The amortization of finite live intangible
assets recognized for the three and nine-month periods ended September 30, 2014, was Ps$30,705
(unaudited) and Ps$80,596 (unaudited), respectively, and for the three and nine-month periods ended
September 30, 2013 was Ps$24,946 (unaudited) and Ps$74,237 (unaudited), respectively.
10.
Business combination
a.
Business acquired
As mentioned in Note 2a, the Entity acquired the fibro-cement business of CertainTeed, an entity
operating in the United States of America. This transaction constitutes a business combination that is
currently under valuation using the acquisition method in accordance with International Financial
Reporting Standards (“IFRS”) which is expected to conclude in January 2015.
Given that this transaction was considered a business combination, the Entity has applied the
acquisition method from the acquisition date. This transaction did not include any contingent
consideration.
The following steps are required in acquisition accounting:
i.
ii.
a.
Recognize and measure the respective assets acquired and liabilities assumed
Determine the respective intangible assets or goodwill, if any.
Consideration transferred
The consideration paid in cash was USD$25,151 equivalent to Ps$329,067. The assets acquired did not
include cash or cash equivalents.
b.
Acquired assets and assumed liabilities at acquisition date
Following is an analysis of the fair values of acquired net assets. As of September 30, 2104, the Entity
is still in the measurement period with respect to the acquisition, for which reason, the fair values of
the net assets acquired and the allocation of the purchase price to such net assets thereon, and the
related bargain purchase gain, included below, is preliminary and may be subject to change.
F-13
The Entity expects to conclude its analysis with respect to the application of the acquisition method by
January 31, 2015.
2014
c.
Current assets
Properties, machinery and equipment – Net
Client Portfolio
Total liabilities
Ps$
127,632
1,048,868
1,597
(414,425)
Fair value of net assets
Ps$
763,762
2014
d.
Consideration paid
Ps$
(329,067)
763,762
Ps$
434,605
Effect of the acquisitions in the Entity’s results
The result for the three and nine-month periods ended September 30, 2014 include income (loss) from
operations of Ps$(1,943) and Ps$31,166, respectively, attributable to the operations of Certain Teed
and revenues for the same periods of Ps$216,093 (unaudited) and Ps$592,497 (unaudited),
respectively.
11.
Provisions
The main increase in provisions corresponds to the incorporation of liabilities assumed for approximately
Ps$414,425 arising from the acquisition of the fibro-cement business (See note 10).
12.
Confirming bank payments to vendors
The Entity has entered into financial confirming facilities with several banking institutions. As of September
30, 2014 and December 31, 2013, vendors have used these facilities for an amount of Ps$2,185,599
(unaudited) and Ps$1,687,448, respectively. The amounts due under these facilities are classified in trade
accounts payable in the accompanying statements of financial position.
13.
Long-term debt
During the periods from January 1 to September 30, 2014 and 2013, payment to principal were
Ps$153,707 (unaudited) and Ps$3,137,757 (unaudited), respectively.
During 2014, the Entity entered into a credit with HSBC bank consisting of promissory notes, bearing
interest at 28 day Equilibrium Interbank Interest Rate (TIIE, for its acronym in Spanish) plus 1.5
percentage points, which matures in 2015 for an amount of Ps$120,000 (unaudited).
F-14
Interest expense for the three and nine-month periods ended September 30, 2014 and 2013, were
Ps$73,901 (unaudited), Ps$209,970 (unaudited), and Ps$69,457 (unaudited), Ps$53,461 (unaudited),
respectively.
The Entity is subject to restrictive covenants in certain loan agreements under which the banks could
demand payment in a non-compliance event. As of September 30, 2014 the Entity was in compliance
with all covenants.
14.
Notes, “Certificados Bursatiles”
Interest recognized as expense and paid solely for these instruments for the three and nine-month periods
ended September 30, 2014 and 2013 were Ps$46,503 (unaudited), Ps$145,236 (unaudited) and Ps$54,057
(unaudited), Ps$163,889 (unaudited), respectively.
The notes, “Certificados Bursatiles” contain negative and affirmative covenants, with which the Entity was in
compliance as of September 30, 2014.
15.
Income taxes
a.
Income taxes are as follows:
Current ISR
Deferred ISR
Nine-month
period ended
September 30,
2014
(unaudited)
Nine-month
period ended
September 30,
2013
(unaudited)
Three-month
period ended
September 30,
2014
(unaudited)
Three-month
period ended
September 30,
2013
(unaudited)
Ps$ 214,428
93,618
Ps$ 140,843
(34,829)
Ps$ 157,023
(27,416)
Ps$
36,776
(1,033)
Ps$ 308,046
Ps$ 106,014
Ps$ 129,607
Ps$
35,743
The Entity determines at the end of the reporting period the deferred income tax based on the
temporary differences between the carrying amount and the corresponding tax bases used in the
computation of taxable profit. Current income tax is recognized based on the estimated effective tax
rate. The effective tax rate applied to taxable income for the three and nine-month period ended
September 30, 2014 and 2013 was 31%, 23%, 31% and 24%, respectively.
16.
Other income
The balances of other income and expenses are as follow:
Nine-month
period ended
September 30,
2014
(unaudited)
Bargain purchase gain on business
acquisition (see Note 10)
IMPAC unrecoverable
Litigation expenses
Decommissioning expenses
Loss (gain) on sale of property,
machinery and equipment
Others
Ps$ (434,605)
60,140
71,596
41,992
1,969
60,530
Ps$ (198,378)
F-15
Nine-month
period ended
September 30,
2013
(unaudited)
Ps$
(60,251)
-
Three-month
period ended
September 30,
2014
(unaudited)
Ps$
(2,088)
-
Three-month
period ended
September 30,
2013
(unaudited)
Ps$
-
(8,490)
(46,669)
(459)
(30,026)
(2,731)
(36,577)
Ps$ (115,410)
Ps$ (32,573)
Ps$ (39,308)
17.
Transactions and balances with related parties
a.
Transactions with related parties, carried out in the ordinary course of business, were as follows:
Nine-month
period ended
September 30,
2014
(unaudited)
Income:
Sales
Leasing
Others, mainly balances
written off
Ps$
Ps$
686
Ps$
5,680
Nine-month
period ended
September 30,
2014
(unaudited)
Expenses:
Technical assistance
Purchase of materials
SAP implementation
Leasing
Insurances
Donations
Interest
Others
3,388
1,606
Nine-month
period ended
September 30,
2013
(unaudited)
4,863
1,173
Three-month
period ended
September 30,
2014
(unaudited)
Ps$
1,830
316
2,027
Ps$
8,063
Ps$
Ps$ 309,887
93,137
194,889
17,207
3,321
6,642
5,279
-
Ps$
883
366
6
Ps$
Nine-month
period ended
September 30,
2013
(unaudited)
Ps$ 110,332
153,864
10,240
549
5,867
5,395
7,009
3,285
13,346
Three-month
period ended
September 30,
2013
(unaudited)
47
2,152
Ps$
Three-month
period ended
September 30,
2014
(unaudited)
Ps$
1,296
Three-month
period ended
September 30,
2013
(unaudited)
Ps$
18,398
39,241
51,063
3,396
549
2,040
2,086
4,009
891
4,957
33,123
47,206
5,661
253
2,590
2,223
8,401
Ps$ 338,873
Ps$ 108,232
Ps$
99,457
Related parties are comprised of Kaluz, S.A. de C.V., Fundación Kaluz, A.C., Inmobiliaria
Patriotismo, S.A., Grupo Carso, S.A.B. de C.V., Mexichem Servicios Administrativos, S.A. de C.V.,
Logtec, S.A. de C.V., Cobre de México, S.A. de C.V., Pochteca Materias Primas, S.A. de C.V., PAM
PAM, S.A. de C.V., Nacional de Conductores Eléctricos, S.A. de C.V., Mexichem Compuestos, S.A.
de C.V., Mexichem Colombia, S.A.S., Mexichem El Salvador, S.A., Mexichem Panamá, S.A.,
Mexichem Costa Rica, S.A., Mexichem Comercial, S.A. de C.V. Conductores Mexicamos Electricos y
de Telecomunicación, S.A. de C.V., Grupo Financiero Inbursa, S.A ., Seguros Inbursa, S.A.,
Financière Lafarge, S.A.S and Grupo Financiero Bx+, S.A.
b.
Balances with related parties are as follows:
September 30, 2014
(unaudited)
Inmuebles General, S.A. de C.V.
Others
Ps$
-
December 31,
2013
Ps$
40,000
944
Ps$
40,944
2,466
Ps$
F-16
2,466
Long-term accounts receivable – Long-term accounts receivable represent amounts owed from Grupo
Carso, S.A.B. de C.V. for Ps$53,703 (unaudited) and Ps$53,851, as of September 30, 2014 and
December 31, 2013, respectively.
September 30, 2014
(unaudited)
Kaluz, S.A. de C.V.
Inmobiliaria Patriotismo, S.A.
Grupo Carso, S.A.B. de C.V.
Cobre de Mexico, S.A. de C.V.
Pochteca Materias Primas, S.A. de C.V.
Telgua, El Salvador, Honduras y Nicaragua
Nacional de Conductores Eléctricos, S.A. de C.V.
Mexichem Colombia, S.A.S.
Mexichem Servicios Administrativos, S.A. de C.V.
Mexichem Honduras, S.A.
Mexichem Costa Rica, S.A.
Mexichem, S.A.B. de C.V.
Mexichem El Salvador, S.A.
Mexichem Compuestos, S.A. de C.V.
Cordaflex, S.A. de C.V.
Logtec, S.A. de C.V.
Financière Lafarge, S.A.S
Others Kaluz
Total current
Long-term due to related parties Mexichem Servicios Administrativos, S.A. de C.V.
Total long-term
18.
December 31, 2013
Ps$
9,763
127,120
40
11,358
39
1,518
12
415
46,091
1,057
Ps$
6,926
460
125,980
394
624
24
50
147
20,598
46
74
1,455
2,580
99
13,901
Ps$
197,413
Ps$
173,358
Ps$
18,597
Ps$
18,075
Ps$
18,597
Ps$
18,075
Business segment information
Segment information is presented according to the productive sectors, which are grouped according to the
vertical integration of raw materials. Based on this segmentation, operating decisions are made for the purpose
of allocating resources and assessing performance of each segment.
The following are the segments of the Entity: Building systems, Metals, Plastic and Cement. Building systems
sector includes the production of Fibro-cement, Plastics sector includes the production of plastic; the Metals
segment includes the production of copper; and the Cement segment includes mining, milling and calcination
of nonmetallic minerals for the production of clinker. The products of the four segments are mainly used in the
construction industry.
F-17
Below is a summary of the most significant line items in each segment included in the consolidated financial
statements for the nine and three months ended September 30, 2014 and 2013:
Nine-months ended September 30, 2014 (unaudited)
Building systems
Net sales
Cost of sales
Operating expenses
Ps$
3,945,694
2,497,796
902,934
544,964
Other (income) expenses – Net
Financing result – Net
(66,114)
10,410
600,668
Income tax expense
186,731
71,375
Plastics
Ps$
603,399
437,467
86,342
79,590
Metals
Ps$
5,471,409
4,907,386
339,350
224,673
(6,063)
1,635
84,018
(109,126)
87,374
246,425
20,957
74,827
10,236
-
Cement
Ps$
Ps$
217,113
(165,089)
276,400
105,802
(13,789)
63,686
133,930
342,562
Ps$
63,061
Ps$
161,362
Ps$
Ps$
5,541,228
3,011,945
10,922
(151,516)
142,190
-
Ps$
437,944
511,971
126,445
-
Ps$
8,350,630
4,460,214
504,329
381,702
-
Ps$
Total assets
Ps$
8,554,769
Ps$
1,076,360
Ps$
13,696,875
Total liabilities
Ps$
4,144,899
Ps$
345,436
Ps$
7,576,534
Total
Ps$
(198,378)
329,085
1,008,149
(20,305)
308,046
81,611
88,094
11,499,978
8,586,286
1,774,836
1,138,856
(3,286)
165,980
(56,892)
45,836
-
Ps$
Current assets
Investment in shares of associated entity
Employee benefits asset
Goodwill and intangibles and other assets - Net
1,262,363
908,726
169,810
183,827
Eliminations
Ps$
(36,587)
Ps$
618,492
721,452
6,105,622
(6,758)
2,174,860
-
Ps$
(6,477,790)
1,431,627
(27,429)
344,964
53,703
Ps$
8,573,464
15,521,379
10,922
318,626
3,170,161
53,703
Ps$
8,995,176
Ps$
(4,674,925)
Ps$
27,648,255
Ps$
2,182,835
Ps$
(1,609,963)
Ps$
12,639,741
Three-month period ended September 30, 2014 (unaudited)
Building system
Net sales
Cost of sales
Operating expenses
Ps$
1,442,637
926,887
307,623
208,127
(33,646)
(14,079)
255,852
Income tax expense
103,513
16,723
Consolidated net (loss) income
Ps$
135,616
Plastics
Ps$
198,934
142,732
27,864
28,338
Metals
Ps$
(5,746)
2,426
31,658
(14,523)
2,363
131,357
1,814
(14,099)
3,168
Ps$
1,940,322
1,736,484
84,641
119,197
29,844
F-18
Ps$
142,288
Cement
Ps$
446,586
303,934
34,367
108,285
Eliminations
Ps$
68,339
(145,977)
203,828
10,488
(13,307)
35,904
85,688
24,908
Ps$
Total
Ps$
34,649
66,950
(91,111)
(32,573)
93,564
413,444
13,471
129,607
19,891
60,780
Ps$
4,096,818
2,964,060
658,323
474,435
(104,582)
Ps$
263,946
Building system
Net sales
Cost of sales
Operating expenses
Ps$
Ps$
375,554
902
268,110
Ps$
Ps$
Ps$
13,420
128,624
67,529
164,221
122,439
16,646
25,136
Ps$
(197,948)
514,158
325,288
121,667
67,203
Ps$
1,739,594
1,525,018
52,044
162,532
202,957
(85,819)
306,910
(18,134)
Ps$
Ps$
45,311
(9,592)
107,116
13,837
Ps$
(75,642)
34,362
6,959
(149,531)
106,014
27,403
Ps$
23,148
155,823
294,912
202,521
75,383
17,008
Ps$
191,639
85,580
118,764
(12,705)
(4,094)
34,408
8,164
(21,470)
(32,119)
Ps$
9,618,304
7,434,861
1,555,724
627,719
(115,410)
305,650
(12,600)
450,079
Ps$
Total
(39,391)
27,565
(12,600)
6,292
-
-
F-19
Ps$
(7,314)
40,155
45,838
71,383
23,599
33,191
Eliminations
Ps$
Three-month period ended September 30, 2013 (unaudited)
Metals
Cement
Eliminations
-
Ps$
Ps$
22,246
1,566
(29)
44,618
1,090
67,893
80,949
(642)
229,486
(47,078)
Plastics
113,601
Ps$
5,381,869
4,889,249
310,854
181,766
-
(35,702)
20,402
Income tax expense
960,421
614,628
247,492
98,301
Ps$
-
106,542
Ps$
Nine-month ended September 30, 2013 (unaudited)
Metals
Cement
3,417
(4,074)
Building system
Net sales
Cost of sales
Operating expenses
571,291
419,071
71,928
80,292
(71,480)
12,518
Income tax expense
(Gain) loss for the period from discontinued
operations, Net
2,948,029
1,887,072
744,365
316,592
Plastics
Total
Ps$
Ps$
3,350,787
2,550,186
510,329
290,272
(46,916)
46,056
(1,264)
(10,581)
(39,308)
172,220
6,900
150,460
(74,280)
35,743
14,927
10,649
320,917
63,699
Ps$
99,790
19.
Litigation and other contingencies
In the ordinary course of business, the Entity is party to various legal proceedings. The Entity is not involved
in any litigation or arbitration proceeding for which the Entity believes it is not adequately insured or
indemnified, or which, if determined adversely, would have a material adverse effect on the Entity or its
financial position, results of operations or cash flows.
20.
Unaudited condensed consolidated interim financial statements issuance authorization
On October 30, 2014, the issuance of the accompanying consolidated financial statements was authorized by
C.P. Victor Hugo Ibarra Alcázar, Chief Financial Officer; consequently, they do not reflect events which
occurred after that date.
******
F-20
Elementia, S. A. de C. V. and
Subsidiaries
Consolidated Financial Statements for
the Years Ended December 31, 2013,
2012, and 2011, and Independent
Auditors’ Report Dated September 2,
2014
F-21
Deloitte
Galaz, Yamazaki,
Ruiz Urquiza, S.C.
Paseo de Ia Reforma 489
Piso 6
Colonia Cuauhtemoc
06500 Mexico. D.f.
Mexico
Tel: +52 (55) 5080 6000
Fax: +52 (55) 5080 6001
Independent Auditors' Report to the Board
www.deloitte.com/mx
of Directors and Stockholders' of
Elementia, S. A. de C. V.
We have audited the accompanying consolidated fmancial statements of Elementia, S. A. de C. V. and Subsidiaries
(the "Entity"), which comprise the consolidated statements of financial position as ofDecember 31,2013,2012, and
2 0 II, and the consolidated statements of profit or loss and other comprehensive income, consolidated statement of
c hanges in stockholders' equity and consolidated statements of cash flows for the years ended December 3 1, 20 13,
2012, and 2011, and a summary of significant accounting policies and other explanatory infonnation.
Management's responsibilityfor tile consolidatedfinancial statements
Management is responsible for the preparation and fair presentation of these consol idated financial statements in
accordance with Intemational Financial Reporting Standards, as issued by the International Accounting Standards
Board, and for such intemal control as management detennines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these consolidated fmancial statements based on our audits. We
conducted our audits in accordance with Intemational Standards on Auditing. Those standards require that we
comply with ethical requirements and plan and perfonn the audit to obtain reasonable assurance about whether the
consolidated tlnancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers intemal control relevant to the Entity ' s preparation and fair presentation
of the consolidated fmancial statements in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by manage men t, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
F-22
Dc·:o;tte se ref1ere a Dc·:o:tte To:J(he Tohrr'atsu Lirnih:O. sct:edad privada de respons.�b �:dari l·mitad3 En el Re-.r.o Un!do, ','a SIJ re-d
de fmnas n--::emhro, cada una de e:ras. como t;�J cnfd3d !ega.l Unic·J e indcpr:nd:c-nte. Conozca en \.".-,\·.de�oitt•�.corn/m�/conozcanos
Ia dcso;pci6n dc-ta!'ada de lt� ts1nJ(tLira �t:gal de Oe:�o:ne Tovci':C' Tchmatsu Lim!ted )"'SUS f1rfll<.lS rn�Elnbto.
Opinion
Jn our opinion, the consolidated fmancial statements present fairly, in all material respects, the financial position of
Elementia, S. A. de C. V. and Subsidiaries as of December 31,2013,2012, and2011, and their financial
performance and their cash flows for the years then ended in accordance with International Financial Reporting
Standards, as issued by the International Accounting Standards Board.
Emphasis of maller
As mentioned in Note 3b, the Enti ty reclassified certain items in the consolidated statement of cash flows for the year
ended December 31,2013, originally issued on April2l, 2014.
Other l'vllltters
The accompanying consolidated financial statements have been translated into English for the convenience of
readers.
Galaz,
mazaki, Ruiz Urquiza, S. C.
Member o
eloitte Touche Tohmatsu Limited
......
�
-·�
'•\
c. P. c. Jose A.
September2, 20 I
F-23
Consolidated Statements of Financial Position
As of December 31, 2013, 2012, and 2011
Assets
Current assets:
Due from related parties – Net
Inventories – Net
Prepaid expenses
Total current assets
Non-current assets:
Investment in shares of associated companies and others
Note
6
11
7
23
8
12
14
2013
Ps$
1,972,934
9,810
3,506,269
40,944
2,250,371
307,098
8,087,426
14,608,087
11,118
2012
Ps$
1,761,935
8,549
2,926,398
2,471,265
592,029
7,760,176
11,822,531
813,415
Liabilities and stockholders’ equity
2011
Ps$
current portion of long–term debt
Provisions
Accrued expenses and taxes, other than income taxes
consolidation
Total current liabilities
3,539,537
3,267,543
54,979
2,186,086
196,723
9,244,868
Notes payable to financial institutions and long–term
debt
Long-term due to related parties
Deferred income taxes
Income taxes liabilities from consolidation
Total long-term liabilities
11,186,892
777,288
Note
18
16
17
23
19
11
18
23
19
19
Total liabilities
Net plan Assets for employee benefits at retirement
20
289,261
239,068
319,374
Intangibles and other assets – Net
13
3,174,174
1,107,855
837,671
23
53,851
50,553
50,553
18,136,491
214,774
14,248,196
13,171,778
Ps$ 26,223,917
Ps$ 22,008,372
Ps$ 22,416,646
Accounts receivable, long–term
Total non–current assets
Total
2013
Ps$
192,533
2,663,274
30,742
420,815
168,792
173,358
2012
Ps$
456,267
2,330,471
19,163
204,371
254,015
205,918
2011
Ps$
120,474
3,220,722
92,151
157,711
1,056,041
227,159
170,948
157,863
3,978,325
5,057
45,023
3,520,285
5,846
23,599
1,068
4,904,771
6,185,182
18,075
1,079,537
512,845
14,087
7,809,726
5,926,129
40,462
1,490,324
17,530
24,725
7,499,170
6,265,907
1,797,189
124,265
44,589
8,231,950
11,788,051
11,019,455
13,136,721
Commitments and contingencies (Note 27)
Stockholders’ equity:
Capital stock
Non-exhibited subscribed capital stock
Additional paid-in capital
Retained earnings
Exchange differences on translating foreign operations
Net fair value effect on hedging instruments entered into
for cash flow hedges
Gain on revaluation of property
Actuarial loss
Equity attributable to owners of the Entity
Total stockholders’ equity
Total stockholders’ equity and liabilities
See accompanying notes to the consolidated financial statements.
