Cemex 2012 Annual Report Download - page 86

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Notes to the
consolidated
financial
statements
86
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16D) Derivative financial instruments
During the reported periods, CEMEX held interest rate swaps, as well as forward contracts and other derivative instruments on
CEMEX, S.A.B. de C.V.’s 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 CEMEX’s derivative instruments were as follows:
2012 2011
Notional Fair Notional Fair
(U.S. dollars millions) amount value amount value
I. Interest rate swaps US$ 181 49 189 46
II. Equity forwards on third party shares 27 – 46 1
III. Forward instruments over indexes 5 – 5 –
IV. Options on CEMEX’s own shares 2,743 (138) 2,743 11
US$ 2,956 (89) 2,983 58
The fair values determined by CEMEX for its derivative financial instruments are Level 2. There is no direct measure for the risk of
CEMEX or its counterparties in connection with the derivative instruments. Therefore, the risk factors applied for CEMEX’s assets
and liabilities originated by the valuation of such derivatives were extrapolated from publicly available risk discounts for other
public debt instruments of CEMEX and its counterparties.
The caption “Other financial income (expenses), net” includes gains and losses related to the recognition of changes in fair values
of the derivative instruments during the applicable period and that represented a net loss of approximately $98 (US$8) in 2012
and a net gain of approximately $329 (US$26) 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 the derivative instruments for approximately US$91 ($1,168) and US$234 ($3,266), respectively.
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 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 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 had an interest rate swap maturing in September 2022 associated with agreements
entered into by CEMEX for the acquisition of electric energy in Mexico (note 23C), 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 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.
II. Equity forwards in third party shares
As of December 31, 2012 and 2011, CEMEX had forward contracts to be settled in cash over the price of 59.5 million and 119
million CPOs of Axtel, respectively. During April 2012, at maturity of one of the contracts for 59.5 million CPOs of Axtel, by
agreement with the counterparty CEMEX elected to acquire the underlying shares. The remaining contract matures in October
2013. These contracts were intended to maintain the exposure to changes in the price of such entity. Changes in the fair value
of this instrument generated losses of approximately US$7 ($100) in 2012, US$35 ($437) in 2011 and US$42 ($526) in 2010,
recognized in the statements of operations for each period.