Travelers 2005 Annual Report Download - page 112

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Net cash flows used in financing activities of continuing operations totaled $473million, $516 million
and $1.10billion in 2005, 2004 and 2003, respectively. In 2005, the Company repaid $815 million of its
outstanding debt, primarily comprised of the following: maturities of $238 million of 7.875% senior notes,
$79 million of 7.125% senior notes, and $99 million of medium-term notes bearing interest rates ranging
from 6.44% to 7.09%; and a net repayment of commercial paper borrowings of $395 million. In
November 2005, the Company issued $400 million of 5.50% senior notes maturing in December 2015. The
majority of proceeds was used to fund the repayment of commercial paper borrowings, with the remainder
used for general corporate purposes.
In July 2002, concurrent with the issuance of 17.8 million of SPC common shares in a public offering,
SPC issued 8.9 million equity units, each having a stated amount of $50, for gross consideration of
$442 million. Each equity unit initially consisted of a forward purchase contract for the Company’s
common stock, which matured in August 2005, and an unsecured $50 senior note of the Company
(maturing in 2007). Total annual distributions on the equity units were at the rate of 9.00%, consisting of
interest on the note at a rate of 5.25% and fee payments under the forward contract of 3.75%. Holders of
the equity units had the opportunity to participate in a required remarketing of the senior note component.
The initial remarketing date was May 11, 2005. On that date, the notes were successfully remarketed, and
the interest rate on the notes was reset to 5.01%, from 5.25%, effective May 16, 2005. The remarketed
notes mature on August 16, 2007. The forward purchase contract required the investor to purchase, for
$50, a variable number of shares of the Company’s common stock on the settlement date of August 16,
2005. The number of shares purchased was determined based on a formula that considered the average
closing price of the Company’s common stock on each of 20 consecutive trading days ending on the third
trading day immediately preceding the settlement date, in relation to the $24.20 per share price of common
stock at the time of the offering. On the August 16, 2005 settlement date, the Company issued 15.2 million
common shares and received total proceeds of $442 million.
Net maturities and retirements of debt, including the repurchase of Commercial Insurance
Resources, Inc.’s (CIRI) outstanding notes, totaled $75million in 2004. In addition, the Company
repurchased the minority interest in CIRI during 2004 for a total cost of $76 million. Cash flows used in
financing activities in 2003 included the redemption of $900million aggregate principal amount of junior
subordinated debt securities held by subsidiary trusts, the repayment of $700 million of notes payable to a
former affiliate and the repayment of $550 million of short-term debt. Funds used in these repayments
were primarily provided by the Company’s issuance of $1.40 billion of senior notes in March 2003 and by
cash flows provided by operating activities. These refinancing activities were initiated with the objective of
lowering the average interest rate on the Company’s total outstanding debt. Also reflected in 2003 was the
issuance of $550 million of short-term Floating Rate Notes which were used to repay the $550 million
Promissory Note due in January 2004.
Dividends paid to shareholders totaled $628 million, $642 million and $282 million in 2005, 2004 and
2003, respectively. The Company’s $636 million of common dividends in 2004 were comprised of regular
quarterly dividends totaling $522 million and $114 million that had been declared by SPC prior to the
merger. That amount consisted of SPC’s regular quarterly dividend at a rate of $0.29 per share
($66 million), and a special $0.21 per share ($48 million) dividend related to the merger. The special
dividend declared by SPC prior to the closing of the merger was designed to result in the holders of SPC’s
common stock prior to the merger receiving aggregate dividends with record dates in 2004 of $1.16 per
share, which was SPC’s indicated annual dividend rate prior to the merger. On February 7, 2006, the
Company’s Board of Directors declared a quarterly dividend of $0.23 per share, payable March 31, 2006 to
shareholders of record on March 10, 2006.
The declaration and payment of future dividends to holders of the Company’s common stock will be
at the discretion of the Company’s Board of Directors and will depend uponmany factors, including the
Company’s financial condition, earnings, capital requirements of the Company’s operating subsidiaries,