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
April 8, 1998 (April 8, 1998)
------------------------------------------------
Date of report (Date of earliest event reported)
Travelers Group Inc.
------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 1-9924 52-1568099
-------------- --------------------- ------------------
(State of (Commission File No.) (IRS Employer
Incorporation) Identification No.)
388 Greenwich Street
New York, New York 10013
------------------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
(212) 816-8000
----------------------------------------------------
(Registrant's telephone number, including area code)
TRAVELERS GROUP INC.
Form 8-K
Item 5. Other Events.
On April 5, 1998, Travelers Group Inc. and Citicorp
agreed to combine in a merger of equals (the "Merger"). In connection with
the Merger, the consolidated financial statements of Citicorp and its
subsidiaries as of December 31, 1997 and 1996 and for each of the years in
the three-year period ended December 31, 1997 are being filed as Exhibit
99.01 to this Form 8-K and are incorporated herein by reference. Certain
pro forma financial information with respect to the proposed transaction is
being filed as Exhibit 99.02 to this Form 8-K and is incorporated herein by
reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
Exhibit No. Description
23.01 Consent of KPMG Peat Marwick LLP.
99.01 Consolidated balance sheets of Citicorp and its
subsidiaries as of December 31, 1997 and 1996
and for each of the years in the three-year
period ended December 31, 1997, together with
the notes thereto and the report of the
independent auditors.
99.02 Unaudited Pro Forma Condensed Combined Statement
of Financial Position as of December 31, 1997,
Unaudited Pro Forma Condensed Combined
Statements of Income for the years ended
December 31, 1997, 1996 and 1995, and the notes
thereto.
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 hereunto duly authorized.
Dated: April 8, 1998
TRAVELERS GROUP INC.
By: /s/ William T. Bozarth
____________________________
Name: William T. Bozarth
Title: Vice President
EXHIBIT INDEX
Exhibit No. Description
23.01 Consent of KPMG Peat Marwick LLP.
99.01 Consolidated balance sheets of Citicorp and its
subsidiaries as of December 31, 1997 and 1996
and for each of the years in the three-year
period ended December 31, 1997, together with
the notes thereto and the report of the
independent auditors.
99.02 Unaudited Pro Forma Condensed Combined Statement
of Financial Position as of December 31, 1997,
Unaudited Pro Forma Condensed Combined
Statements of Income for the years ended
December 31, 1997, 1996 and 1995, and the notes
thereto.
EXHIBIT 23.01
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Citicorp:
As independent public accountants, we hereby consent to the incorporation
by reference in the Registration Statements on:
o Form S-3 Nos. 33-49280, 33-55542, 33-56940, 33-68760, 33-51101,
33-52281, 33-54093, 33-62903, 33-63663, 333-04809,
333-12439, 333-27155, 333-42575 and 333-44549; and
o Form S-8 Nos. 33-32130, 33-43997, 33-59524, 33-28110,
33-43883, 33-21099, 33-29711, 33-47437, 33-39025,
33-40469, 33-38109, 33-50206, 33-51201-1, 33-51353,
33-51769, 33-51783, 33-52027, 33-52029, 33-64985,
333-02809, 333-02811, 333-12697, 333-25603, 333-38647-1
and 333-41865;
of Travelers Group Inc. of our report dated January 20, 1998, relating to
the consolidated balance sheets of Citicorp and subsidiaries as of December
31, 1997 and 1996, the related consolidated statements of income, changes
in stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997, and the related consolidated
balance sheets of Citibank, N.A. and subsidiaries as of December 31, 1997
and 1996, which report is included in the Current Report on Form 8-K of
Travelers Group Inc. dated April 8, 1998.
/s/ KPMG PEAT MARWICK LLP
New York, New York
April 8, 1998
EXHIBIT 99.01
REPORT OF INDEPENDENT AUDITORS
[Logo] KPMG Peat Marwick LLP
Certified Public Accountants
The Board of Directors and Stockholders of Citicorp:
We have audited the accompanying consolidated balance sheets of Citicorp and
subsidiaries as of December 31, 1997 and 1996, the related consolidated
statements of income, changes in stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997, and the
related consolidated balance sheets of Citibank, N.A. and subsidiaries as of
December 31, 1997 and 1996. These financial statements are the responsibility
of Citicorp management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform these audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Citicorp
and subsidiaries as of December 31, 1997 and 1996, the results of their
operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, and the financial position of Citibank, N.A.
and subsidiaries as of December 31, 1997 and 1996 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
January 20, 1998
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
Citicorp and Subsidiaries
In Millions of Dollars Except Per Share Amounts 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
Interest Revenue
<S> <C> <C> <C>
Loans, including Fees $18,967 $18,509 $17,808
Deposits with Banks 995 858 770
Federal Funds Sold and Securities Purchased Under Resale Agreements 872 902 1,056
Securities, including Dividends (Note 1) 2,197 1,770 1,544
Trading Account Assets 1,012 1,310 1,785
Loans Held For Sale (Note 1) 440 -- --
------- ------- -------
24,483 23,349 22,963
------- ------- -------
Interest Expense
Deposits 9,613 8,974 8,902
Trading Account Liabilities 310 313 300
Purchased Funds and Other Borrowings (Note 1) 1,814 1,775 2,379
Long-Term Debt (Note 1) 1,344 1,347 1,431
------- ------- -------
13,081 12,409 13,012
------ ------ ------
Net Interest Revenue 11,402 10,940 9,951
------ ------ -------
Provision for Credit Losses (Note 1) 1,907 1,926 1,991
------- ------- -------
Net Interest Revenue after Provision for Credit Losses 9,495 9,014 7,960
------- ------- -------
Fees, Commissions, and Other Revenue
Fees and Commissions (Note 7) 5,817 5,469 5,165
Foreign Exchange 1,486 864 1,053
Trading Account 241 637 559
Securities Transactions (Notes 1 and 10) 668 210 132
Other Revenue 2,002 2,076 1,818
------- ------- -------
10,214 9,256 8,727
------ ------- -------
Operating Expense
Salaries 5,286 4,880 4,445
Employee Benefits (Note 8) 1,331 1,364 1,281
------ ------ ------
Total Employee Expense 6,617 6,244 5,726
Net Premises and Equipment Expense (Notes 2 and 13) 1,961 1,843 1,698
Restructuring Charge (Note 9) 889 -- --
Other Expense 4,520 4,110 3,678
------- ------- -------
13,987 12,197 11,102
------ ------ ------
Income Before Taxes 5,722 6,073 5,585
Income Taxes (Note 10) 2,131 2,285 2,121
------- ------- -------
Net Income $3,591 $3,788 $3,464
- --------------------------------------------------------------------------------------------------------
Income Applicable to Common Stock $3,451 $3,631 $3,126
------- ------- -------
Earnings Per Share (Note 11)
Basic $ 7.53 $ 7.73 $ 7.60
------- ------- -------
Diluted $ 7.33 $ 7.43 $ 6.50
- --------------------------------------------------------------------------------------------------------
</TABLE>
Accounting policies and explanatory notes on pages 61 through 81 form an
integral part of the financial statements.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Citicorp and Subsidiaries
In Millions of Dollars
December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and Due from Banks $8,585 $6,905
Deposits at Interest with Banks 13,049 11,648
Securities, at Fair Value (Note 1)
Available for Sale 30,762 26,062
Venture Capital 2,599 2,124
Trading Account Assets (Note 1) 40,356 30,785
Loans Held for Sale (Note 1) 3,515 --
Federal Funds Sold and Securities Purchased
Under Resale Agreements 10,233 11,133
Loans, Net (Note 1)
Consumer 108,066 111,847
Commercial 75,947 62,765
------- --------
Loans, Net of Unearned Income 184,013 174,612
Allowance for Credit Losses (5,816) (5,503)
-------- --------
Total Loans, Net 178,197 169,109
Customers' Acceptance Liability 1,726 2,077
Premises and Equipment, Net (Note 2) 4,474 4,667
Interest and Fees Receivable 3,288 3,068
Other Assets (Notes 1, 3, 8, and 10) 14,113 13,440
-------- --------
Total $310,897 $281,018
-------- --------
- -----------------------------------------------------------------------------
Liabilities
Non-Interest-Bearing Deposits in U.S. Offices $ 16,901 $14,867
Interest-Bearing Deposits in U.S. Offices 40,361 40,254
Non-Interest-Bearing Deposits in Offices
Outside the U.S. 9,627 9,891
Interest-Bearing Deposits in Offices
Outside the U.S. 132,232 119,943
-------- --------
Total Deposits 199,121 184,955
Trading Account Liabilities (Note 1) 30,986 22,003
Purchased Funds and Other Borrowings (Note 1) 21,231 18,191
Acceptances Outstanding 1,826 2,104
Accrued Taxes and Other Expense (Note 10) 6,464 5,992
Other Liabilities (Notes 8 and 9) 10,288 8,201
Long-Term Debt (Note 1) 19,785 18,850
Stockholders' Equity
Preferred Stock (Without par value) (Note 4) 1,903 2,078
Common Stock ($1.00 par value) (Note 5) 506 506
Issued Shares: 506,298,235 in each period
Surplus 6,501 6,595
Retained Earnings 16,789 14,303
Net Unrealized Gains-- Securities Available for
Sale (Note 1) 535 676
Foreign Currency Translation (626) (486)
Common Stock in Treasury, at Cost (4,412) (2,950)
Shares: 52,355,947 in 1997 and 43,081,217 in 1996
-------- --------
Total Stockholders' Equity 21,196 20,722
-------- --------
Total $310,897 $281,018
-------- --------
- -------------------------------------------------------------------------------
</TABLE>
Accounting policies and explanatory notes on pages 61 through 81 form
an integral part of the financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Citicorp and Subsidiaries
In Millions of Dollars 1997 1996 1995
- ------------------------------------------------------------------------------------
Preferred Stock (without par value) (Note 4)
<S> <C> <C> <C>
Balance at Beginning of Year $ 2,078 $ 3,071 $ 4,187
Redemption of Perpetual Preferred Stock, Series 14 (175) -- --
Conversion of Convertible Preferred Stock, Series 12 -- (590) --
Conversions of Convertible Preferred Stock, Series 13 -- (403) (257)
Issuance of Stock -- -- 400
Redemptions of Conversion Preferred Stock, Series 15 -- -- (1,134)
Redemption and Retirement of Other Preferred Stock -- -- (125)
-------- -------- --------
Balance at End of Year $ 1,903 $ 2,078 $ 3,071
-------- -------- --------
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Common Stock ($1.00 par value) (Note 5)
Balance at Beginning of Year--Shares: 506,298,235 in 1997, 461,319,265 in 1996, and
<S> <C> <C> <C>
420,589,459 in 1995 $ 506 $ 461 $ 421
Issuance of 36,875,000 Shares on Conversion of Convertible Preferred Stock, Series 12 -- 37 --
Issuance of 6,535,926 Shares on Conversions of Convertible Preferred Stock, Series 13 -- -- 6
Issuance of 21,146,076 Shares on Redemptions of Conversion Preferred Stock, Series 15 -- -- 21
Issuance of Stock under Dividend Reinvestment and Common Stock Purchase Plan
Shares: 7,882 in 1996, and 1,138,166 in 1995 -- -- 1
Issuance of Stock under Employee Benefit Plans (Note 8)
Shares: 8,096,088 in 1996, and 11,909,638 in 1995 -- 8 12
-------- -------- --------
Balance at End of Year--Shares: 506,298,235 in 1997 and in 1996, and 461,319,265 in 1995 $ 506 $ 506 $ 461
- -----------------------------------------------------------------------------------------------------------------------------
Surplus
Balance at Beginning of Year $ 6,595 $ 5,702 $ 4,194
Issuance of Stock under Dividend Reinvestment and Common Stock Purchase Plan 15 12 53
Issuance of Stock under Employee Benefit Plans and Related Tax Benefits (Notes 8 and 10) (196) 209 405
Amortization related to Employee Benefit Plans (Note 8) 87 119 96
Issuance of Stock on Conversion of Convertible Preferred Stock, Series 12 -- 553 --
Issuance of Stock on Conversions of Convertible Preferred Stock, Series 13 -- -- 115
Issuance of Stock on Redemptions of Conversion Preferred Stock, Series 15 -- -- 855
Preferred Stock Issuance Cost and Other Activity -- -- (16)
-------- -------- --------
Balance at End of Year $ 6,501 $ 6,595 $ 5,702
- -----------------------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance at Beginning of Year $ 14,303 $ 12,190 $ 9,561
Net Income 3,591 3,788 3,464
Cash Dividends Declared - Common (Note 5) (964) (850) (492)
Cash Dividends Declared - Preferred (Note 4) (141) (162) (343)
Adjustment for Treasury Shares Issued on Conversions of Convertible
Preferred Stock, Series 13 -- (663) --
-------- -------- --------
Balance at End of Year $ 16,789 $ 14,303 $ 12,190
- -----------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains - Securities Available for Sale (Note 1)
Balance at Beginning of Year $ 676 $ 132 $ 278
Effect of Transfer from Securities Held to Maturity to Securities Available for Sale -- -- (260)
Change in Net Unrealized Gains--Securities Available for Sale (141) 544 114
-------- -------- --------
Balance at End of Year $ 535 $ 676 $ 132
- -----------------------------------------------------------------------------------------------------------------------------
Foreign Currency Translation
Balance at Beginning of Year $ (486) $ (437) $ (471)
Change in Foreign Currency Translation (140) (49) 34
Balance at End of Year $ (626) $ (486) $ (437)
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock in Treasury, at Cost
Balance at Beginning of Year--Shares: 43,081,217 in 1997, 34,030,205 in 1996, and
25,508,610 in 1995 $ (2,950) $ (1,538) $ (401)
Repurchase of 18,836,904 Shares in 1997, 36,121,889 Shares in 1996 and 23,060,373
Shares in 1995 (2,259) (3,075) (1,526)
Delivery of 22,077,369 Shares in 1996 and 7,550,978 Shares in 1995
on Conversions of Convertible Preferred Stock, Series 13 -- 1,066 136
Delivery of 6,399,064 Shares on Redemptions of Conversion Preferred Stock, Series 15 -- -- 258
Other Transactions, including issuances under Employee Benefit Plans (Note 8)
Shares: (9,562,174) in 1997, (4,993,508) in 1996, and (588,736) in 1995 797 597 (5)
-------- -------- --------
Balance at End of Year--Shares: 52,355,947 in 1997, 43,081,217 in 1996, and 34,030,205
in 1995 $ (4,412) $ (2,950) $ (1,538)
- ------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity
Balance at Beginning of Year $ 20,722 $ 19,581 $ 17,769
Changes During the Year, Net 474 1,141 1,812
-------- -------- --------
Balance at End of Year $ 21,196 $ 20,722 $ 19,581
- -----------------------------------------------------------------------------------------------------------------------------
Accounting policies and explanatory notes on pages 61 through 81 form an integral part
of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Citicorp and
Subsidiaries
In Millions of Dollars 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S> <C> <C> <C>
Net Income $3,591 $3,788 $3,464
------- ------- -------
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Provision for Credit Losses 1,907 1,926 1,991
Depreciation and Amortization of Premises and Equipment 758 706 636
Amortization of Goodwill 39 46 49
Provision for Deferred Taxes (884) 425 (70)
Restructuring Charge 889 -- --
Venture Capital Activity (475) (270) 155
Net Gain on Sale of Securities (668) (210) (132)
Changes in Accruals and Other, Net 3,460 (2,604) 2,387
Net Increase in Loans Held for Sale (2,402) -- --
Net (Increase) Decrease in Trading Account Assets (9,571) 1,308 6,782
Net Increase (Decrease) in Trading Account Liabilities 8,983 3,729 (4,108)
------- ------- -------
Total Adjustments 2,036 5,056 7,690
------- ------- -------
Net Cash Provided by Operating Activities 5,627 8,844 11,154
------- ------- -------
Cash Flows from Investing Activities
Net Increase in Deposits at Interest with Banks (1,401) (2,620) (2,166)
Securities--Available for Sale
Purchases (52,775) (39,743) (21,198)
Proceeds from Sales 27,974 16,145 9,495
Maturities 19,339 16,662 11,853
Securities--Held to Maturity
Purchases -- -- (6,852)
Maturities -- -- 7,149
Net Decrease (Increase) in Federal Funds Sold and Securities
Purchased Under Resale Agreements 900 (3,020) (1,118)
Net Increase in Loans (116,989) (120,950) (107,853)
Proceeds from Sales of Loans and Credit Card Receivables 103,705 109,621 92,884
Capital Expenditures on Premises and Equipment (1,239) (1,392) (1,189)
Proceeds from Sales of Premises and Equipment, Subsidiaries
and Affiliates, and Other Real Estate Owned ("OREO") 1,157 1,360 1,468
------- ------- -------
Net Cash Used in Investing Activities (19,329) (23,937) (17,527)
------- ------- -------
Cash Flows from Financing Activities
Net Increase in Deposits 14,166 17,824 11,405
Net Increase (Decrease) in Federal Funds Purchased
and Securities Sold Under Repurchase Agreements 1,187 2,091 (4,193)
Commercial Paper and Funds Borrowed
with Original Maturities of Less Than One Year
Proceeds from Issuance 785,725 643,923 514,298
Repayment (782,955) (644,235) (514,656)
Proceeds from Issuance of Long-Term Debt 6,821 4,627 4,669
Repayment of Long-Term Debt (5,769) (4,241) (4,150)
Proceeds from Issuance of Preferred Stock -- -- 390
Redemption of Preferred Stock (175) -- (125)
Proceeds from Issuance of Common Stock 434 537 416
Treasury Stock Repurchases (2,259) (3,069) (1,531)
Dividends Paid (1,105) (1,012) (835)
------- ------- -------
Net Cash Provided by Financing Activities 16,070 16,445 5,688
------- ------- -------
Effect of Exchange Rate Changes on Cash and Due from Banks (688) (170) (62)
------- ------- -------
Net Increase (Decrease) in Cash and Due from Banks 1,680 1,182 (747)
Cash and Due from Banks at Beginning of Year 6,905 5,723 6,470
------- ------- -------
Cash and Due from Banks at End of Year $8,585 $6,905 $5,723
- -------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest $11,578 $11,373 $12,037
Income Taxes 2,358 1,888 1,723
Non-Cash Investing Activities
Transfers from Loans to OREO and Assets Pending Disposition 336 632 730
- -------------------------------------------------------------------------------------------------------------
Accounting policies and explanatory notes on pages 61 through 81 form an
integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
Citibank, N.A. and Subsidiaries
In Millions of Dollars December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and Due from Banks $7,788 $5,947
Deposits at Interest with Banks 14,245 12,822
Securities, at Fair Value
Available for Sale 26,749 21,784
Venture Capital 2,202 1,774
Trading Account Assets 36,106 27,259
Federal Funds Sold and Securities Purchased Under Resale Agreements 9,776 8,181
Loans (Net of unearned income of $864 in 1997 and $1,030 in 1996) 153,670 143,984
Allowance for Credit Losses (4,264) (4,382)
---------- ----------
Loans, Net 149,406 139,602
Customers' Acceptance Liability 1,726 2,077
Premises and Equipment, Net 3,338 3,538
Interest and Fees Receivable 2,441 2,121
Other Assets 8,723 8,134
--------- ---------
Total $262,500 $233,239
- --------------------------------------------------------------------------------------------------------------
Liabilities
Non-Interest-Bearing Deposits in U.S. Offices $ 13,538 $12,826
Interest-Bearing Deposits in U.S. Offices 24,932 23,977
Non-Interest-Bearing Deposits in Offices Outside the U.S. 9,394 9,605
Interest-Bearing Deposits in Offices Outside the U.S. 130,705 118,228
--------- ---------
Total Deposits 178,569 164,636
Trading Account Liabilities 27,811 20,795
Purchased Funds and Other Borrowings 16,334 12,334
Acceptances Outstanding 1,826 2,104
Accrued Taxes and Other Expense 4,003 3,588
Other Liabilities 6,862 4,104
Long-Term Debt and Subordinated Notes 9,927 9,380
Stockholder's Equity (Note 15)
Capital Stock ($20.00 par value) 751 751
Outstanding Shares: 37,534,553 in 1997 and 1996
Surplus 7,453 7,120
Retained Earnings 9,318 8,426
Net Unrealized Gains--Securities Available for Sale 345 588
Foreign Currency Translation (699) (587)
---------- ----------
Total Stockholder's Equity 17,168 16,298
---------- ----------
Total $262,500 $233,239
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Accounting policies and explanatory notes on pages 61 through 81 form an
integral part of the financial statements.
