<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) March 30, 1996
____________________
Aetna Life and Casualty Company
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Connecticut
_______________________________________________________________________
(State or other jurisdiction of incorporation)
1-5704 06-0843808
_______________________________________________________________________
(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)
<PAGE> 2
TABLE OF CONTENTS
_________________
Page
____
Item 5. Other Events. 3
Item 7(b). Pro Forma Financial Information. 4
Item 7(c). Exhibits. 13
Signatures 14
<PAGE> 3
Item 5. Other Events.
Aetna Life and Casualty Company ("Aetna") and U.S. Healthcare, Inc.
("U.S. Healthcare") entered into a definitive agreement, dated March 30,
1996, as amended by Amendment No. 1 thereto dated as of May 30, 1996 (as
so amended, the "Merger Agreement"). Pursuant to the Merger Agreement
each of Aetna and U.S. Healthcare will merge (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 will become wholly-
owned subsidiaries of Parent.
U.S. Healthcare shareholders will receive $34.20 in cash, 0.2246 shares
of Parent common stock together with 0.2246 Parent rights issued pursuant
to a rights agreement effective as of the consummation of the merger and
0.0749 shares of Parent mandatorily convertible preferred stock for each
share of U.S. Healthcare common stock and each share of U.S. Healthcare
Class B Stock outstanding (collectively the "U.S. Healthcare Merger
Consideration"). Each outstanding share of Aetna common stock will be
converted into a share of common stock of Parent, together with one such
right.
Aetna expects to finance the transaction with a combination of $5.3
billion in cash ($3.9 billion from the net proceeds received from the
sale of its property-casualty operations and $1.45 billion funded out of
a combination of the net proceeds of the proposed issuance by Aetna of
commercial paper and borrowings under a new Aetna credit facility) and
the issuance of $2.7 billion of new Parent common stock and $0.9 billion
of Parent mandatorily convertible preferred stock. The Merger Agreement
is subject to approval by the shareholders of both companies, receipt of
required regulatory approvals, and other customary conditions. On
June 26, 1996 Aetna and U.S. Healthcare announced that regulatory
approval was obtained in Pennsylvania. The transaction
is expected to close in the third quarter of 1996.
Pro Forma Financial Statements
______________________________
Item 7 of this report contains (i) unaudited pro forma condensed
consolidated statements of income of Parent for the three months ended
March 31, 1996 and the twelve months ended December 31, 1995, giving
effect to the Mergers and Aetna's sale of its property-casualty
operations to an affiliate of the Travelers Insurance Group Inc.
("Travelers"), (ii) an unaudited pro forma condensed consolidated balance
sheet for Parent as of March 31, 1996, giving effect to the Mergers and
Aetna's sale of its property-casualty operations, and (iii) a
consolidated balance sheet of Parent as of April 22, 1996.
Such unaudited pro forma condensed consolidated financial statements and
consolidated balance sheet of Parent are also set forth in the Joint
Proxy Statement/Prospectus previously distributed to shareholders of
Aetna and U.S. Healthcare in connection with the Mergers.
Quarterly Dividend
__________________
On June 28, 1996 Aetna announced that its Board of Directors has deferred
declaration of the quarterly dividend pending the closing of the proposed
Mergers. Aetna stated that it expects that the Board of Directors of
Parent will declare the next quarterly dividend promptly after the
closing of the proposed Mergers. A copy of the press release announcing
the deferral of declaration of the quarterly dividend is attached hereto
as Exhibit 99.2, which exhibit is incorporated herein by reference.
<PAGE> 4
Item 7(b). Pro Forma Financial Information.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated statements of
income of Parent for the three months ended March 31, 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 Travelers (the "Property-Casualty
Sale") and (ii) the consummation of the Mergers (including associated
borrowings and related transactions). The accompanying unaudited pro
forma condensed consolidated balance sheet for Parent as of March 31,
1996 gives effect to the Property-Casualty Sale and the Mergers
(including associated borrowings and related transactions) as if they had
occurred as of March 31, 1996.
