SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 1-9924
The Travelers Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1568099
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
65 East 55th Street, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 891-8900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
Common stock outstanding as of July 31, 1994: 324,401,401
<PAGE>
The Travelers Inc.
TABLE OF CONTENTS
-----------------
Part I - Financial Information
<TABLE><CAPTION>
Item 1. Financial Statements: Page No.
--------
<S> <C>
Condensed Consolidated Statement of Income (Unaudited) -
Three and Six Months Ended June 30, 1994 and 1993 3
Condensed Consolidated Statement of Financial Position -
June 30, 1994 (Unaudited) and December 31, 1993 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) - Six Months Ended June 30, 1994 5
Condensed Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended June 30, 1994 and 1993 6
Notes to Condensed Consolidated Financial Statements - (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Part II - Other Information
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports on Form 8-K 27
Exhibit Index 28
Signatures 34
</TABLE>
2
<PAGE>
<TABLE><CAPTION>
The Travelers Inc. and Subsidiaries
Condensed Consolidated Statement of Income (Unaudited)
(In millions of dollars, except per share amounts)
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Insurance premiums $1,995 $ 371 $ 3,994 $ 737
Commissions and fees 671 282 1,504 559
Net investment income 871 141 1,659 292
Finance related interest and other charges 252 235 498 467
Principal transactions 180 82 419 160
Asset management fees 181 38 363 76
Equity in income of old Travelers - 33 - 76
Other income 451 102 933 219
-----------------------------------------------------------------------------------------------------------
Total revenues 4,601 1,284 9,370 2,586
-----------------------------------------------------------------------------------------------------------
Expenses
Policyholder benefits and claims 1,990 200 4,065 410
Non-insurance compensation and benefits 764 303 1,652 608
Insurance underwriting, acquisition and operating 650 134 1,299 260
Interest 294 157 517 315
Provision for credit losses 38 32 77 67
Other operating 375 162 732 302
-----------------------------------------------------------------------------------------------------------
Total expenses 4,111 988 8,342 1,962
-----------------------------------------------------------------------------------------------------------
Gain on sale of stock of subsidiaries and affiliates - - - 6
-----------------------------------------------------------------------------------------------------------
Income before income taxes, minority interest and
cumulative effect of changes in accounting principles 490 296 1,028 630
Provision for income taxes 170 105 368 224
-----------------------------------------------------------------------------------------------------------
Income before minority interest and cumulative
effect of changes in accounting principles 320 191 660 406
Minority interest, net of income taxes - (4) - (12)
Cumulative effect of changes in accounting principles,
net of income taxes - - - (35)
-----------------------------------------------------------------------------------------------------------
Net income $ 320 $ 187 $ 660 $ 359
===========================================================================================================
Net income per share of common stock
and common stock equivalents:
Before cumulative effect of changes
in accounting principles $0.93 $0.76 $1.90 $1.65
Cumulative effect of changes in accounting principles - - - (0.15)
--------------------------------------------------------------------------------------------------------------
Net income per share of common stock
and common stock equivalents $0.93 $0.76 $1.90 $1.50
=============================================================================================================
Weighted average number of common shares outstanding
and common stock equivalents 323.0 235.7 325.2 230.8
=============================================================================================================
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE><CAPTION>
The Travelers Inc. and Subsidiaries
Condensed Consolidated Statement of Financial Position
(In millions of dollars, except per share amounts)
June 30, December 31,
1994 1993
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Unaudited)
Cash and cash equivalents
(including $948 and $914 segregated under federal and other brokerage regulations) $ 1,411 $ 1,526
Investments and real estate held for sale:
Fixed maturities:
Available for sale (1994, cost - $28,334; 1993, market - $28,438) 26,824 28,109
Held to maturity (market $115 and $201) 115 177
Equity securities, at market (cost $555 and $513) 554 555
Mortgage loans 6,376 7,365
Real estate held for sale 631 1,049
Policy loans 1,586 1,367
Short-term and other 4,097 3,577
-------------------------------------------------------------------------------------------------------------------
Total investments and real estate held for sale 40,183 42,199
-------------------------------------------------------------------------------------------------------------------
Securities borrowed or purchased under agreements to resell 26,231 13,353
Brokerage receivables 7,759 8,167
Trading securities owned, at market value 7,021 5,863
Net consumer finance receivables 6,477 6,216
Reinsurance recoverables 5,356 4,999
Value of insurance in force and deferred policy acquisition costs 2,084 1,996
Cost of acquired businesses in excess of net assets 2,130 2,162
Separate and variable accounts 4,512 4,665
Other receivables 4,530 4,624
Other assets 7,798 5,590
-------------------------------------------------------------------------------------------------------------------
Total assets $115,492 $101,360
===================================================================================================================
Liabilities
Investment banking and brokerage borrowings $ 2,762 $ 3,454
Short-term borrowings 3,141 2,535
Long-term debt 6,860 6,991
Securities loaned or sold under agreements to repurchase 22,555 10,144
Brokerage payables 7,920 7,012
Trading securities sold not yet purchased, at market value 4,413 3,835
Contractholder funds 17,114 17,980
Insurance policy and claims reserves 27,133 26,651
Separate and variable accounts 4,483 4,642
Accounts payable and other liabilities 10,337 8,680
-------------------------------------------------------------------------------------------------------------------
Total liabilities 106,718 91,924
-------------------------------------------------------------------------------------------------------------------
ESOP Preferred stock - Series C 235 235
Guaranteed ESOP obligation (111) (125)
-------------------------------------------------------------------------------------------------------------------
124 110
-------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate
liquidation value 800 800
Common stock ($.01 par value; authorized shares: 500 million
issued shares: 1994 - 368,226,856 shares and 1993 - 368,287,709 shares) 4 4
Additional paid-in capital 6,642 6,566
Retained earnings 3,670 3,140
Treasury stock, at cost (1994 - 44,702,670 shares, 1993 - 41,155,405 shares) (1,309) (1,121)
Unrealized gain (loss) on investment securities and other (1,157) (63)
-------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 8,650 9,326
-------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $115,492 $101,360
===================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE><CAPTION>
The Travelers Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
(In millions of dollars, except per share amounts)
Six months ended June 30, 1994 Amount Shares
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Preferred Stock at aggregate liquidation value (in thousands)
Balance, beginning of year $ 800 11,200
----------------------------------------------------------------------------------------------------------------
Balance, end of period 800 11,200
================================================================================================================
Common Stock and Additional Paid-In Capital
Balance, beginning of year 6,570 368,287
Issuance of shares pursuant to employee benefit plans 76 -
Other - (60)
----------------------------------------------------------------------------------------------------------------
Balance, end of period 6,646 368,227
----------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance, beginning of year 3,140
Net income 660
Common dividends (87)
Preferred dividends (43)
----------------------------------------------------------------------------------------------
Balance, end of period 3,670
----------------------------------------------------------------------------------------------
Treasury Stock (at cost)
Balance, beginning of year (1,121) (41,155)
Issuance of shares pursuant to employee benefit plans, net of shares
tendered for payment of option exercise price and withholding taxes 65 3,439
Treasury stock acquired (250) (6,925)
Other (3) (62)
----------------------------------------------------------------------------------------------------------------
Balance, end of period (1,309) (44,703)
----------------------------------------------------------------------------------------------------------------
Unrealized Gain (Loss) on Investment Securities and Other
Balance, beginning of year (63)
Net change in unrealized gains and losses on investment securities (1,022)
Translation adjustments, net 1
Net issuance of restricted stock (135)
Restricted stock amortization 62
----------------------------------------------------------------------------------------------
Balance, end of period (1,157)
----------------------------------------------------------------------------------------------
Total common stockholders' equity and common shares outstanding $7,850 323,524
================================================================================================================
Total stockholders' equity $8,650
==============================================================================================
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
5
<PAGE>
<TABLE><CAPTION>
The Travelers Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In millions of dollars)
Six months ended June 30, 1994 1993
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Income before income taxes, minority interest and cumulative effect of changes in
accounting principles $ 1,028 $ 630
Adjustments to reconcile income before income taxes, minority interest and cumulative effect of
changes in accounting principles to net cash provided by (used in) operating activities:
Amortization of deferred policy acquisition costs and value of insurance in force 408 148
Additions to deferred policy acquisition costs (496) (209)
Depreciation and amortization 174 42
Provision for credit losses 77 67
Undistributed equity earnings - (45)
Changes in:
Trading securities, net (580) (456)
Securities borrowed, loaned and repurchase agreements, net (467) 397
Brokerage receivables net of brokerage payables 1,316 (710)
Insurance policy and claims reserves 482 58
Other, net (566) (300)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations 1,376 (378)
Income taxes paid (263) (98)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,113 (476)
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Consumer loans originated or purchased (1,430) (1,196)
Consumer loans repaid or sold 1,071 1,014
Purchases of fixed maturities and equity securities (4,634) (965)
Proceeds from sales of investments and real estate:
Fixed maturities and equity securities 2,421 807
Mortgage loans 182 4
Real estate and real estate joint ventures 607 -
Proceeds from maturities of investments:
Fixed maturities and equity securities 2,267 129
Mortgage loans 799 3
Other investments, primarily short-term, net (903) (37)
Business divestments - 120
Other, net (156) (26)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 224 (147)
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Dividends paid (130) (65)
Issuance of common stock - 329
Cash received from stock options 8 5
Treasury stock acquired (250) (2)
Stock tendered by employees for payment of withholding taxes (27) (39)
Issuance of long-term debt 450 1,300
Payments and redemptions of long-term debt (565) (230)
Net change in short-term borrowings (including investment banking and brokerage borrowings) (86) (407)
Contractholder fund deposits 1,203 -
Contractholder fund withdrawals (2,064) -
Other, net 9 (4)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (1,452) 887
-----------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (115) 264
Cash and cash equivalents at beginning of period 1,526 272
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,411 $ 536
-----------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 509 $ 303
=================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
6
<PAGE>
The Travelers Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions of dollars, except per share amounts)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements
as of June 30, 1994 and for the three and six-month periods
ended June 30, 1994 and 1993 are unaudited and include the
accounts of The Travelers Inc. (the Company) and its
subsidiaries. Results of operations for the three month and
six-month periods ended June 30, 1993 relate only to
Primerica Corporation (Primerica), and do not include
earnings related to the acquisition of the approximately 73%
of The Travelers Corporation (old Travelers) common stock
acquired in December 1993 or the earnings related to the
domestic retail brokerage and asset management businesses
(the Shearson Businesses) of Shearson Lehman Brothers
Holdings Inc. acquired in July 1993. In the opinion of
management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation have been
reflected. The accompanying condensed consolidated financial
statements should be read in conjunction with the
consolidated financial statements and related notes included
in the Company's Annual Report to Stockholders for the year
ended December 31, 1993.
Certain financial information that is normally included in
financial statements prepared in accordance with generally
accepted accounting principles but is not required for
interim reporting purposes has been condensed or omitted.
