Exhibit 99.03 Unaudited Pro Forma Condensed Combined Financial Statements The Merger Agreement provides that each share of Salomon Inc ("Salomon") common stock will be exchanged for 1.695 shares of Travelers Group Inc. ("Travelers") common stock. The exchange ratio and all per share amounts contained in the unaudited pro forma condensed combined financial statements and the notes thereto reflect the three-for-two stock split declared by Travelers on October 22, 1997 and payable on November 19, 1997 to all stockholders of record on November 3, 1997. 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, Travelers' 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 Travelers 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 Travelers and Salomon giving effect to the merger as if it had occurred on January 1, 1994. The unaudited pro forma condensed combined statements of income for the six months ended June 30, 1996 and for the year ended December 31, 1996 also give effect to the acquisition in April 1996 of the domestic property and casualty operations of Aetna Life and Casualty Company (the "Aetna P&C" operations) and transactions related to the funding of the acquisition, as if they had occurred on January 1, 1996. This information should be read in conjunction with the accompanying notes hereto; the separate historical financial statements of Travelers 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 Travelers' 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. In addition, the information related to the pro forma condensed combined statements of income for the six months ended June 30, 1996 and for the year ended December 31, 1996 should be read in conjunction with the historical financial statements of the Aetna P&C operations for the period ended March 31, 1996 contained in Travelers' Current Report on Form 8-K dated June 7, 1996. 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 company. Travelers Group Inc. and Subsidiaries Unaudited Pro Forma Condensed Combined Statement of Financial Position As of June 30, 1997 (in millions of dollars) Travelers Salomon Pro Forma Pro Forma Historical Historical Adjustments Combined ---------- ---------- ----------- -------- Assets 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 2,843 450 18,489 -------- -------- ------- -------- Total liabilities ......................................... 143,328 230,100 450 373,878 -------- -------- ------- -------- 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 .............................................. 11 159 (158) 12 Additional paid-in capital ................................ 7,557 438 (1,089) 6,906 Retained earnings ......................................... 8,524 5,811 (2,807) 11,078 (450) Treasury stock, at cost ................................... (2,958) (1,769) 4,054 (673) Unrealized gain on investment securities .................. 436 436 Other ..................................................... (407) (1) (408) -------- -------- ------- -------- Total stockholders' equity ................................ 14,238 5,088 (450) 18,876 -------- -------- ------- -------- Total liabilities and stockholders' equity ................ $159,606 $235,953 $ -- $395,559 ======== ======== ======= ======== See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements 2 Travelers Group Inc. and Subsidiaries 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 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 ........................................ $ 1.31 $ 3.34 $ 1.41 ======= ====== ======= Weighted average common shares outstanding and common stock equivalents (in millions and giving effect to the 3-for-2 stock split payable November 19, 1997) ...................... 968.6 108.8 1,152.9 ======= ====== ======= See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements 3 Travelers Group Inc. and Subsidiaries Unaudited Pro Forma Condensed Combined Statement of Income For the Six Months Ended June 30, 1996 (in millions of dollars, except per share amounts) Pro Forma Travelers Aetna P&C Pro Forma Before Salomon Pro Forma Historical Historical* Adjustments Salomon Historical Combined ---------- ----------- ----------- --------- ---------- --------- Revenues: Insurance premiums .................. $3,316 $1,038 $ -- $ 4,354 $ $ 4,354 Commissions and fees ................ 1,766 1,766 597 2,363 Interest and dividends .............. 2,543 243 2 (5a) 2,780 3,008 5,788 (8)(5b) Finance related interest and other charges ............................ 571 571 571 Principal transactions .............. 543 543 1,235 1,778 Asset management and administration fees ............................... 648 648 22 670 Other income ........................ 554 325 879 879 ------ ------ ----- ------- ------ ------- Total revenues .................... 9,941 1,606 (6) 11,541 4,862 16,403 ------ ------ ----- ------- ------ ------- Expenses: Policyholder benefits and claims .... 3,590 964 4,554 4,554 Non-insurance compensation and benefits ........................... 1,930 1,930 1,096 3,026 Insurance underwriting, acquisition and operating ...................... 1,367 325 (1)(5a) 1,691 1,691 Interest ............................ 1,060 45 (5c) 1,105 2,401 3,506 Provision for consumer finance credit losses ...................... 128 128 128 Other operating ..................... 850 850 352 1,202 ------ ------ ----- ------- ------ ------- Total expenses .................... 8,925 1,289 44 10,258 3,849 14,107 ------ ------ ----- ------- ------ ------- Gain on sale of subsidiaries and affiliates ......................... 