Cemex 2009 Annual Report Download - page 44

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CEMEX takes into consideration all available positive and negative evidence, including factors such as market conditions, industry analysis, expansion
plans, projected taxable income, carryforward periods, current tax structure, potential changes or adjustments in tax structure, tax planning strategies,
future reversals of existing temporary differences, etc., in the determination of whether it is more likely than not that such deferred tax assets will
ultimately be realized. Likewise, every reporting period, CEMEX analyzes its actual results versus the Company’s estimates, and adjusts, as necessary, its
tax asset valuations. If actual results vary from CEMEX’s estimates, the deferred tax asset and/or valuations may be affected and necessary adjustments
will be made based on relevant information. Any adjustments recorded will affect CEMEX’s net income in such period.
On January 1, 2008, CEMEX adopted the new MFRS D-4, which: a) transferred the rules pertaining the accounting for current and deferred ESPS to MFRS
D-3; b) ratified that a deferred tax asset can only be recognized when it is probable that such tax asset will be recovered against future income tax;
c) required the cumulative effect at December 31, 2007 for the initial recognition of deferred income tax effects from the adoption of the assets and
liabilities method to be reclassified from “Other equity reserves” to “Retained earnings” (note 3O); and d) eliminated the exception not to calculate deferred
income tax for investments in associates. CEMEX recognized the cumulative initial effect as of January 1, 2008 against the caption of ”Retained Earnings”
in the consolidated stockholders’ equity.
In connection with the new tax law approved in Mexico during November 2009, enacted and published on December 7, 2009 and that is effective
beginning January 1, 2010 (note 16A), on December 15, 2009, CINIF issued for its immediate application Interpretation of Financial Reporting Standards
18, “Effects on income taxes arising from the tax reform 2010” (“Interpretation 18”), which establishes the accounting treatment of the tax liability that
would be generated by the changes to the tax consolidation regime in Mexico included in the new tax law. These changes to the consolidation require
entities, among other things, to determine income taxes as if the tax consolidation provisions in Mexico did not exist from 1999 and onward. Interpretation
18 establishes that the portion of the liability related to the tax effects on intercompany dividends, losses on the sale of shares and certain special tax
items, should be recognized against retained earnings. Interpretation 18 also establishes that the tax liabilities associated with the tax loss carryforwards
used in the tax consolidation of the Mexican subsidiaries should not be offset with deferred tax assets in the balance sheet; therefore, beginning as of
December 31, 2009, CEMEX recognizes separately deferred income tax assets and liabilities associated with this concept. The realization of these tax
assets is subject to the generation of future tax earnings in the controlled subsidiaries that generated the tax loss carryforwards in the past.
O) Stockholders’ equity
Beginning on January 1, 2008, inflationary accounting was suspended in Mexico during low-inflation periods. Until 2007, stockholders’ equity was restated
using the restatement factors that considered the weighted averaged inflation and the changes between the exchange rates of the countries in which CEMEX
operates and the Mexican peso. In compliance with Mexican regulations, common stock and additional paid-in capital were restated using the Mexican
inflation factor. The corresponding inflation adjustment was included until December 31, 2007 within “Other equity reserves” in the balance sheet.
Common stock and additional paid-in capital (note 17A)
These items represent the value of stockholders’ contributions.
Other equity reserves (note 17B)
This caption groups the cumulative effects of items and transactions that are, temporarily or permanently, recognized directly to stockholders’ equity, and
includes the elements of “Comprehensive income for the period,” which is presented in the statement of changes in stockholders’ equity. Comprehensive
income includes, in addition to net income, certain changes in stockholders’ equity during a period, not resulting from investments by owners and
distributions to owners. The most important items within “Other equity reserves” are as follows:
Items of “Other equity reserves” included within comprehensive income:
•฀ Results฀from฀holding฀non-monetary฀assets฀until฀December฀31,฀2007,฀which฀referred฀to฀the฀difference฀between฀the฀revaluation฀effect฀of฀non-monetary฀
assets (inventories, fixed assets, intangible assets) using specific restatement factors, and the effect that would have resulted using inflation-only
restatement factors;
•฀ Currency฀translation฀ effects฀from฀ the฀translation฀ of฀foreign฀ subsidiaries’฀nancial฀statements,฀ net฀of฀ changes฀in฀ the฀estimated฀ fair฀value฀ of฀foreign฀
currency forward contracts related to net investment in foreign subsidiaries (note 3K), and exchange results from foreign currency debt directly related to
the acquisition of foreign subsidiaries, as well as from foreign currency related parties balances that are of a long-term investment nature (note 3D);
•฀ The฀effective฀portion฀of฀the฀valuation฀and฀liquidation฀effects฀from฀derivative฀instruments฀under฀cash฀ow฀hedging฀relationships,฀which฀are฀recorded฀
temporarily in stockholders’ equity (note 3K); and
•฀ The฀deferred฀income฀tax฀arising฀from฀items฀whose฀effects฀are฀directly฀recognized฀in฀stockholders’฀equity.
Items of “Other equity reserves” not included in comprehensive income:
•฀ Effects฀related฀to฀controlling฀stockholders’฀equity฀for฀changes฀or฀transactions฀affecting฀non-controlling฀interest฀stockholders฀in฀CEMEX’s฀consolidated฀
subsidiaries;
•฀ Effects฀attributable฀to฀controlling฀stockholders’฀equity฀for฀nancial฀instruments฀issued฀by฀consolidated฀subsidiaries฀that฀qualify฀for฀accounting฀purposes฀
as equity instruments, such as the interest expense paid on perpetual debentures;
•฀ The฀component฀of฀equity฀of฀mandatorily฀convertible฀securities฀into฀shares฀of฀the฀Parent฀Company฀(note฀13A).฀Upon฀conversion,฀this฀amount฀will฀be฀
reclassified to common stock and additional paid-in capital;
•฀ The฀cancellation฀of฀the฀Parent฀Company’s฀shares฀held฀by฀consolidated฀subsidiaries;฀and
•฀ Until฀December฀31,฀2007,฀included฀the฀cumulative฀initial฀effect฀of฀deferred฀income฀taxes฀arising฀from฀the฀adoption฀of฀the฀assets฀and฀liabilities฀method.
Retained earnings (note 17C)
Represents the cumulative net results of prior accounting periods, net of dividends declared to stockholders, and includes in 2009 a portion of the liability
resulting from changes in the Mexican tax consolidation rules of approximately $2,245 (note 3N), and charges for the adoption of new MFRS in 2008 for:
a) the reclassification of the accumulated results from holding non-monetary assets (note 3A); b) the reclassification of the cumulative initial deferred income
tax effect (note 3N); c) the cumulative initial deferred income tax recognition in investments in associates; and d) the cumulative initial deferred income tax
recognition based on the assets and liabilities method (note 3M), which decreased retained earnings by $97,722, $6,918, $920 and $2,283, respectively.