Certain reclassifications have been made to prior years'
financial statements to conform to the current year's
presentation.
FAS 115. Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," which addresses accounting and reporting for
investments in equity securities that have a readily
determinable fair value and for all debt securities. Debt
securities that the Company has the positive intent and
ability to hold to maturity have been classified as "held to
maturity" and have been reported at amortized cost.
Investment securities that are not classified as "held to
maturity" have been classified as "available for sale" and
are reported at fair value, with unrealized gains and losses,
net of income taxes, charged or credited directly to
stockholders' equity. Initial adoption of this standard
resulted in a net increase of $214 (net of taxes) to net
unrealized gains on investment securities which is included
in stockholders' equity.
Interpretation 39. Effective January 1, 1994, the Company
adopted Financial Accounting Standards Board Interpretation
No. 39, "Offsetting of Amounts Related to Certain Contracts"
(Interpretation 39). The general principle of Interpretation
39 states that amounts due from and due to another party may
not be offset in the balance sheet unless a right of setoff
exists and the parties intend to exercise the right of
setoff. Implementation of Interpretation 39 did not have a
material impact on the Company's financial position; however,
assets and liabilities were increased by approximately $3,000
at June 30, 1994.
7
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
2. Business Acquisitions
----------------------
The Travelers Merger
On December 31, 1993, Primerica acquired the approximately
73% of old Travelers common stock it did not already own.
Old Travelers was merged into Primerica, and concurrently,
Primerica changed its name to The Travelers Inc.
The Shearson Acquisition
On July 31, 1993, the Company acquired the Shearson
Businesses and combined them with the operations of Smith
Barney, Harris Upham & Co. Incorporated. The combined firm
is named Smith Barney Inc., and is a subsidiary of Smith
Barney Holdings Inc. (Smith Barney). In connection with this
acquisition, Smith Barney has agreed to pay additional
amounts that are contingent upon the new unit's performance.
The contingent consideration will be accounted for
prospectively, as additional purchase price, which will
result in amortization over periods of up to 20 years.
The unaudited pro forma condensed results of operations
presented below assume the above transactions had occurred at
the beginning of the period presented:
Six months
Pro Forma ended
June 30, 1993
-----------------------------------------------------------
Revenues $9,344
=====
Income before cumulative effect of
changes in accounting principles $672
===
Net income $637
===
Net income per share:
Before cumulative effect of changes in
accounting principles $1.96
====
Net income $1.85
====
The unaudited pro forma condensed financial information is
not necessarily indicative either of the results of
operations that would have occurred had these transactions
been consummated at the beginning of the period presented or
of future operations of the combined companies.
3. Debt
----
Investment banking and brokerage borrowings consisted of the
following:
June 30, 1994 December 31, 1993
------------- -----------------
Commercial paper $1,559 $1,401
Secured borrowings 100 105
Unsecured borrowings 735 693
Notes to LBI 368 1,255
----- -----
$2,762 $3,454
===== =====
Investment banking and brokerage borrowings are short-term
and include commercial paper, secured and unsecured bank
loans used to finance Smith Barney's operations, including
the securities settlement process, and notes issued to Lehman
Brothers Holdings Inc. (LBI) in connection with the Shearson
8
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
Businesses acquired. The secured and unsecured bank loans
bear interest at fluctuating rates based primarily on the
federal funds interest rate. Notes payable to LBI at
December 31, 1993 included a $586 variable rate note which
was paid in January 1994, and was issued as partial payment
for the businesses acquired. Also included in notes payable
to LBI is a non-interest bearing note (the Clearing Note)
outstanding in connection with LBI's activities under the
Clearing Agreement. The Clearing Note, which matures upon
termination of the Clearing Agreement, fluctuates daily based
on LBI's borrowing activities. In 1993, Smith Barney put in
place a $1,500 commercial paper program that consists of both
discounted and interest bearing paper. In addition, Smith
Barney has substantial borrowing arrangements consisting of
facilities that it has been advised are available, but where
no contractual lending obligation exists.
Short-term borrowings consisted of commercial paper
outstanding as follows:
June 30, 1994 December 31, 1993
------------- -----------------
The Travelers Inc. $ 478 $ 329
Commercial Credit Company 2,574 2,206
The Travelers Insurance Company 89 -
------ ------
$3,141 $2,535
===== =====
The Travelers Inc. (the Parent), Commercial Credit Company
(CCC) and The Travelers Insurance Company (TIC) issue
commercial paper directly to investors. Each maintains unused
credit availability under its respective bank lines of credit
at least equal to the amount of its outstanding commercial
paper. Each may borrow under its revolving credit facilities
at various interest rate options and compensates the banks for
the facilities through commitment fees. The Parent and CCC
have agreements with certain banks totaling $800 whereby the
Parent, with the consent of CCC, may assign certain revolving
credit amounts (swing facilities) to CCC for specific periods
of time. At June 30, 1994 $300 was allocated to CCC. The
Parent and TIC have an agreement amounting to $275 with
certain banks whereby both the Parent and TIC may access a
revolving credit facility.
At June 30, 1994, the Parent had committed and available
revolving credit facilities of $775 (which includes $275 that
may be accessed by TIC) of which $150 expires in 1994 and $625
expires in 1995. At June 30, 1994, CCC had committed and
available revolving credit facilities of $2,835, of which $175
expires in 1994, $1,160 expires in 1995 and $1,500 expires in
1997.
In August 1994 the Parent, CCC and TIC obtained commitments
from a syndicate of banks to provide $1,500 of revolving
credit, to be allocated to any of the Parent, CCC or TIC
($1,200 to mature in 1999 and the balance in 1995). The
participation of TIC in this agreement is limited to $300.
The revolving credit facility is expected to close in the
third quarter of 1994, at which time the Company will
terminate the $800 swing facility, the $275 revolving credit
facility that may be accessed by either the Parent or TIC and
$100 of lines available to CCC. Under this new facility the
Company is required to maintain a certain level of
consolidated stockholders' equity (as defined). At June 30,
1994, the Company would have exceeded this requirement by
approximately $2,500.
CCC is limited by covenants in its revolving credit agreements
as to the amount of dividends and advances that may be made to
the Parent or its affiliated companies. At June 30, 1994, CCC
would have been able to remit $152 to the Parent under its
most restrictive covenants or regulatory requirements.
9
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
Smith Barney is limited by covenants in its revolving credit
facility as to the amount of dividends that may be paid to the
Parent. At June 30, 1994, Smith Barney would have been able
to remit approximately $453 to the Parent under its most
restrictive covenants.
Under Connecticut statutory standards the statutory surplus of
The Travelers Insurance Group, which amounted to $4,109 at
December 31, 1993, is not available in 1994 for dividends to
the Parent without prior approval.
Long-term debt, including its current portion, consisted of
the following:
June 30, 1994 December 31, 1993
------------- -----------------
The Travelers Inc. $1,394 $1,504
Commercial Credit Company 3,726 3,970
Smith Barney Holdings Inc. 1,625 1,375
The Travelers Insurance Group Inc. 115 142
----- -----
$6,860 $6,991
===== =====
During 1994, Smith Barney issued $200 of 5 1/2% Notes due
January 15, 1999 and $200 of 6% Notes due March 15, 1997.
On May 31, 1994, Smith Barney renegotiated its three-year
revolving credit agreement (the "Agreement") with a bank
syndicate. The amendment to the Agreement extended the term
by one year until May 1997 and increased the amount of the
facility from $625 to $1,000. As of June 30, 1994, $625 was
borrowed under the Agreement. In addition, on May 31, 1994,
Smith Barney entered into a $750, 364-day revolving credit
agreement with a bank syndicate. As of June 30, 1994, there
were no borrowings outstanding under this new facility.
4. Reinsurance
-----------
The Company's insurance operations cede insurance in order to
limit losses, reduce exposure on large risks, provide
additional capacity for future growth, and effect business
sharing arrangements. Life reinsurance is accomplished
through various plans of reinsurance, primarily coinsurance,
modified coinsurance and yearly renewable term. Property-
casualty reinsurance is placed on both a quota-share and
excess basis. Reinsurance ceded arrangements do not
discharge the insurance subsidiaries or the Company as the
primary insurer. Reinsurance amounts included in the
Condensed Consolidated Statement of Income were as follows:
<TABLE><CAPTION>
Ceded to
Gross Other Net
Amount Companies Amount
------ --------- ------
<S> <C> <C> <C>
Three months ended June 30, 1994
--------------------------------
Premiums
Life insurance $ 451 $(65) $ 386
Accident and health insurance 651 (26) 625
Property and casualty insurance 1,382 (398) 984
----- ---- -----
$2,484 $(489) $1,995
===== ==== =====
Claims $1,881 $(305) $1,576
===== ==== =====
</TABLE>
10
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
<TABLE><CAPTION>
Three months ended June 30, 1993
--------------------------------
<S> <C> <C> <C>
Premiums
Life insurance $293 $ (68) $225
Accident and health insurance 84 (2) 82
Property and casualty insurance 123 (59) 64
--- ---- ---
$500 $(129) $371
=== ==== ===
Claims $251 $ (60) $191
=== ==== ===
</TABLE>
<TABLE><CAPTION>
Six months ended June 30, 1994
------------------------------
<S> <C> <C> <C>
Premiums
Life insurance $ 925 $(138) $ 787
Accident and health insurance 1,305 (46) 1,259
Property and casualty insurance 2,687 (739) 1,948
----- ---- -----
$4,917 $(923) $3,994
===== ==== =====
Claims $3,833 $(659) $3,174
===== ==== =====
</TABLE>
<TABLE><CAPTION>
Six months ended June 30, 1993
------------------------------
<S> <C> <C> <C>
Premiums
Life insurance $583 $ (137) $446
Accident and health insurance 170 (6) 164
Property and casualty insurance 233 (106) 127
--- ---- ---
$986 $(249) $737
=== ==== ===
Claims $516 $(132) $384
=== ==== ===
</TABLE>
5. Contingencies
-------------
A subsidiary of old Travelers is in litigation with certain
underwriters at Lloyd's in New York state court to enforce
reinsurance contracts with respect to recoveries for certain
asbestos claims. The dispute involves the ability of old
Travelers to aggregate asbestos products claims with asbestos
premises claims under a market agreement between Lloyd's and
old Travelers or under the applicable reinsurance treaties.
In January 1994, the court stayed litigation of this matter
in favor of arbitration of the contract issues raised by old
Travelers under the applicable treaties and an agreement with
the Lloyd's market on coverage for asbestos-related claims.
