Areva - Reference Document 2016

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20.2 Notes to the consolidated financial statements for the year ended December 31, 2016 FINANCIAL INFORMATION CONCERNING ASSETS, FINANCIAL POSITION AND FINANCIAL PERFORMANCE

Treatment of income and expenses from discounting reversals The discounting of the provision is partially reversed at the end of each period: the discounting reversal corresponds to the increase in the provision due to the passage of time. This increase is recorded as a financial expense. Similarly, the discounting of the provision corresponding to the third-party share is partially reversed rather than amortized. The resulting increase in the third-party share is recognized as financial income. The share financed by third parties is reduced for the value of work done on their behalf, with recognition of a receivable from these third parties in the same amount. Treatment of amortization The group’s share of end-of-lifecycle assets is amortized over the same period as the facilities concerned. The corresponding amortization expense is not considered as part of the cost of inventories or the cost of contracts, and is not taken into account in the calculation of their percentage of completion. However, it is included in the income statement under cost of sales and thus deducted from gross margin. Inflation and discount rates used to discount end-of-lifecycle operations The inflation and discount rates used to discount end-of-lifecycle operations are determined according to the following principles. The inflation rate is set in accordance with the long-term inflation projections for the Eurozone and taking into account the European Central Bank’s target rate. The discount rate is set: p pursuant to IAS 37, i.e. based on market conditions at year-end closing and the specific characteristics of the liability; and p to comply with the regulatory cap defined by the decree of February 23, 2007 and the order of March 23, 2015 amending the order of March 21, 2007. The rate thus results from implementation of the following approach: p an estimate is made by reference to the moving average yield of 30-year French OATs over a 10-year period, plus a spread applicable to prime corporate borrowers, to ensure the compliance of the rate selected with the regulatory cap; p a rate curve is constructed based on the rate curve of the French State (OAT rates) at the closing date, extended for non-liquid maturities using a long-term break-even rate, plus a spread applicable to prime corporate borrowers and a liquidity risk premium. Based on expected disbursements, a single equivalent rate is deducted from the rate curve constructed in this manner. For example, the discount rate is revised based on changes in national economic conditions with a lasting medium- and long-term impact, in addition to the potential effects of regulatory caps. For facilities located in France, AREVA chose a long-term inflation assumption of 1.65% and a discount rate of 4.1% at December 31, 2016, a reduction compared with the rate of 4.5% in 2015. Treatment of changes in assumptions Changes in assumptions relate to changes in cost estimates, discount rates and disbursement schedules.

As provided in IFRS, the group uses the prospective method:

p if the facility is in operation, the shares of end-of-lifecycle assets of the group and third parties are corrected in the same amount as the provision; the group’s share of end-of-lifecycle assets is amortized over the remaining life of the facilities; p if the facility is no longer in operation, the impact is recognized during the year of the change. The impact of changes in cost estimates is recognized under operating income, while the impact of changes in discount rates and disbursement schedules is recognized under net financial income. Provisions for waste retrieval and packaging funded by the group have no corresponding end-of-lifecycle asset. Consequently, changes in assumptions concerning the group’s share of these provisions are recognized immediately in the income statement. Impacts from changes in cost estimates are recognized under operating income. Impacts fromchanges in discount rates and disbursement schedules are recognized under financial income.

1.3.18. Borrowings Borrowings include:

p put options held by minority shareholders of AREVA group subsidiaries;

p obligations under finance leases; and

other interest-bearing debt.

p

1.3.18.1. Obligations under finance leases As provided in IAS 17, leasing arrangements are considered finance leases when all of the risks and rewards inherent in ownership are, in substance, transferred to the lessee. At inception, finance leases are recognized as a debt offsetting an asset in the identical amount, corresponding to the lower of the fair value of the property and the discounted net present value (NPV) of future minimum payments due under the contract. Lease payments made subsequently are treated as debt service and allocated to repayment of the principal and interest, based on the rate stipulated in the contract or the discount rate used to value the debt.

1.3.18.2.Other interest-bearing debt This heading includes:

p interest-bearing advances from customers: interest-bearing advances from customers are accounted for as borrowings, while non-interest-bearing advances are considered operating liabilities (see note 1.3.19);

p loans from financial institutions;

bonds issued by AREVA;

p

p short-term bank facilities. Interest-bearing debt is recognized at amortized cost based on the effective interest rate method. Bond issues hedged with a rate swap (fixed rate/variable rate swap) qualified as fair value hedges are revalued in the same amount as the hedging derivative. 1.3.19. Advances and prepayments received There are three types of advances and prepayments from customers: p interest-bearing advances, which are presented as borrowings (see note 1.3.18.2);

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2016 AREVA REFERENCE DOCUMENT