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essence
the
CEMEX 2000 ANNUAL REPORT

Table of contents

  • Page 1
    the essence CEMEX 2 0 0 0 A NNUA L R EPOR T

  • Page 2
    ... years. 22 Management discussion and analysis Reviews the company 's 2000 results in the context of CEMEX's strategy and business model. 26 Global review of operations Discusses performance and value initiatives in CEMEX's major markets. 35 Financial statements Provides audited fi nancial data...

  • Page 3
    this is our essence

  • Page 4
    ... by dividing by the weighted-average inflation factor of 2.36% (1.0236) and then multiplying by the December 31, 1999, exchange rate of Ps 9.51. 1 Based on 1.375 billion CPO shares for 2000 and 1.256 billion CPO shares for 1999. Each ADS represents five CPO shares. 10-year EBITDA growth of 2 20%

  • Page 5
    Assets millions of US dollars Consolidated net sales millions of US dollars Consolidated net income millions of US dollars 1,096 15,759 11,864 10,... 615 619 1,077 1,029 868 842 868 3,848 3,438 1,706 1,305 178 CEMEX's diversification strategy continues to deliver stable and profitable growth.

  • Page 6

  • Page 7
    ... Zambrano Chairman of the Board and Chief Executive Officer EBITDA & sales billions of US dollars 5.6 4.8 4.3 3.8 3.4 2.9 2.6 2.2 2.1 1.1 1.2 Southdown, now proudly operating as CEMEX, makes perfect sense given our business model and strategy. It provides a strong and stable source of free cash...

  • Page 8
    ... America's principal online exchange for indirect goods and services. In Neoris, CxNetworks' newly formed U.S.-based subsidiary, we have tapped the tremendous value inherent in Cemtec, our IT arm, and merged it with four IT companies in Argentina, Brazil, Spain, and Venezuela. Neoris will capitalize...

  • Page 9
    ... From the ten-year stock option plan, which we began in 1995, to our recent shareholder value initiatives, we've based management's variable compensation on total business and capital return models. These programs help to ensure that we continue to generate greater shareholder value. I want to thank...

  • Page 10
    balanced 8 the essentials growth portfolio

  • Page 11
    CEMEX strikes a strategic balance between natural market growth and selective geographic diversification. This dual approach enables the company to generate profitable growth in a dynamic and consolidating global industry. CEMEX generates one of the highest operating free cash ï¬,ows in the ...

  • Page 12
    ... intangible asset. The company's branded cement products, together with its full array of value-added services, have generated higher cash ï¬,ow margins, steadier financial performance, and stronger market positions. Balanced Business Model vision Satisfy customers' global building needs and...

  • Page 13
    ... that use bagged cement over bulk, enabling CEMEX to brand its products. implementation 1. Leverage CEMEX's core cement and ready-mix franchise; 2. Concentrate on dynamic markets; and 3. Maintain high growth by applying free cash ï¬,ow to selective investments that further the company's geographic...

  • Page 14
    knowledge through technology 12 leveraging the essentials

  • Page 15
    ... the way, transforming itself from a conventional to a digital enterprise. CEMEX has long used information technology (IT) to streamline its operations, provide value-added customer services, and generate value Defin imple e an me for its stakeholders. CEMEX's e-groups are the key element to manage...

  • Page 16
    ...: 1. deepen customer relationships, 2. bring the supply chain online, and 3. develop a portal with tools that enhance employee efficiency and productivity. To manage all of its external e-business efforts, CEMEX launched CxNetworks in September 2000. Its mission is to leverage the company's assets...

  • Page 17
    ... all of CEMEX's production facilities. 1993 Cemtec is established to serve as CEMEX's in-house IT service supplier. 1995 The company develops a digital system, Dynamic Synchronization of Operations, to more efficiently manage and fulfill customer orders. 2000 CEMEX starts its internal e-enabling...

  • Page 18
    energy management efficient the essentials

  • Page 19
    ...the US Gulf Coast constant 1999 us dollars/ millions of btus Natural gas Heavy fuel oil CEMEX's efficient energy management ensures a stable supply of relatively CEMEX generates one of the low-cost highest operating free fuel, cash such ï¬,ow as petcoke in the industry. and coal. Coal Petcoke 17

  • Page 20
    ...TEG) self-supply project in Mexico with a twin plant -whose power offtaker is Mexican mining company Peñoles- guaranteeing very low electricity costs due to economies of scale. TEG Power Project vision Provide a sustainable competitive advantage in the energy-intensive global cement industry goal...

