Travelers 2006 Annual Report Download - page 223

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
211
11. SHARE-BASED INCENTIVE COMPENSATION (Continued)
The following table illustrates the effect on net income and earnings per share for each period
indicated as if the Company had applied the fair valuerecognition provisions of FAS 123 to all outstanding
and unvested stock-based employee awards.
(for the year ended December 31, in millions, except per share data) 2005 2004
Net income as reported........................................ $ 1 ,622 $955
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects (1) .............. 64 49
Deduct: Stock-based employee compensation expense determined
under fair value based method, net of related tax effects (2)...... (76 ) (75 )
Net income pro forma......................................... $ 1 ,610 $929
Earnings per share
Basic—as reported..................................... $2.39 $1.56
Basic—pro forma...................................... 2.37 1
.52
Diluted—as reported................................... 2.33 1.53
Diluted—pro forma.................................... 2.31 1.49
(1) Represents compensation expense on all restricted stock and stock option awardsgranted after
January 1, 2003.
(2) Includes the compensation expense added back in(1).
12. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS
The Company sponsors a qualified non-contributory defined benefit pension plan, which covers
substantially all employees andprovides benefits under a cash balance formula, except that employees
satisfying certain age and service requirements remain covered by a prior final pay formula. Prior to
plans. These plans were merged to form one Company plan on December 31, 2004. In addition, the
compensated employees and also sponsor postretirement health and life insurance benefit plans for
employees satisfying certain age and service requirements and for certain retirees.
As discussed innote 1, the Company adopted the provisions of FAS 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, andamendment of FASB Statements No. 87, 88, 106
and 132(R).
December 31, 2004, both TPC and SPC sponsored qualified non-contributory defined benefit pension
Company and TPC sponsor non-qualified defined benefit pension plans which cover certain highly-