-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C33WUGoKSYp5bB+2tAHVy8SK9rM30SGfHtlIzIHDfS7ybFfmquUbDJ4d5FCFjna7 35yMR8dx+QoFV4fWulAm3A== 0000002648-96-000035.txt : 19960701 0000002648-96-000035.hdr.sgml : 19960701 ACCESSION NUMBER: 0000002648-96-000035 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960330 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960628 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AETNA LIFE & CASUALTY CO CENTRAL INDEX KEY: 0000002648 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 060843808 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05704 FILM NUMBER: 96587986 BUSINESS ADDRESS: STREET 1: 151 FARMINGTON AVE CITY: HARTFORD STATE: CT ZIP: 06156 BUSINESS PHONE: 8602730123 MAIL ADDRESS: STREET 1: 151 FARMINGTON AVE STREET 2: FINANCIAL YF8H CITY PLACE CITY: HARTFORD STATE: CT ZIP: 06156 8-K 1 LIVE FILING 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported) March 30, 1996 ____________________ Aetna Life and Casualty Company _______________________________________________________________________ (Exact name of registrant as specified in its charter) Connecticut _______________________________________________________________________ (State or other jurisdiction of incorporation) 1-5704 06-0843808 _______________________________________________________________________ (Commission File Number) (I.R.S. Employer Identification No.) 151 Farmington Avenue, Hartford, Connecticut 06156 _______________________________________________________________________ (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code (860) 273-0123 __________________ Not Applicable _______________________________________________________________________ (Former Name or Former Address, if Changed Since Last Report) 2 TABLE OF CONTENTS _________________ Page ____ Item 5. Other Events. 3 Item 7(b). Pro Forma Financial Information. 4 Item 7(c). Exhibits. 13 Signatures 14 3 Item 5. Other Events. Aetna Life and Casualty Company ("Aetna") and U.S. Healthcare, Inc. ("U.S. Healthcare") entered into a definitive agreement, dated March 30, 1996, as amended by Amendment No. 1 thereto dated as of May 30, 1996 (as so amended, the "Merger Agreement"). Pursuant to the Merger Agreement each of Aetna and U.S. Healthcare will merge (respectively, the "Aetna Sub Merger" and the "U.S. Healthcare Sub Merger", and collectively, the "Mergers") with separate subsidiaries of a new holding company, Aetna Inc. ("Parent") and both Aetna and U.S. Healthcare will become wholly- owned subsidiaries of Parent. U.S. Healthcare shareholders will receive $34.20 in cash, 0.2246 shares of Parent common stock together with 0.2246 Parent rights issued pursuant to a rights agreement effective as of the consummation of the merger and 0.0749 shares of Parent mandatorily convertible preferred stock for each share of U.S. Healthcare common stock and each share of U.S. Healthcare Class B Stock outstanding (collectively the "U.S. Healthcare Merger Consideration"). Each outstanding share of Aetna common stock will be converted into a share of common stock of Parent, together with one such right. Aetna expects to finance the transaction with a combination of $5.3 billion in cash ($3.9 billion from the net proceeds received from the sale of its property-casualty operations and $1.45 billion funded out of a combination of the net proceeds of the proposed issuance by Aetna of commercial paper and borrowings under a new Aetna credit facility) and the issuance of $2.7 billion of new Parent common stock and $0.9 billion of Parent mandatorily convertible preferred stock. The Merger Agreement is subject to approval by the shareholders of both companies, receipt of required regulatory approvals, and other customary conditions. On June 26, 1996 Aetna and U.S. Healthcare announced that regulatory approval was obtained in Pennsylvania. The transaction is expected to close in the third quarter of 1996. Pro Forma Financial Statements ______________________________ Item 7 of this report contains (i) unaudited pro forma condensed consolidated statements of income of Parent for the three months ended March 31, 1996 and the twelve months ended December 31, 1995, giving effect to the Mergers and Aetna's sale of its property-casualty operations to an affiliate of the Travelers Insurance Group Inc. ("Travelers"), (ii) an unaudited pro forma condensed consolidated balance sheet for Parent as of March 31, 1996, giving effect to the Mergers and Aetna's sale of its property-casualty operations, and (iii) a consolidated balance sheet of Parent as of April 22, 1996. Such unaudited pro forma condensed consolidated financial statements and consolidated balance sheet of Parent are also set forth in the Joint Proxy Statement/Prospectus previously distributed to shareholders of Aetna and U.S. Healthcare in connection with the Mergers. Quarterly Dividend __________________ On June 28, 1996 Aetna announced that its Board of Directors has deferred declaration of the quarterly dividend pending the closing of the proposed Mergers. Aetna stated that it expects that the Board of Directors of Parent will declare the next quarterly dividend promptly after the closing of the proposed Mergers. A copy of the press release announcing the deferral of declaration of the quarterly dividend is attached hereto as Exhibit 99.2, which exhibit is incorporated herein by reference. 