EDF / 2018 Reference document

FINANCIAL STATEMENTS Notes to the financial statements

rights in existing assets: these correspond to the grantor’s right to recover all ■ assets for nil consideration. This right comprises the value in kind of the facilities - the net book value of assets operated under concession - less any as yet unamortised financing provided by the operator; rights in assets to be replaced: these correspond to the operator’s obligation to ■ contribute to the financing of assets due for replacement. These non-financial liabilities comprise: depreciation recorded on the portion of assets financed by the grantor, ■ the provision for renewal, exclusively for assets due for renewal before the ■ end of the concession. This provision is included in provisions for expenses. When assets are replaced, the provision and amortisation of the grantor’s financing recorded in respect of the replaced item are eliminated and transferred to the rights in existing assets, since they are considered as the grantor’s financing for the new asset. Any excess provision is taken to income. During the concession, the grantor’s rights in assets to be replaced are thus transferred upon the asset’s renewal to become the grantor’s rights in existing assets, with no outflow of cash to the benefit of the grantor. the value of assets remitted for nil consideration and contributions received; ■ differences arising from revaluations in accordance with French legislation for ■ fixed assets commissioned before 1 January 1959 and before 1 January 1977; additional depreciation to industrial depreciation for facilities that are to be ■ returned for nil consideration at the end of the concession but whose useful life extends beyond the concession term. Following the changes made to the accounting treatment of hydropower concessions at 1 January 2009, the 1959 revaluation reserve is transferred to equity when the assets concerned are retired. The net revaluation reserve generated by the 1976 revaluation is taken to income over the residual useful life of the assets concerned. The value of assets remitted for nil consideration and contributions received are transferred to the income statement over their useful lives. EMPLOYEE BENEFIT PROVISIONS EDF recognises provisions when it has a present obligation (legal or constructive) arising from a past event, an outflow of resources will probably be required to settle the obligation, and the obligation amount can be estimated reliably. If it is anticipated that all or part of the expenses covered by a provision will be reimbursed, the reimbursement is recognised under receivables if and only if EDF is virtually certain of receiving it. Provisions are determined based on the company’s expectation of the cost necessary to settle the obligation. Estimates are based on management data from the information system, assumptions adopted by the Company, and if necessary experience of similar transactions, or in some cases based on independent expert reports or contractor quotes. The various assumptions are reviewed for each closing of the accounts. The expected costs are estimated based on year-end economic conditions and spread over a forecast disbursement schedule. They are then adjusted to euros of the year of payment through application of a forecast long-term inflation rate and discounted to present value using a nominal discount rate. The provisions are based on these discounted future cash flows. Special hydropower concession liabilities 1.14.2 These liabilities comprise: PROVISIONS OTHER THAN 1.15

Impairment is recorded to fully cover any unrealised losses, without netting against unrecorded unrealised gains. Gains and losses on sales of marketable securities are valued using the FIFO (first in first out) method.

1.10

BOND ISSUANCE EXPENSES

AND REDEMPTION PREMIUMS Bond redemption premiums are amortised in equal portions prorated to the duration of the bond (straight-line method), regardless of the redemption pattern, applying the option allowed by Article 212–10 of the national chart of accounts. Commissions and external costs paid by EDF upon issuance of borrowings and included in “Deferred charges” are spread on a straight-line basis over the term of the related instruments. GAINS AND LOSSES Foreign currency receivables and payables are translated into euros at the year-end exchange rates. The resulting translation differences are recorded in the balance sheet under “Unrealised foreign exchange gains” and “Unrealised foreign exchange losses”. Provisions are recorded to cover all unrealised exchange losses on foreign currency borrowings not hedged for exchange risks. Unrealised gains are not recognised in the income statement. Unrealised gains and losses on currency derivatives classified as hedging instruments are recorded in the balance sheet in the revaluation surplus accounts, and netted with the translation adjustment booked in respect of the hedged items, in application of regulation 2015-05 of 2 July 2015 on forward financial instruments and hedging operations. As of 1 January 2017, foreign exchange gains and losses on trade receivables and payables are recorded in operating income and expenses. UNREALISED FOREIGN EXCHANGE 1.11 This item mainly includes excess depreciation recorded for tax purposes and relates to: ordinary depreciation of generation and distribution facilities; ■ exceptional depreciation of software developed in-house by the Company; ■ amortisation of acquisition expenses for new investments by the Company. ■ 1.13 Perpetual subordinated bonds issued by EDF in euros and other currencies are recorded in compliance with the French Chartered accountants’ body Ordre des experts comptables opinion 28 of July 1994, taking their specific characteristics into consideration. As a result, they are classified as additional equity, since redemption is exclusively controlled by EDF. Issuance expenses and premiums are amortised through the income statement, on a pro rata basis. Interest paid on these bonds is recorded in the financial result. ADDITIONAL EQUITY TAX-REGULATED PROVISIONS 1.12

6.

1.14

SPECIAL CONCESSION LIABILITIES

These liabilities relate mostly to public electricity distribution concessions for the Island Energy Systems (SEI), and hydropower concessions.

1.14.1

Special public electricity distribution

concession liabilities – SEI These liabilities represent the contractual obligations specific to the concession rules for public electricity distribution concessions, recognised in the liabilities as:

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EDF I Reference Document 2018