The U.S. Healthcare Sub Merger will be accounted for under the purchase
method of accounting. Accordingly, the amount of the consideration to be
paid in the U.S. Healthcare Sub Merger will be 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 preliminarily allocated to certain
identifiable intangible assets and goodwill. The purchase price
allocation may be adjusted upon completion of the final valuations of
U.S. Healthcare's assets and liabilities and the effect of any such
adjustment could be significant. The Aetna Sub Merger will be 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 may be
incurred as a result of the integration of Aetna's and U.S. Healthcare's
combined health operations (the "Combined Health Operations"). The
amount of such charges related to the integration of the Combined Health
Operations cannot be reasonably determined at this time.
The unaudited pro forma condensed consolidated financial statements are
provided for informational purposes only and do not purport to represent
what Parent's financial position or 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 Parent's financial position or
results of operations for any future date or period.
The unaudited pro forma condensed consolidated financial statements are
based on the historical consolidated financial statements of Aetna 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 U.S. Healthcare for the year
ended December 31, 1995 and the quarterly reports on Form 10-Q of Aetna
and U.S. Healthcare for the quarter ended March 31, 1996.
<PAGE> 5
Aetna Inc.
Unaudited Pro Forma Condensed Consolidated Statement Of Income
For the Three Months Ended March 31, 1996
(in millions, except share and per share data)
<TABLE>
<CAPTION>
Aetna Life Aetna Life Pro Forma
and Pro Forma and U.S.
Casualty Property- Casualty U.S. Healthcare Aetna
Company Casualty Sale Company Healthcare Merger Inc.(l)
Historical Adjustments(d) As Adjusted Historical Adjustments(e) As Adjusted
__________ ______________ ___________ ___________ ______________ ___________
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Premiums $ 1,843.9 $ - $ 1,843.9 $ 1,028.9 $ - $ 2,872.8
Net investment income, including
net realized capital gains 948.3 - (a) 948.3 21.8 - (f) 970.1
Fees and other income 518.2 - 518.2 23.0 - 541.2
_____________________________________________________________________________
Total revenue 3,310.4 - 3,310.4 1,073.7 - 4,384.1
________________________________________________________________________________________________________________
Benefits and Expenses:
Current and future benefits 2,236.9 - 2,236.9 789.6 - 3,026.5
Operating expenses 790.2 - 790.2 143.6 3.5 (g) 943.3
29.0 (h)
(23.0)(m)
Amortization of deferred policy
acquisition costs 37.0 - 37.0 - - 37.0
Amortization of identifiable
intangible assets and goodwill - - - - 89.3 (j) 89.3
Restructuring costs - - (c) - - - (k) -
_____________________________________________________________________________
Total benefits and expenses 3,064.1 - 3,064.1 933.2 98.8 4,096.1
________________________________________________________________________________________________________________
Income from continuing operations
before income taxes (benefits)
and preferred stock dividends 246.3 - 246.3 140.5 (98.8) 288.0
Income taxes (benefits) 80.8 - (a) 80.8 58.9 (1.3)(g) 114.7
(10.2)(h)
2.5 (m)
(16.0)(j)
_____________________________________________________________________________
Income from continuing operations 165.5 - 165.5 81.6 (73.8) 173.3
Dividends on mandatorily
convertible preferred stock - - - - (14.1)(i) (14.1)
______________________________________________________________________________
Income from continuing operations
attributable to common ownership $ 165.5 $ - $ 165.5 $ 81.6 $ (87.9) $ 159.2
_____________________________________________________________________________
_____________________________________________________________________________
Results Per Common Share:
Primary:
Income from continuing
operations $ 1.43 $ 1.43 $ 1.05
__________ __________ __________
__________ __________ __________
Weighted average common shares
outstanding 115,765,475 115,765,475 151,233,455*
___________ ___________ ___________
* Pro forma weighted average common shares outstanding reflects Aetna's first quarter 1996
weighted average common shares outstanding and the issuance by Parent of 35,467,980
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
the Parent mandatorily convertible preferred stock to be issued in connection with the
Mergers ("Mandatorily Convertible Preferred Stock") 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>
Aetna Life Aetna Life Pro Forma
and Pro Forma and U.S.