STATEMENT OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
Citicorp, its wholly owned subsidiary, Citibank, N.A., and their
majority-owned subsidiaries, after the elimination of all material
intercompany transactions. Twenty percent to 50%-owned affiliates, other
than venture capital investments, are accounted for under the equity
method, and the pro rata share of their income (loss) is included in other
revenue. Income from investments in less than 20%-owned companies is
recognized when dividends are received. Gains and losses on disposition of
branches, subsidiaries, affiliates, and other investments and charges for
management's estimate of impairment in value that is other than temporary,
such that recovery of the carrying amount is deemed unlikely, are included
in other revenue.
Foreign currency translation, which represents the effects of
translating into U.S. dollars, at current exchange rates, financial
statements of operations outside the U.S. with a functional currency other
than the U.S. dollar, is included in stockholders' equity along with
related hedge and tax effects. The effects of translating non-dollar
financial statements of operations with the U.S. dollar as the functional
currency, including those in highly inflationary environments, are included
in other revenue along with related hedge effects.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
SECURITIES AND TRADING ACCOUNT ACTIVITIES
Marketable equity securities and debt securities available for
sale are carried at fair value, with unrealized gains and losses reported
in a separate component of stockholders' equity net of applicable income
taxes. In the 1995 fourth quarter Citicorp elected to transfer securities
previously classified as held to maturity into the available-for-sale
category, in accordance with guidelines issued by the Financial Accounting
Standards Board which permitted such a one-time election. Realized gains
and losses on sales of securities are included in earnings on a specific
identified cost basis.
Citicorp's venture capital subsidiaries include subsidiaries
registered as Small Business Investment Companies and those other
subsidiaries that engage exclusively in venture capital activities. Venture
capital investments are carried at fair value, with changes in fair value
recognized in other revenue. The fair values of publicly-traded securities
held by these subsidiaries are generally based upon quoted market prices.
In certain situations, including thinly-traded securities, large-block
holdings, restricted shares or other special situations, the quoted market
price is adjusted to produce an estimate of the attainable fair value for
the securities. For securities that are not publicly traded, estimates of
fair value are made based upon review of the investee's financial results,
condition, and prospects.
Trading account assets include securities and money market
instruments held in anticipation of short-term market movements and for
resale to customers, and are valued at market. Gains and losses, both
realized and unrealized, are included in trading account revenue.
Obligations to deliver securities sold but not yet purchased are also
valued at market and included in trading account liabilities.
Trading account activities also include derivative and foreign
exchange products. Derivative trading positions are carried at fair value,
with realized and unrealized gains and losses included in trading account
revenue. Foreign exchange trading positions are valued at prevailing market
rates on a present value basis, and the resulting gains and losses are
included in foreign exchange revenue. For other than short-term derivative
and foreign exchange contracts, Citicorp defers, at the inception of each
contract, an appropriate portion of the initial market value attributable
to ongoing costs, such as servicing and credit considerations, and
amortizes this amount into trading account or foreign exchange revenue over
the life of the contract. The recognition of unrealized gains on these
contracts is subject to management's assessment as to collectibility.
Revaluation gains (losses) on derivative and foreign exchange
contracts are reported gross in trading account assets (liabilities),
reduced by the effects of qualifying netting agreements with
counterparties.
RISK MANAGEMENT ACTIVITIES
Citicorp manages its exposures to market rate movements outside of
its trading activities by modifying the asset and liability mix, either
directly or through the use of derivative financial products including
interest rate swaps, futures, forwards, and purchased option positions such
as interest rate caps, floors, and collars. These end-user derivative
contracts include qualifying hedges and qualifying positions that modify
the interest rate characteristics of specified financial instruments.
Derivative instruments not qualifying as end-user positions are treated as
trading positions and carried at fair value.
To qualify as a hedge, the swap, futures, forward, or purchased
option position must be designated as a hedge and effective in reducing the
market risk of an existing asset, liability, firm commitment, or identified
anticipated transaction which is probable to occur.
To qualify as a position modifying the interest rate
characteristics of an instrument, there must be a documented and approved
objective to synthetically alter the market risk characteristics of an
existing asset, liability, firm commitment or identified anticipated
transaction which is probable to occur, and the swap, forward or purchased
option position must be designated as such a position and effective in
accomplishing the underlying objective.
The foregoing criteria are applied on a decentralized basis,
consistent with the level at which market risk is managed, but are subject
to various limits and controls. The underlying assets, liability, firm
commitment or anticipated transaction may be an individual item or a
portfolio of similar items.
The effectiveness of these contracts is evaluated on an initial
and ongoing basis using quantitative measures of correlation. If a contract
is found to be ineffective, it no longer qualifies as an end-user position
and any excess gains and losses attributable to such ineffectiveness as
well as subsequent changes in fair value are recognized in earnings.
End-user contracts are primarily employed in association with
on-balance sheet instruments accounted for at amortized cost, including
loans, deposits, and long-term debt, and with credit card securitizations.
These qualifying end-user contracts are accounted for consistent with the
risk management strategy as follows. Amounts payable and receivable on
interest rate swaps and options are accrued according to the contractual
terms and included currently in the related revenue and expense category as
an element of the yield on the associated instrument (including the
amortization of option premiums). Amounts paid or received over the life of
futures contracts are deferred until the contract is closed; accumulated
deferred amounts on futures contracts and amounts paid or received at
settlement of forward contracts are accounted for as elements of the
carrying value of the associated instrument, affecting the resulting yield.
End-user contracts related to instruments that are carried at fair
value are also carried at fair value, with amounts payable and receivable
accounted for as an element of the yield on the associated instrument. When
related to securities available for sale, fair value adjustments are
reported in stockholders' equity, net of tax.
If an end-user derivative contract is terminated, any resulting
gain or loss is deferred and amortized over the original term of the
agreement provided that the effectiveness criteria have been met. If the
underlying designated items are no longer held, or if an anticipated
transaction is no longer likely to occur, any previously unrecognized gain
or loss on the derivative contract is recognized in earnings and the
contract is subsequently accounted for at fair value.
Foreign exchange contracts which qualify under applicable
accounting guidelines as hedges of foreign currency exposures, including
net capital investments outside the U.S., are revalued at the spot rate
with any forward premium or discount recognized over the life of the
contract in net interest revenue. Gains and losses on foreign exchange
contracts which qualify as a hedge of a firm commitment are deferred and
recognized as part of the measurement of the related transaction, unless
deferral of a lo ss would lead to recognizing losses on the transaction in
later periods.
LOANS
The consumer loan category represents loans managed by Citicorp's
Global Consumer businesses. Consumer loans are generally written off not
later than a predetermined number of days past due on a contractual basis,
or earlier in the event of bankruptcy. The number of days is set at an
appropriate level by loan product and by country. The policy for suspending
accruals of interest on consumer loans varies depending on the terms,
security and loan loss experience characteristics of each product, and in
consid eration of write-off criteria in place.
The commercial loan category represents loans managed by
Citicorp's Global Corporate Banking businesses. Commercial loans are
identified as impaired and placed on a cash (nonaccrual) basis when it is
determined that the payment of interest or principal is doubtful of
collection, or when interest or principal is past due for 90 days or more,
except when the loan is well secured and in the process of collection. Any
interest accrued is reversed and charged against current earnings, and
interest is ther eafter included in earnings only to the extent actually
received in cash. When there is doubt regarding the ultimate collectibility
of principal, all cash receipts are thereafter applied to reduce the
recorded investment in the loan. Impaired commercial loans are written down
to the extent that principal is judged to be uncollectible. Impaired
collateral-dependent loans where repayment is expected to be provided
solely by the underlying collateral and there are no other available and
reliable sources of re payment are written down to the lower of cost or
collateral value. Cash-basis loans are returned to an accrual status when
all contractual principal and interest amounts are reasonably assured of
repayment and there is a sustained period of repayment performance in
accordance with the contractual terms.
Loans include Citicorp's share of aggregate rentals on lease
financing transactions and residual values net of related unearned income.
Lease financing transactions substantially represent direct financing
leases and also include leveraged leases. Unearned income is amortized
under a method which substantially results in an approximate level rate of
return when related to the unrecovered lease investment. Gains and losses
from sales of residual values of leased equipment are included in other
revenue .
Commencing January 1, 1997, Citicorp classifies credit card and
mortgage loans intended for sale as loans held for sale, which are
accounted for at the lower of cost or market value with net credit losses
charged to other revenue.
AGGREGATE ALLOWANCE FOR CREDIT LOSSES
Commencing in 1997, Citicorp changed the apportionment and display
of the aggregate allowance for credit losses into three components. The
portion attributable to loans and loan commitments is reported as a
deduction from loans; the portion attributable to standby letters of credit
and guarantees is reported in other liabilities; and the portion
attributable to derivative and foreign exchange contracts is reported as a
deduction from trading account assets. Also during 1997, amounts that had
previously bee n attributed to credit card securitization transactions
where the exposure to credit losses is contractually limited to the cash
flows from the securitized receivables were restored to the portion of the
allowance deducted from loans. Prior period amounts were not reclassified
for these items. The entire allowance is available to absorb credit losses
from activities involving the extension of credit.
Additions to the allowance are made by means of the provision for
credit losses charged to expense. Credit losses are deducted from the
allowance, and subsequent recoveries are added. Securities received in
exchange for loan claims in debt restructurings are initially recorded at
fair value, with any gain or loss reflected as a recovery or charge-off to
the allowance, and are subsequently accounted for as securities available
for sale. The amount of the provision is determined based on management's a
ssessment of actual past and expected future net credit losses, business
and economic conditions, the character, quality and performance of the
portfolios, and other pertinent indicators. This evaluation encompasses all
activities involving the extension of credit and also includes an
assessment of the ability of borrowers with foreign currency obligations to
obtain the foreign exchange necessary for orderly debt servicing. The
resulting allowance is deemed adequate to absorb all probable credit losses
inherent in the portfolio.
Impairment of larger-balance, non-homogenous loans is measured by
comparing the net carrying amount of the loan to the present value of the
expected future cash flows discounted at the loan's effective rate, the
secondary market value of the loan, or the fair value of the collateral for
collateral-dependent loans. A valuation allowance is established if
necessary within the portion of the allowance deducted from loans. Smaller
balance, homogenous loans, including consumer mortgage, installment, revol
ving credit and most other consumer loans, are collectively evaluated for
impairment.
OTHER REAL ESTATE OWNED
Upon repossession, loans are adjusted if necessary to the
estimated fair value of the underlying collateral and transferred to Other
Real Estate Owned ("OREO"), which is reported in other assets net of a
valuation allowance for selling costs and net declines in value as
appropriate.
EMPLOYEE BENEFITS
Employee benefits expense includes prior and current service costs
of pension and other postretirement benefit plans, which are accrued on a
current basis, contributions and unrestricted awards under other employee
plans, the amortization of restricted stock awards, and costs of other
employee benefits. There are no charges to earnings upon the grant or
exercise of fixed stock options or the subscription for or purchase of
stock under stock purchase agreements. Compensation expense related to
performance-b ased stock options is recorded over the period to the
estimated vesting dates.
Upon issuance of previously unissued shares under employee plans,
proceeds received in excess of par value are credited to surplus. Upon
issuance of treasury shares, the difference between the proceeds received
and the average cost of treasury shares is recorded in surplus.
INCOME TAXES
Deferred taxes are recorded for the future tax consequences of
events that have been recognized in the financial statements or tax
returns, based upon enacted tax laws and rates, including an appropriate
provision for taxes on undistributed income of subsidiaries and affiliates.
Deferred tax assets are recognized subject to management's judgment that
realization is more likely than not.
SECURITIZATION OF CREDIT CARD RECEIVABLES
The initial and ongoing effects of adopting Statement of Financial
Accounting Standards ("SFAS") No. 125 during 1997 did not result in a
change in the income recognition policies for credit card securitization
activity due to immateriality. Revenue from securitized credit card
receivables is recorded monthly as realized over the term of each
securitization transaction. The revolving nature of the receivables sold
and the monthly recognition of revenue result in a pattern of recognition
that is similar to t he pattern that would be experienced if the
receivables had not been securitized.
Because securitization changes Citicorp's involvement from that of
a lender to that of a loan servicer, it causes the receivables to be
removed from the balance sheet and affects the manner in which the amounts
are classified in the statement of income. For securitized receivables,
amounts that would otherwise be reported as net interest revenue, as fee
and commission revenue, and as credit losses on loans are instead reported
as fee and commission revenue (for servicing fees) and as other revenue (f
or the remaining cash flows to which Citicorp is entitled, net of credit
losses). Citicorp's exposure to credit losses on the securitized
receivables is contractually limited to these cash flows.
EARNINGS PER SHARE
In the fourth quarter of 1997, Citicorp adopted SFAS No. 128,
Earnings per Share ("SFAS No. 128"), which establishes new standards for
computing and presenting earnings per share. As required by the standard,
all prior-period earnings per share data have been restated.
Under SFAS No. 128, basic earnings per share excludes dilution and
is computed by dividing income applicable to common stock (net income after
deducting preferred stock dividends) by the weighted-average number of
common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or otherwise resulted in the
issuance of common stock, and is computed similarly to "fully diluted"
earnings per share that was reported under previous accounting standards.
Under the new rules, computations of dilutive effects are based upon the
average market price of the common stock during the reported period, while
under the old rules the end of period market price would be used if more
dilutive.
Citicorp's diluted earnings per share reflects any dilutive
effects of stock options, stock purchase agreements, conversion preferred
stock, convertible preferred stock, forward purchase contracts on common
stock, and shares issuable under deferred stock awards.
The dilutive effects of stock options and stock purchase
agreements are computed using the treasury-stock method. Prior to
redemption or conversion into common shares, Conversion Preferred Stock,
Series 15 and convertible preferred stock are included in the diluted
computation, using the if-converted method, if dilutive. Shares deliverable
under forward purchase contracts on Citicorp common stock (see Note 5) are
included to the extent that the forward price exceeds the market price of
the common sto ck. Shares receivable by Citicorp under forward contracts
are not deducted from the number of shares used in the computation until
the final number of shares to be received has been determined. Shares
issuable under deferred stock awards are included in the computation and
the amount of after-tax dividend equivalents on shares issuable is added
back to income applicable to common stock.
CASH FLOWS
Cash flows from risk management activities are classified in the
same category as the related assets and liabilities. Cash equivalents are
defined as those amounts included in cash and due from banks.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL INSTRUMENTS
Citicorp provides a wide variety of financial instruments as
products to its customers, and it also uses these instruments in connection
with its own activities. Following are explanatory notes regarding
financial assets and liabilities, off-balance sheet financial instruments,
credit loss reserves, concentrations of credit risk, and the estimated fair
value of financial instruments. Collateral requirements are made on a
case-by-case evaluation of each customer and product, and may include cash,
securities , receivables, real estate, and other assets.
