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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 or 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
_______________________
Date of Report: August 25, 2003
CEMEX, S.A. de C.V.
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(Exact name of Registrant as specified in its charter)
CEMEX Corp.
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(Translation of Registrant's name into English)
United Mexican States
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(Jurisdiction of incorporation or organization)
Av. Ricardo Margain Zozaya #325, Colonia Valle del Campestre
Garza Garcia, Nuevo Leon, Mexico 66265
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F ___
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes ____No X
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b):
N/A
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This report on Form 6-K shall be deemed to be incorporated by
reference into (i) Post-Effective Amendment No. 3 to CEMEX, S.A. de C.V.'s
("CEMEX") Registration Statement on Form F-3 (Registration No. 333-11382)
filed with the Securities and Exchange Commission (the "Commission") on
October 23, 2002, (ii) CEMEX's Registration Statement on Form F-3
(Registration No. 333-86700) filed with the Commission on April 19, 2002,
(iii) CEMEX's Registration Statement on Form S-8 (Registration No. 333-86090)
filed with the Commission on April 11, 2002, (iv) CEMEX's Registration
Statement on Form S-8 (Registration No. 333-83962) filed with the Commission
on March 7, 2002 and (v) CEMEX's Registration Statement on Form S-8
(Registration No. 333-13970) filed with the Commission on September 20, 2001,
and to be a part thereof from the date on which this report is furnished, to
the extent not superseded by documents or reports subsequently filed or
furnished.
Contents
1. Report on CEMEX's results of operations for the six months
ended June 30, 2003 (attached hereto as exhibit 1).
Please note that this report on Form 6-K should be read in
conjunction with CEMEX's annual report on Form 20-F for the year ended
December 31, 2002, which was filed with the Commission on April 8, 2003, and
Amendment No. 1 thereto on Form 20-F/A, which was filed with the Commission on
April 25, 2003.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
CEMEX, S.A. de C.V. has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CEMEX, S.A. de C.V.
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(Registrant)
Date: August 25, 2003 By: /s/ Rafael Garza
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Name: Rafael Garza
Title: Chief Comptroller
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1 Report on CEMEX's results of operations for the six
months ended June 30, 2002.
EXHIBIT 1
CEMEX, S.A. de C.V.
Results of Operations for the
Six Months Ended June 30, 2003
References herein to "CEMEX," "we," "us" or "our" refer to CEMEX,
S.A. de C.V., a Mexican corporation, and its consolidated subsidiaries.
References herein to "U.S.$" and "Dollars" are to U.S. Dollars, and, unless
otherwise indicated, references to "Ps" and "Pesos" are to constant Mexican
Pesos as of June 30, 2003. The information set forth below contains
convenience translations of Peso amounts into Dollars at an exchange rate of
Ps10.46 to U.S.$1.00, the CEMEX accounting rate as of June 30, 2003. The noon
buying rate for Pesos on June 30, 2003 was Ps10.455 to U.S.$1.00.
CEMEX's significant accounting policies are described in Note 2 to
its consolidated financial statements as of December 31, 2002 and 2001 and for
each of the years in the three-year period ended December 31, 2002, included
in Amendment No. 1 to its annual report on Form 20-F/A for the year ended
December 31, 2002. This six-month report, which follows the same Mexican GAAP
accounting policies, should be read in connection with such financial
statements.
On July 18, 2003, CEMEX announced its results for the first six
months of 2003. The following table contains a summary of CEMEX's preliminary
unaudited consolidated financial results as of and for the six-month periods
ended June 30, 2002 and 2003. The interim results of operations for the
six-month period ended June 30, 2003 are not necessarily indicative of
operating results to be expected for the entire year. Following the table is a
discussion of CEMEX's results for the first six months of 2003.
Unaudited
-----------------------------------------------
As of and for the Six Months
Ended June 30,
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2002 2003 2003
---------------- -------------- --------------
(in millions of constant Pesos as of June 30,
2003 and Dollars, except share and per share
amounts)
Income Statement Information:
Net sales.............................................. Ps 34,012 Ps 36,502 U.S.$3,490
Cost of sales(1)....................................... (18,601) (21,198) (2,027)
Gross profit........................................... 15,411 15,304 1,463
Operating expenses..................................... (7,975) (8,007) (766)
Operating income....................................... 7,436 7,297 698
Comprehensive financing income (cost), net(2).......... (1,062) (792) (76)
Other income (expense), net............................ (2,189) (1,832) (175)
Income before income tax, business assets tax,
employees' statutory profit sharing and
equity in income of affiliates..................... 4,185 4,673 447
Minority interest...................................... 182 116 11
Majority interest net income........................... 3,587 4,104 392
Earnings per share(3).................................. 1.93 1.32 0.13
Number of shares outstanding (4)....................... 4,563 4,846 4,846
Balance Sheet Information:
Cash and temporary investments......................... 4,899 7,436 711
Net working capital investment(5)...................... 9,531 7,604 727
Property, machinery and equipment, net................. 90,760 94,400 9,025
Total assets........................................... 168,169 174,692 16,701
Short-term debt........................................ 11,413 20,912 1,999
Long-term debt......................................... 48,825 40,003 3,824
Minority interest(6)................................... 14,279 12,166 1,163
Stockholders' equity (excluding minority interest)(7)... 64,144 62,810 6,005
Book value per share(4)................................. 14.06 12.96 1.24
Other Financial Information:
Operating margin......................................... 21.9% 20.0% 20.0%
EBITDA(8)................................................ 10,565 10,600 1,013
Ratio of EBITDA to interest expense, capital securities
dividends and preferred equity dividends............ 5.60 4.93 4.93
Investment in property, machinery and equipment, net..... 1,610 1,745 167
Depreciation and amortization............................ 3,825 3,303 316
Net resources provided by operating activities(9)........ 7,429 5,693 544
Basic earnings per CPO(3)..................................... 5.79 3.96 0.38
(footnotes on next page)
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(1) Cost of sales includes depreciation.
