EN Official Journal of the European Union C 348/1

CONSOLIDATED ANNUAL ACCOUNTS OF THE EUROPEAN UNION — FINANCIAL YEAR 2011

2012/C 348/01

CONTENTS

Note accompanying the consolidated accounts

PART I: Consolidated financial statements and explanatory notes

Balance Sheet

Economic Outturn Account

Cashflow Table

Statement of changes in Net Assets

Notes to the financial statements

PART II: Consolidated reports on implementation of the budget and explanatory notes

Consolidated reports on implementation of the budget

Explanatory notes to the consolidated reports on implementation of the budget

NOTE ACCOMPANYING THE CONSOLIDATED ACCOUNTS

The consolidated annual accounts of the European Union for the year 2011 have been prepared on the basis of the information presented by the institutions and bodies under Article 129.2 of the Financial Regulation applicable to the general budget of the European Union. I hereby declare that they were prepared in accordance with Title VII of this Financial Regulation and with the accounting principles, rules and methods set out in the notes to the financial statements.

I have obtained from the accounting officers of these institutions and bodies, who certified its reliability, all the information necessary for the production of the accounts that show the European Union'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 of the European Commission, I have a reasonable assurance that the accounts present a true and fair view of the financial position of the European Union in all material aspects.

(signed)

Philippe TAVERNE Accounting Officer of the Commission 18 July 2012

PART I

Consolidated financial statements and explanatory notes (1)

CONTENTS

Balance Sheet

Economic Outturn Account

Cashflow Table

Statement of Changes in Net Assets

Notes to the Financial Statements:

1. Significant accounting policies

2. Notes to the Balance Sheet

3. Notes to the Economic Outturn Account

4. Notes to the Cashflow table

5. Contingent Assets & Liabilities and other disclosures

6. Financial corrections and recoveries

7. Borrowing and lending activities of the EU

8. Financial risk management

9. Related party disclosures

10. Events after the balance sheet date

11. Scope of consolidation

BALANCE SHEET

EUR millions Note 31.12.2011 31.12.2010 NON-CURRENT ASSETS: Intangible assets 2.1 149 108 Property, plant and equipment 2.2 5 071 4 813 Long-term investments: Investments accounted for using the equity method 2.3 374 492 Financial assets: Available for sale assets 2.4 2 272 2 063 Financial assets: Long-term loans 2.5 41 400 11 640 Long-term receivables & recoverables 2.6 289 40 Long-term pre-financing 2.7 44 723 44 118 94 278 63 274 CURRENT ASSETS: Inventories 2.8 94 91 Short-term investments: Financial assets: Available for sale assets 2.9 3 619 2 331 Short-term receivables & recoverables: Financial assets: Short-term loans 2.10 102 2 170 Other receivables & recoverables 2.11 9 477 11 331 Short-term pre-financing 2.12 11 007 10 078 Cash and cash equivalents 2.13 18 935 22 063 43 234 48 064 TOTAL ASSETS 137 512 111 338 NON-CURRENT LIABILITIES: Pension & other employee benefits 2.14 (34 835) (37 172) Long-term provisions 2.15 (1 495) (1 317) Long-term financial liabilities 2.16 (41 179) (11 445) Other long-term liabilities 2.17 (2 059) (2 104) (79 568) (52 038) CURRENT LIABILITIES: Short-term provisions 2.18 (270) (214) Short-term financial liabilities 2.19 (51) (2 004) Payables 2.20 (91 473) (84 529) (91 794) (86 747) TOTAL LIABILITIES (171 362) (138 785) NET ASSETS (33 850) (27 447) Reserves 2.21 3 608 3 484 Amounts to be called from Member States (2) 2.22 (37 458) (30 931) NET ASSETS (33 850) (27 447)

ECONOMIC OUTTURN ACCOUNT

EUR millions Note 2011 2010 OPERATING REVENUE Own resource and contributions revenue 3.1 124 677 122 328 Other operating revenue 3.2 5 376 8 188 130 053 130 516 OPERATING EXPENSES Administrative expenses 3.3 (8 976) (8 614) Operating expenses 3.4 (123 778) (103 764) (132 754) (112 378) (DEFICIT)/SURPLUS FROM OPERATING ACTIVITIES (2 701) 18 138 Financial revenue 3.5 1 491 1 178 Financial expenses 3.6 (1 355) (661) Movement in pension & other employee benefits liability 1 212 (1 003) Share of net deficit of joint ventures & associates 3.7 (436) (420) ECONOMIC OUTTURN FOR THE YEAR (1 789) 17 232

CASHFLOW TABLE

EUR millions Note 2011 2010 Economic outturn for the year (1 789) 17 232 Operating activities 4.2 Amortisation 33 28 Depreciation 361 358 (Increase)/decrease in long-term loans (29 760) (876) (Increase)/decrease in long-term pre-financing (605) (2 574) (Increase)/decrease in long-term receivables & recoverables (249) 15 (Increase)/decrease in inventories (3) (14) (Increase)/decrease in short-term pre-financing (929) (642) (Increase)/decrease in short-term receivables & recoverables 3 922 (4 543) Increase/(decrease) in long-term provisions 178 (152) Increase/(decrease) in long-term financial liabilities 29 734 886 Increase/(decrease) in other long-term liabilities (45) (74) Increase/(decrease) in short-term provisions 56 1 Increase/(decrease) in short-term financial liabilities (1 953) 1 964 Increase/(decrease) in payables 6 944 (9 355) Prior year budgetary surplus taken as non cash revenue (4 539) (2 254) Other non-cash movements (75) (149) Increase/(decrease) in pension & employee benefits liability (2 337) (70) Investing activities 4.3 (Increase)/decrease in intangible assets and property, plant and equipment (693) (374) (Increase)/decrease in long-term investments (91) (176) (Increase)/decrease in short-term investments (1 288) (540) NET CASHFLOW (3 128) (1 309) Net increase/(decrease) in cash and cash equivalents (3 128) (1 309) Cash and cash equivalents at the beginning of the year 2.13 22 063 23 372 Cash and cash equivalents at year-end 2.13 18 935 22 063

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 outturn of the year BALANCE AS AT 31 DECEMBER 2009 69 3 254 (52 488) 6 887 (42 278) Movement in Guarantee Fund reserve 273 (273) 0 Fair value movements (130) (130) Other 4 (21) (17) Allocation of the economic outturn 2009 14 6 873 (6 887) 0 Budget result 2009 credited to Member States (2 254) (2 254) Economic outturn for the year 17 232 17 232 BALANCE AS AT 31 DECEMBER 2010 (61) 3 545 (48 163) 17 232 (27 447) Movement in Guarantee Fund reserve 165 (165) 0 Fair value movements (47) (47) Other 2 (30) (28) Allocation of the economic outturn 2010 4 17 228 (17 232) 0 Budget result 2010 credited to Member States (4 539) (4 539) Economic outturn for the year (1 789) (1 789) BALANCE AS AT 31 DECEMBER 2011 (108) 3 716 (35 669) (1 789) (33 850)

NOTES TO THE FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

1.1 LEGAL BASIS AND ACCOUNTING RULES

The accounts of the European Union are kept in accordance with Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 (OJ L 248 of 16.9.2002), on the Financial Regulation applicable to the general budget of the European Union and Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of this Financial Regulation.

In accordance with article 133 of the Financial Regulation, the European Union prepares its financial statements on the basis of accrual-based accounting rules that are derived from International Public Sector Accounting Standards (IPSAS) or by default, International Financial Reporting Standards (IFRS). These accounting rules, adopted by the Accounting Officer of the Commission, have to be applied by all the institutions and EU bodies falling within the scope of consolidation in order to establish a uniform set of rules for accounting, valuation and presentation of the accounts with a view to harmonising the process for drawing up the financial statements and consolidation. The accounts are kept in Euro on the basis of the calendar year.

1.2 ACCOUNTING PRINCIPLES

The objective of the financial statements is to provide information about the financial position, performance and cashflows of an entity that is useful to a wide range of users. For the EU as a public sector entity, the objectives are more specifically to provide information useful for decision making, and to demonstrate the accountability of the entity for the resources entrusted to it. It is with these goals in mind that the present document has been drawn up.

The overall considerations (or accounting principles) to be followed when preparing the financial statements are laid down in EU accounting rule 2 and are the same as those described in IPSAS 1, that is: fair presentation, accrual basis, going concern, consistency of presentation, aggregation, offsetting and comparative information.