F-24
21
2,012,905
4,598,877
3,608,669
1,132,766
2,012,905
(5,825)
4,598,877
3,338,951
900,345
847,815
4,598,877
3,013,695
584,588
6,867
84,549
(209,247)
11,235,386
3,200,480
14,435,866
5,984
260,535
(144,650)
10,967,122
21,795
10,988,917
(748)
269,299
(64,446)
9,249,080
30,845
9,279,925
Ps$ 26,223,917
Ps$ 22,008,372
Ps$ 22,416,646
Consolidated Statements of Profit or Loss and other
Comprehensive Income
For the Years Ended December, 31 2013, 2012, and 2011
(In thousands of Mexican pesos, except earnings (loss) per share)
Net sales
Cost of sales
Notes
2013
2012
2011
28
25
Ps$ 12,929,454
9,908,158
Ps$ 13,505,892
10,273,432
Ps$ 14,505,221
11,463,233
3,021,296
3,232,460
3,041,988
2,124,788
48,583
(45,455)
420,585
49,282
(301,347)
(4,220)
729,080
1,887,734
345,400
(31,019)
288,745
19,478
(21,054)
(34,760)
777,936
1,859,251
(137,998)
(34,231)
467,192
13,782
(88,608)
962,600
Gross profit
Operating expenses
Exchange loss (gain)
Interest income
Interest expense
Banking fees
Other income - Net
25
Income tax expense (benefit)
Income from continuing
operations
19
Loss for the year from discontinued
operations, Net
Net income (loss)
22
14
26
177,443
(38,621)
440,071
551,637
816,557
522,529
60,134
491,503
501,152
315,405
827,432
(304,903)
(64,202)
(79,260)
(64,694)
(175,730)
(8,907)
269,690
883
6,732
(29,051)
232,421
315,757
584,588
234,322
760,533
Other comprehensive income, net of income
taxes:
Items that will not be reclassified
subsequently to profit or loss:
Actuarial loss
Gain (loss) on revaluation of property,
machinery and equipment
Items that may be reclassified subsequently
to profit or loss:
Net fair value effect on hedging
instruments entered into for cash flow
hedges
Exchange differences on translating
foreign operations
Total other comprehensive (loss)
income for the year, net of
income taxes
Total comprehensive income for
the year
(6,628)
Ps$
484,875
Ps$
549,727
Ps$
455,630
(Continue)
F-25
Notes
Net income (loss) attributable to:
Total comprehensive income for the year
attributable to:
Earnings per share:
From continuing operations
2013
2012
2011
Ps$
488,018
3,485
Ps$
325,256
(9,851)
Ps$
(316,938)
12,035
Ps$
491,503
Ps$
315,405
Ps$
(304,903)
Ps$
480,739
4,136
Ps$
558,777
(9,050)
Ps$
443,452
12,178
Ps$
484,875
Ps$
549,727
Ps$
455,630
Ps$
18.8860
Ps$
30.6109
Ps$
20.3856
From discontinued operations
Ps$
(2.0588)
Ps$
(18.7871)
Ps$
(32.2809)
From continuing and discontinued
operations
Ps$
16.8272
Ps$
11.8238
Ps$
(11.8953)
Weighted average shares outstanding
29,208,810
26,675,385
25,632,237
(Concluded)
F-26
(Subsidiary of Kaluz, S. A. de C.V.)
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2013, 2012, and 2011
Unpaid capital stock
Capital
stock
(transition date)
Ps$
Decrease in capital stock
Net loss
Comprehensive income
847,816
Installment issuance
Additional paid-in
capital
Ps$
Ps$
(1)
-
-
(14)
847,815
Net income
1,165,090
-
(5,825)
-
Balances as of December 31, 2012
2,012,905
(5,825)
Ps$
-
4,598,877
-
5,825
-
-
-
-
Ps$
-
Ps$
4,598,877
3,330,633
Exchange differences
on translating
foreign operations
Ps$
Ps$
(316,938)
-
4,598,877
-
2,012,905
Ps$
-
Loss on sale of shares in associated
Net income
Acquisition of Non-controlling
interest
4,598,891
Retained
earnings
Net fair value effect
on hedging
instruments entered
Gain (loss) on
into for cash flow
revaluation of
hedges
property
28,303
Ps$
-
Ps$
-
Attributable to
owners of the parent
Ps$
8,805,643
Non-controlling
interest
Ps$
8,824,310
269,299
(64,446)
3,013,695
584,588
(748)
269,299
(64,446)
9,249,080
30,845
9,279,925
325,256
-
315,757
(80,204)
1,159,265
325,256
233,521
(9,851)
801
1,159,265
315,405
234,322
3,338,951
900,345
260,535
(144,650)
10,967,122
21,795
10,988,917
(175,986)
(64,597)
3,608,669
6,732
5,984
232,421
-
883
Ps$
1,132,766
F-27
(8,764)
Ps$
6,867
Ps$
84,549
Ps$
(209,247)
12,035
143
Ps$
(29,051)
-
(15)
(316,938)
760,390
18,667
Total
stockholders’
equity
584,588
(218,300)
488,018
-
Ps$
-
Actuarial
loss
5,825
(218,300)
488,018
(7,279)
3,485
651
Ps$ 11,235,386
Ps$
(15)
(304,903)
760,533
5,825
(218,300)
491,503
(6,628)
3,174,549
3,174,549
3,200,480
Ps$ 14,435,866
Consolidated Statements of Cash Flows
For the years ended December 31, 2013, 2012, and 2011
2013
(Note 3b)
Net income (loss)
Income tax expense
Adjustments for items related to investing
activities:
Interest income
Impairment of long-lived assets
Loss on disposal of subsidiaries
Adjustments for items related to financing
activities:
Interest expense
(Increase) decrease in:
Accounts receivable - Net
Due from related parties
Inventories - Net
Prepaid expenses
Direct employee benefits - Net
Long-term accounts receivable, long-term
Increase (decrease) in:
Provisions
Accrued expenses and taxes
Income taxes paid
Net cash flow provided by (used in)
operating activities
Items related to investing activities:
Purchase of property, machinery and equipment
Disposal of property, machinery and equipment
Net cash flows from business acquisition
Disposal of subsidiaries and investment
Acquisition of other investments
Acquisition of other assets
Interest received
Ps$
491,503
177,443
715,748
(45,455)
(4,220)
-
420,585
1,755,604
2012
Ps$
315,405
(38,621)
510,782
(31,019)
40,010
(34,760)
456,496
288,745
1,507,038
2011
Ps$
(304,903)
440,071
476,933
(34,231)
142,103
217,895
467,192
1,405,060
849
(517,484)
(44,242)
299,824
290,562
(104,991)
214,774
(2,885)
341,145
54,979
(285,179)
(395,306)
(105,218)
(214,774)
12,450
(275,375)
89,835
558,066
(74,943)
(78,631)
-
219,751
(54,947)
216,444
109,356
(104,684)
(451,662)
(890,251)
19,221
46,660
21,424
(1,723,428)
(347,566)
2,147,222
(51,029)
(167,423)
(532,172)
(660,206)
1,829,154
(1,974,140)
2,372,854
(2,059,324)
644,397
260,026
582,818
5,399
10,712
45,455
(2,112,575)
1,132,694
340,966
(1,367)
(334,128)
31,019
(1,834,993)
954,727
(19,801)
34,231
(510,517)
(943,391)
(865,836)
(Continue)
F-28
2013
Items related to financing activities:
Proceeds from bank loans
Payment of borrowings
Borrowings from related parties
Interest paid
Decrease in capital
5,196,369
(5,201,050)
(852,934)
(420,585)
5,825
(1,272,375)
Effects of exchange rates on cash and cash
equivalents
164,737
Net increase (decrease) in cash and cash equivalents
210,999
Cash and cash equivalents at the beginning of the
year
Cash and cash equivalents at the end of the year
2012
176,405
(180,390)
(288,745)
1,159,265
866,535
1,972,934
3,476,448
(2,729,069)
(78,791)
(467,192)
(15)
201,381
273,394
1,761,935
Ps$
2011
Ps$
327,632
(1,777,602)
2,036,031
3,539,537
1,503,506
1,761,935
Ps$
3,539,537
(Concluded)
F-29
Notes to Consolidated Financial Statements
As of December 31, 2013, 2012, and 2011
(In thousands of Mexican pesos, unless otherwise stated)
1.
Activities
Elementia, S. A. de C.V. and Subsidiaries (the “Entity or “Elementia”) is subsidiary of Kaluz, S.A. de C.V.
(“Holding Entity”) with a duration of 99 years beginning in January 1979, and its main address is Poniente
134 No 719, Industrial Vallejo, 02300, Mexico, D.F. The Entity is engaged in the manufacture and sale of
fiber-cement products, copper, cement, aluminum products and plastic for the construction industry.
2.
Significant events
a.
On January 8, 2013, the Entity, Trituradora y Procesadora de Materiales Santa Anita, S.A. de C.V.
(TPM) and ELC Tenedora Cementos, S.A.P.I. de C.V. (ELC), both subsidiaries of the Entity, signed
with Lafarge, S.A., Financière Lafarge, S.A.S. and Lafarge Cementos, S.A. de C.V. (together referred
as to “Lafarge”) (entities engaged in the manufacturing and marketing of cement) a contract entitled:
“Contribution Agreement” whereby, among other things, it was agreed to constitute a joint venture
among them to produce cement in Mexico. Due to the above, the Entity kept 53% of shareholding, as
well as the control of ELC, and Financière Lafarge, S.A.S. kept the 47%. This joint venture will allow
them to encompass between 4% and 5 % of the Mexican market, backed by the launching of an
advertising campaign of Cementos Fortaleza (brand of the Entity). The combination of the industrial
assets to produce cement of the two parties will allow them to produce about two million tons of
cement per year. This transaction generated goodwill of Ps$1,150 million of pesos (see Note 15).
The joint venture was subject to the fulfillment of several conditions specified in the Contribution
Agreement, which were met on July 31, 2013 (the “Closing date of the Joint Venture”), date on which
several contracts were signed, annexes to the Contribution Agreement and related stockholders
meetings of the parties involved were held, so that all shares of Lafarge Cementos, S.A. de C.V. were
transferred to ELC, as previously mentioned, a subsidiary of the Entity.
b.
On March 20, 2013, the Entity prepaid, the syndicated loans with several banks for Ps$2,593,050. On
the same date it was replaced by a new Syndicated loan, with five other banks, obtaining better interest
rates, better maturity profile and greater financial flexibility for an approximate amount of
Ps$3,730,170.
c.
On December 17, 2013, the Entity sold the shares related to its entire participation in Grupo Cuprum,
S.A.P.I. (“Cuprum”, an associated entity), equivalent to 20% of the shares of such entity, to Tenedora
de Empresas de Materiales de Construcción, S. A. de C. V. and Controladora GEK, S.A.P.I. de C.V.
(both, related parties of the Entity), for the amount of USD$45 million (equivalent to Ps$584 million at
that date), generating a loss of Ps$218 million, which was recorded directly in the stockholders’ equity
of the Entity, since it was a transaction among parties under common control. The loss on the sale of
shares was due to the difference between the carrying amount of the investment and the selling price.
d.
On April 20, 2012, the Entity sold 100% of its shares on Almexa Aluminio, S.A. de C.V., which
activities were to industrially process aluminum in its various blends, with inputs occurring as sheet,
plate, paste, powder and foil, mainly for the food industry, to Industria Mexicana the Aluminio, S.A.
de C.V., a subsidiary of Grupo Vasconia, S.A.B. de C.V. (Vasconia), a third party. The sale price was
Ps$340,966, generating a loss of Ps$456,496 which was recorded net of the operations of the
discontinued business within the discontinued operations line item. The loss on the sale of shares was
due primarily to the difference between the carrying value of net assets and the sale price.
F-30
3.
e.
On June 30, 2011, the Entity informed to the public that it prepaid the syndicated loan held with
several banks totaling Ps$2,700,000, which were replaced by a new syndicated loan, to improve
interest rates, maturity profile and financial flexibility that would allow the Entity to reduce its interest
expense by an estimated amount of USD$11.4 million, annually. Additionally, the prepayment helped
the Entity to address its non-compliance with respect to certain covenants that limited its financial
leverage abilities and for which the Entity obtained a waiver dated March 15, 2011. (See Note 18).
f.
On June 6, 2011, the Entity sold 100% of its shares on Aluminio Conesa, S.A. de C.V. which activities
were recycling aluminum for extrusion and the saling of anodized and machined aluminum, to
Cuprum. The selling price was Ps$458,200, generating a loss of Ps$217,895, which was recorded net
of the operations of the discontinued business within the discontinued operations line item. The loss
on the sale of shares was primarily due to the difference between the carrying value of capital and the
sale price. On the same date, the Entity acquired 20% of the shares of Cuprum at an acquisition cost of
Ps$766,358.
Basis of presentation
a.
Explanation for translation into English
The accompanying consolidated financial statements have been translated from Spanish into English
for use outside of Mexico. These financial statements are presented on the basis of International
Financial Reporting Standards (“IFRS”). Certain accounting practices applied by the Entity that
conform with IFRS may not conform with accounting principles generally accepted in the country of
use.
b.
Restatement of the consolidated statement of cash flows
The Entity reclassified certain items in the consolidated statement of cash flows for the year ended
December 31, 2013 issued on April 21, 2014, in accordance with International Accounting Standard
(IAS) 8 “Accounting Policies, Changes in Accounting Estimates and Errors”, the effects of the
reclassification are included in the accompanying statement of cash flows. Amounts previously
reported were: i) in the net cash flows provided by operating activities Ps$2,333,407; ii) in the net cash
flows used in investing activities Ps$1,867,704; and iii) in the net cash used in financing activities
Ps$419,441.
c.
New and revised IFRSs affecting amounts reported and/or disclosures in the financial statements
In the current year, the Entity has applied a number of new and revised IFRSs issued by the
International Accounting Standards Board (IASB) that are mandatorily effective for an accounting
period that begins on or after January 1, 2013.
Amendments to IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities
The Entity has applied the amendments to IFRS 7 Disclosures – Offsetting Financial Assets and
Financial Liabilities for the first time in the current year. The amendments to IFRS 7 require entities to
disclose information about rights of offset and related arrangements (such as collateral posting
requirements) for financial instruments under an enforceable master netting agreement or similar
arrangement.
As the Entity does not have any offsetting arrangements in place, the application of the amendments
has had no material impact on the disclosures or on the amounts recognized in the consolidated
financial statements.
F-31
New and revised Standards on consolidation, associates and disclosures
In the current year, the Entity has applied for the first time IFRS 10, IFRS 11, IFRS 12 and IAS 28 (as
revised in 2011) together with the amendments to IFRS 10, IFRS 11 and IFRS 12 regarding the
transitional guidance. The impact of the application of these standards has been incorporated in the
accompanying consolidated financial statements.
Impact of the application of IFRS 10
IFRS 10 replaces the parts of IAS 27 Consolidated and Separate Financial Statements that deal with
consolidated financial statements. IFRS 10 changes the definition of control such that an investor has
control over an investee when a) it has power over the investee, b) it is exposed, or has rights, to
variable returns from its involvement with the investee and c) has the ability to use its power to affect
its returns. All three of these criteria must be met for an investor to have control over an investee.
Previously, control was defined as the power to govern the financial and operating policies of an entity
so as to obtain benefits from its activities. Additional guidance has been included in IFRS 10 to explain
when an investor has control over an investee. Some guidance included in IFRS 10 that deals with
whether or not an investor that owns less than 50% of the voting rights in an investee has control over
the investee is relevant to the Entity.
IFRS 11 replaces IAS 31 Interests in Joint Ventures, and the guidance contained in a related
interpretation, SIC-13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers, has
been incorporated in IAS 28 (as revised in 2011).
IFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be
classified and accounted for. Under IFRS 11, there are only two types of joint arrangements – joint
operations and joint ventures.
The classification of joint arrangements under IFRS 11 is determined based on the rights and
obligations of parties to the joint arrangements by considering the structure, the legal form of the
arrangements, the contractual terms agreed by the parties to the arrangement, and, when relevant, other
facts and circumstances. A joint operation is a joint arrangement whereby the parties that have joint
control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the
liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that
have joint control of the arrangement (i.e. joint ventures) have rights to the net assets of the
arrangement. Previously, IAS 31 contemplated three types of joint arrangements – jointly controlled
entities, jointly controlled operations and jointly controlled assets. The classification of joint
arrangements under IAS 31 was primarily determined based on the legal form of the arrangement (e.g.
a joint arrangement that was established through a separate entity was accounted for as a jointly
controlled entity).
The initial and subsequent accounting of joint ventures and joint operations is different. Investments in
joint ventures are accounted for using the equity method (proportionate consolidation is no longer
allowed). Investments in joint operations are accounted for such that each joint operator recognizes its
assets (including its share of any assets jointly held), its liabilities (including its share of any liabilities
incurred jointly), its revenue (including its share of revenue from the sale of the output by the joint
operation) and its expenses (including its share of any expenses incurred jointly). Each joint operator
accounts for the assets and liabilities, as well as revenues and expenses, relating to its interest in the
joint operation in accordance with the applicable Standards
IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries,
joint arrangements, associates and/or unconsolidated structured entities. In general, the application of
IFRS 12 has resulted in more extensive disclosures in the accompanying consolidated financial
statements.
F-32
IFRS 13 Fair Value Measurement
The Entity has applied IFRS 13 for the first time in the current year. IFRS 13 establishes a single
source of guidance for fair value measurements and disclosures about fair value measurements
IFRS 13 requires prospective application from January 1, 2013. In addition, specific transitional
provisions were given to entities such that they need not apply the disclosure requirements set out in
the Standard in comparative information provided for periods before the initial application of the
Standard. In accordance with these transitional provisions, the Entity has not made any new
disclosures required by IFRS 13 for the 2012 comparative period (please see note 10 for the 2013
disclosures). Other than the additional disclosures, the application of IFRS 13 has not had any material
impact on the amounts recognized in the consolidated financial statements.
Amendments to IAS 1 Presentation of Items of Other Comprehensive Income
The Entity has applied the amendments to IAS 1 Presentation of Items of Other Comprehensive
Income for the first time in the current year. The amendments introduce new terminology, whose use is
not mandatory, for the statement of comprehensive income and income statement. Under the
amendments to IAS 1, the ‘statement of comprehensive income’ is renamed as the ‘statement of profit
or loss and other comprehensive income, the amendments to IAS 1 retain the option to present profit or
loss and other comprehensive income in either a single statement or in two separate but consecutive
statements. However, the amendments to IAS 1 require items of other comprehensive income to be
grouped into two categories in the other comprehensive income section: (a) items that will not be
reclassified subsequently to profit or loss and (b) items that may be reclassified subsequently to profit
or loss when specific conditions are met.
Income tax on items of other comprehensive income is required to be allocated on the same basis – the
amendments do not change the option to present items of other comprehensive income either before
tax or net of tax. The amendments have been applied retrospectively, and hence the presentation of
items of other comprehensive income has been modified to reflect the changes. Other than the above
mentioned presentation changes, the application of the amendments to IAS 1 does not result in any
impact on profit or loss, other comprehensive income and total comprehensive income.
IAS 19 Employee Benefits (as revised in 2011)
In the current year, the Entity has applied IAS 19 Employee Benefits (as revised in 2011) and the
related consequential amendments for the first time.
4.
Significant accounting policies
a.
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards released by the International Accounting Standards Board (IASB).
b.
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for certain
long-lived assets and financial instruments that are measured at revalued amounts or fair values at the
end of each reporting period, as explained in the accounting policies below. The financial statements
are prepared in Mexican pesos, legal currency of Mexico and are presented in thousands, except when
indicated otherwise
i.
Historical cost
Historical cost is generally based on the fair value of the consideration given in exchange for
goods and services.
F-33
ii.
Fair value
Fair value 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, regardless of whether
that price is directly observable or estimated using another valuation technique. In estimating
the fair value of an asset or a liability, the Entity takes into account the characteristics of the
asset or liability if market participants would take those characteristics into account when
pricing the asset or liability at the measurement date. Fair value for measurement and/or
disclosure purposes in these consolidated financial statements is determined on such a basis,
except for share-based payment transactions that are within the scope of IFRS 2, leasing
transactions that are within the scope of IAS 17, and measurements that have some similarities
to fair value but are not fair value, such as net realizable value in IAS 2 or value in use in IAS
36.
In addition, for financial reporting purposes, fair value measurements are categorized into Level
1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable
and the significance of the inputs to the fair value measurement in its entirety, which are
described as follows:
•
•
•
c.
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are
observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Elementia, S. A. de
C. V. and the entities controlled by it. Control is achieved when the Entity:
•
•
•
Has power over the investee;
Is exposed, or has rights, to variable returns from its involvement with the investee; and
Has the ability to use its power to affect its returns.
The Entity reassesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control listed above.
When Elementia, S. A. de C. V. has less than a majority of the voting rights of an investee, it has
power over the investee when the voting rights are sufficient to give it the practical ability to direct the
relevant activities of the investee unilaterally. The Entity considers all relevant facts and circumstances
in assessing whether or not the Entity’s voting rights in an investee are sufficient to give it power,
including:
•
•
•
•
The size of the Entity’s holding of voting rights relative to the size and dispersion of holdings of
the other vote holders;
Potential voting rights held by the Entity other vote holders or other parties;
Rights arising from other contractual arrangements; and
Any additional facts and circumstances that indicate that the Entity has, or does not have, the
current ability to direct the relevant activities at the time that decisions need to be made,
including voting patterns at previous shareholders’ meetings.
Consolidation of a subsidiary begins when the Entity obtains control over the subsidiary and ceases
when the Entity loses control of the subsidiary. Specifically, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated statement of profit or loss and
other comprehensive income from the date the Entity gains control until the date when the Entity
ceases to control the subsidiary.
