FINANCIAL STATEMENTS OF THE EUROPEAN COAL AND STEEL COMMUNITY AT 31 DECEMBER 1998

(1999/C 240/03)

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

- the balance sheet of the European Coal and Steel Community at 31 December 1998,

- the profit-and-loss accounts for the year ending 31 December 1998,

- the allocation of the surplus for the year ending 31 December 1998,

- the notes relating to the financial statements at 31 December 1998.

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

ECSC financial statements at 31 December 1998

- Before allocation of surplus -

ASSETS

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- Before allocation of surplus -

LIABILITIES

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Profit-and-loss account for the year ending 31 December 1998

CHARGES

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INCOME

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Allocation of the surplus for the year ending 31 December 1998

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NOTES RELATING TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1998

(Amounts in ecus)

1. PRESENTATION OF THE FINANCIAL STATEMENTS

1.1. The European Coal and Steel Community (ECSC) was established by the Treaty of 18 April 1951. According to the Treaty, the task of the ECSC is to contribute to the economic expansion of the Member States through the establishment of a common market for coal and steel. Since the ECSC Treaty is due to expire on 23 July 2002, the rate of the ECSC levy was reduced to zero in 1998 (Commission Decision of 23 December 1997), and the ECSC lending activity has been virtually discontinued since July 1997 (Commission Decision of 22 June 1994). Thus most of the ECSC's funds now come from the net balance achieved in the management of the various reserves and provisions.

1.2. The ECSC's financial statements at 31 December 1998 are presented in accordance with Council Directives 78/660/EEC and 86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions(1).

1.3. ECSC accounts are kept in the various currencies used for its financial activity. The financial statements are expressed in ecus.

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

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1.4. At 31 December 1998 the various currencies listed above, together with the ecu, made up the ECSC's balance sheet as follows:

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2. ACCOUNTING PRINCIPLES AND METHODS

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

Charges and income for the financial year are converted to ecus at the monthy accounting rate in force on the day of the transaction.

3. BALANCES WITH CENTRAL BANKS

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

4. LOANS AND ADVANCES TO CREDIT INSTITUTIONS

4.1. With agreed maturity dates or periods of notice

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

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4.2. Loans

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

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5. LOANS AND ADVANCES TO CUSTOMERS

5.1. Loans

The loans granted to credit institutions are shown under "Loans and advances to credit institutions" (see Note 4).

The other loans break down as follows:

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5.2. Levy

The 1998 levy rate was 0 %, so the claims at 31 December 1998 therefore refer to previous years.

Before value adjustment, this item amounted to ECU 7488192 at 31 December 1998 (ECU 9165606 at 31 December 1997). It comprises in particular ECU 5958532 subject to legal proceedings (ECU 6342867 at 31 December 1997) and ECU 42261 relating to temporary deferment in respect of coal in stock (ECU 282491 at 31 December 1997).

Payment of the levy in respect of coal in stock is temporarily deferred under a general decision taken in 1972.

5.3. Fines

This item contains the Commission's claims on companies fined in accordance with the rules et out in the Treaty.

After value adjustment it amounts to ECU 90001060 (ECU 72785575 at 31 December 1997).

This item has two main components.

A fine totalling ECU 104364350 that the Commission imposed on steel companies for infringing the rules on competition in the marekting of steel beams (Decision 94/215/ECSC(2) of 16 February 1994). ECU 32151350 has been paid in fines under this Decision, against which appeals have been lodged with the Court of First Instance by virtually all the companies concerned.

A fine totalling ECU 27380000 was imposed by the Commission (Decision 98/247/ECSC(3) of 21 January 1998) under Article 65 of the Treaty on steel companies for concerted agreement on the formula for calculating the alloy surcharge. Payments totalling ECU 14740000 have been received, while two-thirds of the companies affected by the decision have lodged appeals with the Court of First Instance.

5.4. Interest subsidies to be recovered

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

6. FINANCIAL ASSETS

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

6.1. Valuation

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

This principle is not applied in the case of securities considered as financial fixed assets (see Note 6.5).

6.2. Composition

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

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6.3. Maturities in 1999

Securities in the portfolio reaching final maturity during 1998 represent the following amounts (ECU):

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6.4. Listed/unlisted securities

The securities portfolio comprises ECU 1455715767 of securities with a stock-exchange listing, the balance of ECU 103475525 being unlisted securities.

6.5. Financial fixed assets

6.5.1. Financial fixed assets are defined as securities that will remain in the portfolio until their final maturity.

They comprise mainly short-term paper and own-debt securities repurchased for servicing ECSC borrowings.

6.5.2. Financial fixed assets are valued at average purchase price or redemption value, whichever is the lower.

The redemption value of these securities is less than the average purchase price by a total of ECU 911682.