397 (363)(5d) 34 34 ------ ------ ----- ------- ------ ------- Income before income taxes and minority interest .................. 1,413 317 (413) 1,317 1,013 2,330 Provision for income taxes .......... 361 99 (15)(5e) 445 405 850 Minority interest, net of income taxes .............................. (44) 58 (5f) 14 14 ------ ------ ----- ------- ------ ------- Income from continuing operations ... $1,096 $ 218 $(456) $ 858 $ 608 $ 1,466 ====== ====== ===== ======= ====== ======= Income per share of common stock and common stock equivalents: Continuing operations ............... $ 1.10 $ 0.85 $ 5.41 $ 1.22 ====== ======= ====== ======= Weighted average common shares outstanding and common stock equivalents (in millions and giving effect to the 3-for-2 stock split payable November 19, 1997) ......... 954.2 954.2 106.0 1,133.9 ====== ======= ====== ======= - ---------- * Represents historical results for Aetna P&C for the quarterly period ended March 31, 1996. See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements 4 Travelers Group Inc. and Subsidiaries Unaudited Pro Forma Condensed Combined Statement of Income For the Year Ended December 31, 1996 (in millions of dollars, except per share amounts) Pro Forma Travelers Aetna P&C Pro Forma Before Salomon Pro Forma Historical Historical* Adjustments Salomon Historical Combined ---------- ---------- ----------- ------- ---------- --------- Revenues: Insurance premiums ...................... $ 7,633 $ 1,038 $ $ 8,671 $ $ 8,671 Commissions and fees .................... 3,422 3,422 1,179 4,601 Interest and dividends .................. 5,549 243 2 (5a) 5,786 5,748 11,534 (8)(5b) Finance related interest and other charges ................................ 1,163 1,163 1,163 Principal transactions .................. 990 990 1,990 2,980 Asset management and administration fees 1,349 1,349 48 1,397 Other income ............................ 1,239 325 1,564 81 1,645 ------- ------- ----- ------- ------ ------- Total revenues ........................ 21,345 1,606 (6) 22,945 9,046 31,991 ------- ------- ----- ------- ------ ------- Expenses: Policyholder benefits and claims ........ 7,366 964 8,330 8,330 Non-insurance compensation and benefits . 3,768 3,768 2,039 5,807 Insurance underwriting, acquisition and operating .............................. 3,013 325 (1)(5a) 3,337 3,337 Interest ................................ 2,259 45 (5c) 2,304 4,679 6,983 Provision for consumer finance credit losses ................................. 260 260 260 Other operating ......................... 1,678 1,678 718 2,396 ------- ------- ----- ------- ------ ------- Total expenses ........................ 18,344 1,289 44 19,677 7,436 27,113 ------- ------- ----- ------- ------ ------- Gain on sale of subsidiaries and affiliates ............................. 397 (363)(5d) 34 34 ------- ------- ----- ------- ------ ------- Income before income taxes and minority interest ............................... 3,398 317 (413) 3,302 1,610 4,912 Provision for income taxes .............. 1,051 99 (15)(5e) 1,135 628 1,763 Minority interest, net of income taxes .. 47 58 (5f) 105 105 ------- ------- ----- ------- ------ ------- Income from continuing operations ....... $ 2,300 $ 218 $(456) $ 2,062 $ 982 $ 3,044 ======= ======= ===== ======= ====== ======= Income per share of common stock and common stock equivalents: Continuing operations ................... $2.30 $2.05 $ 8.59 $ 2.53 ======= ======= ====== ======= Weighted average common shares outstanding and common stock equivalents (in millions and giving effect to the 3-for-2 stock split payable November 19, 1997) .............................. 958.2 958.2 106.4 1,138.5 ======= ======= ====== ======= - ---------- * Represents historical results for Aetna P&C for the quarterly period ended March 31, 1996. See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements 5 Travelers Group Inc. and Subsidiaries Unaudited Pro Forma Condensed Combined Statement of Income For the Year Ended December 31, 1995 (in millions of dollars, except per share amounts) Travelers 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 ..................................... $ 1.62 $ 4.17 $ 1.76 ======== ====== ======== Weighted average common shares outstanding and common stock equivalents (in millions and giving effect to the 3-for-2 stock split payable November 19, 1997) .................... 952.2 106.5 1,132.7 ======== ====== ======== See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements 6 Travelers Group Inc. and Subsidiaries Unaudited Pro Forma Condensed Combined Statement of Income For the Year Ended December 31, 1994 (in millions of dollars, except per share amounts) Travelers 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 ..................................... $ 1.11 $ (4.41) $ 0.52 ======= ======= ======= Weighted average common shares outstanding and common stock equivalents (in millions and giving effect to the 3-for-2 stock split payable November 19, 1997) .................... 966.0 106.8 1,147.1 ======= ======= ======= See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements 7 Notes to Unaudited Pro Forma Condensed Combined Financial Statements 1. Description of Transactions and Basis of Presentation The Merger Agreement provides that each share of Salomon common stock will be exchanged for 1.695 shares of Travelers common stock. The exchange ratio and all per share amounts contained in the unaudited pro forma condensed combined financial statements and the notes thereto reflect the three-for-two stock split declared by Travelers on October 22, 1997 and payable on November 19, 1997 to all stockholders of record on November 3, 1997. 