SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 20, 1998
-------------------------------
Travelers Group Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-9924 52-1568099
--------------- ------------ -------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
388 Greenwich Street, New York, New York 10013
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(Address of principal executive offices) (Zip Code)
(212) 816-8000
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(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events.
Travelers Group Inc. (the Company) reported a 5% increase in operating
earnings for the second quarter ended June 30, 1998 to $921.6 million, or $0.80
per share (basic) and $0.77 (diluted). This is up from $877.6 million, or $0.76
per share (basic) and $0.72 (diluted), in the comparable 1997 quarter. Revenues
were $10.1 billion, a 10% rise from $9.2 billion in 1997.
Net income for the quarter reached $1.141 billion, or $0.99 per share
(basic) and $0.95 (diluted), up from $883.3 million, or $0.77 per share (basic)
and $0.73 (diluted), in the 1997 period. The current quarter includes net
investment portfolio gains of $27.8 million and a credit of $191.2 million
representing a reduction in the restructuring reserve of $496 million recorded
in the fourth quarter of 1997 in connection with the Salomon Inc merger. The
reserve reduction resulted from an agreement for the disposition of excess
leased space on terms more favorable than had originally been estimated. The
1997 net income figure included net investment portfolio gains of $5.7 million.
Basic earnings per share are based on 1.118 billion weighted average
common shares outstanding in the current quarter and 1.101 billion in the 1997
period. Diluted earnings per share are based on 1.172 billion adjusted weighted
average shares in the 1998 quarter versus 1.178 billion.
Six Months Results
For the six months ended June 30, 1998, operating earnings were $1.929
billion, up 15% from $1.684 billion in the 1997 period. Operating earnings per
share of $1.67 (basic) and $1.61 (diluted) were up from $1.46 (basic) and $1.38
(diluted) last year. Revenues jumped 14% to $20.5 billion.
Net income for the 1998 period of $2.234 billion, or $1.94 per share
(basic) and $1.87 (diluted), includes net investment portfolio gains of $114.3
million and the previously discussed reserve adjustment. The 1997 six months net
income of $1.698 billion, or $1.47 per share (basic) and $1.40 (diluted),
included portfolio gains of $14.6 million.
Citicorp Merger
As previously announced on April 5, 1998, the Company and Citicorp have
agreed to a merger, subject to customary conditions including approvals of
regulators and stockholders. Information about Citicorp is included in its
periodic reports and other materials filed with the Securities and Exchange
Commission. On July 21, 1998, Citicorp reported net income for the second
quarter of 1998 of $1.097 billion, or $2.37 per share (basic) and $2.30 per
share (diluted) and net income for the first six months of 1998 of $2.162
billion, or $4.65 per share (basic) and $4.53 per share (diluted). Revenues
adjusted for the effect of credit card securitization activity were $6.792
billion for the second quarter of 1998 and $12.857 billion for the first six
months of 1998.
2
<PAGE>
INVESTMENT SERVICES
SALOMON SMITH BARNEY OPERATING EARNINGS:
$410.1 MILLION, DOWN FROM $452.7 MILLION IN 1997 PERIOD
Salomon Smith Barney's net revenues were relatively even versus the
comparable 1997 quarter at $2.7 billion. Return on equity from operating
earnings was 18.2%, and the pretax profit margin was 23.5%, both down from last
year's period.
Commission revenues rose 14% to $783.7 million as a result of increases in
OTC and listed securities volume and higher mutual fund activity. Average
annualized retail gross production per Financial Consultant reached $441,000, up
23% from last year's quarter, though down slightly from the previous quarter.
Total client assets reached $724.3 billion, increasing 22% from the 1997 period.
Total assets under fee-based management increased to $253.2 billion, up 25%,
which includes those assets discussed in the next section of this report as well
as assets in accounts managed by the Consulting Group. The latter rose almost
31% to $69.3 billion, and assets in FC managed accounts reached $14.3 billion,
up 46%. Revenues from asset management and administration fees rose to $553.8
million, a 39% increase.
Investment banking revenues rose 35% to $639.9 million, reflecting
increases in all debt and equity underwriting categories including equities,
high yield, public finance, high grade and unit trusts, as well as higher merger
and acquisition advisory fees.
Revenues from principal transactions declined sharply to $315.3 million,
down $394 million from last year's second quarter and $464 million from the
previous quarter. The drop was a result of losses principally in the U.S. fixed
income arbitrage business and from commodities trading conducted by Phibro Inc.
In early July, the decision was made to restructure and significantly reduce the
risk profile of the U.S. arbitrage group's activities because of the lessening
profit opportunities and the growing risk and volatility of the markets. Net
interest revenues also declined slightly to $400.6 million.
Based on operating earnings, total expenses increased 5%
quarter-over-quarter to $2.1 billion, principally as a result of higher
compensation and other production-related expenses. The ratio of compensation
and benefits to net revenues was 56.3%, up from 54.9% in the previous quarter.
SALOMON SMITH BARNEY ASSET MANAGEMENT OPERATING EARNINGS: $62.5 MILLION,
UP 29% FROM $48.6 MILLION IN 1997 PERIOD
(Although included in Salomon Smith Barney's overall results,
this division is being focused upon as a separate corporate
business line.)
The division's excellent earnings reflect growth in assets under
management, continued strength in retail and institutional managed accounts, and
higher mutual fund sales.
3
<PAGE>
Assets under management reached almost $170 billion, 30% in money market
funds, 34% in mutual funds and 36% in accounts managed for high net worth
individuals, pension funds, corporations and other institutions. Investment
advisory, administration and distribution fees rose 24% to $214.1 million in the
quarter, reflecting a 21% increase in assets under management since the
comparable period last year. The unit recorded a pre-tax profit margin of 45.6%
versus 41.5% in last year's period.
In the mutual fund sector, dollar inflows increased and performance
continued to show improvement. In addition, during the first half of the year,
sales of proprietary mutual funds rose 48%, and they accounted for an increasing
percentage - 28% versus 25% in the 1997 period - of Salomon Smith Barney's total
mutual fund sales.
