COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS ANNUAL ACCOUNTS OF THE EUROPEAN COMMISSION 2013 /* COM/2014/0486 final */





Annual accounts of the European Commission 2013 CONTENTS CERTIFICATION OF THE ACCOUNTS. 4 FINANCIAL STATEMENTS AND EXPLANATORY NOTES. 6 BALANCE SHEET. 9 STATEMENT OF FINANCIAL PERFORMANCE. 10 CASHFLOW STATEMENT. 11 STATEMENT OF CHANGES IN NET ASSETS. 12 NOTES TO THE FINANCIAL STATEMENTS. 13 REPORTS ON THE IMPLEMENTATION OF THE BUDGET AND EXPLANATORY NOTES 54 CERTIFICATION OF THE ACCOUNTS The annual accounts of the European Commission for the year 2013 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 Union 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 officers, 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 of the Commission EUROPEAN COMMISSION FINANCIAL YEAR 2013 FINANCIAL STATEMENTS AND EXPLANATORY NOTES* * 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 FINANCIAL STATEMENTS AND EXPLANATORY NOTES BALANCE SHEET. 9 STATEMENT OF FINANCIAL PERFORMANCE. 10 CASHFLOW STATEMENT. 11 STATEMENT OF CHANGES IN NET ASSETS. 12 NOTES TO THE FINANCIAL STATEMENTS. 12 1. SIGNIFICANT ACCOUNTING POLICIES. 14 2. NOTES TO THE BALANCE SHEET. 26 3. NOTES TO THE STATEMENT OF FINANCIAL PERFORMANCE. 42 4. NOTES TO THE CASHFLOW STATEMENT. 47 5. CONTINGENT ASSETS & LIABILITIES AND OTHER SIGNIFICANT DISCLOSURES. 48 6. RELATED PARTIES. 52 7. EVENTS AFTER THE BALANCE SHEET DATE. 53 BALANCE SHEET || || || EUR millions || Note || 31.12.2013 || 31.12.2012 NON-CURRENT ASSETS || || || Intangible assets || 2.1 || 78 || 61 Property, plant and equipment || 2.2 || 2 888 || 2 488 Investments accounted for using the equity method || 2.3 || 349 || 392 Financial assets || 2.4 || 58 490 || 60 920 Receivables and recoverables || 2.5 || 529 || 595 Pre-financing || 2.6 || 37 995 || 44 487 || || 100 329 || 108 943 CURRENT ASSETS || || || Inventories || 2.7 || 85 || 85 Financial assets || 2.8 || 4 821 || 1 338 Receivables and recoverables || 2.9 || 13 007 || 13 922 Pre-financing || 2.10 || 21 189 || 13 148 Cash and cash equivalents || 2.11 || 8 275 || 9 278 || || 47 377 || 37 771 TOTAL ASSETS || || 147 706 || 146 714 || || || NON-CURRENT LIABILITIES || || || Pension and other employee benefits || 2.12 || (46 103) || (41 620) Provisions || 2.13 || (1 303) || (1 237) Financial liabilities || 2.14 || (53 964) || (57 038) Other liabilities || 2.15 || (1 442) || (1 502) || || (102 812) || (101 397) CURRENT LIABILITIES || || || Provisions || 2.16 || (489) || (714) Financial liabilities || 2.17 || (3 065) || (15) Payables || 2.18 || (91 955) || (89 484) || || (95 509) || (90 213) TOTAL LIABILITIES || || (198 321) || (191 610) || || || NET ASSETS || || (50 615) || (44 896) || || || Reserves || 2.19 || 2 299 || 2 254 Amounts to be called from Member States* || 2.20 || (52 913) || (47 150) || || || NET ASSETS || || (50 615) || (44 896) * The European Parliament adopted a budget on 20 November 2013 which provides for the payment of the Union's short-term liabilities from own resources to be collected by, or called up from, the Member States in 2014. 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 || 31.12.2013 || 31.12.2012 OPERATING REVENUE || || || Own resource and contributions revenue || 3.1 || 138 156 || 128 076 Other operating revenue || 3.2 || 7 484 || 6 083 || || 145 640 || 134 159 OPERATING EXPENSES || || || Administrative expenses || 3.3 || (5 107) || (5 221) Operating expenses || 3.4 || (138 886) || (125 008) || || (143 993) || (130 229) SURPLUS/(DEFICIT) FROM OPERATING ACTIVITIES || || 1 647 || 3 930 Financial revenue || 3.5 || 1 972 || 2 084 Financial expenses || 3.6 || (1 990) || (1 897) Movement in pension and other employee benefits liability || || (5 706) || (8 636) Share of net deficit of joint ventures and associates || 3.7 || (608) || (489) ECONOMIC RESULT OF THE YEAR || || (4 685) || (5 008) CASHFLOW STATEMENT || || || EUR millions || Note || 2013 || 2012 Economic result of the year || || (4 685) || (5 008) Operating activities || 4.2 || || Amortisation || || 9 || 8 Depreciation || || 139 || 143 (Reversal of) impairment losses on investments || || 6 || 2 (Increase)/decrease in loans || || 30 || (16 074) (Increase)/decrease in receivables and recoverables || || 980 || (4 847) (Increase)/decrease in pre-financing || || (1 547) || (1 939) (Increase)/decrease in inventories || || 0 || (2) Increase/(decrease) in provisions || || (160) || 234 Increase/(decrease) in financial liabilities || || (25) || 16 059 Increase/(decrease) in other non-current liabilities || || (60) || (48) Increase/(decrease) in payables || || 2 473 || (1 436) Prior year budgetary surplus taken as non-cash revenue || || (1 023) || (1 497) Other non-cash movements || || (17) || 178 || || || Increase in pension and employee benefits liability || || 4 483 || 7 482 || || || Investing activities || 4.3 || || (Increase)/decrease in intangible assets and property, plant and equipment || || (566) || (582) (Increase)/decrease in investments accounted for using the equity method || || 42 || (18) (Increase)/decrease in AFS investments || || (1 082) || (738) || || || NET CASHFLOW || || (1 003) || (8 083) || || || Net increase/(decrease) in cash and cash equivalents || || (1 003) || (8 083) Cash and cash equivalents at the beginning of the year || 2.11 || 9 278 || 17 361 Cash and cash equivalents at year-end || 2.11 || 8 275 || 9 278 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 31.12.2011 || (82) || 1 970 || (38 374) || (2 085) || (38 571) Movement in Guarantee Fund reserve || - || 168 || (168) || - || - Fair value movements || 178 || - || - || - || 178 Other || - || 20 || (18) || - || 2 Allocation of the 2011 economic result || - || - || (2 085) || 2 085 || - 2011 budget result credited to Member States || - || - || (1 497) || - || (1 497) Economic Result for the year || - || - || - || (5 008) || (5 008) BALANCE AS AT 31.12.2012 || 96 || 2 158 || (42 142) || (5 008) || (44 896) Movement in Guarantee Fund reserve || - || 46 || (46) || - || - Fair value movements || (13) || - || - || - || (13) Other || - || 11 || (9) || - || 2 Allocation of the 2012 economic result || - || - || (5 008) || 5 008 || - 2012 budget result credited to Member States || - || - || (1 023) || - || (1 023) Economic result of the year || - || - || - || (4 685) || (4 685) BALANCE AS AT 31.12.2013 || 83 || 2 215 || (48 228) || (4 685) || (50 615) NOTES TO THE FINANCIAL STATEMENTS* * For further information in addition to that included in the notes below, please also see the 2013 EU consolidated annual accounts 1. SIGNIFICANT ACCOUNTING POLICIES The European Commission (hereinafter referred to as the Commission) follows the accounting policies of the European Union (hereinafter referred to as the EU). A summary of the significant accounting policies is given below. 1.1. LEGAL BASIS AND ACCOUNTING RULES The accounts of the EU are kept in accordance with Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002 (OJ L 298, 26.10.2012, p. 1) hereinafter referred to as the 'Financial Regulation' and Commission Delegated Regulation (EU) No 1268/2012 of 29 October 2012 (OJ L 362, 31.12.2012, p. 1) laying down detailed rules of application of this Financial Regulation. In accordance with article 143 of the Financial Regulation, the EU 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. The qualitative characteristics of financial reporting according to article 144 of the Financial Regulation are relevance, reliability, understandability and comparability. 