Fluor 2013 Annual Report Download - page 72

Kingdom. Net earnings attributable to Fluor Corporation in 2011 reflected the pre-tax charges of
$60 million ($0.21 per diluted share) for the Greater Gabbard Project.
Consolidated new awards for 2013 were $25.1 billion compared to $27.1 billion in 2012 and
$26.9 billion in 2011. The major contributors of new award activity for all three years were the Oil & Gas
and Industrial & Infrastructure segments. Approximately 63 percent of consolidated new awards for 2013
were for projects located outside of the United States.
Consolidated backlog was $34.9 billion as of December 31, 2013, $38.2 billion as of December 31,
2012, and $39.5 billion as of December 31, 2011. The Oil & Gas and Industrial & Infrastructure segments
made up the vast majority of backlog for all three years. The lower backlog at the end of 2013 was directly
attributable to the work off of backlog outpacing new awards for the mining and metals business line of the
Industrial & Infrastructure segment. As of December 31, 2013, approximately 64 percent of consolidated
backlog related to projects located outside of the United States.
For a more detailed discussion of operating performance of each business segment, corporate general
and administrative expense and other items, see ‘‘— Segment Operations’’ and ‘‘— Corporate, Tax and
Other Matters’’ below.
Discussion of Critical Accounting Policies
The company’s discussion and analysis of its financial condition and results of operations is based
upon its Consolidated Financial Statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The company’s significant accounting policies are
described in the Notes to Consolidated Financial Statements. The preparation of the Consolidated
Financial Statements requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and
liabilities. Estimates are based on information available through the date of the issuance of the financial
statements and, accordingly, actual results in future periods could differ from these estimates. Significant
judgments and estimates used in the preparation of the Consolidated Financial Statements apply to the
following critical accounting policies:
Engineering and Construction Contracts Contract revenue is recognized on the percentage-of-
completion method based on contract cost incurred to date compared to total estimated contract cost.
Contracts are generally 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. The
percentage-of-completion method of revenue recognition requires the company to prepare estimates of
cost to complete for contracts in progress. In making such estimates, judgments are required to evaluate
contingencies such as potential variances in schedule and the cost of materials, labor cost and productivity,
the impact of change orders, liability claims, contract disputes and achievement of contractual
performance standards. Changes in total estimated contract cost and losses, if any, are recognized in the
period they are determined. Pre-contract costs are expensed as incurred. The majority of the company’s
engineering and construction contracts provide for reimbursement of cost plus a fixed or percentage fee.
As of December 31, 2013, 80 percent of the company’s backlog was cost reimbursable while 20 percent was
for fixed-price, lump-sum or guaranteed maximum contracts. In certain instances, the company provides
guaranteed completion dates and/or achievement of other performance criteria. Failure to meet schedule
or performance guarantees could result in unrealized incentive fees or liquidated damages. In addition,
increases in contract cost can result in non-recoverable cost which could exceed revenue realized from the
projects. The company generally provides limited warranties for work performed under its engineering and
construction contracts. The warranty periods typically extend for a limited duration following substantial
completion of the company’s work on a project. Historically, warranty claims have not resulted in material
costs incurred, and any estimated costs for warranties are included in the individual project cost estimates
for purposes of accounting for long-term contracts.
Claims arising from engineering and construction contracts have been made against the company by
clients, and the company has made claims against clients for cost incurred in excess of current contract
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