COMMUNICATION FROM THE COMMISSION ANNUAL ACCOUNTS OF THE EUROPEAN COMMISSION FINANCIAL YEAR 2012 /* COM/2013/0558 final */





CONTENTS Page CERTIFICATION OF THE ACCOUNTS 3 PART I: FINANCIAL STATEMENTS AND EXPLANATORY NOTES 5 Balance Sheet 8 Statement of Financial Performance 9 Cashflow Statement 10 Statement of Changes in Net Assets 11 Notes to the Financial Statements 12 PART II: REPORTS ON THE IMPLEMENTATION OF THE BUDGET AND EXPLANATORY NOTES 47 CERTIFICATION OF THE ACCOUNTS The annual accounts of the European Commission for the year 2012 have been prepared in accordance with the Financial Regulation applicable to the general budget of the European Union and the accounting rules adopted by myself in my capacity as the Commission's Accounting Officer, as are to be applied by all the institutions and community bodies. I acknowledge my responsibility for the preparation and presentation of the annual accounts of the European Commission in accordance with Article 68 of the Financial Regulation. I have obtained from the authorising officer, who certified its reliability, all the information necessary for the production of the accounts that show the European Commission's assets and liabilities and the budgetary implementation. I hereby certify that based on this information, and on such checks as I deemed necessary to sign off the accounts, I have a reasonable assurance that the accounts present fairly, in all material aspects, the financial position, the results of the operations and the cash-flow of the European Commission. (Signed) Manfred Kraff Accounting Officer 18 July 2013 EUROPEAN COMMISSION FINANCIAL STATEMENTS AND EXPLANATORY NOTES* FINANCIAL YEAR 2012 * It should be noted that due to the rounding of figures into millions of euros, some financial data in the tables below may appear not to add-up CONTENTS Page PART I: FINANCIAL STATEMENTS AND EXPLANATORY NOTES Balance Sheet 8 Statement of Financial Performance 9 Cashflow Statement 10 Statement of Changes in Net Assets 11 Notes to the Financial Statements: 12 1. Significant accounting policies 13 2. Notes to the Balance Sheet 22 3. Notes to the Statement of Financial Performance 39 4. Notes to the Cashflow Statement 43 5. Contingent Assets and Liabilities and other significant disclosures 44 BALANCE SHEET || || || || EUR millions || Note || 31.12.2012 || 31.12.2011 || NON-CURRENT ASSETS || || || || Intangible assets || 2.1 || 61 || 45 || Property, plant and equipment || 2.2 || 2 488 || 2 073 || Investments accounted for using the equity method || 2.3 || 392 || 374 || Financial assets || 2.4 || 60 920 || 43 433 || Receivables and recoverables || 2.5 || 595 || 321 || Pre-financing || 2.6 || 44 487 || 44 723 || || || 108 943 || 90 969 || CURRENT ASSETS || || || || Inventories || 2.7 || 85 || 83 || Financial assets || 2.8 || 1 338 || 2 013 || Receivables and recoverables || 2.9 || 13 922 || 9 349 || Pre-financing || 2.10 || 13 148 || 10 973 || Cash and cash equivalents || 2.11 || 9 278 || 17 361 || || || 37 771 || 39 779 || TOTAL ASSETS || || 146 714 || 130 748 || NON-CURRENT LIABILITIES || || || || Pension and other employee benefits || 2.12 || (41 620) || (34 138) || Provisions || 2.13 || (1 237) || (1 475) || Financial liabilities || 2.14 || (57 038) || (40 989) || Other liabilities || 2.15 || (1 502) || (1 550) || || || (101 397) || (78 152) || CURRENT LIABILITIES || || || || Provisions || 2.16 || (714) || (242) || Financial liabilities || 2.17 || (15) || (5) || Payables || 2.18 || (89 484) || (90 920) || || || (90 213) || (91 167) || TOTAL LIABILITIES || || (191 610) || (169 319) || || || || || NET ASSETS || || (44 896) || (38 571) || || || || || Reserves || 2.19 || 2 254 || 1 888 || Amounts to be called from Member States* || 2.20 || (47 150) || (40 459) || || || || || NET ASSETS || || (44 896) || (38 571) * The European Parliament has adopted a budget on 13 December 2012 which provides for the payment of the Union's current liabilities from own resources to be collected by, or called up from, the Member States in 2013. Additionally, under Article 83 of the Staff Regulations (Council Regulation 259/68 of 29 February 1968 as amended), the Member States shall jointly guarantee the liability for pensions. || STATEMENT OF FINANCIAL PERFORMANCE || || || || || || || EUR millions || Note || 2012 || 2011 OPERATING REVENUE || || || Own resource and contributions revenue || 3.1 || 128 076 || 121 769 Other operating revenue || 3.2 || 6 083 || 4 621 || || 134 159 || 126 390 || || || OPERATING EXPENSES || || || Administrative expenses || 3.3 || (5 221) || (5 062) Operating expenses || 3.4 || (125 008) || (124 241) || || (130 229) || (129 303) || || || (DEFICIT)/SURPLUS FROM OPERATING ACTIVITIES || || 3 930 || (2 913) || || || Financial revenue || 3.5 || 2 084 || 1 400 Financial expenses || 3.6 || (1 897) || (1 312) Movement in pension and other employee benefits liability || || (8 636) || 1 176 Share of net deficit of joint ventures and associates || 3.7 || (489) || (436) || || || ECONOMIC RESULT OF THE YEAR || || (5 008) || (2 085) || CASHFLOW STATEMENT || || || || || EUR millions || Note || 2012 || 2011 || || || Economic result of the year || || (5 008) || (2 085) || || || Operating activities || 4.2 || || Amortisation || || 8 || 6 Depreciation || || 143 || 147 (Reversal of) impairment losses on investments || || 2 || 0 (Increase)/decrease in loans || || (16 074) || (27 798) (Increase)/decrease in receivables and recoverables || || (4 847) || 1 685 (Increase)/decrease in pre-financing || || (1 939) || (1 497) (Increase)/decrease in inventories || || (2) || 0 Increase/(decrease) in provisions || || 234 || 219 Increase/(decrease) in financial liabilities || || 16 059 || 27 776 Increase/(decrease) in other non-current liabilities || || (48) || (93) Increase/(decrease) in payables || || (1 436) || 6 806 Prior year budgetary surplus taken as non-cash revenue || || (1 497) || (4 539) Other non-cash movements || || 178 || (57) || || || Increase/(decrease) in pension and employee benefits liability || || 7 482 || (2 277) || || || Investing activities || 4.3 || || (Increase)/decrease in intangible assets and property, plant and equipment || || (582) || (265) (Increase)/decrease in investments accounted for using the equity method || || (18) || 118 (Increase)/decrease in AFS investments || || (738) || (1 166) || || || NET CASHFLOW || || (8 083) || (3 020) || || || Net increase/(decrease) in cash and cash equivalents || || (8 083) || (3 020) Cash and cash equivalents at the beginning of the year || 2.11 || 17 361 || 20 381 Cash and cash equivalents at year-end || 2.11 || 9 278 || 17 361 STATEMENT OF CHANGES IN NET ASSETS || || || || || || || EUR millions || || Reserves (A) || Amounts to be called from Member States (B) || Net Assets =(A)+(B) Fair value reserve || Other reserves || Accumulated Surplus/(Deficit) || Economic result of the year BALANCE AS AT 31.12.2010 || (66) || 1 803 || (50 646) || 17 019 || (31 890) Movement in Guarantee Fund reserve || || 165 || (165) || || 0 Fair value movements || (16) || || || || (16) Other || || 2 || (43) || || (41) Allocation of the 2010 economic result || || || 17 019 || (17 019) || 0 2010 budget result credited to Member States || || || (4 539) || || (4 539) Economic result of the year || || || || (2 085) || (2 085) BALANCE AS AT 31.12.2011 || (82) || 1 970 || (38 374) || (2 085) || (38 571) Movement in Guarantee Fund reserve || || 168 || (168) || || 0 Fair value movements || 178 || || || || 178 Other || || 20 || (18) || || 2 Allocation of the 2011 economic result || || || (2 085) || 2 085 || 0 2011 budget result credited to Member States || || || (1 497) || || (1 497) Economic result of the year || || || || (5 008) || (5 008) BALANCE AS AT 31.12.2012 || 96 || 2 158 || (42 142) || (5 008) || (44 896) Notes to the Financial Statements* * For further information in addition to that included in the notes below, please also see the 2012 EU consolidated annual accounts. 1. SIGNIFICANT ACCOUNTING POLICIES The European Commission applies, as all other consolidated EU entities do, the EU accounting rules as adopted by the Commission's accounting officer. The significant accounting policies are explained below: 1.1 LEGAL BASIS AND ACCOUNTING RULES The accounts of the European Union (and Commission) are kept in accordance with Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 (OJ L 298 of 26 October 2012), on the financial rules applicable to the general budget of the Union (hereinafter referred to as the 'Financial Regulation') and Commission Delegated Regulation (EU) No 1268/2012 of 29 October 2012 laying down detailed rules of application of this Financial Regulation. In accordance with article 143 of the Financial Regulation, the European Union prepares its financial statements on the basis of accrual-based accounting rules that are based on International Public Sector Accounting Standards (IPSAS). These accounting rules, adopted by the Accounting Officer of the Commission, have to be applied by all the institutions and EU bodies falling within the scope of consolidation in order to establish a uniform set of rules for accounting, valuation and presentation of the accounts with a view to harmonising the process for drawing up the financial statements and consolidation. The accounts are kept in Euro on the basis of the calendar year. 1.2 ACCOUNTING PRINCIPLES The objective of the financial statements is to provide information about the financial position, performance and cashflows of an entity that is useful to a wide range of users. For the EU as a public sector entity, the objectives are more specifically to provide information useful for decision making, and to demonstrate the accountability of the entity for the resources entrusted to it. It is with these goals in mind that the present document has been drawn up. The overall considerations (or accounting principles) to be followed when preparing the financial statements are laid down in EU accounting rule 2 and are the same as those described in IPSAS 1, that is: fair presentation, accrual basis, going concern, consistency of presentation, aggregation, offsetting and comparative information. Preparation of the financial statements in accordance with the above mentioned rules and principles requires management to make estimates that affect the reported amounts of certain items in the balance sheet and statement of financial performance, as well as the disclosures of contingent assets and liabilities. 