Cemex 2012 Annual Report Download - page 74

Notes to the
consolidated
financial
statements
74
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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, the long-term growth
expectations in the different markets, as well as the discount rates and the long-term growth rates applied. CEMEX’s cash flow
projections to determine the value in use of its CGUs to which goodwill has been allocated consider the use of long-term economic
assumptions. CEMEX believes that its discounted cash flow projections and the discount rates used reasonably reflect current
economic conditions at the time of the calculations, considering, among other factors that: a) the cost of capital reflects current
risks and volatility in the markets; and b) the cost of debt represents the average of industry specific interest rates observed in
recent transactions. Other key assumptions used to determine CEMEX’s discounted cash flows are volume and price increases
or decreases by main product during the projected periods. Volume increases or decreases generally reflect forecasts issued by
trustworthy external sources, occasionally adjusted based on CEMEX’s actual backlog, experience and judgment considering its
concentration in certain sectors, while price changes normally reflect the expected inflation in the respective country. Operating
costs and expenses during all periods are maintained as a fixed percent of revenues considering historic performance.
During the last quarter of 2012, 2011 and 2010, CEMEX performed its annual goodwill impairment test. Based on these
analyses, in 2012 CEMEX did not determine impairment losses of goodwill, whereas, in 2011 and 2010, CEMEX determined
impairment losses of goodwill for approximately $145 (US$12) and $189 (US$15), respectively, associated with CEMEX’s groups
of CGUs to which goodwill has been allocated in Latvia in 2011 and Puerto Rico in 2010, in both cases representing 100% of the
goodwill balance associated with such countries. The estimated impairment losses are mainly attributable to market dynamics
in these countries and their position in their business economic cycles. In both countries, their net book value exceeded their
respective recoverable amount.
As of December 31, 2012, 2011 and 2010, CEMEX’s pre-tax discount rates and long-term growth rates used to determine the
discounted cash flows in the group of CGUs with the main goodwill balances, were as follows:
Discount rates Growth rates
Groups of CGUs 2012 2011 2010 2012 2011 2010
United States 9.9% 10.7% 10.0% 2.5% 2.5% 2.5%
Spain 11.5% 12.0% 11.2% 2.5% 2.5% 2.5%
Mexico 10.7% 11.4% 11.0% 3.0% 2.5% 2.5%
Colombia 10.7% 11.6% 11.1% 3.5% 2.5% 2.5%
France 10.3% 11.5% 10.7% 1.9% 2.5% 2.5%
United Arab Emirates 13.3% 13.9% 11.7% 3.6% 2.5% 2.5%
United Kingdom 10.3% 11.0% 10.7% 2.7% 2.5% 2.5%
Egypt 13.5% 13.0% 11.9% 4.0% 2.5% 2.5%
Range of rates in other countries 11.1% – 13.3% 11.8% – 14.0% 10.5% – 14.9% 3.4% – 4.0% 2.5% 2.5%
As of December 31, 2012, the discount rates used by CEMEX in its cash flows projections decreased by an average 5% from the
values determined in 2011, mainly as a result of a reduction in the industry specific average cost of debt observed in 2012, as
compared to the prior year. In respect to long-term growth rates, following general practice under IFRS, in 2012, CEMEX started
the use of country specific rates.