Preparation of the financial statements in accordance with the above mentioned rules and principles requires management to make estimates that affect the reported amounts of certain items in the balance sheet and economic outturn account, 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 (institutions and agencies), associates and joint ventures, this being 50 controlled entities, 5 joint ventures and 4 associates. The complete list of consolidated entities can be found in note 11.1. In comparison with 2010, the scope of consolidation has been extended by 7 controlled entities (one institution, 6 agencies). 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 European Union 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 European Union 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 European Court of Auditors 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 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 in Liquidation (ECSC) 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 European Union and one or more parties (the ‘venturers’) undertake an economic activity which is subject to joint control. Joint control is the contractually agreed sharing of control, directly or indirectly, over an activity embodying service potential.

Participations in joint ventures are accounted for using the equity method initially recognised at cost. The European Union's interest in the results of its jointly controlled entities is recognised in the economic outturn account, and its interest in the movements in reserves is recognised in the reserves. The initial cost plus all movements (further contributions, share of results and reserve movements, impairments, and dividends) give the book value of the joint venture in the accounts at the balance sheet date.

Unrealised gains and losses on transactions between the European Union and its jointly controlled entities are not material and have therefore not been eliminated. The accounting policies of joint ventures may differ from those adopted by the European Union for like transactions and events in similar circumstances.

Associates

Associates are entities over which the European Union has, directly or indirectly, significant influence but not control. It is presumed that significant influence is given if the European Union holds directly or indirectly 20 % or more of the voting rights.

Participations in associates are accounted for using the equity method, initially recognised at cost. The European Union's share of its associates' results is recognised in the economic outturn account, and its share of movements in reserves is recognised in the reserves. The initial cost plus all movements (further contributions, share of results and reserve movements, impairments, and dividends) give the book value of the associate in the accounts at the balance sheet date. Distributions received from an associate reduce the carrying amount of the asset. Unrealised gains and losses on transactions between the European Union and its associates are not material and have therefore not been eliminated.

The accounting policies of associates may differ from those adopted by the European Union for like transactions and events in similar circumstances. In cases where the European Union holds 20 % or more of an investment capital fund, it does not seek to exert significant influence. Such funds are therefore treated as financial instruments categorised as available-for-sale and the equity method is not applied.

Non-consolidated entities the funds of which are managed by the Commission

The funds of the Sickness Insurance Scheme for staff of the European Union, 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 European Union they are therefore not consolidated in its accounts – see note 11.2 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 European Union's functional and reporting currency.

Transactions and balances

Foreign currency transactions are translated into euros using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the economic outturn account.

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 31.12.2011 31.12.2010 BGN 1,9558 1,9558 CZK 25,7870 25,0610 DKK 7,4342 7,4535 EEK N/A 15,6466 GBP 0,8353 0,8607 HUF 314,5800 277,9500 LVL 0,6995 0,7094 LTL 3,4528 3,4528 PLN 4,4580 3,9750 RON 4,3233 4,2620 SEK 8,9120 8,9655 CHF 1,2156 1,2504 JPY 100,2000 108,6500 USD 1,2939 1,3362

Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale that relate to a translation difference are recognised in the economic outturn account. Translation differences on non-monetary financial assets and liabilities held at fair value through profit or loss are recognised in the economic outturn account. Translation differences on non-monetary financial assets classified as available-for-sale are included in the fair value reserve.

1.4.2 Use of estimates

In accordance with IPSAS and generally accepted accounting principles, the financial statements necessarily include amounts based on estimates and assumptions by management based on the most reliable information available. Significant estimates include, but are not limited to, amounts for employee benefit liabilities, provisions, financial risk on inventories and accounts receivables, accrued income and charges, contingent assets and liabilities, and degree of impairment of intangible assets and property, plant and equipment. Actual results could differ from those estimates. Changes in estimates are reflected in the period in which they become known.

1.5 BALANCE SHEET

1.5.1 Intangible assets

Acquired computer software licences are stated at historical cost less accumulated amortisation and impairment losses. The assets are amortised on a straight-line basis over their estimated useful lives. Internally developed intangible assets are capitalised when the relevant criteria of the EU accounting rules are met. The costs capitalisable include all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Costs associated with research activities, non-capitalisable development costs and maintenance costs are recognised as expenses as incurred.

1.5.2 Property, plant and equipment

All property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes 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 European Union and its cost can be measured reliably. Repairs and maintenance costs are charged to the economic outturn account during the financial period in which they are incurred. As the European Union does not borrow money to fund the acquisition of property, plant and equipment, there are no borrowing costs related to such purchases.

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:

Depreciation rates

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 economic outturn account.

Leases

Leases of tangible assets, where the European Union has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The rental obligations, net of finance charges, are included in other liabilities (long and short-term.) The interest element of the finance cost is charged to the economic outturn account 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 economic outturn account 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 and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use.

Intangible assets and property, plant and equipment residual values and useful lives are reviewed, and adjusted if appropriate, at least once per year. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. If the reasons for impairments recognised in previous years no longer apply, the impairment losses are reversed accordingly.

1.5.4 Investments

Participations in Associates and Joint Ventures

Participations in associates and joint ventures are accounted for using the equity method. The costs of equity are adjusted to reflect the share of increases or reductions in net assets of the associates and joint ventures that are attributable to the European Union after initial recognition if there are indications of impairment and written down to the lower recoverable amount if necessary. The recoverable amount is determined as described under 1.5.3. If the reason for impairment ceases to apply at a later date, the impairment loss is reversed to the carrying amount that would have been determined had no impairment loss been recognised.

Investments in Venture Capital Funds

Classification and measurement

Investments in Venture Capital Funds are classified as available-for-sale 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.

Fair value considerations

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 economic outturn account or as changes in the fair value reserve.

1.5.5 Financial assets

Classification

The European Union classifies their financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale financial assets. The classification of the financial instruments is determined at initial recognition and re-evaluated at each balance sheet date.

(i) Financial assets at fair value through profit or loss

A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by the European Union. Derivatives are also categorised in this category. Assets in this category are classified as current assets if they are expected to be realised within 12 months of the balance sheet date.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the EU provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in non-current assets, except for maturities within 12 months of the balance sheet date.

(iii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the European Union has the positive intention and ability to hold to maturity. During this financial year, the European Union did not hold any investments in this category.

(iv) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are classified as either current or non-current assets, depending on the time period in which the EU intends to dispose of them. Investments in unconsolidated entities and other equity investments (e.g. Risk Capital Operations) that are not accounted for using the equity method are also classified as available-for sale-financial assets.

Initial recognition and measurement

Purchases and sales of financial assets at fair value through profit or loss, held-to-maturity and available-for-sale are recognised on trade-date – the date on which the European Union commits to purchase or sell the asset. Loans are recognised when cash is advanced to the borrowers. Financial instruments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or losses are initially recognised at fair value and transaction costs are expensed in the economic outturn account.

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 European Union for fair valuing its lending operations under EFSM, BOP and other such loans, should be the interest rate charged.

— In addition, for these loans, there are compensating effects between loans and borrowings due to their back-to-back character. Thus, the effective interest for the loan equals the effective interest rate for the related borrowings. The transaction costs incurred by the EU and then recharged to the beneficiary of the loan are directly recognised in the economic outturn account.

Financial instruments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the European Union has transferred substantially all risks and rewards of ownership.

Subsequent measurement

(i) Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains and losses arising from changes in the fair value of the ‘financial instruments at fair value through profit or loss’ category are included in the economic outturn account 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 economic outturn account.

(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 assets are recognised in the fair value reserve. When assets classified as available-for-sale are sold or impaired, the cumulative fair value adjustments previously recognised in the fair value reserve are recognised in the economic outturn account. Interest on available-for-sale financial assets calculated using the effective interest method is recognised in the economic outturn account. Dividends on available-for-sale equity instruments are recognised when the EU's right to receive payment is established. The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the European Union establishes a fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. In cases where the fair value of investments in equity instruments that do not have quoted market price in an active market cannot be reliably measured, these investments are valued at cost less impairment losses.

Impairment of financial assets

The European Union assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. A financial asset is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss event (or events) has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.

(a) Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the economic outturn account. 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 economic outturn account.

(b) Assets carried at fair value

In the case of equity investments classified as available-for-sale, a significant or permanent (prolonged) decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the economic outturn account – is removed from reserves and recognised in the economic outturn account. Impairment losses recognised in the economic outturn account on equity instruments are not reversed through the economic outturn account. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the economic outturn account.