1.3 CONSOLIDATION The financial statements of the European Commission comprise 5 joint ventures and 4 associates. The Commission accounts are themselves consolidated in the EU consolidated financial statements. Joint ventures A joint venture is a contractual arrangement whereby the European Union and one or more parties (the "venturers") undertake an economic activity which is subject to joint control. Joint control is the contractually agreed sharing of control, directly or indirectly, over an activity embodying service potential. Participations in joint ventures are accounted for using the equity method initially recognised at cost. The European Union's interest in the results of its jointly controlled entities is recognised in the statement of financial performance, and its interest in the movements in reserves is recognised in the reserves. The initial cost plus all movements (further contributions, share of economic results and reserve movements, impairments, and dividends) give the book value of the joint venture in the accounts at the balance sheet date. Unrealised gains and losses on transactions between the European Union and its jointly controlled entities are not material and have therefore not been eliminated. The accounting policies of joint ventures may differ from those adopted by the European Union for like transactions and events in similar circumstances. Associates Associates are entities over which the European Union has, directly or indirectly, significant influence but not control. It is presumed that significant influence is given if the European Union holds directly or indirectly 20% or more of the voting rights. Participations in associates are accounted for using the equity method, initially recognised at cost. The European Union's share of its associates' results is recognised in the statement of financial performance, and its share of movements in reserves is recognised in the reserves. The initial cost plus all movements (further contributions, share of economic results and reserve movements, impairments, and dividends) give the book value of the associate in the accounts at the balance sheet date. Distributions received from an associate reduce the carrying amount of the asset. Unrealised gains and losses on transactions between the European Union and its associates are not material and have therefore not been eliminated. The accounting policies of associates may differ from those adopted by the European Union for like transactions and events in similar circumstances. In cases where the European Union holds 20% or more of an investment capital fund, it does not seek to exert significant influence. Such funds are therefore treated as financial instruments and categorised as available for sale financial assets. 1.4 BASIS OF PREPARATION 1.4.1 Currency and basis for conversion Functional and reporting currency The financial statements are presented in millions of euros, the euro being the European Union's functional and reporting currency. Transactions and balances Foreign currency transactions are translated into euros using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of financial performance. Different conversion methods apply to property, plant and equipment and intangible assets, which retain their value in euros at the rate that applied at the date when they were purchased. Year-end balances of monetary assets and liabilities denominated in foreign currencies are converted into euros on the basis of the exchange rates applying on 31 December: Currency || 31.12.2012 || 31.12.2011 || Currency || 31.12.2012 || 31.12.2011 BGN || 1.9558 || 1.9558 || PLN || 4.0740 || 4.4580 CZK || 25.1510 || 25.7870 || RON || 4.4445 || 4.3233 DKK || 7.4610 || 7.4342 || SEK || 8.5820 || 8.9120 GBP || 0.8161 || 0.8353 || CHF || 1.2072 || 1.2156 HUF || 292.3000 || 314.5800 || JPY || 113.6100 || 100.2000 LVL || 0.6977 || 0.6995 || USD || 1.3194 || 1.2939 LTL || 3.4528 || 3.4528 || || || Changes in the fair value of monetary financial instruments denominated in a foreign currency and classified as available for sale that relate to a translation difference are recognised in the statement of financial performance. Translation differences on non-monetary financial assets and liabilities held at fair value through profit or loss are recognised in the statement of financial performance. Translation differences on non-monetary financial instruments classified as available for sale are included in the fair value reserve. 1.4.2 Use of estimates In accordance with IPSAS and generally accepted accounting principles, the financial statements necessarily include amounts based on estimates and assumptions by management based on the most reliable information available. Significant estimates include, but are not limited to, amounts for employee benefit liabilities, provisions, financial risk on inventories and accounts receivables, accrued income and charges, contingent assets and liabilities, and degree of impairment of intangible assets and property, plant and equipment. Actual results could differ from those estimates. Changes in estimates are reflected in the period in which they become known. 1.5 BALANCE SHEET 1.5.1 Intangible assets Acquired computer software licences are stated at historical cost less accumulated amortisation and impairment losses. The assets are amortised on a straight-line basis over their estimated useful lives. Internally developed intangible assets are capitalised when the relevant criteria of the EU accounting rules are met. The costs capitalisable include all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Costs associated with research activities, non-capitalisable development costs and maintenance costs are recognised as expenses as incurred. 1.5.2 Property, plant and equipment All property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenses that are directly attributable to the acquisition or construction of the asset. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits or service potential associated with the item will flow to the EU and its cost can be measured reliably. Repairs and maintenance costs are charged to the statement of financial performance during the financial period in which they are incurred. Land and works of art are not depreciated as they are deemed to have an indefinite useful life. Assets under construction are not depreciated as these assets are not yet available for use. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: Type of asset || Straight line depreciation rate Buildings || 4% Plant, machinery and equipment || 10% to 25% Furniture || 10% to 25% Fixtures and fittings || 10% to 33% Vehicles || 25% Computer hardware || 25% Other tangible assets || 10% to 33% Gains or losses on disposals are determined by comparing proceeds less selling expenses with the carrying amount of the disposed asset and are included in the statement of financial performance. Leases Leases of tangible assets, where the European Union has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The rental obligations, net of finance charges, are included in other liabilities (non-current and current). The interest element of the finance cost is charged to the statement of financial performance over the lease period so as to produce a constant periodic interest rate on the remaining balance of the liability for each period. The assets held under finance leases are depreciated over the shorter of the assets' useful life and the lease term. Leases where the lessor retains a significant portion of the risks and rewards inherent to ownership are classified as operating leases. Payments made under operating leases are charged to the statement of financial performance on a straight-line basis over the period of the lease. 1.5.3 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation/depreciation and are tested annually for impairment. Assets that are subject to amortisation/depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. Intangible assets and property, plant and equipment residual values and useful lives are reviewed, and adjusted if appropriate, at least once per year. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. If the reasons for impairments recognised in previous years no longer apply, the impairment losses are reversed accordingly. 1.5.4 Investments Participations in Associates and Joint Ventures Participations in associates and joint ventures are accounted for using the equity method. The costs of equity are adjusted to reflect the share of increases or reductions in net assets of the associates and joint ventures that are attributable to the European Union after initial recognition if there are indications of impairment and written down to the lower recoverable amount if necessary. The recoverable amount is determined as described under 1.5.3. If the reason for impairment ceases to apply at a later date, the impairment loss is reversed to the carrying amount that would have been determined had no impairment loss been recognised. Investments in Venture Capital Funds Investments in Venture Capital Funds are classified as available for sale financial assets (see 1.5.5) and accordingly, are carried at fair value with gains and losses arising from changes in the fair value (including translation differences) recognised in the fair value reserve. Since they do not have a quoted market price in an active market, investments in Venture Capital Funds are valued on a line-by-line basis at the lower of cost or attributable net asset value (“NAV”). Unrealised gains resulting from the fair value measurement are recognised through reserves and unrealised losses are assessed for impairment so as to determine whether they are recognised as impairment losses in the statement of financial performance or as changes in the fair value reserve. 1.5.5 Financial assets Classification The European Union classifies their financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held to maturity investments; and available for sale financial assets. The classification of the financial instruments is determined at initial recognition and re-evaluated at each balance sheet date. (i) Financial assets at fair value through profit or loss A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by the European Union. Derivatives are also categorised in this category. Assets in this category are classified as current assets if they are expected to be realised within 12 months of the balance sheet date. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the EU provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in non-current assets, except for maturities within 12 months of the balance sheet date. (iii) Held to maturity investments Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the European Union has the positive intention and ability to hold to maturity. During this financial year, the European Union did not hold any investments in this category. (iv) Available for sale financial assets Available for sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are classified as either current or non-current assets, depending on the time period in which the EU expects to dispose of them which is usually the remaining maturity at the balance sheet date. Investments in unconsolidated entities and other equity investments (e.g. Risk Capital Operations) that are not accounted for using the equity method are also classified as available for sale financial assets. Initial recognition and measurement Purchases and sales of financial assets at fair value through profit or loss, held to maturity and available for sale are recognised on trade-date – the date on which the European Union commits to purchase or sell the asset. Loans are recognised when cash is advanced to the borrowers. Financial instruments are initially recognised at fair value. For all financial assets not carried at fair value through profit or loss transactions costs are added to the fair value at initial recognition. Financial assets carried at fair value through profit or losses are initially recognised at fair value and transaction costs are expensed in the statement of financial performance. The fair value of a financial asset on initial recognition is normally the transaction price (i.e. the fair value of the consideration received). However, when a non-current loan that carries no interest or an interest below market conditions is granted, its fair value can be estimated as the present value of all future cash receipts discounted using the prevailing market rate of interest for a similar instrument with a similar credit rating. Loans granted on borrowed funds are measured at their nominal amount, which is considered to be the fair value of the loan. The