(2) Comprehensive financing income (cost), net, includes financial expenses,
financial income, gain (loss) on marketable securities, foreign exchange
result, net and monetary position result.
(3) Earnings per share are calculated based upon the weighted average number
of shares outstanding during the preceding 12-month period. In accordance
with Mexican GAAP, earnings per share as of June 30, 2002 and 2003
(unaudited) were calculated based on net income for the prior
twelve-month periods, which amounted to Ps8,502 million and Ps6,035
million, respectively. Basic earnings per CPO is determined by
multiplying the basic earnings per share for each period by three (the
number of shares underlying each CPO). Basic earnings per CPO is
presented solely for the convenience of the reader and does not represent
a measure under Mexican GAAP.
(4) Based upon the total number of shares outstanding at the end of each
period, expressed in millions of shares, and includes shares subject to
financial derivative transactions, but does not include shares held by
our subsidiaries.
(5) Net working capital investment equals trade receivables plus inventories
less trade payables.
(6) In connection with the preferred equity transaction relating to the
financing of our acquisition of Southdown, Inc., now named CEMEX, Inc.,
the balance sheet item minority interest at June 30, 2002 and 2003
includes a notional amount of U.S.$650 million (Ps6,799 million) of
issued preferred equity. Of the U.S.$650 million of preferred equity
outstanding as of June 30, 2003, U.S.$195 million is due in February 2004
and U.S.$455 million is due in August 2004. The balance sheet item
minority interest at June 30, 2002 and 2003 also includes an aggregate
liquidation amount of U.S.$66 million (Ps690 million) of 9.66% Putable
Capital Securities, which were initially issued by one of our
subsidiaries in May 1998 in an aggregate liquidation amount of U.S.$250
million. In April 2002, approximately U.S.$184 million in aggregate
liquidation amount of these capital securities were tendered to, and
accepted by, us in a tender offer. In addition, minority interest net
income in the first six months of 2002 and 2003 includes preferred
dividends in the amount of approximately U.S.$12.7 million (Ps130.1
million) and U.S.$11.9 million (Ps124.2 million), respectively, and
capital securities dividends in the amount of approximately U.S.$8.7
million (Ps89.0 million) and U.S.$3.3 million (Ps34.0 million),
respectively.
(7) In December 1999, we entered into forward contracts with a number of
banks covering 21,000,000 ADSs (each ADS represents five CPOs). In
December 2002, we agreed with the banks to settle those forward contracts
for cash and simultaneously entered into new forward contracts, with a
scheduled December 2003 settlement date, with the same banks on similar
terms to the original forward transactions. Under the new forward
contracts the banks retained the ADSs underlying the original forward
contracts, which had increased to 24,008,313 ADSs as of the settlement
date as a result of stock dividends and which further increased to
25,457,378 ADSs as of June 30, 2003 as a result of stock dividends
through June 2003. As a result of this net settlement, we recognized in
December 2002 a decrease of approximately U.S.$98.3 million (Ps1,028
million) in our stockholders' equity, arising from changes in the
valuation of the ADSs. These ADSs are considered to have been sold to the
banks, and, therefore, future changes in the fair value of the ADSs will
not be recorded until settlement of the new forward contracts. When we
settle the new forward contracts, the purchase price of the new forward
contracts relating to our ADSs will be recorded as a decrease in
stockholders' equity.
(8) EBITDA equals operating income before amortization expense and
depreciation. Under Mexican GAAP, amortization of goodwill is not
included in operating income, but instead is recorded in other income
(expense). EBITDA and the ratio of EBITDA to interest expense, capital
securities dividends and preferred equity dividends are presented herein
because we believe that they are widely accepted as financial indicators
of the our ability to internally fund capital expenditures and service or
incur debt and preferred equity. EBITDA and such ratios should not be
considered as indicators of our financial performance, as alternatives to
cash flow, as measures of liquidity or as being comparable to other
similarly titled measures of other companies. EBITDA is reconciled below
to operating income, which we consider to be the most comparable measure
as determined under Mexican GAAP. We are not required to prepare a
statement of cash flows under Mexican GAAP and therefore do not have such
Mexican GAAP cash flow measures to present as comparable to EBITDA.
