Fluor 2011 Annual Report Download - page 109

FLUOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 cost or
losses, if any, are recognized in the period in which they are determined. Pre-contract costs are expensed as
incurred. Revenue recognized in excess of amounts billed is classified as a current asset under contract
work in progress. Amounts billed to clients in excess of revenue recognized to date are classified as a
current liability under advance billings on contracts. The company anticipates that the majority of incurred
cost associated with contract work in progress as of December 31, 2011 will be billed and collected in 2012.
The company recognizes revenue, but not profit, for certain significant claims when it is determined that
recovery of incurred cost is probable and the amounts can be reliably estimated. Under ASC 605-35-25,
these requirements are satisfied when the contract or other evidence provides a legal basis for the claim,
additional costs were caused by circumstances that were unforeseen at the contract date and not the result
of deficiencies in the company’s performance, claim-related costs are identifiable and considered
reasonable in view of the work performed, and evidence supporting the claim is objective and verifiable.
Cost, but not profit, associated with unapproved change orders is accounted for in revenue when it is
probable that the cost will be recovered through a change in the contract price. In circumstances where
recovery is considered probable but the revenue cannot be reliably estimated, cost attributable to change
orders is deferred pending determination of the impact on contract price. If the requirements for
recognizing revenue for claims or unapproved change orders are met, revenue is recorded only to the
extent that costs associated with the claims or unapproved change orders have been incurred.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Leasehold improvements are amortized over the
shorter of their economic lives or the lease terms. Depreciation is calculated using the straight-line method
over the following ranges of estimated useful service lives, in years:
Estimated
Useful
December 31, Service
(cost in thousands) 2011 2010 Lives
Buildings $ 278,029 $ 281,013 20 – 40
Building and leasehold improvements 141,335 131,546 6 – 20
Machinery and equipment 1,245,770 1,163,860 2 – 10
Furniture and fixtures 135,449 135,830 2 – 10
Goodwill and Intangible Assets
Goodwill is not amortized but is subject to annual impairment tests. Interim testing for impairment is
performed if indicators of potential impairment exist. For purposes of impairment testing, goodwill is
allocated to the applicable reporting units based on the current reporting structure. When testing goodwill
for impairment, the company first compares the fair value of each reporting unit with its carrying amount.
If the carrying amount of a reporting unit exceeds its fair value, a second step is performed to measure the
amount of potential impairment. In the second step, the company compares the implied fair value of
reporting unit goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of
reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized.
During 2011, the company completed its annual goodwill impairment test in the first quarter and
determined that none of the goodwill was impaired because the fair value of each reporting unit
substantially exceeded its carrying amount.
Intangible assets with indefinite lives are not amortized but are subject to annual impairment tests.
Interim testing for impairment is performed if indicators of potential impairment exist. An intangible asset
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