Fluor 2007 Annual Report Download - page 65

Corporate, Tax and Other Matters
Corporate For the three years ended December 31, 2007, corporate administrative and general
expenses were $193.9 million, $178.8 million and $143.7 million, respectively. The increase in 2007 is
primarily due to higher incentive and stock-price based compensation cost as a result of the increase in the
company’s stock price. Corporate administrative and general expense includes non-operating income of
$2.6 million during 2007, non-operating expense of $5 million relating principally to an investment
impairment provision during 2006 and non-operating income of $9 million for the year 2005. The 2005
amount relates primarily to gains from sales of portfolio properties including the corporate headquarters
building discussed below. The 2006 increase in corporate administrative and general expense includes
$13.1 million from the adoption of the new share-based compensation accounting standard compared with
2005. Additionally, during 2006, expenses recorded with respect to the relocation of the corporate
headquarters increased by $8.5 million.
In May 2005, the company announced its decision to relocate its corporate headquarters from
Southern California to the Dallas/Fort Worth metropolitan area. The relocation was completed in the
second quarter of 2006. Approximately 120 employees in Southern California who did not relocate to
Texas left the company. The cost of these employee displacements was accrued ratably starting in the third
quarter of 2005 through the date of the employee departures. All other relocation and hiring cost was
charged to expense as incurred. Total relocation cost included in corporate administrative and general
expense was $14.2 million and $5.7 million during 2006 and 2005, respectively.
The corporate facility in California was sold in 2005. The cost to construct the new Texas headquarters
totaled $60 million and was funded from available cash resources including proceeds from the sale of the
former headquarters facility.
Net interest income was $40.5 million, $4.3 million and $7.4 million for the years ended December 31,
2007, 2006 and 2005, respectively. Net interest income significantly increased in 2007 primarily as a result
of higher cash balances and interest rates during the year. The 2006 decrease was the net result of interest
expense on outstanding commercial paper balances during the first six months of 2006 that were required
to support project execution activities, an increase in the interest rates on those commercial paper
borrowings and the consolidation of non-recourse project finance debt starting in the fourth quarter of
2005, partially offset by higher cash balances and investment interest rates during the second half of 2005.
Higher interest income in 2005 related principally to larger available cash balances and higher short-term
interest rates.
Ta x The effective tax rates on the company’s pretax earnings were 17.8 percent, 31.0 percent and
24.1 percent for the years 2007, 2006 and 2005, respectively. In connection with the IRS examination of the
company’s income tax returns for the tax years beginning November 1, 1995 through December 31, 2000,
the IRS proposed numerous adjustments that, if sustained, would have resulted in significant additional
taxes and penalties. The company filed protests with IRS Appeals contesting many of the proposed
adjustments and reached an agreement with IRS Appeals, which was reviewed and approved in December
2007 by the Congressional Joint Committee on Taxation. As a result of the IRS Appeals settlement, the
company recognized a $123 million reduction to income tax expense in 2007.
The 2006 effective tax rate includes a favorable benefit of the extraterritorial income exclusion and the
reversal of certain valuation allowances resulting from the realization of associated tax benefits, partially
offset by the unfavorable impact of tax rate changes on certain state deferred taxes.
The comparatively low 2005 tax rate was primarily attributable to a favorable audit settlement for the
1993 through 1995 tax years with the Internal Revenue Service, tax benefits associated with the dividends
made pursuant to the American Jobs Creation Act of 2004 (the ‘‘AJCA’’) as more fully discussed below and
the reversal of certain valuation allowances resulting from the realization of tax benefits associated with
such items on the tax returns. These items include certain net operating loss and tax credit carryforwards.
In addition, the increased foreign activities of the company during the year also produced increased
extraterritorial income exclusion tax benefit. These aforementioned favorable tax rate variances were
partially offset by the tax effect recorded on certain foreign earnings which the company had previously
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