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, 1995
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
Travelers Group 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.)
388 Greenwich Street, New York, New York 10013
(Address of principal executive offices) (Zip Code)
(212) 816-8000
(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, 1995: 319,093,916
<PAGE>
Travelers Group 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, 1995 and 1994 3
Condensed Consolidated Statement of Financial Position -
June 30, 1995 (Unaudited) and December 31, 1994 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) - Six Months Ended June 30, 1995 5
Condensed Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended June 30, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements - (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
<CAPTION>
Part II - Other Information
<S> <C>
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports on Form 8-K 27
Exhibit Index 28
Signatures 29
</TABLE>
2
<PAGE>
<TABLE><CAPTION>
Travelers Group 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,
1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Insurance premiums $1,306 $1,390 $ 2,595 $ 2,755
Commissions and fees 765 671 1,375 1,504
Net investment income 1,121 810 2,164 1,537
Finance related interest and other charges 277 252 548 498
Principal transactions 225 180 507 419
Asset management fees 187 181 369 363
Other income 291 241 574 504
------------------------------------------------------------------------------------------------------------
Total revenues 4,172 3,725 8,132 7,580
------------------------------------------------------------------------------------------------------------
Expenses
Policyholder benefits and claims 1,329 1,349 2,663 2,744
Non-insurance compensation and benefits 844 764 1,650 1,652
Insurance underwriting, acquisition and operating 469 468 952 933
Interest 518 294 973 517
Provision for credit losses 41 38 81 77
Other operating 389 375 761 732
------------------------------------------------------------------------------------------------------------
Total expenses 3,590 3,288 7,080 6,655
------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 582 437 1,052 925
Provision for income taxes 205 151 370 332
------------------------------------------------------------------------------------------------------------
Income from continuing operations 377 286 682 593
Discontinued operations, net of income taxes:
Income from operations 29 34 44 67
Gain on disposition - - 20 -
------------------------------------------------------------------------------------------------------------
Net income $406 $320 $ 746 $ 660
============================================================================================================
Net income per share of common stock
and common stock equivalents:
Continuing operations $1.12 $0.82 $2.03 $1.70
Discontinued operations 0.10 0.11 0.20 0.20
------------------------------------------------------------------------------------------------------------
Net income $1.22 $0.93 $2.23 $1.90
============================================================================================================
Weighted average number of common shares outstanding
and common stock equivalents (millions) 316.8 323.0 316.0 325.2
============================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
<TABLE><CAPTION>
Travelers Group Inc. and Subsidiaries
Condensed Consolidated Statement of Financial Position
(In millions of dollars)
June 30, December 31,
1995 1994
---------------------------------------------------------------------------------------------------------------------
Assets (Unaudited)
<S> <C> <C>
Cash and cash equivalents
(including $817 and $816 segregated under federal and other regulations) $ 1,442 $ 1,227
Investments and real estate held for sale:
Fixed maturities:
Available for sale at market value (cost - $26,548 and $29,258) 26,718 27,192
Held to maturity at amortized cost (market $77 and $108) 77 96
Equity securities, at market (cost $607 and $516) 658 510
Mortgage loans 4,959 5,416
Real estate held for sale 309 418
Policy loans 1,900 1,581
Short-term and other 4,818 3,752
-----------------------------------------------------------------------------------------------------------------
Total investments and real estate held for sale 39,439 38,965
-----------------------------------------------------------------------------------------------------------------
Securities borrowed or purchased under agreements to resell 20,051 25,655
Brokerage receivables 6,574 8,238
Trading securities owned, at market value 8,138 6,945
Net consumer finance receivables 6,956 6,746
Reinsurance recoverables 6,825 5,026
Value of insurance in force and deferred policy acquisition costs 2,218 2,163
Cost of acquired businesses in excess of net assets 1,953 2,045
Separate and variable accounts 6,041 5,162
Other receivables 3,858 4,018
Other assets 7,423 9,107
-----------------------------------------------------------------------------------------------------------------
Total assets $110,918 $115,297
=================================================================================================================
Liabilities
Investment banking and brokerage borrowings $ 2,254 $ 4,374
Short-term borrowings 1,449 2,480
Long-term debt 8,613 7,075
Securities loaned or sold under agreements to repurchase 21,053 21,620
Brokerage payables 3,005 7,807
Trading securities sold not yet purchased, at market value 5,035 4,345
Contractholder funds 15,144 16,392
Insurance policy and claims reserves 27,877 27,084
Separate and variable accounts 6,012 5,127
Accounts payable and other liabilities 9,655 10,215
-----------------------------------------------------------------------------------------------------------------
Total liabilities 100,097 106,519
-----------------------------------------------------------------------------------------------------------------
ESOP Preferred stock - Series C 235 235
Guaranteed ESOP obligation (82) (97)
-----------------------------------------------------------------------------------------------------------------
153 138
-----------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock at aggregate liquidation value 800 800
Common stock ($.01 par value; authorized shares: 500 million
issued shares: 1995 - 368,173,990 shares and 1994 - 368,195,609 shares) 4 4
Additional paid-in capital 6,705 6,655
Retained earnings 4,774 4,199
Treasury stock, at cost (1995 - 49,871,109 shares, 1994 - 51,684,618 shares) (1,569) (1,553)
Unrealized gain (loss) on investment securities and other, net (46) (1,465)
-----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 10,668 8,640
-----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $110,918 $115,297
=================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
<TABLE><CAPTION>
Travelers Group Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
(In millions of dollars)
Six months ended June 30, 1995 Amount Shares
----------------------------------------------------------------------------------------------------------------
Preferred Stock at aggregate liquidation value (in thousands)
<S> <C> <C>
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 6,659 368,196
Issuance of shares pursuant to employee benefit plans 50 -
Other - (22)
----------------------------------------------------------------------------------------------------------------
Balance, end of period 6,709 368,174
----------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance, beginning of year 4,199
Net income 746
Common dividends (128)
Preferred dividends (43)
---------------------------------------------------------------------------------------------
Balance, end of period 4,774
---------------------------------------------------------------------------------------------
Treasury Stock (at cost)
Balance, beginning of year (1,553) (51,685)
Issuance of shares pursuant to employee benefit plans, net of shares
tendered for payment of option exercise price and withholding taxes 135 5,714
Treasury stock acquired (151) (3,900)
----------------------------------------------------------------------------------------------------------------
Balance, end of period (1,569) (49,871)
----------------------------------------------------------------------------------------------------------------
Unrealized Gain (Loss) on Investment Securities and Other
Balance, beginning of year (1,465)
Net change in unrealized gains and losses on investment securities 1,503
Translation adjustments, net 5
Restricted stock activity, net of amortization (89)
---------------------------------------------------------------------------------------------
Balance, end of period (46)
---------------------------------------------------------------------------------------------
Total common stockholders' equity and common shares outstanding $9,868 318,303
===============================================================================================================
Total stockholders' equity $10,668
=============================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
<TABLE><CAPTION>
Travelers Group Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In millions of dollars)
Six months ended June 30, 1995 1994
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Income from continuing operations
before income taxes $1,052 $925
Adjustments to reconcile income from continuing operations before income
taxes, to net cash provided by (used in) operating activities:
Amortization of deferred policy acquisition costs and value of insurance in force 407 405
Additions to deferred policy acquisition costs (431) (496)
Depreciation and amortization 152 164
Provision for credit losses 81 77
Changes in:
Trading securities, net (503) (580)
Securities borrowed, loaned and repurchase agreements, net 5,037 (467)
Brokerage receivables net of brokerage payables (3,138) 1,316
Insurance policy and claims reserves 414 510
Other, net 787 (641)
Net cash flows provided by (used in) operating activities of discontinued operations (780) 213
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations 3,078 1,426
Income taxes paid (284) (263)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 2,794 1,163
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Consumer loans originated or purchased (1,360) (1,430)
Consumer loans repaid or sold 1,069 1,071
Purchases of fixed maturities and equity securities (7,345) (4,555)
Proceeds from sales of investments and real estate:
Fixed maturities available for sale and equity securities 6,605 2,376
Mortgage loans 319 180
Real estate and real estate joint ventures 126 607
Proceeds from maturities of investments:
Fixed maturities 1,428 2,091
Mortgage loans 207 743
Other investments, primarily short term, net (2,004) (550)
Other, net (216) (206)
Net cash flows provided by (used in) investing activities of discontinued operations 1,169 (153)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (2) 174
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Dividends paid (171) (130)
Treasury stock acquired (151) (250)
Issuance of long-term debt 2,625 450
Payments and redemptions of long-term debt (1,069) (565)
Net change in short-term borrowings (including investment banking and brokerage borrowings) (3,151) (86)
Contractholder fund deposits 1,534 1,052
Contractholder fund withdrawals (2,189) (1,967)
Other, net (5) (10)
Net cash flows provided by (used in) financing activities of discontinued operations - 54
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (2,577) (1,452)
-----------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 215 (115)
Cash and cash equivalents at beginning of period 1,227 1,526
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,442 $ 1,411
-----------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 925 $ 509
=================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
Travelers Group Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements as of June 30,
1995 and for the three-month and six-month periods ended June 30, 1995 and
1994 are unaudited and include the accounts of Travelers Group Inc.