  • Page 21
    ... a diversified fuel structure, every CEMEX cement plant has at least two sources of energy. implementation 1. CEMEX contracts with a consortium that absorbs all financing, construction, and operating risks associated with the project; 2. CEMEX will supply the petcoke to fuel the project; and...

  • Page 22
    ... share and per-share amou nts) selected consolidated 1990 Income Statement Information Net Sales Cost of Sales (1) Gross Profit Operating Expenses Operating Income Financial Expense Financial Income Comprehensive Financing (Cost) Income, Net (2) Other Income (Expenses) Net Income Before Taxes...

  • Page 23
    ... 2000, CEMEX anticipated the exercise of its call option and terminated this transaction. During the life of the transaction, the company included the cost of retaining its option as part of the financial interest. 4) O n April 28, 1994, CEMEX declared a stock split of three shares per each share...

  • Page 24
    ... company management CEMEX's operations and commercial relationships The Business CEMEX is one of the three largest cement companies in the world, with more than 77 million metric tons of production capacity. It is also the world's largest trader of cement and the leading producer of white cement...

  • Page 25
    ...SALES % OF TOTAL ASSETS PRODUCTION CAPACITY MILLIONS METRIC TONS/ YEAR CEMENT PLANTS OWNED CEMENT PLANTS MINORITY PART. READY- MIX PLANTS LAND DISTRIBUTION CENTERS MARINE TERMINALS Mexico U.S. Venezuela and Dominican Republic Colombia Central America and the Caribbean Spain Egypt Philippines...

  • Page 26
    ... of the consumption cycle. Earnings per share declined in 2000 due to the greater number of shares outstanding resulting from the Dividend Election Program. The Southdown deal The business model is illustrated by the recent acquisition of Southdown, Inc. Together, CEMEX and Southdown will achieve...

  • Page 27
    ... branded cement products and its full array of value-added services deliver greater profitability, stable financial performance, and more robust market positions. In November 2000, CEMEX closed its acquisition of Southdown, now a CEMEX operation. 2000 consolidated results The year 2000 was CEMEX...

  • Page 28
    ... continue to offer exceptional upside potential. Mexico Mexico's GDP grew 6.9% in 2000 due to higher private consumption, primarily in the service and commercial sectors, driven by higher employment rates and the recovery of salaries in real terms. CEMEX Mexico's domestic gray cement volume grew...

  • Page 29
    ...CEMEX Mexico's petcoke conversion program is a once-in-alifetime business opportunity.With eight cement plants already converted, the program is well under way.This initiative drove the development of CEMEX'sTermoelectrica del Golfo (TEG) self-supply power project in Mexico. Its generating capacity...

  • Page 30
    ... plants and 46 cement distribution terminals serving 27 states. Headquartered in Houston, Texas, Southdown also produces and distributes ready-mix concrete products in California and Florida, as well as aggregates in California, Florida, and Kentucky. The combination of Southdown and CEMEX...

  • Page 31
    ...Union's fastest-growing economies. In 2000, Spain's GDP increased 4.1% and, although the pace slowed during the second half of the year, is still driven by moderate private consumption and investment. CEMEX's operations in Spain achieved record domestic cement and ready-mix sales volume growth of 12...

  • Page 32
    ...the country's cement dealers, the company's retailer-focused marketing is broadening its customer base, improving its product mix, and enabling it to better tailor its offerings to meet the needs of its ready-mix customers. Egypt Homes built with our local cement brands help people around the world...

  • Page 33
    ... for growth, CEMEX Egypt is upgrading its production lines to increase production capacity to 5 million metric tons by year-end 2002. It also plans to build a new plant in the Nile Delta, the region with the nation's highest cement consumption. Trading In 2000, the company's international trading...

  • Page 34
    ...2000, CEMEX announced an investment plan to further develop the company's Egyptian operations. The plan includes an upgrade of the production capabilities of its Egyptian subsidiary, Assiut Cement Company, and the construction of a new manufacturing facility in southern Egypt. The initial investment...

