Why is the 1993 income statement not directly comparable to the 1992 results?

The Travelers merger closed on December 31, 1993 and was accounted for as a purchase, so the company's 1993 income statement includes only its 27% equity earnings in old Travelers (about $152 million in Corporate and Other), not old Travelers' full operating results. The balance sheet, however, reflects the full consolidation of old Travelers at year-end, which explains the large increase in total assets, insurance reserves, and contractholder funds.

How did the Shearson acquisition affect the company's results?

The company acquired the domestic retail brokerage and asset management businesses of Shearson Lehman Brothers on July 31, 1993, for about $2.1 billion. Smith Barney Shearson's 1993 net revenues rose to $3.1 billion from $1.4 billion, and SBS earnings reached $371 million before a $65 million merger-related charge. Management expects a full year of contribution from these businesses in 1994.

What are the main risks from the insurance operations investors should watch?

The principal risks are the legacy asbestos and environmental claims at Travelers Indemnity, for which the company added $420 million to reserves in 1993, and an investment portfolio that includes $1.3 billion of underperforming mortgage loans and $1.0 billion of real estate. The company states that future earnings may be adversely affected by these claims, though it does not expect a material adverse effect on financial condition. Health care reform and the Superfund proposal also represent regulatory uncertainties.

Is the company's capital position adequate after the merger?

Stockholders' equity rose to $9.3 billion from $4.2 billion, and the company issued $500 million of preferred stock and $329 million of common stock during the year. Book value per common share increased to $26.06 from $17.70. Management states that all life and property-casualty insurance subsidiaries held adjusted capital above regulatory action thresholds at year-end 1993, and the parent had $725 million in unused credit facilities.

What legal matters are disclosed that could affect investors?

The filing discloses shareholder class actions challenging the Travelers merger, a class action related to Primerica's 1988 merger, and a class action involving retiree benefit changes at old Primerica, which the Third Circuit remanded for further proceedings. Old Travelers faces a federal Medicare benefit claims case and a Lloyd's reinsurance dispute, and the SEC has a nonpublic inquiry into old Travelers' real estate lending and loss recognition practices, which the company is cooperating with. Management believes none of these are likely to have a material adverse effect on the consolidated financial condition.

CITIGROUP INC 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 31, 1994. Cited figures are marked; the original filing is the authoritative source.

The Travelers Inc. (formerly Primerica Corporation, ticker TRV) reported its fiscal 1993 results after completing the December 31, 1993 merger with The Travelers Corporation ("old Travelers"), which it acquired for approximately $3.4 billion^a in stock and cash.

Because the merger was accounted for as a purchase effective at year-end, 1993 income statement results include only about 27% equity earnings from old Travelers, while the balance sheet is fully consolidated. Reported 1993 net income rose to $916 million^b ($3.74 per share) from $728 million ($3.22 per share) in 1992, and total revenues increased to $6.8 billion. Total assets jumped to $101.4 billion from $24.2 billion, largely reflecting the consolidation of the insurance operations, so the year-over-year comparison of income and balance sheet figures is not like-for-like.

The company now operates through four segments: Investment Services (Smith Barney Shearson, acquired from Shearson Lehman in July 1993 for about $2.1 billion^c), Consumer Finance Services (Commercial Credit), Life Insurance Services (Primerica Financial Services and The Travelers Insurance Company), and Property & Casualty Insurance (Travelers Indemnity and Gulf). Investment Services was the largest earnings contributor in 1993 at $336 million, up sharply from $191 million. Insurance reserves and asset quality warrant attention: the mortgage loan and real estate portfolios inherited from old Travelers contain about $1.3 billion of underperforming loans and $1.0 billion of real estate, and property-casualty results carry asbestos and environmental exposure, with the company adding $420 million to reserves for these claims in 1993.

The Commission also has a nonpublic inquiry into old Travelers' real estate lending and loss recognition practices. For investors, the key considerations are the strong earnings momentum in securities brokerage and consumer finance, the larger and more complex balance sheet post-merger, and the legacy real estate and environmental/asbestos liabilities that could affect future earnings. Management has stated that these claims are unlikely to have a material adverse effect on financial condition, though future earnings may be affected.

02—Key points

Key Highlights

Net income of $916 million ($3.74 per share) in 1993, up from $728 million ($3.22 per share) in 1992, despite a $65 million after-tax merger-related charge for the Shearson acquisition
Total assets rose to $101.4 billion from $24.2 billion as the old Travelers insurance operations were fully consolidated at December 31, 1993
Investment Services segment earnings nearly doubled to $336 million, driven by Smith Barney Shearson's record year and the five-month contribution from the Shearson acquisition
Consumer Finance Services posted record net income of $232 million, with the allowance for credit losses reduced to 2.64% of receivables and the charge-off rate falling to 2.36%
Combined property-casualty combined ratio for Gulf improved to 95.9% from 97.6%, while Travelers Indemnity's combined ratio rose to 119.8% from 127.4% in 1992, reflecting asbestos and environmental reserve additions
Underperforming mortgage loans of $1.3 billion (17% of the mortgage portfolio) and real estate of $1.0 billion from old Travelers remain a drag on investment income
Common dividend increased to $0.49 per share in 1993 from $0.363 in 1992, and the company completed $329 million in equity issuance during the year

03—Questions

Frequently Asked Questions

Why is the 1993 income statement not directly comparable to the 1992 results?
The Travelers merger closed on December 31, 1993 and was accounted for as a purchase, so the company's 1993 income statement includes only its 27% equity earnings in old Travelers (about $152 million in Corporate and Other), not old Travelers' full operating results. The balance sheet, however, reflects the full consolidation of old Travelers at year-end, which explains the large increase in total assets, insurance reserves, and contractholder funds.
How did the Shearson acquisition affect the company's results?
The company acquired the domestic retail brokerage and asset management businesses of Shearson Lehman Brothers on July 31, 1993, for about $2.1 billion. Smith Barney Shearson's 1993 net revenues rose to $3.1 billion from $1.4 billion, and SBS earnings reached $371 million before a $65 million merger-related charge. Management expects a full year of contribution from these businesses in 1994.
What are the main risks from the insurance operations investors should watch?
The principal risks are the legacy asbestos and environmental claims at Travelers Indemnity, for which the company added $420 million to reserves in 1993, and an investment portfolio that includes $1.3 billion of underperforming mortgage loans and $1.0 billion of real estate. The company states that future earnings may be adversely affected by these claims, though it does not expect a material adverse effect on financial condition. Health care reform and the Superfund proposal also represent regulatory uncertainties.
Is the company's capital position adequate after the merger?
Stockholders' equity rose to $9.3 billion from $4.2 billion, and the company issued $500 million of preferred stock and $329 million of common stock during the year. Book value per common share increased to $26.06 from $17.70. Management states that all life and property-casualty insurance subsidiaries held adjusted capital above regulatory action thresholds at year-end 1993, and the parent had $725 million in unused credit facilities.
What legal matters are disclosed that could affect investors?
The filing discloses shareholder class actions challenging the Travelers merger, a class action related to Primerica's 1988 merger, and a class action involving retiree benefit changes at old Primerica, which the Third Circuit remanded for further proceedings. Old Travelers faces a federal Medicare benefit claims case and a Lloyd's reinsurance dispute, and the SEC has a nonpublic inquiry into old Travelers' real estate lending and loss recognition practices, which the company is cooperating with. Management believes none of these are likely to have a material adverse effect on the consolidated financial condition.

04—Continue

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