Travelers 2001 Annual Report Download - page 53

The St. Paul Companies 2001 Annual Report 51
4
Acquisitions
Fireman’s Fund Surety Business — In December 2001, we purchased
the right to seek to renew surety bond business previously
underwritten by Fireman’s Fund Insurance Company (“Fireman’s
Fund”). We paid Fireman’s Fund $10 million in 2001 for this right,
which was recorded as an intangible asset and is expected to be
amortized over ten years. Based on the volume of business renewed,
we may be obligated to make an additional payment to Fireman’s
Fund in early 2003 (see Note 15).
Penco — In January 2001, we acquired the right to seek to renew a
book of municipality insurance business from Penco, a program
administrator for Willis North America Inc., for total consideration
of $3.5 million. We recorded that amount as an intangible asset and
expect to amortize it over five years.
MMI — In April 2000, we closed on our acquisition of MMI
Companies, Inc. (“MMI”), a Deerfield, IL-based provider of medical
services-related insurance products and consulting services. The
transaction was accounted for as a purchase, with a total purchase
price of approximately $206 million, in addition to the assumption
of $165 million in preferred securities and debt. The final purchase
price adjustments resulted in an excess of purchase price over net
tangible assets acquired of approximately $85 million, which we
expected to amortize on a straight-line basis over 15 years.
Prior to the acquisition, MMI recorded a $93 million provision to
strengthen their loss reserves, with $77 million reflected in their
domestic operations and $16 million reflected in Unionamerica, their
U.K.-based international operations.
As part of the strategic review discussed in Note 3, we decided to
exit the Health Care liability insurance business, including that
obtained through the MMI acquisition. Accordingly, in December
2001, we wrote off $56 million in goodwill associated with the
underwriting operations of MMI. As of Dec. 31, 2001, the remaining
$8 million of unamortized goodwill related to the consulting
business obtained in the purchase.
Pacific Select — In February 2000, we closed on our acquisition of
Pacific Select Insurance Holdings, Inc. and its wholly-owned
subsidiary Pacific Select Property Insurance Co. (together, “Pacific
Select”), a California insurer that sells earthquake coverage to
California homeowners. The transaction was accounted for as a
purchase, at a cost of approximately $37 million. We recorded
goodwill of approximately $11 million, which we are amortizing on
a straight-line basis over ten years. Pacific Select’s results of
operations from the date of purchase are included in our 2000
consolidated results.
5
Earnings Per Common Share
Year ended December 31 2001 2000 1999
(In millions)
earnings
Basic
Net income (loss), as reported $(1,088) $ 993 $ 834
Preferred stock dividends, net of taxes (9) (8) (8)
Premium on preferred shares
redeemed (8) (11) (4)
Net income (loss) available to
common shareholders $ (1,105) $ 974 $ 822
Diluted
Net income (loss) available to
common shareholders $ (1,105) $ 974 $ 822
Effect of dilutive securities:
Convertible preferred stock —66
Zero coupon convertible notes —33
Convertible monthly income
preferred securities —58
Net income (loss) available to
common shareholders $ (1,105) $ 988 $ 839
common shares
Basic
Weighted average common shares
outstanding 212 217 228
Diluted
Weighted average common shares
outstanding 212 217 228
Weighted average effects of
dilutive securities:
Stock options —32
Convertible preferred stock —77
Zero coupon convertible notes —22
Convertible monthly income
preferred securities —47
Total 212 233 246
earnings (loss) per common share
Basic $ (5.22) $ 4.50 $ 3.61
Diluted $ (5.22) $ 4.24 $ 3.41
The assumed conversion of preferred stock and zero coupon notes
are each anti-dilutive to our net loss per share for the year ended
Dec. 31, 2001, and therefore not included in the EPS calculation. The
convertible monthly income preferred securities were fully converted
or redeemed during 2000.