reasoning for this is as follows: – The “market environment” for EU lending is very specific and different from the capital market used to issue commercial or government bonds. As lenders in these markets have the opportunity to choose alternative investments, the opportunity possibility is factored into market prices. However, this opportunity for alternative investments does not exist for the EU which is not allowed to invest money on the capital markets; it only borrows funds for the purpose of lending at the same rate. This means that there is no alternative lending or investment option available to the EU for the sums borrowed. Thus, there is no opportunity cost and therefore no basis of comparison with market rates. In fact, the EU lending operation itself represents the market. Essentially, since the opportunity cost "option" is not applicable, the market price does not fairly reflect the substance of the EU lending transactions. Therefore, it is not appropriate to determine the fair value of EU lending with reference to commercial or government bonds. – Furthermore as there is no active market or similar transactions to compare with, the interest rate to be used by the European Union for fair valuing its lending operations under EFSM, BOP and other such loans, should be the interest rate charged. – In addition, for these loans, there are compensating effects between loans and borrowings due to their back-to-back character. Thus, the effective interest for the loan equals the effective interest rate for the related borrowings. The transaction costs incurred by the EU and then recharged to the beneficiary of the loan are directly recognised in the statement of financial performance. Financial instruments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the European Union has transferred substantially all risks and rewards of ownership. Subsequent measurement (i) Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains and losses arising from changes in the fair value of the ‘financial instruments at fair value through profit or loss’ category are included in the statement of financial performance in the period in which they arise. (ii) Loans and receivables and held to maturity investments are carried at amortised cost using the effective interest method. In the case of loans granted on borrowed funds, the same effective interest rate is applied to both the loans and borrowings since these loans have the characteristics of 'back-to-back operations' and the differences between the loan and the borrowing conditions and amounts are not material. The transaction costs incurred by the EU and then recharged to the beneficiary of the loan are directly recognised in the statement of financial performance. (iii) Held to maturity – the EU currently holds no held to maturity investments. (iv) Available for sale financial assets are subsequently carried at fair value. Gains and losses arising from changes in the fair value of available for sale financial assets are recognised in the fair value reserve. When assets classified as available for sale are sold or impaired, the cumulative fair value adjustments previously recognised in the fair value reserve are recognised in the statement of financial performance. Interest on available­for-sale financial assets calculated using the effective interest method is recognised in the statement of financial performance. Dividends on available for sale equity instruments are recognised when the EU's right to receive payment is established. The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the European Union establishes a fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. In cases where the fair value of investments in equity instruments that do not have quoted market price in an active market cannot be reliably measured, these investments are valued at cost less impairment losses. Impairment of financial assets The European Union assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. A financial asset is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss event (or events) has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. (a) Assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables or held to maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the statement of financial performance. If a loan or held to maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the statement of financial performance. (b) Assets carried at fair value In the case of equity investments classified as available for sale, a significant or permanent (prolonged) decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available for sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the statement of financial performance – is removed from reserves and recognised in the statement of financial performance. Impairment losses recognised in the statement of financial performance on equity instruments are not reversed through the statement of financial performance. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the statement of financial performance. 1.5.6 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labour, other directly attributable costs and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. When inventories are held for distribution at no charge or for a nominal charge, they are measured at the lower of cost and current replacement cost. Current replacement cost is the cost the European Union would incur to acquire the asset on the reporting date. 1.5.7 Pre-financing amounts Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be split into a number of payments over a period defined in the particular pre-financing agreement. The float or advance is repaid or used for the purpose for which it was provided during the period defined in the agreement. If the beneficiary does not incur eligible expenditures, he has the obligation to return the pre-financing advance to the European Union. The amount of the pre-financing is reduced (wholly or partially) by the acceptance of eligible costs (which are recognised as an expense) and amounts returned. At year-end, outstanding pre-financing amounts are valued at the original amount(s) paid less: amounts returned, eligible amounts expensed, estimated eligible amounts not yet cleared at year-end, and value reductions. Interest on pre-financing is recognised as it is earned in accordance with the provisions of the relevant agreement. An estimate of the accrued interest revenue, based on the most reliable information, is made at the year-end and included in the balance sheet. 1.5.8 Receivables Receivables are carried at original amount less write-down for impairment. A write-down for impairment of receivables is established when there is objective evidence that the European Union will not be able to collect all amounts due according to the original terms of receivables. The amount of the write-down is the difference between the asset’s carrying amount and the recoverable amount. The amount of the write-down is recognised in the statement of financial performance. A general write-down, based on past experience, is also made for outstanding recovery orders not already subject to a specific write-down. See note 1.5.14 below concerning the treatment of accrued income at year-end. 1.5.9 Cash and cash equivalents Cash and cash equivalents are financial instruments and defined as current assets. They include cash at hand, deposits held at call with banks, other current highly liquid investments with original maturities of three months or less. 1.5.10 Employee benefits Pension obligations The European Union operates defined benefit pension plans. Whilst staff contribute from their salaries one third of the expected cost of these benefits, the liability is not funded. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date. The defined benefit obligation is calculated by actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised immediately in the statement of financial performance. Past-service costs are recognised immediately in statement of financial performance, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period. Post-employment sickness benefits The European Union provides health benefits to its employees through the reimbursement of medical expenses. A separate fund has been created for the day-to-day administration. Both current employees, pensioners, widowers and their beneficiaries benefit from the system. The benefits granted to the "inactives" (pensioners, orphans, etc.) are classified as "Post-Employment Employee Benefits". Given the nature of these benefits, an actuarial calculation is required. The liability in the balance sheet is determined on a similar basis as that for the pension obligations (see above). 1.5.11 Provisions Provisions are recognised when the European Union has a present legal or constructive obligation towards third parties as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognised for future operating losses. The amount of the provision is the best estimate of the expenses expected to be required to settle the present obligation at the reporting date. Where the provision involves a large number of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities (“expected value” method). 1.5.12 Financial liabilities Financial liabilities are classified as financial liabilities at fair value through profit or loss or as financial liabilities carried at amortised cost (borrowings). Borrowings are composed of borrowings from credit institutions and debts evidenced by certificates. They are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred, then subsequently carried at amortised cost using the effective interest method; any difference between proceeds, net of transaction costs, and the redemption value is recognised in the statement of financial performance over the period of the borrowings using the effective interest method. They are classified as non-current liabilities, except for maturities less than 12 months after the balance sheet date. In the case of loans granted on borrowed funds, the effective interest method may not be applied to loans and borrowings, based on materiality considerations. The transaction costs incurred by the European Union and then recharged to the beneficiary of the loan are directly recognised in the statement of financial performance. Financial liabilities categorised at fair value through profit or loss include derivatives when their fair value is negative. They follow the same accounting treatment as financial assets at fair value through profit or loss, see note 1.5.5. 1.5.13 Payables A significant amount of the payables of the EU are not related to the purchase of goods or services – instead they are unpaid cost claims from beneficiaries of grants or other EU funding. They are recorded as payables for the requested amount when the cost claim is received. Upon verification and acceptance of the eligible costs, the payables are valued at the accepted and eligible amount. Payables arising from the purchase of goods and services are recognised at invoice reception for the original amount and corresponding expenses are entered in the accounts when the supplies or services are delivered and accepted by the European Union. 