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 September 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
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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 October 31, 1995: 316,339,824
<PAGE>
<TABLE><CAPTION>
Travelers Group Inc.
TABLE OF CONTENTS
-----------------
Part I - Financial Information
Item 1. Financial Statements: Page No.
--------
<S> <C>
Condensed Consolidated Statement of Income (Unaudited) -
Three and Nine Months Ended September 30, 1995 and 1994 3
Condensed Consolidated Statement of Financial Position -
September 30, 1995 (Unaudited) and December 31, 1994 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) - Nine Months Ended September 30, 1995 5
Condensed Consolidated Statement of Cash Flows (Unaudited) -
Nine Months Ended September 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 12
Part II - Other Information
Item 1. Legal Proceedings 29
Item 6. Exhibits and Reports on Form 8-K 30
Exhibit Index 31
Signatures 33
</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 Nine months ended
September 30, September 30,
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Insurance premiums $1,298 $1,374 $ 3,893 $ 4,129
Commissions and fees 784 596 2,074 2,016
Interest and dividends 1,090 884 3,254 2,427
Finance related interest and other charges 285 263 833 761
Principal transactions 255 227 762 647
Asset management fees 272 235 751 707
Other income 306 271 855 743
- -------------------------------------------------------------------------------------------------------------
Total revenues 4,290 3,850 12,422 11,430
- -------------------------------------------------------------------------------------------------------------
Expenses
Policyholder benefits and claims 1,301 1,377 3,964 4,121
Non-insurance compensation and benefits 898 782 2,548 2,434
Insurance underwriting, acquisition and operating 475 470 1,427 1,403
Interest 489 358 1,462 875
Provision for credit losses 41 35 122 112
Other operating 379 388 1,140 1,120
- -------------------------------------------------------------------------------------------------------------
Total expenses 3,583 3,410 10,663 10,065
- -------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 707 440 1,759 1,365
Provision for income taxes 251 148 621 480
- -------------------------------------------------------------------------------------------------------------
Income from continuing operations 456 292 1,138 885
Discontinued operations, net of income taxes:
Income from operations 25 40 69 107
Gain on disposition - - 20 -
- -------------------------------------------------------------------------------------------------------------
Net income $481 $332 $1,227 $ 992
=============================================================================================================
Net income per share of common stock
and common stock equivalents:
Continuing operations $1.37 $0.85 $3.39 $2.55
Discontinued operations 0.08 0.12 0.28 0.33
- -------------------------------------------------------------------------------------------------------------
Net income $1.45 $0.97 $3.67 $2.88
=============================================================================================================
Weighted average number of common shares outstanding
and common stock equivalents (millions) 318.2 321.0 316.9 323.2
=============================================================================================================
</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)
September 30, December 31,
1995 1994
- ---------------------------------------------------------------------------------------------------------------------
Assets (Unaudited)
<S> <C> <C>
Cash and cash equivalents
(including $900 and $816 segregated under federal and other regulations) $ 1,462 $ 1,227
Investments and real estate held for sale:
Fixed maturities:
Available for sale at market value (cost - $26,986 and $29,258) 27,283 27,192
Held to maturity at amortized cost (market $72 and $108) 72 96
Equity securities, at market (cost $710 and $516) 797 510
Mortgage loans 4,581 5,416
Real estate held for sale 361 418
Policy loans 1,888 1,581
Short-term and other 4,119 3,752
- ------------------------------------------------------------------------------------------------------------------
Total investments and real estate held for sale 39,101 38,965
- ------------------------------------------------------------------------------------------------------------------
Securities borrowed or purchased under agreements to resell 19,589 25,655
Brokerage receivables 6,596 8,238
Trading securities owned, at market value 9,061 6,945
Net consumer finance receivables 6,998 6,746
Reinsurance recoverables 6,762 5,026
Value of insurance in force and deferred policy acquisition costs 2,138 2,163
Cost of acquired businesses in excess of net assets 1,940 2,045
Separate and variable accounts 6,471 5,162
Other receivables 3,903 4,018
Other assets 8,278 9,107
- ------------------------------------------------------------------------------------------------------------------
Total assets $112,299 $115,297
==================================================================================================================
Liabilities
Investment banking and brokerage borrowings $ 2,471 $ 4,374
Short-term borrowings 1,343 2,480
Long-term debt 8,791 7,075
Securities loaned or sold under agreements to repurchase 20,815 21,620
Brokerage payables 3,016 7,807
Trading securities sold not yet purchased, at market value 5,160 4,345
Contractholder funds 14,976 16,392
Insurance policy and claims reserves 27,262 27,084
Separate and variable accounts 6,439 5,127
Accounts payable and other liabilities 10,988 10,215
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 101,261 106,519
- ------------------------------------------------------------------------------------------------------------------
ESOP Preferred stock - Series C 235 235
Guaranteed ESOP obligation (67) (97)
- ------------------------------------------------------------------------------------------------------------------
168 138
- ------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock at aggregate liquidation value 800 800
Common stock ($.01 par value; authorized shares: 500 million
issued shares: 1995 - 368,171,999 shares and 1994 - 368,195,609 shares) 4 4
Additional paid-in capital 6,741 6,655
Retained earnings 4,981 4,199
Treasury stock, at cost (1995 - 50,500,984 shares, 1994 - 51,684,618 shares) (1,682) (1,553)
Unrealized gain (loss) on investment securities and other, net 26 (1,465)
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 10,870 8,640
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $112,299 $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)
Nine months ended September 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 86 -
Other - (24)
- ----------------------------------------------------------------------------------------------------------------
Balance, end of period 6,745 368,172
- ----------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance, beginning of year 4,199
Net income 1,227
Common dividends (192)
Preferred dividends (64)
Distribution of Transport Holdings Inc. shares (189)
- ----------------------------------------------------------------------------------------------------------------
Balance, end of period 4,981
- ----------------------------------------------------------------------------------------------------------------
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 164 8,016
Treasury stock acquired (293) (6,832)
- ----------------------------------------------------------------------------------------------------------------
Balance, end of period (1,682) (50,501)
- ----------------------------------------------------------------------------------------------------------------
Unrealized Gain (Loss) on Investment Securities and Other
Balance, beginning of year (1,465)
Net change in unrealized gains and losses on investment securities 1,581
Translation adjustments, net 3
Restricted stock activity, net of amortization (93)
- ----------------------------------------------------------------------------------------------
Balance, end of period 26
- ----------------------------------------------------------------------------------------------
Total common stockholders' equity and common shares outstanding $10,070 317,671
================================================================================================================
Total stockholders' equity $10,870
=============================================================================================
</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)
Nine months ended September 30, 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Income from continuing operations
before income taxes $1,759 $1,365
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 603 612
Additions to deferred policy acquisition costs (651) (758)
Depreciation and amortization 225 244
Provision for credit losses 122 112
Changes in:
Trading securities, net (1,301) 485
Securities borrowed, loaned and repurchase agreements, net 5,261 (1,903)
Brokerage receivables net of brokerage payables (3,149) 957
Insurance policy and claims reserves 542 691
Other, net 401 (294)
Net cash flows provided by (used in) operating activities of discontinued operations (550) (155)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations 3,262 1,356
Income taxes paid (389) (308)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 2,873 1,048
- -----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Consumer loans originated or purchased (2,050) (2,137)
Consumer loans repaid or sold 1,657 1,588
Purchases of fixed maturities and equity securities (12,431) (6,423)
Proceeds from sales of investments and real estate:
Fixed maturities available for sale and equity securities 10,177 2,907
Mortgage loans 446 292
Real estate and real estate joint ventures 199 825
Proceeds from maturities of investments:
Fixed maturities 2,064 2,664
Mortgage loans 386 1,105
Other investments, primarily short term, net (1,212) (403)
Other, net (218) (301)
Net cash flows provided by (used in) investing activities of discontinued operations 927 (252)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (55) (135)
- -----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Dividends paid (256) (199)
Treasury stock acquired (293) (345)
Issuance of long-term debt 2,975 650
Payments and redemptions of long-term debt (1,227) (817)
Net change in short-term borrowings (including investment banking and brokerage borrowings) (3,040) 651
Contractholder fund deposits 2,026 1,465
Contractholder fund withdrawals (2,746) (2,711)
Other, net (22) 1
Net cash flows provided by (used in) financing activities of discontinued operations - 74
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (2,583) (1,231)
- -----------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 235 (318)
Cash and cash equivalents at beginning of period 1,227 1,526
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,462 $ 1,208
- -----------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,339 $ 859
Book value of distribution of Transport Holdings Inc. shares $ 189 $ -
=================================================================================================================
</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 September
30, 1995 and for the three-month and nine-month periods ended September 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), are presented as a
discontinued operation and, accordingly, prior year amounts have been
restated.
In September 1995, the Company made 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), which at the time was a wholly owned
subsidiary of the Company, and the indirect owner of the business of
Transport Life Insurance Company. Each Travelers Group common stockholder
received one Holdings share for every 200 shares of Travelers, resulting in
approximately 1.6 million shares of Holdings outstanding. Pursuant to the
transaction the Company received approximately $44 million of cumulative
preferred stock and $8 million of subordinated convertible notes of
Transport Holdings and approximately $105 million in cash dividends.
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
7
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
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. 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 TIC and its affiliates comes due for
renewal, the risks are transferred to MetraHealth. In the interim the
related operating results for this medical insurance business are being
reported by the Company.
On October 2, 1995, the Company completed the sale of its ownership in
MetraHealth to United HealthCare Corporation. Gross proceeds to the Company
were $831 million in cash, and could increase as much as $169 million if a
contingency payment based on 1995 results is made. The gain to the Company,
not including the contingency payment, will be approximately $100 million
after tax and will be recognized in the fourth quarter of 1995.
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 nine
months ended September 30, 1995 and 1994 amounted to $938 million and $2.654
billion, respectively, and for the three months ended September 30, 1995 and
1994 amounted to $222 million and $864 million, respectively. The assets
and liabilities of the discontinued operations have not been segregated in
the Condensed Consolidated Statement of Financial Position as of September
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
September 30, 1995 such assets amounted to $2.8 billion and liabilities
amounted to $2.3 billion. At December 31, 1994 assets amounted to $3.5
billion and liabilities amounted to $3.2 billion.