A. Financial Assets and Liabilities
Loans
In Millions of Dollars
at Year-End 1997 1996
- -----------------------------------------------------------------
Consumer
In U.S. Offices
Mortgage and Real Estate (1)(2)(3) $22,599 $23,421
Installment, Revolving Credit,
and Other (1) 35,747 36,285
--------- ----------
58,346 59,706
- -----------------------------------------------------------------
In Offices Outside the U.S.
Mortgage and Real Estate (2) (4) 17,685 18,379
Installment, Revolving Credit, 32,179 33,905
and Other Lease Financing 544 754
----------- ------------
50,408 53,038
- -----------------------------------------------------------------
108,754 112,744
Unearned Income (688) (897)
----------- ------------
Consumer Loans - Net of Unearned
Income $108,066 $111,847
- -----------------------------------------------------------------
Commercial
In U.S. Offices
Commercial and Industrial (5) $11,234 $8,747
Mortgage and Real Estate (2) 2,398 2,977
Loans to Financial Institutions 371 1,035
Lease Financing 3,087 3,017
---------- ----------
17,090 15,776
- -----------------------------------------------------------------
In Offices Outside the U.S.
Commercial and Industrial (5) 47,417 36,901
Mortgage and Real Estate (2) 1,651 1,815
Loans to Financial Institutions 6,480 4,837
Governments and Official 2,376 2,252
Institutions
Lease Financing 1,092 1,294
---------- -----------
59,016 47,099
- -----------------------------------------------------------------
76,106 62,875
Unearned Income (159) (110)
----------- ------------
Commercial Loans - Net of
Unearned Income $75,947 $62,765
- -----------------------------------------------------------------
(1) Commencing in 1997, Citicorp classifies credit card and mortgage loans
intended for sale as loans held for sale. In 1996, includes $1.1 billion
of mortgage loans held for sale carried at the lower of aggregate cost or
market value.
(2) Loans secured primarily by real estate.
(3) Includes $3.4 billion in 1997 and $3.8 billion in 1996 of commercial real
estate loans related to community banking and private banking activities.
(4) Includes $2.3 billion in 1997 and $2.7 billion in 1996 of loans secured
by commercial real estate.
(5) Includes loans not otherwise separately categorized.
The following table presents information about impaired loans.
Impaired loans are those on which Citicorp believes it is not probable that
it will be able to collect all amounts due according to the contractual
terms of the loan, excluding smaller-balance homogeneous loans that are
evaluated collectively for impairment, and are carried on a cash basis:
In Millions of Dollars at Year-End 1997 1996
- -----------------------------------------------------------------
Impaired Commercial Loans $ 971 $ 868
Other Impaired Loans(1) 241 360
-------- --------
Total Impaired Loans(2) $1,212 $1,228
- -----------------------------------------------------------------
Impaired Loans with Valuation
Allowances $ 98 $ 186
Total Valuation Allowances(3) 16 32
- -----------------------------------------------------------------
During the Year:
Average Balance of Impaired
Loans $1,188 $1,657
Interest Income Recognized on
Impaired Loans 62 116
- -----------------------------------------------------------------
(1) Primarily commercial real estate loans related to community and private
banking activities.
(2) At year-end 1997, approximately 39% of these loans were measured for
impairment using the fair value of the collateral, with the remaining 61%
measured using the present value of the expected future cash flows,
discounted at the loan's effective interest rate, compared with
approximately 44% and 56%, respectively, at year-end 1996.
(3) Included in the allowance for credit losses.
<TABLE>
<CAPTION>
Securities 1997 1996
------------------------------------------ ------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
In Millions of Dollars at Year-End Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Federal Agency $4,031 $58 $ 2 $ 4,087 $4,048 $46 $5 $4,089
State and Municipal 2,616 206 115 2,707 2,327 133 55 2,405
Foreign Government 18,106 826 262 18,670 14,056 1,062 180 14,938
U.S. Corporate 1,809 157 101 1,865 1,586 67 65 1,588
Other Debt Securities 1,198 10 79 1,129 1,129 11 11 1,129
Equity Securities(1) 2,131 235 62 2,304 1,870 119 76 1,913
------- ------ ---- ------- ------- ------ ---- -------
$29,891 $1,492 $621 $30,762 $25,016 $1,438 $392 $26,062
------- ------ ---- ------- ------- ------ ---- -------
- ------------------------------------------------------------------------------------------------------------------------------------
Venture Capital $ 2,599 $2,124
- ------------------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale Include:
Mortgage-Backed Securities $ 1,091 $ 12 $ 2 $ 1,101 $1,064 $ 7 $ 3 $1,068
Government of Brazil Brady Bonds 1,436 612 -- 2,048 1,463 872 -- 2,335
Government of Venezuela Brady Bonds 535 -- 55 480 563 -- 81 482
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes non-marketable equity securities carried at cost which are
reported in both the amortized cost and fair value columns. The
amortized cost of non-marketable equity securities was $1,112 million
and $896 million, and the estimated fair value was $1,172 million and
$929 million at December 31, 1997 and 1996, respectively.
Not included in the table above are securities available for sale
held by unconsolidated affiliates carried on the equity method of
accounting. At December 31, 1997 and 1996, the gross unrealized gains
related to these securities were $19 million and $9 million, respectively,
and gross unrealized losses were $8 million and $4 million, respectively,
which are included in the net unrealized gains--securities available for
sale component of stockholders' equity, net of applicable taxes.
The accompanying table shows components of interest and dividends
on securities, net gains from sales of securities available for sale, and
net gains on investments held by venture capital subsidiaries.
In Millions of Dollars 1997 1996 1995
- -----------------------------------------------------------------
Taxable Interest $1,966 $1,600 $1,391
Interest Exempt from U.S. Federal
Income Tax 136 87 89
Dividends 95 83 64
- -----------------------------------------------------------------
Gross Realized Securities Gains $ 754 $ 261 $ 177
Gross Realized Securities Losses 86 51 45
- -----------------------------------------------------------------
Net Realized and Unrealized
Venture Capital Gains $749 $ 450 $ 390
Which Included:
Gross Unrealized Gains 612 416 487
Gross Unrealized Losses 82 150 300
- -----------------------------------------------------------------
The following table presents the amortized cost, fair value, and
average yield on amortized cost of debt securities available for sale by
contractual maturity dates as of December 31, 1997:
Amortized Fair
In Millions of Dollars Cost Value Yield
- -----------------------------------------------------------------
U.S. Treasury and Federal
Agency
Due Within 1 Year $1,787 $1,786 5.29%
After 1 but Within 5 Years 1,194 1,240 6.70
After 5 but Within 10 Years 208 174 6.16
After 10 Years(1) 842 887 7.28
------- -------
Total $4,031 $4,087 6.16
- -----------------------------------------------------------------
State and Municipal
Due Within 1 Year $ -- $ -- $ --%
After 1 but Within 5 Years 64 56 5.19
After 5 but Within 10 Years 719 733 5.70
After 10 Years(1) 1,833 1,918 6.45
------- -------
Total $2,616 $2,707 6.21
- -----------------------------------------------------------------
All Other(2)
Due Within 1 Year $6,821 $6,770 11.61%
After 1 but Within 5 Years 7,733 7,677 6.82
After 5 but Within 10 Years 2,645 2,604 6.98
After 10 Years(1) 3,914 4,613 8.41
------- -------
Total $21,113 $21,664 8.68
- -----------------------------------------------------------------
(1) Securities with no stated maturities are included as contractual
maturities of greater than 10 years. Actual maturities may differ due
to call or prepayment rights.
(2) Includes foreign government, U.S. corporate, and other debt securities.
Yields reflect the impact of local interest rates prevailing in countries
outside the U.S.
Trading Account Assets and Liabilities
In Millions of Dollars at Year-End 1997 1996
- ----------------------------------------------------------------
Trading Account Assets
U.S. Treasury and Federal Agency $3,431 $ 2,560
Securities
State and Municipal Securities 108 123
Foreign Government, Corporate
and Other 12,352 10,607
Securities
Derivative and Foreign Exchange
Contracts (1) 24,465 17,495
------- -------
$40,356 $30,785
- ----------------------------------------------------------------
Trading Account Liabilities
Securities Sold, Not Yet Purchased $5,769 $4,036
Derivative and Foreign Exchange 25,217 17,967
Contracts (1) $30,986 $22,003
- ----------------------------------------------------------------
(1) Net of master netting agreements and securitization. In addition, the
asset balance at December 31, 1997 is reduced by $50 million of credit
loss reserves (see Credit Loss Reserves on page 69).
The average fair value of trading account assets during 1997 was
$35.1 billion, including $20.3 billion relating to derivative and foreign
exchange contracts, compared with $32.5 billion and $15.4 billion,
respectively, during 1996. The average fair value of trading account
liabilities during 1997 was $26.6 billion, including $21.6 billion relating
to derivative and foreign exchange contracts, compared with $19.9 billion
and $15.3 billion, respectively, during 1996.
Deferred revenue on derivative and foreign exchange contracts,
attributable to ongoing costs such as servicing and credit considerations,
totaled $391 million and $310 million at December 31, 1997 and 1996,
respectively, which is reported in Other Liabilities. Commitments to
purchase when-issued securities were $3 million and $465 million at
December 31, 1997 and 1996, respectively.
Purchased Funds and Other Borrowings (1)
In Millions of Dollars
at Year-End 1997 1996
- -----------------------------------------------------------------
Federal Funds Purchased and
Securities Sold
under Repurchase Agreements $11,182 $9,995
Commercial Paper Issued by
Parent Company 1,941 775
The Student Loan Corporation -- 463
(80% owned)
Other Funds Borrowed 8,108 6,958
------- -------
Total $21,231 $18,191
- -----------------------------------------------------------------
(1) Original maturities of less than one year.
Long-Term Debt (1)
In Millions of Dollars
at Year-End 1997 1996
- -----------------------------------------------------------------
Various
Various Floating
Fixed-Rate Rate
Obligations(2) Obligations(2) Total Total
- -----------------------------------------------------------------
Parent Company
Due in 1997 $ -- $ -- $ -- $1,649
Due in 1998 409 409 818 1,242
Due in 1999 668 774 1,442 1,717
Due in 2000 406 1,736 2,142 1,046
Due in 2001 618 930 1,548 902
Due in 2002 461 1,119 1,580 796
Due in 2003-2007 3,506 1,254 4,760 3,898
Due in 2008-2012 1,776 115 1,891 1,368
Due after 2012 61 357 418 545
--------- -------- -------- --------
7,905(3) 6,694 14,599 13,163
--------- -------- -------- --------
Subsidiaries(4)
Due in 1997 -- -- -- 1,524
Due in 1998 999 346 1,345 1,843
Due in 1999 615 119 734 741
Due in 2000 455 104 559 398
Due in 2001 220 89 309 362
Due in 2002 889 77 966 78
Due in 2003-2007 68 208 276 246
Due in 2008-2012 43 88 131 94
Due after 2012 757 109 866 401
-------- -------- ------- -------
4,046 1,140 5,186 5,687
-------- -------- ------- -------
Total $11,951 $7,834 $19,785 $18,850
- -----------------------------------------------------------------
(1) Original maturities of one year or more. Maturity distribution is based
upon contractual maturities or earlier dates at which debt is
repayable at the option of the holder, due to required mandatory
sinking fund payments or due to call notices issued.
(2) Based on contractual terms. Repricing characteristics may be
effectively modified from time to time using derivative contracts.
(3) All of the parent company long-term fixed rate obligations have been
synthetically converted to floating rates by the use of derivative
contracts (primarily swaps).
(4) Approximately 14% in 1997 and 5% in 1996 of subsidiary long-term debt
was guaranteed by Citicorp, and of the debt not guaranteed by
Citicorp, approximately 12% in 1997 and 35% in 1996 was secured by the
assets of the subsidiary.
Long-term debt is denominated in various currencies with both
fixed and floating interest rates, summarized below. Certain of the
agreements under which long-term debt obligations were issued prohibit
Citicorp, under certain conditions, from paying dividends in shares of
Citibank capital stock and from creating encumbrances on such shares.
Floating rates are determined periodically by formulas based on certain
money market rates or, in certain instances, by minimum rates as specified
in the governing agreements. A portion of Parent Company and subsidiary
debt represents local currency borrowings where prevailing rates may vary
significantly from rates in the United States.
1997 1996
- ---------------------------------------------- --------------------------
Weighted- Weighted-
In %'s Range Average(1) Average(1)
- ---------------------------------------------- --------------------------
Parent Company
Fixed rate (2) 2.42 to 10.60 7.42 2.42 to 10.50 7.32
Floating rate (3) 4.03 to 7.03 5.95 3.50 to 8.23 5.99
Subsidiaries (4)
Fixed rate 1.03 to 18.69 7.49 3.50 to 18.69 9.07
Floating rate 3.00 to 34.69 17.17 3.00 to 32.84 11.51
- ---------------------------------------------------------------------------
(1) Reflects contractual interest rates. The overall weighted average
interest rate for long-term debt in 1997 was 7.50% on a contractual
basis and 6.96% including the effects of derivative contracts.
(2) Predominantly denominated in U.S. dollars (94% in 1997 and 96% in 1996),
Japanese yen, and German marks, and matures over the period to 2035.
(3) Predominantly denominated in U.S. dollars (95% in 1997 and 96% in 1996)
and matures over the period to 2035.
(4) Denominated in U.S. dollars (38% in 1997 and 47% in 1996) and various
foreign currencies including Australian dollars, Dutch guilders, Chilean
pesos, Malaysian ringgit, and Italian lire. Fixed and floating rate debt
matures over the period to 2027 and 2017, respectively.
Included in long-term debt are $0.8 billion of subordinated
capital notes at December 31, 1997 and 1996, certain of which require
Citicorp to exchange the notes at maturity or at certain other specified
times for capital securities that have a market value equal to the
principal amounts of the notes or, at Citicorp's option, to pay the
principal of the notes from amounts representing designated proceeds from
the sale of capital securities. At the option of Citicorp, the exchange or
the proceeds from sale, as applicable, may be for or from common stock,
non-redeemable preferred stock, or other marketable capital securities of
Citicorp. Citicorp has designated proceeds from the sales of capital
securities in an amount sufficient to satisfy all the dedication
commitments of its subordinated capital notes.
Also included in long-term debt at December 31,1997 are $750
million of guaranteed preferred beneficial interests in Citicorp
subordinated debt issued by Citicorp Capital I and II, wholly-owned trusts
whose sole assets are $309 million of 7.93% and $464 million of 8.015%,
respectively, of Junior Subordinated Deferrable Interest Debentures of
Citicorp due 2027. Long-term debt at December 31, 1996 included $300
million related to Citicorp Capital I. Under the terms of these
arrangements, taken as a whole, Citicorp has provided a full and
unconditional guarantee on a subordinated basis of payments due.
B. Off-Balance Sheet Financial Instruments
In addition to the financial assets and liabilities discussed
above, Citicorp's financial instruments include off-balance sheet products.
The market and credit risks associated with these products, as well as the
operating risks, are similar to those relating to other types of financial
instruments, and Citicorp manages these risks in a consistent manner.
Derivative and Foreign Exchange Contracts
Notional
Principal Balance Sheet
Amounts Credit
Exposure(1)
------------------ ------------------
In Billions of Dollars
at Year-End 1997 1996 1997 1996
- -----------------------------------------------------------------
Interest Rate Products
Futures Contracts $139.1 $160.6 $ -- $ --
Forward Contracts 282.7 132.7 0.1 0.1
Swap Agreements 627.0 476.2 9.5 9.4
Purchased Options 105.7 126.7 1.2 1.2
Written Options 143.8 192.3 -- --
Foreign Exchange
Products
Futures Contracts 0.9 0.7 -- --
Forward Contracts 1,317.0 1,146.7 28.8 17.6
Cross-Currency Swaps 58.9 44.0 3.3 1.8
Purchased Options 163.3 101.1 3.7 1.7
Written Options 184.2 104.5 -- --
Equity Products 61.6 22.2 2.0 0.7
Commodity Products 14.7 12.5 0.8 0.5
Credit Derivative
Products 6.9 1.9 -- --
---- ----
49.4 33.0
Effects of Master Netting
Agreements (2) (24.1) (15.5)
Effects of
Securitization (3) (0.8) --
----- -----
$24.5 $17.5
----- -----
- -----------------------------------------------------------------
(1) There is no balance sheet credit exposure for futures contracts because
they settle daily in cash, and none for written options because they
represent obligations (rather than assets) of Citicorp. Amounts do not
reflect credit loss reserves attributable to derivative and foreign
exchange contracts.
(2) Master netting agreements mitigate credit risk by permitting the offset
of amounts due from and to individual counterparties in the event of
counterparty default.
(3) Citibank has securitized and sold net receivables, and the associated
credit risk related to certain derivative and foreign exchange contracts
via Citibank Capital Markets Assets Trust.
Citicorp enters into derivative and foreign exchange futures,
forwards, options, and swaps, which enable customers to transfer, modify,
or reduce their interest rate, foreign exchange, and other market risks,
and also trades these products for its own account. In addition, Citicorp
uses derivatives and other instruments, primarily interest rate products,
as an end-user in connection with its risk management activities.
Derivatives are used to manage interest rate risk relating to specific
groups of on-bala nce sheet assets and liabilities, including commercial
and consumer loans, deposit liabilities, long-term debt, and other
interest-sensitive assets and liabilities, as well as credit card
securitizations. In addition, foreign exchange contracts are used to hedge
net capital exposures and foreign exchange transactions. Through the
effective use of derivatives, Citicorp has been able to modify the
volatility of its revenue from asset and liability positions. The preceding
table presents the aggregate notiona l principal amounts of Citicorp's
outstanding derivative and foreign exchange contracts at December 31, 1997
and 1996, along with the related balance sheet credit exposure. The table
includes all contracts with third parties, including both trading and
end-user positions.
