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Annex A

Independent auditors’ report

The Board of Directors and Stockholders CEMEX, S.A.B. de C.V.:

We have audited the accompanying separate financial statements of CEMEX, S.A.B. de C.V. (“the Company”), which comprise the balance sheets as at December 31, 2012 and 2011, the statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for the years ended December 31, 2012, 2011 and 2010, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Separate Financial Statements

Management is responsible for the preparation and fair presentation of these separate financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these separate financial statements based on our audits. We conducted our audits in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the unconsolidated financial position of CEMEX, S.A.B. de C.V. as at December 31, 2012 and 2011, and its unconsolidated financial performance and its unconsolidated cash flows for the years ended December 31, 2012, 2011 and 2010, in accordance with International Financial Reporting Standards.

KPMG Cárdenas Dosal, S.C.

Celin Zorrilla Rizo

Monterrey, N.L., Mexico
February 1st, 2013

Statements of operations

CEMEX, S.A.B. DE C.V. (Parent company-only) (Millions of Mexican pesos)

      Years ended December 31,
  Note   2012 2011 2010
Rental income 11 $ 335 336 370
License fees 11   907 978 814
Total revenues     1,242 1,314 1,184
Administrative expenses     (169) (130) (74)
Operating earnings before other expenses, net 1     1,073 1,184 1,110
Other expenses, net 3   (839) (1,413) (1,154)
Operating earnings 2     234 (229) (44)
Financial expense 10   (8,655) (7,928) (7,343)
Other financial income, net 4   808 1,306 2,471
Foreign exchange results     9,113 (12,952) 4,196
Income (loss) before income tax     1,500 (19,803) (720)
Income tax 12   (1,709) (468) (2,954)
Net loss   $ (209) (20,271) (3,674)

1 The line item “Operating earnings before other expenses, net” was titled by CEMEX, S.A.B de C.V. in prior years as “Operating income” (note 2A).

2 The line item “Operating earnings” was titled by CEMEX, S.A.B de C.V. in prior years as “Operating income (loss) after other expenses, net” (note 2A).

The accompanying notes are part of these Parent Company-only financial statements.

Statements of comprehensive loss

CEMEX, S.A.B. DE C.V. (Parent company-only) (Millions of Mexican pesos)

      Years ended December 31,
  Note   2012 2011 2010
Net loss   $ (209) (20,271) (3,674)
Items that will not be reclassified subsequently to profit or loss
Income tax recognized directly in other comprehensive income 12   (31) (31) (37)
Other comprehensive loss for the period     (31) (31) (37)
Total comprehensive loss for the period   $ (240) (20,302) (3,711)

The accompanying notes are part of these Parent Company-only financial statements.

Balance Sheets

CEMEX, S.A.B. DE C.V. (Parent company-only) (Millions of Mexican pesos)

      Years ended December 31,
  Note   2012 2011
Assets
Current assets
Cash and cash equivalents 5 $ 20 4,103
Other accounts receivable 6   645 498
Accounts receivable from related parties 11   277 670
Total current assets     942 5,271
Non-current assets
Investments in subsidiaries and associates 7A   309,166 298,560
Other investments and non-current accounts receivable 7B   4,374 1,889
Long-term accounts receivable from related parties 11   6,942 13,943
Land and buildings, net 8   2,036 2,148
Goodwill 2K   1,894 1,894
Deferred income taxes 12B   3,282 4,585
Total non-current assets     327,694 323,019
Total assets     328,636 328,290
Liabilities and stockholders’ equity        
Current liabilities        
Short-term debt including current maturities of long-term debt 10A $ 64 4,154
Other financial obligations 10B   152 131
Other accounts payable and accrued expenses 9   4,069 3,519
Accounts payable to related parties 11   20,170 11,002
Total current liabilities     24,455 18,806
Non-current liabilities        
Long-term debt 10A   52,365 60,517
Other financial obligations 10B   27,826 29,219
Long-term accounts payable to related parties 11   15,814 17,146
Other liabilities 12A   18,516 12,702
Total non-current liabilities     114,521 119,584
Total liabilities     138,976 138,390
Stockholders’ equity        
Common stock and additional paid-in capital 13A   118,068 113,444
Other equity reserves     (735) (218)
Retained earnings 13B   72,536 96,945
Net loss     (209) (20,271)
Total stockholders’ equity     189,660 189,900
Total liabilities and stockholders’ equity   $ 328,636 328,290

The accompanying notes are part of these Parent Company-only financial statements.

Statements of cash flows

CEMEX, S.A.B. DE C.V. (Parent company-only) (Millions of Mexican pesos)

      Years ended December 31,
  Note   2012 2011 2010
Operating activities
Net loss   $ (209) (20,271) (3,674)
Non-cash items:
Depreciation of buildings 8   10 4 6
Comprehensive financing result     (1,266) 19,574 676
Income taxes 12   1,709 468 2,954
Changes in working capital     16,120 13,470 3,672
Net cash flow provided by operating
activities before interest and income taxes
    16,364 13,245 3,634
Financial expense paid in cash     (8,282) (6,383) (5,873)
Income taxes paid in cash 12   (1,092) (506) (325)
Net cash flows provided by (used in) operating activities     6,990) 6,356 (2,564)
Investing activities
Investments in subsidiaries     (3,587) - -
Long-term assets, net     - 3 33
Land and buildings     170 - -
Net cash flows (used in) provided by investing activities     (3,417) 3 33
Financing activities
Long-term related parties, net 11   2,350 (29,076) 5,633
Issuance of common stock 13A   - 11 5
Derivative instruments     2,027 (5,118) (141)
Repayment of debt, net 10   (11,158) 32,277 (2,536)
Other financial expenses paid in cash 10   (875) (545) (235
Net cash flows (used in) provided by financing activities     (7,656) (2,451) 2,726
Increase (decrease) in cash and cash equivalents     (4,083) 3,908 195
Cash and cash equivalents at beginning of the year     4,103 195 -
Cash and cash equivalents at end of year 5 $ 20 4,103 195
Changes in working capital:
Other accounts receivable   $ (147) (722) (283)
Short-term related parties, net 11   15,076 12,371 4,036
Other accounts payable and accrued expenses 9   1,191 1,821 (81)
Changes in working capital, excluding income taxes     16,120 13,470 3,672

The accompanying notes are part of these Parent Company-only financial statements.

Statements of changes in stockholders’ equity

CEMEX, S.A.B. DE C.V. (Parent company-only) (Millions of Mexican pesos)

  Note   Common stock Additional
paid-in
capital
Other
equity
reserves
Retained
earnings
Total
stockholders’
equity
Balances at January 1, 2010   $ 4,127 98,797 673 110,316 213,913
Total other items of comprehensive loss for the period     - - (37) (3,674) (3,711)
Capitalization of retained earnings 13A   5 5,476 - (5,481) -
Issuance of common stock for stock compensation programs 13A   - 317 (317) - -
Balance at December 31, 2010     4,132 104,590 319 101,161 210,202
Total other items of comprehensive loss for the period     - - (31) (20,271) (20,302)
Capitalization of retained earnings 13A   3 4,213 - (4,216) -
Issuance of common stock for stock compensation programs 13A   - 505 (506) - -
Balance at December 31, 2011     4,135 109,309 (218) 76,674 189,900
Total other items of comprehensive loss for the period     - - (31) (209) (240)
Capitalization of retained earnings 13A   4 4,134 - (4,138) -
Issuance of common stock for stock compensation programs 13A   - 485 (486) - -
Balance at December 31, 2012   $ 4,139 113,929 (735) 72,327 189,660

The accompanying notes are part of these Parent Company-only financial statements

Notes to the financial statements

CEMEX, S.A.B. DE C.V. (Parent company-only) As of December 31, 2012, 2011 and 2010 (Millions of Mexican pesos)

1) Description of business

CEMEX, S.A.B. de C.V. is a Mexican holding company (parent) of entities whose main activities are oriented to the construction industry, through the production, marketing, distribution and sale of cement, ready-mix concrete, aggregates and other construction materials. CEMEX is a public stock corporation with variable capital (S.A.B. de C.V.) organized under the laws of the United Mexican States, or Mexico.

CEMEX, S.A.B. de C.V. was founded in 1906 and was registered with the Mercantile Section of the Public Register of Property and Commerce in Monterrey, N.L., Mexico in 1920 for a period of 99 years. In 2002, this period was extended to the year 2100. The shares of CEMEX, S.A.B. de C.V. are listed on the Mexican Stock Exchange (“MSE”) as Ordinary Participation Certificates (“CPOs”). Each CPO represents two series “A” shares and one series “B” share of common stock of CEMEX, S.A.B. de C.V. In addition, CEMEX, S.A.B. de C.V.’s shares are listed on the New York Stock Exchange (“NYSE”) as American Depositary Shares (“ADSs”) under the symbol “CX.” Each ADS represents ten CPOs.

The term “CEMEX, S.A.B. de C.V.” used in these accompanying notes to the parent company-only financial statements refers to CEMEX, S.A.B. de C.V. without its consolidated subsidiaries. The terms the “Company” or “CEMEX” refer to CEMEX, S.A.B. de C.V. together with its consolidated subsidiaries. The issuance of these parent company-only financial statements was authorized by the management of CEMEX, S.A.B. de C.V. on January 31, 2013. On this date, the consolidated financial statements of CEMEX were also issued.

2) Significant accounting policies

2A) Basis of presentation and disclosure

In November 2008, the CNBV issued regulation requiring registrants whose shares are listed on the MSE, to stop preparing their consolidated financial statements using Mexican Financial Reporting Standards (“MFRS”) and to begin preparing their consolidated financial statements using International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) no later than January 1, 2012. In connection with this requirement, these parent company-only financial statements of CEMEX, S.A.B. de C.V. as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010, were prepared in accordance with IFRS as issued by the IASB. CEMEX, S.A.B. de C.V. also issued its first financial statements under IFRS, which were as of December 31, 2011 and 2010 and as of January 1, 2010, and for the years ended December 31, 2011 and 2010 (not included in this report), in which CEMEX, S.A.B. de C.V. described the options it made in the migration to IFRS and the effects that such migration had on (i) CEMEX, S.A.B. de C.V.’s opening balance sheet as of January 1, 2010, according to IFRS 1, First time adoption (“IFRS 1”), (ii) CEMEX’s balance sheets as of December 31, 2011 and 2010, and (iii) CEMEX’s S.A.B. de C.V. statements of operations, statements of comprehensive income (loss) and statements of cash flows for the years ended December 31, 2011 and 2010, in each case, as compared to CEMEX’s S.A.B. de C.V. previously reported amounts under MFRS.

Definition of terms

When reference is made to pesos or “$,” it means Mexican pesos. Except when specific references are made to “prices per share,” the amounts in the financial statements and the accompanying notes are stated in millions of pesos. When reference is made to “US$” or dollars, it means millions of dollars of the United States of America (“United States”).

When it is deemed relevant, certain amounts presented in the notes to the parent company-only financial statements include in parentheses a convenience translation into dollars, pesos, or both, as applicable. These translations should not be construed as representations that the amounts in pesos or dollars, as applicable, actually represent those peso or dollar amounts or could be converted into pesos or dollars at the rate indicated. In 2012 and 2011, translations of pesos into dollars and dollars into pesos, were determined for balance sheet amounts using the closing exchange rates of $12.85 and $13.96 pesos per dollar, respectively, and for statements of operations amounts, using the average exchange rates of $13.15, $12.48 and $12.67 pesos per dollar for the years ended December 31, 2012, 2011 and 2010, respectively.

Statements of operations

In CEMEX, S.A.B. de C.V.’s statements of operations for the years ended December 31, 2012, 2011 and 2010, the line item currently titled “Operating earnings before other expenses, net” was previously titled “Operating income (loss)” and the line item currently titled “Operating earnings” was previously titled “Operating income (loss) after other expenses, net.” CEMEX, S.A.B. de C.V. made these changes to comply with industry practice when filing financial statements under IFRS with the SEC based on the guidance set forth in paragraph 56 of the Basis for Conclusions of IAS 1, Presentation of Financial Statements (“IAS 1”). However, such changes in line-item titles do not represent any change in the CEMEX, S.A.B. de C.V.’s accounting practices, policies or methodologies under IFRS as compared to prior years. Consequently, the line item “Operating earnings before other expenses, net” is directly comparable with the line item “Operating income (loss)” presented in prior years and the line item “Operating earnings (loss)” is directly comparable with the line item “Operating income (loss) after other expenses, net” presented in prior years.

The line item “Other expenses, net” in the statements of operations consists primarily of revenues and expenses not directly related to CEMEX, S.A.B. de C.V.’s main activity, or which are of an unusual and/or non-recurring nature.