8
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
3. Debt
----
Investment banking and brokerage borrowings consisted of the following:
<TABLE><CAPTION>
(millions) September 30, 1995 December 31, 1994
--------- ------------------ -----------------
<S> <C> <C>
Commercial paper $1,987 $2,455
Uncollateralized borrowings 484 1,141
Collateralized borrowings - 185
Note to Lehman Brothers Holdings Inc. - 593
----- -----
$2,471 $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. 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
$2.5 billion commercial paper program that consists of both discounted and
interest-bearing paper. In addition, Smith Barney has substantial borrowing
arrangements consisting of facilities that it has been advised are
available, but where no contractual lending obligation exists.
Short-term borrowings consisted of commercial paper outstanding as follows:
<TABLE><CAPTION>
(millions) September 30, 1995 December 31, 1994
--------- ------------------ -----------------
<S> <C> <C>
Travelers Group Inc. $ - $ 101
Commercial Credit Company 1,287 2,305
The Travelers Insurance Company 56 74
------ -----
$1,343 $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 $1.0 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 September 30, 1995,
$400 million was allocated to the Parent, $475 million was allocated to CCC
and $125 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 September 30, 1995, this requirement was
exceeded by approximately $3.1 billion.
9
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
At September 30, 1995, CCC also had a committed and available revolving
credit facility on a stand-alone basis of $1.5 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 September 30, 1995, CCC would have been able to
remit $286 million to the Parent under its most restrictive covenants.
Long-term debt, including its current portion, consisted of the following:
<TABLE><CAPTION>
(millions) September 30, 1995 December 31, 1994
--------- ------------------ -----------------
<S> <C> <C>
Travelers Group Inc. $1,844 $1,377
Commercial Credit Company 5,150 4,010
Smith Barney Holdings Inc. 1,725 1,600
The Travelers Insurance Group Inc. 72 88
------ -----
$8,791 $7,075
===== =====
</TABLE>
During the first nine months of 1995 the Parent issued $500 million, CCC
issued $1.8 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 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 September 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 September 30,
1995, Smith Barney would have been able to remit approximately $562 million
to the Parent under its most restrictive covenants.
Under Connecticut law the statutory capital and surplus of The Travelers
Insurance Group Inc., (TIGI), 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 TIGI 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 TIGI to aggregate asbestos products claims with asbestos premises
claims under a market agreement between Lloyd's and TIGI or under the
applicable reinsurance treaties.
On insurance contracts written many years ago by TIGI, 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, TIGI
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
10
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
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.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
Consolidated Results of Operations
<TABLE><CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
(In millions, except per share amounts) 1995 1994 1995 1994
- --------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenues $4,290 $3,850 $12,422 $11,430
====== ====== ======= =======
Income from continuing operations $456 $292 $1,138 $885
Income from discontinued operations 25 40 89 107
-- -- -- ---
Net income $481 $332 $1,227 $992
==== ==== ====== ====
Earnings per share:
Continuing operations $1.37 $0.85 $3.39 $2.55
Discontinued operations 0.08 0.12 0.28 0.33
---- ---- ---- ----
Net income $1.45 $0.97 $3.67 $2.88
===== ===== ===== =====
Weighted average number of
common shares outstanding
and common stock equivalents 318.2 321.0 316.9 323.2
===== ===== ===== =====
</TABLE>
Results of Operations
Income from continuing operations for the quarter ended September 30, 1995 was
$456 million compared to $292 million in the year ago period. Included in the
1995 third quarter are reported after-tax investment portfolio gains of $33
million. Excluding these gains, income from continuing operations for the third
quarter of 1995 was 45% above the comparable 1994 period, reflecting improved
performance at all the operating units, partially offset by increased corporate
expenses.
Income from continuing operations for the nine months ended September 30, 1995
was $1.138 billion compared to $885 million in the year ago period. Included in
the 1995 nine-month period are reported after-tax investment portfolio gains of
$19 million compared to reported after-tax portfolio gains of $5 million in the
1994 nine month period. Excluding these gains, income from continuing
operations for the first nine months of 1995 was 27% 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 October 2, 1995, the Company completed
the sale of its ownership in MetraHealth to United HealthCare Corporation.
Gross proceeds to the Company were $831 million in cash, and could increase as
much as $169 million if a contingency payment based on 1995 results is made.
The gain to the Company, not including the contingency payment, will be
approximately $100 million after-tax and will be recognized in the fourth
quarter of 1995.
12
<PAGE>
The following discussion presents in more detail each segment's performance.
Segment Results for the Three Months Ended September 30, 1995 and 1994
----------------------------------------------------------------------
Investment Services
<TABLE><CAPTION>
Three Months Ended September 30,
--------------------------------------------------------
(millions) 1995 1994
- -----------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Smith Barney $1,771 $178 $1,371 $73
Mutual Funds and Asset Management (1) - - 38 9
- -----------------------------------------------------------------------------------------------------
Total Investment Services $1,771 $178 $1,409 $82
=====================================================================================================
</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 record net income of $178 million for the three months
ended September 30, 1995, a 144% increase over the $73 million reported for the
three months ended September 30, 1994.
Smith Barney Revenues
<TABLE><CAPTION>
Three Months Ended September 30,
------------------------------------
(millions) 1995 1994
--------------------------------------------------------------------------
<S> <C> <C>
Commissions $ 536 $ 406
Investment banking 243 161
Principal trading 255 227
Asset management fees 272 235
Interest income, net* 93 83
Other income 31 31
--------------------------------------------------------------------------
Net revenues* $1,430 $1,143
==========================================================================
</TABLE>
* Net of interest expense of $341 and $228 for the three-month periods ended
September 30, 1995 and 1994, respectively. Revenues included in the
condensed consolidated statement of income are before deductions for interest
expense.
13
<PAGE>
Revenues, net of interest expense, increased 25% compared to 1994's third
quarter, reflecting increases across the board. Commission revenues increased
by 32% to $536 million in the 1995 third quarter compared to $406 million in the
1994 period. The increase reflects higher activity in listed and
over-the-counter securities as well as increased mutual fund sales. Investment
banking revenues increased 50% to a record $243 million in the 1995 third
quarter compared to $161 million in the 1994 period, reflecting strong volume
in equity, high yield and high grade corporate debt underwritings as well as
merger and acquisition fees. Smith Barney's market share in a number of
categories, particularly equity IPOs, continued to advance in the quarter.
Principal trading revenues increased 12% to $255 million for the 1995 third
quarter as compared to $227 million in the 1994 period, as results were
particularly strong in equities. Asset management fees were $272 million in the
1995 quarter compared to $235 million in the 1994 period. At September 30,
1995, Smith Barney had assets under management of $92.2 billion, up from $79.4
billion a year ago. This increase in revenues also reflects fees associated
with bringing in-house all the administrative functions for proprietary mutual
funds and money funds. Net interest income was $93 million in the 1995 third
quarter, up 11% from $83 million in the 1994 period, as a result of higher
levels of interest-earning net assets.
Total expenses, excluding interest, increased 11% to $1.128 billion in the 1995
third quarter as compared to $1.013 billion in the 1994 period. This increase
was driven by higher production-related financial consultant compensation and
other employee compensation and benefits expense, which increased 16% to $829
million in the 1995 period as compared to $713 million in the 1994 period.
Expenses other than interest and employee compensation and benefits were $299
million in the 1995 period about even with 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.
14
<PAGE>
Assets Under Management
<TABLE><CAPTION>
At September 30,
---------------------------------
(billions) 1995 1994
---------------------------------------------------------------------------------
<S> <C> <C>
Smith Barney $ 92.2 $ 79.4
RCM Capital Management (1) 26.7 23.1
Travelers Life and Annuities (2) 21.9 19.8
---------------------------------------------------------------------------------
Total Assets Under Management $140.8 $122.3
=================================================================================
</TABLE>
(1) Part of the Corporate and Other segment.
(2) Part of the Life Insurance Services segment.
Consumer Finance Services
<TABLE><CAPTION>
Three Months Ended September 30,
--------------------------------------------------------
(millions) 1995 1994
------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Finance Services $344 $65 $313 $59
==========================================================================================
</TABLE>
The 10% increase in Consumer Finance net income in the third quarter of 1995
over the same period last year reflects continued growth in receivables
outstanding. Receivables outstanding (before allowance for losses and accrued
interest receivable) totaled $7.146 billion at the end of the third quarter of
1995, reflecting a 6% increase over September 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 part 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 28 basis points from a year ago, to
15.77%. Net interest margin was 8.86% in both periods, reflecting in the
current period the higher yield offset by a higher cost of funds to the segment.
The charge-off rate, which is expected to continue to trend up from the record
low levels in 1994, was 2.24% for the quarter versus 1.91% in the comparable
1994 period. 60+ day delinquencies were at 1.97% up from 1.90% in the third
quarter of 1994.
Since the beginning of the year, the number of branches increased by 49,
bringing the total number of offices to 877 at quarter end.
15
<PAGE>
<TABLE><CAPTION>
As of, and for, the
Three Months Ended September 30,
-------------------------------------
1995 1994
-------------------------------------
<S> <C> <C>
Allowance for losses as % of
consumer finance receivables 2.64% 2.64%
Charge-off rate 2.24% 1.91%
60 + days past due on a contractual
basis as % of gross consumer
finance receivables at quarter end 1.97% 1.90%
</TABLE>
Life Insurance Services
<TABLE><CAPTION>
Three Months Ended September 30,
------------------------------------------------------------
(millions) 1995 1994
- -----------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primerica Financial Services(1) $334 $ 61 $319 $ 51
Travelers Life and Annuities(2) 667 95 547 62
- -----------------------------------------------------------------------------------------------------
Total Life Insurance Services $1,001 $156 $866 $113
=====================================================================================================
</TABLE>
(1) Net income includes $3 of reported investment portfolio gains in 1995.
(2) Net income includes $27 and $3 of reported investment portfolio gains in
1995 and 1994, respectively.
Primerica Financial Services
Earnings before portfolio gains for the third quarter of 1995 increased 15% over
the comparable 1994 period reflecting continued growth in life insurance in
force, improving margins as well as improved mortality results compared to the
third quarter of 1994.
Face amount of new term life insurance sales was $12.6 billion in the quarter,
down from $14.0 billion in the prior year period. Life insurance in force
reached $344.7 billion, up from $330.8 billion at September 30, 1994, and
continued to reflect good policy persistency.