For the Six Months
Ended June 30,
(Unaudited)
--------------------------------------------
2002 2003 2003
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(in millions of constant Pesos as of
June 30, 2003 and Dollars)
Reconciliation of EBITDA to operating income
EBITDA Ps 10,565 Ps 10,600 U.S.$ 1,013
Less:
Depreciation and amortization expense 3,129 3,303 315
-------------- -------------- --------------
Operating income Ps 7,436 Ps 7,297 U.S.$ 698
============== ============== ==============
(9) Net resources provided by operating activities equals majority interest
net income plus items not affecting cash flow plus investment in working
capital excluding effects from acquisitions. In accordance with Mexican
GAAP, operating activities include gain and loss from trading in
marketable securities, including realized gain or loss from trading in
our capital stock.
2
Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002
Overview
Summarized in the table below are the percentage (%) increases (+)
and decreases (-) in the first six months of 2003 compared to the first six
months of 2002 in our net sales, before eliminations resulting from
consolidation, sales volumes and prices for the major countries in which we
have operations. Variations in net sales determined on the basis of constant
Mexican Pesos include the appreciation or depreciation occurred during the
period between the country's local currency vis-a-vis the Mexican Peso, as
well as the effects of inflation as applied to the Mexican Peso amounts using
CEMEX's weighted average inflation factor; therefore, such variations
substantially differ from those based solely on the country's local currency:
- --------------- ----------------------------------------- --------------------------- ------------ ------------------------
Net Sales
- --------------- ------------ --------------- ------------ --------------------------- ------------ ------------------------
Approximate
currency Variations Export
fluctuations, in Sales Average Domestic
Variations net of constant Domestic Sales Volumes Volumes Prices in local currency
in local inflation Mexican
Country currency effects Pesos Cement Ready-Mix Cement Cement Ready-Mix
- --------------- ------------ --------------- ------------ ------------ -------------- ------------ ----------- ------------
Mexico +12% -- +12% +6% +16% -22% +1% -6%
- --------------- ------------ --------------- ------------ ------------ -------------- ------------ ----------- ------------
United States -7% -1% -8% -3% +5% N/A -2% -1%
- --------------- ------------ --------------- ------------ ------------ -------------- ------------ ----------- ------------
Spain +4% +17% +21% +6% +4% -7% -2% +1%
- --------------- ------------ --------------- ------------ ------------ -------------- ------------ ----------- ------------
Venezuela -10% +13% +3% -29% -20% +7% +15% +7%
- --------------- ------------ --------------- ------------ ------------ -------------- ------------ ----------- ------------
Colombia +13% -16% -3% Flat +32% N/A +10% +1%
- --------------- ------------ --------------- ------------ ------------ -------------- ------------ ----------- ------------
Central
America and
the Caribbean +36% -5% +31% +24% +312% N/A -6% -5%
- --------------- ------------ --------------- ------------ ------------ -------------- ------------ ----------- ------------
Philippines -3% -3% -6% +3% +87% +112% -15% -16%
- --------------- ------------ --------------- ------------ ------------ -------------- ------------ ----------- ------------
Egypt -4% -23% -27% -13% N/A N/A +6% +5%
- --------------- ------------ --------------- ------------ ------------ -------------- ------------ ----------- ------------
N/A = Not Applicable
On a consolidated basis, our cement sales volumes increased 5%, from
30.2 million tons in the first six months of 2002 to 31.6 million tons in the
first six months of 2003, and our ready-mix concrete sales volumes increased
15%, from 9.3 million cubic meters in the first six months of 2002 to 10.6
million cubic meters in the first six months of 2003. Our net sales increased
7% from Ps34,012 million in the first six months of 2002 to Ps36,502 million
in the first six months of 2003 in constant Peso terms, and our operating
income decreased 2% from Ps7,436 million in the first six months of 2002 to
Ps7,297 million in the first six months of 2003 in constant Peso terms.
Net Sales
Our net sales increase of 7% in constant Peso terms during the first
six months of 2003 compared to the first six months of 2002 was primarily
attributable to the inclusion of the results of operations of our newly
acquired Puerto Rican operations in the first six months 2003 but not in the
first six months of 2002, combined with higher sales volumes in our operations
in Mexico, Spain and Central America and the Caribbean, which were partially
offset by a decrease in sales volumes in Venezuela, Egypt and the United
States and lower prices in the United States, Spain, the Caribbean Region and
the Philippines. Additionally, set forth below is a quantitative and
qualitative analysis of the effects of the various factors affecting our net
sales on a country-by-country basis.
Mexico
Our Mexican operations' domestic gray cement sales volumes increased
6% in the first six months of 2003 compared to the first six months of 2002,
and ready-mix concrete sales volumes increased 16% over the same periods. The
increase in sales volumes resulted primarily from increased demand in the
residential construction sector and in the public sector. However, lower
ready-mix concrete prices in Mexico partially offset the sales volumes
increases. The average domestic cement price in Mexico increased 1% in
constant Peso terms in the first six months of 2003 compared to the first six
months of 2002 (2% in nominal Peso terms). The average ready-mix concrete
price decreased 6% in constant Peso terms (5% in nominal Peso terms) over the
same periods due to increased competition.
3
The increase in our domestic cement sales volumes was also partially
offset by a significant decrease in cement export volumes. Our Mexican
operations' cement export volumes, which represented 6% of our Mexican cement
sales volumes in the first six months of 2003, decreased 22% in the first six
months of 2003 compared to the first six months of 2002 due mainly to the
weakness of the U.S. market, our most important foreign consumer. Of our
Mexican operations' cement export volumes during the first six months of 2003,
70% was shipped to the United States, 29% to Central America and the Caribbean
and 1% to South America.
