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
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Total investments 40,965 13,853 250 0 55,068
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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 11,738
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 1,928 848 (B) 2,776
Separate and variable accounts 6,949 6,949
Other receivables 3,564 1,187 4,751
Other assets 8,334 1,639 1 (A) $10 (D) 10,227
(18)(A)
306 (B)
(45)(B)
===================================================================================================================================
Total assets $114,475 $23,399 $1,241 $10 $139,125
===================================================================================================================================
Liabilities
Investment banking and brokerage borrowings $2,955 $2,955
Short-term borrowings 1,468 $759 (A) 2,227
Long-term debt 9,190 $35 3,370 (A) ($2,650)(D) 10,891
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 44,877
Separate and variable accounts 6,916 6,916
Accounts payable and other liabilities 11,028 1,526 457 (A) 544 (D) 14,018
468 (B) (5)(D)
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Total liabilities 102,597 19,518 5,054 (1,165) 126,004
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ESOP Preferred stock - Series C 235 235
Guaranteed ESOP obligation (67) (67)
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168 168
TAP-Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trusts holding solely Junior Subordinated
Debt Securities 900 (D) 900
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Stockholders' equity
Preferred stock 800 800
Common stock 4 30 (30)(C) 4
Additional paid-in capital 6,785 1,477 (1,477)(C) (23)(D) 6,762
Retained earnings 5,503 2,061 68 (A) 298 (D) 5,869
(2,061)(C)
Treasury stock, at cost (1,835) (1,835)
Unrealized gain on investment securities and other, net 453 313 (313)(C) 453
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Total stockholders' equity 11,710 3,881 (3,813) 275 12,053
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===================================================================================================================================
Total liabilities and stockholders' equity $114,475 $23,399 $1,241 $10 $139,125
===================================================================================================================================
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 $3,370
Related issuance costs (1)
Short-term borrowings 759
Proceeds from issuance and sale of TAP's common stock to
private investors representing an approximately 8% interest
in TAP's common equity ($457 to minority interest and $68
gain on sale of subsidiary stock) 525
Settlement of receivables from Aetna 18
Short-term investments 200
-----
Total sources $4,871
======
Uses
----
Purchase price for Aetna P&C $4,161
Additional capital contribution to TAP (invested in
fixed maturities) 710
-----
Total uses $4,871
======
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 $848
Adjustment to reflect the net deferred tax benefit of
purchase accounting adjustments $306
Adjustments to other assets
$(45)
Liabilities
-----------
Adjustments to accounts payable and other liabilities:
Amounts allocated to restructuring costs
Severance and benefit payments for employees to
be terminated $(120)
Rent expense for excess or unused office space (65)
Lease payments for unused office and data
processing equipment and software (40)
Cost of relocating employees and other related
costs (25)
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 (1) $946
Related issuance costs (10)
Issuance of common stock of TAP
Minority interest 544
Gain on sale of subsidiary stock 298
Issuance of TAP-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts holding
solely Junior Subordinated Debt Securities 900
Related issuance costs charged to additional paid-in
capital (23)
Related issuance costs charged to minority interest (5)
----
$2,650
======
Decrease in long-term debt due to repayment of
bridge financing $(2,650)
======
(1) The Company may, subject to market conditions and other factors, issue
commercial paper or other short-term instruments in lieu of up to $600
of the long-term debt securities.
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) 5,222
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
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Total revenues 16,583 5,301 (35) 0 21,849
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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 (10)(a) 3,377
Interest 1,956 261 (c) ($86)(e) 2,131
Provision for credit losses 171 171
Other operating 1,544 1,544
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Total expenses 14,042 5,707 251 (86) 19,914
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Loss on sale of subsidiaries and affiliates (20) (20)
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Income (loss) before income taxes and minority interest 2,521 (406) (286) 86 1,915
Provision for income taxes (tax benefits) 893 (163) (93)(g) 30 (g) 667
Minority interest, net of income taxes (5)(d) (48)(f) (53)
================================================================================================================================
Income (loss) from continuing operations $1,628 ($243) ($198) $8 $1,195
================================================================================================================================
Net income per share of common stock and
common stock equivalents:
Continuing operations $4.86 $3.50
================================================================================================================================
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 (21)
Other 5
---
$ 10
====
See Note B of Notes to the Unaudited Pro Forma Condensed Combined Statement
of Financial Position for additional information.
(b) No pro forma adjustment has been made to net investment income to reflect
the net investment income resulting from the capital contribution of $710
to TAP. If these proceeds were assumed to be invested in fixed maturities
at a rate of 6.5%, net investment income would increase by $46 ($30 after
tax). A 1/8% change in the assumed investment rate would change this amount
by approximately $1 ($1 after tax).
(c) Pro forma adjustments to reflect interest expense relating to the
acquisition as follows:
Interest expense at 5.75% on bridge
financing including amortization of
issuance costs (a 1/8% change in the
assumed interest rate for these
borrowings would change interest
expense by approximately $3 ($2 after
tax)) $153
Interest expense at 7% on other long-term
debt including amortization of
issuance costs (a 1/8% change in the
assumed interest rate for these borrowings
would change interest expense by approximately
$1 ($1 after tax)) 64
Interest expense at 5.75% on short-term
borrowings (a 1/8% change in the
assumed interest rate for these borrowings
would change interest expense by $1 ($1
after tax)) 44
---
$261
====
(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
(a 1/8% change in the assumed interest
rate for these borrowings would change
interest expense by $1 ($1 after tax)) (1) $67
Reduction of interest expense at 5.75% for
repayment of bridge financing (153)
---
$(86)
====
(1) The Company may, subject to market conditions and other factors, issue
commercial paper or other short-term instruments in lieu of up to $600 of
long-term debt securities. At an assumed interest rate of 5.6%, pro forma
net income would be increased by $1 for each $100 of long-term debt
securities replaced by commercial paper.
(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 holding solely Junior
Subordinated Debt Securities.
(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.
The allocation of the purchase price to the assets and liabilities of Aetna P&C
is 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 differ from the amounts reflected herein. Adjustments of
insurance policy and claims reserves and certain other insurance accounts
resulting from the valuation of these accounts will be recorded in operations in
the period or periods determined. The Company is continuing to review the
insurance reserves of Aetna P&C, including the effect of applying the Company's
strategies, policies and practices in determining such reserves. Upon completion
of the reviews at this stage, it is possible that additional reserves of up to
approximately $750 in the aggregate may be recorded upon completion of these
reviews, which would result in after-tax charges to income of up to
approximately $488 in the aggregate, primarily relating to reserves for
cumulative injury claims, insurance products involving financial guarantees
based on the fair value of underlying collateral and certain insurance
receivables. Stockholders' equity would be correspondingly reduced by an
equivalent after-tax amount as a result of these charges. The Company believes
that its reviews are likely to be completed in 1996, although there can be no
assurance as to the ultimate timing thereof.