Sales of mutual funds were $335 million (at net asset value) for the quarter up
from prior year sales of $304 million. Net receivables from $.M.A.R.T. and
S.A.F.E. consumer loans continued to advance to $1.23 billion at the end of the
third quarter of 1995, up 18% from $1.04 billion in the comparable 1994 period.
Travelers Life and Annuities
Earnings before portfolio gains were $68 million for the third quarter of 1995
compared to $59 million in the 1994 period. Higher investment margins, asset
growth and improved production accounted for the quarter's earnings growth.
Investment margins continue to be helped by the reinvestment of proceeds from
sales over the past year of under-performing real estate.
16
<PAGE>
Individual annuity production was strong during the third quarter of 1995,
compared to the 1994 prior period level, primarily reflecting increased sales of
variable annuities. Sales continue to be aided by the success of the Vintage
variable annuity product distributed by Smith Barney Financial Consultants,
which was launched in June 1994. Vintage Life and Travelers Target Maturity,
the first of several new products planned for Smith Barney, were introduced in
September 1995. Net written premiums and deposits for individual annuities
during the third quarter of 1995 totaled $412.4 million compared to $327.0
million in the third quarter of 1994. Total policyholder account balances and
benefit reserves amounted to $12.3 billion at September 30, 1995 compared to
$10.7 billion at September 30, 1994. Annuity sales activity has been helped by
the ratings upgrades that accompanied the merger of Primerica Corporation and
The Travelers Corporation and in April 1995 A.M. Best upgraded The Travelers
Insurance Company to an "A" rating. 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 third
quarter of 1995 were $128.0 million compared to $131.1 million in last year's
period. A management decision not to renew low margin guaranteed investment
contracts written in prior years accounted for a reduction in policyholder
account balances and benefit reserves from $12.1 billion at September 30, 1994
to $11.1 billion at September 30, 1995.
During the third quarter of 1995, Travelers Life and Annuities operations issued
$1.5 billion of face amount of individual life insurance, down from $2.2 billion
during the third quarter of 1994, bringing total life insurance in force to
$48.9 billion at September 30, 1995. The reduction in face amount issued
reflects a de-emphasis on sales of certain lower-margin life insurance products.
Individual life insurance net written premiums and deposits totaled $60.6
million during the third quarter of 1995 compared to $67.8 million in the third
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, were $84.8 million for the quarter ended September 30, 1995,
down from $85.9 million for the quarter ended September 30, 1994.
On September 29, 1995, the Company made a pro rata distribution to its
stockholders of Transport Holdings Inc., which, at the time of distribution, was
the indirect owner of the business of Transport Life Insurance Company.
Property & Casualty Insurance Services
<TABLE><CAPTION>
Three Months Ended September 30,
------------------------------------------------
(millions) 1995 1994
- ---------------------------------------------------------------------------------------------------
Net Net
Revenues income Revenues income
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial (1) $ 820 $98 $ 863 $50
Personal (2) 376 32 398 37
- ---------------------------------------------------------------------------------------------------
Total Property & Casualty Insurance Services $1,196 $130 $1,261 $87
===================================================================================================
</TABLE>
(1) Net income includes $18 of reported investment portfolio gains in 1995 and
$2 of reported investment portfolio losses in 1994.
(2) Net income includes $5 of reported investment portfolio gains in 1995 and
$1 of reported investment portfolio losses in 1994.
17
<PAGE>
Commercial Lines
Earnings before portfolio gains/losses for the quarter ended September 30, 1995
were $80 million compared to $52 million in the 1994 period. The improvement
relative to 1994 is primarily due to improved loss trends in the workers'
compensation line and an increase in net investment income. Commercial Lines
net written premiums and equivalents for the third quarter of 1995 totaled
$1.301 billion compared to $1.350 billion in the third 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 $605 million for the quarter ended September 30,
1995 were $73 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 third quarter of 1995 totaled $148 million compared to $154 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.
Commercial Lines Agency Marketing (Agency) business serves small and mid-sized
businesses through brokers and approximately 2,500 independent agents. Net
written premiums increased 4% to $370 million, while Agency equivalents
continued their growth to $100 million, $16 million above third 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 $78
million, down $22 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 $36 million, $9 million higher
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 $77 million for the three months ended September
30, 1995 were in line with the same period in 1994.
The combined ratio for Commercial Lines in the third quarter of 1995 was 105.6%
compared to 113.2% in the third quarter of 1994. The improvement is
attributable to improved loss trends principally in the workers' compensation
line of business.
Personal Lines
Expense reduction initiatives and strong net investment income contributed to
earnings in the 1995 third quarter, while the comparable quarter of 1994
benefited from a one-time contribution of $9 million, resulting from the
favorable resolution of the New Jersey Market Transition Facility (MTF) deficit.
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 third quarter of 1995 were $304.8 million, compared
to $354.7 million in the third 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 third quarter of
1995 were up approximately 6% from 1994, reflecting reduced reinsurance ceded
(due to lower catastrophe exposure) and targeted growth in sales through
independent agents.
18
<PAGE>
Catastrophe losses, after taxes and net of reinsurance, were $4.8 million in the
third quarter of 1995, and were principally related to Hurricane Erin, versus
$1.7 million in the third 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 third quarter of 1995 was 104.8%
compared to 97.2% in the 1994 third quarter. This variance is primarily
attributable to the above-mentioned settlement of the MTF deficit and
catastrophes.
Corporate and Other
<TABLE><CAPTION>
Three Months Ended September 30,
------------------------------------------------------
(millions) 1995 1994
- ------------------------------------------------------------------------------------------------------
Net income Net income
Revenues (expense) Revenues (expense)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate and Other (1) $(22) $(73) $1 $(49)
======================================================================================================
</TABLE>
(1) Net income (expense) includes $20 of reported investment portfolio losses
in 1995.
The increase in Corporate and Other net expenses (before reported portfolio
losses) for the third quarter of 1995 over the third quarter of 1994 is
primarily attributable to increased staff expenses and interest costs borne at
the corporate level.
Discontinued Operations
Three Months Ended September 30,
------------------------------------
(millions) 1995 1994
---------------------------------------------------------------------
Net income Net income
---------------------------------------------------------------------
Discontinued operations $25 $40
=====================================================================
Segment Results for the Nine Months Ended September 30, 1995 and 1994
---------------------------------------------------------------------
The overall operating trends for the nine months ended September 30, 1995 and
1994 were substantially the same as those of the third quarter periods except as
noted below.
19
<PAGE>
Investment Services
<TABLE><CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------
(millions) 1995 1994
- -------------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Smith Barney $4,987 $413 $4,109 $296
Mutual Funds and Asset Management - - 118 25
- -------------------------------------------------------------------------------------------------------
Total Investment Services $4,987 $413 $4,227 $321
=======================================================================================================
</TABLE>
Smith Barney Revenues
<TABLE><CAPTION>
Nine Months Ended September 30,
--------------------------------------
(millions) 1995 1994
-------------------------------------------------------------------------
<S> <C> <C>
Commissions $1,475 $1,392
Investment banking 585 537
Principal trading 762 647
Asset management fees 751 707
Interest income, net* 282 234
Other income 103 91
-------------------------------------------------------------------------
Net revenues* $3,958 $3,608
=========================================================================
</TABLE>
*Net of interest expense of $1,029 and $501 for the nine-month periods ended
September 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 10% compared to 1994's first nine
months, reflecting higher revenues across the board. Commission revenues
increased 6% to $1.475 billion in the 1995 first nine months compared to $1.392
billion in the 1994 period. The increase reflects higher activity in listed and
over-the-counter securities offset by lower activity in futures and mutual fund
sales. Investment banking revenues increased 9% to $585 million in the 1995
first nine months compared to $537 million in the 1994 period reflecting strong
volume in high yield, high grade corporate debt and unit trust underwritings and
merger and acquisition fees offset by a decline in equity and closed end fund
underwritings. Principal trading revenues were higher in almost all product
categories, increasing 18% to $762 million for the 1995 first nine months as
compared to $647 million in the 1994 period. Asset management fees increased 6%
to $751 million in the 1995 period compared to $707 million in the 1994 period.
Net interest income was a record $282 million in the 1995 first nine months, up
21% from $234 million in the 1994 period.
Total expenses, excluding interest, increased 5% to $3.247 billion in the 1995
first nine months as compared to $3.083 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.
20
<PAGE>
Consumer Finance Services
<TABLE><CAPTION>
Nine Months Ended September 30,
-------------------------------------------------------
(millions) 1995 1994
----------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Finance Services $1,006 $181 $916 $166
========================================================================================
</TABLE>
The average yield on the portfolio for the first nine months of 1995 was up 26
basis points from a year ago, to 15.59%. Net interest margin increased 6 basis
points to 8.73%, reflecting the higher yield offset by a higher cost of funds to
the segment. The charge-off rate for the first nine months of 1995 was 2.18%,
compared to 2.08% in the 1994 period.
Life Insurance Services
<TABLE><CAPTION>
Nine Months Ended September 30,
-------------------------------------------------------------
(millions) 1995 1994
- ------------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primerica Financial Services(1) $1,009 $186 $ 959 $156
Travelers Life and Annuities(2) 1,872 214 1,634 157
- ------------------------------------------------------------------------------------------------------
Total Life Insurance Services $2,881 $400 $2,593 $313
======================================================================================================
</TABLE>
(1) Net income includes $15 and $5 of reported investment portfolio gains in
1995 and 1994, respectively.
(2) Net income includes $7 and $9 of reported investment portfolio gains in
1995 and 1994, respectively.
Primerica Financial Services
Face amount of new term life insurance sales was $39.5 billion for the first
nine months of 1995, below the $42.4 billion in the prior year period. Sales of
mutual funds declined from the prior year's record sales of $1.042 billion (at
net asset value) for the first nine months of 1994, to sales of $934 million
this year.
Travelers Life and Annuities
Individual annuity production was strong during the first nine months 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 nine months of 1995 totaled $1.180 billion compared to $944.4
million in the comparable 1994 period.
In the group annuity business, net written premiums and deposits for the first
nine months of 1995 were $713.9 million (excluding the first quarter transfer
in-house of old Travelers pension fund assets previously managed externally)
compared to $646.7 million in last year's period.
