The preparation of the Schedules in conformity with the Principles requires management to make estimates and assumptions that affect the amounts reported in the Schedules and accompanying notes. Accordingly, actual results could differ from those estimates.

Project costs are recognized on an accrual basis of accounting using a job order system of cost accounting. Direct project costs are accumulated through specific identification by project number. Indirect costs are those that are not directly identified with a specific project or are impractical to be identified with a specific project but are necessary to complete the project.

The overhead rate is calculated on a Company-wide basis. All allowable indirect costs are allocated based on a percentage of direct labor. No other rate structures are utilized.

In addition to direct labor, the Company consistently charges certain non-salary direct project costs to the respective project. Refer to Other Direct Cost Accounts and Charge Rates on page 18 for a listing of such costs.

Costs incurred by related businesses are allocated in the same manner as those incurred by the Company.

With regard to contracts that bill for labor hours, the Company maintains a job-order cost accounting system for the recording and accumulating of costs incurred under its contracts. Each project is assigned a job number so that costs may be segregated and accumulated in the Company's job-order cost accounting system.

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