OTHER POLICIES

Pensions

Veidekke has pension schemes for all its employees in Scandinavia. These include both defined-contribution and defined-benefit plans.

In the case of defined-contribution plans, the enterprise makes a contribution to the employee's pension savings. Here, the future pension depends on the size of the contribution and return on the pension funds. The cost to the enterprise is equal to the contributions for the year. The enterprise's only commitment is to make an annual contribution, and no commitment is entered in the statement of financial position. Veidekke's subsidiaries in Denmark and Sweden have defined-contribution plans.

In the case of defined-benefit plans, the enterprise commits itself to providing a pension of a specified size. Veidekke's pension schemes are financed either by funds or by operations. The pension scheme for employees in Norway normally provides a pension amounting to 60 percent of the salary on retirement, including public pension benefits. Here, the enterprise bears the risk for the return on pension funds. An actuarial calculation is made each year of pension costs and pension commitments. Pension commitments equal the present value of earned pension rights. Employees' pension rights are entered as costs as they are earned, and provision is made for pension commitments in the statement of financial position. The pension calculation takes into account estimated wage growth and pension costs are distributed linearly over the employment period. Rights in connection with contractual early retirement pension rights in Norway are distributed in the same way.

For defined-benefit plans, the net value of pension commitments and pension funds is entered in the statement of financial position under Long-term liabilities or Receivables. Pension funds consist of a premium fund and a share of the life assurance company's funds (mathematical reserve). Pension costs consist of the present value of the year's earning plus interest on the commitments less return on the pension funds. Estimate variances are recognised in the profit and loss account.

In defined-benefit plans, an annual difference arises between the estimated and actual return on pension funds and between estimated and actual pension commitments, so-called estimate variances. This is, among other things, due to differences and changes in the assumptions. Veidekke has adopted the “corridor” approach to estimate variances, and they are thus entered in the statement of financial position. The corridor is defined as the greater of 10 percent of pension funds or of pension commitments. Estimate variances which exceed the corridor are amortised (reported in the profit and loss account) over the average remaining earning period. Changes in plans are entered in the profit and loss account immediately, unless the change depends on the employees' remaining in the enterprise, in which case the change is amortised over the remaining earning period.

Tax

Income taxes are tax on the company's profit. Tax is treated in the accounts as an expense and is accrued in the normal way. Payable tax and deferred tax relating to items recorded as other income, and expenses in total income are entered against the total income.Tax for the year consists of payable tax and change in deferred tax. Payable tax is fixed on the basis of the company's taxable profit for the year.

Deferred tax is a provision (accrual) for future payable tax. Deferred tax/tax assets are calculated on all timing differences between accounts and tax. Timing differences arise because some items are treated in different ways in financial accounts and tax accounts. Both tax-increasing and tax-reducing timing differences occur. Deferred tax is calculated on net timing differences, i.e. by offsetting tax-increasing against tax-reducing timing differences. A nominal tax rate, based on tax rules adopted at the statement of financial position date, is used to calculate deferred tax. Deferred tax assets relating to loss carry-forward are entered in the accounts when it is probable that the company will have an adequate profit in the next three years to make use of the assets.

Payable tax and deferred tax relating to equity transactions are charged directly to equity. Tax items relating to unrealised intra-Group gains are eliminated along with these.

Goodwill

Goodwill arises when a company purchases operations. Goodwill corresponds to the original purchase prise at the time of takeover less the fair value of the acquired company's identified assets, liabilities and contingent liabilities. If the fair value of the net identified assets exceed the original purchase price (negative goodwill), the amount is entered in the profit and loss account.

Other intangible assets

The Group's other intangible assets with a determined useful life are valued to original purchase price less accumulated depreciation and accumulated loss on impairment. This applies, among other things, to the right to extract crushed stone and gravel, for which depreciations are determined based on extractions.

Tangible non-current assets

Tangible non-current assets consist of plant, buildings, machinery, equipment, etc. Veidekke books tangible non-current assets at historic cost. This means that tangible non-current assets are valued at original cost less accumulated depreciation and write-downs. Tangible non-current assets are entered in the statement of financial position when it is probable that future financial advantages linked with the asset will accrue to the enterprise and the original cost can be measured in a reliable way. This applies both to first-time purchase of operating equipment and to later changes, conversions, overhauls, etc. Other repairs and maintenance are entered as expenses as they arise. Tangible non-current assets are depreciated linearly over their estimated useful life.

The estimated expected useful life for the present period and comparable periods is as follows:

• Vehicles: 4–5 years
• Machinery etc.: 5–7 years
• Asphalt plants:10–15 year
• Bitumen tanks:15 years
• Buildings: 20–50 years

The depreciation period and residual value are assessed annually. Gains and losses on disposals of non-current assets are reported in the profit and loss account and constitute the difference between sales price and book value.

Write-down of non-current assets

On indication of impairment of value, the recoverable amount is calculated. Non-current assets are written down to a recoverable amount if this is lower than the book value. The recoverable amount is the higher of net sales value and utility value. The utility value is the present value of the future cash flows that the asset is expected to generate. If there is an indication that the asset will fall in value, the recoverable amount is used and the asset is written down as required.

