2014 Financial Statement

EDC 2014 Performance Report
“Day 1” Differences
Where the transaction price in a non-active market is different from the fair value of other
observable current market transactions in the same instrument or based on a valuation technique
whose variables include only data from observable market, the Company recognizes the difference
between the transaction price and fair value (a “Day 1” difference) in the consolidated statement
of income unless it qualifies for recognition as some other type of asset. In cases where use is
made of data which is not observable, the difference between the transaction price and model
value is only recognized in the consolidated statement of income when the inputs become
observable or when the instrument is derecognized. For each transaction, the Company
determines the appropriate method of recognizing the “Day 1” difference amount.
Derivative Financial Instruments and Hedge Accounting
The Company uses cross-currency swaps, foreign currency swaps and forwards and interest rate
swaps to manage its interest rate and foreign currency risk exposures in its US dollar-denominated
loans. Accrual of interest on the received and pay legs of the interest rate swaps are recorded as
adjustments to the interest expense on the related foreign currency-denominated loans. Accrual of
interest on the pay legs of the various currency swaps are recorded as other financing costs.
Derivative financial instruments are initially recognized at fair value on the date on which a
derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are
carried as assets when the fair value is positive and as liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge
accounting are taken directly to the statement of income.
For the purpose of hedge accounting, derivatives can be designated as cash flow hedges or fair
value hedges, depending on the type of risk exposure.
At the inception of a hedge relationship, the Company formally designates and documents the
hedge relationship to which the Company wishes to apply hedge accounting and the risk
management objective and strategy for undertaking the hedge. The documentation includes
identification of the hedging instrument, the hedged item or transaction, the nature of the risk
being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting
the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged
risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value
or cash flows and are assessed on an ongoing basis to determine that they actually have been
highly effective throughout the financial reporting periods for which they were designated.
In 2012, the Parent Company designated its cross currency swaps as cash flow hedges of its
exposure on foreign currency and interest rate risks on a portion of its floating rate Club Loan that
is benchmarked against US LIBOR (see Notes 17 and 31).
In 2014, EBWPC designated its interest rate swaps as cash flow hedges to partially hedge its
exposure on interest rate risks on its ECA and Commercial Debt Facility (see Notes 17 and 31).
Cash Flow Hedges
Cash flow hedges are hedges on the exposure to variability of cash flows that are attributable to a
particular risk associated with a recognized asset, liability or a highly probable forecast transaction
and could affect profit or loss. The effective portion of the gain or loss on the hedging instrument
is recognized as other comprehensive income (loss) in the “Cumulative translation adjustments on
hedging transactions” account in the consolidated statement of financial position while the
ineffective portion is recognized in the consolidated statement of income.
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