(formerly The Travelers Inc.) and its subsidiaries (the Company). 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, 1994.
Certain financial information that is normally included in annual 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 the prior year's financial
statements to conform to the current year's presentation.
As more fully described in Note 2, all of the operations comprising Managed
Care and Employee Benefits Operations (MCEBO), is presented as a
discontinued operation and, accordingly, prior year amounts have been
restated.
In June 1995, the Company announced that it plans to make a pro rata
distribution to the Company's stockholders of shares of Class A Common
Stock, $.01 par value per share, of Transport Holdings Inc. (Holdings),
currently a wholly owned subsidiary of the Company and which, at the time of
the distribution, will be the indirect owner of the business of Transport
Life Insurance Company. The distribution is subject to the satisfaction of
various conditions.
FAS 114 and FAS 118. Effective January 1, 1995 the Company adopted
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," and Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures," which describe how impaired loans
should be measured when determining the amount of a loan loss accrual.
These statements amended existing guidance on the measurement of
restructured loans in a troubled debt restructuring involving a modification
of terms. The adoption of these standards did not have a material impact on
the Company's financial condition, results of operations or liquidity.
2. Sale of Subsidiaries and Discontinued Operations
--------------------------------------------------
Sale of Subsidiaries
In December 1994 the Company sold its group dental insurance business to
Metropolitan Life Insurance Company (MetLife), and on January 3, 1995 the
Company sold its group life business as well as its related non-medical
group insurance businesses to MetLife for $350 million and recognized in the
first quarter of 1995 an after-tax gain of $20 million ($31 million
pre-tax).
On January 3, 1995, The Travelers Insurance Company (TIC) and MetLife, and
certain of their affiliates, formed The MetraHealth Companies, Inc.
(MetraHealth) joint venture by contributing their medical businesses to
MetraHealth, in exchange for shares of common stock of MetraHealth. The
7
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
total contribution made by TIC and its affiliates amounted to approximately
$483 million at carrying value. No gain was recognized upon the formation
of the joint venture. Upon formation of the joint venture TIC and its
affiliates owned 50% of the outstanding capital stock of MetraHealth, and
the other 50% was owned by MetLife and its affiliates. In March 1995,
MetraHealth acquired HealthSpring, Inc. for common stock of MetraHealth,
resulting in a reduction in the participation of the Company and MetLife in
the MetraHealth venture to 48.25% each.
In connection with the formation of the joint venture, the transfer of the
fee-based medical business (Administrative Services Only) and other
noninsurance business to MetraHealth was completed on January 3, 1995. As
the medical insurance business of The Travelers Insurance Group comes due
for renewal, and after obtaining regulatory approvals, the risks will be
transferred to MetraHealth. In the interim the related operating results
for this medical insurance business are being reported by The Travelers
Insurance Group.
On June 25, 1995 the Company agreed to United HealthCare Corporation's
(United) proposed acquisition of MetraHealth. According to the terms, the
Company will receive a total of $831 million in cash, and up to an
additional $169 million if a contingency payment based on 1995 results is
made.
Discontinued operations
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's Managed Care and Employee Benefits Operations
(MCEBO) segment in 1994 and in 1995 the Company's results reflect the
medical insurance business not yet transferred, plus its equity interest in
the earnings of MetraHealth. These operations have been accounted for as a
discontinued operation. Revenues from discontinued operations for the six
months ended June 30, 1995 and 1994 amounted to $716 million and $1.790
billion, respectively, and for the three months ended June 30, 1995 and 1994
amounted to $377 million and $876 million, respectively. The assets and
liabilities of the discontinued operations have not been segregated in the
Condensed Consolidated Statement of Financial Position as of June 30, 1995
and December 31, 1994. The assets and liabilities of the discontinued
operations consist primarily of investments, the equity interest in
MetraHealth and insurance-related assets and liabilities. At June 30, 1995
these assets amounted to $2.7 billion and these liabilities amounted to $2.3
billion. At December 31, 1994 these assets amounted to $3.5 billion and
these liabilities amounted to $3.2 billion.
3. Debt
----
Investment banking and brokerage borrowings consisted of the following:
<TABLE><CAPTION>
(millions) June 30, 1995 December 31, 1994
--------- ------------- -----------------
<S> <C> <C>
Commercial paper $1,595 $2,455
Uncollateralized borrowings 659 1,141
Collateralized borrowings - 185
Note to Lehman Brothers Holdings Inc. - 593
----- -----
$2,254 $4,374
===== =====
</TABLE>
Investment banking and brokerage borrowings are short-term and include
commercial paper and collateralized and uncollateralized borrowings used to
finance Smith Barney Holdings Inc.'s (Smith Barney) operations, including
the securities settlement process. The collateralized and uncollateralized
borrowings bear interest at variable rates based primarily on the federal
funds interest rate. The note to Lehman Brothers Holdings Inc. and its
subsidiaries (LBI) at December 31, 1994 represented a non-interest bearing
note outstanding in connection with LBI's activities under a clearing
agreement.
8
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
The clearing agreement terminated in the first quarter of 1995, and assets
and liabilities related to the clearing agreement were transferred to LBI in
exchange for cash equal to the net assets. At December 31, 1994, $11.855
billion of assets and $10.428 billion of liabilities related to the clearing
agreement were included in the Consolidated Statement of Financial Position.
Smith Barney has in place a commercial paper program that consists of both
discounted and interest-bearing paper and is currently authorized up to $2.5
billion. 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:
<TABLE><CAPTION>
(millions) June 30, 1995 December 31, 1994
--------- ------------- -----------------
<S> <C> <C>
Travelers Group Inc. $ - $ 101
Commercial Credit Company 1,381 2,305
The Travelers Insurance Company 68 74
------ -----
$1,449 $2,480
===== =====
</TABLE>
Travelers Group Inc. (the Parent), Commercial Credit Company (CCC) and 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, CCC and TIC have an agreement with a syndicate of banks to
provide $1.2 billion of revolving credit, to be allocated to any of the
Parent, CCC or TIC. The participation of TIC in this agreement is limited
to $250 million. The revolving credit facility consists of a five-year
revolving credit facility which expires in 1999. At June 30, 1995, $520
million was allocated to the Parent, $520 million was allocated to CCC and
$160 million was allocated to TIC. Under this facility the Company is
required to maintain a certain level of consolidated stockholders' equity
(as defined in the agreement). At June 30, 1995, the Company exceeded this
requirement by approximately $3.1 billion.
At June 30, 1995, CCC also had a committed and available revolving credit
facility on a stand- alone basis of $1.760 billion, which expires in 1999.
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, 1995, CCC would have been able to remit
$291 million to the Parent under its most restrictive covenants.
Long-term debt, including its current portion, consisted of the following:
<TABLE><CAPTION>
(millions) June 30, 1995 December 31, 1994
--------- ------------- -----------------
<S> <C> <C>
Travelers Group Inc. $1,709 $1,377
Commercial Credit Company 5,100 4,010
Smith Barney Holdings Inc. 1,725 1,600
The Travelers Insurance Group Inc. 79 88
------ -----
$8,613 $7,075
===== =====
</TABLE>
9
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
During the first six months of 1995 the Parent issued $350 million, CCC
issued $1.6 billion and Smith Barney issued $675 million of Notes with
varying interest rates and maturities.
