===============================================================================
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: October 15, 2003
CEMEX, S.A. de C.V.
-------------------
(Exact name of registrant as specified in its charter)
CEMEX Corp.
-----------
(Translation of registrant's name into English)
United Mexican States
---------------------
(Jurisdiction of incorporation or organization)
Av. Ricardo Margain Zozaya #325, Colonia Valle del Campestre
Garza Garcia, Nuevo Leon, Mexico 66265
------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of 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
===============================================================================
===============================================================================
This report on Form 6-K shall be deemed to be incorporated by reference
into (i) Post-Effective Amendment No. 4 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 August 27, 2003, (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which this report is furnished, to the extent not superseded by documents or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 three months ended
September 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, as amended by Amendment
No. 1 thereto on Form 20-F/A, which was filed with the Commission on April 25,
2003, and CEMEX's report on Form 6-K furnished to the Commission on October 2,
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.
------------------------------
(Registrant)
Date: October 14, 2003 By: /s/ Rafael Garza
------------------------ ---------------------------
Name: Rafael Garza
Title: Chief Comptroller
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1 Report on CEMEX's results of operations for
the three months ended September 30, 2003.
EXHIBIT 1
CEMEX, S.A. de C.V.
Results of Operations for the
Three Months Ended September 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
September 30, 2003. The information set forth below contains convenience
translations of Peso amounts into Dollars at an exchange rate of Ps11.00 to
U.S.$1.00, the CEMEX accounting rate as of September 30, 2003. The noon buying
rate for Pesos on September 30, 2003 was Ps11.003 to U.S.$1.00.
CEMEX's significant accounting policies are described in Note 2 to its
consolidated financial statements as of December 31, 2001 and 2002 and as of
June 30, 2002 and 2003 (unaudited), and for years ended December 31, 2000, 2001
and 2002 and for the six-month periods ended June 30, 2002 and 2003 (unaudited),
included in CEMEX's current report on Form 6-K furnished to the Securities and
Exchange Commission on October 2, 2003. This third quarter report, which follows
the same Mexican GAAP accounting policies, should be read in connection with
such financial statements.
On October 9, 2003, CEMEX announced its results for the third quarter
of 2003. The following table contains a summary of CEMEX's preliminary unaudited
consolidated financial results as of and for the three- and nine-month periods
ended September 30, 2002 and 2003. The interim results of operations for the
three- and nine-month periods ended September 30, 2003 are not necessarily
indicative of operating results to be expected for the entire year. Following
the table is a discussion of CEMEX's results for the third quarter of 2003.
Unaudited
---------------------------------------------------------------------------
As of and for the Nine Months As of and for the Three Months
Ended September 30, Ended September 30,
-------------------------------------- -----------------------------------
2002 2003 2003 2002 2003 2003
------------ ----------- ------------ --------- ----------- -----------
(in millions of constant Pesos as of September 30, 2003 and Dollars,
except share and per share amounts)
INCOME STATEMENT INFORMATION:
Net sales ............................... Ps 54,334 Ps 58,171 U.S.$ 5,288 Ps 18,934 Ps 20,178 U.S.$1,834
