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)
As of December 31, 2010 and 2009, according to ASC 470-20, Debt with Conversion and other Options (“ASC 470-20”), under U.S. GAAP, the
equity component of the Mandatorily Convertible Securities was reclassified to debt in the reconciliation of stockholders’ equity to U.S. GAAP and
is presented within “Other non-current liabilities” together with the liability component in the condensed balance sheet financial information under
US GAAP. Likewise, deferred income tax assets for approximately Ps562 in 2010 and Ps585 in 2009 recognized against stockholders’ equity under
MFRS in connection with this transaction were eliminated (note 15B). The exchange of CBs for the Mandatorily Convertible Securities also
qualified as the issuance of new debt and the extinguishment of the old facilities under ASC 470-50, which required CEMEX to measure the new
financial obligation at fair value at inception and to recognize as interest expense in the reconciliation of net income (loss) to U.S. GAAP in 2009: a)
the issuance costs related to the liability component, which were capitalized as deferred financing costs under MFRS for approximately
Ps67(US$5), and b) the issuance costs related to the equity component recognized within “Other equity reserves” under MFRS for approximately
Ps65 (US$5). Under U.S. GAAP, a deferred income tax asset of Ps34 and Ps37 at December 31, 2010 and 2009, 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 the liability component of the Mandatorily
Convertible Securities that were fully expensed under U.S. GAAP in 2009 led to the recognition of an income of approximately Ps10.
The fair value at measurement date approximates to the carrying value of approximately Ps4,126 (US$315) at December 31, 2009 determined
by CEMEX for the Mandatorily Convertible Securities, and it is considered a Level 2 fair value measurement given that the market price of
these securities was available but the contract included a one-year trading restriction. As of December 31, 2010, the fair value of the
Mandatorily Convertible Securities was Ps3,780 (US$306), considered as a Level 1 fair value measurement.
2010 Optional Convertible Subordinated Notes
Under MFRS, the 2010 Optional Convertible Subordinated Notes issued on March 30, 2010 for approximately Ps8,837 (US$715), represent a
compound instrument which has a liability component and an equity component (note 12A). The equity component, which represents the
premium of the noteholders’ call option, amounted to Ps1,232, net of commissions of Ps26, and was recognized upon issuance within “Other
equity reserves.” As of December 31, 2010, the liability component for these notes amounted to approximately Ps7,690 (US$622). As of
December 31, 2010 the fair value of the Optional Convertible Notes was Ps9,654 (US$781), considered as a Level 2 fair value measurement
given that the market price of these notes was available but the contract included a one-year trading restriction.
As of December 31, 2010, pursuant to ASC 470-20 under U.S. GAAP, the equity component of the 2010 Optional Convertible Subordinated
Notes was reclassified to debt in the reconciliation of stockholders’ equity to U.S. GAAP and is presented within “Other non-current liabilities”
together with the liability component in the condensed balance sheet financial information under US GAAP. Likewise, a deferred income tax
liability for approximately Ps315 in 2010 recognized against stockholders’ equity under MFRS in connection with this transaction was eliminated
(note 15B). Moreover, the issuance costs related to the equity component recognized within “Other equity reserves” in 2010 under MFRS for
approximately Ps26 (US$2) was reclassified to deferred financing costs under U.S. GAAP. In the reconciliation of net income (loss) to U.S.
GAAP for 2010, the amortization of deferred financing costs recognized under U.S. GAAP associated with the equity component of these notes
that were recognized in equity under MFRS in 2010 led to the recognition of interest expense of approximately Ps4.
Fair Value Option
Beginning in January 1, 2008, ASC 825, Financial Instruments (“ASC 825”), provides entities with an option to measure several financial
instruments and certain other items at fair value. Under ASC 825, unrealized gains and losses on items for which the fair value option has
been elected are reported in earnings at each reporting period. As of and for the years ended December 31, 2010, 2009 and 2008, CEMEX has
not elected to measure any financial instruments or other items at fair value.
Fair value of non-financial assets and non-financial liabilities
On January 1, 2009, CEMEX adopted ASC Topic 820, Fair Value Measurements and Disclosures, for fair value measurements of nonfinancial
assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis.
For the periods ended December 31, 2010 and 2009 the non-financial assets and non-financial liabilities mentioned below correspond to a
Level 3 measurement according to such topic.
Based on the requirements of ASC 40-20-35, asset retirement and environmental obligations in 2010 and 2009 amounted to approximately
Ps5,658 (US$460) and Ps5,322 (US$407), respectively, and are calculated based on the present value of estimated removal and other closure
costs using our internal risk-free rate of return or an appropriate equivalent as detailed in note 2L and note 13.
As indicated in ASC 360-10-35, long-lived assets held for sale with a carrying amount of Ps965 (US$78) in 2010 and Ps1,255 (US$96) in
2009 are stated as mentioned in note 8 at their estimated realizable value and include real state properties received in payment of trade
receivables. CEMEX recognized, under MFRS, impairment losses in connection with assets held for sale in 2010 and 2009 for approximately
Ps420 (US$31) and Ps253 (US$19) respectively, which were included in the consolidated statement of operations under both MFRS and U.S.
GAAP for the respective periods.
(i) Stock Award Programs
The balance of options outstanding at December 31, 2010 and 2009 and other general information regarding CEMEX's stock awards is
presented in note 17.
F-72