Cemex 1999 Annual Report Download - page 55

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At each balance sheet date, the Company evaluates the recoverability of goodwill based on an evaluation of factors
such as the occurrence of a significant adverse event, change in the environment in which the business operates and
expectations of operating results for each subsidiary, this to determine if there are judgement elements to believe that
the goodwill balance would not be recovered. An impairment loss would be recorded in the period if such
determination is made.
Deferred financing costs originated from our financing operations are amortized over the term in which the related
transactions are outstanding, in proportion to their maturity dates. These costs include the expenses incurred for fees
paid to lawyers, printers and consultants, as well as commissions paid to banks in the credit approval process.
Deferred financing costs are adjusted to reflect current values.
K) PENSION PLANS AND SENIORITY PREMIUM (note 13)
Pension benefits and accumulated seniority premium rights to which employees are legally entitled are recognized in
the results of operations on the basis of the present value of the benefit determined under actuarial estimations. The
amortization of unrecognized prior service cost is based on the personnel’s estimated active service life. As of
December 31, 1999, the estimated active service life of the employee’s under plan’s benefit is approximately 22 years.
Some subsidiaries have established pension plans supplementary to the benefits provided by law. The obligations
under these plans are determined based on actuarial calculations and, in some cases, certain irrevocable trust funds
have been established for these plans. The actuarial assumptions utilized in these calculations are based upon “real”
rates (nominal rates reduced by inflation).
Other benefits to which employees may be entitled are recognized as an expense in the year in which they are paid.
These benefits consist principally of severance benefits and vacation.
L) INCOME TAX AND EMPLOYEES’ STATUTORY PROFIT SHARING (note 16)
Income Tax and Employees’ Statutory Profit Sharing expense recognize the amounts incurred, and the effects of
material timing differences between tax and book income on which it may be reasonably estimated that, over a
defined period, a benefit or liability will arise.
M) MONETARY POSITION GAIN OR LOSS
The monetary position gain or loss is calculated by applying the inflation rate of each country in which the Company
has operations to the average net monetary assets or liabilities in that country.
N) DEFICIT IN EQUITY RESTATEMENT
The deficit in equity restatement includes the accumulated effect from holding non-monetary assets as well as the
effects of translation of financial statements of foreign subsidiaries.
O) DERIVATIVE FINANCIAL INSTRUMENTS (note 15)
The Company uses derivative financial instruments such as interest rate swaps, forward contracts, options and future
contracts in order to reduce its exposure to market risks from changes in interest rates, foreign exchange rates, the
price of the Company’s shares and the price of energy. Some financial instruments have been designated as hedges
of the Company’s costs, debt or equity and their economic effects are recognized as part of the cost of sales,
comprehensive financing income (cost) or in stockholders’ equity, according to their designation. Premiums paid or
received on derivative instruments, are deferred and amortized to the income statement or stockholders’ equity,
depending on their destination, over the life of the underlying hedge instrument or immediately when they are
settled.
Equity derivatives on our own common stock are accounted for as equity instruments and gains and losses are
recognized as an adjustment to stockholders’ equity. At maturity, these contracts provide for physical or net cash
settlement at the Company’s option.
Currency forward instruments that have been designated as, and are effective as, a hedge of the Company’s net
investments in foreign subsidiaries are recorded at their estimate fair value in the balance sheet. The realized or
unrealized gains or losses are recognized in stockholders’ equity as part of the foreign currency translation gain or
loss.
The results of derivative instruments contracted as a hedge of interest rates are accounted for as part of the effective
interest rate of the related debt within the financial expense. At settlement, the results are deferred and recognized
over the shorter term of the remaining contractual life of the derivative instrument or the remaining life of the liability
as an adjustment to interest expense.
P) REVENUE RECOGNITION
Revenue is recorded upon shipment of the cement and ready-mix concrete to customers.
Q) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reported period. Actual
results could differ from these estimates.
R) RECLASSIFICATIONS
Certain amounts reported in the notes to the consolidated financial statements as of December 31, 1998 and 1997,
have been reclassified to conform to the 1999 presentation.