Intangible non-current assets with an indeterminable life and goodwill are tested for impairment in the fourth quarter each year, and are written down as required. The utility value is calculated per cash generating unit (CGU). If a CGU has to be written down, goodwill is written down first. Other assets are then written down proportion-ately. If the value of written-down intangible non-current assets rises again later, the write-down is reversed. The write-down of the goodwill, however, is not reversed.

The calculation of a CGU is based on future estimated cash flows for the unit, discounted at a suitable rate (risk-free rate plus risk). The calculation is based on the CGU's budgets and prognoses, including scrap value. Maintenance costs and replacement investment are also taken into account, but not expansion investment. Financing expenses and tax are not included in the calculation.

Financial lease agreements

Financial lease agreements (leasing) are agreements where most of the financial risk and control relating to the object has been transferred to the lessee. Financial lease agreements for operating equipment are entered in the statement of financial position and depreciated in the normal way, while leasing commitments are entered as debts to credit institutions. The lease agreement is entered in the statement of financial position at the lower of the present value of the leasing payments and the fair value. The year's leasing payment consists of interest, which is entered under Interest charges, and an instalment part, which is entered Repayment of debts.

Operating lease agreements

Lease agreements where most of the financial risk and control has not passed to the lessee, are classified as operating lease agreements. For operating lease agreements, leasing payments are entered as expenses linearly over the leasing period, and commitments are not entered in the statement of financial position.

Currency transactions

Transactions involving foreign currency are converted at the exchange rate at the time of transaction. Monetary items in foreign currency are assessed at the exchange rate on the balance sheet date and related currency gains/losses are entered in the profit and loss account. Monetary items are items that will be settled at a fixed nominal amount. This applies to cash and cash equivalents, receivables, debts, etc. For non-monetary items, the exchange rate at the time of transaction is taken as the basis for original cost, i.e. is not converted later. This applies to tangible non-current assets, products, etc.

Classification

Assets and liabilities relating to the circulation of goods (projects) are classified as current assets and current liabilities. Veidekke has debts to credit institutions in the form of withdrawal rights which are used to finance both non-current assets (investments) and working capital. The agreed due date is 2010 with an option for renewal until 2012. This is classified as a long-term loan. Other debts to credit institutions which are taken up to finance non-current assets (investments) are classified as long-term liabilities, while other loans that are taken up to finance working capital (current assets) are classified as short-term liabilities. Other receivables and debts due for payment more than a year hence are classified as non-current assets and long-term liabilities. The first year's instalments on long-term liabilities are classified as short-term liabilities.

Inventories

Inventories consist of project stocks and stocks for crushed stone and asphalt operations. Project stocks are included in project valuations. Stocks for crushed stone and asphalt operations are entered in the accounts at the lower of total production costs and net sales price.

Share discounts

Veidekke buys back its own shares and resells them to its employees at a discount. These sales of shares are reported in accordance with IFRS 2 on share-based payment. The discount is entered as cost at the fair value at the time of issue, taking into account the lock-in period. This entails that the discount is calculated according to an option pricing model. The fair value of the discount is charged to wages. Reference is made to Note 4.

Proposed dividend

Proposed dividends are not entered as liabilities in the accounts until they have been approved by the Annual General Meeting. This means that the proposed dividends at 31 December are part of the equity. Development costs Veidekke carries out very little research and development of products etc. Uncertainties Veidekke's profits from projects are affected to a great extent by estimates which entail some uncertainty. See details on page 18 under ”Estimates”. Information on uncertainties is provided in Note 33.

Loan expenses

Loan expenses that are directly attributable to the acquisition, manufacture or production of a qualifying asset, are capitalised as part of the current asset's original cost. For Veidekke this leads to capitalisation of interest in con-nection with own-account projects within property. In connection with the purchase of operating equipment in which it takes a long time before an asset can be used for the expected purpose, interest will also be activated. This applies, for example, to the acquisition of an asphalt plant. Other loan expenses are charged to the profit and loss account as they are paid.

Own shares

Repurchased shares are booked at cost price including costs directly attributable to equity. The company's own shares are presented as a reduction in equity. Losses or gains on transactions with own shares are not recognised in the profit and loss account.

Cash and cash equivalents

Cash and cash equivalents consist of cash and bank deposits, including deposits subject to certain conditions, and short-term liquid investments with a maximum term of three months, which can be converted into cash immediately.

Earnings per share

The earnings per share are calculated by dividing the period's earnings attributable to the owners of the parent company, by the weighted average number of outstanding shares in the period.

Cash flow statement

The cash flow statement is drawn up using the indirect method.

In the property divisions, investments are made continuously in new development projects, including sites. These are regarded as part of the operating activities, and are presented under operating activities in the cash flow statement. Associated companies and joint ventures are also used as part of the operating activities for the development of property projects. Both purchases and sales of associated companies and joint ventures are regarded as operating activities. In the other divisions of the Group, purchases and sales of companies are classified as investment activities.