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 SCOPE OF CONSOLIDATION The consolidated financial statements of the EU comprise all significant controlled entities (i.e. the EU institutions (including the Commission) and the EU agencies), associates and joint ventures, this being 52 controlled entities, 5 joint ventures and 4 associates. The complete list of consolidated entities can be found in note 11.1 of the EU accounts. In comparison with 2012, the scope of consolidation has been extended by 1 controlled entity (agency). The impact of the additions on the consolidated financial statements is not material. CONTROLLED ENTITIES The decision to include an entity in the scope of consolidation is based on the control concept. Controlled entities are all entities over which the EU has, directly or indirectly, the power to govern the financial and operating policies so as to be able to benefit from these entities' activities. This power must be presently exercisable. Controlled entities are fully consolidated. The consolidation begins at the first date on which control exists, and ends when such control no longer exists. The most common indicators of control within the EU are: creation of the entity through founding treaties or secondary legislation, financing of the entity from the general budget, the existence of voting rights in the governing bodies, audit by the Court and discharge by the European Parliament. It is clear that an assessment for each entity needs to be made in order to decide whether one or all of the criteria listed above are sufficient to trigger control. Under this approach, the EU's institutions (except the European Central bank - ECB) and agencies (excluding the agencies of the former 2nd pillar) are considered as under the exclusive control of the EU and are therefore included in the consolidation scope. Furthermore the European Coal and Steel Community (ECSC) in Liquidation is also considered as a controlled entity. All material inter-company transactions and balances between EU controlled entities are eliminated, while unrealised gains and losses on inter-entity transactions are not material and have therefore not been eliminated. JOINT VENTURES A joint venture is a contractual arrangement whereby the EU 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 EU'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 financial statements at the balance sheet date. Unrealised gains and losses on transactions between the EU 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 EU for like transactions and events in similar circumstances. ASSOCIATES Associates are entities over which the EU has, directly or indirectly, significant influence but not control. It is presumed that significant influence is given if the EU 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 EU'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 financial statements 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 EU and its associates are not material and have therefore not been eliminated. The accounting policies of associates may differ from those adopted by the EU for like transactions and events in similar circumstances. In cases where the EU 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. NON-CONSOLIDATED ENTITIES THE FUNDS OF WHICH ARE MANAGED BY THE COMMISSION The funds of the Sickness Insurance Scheme for staff of the EU, the European Development Fund and the Participant's Guarantee Fund are managed by the Commission on their behalf, however since these entities are not controlled by the EU they are therefore not consolidated in its financial statements – see note 11.2 of the EU accounts for further details on the amounts concerned. 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 EU'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: Euro exchange rates Currency || 31.12.2013 || 31.12.2012 || Currency || 31.12.2013 || 31.12.2012 BGN || 1.9558 || 1.9558 || LTL || 3.4528 || 3.4528 CZK || 27.4270 || 25.1510 || PLN || 4.1543 || 4.0740 DKK || 7.4593 || 7.4610 || RON || 4.4710 || 4.4445 GBP || 0.8337 || 0.8161 || SEK || 8.8591 || 8.5820 HRK || 7.6265 || 7.5575 || CHF || 1.2276 || 1.2072 HUF || 297.0400 || 292.3000 || JPY || 144.7200 || 113.6100 LVL || 0.7028 || 0.6977 || USD || 1.3791 || 1.3194 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. The estimated useful lives of intangible assets depend on their specific economic lifetime or legal lifetime determined by an agreement. 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 expenditure that is 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 EU 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 EU after initial recognition. If there are indications of impairment, a write-down to the lower recoverable amount is 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 EU 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 EU. 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. During this financial year, the EU did not hold any financial assets in this category. (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 EU has the positive intention and ability to hold to maturity. During this financial year, the EU 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 EU 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 loss 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 long-term 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 EU for fair valuing its lending operations under the European Financial Stability Mechanism (EFSM), Balance of Payment (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 EU 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 financial assets 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 available for 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 EU 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 EU 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 financial assets, 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 financial asset 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 EU 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 EU. The amount of the pre-financing is reduced (wholly or partially) by the acceptance of eligible costs (which are recognised as expenses) 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 EU 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 classified as available for sale financial assets. They include cash at hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. 1.5.10. Pension and other employee benefits Pension obligations The EU 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 EU provides health benefits to its employees through the reimbursement of medical expenses. A separate fund has been created for its 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 EU 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 expenditures 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 EU 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. During this financial year, the EU did not hold any financial liabilities in this category. 