<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) July 19, 1996
___________________
Aetna Inc.
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Connecticut
_______________________________________________________________________
(State or other jurisdiction of incorporation)
1-11913 02-0488491
______________________________________________________________________
(Commission File Number) (I.R.S. Employer
Identification No.)
151 Farmington Avenue, Hartford, Connecticut 06156
_______________________________________________________________________
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (860) 273-0123
__________________
Not Applicable
_______________________________________________________________________
(Former name or former address, if changed since last report)
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TABLE OF CONTENTS
_________________
Page
____
Item 5. Other Information. . 3
Item 7(b). Pro Forma Financial Information. 3
Signatures 9
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Item 5. Other Information.
Unaudited pro forma condensed consolidated statements of income of
Aetna Inc. for the nine months ended September 30, 1996 and the
twelve months ended December 31, 1995 are filed herewith under
Item 7(b).
Item 7(b). Pro Forma Financial Information.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On July 19, 1996, Aetna Services, Inc. ("Aetna") (formerly Aetna Life
and Casualty Company) and U.S. Healthcare, Inc. ("U.S. Healthcare")
respectively merged (respectively, the "Aetna Sub Merger" and the
"U.S. Healthcare Sub Merger", and collectively, the "Mergers") with
separate subsidiaries of a new holding company, Aetna Inc. ("Parent")
and both Aetna and U.S. Healthcare became wholly-owned subsidiaries
of Parent. The Mergers were effected pursuant to a definitive
agreement, dated as of March 30, 1996, as amended by Amendment No. 1
thereto dated as of May 30, 1996 (as so amended, the "Merger
Agreement") among Aetna, U.S. Healthcare, Parent and such
subsidiaries.
The following unaudited pro forma condensed consolidated statements
of income of Parent for the nine months ended September 30, 1996 and
the twelve months ended December 31, 1995 present results for Parent
as if each of the following had occurred as of January 1, 1996 and
January 1, 1995, respectively: (i) the consummation of the sale by
Aetna of its property-casualty operations to an affiliate of The
Travelers Insurance Group Inc. (the "Property-Casualty Sale") and
(ii) the consummation of the Mergers (including associated borrowings
and related transactions).
The U.S. Healthcare Sub Merger was accounted for under the purchase
method of accounting. Accordingly, the amount of the consideration
paid in the U.S. Healthcare Sub Merger was allocated to assets
acquired and liabilities assumed based on their fair values. The
excess of such consideration over the fair value of such assets and
liabilities has been allocated to goodwill and certain identifiable
intangible assets. The purchase price allocation may be adjusted
within the year following the merger to reflect changes in the final
valuations of U.S. Healthcare's assets and liabilities. The effect
of any such adjustment is not expected to be significant. The Aetna
Sub Merger was treated as a reorganization with no change in the
recorded amount of Aetna's assets and liabilities. The pro forma
condensed consolidated financial statements do not give effect to any
synergies which may be realized as a result of the Mergers.
Additionally, except as indicated in the notes thereto, the pro forma
condensed consolidated financial statements do not reflect any
nonrecurring/unusual restructuring charges that will be incurred as a
result of the integration of Aetna's and U.S. Healthcare's combined
health operations (the "Combined Health Operations"). Integration
charges of $423.1 million (pretax, $275.0 million after tax) will be
recorded by Parent in the fourth quarter of 1996.
<PAGE> 4
Item 7(b). Pro Forma Financial Information. (Continued)
The unaudited pro forma condensed consolidated statements of income
are provided for informational purposes only and do not purport to
represent what the Parent's results of operations actually would have
been had the Property-Casualty Sale and the Mergers in fact occurred
on the dates indicated, or to project the Parent's results of
operations for any future date or period.
The unaudited pro forma condensed consolidated statements of income
are based on the historical consolidated financial statements of
Parent and U.S. Healthcare and should be read in conjunction with
such historical financial statements, and the notes thereto, which
are included in the annual reports on Form 10-K of Aetna and Form 10-
K, as amended, of U.S. Healthcare for the year ended December 31,
1995 and the quarterly reports on Form 10-Q of Parent for the quarter
ended September 30, 1996 and U.S. Healthcare for the quarter ended
March 31, 1996 (see also information regarding factors affecting
forward-looking information included in such reports).
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Aetna Inc.
Unaudited Pro Forma Condensed Consolidated Statement Of Income
For the Nine Months Ended September 30, 1996
(in millions, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma U.S.