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, Travelers' 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 pro forma effect of the acquisition of the Aetna P&C operations is reflected in the pro forma condensed combined statements of income for the six months ended June 30, 1996 and for the year ended December 31, 1996 as if the acquisition had occurred on January 1, 1996. This acquisition has been accounted for as a purchase. Note that actual results for the Aetna P&C operations are included in Travelers' historical amounts from the date of acquisition on April 2, 1996. 2. Accounting Policies Travelers 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 Travelers' 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 Travelers 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 -- Salomon The pro forma adjustments to common stock, additional 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 105 million shares of Travelers common stock held in treasury to be issued in the transaction as though retired, in accordance with APB No. 16, (3) the issuance of 182.1 million shares of Travelers common stock to effect the Merger, and (4) the after-tax effect on retained earnings of an estimated charge for restructuring (see note 7). 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. 8 5. Pro Forma Adjustments -- Aetna P&C The following pro forma adjustments related to the acquisition of the Aetna P&C operations are reflected in the pro forma condensed combined statements of income for the six months ended June 30, 1996 and for the year ended December 31, 1996. Such adjustments relate only to the quarter ended March 31, 1996 which represents the portion of the year that Travelers did not own the Aetna P&C operations (in millions): (a) Principal adjustments resulting from the allocation of purchase price based on fair value of underlying net assets, as follows: Increase (decrease) in pre-tax income ------------------- 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 loss based assessments for second injury funds ............... $ 7 Amortization of excess of purchase price over fair value of net assets acquired, over 40 years ......................... (7) Amortization of liabilities related to employee benefit plans ................ 6 Other .................................... (5) --- $ 1 === (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. (c) Pro forma adjustments related to the funding of 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 .......................... $12 Interest expense at 5 3/4% on short-term borrowings .............................. 15 Preferred dividends on $900 of mandatorily redeemable preferred securities of subsidiary trusts ...................... 18 --- $45 === (d) Represents the reversal of the gain on the sale of 18% of Travelers Property Casualty Corp. ("TAP") common stock in an initial public offering, the proceeds of which were used to finance a portion of the acquisition. (e) Adjustment to reflect the income tax effects of (a), (b) and (c) above. (f) Pro forma adjustment to reflect minority interest resulting from the sale of TAP's common stock. 6. 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 Travelers and Salomon. The number of common shares and common share equivalents of Salomon is based on an exchange ratio of 1.695 shares of Travelers common stock for each issued and outstanding share and share equivalent of Salomon. The pro forma combined primary earnings per share has been calculated as follows: 9 Calculation of pro forma combined earnings per share (in millions, except per share amounts) For the six months ended For the fiscal year ---------------------------- -------------------------------------- June 30, 1997 June 30, 1996 1996 1995 1994 ------------- ------------- ---------- ---------- ---------- Income from continuing operations $ 1,698 $ 1,466 $ 3,044 $ 2,141 $ 747 Preferred dividends ............. (71) (81) (161) (153) (145) --------- --------- --------- --------- --------- Income from continuing operations available to common stockholders $ 1,627 $ 1,385 $ 2,883 $ 1,988 $ 602 --------- --------- --------- --------- --------- Average common shares ........... 1,102.5 1,094.6 1,097.5 1,099.3 1,127.4 Assumed exercise of dilutive warrants ....................... 6.9 4.4 5.0 1.7 -- Assumed exercise of dilutive options ........................ 19.8 16.4 16.2 14.0 9.2 Incremental shares--restricted stock .......................... 23.7 18.5 19.8 17.7 10.5 --------- --------- --------- --------- --------- Shares used in computing earnings per share ...................... 1,152.9 1,133.9 1,138.5 1,132.7 1,147.1 ========= ========= ========= ========= ========= Primary earnings per share from continuing operations .......... $ 1.41 $ 1.22 $ 2.53 $ 1.76 $ 0.52 ========= ========= ========= ========= ========= 7. Restructuring Charge The pro forma condensed combined statements of income 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. 8. Future Cost Savings As Salomon's operations are integrated with the existing operations of Travelers, 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 7 and 8 above may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, 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. Travelers undertakes no obligation to update publicly or revise any forward-looking statements. 10