building a STRONGER foundation - Cemex

CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements – (Continued)
As of December 31, 2010, 2009 and 2008
(Millions of Mexican pesos)
Changes to the consolidated valuation allowance of deferred tax assets in 2010, 2009 and 2008 were as follows:
2010 2009 2008
Balance at the beginning of the period .............................................................. Ps (32,079) (27,194) (21,093)
Increases........................................................................................................ (14,780) (18,638) (5,652)
Decreases 1.................................................................................................... 3,436 13,547 1,571
Translation effects......................................................................................... 3,286 206 (2,020)
Balance at the end of the period ........................................................................ Ps (40,137) (32,079) (27,194)
The changes in consolidated deferred income taxes during 2010, 2009 and 2008 were as follows:
2010 2009 2008
Deferred income tax charged to the statements of operations ...........................Ps 3,524 19,255 30,971
Deferred income tax in stockholders’ equity 2 .................................................. 778 941 (362)
Reclassification to other captions in the balance sheet ..................................... (1,054) 1,060 –
Change in deferred income tax for the period..................................................Ps 3,248 21,256 30,609
1 Includes in 2009 the reclassification of the liability related to the income tax law reforms in Mexico.
2 The change in stockholders’ equity in 2010 and 2009, includes an expense of Ps338 and an income of Ps585, respectively, related to the effect generated for
the future tax deduction of the debt components of both the 2010 Optional Convertible Subordinated Notes and the Mandatorily Convertible Securities (note
12). In 2008, this includes a debit of Ps920 related to the initial effect of deferred tax liabilities on investment in associates, recognized within “Retained
earnings,” and a credit of Ps558 related to the deferred tax asset on items directly recognized in stockholders’ equity.
CEMEX believes that sufficient taxable income will be generated as to realize the tax benefits associated with the deferred income tax assets
and tax loss carryforwards, prior to their expiration. Nevertheless, a valuation allowance is recorded for the deferred tax assets on tax loss
carryforwards that are estimated and may not be recoverable in the future. In the event that present conditions change, and it is determined
that future operations would not generate sufficient taxable income, the valuation allowance on deferred tax assets would be increased against
the results of the period.
CEMEX, S.A.B de C.V. has not provided for any deferred tax liability for the undistributed earnings generated by its subsidiaries, recognized
under the equity method, considering that such undistributed earnings are expected to be reinvested and not generating income tax in the
foreseeable future. Likewise, CEMEX does not recognize a deferred income tax liability related to its investments in subsidiaries and interests
in joint ventures, considering that CEMEX controls the reversal of the temporary differences arising from these investments.
C) EFFECTIVE TAX RATE
Differences between the financial reporting and the corresponding tax basis of assets and liabilities and the different income tax rates and
laws applicable to CEMEX, among other factors, give rise to permanent differences between the statutory tax rate applicable in Mexico, and
the effective tax rate presented in the consolidated statements of operations, which in 2010, 2009 and 2008 were as follows:
2010 2009 2008
% % %
Consolidated statutory tax rate .............................................................................. (30.0) (28.0) (28.0)
Non-taxable dividend income................................................................................ – (7.4) (15.6)
Other non-taxable income 1................................................................................... (14.7) (179.9) (32.6)
Expenses and other non-deductible items.............................................................. (3.1) 30.8 25.3
Non-taxable sale of marketable securities and fixed assets ................................... 21.0 (86.9) (7.4)
Difference between book and tax inflation............................................................ 11.7 27.1 8.0
Other tax non-accounting benefits......................................................................... 46.3 (0.5) (8.6)
Foreign exchange fluctuations 2 ............................................................................ 3.2 12.8 (37.8)
Others.................................................................................................................... 3.2 4.3 (4.3)
Effective consolidated tax rate .............................................................................. 37.6 (227.7) (101.0)
1 Includes the effects of the different income tax rates in the countries where CEMEX operates.
2 Includes the effects of foreign exchange fluctuations recognized as translation effects (note 16B).
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