Casualty Property- Casualty U.S. Healthcare Aetna
Company Casualty Sale Company Healthcare Merger Inc.(l)
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 $ 3,462.0 $ - $ 10,893.4
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 55.8 - 1,980.1
______________________________________________________________________________
Total revenue 12,978.0 - 12,978.0 3,609.7 - 16,587.7
________________________________________________________________________________________________________________
Benefits and Expenses:
Current and future benefits 9,027.2 - 9,027.2 2,577.8 - 11,605.0
Operating expenses 3,087.5 17.0 (b) 3,104.5 412.9 18.2 (g) 3,651.6
116.0 (h)
Amortization of deferred policy
acquisition costs 137.1 - 137.1 - - 137.1
Amortization of identifiable
intangible assets and goodwill - - - - 358.4 (j) 358.4
Restructuring costs - - (c) - - - (k) -
______________________________________________________________________________
Total benefits and expenses 12,251.8 17.0 12,268.8 2,990.7 492.6 15,752.1
________________________________________________________________________________________________________________
Income from continuing operations
before income taxes (benefits)
and preferred stock dividends 726.2 (17.0) 709.2 619.0 (492.6) 835.6
Income taxes (benefits) 252.3 (5.9)(b) 246.4 238.3 (7.0)(g) 373.2
(40.6)(h)
(63.9)(j)
______________________________________________________________________________
Income from continuing operations 473.9 (11.1) 462.8 380.7 (381.1) 462.4
Dividends on mandatorily
convertible preferred stock - - - - (56.2)(i) (56.2)
_______________________________________________________________________________
Income from continuing operations
attributable to common ownership $ 473.9 $ (11.1) $ 462.8 $ 380.7 $ (437.3) $ 406.2
______________________________________________________________________________
______________________________________________________________________________
Results Per Common Share:
Primary:
Income from continuing
operations $ 4.16 $ 4.06 $ 2.71
__________ __________ __________
__________ __________ __________
Weighted average common shares
outstanding 113,897,633 113,897,633 149,365,613*
___________ ___________ ___________
* Pro forma weighted average common shares outstanding reflects Aetna's 1995 weighted
average common shares outstanding and the issuance by Parent of 35,467,980 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.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 1996
(in millions)
<TABLE>
<CAPTION>
Aetna Life Aetna Life Pro Forma
and Pro Forma and U.S.
Casualty Property- Casualty U.S. Healthcare Aetna
Company Casualty Sale Company Healthcare Merger Inc.(l)
Historical Adjustments As Adjusted Historical Adjustments As Adjusted
__________ _____________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments:
Marketable securities $ 31,911.5 $ - $ 31,911.5 $ 1,002.8 $ - $ 32,914.3
Other investments 10,578.3 - 10,578.3 - - 10,578.3
____________________________________________________________________________
Total investments 42,489.8 - 42,489.8 1,002.8 - 43,492.6
______________________________________________________________________________________________________________
Cash and cash equivalents 1,558.5 4,134.0 (n) 5,692.5 353.7 (3,900.0)(r) 2,146.2
Goodwill - - - - 6,992.2 (t) 6,992.2
Identifiable intangible assets - - - - 1,525.0 (t) 1,525.0
Deferred federal and foreign
income taxes 402.2 64.0 (o) 592.8 - 26.1 (s) 624.2
126.6 (p) - 5.3 (q)
Separate accounts assets 31,128.9 - 31,128.9 - - 31,128.9
Net assets of
discontinued operations 3,746.7 (3,746.7)(n) - - - -
Other assets 4,776.1 - 4,776.1 403.2 (69.5)(s) 5,109.8
____________________________________________________________________________
Total assets $ 84,102.2 $ 577.9 $ 84,680.1 $ 1,759.7 $ 4,579.1 $ 91,018.9
______________________________________________________________________________________________________________
______________________________________________________________________________________________________________
Liabilities:
Future policy benefits $ 18,459.6 $ - $ 18,459.6 $ - $ - $ 18,459.6
Other policy liabilities 1,637.8 - 1,637.8 582.7 - 2,220.5
Policyholders' funds left
with the company 21,702.6 - 21,702.6 - - 21,702.6
____________________________________________________________________________
Total insurance liabilities 41,800.0 - 41,800.0 582.7 - 42,382.7
Debt 1,373.9 - 1,373.9 - 1,450.0 (r) 2,823.9
Accounts payable and
other liabilities 2,558.5 211.8 (o) 3,131.9 167.0 533.8 (t) 3,872.7
361.6 (p) 40.0 (q)
Separate Accounts liabilities 31,066.8 - 31,066.8 - - 31,066.8