Smith Barney has a $1.0 billion revolving credit agreement (the "Agreement")
with a bank syndicate that extends through May 1998. In addition, Smith
Barney has a $750 million 364-day revolving credit agreement with a bank
syndicate. As of June 30, 1995, there were no borrowings outstanding under
either facility.
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, 1995,
Smith Barney would have been able to remit approximately $563 million to the
Parent under its most restrictive covenants.
Under Connecticut law the statutory capital and surplus of The Travelers
Insurance Group Inc., which amounted to $4.218 billion at December 31, 1994,
is not available in 1995 for dividends to its parent without prior approval
of the Connecticut Insurance Department.
4. Contingencies
-------------
A subsidiary of The Travelers Insurance Group is in arbitration with
certain underwriters at Lloyds of London (Lloyd's) in New York state to
enforce reinsurance contracts with respect to recoveries for certain
asbestos claims. The dispute involves the ability of The Travelers
Insurance Group to aggregate asbestos products claims with asbestos premises
claims under a market agreement between Lloyd's and Travelers Insurance or
under the applicable reinsurance treaties.
On insurance contracts written many years ago by The Travelers Insurance
Group, 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.
However, the industry does not have a standard method of calculating claim
activity for environmental and asbestos losses. In each of these areas of
exposure, Travelers Insurance 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 or range of exposure represented by these
claims to the Company's financial condition, results of operations or
liquidity. The Company believes that it is reasonably possible that the
outcome of the uncertainties regarding environmental and asbestos claims
could result in a liability exceeding the reserves by an amount that would
be material to operating results in a future period. 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.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
Consolidated Results of Operations
<TABLE><CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
(In millions, except per share amounts) 1995 1994 1995 1994
---------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenues $4,172 $3,725 $8,132 $7,580
====== ====== ====== ======
Income from continuing operations $377 $286 $682 $593
Income from discontinued operations 29 34 64 67
-- -- -- --
Net income $406 $320 $746 $660
==== ==== ==== ====
Earnings per share:
Continuing operations $1.12 $0.82 $2.03 $1.70
Discontinued operations 0.10 0.11 0.20 0.20
---- ---- ---- ----
Net income $1.22 $0.93 $2.23 $1.90
===== ===== ===== =====
Weighted average number of
common shares outstanding
and common stock equivalents 316.8 323.0 316.0 325.2
===== ===== ===== =====
</TABLE>
Results of Operations
Income from continuing operations for the quarter ended June 30, 1995 was $377
million compared to $286 million in the year ago period. Included in the 1995
second quarter are reported after-tax investment portfolio gains of $4 million
compared to reported after-tax portfolio gains of $8 million in the 1994 period.
Excluding these items, income from continuing operations for the second quarter
of 1995 was 34% above the comparable period in 1994, reflecting primarily
improved performance at Smith Barney, Consumer Finance Services, Primerica
Financial Services and The Travelers Insurance Group, partially offset by
increased corporate expenses.
Income from continuing operations for the six months ended June 30, 1995 was
$682 million compared to $593 million in the year ago period. Included in the
1995 six-month period are reported after-tax investment portfolio losses of $14
million compared to reported after-tax portfolio gains of $5 million in the 1994
six month period. Excluding these items, income from continuing operations for
the first six months of 1995 was 18% above the comparable period in 1994.
Discontinued Operations
As discussed in Note 2 of Notes to Condensed Consolidated Financial Statements,
the group life and related businesses of The Travelers Insurance Group have been
sold to Metropolitan Life Insurance Company (MetLife) and in January 1995, the
group medical component was exchanged for a 50% interest in The MetraHealth
Companies, Inc. (MetraHealth). The Company's interest in MetraHealth has been
accounted for on the equity method. On June 25, 1995 the Company agreed to
United HealthCare Corporation's (United) proposed acquisition of MetraHealth,
which is currently 48.25% owned by the Company.
11
<PAGE>
The following discussion presents in more detail each segment's performance.
Segment Results for the Three Months Ended June 30, 1995 and June 30, 1994
--------------------------------------------------------------------------
Investment Services
<TABLE><CAPTION>
Three Months Ended June 30,
--------------------------------------------------------
(millions) 1995 1994
------------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Smith Barney $1,692 $135 $1,285 $79
Mutual Funds and Asset Management (1) - - 40 8
------------------------------------------------------------------------------------------------------
Total Investment Services $1,692 $135 $1,325 $87
======================================================================================================
</TABLE>
(1) American Capital Management & Research Inc. was sold during 1994. RCM
Capital Management, the remaining component of what were the Mutual Funds
and Asset Management operations in 1994, is reported as part of Corporate
and Other in 1995.
Smith Barney
Smith Barney reported net income of $135 million for the three months ended June
30, 1995, a 71% increase over the $79 million reported for the three months
ended June 30, 1994. Smith Barney's net income for the 1995 quarter reflects an
improvement over each of the past four quarters.
Smith Barney Revenues
<TABLE><CAPTION>
Three Months Ended June 30,
------------------------------------
(millions) 1995 1994
------------------------------------------------------------------------
<S> <C> <C>
Commissions $ 534 $ 463
Investment banking 226 180
Principal trading 225 180
Asset management fees 187 180
Interest income, net* 97 76
Other income 50 36
------------------------------------------------------------------------
Net revenues* $1,319 $1,115
========================================================================
</TABLE>
* Net of interest expense of $373 and $170 for the three-month periods ended
June 30, 1995 and 1994, respectively. Revenues included in the condensed
consolidated statement of income are before deductions for interest expense.
Revenues net of interest expense increased 18% compared to 1994's second
quarter, reflecting increases across the board. Commission revenues increased
by 15% to $534 million in the 1995 second quarter compared to $463 million in
the 1994 period. The increase reflects higher activity in listed securities
and the over the counter market. Investment banking revenues increased 25% to
$226 million in the 1995 second quarter compared to $180 million in the 1994
period, and was attributable to strong results in equity, unit trust and debt
underwriting as well as an increase in Smith Barney's market share. Principal
trading revenues increased 25% to $225 million for the 1995 second quarter as
compared to $180 million in the 1994 period, as results were particularly
strong in equities. Asset management fees were $187 million in the 1995
quarter compared to $180 million in the 1994 period. At June 30, 1995, Smith
Barney had assets under management of $87.4 billion, up from
12
<PAGE>
$79.1 billion a year ago. Net interest income was a record $97 million in the
1995 second quarter, up 28% from $76 million in the 1994 period, reflecting
improved earnings from Smith Barney's net asset mix.
Total expenses, excluding interest, increased 11% to $1.086 billion in the 1995
second quarter as compared to $979 million in the 1994 period. This increase
was driven by higher production-related financial consultant compensation and
other employee compensation and benefits expense, which increased 13% to $788
million in the 1995 period as compared to $695 million in the 1994 period.
Expenses other than interest and employee compensation and benefits increased 5%
to $298 million in the 1995 period as compared to $284 million in the 1994
period. However, the number of non-production employees and the level of fixed
expenses continued their downward trend that began in the fourth quarter of
1994.
Smith Barney's business is significantly affected by the levels of activity in
the securities markets, which in turn are affected by the level and trend of
interest rates, the general state of the economy and the national and worldwide
political environments, among other factors. An increasing interest rate
environment could have an adverse impact on Smith Barney's businesses, including
commissions (which are linked in part to the economic attractiveness of
securities relative to time deposits) and investment banking (which is affected
by the relative benefit to corporations and public entities of issuing public
debt and/or equity versus other avenues for raising capital). Such effects,
however, could be at least partially offset by a strengthening U.S. economy that
would include growth in the business sector -- accompanied by an increase in the
demand for capital -- and an increase in the capacity of individuals to invest.
A decline in interest rates could favorably impact Smith Barney's business.
Smith Barney will continue to concentrate on building its asset management
business, which tends to provide a more predictable and steady income stream
than its other businesses. Smith Barney continues to maintain tight expense
controls that management believes will help the firm weather periodic downturns
in market conditions.
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 Smith
Barney's 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.