11
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
On insurance contracts written many years ago by old
Travelers, the Company continues to receive claims asserting
alleged injuries and damages from asbestos and other
hazardous and toxic substances. In relation to these claims,
the Company carries on a continuing review of its overall
position, its reserving techniques and reinsurance
recoverable. In each of these areas of exposure, the Company
has endeavored to litigate individual cases and settle claims
on favorable terms. Given the vagaries of court coverage
decisions, plaintiffs' expanded theories of liability, the
risks inherent in major litigation and other uncertainties,
it is not presently possible to quantify the ultimate
exposure represented by these claims or a range of possible
loss. As a result, the Company expects that future earnings
in any given year may be adversely affected by environmental
and asbestos claims, although the amounts cannot be
reasonably estimated. However, it is not likely these claims
will have a material adverse effect on the Company's
financial condition or liquidity.
In the ordinary course of business the Company and/or its
subsidiaries are also defendants or co-defendants in various
litigation matters, other than environmental and asbestos
claims. Although there can be no assurances, the Company
believes, based on information currently available, that the
ultimate resolution of these legal proceedings would not be
likely to have a material adverse effect on the Company's
results of operations, financial condition or liquidity.
6. Pending Transactions
--------------------
On June 14, 1994 TIC, a subsidiary of the Company, and
Metropolitan Life Insurance Company (MetLife) signed a letter
of intent to combine their group health insurance businesses
into a new company with a long-term, strategic focus on
managed care. In addition, MetLife would acquire TIC's group
life and related group insurance businesses. If the
transactions take place, the new company is expected to
be one of the largest commercial health insurers in the United
States. TIC and MetLife will each own an equal interest in the
new company, which has not yet been named. Pending the
negotiation of definitive agreements and state insurance and
other regulatory approvals, the two-part deal between TIC and
MetLife is expected to close on or before January 1, 1995.
On July 28, 1994 The Travelers Indemnity Company, a
subsidiary of the Company, announced it had signed a
definitive agreement to sell its subsidiary, Bankers and
Shippers Insurance Company, to Integon Corporation for $142.
The sale involves the non-standard personal automobile
insurance lines, which is the bulk of Bankers and Shippers
business, and The Travelers Indemnity Company will retain the
rest of the businesses. The proposed transaction, which is
subject to various regulatory approvals, is scheduled to be
completed prior to year end, and is not expected to have a
material impact on future operations.
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATION
Consolidated Results of Operations
<TABLE><CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------------------------------------
(in millions, except per share amounts) 1994 1993 1994 1993
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $4,601 $1,284 $9,370 $2,586
===== ===== ===== =====
Income before cumulative
effect of changes
in accounting principles $320 $187 $660 $394
=== === === ===
Earnings per share:
Before cumulative
effect of changes
in accounting principles $0.93 $0.76 $1.90 $1.65
==== ==== ==== ====
Net income $0.93 $ 0.76 $1.90 $1.50
==== ===== ==== ====
Weighted average number of
common shares outstanding
and common stock equivalents 323.0 235.7 325.2 230.8
===== ===== ===== =====
</TABLE>
The Travelers Merger
On December 31, 1993, Primerica Corporation (Primerica) acquired
the approximately 73% of The Travelers Corporation (old
Travelers) common stock it did not already own (the Merger). Old
Travelers was merged into Primerica, and concurrently, Primerica
changed its name to The Travelers Inc. which, together with its
subsidiaries, is hereinafter referred to as the Company. The old
Travelers businesses acquired are hereinafter referred to as old
Travelers or The Travelers Insurance Group.
The Shearson Acquisition
On July 31, 1993, the Company acquired the domestic retail
brokerage and asset management businesses (the Shearson
Businesses) of Shearson Lehman Brothers Holdings Inc., a
subsidiary of American Express Company. The businesses acquired
were combined with the operations of Smith Barney, Harris Upham &
Co. Incorporated, and the combined firm is named Smith Barney
Inc., which is a subsidiary of Smith Barney Holdings Inc. (Smith
Barney).
Results of Operations
The discussion of results of operations for the three-month and
six-month periods ended June 30, 1993 relates only to old
Primerica (which excludes old Travelers and the Shearson
Businesses). The assets and liabilities of old Travelers and the
Shearson Businesses are reflected in the Condensed Consolidated
Statement of Financial Position at December 31, 1993 on a fully
consolidated basis.
Net income for the six months ended June 30, 1994 includes
reported after-tax net portfolio gains of $5 million, compared to
previously reported after-tax portfolio gains of $24 million and
an after-tax gain of $4 million from the sale of the Company's
remaining interest in Fingerhut Companies, Inc. (Fingerhut) in
the 1993 six-month period. Also included in net income for the
first six months of 1993 is an after-tax charge of $18 million
resulting from the adoption of Statement of Financial Accounting
Standards No. 112 (FAS 112), "Employers' Accounting for
Postemployment Benefits," and an after-tax charge of $17 million
resulting from the adoption of Statement of Financial Accounting
Standards No. 106 (FAS 106), "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
13
<PAGE>
Excluding these items, earnings for the first half of 1994
increased by $289 million, or 79%, over the 1993 period,
reflecting primarily increased operating earnings from Smith
Barney (including earnings associated with the Shearson
Businesses), improved performance at Consumer Finance Services
and Primerica Financial Services and the inclusion of the
additional 73% interest in the earnings of The Travelers
Insurance Group acquired on December 31, 1993, offset by
increased corporate expenses related to acquisitions.
The following discussion presents in more detail each segment's
performance.
<TABLE><CAPTION>
Segment Results for the Three Months Ended June 30, 1994 and 1993
-----------------------------------------------------------------
Investment Services
Three Months Ended June 30,
------------------------------------------------------------
($ in millions) 1994 1993
------------------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Smith Barney $1,285 $79 $474 $55
Mutual funds and asset management 40 8 37 8
------------------------------------------------------------------------------------------------------------
Total Investment Services $1,325 $87 $511 $63
============================================================================================================
</TABLE>
The Company's Investment Services segment includes Smith Barney -
investment banking and securities brokerage; American Capital
Management & Research, Inc. (American Capital) - mutual funds;
and a limited partnership interest in RCM Capital Management
(RCM) - asset management.
Smith Barney Operating Earnings
Although earnings at Smith Barney are up versus the year-ago
period, lower securities trading volume and difficult markets
contributed to a decline in Smith Barney's earnings versus a
robust first quarter. Comparisons with results for the 1993
period are favorable, as they reflect only Smith Barney prior to
its combination with the Shearson Businesses on July 31, 1993.
Smith Barney Revenues
Three Months Ended June 30,
--------------------------------
($ in millions) 1994 1993
-------------------------------------------------------------
Commissions $ 462 $ 149
Investment banking 180 129
Principal trading 180 82
Asset management fees 180 22
Interest income, net* 73 28
Other income 40 10
-------------------------------------------------------------
Net revenues* $1,115 $420
=============================================================
*Net of interest expense of $170 and $54 for the three-month
periods ended June 30, 1994 and 1993, respectively. Revenues
included in the condensed consolidated statement of income are
before deductions for interest expense.
14
<PAGE>
Investment banking recorded a 40% increase in revenues compared
with the prior year period and an 8% decline from first quarter
1994 levels. Retail gross production of $761.9 million was
considerably ahead of last year because of the Shearson
acquisition, but down from the first quarter -- in line with
industry volume levels. The decline in revenues from principal
trading versus the 1994 first quarter also reflects volatility in
the fixed income markets.
Revenues from asset management of $180 million, about even with
first quarter levels, reflect the $75.5 billion Smith Barney has
under management as well as revenues associated with $28.2
billion in externally managed accounts.
Smith Barney's principal business activities are, by their
nature, highly competitive and subject to various risks,
particularly volatile trading markets and fluctuations in the
volume of market activity. While higher volatility can increase
risk, it can also increase order flow, which drives many of its
businesses. Other market and economic conditions, and the size,
number and timing of transactions may also impact net income. As
a result, revenues and profitability can vary significantly from
year to year, and from quarter to quarter.
An increasing interest rate environment could adversely impact
Smith Barney's businesses, including commissions, investment
banking and principal trading. Recent activity in the securities
market showed continued weakness. Should this trend continue,
results could be negatively affected.
Mutual Funds and Asset Management
Net income from the Company's mutual funds and asset management
operations in the second quarter of 1994 was about even with the
prior year period. American Capital's mutual fund sales (at net
asset value) increased to $740 million for the three month period
ended June 30, 1994 compared to $725 million in the prior year
period.
Assets Under Management
At June 30,
--------------------------------
($ in billions) 1994 1993
------------------------------------------------------------
Smith Barney $75.5 $17.3
RCM Capital Management 23.2 24.0
American Capital (1) 16.3 15.9
Travelers Life and Annuities (2) 20.2 -
------------------------------------------------------------
Total Assets Under Management $135.2 $57.2
------------------------------------------------------------
(1) Includes the assets of the Common Sense(R) Trust, marketed by
Primerica Financial Services.
(2) Part of the Life Insurance Services segment.
15
<PAGE>
Consumer Finance Services
<TABLE><CAPTION>
Three Months Ended June 30,
---------------------------------------------
($ in millions) 1994 1993
--------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Finance Services $303 $55 $289 $51
--------------------------------------------------------------------------------------
</TABLE>
The 7% increase in Consumer Finance net income in the second
quarter of 1994 over the same period last year reflects continued
growth in receivables outstanding to $6.614 billion (before
allowance for losses and accrued interest receivable) at the end
of the period. This represents a 3% increase over March 31, 1994
and was marked particularly by growth in personal loans. During
the second quarter of 1994 a net addition of 28 offices brought
the total to 827 at June 30, 1994. The Company does not currently
anticipate a significant change in the number of branch offices
during the remainder of the year.
Charge-offs remained at low levels for the 1994 period -- 2.07%
versus 2.34% in the prior year quarter, while the 60+ day
delinquencies hit a low of 1.88% versus 2.19% in the prior year
period.
The average yield on the portfolio declined to 15.28% from
15.92%, although net margins rose to 8.62%. The former primarily
reflects a shift in product mix toward more variable rate loans,
which have lower yields, with higher margins reflecting lower
funding costs.
<TABLE><CAPTION>
As of, and for, the
Three Months Ended June 30,
----------------------------------
1994 1993
----------------------------------
<S> <C> <C>
Allowance for losses as % of net
consumer finance receivables 2.64% 2.78%
Charge-off rate 2.07% 2.34%
60 + days past due on a contractual
basis as % of gross consumer
finance receivables at quarter end 1.88% 2.19%
</TABLE>
Life Insurance Services
<TABLE><CAPTION>
Three Months Ended June 30,
--------------------------------------------------------
($ in millions) 1994 1993
----------------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primerica Financial Services $ 322 $ 55 $300 $50
Travelers Life and Annuities 541 53 76 6
Managed Care and Employee Benefits 876 34 - -
----------------------------------------------------------------------------------------------------------
Total Life Insurance Services $1,739 $142 $376 $56
==========================================================================================================
</TABLE>
16
<PAGE>
The Life Insurance Services segment includes the results of
Primerica Financial Services (PFS) for both periods presented
and, for 1994 only, the results of the Travelers Life and
Annuities and the Managed Care and Employee Benefits segments of
old Travelers which were acquired on December 31, 1993. Certain
1993 production statistics related to old Travelers' businesses
are included for comparison purposes only and are not reflected
in 1993 revenues or operating results.
