building a STRONGER foundation - Cemex

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(k) Other U.S. GAAP Adjustments Deferred charges 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) On October 25, 2010, CEMEX and its lenders under the Financing Agreement agreed amendments which prospectively modify certain financial ratios and other financial tests. Issuance costs and commissions paid, which under MFRS were recorded in the statement of operations have been capitalized under U.S. GAAP for approximately Ps274 (US$22). A deferred income tax liability under U.S. GAAP for approximately Ps82 was recognized in connection with the commissions and issuance costs mentioned above. In prior years, under MFRS, CEMEX capitalized certain costs not qualifying for deferral under U.S. GAAP. Therefore, such costs were reversed through earnings under U.S. GAAP in the period incurred, resulting in income of Ps10 in 2008. During 2010, 2009 and 2008, all amounts capitalized under MFRS also met the requirements for capitalization under U.S. GAAP. Accordingly, the adjustments in the reconciliation of net income (loss) to U.S. GAAP for the year ended December 31, 2008 refer exclusively to amounts amortized under MFRS during the respective year and which were expensed in prior years under U.S. GAAP. During 2008, the accounting difference was fully amortized. As mentioned in note 24(h), in connection with the extinguished long-term facilities replaced under the Financing Agreement (note 12A) with an original carrying amount of approximately US$11,368 (Ps148,807), the issuance costs and commissions paid under MFRS, which were capitalized as deferred financing costs, were expensed in the reconciliation of net income (loss) to U.S. GAAP in 2009 as interest expense for approximately Ps6,016 (US$442). During 2010, an amortization of Ps1,562 related to the mentioned deferred financing costs was eliminated for U.S. GAAP purposes as a gain in the income (loss) U.S. GAAP reconciliation. Additionally and in connection with the exchange of CBs issued in Mexico for the Mandatorily Convertible Securities for approximately Ps4,126 (US$315) (notes 12A, 16B and 24(h)), which, based on MFRS, these Mandatorily Convertible Securities represent a compound instrument which has a liability component and an equity component. Under U.S. GAAP, the exchange qualified as the issuance of new debt and the extinguishment of the old facilities according to ASC 470-50. Consequently, CEMEX reclassified to interest expense under U.S. GAAP in 2009 the issuance costs related to the Mandatorily Convertible Securities classified as deferred financing costs under MFRS for approximately Ps67 (US$5). During 2008, in connection with its perpetual debentures, CEMEX recognized issuance costs directly in equity under MFRS for approximately Ps221. As mentioned in note 24(f), CEMEX’s perpetual debentures are treated as debt under U.S. GAAP. Consequently, issuance costs were reclassified from equity under MFRS to deferred financing costs under U.S. GAAP and are being amortized over 5, 8 and 10 years, depending on each facility, which were the periods remaining before CEMEX has the option to repurchase the instrument. For the years ended December 31, 2010, 2009 and 2008, the reconciliation of net income (loss) to U.S. GAAP included expenses of approximately Ps36, Ps41 and Ps61, respectively, related to the amortization of these deferred financing costs. In addition, during 2008, CEMEX recognized a current income tax expense of approximately Ps215 related to an intercompany transfer of intangible assets under MFRS. Under U.S. GAAP, income tax effects associated with intercompany transfers of assets should be eliminated from the income statement. Consequently, CEMEX reclassified the current income tax expense for the period under MFRS against a deferred charge under U.S. GAAP. During 2010, the estimated useful life of the asset was revised, considering a non-significant change in estimation which was accounted for prospectively.. As of December 31, 2010 and 2009, the reconciliation of stockholders’ equity to U.S. GAAP included a benefit of approximately Ps191 and Ps194, respectively, related to this item. Capitalized Interest Under both MFRS (note 10) and U.S. GAAP, CEMEX capitalizes interest related to debt incurred during significant construction projects. Capitalized interest is depreciated over the useful lives of the related assets. Under U.S. GAAP, only interest expense is considered an additional cost of constructed assets. Under MFRS, until December 31, 2007, pursuant to inflationary accounting, capitalized interest was comprehensively measured in order to include: (i) interest expense, plus (ii) any foreign exchange fluctuations, and less (iii) the related monetary position result. CEMEX does not capitalize foreign exchange fluctuations related to debt incurred during significant construction projects, considering the mix of currencies in its outstanding debt and that it is not possible to link a specific debt transaction with a corresponding construction project. During 2010, due to the postponement of its major construction projects, CEMEX did not capitalize interest in connection with such projects under both MFRS and U.S. GAAP. In 2009 and 2008, the amount of interest capitalized by CEMEX incurred during significant construction projects under MFRS was the same as the amount that would be determined under U.S. GAAP (note 10). In the reconciliation of net income (loss) to U.S. GAAP, until December 31, 2007, the monetary position results related to debt incurred during significant construction projects and which were capitalized under MFRS were reversed to earnings under U.S. GAAP. Beginning in 2008 and thereafter, the reconciling adjustment to U.S. GAAP refers to the depreciation expense related to the cumulative adjustment as of December 31, 2007. F-76