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 EU. 1.5.14. Accrued and deferred income and charges According to the EU 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 EU 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 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 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. 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 Commission on the bank accounts where received payments are deposited is recognised as revenue, and any contingent liability is increased accordingly. Since 2010, all provisionally cashed fines are managed by the Commission in a specifically created fund (BUFI) and invested in financial instruments categorised as available for sale. 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 EU estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does 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 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. Expenses Exchange expenses arising from the purchase of goods and services are recognised when the supplies are delivered and accepted by the EU. They are valued at original invoice cost. Non-exchange expenses account for the majority of the EU's 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 EU. 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 EU; 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 || Gross carrying amount at previous year-end || 113 Additions || 31 Disposals || (11) Transfer between categories || 0 Other changes || 2 || Gross carrying amount at year-end || 135 || Accumulated amortisation at previous year-end || (52) Amortisation charge for the year || (9) Disposals || 6 Transfer between categories || 0 Other changes || 0 || Accumulated amortisation at year-end || (57) || Net carrying amount 31.12.2013 || 78 || Net carrying amount 31.12.2012 || 61 The above amounts relate primarily to computer software. 2.2. PROPERTY, PLANT AND EQUIPMENT Included under assets under construction at 31 December 2013 are EUR 1 041 million (2012: EUR 660 million) of assets relating to the Galileo project, the EU's Global Navigation Satellite System (GNSS), being built with the assistance of the European Space Agency (ESA). An amount of EUR 13 million of non-capitalisable development costs has been recognised as expenses during the period. Property, plant and equipment || || || || || || || || EUR millions || Land and buildings || Plant and equipment || Furniture and vehicles || Computer hardware || Other PPE || Finance leases || Assets under construction || TOTAL Gross carrying amount at previous year-end || 1 263 || 313 || 69 || 253 || 118 || 1 511 || 743 || 4 270 Additions || 14 || 33 || 4 || 22 || 12 || 7 || 449 || 540 Disposals || 0 || (13) || (7) || (49) || (6) || 0 || - || (75) Transfer between asset categories || 0 || 11 || 1 || 2 || (1) || (2) || (11) || 0 Other changes || 0 || 0 || 2 || 1 || 1 || 0 || 1 || 5 Gross carrying amount at year-end || 1 277 || 344 || 69 || 229 || 124 || 1 515 || 1 182 || 4 739 Accumulated depreciation at previous year-end || (665) || (265) || (52) || (212) || (88) || (500) || || (1 782) Depreciation charge for the year || (33) || (19) || (4) || (21) || (9) || (54) || || (139) Disposals || 0 || 13 || 7 || 45 || 6 || 0 || || 71 Transfer between asset categories || - || 0 || (1) || (2) || 1 || 2 || || 0 Other changes || 0 || 0 || (1) || 0 || 0 || 0 || || (2) Accumulated depreciation at year-end || (697) || (271) || (51) || (189) || (91) || (552) || || (1 851) || || || || || || || || NET CARRYING AMOUNT AT 31.12.2013 || 579 || 73 || 18 || 40 || 33 || 963 || 1 182 || 2 888 NET CARRYING AMOUNT AT 31.12.2012 || 598 || 48 || 17 || 41 || 30 || 1 011 || 743 || 2 488 finance leases 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 2.18.3). || || || || || || || || || || EUR millions Description || Cumulative charges || Future amounts to be paid || Total value || Subsequent expenses on assets || Asset value || Depreciation || Net carrying amount (A+B+C+D) || (A) || < 1 year || > 1 year || > 5 years || Total liability (B) || (A+B) || (C) || (A+B+C) || (D) || Land and buildings || 302 || 38 || 190 || 885 || 1 113 || 1 415 || 62 || 1 478 || (528) || 950 Other tangible assets || 23 || 6 || 9 || - || 14 || 37 || - || 37 || (24) || 14 Total at 31.12.2013 || 325 || 44 || 199 || 885 || 1 128 || 1 453 || 62 || 1 515 || (552) || 963 Interest element || 63 || 227 || 342 || 632 || || || || || Total future minimum lease payments at 31.12.2013 || 107 || 426 || 1 227 || 1 760 || || || || || Total future minimum lease payments at 31.12.2012 || 108 || 424 || 1 363 || 1 895 || || || || || 2.3. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD || || || EUR millions || Note || 31.12.2013 || 31.12.2012 Participations in joint ventures || 2.3.1 || 0 || 42 Participations in associates || 2.3.2 || 349 || 350 Total || || 349 || 392 2.3.1. Participations in joint ventures || || || || || || EUR millions || GJU || SESAR || ITER || IMI || FCH || Total Amount at 31.12.2012 || 0 || 0 || 10 || 32 || 0 || 42 Contributions || 0 || 78 || 121 || 126 || 56 || 380 Share of net result || 0 || (78) || (130) || (158) || (56) || (422) Amount at 31.12.2013 || 0 || 0 || 0 || 0 || 0 || 0 Participations in joint ventures are accounted for using the equity method. The following carrying amounts are attributable to the Commission based on its percentage of participation: || || EUR millions || 31.12.2013 || 31.12.2012 Non-current assets || 198 || 226 Current assets || 63 || 106 Non-current liabilities || 0 || 0 Current liabilities || (394) || (291) Revenue || 1 || 8 Expenses || (412) || (427) 2.3.2. Participations in associates || || || || || EUR millions || EIF || ARTEMIS || Clean Sky || ENIAC || Total Amount at 31.12.2012 || 336 || 0 || 0 || 14 || 350 Contributions || (2) || 20 || 125 || 37 || 180 Share of net result || 9 || (20) || (125) || (50) || (186) Other equity movements || 6 || 0 || 0 || 0 || 6 Amount at 31.12.2013 || 349 || 0 || 0 || 0 || 349 Participations in associates are accounted for using the equity method. The following carrying amounts are attributable to the Commission based on its percentage of participation: || || EUR millions || 31.12.2013 || 31.12.2012 Assets || 499 || 505 Liabilities || (240) || (191) Revenue || 37 || 33 Surplus/(Deficit) || (221) || (177) European Investment Fund The European Investment Fund (EIF) is the EU'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 || 31.12.2013 || 31.12.2012 Available for sale financial assets || 2.4.1 || 4 367 || 3 715 Loans || 2.4.2 || 54 123 || 57 205 Total || || 58 490 || 60 920 2.4.1. Non-current available for sale financial assets || || EUR millions || 31.12.2013 || 31.12.2012 Guarantee Fund (GF)* || 1 412 || 1 327 BUFI investments || 1 013 || 832 Risk Sharing Finance Facility (RSFF) || 789 || 594 Loan Guarantee Instrument for TEN-T projects (LGTT) || 90 || 52 European Bank for Reconstruction and Development (EBRD) || 188 || 188 Risk Capital Operations || 124 || 123 ETF Start up || 339 || 305 Other available for sale investments || 412 || 294 Total || 4 367 || 3 715 *After elimination of the EFSM bonds 2.4.2. Non-current loans || || || EUR millions || Note || 31.12.2013 || 31.12.2012 Loans granted from the EU budget || 2.4.2.1 || 138 || 147 Loans granted from borrowed funds || 2.4.2.2 || 53 984 || 57 058 Total || || 54 123 || 57 205 2.4.2.1. Loans granted from the EU budget || EUR millions || Total Total at 31.12.2012 || 146 New loans || 4 Repayments || (18) Exchange differences || (6) Changes in carrying amount || 12 Total at 31.12.2013 || 138 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 31.12.2012 || 549 || 425 || 11 623 || 44 476 || 57 073 New loans || 100 || - || - || - || 100 Repayments || (81) || (36) || - || - || (117) Exchange differences || - || (1) || - || - || (1) Changes in carrying amount || 1 || (1) || - || (8) || (8) Total at 31.12.2013 || 569 || 387 || 11 623 || 44 468 || 57 047 || || || || || Amount due < 1 year || 31 || - || 3 033 || - || 3 064 || || || || || Amount due > 1 year || 538 || 387 || 8 590 || 44 468 || 53 983 The effective interest rates (expressed as a range of interest rates) were as follows: Loans || 31.12.2013 || 31.12.2012 Macro Financial Assistance (MFA) || 0.27%-4.54% || 0.298%-4.54% Euratom || 0.34%-5.76% || 0.431%-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%-3.750% For more information on borrowing and lending activities, see note 2.14 and note 7 of the EU consolidated annual accounts. BALANCE OF PAYMENT (BOP) LOANS – NOMINAL VALUE || || || || EUR millions || Hungary || Latvia || Romania || Total Total loans granted || 6 500 || 3 100 || 8 400 || 18 000 Disbursed at 31.12.12 || 5 500 || 2 900 || 5 000 || 13 400 Disbursed in 2013 || 0 || 0 || 0 || 0 Loans disbursed 31.12.2013 || 5 500 || 2 900 || 5 000 || 13 400 Loans repaid at 31.12.2013 || (2 000) || 0 || 0 || (2 000) Outstanding amount at 31.12.2013 || 3 500 || 2 900 || 5 000 || 11 400 Undrawn amounts 31.12.2013 || 0 || 0 || 0 || 0 The BOP assistance programme for Hungary, Latvia and Romania has expired and there are no undrawn amounts at 31 December 2013. EUROPEAN FINANCIAL STABILITY MECHANISM (EFSM) LOANS – NOMINAL VALUE || || || EUR millions || Ireland || Portugal || Total Total loans granted || 22 500 || 26 000 || 48 500 Disbursed at 31.12.12 || 21 700 || 22 100 || 43 800 Disbursed in 2013 || 0 || 0 || 0 Loans disbursed at 31.12.13 || 21 700 || 22 100 || 43 800 Loans repaid at 31.12.13 || 0 || 0 || 0 Loans outstanding at 31.12.13 || 21 700 || 22 100 || 43 800 Undrawn amounts at 31.12.13 || 800 || 3 900 || 4 700 On 25 March 2014, EUR 2.6 billion was disbursed under EFSM (EUR 0.8 billion for Ireland and EUR 1.8 billion for Portugal). 2.5. NON-CURRENT RECEIVABLES AND RECOVERABLES || || EUR millions || 31.12.2013 || 31.12.2012 Member States || 478 || 545 Due from ECSC in Liquidation || 48 || 48 Other || 4 || 2 Total || 529 || 595 Of the total non-current receivables, EUR 525 million (2012: 593 million) relates 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 || 31.12.2013 || 31.12.2012 Pre-financing || 2.6.1 || 34 742 || 40 772 Prepaid expenses || 2.6.2 || 3 253 || 3 715 Total || || 37 995 || 44 487 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 2013 the "nominal" value of guarantees received in respect of pre-financing amounted to EUR 1 124 million while the "on-going" value of those guarantees was EUR 887 million (2012: EUR 1 220 million and EUR 955 million respectively). 2.6.1. Pre-financing The breakdown of pre-financing amounts by management types is given below, noting that Article 58 of the new Financial Regulation, which partly revised the methods of implementation of the budget, shall only apply as of 1 January 2014: || || EUR millions || 31.12.2013 || 31.12.2012 Direct centralised management || 1 526 || 1 247 Indirect centralised management || 772 || 1 042 Decentralised management || 646 || 677 Shared management || 31 104 || 37 214 Joint management || 694 || 592 Total || 34 742 || 40 772 The most significant non-current pre-financing amounts relate to structural actions for the 2007-2013 programming period: the regional devlopment fund (ERDF) and the cohesion fund (CF) EUR 19.6 billion, the social fund (ESF) EUR 5.6 billion, the agricultural fund for rural development (EAFRD) EUR 5.2 billion and the fisheries fund (EFF) EUR 0.6 billion. As many of these projects are long-term in nature, it is necessary that the related advances are available for more than one year. Thus these pre-financings are shown as non-current assets. The programming period 2007-2013 is approaching its closing phase and thus the related pre-financings gradually become due within twelve months. Therefore, the non-current pre-financing amount is decreasing while the current pre-financing amount is increasing (see also note 2.10.1). 2.6.2. Prepaid expenses || || EUR millions || 31.12.2013 || 31.12.2012 Financial Engineering Instruments || 2 118 || 2 717 Aid Schemes || 1 135 || 998 Total || 3 253 || 3 715 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, equity investments or guarantees) set up and managed under the responsibility of the Member States. 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’s balance sheet. However, the basic legal acts do not oblige the Member States to provide periodic reports to the Commission on the use made of these advances, and in some cases not even identify them in the statements of expenditure submitted to the Commission. Thus, and on the basis of information received from Member States on the utilisation of funds, an estimation is made at each year-end of the value of this asset. Similar to the above, advances paid by the Member States that were not used at year end are recorded as assets on the Commission's balance sheet. Member States may pay such advances for various aid schemes (state aid, market measures of EAGF). The Commission has estimated the value of these advances based on information provided by the Member States; the resulting amounts are included under the Aid Schemes heading. CURRENT ASSETS 2.7. INVENTORIES || || EUR millions || 31.12.2013 || 31.12.2012 Scientific materials || 70 || 71 Other || 15 || 14 Total || 85 || 85 2.8. CURRENT FINANCIAL ASSETS || || || EUR millions || Note || 31.12.2013 || 31.12.2012 Available for sale financial assets || 2.8.1 || 1 730 || 1 300 Loans || 2.8.2 || 3 090 || 38 Total || || 4 821 || 1 338 2.8.1. Current available for sale financial assets Available for sale financial assets are purchased for their investment return or yield, or held to establish a particular asset structure or a secondary source of liquidity and may therefore be sold in response to needs for liquidity or changes in interest rates. The following table provides an overview of available for sale financial assets with a remaining maturity before end 2014: || || EUR millions || 31.12.2013 || 31.12.2012 Guarantee Fund || 361 || 268 BUFI investments || 897 || 845 Risk Sharing Finance Facility (RSFF) || 408 || 160 Loan Guarantee Instrument for TEN-T projects (LGTT) || 31 || 23 Other available for sale investments || 33 || 4 Total || 1 730 || 1 300 2.8.2. Current loans Included under this heading are mainly loans with remaining final maturities less than 12 months after the balance sheet date (see note 2.4.2.2 above for more details). The increase compared to last year is due to repayments of BOP loans scheduled for 2014 (Hungary EUR 2 billion and Latvia EUR 1 billion). 