Communication from the Commission

Financial statements of the European Coal and Steel Community at 23 July 2002

(2003/C 127/02)

In accordance with the undertakings given by the Commission on behalf of the ECSC with regard to its borrowing activities, the following financial statements, drawn up in conformity with Article 45c of the Treaty establishing the ECSC, have been published:

- the balance sheet of the European Coal and Steel Community at 23 July 2002,

- the profit-and-loss accounts for the year ending 23 July 2002,

- the allocation of the surplus for the year ending 23 July 2002,

- the notes relating to the financial statements at 23 July 2002.

These financial statements are accompanied by the report of the Court of Auditors, as provided for under Article 45c of the ECSC Treaty.

REPORT BY THE EUROPEAN COURT OF AUDITORS

on the financial statements of the European Coal and Steel Community as at 23 July 2002

- This report concerns the reliability of the accounts drawn up by the Commission in accordance with Article 45c(5) of the Treaty establishing the European Coal and Steel Community, which expired at 23 July 2002.

- The Court has audited the accounts and financial statements of the European Coal and Steel Community on 23 July 2002 in accordance with generally accepted auditing standards and carried out such checks as it considered necessary. By means of this audit the Court has obtained a reasonable basis for the opinion expressed below.

- In the Court's opinion, the attached financial statements of the European Coal and Steel Community (closing balance sheet at 23 July 2002, profit and loss account, statement of the allocation of the surplus for the financial year then ended and notes to the financial statements), which have been drawn up in accordance with generally accepted accounting principles, give a true and fair view of the assets and financial situation of the European Coal and Steel Community at 23 July 2002 and of the results of its operations for the year then ended. Taken as a whole, the legality and regularity of the transactions underlying the accounts are sufficiently assured.

Done at Luxembourg, 27 March 2003.

Juan Manuel Fabra Vallés

President of the Court of Auditors

Ioannis Sarmas

Member of the Court of Auditors

ECSC FINANCIAL STATEMENTS

The ECSC's balance sheet, profit-and-loss account and statement of the allocation of profit for the period ending 23 July 2002 were submitted to the Commission for approval under written procedure No E/2698/2002 of 7 January 2003 and are shown in this financial report as approved by the Commission.

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Allocation of the surplus for the period ending 23 July 2002

(Amounts in EUR)

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NOTES TO THE FINANCIAL STATEMENTS AT 23 JULY 2002

(Amounts in euro)

A. THE ECSC

The European Coal and Steel Community (ECSC) was established by the Treaty of 18 April 1951. According to the Treaty, the task of the ECSC was to contribute to the economic expansion of the Member States through the establishment of a common market for coal and steel.

The ECSC Treaty expired on 23 July 2002. The Nice European Council decided to annex to the Nice Treaty of 26 February 2001(1) a protocol on the financial consequences of the expiry of the ECSC Treaty and on the creation and management of the Coal and Steel Research Fund. It was decided that all ECSC assets at the time of the expiry of the Treaty will be transferred to the European Community with effect from 24 July 2002. The net value of these assets is considered to be earmarked for research in the sectors associated with the coal and steel industry. The income generated by these assets will be allocated exclusively to research in these sectors.

Since the Nice Treaty was not ratified before the expiry of the ECSC Treaty, the Member States have temporarily entrusted to the European Commission the task of managing the assets of the ECSC in liquidation by applying the same principles(2), as provided for in the Protocol to the Nice Treaty. In a referendum, Ireland agreed to the ratification of the Nice Treaty.

In view of the expiry of the ECSC Treaty, the rate of the ECSC levy was reduced to zero in 1998, and the ECSC's lending activity has been discontinued since July 1997 (Commission Decision of 22 June 1994). Thus most of the ECSC's funds have come since from the return on its cash holdings.

B. ACCOUNTING PRINCIPLES AND METHODS

1. Presentation of the financial statements

The financial statements are drawn up in accordance with generally recognised accounting principles.

