Cemex 2004 Annual Report Download

Download and view the complete annual report

Please find the complete 2004 Cemex annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 82

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82

Building the future
TM

Table of contents

  • Page 1
    Building the future TM

  • Page 2
    ...'s leaders today Our acquisition of RMC Financial highlights Letter to stockholders Selected consolidated financial information Management discussion and analysis Financial statements The terms we use Management team Investor and media information 10 12 14 18 20 32 75 76 78 CEMEX vs. S&P 500 INDEX...

  • Page 3
    ... of 1999, when we listed our shares on the New York Stock Exchange, the total compounded annual return on our stock has averaged more than 13% per year. We have also allocated our capital investments wisely and realized an average return on capital employed of close to 12% for the past five years...

  • Page 4
    ... related parties-our customer, our carrier, and us; 2) allows us to monitor, replenish, and optimize cement-inventory levels at our customers' ready-mix plants; and 3) keeps our customers apprised of the status of their cement deliveries. Across our international network, we tailor our products...

  • Page 5
    Our strategy in action We tailor our initiatives to suit the specific needs of the different customer segments we serve.

  • Page 6
    Our strategy in action We leverage our strong cement franchise to grow our existing markets, expand our share of the construction industry, and take advantage of opportunities across the value chain.

  • Page 7
    ... such as paving and residential construction, cement is more durable, is easier to maintain, and can cost less overall than other products. In Mexico-our largest market-we are going the extra mile to stimulate municipalities' and developers' use of our ready-mix concrete for paving roads. For...

  • Page 8
    ...and other terms but also a considerable reduction in our working capital. In 2004 our long-standing commitment to flexible and efficient energy management paid off again. Despite the year's volatile global energy environment, during which energy prices rose considerably, our average energy cost per...

  • Page 9
    Our strategy in action 7 Our ongoing initiatives in procurement, energy, and information technology enable us to control our costs and manage our company with greater agility.

  • Page 10
    Our strategy in action Our employees are disciplined, motivated people who possess a passion for change. They are the key to our success.

  • Page 11
    ... think globally and operate locally. Our global leadership and international management programs prepare young executives to move into top management positions within our organization. Our online courses- from language instruction to project and customer-relationship management- offer employees the...

  • Page 12
    ...In addition, our increased geographic diversification in Europe, North America, and Asia will enhance our cash-flow stability and lower our weighted-average cost of capital. Second, the transaction will enable us to maintain our solid capital structure. Because of our financial discipline and track...

  • Page 13
    ... Eastern Europe-including Poland, the Czech Republic, and Hungary, whose consumption of cement and related products will significantly increase as the process of convergence with the European Union accelerates. 12 11 On a combined basis, the RMC acquisition will allow us to continue our long-term...

  • Page 14
    ...The exchange rates used to convert results for 2003 and 2004 are 11.24 and 11.14 Mexican pesos per US dollar, respectively. Based on an average of 332.9 and 315.2 million American depository receipts (ADRs) for 2004 and 2003, respectively. Net debt for 2004 includes the acquisition of 50 million RMC...

  • Page 15
    ... underscores the strength of our business model. Over the past 10 years, we have increased our sales and operating income at compounded annual growth rates of 15% and 13%, respectively. 13 CONSOLIDATED NET SALES millions of US dollars 6923 5621 4828 4315 3788 3365 2564 2101 7164 6543 8149...

  • Page 16
    ... the busiLorenzo H. Zambrano, Chairman of the Board and Chief Executive Officer ness cycle tell you a lot about our company, our people, and our business strategy. So what is our strategy for growth? We leverage our strong cement franchise to grow our existing markets, expand our share of...

  • Page 17
    ... manage our company with greater agility. For example, our standardized information-technology platform and business processes allow us to work more closely with our customers, particularly those in the high-value-added segment of the marketplace; identify and share best practices across our global...

  • Page 18
    ...our best practices. Our highly disciplined investments create value for stockholders, customers, and employees alike. In that light, our recent acquisition of RMC is the right acquisition, at the right time, on the right terms. Our stronger positions across the cement value chain, larger scale, and...

  • Page 19
    ... solutions that offer an enhanced value proposition to our customers. We will complement our Latin American base with important European positions, strengthen our company's U.S. operations, and open new high-growth markets-such as Eastern Europe. Furthermore, we will expand the opportunities...

  • Page 20
    ... 153 1,178 292 4.14 1.02 Dividends per ADR Balance-sheet information Cash and Temporary Investments Net Working Capital Total Assets Short-Term Debt Long-Term Debt Total Liabilities Minority Interest Majority Interest Total Stockholders' Equity Book Value per ADR (8) (4)(5)(6) (12) 484 528 4,093...

