Annual report 2006 - Dexia.com

RAPPORT DE GESTION
CONSOLIDATED
FINANCIAL STATEMENTS
COMPTES SOCIAUX
The objective of the hedge relationships is to reduce the interest
rate risk exposure stemming from the selected category
of assets or liabilities designated as the qualifying hedged
items.
The entity performs a global analysis of interest rate risk
exposure. It consists of assessing fixed rate exposure taking
into account all the exposure coming from balance sheet and
off-balance sheet items. This global analysis may exclude certain
components of the exposure, such as financial market
activities, provided that the risk exposure stemming from the
excluded activities are monitored on an activity-by-activity
basis. The entity selects assets and/or liabilities to be entered
into the hedge of interest rate risk exposure of the portfolio.
The entity defines at inception the risk exposure to be hedged,
the length of the time-bucket, the way and the frequency it
performs tests. The entity constantly applies the same methodology
for selecting assets and liabilities entering in the portfolio.
Assets and liabilities are included on a cumulative basis
in all the time buckets of the portfolio. Hence, when they are
removed from the portfolio, they must be removed from all
the time buckets in which they had an impact.
The entity may choose which assets and/or liabilities it wishes
to classify into the portfolio provided they are included in the
global analysis. Demand deposits and savings accounts may
be included in the portfolio based on behavioral study for estimating
expected maturity date. The entity may designate as
qualifying hedged items different categories of assets or liabilities
such as “available for sale” assets or loan portfolios.
The hedging instruments are a portfolio of derivatives. Such
a portfolio of derivatives may contain offsetting positions.
The hedging items are recognized at its fair value (including
accrued interest expense or income) with adjustments
accounted for in the statement of income.
Effectiveness tests consist of verifying that the hedging objective,
i.e. reducing the interest rate risk exposure, is fulfilled.
Inefficiency can come only from overhedging due to noncontractual
events occurring within the categories of assets
or liabilities.
Hedged interest rate risk revaluation of elements carried out
at amortized cost is included in the line “Fair value revaluation
of portfolio hedges”. In case of hedging of AFS, the revaluation
is part of the heading “Loans and securities AFS”.
1.20. TANGIBLE FIXED ASSETS
Tangible fixed assets include property, plant and equipment
and investment properties.
All property, plant and equipment are stated at its cost less
accumulated depreciation and impairments.
Depreciation is calculated using the straight-line method to
write down the cost of such assets to their residual values
over their estimated useful lives.
The main service lives are as follows:
• buildings (including acquisition costs and non deductible
taxes): 20 to 50 years;
• computer equipment: 3 to 6 years;
• leasehold improvements, equipment and furniture: 2 to
12 years;
• vehicles: 2 to 5 years.
The exchange losses on liabilities for the acquisition of an
asset as well as the interest on specific or general borrowings
to finance the construction of qualifying assets are expensed
immediately.
Where the carrying amount of an asset is greater than its estimated
recoverable amount, it is written down to its recoverable
amount. Gains and losses on disposals of property and
equipment are determined by reference to their carrying
amount and are included in Other net income. Expenditure
that enhances or extends the benefits of real estate or fixed
assets is capitalized and subsequently depreciated.
Investment properties are those properties held to earn rentals
or for capital appreciation. Dexia may also partly use certain
investment properties. If the “own use” portions can be
sold separately or leased out separately under finance lease,
then these portions are accounted for separately. If the “own
use” portions cannot be sold separately, the property is an
investment property only if Dexia holds an insignificant portion
for its own use.
Investment properties are recorded at its cost less accumulated
depreciation and impairments. The investment properties
are depreciated over their useful lives on a straight-line basis.
Depreciation of buildings given in operating leases is recorded
in “Depreciation”, whereas depreciation on other assets given
in operating lease is booked in “Other net income”.
1.21. INTANGIBLE ASSETS
Intangible assets mainly consist of internally generated and
acquired software. Costs associated with maintaining computer
software programs are recognized as expense as incurred.
However, expenditure that enhances or extends the benefits
of computer software programs beyond one year is used to
increase the original cost of the software. Computer software
development costs recognized as assets are amortized using
the straight-line method over their useful lives from the time
the software is available for use. This amortization period is
usually between 3 and 5 years.
Where the carrying amount of an asset is greater than its estimated
recoverable amount, it is written down to its recoverable
amount. Gains and losses on disposals of intangible
assets are determined by reference to their carrying amount
and are included in “Other net income”. Expenditure that
enhances or extends the benefits is capitalized and subsequently
depreciated.
1.22. GOODWILL
1.22.1. Positive goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of Dexia’s share of the net assets of the
acquired subsidiary or associated undertaking at the date of
acquisition. Goodwill on acquisition occurring on or after January
1, 2004 is reported in the balance sheet as an intangible
asset. Goodwill is allocated to cash-generating units for the
purpose of impairment testing. Cash-generating units may be
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Dexia / Annual Report 2006