The accounting principles and evaluation methods used for the items in the financial statements take account of the constraints imposed on and resolutions applicable to the ECSC under the Treaties and other ECSC-related decisions adopted by the institutions of the European Communities.

The accounting methods used also take account of the absence of continuity after 23 July 2002, when the ECSC Treaty expired.

They are presented in accordance with Council Directives 78/660/EEC and 86/635/EEC(3) on the annual accounts and consolidated accounts of banks and other financial institutions wherever these are applicable and subject to the above-mentioned necessary adjustments. Directive 2001/65/EC(4) amending the above-mentioned Directives concerning the valuation rules and in particular fair value is not yet applicable to the ECSC financial statements. This Directive must be applied by 31 December 2003.

2. Conversion of items expressed in foreign currency

The currency used by the ECSC for its annual accounts is the euro ("EUR" or "[fmxeuro]")

All foreign-currency transactions carried out by the ECSC are converted into euros at the monthly rate communicated by the European Central Bank.

The value of non-financial assets/liabilities is converted into euros at the monthly rate applicable on the date on which they were acquired or on which their value was last adjusted.

On the balance-sheet date, financial assets/liabilities are converted into euros at the monthly rate applicable on that date. Negative differences are entered under "charges" in the profit-and-loss account, while positive differences are deferred and entered under "accruals and deferred income" on the liabilities side.

2.1. Conversion rates

The following rates have been used for converting year-end balance-sheet amounts expressed in national currency into euros:

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2.2. At 23 July 2002, the various currencies listed above, together with the euro, made up the ECSC's balance sheet as follows (EUR):

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3. Treasury investment and valuation of bonds and other securities

The ECSC's internal prudential rules stipulate that portfolio investments are to be confined to securities issued by first-ranking entities. However in 1998, under an agreement to restructure the debt of a defaulting debtor, the ECSC exceptionally acquired shares and other variable-income securities from a private-sector company.

Bonds and other fixed-income securities and shares and other variable-income securities are valued at the average purchase price or the market value obtaining at the end of the financial year, whichever is the lower.

This principle is not applied in the case of securities considered as financial fixed assets, which are valued at the average purchase price or the redemption value, whichever is the lower.

4. Special features of the ECSC financial statements

(a) ECSC operating budget

Part of the ECSC's funds are made available to the ECSC operating budget, which is adopted annually by the Commission after informing the Council and consulting the European Parliament. The last budget was drawn up for the period from 1 January to 23 July 2002.

The commitments entered into by the operating budget vis-à-vis third parties and still outstanding at 23 July 2002 are shown under the heading "Outstanding commitments under the operating budget" (see note C12).

EUR 79 million of the provisions for financing the 2002 ECSC operating budget (EUR 149794520 at 31 December 2001) were used, and the balance at 23 July 2002 was withdrawn (see notes C12, C16.1 and C16.2).

(b) Budget for financing coal and steel research

The Member States of the European Union have decided that the income from the management of ECSC assets after 23 July 2002 should be allocated to the general budget of the European Communities(5). This income is earmarked for a research programme relating to the coal and steel industries, as stated in note A to this report.

The ECSC has already constituted provisions in order to prepare the ground for this mechanism for financing coal and steel research. These provisions are entered under the heading "Budget for financing coal and steel research" (see note C.14).

5. Change in accounting methods

Until the 2001 financial year, fines and interest subsidies were not regarded as ECSC resources until they had actually been received. Fines imposed but not yet paid and interest subsidies whose repayment had been requested were transferred to the financing provisions (see note C13.2a). With the end of the ECSC operating budget, the financing provisions were withdrawn and, as a precautionary measure, transferred to the value adjustment for bad debts.

C. EXPLANATORY NOTES TO THE HEADINGS IN THE BALANCE SHEET AND THE PROFIT-AND-LOSS ACCOUNTS

1. Balances with central banks

This item represents the ECSC's balances with the central banks of certain Member States.