During the first nine months of 1995, Travelers Life and Annuities operations
issued $4.5 billion of face amount of individual life insurance, down from $7.2
billion during the first nine months of 1994. The reduction in face amount
issued reflects a de-emphasis on sales of certain lower-margin life insurance
21
<PAGE>
products. Individual life insurance net written premiums and deposits totaled
$185.1 million during the first nine months of 1995 compared to $200.7 million
in the first nine months of 1994.
Net written premiums for individual accident and health products, primarily
long-term care, were $253.5 million for the first nine months of 1995, about
even with the first nine months of 1994.
Property & Casualty Insurance Services
<TABLE><CAPTION>
Nine Months Ended September 30,
--------------------------------------------------
(millions) 1995 1994
- ---------------------------------------------------------------------------------------------------
Net Net
Revenues Income Revenues income
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial (1) $ 2,446 $240 $ 2,553 $149
Personal (2) 1,097 80 1,150 73
- ---------------------------------------------------------------------------------------------------
Total Property & Casualty Insurance Services $3,543 $320 $3,703 $222
===================================================================================================
</TABLE>
(1) Net income includes $15 of reported investment portfolio gains in 1995 and
$6 of reported investment portfolio losses in 1994.
(2) Net income includes $2 of reported investment portfolio gains in 1995 and
$3 of reported investment portfolio losses in 1994.
Commercial Lines
Commercial Lines net written premiums and equivalents for the first nine months
of 1995 totaled $4.0 billion compared to $4.2 billion in the first nine months
of 1994.
National account equivalents of $1.941 billion for the first nine months of 1995
were $203 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 nine months of 1995 totaled $333.9 million compared to $465.3 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 nine months of
1995, new premium and equivalent business was $232 million compared to $298
million for the first nine months of 1994. These declines reflect 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).
Commercial Lines Agency Marketing (Agency) business net written premiums of
$1.152 billion were slightly below the prior year period as soft market
conditions affected the guaranteed cost business, while Agency equivalents
continued their growth to $322 million, $64 million above first nine months 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 $246
million, down $49 million or 17% from the same period in 1994 while the new
business volume in the small business market was $95 million, $14 million higher
than the 1994 level.
Specialty Insurance premiums of $256 million for the first nine months of 1995
were $31 million higher than the same period in 1994. This 14% increase is
attributable to higher production across several product lines.
The combined ratio for Commercial Lines in the first nine months of 1995 was
108.3% compared to 112.4% in the first nine months of 1994. This improvement is
largely due to the decline in catastrophe
22
<PAGE>
losses and a significant improvement in loss trends principally in the workers'
compensation line of business, partially offset by favorable loss development on
prior years' business in the first quarter of 1994. The 1994 catastrophe losses
were due to winter storms and the California earthquake in the first quarter.
Personal Lines
Net written premiums for the nine months of 1995 were $978 million, compared to
$1.08 billion in the first nine months 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 nine months of
1995 were up approximately 9% 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 $8.3 million in the
first nine months of 1995 versus $22.9 million in the first nine months of 1994.
Last year's first nine months was impacted by unusually heavy winter storm
activity in the first quarter. 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 first nine months of 1995 was
103.7% compared to 102.7% in the 1994 first nine months.
Environmental Claims
The following table displays activity for environmental losses and loss expenses
and reserves for the nine months ended September 30, 1995 and 1994.
Approximately 15% of the net environmental loss reserve (i.e. approximately $60
million) is case reserve for resolved claims. Travelers Insurance Group Inc.
(TIGI) 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.
<TABLE><CAPTION>
Environmental Losses Nine Months Ended Nine Months Ended
(millions) September 30, 1995 September 30, 1994
---------------------- ----------------------
<S> <C> <C>
Beginning reserves:
Gross $ 482 $ 504
Ceded (11) (13)
---- ----
Net 471 491
Incurred losses and loss expenses:
Direct 110 39
Ceded (61) (3)
Losses paid:
Direct 136 57
Ceded (22) (3)
Ending reserves:
Gross 456 486
Ceded (50) (13)
---- ----
Net $ 406 $ 473
---- ----
</TABLE>
As of September 30, 1995, TIGI had approximately 10,200 pending
environmental-related claims and had resolved over 20,100 such claims since
1986. Approximately 65% 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.
23
<PAGE>
Asbestos Claims
The following table displays activity for asbestos losses and loss expenses and
reserves for the nine months ended September 30, 1995 and 1994. Approximately
80% of the net asbestos reserves at September 30, 1995 represented incurred but
not reported losses.
<TABLE><CAPTION>
Asbestos Losses Nine Months Ended Nine Months Ended
(millions) September 30, 1995 September 30, 1994
----------------------- ----------------------
<S> <C> <C>
Beginning reserves:
Gross $ 702 $ 775
Ceded (319) (381)
----- -----
Net 383 394
Incurred losses and loss expenses:
Direct 98 52
Ceded (68) (14)
Losses paid:
Direct 77 72
Ceded (71) (83)
Ending reserves:
Gross 723 755
Ceded (316) (312)
---- ----
Net $ 407 $ 443
---- ----
</TABLE>
In relation to these asbestos and environmental-related claims, TIGI carries on
a continuing review of its overall position, its reserving techniques and
reinsurance recoverable. In each of these areas of exposure, TIGI 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.
Corporate and Other
<TABLE><CAPTION>
Nine Months Ended September 30,
-------------------------------------------------------
(millions) 1995 1994
- ------------------------------------------------------------------------------------------------------
Net income Net income
Revenues (expense) Revenues (expense)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate and Other (1) $5 $(176) $(9) $(137)
======================================================================================================
</TABLE>
(1) Net income (expense) includes $20 of reported investment portfolio losses
in 1995.
The increase in Corporate and Other net expenses (before reported portfolio
losses) for the first nine months of 1995 over the first nine months of 1994 is
primarily attributable to increased corporate expenses and increases in interest
costs borne at the corporate level.
24
<PAGE>
Discontinued Operations
<TABLE><CAPTION>
Nine Months Ended September 30,
-----------------------------------
(millions) 1995 1994
------------------------------------------------------------------------------------
Net income Net income
------------------------------------------------------------------------------------
<S> <C> <C>
Operations $69 $107
Gain on disposition 20 -
------------------------------------------------------------------------------------
Total discontinued operations $89 $107
====================================================================================
</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.
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, Commercial Credit Company (CCC) and The Travelers Insurance Company
(TIC) have an agreement with a syndicate of banks to provide $1.0 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 September 30, 1995, $475 million was allocated to CCC
and $125 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 September 30, 1995 this requirement was exceeded by
approximately $3.1 billion.
As of September 30, 1995, the Parent had unused credit availability of $400
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
November 10, 1995, had $1 billion available for debt offerings under its shelf
registration statements:
- 7 7/8% Notes due May 15, 2025 . . . . . . . . . . . $200 million
- 6 7/8% Notes due June 1, 2025 . . . . . . . . . . . $150 million
- 6 5/8% Notes due September 15, 2005 . . . . . . . . $150 million
25
<PAGE>
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 September 30, 1995, CCC
had unused credit availability of $1.975 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 September 30, 1995, CCC would have been able to remit $286
million to the Parent under its most restrictive covenants.
CCC completed the following long-term debt offerings in 1995 and, as of November
10, 1995, had $550 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
- 6 3/8% Notes due September 15, 2002 . . . . . . . . $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 has a $1.0 billion
revolving credit 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 September 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 September 30, 1995,
Smith Barney would have been able to remit approximately $562 million to the
Parent under its most restrictive covenants.
26
<PAGE>
Smith Barney completed the following long-term debt offerings in 1995 and, as of
November 10, 1995, had $975 million 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
- 6 1/2% Notes due October 15, 2002 . . . . . . . . $150 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 September 30, 1995, The Travelers Insurance Group had $20.8 billion of life
and annuity product deposit funds and reserves. Of that total, $10.0 billion
are not subject to discretionary withdrawal based on contract terms. The
remaining $10.8 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 $1.3 billion of liabilities that are
surrenderable with market value adjustments. An additional $5.7 billion of the
life insurance and individual annuity liabilities, subject to discretionary
withdrawal, have an average surrender charge of 5.3% and $1.0 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 $2.8 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 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.
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
September 30, 1995, TIC has unused credit availability of $125 million.
Under Connecticut law the statutory capital and surplus of The Travelers
Insurance Group Inc., 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.
27
<PAGE>
Accounting Standards Not Yet Adopted
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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 a 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.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). This statement addresses alternative accounting
treatments for stock-based compensation, such as stock options and restricted
stock. FAS 123 permits either expensing the value of stock-based compensation
over the period earned or disclosing in the financial statement footnotes the
pro forma impact to net income as if the value of stock-based compensation
awards had been expensed. The value of awards would be measured at the grant
date based upon estimated fair value, using option pricing models. The
requirements of this statement will be effective for 1996 financial statements,
although earlier adoption is permissible if an entity elects to expense the cost
of stock-based compensation. The Company is currently evaluating the disclosure
requirements and expense recognition alternatives addressed by this statement.
28
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
For information concerning purported class actions challenging certain
aspects of the 1988 merger of Primerica Corporation, a New Jersey corporation
("old Primerica") into Primerica Holdings, see the description contained in the
third and fourth paragraphs of page 30 of the Company's filing on Form 10-K for
the year ended December 31, 1989, which description is incorporated by reference
herein. A copy of the pertinent paragraphs of such filing is included as an
exhibit to this Form 10-Q. Subsequent to that filing, other shareholder class
actions relating to the same subject were commenced in Federal, New Jersey
state, New York state and Connecticut state courts. All of these subsequent
actions are currently stayed, and the Company has reached an agreement to settle
these actions, which settlement has been approved by the court.
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. In October, 1995, the petition for
certiorari was denied and a request for a rehearing en banc was also denied.
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. In
August, 1995, an appeal was filed in the U.S. Court of Appeals, 2nd Circuit.
For information concerning a case brought by the federal government against
The Travelers Corporation ("old Travelers") involving benefit claims for
Medicare handled by old Travelers, see the description that appears in the
fourth paragraph of page 2 of the Company's filing on Form 8-K, dated March 1,
1994, 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.
In September 1995, The Travelers Insurance Company reached a settlement with
respect to this action. The agreement resolves all claims against the Company
and certain of its subsidiaries.
29
<PAGE>
The Company anticipates that the action will be dismissed in accordance with the
settlement agreement before year end 1995.
