Cemex 2009 Annual Report Download - page 58

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CEMEX presents condensed pro forma income statements for the year ended December 31, 2007 giving effect to the Rinker acquisition as if it had occurred
at the beginning of the year. The pro forma financial information is presented solely for the convenience of the reader and is not indicative of the results
that CEMEX would have reported, nor should such information be taken as representative of CEMEX’s future results. Pro forma adjustments consider the
fair values of the net assets acquired, under assumptions that CEMEX believes reasonable.
(Unaudited)
Year ended December 31, 2007 CEMEX Rinker Adjustments CEMEX
1 2 3 pro forma
Sales $ 228,152 19,845 – 247,997
Cost of sales and operating expenses (196,542) (16,507) – (213,049)
Operating income 31,610 3,338 – 34,948
Other expenses, net (2,984) (161) – (3,145)
Comprehensive financing result 1,018 (270) (3,463) (2,715)
Equity in income of associates 1,487 13 – 1,500
Income before income taxes 31,131 2,920 (3,463) 30,588
Income taxes (4,474) (993) 970 (4,497)
Consolidated net income before discontinued operations 26,657 1,927 (2,493) 26,091
Discontinued operations 288 561 – 849
Consolidated net income 26,945 2,488 (2,493) 26,940
Non-controlling interest net income 837 15 – 852
Controlling interest net income $ 26,108 2,473 (2,493) 26,088
Basic and diluted EPS for continuing operations $ 1.16 – – 1.25
Basic and diluted EPS for discontinued operations $ 0.01 – – 0.03
1 Includes Rinker’s operations for the six-month period from July 1 to December 31, 2007, considering the Australian operations as part of discontinued operations.
2 Refers to the pro forma six-month period from January 1 to June 30, 2007, prepared under IFRS by Rinker’s management and adjusted to reclassify the Australian operations
to discontinued operations, which was translated from U.S. dollars into pesos at the average exchange rate of $10.95 per dollar, and then restated into constant pesos at
December 31, 2007. The pro forma information was adjusted to include the effects of the purchase price allocation and application of MFRS. Pro forma adjustments in 2007
are as follows:
Item 2007
Recomputed depreciation expense $ (457)
Intangible assets amortization (911)
Monetary position result 84
Deferred income taxes * 449
Total adjustments from continuing operations (835)
Discontinued operations (121)
Total adjustments $ (956)
* The income tax effect for pro forma adjustments was determined using the approximate average effective tax rate of 33%.
3 Refers to pro forma adjustments for the six-month period in 2007 related to the financing to acquire Rinker and include: (i) financial interest for $4,522 on the basis of
US$14,159 of debt incurred for the purchase using an interest rate of 5.65%; (ii) monetary gain on the debt of $1,059; and (iii) the income tax effect resulting from applying
the statutory tax rate of 28% in Mexico. There are no foreign exchange fluctuations from debt considering that the exchange rate at June 30, 2007 and December 31, 2006
of $10.80 per dollar was the same.
12B) Analysis of goodwill impairment
Goodwill amounts are allocated to the multiple cash generating units, which together comprise a geographic operating segment commonly comprising all
of the operations in each country as explained in the financial information by geographic segments presented in note 4A. CEMEX’s geographic segments
also represent its reporting units for purposes of impairment testing. An impairment loss would be recognized for the amount that the carrying amount of
the reporting unit exceeds the respective value in use attributable to such reporting unit.
The fair value of each reporting unit is determined through the value in use method (discounted cash flows). Cash flow projection models for valuation of
long-lived assets include long-term economic variables. CEMEX believes that its cash flow projections and the discount rates used for discounted cash
flows reasonably capture current economic conditions at the time of the calculations, considering that: a) the starting point of the future cash flow models
is the operating cash flow for the previous period; b) the cost of capital reflects current risks and volatility in the markets; and c) the cost of debt represents
CEMEX’s specific interest rates observed in recent transactions.
Impairment tests are significantly sensitive to, among other factors, the estimation of future prices of CEMEX’s products, the development of operating
expenses, local and international economic trends in the construction industry, long-term growth expectations in the different markets, as well as the
discount rates and the rates of growth in perpetuity used. CEMEX uses after-tax discount rates, which are applied to after-tax cash flows for each reporting
unit. Undiscounted cash flows are significantly sensitive to the growth rates in perpetuity used. Likewise, discounted cash flows are significantly sensitive
to the discount rate used. The higher the growth rate in perpetuity applied, the higher the amount obtained of undiscounted future cash flows by reporting
unit. Conversely, the higher the discount rate applied, the lower the amount obtained of discounted estimated future cash flows by reporting unit.