Statements of other comprehensive loss

For the years ended December 31, 2012, 2011 and 2010, the CEMEX, S.A.B. de C.V. adopted amendments to IAS 1, which, among other things, require entities to present line items for amounts of other comprehensive income (loss) in the period grouped into those that, in accordance with other IFRS: a) will not be reclassified subsequently to profit or loss; and b) will be reclassified subsequently to profit or loss when specific conditions are met.

Statements of cash flows

The statements of cash flows present cash inflows and outflows in nominal pesos, excluding effects of inflation and unrealized foreign exchange effects. The statements of cash flows exclude transactions that did not represent sources or uses of cash such as:

  • In 2012 and 2011, the increases in stockholders’ equity associated with dividends in shares through the capitalization of retained earnings for $4,138 and $4,216, respectively (note 13A);
  • In 2012 and 2011, the increases in stockholders’ equity associated with the CPOs issued as part of the executive stock-based compensation for $486 and $506 (note 13A), respectively;
2B) Use of estimates and critical assumptions

The preparation of financial statements in accordance with IFRS principles 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 by management include, among others, impairment tests of long-lived assets and the subsidiaries and associates investment, allowances for doubtful accounts, recognition of deferred income tax assets, as well as the measurement of financial instruments. Significant judgment by management is required to appropriately assess the amounts of these assets and liabilities.

2C) Foreign currency transactions

According to IAS 21, the effects of changes in foreign exchange rates (“IAS 21”), transactions denominated in foreign currencies are recorded in the functional currency at the exchange rates prevailing on the dates of their execution. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date, and the resulting foreign exchange fluctuations are recognized in earnings.

The most significant closing exchange rates and the approximate average exchange rates for balance sheet accounts and income statement accounts, respectively, of pesos per dollar as of December, 31 2012, 2011 and 2010, were as follows:

  2012 2011 2010
Currency Closing Average Closing Average Closing Average
United States Dollar 12.8500 13.1500 13.9600 12.4800 12.3600 12.6700

The peso to U.S. dollar exchange rate used by CEMEX, S.A.B. de C.V. 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, S.A.B. de C.V. and those exchange rates published by the Mexican Central Bank.

2D) Business concentration

CEMEX, S.A.B. de C.V. provides 100% of its services to the subsidiaries in the countries in which the company has operations. According to its analysis, CEMEX, S.A.B. de C.V. considers there is no risk relative to the recovery of its accounts receivable.

2E) Cash and cash equivalents (note 5)

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. Interest-accruing investments are recorded at cost plus accrued interest. Other investments which are easily convertible into cash are recorded at their market value. Gains or losses resulting from changes in market values and accrued interest are included in the statements of operations as part of other financing cost, net.

The amount of cash and cash equivalents in the balance sheet includes restricted cash and investments, comprised by deposits in margin accounts that guarantee several of CEMEX, S.A.B. de C.V.’s obligations, to the extent that the restriction will be lifted in less than three months from 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 of cash and cash equivalents are offset against the liabilities that CEMEX, S.A.B. de C.V. has with its counterparts.

2F) Other short-term accounts receivable (note 6)

According to IAS 39, Financial instruments: recognition and measurement (“IAS 39”), items under this caption classified as “loans and receivables,” are recorded at their amortized cost, which is represented by their net present value as of the transaction date. Due to their short-term nature, CEMEX S.A.B. de C.V. initially recognizes these receivables at the original invoiced amount.

2G) Investments in subsdiaries and associates (note 7A)

According to IAS 27, Consolidated and separate financial statements (“IAS 27”), investments in controlled entities and associates, which are not classified as held for sale, are measured using the cost method.

2H) Other investments and non-current receivables (note 7B)

As part of the category of “loans and receivables” under IAS 39, non-current accounts receivable, as well as investments classified as held to maturity are initially recognized at their amortized cost. Subsequent changes in net present value are recognized in the statements of operations as part of other financial income, net.

Investments in financial instruments held for trading, as well as those investments available for sale, classified under IAS 39, are recognized at their estimated fair value, in the first case through the statements of operations as part of other financial income, net, and in the second case, changes in valuation are recognized as part of other comprehensive loss of the period within other equity reserves until their disposition, moment in which all valuation effects accrued in equity are reclassified to other financial income, net in the statements of operations. These investments are tested for impairment upon the occurrence of a significant adverse change or at least once a year during the last quarter.

2I) Land and buildings (note 8)

Land and buildings are recognized at acquisition or construction cost, as applicable, less accumulated depreciation and accumulated impairment losses. Depreciation of buildings is recognized as part of operating expenses and is calculated using the straight-line method over the estimated useful lives of the assets. As of December 31, 2012, the maximum average useful lives of administrative buildings were 33 years.

2J) Goodwill

Business acquisitions are recognized using the purchase method, by allocating the consideration transferred to assume control of the entity to all assets acquired and liabilities assumed, based on their estimated fair values as of the acquisition date. Any unallocated portion of the purchase price represents goodwill, which is not amortized and is subject to periodic impairment tests (note 2K). Goodwill can be adjusted for any correction to the preliminary assessment given to the assets acquired and/or liabilities assumed within the twelve-month period after purchase. Costs associated with the acquisition are expensed in the statements of operations as incurred.

2K) Impairment of long lived assets (notes 7 and 8)
Land, buildings and other investments

Land, buildings and investments are tested for impairment upon the occurrence of factors such as the occurrence of a significant adverse event, changes in the business’s operating environment, changes in projected use or in technology, as well as expectations of lower operating results, in order to determine whether their carrying amounts may not be recovered, in which case an impairment loss is recorded in the income statements for the period when such determination is made within “Other expenses, net.” The impairment loss of an asset results from the excess of the asset’s carrying amount over its recoverable amount, corresponding to the higher of the fair value of the asset, less costs to sell such asset, and the asset’s value in use, the latter represented by the net present value of estimated cash flows related to the use or disposal of the asset.

Goodwill and investment in subsidiaries and associates

Goodwill and investment in subsidiaries and associates are tested for impairment when required due to significant adverse changes or at least once a year, during the last quarter of such year, by determining the recoverable amount of the investment in subsidiaries and associates, which consists of the higher of the investment in subsidiaries and associates’ fair value, less cost to sell and the investment in subsidiaries and associates’ value in use, represented by the discounted amount of estimated future cash flows to be generated to which those net assets relate. CEMEX, S.A.B. de C.V. determines initially its discounted cash flows over periods of 5 to 10 years, depending on the economic cycle. If the value in use of the investment in subsidiaries and associates is lower than its corresponding carrying amount, CEMEX, S.A.B. de C.V. determines the fair value of its investment using methodologies generally accepted in the market to determine the value of entities, such as multiples of Operating EBITDA and by reference to other market transactions, among others. An impairment loss is recognized within other expenses, net, if the recoverable amount is lower than the net book value of the investment. Impairment charges recognized on goodwill are not reversed in subsequent periods.

Impairment tests are significantly sensitive, among other factors, to the estimation of future prices of CEMEX’s products, the development of operating expenses, local and international economic trends in the construction industry, the long-term growth expectations in the different markets, as well as the discount rates and the growth rates in perpetuity applied. CEMEX, S.A.B. de C.V. uses specific pre-tax discount rates for each group of cash generating units to which goodwill is allocated, which is applied to discount pre-tax cash flows. The amounts of estimated undiscounted cash flows are significantly sensitive to the growth rate in perpetuity applied. Likewise, the amounts of discounted estimated future cash flows are significantly sensitive to the weighted average cost of capital (discount rate) applied. The higher the growth rate in perpetuity applied, the higher the amount obtained of undiscounted future cash flows by reporting unit. Conversely, the higher the discount rate applied, the lower the amount obtained of discounted estimated future cash flows.

2L) Financial liabilities, derivative financial instruments and fair value measurements (note 10)
Debt

Bank loans and notes payable are recognized at their amortized cost. Interest accrued on financial liabilities is recognized in the balance sheet within “Other accounts payable and accrued expenses” against financial expense. During 2012 and 2011, CEMEX S.A.B. de C.V. did not have financial liabilities recognized voluntarily at fair value or associated to fair value hedge strategies with derivative financial instruments. Direct costs incurred in debt issuances or borrowings are capitalized and amortized as interest expense as part of the effective interest rate of each transaction over its maturity. These costs include commissions and professional fees.

Financial instruments with components of both liability and equity

Based on IAS 32, Financial instruments: presentation (“IAS 32”) and IAS 39, when a financial instrument contains components of both liability and equity, such as a note that at maturity is convertible into a fixed number of CEMEX, S.A.B. de C.V.’s shares and the currency in which the instrument is denominated is the same as the functional currency of the issuer, each component is recognized separately in the balance sheet according to the specific characteristics of each transaction. In the case of instruments mandatorily convertible into shares of the issuer, the liability component represents the net present value of interest payments on the principal amount using a market interest rate, without assuming any early conversion, and is recognized within “Other financial obligations,” whereas the equity component represents the difference between the principal amount and the liability component, and is recognized within “Other equity reserves” net of commissions. In the case of instruments that are optionally convertible into a fixed number of shares, the liability component represents the difference between the principal amount and the fair value of the conversion option premium, which reflects the equity component (note 2O). When the transaction is denominated in a currency different than the functional currency of the issuer, the conversion option is accounted for as a derivative financial instrument at fair value through the statements of operations.

Derivative financial instruments

In compliance with the guidelines established by its Risk Management Committee and the restrictions set forth by its debt agreements, CEMEX, S.A.B. de C.V. uses derivative financial instruments (“derivative instruments”) mainly in order to change the risk profile associated with changes in interest rates, the exchange rates of debt, or both; and as an alternative source of financing.

CEMEX, S.A.B. de C.V. recognizes all derivative instruments as assets or liabilities in the balance sheet at their estimated fair values, and the changes in such fair values are recognized in the statements of operations within “Other financial income, net” for the period in which they occur, except for changes in fair value of derivative instruments associated with cash flow hedges, in which case, such changes in fair value are recognized in stockholders’ equity, and are reclassified to earnings as the interest expense of the related debt is accrued, in the case of interest rate swaps, or when the underlying products are consumed in the case of contracts on the price of raw materials and commodities. For the years ended December 31, 2012 and 2011, CEMEX, S.A.B. de C.V. has not designated any fair value hedges.

Accrued interest generated by interest rate swaps, when applicable, is recognized as financial expense in the relevant period, adjusting the effective interest rate of the related debt.

CEMEX, S.A.B. de C.V. reviews its different contracts to identify the existence of embedded derivatives. Identified embedded derivatives are analyzed to determine if they need to be separated from the host contract, and recognized in the balance sheet as assets or liabilities, applying the same valuation rules used for other derivative instruments.

Derivative instruments are negotiated with institutions with significant financial capacity; therefore, CEMEX, S.A.B. de C.V. believes the risk of non-performance of the obligations agreed to by such counterparts to be minimal. According to IFRS 13, the estimated fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, considering the counterparts’ risk, that is, an exit price. Occasionally, there is a reference market that provides the estimated fair value; in the absence of such market, such value is determined by the net present value of projected cash flows or through mathematical valuation models.

Fair value measurements

CEMEX, S.A.B. de C.V. applies the guidance of IFRS 13, Fair value measurements (“IFRS 13”) for its fair value measurements of financial assets and financial liabilities recognized or disclosed at fair value. IFRS 13 does not require fair value measurements in addition to those already required or permitted by other IFRSs and is not intended to establish valuation standards or affect valuation practices outside financial reporting. Under IFRS 13, fair value represents an “Exit Value,” which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, considering the counterparty’s credit risk in the valuation.

The concept of exit value is premised on the existence of a market and market participants for the specific asset or liability. When there is no market and/or market participants willing to make a market, IFRS 13 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

  • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that CEMEX, S.A.B. de C.V. has the ability to access at the measurement date.
  • Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
  • Level 3 inputs are unobservable inputs for the asset or liability.

2M) Provisions

CEMEX, S.A.B. de C.V. recognizes provisions when it has a legal or constructive obligation resulting from past events, whose resolution would imply cash outflows or the delivery of other resources.

Contingencies and commitments (note 14)

Obligations or losses related to contingencies are recognized as liabilities in the balance sheet when present obligations exist resulting from past events that are expected to result in an outflow of resources and the amount can be measured reliably. Otherwise, a qualitative disclosure is included in the notes to the financial statements. The effects of long-term commitments established with third parties, such as supply contracts with suppliers or customers, are recognized in the financial statements on an incurred or accrued basis, after taking into consideration the substance of the agreements. Relevant commitments are disclosed in the notes to the financial statements. CEMEX, S.A.B. de C.V. does not recognize contingent revenues, income or assets.