F-34
Net income (loss) and each component of other comprehensive income are attributed to the owners of
the Entity and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed
to the owners of the Entity and to the non-controlling interests even if this results in the non-controlling
interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies into line with the Entity accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions
between members of the Entity are eliminated in full on consolidation.
1.
Changes in the Entity’s ownership interests in existing subsidiaries
Changes in the Entity’s ownership interests in subsidiaries that do not result in the Entity losing
control over the subsidiaries are accounted for as equity transactions. The carrying amounts of
the Entity’s interests and the non-controlling interests are adjusted to reflect the changes in their
relative interests in the subsidiaries. Any difference between the amount by which the noncontrolling interests are adjusted and the fair value of the consideration paid or received is
recognized directly in equity and attributed to owners of the Entity.
When the Entity loses control of a subsidiary, a gain or loss is recognized in profit or loss and is
calculated as the difference between (i) the aggregate of the fair value of the consideration received
and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including
goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously
recognized in other comprehensive income in relation to that subsidiary are accounted for as if the
Entity had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to
profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs).
The fair value of any investment retained in the former subsidiary at the date when control is lost is
regarded as the fair value on initial recognition for subsequent accounting under IAS 39, when
applicable, the cost on initial recognition of an investment in an associate or a joint venture.
As of December 31, 2013, 2012 and 2011, and for the years then ended. Elementia’s shareholding
percentage in the capital stock of its significant subsidiaries and their activities are set forth below.
Country and entity
2013
2012
2011
Mexico:
Mexalit Industrial, S.A de C. V. (“Mexalit Industrial”)
(1) (3)
100%
100%
100%
Manufacture and distribution of fiber-cement construction
products.
Distribuidora Promex, S. A. de C. V. and Subsidiaries
(“Promex”)
100%
100%
100%
Investments in shares and distribution of fiber-cement
construction products and pipes.
Mexalit Servicios Administrativos (formerly Eureka
Servicios Industriales, S.A. de C.V., “Mexalit Servicios”)
100%
100%
100%
Administrative services.
Nacobre Servicios Administrativos (formerly Maxitile
Servicios Industriales, S.A. de C.V., “Nacobre Servicios”)
100%
100%
100%
Administrative services.
99.96%
99.96%
100%
Compañía Mexicana de Concreto Pretensado Comecop,
S.A. de C.V. (“Comecop”) (6)
Activity
99.96%
Manufacture and sale of pre-stressed concrete pipes.
100%
100%
Manufacture of copper products for the construction
industry.
99.99%
99.99%
99.99%
Frigocel, S. A. de C. V. and Subsidiary (“Frigocel”)
100%
100%
100%
ELC Tenedora de Cementos,
S. A. P. I. de C. V. and Subsidiaries (“ELC”)
53%
100%
-
Maxitile Industries, S.A. de C.V. (Maxitile) (1)
-
-
100%
Group Nacional de Cobre, S.A. de C.V. (“Nacobre”)
(2) (4) (5)
Operadora de Inmuebles Elementia, S.A. de C.V.
(formerly Almexa, S.A de C.V., “Operadora”)
F-35
Assets leasing.
Distribution and sale of plastic products.
Manufacture and sale of cement.
Manufacture and sale of fibro-cement construction products
Country and entity
2013
2012
2011
100%
100%
100%
products.
Eternit Colombiana, S.A (“Colombiana”)
93.41%
93.41%
93.41%
products.
Eternit Pacífico, S.A. (“Pacífico”)
98.20%
98.20%
98.20%
products.
Eternit Atlántico, S.A. (“Atlántico”)
96.52%
96.52%
96.52%
products.
Maxitile Inc. (“Maxitile Inc”)
100%
100%
100%
products.
Cooper & Brass Int. Corp. (“Cooper”)
100%
100%
100%
Distribution and sale of copper and aluminum products for
the construction industry in the United States of America.
Panama:
General de Bebidas y Alimentos, S.A. de C.V. and
Subsidiaries (“General de Bebidas”)
Activity
Colombia:
United States of America:
Costa Rica and Central America:
The Plycem Company, Inc. and Subsidiaries (“Plycem and
Subsidiaries”)
100%
100%
100%
Holding entity of Central America entities and production of
light construction systems (constru-sistemas) in Latin
America
100%
100%
100%
Manufacture of slight covers of polypropylene and
polycarbonate.
100%
100%
100%
products.
Peru:
Industrias Fibraforte, S.A. (“Fibraforte”)
Ecuador:
Eternit Ecuatoriana, S.A. (“Ecuatoriana”)
(1)
Maxitile Industries, S.A. de C.V. merged with Mexalit Industrial, S.A. de C.V. on January 2, 2012
prevailing the latter as the merging entity.
(2)
On November 22, 2011, Almexa Aluminio, S.A. de C.V. spun off, to transfer some of its assets to
Aluminio Holdings. On April 2012, both the Entity disposed of both companies.
(3)
Versalit, merged with Mexalit Industrial, S.A. de C.V. on September 1, 2011, the latter prevailed
as the merging entity.
(4)
Pronaco merged with Nacobre on September 1, 2011, the latter prevailed as the merging entity.
(5)
Grupo Aluminio merged with Elementia on December 7, 2011, the latter prevailing as the merging
entity.
(6)
Operadora de Aguas, S.A. de C.V. merged into Comecop on September 1, 2011, the latter
prevailing as the merged entity.
F-36
d.
Transactions in foreign currency
In preparing the financial statements of each individual group entity, transactions in currencies other
than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange
prevailing at the dates of the transactions. At the end of each reporting period, monetary items
denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary
items carried at fair value that are denominated in foreign currencies are retranslated at the rates
prevailing at the date when the fair value was determined. Non-monetary items that are measured in
terms of historical cost in a foreign currency are not retranslated.
The exchange differences are recognized in income for the period, except by exchange rate differences
from foreign currency denominated loans relating to assets under construction qualifying for
capitalization of interest, which are included in the cost of such assets when considered as an
adjustment to interest cost on those foreign currency denominated loans.
The adjustments to goodwill and fair value generated in the acquisition of a foreign operation are
treated as assets and liabilities of the operation and translated at the exchange rate prevailing at the end.
Foreign currency transactions are recorded at the applicable exchange rate in effect at the transaction
date. Monetary assets and liabilities denominated in foreign currency are translated into Mexican pesos
at the applicable exchange rate in effect at the date of the statement of financial position. Exchange
fluctuations are recorded as a component of net comprehensive financing result in the statements of
income.
The functional currency and the recording currency of the entity and all of its subsidiaries is the
Mexican peso, except for the subsidiary whose functional and recording currencies are different as
follow:
Subsidiary
Recording currency
Functional currency
Reporting currency
Pacífico
Colombian peso
Colombian peso
Mexican peso
Atlántico
Colombian peso
Colombian peso
Mexican peso
Colombiana
Colombian peso
Colombian peso
Mexican peso
Maxitile Inc
USD$
USD$
Mexican peso
Cooper
USD$
USD$
Mexican peso
Plycem and Subsidiaries
USD$
USD$
Mexican peso
Fibraforte
Soles
Soles
Mexican peso
Ecuatoriana
USD$
USD$
Mexican peso
Nacobre
Mexican peso
USD$
Mexican peso
F-37
Therefore these subsidiaries are considered foreign operations under IFRS.
In preparing the financial statements of the individual entity, transactions in currencies other than the
entity’s functional currency (foreign currencies) are recorded using the exchange rates prevailing at the
dates of transactions are conducted.
e.
Cash and cash equivalents consist mainly of bank deposits in checking accounts and short-term
investments that a) are highly liquid and easily convertible into cash, b) mature within three months
from their acquisition date and c) are subject to low risk of material changes in value. Cash is stated at
nominal value and cash equivalents are valued at fair value; any fluctuations in value are recognized in
profit or loss and other comprehensive income. Cash equivalents are comprised mainly of investments
in investment funds.
f.
Inventories and cost of sales
Inventories are stated at the lower of cost and net realizable value. Costs of inventories are determined
on sing a weighted average basis including the cost of materials, direct costs and an appropriate portion
of fixed and variable overhead costs that are incurred in the transformation process. Reductions in
value of inventories are included in of reserves that represent the impairment of inventories.
g.
Property, machinery land buildings and equipment held for use in the production or supply of goods or
services, or for administrative purposes, are stated in the consolidated statement of financial position at
their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated
depreciation and subsequent accumulated impairment losses. Revaluations are performed with
sufficient regularity such that the carrying amounts do not differ materially from those that would be
determined using fair values at the end of each reporting period.
Any increase in the value of such property machinery and equipment is recognized as gain on
revaluation in other comprehensive income items, unless reverses a revaluation decrease of the same
asset previously recognized in profit or loss, in which case the increase is credited to income as it
reduces spending by decreasing previously made. A decrease in the value that originated from the
revaluation of such land, property and machinery, is recorded in income to the extent it exceeds the
balance, if any, of the property revaluation reserve relating to a previous revaluation of that same asset.
Depreciation on revalued property and machinery is recognized in the statement to profit or loss and
other comprehensive income. In case of subsequent sale or disposal of revalued property, the
attributable revaluation gain to the remaining revaluation reserve property is transferred directly to
retained earnings.
Properties in construction for production, supply or administrative purposes are carried at cost, less any
recognized impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs
capitalized in accordance with the Entity’s accounting policy. Such properties are allocated to the
appropriate categories of property, machinery and equipment when are completed and ready for its
intended use. At this date begins the depreciation using the same basis as in other property assets.
Land is not depreciated.
Depreciation is recognized to write off the cost or valuation of assets (other than properties under
construction) less their residual values over their useful lives using the straight line method. The
estimated useful lives, residual values and depreciation method are reviewed at the end of each year,
and the effect of any changes in the estimate recorded is recognized on a prospective basis.
Depreciation is calculated under the straight-line method based on the useful lives of the assets, as
follows:
F-38
%
Residual value
Buildings
Industrial machinery and
equipment
Vehicles
Computers
Office furniture and
equipment
Average years of useful life
December 31, 2013 December 31, 2012 December 31, 2011
-
40 and 60
40 and 60
70 and 60
5
-
20 to 30
4 and 5
3
20 to 30
4 and 5
3
15 and 25
4 and 5
3
-
10
10
10
Any gain or loss arising on the disposal or retirement of an item of property, machinery and equipment
is determined as the difference between the sales proceeds and the carrying amount of the asset and is
recognized in profit or loss.
h.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognized as assets of the Entity at their fair value at the
inception of the lease or, if lower, at the present value of the minimum lease payments. The
corresponding liability to the lessor is included in the consolidated statement of financial position as a
finance lease obligation.
Finance lease payments are apportioned between finance expenses and a reduction of the lease liability
so as to achieve an effective interest rate. Finance expenses are recognized immediately in profit or
loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in
accordance with the Entity’s general policy on borrowing costs. Contingent rentals are recognized as
expenses in the periods in which they are incurred.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term,
except where another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed. Contingent rentals arising under operating leases are
recognized as an expense in the period in which they are incurred.
i.
Borrowing costs
Costs for general loans or directly attributable to the acquisition or construction of qualifying assets for
that require a substantial period of time until they are capitalized to the cost of those assets until the
time they are ready for use. Costs subject to capitalization include exchange differences related to
loans in foreign currency
j.
Investments in associates
An associate is an entity over which the Entity has significant influence. Significant influence is the
power to participate in the financial and operating policy decisions of the investee but is not control or
joint control over those policies.
The results and assets and liabilities of associates are incorporated in these consolidated financial
statements using the equity method of accounting. Under the equity method, an investment in an
associate is initially recognized in the consolidated statement of financial position at cost and adjusted
thereafter to recognize the Entity’s share of the profit or loss and other comprehensive income of the
associate. When the Entity’s share of losses of an associate exceeds the Entity’s interest in that
associate, the Entity discontinues recognizing its share of further losses. Additional losses are
recognized only to the extent that the Entity has incurred legal or constructive obligations or made
payments on behalf of the associate.
F-39
An investment in an associate is accounted for using the equity method from the date on which the
investee becomes an associate. On acquisition of the investment in an associate, any excess of the cost
of the investment over the Entity’s share of the net fair value of the identifiable assets and liabilities of
the investee is recognized as goodwill, which is included within the carrying amount of the investment.
Any excess of the Entity’s share of the net fair value of the identifiable assets and liabilities over the
cost of the investment, after reassessment, is recognized immediately in profit or loss in the period in
which the investment is acquired.
The requirements of IAS 39 are applied to determine whether it is necessary to recognize any
impairment loss with respect to the Entity’s investment in an associate. When necessary, the entire
carrying amount of the investment (including goodwill) is tested for impairment in accordance with
IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in
use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms
part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in
accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently
increases.
The Entity discontinues the use of the equity method from the date when the investment ceases to be an
associate, or when the investment is classified as held for sale.
When a group entity transacts with an associate of the Entity, profits and losses resulting from the
transactions with the associate are recognized in the Entity’s consolidated financial statements only to
the extent of interests in the associate that are not related to the Entity.
k.
Goodwill
Goodwill arising from a business combination or acquisition of associate is recognized as an asset at
the date that control is acquired (the acquisition date) less impairment losses recognized, if any.
Goodwill is the excess of the consideration transferred the amount of any non-controlling interest in
the acquire over the fair value of the acquirer’s interest in the equity of the acquired and / or on the net
at the date of acquisition identifiable assets acquired and liabilities assumed.
When the fair value of the identifiable net assets acquired exceeds the sum of the consideration
transferred, the amount of such excess is recognized in the income statement as a gain on purchase.
Goodwill is not amortized and is subject to annual impairment testing. For purposes of impairment
testing, goodwill is allocated to each cash-generating unit for which the entity expects to obtain benefits.
If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of goodwill allocated to the unit and
then to the other assets of unit, proportionately, based on the carrying amount of each asset in the unit.
The impairment loss recognized for goodwill purposes cannot be reversed in a subsequent period.
The availability of a subsidiary, the amount attributable to goodwill is included in determining the gain
or loss on disposal.
l.
1.
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less
accumulated amortization and accumulated impairment losses. Amortization is recognized on a
straight-line basis over their estimated useful lives. The estimated useful life and amortization
method are reviewed at the end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis. Intangible assets with indefinite useful
lives that are acquired separately are carried at cost less accumulated impairment losses.
F-40
2.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are recognized separately from goodwill
and are initially recognized at their fair value at the acquisition date (which is regarded as their
cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are
reported at cost less accumulated amortization and accumulated impairment losses, on the same
basis as intangible assets that are acquired separately.
3.
Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are
expected from use or disposal. Gains or losses arising from derecognition of an intangible asset,
measured as the difference between the net disposal proceeds and the carrying amount of the
asset, are recognized in profit or loss when the asset is derecognized.
m.
Impairment of tangible and intangible assets
The Entity reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss
(if any). When it is not possible to estimate the recoverable amount of an individual asset, the Entity
estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a
reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to
individual cash-generating units, or otherwise they are allocated to the smallest group of cashgenerating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested
for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset
for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognized immediately in profit or loss.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating
unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been determined had no impairment loss
been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss
is recognized immediately in profit or loss.
n.
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration
transferred in a business combination is measured at fair value, which is calculated as the sum of the
acquisition-date fair values of the assets transferred by the Entity, liabilities incurred by the Entity to
the former owners of the acquire and the equity interests issued by the Entity in exchange for control
of the acquire. Acquisition-related costs are generally recognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at
their fair value, except that:
i.
Deferred tax assets or liabilities, and assets or liabilities related to employee benefit
arrangements are recognized and measured in accordance with IAS 12 Income Taxes and IAS
19 Employee Benefits, respectively;
F-41
ii.
Liabilities or equity instruments related to share-based payment arrangements of the acquire or
share-based payment arrangements of the Entity entered into to replace share-based payment
arrangements of the acquire are measured in accordance with IFRS 2 Share based payments at
the acquisition date; and
iii.
Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Noncurrent Assets Held for Sale and Discontinued Operations are measured in accordance with that
Standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any noncontrolling interests in the acquire, and the fair value of the acquirer’s previously held equity interest in
the acquire (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and
the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable
assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of
any non-controlling interests in the acquire and the fair value of the acquirer’s previously held interest
in the acquire (if any), the excess is recognized immediately in profit or loss as a bargain purchase
gain.
Non-controlling interests that are present ownership interests and entitle their holders to a
proportionate share of the entity’s net assets in the event of liquidation may be initially measured either
at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the
acquirer’s identifiable net assets. The choice of measurement basis is made on a transaction-bytransaction basis. Other types of non-controlling interests are measured at fair value or, when
applicable, on the basis specified in another IFRS.
When the consideration transferred by the Entity in a business combination includes assets or liabilities
resulting from a contingent consideration arrangement, the contingent consideration is measured at its
acquisition-date fair value and included as part of the consideration transferred in a business
combination. Changes in the fair value of the contingent consideration that qualify as measurement
period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill.
Measurement period adjustments are adjustments that arise from additional information obtained
during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts
and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not
qualify as measurement period adjustments depends on how the contingent consideration is classified.
Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates
and its subsequent settlement is accounted for within equity. Contingent consideration that is classified
as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39, or IAS
37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding
gain or loss being recognized in profit or loss.
When a business combination is achieved in stages, the Entity’s previously held equity interest in the
acquire is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is
recognized in profit or loss. Amounts arising from interests in the acquire prior to the acquisition date
that have previously been recognized in other comprehensive income are reclassified to profit or loss
where such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in
which the combination occurs, the Group reports provisional amounts for the items for which the
accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see
above), or additional assets or liabilities are recognized, to reflect new information obtained about facts
and circumstances that existed at the acquisition date that, if known, would have affected the amounts
recognized at that date
o.
Financial instruments
Financial assets and financial liabilities are recognized when an Entity becomes a party to the
contractual provisions of the instruments.
F-42
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the issue of financial liabilities (other than financial liabilities at fair value
through profit or loss) are deducted from the fair value of the financial liabilities on initial recognition.
Transaction costs directly attributable to the acquisition of financial liabilities at fair value through
profit or loss are recognized immediately in profit or loss.
i.
Financial assets - Financial assets are classified into the following specified categories:
financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity’ investments,
‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification
depends on the nature and purpose of the financial assets and is determined at the time of initial
recognition. All regular way purchases or sales of financial assets are recognized and
derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of
financial assets that require delivery of assets within the time frame established by regulation or
convention in the marketplace
ii.
−
Financial assets at FVTPL
Financial assets are classified as of FVTPL when the financial asset is either held for trading or
it is designated as of FVTPL.
A financial asset is classified as held for trading if:
•
•
•
It has been acquired principally for the purpose of selling it in the near term; or
On initial recognition it is part of a portfolio of identified financial instruments that the
Entity manages together and has a recent actual pattern of short-term profit-taking; or
It is a derivative that is not designated and effective as a hedging instrument.
A financial asset other than a financial asset held for trading may be designated as of FVTPL
upon initial recognition if:
•
•
•
Such designation eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise; or
The financial asset forms part of a group of financial assets or financial liabilities or
both, which is managed and its performance is evaluated on a fair value basis, in
accordance with the Entity’s documented risk management or investment strategy, and
information about the Entity is provided internally on that basis; or
It forms part of a contract containing one or more embedded derivatives, and IAS 39
permits the entire combined contract to be designated as of FVTPL.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on
remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss
incorporates any dividend or interest earned on the financial asset and is included in the ‘other
income (expenses) - Net’ line item. Fair value is determined in the manner described in Note
10.
−
Held to- maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable
payments and fixed maturity dates that the Entity has the positive intent and ability to hold to
maturity. Subsequent to initial recognition, held-to maturity investments are measured at
amortized cost using the effective interest method less any impairment.
F-43
−
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. Loans and receivables are measured at amortized cost
using the effective interest method, less any impairment.
Interest income is recognized by applying the effective interest rate, except for short-term
receivables when the effect of discounting is immaterial.
−
Method of the effective interest rate
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end
of each reporting period. Financial assets are considered to be impaired when there is objective
evidence that, as a result of one or more events that occurred after the initial recognition of the
financial asset, the estimated future cash flows of the investment have been affected.
For AFS equity investments, a significant or prolonged decline in the fair value of the security
below its cost is considered to be objective evidence of impairment.
For all other financial assets, objective evidence of impairment could include:
•
•
•
•
Significant financial difficulty of the issuer or counterparty; or
Breach of contract, such as a default or delinquency in interest or principal payments; or
It becoming probable that the borrower will enter bankruptcy or financial reorganization; or
The disappearance of an active market for that financial asset because of financial
difficulties.
For certain categories of financial assets, such as trade receivables, assets are assessed for
impairment on a collective basis even if they were assessed not to be impaired individually.
Objective evidence of impairment for a portfolio of receivables could include the Entity’s past
experience of collecting payments, an increase in the number of delayed payments in the
portfolio past the average credit period of 60 days, as well as observable changes in national or
local economic conditions that correlate with default on receivables.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is
the difference between the asset’s carrying amount and the present value of estimated future
cash flows, discounted at the financial asset’s original effective interest rate.
For financial assets that are carried at cost, the amount of the impairment loss is measured as
the difference between the asset’s carrying amount and the present value of the estimated future
cash flows discounted at the current market rate of return for a similar financial asset. Such
impairment loss will not be reversed in subsequent periods.
The carrying amount of the financial asset is reduced by the impairment loss directly for all
financial assets with the exception of trade receivables, where the carrying amount is reduced
through the use of an allowance account. When a trade receivable is considered uncollectible, it
is written off against the allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in the carrying amount of the
allowance account are recognized in profit or loss.
When an AFS financial asset is considered to be impaired, cumulative gains or losses
previously recognized in other comprehensive income are reclassified to profit or loss in the
period.
F-44
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the
impairment loss decreases and the decrease can be related objectively to an event occurring
after the impairment was recognized, the previously recognized impairment loss is reversed
through profit or loss to the extent that the carrying amount of the investment at the date the
impairment is reversed does not exceed what the amortized cost would have been had the
impairment not been recognized.