____________________________________________________________________________
Total liabilities 76,799.2 573.4 77,372.6 749.7 2,023.8 80,146.1
______________________________________________________________________________________________________________
Minority interest in preferred
securities of subsidiary 275.0 - 275.0 - - 275.0
______________________________________________________________________________________________________________
Shareholders' Equity:
Common Capital Stock 1,473.5 - 1,473.5 0.7 2,700.0 (r) 4,161.4
(0.7)(t)
(12.1)(l)
Class B Stock - - - 0.1 (0.1)(t) -
Mandatorily convertible
preferred stock - - - - 900.0 (r) 900.0
Additional paid-in capital - - - 188.2 (188.2)(t) -
Net unrealized capital gains 103.2 (24.8)(n) 78.4 (10.7) 10.7 (t) 78.4
Retained earnings 5,463.4 387.3 (n) 5,492.7 1,161.3 (1,161.3)(t) 5,458.0
24.8 (n) (34.7)(q)
(147.8)(o)
(235.0)(p)
Treasury stock, at cost (12.1) - (12.1) (311.8) 311.8 (t) -
12.1 (l)
Unearned portion of restricted
common stock - - - (17.8) 17.8 (t) -
____________________________________________________________________________
Total shareholders' equity 7,028.0 4.5 7,032.5 1,010.0 2,555.3 10,597.8
______________________________________________________________________________________________________________
Total liabilities,
minority interest and
shareholders' equity $ 84,102.2 $ 577.9 $ 84,680.1 $ 1,759.7 $ 4,579.1 $ 91,018.9
______________________________________________________________________________________________________________
______________________________________________________________________________________________________________
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
<PAGE> 8
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 three months of interest
income at 4.93% in 1996 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 three months
ended March 31, 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 CityPlace
and other facility and severance charges (see adjustment p). Such
charges will be 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 three months ended March 31, 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. No adjustment has been made to reflect a reduction in interest
income on that portion of the cash consideration to be paid at
closing of the U.S. Healthcare Sub Merger generated from the
Property-Casualty Sale 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
deferred startup costs, and the related income tax effect (see
adjustment s).
h. Pro forma adjustment to reflect assumed interest expense of 8.0% on
$1.45 billion of assumed bank debt or commercial paper anticipated
to be borrowed to fund a portion of the cash consideration to be
paid at closing of the U.S. Healthcare Sub Merger (see
adjustment r), and the related income tax effect.
<PAGE> 9
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 $900 million of
6.25% Class C Voting Preferred Stock of Parent to be issued in
connection with the Mergers (see adjustment r). In determining pro
forma earnings per share, Parent Mandatorily Convertible Preferred
Stock is not considered a common stock equivalent and is
antidilutive. Pursuant to the terms of the Parent Mandatorily
Convertible Preferred Stock, the dividend rate on the Parent
Mandatorily Convertible Preferred Stock is subject to a one-time
increase if the dividend rate on the Parent Common Stock initially
after the Merger Date is greater than $0.83 per share. No such
increase has been reflected in this pro forma adjustment because the
common stock dividend assumed is $.80 per share.
j. Pro forma adjustment to reflect the amortization of the
approximately $8.0 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 Combined Health Operations. The
amount of such charges cannot be reasonably determined at this time.
Also, no adjustment has been made to give effect to any nonrecurring
charges that may be incurred as a result of an Agreement with the
Principal Shareholder of U.S. Healthcare (the "Agreement with
Principal Shareholder") and any employment agreements with U.S.
Healthcare executives (the "Employment Agreements")(see
adjustment q).
l. Reflects the conversion of Aetna common stock into Parent common
stock (including the cancellation of shares held in treasury) and
the payment of the U.S. Healthcare Merger Consideration pursuant to
the U.S. Healthcare Sub Merger.
m. Pro forma adjustment to remove the effect of merger related costs
incurred by U.S. Healthcare in the first quarter of 1996 and the
related income tax effect.