Travelers Life and Annuities consists principally of individual
products marketed under the Travelers name (which was the
Financial Services business of old Travelers) as well as group
annuity operations (which was the Asset Management & Pension
Services business of old Travelers) and in both periods the
accident and health operations of old Primerica.
Managed Care and Employee Benefits consists of the old Travelers
businesses that market group accident and health and life
insurance, managed health care programs, and administrative
services associated with employee benefit plans to customers
ranging from large multinational corporations to small local
employers.
Primerica Financial Services
During the second quarter of 1994 PFS issued 78,600 policies
totaling $14.7 billion in face amount of individual life
insurance, compared to 65,400 policies totaling $12.0 billion in
face amount in the corresponding 1993 period. Insurance in force
was $318.1 billion at June 30, 1994, up from $309.3 billion at
December 31, 1993, reflecting positive sales trends as well as
better policy persistency. PFS's earnings are significantly
affected by the levels of insurance in force, and it is likely
that results would be negatively impacted in future periods
should insurance in force experience a substantial decline.
PFS has traditionally offered mutual funds to customers as a way
for them to invest the savings obtained through relatively low
cost term life insurance as compared to traditional whole life
insurance. Sales of mutual funds during the second quarter of
1994 increased 9% to $371 million, compared to second quarter
1993 sales of $339 million. Assets under management in the
proprietary Common Sense(R) Trust family of funds totaled $3.3
billion at June 30, 1994. Net receivables from $.M.A.R.T. and
S.A.F.E. consumer loans marketed through PFS were $954 million at
June 30, 1994, up 54% from $621 million at the end of the prior
year period, reflecting recent record levels of new loan volume.
Travelers Life and Annuities
During the second quarter of 1994 Travelers Life and Annuities
operations issued $2.6 billion of face amount of individual life
insurance bringing total life insurance in force to $47.4
billion. Net written premiums and deposits during the second
quarter of 1994 totaled $67 million, compared to $59 million in
the prior year period. Individual annuity production was strong
during the second quarter of 1994, compared to the prior period
levels, primarily reflecting increased sales of variable
annuities. In late June a variable annuity product was introduced
for distribution by Smith Barney financial consultants and is
expected to contribute to annuity production in future periods.
Net written premiums and deposits during the second quarter of
1994 totaled $300 million compared to $257 million in the
comparable 1993 period, bringing total policyholder account
balances and benefit reserves to $10.4 billion at the 1994
quarter end. Annuity sales activity has been helped by the
ratings upgrades that accompanied the merger of Primerica
and old Travelers. In the group annuity business, net written
premiums and deposits for the second quarter of 1994 were $91
million. Group annuity net written premiums and deposits were
down significantly from the first quarter and the comparable
period in 1993 reflecting the Company's more selective approach
to issuance of guaranteed investment contracts and a decision in
the third quarter of 1993 to no longer market index funds.
Policyholder account balances and benefit reserves decreased to
$12.6 billion at the 1994 quarter end. Net written premiums for
individual accident and health products, primarily long-term care
and supplementary products, totaled $86 million in the second
quarter of 1994 about even with the 1993 period.
17
<PAGE>
Managed Care and Employee Benefits
Net income for the Managed Care and Employee Benefits operations
reflects reduced operating expenses resulting from restructuring
initiatives and improved underwriting partially offset by a
decline in premiums, deposits and equivalents.
Total group life insurance in force amounted to $136.2 billion at
June 30, 1994, down from $139.9 billion at year end 1993. Face
amount of group life insurance issued for the second quarter 1994
was $3.3 billion versus $5.0 billion in the 1993 period. New
business production in the health business also declined in the
quarter ended June 30, 1994, as compared to old Travelers' 1993
second quarter. In the group life business, net premiums written,
deposits and equivalents totaled $136 million for the quarter
ended June 30, 1994 compared to $163 million in the 1993 period.
In the group health business, net premiums written, deposits and
equivalents were $2.3 billion for the quarter ended June 30, 1994
compared to $2.4 billion in the 1993 period. Equivalents
represent benefits under administration which, together with
deposits, are estimates of premiums that fee-based customers
would have been charged under a fully insured arrangement and do
not equal actual revenues. The total lives covered by medical
plans declined to 5.2 million from 6.1 million a year ago,
although participation in the managed care component rose 10%.
These declines reflect increased emphasis on improvements in
underwriting designed to reduce financial risk rather than
emphasize growth, and uncertainties relating to the proposed
healthcare legislation.
On June 14, 1994, Metropolitan Life Insurance Company (MetLife)
and The Travelers Insurance Company (TIC) signed a letter of
intent to combine their group health insurance businesses into a
new company with a long-term strategic focus on managed care. In
addition, MetLife would acquire TIC's group life and related
group insurance businesses. The transaction is expected to
close, pending the negotiation of definitive agreements and state
insurance and other regulatory approvals, around year-end.
In the event that these transactions are consummated, revenues
and earnings from the Managed Care and Employee Benefits line,
which amounted to $1.8 billion and $67 million for the first six
months of 1994, respectively, would no longer be reflected in the
Company's results of operations. Subsequently, the Company would
reflect its fifty percent interest in the new jointly owned
company which will include both the Company's and MetLife's
healthcare businesses.
Property and Casualty Insurance Services
<TABLE><CAPTION>
Three Months Ended June 30,
------------------------------------------------
($ in millions) 1994 1993
--------------------------------------------------------------------------------------------------------
Net Net
Revenues income Revenues income
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 854 $56 $73 $8
Minority Interest - Gulf - - - (4)
Personal 386 26 - -
--------------------------------------------------------------------------------------------------------
Total Property and Casualty Insurance Services $1,240 $82 $73 $ 4
========================================================================================================
</TABLE>
The Property and Casualty Insurance Services segment consists of
the business lines of old Travelers as well as Gulf Insurance
Group (Gulf). Segment revenues and operating results for 1993
18
<PAGE>
include only the 50% of Gulf then-owned by old Primerica.
Certain 1993 production statistics related to old Travelers'
businesses are included for comparison purposes only and are not
reflected in 1993 revenues or operating results.
On July 28, 1994, The Travelers Indemnity Company, a subsidiary
of the Company announced it had signed a definitive agreement to
sell its subsidiary, Bankers and Shippers Insurance Company, to
Integon Corporation for $142 million. The sale involves the non-
standard personal automobile insurance lines, which is the bulk
of Bankers and Shippers business, and The Travelers Indemnity
Company will retain the rest of the businesses. The proposed
transaction, which is subject to various regulatory approvals, is
scheduled to be completed prior to year end, and is not expected
to have a material impact on future operations.
Commercial Lines
Commercial Lines net written premiums and equivalents for the
second quarter of 1994 totaled $1.2 billion and were about even
with the second quarter of 1993. A significant component of
Commercial Lines is the national accounts division, which
provides insurance coverages and services, primarily workers'
compensation, to large corporations. Equivalents associated
largely with national accounts, represent estimates of premiums
that customers would have been charged under a fully insured
arrangement and do not equal actual revenues. Although premiums
and equivalents combined were comparable with the year ago
period, net written premiums for national accounts for the second
quarter of 1994 totaled $66 million compared to $76 million in
the prior year period. This decline resulted from an ongoing
shift from risk-bearing business into non risk-bearing business
and efforts to help customers control their loss costs, which has
helped to build a better than 90% customer retention ratio.
Commercial Lines agency business serves small and mid-sized
businesses through brokers and approximately 2,500 independent
agents. Net written premiums declined 10% to $370 million, as
soft market conditions continued to affect guaranteed cost
business.
The combined ratio for Commercial Lines in the second quarter of
1994 was 113.4% compared to 116.1% in the 1993 period. Included
in the second quarter of 1994 are after-tax catastrophe losses of
$6.6 million, net of reinsurance compared to $8.4 million in the
1993 period.
Personal Lines
Net written premiums for the second quarter of 1994 were $363
million, and were about even with the comparable 1993 period and
the first quarter of 1994. Operating earnings continue to
reflect strong growth in the agency network in targeted markets
and aggressive expense reduction initiatives. The unit continues
to actively manage and reduce its exposure to windstorms and
hurricanes.
The combined ratio for Personal Lines in the second quarter of
1994 was 102.3% compared to 108.0% in the 1993 period and 109.0%
in the 1994 first quarter. Included in the second quarter of
1994 are after tax catastrophe losses of $1.5 million net of
reinsurance compared to $2.3 million in the 1993 period.
19
<PAGE>
Corporate and Other
<TABLE><CAPTION>
Three Months Ended June 30,
--------------------------------------------------------------
($ in millions) 1994 1993
--------------------------------------------------------------------------------------------------
Net income Net income
Revenues (expense) Revenues (expense)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net expenses $(46) $(12)
Equity in income of old Travelers - 25
--------------------------------------------------------------------------------------------------
Total Corporate and Other $(6) $(46) $35 $ 13
==================================================================================================
</TABLE>
The increase in Corporate and Other net expenses for the second
quarter of 1994 is primarily attributable to the assumption by
the parent company of old Travelers corporate debt and certain
corporate expenses and interest costs related to the July 1993
Shearson acquisition.
Segment Results for the Six Months Ended June 30, 1994 and 1993
---------------------------------------------------------------
The overall operating trends of the six months ended June 30,
1994 and 1993 were substantially the same as those of the second
quarter periods except as noted below.
Investment Services
<TABLE><CAPTION>
Six Months Ended June 30,
------------------------------------------------------------
($ in millions) 1994 1993
--------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Smith Barney $2,738 $223 $939 $109
Mutual funds and asset management 80 17 75 16
--------------------------------------------------------------------------------------------------
Total Investment Services $2,818 $240 $1,014 $125
==================================================================================================
Smith Barney's earnings increased significantly to $223 million
in the six month period ended June 30, 1994, which includes the
results of the Shearson Businesses. This compares to $109
million reported by Smith Barney alone in the prior year period.
20
<PAGE>
Smith Barney Revenues
</TABLE>
<TABLE><CAPTION>
Six Months Ended June 30,
-----------------------------------
($ in millions) 1994 1993
-------------------------------------------------------------------------
<S> <C> <C>
Commissions $ 1,070 $301
Investment banking 376 250
Principal trading 419 160
Asset management fees 362 44
Interest income, net* 145 62
Other income 93 14
-------------------------------------------------------------------------
Net revenues* $2,465 $831
=========================================================================
</TABLE>
*Net of interest expense of $273 and $108 for the six month
periods ended June 30, 1994 and 1993, respectively. Revenues
included in the condensed consolidated statement of income are
before deductions for interest expense.