Cost of sales(1)......................... (29,916) (33,540) (3,049) (10,556) (11,476) (1,043)
Gross profit............................. 24,418 24,631 2,239 8,378 8,702 791
Operating expenses ...................... (12,784) (12,584) (1,144) (4,483) (4,250) (386)
Operating income ........................ 11,634 12,047 1,095 3,895 4,452 405
Comprehensive financing income (cost),
net(2) ................................ (3,838) (2,303) (209) (2,733) (1,479) (134)
Other income (expense), net ............. (3,092) (2,911) (265) (813) (1,004) (91)
Income before income tax, business assets
tax, employees'statutory profit
sharing and equity in
income of affiliates................... 4,704 6,833 621 349 1,969 179
Minority interest ....................... 378 297 27 189 177 16
Majority interest net income ............ 3,915 5,814 529 182 1,543 140
Earnings per share(3) ................... 1.77 1.64 0.15 1.77 1.64 0.15
Number of shares outstanding (4) ........ 4,559 4,857 4,857 4,559 4,857 4,857
BALANCE SHEET INFORMATION:
Cash and temporary investments .......... 3,700 4,495 409 3,700 4,495 409
Net working capital investment(5) ....... 10,537 7,203 655 10,537 7,203 655
Property, machinery and equipment, net... 97,019 97,969 8,906 97,019 97,969 8,906
Total assets............................. 179,239 178,212 16,201 179,239 178,212 16,201
Short-term debt ......................... 20,898 12,248 1,113 20,898 12,248 1,113
Long-term debt........................... 44,363 46,803 4,255 44,363 46,803 4,255
Minority interest(6)..................... 13,321 12,912 1,174 13,321 12,912 1,174
Stockholders' equity (excluding
minority interest)(7) ................ 65,241 68,173 6,198 65,241 68,173 6,198
Book value per share(4) ................. 14.31 14.04 1.28 14.31 14.04 1.28
OTHER FINANCIAL INFORMATION:
Operating margin ........................ 21.4% 20.7% 20.7% 20.6% 22.1% 22.1%
EBITDA(8) ............................... 16,553 17,303 1,573 5,557 6,270 570
Ratio of EBITDA to interest expense,
capital securities dividends and
preferred equity dividends ............ 5.49 5.19 5.19 5.30 5.67 5.67
Investment in property, machinery and
equipment, net ........................ 3,098 2,874 261 1,423 1,058 96
Depreciation and amortization ........... 6,095 6,474 589 2,114 2,270 206
Net resources provided by operating
activities(9) ......................... 13,289 11,132 1,012 5,557 5,206 473
Basic earnings per CPO(3) ............... 5.31 4.92 0.45 5.31 4.92 0.45
(footnotes on next page)
______________
(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 September 30, 2002 and 2003
(unaudited) were calculated based on net income for the prior
twelve-month periods, which amounted to Ps7,878 million and Ps7,642
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 September 30, 2002
and 2003 includes a notional amount of U.S.$650 million (Ps7,150
million) of issued preferred equity. As described in "Recent
Developments," if our Dutch subsidiary is successful in establishing a
new U.S.$1 billion senior unsecured term loan facility we intend to
use a portion of the proceeds of loans issued under this facility to
redeem all of the U.S.$650 million of preferred equity outstanding as
of September 30, 2003 during the fourth quarter of 2003. The balance
sheet item minority interest at September 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 nine months of
2002 and 2003 includes preferred dividends in the amount of
approximately U.S.$17.9 million (Ps192.7 million) and U.S.$16.0
million (Ps176.0 million), respectively, and capital securities
dividends in the amount of approximately U.S.$10.3 million (Ps110.1
million) and U.S.$4.8 million (Ps52.8 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 September 30, 2003 as a
result of stock dividends through September 2003. As a result of this
net settlement, we recognized in December 2002 a decrease of
approximately U.S.$98.3 million (Ps1,081 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.