Note 19 of Notes to the Consolidated Financial Statements included in the
Company's 1994 Annual Report describes Smith Barney's activities in derivative
financial instruments, which are used primarily to facilitate customer
transactions.
Assets Under Management
<TABLE><CAPTION>
At June 30,
----------------------------------
(billions) 1995 1994
---------------------------------------------------------------------------------
<S> <C> <C>
Smith Barney $ 87.4 $ 79.1
RCM Capital Management (1) 25.5 23.2
Travelers Life and Annuities (2) 20.9 20.2
---------------------------------------------------------------------------------
Total Assets Under Management $133.8 $122.5
=================================================================================
</TABLE>
(1) Part of the Corporate and Other segment.
(2) Part of the Life Insurance Services segment.
13
<PAGE>
Consumer Finance Services
<TABLE><CAPTION>
Three Months Ended June 30,
--------------------------------------------------------
(millions) 1995 1994
----------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Finance Services $338 $60 $303 $55
========================================================================================
</TABLE>
The 10% increase in Consumer Finance net income in the second quarter of 1995
over the same period last year reflects continued growth in receivables
outstanding and an improvement in net interest margins for the segment.
Receivables outstanding (before allowance for losses and accrued interest
receivable) totaled $7.103 billion at the end of the second quarter of 1995,
reflecting a 7% increase over June 30, 1994. Receivables growth has been at a
somewhat slower pace than in 1994, and could be adversely affected by increasing
first mortgage refinancings in the latter half of 1995. Proceeds of such
refinancings are sometimes used by the borrowers to pay off second mortgages in
the consumer finance portfolio.
The average yield on the portfolio was up 29 basis points from a year ago, to
15.57%. Net interest margin increased 7 basis points to 8.69%, reflecting the
higher yield offset somewhat by a higher cost of funds to the segment.
The charge-off rate, which is expected to trend up from the record low levels in
1994, was 2.14% for the quarter versus 2.07% in the comparable 1994 period, but
down slightly from 2.16% in the 1995 first quarter. 60+ day delinquencies were
relatively even with last year at 1.86% though up slightly from 1.83% in the
first quarter of 1995.
Since the beginning of the year, the number of branches increased by 49,
bringing the total number of offices to 877 at quarter end.
<TABLE><CAPTION>
As of, and for, the
Three Months Ended June 30,
-------------------------------
1995 1994
-------------------------------
<S> <C> <C>
Allowance for losses as % of net
consumer finance receivables 2.64% 2.64%
Charge-off rate 2.14% 2.07%
60 + days past due on a contractual
basis as % of gross consumer
finance receivables at quarter end 1.86% 1.88%
</TABLE>
14
<PAGE>
Life Insurance Services
<TABLE><CAPTION>
Three Months Ended June 30,
-------------------------------------------------------------
(millions) 1995 1994
------------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primerica Financial Services(1) $343 $ 66 $322 $ 55
Travelers Life and Annuities(2) 614 70 541 53
------------------------------------------------------------------------------------------------------
Total Life Insurance Services $957 $136 $863 $108
======================================================================================================
</TABLE>
(1) Net income includes $7 and $3 of reported investment portfolio gains in
1995 and 1994, respectively.
(2) Net income includes $4 of reported investment portfolio gains in 1994.
Primerica Financial Services
Earnings before portfolio gains for the second quarter of 1995 increased 13%
over the comparable 1994 period reflecting continued growth in life insurance in
force as well as improved mortality results compared to the second quarter of
1994.
Face amount of new term life insurance sales was $13.5 billion in the quarter,
down from $15.0 billion in the prior year period and essentially even with the
first quarter of 1995. Life insurance in force reached a record $341.8 billion,
up from $325.9 billion at June 30, 1994, and continued to reflect good policy
persistency.
Sales of mutual funds declined from the prior year's record sales of $371
million (at net asset value) for the quarter, to sales of $318 million this
year. Net receivables from $.M.A.R.T. and S.A.F.E. consumer loans continued to
advance to $1.2 billion at the end of the second quarter of 1995, up 25% from
$954 million in the comparable 1994 period and ahead of first quarter 1995
levels.
Travelers Life and Annuities
Earnings before portfolio gains increased 41% to $70 million for the second
quarter of 1995 from $49 million in the comparable 1994 period. Higher retained
investment margins and lower administrative expenses propelled the quarter's
earnings growth. Investment margins continue to be helped by the reinvestment
of proceeds from real estate sales and generally higher levels of interest
rates.
Individual annuity production was strong during the second quarter of 1995,
compared to the prior period levels, primarily reflecting increased sales of
variable annuities. Sales continue to be aided by the success of the Vintage
annuity product distributed by Smith Barney Financial Consultants, which was
launched in June 1994. Net written premiums and deposits for individual
annuities during the second quarter of 1995 totaled $400.1 million compared to
$300.3 million in the comparable 1994 period, bringing total policyholder
account balances and benefit reserves to $11.8 billion at June 30, 1995 compared
to $10.4 billion at June 30, 1994. Annuity sales activity has been helped by
the ratings upgrades that accompanied the merger of Primerica and The Travelers
Corporation. The most recent upgrade in April 1995 by A.M. Best, which upgraded
The Travelers Insurance Company to an "A" rating, is expected to have a positive
impact on Travelers Life and Annuities production. This rating is not a
recommendation to buy, sell or hold securities, and it may be revised or
withdrawn at any time.
In the group annuity business, net written premiums and deposits for the second
quarter of 1995 were $250.1 million compared to $90.9 million in last year's
period, reflecting an increase in sales of new group investment contracts that
are being selectively underwritten in 1995. Policyholder account balances
15
<PAGE>
and benefit reserves totaled $11.3 billion at June 30, 1995, down from $12.6
billion at June 30, 1994 and $12.2 billion at December 31, 1994.
During the second quarter of 1995, Travelers Life and Annuities operations
issued $1.5 billion of face amount of individual life insurance, down from $2.6
billion during the second quarter of 1994, bringing total life insurance in
force to $49.2 billion at June 30, 1995. The reduction in face amount issued
reflects intense competition in the independent agent segment of the term
insurance market. Individual life insurance net written premiums and deposits
totaled $62.9 million during the second quarter of 1995 compared to $67.0
million in the second quarter of 1994 reflecting the purchase of additional
reinsurance coverage in 1995.
Net written premiums for individual accident and health products, primarily
long-term care, increased to $85.8 million for the quarter ended June 30, 1995,
from $85.6 million for the quarter ended June 30, 1994.
Property & Casualty Insurance Services
<TABLE><CAPTION>
Three Months Ended June 30,
----------------------------------------------------
(millions) 1995 1994
------------------------------------------------------------------------------------------------------
Net Net
Revenues income Revenues income
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial (1) $ 813 $74 $ 854 $56
Personal (2) 361 26 386 26
------------------------------------------------------------------------------------------------------
Total Property & Casualty Insurance Services $1,174 $100 $1,240 $82
======================================================================================================
</TABLE>
(1) Net income includes $2 of reported investment portfolio losses in 1995 and
$1 of reported investment portfolio gains in 1994.
(2) Net income includes $1 of reported investment portfolio losses in 1995.
Commercial Lines
Earnings before portfolio losses for the quarter ended June 30, 1995 were $21
million above the 1994 level. The improvement relative to 1994 is primarily due
to a significant increase in net investment income and the continued reduction
in operating expenses. Commercial Lines net written premiums and equivalents
for the second quarter of 1995 totaled $1.216 billion compared to $1.205 billion
in the second quarter of 1994.
A significant component of Commercial Lines is the national accounts division
(National), 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.
National account equivalents of $563 million for the quarter ended June 30,
1995 were $8 million below the same period of 1994. This decline reflects
selective renewal activity because of the competitive pricing environment as
well as continued success in lowering clients' workers compensation losses
(which reduces premiums and equivalents). Premiums for national accounts for
the second quarter of 1995 totaled $85 million compared to $103 million in
the prior year period. This decline reflects an ongoing shift from risk-
bearing business into non risk-bearing business, efforts to help customers
control their loss costs and a shift of California customers to newly
available deductible programs from fully insured programs.