Futures and forward contracts are commitments to buy or sell at a
future date a financial instrument, commodity, or currency at a contracted
price, and may be settled in cash or through delivery. Swap contracts are
commitments to settle in cash at a future date or dates, based on
differentials between specified financial indices, as applied to a notional
principal amount. Option contracts give the purchaser, for a fee, the
right, but not the obligation, to buy or sell within a limited time a
financia l instrument or currency at a contracted price that may also be
settled in cash, based on differentials between specified indices.
Market risk on a derivative or foreign exchange product is the
exposure created by potential fluctuations in interest rates, foreign
exchange rates, and other values, and is a function of the type of product,
the volume of transactions, the tenor and terms of the agreement, and the
underlying volatility. Credit risk is the exposure to loss in the event of
nonperformance by the other party to the transaction. The recognition in
earnings of unrealized gains on these transactions is subject to
management's assessment as to collectibility.
Balance sheet credit exposure represents the current cost of
replacing the contracts and is equal to the amount of Citicorp's unrealized
gain. As measured by Citicorp in connection with the management of overall
credit relationships with individual customers, total exposure on
derivative and foreign exchange contracts also includes the potential
increase in replacement cost estimated based on a statistical simulation of
values that would result from a change in market rates. In the aggregate
for all contracts, the estimate of the potential increase in replacement
cost ranged from approximately $33.1 billion to $42.3 billion during 1997.
Substantially all of the total exposure was to counterparties considered by
Citicorp to be investment grade; the substantial majority was under three
years tenor. At December 31,1997, the balance sheet credit exposure of
foreign currency derivative contracts for which the recognition of
revaluation gains had been suspended amounted to $59 million. There were no
signifi cant non-performing contracts in 1996. For the three years ended
December 31, 1997 there were no material credit losses related to
derivative and foreign exchange contracts. During 1997, credit losses
related to foreign currency derivative contracts totaled $35 million.
End-User Derivative Interest Rate and Foreign Exchange Contracts
<TABLE>
<CAPTION>
Notional Principal
Amounts(1) Percentage of 1997 Amount Maturing
------------------------------------------------------------------------------------
Dec. 31, Dec. 31, Within 1 to 2 to 3 to 4 to After
In Billions of Dollars 1997 1996 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years
- ----------------------------------------------------------------------------------------------------------------------------
Interest Rate Products
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Futures Contracts $29.3 $23.4 63% 27% 10% --% --% --%
Forward Contracts 6.9 3.6 97 3 -- -- -- --
Swap Agreements 106.0 111.9 35 15 11 11 9 19
Option Contracts 20.1 71.4 68 16 10 1 2 3
Foreign Exchange Products
Futures and Forward Contracts 62.4 60.9 93 5 1 -- 1 --
Cross-Currency Swaps 3.4 2.9 8 8 14 11 41 18
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes third-party and intercompany contracts.
End-User Interest Rate Swaps and Net Purchased Options as of December 31, 1997
<TABLE>
<CAPTION>
Remaining Contracts Outstanding--Notional Principal Amounts
---------------------------------------------------------------------
In Billions of Dollars at Year-End 1997 1998 1999 2000 2001 2002
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive Fixed Swaps $ 81.8 $ 59.0 $ 46.7 $ 35.3 $ 24.6 $ 16.1
Weighted-Average Fixed Rate 6.5% 6.7% 6.6% 6.6% 6.7% 6.8%
Pay Fixed Swaps 13.7 7.7 5.4 4.6 4.1 3.5
Weighted-Average Fixed Rate 6.8% 7.1% 6.7% 6.8% 6.8% 7.1%
Basis Swaps 10.5 1.8 0.3 0.3 0.2 0.2
Purchased Caps (Including Collars) 10.0 4.9 1.8 -- -- --
Weighted-Average Cap Rate Purchased 6.4% 6.8% 7.1% -- % -- % -- %
Purchased Floors 2.0 0.1 0.1 0.1 0.1 0.1
Weighted-Average Floor Rate Purchased 5.5% 5.8% 5.8% 5.8% 5.8% 5.8%
Written Floors Related to Purchased Caps (Collars) 1.0 0.2 0.2 -- -- --
Weighted-Average Floor Rate Written 6.0% 8.2% 8.2% -- % -- % -- %
Written Caps Related to Other Purchased Caps(1) 7.1 1.2 1.1 1.1 0.9 0.5
Weighted-Average Cap Rate Written 6.8% 8.6% 8.4% 8.4% 8.3% 9.8%
- ----------------------------------------------------------------------------------------------------------------------------
Three-Month Forward LIBOR Rates(2) 5.8% 5.9% 6.1% 6.1% 6.1% 6.3%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes written options related to purchased options embedded in other
financial instruments.
(2) Represents the implied forward yield curve for three-month LIBOR as of
December 31, 1997, provided for reference.
The tables above provide data on the notional principal amounts
and maturities of end-user (non-trading) derivatives, along with additional
data on end-user interest rate swaps and net purchased option positions at
year-end 1997 with three-month LIBOR forward rates included for reference.
The tables are intended to provide an overview of these components of the
end-user portfolio, but should be viewed only in the context of Citicorp's
related assets and liabilities.
The net impact on Citicorp's pretax earnings of end-user
derivatives was an increase of $76 million during 1997 and $143 million
during 1996.
The majority of derivative positions used in Citicorp's asset and
liability management activities are established via intercompany
transactions with independently managed Citicorp dealer units, with the
dealer acting as a conduit to the marketplace. Contract maturities are
related to the underlying risk management strategy.
Citicorp's utilization of these instruments is modified from time
to time in response to changing market conditions as well as changes in the
characteristics and mix of the related assets and liabilities. In this
connection, during 1997 interest rate futures, swaps and options with a
notional principal amount of $22.4 billion were closed out which resulted
in a net deferred loss of approximately $67 million. Total unamortized net
deferred losses, including those from prior year close-outs, were
approximately $63 million at December 31, 1997, which will be amortized
into earnings over the remaining life of the original contracts
(approximately 71% in 1998, 19% in 1999, and 10% in subsequent years),
consistent with the risk management strategy.
Loan Commitments
In Billions of Dollars at Year-End 1997 1996
- ----------------------------------------------------------------
Unused Commercial Commitments to Make or
Purchase Loans, to Purchase Third-Party
Receivables, and to Provide Note Issuance
or Revolving Underwriting Facilities $107.0 $ 89.9
- ----------------------------------------------------------------
Unused Credit Card and Other Consumer
Revolving Commitments $126.8 $119.9
- ----------------------------------------------------------------
The majority of unused commitments are contingent upon customers
maintaining specific credit standards. Commercial commitments generally
have floating interest rates and fixed expiration dates and may require
payment of fees. Such fees (net of certain direct costs) are deferred and,
upon exercise of the commitment, amortized over the life of the loan or, if
exercise is deemed remote, amortized over the commitment period. The table
does not include commercial letters of credit issued on behalf of customers
and collateralized by the underlying shipment of goods which totaled $5.8
billion at December 31, 1997 and $5.6 billion at December 31, 1996.
Loans Sold with Credit Enhancements
Amounts
------------------
In Billions of 1997 1996 Form of Credit
Dollars Enhancement
at Year-End
- -------------------------------------------------------------------------
Residential Mortgages $8.1 $11.3 Recourse obligation
and Other Loans $4.7 in 1997 and
Sold with $7.3 in 1996
Recourse(1)
- -------------------------------------------------------------------------
GNMA Sales/Servicing 1.0 1.0 Secondary recourse
Agreements(2) obligation
- -------------------------------------------------------------------------
Securitized Credit 26.8 25.2 Net revenue over the
Card Receivables life of the transaction
- ---------------------------------------------------------------------------
(1) Residential mortgages represent 92% of amounts in 1997 and 94% in 1996.
(2) Government National Mortgage Association sales/servicing agreements
covering securitized residential mortgages.
Citicorp and its subsidiaries are obligated under various credit
enhancements related to certain sales of loans or sales of participations
in pools of loans, summarized above.
Net revenue on securitized credit card receivables is recognized
over the life of each sale transaction. The net revenue is based upon the
sum of finance charges and fees received from cardholders and interchange
revenue earned on cardholder transactions, less the sum of the yield paid
to investors, credit losses, transaction costs, and a contractual servicing
fee, which is also retained by certain Citicorp subsidiaries as servicers.
As specified in certain of the sale agreements, the net revenue collected
each month is deposited in an account, up to a predetermined maximum
amount, and is available over the remaining term of that transaction to
make payments of yield, fees, and transaction costs in the event that net
cash flows from the receivables are not sufficient. When the account
reaches the predetermined amount, net revenue is passed directly to the
Citicorp subsidiary that sold the receivables. The amount contained in
these accounts is included in other assets and was $20 million at December
31, 1997 and $383 million at December 31, 1996. During 1997, Citicorp
securitized and sold approximately $288 million of balances included in
these accounts.
Citicorp maintains reserves relating to asset securitization
programs. These reserves totaled $85 million at December 31, 1997 and $473
million at December 31, 1996. During 1997, Citicorp restored to the
aggregate allowance for credit losses $373 million that had previously been
attributed to credit card securitization transactions where the exposure to
credit losses is contractually limited to the cash flows from the
securitized receivables.
Standby Letters of Credit
1997 1996(1)
----------------------------------------------------------
In Billions of Expire Expire Total Total Dollars
Within After 1 Amount Amount
at Year-End 1 Year Year Outstanding Outstanding
- -----------------------------------------------------------------------------
Financial
Insurance, Surety $2.0 $5.4 $7.4 $7.7
Options, Purchased
Securities, and
Escrow 0.8 0.2 1.0 0.9
Clean Payment 1.2 0.3 1.5 1.5
Backstop State,
County, and
Municipal Securities 0.4 0.3 0.7 0.7
Other Debt Related 4.5 1.7 6.2 6.6
Performance 3.1 2.0 5.1 4.2
----- ---- ----- -----
Total (2) $12.0 $9.9 $21.9 $21.6
- ------------------------------------------------------------------------------
(1) Reclassified to conform to 1997 presentation.
(2) Total is net of cash collateral of $1.6 billion in 1997 and $1.5 billion
in 1996. Collateral other than cash covered 21% of the total in 1997 and
20% in 1996.
Standby letters of credit, summarized above, are used in various
transactions to enhance the credit standing of Citibank customers. They
represent irrevocable assurances that Citibank will make payment in the
event that the customer fails to fulfill its obligations to third parties.
Financial standby letters of credit are obligations to pay a third-party
beneficiary when a customer fails to repay an outstanding loan or debt
instrument, such as assuring payments by a foreign reinsurer to a U.S.
insurer, to act as a substitute for an escrow account, to provide a payment
mechanism for a customer's third-party obligations, and to assure payment
of specified financial obligations of a customer. Performance standby
letters of credit are obligations to pay a third-party beneficiary when a
customer fails to perform a nonfinancial contractual obligation, such as to
ensure contract performance or irrevocably assure payment by the customer
under supply, service and maintenance contracts or construction projects.
Fees are recognized ratably over the term of the standby letter of credit.
The table does not include securities lending indemnifications issued to
customers, which are fully collateralized and totaled $9.8 billion at
December 31, 1997 and $4.2 billion at December 31, 1996.
C. Credit Loss Reserves
In Millions of Dollars 1997 1996 1995
- -----------------------------------------------------------------
Aggregate Allowance for
Credit Losses at Beginning of Year $5,503 $5,368 $5,155
Additions
Provision for Credit Losses 1,907 1,926 1,991
Deductions
Consumer Credit Losses (1) 2,305 2,172 1,962
Consumer Credit Recoveries (1) (474) (444) (418)
------ ------ ------
Net Consumer Credit Losses (1) 1,831 1,728 1,544
Commercial Credit Losses 197 266 376
Commercial Credit Recoveries (221) (268) (228)
------ ------ ------
Net Commercial Credit
(Recoveries) Losses (24) (2) 148
Other-- Net (2) 313 (65) (86)
------ ------ ------
Aggregate Allowance
for Credit Losses at End of Year(3) 5,916 5,503 5,368
Reserves for Securitization Activities 85 473 486
------ ------ ------
Total Credit Loss Reserves $6,001 $5,976 $5,854
------ ------ ------
- -----------------------------------------------------------------
(1) Commencing in 1997, reflects the classification of credit card
receivables intended for sale as loans held for sale with net credit
losses charged to other revenue.
(2) Primarily includes net transfers from (to) the reserves for
securitization activities and foreign currency translation effects. In
1997, Citicorp restored to the aggregate allowance for credit losses
$373 million that had previously been attributed to credit card
securitization transactions where the exposure to credit losses is
contractually limited to the cash flows from the securitized
receivables.
(3) In 1997, Citicorp changed the apportionment and display of the
aggregate allowance for credit losses to report $5,816 million
attributable to loans and loan commitments as a deduction from Loans,
$50 million attributable to standby letters of credit and guarantees
included in Other Liabilities, and $50 million attributable to
derivative and foreign exchange contracts as a deduction from Trading
Account Assets.
D. Concentrations of Credit Risk
Concentrations of credit risk exist when changes in economic,
industry or geographic factors similarly affect groups of counterparties
whose aggregate credit exposure is material in relation to Citicorp's total
credit exposure. Although Citicorp's portfolio of financial instruments is
broadly diversified along industry, product, and geographic lines, material
transactions are completed with other financial institutions, particularly
in the securities trading, derivative, and foreign exchange businesses.
Additionally, U.S. credit card receivables represent an area of significant
credit exposure.
E. Estimated Fair Value of Financial Instruments
1997 1996
------------------------------------------
Estimated Estimated
Fair Fair
Value In Value In
Excess Excess
of (Less of (Less
Than) Than)
In Billions Dollars Carrying Estimated Carrying Carrying
at Year-End Value Fair Value Value Value
- -------------------------------------------------------------------------
Assets (1) $290.4 $296.6 $ 6.2 $ 6.0
Liabilities 280.8 280.8 -- (0.5)
End-User Derivative and
Foreign Exchange Contracts 1.4 2.1 0.7 0.3
Credit Card
Securitizations (1) -- (0.3) (0.3) 0.4
------ ------
Subtotal 6.6 6.2
Deposits with
No Fixed Maturity (2) 3.3 2.7
------ ------
Total $ 9.9 $ 8.9
- -------------------------------------------------------------------------
(1) Commencing in 1997, amounts include the effect of restoring to the
allowance for credit losses a $373 million reserve that had
previously been attributed to securitized credit card receivables, as
described on page 69.
(2) Represents the estimated excess fair value related to the expected time
period until runoff of existing deposits with no fixed maturity on the
balance sheet at year-end, without assuming any regeneration of balances,
based on the estimated difference between the cost of funds on these
deposits and the cost of funds from alternative sources. The increase
during 1997 was primarily due to an increase in deposits as well as a
higher spread between the cost of funds on the deposits and the cost of
funds from alternative sources. Under applicable requirements, excess
fair values of these deposits are excluded from amounts included under
the Liabilities caption above and from the table below, in which the
estimated fair value is shown as being equal to the carrying value.
Citicorp's financial instruments, as defined in accordance with
applicable requirements, include financial assets and liabilities recorded
on the balance sheet as well as off-balance sheet instruments such as
derivative and foreign exchange contracts and credit card securitizations.
To better reflect Citicorp's values subject to market risk and to
illustrate the interrelationships that characterize risk management
strategies, the table above also provides estimated fair value data for the
expected time period until runoff of existing deposits with no fixed
maturity.
In the aggregate, estimated fair values exceeded the carrying
values by approximately $9.9 billion at December 31, 1997 and $8.9 billion
at December 31, 1996. Fair values vary from period to period based on
changes in a wide range of factors, including interest rates, credit
quality, and market perceptions of value, and as existing assets and
liabilities run off and new items are generated. The increase from the
prior year is primarily due to a higher value of deposits with no fixed
maturity, derivative contracts due to a lower interest rate environment in
the U.S., and deposits, partially offset by a decline in the fair value of
credit card securitizations and long-term debt due to lower U.S. interest
rates.
Additional detail is provided in the following table. In
accordance with applicable requirements, the disclosures exclude leases,
affiliate investments, and pension and benefit obligations, and the
disclosures also exclude the effect of taxes and other expenses that would
be incurred in a market transaction. In addition, the table excludes the
values of nonfinancial assets and liabilities, as well as a wide range of
franchise, relationship, and intangible values, which are integral to a
full assessment of Citicorp's financial position and the value of its net
assets.
The data represents management's best estimates based on a range
of methodologies and assumptions. Quoted market prices are used for most
securities, for loans where available, and for both trading and end-user
derivative and foreign exchange contracts, as well as for liabilities with
quoted prices. For performing loans where no quoted market prices are
available, contractual cash flows are discounted at quoted secondary market
rates or estimated market rates if available. Otherwise, current market
origination rates for loans with similar terms and risk characteristics are
used. For loans with doubt as to collectibility, expected cash flows are
discounted using an appropriate rate considering the time of collection and
a premium for the uncertainty of the flows. The value of collateral is also
considered. For liabilities without quoted market prices, market borrowing
rates of interest are used to discount contractual cash flows.
Fair values of credit card securitizations reflect the various
components of these transactions but principally arise from fixed rates
payable to certificate holders. Under the applicable requirements, the
estimated fair value of deposits with no fixed maturity in the following
table excludes the premium values available in the market for such
deposits, and the estimated value is shown in the table as being equal to
the carrying value.