Consumer Finance Services
<TABLE><CAPTION>
Six Months Ended June 30,
-------------------------------------------------------------
($ in millions) 1994 1993
------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Finance Services $603 $106 $574 $100
==========================================================================================
</TABLE>
Charge-offs remained at low levels for the first half of 1994 --
2.16% versus 2.48% in the prior year period. The average yield
on the portfolio declined to 15.25% from 15.91%, although net
margins rose to 8.57%. This reflects a shift in product mix
toward more variable rate loans and lower funding costs.
Life Insurance Services
<TABLE><CAPTION>
Six Months Ended June 30,
---------------------------------------------------------------------
($ in millions) 1994 1993
--------------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primerica Financial Services $ 640 $ 105 $597 $97
Travelers Life and Annuities (1) 1,087 95 166 22
Managed Care and Employee Benefits 1,790 67 - -
--------------------------------------------------------------------------------------------------------
Total Life Insurance Services $3,517 $267 $763 $119
========================================================================================================
</TABLE>
(1) Net income includes $10 of reported portfolio gains in 1993.
Primerica Financial Services
During the first six months of 1994, PFS issued 147,900 policies
totaling $27.9 billion in face amount of individual life
insurance compared to 124,400 policies totaling $23.0 billion in
21
<PAGE>
face amount in the corresponding 1993 period. Sales of mutual
funds during the first half of 1994 increased 17% to $738
million, compared to 1993 sales of $633 million.
Travelers Life and Annuities
During the first six months of 1994, Travelers Life and Annuities
operations issued $5.0 billion of face amount of individual life
insurance. Net written premiums and deposits for the first six
months of 1994 totaled $133 million compared to $123 million in
the year ago period. Individual annuity production was strong
during the first half of 1994, compared to the prior period
levels reflecting sales of variable annuities. Net written
premiums and deposits for the first six months of 1994 totaled
$617 million compared to $498 million in the 1993 period. In the
group annuity business, net written premiums and deposits were
$516 million in the first six months of 1994 down from $971
million in the 1993 period reflecting the Company's more
selective approach to issuance of guaranteed investment contracts
and a decision in the fourth quarter of 1993 to no longer market
index funds. Net written premiums for individual accident and
health products, primarily long-term care and supplementary
products, totaled $167 million in the first half of 1994 about
even with the comparable 1993 period.
Managed Care and Employee Benefits
Face amount of group life insurance issued for the first half of
1994 was $7.8 billion versus $9.8 billion in the 1993 period. New
business production in the health business also declined over old
Travelers' 1993 first half. In the group life business, net
premiums written, deposits and equivalents totaled $342 million
for the first half of 1994 compared to $391 million in the
comparable 1993 period. In the group health business, net
premiums written, deposits and equivalents were $4.7 billion for
the first half of 1994 compared to $4.9 billion in the comparable
1993 period.
Property and Casualty Insurance Services
<TABLE><CAPTION>
Six Months Ended June 30,
----------------------------------------------------
($ in millions) 1994 1993
------------------------------------------------------------------------------------------------------
Net Net
Revenues income Revenues income
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial (1) $1,690 $99 $158 $24
Minority Interest - Gulf - - - (12)
Personal 752 36 - -
------------------------------------------------------------------------------------------------------
Total Property and Casualty Insurance Services $2,442 $135 $158 $ 12
======================================================================================================
</TABLE>
(1) Net income includes $9 of reported portfolio gains in 1993.
Commercial Lines
Commercial Lines net written premiums and equivalents for the
first half of 1994 were $2.9 billion versus $2.8 billion in the
comparable 1993 period. Net written premiums for national
accounts for the first half of 1994 totaled $239 million, a 27%
decline from $329 million in the prior year period while
equivalents for national accounts increased by $82 million during
the same period.
22
<PAGE>
Commercial Lines agency business net written premiums for the
first half of 1994 declined 2% to $803 million, as growth in
industry-specific programs was more than offset by continued soft
market conditions.
The combined ratio for Commercial Lines was 112.1% for the six
months ended June 30, 1994, compared to 112.4% in the comparable
1993 period. Included in the first six months of 1994 are after-
tax catastrophe losses of $26.9 million, net of reinsurance.
These losses were largely offset, however, by favorable loss
development in certain workers' compensation lines and residual
markets. Included in 1993 were after tax catastrophe losses of
$16.2 million net of reinsurance.
Personal Lines
Net written premiums for the first half of 1994 were $725
million, compared to $685 million in the 1993 period and reflect
strong growth in targeted regions as well as in the non-standard
auto market.
The combined ratio for Personal Lines for the six month period
was 105.6% compared to 106.6% in the comparable 1993 period.
Included in the 1994 period are $21.2 million of catastrophe
losses (after taxes and net of reinsurance) related to the severe
storms in the Northeast, which were partially offset by favorable
loss reserve development in 1994 on prior years' business.
Included in 1993 were after tax catastrophe losses of $12.8
million net of reinsurance.
Corporate and Other
<TABLE><CAPTION>
Six Months Ended June 30,
---------------------------------------------------------------
($ in millions) 1994 1993
------------------------------------------------------------------------------------------------------
Net income Net income
Revenues (expense) Revenues (expense)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net expenses $(88) $(23)
Equity in income of old Travelers - 57
Gain on sales of stock of
subsidiaries and affiliates - 4
------------------------------------------------------------------------------------------------------
Total Corporate and Other $(10) $(88) $77 $ 38
======================================================================================================
</TABLE>
The increase in Corporate and Other net expenses for the first
half of 1994 is primarily attributable to the assumption by the
parent company of old Travelers corporate debt and certain
corporate expenses and interest costs related to the July 1993
Shearson acquisition.
Included in Corporate and Other net income in the 1993 period is
$57 million which represented the then-27% equity in the income
of old Travelers and was comprised of $47 million of operating
earnings and $10 million of realized portfolio gains. The 1993
net gain on sales of stock of subsidiaries and affiliates
resulted from the sale of the Company's remaining interest in
Fingerhut.
Liquidity and Capital Resources
The Travelers Inc. (the Parent) services its obligations (i.e.,
debt service and dividends) primarily with dividends and other
advances that it receives from subsidiaries. The subsidiaries'
dividend paying ability is limited by certain covenant
restrictions in bank and/or credit agreements and/or by
23
<PAGE>
regulatory requirements. The Parent believes it will have
sufficient funds to meet current and future commitments. Each of
the Company's major operating subsidiaries finances its
operations on a stand-alone basis consistent with its
capitalization and ratings.
The Parent
The Parent issues commercial paper directly to investors and
maintains unused credit availability under committed revolving
credit agreements at least equal to the amount of commercial
paper outstanding.
The Parent and Commercial Credit Company (CCC) have agreements
with certain banks totaling $800 million whereby the Parent, with
the consent of CCC, may assign certain revolving credit amounts
(swing facilities) to CCC for specific periods of time. At June
30, 1994 $300 million was allocated to CCC. The Parent and TIC
have an agreement amounting to $275 million with certain banks
whereby both the Parent and TIC may access a revolving credit
facility.
As of June 30, 1994, the Parent had unused credit availability of
$775 million, of which up to $275 million may be accessed by
either the Parent or The Travelers Insurance Company, an indirect
subsidiary. The Parent may borrow under its revolving credit
facilities at various interest rate options and compensates the
banks for the facilities through commitment fees.
As of August 10, 1994, the Parent had $800 million available for
debt offerings under its shelf registration statement.
In August 1994 the Parent, CCC and TIC obtained commitments from
a syndicate of banks to provide $1.5 billion of revolving credit,
to be allocated to any of the Parent, CCC or TIC ($1.2 billion to
mature in 1999 and the balance in 1995). The participation of
TIC in this agreement is limited to $300 million. The revolving
credit facility is expected to close in the third quarter of
1994, at which time the Company will terminate the $800 million
swing facility, the $275 million revolving credit facility that
may be accessed by either the Parent or TIC and $100 million of
lines available to CCC. Under this new facility the Company is
required to maintain a certain level of consolidated
stockholders' equity (as defined). At June 30, 1994 the Company
would have exceeded this requirement by approximately $2.5
billion.
Commercial Credit Company (CCC)
CCC also issues commercial paper directly to investors and
maintains unused credit availability under committed revolving
credit agreements at least equal to the amount of commercial
paper outstanding. As of June 30, 1994, CCC had unused credit
availability of $2.835 billion. CCC may borrow under its
revolving credit facilities at various interest rate options and
compensates the banks for the facilities through commitment fees.
During July 1994 CCC issued $200 million of 7 7/8% notes due July
15, 2004. As of August 10, 1994, CCC had $650 million available
for debt offerings under its shelf registration statement.
CCC is limited by covenants in its revolving credit agreements as
to the amount of dividends and advances that may be made to the
Parent or its affiliated companies. At June 30, 1994, CCC would
have been able to remit $152 million to the Parent under its most
restrictive covenants or regulatory requirements.
Smith Barney Holdings Inc. (Smith Barney)
Smith Barney funds its day to day operations through the use of
commercial paper, collateralized and uncollateralized bank
borrowings (both committed and uncommitted), internally generated
funds, repurchase transactions, and securities lending
arrangements. The volume of Smith Barney's borrowings generally
fluctuates in response to changes in the amount of reverse
repurchase transactions outstanding, the level of securities
24
<PAGE>
inventories, customer balances and securities borrowing
transactions. On May 31, 1994, Smith Barney renegotiated its
three-year revolving credit agreement (the "Agreement") with a
bank syndicate. The amendment to the Agreement extended the term
by one year until May 1997, increased the amount of the facility
from $625 million to $1 billion, and relaxed certain covenants.
As of June 30, 1994, $625 million was borrowed under the
Agreement. In addition, on May 31, 1994, Smith Barney entered
into a $750 million, 364-day revolving credit agreement with a
bank syndicate. As of June 30, 1994 there were no borrowings
outstanding under this new facility. In addition, Smith Barney
has substantial borrowing arrangements consisting of facilities
that it has been advised are available, but where no contractual
lending obligation exists.
Smith Barney, through its subsidiary Smith Barney Inc., issues
commercial paper directly to investors. As a policy, Smith
Barney maintains sufficient borrowing power of unencumbered
securities to cover unsecured borrowings and unsecured letters of
credit. In addition, Smith Barney monitors its leverage and
capital ratios on a daily basis.
During 1994, Smith Barney completed the following debt offerings
and, as of August 10, 1994, had $1.0 billion available for debt
offerings under its shelf registration statements:
. 5 1/2% Notes due January 15, 1999 .......... $200 million
. 6% Notes due March 15, 1997................. $200 million
Smith Barney is limited by covenants in its revolving credit
facility as to the amount of dividends that may be paid to the
Parent. At June 30, 1994, Smith Barney would have been able to
remit approximately $453 million to the Parent under its most
restrictive covenants.