2N) Income taxes (note 12)

Based on IAS 12, Income taxes (“IAS 12”), the effects reflected in the statements of operations for income taxes include the amounts incurred during the period and the amounts of deferred income taxes, determined according to the income tax law. The deferred income taxes of CEMEX, S.A.B de C.V. represent the addition of the amounts determined by applying the enacted statutory income tax rate to the total temporary differences resulting from comparing the book and taxable values of assets and liabilities, considering tax loss carryforwards as well as other recoverable taxes and tax credits, subject to a recoverability analysis. Deferred income taxes for the period represent the difference between balances of deferred income at the beginning and the end of the period. According to IFRS, all items charged or credited directly in stockholders’ equity or as part of other comprehensive income or loss for the period are recognized net of their current and deferred income tax effects. The effect of a change in enacted statutory tax rates is recognized in the period in which the change is officially enacted.

Deferred tax assets are analyzed at each reporting date, and reduced, to the extent that it is deemed not possible to realized the related benefits. In these analyses, CEMEX, S.A.B. de C.V. analyzes total tax losses included in the income tax returns where CEMEX, S.A.B. de C.V. believes, based on available evidence, that the tax authorities would not reject; and the likelihood of the recoverability of such tax loss carryforwards prior to their expiration through an analysis of estimated future taxable income. If CEMEX, S.A.B. de C.V. believes that it is more-likely-than-not that the tax authorities would reject a self-determined deferred tax asset, it would decrease such asset. Likewise, if CEMEX, S.A.B. de C.V. believes that it would not be able to use a deferred tax asset before its expiration, CEMEX, S.A.B. de C.V. does not recognize this asset. Both situations would result in additional income tax expense for the period in which such determination is made.

In order to determine whether it is more-likely-than-not that deferred tax assets will ultimately be realized, CEMEX, S.A.B. de C.V. takes into consideration all available positive and negative evidence, including factors such as market conditions, industry analysis, expansion plans, projected taxable income, carryforward periods, current tax structure, potential changes or adjustments in tax structure, tax planning strategies, future reversals of existing temporary differences, etc. Likewise, every reporting period, CEMEX, S.A.B. de C.V. analyzes its actual results versus its estimates, and adjusts, as necessary, its tax asset valuations through the statement of operations of the period in which such conclusion is reached.

The income tax effects from an uncertain tax position are recognized when it is more-likely-than-not that the position will be sustained based on its technical merits and assuming that the tax authorities will examine each position and have full knowledge of all relevant information, and they are measured using a cumulative probability model. Each position has been considered on its own, regardless of its relation to any other broader tax settlement. The more-likely-than-not threshold represents a positive assertion by management that CEMEX, S.A.B. de C.V. is entitled to the economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained, no benefits of the position are recognized. CEMEX, S.A.B. de C.V.’s policy is to recognize interest and penalties related to unrecognized tax benefits as part of the income tax in the consolidated statements of operations.

2O) Stockholders’ equity

Common stock and additional paid-in capital (note 13A)

These items represent the value of stockholders’ contributions, and include increases related to the recapitalization of retained earnings and the recognition of executive compensation programs in CPOs.

Other equity reserves

This caption groups the cumulative effects of items and transactions that are, temporarily or permanently, recognized directly to stockholders’ equity, and includes the elements presented in the statements of comprehensive loss, which reflects the effects on stockholders’ equity during a period that do not result from investments by owners and distributions to owners. The most significant item within “Other equity reserves” during the reported periods is current and deferred income taxes during the period arising from items whose effects are directly recognized in stockholders’ equity.

Items of “Other equity reserves” included within other comprehensive loss for the period:
  • Current and deferred income taxes during the period arising from items whose effects are directly recognized in stockholders’ equity.

Items of “Other equity reserves” not included in comprehensive loss for the period:

  • The equity component of outstanding mandatorily convertible securities, which are convertible into shares of CEMEX, S.A.B. de C.V. (note 10B). Upon conversion, this amount will be reclassified to common stock and additional paid-in capital;
  • As of 2012, 2011 and 2010, the increase in equity associated with (i) the capitalization of retained earnings was approximately $4,138, $4,216 and $5,481, respectively, and (ii) CPOs issued as part of executive stock based compensation programs was approximately $486, $506 and $317, respectively.
Retained earnings (note 13B)

Retained earnings represent the cumulative net results of prior accounting periods, net of dividends declared to stockholders, and net of any capitalizations of retained earnings.

2P) Revenue recognition

CEMEX, S.A.B. de C.V.’s revenues represent the value, before tax on sales, of revenues originated by services sold to subsidiaries as a result of their ordinary activities, and are quantified at the fair value of the consideration in cash received or receivable. Revenue from services is recognized when services are rendered to customers, and there is no condition or uncertainty implying a reversal thereof.

2Q) Executive stock-based compensation

Based on IFRS 2, Share-based payments (“IFRS 2”), stock awards based on shares of CEMEX granted to executives are defined as equity instruments, when services received from employees are settled delivering shares; or as liability instruments, when CEMEX, S.A.B. de C.V., commits to make cash payments to the executives on the exercise date of the awards based on changes in CEMEX S.A.B. de C.V.’s own stock (intrinsic value). The cost of equity instruments represents their estimated fair value at the date of grant and is recognized in the statements of operations during the period in which the exercise rights of the employees become vested. Liability instruments are valued at their estimated fair value at each reporting date, recognizing the changes in fair value through the operating results. CEMEX S.A.B. de C.V. determines the estimated fair value of options using the binomial financial option-pricing model.

2R) Newly issued IFRS not yet adopted

There are a number of IFRS issued as of the date of issuance of these financial statements but which have not yet been adopted, which are listed below. Except as otherwise indicated, CEMEX, S.A.B. de C.V. expects to adopt these IFRS when they become effective.

  • During 2011 and 2012, the IASB issued IFRS 9, Financial instruments: classification and measurement (“IFRS 9”), which as issued, reflects the first part of Phase 1 of the IASB’s project to replace IAS 39. In subsequent phases, the IASB will address impairment methodology, derecognition and hedge accounting. IFRS 9 requires an entity to recognize a financial asset or a financial liability in its statement of financial position when, and only when, the entity becomes party to the contractual provisions of the instrument. At initial recognition, an entity shall measure a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. IFRS 9 is effective for annual periods beginning on or after January 1, 2015, with early adoption permitted. CEMEX, S.A.B. de C.V. does not consider that current IFRS 9 will have a significant effect on the classification and measurement of CEMEX, S.A.B. de C.V.’s financial assets and financial liabilities. Nonetheless, CEMEX, S.A.B. de C.V. will evaluate the impact and will quantify the effect together with the other phases, when issued, to make a comprehensive analysis.
  • In May 2011, the IASB issued IFRS 12, Disclosure of interests in other entities (“IFRS 12”), effective beginning January 1, 2013, which is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. IFRS 12 will require an entity to disclose information that enables users of financial statements to evaluate: a) the nature of, and risks associated with, its interests in other entities; and b) the effects of those interests on its financial position, financial performance and cash flows. CEMEX, S.A.B. de C.V. would modify its current disclosures regarding interest in other entities as required by IFRS 12, if applicable. However, CEMEX, S.A.B. de C.V. does not expect the application of IFRS 12 to have a significant impact on its parent company-only financial statements.
  • In December 2011, the IASB amended IAS 32, for disclosure requirements for the offsetting of assets and liabilities on the statement of financial position. The amended standard requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The scope includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements and securities borrowing and securities lending agreements. The amendments to IAS 32 are effective beginning January 1, 2014 and require retrospective application. CEMEX, S.A.B. de C.V. is currently evaluating the impact of adopting this amended standard; nonetheless, CEMEX, S.A.B. de C.V. does not expect that the adoption of this amended standard to have a significant impact on its parent company-only financial statements.
3) Other expenses, net

Other expenses, net as of December 31, 2012, 2011 and 2010, consisted of the following

    2012 2011 2010
Results from the sale of assets and others, net $ 22 (113) -
Intercompany transactions and administrative expenses   (928) (764) (998)
Restructuring costs   - (46) (128)
Tax assessment   - (474) -
Others   67 (16) (28)
  $ (839) (1,413) (1,154)

4) Other financial income, net

    2012 2011 2010
Financial income $ 838 1,565 2,755
Results from financial instruments, net (note 10D)   (30) (259) (284)
  $ 808 1,306 2,471

5) Cash and cash equivalents

As of December 31, 2012 and 2011, cash and cash equivalents include the following:

    2012 2011
Cash and bank accounts $ 20 3
Fixed-income securities and other cash equivalents 1   - 4,100
  $ 20 4,103

1 As of December 31, 2011, the full balance corresponds to the reserve of Mexican promissory notes (“Certificados Bursátiles” or “CBs”).

Based on net settlement agreements, the balance of cash and cash equivalents excludes deposits in margin accounts that guarantee several obligations of CEMEX, S.A.B. de C.V. of approximately $975 in 2012 and $3,137 in 2011, which are offset against the corresponding obligations of CEMEX, S.A.B. de C.V. with the counterparts, considering CEMEX S.A.B. de C.V.’s right, ability and intention to settle the amounts on a net basis.

6) Other accounts receivable

As of December 31, 2012 and 2011, short-term accounts receivable consisted of the following:

    2012 2011
Non-trade accounts receivable $ - 86
Other refundable taxes   645 412
  $ 645 498

7) Investments in subsidiaries and associates and other investments and non-current accounts receivable

7A) Investments in subsidiaries and associates

As of December 31, 2012 and 2011, investment in shares of subsidiaries and associates, valued at cost, include the following:

  Activity Country %   2012 2011
CEMEX México, S.A. de C.V. Cement Mexico 100.0 $ 251,941 241,335
CEMEX Trademarks Holding Ltd. Holding Switzerland 48.7   45,825 45,825
CEMEX Central, S.A. de C.V. Administrative Services Mexico 100.0   6,495 6,495
Control Administrativo Mexicano, S.A. de C.V Cement Mexico 49.0   4,491 4,491
Other companies   - -   144 441
        $ 309,166 298,560

During 2012 and 2011, CEMEX, S.A.B. de C.V. made capital contributions to one of the Mexican subsidiaries of approximately $10,584 and $19,300, respectively. Additionally, during 2011, CEMEX, S.A.B. de C.V. sold, in transactions within the group, certain investments in subsidiaries in Egypt for approximately $2,292.

7B) Other investments and non-current accounts receivable

As of December 31, 2012 and 2011, other investments and non-current accounts receivable include the following:

    2012 2011
Other investments $ 98 101
Financial instruments (note 10D)   4,276 1,788
  $ 4,374 1,889

8) Land and buildings

As of December 31, 2012 and 2011, land and buildings include the following:

    2012 2011
Lands $ 1,897 1,999
Buildings   465 465
Accumulated depreciation   (326) (316)
  $ 2,036 2,148

9) Other accounts payable and accrued expenses

As of December 31, 2012 and 2011, other accounts payable and accrued expenses are shown below:

    2012 2011
Accounts payable and accrued expenses, dividends and interest payable $ 2,781 1,829
Taxes payable   1,288 1,690
  $ 4,069 3,519

10) Financial instruments

10A) Short-term and long-term debt

CEMEX, S.A.B. de C.V.’s debt summarized as of December 31, 2012 and 2011, by interest rates and currencies was as follows:

  2012 2011
    Short-term Long-term Total   Short-term Long-term Total
Floating rate debt $ 49 24,616 24,665

$

2,674 37,396 40,070
Fixed rate debt   15 27,749 27,764   1,480 23,121 24,601
  $ 64 52,365 52,429 $ 4,154 60,517 64,671
 
Effective rate 1
Floating rate   4.4% 5.4%     4.9% 5.8%  
Fixed rate   10.1% 9.0%     11.5% 8.9%  

  2012 2011
    Short-term Long-term Total Effective
rate 1
  Short-term Long-term Total Effective
rate 1
Dollars $ 50 49,973 50,023 7.3%

$

54 57,251 57,305 6.6%
Pesos   14 2,392 2,406 8.8%   4,100 3,266 7,366 9.6%
  $ 64 52,365 52,429   $ 4,154 60,517 64,671  

1 Represents the weighted average effective interest rate.

2012 Short-term Long-term   2011 Short-term Long-term
Bank loans Bank loans
Loans in Mexico, 2013 to 2014 $ - 1,088   Loans in Mexico, 2012 to 2014 $ - 1,650
Loans in foreign countries, 2013 to 2018   - 1,848   Loans in foreign countries, 2012 to 2018   - 11,871
Syndicated loans, 2013 to 2014   - 11,578   Syndicated loans, 2012 to 2014   - 12,930
    - 14,514       - 26,451
 
Notes payable Notes payable
Notes payable in Mexico, 2013 to 2017   - -   Notes payable in Mexico, 2012 to 2017   - 4,647
Medium-term notes, 2013 to 2022   - 568   Medium-term notes, 2012 to 2020   - 33,573
Other notes payable, 2013 to 2025   - 37,347   Other notes payable, 2012 to 2025   - -
    - 37,915       - 38,220
Total bank loans and notes payable   - 52,429   Total bank loans and notes payable   - 64,671
Current maturities   64 (64)   Current maturities   4,154 (4,154))
  $ 64 52,365     $ 4,154 60,517

Changes in debt for the years ended December 31, 2012, 2011 and 2010 are as follows:

    2012 2011 2010
Debt at beginning of year $ 64,671 44,800 56,841
Proceeds from new debt instruments   6,417 29,434 -
Debt repayments   (13,364 (15,364) (8,966)
Foreign currency translation effect   (5,295) 5,801 (3,075)
Debt at end of year $ 52,429 64,671 44,800

Long-term debt maturities as of December 31, 2012, are as follows:

    2012
2014 $ 97
2015   10,216
2016   50
2017   14,800
2018 and thereafter   27,202
  $ 52,365

Relevant debt transactions during 2012 and 2011

On September 17, 2012, CEMEX, S.A.B. de C.V. concluded the refinancing process of a substantial portion of its then outstanding debt under the Financing Agreement, as amended on several dates during 2009, 2010, 2011 and finally on September 17, 2012 (the “Financing Agreement”), with the completion of the Exchange Offer on September 17, 2012, as further described in this note.