1.5.6 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labour, other directly attributable costs and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. When inventories are held for distribution at no charge or for a nominal charge, they are measured at the lower of cost and current replacement cost. Current replacement cost is the cost the European Union would incur to acquire the asset on the reporting date.

1.5.7 Pre-financing amounts

Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be split into a number of payments over a period defined in the particular pre-financing agreement. The float or advance is repaid or used for the purpose for which it was provided during the period defined in the agreement. If the beneficiary does not incur eligible expenditures, he has the obligation to return the pre-financing advance to the European Union. The amount of the pre-financing is reduced (wholly or partially) by the acceptance of eligible costs and amounts returned, and this amount is recognised as an expense.

At year-end, outstanding pre-financing amounts are valued at the original amount(s) paid less: amounts returned, eligible amounts expensed, estimated eligible amounts not yet cleared at year-end, and value reductions.

Interest on pre-financing is recognised as it is earned in accordance with the provisions of the relevant agreement. An estimate of the accrued interest revenue, based on the most reliable information, is made at the year-end and included in the balance sheet.

1.5.8 Receivables

Receivables are carried at original amount less write-down for impairment. A write-down for impairment of receivables is established when there is objective evidence that the European Union will not be able to collect all amounts due according to the original terms of receivables. The amount of the write-down is the difference between the asset’s carrying amount and the recoverable amount,. The amount of the write-down is recognised in the economic outturn account. A general write-down, based on past experience, is also made for outstanding recovery orders not already subject to a specific write-down. See note 1.5.14 below concerning the treatment of accrued income at year-end.

1.5.9 Cash and cash equivalents

Cash and cash equivalents are financial instruments and defined as current assets. They include cash at hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less.

1.5.10 Employee benefits

Pension obligations

The European Union operates defined benefit pension plans. Whilst staff contribute from their salaries one third of the expected cost of these benefits, the liability is not funded. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date. The defined benefit obligation is calculated by actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised immediately in the economic outturn account. Past-service costs are recognised immediately in economic outturn account, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period.

Post-employment sickness benefits

The European Union provides health benefits to its employees through the reimbursement of medical expenses. A separate fund has been created for the day-to-day administration. Both current employees, pensioners, widowers and their beneficiaries benefit from the system. The benefits granted to the ‘inactives’ (pensioners, orphans, etc.) are classified as ‘Post-Employment Employee Benefits’. Given the nature of these benefits, an actuarial calculation is required. The liability in the balance sheet is determined on a similar basis as that for the pension obligations (see above).

1.5.11 Provisions

Provisions are recognised when the European Union has a present legal or constructive obligation towards third parties as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognised for future operating losses. The amount of the provision is the best estimate of the 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 economic outturn account over the period of the borrowings using the effective interest method.

They are classified as non-current liabilities, except for maturities less than 12 months after the balance sheet date. In the case of loans granted on borrowed funds, the effective interest method may not be applied to loans and borrowings, based on materiality considerations. The transaction costs incurred by the European Union and then recharged to the beneficiary of the loan are directly recognised in the economic outturn account.

Financial liabilities categorised at fair value through profit or loss include derivatives when their fair value is negative. They follow the same accounting treatment as financial assets at fair value through profit or loss, see note 1.5.5.

1.5.13 Payables

A significant amount of the payables of the EU are not related to the purchase of goods or services – instead they are unpaid cost claims from beneficiaries of grants or other EU funding. They are recorded as payables for the requested amount when the cost claim is received. Upon verification and acceptance of the eligible costs, the payables are valued at the accepted and eligible amount.

Payables arising from the purchase of goods and services are recognised at invoice reception for the original amount and corresponding expenses are entered in the accounts when the supplies or services are delivered and accepted by the European Union.

1.5.14 Accrued and deferred income and charges

According to the European Union accounting rules, transactions and events are recognised in the financial statements in the period to which they relate. At the end of the accounting period, accrued expenses are recognised based on an estimated amount of the transfer obligation of the period. The calculation of accrued expenses is done in accordance with detailed operational and practical guidelines issued by the Commission which aim at ensuring that the financial statements reflect a true and fair view.

Revenue is also accounted for in the period to which it relates. At year-end, if an invoice is not yet issued but the service has been rendered, the supplies have been delivered by the EU or a contractual agreement exists (i.e. by reference to a treaty), an accrued income will be recognised in the financial statements.

In addition, at year-end, if an invoice is issued but the services have not yet been rendered or the goods supplied have not yet been delivered, the revenue will be deferred and recognised in the subsequent accounting period.

1.6 ECONOMIC OUTTURN ACCOUNT

1.6.1 Revenue

Non-exchange revenue

This makes up the vast majority of the EU's revenue and includes mainly direct and indirect taxes and own resource amounts. In addition to taxes the European Union may also receive payments from other parties, such as duties, fines and donations.

GNI based resources and VAT resources

Revenue is recognised for the period for which the European Commission sends out a call for funds to the Member States claiming their contribution. They are measured at their ‘called amount’. As VAT and GNI resources are based on estimates of the data for the budgetary year concerned, they may be revised as changes occur until the final data are issued by the Member States. The effect of a change in estimate is included when determining the net surplus or deficit for the period in which the change occurred.

Traditional own resources

Receivables and related revenues are recognised when the relevant monthly A statements (including duties collected and amounts due that are guaranteed and not contested) are received from the Member States. At the reporting date, revenue collected by the Member States for the period but not yet paid to the European Commission is estimated and recognised as accrued revenue. The quarterly B statements (including duties neither collected nor guaranteed, as well as guaranteed amounts that have been contested by the debtor) received from the Member States are recognised as revenue less the collection costs to which they are entitled (25 %). In addition, a value reduction is recognised for the amount of the estimated recovery gap in the economic outturn account.

Fines

Revenue from fines is recognised when the EU's decision imposing a fine has been taken and it is officially notified to the addressee. If there are doubts about the undertaking's solvency, a value reduction on the entitlement is recognised. After the decision to impose a fine, the debtors have two months from the date of notification:

— either to accept the decision, in which case they must pay the fine within the time limit laid down and the amount is definitively collected by the EU;

— or not to accept the decision, in which case they lodge an appeal under EU law.

However, even if appealed, the principal of the fine must be paid within the time limit of three months laid down as the appeal does not have suspensory effect (Article 278 of the EU Treaty) or, under certain circumstances and subject to the agreement of the Commission's Accounting Officer, it may present a bank guarantee for the amount instead.

If the undertaking appeals against the decision, and has already provisionally paid the fine, the amount is disclosed as a contingent liability. However, since an appeal against an EU decision by the addressee does not have suspensory effect, the cash received is used to clear the receivable. If a guarantee is received instead of payment, the fine remains as a receivable. If it appears probable that the General Court may not rule in favour of the EU, a provision is recognised to cover this risk. If a guarantee had been given instead, then the receivable outstanding is written-down as required. The accumulated interest received by the European Commission on the bank accounts where received payments are deposited is recognised as revenue, and any contingent liability is increased accordingly.

Exchange revenue

Revenue from the sale of goods and services is recognised when the significant risk and rewards of ownership of the goods are transferred to the purchaser. Revenue associated with a transaction involving the provision of services is recognised by reference to the stage of completion of the transaction at the reporting date.

Interest income and expense

Interest income and expense are recognised in the economic outturn account using the effective interest method. This is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. When calculating the effective interest rate, the European Union estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but do not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

Dividend income

Dividend income is recognised when the right to receive payment is established.

1.6.2 Expenditure

Exchange expenses arising from the purchase of goods and services are recognised when the supplies are delivered and accepted by the European Union. They are valued at original invoice cost. Non-exchange expenses are specific to the EU and account for the majority of its expenditure. They relate to transfers to beneficiaries and can be of three types: entitlements, transfers under agreement and discretionary grants, contributions and donations.

Transfers are recognised as expenses in the period during which the events giving rise to the transfer occurred, as long as the nature of the transfer is allowed by regulation (Financial Regulation, Staff Regulations, or other regulation) or a contract has been signed authorising the transfer; any eligibility criteria have been met by the beneficiary; and a reasonable estimate of the amount can be made.

When a request for payment or cost claim is received and meets the recognition criteria, it is recognised as an expense for the eligible amount. At year-end, incurred eligible expenses due to the beneficiaries but not yet reported are estimated and recorded as accrued expenses.

1.7 CONTINGENT ASSETS AND LIABILITIES

1.7.1 Contingent assets

A contingent asset is a possible asset that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the European Union. A contingent asset is disclosed when an inflow of economic benefits or service potential is probable.