  • Page 35
    ...quarter 2000 and December 2001. The program, which covers CEMEX CPO s listed on the Mexican stock exchange under the ticker CEMEX CPO , will be funded with resources from the R epurchase R eserve established by the company. These resources represent less than 50% of CEMEX's estimated free cash ï¬,ow...

  • Page 36
    ...to acquire up to 72,100,000 CEMEX CPO s. As of December 31, 2000, options to aquire a total of 56,468,650 CPO s remain outstanding. As of December 31, 2000, the Voluntary Employee Stock O ption Plan (VESOP ) was composed of 22,077,880 five-year options on CEMEX CPO shares with an escalating strike...

  • Page 37
    financial statements 36 Auditors' report 37 Management responsibility for internal control 38 Consolidated balance sheets 40 Consolidated statements of income 41 Consolidated statements of changes in financial position 42 Balance sheets (parent company only) 44 Statements of income (parent company...

  • Page 38
    ... which were audited by other auditors.The financial statements of these subsidiaries reflect total assets of 2% and 11% in 2000 and 1999,respectively,and total revenues constituting 0%,9% and 9% in 2000,1999 and 1998,respectively,of the related consolidated totals.The parent company's investment in...

  • Page 39
    ... an internal audit function that operates at international level and reports its findings to management throughout the year. Management believes that, for the year ended December 31 2000, the internal control system of the Company provides reasonable assurance that material errors or irregularities...

  • Page 40
    consolidated balance sheets CEMEX,S.A.DE C.V.AND SUBSIDIARIES (Thousands of constant Mexican pesos as of Decem ber 31,2000) DECEMBER 31, ASSETS CURRENT ASSETS Cash and tem porary investm ents Trade accounts receivable,less allow ance for doubtful accounts of $ 436,710 in 2000 and $523,122 in 1999 ...

  • Page 41
    ...10) Trade accounts payable Other accounts payable and accrued expenses $ 2000 1999 19,709,210 4,576,769 4,206,204 5,383,...stock-historical cost basis Com m on stock-accum ulated inflation adjustm ents Additional paid-in capital Deficit in equity restatem ent Cum ulative initial deferred incom e tax...

  • Page 42
    ...804,724) (6,516,849) Operating Income 15,909,853 13,983,464 11,948,447 Comprehensive financing cost: Financial expense Financial incom e Foreign exchange result,net Monetary position result Net com prehensive financing cost (4,491,268) 162,488 (289,489) 2,946,209 (1,672,060) (4,748,741) 396,864...

  • Page 43
    ... payable,net,excluding foreign exchange effect (note 2D) Investm ent by subsidiaries Dividends paid Issuance of com m on stock from reinvestm ent of dividends Issuance of preferred stock by subsidiaries Other financing activities,net Acquisition of shares under repurchase program Issuance of com...

  • Page 44
    balance sheets CEMEX,S.A.DE C.V. (Thousands of constant Mexican pesos as of Decem ber 31,2000) DECEMBER 31, ASSETS CURRENT ASSETS Cash and tem porary investm ents Other receivables (note 3) Related parties receivables (note 11) $ 2000 1999 54,773 656,718 5,642,007 59,813 22,880 735,380 Total ...

  • Page 45
    ... payable and accrued expenses Related parties payables (note 11) $ 2000 1999 3,299,660 4,377,100 2,683,950 745,565...stock-historical cost basis Com m on stock-accum ulated inflation adjustm ents Additional paid in capital Deficit in equity restatem ent Cum ulative initial deferred incom e tax...

  • Page 46
    ... and business assets tax,net (note 15) 852,007 70,657 1,919,993 Net income $ 9,613,442 9,467,323 8,148,720 Basic Earnings per Share (see notes 2A and 18) Diluted Earnings per Share (see notes 2A and 18) $ $ 2.33 2.32 2.51 2.50 2.15 2.15 See accompanying notes to financial statements...

  • Page 47
    ...) 134,628 (1,723,206) Net resources (used in) provided by operating activities (4,721,698) (5,413,888) 345,867 Financing activities Proceeds from bank loans (repaym ents),net Notes payable Issuance of com m on stock Acquisition of shares under repurchase program Dividends paid Issuance of com m on...