On September 17, 2012, in connection with the Facilities Agreement described elsewhere in this note 10A, CEMEX, S.A.B. de C.V. issued US$500 aggregate principal amount of 9.5% senior secured notes due in 2018 (the “September 2012 Notes”). The September 2012 Notes were issued in exchange for loans and private placements outstanding under the Financing Agreement.

On July 11, 2011, CEMEX, S.A.B. de C.V. closed the reopening of the January 2011 Notes, described below, and issued US$650 aggregate principal amount of additional notes at 97.616% of face value plus any accrued interest. CEMEX S.A.B. de C.V. used the net proceeds from the reopening for general corporate purposes and the repayment of debt, including debt under the Financing Agreement.

On April 5, 2011, CEMEX, S.A.B. de C.V. closed the offering of US$800 aggregate principal amount of Floating Rate Senior Secured Notes due in 2015 (the “April 2011 Notes”), which were issued at 99.001% of face value. The April 2011 Notes are unconditionally guaranteed by CEMEX México, S.A. de C.V., New Sunward Holding B.V. and CEMEX España, S.A., as well as by CEMEX Research Group AG, CEMEX Shipping B.V., CEMEX Asia B.V., CEMEX France Gestion (S.A.S.), CEMEX UK, and CEMEX Egyptian Investments B.V. ( jointly the “New Guarantors”). The net proceeds from the offering, approximately US$788, were used to repay indebtedness under the Financing Agreement.

On January 11, 2011, CEMEX, S.A.B. de C.V. closed the offering of US$1,000 aggregate principal amount of its 9.0% senior secured notes due in 2018 (the “January 2011 Notes”), which were issued at 99.364% of face value, and are callable beginning on their fourth anniversary. The January 2011 Notes share the collateral pledged to the lenders under the Facilities Agreement and other senior secured indebtedness having the benefit of such collateral, and are guaranteed by CEMEX México, S.A. de C.V., New Sunward Holding B.V. and CEMEX España, S.A. and the New Guarantors.

Facilities Agreement and Financing Agreement

On August 14, 2009, CEMEX, S.A.B. de C.V. and certain subsidiaries entered into the original Financing Agreement with its major creditors, by means of which the maturities of approximately US$14,961 ($195,839) (amount determined in accordance with the contracts) of syndicated and bilateral loans, private placement notes and other obligations were extended, providing for a semi-annual amortization schedule. The Financing Agreement is guaranteed by CEMEX, S.A.B. de C.V., CEMEX México, S.A. de C.V., New Sunward Holding B.V., CEMEX España, S.A., CEMEX Concretos, S.A. de C.V., CEMEX Corp., CEMEX Finance LLC and Empresas Tolteca de México, S.A. de C.V. As of December 31, 2011 and 2010, after the application of the proceeds from the refinancing transactions disclosed above and in this note and others, the application of the net proceeds obtained from the sale of assets, and the equity offering in 2009, the remaining debt balance under the Financing Agreement was approximately US$7,195 ($100,442) and US$9,566 ($118,235), respectively, with payments due as of August 31, 2012 of approximately US$488 in December 2013 and US$6,707 at final maturity in February 2014, each calculated as of August 30, 2012. Considering that CEMEX was able to prepay by December 31, 2011 approximately US$2,301 of debt under the Financing Agreement, CEMEX avoided an increase in the interest rate of debt under such agreement of 0.5%. Until its maturity, the Financing Agreement does not provide for any further increases in the interest rate associated with a certain amount of prepayments.

On September 17, 2012, CEMEX, S.A.B. de C.V. completed a refinancing process of a substantial portion of its then outstanding debt under the Financing Agreement, as amended on several dates. Pursuant to CEMEX, S.A.B. de C.V.’s exchange proposal (the “Exchange Offer”), creditors were invited to exchange their existing exposures under the existing Financing Agreement into one or a combination of the following instruments: a) new loans (“New Loans”) or private placement notes (“New USPP Notes”), as applicable, or b) up to US$500 in new 9.5% notes (the “September 2012 Notes”) to be issued by CEMEX, S.A.B. de C.V. maturing in June 2018, having terms substantially similar to those of senior secured notes previously issued by CEMEX, S.A.B. de C.V. and/or its subsidiaries. The September 2012 Notes were allocated pro rata to the participating creditors of the Financing Agreement in the Exchange Offer that elected to receive the September 2012 Notes in the Exchange Offer. Financing Agreement creditors accepting certain amendments, including the elimination of the benefit of the security package among others, received an amendment fee of 20 basis points (“bps”) calculated on the amount of their existing exposures under such agreement.

Pursuant to the Exchange Offer, participating creditors representing approximately 92.7% of the aggregate principal amount of debt outstanding under the existing Financing Agreement agreed to extinguish their existing loans and private placement notes and to receive in place thereof: a) approximately US$6,155 in aggregate principal amount of New Loans with an initial interest rate of LIBOR plus 525 bps (subject to decrease depending on certain prepayments), and new USPP Notes with an initial interest rate of 9.66% (subject to decrease depending on certain prepayments), issued pursuant to a new agreement (the “Facilities Agreement”) dated as of September 17, 2012, and with a final maturity on February 14, 2017, and an exchange fee of 80 bps calculated on the amount of their existing exposures under the Financing Agreement that were extinguished and for which New Loans or New USPP Notes were issued in place thereof; and b) US$500 of the September 2012 Notes, issued pursuant to an indenture dated as of September 17, 2012. Approximately US$525 aggregate principal amount of loans and U.S. Dollar private placement notes remained outstanding after the Exchange Offer under the existing Financing Agreement, as amended, after the Exchange Offer. As of December 31, 2012, after the application of proceeds resulting from the CEMEX Latam Holdings, S.A. initial offering, the aggregate principal amount of loans and U.S. Dollar private placement notes under the amended Financing Agreement was US$55 ($707), with a final maturity on February 14, 2014.

The Facilities Agreement required CEMEX to make the following amortization payments: (i) US$500 on February 14, 2014, (ii) US$250 on June 30, 2016, and (iii) US$250 on December 31, 2016. The Facilities Agreement also provides that CEMEX must: (a) repay at least US$1,000 of the indebtedness under the Facilities Agreement on or prior to March 31, 2013 (or a date falling no more than 90 days thereafter, if agreed to by two thirds of the participating creditors under the Facilities Agreement), or the maturity date of the indebtedness under the Facilities Agreement will become due on February 14, 2014; (b) on or before March 5, 2014, in case CEMEX does not redeem, purchase, repurchase, refinance or extend the maturity date of 100% of the notes issued by CEMEX Finance Europe B.V. and guaranteed by CEMEX España to a maturity date falling after December 31, 2017, or the maturity date of the indebtedness under the Facilities Agreement will become March 5, 2014; (c) on or before March 15, 2015, in case CEMEX does not redeem, convert into equity, purchase, repurchase, refinance or extend the maturity date of 100% of the 2015 Convertible Subordinated Notes to a maturity date falling after December 31, 2017, or the maturity date of the indebtedness under the Facilities Agreement will become March 15, 2015; (d) on or before September 30, 2015, in case CEMEX does not redeem or extend the maturity date of 100% of the April 2011 Notes to a maturity date falling after December 31, 2017, or the maturity date of the indebtedness under the Facilities Agreement will become September 30, 2015; (e) on or before March 15, 2016, in case CEMEX does not redeem, convert into equity, purchase, repurchase, refinance or extend the maturity date of 100% of the 2016 Convertible Subordinated Notes to a maturity date falling after December 31, 2017, or the maturity date of the indebtedness under the Facilities Agreement will become March 15, 2016; and (f) on or before December 14, 2016, in case CEMEX does not redeem or extend the maturity date of 100% of the December 2009 Notes to a maturity date falling after December 31, 2017, or the maturity date of the indebtedness under the Facilities Agreement will become December 14, 2016.

For the initial US$1,000 repayment, at its sole discretion, CEMEX may elect to: a) sell minority stakes in CEMEX’s operations; b) sell selected assets in the United States; c) sell selected assets in Europe; and/or d) sale of other non-core assets. If during the Facilities Agreement term CEMEX pays down US$1,500 and US$2,000 of aggregate principal amount under the Facilities Agreement, the interest rate under the outstanding amount of the New Notes would be reduced to LIBOR plus 500 bps and LIBOR plus 450 bps, respectively, and in the New USPP Notes would be reduced to 9.41% and 8.91%, respectively.

As of December 31, 2012, CEMEX achieved the US$1,000 repayment milestone of March 2013, and the debt amortization requirements under the Facilities Agreement through and including the amortization on December 15, 2016; with US$4,187 remaining outstanding with a final maturity in February 2017. As a result of the prepayments, the interest rate on the New Loans under the Facilities Agreement was reduced to LIBOR plus 450 bps and on the New USPP Notes was reduced to 8.91%.

As mentioned above, the debt under the Facilities Agreement is guaranteed by the same entities that guarantee the debt under the Financing Agreement, and additionally by the New Guarantors. The amended Financing Agreement and certain other precedent facilities did not receive guarantees from the New Guarantors. The debt under the Facilities Agreement (together with all other senior capital markets debt issued or guaranteed by CEMEX, and certain other precedent facilities) is also secured by a first-priority security interest in: (a) substantially all the shares of CEMEX México, S.A. de C.V.; Centro Distribuidor de Cemento, S.A. de C.V.; Corporación Gouda, S.A. de C.V.; Mexcement Holdings, S.A. de C.V.; New Sunward Holding B.V.; CEMEX Trademarks Holding Ltd. and CEMEX España, S.A. (the “Collateral”), and (b) all proceeds of such Collateral.

Pursuant to the Facilities Agreement, CEMEX is prohibited from making aggregate annual capital expenditures in excess of US$800 (excluding certain capital expenditures, and, joint venture investments and acquisitions by CEMEX Latam and its subsidiaries, which capital expenditures, joint venture investments and acquisitions at any time then incurred are subject to a separate aggregate limit of US$350 (or its equivalent). In the Facilities Agreement, and subject in each case to the permitted negotiated amounts and other exceptions, CEMEX is also subject to a number of negative covenants that, among other things, restrict or limit its ability to: (i) create liens; (ii) incur additional debt; (iii) change CEMEX’s business or the business of any obligor or material subsidiary (in each case, as defined in the Facilities Agreement); (iv) enter into mergers; (v) enter into agreements that restrict its subsidiaries’ ability to pay dividends or repay intercompany debt; (vi) acquire assets; (vii) enter into or invest in joint venture agreements; (viii) dispose of certain assets; (ix) grant additional guarantees or indemnities; (x) declare or pay cash dividends or make share redemptions; (xi) issue shares; (xii) enter into certain derivatives transactions; (xiii) exercise any call option in relation to any perpetual bonds CEMEX issues unless the exercise of the call options does not have a materially negative impact on its cash flow; and (xiv) transfer assets from subsidiaries or more than 10% of shares in subsidiaries into or out of CEMEX España or its subsidiaries if those assets or subsidiaries are not controlled by CEMEX España or any of its subsidiaries.