Unaudited
---------------------------------------------------------------------------
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
---------------------------------------------------------------------------
2002 2003 2003 2002 2003 2003
------------ ----------- ------------------------ ----------- -----------
(in millions of constant Pesos as of September 30, 2003 and Dollars)
Reconciliation of EBITDA to
operating income
EBITDA............................ Ps 16,553 Ps 17,303 U.S.$ 1,573 Ps 5,557 Ps 6,270 U.S.$ 570
Less:
Depreciation and
amortization expense........ 4,919 5,256 478 1,662 1,818 165
------------ ----------- ------------------------ ----------- -----------
Operating income.................. 11,634 12,047 1,095 3,895 4,452 405
============ =========== ======================== =========== ===========
(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
Three Months Ended September 30, 2003 Compared to Three Months
Ended September 30, 2002
Overview
Summarized in the table below are the percentage (%) increases (+) and
decreases (-) in the third quarter of 2003 compared to the third quarter 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 | | | |
| | |fluctuations, | in | | | Average Domestic |
| | Variations | net of | constant | | Export | Prices in local |
| | in local | inflation | Mexican | Domestic Sales Volumes| Sales | currency |
| | currency | effects | Pesos | | | Volumes | | |
| | -----------|--------------|------------|-----------|-----------|---------|---------|-----------|
| Country | | | | Cement | Ready-Mix | Cement | Cement | Ready-Mix |
|--------------| -----------|--------------|------------|-----------|-----------|---------|---------|-----------|
|Mexico | +8% | -10% | -2% | +1% | +10% | -35% | +2% | Flat |
|--------------| -----------|--------------|------------|-----------|-----------|---------|---------|-----------|
|United States | -1% | -- | -1% | +3% | -1% | N/A | -2% | Flat |
|--------------| -----------|--------------|------------|-----------|-----------|---------|---------|-----------|
|Spain | +6% | +21% | +27% | +2% | +9% | -39% | -1% | -2% |
|--------------| -----------|--------------|------------|-----------|-----------|---------|---------|-----------|
|Venezuela | +13% | +18% | +5% | -11% | -6% | +37% | -6% | +5% |
|--------------| -----------|--------------|------------|-----------|-----------|---------|---------|-----------|
|Colombia | +21% | +40% | +61% | +12% | +39% | N/A | +4% | +5% |
|--------------| -----------|--------------|------------|-----------|-----------|---------|---------|-----------|
|Central | | | | | | | | |
|America and | | | | | | | | |
|the Caribbean | +2% | +6% | +8% | Flat | +26% | N/A | +1% | -5% |
|--------------| -----------|--------------|------------|-----------|-----------|---------|---------|-----------|
|Philippines | +22% | -2% | +20% | -8% | +80% | +65% | +26% | -4% |
|--------------| -----------|--------------|------------|-----------|-----------|---------|---------|-----------|
|Egypt | +44% | -40% | +4% | +1% | +130% | N/A | +26% | +19% |
- ----------------------------------------------------------------------------------------------------------------
N/A = Not Applicable
On a consolidated basis, our cement sales volumes increased 5%, from
16.0 million tons in the third quarter of 2002 to 16.9 million tons in the third
quarter of 2003, and our ready-mix concrete sales volumes increased 10%, from
5.0 million cubic meters in the third quarter of 2002 to 5.6 million cubic
meters in the third quarter of 2003. Our net sales increased 7% from Ps18,934
million in the third quarter of 2002 to Ps20,178 million in the third quarter of
2003 in constant Peso terms, and our operating income increased 14% from Ps3,895
million in the third quarter of 2002 to Ps4,452 million in the third quarter of
2003 in constant Peso terms.
Net Sales
Our net sales increase of 7% in constant Peso terms during the third
quarter of 2003 compared to the third quarter of 2002 was primarily attributable
to higher sales volumes in our operations in most of our markets, which were
partially offset by a decrease in sales volumes in Venezuela and lower prices in
the United States, Spain, Venezuela and the Central America and Caribbean
region. 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 1%
in the third quarter of 2003 compared to the third quarter of 2002, and
ready-mix concrete sales volumes increased 10% over the same periods. The
increase in sales volumes resulted primarily from an increase in government
spending on infrastructure projects and low-income housing, which was partially
offset by unfavorable weather conditions, mostly during August and September,
and lower ready-mix concrete prices. The average domestic cement price in Mexico
increased 2% in constant Peso terms in the third quarter of 2003 compared to the
third quarter of 2002 (6% in nominal Peso terms). The average ready-mix concrete
price remained flat in constant Peso terms (and increased 4% in nominal Peso
terms) over the same periods.
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 5% of our Mexican cement
sales volumes in the third quarter of 2003, decreased 35% in the third quarter
of 2003 compared to the third quarter of 2002 primarily due to the weakness of
the U.S. market, our most important foreign consumer. Of our Mexican operations'
cement export volumes during the third quarter of 2003, 71.5% was shipped to the
United States, 27.2% to Central America and the Caribbean and 1.3% 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 9% in the third quarter of 2003 compared to
the third quarter of 2002, despite the decline in cement export volumes.