4 Item 7(b). Pro Forma Financial Information. UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma condensed consolidated statements of income of Parent for the three months ended March 31, 1996 and the twelve months ended December 31, 1995 present results for Parent as if each of the following had occurred as of January 1, 1996 and January 1, 1995, respectively: (i) the consummation of the sale by Aetna of its property- casualty operations to an affiliate of Travelers (the "Property-Casualty Sale") and (ii) the consummation of the Mergers (including associated borrowings and related transactions). The accompanying unaudited pro forma condensed consolidated balance sheet for Parent as of March 31, 1996 gives effect to the Property-Casualty Sale and the Mergers (including associated borrowings and related transactions) as if they had occurred as of March 31, 1996. The U.S. Healthcare Sub Merger will be accounted for under the purchase method of accounting. Accordingly, the amount of the consideration to be paid in the U.S. Healthcare Sub Merger will be allocated to assets acquired and liabilities assumed based on their estimated fair values. The excess of such consideration over the estimated fair value of such assets and liabilities has been preliminarily allocated to certain identifiable intangible assets and goodwill. The purchase price allocation may be adjusted upon completion of the final valuations of U.S. Healthcare's assets and liabilities and the effect of any such adjustment could be significant. The Aetna Sub Merger will be treated as a reorganization with no change in the recorded amount of Aetna's assets and liabilities. The pro forma condensed consolidated financial statements do not give effect to any synergies which may be realized as a result of the Mergers. Additionally, except as indicated in the notes thereto, the pro forma condensed consolidated financial statements do not reflect any nonrecurring/unusual restructuring charges that may be incurred as a result of the integration of Aetna's and U.S. Healthcare's combined health operations (the "Combined Health Operations"). The amount of such charges related to the integration of the Combined Health Operations cannot be reasonably determined at this time. The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only and do not purport to represent what Parent's financial position or results of operations actually would have been had the Property-Casualty Sale and the Mergers in fact occurred on the dates indicated, or to project Parent's financial position or results of operations for any future date or period. The unaudited pro forma condensed consolidated financial statements are based on the historical consolidated financial statements of Aetna and U.S. Healthcare and should be read in conjunction with such historical financial statements, and the notes thereto, which are included in the annual reports on Form 10-K of Aetna and U.S. Healthcare for the year ended December 31, 1995 and the quarterly reports on Form 10-Q of Aetna and U.S. Healthcare for the quarter ended March 31, 1996. 5 Aetna Inc. Unaudited Pro Forma Condensed Consolidated Statement Of Income For the Three Months Ended March 31, 1996 (in millions, except share and per share data)
Aetna Life Aetna Life Pro Forma and Pro Forma and U.S. Casualty Property- Casualty U.S. Healthcare Aetna Company Casualty Sale Company Healthcare Merger Inc.(l) Historical Adjustments(d) As Adjusted Historical Adjustments(e) As Adjusted __________ ______________ ___________ ___________ ______________ ___________ Revenue: Premiums $ 1,843.9 $ - $ 1,843.9 $ 1,028.9 $ - $ 2,872.8 Net investment income, including net realized capital gains 948.3 - (a) 948.3 21.8 - (f) 970.1 Fees and other income 518.2 - 518.2 23.0 - 541.2 _____________________________________________________________________________ Total revenue 3,310.4 - 3,310.4 1,073.7 - 4,384.1 ________________________________________________________________________________________________________________ Benefits and Expenses: Current and future benefits 2,236.9 - 2,236.9 789.6 - 3,026.5 Operating expenses 790.2 - 790.2 143.6 3.5 (g) 943.3 29.0 (h) (23.0)(m) Amortization of deferred policy acquisition costs 37.0 - 37.0 - - 37.0 Amortization of identifiable intangible assets and goodwill - - - - 89.3 (j) 89.3 Restructuring costs - - (c) - - - (k) - _____________________________________________________________________________ Total benefits and expenses 3,064.1 - 3,064.1 933.2 98.8 4,096.1 ________________________________________________________________________________________________________________ Income from continuing operations before income taxes (benefits) and preferred stock dividends 246.3 - 246.3 140.5 (98.8) 288.0 Income taxes (benefits) 80.8 - (a) 80.8 58.9 (1.3)(g) 114.7 (10.2)(h) 2.5 (m) (16.0)(j) _____________________________________________________________________________ Income from continuing operations 165.5 - 165.5 81.6 (73.8) 173.3 Dividends on mandatorily convertible preferred stock - - - - (14.1)(i) (14.1) ______________________________________________________________________________ Income from continuing operations attributable to common ownership $ 165.5 $ - $ 165.5 $ 81.6 $ (87.9) $ 159.2 _____________________________________________________________________________ _____________________________________________________________________________ Results Per Common Share: Primary: Income from continuing operations $ 1.43 $ 1.43 $ 1.05 __________ __________ __________ __________ __________ __________ Weighted average common shares outstanding 115,765,475 115,765,475 151,233,455* ___________ ___________ ___________ * Pro forma weighted average common shares outstanding reflects Aetna's first quarter 1996 weighted average common shares outstanding and the issuance by Parent of 35,467,980 shares of Parent Common Stock in connection with the U.S. Healthcare Sub Merger, as though all such shares were issued and outstanding on January 1, 1996. No conversion of the Parent mandatorily convertible preferred stock to be issued in connection with the Mergers ("Mandatorily Convertible Preferred Stock") is assumed.
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. 6 Aetna Inc. Unaudited Pro Forma Condensed Consolidated Statement Of Income For the Year Ended December 31, 1995 (in millions, except share and per share data)
Aetna Life Aetna Life Pro Forma and Pro Forma and U.S. Casualty Property- Casualty U.S. Healthcare Aetna Company Casualty Sale Company Healthcare Merger Inc.(l) Historical Adjustments(d) As Adjusted Historical Adjustments(e) As Adjusted __________ ______________ ___________ ___________ ______________ ___________ Revenue: Premiums $ 7,431.4 $ - $ 7,431.4 $ 3,462.0 $ - $ 10,893.4 Net investment income, including net realized capital gains 3,622.3 - (a) 3,622.3 91.9 - (f) 3,714.2 Fees and other income 1,924.3 - 1,924.3 55.8 - 1,980.1 ______________________________________________________________________________ Total revenue 12,978.0 - 12,978.0 3,609.7 - 16,587.7 ________________________________________________________________________________________________________________ Benefits and Expenses: Current and future benefits 9,027.2 - 9,027.2 2,577.8 - 11,605.0 Operating expenses 3,087.5 17.0 (b) 3,104.5 412.9 18.2 (g) 3,651.6 116.0 (h) Amortization of deferred policy acquisition costs 137.1 - 137.1 - - 137.1 Amortization of identifiable intangible assets and goodwill - - - - 358.4 (j) 358.4 Restructuring costs - - (c) - - - (k) - ______________________________________________________________________________ Total benefits and expenses 12,251.8 17.0 12,268.8 2,990.7 492.6 15,752.1 ________________________________________________________________________________________________________________ Income from continuing operations before income taxes (benefits) and preferred stock dividends 726.2 (17.0) 709.2 619.0 (492.6) 835.6 Income taxes (benefits) 252.3 (5.9)(b) 246.4 238.3 (7.0)(g) 373.2 (40.6)(h) (63.9)(j) ______________________________________________________________________________ Income from continuing operations 473.9 (11.1) 462.8 380.7 (381.1) 462.4 Dividends on mandatorily convertible preferred stock - - - - (56.2)(i) (56.2) _______________________________________________________________________________ Income from continuing operations attributable to common ownership $ 473.9 $ (11.1) $ 462.8 $ 380.7 $ (437.3) $ 406.2 ______________________________________________________________________________ ______________________________________________________________________________ Results Per Common Share: Primary: Income from continuing operations $ 4.16 $ 4.06 $ 2.71 __________ __________ __________ __________ __________ __________ Weighted average common shares outstanding 113,897,633 113,897,633 149,365,613* ___________ ___________ ___________ * Pro forma weighted average common shares outstanding reflects Aetna's 1995 weighted average common shares outstanding and the issuance by Parent of 35,467,980 common shares in connection with the U.S. Healthcare Sub Merger, as though all such shares were issued and outstanding on January 1, 1995. No conversion of the Parent Mandatorily Convertible Preferred Stock is assumed.
