building a STRONGER foundation - Cemex
building a STRONGER foundation - Cemex
building a STRONGER foundation - Cemex
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Interest Rate Risk, Foreign Currency Risk and Equity Risk<br />
Interest Rate Risk. The table below presents tabular information of our fixed and floating rate long-term foreign currencydenominated<br />
debt as of December 31, 2010. See note 12A to our consolidated financial statements included elsewhere in this annual<br />
report. Average floating interest rates are calculated based on forward rates in the yield curve as of December 31, 2010. Future cash<br />
flows represent contractual principal payments. The fair value of our floating rate long-term debt is determined by discounting future<br />
cash flows using borrowing rates available to us as of December 31, 2010 and is summarized as follows:<br />
126<br />
Expected maturity dates as of December 31, 2010<br />
Long-Term Debt(1) 2011 2012 2013 2014<br />
After<br />
2015 Total<br />
Variable rate................................................................. 313 1,008 2,262 6,472 14 10,069 10,039<br />
Average interest rate .................................................... 4.44% 6.38% 7.27% 5.54% 6.39%<br />
Fixed rate ..................................................................... 96 155 152 1,615 4,275 6,294 6,271<br />
Average interest rate .................................................... 8.29% 8.24% 9.16% 9.29% 5.98%<br />
(1) The information above includes the current maturities of the long-term debt. Total long-term debt as of December 31, 2010 does<br />
not include the perpetual debentures for an aggregate amount of U.S.$1,320 million (approximately Ps16,310 million), issued by<br />
consolidated entities. See note 16D to our consolidated financial statements included elsewhere in this annual report.<br />
As of December 31, 2010, we were subject to the volatility of the floating interest rates, which, if such rates were to increase,<br />
may adversely affect our financing cost and our net income. As of December 31, 2010, 62% of our foreign currency-denominated<br />
long-term debt bears floating rates at a weighted average interest rate of LIBOR plus 418 basis points.<br />
Foreign Currency Risk. Due to our geographic diversification, our revenues are generated in various countries and settled in<br />
different currencies. However, some of our production costs, including fuel and energy, and some of our cement prices, are<br />
periodically adjusted to take into account fluctuations in the Dollar/Peso exchange rate. For the year ended December 31, 2010,<br />
approximately 23% of our net sales, before eliminations resulting from consolidation, were generated in Mexico, 17% in the United<br />
States, 4% in Spain, 8% in the United Kingdom, 7% in Germany, 7% in France, 7% in our Rest of Europe geographic segment, 11%<br />
in South America, Central America and the Caribbean, 8% in Africa and the Middle East, 4% in Asia and 4% from other regions and<br />
our cement and clinker trading activities. As of December 31, 2010, after giving pro forma effect to (1) the issuance of the January<br />
2011 Notes, the 2011 Optional Convertible Subordinated Notes and the April 2011 Notes, (2) the 2011 Prepayments and (3) the 2011<br />
Private Exchange, approximately 75% of our consolidated debt was Dollar-denominated, approximately 4% was Peso-denominated,<br />
approximately 21% was Euro-denominated and immaterial amounts were denominated in other currencies, without including<br />
approximately U.S.$1,160 million (Ps14,342 million) of notes issued in connection with the Perpetual Debentures; therefore, we had a<br />
foreign currency exposure arising from the Dollar-denominated debt, and the Euro-denominated debt, versus the currencies in which<br />
our revenues are settled in most countries in which we operate. See “— Liquidity and Capital Resources — Our Indebtedness” and<br />
“Item 3 — Key Information — Risk Factors — We have to service our Dollar-denominated obligations with revenues generated in<br />
Pesos or other currencies, as we do not generate sufficient revenue in Dollars from our operations to service all our Dollardenominated<br />
obligations. This could adversely affect our ability to service our obligations in the event of a devaluation or depreciation<br />
in the value of the Peso, or any of the other currencies of the countries in which we operate, compared to the Dollar. In addition, our<br />
consolidated reported results and outstanding indebtedness are significantly affected by fluctuations in exchange rates between the<br />
Peso and other currencies.” In addition, as of December 31, 2010, our Euro-denominated debt, after giving pro forma effect to (1) the<br />
issuance of the January 2011 Notes, the 2011 Optional Convertible Subordinated Notes and the April 2011 Notes, (2) the 2011<br />
Prepayments, and (3) the 2011 Private Exchange, represented approximately 21% of our total debt, not including approximately<br />
€147 million aggregate principal amount of the 6.277% Perpetual Debentures outstanding after the completion of the 2010 Exchange<br />
Offer and the 2011 Private Exchange. We cannot guarantee that we will generate sufficient revenues in Euros from our operations in<br />
Spain and the Rest of Europe to service these obligations. As of December 31, 2010, all cross-currency swaps had been settled.<br />
Equity Risk. As described above, we have entered into equity forward contracts on AXTEL CPOs. Upon liquidation, the equity<br />
forward contracts provide cash settlement and the effects are recognized in the statement of operations. At maturity, if these forward<br />
contracts are not settled or replaced, or if we default on these agreements, our counterparties may sell the shares of the underlying<br />
contracts. Under these equity forward contracts, there is a direct relationship in the change in the fair value of the derivative with the<br />
change in value of the underlying asset.<br />
As of December 31, 2010, the potential change in the fair value of these contracts that would result from a hypothetical,<br />
instantaneous decrease of 10% in the market price of AXTEL CPOs would be a loss of approximately U.S.$7 million (Ps87 million).<br />
Fair<br />
Value