Sale of EquiTrust Life Business

On December 30, 2011, we sold our wholly-owned subsidiary EquiTrust Life in an all cash transaction for $462.1 million. The sales price reflects adjustments to the initial closing price subsequent to the closing date based on a final statutory net worth reconciliation. The transaction resulted in an after-tax loss on the sale of $56.4 million, or $1.84 per basic and $1.81 per diluted common share, after application of accounting changes for deferred acquisition costs discussed in Note 1. The loss consists of the sales price less the net book value of the assets and one-time transaction costs and termination benefits totaling $12.5 million, before tax.

The sale allowed us to exit the annuity business sold through the independent distribution channel, which represented a majority of EquiTrust Life's operations, focus on our core Farm Bureau Life operations and undertake certain capital management initiatives. While EquiTrust Life was sold in its entirety, Farm Bureau Life assumed a limited portion of the EquiTrust Life business related to variable universal life and variable annuity products distributed through various unaffiliated third parties, as well as a small amount of fixed life and annuity products. The business component sold is described herein as “the EquiTrust Life Business.”

EquiTrust Life retains all of its contingent liabilities after the sale. The Agreement contains customary representations, warranties and covenants of the parties, as well as post-closing indemnification obligations. The post-closing indemnification obligations may be triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. Certain of these obligations are subject to various time limitations and monetary thresholds and caps.

A summary of income from discontinued operations is as follows:



Condensed Statements of Income (Loss) from Discontinued Operations
	Year ended December 31,
	2012			2011			2010
	(Dollars in thousands)
Revenues	$	—		$	436,391		$	502,281
Benefits and expenses	(214		)	(358,753		)	(437,827		)
Interest expense allocation	(855		)	(13,818		)	(14,888		)
Equity income	—			1,862			3,049
Income taxes	382			(23,003		)	(18,028		)
Income (loss) from discontinued operations	$	(687	)	$	42,679		$	34,587

Expenses are reduced for estimated corporate overhead absorbed by the Company after the sale. In addition, as described below, the sale of EquiTrust Life required us to redeem a majority of our senior notes; therefore the related interest expense is allocated to the EquiTrust Life Business.

Notes Redemptions

In connection with the EquiTrust Life Sale, we redeemed $225.0 million of our long-term debt in accordance with the mandatory redemption provisions of the underlying notes. This includes $50.0 million Senior Notes with our affiliate, Farm Bureau Property & Casualty Insurance Company (Farm Bureau Property & Casualty), which was extinguished on December 30, 2011. The remaining $175.0 million of unaffiliated debt was extinguished on January 30, 2012, at the make-whole redemption price of $210.9 million. On December 30, 2011, we exercised the provisions of the trust indentures and deposited $211.6 million into two irrevocable defeasance trusts for the principal, accrued interest and estimated make-whole premium. The trust funds were not withdrawable by us, and consisted of $126.4 million in cash and $85.2 million in short-term investments at December 31, 2011. The note holders were paid from assets in the trusts on January 30, 2012.

The make-whole redemption premium was based on U.S. Treasury yields and considered an embedded derivative with a fair value of $33.1 million at December 31, 2011. The change in fair value during 2012 was offset by the write off of deferred debt issuance costs and reported with the loss on debt redemption in the consolidated statements of operations. See Note 8 for additional details on our debt.