Fluor 2011 Annual Report Download - page 110

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FLUOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
with an indefinite life is impaired if its carrying value exceeds its fair value. As of December 31, 2011, none
of the company’s intangible assets with indefinite lives were impaired. Intangibles assets with finite lives
arise from business acquisitions and are amortized on a straight-line basis over the useful lives of those
assets, ranging from one to ten years.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events
that have been recognized in the company’s financial statements or tax returns. The company evaluates the
realizability of its deferred tax assets and maintains a valuation allowance, if necessary, to reduce certain
deferred tax assets to amounts that are more likely than not to be realized. The factors used to assess the
likelihood of realization are the company’s forecast of future taxable income and available tax planning
strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted
taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax
assets and could result in an increase in the company’s effective tax rate on future earnings.
Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.
Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in
the first subsequent financial reporting period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent
financial reporting period in which that threshold is no longer met. The company recognizes potential
interest and penalties related to unrecognized tax benefits within its global operations in income tax
expense.
Judgment is required in determining the consolidated provision for income taxes as the company
considers its worldwide taxable earnings and the impact of the continuing audit process conducted by
various tax authorities. The final outcome of these audits by foreign jurisdictions, the Internal Revenue
Service and various state governments could differ materially from that which is reflected in the
Consolidated Financial Statements.
Derivatives and Hedging
The company limits exposure to foreign currency fluctuations in most of its engineering and
construction contracts through provisions that require client payments in currencies corresponding to the
currencies in which cost is incurred. Certain financial exposure, which includes currency and commodity
price risk associated with engineering and construction contracts, currency risk associated with
intercompany transactions, and risk associated with interest rate volatility may subject the company to
earnings volatility. In cases where financial exposure is identified, the company generally mitigates the risk
by utilizing derivative instruments. The company’s derivative instruments are designated as either fair
value or cash flow hedges in accordance with Statement of Financial Accounting Standards (‘‘SFAS’’)
No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’ (ASC 815). The company
formally documents its hedge relationships at inception, including identification of the hedging instruments
and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge
transaction. The company also formally assesses, both at inception and at least quarterly thereafter,
whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in
the fair value of the hedged items. The fair values of all derivative instruments are recognized as assets or
liabilities at the balance sheet date. For fair value hedges, the effective portion of the change in the fair
value of the derivative instrument is offset against the change in the fair value of the underlying asset or
liability through earnings. For cash flow hedges, the effective portion of the derivative instruments’ gains or
losses due to changes in fair value are recorded as a component of accumulated other comprehensive
income (loss) (‘‘OCI’’) and are reclassified into earnings when the hedged items settle. Any ineffective
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