Travelers 2005 Annual Report Download - page 218

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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17. CONTINGENCIES, COMMITMENTS AND GUARANTEES
Companies, Inc., et al. (Mass. Super. Ct. May 16, 2005), and one other individual action, Office
Depot, Inc. v. Marsh & McLennan Companies, Inc., et al. (Fla. Cir. Ct. June22, 2005), have been filed in
state court and assert claims that are similar to those asserted in In re Insurance Brokerage Antitrust
Litigation against various brokers and insurers, including the Company and/or certain of its affiliates, but
have not been consolidated with In re Insurance Brokerage Antitrust Litigation. Certain defendants in
Bensley Construction, Inc., including the Company, have removed the action to the United States District
Court for the District of Massachusetts. On February 13, 2006, the action was transferred to the District of
New Jersey for coordination with In re Insurance Brokerage Antitrust Litigation. Office Depot, Inc. was
brought in Florida state court and names several of the Company’s subsidiaries. On November 9, 2005, the
court entered an order staying Office Depot pending resolution of In re Insurance Brokerage Antitrust
Litigation. The plaintiff in Office Depot, Inc. has appealed. The Company believes that these lawsuits have
no merit and intends to defend vigorously.
In addition to those described above, the Company is involved in numerous lawsuits, not involving
asbestos and environmental claims, arising mostly in the ordinary course of business operations either as a
liability insurer defending third-party claims brought against policyholders, or as an insurer defending
claims brought against it relating to coverage or the Company’s business practices. While the ultimate
resolution of these legal proceedings could be material to the Company’s results of operations in a future
period, in the opinion of the Company’s management none would likely have a material adverse effect on
the Company’s financial condition or liquidity.
On July 23, 2004, the Company announced that it was seeking guidance from the staff of the Division
of Corporation Finance of the Securities Exchange Commission with respect to the appropriate purchase
accounting treatment for certain second quarter 2004 adjustments totaling $1.63 billion ($1.07 billion after-
tax). The Company recorded these adjustments as charges in its income statement in the second quarter of
2004. Through an informal comment process, the staff of the Division of Corporation Finance has
subsequently asked for further information, which the Company has provided. Specifically, the staff has
asked for information concerning the Company’s adjustments to certain of SPC’s insurance reserves and
reserves for reinsurance recoverables and premiums due from policyholders, and how those adjustments
may relate to SPC’s reserves for periods prior to the merger. After reviewing the staff’s questions and
comments, the Company continues to believe that its accounting treatment for these adjustments is
appropriate. If, however, the staff disagrees, some or all of the adjustments being discussed may not be
recorded as charges in the Company’s income statement, thereby increasingnet income for the second
quarter and full year 2004 and increasingshareholders’ equity at December 31, 2005 and 2004, in each case
by the approximate after-tax amount of the change. The effect on tangible shareholders’ equity (adjusted
for the effects of deferred taxes associated with goodwill and intangible assets) at December 31, 2005 and
2004 would not be material. Increases to goodwill and deferred tax liabilities would be reflected on the
Company’s balance sheet as of April 1, 2004, either due to purchase accounting or adjustment of SPC’s
reserves prior to the merger.
(Continued)