Travelers 2006 Annual Report Download - page 216

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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10. INCOME TAXES (Continued)
On October 22, 2004, Congress enacted theAmerican 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 theUnited States, which resulted in an
increase in income tax expense of$8million for the year ended December 31, 2005.
11. SHARE-BASED INCENTIVE COMPENSATION
The Company has a share-based incentive compensation plan, The Travelers 2004 Stock Incentive
Plan (the 2004 Incentive Plan), which was adopted in July 2004 following the merger ofSPC and TPC. The
purposes of the 2004 Incentive Plan are to reward the efforts of the Company’s non-employee directors,
executive officers and other employees and to attract new personnel by providing incentives in the form of
stock-based awards. The 2004 Incentive Plan permitsgrants of nonqualified stock options, incentive stock
options, stock appreciation rights, restricted stock, deferred stock, stock units, performance awards and
other stock-based or stock-denominated awards with respect to the Company’s common stock. The
number of shares of the Company’s common stock authorized for grant under the 2004 Incentive Plan is 35
million shares, subject to additional shares that may be available for awards as described below.
In connection with the adoption of the 2004 Incentive Plan, the legacy share-based incentive
compensation plans of TPC and of SPC were terminated. Outstanding grants were not affected by the
termination of these plans,including the grantof reload options related to prior option grants under the
legacy TPC and the legacy SPC share-based incentive compensation plans.
The 2004Incentive Plan is the only plan pursuant to which future stock-based awards may be granted.
In addition to the 35 million shares initially authorized for issuance under the 2004 Incentive Plan, the
following will not be counted towards the 35 million shares available and will be available for future grants
under the 2004 Incentive Plan: (i) shares of common stock subject to an award that expires unexercised,
that is forfeited, terminated or canceled, that is settled incash or other forms of property, or otherwise
does not result in the issuance of shares of common stock, in whole or in part; (ii) shares that are used to
pay the exercise price of stock options and shares used to pay withholding taxes on awards generally; and
(iii) shares purchased by the Company on the open market using cash option exercise proceeds; provided,
however, that the increase in the number of shares of common stock available for grant pursuant to such
market purchases shall not be greater than the number that could be repurchased at fair market value on
the date of exercise of the stock option giving rise to such option proceeds. Theseprovisions also apply to
awards granted under the legacy TPC and legacy SPC share-based incentive compensation plans thatwere
outstanding on the effective date of the 2004 Incentive Plan, except for shares delivered to or retained in
the legacy TPC Plan in connection with the withholding of taxes applicable to the exercise of outstanding
options that have reload features.
The Company also has a compensation program for non-employee directors (the 2004 Director
Compensation Program). Under the2004 Director Compensation Program, non-employee directors’
compensation consists of an annual retainer and a deferred stock award. Each non-employee director may
choose toreceive all or a portion of his or her annual retainer and any committee chair or co-chair fees
paid in the form of cash, common stock or deferred stock. Deferred stock for the annual retainer, and
committee chair and co-chair fees, is electedpursuant to the Travelers Deferred Compensation