EDF_REGISTRATION_DOCUMENT_2017

FINANCIAL STATEMENTS Notes to the consolidated financial statements

Finance leases 1.3.14.1 Contracts that effectively transfer substantially to the lessee all risks and benefits inherent to ownership of the leased item are classified as finance leases. The main criteria examined in determining whether substantially all the risks and benefits are transferred by an agreement are the following: the ratio of the duration of the lease to the leased asset’s economic life; ■ total discounted future payments as a ratio of the fair value of the financed asset; ■ whether ownership is transferred at the end of the lease; ■ Assets used under finance leases are derecognised from the lessor’s balance sheet and included in the relevant category of property, plant and equipment in the lessee’s accounts. Such assets are depreciated over their useful life, or the term of the lease contract when this is shorter. A corresponding financial liability is booked by the lessee, and a financial asset by the lessor. If the Group performs a sale and leaseback operation resulting in a finance lease agreement, this is recognised in accordance with the principles described above. If the transfer price is higher than the asset’s book value, the surplus is deferred and recognised as income progressively over the term of the lease. Operating leases 1.3.14.2 Lease agreements that do not qualify as finance leases are classified and recognised as operating leases. Rental charges are spread over the duration of the lease agreement on a straight-line basis. Arrangements containing a lease 1.3.14.3 In compliance with IFRIC 4, the Group identifies arrangements that do not have the legal form of a lease contract but nonetheless convey the right to control the use of an asset or group of specific assets to the purchaser. Such arrangements are treated as leases, and analysed with reference to IAS 17 for classification as either finance or operating leases. At the year-end and at each interim reporting date, in application of IAS 36, the Group assesses whether there is an indication that an asset could have been significantly impaired. An impairment test is also carried out at least once a year on cash-generating units (CGUs) or groups of CGUs including an intangible asset with an indefinite useful life, or to which goodwill has been partly or totally allocated. Impairment tests are carried out as follows: the Group measures any long-term asset impairment by comparing the carrying ■ value of these assets and goodwill, grouped into CGUs where necessary, and their recoverable amount; CGUs are groups of homogeneous assets that generate identifiable independent ■ cash flows. They reflect the way activities are managed in the Group: they may be subgroups when the activity is optimised across the whole subgroup, or CGUs formed by parts of subgroups corresponding to different types of activity that are managed separately (fossil-fired generation, renewable energy production, services). Goodwill is allocated to the CGUs that benefit from synergies resulting from the acquisition; the recoverable value of these CGUs is the higher of fair value net of disposal ■ costs, and value in use. When this recoverable value is lower than the carrying amount in the balance sheet, an amount equal to the difference is booked under the heading “Impairment”. The loss is allocated first to goodwill, and any surplus to the other assets of the CGU concerned; whether the purchase option is attractive; ■ the features specific to the leased asset. ■ Impairment of goodwill, intangible assets and property, plant and equipment 1.3.15

The accounting treatment of concessions is based on the concession agreements, with particular reference to their special clauses. It takes into consideration the possibility that the EDF group may one day lose its status as the sole authorised State concession operator. These agreements generally cover terms of between 20 and 30 years, and use standard concession rules deriving from the 1992 Framework Contract (updated in 2007) negotiated with the National Federation of Licensing Authorities (Fédération nationale des collectivités concédantes et régies – FNCCR) and approved by the public authorities. Recognition of assets as property, plant and equipment operated under French public electricity distribution concessions All assets used by the EDF group in public electricity distribution concessions in France, whether they are owned by the grantor or the operator, are reported together on a specific line in the balance sheet assets at acquisition cost, or their estimated value at the transfer date when supplied by the grantor. Hydropower concessions 1.3.13.2.2 Hydropower concessions follow standard rules approved by decree. Hydropower concession assets consist solely of hydropower generation equipment (dams, pipes, turbines, etc.) for initial concessions. In other concessions, they comprise hydropower generation equipment and switching facilities (alternators, etc). Assets used in these concessions, whether operated under the concession agreement or owned by the EDF group, are recorded under “Property, plant and equipment operated under concessions for other activities” at acquisition cost. Public transmission concession 1.3.13.2.3 Under French law, assets assigned to the public transmission concession belong to RTE Réseau de Transport d’Électricité (RTE). Following the Group’s loss of control over RTE from 31 December 2010, these assets are included in calculating the equity value of RTE in the consolidated balance sheet. Heat generation and distribution concessions 1.3.13.2.4 Heat generation and distribution concession agreements signed by Dalkia with public authorities confer the right to operate facilities remitted by or constructed at the request of those authorities for a limited period, under the grantor’s supervision. These agreements set the terms for remuneration and transfer of the facilities to the grantor or another operator succeeding the grantor at the end of the agreement. The assets are recorded as intangible assets, in accordance with IFRIC 12 “Service concession agreements”. Foreign concessions 1.3.13.3 Foreign concessions are governed by a range of contracts and national laws. Most assets operated under foreign concessions are recorded under “Property, plant and equipment operated under concessions for other activities”. Foreign concessions essentially concern Edison in Italy, which operates hydrocarbon generation sites, gas storage sites, local gas distribution networks and hydropower generating plants under concessions. Edison owns all the assets except for some items of property, plant and equipment on the hydropower generation sites, which will be returned to the grantor for nil consideration or with an indemnity when the concession ends. In compliance with IFRIC 12, certain concession agreements are recorded as intangible assets. Hydropower generation assets which will be returned for nil consideration at the end of the concession are depreciated over the duration of the concession. Hydrocarbon generation sites are recorded in compliance with the rules applicable to the sector (see note 1.3.11.2.3). 1.3.14 In the course of its business the Group uses assets made available to it, or makes assets available to lessees, under lease contracts. These contracts are analysed in the light of the situations described and indicators provided in IAS 17 in order to determine whether they are finance leases or operating leases. Leases

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EDF I Reference Document 2017