Exhibit 99.02
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined statement of income
of Travelers Group Inc. (the "Company") for the year ended December 31, 1995,
presents results for the Company as if the Company's acquisition of the domestic
property and casualty insurance operations of Aetna Life and Casualty Company
(the "Aetna P&C" operations) and transactions related to the funding of the
acquisition, had occurred as of January 1, 1995. The accompanying unaudited pro
forma condensed combined statement of financial position of the Company as of
December 31, 1995 gives effect to the acquisition and related transactions as if
they had occurred as of December 31, 1995. The unaudited pro forma financial
information does not purport to represent what the Company's financial position
or results of operations actually would have been had the acquisition and
related transactions in fact occurred on the dates indicated, or to project the
Company's financial position or results of operations for any future date or
period. The pro forma adjustments are based on available information and certain
assumptions that the Company currently believes are reasonable in the
circumstances. The unaudited pro forma financial information should be read in
conjunction with the accompanying notes thereto; the separate historical
consolidated financial statements of the Company as of and for the year ended
December 31, 1995 which are contained in the Company's annual report on Form
10-K for the fiscal year ended December 31, 1995; and the separate historical
combined financial statements of Aetna P&C and its subsidiaries as of and for
the year ended December 31, 1995, which are contained herein.
The pro forma adjustments and pro forma combined amounts are provided for
informational purposes only. The Company's financial statements will reflect the
effects of the acquisition and related transactions only from the date such
events occur. The pro forma adjustments are applied to the historical financial
statements to, among other things, account for the acquisition as a purchase.
Under purchase accounting, the total purchase cost will be allocated to the
Aetna P&C assets and liabilities based on their fair values. Allocations are
subject to valuations as of the date of the acquisition based on appraisals and
other studies, which are not yet completed. Accordingly, the final allocations
will be different from the amounts reflected herein. Although the final
allocations will differ, the unaudited pro forma financial information reflects
management's best estimate based on currently available information.
Included in the historical results of Aetna P&C for the year ended
December 31, 1995 are charges of $750 million ($488 million after tax)
representing an addition to environmental-related claims reserves in the second
quarter of 1995 and $335 million ($218 million after tax) representing an
addition to asbestos reserves in the fourth quarter of 1995.
As the Aetna P&C operations are integrated with the existing property and
casualty insurance operations of the Company, management expects to realize,
over a two-year period, $300 million ($195 million after tax) in annual cost
savings from reduction of overhead expenses, changes in the corporate
infrastructure of Aetna P&C and elimination of redundant expenses. There can be
no assurance that the Company will achieve its expected cost savings. These
expected future cost savings are not reflected in the unaudited pro forma
financial information.
Travelers Group Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Financial Position
As of December 31, 1995
(in millions of dollars)
Pro Forma Adjustments
Travelers ------------------------
Group Aetna P&C for the for the Pro Forma
Assets Historical Historical Transactions Offerings Combined
- ------ ---------- ---------- ------------ --------- ---------
Cash and cash equivalents $1,866 $1,137 $3,003
Investments:
Fixed maturities, primarily available for sale at market value 30,712 11,598 $710 (A) 42,993
(27)(B)
Equity securities, at market value 856 500 1,356
Mortgage loans 4,048 1,062 (166)(B) 4,944
Real estate held for sale 321 265 (67)(B) 519
Policy loans 1,888 1,888
Short-term and other 3,140 428 (200)(A) 3,368
- ------------------------------------------------------------------------------------------------------------------------------
Total investments 40,965 13,853 250 0 55,068
- ------------------------------------------------------------------------------------------------------------------------------
Securities borrowed or purchased under agreements to resell 19,601 19,601
Brokerage receivables 6,559 6,559
Trading securities owned, at market value 8,984 8,984
Net consumer finance receivables 7,092 7,092
Reinsurance recoverables 6,461 5,277 (6)(B) 11,732
Value of insurance in force and deferred policy acquisition costs 2,172 306 (101)(B) 2,377
Cost of acquired businesses in excess of net assets 1,928 1,290 (B) 3,218
Separate and variable accounts 6,949 6,949
Other receivables 3,564 1,187 (33)(B) 4,718
Other assets 8,334 1,639 4 (A) $10 (D) 10,533
598 (B)
(52)(B)
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $114,475 $23,399 $1,950 $10 $139,834
==============================================================================================================================
Liabilities
- -----------
Investment banking and brokerage borrowings $2,955 $2,955
Short-term borrowings 1,468 $607 (A) 2,075
Long-term debt 9,190 $35 3,443 (A) ($2,650)(D) 10,964
946 (D)
Securities loaned or sold under agreements to repurchase 20,619 20,619
Brokerage payables 4,403 4,403
Trading securities sold not yet purchased, at market value 4,563 4,563
Contractholder funds 14,535 14,535
Insurance policy and claims reserves 26,920 17,957 788 (B) 45,665
Separate and variable accounts 6,916 6,916
Accounts payable and other liabilities 11,028 1,526 478 (A) 562 (D) 14,062
468 (B)
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 102,597 19,518 5,784 (1,142) 126,757
- ------------------------------------------------------------------------------------------------------------------------------
ESOP Preferred stock - Series C 235 235
Guaranteed ESOP obligation (67) (67)
- ------------------------------------------------------------------------------------------------------------------------------
168 168
TAP-Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trusts 900 (D) 900
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
- --------------------
Preferred stock 800 800
Common stock 4 30 (30)(C) 4
Additional paid-in capital 6,785 1,477 (1,477)(C) (28)(D) 6,757
Retained earnings 5,503 2,061 47 (A) 280 (D) 5,830
(2,061)(C)
Treasury stock, at cost (1,835) (1,835)
Unrealized gain on investment securities and other, net 453 313 (313)(C) 453
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 11,710 3,881 (3,834) 252 12,009
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $114,475 $23,399 $1,950 $10 $139,834
==============================================================================================================================
See Accompanying Notes
Travelers Group Inc.
