Annual Report 1999 - Skanska

Share of income in partnerships and limited partnerships,including their foreign counterparts, arereported in their entirety under operating income,except for a small number of holdings inlimited partnerships that are reported under netfinancial items.SEPARATELY REPORTED OPERATING ITEMSThree items are separately reported: “Items affectingcomparability,”“Writedowns/reversals of writedowns”and “Gain on sale of properties.” Only divestments,writedowns and reversals of writedownson properties that belong to the Group’s real estateoperations are separately reported.TAXES ON PROFIT FOR THE YEARTaxes based on net profit and net wealth are reportedas “Taxes on profit for the year.”Deferred tax liabilities are estimated on thebasis of the applicable tax rate in each respectivecountry.Balance sheetINTANGIBLE FIXED ASSETSIntangible fixed assets are reported at acquisitioncost minus accumulated depreciation. In case of apermanent reduction in value, they are writtendown to estimated actual value.TANGIBLE FIXED ASSETSTangible fixed assets are reported at acquisitioncost minus accumulated depreciation. They arewritten down in case of a permanent reduction invalue. The writedown is reversed when the basisfor the writedown has wholly or partially ceasedto exist.INVESTMENT PROPERTIESIn estimating the actual value of investment properties,Skanska has used the prevailinglevels of return required in each respective marketas its basis. Special attention has been paid to theoccupancy situation.To permit as correct a comparison as possiblebetween income from property management andthe value of completed investment properties,completed properties are not normally reclassifiedas “Investment properties” until January 1 of theyear after the year of completion. However, completedcurrent-asset properties are only reclassifiedas “Investment properties” if divestment hasnot occurred by the end of the year following theyear of completion.Properties constructed by the Group andbooked during the year as completed propertieshave been valued in the consolidated accounts at incurredcosts plus a fair proportion of indirect costs.Interest expenses during the construction periodare not capitalized, but are booked as expensesin each respective year.FINANCIAL LEASING CONTRACTSIn compliance with Recommendation No. 6 of theSwedish Financial Accounting Standards Council,financial leasing contracts are reported when theinvestment is equivalent to at least SEK 50 M.FINANCIAL FIXED ASSETSFinancial fixed assets are normally reported at acquisitioncost. In case of reduction in value, however,they are written down to their actual value.Deferred tax assets are estimated on the basis ofthe appropriate tax rate in each country. Holdingsin associated companies are reported according tothe equity method of accounting. Property-relatedsurplus values are depreciated at 2 to 4 percentannually.CURRENT ASSETSCurrent assets have been valued at the lower ofcost or market.Properties intended to be divested in connectionwith contracting projects are reported as currentassets. The same applies to holdings in propertymanagement companies if the propertiesbelonging to these companies would have beenreported the same way if Skanska owned them directly.In valuation of inventories, RecommendationNo. 2 of the Swedish Financial AccountingStandards Council has been applied.SHAREHOLDERS’ EQUITYIf a revenue item has been reported earlier in theconsolidated accounts than in the accounts of anindividual company, due to different valuationprinciples, it is transferred from “Unrestricted reserves”to “Restricted reserves,” taking taxationinto account.Group contributions, related taxes, and shareholderscontributions provided when receivinggroup contributions are charged or credited directlyto “retained earnings” in the parent companyaccounts.PROVISIONSProvisions for Pension Registration Institute(PRI) pension liabilities are calculated by PRI,based on actuarial principles.Provisions for deferred taxes on untaxed reserveshave been reported at the applicable taxrate in each country. The corresponding provisionshave also been made if a profit is reported inthe consolidated accounts earlier than it is reportedat the company level.Provisions for deferred taxes on surplus valuesrecognized when applying the purchase methodhave been made at the applicable tax rate in eachcountry.Skanska makes provisions for future expensesdue to warranty obligations. The estimate is basedon expenditures during the financial year for similarobligations or projected expenses for eachproject.LIABILITIESLiabilities are normally reported at their nominalvalue. In the case of substantial individualamounts, Skanska applies Recommendation No. 3of the Swedish Financial Accounting StandardsCouncil, “Reporting of Receivables and LiabilitiesWith Respect to Interest Rate Terms and HiddenInterest Compensation.”The difference between an invoiced amountand unearned project revenue is reported as a liabilityaccording to the percentage of completionmethod.Cash flow statementIn drawing up its Cash flow statement, Skanskaapplies Recommendation No. 7 of the SwedishFinancial Accounting Standards Council,“Reporting of Cash Flows.” Aside from cash andbank balances, liquid assets are to include shortterminvestments whose transformation into bankbalances may occur in an amount that is mainlyknown in advance. Short-term investments withmaturities of less than three months are always regardedas liquid assets.The year’s tax payments have been allocatedbetween business operations and investment operations.The portion belonging to business operationshas been calculated on a standardized basis,using the tax rate in each country.Contingent liabilitiesA contract fulfillment guarantee issued by theParent Company on behalf of a Group companyis calculated either on the basis of all or part ofthe contract sum of each respective assignment,depending on the terms of the agreement, withoutbeing offset against still unreceived compensationfrom the client.In connection with contracting assignments,security is often provided in the form of a completionguarantee from a bank or insurance institution.The issuer of the guarantee, in turn, normallyreceives an indemnity from the contractingcompany or other Group company. In compliancewith industry custom, such indemnities related tothe Group’s own contracting assignments are notreported as contingent liabilities, since they donot involve any increased liability compared tothe contracting commitment.Exchange rates, 1999Swedish kronor per unit of each currencyYear-endAverageexchange rate exchange rateCurrency Country/zone 1999 1998 1999 1998DEM Germany 4.38 4.84 4.51 4.52DKK Denmark 1.15 1.27 1.18 1.19FIM Finland 1.44 1.60 1.48 1.49GBP Great Britain 13.80 13.56 13.37 13.17NOK Norway 1.06 1.08 1.06 1.05USD United States 8.52 8.09 8.26 7.95EUR EMU 8.56 9.49 8.81 8.93● 61 Skanska Annual Report 1999