COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS ANNUAL ACCOUNTS OF THE EUROPEAN UNION - FINANCIAL YEAR 2010. /* COM/2011/0473 final */





CONTENTS Page Note accompanying the consolidated accounts 3 PART I: CONSOLIDATED FINANCIAL STATEMENTS OF THE EUROPEAN UNION AND EXPLANATORY NOTES 5 Balance Sheet 8 Economic Outturn Account 9 Cashflow Table 10 Statement of changes in Net Assets 11 Notes to the financial statements 12 PART II: CONSOLIDATED REPORTS ON IMPLEMENTATION OF THE BUDGET OF THE EUROPEAN UNION AND EXPLANATORY NOTES 96 Reports on implementation of the budget 98 Explanatory notes to the reports on implementation of the budget 116 NOTE ACCOMPANYING THE CONSOLIDATED ACCOUNTS The consolidated annual accounts of the European Union for the year 2010 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. Philippe Taverne Accounting Officer of the Commission ANNUAL ACCOUNTS OF THE EUROPEAN UNION FINANCIAL YEAR 2010 PART I CONSOLIDATED FINANCIAL STATEMENTS OF THE EUROPEAN UNION AND EXPLANATORY NOTES CONTENTS – PART I Page PART I: CONSOLIDATED FINANCIAL STATEMENTS OF THE EUROPEAN UNION AND EXPLANATORY NOTES Balance Sheet 8 Economic Outturn Account 9 Cashflow Table 10 Statement of changes in Net Assets 11 Notes to the financial statements: 12 1. Significant accounting policies 13 2. Notes to the Balance Sheet 24 3. Notes to the Economic Outturn Account 47 4. Notes to the Cashflow table 56 5. Contingent Assets & Liabilities and other disclosures 57 6. Financial corrections and recoveries 62 7. Financial risk management 82 8. Related party disclosures 88 9. Events after the balance sheet date 90 10. Consolidated entities 93 11. Non-consolidated entities 94 BALANCE SHEET | EUR millions | Note | 31.12.2010 | 31.12.2009 (restated) | NON-CURRENT ASSETS: | Intangible assets | 2.1 | 108 | 72 | Property, plant and equipment | 2.2 | 4 813 | 4 859 | Long-term investments | 2.3 | 2 555 | 2 379 | Loans | 2.4 | 11 640 | 10 764 | Long-term pre-financing | 2.5 | 44 118 | 41 544 | Long-term receivables | 2.6 | 40 | 55 | 63 274 | 59 673 | CURRENT ASSETS: | Inventories | 2.7 | 91 | 77 | Short-term investments | 2.8 | 2 331 | 1 791 | Short-term pre-financing | 2.9 | 10 078 | 9 436 | Short-term receivables | 2.10 | 13 501 | 8 958 | Cash and cash equivalents | 2.11 | 22 063 | 23 372 | 48 064 | 43 634 | TOTAL ASSETS | 111 338 | 103 307 | NON-CURRENT LIABILITIES: | Employee benefits | 2.12 | (37 172) | (37 242) | Long-term provisions | 2.13 | (1 317) | (1 469) | Long-term financial liabilities | 2.14 | (11 445) | (10 559) | Other long-term liabilities | 2.15 | (2 104) | (2 178) | (52 038) | (51 448) | CURRENT LIABILITIES: | Short-term provisions | 2.16 | (214) | (213) | Short-term financial liabilities | 2.17 | (2 004) | (40) | Accounts payable | 2.18 | (84 529) | (93 884) | (86 747) | (94 137) | TOTAL LIABILITIES | (138 785) | (145 585) | NET ASSETS | (27 447) | (42 278) | Reserves | 2.19 | 3 484 | 3 323 | Amounts to be called from Member States* | 2.20 | (30 931) | (45 601) | NET ASSETS | (27 447) | (42 278) | See notes 2.5.2 , 2.9.2 , 2.10.3 and 3.4.1 for details of the restatement of certain 2009 figures * The European Parliament has adopted a budget on 15 December 2010 which provides for the payment of the Union's short-term liabilities from own resources to be collected by, or called up from, the Member States in 2011. Additionally, under Article 83 of the Staff Regulations (Council Regulation 259/68 of 29 February 1968 as amended), the Member States shall jointly guarantee the liability for pensions. ECONOMIC OUTTURN ACCOUNT | EUR millions | Note | 2010 | 2009 (restated) | OPERATING REVENUE | Own resource and contributions revenue | 3.1 | 122 328 | 110 537 | Other operating revenue | 3.2 | 8 188 | 7 532 | 130 516 | 118 069 | OPERATING EXPENSES | Administrative expenses | 3.3 | (8 614) | (8 133) | Operating expenses | 3.4 | (103 764) | (102 504) | (112 378) | (110 637) | SURPLUS FROM OPERATING ACTIVITIES | 18 138 | 7 432 | Financial revenue | 3.5 | 1 178 | 835 | Financial expenses | 3.6 | (661) | (594) | Movement in employee benefits liability | 2.12 | (1 003) | (683) | Share of net deficit of joint ventures & associates | 3.7 | (420) | (103) | ECONOMIC OUTTURN FOR THE YEAR | 17 232 | 6 887 | See notes 2.5.2 , 2.9.2 , 2.10.3 and 3.4.1 for details of the restatement of certain 2009 figures CASHFLOW TABLE | EUR millions | Note | 2010 | 2009 (restated) | Economic outturn for the year | 17 232 | 6 887 | Operating activities | 4.2 | Amortisation | 28 | 22 | Depreciation | 358 | 448 | (Reversal of) impairment losses on investments | 0 | (17) | (Increase)/decrease in loans | (876) | (7 199) | (Increase)/decrease in long-term pre-financing | (2 574) | (12 521) | (Increase)/decrease in long-term receivables | 15 | (10) | (Increase)/decrease in inventories | (14) | 7 | (Increase)/decrease in short-term pre-financing | (642) | 827 | (Increase)/decrease in short-term receivables | (4 543) | 2 962 | Increase/(decrease) in long-term provisions | (152) | 128 | Increase/(decrease) in long-term financial liabilities | 886 | 7 210 | Increase/(decrease) in other long-term liabilities | (74) | (48) | Increase/(decrease) in short-term provisions | 1 | (134) | Increase/(decrease) in short-term financial liabilities | 1 964 | (79) | Increase/(decrease) in accounts payable | (9 355) | 4 207 | Prior year budgetary surplus taken as non cash revenue | (2 254) | (1 796) | Other non-cash movements | (149) | 54 | Increase/(decrease) in employee benefits liability | (70) | (313) | Investing activities | 4.3 | (Increase)/decrease in intangible assets and property, plant and equipment | (374) | (464) | (Increase)/decrease in long-term investments | (176) | (284) | (Increase)/decrease in short-term investments | (540) | (239) | NET CASHFLOW | (1 309) | (352) | Net increase/(decrease) in cash and cash equivalents | (1 309) | (352) | Cash and cash equivalents at the