Unaudited Pro Forma Condensed Combined Financial Statements
The Merger Agreement provides that each share of Salomon Inc ("Salomon") common
stock will be exchanged for 1.13 shares of Travelers Group Inc. (the "Company")
common stock. The merger, which is expected to be completed in the fourth
quarter of 1997, is expected to be accounted for under the pooling of interests
method and, accordingly, the Company's historical consolidated financial
statements presented in future reports will be restated to include the accounts
and results of Salomon. The merger is subject to customary closing conditions,
including regulatory and Salomon stockholder approval.
The following unaudited pro forma condensed combined statement of financial
condition combines the historical consolidated statement of financial condition
of the Company and the historical consolidated statement of financial condition
of Salomon giving effect to the merger as though it had been consummated on June
30, 1997. The following unaudited pro forma condensed combined statements of
income combine the historical statements of income of the Company and Salomon
giving effect to the merger. This information should be read in conjunction with
the accompanying notes hereto; the separate historical financial statements of
the Company as of June 30, 1997 and for the six months ended June 30, 1997 and
1996, and for each of the three years ended December 31, 1996 which are
contained in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997 and its Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, respectively; and the separate historical
financial statements of Salomon as of June 30, 1997 and for the six months ended
June 30, 1997 and 1996, and for each of the three years ended December 31, 1996
which are contained in Salomon's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997 and its Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, respectively.
The pro forma financial data is not necessarily indicative of the results of
operations that would have occurred had the merger been consummated or of future
operations of the combined companies.
Travelers Group Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Financial Position
As of June 30, 1997
(in millions of dollars)
Travelers
Group Salomon Pro Forma Pro Forma
Assets Historical Historical Adjustments Combined
------ ------------ ------------ --------------- --------------
Cash and cash equivalents $1,739 $2,081 $ - $3,820
Investments and real estate held for sale:
Fixed maturities, primarily available for sale at
market value 45,981 45,981
Equity securities, at market value 1,377 1,377
Mortgage loans 3,748 3,748
Real estate held for sale 502 502
Policy loans 1,873 1,873
Short-term and other 5,135 5,135
- --------------------------------------------------------------------------------------------------------------------------
Total investments and real estate held for sale 58,616 - - 58,616
- --------------------------------------------------------------------------------------------------------------------------
Securities borrowed or purchased under agreements to
resell 27,950 91,320 119,270
Brokerage receivables 8,507 6,014 14,521
Trading securities owned, at market value 14,014 132,848 146,862
Commodities and related products and instruments 1,533 1,533
Net consumer finance receivables 8,834 8,834
Reinsurance recoverables 9,876 9,876
Value of insurance in force and deferred policy
acquisition costs 2,698 2,698
Cost of acquired businesses in excess of net assets 2,991 2,991
Separate and variable accounts 9,830 9,830
Other receivables 5,108 624 5,732
Other assets 9,443 1,533 10,976
- --------------------------------------------------------------------------------------------------------------------------
Total assets $159,606 $235,953 $ - $395,559
==========================================================================================================================
Liabilities
-----------
Investment banking and brokerage borrowings $4,268 $8,036 $ - $12,304
Short-term borrowings 2,812 2,812
Long-term debt 11,122 16,080 27,202
Securities loaned or sold under agreements to repurchase 26,889 108,814 135,703
Brokerage payables 5,042 7,269 12,311
Trading securities sold not yet purchased, at market value 9,640 87,058 96,698
Contractholder funds 14,601 14,601
Insurance policy and claims reserves 43,940 43,940
Separate and variable accounts 9,818 9,818
Accounts payable and other liabilities 15,196 2,843 18,039
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 143,328 230,100 - 373,428
- --------------------------------------------------------------------------------------------------------------------------
ESOP Preferred stock - Series C 140 140
Redeemable preferred stock 420 420
Mandatorily redeemable preferred securities of
subsidiary trusts 1,900 345 2,245
Stockholders' equity
--------------------
Preferred stock 1,075 450 1,525
Common stock 7 159 (158) 8