2.9. CURRENT RECEIVABLES AND RECOVERABLES || || || EUR millions || Note || 31.12.2013 || 31.12.2012 Fines || 2.9.1 || 4 071 || 4 090 Member States || 2.9.2 || 5 509 || 6 222 Accrued income and deferred charges || 2.9.3 || 2 875 || 3 214 Other receivables & recoverables || 2.9.4 || 551 || 396 Total || || 13 007 || 13 922 The total above contains an estimated EUR 12 681 million (2012: EUR 13 842 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 4 310 million (2012: EUR 4 357 million) less a write-down of EUR 239 million (2012:EUR 267 million). Guarantees totalling EUR 3 244 million had been received for the fines outstanding at year-end (2012: EUR 2 513 million). It should be noted that EUR 1 032 million of these receivables were due for payment after 31 December 2013. 2.9.2. Member States || || EUR millions || 31.12.2013 || 31.12.2012 EAGF and Rural Development receivables || || European Agricultural Guarantee Fund (EAGF) || 1 858 || 1 172 European Agricultural Fund for Rural Development (EAFRD) || 41 || 14 Temporary Rural Development Instrument (TRDI) || 45 || 44 Special Accession Programme for Agriculture and Rural Development (SAPARD) || 155 || 136 Write-down || (819) || (814) || 1 279 || 552 || || VAT paid and recoverable || 20 || 15 || || Own resources || || Established in the A account || 47 || 45 Established in the separate account || 1 228 || 1 294 Own resources to be received || 3 054 || 3 617 Write-down || (743) || (773) Other || 6 || 16 || 3 592 || 4 199 || || Other receivables from Member States || || Pre-financing recovery expected || 542 || 1 220 Other || 77 || 236 || 618 || 1 456 || || Total || 5 509 || 6 222 The amount of own resources to be received relates to the Amending Budget 8/2013 adopted on 20 November 2013. According to Article 10 of Council Regulation 1150/2000 of 22 May 2000 (OJ L 130, 31.5.2000, p. 1) the entries corresponding to the readjustments of GNI contributions were carried out on the first working day of January 2014. It is to be noted that certain Member States have anticipated their payments, which explains why the amount to be received is lower than the contribution requested in this amending budget. 2.9.3. Accrued income and deferred charges || || EUR millions || 31.12.2013 || 31.12.2012 Accrued income || 2 651 || 2 988 Deferred charges || 216 || 215 Other || 8 || 11 Total || 2 875 || 3 214 The main amount under this heading is accrued income: || || EUR millions || 31.12.2013 || 31.12.2012 Own resources || 2 424 || 2 388 Agricultural assigned revenue November and December || 0 || 218 Cohesion, Regional & Rural Development Funds: financial corrections || 31 || 276 Other accrued income || 195 || 106 Total || 2 651 || 2 988 The accrued own resource income of EUR 2 424 million mainly represents accrued custom duties of November and December 2013. It should be noted that agricultural assigned revenue for November and December (EUR 131 million) are now disclosed under current receivables. 2.9.4. Other receivables and recoverables Included under this heading are mainly recovery of pre-financing amounts, recovery of expenses as well as other revenue from administrative and operational actions. 2.10. CURRENT PRE-FINANCING || || || EUR millions || Note || 31.12.2013 || 31.12.2012 Pre-financing || 2.10.1 || 16 225 || 9 458 Prepaid expenses || 2.10.2 || 4 963 || 3 690 Total || || 21 189 || 13 148 2.10.1. Pre-financing The breakdown of pre-financing amounts by management types is given below, noting that Article 58 of the new Financial Regulation, which partly revised the methods of implementation of the budget, shall only apply as of 1 January 2014: || || EUR millions || 31.12.2013 || 31.12.2012 Direct centralised management || 3 924 || 3 369 Indirect centralised management || 4 770 || 3 936 Decentralised management || 250 || 301 Shared management || 6 263 || 1 008 Joint management || 1 018 || 844 Total || 16 225 || 9 458 The increase in current pre-financing is mostly related to shared management. As explained under note 2.6 the structural funds programs are entering in the final phase of the programming period 2007-2013. As a consequence a large portion (EUR 6.1 billion) of previously non-current pre-financing became current at 31 December 2013. There is also an increase under direct centralised management and indirect centralised management. In both cases, this increase is mostly due to the final phase of the 7th Research Framework Programme for research and technological development (FP7) which is marked by the signing of the last agreements leading to new pre-financing payments of approximately EUR 2.8 billion under direct centralised management and EUR 1.4 billion under indirect centralised management. In parallel, projects under older agreements have been completed and the related pre-financing payments have been cleared. 2.10.2. Prepaid expenses || || EUR millions || 31.12.2013 || 31.12.2012 Financial Engineering Instruments || 2 118 || 1 358 Aid Schemes || 2 845 || 2 332 Total || 4 963 || 3 690 The variation of the amounts disclosed under this heading is due mainly to the Member States' increased contribution to Financial Engineering Instruments in the area of regional development. 2.11. CASH AND CASH EQUIVALENTS || || || EUR millions || Note || 31.12.2013 || 31.12.2012 Unrestricted cash: || 2.11.1 || || Accounts with Treasuries and Central Banks || || 2 505 || 2 203 Current accounts || || 168 || 106 Imprest accounts || || 4 || 3 Transfers (cash in transit) || || (1) || (1) || || 2 676 || 2 311 || || || Cash belonging to financial instruments & term deposits || 2.11.2 || 1 434 || 1 845 || || || Restricted cash and cash equivalents || 2.11.3 || 4 165 || 5 122 || || || Total || || 8 275 || 9 278 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. Unrestricted cash at 31 December 2013 includes EUR 1.1 billion of own resources contributions due by Members States on 1 January 2014 which were received some days in advance. Furthermore, the year-end balance contains EUR 1.3 billion of competition fines, mostly cashed by the Commission in the last weeks of 2013 which were not yet returned to Member States via an Amending Budget. 2.11.2. Cash belonging to financial instruments & term deposits 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. 2.11.3. Restricted cash and cash equivalents 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 the fact that since 2010, all provisionally cashed fines are managed by the Commission in a specifically created fund (BUFI) 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 || 31.12.2013 || 31.12.2012 Pensions – staff || 40 933 || 37 528 Pensions – other || 301 || 85 Joint Sickness Insurance Scheme || 4 869 || 4 007 Total || 46 103 || 41 620 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 2013 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 || 31.12.2013 || 31.12.2012 Nominal discount rate || 3.7% || 3.6% Expected inflation rate || 1.9% || 2.0% Real discount rate || 1.8% || 1.6% Probability of marriage: man/woman || 81%/49% || 84%/38% General salary growth/pension revaluation || 0% || 0% International Civil Servants Life Table (ICSLT) || ICSLT 2013 || ICSLT 2008 || || EUR millions Movement in gross employee benefits liability || Staff pension liability || Sickness Insurance Gross liability at previous year-end || 41 961 || 4 278 Service/normal cost || 1 928 || - Interest cost || 1 603 || 162 Benefits paid || (1 288) || (11) Actuarial losses || 1 499 || 704 Change due to newcomers || 244 || - Gross liability at year-end || 45 947 || 5 133 Correction coefficients applied to pensions || 959 || N/A Deduction of taxes on pensions || (5 973) || N/A Plan assets || N/A || (264) Net liability at year-end || 40 933 || 4 869 2.12.2. Pensions – other This liability refers to the pension obligations towards Members and former Members of the Commission. Additionally, the 2013 amount includes pension obligations towards MEPs as the administration and payment of these have now been transferred from the European Parliament to the Commission. 