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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 8
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Item 5. Other Information.
Unaudited pro forma condensed consolidated statement of income of
Aetna Inc. for the twelve months ended December 31, 1996 is 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 statement of
income of Parent for the twelve months ended December 31, 1996
presents results for Parent as if each of the following had occurred
as of January 1, 1996: (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 estimated fair
values. The excess of such consideration over the estimated fair
value of such assets and liabilities has been allocated to goodwill
and certain other acquired 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
statement of income does not give effect to any synergies which may
be realized in the future as a result of the Mergers. A severance
and facilities charge principally related to the integration of
Aetna's and U.S. Healthcare's combined health operations (the
"Combined Health Operations") of $423.0 million (pretax, $275.0
million after tax) was recorded by Parent in the fourth quarter of
1996.
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Item 7(b). Pro Forma Financial Information. (Continued)
The unaudited pro forma condensed consolidated statement of income is
provided for informational purposes only and does not purport to
represent what Parent's results of operations actually would have
been had the Property-Casualty Sale and the Mergers in fact occurred
on the date indicated, or to project Parent's results of operations
for any future date or period.
The unaudited pro forma condensed consolidated statement of income is
based on the historical consolidated financial statements of Parent
and should be read in conjunction with such historical financial
statements, and the notes thereto, which are included in the 1996
Form 10-K of Parent and the quarterly report on Form 10-Q of U.S.
Healthcare for the quarter ended March 31, 1996 (see also information
regarding forward-looking information included in Management's
Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") within Parent's 1996 Annual Report to
Shareholders. The MD&A is incorporated by reference into the 1996
Form 10-K of Parent).
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Aetna Inc.
Unaudited Pro Forma Condensed Consolidated Statement Of Income
For the Twelve Months Ended December 31, 1996
(in millions, except share and per common share data)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma U.S.
Aetna Property- Aetna U.S. Healthcare Aetna
Inc. Casualty Sale Inc. Healthcare Merger Inc.
Historical Adjustments(a) As Adjusted Historical Adjustments(c) As Adjusted
__________ ______________ ___________ ___________ ______________ ___________
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Premiums $ 9,288.8 $ - $ 9,288.8 $ 2,331.4 $ - $ 11,620.2
Net investment income, including
net realized capital gains 3,699.6 - (b) 3,699.6 37.2 (56.6)(d) 3,680.2
Fees and other income 2,174.8 - 2,174.8 53.3 - 2,228.1
______________________________________________________________________________
Total revenue 15,163.2 - 15,163.2 2,421.9 (56.6) 17,528.5
________________________________________________________________________________________________________________
Benefits and Expenses:
Current and future benefits 10,341.4 - 10,341.4 1,764.6 - 12,106.0
Operating expenses 3,319.8 - 3,319.8 432.7 4.7 (e) 3,652.5
(114.1)(j)
9.4 (k)
Interest expense 168.3 - 168.3 - 56.9 (f) 225.2
Amortization of goodwill and
other acquired intangible assets 172.5 - 172.5 - 195.2 (h) 367.7
Amortization of deferred policy
acquisition costs 160.1 - 160.1 - - 160.1
Reductions of loss on discontinued
products (202.3) - (202.3) - - (202.3)
Severance and facilities charges 864.7 - 864.7 - - (i) 864.7
______________________________________________________________________________
Total benefits and expenses 14,824.5 - 14,824.5 2,197.3 152.1 17,173.9
________________________________________________________________________________________________________________
Income from continuing operations
before income taxes
and preferred stock dividends 338.7 - 338.7 224.6 (208.7) 354.6
Income taxes 133.6 - 133.6 100.1 (19.8)(d) 180.7
(1.8)(e)
(19.9)(f)
27.0 (j)
(34.9)(h)
(3.6)(k)
______________________________________________________________________________
Income from continuing operations 205.1 - 205.1 124.5 (155.7) 173.9
Dividends on mandatorily
convertible preferred stock (25.1) - (25.1) - (30.5)(g) (55.6)
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Income from continuing operations
applicable to common ownership $ 180.0 $ - $ 180.0 $ 124.5 $ (186.2) $ 118.3
______________________________________________________________________________
______________________________________________________________________________
Results Per Common Share:
Primary:
Income from continuing
operations $ 1.36 $ 1.36 $ .78
__________ __________ __________
__________ __________ __________
Weighted average common shares
and common share equivalents
outstanding 132,155,336 132,155,336 151,691,592*
___________ ___________ ___________
<FN>
* Pro forma weighted average common shares outstanding reflect Parent's 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 Statement of Income.
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Aetna Inc.
Notes To Unaudited Pro Forma
Condensed Consolidated Statement of Income
Pro Forma Adjustments Related to the Property-Casualty Sale:
____________________________________________________________
a. No adjustment has been made to reflect the historical results
of Aetna's discontinued property-casualty operations. Such
results were $445.9 million which included income from
Discontinued Operations of $182.2 million for the period
January 1, 1996 through April 2, 1996 and a gain from sale of
such operations of $263.7 million.
b. No adjustment has been made to reflect interest income for the
period January 1, 1996 through April 2, 1996 at 4.93% (average
3 month Treasury bill rate for the period) 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
adjustment (after tax) would approximate $31.3 million for
the period January 1, 1996 through April 2, 1996.
Pro Forma Adjustments Related to the Mergers:
_____________________________________________
c. No adjustment has been made to give effect to any synergies
which may be realized in the future as a result of the
Mergers.
d. Pro forma adjustment to reflect a reduction in interest income
and the related tax effect 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 b).
e. 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.
f. 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 Statement of Income
Pro Forma Adjustments Related to the Mergers (Continued):
_________________________________________________________
g. 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.
h. 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 other acquired intangible
assets of 5 to 25 years and a 40 year period for goodwill
(37 year weighted average life), and the related income tax
effect on other acquired intangible assets.
i. No adjustment has been made to give effect to any additional
nonrecurring/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 $423.0 million (pretax, $275.0 million after tax) were
recorded by Parent in the fourth quarter of 1996.
j. 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") concurrent
with or prior to the Mergers and the related income tax
effect.
k. 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.
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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 February 28, 1997 By /s/ Robert J. Price
____________________________
(Signature)
Robert J. Price
Vice President and
Corporate Controller
(Chief Accounting Officer)
