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)
The fair values determined by CEMEX for its derivative financial instruments are Level 2. There is no direct measure for the risk of CEMEX
or its counterparties in connection with the derivative instruments. Therefore, the risk factors applied for CEMEX’s assets and liabilities
originated by the valuation of such derivatives were extrapolated from publicly available risk discounts for other public debt instruments of
CEMEX and its counterparties.
The following table presents a comparison of fair values between MFRS and U.S. GAAP at December 31, 2010 and 2009. The reconciling
adjustments arising from the differences in fair value between MFRS and U.S. GAAP for the years ended December 31, 2010, 2009 and
2008, represented a gain of approximately US$1 (Ps12 or Ps8 after deferred income tax), a loss of approximately US$88 (Ps1,207 or Ps890
after deferred income tax) and a gain of approximately US$95 (Ps1,305 or Ps960 after deferred income tax), respectively.
2010 2009
(U.S. dollars millions)
Active derivative instruments (note 12C)
MFRS U.S. GAAP Adjustment MFRS U.S. GAAP Adjustment
Derivative instruments related to interest rates ..................... US$ 35 34 (1) 27 26 (1)
Derivative instruments related to other equity ...................... 16 16 – 55 55 –
Derivative instruments related to equity instruments............ (71) (62) 9 (79) (71) 8
Total...................................................................................... US$ (20) (12) 8 3 10 7
The fair values under both MFRS and U.S. GAAP presented in the table above at December 31, 2010 and 2009 include approximately
US$160 (Ps1,978) and US$195 (Ps2,553), respectively, of deposits in margin accounts with financial institutions (note 12C).
Fair Value of Perpetual Debentures
As of December 31, 2010 and 2009, the fair value of CEMEX’s perpetual debentures (note 16D) was approximately Ps10,927 (US$884) and
Ps27,594 (US$2,108), respectively. Based on ASC 820, such fair values represent Level 1 measurements which were determined considering
quoted market prices of the perpetual debentures as they are available.
Effects of CEMEX’s Financing Agreement under U.S. GAAP
As detailed in note 12A, on August 14, 2009, CEMEX entered into the Financing Agreement with its major creditors, which extended the
maturity of approximately US$14,961 (Ps195,839) of syndicated and bilateral loans and private placement obligations. Under MFRS, the
Financing Agreement qualified as the issuance of new debt and the extinguishment of the old facilities, as it did under US GAAP according to
ASC 470-50, Debt – Modifications and Extinguishments (“ASC 470-50”). However, as opposed to MFRS in which the nominal amount of
the new debt is used for the determination of gain and losses at inception, under U.S. GAAP, the new long-term debt should be measured at
fair value at inception of the new debt in order to determine gains or losses on extinguishment.
CEMEX segregated the extinguished instruments into long term facilities and revolving credit lines and determined the accounting treatment
for each of these components as follows:
a) The fair value at measurement date of the long term facilities with a nominal amount of approximately US$11,368 (Ps148,807) was
determined to be approximately US$11,357 (Ps148,663), which represents a Level 2 measurement under ASC 820 as there was no
direct measure of the instrument or CEMEX’s default risk. The fair value adjustment required under U.S. GAAP was a decrease in the
liability and a corresponding gain in the reconciliation of net income (loss) to U.S. GAAP in 2009 for approximately US$11 (Ps150);
for 2010 an amortization of Ps38 was recognized. As of December 31, 2010, the fair value of the long term facilities was US$7,093.
Issuance costs and commissions paid, which under MFRS were capitalized as deferred financing costs and are subject to amortization
throughout the life of the instrument, were fully expensed in the reconciliation of net income (loss) to U.S. GAAP in 2009 for
approximately Ps6,016 (US$442). As of December 31, 2010 and 2009, a deferred income tax asset under U.S. GAAP for
approximately Ps1,250 and Ps1,786, respectively, was recognized in connection with the commissions and issuance costs mentioned
above. In the reconciliation of net income (loss) to U.S. GAAP for 2010, the reversal of the amortization of deferred financing costs
recognized under MFRS associated with CEMEX’s debt under the Financing Agreement that were fully expensed under U.S. GAAP in
2010 led to the recognition of an income of approximately Ps1,562.
b) The revolving credit lines retained their original carrying amount of approximately US$3,593 (Ps47,032) in accordance with ASC 470-
50. The provisions of the Financing Agreement increased the borrowing capacity relative to these revolving credit lines and therefore,
previously capitalized borrowing costs, which were not significant, will continue to be amortized throughout the term of the Financing
Agreement. New borrowing costs for approximately Ps811 (US$62) were capitalized as deferred financing costs during 2009 and will
be amortized throughout the term of the Financing Agreement under both MFRS and U.S. GAAP.
Mandatorily Convertible Securities
Under MFRS, the Mandatorily Convertible Securities issued in Mexico on December 10, 2009 for approximately Ps4,126 (US$315) in
exchange for CBs (note 12A), represent a compound instrument which has a liability component and an equity component. The liability
component, which amounted to Ps1,994 and Ps2,090 as of December 31, 2010 and 2009, respectively, represents the net present value of
interest payments on the principal amount, without assuming any early conversion, and was recognized within “Other financial obligations”
(note 12A). The equity component for approximately Ps1,971, net of commissions of Ps65, which represents the difference between the
principal amount and the liability component at the beginning of the transaction was recognized within “Other equity reserves” (note 16B).
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