Additional paid-in capital 7,561 438 (1,089) 6,910
Retained earnings 8,524 5,811 (2,807) 11,528
Treasury stock, at cost (2,958) (1,769) 4,054 (673)
Unrealized gain (loss) on investment securities 436 436
Other (407) (1) (408)
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 14,238 5,088 - 19,326
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $159,606 $235,953 $ - $395,559
==========================================================================================================================
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
Travelers Group Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
For the Six Months Ended June 30, 1997
(in millions of dollars, except per share amounts)
Travelers
Group Salomon Pro Forma
Historical Historical Combined
------------ ------------ ------------
Revenues:
Insurance premiums $4,444 $ - $4,444
Commissions and fees 1,718 640 2,358
Interest and dividends 3,206 3,045 6,251
Finance related interest and other charges 627 627
Principal transactions 514 927 1,441
Asset management and administration fees 762 29 791
Other income 630 630
- -------------------------------------------------------------------------------------------
Total revenues 11,901 4,641 16,542
- -------------------------------------------------------------------------------------------
Expenses:
Policyholder benefits and claims 3,811 3,811
Non-insurance compensation and benefits 1,950 1,111 3,061
Insurance underwriting, acquisition and operating 1,604 1,604
Interest 1,349 2,527 3,876
Provision for consumer finance credit losses 145 145
Other operating 876 374 1,250
- -------------------------------------------------------------------------------------------
Total expenses 9,735 4,012 13,747
- -------------------------------------------------------------------------------------------
Income before income taxes and minority interest 2,166 629 2,795
Provision for income taxes 763 236 999
Minority interest, net of income taxes 98 98
- -------------------------------------------------------------------------------------------
Income from continuing operations $1,305 $393 $1,698
===========================================================================================
Income per share of common stock and
common stock equivalents:
Continuing operations $1.96 $3.34 $2.12
===========================================================================================
Weighted average common shares outstanding
and common stock equivalents (millions) 645.7 108.8 768.6
===========================================================================================
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
Travelers Group Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
For the Six Months Ended June 30, 1996
(in millions of dollars, except per share amounts)
Travelers
Group Salomon Pro Forma
Historical Historical Combined
------------ ------------ ---------------
Revenues:
Insurance premiums $3,316 $ - $3,316
Commissions and fees 1,766 597 2,363
Interest and dividends 2,543 3,008 5,551
Finance related interest and other charges 571 571
Principal transactions 543 1,235 1,778
Asset management and administration fees 648 22 670
Other income 554 554
- ----------------------------------------------------------------------------------------------
Total revenues 9,941 4,862 14,803
- ----------------------------------------------------------------------------------------------
Expenses:
Policyholder benefits and claims 3,590 3,590
Non-insurance compensation and benefits 1,930 1,096 3,026
Insurance underwriting, acquisition and operating 1,367 1,367
Interest 1,060 2,401 3,461
Provision for consumer finance credit losses 128 128
Other operating 850 352 1,202
- ----------------------------------------------------------------------------------------------
Total expenses 8,925 3,849 12,774
- ----------------------------------------------------------------------------------------------
Gain on sale of subsidiaries and affiliates 397 397
- ----------------------------------------------------------------------------------------------
Income before income taxes and minority
interest 1,413 1,013 2,426
Provision for income taxes 361 405 766
Minority interest, net of income taxes (44) (44)
- ----------------------------------------------------------------------------------------------
Income from continuing operations $1,096 $608 $1,704
==============================================================================================
Income per share of common stock
and common stock equivalents:
Continuing operations $1.65 $5.41 $2.15
==============================================================================================
Weighted average common shares outstanding
and common stock equivalents (millions) 636.1 106.0 755.9
==============================================================================================
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
Travelers Group Inc.