16
<PAGE>
Commercial Lines Agency Marketing (Agency) business serves small and mid-sized
businesses through brokers and approximately 2,500 independent agents. Net
written premiums increased 2% to $374 million, while Agency equivalents
continued their growth to $113 million, $23 million above second quarter 1994
levels, reflecting an ongoing shift from risk-bearing business into non
risk-bearing business. New business volume in the mid-size segment was $77
million, down $10 million from the same period in 1994, reflecting selective
underwriting activity due to the competitive pricing environment, while the
new business volume in the small business market was $33 million, $4 million
better than the 1994 level. Agency continues to focus on the retention of
existing business and maximization of product pricing while maintaining its
selective underwriting policy.
Specialty Insurance premiums of $81 million for the three months ended June 30,
1995 were $8 million better than the same period in 1994. This 11% increase is
attributable to higher production across several product lines.
The combined ratio for Commercial Lines in the second quarter of 1995 was 109.3%
compared to 113.4% in the second quarter of 1994. The improvement is
attributable to overall expense reductions.
Personal Lines
Earnings continue to reflect strong performance in the agency network in
targeted markets and aggressive expense reduction initiatives, partially offset
by start-up costs of a Primerica Financial Services (PFS) sales initiative
whereby automobile and homeowners insurance will be marketed by the PFS sales
force in selected states.
Net written premiums for the second quarter of 1995 were $319 million, compared
to $363 million in the second quarter of 1994. The decline was attributable to
the sale of Bankers and Shippers Insurance Company in October 1994. Excluding
Bankers and Shippers business, net written premiums for the second quarter of
1995 were up approximately 8% from 1994, reflecting reduced reinsurance ceded
(due to lower catastrophe exposure) and targeted growth in sales through
independent agents.
Catastrophe losses, after taxes and net of reinsurance, were $1.9 million in the
second quarter of 1995 versus $1.5 million in the second quarter of 1994.
Effective April 1, 1995, the threshold of losses incurred to qualify a specific
event as a catastrophe was increased.
The combined ratio for Personal Lines in the second quarter of 1995 was 103.7%
compared to 102.3% in the 1994 second quarter.
Corporate and Other
<TABLE><CAPTION>
Three Months Ended June 30,
-------------------------------------------------------
(millions) 1995 1994
------------------------------------------------------------------------------------------------------
Net income Net income
Revenues (expense) Revenues (expense)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate and Other $11 $(54) $(6) $(46)
======================================================================================================
</TABLE>
The increase in Corporate and Other net expenses for the second quarter of 1995
over the second quarter of 1994 is primarily attributable to increased staff
expenses and interest costs borne at the corporate level.
17
<PAGE>
Discontinued Operations
Three Months Ended June 30,
---------------------------------
(millions) 1995 1994
------------------------------------------------------------
Net income Net income
------------------------------------------------------------
Discontinued operations $29 $34
============================================================
Segment Results for the Six Months Ended June 30, 1995 and 1994
---------------------------------------------------------------
The overall operating trends for the six months ended June 30, 1995 and 1994
were substantially the same as those of the second quarter periods except as
noted below.
Investment Services
<TABLE><CAPTION>
Six Months Ended June 30,
---------------------------------------------------------
(millions) 1995 1994
------------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Smith Barney $3,216 $235 $2,738 $223
Mutual Funds and Asset Management - - 80 17
------------------------------------------------------------------------------------------------------
Total Investment Services $3,216 $235 $2,818 $240
======================================================================================================
</TABLE>
Smith Barney Revenues
<TABLE><CAPTION>
Six Months Ended June 30,
-----------------------------------
(millions) 1995 1994
-------------------------------------------------------------------------
<S> <C> <C>
Commissions $1,024 $1,070
Investment banking 342 376
Principal trading 507 419
Asset management fees 369 362
Interest income, net* 189 150
Other income 97 88
-------------------------------------------------------------------------
Net revenues* $2,528 $2,465
=========================================================================
</TABLE>
*Net of interest expense of $688 and $273 for the six-month periods ended
June 30, 1995 and 1994, respectively. Revenues included in the condensed
consolidated statement of income are before deductions for interest expense.
Revenues net of interest expense increased 3% compared to 1994's first six
months, reflecting higher principal trading revenues, net interest income and
asset management fees offset by lower retail commissions and an industry-wide
decline in domestic underwritings of new stock and bond issues in the first
quarter of 1995. Commission revenues declined by 4% to $1.024 billion in the
1995 first half compared to $1.070 billion in the 1994 period. The decline
reflects lower volumes of customer activity in the 1995 first half when compared
to the 1994 period's record volume, particularly in mutual funds
18
<PAGE>
and futures activity, offset to some extent by increased activity in listed
securities and the over-the-counter market. Investment banking revenues
decreased 9% to $342 million in the 1995 first half compared to $376 million in
the 1994 period, as industry-wide underwriting volume fell approximately 50%
when comparing the first quarter of 1995 to the first quarter of 1994.
Offsetting this to some extent was strong volume in equity, unit trust and
corporate debt underwriting as well as an increase in Smith Barney's market
share in the second quarter of 1995. Principal trading revenues were higher in
almost all product categories, increasing 21% to $507 million for the 1995
first half as compared to $419 million in the 1994 period. Results improved
in taxable fixed income, municipal and foreign exchange trading, but were
offset to some extent by a decline in foreign equity securities trading.
Asset management fees increased 2% to $369 million in the 1995 period compared
to $362 million in the 1994 period. Net interest income was a record $189
million in the 1995 first half, up 26% from $150 million in the 1994 period.
Total expenses, excluding interest, increased 2% to $2.119 billion in the 1995
first six months as compared to $2.070 billion in the 1994 period. This
increase was driven by higher employee compensation and benefits expense as well
as an increase in depreciation expense driven by the upgrade in systems and
infrastructure.
Consumer Finance Services
<TABLE><CAPTION>
Six Months Ended June 30,
-------------------------------------------------------
(millions) 1995 1994
---------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Finance Services $662 $116 $603 $106
=======================================================================================
</TABLE>
The average yield on the portfolio for the first half of 1995 was up 25 basis
points from a year ago, to 15.50%. Net interest margin increased 10 basis
points to 8.67%, reflecting the higher yield offset somewhat by a higher cost of
funds to the segment. The charge-off rate for the first half of 1995 was 2.15%,
compared to 2.16% in the 1994 period.
Life Insurance Services
<TABLE><CAPTION>
Six Months Ended June 30,
-------------------------------------------------------------
(millions) 1995 1994
------------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primerica Financial Services(1) $ 675 $125 $ 640 $105
Travelers Life and Annuities(2) 1,205 119 1,087 95
------------------------------------------------------------------------------------------------------
Total Life Insurance Services $1,880 $244 $1,727 $200
======================================================================================================
</TABLE>
(1) Net income includes $12 and $5 of reported investment portfolio gains in
1995 and 1994, respectively.
(2) Net income includes $20 of reported investment portfolio losses in 1995 and
$6 of reported investment portfolio gains in 1994.
19
<PAGE>
Primerica Financial Services
Face amount of new term life insurance sales was $26.9 billion in the first half
of 1995, slightly below the $27.9 billion in prior year period. Sales of mutual
funds declined from the prior year's record sales of $738 million (at net asset
value) for the first half of 1994, to sales of $599 million this year.
Travelers Life and Annuities
Individual annuity production was strong during the first half of 1995, compared
to the prior period levels, primarily reflecting increased sales of variable
annuities. Net written premiums and deposits for individual annuities during
the first half of 1995 totaled $767.4 million compared to $617.4 million in the
comparable 1994 period.
In the group annuity business, net written premiums and deposits for the first
half of 1995 were $585.9 million (excluding intercompany items) compared to
$515.6 million in last year's period.
During the first half of 1995, Travelers Life and Annuities operations issued
$3.0 billion of face amount of individual life insurance, down from $5.0 billion
during the first half of 1994. The reduction in face amount issued reflects
intense competition in the independent agent segment of the term insurance
market. Individual life insurance net written premiums and deposits totaled
$124.5 million during the first half of 1995 compared to $132.9 million in the
first half of 1994.
Net written premiums for individual accident and health products, primarily
long-term care, increased to $168.7 million for the first half of 1995, from
$167.3 million for the first half of 1994.