New products successfully introduced recently include the closed-end
Salomon Brothers High Income Fund II which raised $985 million. In addition, it
is expected that the recently announced acquisition of the asset management
business of J.P. Morgan Australia, with $4.8 billion (U.S.) under management,
will close early in the third quarter.
CONSUMER FINANCE
CONSUMER FINANCE OPERATING EARNINGS:
$69.2 MILLION, UP 28% FROM $54.1 MILLION IN 1997 PERIOD
This segment's performance reflects continued strong internal receivables
growth in all major products, an improved charge-off rate and the integration of
Security Pacific Financial Services into the Commercial Credit branch system
since July 1997.
Net receivables owned reached a record $12.1 billion, up 34% from the
prior year period and up $1.03 billion or 9% since the beginning of 1998. This
excludes $255.1 million in credit card receivables securitized on March 6, 1998.
Much of the receivables growth was in real estate-secured loans, reflecting the
strength of this product among Primerica Financial Services (PFS)
representatives as well as strong sales in the branch network. On a managed
basis, including securitized assets, receivables totaled $12.3 billion, an
increase of $1.1 billion since December 31, 1997.
The average yield on owned receivables, at 14.15% in the quarter, was down
from 14.42% in the 1997 period, reflecting the shift in the portfolio mix toward
lower-risk real estate loans, which have lower margins. At quarter-end, the
owned portfolio consisted of 47% real estate-secured loans, 34% personal loans,
12% credit cards and 7% sales finance and other.
The charge-off rate on owned receivables continued to improve to 2.66%,
down from 2.82% in the 1997 period and from 2.75% in the previous quarter.
Delinquencies over 60 days on owned receivables were 2.23% of receivables, up
from 2.14% at the end of 1997's second quarter, which did not include Security
Pacific, and down from 2.33% at the end of the previous quarter.
4
<PAGE>
LIFE INSURANCE
PRIMERICA FINANCIAL SERVICES OPERATING EARNINGS:
$103.6 MILLION, UP 26% FROM $82.1 MILLION IN 1997 PERIOD
The quarter's record performance reflects PFS's continued success at
cross-marketing a broad range of products, growth in life insurance in force,
favorable mortality experience and disciplined expense management.
Life insurance in force reached a record $377.5 billion, up 3% from the
prior year quarter, reflecting good policy persistency and stable sales growth.
New term life insurance sales were $15.8 billion in face value, up from $14.1
billion in the 1997 period. Although the number of policies issued declined
quarter-over-quarter, the average face amount per policy issued continued to
rise, reaching $224,975.
Cross-marketing ventures continued to be a strong contributor to the
company's earnings, with distribution of non-life insurance products accounting
for $23.0 million, or 22%, of PFS's operating earnings. This represents an
increase of more than 70% from the prior year period.
Sales of mutual funds by PFS's 29,000 registered representatives grew more
than 24% to $833.2 million (at net asset value), despite some softness in the
Canadian mutual fund market. Salomon Smith Barney funds accounted for over 56%
of PFS's U.S. sales and approximately 48% of total sales.
Cash advanced on $.M.A.R.T. loan(R) and $.A.F.E.(R) loan products
underwritten by Commercial Credit was up almost 25% from the prior year period
to $421.2 million. Sales of the TRAVELERS SECURE line of property casualty
insurance products continued to grow, with premiums up 267% to almost $55.8
million and the number of policies sold in the quarter rising over 80% to almost
40,000. Since the beginning of 1998, the number of agents licensed to sell auto
and homeowners insurance increased almost 30% to over 11,100 people. Variable
annuity sales more than doubled versus the prior year quarter, reaching $175.2
million in net written premiums and deposits.
One of the critical components in PFS's success at cross-marketing, the
Financial Needs Analysis, continues to help Personal Financial Analysts define
and address client needs. Since the beginning of the year, they have submitted
more than 271,000 FNAs.
TRAVELERS LIFE & ANNUITY OPERATING EARNINGS:
$130.1 MILLION, UP 24% FROM $104.9 MILLION IN 1997 PERIOD
These record earnings were largely attributed to double-digit growth in
business volume across all product lines and strong investment income. The
substantial increase in investment income for the quarter resulted primarily
from participation in partnership investment interests.
5
<PAGE>
In deferred annuities, significant sales through Salomon Smith Barney
Financial Consultants and The Copeland Companies, combined with favorable market
returns from variable annuities, drove account balances to $18.2 billion at June
30, 1998, up 23% from a year ago. Premium deposits for the quarter were up 23%
to $774.3 million, more than three-quarters of which was generated by
cross-marketing through Salomon Smith Barney Financial Consultants and The
Copeland Companies. Premium deposits through the former rose 18% to $269
million, while premium deposits through Copeland increased 21% to $315 million,
reflecting growth in its core business and continued success with the Salomon
Smith Barney joint venture in the small company segment of the 401(k) market.
New annuity products have also been introduced to the Primerica Financial
Services distribution network, and a pilot program has been launched through the
Citibank branch network.
Payout and group annuity account balances and benefit reserves reached
$12.7 billion at June 30, 1998, up 10% from quarter-end 1997. The revitalization
of this business is reflected in the 63% increase in net written premiums and
deposits (excluding the Company's employee pension plan deposits) to $1.0
billion, up from $632.0 million in the 1997 period.
For individual life insurance, net premiums and deposits were $82.7
million, up 22%. Single deposits rose nearly 50% to $20.5 million, and new
periodic premium sales increased 83%. Over 30% of new periodic premium and
single deposits in the quarter were sold through Salomon Smith Barney. Life
insurance in force was $53.2 billion at June 30, 1998, up 5% from a year ago.
Earned premiums for the growing long term care insurance product line
increased 25% to $48.7 million. New sales through Salomon Smith Barney and other
Travelers Group companies accounted for 25% of the quarter's sales.