United States
-------------
Our United States operations' cement sales volumes, which include
cement purchased from our other operations, increased 3% in the third quarter of
2003 compared to the third quarter of 2002, and ready-mix concrete sales volumes
decreased 1% over the same periods. The increase in cement sales volumes is
primarily due to pent up demand built during the second quarter of 2003 as a
result of unfavorable weather conditions in the Southeast as well as increased
demand in the Midwest. The average sales price of cement decreased 2% in Dollar
terms in the third quarter of 2003 compared to the third quarter of 2002, and
the average price of ready-mix concrete remained flat in Dollar terms over the
same periods.
As a result of the decreases in ready-mix concrete sales volumes and in
the average cement sales price, net sales in the United States declined 1% in
U.S. Dollar terms in the third quarter of 2003 compared to the third quarter of
2002, despite the increase in cement sales volumes.
Spain
-----
Our Spanish operations' domestic cement sales volumes increased 2% in
the third quarter of 2003 compared to the third quarter of 2002, and ready-mix
concrete sales volumes increased 9% 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 government spending on
infrastructure projects. Our Spanish operations' cement export volumes, which
represented 3% of our Spanish cement sales volumes in the third quarter of 2003,
decreased 39% in the third quarter of 2003 compared to the third quarter of 2002
primarily due to increased domestic demand. Of our Spanish operations' total
cement export volumes in the third quarter of 2003, 20.7% was shipped to Europe
and the Middle East, 32.4% to Africa, and 46.9% to the United States. The
average sales price of cement decreased 1% in Euro terms in the third quarter of
2003 compared to the third quarter of 2002, and the average price of ready-mix
concrete decreased 2% 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
6% in the third quarter of 2003 compared to the third quarter of 2002, despite
the small decline in the average sales prices of cement and ready-mix concrete
in Euro terms.
Venezuela
---------
Our Venezuelan operations' domestic cement sales volumes decreased 11%
in the third quarter of 2003 compared to the third quarter of 2002, while
ready-mix concrete sales volumes decreased 6% 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 and
limited government spending on infrastructure as a result of the continuing
political and economic turmoil in Venezuela, which were partially offset by
increased demand from the self-construction sector.
Our Venezuelan operations' cement export volumes, which represented 57%
of our Venezuelan cement sales volumes in the third quarter of 2003, increased
37% in the third quarter of 2003 compared to the third quarter 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 third quarter of 2003, 66%
was shipped to North America and 34% to the Caribbean and South America.
Our Venezuelan operations' average domestic sales price of cement
decreased 6% in constant Bolivar terms in the third quarter of 2003 compared to
the third quarter of 2002, while the average sales price of ready-mix concrete
increased 5% in constant Bolivar terms over the same periods.
4
As a result of the decreases in domestic cement and ready-mix concrete
sales volumes, net sales in Venezuela, in constant Bolivar terms, declined 13%
in the third quarter of 2003 compared to the third quarter of 2002, despite the
increases in the average domestic sales price of ready-mix concrete in constant
Bolivar terms and the increase in cement export volumes.
Colombia
--------
Our Colombian operations' domestic sales volumes increased 12% in the
third quarter of 2003 compared to the third quarter of 2002, while ready-mix
concrete sales volumes increased 39% over the same periods. The increases in
domestic cement and ready-mix concrete sales volumes was primarily attributable
to an increase in government spending on infrastructure, particularly on
transportation, as well as increased demand from the private residential
construction sector.
Our Colombian operations' average domestic sales price of cement
increased 4% in Colombian Peso terms in the third quarter of 2003 compared to
the third quarter of 2002, while the average sales price of ready-mix concrete
increased 5% in Colombian Peso terms over the same periods.