As a result of the increase in domestic cement sales volumes and
ready-mix concrete sales volumes, net sales in Mexico, in constant Peso terms
using Mexican inflation, increased 12% in the first six months of 2003
compared to the first six months of 2002, despite the decline in cement export
volumes and average ready-mix concrete prices.
United States
Our United States operations' cement sales volumes, which include
cement purchased from our other operations, decreased 3% in the first six
months of 2003 compared to the first six months of 2002, and ready-mix
concrete sales volumes increased 5% over the same periods. The decrease in
cement sales volumes is attributable to the general weakness of the United
States economy as well as decreased demand in most of our United States
markets as a result of unfavorable weather conditions, mostly during February,
March, April and May of 2003. Industrial and commercial construction declined
as a result of continued weakness in the manufacturing and commercial sectors
of the economy, while the cement-intensive public works sector, in particular
highway construction, our strongest source of cement demand, also declined. In
addition, the average sales price of cement decreased 2% in Dollar terms
during the first six months of 2003 compared to the first six months of 2002,
and the average price of ready-mix concrete decreased 1% in Dollar terms over
the same periods.
As a result of the decline in cement sales volumes and average cement
and ready-mix concrete prices, net sales in the United States declined 7% in
U.S. Dollar terms in the first six months of 2003 compared to the first six
months of 2002, despite an increase in ready-mix concrete sales volumes.
Spain
Our Spanish operations' domestic cement sales volumes increased 6% in
the first six months of 2003 compared to the first six months of 2002, and
ready-mix concrete sales volumes increased 4% over the same periods. The
increase in sales volumes was driven by strong residential construction
activity which benefited from the low interest rate environment and increased
spending in public works. Our Spanish operations' cement export volumes, which
represented 3% of our Spanish cement sales volumes in the first six months of
2003, decreased 7% in the first six months of 2003 compared to the first six
months of 2002. Of our Spanish operations' total cement export volumes in the
first six months of 2003, 22% was shipped to Europe and the Middle East, 31%
to Africa, and 47% to the United States. In addition, the average sales price
of cement decreased 2% in Euro terms during the first six months of 2003
compared to the first six months of 2002, and the average price of ready-mix
concrete increased 1% in Euro terms over the same periods.
As a result of the increases in domestic cement sales volumes and
ready-mix concrete sales volumes, net sales in Spain, in Euro terms, increased
4% in the first six months of 2003 compared to the first six months of 2002,
despite the small decline in the average sales price of cement in Euro terms.
Venezuela
Our Venezuelan operations' domestic cement sales volumes decreased
29% in the first six months of 2003 compared to the first six months of 2002,
while ready-mix concrete sales volumes decreased 20% over the same periods.
The decreases in domestic cement sales volumes and ready-mix concrete sales
volumes were mainly driven by the downturn in construction activity in
Venezuela as a result of the continuing political and economic turmoil in
Venezuela.
Our Venezuelan operations' cement export volumes, which represented
58% of our Venezuelan cement sales volumes in the first six months of 2003,
increased 7% in the first six months of 2003 compared to the first six months
of 2002. The increase in cement export volumes was due to an increased focus
on the exports market to offset the contraction of the local market. Of our
Venezuelan operations' total cement export volumes during the first six months
of 2003, 53% was shipped to North America and 47% to the Caribbean and South
America.
4
Our Venezuelan operations' average domestic sales price of cement
increased 15% in constant Bolivar terms in the first six months of 2003
compared to the first six months of 2002, while the average sales price of
ready-mix concrete increased 7% in constant Bolivar terms over the same
periods.
As a result of the decreases in domestic and ready-mix concrete sales
volumes, net sales in Venezuela, in constant Bolivar terms, declined 10% in
the first six months of 2003 compared to the first six months of 2002, despite
the increases in the average domestic sales prices of cement and ready-mix
concrete in constant Bolivar terms and the increase in cement export volumes.
Colombia
Our Colombian operations' domestic sales volumes were flat for the
first six months of 2003 compared to the first six months of 2002, while
ready-mix concrete sales volumes increased 32% over the same periods. The
increase in ready-mix concrete sales volumes was primarily attributable to an
increase in public investment in the construction sector, low interest rates
and low inflation that led to a moderate demand for housing and private
investment and our increased market penetration of the residential
construction ready-mix concrete market.
Our Colombian operations' average domestic sales price of cement
increased 10% in Colombian Peso terms in the first six months of 2003 compared
to the first six months of 2002, while the average sales price of ready-mix
concrete increased 1% in Colombian Peso terms over the same periods.
As a result of the increases in ready-mix concrete sales volumes and
in the average domestic sales price of cement in Colombian Peso terms, our net
sales in Colombia, in Colombian Peso terms, increased 13% in the first six
months of 2003 compared to the first six months of 2002.
