building a STRONGER foundation - Cemex

In 2007, the EPA launched a CAA enforcement initiative against the U.S. cement industry. The primary goal of the initiative is
to assess the industry’s historic compliance with the CAA’s New Source Review program and to reduce emissions from the industry
through the installation of add-on controls. CEMEX has actively engaged with the EPA on its investigations, which involve multiple
CEMEX facilities, and has entered into two settlements involving a total of $3.4 million in civil penalties and a commitment to incur
certain capital expenditures for pollution control equipment at its Victorville, California and Fairborn, Ohio plants. Although some of
these proceedings are still in the initial stages, based on our past experience with such matters and currently available information, we
believe, although we cannot assure you, that such cases will not have a material impact on our business or operations.
In 2002, CEMEX Construction Materials Florida, LLC (formerly Rinker Materials of Florida, Inc.) (“CEMEX Florida”), a
subsidiary of CEMEX, Inc., was granted a federal quarry permit and was the beneficiary of another federal quarry permit for the Lake
Belt area in South Florida. The permit held by CEMEX Florida covered CEMEX Florida’s SCL and FEC quarries. CEMEX Florida’s
Kendall Krome quarry is operated under the permit of which it was a beneficiary. The FEC quarry is the largest of CEMEX Florida’s
quarries measured by volume of aggregates mined and sold. CEMEX Florida’s Miami cement mill is located at the SCL quarry and is
supplied by that quarry, while the FEC and Kendall Krome quarries have supplied aggregates to CEMEX and third party users. In
response to litigation brought by environmental groups concerning the manner in which the federal quarry permits were granted, in
January 2009, the U.S. District Court for the Southern District of Florida ordered the withdrawal of the federal quarry permits of
CEMEX Florida’s SCL, FEC and Kendall Krome quarries. The judge ruled that there were deficiencies in the procedures and analysis
undertaken by the Army Corps of Engineers, or the Corps, in connection with the issuance of the permits. Upon appeal, on January 21,
2010, the Eleventh Circuit Court of Appeals affirmed the district court’s ruling withdrawing the federal quarry permits of the three
CEMEX Florida quarries as well as other third-party federal quarry permits subject to the litigation. On January 29, 2010, the Corps
completed a multi-year review commenced as a result of the above-mentioned litigation and issued a Record of Decision (ROD)
supporting the issuance of new federal quarry permits for the FEC and SCL quarries. Excavation of new aggregates was stopped at the
FEC and SCL quarries from January 20, 2009 until new permits were issued. The FEC permit was issued on February 3, 2010, and the
SCL permit on February 18, 2010. The ROD also indicated that a number of potential environmental impacts must be addressed at the
wetlands located at the Kendall Krome site before a new federal quarry permit may be issued for mining at that quarry. It is unclear
how long it will take to fully address the Corps’ concerns regarding mining in the Kendall Krome wetlands. While no new aggregates
will be quarried from wetland areas at Kendall Krome pending the resolution of the potential environmental issues, the FEC and SCL
quarries will continue to operate. If CEMEX Florida were unable to maintain the new Lake Belt permits, CEMEX Florida would need
to source aggregates, to the extent available, from other locations in Florida or import aggregates. This would likely affect operating
income from our Florida operations. Any adverse impacts on the Florida economy arising from the cessation or significant restriction
of quarrying operations in the Lake Belt area could also have a material adverse effect on our financial results.
Europe. In Great Britain, future expenditure on closed and current landfill sites has been assessed and quantified over the period
in which the sites are considered to have the potential to cause environmental harm, generally consistent with the regulatory view of
up to 60 years from the date of closure. The assessed expenditure relates to the costs of monitoring the sites and the installation, repair
and renewal of environmental infrastructure. The costs have been quantified on a net present value basis in the amount of
approximately £130.2 million (approximately U.S.$216.6 million as of April 30, 2011, based on an exchange rate of £0.6010 to
U.S.$1.00) as of December 31, 2010, and we made an accounting provision for this amount at December 31, 2010.
In 2003, the European Union adopted a directive in order to help it fulfill its commitments under the Kyoto Protocol on climate
change. This directive defines and establishes a GHG emissions allowance trading scheme within the European Union, i.e., it caps
carbon dioxide emissions from installations involved in energy activities, the production and processing of ferrous metals, the cement
and lime industries and the pulp, paper and board production businesses. Installations in these sectors have to monitor their emissions
of CO2 and surrender every year allowances (the right to emit one metric ton of CO2) that cover their emissions. Allowances are
issued by member states according to their National Allocation Plans, or NAPs. The NAPs not only set the total number of allowances
for a given phase, but also define how they are allocated among participating installations. So far most allowances have been allocated
for free, but some member states sell up to 10% of their total allowance volume in auctions or on exchanges. Allowances are tradable
so as to enable companies that manage to reduce their emissions to sell their excess allowances to companies that exceed their
allocated quota. Failure to meet the emissions caps can subject a company to heavy penalties.
Companies can also use credits issued under the flexible mechanisms of the Kyoto protocol to fulfill their European obligations.
Credits for emission reduction projects obtained under these mechanisms are recognized, up to specified levels, under the ETS as
allowances substitutes. The main source of those credits are projects registered under the so-called Clean Development Mechanism
(“CDM”), but Joint Implementation (“JI”) credits are also eligible; the difference between these credits is dependent on which country
is hosting the project: CDM projects are implemented in developing countries, JI projects in developed ones.
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