PROPERTY CASUALTY INSURANCE
(Travelers Property Casualty Corp. is 83.3% owned by the Company.)
TRAVELERS PROPERTY CASUALTY OPERATING EARNINGS:
$306.3 MILLION, BEFORE MINORITY INTEREST
TRAVELERS GROUP'S SHARE:
$255.1 MILLION, UP 11% FROM $230.3 MILLION IN 1997 PERIOD
Travelers Property Casualty Corp.'s results for the quarter were solid,
despite higher catastrophe losses, reflecting strong net investment income,
expense control and growth in Personal Lines. Operating earnings include
financing and other corporate costs of $29.3 million and were further reduced by
minority interest of $51.2 million.
6
<PAGE>
COMMERCIAL LINES OPERATING EARNINGS (before minority interest):
$227.9 MILLION, UP 9% FROM $209.3 MILLION IN 1997 PERIOD
Performance improvement in this segment reflects strong net investment
income and continued expense savings. Catastrophe losses were $10.4 million in
the quarter, after taxes and reinsurance, compared to insignificant losses in
the prior year period.
The statutory combined ratio for the quarter was 109.8% compared to 109.7%
in the 1997 period. Total net written premiums were down slightly to $1.121
billion versus $1.141 billion, reflecting management's continued disciplined
approach to underwriting in a difficult pricing environment.
PERSONAL LINES OPERATING EARNINGS (before minority interest):
$107.7 MILLION, UP 6% FROM $101.3 MILLION IN 1997 PERIOD
Strong operating results were driven by increased production, higher net
investment income and continued favorable prior-year reserve development. These
factors were partially offset by catastrophe losses, after taxes and
reinsurance, of $13.1 million, which compares to $4.5 million in the 1997
quarter.
Personal Lines achieved growth from all distribution channels. Total net
written premiums grew 17% over the prior year to $873.9 million, up from $744.9
million, despite an increasingly competitive rate environment for auto
insurance.
The statutory combined ratio for the quarter was 92.9% compared to 92.8%
in the 1997 period.
CORPORATE AND OTHER
OPERATING EXPENSE: ($46.5 MILLION) VERSUS ($46.5 MILLION) IN 1997 PERIOD
Operating expenses, consisting of net treasury and corporate staff
expenses, for the quarter were flat with the prior year period.
INVESTMENT PORTFOLIO
The Company's $64 billion investment portfolio consists primarily of fixed
income investments with average quality ratings of A+/A1. The effective duration
of the fixed income portfolio, including short-term fixed income investments, is
5.0 years.
-------------------
The Company, which as of June 30, 1998 had assets of approximately $420
billion, is a diversified, integrated financial services company engaged in
investment services, asset
7
<PAGE>
management, consumer finance and life and property casualty insurance services.
Book value per share at quarter-end was $18.23 -- which includes unrealized
gains in the investment portfolio of $1.274 billion. Excluding the
mark-to-market requirement for the investment portfolio, the book value for the
period would have been $17.12 per share.
Forward Looking Statements
Certain of the statements contained herein that are not historical facts
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," and similar expressions. These forward-looking statements involve
risks and uncertainties including, but not limited to, the following: changes in
general economic conditions, including changes in the interest rate environment
and the level of personal bankruptcies; customer responsiveness to both new
products and distribution channels; the ability of the Company to consummate
certain acquisitions on the planned timetable; and the possibility that the
Company will be unable to achieve anticipated levels of operational efficiencies
related to recently acquired companies, as well as achieving its other
cost-savings initiatives.
8
<PAGE>
TRAVELERS GROUP - SUMMARY OF EARNINGS
(In millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
For the quarter ended For the six months ended
June 30, June 30,
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 10,096.0 $ 9,183.6 $ 20,463.6 $ 17,883.5
========== ========== ========== ==========
Income after tax and minority interest:
Operating earnings $ 921.6 $ 877.6 $ 1,928.5 $ 1,683.8
Portfolio gains 27.8 5.7 114.3 14.6
Non-operating item (restructuring credit) 191.2 -- 191.2 --
---------- ---------- ---------- ----------
Net income $ 1,140.6 $ 883.3 $ 2,234.0 $ 1,698.4
========== ========== ========== ==========
Basic earnings per share:
Operating earnings $ 0.80 $ 0.76 $ 1.67 $ 1.46
Portfolio gains 0.02 0.01 0.10 0.01
Non-operating item (restructuring credit) 0.17 -- 0.17 --
---------- ---------- ---------- ----------
Net income $ 0.99 $ 0.77 $ 1.94 $ 1.47
========== ========== ========== ==========
Weighted average common shares
outstanding, applicable to Basic EPS 1,117.7 1,101.1 1,116.8 1,102.5
========== ========== ========== ==========
Diluted earnings per share:
Operating earnings $ 0.77 $ 0.72 $ 1.61 $ 1.38
Portfolio gains 0.02 0.01 0.10 0.02
Non-operating item (restructuring credit) 0.16 -- 0.16 --
---------- ---------- ---------- ----------
Net income $ 0.95 $ 0.73 $ 1.87 $ 1.40
========== ========== ========== ==========
Adjusted weighted average common shares
outstanding, applicable to Diluted EPS 1,172.1 1,178.0 1,170.5 1,179.6
========== ========== ========== ==========
Common shares issued and
outstanding at period end 1,150.6 1,141.4 1,150.6 1,141.4
========== ========== ========== ==========
Preferred dividends - Basic $ (31.1) $ (35.9) $ (62.2) $ (71.7)
========== ========== ========== ==========
Preferred dividends - Diluted $ (24.7) $ (26.1) $ (49.5) $ (52.2)
========== ========== ========== ==========
</TABLE>
<PAGE>
TRAVELERS GROUP - SEGMENT REVENUES & OPERATING EARNINGS