  • Page 48
    ... pesos as of Decem ber 31,2000) COMMON STOCK SERIES A SERIES B ADDITIONAL PAID-IN CAPITAL Balances at December 31, 1997 Dividends ($0.40 pesos per share) Appropriation of net incom e from prior year Issuance of com m on stock (note 13B) Result from holding nonm onetary assets Restatem ent of...

  • Page 49
    ... IN EQUITY RESTATEMENT CUMULATIVE INITIAL DEFERRED INCOME TAX EFFECTS RETAINED EARNINGS NET INCOME TOTAL MAJORITY ... - - - - (1,931,853) 8,148,720 - - - - (8,148,720) - - - (100,556) - 96,136 252,761 (3,282,016) - - - - - (100,556) - 96,136 252,761 (3,282,016) - 4,575,292 - - - - - - - -...

  • Page 50
    ...thousands of constant pesos as of the balance sheet date. On September 14, 1999, the Company concluded an exchange offer and a stock split for new Ordinary Participation Certificates ("CPO's"), of its old series "A"and series "B"shares, as well as its old CPO's.As a result, holders of the old series...

  • Page 51
    ...6. Latin Networks Holding is the controlling entity of companies engaged in the development of the Company's Internet strategy. D) FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS Transactions denominated in foreign currencies are recorded at the exchange rates...

  • Page 52
    ... of the assets'origin country and the change in the foreign exchange rate between the country of origin currency and the functional currency. Net comprehensive financing cost incurred during the construction or installation period of fixed asset additions is capitalized, as part of the value of the...

  • Page 53
    ... contracts, options and futures in order to reduce its exposure to market risks from changes in interest rates, foreign exchange rates, the price of the Company's shares, the price of energy, as well as to impact future cash flows and/ or as a financing alternative. Some financial instruments have...

  • Page 54
    ... securities and assets for lines of business other than the Company's cement business, mainly originated from (i) non-cement related assets acquired in the purchase of international subsidiaries, and (ii) assets held for sale including land and buildings received from customers as payment of trade...

  • Page 55
    ... statements include the balance sheet of Southdown as of December 31, 2000 and the results of the two-month period ended December 31, 2000. II. In October 2000, as part of the capitalization agreements with institutional investors in Asia, entered into during 1999 to co-invest in Cemex Asia Holdings...

  • Page 56
    ... interest in Cementos Bio Bio, S.A., Chile's largest cement producer.The total of this transaction amounted to approximately U.S. dollars 34 million. Certain balance sheet and income statement condensed financial information of the companies acquired during 2000 and 1999 is presented on a stand...

  • Page 57
    ... consolidated long-term debt as of December 31, 2000 and 1999, is summarized as follows: 2000 RATE 1999 RATE A) Bank Loans 1. Syndicated loans in foreign currency,due from 2001 to 2006 2. Bank loans in foreign currency, due from 2001 to 2007 3. Revolving line of credit in foreign currency,due 2000...

  • Page 58
    ... derivative instruments are recognized in the balance sheet as part of long-term debt, and in the income statement as part of the financial expense and the foreign exchange result, according to its components. As of December 31, 2000 and 1999, the Company had negotiated interest rate swaps for up to...

  • Page 59
    ...should not be viewed in isolation, but rather in relation to the market values of the underlying transactions, and as part of the overall Company exposure to fluctuations in interest rates and foreign exchange rates.The notional amounts of derivative instruments, do not necessarily represent amounts...

  • Page 60
    ... the sale of assets, maintenance of controlling interest on certain subsidiaries, establish liens, and require the Company to comply with certain financial ratios.When a default event has occurred, the Company has obtained the respective waivers. 11.- BALANCES AND TRANSACTIONS WITH RELATED PARTIES...

  • Page 61
    ... on plan assets Actuarial differences Acquisitions Foreign exchange fluctuations and inflation adjustm ents Em ployer contribution Benefits paid from the funds Fair value of plan assets at end of year Amounts recognized in the balance sheets consist of: Funded status Unrecognized prior service cost...

  • Page 62
    ... Option Plan ("ESOP") for shares of the variable portion of the capital stock. Through this program, the Company grants to eligible executives, designated by a Technical Committee, stock option rights to subscribe up to 72,100,000 new CPO's.As of December 31, 2000 and 1999 the stock option balances...