1.7.2 Contingent liabilities

A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the European Union; or a present obligation that arises from past events but is not recognised because: it is not probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation or, in the rare circumstances where the amount of the obligation cannot be measured with sufficient reliability.

2. NOTES TO THE BALANCE SHEET

NON CURRENT ASSETS

2.1 INTANGIBLE ASSETS

EUR millions Amount Gross carrying amount at 31 December 2010 236 Additions 80 Disposals (13) Other changes (2) Gross carrying amount at 31 December 2011 301 Accumulated amortisation at 31 December 2010 (128) Amortisation charge for the year (33) Disposals 8 Other changes 1 Accumulated amortisation at 31 December 2011 (152) Net carrying amount at 31 December 2011 149 Net carrying amount at 31 December 2010 108

The above amounts relate primarily to computer software.

2.2 PROPERTY, PLANT AND EQUIPMENT

Included under assets under construction at 31 December 2011 are EUR 219 million of assets relating to the Galileo project, the EU's Global Navigation Satellite System, being built with the assistance of the European Space Agency (ESA). When completed, the system will comprise 30 satellites, 2 control centres and 16 ground stations. The amount on the balance sheet reflects the costs incurred by the Commission on this project since 22 October 2011, the date on which the first two satellites of the system were successfully launched. Prior to this date, and as explained in previous annual accounts, the Commission considered the project to be in a research phase, thus in accordance with the EU accounting rules all costs incurred were expensed. Since the beginning of the project and until the end of the current financial perspective, the In-Orbit Validation phase and the first part of the Full Operational Capability phase have a planned cost to the EU of EUR 3 788 million. For the next financial perspective, a further EUR 5 500 million is foreseen to be spent on; fully deploying the system, exploiting it, delivering Galileo services until 2020 and preparing the next generation of the constellation, and this will be entirely financed by the EU budget. An amount of EUR 268 million has been recognised as research expenses during the period.

The next two satellites are due to be launched in autumn 2012 and once the subsequent testing on these is complete, this will end the In-Orbit Validation (‘IOV’) phase of the project. This phase had been jointly funded by the EU and ESA and according to the grant agreement concluded between the two parties, ESA shall make an official transfer of the constructed assets to the EU. This legal transfer will require the ESA Council's agreement, noting that all except two Member States of ESA (Norway and Switzerland), are also EU Member States. At this time, the Commission has no reason to believe that such a transfer would be blocked by member(s) of ESA.

EUR millions Land and buildings Plant and equipment Furniture and vehicles Computer hardware Other tangible assets Finance leases Assets under construction TOTAL Gross carrying amount at previous year-end 4 027 492 226 483 214 2 663 335 8 440 Additions 89 37 19 112 22 28 335 642 Disposals 0 (11) (19) (44) (12) (6) 0 (92) Transfers between asset categories 22 1 0 4 0 (2) (24) 1 Other changes (20) 9 3 2 4 2 (1) (1) Gross carrying amount at year-end 4 118 528 229 557 228 2 685 645 8 990 Accumulated depreciation at previous year-end (1 868) (382) (167) (378) (124) (708) (3 627) Depreciation charge for the year (132) (47) (14) (63) (22) (95) (373) Depreciation written back 1 0 0 4 0 7 12 Disposals 0 11 16 44 11 0 82 Transfers between asset categories 0 0 0 (2) 0 1 (1) Other changes 0 (7) (1) (1) (2) (1) (12) Accumulated depreciation at year-end (1 999) (425) (166) (396) (137) (796) (3 919) Net carrying amount at 31 december 2011 2 119 103 63 161 91 1 889 645 5 071 Net carrying amount at 31 december 2010 2 159 110 59 105 90 1 955 335 4 813

Charges still to be paid in respect of finance leases and similar entitlements are shown in long-term and short-term liabilities in the balance sheet (see notes 2.17 and 2.20.1). They break down as follows:

FINANCE LEASES

EUR millions Description Cumulative charges (A) Future amounts to be paid Total Value A + B Subsequent expenditure on assets (C) Asset value A + B + C Depreciation (E) Net carrying amount = A + B+ C + E < 1 year > 1 year > 5 years Total Liability (B) Land and buildings 931 59 280 1 315 1 654 2 585 62 2 647 (771) 1 876 Other tangible assets 23 7 7 1 15 38 0 38 (25) 13 Total at 31.12.2011 954 66 287 1 316 1 669 2 623 62 2 685 (796) 1 889 Total at 31.12.2010 865 65 282 1 390 1 737 2 602 61 2 663 (708) 1 955

2.3 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

EUR millions Note 31.12.2011 31.12.2010 Participations in Joint Ventures 2.3.1 62 138 Participations in Associates 2.3.2 312 354 Total Investments 374 492

2.3.1 Participations in joint ventures

EUR millions GJU SESAR ITER IMI FCH Total Amount at 31.12.2010 0 11 12 78 37 138 Contributions 0 18 92 19 59 188 Share of net result 0 (29) (104) (72) (59) (264) Amount at 31.12.2011 0 0 0 25 37 62

Participations in joint ventures are accounted for using the equity method. The following carrying amounts are attributable to the EU based on its percentage of participation in joint ventures:

EUR millions 31.12.2011 31.12.2010 Non-current assets 211 176 Current assets 123 165 Non-current liabilities 0 0 Current liabilities (314) (208) Revenue 8 7 Expenses (379) (247)

Galileo Joint Undertaking (GJU) in liquidation

The Galileo Joint Undertaking (GJU) was put into liquidation at the end of 2006 and the process is still ongoing. As the entity was inactive and still undergoing liquidation in 2011, there were no revenues or expenditures incurred.

SESAR Joint Undertaking

The aim of this Joint Undertaking is to ensure the modernisation of the European air traffic management system and the rapid implementation of the European air traffic management Master Plan by coordinating and concentrating all relevant research and development efforts in the EU. At 31 December 2011, the Commission held 59,37 % of the ownership participation in SESAR. The total (indicative) Commission contribution foreseen for SESAR (from 2007 to 2013) is EUR 700 million. The unrecognised share of losses for the period and cumulatively is EUR 102 million.

ITER International Fusion Energy Organisation (ITER)

ITER involves the European Union and China, India, Russia, South Korea, Japan and USA. ITER was created to; manage the ITER facilities, to encourage the exploitation of the ITER facilities, to promote public understanding and acceptance of fusion energy, and to undertake any other activities that are necessary to achieve its purpose. The EU (Euratom) contribution to ITER International is given through the Fusion for Energy Agency, including also the contributions from Member States and from Switzerland. The total contribution is legally considered as a Euratom contribution to ITER since the Member States and Switzerland do not have ownership interests in ITER. As the EU legally holds the participation in the joint venture ITER International, the Commission must recognise the participation in its accounts. At 31 December 2011, the Commission held 47 % of the ownership participation in ITER. The total (indicative) Euratom contribution foreseen for ITER (from 2007 to 2041) is EUR 7 649 million. The unrecognised share of losses for the period and cumulatively is EUR 4 million.

Joint Technology Initiatives

Public private partnerships in the form of Joint Technology Initiatives, which were implemented through Joint Undertakings within the meaning of Article 171 of the Treaty, have been created in order to implement the objectives of the Lisbon Growth and Jobs Agenda. IMI and FCH are included under this heading but three others, ARTEMIS, Clean Sky and ENIAC, although legally referred to as joint undertakings, from an accounting perspective must be considered as associates (and so included as such in note 2.3.2) because the Commission has a significant influence, not joint control, over them.

IMI Joint Technology Initiative on Innovative Medicines

The IMI Joint Undertaking supports pre-competitive pharmaceutical research and development in the Member States and associated countries, aiming at increasing the research investment in the biopharmaceutical sector and promotes the involvement of small and medium-sized enterprises (SME) in its activities. At 31 December 2011, the Commission held 96,51 % of the ownership participation in IMI. The maximum indicative contribution of the Commission shall amount to EUR 1 billion up to 31.12.2017.

FCH Fuel Cells and Hydrogen Joint Undertaking

The objective of the FCH Joint Undertaking is to combine resources from the public and private sectors to strengthen research activities with a view to increasing the overall efficiency of European research efforts and accelerate the development and deployment of fuel cell and hydrogen technologies. At 31 December 2011, the Commission held 89,32 % of the ownership participation in FCH. The maximum indicative contribution of the EU shall amount to EUR 470 million up to 31.12.2017.

