Travelers 2001 Annual Report Download - page 64

The St. Paul Companies 2001 Annual Report62
stock ownership plan
As of Jan. 1, 1998, our Preferred Stock Ownership Plan (“PSOP”) and
Employee Stock Ownership Plan (“ESOP”) were merged into
The St. Paul Companies, Inc. Stock Ownership Plan (“SOP”). The
plan allocates preferred shares semiannually to those employees
participating in our Savings Plus Plan. Under the SOP, we match
100% of employees’ contributions up to a maximum of 4% of their
salary. We also allocate preferred shares equal to the value of
dividends on previously allocated shares. Additionally, this plan now
provides an opportunity for an annual allocation to qualified U.S.
employees based on company performance.
To finance the preferred stock purchase for future allocation to
qualified employees, the SOP (formerly the PSOP) borrowed
$150 million at 9.4% from our primary U.S. underwriting subsidiary.
As the principal and interest of the trust’s loan is paid, a pro rata
amount of our preferred stock is released for allocation to
participating employees. Each share of preferred stock pays a
dividend of $11.72 annually and is currently convertible into eight
shares of our common stock. Preferred stock dividends on all shares
held by the trust are used to pay a portion of this SOP obligation.
In addition to dividends paid to the trust, we make additional cash
contributions to the SOP as necessary in order to meet the SOP’s
debt obligation.
The SOP (formerly the ESOP) borrowed funds to finance the
purchase of common stock for future allocation to qualified
participating U.S. employees. The final principal payment on the
trust’s loan was made in 1998. As the principal of the trust loan
was paid, a pro rata amount of our common stock was released
for allocation to eligible participants. Common stock dividends
on shares allocated under the former ESOP are paid directly
to participants.
All common shares and the common stock equivalent of all preferred
shares held by the SOP are considered outstanding for diluted EPS
computations and dividends paid on all shares are charged to
retained earnings.
We follow the provisions of Statement of Position 76-3, “Accounting
Practices for Certain Employee Stock Ownership Plans,” and related
interpretations in accounting for this plan. We recorded expense of
$.5 million, $14 million and $26 million for the years 2001, 2000 and
1999, respectively.
The following table details the shares held in the SOP.
2001 2000
December 31 Common Preferred Common Preferred
(Shares)
Allocated 5,144,640 492,252 5,546,251 448,819
Committed to be released — 25,885 — 49,646
Unallocated — 254,085 — 309,663
Total 5,144,640 772,222 5,546,251 808,128
The SOP allocated 55,578 preferred shares in 2001, 83,585
preferred shares in 2000 and 183,884 preferred shares in 1999.
Unallocated preferred shares had a fair market value of $90 million
and $135 million at Dec. 31, 2001 and 2000, respectively. The
remaining unallocated preferred shares at Dec. 31, 2001, will be
released for allocation annually through Jan. 31, 2005.
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Stock Incentive Plans
We have made fixed stock option grants to certain U.S.-based
employees, certain employees of our non-U.S. operations, and
outside directors. These were considered “fixed” grants because
the measurement date for determining compensation costs was
fixed on the date of grant. We have also made variable stock option
grants to certain company executives. These were considered
“variable” grants because the measurement date was contingent
upon future increases in the market price of our common stock.
We follow the provisions of Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to Employees,” FASB
Interpretation 44, “Accounting for Certain Transactions involving
Stock Compensation (an interpretation of APB Opinion No. 25),”
and other related interpretations in accounting for our stock option
plans. We also follow the disclosure provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation” for our option plans.
SFAS No. 123 requires pro forma net income and earnings per share
information, which is calculated assuming we had accounted for
our stock option plans under the “fair value” method described in
that Statement.
Since the exercise price of our fixed options equals the market
price of our stock on the day the options are granted, there generally
is no related compensation expense for financial reporting purposes.
However, during 2001, certain executives’ outstanding options
became subject to accelerated vesting and an extended life,
under the terms of the Senior Executive Severance Policy or
other employment agreements, and we recorded $16 million of
compensation cost in 2001. We have also recorded compensation
cost/(income) associated with our variable options, restricted
stock awards and the former USF&G’s Long-Term Incentive
Program, of $(8) million, $28 million and $8 million in 2001, 2000
and 1999, respectively.
fixed option grants
U.S.-Based Plans — Our fixed option grants for certain U.S.-based
employees and outside directors give these individuals the right to
buy our stock at the market price on the day the options were
granted. Fixed stock options granted under the stock incentive plan
adopted by our shareholders in May 1994 (as subsequently
amended) become exercisable no less than one year after the date
of grant and may be exercised up to ten years after grant date.
Options granted under our option plan in effect prior to May 1994
may be exercised at any time up to ten years after the grant date.
At the end of 2001, approximately 14,300,000 shares remained
available for grant under our stock incentive plan.