Travelers 2007 Annual Report Download - page 225

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. SHARE-BASED INCENTIVE COMPENSATION (Continued)
awards. The related tax benefits recognized in earnings were $42 million and $51 million for the years
ended December 31, 2007 and 2006, respectively.
As of December 31, 2007, there was $118 million of total unrecognized compensation cost related
to all nonvested share-based incentive compensation awards. This includes stock options, restricted
stock, restricted stock units, deferred stock and performance shares granted under the Company’s 2004
Incentive Plan and legacy TPC and legacy SPC share-based incentive compensation plans. The
unrecognized compensation cost is expected to be recognized over a weighted-average period of
1.7 years.
Cash received from the exercise of employee stock options under share-based compensation plans
totaled $218 million and $216 million in 2007 and 2006, respectively. The tax benefit realized for tax
deductions from employee stock options exercised during 2007 and 2006 totaled $32 million and
$28 million, respectively.
The following table illustrates the effect on net income and earnings per share for the year ended
December 31, 2005 as if the Company had applied the fair value recognition 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
Net income as reported ....................................... $1,622
Add: Stock-based employee compensation expense included in reported net
income, net of related tax effects(1) ............................ 64
Deduct: Stock-based employee compensation expense determined under fair
value based method, net of related tax effects(2) ................... (76)
Net income pro forma ........................................ $1,610
Earnings per share
Basic—as reported ....................................... $ 2.39
Basic—pro forma ........................................ 2.37
Diluted—as reported ..................................... 2.33
Diluted—pro forma ...................................... 2.31
(1) Represents compensation expense on all restricted stock and stock option awards granted
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 and provides benefits under a cash balance formula, except that employees
satisfying certain age and service requirements remain covered by a prior final average pay formula. In
addition, the Company and TPC sponsor nonqualified defined benefit pension plans which cover
certain highly-compensated employees and also sponsor postretirement health and life insurance benefit
plans for employees satisfying certain age and service requirements and for certain retirees.
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