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 three months ended March
31, 1996, 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, 1996. The accompanying
unaudited pro forma condensed combined statement of financial position of the
Company as of March 31, 1996 gives effect to the acquisition and related
transactions as if they had occurred as of March 31, 1996. 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
three months ended March 31, 1996 which are contained in the Company's quarterly
report on Form 10-Q for the three months ended March 31, 1996; and the separate
historical combined financial statements of Aetna P&C and its subsidiaries as of
and for the three months ended March 31, 1996, 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.
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 MARCH 31, 1996
(in millions of dollars)
Travelers
Group Aetna P&C Pro Forma Pro Forma
Assets Historical Historical Adjustments Combined
- ------ ---------------- --------------- ---------------- --------------
Cash and cash equivalents $1,417 $514 $1,931
Investments and real estate held for sale:
Fixed maturities, primarily available for
sale at market value 29,773 12,732 $710 (A) 43,197
(18)(B)
Equity securities, at market value 1,002 34 1,036
Mortgage loans 3,730 1,013 (167)(B) 4,576
Real estate held for sale 388 256 (72)(B) 572
Policy loans 1,903 1,903
Short-term and other 3,407 122 (600)(A) 2,929
- --------------------------------------------------------------------------------------------------------------------------------
Total investments 40,203 14,157 (147) 54,213
- --------------------------------------------------------------------------------------------------------------------------------
Securities borrowed or purchased under
agreements to resell 21,316 21,316
Brokerage receivables 8,609 8,609
Trading securities owned, at market value 10,346 10,346
Net consumer finance receivables 7,141 7,141
Reinsurance recoverables 6,334 5,226 11,560
Value of insurance in force and deferred policy
acquisition costs 2,212 296 (96)(B) 2,412
Cost of acquired businesses in excess of net assets 1,931 1,035 (B) 2,966
Separate and variable accounts 7,349 7,349
Other receivables 4,117 1,183 5,300
Other assets 7,454 1,784 5 (A) 9,489
(18)(A)
294 (B)
(30)(B)
================================================================================================================================
Total assets $118,429 $23,160 $1,043 $142,632
================================================================================================================================
Liabilities
- -----------
Investment banking and brokerage borrowings $2,690 $2,690
Short-term borrowings 1,201 $1,238 (A) 2,439
Long-term debt 9,612 $35 700 (A) 10,347
Securities loaned or sold under agreements to repurchase 22,629 22,629
Brokerage payables 4,343 4,343
Trading securities sold not yet purchased, at market value 7,009 7,009
Contractholder funds 14,203 14,203
Insurance policy and claims reserves 26,767 18,117 44,884
Separate and variable accounts 7,307 7,307
Accounts payable and other liabilities 11,031 1,335 1,137 (A) 13,951
(4)(A)
(6)(A)
458 (B)
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 106,792 19,487 3,523 129,802
- --------------------------------------------------------------------------------------------------------------------------------
ESOP Preferred stock - Series C 213 213
Guaranteed ESOP obligation (51) (51)
- --------------------------------------------------------------------------------------------------------------------------------
162 162
TAP-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts holding solely
Junior Subordinated Debt Securities 900 (A) 900
- --------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
- --------------------
Preferred stock 800 800
Common stock 6 30 (30)(C) 6
Additional paid-in capital 6,942 1,477 (45)(A) 6,872
(25)(A)
(1,477)(C)
Retained earnings 5,924 2,278 363 (A) 6,287
(2,278)(C)
Treasury stock, at cost (1,926) (1,926)
Unrealized gain on investment securities 204 (112) 112 (C) 204
Other, principally deferred compensation and
minimum pension liability (475) (475)
- --------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 11,475 3,673 (3,380) 11,768
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $118,429 $23,160 $1,043 $142,632
================================================================================================================================
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:
Sources
-------
Issuance of long-term debt $ 700
Related issuance costs (5)
Short-term borrowings 1,238
Proceeds from issuance and sale of TAP's
common stock representing an
approximately 18% interest in TAP's common equity:
Minority interest 1,137
Gain on sale of subsidiary stock 363
Related issuance costs charged to
additional paid-in capital (45)
Related issuance costs charged to
minority interest (4)
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 (25)
Related issuance costs charged to minority interest (6)
Settlement of receivables from Aetna 18