Central America and the Caribbean
Our Central American and Caribbean operations consist of our
operations in Costa Rica, the Dominican Republic, Panama, Nicaragua and Puerto
Rico, as well as several cement terminals in other Caribbean countries and our
trading operations in the Caribbean region. Most of these trading operations
consist of the resale in the Caribbean region of cement produced by our
operations in Venezuela and Mexico. Our Central American and Caribbean
operations' domestic cement sales volumes increased approximately 29% (or
approximately 24%, excluding our trading operations in the Caribbean region)
in the first six months of 2003 compared to the first six months of 2002,
primarily as a result of our acquisition of Puerto Rican Cement Company, Inc.
in August 2002, which represented approximately 20% of our total cement sales
volumes in that region during the first six months of 2003, and strong
performance by our operations in Panama and Nicaragua during the first six
months of 2003. Our Caribbean region trading operations' cement sales volumes
increased approximately 98% in the first six months of 2003 compared to the
first six months of 2002, primarily as a result of exports to the United
States from the Caribbean region instead of from Venezuela for several months
in the beginning of 2003 due to the political and economic turmoil and general
labor strikes in Venezuela at that time. Our Central American and Caribbean
operations' ready-mix concrete sales volumes increased approximately 312% in
the first six months of 2003 compared to the first six months of 2002,
primarily due to the inclusion of our Puerto Rican operations, which
represented 60% of our total ready-mix concrete sales volumes in the region,
higher volumes in Panama and the Dominican Republic and the beginning of
ready-mix concrete sales in Costa Rica in the third quarter of 2002.
Our Central American and Caribbean operations' average domestic
cement sales price decreased 6% in Dollar terms in the first six months of
2003 compared to the first six months of 2002, primarily due to decreases in
the average Dollar sales prices of cement in the Dominican Republic and the
Caribbean of 16% and 18%, respectively, which were partially offset by
increases in the average Dollar sales prices of cement in Panama and Costa
Rica of 2% and 2%, respectively. Our Central American and Caribbean
operations' average ready-mix concrete sales price decreased 5% in Dollar
terms in the first six months of 2003 compared to the first six months of
2002, primarily due to a 5% decrease in ready-mix concrete prices in Panama in
Dollar terms and a 30% decrease in ready-mix concrete prices in the Dominican
Republic in Dollar terms as a result of a significant depreciation of the
Dominican Peso against the Dollar.
As a result of the increase in cement and ready-mix concrete sales
volumes, combined with the inclusion of our Puerto Rican operations, net sales
in our Central American and Caribbean region, in Dollar terms, increased 36%
in the first six months of 2003 compared to the first six months of 2002,
despite the decline in average sales prices of cement and ready-mix concrete
in Dollar terms.
5
The Philippines
Our Philippines domestic cement sales volumes increased 3% in the
first six months of 2003 compared to the first six months of 2002, which was
offset by a 15% decrease, in Philippine Peso terms, in the average domestic
sales price of cement over the same periods. Our Philippine operations'
domestic cement sales volumes increase was primarily a result of our
commercial marketing programs and our increased market participation in the
country due to fewer cement imports from our competitors. The
self-construction sector remained our strongest source of cement demand, while
demand in the public works sector continued to be weak as a result of
reductions in public spending. Our Philippines ready-mix concrete business,
which began in 2001, is still under development. Our ready-mix concrete sales
volumes in the Philippines increased 87% in the first six months of 2003
compared to the first six months of 2002, while the average ready-mix concrete
price decreased 16% in Philippine Peso terms over the same periods. The
increase in ready-mix concrete sales volumes was primarily attributable to a
weak economic environment during the first six months of 2002 and new
construction contracts in 2003.
Primarily as a result of the decreases in the average cement and
ready-mix concrete prices, which were partially offset by an increase in
domestic cement and ready-mix sales volumes, our net sales in the Philippines,
in Philippine Peso terms, decreased 3% in the first six months of 2003
compared to the first six months of 2002.
Thailand
Our Thai operations' domestic cement sales volumes increased 20% in
the first six months of 2003 compared to the first six months of 2002,
primarily due to increased production efficiency and higher demand as a result
of increased construction activity. Our Thai operations' average sales price
of cement increased 21% in Baht terms during the first six months of 2003
compared to the first six months of 2002. Cement prices in Thailand are
indirectly controlled by the Thai government.
Primarily as a result of increases in domestic cement sales volumes
and average sales prices of cement, our net sales in Thailand, in Baht terms,
increased 46% in the first six months of 2003 compared to the first six months
of 2002.
Egypt
Our Egyptian operations' domestic cement sales volumes decreased 13%
in the first six months of 2003 compared to the first six months of 2002,
primarily as a result of the exceptionally high cement volumes in the first
six months of 2002 and higher cement prices in 2003, which were partially
offset by a strong self-construction sector. Our Egyptian operations' average
domestic sales price of cement increased 6% in Egyptian pound terms in the
first six months of 2003 compared to the first six months of 2002. In addition
to being subject to market pressures, cement prices in Egypt are controlled to
a significant degree by the Egyptian government as a result of the
government's control of almost 50% of the industry's capacity.
As a result of the decrease in cement sales volumes combined with the
offsetting increase in domestic cement sales prices, net sales in Egypt, in
Egyptian pound terms, decreased 4% in the first six months of 2003 compared to
the first six months of 2002.