6.5.3. Financial fixed assets are made up as follows (ECU):

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7. TANGIBLE AND INTANGIBLE ASSETS

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The various buildings owned by the ECSC were originally leased to the European Community. The rent paid on such leases provided a return on the funds invested by he ECSC.

Under the terms of the leases, in 1994 and 1995, the Commission repaid the outstanding principal due to the ECSC with a view to transferring ownership officially from the ECSC to the European Community.

The transfer of ownership of the building in Canberra was completed in 1998.

For the ECSC, this transaction generated a capital gain of ECU 954130, this being the difference between the transfer price (ECU 1876519) and the net book value (ECU 922389) at the date of transfer.

As regards the other buildings, pending the completion of the legal formalities for the transfer of ownership that are currently being conducted with the competent authorities, the advances received from the European Community feature on the liabilities side of the balance sheet for a total of ECU 3191060 (Note 12).

8. OTHER ASSETS

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9. PREPAYMENTS AND ACCRUED INCOME

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10. AMOUNTS OWED TO CREDIT INSTITUTIONS

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

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11. DEBTS EVIDENCED BY CERTIFICATES

Part of the borrowings outstanding at 31 December 1998 will reach maturity during the 1999 financial year. These borrowings total ECU 5336981.

12. OTHER LIABILITIES

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13. ACCRUALS AND DEFERRED INCOME

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14. PROVISION FOR LIABILITIES AND CHARGES

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15. COMMITMENTS FOR THE ECSC OPERATING BUDGET

In 1998, commitments for the ECSC operating budget were as follows:

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16. PROVISION FOR FINANCING THE ECSC OPERATING BUDGET

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17. PROVISIONS FOR MAJOR EXPOSURES

Against the background of the expiry of the ECSC Treaty in 2002 and the gradual reduction in outstanding loans, exposure is becoming increasingly concentrated on a limited number of large loans (these large exposures are defined in accordance with Directive 92/121/EEC of 21 December 1992 on the monitoring and control of large exposures).

The provision for large exposures concerns loans exceeding 25 % of the ECSC's own funds which are not covered by first-rate guarantees.

It is intended to provide cover specifically for this concentration of risk and enable the ECSC to weather any major default.

The provision, calculated on the basis of outstanding large exposures at 31 December 1998 and according to a procedure recommended by a firm of international experts, totals ECU 23 million.

18. RESERVES

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The Guarantee Fund is intended to cover lending and borrowing operations. After allocation of ECU 30 million, the Guarantee Fund totalled ECU 530 million at 31 December 1998. This reinforcing of the Guarantee Fund is connected with he forthcoming expiry of the ECSC Treaty.

On 11 September 1996 the Commission confirmed its intention of maintaining reserves to cover 100 % of those loans outstanding after 23 July 2002 which are not guaranteed by the government of a Member State. This means that the reserves (Guarantee Fund and provisions) must be gradually increased to approximately ECU 730 million.

In view of (a) the regular decrease in the amounts outstanding up to and after 23 July 2002 and (b) the increase in the Guarantee Fund, the solvency ratio can be expected to depart from the 14 to 16 % range laid down during the period of continuous operation and move towards 100 %.

The ECSC's solvency ratio thus increased from 28 % at 31 December 1997 to 33 % at 31 December 1998.

The Special Reserve is used to grant loans from ECSC own funds to finance subsidised housing.

Lastly, the former Pension Fund originally represented the ECSC's total pension obligations prior to 5 March 1968. Since that date, the Member States have assumed responsibility, via the general budget, for the payment of staff pensions. This fund is used to finance housing loans for officials of the European Communities and has also been used to grant special loans to the coal and steel industries.

19. ANALYSIS OF THE RESULT FOR THE FINANCIAL YEAR

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

19.1. Non-budgetary operations

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19.2. Out-turn of the ECSC operating budget

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19.3. Result for the financial year

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20. INTEREST AND SIMILAR CHARGES

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21. ADMINISTRATIVE EXPENDITURE

The ECSC paid a lump sum of ECU 5 million to the general budget of the Commission of the European Communities to cover its administrative expenditure.

22. OTHER OPERATING CHARGES

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23. INTEREST RECEIVED AND SIMILAR INCOME

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24. OTHER OPERATING INCOME

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25. INCOME RELATING TO THE OPERATING BUDGET

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26. OFF-BALANCE-SHEET COMMITMENTS

26.1. Commitments received

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26.2. Commitments given

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27. CHANGES IN THE FINANCIAL SITUATION FOR THE YEAR ENDING 31 DECEMBER 1998

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OUT-TURN OF THE ECSC OPERATING BUDGET FOR 1998

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

(2) OJ L 116, 6.5.1994.

(3) OJ L 100, 1.4.1998.