(In millions of dollars)
<TABLE>
<CAPTION>
For the quarter ended For the six months ended
June 30, June 30,
---------------------- -------------------------
1998 1997 1998 1997
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES
Investment Services
Investment banking and brokerage $ 5,582.7 $ 5,115.6 $11,414.5 $ 9,806.9
Asset management 226.8 193.6 451.7 379.7
--------- --------- --------- ---------
Total Investment Services 5,809.5 5,309.2 11,866.2 10,186.6
--------- --------- --------- ---------
Consumer Finance Services 514.2 379.6 999.2 756.7
--------- --------- --------- ---------
Life Insurance Services
Travelers Life and Annuity 799.6 665.7 1,571.5 1,283.6
Primerica Financial Services 421.0 375.4 822.4 750.6
--------- --------- --------- ---------
Total Life Insurance Services 1,220.6 1,041.1 2,393.9 2,034.2
--------- --------- --------- ---------
Property and Casualty Insurance Services
Commercial Lines 1,619.9 1,612.3 3,316.6 3,236.4
Personal Lines 910.2 814.9 1,803.2 1,619.9
Other 2.1 3.7 6.6 5.9
--------- --------- --------- ---------
Total P&C Insurance Services 2,532.2 2,430.9 5,126.4 4,862.2
--------- --------- --------- ---------
Corporate and Other 19.5 22.8 77.9 43.8
--------- --------- --------- ---------
Total revenues $10,096.0 $ 9,183.6 $20,463.6 $17,883.5
========= ========= ========= =========
OPERATING EARNINGS
Investment Services
Investment banking and brokerage $ 347.6 $ 404.1 $ 790.1 $ 771.6
Asset management 62.5 48.6 122.8 93.0
--------- --------- --------- ---------
Total Investment Services 410.1 452.7 912.9 864.6
--------- --------- --------- ---------
Consumer Finance Services 69.2 54.1 128.6 101.4
--------- --------- --------- ---------
Life Insurance Services
Travelers Life and Annuity 130.1 104.9 248.2 206.0
Primerica Financial Services 103.6 82.1 198.2 160.2
--------- --------- --------- ---------
Total Life Insurance Services 233.7 187.0 446.4 366.2
--------- --------- --------- ---------
Property and Casualty Insurance Services
Commercial Lines 227.9 209.3 452.5 402.8
Personal Lines 107.7 101.3 215.7 208.8
--------- --------- --------- ---------
335.6 310.6 668.2 611.6
Financing costs and other (29.3) (30.2) (58.0) (63.3)
Minority interest (51.2) (50.1) (102.0) (98.4)
--------- --------- --------- ---------
Total P&C Insurance Services 255.1 230.3 508.2 449.9
--------- --------- --------- ---------
Total business income 968.1 924.1 1,996.1 1,782.1
--------- --------- --------- ---------
Corporate and Other (46.5) (46.5) (67.6) (98.3)
--------- --------- --------- ---------
Total operating earnings $ 921.6 $ 877.6 $ 1,928.5 $ 1,683.8
========= ========= ========= =========
</TABLE>
<PAGE>
INVESTMENT SERVICES -- Page 1
(In millions of dollars)
<TABLE>
<CAPTION>
As of, or for the quarter As of, or for the six months
ended June 30, ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALOMON SMITH BARNEY
Revenues:
Commissions $ 783.7 $ 685.6 $ 1,578.9 $ 1,401.9
Asset management and administration fees 553.8 398.6 1,051.4 787.7
Investment banking 639.9 475.3 1,268.0 959.1
Principal transactions 315.3 709.2 1,094.8 1,471.5
Other income 48.7 32.9 87.4 68.0
----------- ----------- ----------- -----------
Total noninterest revenues 2,341.4 2,301.6 5,080.5 4,688.2
----------- ----------- ----------- -----------
Interest and dividends 3,468.1 3,007.6 6,785.7 5,498.4
Interest expense 3,067.5 2,578.0 5,989.8 4,746.9
----------- ----------- ----------- -----------
Net interest and dividends 400.6 429.6 795.9 751.5
----------- ----------- ----------- -----------
Total revenues net of interest expense 2,742.0 2,731.2 5,876.4 5,439.7
----------- ----------- ----------- -----------
Noninterest expenses:
Compensation and benefits 1,543.7 1,441.9 3,265.6 2,921.1
Communications 115.8 124.2 232.7 245.1
Occupancy and equipment 105.3 109.4 210.3 215.8
Floor brokerage and other production 105.7 86.7 215.3 172.5
Advertising and market development 68.3 69.0 138.0 131.5
Professional services 45.9 47.5 96.8 88.3
Other operating and administrative expenses 111.7 111.6 261.2 244.0
----------- ----------- ----------- -----------
Total noninterest expenses 2,096.4 1,990.3 4,419.9 4,018.3
----------- ----------- ----------- -----------
Operating income before income taxes 645.6 740.9 1,456.5 1,421.4
Provision for income taxes 235.5 288.2 543.6 556.8
----------- ----------- ----------- -----------
Operating earnings 410.1 452.7 912.9 864.6
Restructuring credit, net of tax 191.2 -- 191.2 --
----------- ----------- ----------- -----------
Net income $ 601.3 $ 452.7 $ 1,104.1 $ 864.6
=========== =========== =========== ===========
Total equity (in billions) $ 9.3 $ 8.1 $ 9.3 $ 8.1
Return on equity (1) 18.2% 23.2% 20.6% 22.5%
Pre-tax profit margin (1) 23.5% 27.1% 24.8% 26.1%
Non-compensation expenses as a
percent of net revenue (1) 20.2% 20.1% 19.6% 20.2%
Client Assets
Assets under fee-based management (in billions):
Money market funds $ 51.1 $ 44.3 $ 51.1 $ 44.3
Mutual funds 57.6 43.8 57.6 43.8
Managed accounts 60.9 52.2 60.9 52.2
----------- ----------- ----------- -----------
Salomon Smith Barney Asset Management 169.6 140.3 169.6 140.3
Financial Consultant managed accounts 14.3 9.8 14.3 9.8
----------- ----------- ----------- -----------
Total internally managed assets 183.9 150.1 183.9 150.1
Consulting Group externally managed assets 69.3 53.1 69.3 53.1
----------- ----------- ----------- -----------
Total assets under fee-based management $ 253.2 $ 203.2 $ 253.2 $ 203.2
=========== =========== =========== ===========
Private Client
Registered Financial Consultants 10,494 10,359 10,494 10,359
Annualized retail gross production per FC (000) $ 441 $ 359 $ 446 $ 375
Domestic retail offices 439 438 439 438
</TABLE>
(1) On operating earnings before restructuring credit.