Property & Casualty Insurance Services
<TABLE><CAPTION>
Six Months Ended June 30,
-----------------------------------------------------
(millions) 1995 1994
------------------------------------------------------------------------------------------------------
Net Net
Revenues income Revenues income
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial (1) $ 1,626 $142 $ 1,690 $99
Personal (2) 721 48 752 36
------------------------------------------------------------------------------------------------------
Total Property & Casualty Insurance Services $2,347 $190 $2,442 $135
======================================================================================================
</TABLE>
(1) Net income includes $3 and $4 of reported investment portfolio losses in
1995 and 1994, respectively.
(2) Net income includes $3 and $2 of reported investment portfolio losses in
1995 and 1994, respectively.
Commercial Lines
Commercial Lines net written premiums and equivalents for the first half of 1995
totaled $2.7 billion compared to $2.9 billion in the first half of 1994.
National account equivalents of $1.34 billion for the first half of 1995 were
$130 million below the same period of 1994. This decline reflects selective
renewal activity because of the competitive pricing environment as well as
continued success in lowering clients' workers compensation losses (which
reduces premiums and equivalents). Premiums for national accounts for the
first half of 1995 totaled $186 million compared to $312 million in the prior
year period. This decline reflects an ongoing shift from risk-bearing
business into non risk-bearing business, efforts to help customers control
their loss costs and a shift of California customers to newly available
deductible programs from fully insured programs. For the first half of 1995,
new business was $180 million compared to $178 million for the first half of
1994.
20
<PAGE>
Commercial Lines Agency Marketing (Agency) business net written premiums
declined 2% to $782 million, as soft market conditions affected the guaranteed
cost business, while Agency equivalents continued their growth to $222 million,
$48 million above first half of 1994 levels, reflecting an ongoing shift from
risk-bearing business into non risk-bearing business. New business volume in
the mid-size segment was $166 million, down $27 million or 14% from the same
period in 1994 while the new business volume in the small business market was
$60 million, $5 million better than 1994 level.
Specialty Insurance premiums of $179 million for the first half of 1995 were $32
million better than the same period in 1994. This 22% increase is attributable
to higher production across several product lines.
The combined ratio for Commercial Lines in the first half of 1995 was 109.6%
compared to 112.1% in the first half of 1994. This reflects improvement in loss
trends particularly in the workers' compensation line of business as well as
overall expense reductions.
Personal Lines
Net written premiums for the first half of 1995 were $673 million, compared to
$725 million in the first half of 1994. The decline was attributable to the
sale of Bankers and Shippers Insurance Company in October 1994. Excluding
Bankers and Shippers business, net written premiums for the first half of 1995
were up approximately 12% from 1994, reflecting reduced reinsurance ceded (due
to lower catastrophe exposure) and targeted growth in sales through independent
agents.
Catastrophe losses, after taxes and net of reinsurance, were $3.5 million in the
first half of 1995 versus $21.2 million in the first half of 1994. Last year's
first half was impacted by unusually heavy winter storm activity in the first
quarter.
The combined ratio for Personal Lines in the first half of 1995 was 103.1%
compared to 105.6% in the 1994 first half. The improvement is attributable to
lower catastrophe losses as well as overall expense reductions.
Environmental Claims
The following table displays activity for environmental losses and loss expenses
and reserves for the six months ended June 30, 1995 and 1994. Approximately
15% of the net environmental loss reserve (i.e. approximately $64 million) is
case reserve for resolved claims. Travelers Insurance does not post case
reserves for environmental claims in which there is a coverage dispute until the
dispute is resolved. Until then, the estimated amounts for disputed coverage
claims are carried in a bulk reserve, together with unreported environmental
losses.
21
<PAGE>
<TABLE><CAPTION>
Environmental Losses Six Months Ended Six Months Ended
(millions) June 30, 1995 June 30, 1994
----------------- -----------------
<S> <C> <C>
Beginning reserves:
Gross $ 482 $ 504
Ceded (11) (13)
---- ----
Net 471 491
Incurred losses and loss expenses:
Direct 31 25
Ceded (1) (1)
Losses paid:
Direct 52 36
Ceded (1) (2)
Ending reserves:
Gross 461 493
Ceded (11) (12)
---- ----
Net $ 450 $ 481
---- ----
</TABLE>
As of June 30, 1995, Travelers Insurance had approximately 9,600 pending
environmental-related claims and had resolved over 18,700 such claims since
1986. Approximately 70% of the pending claims in inventory represent federal or
state EPA-type claims tendered by approximately 700 insureds. The balance
represents bodily injury claims alleging injury due to the discharge of
insureds' waste or pollutants.
Asbestos Claims
The following table displays activity for asbestos losses and loss expenses and
reserves for the six months ended June 30, 1995 and 1994. Approximately 80% of
the net asbestos reserves at June 30, 1995 represented incurred but not reported
losses.
<TABLE><CAPTION>
Asbestos Losses Six Months Ended Six Months Ended
(millions) June 30, 1995 June 30, 1994
------------------ -----------------
<S> <C> <C>
Beginning reserves:
Gross $ 702 $ 775
Ceded (319) (381)
----- -----
Net 383 394
Incurred losses and loss expenses:
Direct 71 36
Ceded (51) (13)
Losses paid:
Direct 50 52
Ceded (72) (45)
Ending reserves:
Gross 723 759
Ceded (298) (349)
---- ----
Net $ 425 $ 410
---- ----
</TABLE>
In relation to these asbestos and environmental-related claims, Travelers
Insurance carries on a continuing review of its overall position, its reserving
techniques and reinsurance recoverable. In each of these areas of exposure,
Travelers Insurance has endeavored to litigate individual cases and settle
claims on favorable
22
<PAGE>
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 or
range of exposure represented by these claims to the Company's financial
condition, results of operations or liquidity. The Company believes that it is
reasonably possible that the outcome of the uncertainties regarding
environmental and asbestos claims could result in a liability exceeding the
reserves by an amount that would be material to operating results in a future
period. However, it is not likely these claims will have a material adverse
effect on the Company's financial condition or liquidity.
Corporate and Other
<TABLE><CAPTION>
Six Months Ended June 30,
-------------------------------------------------------
(millions) 1995 1994
------------------------------------------------------------------------------------------------------
Net income Net income
Revenues (expense) Revenues (expense)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate and Other $27 $(103) $(10) $(88)
======================================================================================================
</TABLE>
The increase in Corporate and Other net expenses for the first half of 1995 over
the first half of 1994 is primarily attributable to increased corporate expenses
and increases in interest costs borne at the corporate level.
Discontinued Operations
<TABLE><CAPTION>
Six Months Ended June 30,
--------------------------------
(millions) 1995 1994
--------------------------------------------------------------------------------
Net income Net income
--------------------------------------------------------------------------------
<S> <C> <C>
Operations $44 $67
Gain on disposition 20 -
--------------------------------------------------------------------------------
Total discontinued operations $64 $67
================================================================================
</TABLE>
Gain on disposition represents the gain from the sale in January 1995 of the
Company's group life insurance business to MetLife.
Liquidity and Capital Resources
Travelers Group Inc. (the Parent) services its obligations primarily with
dividends and other advances that it receives from subsidiaries. The
subsidiaries' dividend-paying abilities are limited by certain covenant
restrictions in bank and/or credit agreements and/or by 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.
23
<PAGE>
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, CCC and TIC have an agreement with a syndicate of banks to provide
$1.2 billion of revolving credit, to be allocated to any of the Parent, CCC or
TIC. The participation of TIC in this agreement is limited to $250 million.
The revolving credit facility consists of a five-year revolving credit facility
which expires in 1999. At June 30, 1995, $520 million was allocated to CCC and
$160 million to TIC. Under this facility the Company is required to maintain a
certain level of consolidated stockholders' equity (as defined in the
agreement). At June 30, 1995 the Company exceeded this requirement by
approximately $3.1 billion.
As of June 30, 1995, the Parent had unused credit availability of $520 million.
The Parent may borrow under its revolving credit facilities at various interest
rate options and compensates the banks for the facilities through commitment
fees.