In respect of AFS equity securities, impairment losses previously recognized in profit or loss
are not reversed through profit or loss. Any increase in fair value subsequent to an impairment
loss is recognized in other comprehensive income and accumulated under the heading of
investments revaluation reserve. In respect of AFS debt securities, impairment losses are
subsequently reversed through profit or loss if an increase in the fair value of the investment
can be objectively related to an event occurring after the recognition of the impairment loss.
−
Derecognition of financial assets
The Entity derecognizes a financial asset when the contractual rights to the cash flows from the
asset expire, or when it transfers the financial asset and substantially all the risks and rewards of
ownership of the asset to another party. If the Entity neither transfers nor retains substantially
all the risks and rewards of ownership and continues to control the transferred asset, the Entity
recognizes its retained interest in the asset and an associated liability for amounts it may have to
pay. If the Entity retains substantially all the risks and rewards of ownership of a transferred
financial asset, the Entity continues to recognize the financial asset and also recognizes a
collateralized borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying
amount and the sum of the consideration received and receivable and the cumulative gain or
loss that had been recognized in other comprehensive income and accumulated in equity is
recognized in profit or loss.
On derecognition of a financial asset other than in its entirety (e.g. when the Entity retains an
option to repurchase part of a transferred asset), the Entity allocates the previous carrying
amount of the financial asset between the part it continues to recognize under continuing
involvement, and the part it no longer recognizes on the basis of the relative fair values of those
parts on the date of the transfer. The difference between the carrying amount allocated to the
part that is no longer recognized and the sum of the consideration received for the part no
longer recognized and any cumulative gain or loss allocated to it that had been recognized in
other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had
been recognized in other comprehensive income is allocated between the part that continues to
be recognized and the part that is no longer recognized on the basis of the relative fair values of
those parts.
iii.
Financial liabilities and equity instruments issued by the Entity
Classification as debt or equity - T Debt and equity instruments issued by the Entity are
classified as either financial liabilities or as equity in accordance with the substance of the
contractual arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments - An equity instrument is any contract that evidences a residual interest in
the assets of an entity after deducting all of its liabilities. Equity instruments issued by the
Entity are recognized at the proceeds received, net of direct issue costs.
Repurchase of the Entity’s own equity instruments is recognized and deducted directly in
equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation
of the Entity’s own equity instruments.
Financial liabilities - Financial liabilities are classified as either financial liabilities ‘at FVTPL’
or ‘other financial liabilities’
F-45
4.
Financial liabilities at FVTPL- Financial liabilities are classified as of FVTPL when the
financial liability is either held for trading or it is designated as of FVTPL.
A financial liability is classified as held for trading if:
•
•
•
•
•
•
It has been incurred principally for the purpose of repurchasing it in the near term; or
On initial recognition it is part of a portfolio of identified financial instruments that the
Entity manages together and has a recent actual pattern of short-term profit-taking; or
It is a derivative that is not designated and effective as a hedging instrument. A financial
liability other than a financial liability held for trading may be designated as of FVTPL
upon initial recognition if:
Such designation eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise; or
The financial liability forms part of a group of financial assets or financial liabilities or
both, which is managed and its performance is evaluated on a fair value basis, in
accordance with the Entity’s documented risk management or investment strategy, and
information about the grouping is provided internally on that basis; or
It forms part of a contract containing one or more embedded derivatives, and IAS 39
permits the entire combined contract to be designated as of FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on
remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss
incorporates any interest paid on the financial liability and is included in. Fair value is
determined in the manner described in Note 10.
−
Other financial liabilities
Other financial liabilities (including borrowings and trade and other payables) are subsequently
measured at amortized cost using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial
liability and of allocating interest expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments (including all fees and points
paid or received that form an integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the financial liability, or (where
appropriate) a shorter period, to the net carrying amount on initial recognition.
−
Derecognition of financial liabilities
The Entity derecognizes financial liabilities when, and only when, the Entity’s obligations are
discharged, cancelled or they expire. The difference between the carrying amount of the
financial liability derecognized and the consideration paid and payable is recognized in profit or
loss.
p.
Financial derivative instruments
In order to hedge the financial risks derived from fluctuation in prices of natural gases and some metals
such as copper, aluminum, zinc, and nickel, the Entity selectively uses derivative financial instruments
such as swaps and futures (future contracts) on those underlying instruments. See Note 11 includes
further detail about derivative financial instruments.
Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and
are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain
or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a
hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature
of the hedge relationship.
F-46
Derivatives are initially recognized at fair value at the date of the derivative contract subscribe and
subsequently measured at fair value at the end of the reporting period. The gain or loss is recognized in
income unless the derivative is designated and is effective as a hedging instrument, in which event the
timing of the recognition in the results depend on the nature of the hedge relationship. The Entity
designates certain derivatives as either fair value hedges of recognized assets or liabilities or firm
commitments (fair value hedges), hedges of highly probable forecast transactions or hedges of foreign
currency risk of firm commitments (hedging cash flows).
A derivative with a positive fair value is recognized as a financial asset whereas a derivative with a
negative fair value is recognized as a financial liability. A derivative is presented as an asset or a
liability in the long term if the maturity date of the instrument is 12 months or more and not expected
to make or cancel within those 12 months. Other derivatives are presented as current assets and current
liabilities.
−
Hedge accounting
The Entity designates certain hedging instruments, which include derivatives, embedded derivatives
and non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges,
or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm
commitments are accounted for as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging
instrument and the hedged item, along with its risk management objectives and its strategy for
undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing
basis, the Entity documents whether the hedging instrument is highly effective in offsetting changes in
fair values or cash flows of the hedged item attributable to the hedged risk.
Note 11 sets out details of the fair values of the derivative instruments used for hedging purposes.
−
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify
as cash flow hedges is recognized in other comprehensive income and accumulated under the
heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is
recognized immediately in profit or loss, and is included in the ‘other income (expenses) - Net’
line item.
Amounts previously recognized in other comprehensive income and accumulated in equity are
reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the
same line as the recognized hedged item. However, when the hedged forecast transaction results
in the recognition of a non-financial asset or a non-financial liability, the gains and losses
previously recognized in other comprehensive income and accumulated in equity are transferred
from equity and included in the initial measurement of the cost of the non-financial asset or
non-financial liability.
Hedge accounting is discontinued when the Entity revokes the hedging relationship, when the
hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies
for hedge accounting. Any gain or loss recognized in other comprehensive income and
accumulated in equity at that time remains in equity and is recognized when the forecast
transaction is ultimately recognized in profit or loss. When a forecast transaction is no longer
expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or
loss.
F-47
−
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are
recognized in profit or loss immediately, together with any changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk. The change in the fair value of
the hedging instrument and the change in the hedged item attributable to the hedged risk are
recognized in profit or loss in the line item relating to the hedged item.
Hedge accounting is discontinued when the Entity revokes the hedging relationship, when the
hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies
for hedge accounting. The fair value adjustment to the carrying amount of the hedged item
arising from the hedged risk is amortized to profit or loss from that date.
−
Embedded Derivatives
The Entity carried out the review of contracts held to identify embedded derivatives to be
separated from the host contract for purposes of valuation and accounting records.
The Entity has no fair value hedges, hedges of net investment in a foreign operation or embedded
derivatives in the reporting period.
q.
Provisions
Are recognized for current obligations (legal or implicit) that arise from a past event, that will probably
result in the use of economic resources, and that can be reasonably estimated.
The amount recognized as a provision is the best estimate of the expenditure required to settle the
present obligation at the end of the reporting period under review, considering the risks and
uncertainties surrounding the obligation. When a provision is valued using the cash flows estimated to
settle the present obligation, its carrying amount is the present value of those cash flows
When it is expected to recover some or all of the economic benefits required to settle a provision, it is
recognized a receivable if it is virtually certain that the Entity will receive the payment and the amount
of the receivable can be measured reliably.
Restructuring- A provision is recognized when the Entity restructuring has developed a detailed formal
plan restructuring and has raised a valid expectation in those affected that it will carry out the
restructuring, either by starting the implementation of the plan or announcing its main features to those
affected by it. The restructuring provision should include only the direct expenditures arising from the
same, which include amounts arising restructuring necessarily, and not associated with the continuous
activities of the Entity.
r.
Direct employee benefits are calculated based on the services rendered by employees, considering their
most recent salary. The liability is recognized as it accrues. These benefits include mainly statutory
employee profit sharing (PTU) payable, compensated absences, such as vacation and vacation
premiums, and other incentives.
F-48
s.
Employee benefits from termination, retirement and other
Liabilities from seniority premiums, pension plans and severance payments are recognized as they
accrue and are calculated by independent actuaries based on the projected unit credit method using
nominal interest rates. Actuarial gains and losses are recognized immediately in other comprehensive
income items net of deferred income taxes, according to the net asset or liability recognized in the
statement of financial position to reflect the surplus (or deficit) of the employee benefit plan, while the
past service costs are recognized profit or loss when performing the modification of the plan or when
restructuring the costs recognized.
The retirement benefit obligation recognized in the statement of financial position represents the
present value of the defined benefit obligation, adjusted for gains and losses and past service costs, less
the fair value of plan assets. When plan assets exceed the liabilities of the defined benefit plan, such
assets will be valued at the lesser of: i) the surplus in a defined benefit plan, and ii) the present value of
any economic benefits available in the form of refunds from the plan or reductions in future
contributions to it.
t.
Income taxes
Income tax expense represents the sum of the tax currently payable and deferred tax.
-
Current taxes
The Entity is subject to the provisions of the Law on income tax (ISR) and the Law of the
Business Flat Tax (IETU). Taxes caused ISR and IETU, are based on taxable income and cash
flows for each year determined in accordance with such laws. Taxable profit differs from profit
as reported in the statement of profit or loss and the comprehensive income because nature for
tax purposes. Tax is calculated using tax rates that have been enacted at the end of the period.
-
Deferred taxes
Deferred tax is recognized on temporary differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable
temporary differences. Deferred tax assets are generally recognized for all deductible temporary
differences to the extent that it is probable that taxable profits will be available against which
those deductible temporary differences can be utilized. Such deferred tax assets and liabilities
are not recognized if the temporary difference arises from the initial recognition (other than in a
business combination) of assets and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit. In addition, deferred tax liabilities are not recognized if the
temporary difference arises from the initial recognition of goodwill.
As a consequence of the 2014 Tax Reform, as of December 31, 2013 deferred IETU is no
longer recognized.
Deferred tax liabilities are recognized for taxable temporary differences associated with
investments in subsidiaries and associates, and interests in joint ventures, except where the
Entity is able to control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from
deductible temporary differences associated with such investments and interests are only
recognized to the extent that it is probable that there will be sufficient taxable profits against
which to utilize the benefits of the temporary differences and they are expected to reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.
F-49
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Entity expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.
For the purposes of measuring deferred tax liabilities and deferred tax assets for investment
properties that are measured using the fair value model, the carrying amounts of such properties
are presumed to be recovered entirely through sale, unless the presumption is rebutted. The
presumption is rebutted when the investment property is depreciable and is held within a
business model whose objective is to consume substantially all of the economic benefits
embodied in the investment property over time, rather than through sale. The Entity’s
management reviewed the Entity’s investment property portfolios and concluded that none of
the Entity’s investment properties are held under a business model whose objective is to
consume substantially all of the economic benefits embodied in the investment properties over
time, rather than through sale. Therefore, the Entity’s management have determined that the
‘sale’ presumption set out in the amendments to IAS 12 is not rebutted. As a result, the Entity
has not recognized any deferred taxes on changes in fair value of the investment properties as
the Entity is not subject to any income taxes on the fair value changes of the investment
properties on disposal.
-
Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that
are recognized in other comprehensive income or directly in equity, in which case, the current
and deferred tax are also recognized in other comprehensive income or directly in equity
respectively. Where current tax or deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for the business combination.
u.
Tax on assets - The tax on assets (“IMPAC”, for its name in Spanish) that is expected to be
recovered is recorded as a recoverable tax.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced
for estimated customer returns, rebates and other similar allowances.
-
Sale of goods
Revenue from the sale of goods is recognized when the goods are delivered and title has passed,
at the time when all of the following conditions are satisfied:
•
The Entity has transferred to the buyer the significant risks and rewards of ownership of
the goods;
•
The Entity retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold;
•
The amount of revenue can be measured reliably;
•
It is probable that the economic benefits associated with the transaction will flow to the
Entity; and
•
The costs incurred or to be incurred in respect of the transaction can be measured
reliably.
F-50
-
Dividend and interest income
Dividend income from investments is recognized when the Entity has the right to receive
payment (provided that it is probable that the economic benefits will flow to the Entity and the
amount of income can be reliably measured).
Interest income is recognized when it is probable that the economic benefits will flow to the
Entity and the amount of income can be measured reliably. Interest income is recorded on a
periodic basis, with reference to capital and the effective interest rate applicable.
v.
-
Services - Revenues from services are recognized in the period in which such services are
rendered.
-
Rentals - Rentals are recognized monthly as leasing services and are provided and maintenance
charges are recognized in the period of the length of the lease agreement from which they come.
Earnings per share
(i) Basic earnings per common share are calculated by dividing consolidated net income of controlling
interests by the weighted average number of common shares outstanding during the year, (ii) Basic
earnings per common share from discontinued operations are calculated by dividing net income of
discontinued operations by the weighted average number of common shares outstanding during the
year.
5.
Critical accounting judgments and key sources of estimation uncertainty
To apply the accounting policies, management of the Entity uses its judgments, estimates, and assumptions
regarding certain asset and liabilities amounts in the consolidated financial statements. The associated
estimates and assumptions reflect a quantitative and qualitative analysis based on an understanding of the
various businesses considered relevant to the Entity. Actual results may differ from such estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects only that period
or in the period of the revision and future periods if the revision affects both current and future periods.
Critical accounting judgments
a.
Classification of Lafarge as a subsidiary – Note 2a indicates that Lafarge Cementos is one of the
Enity’s subsidiaries. Based on the legal structure of the joint venture vehicle and according to the terms
of the Contribution Agreement, the management of the Entity has concluded that the Entity has the
capacity to unilaterally control the relevant activities of Lafarge Cementos, and therefore it has control
over Lafarge Cementos.
b.
Allowances of inventories and accounts receivable - The Entity uses estimates to determine
allowances of inventories and accounts receivable. Factors considered when calculating the allowance
for obsolete and slow moment items are the production and sales volumes as well as movements on the
demand for some products. The factors considered when calculating the allowance for doubtful
accounts are mainly the credit risk of the customer’s financial situation, unsecured accounts and
significant delays in the collection according to the established credit conditions.
c.
Property, machinery and equipment - The Entity reviews the estimated useful lives of property,
machinery and equipment at the end of each annual period. During 2012, based on a detailed analysis
the management of the Entity changed the estimated useful lives of certain components of property,
machinery and equipment. The degree of uncertainty associated with estimates of useful lives is related
to changes in the market and asset utilization for production volumes and technological development.
F-51
6.
d.
Impairment of long-lived assets - The carrying value of non-current assets are reviewed for
impairment if there are situations or changes in circumstances indicating that its the carrying value will
is not be recovered. If there is evidence of impairment, the Entity carries out a review to determine if
the carrying value exceeds its recoverable amount. When performing impairment testing of assets, the
Entity has to make estimates on the value assigned to use its property, machinery and equipment, and
to its cash generating units, in the case of certain assets. To determine the value in use the calculation
requires the Entity has to determine future cash flows projections of revenue using estimates of market
conditions, pricing, and production and sales volumes from the cash-generating units using an
appropriate discount rate to calculate the present value.
e.
Valuation of financial instruments - The Entity uses valuation techniques for its derivative financial
instruments, which include information that is not always based on observable market data to estimate
its fair value. Note 11 shows detailed information about the key assumptions considered in determining
the fair value of financial instruments, as well as detailed analyzes of sensitivity on these assumptions.
The management of the Entity believes that the valuation techniques and assumptions used are
appropriate to determine the fair value of its financial instruments.
f.
Contingencies - Due to the nature of its operations, the Entity is subject to transactions or events
contingent on which uses professional judgment in developing estimates of probability of occurrence,
the factors considered in these estimates are the current legal status at the of the estimate date and the
legal counsel opinion.
g.
Employee retirement benefits asset - Assumptions are used to determine retirement benefits of
employees and the underlying assumptions annually. These estimates, as discussed, and established in
conjunction with independent actuaries. These assumptions include demographic assumptions,
discount rates and expected increases in salaries and future service, among others. The Entity believes
these estimates to be appropriate, however, a change in them could affect the value of assets or
liabilities for these benefits and the statement of comprehensive income in the period in which it
occurs.
For the purposes of the statements of cash flows, cash and cash equivalents include cash on hand and in banks
and investment funds, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the
reporting period as shown in the statements of cash flows, can be reconciled to the related items in the
statement of financial position as follows:
December 31, 2013
Cash
Cash equivalents Investment funds
Ps$
Ps$
476,120
Ps$
7.
1,496,814
December 31, 2012
1,972,934
859,840
December 31, 2011
Ps$
902,095
Ps$
1,761,935
1,816,616
1,722,921
Ps$
3,539,537
Accounts receivable
December 31, 2013
Trade accounts receivable
Allowance for doubtful accounts
Ps$
Recoverable taxes, mainly Value Added
Tax (“VAT”)
Other receivables
2,620,355
(238,758)
2,381,597
December 31, 2012
Ps$
1,019,615
105,057
Ps$
3,506,269
F-52
2,002,616
(176,853)
1,825,763
December 31, 2011
Ps$
941,716
158,919
Ps$
2,926,398
2,532,814
(158,064)
2,374,750
681,400
211,393
Ps$
3,267,543
a.
Trade accounts receivable
The average credit period on sales of goods is between 30 and 60 days and the Entity expects to collect
trade accounts receivable within such timeframe. No interest is charged on trade receivables.
Allowances for doubtful accounts are recognized against trade receivables for 100% of all trade
accounts receivable with high possibilities of not been collectable based on the estimated
unrecoverable amounts.
To accept any new customer, the Entity requests financial information for the last two years and
subsequently supports it with an external credit rating system to evaluate their potential client’s
financial support and defines credit limits by customer. The limits and qualifications attributed to
customers are reviewed every two months through the Credit Committee established by the Entity. No
single customer represents more than 5% of the total balance of the accounts receivable.
Trade receivables disclosed above include amounts that are past due at the end of the reporting period
for which the Entity has not recognized an allowance for doubtful accounts because there has not been
a significant change in credit quality and the amounts are still considered recoverable. The Entity does
not hold any specific guarantees or any other credit enhancements on those amounts, nor does it have
any legal right to compensate them against any amounts payable.
Entity tracks the payment’s performance of the clients without any guarantees and that the only
document supporting payment are promissory notes, and in some cases with support of the client’s
owner, in case of delay in accordance with its policies. In these cases, the Entity suspended the use of
line of credit for future purchases. Further delays lead to judicial and extrajudicial (legal) actions
aimed to recover the balance. If the collection is still not accomplished, the Entity cancels the credit
line and the account receivable.
b.
Allowance for doubtful accounts is as follows:
December 31, 2013
Domestic trade receivables
Export trade receivables
c.
December 31, 2012
December 31, 2011
Ps$
223,621
15,137
Ps$
168,482
8,371
Ps$
152,333
5,731
Ps$
238,758
Ps$
176,853
Ps$
158,064
Change in the allowance for doubtful accounts:
December 31, 2013
Balance at the beginning of the
year
Allowance of the period
Write – offs
Balance at the end of the year
December 31, 2012
December 31, 2011
Ps$
176,853
257,222
(195,317)
Ps$
158,064
90,652
(71,863)
Ps$
108,894
75,877
(26,707)
Ps$
238,758
Ps$
176,853
Ps$
158,064
In determining the recoverability of a trade receivable, the Entity considers any change in the credit
quality of the trade receivable from the date the credit was initially granted up to the end of the
reporting period. Concentration of credit risk is limited due to the customer base is large and
independent.
F-53
8.
Inventories
December 31, 2013
Raw materials and auxiliary materials
Work in progress
Finished goods
Goods in transit
Spare parts and other inventories
Ps$
613,152
464,274
938,276
65,562
302,564
2,383,828
Less- allowance for obsolete and slow
movement items
December 31, 2012
Ps$
(133,457)
Ps$
2,250,371
668,795
649,947
985,109
84,965
245,468
2,634,284
December 31, 2011
Ps$
(163,019)
Ps$
2,471,265
702,623
514,803
1,024,839
29,165
14,092
2,285,522
(99,436)
Ps$
2,186,086
The allowance for obsolete and slow movement is determined based on the experience of previous years,
considering the movement of goods in the market. An increase to the reserve is recorded if items lack of
movement, until it is fully impaired.
The allowance for obsolete goods is determined based on the experience of the physical inventories which are
performed periodically adjusted by variable rates in the different plants.
Movements in the allowance for obsolete, slow moving inventories are presented below:
December 31, 2013
9.
December 31, 2012
December 31, 2011
Balance at the beginning of the year
Allowances of the period
Write – offs
Ps$
163,019
287,990
(317,552)
Ps$
99,436
177,496
(113,913)
Ps$
126,433
150,579
(177,576)
Balance at the end of the year
Ps$
133,457
Ps$
163,019
Ps$
99,436
Risk management
The Entity has exposure to market risks, operation and use derivative financial instruments such as interest
rate, credit, liquidity and risk, which are administered centrally by Corporate Treasury. The Entity seeks to
minimize its exposure to these risks through the use of hedging with derivative financial instruments. The use
of financial derivatives is regulated by the policies of the Entity, approved by the Board of Directors, which
establish the principles to acquiring them. The internal audit area reviews annually the compliance with these
policies and exposure limits. The Board of Directors establishes and monitors policies and procedures to
measure other risks, which are described below:
a.