2.12.3. 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 5 133 million (2012: EUR 4 278 million) and plan assets of EUR 264 million (2012: EUR 271 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. 2.13. NON-CURRENT PROVISIONS || || || || || || || EUR millions || Amount at 31.12.2012 || Additional provisions || Unused amounts reversed || Amounts used || Transfer to current || Change in estimation || Amount at 31.12.2013 Legal cases || 130 || 180 || (51) || (3) || - || 0 || 257 Nuclear site dismantling || 997 || - || - || (2) || (30) || (32) || 933 Financial || 108 || 45 || - || - || (38) || (3) || 111 Other || 2 || 2 || (1) || 0 || - || - || 3 Total || 1 237 || 227 || (52) || (5) || (69) || (35) || 1 303 Legal cases This is the estimate of amounts that will probably have to be paid out more than 12 months after the year-end in relation to a number of on-going legal cases. The additional legal cases provisions concern mostly new court cases in the area of agriculture and cohesion. Nuclear site dismantlement In 2012 a consortium of independent experts made an update of their 2008 study on the estimated costs of the decommissioning of the Joint Research Centre (JRC) nuclear facilities and waste management programme. Their revised estimate of EUR 989 million (previously EUR 1 222 million) is taken as the basis for the provision to be included in the accounts. In accordance with EU accounting rules this provision is indexed for inflation and then discounted to its net present value (using the Euro zero-coupon swap curve). In view of the estimated duration of this programme (around 20 years), it should be pointed out that there is some uncertainty about this estimate, and the final cost could be different from the amounts currently entered. Financial provisions These concern mainly provisions which represent the estimated losses that will be incurred in relation to the guarantees given under the SME Guarantee Facility 1998, the SME Guarantee Facility 2001 and the SME Guarantee Facility 2007 under the Competitiveness and Innovation framework Programme (CIP) and the European Progress Microfinance Facility (Guarantee), where the European Investment Fund (EIF) is empowered to issue guarantees in its own name but on behalf of and at the risk of the Commission. The financial risk linked to the drawn and undrawn guarantees is, however, capped. Non-current financial provisions are discounted to their net present value (using the Euro Swap annual rate). 2.14. NON-CURRENT FINANCIAL LIABILITIES || || || EUR millions || || 31.12.2013 || 31.12.2012 Non-current borrowings || || 53 984 || 57 058 Elimination Guarantee Fund* || || (20) || (20) Total || || 53 964 || 57 038 * The Guarantee Fund holds EFSM bonds issued by the Commission, so these need to be eliminated. Non-current borrowings || || || || || EUR millions || MFA || Euratom || BOP || EFSM || Total Total at 31.12.2012 || 549 || 425 || 11 623 || 44 476 || 57 073 New borrowings || 100 || - || - || - || 100 Repayments || (81) || (36) || - || - || (117) Exchange differences || - || (1) || - || - || (1) Changes in carrying amount || 1 || (1) || - || (8) || (8) Total at 31.12.2013 || 569 || 387 || 11 623 || 44 468 || 57 047 || || || || || Amount due < 1 year || 31 || - || 3 033 || - || 3 064 || || || || || Amount due > 1 year || 538 || 387 || 8 590 || 44 468 || 53 983 This heading includes borrowings of the 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 || 31.12.2013 || 31.12.2012 Macro Financial Assistance (MFA) || 0.27%-4.54% || 0.298%-4.54% Euratom || 0.291%-5.6775% || 0.351%-5.6775% Balance of Payment (BOP) || 2.375%-3.625% || 2.375%-3.625% European Financial Stability Mechanism (EFSM) || 2.375%-3.750% || 2.375%-3.750% For more information on borrowing and lending activities, see note 2.4 and note 7 of the EU consolidated annual accounts. 2.15. OTHER NON-CURRENT LIABILITIES || || EUR millions || 31.12.2013 || 31.12.2012 Finance leasing debts || 1 084 || 1 124 Buildings paid for in instalments || 336 || 352 Other || 23 || 26 Total || 1 442 || 1 502 CURRENT LIABILITIES 2.16. CURRENT PROVISIONS || || || || || || || EUR millions || Amount at 31.12.2012 || Additional provisions || Unused amounts reversed || Amounts used || Transfers from non- current || Change in estimation || Amount at 31.12.2013 Legal cases || 222 || 5 || (2) || (1) || - || 0 || 225 Nuclear site dismantlement || 29 || - || - || (29) || 30 || - || 30 Financial || 188 || 53 || (45) || (55) || 38 || (8) || 171 Other || 275 || 5 || (89) || (129) || - || - || 63 Total || 714 || 63 || (135) || (214) || 69 || (9) || 489 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. The increase compared to last year is due to repayments of BOP loans scheduled for 2014 (Hungary EUR 2 billion and Latvia EUR 1 billion). 2.18. PAYABLES || || || EUR millions || Note || 31.12.2013 || 31.12.2012 Accrued charges and deferred income || 2.18.1 || 55 881 || 68 076 Payables || 2.18.2 || 36 015 || 21 351 Current portion of non-current liabilities || || 60 || 57 Total || || 91 956 || 89 484 2.18.1. Accrued charges and deferred income || || EUR millions || 31.12.2013 || 31.12.2012 Accrued charges || 55 725 || 67 914 Deferred income || 138 || 157 Other || 18 || 5 Total || 55 881 || 68 076 The split of accrued charges is as follows: || || EUR millions || 31.12.2013 || 31.12.2012 European Agricultural Guarantee Fund || || Direct aid and interventions in agricultural markets || 33 489 || 44 532 Other || 2 || 1 Rural Development || || EAFRD || 12 255 || 12 463 Other || 203 || 34 || 45 949 || 57 030 Structural Actions: || || European Fisheries Fund / Financial Instruments for Fisheries Guidance || 48 || 66 European Regional Development Fund and Cohesion Fund || 4 356 || 4 359 Instrument for Structural Policies for pre-Accession || 114 || 382 European Social Fund || 1 100 || 1 378 || 5 618 || 6 185 Other accrued charges: || || Research & Development || 1 172 || 1 077 Other || 2 986 || 3 622 || 4 158 || 4 699 Total || 55 725 || 67 914 Details on the decrease of accrued charges are provided in note 2.18.2 below. 