beginning of the year | 2.11 | 23 372 | 23 724 | Cash and cash equivalents at year-end | 2.11 | 22 063 | 23 372 | See notes 2.5.2 , 2.9.2 , 2.10.3 and 3.4.1 for details of the restatement of certain 2009 figures 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 2008 | 41 | 3 074 | (63 225) | 12 686 | (47 424) | Movement in Guarantee Fund reserve | 196 | (196) | 0 | Fair value movements | 28 | 28 | Other (restated) | (1) | 28 | 27 | Allocation of the economic outturn 2008 | (15) | 12 701 | (12 686) | 0 | Budget result 2008 credited to Member States | (1 796) | (1 796) | Economic outturn for the year (restated) | 6 887 | 6 887 | BALANCE AS AT 31 DECEMBER 2009 (restated) | 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 (restated) | 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) | Notes to the financial statements Page 1. Significant accounting policies 13 2. Notes to the Balance Sheet 24 3. Notes to the Economic Outturn Account 47 4. Notes to the Cashflow table 56 5. Contingent assets & liabilities and other disclosures 57 6. Financial corrections and recoveries 62 7. Financial risk management 82 8. Related party disclosures 88 9. Events after the balance sheet date 90 10. Consolidated entities 93 11. Non-consolidated entities 94 1. SIGNIFICANT ACCOUNTING POLICIES 1.1 LEGAL BASIS AND ACCOUNTING RULES The consolidated accounts of the European Union cover the accounts of the European Union, the European Atomic Energy Community and the European Coal & Steel Community (in Liquidation). These accounts are kept in accordance with Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 (OJ L 248 of 16 September 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 has prepared its 2010 consolidated 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, 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. Article 124 of the Financial Regulation sets out the accounting principles to be applied in drawing up the financial statements: - going concern basis; - prudence; - consistent accounting methods; - comparability of information; - materiality; - no netting; - reality over appearance; - accrual-based accounting. Preparation of the consolidated 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 consolidated balance sheet and in the consolidated economic outturn account, as well as the related 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 43 controlled entities, 5 joint ventures and 4 associates. The complete list of consolidated entities can be found in note 10 . In comparison with 2009, the scope of consolidation has been extended by 3 controlled entities (one institution, two agencies), one associate and one joint venture. 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 at entity level needs to be done 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 EU economic outturn account, and its interest in the movements in reserves is recognised in the EU 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 EU 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 have, directly or indirectly, significant influence but not control. It is presumed that significant influence is given if the European Commission 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 EU economic outturn account, and its share of movements in reserves is recognised in the EU 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 EU 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, the EU 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 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 | CZK | 25.0610 | 26.4730 | PLN | 3.9750 | 4.1045 | DKK | 7.4535 | 7.4418 | RON | 4.2620 | 4.2363 | EEK | 15.6466 | 15.6466 | SEK | 8.9655 | 10.2520 | GBP | 0.8607 | 0.8881 | CHF | 1.2504 | 1.4836 | HUF | 277.9500 | 270.4200 | JPY | 108.6500 | 133.1600 | LVL | 0.7094 | 0.7093 | USD | 1.3362 | 1.4406 | 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 can only borrow funds for the purpose of lending at the same rate (e.g. BOP) or a reduced rate compared to the commercial market (e.g. EFSM in 2011). 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 Commission for fair valuing its lending operations under EFSM, BOP and other such loans, should be the interest rate charged. - In addition, for BOP, Euratom and MFA 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 available­for-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 and, after verification, accepted as eligible by the relevant financial agents. At this stage they 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 Union 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 Union 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 Union 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 European Union 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 already 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. The accounting policies of the European Commission are the same as those applied by the European Union and are outlined in the note 1 of the consolidated annual accounts of the EU. 2. NOTES TO THE BALANCE SHEET NON CURRENT ASSETS 2.1 INTANGIBLE ASSETS EUR millions | Amount | Gross carrying amount at 31 December 2009 | 171 | Additions | 60 | Disposals | (2) | Other changes | 7 | Gross carrying amount at 31 December 2010 | 236 | Accumulated amortisation at 31 December 2009 | (99) | Amortisation charge for the year | (28) | Disposals | 1 | Other changes | (2) | Accumulated amortisation at 31 December 2010 | (128) | Net carrying amount at 31 December 2010 | 108 | Net carrying amount at 31 December 2009 | 72 | The above amounts relate primarily to computer software. 