The Facilities Agreement also contains a number of affirmative covenants that, among other things, require CEMEX to provide periodic financial information to its lenders. However, a number of those covenants and restrictions will automatically cease to apply or become less restrictive if (i) CEMEX’s consolidated leverage ratio for the two most recently completed semi-annual testing periods is less than or equal to 3.5 times; and (ii) no default under the Facilities Agreement is continuing. Restrictions that will cease to apply when CEMEX satisfies such conditions include the capital expenditure limitations mentioned above and several negative covenants, including limitations on CEMEX’s ability to declare or pay cash dividends and distributions to shareholders, limitations on CEMEX’s ability to repay existing financial indebtedness, certain asset sale restrictions, the quarterly cash balance sweep, certain mandatory prepayment provisions, and restrictions on exercising call options in relation to any perpetual bonds CEMEX issues (provided that creditors will continue to receive the benefit of any restrictive covenants that other creditors receive relating to other financial indebtedness of CEMEX in excess of US$75). At such time, several baskets and caps relating to negative covenants will also increase, including permitted financial indebtedness, permitted guarantees and limitations on liens. However, CEMEX cannot assure that it will be able to meet the conditions for these restrictions to cease to apply prior to the final maturity date under the Facilities Agreement.

In addition, the Facilities Agreement contains events of default, some of which may be outside of CEMEX’s control. CEMEX cannot assure that it will be able to meet any or all of the above milestones for repaying indebtedness pursuant the Facilities Agreement or redeeming, converting into equity, purchasing, repurchasing or extending the maturities of CEMEX’s other indebtedness. Failure to meet any of these milestones will result in a spring back of the maturity date of CEMEX’s indebtedness under the Facilities Agreement, and CEMEX cannot assure that at such time it will be able to repay such indebtedness. Moreover, CEMEX cannot assure that it will be able to comply with the restrictive covenants and limitations contained in the Facilities Agreement. CEMEX’s failure to comply with such covenants and limitations could result in an event of default, which could materially and adversely affect CEMEX’s business and financial condition.

Financial Covenants

The Facilities Agreement requires the compliance with financial ratios calculated on a consolidated basis, which mainly include: a) the ratio of net debt to operating EBITDA (“leverage ratio”); and b) the ratio of operating EBITDA to interest expense (“coverage ratio”). Pursuant to the Facilities Agreement, beginning on September 17, 2012, at each compliance date, financial ratios should be calculated according to the formulas established in the debt contracts using the consolidated amounts under IFRS. During 2011 and 2010, financial ratios were calculated according to the formulas established in the Financing Agreement using the consolidated amounts under MFRS. The determinations of financial ratios require in most cases pro forma adjustments, according to the definitions of the contracts that differed from terms defined under IFRS and MFRS.

Based on the Facilities Agreement, CEMEX must comply with consolidated financial ratios and tests under IFRS, including a coverage ratio for each period of four consecutive fiscal quarters (measured semi-annually) of not less than (i) 1.50 times for the period ending on December 31, 2012 up to and including the period ending on June 30, 2014, (ii) 1.75 times from the period ending on December 31, 2014 up to and including the period ending on June 30, 2015, (iii) 1.85 times for the period ending on December 31, 2015, (iv) 2.0 times for the period ending on June 30, 2016, and (v) 2.25 times for the period ending on December 31, 2016. In addition, the Facilities Agreement allows CEMEX a maximum consolidated leverage ratio for each period of four consecutive fiscal quarters (measured semi-annually) not to exceed: (i) 7.0 times for each period from the period ending on December 31, 2012 up to and including the period ending on December 31, 2013, (ii) 6.75 times for the period ending on June 30, 2014, (iii) 6.5 times for the period ending on December 31, 2014, (iv) 6.0 times for the period ending on June 30, 2015, (v) 5.5 times for the period ending on December 31, 2015, (vi) 5.0 times for the period ending on June 30, 2016, and (vii) 4.25 times for the period ending on December 31, 2016. Applicable during 2011 and 2010, and resulting from the amendments made to the Financing Agreement in October 2010, CEMEX had to comply with consolidated financial ratios and tests under MFRS, including a coverage ratio of not less than 1.75 times for the periods ended on December 31, 2011 and 2010. In addition, the maximum leverage ratio must not have exceeded 7.75 times for the period ending December 31, 2010 and 7.0 times for the period ending December 31, 2011.

CEMEX’s ability to comply with these ratios may be affected by economic conditions and volatility in foreign exchange rates, as well as by overall conditions in the financial and capital markets. For the compliance periods ended as of December 31, 2012, 2011 and 2010, taking into account the Facilities Agreement and the amended Financing Agreement, as applicable and based on its IFRS and MFRS amounts, as applicable, CEMEX, S.A.B. de C.V. and its subsidiaries were in compliance with the financial covenants imposed by its debt contracts.

The main consolidated financial ratios as of December 31, 2012, 2011 and 2010 were as follows:

    IFRS Consolidated
financial ratios
MFRS
Consolidated financial ratios
    2012 2011 2012
Leverage ratio 1, 2 Limit =< 7.00 =< 7.00 =< 7.75
  Calculation 5.44 6.64

7.43

Coverage ratio 3 Limit > 1.50 > 1.75 > 1.75
  Calculation 2.10 1.88 1.95

1 The leverage ratio is calculated in pesos by dividing “funded debt” by pro forma Operating income before other expenses, net plus depreciation and amortization (“Operating EBITDA”) for the last twelve months as of the calculation date. Funded debt equals debt, as reported in the balance sheet excluding capital leases, plus perpetual debentures and guarantees, plus or minus the fair value of derivative financial instruments, as applicable, among other adjustments.

2 Pro forma Operating EBITDA represents, all calculated in pesos, Operating EBITDA for the last twelve months as of the calculation date, plus the portion of Operating EBITDA referring to such twelve-month period of any significant acquisition made in the period before its consolidation in CEMEX, minus Operating EBITDA referring to such twelve-month period of any significant disposal that had already been liquidated.

3 The coverage ratio is calculated in pesos using the amounts from the financial statements, by dividing the pro forma Operating EBITDA by the financial expense for the last twelve months as of the calculation date. Financial expense includes interest accrued on the perpetual debentures.

For 2013 and going forward, CEMEX, S.A.B. de C.V. believes that it will continue to comply with its consolidated covenants under its Facilities Agreement, as it is expecting to benefit from cost savings programs implemented during 2012 and 2011, favorable market conditions in some of its key markets and decreasing costs for key inputs such as energy. Furthermore, CEMEX has an asset disposal plan in place which, as in prior years, is expected to support CEMEX’s efforts to reduce its overall debt.

CEMEX, S.A.B. de C.V. will classify all of its outstanding debt as current debt in its balance sheet if: 1) as of any relevant measurement date on which CEMEX fails to comply with the financial ratios agreed upon pursuant to the Facilities Agreement; or 2) as of any date prior to a subsequent measurement date on which CEMEX expects not to be in compliance with its financial ratios agreed upon under the Facilities Agreement, in the absence of: a) amendments and/or waivers covering the next succeeding 12 months; b) high probability that the violation will be cured during any agreed upon remediation period and be sustained for the next succeeding 12 months; and/or c) a signed agreement to refinance the relevant debt on a long-term basis. Moreover, concurrent with the aforementioned classification of debt in the short-term, the noncompliance of CEMEX with the financial ratios agreed upon pursuant to the Facilities Agreement or, in such event, the absence of a waiver of compliance or a negotiation thereof, after certain procedures upon CEMEX’s lenders’ request, they would call for the acceleration of payments due under the Facilities Agreement. That scenario will have a material adverse effect on CEMEX, S.A.B. de C.V.’s liquidity, capital resources and financial position.

10B) Other financial obligations

Other financial obligations in the balance sheet of CEMEX, S.A.B. de C.V. as of December 31, 2012 and 2011, are as follows:

  2012 2011
    Short-Term Long-Term Total   Short-Term Long-Term Total
I. Convertible subordinated notes due 2018 $ - 7,100 7,100 $ - 7,451 7,451
I. Convertible subordinated notes due 2016   - 10,768 10,768   - 11,236 11,236
II. Convertible subordinated notes due 2015   - 8,397 8,397   - 8,829 8,829
III. Convertible securities due 2019   152 1,561 1,713   131 1,703 1,834
  $ 152 27,826 27,978 $ 131 29,219 29,350

The convertible financial instruments of CEMEX, S.A.B de C.V. contain liability and equity components, which are recognized differently depending upon whether the instrument is mandatorily convertible, or is optionally convertible by choice of the note holders.

I. Optional convertible subordinated notes due in 2016 and 2018

On March 15, 2011, CEMEX, S.A.B. de C.V. closed the offering of US$978 ($11,632) aggregate principal amount of 3.25% convertible subordinated notes due in 2016 (the “2016 Notes”) and US$690 ($8,211) aggregate principal amount of 3.75% convertible subordinated notes due in 2018 (the “2018 Notes”). The notes are subordinated to all of CEMEX’s liabilities and commitments. The notes are convertible into a fixed number of CEMEX’s ADSs, at the holder’s election, at any time after June 30, 2011 and are subject to antidilution adjustments. As of December 31, 2012 and 2011, the conversion price per ADS was US$10.4327 and US$10.85, respectively. A portion of the net proceeds from this transaction were used to fund the purchase of capped call transactions, which are generally expected to reduce the potential dilution cost to CEMEX, S.A.B. de C.V. upon future conversion of the 2016 Notes and the 2018 Notes. The fair value of the conversion option as of the issuance date amounted to approximately $3,959, which considering the functional currency of the issuer, was recognized as a derivative instrument within “Other non-current liabilities”(note 10D). Changes in fair value of the conversion option generated a loss of approximately $1,094 (US$88) in 2012 and a gain of approximately $167 (US$13) in 2011, recognized within other financial income, net. After antidilution adjustments, the conversion rate as of December 31, 2012 and 2011 was 95.8525 ADS and 92.1659 ADS, respectively, per each 1 thousand dollars principal amount of such notes.

II. Optional convertible subordinated notes due in 2015

On March 30, 2010, CEMEX, S.A.B. de C.V. issued US$715 ($8,837) aggregate principal amount of 4.875% Optional Convertible Subordinated Notes due 2015 (the “2015 Notes”). The notes are subordinated to all of CEMEX’s liabilities and commitments. The notes are convertible into a fixed number of CEMEX’s ADSs, at the holder’s election, and are subject to antidilution adjustments. As of December 31, 2012 and 2011, the conversion price per ADS was US$12.0886 and US$12.5721, respectively. In connection with the offering, CEMEX, S.A.B. de C.V. entered into a capped call transaction expected to generally reduce the potential dilution cost to CEMEX, S.A.B. de C.V. upon future conversion of the notes (note 10D). The fair value of the conversion option as of the issuance date amounted to $1,232, which considering the functional currency of the issuer was recognized as a derivative instrument within “Other non-current liabilities”. Changes in fair value of the conversion option generated a loss of approximately $114 (US$9) in 2012 and a gain of approximately $39 (US$3) in 2011, recognized within other financial income, net. After antidilution adjustments, the conversion rate as of December 31, 2012 and 2011 was 82.7227 ADS and 79.5411 ADS, respectively, per each 1 thousand dollars principal amount of such notes.

III. Mandatorily convertible securities due in 2019

In December 2009, CEMEX, S.A.B. de C.V. completed its offer to exchange CBs issued in Mexico, into mandatorily convertible securities for approximately $4,126 (US$315). Reflecting antidilution adjustments, at their scheduled conversion in ten years or earlier if the price of the CPO reaches approximately $31.9 the securities will be mandatorily convertible into approximately 194 million CPOs at a conversion price of approximately $21.269 per CPO. During their tenure, the securities bear interest at an annual rate of 10% interest payable quarterly. Holders have an option to voluntarily convert their securities, after the first anniversary of their issuance, on any interest payment date into CPOs. The equity component represented by the fair value of the conversion option as of the issuance date of $1,971 was recognized within “Other equity reserves.

10C) Fair value of financial instruments Financial assets and liabilities

The carrying amounts of cash, other accounts receivable, short term intercompany balances, other accounts payable and accrued expenses, as well as short-term debt, approximate their corresponding estimated fair values due to the short-term maturity and revolving nature of these financial assets and liabilities. Temporary investments (cash equivalents) and certain long-term investments are recognized at fair value, considering to the extent available, quoted market prices for the same or similar instruments. The estimated fair value of long-term debt is either based on estimated market prices for such or similar instruments, considering interest rates currently available for CEMEX S.A.B. de C.V. to negotiate debt with the same maturities, or determined by discounting future cash flows using market-based interest rates currently available to CEMEX S.A.B. de C.V.

