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2011 ANNUAL REPORT

Financial Initiatives

Organizational Changes

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Financial Initiatives

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Commercial Strategies

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Sustainable Development

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Strengthening our balance sheet is critical to recreating sustainable, profitable growth—the ultimate goal of our transformation process. To that end, our track record demonstrates that we are “walking the talk” on this financial imperative:

• We have executed debt and equity transactions of US$10.7 billion since 2009, including long-term debt securities issuances of US$6.1 billion and equity transactions of US$4.6 billion.
• We have sold assets in the amount of US$2.6 billion since 2008.
  
• As a result of these transactions, we have prepaid approximately US$7.7 billion—or more than half of the US$15 billion Financing Agreement we entered into in 2009—and we have reduced total debt plus perpetual securities by US$4.2 billion since June 2009.
  
• In the process, we have significantly increased the average life of our debt, from two years in June 2009 to more than four years today.
  
• We have also diversified the sources of our funds.

Today, 59% of our debt is sourced from the capital markets, and 41% from commercial banks. Importantly, we have significantly reduced our exposure to interest rate volatility. Now, only 6% of our overall interest expense moves with base rates.

In 2011, our financial strategy contributed substantially to these results. First, in the face of a highly volatile environment, we refinanced almost US$2.6 billion through several market transactions. In the process, we practically eliminated our refinancing requirements through December 2013. Second, we kept our interest expense relatively stable. Third, we maintained more than adequate liquidity to support our operations. Fourth, we complied with our financial obligations under our Financial Agreement and met the final prepayment milestone ahead of schedule. This, together with the issuance of convertible securities at the beginning of the year, enabled us to avoid an aggregate 200-basis-point step-up in our interest expense, which translates into the avoidance of about a US$150 million per annum increase in our interest expense.

In addition to bolstering our balance sheet, we are determined to become even better stewards of the capital our shareholders have invested with us. We must use value-based management metrics such as Cash Value Added (CVA) and Return on Capital Employed (ROCE) to help us maximize long-term value creation; consistently evaluate cost of capital when making day-to-day decisions; shed unprofitable products; and divest unproductive assets. In this way, we are reshaping our portfolio to assure that we are in the right businesses in the right markets with the right returns. With this in mind, we are building our employees’ understanding of value management through our global training programs. We are also redrawing our compensation system, so our managers are rewarded for the variables they control and the value they create.

Panama Canal in Panama .
500,000 tons of cement for the third set of locks.

Panama Canal in Panama .
500,000 tons of cement for the third set of locks.