The Parent completed the following long-term debt offerings in 1995 and, as of
August 10, 1995, had $450 million available for debt offerings under its shelf
registration statement:
- 7 7/8% Notes due May 15, 2025 . . . . . . . . . $200 million
- 6 7/8% Notes due June 1, 2025 . . . . . . . . . $150 million
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, 1995, CCC had
unused credit availability of $2.280 billion. CCC may borrow under its
revolving credit facilities at various interest rate options and compensates the
banks for the facilities through commitment fees.
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, 1995, CCC would have been able to remit $291 million to
the Parent under its most restrictive covenants.
CCC completed the following long-term debt offerings in 1995 and, as of August
10, 1995, had $750 million available for debt offerings under its shelf
registration statement:
- 7 7/8% Notes due February 1, 2025 . . . . . . . . . $200 million
- 7 3/4% Notes due March 1, 2005 . . . . . . . . . . $200 million
- 7 3/8% Notes due March 15, 2002 . . . . . . . . . . $200 million
- 7 3/8% Notes due April 15, 2005 . . . . . . . . . . $200 million
- 6 7/8% Notes due May 1, 2002 . . . . . . . . . . . $200 million
- 6 3/4% Notes due May 15, 2000 . . . . . . . . . . . $200 million
- 6 5/8% Notes due June 1, 2015 . . . . . . . . . . . $200 million
- 6 1/2% Notes due June 1, 2005 . . . . . . . . . . . $200 million
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 inventories, customer balances
and securities borrowing transactions. Smith Barney
24
<PAGE>
has a $1.0 billion revolving credit agreement (the "Agreement") with a bank
syndicate that extends through May 1998. In addition, Smith Barney has a $750
million 364-day revolving credit agreement with a bank syndicate. As of June
30, 1995, there were no borrowings outstanding under either 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.
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, 1995, Smith
Barney would have been able to remit approximately $563 million to the Parent
under its most restrictive covenants.
Smith Barney completed the following long-term debt offerings in 1995 and, as of
August 10, 1995, had $1.125 billion available for debt offerings under its shelf
registration statements:
- 7.98% Notes due March 1, 2000 . . . . . . . . . $200 million
- 7.50% Notes due May 1, 2002 . . . . . . . . . . $150 million
- 7.00% Notes due May 15, 2000 . . . . . . . . . . $150 million
- 6 7/8% Notes due June 15, 2005 . . . . . . . . . $175 million
Securities Borrowed, Loaned and Subject to Repurchase Agreements
Smith Barney engages in "matched book" transactions in government and
mortgage-backed securities as well as "conduit" transactions in corporate equity
and debt securities. These transactions are similar in nature. A "matched
book" transaction involves a security purchased under an agreement to resell
(i.e., reverse repurchase transaction) and simultaneously sold under an
agreement to repurchase (i.e., repurchase transaction). A "conduit" transaction
involves the borrowing of a security from a counterparty and the simultaneous
lending of the security to another counterparty. These transactions are
reported gross in the Condensed Consolidated Statement of Financial Position and
typically yield relatively small interest spreads, generally ranging from 10 to
30 basis points. The interest spread results from the net of interest received
on the reverse repurchase or security borrowed transaction and the interest paid
on the corresponding repurchase or security loaned transaction. Interest rates
charged or credited in these activities are usually based on current Federal
Funds rates but can fluctuate based on security availability and other market
conditions. The size of balance sheet positions resulting from these activities
can vary significantly depending primarily on levels of activity in the bond
markets, but would have a relatively smaller impact on net income.
The Travelers Insurance Group
At June 30, 1995, The Travelers Insurance Group had $20.8 billion of life and
annuity product deposit funds and reserves. Of that total, $9.9 billion are not
subject to discretionary withdrawal based on contract terms. The remaining
$10.9 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 $1.4 billion of liabilities that are
surrenderable with market value adjustments. An additional $5.8 billion of the
life insurance and individual annuity liabilities, subject to discretionary
withdrawal, have an average surrender charge of 5.4% and $1.1 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 $2.6 billion of liabilities are surrenderable without charge. More
than 25% of these relate to individual life products. These risks would have
to be underwritten again if transferred
25
<PAGE>
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, 1995, TIC has unused credit
availability of $160 million.
Under Connecticut law the statutory capital and surplus of The Travelers
Insurance Group, which amounted to $4.2 billion at December 31, 1994, is not
available in 1995 for dividends to its parent without prior approval of the
Connecticut Insurance Department.
Accounting Standards Not Yet Adopted
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121).
This Statement establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. This Statement requires write down to fair
value when long-lived assets to be held and used are impaired. The Statement
also requires long-lived assets to be disposed of (e.g., real estate held for
sale) to be carried at the lower of cost or fair value less cost to sell and
does not allow such assets to be depreciated. This statement will be
effective for 1996 financial statements, although earlier adoption is
permissible. The Company has not yet determined when it will adopt FAS 121,
however the impact is not expected to be material to its results of
operations, financial condition or liquidity.
26
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
For information concerning purported class actions and an individual
action against Smith Barney Inc. ("SBI") and others in connection with Worlds of
Wonder common stock and convertible debentures, see the description that appears
in the first, second and third paragraphs 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 first paragraph of page 30 of the Company's filing on Form 10-K for the
year ended December 31, 1990, 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 individual action was dismissed in May 1992.
Summary judgment was granted for SBI and the other defendants in the class
action in January 1993, and was affirmed by the U.S. Court of Appeals for the
Ninth Circuit in September 1994. In July 1995, plaintiffs filed a petition for
certiorari with the U.S. Supreme Court.
For information concerning several purported class actions lawsuits
filed against SBI in connection with three funds managed by Hyperion Capital
Management Inc., see the description that appears in the fourth paragraph of
page 26 of the Company's filing on Form 10-Q for the quarter ended September 30,
1993, 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-Q.
The actions were consolidated under the title In re: Hyperion Securities
Litigation. SBI's motion to dismiss the claims was granted in July 1995.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
On May 9, 1995, the Company filed a Current Report on Form
8-K, dated May 9, 1995, reporting under Item 5 thereof the results of its
operations for the three months ended March 31, 1995, and certain other
selected financial data.
On May 11, 1995, the Company filed a Current Report on Form
8-K, dated May 9, 1995, filing certain exhibits under Item 7 thereof relating
to the offer and sale of the Company's 7 7/8% Notes due May 15, 2025.
On May 30, 1995, the Company filed a Current Report on Form
8-K, dated May 25, 1995, filing certain exhibits under Item 7 thereof relating
to the offer and sale of the Company's 6 7/8% Notes due June 1, 2025.
On June 30, 1995, the Company filed a Current Report on Form
8-K, dated June 25, 1995, reporting under Item 5 thereof the agreement of
United HealthCare Corporation to acquire The MetraHealth Companies, Inc.,
48.25% of which is owned by subsidiaries of the Company, through a merger.
No other reports on Form 8-K have been filed by the Company
during the quarter ended June 30, 1995.
27
<PAGE>
<TABLE><CAPTION>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
<S> <C> <C>
3.01 Restated Certificate of Incorporation of Travelers Group Inc. (formerly
The Travelers Inc.) (the "Company"), Certificate of Designation of
Cumulative Adjustable Rate Preferred Stock, Series Y, and Certificate
of Amendment to the Restated Certificate of Amendment, incorporated by
reference to Exhibit 3.01 to the Company's Quarterly Report on Form 10-
Q for the fiscal quarter ended March 31, 1994 (File No. 1-9924).
3.02 By-Laws of the Company as amended through April 27, 1994, incorporated
by reference to Exhibit 3.02 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1994 (File No. 1-9924) (the
"Company's March 31, 1994 10-Q").
11.01 Computation of Earnings Per Share. Electronic
12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic
27.01 Financial Data Schedule. Electronic
99.01 The first, second and third paragraphs of page 31 of the Company's Electronic
Annual Report on Form 10-K for the fiscal year ended December 31, 1989,
and the first paragraph of page 30 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990.
99.02 The fourth paragraph of page 26 of the Company's Quarterly Report on Electronic
Form 10-Q for the fiscal quarter ended September 30, 1993.
</TABLE>
----------------------------
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 Commission upon request.
28
<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.
