building a STRONGER foundation - Cemex

B) Variable program
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements – (Continued)
As of December 31, 2010, 2009 and 2008
(Millions of Mexican pesos)
This program started in November 2001, through an exchange of fixed program options, with exercise prices denominated in dollars
increasing annually at a 7% rate.
C) Restricted program
This program started in February 2004 through a voluntary exchange of options mainly from the variable program. These options have an
exercise price denominated in dollars which, depending on the program, increase annually at a 5.5% rate or at a 7% rate. Executives’ gains
under these options are settled in the form of CPOs, which are restricted for sale for an approximate period of 4 years from the exercise date.
D) Special program
From June 2001 through June 2005, CEMEX’s subsidiary in the United States granted, to a group of its employees, a stock option program to
purchase CEMEX ADSs. The options granted have a fixed exercise price denominated in dollars and tenure of 10 years. The employees’
option rights vested up to 25% annually after having been granted. The option exercises are hedged using ADSs currently owned by
subsidiaries, which increases stockholders’ equity and the number of shares outstanding. The amounts of these ADS programs are presented
in terms of equivalent CPOs (ten CPOs represent one ADS).
Other programs
CEMEX’s subsidiary in Ireland has an outstanding stock option program in its own shares. As of December 31, 2010 and 2009, this
subsidiary had outstanding options over 307,748 and 347,748 of its shares, respectively, with an average exercise price per share of
approximately €1.18 in 2010 and €1.23 in 2009. As of December 31, 2010 and 2009, the market price per share of CEMEX’s subsidiary in
Ireland was €0.21 and €0.18, respectively.
Valuation of options at fair value and accounting recognition
All options of programs that qualify as liability instruments are valued at their estimated fair value as of the date of the financial statements,
recognizing changes in valuations in the statements of operations. Changes in the provision for executive stock option programs for the years
ended December 31, 2010, 2009 and 2008 were as follows:
F-51
Restricted
program
Variable
program
Special
program Total
Provision as of December 31, 2007.............................................Ps 927 120 283 1,330
Net revenue in current period results ........................................ (1,055) (129) (353) (1,537)
Estimated decrease from exercises of options........................... – 1 29 30
Foreign currency translation effect ........................................... 239 31 73 343
Provision as of December 31, 2008............................................. 111 23 32 166
Net expense in current period results........................................ 8 2 18 28
Estimated decrease from exercises of options........................... – – 5 5
Foreign currency translation effect ........................................... (5) (1) (1) (7)
Provision as of December 31, 2009............................................. 114 24 54 192
Net revenue in current period results ........................................ (92) (15) (40) (147)
Estimated decrease from exercises of options........................... – – 2 2
Foreign currency translation effect ........................................... (7) (1) (3) (11)
Provision as of December 31, 2010.............................................Ps 15 8 13 36
The options’ fair values were determined through the binomial option-pricing model. As of December 31, 2010, 2009 and 2008, the most
significant assumptions used in the valuations were as follows:
Assumptions 2010 2009 2008
Expected dividend yield ................................................................................................ 4.0% 7.9% 10.4%
Volatility ....................................................................................................................... 35% 35% 35%
Interest rate.................................................................................................................... 2.6% 2.6% 1.8%
Weighted average remaining tenure .............................................................................. 1.3 years 4.8 years 5.3 years