building a STRONGER foundation - Cemex

CEMEX Venezuela
As of and for the periods ended December 31, 2007 and July 31, 2008, measured in Pesos, our Venezuelan operations accounted
for approximately 2.9% and 3.0% of our consolidated revenues, respectively, and 2.1% at the end of both periods of our consolidated
total assets. In the event our affiliates receive compensation as a result of proceedings they have initiated against Venezuela for the
expropriation of their investment in CEMEX Venezuela, it is expected that the award of such relief will enable us to reduce
consolidated debt and/or to expand total installed capacity. Accordingly, we believe that the expropriation of our affiliates’ investment
in CEMEX Venezuela will not have a material impact on our consolidated financial position, liquidity or results of operations. At the
present time, however, it is not possible to predict the timing or amount of any award of restitution and/or compensation, the extent to
which any order of restitution can be enforced, or the extent to which any monetary relief can be collected following an award. Until
restitution and/or compensation is received, we will be negatively affected, although we do not expect such negative effect to be
significant in light of our overall consolidated financial position.
We consolidated the income statement of CEMEX Venezuela in our results of operations for the seven-month period ended
July 31, 2008. For balance sheet purposes, as of December 31, 2008, our investment in Venezuela was presented within “Other
investments and non current accounts receivable.” As of December 31, 2009 and 2010, the net book value of our investment in
Venezuela was approximately Ps6,147 million and Ps6,203 million, respectively, corresponding to the interest of our affiliates of
approximately 75.7%.
See note 11A to our consolidated financial statements included elsewhere in this annual report.
See “Item 4 — Information on the Company — Regulatory Matters and Legal Proceedings — Other Legal Proceedings —
Expropriation of CEMEX Venezuela and ICSID Arbitration.”
Qualitative and Quantitative Market Disclosure
Our Derivative Financial Instruments
For the year ended December 31, 2008, 2009 and 2010, we had a net loss from financial instruments of approximately Ps15,172
million, Ps2,127 million and Ps956 million, respectively.
Since the beginning of 2009, with the exception of our capped call transaction entered into in March 2010, we have been
reducing the aggregate notional amount of our derivatives, thereby reducing the risk of cash margin calls. This initiative has included
closing substantially all notional amounts of derivative instruments related to our debt (currency and interest rate derivatives) and the
settlement of our inactive derivative financial instruments (see note 12C to our consolidated financial statements included elsewhere in
this annual report), which we finalized during April 2009. The Financing Agreement significantly restricts our ability to enter into
derivative transactions.
We use derivative financial instruments in order to change the risk profile associated with changes in interest rates and foreign
exchange rates of debt agreements, as a vehicle to reduce financing costs, as an alternative source of financing, and as hedges of:
(i) highly probable forecasted transactions, (ii) our net assets in foreign subsidiaries and (iii) future exercises of options under our
executive stock option programs. Before entering into any transaction, we evaluate, by reviewing credit ratings and our business
relationship according to our policies, the creditworthiness of the financial institutions and corporations that are prospective
counterparties to our derivative financial instruments. We select our counterparties to the extent we believe that they have the financial
capacity to meet their obligations in relation to these instruments. Under current financial conditions and volatility, we can not assure
that risk of non-compliance with the obligations agreed to with such counterparties is minimal.
The fair value of derivative financial instruments is based on estimated settlement costs or quoted market prices and supported
by confirmations of these values received from the counterparties to these financial instruments. The notional amounts of derivative
financial instrument agreements are used to measure interest to be paid or received and do not represent the amount of exposure to
credit loss.
122
At December 31, 2009 At December 31, 2010
Notional
amount
Estimated
fair value
Notional
amount
(in millions of Dollars)
Estimated
fair value Maturity Date
Equity forward contracts................................................................. 54 54 53 15 October 2011
Other forward contracts .................................................................. 55 1 16 1 October 2011
Other Equity Derivatives ................................................................ 860 (79) 1,575 (71) April 2015
Derivatives related to energy .......................................................... 202 27 196 35 September 2022