<PAGE>
INVESTMENT SERVICES -- Page 2
(In millions of dollars)
<TABLE>
<CAPTION>
As of, or for the quarter As of, or for the six months
ended June 30, ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALOMON SMITH BARNEY
ASSET MANAGEMENT DIVISION (SSBAM)
Revenues:
Investment advisory, admin. & distribution fees $ 214.1 $ 172.7 $ 415.8 $ 340.7
Unit Investment Trust revenues - net 7.6 6.8 20.2 15.5
Other revenues 5.1 14.1 15.7 23.5
----------- ----------- ----------- -----------
Total revenues 226.8 193.6 451.7 379.7
----------- ----------- ----------- -----------
Expenses:
Employee compensation and benefits 44.0 34.8 85.9 70.2
Deferred commission amortization 31.5 31.1 66.3 63.9
Other expenses 47.8 47.3 96.2 91.7
----------- ----------- ----------- -----------
Total expenses 123.3 113.2 248.4 225.8
----------- ----------- ----------- -----------
Operating income before income taxes 103.5 80.4 203.3 153.9
Provision for income taxes 41.0 31.8 80.5 60.9
----------- ----------- ----------- -----------
Operating earnings $ 62.5 $ 48.6 $ 122.8 $ 93.0
=========== =========== =========== ===========
Pre-tax profit margin 45.6% 41.5% 45.0% 40.5%
SSBAM Assets under management (in billions):
Money market funds $ 51.1 $ 44.3 $ 51.1 $ 44.3
----------- ----------- ----------- -----------
Mutual funds:
Equity 30.3 20.6 30.3 20.6
Taxable Fixed 14.7 12.1 14.7 12.1
Tax Exempt Fixed 9.3 8.3 9.3 8.3
Annuities 3.3 2.8 3.3 2.8
----------- ----------- ----------- -----------
Total mutual fund sales 57.6 43.8 57.6 43.8
----------- ----------- ----------- -----------
Managed accounts
Private client (1) 17.9 17.9
Institutional (1) 43.0 43.0
----------- ----------- ----------- -----------
Total managed accounts 60.9 52.2 60.9 52.2
----------- ----------- ----------- -----------
Salomon Smith Barney Asset Management $ 169.6 $ 140.3 $ 169.6 $ 140.3
=========== =========== =========== ===========
Unit Investment Trusts held in client accounts $ 12.9 $ 9.3 $ 12.9 $ 9.3
Number of Morningstar 4- and 5- star funds 23 17 23 17
Consolidated Travelers Group
Assets Under Management (in billions)
Salomon Smith Barney Asset Management $ 169.6 $ 140.3 $ 169.6 $ 140.3
Financial consultant managed accounts 14.3 9.8 14.3 9.8
Travelers Life and Annuity (2) 24.3 22.2 24.3 22.2
----------- ----------- ----------- -----------
Total assets managed for third parties $ 208.2 $ 172.3 $ 208.2 $ 172.3
=========== =========== =========== ===========
</TABLE>
(1) Prior to 1998, data not available.
(2) Part of the Life Insurance Services Segment.
<PAGE>
CONSUMER FINANCE SERVICES
(In millions of dollars)
<TABLE>
<CAPTION>
As of, or for the quarter As of, or for the six months
ended June 30, ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 514.2 $ 379.6 $ 999.2 $ 756.7
OPERATING EARNINGS $ 69.2 $ 54.1 $ 128.6 $ 101.4
Owned basis:
Net receivables:
Real estate-secured loans (1) $ 5,674.5 $ 3,992.4 $ 5,674.5 $ 3,992.4
Personal loans (2) 4,099.1 3,328.0 4,099.1 3,328.0
Credit cards - owned 1,407.6 1,166.3 1,407.6 1,166.3
Sales finance and other 902.3 554.7 902.3 554.7
----------- ----------- ----------- -----------
Consumer finance receivables,
net of unearned finance charges 12,083.5 9,041.4 12,083.5 9,041.4
Accrued interest receivable 87.2 56.0 87.2 56.0
Allowance for credit losses (347.1) (263.4) (347.1) (263.4)
----------- ----------- ----------- -----------
Consumer finance receivables, net $ 11,823.6 $ 8,834.0 $ 11,823.6 $ 8,834.0
=========== =========== =========== ===========
Number of offices 1,007 855 1,007 855
Number of credit card accounts 1,155,600 923,700 1,155,600 923,700
Average yield 14.15% 14.42% 14.17% 14.53%
Average net interest margin 7.80% 7.93% 7.79% 8.04%
Charge-off rate 2.66% 2.82% 2.71% 2.88%
60+ days past due as a % of receivables 2.23% 2.14% 2.23% 2.14%
Reserves as a % of net receivables 2.87% 2.91% 2.87% 2.91%
Managed basis:
Consumer finance receivables, net of unearned
finance charges $ 12,083.5 $ 9,041.4 $ 12,083.5 $ 9,041.4
Credit card receivables securitized or held
for sale (3) 254.6 -- 254.6 --
----------- ----------- ----------- -----------
Managed receivables $ 12,338.1 $ 9,041.4 $ 12,338.1 $ 9,041.4
=========== =========== =========== ===========
Managed credit card receivables $ 1,662.2 $ 1,166.3 $ 1,662.2 $ 1,166.3
Average yield 14.09% 14.42% 14.10% 14.53%
Average net interest margin 7.75% 7.93% 7.73% 8.04%
Charge-off rate 2.67% 2.82% 2.71% 2.88%
60+ days past due as % of receivables 2.21% 2.14% 2.21% 2.14%
(1) Includes fully secured $.M.A.R.T. receivables
as follows: $ 2,272.8 $ 1,510.8 $ 2,272.8 $ 1,510.8
(2) Includes $.A.F.E. and partially secured
$.M.A.R.T. receivables, as follows: $ 358.9 $ 389.8 $ 358.9 $ 389.8
(3) On March 6, 1998, the company securitized $255.1
million of credit card receivables.
