Cemex 2012 Annual Report Download - page 130

Download and view the complete annual report

Please find page 130 of the 2012 Cemex annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 160

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160

Notes to the
financial
statements
130
< previous I contents I next >
Derivative financial instruments
In compliance with the guidelines established by its Risk Management Committee and the restrictions set forth by its debt
agreements, CEMEX, S.A.B. de C.V. uses derivative financial instruments (“derivative instruments”) mainly in order to change the
risk profile associated with changes in interest rates, the exchange rates of debt, or both; and as an alternative source of financing.
CEMEX, S.A.B. de C.V. recognizes all derivative instruments as assets or liabilities in the balance sheet at their estimated fair
values, and the changes in such fair values are recognized in the statements of operations within “Other financial income, net”
for the period in which they occur, except for changes in fair value of derivative instruments associated with cash flow hedges,
in which case, such changes in fair value are recognized in stockholders’ equity, and are reclassified to earnings as the interest
expense of the related debt is accrued, in the case of interest rate swaps, or when the underlying products are consumed in the
case of contracts on the price of raw materials and commodities. For the years ended December 31, 2012 and 2011, CEMEX,
S.A.B. de C.V. has not designated any fair value hedges.
Accrued interest generated by interest rate swaps, when applicable, is recognized as financial expense in the relevant period,
adjusting the effective interest rate of the related debt.
CEMEX, S.A.B. de C.V. reviews its different contracts to identify the existence of embedded derivatives. Identified embedded
derivatives are analyzed to determine if they need to be separated from the host contract, and recognized in the balance sheet as
assets or liabilities, applying the same valuation rules used for other derivative instruments.
Derivative instruments are negotiated with institutions with significant financial capacity; therefore, CEMEX, S.A.B. de C.V. believes
the risk of non-performance of the obligations agreed to by such counterparts to be minimal. According to IFRS 13, the estimated
fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, considering the counterparts’ risk, that is, an exit price. Occasionally, there
is a reference market that provides the estimated fair value; in the absence of such market, such value is determined by the net
present value of projected cash flows or through mathematical valuation models.
Fair value measurements
CEMEX, S.A.B. de C.V. applies the guidance of IFRS 13, Fair value measurements (“IFRS 13”) for its fair value measurements of
financial assets and financial liabilities recognized or disclosed at fair value. IFRS 13 does not require fair value measurements
in addition to those already required or permitted by other IFRSs and is not intended to establish valuation standards or affect
valuation practices outside financial reporting. Under IFRS 13, fair value represents an “Exit Value,” which is the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date, considering the counterparty’s credit risk in the valuation.
The concept of exit value is premised on the existence of a market and market participants for the specific asset or liability. When
there is no market and/or market participants willing to make a market, IFRS 13 establishes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving
significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that CEMEX, S.A.B. de C.V. has
the ability to access at the measurement date.
• Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
• Level 3 inputs are unobservable inputs for the asset or liability.