building a STRONGER foundation - Cemex

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CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements – (Continued) As of December 31, 2010, 2009 and 2008 (Millions of Mexican pesos) 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 F-66
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) CEMEX’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. Final balance for interest and penalties accrued under MFRS and U.S. GAAP was Ps1,055 and Ps1,981, respectively, as of December 31, 2010, and was Ps1,108 under MFRS and Ps3,064 under U.S. GAAP as of December 31, 2009. Interest and penalties expense (benefit) related to unrecognized tax benefits recorded in the consolidated statements of operations for the years ended December 31, 2010, 2009 and 2008 is as follow: Years MFRS U.S. GAAP 2010 .............................................................................................................................................. Ps (53) (1,006) 2009 .............................................................................................................................................. (15) 154 2008 .............................................................................................................................................. 695 1,341 Tax examinations can involve complex issues, and the resolution of issues may span multiple years, particularly if subject to negotiation or litigation. Although CEMEX believes its estimates of the total unrecognized tax benefits are reasonable, uncertainties regarding the final determination of income tax audit settlements and any related litigation could affect the amount of total unrecognized tax benefits in future periods. It is difficult to estimate the timing and range of possible changes related to the uncertain tax positions, as finalizing audits with the income tax authorities may involve formal administrative and legal proceedings. Accordingly, it is not possible to reasonably estimate the expected changes to the total unrecognized tax benefits over the next 12 months, although any settlements or statute of limitations expirations may result in a significant increase or decrease in the total unrecognized tax benefits, including those positions related to tax examinations being currently conducted. CEMEX files income tax returns in multiple jurisdictions and is subject to examination by income taxing authorities throughout the world. CEMEX’s major tax jurisdictions and the years open for examination are as follows: Country Years Mexico................................................................................................................................................................................. 2005 – 2010 United States........................................................................................................................................................................ 2005 – 2010 Spain.................................................................................................................................................................................... 2006 – 2010 United Kingdom .................................................................................................................................................................. 2006 – 2010 (e) Employee Benefits Severance payments Under U.S. GAAP, post-employment benefits for former or inactive employees, including severance payments, which are not part of a restructuring event, are accrued over the employees' service lives. Beginning January 1, 2005, under MFRS, severance payments that are not part of a restructuring event are accrued over the employees' service lives according to actuarial computations, in a manner similar to U.S. GAAP. For the years ended December 31, 2010, 2009 and 2008, the reconciling item refers to the amortization of the cumulative initial effect from the accounting change under MFRS recognized as of January 1, 2005 as part of the unrecognized net transition obligation. Based on the adoption of amended MFRS D-3, as of January 1, 2008, such cumulative initial effect is amortized over a maximum period of 5 years. In addition, all unamortized actuarial gains and losses were amortized immediately in the results of 2008 under MFRS. Pension and other postretirement benefits In connection with employee pension and other postretirement benefits under MFRS, until December 31, 2007, CEMEX determined the costs of these benefits based on the obligations’ net present value, and the actuarial results which exceed the greater of 10% of the fair value of the plan assets and 10% of the present value of the plan obligations, the prior service cost and the transition liability, are amortized to the operating results over the employees’ estimated active service life (note 2M), as permitted by ASC 715, Compensation – Retirement Benefits Defined Benefit Plans - Pensions, under U.S. GAAP. Resulting from the adoption of amended MFRS D-3 as of January 1, 2008, the prior service cost and transition liability accrued as of December 31, 2007, should be amortized to the income statement over a maximum period of five years, while actuarial results are amortized normally over the employees’ estimated active service lives following the corridor method. The reconciliation of net income (loss) to U.S. GAAP in 2010, 2009 and 2008 includes the reversal of the additional amortization expense recognized under MFRS of approximately Ps36, Ps104 and Ps104, respectively. For the reconciliation of stockholders' equity to U.S. GAAP, based on ASC 715, CEMEX recognizes the funded status (benefits obligation less fair value of plan assets) of defined benefit pension and other postretirement plans as a net asset or liability and recognizes any changes in that funded status in the year in which the changes occur against other comprehensive income ("OCI") within stockholders’ equity under U.S. GAAP to the extent those changes are not included in the net periodic cost. F-67
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CEMEX 2010 20F REPORT building a ST
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Securities registered or to be regi
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Qualitative and Quantitative Market
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INTRODUCTION CEMEX, S.A.B. de C.V.
