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(f) Derivative financial instruments (including hedge accounting)
(i) General
Heineken uses derivatives in the ordinary course of business in order to manage market risks. Generally
Heineken seeks to apply hedge accounting in order to minimise the effects of foreign currency fluctuations
in the income statement.
Derivatives that can be used are interest rate swaps, forward rate agreements, caps and floors, commodity
swaps, spot and forward exchange contracts and options. Transactions are entered into with a limited number
of counterparties with strong credit ratings. Foreign currency, interest rate and commodity hedging operations
are governed by internal policies and rules approved and monitored by the Executive Board.
Derivative financial instruments are recognised initially at fair value, with attributable transaction costs
recognised in the income statement when incurred. Derivatives for which hedge accounting is not applied are
accounted for as instruments at fair value through profit or loss. When derivatives qualify for hedge accounting,
subsequent measurement is at fair value, and changes therein accounted for as described 3d(iii), 3f(ii) and 3f(iii).
The fair value of interest rate swaps is the estimated amount that Heineken would receive or pay to terminate
the swap at the balance sheet date, taking into account current interest rates.
(ii Cash flow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised in
01 her comprehensive income and presented in the hedging reserve within equity to the extent that the hedge is
el fective. To the extent that the hedge is ineffective, changes in fair value are recognised in the income statement.
If he hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or
e ercised, then hedge accounting is discontinued and the cumulative unrealised gain or loss previously
r ognised in other comprehensive income and presented in the hedging reserve in equity, is recognised in the
ii >me statement immediately, or when a hedging instrument is terminated, but the hedged transaction still is
e pected to occur, the cumulative gain or loss at that point remains in other comprehensive income and is
r< cognised in accordance with the above-mentioned policy when the transaction occurs. When the hedged item
is non-financial asset, the amount recognised in other comprehensive income is transferred to the carrying
a ount of the asset when it is recognised. In other cases the amount recognised in other comprehensive
ii ome is transferred to the same line of the income statement in the same period that the hedged item affects
tl income statement.
(is Fair value hedges
C mges in the fair value of a derivative hedging instrument designated as a fair value hedge are recognised in
ti income statement. The hedged item also is stated at fair value in respect of the risk being hedged; the gain
o oss attributable to the hedged risk is recognised in the income statement and adjusts the carrying amount
o he hedged item.
II he hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a
h ged item for which the effective interest method is used is amortised to the income statement over the
p od to maturity.
Annual Report 2009 - Heineken N.V.
