building a STRONGER foundation - Cemex

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)
The results of the impairment test performed as of December 31, 2009 indicated that the estimated fair values of all reporting units under U.S.
GAAP exceeded in each case their corresponding carrying amount and that the second step of the test was not required.
Based on the results of goodwill impairment testing as of December 31, 2008 under U.S. GAAP, CEMEX recorded an estimated impairment
loss in connection with its reporting unit in the United States of approximately Ps62,354 (US$4,538). The goodwill was written down to its
implied fair value derived in the second step as mentioned above. Due to the complexity of this process, CEMEX did not complete the
measurement of the implied fair value of goodwill in 2008; accordingly, the goodwill impairment charge in the reconciliation of net income
(loss) to U.S. GAAP in 2008 represented an estimate. After finalizing its 2008 impairment exercise under U.S. GAAP during 2009,
CEMEX’s impairment losses in the United States were reduced by approximately US$71 (Ps929). This amount was recognized as income in
the reconciliation of net income (loss) to U.S. GAAP in 2009. The reconciliation of net income (loss) under U.S. GAAP also includes a loss
of Ps9 related to other impairment charges.
Complementarily, for 2008 and in connection with the goodwill associated with CEMEX’s reporting units in Ireland and Thailand, as well as
the goodwill associated with its Venezuelan investment, which was fully impaired under MFRS (note 11B), CEMEX did not perform the
second step considering that the related goodwill balances were fully impaired in the first step test, the materiality of these reporting units and
the goodwill balances. Nonetheless, the reconciliation of net income (loss) to U.S. GAAP in 2008 includes an additional impairment loss of
approximately Ps331 associated with the cancellation of cumulative differences in the goodwill carrying amounts of these reporting units
between MFRS and U.S. GAAP. At December 31, 2008, goodwill under U.S. GAAP associated with CEMEX’s reporting units in Thailand
and Ireland, as well as its Venezuelan assets, was completely removed.
For purposes of the summarized statements of operations under U.S. GAAP for the years ended December 31, 2010, 2009 and 2008 (note
24(a)), the non-cash goodwill impairment losses, excluding the loss associated with CEMEX’s Venezuelan investment in 2008, are included
in the determination of operating income. The adjustment in 2009 after finalizing the second step measurement and the impairment losses
recognized in 2008 under U.S. GAAP are explained as follows:
Item 2009 2008
Impairment charge considering the different discount rates and required market considerations, net ...... Ps – 51,711
Effect originated by the “second step” process ......................................................................................... (929) 11,966
Effect resulting from different carrying amounts of goodwill between MFRS and U.S. GAAP............... – 535
Total goodwill impairment losses under U.S. GAAP ............................................................................ (929) 64,212
Goodwill impairment losses under MFRS ................................................................................................ – 18,314
Additional goodwill impairment losses under U.S. GAAP ....................................................................... Ps (929) 45,898
There were no differences under MFRS and U.S. GAAP for impairment losses as of December 31, 2010.
Discount rates under MFRS differ from those determined under U.S. GAAP. In determining an appropriate discount rate, MFRS requires
company specific data such as the rate at which CEMEX can obtain financing. In contrast, under U.S. GAAP, the discount rate should reflect
a market participant’s perspective on the risk of the determined cash flow streams; therefore, CEMEX applied industry specific data.
The use of various rates could have an adverse change in the fair value of CEMEX’s goodwill and cause it to be impaired. 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.
CEMEX used the same growth rates in determining its projected future cash flows for both MFRS and U.S. GAAP (note 11B). The following
table presents the discount rates by country as of December 31, 2010 and 2009, used for the determination of CEMEX’s discounted projected
future cash flows under MFRS and U.S. GAAP:
2010 2009
Reporting units MFRS U.S. GAAP MFRS U.S. GAAP
United States .......................................................................... 8.7% 8.8% 8.5% 8.9%
Spain....................................................................................... 10.2% 10.3% 9.4% 9.9%
Mexico ................................................................................... 10.0% 10.1% 10.0% 10.5%
Colombia................................................................................ 10.0% 10.1% 10.2% 10.7%
France..................................................................................... 9.6% 9.7% 9.6% 10.1%
United Arab Emirates............................................................. 11.5% 11.6% 11.4% 12.1%
United Kingdom..................................................................... 9.7% 9.8% 9.4% 9.9%
Egypt ...................................................................................... 11.1% 11.2% 10.0% 10.6%
Range of discount rates in other countries.............................. 10.3% – 13.9% 10.4% – 14.0% 9.6% – 14.6% 10.0% – 15.1%
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