building a STRONGER foundation - Cemex

C) USE OF ESTIMATES
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements – (Continued)
As of December 31, 2010, 2009 and 2008
(Millions of Mexican pesos)
The preparation of financial statements in accordance with MFRS requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well
as the reported amounts of revenues and expenses during the period. These assumptions are reviewed on an ongoing basis using available
information. Actual results could differ from these estimates.
The main captions subject to estimates and assumptions include, among others, long-lived assets, allowances for doubtful accounts and
inventories, deferred income tax assets, the measurement of financial instruments at fair value, and the assets and liabilities related to
employee benefits.
D) FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS
Transactions denominated in foreign currencies are recorded at the exchange rates prevailing on the dates of their execution. Monetary assets
and liabilities denominated in foreign currencies are translated into pesos at the exchange rates prevailing at the balance sheet date, and the
resulting foreign exchange fluctuations are recognized in earnings, except for exchange fluctuations arising from: 1) foreign currency
indebtedness directly related to the acquisition of foreign entities; and 2) fluctuations associated with related parties’ balances denominated in
foreign currency that are of a long-term investment nature. These fluctuations are recorded against stockholders’ equity, as part of the foreign
currency translation adjustment of foreign subsidiaries (note 16B).
The financial statements of foreign subsidiaries, which are determined using the functional currency applicable in each country, are translated
to pesos at the closing exchange rate for balance sheet accounts and at the average exchange rates of each month for income statement
accounts. The corresponding translation adjustment is included within “Other equity reserves” in the balance sheet. The closing exchange
rates and the approximate average exchange rates for balance sheet accounts and income statement accounts, respectively, in 2010, 2009 and
2008, were as follows:
2010 2009 2008
Currency Closing Average Closing Average Closing Average
United States Dollar........................... 12.3600 12.6700 13.0900 13.6000 13.7400 11.2100
Euro ................................................... 16.4822 16.7106 18.7402 18.9186 19.2060 16.4394
British Pound Sterling........................ 19.2854 19.5404 21.1436 21.2442 20.0496 20.4413
Colombian Peso ................................. 0.0065 0.0067 0.0064 0.0062 0.0061 0.0056
Egyptian Pound.................................. 2.1285 2.2410 2.3823 2.4483 2.4889 2.0578
Philippine Peso .................................. 0.2819 0.2813 0.2833 0.2845 0.2891 0.2509
The financial statements of foreign subsidiaries are initially translated from their functional currencies into dollars and subsequently into
pesos. Therefore, the foreign exchange rates presented in the table above between the functional currency and the peso represent the exchange
rates resulting from this methodology. The peso to U.S. dollar exchange rate used by CEMEX is an average of free market rates available to
settle its foreign currency transactions. No significant differences exist, in any case, between the foreign exchange rates used by CEMEX and
those exchange rates published by the Mexican Central Bank.
E) CASH AND INVESTMENTS (note 4)
The balance in this caption is comprised of available amounts of cash and cash equivalents, mainly represented by short-term investments of
high liquidity, which are easily convertible into cash, and which are not subject to significant risks for changes in their values, including
overnight investments, which yield fixed returns and have maturities of less than three months from the investment date. Those fixed-income
investments are recorded at cost plus accrued interest. Other investments which are easily convertible into cash are recorded at market value.
Gains or losses resulting from changes in market values and accrued interest are included as part of the Comprehensive Financing Result.
Beginning on January 1, 2010, based on new MFRS C-1, “Cash and Cash Equivalents,” restricted amounts of cash and investments,
comprised by deposits in margin accounts with suppliers and financial institutions that guarantee CEMEX obligations under commercial
transactions as well as those associated with derivative financial instruments, to the extent that the restriction will be lifted in less than three
months at the balance sheet date. When the restriction period is greater than three months, such restricted cash and investments are not
considered cash equivalents and are included within short-term or long-term “Other accounts receivable,” as appropriate. When contracts
contain provisions for net settlement, these restricted amounts are offset against the liabilities that CEMEX has with its counterparties.
F) INVENTORIES (note 7)
Inventories are valued using the lower of their production cost and market value. Production cost may correspond to the latest purchase price, the
average price of the last purchases or the last production cost. CEMEX analyzes its inventory balances to determine if, as a result of internal events,
such as physical damage, or external events, such as technological changes or market conditions, certain portions of such balances have become
obsolete or impaired. When an impairment situation arises, the inventory balance is adjusted to its net realizable value, whereas, if an obsolescence
situation occurs, the inventory obsolescence reserve is increased. In both cases, these adjustments are recognized against the results of the period.
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