Travelers 2003 Annual Report Download - page 137

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135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCENTIVE PLANS, Continued
On August 20, 2002, in connection with the Citigroup Distribution, the unvested outstanding awards of restricted
stock and deferred shares held by Travelers employees on that date under Citigroup CAP awards, were cancelled
and replaced by awards comprised primarily of 3.1 million newly issued shares of class A common stock at a
total market value of $53.3 million based on the closing price of the class A common stock on August 20, 2002.
These replacement awards were granted on substantially the same terms, including vesting, as the former
Citigroup awards. The value of these newly issued shares along with class A and class B common stock received
in the Citigroup Distribution on the Citigroup restricted shares, were equal to the value of the cancelled
Citigroup restricted share awards.
In addition, the Directors Plan allows deferred receipt of shares of class A common stock (deferred stock) to a
future distribution date or upon termination of their service. The after-tax compensation cost associated with this
plan was not significant in 2003 and 2002.
Prior to the Citigroup Distribution on August 20, 2002, unearned compensation expense associated with the
Citigroup restricted common stock grants was included in other assets in the consolidated balance sheet.
Following the Citigroup Distribution and the issuance of replacement stock awards in Travelers class A and class
B shares on August 20, 2002, the unamortized unearned compensation expense associated with these awards is
included as unearned compensation as a separate component of equity in the consolidated balance sheet.
Unearned compensation expense is recognized as a charge to income ratably over the vesting period.
The after-tax compensation cost charged to earnings for these restricted stock and deferred stock awards was
$17.1 million, $17.0 million and $19.4 million for the years ended December 31, 2003, 2002 and 2001,
respectively.
Information with respect to restricted stock and deferred stock awards is as follows:
2003 2002
New shares granted 2,185,586 -
Replacement grants at August 20, 2002 - 3,311,551
Weighted average fair value per share at issuance $ 16.15 $ 17.31
401(k) Savings Plan
On August 20, 2002, in connection with the Citigroup Distribution, Travelers established a 401(k) savings plan
under which substantially all employees are eligible to participate. Through December 31, 2003, Travelers
matches employee contributions up to 3% of eligible pay but not more than $1,500 annually. Effective January
1, 2004, the maximum amount of Travelers match increased to $2,500 annually. The expense related to this plan
was $20.3 million and $17.0 million for the years ended December 31, 2003 and 2002, respectively. Prior to the
IPO and the Citigroup Distribution, substantially all of Travelers employees were eligible to participate in a
401(k) savings plan sponsored by Citigroup, for which there was no Travelers matching contribution for
substantially all employees.
Stock Option Fair Value Information
The fair value effect of stock options is derived by application of a variation of the Black-Scholes option pricing
model.