building a STRONGER foundation - Cemex

Significant judgment is required to appropriately assess the value in use of our reporting units. Impairment evaluations are
significantly sensitive to, among other factors, the estimation of future prices of our products, the development of operating expenses,
local and international economic trends in the construction industry, as well as the long-term growth expectations in the different
markets. Likewise, the discount rates and the rates of growth in perpetuity used have an effect on such impairment evaluations. We
use specific after-tax discount rates for each reporting unit, which are applied to after-tax cash flows. Our specific discount rates
consider the weighted average cost of capital of each geographic segment. This determination requires substantial judgment and is
highly complex when considering the many countries in which we operate, each of which has its own economic circumstances that
have to be monitored. 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. Additionally, we monitor the lives assigned to these long-lived
assets for purposes of depreciation and amortization, when applicable. This determination is subjective and is integral to the
determination of whether impairment has occurred.
During the fourth quarter of 2008, the global economic environment was negatively affected by the intensification of the turmoil
in several major financial institutions, which caused a liquidity shortage for companies in almost all productive sectors which, in turn,
resulted in a significant decrease in overall economic activity and a downturn in global equity markets. These situations generated a
reduction of growth expectations in the countries in which we operate, motivated by the cancellation or deferral of several investment
projects, particularly affecting the construction industry. Although in 2009 and 2010 most global macroeconomic variables have
stabilized, the construction industry has remained depressed in certain countries mainly as a result of the high level of inventories
existing at the beginning of the financial crisis, and the lack of investment projects considering the reaction of investors to the liquidity
problems in countries like Greece, Spain, Ireland and Portugal, among others.
During the last quarter of 2010, 2009 and 2008, we performed our annual goodwill impairment test. Based on these analyses, in
2010, we determined an impairment loss of goodwill for approximately Ps189 million (U.S.$15 million) associated with the reporting
unit in Puerto Rico, whereas, in 2008, we determined impairment losses of goodwill for a total of approximately Ps18.3 billion
(U.S.$1.3 billion), associated with CEMEX’s reporting units in the United States, Ireland and Thailand for approximately Ps16.8
billion (U.S.$1.2 billion), Ps233 million (U.S.$17 million) and Ps453 million (U.S.$33 million), respectively. The estimated
impairment loss in the United States in 2008 was mainly attributable to our acquisition of Rinker in 2007, and overall such losses were
attributable to the economic environment described in the paragraph above. In addition, considering that our investment in Venezuela
is expected to be recovered through different means other than use, we recognized in 2008 an impairment loss of approximately Ps838
million (U.S.$61 million) associated with cancellation of the goodwill of this investment. For the year 2009, based on our goodwill
impairment tests, we did not determine any impairment losses of goodwill. See notes 11 and 11B to our consolidated financial
statements included elsewhere in this annual report.
The discount rate and the cash flows from each country include their respective income tax rates. Discount rates and growth
rates in perpetuity used in the reporting units that represent most of the consolidated balance of goodwill under MFRS in 2010 and
2009 are as follows:
Discount rates Growth rates
Reporting units 2010 2009 2010 2009
United States ......................................................................................... 8.7% 8.5% 2.5% 2.9%
Spain...................................................................................................... 10.2% 9.4% 2.5% 2.5%
Mexico................................................................................................... 10.0% 10.0% 2.5% 2.5%
Colombia............................................................................................... 10.0% 10.2% 2.5% 2.5%
France.................................................................................................... 9.6% 9.6% 2.5% 2.5%
United Arab Emirates............................................................................ 11.5% 11.4% 2.5% 2.5%
United Kingdom.................................................................................... 9.7% 9.4% 2.5% 2.5%
Egypt ..................................................................................................... 11.1% 10.0% 2.5% 2.5%
Range of discount rates in other countries............................................. 10.3% – 13.9% 9.6% – 14.6% 2.5% 2.5%
In addition, during 2010, 2009 and 2008, we recognized impairment losses of property, plant and equipment in connection with
the permanent closing of operating assets for an aggregate amount of approximately Ps1,161 million (U.S.$92 million), Ps503 million
(U.S.$38 million) and Ps1.0 billion (U.S.$76 million), respectively. See note 10 to our consolidated financial statements included
elsewhere in this annual report.
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