Annual report 2006 - Dexia.com

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RAPPORT DE GESTION CONSOLIDATED FINANCIAL STATEMENTS COMPTES SOCIAUX GENERAL INFORMATION Dexia provides financial services to the local public sector, and is one of the world’s largest players in Public/Project Finance and Credit Enhancement. In Europe, Dexia offers retail and private banking services and also asset management and insurance services. Since the beginning of 2006, the custodian activity (Investor Services) is served on a worldwide basis. The parent company of the Group is Dexia, which is a limited liability company and is incorporated and domiciled in Belgium. The address of its registered office is: Place Rogier 11 — B-1210 Brussels (Belgium). Dexia is listed on the Euronext Stock Exchange in Paris and in Brussels and on the Luxembourg Stock Exchange. These financial statements have been approved for issue by the Board of Directors on March 1, 2007. NOTES TO THE FINANCIAL STATEMENTS The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. The common used abbreviations below are: ARC: Accounting Regulatory Committee EFRAG: European Financial Reporting Advisory Group EU GAAP: International Financial Reporting Standards as adopted by the European Union (EU) IASB: International Accounting Standards Board IFRIC: International Financial Reporting Interpretations Committee IFRS: International Financial Reporting Standard 1. ACCOUNTING POLICIES 1.1. BASIS OF ACCOUNTING The consolidated financial statements of Dexia are prepared in accordance with all IFRSs as adopted by the EU. The European Commission published Regulation EC 1606/2002 on July 19, 2002, requiring listed groups to apply IFRS as from January 1, 2005. This regulation has been updated several times since 2002, validating the various texts published by the IASB with the exception of certain rules included in IAS 39. The European Commission carved out some paragraphs of IAS 39 with the objective of enabling European companies to reflect appropriately in their consolidated financial statements the economic hedges they make in the management of their interest rate risk exposure. Dexia’s financial statements have therefore been prepared “in accordance with all IFRSs as adopted by the EU” and endorsed by the EC up to December 31, 2006, including the conditions of application of interest rate portfolio hedging and the possibility to hedge core deposits. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect amounts reported. While management believes they have considered all available information in developing these estimates, actual results could differ from such estimates and the differences could be material to the financial statements. The consolidated financial statements are stated in millions of euro (EUR) unless otherwise stated. 1.2. CHANGES IN ACCOUNTING POLICIES SINCE THE PREVIOUS ANNUAL PUBLICATION THAT MAY IMPACT DEXIA GROUP 1.2.1. New IFRS standards, IFRIC interpretations and amendments The IASB published a new standard: • IFRS 8 Operating segments, which will supersede IAS 14 Segment reporting and will be applicable as from January 1, 2009. The impact of this standard is under analysis. The IFRIC published 5 new interpretations in 2006: • IFRIC 8 Scope of IFRS 2, which has no impact on Dexia Group; • IFRIC 9 Reassessment of embedded derivatives; Dexia already applies the principle given by this interpretation; • IFRIC 10 Interpretation on Interim Financial reporting and impairment; Dexia already applies this rule; • IFRIC 11 IFRS 2 Group and Treasury Share Transactions, which has no impact on Dexia; • IFRIC 12 Service concession arrangements, which has no impact on Dexia. 1.2.2. IASB and IFRIC texts endorsed by the European Commission The European Commission endorsed IFRS 7 Financial Instruments disclosure and several amendments to existing standards and interpretations in 2006: • An amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards; • An amendment to IAS 1 Presentation of Financial Statements — Capital disclosures; • An amendment to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 4 Insurance Contracts — Financial Guarantee Contracts; • Amendments to IAS 21 The effects of changes in foreign exchanges rates; • IFRIC 7 applying the restatement approach under IAS 29 Financial Reporting in hyperinflationary economy; • IFRIC 8 scope of IFRS 2; • IFRIC 9 Reassessment of embedded derivatives. Dexia applies all of these texts in 2006, except the amendment to IAS1 and IFRS 7, which will be applicable as from January 1, 2007. Dexia however already gives information on capital disclosures and will include most of the requirements of IFRS 7 in its annual financial statements, but not all of them. Dexia does not expect that these new amendments may have a significant impact on the financial situation of the Group. 120 | Dexia / Annual Report 2006
1.2.3. Change in presentation Cash collaterals In order to harmonize the accounting presentation within Dexia, cash collaterals of some companies of the Group have been reclassified from “Other assets” to “Due from Banks” in December 31, 2005 balance sheet for an amount of EUR 4,52 billion while an amount of EUR 359 million was restated from “Other liabilities” to “Customer borrowings and deposits”. The impact only affected the balance sheet and no reclassification in profit and loss was required. Unrealized gains on transactions between Dexia and its “equity method investments” are eliminated to the extent of Dexia’s interest. Unrealized losses are also eliminated unless the transaction shows evidence of an impairment of the asset transferred. The recognition of losses from associates is discontinued when the carrying amount of the investment reaches zero, unless Dexia has incurred or guaranteed obligations in respect of the associates’ undertakings. Where necessary, the accounting policies of the associates have been amended to ensure consistency with the policies adopted by Dexia. 