Travelers 2003 Annual Report Download - page 102

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100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Additionally, in conjunction with the Citigroup Distribution in August 2002, Travelers issued replacement
awards for Citigroup awards. These replacement awards were issued at the intrinsic value of each Citigroup
option and the ratio of exercise price per share to the market value per share was not reduced. Accordingly there
was no compensation cost recognized in earnings for these replacement awards.
In conjunction with and subsequent to the IPO in March 2002 and the Citigroup Distribution in August 2002,
Travelers stock option awards provide for the purchase of Travelers class A common shares. Prior to 2002, the
stock option awards provided for the purchase of Citigroup common stock. The following tables illustrate the
effect on net income (loss) and earnings per share for each period indicated as if Travelers had applied the fair
value recognition provisions of FAS 123 to all outstanding and unvested stock-based employee awards.
The 2003 and 2002 effect of applying the fair value based method to all outstanding and unvested stock-based
employee awards in Travelers class A common shares is as follows:
(for the year ended December 31, in millions, except per share data) 2003 2002
Net income (loss), as reported $ 1,696.0 $ (27.0)
Add: Stock-based employee compensation expense included in
reported net income (loss), net of related tax effects (1)
18.2
17.0
Deduct: Stock-based employee compensation expense determined
under fair value based method, net of related tax effects (2)
(73.2)
(96.1)
Net income (loss), pro forma $ 1,641.0 $ (106.1)
Earnings per share
Basic – as reported $ 1.69 $ (0.03)
Basic – pro forma 1.64 (0.11)
Diluted – as reported 1.68 (0.03)
Diluted – pro forma 1.63 (0.11)
(1) Represents compensation expense on all restricted stock awards and on stock option awards granted after
January 1, 2003.
(2) Includes the compensation expense added back in (1).