As of December 31, 2012 and 2011, the carrying amounts of financial assets and liabilities and their respective fair values were as follows:

  2012 2011
  Carrying
amount
Fair value Carrying
amount
Fair value
Financial assets
Derivative instruments (note 10D) $ 4,276 4,276 $ 1,788 1,788
Long-term accounts receivable with related parties (note 11)   6,942 7,243   13,943 11,702
Other investments (note 7B)   98 98   101 101
  $ 11,316 11,617 $ 15,832 13,591
 
Financial liabilities
Long-term debt (note 10A) $ 52,365 55,453 $ 60,517 51,650
Other financial obligations (note 10B)   27,826 37,565   29,219 25,321
Derivative financial instruments (note 10D)   5,430 5,430   984 984
Long-term accounts payable with related parties (note 11)   15,814 15,072   17,146 9,964
  $ 101,435 113,520 $ 107,886 87,919

Fair Value Hierarchy

CEMEX, S.A.B. de C.V. applies IFRS 13 for fair value measurements of financial assets and financial liabilities recognized or disclosed at fair value (note 2L). The fair values determined by CEMEX S.A.B. de C.V. as of December 31, 2012 and 2011, for its financial assets and liabilities are determined by Level 2.

10D) Derivative financial instruments

During the reported periods, CEMEX, S.A.B. de C.V. held interest rate swaps, as well as forward contracts and other derivative instruments on its own shares and third parties’ shares, with the objective of, as the case may be: a) changing the risk profile associated with the price of raw materials and other energy projects; and b) other corporate purposes.

As of December 31, 2012 and 2011, the notional amounts and fair values of derivative instruments were as follows:

  2012 2011
(Millions of U.S. dollars)   Notional
amount
Fair
value
Notional
amount
Fair
value
I. Interest rate swaps US$ 181 49 189 46
II. Derivative instrument on price of CPO   2,743 (138) 2,743 11
  US$ 2,924 (89) 2,932 57

The fair values determined by CEMEX S.A.B. de C.V. for its derivative financial instruments are Level 2. There is no direct measure for the risk of CEMEX S.A.B. de C.V. or its counterparts in connection with the derivative instruments. Therefore, the risk factors applied for CEMEX S.A.B. de C.V., assets and liabilities originated by the valuation of such derivatives were extrapolated from publicly available risk discounts for other public debt instruments of CEMEX S.A.B. de C.V., and its counterparts.

The caption “Other financial income, net” included gains and a losses related to the recognition of changes in fair values of the derivative instruments during the applicable period and that represented net loss of approximately $21 (US$2) in 2012 and a gain of approximately $807 (US$65) in 2011. As of December 31, 2012 and 2011, pursuant to net balance settlement agreements, cash deposits in margin accounts that guaranteed obligations through derivative financial instruments were offset with the fair value of derivative instruments for approximately US$76 ($975) and US$225 ($3,137), respectively.

As of December 31, 2012 and 2011, the main exposure of CEMEX, S.A.B. de C.V., was related to changes in the prices of its CPOs and third party shares. A significant decrease in the market price of CEMEX, S.A.B. de C.V. CPOs and third party shares would negatively affect CEMEX, S.A.B. de C.V., liquidity and financial position.

The estimated fair value of derivative instruments fluctuates over time and is determined by measuring the effect of future relevant economic variables according to the yield curves shown in the market as of the reporting date. These values should be analyzed in relation to the fair values of the underlying transactions and as part of CEMEX S.A.B. de C.V., overall exposure attributable to fluctuations in interest rates and foreign exchange rates. The notional amounts of derivative instruments do not represent amounts exchanged by the parties, and consequently, there is no direct measure of CEMEX S.A.B. de C.V., exposure to the use of these derivatives. The amounts exchanged are determined based on the notional amounts and other terms included in the derivative instruments.

I. Interest rate swap contracts

As of December 31, 2012 and 2011, CEMEX S.A.B. de C.V. had an interest rate swap maturing in September 2022 associated with agreements entered into by CEMEX S.A.B. de C.V. for the acquisition of electric energy in Mexico, which fair value represented assets of approximately US$49 and US$46, respectively. Pursuant to this instrument, during the tenure of the swap and based on its notional amount, CEMEX S.A.B. de C.V. will receive a fixed rate of 5.4% and will pay LIBOR, which is the international reference rate for debt denominated in U.S. dollars. As of December 31, 2012 and 2011, LIBOR was 0.513% and 0.7705%, respectively. Changes in the fair value of this interest rate swap generated gains of approximately US$2 ($35) in 2012, US$12 ($150) in 2011 and US$8 ($99) in 2010, recognized in the statements of operations for each period.

II. Derivative instruments on the price of CPO

On March 15, 2011, in connection with the offering of the 2016 Notes and the 2018 Notes and to effectively increase the conversion price for CEMEX CPOs under such notes, CEMEX, S.A.B. de C.V. entered into a capped call transaction over approximately 160 million ADSs (94 million ADS maturing in March 2016 and 66 million ADSs maturing in March 2018), by means of which, for the 2016 Notes, at maturity of the notes in March 2016, if the price per ADS is above US$10.4327, CEMEX S.A.B. de C.V. will receive in cash the difference between the market price of the ADS and US$10.4327, with a maximum appreciation per ADS of US$4.8151. Likewise, for the 2018 Notes, at maturity of the notes in March 2018, if the price per ADS is above US$10.4327, CEMEX S.A.B. de C.V. will receive in cash the difference between the market price of the ADS and US$10.433, with a maximum appreciation per ADS of US$6.4201. CEMEX S.A.B. de C.V. paid a total premium of approximately US$222. As of December 31, 2012 and 2011, the fair value of such options represented an asset of approximately US$226 ($2,899) and US$71 ($984), respectively. During 2012 and 2011, changes in the fair value of these instruments generated a gain of approximately US$155 ($1,973) and a loss of approximately US$153 ($1,906), respectively, recognized within “Other financial income, net” in the statements of operations. In addition, considering that the currency in which the notes are denominated and the functional currency of the issuer differ, CEMEX S.A.B. de C.V. separates the conversion options embedded in the 2016 Notes and the 2018 Notes and recognizes them at fair value, which as of December 31, 2012 and 2011, resulted in a liability of approximately US$301 ($3,862) and US$58 ($806), respectively. Changes in fair value of the conversion options generated a loss in 2012 of approximately US$243 ($3,078) and a gain in 2011 of approximately US$279 ($3,482).

On March 30, 2010, in connection with the offering of the 2015 Notes and to effectively increase the conversion price for CEMEX S.A.B. de C.V.’s CPOs under such notes, CEMEX, S.A.B. de C.V. entered into a capped call transaction over approximately 59.1 million ADSs maturing in March 2015, by means of which, at maturity of the notes, if the price per ADS is above US$12.0086, CEMEX S.A.B. de C.V. will receive in cash the difference between the market price of the ADS and US$12.0886, with a maximum appreciation per ADS of US$4.6494. CEMEX S.A.B. de C.V. paid a premium of approximately US$105. As of December 31, 2012 and 2011, the fair value of such options represented an asset of approximately US$58 ($751) and US$11 ($157), respectively. During 2012, 2011 and 2010, changes in the fair value of this contract generated a gain of approximately US$47 ($594), a loss of approximately US$79 ($984) and a loss of approximately US$16 ($201), respectively, which were recognized within “Other financial income, net” in the statements of operations. In addition, considering that the currency in which the notes are denominated and the functional currency of the issuer differ, CEMEX S.A.B. de C.V. separates the conversion option embedded in the 2015 Notes and recognizes it at fair value, which as of December 31, 2012 and 2011, resulted in liabilities of approximately US$64 ($828) and US$8 ($120), respectively. Changes in fair value of the conversion option generated a loss of approximately US$56 ($708) in 2012, a gain of approximately US$97 ($1,211) in 2011 and a loss of approximately US$5 ($67) in 2010.

As of December 31, 2012 and 2011, CEMEX S.A.B. de C.V. had granted a guarantee for a notional amount of approximately US$360, in connection with put option transactions on CEMEX S.A.B. de C.V.’s CPOs entered into by Citibank with a Mexican trust that CEMEX established on behalf of its Mexican pension fund and certain of CEMEX S.A.B. de C.V.’s directors and current and former employees in April 2008, which fair value, net of deposits in margin accounts, represented a net liability of approximately US$58 ($740) and US$4 ($58), as of December 31, 2012 and 2011, respectively. Changes in fair value were recognized in the statements of operations within “Other financial income, net,” representing a gain of approximately US$95 ($1,198) in 2012, a loss of approximately US$92 ($1,145) in 2011 and a gain of approximately US$5 ($69) in 2010. As of December 31, 2012 and 2011, cash deposits in margin accounts were approximately US$76 ($975) and US$225 ($3,137), respectively.

10E) Risk management

Since the beginning of 2009, with the exception of the capped call transactions entered into in March 2010 and March 2011 in connection with 2015 Notes, 2016 Notes and 2018 Notes (notes 10B and 10D), CEMEX, S.A.B. de C.V. has been reducing the aggregate notional amount of its derivatives, thereby reducing the risk of cash margin calls. This initiative has included closing substantially all notional amounts of derivative instruments related to debt of CEMEX, S.A.B. de C.V. (currency and interest rate derivatives), which was completed during April 2009. The Facilities Agreement significantly restricts CEMEX S.A.B. de C.V., ability to enter into derivative transactions.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Changes in the market interest rates of long-term debt with fixed interest rates only affects results of CEMEX, S.A.B. de C.V. if such debt is measured at fair value. All of our fixed-rate long-term debt is carried at amortized cost and therefore is not subject to interest rate risk exposure of CEMEX, S.A.B. de C.V. to the risk of changes in market interest rates relates primarily to its long-term debt obligations with floating interest rates. As of December 31, 2012, CEMEX, S.A.B. de C.V. was subject to the volatility of floating interest rates, which, if such rates were to increase, may adversely affect its financing cost and increase its net loss. CEMEX, S.A.B. de C.V. manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to reduce the financial expense.

As of December 31, 2012 and 2011, approximately 47% and 62% of the long-term debt of CEMEX, S.A.B. de C.V. bears floating rates at a weighted average interest rate of LIBOR plus 468 and 454 basis points, respectively. As of December 31, 2012 and 2011, if interest rates at that date had been 0.5% higher, with all other variables held constant, the net loss of CEMEX, S.A.B. de C.V. for 2012 and 2011 would have increased by approximately US$10 ($128) and US$13 ($187), respectively, as a result of higher interest expense on variable rate denominated debt.

Foreign currency risk

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The exposure of CEMEX, S.A.B. de C.V. to the risk of changes in foreign exchange rates relates primarily to its operating activities and certain financial assets and liabilities.

As of December 31, 2012, approximately 95% of the financial obligations of CEMEX, S.A.B. de C.V. were Dollar-denominated and 5% of such financial obligations of CEMEX, S.A.B. de C.V. were Peso-denominated. Therefore, CEMEX, S.A.B. de C.V. had a foreign currency exposure arising from the Dollar-denominated financial obligations, versus the currencies in which the revenues of CEMEX, S.A.B. de C.V. are settled. CEMEX, S.A.B. de C.V. cannot guarantee that it will generate sufficient revenues in dollars from its operations to service these obligations. As of December 31, 2012 and 2011, CEMEX, S.A.B. de C.V. had not implemented any derivative financing hedging strategy to address this foreign currency risk.

Foreign exchange fluctuations occur when CEMEX, S.A.B. de C.V. incurs monetary assets or liabilities in a currency other than the functional currency. These translation gains and losses are recorded in the statements of operations. As of December 31, 2012 and 2011, considering a hypothetic 10% strengthening of the U.S. dollar against the Mexican peso, with all other variables held constant, the net loss of CEMEX, S.A.B. de C.V. for 2012 and 2011 would have increased by approximately US$389 ($5,002) and US$410 ($5,730), respectively, as a result of higher foreign exchange losses on Dollar-denominated net monetary liabilities. Conversely, a hypothetic 10% weakening of the U.S. dollar against the Mexican peso would have the opposite effect.

