building a STRONGER foundation - Cemex

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Interest Rate Risk, Foreign Currency Risk and Equity Risk Interest Rate Risk. The table below presents tabular information of our fixed and floating rate long-term foreign currencydenominated debt as of December 31, 2010. See note 12A to our consolidated financial statements included elsewhere in this annual report. Average floating interest rates are calculated based on forward rates in the yield curve as of December 31, 2010. Future cash flows represent contractual principal payments. The fair value of our floating rate long-term debt is determined by discounting future cash flows using borrowing rates available to us as of December 31, 2010 and is summarized as follows: 126 Expected maturity dates as of December 31, 2010 Long-Term Debt(1) 2011 2012 2013 2014 After 2015 Total Variable rate................................................................. 313 1,008 2,262 6,472 14 10,069 10,039 Average interest rate .................................................... 4.44% 6.38% 7.27% 5.54% 6.39% Fixed rate ..................................................................... 96 155 152 1,615 4,275 6,294 6,271 Average interest rate .................................................... 8.29% 8.24% 9.16% 9.29% 5.98% (1) The information above includes the current maturities of the long-term debt. Total long-term debt as of December 31, 2010 does not include the perpetual debentures for an aggregate amount of U.S.$1,320 million (approximately Ps16,310 million), issued by consolidated entities. See note 16D to our consolidated financial statements included elsewhere in this annual report. As of December 31, 2010, we were subject to the volatility of the floating interest rates, which, if such rates were to increase, may adversely affect our financing cost and our net income. As of December 31, 2010, 62% of our foreign currency-denominated long-term debt bears floating rates at a weighted average interest rate of LIBOR plus 418 basis points. Foreign Currency Risk. Due to our geographic diversification, our revenues are generated in various countries and settled in different currencies. However, some of our production costs, including fuel and energy, and some of our cement prices, are periodically adjusted to take into account fluctuations in the Dollar/Peso exchange rate. For the year ended December 31, 2010, approximately 23% of our net sales, before eliminations resulting from consolidation, were generated in Mexico, 17% in the United States, 4% in Spain, 8% in the United Kingdom, 7% in Germany, 7% in France, 7% in our Rest of Europe geographic segment, 11% in South America, Central America and the Caribbean, 8% in Africa and the Middle East, 4% in Asia and 4% from other regions and our cement and clinker trading activities. As of December 31, 2010, after giving pro forma effect to (1) the issuance of the January 2011 Notes, the 2011 Optional Convertible Subordinated Notes and the April 2011 Notes, (2) the 2011 Prepayments and (3) the 2011 Private Exchange, approximately 75% of our consolidated debt was Dollar-denominated, approximately 4% was Peso-denominated, approximately 21% was Euro-denominated and immaterial amounts were denominated in other currencies, without including approximately U.S.$1,160 million (Ps14,342 million) of notes issued in connection with the Perpetual Debentures; therefore, we had a foreign currency exposure arising from the Dollar-denominated debt, and the Euro-denominated debt, versus the currencies in which our revenues are settled in most countries in which we operate. See “— Liquidity and Capital Resources — Our Indebtedness” and “Item 3 — Key Information — Risk Factors — We have to service our Dollar-denominated obligations with revenues generated in Pesos or other currencies, as we do not generate sufficient revenue in Dollars from our operations to service all our Dollardenominated obligations. This could adversely affect our ability to service our obligations in the event of a devaluation or depreciation 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 consolidated reported results and outstanding indebtedness are significantly affected by fluctuations in exchange rates between the Peso and other currencies.” In addition, as of December 31, 2010, our Euro-denominated debt, after giving pro forma effect to (1) the issuance of the January 2011 Notes, the 2011 Optional Convertible Subordinated Notes and the April 2011 Notes, (2) the 2011 Prepayments, and (3) the 2011 Private Exchange, represented approximately 21% of our total debt, not including approximately €147 million aggregate principal amount of the 6.277% Perpetual Debentures outstanding after the completion of the 2010 Exchange Offer and the 2011 Private Exchange. We cannot guarantee that we will generate sufficient revenues in Euros from our operations in Spain and the Rest of Europe to service these obligations. As of December 31, 2010, all cross-currency swaps had been settled. Equity Risk. As described above, we have entered into equity forward contracts on AXTEL CPOs. Upon liquidation, the equity forward contracts provide cash settlement and the effects are recognized in the statement of operations. At maturity, if these forward contracts are not settled or replaced, or if we default on these agreements, our counterparties may sell the shares of the underlying contracts. Under these equity forward contracts, there is a direct relationship in the change in the fair value of the derivative with the change in value of the underlying asset. As of December 31, 2010, the potential change in the fair value of these contracts that would result from a hypothetical, instantaneous decrease of 10% in the market price of AXTEL CPOs would be a loss of approximately U.S.$7 million (Ps87 million). Fair Value
