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This excerpt taken from the PBR 6-K filed Jun 1, 2009. Cash flow hedge In September 2006, the Company contracted a hedge known as a cross currency swap for coverage of the bonds issued in Yens in order to fix the Company’s costs in this operation in dollars. In a cross currency swap there is an exchange of interest rates in different currencies. The exchange rate of the Yen for the US dollar is fixed at the beginning of the transaction and remains fixed during its existence. The Company does not intend to settle these contracts before the end of the term. The Company has elected to designate its cross currency swap as cash flow hedges. Both at the inception of a hedge and on an ongoing basis, a cash flow hedge must be expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge. Derivative instruments designated as cash flow hedges are reflected as either assets or liabilities on the Company’s consolidated balance sheets. Change in fair value, to the extent the hedge is effective, is reported in accumulated other comprehensive income until the cash flows of the hedged item occurs. 20 3. Derivative Instruments, Hedging and Risk Management Activities (Continued) (b) Foreign currency risk management (Continued) Cash flow hedge (Continued) Effectiveness tests are conducted quarterly in order to measure how the changes in the fair value or the cash flow of the hedged items are being absorbed by the hedge mechanisms. The effectiveness calculation indicated that the cross currency swap is highly effective in offsetting the variation in the cash flows of the bonds issued in Yens. As of March 31, 2009, the Company had the following cross currency swap, which was entered into: This excerpt taken from the PBR 20-F filed May 22, 2009. Cash Flow
Hedge
In September
2006, the Company contracted a hedge known as a cross currency
swap for coverage of the bonds issued in Yens in order to fix
the Company’s costs in this operation in dollars. In a
cross currency swap there is an exchange of interest rates in
different currencies. The exchange rate of the Yen for the US
dollar is fixed at the beginning of the transaction and remains
fixed during its existence. The Company does not intend to
settle these contracts before the end of the term.
The Company
has elected to designate its cross currency swap as cash flow
hedges. Both at the inception of a hedge and on an ongoing
basis, a cash flow hedge must be expected to be highly effective
in achieving offsetting cash flows attributable to the hedged
risk during the term of the hedge. Derivative instruments
designated as cash flow hedges are reflected as either assets or
liabilities on the Company’s consolidated balance sheets.
Change in fair value, to the extend the hedge is effective, are
reported in accumulated other comprehensive income until the
forecasted transaction occurs.
Effectiveness
tests are conducted quarterly in order to measure how the
changes in the fair value or the cash flow of the hedge items
are being absorbed by the hedge mechanisms. The effectiveness
calculation indicated that the cross currency swap is highly
effective in offsetting the variation in the cash flow of the
bonds issued in Yens.
As of
December 31, 2008, the Company had the following cross
currency swap, which was entered into:
This excerpt taken from the PBR 6-K filed Mar 30, 2009. Cash flow hedge In September 2006, the Company contracted a hedge known as a cross currency swap for coverage of the bonds issued in Yens in order to fix the Company’s costs in this operation in dollars. In a cross currency swap there is an exchange of interest rates in different currencies. The exchange rate of the Yen for the US dollar is fixed at the beginning of the transaction and remains fixed during its existence. The Company does not intend to settle these contracts before the end of the term. The Company has elected to designate its cross currency swap as cash flow hedges. Both at the inception of a hedge and on an ongoing basis, a cash flow hedge must be expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge. Derivative instruments designated as cash flow hedges are reflected as either assets or liabilities on the Company’s consolidated balance sheets. Change in fair value, to the extend the hedge is effective, is reported in accumulated other comprehensive income until the cash flow of the hedged item occurs. 147 Effectiveness tests are conducted quarterly in order to measure how the changes in the fair value or the cash flow of the hedged items are being absorbed by the hedge mechanisms. The effectiveness calculation indicated that the cross currency swap is highly effective in offsetting the variation in the cash flow of the bonds issued in Yens. 148 As of December 31, 2008, the Company had the following cross currency swap, which was entered into:
At December 31, 2008, the cross currency swap presented a maximum estimated loss per day (VAR - Value at Risk), calculated at a reliability level of 95%, of approximately US$26. This excerpt taken from the PBR 6-K filed Mar 18, 2008. (d) Cash flow hedge In September, 2006, PifCo entered into cross currency swap under which it swaps principal and interest payments on Yen denominated funding into U.S. dollar amounts. The assessment of hedge effectiveness indicates that the change in fair value of the designated hedging instrument is highly effective.
