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)
In addition, a deferred charge for an amount of Ps215 was recognized by the seller under U.S. GAAP and is being amortized over the
estimated useful life of the asset beginning in 2009. The amortization expense recognized for U.S. GAAP purposes in the statement of
operations as of December 31, 2010 and 2009 was Ps2 and Ps21, respectively.
Of the total net income tax expense of approximately Ps2,531 in 2010, income tax benefit of approximately Ps3,420 in 2009 and income tax
expense of approximately Ps7,861 in 2008, included in the reconciliation of net income (loss) to U.S. GAAP, income tax expense of
approximately Ps559 in 2010, income tax benefit of approximately Ps2,421 in 2009 and income tax expense of approximately Ps2,657 in
2008, are related to deferred income taxes.
Current Income Taxes
In addition to the reconciling items mentioned above related to deferred income taxes, according to MFRS D-4, current income taxes are
presented in the income statement. For U.S. GAAP purposes, current income taxes generated by items recognized directly in equity are
recognized in equity, considering also intra-period tax allocation. The reconciliation of net income (loss) to U.S. GAAP for the years ended
December 31, 2010, 2009 and 2008, includes a tax expense of approximately Ps4,883, a tax benefit of approximately Ps3,353 and a tax
expense of approximately Ps5,091, respectively, for the reclassification of current income taxes from net income (loss) under MFRS to equity
under U.S. GAAP.
In connection with changes to the tax consolidation regime in Mexico (notes 2N and 15A) under MFRS based on Interpretation 18, during
2010 and 2009, CEMEX recognized a credit of approximately Ps2,911 and a charge of approximately Ps2,245 against retained earnings,
respectively, for the partial cancellation in 2010 and the initial recognition in 2009 of the liability portion related to: a) the difference between
the sum of the equity of the controlled entities for tax purposes and the equity for tax purposes of the consolidated entity; b) dividends from
the controlled entities for tax purposes to CEMEX, S.A.B. de C.V.; and c) other transactions between the companies included in the tax
consolidation that represented the transfer of resources within the group. Under U.S. GAAP, the tax effects of a new tax law enactment are
recognized in the income statement for the period, therefore, the credit in 2010 and the charge in 2009 to retained earnings mentioned above
were reclassified to income tax expense in the statements of operations for the years ended December 31, 2010 and 2009, respectively.
Employees' Statutory Profit Sharing (“ESPS”)
Until December 31, 2007, for purposes of U.S. GAAP, CEMEX recorded a deferred tax liability related to ESPS in Mexico using the asset
and liability method at the statutory rate of 10%. As mentioned in note 2M, beginning January 1, 2008, deferred ESPS under MFRS is
calculated and recognized under the asset and liability method. As a result, the reconciling item as of December 31, 2007 under U.S. GAAP
was eliminated in the reconciliation of net income (loss) to U.S. GAAP in the year 2008.
(d) Accounting for Uncertainty in Income Taxes
Pursuant to ASC 740 under U.S. GAAP, CEMEX defines the confidence level that a tax position taken or expected to be taken must meet in
order to be recognized in the financial statements. ASC 740-10-25-6 requires that the tax effects of a position must be recognized only if it is
“more-likely-than-not” to be sustained based on its technical merits as of the reporting date. In making this assessment, CEMEX has assumed
that the tax authorities will examine each position and have full knowledge of all relevant information. 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 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 to be recognized. Moreover, the more-likely-than-not threshold must continue to be met in each
reporting period to support continued recognition of a benefit.
If during any period after recognition the threshold ceases to be met, the previously recorded benefit must be derecognized. Likewise, the
benefit of a tax position that initially fails to meet the more-likely-than-not threshold should be recognized in a subsequent period if changing
facts and circumstances enable the position to meet the threshold, the matter is effectively settled through negotiation or litigation with the tax
authorities, or the statute of limitations has expired. A summary of the beginning and ending amount of unrecognized tax benefits recorded
under U.S. GAAP as of December 31, 2010, 2009 and 2008, excluding interest and penalties, is as follows:
2010 2009 2008
Balance of tax positions under U.S. GAAP at beginning of year .................... Ps 20,333 13,930 11,198
Additions for tax positions of prior years......................................................... 3,687 2,368 2,217
Additions for tax positions of current year ...................................................... 765 5,110 2,126
Reductions for tax positions related to prior years and other items.................. (2,240) (306) (3,639)
Settlements....................................................................................................... (81) (187) (123)
Expiration of the statue of limitations.............................................................. (4,195) (236) (24)
Foreign currency translation effects................................................................. (1,009) (346) 2,175
Balance of tax positions under U.S. GAAP at end of year............................... Ps 17,260 20,333 13,930
Balance of tax positions under MFRS at end of year....................................... Ps 10,940 9,024 5,474
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