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. 7 Aetna Inc. Unaudited Pro Forma Condensed Consolidated Balance Sheet As of March 31, 1996 (in millions)
Aetna Life Aetna Life Pro Forma and Pro Forma and U.S. Casualty Property- Casualty U.S. Healthcare Aetna Company Casualty Sale Company Healthcare Merger Inc.(l) Historical Adjustments As Adjusted Historical Adjustments As Adjusted __________ _____________ ___________ ___________ ___________ ___________ Assets: Investments: Marketable securities $ 31,911.5 $ - $ 31,911.5 $ 1,002.8 $ - $ 32,914.3 Other investments 10,578.3 - 10,578.3 - - 10,578.3 ____________________________________________________________________________ Total investments 42,489.8 - 42,489.8 1,002.8 - 43,492.6 ______________________________________________________________________________________________________________ Cash and cash equivalents 1,558.5 4,134.0 (n) 5,692.5 353.7 (3,900.0)(r) 2,146.2 Goodwill - - - - 6,992.2 (t) 6,992.2 Identifiable intangible assets - - - - 1,525.0 (t) 1,525.0 Deferred federal and foreign income taxes 402.2 64.0 (o) 592.8 - 26.1 (s) 624.2 126.6 (p) - 5.3 (q) Separate accounts assets 31,128.9 - 31,128.9 - - 31,128.9 Net assets of discontinued operations 3,746.7 (3,746.7)(n) - - - - Other assets 4,776.1 - 4,776.1 403.2 (69.5)(s) 5,109.8 ____________________________________________________________________________ Total assets $ 84,102.2 $ 577.9 $ 84,680.1 $ 1,759.7 $ 4,579.1 $ 91,018.9 ______________________________________________________________________________________________________________ ______________________________________________________________________________________________________________ Liabilities: Future policy benefits $ 18,459.6 $ - $ 18,459.6 $ - $ - $ 18,459.6 Other policy liabilities 1,637.8 - 1,637.8 582.7 - 2,220.5 Policyholders' funds left with the company 21,702.6 - 21,702.6 - - 21,702.6 ____________________________________________________________________________ Total insurance liabilities 41,800.0 - 41,800.0 582.7 - 42,382.7 Debt 1,373.9 - 1,373.9 - 1,450.0 (r) 2,823.9 Accounts payable and other liabilities 2,558.5 211.8 (o) 3,131.9 167.0 533.8 (t) 3,872.7 361.6 (p) 40.0 (q) Separate Accounts liabilities 31,066.8 - 31,066.8 - - 31,066.8 ____________________________________________________________________________ Total liabilities 76,799.2 573.4 77,372.6 749.7 2,023.8 80,146.1 ______________________________________________________________________________________________________________ Minority interest in preferred securities of subsidiary 275.0 - 275.0 - - 275.0 ______________________________________________________________________________________________________________ Shareholders' Equity: Common Capital Stock 1,473.5 - 1,473.5 0.7 2,700.0 (r) 4,161.4 (0.7)(t) (12.1)(l) Class B Stock - - - 0.1 (0.1)(t) - Mandatorily convertible preferred stock - - - - 900.0 (r) 900.0 Additional paid-in capital - - - 188.2 (188.2)(t) - Net unrealized capital gains 103.2 (24.8)(n) 78.4 (10.7) 10.7 (t) 78.4 Retained earnings 5,463.4 387.3 (n) 5,492.7 1,161.3 (1,161.3)(t) 5,458.0 24.8 (n) (34.7)(q) (147.8)(o) (235.0)(p) Treasury stock, at cost (12.1) - (12.1) (311.8) 311.8 (t) - 12.1 (l) Unearned portion of restricted common stock - - - (17.8) 17.8 (t) - ____________________________________________________________________________ Total shareholders' equity 7,028.0 4.5 7,032.5 1,010.0 2,555.3 10,597.8 ______________________________________________________________________________________________________________ Total liabilities, minority interest and shareholders' equity $ 84,102.2 $ 577.9 $ 84,680.1 $ 1,759.7 $ 4,579.1 $ 91,018.9 ______________________________________________________________________________________________________________ ______________________________________________________________________________________________________________
