Fluor 2004 Annual Report Download - page 76

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FLUOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Major Accounting Policies
Principles of Consolidation
The financial statements include the accounts of the company and its subsidiaries. The equity method of accounting is
used for investment ownership ranging from 20 percent to 50 percent. Investment ownership of less than 20 percent is
accounted for on the cost method. Certain contracts are executed jointly through partnerships and joint ventures with
unrelated third parties. The company recognizes its proportional share of venture revenues, costs and operating profits in its
Consolidated Statement of Earnings and generally uses the one-line equity method of accounting in the Consolidated Balance
Sheet. The company evaluates the applicability of Financial Accounting Standards Board (‘‘FASB’’) Interpretation No. 46
(Revised), ‘‘Consolidation of Variable Interest Entities’’ (FIN 46-R) (see Financing Arrangements) to partnerships and joint
ventures at the inception of its participation to ensure its accounting is in accordance with the appropriate standards. There
are no such financing entities in use at the present time.
As more fully described in the Discontinued Operations Note, in September 2001, the company adopted a plan to
dispose of certain non-core operations. As a result, certain non-core operations are presented as discontinued operations. All
significant intercompany transactions of consolidated subsidiaries are eliminated. Certain amounts in 2002 and 2003 have
been reclassified to conform with the 2004 presentation.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect reported amounts. These estimates are based on
information available as of the date of the financial statements. Therefore, actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include securities with maturities of 90 days or less at the date of purchase. Securities with
maturities beyond 90 days, when present, are classified as marketable securities within current assets and are carried at fair
value.
Engineering and Construction Contracts
The company recognizes engineering and construction contract revenues using the percentage-of-completion method,
based primarily on contract costs incurred to date compared with total estimated contract costs. Customer-furnished
materials, labor and equipment, and in certain cases subcontractor materials, labor and equipment, are included in revenues
and cost of revenues when management believes that the company is responsible for the ultimate acceptability of the project.
Contracts are segmented between types of services, such as engineering and construction, and accordingly, gross margin
related to each activity is recognized as those separate services are rendered. Changes to total estimated contract costs or
losses, if any, are recognized in the period in which they are determined. Revenues recognized in excess of amounts billed are
classified as current assets under contract work in progress. Amounts billed to clients in excess of revenues recognized to date
are classified as current liabilities under advance billings on contracts. The company anticipates that substantially all incurred
costs associated with contract work in progress at December 31, 2004 will be billed and collected in 2005. The company
recognizes certain significant claims for recovery of incurred costs when it is probable that the claim will result in additional
contract revenue and when the amount of the claim can be reliably estimated. Unapproved change orders are accounted for in
revenue and cost when it is probable that the costs will be recovered through a change in the contract price. In circumstances
where recovery is considered probable but the revenues cannot be reliably estimated, costs attributable to change orders are
deferred pending determination of contract price.
Depreciation and Amortization
Additions to property, plant and equipment are recorded at cost. Assets are depreciated principally using the straight-line
method over the following estimated useful lives: buildings and improvements — six to 50 years and machinery and
equipment — one to 10 years. Leasehold improvements are amortized over the shorter of their economic lives or the lease
terms.
F-9