12. Financial instruments

Financial Instruments Related to the Senior Guaranteed Notes due 2015

On July 6, 2008 the Company entered into derivative instruments in order to cover the possible changes in the exchange rate of future interest payments of the Senior Guaranteed Notes due 2015 for US$250 million (“Interest-Only Swap”). This transaction does not meet hedge accounting requirements, and thus changes in the fair value of the underlying derivative have been and will be recorded in the Company’s current earnings as a component of comprehensive financing cost within the valuation effects of derivative instruments account. As of December 31, 2010 the fair value of this derivative was a liability position of Ps. 60,917 (US$ 4.9 million). As of December 31, 2009 the fair value of this derivative was a favorable asset position of Ps. 4,375 (US$ 0.3 million) (see Note 10).

The net accumulated expense in the statement of income of the Interest-Only Swap for the year ended December 31, 2010 and 2009 was Ps. 68,572 and Ps. 61,600, respectively. The net accumulated income of the Interest-Only Swap was Ps. (90,639) for the year ended December 31, 2008.

Financial Instruments Related to the Senior Guaranteed Notes due 2019
As disclosed in Note 11, the Company’s Senior Guaranteed Notes due 2019 are U.S. dollar denominated.
In order to decrease the risk of future changes in the exchange rate between U.S. dollar and Mexican pesos, in December 11, 2009 the Company entered into a “Principal-Only Swap” with a notional value of US$250 million, which entitled the Company to receive this amount in 2019 in return for a payment in Mexican pesos at a fixed exchange rate of 12.93 Mexican pesos per U.S. Dollar. As part of this agreement,the Company will pay interest of 3.87% a year on the total notional amount of Ps. 3,232.5 million Mexican Pesos, in semiannual payments. In order to increase the amount of thresholds of these financial instruments and to avoid collateral margin calls, in May 2010 the Company changed its PO Swap rate from 3.87% to 4.39%.

In addition, on December 11, 2009 the Company entered into an “Interest-Only Swap” in order to cover the possible changes in the exchange rate of the first six interest payments of the Senior Guaranteed Notes due 2019 for US$250 million (“Interest-Only Swap”).

The Principal-Only Swap transaction met hedge accounting requirements. As of December 31, 2010 and 2009, the fair value of this derivative was Ps. 447,243 (US$ 36.1 million) and Ps. 109,970 (US$ 8.4 million), respectively, and represented a liability.

The Interest-Only Swap transaction did not meet hedge accounting requirements. As of December 31, 2010, the fair value of this derivative was Ps. 19,804 (US$ 1.6 million) and represented a favorable asset position (see Note 10). As of December 31, 2009, the fair value of this derivative was Ps. 9,114 (US$ 0.7 million) and represented a liability. The net accumulated gain in the statement of income of the Interest-Only Swap for the year ended December 31, 2010 was Ps. (28,918), and for the year ended December 31, 2009 was an expense of Ps. 4,851.

As of December 31, 2010 and 2009 the Company had the following financial instruments:

Other Financial Instruments
During the normal course of operations the Company maintains net liability positions in foreign currency (US dollars) which are originated by its operations’ short and long-term liabilities. During 2008, the Company entered into hedging derivative financial instruments that were expected to mitigate the risk associated with the exchange loss in the acquisition of foreign currencies. However, due to the recent volatility in the exchange rate between the Mexican Peso and US dollar, the Company decided to cancel and or otherwise restructure all its hedging derivative financial instruments. The Company had an impact in its statement of income of approximately Ps. 404,601. The Company did not have these financial instruments during 2009 and 2010; therefore it did not have any impact in its statements of income for those years.

The net valuation effects of financial instruments for the years ended December 31, 2010, 2009 and 2008, were Ps. 33,094, Ps. 66,451 and Ps. 313,962, respectively.