1.3. CONSOLIDATION 1.3.1. Subsidiaries The consolidated financial statements include those of the parent company, its subsidiaries and special purpose entities (SPE). Subsidiaries and SPE are those entities in which Dexia, directly or indirectly, has the power to exercise control over financial and operating policies. Subsidiaries are consolidated from the date on which effective control is transferred to Dexia and are no longer consolidated as from the date on which Dexia’s control ceases. Intercompany transactions, balances and unrealized gains and losses on transactions between Dexia’s companies have been eliminated. Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements. When necessary, the accounting policies of the subsidiaries have been amended to ensure consistency with the policies adopted by Dexia. Equity and net income attributable to minority interests are shown separately in the balance sheet and statement of income respectively. 1.3.2. Jointly controlled entities A joint venture (JV) is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint ventures are accounted for via the proportionate consolidation method. In the financial statements, joint ventures are integrated by combination of their share of the assets, liabilities, income and expenses on a line-by-line basis. The same consolidation treatment, as for subsidiaries, is applied for intercompany transactions. When necessary, the accounting policies of jointly controlled entities have been amended to ensure consistency with the policies adopted by Dexia. 1.3.3. Associates Investments in associates are accounted for using the equity method of accounting. Associates are investments where Dexia has significant influence, but does not exercise control. This is usually the case, when Dexia owns between 20% and 50% of the voting rights. The ownership share of net income for the year is recognized as income from associates and the investment is recorded in the balance sheet at an amount that reflects its share of the net assets including net goodwill. 1.4. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES Financial assets and financial liabilities are offset (and consequently, the net amount is only reported) Dexia has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. 1.5. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS The consolidated financial statements are stated in EUR (functional and presentation currency), the currency in which Dexia is incorporated. 1.5.1. Foreign currency translation On consolidation, the statements of income and cash flow statements of foreign entities that have a functional currency different from Dexia’s presentation currency are translated into Dexia’s presentation currency (EUR) at average exchange rates for the year or the period and their assets and liabilities are translated at respective year-end or quarter-end exchange rates. Exchange differences arising from the translation of the net investment in foreign subsidiaries and associates and of borrowings and other currency instruments designated as hedges of such investments, are recorded as a cumulative translation adjustment within shareholders’ equity. On disposal of a foreign entity, such exchange differences are recognized in the statement of income as part of the gain or loss on sale. Goodwill and fair value adjustments arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing rate. 1.5.2. Foreign currency transactions For individual Dexia entities, foreign currency transactions are accounted for using the approximate exchange rate at the date of the transaction. Outstanding balances denominated in foreign currencies at period or year-end are translated at period or year-end exchange rates for monetary items and non-monetary items carried at fair value. Historical rates are used for non-monetary items carried at cost. The resulting exchange differences from monetary items are recorded in the consolidated statement of income; for non-monetary items RAPPORT DE GESTION CONSOLIDATED FINANCIAL STATEMENTS COMPTES SOCIAUX Dexia / Annual Report 2006 | 121
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no achievement without commitment
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FINANCIAL HIGHLIGHTS 4 MESSAGE FROM
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FINANCIAL HIGHLIGHTS FINANCIAL HIGH
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MESSAGE FROM THE CHAIRMEN MESSAGE F
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MESSAGE FROM THE CHAIRMEN MESSAGE F
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GROUP PRESENTATION GROUP PRESENTATI
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GROUP PRESENTATION HISTORY OF THE G
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GROUP PRESENTATION MANAGEMENT REPOR
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GROUP PRESENTATION MANAGEMENT REPOR
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GROUP PRESENTATION GROUP ORGANIZATI
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GROUP PRESENTATION Group Executive
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GROUP PRESENTATION MAIN ACTIVITIES
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GROUP PRESENTATION December Opening
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CORPORATE GOVERNANCE Dexia’s comp
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CORPORATE GOVERNANCE MANAGEMENT REP
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CORPORATE GOVERNANCE NAME SPECIALIZ
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CORPORATE GOVERNANCE NAME SPECIALIZ
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CORPORATE GOVERNANCE DIRECTORS’ A