1.5.14 Accrued and deferred income and charges According to the European Union accounting rules, transactions and events are recognised in the financial statements in the period to which they relate. At the end of the accounting period, accrued expenses are recognised based on an estimated amount of the transfer obligation of the period. The calculation of accrued expenses is done in accordance with detailed operational and practical guidelines issued by the Commission which aim at ensuring that the financial statements reflect a true and fair view. Revenue is also accounted for in the period to which it relates. At year-end, if an invoice is not yet issued but the service has been rendered, the supplies have been delivered by the EU or a contractual agreement exists (i.e. by reference to a treaty), an accrued income will be recognised in the financial statements. In addition, at year-end, if an invoice is issued but the services have not yet been rendered or the goods supplied have not yet been delivered, the revenue will be deferred and recognised in the subsequent accounting period. 1.6 STATEMENT OF FINANCIAL PERFORMANCE 1.6.1 Revenue Non-exchange revenue This makes up the vast majority of the EU's revenue and includes mainly direct and indirect taxes and own resource amounts. In addition to taxes the European Union may also receive payments from other parties, such as duties, fines and donations. GNI based resources and VAT resources Revenue is recognised for the period for which the European Commission sends out a call for funds to the Member States claiming their contribution. They are measured at their “called amount”. As VAT and GNI resources are based on estimates of the data for the budgetary year concerned, they may be revised as changes occur until the final data are issued by the Member States. The effect of a change in estimate is included when determining the net surplus or deficit for the period in which the change occurred. Traditional own resources Receivables and related revenues are recognised when the relevant monthly A statements (including duties collected and amounts due that are guaranteed and not contested) are received from the Member States. At the reporting date, revenue collected by the Member States for the period but not yet paid to the European Commission is estimated and recognised as accrued revenue. The quarterly B statements (including duties neither collected nor guaranteed, as well as guaranteed amounts that have been contested by the debtor) received from the Member States are recognised as revenue less the collection costs to which they are entitled (25%). In addition, a value reduction is recognised for the amount of the estimated recovery gap in the statement of financial performance. Fines Revenue from fines is recognised when the EU's decision imposing a fine has been taken and it is officially notified to the addressee. If there are doubts about the undertaking's solvency, a value reduction on the entitlement is recognised. After the decision to impose a fine, the debtors have two months from the date of notification: – either to accept the decision, in which case they must pay the fine within the time limit laid down and the amount is definitively collected by the EU; – or not to accept the decision, in which case they lodge an appeal under EU law. However, even if appealed, the principal of the fine must be paid within the time limit of three months laid down as the appeal does not have suspensory effect (Article 278 of the EU Treaty) or, under certain circumstances and subject to the agreement of the Commission's Accounting Officer, it may present a bank guarantee for the amount instead. If the undertaking appeals against the decision, and has already provisionally paid the fine, the amount is disclosed as a contingent liability. However, since an appeal against an EU decision by the addressee does not have suspensory effect, the cash received is used to clear the receivable. If a guarantee is received instead of payment, the fine remains as a receivable. If it appears probable that the General Court may not rule in favour of the EU, a provision is recognised to cover this risk. If a guarantee had been given instead, then the receivable outstanding is written-down as required. The accumulated interest received by the European Commission on the bank accounts where received payments are deposited is recognised as revenue, and any contingent liability is increased accordingly. Exchange revenue Revenue from the sale of goods and services is recognised when the significant risk and rewards of ownership of the goods are transferred to the purchaser. Revenue associated with a transaction involving the provision of services is recognised by reference to the stage of completion of the transaction at the reporting date. Interest income and expense Interest income and expense are recognised in the statement of financial performance using the effective interest method. This is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. When calculating the effective interest rate, the European Union estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but do not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Dividend income Dividend income is recognised when the right to receive payment is established. 1.6.2 Expense Exchange expenses arising from the purchase of goods and services are recognised when the supplies are delivered and accepted by the European Union. They are valued at original invoice cost. Non-exchange expenses are specific to the EU and account for the majority of its expenses. They relate to transfers to beneficiaries and can be of three types: entitlements, transfers under agreement and discretionary grants, contributions and donations. Transfers are recognised as expenses in the period during which the events giving rise to the transfer occurred, as long as the nature of the transfer is allowed by regulation (Financial Regulation, Staff Regulations, or other regulation) or a contract has been signed authorising the transfer; any eligibility criteria have been met by the beneficiary; and a reasonable estimate of the amount can be made. When a request for payment or cost claim is received and meets the recognition criteria, it is recognised as an expense for the eligible amount. At year-end, incurred eligible expenses due to the beneficiaries but not yet reported are estimated and recorded as accrued expenses. 1.7 CONTINGENT ASSETS AND LIABILITIES 1.7.1 Contingent assets A contingent asset is a possible asset that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the European Union. A contingent asset is disclosed when an inflow of economic benefits or service potential is probable. 1.7.2 Contingent liabilities A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the European Union; or a present obligation that arises from past events but is not recognised because: it is not probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation or, in the rare circumstances where the amount of the obligation cannot be measured with sufficient reliability. 2. NOTES TO THE BALANCE SHEET NON-CURRENT ASSETS 2.1 INTANGIBLE ASSETS || EUR millions || Amount || Gross carrying amount at 31.12.2011 || 88 Additions || 26 Disposals || (9) Transfer between asset categories || 3 Other changes || 5 || Gross carrying amount at 31.12.2012 || 113 || Accumulated amortisation at 31.12.2011 || (43) Amortisation charge for the year || (8) Disposals || 2 Transfer between asset categories || (3) Other changes || 0 || Accumulated amortisation at 31.12.2012 || (52) || Net carrying amount at 31.12.2012 || 61 Net carrying amount at 31.12.2011 || 45 The above amounts relate primarily to computer software. 2.2 PROPERTY, PLANT AND EQUIPMENT (PPE) The increase in PPE of EUR 415 million was mainly driven by an increase in assets under construction. Included under assets under construction at 31 December 2012 are EUR 660 million (2011: EUR 219 million) of assets relating to the Galileo project, the EU's Global Navigation Satellite System, being built with the assistance of the European Space Agency (ESA). An amount of EUR 12 million of non-capitalisable development cost has been recognised as expenses during the period. PROPERTY, PLANT AND EQUIPMENT || || || || || || || || || EUR millions || Land and || Plant and || Furniture and || Computer hardware || Other tangible || Finance leases || Assets under || TOTAL || buildings || equipment || vehicles || || assets || || construction || || || || || || || || || || || || || || || || || Gross carrying amount at 31.12.2011 || 1 258 || 303 || 72 || 254 || 119 || 1 511 || 261 || 3 778 Additions || 6 || 23 || 11 || 20 || 5 || 14 || 486 || 565 Disposals || (26) || (20) || (15) || (32) || (7) || 0 || 0 || (100) Transfers between asset categories || 0 || 5 || 0 || 11 || 0 || (14) || (5) || (3) Other changes || 25 || 2 || 1 || 0 || 1 || 0 || 1 || 30 || || || || || || || || Gross carrying amount at 31.12.2012 || 1 263 || 313 || 69 || 253 || 118 || 1 511 || 743 || 4 270 || || || || || || || || Accumulated depreciation at 31.12.2011 || (633) || (265) || (56) || (207) || (85) || (459) || || (1 705) Depreciation charge for the year || (32) || (18) || (10) || (20) || (9) || (54) || || (143) Depreciation written back || 0 || 0 || 0 || 0 || 0 || 1 || || 1 Disposals || 3 || 20 || 15 || 31 || 6 || 5 || || 80 Transfers between asset categories || 0 || 0 || 0 || (11) || 0 || 14 || || 3 Other changes || (3) || (2) || (1) || (5) || 0 || (7) || || (18) || || || || || || || || Accumulated depreciation at 31.12.2012 || (665) || (265) || (52) || (212) || (88) || (500) || || (1 782) || || || || || || || || NET CARRYING AMOUNT AT 31.12.2012 || 598 || 48 || 17 || 41 || 30 || 1 011 || 743 || 2 488 NET CARRYING AMOUNT AT 31.12.2011 || 625 || 38 || 16 || 47 || 34 || 1 052 || 261 || 2 073 Charges still to be paid in respect of finance leases and similar entitlements are shown in non-current and current liabilities in the balance sheet (see notes 2.15 and 2.18.1). They break down as follows: Finance Leases || EUR millions Description || Cumulative charges (A) || Future amounts to be paid || Total Value || Subsequent expenses on assets || Asset value || Depreciation || Net carrying amount (A+B+C+D) < 1 year || > 1 year || > 5 years || Total Liability (B) || (A+B) || (C) || (A+B+C) || (D) Land and buildings || 267 || 35 || 175 || 938 || 1 148 || 1 415 || 60 || 1 475 || (481) || 994 Other tangible assets || 18 || 7 || 11 || 0 || 18 || 36 || 0 || 36 || (19) || 17 Total at 31.12.2012 || 285 || 42 || 186 || 938 || 1 166 || 1 451 || 60 || 1 511 || (500) || 1 011 Interest element || 66 || 238 || 425 || 729 || Total future minimum lease payments at 31.12.2012 || 108 || 424 || 1 363 || 1 895 || Total future minimum lease payments at 31.12.2011 || 106 || 415 || 1 439 || 1 960 || 2.3 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD || || || EUR millions || Note || 31.12.2012 || 31.12.2011 Participations in joint ventures || 2.3.1 || 42 || 62 Participations in associates || 2.3.2 || 350 || 312 Total investments || || 392 || 374 2.3.1 Participations in joint ventures || EUR millions || GJU || SESAR || ITER || IMI || FCH || Total Amount at 31.12.2011 || 0 || 0 || 0 || 25 || 37 || 62 Contributions || 0 || 70 || 116 || 98 || 54 || 338 Share of net result || 0 || (70) || (106) || (91) || (91) || (358) Amount at 31.12.2012 || 0 || 0 || 10 || 32 || 0 || 42 Participations in joint ventures are accounted for using the equity method. The following carrying amounts are attributable to the European Commission based on its percentage of participation: || || || EUR millions || || 31.12.2012 || 31.12.2011 Non-current assets || || 226 || 211 Current assets || || 106 || 123 Non-current liabilities || || 0 || 0 Current liabilities || || (291) || (314) Revenue || || 8 || 8 Expenses || || (427) || (379) 2.3.2 Participations in associates || || || || EUR millions || EIF || ARTEMIS || Clean Sky || ENIAC || Total Amount