<PAGE> 10
Aetna Inc.
Notes To Unaudited Pro Forma
Condensed Consolidated Financial Statements
Pro Forma Adjustments Related to the Property-Casualty Sale:
____________________________________________________________
n. Pro forma adjustments to reflect the Property-Casualty Sale,
including (i) the resulting excess of proceeds over the net assets
of the property-casualty operations and (ii) the realization of the
net unrealized capital gain (included within the net assets of the
property-casualty operations) upon such Sale. Assumes the Property-
Casualty Sale had occurred on March 31, 1996 (based on the actual
selling price).
<TABLE>
(in millions)
____________________________________________________________________
<S> <C>
Proceeds from the Property-Casualty Sale $ 4,134.0
Net assets of the property-casualty operations (3,746.7)
_________
Excess of proceeds over net assets of the
property-casualty operations $ 387.3
_________
_________
Realization of net unrealized capital gain $ 24.8
_________
_________
</TABLE>
o. Pro forma adjustment to reflect transaction costs, and certain
employee benefit and similar liabilities, and the related deferred
tax asset, of the property-casualty operations which are being
retained by Aetna. Assumes the Property-Casualty Sale had occurred
on March 31, 1996.
<TABLE>
(in millions)
____________________________________________________________________
<S> <C>
Establishment of certain liabilities $ 211.8
Less: related tax benefits (64.0)
_________
$ 147.8
_________
_________
</TABLE>
<PAGE> 11
Aetna Inc.
Notes To Unaudited Pro Forma
Condensed Consolidated Financial Statements
Pro Forma Adjustments Related to the Property-Casualty Sale (Continued):
________________________________________________________________________
p. Pro forma adjustment to reflect the restructuring charge taken in
connection with the Property-Casualty Sale, and the related deferred
tax asset, that related to the CityPlace office facility
($292 million, pre-tax, representing the present value of the
difference between the rent required to be paid by Aetna under the
lease and future rentals expected to be received by Aetna) which was
leased to Travelers, and certain other facility and severance
charges. Assumes the Property-Casualty Sale had occurred on
March 31, 1996.
<TABLE>
(in millions)
____________________________________________________________________
<S> <C>
Establishment of restructuring charge $ 361.6
Less: related tax benefits (126.6)
_________
$ 235.0
_________
_________
</TABLE>
Aetna anticipates taking certain other restructuring charges in
connection with its strategic and financial reviews of its
continuing operations in order to make such operations more
competitive. A second quarter charge for AHP staff reductions has
been announced ($30 million, pre-tax), however, other restructuring
charges cannot be estimated at this time pursuant to Statement of
Financial Accounting Standards No. 5. No adjustment has been made
to give effect to such charges (including the AHP charge) as they
are not related to the Merger.
Pro Forma Adjustments Related to the Mergers:
_____________________________________________
q. Pro forma adjustment to reflect estimated liabilities assumed by
Aetna, and the related tax effects, as a result of the Agreement
with Principal Shareholder and Employment Agreements.
<TABLE>
(in millions)
____________________________________________________________________
<S> <C>
Establishment of principal shareholder and
employment agreement liabilities $ 40.0
Less: related tax benefits (5.3)
_________
$ 34.7
_________
_________
</TABLE>
r. Pro forma adjustment to reflect payment and financing of the
U.S. Healthcare Merger Consideration and transaction costs to be
paid at closing (based on an assumed price of Aetna Common Stock of
76 1/8 and transaction costs of $50 million).
<TABLE>
(in millions)
____________________________________________________________________
<S> <C>
Cash $ 3,900.0
Borrowings from banks or commercial paper 1,450.0
Issuance of Parent Common Stock 2,700.0
Issuance of Parent Mandatorily Convertible
Preferred Stock 900.0
_________
$ 8,950.0
_________
_________
</TABLE>
<PAGE> 12
Aetna Inc.
