Fluor 2007 Annual Report Download - page 106

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FLUOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
redemption clauses, at the option of the holder, should certain events occur, as defined in the offering
prospectus.
During 2006, the company issued commercial paper at a discount with a weighted average effective
interest rate of 5.09 percent. During 2007, there was no commercial paper issued.
In December 2004, the company filed a ‘‘shelf’’ registration statement for the issuance of up to
$500 million of any combination of debt securities or common stock, the proceeds from which could be
used for debt retirement, the funding of working capital requirements or other corporate purposes.
Pursuant to the shelf registration statement, the company subsequently entered into a distribution
agreement for up to 2,000,000 shares of common stock. During 2005, the company sold 758,367 shares
under this distribution agreement, realizing net proceeds of $41.8 million. No shares were issued in 2007 or
2006 under this distribution agreement.
See Variable Interest Entities below for discussion of Equity Bridge Loan and Non-recourse Project
Finance Debt.
Other Noncurrent Liabilities
The company maintains appropriate levels of insurance for business risks. Insurance coverages
contain various retention amounts for which the company provides accruals based on the aggregate of the
liability for reported claims and an actuarially determined estimated liability for claims incurred but not
reported. Other noncurrent liabilities include $29 million and $15 million at December 31, 2007 and 2006,
respectively, relating to these liabilities. For certain professional liability risks the company’s retention
amount under its claims-made insurance policies does not include an accrual for claims incurred but not
reported because there is insufficient claims history or other reliable basis to support an estimated liability.
The company believes that retained professional liability amounts are manageable risks and are not
expected to have a material adverse impact on results of operations or financial position.
The company has deferred compensation and retirement arrangements for certain key executives
which generally provide for payments upon retirement, death or termination of employment. The deferrals
can earn either market-based fixed or variable rates of return, at the option of the participants. At
December 31, 2007 and 2006, $348 million and $309 million, respectively, of obligations related to these
plans are included in noncurrent liabilities. To fund these obligations, the company has established
non-qualified trusts, which are classified as noncurrent assets. These trusts held primarily marketable
equity securities valued at $275 million and $247 million at December 31, 2007 and 2006, respectively.
Periodic changes in fair value of these trust investments, most of which are unrealized, are recognized in
earnings, and serve to mitigate participants’ investment results, which are also reflected in earnings.
Stock Plans
The company’s executive stock plans provide for grants of nonqualified or incentive stock options,
restricted stock awards, stock units and stock appreciation rights (‘‘SARS’’). All executive stock plans are
administered by the Organization and Compensation Committee of the Board of Directors (‘‘Committee’’)
comprised of outside directors, none of whom are eligible to participate in the plans. Option grant prices
are determined by the Committee and are established at the fair value of the company’s common stock at
the date of grant. Options and SARS normally extend for 10 years and become exercisable over a vesting
period determined by the Committee, which can include accelerated vesting for achievement of
performance or stock price objectives. Recorded compensation cost for share-based payment
arrangements for both years ended December 31, 2007 and 2006 totaled $21.5 million, net of recognized
tax benefits of $12.9 million. Recorded compensation cost for share-based payment arrangements for the
year ended December 31, 2005, totaled $12.7 million, net of recognized tax benefits of $7.7 million.
F-23