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CORPORATE GOVERNANCE THE MANAGEMEN
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CORPORATE GOVERNANCE The maximum am
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THE DEXIA SHARE MANAGEMENT REPORT C
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THE DEXIA SHARE MAIN SHAREHOLDERS O
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HUMAN RESOURCES HUMAN RESOURCES Dex
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HUMAN RESOURCES MANAGEMENT REPORT C
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HUMAN RESOURCES INITIATING AND CAS
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SUSTAINABLE DEVELOPMENT SUSTAINABLE
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RISK MANAGEMENT MANAGEMENT REPORT C
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Page 72 and 73: FINANCIAL RESULTS MANAGEMENT REPORT
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Page 76 and 77: FINANCIAL RESULTS ANALYSIS OF THE
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Page 88 and 89: PERSONAL FINANCIAL SERVICES MANAGEM
Page 90 and 91: ASSET MANAGEMENT MANAGEMENT REPORT
Page 92 and 93: INSURANCE SERVICES INSURANCE SERVIC
Page 94 and 95: INSURANCE SERVICES MANAGEMENT REPOR
Page 96 and 97: INVESTOR SERVICES MANAGEMENT REPORT
Page 98 and 99: TREASURY AND FINANCIAL MARKETS MANA
Page 100 and 101: GENERAL INFORMATION MANAGEMENT REPO
Page 112 and 113: CONSOLIDATED BALANCE SHEET 112 CONS
Page 114 and 115: CONSOLIDATED BALANCE SHEET ASSETS (
Page 116 and 117: CONSOLIDATED STATEMENT OF INCOME (i
Page 118 and 119: MINORITY INTERESTS Core Gains and l
Page 120 and 121: CONSOLIDATED CASH FLOW STATEMENT (i
Page 124 and 125: RAPPORT DE GESTION CONSOLIDATED FIN
Page 136 and 137: 4.1.3. Currency risk 4.2. CREDIT RI
Page 140 and 141: Name Head Office % of Consolidation
Page 142 and 143: GEOGRAPHIC Eurozone (1) Rest of USA
Page 144 and 145: PORTFOLIO Number Loan Collateral Ex
Page 148 and 149: 7. NOTES ON THE ASSETS OF THE CONSO
Page 150 and 151: B. Analysis of quality See note 7.1
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Page 156 and 157: 7.10. TANGIBLE FIXED ASSETS A. Net
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Page 160 and 161: A. Other assets Analysis by nature
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Page 166 and 167: B. Analysis by maturity and interes
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H. Range of assumptions to determin
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9. OTHER NOTES ON THE CONSOLIDATED
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Deferred tax coming from assets of
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2. Change in profit sharing reserve
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B. Nonlife contracts B.1. Income an
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9.4. RELATED PARTIES TRANSACTIONS A
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RAPPORT DE GESTION CONSOLIDATED FIN
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The assets and liabilities disposed
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9.8. SHARE-BASED PAYMENTS STOCK OPT
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9.9. MINORITY INTERESTS - CORE EQUI
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Dec. 31, 2005 Dec. 31, 2006 Banking
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10. NOTES ON THE CONSOLIDATED OFF-B
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11.3. NET INCOME FROM ASSOCIATES De
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11.6. COMMISSION INCOME AND EXPENSE
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(AVERAGE FTE) France Belgium Luxemb
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11.14. IMPAIRMENT ON GOODWILL Nil.
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12. NOTES ON RISK EXPOSURE (IN MILL
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12.2. CREDIT RISKS EXPOSURE A. Anal
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12.3. INTEREST RATE REPRICING RISK:
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RAPPORT DE GESTION CONSOLIDATED FIN
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12.6. LIQUIDITY RISK: BREAKDOWN BY
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12.7. CURRENCY RISK As of Dec. 31,
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BALANCE SHEET 216 OFF-BALANCE SHEET
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BALANCE SHEET (before income approp
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STATEMENT OF INCOME (in thousands o
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3.2.5. Amounts receivable after mor
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4.2.6. Amounts receivable within on
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RAPPORT DE GESTION COMPTES CONSOLID
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4.6. STATEMENT OF FORMATION EXPENSE
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4.10. SHARE IN THE CAPITAL AND OTHE
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D. Commitments to issue shares Amou
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4.19. OTHER TAXES AND TAXES BORNE B
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6. SOCIAL REPORT 6.1. STATEMENT OF
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6.3. STATEMENT CONCERNING THE IMPLE
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• there have been no transactions
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DEXIA IN THE WORLD RAPPORT DE GESTI
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RAPPORT DE GESTION Kommunalkredit D
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Dexia’s Annual Report 2006 has be
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SDXI 0109-5 03-07
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