2. Loans and advances to credit institutions

2.1. With agreed maturity dates or periods of notice

The breakdown of the remaining time to maturity of these operations is as follows:

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2.2. Loans

The breakdown of the remaining time to maturity of these operations is as follows:

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3. Loans and advances to customers

3.1. Loans

The loans granted to credit institutions are shown under "Loans and advances to credit institutions" (see note C2).

The other loans break down as follows:

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N.B.

Loans are generally guaranteed by Member States, banks or businesses or by mortgages.

Loans granted to a defaulting debtor were ceded to a third party on 5 August 2002. At 31 December 2001 a value adjustment of EUR 29190879 was applied to the loans, which totalled EUR 50463192. This value adjustment was adjusted at 23 July 2002 to reflect the price paid for the loans, namely EUR 27064451, which was fixed prior to 23 July.

3.2. Levy

The levy rate for 1998 to 2002 was 0 %, so the claims at 23 July 2002 relate to previous years.

This item breaks down as follows:

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3.3. Fines

This item contains the Commission's claims on companies fined in accordance with the rules set out in the Treaty. The recording method has been changed in view of the end of the ECSC operating budgets (see note B5).

This item breaks down as follows:

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3.4. Interest subsidies to be recovered

This item comprises claims on companies in receipt of subsidised loans which the Commission has been obliged to ask to reimburse all or part of the interest subsidy already paid.

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4. Bonds and other fixed-income securities

4.1. Composition

Bonds and other fixed-income securities break down as follows:

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The net movement of value adjustments of EUR 55990109 breaks down as follows:

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4.2. Maturities at 23 July 2003

Securities in the portfolio reaching final maturity by 23 July 2003 represent the following amounts (EUR):

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4.3. Financial fixed assets (see note B.3)

Financial fixed assets are defined as securities that will remain in the portfolio until their final maturity. They comprise long-term paper for servicing ECSC borrowings.

At 23 July 2002 financial fixed assets totalled EUR 161922895 in nominal terms, which was less than the average acquisition price. A value adjustment of EUR 62397971 was therefore entered in the result of the period ending 23 July 2002.

4.4. Return on investment

Treasury investments take account of the maturity dates and liquidity requirements applicable to ECSC financial operations. They are subject to strict criteria with regard to the financial standing of the counterparty.

The return on investment, including the variation in the market value of bonds (calculated by the Modified Dietz Method) was 4,51 % for the period ending 23 July 2002.

5. Shares and other variable-income securities

Shares and other variable-income securities break down as follows:

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These shares and other variable-income securities were received by the ECSC as part of the restructuring plan of a defaulting debtor (see note B.3).

The net movement of EUR 42960314 corresponds to the use of value adjustments in relation to shares sold during the period ending 23 July 2002 to the value of EUR 44365901 and an additional allocation of EUR 1405587.

6. Other assets

Other assets break down as follows:

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7. Prepayments and accrued income

Prepayments and accrued income break down as follows:

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8. Amounts owed to credit institutions

The remaining time to maturity on these operations is as follows:

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9. Debts evidenced by certificates

This item comprises loan securities issued by the ECSC.

An amount of EUR 228673526 is accounted for by borrowings with less than one year to maturity (EUR 104115280 at 31 December 2001).

10. Other liabilities

Other liabilities break down as follows:

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11. Accruals and deferred income

Accruals and deferred income break down as follows:

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12. Outstanding commitments under the ECSC operating budget

This item comprises commitments under the ECSC operating budgets which were still outstanding on 23 July 2002 (see note B4.a).

During the period from 1 January to 23 July 2002 commitments for the ECSC operating budget were as follows:

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The provision for financing the 2002 operating budget and the provision for budgetary contingencies have been withdrawn (see also note C16.2).

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13. Provision for liabilities and charges

13.1. Guarantee Fund

The Guarantee Fund is intended to cover lending and borrowing operations. After a withdrawal of EUR 51 million, the Guarantee Fund totalled EUR 529 million at 23 July 2002.

