Travelers 2015 Annual Report Download - page 227

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, 2015 and 2014:
(in millions) 2015 2014
Balance at January 1 ...................................... $23 $21
Additions for tax positions of prior years ....................... 22
Reductions for tax positions of prior years ...................... (9) —
Additions based on tax positions related to current year ............ ——
Balance at December 31 .................................. $16 $23
Included in the balances at December 31, 2015 and 2014 were $4 million and $2 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 $12 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, 2015, 2014 and 2013, the Company
recognized approximately $(32) million, $31 million and $(67) million in interest, respectively. The
Company had approximately $26 million and $58 million accrued for the payment of interest at
December 31, 2015 and 2014, respectively.
The IRS is conducting an examination of the Company’s U.S. income tax returns for 2013 and
2014. 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. 2014
Stock Incentive Plan (the 2014 Incentive Plan), the purposes of which 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
share-based awards. The 2014 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 share-based or share-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 2014 Incentive Plan is 10 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 2014 Incentive Plan, The Travelers Companies, Inc.
Amended and Restated 2004 Stock Incentive Plan, as amended (the 2004 Incentive Plan) was
terminated, joining several other legacy share-based incentive compensation plans that had been
terminated in prior years (together, the legacy plans). Outstanding grants were not affected by the
termination of the legacy plans.
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