Cemex 2012 Annual Report Download - page 144

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Notes to the
financial
statements
144
< previous I contents I next >
10E) Risk management
Since the beginning of 2009, with the exception of the capped call transactions entered into in March 2010 and March 2011 in
connection with 2015 Notes, 2016 Notes and 2018 Notes (notes 10B and 10D), CEMEX, S.A.B. de C.V. has been reducing the
aggregate notional amount of its derivatives, thereby reducing the risk of cash margin calls. This initiative has included closing
substantially all notional amounts of derivative instruments related to debt of CEMEX, S.A.B. de C.V. (currency and interest rate
derivatives), which was completed during April 2009. The Facilities Agreement significantly restricts CEMEX S.A.B. de C.V., ability
to enter into derivative transactions.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in market interest rates. Changes in the market interest rates of long-term debt with fixed interest rates only affects results of
CEMEX, S.A.B. de C.V. if such debt is measured at fair value. All of our fixed-rate long-term debt is carried at amortized cost and
therefore is not subject to interest rate risk exposure of CEMEX, S.A.B. de C.V. to the risk of changes in market interest rates
relates primarily to its long-term debt obligations with floating interest rates. As of December 31, 2012, CEMEX, S.A.B. de C.V.
was subject to the volatility of floating interest rates, which, if such rates were to increase, may adversely affect its financing cost
and increase its net loss. CEMEX, S.A.B. de C.V. manages its interest rate risk by balancing its exposure to fixed and variable rates
while attempting to reduce the financial expense.
As of December 31, 2012 and 2011, approximately 47% and 62% of the long-term debt of CEMEX, S.A.B. de C.V. bears floating
rates at a weighted average interest rate of LIBOR plus 468 and 454 basis points, respectively. As of December 31, 2012 and
2011, if interest rates at that date had been 0.5% higher, with all other variables held constant, the net loss of CEMEX, S.A.B. de
C.V. for 2012 and 2011 would have increased by approximately US$10 ($128) and US$13 ($187), respectively, as a result of
higher interest expense on variable rate denominated debt.
Foreign currency risk
Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes
in foreign exchange rates. The exposure of CEMEX, S.A.B. de C.V. to the risk of changes in foreign exchange rates relates primarily
to its operating activities and certain financial assets and liabilities.
As of December 31, 2012, approximately 95% of the financial obligations of CEMEX, S.A.B. de C.V. were Dollar-denominated and
5% of such financial obligations of CEMEX, S.A.B. de C.V. were Peso-denominated. Therefore, CEMEX, S.A.B. de C.V. had a foreign
currency exposure arising from the Dollar-denominated financial obligations, versus the currencies in which the revenues of
CEMEX, S.A.B. de C.V. are settled. CEMEX, S.A.B. de C.V. cannot guarantee that it will generate sucient revenues in dollars from
its operations to service these obligations. As of December 31, 2012 and 2011, CEMEX, S.A.B. de C.V. had not implemented any
derivative financing hedging strategy to address this foreign currency risk.
Foreign exchange fluctuations occur when CEMEX, S.A.B. de C.V. incurs monetary assets or liabilities in a currency other than the
functional currency. These translation gains and losses are recorded in the statements of operations. As of December 31, 2012
and 2011, considering a hypothetic 10% strengthening of the U.S. dollar against the Mexican peso, with all other variables held
constant, the net loss of CEMEX, S.A.B. de C.V. for 2012 and 2011 would have increased by approximately US$389 ($5,002)
and US$410 ($5,730), respectively, as a result of higher foreign exchange losses on Dollar-denominated net monetary liabilities.
Conversely, a hypothetic 10% weakening of the U.S. dollar against the Mexican peso would have the opposite effect.