1997 1996
---------------------------------------
Estimated Estimated
In Billions of Dollars Carrying Fair Carrying Fair
at Year-End Value Value Value Value
- -----------------------------------------------------------------
Assets and Related Instruments
Loans (1) $173.5 $179.6 $164.0 $169.9
Related Derivatives 0.3 0.5 0.3 0.5
Securities 33.4 33.4 28.2 28.2
Trading Account Assets 40.4 40.4 30.8 30.8
Other Financial Assets (2) 43.1 43.2 37.0 37.1
Credit Card
Securitizations -- (0.3) 0.1 0.5
Related Derivatives 0.5 0.5 0.5 0.4
- -----------------------------------------------------------------
Liabilities and Related Instruments
Non-Interest-Bearing $26.5 $26.5 $24.8 $24.8
Deposits
Interest-Bearing Deposits 172.6 172.4 160.2 160.4
Related Derivatives (0.4) (0.7) (0.2) (0.3)
Trading Account 31.0 31.0 22.0 22.0
Liabilities
Other Financial 30.9 30.7 28.2 28.2
Liabilities (3)
Related Derivatives -- 0.1 0.1 0.1
Long-Term Debt 19.8 20.2 18.9 19.2
Related Derivatives (0.2) (0.5) (0.2) (0.3)
- -----------------------------------------------------------------
(1) The carrying value of loans is net of the allowance for credit losses
and also excludes $4.7 billion and $5.1 billion of lease finance
receivables in 1997 and 1996, respectively.
(2) Includes cash and due from banks, deposits at interest with banks,
federal funds sold and securities purchased under resale agreements,
and customers' acceptance liability, for which the carrying value is a
reasonable estimate of fair value, and the carrying value and
estimated fair value of financial instruments included in loans held
for sale, interest and fees receivable and other assets on the balance
sheet.
(3) Includes federal funds purchased and securities sold under repurchase
agreements and acceptances outstanding, for which the carrying value
is a reasonable estimate of fair value, and the carrying value and
estimated fair value of commercial paper, other funds borrowed, and
financial instruments included in accrued taxes and other expense and
other liabilities on the balance sheet.
The estimated fair values of loans reflect changes in credit
status since the loans were made, changes in interest rates in the case of
fixed-rate loans, and premium values at origination of certain loans. The
estimated fair values of Citicorp's loans, in the aggregate, exceeded
carrying values (reduced by the allowance for credit losses) by $6.1
billion at year-end 1997 compared with $5.9 billion at year-end 1996, an
improvement of $0.2 billion. Within these totals, estimated fair values
exceeded carrying values for consumer loans net of the allowance by $3.1
billion, an improvement of $0.2 billion from year-end 1996, and for
commercial loans net of the allowance by $3.0 billion, which was unchanged
from year-end 1996. The improvement in estimated fair values in excess of
carrying values of consumer loans primarily reflects the effects of
restoring to the allowance a $0.4 billion reserve that had previously been
attributed to securitized credit card receivables (as described on page 69)
partially offset by a decline in the credit quality of loans in Asia. The
estimated fair values in excess of carrying values of commercial loans were
unchanged from year-end 1996 because the increases that were experienced in
secondary market prices on certain loans and improved credit conditions on
commercial real estate loans in North America were somewhat offset by a
decline in the credit quality of commercial loans in Asia.
The estimated fair value of credit card securitizations was $0.3
billion less than their carrying value at December 31, 1997, which is $0.7
billion lower than December 31, 1996, when the estimated fair value
exceeded the carrying value by $0.4 billion. This decrease is due to
restoring to the allowance a $0.4 billion reserve that had previously been
attributed to securitized credit card receivables as well as the effects of
a lower interest rate environment on the fixed-rate investor certificates.
The estimated fair value of interest-bearing deposits and
long-term debt reflects changes in market rates since the deposits were
taken or the debt was issued.
For all derivative and foreign exchange contracts in the tables on
page 70, the gross difference between the fair value and carrying amount as
of December 31, 1997 and 1996 was $1.3 billion and $1.0 billion,
respectively, for contracts whose fair value exceeds carrying value, and
$0.6 billion and $0.7 billion for contracts whose carrying value exceeds
fair value.
2. PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Generally, depreciation and amortization are
computed on the straight-line basis over the estimated useful life of the
asset or the lease term. Depreciation and amortization expense was $758
million in 1997, $706 million in 1996, and $636 million in 1995.
3. GOODWILL
Goodwill, which is included in other assets, represents the excess
of purchase price over the estimated fair value of net assets acquired,
accounted for under the purchase method of accounting. At December 31, 1997
and 1996, goodwill amounted to $251 million and $278 million, respectively.
Goodwill is being amortized, primarily using the straight-line method, over
the periods estimated to be benefited. The remaining period of
amortization, on a weighted-average basis, approximated 11 years as of
December 31, 1997.
4. PREFERRED STOCK
In Millions of Dollars at Year-End Rate 1997 1996
- -------------------------------------------------------------------------
Perpetual Preferred Stock
Second Series, 2,195,636 Shares Adjustable $ 220 $ 220
Third Series, 834,867 Shares Adjustable 83 83
Series 8A and 8B, 1,250,000 Shares Graduated 125 125
Series 14, 700,000 Shares 9.08% -- 175
Series 16, 1,300,000 Shares 8.00% 325 325
Series 17, 1,400,000 Shares 7.50% 350 350
Series 18, 700,000 Shares Adjustable 175 175
Series 19, 400,000 Shares Adjustable 100 100
Series 20, 500,000 Shares 8.30% 125 125
Series 21, 600,000 Shares 8.50% 150 150
Series 22, 500,000 Shares 7.75% 125 125
Series 23, 250,000 Shares Fixed/Adjustable 125 125
------ ------
$1,903 $2,078
- -------------------------------------------------------------------------
In the first quarter of 1997, Citicorp redeemed the Series 14
Preferred Stock. In the first quarter of 1996, Citicorp converted $590
million of its Convertible Preferred Stock, Series 12 into 36,875,000
shares of common stock, and converted $403 million of its Convertible
Preferred Stock, Series 13 into 22,077,369 shares of common stock. In
January 1998, Citicorp announced that it will call the Second and Third
Series Preferred Stock for redemption in February 1998.
Total dividends declared on non-redeemable preferred stock were
$141 million in 1997, $162 million in 1996, and $342 million in 1995.
Dividends are payable quarterly and, except for Series 16, 17, 20,
and 21, are cumulative.
Dividends on the Second and Third Series, as well as on Series 18
and 19, are payable at rates determined quarterly by formulas based on
interest rates of certain U.S. Treasury obligations, subject to certain
minimum and maximum rates as specified in the certificates of designation.
The weighted-average dividend rates on the Second and Third Series, as well
as Series 18 and 19 were 6.0%, 7.0%, 5.6%, and 5.6%, respectively, for
1997.
Dividends on Series 8A are payable at 7.55% through August 15,
1998 and thereafter at the three-year treasury rate plus an amount
initially equal to 2.25% and increasing to 2.75% for dividend periods
ending from August 15, 2001 through August 15, 2004 and 3% thereafter.
Series 8B dividends are payable at 8.25% through August 15, 1999 and
thereafter at a rate equal to the five-year treasury rate plus an amount
initially equal to 2.25% and increasing to 3% for all dividend periods
ending after August 15, 2004. For both Series 8A and 8B, dividend rates
through August 15, 2004 cannot be less than 7% or greater than 14%, and
thereafter cannot be less than 8% or greater than 16%.
Dividends on Series 23 are payable at 5.86% through February 15,
2006 and thereafter at rates determined quarterly by a formula based on
certain interest rate indices, subject to a minimum rate of 6% and a
maximum rate of 12%. The rate of dividends on Series 23 is subject to
adjustment based upon the applicable percentage of the dividends received
deduction.
Citicorp may, at its option, redeem the perpetual preferred stock
at stated values plus accrued dividends, as follows: Second and Third
Series, at any time; Series 8A and 8B, on any of the dividend repricing
dates through August 15, 2004, and from time to time after August 15, 2004;
Series 16, on or after June 1, 1998; Series 17, on or after September 1,
1998; Series 18, on or after May 31, 1999; Series 19, on or after August
31, 1999; Series 20, on or after November 15, 1999; Series 21, on or after
February 15, 2000; Series 22, on or after May 15, 2000; and Series 23, on
or after February 15, 2006. Under various circumstances, Citicorp may
redeem certain series of preferred stock at times other than as described
above.
Authorized preferred stock (issuable as either nonredeemable or
redeemable) was 50 million shares at December 31, 1997 and 1996. Total
shares of nonredeemable preferred stock issued and outstanding were
9,930,503 and 10,630,503 at December 31, 1997 and 1996, respectively.
5. COMMON STOCK
At December 31, 1997 and 1996, authorized common stock was 800
million shares. Additionally, Citicorp has authorized, but not issued, 20
million shares of Class B common stock with a par value of $1.00 and one
vote per share.
Citicorp's Dividend Reinvestment and Common Stock Purchase Plan
allows stockholders of record, without payment of brokerage fees,
commissions, or service charges, to reinvest all or part of any common
stock dividends in additional shares of common stock and make optional cash
purchases of such shares.
At December 31, 1997, shares were reserved for issuance as follows:
In Millions of Shares at Year-End 1997
- ------------------------------------------------------------------
Savings Incentive Plan (1) (2) 2.7
Stock Purchase Plan (1) (2) 15.5
Stock Incentive Plan (1) 52.8
Dividend Reinvestment and Common Stock Purchase Plan (1)(2) 10.1
Directors' Deferred Compensation Plan 0.1
Executive Incentive Compensation Plan (1) 0.6
- ------------------------------------------------------------------
(1) Shares delivered may also be sourced from treasury shares.
(2) Shares delivered may also be purchased in the open market.
During 1997 and 1996, Citicorp entered into a series of forward
purchase agreements on its common stock. These agreements are settled on a
net basis in shares of Citicorp common stock, or in cash at Citicorp's
election. To the extent that the market price of Citicorp common stock on a
settlement date is higher (lower) than the forward purchase price, the net
differential is received (paid) by Citicorp. As of December 31, 1997,
agreements were in place covering approximately $1.2 billion of Citicorp
common stock (10 million shares) which had forward prices averaging $121.22
per share. If these agreements were settled based on the December 31, 1997
market price of Citicorp's common stock ($126.44 per share), Citicorp would
be entitled to receive approximately 410,000 shares. During 1997,
settlements resulted in Citicorp receiving 2.1 million shares and paying
1.3 million shares which were recorded as treasury share transactions.
6. REGULATORY CAPITAL
Citicorp Citibank, N.A.
-----------------------------------
In Millions of Minimum
Dollars Required 1997 1996 1997 1996
at Year-End (1)
- -----------------------------------------------------------------
Tier 1 Capital $21,096 $19,796 $16,611 $15,511
Total Capital (2) 31,156 28,870 24,694 22,566
Tier 1 Capital Ratio 4.00% 8.34% 8.39% 8.18% 8.32%
Total Capital 8.00 12.31 12.23 12.16 12.11
Ratio (2)
Leverage Ratio (3) 3.00+ 7.01 7.42 6.39 6.63
- -----------------------------------------------------------------
(1) As set forth in guidelines issued by the U.S. federal bank regulators.
(2) Total capital includes Tier 1 and Tier 2.
(3) Tier 1 capital divided by adjusted average assets.
Citicorp is subject to risk-based capital and leverage guidelines
issued by the Board of Governors of the Federal Reserve System ("FRB"), and
its U.S. insured depository institution subsidiaries, including Citibank,
N.A., are subject to similar guidelines issued by their respective primary
regulators. These guidelines are used to evaluate capital adequacy and
include the required minimums shown above.
To be "well capitalized" under federal bank regulatory agency
definitions, a depository institution must have a Tier 1 ratio of at least
6%, a combined Tier 1 and Tier 2 ratio of at least 10%, and a leverage
ratio of at least 5% and not be subject to a directive, order, or written
agreement to meet and maintain specific capital levels. The regulatory
agencies are required by law to take specific prompt actions with respect
to institutions that do not meet minimum capital standards. As of December
31, 1997 and 1996, all of Citicorp's U.S. insured subsidiary depository
institutions were "well capitalized."
7. FEES AND COMMISSIONS
Trust, agency, and custodial fees included in fees and commissions
were $1.3 billion in 1997, $1.1 billion in 1996, and $983 million in 1995.
8. EMPLOYEE BENEFITS
Pension and Postretirement Benefit Plans
Citicorp has several non-contributory defined benefit pension
plans covering substantially all U.S. employees. Retirement benefits for
the U.S. plans are based on years of credited service, the highest average
compensation (as defined), and the primary social security benefit. While
the qualified U.S. plans are adequately funded, it is Citicorp's policy to
fund these plans to the extent contributions are tax deductible.
Non-qualified U.S. plans are not funded because contributions to these
plans are not tax deductible.
Citicorp has various defined benefit pension and termination
indemnity plans covering employees outside the United States. The benefit
formulas and funding strategies vary reflecting local practices and legal
requirements.
Citicorp offers postretirement health care and life insurance
benefits to all eligible U.S. retired employees. U.S. retirees share in the
cost of their health care benefits through copayments, service-related
contributions and salary-related deductibles. Retiree life insurance
benefits are non-contributory. It is Citicorp's policy to fund retiree
health care and life insurance benefits to the extent such contributions
are tax deductible. Retiree health care and life insurance benefits are
also provided to certain employees outside the United States.
The following tables summarize the components of net benefit
expense recognized in the consolidated statement of income and the funded
status and amounts recognized in the consolidated balance sheet for U.S.
plans and significant plans outside the U.S.
Net Benefit Expense
<TABLE>
<CAPTION>
Pension Plans Postretirement Benefit
Plans(1)
-------------------------------------------------------- --------------------------
U.S. Plans Plans Outside U.S. U.S. Plans
--------------------------- -------------------------- --------------------------
In Millions of Dollars 1997 1996 1995 1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Benefits Earned During the Year $ 118 $ 123 $ 98 $ 56 $ 60 $ 56 $ 10 $ 11 $ 8
Interest Cost on Benefit Obligation 204 192 165 75 76 68 30 32 32
Actual Return on Plan Assets (619) (395) (498) (97) (65) (66) (24) (13) (13)
Net Deferral and Amortization 375 196 301 35 10 19 14 7 8
Amortization of Transition Obligation
(Asset)(2)(3) (20) (20) (20) 6 7 7 19 20 20
------ ------ ------ ------ ------ ------ ----- ----- -----
Net Benefit Expense $ 58 $ 96 $ 46 $ 75 $ 88 $ 84 $ 49 $ 57 $ 55
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For plans outside the U.S., net postretirement benefit expense totaled
$9 million in 1997, $8 million in 1996, and $6 million in 1995.
(2) U.S. pension transition asset is being amortized over 14 years, with 2
years remaining at December 31, 1997.
(3) U.S. postretirement transition obligation is being amortized over 20
years, with 15 years remaining at December 31, 1997.
Prepaid Benefit Cost (Benefit Liability)
<TABLE>
<CAPTION>
Pension Plans Postretirement
---------------------------------------------------------------------- Benefit Plans(1)
Qualified Non-Qualified Funded Plans Other Plans -----------------
U.S. Plans U.S. Plans Outside U.S. Outside U.S. U.S. Plans
---------------------------------------------------------------------------------------
In Millions of Dollars 1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Plan Assets at Fair Value(2) $3,709 $3,118 $ -- $$ -- $798 $763 $ -- $ -- $159 $119
Benefit Obligation 2,850 2,567 278 248 851 814 288 311 440 459
----- ------ ----- ----- --- ----- ------ ------ ----- -----
Plan Assets in Excess of (Less Than) 859 551 (278) (248) (53) (51) (288) (311) (281) (340)
Benefit Obligation
Unrecognized Prior Service Cost 70 73 33 41 (2) 13 1 -- (2) (7)
Unrecognized Net Actuarial (Gain) Loss (275) 27 50 42 72 39 (3) (8) 1 41
Unamortized Transition (Asset) Obligation (37) (58) 5 6 33 46 25 31 247 277
Adjustment to Recognize Minimum Liability -- -- (21) (33) (1) (1) (14) (7) -- --
----- ------ ----- ----- --- ----- ------ ------ ----- -----
Prepaid Benefit Cost (Benefit Liability) $617 $ 593 $(211) $(192) $49 $ 46 $(279) $(295) $(35) $ (29)
- ------------------------------------------------------------------------------------------------------------------------------------
Projected Pension Benefit Obligation
Includes:
Accumulated Benefit Obligation $2,361 $2,086 $191 $192 $625 $613 $237 $249
Vested Benefit Obligation 2,046 1,830 173 153 580 550 209 224
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated Postretirement Benefit
Obligation to:
Retirees $282 $ 309
Employees Eligible for Full Benefits 37 23
Other Employees 121 127
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For plans outside the U.S., the accumulated postretirement benefit
obligation was $62 million and $54 million and the postretirement benefit
liability was $8 million and $4 million at December 31, 1997 and 1996,
respectively.
(2) For U.S. plans, plan assets are primarily listed stocks, commingled
funds, and fixed-income securities.
Included in the 1997 restructuring charge (Note 9) was a $9
million curtailment loss in the U.S. postretirement benefit plans, which
represented the accelerated amortization of a portion of the transition
obligation. Also, in connection with the restructuring, there was a $76
million curtailment gain in the U.S. pension plans, which will be
recognized in future periods as employee terminations occur.
The expected long-term rates of return on assets used in
determining pension and postretirement expense are shown below.
1997 1996 1995
- -----------------------------------------------------------------------------
Rate of Return on Assets
U.S. Plans 9.0% 9.0% 8.75%
Plans Outside the U.S.(1) 4.5% to 13.0% 6.0% to 13.0% 6.0% to 13.0%
- -----------------------------------------------------------------------------
(1) Excluding highly inflationary countries.
The principal assumptions used in determining pension and
postretirement benefit obligations are shown below.