Cost of Sales
Our cost of sales, including depreciation, increased 14% from
Ps18,601 million in the first six months of 2002 to Ps21,198 million in the
first six months of 2003 in constant Peso terms, as a result of changes in our
product mix, as we had increased sales from our multi-products
(Multiproductos) strategy and a higher percentage of ready-mix concrete sales
in Mexico, as well as increased energy costs. As a percentage of sales, cost
of sales increased 3.4% from 54.7% in the first six months of 2002 to 58.1% in
the first six months of 2003.
Gross Profit
Our gross profit decreased by 1% from Ps15,411 million in the first
six months of 2002 to Ps15,304 million in the first six months of 2003 in
constant Peso terms. Our gross margin decreased from 45.3% in the first six
months of 2002 to 41.9% in the first six months of 2003, as a result of
changes in our product mix. The decrease in our gross profit is mainly
attributable to the 14% increase in our cost of sales, partially offset by the
7% increase in net sales in the first six months of 2003 compared to the first
six months of 2002.
6
Operating Expenses
Our operating expenses increased slightly from Ps7,975 million in the
first six months of 2002 to Ps8,007 million in the first six months of 2003 in
constant Peso terms. As a percentage of sales, our operating expenses
decreased from 23.4% in the first six months of 2002 to 21.9% in the first six
months of 2003.
Operating Income
For the reasons mentioned above, our operating income decreased 2%
from Ps7,436 million in the first six months of 2002 to Ps7,297 million in the
first six months of 2003.
Comprehensive Financing Income (Expense)
Pursuant to Mexican GAAP, the comprehensive financing result should
measure the real cost (gain) of an entity's financing, net of the foreign
currency fluctuations and the inflationary effects on monetary assets and
liabilities. In periods of high inflation or currency depreciation,
significant volatility may arise and is reflected under this caption. For
presentation purposes, comprehensive financing income (expense) includes:
o financial or interest expense on borrowed funds;
o financial income on cash and temporary investments;
o appreciation or depreciation resulting from the valuation of
financial instruments, including derivative instruments and
marketable securities, as well as the realized gain or loss
from the sale or liquidation of such instruments or securities;
o foreign exchange gains or losses associated with monetary
assets and liabilities denominated in foreign currencies; and
o gains and losses resulting from having monetary liabilities or
assets exposed to inflation (monetary position result).
(Unaudited)
Six Months Ended June 30,
-------------------------------------
2002 2003
----------------- -----------------
(in millions of constant Pesos)
Net comprehensive financing income (expense):
Financial expense.......................................... Ps (1,668) Ps (1,993)
Financial income........................................... 310 126
Foreign exchange gain (loss), net.......................... (702) (237)
Gain (loss) on valuation and liquidation of financial
instruments............................................. (822) (431)
Monetary position gain..................................... 1,822 1,744
----------------- ----------------
Net comprehensive financing income (expense)........ Ps (1,062) Ps (792)
================= ================
Our net comprehensive financing income (expense) improved from an
expense of Ps1,062 million in the first six months of 2002 to an expense of
Ps792 million in the first six months of 2003. The components of the change
are shown above. Our financial expense was Ps1,993 million for the first six
months of 2003, an increase of 19% from Ps1,668 million in the first six
months of 2002. The increase was primarily attributable to a higher level of
interest rates swaps at a level above current market rates during the first
six months of 2003, which were entered into in an effort to fix our interest
rate profile. Our financial income decreased 60% from Ps310 million in the
first six months of 2002 to Ps126 million in the first six months of 2003 as a
result of the decline in interest rates and a lower average level of
investments in fixed rate instruments. Our net foreign exchange results
improved from a loss of Ps702 million in the first six months of 2002 to a
loss of Ps237 million in the first six months of 2003. The foreign exchange
loss in the first six months of 2003 is primarily attributable to the
appreciation of the Japanese Yen and the Dollar against the Peso and the
effect that such appreciation had in our Japanese Yen and Dollar denominated
debt. Our gain (loss) from valuation and liquidation of financial instruments
improved from a loss of Ps822 million in the first six months of 2002 to a
loss of Ps431 million in the first six months of 2003, primarily attributable
to significant valuation losses from our derivative financial instruments
portfolio (discussed below) during the second quarter of 2002 due to adverse
financial market conditions. Our monetary position gain (generated by the
7
recognition of inflation effects over monetary assets and liabilities)
decreased from Ps1,822 million during the first six months of 2002 to Ps1,744
million during the first six months of 2003, as a result of the decrease in
the weighted average inflation index in the first six months of 2003 compared
to the first six months of 2002.
Derivative Financial Instruments
Our derivative financial instruments that have a potential impact on
our comprehensive financing result consist of equity forward contracts
designated as hedges of our executive stock option programs, foreign exchange
derivative instruments, excluding our foreign exchange forward contracts
designated as hedges of our net investment in foreign subsidiaries, interest
rate swaps, cross currency swaps, interest rate swap options (swaptions),
other interest rate derivatives, fuel and energy derivatives and third party
equity forward contracts. During the first six months of 2003, we suffered
valuation losses in our interest rate derivatives, which were partially offset
by gains from our currency derivatives, including our cross currency swaps and
our equity forward contracts designated to hedge our stock option programs.