Capital risk management
The Entity manages its capital to ensure that it will continue as a going concern while maximizing the
return to shareholders through the optimization of debt and equity balances. The Elementia’s capital
structure is made up of net debt (mainly bank loans Notes and related parties, as seen in Notes 18 and
23) and stockholders’ equity of the Entity (issued capital, capital reserves, retained earnings and noncontrolling interest, as detailed in Note 21). The capital structure of the Entity is not subject to any
capital requirements. The overall strategy of the Entity has not been modified in comparison to 2012 or
2011.
The Entity is not subject to any externally imposed requirements for managing capital.
F-54
The management of the Entity reviews monthly net debt and borrowing costs and their relation to
EBITDA (net income, plus or minus discontinued operations, equity in income of associated entity,
foreign exchange (gain) loss, interest income, interest expense, banking fees, and depreciation and
amortization. This is performed at the same time that the Entity prepares its financial projections as
part of the business plan to the Board of Directors and shareholders of the Entity. The Entity has a
practice of borrowing no more than 3.50 times EBITDA determined as the ratio of net debt and interest
and capital.
The net debt ratio over the period reported is as follows:
December 31, 2013
Debt with financial institutions
Notes
Net debt with financial
institutions
EBITDA
Ps$
3,377,715
3,000,000
(1,972,934)
3,382,396
3,000,000
(1,761,935)
Ps$
3,386,381
3,000,000
(3,539,537)
4,620,461
1,876,562
2,846,844
1,748,278
2.30
2.46
1.63
December 31, 2013
December 31, 2012
December 31, 2011
Categories of financial instruments
Financial assets
in hedge accounting
relationships
Accounts receivable, and longterm accounts receivable
Investments held to maturity
Financial liabilities
At amortized cost:
Loans to financial institutions
Notes
Due to related parties long term
in hedge accounting
relationships
c.
Ps$
December 31, 2011
4,404,781
1,913,603
Debt ratio
b.
December 31, 2012
Ps$
1,972,934
Ps$
1,761,935
Ps$
3,539,537
9,810
8,549
2,674,206
11,118
2,267,943
12,297
3,569,798
10,930
December 31, 2013
December 31, 2012
December 31, 2011
Ps$
3,377,715
3,000,000
2,663,274
173,358
18,075
14,087
-
Ps$
3,382,396
3,000,000
2,330,471
205,918
40,462
24,725
-
-
Ps$
3,386,381
3,000,000
3,220,722
227,159
44,589
1,068
Objectives of financial risk management
The treasury function provides services to the Entity’s business, coordinates access to domestic and
international financial markets, monitors and manages the financial risks relating to the operations of
the Entity through internal risk reports, which analyze the exposures by degree and magnitude of risks.
These risks include market risk (including currency risk, interest rates on fair value and price risk),
credit risk, liquidity risk and the risk of interest rate cash flow.
F-55
The Entity seeks to minimize the effects of these risks by using derivative financial instruments to
hedge exposures to risk. The use of financial derivatives is governed by the policies of the Entity
approved by the Board of Directors, which provide written principles on currency risk, interest rate
risk, credit risk, use of derivative financial instruments and non-derivatives and investment of excess
liquidity. Internal auditors regularly review compliance with policies and exposure limits. The Entity
does not subscribe or trade financial instruments, among which includes derivative financial
instruments, for speculative purposes.
At the end of the reporting period, there are no concentrations of significant liquidity risk for loans to
related parties and accounts receivables.
d.
Interest rate risk management
The Entity is mainly exposed to interest rate risks because it has entered into debt at variable rates.
This risk is managed by maintaining an appropriate combination between fixed and variable rate loans.
Hedging activities are evaluated regularly so that they align with interest rates and defined risk,
ensuring that more profitable hedging strategies are applied.
The Entity’s exposures to interest-rate risk are mainly related to changes in the TIIE and LIBOR with
respect to the Entity’s financial liabilities.
-
Sensitivity analyses for interest rates:
The following sensitivity analysis have been determined based on the exposure to interest rates
on its total financial indebtedness unhedged, variable rate sustained, an analysis is prepared
assuming that the amount of outstanding liability at the end of the reporting period has been the
outstanding liability for the whole year. The Entity reports internally to the Board of
Management about the risk in interest rates. If the interest rates are between 100 and 200 basis
points (BPS) greater/lower and all the other variables remained constant, interest expense for
the year 2013 would have increased from Ps$420,585 to Ps$482,437 with 100 BPS and to
Ps$544,289 with 200 BPS and as of December 31, 2012 from Ps$288,745 to Ps$486,945 with
100 BPS and to Ps$550,769 with 200 BPS and as of December 31, 2011 from Ps$467,192 to
Ps$558,776 with 100 BPS and Ps$622,640 with 200 BPS. This is mainly attributable to the
exposure of the Parent Entity to interest rates TIIE and LIBOR on its loans.
TIIE 28 Rate
TIIE 91 Rate
LIBOR 6 months Rate
TIIE 28 Rate
TIIE 91 Rate
LIBOR 6 months Rate
TIIE 28 Rate
TIIE 91 Rate
LIBOR 6 months Rate
Maximum
2013
Minimum
Average
4.8475%
4.8700%
0.5063%
3.7765%
3.7722%
0.3420%
4.2745%
4.2767%
0.4087%
Maximum
2012
Minimum
Average
4.8562%
4.8700%
0.8120%
4.7175%
4.7250%
0.5080%
4.7901%
4.8069%
0.6870%
Maximum
2011
Minimum
Average
4.8500%
4.8500%
0.8210%
4.7500%
4.7600%
0.5080%
4.8200%
4.8100%
0.6870%
F-56
e.
Exchange rate risk management
The functional currency of the Entity is the Mexican peso. Since the Entity has investments in foreign
operations, it is exposed to the risk of foreign currency translation. The coverage of this risk is primarily
mitigated by each subsidiary by carrying monetary assets which are equal or greater monetary liabilities.
Certain subsidiaries generate USD$ and in turn it holds assets that exceed its liabilities. The Entity
performs an analysis of variation in the exchange rates which serves to identify sales opportunities in the
market for corporate treasury dollars.
The following table details the Entity’s sensitivity analysis to an increase and decrease of 10% in weight
foreign currency exchange against dollars. The 10% is the sensitivity rate used when reporting foreign
exchange risk internally to key management personnel and represents management’s assessment of the
reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding
monetary items denominated in foreign currency and adjusts their translation at the period end for a 10%
change in exchange rates. The sensitivity analysis includes external loans as well as loans to foreign
operations within the entity where the denomination of the loan is in a currency other than the currency of
the lender or the borrower. A positive (as shown in the table below) indicates an increase in the results
and other items of equity capital where the weight is strengthened by 10% against USD$. If there is a
weakening of 10% in weight with respect to the reference currency, there would be a comparable impact
on the results and other comprehensive income, and the balances below would be negative.
2013
Asset (liability) position (thousands of USD$)
Increasing effect
exchange rate USD$
2012
(6,412)
Projected exchange rate +(-)10%
Ps$
Income (loss) results (thousands of Mexican pesos)
Ps$
14.3842
(8,385)
2011
69,054
Decrement effect
exchange rate USD$
2012
2013
62,412
(6,412)
2011
69,054
62,412
Ps$
14.3111
Ps$
15.3379
Ps$
11.8877
Ps$
11.8273
Ps$
12.6760
Ps$
89,839
Ps$
87,021
Ps$
7,622
Ps$
(81,677)
Ps$
(79,112)
As of December 31, 2013, the foreign currency position by country is as follows:
Mexico
USD$:
Monetary assets
Monetary liabilities
Net asset (liability) position
Colombia
Costa Rica
Ecuador
Bolivia
Peru
45,511
(73,806)
12,779
(3,462)
6,843
(1,220)
5,077
(358)
4,140
(987)
(28,295)
9,317
5,623
4,719
3,153
115
(1,044)
(929)
As of December 31, 2012, foreign currency position by country is as follows:
Mexico
USD$:
Monetary assets
Net asset (liability) position
Colombia
Costa Rica
Ecuador
56,676
(25,221)
25,924
(4,648)
19,322
(13,718)
18,151
(5,977)
31,455
21,276
5,604
12,174
F-57
Bolivia
Peru
4,265
(3,788)
477
334
(2,266)
(1,932)
The sensitivity to foreign currency has remained at a low level during the last periods mainly due to a
consolidated net asset position in USD$ or a small net liability as shown in Note 24.
f.
Credit risk management
Credit risk refers to the risk that one party fails to meet its contractual obligations resulting in financial
loss to the Entity, and arises principally on accounts receivables and liquid funds. The credit risk on
cash and cash equivalents and derivative financial instruments is limited because the counterparties are
banks with high credit ratings assigned by credit rating agencies. The maximum exposure to credit risk
is represented by its carrying amount. The Entity provides credit primarily to customers in Mexico,
after assessing their creditworthiness, which constantly evaluates and follows up accordingly to credit
policies as explained in Note 7.
Accounts receivable consist of a large number of customers spread across diverse geographical areas.
Continuous assessment of credit is made on the financial condition of accounts receivable and there are
no concentrations of credit risk in its customer base, since the balances of these accounts receivable are
represented by approximately 3,310 customers in 2013 and 3,200 in both, 2012 and 2011, which do
not represent a concentration of risk in the individual.
The Entity has credit guarantees to cover its credit risk associated accounts receivable. Such guarantees
are represented by an insurance policy covering 90% of the portfolio of export customers and are
effective from June 1, 2012. The estimated insurable turnover is USD$56,000,000, subject to annual
premium of 0.125%, in several countries (total estimated annual premium of USD$70,000 and
minimum premium from USD$56,000.
g.
Liquidity Risk Management
Ultimate responsibility for liquidity risk management rests with the Board of Directors of the Entity,
which has established appropriate policies for the control of such risk through the monitoring of
working capital, allowing management of the Entity’s short, medium, and long-term funding
requirements. The Entity maintains cash reserves and available lines of credit lines, continuously
monitoring projected and actual cash flows, reconciling the profiles of maturity of financial assets and
financial liabilities.
The table below details the remaining contractual maturities of the Entity’s financial liabilities, based
on contractual repayment periods. This table has been formulated based on un-discounted projected
cash flows of financial liabilities based on the date on which the Entity will make payments. The table
includes both projected cash flows related to interest and principal on financial debt in the consolidated
statements of financial position. Where the contractual interest payments are based on variable rates,
the amounts are derived from interest rate curves at the end of the period. The contractual maturity is
based on the earliest date in which the Entity is required to make the payments.
Debt with financial institutions includes both, fixed and variable interest rate instruments as is detailed
in Note 18. Financial liabilities at variable rates are subject to change if changes in variable interest
rates differ to those estimates of interest rates determined at the end of the reporting period.
F-58
The Entity expects to meet its obligations with cash flows from continuing operations. Additionally, the Entity
could easily obtain revolving credit lines with several banking institutions, and have access to long-term capital
markets financing for to Ps$2,000,000 through long-term “Certificados bursátiles” which expiring in August
2015.
As of December 31, 2013
Notes
Average weighted
interest
rate
6.3395%
7.4064%
Total
Notes
Notes
Total
10.
Ps$
Ps$
Rate weighted
Average effective
Interest
6.3069%
7.5383%
Total
3 months
43,565
44,178
2,663,274
173,358
-
Ps$
2,924,375
Ps$
Ps$
Rate weighted
Average effective
Interest
Ps$
2,670,770
Ps$
Ps$
Ps$
Ps$
743,281
101,908
-
Ps$
3,160,384
3,176,207
18,075
14,087
Ps$
3,996,788
3,372,764
2,663,274
191,433
14,087
100,029
Ps$
845,189
Ps$
6,368,753
Ps$
10,238,346
Ps$
3,506,827
Ps$
Ps$
367,299
116,214
-
Ps$
3,892,074
3,417,450
40,462
24,725
Ps$
4,425,397
3,649,877
2,330,471
246,380
24,725
147,856
Ps$
483,513
Ps$
7,374,711
Ps$
10,676,850
Ps$
61,094
115,790
-
Ps$
4,309,828
3,649,877
44,589
Ps$
4,447,270
3,867,837
3,220,722
227,159
44,589
119,572
Ps$
176,884
Ps$
8,004,294
Ps$
11,807,577
The fair value of financial instruments presented below has been determined by the Entity using information
available in the markets or other valuation techniques that use assumptions that are based on market conditions
existing at each reporting date, but require judgment with respect to their development and interpretation. As a
result, the estimated amounts presented below are not necessarily indicative of the amounts that the Entity
could obtain in a current market exchange. The use of different assumptions and/or estimation methods could
have a material effect on the estimated amounts of fair value.
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities;
F-59
Total
70,112
49,460
Fair value of financial instruments
•
More than
1 year
1 year
-
Following is a discussion of the hierarchy of fair values, grouped into Levels 1 to 3 based on the degree
to which the fair value is observable:
Total
89,750
58,106
6 months
6,236
52,710
3,220,722
227,159
-
More than
1 year
1 year
-
3 months
Total
49,558
50,471
6 months
76,274
58,107
2,330,471
205,918
-
More than
1 year
1 year
-
3 months
Ps$
6.3100%
7.5740%
6 months
•
Level 2 fair value measurements are those derived from inputs other than quoted prices included within
level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices); and
•
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the
asset or liability that are not based on observable market data (unobservable inputs).
As of December 31, 2013, financial assets at fair value are as follows:
Level 1
Financial assets at fair value
Hedging derivative financial instruments
Ps$
-
Level 2
Ps$
(9,810)
Level 3
Ps$
-
Total
Ps$
(9,810)
As of December 31, 2012, financial assets at fair value are as follows:
Level 1
Financial assets at fair value
Ps$
-
Level 2
Ps$
(8,549)
Level 3
Ps$
-
Total
Ps$
(8,549)
As of December 31, 2011, financial liabilities at fair value as follows:
Level 1
Financial liabilities at fair value
Ps$
-
Level 2
Ps$
1,068
Level 3
Ps$
-
Total
Ps$
1,068
Except for the fair value disclosed in the table below, the Entity considers that the carrying amount of cash and
cash equivalents, accounts receivable and accounts payable from third parties and related parties and the
current portion of bank loans approximate their fair values because they have short-term maturities. The
Entity’s long-term debt is recorded at amortized cost and incurs interest at fixed and variable rates that are
related to market indicators.
The Entity uses quoted market prices or quotations for similar instrument operators to obtain the fair value of
long-term debt. To determine the fair value of other financial instruments, the Entity uses other techniques such
as estimated discounted cash flows, considering the dates of flow in the market inter-temporal curves. The
discount rates used reflect the risk of the counterparty, as well as the Entity’s risk for the reference period.
December 31, 2013
Carrying amount
Fair value
Financial liabilities:
Bank loans including current portion of long-term debt
Notes
December 31, 2012
Carrying amount
Fair value
Ps$
3,377,715
3,000,000
Ps$
4,717,800
3,044,280
Ps$
3,382,396
3,000,000
Ps$
3,024,695
3,062,280
Ps$
3,386,381
3,000,000
Ps$
3,000,508
3,082,290
Ps$
6,377,715
Ps$
7,762,080
Ps$
6,382,396
Ps$
6,086,975
Ps$
6,386,381
Ps$
6,082,798
Fair value hierarchy of the accounts receivables and liabilities at amortized cost are Level 3. During the period
there were no transfers between Level 1, 2 and 3.
11.
December 31, 2011
Carrying amount
Fair value
The purpose of entering into derivative financial instruments is to partially cover the financial risk exposures to
prices of some metals such as copper, zinc and nickel. The decision to hedge is in response to market
conditions to be taken, as well as national and international economic context and to underlying economic
indicators. Copper hedge instrument are mainly traded in the Commercial Metal Exchange, and those related to
zinc and nickel are mainly traded on the London Metal Exchange.
F-60
Futures and hedging are summarized below:
Notional
Instrument
Copper futures
Zinc futures
Nickel futures
Designated as
Hedging
Hedging
Hedging
Amount (‘000)
1,678
283
31
Unit
Maturity
Tons
Tons
Tons
Feb to Dec 2013
Jan to Dec 2013
Jan to Feb 2013
Total as of December 31, 2013
Valuation as of December 31, 2013
Net fair value effect on
hedging instruments
Asset
entered into for cash
(Liability)
flow hedges
Copper futures
Copper futures
Zinc futures
Nickel futures
Designated as
Hedging
Hedging
Hedging
Hedging
Amount (‘000)
1,678
23
283
31
Unit
Maturity
Tons
Tons
Tons
Tons
Feb to Dec 2013
Jan 2014
Jan to Dec 2013
Jan to Feb 2013
9,188
603
19
Ps$
6,432
422
13
Ps$
32,480
2,132
67
Ps$
(2,144)
(141)
(4)
Ps$
9,810
Ps$
6,867
Ps$
34,679
Ps$
(2,289)
hedging instruments
Asset
(Liability)
flow hedges
Ps$
Ps$
Notional
Instrument
Designated as
Aluminum future
Aluminum future
Copper futures
Copper futures
Zinc futures
Nickel futures
Hedging
Hedging
Hedging
Hedging
Hedging
Hedging
Amount (‘000)
1,025
2,825
2,234
23
284
78
Unit
Maturity
Tons
Tons
Tons
Tons
Tons
Tons
Jan to Dec 2012
During 2011
Jan a Dec 2012
Jan 2013
Jan to Aug. 2012
Jan to Feb 2012
Financial cost
(income)
Ps$
Notional
Instrument
Gain (loss) on
settlement
Cost of sales
7,779
106
646
18
Ps$
8,549
Ps$
5,445
74
452
13
Ps$
5,984
Ps$
hedging instruments
Asset
(Liability)
flow hedges
Ps$
(565)
Ps$
-
(395)
Ps$
(9,440)
Ps$
Gain (loss) on
settlement
Cost of sales
Ps$
(1,068)
-
F-61
(748)
(200)
(5)
(2,652)
Financial cost
(income)
Ps$
(1,435)
-
3,569
7,871
Ps$
(2,447)
-
4,284
30,154
162
158
(504)
(169)
Ps$
Financial cost
(income)
(11,462)
239
1,783
231
226
(720)
(240)
Ps$
Gain (loss) on
settlement
Cost of sales
45,878
(394)
(757)
Ps$
(2,586)
12.
a.
For the period ended December 31, 2013, 2012, and 2011:
Balance as of
December 31, 2012
Investment:
Land
Buildings and constructions
Machinery and equipment
Vehicles
Office furniture
Computers
Construction in process
Total investment
Ps$
Accumulated depreciation:
Vehicles
Office furniture
Computers
Total accumulated depreciation
Net investment
2,545,425
3,835,241
10,015,270
268,155
81,649
92,126
3,703,332
20,541,198
Revaluations
Ps$
(2,001,879)
(6,537,692)
(46,581)
(56,906)
(75,609)
(8,718,667)
Ps$
11,822,531
Ps$
Accumulated depreciation:
Vehicles
Office furniture
Computers
Total accumulated depreciation
Net investment
Accumulated impairment
Vehicles
Office furniture
Computers
Total investment
2,470,503
3,986,712
12,836,377
262,234
91,334
119,672
2,191,852
21,958,684
Ps$
11,186,892
Ps$
Ps$
129,814
225,269
(82,448)
185
272,820
Ps$
(12,828)
Ps$
Ps$
251,938
Ps$
-
Ps$
31,178
58,157
421,528
10,234
2,610
27,115
1,508,502
2,059,324
Ps$
2,111,589
Ps$
Ps$
Ps$
-
1,427,092
Ps$
15,939
32,236
287,304
10,766
8,229
3,303
1,754,798
2,112,575
Ps$
Ps$
-
1,671,701
Disposals
Ps$
-
Ps$
F-62
-
Ps$
Ps$
-
Ps$
Ps$
-
Ps$
-
-
Ps$
-
Ps$
(40,010)
(40,010)
Ps$
Balance as of
December 31,
2012
148,552
133,582
829
579
155
8,251
Ps$
Ps$
291,948
Ps$
Ps$
(63,834)
(406,510)
(3,306,217)
(9,015)
(17,464)
(30,814)
(38,120)
(3,871,974)
(117,464)
(185,640)
35,339
(4,775)
(28,566)
9,917
74,022
(217,167)
(40,010)
Ps$
-
Ps$
67,258
Translation effect
Ps$
Ps$
-
Ps$
(6,997)
(10,737)
136,256
(441)
(688)
(63)
(8,227)
109,103
149,470
Disposals
Ps$
-
Ps$
Ps$
-
2,291,849
4,518,763
14,666,176
148,493
63,437
184,359
1,328,998
23,202,075
(1,409,040)
(6,982,687)
(70,235)
(38,488)
(93,538)
(8,593,988)
Ps$
14,608,087
Balance as of
December 31, 2012
Ps$
8,294
31,143
372
507
51
40,367
Reversal of
impairment
Ps$
-
(1,132,694)
Balance as of
December 31, 2013
347,295
(76,266)
(10)
18,874
(5,468)
284,425
332,684
2,348,826
12,795
18,149
26,826
2,739,280
Increase to
impairment
Ps$
(666,908)
Disposals
-
-
(592,008)
(540,326)
(25,593)
(6,479)
(1,195)
(4,195)
(1,169,796)
Translation effect
462,259
30,799
5,107
1,153
3,570
502,888
Impairment
8,271
184,008
4,426
238
28
(196,971)
-
Ps$
-
Disposals
-
Allocations
(60,791)
(361,240)
(11,017)
(1,925)
(5,901)
(440,874)
-
80,975
736,916
3,090,301
3,287
5,955
56,623
(3,974,057)
-
Impairment
-
Additions
Reversal of
impairment
Ps$
Allocations
(39,227)
(568,933)
(6,432)
(1,609)
(16,031)
(632,232)
-
40,010
40,010
Ps$
Business Combination
Increase to
impairment
148,552
93,572
829
579
155
8,251
181,957
512,008
1,390,032
4,636
2,984
2,773
17,199
2,111,589
Additions
-
(177,406)
(127,700)
19,458
(285,648)
Balance as of
December 31,
2011
Ps$
(153,475)
Revaluations
(2,104,660)
(8,428,721)
(68,189)
(73,637)
(96,585)
(10,771,792)
Ps$
Ps$
(177,488)
169,405
(22,319)
(30,402)
Balance as of
December 31, 2011
Investment:
Land
Vehicles
Office furniture
Computers
Total investment
161,786
102,407
(260,701)
(126,565)
(123,073)
2,545,425
3,835,241
10,015,270
268,155
81,649
92,126
3,703,332
20,541,198
(2,001,879)
(6,537,692)
(46,581)
(56,906)
(75,609)
(8,718,667)
Ps$
11,822,531
Balance as of
December 31,
2013
Ps$
148,552
133,582
829
579
155
8,251
Ps$
291,948
Depreciation recorded in profit or loss amounted to Ps$632,232, Ps$440,874 and Ps$464,790 as of
December 31, 2013, 2012, and 2011, respectively, and in inventories amounted to Ps$40,021, Ps$22,044,
and Ps$25,539 in 2013, 2012, and 2011 respectively.