At Year-End 1997 1996
- -----------------------------------------------------------------
Discount Rate
U.S. Plans 7.25% 7.5%
Plans Outside the U.S.(1) 3.5% to 12.0% 4.0% to 12.0%
Future Compensation Increase Rate
U.S. Plans 5.0% 5.0%
Plans Outside the U.S.(1) 1.0% to 10.0% 1.5% to 10.0%
Health Care Cost Increase Rate--U.S. Plans
Following Year 8.0% 9.0%
Decreasing to the Year 2001 to 5.0% 5.0%
- -----------------------------------------------------------------
(1) Excluding highly inflationary countries.
As an indicator of sensitivity, increasing the assumed health care
cost trend rate by 1% in each year would have increased the accumulated
postretirement benefit obligation as of December 31, 1997 by $16 million
and the aggregate of the benefits earned and interest components of 1997
net postretirement benefit expense by $1 million.
Savings Incentive Plan
Under the Savings Incentive Plan, eligible employees receive
awards equal to 3% of their covered salary. Employees have the option of
receiving their award in cash or deferring some or all of it in various
investment funds. Citicorp grants an additional award equal to the amount
elected to be deferred by the employee. Several investment options are
available, including Citicorp common stock. Shares of Citicorp common stock
delivered under the Savings Incentive Plan may be sourced from authorized
but unissued shares, treasury shares, or purchased in the open market. The
expense associated with the plan amounted to $101 million in 1997, $95
million in 1996, and $92 million in 1995.
Stock Incentive Plan
The 1997 Stock Incentive Plan provides for the issuance of options
to purchase shares of Citicorp common stock at prices not less than 100% of
the market value at the date of grant, incentive stock options, stock
appreciation rights, or any other award based on or related to Citicorp
common stock, any of which may be granted singly, in combination, or in
tandem. Shares of Citicorp common stock may be sourced from authorized but
unissued common stock or treasury shares.
The 1988 Stock Incentive Plan provided for the issuance of options
to purchase shares of Citicorp common stock or shares of Class B common
stock at prices not less than 50% of the market value at the date of grant,
incentive stock options, stock appreciation rights, restricted stock, or
performance unit awards, any of which may be granted singly, in
combination, or in tandem. Shares of Citicorp common stock delivered under
the 1988 Plan may be sourced from authorized but unissued shares or
treasury shares.
Since April 9, 1997, new stock incentive awards are granted out of
the 1997 plan. Prior to that date, stock incentive awards were made from
predecessor plans.
Shares of restricted stock have been awarded to key executives
contingent upon their continued employment over periods of up to 11 years
as summarized in the following table:
Dollars in Millions 1997 1996 1995
- -----------------------------------------------------------------
Shares Granted 832,976 137,000 125,000
Aggregate Market Value
at Award Date $106 $10 $6
Expense Recognized for All Awards 13 4 4
- -----------------------------------------------------------------
The value of the restricted shares at the date of grant is
recorded as a reduction of surplus and amortized to expense over the
restriction period.
Under the 1997 Stock Incentive Plan and two predecessor plans,
options have been granted to key employees for terms of up to 10 years to
purchase common stock at not less than the market value of the shares at
the date of grant. Generally, 50% of the options granted prior to 1995 are
exercisable beginning on the first anniversary and 50% beginning on the
second anniversary of the date of grant, and, generally, 50% of the options
granted in 1995 and thereafter are exercisable beginning on the third
anniversary and 50% beginning on the fourth anniversary of the date of
grant.
Options granted in 1995 and 1996 to a group of key employees have
included five-year performance-based stock options that only vest as
Citicorp's common stock price achieves specified target levels and remains
above the target levels for twenty of thirty consecutive trading days.
Performance-based options granted in 1995 and 1996 were at prices ranging
from $64.875 to $70.125, equal to market prices on the respective dates of
grant, and expire in 2000 and 2001. One-half vested in 1996 when Citicorp's
stock price reached $100 per share, and the balance vested in 1997 when
such price reached $115 per share. Vesting and expense related to
performance-based options are summarized in the following table.
Dollars in Millions 1997 1996 1995
- --------------------------------------------------------------------------
Options Vested During the Year 2,393,750(1) 2,427,500(1) 6,597,500(2)
Expense Recognized for All
Grants $72 $113 $89
Options Unvested at Year-End -- 2,423,750(1) 4,902,500(3)
- --------------------------------------------------------------------------
(1) Relates to 1995 and 1996 grants.
(2) Relates to 1993 and 1994 grants with vesting targets of $50, $55,
and $60, expiring in 1998.
(3) Relates to 1995 grants.
Citicorp measures the cost of performance-based options as the
difference between the exercise price and market price required for vesting
and recognizes this expense over the period to the estimated vesting dates
and in full for options that have vested, by a charge to expense with an
offsetting increase in common stockholders' equity. All of the expense
related to vested grants has been recognized.
Changes in options and shares under option are summarized in the
following table.
1997 1996 1995
- -------------------------------------------------------------------------
Granted 8,209,290 5,801,955 7,409,750
Average Option Price $112.20 $70.10 $58.14
Exercised 9,673,081 12,090,773 9,930,333
Average Option Price $36.92 $29.06 $26.68
Expired 5,270 16,200 25,950
Average Option Price $29.81 $29.63 $24.15
Terminated 798,500 868,630 964,867
Average Option Price $80.58 $50.89 $32.53
- -------------------------------------------------------------------------
At Year-End:
Shares Under Option 28,449,057 30,716,618 37,890,266
Average Option Price $64.52 $43.50 $34.98
Exercisable 13,861,342 20,717,293 28,677,293
Granted, Not Yet Exercisable 14,587,715 9,999,325 9,212,973
Available for Grant (1) 29,785,196 13,027,562 18,124,387
- -------------------------------------------------------------------------
(1) Shares authorized but not issued that are available for the
granting of stock options or other forms of stock-related awards.
Additional shares may become available for grant to the extent that
presently outstanding options under a predecessor plan terminate or expire
unexercised.
The following table summarizes information about stock options
outstanding and exercisable at December 31, 1997.
Outstanding Exercisable
------------------------------- ---------------------
Average Average
Option Average Option Option
Price Range Shares Life(1) Price Shares Price
- ---------------------------------------------------------------------------
$13 5/8-$46 1/8 12,369,258 4.9 $ 31.57 10,849,258 $ 30.21
$47 1/8-$72 3/4 6,747,746 5.8 65.52 2,873,046 65.35
$79 1/8-$110 1/2 8,622,603 8.9 105.61 139,038 108.25
$116 1/2-$143 709,450 9.6 130.20 -- --
---------- ----------
Total 28,449,057 6.4 64.52 13,861,342 38.28
- ----------------------------------------------------------------------------
(1) Weighted-average contractual life remaining in years.
In January 1998, Citicorp granted 7,796,050 options at a strike
price of $120.625 per share. A group of key employees was granted 2,536,000
of these options in the form of five-year performance-based stock options.
The performance-based options will vest when Citicorp's common stock price
reaches $200 per share, provided that the price remains at or above $200
for ten of thirty consecutive trading days. The performance-based options
expire in January 2003. The remaining 5,260,050 options to purchase
Citicorp common stock have terms of up to ten years.
Stock Purchase Plan
The 1997 and 1994 offerings under the Stock Purchase Plan allow
all eligible employees to enter into fixed subscription agreements to
purchase shares at the market value on the date of the agreements. Such
shares can be purchased from time to time through the expiration date.
Shares of Citicorp common stock delivered under the Stock Purchase Plan may
be sourced from authorized but unissued shares, treasury shares or
purchased in the open market.
Following is the share activity under the 1997 and 1994
fixed-price offerings for the purchase of shares at $113.25 per share and
$39.8125 per share, respectively. The 1997 offering will expire on June 30,
1999, and the 1994 offering expired on September 27, 1996.
1997 1996
- -----------------------------------------------------------------
Outstanding Agreements at
Beginning of Year -- 5,575,006
Agreements Entered Into 4,468,983 --
Shares Purchased 254,016 5,477,290
Cancelled or Terminated 139,215 97,716
Outstanding Agreements at Year-End 4,075,752 --
- -----------------------------------------------------------------
Annual Incentive and Performance Plans
The purpose of the 1994 Citicorp Annual Incentive Plan is to
attract, retain, and motivate executives to promote the profitability and
growth of Citicorp and to permit a federal income tax deduction for annual
awards granted to covered employees. Currently covered employees include
the Chairman and next four most highly paid executives. Under the Plan,
awards can be granted to covered employees in cash, stock or any other form
of consideration in either one installment or on a deferred basis. Shares
of Citicorp common stock delivered under the Plan may be sourced from
authorized but unissued shares or treasury shares. The aggregate awards
were approximately $5 million in 1997, $4 million in 1996, and $6 million
in 1995.
Under the Citicorp Annual Performance Plan, cash awards may be
granted to key employees who have a significant impact on the success of
Citicorp. Awards may be paid either in one installment or on a deferred
basis. The aggregate awards were approximately $20 million in 1997, $7
million in 1996, and $9 million in 1995.
Under the Executive Incentive Compensation Plan, awards in cash or
stock may be made to key employees, payable at the election of the
participants, in one installment or on a deferred basis. Shares of Citicorp
common stock delivered under the Plan may be sourced from authorized but
unissued shares or treasury shares. No awards have been made since 1989.
Deferred Compensation Plan
Under the Deferred Compensation Plan, adopted in 1995,
participants must defer 25% of their variable compensation awards into
mandatory deferral accounts whose return equals the return on Citicorp
common stock. Beginning with the 1996 awards, select participants are
allowed to defer from 10% to 85% of the remainder of their variable
compensation awards into voluntary deferral accounts, which may be
allocated among a variety of investments, including an account whose return
equals the return on Citicorp common stock. The amounts credited to the
mandatory deferral accounts generally are payable to the participant in
cash five years after they are credited. However, participants may elect to
postpone cash distribution of the amounts in the mandatory deferral account
by having such amounts credited to a voluntary deferral account.
Accounting for Stock Awards
Citicorp uses the intrinsic value accounting method for stock
awards under which there is generally no charge to earnings for employee
stock option awards other than performance-based options as described
above, and the dilutive effect of outstanding options is reflected as
additional share dilution in the computation of earnings per share.
Alternatively, FASB rules would permit a method under which a
compensation cost for all stock awards would be calculated and recognized
over the service period (generally equal to the vesting period). This
compensation cost would be determined in a manner prescribed by the FASB
using option pricing models, intended to estimate the fair value of the
awards at the grant date. Earnings per share dilution would be recognized
as well.
Under both methods, an offsetting increase to stockholders' equity
is recorded equal to the amount of compensation expense charged.
The following table compares compensation expense recorded for
stock awards, net income, earnings per share data, and the related
increment to stockholders' equity as reported by Citicorp with
corresponding pro forma amounts as if the alternative accounting permitted
by the FASB had been used.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
In millions of dollars As Pro As Pro As Pro
except per share amounts Reported Forma Reported Forma Reported Forma
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Compensation expense
related to stock plans $ 87 $ 162 $ 119 $ 72 $ 96 $ 89
Net income 3,591 3,521 3,788 3,813 3,464 3,468
Earnings per share:
Basic 7.53 7.38 7.73 7.79 7.60 7.61
Diluted 7.33 7.19 7.43 7.47 6.50 6.50
Related increase to
stockholders' equity 87 162 119 72 96 89
- ----------------------------------------------------------------------------------------
</TABLE>
Compensation expense amounts shown as reported primarily represent
expense related to performance-based options. Pro forma amounts reflect the
lesser amounts of expense related to performance-based options that would
be calculated under FASB guidelines and also include amortization of
compensation costs for regular awards. Increases in compensation expense
for regular awards reflect increases in the number of shares granted
(including the 1997 stock purchase plan offering), amortization effects of
1996 and 1995 grants (because FASB guidelines do not permit application of
the alternative accounting to grants before 1995), and increases in the
estimated fair value per option shown in the following table of data used
in computing the pro forma amounts.
Weighted Average per Option
- ------------------------------------------------------------------
Estimated
Exercise Fair
Price Value(1)
- ---------------------------------------------------------------------
Regular Options:
1995 $ 43.67 $ 11.11
1996 70.10 16.48
1997 112.20 31.49
1995 Performance Options 65.21 10.00
1997 Stock Purchase Offering 113.25 16.78
- ----------------------------------------------------------------------
(1) Estimated using option pricing models that take into account the
grant date stock price, the exercise price, assumptions about the
expected life of the options (six years for regular options, four
years for 1995 performance options, and two years for 1997 stock
purchase offering), the expected volatility of the stock price
(25% per annum), the expected dividend yield for the expected
life of the option (weighted average 2.39%, 3.27%, and 3.50% in
1997, 1996, and 1995, respectively), and the risk-free interest
rate for the expected life of the option (weighted average 6.30%,
5.58%, and 7.69% in 1997, 1996, and 1995, respectively).
9. RESTRUCTURING CHARGE
During 1997, Citicorp recorded an $889 million charge related to
cost-management programs and customer service initiatives to improve
operational efficiency and productivity. These programs, which will be
implemented over the next 12 to 15 months, include global operations and
technology consolidation and standardization, the reconfiguration of
front-end distribution processes, and the outsourcing of various
technological functions.
The charge included $496 million for severance benefits and $393
million related to writedowns of equipment and premises which management
has committed to dispose of, lease terminations, and other exit costs.
These programs are expected to be substantially completed by the end of
1998. Additional program costs that do not qualify for recognition in the
charge will be expensed as incurred in the implementation of these programs
over the next 12 to 15 months, but are not expected to be material.
The $889 million charge related to the following businesses and regions:
In Millions of Dollars 1997
- -----------------------------------------------------------------
Global Consumer
Citibanking $457
Cards 95
Private Bank 28
------
580
Global Corporate Banking
Emerging Markets 54
Global Relationship Banking 227
------
281
Corporate Items 28
------
Total Citicorp $889
- -----------------------------------------------------------------
Developed Markets (1) $704
Emerging Markets 185
------
Total Citicorp $889
- -----------------------------------------------------------------
(1) Includes $474 million related to the United States.
The $496 million for severance benefits is related to approximately
9,000 positions that will be reduced. It is estimated that about 1,500 new
positions will be added as part of this program, resulting in a net program
reduction of about 7,500 jobs. The gross direct staff reductions are
attributed as follows:
Gross Direct Staff Reduction
- ------------------------------------------------------------------------
Global Consumer 6,700
Global Corporate Banking 1,500
Business Support(1) 800
------
Total Citicorp(2) 9,000
- ------------------------------------------------------------------------
(1) Associated costs have been allocated to businesses as appropriate.
(2) Includes approximately 6,300 employees related to the United States.
Of the total $889 million restructuring charge, approximately $245
million of premises and equipment writedowns were recognized during the
1997 third quarter, based on estimated fair values, and $39 million of
reserves were utilized during the 1997 fourth quarter, primarily for
severance and related costs. Approximately 650 gross direct staff
reductions occurred during the 1997 fourth quarter. The remaining reserve
represents a liability for future cash outflows associated with employee
severance benefits, lease termination costs, and other exit costs. The
remaining carrying amount of the written down assets is not material.
10. INCOME TAXES
In Millions of Dollars 1997 1996 1995
- -----------------------------------------------------------------
Provision for Income Taxes(1) $2,131 $2,285 $2,121
Income Tax Expense (Benefit) Reported
in Stockholders' Equity related to:
Foreign Currency Translation 14 8 (24)
Securities Available for Sale (45) 307 (76)
Employee Stock Plans (222) (244) (51)
------ ------ ------
Total Income Taxes $1,878 $2,356 $1,970
- -----------------------------------------------------------------
Current U.S.
Federal $1,291 $ 642 $ 819
State and Local 232 176 185
------ ------ ------
1,523 818 1,004
------ ------ ------
Deferred U.S.
Federal (804) 396 (45)
State and Local (80) 29 (25)
------ ------ ------
(884) 425 (70)
------ ------ ------
Total U.S. 639 1,243 934
Foreign (substantially current) 1,239 1,113 1,036
------ ------ ------
Total Income Taxes $1,878 $2,356 $1,970
------ ------ ------
- -----------------------------------------------------------------
(1) Includes tax effect of securities transactions amounting to a provision
of $234 million in 1997, $74 million in 1996, and $46 million in 1995.
As a U.S. corporation, Citicorp is subject to U.S. taxation
currently on all of its foreign pretax earnings if earned by a foreign
branch or when earnings are effectively repatriated if earned by a foreign
subsidiary or affiliate. In addition, certain of Citicorp's U.S. income is
subject to foreign income tax where the payor of such income is domiciled
outside the United States. Foreign pretax earnings approximated $4.3
billion in 1997, $4.0 billion in 1996, and $3.6 billion in 1995.
The tax effects of significant temporary differences are presented
in the accompanying table. The net deferred tax asset is included in
Citicorp's consolidated balance sheet in Other Assets and represents the
sum of the temporary difference components of those tax jurisdictions with
net deductible amounts or tax carryforwards in future years. The net
deferred tax liability is included in Accrued Taxes and Other Expenses and
represents the sum of the temporary difference components of those tax
jurisdictions with net taxable amounts in future years.
In Millions of Dollars at Year-End 1997 1996
- -----------------------------------------------------------------
Net Deferred Tax Asset
Tax Effects of Deductible
Temporary Differences and
Carryforwards:
Credit Loss Deduction $2,041 $2,127
Interest Related Items 508 470
Unremitted Foreign Income 1,229 700
Restructuring Charge 225 --
Foreign and State Loss
Carryforwards 316 280
------ ------
4,319 3,577
------ ------
Tax Effects of Taxable Temporary
Differences:
Lease Financing 726 709
Securities and Derivatives
Transactions 648 642
Venture Capital 385 232
Other(1) 17 304
------ ------
1,776 1,887
------ ------
Net Potential Deferred Tax Asset 2,543 1,690
Valuation Allowance (324) (402)
------ ------
Net Deferred Tax Asset $2,219 $1,288
------ ------
- -----------------------------------------------------------------
Net Deferred Tax Liability(2) $ 419 $ 501
- -----------------------------------------------------------------
(1) Includes deductible temporary differences related to depreciation,
prepaid items, and other less significant items.
