Travelers 2005 Annual Report Download - page 65

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brokers. An important part of our business is written through fewer than a dozen such intermediaries. Loss
of all or a substantial portion of the business provided through such agents and brokers could have an
adverse effect on our future business volume and profitability.
If we experience difficulties with outsourcing relationships, our ability to conduct our business might
be negatively impacted. We outsource certain technology functions to third parties and may do so
increasingly in the future. If we do not effectively develop and implement our outsourcing strategy, third
party providers do not perform as anticipated or we experience technological or other problems with a
transition, we may not realize productivity improvements or cost efficiencies and may experience
operational difficulties, increased costs and a loss of business.In addition, our ability to receive services
from third party providers outside of the United States might be impacted by cultural differences, political
instability, unanticipated regulatory requirements or policies inside or outside of the United States. As a
result, our ability to conduct our business might be negatively impacted.
Item 1B. UNRESOLVED STAFF COMMENTS
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 consolidated statement of income in the
second quarter of 2004. Through an informal comment process, thestaff 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 and discussions with the Company’s independent auditors, 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 consolidated statement of income, thereby increasingnet income for the second quarter and
full year 2004 and increasing shareholders’ 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.
Item 2. PROPERTIES
The Company owns its corporate headquarters buildings located at 385 Washington Street and 130
West Sixth Street, St. Paul, Minnesota. These buildings are adjacent to one another and consist of
approximately 1.1 million square feet of gross floor space. The Company also owned properties in
Woodbury, Minnesota, where an administrative services building and off-site computer processing
operationswere located. The Woodbury properties were sold in April of 2005.
The Company also owns six buildings in Hartford, Connecticut. The Company currently occupies
approximately 1.8 million square feet of office space in these buildings. The Company also owns other real
property, which includes office buildings in Fall River, Massachusetts,and inIrving, Texas, and a data
center located in Norcross, Georgia. In addition, the Company leases 220 field and claim offices totaling
approximately 5.1 million square feet throughout the United States under leases or subleases with third
parties.
The Company owns a building in London, England, which houses a portion of its operations in the
United Kingdom.