FINANCIAL STATEMENTS Corporate financial statements as of December 31, 2017 3 2.7 New recognition rules for forward financial The hedge result follows the same classification as that of the hedged instruments and hedge transactions element and is therefore presented (PCG Art. 628-11): The principles of hedge accounting are stated by the French Chart > in the same item as that of the hedged element; of Accounts, the PCG (Art. 628-6 to 628-17 newly introduced by ANC > or otherwise sub-accounts are created for this purpose in the same regulation No. 2015-05 relating to forward financial instruments and income statement heading (operating, finance). hedge transactions). They apply to all hedges regardless of their Hedging costs (options premiums, upfront fees and other) are nature. recognized at the choice of the Company, by either staggering The application of ANC regulation No. 2015-05 is required for all them in the income statement over the hedge period, or deferring financial years started on or after January 1, 2017. and recording them as matching entries to the result of the hedged According to the PCG (Art. 628-6), a hedge transaction entails element. bringing together a hedged element and a hedging instrument for the The value in use of a foreign investment is classified as hedging at the purpose of reducing the risk of the unfavorable impact of the hedge equivalent of its carrying amount in foreign currency. exposure on the entity’s income, cash flows or shareholders’ equity. Hedging effects are taken into account in the calculation of impairment Hedge accounting is not optional (PCG, art. 628-11 and presentation losses on securities. note of ANC regulation 2015-05 §2.3). In the context of the first-time application of the new rules at Any transaction identified as a management hedge must be qualified January 1, 2017, relating to forward financial instruments on hedge as an accounting hedge, unless the qualification criteria of this transactions, the Company opted for the following elements: Regulation are not met. > classification in income in the heading in the sub-accounts created A transaction that does not (or no longer) qualify for hedge accounting for this purpose; follows the accounting treatment of an unhedged transaction, i. e. an > the hedging costs are staggered in the income statement over the isolated open position. period of the hedged element; If a hedging transaction has a notional amount greater than that of the > expenses or income on foreign exchange derivatives arranged hedged item, the hedging surplus is dequalified prospectively from the in connection with the hedging of foreign currency loans are date on which this over-hedging is confirmed. staggered over the hedging period to match the hedged element. The transactions for which the Company cannot fulfill the hedging As part of the implementation of the new hedge accounting rules, criteria defined above are considered as isolated open positions the value in use of the Turkish centers held by the foreign subsidiary (Art. 628-18). Akmerkez was classified as a hedged item. Impacts of the first-time application of the regulation The value in use, measured in dollars, is hedged by currency swaps on forward financial instruments in the same currency, and the positive exchange rate effect of €15.5 million was recorded in account 4787 “Valuation differences on The new rules must be applied retrospectively, i. e. as if they had cash instruments - Liabilities”, which has been taken into account always been applied. However, undertakings are authorised to limit in the calculation of the impairment loss on Akmerkez’ investments. their retrospective amendments only to transactions existing on the date of first application of the Regulation. Accounting treatment of transactions in isolated Concerning existing transactions, only hedging relationships through open position which three conditions are fulfilled on the date of the first-time Unwound losses and gains are the losses and gains realized at application are restated: maturity of the contract or while unwinding the Company’s position > the hedged element still exists; on the market. They are definitively acquired by the Company and > the hedge instrument still exists; are immediately booked: > the hedging relationship can be documented. > losses realized on account 666 “Financial exchange losses” (PCG, Art. 946-66); Accounting treatment of hedge transactions > losses realized on account 766 “Financial exchange gains” (PCG, Art. 947-76). Losses and gains realized on hedge transactions are recognized in Unrealized gains and losses correspond to fluctuations of the profit or loss to match the recognition method of gains and expenses instrument’s value. They are not definitively acquired, as the Company on this element. remains exposed to a trend reversal on the market for as long as the Expenses and gains on forward financial instruments (swaps) entered position is not unwound. into for the purpose of hedging the Company’s risk exposure to Value fluctuations are recorded in the balance sheet against the interest rate fluctuations are recognized in profit or loss at the same following transitory accounts: rate as the interest expense on the hedged debt. Fluctuations in the balance sheet value of unrealized gains and losses > under balance sheet assets for fluctuations that correspond to an on hedge transactions are not recognized in the balance sheet unless unrealized loss, in account 4786 “Evaluation difference on cash the recognition of these fluctuations allows a matching treatment with instruments – Asset”; the hedged element. > under balance sheet liabilities for fluctuations that correspond to Unrealized losses and gains on the hedge instruments arising as a an unrealized gain, in account 4787 “Evaluation difference on cash result of the difference between the market value of agreements instruments – Liability”; estimated at the end of the year and their par value are not recognized. > the counter entry is recorded in account 52 “Cash instruments”. KLÉPIERRE 2017 REGISTRATION DOCUMENT 139