(2) Includes credit losses ($136 million in 1997 and $153 million in 1996),
leasing ($162 million in 1997 and $111 million in 1996) and other less
significant items.
The 1997 net change in the valuation allowance related to deferred
tax assets was a decrease of $78 million primarily relating to an
improvement in current earnings in certain state and local jurisdictions.
These amounts are included in the $884 million U.S. deferred benefit
component of total income taxes. The remaining valuation allowance of $324
million at December 31, 1997 is primarily reserved for specific U.S.
federal, state and local, and foreign tax carryforwards or tax law
restrictions on benefit recognition in these jurisdictions. Management
believes that the realization of the recognized net deferred tax asset of
$2,219 million is more likely than not, based on existing carryback
ability, available tax planning strategies, and expectations as to future
taxable income.
The following table reconciles the statutory U.S. federal tax rate to the
effective tax rate on income before taxes:
1997 1996 1995
- -----------------------------------------------------------------
Statutory U.S. Federal Tax Rate 35.0% 35.0% 35.0%
Increase (Reduction) in Taxes from:
State and Local Income Taxes,
Net of U.S. Federal Income Tax
Benefit 2.2 2.8 2.9
Valuation Allowance Change
Related to Current Year (0.8) (0.9) --
Taxes on Earnings Outside the U.S. 0.9 0.5 1.0
Other (0.1) 0.2 (0.2)
---- ---- ----
37.2 37.6 38.7
---- ---- ----
Valuation Allowance Change Related
to Future Years -- -- (0.7)
---- ---- ----
Effective Tax Rate 37.2% 37.6% 38.0%
---- ---- ----
- -----------------------------------------------------------------
11. EARNINGS PER SHARE
In Millions Except Per Share
Amounts 1997 1996 1995
- -----------------------------------------------------------------
Net Income $3,591 $3,788 $3,464
Dividends on Preferred Stock (140) (157) (338)
------ ------ ------
Income Applicable to Common Stock 3,451 3,631 3,126
Dividends on Convertible Preferred
Stock -- 5 127
Dividends on Conversion Preferred
Stock, Series 15 -- -- 62
------ ------ ------
Adjusted for Diluted Computation $3,451 $3,636 $3,315
- -----------------------------------------------------------------
Weighted-Average Common Shares
Outstanding (1) 458.1 469.6 411.5
Dilutive Effect of Employee Stock
Plans (2) 13.0 14.5 13.8
Convertible Preferred Stock -- 5.2 68.1
Conversion Preferred Stock, Series 15 -- -- 16.8
------ ------ ------
Adjusted for Diluted Computation 471.1 489.3 510.2
- -----------------------------------------------------------------
Basic Earnings Per Share (3) $ 7.53 $ 7.73 $ 7.60
Diluted Earnings Per Share 7.33 7.43 6.50
- -----------------------------------------------------------------
(1) Average shares reflects shares repurchased under the stock repurchase
program of 9.9 million in 1997, 18.3 million in 1996, and 5.8 million in
1995.
(2) Includes the dilutive effect of stock options and stock purchase
agreements computed using the treasury stock method and shares issuable
under deferred stock awards. Refer to Note 8 for information regarding
stock options granted subsequent to December 31, 1997.
(3) Represents Income Applicable to Common Stock divided by Weighted-Average
Common Shares Outstanding.
12. BUSINESS AND GEOGRAPHIC DISTRIBUTION OF REVENUE, INCOME (LOSS), AND
AVERAGE ASSETS
Citicorp attributes total revenue, income before taxes, net income
(loss), and average total assets to operations based on the domicile of the
customer. U.S. possessions are included in their respective geographic
areas.
Because of the integration of global activities, it is not
practicable to make a precise separation, and various assumptions must be
made in arriving at allocations and adjustments used in presenting this
data.
The principal allocations and adjustments are: (1) allocation of
expenses incurred by one area on behalf of another, including
administrative costs, based on methods intended to reflect services
provided; (2) allocation of tax expenses and benefits; (3) allocation of
the difference between actual net credit losses and the provision for
credit losses; and (4) allocation of other corporate items, including
corporate staff costs, and long-term debt and other funding costs, based on
each area's percentage of total average assets.
The entire aggregate allowance for credit losses is available to
absorb all probable credit losses inherent in the portfolio. For the
purpose of calculating the accompanying geographic data, the amounts
attributable to operations outside the U.S. are based upon year-end
aggregate allowance amounts of $1,827 million for 1997, $1,807 million for
1996, and $1,809 million for 1995, and credit loss provision amounts of
$738 million for 1997, $727 million for 1996, and $737 million for 1995.
Business and Geographic Distribution of Revenue, Income (Loss),
and Average Assets
<TABLE>
<CAPTION>
Total Revenue(1) Income Before Taxes
$ Millions $ Millions
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
1997 1996 (2) 1995(2) 1997 1996 (2) 1995(2)
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Business Distribution
Global Consumer
<S> <C> <C> <C> <C> <C> <C>
Citibanking $ 6,030 $ 5,796 $ 5,441 $ 673 $1,029 $ 862
Cards 5,190 5,274 5,066 1,084 1,506 1,742
Private Bank 1,130 1,043 929 391 348 272
Global Corporate Banking
Emerging Markets 3,888 3,444 2,895 1,814 1,751 1,495
Global Relationship Banking 4,384 3,744 3,627 1,269 1,021 834
Corporate Items 994 895 720 491 418 380
------- ------- ------- ------ ------ ------
Total (3) $21,616 $20,196 $18,678 $5,722 $6,073 $5,585
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Geographic Distribution
United States $ 9,802 $ 9,344 $ 8,843 $2,042 (4) $2,726 (4) $2,500(4)
Western Europe 3,323 3,365 3,352 521 577 502
Other (5) 719 586 564 166 76 27
------- ------- ------- ------ ------ ------
Total Developed Markets(6) 13,844 13,295 12,759 2,729 3,379 3,029
------- ------- ------- ------ ------ ------
Latin America(7) 3,314 2,743 2,493 1,395 917 937
Asia Pacific 3,475 3,286 2,738 1,203 1,414 1,266
Other(8) 983 872 688 395 363 353
------- ------- ------- ------ ------ ------
Total Emerging Markets (9) 7,772 6,901 5,919 2,993 2,694 2,556
------- ------- ------- ------ ------ ------
Total $21,616 $20,196 $18,678 $5,722 $6,073 $5,585
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Net Income (Loss) Average Assets
$ Millions $ Billions
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
1997 1996 (2) 1995(2) 1997 1996 (2) 1995(2)
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Business Distribution
Global Consumer
<S> <C> <C> <C> <C> <C> <C>
Citibanking $ 478 $ 723 $ 573 $ 85 $ 83 $ 80
Cards 764 1,024 1,164 31 27 25
Private Bank 311 281 226 16 16 15
Global Corporate Banking
Emerging Markets 1,559 1,436 1,132 72 60 50
Global Relationship Banking 831 725 628 84 79 94
Corporate Items (352) (401) (259) 7 5 5
------ ------ ------ ---- ---- ----
Total (3) $3,591 $3,788 $3,464 $295 $270 $269
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Geographic Distribution
United States $1,093 $1,642 $1,477 $110 $109 $114
Western Europe 240 321 298 57 53 54
Other (5) 82 41 22 13 13 15
------ ------ ------ ---- ---- ----
Total Developed Markets(6) 1,415 2,004 1,797 180 175 183
------ ------ ------ ---- ---- ----
Latin America(7) 1,105 707 653 39 28 30
Asia Pacific 791 866 796 60 54 46
Other(8) 280 211 218 16 13 10
------ ------ ------ ---- ---- ----
Total Emerging Markets (9) 2,176 1,784 1,667 115 95 86
------ ------ ------ ---- ---- ----
Total $3,591 $3,788 $3,464 $295 $270 $269
- ------------------------------------ --------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(1) Includes net interest revenue and fees, commissions and other revenue.
(2) Reclassified to conform to the 1997 presentation.
(3) Includes restructuring charge in 1997 of $889 million in income before
taxes and $556 million in net income. Refer to Note 9 for additional
details.
(4) Includes approximately $81 million in 1997, $62 million in 1996, and $58
million in 1995 of tax-exempt income, reducing the federal income tax
provision.
(5) Includes Japan and Canada.
(6) Includes pretax restructuring charges in the United States, Western
Europe, and Japan and Canada of $474 million, $209 million, and $21
million, respectively.
(7) Includes Mexico, the Caribbean, Central and South America.
(8) Includes Central and Eastern Europe, Middle East, and Africa.
(9) Includes pretax restructuring charges in Asia Pacific, Latin America,
and Central and Eastern Europe, Middle East and Africa of $115 million,
$59 million, and $11 million, respectively.
13. COMMITMENTS AND CONTINGENT LIABILITIES
Citicorp and its subsidiaries are obligated under a number of
non-cancelable leases for premises and equipment. Minimum rental
commitments on non-cancelable leases were in the aggregate $2.1 billion,
and for each of the five years subsequent to December 31, 1997, were $369
million (1998), $331 million (1999), $289 million (2000), $235 million
(2001), and $179 million (2002). The minimum rental commitments do not
include minimum sublease rentals under non-cancelable subleases of $129
million. Most of the leases have renewal or purchase options and escalation
clauses. Rental expense was $605 million in 1997, excluding $68 million of
sublease rental income, $585 million in 1996, excluding $79 million of
sublease rental income, and $547 million in 1995, excluding $74 million of
sublease rental income.
At December 31, 1997, certain investment securities, trading
account assets, and other assets with a carrying value of $13.9 billion
were pledged as collateral for borrowings, to secure public and trust
deposits, and for other purposes.
Various legal proceedings are pending against Citicorp and its
subsidiaries. Citicorp management considers that the aggregate liability,
if any, resulting from these proceedings will not be material to Citicorp's
financial position or results of operations.
14. FUTURE IMPACT OF NEW ACCOUNTING STANDARDS
Effective January 1, 1998 Citicorp will adopt the remaining
provisions of SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which relate to the
accounting for securities lending, repurchase agreements, and other secured
financing activities. These provisions, whose effective date was deferred
by SFAS No. 127, are not expected to have a material impact on Citicorp. In
addition, the FASB is considering certain amendments and interpretations of
SFAS No. 125 which, if enacted in the future, could affect the accounting
for transactions within their scope.
During the first quarter 1998 Citicorp will adopt SFAS No. 130,
"Reporting Comprehensive Income," which addresses the manner in which
certain adjustments to stockholders' equity (principally foreign currency
translation and unrealized gains and losses on available for sale
securities) are displayed in the financial statements, with no effect on
reported earnings, assets or capital.
Also during 1998 Citicorp will adopt SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which revises the
requirements for disclosing segment data. Citicorp does not anticipate a
significant change in its segment disclosures as a result of the new
standard.
15. STOCKHOLDER'S EQUITY OF CITIBANK, N.A.
Changes in Stockholder's Equity
In Millions of Dollars 1997 1996 1995
- -----------------------------------------------------------------
Balance at Beginning of Year $16,298 $14,966 $14,140
Net Income 2,634 2,743 2,332
Dividends (1,750) (2,300) (1,500)
Contributions from Parent -- 57 --
Change in Net Unrealized Gains
on Securities Available
for Sale (243) 533 97
Effect of Transfer from
Securities Held to Maturity to
Securities Available for Sale -- -- (262)
Foreign Currency Translation (112) (31) 20
Other 341 330 139
------- ------- -------
Balance at End of Year $17,168 $16,298 $14,966
------- ------- -------
- -----------------------------------------------------------------
Citibank's net income for 1997 of $2,634 million includes an after
tax restructuring charge of $384 million ($593 million pretax) related to
cost management programs and customer service initiatives to improve
operational efficiency and productivity. See Note 9 for further
discussions.
Authorized capital stock of Citibank was 40 million shares at
December 31, 1997, 1996, and 1995.
16. CITICORP (PARENT COMPANY ONLY)
The Parent Company is a legal entity separate and distinct from
Citibank, N.A. and its other subsidiaries and affiliates. There are various
legal limitations on the extent to which Citicorp's banking subsidiaries
may extend credit, pay dividends or otherwise supply funds to Citicorp. The
approval of the Office of the Comptroller of the Currency is required if
total dividends declared by a national bank in any calendar year exceed net
profits (as defined) for that year combined with its retained net profits
for the preceding two years. In addition, dividends for such a bank may not
be paid in excess of the bank's undivided profits. State-chartered bank
subsidiaries are subject to dividend limitations imposed by applicable
state law.
Citicorp's national and state-chartered bank subsidiaries can
declare dividends to their respective parent companies in 1998, without
regulatory approval, of approximately $2.0 billion, adjusted by the effect
of their net income (loss) for 1998 up to the date of any such dividend
declaration. In determining whether and to what extent to pay dividends,
each bank subsidiary must also consider the effect of dividend payments on
applicable risk-based capital and leverage ratio requirements as well as
policy statements of the federal regulatory agencies that indicate that
banking organizations should generally pay dividends out of current
operating earnings. Consistent with these considerations, Citicorp
estimates that its bank subsidiaries can distribute dividends to Citicorp
of approximately $1.6 billion of the available $2.0 billion, adjusted by
the effect of their net income (loss) up to the date of any such dividend
declaration.
Citicorp also receives dividends from its nonbank subsidiaries.
These nonbank subsidiaries are generally not subject to regulatory
restrictions on their payment of dividends except that the approval of the
Office of Thrift Supervision ("OTS") may be required if total dividends
declared by a savings association in any calendar year exceed amounts
specified by that agency's regulations.
Condensed Statement of Income
Citicorp (Parent Company Only)
In Millions of Dollars 1997 1996 1995
- -----------------------------------------------------------------
Revenue
Dividends from Subsidiary Banks $1,850 $2,400 $1,600
Dividends from Subsidiaries
Other Than Banks 569 1,099 730
Interest from Subsidiaries 784 789 787
Other Revenue(1) 92 67 72
------ ------ ------
3,295 4,355 3,189
------ ------ ------
Expense
Interest on Other Borrowed Funds 119 101 132
Interest and Fees Paid to
Subsidiaries 210 126 137
Interest on Long-Term Debt 844 890 947
Other Expense 12 22 14
-------- -------- ---------
1,185 1,139 1,230
----- ------- ------
Income Before Taxes and Equity in
Undistributed Income of
Subsidiaries 2,110 3,216 1,959
Income Tax Benefit--Current 77 88 102
Equity in Undistributed Income
of Subsidiaries 1,404 484 1,403
------ -------- -------
Net Income $3,591 $3,788 $3,464
- -----------------------------------------------------------------
(1) Includes net securities gains of $56 million, $13 million, and $1 million
in 1997, 1996, and 1995, respectively.
Condensed Balance Sheet Citicorp (Parent Company Only)
In Millions of Dollars December 31, 1997 December 31, 1996
- ---------------------------------------------------------------------------
Assets
Deposits with Subsidiary Banks,
Principally Interest-Bearing $ 2,631 $ 2,201
Securities--Available for Sale 1,319 1,685
Investments in and Advances to:
Citibank, N.A. and Other
Subsidiary Banks 26,413 24,567
Subsidiaries Other Than Banks 9,128 7,771
Other Assets 609 534
------- -------
Total $40,100 $36,758
------- -------
- -----------------------------------------------------------------------------
Liabilities and
Stockholders' Equity
Purchased Funds and Other Borrowings $ 2,091 $ 968
Advance from Subsidiaries 81 197
Other Liabilities 1,360 1,399
Long-Term Debt (Note 1) 14,599 13,163
Junior Subordinated Deferrable
Interest Debentures Held
by Trust (Note 1) 773 309
Stockholders' Equity 21,196 20,722
------- -------
Total $40,100 $36,758
- -----------------------------------------------------------------------------
Condensed Statement of Cash Flows Citicorp (Parent Company Only)
In Millions of Dollars 1997 1996 1995
- -----------------------------------------------------------------------------
Cash Flows from Operating Activities
Net Income $ 3,591 $ 3,788 $ 3,464
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
Equity in Undistributed Income (1,404) (484) (1,403)
of Subsidiaries
Other, Net (213) 29 203
-------- -------- --------
Net Cash Provided
by Operating Activities 1,974 3,333 2,264
-------- -------- --------
Cash Flows from Investing
Activities
Securities:
Purchases (2,802) (3,216) (2,394)
Sales 1,869 1,581 471
Maturities 1,525 1,175 1,525
Subsidiaries:
Investments and Advances (39,841) (32,871) (78,370)
Repayment of Advances 37,870 33,780 78,670
-------- -------- --------
Net Cash (Used In) Provided by
Investing Activities (1,379) 449 (98)
-------- -------- --------
Cash Flows from Financing Activities
Purchased Funds and Other Borrowings:
Proceeds 5,820 5,483 5,194
Repayments (4,697) (5,980) (5,354)
Advances from Subsidiaries:
Proceeds 111 98 5
Repayments (231) (2) (84)
Long-Term Debt:
Proceeds 4,163 2,470 2,758
Repayments (2,690) (2,839) (2,616)
Proceeds from Issuance of
Junior Subordinated
Deferrable Interest Debentures
Held by Trust 464 309 --
Preferred Stock:
Proceeds from Issuance -- -- 390
Redemption (175) -- (125)
Common Stock Issuance Proceeds 434 537 416
Treasury Stock Repurchases (2,259) (3,069) (1,531)
Dividends Paid (1,105) (1,012) (835)
-------- -------- --------
Net Cash Used in Financing Activities (165) (4,005) (1,782)
-------- -------- --------
Net Increase (Decrease) in
Deposits with Subsidiary Banks 430 (223) 384
Deposits with Subsidiary Banks
Beginning of Year 2,201 2,424 2,040
-------- -------- --------
Deposits With Subsidiary
Banks at End of Year $ 2,631 $ 2,201 $ 2,424
-------- -------- --------
- -----------------------------------------------------------------------------
Cash Paid During the Year for:
Interest $ 912 $ 929 $ 980
Income Taxes 1,367 794 783
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL INFORMATION
Citicorp and Subsidiaries
In Millions of Dollars, Except Share Data 1997 1996
- -------------------------------------------------------------------------------------- --------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Revenue $ 2,859 $ 2,876 $ 2,863 $ 2,804 $ 2,818 $ 2,709 $ 2,728 $ 2,685
Fees, Commissions, and Other Revenue 2,709 2,665 2,448 2,392 2,547 2,301 2,265 2,143
-------- -------- -------- -------- -------- -------- -------- --------
Total Revenue 5,568 5,541 5,311 5,196 5,365 5,010 4,993 4,828
Provision for Credit Losses 486 486 512 423 504 449 479 494
Operating Expense (1)
3,408 4,237 3,173 3,169 3,281 3,078 2,978 2,860
-------- -------- -------- -------- -------- -------- -------- --------
Income Before Taxes 1,674 818 1,626 1,604 1,580 1,483 1,536 1,474
Income Taxes 613 307 602 609 593 548 584 560
-------- -------- -------- -------- -------- -------- -------- --------
Net Income $ 1,061 $ 511 $ 1,024 $ 995 $ 987 $ 935 $ 952 $ 914
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share (2)
Basic $ 2.26 $ 1.04 $ 2.16 $ 2.07 $ 2.03 $ 1.90 $ 1.92 $ 1.88
Diluted 2.20 1.01 2.10 2.01 1.97 1.85 1.86 1.75
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared
Preferred Stock $ 34 $ 35 $ 34 $ 38 $ 38 $ 38 $ 38 $ 47
Common Stock 239 241 241 243 211 213 216 210
Common Stock, Per Share 0.525 0.525 0.525 0.525 0.45 0.45 0.45 0.45
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $310,897 $300,381 $304,293 $290,354 $281,018 $271,930 $266,824 $263,566
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock Price Range (3)
High $144 3/16 $139 11/16 $124 1/4 $126 3/8 $109 1/4 $90 5/8 $86 5/8 $ 81
Low 116 123 5/16 102 1/2 100 1/4 91 3/8 76 1/4 75 3/8 62 1/2
Close 126 7/16 133 15/16 120 9/16 108 1/4 103 90 5/8 82 3/4 80
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Third Quarter 1997 includes $889 million restructuring charge.