at 31.12.2011 || 292 || 0 || 0 || 20 || 312 Contributions || - || 22 || 97 || 16 || 135 Share of net surplus/(deficit) || 9 || (22) || (97) || (22) || (132) Other equity movements || 35 || - || - || - || 35 Amount at 31.12.2012 || 336 || 0 || 0 || 14 || 350 Participations in associates are accounted for using the equity method. The following carrying amounts are attributable to the European Commission based on its percentage of participation: || || || EUR millions || || 31.12.2012 || 31.12.2011 Assets || || 505 || 460 Liabilities || || (191) || (162) Revenue || || 33 || 28 Surplus/(Deficit) || || (177) || (182) European Investment Fund (EIF) The European Investment Fund (EIF) is the European Union's financial institution specialising in providing risk capital and guarantees to SMEs. The Commission has paid in 20% of its participation, the balance being uncalled corresponding to an amount of EUR 720 million. EUR millions || Total EIF capital || Commission subscription Total Share Capital || 3 000 || 900 Paid-in || (600) || (180) Uncalled || 2 400 || 720 2.4 NON-CURRENT FINANCIAL ASSETS || || || EUR millions || Note || 31.12.2012 || 31.12.2011 Available for sale financial assets || 2.4.1 || 3 715 || 2 272 Loans || 2.4.2 || 57 205 || 41 161 Total || || 60 920 || 43 433 2.4.1 Non-current available for sale financial assets || || EUR millions || 31.12.2012 || 31.12.2011 Guarantee Fund (GF)* || 1 327 || 1 475 BUFI investments || 832 || - Risk Sharing Finance Facility (RSFF) || 594 || - Loan Guarantee Instrument for TEN-T projects (LGTT) || 52 || - European Bank for Reconstruction and Development (EBRD) || 188 || 188 Risk Capital Operations || 123 || 134 ETF Start up || 305 || 234 Other available for sale investments || 294 || 241 Total || 3 715 || 2 272 *After elimination of the EFSM bonds In order to better present the economic reality, from 2012 onwards, all available for sale financial assets are presented according to their remaining maturity at the balance sheet date. Assets with a maturity of greater than 1 year at the reporting date are shown as non-current, whereas assets maturing before end 2013 are shown as current (see note 2.8). The above 2012 amount for the Guarantee Fund is, unlike in 2011, shown excluding cash and cash equivalents (2011: EUR 302 million) and the related liability (2011: EUR 1 million). Had the current approach been followed in the 2011 accounts, the comparatives would have been as follows: || || EUR millions || 31.12.2012 || 31.12.2011 Guarantee Fund (GF)* || 1 327 || 973 BUFI investments || 832 || 588 Risk Sharing Finance Facility (RSFF) || 594 || 365 Loan Guarantee Instrument for TEN-T projects (LGTT) || 52 || 47 European Bank for Reconstruction and Development (EBRD) || 188 || 188 Risk Capital Operations || 123 || 134 ETF Start up || 305 || 234 Other available for sale investments || 294 || 241 Total || 3 715 || 2 770 *After elimination of the EFSM bonds 2.4.2 Non-current loans || || || || EUR millions || || Note || 31.12.2012 || 31.12.2011 Loans granted from the EU budget || || 2.4.2.1 || 147 || 151 Loans granted from borrowed funds || || 2.4.2.2 || 57 058 || 41 010 Total || || 57 205 || 41 161 2.4.2.1 Loans granted from the European Union budget || EUR millions Loans with special conditions || Amount Total at 31.12.2011 || 151 New loans || 0 Repayments || (17) Exchange differences || 2 Changes in carrying amount || 11 Total at 31.12.2012 || 147 This item covers loans with special conditions granted at preferential rates as part of co-operation with non-member countries. All amounts fall due more than 12 months after year-end. The effective interest rates on these loans vary between 7.73% and 14.507%. 2.4.2.2 Loans granted from borrowed funds || EUR millions || MFA || Euratom || BOP || EFSM || Total Total at 31.12.2011 || 595 || 451 || 11 625 || 28 344 || 41 015 New loans || 39 || - || - || 15 800 || 15 839 Repayments || (84) || (24) || - || - || (108) Exchange differences || - || - || - || - || - Change in carrying amount || (1) || (2) || (2) || 332 || 327 Total at 31.12.2012 || 549 || 425 || 11 623 || 44 476 || 57 073 Amount due < 1 year || (15) || - || - || - || (15) Amount due > 1 year || 534 || 425 || 11 623 || 44 476 || 57 058 The effective interest rates (expressed as a range of interest rates) were as follows: Loans || 31.12.2012 || 31.12.2011 Macro Financial Assistance (MFA) || 0.298%-4.54% || 1.58513%-4.54% Euratom || 0.431%-5.76% || 1.067%-5.76% Balance of Payment (BOP) || 2.375%-3.625% || 2.375%-3.625% European Financial Stability Mechanism (EFSM) || 2.375%-3.750% || 2.375%-3.50% The European Union (EU) is empowered by the EU Treaty to adopt borrowing programmes to mobilise the financial resources necessary to fulfill its mandate. The European Commission, acting on behalf of the EU, currently operates three main programmes, the European Financial Stability Mechanism (EFSM), Balance of Payments (BOP) assistance and Macro-Financial Assistance (MFA). Additionally, the Euratom legal entity (represented by the Commission) borrows money to lend to both Member and non-Member States to finance projects relating to energy installations. The increase in loans granted from borrowed funds is due to new EFSM loans granted to Ireland and Portugal during 2012. This increase is mirrored by an increase in the Commission's borrowings. For more information on borrowing and lending activities, see note 2.14 and note 7 of the EU consolidated annual accounts. European Financial Stability Mechanism (EFSM) loans – nominal value || EUR millions || Ireland || Portugal || Total Total loans granted || 22 500 || 26 000 || 48 500 Disbursed at 31.12.2011 || 13 900 || 14 100 || 28 000 Disbursed in 2012 || 7 800 || 8 000 || 15 800 Loans disbursed at 31.12.2011 || 21 700 || 22 100 || 43 800 Loans repaid at 31.12.2012 || - || - || - Loans outstanding at 31.12.2012 || 21 700 || 22 100 || 43 800 Undrawn amounts at 31.12.2012 || 800 || 3 900 || 4 700 Balance of Payment (BOP) loans – nominal value || EUR millions || Hungary || Latvia || Romania || Total Total loans granted || 6 500 || 3 100 || 6 400 || 16 000 Loans disbursed at 31.12.2012 || 5 500 || 2 900 || 5 000 || 13 400 Loans repaid at 31.12.2012 || (2 000) || - || - || (2 000) Loans outstanding at 31.12.2012 || 3 500 || 2 900 || 5 000 || 11 400 Undrawn amounts at 31.12.2012 || - || - || 1 400 || 1 400 2.5 NON-CURRENT RECEIVABLES AND RECOVERABLES || EUR millions || 31.12.2012 || 31.12.2011 Member States || 545 || 268 Due from ECSC in liquidation || 48 || 52 Guarantees and deposits || 2 || 1 Total || 595 || 321 Of the total non-current receivables, EUR 593 million (2011: EUR 320 million) relate to non-exchange transactions. The amounts due from Member States relate to non-executed conformity clearance decisions for EAGF and EAFRD. 2.6 NON-CURRENT PRE-FINANCING || || EUR millions || Note || 31.12.2012 || 31.12.2011 Pre-financing || 2.6.1 || 40 772 || 40 625 Prepaid expenses || 2.6.2 || 3 715 || 4 098 Total || 44 487 || 44 723 Guarantees received in respect of pre-financing These are guarantees that the Commission requests from beneficiaries that are not Member States, in certain cases when paying out advance payments (pre-financing). There are two values to disclose for this type of guarantee, the “nominal” and the “on-going” values. For the “nominal” value, the generating event is linked to the existence of the guarantee. For the “on-going” value, the guarantee’s generating event is the pre-financing payment and/or subsequent clearings. At 31 December 2012 the "nominal" value of guarantees received in respect of pre-financing amounted to EUR 1 220 million while the "on-going" value of those guarantees was EUR 955 million (2011: EUR 1 330 million and EUR 1 083 million respectively). 2.6.1 Non-current pre-financing || || EUR millions Management type || 31.12.2012 || 31.12.2011 Direct centralised management || 1 247 || 1 220 Indirect centralised management || 1 042 || 774 Decentralised management || 677 || 697 Shared management || 37 214 || 37 249 Joint management || 592 || 685 Total || 40 772 || 40 625 2.6.2 Non-current prepaid expenses || || EUR millions || 31.12.2012 || 31.12.2011 Financial Engineering Instruments || 2 717 || 3 378 Aid schemes || 998 || 720 Total || 3 715 || 4 098 Under the framework of the structural funds programmes 2007-2013, payments can be made from the EU Budget to Member States so as to contribute to Financial Engineering Instruments (be it in the form of loans, guarantees or equity investments) set up and managed under the responsibility of the Member State. Monies that are unused by these instruments at year-end are the property of the EU (as with standard pre-financing) and are thus treated as an asset on the Commission balance sheet. Amounts included under the Aid Schemes heading are the Commission's estimate of open advances based on information collected from Member States. CURRENT ASSETS 2.7 INVENTORIES || EUR millions || 31.12.2012 || 31.12.2011 Scientific materials || 71 || 67 Other || 14 || 16 Total || 85 || 83 2.8 CURRENT FINANCIAL ASSETS || || || EUR millions || Note || 31.12.2012 || 31.12.2011 Available for sale financial assets || 2.8.1 || 1 300 || 2 005 Loans || 2.8.2 || 38 || 8 Total || || 1 338 || 2 013 2.8.1 Current available for sale financial assets The following table provides an overview of available for sale financial assets with a remaining maturity before end 2013: || || EUR millions || 31.12.2012 || 31.12.2011 Guarantee Fund (GF) || 268 || - BUFI investments || 845 || 1 358 Risk Sharing Finance Facility (RSFF) || 160 || 547 Loan Guarantee Instrument for TEN-T projects (LGTT) || 23 || 97 Other || 4 || 3 Total || 1 300 || 2 005 As explained under note 2.4.1, the presentation of available for sale financial assets has been changed from 2012 onwards. Had the same approach been followed in the 2011 accounts, the comparatives would have been as follows: || || EUR millions || 31.12.2012 || 31.12.2011 Guarantee Fund (GF) || 268 || 201 BUFI investments || 845 || 770 Risk Sharing Finance Facility (RSFF) || 160 || 182 Loan Guarantee Instrument for TEN-T projects (LGTT) || 23 || 49 Other || 4 || 3 Total || 1 300 || 1 205 2.8.2 Current loans These amounts represent mainly loans with remaining final maturities less than 12 months after the balance sheet date (see note 2.4.2.2 for more details). 2.9 CURRENT RECEIVABLES AND RECOVERABLES || EUR millions || Note || 31.12.2012 || 31.12.2011 Fines || 2.9.1 || 4 090 || 3 125 Member States || 2.9.2 || 6 222 || 2 593 Accrued income and deferred charges || 2.9.3 || 3 214 || 3 139 Other receivables and recoverables || || 396 || 492 Total || || 13 922 || 9 349 The total above contains an estimated EUR 13 842 million (2011: EUR 9 019 million) relating to non-exchange transactions. 2.9.1 Fines This concerns amounts to be recovered relating to fines issued by the Commission of EUR 4 357 million (2011: EUR 3 369 million) less a write-down of EUR 267 million (2011: EUR 244 million). Guarantees totalling EUR 2 513 million had been received for the fines outstanding at 31 December 2012 (2011: EUR 3 012 million). It should be noted that EUR 1 471 million of these receivables were due for payment after 31 December 2012. 