Travelers 2013 Annual Report Download - page 238

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. INCOME TAXES (Continued)
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2013 and 2012:
(in millions) 2013 2012
Balance at January 1 ..................................... $24 $37
Additions for tax positions of prior years ....................... —2
Reductions for tax positions of prior years ...................... (3) (15)
Additions based on tax positions related to current year ............ ——
Balance at December 31 ................................. $21 $24
Included in the balances at December 31, 2013 and 2012 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 $19 million and $21 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, 2013 and 2012, the Company
recognized approximately $(67) million and $46 million in interest, respectively. The Company had
approximately $27 million and $94 million accrued for the payment of interest at December 31, 2013
and 2012, respectively.
The IRS is conducting an examination of the Company’s U.S. income tax returns for 2011 and
2012. The Company does not expect any significant changes to its liability for unrecognized tax benefits
during the next twelve months.
13. SHARE-BASED INCENTIVE COMPENSATION
The Company has a share-based incentive compensation plan, The Travelers Companies, Inc.
Amended and Restated 2004 Stock Incentive Plan, as amended (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. The 2004 Incentive Plan expires in July 2014. The Company’s board of directors has approved
a new share-based incentive compensation plan to replace the expiring plan having substantially the
same terms (other than the number of shares available) as the 2004 Incentive Plan which will be
submitted for shareholder approval at the Company’s 2014 Annual Meeting of Shareholders.
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
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