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. 8 Aetna Inc. Notes To Unaudited Pro Forma Condensed Consolidated Financial Statements Pro Forma Adjustments Related to the Property-Casualty Sale: ____________________________________________________________ a. No adjustment has been made to reflect three months of interest income at 4.93% in 1996 and a full year of interest income at 5.49% in 1995 (average 3 month Treasury bill rates for the periods) on net proceeds from the Property-Casualty Sale (after giving effect to the payment of transaction costs and liabilities associated with the sale) of approximately $3.9 billion. The amount of such adjustments (after-tax) would approximate $31.3 million for the three months ended March 31, 1996 and $139.2 million for the twelve months ended December 31, 1995. b. Pro forma adjustment to reflect a full year of interest expense (an additional 11.2 months) at 6.01% in 1995 (average commercial paper rate for the period), and related income tax benefits, on the capital contribution by Aetna of $303 million to the property- casualty operations. Such capital contribution was actually made on December 6, 1995. c. No adjustment has been made to give effect to the restructuring charges related to the Property-Casualty Sale, including CityPlace and other facility and severance charges (see adjustment p). Such charges will be recorded by Aetna in the second quarter of 1996. d. No adjustment has been made to reflect the historical results of Aetna's discontinued property-casualty operations. Such results were $182.2 million (or $1.57 per Common Share) of net income for the three months ended March 31, 1996 and $222.2 million of a net loss (or $1.95 per Common Share) for the twelve months ended December 31, 1995. Pro Forma Adjustments Related to the Mergers: _____________________________________________ e. No adjustment has been made to give effect to any synergies which may be realized as a result of the Mergers. f. No adjustment has been made to reflect a reduction in interest income on that portion of the cash consideration to be paid at closing of the U.S. Healthcare Sub Merger generated from the Property-Casualty Sale since such interest income is not reflected in the pro forma financial statements (see adjustment a). g. Pro forma adjustment to conform the U.S. Healthcare accounting policies with those of Aetna related to expensing rather than capitalizing costs primarily relating to purchased and internally developed software, printed and other promotional items, and deferred startup costs, and the related income tax effect (see adjustment s). h. Pro forma adjustment to reflect assumed interest expense of 8.0% on $1.45 billion of assumed bank debt or commercial paper anticipated to be borrowed to fund a portion of the cash consideration to be paid at closing of the U.S. Healthcare Sub Merger (see adjustment r), and the related income tax effect. 9 Aetna Inc. Notes To Unaudited Pro Forma Condensed Consolidated Financial Statements Pro Forma Adjustments Related to the Mergers (Continued): _________________________________________________________ i. Pro forma adjustment to reflect the dividends on the $900 million of 6.25% Class C Voting Preferred Stock of Parent to be issued in connection with the Mergers (see adjustment r). In determining pro forma earnings per share, Parent Mandatorily Convertible Preferred Stock is not considered a common stock equivalent and is antidilutive. Pursuant to the terms of the Parent Mandatorily Convertible Preferred Stock, the dividend rate on the Parent Mandatorily Convertible Preferred Stock is subject to a one-time increase if the dividend rate on the Parent Common Stock initially after the Merger Date is greater than $0.83 per share. No such increase has been reflected in this pro forma adjustment because the common stock dividend assumed is $.80 per share. j. Pro forma adjustment to reflect the amortization of the approximately $8.0 billion excess of the purchase price over the estimated fair value of the net assets acquired using a range of estimated useful lives for identifiable intangible assets of 5 to 25 years and a 40 year useful life for goodwill (37 year weighted average life), and the related income tax effect on intangibles other than goodwill. k. No adjustment has been made to give effect to any non- recurring/unusual restructuring charges that may be incurred as a result of the integration of the Combined Health Operations. The amount of such charges cannot be reasonably determined at this time. Also, no adjustment has been made to give effect to any nonrecurring charges that may be incurred as a result of an Agreement with the Principal Shareholder of U.S. Healthcare (the "Agreement with Principal Shareholder") and any employment agreements with U.S. Healthcare executives (the "Employment Agreements")(see adjustment q). l. Reflects the conversion of Aetna common stock into Parent common stock (including the cancellation of shares held in treasury) and the payment of the U.S. Healthcare Merger Consideration pursuant to the U.S. Healthcare Sub Merger. m. Pro forma adjustment to remove the effect of merger related costs incurred by U.S. Healthcare in the first quarter of 1996 and the related income tax effect. 