During 2013, the Entity did not identify impairment indicators.
As of December 31, 2013, 2012, and 2011, the Entity and its subsidiaries listed below served as credit
guarantors and sureties of the loans described in Note 18:
December 31, 2013
Elementia
Nacobre
Mexalit Industrial
Trituradora
Frigocel
Duralit
Lafarge
December 31, 2012
December 31, 2011
Elementia
Nacobre
Mexalit Industrial
Comecop
Frigocel
Duralit
Trituradora
Plycem and Subsidiaries
Elementia
Nacobre
Mexalit Industrial
Comecop
Frigocel
Duralit
Plycem and subsidiaries
Maxitile Inc
Trituradora
Almexa Aluminio
Nacobre Servicios
The carrying value of property, machinery and equipment in guarantee of the above listed entities was Ps$
12,486,115, Ps$ 10,404,136, and Ps$ 10,020,128 as of December 31, 2013, 2012, and 2011, respectively.
The Entity is has to maintain these fixed assets insured and can sell up to USD$ 25 million a year; sales for
higher amounts are subject to approval from the creditors. As of December 31, 2013, 2012, and 2011 the
Entity was incompliance with this covenant.
13.
Intangible assets are as follow:
Years of
amortization
Indefinite-lived intangible:
Goodwill (1)
Mining assets (2)
Client Portfolio (3)
Assets with finite useful lives:
Exclusive distribution rights
Trademarks and other rights (4)
Prepayment of advertising
services (5)
SAP implementation
Non-compete contract
(Fibraforte)
Software licenses
Installation costs
Accumulated amortization
December 31, 2013
December 31, 2012
December 31, 2011
Indefinite
Indefinite
Indefinite
Ps$
1,658,382
813,300
179,252
2,650,934
Ps$
507,507
507,507
Ps$
507,507
507,507
2 years
Various
Ps$
164,517
80,438
Ps$
164,517
79,125
Ps$
164,517
77,459
10 years
5 years
13,099
352,665
12,065
296,630
12,065
81,067
10 years
2 years
5 years
46,986
79,092
39,096
(353,464)
422,429
46,986
51,856
31,308
(269,948)
412,539
46,986
6,619
15,794
(200,041)
204,466
81,938
8,021
7,790
3,062
100,811
177,815
9,625
369
187,809
113,299
9,625
2,272
502
125,698
Long-term prepaid expenses
Foreclosed assets
Guarantee deposits
Others
Net investment
Ps$
F-63
3,174,174
Ps$
1,107,855
Ps$
837,671
(1)
Includes goodwill generated in the acquisition of Fibraforte, S.A., Trituradora y Procesadora de Metales
Santa Anita, S.A. de C.V., Frigocel, S.A. de C.V., Frigocel Mexicana, S.A. de C.V., Nacional de Cobre,
S.A. de C.V., and Lafarge Cementos, S.A. de C.V.
(2)
Cement plants “Tula” and “Vito” located in the State of Hidalgo, acquired through the business
combination described in Note 15.
(3)
Customer relationships, acquired through the business combination described in Note 15.
(4)
It mainly includes the indefinite-live trademark of Nacobre and Fibraforte, both arising from business
acquisitions.
(5)
On February 27, 2012, one of the Entity’ subsidiaries signed a services, sponsorship and advertising
contract with Club Pachuca, a soccer team in Mexico, to promote the logo and name of “Cementos
Fortaleza” in the uniform of soccer teams “Tuzos del Pachuca” and “Leon”. Club Pachuca has to deliver
to the Entity fortnightly reports with specific details of the promotional activities performed. The parties
agreed that the subsidiary will pay to Club Pachuca a total consideration of Ps$ 101,000 to be paid as
follows: Ps$ 11,000 at the execution of the contract and several installments of from June 30, 2013 to
June 30, 2016.
Assets with finite useful lives - cost
Others
Additions
Disposals
Exclusive distribution
rights
Trademarks and other
rights
Ps$
Ps$
Others
Additions
Accumulated amortization:
Amortization expenses
Ps$
164,517
77,459
1,666
79,125
(25)
80,438
Ps$
Ps$
13,099
Advertising
agreement
Ps$
-
(164,517)
(164,517)
(14,299)
154
Ps$
(14,299)
(14,299)
Ps$
Ps$
-
352,665
SAP
implementation
Ps$
-
Ps$
-
81,067
2,941
212,899
(277)
Non-compete
contract
Ps$
(1,701)
(58,813)
Amortization recorded in profit or loss was Ps$ 83,516, Ps$ 69,908, and Ps$ 12,143 in 2013, 2012, and 2011,
respectively.
F-64
(124,875)
Ps$
6,619
15,515
31,309
(24)
52
7,759
27,414
46,986
Ps$
(6,646)
(4,700)
(16,046)
79,092
Ps$
Software
Licenses
Ps$
(2,417)
(6,394)
(19,346)
39,096
Ps$
775,893
Total
(10,461)
(200,041)
(69,907)
(10,461)
(3,920)
(269,948)
(83,516)
-
Ps$
404,507
2,941
275,317
(277)
682,488
427
16,694
76,284
Installation
costs
(8,811)
(10,535)
Ps$
Ps$
51,856
(178)
(11,346)
(4,700)
Ps$
15,794
Total
45,237
Non-compete
contract
Ps$
Ps$
46,986
Ps$
Installation
costs
-
-
(60,514)
(64,361)
Ps$
46,986
Software
Licenses
-
296,630
(226)
16,642
39,619
1,338
Ps$
Ps$
12,065
880
-
Trademarks and other
rights
Ps$
12,065
SAP
implementation
-
-
Exclusive distribution
rights
(164,517)
-
Ps$
-
164,517
-
Amortization expenses
164,517
-
Advertising
agreement
(14,381)
Ps$
(353,464)
14.
Investment in shares of associated companies and other permanent investments
a.
As of December 31, 2013, 2012, and 2011, the balance of investment in shares is comprised as
follows:
2013
Ownership percentage
2012
2011
-
20.00
20.00
2013
2012
2011
Various, less
than 1%
Various, less
than 1%
Various, less
than 1%
Associated
Group Cuprum, S. A. P. I. de C. V. and Subsidiaries
Shares held to maturity
Others investment in shares from entities in Colombia
and South America
b.
Activity
Manufacture and sale of aluminum products
Activity
Various services
The investment in shares in the associate was as follow:
Stockholders’
equity
Group Cuprum, S. A. P. I. de C. V. and Subsidiaries (1)
and South America
Ps$
2,520,000
Various, less than
1%
Comprehensive
income
Ps$
21,100
Various, less than
1%
2013
Ownership
percentage
20
Ps$
Various, less than
1%
Total
(1)
Ps$
11,118
4,220
Ps$
4,220
As is mentioned in Note 2c, on December 17, 2013, the Entity sold its entire participation in the
shares of Cuprum, equivalent to 20% of the shares of such entity, to Tenedora de Empresas de
Materiales de Construcción, S.A. de C.V. and Controladora GEK, S.A.P.I. de C.V., for the amount
of USD$ 45 million (equivalent to Ps$ 582 million at such date), generating a loss of Ps$ 218
million, which was recorded directly in the stockholders’ equity of the Entity, since it was a
transaction among parties under common control.
Cuprum, S. A. P. I. de C. V. and Subsidiaries (2)
and South America
Ps$
2,520,000
Various, less than
1%
Comprehensive
income
Ps$
174,000
Various, less than
1%
2012
Ownership
percentage
20
Investment
in shares
Ps$
Various, less than
1%
Total
801,118
Equity in
income
Ps$
12,297
Ps$
813,415
34,760
Ps$
34,760
The fair value of the investments in shares is approximately Ps$308,000.
Grupo Cuprum, S. A. P. I. de C. V. and Subsidiaries (3)
and South America
Stockholders’
equity
Comprehensive
income
Ps$
2,426,000
Various, less than
1%
Ps$
120,000
Various, less than
1%
2011
Ownership
percentage
20
Various, less than
1%
Total
(3)
-
Equity in
income
11,118
Ps$
Stockholders’
equity
(2)
Investment
in shares
Investment
in shares
Ps$
F-65
Ps$
10,930
Ps$
The fair value of the investments in shares is approximately Ps$308,000.
766,358
Equity in
income
777,288
-
Ps$
-
15.
Business combinations
a.
Business acquired
As mentioned in Note 2a, on January 8, 2013, the Entity acquired Lafarge Cementos, S.A. de C.V. Given
that the operation was considered a business acquisition, the related acquisition accounting was applied as
of the acquisition date July 31, 2013. The acquisition price did not include any contingent consideration.
The following steps are required in acquisition accounting:
i.ii.-
b.
Recognize and measure the respective assets acquired and liabilities assumed
Determine the respective intangible assets or goodwill, if any.
Consideration transferred
The consideration paid in shares of ELC totals Ps$3,409,000 and comprises 47% of its stockholders’
equity.
c.
Acquired assets and assumed liabilities at acquisition date
Following is an analysis of the assignment of acquisition cost to the fair values of acquired net assets:
July 2013
d.
Current assets
Properties, machinery and equipment – Net
Mining assets – Net
Client Portfolio
Other non-current assets
Current liabilities
Current and long-term liabilities
Ps$
408,200
2,111,589
813,300
179,252
35,454
(1,051,915)
(237,755)
Ps$
2,258,125
Goodwill determined on acquisition
July 2013
Consideration paid in shares
Ps$
3,409,000
2,258,125
Goodwill
Ps$
1,150,875
Goodwill arising from the acquisition of Lafarge Cementos, S.A. de C.V. derives from the price paid,
which included the benefit of capturing between 4% and 5 % of the Mexican market, backed by the
launching of an advertising campaign of the brand “Cementos Fortaleza”. Those benefits are recognized
separately in goodwill because they fail to meet the recognition criteria for identifiable intangible assets.
e.
Net cash flows over the acquisition of joint venture
July 2013
Transferred consideration paid in cash
Less: Balances of cash and cash equivalents acquired
F-66
Ps$
260,026
Ps$
(260,026)
f.
Effect of the acquisitions in the Entity’s results
The result for the year ended December 31, 2013 includes a net profit of Ps$43,151 attributable to the
additional business generated by Lafarge. Revenues for the period corresponding to the year ended December
31, 2013, include Ps$319,488 related with Lafarge.
16.
Confirming bank payments to vendors
On May 17, 2010, the Entity entered into financial confirming to vendors with several banking institutions for
up to Ps$3,287,000 and USD $650,000. As of December 31, 2013, vendors have used this instrument in the
amount of Ps$1,269,000 and USD $32,000, which are classified in trade accounts payable in the accompanying
statement of financial position. Stake of by each bank as of December 31, 2013 is shown below:
Banamex
(MXN)
Threshold
Ps$
Balance used
Ps$
Balance available
Ps$
1,087,000
1,087,000
2013
HSBC
(MXN)
Santander
(MXN)
Total
(MXN)
HSBC
(USD$)
Total
(USD$)
Ps$
1,200,000
Ps$
1,000,000
Ps$
3,287,000
USD$
650,000
USD$
650,000
Ps$
979,664
Ps$
183,374
Ps$
1,163,038
USD$
35,035
USD$
35,035
Ps$
220,336
Ps$
816,626
Ps$
2,123,962
USD$
614,965
USD$
614,965
Stake of by each bank as of December 31, 2012 is shown below:
Banamex
(MXN)
17.
2012
HSBC
(MXN)
Santander
(MXN)
Total
(MXN)
HSBC
(USD$)
Total
(USD$)
Threshold
Ps$
1,087,000
Ps$
1,200,000
Ps$
1,000,000
Ps$
3,287,000
USD$
650,000
USD$
650,000
Balance used
Ps$
1,010,000
Ps$
31,000
Ps$
228,000
Ps$
1,269,000
USD$
32,000
USD$
32,000
Balance available
Ps$
77,000
Ps$
1,169,000
Ps$
772,000
Ps$
2,018,000
USD$
618,000
USD$
618,000
Provisions
The provisions presented below represent charges incurred during 2013, 2012, and 2011, or amount to services
contracted services attributable to the year, which are expected to be settled within a period not exceeding one
year. Final amounts to be paid, as well as, the schedule of outflow of economic resources involve uncertainty and
could therefore change, which the Entity includes within the accrued expenses and taxes other than income taxes
line in the accompanying statement of financial position.
2013
Beginning
balance
Services
For supplies or consumables and energetic
Others
Additions
Ending
Balance
Applications
Ps$
109,126
51,733
19,493
24,019
Ps$
1,087,865
515,481
998,763
1,000,992
Ps$
(1,046,666)
(528,845)
(977,274)
(833,872)
Ps$
150,325
38,369
40,982
191,139
Ps$
204,371
Ps$
3,603,101
Ps$
(3,386,657)
Ps$
420,815
F-67
2012
Beginning
balance
Services
For supplies or consumables
and energy
Others
Ps$
Ps$
Additions
84,095
54,347
Ps$
Ending
Balance
Applications
631,331
733,960
Ps$ (606,300)
(736,574)
1,854
17,415
17,905
1,573,449
(265)
(1,566,845)
157,711
Ps$ 2,956,645
Ps$ (2,909,984)
Ps$
109,126
51,733
19,493
24,019
Ps$
204,371
2011
Beginning
balance
Services
For supplies or consumables
and energy
Others
Ps$
62,843
57,064
Ps$
19,281
7,406
Ps$
18.
Additions
146,594
Ps$
Ending
Balance
Applications
238,617
324,610
Ps$ (217,365)
(327,327)
18,123
123,834
(35,550)
(113,825)
705,184
Ps$ (694,067)
Ps$
84,095
54,347
1,854
17,415
Ps$
157,711
Long-term debt
At the dates indicated, bank loans are comprised as is shown below:
December 31, 2013
Certificados bursátiles (CEBUR) in the
amount of Ps$3 billion, accruing
monthly interest at a rate of TIIE plus
2.75 percentage points, maturing on
October 22, 2015.
Ps$
3,000,000
December 31, 2012
Ps$
3,000,000
December 31, 2011
Ps$
3,000,000
Banco HSBC PLC Brach España HSBC
(Trituradora y Procesadora de
Materiales Santa Anita, S.A. de C.V.)
promissory notes in U.S. dollars
accruing interest on a biannual basis at
a rate of 6-month LIBOR plus 1.3
percentage points, payable in a
maximum term of 10 years after the
date of launch of the project.
Elementia, S.A. de C.V. and
subsidiaries are guarantors.
761,414
795,307
660,276
Banco Santander (Nacional de Cobre,
S.A. de C.V. and Mexalit Industrial,
S.A. de C.V.) promissory notes
accruing monthly interest at a rate of
TIIE plus 1.5 percentage points,
principal payable beginning in June
2015 and interest in monthly
installments beginning in April 2013,
maturing in April 2018. Elementia,
S.A. de C.V. and Frigocel, S.A. de
C.V. subsidiaries are guarantors under
the mortgage
406,034
-
-
F-68
December 31, 2013
December 31, 2012
December 31, 2011
406,034
-
-
Banco HSBC (Nacional de Cobre, S.A.
de C.V. and Mexalit Industrial, S.A. de
C.V.) promissory notes accruing
1.5 percentage points, principal payable
beginning in June 2015 and interest in
monthly installments beginning in
April 2013, maturing in April 2018.
Elementia, S.A. de C.V. and Frigocel,
S.A. de C.V. subsidiaries are
guarantors under the mortgage
406,034
-
-
BBVA Bancomer (Nacional de Cobre,
S.A. de C.V. and Mexalit Industrial,
S.A. de C.V.) promissory notes
accruing monthly interest at a rate of
TIIE plus 1.5 percentage points,
principal payable beginning in June
2015 and interest in monthly
installments beginning in April 2013,
maturing in April 2018. Elementia,
S.A. de C.V. and Frigocel, S.A. de
C.V. subsidiaries are guarantors under
the mortgage
406,034
-
-
Banamex (Nacional de Cobre, S.A. de
C.V. and Mexalit Industrial, S.A. de
C.V.) promissory notes accruing
1.5 percentage points, principal payable
beginning in June 2015 and interest in
monthly installments beginning in
April 2013, with maturity in 2018.
Elementia, S.A. de C.V. and Frigocel,
S.A. de C.V. subsidiaries are
guarantors under the mortgage
406,034
-
-
Banco Inbursa (Nacional de Cobre, S.A.
de C.V. and Mexalit Industrial, S.A.
de C.V.) promissory notes accruing
1.5 percentage points, principal
payable beginning in June 2015 and
interest in monthly installments
beginning in April 2013, maturing in
April 2018. Elementia, S.A. de C.V.
and Frigocel, S.A. de C.V. subsidiaries
are guarantors under the mortgage.
F-69
December 31, 2013
Banco HSBC (ELC Tenedora de
Cementos, S.A.P.I. de C.V.)
promissory notes accruing quarterly
interest at a rate of TIIE plus 1.5
percentage points and maturing in
2018. Elementia, S.A. de C.V.,
Trituradora y Procesadora de
Materiales Santa Anita, S.A. de C.V.
and Lafarge Cementos, S.A. de C.V.
are guarantors under the mortgage
Banco BX+ (Elementia, S.A. de C.V.).
Current account credit through
promissory notes accruing monthly
interest at a rate of TIIE plus 1.5
percentage points and maturing in
2014. Mexalit Industrial, S.A. de C.V.
is a guarantor under the mortgage
December 31, 2012
December 31, 2011
650,000
-
-
90,000
-
-
Loan corresponding to Industrias
Duralit, S. A. (foreign subsidiary)
granted by Banco Bisa for US$1.9
million, maturing in 2014, at an
average rate of TRE (index rate
calculated by Banco Central de
Bolivia) plus 5.50% with quarterly
payments.
3,281
10,489
18,856
Promissory notes with HSBC Bank
(Nacional de Cobre, S. A. de C. V. and
Mexalit Industrial, S. A. de C. V.),
bearing interest at the 28 days TIIE
rate applicable to each interest period
(three months) plus 1.5 percentage
points, with principal payable
beginning in September 2013 and
quarterly interest repayments
beginning in September 2012,
maturing in 2016. The Entity’s
subsidiaries Maxitile Industries, S. A
de C. V. and Frigocel, S. A de C. V.
subsidiary entities, which have
provided guarantees as collateral.
-
1,300,550
1,369,000
Promissory notes with BBVA Bancomer
Mexalit Industrial, S. A. de C. V.)
subsidiaries Maxitile Industries, S. A
de C. V. and Frigocel, S. A de C. V.,
-
840,750
884,999
F-70
December 31, 2013
December 31, 2012
December 31, 2011
6,534,865
451,250
6,398,346
475,000
6,408,131
(192,533)
6,342,332
(157,150)
(456,267)
5,942,079
(15,950)
Promissory notes with Banamex
Mexalit Industrial, S.A. de C.V.)
subsidiaries Maxitile Industries, S. A.
de C. V. and Frigocel, S. A. de C. V.
Less – Notes payable to financial
institutions and current portion of
long-term debt
Long-term debt
Less-placement expenses
Long-term debt, excluding current
maturities and placement expenses
(1)
Ps$
6,185,182
Ps$
5,926,129
(120,474)
6,287,657
(21,750)
Ps$
6,265,907
As of December 31, 2013 maturities of long-term debt are as follows:
2015
2016
2017 and thereafter
Ps$
3,460,424
739,572
2,142,336
Ps$
6,342,332
Certain loan agreements contain restrictive covenants under which, if the Entity does not comply, the banks
could demand immediate payment. The most significant covenants relate to the restriction of paying
dividends, compliance with certain financial ratios, insuring assets granted as collateral, prohibition on the
sale or disposition of assets, prohibition on acquiring any other contingent liabilities or contractual liabilities.
As of December 31, 2013 and 2012, the Entity was in compliance with all covenants.
On March 21, 2013, the Entity informed the public that it prepaid certain syndicated loans contracted with
several banks in the amount of Ps$ 2,593,050, which were replaced by a new syndicated loan, with five
different banks, obtaining better interest rates, better maturity profile and greater financial flexibility for an
approximate amount of Ps$ 3,730,170.
F-71
On June 30, 2011, the Entity informed the public that it prepaid, syndicated loans it held with various banks
totaling approximately Ps$2,700,000, which were replaced by a new syndicated to improve interest rates,
maturity profile and financial flexibility that allowed the Entity to reduce its interest expense by an estimated
USD$11.4 million, annually. Additionally, prepayment helped the Entity resolve its non-compliance with
respect to certain covenants that limited its financial leverage capacity and for which the Entity obtained a
waiver dated March 15, 2011.
As of January 1, 2011, the Entity did not comply with one of the financial ratio covenants on the syndicated
loan, consequently, the debt was reclassified to short-term in the accompanying consolidated financial
statements.
a.