Unaudited Pro Forma Condensed Combined
Statement of Income For the Year Ended December 31, 1996
(in millions of dollars, except per share amounts)
Travelers
Group Salomon Pro Forma
Historical Historical Combined
------------ ------------ --------------
Revenues:
Insurance premiums $7,633 $ - $7,633
Commissions and fees 3,422 1,179 4,601
Interest and dividends 5,549 5,748 11,297
Finance related interest and other charges 1,163 1,163
Principal transactions 990 1,990 2,980
Asset management and administration fees 1,349 48 1,397
Other income 1,239 81 1,320
- ---------------------------------------------------------------------------------------------
Total revenues 21,345 9,046 30,391
- ---------------------------------------------------------------------------------------------
Expenses:
Policyholder benefits and claims 7,366 7,366
Non-insurance compensation and benefits 3,768 2,039 5,807
Insurance underwriting, acquisition and operating 3,013 3,013
Interest 2,259 4,679 6,938
Provision for consumer finance credit losses 260 260
Other operating 1,678 718 2,396
- ---------------------------------------------------------------------------------------------
Total expenses 18,344 7,436 25,780
- ---------------------------------------------------------------------------------------------
Gain on sale of subsidiaries and affiliates 397 397
- ---------------------------------------------------------------------------------------------
Income before income taxes and minority
interest 3,398 1,610 5,008
Provision for income taxes 1,051 628 1,679
Minority interest, net of income taxes 47 47
- ---------------------------------------------------------------------------------------------
Income from continuing operations $2,300 $982 $3,282
=============================================================================================
Income per share of common stock
and common stock equivalents:
Continuing operations $3.45 $8.59 $4.11
=============================================================================================
Weighted average common shares outstanding
and common stock equivalents (millions) 638.8 106.4 759.0
=============================================================================================
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
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)
Travelers
Group Salomon Pro Forma
Historical Historical Combined
------------ ------------ ----------------
Revenues:
Insurance premiums $4,977 $ - $4,977
Commissions and fees 2,874 804 3,678
Interest and dividends 4,355 7,021 11,376
Finance related interest and other charges 1,119 1,119
Principal transactions 1,016 1,077 2,093
Asset management and administration fees 1,052 39 1,091
Other income 1,190 12 1,202
- -----------------------------------------------------------------------------------------------
Total revenues 16,583 8,953 25,536
- -----------------------------------------------------------------------------------------------
Expenses:
Policyholder benefits and claims 5,017 5,017
Non-insurance compensation and benefits 3,442 1,710 5,152
Insurance underwriting, acquisition and operating 1,912 1,912
Interest 1,956 5,754 7,710
Provision for consumer finance credit losses 171 171
Other operating 1,544 690 2,234
- -----------------------------------------------------------------------------------------------
Total expenses 14,042 8,154 22,196
- -----------------------------------------------------------------------------------------------
Loss on sale of subsidiaries and affiliates (20) (20)
- -----------------------------------------------------------------------------------------------
Income before income taxes 2,521 799 3,320
Provision for income taxes 893 286 1,179
- -----------------------------------------------------------------------------------------------
Income from continuing operations $1,628 $513 $2,141
===============================================================================================
Income per share of common stock
and common stock equivalents:
Continuing operations $2.43 $4.17 $2.63
===============================================================================================
Weighted average common shares outstanding
and common stock equivalents (millions) 634.8 106.5 755.1
===============================================================================================
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
Travelers Group Inc.