2.2 PROPERTY, PLANT & EQUIPMENT | EUR millions | Gross carrying amount at 31 December 2009 | 3 972 | 460 | 215 | 475 | 182 | 2 655 | 231 | 8 190 | Additions | 47 | 44 | 20 | 42 | 15 | 10 | 114 | 292 | Disposals | (37) | (125) | (30) | (81) | (27) | (1) | - | (301) | Transfers between asset categories | (1) | 0 | 0 | 1 | 11 | 0 | (10) | 1 | Other changes | 46 | 113 | 21 | 46 | 33 | (1) | - | 258 | Gross carrying amount at 31 December 2010 | 4 027 | 492 | 226 | 483 | 214 | 2 663 | 335 | 8 440 | NET CARRYING AMOUNT AT 31 DECEMBER 2009 | 2 230 | 105 | 60 | 116 | 74 | 2 043 | 231 | 4 859 | 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 also notes 2.15 and 2.18.1 ). They break down as follows: Finance Leases | EUR millions | Note | 31.12.2010 | 31.12.2009 | Participations in Joint Ventures | 2.3.1 | 138 | 196 | Participations in Associates | 2.3.2 | 354 | 382 | Guarantee Fund | 2.3.3 | 1 346 | 1 240 | Available-for-Sale assets | 2.3.4 | 717 | 561 | Total Investments | 2 555 | 2 379 | This heading covers investments made with a view to supporting the activities of the EU. It also includes the net assets of the Guarantee Fund. 2.3.1 Participations in joint ventures EUR millions | Contributions | 0 | 41 | 53 | 24 | 64 | 182 | Share of net result | 0 | (110) | (76) | (27) | (27) | (240) | Amount at 31.12.2010 | 0 | 11 | 12 | 78 | 37 | 138 | 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 | 31.12.2010 | 31.12.2009 | Non-current assets | 176 | 48 | Current assets | 165 | 192 | Non-current liabilities | 0 | 0 | Current liabilities | (208) | (44) | Revenue | 7 | 72 | Expenses | (247) | (169) | 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 2010, there were no revenues or expenditures incurred. The net assets of the GJU and thus the value of the investment at 31 December 2010 (and 31 December 2009) was EUR 0, being the investment of EUR 585 million less the accumulated share of losses, EUR 585 million. 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 2010, the Commission held 78.8% or EUR 11 million of the ownership participation in SESAR. The total (indicative) Commission contribution foreseen for SESAR (from 2007 to 2013) is EUR 700 million. ITER International Fusion Energy Organisation (ITER) ITER involves the European Union and China, India, Russia, 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 2010, Euratom held 47.2% or EUR 12 million of the ownership participation in ITER. The total (indicative) Euratom contribution foreseen for ITER (from 2007 to 2041) is EUR 7 649 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. During 2010 two new Joint Technology Initiatives became operational, the ENIAC Joint Undertaking and the FCH Joint Undertaking. Although ENIAC is legally referred to as a joint undertaking, from an accounting perspective it must be considered as an associate (and so is included as such in note 2.3.2 ) because the Commission has a significant influence, not joint control, over this entity (similar to the ARTEMIS and Clean Sky Joint Undertakings). 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. The ownership interest of the European Union, represented by the Commission, is 97.4% or EUR 78 million at 31 December 2010. 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. The ownership interest of the European Union, represented by the Commission, is 99.9% or EUR 37 million at 31 December 2010. 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 December 2009 | 301 | 7 | 74 | 0 | 382 | Contributions | 14 | 19 | 101 | 30 | 164 | Share of net surplus/(deficit) | 2 | (12) | (161) | (9) | (180) | Other equity movements | (12) | 0 | 0 | 0 | (12) | Amount at 31 December 2010 | 305 | 14 | 14 | 21 | 354 | 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 | 31.12.2010 | 31.12.2009 | Assets | 447 | 420 | Liabilities | (93) | (38) | Revenue | 25 | 17 | Surplus/(Deficit) | (180) | (6) | 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. At 31 December 2010, the Commission has subscribed for a total amount of EUR 900 million (out of EUR 3 000 million) of the share capital of the EIF. This represents 30% of the total EIF share capital. EUR 2 million of the above amount concerns the result for 2010 (profit). No dividend was received in 2010. 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 ownership interest of the EU, represented by the Commission, at 31 December 2010 is 96.7% or EUR 14 million. The maximum indicative contribution of the Commission shall amount to EUR 420 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 ownership interest of the European Union, represented by the Commission, is 64.7% or EUR 14 million at 31 December 2010. The maximum indicative contribution of the Commission to this venture shall amount to EUR 800 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 ownership interest of the European Union, represented by the Commission, is 97.8% or EUR 21 million at 31 December 2010. The total commitment of the EU shall amount to EUR 450 million. 2.3.3 Guarantee Fund Net assets of the Guarantee Fund | EUR millions | 31.12.2010 | 31.12.2009 | Available-for-sale assets | 1 154 | 1 050 | Cash and cash equivalents | 193 | 191 | Total assets | 1 347 | 1 241 | Total liabilities | (1) | (1) | Net assets | 1 346 | 1 240 | 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 85% 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 a revenue in the general budget of the EU. 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 of EUR 1 746 million corresponds to the target amount of 9% of the loans outstanding at 31 December 2010. The net assets of the Fund at 31 December 2010 total EUR 1 346 million. The difference between the net assets and the amount of the reserve corresponds to the amount to be paid by the EU budget to the Fund, i.e. EUR 400 million. Fair-value changes of the available-for-sale debt security portfolio have been recognised in equity in 2010 totalling a decrease of EUR 30 million (2009: increase of EUR 16 million). 