Aetna Property- Aetna U.S. Healthcare Aetna
Inc. Casualty Sale Inc. Healthcare Merger Inc.(n)
Historical Adjustments(d) As Adjusted Historical Adjustments(e) As Adjusted
__________ ______________ ___________ ___________ ______________ ___________
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Premiums $ 6,243.1 $ - $ 6,243.1 $ 2,331.4 $ - $ 8,574.5
Net investment income, including
net realized capital gains 2,751.9 - (a) 2,751.9 37.2 (56.6)(f) 2,732.5
Fees and other income 1,624.8 - 1,624.8 53.3 - 1,678.1
______________________________________________________________________________
Total revenue 10,619.8 - 10,619.8 2,421.9 (56.6) 12,985.1
________________________________________________________________________________________________________________
Benefits and Expenses:
Current and future benefits 7,157.0 - 7,157.0 1,764.6 - 8,921.6
Operating expenses 2,499.2 - 2,499.2 432.7 4.7 (g) 2,888.8
56.9 (h)
(114.1)(l)
9.4 (m)
Amortization of deferred policy
acquisition costs 123.5 - 123.5 - - 123.5
Amortization of goodwill and
identifiable intangible assets 80.8 - 80.8 - 195.2 (j) 276.0
Reduction of loss on discontinued
products (170.0) - (170.0) - - (170.0)
Severance and facilities charges 441.7 - 441.7 - - (k) 441.7
______________________________________________________________________________
Total benefits and expenses 10,132.2 - 10,132.2 2,197.3 152.1 12,481.6
________________________________________________________________________________________________________________
Income from continuing operations
before income taxes (benefits)
and preferred stock dividends 487.6 - 487.6 224.6 (208.7) 503.5
Income taxes (benefits) 175.4 - 175.4 100.1 (19.8)(f) 222.5
(1.8)(g)
(19.9)(h)
27.0 (l)
(34.9)(j)
(3.6)(m)
______________________________________________________________________________
Income from continuing operations 312.2 - 312.2 124.5 (155.7) 281.0
Dividends on mandatorily
convertible preferred stock (11.2) - (11.2) - (30.5)(i) (41.7)
_______________________________________________________________________________
Income from continuing operations
attributable to common ownership $ 301.0 $ - $ 301.0 $ 124.5 $ (186.2) $ 239.3
______________________________________________________________________________
______________________________________________________________________________
Results Per Common Share:
Primary:
Income from continuing
operations $ 2.39 $ 2.39 $ 1.58
__________ __________ __________
__________ __________ __________
Weighted average common shares
and commom share equivalents
outstanding 126,138,464 126,138,464 151,722,611*
___________ ___________ ___________
<FN>
* Pro forma weighted average common shares outstanding reflect Aetna's third quarter 1996
weighted average common shares outstanding and the issuance by Parent of 34,988,615
shares of Parent Common Stock in connection with the U.S. Healthcare Sub Merger, as
though all such shares were issued and outstanding on January 1, 1996. No conversion of
mandatorily convertible preferred stock issued in connection with the Mergers is assumed.
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
<PAGE> 6
Aetna Inc.
Unaudited Pro Forma Condensed Consolidated Statement Of Income
For the Year Ended December 31, 1995
(in millions, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma U.S.
Aetna Property- Aetna U.S. Healthcare Aetna
Inc. Casualty Sale Inc. Healthcare Merger Inc.(n)
Historical Adjustments(d) As Adjusted Historical Adjustments(e) As Adjusted
__________ ______________ ___________ ___________ ______________ ___________
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Premiums $ 7,431.4 $ - $ 7,431.4 $ 3,486.3 $ - $ 10,917.7
Net investment income, including
net realized capital gains 3,622.3 - (a) 3,622.3 91.9 - (f) 3,714.2
Fees and other income 1,924.3 - 1,924.3 55.7 - 1,980.0
______________________________________________________________________________
Total revenue 12,978.0 - 12,978.0 3,633.9 - 16,611.9
_______________________________________________________________________________________________________________
Benefits and Expenses:
Current and future benefits 9,027.2 - 9,027.2 2,527.5 - 11,554.7
Operating expenses 3,072.3 17.0 (b) 3,089.3 487.4 11.8 (g) 3,699.7
103.3 (h)
Amortization of deferred policy 7.9 (m)
acquisition costs 137.1 - 137.1 - 137.1
Amortization of goodwill and
identifiable intangible assets 15.2 - 15.2 - 356.0 (j) 371.2
Severance and facilities charges - - (c) - - - (k) -
______________________________________________________________________________
Total benefits and expenses 12,251.8 17.0 12,268.8 3,014.9 479.0 15,762.7
_______________________________________________________________________________________________________________
Income from continuing operations
before income taxes (benefits)
and preferred stock dividends 726.2 (17.0) 709.2 619.0 (479.0) 849.2
Income taxes (benefits) 252.3 (5.9)(b) 246.4 238.3 (4.5)(g) 377.7
(36.1)(h)
(63.6)(j)
(2.8)(m)
______________________________________________________________________________
Income from continuing operations 473.9 (11.1) 462.8 380.7 (372.0) 471.5
Dividends on mandatorily
convertible preferred stock - - - - (55.6)(i) (55.6)
______________________________________________________________________________
Income from continuing operations
attributable to common
ownership $ 473.9 $ (11.1) $ 462.8 $ 380.7 $ (427.6) $ 415.9
______________________________________________________________________________
______________________________________________________________________________
Results Per Common Share:
Primary:
Income from continuing
operations $ 4.16 $ 4.06 $ 2.79
__________ __________ __________
__________ __________ __________
Weighted average common shares
and share equivalents
outstanding 113,897,633 113,897,633 149,251,761*
___________ ___________ ___________
<FN>
* Pro forma weighted average common shares outstanding reflects Aetna's 1995 weighted
average common shares outstanding and the issuance by Parent of 34,988,615 common shares
in connection with the U.S. Healthcare Sub Merger, as though all such shares were issued
and outstanding on January 1, 1995. No conversion of the Parent Mandatorily Convertible
Preferred Stock is assumed.