Notes To Unaudited Pro Forma
Condensed Consolidated Financial Statements
Pro Forma Adjustments Related to the Mergers (Continued):
_________________________________________________________
s. Pro forma adjustment to conform the U.S. Healthcare accounting
policies with those of Aetna related to expensing rather than
capitalizing certain assets, to reflect an airplane being
transferred to the principal shareholder of U.S. Healthcare, to
write-off certain assets, and to reflect the related deferred tax
effect. Adjustment reflects a change in accounting principle which
would be appropriate for U.S. Healthcare as a separate company and
does not reflect a change in the estimated future benefits of the
assets. Such assets, and the related deferred taxes, consisted of
the following:
<TABLE>
(in millions)
____________________________________________________________________
<S> <C>
Conforming Accounting Policies:
Computer software $ 27.6
Printed and other promotional items 8.7
Deferred startup costs 3.8
Airplane 19.6
Write-off of Assets:
Organization costs and goodwill 6.9
Licenses 1.6
Other 1.3
_________
69.5
Less: related tax effect (26.1)
_________
$ 43.4
_________
_________
</TABLE>
t. Pro forma adjustment to reflect the excess of the purchase price
over net assets acquired resulting from the U.S. Healthcare Sub
Merger, and the related deferred tax effect. The purchase price
allocation is based on current available information and may be
adjusted upon the completion of the final valuations of
U.S. Healthcare's assets and liabilities. Although such adjustment
could be material, based on current information it is not expected
to be material.
<TABLE>
(in millions)
____________________________________________________________________
<S> <C>
Purchase price $ 8,950.0
Less: U.S. Healthcare's shareholders' equity as follows:
Common stock .7
Class B stock .1
Additional paid-in capital 188.2
Net unrealized capital losses (10.7)
Retained earnings 1,161.3
Treasury stock, at cost (311.8)
Unearned portion of restricted common stock (17.8)
_________
7,940.0
Plus: the effect of adjustment s above 43.4
_________
Purchase price in excess of the estimated fair value
of net assets acquired $ 7,983.4*
_________
_________
* Allocated as follows:
Identifiable Intangibles:
Customer lists $ 800.0
Provider networks 600.0
Software/Workforce 100.0
Convenant not to compete 25.0
_________
1,525.0
Less: related tax effect (533.8)
_________
991.2
Goodwill 6,992.2
_________
$ 7,983.4
_________
_________
</TABLE>
<PAGE> 13
Item 7(c). Exhibits.
Exhibit 99.1--Aetna Inc. and Subsidiaries Consolidated Balance Sheet
dated April 22, 1996 and related Notes.
Exhibit 99.2--Press Release of Aetna Life and Casualty Company dated
June 28, 1996.
<PAGE> 14
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 thereunto duly
authorized.
Aetna Life and Casualty Company
_______________________________
(Registrant)
Date June 28, 1996 By /s/ Robert J. Price
____________________________
(Signature)
Robert J. Price
Vice President and
Corporate Controller
(Chief Accounting Officer)
<PAGE> 1
Exhibit 99.1
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of
Aetna Inc.
We have audited the accompanying consolidated balance sheet of Aetna Inc.
and Subsidiaries as of April 22, 1996. This consolidated balance sheet
is the responsibility of Aetna Inc.'s management. Our responsibility is
to express an opinion on this consolidated balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit of a balance sheet includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
balance sheet. An audit of a balance sheet also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall balance sheet presentation. We believe
that our audit of the consolidated balance sheet provides a reasonable
basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Aetna Inc.
and Subsidiaries as of April 22, 1996 in conformity with generally
accepted accounting principles.
Hartford, Connecticut
April 23, 1996 /s/ KPMG Peat Marwick LLP
<PAGE> 2
Exhibit 99.1
(Continued)
AETNA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 22, 1996
<TABLE>
<S> <C>
Assets:
Cash $ 2,000
_______
Total assets $ 2,000
_______
_______
Stockholders' equity:
Common stock, (par value $1.00 per share; 20,000 shares authorized;
2,000 shares issued and 1,000 shares outstanding) $ 2,000
Additional paid-in capital 1,000
Treasury stock, at cost (1,000 shares) (1,000)
_______
Total stockholders' equity $ 2,000
_______
_______
</TABLE>
The accompanying notes are an integral part of the consolidated balance sheet.
<PAGE> 3
Exhibit 99.1
(Continued)
AETNA INC.