2.3.2 Participations in Associates

EUR millions EIF ARTEMIS Clean Sky ENIAC Total Amount at 31/12/2010 305 14 14 21 354 Contributions 0 11 117 14 142 Share of net surplus/(deficit) (3) (25) (131) (15) (174) Other equity movements (10) 0 0 0 (10) Amount at 31/12/2011 292 0 0 20 312

Participations in associates are accounted for using the equity method. The following carrying amounts are attributable to the EU based on its percentage of participation in associates:

EUR millions 31.12.2011 31.12.2010 Assets 460 447 Liabilities (162) (93) Revenue 28 25 Surplus/(Deficit) (167) (180)

European Investment Fund (EIF)

The European Investment Fund (EIF) is the European Union's financial institution specialising in providing risk capital and guarantees to SMEs. The Commission has paid in 20 %, the balance being uncalled corresponding to an amount of EUR 720 million.

EUR millions EIF Total EIF capital Commission subscription Total Share Capital 3 000 900 Paid-in (600) (180) Uncalled 2 400 720

ARTEMIS Joint Undertaking

This entity was created to implement a Joint Technology Initiative with the private sector on Embedded Computing Systems. The maximum indicative contribution of the Commission shall amount to EUR 420 million. The unrecognised share of losses for the period and cumulatively is EUR 3 million.

Clean Sky Joint Undertaking

The aim of this entity is to accelerate the development, validation and demonstration of clean air transport technologies in the EU and in particular to create a radically innovative Air Transport System with the target of reducing the environmental impact of air transport. The maximum indicative contribution of the Commission shall amount to EUR 800 million. The unrecognised share of losses for the period and cumulatively is EUR 5 million.

ENIAC Joint Undertaking

The aim of ENIAC is to define a commonly agreed research agenda in the field of nano-electronics in order to set research priorities for the development and adoption of key competences in that area. These objectives will be pursued by pooling resources from the public and private sectors to support R&D activities in the form of projects. The total commitment of the EU shall amount to EUR 450 million. At 31 December 2011, the Commission held 96,77 % of the ownership participation in ENIAC.

2.4 FINANCIAL ASSETS: AVAILABLE FOR SALE ASSETS

EUR millions 31.12.2011 31.12.2010 Guarantee Fund 1 475 1 346 European Bank for Reconstruction and Development 188 188 Risk Capital Operations 134 137 ETF Start up 234 199 European Fund for South East Europe 111 102 Green for Growth Fund 69 20 GEEREF 38 56 Progress Microfinance Facility 18 14 Other investments 5 1 Total 2 272 2 063

2.4.1 Guarantee Fund

Net assets of the Guarantee Fund (3)

EUR millions 31.12.2011 31.12.2010 Available-for-sale assets 1 174 1 154 Cash and cash equivalents 302 193 Total assets 1 476 1 347 Total liabilities (1) (1) Net assets 1 475 1 346

The Guarantee Fund for external actions covers loans guaranteed by the EU as a result of a Council Decision, in particular European Investment Bank (EIB) lending operations outside the EU and loans under macro-financial assistance (MFA) and Euratom loans outside the EU. It is a long-term instrument to cover any defaulting loans guaranteed by the EU and can therefore be seen as a long-term investment. This is evidenced by the fact that nearly 83 % of the available-for-sale assets have a maturity of between 1 and 10 years. The Fund is endowed by payments from the general budget of the EU equivalent to 9 % of the capital value of the operations, the proceeds from interest on investments made from the Fund's assets, and sums recovered from defaulting debtors for whom the Fund has had to activate its guarantee. Any yearly surplus arising shall be paid back as revenue for the EU budget.

The EU is required to include a guarantee reserve to cover loans to third countries. This reserve is intended to cover the requirements of the Guarantee Fund and, where necessary, activated guarantees exceeding the amount available in the Fund, so that these amounts may be charged to the budget. This reserve corresponds to the target amount of 9 % of the loans outstanding at year-end.

2.4.2 Other long-term available-for-sale assets

These are investments and participations purchased to help beneficiaries develop their business activities.

European Bank for Reconstruction and Development (EBRD)

As the EBRD is not quoted on any stock exchange and in view of the contractual restrictions included in the EBRD’s articles of incorporation relating, amongst others, to the sale of participating interests, capped at acquisition cost and only authorised to existing shareholders, the Commission's shareholding is valued at cost less any write-down for impairment.

EUR millions EBRD Total EBRD capital Commission subscription Total Share Capital 28 380 900 Paid-in (6 199) (188) Uncalled 22 181 712

Under Risk Capital Operations amounts are granted to financial intermediaries to finance equity investments. They are managed by European Investment Bank and financed under the European Neighbourhood Policy.

ETF start up covers the Growth & Employment programme, the MAP programme, the CIP programme and the Technology Transfer Pilot Project, under the trusteeship of the EIF, supporting the creation and financing of start-up SMEs by investing in suitable specialised venture capital funds. At year-end, a further EUR 126 million relating to ETF Start up and SME Finance Facility had been committed to, but not yet been drawn down by the other parties.

The European Fund for South East Europe, an investment company with variable share capital (SICAV) is also included under this heading. The overall objective of EFSE is to foster economic development and prosperity in South East Europe through the sustainable provision of additional development finance via local financial intermediaries.

The overall objective of the Green for Growth Fund (former Southeast Europe Energy Efficient Fund) is to enhance energy efficiency and fostering renewable energies in South East Europe through the provision of dedicated financing to businesses and households via partnering with financial institutions and direct finance. GEEREF is an innovative fund providing global risk capital through private investment for energy efficiency and renewable energy projects in developing countries and economies in transition.

2.5 FINANCIAL ASSETS: LONG-TERM LOANS

EUR millions Note 31.12.2011 31.12.2010 Loans granted from the EU budget & ECSC 2.5.1 170 162 Loans granted from borrowed funds 2.5.2 41 230 11 478 Total 41 400 11 640

2.5.1 Loans granted from the European Union budget & the ECSC in Liquidation

EUR millions Loans with special conditions ECSC housing loans Total Total at 31.12.2010 140 22 162 New loans 31 0 31 Repayments (17) (5) (22) Exchange differences (4) — (4) Changes in carrying amount 1 2 3 Total at 31.12.2011 151 19 170

Loans with special conditions are 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 %.

2.5.2 Loans granted from borrowed funds

EUR millions MFA Euratom BOP EFSM ECSC in Liquidation Total Total at 31.12.2010 503 469 12 246 — 264 13 482 New loans 126 — 1 350 28 000 — 29 476 Repayments (36) (20) (2 000) — — (2 056) Exchange differences — — — — 6 6 Changes in carrying amount 2 2 29 344 (4) 373 Total at 31.12.2011 595 451 11 625 28 344 266 41 281 Amount due < 1 year 5 — — — 46 51 Amount due > 1 year 590 451 11 625 28 344 220 41 230

The large increase in these amounts is due to the EFSM loans disbursed during 2011 and is mirrored by an increase in the EU's borrowings (see note 2.16). For more information on borrowing and lending activities, see note 7.

2.6 LONG-TERM RECEIVABLES & RECOVERABLES

EUR millions 31.12.2011 31.12.2010 Member States 268 14 ECSC staff loans 7 9 Guarantees and deposits 11 14 Other 3 3 Total 289 40

Of the above receivables, EUR 273 million (2010: EUR 14 million) relate to non-exchange transactions. The large increase in long-term receivables from Member States concerns EAGF and rural development non-executed clearance of accounts decisions. These amounts are to be recovered in several instalments during 2012 and 2013, in the context of financial assistance granted to certain Member States. Amounts to be recovered in 2013 are included in the above table while amounts to be recovered in 2012 are included under short-term receivables (see note 2.11.1 below).

2.7 LONG-TERM PRE-FINANCING

EUR millions Note 31.12.2011 31.12.2010 Pre-financing 2.7.1 40 625 40 298 Prepaid expenditure 2.7.2 4 098 3 820 Total long-term pre-financing 44 723 44 118

2.7.1 Pre-financing

The timing of the recoverability or utilisation of the pre-financing governs whether it is disclosed as current or long-term pre-financing asset. The utilisation is defined by the project's underlying agreement. All repayments or utilisation due before twelve months of the reporting date is disclosed as short–term pre-financing and therefore as current assets, the balance is long-term.

Guarantees received in respect of pre-financing:

These are guarantees that the European Commission in certain cases requests from beneficiaries 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 2011 the ‘nominal’ value of guarantees received in respect of pre-financing amounted to EUR 1 330 million while the "on-going" value of those guarantees was EUR 1 083 million (2010: EUR 1 227 million and EUR 1 059 million respectively).