The Travelers Insurance Group
At June 30, 1994, The Travelers Insurance Group had $23.8 billion
of life and annuity product deposit funds and reserves. Of that
total, $11.3 billion are not subject to discretionary withdrawal
based on contract terms. The remaining $12.5 billion are for
life and annuity products that are subject to discretionary
withdrawal by the contractholder. Included in the amount that is
subject to discretionary withdrawal is $2.3 billion of
liabilities that are surrenderable with market value adjustments.
An additional $5.6 billion of the life insurance and individual
annuity liabilities, subject to discretionary withdrawal, have an
average surrender charge of 5.6% and $1.5 billion of liabilities
are surrenderable at book value over 5 to 10 years. In the
payout phase, these funds are credited at significantly reduced
interest rates. The remaining $3.1 billion of liabilities are
surrenderable without charge. More than half of these relate to
individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is
considered a significant deterrent against withdrawal by long-
term policyholders. Insurance liabilities that are surrendered
or withdrawn from The Travelers Insurance Group are reduced by
outstanding policy loans and related accrued interest prior to
payout.
The Travelers Insurance Company (TIC), a direct subsidiary of The
Travelers Insurance Group Inc., issues commercial paper to
investors and maintains unused committed, revolving credit
facilities at least equal to the amount of commercial paper
outstanding. As of June 30, 1994, TIC has unused credit
availability of $275 million, all of which may be accessed by
either TIC or the Parent.
Under Connecticut statutory standards the statutory surplus of
The Travelers Insurance Group, which amounted to $4.1 billion
at December 31, 1993, is not available in 1994 for dividends to
the Parent without prior approval.
25
<PAGE>
Investment Portfolio and Real Estate Held for Sale
The Company's investment portfolio consists primarily of fixed
income investments with an average quality rating of A1. The
average duration of the fixed income portfolio, including
short-term fixed income investments, is 4.9 years.
The mortgage loans and real estate held for sale that comprise a
large part of the portfolio supporting the Company's "Travelers
Life and Annuities" segment are down to $7. 0 billion at
June 30, 1994 versus $8.4 billion at year-end 1993.
Underperforming mortgages and real estate accounted for $1.8
billion of the total at June 30, 1994, down from $2.5 billion at
year-end 1993.
The Company is continuing to maintain a brisk program of real
estate sales. Proceeds from the sales of real estate, real
estate joint ventures, and mortgage loans (including discounted
payoffs) during the first six months of 1994 amounted to $884
million of which $789 million was in cash.
Accounting Standards Not Yet Adopted
FAS 114
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan," describes how impaired
loans should be measured when determining the amount of a loan
loss accrual. The Statement also amends existing guidance on the
measurement of restructured loans in a troubled debt
restructuring involving a modification of terms. The ultimate
impact, if any, of implementing the Statement will depend on
market conditions and the composition of the Company's loan
portfolio at the date of implementation and thus the Company has
not yet determined the impact, if any, the Statement will have on
its financial statements. The Statement has an effective date of
January 1, 1995.
Legislative Developments
Proposals moving through Congress to reform the Superfund include
a new Superfund insurance trust which will be used to settle
certain Superfund related litigation between claimants and their
insurers, and a new tax on commercial insurance companies to fund
the trust. One of the important uncertainties relating to the
proposed legislation is the degree to which any new tax would be
determined based on insurance premiums collected in future
periods (prospective) or in prior periods (retrospective). To the
extent prospective, the charges against income would be in
the periods in which the tax is incurred. To the extent
retrospective, there would be a one-time charge against income
for the present value of the tax liability, even if it is to be
paid over time. It is impossible to determine at this time the
final outcome of the Superfund reform proposals and therefore the
effect that it will have on the Company's future results of
operations. However, the Company believes that it is not likely
to have a material effect on its financial condition or
liquidity.
Health care reform is at the forefront of domestic policy issues
at the federal level and is a leading issue in many state
legislatures in 1994. Various proposals, including that of the
Clinton Administration, have been introduced. A great deal of
uncertainty remains regarding what the final health reform
package will contain or what effect it will have on the Company's
managed care programs. Furthermore, a number of states have
passed, or are considering, some form of health care reform. Such
state regulation primarily impacts fully insured small employer
plans. The overall impact of federal or state legislation on the
Company's businesses is impossible to predict at this time. The
Company continues to monitor political and legislative activity
that addresses the cost, availability and quality of health care.
26
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
For information concerning purported class actions
challenging certain aspects of the 1988 merger of Primerica
Corporation, a New Jersey corporation ("old Primerica"), into
Primerica Holdings Inc., a former subsidiary of the Company, see
the descriptions that appear in the third and fourth paragraphs
of page 30 of the Company's filing on Form 10-K for the year
ended December 31, 1989, and the third paragraph of page 65 of
the Company's filing on Form 10-K for the year ended December 31,
1993, which descriptions are incorporated by reference herein. A
copy of the pertinent paragraphs of such filings is included as
an exhibit to this Form 10-Q. The parties have agreed in
principle to a settlement of the proposed class action, subject
to approval by the court.
For information concerning a purported class action
against the Company and others in connection with certain changes
in the retirement benefits of old Primerica retirees, see the
descriptions that appear in the fourth full paragraph of page 31
of the Company's filing on Form 10-K for the year ended December
31, 1989, the fourth full paragraph of page 26 of the Company's
filing on Form 10-K for the year ended December 31, 1991, and the
second paragraph of page 66 of the Company's filing on Form 10-K
for the year ended December 31, 1993, which descriptions are
incorporated by reference herein. A copy of the pertinent
paragraphs of such filings is included as an exhibit to this Form
10-Q. The parties have agreed in principle to a settlement of
the proposed class action, subject to approval by the court.
Certain additional information regarding legal
proceedings to which subsidiaries of the Company are parties, or
to which any of their property is subject, may be described in
the periodic reports filed under the Securities Exchange Act of
1934, as amended, by certain subsidiaries of the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
On June 10, 1994, the Company filed a Current Report on
Form 8-K, dated June 10, 1994, refiling under Item 5 thereof
certain unaudited interim financial statements and audited
financial statements relating to the Shearson Lehman Brothers and
SLB Asset Management Divisions of Lehman Brothers Holdings Inc.
(formerly Shearson Lehman Brother Holdings Inc.).
No other Current Reports on Form 8-K were filed during
the quarter ended June 30, 1994.
27
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.01 Employment Protection Agreement, dated as of
December 31, 1987, between The Travelers Inc.
(the "Company") (as successor to Commercial
Credit Company ("CCC")), and Sanford I. Weill,
incorporated by reference to Exhibit 10.03 to
CCC's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 (File No.
1-6594).
10.02.1 Stock Option Plan of the Company, as amended
through April 26, 1989, incorporated by
reference to Annex A to the prospectus
contained in the Company's Registration
Statement on Form S-8 (No. 33-29711).
10.02.2 Amendment to the Company's Stock Option
Plan, dated October 23, 1991, incorporated
by reference to Exhibit 10.02.2 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 (File
No. 1-9924) (the "Company's 1991 10-K").
10.02.3 Amendments to the Company's Stock Option
Plan, approved by the Company's stockholders
on April 22, 1992, incorporated by reference
to Exhibit 10.02.3 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1992 (File No.1-9924)
(the "Company's 1992 10-K").
10.02.4 Amendment to the Company's Stock Option
Plan, dated July 22, 1992, incorporated by
reference to Exhibit 10.02.4 to the
Company's 1992 10-K.
10.02.5 Amendment No. 11 to the Company's Stock Option Plan,
incorporated by reference to Exhibit 10.02.5
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (File No. 1-9924)
(the "Company's 1993 10-K").
10.02.6 Amendment No. 12 to the Company's Stock Option Plan,
incorporated by reference to Exhibit 10.02.6 to the
Company's 1993 10-K.
10.03 Retirement Benefit Equalization Plan of the
Company (as successor to Primerica Holdings,
Inc.), as amended, incorporated by reference to
Exhibit 10.03 to the Company's 1993 10-K.
28
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.04 Letter Agreement between Joseph A. Califano,
Jr. and the Company, dated December 14,
1988, incorporated by reference to Exhibit
10.21.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December
31, 1988 (File No. 1-9924) (the "Company's
1988 10-K").
10.05.1 The Company's Deferred Compensation Plan for
Directors, incorporated by reference to
Exhibit 10.21.2 to the Company's 1988 10-K.
10.05.2 Amendment to the Company's Deferred
Compensation Plan for Directors, dated July
22, 1992, incorporated by reference to
Exhibit 10.06.2 of the Company's 1992 10-K.
10.06.1 Supplemental Retirement Plan of the Company,
incorporated by reference to Exhibit 10.23
to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990
(File No. 1-9924) (the "Company's 1990 10-K").
10.06.2 Amendment to the Company's Supplemental Retirement Plan,
incorporated by reference to Exhibit 10.06.2
to the Company's 1993 10-K.
10.07 Long-Term Incentive Plan of the Company, as
amended, incorporated by reference to
Exhibit 10.08 to the Company's 1992 10-K.
10.08.1 Capital Accumulation Plan of the Company
(the "CAP Plan"), as amended to January 31,
1993, incorporated by reference to Exhibit
10.09 to the Company's 1992 10-K.
10.08.2 Amendment No. 8 to the Company's CAP Plan, incorporated
by reference to Exhibit 10.08.2 to the
Company's 1993 10-K.
10.09 Agreement dated December 21, 1993 between
the Company and Edward H. Budd, incorporated
by reference to Exhibit 10.22 to the
Company's 1993 10-K.
29
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.10 Restated Stockholder Rights and Support
Agreement dated as of November 1, 1989 by
and among the Company and Arthur L.
Williams, Jr., Angela H. Williams, A.L.
Williams & Associates, Inc. and The A.L.
Williams & Associates, Inc. Pension and
Profit Sharing Plan, incorporated by
reference to Exhibit 10.13 to the Company's
1990 10-K.
10.11 Amended and Restated Exclusive Marketing
Agreement dated as of November 1, 1989 by
and among the Company, A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.14 to the Company's 1990 10-K.
10.12 Restated Second Amended General Agency
Agreement ("SAGAA") dated as of November 1,
1989 by and among Primerica Life Insurance
Company (formerly Massachusetts Indemnity
Life Insurance Company; hereinafter
"Primerica Life"), A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.15 to the Company's 1990 10-K.
10.13 Restated First Amendment to SAGAA dated as
of November 1, 1989 by and among Primerica
Life, A.L. Williams & Associates, Inc. and
Arthur L. Williams, Jr., incorporated by
reference to Exhibit 10.16 to the Company's
1990 10-K.
10.14 Restated and Amended Agreement of Charles D.
Adams dated as of November 1, 1989 for the
benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.17 to the Company's
1990 10-K.
10.15 Restated and Amended Agreement of Angela H.
Williams dated as of November 1, 1989 for
the benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.18 to the Company's
1990 10-K.