On 11 September 1996 the Commission confirmed its intention of maintaining reserves to cover 100 % of those loans outstanding after 23 July 2002 which are not guaranteed by the government of a Member State. At 23 July 2002 this coverage was 100 %. However, since some of the loans are denominated in GBP, the 100 % coverage may change as a result of fluctuations in the GBP/EUR exchange rate.

The Guarantee Fund decreased as follows:

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13.2. Other provisions

This item comprises provisions for fines and repayable interest subsidies (EUR 42385781 at 31 December 2001) and other provisions totalling EUR 57012724 (EUR 108313490 at 31 December 2001).

(a) Provisions for fines and repayable interest subsidies (see note B.5):

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(b) Other provisions:

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14. Budget for financing coal and steel research

This item breaks down as follows:

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In view of the expiry of the ECSC Treaty on 23 July 2002 and the winding-up of the ECSC, it has been decided that all ECSC assets at the time of the expiry of the Treaty will be transferred to the European Community with effect from 24 July 2002(6). The net value of these assets is considered to be earmarked for research in the sectors associated with the coal and steel industries. The income generated by these assets will be allocated exclusively to research in these sectors.

In practice, the net profit from the management of the assets (invested mainly in the portfolio of securities and term deposits) in year n will be transferred to the general budget of the European Community and will be used for research in year n+2. On the basis of simulations of the net profit from the management of the assets, it was decided to set the initial funding at EUR 60 million.

In order to reduce fluctuations in research funding resulting from movements on the financial markets, a smoothing formula will be applied in accordance with the procedures approved by the Member States. This smoothing formula will be applied for the first time to the results for the 2003 financial year and will be used to determine the allocation for research in 2005. In order to launch this mechanism, the ECSC constituted a provision for smoothing.

15. Reserves and surpluses

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The Special Reserve is used to grant loans from ECSC own funds to finance subsidised housing. At 23 July 2002 the amount outstanding corresponding to the loans granted totalled approximately EUR 112,3 million. Consequently, it proved possible to release EUR 5,7 million, which was transferred to free reserves.

The former Pension Fund originally represented the ECSC's total pension obligations prior to 5 March 1968. Since that date, the Member States have assumed responsibility, via the general budget, for the payment of staff pensions. This fund is used to finance housing loans for officials of the European Communities. At 23 July 2002 the amount outstanding corresponding to the loans granted totalled approximately EUR 36 million. Consequently, it proved possible to release EUR 4 million, which was transferred to the free reserves.

The "Assets of the Coal and Steel Research Fund" reserve, constituted in the context of the winding-up of the ECSC (see note 14), comprises the free reserves.

16. Analysis of the result for the period from 1 January to 23 July 2002

Overall ECSC performance is influenced by both the result of non-budgetary operations (lending/borrowing - treasury investment - exchange-rate variations) and the out-turn of the ECSC operating budget.

16.1. Non-budgetary operations

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16.2. Out-turn of the ECSC operating budget

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17. Interest and similar charges

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18. Administrative overheads

The ECSC paid a lump sum of EUR 2794520 (EUR 5 million in 2001) to the general budget of the Commission of the European Communities to cover its administrative expenditure.

19. Other operating charges

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The loss on loans and advances is offset by a withdrawal from the corresponding value adjustment.

20. Interest received and other income

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21. Other operating income

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22. Income relating to the operating budget

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23. Off-balance-sheet commitments

23.1. Commitments received

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23.2. Commitments entered into

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24. Financial situation for the period ending 23 July 2002

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(1) OJ C 80, 10.3.2001.

(2) Decision of the Representatives of the Governments of the ECSC Member States, meeting within the Council, of 27 February 2002 (OJ L 79, 22.3.2002).

(3) OJ L 222, 14.8.1978 and OJ L 372, 31.12.1986.

(4) OJ L 283, 27.10.2001.

(5) Decision of the Representatives of the Governments of the ECSC Member States, meeting within the Council, of 27 February 2002 (OJ L 79, 22.3.2002).

(6) Decision of the Representatives of the Governments of the ECSC Member States, meeting within the Council, of 27 February 2002 (OJ L 79, 22.3.2002).