Amadeus IT Holding, S.A. and Subsidiaries - Investor relations at ...

AMADEUS IT HOLDING, S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS FOR THE YEARS ENDED
DECEMBER 31, 2011, AND 2010
(EXPRESSED IN THOUSANDS OF EUROS - KEUR)
21. DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business the Group enters into derivative financial
instruments to manage the financial risks exposures which it is subject to. An outline
of the Group’s financial risks, the objectives and policies pursued in relation to those
risks are described in note 5.
IAS 39 prescribes strict criteria for hedge accounting. Although all the derivatives we
enter into are contracted for hedging purposes in economic terms, there might be
instances when a derivative is not an effective hedge from an accounting
perspective. In these situations, the derivative is classified as held for trading, and
the gains and losses from changes in the fair value are accounted in profit and loss,
and presented in the statement of comprehensive income within “Financial expense,
net”. If the derivative financial instrument is designated as a cash flow hedge for
accounting purposes, the changes in the fair value of the instrument are accounted
through other comprehensive income presented within “Cash flow hedges”, and
through profit or loss when the hedged flow takes place.
At the inception of a hedge relationship, the Group formally documents the hedge
relationship to which the Group wishes to apply hedge accounting. Such hedges are
expected to be highly effective in achieving offsetting changes in the fair value and
cash flows, and are assessed on an ongoing basis to determine that they actually
have been highly effective throughout the reporting period for which they were
designated.
The ideal hypothetical derivative method is used to measure ineffectiveness of a
hedge relationships in which the hedging instrument is a derivative. The ideal
hypothetical derivative method compares the change in fair value of the actual
derivative designated as the hedging instrument and the change in fair value of an
"ideal hypothetical derivative" that would result in perfect hedge effectiveness for the
designated hedged item.
In the case of the foreign exchange natural hedge, as it is explained in the
documentation of the hedge relationship, the dual spot method is used. This means
that the Group compares the spot-to-spot movement of the hedged item with the
spot-to-spot movement of the hedging instrument in order to calculate hedge
effectiveness.
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