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As a result of the foregoing transa
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In the U.S., the recession was long
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The Financing Agreement contains ev
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The Financing Agreement restricts u
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During 2009, we reduced the aggrega
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The instruments governing our debt
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On the legislative front, during th
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Our operations in South America, Ce
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the depositary to vote the CPOs und
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Beginning in 2008, MFRS B-10 has el
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(1) Cost of sales includes deprecia
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Item 4 - Information on the Company
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As a condition to closing the RMC a
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Provide our customers with the best
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In connection with the implementati
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In 2010, as a result of our efforts
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In addition, we are one of the worl
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(2) Our cement raw materials operat
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Our Corporate Structure We are a ho
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Cement in Mexico is sold principall
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Aggregates. Our aggregates operatio
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Beginning on June 30, 2008, Ready M
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Products and Distribution Channels
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On December 26, 2008, we sold our C
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Ready-Mix Concrete. Our ready-mix c
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Aggregates. In 2010, we reduced fix
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Our Operating Network in France Des
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In April 2006, we initiated an expa
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Our Operating Network in Colombia P
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Our Operations in Nicaragua Overvie
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Our Operations in the United Arab E
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Our Trading Operations In 2010, we
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On December 10, 2010, after receivi
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To prevent, control and remediate e
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As required by the directive, each
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For the 2010 fiscal year, CEMEX wil
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Separately, the government of Venez
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and CEMEX was required by August 11
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January 1, 2008, however, under MFR
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foreign subsidiaries. These instrum
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Valuation reserves on accounts rece
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Stage 1. Communication to the organ
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Year Ended December 31, 2010 Compar
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Geographic Segment 89 Variations in
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United Kingdom Our domestic cement
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ended December 31, 2010, Africa and
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Operating Income. For the reasons m
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Our comprehensive financing result
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The following tables present select
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Mexico Our domestic cement sales vo
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As a result of the decreases in dom
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For the year ended December 31, 200
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South America, Central America and
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On August 14, 2009, we entered into
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As of December 31, 2010, we had U.S
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Our Perpetual Debentures As of Dece
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The Financing Agreement, as amended
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In 1999, CEMEX entered into an agre
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Our Equity Derivative Forward Contr
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As of December 31, 2009 and 2010, C
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In addition, we have entered into f
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Private Cash Tender Offer to Holder
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Name, Position (Age) Experience Jai
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Name, Position (Age) Experience Ram
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Tomás Milmo Santos (46) Has been a
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Set forth below are the names of th
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Consolidated ESOP Information Stock
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Item 7 - Major Shareholders and Rel
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The following table sets forth the
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Item 10 - Additional Information Ar
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exempt from registration pursuant t
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Our board of directors shall prepar
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Under our by-laws, shareholders rep
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On June 2, 2008, CEMEX, through one
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Exchange Controls See “Item 3 —
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The gross amount of any dividends p
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We have agreed to pay some of the o
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Item 16G - Corporate Governance Sec
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Item 17 - Financial Statements Not
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4.17 Debenture Purchase Agreement,
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4.27.3 Amendment No. 1 to U.S.$525,
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4.41.4 Accession Letter, dated Janu
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4.57 Amended and Restated Dealer Ma
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SIGNATURES CEMEX, S.A.B. de C.V. he
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The Board of Directors and Stockhol
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CEMEX, S.A.B. DE C.V. AND SUBSIDIAR
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CEMEX, S.A.B. DE C.V. AND SUBSIDIAR
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1. DESCRIPTION OF BUSINESS CEMEX, S
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C) USE OF ESTIMATES CEMEX, S.A.B. D
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J) IMPAIRMENT OF LONG LIVED ASSETS
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Contingencies and commitments (note
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