building a STRONGER foundation - Cemex

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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
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 mentioned in note 2T, CEMEX accounted for its stock option programs in 2008 according to IFRS 2 and beginning on January 1, 2009 under MFRS D-8, which provide basically the same accounting treatment. Effective January 1, 2006, under U.S. GAAP, CEMEX applies ASC 718, Compensation – Stock Compensation (“ASC 718”), which requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. Similar to MFRS D-8 under MFRS, ASC 718 requires liabilities incurred under stock awards to be measured at fair value at each balance sheet date, with changes in fair value recorded in the income statement. Likewise, MFRS D-8 and ASC 718 require compensation cost related to awards qualifying as equity instruments to be determined considering the grant-date fair value of the awards, and be recorded during the awards' vesting period. As of and for the years ended December 31, 2010, 2009 and 2008, the compensation expense and the liabilities accrued in connection with CEMEX's stock option programs under MFRS are the same amounts that would be determined using ASC 718 under U.S. GAAP. (j) Impairment of Long-Lived Assets Under U.S. GAAP, CEMEX assesses goodwill and indefinite-lived intangibles for impairment annually unless events occur that require more frequent reviews. Other long-lived assets, including amortizable intangibles, are tested for impairment if impairment triggers occur. Discounted cash flow analyses considering the required use of market considerations are applied to assess the possible impairment of goodwill and indefinite life intangible assets; whereas if impairment indicators exist, undiscounted cash flow analyses are used to assess the impairment for other longlived assets, including definite life intangible assets. If an assessment indicates impairment, the impaired asset is written down to its fair value based on the best information available. The useful lives of amortizable intangibles are evaluated periodically, and subsequent to impairment reviews, to determine whether revision is warranted. If cash flows related to an indefinite life intangible are not expected to continue for the foreseeable future, a useful life is assigned. Considerable management judgment is necessary to estimate undiscounted and discounted future cash flows. Assumptions used for these cash flows are consistent with internal forecasts and industry practices. As mentioned in note 2J, under MFRS, in order to test the balances of its long-lived assets for impairment, including goodwill, definite and indefinite life intangible assets and property, machinery and equipment, CEMEX determines the value in use, which consists of the discounted amount of estimated future cash flows to be generated by the related asset. The impairment loss results from the excess of the carrying amount over the value in use related to the asset. Differences in the carrying values of certain long-lived assets under U.S. GAAP as well as other factors explained below led to different impairment losses or impairment testing results between MFRS and U.S. GAAP. As of December 31, 2010 and 2009, CEMEX has no indefinite-lived intangible assets other than goodwill under both MFRS and U.S. GAAP. As mentioned in note 11B under MFRS, during the last quarter of 2010, 2009 and 2008, CEMEX performed its annual goodwill impairment test. Based on these analyses, in 2010, CEMEX determined an impairment loss of goodwill for approximately Ps189 (US$15) associated with the reporting unit in Puerto Rico, whereas, in 2008, goodwill impairment losses were determined for the United States, Ireland and Thailand reporting units for approximately Ps18,314 (US$1,333), including an impairment loss related to CEMEX’s Venezuelan investment in connection with its nationalization. For the year 2009, based on its goodwill impairment tests, CEMEX did not determine impairment losses of goodwill under MFRS. Likewise, considering triggering events in the United States during the fourth quarter of 2008, CEMEX tested its intangible assets of definite life in that country and determined that the net book value of certain trademarks exceeded their related value in use and recorded impairment losses of approximately Ps1,598 (US$116) (note 11). In addition, as mentioned in note 10, for the years ended December 31, 2010, 2009 and 2008, CEMEX recognized impairment losses in connection with the permanent closing of plant and equipment in several countries for an aggregate amount of approximately Ps1,161 (US$92), Ps503 (US$38) and Ps1,045 (US$76), respectively. Goodwill Under U.S. GAAP, if the carrying amount of the reporting unit exceeds its related fair value, CEMEX should apply a “second step” process by means of which the fair value of such reporting unit should be allocated to the fair value of its net assets in order to determine the reporting unit’s “implied” goodwill. The resulting impairment loss under U.S. GAAP is the difference between the carrying amount of the related goodwill as of the valuation date and the implied goodwill amount. This process, in addition to differences in the determination of the riskadjusted discount rates under MFRS as compared to U.S. GAAP, as well as differences in the reporting units’ carrying amounts between MFRS and U.S. GAAP, originate, when applicable, different amounts of impairment losses. To establish the fair value of its reporting units under U.S. GAAP, CEMEX initially calculated their fair value by discounting the projected future cash flows using country specific estimated weighted average cost of capital as the discount rates, and by including and blending the allocated fair value estimates, on a basis of 60% discounted cash flows and 40% Operating EBITDA (Operating income plus depreciation and amortization) multiples. As additional reference to the fair value as determined and as deemed necessary, CEMEX compared other market value indicators, including fair value estimates based on the Guided Transactions Approach and Industry Multiples. The results of the impairment test performed as of December 31, 2010 under U.S. GAAP indicated that the carrying amount of the reporting unit in Puerto Rico exceeded its estimated fair value. In connection with its reporting unit in Puerto Rico, CEMEX did not perform the second step considering that the related goodwill was fully impaired in the first step test; consequently, and considering that there were no differences in the goodwill balance of this reporting unit between MFRS and U.S. GAAP, there is no reconciling adjustment to the impairment loss relating to this reporting unit determined in 2010. As of December 31, 2010, goodwill under both MFRS and U.S. GAAP associated with CEMEX’s reporting unit in Puerto Rico was completely removed, as a consequence of an impairment of Ps189 (US$15). F-73
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CEMEX 2010 20F REPORT building a ST
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Securities registered or to be regi
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Qualitative and Quantitative Market
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INTRODUCTION CEMEX, S.A.B. de C.V.