2.18.2. Payables || || EUR millions || 31.12.2013 || 31.12.2012 Member States || 37 477 || 23 020 Suppliers and other || 1 455 || 1 506 Estimated non-eligible amounts and pending pre-payments || (2 918) || (3 175) Total || 36 015 || 21 351 Member States Payables to Member States relate primarily to unpaid cost claims for structural actions (EUR 20.8 billion for ERDF and CF and EUR 4.2 billion for ESF). Furthermore, the amount includes EUR 11.3 billion for the European Agricultural Guarantee Fund (EAGF). In order to better present the economic reality, from 2013 onwards, amounts related to EAGF for which payment was due on the first working day of January of the following year are recorded as amounts payable instead of accrued charges. Had the current approach been followed in the 2012 accounts, the amount of Member States payables would have been EUR 11.9 billion higher (i.e. EUR 34.9 billion). The remaining EUR 1.2 billion Member State payables mainly concern fisheries and maritime policies (EUR 0.6 billion) and rural development (EUR 0.2 billion). Suppliers and other Included under this heading are sundry payables, amounts owed following grant and procurement activities, as well as amounts payable to public bodies and non-consolidated entities. Estimated non-eligible amounts and pending prepayments Payables are reduced by that part of the requests for reimbursement received, but not yet checked, that was estimated to be ineligible. The largest amounts concern the Structural Actions DGs. Payables are also reduced by the part of requests for reimbursement received corresponding to prepaid expenditure still to pay at year end (EUR 2.2 billion). 2.18.3. Current portion of non-current liabilities || || EUR millions || 31.12.2013 || 31.12.2012 Finance leasing debts || 44 || 42 Other || 16 || 15 Total || 60 || 57 NET ASSETS 2.19. RESERVES || || || EUR millions || Note || 31.12.2013 || 31.12.2012 Fair value reserve || 2.19.1 || 83 || 96 Guarantee Fund reserve || 2.19.2 || 2 125 || 2 079 Other reserves || || 90 || 79 Total || || 2 299 || 2 254 2.19.1. Fair value reserve In accordance with the accounting rules, the adjustment to fair value of available for sale financial assets is accounted for through the fair value reserve. 2.19.2. Guarantee Fund reserve This reserve reflects the 9% target 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 || Amounts to be called from Member States at 31.12.2012 || 47 150 Return of 2012 budget surplus to Member States || 1 023 Movement in Guarantee Fund reserve || 46 Other reserve movements || 9 Economic result of the year || 4 685 Total amounts to be called from Members States at 31.12.2013 || 52 913 || Split between: || Employee benefits || 46 103 Other amounts || 6 810 The inclusion in the accounts of liabilities due for payment in future years and financed by future budgets results in total liabilities greatly exceeding total assets at the year-end. 3. NOTES TO THE STATEMENT OF FINANCIAL PERFORMANCE 3.1. OWN RESOURCE AND CONTRIBUTIONS REVENUE || || || EUR millions || Note || 2013 || 2012 GNI resources || || 110 194 || 98 061 Traditional own resources: Customs duties || || 15 268 || 16 087 Sugar levies || || 199 || 157 VAT resources || || 14 019 || 14 871 Own resource revenue || 3.1.1 || 139 680 || 129 176 Budgetary adjustments || 3.1.2 || (1 888) || (1 402) Contributions of third countries (incl. EFTA) || || 364 || 302 Total || || 138 156 || 128 076 3.1.1. Own resource revenue Own resource revenue is the primary element of the EU’s operating revenue. Thus the bulk of expenditure is financed by own resources as other revenue represents only a minor part of the total financing. There are three categories of own resources: traditional own resources (“TOR”), the VAT-based resource and the GNI-based resource. Traditional own resources comprise sugar levies and customs duties. A correction mechanism in respect of budgetary imbalances (UK Rebate) as well as a gross reduction in the annual GNI-based contribution of Netherlands and Sweden are also part of the own resources system. Member States retain, by way of collection costs, 25% of traditional own resources, and the above amounts are shown net of this deduction. It should be noted that a refund of EUR 169 million (gross, EUR 126 million net) claimed by Belgium in 2011 under Traditional Own Resources was paid out in 2013 after the completion of audits and controls on the reliability of the Belgian clearance and accounting systems. The related provision booked in 2012 was used in 2013. It should also be noted that following a Court ruling on the sugar levies regulation challenged by certain companies and Member States, and the subsequent adoption by the Council of a new regulation end of December 2013, an amount of EUR 214 million will have to be reimbursed to the concerned parties end of 2014. A provision booked in 2012 and covering this amount is still included in the accounts. 3.1.2. Budgetary adjustments The budgetary adjustments include the budget surplus from 2012 (EUR 1 023 million) which is indirectly refunded to Member States by deduction of the amounts of own resources they have to transfer to the EU in the following year – thus it is a revenue for 2013. 3.2. OTHER OPERATING REVENUE || || || EUR millions || || 2013 || 2012 Fines || || 2 757 || 1 884 || || || Agricultural levies || || 48 || 87 || || || Recovery of expenses: || || || Direct centralised management || || 58 || 62 Indirect centralised management || || 6 || 30 Decentralised management || || 41 || 27 Joint management || || 33 || 8 Shared management || || 1 628 || 1 376 Total || || 1 766 || 1 503 Revenue from administrative operations: || || || Staff || || 878 || 890 Property, plant and equipment related revenue || || 13 || 18 Other administrative revenue || || 185 || 164 Total || || 1 075 || 1 072 Miscellaneous operating revenue: || || || Adjustments/provisions || || 174 || 274 Exchange gains || || 325 || 328 Other || || 1 339 || 935 Total || || 1 838 || 1 537 Total || || 7 484 || 6 083 The increase in other operating revenue is mainly explained by a higher amount of revenue relating to fines in 2013. These revenues relate to fines imposed by the Commission for infringement of competition rules. Receivables and related revenues are recognised when the Commission decision imposing a fine has been taken and it is officially notified to the addressee. The higher amount in 2013 is mainly explained by fines of EUR 1.7 billion which were imposed on a number of banks for participating in cartels in the interest rate derivatives industry. Furthermore, in 2013 there is a high value fine case concerning Microsoft (EUR 561 million) and its failure to promote a range of web browsers, rather than just Internet Explorer, to users in the EU. 3.3. ADMINISTRATIVE EXPENSES || || EUR millions || 2013 || 2012 Staff expenses || 3 080 || 3 197 Other administrative expenses || 1 869 || 1 869 Depreciation and impairment || 158 || 155 Total || 5 107 || 5 221 Included under other administrative expenses are EUR 148 million (2012: EUR 151 million) expenses relating to operating leases. The 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 || 130 || 444 || 439 || 1 013 IT materials and other equipment || 3 || 5 || 0 || 8 Total || 133 || 449 || 439 || 1 021 3.4. OPERATING EXPENSES || || || EUR millions || Note || 2013 || 2012 Primary operating expenses: || 3.4.1 || || Direct centralised management || || 9 635 || 10 728 Indirect centralised management || || 5 559 || 4 218 Decentralised management || || 720 || 1 019 Shared management || || 120 070 || 106 378 Joint management || || 1 745 || 1 819 Total || || 137 728 || 124 162 Other operating expenses: || 3.4.2 || || Adjustments/provisions || || 302 || 425 Exchange losses || || 363 || 265 Other || || 493 || 156 Total || || 1 158 || 846 Total || || 138 886 || 125 008 3.4.1. Primary operating expenses Operating expenses cover the various headings of the financial framework and take different forms, depending on how the money is paid out and managed. Most expenses fall under the heading “Shared Management” involving the delegation of tasks to Member States, covering such areas as EAGF spending and actions financed through the different Structural Actions (the regional development fund, the social fund, the agricultural fund for rural development, the cohesion fund and the fisheries fund). The main elements of the operating expenses above cover the following areas: agriculture and rural development EUR 59 billion (2012: EUR 57 billion), regional development and cohesion EUR 49 billion (2012: EUR 39 billion), employment and social affairs EUR 12 billion (2012: EUR 11 billion), research and communication networks, content and technology EUR 6 billion (2012: EUR 6 billion) and external relations EUR 3 billion (2012: EUR 3 billion). The overall increase in operating expenses is driven by the advancement of the projects in the area of regional development for the programming period 2007-2013. 3.4.2. Other operating expenses Exchange losses, except on financial activities dealt with in note 3.6 below, occur on the everyday activities and related transactions made in currencies other than the Euro, as well as the year-end revaluation required to prepare the accounts – they are both realised and unrealised. The 2013 heading other (under other operating expenses) mainly comprised the correction of fines issued in previous years totalling EUR 360 million. Research and Development costs Included under administrative and operating expenses are expenses relating to research and development as follows: || || EUR millions Research and Development costs || 2013 || 2012 Research costs || 329 || 322 Non-capitalised development costs || 50 || 58 Total || 379 || 380 3.5. FINANCIAL REVENUE || || EUR millions || 2013 || 2012 Dividend income || 6 || 12 || || Interest income: || || On pre-financing || 29 || 28 On late payments || 88 || 242 On available for sale financial assets || 45 || 58 On loans || 1 698 || 1 543 On cash and cash equivalents || 18 || 20 Total || 1 878 || 1 891 Other financial income: || || Realised gain on sale of financial assets || 3 || 12 Other || 84 || 160 Total || 87 || 172 || || Exchange gains || 2 || 9 || || Total || 1 971 || 2 084 3.6. FINANCIAL EXPENSES || || EUR millions || 2013 || 2012 Interest expenses: || || Leasing || 64 || 65 On borrowings || 1 682 || 1 528 Other || 21 || 21 Total || 1 766 || 1 614 Other financial expenses: || || Adjustments to financial provisions || 98 || 75 Expenses relating to financial instruments managed by fiduciaries || 68 || 43 Impairment losses on available for sale financial assets || 7 || 7 Realised loss on sale of financial assets || 0 || 4 Other || 33 || 140 Total || 205 || 269 Exchange losses || 18 || 14 || || Total || 1 990 || 1 897 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 2013, EUR 145 370 million revenue from non-exchange transactions has been recognised in the statement of financial performance (2012: EUR 133 882 million). 3.9. SEGMENT REPORTING || || || || EUR millions || Activities within the EU || Activities outside the EU || Services and Other || Total Fines || 2 757 || - || - || 2 757 Agricultural levies || 48 || - || - || 48 Recovery of expenses || 1 686 || 79 || 0 || 1 766 Revenue from administrative operations || 77 || 1 || 998 || 1 075 Miscellaneous operating revenue || 1 252 || 104 || 482 || 1 838 OTHER OPERATING REVENUE || 5 819 || 184 || 1 481 || 7 484 Staff expenses || (1 501) || (321) || (1 258) || (3 080) Intangible assets and PPE related expenses || (44) || - || (114) || (158) Other administrative expenses || (660) || (329) || (880) || (1 869) Administrative expenses || (2 205) || (649) || (2 253) || (5 107) Direct centralised management || (6 037) || (3 348) || (250) || (9 635) Indirect centralised management || (4 943) || (585) || (32) || (5 559) Decentralised management || (181) || (539) || - || (720) Shared management || (119 995) || (74) || - || (120 070) Joint management || (233) || (1 512) || 0 || (1 745) Other operating expenses || (784) || (6) || (368) || (1 158) Operating expenses: || (132 173) || (6 064) || (650) || (138 886) TOTAL OPERATING EXPENSES || (134 378) || (6 713) || (2 903) || (143 993) Net operating expenses || (128 558) || (6 529) || (1 422) || (136 509) Own resource and contributions revenue || || || || 138 156 Surplus from operating activities || || || || 1 647 Net financial revenue || || || || (17) Movement in pension and other employee benefits liability || || || || (5 707) Share of associates/joint ventures deficit || || || || (608) Economic result of the year || || || || (4 685) 4. NOTES TO THE CASHFLOW STATEMENT 4.1. PURPOSE AND PREPARATION OF THE CASHFLOW STATEMENT Cashflow information is used to provide a basis for assessing the ability of the EU to generate cash and cash equivalents, and its needs to utilise those cashflows. 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 cashflows. Cashflows arising from transactions in a foreign currency are recorded in the EU’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 cashflow. The cashflow statement presented reports cashflows during the period classified by operating and investing activities (the EU does not have financing activities). 4.2. OPERATING ACTIVITIES Operating activities are the activities of the EU 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 EU. 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 EU. 5. CONTINGENT ASSETS & LIABILITIES AND OTHER SIGNIFICANT DISCLOSURES 5.1. CONTINGENT ASSETS || || EUR millions || 31.12.2013 || 31.12.2012 Guarantees received: || || Performance guarantees || 226 || 232 Other guarantees || 3 || 2 Other contingent assets || 13 || 12 Total || 243 || 246 Performance guarantees are requested to ensure that beneficiaries of EU funding meet the obligations of their contracts with the EU. 5.2. CONTINGENT LIABILITIES || || || EUR millions || Note || 31.12.2013 || 31.12.2012 Guarantees given || 5.2.1 || 22 162 || 22 317 Fines || 5.2.2 || 5 227 || 6 378 EAGF, rural development and pre-accession || 5.2.3 || 1 537 || 1 188 Cohesion policy || 5.2.4 || 137 || 546 Legal cases and other disputes || 5.2.5 || 685 || 78 Total || || 29 749 || 30 508 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 || 31.12.2013 || 31.12.2012 On loans granted by the EIB from its own resources: || || 65% guarantee || 19 077 || 18 683 70% guarantee || 1 361 || 1 654 75% guarantee || 257 || 383 100% guarantee || 461 || 594 Total || 21 156 || 21 314 Other guarantees given || 1 006 || 1 003 || || Total || 22 162 || 22 317 The EU budget guarantees loans signed and granted by the EIB from its own resources to third countries at 31 December 2013 (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 and not on the credit lines authorised. Where the ceiling is not reached, the EU guarantee covers the full amount. At 31 Decem