building a STRONGER foundation - Cemex

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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) On January 21, 2011, the Mexican tax authority notified CEMEX, S.A.B. de C.V., of a tax assessment for approximately Ps996 (US$81) pertaining to the tax year 2005. The tax assessment is related to the corporate income tax in connection with the tax consolidation regime. As a result of a tax reform in 2005, the law allows the cost of goods sold to be deducted, instead of deducting purchases. Since there were inventories as of December 31, 2004, in a transition provision, the law allowed the inventory to be accumulated as income (thus reversing the deduction via purchases) and then be deducted from 2005 onwards as cost of goods sold. In order to compute the income resulting from the inventories in 2004, the law allowed this income to be offset against accumulated tax losses of some of CEMEX’s subsidiaries. The authorities argued that because of this offsetting, the right to use such losses at the consolidated level had been lost; therefore, CEMEX had to increase its consolidated income or decrease its consolidated losses. CEMEX believes that there is no legal support for the conclusion of the Mexican tax authority and will proceed to challenge the assessment before the tax court. In February 2011, in connection with the tax matter in Colombia related to CEMEX’s 2008 year end tax return, CEMEX Colombia presented its arguments to the Colombian Tax Authority. The Colombian Tax Authority has six months from the time CEMEX Colombia presented such arguments to send a “Liquidación Oficial,” or final determination, that CEMEX may appeal, if necessary. On February 10, 2011, CEMEX made a prepayment of US$50 to reduce the principal amount due under the Financing Agreement. The prepayment satisfied in full the June 2012 amortization amount. On February 24, 2011, stockholders at the extraordinary stockholders’ meeting approved an increase in the variable portion of our capital stock of up to 6 billion shares (equivalent to 2 billion CPOs). Pursuant to the resolution approved by CEMEX’s stockholders, the subscription and payment of the new shares represented by CPOs may occur through a public offer of CPOs and/or issuance of convertible bonds and, until then, these shares will be kept in CEMEX’s treasury. On February 24, 2011, stockholders at the 2010 annual ordinary stockholders’ meeting approved resolutions: (i) to increase the variable common stock through the capitalization of retained earnings, issuing up to 1,202.6 million shares (400.9 million CPOs) based on a price of Ps10.52 per CPO. Stockholders received 3 new shares for each 75 shares held (1 new CPO for each 25 CPOs held), through the capitalization of retained earnings. As a result, shares equivalent to approximately 401 million CPOs were issued and paid. There was no cash distribution and no entitlement to fractional shares; and (ii) to increase the variable common stock by up to 60 million shares (20 million CPOs) issuable as a result of antidilution adjustments upon conversion of CEMEX’s 2010 Optional Convertible Subordinated Notes and the Mandatorily Convertible Securities. These shares will be kept in CEMEX’s treasury and will be used to preserve the rights of note holders pursuant to the company’s issuance of convertible notes. On March 4, 2011, CEMEX closed a private exchange transaction of approximately €119 aggregate principal amount of 6.277% Fixed-to- Floating Rate Callable Perpetual Debentures for approximately US$125 aggregate principal amount of new 9.25% U.S. Dollar-Denominated Senior Secured Notes due 2020, issued by CEMEX España, and guaranteed by CEMEX S.A.B. de C.V., CEMEX México, S.A. de C.V., and New Sunward Holding B.V.. As a result of such private exchange, approximately €119 in aggregate principal amount of the 6.277% Perpetual Debentures and an equal corresponding aggregate principal amount of underlying dual-currency notes were cancelled. On March 15, 2011, CEMEX finalized the offering of US$977.5 aggregate principal amount of 3.25% convertible subordinated notes due in 2016 (the “2016 Notes”) and US$690 aggregate principal amount of 3.75% convertible subordinated notes due in 2018 (the “2018 Notes” and, together with the 2016 Notes, the “2011 Optional Convertible Subordinated Notes”). The aggregate principal amounts reflect the full exercise of the US$177.5 and US$90 over-allotment option granted to the relevant initial purchasers related to the 2016 Notes and the 2018 Notes, respectively. The initial conversion price was equivalent to an approximate 30% premium to the closing price of CEMEX’s ADSs on March 9, 2011, and are convertible into CEMEX’s ADSs, at any time after June 30, 2011. The net proceeds from this transaction were used to fund the purchase of capped call transactions, which are generally expected to reduce the potential cost to CEMEX upon future conversion of the 2011 Optional Convertible Subordinated Notes, improve CEMEX’s debt maturity profile by prepaying outstanding amounts under the Financing Agreement. This prepayment satisfied in full the December 2012 amortization amount and reduced the June 2013 amortization amount to US$294 million. As a result of the issuance, substantially all the new shares approved at CEMEX’s extraordinary stockholders’ meeting on February 24, 2011 are being reserved by CEMEX to satisfy conversion of these notes. On April 1, 2011, the Colombian Tax Authority (Dirección de Impuestos) notified CEMEX Colombia of a proceeding in which the Colombian Tax Authority rejected certain deductions taken by CEMEX Colombia in its 2009 year-end tax return. In addition, the Colombian Tax Authority seeks to increase the taxes to be paid by CEMEX Colombia in the amount of approximately 90 billion Colombian pesos (US$48) and