building a STRONGER foundation - Cemex

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)
Quoted prices in
active markets for
identical assets observable inputs inputs
Total
2009
(Level 1)
(Level 2) (Level 3) fair value
Fixed-income securities
Cash.................................................................................... Ps 1,286 – – 1,286
Investments in corporate bonds .......................................... 3,860 1,772 – 5,632
Investments in government bonds ...................................... 6,685 – – 6,685
11,831 1,772 – 13,603
F-69
Significant
Significant
unobservable
Variable-income securities
Investment in marketable securities.................................... 5,704 – 27 5,731
Other investments and private funds................................... 1,882 42 423 2,347
7,586 42 450 8,078
Ps 19,417 1,814 450 21,681
Due to limited market information, we utilized different methods to determine the Level 3 unobservable inputs fair value breakdown. This
category includes temporary investments based on pricing of the investment manager for private funds and private equity in real estate.
(f) Non-controlling Interest
Financing Transactions
In connection with CEMEX’s perpetual debentures (note 16D) for notional amounts of approximately US$1,320 (Ps16,310) in 2010 and
US$3,045 (Ps39,859) in 2009, which are treated as equity instruments and included as part of non-controlling interest under MFRS, for
purposes of the reconciliation of stockholders’ equity to U.S. GAAP, such perpetual debentures were reclassified to long-term debt under
U.S. GAAP, reducing stockholders’ equity under U.S. GAAP in the amount of Ps16,310 in 2010 and Ps39,859 in 2009. Interest accrued on
the perpetual debentures, including interest incurred in connection with perpetual loan facilities that were originated and settled during the
year (note 12A and 16D), for approximately Ps1,624 in 2010, Ps2,704 in 2009 and Ps2,596 in 2008 recognized within “Other equity reserves”
under MFRS were reclassified to interest expense in the reconciliation of net income (loss) to U.S. GAAP.
As detailed in note 12A, in May 2010, CEMEX exchanged part of its perpetual debentures into new senior secured notes. As a result of the
exchange, a gain of approximately Ps5,401 was recorded in “Other equity reserves”. According to ASC 470-50, Debt – Modifications and
Extinguishments (“ASC 470-50”), new debt instruments shall be initially recorded at fair value, and that amount shall be used to determine
the debt extinguishment gain or losses. Under MFRS, the senior secured notes qualified as the issuance of new debt and the extinguishment of
the perpetual debentures, as it did under U.S. GAAP. The extinguishment gain of Ps5,401 recognized within “Other equity reserves” under
MFRS was reclassified to comprehensive financial result in the reconciliation of net income (loss) to U.S. GAAP. The fair value of the senior
secured notes under U.S. GAAP approximates its nominal value at the time of issuance. As of December 31, 2010 the fair value of the senior
secured notes was of approximately US$1,193.
Non-controlling Interest under U.S. GAAP
Under both MFRS and U.S. GAAP, non-controlling interest in consolidated subsidiaries represent ownership interests in the consolidated
entity that are presented as a separate component within stockholders’ equity. Likewise, under both MFRS and U.S. GAAP, the reported
consolidated net income (loss) presents the amounts attributable to both the parent and the non-controlling interest on the face of the
consolidated income statement. There were no U.S. GAAP adjustments attributable to non-controlling interests as of December 31, 2010 and
2009 or for any of the years in the three year period ended December 31, 2010.
(g) Inflation Adjustment of Machinery and Equipment
According to Regulation S-X, when inflationary accounting is applicable under MFRS, fixed assets of foreign origin should be restated by
applying the inflation rate of the country that holds the assets, regardless of the assets’ origin countries, instead of using the applicable
methodology of MFRS until December 31, 2007, under which fixed assets of foreign origin were restated by applying a factor that considered
the inflation of the asset’s origin country and the fluctuation of the currency of the country that holds the asset against the currency of the
asset’s origin country. Depreciation expense is based upon the revised amounts. The amount recognized in the reconciliation of net income
(loss) to U.S. GAAP in 2010, 2009 and 2008 refers to depreciation expense of the cumulative effect of the reconciling item as of December
31, 2007, the date on which inflationary accounting was suspended under MFRS. The amount recognized in the reconciliation of
stockholders’ equity to U.S. GAAP in 2010 and 2009 includes Ps2,410 (US$195) ((Ps1,591 (US$129) net of income tax) and Ps2,553
(US$195) ((Ps1,685 (US$129) net of income tax), respectively, related to the revaluation of fixed assets nationalized in Venezuela, which are
presented net in the caption “Non-current accounts receivable and other assets.” Beginning in 2008, if inflationary accounting is applicable
under MFRS, fixed assets of foreign origin are restated using the factors derived from the general price indexes of the countries holding the
assets, in a manner similar to that permitted under Regulation S-X.