These valuation losses accounted for substantially all the loss recorded in
the first six months of 2003 under the line item gain (loss) on valuation and
liquidation of financial instruments presented above. The estimated fair value
gain of our equity forward contracts that hedge the potential exercise of our
executive stock option programs is primarily attributable to an increase in
the market price of our listed securities (ADSs and CPOs). The estimated fair
value loss of our interest rate derivatives is primarily attributable to the
continuing decline in market interest rates, as CEMEX has fixed its interest
rate profile at a level above current market rates. The estimated fair value
gain of our cross currency swaps is primarily attributable to the slight
appreciation of the Japanese Yen against the Dollar during the first six
months of 2003.
Other Expenses, Net
Our other expenses for the first six months of 2003 were Ps1,832
million, a 16% decrease from Ps2,189 million in the first six months of 2002.
The decrease was primarily attributable to a non-recurring expense recorded in
the first quarter of 2002 related to the termination of a distribution
agreement in Taiwan.
Income Taxes, Business Assets Tax and Employees' Statutory Profit Sharing
Our effective tax rate was 11.7% in the first six months of 2003
compared to 11.6% in the first six months of 2002. Our tax expense, which
primarily consists of income taxes and business assets tax, increased 12% from
Ps488 million in the first six months of 2002 to Ps549 million in the first
six months of 2003. The increase was attributable to a higher taxable income
in the first six months of 2003 as compared to the first six months of 2002.
Our average statutory income tax rate was approximately 34% in the first six
months of 2003 and approximately 35% in the first six months of 2002.
Employees' statutory profit sharing decreased from Ps57 million
during the first six months of 2002 to Ps53 million during the first six
months of 2003 due to lower taxable income for profit sharing purposes in
Venezuela.
Majority Interest Net Income
Majority interest net income represents the difference between our
consolidated net income and minority interest net income, which is the portion
of our consolidated net income attributable to those of our subsidiaries in
which non-affiliated third parties hold interests. Changes in minority
interest net income in any period reflect changes in the percentage of the
stock of our subsidiaries held by non-affiliated third parties as of the end
of each month during the relevant period and consolidated net income
attributable to those subsidiaries.
For the reasons described above, our consolidated net income (before
deducting the portion allocable to minority interest) for the first six months
of 2003 increased 12%, from Ps3,769 million in the first six months of 2002 to
Ps4,219 million in the first six months of 2003. The percentage of our
consolidated net income allocable to minority interests decreased from 4.8% in
the first six months of 2002 to 2.7% in the first six months of 2003, as a
result of our prepayment in February 2002 of a portion of the preferred equity
balance of the preferred equity transaction related to the financing of our
acquisition of Southdown, Inc., now named CEMEX, Inc., in 2000 and the
repurchase in April 2002 of 73.5% of the 9.66% Putable Capital Securities
issued by one of our subsidiaries in May 1998. Majority interest net income
increased by 14%, from Ps3,587 million in the first six months of 2002 to
Ps4,101 million in the first six months of 2003, mainly as a result of our
increase in net sales, the decreases in our foreign exchange loss, in
valuation losses on derivative financial instruments and a lower portion of
consolidated net income allocable to minority interests, partially offset by
the decrease in our monetary position gain and higher income taxes. As a
percentage of net sales, majority interest net income increased from 10.5% in
the first six months of 2002 to 11.2% in the first six months of 2003.
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Developments During the First Six Months of 2003
Debt-Related Developments
On March 6, 2003, we issued an additional tranche under a Mexican
domestic medium term promissory notes program established in August 2002. The
tranche consists of Ps1,200 million in nominal pesos with a maturity of three
years and a rate per annum equal to the TIIE (the Interbank Offering Rate in
Mexico) plus 80 basis points. We used the proceeds of the transaction to repay
debt.
On March 26, 2003, we prepaid U.S.$225 million under the U.S.$550
million credit agreement relating to the Southdown (now named CEMEX, Inc.)
acquisition. Funds for the pre-payment were obtained from existing lines of
credit.
In March 2003, U.S.$800 million of the U.S.$1,000 million notional
amount of interest rate swap options (swaptions) held by us as of December 31,
2002 matured, and we entered into interest rate swaps for a notional amount of
U.S.$800 million in connection with the counterparties' election under the
swaptions to receive from us fixed interest rates and pay to us floating
interest rates for a five-year period. The remaining swaptions for a notional
amount of U.S.$200 million mature in October 2004.
On June 30, 2003, we issued two additional tranches under our Mexican
domestic medium term promissory notes program established in August 2002. The
first tranche consists of Ps1,600 million in nominal pesos with a maturity of
three years and a rate per annum equal to the TIIE (the Interbank Offering
Rate in Mexico) plus 80 basis points. The second tranche consists of Ps545
million in Inflationary Indexed Peso Notes in UDIs (Unidades de Inversion)
with a maturity of five and a half years and a rate per annum of 5.3%. We used
the proceeds of these transactions to repay debt.
Also on June 30, 2003, CEMEX Espana, through a wholly-owned
subsidiary, issued three series of notes in a private placement with aggregate
principal amounts of U.S.$103 million, U.S.$96 million and U.S.$201 million,
having maturities of seven, ten and twelve years, respectively, and interest
rates per annum of 4.77%, 5.36% and 5.51%, respectively. These notes were
primarily placed with insurance companies and pension funds in the United
States. We used the proceeds of this offering to repay debt.