108 20. Derivative Instruments, Hedging and Risk Management Activities (Continued) This excerpt taken from the PBR 6-K filed Sep 6, 2007. d) Cash flow hedge In September, 2006, PifCo entered into cross currency swap under which it swaps principal and interest payments on Yen denominated funding into U.S. dollar amounts. Under U.S. GAAP, foreign currency cash flow hedges can only be designated as such when hedging the risk to the entity’s functional currency, and therefore, this cross currency swaps is qualified for hedge accounting designation take into account that PifCo’s functional currency is the US dollar, and the assessment of hedge effectiveness indicates that the change in fair value of the designated hedging instrument is highly effective. The hedged item is ¥ 35 billion bond, ten-year maturity, carrying a semi-annual coupon of 2.15% p.a. The hedge instrument is a cross currency swap, ten year maturity, under which US dollars is paid and Japanese Yen is received mirroring the Yen bond conditions. The effectiveness test was made at the inception at the hedge based on the hypothetical derivative method. The effectiveness test will be made on an ongoing basis on a quarterly basis. 17 3. Derivative Instruments, Hedging and Risk Management Activities (Continued) d) Cash flow hedge (Continued) The transaction gain or loss arising from the remeasurement of Yen denominated bonds is offset by the reclassification relating to the remeasurement of the hedged item at spot rates from other comprehensive income to earnings. The cross currency swap at June 30, 2007 had a fair value of (US$15) due to the devaluation of the Japanese Yen when compared to US dollar since the inception of the instrument. No amounts were recognized in earnings during the year as hedge ineffectivenesses. This excerpt taken from the PBR 6-K filed Jun 13, 2007. d) Cash flow hedge In September, 2006, PifCo entered into cross currency swap under which it swaps principal and interest payments on Yen denominated bonds for U.S. dollar amounts. Under U.S. GAAP, foreign currency cash flow hedges can only be designated as such when hedging the risk to the entity’s functional currency, and therefore, this cross currency swaps is qualified for hedge accounting designation take into account that PifCo’s functional currency is the US dollar, and the assessment of hedge effectiveness indicates that the change in fair value of the designated hedging instrument is highly effective. This excerpt taken from the PBR 6-K filed Apr 10, 2007. (e) Cash flow hedge In September, 2006 PIFCo entered into cross currency swap under which it swaps principal and interest payments on Yen denominated bonds for U.S. dollar amounts. Under U.S. GAAP, foreign currency cash flow hedges can only be designated as such when hedging the risk to the entity’s functional currency, and therefore, this cross currency swaps is qualified for hedge accounting designation take into account that PIFCo’s functional currency is the US dollar, and the assessment of hedge effectiveness indicates that the change in fair value of the designated hedging instrument is highly effective. 112 20. Derivative Instruments, Hedging and Risk Management Activities (Continued) (e) Cash flow hedge (Continued) The hedged item is ¥ 35 billion bond, ten-year maturity, carrying a semi-annual coupon of 2.15% p.a. The hedge instrument is a cross currency swap, ten year maturity, under which US dollars is paid and Japanese Yen is received mirroring the Yen bond conditions. The effectiveness test was made at the inception at the hedge based on the hypothetical derivative method. The effectiveness test will be made on an ongoing basis on a quarterly basis. The transaction gain or loss arising from the remeasurement of Yen denominated bonds is offset by the reclassification relating to the remeasurement of the hedged item at spot rates from other comprehensive income to earnings. The cross currency swap at December 31, 2006 had a fair value of (US$9) due to the devaluation of the Japanese Yen when compared to US dollar since the inception of the instrument. This excerpt taken from the PBR 6-K filed Nov 28, 2006. b) Cash flow hedge In September, 2006 PIFCo entered into cross currency swap under which it swaps principal and interest payments on Yen denominated bonds for U.S. dollar amounts. Under U.S. GAAP, foreign currency cash flow hedges can only be designated as such when hedging the risk to the entity’s functional currency, and therefore, this cross currency swaps is qualified for hedge accounting designation take into account that PIFCo’s functional currency is the US dollar, and the assessment of hedge effectiveness indicates that the change in fair value of the designated hedging instrument is highly effective. The hedged item is ¥ 35 billion bond, ten-year maturity, carrying a semi-annual coupon of 2.15% p.a. The hedge instrument is a cross currency swap, ten year maturity, under which US dollars is paid and Japanese Yen is received mirroring the Yen bond conditions. The effectiveness test was made at the inception at the hedge based on the hypothetical derivative method. The effectiveness test will be made on an ongoing basis on a quartely basis. The transaction gain or loss arising from the remeasurement of Yen denominated bonds is offset by the reclassification relating to the remeasurement of the hedged item at spot rates from other comprehensive income to earnings. The cross currency swap at September 30, 2006 had a fair value of (US$ 5) due to the devaluation of the Japanese Yen when compared to US dollar since the inception of the instrument. | EXCERPTS ON THIS PAGE:
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