  • Page 21
    ... to the 2004 annual report's Financial Statements). 6. In 1998 a subsidiary of CEMEX in Spain issued U.S.$250 million of capital securities at an annual dividend rate of 9.66%. In April 2002, through a tender offer, U.S.$184 million of capital securities were redeemed. The amount paid to the holders...

  • Page 22
    20

  • Page 23
    ... the end of 2004. Today we are strategically positioned in the Americas, Europe, Asia, and Africa. Our operations network produces, distributes, and markets cement, ready-mix concrete, aggregates, and clinker to customers in more than 30 countries, and-as one of the world's largest cement traders-we...

  • Page 24
    ... by product SALES DISTRIBUTION by country 2 3 4 8 3 3 ASSET DISTRIBUTION by country 2 3 6 7 45 19 72 36 5 4 33 17 24 17 23 â- US â- Colombia â- Asia â- Spain â- Central America & Caribbean â- Others Cement Ready-mix Aggregates Others â- Mexico â- Venezuela â- Egypt 22...

  • Page 25
    ..., accounting, purchasing, customer-management, budget-preparation, and control systems-to help us lower our costs. We have also taken various steps over the past several years to improve our overall product quality and the environmental impact of our operations. With each international acquisition...

  • Page 26
    ... from our prior executive stock-option program. officer and our executive vice president of planning and finance of the information we present in CEMEX's periodic reports to the Securities and Exchange Commission; 2) a system to ensure that relevant information reaches senior management in a timely...

  • Page 27
    ... our strong operating performance, a significantly lower foreign-exchange loss, and the positive effect of our derivative positions. Free cash flow increased 29% to U.S.$1.48 billion, which was used primarily to reduce debt. We also used our free cash flow to acquire minority interests in CEMEX Asia...

  • Page 28
    Global review of operations 26 Mexico In 2004 CEMEX Mexico's net sales reached U.S.$2.92 billion, an 11% increase compared with 2003, and EBITDA increased 8% to U.S.$1.26 billion. 9%-while our average price was 5% higher than in 2003-and our ready-mix volumes and prices increased 8% and 11%, ...

  • Page 29
    Favorable demographics and the need for housing and infrastructure are the main drivers of growth in our emerging-market countries. 27 Spain Our net sales in Spain increased 14% to U.S.$1.36 billion in 2004, supported by increased cement and ready-mix volumes and prices as well as the euro's ...

  • Page 30
    ... 2003. These increases were due mainly to the recovery of prices throughout the region. In 2004 our cement volume remained flat, and our ready-mix volume decreased 1%. In the Dominican Republic, we progressed on the installation of a new kiln with an annual installed capacity of 1.6 million metric...

  • Page 31
    ... of the largest in the world-helps us to optimize our worldwide production capacity, direct excess cement to where it is most needed, and explore new markets without the necessity of making immediate capital investments. Egypt Our Egyptian operations reported a year-over-year net sales increase of...

  • Page 32
    ... of RMC On September 27, 2004, CEMEX announced the recommended acquisition of RMC Group p.l.c.-one of Europe's largest producers of cement and aggregates and the world's largest supplier of ready-mix concrete-for U.S.$4.1 billion in cash. Including the assumption of debt, the enterprise value of...

  • Page 33
    ...risk profile associated with changes in interest rates and foreign-exchange rates of debt agreements; reduce financing costs; and hedge forecasted transactions, net assets in foreign subsidiaries, and CEMEX's stock-option plans. Until December 31, 2004, under Mexican GAAP ("Bulletin C-2"), companies...

  • Page 34
    ... financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Mexico. Those standards require that we plan...

  • Page 35
    ... control system and Monterrey, N.L., Mexico January 15, 2005. performance of tests of the accounting information records, as they considered necessary in order to express their opinion. Their report is presented separately. Lorenzo H. Zambrano Chairman of the Board and Chief Executive Officer

  • Page 36
    CEMEX, S.A. DE C.V. AND SUBSIDIARIES (Millions of constant Mexican pesos as of December 31, 2004) Consolidated balance sheets DECEMBER 31, 34 ASSETS CURRENT ASSETS Cash and investments (note 4) Trade accounts receivable, less allowance for doubtful accounts (note 5) Other receivables (note 6) ...

  • Page 37
    ... maturities of long-term debt (note 12) Trade accounts payable Other accounts payable and accrued expenses (note 6) Total current liabilities LONG-TERM DEBT (NOTE 12) Bank loans Notes payable Current maturities of long-term debt Total long-term debt OTHER NONCURRENT LIABILITIES Pension and other...