Unaudited Pro Forma Condensed Combined
Statement of Income For the Year Ended December 31, 1994
(in millions of dollars, except per share amounts)
Travelers
Group Salomon Pro Forma
Historical Historical Combined
------------ ------------ ------------
Revenues:
Insurance premiums $5,144 $ - $5,144
Commissions and fees 2,526 822 3,348
Interest and dividends 3,401 5,902 9,303
Finance related interest and other charges 1,030 1,030
Principal transactions 900 (560) 340
Asset management and administration fees 1,010 23 1,033
Other income 932 7 939
- -------------------------------------------------------------------------------------------
Total revenues 14,943 6,194 21,137
- -------------------------------------------------------------------------------------------
Expenses:
Policyholder benefits and claims 5,227 5,227
Non-insurance compensation and benefits 3,241 1,455 4,696
Insurance underwriting, acquisition and operating 1,867 1,867
Interest 1,284 4,873 6,157
Provision for consumer finance credit losses 152 152
Other operating 1,524 715 2,239
- -------------------------------------------------------------------------------------------
Total expenses 13,295 7,043 20,338
- -------------------------------------------------------------------------------------------
Gain on sale of subsidiaries and affiliates 226 226
- -------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,874 (849) 1,025
Provision for income taxes 717 (439) 278
- -------------------------------------------------------------------------------------------
Income (loss) from continuing operations $1,157 $(410) $747
===========================================================================================
Income (loss) per share of common stock
and common stock equivalents:
Continuing operations $1.67 $(4.41) $0.79
===========================================================================================
Weighted average common shares outstanding
and common stock equivalents (millions) 644.0 106.8 764.7
===========================================================================================
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Description of Transaction and Basis of Presentation
The Merger Agreement provides that each share of Salomon common stock
will be exchanged for 1.13 shares of the Company's common stock. The
merger, which is expected to be completed in the fourth quarter of
1997, is expected to be accounted for under the pooling of interests
method and, accordingly, the Company's historical consolidated
financial statements presented in future reports will be restated to
include the accounts and results of Salomon. The merger is subject to
customary closing conditions, including regulatory and Salomon
stockholder approval.
2. Accounting Policies
The Company and Salomon are in the process of reviewing their
accounting policies and, as a result of this review, it may be
necessary to restate either the Company's or Salomon's financial
statements to conform to those accounting policies that are determined
to be most appropriate. No such restatements have been made to the pro
forma combined financial statements.
3. Intercompany Transactions
Transactions between the Company and Salomon are not material in
relation to the pro forma combined financial statements and therefore
intercompany balances have not been eliminated from the pro forma
combined amounts.
4. Pro Forma Adjustments
The pro forma adjustments to common stock, paid-in capital, retained
earnings and treasury stock at June 30, 1997 reflect (1) the retirement
of shares of Salomon common stock held in treasury pursuant to the
Merger Agreement, (2) adjustments to account for 70 million shares of
the Company's common stock held in treasury to be issued in the
transaction as though retired, in accordance with APB No. 16, and (3)
the issuance of 121.4 million shares of the Company's common stock to
effect the merger. The number of shares to be issued at consummation of
the merger will be based on the actual number of shares of Salomon
common stock outstanding at that time.
5. Pro Forma Earnings Per Share
The pro forma combined primary earnings per share for the respective
periods presented is based on the combined weighted average number of
common shares and share equivalents of the Company and Salomon. The
number of common shares and common share equivalents of Salomon is
based on an exchange ratio of 1.13 shares of the Company's common stock
for each issued and outstanding share and share equivalent of Salomon.
6. Restructuring Charge
The pro forma financial data do not reflect a planned merger-related
restructuring charge of between $400 million and $500 million
(after-tax) primarily for severance and costs related to excess or
unused office space and other facilities since such restructuring
charge is non-recurring. Although there can be no assurance that the
restructuring charge will fall within the range provided, this range
represents management's best estimate based on the currently available
information.
7. Future Cost Savings
As the Salomon operations are integrated with the existing operations
of the Company, management expects to achieve, by the end of a three
year period, annual cost savings in excess of $200 million (after-tax)
from the reduction of overhead expenses, changes in corporate
infrastructure and the elimination of redundant expenses. There can be
no assurance that these projected cost savings will be achieved. These
expected future cost savings are not reflected in the pro forma
financial data.
The statements contained in notes 6 and 7 above may be deemed to be
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended. Forward-looking statements are typically identified by
the words "believe," "expect," "anticipate," "intend," "estimate" and similar
expressions. These forward-looking statements are based largely on management's
expectations and are subject to a number of uncertainties. Actual results could
differ materially from these forward-looking statements as a result of a number
of factors, including (1) determination of the number, job classification and
location of employee positions to be eliminated, (2) compatibility of the
operating systems of the combining companies, (3) the degree to which existing
administrative and back-office functions and costs are complementary or
redundant, and (4) the timing of implementation of changes in operations to
effect cost savings. The Company undertakes no obligation to update publicly or
revise any forward-looking statements.