For information concerning purported class actions and other actions
relating to service fee charges and premium calculations on certain workers
compensation insurance sold by subsidiaries of the Company, see the description
that appears in the second paragraph of page 29 of the Company's filing on Form
10-Q for the quarter ended September 30, 1994, 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. In one of these cases, North Carolina
--------------
Steel, Inc. v. National Council on Compensation Insurance, Inc., et al, the
- ----------------------------------------------------------------------
North Carolina trial court granted the Company's motion to dismiss in February
1995. An appeal has been filed in the North Carolina Court of Appeals.
In July 1995, a purported class action was filed under the name Elvidio
-------
Vennettilli et al. v. Primerica Inc. et al. in the United States District Court
- ------------------------------------------
for the Eastern District of Michigan on behalf of individuals who purchased
interests in oil and gas rights owned by Basic Energy and Affiliated Resources
Inc. ("BEAR"). Notwithstanding that the alleged violations were in
contravention of agreements between the agents and Primerica Financial Services
("PFS") and did not involve securities of the Company or any subsidiary thereof,
the complaint, which seeks unspecified monetary damages, alleges that
defendants, including PFS, committed violations of the federal securities laws
and common law fraud. The Company believes it has meritorious defenses and
intends to contest the allegations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
On September 18, 1995, the Company filed a Current Report on Form 8-K,
dated September 14, 1995, filing certain exhibits under Item 7 thereof relating
to the offer and sale of the Company's 6 5/8% Notes due September 15, 2005.
No other reports on Form 8-K have been filed by the Company during the
quarter ended September 30, 1995; however, on October 12, 1995, the Company
filed a Current Report on Form 8-K, dated October 2, 1995, reporting under Item
2 the disposition of its interest in The MetraHealth Companies, Inc.
("MetraHealth") through the merger of MetraHealth and an acquisition subsidiary
of United HealthCare Corporation.
30
<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,
1995 (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).
10.01 Stock Option Plan of the Company, as amended through Electronic
September 27, 1995.
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 third and fourth paragraphs of page 30 of the Electronic
Company's Annual Report on Form 10-K for the year
ended December 31, 1989, File No. 1-9924 (the
"Company's 1989 10-K").
99.02 The first, second and third paragraphs of page 31 of Electronic
the Company's 1989 10-K, 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, File No. 1-9924.
99.03 The fourth paragraph of page 26 of the Company's Electronic
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1993, File No. 1-9924.
99.04 The fourth paragraph of page 2 and the first paragraph of Electronic
page 3 of the Company's Current Report on Form 8-K, dated
March 1, 1994, File No. 1-9924.
99.05 The second paragraph of page 29 of the Company's Quarterly Electronic
Report on Form 10-Q for the quarter ended September 30,
1994, File No. 1-9924.
</TABLE>
31
<PAGE>
-----------------------------------
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.
32
<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: November 13, 1995 By /s/ Heidi Miller
--------------------------------
Heidi Miller
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 13, 1995 By /s/ Irwin Ettinger
-------------------------------
Irwin Ettinger
Senior Vice President
(Chief Accounting Officer)
33
<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,
1995 (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).
10.01 Stock Option Plan of the Company, as amended through Electronic
September 27, 1995.
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 third and fourth paragraphs of page 30 of the Electronic
Company's Annual Report on Form 10-K for the year
ended December 31, 1989, File No. 1-9924 (the
"Company's 1989 10-K").
99.02 The first, second and third paragraphs of page 31 of Electronic
the Company's 1989 10-K, 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, File No. 1-9924.
99.03 The fourth paragraph of page 26 of the Company's Electronic
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1993, File No. 1-9924.
99.04 The fourth paragraph of page 2 and the first paragraph of Electronic
page 3 of the Company's Current Report on Form 8-K, dated
March 1, 1994, File No. 1-9924.
99.05 The second paragraph of page 29 of the Company's Quarterly Electronic
Report on Form 10-Q for the quarter ended September 30,
1994, File No. 1-9924.
</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.
EXHIBIT 10.01
TRAVELERS GROUP
STOCK OPTION PLAN
As Established as of September 25, 1986
(As amended and restated as of September 27, 1995)
1. Purpose. The purpose of the Travelers Group Stock Option Plan
-------
(the "Plan") is to advance the interests of Travelers Group Inc. (the
"Company") and its stockholders by providing options to purchase Common
Shares (as defined in Section 4 hereof) of the Company ("Options") to
certain key executives of the Company and of its subsidiaries who contribute
significantly to the long-term performance and growth of the Company and
such subsidiaries.
2. Administration. The Plan shall be administered by the Nominations
--------------
and Compensation Committee (the "Committee") appointed by the Board of
Directors (the "Board")of the Company from among its members, which shall
consist of not less than three (3) members thereof who are and shall remain
Committee members only so long as they remain "disinterested persons" as
defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "1934 Act").
The Committee shall have all the powers vested in it by the terms of
the Plan, such powers to include exclusive authority (within the limitations
described herein) to select the employees to be granted Options under the
Plan, to determine the type, size and terms of the Options to be granted to
each employee selected, to determine the time when Options will be granted
and to prescribe the form of the instruments embodying Options granted under
the Plan. The Committee shall be authorized to interpret the Plan and the
Options granted under the Plan, to establish, amend and rescind any rules
and regulations relating to the Plan, and to make any other determinations
that it believes are necessary or advisable for the administration of the Plan.
The Committee may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any Option in the manner and to the
extent the Committee deems desirable to carry the Plan into effect. Any
decision of the Committee in the administration of the Plan, as described
herein, shall be final and conclusive. The Committee may act only by a
majority of its members in office, except that the members thereof may
authorize any one or more of the Committee members or any officer of the
Company to execute and deliver documents on behalf of the Committee. No
member of the Committee shall be liable for anything done or omitted
to be done by him or her or by any other member of the Committee in connection
with the Plan, except for his or her own willful misconduct or as expressly
provided by statute.
3. Participation. (a) Subsidiaries. If a subsidiary of the Company
------------- ------------
wishes to participate in the Plan and its participation shall have been
approved by the Board, the board of directors of such subsidiary shall adopt
a resolution in form and substance satisfactory to the Committee authorizing
participation by such subsidiary in the Plan with respect to its employees.
As used herein, the term "subsidiary" means any entity at least one-half of
whose outstanding
A-1
<PAGE>
voting stock, or beneficial ownership for entities other than corporations,
is owned, directly or indirectly, by the Company.
A subsidiary participating in the Plan may cease to be a participating
Company at any time by action of the Board or by action of the board of
directors of such subsidiary, which latter action shall be effective not
earlier than the date of delivery to the Secretary of the Company of a
certified copy of a resolution of such subsidiary's board of directors taking
such action. If the participation in the Plan of a subsidiary shall
terminate, such termination shall not relieve it of any obligations
theretofore incurred by it under the Plan, except with the approval of
the Board.
(b) Employees. (1) Subject to the provisions of the Plan, the
---------
Committee (or, if necessary for tax purposes, a subcommittee thereof) shall
have the exclusive power to select the officers and other key employees of
the Company and its subsidiaries participating in the Plan ("Optionees") to
be granted Options under the Plan but no Option shall be granted to any
member of the Committee. For purposes of the Plan, the term "employee" shall
have the meaning set forth in General Instruction A to the Registration
Statement on Form S-8 promulgated under the Securities Act of 1933, as amended.
(2) Subject to Section 3(c) of the Plan, and subject to
adjustments of share amounts allocated hereunder pursuant to Section 7(a)
of the Plan,
(A) during the period from March 30, 1993 to December 31,
1993, inclusive (the "First Allocation Period"), the Committee
shall not grant Options (including reload Options) covering more
than the number of shares of Company common stock ("Common Shares")
set forth below (the "First Maximum Aggregate Grant Amount") to
each of the following persons (the "Designated Executives"): Sanford
I. Weill, 2,058,000; Frank G. Zarb, 850,000; Robert I. Lipp,
185,000; James Dimon, 451,000; and Robert F. Greenhill, 1,333,333;
and
(B) during the period from January 1, 1994 through
September 24, 1996, inclusive (the "Second Allocation Period"), the
Committee shall not grant Options (including reload Options)
covering more than 10,000,000 Common Shares (the "Allocation Limit")
to the group consisting of all executive officers of the Company
named from time to time in the summary compensation table set
forth in the Company's proxy statement released to stockholders of
the Company in connection with any annual meeting during the Second
Allocation Period (such group being designated herein as the "SCT
Executives"). To the extent that each of the following persons shall
fall within the definition of SCT Executives, the Committee shall
not grant Options and reload options during the Second Allocation
Period covering a number of Common Shares in excess of the following
amounts (each a "Second Maximum Aggregate Grant Amount"): Sanford
I. Weill, 4,300,000; Frank G. Zarb, 520,000; Robert I. Lipp, 350,000;
James Dimon, 650,000; and Robert F. Greenhill, 1,333,000. Any person
who
A-2
<PAGE>
qualifies as an SCT Executive who is not a Designated Executive will
have his or her Second Maximum Aggregate Grant Amount determined by
the Committee, if necessary, and, if necessary, such Amount shall
be subject to the overall Allocation Limit and in no event will any
SCT Executive (other than the Designated Executives) be allocated
a Second Maximum Aggregate Grant Amount greater than 1,000,000
shares.
(c) If, as a result of subsequent regulations or other
interpretive guidance, the Committee determines that (i) the inclusion of the
Allocation Limit and/or the First and/or Second Maximum Aggregate Grant
Amounts (as defined herein) is not required in order for Option grants to
Designated Executives or SCT Executives to qualify as performance-based
compensation under the provisions of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), or (ii) Option grants to Designated
Executives or SCT Executives can qualify as performance-based compensation
even if the Allocation Limit and/or the First and/or Second Maximum Aggregate
Grant Amounts were made less restrictive, the Committee will be entitled to
amend the Plan accordingly (including amendments to adjust or eliminate
altogether the Allocation Limit and/or First and/or Second Maximum Aggregate
Grant Amounts).
4. Options Under the Plan. (a) Type of Options. Options under the
---------------------- ---------------
Plan may include "Nonqualified Stock Options" and "Incentive Stock Options"
which qualify under Section 422 of the Code. Options are rights to purchase
Common Shares having a par value of $.01 per share.