  • Page 38
    ...DECEMBER 31, 2004 Net sales Cost of sales Gross profit Operating expenses: Administrative Selling Total operating expenses Operating Income Comprehensive financing result: Financial expense Financial income Results from valuation and liquidation of financial instruments Foreign exchange result, net...

  • Page 39
    ... foreign exchange effect Bank loans financing the acquisition of RMC Group p.l.c. Investment by subsidiaries Liquidation of appreciation warrants Dividends paid Issuance of common stock from reinvestment of dividends Issuance of common stock under stock option programs Repurchase of preferred stock...

  • Page 40
    CEMEX, S.A. DE C.V. (Millions of constant Mexican pesos as of December 31, 2004) Balance sheets DECEMBER 31, 38 ASSETS CURRENT ASSETS Cash and investments Other receivables (note 6) Related parties receivables (note 14) Total current assets INVESTMENTS AND NONCURRENT RECEIVABLES (note 9) ...

  • Page 41
    ... of long-term debt Long-term related parties payables (note 14) Total long-term debt Other noncurrent liabilities (note 13) TOTAL LIABILITIES STOCKHOLDERS' EQUITY (note 16) Common stock-historical cost basis Common stock-accumulated inflation adjustments Additional paid-in capital Deficit in...

  • Page 42
    ... 31, 2004 Equity in income of subsidiaries and affiliates Rental income License fees Total revenues (note 14) Administrative expenses Operating income Comprehensive financing result: Financial expense Financial income Results from valuation and liquidation of financial instruments Foreign exchange...

  • Page 43
    ... paid Issuance of common stock from reinvestment of dividends Issuance of common stock under stock option plan Disposal (acquisition) of shares under repurchase program Other financing activities, net Resources (used in) provided by financing activities Investing activities Long-term related...

  • Page 44
    ..., S.A. DE C.V. AND CEMEX, S.A. DE C.V. AND SUBSIDIARIES (Millions of constant Mexican pesos as of December 31, 2004) Statements of changes in stockholders' equity ADDITIONAL PAID-IN CAPITAL COMMON STOCK Balances at December 31, 2001 42 3,677.4 2.4 0.1 (0.3) - - - 3,679.6 3.6 0.1 0.3 - - - 3,683...

  • Page 45
    DEFICIT IN EQUITY RESTATEMENT CUMULATIVE INITIAL DEFERRED INCOME TAX EFFECTS RETAINED EARNINGS TOTAL MAJORITY INTEREST MINORITY INTEREST TOTAL STOCKHOLDERS' EQUITY (61,933.4) - - - - 269.6 (8,239.9) (69,903.7) - - - - (2,865.9) (331.7) (73,101.3) - - - - (3,274.0) 2,649.4 (73,725.9) (6,100.2...

  • Page 46
    ... of Europe's largest producers of cement and one of the world's largest supplier of ready-mix concrete and aggregates. As part of the acquisition process in 2004, CEMEX acquired approximately 18.8% of RMC shares for £432 million (U.S.$786 million). In 2003, according to public information, RMC sold...

  • Page 47
    ... Rican Cement Company, Inc. CEMEX Asia Holdings Ltd. Solid Cement Corporation APO Cement Corporation CEMEX (Thailand) Co. Ltd. 1. 1 2 3 4 5 6 6 7 Mexico Spain Venezuela United States Costa Rica Egypt Colombia Panama Dominican Republic Puerto Rico Singapore Philippines Philippines Thailand 100...

  • Page 48
    ... exchange rate at the end of the reporting period for balance sheet and income statement accounts. The peso to U.S. dollar exchange rate used by CEMEX is an average of free market rates available to settle its foreign currency transactions. E) CASH AND INVESTMENTS (note 4) Investments include fixed...

  • Page 49
    ... rates and foreign exchange rates of debt agreements, as a vehicle to reduce financing costs (note 12) and as an alternative source of financing (note 18), as well as hedges of: (i) forecasted transactions, (ii) net assets in foreign subsidiaries and (iii) executive stock option programs. These...

  • Page 50
    ...of the foreign investment. c) 48 Beginning in 2001, changes in the estimated fair value of those equity forward contracts that cover the executive stock option programs are recorded through the income statement in the comprehensive financing result, as part of the costs related to such programs. The...

  • Page 51
    ... in which the Company operates, changes in projected use or in technology, as well as expectations of operating results for each cash generating unit, provide elements indicating that the book value may not be recovered, in which case an impairment loss is recorded in the income statement of the...