2.3.4 Available-for-sale assets (long-term) This includes investments and participations purchased to help beneficiaries develop their business activities. Long-term Available-for-sale assets | EUR millions | 31.12.2010 | 31.12.2009 | European Bank for Reconstruction and Development | 188 | 157 | Risk Capital Operations | 137 | 132 | ETF Start up | 199 | 154 | European Fund for South East Europe | 102 | 96 | Green for Growth Fund | 20 | 20 | GEEREF | 56 | - | Progress Microfinance Facility | 14 | - | Other investments | 1 | 2 | Total | 717 | 561 | European Bank for Reconstruction and Development (EBRD) In May 2010, the Board of Governors approved an immediate increase in the authorised paid-in shares of EUR 1 billion. Payment for the paid-in shares issued was by way of a reallocation of net income previously allocated to surplus for other purposes, namely for the payment of such paid-in shares. 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. The Commission has subscribed to 3% of the EBRD's total capital of EUR 21 billion. At balance sheet date, the called up amount was EUR 187 million, which has been fully paid. Payments outstanding on non-called up capital amount to EUR 443 million. EUR millions EBRD | Total EBRD capital | Commission subscription | Total Share Capital | 20 793 | 630 | Paid-in | (6 197) | (187) | Uncalled | 14 596 | 443 | 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 and the CIP programme, under the trusteeship of the EIF, supporting the creation and financing of start-up SMEs by investing in suitable specialised venture capital funds. 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. A new investment of EUR 56 million was made relating to GEEREF . This is a new innovative fund providing global risk capital through private investment for energy efficiency and renewable energy projects in developing countries and economies in transition. There is also a new investment in 2010 of EUR 14 million in the Progress Microfinance Facility for employment and social inclusion. At year-end, a further EUR 122 million relating to ETF Start up and SME Finance Facility had been committed to, but not yet been drawn down by the other parties. 2.4 LOANS EUR millions | Note | 31.12.2010 | 31.12.2009 | Loans granted from the EU budget & ECSC | 2.4.1 | 162 | 169 | Loans granted from borrowed funds | 2.4.2 | 11 478 | 10 595 | Total | 11 640 | 10 764 | 2.4.1 Loans granted from the European Union budget & the ECSC in liquidation EUR millions | Loans with special conditions | ECSC housing loans | Total | Total at 31.12.2009 | 143 | 26 | 169 | New loans | 2 | - | 2 | Repayments | (16) | (5) | (21) | Changes in carrying amount | 11 | 1 | 12 | Total at 31.12.2010 | 140 | 22 | 162 | 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%. 2.4.2 Loans granted from borrowed funds EUR millions | New loans | - | - | 2 850 | - | 2 850 | Repayments | (84) | (17) | - | - | (101) | Exchange differences | - | 2 | - | 7 | 9 | Changes in carrying amount | - | - | 93 | (4) | 89 | Total at 31.12.2010 | 503 | 469 | 12 246 | 264 | 13 482 | Amount due < 1 year | - | - | 2 004 | - | 2 004 | Amount due > 1 year | 503 | 469 | 10 242 | 264 | 11 478 | The effective interest rates (expressed as a range of interest rates) were as follows: Loans | 31.12.2010 | 31.12.2009 | Macro Financial Assistance (MFA) | 0.99%-4.54% | 0.9625%-4.54% | Euratom | 0.96313%-5.76% | 1.071%-5.76% | BOP | 2.375%-3.625% | 3.125%-3.625% | ECSC in liquidation | 0.556%-5.8103% | 0.346%-5.8103% | Macro Financial Assistance (MFA) loans MFA is a policy-based financial instrument of untied and undesignated balance-of-payment and/or budget support to partner third-countries geographically close to the EU territory. It takes the form of medium/long term loans or grants or an appropriate combination of both and generally complements financing provided in the context of an IMF-supported adjustment and reform program. At 31 December 2010, EUR 300 million of loan agreements have been entered into by the Commission but not yet drawn down by the other party before the year-end. The Commission has not received third-party guarantees for these loans, but they are guaranteed by the Guarantee Fund (see note 2.3.3 ). Euratom loans Euratom is a legal entity of the EU and is represented by the European Commission. It grants loans to Member States for the purpose of financing investment projects in the Member States relating to the industrial production of electricity in nuclear power stations and to industrial fuel cycle installations. It also grants loans to non-Member States for improving the level of safety and efficiency of nuclear power stations and installations in the nuclear fuel cycle which are in service or under construction. Guarantees from third-parties of EUR 466 million (2009: EUR 481 million) have been received in respect of these loans. Balance of Payment (BOP) loans The BOP facility, a policy based financial instrument, has been reactivated during the current economic and financial crisis to provide medium-term financial assistance to Member States of the EU. It enables the granting of loans to Member States which are experiencing, or are seriously threatened with, difficulties in their balance of payments or capital movements. Only Member States which have not adopted the Euro may benefit from this facility. The maximum outstanding amount of loans to be granted is EUR 50 billion. These loans are guaranteed by the EU general budget. Between November 2008 and end 2010, loans amounting to EUR 14.6 billion were granted to Hungary, Latvia and Romania, of which EUR 12.05 billion have been disbursed by the end of 2010. The following table shows the disbursement and maturity dates for the different BOP loan instalments already disbursed: EUR millions | Hungary | Latvia | Romania | Total | Disbursed in 2008: | - With maturity Nov. 2011 | 2 000 | - | - | 2 000 | Disbursed in 2009: | - With maturity April 2014 | - | 1 000 | - | 1 000 | - With maturity Nov. 2014 | 2 000 | - | - | 2 000 | - With maturity Jan. 2015 | - | 1 200 | 1 500 | 2 700 | - With maturity April 2016 | 1 500 | - | - | 1 500 | Disbursed in 2010: | - With maturity Sept. 2017 | - | - | 1 150 | 1 150 | - With maturity May 2019 | - | 500 | 1 000 | 1 500 | - With maturity Oct. 2025 | - | 200 | - | 200 | Loans disbursed at 31.12.10 | 5 500 | 2 900 | 3 650 | 12 050 | Total loans granted | 6 500 | 3 100 | 5 000 | 14 600 | Undrawn amounts at 31.12.10 | Expired | 200 | 1 350 | 1 550 | It should be noted that the BOP assistance programme for Hungary expired in November 2010. EFSM Since disbursements under the European Financial Stability Mechanism ("EFSM") only took place after 31 December 2010, the details on these loans are given in Note 9 . ECSC in liquidation loans This item mainly includes loans granted by the ECSC in liquidation on borrowed funds in accordance with articles 54 and 56 of the ECSC Treaty as well as three unquoted debt securities issued by the European Investment Bank (EIB) as substitute of a defaulted debtor. These debt securities will be held till their final maturity (2017 and 2019) in order to cover the service of related borrowings. The changes in carrying amount correspond to the change in accrued interests plus the amortisation of the year of premiums paid and transaction cost incurred at inception, calculated according to the effective interest rate method. 2.5 LONG-TERM PRE-FINANCING EUR millions | 31.12.2010 | 31.12.2009 (Restated) | Pre-financing (see note 2.5.1) | 40 298 | 39 750 | Prepaid expenditure (see note 2.5.2) | 3 820 | 1 794 | Total Long-term Pre-financing | 44 118 | 41 544 | 2.5.1 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. TOTAL PRE-FINANCING | EUR millions | 31.12.2010 | 31.12.2009 | Long-term Pre-financing (see below) | 40 298 | 39 750 | Short-term Pre-financing (see note 2.9) | 9 123 | 9 077 | Total Pre-financing | 49 421 | 48 827 | 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 2010 the "nominal" value of guarantees received in respect of pre-financing amounted to EUR 1 227 million while the "on-going" value of those guarantees was EUR 1 059 million (2009: EUR 936 million and EUR 724 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 2010 totalled EUR 3.2 billion (2009: EUR 2.7 billion). This is a mutual benefit instrument set up to cover the financial risks incurred by the EU and the participants during the implementation of the indirect actions of FP7, its capital and interests constituting a performance security. All participants of indirect actions taking the form of a grant (and thus a pre-financing in the Commission's books) contribute 5% of the total EU contribution to the PGF's capital for the duration of the action. As such the participants are the owners of the PGF, the EU (represented by the Commission) acting as their executive agent. At the end of an indirect action, participants shall recover their contribution to the capital in full, except where the PGF incurs losses due to defaulting beneficiaries – in this case participants shall recover, at a minimum, 80% of their contribution. The PGF thus guarantees the financial interest of both the Commission and the participants. At 31 December 2010 EUR 866 million has been contributed to the PGF by the participants (2009: EUR 561 million) – see also note 11 . LONG-TERM PRE-FINANCING | EUR millions | Management type | 31.12.2010 | 31.12.2009 | Direct centralised management | 1 695 | 1 148 | Indirect centralised management | 620 | 486 | Decentralised management | 441 | 347 | Shared management | 37 055 | 37 199 | Joint management | 487 | 568 | Implemented by other Institutions & Agencies | 0 | 2 | Total | 40 298 | 39 750 | 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. 2.5.2 Prepaid expenditure EUR millions | 31.12.2010 | 31.12.2009 (Restated) | Financial Engineering Instruments | 3 820 | 1 794 | Total | 3 820 | 1 794 | 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. However, the basic legal acts do not oblige the Member States to provide periodic reports to the Commission on the use of these funds. It has been noted that while such payments had, up to and including 2010, been originally accounted for as expenses in the Commission's accounting system,not all the monies have been used by the Instrument.It is, therefore more appropriate to classify them as assets on the balance sheet (prepaid expenditure). It has also been noted that, given the intended purpose of these amounts, their use cannot be determined simply by examining a basic source of information like the account statements of the Instrument since, for example, the amounts used as guarantees remain blocked on the Instruments' bank accounts and the loans reimbursed to the Instrument become available for new loans. Since the Member States are not required to report specifically on these funds, and since it would not be cost-effective for the Commission to collect such information itself, so as to properly reflect in the financial statements the use of these amounts during the programming period, it has been necessary to make estimations. The most reliable method available, and thus the approach used, is charging the expenses to the economic outturn account on a straight line basis over the programming period up to 31/12/2015, that being the last date when such expenditure is allowable. To achieve this objective, the Commission requested the necessary information from Member States during early 2011 so as to estimate and then recognise the unused amounts on the balance sheet at 31 December 2010. This total amount is split between amounts that the Member States expect to use during 2011 (shown in note 2.9.2 ) and amounts that will be used after 2011, shown in the table above. In accordance with the EU accounting rules, and internationally accepted accounting practice, since the above constitutes a change in accounting policy and the amounts concerned are material, the 2009 balance sheet has been restated in these financial statements