Travelers Group Inc.
Date: August 11, 1995 By /s/ Heidi G. Miller
-----------------------------------
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 11, 1995 By /s/ Irwin Ettinger
-------------------------------
Irwin Ettinger
Senior Vice President
(Chief Accounting Officer)
29
<TABLE><CAPTION>
Exhibit 11.01
Travelers Group Inc. and Subsidiaries
Computation of Earnings Per Share
(In millions, except for per share amounts)
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings:
Income from continuing operations $377 $286 $682 $593
Preferred dividends:
8.125% Cumulative Preferred Stock - Series A (6) (6) (12) (12)
5.5% Convertible Preferred Stock - Series B (2) (1) (3) (3)
$4.53 Convertible Preferred Stock - Series C (4) (4) (9) (8)
9 1/4% Preferred Stock - Series D (9) (9) (18) (18)
----- ----- ----- -----
356 266 640 552
Discontinued operations 29 34 64 67
----- ----- ----- -----
$ 385 $ 300 $ 704 $ 619
==== ==== ==== ====
Average shares:
Common 307 317 308 318
Assumed exercise of dilutive stock options 4 3 3 4
Incremental shares - Capital Accumulation Plan 6 3 5 3
---- ----- ----- -----
317 323 316 325
==== ==== ==== ====
Earnings per share:
Continuing operating $1.12 $0.82 $2.03 $1.70
Discontinued operations 0.10 0.11 0.20 0.20
---- ---- ---- ----
Net Income $1.22 $0.93 $2.23 $1.90
==== ==== ==== ====
</TABLE>
Earnings per common share is computed after recognition of preferred stock
dividend requirements and 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 and other restricted stock plans.
Fully diluted earnings per common share, assuming conversion of all outstanding
dilutive convertible preferred stock and the maximum dilutive effect of common
stock equivalents have not been presented because the effects are not material.
The fully diluted earnings per common share calculation for the three and six
months ended June 30, 1995 would entail adding the number of shares issuable on
conversion of the dilutive convertible preferred stock (7 and 7 million,
respectively) and the incremental dilutive effect of common stock equivalents (1
and 3 million, respectively) to the number of shares included in the earnings
per common share calculation (resulting in 325 and 326 million shares,
respectively) and eliminating the dividend requirements of the dilutive
convertible preferred stock ($2 and $3 million, respectively). 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 ($1 and $3 million, respectively).
<TABLE><CAPTION>
EXHIBIT 12.01
Travelers Group Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(In millions of dollars, except for ratio)
Six months ended
June 30,
------------------------
1995 1994
---- ----
<S> <C> <C>
Income from continuing operations
before income taxes $1,052 $925
Interest 973 517
Portion of rentals deemed to be interest 54 66
----- -----
Earnings available for fixed charges $2,079 $1,508
===== =====
Fixed charges
-------------
Interest $973 $ 517
Portion of rentals deemed to be interest 54 66
----- -----
Fixed charges $1,027 $ 583
===== =====
Ratio of earnings to fixed charges 2.02x 2.59x
===== =====
</TABLE>
The ratio of earnings to fixed charges has been computed by dividing earnings
from continuing operations before income taxes and fixed charges by the fixed
charges. For purposes of these ratios, fixed charges consist of interest
expense and that portion of rentals deemed representative of the appropriate
interest factor.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.01
Travelers Group Inc.
Financial Data Schedule
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
June 30, 1995 FINANCIAL STATEMENTS OF TRAVELERS GROUP INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,442
<SECURITIES> 67,628<F1>
<RECEIVABLES> 17,388<F2>
<ALLOWANCES> 0<F3>
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F3>
<PP&E> 0<F3>
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 110,918
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 12,316<F4>
<COMMON> 4
235
800
<OTHER-SE> 9,864<F5>
<TOTAL-LIABILITY-AND-EQUITY> 110,918
<SALES> 0<F3>
<TOTAL-REVENUES> 8,132
<CGS> 0<F3>
<TOTAL-COSTS> 7,080
<OTHER-EXPENSES> 0<F3>
<LOSS-PROVISION> 81<F6>
<INTEREST-EXPENSE> 973<F6>
<INCOME-PRETAX> 1,052
<INCOME-TAX> 370
<INCOME-CONTINUING> 682
<DISCONTINUED> 64
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 746
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 0<F3>
<FN>
<F1> Includes the following items from the financial statements: total
investments $39,439; securities borrowed or purchased under agreements
to resell $20,051; and trading securities owned, at market value
$8,138.
<F2> Includes the following items from the financial statements: brokerage
receivables $6,574; net consumer finance receivables $6,956 and other
receivables $3,858.
<F3> Items which are inapplicable relative to the underlying financial
statements are indicated with a zero as required.
<F4> Includes the following items from the financial statements: investment
banking and brokerage borrowings $2,254; short-term borrowings $1,449
and long-term debt $8,613.
<F5> Includes the following items from the financial statements: additional
paid-in capital $6,705; retained earnings, $4,774; treasury stock
$(1,569); and unrealized gain (loss) on investment securities and
other, $(46).
<F6> Included in total costs and expenses applicable to sales and revenues.
</FN>
</TABLE>
EXHIBIT NO. 99.01
COMPANY'S FORM 10-K
December 31, 1989
Page 31
Item 3. LEGAL PROCEEDINGS
Other Litigation
Eight purported class actions were filed in late 1987 and
early 1988 (two of which named SBHU as a defendant) in
connection with the June 1986 initial public offering of
Worlds of Wonder ("WOW") common stock, open market trading in
WOW common stock, the public offering in June 1987 of $80
million in WOW convertible debentures, and open market trading
in the debentures. The eight actions have been consolidated
in In re Worlds of Wonder, Inc. Securities Litigation, in the
---------------------------------------------------
United States District Court for the Northern District of
California.
SBHU acted as co-lead underwriter for the initial public
offering and as sole underwriter for the debenture offering.
The Complaint alleges that the prospectuses by which the
initial public offering and the debenture offering were made
and various press releases and public statements were
materially false and misleading. Plaintiffs seek to recover
the amounts paid by all purchasers in the initial public
offering and in the debenture offering, as well as losses
sustained by purchasers of WOW common stock or debentures in
the open market between June 20, 1986 and November 9, 1987.
On June 8, 1988, purchasers of approximately $12 million
of the WOW convertible debentures offered in June 1987 filed
an individual action naming SBHU and others as defendants,
Steinhardt Partners, et al. v. Smith Barney etc., et al., in
----------------------------------------------------------
the United States District Court for the southern District of
New York. These plaintiffs, who are seeking compensatory
damages based on claims similar to those asserted in the
consolidated class actions, have asserted that they will opt
out of any class certified in the other actions and pursue
their claims individually. On February 2, 1989, the Court
granted defendants' joint motion to transfer the Steinhardt
----------
action to the Northern District of California.
<PAGE>
COMPANY'S FORM 10-K
December 31, 1990
Page 30
Item 3. LEGAL PROCEEDINGS
Other Litigation
For information concerning purported class actions and an
individual action against SBHU and others in connection with
Worlds of Wonder common stock and convertible debentures, see
the description that appears in the first, second and third
paragraphs 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
paragraphs of such filing is included as an exhibit to this
Form 10-K. On March 26, 1990, the United States District
Court for the Northern District of California certified a
class of common stock purchasers and a class of debenture
purchasers.
EXHIBIT NO. 99.02
COMPANY'S FORM 10-Q
September 30, 1993
Page 26
Item 1. Legal Proceedings
In October 1993, several purported class action lawsuits
were filed in the Federal District Court for the Southern
District of New York naming Smith Barney, Harris Upham & Co.
Incorporated ("SBS") as defendant. The cases arise from SBS's
participation as lead and co-underwriter in the initial public
offerings of three separate funds managed by Hyperion Capital
Management Inc. The plaintiffs have also named as defendants
the funds' directors and the co-underwriters and their
representatives. Plaintiffs allege that the registration
statements and prospectuses by which the offerings were made
between June 1992 and October 1992 were materially false and
misleading, and are seeking unspecified damages in claims
brought under the Federal securities laws. The Company
believes it has meritorious defenses to these actions and
intends to defend against them vigorously.