As a result of the increases in domestic cement and ready-mix concrete
sales volumes and the increases in the average domestic sales prices of cement
and ready-mix concrete in Colombian Peso terms, net sales in Colombia, in
Colombian Peso terms, increased 21% in the third quarter of 2003 compared to the
third quarter 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 2% in the third quarter of 2003
compared to the third quarter of 2002, primarily as a result of the inclusion of
our Puerto Rican operations in our consolidated results for the entire third
quarter of 2003 (representing approximately 21% of our total cement sales volume
in the region during the quarter) and just two months (August and September) for
2002. Excluding our trading operations in the Caribbean region, domestic cement
sales volumes were flat in the third quarter of 2003 compared to the third
quarter of 2002. Our Caribbean region trading operations' cement sales volumes
increased approximately 27% in the third quarter of 2003 compared to the third
quarter of 2002, primarily as a result of increased sales of white cement to
several Central American countries during the third quarter of 2003. Our Central
American and Caribbean operations' ready-mix concrete sales volumes increased
approximately 26% in the third quarter of 2003 compared to the third quarter of
2002, primarily due to the inclusion of our Puerto Rican operations for the
entire third quarter of 2003, which operations represented approximately 60% of
our total ready-mix concrete sales volumes in the region, and higher volumes in
all of our markets in the region during the third quarter of 2003.
Our Central American and Caribbean operations' average domestic cement
sales price increased 1% in Dollar terms in the third quarter of 2003 compared
to the third quarter of 2002. Our Central American and Caribbean operations'
average ready-mix concrete sales price decreased 5% in Dollar terms in the third
quarter of 2003 compared to the third quarter of 2002, primarily due to a 32%
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 and an overall decrease in ready-mix concrete prices in the Caribbean
region in Dollar terms.
As a result of the increases in ready-mix concrete sales volumes and in
the average cement sales price, net sales in our Central American and Caribbean
region, in Dollar terms, increased 2% in the third quarter of 2003 compared to
the third quarter of 2002, despite the decline in average sales price of
ready-mix concrete in Dollar terms.
The Philippines
---------------
Our Philippine operations' domestic cement sales volumes decreased
8% in the third quarter of 2003 compared to the third quarter of 2002,
primarily as a result of decreased demand in the public works sector due to
reductions in government spending on infrastructure, which was offset by a
26% increase, in Philippine Peso terms, in the average domestic sales price
of cement over the same periods. Our Philippine operations' ready-mix
concrete business, which began in 2001, is still under development. Our
ready-mix concrete sales volumes in the Philippines increased 80% in the
third quarter of 2003 compared to the third quarter of 2002, while the
average ready-mix concrete price decreased 4% in
5
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 third quarter of 2002 and new construction contracts
in 2003.
As a result of the increases in ready-mix concrete sales volumes and in
the average cement sales price, which were partially offset by decreases in
domestic cement volumes and in the average ready-mix concrete sales price, net
sales in the Philippines, in Philippine Peso terms, increased 22% in the third
quarter of 2003 compared to the third quarter of 2002.
Thailand
--------
Our Thai operations' domestic cement sales volumes increased 5% in the
third quarter of 2003 compared to the third quarter of 2002, primarily due to
increased government spending on infrastructure projects. Our Thai operations'
average sales price of cement increased 16% in Baht terms in the third quarter
of 2003 compared to the third quarter of 2002. Cement prices in Thailand are
indirectly controlled by the Thai government.
As a result of the increases in domestic cement sales volumes and in
the average cement sales price, net sales in Thailand, in Baht terms, increased
22% in the third quarter of 2003 compared to the third quarter of 2002.
Egypt
-----
Our Egyptian operations' domestic cement sales volumes increased 1% in
the third quarter of 2003 compared to the third quarter of 2002, primarily as a
result of increased government spending on infrastructure, which was partially
offset by decreased demand in the commercial and tourism sectors. Our Egyptian
operations' average domestic sales price of cement increased 25% in Egyptian
pound terms in the third quarter of 2003 compared to the third quarter of 2002,
primarily as a result of our effort to maintain cement prices in Dollar terms.
