Engineering

3.6 Consolidated financial statements Notes to the consolidated financial statements
3.6 Consolidated financial statements Notes to the consolidated financial statements
Provisions for restructuring costs are recognized when the Group has a
detailed formal plan for the restructuring and has notified the affected
parties.
A provision for onerous contracts is recognized when the expected
benefits to be derived by the Group from a contract are lower than the
unavoidable cost of meeting its obligations under the contract.
Share-based compensation
The Group has management incentive plans which grant stock rights to
executive and senior employees. The fair value of these rights is
calculated on the date of grant and recognized as an expense on a
straight-line basis over the vesting period with a corresponding
increase in provisions. Furthermore a portion of the variable
compensation is granted as share appreciation rights to the Executive
Board members of ThyssenKrupp AG and additional selected executive
employees. For both types of compensation, the provision is
remeasured at each balance sheet date and at settlement date. Any
changes in the fair value of the provision are recognized as part of
income from operations.
The Group set up an Employee Share Purchase Program for selected
executive employees that grants purchase of shares at a discount.
Services received are recognized on a straight-line basis based on the
estimated discount with regard to the shares during the period from
the offer of the Employee Share Purchase Program until the grant date
which is the date when the employees accept the offer.
See also information provided in Note 14.
Revenue recognition
Revenue from the sale of goods is recognized when the significant
risks and rewards of ownership have been transferred to the buyer and
the amount of revenue can be measured reliably. Revenue from
services is recognized when services are rendered. No revenue is
recognized if there are significant uncertainties regarding recovery of
the consideration due or the possible return of goods. Revenue is
recognized net of applicable provisions for discounts and allowances.
Construction contract revenue and expense are accounted for using
the percentage-of-completion method, which recognizes revenue as
performance of the contract progresses. The contract progress is
determined based on the percentage of costs incurred to date to total
estimated cost for each contract after giving effect to the most recent
estimates of total cost. If the construction takes a substantial period of
time, contract costs also include borrowing costs that are directly
attributable.
Contracts where the Group provides engineering services are also
accounted for like construction contracts. Construction contracts under
the percentage-of-completion method are measured at construction
cost plus profits earned based on the percentage of the contract
completed. Revenues net of advance payments received are
recognized as trade accounts receivable in the balance sheet.
Variations in contract work, claims and incentive payments are
included to the extent that it is probable that they will result in revenue
which can be measured reliably.
Where the income of a construction contract cannot be estimated
reliably, contract revenue that is probable to be recovered is recognized
to the extent of contract costs incurred. Contract costs are recognized
as expenses in the period in which they are incurred.
Where it is probable that total contract costs will exceed total contract
revenue, the expected loss is recognized as an expense immediately.
Revenues from contracts with multiple element arrangements, such as
those including both goods and services, are recognized as each
element is earned based on objective evidence of the relative fair value
of each element.
Interest income is accrued on a time basis by reference to the principal
outstanding and at the interest rate applicable. Dividend income from
investments is recognized when the shareholders’ rights to receive
payment have been established.
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