Notes
The Entity issued on October 22, 2010 under a five-year year program, “Certificados Bursatiles” or
CEBURES for its for its name in Spanish in Mexican pesos, specifically unsecured interest rate
discount ranging between 7.5383% and 7.5740%, maturing in 28 days revocable, up to Ps$ 5,000,000.
As of December 31, 2013, 2012 and 2011 is arranged to Ps$3,000,000 maturing on May 25, 2015.
The Notes contain negative and affirmative covenants, which have been met to date.
19.
Income taxes
ISR is based on taxable income, which differs from the profit reported in the statement of comprehensive
income due to taxable or deductible items in other years and items that are not taxable or deductible. The
current tax liability of the Entity is calculated using tax rates enacted or substantially approved at the end of
the reporting period for the respective countries applicable to the Entity and its subsidiaries.
The Mexican entities are subject to ISR and through December 31, 2013 to IETU.
ISR - The rate was 30% in 2013, 2012 and 2011, and as a result of the new 2014 ISR law (2014 Tax Law), the
rate will continue at 30% in 2014 and thereafter. The Entity paid ISR until 2013 on a consolidated basis with
its Mexican subsidiaries. Because the Income Tax Law in force was repealed as of December 31, 2013, the
tax consolidation regime was removed, therefore the Entity and its subsidiaries have the obligation to pay the
deferred tax determined at that time over the next five years from 2014, as shown below.
Pursuant to Transitory Article 9, section XV, subsection d) of the 2014 Law, given that as of December 31,
2013 the Entity was considered to be a holding company for tax purposes and it was subject to the payment
scheme contained in Article 4, Section VI of the transitory provisions of the ISR law published in the Federal
Official Gazette on December 7, 2009, or article 70-A of the ISR law of 2013 which was repealed, it must
continue to pay the tax that it deferred under the tax consolidation scheme in 2007 and previous years based
on the aforementioned provisions, until such payment is concluded.
IETU - was eliminated as of 2014; therefore, up to December 31, 2013, this tax was incurred both on revenues
and deductions and certain tax credits based on cash flows from each year. The respective rate was 17.5%.
The current income tax is the greater of ISR and IETU up to 2013.
Until 2012, based on its financial projections, the Entity determined that it will basically pay ISR and
recognizes deferred ISR. From 2013, only deferred ISR calculated due the IETU repeal.
F-72
a.
Income taxes are as follows:
December 31, 2013
Current ISR
Current IETU
Deferred ISR
b.
December 31, 2011
Ps$
844,669
(667,226)
Ps$
229,002
4,931
(272,554)
Ps$
489,263
10,656
(59,848)
Ps$
177,443
Ps$
(38,621)
Ps$
440,071
The income tax rates in foreign companies were as follows:
December 31, 2013
Costa Rica
El Salvador
Colombia
Ecuador
United States of America
Bolivia
Peru
c.
December 31, 2012
December 31, 2012
30%
30%
34%
23%
35%
25%
30%
December 31, 2011
30%
30%
33%
24%
35%
25%
30%
30%
30%
33%
24%
35%
25%
30%
Deferred income taxes and benefit in tax consolidation are as follows:
December 31, 2013
Deferred income tax
Ps$
1,079,537
F-73
December 31, 2012
Ps$
1,490,324
December 31, 2011
Ps$
1,797,189
d.
The reconciliation of the statutory and effective tax rate on amounts expressed as a percentage of income before income taxes is as follows:
2013
More (less) effect of permanent differences:
Non-deductible expenses
Non-taxable income
Effects of inflation - Net
Equity in income of associated Entity
Income in sale of shares of subsidiaries -Net
IETU effect
Tax effect due to tax rate changes
Others
Ps$
Total of permanent differences
Income (loss) basis of income taxes
e.
Ps$
%
2012
729,080
24
Ps$
88,724
(26,260)
127,413
(4,220)
(48,053)
4
(1)
5
(2)
(137,604)
(6)
591,476
30
%
777,936
(5)
108,963
46
186,254
(34,760)
(1,292,367)
4,931
18,201
102,106
4
7
(1)
(50)
1
4
40,741
(59,217)
55,140
165,083
211
40,640
101,732
155,973
1
(2)
2
5
1
3
6
(906,672)
(35)
504,303
16
(128,736)
30
1,466,903
30
-
Ps$
Deferred ISR asset:
Effect of tax loss carryforwards
Provisions
Tax advances
PTU liability
Allowance for obsolete inventories
Other assets
Deferred ISR asset
Ps$
Deferred ISR (liability):
Property, machinery and equipment, net
Inventories, net
Employee benefits
Prepaid expenses
Intangibles and other assets
Others
Net deferred income tax (liability) asset
941,267
58,033
160,449
47,358
60,258
3,409
35,204
1,438
1,307,416
Other comprehensive
income
Ps$
(2,066,070)
(54,635)
(95,608)
(27,115)
(165,994)
(20,762)
(2,430,184)
Ps$
(1,122,768)
-
December 31, 2013
Ps$
84,962
(1,981,108)
(54,635)
(134,396)
(2,943)
(27,115)
(165,994)
(20,762)
(2,386,953)
(38,788)
(2,943)
43,231
Ps$
F-74
43,231
941,267
58,033
160,449
47,358
60,258
3,409
35,204
1,438
1,307,416
Ps$
(1,079,537)
Ps$
%
962,600
The main items that give rise to a deferred ISR liability are:
Recognized
in income
2011
Ps$
Recognized
in income
Deferred ISR asset:
Recoverable IMPAC
Provisions
PTU liability
Intangible assets
Other assets
Deferred ISR asset
Ps$
Deferred ISR (liability)
Inventories
Employee benefits
Excess of the book value of the subsidiaries
Prepaid expenses
Others
Net deferred income tax liability
140,058
52,562
1,170
11,440
(459)
31,577
40,864
8,504
285,716
Ps$
(1,200,635)
(81,495)
(229,952)
(141,873)
(61,084)
(7,245)
(1,722,284)
Ps$
(1,436,568)
Recognized
in income
Deferred ISR asset:
Recoverable IMPAC paid
Provisions
PTU liability
Intangible assets
Other assets
Deferred ISR asset
Other comprehensive
income
Ps$
Deferred ISR (liability)
Property, plant and equipment
Inventories
Employee benefits
Negative goodwill carried to results of operations
Prepaid expenses
Others
149,732
41,428
48,491
61,069
7,463
30,916
22,885
55,479
1,350
418,813
-
December 31, 2012
Ps$
(112,433)
61,242
(2,565)
(53,756)
Ps$
(53,756)
Other comprehensive
income
Ps$
(1,406,095)
(264,088)
(143,393)
(141,873)
(35,345)
(16)
(1,990,810)
-
140,058
52,562
1,170
11,440
(459)
31,577
40,864
8,504
285,716
(1,313,068)
(81,495)
(168,710)
(141,873)
(2,565)
(61,084)
(7,245)
(1,776,040)
Ps$
(1,490,324)
December 31, 2011
Ps$
(116,354)
27,967
320
(88,067)
149,732
41,428
48,491
61,069
7,463
30,916
22,885
55,479
1,350
418,813
(1,522,449)
(264,088)
(115,426)
(141,873)
320
(35,345)
(16)
(2,078,877)
Allowance for tax loss carryforwards
(95,697)
-
(95,697)
Valuation allowance for recoverable IMPAC paid
(41,428)
-
(41,428)
Net deferred income tax liability
Ps$
(1,709,122)
Ps$
F-75
(88,067)
Ps$
(1,797,189)
f.
Tax consolidation for tax purposes
The balances of the deferred tax liability is as follows:
December 31, 2013
Liability from consolidated tax
loss
Ps$
Less – Current portion of tax
liabilities
Income taxes liabilities from
consolidation
g.
Ps$
(170,948)
Ps$
512,845
22,587
December 31, 2011
Ps$
(5,057)
Ps$
17,530
130,111
(5,846)
Ps$
124,265
The benefits from tax loss carryforwards and for those who already partially recognized deferred tax
liabilities and prepaid ISR, respectively, can be recovered subject to certain conditions. The maturity
date of the tax losses of the individual entities, and restated amounts as of December 31, 2013 are:
Year of maturity
Tax loss carryforwards
2014
2016
2017
2018 and thereafter
Ps$
42,466
1,642
8,854
2,241,439
Total (1)
Ps$
2,294,401
Liabilities from consolidated tax loss
Less historical partial payments
Ps$
693,472
(9,679)
Liabilities payable from consolidated tax loss
Ps$
683,793
(1)
20.
683,793
December 31, 2012
Excludes benefits of restated tax loss carryforwards for those non-consolidated subsidiaries for
tax purposes by the amount of approximately Ps$252,947.
Retirement employee benefits
a.
Defined contribution plans
In the Mexican subsidiaries the Entity makes payments to the defined contribution system of
retirement savings based on the integrated workers plan and its statutory salary.
In certain subsidiaries of the Entity there are benefit plans to defined contribution retirement for all
qualifying employees. The assets of the plans are held separately from the assets of the Entity in funds
under the control of trustees. If the employee leaves the plan before fully acquiring contributions, the
amount payable by the Entity will be reduced by the amount of the forfeited contributions.
The defined benefit plans contributions are paid in a monthly basis.
b.
Defined benefit plans
In certain subsidiaries of the Entity there are funded defined benefit plans for qualifying employees.
The defined benefit plans are managed by a legally separate fund of the Entity. The board of the
pension fund is responsible for the investment policy regarding the assets of the fund.
F-76
In the Mexican entities there is a plan that also covers seniority premiums, which consist of a lump
sum payment of 12 days per year worked based on latest salary of each employee, not to exceed twice
the minimum wage established by law. The related liability and annual cost of benefits is calculated by
an independent actuary on the basis of formulas defined in the plans using the method of projected unit
credit.
The Entity manages defined benefit plans for eligible employees in its Mexican subsidiaries. Under
these plans, employees are entitled to retirement benefits at the end to meet the normal retirement age
of 65 years; with 10 or more years of service. There is also the option of early retirement when the sum
of worked years, plus the workers’ age, equals 55 years; with 10 years or more of service. Other
postretirement benefits are not granted
The plans typically expose the Entity to actuarial risks such as: Investment risk, interest rate, longevity
and salary.
Investment risk
The present value of the defined benefit plan liability is calculated
using a discount rate determined by reference to high quality
corporate bond yields; if the return on plan asset is below this rate, it
will create a plan deficit. Currently the plan has a relatively balanced
investment in equity securities, debt instruments and real estates. Due
to the long-term nature of the plan liabilities, the board of the pension
fund considers it appropriate that a reasonable portion of the plan
assets should be invested in equity securities and in real estate to
leverage the return generated by the fund.
Interest risk
A decrease in the bond interest rate will increase the plan liability;
however, this will be partially offset by an increase in the return on
the plan’s debt investments.
Longevity risk
The present value of the defined benefit plan liability is calculated by
reference to the best estimate of the mortality of plan participants
both during and after their employment. An increase in the life
expectancy of the plan participants will increase the plan’s liability.
Salary risk
The present value of the defined benefit plan liability is calculated by
reference to the future salaries of plan participants. As such, an
increase in the salary of the plan participants will increase the plan’s
liability.
The most recent actuarial valuation of the plan assets and the present value of the defined benefit
obligation were carried out as of December 31, 2013, by independent actuaries. The present value of
the defined benefit obligation, and the related current service cost and past service cost, were measured
using the projected unit credit method.
The principal assumptions used for the purposes of the actuarial valuations were as follows:
2013
%
2012
%
2011
%
Discount of the projected benefit
obligation at present value
8.00
6.75
7.75
Salary increase
4.50
4.50
4.50
Expected yield on plan assets
8.00
7.75
7.75
In the Colombian entities, the liability corresponds mainly to the legal obligations those entities have
with their personnel which are adjusted at the end of the year in accordance with the legal requirements
in effect.
F-77
In accordance with the local law of the countries where the Entity operates, necessary provisions have been
recorded for the corresponding amounts taking into consideration the related obligations.
Net cost for the period includes the following items:
December 31, 2013
December 31, 2012
December 31, 2011
Service (income) cost
Interest cost
Expected yield on plan assets
Ps$
(25,586)
30,829
(51,673)
Ps$
14,721
32,542
(57,656)
Ps$
18,405
27,839
(58,580)
Net cost (income) for the period
Ps$
(46,430)
Ps$
(10,393)
Ps$
(12,336)
The current service cost and the net interest expense for the year are included in the employee benefits
expense in profit or loss, as cost of sales and the remainder has been included in administration expenses.
The remeasurement of the net defined benefit liability is included in other comprehensive income.
The amount included in the consolidated statement of financial position arising from the Entity’s obligation
in respect of its defined benefit plans is as follows:
December 31, 2013
December 31, 2012
December 31, 2011
Defined benefit obligation
Plan assets at fair value
Ps$
(408,038)
697,299
Ps$
(510,815)
749,883
Ps$
(452,505)
771,879
Projected net asset
Ps$
289,261
Ps$
239,068
Ps$
319,374
Changes in the present value of the defined benefit obligation:
December 31, 2013
Present value of defined benefit
obligation at beginning of period
Service cost
Interest cost
Benefits paid
Acquisition / disposal or demerger of
business
Actuarial losses
Present value of defined benefit
obligation at end of period
Ps$
510,815
(25,586)
30,829
(46,571)
December 31, 2012
Ps$
(5,000)
(56,449)
Ps$
408,038
452,505
14,721
32,542
(60,163)
December 31, 2011
Ps$
(22,818)
94,028
Ps$
510,815
402,388
18,405
27,839
(28,114)
(22,131)
54,118
Ps$
452,505
Changes in the present value of plan assets in the current period:
December 31, 2013
December 31, 2012
December 31, 2011
Opening fair value of plan assets
Expected return on plan assets
Actuarial losses
Sale of business
Benefits paid
Ps$
749,883
51,673
(73,973)
(30,284)
Ps$
771,879
57,656
(18,508)
(15,097)
(46,047)
Ps$
764,651
58,580
(38,543)
(12,809)
Closing fair value of plan assets
Ps$
697,299
Ps$
749,883
Ps$
771,879
F-78
Major categories of assets plan, and the expected rate of return at the end of the reporting period is reported for
each category:
2013
%
Expected return
2012
%
2011
%
Fair value of plan assets
2012
2013
2011
Equity instruments
Debt instruments
11.50
4.71
7.96
7.54
7.92
7.58
Ps$
226,496
470,803
Ps$
261,393
488,490
Ps$
154,376
617,503
Weighted average expected
8.10
7.75
7.75
Ps$
697,299
Ps$
749,883
Ps$
771,879
The overall expected rate of return is a weighted average of the expected returns of the various categories of plan
assets. The evaluation of the directors on the expected returns based on historical return trends and analysts’
predictions on the market for assets over the life of the related obligation.
The current yield on plan assets amounted to Ps$51,673, Ps$57,656 and Ps$58,580, as of December 31, 2013,
2012, and 2011, respectively.
The Entity has not quantified the amount of contributions that it will make to defined benefit plans during 2014.
Significant actuarial assumptions for the determination of the defined obligation are discount rate, expected
salary increase and mortality. The sensitivity analyses below have been determined based on reasonably possible
changes of the respective assumptions occurring at the end of the reporting period, while holding all other
assumptions constant.
If the discount rate were 1% higher, the defined benefit obligation would decrease by Ps$22,780.
If the discount rate were 1% lower, the defined benefit obligation would increase by Ps$26,272.
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit
obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the
assumptions may be correlated.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
Employee benefits granted to key management personnel (and / or directors of the Entity) were as follows:
2013
Postretirement benefits
Termination benefits
Short and long term benefits
2012
2011
Ps$
41,696
390
Ps$
68,035
705
Ps$
37,041
572
Ps$
42,086
Ps$
68,740
Ps$
37,613
F-79
21.
Stockholders’ equity
a.
Common stock at par value (historical pesos) as of December 31, 2013, 2012, and 2011, is as follows:
2013
Series “A”
Series “A” sub-series “L”
Series “B”
Series “B” and sub-series “L”
Total capital stock (historical pesos)
Effects of restatement for inflation through 1998
Number of shares
2012
4,260,976
9,580,388
4,136,221
9,299,865
4,136,221
9,299,865
3,629,775
8,161,071
229,875
516,851
229,875
516,851
64,889
145,895
29,208,810
29,208,810
25,632,210
1,623,315
1,623,315
458,225
389,590
389,590
389,590
-
29,208,810
c.
At the General Shareholders’ Meeting held on July 13, 2012, it was agreed to increase the capital stock in
its variable portion for Ps$582,545, by issuing 1,788,300 common shares, nominative, without par value
Class II, representing the variable portion capital of the Entity at a subscription price of Ps$ 325.75 pesos
each.
d.
Retained earnings include the statutory legal reserve. The Mexican General Corporate Law requires that
at least 5% of net income of the year be transferred to the legal reserve until the reserve equals 20% of
capital stock at par value (historical pesos). The legal reserve may be capitalized but may not be
distributed unless the entity is dissolved. The legal reserve must be replenished if it is reduced for any
reason. As of December 31, 2013, 2012, and 2011, the legal reserve, in historical pesos, was Ps$4,401.
e.
Stockholders’ equity, except for restated paid-in capital and tax, retained earnings will be subject to ISR
payable by the Entity at the rate in effect upon distribution. Any tax paid on such distribution may be
credited against annual and estimated ISR of the year in which the tax on dividends is paid and the
following two fiscal years.
f.
The balances of the consolidated stockholders’ equity tax accounts as of are:
December 31, 2013
-
29,208,810
At the General Shareholders’ Meeting held on December 20, 2012, it was agreed to increase the capital
stock in its variable portion for Ps$582,545, by issuing 1,788,300 common shares, nominative, without
par value, Class II, representing the variable portion capital of the Entity at a subscription price of
Ps$325.75 pesos each. The subscribed capital not paid as of December 31, 2012 for Ps$5,825, it was paid
on January 17, 2013.
December 31, 2012
25,632,210
December 31, 2011
Ps$
7,642,879
5,649,591
Ps$
7,350,815
5,104,837
Ps$
5,960,264
7,044,295
Ps$
13,292,470
Ps$
12,455,652
Ps$
13,004,559
F-80
Ps$
Ps$
269,853
606,736
2,012,905
Ps$
Ps$
269,853
606,736
2011
4,855,533
10,917,191
b.
Contributed capital account
Net tax income account
Amount
2012
2013
4,855,533
10,917,191
-
Total
2011
2,012,905
Ps$
Ps$
76,173
171,268
847,815
22.
Other income
The balances of other income are as follow:
December 31, 2013
Sale of property, machinery and equipment
Recovery of IMPAC
Debt forgiveness
Impairment of long-lived assets
Others, mainly balances written off
23.
December 31, 2012
December 31, 2011
Ps$
(215,092)
(26,260)
(59,995)
Ps$
(117,697)
(22,216)
40,010
78,849
Ps$
(238,052)
142,103
7,341
Ps$
(301,347)
Ps$
(21,054)
Ps$
(88,608)
Transactions and balances with related parties
a.
Transactions with related parties carried out in the ordinary course of business, were as follow:
December 31, 2013
Income:
Sales
Sales of shares
Sale of fixed assets
Interests received
Leasing
Recovery of impaired accounts
receivable
Contractual penalties
Services
Ps$
6,668
582,818
156,533
Ps$
15,866
74,351
18,664
80
December 31, 2013
Ps$
37,562
733
145
1,490
840,604
December 31, 2011
-
-
Ps$
Expenses:
Purchase of materials
Freight
Interests paid
SAP implementation
Donations
Leasing
Purchase of fixed assets
Plant construction
Insurances
Services
December 31, 2012
-
5,312
Ps$
9,628
128,049
-
59,618
December 31, 2012
1,100
Ps$
138,777
December 31, 2011
Ps$
130,267
60,594
79
54
22,991
6,333
7,763
79,941
8,592
37,714
Ps$
162,802
3,422
25,322
21,519
37,867
27,573
8,537
7,121
Ps$
140,741
198,049
126,777
4,865
31,341
6,000
356
Ps$
354,327
Ps$
294,163
Ps$
508,129
Related parties are comprised of Kaluz, S.A. de C.V., Fundación Kaluz, A.C., Inmobiliaria
Patriotismo, S.A., Grupo Carso, S.A.B. de C.V., Mexichem Servicios Administrativos, S.A. de C.V.,
Logtec, S.A. de C.V., Servicios Condumex, S.A. de C.V., Cobre de México, S.A. de C.V., Pochteca
Materias Primas, S.A. de C.V, Precitubo, S.A. de C.V., PAM PAM, S.A. de C.V., Mexichem
Soluciones Integrales, S.A. de C.V., Nacional de Conductores Eléctricos, S.A. de C.V., Mexichem
Compuestos, S.A. de C.V., Mexichem Colombia, S.A.S, Mexichem Honduras, S.A., Mexichem
Guatemala, S.A., Mexichem El Salvador, S.A., Mexichem Panamá, S.A., Mexichem Costa Rica, S.A.,
and Grupo Financiero Inbursa, S.A. de C.V.
F-81
As of December 31, 2013, 2012, and 2011, the Entity performed financial factoring transactions with
Banco Ve por Más, S.A. and Casa de Bolsa Arka, S.A. Such transactions were carried out based on
existing market conditions.
b.
Balances with related parties are as follow:
December 31, 2013
Inmuebles General, S.A. de C.V.
Kaluz, S.A. de C.V.
Others
Ps$
40,000
December 31, 2012
Ps$
944
Ps$
40,944
Ps$
December 31, 2011
-
Ps
-
Ps$
54,979
54,979
Long-term accounts receivable – Long-term accounts receivable represent amounts due from Grupo
Carso, S.A.B. de C.V. for Ps$53,851, Ps$50,553 and Ps$50,553 as of December 31, 2013, 2012, and
2011, respectively, which correspond to asset tax that Productos Nacobre, S. A. de C. V., Grupo
Aluminio, S. A. de C. V. and Almexa Aluminio, S. A. de C. V. paid to Grupo Carso for the majority
participation in tax consolidation through 2009. The Entity has the right to recover it in the future,
when the minority tax asset is recovered, as result of changes in the consolidation for tax purposes
scheme.
