Travelers 2011 Annual Report Download - page 232

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES (Continued)
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2011 and 2010:
(in millions) 2011 2010
Balance at January 1 ........................................... $103 $100
Additions for tax positions of prior years ............................. 19
Reductions for tax positions of prior years ............................ (68) (7)
Additions based on tax positions related to current year .................. 11
Balance at December 31 ....................................... $37 $103
Included in the balances at December 31, 2011 and 2010 were $2 million and $3 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 $35 million and $100 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, 2011 and 2010, the Company
recognized approximately $(122) million and $79 million in interest, respectively. The Company had
approximately $48 million and $170 million accrued for the payment of interest at December 31, 2011
and 2010, respectively.
The IRS is conducting an examination of the Company’s U.S. income tax returns for 2009 and
2010. 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.
In connection with the adoption of the 2004 Incentive Plan, legacy share-based incentive
compensation plans were terminated. Outstanding grants were not affected by the termination of these
legacy plans, including the grant of reload options related to prior option grants under the legacy plans.
All outstanding options with a reload feature expire in 2013.
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