Travelers 2008 Annual Report Download - page 233

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES (Continued)
Company’s financial position. A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows:
(in millions) 2008 2007
Balance at January 1 ........................................... $143 $ 339
Additions for tax positions of prior years ............................ 42
Reductions for tax positions of prior years ........................... (30) (172)
Additions based on tax positions related to current year ................. 323
Reductions based on tax positions related to current year ................ (10) (49)
Balance at December 31 ...................................... $110 $ 143
Included in the balances at December 31, 2008 and 2007 were $17 million and $42 million,
respectively, of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate.
Also included in the balances at those dates were $93 million and $101 million, respectively, of tax
positions for which the ultimate deductibility is certain, but for which there is uncertainty about the
timing of deductibility. The timing of such deductibility would not affect the annual effective tax rate.
The Company recognizes accrued interest and penalties, if any, related to unrecognized tax
benefits in income taxes. During the years ended December 31, 2008 and 2007, the Company
recognized approximately $93 million and $9 million in interest, respectively. The Company had
approximately $119 million and $26 million for the payment of interest accrued at December 31, 2008
and 2007, respectively.
As of December 31, 2007, the Company effectively settled Internal Revenue Service (IRS) tax
examinations for all years through December 31, 2004. As a result, the Company recorded after-tax
benefits of $86 million in its consolidated statement of income for the year ended December 31, 2007.
In addition, $63 million of previously unrecognized tax benefits related to the IRS settlement were
recognized through a reduction of goodwill in 2007.
The IRS is conducting an examination of the Company’s U.S. income tax returns for 2005 through
2006. The Company does not expect any significant changes to its liability for unrecognized tax benefits
during the next twelve months.
12. SHARE-BASED INCENTIVE COMPENSATION
The Company has a share-based incentive compensation plan, The Travelers Companies, Inc.
Amended and Restated 2004 Stock Incentive Plan (the 2004 Incentive Plan), which replaced prior
share-based incentive compensation plans (legacy plans). The purposes of the 2004 Incentive Plan are
to align the interests of the Company’s non-employee directors, executive officers and other employees
with those of the Company’s shareholders, and to attract and retain personnel by providing incentives
in the form of stock-based awards. The 2004 Incentive Plan permits grants of nonqualified stock
options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units,
deferred stock, deferred 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. The Company has a policy of issuing new
shares to settle the exercise of stock option awards and the vesting of other equity awards.
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