</TABLE>
Note: Financial data for Security Pacific Financial Services is included from
the date of acquisition (July 31, 1997).
<PAGE>
LIFE INSURANCE SERVICES -- Page 1
(In millions of dollars)
<TABLE>
<CAPTION>
As of, or for the quarter As of, or for the six months
ended June 30, ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 1,220.6 $ 1,041.1 $ 2,393.9 $ 2,034.2
OPERATING EARNINGS
Travelers Life and Annuity $ 130.1 $ 104.9 $ 248.2 $ 206.0
Primerica Financial Services 103.6 82.1 198.2 160.2
----------- ----------- ----------- -----------
Total $ 233.7 $ 187.0 $ 446.4 $ 366.2
=========== =========== =========== ===========
</TABLE>
<PAGE>
LIFE INSURANCE SERVICES -- Page 2
(In millions of dollars)
<TABLE>
<CAPTION>
As of, or for the quarter As of, or for the six months
ended June 30, ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
TRAVELERS LIFE AND ANNUITY
REVENUES $ 799.6 $ 665.7 $ 1,571.5 $ 1,283.6
OPERATING EARNINGS $ 130.1 $ 104.9 $ 248.2 $ 206.0
Pre-tax contribution by source:
Deferred and payout annuities $ 93.8 $ 73.9 $ 181.4 $ 149.7
Group annuities 28.3 26.6 59.8 49.3
Life and long term care insurance 39.3 36.1 77.2 71.1
Other (includes run-off and return on excess
capital) 37.6 23.8 61.7 43.5
----------- ----------- ----------- -----------
Total $ 199.0 $ 160.4 $ 380.1 $ 313.6
=========== =========== =========== ===========
Deferred annuities:
Number of annuities in force (000):
Fixed 398.2 415.9 398.2 415.9
Variable 439.0 308.7 439.0 308.7
----------- ----------- ----------- -----------
Total 837.2 724.6 837.2 724.6
=========== =========== =========== ===========
Number of annuities issued (000):
Fixed 4.4 10.2 9.8 18.0
Variable 35.9 32.4 73.6 61.5
----------- ----------- ----------- -----------
Total 40.3 42.6 83.4 79.5
=========== =========== =========== ===========
Net written premiums & deposits:
Fixed $ 187.2 $ 241.7 $ 419.9 $ 385.8
Variable 587.1 386.0 1,174.2 815.7
----------- ----------- ----------- -----------
Total $ 774.3 $ 627.7 $ 1,594.1 $ 1,201.5
=========== =========== =========== ===========
Policyholder account balances & benefit
reserves (1):
Fixed $ 7,361.8 $ 7,340.5 $ 7,361.8 $ 7,340.5
Variable 10,788.7 7,376.0 10,788.7 7,376.0
----------- ----------- ----------- -----------
Total $ 18,150.5 $ 14,716.5 $ 18,150.5 $ 14,716.5
=========== =========== =========== ===========
Payout annuities:
Net written premiums & deposits $ 106.8 $ 68.2 $ 187.8 $ 122.9
Policyholder account balances & benefit
reserves $ 4,602.2 $ 4,426.0 $ 4,602.2 $ 4,426.0
GIC and other annuities:
Net written premiums & deposits (2) $ 921.6 $ 563.8 $ 1,700.5 $ 1,156.2
Policyholder account balances & benefit
reserves (1)
Guaranteed investment contracts $ 3,018.1 $ 1,976.1 $ 3,018.1 $ 1,976.1
Other group annuities 5,052.9 5,122.0 5,052.9 5,122.0
----------- ----------- ----------- -----------
Total $ 8,071.0 $ 7,098.1 $ 8,071.0 $ 7,098.1
=========== =========== =========== ===========
</TABLE>
(1) Includes general account, separate accounts and managed funds.
(2) Excludes deposits of $197.0 and $210.0 in the 1998 second quarter and six
months, respectively, and $136.0 and $169.0 in the 1997 second quarter and
six months, respectively, related to Travelers plans previously managed
externally.