30
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.16.1 Asset Purchase Agreement dated as of March
12, 1993, by and among Shearson Lehman
Brothers Inc., Smith Barney Inc. ("SBI";
formerly Smith Barney, Harris Upham & Co.
Incorporated), the Company, American
Express Company and Shearson Lehman Brothers
Holdings Inc. (the "SLB Agreement"),
incorporated by reference to Exhibit 10.21
to the Company's 1992 10-K.
10.16.2 Amendment No. 1, dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1993 (File No. 1-
9924) (the "Company's June 30, 1993 10-Q").
10.16.3 Amendment No. 2 dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.02 to the Company's
June 30, 1993 10-Q.
10.17.1 Employment Agreement dated June 23, 1993, by
and among SBI, the Company and Robert F.
Greenhill (the "RFG Employment Agreement"),
incorporated by reference to Exhibit 10.01
to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September
30, 1993 (File No. 1-9924) (the "Company's
September 30, 1993 10-Q").
10.17.2 Amendment to the RFG Employment Agreement,
incorporated by reference to Exhibit 10.17.2
to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31,
1994 (File No. 1-9924).
10.18 Memorandum of Sale dated June 23, 1993,
between the Company and Robert F. Greenhill,
incorporated by reference to Exhibit 10.02
to the Company's September 30, 1993 10-Q.
10.19 Registration Rights Agreement dated June 23,
1993, between the Company and Robert F.
Greenhill, incorporated by reference to
Exhibit 10.03 to the Company's September 30,
1993 10-Q.
10.20 Restricted Shares Agreement dated June 23,
1993, by and between the Company and Robert
F. Greenhill, incorporated by reference to
Exhibit 10.04 to the Company's September 30,
1993 10-Q.
31
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.21 Agreement and Plan of Merger, dated as of
September 23, 1993, between the Company and
The Travelers Corporation ("old Travelers"),
incorporated by reference to Exhibit 2.1 to
the Current Report on Form 8-K of old
Travelers, dated September 23, 1993 and
filed with the Commission on October 8, 1993
(File No. 1-5799).
10.22 Employment Agreement dated December 31, 1993
between The Travelers Insurance Group Inc.
and Robert W. Crispin, incorporated by reference
to Exhibit 10.24 to the Company's 1993 10-K.
10.23 The Travelers Corporation 1982 Stock Option
Plan, as amended January 10, 1992,
incorporated by reference to Exhibit 10(a)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended December
31, 1991 (File No. 1-5799) (the "old
Travelers' 1991 10-K").
10.24 The Travelers Corporation 1988 Stock
Incentive Plan, as amended April 7, 1992,
incorporated by reference to Exhibit 10(b)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended December
31, 1992 (File No. 1-5799) (the "old
Travelers' 1992 10-K").
10.25 The Travelers Corporation 1984 Management
Incentive Plan, as amended effective January
1, 1991, incorporated by reference to
Exhibit 10(c) to the Annual Report on Form
10-K of old Travelers for the fiscal year
ended December 31, 1990 (File No. 1-5799).
10.26 The Travelers Corporation Supplemental
Benefit Plan, effective December 20, 1992,
incorporated by reference to Exhibit 10(d)
to the Annual Report on the old Travelers'
1992 10-K.
32
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.27 The Travelers Corporation TESIP Restoration
and Non-Qualified Savings Plan, effective
January 1, 1991, incorporated by reference
to Exhibit 10(e) to the old Travelers'
1991 10-K.
10.28 The Travelers Severance Plan of Officers, as
amended September 23, 1993, incorporated by
reference to Exhibit 10.30 to the Company's
1993 Form 10-K.
10.29 The Travelers Corporation Directors'
Deferred Compensation Plan, as amended
November 7, 1986, incorporated by
reference to Exhibit 10(d) to the Annual
Report on Form 10-K of old Travelers for
the fiscal year ended December 31, 1986
(File No. 1-5799).
11.01 Computation of Earnings Per Share. Electronic
12.01 Computation of Ratio of Earnings to Fixed Electronic
Charges.
99.01 The third and fourth paragraphs of page 30 Electronic
of the Company's filing on Form 10-K for the
year ended December 31, 1989 (File No.
1-9924) (the "Company's 1989 10-K"), and the
third paragraph of page 65 of the Company's
1993 10-K.
99.02 The fourth paragraph of page 31 of the Electronic
Company's 1989 10-K, the fourth full
paragraph of page 26 of the Company's 1991
10-K, and the second paragraph of page 66 of
the Company's 1993 10-K.
The total amount of securities authorized pursuant to any
instrument defining rights of holders of long-term debt of the
Company does not exceed 10% of the total assets of the Company
and its consolidated subsidiaries. The Company will furnish
copies of any such instrument to the Securities and Exchange
Commission upon request.
33
<PAGE>
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.
The Travelers Inc.
Date: August 12, 1994 By /s/ James Dimon
------------------------------
James Dimon
President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 12, 1994 By /s/ Irwin Ettinger
-------------------------------
Irwin Ettinger
Senior Vice President
(Chief Accounting Officer)
34
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.01 Employment Protection Agreement, dated as of
December 31, 1987, between The Travelers Inc.
(the "Company") (as successor to Commercial
Credit Company ("CCC")), and Sanford I. Weill,
incorporated by reference to Exhibit 10.03 to
CCC's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 (File No.
1-6594).
10.02.1 Stock Option Plan of the Company, as amended
through April 26, 1989, incorporated by
reference to Annex A to the prospectus
contained in the Company's Registration
Statement on Form S-8 (No. 33-29711).
10.02.2 Amendment to the Company's Stock Option
Plan, dated October 23, 1991, incorporated
by reference to Exhibit 10.02.2 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 (File
No. 1-9924) (the "Company's 1991 10-K").
10.02.3 Amendments to the Company's Stock Option
Plan, approved by the Company's stockholders
on April 22, 1992, incorporated by reference
to Exhibit 10.02.3 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1992 (File No.1-9924)
(the "Company's 1992 10-K").
10.02.4 Amendment to the Company's Stock Option
Plan, dated July 22, 1992, incorporated by
reference to Exhibit 10.02.4 to the
Company's 1992 10-K.
10.02.5 Amendment No. 11 to the Company's Stock Option Plan,
incorporated by reference to Exhibit 10.02.5
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (File No. 1-9924)
(the "Company's 1993 10-K").
10.02.6 Amendment No. 12 to the Company's Stock Option Plan,
incorporated by reference to Exhibit 10.02.6 to the
Company's 1993 10-K.
10.03 Retirement Benefit Equalization Plan of the
Company (as successor to Primerica Holdings,
Inc.), as amended, incorporated by reference to
Exhibit 10.03 to the Company's 1993 10-K.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.04 Letter Agreement between Joseph A. Califano,
Jr. and the Company, dated December 14,
1988, incorporated by reference to Exhibit
10.21.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December
31, 1988 (File No. 1-9924) (the "Company's
1988 10-K").
10.05.1 The Company's Deferred Compensation Plan for
Directors, incorporated by reference to
Exhibit 10.21.2 to the Company's 1988 10-K.
10.05.2 Amendment to the Company's Deferred
Compensation Plan for Directors, dated July
22, 1992, incorporated by reference to
Exhibit 10.06.2 of the Company's 1992 10-K.
10.06.1 Supplemental Retirement Plan of the Company,
incorporated by reference to Exhibit 10.23
to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990
(File No. 1-9924) (the "Company's 1990 10-K").
10.06.2 Amendment to the Company's Supplemental Retirement Plan,
incorporated by reference to Exhibit 10.06.2
to the Company's 1993 10-K.
10.07 Long-Term Incentive Plan of the Company, as
amended, incorporated by reference to
Exhibit 10.08 to the Company's 1992 10-K.
10.08.1 Capital Accumulation Plan of the Company
(the "CAP Plan"), as amended to January 31,
1993, incorporated by reference to Exhibit
10.09 to the Company's 1992 10-K.
10.08.2 Amendment No. 8 to the Company's CAP Plan, incorporated
by reference to Exhibit 10.08.2 to the
Company's 1993 10-K.
10.09 Agreement dated December 21, 1993 between
the Company and Edward H. Budd, incorporated
by reference to Exhibit 10.22 to the
Company's 1993 10-K.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.10 Restated Stockholder Rights and Support
Agreement dated as of November 1, 1989 by
and among the Company and Arthur L.
Williams, Jr., Angela H. Williams, A.L.
Williams & Associates, Inc. and The A.L.
Williams & Associates, Inc. Pension and
Profit Sharing Plan, incorporated by
reference to Exhibit 10.13 to the Company's
1990 10-K.
10.11 Amended and Restated Exclusive Marketing
Agreement dated as of November 1, 1989 by
and among the Company, A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.14 to the Company's 1990 10-K.
10.12 Restated Second Amended General Agency
Agreement ("SAGAA") dated as of November 1,
1989 by and among Primerica Life Insurance
Company (formerly Massachusetts Indemnity
Life Insurance Company; hereinafter
"Primerica Life"), A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.15 to the Company's 1990 10-K.
10.13 Restated First Amendment to SAGAA dated as
of November 1, 1989 by and among Primerica
Life, A.L. Williams & Associates, Inc. and
Arthur L. Williams, Jr., incorporated by
reference to Exhibit 10.16 to the Company's
1990 10-K.
10.14 Restated and Amended Agreement of Charles D.
Adams dated as of November 1, 1989 for the
benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.17 to the Company's
1990 10-K.
10.15 Restated and Amended Agreement of Angela H.
Williams dated as of November 1, 1989 for
the benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.18 to the Company's
1990 10-K.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.16.1 Asset Purchase Agreement dated as of March
12, 1993, by and among Shearson Lehman
Brothers Inc., Smith Barney Inc. ("SBI";
formerly Smith Barney, Harris Upham & Co.
Incorporated), the Company, American
Express Company and Shearson Lehman Brothers
Holdings Inc. (the "SLB Agreement"),
incorporated by reference to Exhibit 10.21
to the Company's 1992 10-K.
10.16.2 Amendment No. 1, dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1993 (File No. 1-
9924) (the "Company's June 30, 1993 10-Q").
10.16.3 Amendment No. 2 dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.02 to the Company's
June 30, 1993 10-Q.
10.17.1 Employment Agreement dated June 23, 1993, by
and among SBI, the Company and Robert F.
Greenhill (the "RFG Employment Agreement"),
incorporated by reference to Exhibit 10.01
to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September
30, 1993 (File No. 1-9924) (the "Company's
September 30, 1993 10-Q").
10.17.2 Amendment to the RFG Employment Agreement,
incorporated by reference to Exhibit 10.17.2
to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31,
1994 (File No. 1-9924).
10.18 Memorandum of Sale dated June 23, 1993,
between the Company and Robert F. Greenhill,
incorporated by reference to Exhibit 10.02
to the Company's September 30, 1993 10-Q.
10.19 Registration Rights Agreement dated June 23,
1993, between the Company and Robert F.
