Review of 2010 – USD version - Skanska

Note
01 Continued
The obligation is calculated using the projected unit credit method and is discounted
at present value, and the fair value of any plan assets is subtracted. The discount rate
is the interest rate on the closing day for high quality corporate bonds, or government
bonds, with a maturity matching the maturity of the obligations.
A provision is recognized in connection with termination of employees only if the
Company is obligated to end employment before the normal retirement date, or when
benefits are offered in order to encourage voluntary termination. In cases where the
Company terminates employees, the provision is calculated on the basis of a detailed
plan that at least includes the location, function and approximate number of employees
affected as well as the benefits for each job classification or function and the time at
which the plan will be implemented.
IFRS 2, “Share-based Payment”
The share incentive programs introduced during 2005 and 2008, respectively, are recognized
as share-based payments that are settled with equity instruments, in compliance
with IFRS 2. This means that fair value is calculated on the basis of estimated fulfillment
of established income targets during the measurement period. This value is allocated
over the respective vesting period. There is no reappraisal after fair value is established
during the remainder of the vesting period except for changes in the number of shares
because the condition of continued employment during the vesting period is no longer
met.
IAS 7, “Cash Flow Statements”
In preparing its cash flow statement, Skanska applies the indirect method in compliance
with the accounting standard. Aside from cash and bank balance flows, cash and cash
equivalents are to include short-term investments whose transformation into bank balances
may occur in an amount that is mainly known in advance. Short-term investments
with maturities of less than three months are regarded as cash and cash equivalents.
Cash and cash equivalents that are subject to restrictions are reported either as current
receivables or as non-current receivables.
In addition to the cash flow statement prepared in compliance with the standard, the
Report of the Directors presents an operating cash flow statement that does not conform
to the structure specified in the standard. The operating cash flow statement was
prepared on the basis of the operations that the various business streams carry out.
IAS 33, “Earnings per Share”
Earnings per share are reported directly below the consolidated income statement and
are calculated by dividing the portion of profit for the year that is attributable to the Parent
Company’s equity holders (shareholders) by the average number of shares outstanding
during the period.
For the share incentive programs introduced during 2005 and 2008, respectively, the
dilution effect is calculated by dividing potential ordinary shares by the number of shares
outstanding. The calculation of potential ordinary shares occurs in two stages. First
there is an assessment of the number of shares that may be issued when established targets
are fulfilled. The number of shares for the respective year covered by the programs
is then determined the following year, provided that the condition of continued employment
is met. In the next step, the number of potential ordinary shares is reduced by the
value of the consideration that Skanska is expected to receive, divided by the average
market price of a share during the period.
IAS 24, “Related Party Disclosure”
According to this accounting standard, information must be provided about transactions
and agreements with related companies and physical persons. In the consolidated
financial statements, intra-Group transactions fall outside this reporting requirement.
Notes 36, 37 and 39 provide disclosures in compliance with the accounting standard.
IAS 40, “Investment Property”
Skanska reports no investment properties. Properties that are used in the Group’s own
operations are reported in compliance with IAS 16. The Group’s holdings of currentasset
properties are covered by IAS 2 and thus fall outside the application of IAS 40.
IFRS 8, “Operating Segments”
According to this standard, an operating segment is a component of the Group that carries
out business operations, whose operating income is evaluated regularly by the chief
operating decision maker and about which separate financial information is available.
Skanska’s operating segments consist of its business streams: Construction, Residential
Development, Commercial Property Development and Infrastructure Development.
The Senior Executive Team is the Group’s chief operating decision maker.
The segment reporting method for Residential Development and Commercial Property
Development has been changed and now diverges from IFRSs. In segment reporting,
a divestment gain is recognized on the date that a binding sales contract is signed.
Note 4 presents a reconciliation between segment reporting and the income statement
in compliance with IFRSs.
Note 4 provides information about operating segments. The financial reporting that
occurs to the Senior Executive Team focuses on the areas for which each respective operating
segment is operationally responsible: operating income in the income statement
and capital employed. For each respective operating segment, the note thus reports
external and internal revenue, cost of sales, selling and administrative expenses and
capital employed. Capital employed refers to total assets minus tax assets and receivables
invested in Skanska’s treasury unit (“internal bank”) less non-interest-bearing
liabilities excluding tax liabilities. Acquisition goodwill has been reported in the operating
segment to which it is related.
In transactions between operating segments, pricing occurs on market terms.
Certain portions of the Group do not belong to any operating segment. These include
Skanska’s headquarters and businesses that are being closed down (Denmark and International
Projects). These portions are reported in Note 4 under the heading “Central
and eliminations.” Because the income of the operating segments also includes intra-
Group profits, these are eliminated during reconciliation with the consolidated income
statement and the consolidated statement of financial position.
In addition to information about operating segments, Note 4 provides disclosures on
external revenue for the entire Group, divided among Sweden, the United States and
other countries and disclosures on the allocation of certain assets between Sweden and
other countries.
IAS 10, “Events After the Reporting Period”
Events after the end of the reporting period may, in certain cases, confirm a situation
that existed on the closing day. Such events shall be taken into account when financial
reports are prepared. Information is provided about other events after the closing day
that occur before the signing of the financial report if its omission would affect the ability
of a reader to make a correct assessment and a sound decision.
Information is provided in Note 41.
IAS 32, “Financial Instruments: Presentation”
Offsetting of financial assets and financial liabilities occurs when a company has a legal
right to offset items against each other and intends to settle these items with a net
amount or, at the same time, divest the asset and settle the liability.
Prepaid income and expenses as well as accrued income and expenses that are related
to the business are not financial instruments. Thus “Gross amount due from (or to)
customers for contract work” is not included. Pension liabilities and receivables from or
liabilities to employees are not financial instruments either. Nor are assets and liabilities
not based on contracts, for example income taxes, financial instruments.
Information in compliance with the accounting standard is provided mainly in Notes
6, 21 and 27.
IAS 39, “Financial Instruments: Recognition and Measurement”
The accounting standard deals with measurement and recognition of financial instruments.
Excepted from application in compliance with IAS 39 are, among others, holdings
in Group companies, associated companies and joint ventures, leases, the rights
under employment contracts, the Company’s own shares and financial instruments to
which IFRS 2, “Share-based Payments” applies.
All financial instruments covered by this standard, including all derivatives, are
reported in the statement of financial position.
A derivative is a financial instrument whose value changes in response to changes in
an underlying variable, that requires no initial investment or one that is small and that is
settled at a future date. An embedded derivative is a contract condition that causes the
value of the contract to be affected in the same way as if the condition were an independent
derivative. This is the case, for example, when a construction contract is expressed
in a currency which is a foreign currency for both parties. If it is customary for the foreign
currency to be used for this type of contract, the embedded derivative will not be separated.
A reassessment of whether embedded derivatives shall be separated from the
host contract is carried out only if the host contract is changed.
Skanska Review of 2010 – USD version Notes, including accounting and valuation principles 97