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 increases in cement sales volumes and in domestic
cement sales prices, net sales in Egypt, in Egyptian pound terms, increased 44%
in the third quarter of 2003 compared to the third quarter of 2002.
Cost of Sales
Our cost of sales, including depreciation, increased 9% from Ps10,556
million in the third quarter of 2002 to Ps11,476 million in the third quarter of
2003 in constant Peso terms, primarily as a result of a higher percentage of
ready-mix concrete sales, which have a higher cost of sales as compared to
cement, as well as increased energy and insurance costs. As a percentage of
sales, cost of sales increased 1.1% from 55.8% in the third quarter of 2002 to
56.9% in the third quarter of 2003.
Gross Profit
Our gross profit increased by 4% from Ps8,378 million in the third
quarter of 2002 to Ps8,702 million in the third quarter of 2003 in constant Peso
terms. Our gross margin decreased from 44.2% in the third quarter of 2002 to
43.1% in the third quarter of 2003, as a result of the changes in our product
mix described above. The increase in our gross profit is primarily attributable
to the 7% increase in our net sales in the third quarter of 2003 compared to the
third quarter of 2002, partially offset by the 9% increase in our cost of sales
in the third quarter of 2003 compared to the third quarter of 2002.
Operating Expenses
Our operating expenses decreased 5% from Ps4,483 million in the third
quarter of 2002 to Ps4,250 million in the third quarter of 2003 in constant Peso
terms, primarily as a result of our continuing cost-reduction efforts, including
reductions in corporate overhead and travel expenses. As a percentage of sales,
our operating expenses decreased from 23.7% in the third quarter of 2002 to
21.1% in the third quarter of 2003.
Operating Income
For the reasons mentioned above, our operating income increased 14%
from Ps3,895 million in the third quarter of 2002 to Ps4,452 million in the
third quarter of 2003.
6
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)
Three Months Ended September 30,
-------------------------------------
2002 2003
----------------- -----------------
(in millions of constant Pesos)
Net comprehensive financing income (expense):
Financial expense.......................................... Ps (974) Ps (1,029)
Financial income........................................... 103 23
Foreign exchange gain (loss), net.......................... (62) (1,295)
Gain (loss) on valuation and liquidation of financial
instruments............................................. (2,714) 71
Monetary position gain..................................... 914 751
----------------- -----------------
Net comprehensive financing income (expense)........ Ps (2,733) Ps (1,479)
================= =================
Our net comprehensive financing income (expense) improved from an
expense of Ps2,733 million in the third quarter of 2002 to an expense of Ps1,479
million in the third quarter of 2003. The components of the change are shown
above. Our financial expense was Ps1,029 million for the third quarter of 2003,
an increase of 6% from Ps974 million in the third quarter of 2002. The increase
was primarily attributable to a higher level of interest rates swaps at a level
above current market rates during the third quarter of 2003, which were entered
into in an effort to fix our interest rate profile. Our financial income
decreased 77% from Ps103 million in the third quarter of 2002 to Ps23 million in
the third quarter of 2003 as a result of the decline in interest rates. Our net
foreign exchange results deteriorated significantly from a loss of Ps62 million
in the third quarter of 2002 to a loss of Ps1,295 million in the third quarter
of 2003. The foreign exchange loss in the third quarter of 2003 is primarily
attributable to the depreciation of the Peso against the Dollar and the
appreciation of the Japanese Yen against the Dollar as compared to the foreign
exchange loss in the third quarter of 2002, which also was primarily
attributable to the depreciation of the Peso against the Dollar, but was
partially offset by the depreciation of the Japanese Yen against the Dollar. Our
gain (loss) from valuation and liquidation of financial instruments improved
from a loss of Ps2,714 million in the third quarter of 2002 to a gain of Ps71
million in the third quarter of 2003, primarily attributable to valuation
improvements from our derivative financial instruments portfolio (discussed
below) during the third quarter of 2003. Our monetary position gain (generated
by the recognition of inflation effects over monetary assets and liabilities)
decreased from Ps914 million during the third quarter of 2002 to Ps751 million
during the third quarter of 2003, as a result of the decrease in the weighted
average inflation index in the third quarter of 2003 compared to the third
quarter 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,
7
fuel and energy derivatives and third party equity forward contracts. We
experienced valuation improvements in most of these financial derivatives
in the third quarter of 2003 compared to the third quarter of 2002, which
accounted for substantially all the gain recorded in the third quarter 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 improvement of our interest rate derivatives is primarily
attributable to an increase in the interest yield curve. During the third
quarter of 2003, changes in the estimated fair value of our cross currency
swaps did not have a material effect on the result recorded under the line
item gain (loss) on valuation and liquidation of financial instruments
since most of the effect of such changes is recorded under the line item
foreign exchange gain (loss), net (discussed above).
