Saint Gobain - Registration document 2016

9 FINANCIAL AND ACCOUNTING INFORMATION

3. Compagnie de Saint-Gobain annual financial statements (parent company)

Tax consolidation agreements

statement. for hedge accounting are recognized in the income cross-currency swaps to hedge its exposure to fluctuations in interest rates. The Company uses mainly interest rate swaps and 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. are recognized in the income statement at market value. Interest rate options that do not qualify for hedge accounting subsidiaries are hedged by the Company, mainly using energy and raw materials swaps. Financial income and expenses on The commodity price risks (energy and raw materials) of hedged items. these swaps are recognized in the income statement on a symmetrical basis against the income and expenses on the 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.

accounting period starting January 1, 2007. period covered by this agreement was 2004-2006. The Company chose not to renew this agreement for the income tax on its worldwide taxable income as provided for under Article 209 quinquies of the French Tax Code. The last Compagnie de Saint-Gobain was previously assessed for following the non-renewal of this agreement. Movements in this provision are recorded under exceptional income or accounts for taxes that may be payable in future periods A tax provision is recorded in Compagnie de Saint-Gobain’s which rejected on September 21, 2016, an appeal from the tax administration. expense. Most of this provision has been written back in 2016 following a favourable ruling by the French Conseil d’État, Tax Code has remained in effect. As a result, since January 1, 2007 only the tax consolidation regime provided for in Articles 223 A et seq. of the French 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 parent company during the consolidation period. subsidiary leaves the Group, they are not, in principle, entitled to any payments for losses transferred to the consolidating

NOTE 2

OPERATING INCOME

This was mainly due to the increase of actuarial losses on Operating income declined by €15.8 million in 2016 (loss of €33.4 million versus an operating loss of €17.6 million in 2015).

pension and other post-employment benefit obligations

compared with the amounts recorded in 2015.

NOTE 3

NET FINANCIAL INCOME

Net financial income increased by €171.6 million, from €773.8 million in 2015 to €945.4 million, largely reflecting: a €179.3 million increase in income from investments in ‹ subsidiaries and affiliates (dividends received from subsidiaries of the German branch); subsidiaries and 2016 profit transferred from the

investments net of interest expense incurred; a €9.4 million decrease in income from loans and ‹ compared with 2015 (net expense of €20.2 million in 2016 versus €20.1 million in 2015); a net of provisions accruals and reversals unchanged ‹ A foreign exchange gain increase of €1.9 million. ‹

NOTE 4

EXCEPTIONAL INCOME AND EXPENSE

reversal following a ruling handed down in our favour by the French Conseil d’État on September 21, 2016, in connection The Company reported a net exceptional income of €8.4 million primarily due to a €31 million tax provision

reversal was partially offset by the booking of provisions for performance share and performance unit Group Plans. with a dispute with the tax administration following our exit from the worldwide tax consolidation regime. This provision

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SAINT-GOBAIN - REGISTRATION DOCUMENT 2016