  • Page 52
    ... consists of: 2004 Cash and bank accounts Fixed-income securities Investments in marketable securities $ 1,615.7 1,720.4 477.4 3,813.5 2003 1,767.1 1,367.4 345.0 3,479.5 $ 5. TRADE ACCOUNTS RECEIVABLE The Company evaluates each of its customers' credit and risk profiles in order to establish the...

  • Page 53
    ...of (i) non-cement related assets acquired in business combinations, (ii) various assets held for sale received from customers as payment of trade receivables, and (iii) real estate held for sale. 9. INVESTMENTS AND NONCURRENT RECEIVABLES A) INVESTMENTS IN SUBSIDIARIES AND AFFILIATED COMPANIES As of...

  • Page 54
    ... of ready-mix concrete, and a cement plant and quarry with an annual production capacity of 560 thousand tons located in Dixon, Illinois, United States. The operating results of MRT and the Dixon plant are included in the consolidated financial statements since the respective acquisition dates...

  • Page 55
    ... indicated before, CEMEX will evaluate its investment in conformity with its accounting policies. As of December 31, 2004 and 2003, CEMEX used the best information available in order to valuate and update its investment in Gresik. B) NONCURRENT ACCOUNTS RECEIVABLE Consolidated amounts include assets...

  • Page 56
    ... RATE WEIGHTED EFFECTIVE RATE CARRYING AMOUNT 2 RELATION TO DERIVATIVES 1 AMOUNT SUBJECT TO DERIVATIVES % SUBJECT TO DERIVATIVES AS OF DECEMBER 31, 2004 Short-term bank loans Lines of credit in Mexico Lines of credit in foreign countries Short-term notes payable Foreign commercial paper program...

  • Page 57
    ... WEIGHTED EFFECTIVE RATE CARRYING AMOUNT 2 RELATION TO DERIVATIVES 1 AMOUNT SUBJECT TO DERIVATIVES % SUBJECT TO DERIVATIVES Short-term bank loans Lines of credit in Mexico Lines of credit in foreign countries Short-term notes payable Mexican commercial paper programs Foreign commercial paper...

  • Page 58
    ... to a group of insurance companies and pension funds in the United States. Proceeds obtained from this transaction were used to refinance short-term debt and for other general corporate purposes. In October 2004, CEMEX completed a tender offer for its 9.625% Notes due in 2009 of U.S.$200 million and...

  • Page 59
    ... 31, 2004 and 2003, information with respect to interest rate swaps ("IRS") related to short-term and long-term financial debt is summarized as follows: (U.S. DOLLAR MILLIONS) RELATED DEBT NOTIONAL AMOUNT DEBT CURRENCY MATURITY DATE CEMEX RECEIVES* CEMEX PAYS EFFECTIVE RATE ESTIMATED FAIR VALUE...

  • Page 60
    ... debt has been effectively exchanged. As of December 31, 2004 and 2003, information with respect to the CCS is summarized as follows: CURRENCIES AMOUNT IN ORIGINAL NEW AMOUNT CURRENCY INTEREST RATES CEMEX RECEIVES * CEMEX PAYS * EFFECTIVE RATE ESTIMATED FAIR VALUE (AMOUNTS IN MILLIONS) RELATED DEBT...

  • Page 61
    ... cash flows exchange for interest rates, were presented as an adjustment of the related financing interest payable. The remaining net assets of U.S.$28.7 million ($319.7) in 2004 and U.S.$57.2 million ($683.0) in 2003 were presented in the consolidated balance sheet within short-term and long-term...

  • Page 62
    ... CEMEX International Finance Co Empresas Tolteca de México, S.A. de C.V. CEMEX Irish Investments Company Limited International Investors LLC Centro Distribuidor de Cemento, S.A. de C.V. CEMEX Asia Pte. Ltd. CEMEX Manila Investments B.V. Sunbelt Trading, S.A. CEMEX Venezuela, S.A.C.A. CEMEX Colombia...

  • Page 63
    ...Return on plan assets Foreign exchange fluctuations and inflation adjustments Employer contributions Extinguishment of obligations Benefits paid from the funds Fair value of plan assets at end of year Amounts recognized in the balance sheets consist of: Funded status Prior service cost Net actuarial...

  • Page 64
    ... five years and all employees meeting the new requirements were given the option to retire. This program ended in May 2003, resulting in the early retirement of 230 employees and the increase of $604.4 in the projected benefit obligation and the non-amortized prior service cost of pensions and other...

  • Page 65
    ...an increase in common stock of $2.6 and in additional paid-in capital of $4,154.2 considering a theoretical value of $0.0333 per CPO, while an approximate cash payment through December 31, 2004 was made for $167.4; and (iii) the cancellation of the corresponding shares held in the Company's treasury...