so as to present comparable figures showing the situation as it would have looked had the same accounting treatment been followed last year. The impact on 2008 was estimated to be only EUR 18 million, and consequently this amount was adjusted against the accumulated deficit in 2009 and no restatement of the 2009 opening balance was made. The impact of this restatement on the original 2009 balance sheet is shown below: 2009 balance sheet originally presented | Change in accounting policy | 2009 balance sheet restated | Long-term pre-financing: | Pre-financing | 39 750 | - | 39 750 | Pre-paid expenditure | - | 1 794 | 1 794 | 39 750 | 1 794 | 41 544 | Short-term pre-financing: | Pre-financing | 9 077 | - | 9 077 | Pre-paid expenditure | - | 359 | 359 | 9 077 | 359 | 9 436 | Short-term receivables: | Accrued income & deferred charges | 3 912 | 295 | 4 207 | Total assets | 100 859 | 2 448 | 103 307 | Total liabilities | (145 585) | - | (145 585) | Net Assets | (44 726) | 2 448 | (42 278) | Accumulated Result & Reserves | Reserves | 3 323 | - | 3 323 | Accumulated deficit | (52 506) | 18 | (52 488) | Result current year | 4 457 | 2 430 | 6 887 | (44 726) | 2 448 | (42 278) | 2.6 LONG-TERM RECEIVABLES EUR millions | 31.12.2010 | 31.12.2009 | Member States | 14 | 26 | ECSC staff loans | 9 | 10 | Guarantees and deposits | 14 | 17 | Other | 3 | 2 | Total | 40 | 55 | Amounts to be received from Member States refer to amounts due to the ECSC in liquidation from former accession countries. From the total tong-term receivables EUR 14 million (2009: EUR 26 million) relates to non-exchange transactions. CURRENT ASSETS 2.7 INVENTORIES EUR millions | Description | 31.12.2010 | 31.12.2009 | Scientific materials | 71 | 62 | Other | 20 | 15 | TOTAL | 91 | 77 | 2.8 SHORT-TERM INVESTMENTS Short-term Available-for-sale assets | EUR millions | 31.12.2010 | 31.12.2009 | ECSC in liquidation | 1 283 | 1 483 | Risk Sharing Finance Facility | 419 | 244 | Loan Guarantee Instrument for TEN-T projects | 111 | 61 | BUFI investments | 515 | 0 | Other | 3 | 3 | Total | 2 331 | 1 791 | Short-term investments consist of available-for-sale financial assets, which 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. Regarding the ECSC in liquidation amounts, all AFS investments are debt securities denominated in EUR and quoted in an active market. At 31 December 2010 debt securities (expressed at their fair value) reaching final maturity in the course of 2010 amount to EUR 294 million (2009: EUR 242 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 investment of provisionally cashed fines amounts in a specifically created fund managed by DG ECFIN (BUFI). In previous years, these amounts would have been held in specific bank accounts – see note 2.11 , restricted cash. 2.9 SHORT-TERM PRE-FINANCING EUR millions | 31.12.2010 | 31.12.2009 (Restated) | Pre-financing (see note 2.9.1) | 9 123 | 9 077 | Prepaid expenditure (see note 2.9.2) | 955 | 359 | Total short-term pre-financing | 10 078 | 9 436 | 2.9.1 Pre-financing EUR millions | Management type | 31.12.2010 | 31.12.2009 | Direct centralised management | 3 038 | 2 924 | Indirect centralised management | 2 368 | 1 990 | Decentralised management | 536 | 700 | Shared management | 2 177 | 2 550 | Joint management | 894 | 832 | Implemented by other Institutions & Agencies | 110 | 81 | Total | 9 123 | 9 077 | The decrease in short-term pre-financing under shared management is due to the winding down of the Solidarity Fund. Although pre-financing instalments were paid in 2010 for new projects (programmes related to the period 2007-2013), they were classified under long-term assets as explained in note 2.5 . The increase in short-term pre-financing under the indirect and direct centralised management type is due to the increased activities, mainly in the research and development fields. 2.9.2 Prepaid expenditure EUR millions | 31.12.2010 | 31.12.2009 (Restated) | Financial Engineering Instruments | 955 | 359 | Total | 955 | 359 | As explained under note 2.5.2 , these amounts relate to payments made to Member States under the framework of the cohesion and rural develoment programmes 2007-2013, so as to establish or contribute to Financial Engineering Instruments, but which have not yet been used by the instrument at year-end. The above amounts are expected to be used during 2011. 2.10 SHORT-TERM RECEIVABLES EUR millions | 31.12.2010 | 31.12.2009 restated | Loans and term deposits | 2 170 | 216 | Current receivables | 6 786 | 4 519 | Sundry receivables | 20 | 16 | Accrued income and deferred charges | 4 525 | 4 207 | Total | 13 501 | 8 958 | The total short-term receivables contain an estimated EUR 11 009 million (2009: 8 415 million) relating to non-exchange transactions. 2.10.1 Loans and term deposits These amounts concern primarily BOP loans of EUR 2 004 million with remaining final maturities less than 12 months after the balance sheet date (see note 2.4 above). Also included under this heading are term deposits of EUR 166 million, primarily relating to the ECSC in liquidation. 2.10.2 Current receivables EUR millions | Account Group | At 31.12.2010 | At 31.12.2009 | Fines | 4 584 | (406) | 4 178 | 3 370 | (133) | 3 237 | Member States | 4 011 | (1 625) | 2 386 | 2 198 | (1 191) | 1 007 | Others | 96 | (2) | 94 | 76 | (2) | 74 | Total | 8 898 | (2 112) | 6 786 | 5 921 | (1 402) | 4 519 | Customers These are recovery orders entered in the accounts at 31 December 2010 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. The increase in the write-down from last year is primarily explained by the reduction during 2011 of fines decided before 31 December 2010. Additionally, the write-down takes into account the fact that some new fines issued could not be, in the context of the economic and financial crisis, covered by provisional payments or bank guarantees. Guarantees totalling EUR 2 585 million had been received for the fines outstanding at 31 December 2010 (2009: EUR 2 952 million) in respect of these receivables. It should be noted that EUR 1 771 million of the above amounts were due for payment after 31 December 2010. Receivables from Member States EAGF and Rural Development receivables This item primarily covers the amounts owed by beneficiaries of EAGF at 31 December 2010, as declared and certified by the Member States at 15 October 2010, and less 20% of the amount, which the Member States are allowed to retain to cover administrative costs. An estimation is made for the receivables arising after this declaration and up to 31 December 2010. 