NOTES TO CONSOLIDATED BALANCE SHEET
1. Background of Organization:
Aetna Inc. was incorporated under the Stock Corporation Act of the
state of Connecticut on March 25, 1996 for the purpose of
effectuating the combination of Aetna Life and Casualty Company
("Aetna") and U.S. Healthcare, Inc. ("U.S. Healthcare") in accordance
with the terms of the Agreement and Plan of Merger dated as of
March 30, 1996 (the "Merger Agreement"). Aetna Inc. is equally owned
by Aetna and U.S. Healthcare. Since its formation, Aetna Inc. has
organized two wholly-owned subsidiaries in accordance with the Merger
Agreement and has not conducted business or activity other than in
connection with the Merger Agreement (related expenses are the
responsibility of Aetna and U.S. Healthcare). Aetna Inc. has no
contingent liabilities.
2. Stockholders' Equity:
The initial authorized capital stock of Aetna Inc. consists of
20,000 shares of Common Stock, par value $1.00 per share. Two
thousand shares have been issued, 1,000 shares are held in treasury
and 1,000 shares are outstanding.
3. Merger Agreement:
Aetna and U.S. Healthcare entered into the Merger Agreement pursuant
to which they agreed to merge in a transaction, valued at that time,
at approximately $8.9 billion. The Merger Agreement, which has been
approved by the board of directors of each company, calls for the
formation of a new holding company, Aetna Inc. U.S. Healthcare
shareholders will receive $34.20 in cash, 0.2246 shares of Aetna Inc.
common stock together with Aetna Inc. rights and 0.0749 shares of
Aetna Inc. mandatorily convertible preferred stock for each share of
U.S. Healthcare common stock and each share of U.S. Healthcare
Class B Stock outstanding. Each outstanding share of Aetna common
stock will be converted into a share of common stock of Aetna Inc.
All issued shares of the capital stock of Aetna Inc. immediately
prior to the merger date will be cancelled upon completion of the
mergers. The authorized number of shares will be increased to effect
the transaction. Immediately after the transaction, Aetna and U.S.
Healthcare will each be wholly-owned subsidiaries of Aetna Inc., and
Aetna Inc. will be owned approximately 78% by Aetna shareholders and
approximately 22% by U.S. Healthcare shareholders (approximately 72%
and approximately 28%, respectively, on a fully diluted basis).
Aetna expects to finance the transaction with a combination of
$5.3 billion in cash ($3.9 billion from the net proceeds received
from the sale of its property-casualty operations and $1.45 billion
of additional bank debt, which may initially be financed with
commercial paper) and the issuance of $2.7 billion of new Aetna Inc.
common stock and $0.9 billion of Aetna Inc. mandatorily convertible
preferred stock. The agreement is subject to approval by the
shareholders of both companies, receipt of required insurance,
healthcare and other regulatory approvals, and other customary
conditions. The transaction is expected to close in the third
quarter of 1996.
<PAGE> 1
Exhibit 99.2
AETNA EXPECTS NEW HOLDING COMPANY, AETNA INC.,
TO DECLARE NEXT QUARTERLY DIVIDEND
HARTFORD, CT., June 28, 1996 -- Aetna Life and Casualty Company (NYSE:
AET) announced today that its Board of Directors has deferred declaration
of the quarterly dividend pending the closing of the proposed merger with
U.S. Healthcare, Inc. The Company stated that it expects that the Board
of Directors of Aetna Inc., the new holding company formed in connection
with the proposed merger with U.S. Healthcare, will declare the next
quarterly dividend promptly after the closing of the merger.
As previously disclosed, Aetna Inc. intends to set its quarterly dividend
at an annual payout rate of between 10 percent and 20 percent of
operating earnings (which excludes net realized capital gains or losses),
before amortization of goodwill and other intangibles related to the
merger. Aetna Inc. currently expects that, subject to applicable law,
the initial dividend on Aetna Inc. common stock will be approximately
$0.80 to $0.83 per share on an annualized basis. The Board of Directors
of Aetna Inc. will review the cash dividend each quarter after interim
operating earnings are known.
Aetna and U.S. Healthcare are holding shareholder meetings to vote on the
merger and other related matters on July 18, 1996.