10 Aetna Inc. Notes To Unaudited Pro Forma Condensed Consolidated Financial Statements Pro Forma Adjustments Related to the Property-Casualty Sale: ____________________________________________________________ n. Pro forma adjustments to reflect the Property-Casualty Sale, including (i) the resulting excess of proceeds over the net assets of the property-casualty operations and (ii) the realization of the net unrealized capital gain (included within the net assets of the property-casualty operations) upon such Sale. Assumes the Property- Casualty Sale had occurred on March 31, 1996 (based on the actual selling price). (in millions) ____________________________________________________________________ Proceeds from the Property-Casualty Sale $ 4,134.0 Net assets of the property-casualty operations (3,746.7) _________ Excess of proceeds over net assets of the property-casualty operations $ 387.3 _________ _________ Realization of net unrealized capital gain $ 24.8 _________ _________
o. Pro forma adjustment to reflect transaction costs, and certain employee benefit and similar liabilities, and the related deferred tax asset, of the property-casualty operations which are being retained by Aetna. Assumes the Property-Casualty Sale had occurred on March 31, 1996. (in millions) ____________________________________________________________________ Establishment of certain liabilities $ 211.8 Less: related tax benefits (64.0) _________ $ 147.8 _________ _________
11 Aetna Inc. Notes To Unaudited Pro Forma Condensed Consolidated Financial Statements Pro Forma Adjustments Related to the Property-Casualty Sale (Continued): ________________________________________________________________________ p. Pro forma adjustment to reflect the restructuring charge taken in connection with the Property-Casualty Sale, and the related deferred tax asset, that related to the CityPlace office facility ($292 million, pre-tax, representing the present value of the difference between the rent required to be paid by Aetna under the lease and future rentals expected to be received by Aetna) which was leased to Travelers, and certain other facility and severance charges. Assumes the Property-Casualty Sale had occurred on March 31, 1996. (in millions) ____________________________________________________________________ Establishment of restructuring charge $ 361.6 Less: related tax benefits (126.6) _________ $ 235.0 _________ _________
Aetna anticipates taking certain other restructuring charges in connection with its strategic and financial reviews of its continuing operations in order to make such operations more competitive. A second quarter charge for AHP staff reductions has been announced ($30 million, pre-tax), however, other restructuring charges cannot be estimated at this time pursuant to Statement of Financial Accounting Standards No. 5. No adjustment has been made to give effect to such charges (including the AHP charge) as they are not related to the Merger. Pro Forma Adjustments Related to the Mergers: _____________________________________________ q. Pro forma adjustment to reflect estimated liabilities assumed by Aetna, and the related tax effects, as a result of the Agreement with Principal Shareholder and Employment Agreements. (in millions) ____________________________________________________________________ Establishment of principal shareholder and employment agreement liabilities $ 40.0 Less: related tax benefits (5.3) _________ $ 34.7 _________ _________
