Notes to the
consolidated
financial statements
continued
30 Financial risk management and financial instruments continued
63
Overview
Business review
Governance
Financials
Investors
Ahold Delhaize Annual Report 2016
January 3, 2016
Of Ahold Delhaize’s categories of financial instruments, only derivatives, assets available-for-sale and reinsurance assets (liabilities) are measured
and recognized on the balance sheet at fair value. These fair value measurements are categorized within Level 2 of the fair value hierarchy.
The Company uses inputs other than quoted prices that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e.,
derived from prices). The fair value of derivative instruments is measured by using either a market or income approach (mainly present value
techniques). Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted
interest rates that match the maturity of the contracts. Interest rate swaps are measured at the present value of expected future cash flows.
Expected future cash flows are discounted by using the applicable yield curves derived from quoted interest rates.
To the extent that no cash collateral is contractually required, the valuation of Ahold Delhaize’s derivative instruments is adjusted for the credit risk
of the counterparty, called Credit Valuation Adjustment (CVA), and adjusted for Ahold Delhaize’s own credit risk, called Debit Valuation Adjustment
(DVA). The CVA DVA calculations have been added to the fair value of Ahold Delhaize’s interest and cross-currency swaps. The valuation
technique for the CVA DVA calculation is based on relevant observable market inputs.
The carrying amount of trade and other (non-)current receivables, cash and cash equivalents, accounts payable, short-term deposits and similar
instruments, and other current financial assets and liabilities approximate their fair values because of the short-term nature of these instruments
and, for receivables, because of the fact that any recoverability loss is reflected in an impairment loss. The fair values of quoted borrowings for
which an active market exists are based on year-end quoted prices. The fair value of other non-derivative financial assets and liabilities that are
not traded in an active market are estimated using discounted cash flow analyses based on market rates prevailing at year-end. The fair value of
the cumulative preferred financing shares is measured as the present value of expected future cash flows. Such cash flows include the dividend
payments and the payments of the nominal value plus paid in capital. Expected future cash flows are discounted by using the yield curves derived
from quoted interest rates and Credit Default Swap rates that match the maturity of the contracts. The conditions for redemption and conversion
of the cumulative preferred financing shares are disclosed in Note22. The accrued interest is included in other current financial liabilities (see
Note26) and not in the carrying amounts of non-derivative financial assets and liabilities.
Short-term deposits and similar instruments (€110 million) contain short-term liquid investments that are considered part of Ahold Delhaize’s cash
management financial assets.
No CVA DVA adjustments are made to the valuation of certain derivative instruments, for which both Ahold Delhaize and its counterparties
are required to post or redeem cash collaterals if the value of a derivative exceeds a threshold defined in the contractual provisions. Such cash
collaterals materially reduce the impact of both the counterparty and Ahold Delhaize’s own non-performance risk on the value of the instrument.
The portion of outstanding derivatives that was collateralized is specified as follows:
million
Cross-currency interest rate swaps
Total net derivative liabilities subject to collateralization
Collateralized amount
January 1,2017
63
17
