SAINT_GOBAIN_REGISTRATION_DOCUMENT_2017
Financial and accounting information Compagnie de Saint-Gobain 2017 annual financial statements (parent company)
Currency risks are hedged mainly by fixed-term forward purchase and sale contracts and currency options. Currency receivables and payables hedged by forward purchase and sale contracts are recorded in the balance sheet at the hedging rate. The portion of the unrealized gain or loss on currency options qualifying for hedge accounting that represents the extrinsic (time) value is taken to income, and the portion that represents the intrinsic value is recorded in the balance sheet. Only unrealized losses on currency options that do not qualify for hedge accounting are recognized in the income statement. The Company uses mainly interest rate swaps and cross-currency swaps to hedge its exposure to fluctuations in interest rates. Financial income and expenses on interest rate swaps and cross-currency swaps are recognized in the income statement on a symmetrical basis against income and expenses on the hedged items. The portion of the unrealized gain or loss on interest rate options qualifying for hedge accounting that represents the extrinsic (time) value is taken to income, and the portion that represents the intrinsic value is recorded in the balance sheet. Interest rate options that do not qualify for hedge accounting are recognized in the income statement at market value. The commodity price risks (energy and raw materials) of subsidiaries are hedged by the Company, mainly using energy and raw materials swaps. Financial income and expenses on these swaps are recognized in the income statement on a symmetrical basis against the income and expenses on the hedged items. The risk of fluctuations in the Saint-Gobain share price that could affect the cost of performance unit plans is hedged
using cash-settled equity swaps, which qualify for hedge accounting. Since January 1st 2017, Compagnie de Saint-Gobain has applied ANC regulation 2015-05 of July 2, 2015 (“ANC 2015-05”) on forward financial instruments and hedging operations to all outstanding operations. Tax consolidation agreements Compagnie de Saint-Gobain was previously assessed for income tax on its worldwide taxable income as provided for under Article 209 quinquies of the French Tax Code. The last period covered by this agreement was 2004-2006. The Company chose not to renew this agreement for the accounting period starting January 1, 2007. A tax provision is recorded in Compagnie de Saint-Gobain’s accounts for taxes that may be payable in future periods following the non-renewal of this agreement. Movements in this provision are recorded under exceptional income or expense. The balance of this provision has been written back in 2017, the tax administration having drawn this year the conclusions of the ruling in our favour by the French Conseil d’Etat, on September 21, 2016. As a result, since January 1, 2007 only the tax consolidation regime provided for in Articles 223 A et seq. of the French Tax Code has remained in effect. The tax consolidation agreements between Compagnie de Saint-Gobain and its subsidiaries provide for tax neutrality for consolidated subsidiaries. In their relationship with Compagnie de Saint-Gobain, the consolidating parent company, the subsidiaries discharge their taxes as if they had been taxed on a stand-alone basis. When a loss-making subsidiary leaves the Group, they are not, in principle, entitled to any payments for losses transferred to the consolidating parent company during the consolidation period.
NOTE 2
OPERATING INCOME
Operating income improved by €10.3 million in 2017 (loss of €23.1 million versus an operating loss of €33.4 million in 2016). This was mainly due to the decrease of the accounting
charge on pension and other post-employment benefit obligations compared with the amounts recorded in 2016.
NOTE 3
NET FINANCIAL INCOME
Net financial income decreased by €84.5 million, from €945.4 million in 2016 to €860.9 million, largely reflecting: a €70.7 million decrease in income from investments in subsidiaries and affiliates (dividends received from subsidiaries and 2017 profit transferred from the subsidiaries of the German branch);
a €10.2 million decrease in income from loans and investments net of interest expense incurred; a €1 million increase in net of provisions accruals and reversals (net expense of €21.2 million in 2017 versus €20.2 million in 2016); a foreign exchange gain decrease of €2.5 million.
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