(b) Maximum Number of Shares That May Be Issued. There may
-------------------------------------------
be issued under the Plan pursuant to the exercise of Options an aggregate
of 73,008,140 Common Shares, subject to adjustment as provided in Section
7(a), of which 35,000,000 Common Shares shall be reserved for grants of
reload Options in accordance with Section 9(k) of the Plan. Common Shares
issued pursuant to the Plan may be either authorized but unissued shares or
reacquired shares or both.
The number of Common Shares available for grant of Options
under the Plan shall be decreased by the sum of the number of Common Shares
with respect to which Options have been issued and are then outstanding and
the number of shares issued upon exercise of Options. In the event any
outstanding Option under the Plan for any reason expires, is terminated, or is
cancelled prior to the end of the period during which Options may be granted,
the Common Shares called for by the unexercised portion of such Option may
again be subject to an Option under the Plan.
(c) Rights With Respect to Shares. No employee to whom an
-----------------------------
Option is granted (and any person succeeding to such an employee's rights
pursuant to the Plan) shall have rights as a shareholder with respect to any
Common Shares until the date of the issuance of a stock certificate to him
or her for such shares. Except as provided in Section 7, no adjustment
shall be made for dividends, distributions or other rights (whether ordinary
or extraordinary, and whether in cash, securities or other property) for
which the record date is prior to the date such
A-3
<PAGE>
stock certificate is issued.
5. Stock Option Agreements. Each Option granted under the Plan shall
-----------------------
be evidenced by an instrument in such form as the Committee shall prescribe
from time to time in accordance with the Plan and shall comply with the
following terms and conditions (and with such other terms and conditions,
including but not limited to restrictions upon the Option or the Common
Shares issuable upon exercise thereof, as the Committee, in its discretion,
shall establish):
(a) The exercise price for an Option (the "Option Price") shall
not be less than the par value of the Common Shares subject to such Option
and, in the case of Options granted after completion of the Company's initial
public offering made pursuant to the Initial Registration Statement (as
defined in the Public Offering Agreement between the Company and Control Data
Corporation dated as of October 2, 1986 (the "Public Offering")) shall not be
less than the fair market value of the Common Shares subject to such Option
at the time the Option is granted, as determined in good faith by the
Committee; provided, however, that the option price shall not be less than
the price per share of Common Shares publicly issued in the Public Offering
minus the underwriting discount thereon, even if such price is less than
such fair market value, if such Options are granted (i) prior to the
closing of the Public Offering; (ii) on the date not later than forty five
(45) days after the closing of the Public Offering (the "Special Grant Date")
to individuals (A) who were not full-time employees of the Company or any of
its subsidiaries, as of the effective date of this Plan; (B) whose identity,
along with a description of the Options proposed to be granted to such
individuals, is disclosed in writing to the Company prior to such closing;
and (C) who also become full-time employees of the Company or any of its
subsidiaries on or prior to the Special Grant Date; or (iii) not later than
the Special Grant Date to individuals who were full-time employees of the
Company or any of its subsidiaries as of the effective date of this Plan.
However, the Option Price of an Incentive Stock Option granted to any
employee shall not be less than one hundred percent (100%) of the fair market
value of the Common Shares on the date the Option is granted, and the option
price of an Incentive Stock Option granted to any employee who owns Common
Shares representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or of a subsidiary (a "Ten Percent Employee"),
shall not be less than one hundred ten percent (110%) of such fair market
value or less than the par value of such Common Shares.
(b) The Committee shall determine the number of Common Shares to
be subject to each Option.
(c) The Option shall not be transferable by the Optionee
otherwise than by will or the laws of descent and distribution, and shall be
exercisable during his lifetime only by the Optionee.
(d) The Option shall not be exercisable:
(i) (A) in the case of any Incentive Stock Option granted to
a Ten Percent Employee, after the expiration of five (5) years from
the date it is granted, (B)
A-4
<PAGE>
in the case of any Incentive Stock Option granted to an individual
who is not a Ten Percent Employee, after the expiration of ten (10)
years from the date it is granted, and (C) in the case of any other
Option, after the expiration of ten (10) years and one month from
the date it is granted. An Option may be exercised during such
period only at such time or times as the Committee may establish;
(ii) in the case of any Incentive Stock Option granted before
January 1, 1987 under the Plan, while there is outstanding any
Incentive Stock Option that was previously granted or deemed granted
to such Optionee to purchase shares of the Company or its
subsidiaries or of a predecessor of the Company or a subsidiary;
(iii) unless payment in full is made for the shares being
acquired thereunder at the time of exercise; such payment shall be
made (A) in cash, in United States dollars, or (B) in lieu thereof,
unless the Committee shall in its sole discretion determine
otherwise, by tendering to the Company Common Shares owned by the
person exercising the Option (or owned by the person exercising
the Option and his or her spouse, jointly) and acquired at least
six (6) months prior to such tender, including (for exercise of
Nonqualified Options only) restricted Common Shares awarded under
the Travelers Group Capital Accumulation Plan ("CAP") or the
Travelers Group Employee Incentive Plan ("EIP") granted at least
six (6) months prior to such tender, and having a fair market value
equal to the Option Price applicable to such Option, such fair
market value to be determined in such reasonable manner as may be
provided for from time to time by the Committee or as may be
required in order to comply with or to conform to the requirements
of any applicable or relevant laws or regulations, or (C) by a
combination of United States dollars and Common Shares as aforesaid;
and
(iv) unless the person exercising the Option has been, at all
times during the period beginning with the date of grant of the
Option and ending on the date of such exercise, an officer or
employee of the Company or of one of its subsidiaries or of a
corporation, or a parent or subsidiary of a corporation,
substituting or assuming the Option in a transaction to which
Section 424(a) of the Code is applicable, except that:
(A) in the case of any Nonqualified Stock Option, if such
person (other than Sanford I. Weill) shall cease to be an officer
or employee of the Company or one of its subsidiaries solely by
reason of a period of Related Employment as defined in Section 6,
he or she may, during such period of Related Employment, exercise
the Nonqualified Option as if he or she continued to be such an
officer or employee; and
A-5
<PAGE>
(B) if such person shall cease to be such officer or employee
on account of an involuntary termination of employment (other than
death or disability) or on account of voluntary termination of
employment (other than pursuant to retirement as described in
Section 5(d)(iv)(D)), while holding an Option that has not expired
and has not been fully exercised, such person may, before the
expiration of thirty (30) days after such termination (but in no
event after the Option has expired under the provision of
subparagraph 5(d)(i), exercise the Option with respect to any shares
as to which he or she could have exercised the Option on the date he
or she terminated employment, except that the Committee may in its
sole discretion refuse to permit a person who has voluntarily
terminated his employment or who has been involuntarily terminated
from employment for gross misconduct to exercise any Options after
the date of termination; and
(C) if such person shall cease to be such an officer or
employee by reason of death or disability (as may be determined by
the Board in its sole and absolute discretion) while holding an
Option that has not expired and has not been fully exercised, such
person (or in the case of death, his executors, administrators,
heirs or distributees, as the case may be) may exercise the Option
(but in no event after the Option has expired under the provisions
of Section 5(d)(i)) with respect to any shares as to which such
person could have exercised the Option on the date he or she ceased
to be such an officer or employee; and
(D) if such person shall cease to be such an officer or
employee by reason of retirement under an approved retirement
program of the Company or a subsidiary (or such other plan as may
be approved by the Committee, in its sole discretion, for this
purpose) while holding an Option that has not expired and has not
been fully exercised, such person at any time within three (3)
years of the date he or she ceased to be such an officer or
employee (but in no event after the Option has expired under the
provisions of Section 5(d)(i)), may exercise the Option with
respect to any shares as to which he or she could have exercised the
Option on the date he or she ceased to be such an officer or
employee; and
(E) if within thirty (30) days of his termination of
employment for any reason, any person to whom an Option has been
granted shall die or become disabled (as may be determined by the
Board in its sole and absolute discretion) holding an Option that
has not been fully exercised, such person or his or her executors,
administrators, heirs or distributees, as the case may be, may, at
any time within one (1) year after the date of such event (but in
no event after the Option has expired under the provisions of
Section 5(d)(i)), exercise the Option with respect to any shares
as to which such person could have exercised the Option at the
time of his death or disability; and
A-6
<PAGE>
(F) notwithstanding the foregoing provisions of this Section
5(d)(iv), the Committee shall have the authority, on a case by case
basis, in its sole and absolute discretion to extend for a period
of up to two (2) years following the termination of employment of
an Optionee the period of vesting referred to in Section 5(g) and
the period of exercisability, provided such extension complies with
Section 5(d)(i); and
(v) if the issuance of any Common Shares pursuant to the
exercise of an Option would constitute a violation by the Company
or the person to whom the Option has been granted of any applicable
law or regulation of any governmental authority.
(e)(i) The amount of aggregate fair market value of Common
Shares (determined at the time of grant of the Option pursuant to
Section 5(a)) for which any employee may be granted Incentive Stock
Options before January 1, 1987 under the Plan in any calendar year,
may not exceed $100,000, plus any "unused limit carryover"
applicable to such year determined under Section 422(c)(4) of the
Code, prior to the repeal of such Section, pursuant to P.L. 99-510.
(ii) As to Incentive Stock Options granted under the Plan
after December 31, 1986, the aggregate fair market value of Common
Shares (determined at the time of grant) with respect to which
Incentive Stock Options are exercisable for the first time by any
employee during any calendar year under the Plan and any other
stock option plan of the Company or its subsidiaries shall not
exceed one hundred thousand dollars ($100,000).
(f) Any Option that may, under circumstances existing at the time
of its grant, upon its exercise constitute a transaction subject to
the Hart-Scott-Rodino Anti-trust Improvements Act of 1976, as amended, or
regulations promulgated thereunder ("H-S-R"), shall contain provisions
requiring the parties thereto to comply with H-S-R prior to the issuance of
Common Shares thereunder.