As of December 31, 2012 and 2011, the net monetary assets (liabilities) by currency are as follows:

Short-term:   2012 2011
Monetary assets $ 942 5,271
Monetary liabilities   (24,455) (18,806)
Net monetary liabilities   (23,513) (13,535)
 
Long-term:
Monetary assets   11,316 15,832
Monetary liabilities   (114,521) (119,584)
Net monetary liabilities $ (103,205) (103,752)
 
Out of which:
Dollars   (107,056) (110,390)
Pesos   (19,662) (6,897)
  $ (126,718) (117,287)

Equity risk

Equity risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in the market price of CEMEX S.A.B. de C.V. and/or third party’s shares. As described in note 10D, CEMEX S.A.B. de C.V. has negotiated options that guarantee a put option transaction based on the price of CEMEX S.A.B. de C.V.s’, own CPOs. Under these equity derivative instruments, there is a direct relationship in the change in the fair value of the derivative with the change in value of the underlying share or index. All changes in fair value of such equity derivative instruments are recognized through the statements of operations as part of “Other financial income, net”.

As of December 31, 2012 and 2011, the potential change in the fair value of capped call options and the guarantee on the put option based on the price of the CPOs which would result from a hypothetical, instantaneous decrease of 10% in the market price of the CPOs of CEMEX, S.A.B. de C.V., with all other variables held constant, would have increased the net loss of CEMEX, S.A.B. de C.V. for 2012 and 2011, by approximately US$76 ($971) and US$24 ($332), respectively, as a result of additional negative changes in fair value associated with such contracts.

As of December 31, 2012 and 2011, the potential change in the fair value of the embedded conversion options in the convertible notes that would result from a hypothetical, instantaneous decrease of 10% in the market price of the CPOs of CEMEX, S.A.B. de C.V., with all other variables held constant, would have increased the net gain of CEMEX, S.A.B. de C.V. for 2012 and 2011 by approximately US$89 ($1,148) and US$17 ($240), respectively, as a result of additional positive changes in fair value associated with this option.

Liquidity risk

Liquidity risk is the risk that CEMEX, S.A.B. de C.V. will not have sufficient funds available to meet its obligations. CEMEX, S.A.B. de C.V. has satisfied its operating liquidity needs primarily through the operations of its subsidiaries and expect to continue to do so for both the short and long-term. Although cash flow from our operations has historically met the overall liquidity needs for operations, servicing debt and funding capital expenditures and acquisitions, the operations are exposed to risks from changes in foreign currency exchange rates, which may materially increase the net loss of CEMEX, S.A.B. de C.V. and reduce cash from operations. Consequently, in order to meet its liquidity needs, CEMEX, S.A.B. de C.V. also relies on cost-cutting and operating improvements to optimize capacity utilization and maximize profitability, as well as borrowing under credit facilities, proceeds of debt and equity offerings, and proceeds from asset sales. The net cash flows provided by operating activities in 2012 and 2011, as presented in its statements of cash flows, were approximately $6,990 and $6,356, respectively, and net cash flows used in operating activities in 2010 were $2,564. The maturities of the contractual obligations of CEMEX S.A.B. de C.V. are included in note 14.

11) Balances and transactions with related parties

As of December 31, 2012 and 2011, the main accounts receivable and payable with related parties, are the following:

  Assets Liabilities
2012 Short-term Long-term Short-term Long-term
CEMEX México, S.A. de C.V. $ - 6,942 2,649 -
CEMEX Research Group AG.   72 - - -
CEMEX Latam Holdings S.A.   58 - - -
Construction Funding Corporation   - - 17,198 15,188
CEMEX Central, S.A. de C.V.   - - 323 -
TEG Energía, S.A. de C.V.   - - - 626
Others $ 147 - - -
  $ 277 6,942 20,170 15,814

  Assets Liabilities
2011 Short-term Long-term Short-term Long-term
CEMEX México, S.A. de C.V. $ - 13,943 1,275 -
Centro Distribuidor de Cemento, S.A. de C.V.   269 - - -
CEMEX International Finance Co.   - - 9,393 16,500
CEMEX Central, S.A. de C.V.   - - 281 -
TEG Energía, S.A. de C.V.   - - - 646
Others   401 - 53 -
  $ 670 13,943 11,002 17,146

The main operations of CEMEX, S.A.B. de C.V. with related parties for the years ended December 31, 2012, 2011 and 2010 are as follows:

    2012 2011 2010
Rental income $ 335 336 370
License fees   907 978 814
Financial expenses   (1,527) (1,856) (3,293)
Management service expenses   (951) (764) (1,046)
Financial income   780 1,512 2,689
Results from financial instrument   (12) (903) (61)
Other expenses, net   75 (598) (1,168)

Balances and operations between CEMEX, S.A.B. de C.V. and the affiliated companies result mainly from: (i) the acquisition or sale of shares of subsidiaries within the group; (ii) billing of administrative services, rents, rights to use of brands and commercial names, royalties and other services rendered between affiliated companies; and (iii) loans between affiliated companies. The transactions between affiliated companies are conducted at arm’s length.

The balance receivable from CEMEX México is related to a loan that accrues TIIE plus 129 base points. The balance payable to TEG Energía, S.A. de C.V., corresponds to the measurement of the interest rate swap contract related to energy projects for a nominal value of US$15 which is due in September 2022. The balance payable to subsidiaries accrued interest under market conditions.

12) Income taxes

12A) Income taxes for the period

The income taxes of CEMEX, S.A.B. de C.V. for the years ended December 31, 2012, 2011 and 2010 include the following:

    2012 2011 2010
Current income tax $ (437 (41) 2,554
Deferred income tax   (1,272) (427) (5,508)
  $ (1,709) (468) (2,954)

CEMEX, S.A.B. de C.V. has consolidated tax losses of approximately $8,248, which were generated in 2011 by its Mexican operations and which can be amortized, restated for inflation, against taxable income in the succeeding ten years.

As of December 31, 2012 the CEMEX, S.A.B. de C.V.’s parent company-only tax loss carryforwards by expiration date are the following:

Period of occurrence of the loss   Balance
carryforward
Expiration
year
2003 $ 654 2013
2004   57 2014
2005   403 2015
2006   1,187 2016
2007 and thereafter   43,940 -
  $ 46,241  

In November 2009, Mexico approved amendments to the income tax law, which became effective on January 1, 2010. Such amendments modified the tax consolidation regime by requiring entities to determine income taxes as if the tax consolidation provisions did not exist from 1999 onward, specifically turning into taxable items: a) the difference between the sum of the equity of the controlled entities for tax purposes and the equity of the consolidated entity for tax purposes; b) dividends from the controlled entities for tax purposes to CEMEX, S.A.B. de C.V.; and c) other transactions that represented the transfer of resources between the companies included in the tax consolidation. In connection with these changes to the tax consolidation regime, as of December 31, 2009, CEMEX, S.A.B. de C.V. had accrued an aggregate liability of $10,461, of which: i) $8,216 had been recognized against “Other non-current assets” before the new tax law became effective, assets which, CEMEX S.A.B. de C.V. expects to recover through the payment of the related tax liability; and ii) $2,245 was recognized in December 2009, in connection with the amendments to the income tax law mentioned above. In December 2010, pursuant to miscellaneous rules, the tax authority in Mexico granted the option to defer the calculation and payment of the income tax over the difference in equity explained above, until the subsidiary is disposed of or CEMEX S.A.B. de C.V. eliminates the tax consolidation. As a result, CEMEX S.A.B. de C.V. reduced its estimated tax payable by approximately $2,911 against a credit to income taxes for the period in the statements of operations. Tax liabilities associated with the tax loss carryforwards used in the tax consolidation of the Mexican subsidiaries are not offset with deferred tax assets in the balance sheet. The realization of these tax assets is subject to the generation of future tax earnings in the controlled subsidiaries that generated the tax loss carryforwards in the past.

The realization of these tax assets is subject to the generation of future tax earnings in the controlled subsidiaries that generated the tax loss carryforwards in the past. Changes in CEMEX, S.A.B. de C.V.’s tax payable associated with the tax consolidation in Mexico in 2012, 2011 and 2010 were as follows:

    2012 2011 2010
Balance at the beginning of the year $ 12,410 10,079 10,461
Income tax received from subsidiaries   2,089 2,352 2,496
Restatement for the period   745 485 358
Payments during the period   (698 (506) (325)
Effects associated with miscellaneous rules   - - (2,911)
Balance at the end of the year $ 14,546 12,410 10,079

As of December 31, 2012, the estimated amortization of liabilities for taxes payable resulting from the changes in tax consolidation in Mexico is as follows:

    2012
2013 $ 2,020
2014   2,566
2015   2,681
2016   2,219
2017   2,256
2018 and thereafter   2,804
  $ 14,546

As of December 31, 2012, the estimated amortization of liabilities for taxes payable resulting from the changes in tax consolidation in Mexico is as follows:

On January 1, 2008, a new law became effective in Mexico, which was named the Minimum Corporate Tax law (Impuesto Empresarial Tasa Única or “IETU”) and superseded the Business Asset Tax law (“BAT”). IETU is calculated based on cash flows, and the rate was 16.5% in 2008, 17% in 2009 and 17.5% in 2010 and thereafter. Entities subject to IETU are also required to determine income tax and pay the greater of the amounts between the two. In broad terms, taxable revenues for IETU purposes are those generated through the sale of goods, the rendering of professional services, as well as rental revenue. There are certain exceptions, and a taxpayer may consider as deductible items for IETU calculations the expenses incurred to conduct the activities previously described. Capital expenditures are fully deductible for IETU. Each entity must calculate IETU on a stand-alone basis, and tax consolidation is not permitted. Unlike BAT, IETU is a definitive tax and, unlike income tax, the taxable income under IETU is greater since some deductions are not permitted, which in some cases may be compensated by the lower IETU rate than the income tax rate. During 2012, 2011 and 2010, the CEMEX, S.A.B. de C.V. and its main subsidiaries in México paid income tax.

BAT levied in excess of income tax for the period may be recovered, restated for inflation, in any of the succeeding ten years, provided that the income tax incurred exceeds BAT in such period. CEMEX, S.A.B. de C.V. determines income tax on a consolidated basis; consequently, it calculated and presented consolidated BAT through the 2007 tax period. As of December 31, 2012, the recoverable BAT was $146 and expires in 2016.

12B) Deferred income taxes

The effect of deferred income taxes for the period represents the difference between the income tax balances at the beginning and end of the period. As of December 31, 2012 and 2011 the temporary differences that generated the deferred income tax assets and liabilities of CEMEX, S.A.B. de C.V. are presented below:

    2012 2011
Deferred tax assets:
Tax loss carryforwards and other tax credits $ 2,206 5,197
Advance payments and convertible securities   1,513 277
Derivative financial instruments   2,617 1,682
Issuance cost of debt   302 297
Total deferred tax assets   6,638 7,453
 
Deferred tax liabilities:
Land and buildings   (510) (530)
Derivative financial instruments   (1,210) (330)
Convertible securities   (608) (940)
Investments in associates   (1,028) (1,068)
Total deferred tax liabilities   (3,356) (2,868)
Net deferred tax assets $ 3,282 4,585

The change in deferred income taxes for the years 2012 and 2011 includes an expense of approximately $31 for both periods, related to equity issuance expenses, recognized in other equity reserves. CEMEX, S.A.B. de C.V.’s management considers that sufficient taxable income will be generated in the future to realize the tax benefits associated with deferred income tax assets and tax loss carryforwards, prior to their expiration. In the event that present conditions change and it is determined that future operations would not generate enough taxable income, CEMEX, S.A.B. de C.V. would not recognize such asset.

CEMEX, S.A.B. de C.V. does not recognize a deferred tax liability for the undistributed earnings generated by its subsidiaries, considering that such undistributed earnings are expected to be reinvested and not generating taxable income in the foreseeable future. Furthermore, CEMEX, S.A.B. de C.V. does not recognize a deferred tax liability related to its investments in subsidiaries, considering that it controls the reversal of the temporary differences arising from these investments.

12C) Effective tax rate

The effects of inflation are recognized differently for tax purposes and for book purposes. This situation, as in the differences between book and tax bases, give rise to permanent differences between the approximate tax rate and the effective rate shown in the statements of operations of CEMEX, S.A.B. de C.V. As of December 31, 2012, 2011 and 2010, these differences are explained as follows:

  2012
%
2011
%
2010
%
Tax law income tax rate 30.0 (30.0) (30.0)
Unrecognized tax benefits in the year 139.9 24.7 53.4
Inflation adjustments (20.4) 4.9 8.9
Tax consolidation effect (note 12A) - - 404.3
Non-deductible and other items (35.6) (1.9) (26.3)
Effective tax rate 113.9 (2.3) 410.3

13) Stockholders’ equity

As of December 31, 2012 and 2011, there were 18,028,276 CPOs and 17,334,881 CPOs, respectively, held by subsidiaries.