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. Please note also that the write-down method has been adjusted in 2010 with an impact on both income and expenditure which has a neutral effect on the net amount – see note 3.2.3 . Following the new method, the receivables are booked for the nominal value and the value reduction is based on statistical analysis (recovery rate). 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 of EUR 811 million 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. Other receivables from Member States Other receivables from Member States include EUR 30 million of recovery of expenses and EAGF advances of EUR 199 million compared to EUR 72 million and EUR 8 million respectively in 2009. EUR millions | 31.12.2010 | 31.12.2009 | EAGF and Rural Development receivables | EAGF | 1 130 | 627 | TRDI | 19 | - | SAPARD | 146 | - | Write-down | (814) | (350) | Total | 481 | 277 | VAT paid and recoverable from Member States | 46 | 38 | Own resources | Established in the A account | 81 | 89 | Established in the separate account | 1 285 | 1 260 | Write-down | (811) | (841) | Other | 391 | 25 | Total | 946 | 533 | Other receivables from Member States | 913 | 159 | Total | 2 386 | 1 007 | 2.10.3 Accrued income and deferred charges EUR millions | 31.12.2010 | 31.12.2009 restated | Accrued income | 3 445 | 3 655 | Deferred charges | 1 061 | 525 | Other | 19 | 27 | Total | 4 525 | 4 207 | The main amount under this heading is accrued income: EUR millions | 31.12.2010 | 31.12.2009 | Own resources | 2 657 | 2 209 | Agricultural assigned revenue Nov & Dec | 72 | 940 | EAGF: non-executed conformity correction decisions | 520 | 0 | Cohesion, Regional & Rural Development Funds: financial corrections | 43 | 404 | Other accrued income | 153 | 102 | Total accrued income | 3 445 | 3 655 | Other accrued income is primarily late interest income, accrued bank interest and accrued interest on pre-financing amounts. The most significant amounts included as deferred charges relate to funds transferred by Member States into Financial Engineering Instruments which were yet to be declared to or reimbursed by the Commission at year-end. At 31 December 2010 these amounted to EUR 858 million (2009: EUR 295 million). It should be noted that the amount for 2009 has been restated - see note 2.5.2 for more details. Also included under deferred charges are amounts totalling EUR 182 million of which the main amounts are anticipated payments of EUR 50 million paid under bilateral fisheries agreements with third countries, EUR 41 million for the European school and EUR 44 million for office rental. 2.11 CASH AND CASH EQUIVALENTS EUR millions | 31.12.2010 | 31.12.2009 | Unrestricted cash: | Accounts with Treasuries & Central Banks | 10 123 | 10 958 | Current accounts | 1 150 | 1 967 | Imprest accounts | 39 | 42 | Transfers (cash in transit) | 1 | 9 | Short-term deposits and other cash equivalents | 1 670 | 1 486 | Total | 12 983 | 14 462 | Restricted cash | 9 080 | 8 910 | Total | 22 063 | 23 372 | 2.11.1 Unrestricted cash Unrestricted cash covers all the funds which the EU 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 EU for the purpose of implementing particular programmes funded by the EU budget. At year-end, EUR 131 million had been committed to, but not yet been drawn down by the other parties. 2.11.2 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. NON CURRENT LIABILITIES 2.12 EMPLOYEE BENEFITS EUR millions | 31.12.2010 | 31.12.2009 | Pensions – Staff | 32 801 | 33 316 | Pensions – others | 840 | 663 | Joint Sickness Insurance Scheme | 3 531 | 3 263 | Total | 37 172 | 37 242 | 2.12.1 Pensions – Staff In accordance with Article 83 of the Staff Regulations, the payment of the benefits provided for in the staff pension scheme (PSEO: Pension Scheme of European Officials) constitutes a charge to the EU's budget. The scheme is not funded, but the Member States guarantee the payment of these benefits collectively according to the scale fixed for the financing of this 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 2010 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 | 31.12.2010 | 31.12.2009 | Nominal discount rate | 4.6% | 4.5% | Expected inflation rate | 2.1% | 2.5% | Real discount rate | 2.4% | 2.0% | Probability of marriage: Man/Woman | 84%/38% | 84%/38% | General Salary Growth/pension revaluation | 0% | 0% | 2008 International Civil Servants Life Table | Yes | Yes | Liabilities cover the rights previously defined for the following persons: 1. Staff in active employment at 31/12/2010 in all Institutions and Agencies included in the scheme; 2. Staff in a deferred situation, i.e. who have temporally or definitively left the Institutions but leaving their pension rights in the pension scheme (and having accumulated at least 10 years of service); 3. Former officials and other servants benefiting from a retirement pension; 4. Former officials and other servants benefiting from a invalidity pension; 5. Former officials and other servants benefiting from an invalidity allowance; 6. The recipients of a survivor pension (widows or widowers, orphans, dependants). The principal points to note are (see also table below for main movements): - The gross actuarial liability was valued at EUR 36 639 million at 31 December 2010 (2009: EUR 37 215 million). Added to this is a co-efficient corrector effect of EUR 1 063 million (2009: EUR 1 079 million). Taxes payable by beneficiaries are deducted from the total gross liability to arrive at the net liability included on the balance sheet (since tax is deducted on the payment of pensions and credited to the EU's revenue in the year of payment.) This net liability (gross liability less taxes) at 31 December 2010 has thus been estimated at EUR 32 801 million. - The number of members of the staff pension scheme increased by 1 578 individuals. 