Greenhill, incorporated by reference to
Exhibit 10.03 to the Company's September 30,
1993 10-Q.
10.20 Restricted Shares Agreement dated June 23,
1993, by and between the Company and Robert
F. Greenhill, incorporated by reference to
Exhibit 10.04 to the Company's September 30,
1993 10-Q.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.21 Agreement and Plan of Merger, dated as of
September 23, 1993, between the Company and
The Travelers Corporation ("old Travelers"),
incorporated by reference to Exhibit 2.1 to
the Current Report on Form 8-K of old
Travelers, dated September 23, 1993 and
filed with the Commission on October 8, 1993
(File No. 1-5799).
10.22 Employment Agreement dated December 31, 1993
between The Travelers Insurance Group Inc.
and Robert W. Crispin, incorporated by reference
to Exhibit 10.24 to the Company's 1993 10-K.
10.23 The Travelers Corporation 1982 Stock Option
Plan, as amended January 10, 1992,
incorporated by reference to Exhibit 10(a)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended December
31, 1991 (File No. 1-5799) (the "old
Travelers' 1991 10-K").
10.24 The Travelers Corporation 1988 Stock
Incentive Plan, as amended April 7, 1992,
incorporated by reference to Exhibit 10(b)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended December
31, 1992 (File No. 1-5799) (the "old
Travelers' 1992 10-K").
10.25 The Travelers Corporation 1984 Management
Incentive Plan, as amended effective January
1, 1991, incorporated by reference to
Exhibit 10(c) to the Annual Report on Form
10-K of old Travelers for the fiscal year
ended December 31, 1990 (File No. 1-5799).
10.26 The Travelers Corporation Supplemental
Benefit Plan, effective December 20, 1992,
incorporated by reference to Exhibit 10(d)
to the Annual Report on the old Travelers'
1992 10-K.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.27 The Travelers Corporation TESIP Restoration
and Non-Qualified Savings Plan, effective
January 1, 1991, incorporated by reference
to Exhibit 10(e) to the old Travelers'
1991 10-K.
10.28 The Travelers Severance Plan of Officers, as
amended September 23, 1993, incorporated by
reference to Exhibit 10.30 to the Company's
1993 Form 10-K.
10.29 The Travelers Corporation Directors'
Deferred Compensation Plan, as amended
November 7, 1986, incorporated by
reference to Exhibit 10(d) to the Annual
Report on Form 10-K of old Travelers for
the fiscal year ended December 31, 1986
(File No. 1-5799).
11.01 Computation of Earnings Per Share. Electronic
12.01 Computation of Ratio of Earnings to Fixed Electronic
Charges.
99.01 The third and fourth paragraphs of page 30 Electronic
of the Company's filing on Form 10-K for the
year ended December 31, 1989 (File No.
1-9924) (the "Company's 1989 10-K"), and the
third paragraph of page 65 of the Company's
1993 10-K.
99.02 The fourth paragraph of page 31 of the Electronic
Company's 1989 10-K, the fourth full
paragraph of page 26 of the Company's 1991
10-K, and the second paragraph of page 66 of
the Company's 1993 10-K.
The total amount of securities authorized pursuant to any
instrument defining rights of holders of long-term debt of the
Company does not exceed 10% of the total assets of the Company
and its consolidated subsidiaries. The Company will furnish
copies of any such instrument to the Securities and Exchange
Commission upon request.
Exhibit 11.01
The Travelers Inc. and Subsidiaries
Computation of Earnings Per Share
(In millions, except for per share amounts)
<TABLE><CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ---------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings:
Net Income $320 $187 $660 $359
Preferred dividends:
8.125% Cumulative Preferred Stock - Series A (6) (6) (12) (12)
5.5% Convertible Preferred Stock - Series B (1) - (3) -
$4.53 Convertible Preferred Stock - Series C (4) - (8) -
9 1/4% Preferred Stock - Series D (9) - (18) -
---- ---- ---- ----
Income applicable to common stock $300 $181 $619 $347
=== === === ===
Average shares:
Common 317 228 318 223
Common stock warrants - - - -
Assumed exercise of dilutive stock options 3 5 4 5
Incremental shares - Capital Accumulation Plan 3 3 3 3
---- ---- ---- ----
323 236 325 231
=== === === ===
Earnings Per Share $0.93 $0.76 $1.90 $ 1.50
==== ==== ==== =====
</TABLE>
Earnings per common share is based on the weighted average number of
common shares outstanding during the period after consideration of the
dilutive effect of common stock warrants and stock options and the
incremental shares assumed issued under the Capital Accumulation Plan.
Fully diluted earnings per common share, assuming conversion of all
outstanding convertible preferred stock (in 1994 only), the maximum
dilutive effect of common stock equivalents and the assumed conversion
of convertible debentures (in 1993 only) have not been presented
because the effects are not material. The fully diluted earnings per
common share for the three and six months ended June 30, 1994 would
entail adding the number of shares issuable on conversion of the
preferred stock (7 and 7 million, respectively) to the number of shares
included in the earnings per common share calculation (resulting in 330
and 332 million shares, respectively) and eliminating the convertible
preferred stock dividend requirements ($6 and $12 million,
respectively). The fully diluted earnings per common share computation
for the three and six months ended June 30, 1993 would entail adding
the number of shares issuable on conversion of other debentures (4 and
4 million shares, respectively) and the additional common stock
equivalents (1 and 1 million, respectively) to the number of shares
included in the earnings per share calculation (resulting in a total of
241 and 236 million shares), respectively, and eliminating the after-
tax interest expense related to the conversion of other debentures ($2
and $3 million, respectively).
EXHIBIT 12.01
The Travelers Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(In millions of dollars, except for ratio)
<TABLE><CAPTION>
Six months ended June 30,
----------------------------
1994 1993
---- ----
<S> <C> <C>
Income before income taxes, minority interest and cumulative
effect of changes in accounting principle $1,028 $ 630
Elimination of undistributed equity earnings - (45)
Pre-tax minority interest - (18)
Interest 517 315
Portion of rentals deemed to be interest 66 21
----- -----
Earnings available for fixed charges $1,611 $ 903
===== =====
Fixed charges
-------------
Interest $517 $ 315
Portion of rentals deemed to be interest 66 21
----- -----
Fixed charges $ 583 $ 336
===== =====
Ratio of earnings to fixed charges 2.76x 2.69x
===== =====
</TABLE>
EXHIBIT NO. 99.01
COMPANY'S FORM 10-K
December 31, 1989
Page 30
Item 3. LEGAL PROCEEDINGS
Shareholder Litigation
On August 29, 1988, the Company entered into an Agreement
and Plan of Merger among the Company, Primerica Holdings
[Primerica Holdings Inc.] and old Primerica [Primerica
Corporation, a New Jersey corporation], providing for the merger
of old Primerica into Primerica Holdings.
In late 1988, fifteen purported class actions were filed in
various jurisdictions, challenging certain aspects of the merger.
The plaintiffs in the various cases were purportedly shareholders
of old Primerica prior to the merger. They allege that, in
connection with the merger, old Primerica and/or its officers or
directors and/or former officers or directors committed fraud and
breached fiduciary duties. Plaintiffs allege that the proxy
statement by which the shareholders' votes on the merger were
solicited contained representations which were materially
misleading or failed to disclose material facts. Plaintiffs seek
to rescind the transaction or in the alternative to recover
compensatory damages. A motion brought in one of these cases to
enjoin the merger was denied. The litigation is proceeding with
the designated lead case in United States District Court, Eastern
District of New York, under the caption Wallerstein, et al v.
Primerica Corporation, et al.
<PAGE>
COMPANY'S FORM 10-K
December 31, 1993
Page 65
Item 3. LEGAL PROCEEDINGS
Shareholder Litigation
For information concerning purported class actions
challenging certain aspects of the 1988 merger of Primerica
Corporation, a New Jersey corporation ("old Primerica") into
Primerica Holdings, see the description contained in the third
and fourth paragraphs of page 30 of the Company's filing on Form
10-K for the year ended December 31, 1989, which description is
incorporated by reference herein. A copy of the pertinent
paragraphs of such filing is included as an exhibit to this Form
10-K. Subsequent to that filing, other shareholder class actions
relating to the same subject were commenced in Federal, New
Jersey state, New York state and Connecticut state courts. All
of these subsequent actions are currently stayed.
EXHIBIT NO. 99.02
COMPANY'S FORM 10-K
December 31, 1989
Page 31
Item 3. LEGAL PROCEEDINGS
Other Litigation
On or about January 9, 1989, Primerica Holdings, Inc., as
successor in interest to old Primerica [Primerica Corporation, a
New Jersey corporation], notified the salaried retirees of old
Primerica of certain changes in their retirement benefits. On
December 19, 1989, a purported class action was filed by two
salaried retirees in United States District Court, District of
New Jersey, under the caption Alexander, et al, v. Primerica
Holdings, Inc., et al. Plaintiffs allege that their retirement
benefits are not subject to material alteration, and that the
1989 revisions are improper. The complaint alleges causes of
action against Primerica Holdings and its directors on various
theories including promissory estoppel, breach of contract,
breach of fiduciary duties, fraud, and federal ERISA violations.
Plaintiffs seek permanent injunctive relief prohibiting changes
in their benefits, as well as compensatory and punitive damages.
<PAGE>
COMPANY'S FORM 10-K
December 31, 1991
Page 26
Item 3. LEGAL PROCEEDINGS
Other Litigation and Legal Proceedings
For information concerning a purported class action against
Primerica Holdings and others in connection with certain changes
in the retirement benefits of old Primerica retirees, see the
description that appears in the fourth paragraph of page 31 of
the Company's filing on Form 10-K for the year ended December 31,
1989, which description is incorporated by reference herein. A
copy of the pertinent paragraph of such filing is included as an
exhibit to this Form 10-K. The class was certified in May 1991,
and on June 25, 1991, the United States District Court for the
District of New Jersey granted summary judgment in favor of
Primerica Holdings and the other defendants in the class action.
Plaintiffs have appealed the decision.
<PAGE>
COMPANY'S FORM 10-K
December 31, 1993
Page 66
Item 3. LEGAL PROCEEDINGS
Other Litigation and Legal Proceedings
For information concerning a purported class action against
the Company and others in connection with certain changes in the
retirement benefits of old Primerica retirees, see the
description that appears in the fourth paragraph of page 31 of
the Company's filing on Form 10-K for the year ended December 31,
1989, and the description that appears in the fourth full
paragraph of page 26 of the Company's filing on Form 10-K for the
year ended December 31, 1991, which descriptions are incorporated
by reference herein. A copy of the pertinent paragraphs of such
filings is included as an exhibit to this Form 10-K. In June
1992, the United States Court of Appeals for the Third Circuit
reversed the trial court's grant of summary judgment in favor of
the Company and the other defendants in the class action, and
remanded the case to the District Court to determine certain
factual matters. Discovery is proceeding.