In addition, we have entered into forward contracts on the TRI of the Mexican Stock Exchange through which we maintain exposure to changes of such index, until maturity in October 2011. Upon liquidation, these forward contracts provide a cash settlement of the estimated fair value and the effects are recognized in the statement of operations. Under these equity forward contracts, there is a direct relationship in the change in the fair value of the derivative with the change in value of the TRI of the Mexican Stock Exchange. As of December 31, 2010, the potential change in the fair value of these contracts that would result from a hypothetical, instantaneous decrease of 10% in the aforementioned index would be a loss of approximately U.S.$1 million (Ps12 million). As of December 31, 2010, we were subject to the volatility of the market price of the CPOs in relation to our options over the CPO price and our put option transactions on the CPOs, as described in “— Qualitative and Quantitative Market Disclosure — Our Derivative Financial Instruments — Our Other Equity Derivative Contracts.” A decrease in the market price of the CPOs may adversely affect our result from financial instruments and our net income. As of December 31, 2010, the potential change in the fair value of these contracts that would result from a hypothetical, instantaneous decrease of 10% in the market price of the CPOs would be a loss of approximately U.S.$31 million (Ps383 million). In connection with the offering of the 2010 Optional Convertible Subordinated Notes issued in March 2010, we entered into a capped call transaction with an affiliate of Citigroup Global Markets Inc., the sole global coordinator and sole structuring agent of the 2010 Optional Convertible Subordinated Notes. See “— Qualitative and Quantitative Market Disclosure — Our Derivative Financial Instruments — Our Capped Call Transaction.” We have recently entered into capped call transactions with several financial institutions in connection with the issuance of the 2011 Optional Convertible Subordinated Notes. See “— Recent Developments — Recent Developments Relating to Our Indebtedness.” Investments, Acquisitions and Divestitures The transactions described below represent our principal investments, acquisitions and divestitures completed during 2008, 2009 and 2010. Investments and Acquisitions Our net investment in property, machinery and equipment, as reflected in our consolidated financial statements (see note 10 to our consolidated financial statements included elsewhere in this annual report), excluding acquisitions of equity interests in subsidiaries and associates, was approximately Ps23.2 billion (U.S.$2.1 billion) in 2008, Ps8.7 billion (U.S.$636 million) in 2009 and Ps6.9 billion (U.S.$555 million) in 2010. This net investment in property, machinery and equipment has been applied to the construction and upgrade of plants and equipment, to the maintenance of plants and equipment, including environmental controls and technology updates. As of the date of this annual report, we have allocated over U.S.$470 million in our 2011 budget to continue with this effort. Divestitures On August 27, 2010, we completed the sale of seven aggregates quarries, three resale aggregate distribution centers and one concrete block manufacturing facility in Kentucky to Bluegrass Materials Company, LLC for U.S.$88 million in proceeds. On October 1, 2009, we completed the sale of our operations in Australia to a subsidiary of Holcim Ltd for A$2.02 billion (approximately U.S.$1.7 billion). On June 15, 2009, we sold three quarries (located in Nebraska, Wyoming and Utah) and our 49% joint venture interest in the operations of a quarry located in Granite Canyon, Wyoming, to Martin Marietta Materials, Inc. for U.S.$65 million. On December 26, 2008, we sold our Canary Islands operations (consisting of cement and ready-mix concrete assets in Tenerife and 50% of the shares in two joint-ventures, Cementos Especiales de las Islas, S.A. (CEISA) and Inprocoi, S.L.) to several Spanish subsidiaries of Cimpor Cimentos de Portugal SGPS, S.A. for €162 million (approximately U.S.$227 million). On July 31, 2008, we agreed to sell our operations in Austria (consisting of 26 aggregates and 41 ready-mix concrete plants) and Hungary (consisting of 6 aggregates, 29 ready-mix concrete and 4 paving stone plants) to Strabag SE, one of Europe’s leading construction and <strong>building</strong> materials groups, for €310 million (approximately U.S.$433 million). See “Item 4 — Information on the Company — Regulatory Matters and Legal Proceedings — Other Legal Proceedings — Strabag Arbitration.” for a description of the ongoing arbitration relating to the proposed sale of our Austrian and Hungarian operations. 127
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CEMEX 2010 20F REPORT building a ST
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Securities registered or to be regi
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Qualitative and Quantitative Market
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INTRODUCTION CEMEX, S.A.B. de C.V.