(l) U.S. GAAP adjustments to discontinued operations 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) The reconciling items in the reconciliation of net income (loss) to U.S. GAAP related to CEMEX’s operations in Australia for the years ended December 31, 2009 and 2008 were as follows: 2009 2008 Interest expense 1.......................................................................................................................... Ps (373) (388) Income tax 2.................................................................................................................................. 109 113 U.S. GAAP adjustments from discontinued operations .......................................................... Ps (264) (275) 1 Represents the interest related to the repaid debt with the proceeds of the sale of our Australian operations, required to be allocated to discontinued operations by IASC 205-20-45-6 “Reporting Discontinued Operations”. 2 Income tax effects related to the interest mentioned in footnote 1 above. Discontinued operations financial expense According to ASC 205-20-45-6, Reporting Discontinued Operations - Allocation of Interest to Discontinued Operations, and in connection with the sale of the Australian operations (note 3B), interest on debt that is to be assumed by the buyer and interest on debt that is required to be repaid as a result of a disposal transaction shall be allocated to discontinued operations. The amounts of interest expense reclassified to discontinued operations related to the repaid debt with the funds received from the sale of our subsidiary in Australia for the years ended December 31, 2009 and 2008 were Ps373 and Ps388, respectively. This interest expense was reclassified net of its tax effect for approximately Ps109 in 2009 and Ps113 in 2008, and is included within income from discontinued operations. CEMEX elected not to reclassify other interest expenses which are not directly attributable to discontinued operations, as permitted under ASC 205-20. (m) Supplemental Cash Flow Information under U.S. GAAP Beginning in 2008 under MFRS (note 2A), as part of its primary financial statements, CEMEX includes statements of cash flows, which present the sources and uses of cash flows in following significantly the same requirements as those established by ASC 230, Statement of cash flows, under U.S. GAAP, instead of the statement of changes in financial position presented until December 31, 2007 which identified the sources and uses of resources based on the differences between beginning and ending balance sheets in constant pesos. MFRS requires interest expense to be classified as a financing activity within the statement of cash flows, unlike ASC 230 under U.S. GAAP, which requires it to be classified as an operating activity. The following table presents cash flows from operating, financing and investing activities under MFRS and U.S. GAAP pursuant to the reclassification of interest expense for the years ended December 31, 2010, 2009 and 2008: 2010 2009 2008 MFRS U.S. GAAP MFRS U.S. GAAP MFRS U.S. GAAP Cash flows provided by operating activities ................ Ps 21,838 6,009 34,751 20,144 41,272 29,488 Cash flows used in financing activities........................ (24,387) (8,558) (37,146) (22,539) (23,689) (11,905) Cash flows provided by (used in) investing activities.. (1,862) (1,862) 5,715 5,715 (14,630) (14,630) Non-cash activities during 2010, 2009 and 2008 are disclosed in note 2A. (n) Sales of accounts receivable In December 2009, the FASB issued ASU 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets (FASB Statement No. 166, Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140) (“ASU 2009-16”). ASU 2009-16 removes the concept of a qualifying special purpose entity (“QSPE”) from ASC Topic 860, Transfers and Servicing, and the exception from applying ASC 810 10 to QSPEs, thereby requiring transferors of financial assets to evaluate whether to consolidate transferees that previously were considered QSPEs. Transferor imposed constraints on transferees whose sole purpose is to engage in securitization or asset backed financing activities are evaluated in the same manner under the provisions of ASU 2009-16 as transferor imposed constraints on QSPEs were evaluated under the provisions of Topic 860 prior to the effective date of ASU 2009-16 when determining whether a transfer of financial assets qualifies for sale accounting. ASU 2009-16 also clarifies the Topic 860 sale accounting criteria pertaining to legal isolation and effective control and creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale. ASU 2009-16 was effective for CEMEX beginning January 1, 2010. Until December 31, 2009, CEMEX accounted for transfers of receivables under MFRS consistently with the rules set forth by ASC 860, Transfers and Servicing (“ASC 860”). Under ASC 860, transactions that met the criteria for surrender of control were recorded as sales of receivables and their amounts were removed from the consolidated balance sheet at the time they are sold (note 5). ASC 860-50-30, Transfers and Servicing - Servicing Assets and Liabilities - Initial Measurement, requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. ASC 860-50-35, Transfers and Servicing – Servicing Assets and Liabilities – Subsequent Measurement, permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. An entity should apply the requirements for recognition and initial measurement of servicing assets and servicing liabilities prospectively to all similar transactions. For the years ended December 31, 2010, 2009 and 2008, CEMEX did not determine any reconciling item resulting from servicing assets and liabilities under U.S. GAAP considering that the effects were immaterial. In arriving at this conclusion CEMEX considered that the receivables are short-term financial assets with an average collection period of approximately 42 days, and assumed a 1% servicing fee over its approximately US$807 and US$735 of receivables sold under MFRS at December 31, 2010 and 2009, respectively. The result is a servicing asset of approximately US$8 in 2010 and US$7 in 2009 that would be amortized every 42 days. F-77
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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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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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V) CONCENTRATION OF CREDIT CEMEX, S
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Net sales by product and geographic
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