(g) No Option shall be exercised during the first year following
its grant. Any Option shall be exercisable on a cumulative basis, with respect
to twenty percent (20%) of the Common Shares subject to such Option on each
anniversary date from the date granted; provided, however, that the Committee
shall have the authority, in its sole and absolute discretion, to establish
a different vesting schedule for an Option if such schedule does not permit
all or any portion of an Option to vest sooner than twenty percent (20%) on
each anniversary date from the date granted. Notwithstanding the foregoing
provisions of this paragraph (g), with respect to replacement or reload
Options granted hereunder, the Committee shall determine the terms of each
Option granted hereunder (including the date or dates on which the Option
shall become exercisable and the term of the Option). Notwithstanding the
foregoing provisions of this paragraph (g), upon a "Change of Control," as
such term is defined in the immediately following sentence, each outstanding
Option shall immediately become exercisable
A-7
<PAGE>
with respect to one hundred percent (100%) of the Common Shares subject to
such Option, provided that such exercisability shall be, in the case of
Incentive Stock Options, subject to the provisions of Section 5(e)(ii).
"Change in Control" shall mean the occurrence of any of the following: (A)
any person within the meaning of Sections 13(d) and 14(d) of the 1934 Act,
shall have become the beneficial owner, within the meaning of Rule 13d-3
under the 1934 Act, of shares of stock of the Company having twenty five
percent (25%) or more of the total number of votes that may be cast for
election of the directors of the Company, unless the transactions or
transaction by which such twenty-five percent (25%) or more was acquired
was approved or ratified by a vote of at least two-thirds (2/3) of the
directors of the Company; or (B) there shall have been a change in the
composition of the Board such that at any time a majority of the Board
shall have been members of the Board for less than twenty-four (24) months,
unless the election of each new director who was not a director at the
beginning of the period was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who were directors at the beginning
of such period.
6. Related Employment. For the purposes of this Plan, Related
------------------
Employment shall mean the employment of an individual by an employer that is
neither the Company nor a subsidiary of the Company, provided (i) such
employment is undertaken by the individual at the request of the Company or
a subsidiary thereof, (ii) immediately prior to undertaking such employment
the individual was an officer or employee of the Company or a subsidiary
thereof, or was engaged in Related Employment as herein defined and (iii)
such employment is recognized by the Committee, in its sole discretion, as
Related Employment for purposes of this Section 6. The death or disability
of an individual during a period of Related Employment as herein defined
shall be treated, for purposes of this Plan, as if the death or onset of
disability had occurred while the individual was an officer or employee of
the Company.
7. Dilution and Other Adjustments. (a) Change in Common Shares. In
------------------------------ -----------------------
the event of any change in the outstanding Common Shares of the Company by
reason of any stock split, stock dividend, recapitalization, merger,
consolidation, reorganization, combination or exchange of shares or other
similar event, if such change equitably requires an adjustment in the number
or kind of shares that may be issued under the Plan pursuant to Section 4(b),
in the number or kind of shares subject to, or the option price per share
under, any outstanding Option that has been granted to any participant, or
in any measure of performance, such adjustment shall be made by the Committee
and shall be conclusive and binding for all purposes of the Plan. In no
event shall the excess of the aggregate fair market value of the Common Shares
subject to the Options immediately after any such adjustment over the
aggregate option price for such Common Shares be more than the excess of the
aggregate fair market value of all of the Common Shares subject to the Option
immediately before any such adjustment over the aggregate option price of
such Common Shares without regard to the adjustment, nor shall the adjusted
Option give the holder thereof any additional benefits he or she did not have
under the Option without regard to the adjustment.
A-8
<PAGE>
(b) Public Offering Adjustment. The number of shares issuable
--------------------------
under the Plan (including those subject to Options granted prior to the
closing of the Public Offering) shall also be adjusted to cause the total
number thereof to equal the product of (a) the total number of Common Shares
of the Company outstanding immediately following the closing of the Public
Offering, multiplied by (b) five (5) divided by forty-three (43); provided,
however, that no adjustment to the exercise price shall be made by reason of
any adjustment to the number of shares issuable under the Plan made under
this Section 7(b).
8. Financial Assistance. If those members of the Board who are
--------------------
ineligible to receive Options under the Plan determine that such action is
advisable, the Company may assist any person to whom an Option has been
granted in obtaining financing from the Company, or from a bank or other
third party, in such amount as is required to permit the exercise of an Option
and/or the payment of any taxes in respect thereof. Such assistance may take
any form that the Committee deems appropriate, including but not limited to
a direct loan from the Company or one of its subsidiaries, a guarantee of
the obligation by the Company or any of its subsidiaries, or the maintenance
by the Company or any of its subsidiaries of deposits with such bank or third
party.
9. Miscellaneous Provisions.
------------------------
(a) No employee or other person shall have any claim or right
to be granted an Option under the Plan. Neither the Plan nor any action
taken thereunder shall be construed as giving any employee any right to be
retained in the employ of the Company or any subsidiary of the Company.
(b) A participant's rights and interest under the Plan may not
be assigned or transferred in whole or in part either directly or by
operation of law or otherwise (except as described in Section 5(c)) including,
without limitation, assignment or transfer by execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner, and no such right
or interest of any participant in the Plan shall be subject to any obligation
or liability of such participant.
(c) No Common Shares or other Company securities shall be
issued hereunder unless counsel for the Company shall be satisfied that such
issuance will be in compliance with applicable Federal and state securities
laws.
(d) The Company and its subsidiaries shall have the right to
deduct from any payment made under the Plan any Federal, state or local
income or other taxes required by law to be withheld with respect to such
payment. It shall be a condition to the obligation of the Company to issue
Common Shares upon exercise of an Option that the participant (or any
beneficiary or person entitled to act under Section 5(d)(iv)(C)) pay to the
Company, upon its demand, such amount as may be requested by the Company
for the purpose of satisfying any liability to withhold Federal, state or
local income or other taxes. If the amount requested is not paid, the
Company may refuse to issue shares. Unless the Committee shall in its
sole discretion
A-9
<PAGE>
determine otherwise, payment for taxes required to be withheld may be made
in whole or in part by an Optionee's election, in accordance with rules
adopted by the Committee from time to time, (A) to have the Company withhold
Common Shares otherwise issuable pursuant to the Plan having a fair market
value equal to such tax liability and/or (B) to tender to the Company Common
Shares owned by the person exercising the Option and acquired at least six
(6) months prior to such tender (excluding restricted stock awarded under
CAP or EIP) and having a fair market value equal to such tax liability, such
fair market value (in the case of clause (A) or (B)) to be determined in
such reasonable manner as may be provided for from time to time by the
Committee or as may be required in order to comply with or to conform to the
requirements of any applicable or relevant laws or regulations.
(e) The expenses of the Plan shall be borne by the Company.
However, if an Option is granted to an employee of a subsidiary of the
Company and the Option grant results in the issuance by the Company to the
participant of Common Shares, such subsidiary shall pay to the Company an
amount equal to the fair market value thereof, as determined by the
Committee, on the date such Common Shares are issued, minus the amount, if
any, received by the Company in respect of the purchase of such Common Shares.
(f) The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the issuance of Common Shares under the Plan
and the issuance of Common Shares shall be subordinate to the claims of the
Company's general creditors.
(g) By accepting any option or other benefit under the Plan,
each participant and each person claiming under or through him or her shall
be conclusively deemed to have indicated his or her acceptance and
ratification of, and consent to, any action taken under the Plan by the
Company, the Board or the Committee.
(h) The masculine pronoun includes the feminine and the singular
includes the plural wherever appropriate.
(i) The appropriate officers of the Company shall cause to be
filed any reports, returns or other information regarding options hereunder
or any Common Shares issued pursuant hereto as may be required by Section 13
or 15(d) of the 1934 Act or any other applicable statute, rule or regulation.
(j) It is the intent of the Company that the Incentive Stock
Options granted under this Plan meet the appropriate provisions of the Code,
and any ambiguities in construction shall be interpreted in order to
effectuate such intent.
(k) If an Option granted under plans designated by the Committee
from time to time (including but not limited to this Plan and CAP, or any
successor plans to such plans) is exercised by a participant, then, at the
discretion of the Committee, the participant may receive a replacement or
reload Option hereunder to purchase a number of Common Shares
A-10
<PAGE>
equal to the number of Common Shares used to pay the exercise price or
withholding taxes on the option exercise, with an exercise price equal to the
then current fair market value, and, subject to the other provisions
contained herein, with such terms as the Committee shall determine
(including the date or dates on which the Option shall become exercisable
and the term of the Option).
(1) If the exercise price of an Option is paid by delivery
of a number of restricted Common Shares, then the participant shall receive,
in connection with the exercise, an equal number of identically restricted
Common Shares; the remaining Common Shares issued upon such exercise shall
contain all applicable restrictions that are set forth in the participant's
award agreement and shall otherwise be unrestricted. In such event, the fair
market value of the restricted Common Shares delivered or withheld, for
purposes of Section (5)(d)(iii), shall not take into account the restrictions
on such Common Shares.
(m) An Optionee shall designate at the time of exercising an
Option in a manner that the Committee has determined gives rise to a right
to receive a reload Option whether to receive (i) unrestricted incremental
Common Shares issuable upon the Option exercise, and no reload Option, or
(ii) the incremental Common Shares issuable upon Option exercise subject to
a period of restriction on transferability (running from the date of Option
exercise and determined by the Committee in its discretion from time to time)
and a reload Option for the number of Common Shares surrendered in connection
with the exercise of the Option. Any person subject to Section 16 of the
1934 Act shall receive only grants conforming to clause (ii) of the previous
sentence. Unless the Committee in its discretion modifies or eliminates the
following restrictions on transferability, an Optionee will be permitted to
transfer incremental Common Shares during such restricted period only
through a charitable contribution of restricted incremental Common Shares or
upon demonstrating to the reasonable satisfaction of the Senior Vice
President, Human Resources of the Company, that sale or transfer of such
Common Shares is required to meet an event of immediate and heavy financial
hardship which the Optionee cannot meet with other resources reasonably
available to him or her. For purposes of this Plan, the following shall be
deemed to be immediate and heavy financial hardships: (i) unreimbursed
medical expenses as described in Section 213(d) of the Code incurred by the
Optionee or the Optionee's spouse or dependents, (ii) purchase (including
mortgage payments) of a principal residence for the Optionee, (iii) payment
of tuition for the next semester or quarter of post-secondary education for
the Optionee or the Optionee's children or dependents, (iv) payment of
amounts necessary to prevent the eviction of the Optionee from his or her
principal residence or foreclosure on the mortgage of the Optionee's principal
residence, (v) payment of funeral and other expenses incurred in connection
with the death of a member of the Optionee's family, or (vi) any other
circumstance similar to any deemed immediate and heavy financial need set
forth in applicable Treasury Regulations or Revenue Rulings addressing
determination of hardship for plans described in Section 401(k) of the Code.
