Cemex 2012 Annual Report Download - page 142

Notes to the
financial
statements
142
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10D) Derivative financial instruments
During the reported periods, CEMEX, S.A.B. de C.V. held interest rate swaps, as well as forward contracts and other derivative
instruments on its own shares and third parties’ shares, with the objective of, as the case may be: a) changing the risk profile
associated with the price of raw materials and other energy projects; and b) other corporate purposes.
As of December 31, 2012 and 2011, the notional amounts and fair values of derivative instruments were as follows:
2012 2011
Notional Fair Notional Fair
(Millions of U.S. dollars) amount value amount value
I. Interest rate swaps US$ 181 49 189 46
II. Derivative instrument on price of CPO 2,743 (138) 2,743 11
US$ 2,924 (89) 2,932 57
The fair values determined by CEMEX S.A.B. de C.V. for its derivative financial instruments are Level 2. There is no direct measure
for the risk of CEMEX S.A.B. de C.V. or its counterparts in connection with the derivative instruments. Therefore, the risk factors
applied for CEMEX S.A.B. de C.V., assets and liabilities originated by the valuation of such derivatives were extrapolated from
publicly available risk discounts for other public debt instruments of CEMEX S.A.B. de C.V., and its counterparts.
The caption “Other financial income, net” included gains and a losses related to the recognition of changes in fair values of the
derivative instruments during the applicable period and that represented net loss of approximately $21 (US$2) in 2012 and a gain
of approximately $807 (US$65) in 2011. As of December 31, 2012 and 2011, pursuant to net balance settlement agreements,
cash deposits in margin accounts that guaranteed obligations through derivative financial instruments were offset with the fair
value of derivative instruments for approximately US$76 ($975) and US$225 ($3,137), respectively.
As of December 31, 2012 and 2011, the main exposure of CEMEX, S.A.B. de C.V., was related to changes in the prices of its CPOs
and third party shares. A significant decrease in the market price of CEMEX, S.A.B. de C.V. CPOs and third party shares would
negatively affect CEMEX, S.A.B. de C.V., liquidity and financial position.
The estimated fair value of derivative instruments fluctuates over time and is determined by measuring the effect of future
relevant economic variables according to the yield curves shown in the market as of the reporting date. These values should
be analyzed in relation to the fair values of the underlying transactions and as part of CEMEX S.A.B. de C.V., overall exposure
attributable to fluctuations in interest rates and foreign exchange rates. The notional amounts of derivative instruments do not
represent amounts exchanged by the parties, and consequently, there is no direct measure of CEMEX S.A.B. de C.V., exposure to
the use of these derivatives. The amounts exchanged are determined based on the notional amounts and other terms included in
the derivative instruments.
I. Interest rate swap contracts
As of December 31, 2012 and 2011, CEMEX S.A.B. de C.V. had an interest rate swap maturing in September 2022 associated
with agreements entered into by CEMEX S.A.B. de C.V. for the acquisition of electric energy in Mexico, which fair value represented
assets of approximately US$49 and US$46, respectively. Pursuant to this instrument, during the tenure of the swap and based on
its notional amount, CEMEX S.A.B. de C.V. will receive a fixed rate of 5.4% and will pay LIBOR, which is the international reference
rate for debt denominated in U.S. dollars. As of December 31, 2012 and 2011, LIBOR was 0.513% and 0.7705%, respectively.
Changes in the fair value of this interest rate swap generated gains of approximately US$2 ($35) in 2012, US$12 ($150) in 2011
and US$8 ($99) in 2010, recognized in the statements of operations for each period.