EX-99 4 ex9992801.txt EXHIBIT 99 Exhibit 99(a) Note 12 - Discontinued Operations ---------------------------------- Life Insurance Segment ---------------------- On April 26, 2001, we announced an agreement by our subsidiary, St. Paul Fire and Marine Insurance Company ("Fire and Marine"), to sell its life insurance company, Fidelity and Guaranty Life Insurance Company, and its subsidiary, Thomas Jefferson Life, (together, "F&G Life") to Old Mutual plc ("Old Mutual") for $335 million in cash and $300 million in shares of Old Mutual stock. The consideration is subject to possible adjustment related to F&G Life's investment portfolio. If the market value of specified securities within that portfolio changes between March 31, 2001 and the closing date, or if any securities within that portfolio experience specified credit rating downgrades prior to closing, the consideration is subject to adjustment. Pursuant to the purchase agreement, The St. Paul, or any direct or indirect wholly owned subsidiary of The St. Paul, must hold the Old Mutual stock received for one year after the closing of the transaction. The consideration is also subject to possible additional adjustment based on the market price of Old Mutual's stock at the end of that one-year period, as described in greater detail in the purchase agreement. The sale is subject to regulatory approvals and other conditions, and is expected to close later in 2001. We expect to realize a modest gain on the sale of F&G Life, the exact amount of which will be determined at closing. The measurement date for the sale of F&G Life occurred prior to the filing of this Quarterly Report on Form 10-Q; as a result, our consolidated statements of income presented herein reflect F&G Life's results of operations in discontinued operations for the three months ended March 31, 2001 and 2000. In the first quarter of 2001, F&G Life recorded a net loss of $424,000, which was driven by after- tax realized investment losses of $15 million. Those losses were primarily the result of writedowns in the carrying value of certain fixed maturity investments. In the first quarter of 2000, F&G Life recorded net income of $13 million. In addition, on our consolidated balance sheet as of March 31, 2001, F&G Life's net assets of $626 million were included in "Other Assets," classified as net assets of discontinued operations. Presented on the following pages are The St. Paul's pro forma consolidated, condensed income statement for the year ended Dec. 31, 2000, which assumes the sale of F&G Life occurred at the beginning of 2000, and The St. Paul's restated consolidated balance sheet as of Dec. 31, 2000. Included are condensed historical statements as reported before the sale of F&G Life, pro forma adjustments, and the pro forma statements after the sale. The pro forma data is provided for illustrative purposes only, and does not purport to be indicative of the results that would have actually occurred if the sale of the life insurance segment had been consummated at the beginning of 2000, or that may be obtained in the future. Statements of Income Twelve Months Ended Dec. 31, 2000 --------------------------------- Restated Previously for sale of (In millions, except share data) Reported F&G Life F&G Life ------------------------------ ---------- -------- ----------- Revenues: Premiums earned $5,898 $306 $5,592 Net investment income 1,616 354 1,262 Asset management 356 - 356 Realized investment gains (losses) 607 (25) 632 Other 146 1 145 ------ ------ ------ Total revenues 8,623 636 7,987 ------ ------ ------ Expenses: Insurance losses and loss adjustment expenses 3,913 - 3,913 Life policy benefits 494 494 - Policy acquisition expenses 1,442 46 1,396 Operating and administrative expenses 1,320 43 1,277 ------ ------ ------ Total expenses 7,169 583 6,586 ------ ------ ------ Income from continuing operations before income taxes 1,454 53 1,401 Income tax expense 441 10 431 ------ ------ ------ Income from continuing operations 1,013 43 970 Discontinued operations, net of taxes (20) (43) 23 ------ ------ ------ Net income $ 993 $ - $ 993 ====== ====== ====== Basic earnings per common share: Income from continuing operations $4.59 $0.20 $4.39 Discontinued operations, net of taxes (0.09) (0.20) $0.11 ------ ------ ------ Net income $4.50 $ - $4.50 ====== ====== ====== Diluted earnings per common share: Income from continuing operations $4.32 $0.18 $4.14 Discontinued operations, net of taxes (0.08) (0.18) $0.10 ------ ------ ------ Net income $4.24 $ - $4.24 ====== ====== ====== For purposes of calculating basic earnings per share, weighted average shares outstanding totaled 216.7 million. For purposes of calculating diluted earnings per share, weighted average shares outstanding totaled 232.9 million. Balance Sheet As of December 31, 2000 ------------------------------------------------------- Net Assets Restated Previously of Discontinued for Sale of (In millions) Reported F&G Life Operations F&G Life ----------- ----------- --------- --------------- ------------ Assets: Fixed maturities $20,470 $ 4,533 $ - $15,937 Other investments 6,629 514 - 6,115 ------- ------- ------- ------- Total investments 27,099 5,047 - 22,052 Reinsurance recoverable on unpaid losses 5,196 545 - 4,651 Other assets 8,910 698 587 8,799 ------- ------- ------- ------- Total assets $41,205 $6,290 $587 $35,502 ======= ======= ======= ======= Liabilities: Losses and loss adjustment expense reserves 18,196 - - 18,196 Future policy benefits 5,460 5,460 - - Unearned premium reserves 3,648 - - 3,648 ------- ------- ------- ------- Total insurance reserves 27,304 5,460 - 21,844 Other liabilities 6,674 243 - 6,431 ------- ------- ------- ------- Total liabilities 33,978 5,703 - 28,275 ------- ------- ------- ------- Shareholders' equity 7,227 587 587 7,227 ------- ------- ------- ------- Total liabilities and shareholders' equity $41,205 $6,290 $587 $35,502 ======= ======= ======= =======