Travelers 2004 Annual Report Download - page 130

THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of The St. Paul Travelers Companies, Inc.
(together with its subsidiaries, the Company). On April 1, 2004, Travelers Property Casualty Corp. (TPC)
merged with a subsidiary of The St. Paul Companies, Inc. (SPC), as a result of which TPC became a wholly-
owned subsidiary of The St. Paul Travelers Companies, Inc. For accounting purposes, this transaction was
accounted for as a reverse acquisition with TPC treated as the accounting acquirer. Accordingly, this transaction
was accounted for as a purchase business combination, using TPC’s historical financial information and applying
fair value estimates to the acquired assets, liabilities and commitments of SPC as of April 1, 2004. (See note 2 for
a description of the fair value adjustments recorded). Beginning on April 1, 2004, the results of operations and
financial condition of SPC were consolidated with TPC’s results of operations and financial condition.
Accordingly, all financial information presented herein for the twelve months ended December 31, 2004 reflects
the accounts of TPC for the three months ended March 31, 2004 and the consolidated accounts of SPC and TPC
for the subsequent nine months ended December 31, 2004. The financial information presented herein for 2003
and 2002 reflects the accounts of TPC. Certain reclassifications have been made to prior years’ financial
statements to conform to the current year’s presentation. Significant intercompany transactions and balances have
been eliminated.
In connection with the merger, each issued and outstanding share of TPC class A and class B common stock
(including the associated preferred stock purchase rights) was exchanged for 0.4334 of a share of the Company’s
common stock. Share and per share amounts for all periods presented have been restated to reflect the exchange
of TPC’s common stock, par value $0.01 per share, for the Company’s common stock without designated par
value. Common stock and additional paid-in capital in the consolidated balance sheet were also restated to give
effect to the difference in par value of the exchanged shares. Cash was paid in lieu of fractional shares of the
Company’s common stock. Immediately following consummation of the merger, historical TPC shareholders
held approximately 66% of the Company’s common stock. For further information regarding the merger, see
note 2.
TPC was reorganized in connection with its initial public offering (IPO) on March 21, 2002. TPC issued
common stock representing approximately 23% of TPC’s common equity. After the IPO, Citigroup Inc. (together
with its consolidated subsidiaries, Citigroup) beneficially owned all of the 500 million shares of TPC’s
outstanding class B common stock, each share of which is entitled to seven votes, and 269 million shares of
TPC’s class A common stock, each share of which is entitled to one vote, representing at the time 94% of the
combined voting power of all classes of TPC’s voting securities and 77% of the equity interest in TPC. (All class
A and class B share amounts presented are unadjusted for the merger of TPC and SPC). For further information
on the IPO and related corporate reorganization, see note 3.
The preparation of the consolidated financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and claims and expenses during the reporting period. Actual
results could differ from those estimates.
Adoption of New Accounting Standards
Effect of Contingently Convertible Debt on Diluted Earnings per Share
In October 2004, the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF)
issued EITF 04-8, The Effect of Contingently Convertible Debt on Diluted Earnings per Share, providing new
118