2.9.2 Member States || EUR millions || 31.12.2012 || 31.12.2011 EAGF and Rural Development receivables: || || EAGF || 1 172 || 1 439 EAFRD || 14 || 23 TRDI || 44 || 37 SAPARD || 136 || 142 Write-down || (814) || (771) Total || 552 || 870 VAT paid and recoverable || 15 || 19 Own resources: || || Established in the A account || 45 || 29 Established in the separate account || 1 294 || 1 263 Own resources to be received || 3 617 || 0 Write-down || (773) || (779) Other || 16 || 114 Total || 4 199 || 627 Other receivables from Member States: || || Pre-financing recovery expected || 1 220 || 963 Other || 236 || 114 Total || 1 456 || 1 077 Total || 6 222 || 2 593 The significant increase in receivables from Member States is mainly explained by EUR 3 617 million of own resources to be received at year-end relating to the Amending Budgets 5 and 6/2012. These Amending Budgets were adopted on 21 November 2012 and 12 December 2012 respectively. According to Article 10 of Regulation 1150/2000 the entries corresponding to the readjustments of GNI contributions were carried out on the first working day of January 2013. 2.9.3 Accrued income and deferred charges || EUR millions || 31.12.2012 || 31.12.2011 Accrued income || 2 988 || 2 939 Deferred charges || 215 || 182 Other || 11 || 18 Total || 3 214 || 3 139 The main amount under this heading is accrued income. || EUR millions || 31.12.2012 || 31.12.2011 Own resources || 2 388 || 2 644 Agricultural assigned revenue Nov and Dec || 218 || 111 Structural Funds: financial corrections || 276 || 16 Other accrued income || 106 || 168 Total accrued income || 2 988 || 2 939 2.10 CURRENT PRE-FINANCING || || EUR millions || Note || 31.12.2012 || 31.12.2011 Pre-financing || 2.10.1 || 9 458 || 8 055 Prepaid expenses || 2.10.2 || 3 690 || 2 918 Total || 13 148 || 10 973 2.10.1 Current pre-financing || || EUR millions Management type || 31.12.2012 || 31.12.2011 Direct centralised management || 3 369 || 3 092 Indirect centralised management || 3 936 || 3 069 Decentralised management4 || 301 || 330 Shared management || 1 008 || 761 Joint management || 844 || 803 Total || 9 458 || 8 055 The current pre-financing balance has two distinct components: the gross pre-financing and the accruals made on this pre-financing (made to reflect the related expenditure estimated to have been incurred at year-end). Both elements have to be taken into consideration for a proper analysis of the variation of the current net pre-financing balance from one year to another. On the one hand, the year 2012 marked a further decrease of EUR 3 billion in gross current pre-financing under shared management due to the significant advancement in the closure process of the previous programming period 2000-2006. On the other hand, the accruals on this pre-financing have decreased by EUR 3.3 billion, which led to an overall increase of EUR 0.3 billion in the net current pre-financing. The reason for these movements lies in the overlapping of the previous programming period 2000-2006 (which is now in its closure phase) with the current programming period 2007-2013. Whereas pre-financing related to the previous programming period is estimated to have been entirely used (i.e. net balance zero), the pre-financing of the current programming period is estimated to be only partially used as at 31.12.2012. The remaining part is estimated to be used in 2013 or later. A similar situation is noted for direct centralised management, where the gross pre-financing has decreased by EUR 741 million, while the net pre-financing has slightly increased by EUR 277 million. 2.10.2 Current prepaid expenses || || EUR millions || 31.12.2012 || 31.12.2011 Financial Engineering Instruments || 1 358 || 1 126 Aid Schemes || 2 332 || 1 792 Total || 3 690 || 2 918 2.11 CASH AND CASH EQUIVALENTS || || EUR millions || Note || 31.12.2012 || 31.12.2011 Unrestricted cash: || 2.11.1 || || Accounts with Treasuries and Central Banks || || 2 203 || 7 369 Current accounts || || 106 || 220 Imprest accounts || || 3 || 3 Transfers (cash in transit) || || (1) || (10) Total || || 2 311 || 7 582 Cash belonging to financial instruments || 2.11.2 || 1 845 || 1 459 Restricted cash || 2.11.3 || 5 122 || 8 320 Total || || 9 278 || 17 361 2.11.1 Unrestricted cash Unrestricted cash covers all the funds which the Commission keeps in its accounts in each Member State and EFTA country (treasury or central bank), as well as in current accounts, imprest accounts and petty cash. The significant decrease in unrestricted cash was mainly caused by a decrease in the accounts with treasuries and central banks. The ending balance of 2012 was significantly lower than the ending balance of 2011 due to the high budget execution rate for 2012. Moreover, additional cash resources related to the Amending Budget 5/2012 and the Amending Budget 6/2012 were only received in 2013. 2.11.2 Cash belonging to financial instruments Amounts shown under this heading are mainly current deposits and other cash equivalents managed by fiduciaries on behalf of the Commission for the purpose of implementing particular financial instruments programmes funded by the EU budget. This cash can thus only be used in the financial instruments programme concerned. At year-end, EUR 100 million had been committed to, but not yet been drawn down by the other parties. As explained under note 2.4.1, the presentation of available for sale financial assets and the related cash and cash equivalents has been changed from 2012 onwards. In 2012, this heading includes the cash and cash equivalents of the Guarantee Fund whereas the 2011 total does not include the EUR 302 million cash and cash equivalents of the Guarantee Fund for 2011, which had been shown under non-current AFS assets. Had the new presentation, including showing cash belonging to all financial instruments on a separate line, been followed in the 2011 accounts, the comparatives would have been EUR 85 million for current accounts and EUR 1 896 million for cash belonging to financial instruments. 2.11.3 Restricted cash Restricted cash refers to amounts received in connection with fines issued by the Commission for which the case is still open. These are kept in specific deposit accounts that are not used for any other activities. In case an appeal has been lodged or where it is unknown if an appeal will be made by the other party the underlying amount is shown as contingent liability in note 5.2. The decrease in restricted cash is due to two main reasons: on the one hand there were a number of final decisions by the Court of Justice which concerned significant amounts, and on the other hand, there was an increased use made of the specifically created fund for fines (BUFI). Since January 2010, all provisionally cashed fines are managed by the Commission in this fund and invested in financial instruments categorised as available for sale (see notes 2.4.1 and 2.8.1). NON-CURRENT LIABILITIES 2.12 PENSION AND OTHER EMPLOYEE BENEFITS || EUR millions || 31.12.2012 || 31.12.2011 Pensions – Staff || 37 528 || 30 617 Pensions – Members of the Commission || 85 || 80 Joint Sickness Insurance Scheme || 4 007 || 3 441 Total || 41 620 || 34 138 The significant increase in the pension liability is explained by the sizeable decrease in the discount rate applied, resulting in a large actuarial loss for the year. 2.12.1 Pensions – Staff In accordance with Article 83 of the Staff Regulations, the payment of the benefits provided for in the staff pension scheme (PSEO: Pension Scheme of European Officials) constitutes a charge to the EU's budget. The scheme is not funded, but the Member States guarantee the payment of these benefits collectively according to the scale fixed for the financing of this expense. In addition, officials contribute one third to the long-term financing of this scheme via a compulsory contribution. The liabilities of the pension scheme were assessed on the basis of the number of staff and retired staff at 31 December 2012 and on the rules of the Staff Regulations applicable at this date. This valuation was carried out in accordance with the methodology of IPSAS 25 (and therefore also EU accounting rule 12). The method used to calculate this liability is the projected unit credit method. The main actuarial assumptions available at the valuation date and used on the valuation were as follows: || Actuarial Assumptions – staff pension liability || 31.12.2012 || 31.12.2011 Nominal discount rate || 3.6% || 4.9% Expected inflation rate || 2.0% || 1.8% Real discount rate || 1.6% || 3.0% Probability of marriage: Man/Woman || 84%/38% || 84%/38% General Salary Growth/pension revaluation || 0% || 0% 2008 International Civil Servants Life Table || Yes || Yes || EUR millions Movement in Gross Employee Benefits liability || Staff pension liability || Sickness Insurance Gross Liability at 31.12.2011 || 34 233 || 3 711 Service/normal cost || 1 144 || - Interest cost || 1 043 || - Benefits paid || (1 243) || - Actuarial losses || 6 691 || 567 Change due to newcomers || 93 || - Gross Liability at 31.12.2012 || 41 961 || 4 278 Correction coefficients applied to pensions || 1 022 || N/A Deduction of taxes on pensions || (5 455) || N/A Plan assets || N/A || (271) Net liability at 31.12.2012 || 37 528 || 4 007 2.12.2 Joint Sickness Insurance Scheme A valuation is also made for the estimated liability that the EU has regarding its contributions to the Joint Sickness Insurance Scheme in relation to its retired staff. The gross liability has been valued at EUR 4 278 million (2011: 3 711 million) and plan assets of EUR 271 million (2011: 270 million) are deducted from the gross liability to arrive at the net amount. The discount rate and the general salary growth used in the calculation are the same as those used in the staff pension valuation, hence the significant increase in the liability. 2.13 NON-CURRENT PROVISIONS || || || EUR millions || Amount at 31.12.2011 || Additional provisions || Unused amounts reversed || Amounts used || Transfer to current || Change in estimation || Amount at 31.12.2012 Legal cases || 366 || 58 || (241) || (53) || 0 || 0 || 130 Nuclear site dismantling || 1 005 || 0 || 0 || (3) || (29) || 24 || 997 Financial || 100 || 38 || 0 || 0 || (33) || 3 || 108 Other || 4 || 0 || (1) || (1) || (1) || 1 || 2 Total || 1 475 || 96 || (242) || (57) || (63) || 28 || 1 237 The decrease in the non-current provisions balance is mainly due to a decrease in the provisions for legal cases following the closure of an EAGF court case in 2012. Nuclear site dismantlement This provision covers the estimated costs of the decommissioning of the JRC nuclear facilities and waste management programme. It is based on a study made by a consortium of independent experts. 2.14 NON-CURRENT FINANCIAL LIABILITIES || || EUR millions || Note || 31.12.2012 || 31.12.2011 Borrowings || 2.14.1 || 57 058 || 41 010 Elimination Guarantee Fund* || || (20) || (21) Total || || 57 038 || 40 989 * The Guarantee Fund holds EFSM bonds issued by the Commission, so these need to be eliminated. 2.14.1 Non-current borrowings || EUR millions || MFA || Euratom || BOP || EFSM || Total Total at 31.12.2011 || 595 || 451 || 11 625 || 28 344 || 41 015 New borrowings || 39 || - || - || 15 800 || 15 839 Repayments || (84) || (24) || - || - || (108) Exchange differences || - || - || - || - || - Changes in carrying amount || (1) || (2) || (2) || 332 || 327 Total at 31.12.2012 || 549 || 425 || 11 623 || 44 476 || 57 073 Amount due < 1 year || (15) || 0 || 0 || 0 || (15) Amount due > 1 year || 534 || 425 || 11 623 || 44 476 || 57 058 This heading includes borrowings due by the European Commission maturing in over one year. The changes in carrying amount correspond to the change in accrued interests. The effective interest rates (expressed as a range of interest rates) were as follows: Borrowings || 31.12.2012 || 31.12.2011 Macro Financial Assistance (MFA) || 0.298%-4.54% || 1.58513%-4.54% Euratom || 0.351%-5.6775% || 0.867%-5.6775% BOP || 2.375%-3.625% || 2.375%-3.625% EFSM || 2.375%-3.750% || 2.375%-3.50% For more information on borrowing and lending activities, see Note 7 of the EU consolidated annual accounts. 