Certain pre-financing amounts paid out under the 7th Research Framework Programme for research and technological development (FP7) are effectively covered by a Participants Guarantee Fund (PGF) – the amount of pre-financing paid out in 2011 totalled EUR 3.3 billion (2010: EUR 3.2 billion). This fund is a separate entity from the European Union and is not consolidated in these accounts – note 11.2.3.

LONG-TERM PRE-FINANCING

EUR millions Management type 31.12.2011 31.12.2010 Direct centralised management 1 219 1 695 Indirect centralised management 774 620 Decentralised management 697 441 Shared management 37 249 37 055 Joint management 686 487 Total Long-Term Pre-financing 40 625 40 298

The most significant long-term pre-financing amounts relate to Structural Actions for the 2007-2013 programming period: the regional development fund (ERDF), the social fund (ESF), the agricultural fund for rural development (EAFRD), the cohesion fund (CF) and the fisheries fund. 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-financing amounts are shown as long-term assets.

Pre-financing represents a large portion of the EU's total assets, and thus receives proper and regular attention. It should be noted that the level of pre-financing amounts in the various programmes must be sufficient to ensure the necessary float for the beneficiary to start the project, while also safeguarding the financial interests of the EU and taking into consideration legal, operational and cost-effectiveness constraints. All these elements have been given due consideration by the Commission in an effort to improve the follow-up of pre-financing.

A closer look at the evolution of pre-financing reveals an accelerated increase in the years 2007 to 2009, which coincides with the early years of the 2007-2013 programming period. That period witnessed the starting of new programmes and actions, and the subsequent support from the Commission in the form of pre-financing payments. The year 2011 marks a first decrease in the level of pre-financing, a trend which confirms that the increase witnessed in the early years of the 2007-2013 Financial Framework is a normal development linked to the spending profile of multiannual programmes. In fact in 2011, total pre-financing has decreased by 1,5 % or EUR 743 million compared to 2010, an evolution related mainly to short-term shared management amounts (see note 2.12.1). This decrease is however offset by an increase in prepaid expenditure, due to the recognition of new assets regarding aid scheme advance amounts reimbursed by Commission to the Member States (see below).

2.7.2 Prepaid expenditure

EUR millions 31.12.2011 31.12.2010 Financial Engineering Instruments 3 378 3 820 Aid schemes 720 — Total 4 098 3 820

Under the framework of the cohesion and rural development programmes 2007-2013, payments can be made from the EU Budget to Member States so as to contribute to Financial Engineering Instruments (be it in the form of loans, guarantees or equity investments) set up and managed under the responsibility of the Member State. Monies that are unused by these instruments at year-end are the property of the EU (as with standard pre-financing) and are thus treated as an asset on the Commission balance sheet. 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.

In parallel with the inclusion of FEIs on its balance sheet in 2010, the Commission also analysed similar schemes where advances are paid to Member States. It requested information from Member States on their utilisation of advances received from various aid schemes (state aid, market measures of EAGF) and contributions from the European Globalisation Adjustment Fund. However, at year-end 2010 sufficient information was not available from Member States to allow the Commission to make a reliable estimate of the open amounts at 31 December 2010. Information now indicates that these amounts would not have been material. Following continued work throughout 2011, the Commission is now in a position to better estimate these open advances based on information collected from Member States, therefore an asset is now included on the Commission balance sheet at 31 December 2011, split between long-term (EUR 720 million above) and short term (EUR 1 792 million, see note 2.12.2), depending on when the advances are expected to be used. The recognition of this asset has the counterparty of reducing the 2011 expenditure by the same amount.

CURRENT ASSETS

2.8 INVENTORIES

EUR millions Description 31.12.2011 31.12.2010 Scientific materials 78 71 Other 16 20 Total 94 91

2.9 FINANCIAL ASSETS: AVAILABLE FOR SALE 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.

AVAILABLE FOR SALE ASSETS

EUR millions 31.12.2011 31.12.2010 ECSC in Liquidation 1 463 1 283 BUFI investments 1 358 515 Risk Sharing Finance Facility 547 419 Loan Guarantee Instrument for TEN-T projects 97 111 European Chemicals Agency 151 — Other 3 3 Total 3 619 2 331

Regarding the ECSC in liquidation amounts, all AFS investments are debt securities denominated in EUR and quoted in an active market. At 31 December 2011 debt securities (expressed at their fair value) reaching final maturity in the course of 2012 amount to EUR 481 million (2010: EUR 294 million).

While there have been acquisitions in both the Risk Sharing Finance Facility and the Loan Guarantee Instrument for TEN-T Projects (see also note 5.1.2), the large increase from the previous year is due mainly to the increased amount of provisionally cashed fines in a specifically created fund managed by DG ECFIN (BUFI). Prior to 2010, these amounts would have been held in specific bank accounts – see note 2.13.2, restricted cash.

2.10 FINANCIAL ASSETS: SHORT-TERM LOANS

These amounts represent mainly loans with remaining final maturities less than 12 months after the balance sheet date (see note 2.5.2 above for more details). Last year there was an amount of EUR 2 billion included here relating to a BOP loan to Hungary which was repaid in December 2011. Also included under this heading are term deposits of EUR 51 million, primarily relating to the European External Action Service and the Translation Centre for the Bodies of the European Union.

2.11 OTHER RECEIVABLES & RECOVERABLES

EUR millions Note 31.12.2011 31.12.2010 Current receivables 2.11.1 6 189 6 786 Sundry receivables — 21 20 Accrued income and deferred charges 2.11.2 3 267 4 525 Total 9 477 11 331

The total above contains an estimated EUR 8 955 million (2010: EUR 11 009 million) relating to non-exchange transactions.

2.11.1 Current receivables

EUR millions Account Group At 31.12.2011 At 31.12.2010 Gross amount Write down Net Value Gross amount Write down Net Value Customers 379 (94) 285 207 (79) 128 Fines 3 369 (244) 3 125 4 584 (406) 4 178 Member States 4 243 (1 550) 2 693 4 011 (1 625) 2 386 Others 89 (3) 86 96 (2) 94 Total 8 080 (1 891) 6 189 8 898 (2 112) 6 786

Customers

These are recovery orders entered in the accounts at year-end as established entitlements to be recovered and not already included under other headings on the assets side of the balance sheet.

Fines

This concerns amounts to be recovered relating to fines issued by the Commission. Guarantees totalling EUR 3 012 million had been received for the fines outstanding at 31 December 2011 (2010: EUR 2 585 million) in respect of these receivables. It should be noted that EUR 209 million of the receivables were due for payment after 31 December 2011.

Receivables from Member States

EUR millions 31.12.2011 31.12.2010 EAGF and Rural Development receivables EAGF 1 439 1 130 EAFRD 23 — TRDI 37 19 SAPARD 142 146 Write-down (771) (814) Total 870 481 VAT paid and recoverable 41 46 Own resources Established in the A account 29 81 Established in the separate account 1 263 1 285 Write-down (779) (811) Other 114 391 Total 627 946 Other receivables from Member States Pre-financing recovery expected 963 561 Other 192 352 Total 1 155 913 Total 2 693 2 386

EAGF and Rural Development receivables

This item primarily covers the amounts owed by beneficiaries of EAGF at 31 December, as declared and certified by the Member States at 15 October. An estimation is made for the receivables arising after this declaration and up to 31 December. The Commission also estimates a write-down for the amounts owed by beneficiaries that are unlikely to be recovered. The fact that such an adjustment is made does not mean that the Commission is waiving future recovery of these amounts. A deduction of 20 % is also included in the adjustment, and corresponds to what Member States are allowed to retain to cover administrative costs.

Own resources receivables

It should be noted that Member States are entitled to withhold 25 % of traditional own resources as collection costs, thus the above figures are shown net of this deduction. Based on the estimations sent by Member States, a write-down has been deducted from receivables from Member States. However, this does not mean that the Commission is waiving recovery of the amounts covered by this value adjustment.

2.11.2 Accrued income and deferred charges

EUR millions 31.12.2011 31.12.2010 Accrued income 2 952 3 445 Deferred charges 296 1 061 Other 19 19 Total 3 267 4 525

The main amount under this heading is accrued income:

EUR millions 31.12.2011 31.12.2010 Own resources 2 644 2 657 Agricultural assigned revenue Nov & Dec 111 72 EAGF: non-executed conformity correction decisions — 520 Cohesion, Regional & Rural Development Funds: financial corrections 16 43 Other accrued income 181 153 Total accrued income 2 952 3 445

The large decrease in deferred charges is mainly due to an improvement in the accounting treatment of the funds transferred by the Member States into Financial Engineering Instruments which were yet to be declared to or reimbursed by the Commission at year-end. These amounts are now deducted from the accrued charges to which they relate.