  • Page 66
    ... paid-in capital. In November and December 2003, CEMEX announced a public offer to purchase in cash up to 90,018,042 warrants in the Mexican Stock Exchange ("MSE"), and warrants represented by American Depositary Warrants ("ADWs"). Each ADW representing five warrants, traded on the New York Stock...

  • Page 67
    ... stock option programs, CEMEX invited employees to exchange their existing options for new options of equal fair value but different characteristics. The new options had an initial exercise price of U.S.$5.05 per CPO, which increases annually at a 7% rate, and includes a mandatory exercise condition...

  • Page 68
    ... of December 31, 2004, a provision of approximately U.S.$50 million has been generated against earnings, representing the net present value of expected payments in connection with the sales restriction contained in the new restricted programs. All costs related to the stock options programs, as well...

  • Page 69
    ... granted under the employee equity programs (note 17). Starting in 2001, changes in the estimated fair value of these contracts have been recognized in the balance sheet against the income statement, as a complement of the costs generated by the option programs. As of December 31, 2004 and 2003, the...

  • Page 70
    ...and are based on estimated settlement costs or quoted market prices. These values should be viewed in relation to the fair values of the underlying instruments or transactions and as part of the Company's overall exposure to fluctuations in foreign exchange rates, interest rates and prices of shares...

  • Page 71
    ... of the main temporary differences that generate the consolidated deferred tax assets and liabilities are presented below: 2004 Deferred tax assets: Tax loss carryforwards and other tax credits Accounts payable and accrued expenses Trade accounts receivable Properties, plant and equipment Others...

  • Page 72
    ...selected condensed financial information of the Company's main business units for the years ended December 31, 2004, 2003 and 2002: NET SALES OPERATING INCOME 2004 Mexico Spain United States Venezuela Colombia Caribbean and Central America Philippines Egypt Others Eliminations Consolidated $ 32,529...

  • Page 73
    ...order to present integrally the operations of each geographic area, net sales between geographic areas are presented under the caption "eliminations". DEPRECIATION AND AMORTIZATION 2004 Mexico Spain United States Venezuela Colombia Caribbean and Central America Philippines Egypt Others Consolidated...

  • Page 74
    ... of gray Portland cement and clinker from Mexico since April 1990. The order is likely to continue for an indefinite period, until the United States of America ("United States") government determines, taking into consideration the World Trade Organization new rules, that conditions for imposing...

  • Page 75
    ...80% of the electrical energy needs of CEMEX in Mexico. The Company is not required to make any capital investment in the project. At December 31, 2004, after eight months of operations, the energy generated by the plant has supplied electricity to 10 cement plants of CEMEX in Mexico, covering 83% of...

  • Page 76
    ... during the service life of the employees, while the accounting rule until December 31, 2004 was to recognize these costs as they were incurred. The other new rules of the revised Bulletin, such as postretirement benefits, health care or life insurance, were already accounted for in accordance...

  • Page 77
    ... net debt and consolidated stockholders' equity. tive purposes and has a wide range of uses as a structural building material. Ready-mix concrete is a mixture of cement, aggregates, and water. Installed capacity is the theoretical annual production capacity of a plant, whereas effective capacity is...

  • Page 78
    ... examiner Fernando Ruiz Arredondo Secretary (not a member of the Board) Ramiro Villarreal Morales Audit committee members Roberto Zambrano Villarreal President Lorenzo Milmo Zambrano Alfonso Romo Garza Tomás Brittingham Longoria José Manuel Rincón Gallardo *Independent members of the Board

  • Page 79
    ... in mechanical engineering and business administration from Tecnológico de Monterrey and an M.B.A. from the University of Texas. He is responsible for managing CEMEX's operations technology, human resources, energy, and information technology. Juan Romero, 47 Víctor M. Romo, 46 Executive Vice...

  • Page 80
    ... ticker symbol: CEMEX CPO NYSE ticker symbol: CX New York office: 590 Madison Ave., 41st floor New York, NY 10022 USA Phone: (212) 317-6000 Fax: (212) 317-6047 Media relations contact: [email protected] Phone: (52-81) 8888-4334 Fax: (52-81) 8888-4417 Web address: Investor relations contact: ir@cemex...

  • Page 81
    ..., and business conditions globally and in the countries in which CEMEX does business; changes in interest rates; changes in inflation rates; changes in exchange rates; the level of construction generally; changes in cement demand and prices; changes in raw material and energy prices; changes in...

  • Page 82
    Building the future TM CEMEX CPO