r. Pro forma adjustment to reflect payment and financing of the U.S. Healthcare Merger Consideration and transaction costs to be paid at closing (based on an assumed price of Aetna Common Stock of 76 1/8 and transaction costs of $50 million). (in millions) ____________________________________________________________________ Cash $ 3,900.0 Borrowings from banks or commercial paper 1,450.0 Issuance of Parent Common Stock 2,700.0 Issuance of Parent Mandatorily Convertible Preferred Stock 900.0 _________ $ 8,950.0 _________ _________
12 Aetna Inc. Notes To Unaudited Pro Forma Condensed Consolidated Financial Statements Pro Forma Adjustments Related to the Mergers (Continued): _________________________________________________________ s. Pro forma adjustment to conform the U.S. Healthcare accounting policies with those of Aetna related to expensing rather than capitalizing certain assets, to reflect an airplane being transferred to the principal shareholder of U.S. Healthcare, to write-off certain assets, and to reflect the related deferred tax effect. Adjustment reflects a change in accounting principle which would be appropriate for U.S. Healthcare as a separate company and does not reflect a change in the estimated future benefits of the assets. Such assets, and the related deferred taxes, consisted of the following: (in millions) ____________________________________________________________________ Conforming Accounting Policies: Computer software $ 27.6 Printed and other promotional items 8.7 Deferred startup costs 3.8 Airplane 19.6 Write-off of Assets: Organization costs and goodwill 6.9 Licenses 1.6 Other 1.3 _________ 69.5 Less: related tax effect (26.1) _________ $ 43.4 _________ _________
t. Pro forma adjustment to reflect the excess of the purchase price over net assets acquired resulting from the U.S. Healthcare Sub Merger, and the related deferred tax effect. The purchase price allocation is based on current available information and may be adjusted upon the completion of the final valuations of U.S. Healthcare's assets and liabilities. Although such adjustment could be material, based on current information it is not expected to be material. (in millions) ____________________________________________________________________ Purchase price $ 8,950.0 Less: U.S. Healthcare's shareholders' equity as follows: Common stock .7 Class B stock .1 Additional paid-in capital 188.2 Net unrealized capital losses (10.7) Retained earnings 1,161.3 Treasury stock, at cost (311.8) Unearned portion of restricted common stock (17.8) _________ 7,940.0 Plus: the effect of adjustment s above 43.4 _________ Purchase price in excess of the estimated fair value of net assets acquired $ 7,983.4* _________ _________ * Allocated as follows: Identifiable Intangibles: Customer lists $ 800.0 Provider networks 600.0 Software/Workforce 100.0 Convenant not to compete 25.0 _________ 1,525.0 Less: related tax effect (533.8) _________ 991.2 Goodwill 6,992.2 _________ $ 7,983.4 _________ _________
13 Item 7(c). Exhibits. Exhibit 99.1--Aetna Inc. and Subsidiaries Consolidated Balance Sheet dated April 22, 1996 and related Notes. Exhibit 99.2--Press Release of Aetna Life and Casualty Company dated June 28, 1996. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Aetna Life and Casualty Company _______________________________ (Registrant) Date June 28, 1996 By /s/ Robert J. Price ____________________________ (Signature) Robert J. Price Vice President and Corporate Controller (Chief Accounting Officer) EX-99 2 ADDITIONAL EXHIBITS 1 Exhibit 99.1 INDEPENDENT AUDITORS' REPORT The Shareholders and Board of Directors of Aetna Inc. We have audited the accompanying consolidated balance sheet of Aetna Inc. and Subsidiaries as of April 22, 1996. This consolidated balance sheet is the responsibility of Aetna Inc.'s management. Our responsibility is to express an opinion on this consolidated balance sheet based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit of a balance sheet includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit of a balance sheet also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the consolidated balance sheet provides a reasonable basis for our opinion. In our opinion, the consolidated balance sheet referred to above presents fairly, in all material respects, the financial position of Aetna Inc. and Subsidiaries as of April 22, 1996 in conformity with generally accepted accounting principles. Hartford, Connecticut April 23, 1996 /s/ KPMG Peat Marwick LLP 2 Exhibit 99.1 (Continued) AETNA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET April 22, 1996 Assets: Cash $ 2,000 _______ Total assets $ 2,000 _______ _______ Stockholders' equity: Common stock, (par value $1.00 per share; 20,000 shares authorized; 2,000 shares issued and 1,000 shares outstanding) $ 2,000 Additional paid-in capital 1,000 Treasury stock, at cost (1,000 shares) (1,000) _______ Total stockholders' equity $ 2,000 _______ _______