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
<PAGE> 7
Aetna Inc.
Notes To Unaudited Pro Forma
Condensed Consolidated Financial Statements
Pro Forma Adjustments Related to the Property-Casualty Sale:
____________________________________________________________
a. No adjustment has been made to reflect interest income for the
period January 1, 1996 through April 2, 1996 at 4.93% and a
full year of interest income at 5.49% in 1995 (average 3 month
Treasury bill rates for the periods) on net proceeds from the
Property-Casualty Sale (after giving effect to the payment of
transaction costs and liabilities associated with the sale) of
approximately $3.9 billion. The amount of such adjustments
(after tax) would approximate $31.3 million for the period
January 1, 1996 through April 2, 1996 and $139.2 million for
the twelve months ended December 31, 1995.
b. Pro forma adjustment to reflect a full year of interest
expense (an additional 11.2 months) at 6.01% in 1995 (average
commercial paper rate for the period), and related income tax
benefits, on the capital contribution by Aetna of $303 million
to the property-casualty operations. Such capital contribution
was actually made on December 6, 1995.
c. No adjustment has been made to give effect to the
restructuring charges related to the Property-Casualty Sale,
including those related to the sublease of the CityPlace
office facility and other facility and severance charges.
Such charges ($362.7 million pretax, $235.5 million after tax)
were recorded by Aetna in the second quarter of 1996.
d. No adjustment has been made to reflect the historical results
of Aetna's discontinued property-casualty operations. Such
results were $182.2 million (or $1.57 per Common Share) of net
income for the period January 1, 1996 through April 2, 1996
and $222.2 million of a net loss (or $1.95 per Common Share)
for the twelve months ended December 31, 1995.
Pro Forma Adjustments Related to the Mergers:
_____________________________________________
e. No adjustment has been made to give effect to any synergies
which may be realized as a result of the Mergers.
f. Pro forma adjustment to reflect a reduction in interest income
for the period April 2, 1996 through July 19, 1996 on
that portion of the cash consideration paid at closing of the
U.S. Healthcare Sub Merger from the Property-Casualty Sale
proceeds. No such adjustment has been made for the period
January 1, 1996 through April 2, 1996 since such
interest income is not reflected in the pro forma financial
statements (see adjustment a).
g. Pro forma adjustment to conform the U.S. Healthcare accounting
policies with those of Aetna related to expensing rather than
capitalizing costs primarily relating to purchased and
internally developed software, printed and other promotional
items, and the related income tax effect.
h. Pro forma adjustment to reflect assumed interest expense of
7.38% on $1.4 billion of borrowings incurred in connection
with the U.S. Healthcare Sub Merger, and the related income
tax effect.
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Aetna Inc.
Notes To Unaudited Pro Forma
Condensed Consolidated Financial Statements
Pro Forma Adjustments Related to the Mergers (Continued):
_________________________________________________________
i. Pro forma adjustment to reflect the dividends on the
$865 million of the mandatorily convertible preferred stock
issued in connection with the Mergers. In determining pro
forma earnings per share, mandatorily convertible
preferred stock is not considered a common stock equivalent
and is antidilutive.
j. Pro forma adjustment to reflect the amortization of the
approximately $7.9 billion excess of the purchase price over
the estimated fair value of the net assets acquired using a
range of estimated useful lives for identifiable intangible
assets of 5 to 25 years and a 40 year useful life for goodwill
(37 year weighted average life), and the related income tax
effect on intangibles other than goodwill.
k. No adjustment has been made to give effect to any non-
recurring/unusual restructuring charges that may be incurred
as a result of the integration of the health operations of
Aetna and U.S. Healthcare. Integration charges of $423.1
million (pretax, $275.0 million after tax) will be recorded by
Parent in the fourth quarter of 1996.
l. Pro forma adjustment to remove the effect of nonrecurring
merger-related costs, including transaction fees and expenses,
and charges incurred as a result of an Agreement with the
principal shareholder of U.S. Healthcare (the "Agreement with
Principal Shareholder") and employment agreements with U.S.
Healthcare executives (the "Employment Agreements") in the
first nine months of 1996 and the related income tax effect.
m. Pro forma adjustment to reflect recurring expenses incurred
as a result of the Agreement with Principal Shareholder and
the Employment Agreements and the related income tax effect.
n. Reflects the conversion of Aetna common stock into Parent
common stock (including the cancellation of shares held in
treasury).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
Aetna Inc.
____________________________
(Registrant)
Date October 25, 1996 By /s/ Robert J. Price
____________________________
(Signature)
Robert J. Price
Vice President and
Corporate Controller
(Chief Accounting Officer)