(2) See Note 11 to the consolidated financial statements. Disclosures reflect
adoption of SFAS No. 128, "Earnings Per Share."
(3) Based on the New York Stock Exchange Composite Listing.
EXHIBIT 99.02
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On April 5, 1998, Travelers Group Inc. ("Travelers") and Citicorp
agreed to merge (the "Merger"). The Merger will be effected through a
merger of Citicorp into Travelers, which will apply to the Board of
Governors of the Federal Reserve System to become a bank holding company.
The combined company will become known as Citigroup. Travelers stockholders
will retain their existing shares, which will automatically become shares
of Citigroup. Each share of Citicorp Common Stock will be exchanged for 2.5
shares of Citigroup Common Stock. The Merger, which is anticipated to be
completed in the third quarter of 1998, is expected to be accounted for
under the "pooling of interests" method and, accordingly, Travelers'
historical consolidated financial statements presented in future reports
will be restated to include the accounts and results of Citicorp. The
Merger is subject to customary closing conditions, including regulatory
approvals and the affirmative vote of a majority of the stockolders of each
of Travelers and Citicorp.
The following unaudited pro forma condensed combined statement of
financial position combines the historical consolidated statement of
financial position of Travelers and the historical consolidated statement
of financial position of Citicorp giving effect to the Merger as if it had
been consummated on December 31, 1997. The following unaudited pro forma
condensed combined statements of income combine the historical statements
of income of Travelers and Citicorp giving effect to the Merger as if it
had occurred on January 1, 1995. This information should be read in
conjunction with the accompanying notes hereto, the separate historical
financial statements of Travelers as of December 31, 1997, and for each of
the three years ended December 31, 1997 which are contained in Travelers'
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and
the separate historical financial statements of Citicorp as of December 31,
1997 and for each of the three years ended December 31, 1997, which are
contained in Citicorp's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
The pro forma financial data is not necessarily indicative of the
results of operations that would have occurred had the Merger been
consummated on the date indicated or of future operations of the combined
company.
TRAVELERS GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 1997
(in millions of dollars)
<TABLE>
<CAPTION>
Assets Travelers Citicorp Pro Forma Pro Forma
Historical Historical Adjustments Combined
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $4,033 $21,634 $25,667
Investments 61,834 33,361 95,195
Federal funds sold and securities borrowed or
purchased under agreements to resell 109,734 10,233 119,967
Brokerage receivables 15,627 15,627
Trading securities and commodities owned 139,732 40,356 180,088
Consumer loans 11,137 108,066 119,203
Commercial loans - 75,947 75,947
Allowance for credit losses (321) (5,816) (6,137)
- ---------------------------------------------------------------------------------------------------------
Loans, net 10,816 178,197 189,013
Reinsurance recoverables 9,579 9,579
Separate and variable accounts 11,319 11,319
Other assets 23,881 27,116 50,997
=========================================================================================================
Total assets $386,555 $310,897 $697,452
=========================================================================================================
Liabilities
Investment banking and brokerage borrowings $11,464 $11,464
Deposits $199,121 199,121
Short-term borrowings 3,979 10,049 14,028
Long-term debt 28,352 19,035 47,387
Federal funds purchased and securities loaned or
sold under agreements to repurchase 120,921 11,182 132,103
Brokerage payables 12,763 12,763
Trading securities and commodities sold not yet purchased 96,166 30,986 127,152
Insurance policy and claims reserves 43,782 43,782
Contractholder funds and separate and variable accounts 26,157 26,157
Other liabilities 19,418 18,578 37,996
- ---------------------------------------------------------------------------------------------------------
Total liabilities 363,002 288,951 651,953
- ---------------------------------------------------------------------------------------------------------
ESOP preferred stock - Series C 135 135
Redeemable preferred stock - Series I 280 280
Trust preferred securities - parent obligated 1,000 750 1,750
Trust preferred securities - subsidiary obligated 1,245 1,245
Stockholders' equity
Preferred stock 1,450 1,903 3,353
Common stock 12 506 $(494) 24
Additional paid-in capital 5,368 6,501 (3,918) 7,951
Retained earnings 15,451 16,789 32,240
Treasury stock, at cost (2,183) (4,412) 4,412 (2,183)
Unrealized gain (loss) on investment securities 1,157 535 1,692
Foreign currency translation (12) (626) (638)
Other, principally unearned compensation (350) (350)
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 20,893 21,196 - 42,089
- ---------------------------------------------------------------------------------------------------------
=========================================================================================================
Total liabilities and stockholders' equity $386,555 $310,897 - $697,452
=========================================================================================================
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements
</TABLE>
TRAVELERS GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(in millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
Travelers Citicorp Pro Forma
Historical Historical Combined
----------- ------------ ----------
REVENUES:
<S> <C> <C> <C>
Loan interest, including fees * $1,404 $18,967 $20,371
Other interest and dividends * 16,214 5,516 21,730
Insurance premiums 8,995 8,995
Commissions and fees 5,119 5,817 10,936
Principal transactions 2,504 1,727 4,231
Asset management and administration fees 1,715 1,715
Realized gains from sales of investments 406 668 1,074
Other income 1,252 2,002 3,254
- ------------------------------------------------------------------------------------------
Total revenues 37,609 34,697 72,306
Interest expense * 11,443 13,081 24,524
- ------------------------------------------------------------------------------------------
Total revenues, net of interest expense 26,166 21,616 47,782
- ------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Policyholder benefits and claims 7,714 7,714
Non-insurance compensation and benefits 6,345 6,617 12,962
Insurance underwriting, acquisition and operating 3,236 3,236
Provision for credit losses * 277 1,907 2,184
Restructuring charge 838 889 1,727
Other operating 2,744 6,481 9,225
- ------------------------------------------------------------------------------------------
Total operating expenses 21,154 15,894 37,048
- ------------------------------------------------------------------------------------------
Income before income taxes and minority interest 5,012 5,722 10,734
Provision for income taxes 1,696 2,131 3,827
Minority interest, net of income taxes 212 212
==========================================================================================
NET INCOME $3,104 $3,591 $6,695
==========================================================================================
BASIC EARNINGS PER SHARE:
Net income $2.69 $2.85
==========================================================================================
Weighted average common shares outstanding (in
millions) 1,102.6 2,247.9
==========================================================================================
DILUTED EARNINGS PER SHARE:
Net income $2.54 $2.74
==========================================================================================
Adjusted weighted average common shares
outstanding (in millions) 1,179.9 2,357.7
==========================================================================================
* SUPPLEMENTAL INFORMATION:
Net interest revenue $6,175 $11,402 $17,577
==========================================================================================
Net interest revenue after provision for
credit losses $5,898 $ 9,495 $15,393
==========================================================================================
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements
</TABLE>
TRAVELERS GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(in millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
Travelers Citicorp Pro Forma
Historical Historical Combined
----------- ------------ ------------
REVENUES:
<S> <C> <C> <C>
Loan interest, including fees * $1,163 $18,509 $19,672
Other interest and dividends * 13,286 4,840 18,126
Insurance premiums 7,633 7,633
Commissions and fees 4,637 5,469 10,106
Principal transactions 3,027 1,501 4,528
Asset management and administration fees 1,390 1,390
Realized gains from sales of investments 55 210 265
Other income 1,223 2,076 3,299
- --------------------------------------------------------------------------------------------
Total revenues 32,414 32,605 65,019
Interest expense * 8,927 12,409 21,336
- --------------------------------------------------------------------------------------------
Total revenues, net of interest expense 23,487 20,196 43,683
- --------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Policyholder benefits and claims 7,366 7,366
Non-insurance compensation and benefits 5,804 6,244 12,048
Insurance underwriting, acquisition and operating 3,013 3,013
Provision for credit losses * 260 1,926 2,186
Other operating 2,481 5,953 8,434
- --------------------------------------------------------------------------------------------
Total operating expenses 18,924 14,123 33,047
- --------------------------------------------------------------------------------------------
Gain on sale of subsidiaries and affiliates 445 445
- --------------------------------------------------------------------------------------------
Income before income taxes and minority interest 5,008 6,073 11,081
Provision for income taxes 1,679 2,285 3,964
Minority interest, net of income taxes 47 47
- --------------------------------------------------------------------------------------------
Income from continuing operations $3,282 $3,788 $7,070
============================================================================================
BASIC EARNINGS PER SHARE:
Income from continuing operations $2.84 $2.97
============================================================================================
Weighted average common shares outstanding (in
millions) 1,097.6 2,271.6
============================================================================================
DILUTED EARNINGS PER SHARE:
Income from continuing operations $2.71 $2.84
============================================================================================
Adjusted weighted average common shares
outstanding (in millions) 1,170.6 2,393.9
============================================================================================
* SUPPLEMENTAL INFORMATION:
Net interest revenue $5,522 $10,940 $16,462
===========================================================================================
Net interest revenue after provision for
credit losses $5,262 $ 9,014 $14,276
===========================================================================================
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements
</TABLE>
TRAVELERS GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(in millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
Travelers Citicorp Pro Forma
Historical Historical Combined
----------- ------------ ----------
REVENUES:
<S> <C> <C> <C>
Loan interest, including fees * $1,119 $17,808 $18,927
Other interest and dividends * 13,045 5,155 18,200
Insurance premiums 4,977 4,977
Commissions and fees 3,713 5,165 8,878
Principal transactions 2,140 1,612 3,752
Asset management and administration fees 1,087 1,087
Realized gains from sales of investments 152 132 284
Other income 1,054 1,818 2,872
- ------------------------------------------------------------------------------------------
Total revenues 27,287 31,690 58,977
Interest expense * 9,378 13,012 22,390
- ------------------------------------------------------------------------------------------
Total revenues, net of interest expense 17,909 18,678 36,587
- ------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Policyholder benefits and claims 5,017 5,017
Non-insurance compensation and benefits 5,149 5,726 10,875
Insurance underwriting, acquisition and operating 1,912 1,912
Provision for credit losses * 171 1,991 2,162
Other operating 2,320 5,376 7,696
- ------------------------------------------------------------------------------------------
Total operating expenses 14,569 13,093 27,662
- ------------------------------------------------------------------------------------------
Loss on sale of subsidiaries and affiliates (20) (20)
- ------------------------------------------------------------------------------------------
Income before income taxes 3,320 5,585 8,905
Provision for income taxes 1,179 2,121 3,300
- ------------------------------------------------------------------------------------------
Income from continuing operations $2,141 $3,464 $5,605
==========================================================================================
BASIC EARNINGS PER SHARE:
Income from continuing operations $1.81 $2.40
==========================================================================================
Weighted average common shares outstanding (in
millions) 1,099.4 2,128.2
==========================================================================================
DILUTED EARNINGS PER SHARE:
Income from continuing operations $1.74 $2.18
==========================================================================================
Adjusted weighted average common shares
outstanding (in millions) 1,184.4 2,459.9
==========================================================================================
* SUPPLEMENTAL INFORMATION:
Net interest revenue $4,786 $9,951 $14,737
=========================================================================================
Net interest revenue after provision for
credit losses $4,615 $7,960 $12,575
=========================================================================================
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
The Merger Agreement provides that each share of Citicorp Common
Stock will be exchanged for 2.5 shares of Citigroup Common Stock. The
Merger, which is expected to be completed in the third quarter of 1998, is
expected to be accounted for under the "pooling of interests" method and,
accordingly, Travelers historical consolidated financial statements
presented in future reports will be restated to include the accounts and
results of Citicorp. The Merger is subject to customary closing conditions,
including regulatory and Travelers and Citicorp stockholder approval.
2. ACCOUNTING POLICIES AND FINANCIAL STATEMENT CLASSIFICATIONS
Travelers and Citicorp are in the process of reviewing their
accounting policies and financial statement classifications and, as a result
of this review, it may be necessary to restate either Travelers' or
Citicorp's financial statements to conform to those accounting policies and
classifications that are determined to be most appropriate.
3. INTERCOMPANY TRANSACTIONS
Transactions between Travelers and Citicorp are not material in
relation to the pro forma combined financial statements and therefore
intercompany balances have not been eliminated from the pro forma combined
accounts.
4. PRO FORMA ADJUSTMENTS -- CITICORP
The pro forma adjustments to common stock, additional paid-in
capital and treasury stock reflect the retirement of shares of Citicorp
Common Stock held in treasury and the issuance at December 31, 1997 of
1,134.8 million shares of Citigroup Common Stock to effect the Merger. The
number of shares to be issued at consummation of the Merger will be based
on the actual number of shares of Citicorp Common Stock outstanding at that
time.
5. PRO FORMA EARNINGS PER SHARE
The pro forma combined basic and diluted earnings per share for the
respective periods presented is based on the combined weighted average
number of common shares and adjusted weighted average shares of Travelers
and Citicorp. The number of weighted average common shares and adjusted
weighted average shares of Citicorp is based on an exchange ratio of 2.5
shares of Citigroup Common Stock for each issued and outstanding share of
Citicorp. The pro forma combined basic and diluted earnings per share have
been calculated as follows:
<TABLE>
<CAPTION>
(in millions except per share amounts) 1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Income from continuing operations $6,695 $7,070 $5,605
Preferred dividends (279) (319) (491)
---------- ----------- -----------
Income from continuing operations
available to common
stockholders for basic EPS 6,416 6,751 5,114
Effect of dilutive securities 36 56 259
========== =========== ===========
Income from continuing operations
available to common
stockholders for diluted EPS $6,452 $6,807 $5,373
========== =========== ===========
Weighted average common shares
outstanding applicable to basic EPS 2,247.9 2,271.6 2,128.2
Effect of dilutive securities:
Convertible securities 25.2 44.9 264.0
Employee stock plans 77.6 72.4 66.1
Warrants 7.0 5.0 1.6
========== =========== ===========
Adjusted weighted average common shares
outstanding applicable to diluted EPS 2,357.7 2,393.9 2,459.9
========== =========== ===========
Basic earnings per share:
Continuing operations $ 2.85 $ 2.97 $ 2.40
========== =========== ===========
Diluted earnings per share:
Continuing operations $ 2.74 $ 2.84 $ 2.18
========== =========== ===========
</TABLE>
6. RESTRUCTURING CHARGES AND FUTURE COST SAVINGS
The pro forma condensed combined statements of income do not
reflect any restructuring costs related to the Merger. Management has not
yet determined the amount of such costs; however, a restructuring charge
may be required after the consummation of the Merger.
The pro forma condensed combined statements of income do not
reflect any future cost savings that may result from the reduction of
overhead expenses, changes in corporate infrastructure and the elimination
of redundant expenses. Although management expects that cost savings will
result from the Merger, there can be no assurance that cost savings will be
achieved.
The statements contained in note 6 above may be deemed to be
forward-looking statements within the meaning of Section 27A of the
Securities Act. Forward-looking statements are typically identified by the
words "believe," "expect," "anticipate," "intend," "estimate" and similar
expressions. These forward-looking statements are based largely on
management's expectations and are subject to a number of uncertainties.
Actual results could differ materially from these forward-looking
statements. Travelers undertakes no obligation to update publicly or revise
any forward-looking statements.