The Senior Vice President's determination of the existence of an Optionee's
immediate and heavy financial hardship and the number of restricted
incremental shares that may be sold or transferred shall be final and binding
on the Optionee. For purposes of the Plan, "incremental shares" shall mean
those Common Shares actually issued to an Optionee who exercises an Option
by surrendering previously owned
A-11
<PAGE>
Common Shares or restricted stock awarded under CAP or EIP to pay the
exercise price of an Option, or by surrendering previously owned Common
Shares or requesting the Company to withhold the appropriate number of
Common Shares otherwise issuable, to cover the withholding tax liability
associated with Option exercise. The number of incremental shares issued
shall be calculated as the number of Option shares exercised minus the
number of Common Shares deemed "surrendered" to pay for such exercise and
minus the number of Common Shares used to satisfy any resulting tax
liability in connection with such exercise.
(n) For an Optionee to receive a reload Option in connection
with his or her exercise of a vested Option, the fair market value of a
Common Share on the date of exercise (to be determined in the same manner as
the Committee's determination of fair market value for other purposes under
the Plan) must equal or exceed the minimum market price level, expressed
as a percentage of the Option exercise price, established by the Committee
from time to time (the "Market Price Requirement"). If the market price does
not equal or exceed the applicable Market Price Requirement, a vested Option
may be exercised but no reload Option will be granted in connection with such
exercise. In no event will the Market Price Requirement be less than one
hundred percent (100%) of the exercise price of any Option to which it applies.
(o) The Plan is intended to comply with all applicable
conditions of Rule 16b-3 of the 1934 Act or any successor statute, rule or
regulation. All transactions involving any officer or director of the Company
or any subsidiary who is subject to the reporting requirements of Section
16(a) of the 1934 Act (or any successor statute, rule or regulation)
("Section 16(a) Persons") shall be subject to the conditions set forth in
Rule 16b-3, regardless of whether such conditions are expressly set forth
in the Plan. Any provision of the Plan which is contrary to Rule 16b-3
shall not apply to such 16(a) Persons.
10. Amendment or Discontinuance. The Plan may be amended at any time
---------------------------
and from time to time by the Board, but no amendment that increases the
aggregate number of Common Shares which may be issued pursuant to the Plan
shall be effective unless and until the same is approved by the stockholders
of the Company. No amendment of the Plan shall adversely affect any right of
any participant with respect to any Option theretofore granted without such
participant's written consent.
11. Termination. This Plan shall terminate upon the earlier of the
-----------
following dates or events to occur:
(a) upon the adoption of a resolution of the Board terminating
the Plan; or
(b) September 24, 1996.
No termination of the Plan shall alter or impair any of the rights
or obligations of any person, without his consent, under any Option
theretofore granted under the Plan.
A-12
<PAGE>
12. Stockholder Adoption. The Plan shall be submitted to the
stockholders of the Company for their approval and adoption. The Plan shall
not be effective and no Option shall be granted hereunder unless and until
the Plan has been so approved and adopted.
A-13
<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 Nine months ended
September 30, September 30,
-------------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings:
Income from continuing operations $456 $292 $1,138 $885
Preferred dividends:
8.125% Cumulative Preferred Stock - Series A (6) (6) (18) (18)
5.5% Convertible Preferred Stock - Series B (2) (2) (5) (5)
$4.53 Convertible Preferred Stock - Series C (4) (4) (13) (12)
9 1/4% Preferred Stock - Series D (9) (9) (27) (27)
----- ----- ----- -----
435 271 1,075 823
Discontinued operations 25 40 89 107
----- ----- ----- -----
$ 460 $ 311 $1,164 $ 930
==== ==== ===== ====
Average shares:
Common 306.3 314.8 307.3 317.1
Warrants .7 - .3 -
Assumed exercise of dilutive stock options 4.9 2.7 4.0 3.0
Incremental shares - Capital Accumulation Plan 6.3 3.5 5.3 3.1
------ ------- ------- -------
318.2 321.0 316.9 323.2
====== ====== ====== ======
Earnings per share:
Continuing operating $1.37 $0.85 $3.39 $2.55
Discontinued operations 0.08 0.12 0.28 0.33
---- ---- ---- ----
Net Income $1.45 $0.97 $3.67 $2.88
==== ==== ==== ====
</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 nine
months ended September 30, 1995 would entail adding the number of shares
issuable on conversion of the dilutive convertible preferred stock (6.9 and 6.9
million, respectively) and the incremental dilutive effect of common stock
equivalents (2.0 and 4.5 million, respectively) to the number of shares included
in the earnings per common share calculation (resulting in 327.1 and 328.3
million shares, respectively) and eliminating the dividend requirements of the
dilutive convertible preferred stock ($5 and $16 million, respectively). The
fully diluted earnings per common share for the three and nine months ended
September 30, 1994 would entail adding the number of shares issuable on
conversion of the dilutive convertible preferred stock (3.4 and 3.4 million,
respectively) and the incremental dilutive effect of common stock equivalents
(.4 and 1.0 million, respectively) to the number of shares included in the
earnings per common share calculation (resulting in 324.8 and 327.6 million
shares, respectively) and eliminating the dividend requirements of the
convertible preferred stock ($2 and $5 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)
Nine months ended
September 30,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
Income from continuing operations
before income taxes $1,759 $1,365
Interest 1,462 875
Portion of rentals deemed to be interest 81 99
----- -----
Earnings available for fixed charges $3,302 $2,339
===== =====
Fixed charges
- -------------
Interest $1,462 $ 875
Portion of rentals deemed to be interest 81 99
----- -----
Fixed charges $1,543 $ 974
===== =====
Ratio of earnings to fixed charges 2.14x 2.40x
===== =====
</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
September 30, 1995 CONDENSED CONSOLIDATED 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,462
<SECURITIES> 67,751<F1>
<RECEIVABLES> 17,497<F2>
<ALLOWANCES> 0<F3>
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F3>
<PP&E> 0<F3>
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 112,299
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 12,605<F4>
<COMMON> 4
235
800
<OTHER-SE> 10,066<F5>
<TOTAL-LIABILITY-AND-EQUITY> 112,299
<SALES> 0<F3>
<TOTAL-REVENUES> 12,422
<CGS> 0<F3>
<TOTAL-COSTS> 10,663
<OTHER-EXPENSES> 0<F3>
<LOSS-PROVISION> 122<F6>
<INTEREST-EXPENSE> 1,462<F6>
<INCOME-PRETAX> 1,759
<INCOME-TAX> 621
<INCOME-CONTINUING> 1,138
<DISCONTINUED> 89
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 1,227
<EPS-PRIMARY> 3.67
<EPS-DILUTED> 0<F3>
<FN>
<F1> Includes the following items from the financial statements: total
investments $39,101; securities borrowed or purchased under agreements
to resell $19,589; and trading securities owned, at market value
$9,061.
<F2> Includes the following items from the financial statements: brokerage
receivables $6,596; net consumer finance receivables $6,998 and other
receivables $3,903.
<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 $2,471; short-term borrowings $1,343
and long-term debt $8,791.
<F5> Includes the following items from the financial statements: additional
paid-in capital $6,741; retained earnings $4,981; treasury stock $(1,682);
and unrealized gain (loss) on investment securities and other, $26.
<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 30
Item 3. LEGAL PROCEEDINGS
Shareholder Litigation
On August 29, 1988, the Company entered into an Agreement and
Plan of Merger among the Company, Primerica Holdings and old Primerica,
providing for the merger of old Primerica into Primerica Holdings.
In late 1988, fifteen purported class actions were filed in
various jurisdictions, challenging certain aspects of the merger. The
plaintiffs in the various cases were purportedly shareholders of old Primerica
prior to the merger. They allege that, in connection with the merger, old
Primerica and/or its officers or directors and/or former officers or directors
committed fraud and breached fiduciary duties. Plaintiffs allege that the
proxy statement by which the shareholders' votes on the merger were solicited
contained representations which were materially misleading or failed to
disclose material facts. Plaintiffs seek to rescind the transaction or in the
alternative to recover compensatory damages. A motion brought in one of these
cases to enjoin the merger was denied. The litigation is proceeding with the
designated lead case in United States District Court, Eastern District of New
York, under the caption Wallerstein, et al. v. Primerica Corporation, et al.
----------------------------------------------------
EXHIBIT NO. 99.02
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. 99.03
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.
EXHIBIT NO. 99.04
COMPANY'S FORM 8-K
MARCH 1, 1994
Pages 2 and 3
Item 5. OTHER EVENTS.
In a case entitled United States v. Travelers Insurance Co.,
filed in the United States District Court for the District of Connecticut in
April 1989, the federal government alleges that old Travelers improperly
handled health benefit claims for individuals who are actively employed and
eligible for Medicare coverage. In November 1992, the Court ruled on cross
motions for summary judgment, and found that old Travelers had no liability
for actions taken in its capacity as a claims administrator. However, the
Court also recognized that the government's right of recovery is independent
of the rights of the insured, and is not governed by procedural limitations
in the plans.
EXHIBIT NO. 99.05
COMPANY'S FORM 10-Q
SEPTEMBER 30, 1994
Page 29
Item 1. LEGAL PROCEEDINGS
A number of cases have been filed against subsidiaries of the
Company, other insurance companies and industry organizations relating to
service fee charges and premium calculations on certain workers compensation
insurance. Subsidiaries of the Company are defendants in an action filed by
the Attorney General of South Carolina in August 1994 in the Court of Common
Pleas, County of Greenville, South Carolina, and a purported class action filed
in September 1994 in the Circuit Court for Bullock County, Alabama. Certain of
the Company's subsidiaries have also been named as defendants in a purported
class action filed in 1993 in the Superior Court Division of the General Court
of Justice, Wake County, North Carolina, and, in April 1994, were named as
additional defendants in a purported class action pending in the 116th District
Court of Dallas County, Texas. The plaintiffs in these cases generally allege
that the workers compensation carriers in the state have conspired to collect
excessive or improper service fees or premiums in violation of state antitrust
laws and/or state unfair trade practices laws. The plaintiffs seek monetary
damages and possible injunctive relief. The Company believes it has
meritorious defenses and intends to contest the allegations.