2.15 OTHER NON-CURRENT LIABILITIES || EUR millions || 31.12.2012 || 31.12.2011 Finance Leasing debts || 1 124 || 1 155 Buildings paid for in instalments || 352 || 367 Other || 26 || 28 Total || 1 502 || 1 550 CURRENT LIABILITIES 2.16 CURRENT PROVISIONS || || || EUR millions || Amount at 31.12.2011 || Additional provisions || Unused amounts reversed || Amounts used || Transfers from non-current || Change in estimation || Amount at 31.12.2012 Legal cases || 10 || 217 || (1) || (4) || 0 || 0 || 222 Nuclear site dismantlement || 29 || 0 || 0 || (29) || 29 || 0 || 29 Financial || 165 || 30 || 0 || (44) || 33 || 4 || 188 Other || 38 || 271 || (31) || (4) || 1 || 0 || 275 Total || 242 || 518 || (32) || (81) || 63 || 4 || 714 2.17 CURRENT FINANCIAL LIABILITIES This heading relates to the portion of non-current borrowings (see note 2.14) that mature during the 12 months following the balance sheet date. 2.18 PAYABLES || || EUR millions || Note || 31.12.2012 || 31.12.2011 Current portion of non-current liabilities || 2.18.1 || 57 || 53 Payables || 2.18.2 || 21 351 || 22 110 Accrued charges and deferred income || 2.18.3 || 68 076 || 68 757 Total || || 89 484 || 90 920 2.18.1 Current portion of non-current liabilities || EUR millions || 31.12.2012 || 31.12.2011 Finance leasing liabilities || 42 || 39 Other || 15 || 14 Total || 57 || 53 2.18.2 Current payables || || EUR millions || Type || 31.12.2012 || 31.12.2011 Member States || 23 020 || 22 189 Suppliers and other || 1 506 || 1 421 Estimated non-eligible amounts and pending pre-payments || (3 175) || (1 500) Total || 21 351 || 22 110 Member States The primary amounts here relate to unpaid cost claims for Structural Fund actions; EUR 5.6 billion for ESF and EUR 15.6 billion for ERDF and Cohesion Fund (EUR 5.8 billion and EUR 14 billion respectively in 2011). 2.18.3 Accrued charges and deferred income || EUR millions || 31.12.2012 || 31.12.2011 Accrued charges || 67 914 || 68 302 Deferred income || 157 || 449 Amounts related to consolidated entities || 5 || 6 Total || 68 076 || 68 757 The split of accrued charges is as follows: || EUR millions || 31.12.2012 || 31.12.2011 Agriculture and Rural Development: || || EAGF: Direct aid period 16/10 to 31/12 || 33 040 || 33 774 EAGF: Direct Aid – other entitlements || 11 492 || 10 701 EAGF: Sugar restructuring || 0 || 224 EAGF: Other || 1 || 23 EAFRD || 12 497 || 12 127 Total || 57 030 || 56 849 Structural Actions: || || EFF/FIFG || 66 || 56 ERDF and Cohesion fund || 4 359 || 4 791 ISPA || 382 || 172 ESF || 1 378 || 1 687 Total || 6 185 || 6 706 Other accrued charges: || || R&D || 1 077 || 1 157 Other || 3 622 || 3 590 Total || 4 699 || 4 747 Total accrued charges || 67 914 || 68 302 NET ASSETS 2.19 RESERVES || EUR millions || 31.12.2012 || 31.12.2011 Fair value reserve || 96 || (82) Guarantee Fund reserve || 2 079 || 1 911 Other reserves || 79 || 59 Total || 2 254 || 1 888 The reserve of the Guarantee Fund reflects the 9% target amount of the outstanding amounts guaranteed by the Fund that is required to be kept as assets. 2.20 AMOUNTS TO BE CALLED FROM MEMBER STATES || EUR millions || Amount Amounts to be called from Member States at 31.12.2011 || 40 459 Return of 2011 budget surplus to Member States || 1 497 Movement in Guarantee Fund reserve || 168 Other reserve movements || 18 Economic result of the year || 5 008 Total amounts to be called from Members States at 31.12.2012 || 47 150 This amount represents that part of the expenses already incurred by the Commission up to 31 December 2012 that must be funded by future budgets. Many expenses are recognised under accrual accounting rules in the year N although they may be actually paid in year N+1 (or later) and funded using the budget of year N+1 (or later). The inclusion in the accounts of these liabilities coupled with the fact that the corresponding amounts are financed from future budgets, results in liabilities greatly exceeding assets at the year-end. The most significant amounts to be highlighted are the EAGF activities. The majority of the amounts to be called are in fact paid by the Member States in less than 12 months after the end of the financial year in question as part of the budget of the following year. It is essentially only the employee benefits obligations of the Commission towards its staff which are paid out over a longer period, noting that the funding of the pension payments by the annual budgets is guaranteed by the Member States. It should also be noted that the above has no effect on the budget result – budget revenue should always equal or exceed budget expenditure and any excess of revenue is returned to Member States. 3. NOTES TO THE STATEMENT OF FINANCIAL PERFORMANCE 3.1 OWN RESOURCE AND CONTRIBUTIONS REVENUE || || EUR millions || 2012 || 2011 Own resource revenue: GNI resources || 98 061 || 88 442 Traditional own resources: || || Customs duties || 16 087 || 16 528 Sugar levies || 157 || 161 VAT resources || 14 871 || 14 763 Total || 129 176 || 119 894 Budgetary adjustments || (1 402) || 1 627 Contributions of third countries (incl. EFTA countries) || 302 || 248 Total || 128 076 || 121 769 Own resources revenue is the primary element of the European Commission’s operating revenue. Thus the bulk of expenses is financed by own resources as other revenue represents only a minor part of the total financing. The increase in own resources and contributions revenue in 2012 compared to 2011 is in line with the increase in the budget between the years. 3.2 OTHER OPERATING REVENUE || || EUR millions || 2012 || 2011 Fines || 1 884 || 868 Agricultural levies || 87 || 65 Recovery of expenses: || || Direct centralised management || 62 || 76 Indirect centralised management || 30 || 17 Decentralised management || 27 || 106 Joint management || 8 || 3 Shared management || 1 376 || 845 Total || 1 503 || 1 047 Revenue from administrative operations: || || Staff || 890 || 878 Property, plant and equipment related revenue || 18 || 25 Other administrative revenue || 164 || 158 Total || 1 072 || 1 061 Miscellaneous operating revenue: || || Adjustments/provisions || 274 || 51 Exchange gains || 328 || 469 Other || 935 || 1 060 Total || 1 537 || 1 580 Total || 6 083 || 4 621 The increase in other operating revenue compared to 2011 of EUR 1 462 million is mainly driven by an increase in revenue relating to fines (EUR 1 016 million). A high value fine case in 2012 relating to TV and computer monitor tubes contributed to this increase. 3.3 ADMINISTRATIVE EXPENSES || || EUR millions || 2012 || 2011 Staff expenses || 3 197 || 3 080 Depreciation and impairment || 155 || 166 Other administrative expenses || 1 869 || 1 816 Total || 5 221 || 5 062 Included under this heading are expenses of EUR 151 million (2011: EUR 153 million) relating to operating leases – amounts committed to be paid during the remaining term of these lease contracts are as follows: || || || || || EUR millions Description || Future amounts to be paid < 1 year || 1- 5 years || > 5 years || Total Buildings || 129 || 446 || 459 || 1 034 IT materials and other equipment || 3 || 4 || 0 || 7 Total || 132 || 450 || 459 || 1 041 3.4 OPERATING EXPENSES || || EUR millions || 2012 || 2011 Primary operating expenses: || || Direct centralised management || 10 728 || 11 197 Indirect centralised management || 4 218 || 4 137 Decentralised management || 1 019 || 766 Shared management || 106 378 || 104 068 Joint management || 1 819 || 1 714 Total || 124 162 || 121 882 Other operating expenses: || || Adjustments/provisions || 425 || 243 Exchange losses || 265 || 368 Other || 156 || 1 748 Total || 846 || 2 359 Total || 125 008 || 124 241 The main elements of operating expenses above cover the following areas: agriculture and rural development (EUR 57 billion), regional development and cohesion (EUR 39 billion), employment and social affairs (EUR 11 billion), research and communication networks, content and technology (EUR 6 billion) and external relations (EUR 3 billion). In 2011, the item other (under other operating expenses) mainly comprised a correction of fines issued in previous years totalling EUR 1 471 million. Included under administrative and operating expenses are expenses relating to research and development as follows: || || EUR millions Research and Development costs recognised as expense || 2012 || 2011 Research costs || 322 || 319 Non-capitalised development costs || 58 || 116 Total || 380 || 435 3.5 FINANCIAL REVENUE || || EUR millions || 2012 || 2011 Dividend income || 12 || 5 Interest income: || || On pre-financing || 28 || 40 On late payments || 242 || 89 On available for sale assets || 58 || 68 On loans || 1 543 || 905 On cash and cash equivalents || 20 || 118 Total || 1 891 || 1 220 Other financial income: || || Realised gain on sale of financial assets || 12 || 3 Other || 160 || 169 Total || 172 || 172 Exchange gains || 9 || 3 Total || 2 084 || 1 400 The increase in financial revenue is mainly explained by an increase in interest income on loans. This increase is in line with the increased balance of the EFSM loans (see notes 2.4.2.2 and 2.14.1). As these loans are back-to-back loans, a similar increase was also noted in interest expenses on loans (see note 3.6). The decrease in income on cash and cash equivalents can be explained by significant diminution of market interest rates recorded in 2012. The category which was impacted most is interest from fines provisionally cashed. In this specific category, the combined effect of interest rate decrease and an important number of fines accounts closed in 2012 led to the diminution of interest income by approximately EUR 81 million. 3.6 FINANCIAL EXPENSES || || EUR millions || 2012 || 2011 Interest expenses: || || Leasing || 65 || 67 On borrowings || 1 528 || 888 Other || 21 || 30 Total || 1 614 || 985 Other financial expenses: || || Adjustments to financial provisions || 75 || 74 Expenses relating to financial instruments managed by fiduciaries || 43 || 47 Impairment losses on AFS financial assets || 7 || 12 Realised loss on sale of financial assets || 4 || 3 Other || 140 || 142 Total || 269 || 278 Exchange losses || 14 || 49 Total || 1 897 || 1 312 3.7 SHARE OF NET DEFICIT OF JOINT VENTURES AND ASSOCIATES In accordance with the equity method of accounting, the Commission includes in its statement of financial performance its share of the net deficit of its joint ventures and associates (see also notes 2.3.1 and 2.3.2). 3.8 REVENUE FROM NON-EXCHANGE TRANSACTIONS In 2012, EUR 133 882 million revenue from non-exchange transactions has been recognised in the economic outturn account (2011: 127 243 million). 