to impose a penalty in the amount of approximately 144 billion Colombian pesos (US$77). The Colombian Tax Authority argues that certain expenses are not deductible for fiscal purposes because they are not linked to direct revenues recorded in the same fiscal year, without take into considerations that future revenue will be taxed with income tax in Colombia. At this stage, CEMEX is not able to assess the likelihood of an adverse result or potential damages which could be borne by CEMEX Colombia. On April 5, 2011, CEMEX closed the offering of US$800 aggregate principal amount of Floating Rate Senior Secured Notes due in 2015, which were issued at 99.001% of face value. The April 2011 Notes are unconditionally guaranteed by CEMEX México, S.A. de C.V., New Sunward Holding B.V. and CEMEX España, S.A. The net proceeds from the offering, approximately US$788, were used to repay indebtedness under the Financing Agreement. F-60
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) On April 15, 2011, in connection with the antitrust cases in Florida, the court denied the motions for certification filed by the direct and indirect purchasers. On April 19, 2011, in connection with the note 9A, Blue Rock adopted the form of a S.à.r.l. (private limited liability company) and its name changed to TRG Blue Rock HBM Holdings S.à.r.l. ("Blue Rock -TRG"). Blue Rock-TRG is now managed by entities that are part of The Rohatyn Group, LLC (a privately owned firm that invests in the public equity and fixed income markets across the globe, including emerging markets of Latin America, Asia, Africa and Central and Eastern Europe). On May 3, 2011, in connection with the Texas General Land Office litigation, the GLO and CEMEX submitted briefs and the Court of Appeals heard oral arguments on this matter on May 3, 2011. It is not certain when the court will issue its ruling. On May 5, 2011 and May 17, 2011 CEMEX extended its securitization programs of accounts receivables in Spain and in the United States for 5 and 2 years, respectively, for funded amounts of up to €100 in Spain and US$275 in the United States. As a result, CEMEX’s securitization programs outstanding as of December 31, 2010 expire for Spain on May 2016 and for the United States on May 2013. On May 17, 2011, in connection with the antitrust investigations in Spain by the CNC, the CNC Council decided to accept CEMEX España’s request to review the evidence presented by the other parties. As a result, the deadline for the CNC Council to issue a decision has been interrupted and will resume once the other parties present the proposed evidence requested by CEMEX España. In May, 2011, the Internal Revenue Service (“IRS”) has issued various Notices of Proposed Adjustment (“NOPAs”) for the years 2005 through 2007 proposing a number of adjustments. CEMEX has requested the opportunity to discuss and negotiate these with the IRS field team before they are finalized as formal Revenue Agent Reports. CEMEX anticipates that this process of discussion and negotiation, together with subsequent administrative and legal processes that CEMEX may avail itself of if discussion and negotiation do not produce an acceptable settlement, may take an extended period of time, and management is uncertain that these issues will be settled in the next twelve months. CEMEX believes it has adequately reserved for its uncertain tax positions; however, there can be no assurance that the outcome of the IRS negotiations will not require further provisions for taxes. 23. MAIN SUBSIDIARIES The main subsidiaries as of December 31, 2010 and 2009 were as follows: % Interest Subsidiary Country 2010 2009 CEMEX México, S. A. de C.V. 1 ................................................................ Mexico 100.0 100.0 CEMEX España, S.A. 2............................................................................. Spain 99.9 99.9 CEMEX, Inc. ......................................................................................... United States 100.0 100.0 CEMEX (Costa Rica), S.A. ................................................................... Costa Rica 99.1 99.1 Assiut Cement Company ....................................................................... Egypt 95.8 95.8 CEMEX Colombia S.A. ........................................................................ Colombia 99.7 99.7 Cemento Bayano, S.A. .......................................................................... Panama 99.5 99.5 CEMEX Dominicana, S.A. .................................................................... Dominican Republic 100.0 100.0 CEMEX de Puerto Rico Inc. .................................................................. Puerto Rico 100.0 100.0 CEMEX France Gestion (S.A.S.)........................................................... France 100.0 100.0 CEMEX Asia Holdings Ltd. 3................................................................ Singapore 100.0 100.0 Solid Cement Corporation 3................................................................. Philippines 100.0 100.0 APO Cement Corporation 3 ................................................................. Philippines 100.0 100.0 CEMEX (Thailand) Co., Ltd. 3............................................................ Thailand 100.0 100.0 CEMEX U.K.......................................................................................... United Kingdom 100.0 100.0 CEMEX Investments Limited.............................................................. United Kingdom 100.0 100.0 CEMEX Deutschland, AG. ................................................................. Germany 100.0 100.0 CEMEX Austria, AG........................................................................... Austria 100.0 100.0 CEMEX Hrvatska d.d. ........................................................................ Croatia 100.0 100.0 CEMEX Czech Operations, s.r.o. ....................................................... Czech Republic 100.0 100.0 CEMEX Polska sp. Z.o.o. ................................................................... Poland 100.0 100.0 CEMEX Hungária Kft. ......................................................................... Hungary 100.0 100.0 Readymix PLC. 4 ................................................................................. Ireland 61.2 61.2 CEMEX Holdings (Israel) Ltd. ........................................................... Israel 100.0 100.0 CEMEX SIA........................................................................................ Latvia 100.0 100.0 CEMEX Topmix LLC, Gulf Quarries LLC, CEMEX Supermix LLC and CEMEX Falcon LLC 5 ........................ United Arab Emirates 100.0 100.0 1. CEMEX México, S.A. de C.V. is the indirect holding company of CEMEX España, S.A. and subsidiaries. 2. CEMEX España, S.A. is the indirect holding company of all CEMEX’s international operations. 3. Represents CEMEX’s indirect interest in the economic benefits of these entities. 4. Readymix PLC is listed in the Irish stock exchange. 5. CEMEX owns 49% of the common stock of these entities and obtains 100% of the economic benefits, through arrangements with other stockholders. F-61
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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
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Separately, the government of Venez
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and CEMEX was required by August 11
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January 1, 2008, however, under MFR
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foreign subsidiaries. These instrum
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Valuation reserves on accounts rece
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Stage 1. Communication to the organ
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Year Ended December 31, 2010 Compar
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Geographic Segment 89 Variations in
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United Kingdom Our domestic cement
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ended December 31, 2010, Africa and
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Operating Income. For the reasons m
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Our comprehensive financing result
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The following tables present select
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Mexico Our domestic cement sales vo
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As a result of the decreases in dom
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For the year ended December 31, 200
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South America, Central America and
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On August 14, 2009, we entered into
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As of December 31, 2010, we had U.S
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Our Perpetual Debentures As of Dece
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The Financing Agreement, as amended
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In 1999, CEMEX entered into an agre
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Our Equity Derivative Forward Contr
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As of December 31, 2009 and 2010, C
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In addition, we have entered into f
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Private Cash Tender Offer to Holder
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Name, Position (Age) Experience Jai
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Name, Position (Age) Experience Ram
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Tomás Milmo Santos (46) Has been a
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Set forth below are the names of th
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Consolidated ESOP Information Stock
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Item 7 - Major Shareholders and Rel
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The following table sets forth the
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Item 10 - Additional Information Ar
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exempt from registration pursuant t
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Our board of directors shall prepar
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Under our by-laws, shareholders rep
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On June 2, 2008, CEMEX, through one
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Exchange Controls See “Item 3 —
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The gross amount of any dividends p
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We have agreed to pay some of the o
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Item 16G - Corporate Governance Sec
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Item 17 - Financial Statements Not
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4.17 Debenture Purchase Agreement,
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4.27.3 Amendment No. 1 to U.S.$525,
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4.41.4 Accession Letter, dated Janu
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4.57 Amended and Restated Dealer Ma
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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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CEMEX, S.A.B. DE C.V. AND SUBSIDIAR
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1. DESCRIPTION OF BUSINESS CEMEX, S
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