EDF_REGISTRATION_DOCUMENT_2017

FINANCIAL STATEMENTS Notes to the consolidated financial statements

Equity 1.3.20 Fair value adjustment of financial 1.3.20.1 instruments The fair value adjustment of financial instruments results from the restatement to fair value of available-for-sale financial assets and certain hedging instruments. Share issue expenses 1.3.20.2 Share issue expenses correspond exclusively to external costs expressly related to the capital increase. They are charged against the issue premium at their net-of-tax value. Other expenses are classified as expenses of the period. Treasury shares 1.3.20.3 Treasury shares are shares issued by EDF and held either by that company or by other entities in the consolidated Group. They are valued at acquisition cost and deducted from equity until the date of disposal. Net gains or losses on disposals of treasury shares are directly included in equity and do not affect net income. Perpetual subordinated bonds 1.3.20.4 In 2013 and 2014 EDF issued perpetual subordinated bonds comprising several tranches in euros, US dollars and pounds sterling (a “hybrid” bond issue). These bonds are redeemable at the initiative of EDF after a minimum period that depends on the specific terms of the issue, and subsequently at each coupon date or in the event of highly specific circumstances (such as a change in IFRS or tax regime). The annual yield is fixed and reviewable based on contractual clauses that vary according to the specific terms of the issue. There is no obligation for EDF to make any payment, due to the existence of contractual clauses that allow it to defer payment indefinitely. However, those clauses stipulate that deferred payments must be made if it is decided to pay dividend to EDF’s shareholders. All these features give EDF an unconditional right to avoid paying out cash or another financial asset in redemption or interest on the principal. Consequently, in compliance with IAS 32, these bonds are recorded in equity and any payment made is treated as dividends. provisions The Group 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 the Group is virtually certain of receiving it. Provisions are determined based on the Group’s expectation of the cost necessary to settle the obligation. Estimates are based on management data from the information system, assumptions adopted by the Group, 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. The rate of inflation and the discount rate are based on the economic and regulatory parameters of the country where the economic entity is located, considering the long operating cycle of the Group’s assets and the maturities of commitments. Provisions other than employee benefit 1.3.21

The stated value of nuclear fuel and materials and work-in-progress is determined based on direct processing costs including materials, labour and subcontracted services (e.g. fluoration, enrichment, production, etc.). In accordance with regulatory obligations specific to each country, inventories of fuel (new or not entirely consumed) may also comprise expenses for spent fuel management and long-term radioactive waste management, with corresponding provisions or debts in the liabilities, or full and final payments made when the fuel is loaded. In compliance with IAS 23, interest expenses incurred in financing inventories of nuclear fuels are charged to expenses for the period provided these inventories are manufactured in large quantities on a repetitive basis. Nuclear fuel consumption is determined as a proportion of the expected output when the fuel is loaded in the reactor. These quantities are valued at weighted average cost of inventories. Inventories are periodically corrected in view of forecast spent quantities based on neutronic measurements and physical inventories. Other operating inventories 1.3.17.2 Other operating inventories comprise: fossil fuels required for operation of fossil-fired power plants; ■ operating materials and equipment such as spare parts supplied under a ■ maintenance programme (excluding capitalised strategic safety spare parts); certificates issued under the various environmental schemes (see note 1.3.27); ■ certificates issued under capacity obligation mechanisms (capacity guarantees in ■ France) (see note 4.3); goods and services in progress, particularly relating to the businesses of EDF ■ Énergies Nouvelles, Dalkia and Framatome; gas stocks. ■ Other non-trading operating inventories are generally valued at weighted average cost including direct and indirect purchasing costs. Impairment of spare parts principally depends on the turnover of these parts. Inventories held for trading purposes are stated at market value. 1.3.18 Trade receivables are initially recognised at the fair value of the consideration received or receivable. Impairment is recorded when, based on the probability of recovery assessed according to the type of receivable, their carrying amount falls below their book value. Depending on the nature of the receivable, the risk associated with doubtful receivables is assessed individually or by experience-based statistical methods. Trade receivables also include the value of unbilled receivables for energy already supplied. 1.3.19 Cash and cash equivalents comprise immediately available liquidities and very short-term investments that are readily convertible into a known amount of cash, usually maturing within three months or less of the acquisition date, and with negligible risk of fluctuation in value. Securities held short-term and classified as “Cash equivalents” are recorded at fair value, with changes in fair value included in the heading “Other financial income and expenses”. Trade receivables Cash and cash equivalents

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EDF I Reference Document 2017