Developments Relating to Our Indonesian Investment
In March 2003, a lawsuit was filed in the Indonesian province of West
Sumatra in the District Court in Padang, against PT Semen Gresik, an
Indonesian cement producer in which we own a 25.5% interest and the Indonesian
government owns a 51% interest, PT Semen Padang, a 99.9%-owned subsidiary of
Gresik that owns and operates Gresik's Padang cement plant, and several
Indonesian government agencies. The lawsuit, which was filed by a recently
established foundation affiliated with the West Sumatra provincial
administration that had effectively controlled Semen Padang's management since
its attempt to "take over" Semen Padang in November 2001, challenges the
validity of the sale of Semen Padang by the Indonesian government to Gresik in
1995 on the grounds that the Indonesian government did not obtain the
necessary approvals for such sale.
On March 17, 2003, the Indonesian Supreme Court granted a petition
submitted by Gresik in September 2002 to call an extraordinary general meeting
of shareholders to replace Semen Padang's management. As a result, Gresik
scheduled an extraordinary general meeting of shareholders of Semen Padang for
May 12, 2003. In an effort to block that meeting, on May 5, 2003, the
foundation that is the plaintiff in the lawsuit described above amended its
complaint to seek an injunction barring Gresik from taking action at the
shareholders meeting. On May 9, 2003, the District Court in Padang granted the
foundation's request and issued a temporary order to freeze all actions which
might be taken by Gresik as a shareholder of Semen Padang on the grounds that
ownership of Semen Padang was an issue in dispute. However, Gresik's local
counsel determined that the order by the District Court in Padang was not
enforceable and that Gresik was not bound to comply with it. Accordingly, the
extraordinary general meeting of shareholders of Semen Padang was convened as
scheduled on May 12, 2003 and Gresik, as the controlling shareholder of Semen
Padang, approved the replacement of Semen Padang's management.
The replaced Semen Padang management, however, has refused to
recognize these management changes, and employees at Semen Padang have
physically prevented the newly appointed management from entering the
facility. Gresik has experienced other difficulties at Semen Padang, including
the effective loss of operational and financial control of Semen Padang, the
9
inability to prepare consolidated financial statements that include Semen
Padang's operations and the inability of its independent auditors to provide
an unqualified audit opinion on such financial statements. We intend to defend
our interests in Gresik and its subsidiaries, including Semen Padang.
Other Developments
In April 2003, we amended the terms of the July 12, 2002 agreements
pursuant to which we had agreed with several minority investors in CEMEX Asia
Holdings, Ltd., or CAH, to exchange 28,195,213 CEMEX CPOs for 1,483,365 shares
of CAH common stock. The terms of the exchange have been modified with respect
to 1,398,602 of the CAH shares. Instead of purchasing those CAH shares in four
equal quarterly tranches commencing on March 31, 2003, we have now agreed to
purchase those CAH shares in four equal quarterly tranches commencing on March
31, 2004. Notwithstanding the amendments, for accounting purposes, the CAH
shares to be received by us pursuant to the exchanges are considered to be
owned by us effective as of July 12, 2002. Pending the successful consummation
of this transaction, we will have increased our stake in CAH to 92.25%.
In June 2003, Cementos Nacionales, our main operating subsidiary in
the Dominican Republic, announced a U.S.$130 million investment plan to
install a new kiln for producing clinker with an annual capacity of 1.6
million metric tons of clinker. This new kiln, which would increase our total
clinker production capacity in the Dominican Republic to 2.2 million metric
tons per year, is expected to be completed in early 2005. We expect to invest
approximately U.S.$16 million in this project in 2003 and the remaining
U.S.$114 million during 2004 and 2005.
Recent Developments Since June 30, 2003
On August 8, 2003, in connection with an increase in the amount
available under our U.S. commercial paper program from U.S.$275 million to
U.S.$400 million, we entered into a First Amended and Restated Reimbursement
and Credit Agreement and a related Depositary Agreement with several lenders.
Under the First Amended and Restated Reimbursement and Credit Agreement, the
issuing bank agreed to issue an irrevocable direct-pay letter of credit in the
amount of U.S.$400 million to provide credit support for the commercial paper
program, and the lenders committed to make loans to us in the event of certain
market disruptions of up to the same amount. In addition, under the First
Amended and Restated Reimbursement and Credit Agreement we obtained a U.S.$200
million standby letter of credit facility for the issuance of standby letters
of credit in support of certain of our and any of our subsidiaries'
obligations, including in support of contingent liabilities arising in
connection with forward sale contracts, leases, insurance contracts and
arrangements, service contracts, equipment contracts, financing transactions
and other payment obligations. The total amount available under the U.S.
commercial paper program, the letters of credit and any loans under the First
Amended and Restated Reimbursement and Credit Agreement cannot exceed U.S.$400
million. CEMEX Mexico and Empresas Tolteca de Mexico, two of our Mexican
subsidiaries, are guarantors of our obligations under the First Amended and
Restated Reimbursement and Credit Agreement.
10