Notes to Unaudited Pro Forma Condensed Combined Statement of Financial
Position
(in millions of dollars)
A. The following pro forma adjustments reflect the funding of the acquisition,
the formation of a subsidiary, Travelers/Aetna Property Casualty Corp.
("TAP"), comprised of the Company's present property and casualty operations
together with the Aetna P&C operations, and a contribution to TAP's capital.
Together these are referred to as the Transactions:
Sources
-------
Issuance of long-term debt $3,443
Related issuance costs (4)
Short-term borrowings 607
Proceeds from issuance and sale of TAP's common
stock to private investors representing an
approximately 8% interest in TAP's common equity
($478 to minority interest and $47 gain on sale of
subsidiary stock) 525
Short-term investments 200
---
Total sources $4,771
------
Uses
----
Purchase price for Aetna P&C $4,061
Additional capital contribution to TAP (invested in
fixed maturities) 710
---
Total uses $4,771
------
The above pro forma presentation does not reflect the planned issuance of
long-term debt securities, trust preferred securities and common stock in an
initial public offering by TAP (the "Offerings"). The above pro forma
presentation reflects bridge financing with a five-year term borrowed by TAP
under a revolving credit facility with a group of banks in the amount of
$2.65 billion. See Note D for information concerning the Offerings.
B. The following pro forma adjustments result from the allocation of purchase
price of the acquisition based on fair value of the underlying net assets
acquired. The amounts and assumptions related to the primary adjustments are
as follows:
Assets Debit (Credit)
------ --------------
Discount allocated to investments in
fixed maturities based on the fair value
of the investments $(27)
Adjustment of carrying amount of
investments in mortgage loans based on
fair value of underlying collateral
reflecting the Company's sales strategy $(166)
Adjustment of carrying amount of real
estate to fair value reflecting the
Company's sales strategy $(67)
Adjustment to deferred acquisition costs
to reflect the Company's policy of deferring
only commissions and premium taxes on sale of
property and casualty insurance policies $(101)
Excess of purchase price for the
acquisition over fair value of net
assets acquired $1,290
Adjustment to reflect the net deferred
tax benefit of purchase accounting
adjustments $598
Adjustments to reinsurance recoverables,
other receivables and other assets $(91)
Liabilities
-----------
Adjustments to insurance policy and claims reserves:
Adjustment to reserves for cumulative
injury claims based on preliminary results
of an ongoing study $(500)
Adjustment to reserves for financial
guarantees based on the fair value of
underlying collateral reflecting the Company's
strategy as to resolution (187)
Other (101)
--------
Total adjustments $ (788)
--------
Adjustments to accounts payable and other liabilities:
Amount allocated to liabilities for
estimated cost of restructuring businesses
acquired, primarily relating to severance
costs and leases $(250)
Adjustment to the liability for loss
based assessments for second injury funds (124)
Other (94)
------
Total adjustments $(468)
-----
C. Adjustment to eliminate the Aetna P&C stockholder's equity
D. The following pro forma adjustments reflect the Offerings:
Issuance of long-term debt $ 946
Related issuance costs (10)
Issuance of TAP-Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary
Trusts 900
Related issuance costs (28)
Issuance of common stock of TAP
Minority interest 562
Gain on sale of subsidiary stock 280
---
$2,650
======
Decrease in long-term debt due to
repayment of bridge financing $(2,650)
=======
Travelers Group Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
For the Year Ended December 31, 1995
(in millions of dollars, except per share amounts)
Pro Forma Adjustments
Travelers ------------------------
Group Aetna P&C for the for the Pro Forma
Historical Historical Transactions Offerings Combined
---------- ---------- ------------ --------- --------
REVENUES
Insurance premiums $4,977 $4,118 $9,095
Commissions and fees 2,874 2,874
Interest and dividends 4,355 902 ($35)(a) 5,268
46 (b)
Finance related interest and other charges 1,119 1,119
Principal transactions 1,016 1,016
Asset management fees 1,052 1,052
Other income 1,190 281 1,471
- ----------------------------------------------------------------------------------------------------------------------
Total revenues 16,583 5,301 11 0 21,895
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
Policyholder benefits and claims 5,017 4,232 9,249