13A) Common stock and additional paid-in capital

As of December 31, 2012 and 2011, the breakdown of common stock and additional paid-in capital was as follows:

    2012 2011
Common stock $ 4,139 4,135
Additional paid-in capital   113,929 109,309
  $ 118,068 113,444

As of December 31, 2012 and 2011, the common stock of CEMEX, S.A.B. de C.V. was represented as follows:

  2012 2011
Shares 1 Series A 2 Series B 3 Series A 2 Series B 3
Subscribed and paid shares 21,872,295,096 10,936,147,548 20,939,727,526 10,469,863,763
Unissued shares authorized for stock compensation programs 1,155,804,458 577,902,229 250,782,926 125,391,463
Shares that guarantee the issuance of convertible securities 4 6,162,438,520 3,081,219,260 5,932,438,520 2,966,219,260
Shares authorized for the issuance of stock or
convertible securities 5
4,146,404 2,073,202 7,561,480 3,780,740
  29,194,684,478 14,597,342,239 27,130,510,452 13,565,255,226

1 As of December 31, 2012 and 2011, 13,068,000,000 shares correspond to the fixed portion, and 30,724,026,717 shares as of December 31, 2012 and 27,627,765,678 shares as of December 31, 2011, correspond to the variable portion.

2 Series “A” or Mexican shares must represent at least 64% of common stock.

3 Series “B” or free subscription shares may represent up to 36% of common stock

4 Shares that guarantee the conversion of both the voluntary and mandatorily convertible securities (note 10B).

5 Shares authorized for the issuance of stock through a public offer or through the issuance of convertible securities.

On February 23, 2012, stockholders at the annual ordinary shareholders’ meeting approved resolutions to: (i) increase the variable common stock through the capitalization of retained earnings, by issuing up to 1,256.4 million shares (418.8 million CPOs), which shares were issued, representing an increase in common stock of approximately $3.4, considering a nominal value of $0.00833 per CPO, and additional paid-in capital of approximately $4,133.8; (ii) increase the variable common stock by issuing up to 345 million shares (115 million CPOs),which will be kept in CEMEX’s treasury to be used to preserve the anti-dilutive rights of note holders pursuant CEMEX’s convertible securities (note 10B); (iii) the cancellation of 5,122 million treasury shares, which were not subject to public offer or convertible notes issuance in the 24 months period authorized by the extraordinary shareholders meeting held on September 4, 2009; and (iv) increase the variable common stock by issuing up to 1,500 million shares (500 million CPOs) which will be kept in CEMEX’s treasury and used to be subscribed and paid pursuant to the terms and conditions of CEMEX’s long-term compensation stock program, without triggering the shareholders’ preemptive rights.

On February 24, 2011, stockholders at the extraordinary shareholder meeting approved an increase in the variable portion of our capital stock of up to 6 billion shares (2 billion CPOs). Pursuant to the resolution approved by the stockholders, the subscription and payment of the new shares may occur through a public offer of CPOs and/or the issuance of convertible securities. These shares are kept in the treasury of CEMEX, S.A.B. de C.V. as a guarantee for the potential issuance of shares through convertible securities.

On February 24, 2011, stockholders at the annual ordinary shareholders’ meeting approved resolutions to: (i) increase the variable common stock through the capitalization of retained earnings, issuing up to 1,202.6 million shares (400.9 million CPOs) based on a price of $10.52 per CPO. Stockholders received 3 new shares for each 75 shares held (1 new CPO for each 25 CPOs held), through the capitalization of retained earnings. As a result, shares equivalent to approximately 401 million CPOs were issued, representing an increase in common stock of approximately $3, considering a nominal value of $0.00833 per CPO, and additional paid-in capital of approximately $4,213; and (ii) increase the variable common stock by up to 60 million shares (20 million CPOs) issuable as a result of antidilution adjustments upon conversion of CEMEX’s convertible securities (note 10B). These shares are kept in CEMEX’s treasury. There was no cash distribution and no entitlement to fractional shares.

On April 29, 2010, stockholders at the annual ordinary shareholder meeting approved resolutions to: (i) increase the variable common stock through the capitalization of retained earnings, issuing up to 1,153.8 million shares (384.6 million CPOs) based on a price of $14.24 per CPO. Stockholders received 3 new shares for each 75 shares held (1 new CPO for each 25 CPOs held), through the capitalization of retained earnings. As a result, shares equivalent to approximately 384.6 million CPOs were issued, representing an increase in common stock of approximately $3, considering a nominal value of $0.00833 per CPO, and additional paid-in capital of approximately $5,476, and (ii) increase the variable common stock by up to 750 million shares (250 million CPOs) issuable as a result of antidilution adjustments upon conversion of CEMEX’s convertible securities (note 10B). These shares are kept in CEMEX’s treasury. There was no cash distribution and no entitlement to fractional shares.

The CPOs issued pursuant to the exercise of options under the “Fixed program” generated additional paid-in capital of approximately $11 in 2011 and $5 in 2010, and increased the number of shares outstanding. In addition, in connection with the cost associated with the executive long-term compensation programs in CEMEX, S.A.B. de C.V.’s CPO, CEMEX, S.A.B. de C.V. generated additional paid-in capital of approximately $486 in 2012, $506 in 2011 and $317 in 2010, in connection with the issuance of approximately 46.4 million CPOs, 43.4 million CPOs and 25.7 million CPOs, in 2012, 2011 and 2010, respectively, against the line item of “Other equity reserves.” The compensation cost of these programs was recognized in the financial statements of the relevant subsidiaries. CEMEX, S.A.B. de C.V. will recognize the effects associated with the new executive conditioned compensation program as part of the additional paid-in capital upon compliance with the performance conditions once the related CPOs are issued.

13B) Retained earnings

Net income for the year is subject to a 5% allocation toward a legal reserve until such reserve equals one fifth of the capital represented by the common stock. As of December 31, 2012, the legal reserve amounted to $1,804.

14) Contingencies and commitments 14A) Guarantees

As of December 31, 2012 and 2011, CEMEX, S.A.B. de C.V. had guaranteed loans to certain subsidiaries of approximately US$9,148 ($117,557) and US$8,993 ($125,538), respectively.

14B) Pledged assets

In connection with the Facilities Agreement (note 10A), CEMEX transferred to a guarantee trust and entered into pledge agreements for the benefit of the Facilities Agreement lenders, note holders and other creditors having the benefit of negative pledge clauses, the shares of several of its main subsidiaries, including CEMEX México, S.A. de C.V. and CEMEX España, S.A., in order to secure payment obligations under the Facilities Agreement and other debt instruments. These shares secure several other financings entered into prior to the date of the Facilities Agreement.

14C) Other commitments

In April 2008, Citibank entered into put option transactions on CEMEX’s CPOs with a Mexican trust that CEMEX established on behalf of its Mexican pension fund and certain of CEMEX’s directors and current and former employees (the “participating individuals”). The transaction was structured with two main components. Under the first component, the trust sold, for the benefit of CEMEX’s Mexican pension fund, put options to Citibank in exchange for a premium of approximately US$38. The premium was deposited into the trust and was used to purchase, on a prepaid forward basis, securities that track the performance of the Mexican Stock Exchange. Under the second component, the trust sold, on behalf of the participating individuals, additional put options to Citibank in exchange for a premium of approximately US$38, which was used to purchase prepaid forward CPOs. These prepaid forward CPOs, together with additional CPOs representing an equal amount in U.S. dollars, were deposited into the trust by the participating individuals as security for their obligations, and represent the maximum exposure of the participating individuals under this transaction. The put options gave Citibank the right to require the trust to purchase, in April 2013, approximately 136 million CPOs at a price of US$2.6498 per CPO (120% of initial CPO price in dollars), as adjusted as of December 31, 2012. If the value of the assets held in the trust (34.7 million CPOs and the securities that track the performance of the Mexican Stock Exchange) were insufficient to cover the obligations of the trust, a guarantee would be triggered and CEMEX, S.A.B. de C.V. would be required to purchase, in April 2013, the total CPOs at a price per CPO equal to the difference between US$2.6498 and the market value of the assets of the trust. The purchase price per CPO in dollars and the corresponding number of CPOs under this transaction are subject to dividend adjustments. CEMEX recognizes a liability for the fair value of the guarantee, and changes in valuation were recorded in the statements of operations (note 10D).

14D) Contractual obligations

As of December 31, 2012 and 2011, CEMEX, S.A.B. de C.V. had the following contractual obligations:

(U.S. dollars millions) 2012 2011
Obligations   Less than
1 year
1-3
Years
3-5
Years
More than
5 Years
Total Total
Long-term debt 1 US$ 5 803 1,156 2,116 4,080 4,634
Convertible notes 2   12 683 878 604 2,177 2,102
Total debt and other
financial obligations
  17 1,486 2,034 2,720 6,257 6,736
Interest payments on debt 3   221 427 354 72 1,074 1,377
Total contractual obligations US$ 238 1,913 2,388 2,792 7,331 8,113
  $ 3,058 24,582 30,686 35,877 94,203 113,252

1 The schedule of debt payments, which includes current maturities, does not consider the effect of any refinancing of debt that may occur during the following years. In the past, CEMEX, S.A.B. de C.V. has replaced its long-term obligations for others of a similar nature.

2 Refers to the convertible notes described in note 10 and assumes repayment at maturity and no conversion of the notes.

3 For the determination of the future estimated interest payments on floating rate denominated debt, CEMEX used the floating interest rates in effect as of December 31, 2012 and 2011.

15) Tax credits and legal proceedings

On January 21, 2011, the Mexican tax authority notified CEMEX, S.A.B. de C.V., of a tax assessment for approximately $996 (US$77) pertaining to the tax year 2005. The tax assessment is related to the corporate income tax in connection with the tax consolidation regime. As a result of a tax reform in 2005, the law allows the cost of goods sold to be deducted, instead of deducting purchases. Since there were inventories as of December 31, 2004, in a transition provision, the law allowed the inventory to be accumulated as income (thus reversing the deduction via purchases) and then be deducted from 2005 onwards as cost of goods sold. In order to compute the income resulting from the inventories in 2004, the law allowed this income to be offset against accumulated tax losses of some of CEMEX S.A.B. de C.V.’s subsidiaries. The authorities argued that because of this offsetting, the right to use such losses at the consolidated level had been lost; therefore, CEMEX, S.A.B. de C.V. had to increase its consolidated income or decrease its consolidated losses. CEMEX believes that there is no legal support for the conclusion of the Mexican tax authority and, on March 29, 2011, CEMEX, S.A.B. de C.V. challenged the assessment before the tax court.

Pursuant to amendments to the Mexican income tax law effective January 1, 2005, Mexican companies with investments in foreign entities whose income tax liability is less than 75% of the income tax that would be payable in Mexico, are required to pay taxes in Mexico on net passive income, such as dividends, royalties, interest, capital gains and rental fees obtained by such entities, provided, however, that those revenues are not derived from entrepreneurial activities in such countries. CEMEX S.A.B. de C.V. challenged the constitutionality of the amendments before the Mexican federal courts. In September 2008, the Supreme Court of Justice ruled the amendments were constitutional for tax years 2005 to 2007. On March 1, 2012 and July 5, 2012, CEMEX S.A.B. de C.V. self-assessed the taxes corresponding to the 2005 and 2006 tax years, respectively, for a total amount, inclusive of surcharges and carry-forward charges, of approximately $4,642 (US$358) for 2005 and $1,100 (US$86) for 2006, of which 20%, equivalent to approximately $928 (US$72) for 2005 and $221 (US$17) for 2006, was paid in connection with the submission of amended tax returns. The remaining 80% of such total amounts would have been due in February 2013 and July 2013 for the 2005 and 2006 tax years, respectively, plus additional interest if CEMEX S.A.B. de C.V. would have elected to extend the payment date in thirty-six monthly installments. On January 31, 2013 in connection with the transitory amnesty provision described below, CEMEX S.A.B. de C.V. reached a settlement agreement with the tax authorities (note 16). Changes in the provision were recognized through income tax expense for the period.

16) Subsequent events

In connection with the tax proceeding related to the taxes payable in Mexico from passive income generated by foreign investments for the years 2005 and 2006 and the transitory amnesty provision both of which are described in note 15, on January 31, 2013, CEMEX, S.A.B. de C.V. was notified that an agreement had been reached with the Mexican tax authorities regarding the settlement of such tax proceeding pursuant to a final payment according to the rules of the transitory provision. CEMEX, S.A.B. de C.V. paid the amount on February 1, 2013.