Travelers 2005 Annual Report Download - page 193

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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11. INCOME TAXES (Continued)
On October 22, 2004, Congress enacted the “ American Jobs Creation Act” (AJCA), which provided a
temporary incentive for U.S. corporations to repatriate earnings previously reinvested in foreign
subsidiaries to obtain an 85% dividends received deduction. InDecember 2005, the Company repatriated
$158 million of cumulative foreign earnings invested outside of the United States, which resulted in an
increase in income tax expense of $8 million for the year ended December 31, 2005. See note 1.
12. SHAREHOLDERS’ EQUITY AND DIVIDEND AVAILABILITY
Mandatorily Redeemable Securities of Subsidiary Trusts
TIGHI, in1996, formed statutory subsidiary business trusts under the laws of the State of Delaware,
which issued Trust Securities representing undivided beneficial interests in the assets of the trust. The
gross proceeds of the Trust Securities were invested in Junior Subordinated Deferrable Interest
Debentures (Junior Subordinated Debentures) of its parent (TPC). On April 9, 2003, TIGHI redeemed
the $900 million aggregate principal of the TIGHI 8.00% to 8.08% Junior Subordinated Debentures held
by the subsidiary trusts. The subsidiary trusts, in turn, used these funds to redeem the $900 million
liquidation value of the Trust Securities.
Preferred Stock
The Company’s preferred shareholders’ equity represents the par value of preferred shares
outstanding that the Company assumed in the merger related to The St. Paul Companies, Inc. Stock
Ownership Plan (SOP) Trust, less the remaining principal balance on the SOP Trust debt. The SOP Trust
borrowed funds from a U.S. underwriting subsidiary to finance the purchase of the preferred shares, and
the Company guaranteed the SOP debt. The final payment on the SOP debt was made in January 2005.
The SOP Trust may at any time convert any or all of the preferred shares into shares of the
Company’s common stock at a rate of eight shares of common stock for each preferred share. The Board
of Directors has reserved a sufficient number of authorized common shares to satisfy the conversion of all
preferred shares issued to the SOP Trust and the redemption of preferred shares to meet employee
distribution requirements. Upon the redemption of preferred shares, the Company will issue shares of
common stock to the trust to fulfill the redemption obligations. See note 14.
Holders of preferred stock have a preference upon liquidation, dissolution or winding up of the
Company of $100 per share.
In September 2005, the SOP was merged into the St. Paul Travelers 401(k) Savings Plan. See note 14.
Common Stock
On April 1, 2004, 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. See note 2.
The Company is governed by the Minnesota Business Corporation Act. All authorized shares of
voting common stock have no par value. Shares ofcommon stock reacquired are considered treasury
shares. The number of authorized shares of the company is 1.75 billion.