Non-insurance compensation and benefits 3,442 3,442
Insurance underwriting, acquisition and operating 1,912 1,475 8 (a) 3,395
Interest 1,956 298 (c) ($122)(e) 2,132
Provision for credit losses 171 171
Other operating 1,544 1,544
- ----------------------------------------------------------------------------------------------------------------------
Total expenses 14,042 5,707 306 (122) 19,933
- ----------------------------------------------------------------------------------------------------------------------
Loss on sale of subsidiaries and affiliates (20) (20)
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and minority interest 2,521 (406) (295) 122 1,942
Provision for income taxes (tax benefits) 893 (163) (92)(g) 43 (g) 681
Minority interest, net of income taxes (4)(d) (52)(f) (56)
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $1,628 ($243) ($207) $27 $1,205
======================================================================================================================
NET INCOME PER SHARE OF COMMON STOCK AND
COMMON STOCK EQUIVALENTS:
Continuing operations $4.86 $3.53
======================================================================================================================
Weighted average common shares outstanding
and common stock equivalents (millions) 317.4 317.4
======================================================================================================================
See Accompanying Notes
Travelers Group Inc.
Notes to Unaudited Pro Forma Condensed Combined Statement of Income
(in millions of dollars)
(a)Principal adjustments resulting from the allocation of purchase price based
on fair value of underlying net assets, as follows:
Increase (decrease)
in income before
federal income taxes
--------------------
Interest and dividends:
Amortization of premium
allocated to investments on a level
yield basis over the life of the
investments $ (35)
======
Insurance underwriting, acquisition and
operating:
Amortization of liability for
loss based assessments for second
injury funds $26
Amortization of excess of
purchase price over the fair value
of net assets acquired,over 40 years (32)
Other (2)
--
$(8)
====
See Note B of Notes to the Unaudited Pro Forma Condensed Combined Statement
of Financial Position for additional information.
(b)Pro forma adjustment to reflect the change in interest and dividends
resulting from the surplus capital contribution by the Company of $710 to
TAP, the proceeds of which are assumed to be invested in fixed maturities at
a rate of 6.5%.
(c)Pro forma adjustments to reflect interest expense relating
to the acquisition as follows:
Interest expense at 7% on bridge
financing including amortization of
issuance costs $190
Interest expense at 7% on other
long-term debt including amortization
of issuance costs 69
Interest expense at 6.5% on
short-term borrowings 39
--
$298
====
(d)Pro forma adjustment to reflect minority interest resulting from the sale of
approximately 8% of TAP's common stock to private investors.
(e)Pro forma adjustments to reflect the change in interest expense resulting
from the Offerings:
Interest expense at 7% on
long-term debt including
amortization of issuance costs $68
Reduction of interest expense at
7% for repayment of bridge financing (190)
----
$(122)
=====
(f)Pro forma adjustment to reflect minority interest resulting from the sale of
an additional 9% of TAP's common stock in an initial public offering and
after tax preferred dividends of the TAP-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts.
(g)Adjustment to reflect the income tax effects of (a), (b), (c) and (e) above.
The pro forma information is not necessarily indicative of future consolidated
results of operations.
Included in the historical results of Aetna P&C for the year ended December 31,
1995 are charges of $750 ($488 after tax) representing an addition to
environmental-related claims reserves in the second quarter of 1995 and $335
($218 after tax) representing an addition to asbestos reserves in the fourth
quarter of 1995.
As the Aetna P&C operations are integrated with the existing property and
casualty insurance operations of the Company, management of the Company expects
to realize, over a two-year period, $300 ($195 after tax) in annual cost savings
from reduction of overhead expenses, changes in the corporate infrastructure of
Aetna P&C and elimination of redundant expenses. There can be no assurance that
the Company will achieve its projected cost savings. These future cost savings
are not reflected in the Unaudited Pro Forma Financial Information.