Request for Question Clarification by
01 Feb 2006 09:19 PST
I have been able to find UK company annual reports that make mention
of the value of long-term contracts.
But it's much harder (especially given my familiarity with US, but not
UK, financial reporting) to actually pinpoint the places in the
balance sheets that actually include the value of the contracts as an
For instance, here are a few excerpts from the most recent annual
report of Balfour Beatty:
--b) On 6 August 2004 the Group acquired from the Skanska Group its 50%
shareholdings in each of Gammon China Ltd, Gammon Asia Ltd and
Gammon Construction Holdings Ltd (the ?Gammon Skanska Group?)
for a total consideration of HK$475m (£33m) in cash and costs of £1m.
The Group?s share of the book value of net assets acquired was £27m.
Provisional fair value adjustments amounting to £14m have been made to
harmonise accounting policies for income and profit recognition on long-term
contracts and the cost of pension obligations...
--Reliable earnings growth is underpinned by long-term alliance
contracts. We already have many such contracts and have won more
in 2004, including a £400m, five-year project to manage and maintain
motorways and trunk roads in south-west England and a five-year
contract likely to be worth approximately £500m for rail renewals on
the mainline network. Early in 2005, we secured a £380m contract
to work with National Grid Transco in replacing the gas mains in
Greater Manchester over the next eight years.
--g) Profit recognition on contracting activities
Profit on individual contracts is taken only when their outcome can be foreseen
with reasonable certainty, based on the lower of the percentage margin earned
to date and that prudently forecast at completion, taking account of agreed
claims. Full provision is made for all known or expected losses on individual
contracts, taking a prudent view of future claims income, immediately such
losses are foreseen. Profit for the year includes the benefit of
claims settled on contracts completed in prior years.
--Pre-contract costs are expensed as incurred until it is virtually
certain that a contract will be awarded, from which time further
pre-contract costs are
recognised as an asset and charged as an expense over the period of the
contract. Amounts recovered in respect of costs that have been written off
are deferred and amortised over the life of the contract.
--Stocks and unbilled contract work in progress are valued at the lower of
cost and net realisable value. Cost, where appropriate, includes a proportion
of manufacturing overheads. Applications for progress payments are
deducted from cost, with any excess included in other creditors as advance
Some balance sheets entries appear to have relvant information, but
I'm not especially well-versed in interpreting them. For instance,
Group Group Company Company
2004 2003 2004 2003
(millions of £)
Contract work in progress 189 174 ? ?
Progress applications (116) (96) ? ?
Please let me know, a bit more precisely, which (if any) of the above
information is useful to you, and I'll see if I can find a five
companies to meet your needs.