Other accrued income is primarily late interest income, bank interest and interest on pre-financing.

2.12 SHORT-TERM PRE-FINANCING

EUR millions Note 31.12.2011 31.12.2010 Pre-financing 2.12.1 8 089 9 123 Prepaid expenditure 2.12.2 2 918 955 Total short-term pre-financing 11 007 10 078

2.12.1 Pre-financing

EUR millions Management type 31.12.2011 31.12.2010 Direct centralised management 3 048 3 038 Indirect centralised management 3 037 2 368 Decentralised management 330 536 Shared management 761 2 177 Joint management 803 894 Implemented by other Institutions & Agencies 110 110 Total Short-Term Pre-financing 8 089 9 123

The decrease in short-term pre-financing under shared management is due to the significant advancement in the closure process of the programming period 2000-2006 (mostly rural development fund, regional development fund and cohesion fund). Although pre-financing instalments were paid in 2011 for new projects (programmes related to the period 2007-2013), they were classified under long-term assets as explained in note 2.7.

2.12.2 Prepaid expenditure

EUR millions 31.12.2011 31.12.2010 Financial Engineering Instruments 1 126 955 Aid Schemes 1 792 — Total 2 918 955

As explained under note 2.7.2, these amounts relate to payments made to Member States under the framework of the cohesion and rural develoment programmes 2007-2013, so as to reimburse amounts paid in advance to beneficiaries, but which have not yet been used at year-end. The above amounts are expected to be used during 2012.

2.13 CASH AND CASH EQUIVALENTS

EUR millions 31.12.2011 31.12.2010 Unrestricted cash: Accounts with Treasuries & Central Banks 7 450 10 123 Current accounts 1 099 1 150 Imprest accounts 43 39 Transfers (cash in transit) (5) 1 Short-term deposits and other cash equivalents 2 028 1 670 Total 10 615 12 983 Restricted cash 8 320 9 080 Total 18 935 22 063

2.13.1 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, short-term bank deposits and petty cash.

Amounts shown as short-term deposits relate primarily to monies managed by fiduciaries on behalf of the Commission for the purpose of implementing particular programmes funded by the EU budget. At year-end, EUR 118 million had been committed to, but not yet been drawn down by the other parties.

2.13.2 Restricted cash

Restricted cash refers to amounts received in connection with fines issued by the Commission for which the case is still open. These are kept in specific deposit accounts that are not used for any other activities. In case an appeal has been lodged or where it is unknown if an appeal will be made by the other party the underlying amount is shown as contingent liability in note 5.2.

NON CURRENT LIABILITIES

2.14 PENSION AND OTHER EMPLOYEE BENEFITS

EUR millions 31.12.2011 31.12.2010 Pensions – Staff 30 617 32 801 Pensions – others 777 840 Joint Sickness Insurance Scheme 3 441 3 531 Total 34 835 37 172

2.14.1 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 expenditure. 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 2011 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 31.12.2011 31.12.2010 Nominal discount rate 4,9 % 4,6 % Expected inflation rate 1,8 % 2,1 % Real discount rate 3,0 % 2,4 % Probability of marriage: Man/Woman 84 %/38 % 84 %/38 % General Salary Growth/pension revaluation 0 % 0 % 2008 International Civil Servants Life Table Yes Yes

The significant decrease in the pension liability is explained by the sizeable increase in the discount rate applied, resulting in a large actuarial gain for the year.

Movement in Gross Employee Benefits liability

EUR millions Staff pension liability Sickness Insurance Gross Liability at previous year-end 36 639 3 791 Service/normal cost 1 255 169 Interest cost 1 716 180 Benefits paid (1 187) (112) Actuarial gains (4 226) (317) Change due to newcomers 36 0 Gross Liability at year-end 34 233 3 711 Pension co-efficient liability 834 N/A Deduction of taxes on pensions (4 450) N/A Plan assets 0 (270) Net liability at year-end 30 617 3 441

2.14.2 Pensions – Others

This refers to the liability relating to the pension obligation towards Members and former Members of the Commission, the Court of Justice (and General Court) and the Court of Auditors, the Secretaries General of the Council, the Ombudsman, the European Data Protection Supervisor, and the European Union Civil Service Tribunal. Also included under this heading is a liability relating to the pensions of Members of the European Parliament.

2.14.3 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 3 711 million and plan assets of EUR 270 million are deducted from the gross liability to arrive at the net amount. The discount rate and the general salary growth used in the calculation are the same as those used in the staff pension valuation.

2.15 LONG-TERM PROVISIONS

EUR millions Amount at 31.12.2010 Additional provisions Unused amounts reversed Amounts used Transfer to short-term Change in estimation Amount at 31.12.2011 Legal cases 306 95 (29) (4) 0 0 368 Nuclear site dismantling 905 0 0 (8) (29) 137 1 005 Financial 86 41 0 0 (30) 3 100 Other 20 4 (2) 0 0 0 22 Total 1 317 140 (31) (12) (59) 140 1 495

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 ongoing legal cases. The largest portion concerns court cases pending at year-end in relation to financial corrections for EAGF expenditure and other court cases concerning agricultural expenditure.

Nuclear site dismantlement

In 2008 a consortium of independent experts made an update of their 2003 study into the estimated costs of the decommissioning of the JRC nuclear facilities and waste management programme. Their revised estimate of EUR 1 222 million (previously EUR 1 145 million) is taken as the basis for the provision to be included in the financial statements. In accordance with the EU accounting rules, this estimate 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 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 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. Long-term financial provisions are discounted to their net present value (using the Euro Swap annual rate).

2.16 LONG-TERM FINANCIAL LIABILITIES

EUR millions Note 31.12.2011 31.12.2010 Long-term borrowings 2.16.1 41 200 11 445 Elimination Guarantee Fund (4) 2.4.1 (21) — Total 41 179 11 445

2.16.1 Long-term borrowings

EUR millions MFA Euratom BOP EFSM ECSC in Liquidation Total Total at 31.12.2010 503 469 12 246 0 231 13 449 New borrowings 126 0 1 350 28 000 0 29 476 Repayments (36) (20) (2 000) 0 0 (2 056) Exchange differences 0 0 0 0 6 6 Changes in carrying amount 2 2 29 344 (1) 376 Total at 31.12.2011 595 451 11 625 28 344 236 41 251 Amount due < 1 year 5 0 0 0 46 51 Amount due > 1 year 590 451 11 625 28 344 190 41 200

This heading includes borrowings due by the European Union maturing in over one year. Borrowings include debts evidenced by certificates amounting to EUR 41 011 million (2010: EUR 13 211 million). The changes in carrying amount correspond to the change in accrued interests. For more information on borrowing and lending activities, see note 7.

2.17 OTHER LONG-TERM LIABILITIES

EUR millions 31.12.2011 31.12.2010 Finance Leasing debts 1 603 1 672 Buildings paid for in instalments 367 382 Other 89 50 Total 2 059 2 104

CURRENT LIABILITIES

2.18 SHORT-TERM PROVISIONS

EUR millions Amount at 31.12.2010 Additional provisions Unused amounts reversed Amounts used Transfers from long term Change in estimation Amount at 31.12.2011 Legal cases 29 11 (18) (5) 0 0 17 Nuclear site dismantlement 21 0 0 (21) 29 0 29 Financial 140 27 (2) (33) 30 3 165 Other 24 56 (1) (20) 0 0 59 Total 214 94 (21) (79) 59 3 270

This heading includes the portion of provisions which fall due for payment in less than one year's time.

2.19 SHORT-TERM FINANCIAL LIABILITIES

This heading relates to borrowings (see note 2.16) that mature during the 12 months following the balance sheet date.

