Cemex 1997 Annual Report Download - page 72

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66
F) FOREIGN CURRENCY TRANSLATION
Net foreign currency translation adjustments of $182,353 and $147,613 for the years ended December 31, 1997
and 1996, respectively have been charged directly to stockholders’ equity and are summarized as follows:
1997 1996
Translation adjustment $ 569,156 435,638
Foreign exchange loss (1) (354,851) (288,025)
Forward foreign exchange contract designated as a hedge (2) (31,952) ——-
$ 182,353 147,613
(1) Foreign exchange losses from the financing identified with the acquisitions of foreign subsidiaries in accordance
with Bulletin B-15 in 1997 and IAS 21 in 1996.
(2) See note 13.
13.- DERIVATIVE FINANCIAL INSTRUMENTS
At December 31, 1997, the Company had entered into various derivative financial instrument transactions, the
most significant of which are described in the following paragraphs:
The Company has entered into various derivative product transactions for a notional amount of US dollars 375
million to hedge its interest rate exposure for debt denominated in dollars. In addition, the Company has interest
rate swaps and collars of interest rates that cover up to US dollars 550 million and pesetas 7,500 million of variable
interest rate debt based upon Libor and Mibor.
The Company is subject to foreign exchange rate risks for its international operations. In order to have a protection
from these risks, the Company has entered into foreign exchange forward contracts for a nominal amount of US
dollars 350 million, which have been designated as a hedge of the Company’s net investment in foreign subsidiaries.
In addition, the Company has a forward contract to guarantee the price of its shares for the nominal amount of US
dollars 60 million.
14.- INCOME TAX, BUSINESS ASSETS TAX AND EMPLOYEES' STATUTORY PROFIT SHARING
In accordance with present tax legislation, corporations must pay either the income tax or business assets tax
depending on which amount is greater for their operations in Mexico. Both taxes recognize the effects of inflation,
in a manner different from generally accepted accounting principles. Employees’ statutory profit sharing is
calculated in the same manner as income tax but without the recognition of inflation.
The business assets tax law establishes a 1.8% tax levy on assets, indexed for inflation in the case of inventory,
property, plant and equipment after deducting certain liabilities.
The Company and its subsidiaries in Mexico, consolidate for income tax and business assets tax purposes. The
amounts for income tax and business assets tax presented in the accompanying consolidated financial statements
represents the consolidated results. For employees’ statutory profit sharing purposes, the amount presented in the
accompanying consolidated financial statements are the sum of the individual results of each Company.
Income tax benefit (expense) for the years ended December 31, 1997 and 1996, consists of:
1997 1996
Consolidated Parent Consolidated Parent
Current income tax $ (1,122,399) (908,398) (854,379) ——-
Benefit from tax consolidation ——- 760,654 ——- 633,994
Utilization of tax loss carryforwards 718,430 718,430 ——- ——-
Effects of inflation (note 2C) ——- ——- 67,851 ——-
$ (403,969) 570,686 (786,528) 633,994