Short-term investments 600
------
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
======
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 $(18)
Adjustment of carrying amount of investments in
mortgage loans based on fair value of underlying
collateral reflecting the Company's sales strategy $(167)
Adjustment of carrying amount of real estate to fair
value reflecting the Company's sales strategy $(72)
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 $(96)
Excess of purchase price for the acquisition
over fair value of net assets acquired $1,035
Adjustment to reflect the net deferred tax
benefit of purchase accounting adjustments $294
Adjustments to other assets
$(30)
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 (137)
Other (71)
------
Total adjustments to accounts payable
and other liabilities $(458)
======
C. Adjustment to eliminate the Aetna P&C stockholder's equity
TRAVELERS GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 1996
(in millions of dollars, except per share amounts)
Travelers
Group Aetna P&C Pro Forma Pro Forma
Historical Historical Adjustments Combined
-------------- -------------- ---------------- -------------
REVENUES
Insurance premiums $1,256 $1,038 $2,294
Commissions and fees 883 883
Interest and dividends 1,126 243 $2 (a) 1,363
(8)(b)
Finance related interest and other charges 284 284
Principal transactions 283 283
Asset management fees 317 317
Other income 366 325 691
- -------------------------------------------------------------------------------------------------------------------------
Total revenues 4,515 1,606 (6) 6,115
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES
Policyholder benefits and claims 1,271 964 2,235
Non-insurance compensation and benefits 972 972
Insurance underwriting, acquisition and operating 506 325 (10)(a) 821
Interest 497 30 (c) 527
Provision for credit losses 68 68
Other operating 401 401
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 3,715 1,289 20 5,024
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and minority interest 800 317 (26) 1,091
Provision for income taxes (tax benefits) 280 99 (7)(d) 372
Minority interest, net of income taxes (65)(e) (65)
=========================================================================================================================
Income (loss) from continuing operations $520 $218 ($84) $654
=========================================================================================================================
NET INCOME PER SHARE OF COMMON STOCK AND
COMMON STOCK EQUIVALENTS:
Continuing operations $1.03 $1.31
=========================================================================================================================
Weighted average common shares outstanding
and common stock equivalents (millions) 478.2 478.2
=========================================================================================================================
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 discount allocated to
investments on a level yield basis
over the life of the investments $ 2
====
Insurance underwriting, acquisition and operating:
Amortization of liability for loss based
assessments for second injury funds $ 8
Amortization of excess of purchase
price over the fair value of net assets
acquired, over 40 years (7)
Amortization of liabilities related to
employee benefit plans 7
Other 2
----
$ 10
=====
See Note B of Notes to the Unaudited Pro Forma Condensed Combined Statement
of Financial Position for additional information.
(b) Represents the reduction in net investment income resulting from the use of
$600 of short-term investments to fund a portion of the acquisition.
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 $12 ($7 after
tax).
(c) Pro forma adjustments to reflect interest expense
relating to the acquisition as follows:
Interest expense at 6 3/4% on $500 of long-term debt and 7 3/4%
on $200 of long-term debt including amortization of issuance costs $13
Interest expense at 5.75% on short-term borrowings 17
---
$30
===
(d) Adjustment to reflect the income tax effects of (a), (b) and (c) above.
(e) Pro forma adjustment to reflect minority interest resulting from the sale
of 18% of TAP's common stock and after tax preferred dividends of the
TAP-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts holding solely Junior Subordinated Debt Securities.
The pro forma information is not necessarily indicative of future consolidated
results of operations.
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 its acquisition based on appraisals
and other studies, which are not yet completed. 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, primarily relating to
reserves for cumulative injury claims, insurance products involving financial
guarantees based on the fair value of underlying collateral and certain
insurance accounts. Based on 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. 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 the second quarter of 1996, although there can be no assurance as to the
ultimate timing thereof.