2.12.2 Pensions – Others This refers to the liability relating to the pension obligations 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. 2.12.3 Joint Sickness Insurance Scheme A valuation is also made for the estimated liability that the EU has regarding its contributions to the Joint Sickness Insurance Scheme in relation to its retired staff. The gross liability has been valued at EUR 3 791 million and plan assets of EUR 260 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. Movement in Gross Employee Benefits liability | EUR millions | Staff pension liability | Sickness Insurance | Gross Liability at 31 December 2009 | 37 215 | 3 535 | Service/normal cost | 1 331 | 188 | Interest cost | 1 709 | 169 | Benefits paid | (1 131) | (95) | Actuarial gains | (2 566) | (6) | Change due to newcomers | 81 | - | Gross Liability at 31 December 2010 | 36 639 | 3 791 | 2.13 LONG-TERM PROVISIONS EUR millions | Nuclear site dismantlement | 908 | 0 | 0 | (3) | (21) | 21 | 905 | Financial | 76 | 38 | 0 | 0 | (30) | 2 | 86 | Other | 72 | 18 | (9) | (55) | (6) | 0 | 20 | Total | 1 469 | 86 | (145) | (59) | (57) | 23 | 1 317 | Legal cases This is the estimate of amounts that will probably have to be paid out after 2011 in relation to a number of ongoing legal cases. The largest portion, EUR 300 million, concerns court cases pending at 31 December 2010 in relation to financial corrections for EAGF 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). At 31 December 2010, this resulted in a total provision of EUR 926 million split between amounts expected to be paid in 2011 (EUR 21 million) and afterwards (EUR 905 million). 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, 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). Other provisions The main amount here concerns the estimates of the EU’s contributions to various Member States under the Emergency Veterinary Fund for certain animal disease outbreaks, totalling EUR 12 million (2009: EUR 60 million) split between amounts expected to be settled in 2011 (EUR 10 million) and later (EUR 2 million). 2.14 LONG-TERM FINANCIAL LIABILITIES EUR millions | New borrowings | - | - | 2 850 | - | 2 850 | Repayments | (84) | (17) | - | - | (101) | Exchange differences | - | 2 | - | 6 | 8 | Changes in carrying amount | - | - | 93 | - | 93 | Total at 31.12.2010 | 503 | 469 | 12 246 | 231 | 13 449 | Amount due < 1 year | - | - | 2 004 | - | 2 004 | Amount due > 1 year | 503 | 469 | 10 242 | 231 | 11 445 | This heading includes borrowings due by the European Union maturing in over one year. Borrowings include debts evidenced by certificates amounting to EUR 13 211 million (2009: EUR 10 324 million). The changes in carrying amount correspond to the change in accrued interests. The effective interest rates (expressed as a range of interest rates) were as follows: Borrowings | 31.12.2010 | 31.12.2009 | Macro Financial Assistance (MFA) | 0.99%-4.54% | 0.9625%-4.54% | Euratom | 0.987%-5.6775% | 0.9031%-5.6775% | BOP | 2.375%-3.625% | 3.125%-3.625% | ECSC in liquidation | 0.556%-9.2714% | 0.346%-9.2714% | 2.15 OTHER LONG-TERM LIABILITIES EUR millions | 31.12.2010 | 31.12.2009 | Finance Leasing debts | 1 672 | 1 736 | Buildings paid for in instalments | 382 | 395 | Other | 50 | 47 | Total | 2 104 | 2 178 | This item covers primarily leasing liabilities due in more than one year (see note 2.2 above). Also included are amounts relating to certain buildings that the Commission bought where the purchase price will be paid off in instalments - these are not leasing contracts since title passed to the Commission immediately. CURRENT LIABILITIES 2.16 SHORT-TERM PROVISIONS EUR millions | Nuclear site dismantlement | 22 | 0 | 0 | (22) | 21 | 0 | 21 | Financial | 128 | 21 | (3) | (38) | 30 | 2 | 140 | Other | 33 | 10 | (5) | (20) | 6 | 0 | 24 | Total | 213 | 38 | (15) | (81) | 57 | 2 | 214 | This heading includes the portion of provisions which fall due for payment in less than one year's time. 2.17 SHORT-TERM FINANCIAL LIABILITIES This heading includes BOP borrowings of EUR 2 004 million (see note 2.14 ) that mature during the 12 months following the balance sheet date (2009: EUR 40 million relating to MFA). 2.18 ACCOUNTS PAYABLE EUR millions | 31.12.2010 | 31.12.2009 | Current portion of long-term liabilities | 78 | 71 | Current payables | 17 615 | 15 260 | Sundry payables | 97 | 133 | Accrued charges and deferred income | 66 739 | 78 420 | Total | 84 529 | 93 884 | 2.18.1 Current portion of long-term liabilities EUR millions | 31.12.2010 | 31.12.2009 | Finance leasing liabilities | 65 | 59 | Other | 13 | 12 | Total | 78 | 71 | 2.18.2 Current payables EUR millions | Type | 31.12.2010 | 31.12.2009 | Member States | 17 035 | 14 903 | Suppliers and other | 1 292 | 944 | Estimated non-eligible amounts | (712) | (587) | Total | 17 615 | 15 260 | Current payables include cost statements received by the EU 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 as accrued charges (see note 2.18.3 below), while the non-eligible parts remain open on the “Estimated non-eligible amounts” accounts. 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 EUR 16 924 million (2009: EUR 11 160 million) in unpaid cost claims for Structural Fund actions. 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)