  • Page 63
    ... generated by the subsidiary of the Company in Spain of $(610,648), $(1,921,186) and $463,668, in 2000, 1999 and 1998, respectively. (1) Foreign exchange results from the financing identified with the acquisitions of foreign subsidiaries in accordance with Bulletin B-15. F) PREFERRED STOCK...

  • Page 64
    ... its net investment in foreign subsidiaries, as well as equity forwards contracts to hedge the price of its common shares and as a financing alternative.These instruments have been negotiated with major domestic and international institutions and corporations, which have a solid financial capacity...

  • Page 65
    15.- INCOME TAX (IT), BUSINESS ASSETS TAX (BAT), EMPLOYEES' STATUTORY PROFIT SHARING (ESPS) AND DEFERRED INCOME TAXES In accordance with present tax legislation in Mexico, corporations must pay either income tax ("IT") or business assets tax ("BAT") depending on which amount is greater for their ...

  • Page 66
    ... to significant portions of the deferred tax assets and liabilities at December 31, 2000 are presented below: CONSOLIDATED Deferred tax assets: Tax loss carryforw ards and other tax credits Accounts payable and accrued expenses Trade accounts receivables Property,plant and equipm ent Others Total...

  • Page 67
    ... condensed financial information of the Company by geographic area for the years ended December 31, 2000, 1999 and 1998: NET SALES OPERATING INCOME 2000 1999 1998 2000 1999 1998 Mexico $ Spain United States Venezuela Colom bia Caribbean and Central Am erica Philippines Egypt Other Elim...

  • Page 68
    ... operating unit, net sales between operating units are presented under the caption "eliminations". TOTAL ASSETS INVESTMENT IN FIXED ASSETS (2) 2000 1999 2000 1999 Mexico Spain United States Venezuela Colom bia Caribbean and Central Am erica Philippines Other Asian Egypt Others(1) Elim inations...

  • Page 69
    ..." are not by their nature credits.The companies involved are using all the available defense actions granted by Law in order to cancel the tax claims. On January 26, 2000, the Company obtained a favorable resolution by the Domestic Taxes and Customs Office of Colombia ("DIAN"), dismissing special...

  • Page 70
    ... not have a material effect on its financial condition or results of operation. In October 2000, a subsidiary of Southdown received a claim from the general contractor for the recent expansion of its cement plant located in Louisville, Kentucky.The contractor is claiming approximately U.S. dollars...

  • Page 71
    ... capital expenditures, taxes paid, net working capital investment, dividends, and other cash items. Ready-mix concrete is a mixture of cement, aggregates, and water. It is a building material that is produced in batching plants and delivered directly to the building site. Stringent controls...

  • Page 72
    ... Brittingham Sumner Lorenzo Milmo Zambrano Armando J. García Segovia Rodolfo García Muriel Rogelio Zambrano Lozano Roberto Zambrano Villarreal Bernardo Quintana...Directors Jorge García Segovia Tomás Brittingham Longoria Mauricio Zambrano Villarreal Examiner Luis Santos De la Garza Alternate ...

  • Page 73
    ... in Spain, the Philippines, Indonesia, Egypt, Bangladesh, and Taiw an. A rmando J . G arc í a, 4 8 Executive Vice President of Development Mr. García, w ho originally joined CEMEX in 1975 and rejoined the company in 1985, is a graduate of ITESM and has an M.B.A. from the University of Texas. He...

  • Page 74
    ... Street, Nasr City Cairo, Egypt Phone: (202) 407-8600 Fax: (202) 260-3325 Houston 1200 Smith Street, Suite 2400 Houston, Texas 77002 U.S.A. Phone: (713) 650-6200 Fax: (713) 653-6815 Indonesia Jakarta Stock Exchange Building Tower II, 24th Floor Sudirman Central Business District JI. Jend. Sudirman...

  • Page 75
    ...(BMV), Mexico New York Stock Exchange (NYSE), U.S. Share series: CPO shares (representing two A shares and one B share) BMV ticker symbol: CEMEX CPO NYSE ticker symbol: CX Media relations contact: [email protected] Phone: (528) 152-2739 Fax: (528) 152-2750 Investor relations contact: [email protected]...