3.9 SEGMENT REPORTING || || || EUR millions || Activities within the EU || Activities outside the EU || Services and Other || Total Fines || 1 884 || - || - || 1 884 Agricultural levies || 87 || - || - || 87 Recovery of expenses || 1 444 || 59 || - || 1 503 Revenue from administrative operations || 78 || 1 || 993 || 1 072 Miscellaneous operating revenue || 1 052 || 90 || 395 || 1 537 OTHER OPERATING REVENUE || 4 545 || 150 || 1 388 || 6 083 Administrative expenses: || (2 276) || (628) || (2 317) || (5 221) Staff expenses || (1 550) || (317) || (1 330) || (3 197) Intangible assets and PPE related expenses || (43) || 1 || (113) || (155) Other administrative expenses || (683) || (312) || (874) || (1 869) Operating expenses: || (118 210) || (5 989) || (809) || (125 008) Direct centralised management || (6 997) || (3 572) || (159) || (10 728) Indirect centralised management || (3 762) || (422) || (34) || (4 218) Decentralised management || (494) || (525) || 0 || (1 019) Shared management || (106 463) || 82 || 3 || (106 378) Joint management || (269) || (1 550) || 0 || (1 819) Other operating expenses || (225) || (2) || (619) || (846) TOTAL OPERATING EXPENSES || (120 486) || (6 617) || (3 126) || (130 229) Net operating expenses || (115 941) || (6 467) || (1 738) || (124 146) Own resource and contributions revenue || || || || 128 076 Surplus from operating activities || || || || 3 930 Net financial revenue || || || || 187 Movement in pension and other employee benefits liability || || (8 636) Share of associates/joint ventures deficit || || || || (489) Economic result of the year || || || || (5 008) 4. NOTES TO THE CASHFLOW STATEMENT 4.1 PURPOSE AND PREPARATION OF THE CASHFLOW STATEMENT Cash flow information is used to provide a basis for assessing the ability of the Commission to generate cash and cash equivalents, and its needs to utilise those cash flows. The cashflow statement is prepared using the indirect method. This means that the net surplus or deficit for the financial year is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of revenue or expense associated with investing cash flows. Cash flows arising from transactions in a foreign currency are recorded in the European Commission’s reporting currency (Euro), by applying to the foreign currency amount the exchange rate between the euro and the foreign currency at the date of the cash flow. The cashflow statement presented reports cash flows during the period classified by operating and investing activities (the Commission does not have financing activities). 4.2 OPERATING ACTIVITIES Operating activities are the activities of the Commission that are not investing activities. These are the majority of the activities performed. Loans granted to beneficiaries (and the related borrowings, when applicable) are not considered as investing (or financing) activities as they are part of the general objectives and thus daily operations of the Commission. Operating activities also include investments such as EIF, EBRD and venture capital funds. Indeed, the objective of these activities is to participate in the achievement of policy targeted outcomes. 4.3 INVESTING ACTIVITIES Investing activities are the acquisition and disposal of intangible assets and property, plant and equipment and of other investments which are not included in cash equivalents. Investing activities do not include loans granted to beneficiaries. The objective is to show the real investments made by the Commission. 5. CONTINGENT ASSETS AND LIABILITIES AND OTHER SIGNIFICANT DISCLOSURES 5.1 CONTINGENT ASSETS || || || EUR millions || || 31.12.2012 || 31.12.2011 Guarantees received: || || || Performance guarantees || || 232 || 236 Other guarantees || || 2 || 2 Other contingent assets || || 12 || 15 Total || || 246 || 253 Performance guarantees are requested to ensure that beneficiaries of Commission funding meet the obligations of their contracts with the Commission. 5.2 CONTINGENT LIABILITIES || || || EUR millions || Note || 31.12.2012 || 31.12.2011 Guarantees given || 5.2.1 || 22 317 || 24 394 Fines || 5.2.2 || 6 378 || 8 951 EAGF, rural development and pre-accession || 5.2.3 || 1 188 || 2 345 Cohesion policy || 5.2.4 || 546 || 318 Legal cases and other disputes || 5.2.5 || 78 || 187 Other contingent liabilities || || 1 || 2 Total || || 30 508 || 36 197 All contingent liabilities, except those relating to fines, would be financed, should they fall due, by the EU budget in the years to come. 5.2.1 Guarantees given || EUR millions || 31.12.2012 || 31.12.2011 On loans granted by the EIB from its own resources: 65% guarantee || 18 683 || 20 362 70% guarantee || 1 654 || 1 992 75% guarantee || 383 || 534 100% guarantee || 594 || 724 Total || 21 314 || 23 612 Other guarantees given || 1 003 || 782 Total || 22 317 || 24 394 The EU budget guarantees loans signed and granted by the EIB from its own resources to third countries (including loans granted to Member States before accession). However, the EU's guarantee is limited to a percentage of the ceiling of the credit lines authorised: 65% (for the mandate 2000-2007), 70%, 75% or 100%. For the mandate 2007-2013, the EU's guarantee is limited to 65% of the outstanding balances, not on the credit lines authorised. Where the ceiling is not reached, the EU guarantee covers the full amount. The above 2011 amount for the 65% guarantee does not take the difference in calculation with regard to the 2000-2007 and 2007-2013 mandates into account. Had the 2011 amount been calculated based on this differentiation, the amount to be disclosed would have been EUR 17 423 million. Other guarantees given relate mainly to the Risk Sharing Finance Facility (EUR 948 million) and the Loan Guarantee Instrument for Ten-T projects (EUR 39 million). For more information on these see note 2.4.1. 5.2.2 Fines These amounts concern fines imposed by the Commission for infringement of competition rules that have been provisionally paid and where either an appeal has been lodged or where it is unknown if an appeal will be made. The contingent liability will be maintained until a decision by the Court of Justice on the case is final. Interest earned on provisional payments is included in the economic result of the year and also as a contingent liability to reflect the uncertainty of the Commission’s title to these amounts. 5.2.3 EAGF, rural development and pre-accession These are contingent liabilities towards the Member States connected with the EAGF conformity decisions, rural development and pre-accession financial corrections pending judgement of the Court of Justice. The determination of the final amount of the liability and the year in which the effect of successful appeals will be charged to the budget will depend on the length of the procedure before the Court. 5.2.4 Cohesion policy These are contingent liabilities towards the Member States in conjunction with actions under cohesion policy awaiting the oral hearing date or pending judgement of the Court of Justice. 5.2.5 Legal cases and other disputes This heading relates to actions for damages currently being brought against the Commission, other legal disputes and the estimated legal costs. It should be noted that in an action for damages under Article 288 EC the applicant must demonstrate a sufficiently serious breach by the institution of a rule of law intended to confer rights on individuals, real harm suffered by the applicant, and a direct causal link between the unlawful act and the harm. 5.3 OTHER SIGNIFICANT DISCLOSURES 5.3.1 Outstanding commitments not yet expensed || EUR millions || 31.12.2012 || 31.12.2011 Outstanding commitments not yet expensed || 174 070 || 164 197 The amount disclosed above is the budgetary RAL ("Reste à Liquider") less related amounts that have been included as expenses in the 2012 statement of financial performance. The budgetary RAL is an amount representing the open commitments for which payments and/or de-commitments have not yet been made. This is the normal consequence of the existence of multi-annual programmes. At 31 December 2012 the budgetary RAL totalled EUR 217 222 million (2011: EUR 207 046 million). 5.3.2 Significant legal commitments || EUR millions || 31.12.2012 || 31.12.2011 Structural actions || 71 775 || 142 916 Protocol with Mediterranean countries || 264 || 264 Fisheries agreements || 173 || 37 Galileo programme || 143 || 320 GMES programme || 233 || 400 TEN-T || 1 331 || 3 416 Other contractual commitments || 538 || 461 Total || 74 457 || 147 814 These commitments originated because the Commission entered into long-term legal commitments in respect of amounts that were not yet covered by commitment appropriations in the budget. This can relate to multi-annual programmes such as Structural Actions or amounts that the European Commission is committed to pay in the future under administrative contracts existing at the balance sheet date (e.g. relating to the provision of services such as security, cleaning, etc, but also contractual commitments concerning specific projects such as building works). Structural actions The table below shows a comparison between the legal commitments for which budget commitments have not yet been made and the maximum commitments in relation to the amounts foreseen in the financial framework 2007-2013. || || || || || EUR millions || Financial perspective amounts 2007-2013 (A) || Legal commitments concluded (B) || Budget commitments 2007-2011 (C) || Legal commitments less budget commitments (=B-C) || Maximum commitment (=A-C) Structural funds || 347 552 || 347 521 || 293 050 || 54 471 || 54 502 Natural Resources || 100 549 || 100 539 || 85 058 || 15 481 || 15 491 Instrument for Pre-Accession Assistance || 11 255 || 9 895 || 9 473 || 422 || 1 782 Total || 459 356 || 457 955 || 387 581 || 70 374 || 71 775 TEN-T commitments This amount relates to grants in the field of the trans-European transport network (TEN-T) for the period 2007 - 2013. The programme applies to projects identified for the development of a trans-European transport network to support both infrastructure projects and research and innovation projects to foster the integration of new technologies and innovative processes on the deployment of new transport infrastructure. The decrease in legal commitments relating to TEN-T is the combined effect of reduced legal commitments following amendment decisions and increased budget commitments. 5.3.3 Related party disclosures The related parties of the Commission are the other EU consolidated entities and the key management personnel of these entities. Transactions between these entities take place as part of the normal operations of the EU and as this is the case, no specific disclosure requirements are necessary for these transactions in accordance with the EU accounting rules. Details on key management entitlements are provided in the EU consolidated annual accounts. 5.3.4 Events after the balance sheet date At the date of transmission of these annual accounts no material issues had come to the attention of the Accounting Officer of the Commission or were reported to him that would require separate disclosure under this section. The annual accounts and related notes were prepared using the most recently available information and this is reflected in the information presented. EUROPEAN COMMISSION REPORTs on THE IMPLEMENTATION OF THE budgEt AND EXPLANATORY NOTES FINANCIAL YEAR 2012 * It should be noted that due to the rounding of figures into millions of euros, some financial data in these budgetary tables may appear not to add-up CONTENTS Page Part II: Reports on the implementation of the budget and explanatory notes 1. Budget implementation 1.1 Statement of comparison of budget and actual amounts 49 1.2 Reconciliation of economic result with budget result 53 2. Revenue: Summary of the implementation of budget revenue 55 3. Expenditure: 3.1 Breakdown and changes in commitment and payment appropriations by financial framework heading 56 3.2 Implementation of commitment appropriations by financial framework heading 56 3.3 Implementation of payment appropriations by financial framework heading 56 3.4 Movement in commitments outstanding by financial framework heading 57 3.5 Breakdown of commitments outstanding by year by financial framework heading 58 3.6 Breakdown and changes in commitment and payment appropriations by policy area 59 3.7 Implementation of commitment appropriations by policy area 60 3.8 Implementati