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As a result of the foregoing transa
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In the U.S., the recession was long
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The Financing Agreement contains ev
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The Financing Agreement restricts u
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During 2009, we reduced the aggrega
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The instruments governing our debt
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On the legislative front, during th
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Our operations in South America, Ce
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the depositary to vote the CPOs und
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Beginning in 2008, MFRS B-10 has el
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(1) Cost of sales includes deprecia
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Item 4 - Information on the Company
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As a condition to closing the RMC a
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Provide our customers with the best
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In connection with the implementati
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In 2010, as a result of our efforts
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In addition, we are one of the worl
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(2) Our cement raw materials operat
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Our Corporate Structure We are a ho
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Cement in Mexico is sold principall
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Aggregates. Our aggregates operatio
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Beginning on June 30, 2008, Ready M
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Products and Distribution Channels
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On December 26, 2008, we sold our C
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Ready-Mix Concrete. Our ready-mix c
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Aggregates. In 2010, we reduced fix
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Our Operating Network in France Des
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In April 2006, we initiated an expa
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Our Operating Network in Colombia P
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Our Operations in Nicaragua Overvie
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Our Operations in the United Arab E
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Our Trading Operations In 2010, we
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On December 10, 2010, after receivi
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To prevent, control and remediate e
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As required by the directive, each
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For the 2010 fiscal year, CEMEX wil
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Separately, the government of Venez
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and CEMEX was required by August 11
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January 1, 2008, however, under MFR
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foreign subsidiaries. These instrum
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Valuation reserves on accounts rece
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Stage 1. Communication to the organ
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Year Ended December 31, 2010 Compar
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Geographic Segment 89 Variations in
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United Kingdom Our domestic cement
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ended December 31, 2010, Africa and
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Operating Income. For the reasons m
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Our comprehensive financing result
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The following tables present select
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Mexico Our domestic cement sales vo
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As a result of the decreases in dom
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For the year ended December 31, 200
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South America, Central America and
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On August 14, 2009, we entered into
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As of December 31, 2010, we had U.S
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Our Perpetual Debentures As of Dece
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The Financing Agreement, as amended
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In 1999, CEMEX entered into an agre
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Our Equity Derivative Forward Contr
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As of December 31, 2009 and 2010, C
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In addition, we have entered into f
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Private Cash Tender Offer to Holder
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Name, Position (Age) Experience Jai
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Name, Position (Age) Experience Ram
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Tomás Milmo Santos (46) Has been a
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Set forth below are the names of th
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Consolidated ESOP Information Stock
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Item 7 - Major Shareholders and Rel
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The following table sets forth the
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Item 10 - Additional Information Ar
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exempt from registration pursuant t
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Our board of directors shall prepar
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Under our by-laws, shareholders rep
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On June 2, 2008, CEMEX, through one
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Exchange Controls See “Item 3 —
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The gross amount of any dividends p
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We have agreed to pay some of the o
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Item 16G - Corporate Governance Sec
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Item 17 - Financial Statements Not
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4.17 Debenture Purchase Agreement,
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4.27.3 Amendment No. 1 to U.S.$525,
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4.41.4 Accession Letter, dated Janu
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4.57 Amended and Restated Dealer Ma
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SIGNATURES CEMEX, S.A.B. de C.V. he
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The Board of Directors and Stockhol
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CEMEX, S.A.B. DE C.V. AND SUBSIDIAR
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1. DESCRIPTION OF BUSINESS CEMEX, S
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C) USE OF ESTIMATES CEMEX, S.A.B. D
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J) IMPAIRMENT OF LONG LIVED ASSETS
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Contingencies and commitments (note
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V) CONCENTRATION OF CREDIT CEMEX, S
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building a STRONGER foundation - Cemex

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