<PAGE>
LIFE INSURANCE SERVICES -- Page 3
(In millions of dollars)
<TABLE>
<CAPTION>
As of, or for the quarter As of, or for the six months
ended June 30, ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
TRAVELERS LIFE AND ANNUITY (cont'd)
Individual life insurance:
Life insurance in force (in billions, face amt.):
Term $ 30.9 $ 29.6 $ 30.9 $ 29.6
Permanent (universal & whole life) 22.3 21.1 22.3 21.1
----------- ----------- ----------- -----------
Total $ 53.2 $ 50.7 $ 53.2 $ 50.7
=========== =========== =========== ===========
Number of life policies in force (000) 522.9 535.3 522.9 535.3
Life insurance issued (in billions, face amt.) $ 2.1 $ 1.5 $ 4.1 $ 3.0
Number of life policies issued (000) 7.9 5.7 15.0 11.1
Net written premiums and deposits:
Direct periodic premiums and deposits $ 78.2 $ 68.5 $154.4 # $ 139.7
Single premium deposits 20.5 13.7 44.3 25.6
Reinsurance (16.0) (14.2) (30.8) (27.5)
----------- ----------- ----------- -----------
Total $ 82.7 $ 68.0 $ 167.9 $ 137.8
=========== =========== =========== ===========
Policyholder account balances & benefit
reserves $ 2,360.0 $ 2,222.1 $ 2,360.0 $ 2,222.1
Individual long term care insurance:
Number of policies in force (000) 113.6 90.6 113.6 90.6
Net earned premiums $ 48.7 $ 39.1 $ 94.3 $ 74.0
Net written premiums $ 53.7 $ 43.3 $ 98.2 $ 85.8
All businesses:
Net investment income $ 496.4 $ 459.9 $ 976.7 $ 899.8
Interest credited to contractholders $ 210.3 $ 204.6 $ 425.3 $ 402.2
</TABLE>
<PAGE>
LIFE INSURANCE SERVICES -- Page 4
(In millions of dollars)
<TABLE>
<CAPTION>
As of, or for the quarter As of, or for the six months
ended June 30, ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMERICA FINANCIAL SERVICES
REVENUES $ 421.0 $ 375.4 $ 822.4 $ 750.6
OPERATING EARNINGS
Life insurance $ 80.6 $ 68.8 $ 155.6 $ 132.8
Other financial products 23.0 13.3 42.6 27.4
----------- ----------- ----------- -----------
Total operating earnings $ 103.6 $ 82.1 $ 198.2 $ 160.2
=========== =========== =========== ===========
Face value (in billions) of:
Life insurance issued $ 15.8 $ 14.1 $ 28.8 $ 26.1
Life insurance in force $ 377.5 $ 365.4 $ 377.5 $ 365.4
Number of life policies issued (000) 61.2 62.8 112.3 117.1
Number of life policies in force (000) 2,151.1 2,149.8 2,151.1 2,149.8
Annualized issued premiums $ 48.7 $ 47.9 $ 89.5 $ 89.0
Direct premiums $ 312.3 $ 303.2 $ 618.5 $ 603.5
Earned premiums:
PFS Individual term life $ 248.8 $ 243.5 $ 493.5 $ 484.7
Other 17.1 15.8 32.6 33.6
----------- ----------- ----------- -----------
Total $ 265.9 $ 259.3 $ 526.1 $ 518.3
=========== =========== =========== ===========
Mutual fund sales at NAV:
Salomon Smith Barney Asset Management funds $ 400.7 $ 332.5 $ 736.3 $ 649.8
Other funds 308.6 200.9 537.4 404.7
----------- ----------- ----------- -----------
Total U.S. mutual fund sales 709.3 533.4 1,273.7 1,054.5
Mutual fund sales - Canada 123.9 136.0 328.2 336.9
----------- ----------- ----------- -----------
Total mutual fund sales $ 833.2 $ 669.4 $ 1,601.9 $ 1,391.4
=========== =========== =========== ===========
Cash advanced on $.M.A.R.T. and $.A.F.E. loans (1) $ 421.2 $ 338.2 $ 753.7 $ 627.6
Variable annuity net written premiums and deposits $ 175.2 $ 79.8 $ 301.5 $ 134.0
TRAVELERS SECURE net written premiums (2) $ 55.8 $ 15.2 $ 93.8 $ 24.9
</TABLE>
(1) The $.M.A.R.T. and $.A.F.E. loan products are marketed by PFS; the
receivables are reflected in the assets of Consumer Finance Services.
(2) The TRAVELERS SECURE property casualty insurance products are marketed by
PFS; the premiums are reflected in the operating earnings of Travelers
Property Casualty Corp.
<PAGE>
PROPERTY & CASUALTY INSURANCE SERVICES -- Page 1
(In millions of dollars)
<TABLE>
<CAPTION>
For the quarter For the six months
ended June 30, ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
TOTAL P&C INSURANCE
REVENUES
Commercial Lines $ 1,619.9 $ 1,612.3 $ 3,316.6 $ 3,236.4
Personal Lines 910.2 814.9 1,803.2 1,619.9
Other 2.1 3.7 6.6 5.9
----------- ----------- ----------- -----------
Total $ 2,532.2 $ 2,430.9 $ 5,126.4 $ 4,862.2
=========== =========== =========== ===========
OPERATING EARNINGS
Commercial Lines $ 227.9 $ 209.3 $ 452.5 $ 402.8
Personal Lines 107.7 101.3 215.7 208.8
----------- ----------- ----------- -----------
335.6 310.6 668.2 611.6
Financing costs and other (29.3) (30.2) (58.0) (63.3)
Minority interest (51.2) (50.1) (102.0) (98.4)
----------- ----------- ----------- -----------
Total $ 255.1 $ 230.3 $ 508.2 $ 449.9
=========== =========== =========== ===========
GAAP Consolidated Statement of Operations
Revenues:
Premiums $ 1,902.8 $ 1,811.8 $ 3,801.0 $ 3,611.7
Net investment income 519.1 505.3 1,027.0 1,005.0
Fee income 76.9 91.4 158.9 188.4
Realized investment gains (losses) 9.6 (6.8) 76.0 1.3
Other revenues 21.7 25.5 56.9 49.9
----------- ----------- ----------- -----------
Total revenues 2,530.1 2,427.2 5,119.8 4,856.3
----------- ----------- ----------- -----------
Claims and expenses:
Claims and claim adjustment expenses* 1,430.8 1,365.5 2,858.7 2,731.5
Policyholder dividends 13.2 9.6 26.2 16.7
Amortization of deferred acquisition costs 303.7 279.2 589.6 562.3
General and administrative expenses 311.3 333.9 643.9 665.9
----------- ----------- ----------- -----------
Total expenses 2,059.0 1,988.2 4,118.4 3,976.4
----------- ----------- ----------- -----------
Income before federal income taxes 471.1 439.0 1,001.4 879.9
Federal income taxes 129.3 132.8 283.8 267.5
----------- ----------- ----------- -----------
Net income from property casualty operations 341.8 306.2 717.6 612.4
Financing costs and other (29.3) (30.2) (58.0) (63.3)
----------- ----------- ----------- -----------
Total net income** $ 312.5 $ 276.0 $ 659.6 $ 549.1
=========== =========== =========== ===========
* Includes pre-tax:
Catastrophe losses, net of reinsurance $ 36.2 $ 7.3 $ 49.4 $ 14.8
Asbestos and environmental losses $ 30.0 $ 29.0 $ 61.0 $ 59.0
** Includes, net of taxes:
Net investment income $ 375.5 $ 354.2 $ 740.3 $ 701.5
Realized investment gains (losses) $ 6.2 $ (4.4) $ 49.4 $ 0.8
Statutory combined ratio: (1), (2)
Loss and loss adjustment expense ratio 73.2% 72.7% 73.1% 73.2%
Other underwriting expense ratio 29.5% 30.3% 28.9% 29.1%
----------- ----------- ----------- -----------
Combined ratio 102.7% 103.0% 102.0% 102.3%
=========== =========== =========== ===========
</TABLE>
(1) The 1997 six month net written premiums include an increase of $142.4
million due to a change to conform Aetna P&C's and Travelers P&C's methods
of recording net written premiums, and an increase of $68.7 million due to
an adjustment associated with a reinsurance transaction, in the 1997 first
quarter. Excluding these transactions, the statutory Loss and loss
adjustment expense ratio, Other underwriting expense ratio and Combined
ratio for the 1997 six months were 73.2%, 29.5% and 102.7%, respectively.
