building a STRONGER foundation - Cemex

(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.
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