2.20 PAYABLES

EUR millions Note 31.12.2011 31.12.2010 Current portion of long-term liabilities 2.20.1 81 78 Current payables 2.20.2 22 211 17 615 Sundry payables — 100 97 Accrued charges and deferred income 2.20.3 69 081 66 739 Total 91 473 84 529

2.20.1 Current portion of long-term liabilities

EUR millions 31.12.2011 31.12.2010 Finance leasing liabilities 66 65 Other 15 13 Total 81 78

2.20.2 Current payables

EUR millions Type 31.12.2011 31.12.2010 Member States 22 200 17 035 Suppliers and other 1 511 1 292 Estimated non-eligible amounts and pending pre-payments (1 500) (712) Total 22 211 17 615

Current payables include cost statements received by the Commission under the framework of the grant activities. They are credited for the amount being claimed from the moment the demand is received. If the counterpart is a Member State, they are classified as such. It is the same procedure for invoices and credit notes received under procurement activities. The cost claims concerned have been taken into account for the year-end cut off procedures. Following these cut off entries, estimated eligible amounts have therefore been recorded in the accounts as expenses, while the remaining part is disclosed as ‘Estimated non-eligible amounts and pending prepayments’ (see below). In order not to overestimate assets and liabilities, it was decided to present the net amount under current liabilities.

Member States

The primary amounts here relate to unpaid cost claims for Structural Fund actions (EUR 5.8 billion for ESF and EUR 14 billion for ERDF and CF).

Suppliers and other

Included under this heading are amounts owed following grant and procurement activities, as well as amounts payable to public bodies and non-consolidated entities (e.g. the EDF).

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 considered 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 1 billion).

2.20.3 Accrued charges and deferred income

EUR millions 31.12.2011 31.12.2010 Accrued charges 68 577 66 326 Deferred income 490 407 Amounts related to consolidated entities 14 6 Total 69 081 66 739

The split of accrued charges is as follows:

EUR millions 31.12.2011 31.12.2010 Agriculture and Rural Development: EAGF: Expenses 16/10 to 31/12 33 774 33 015 EAGF: Direct Aid 10 701 10 703 EAGF: Sugar restructuring 224 400 EAGF: Other 23 (303) EAFRD 12 127 10 792 Total 56 849 54 607 Structural Actions: EFF 56 116 ERDF & Cohesion Fund 4 791 4 894 ISPA 172 74 ESF 1 687 2 182 Total 6 706 7 266 Other accrued charges: R&D 1 157 1 267 Other 3 865 3 186 Total 5 022 4 453 Total accrued charges 68 577 66 326

The large amount of deferred income at 31 December 2011 is due to the advance payment of own resources contributions by two Member States in 2011.

NET ASSETS & RESERVES

2.21 RESERVES

EUR millions 31.12.2011 31.12.2010 Fair value reserve (108) (61) Other reserves: Guarantee Fund 1 911 1 746 Revaluation reserve 57 57 Other 1 748 1 742 Total 3 716 3 545 Total 3 608 3 484

2.21.1 Fair value reserve

In accordance with the accounting rules, the adjustment to fair value of available-for-sale assets is accounted for through the fair value reserve. In 2011 a net EUR 24 million of accumulated fair value decreases have been taken out of the fair value reserve and recognised in the economic outturn account relating to available-for-sale assets.

Included in the fair value reserve at year-end is EUR 87 million of decreases in fair value relating to Greek government bonds held by the EU (nominal value EUR 129 million). However, it should be noted that these bonds were exchanged in early 2012 for new bonds, with similar terms but not falling under the scope of the Private Sector Involvement (PSI) debt restructuring. The result was that all amounts due for repayment on 20 March 2012 (EUR 39 million) and 18 May (EUR 15,7 million) were repaid in full and on schedule. Please see note 1.5.5 for further details on the fair value accounting of financial assets.

2.21.2 Other reserves

Guarantee Fund

See also note 2.4.1 concerning the operation of the Guarantee Fund. This reserve reflects the 9 % target amount of the outstanding amounts guaranteed by the Fund that is required to be kept as assets.

Revaluation reserve

This reserve comprises the revaluation of certain Commission land and buildings made prior to 2005.

Other reserve

The amount relates primarily to the ECSC in liquidation reserve for the assets of the Research Fund for Coal and Steel. This reserve was created in the context of the winding-up of the ECSC.

2.22 AMOUNTS TO BE CALLED FROM MEMBER STATES

EUR millions Amount Amounts to be called from Member States at 31 December 2010 30 931 Return of 2010 budget surplus to Member States 4 539 Movement in Guarantee Fund reserve 165 Other reserve movements 34 Economic outturn (surplus) for the year 1 789 Total amounts to be called from Members States at 31 December 2011 37 458 Split between: Employee benefits 34 835 Other amounts 2 623

This amount represents that part of the expenses already incurred by the Commission up to 31 December 2011 that must be funded by future budgets. Many expenses are recognised under accrual accounting rules in the year N although they may be actually paid in year N+1 and funded using the budget of year N+1. The inclusion in the accounts of these liabilities coupled with the fact that the corresponding amounts are financed from future budgets, results in liabilities greatly exceeding assets at the year-end. The most significant amounts to be highlighted are the EAGF activities. The majority of the amounts to be called are in fact paid by the Member States in less than 12 months after the end of the financial year in question as part of the budget of the following year.

It is essentially only the employee benefits obligations of the Commission towards its staff which are paid out over a longer period, noting that the funding of the pension payments by the annual budgets is guaranteed by the Member States. For information purposes only, an estimate of the split of future employee benefit payments is given below:

EUR millions Amount Short-term: amounts to be paid in 2012 1 335 Long-term: amounts to be paid after 2012 33 500 Total employee benefits liability at 31.12.2011 34 835

It should also be noted that the above has no effect on the budget outturn – budget revenue should always equal or exceed budget expenditure and any excess of revenue is returned to Member States.

3. NOTES TO THE ECONOMIC OUTTURN ACCOUNT

3.1 OWN RESOURCE AND CONTRIBUTIONS REVENUE

EUR millions Note 2011 2010 Own resource revenue: 3.1.1 GNI resources 88 442 91 178 VAT resources 14 763 12 517 Traditional own resources: Custom duties 16 528 16 065 Sugar levies 161 150 Total traditional own resources 16 689 16 215 Budgetary adjustments 3.1.2 4 533 2 135 Contributions of third countries (incl. EFTA countries) 250 283 Total 124 677 122 328

3.1.1 Own resource revenue

Own resources 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, 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 inspections carried out by the Commission and audits performed by the Court of Auditors have highlighted some deficiencies in the Belgian clearance and accounting systems, impacting the reliability of amounts transferred to the EU budget under Traditional Own Resources (TOR). A refund of EUR 169 million (gross, EUR 126 million net) claimed by Belgium is currently pending, awaiting the result of further audits and controls on the correctness of the amounts of Belgian TOR credited to the Commission's account.

3.1.2 Budgetary adjustments

The budgetary adjustments include the budget surplus from 2010 (EUR 4 539 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 2011.

3.2 OTHER OPERATING REVENUE

EUR millions Note 2011 2010 Fines 3.2.1 868 3 077 Agricultural levies 3.2.2 65 25 Recovery of expenses: 3.2.3 Direct centralised management 76 49 Indirect centralised management 17 11 Decentralised management 106 71 Joint management 3 — Shared management 845 1 776 Total 1 047 1 907 Revenue from administrative operations: 3.2.4 Staff 1 141 1 073 Property, plant and equipment related revenue 94 13 Other administrative revenue 119 121 Total 1 354 1 207 Miscellaneous operating revenue: 3.2.5 Adjustments/provisions 59 157 Exchange gains 476 460 Other 1 507 1 355 Total 2 042 1 972 Total 5 376 8 188

3.2.1 Fines

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.

3.2.2 Agricultural levies

These amounts concern primarily milk levies which are a market management tool aimed at penalising milk producers who exceed their reference quantities. As it is not linked to prior payments by the Commission, it is in practice considered as revenue for a specific purpose.

3.2.3 Recovery of expenses

This heading represents the recovery orders issued by the Commission and the deduction from subsequent payments recorded in the Commission's accounting system, to recover expenditures previously paid out from the general budget, based on controls, closed audits or eligibility analysis, together with recovery orders issued by Member States to beneficiaries of EAGF expenditure. It also includes the variation of accrued income estimations from the previous year-end to the current. It does not, however, show the full extent of the recovery of EU expenditure, particularly for the significant spending areas of Structural Actions where specific mechanisms are in place to ensure the return of ineligible monies, most of which do not involve the issuance of a recovery order. Recoveries of pre-financing amounts are also not included as revenue, in accordance with the EU accounting rules.

The main amount, EUR 845 million, relates to shared management and is made up mainly of EUR 721 million concerning the European Agricultural Guarantee Fund (EAGF) and EUR 109 million for Structural Actions.

(a) Agriculture: EAGF

In the framework of the European Agricultural Guarantee Fund (EAGF), amounts accounted for as revenue of the year under