Fluor 2004 Annual Report Download - page 40

to comply with any of these regulations, requirements or statutes, our existing government contracts could be
terminated, and we could be temporarily suspended or even debarred from government contracting or
subcontracting.
We also run the risk of the impact of government audits, investigations and proceedings, and so-called ‘‘qui
tam’’ actions that, if an unfavorable result occurs, could impact our profits and financial condition, as well as our
ability to obtain future government work. For example, government agencies such as the U.S. Defense Contract
Audit Agency (the ‘‘DCAA’’) routinely review and audit government contractors. If these agencies determine that a
rule or regulation has been violated, a variety of penalties can be imposed including criminal and civil penalties all
of which would harm our reputation with the government or even debar us from future government activities. The
DCAA has the ability to review how we have accounted for costs under the FAR and CAS, and if they believe that
we have engaged in inappropriate accounting or other activities, payments to us may be disallowed.
If one or more of our government contracts are terminated for any reason, if we are suspended from government
contract work, or if payment of our costs is disallowed, we could suffer a significant reduction in expected revenues
and profits.
Our use of the percentage-of-completion method of accounting could result in a reduction or reversal of
previously recorded revenues or profits.
Under our accounting procedures, we measure and recognize a large portion of our profits and revenues under
the percentage of completion accounting methodology. This methodology allows us to recognize revenues and
profits ratably over the life of a contract by comparing the amount of the costs incurred to date against the total
amount of costs expected to be incurred. The effect of revisions to revenues and estimated costs is recorded when the
amounts are known and can be reasonably estimated, and these revisions can occur at any time and could be
material. On a historical basis, we believe that we have made reasonably reliable estimates of the progress towards
completion on our long term contracts. However, given the uncertainties associated with these types of contracts, it
is possible for actual costs to vary from estimates previously made, which may result in reductions or reversals of
previously recorded revenues and profits.
We continue to expand our business in areas where bonding is required, but bonding capacity is limited.
We continue to expand our business in areas where the underlying contract must be bonded, especially in the
transportation infrastructure arena. Because of the overall lack of worldwide bonding capacity, we can find it
difficult to find sureties who will provide the contract-required bonding. In addition, these contracts are often very
large and extremely complex, which often necessitates the use of a joint venture, often with a competitor, to bid on
and perform these types of contracts, especially since it may be easier to jointly pursue the necessary bonding.
However, entering into these types of joint ventures or partnerships exposes us to the credit and performance risks of
third parties, many of whom are not as financially strong as we are. If our joint venturers or partners fail to perform,
we could suffer negative results.
Our international operations expose us to foreign currency fluctuations that could increase our U.S. dollar
costs or reduce our U.S. dollar revenues.
Because our functional currency is the U.S. dollar, we generally try to denominate our contracts in United States
dollars. However, from time to time our contracts are denominated in foreign currencies, which results in our foreign
operations facing the additional risk of fluctuating currency values and exchange rates, hard currency shortages and
controls on currency exchange. Changes in the value of foreign currencies could increase our U.S. dollar costs for,
or reduce our U.S. dollar revenues from, our foreign operations. Any increased costs or reduced revenues as a result
of foreign currency fluctuations could affect our profits.
Intense competition in the engineering and construction industry could reduce our market share and profits.
We serve markets that are highly competitive and in which a large number of multinational companies compete,
such as the Bechtel Group, Inc., Jacobs Engineering Group, Halliburton’s Kellogg Brown & Root, Washington
Group International, Parsons Engineering, CH2M Hill Companies, CB&I, Foster Wheeler, Technip and AMEC. In
particular, the engineering and construction markets are highly competitive and require substantial resources and
capital investment in equipment, technology and skilled personnel. Competition also places downward pressure on
our contract prices and profit margins. Intense competition is expected to continue in these markets, presenting us
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