(2) Before policyholder dividends.
<PAGE>
PROPERTY & CASUALTY INSURANCE SERVICES -- Page 2
(In millions of dollars)
<TABLE>
<CAPTION>
For the quarter For the six months
ended June 30, ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
COMMERCIAL LINES
Net written premiums by market: (1)
National accounts $ 121.6 $ 149.7 $ 308.2 $ 371.3
Commercial accounts 440.8 453.0 903.4 1,013.5
Select accounts 393.7 369.6 772.3 733.3
Specialty accounts 164.7 168.4 348.7 361.0
----------- ----------- ----------- -----------
Total net written premiums $ 1,120.8 $ 1,140.7 $ 2,332.6 $ 2,479.1
=========== =========== =========== ===========
Statutory combined ratio: (1), (2)
Loss and loss adjustment expense ratio 79.0% 77.8% 78.6% 79.8%
Other underwriting expense ratio 30.8% 31.9% 29.6% 29.5%
----------- ----------- ----------- -----------
Combined ratio 109.8% 109.7% 108.2% 109.3%
=========== =========== =========== ===========
Catastrophe losses, net of reinsurance (after-tax) $ 10.4 $ 0.2 $ 10.4 $ 5.1
PERSONAL LINES
Net written premiums by product line: (3)
Auto $ 578.3 $ 477.9 $ 1,134.0 $ 955.9
Homeowners and other 295.6 267.0 545.9 563.9
----------- ----------- ----------- -----------
Total net written premiums $ 873.9 $ 744.9 $ 1,679.9 $ 1,519.8
=========== =========== =========== ===========
Net written premiums by distribution channel: (3)
Independent agents $ 718.0 $ 654.0 $ 1,400.5 $ 1,361.4
Affinity group marketing 61.0 43.9 114.4 80.6
Joint marketing arrangements 39.1 31.8 71.2 52.9
SECURE 55.8 15.2 93.8 24.9
----------- ----------- ----------- -----------
Total net written premiums $ 873.9 $ 744.9 $ 1,679.9 $ 1,519.8
=========== =========== =========== ===========
Statutory combined ratio: (3)
Loss and loss adjustment expense ratio 65.2% 64.9% 65.2% 63.1%
Other underwriting expense ratio 27.7% 27.9% 27.9% 28.4%
----------- ----------- ----------- -----------
Combined ratio 92.9% 92.8% 93.1% 91.5%
=========== =========== =========== ===========
Catastrophe losses, net of reinsurance (after-tax) $ 13.1 $ 4.5 $ 21.7 $ 4.5
</TABLE>
(1) The 1997 six month net written premiums include an increase of $142.4
million due to a change to conform Aetna P&C's and Travelers P&C's methods
of recording net written premiums in the 1997 first quarter. Excluding this
transaction, the Loss and loss adjustment expense ratio, Other underwriting
expense ratio and Combined ratio for the 1997 six months were 79.8%, 30.3%
and 110.1%, respectively.
(2) Before policyholder dividends.
(3) The 1997 six month net written premiums include an adjustment associated
with a reinsurance transaction, which increased homeowners premiums written
by independent agents by $68.7 million in the 1997 first quarter. Excluding
this transaction, the Loss and loss adjustment expense ratio, Other
underwriting expense ratio and Combined ratio for the 1997 six months were
63.1%, 28.2% and 91.3%, respectively.
<PAGE>
SELECTED OTHER DATA
(In millions of dollars)
<TABLE>
<CAPTION>
At June 30, At December 31,
1998 1997
----------- -----------
<S> <C> <C>
INVESTMENT PORTFOLIO (at carrying value) (1)
Fixed-income investments:
Available for sale, at market:
Mortgage-backed securities - principally
obligations of U.S. Government agencies $ 8,693 $ 8,998
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies 4,281 3,962
Corporates (including redeemable preferreds) 27,176 27,025
Obligations of states and political subdivisions 10,107 8,110
Debt securities issued by foreign governments 1,166 1,326
Held to maturity, at amortized cost 36 41
----------- -----------
Total fixed income 51,459 49,462
Equity securities, at market 1,503 1,624
Mortgage loans and real estate held for sale 3,436 3,799
Policy loans 1,865 1,872
Short-term and other 6,179 5,077
----------- -----------
Total invested assets $ 64,442 $ 61,834
=========== ===========
After tax unrealized gains (losses) on invested assets $ 1,274 $ 1,157
=========== ===========
</TABLE>
(1) Represents Travelers Group's consolidated investments, which primarily
support the company's insurance operations but also include corporate
investments and investments managed on behalf of Consumer Finance Services.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRAVELERS GROUP INC.
Dated: July 22, 1998 By /s/ William T. Bozarth
----------------------------
William T. Bozarth
Vice President
21