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As a result of the foregoing transa
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In the U.S., the recession was long
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The Financing Agreement contains ev
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The Financing Agreement restricts u
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During 2009, we reduced the aggrega
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The instruments governing our debt
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On the legislative front, during th
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Our operations in South America, Ce
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the depositary to vote the CPOs und
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Beginning in 2008, MFRS B-10 has el
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(1) Cost of sales includes deprecia
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Item 4 - Information on the Company
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As a condition to closing the RMC a
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Provide our customers with the best
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In connection with the implementati
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In 2010, as a result of our efforts
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In addition, we are one of the worl
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(2) Our cement raw materials operat
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Our Corporate Structure We are a ho
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Cement in Mexico is sold principall
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Aggregates. Our aggregates operatio
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Beginning on June 30, 2008, Ready M
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Products and Distribution Channels
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On December 26, 2008, we sold our C
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Ready-Mix Concrete. Our ready-mix c
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Aggregates. In 2010, we reduced fix
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Our Operating Network in France Des
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In April 2006, we initiated an expa
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Our Operating Network in Colombia P
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Our Operations in Nicaragua Overvie
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Our Operations in the United Arab E
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Our Trading Operations In 2010, we
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On December 10, 2010, after receivi
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To prevent, control and remediate e
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As required by the directive, each
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For the 2010 fiscal year, CEMEX wil
Page 83 and 84: Separately, the government of Venez
Page 85 and 86: and CEMEX was required by August 11
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Page 89 and 90: foreign subsidiaries. These instrum
Page 91 and 92: Valuation reserves on accounts rece
Page 93 and 94: Stage 1. Communication to the organ
Page 95 and 96: Year Ended December 31, 2010 Compar
Page 97 and 98: Geographic Segment 89 Variations in
Page 99 and 100: United Kingdom Our domestic cement
Page 101 and 102: ended December 31, 2010, Africa and
Page 103 and 104: Operating Income. For the reasons m
Page 105 and 106: Our comprehensive financing result
Page 107 and 108: The following tables present select
Page 109 and 110: Mexico Our domestic cement sales vo
Page 111 and 112: As a result of the decreases in dom
Page 113 and 114: For the year ended December 31, 200
Page 115 and 116: South America, Central America and
Page 121 and 122: On August 14, 2009, we entered into
Page 123 and 124: As of December 31, 2010, we had U.S
Page 125 and 126: Our Perpetual Debentures As of Dece
Page 127 and 128: The Financing Agreement, as amended
Page 129 and 130: In 1999, CEMEX entered into an agre
Page 131 and 132: Our Equity Derivative Forward Contr
Page 133: As of December 31, 2009 and 2010, C
Page 137 and 138: Private Cash Tender Offer to Holder
Page 139 and 140: Name, Position (Age) Experience Jai
Page 141 and 142: Name, Position (Age) Experience Ram
Page 143 and 144: Tomás Milmo Santos (46) Has been a
Page 145 and 146: Set forth below are the names of th
Page 147 and 148: Consolidated ESOP Information Stock
Page 149 and 150: Item 7 - Major Shareholders and Rel
Page 151 and 152: The following table sets forth the
Page 153 and 154: Item 10 - Additional Information Ar
Page 155 and 156: exempt from registration pursuant t
Page 157 and 158: Our board of directors shall prepar
Page 159 and 160: Under our by-laws, shareholders rep
Page 161 and 162: On June 2, 2008, CEMEX, through one
Page 163 and 164: Exchange Controls See “Item 3 —
Page 165 and 166: The gross amount of any dividends p
Page 167 and 168: We have agreed to pay some of the o
Page 169 and 170: Item 16G - Corporate Governance Sec
Page 171 and 172: Item 17 - Financial Statements Not
Page 173 and 174: 4.17 Debenture Purchase Agreement,
Page 175 and 176: 4.27.3 Amendment No. 1 to U.S.$525,
Page 177 and 178: 4.41.4 Accession Letter, dated Janu
Page 179 and 180: 4.57 Amended and Restated Dealer Ma
Page 181: SIGNATURES CEMEX, S.A.B. de C.V. he
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The Board of Directors and Stockhol
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CEMEX, S.A.B. DE C.V. AND SUBSIDIAR
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1. DESCRIPTION OF BUSINESS CEMEX, S
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C) USE OF ESTIMATES CEMEX, S.A.B. D
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J) IMPAIRMENT OF LONG LIVED ASSETS
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Contingencies and commitments (note
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V) CONCENTRATION OF CREDIT CEMEX, S
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Net sales by product and geographic
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4. CASH AND INVESTMENTS CEMEX, S.A.
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II. Equity forwards in third party
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14. EMPLOYEE BENEFITS Defined contr
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17. EXECUTIVE STOCK-BASED COMPENSAT
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18. EARNINGS (LOSS) PER SHARE CEMEX
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D) CONTRACTUAL OBLIGATIONS CEMEX, S
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Reconciliation of stockholders’ e
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(k) Other U.S. GAAP Adjustments Def
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