Fluor 2011 Annual Report Download - page 66

Our actual results could differ from the assumptions and estimates used to prepare our financial statements.
In preparing our financial statements, we are required under U.S. generally accepted accounting
principles to make estimates and assumptions as of the date of the financial statements. These estimates
and assumptions affect the reported values of assets, liabilities, revenue and expenses, and the disclosure of
contingent assets and liabilities. Areas requiring significant estimates by our management include:
• Recognition of contract revenue, costs, profits or losses in applying the principles of
percentage-of-completion accounting;
• Recognition of recoveries under contract change orders or claims;
• Estimated amounts for expected project losses, warranty costs, contract close-out or other costs;
• Collectability of billed and unbilled accounts receivable and the need and amount of any allowance
for doubtful accounts;
• Asset valuations;
• Income tax provisions and related valuation allowances;
• Determination of expense and potential liabilities under pension and other post-retirement benefit
programs; and
• Accruals for other estimated liabilities.
Our actual business and financial results could differ from our estimates of such results, which could have a
material negative impact on our financial condition and reported results of operations.
Our use of the percentage-of-completion method of accounting could result in a reduction or reversal of previously
recorded revenue or profits.
Under our accounting procedures, we measure and recognize a large portion of our profits and
revenue under the percentage-of-completion accounting methodology. This methodology allows us to
recognize revenue and profits ratably over the life of a contract by comparing the amount of the cost
incurred to date against the total amount of cost expected to be incurred. The effect of revisions to revenue
and estimated cost 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. In addition,
from time to time, when calculating the total amount of profits and losses, we include unapproved claims
as contract revenue when collection is deemed probable based upon the criteria for recognizing
unapproved claims under Accounting Standards Codification (‘‘ASC’’) 605-35-25. Including unapproved
claims in this calculation increases the operating income (or reduces the operating loss) that would
otherwise be recorded without consideration of the probable unapproved claim. Given the uncertainties
associated with these types of contracts, it is possible for actual cost to vary from estimates previously
made, which may result in reductions or reversals of previously recorded revenue and profits.
Our continued success requires us to hire and retain qualified personnel.
The success of our business is dependent upon being able to attract and retain personnel, including
engineers, project management and craft employees around the globe and who have the necessary and
required experience and expertise. Competition for these kinds of personnel is intense. In addition, as
some of our key personnel approach retirement age, we need to provide for smooth transitions, and our
operations and results may be negatively affected if we are not able to do so.
It can be very difficult or expensive to obtain the insurance we need for our business operations.
As part of business operations, we maintain insurance both as a corporate risk management strategy
and in order to satisfy the requirements of many of our contracts. Although we have in the past been
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