December 31, 2013
Kaluz, S.A. de C.V.
Fundación Kaluz, A.C.
Inmobiliaria Patriotismo, S.A.
Grupo Carso, S.A.B. de C.V.(2)
Ps$
6,926
460
125,980
Cobre de Mexico, S.A. de C.V.
Radiomovil Dipsa, S.A. de C.V.
PAM PAM, S.A. de C.V.
Conductores Mexicanos
Eléctricos y de
Telecomunicación, S.A.
de C.V.
Precitubo, S.A. de C.V.
Pochteca Materias Primas, S.A.
de C.V.
Conticon , S.A. de C.V.
Telgua, El Salvador, Honduras
y Nicaragua
Nacional de Conductores
Eléctricos, S.A. de C.V.
Mexichem Soluciones
Integrales, S.A. de C.V.
Mexichem Compuestos, S.A. de
C.V.
Mexichem Colombia, S.A.S.
Mexichem Servicios
Administrativos, S.A. de C.V.
(1)
394
Ps$
6,543
1,000
693
150,266
December 31, 2011
Ps$
1,232
215,369
-
558
5,034
273
-
-
9,083
7,730
-
30
41
-
24
769
-
50
48
-
43
-
147
288
18
-
20,598
19,895
-
624
-
-
F-82
December 31, 2012
164
December 31, 2013
Mexichem Honduras, S.A.
Mexichem Costa Rica, S.A.
Mexichem, S.A.B. de C.V.
Cordaflex, S.A. de C.V.
Logtec, S.A. de C.V.
Others Kaluz
December 31, 2011
-
-
46
74
1,455
2,580
99
13,901
1,392
10,394
-
-
2,214
Total short-term
Ps$
173,358
Ps$
205,918
Ps$
Accounts payable-long term Mexichem Servicios
C.V.(1)
Ps$
18,075
Ps$
40,462
Ps$
-
Ps$
18,075
Ps$
40,462
Ps$
-
Total long-term
24.
December 31, 2012
227,159
(1)
The account payable to Mexichem Servicios Administrativos, S.A. de C.V. corresponds to the
indefinite use of SAP licenses which was fully invoiced in February 2013 and it will be paid
over a five-year period in quarterly installments.
(2)
The account payable to Grupo Carso, S.A.B. de C.V. for asset tax include Ps$120,129,
Ps$145,687 and Ps$172,465 as of December 31, 2013, 2012 and 2011, respectively.
(3)
The Entity had entered into a contract with Kaluz, S.A. de C.V. for an amount up to Ps$ 70,000,
which accrue interest at the TIIE rate plus 300 basis points annually. As of December 31, 2010,
the balance includes Ps$67,108 principal and interest of Ps$11,683. On June 30, 2011, the
Entity sold to Kaluz, S.A. de C.V. the “Litho” project for an amount of Ps$128,049. The
transaction included the transfer of all tangible and intangible assets used in the project. From
such date, interest was accrued and paid.
Foreign currency balances and transactions
a.
Foreign currency monetary position is as follows:
December 31, 2013
U.S. dollar:
Monetary assets
Net monetary (liability) asset
position
Equivalent in Mexican pesos
b.
Ps$
Thousands of USD$
December 31, 2012
December 31, 2011
74,465
(80,877)
124,672
(55,619)
131,213
(68,801)
(6,412)
69,053
62,412
(83,847)
Ps$
898,399
Ps$
870,497
Transactions denominated in foreign currency were as follows:
December 31, 2013
Thousands of USD$
December 31, 2012
December 31, 2011
42,230
34,256
21,348
39,633
10,990
19,177
34,199
56
880
957
Sales
Purchases
equipment
Interest
F-83
35,289
-
December 31, 2013
Services
Spare parts
SAP amortization
Withholding assumed
Air services
7,613
2,367
80
253
1,221
2,058
158
29
324
537
294
December 31, 2013
Thousands of Euros
December 31, 2012
-
equipment
Purchases
Sales
c.
2,406
5,151
2,930
December 31, 2011
-
December 31, 2011
15,150
18,662
-
-
Mexican peso exchange rates in effect at the dates of the consolidated statement of financial position
and at the date of issuance of these consolidated financial statements were as follows:
Mexican pesos per
one U.S. dollar
25.
Thousands of USD$
December 31, 2012
December 31, 2013
December 31, 2012
December 31, 2011
September 2, 2014
Ps$
Ps$
Ps$
Ps$
13.0765
13.0101
13.9476
13.0833
Main operating cost and expenses
2013
Concept
Cost of sales
Wages and salaries
Raw materials
Other expenses output
Repair and maintenance
Selling and administrative salaries
Others
Leasing
Taxes and contributions, other than income taxes
PTU liability
Advertising
Insurances
External services
Operating expenses
Ps$
816,971
7,792,030
271,939
355,350
27,870
148,590
495,408
Ps$
559,385
678,102
33,595
29,343
21,982
76,644
50,946
454,451
220,340
Ps$
9,908,158
Ps$
2,124,788
2012
Concept
Cost of sales
Wages and salaries
Raw materials
Selling and administrative salaries
Ps$
F-84
773,949
8,193,423
260,864
352,625
-
Operating expenses
Ps$
467,261
2012
Concept
Cost of sales
Others
Leasing
PTU liability
Advertising
Insurances
External services
Total
Operating expenses
-
729,259
39,187
45,793
63,079
8,430
31,349
407,322
96,054
27,076
250,767
414,728
Ps$
10,273,432
Ps$
1,887,734
2011
Concept
26.
Cost of sales
Operating expenses
Labor cost
Raw materials and auxiliary materials
Wages and salaries
Others
Leasing
PTU liability
Advertising
Insurance
External services
Ps$
788,730
9,350,406
216,306
343,483
25,276
360,239
378,793
Ps$
603,010
573,498
22,638
28,004
94,387
5,027
32,396
402,151
98,140
Total
Ps$
11,463,233
Ps$
1,859,251
Discontinued operations
The Entity decided to discontinue certain operations as it determined that they are not viable operations given
the Entity’s new business prospects. The operations of the following legal entities, engaged in manufacturing
and marketing concrete pipe within the Fibre-Cement segment were discontinued:: Compañía Mexicana de
Concreto Pretensado Comecop, S.A. de C.V., and Gypsopanel Industries, S.A. de C.V., Additionally, the
Entity decided to discontinue the operations of Nacional de Cobre, S.A. de C.V. plant located in the state of
México (Toluca).
As mentioned in Note 2, on March 24, 2012, the Entity sold 100% of its shares on Almexa Aluminio, S. A. de
C. V. to a subsidiary of Vasconia. This transaction was completed on April 20, 2012, after the approval of the
stockholders’ meeting of Vasconia.
Additionally, as mentioned in Note 2, on June 6, 2011, the Entity sold 100% of the shares of Aluminio
Conesa, S. A. de C. V. and Industrializadora Conesa, S. A. de C. V.
Due to the above, these discontinued operations are classified the statement of profit or loss and there
compressive income under the heading of discontinued operations.
F-85
Combined condensed financial information for the aforementioned discontinued operations is as follows:
December 31, 2013
Statements of comprehensive income:
Net sales
Cost of sales
Operating expenses
Other expenses - Net
Comprehensive financing cost - Net
Income taxes
Loss on discontinued operations
Ps$
Loss on sale of shares
Loss from other discontinued operations
operations - Net
27.
115,974
(100,464)
(48,213)
(28,893)
(3,077)
4,539
(60,134)
December 31, 2012
Ps$
-
Ps$
(60,134)
233,921
(228,993)
(27,893)
(552)
(12,661)
(6,873)
(43,051)
December 31, 2011
Ps$
(456,496)
(1,605)
Ps$
(501,152)
311,205
(853,361)
(30,630)
(209,903)
14,830
79,953
(687,906)
(217,895)
78,369
Ps$
(827,432)
Contingencies and commitments
a.
As of December 31, 2013, 2012, and 2011, one of the subsidiaries of the Entity is part of a preliminary
anti-dumping investigation initiated by the government of the United States of America US, against
Mexico and China, to determine if there is reasonable that the copper tubing industry in the us. Has
been materially adversely impacted by the imports from Mexico and China. On November 15, 2010,
the government of the United States sued in the first instance a tariff of 27.16%. Subsequently, in June
2013, the U.S. government decided to apply a rate of 0%; however, this decision was challenged by the
plaintiffs’ producers in that country. Currently the Entity at the rate of 0.59% as to date, there is no
decision on the applicant’s appeal. The Entity is currently in the process of reviewing the period
November 2012 to October 2013.
b.
On December 17, 2013, one of the subsidiaries of the Entity (the “Seller”), signed a promissory sale
agreement for a “Property” with Inmuebles de General, S.A. de C.V. (the “Buyer”) which enforced to
held at most by January 31, 2014 a definitive purchase agreement of the Property. The agreed price
was Ps$240,000 plus Value Added Tax (“VAT”) corresponding to construction in progress. The Buyer
paid advance of Ps$200,000, of which the amount of Ps$166,000 corresponded to the ratio of the price
the land and Ps$34,000 corresponded to the proportion of the price of the buildings, are subject the
advance payment of VAT on the advance of the price of the constructions for Ps$5,440, the Seller
delivering the invoice duly filled in terms of law. On March 14, 2014 this operation was completed
and closed.
c.
On November 8, 2013, one of the subsidiaries of the Entity through a tender signed a contract for the
purchase and distribution of packages (130 thousand) of 31.72 meters of fiber cement sheet, for fixed
roof, by with. This project represents gross revenues amount for Ps$483,243 approximately plus VAT.
Delivery is of goods is free on board and are delivered of the Secretariat and the, Micro regions. The
Entity has reserved the right to change prices for the project; however, according to the terms of the
contract the price will be fixed until the end of the contractual relationship, no extra cost will be added.
Additionally, the Entity is has to contract a bond for 10 % of the total project, payable to the Mexican
Federal Treasury. To release such bond, the Entity shall obtain written consent from the Secretariat.
In case that the Entity delays in fulfilling any of its obligations, the Secretariat may apply a penalty
equivalent to 0.5% per each calendar day of delay, on the amount of goods or services not delivered.
This penalty does not rule out that the Secretariat terminate the contract; however, by considering the
severity of the delay and the damages it could lead to the accrual of interests payable to the Secretariat.
The penalty will aim to compensate the damages caused to the unit Micro regions.
F-86
28.
d.
On August 1, 2013, one of the subsidiaries of the Entity signed a contract for the provision of a
commercial mediation for fiber cement sheet with Administradora Central de Materiales, S. de R.L de
C.V., the expenditure for this item in 2013 amounted to approximately Ps$88,833.
e.
On February 27, 2012, one of the Entity’ subsidiaries signed a services contract and sponsorship
advertising media with Club Pachuca to carry out advertising and promotional activities, which
consists in the placement of the logo and name of Cementos Fortaleza on the uniform of teams
Pachuca and Leon. Club Pachuca is obliged to deliver to the Entity fortnightly reports that will include
specific details of the promotional activities. The parties agree that the subsidiary will pay Pachuca as
total consideration for carrying out promotional activities in the amount of Ps$101,000 and the amount
will be paid as follows: Ps$11,000 on signing the contract and as of June 30, 2013 and until 30 June
2016 will be held partial payments.
f.
On February 27, 2012, one of the Entity’ subsidiaries signed a service agreement with Mexichem
Servicios Administrativos, S. A. de C.V. a related party, in which the latter undertakes among other
things the implementation of SAP system including licensing, use of infrastructure and other software
and generally any other kind of technology services subsidiary information required for the operation
thereof. As of December 31, 2013, the implementation has not concluded.
g.
The Entity is involved in various trials and claims arising in the normal course of its operations, which
are not expected to have a material effect on its financial condition and future operating results.
h.
According to the Income Tax Law, companies carrying out transactions with related parties are subject
to certain limitations and requirements in terms of the determination of prices as they must be
equivalent to the ones used with or among independent parties in comparable transactions.
Business segment information
Segment information is presented according to the productive sectors, which are grouped according to the
vertical integration of raw materials. Based on this segmentation, operating decisions are made for the
purpose of allocating resources and assessing the performance of each segment.
The following are the segments of the Entity: Building systems, Metals, Plastic and Cement. Building systems
sector includes the production of fibro-cement, Plastics sector includes the production of plastic; the Metals
segment includes the production of copper and aluminum; and the Cement segment includes mining, milling
and calcination of nonmetallic minerals for the production of clinker. The products of the four segments are
mainly used in the construction industry.
F-87
Below is a summary of the most significant line items in each segment included in the consolidated financial
statements:
December 31, 2013
Building systems
Net sales
Cost of sales
Operating expenses
Ps$
3,981,068
(2,560,101)
(872,411)
548,556
Plastics
Ps$
743,250
(566,160)
(78,952)
98,138
Other (expenses) income - Net
Comprehensive financing result - Net
Equity in income (loss) of associated entity - Net
Income (loss) before income taxes
66,722
(23,780)
591,498
102,893
Income taxes
(147,404)
(33,396)
410,698
-
Current assets
Property, machinery and equipment - Net
Total assets
Total liabilities
4,675,159
Ps$
74
4,681
607,477
514,756
126,768
1,249,001
553,358
Ps$
6,747,006
Ps$
240,413
40,050
(315,256)
(34,793)
(66,985)
50
34,106
(63,572)
-
Ps$
2,393,958
301,347
(472,995)
4,220
729,080
6,574
(177,443)
(60,134)
491,503
(5,372,476)
387,743
(23,630)
323,470
53,851
(4,631,042)
Ps$
12,929,454
(9,908,158)
(2,124,788)
896,508
86,276
(51,956)
4,170
3,697
10,271
724,543
6,221,895
(5,169)
2,181,559
9,122,828
Ps$
Total
(29,466)
6,414,718
4,548,497
482,934
391,805
11,837,954
Ps$
1,045,812
(594,536)
(350,235)
101,041
-
46,194
(26,738)
16,342
83,658
Ps$
6,918,911
(6,227,411)
(507,934)
183,566
Holding and
eliminations
Cement
148,275
(334,955)
(3,114)
(19,235)
5,713,164
2,935,196
11,118
(164,874)
150,572
8,645,176
Ps$
Metals
(2,581,430)
8,087,426
14,608,087
11,118
289,261
3,174,174
53,851
26,223,917
Ps$
11,788,051
December 31, 2012
Building systems
Net sales
Cost of sales
Operating expenses
Ps$
4,161,641
(2,672,643)
(819,300)
669,698
Other (expenses) income - Net
Comprehensive financing result - Net
Equity in income (loss) of associated entity
Income (loss) before income taxes
633,126
Income taxes
(216,088)
(5,216)
411,822
Ps$
25,893
(62,465)
Current assets
Property, machinery and equipment - Net
Accounts receivable, long-term
Total liabilities
Total liabilities
Plastics
3,628,615
Ps$
Ps$
8,176
(1,665)
(8,663)
(2,152)
Ps$
454,325
31,539
(260,516)
225,348
Total
Ps$
13,505,892
(10,273,432)
(1,887,734)
1,344,726
74,936
(571,067)
(147,693)
(501)
(30,320)
(53,531)
(86,504)
(80,152)
37,353
84,919
267,468
21,054
(622,604)
34,760
777,936
(26,584)
5,900
(2,944)
(144,737)
(20,368)
(106,872)
295,761
(492,992)
70,237
38,621
(501,152)
315,405
285,595
3,206,586
(6,441)
(2,435)
146,234
3,629,539
(3,936,417)
430,847
798,329
414,824
50,553
(2,241,864)
84,955
432,236
156,506
9,230
(2,550)
103,294
698,716
Ps$
8,084,637
(7,065,556)
(670,643)
348,438
Holding and
eliminations
Cement
878
3,895
3,372
111,539
-
4,758,566
2,981,332
12,297
(185,155)
127,364
7,694,404
Ps$
797,113
(565,107)
(128,612)
103,394
Metals
242,952
F-88
6,220,196
5,047,260
429,208
316,139
214,774
12,227,577
Ps$
6,967,390
Ps$
3,647,114
Ps$
(3,466,616)
7,760,176
11,822,531
813,415
239,068
1,107,855
50,553
214,774
22,008,372
Ps$
11,019,455
December 31, 2011
Building systems
Net sales
Cost of sales
Operating expenses
Other expenses - Net
Comprehensive financing cost - Net
Income taxes
Income on discontinued operations
Ps$
4,375,675
(2,821,644)
(995,761)
558,270
Plastics
Ps$
708,157
(538,215)
(76,559)
93,383
15,632
9,838
Current assets
Property, plant and equipment - Net
Employee benefits
Total assets
Total liabilities
Ps$
583,740
143,171
(78,166)
746,536
1,283,062
(351,926)
(395,500)
(163,686)
(21,849)
(586)
56,610
(111,496)
(416,152)
755,414
3,597,053
265,069
161,057
5,858
102,543
534,527
Ps$
148,607
Ps$
New accounting pronouncements
The Issuer Board of International Accounting Standards Board (“IASB”, for its acronym in English) has
promulgated a series of new IFRS and amendments to International Accounting Standards (IAS), which were
issued but not yet implemented at the date of these consolidated financial statements:
IFRS / IAS
Improvements to IAS 19 – Defined benefits plans: Employee contributions
Annual improvements cycle 2010-2012
Annual improvements cycle 2011-2013
IFRS 14, Deferred regulatory accounts
Improvements to IFRS 11, Accounting of acquisitions in Joint operations
Improvements to IAS 16 and IAS 38, Clarification of acceptable depreciation
and amortization methods
IFRS 15, Revenues from customer contracts
IFRS 9, Financial instruments
The Entity expects that the application of these standards will have no material impact on the amounts reported
in the consolidated financial statements.
F-89
4,895,031
Holding and
eliminations
Cement
Ps$
128,049
(56)
127,993
Ps$
(340)
(14,296)
113,357
(49,972)
(15,194)
48,191
5,130,757
5,948,627
806,599
498,645
81,189
50,553
12,516,370
Other segment information is not available.
29.
9,437,690
(8,146,179)
(819,990)
471,521
(8,315)
(7,454)
1,431
79,045
3,980,401
3,121,197
10,930
(78,160)
24,325
7,058,693
Ps$
Metals
255,871
1,840,850
222
350
2,097,293
Ps$
2,155,571
(144,350)
42,805
33,115
(68,430)
Total
Ps$
(61,540)
(218,667)
(747,967)
(1,096,604)
88,608
(308,745)
962,600
95,172
(1,001,432)
(440,071)
(827,432)
(304,903)
(387,230)
115,161
(46,099)
(101,333)
629,264
209,763
Ps$
14,505,221
(11,463,233)
(1,859,251)
1,182,737
2,340,459
9,244,868
11,186,892
777,288
319,374
837,671
50,553
22,416,646
Ps$
13,136,721
30.
Subsequent events
On January 31, 2014, the Entity acquired the fibro-cement business of CertainTeed Corporation, one of the
leading manufacturers of building materials in North America. With this acquisition, the Entity will
strengthen its presence in to integrate its three production operations which reinforced their coverage and
growth in at country.
31.
Financial statement issuance authorization
On September 2, 2014, the issuance of the accompanying consolidated financial statements was authorized by
C.P. Victor Hugo Ibarra Alcazar, Chief Financial Officer; consequently, they do not reflect events which
occurred after that date.
******
F-90
HEAD OFFICE OF THE COMPANY
Mario Pani, No. 400, Piso 3
Col. Lomas de Santa Fe
C.P. 05300, México, Distrito Federal
TRUSTEE, REGISTRAR, PRINCIPAL PAYING AND TRANSFER AGENT
Deutsche Bank Trust Company Americas
60 Wall Street, 16th Floor
MS NYC60
New York, New York 10005
USA
LUXEMBOURG LISTING, PAYING AND TRANSFER AGENT
Deutsche Bank Luxembourg S.A.
2, boulevard Konrad Adenauer
L-1115 Luxembourg
Luxembourg
LEGAL ADVISORS TO THE COMPANY
As to U.S. law
As to Mexican law
As to Mexican tax law
Davis Polk & Wardwell LLP
450 Lexington Avenue
DRB Consultores Legales, S.C.
Bosques de Alisos No. 45A Piso 3
Bosque de las Lomas
05120 México, Distrito Federal
Chévez, Ruiz, Zamarripa y Cía, S.C.
Vasco de Quiroga 2121, 4º Piso
Peña Blanca Santa Fe
LEGAL ADVISORS TO THE MANAGERS
As to U.S. law
As to Mexican law
Shearman & Sterling LLP
599 Lexington Avenue
Ritch, Mueller, Heather y Nicolau, S.C.
Blvd. Manuel Ávila Camacho 24
Piso 20
Col. Lomas de Chapultepec
AUDITORS
Galaz, Yamazaki, Ruiz Urquiza, S.C.
member of Deloitte Touche Tohmatsu Limited
Av. Paseo de La Reforma 505
Col. Cuauhtémoc
06500, México, Distrito Federal
US$425,000,000
5.500% Senior Unsecured Notes due 2025
OFFERING MEMORANDUM
November 20, 2014
Credit Suisse
Morgan Stanley
Citigroup
HSBC
Santander

Descargar - Elementia

Transcription

Similar documents

Mexico Gold 50 Pesos AGW 1.2057 (Random Year)

Mexican Independence Day Colouring Page

1998 The Puebla Folkloric Festival

Travel Manual FINAai - Nord Anglia Education

weekly - Notimex

Flexilite MC Cement Datasheet

Mexico is an independent country now, but it wasn`t always. For 300

Southern Expansion

weekly - Notimex

World History Unit 03 2013-2014.indd