Other Expenses, Net
Our other expenses for the third quarter of 2003 were Ps1,004 million,
a 23% increase from Ps813 million in the third quarter of 2002. The increase was
primarily attributable to the combined effect of higher expenses from goodwill
amortization, higher losses in the sale of worn-out assets and higher
anti-dumping duty expense during the third quarter of 2003 compared to the third
quarter of 2002.
Income Taxes, Business Assets Tax and Employees' Statutory Profit Sharing
Our effective tax rate was 12.9% in the third quarter of 2003 compared
to 11.7% in the third quarter of 2002. Our tax expense, which primarily consists
of income taxes and business assets tax, increased from Ps41 million in the
third quarter of 2002 to Ps254 million in the third quarter of 2003. The
increase was attributable to higher taxable income in the third quarter of 2003
as compared to the third quarter of 2002. Our average statutory income tax rate
was approximately 34% in the third quarter of 2003 and approximately 35% in the
third quarter of 2002.
Employees' statutory profit sharing decreased from Ps39 million during
the third quarter of 2002 to Ps30 million during the third quarter 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 third quarter of
2003 increased 364%, from Ps371 million in the third quarter of 2002 to Ps1,719
million in the third quarter of 2003. The percentage of our consolidated net
income allocable to minority interests decreased from 50.9% in the third quarter
of 2002 to 10.3% in the third quarter of 2003, as a result of higher
consolidated net income in the third quarter of 2003 as compared to the third
quarter of 2002 and lower net income in Venezuela for the same period as
compared to 2002. Majority interest net income increased by 749%, from Ps182
million in the third quarter of 2002 to Ps1,543 million in the third quarter of
2003, mainly as a result of our increase in net sales, the valuation gains on
derivative financial instruments and a lower portion of consolidated net income
allocable to minority interests, partially offset by the decreases in our
foreign exchange loss and in our monetary position gain and higher income taxes.
As a percentage of net sales, majority interest net income increased from 1.0%
in the third quarter of 2002 to 7.6% in the third quarter of 2003.
Developments During the Third Quarter of 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,
8
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.
On September 25, 2003, a subsidiary of CEMEX, Inc. acquired the cement
assets of Dixon-Marquette Cement for a total purchase price of approximately
U.S.$84 million, subject to adjustments. Located in Dixon, Illinois, the single
cement facility has an annual production capacity of 560,000 metric tons.
Recent Developments Since September 30, 2003
Our Dutch subsidiary, New Sunward Holdings B.V., or New Sunward, is
currently negotiating with several banks the terms of a U.S.$1 billion senior
unsecured term loan facility. If we are successful in establishing this
facility, we intend to use the proceeds of loans issued under the new facility
to redeem the U.S.$650 million remaining notional amount outstanding of the
preferred equity transaction relating to the financing of our acquisition in
2000 of Southdown, Inc., now named CEMEX, Inc., that is included in our balance
sheet in the item minority interest. We intend to use any remaining proceeds of
loans issued under the new facility to repay debt. We cannot assure you,
however, that we will be able to successfully negotiate favorable terms for the
new facility.
9