In 2009, a renewed assessment was made of what should be included in the "Profit and loss items without cash flow effect" line. Included, among other things, are investments in associated and jointly-controlled companies. Previously, results from this type of investment have been adjusted for dividends received. It is considered more appropriate not to adjust for dividends received, but to show just the results from associated and jointly-controlled companies in this line. Comparable figures for previous years are restated.

The following standards will be implemented from the date when EU requires them to be followed:

• IFRS 2 (Amendment) Share-based Payment – Deposits of business by the establishment of jointly controlled entity and the business associations under common control are outside the scope of IFRS 2.
• IFRS 2 (Amendment) Share-based Payment – The changes in IFRS 2 involves more guidance related to share-based payments made in cash.
• IFRS 3 (Revised) – Business Combinations – Accounting of step acquisitions, minority interests, contingent consider- ations and acquisition costs.
• IFRS 5 (Amendment) – Non-Current Assets Held for Sale and Discontinued Operations – Accounting of planned sale of controlling interest in subsidiary.
• IFRS 8 – Operating Segments: It must be emphasised that it is only the segment assets and liabilities, which are reported in particular for internal decision-making purposes, that must be disclosed in the segment information.
• IFRS 9 – Financial Instruments – Recognition and measurement of financial instruments.
• IFRIC 9 – Reassessment of embedded derivatives - Regar-ding embedded derivatives in business.
• IFRIC 14–19 – Limitations of a net defined benefit pension asset, minimum funding and the interaction between them.
• IFRIC 15 – Agreements for the Construction of Real Estate.
• IFRIC 16 – Hedges of a Net Investment in a Foreign Operation
• IFRIC 17 – Acccounting for distribution of non-cash assets to owners.
• IFRIC 18 – Accounting for assets transferred from customers to suppliers of electricity, gas, water and telecommunications.
• IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments. The interpretation provides guidance on accounting for transactions when a company makes up all or part of its financial obligations through the issuance of equity instruments, and applies when debt conver-sion occurs as a result of a renegotiation of the loan agreement.
• IAS 1 – Presentation of Financial Statements: If a lender at any time has the right to convert a convertible loan into equity, the classification of the loan will not be affected.
• IAS 7 – Statement of Cash Flows: Specifies that only expenditures that are capitalised will be included in cash flow from investing activities.
• IAS 17 – Lease Agreements: The special mention of criteria for classification as a financial lease is removed for land.
• IAS 18 – Revenue: It is taken into more guidance to the assess-ment of whether a company is an agent or seller for their own account and the risks as principal.
• IAS 24 (Revised) – Related Party Disclosures. In relation to the current IAS 24, the revised standard has a clarification and simplification of the definition of related party.
• IAS 27 (Amendment) – Consoli- dated and Separate Financial Statements – Guidance on accounting for changed owner-ship interest in subsidiaries.
• IAS 32 (Amendment) – Financial Instruments Presentasjon – Subscription rights in currency.
• IAS 36 (Amendment) – Impairment of Assets. Emphasise that the operation segment is the highest level one can allocate goodwill to in a business combination.
• IAS 38 (Amendment) – Intangible Assets. It has been specified in a clarification that if an intangible asset is only identifi- able with another intangible asset, the two can be presented as one asset provided their lifespan is approximately equal.
• IAS 39 – Financial Instruments – recognition and measurement: Regarding prepayment options in connection with a host contract, contracts in connection with business combinations and where cash flow hedges result in a financial instrument being entered into the statement of financial position.

The following standard will have a significant impact on Veidekke's consolidated accounts:

IFRIC 15 – Agreements for the Construction of Real Estate

The IASB has released an interpretive of the rules for the sale of flats built for own account. The EU has decided that the new rules shall be applied from 1 January 2010. The new interpretation clarifies what is included by the rules regarding construction contracts (IAS 11), and what should be treated as ordinary sales of goods (IAS 18). The interpretation clarifies when turnover and profit may be recognised in the accounts.

Today's practice among listed Swedish and Norwegian construct-ion companies is to recognise revenue as it is earned in line with the sales rate and percentage of completion in compliance with IAS 11. For Veidekke, the implementation of IFRIC 15 implies that the sale of housing units shall only be entered as income after they have been delivered. This is because the sale of a flat shall be treated in the accounts in the same way as the sale of a product since the buyer of the apartment is not given the opportunity to influence the design of the apartment.

We expect the accounting effect in the form of reduced equity as of 1 January 2010 will be in the range of MNOK 40. The amount is relatively low because there has been a limited number of new projects start-ups in 2009.

IFRS 3 – Business combinations

The revised IFRS 3 will have impact on how the acquisitions made after 31 December 2009 are treated in the accounts. In relation to the current IFRS 3 the revised standard involves individual ammendments and clarifications concerning the application of the purchase method. Specific conditions that are affected include goodwill for incremental acquisitions, minority interests, contingent fees and acquisition expenses.

IAS 27 – Consolidated and separate financial statements

The revised IAS 27 provides more guidance on accounting for ownership changes of subsidiaries. The introduction of the revised standard stipulates that when the Group loses control of a subsidiary, any remaining equity interest in the subsidiary must be measured at fair value and the corresponding gain or loss entered into the profit and loss account.