Travelers 2002 Annual Report Download - page 73

Fireman’s Fund Surety Business — In December 2001, we pur-
chased the right to seek to renew surety bond business previously
underwritten by Fireman’s Fund Insurance Company (“Fireman’s
Fund”), without assuming past liabilities. We paid Fireman’s Fund
$10 million in 2001 for this right, which we recorded as an intangible
asset and which we expect to amortize over nine years. Based on the
volume of business renewed during 2002, we expect to make a mod-
est additional payment to Fireman’s Fund in the first quarter of 2003.
This amount was also recorded as an intangible asset in 2002 and will
be amortized on an accelerated basis over the remaining life of the
intangible asset.
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, without assuming past liabilities. We recorded that
amount as an intangible asset and are amortizing it on an accelerated
basis 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.
As part of the strategic review discussed in Note 5, we decided to
exit the Health Care 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. The
remaining unamortized goodwill balance at December 31, 2001 of
$8 million, which relates to the consulting business obtained in the pur-
chase, was reclassified to an intangible asset effective January 1, 2002
in conjunction with the implementation of SFAS No. 141, “Business
Combinations” (“SFAS No. 141”) and SFAS No. 142, “Goodwill and
Other Intangible Assets” (“SFAS No. 142”), as described in Note 22.
The unamortized balance of this intangible asset at December 31,
2002 was $7 million, which is being amortized on an accelerated basis
over the remaining expected life of eighteen years.
Pacific Select — In February 2000, we closed on our acquisition of
Pacific Select Insurance Holdings, Inc. and its wholly-owned sub-
sidiary 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 pur-
chase, at a cost of approximately $37 million, resulting in goodwill of
approximately $11 million.
The remaining unamortized goodwill balance at December 31,
2001 of $9 million was reclassified to an intangible asset effective
January 1, 2002 in conjunction with the implementation of SFAS Nos.
141 and 142, as described in Note 22. The unamortized balance of
this intangible asset at December 31, 2002 was $8 million, which is
being amortized on an accelerated basis over the remaining expected
life of eighteen years.
NWQ Investment Management Company, Inc. — In August 2002,
Nuveen Investments purchased NWQ Investment Management
Company, Inc. (“NWQ”), a Los Angeles-based equity management
firm, with approximately $6.9 billion in assets under management.The
cost of the acquisition consisted of $120 million paid at closing and up
to an additional $20 million payable over five years. As of
December 31, 2002, Nuveen Investments had $133 million recorded
for goodwill and $22 million for the intangible asset, net of accumu-
lated amortization, related to NWQ. The intangible asset relates to
customer relationships and is being amortized over nine years.
Symphony Asset Management — In July 2001, Nuveen
Investments purchased Symphony Asset Management, LLC
(“Symphony”), an institutional investment manager based in San
Francisco, with approximately $4 billion in assets under management.
The 2001 preliminary allocation of the $208 million purchase price
resulted in $151 million recorded as goodwill and $53 million recorded
as other intangible assets. In 2002, Nuveen Investments made a pur-
chase accounting adjustment due to a revision in the valuation of
Symphony, which resulted in a $9 million decrease in the intangible
recorded and a corresponding increase in the goodwill recorded. As
of December 31, 2002, Nuveen Investments had $160 million
recorded for goodwill and $41 million for net intangibles related to
Symphony. The majority of the intangible assets related to customer
relationships that are being amortized over approximately 20 years.
DIVESTITURES
In 2002, we sold our insurance operations in Spain, Argentina and,
in Mexico, all of our operations except our surety business. Proceeds
from these sales totaled $29 million and we recorded a pretax gain of
$4 million related to the sales.
7. EARNINGS PER COMMON SHARE
Years ended December 31 2002 2001 2000
(In millions, except per share amounts)
EARNINGS
Basic
Net income (loss), as reported $218 $(1,088) $ 993
Preferred stock dividends, net of taxes (9) (9) (8)
Premium on preferred shares redeemed (7) (8) (11)
Net income (loss) available to common shareholders $202 $(1,105) $ 974
Diluted
Net income (loss) available to common shareholders $202 $(1,105) $ 974
Dilutive effect of affiliates (3) ——
Effect of dilutive securities:
Convertible preferred stock 7—6
Zero coupon convertible notes 3—3
Convertible monthly income preferred securities ——5
Net income (loss) available to common shareholders $209 $(1,105) $ 988
COMMON SHARES
Basic
Weighted average common shares outstanding 216 212 217
Diluted
Weighted average common shares outstanding 216 212 217
Weighted average effects of dilutive securities:
Stock options 2—3
Convertible preferred stock 6—7
Zero coupon convertible notes 2—2
Equity unit stock purchase contracts 1——
Convertible monthly income preferred securities ——4
Total 227 212 233
EARNINGS (LOSS) PER COMMON SHARE
Basic $0.94 $(5.22) $ 4.50
Diluted $0.92 $(5.22) $ 4.24
The assumed conversion of preferred stock and zero coupon
notes are each anti-dilutive to our net loss per share for the year
ended December 31, 2001, and therefore not included in the EPS cal-
culation. The convertible monthly income preferred securities were
fully converted or redeemed during 2000.
The St. Paul Companies 2002 Annual Report 71