The accompanying notes are an integral part of the consolidated balance sheet. 3 Exhibit 99.1 (Continued) AETNA INC. NOTES TO CONSOLIDATED BALANCE SHEET 1. Background of Organization: Aetna Inc. was incorporated under the Stock Corporation Act of the state of Connecticut on March 25, 1996 for the purpose of effectuating the combination of Aetna Life and Casualty Company ("Aetna") and U.S. Healthcare, Inc. ("U.S. Healthcare") in accordance with the terms of the Agreement and Plan of Merger dated as of March 30, 1996 (the "Merger Agreement"). Aetna Inc. is equally owned by Aetna and U.S. Healthcare. Since its formation, Aetna Inc. has organized two wholly-owned subsidiaries in accordance with the Merger Agreement and has not conducted business or activity other than in connection with the Merger Agreement (related expenses are the responsibility of Aetna and U.S. Healthcare). Aetna Inc. has no contingent liabilities. 2. Stockholders' Equity: The initial authorized capital stock of Aetna Inc. consists of 20,000 shares of Common Stock, par value $1.00 per share. Two thousand shares have been issued, 1,000 shares are held in treasury and 1,000 shares are outstanding. 3. Merger Agreement: Aetna and U.S. Healthcare entered into the Merger Agreement pursuant to which they agreed to merge in a transaction, valued at that time, at approximately $8.9 billion. The Merger Agreement, which has been approved by the board of directors of each company, calls for the formation of a new holding company, Aetna Inc. U.S. Healthcare shareholders will receive $34.20 in cash, 0.2246 shares of Aetna Inc. common stock together with Aetna Inc. rights and 0.0749 shares of Aetna Inc. mandatorily convertible preferred stock for each share of U.S. Healthcare common stock and each share of U.S. Healthcare Class B Stock outstanding. Each outstanding share of Aetna common stock will be converted into a share of common stock of Aetna Inc. All issued shares of the capital stock of Aetna Inc. immediately prior to the merger date will be cancelled upon completion of the mergers. The authorized number of shares will be increased to effect the transaction. Immediately after the transaction, Aetna and U.S. Healthcare will each be wholly-owned subsidiaries of Aetna Inc., and Aetna Inc. will be owned approximately 78% by Aetna shareholders and approximately 22% by U.S. Healthcare shareholders (approximately 72% and approximately 28%, respectively, on a fully diluted basis). Aetna expects to finance the transaction with a combination of $5.3 billion in cash ($3.9 billion from the net proceeds received from the sale of its property-casualty operations and $1.45 billion of additional bank debt, which may initially be financed with commercial paper) and the issuance of $2.7 billion of new Aetna Inc. common stock and $0.9 billion of Aetna Inc. mandatorily convertible preferred stock. The agreement is subject to approval by the shareholders of both companies, receipt of required insurance, healthcare and other regulatory approvals, and other customary conditions. The transaction is expected to close in the third quarter of 1996. EX-99 3 ADDITIONAL EXHIBITS 1 Exhibit 99.2 AETNA EXPECTS NEW HOLDING COMPANY, AETNA INC., TO DECLARE NEXT QUARTERLY DIVIDEND HARTFORD, CT., June 28, 1996 -- Aetna Life and Casualty Company (NYSE: AET) announced today that its Board of Directors has deferred declaration of the quarterly dividend pending the closing of the proposed merger with U.S. Healthcare, Inc. The Company stated that it expects that the Board of Directors of Aetna Inc., the new holding company formed in connection with the proposed merger with U.S. Healthcare, will declare the next quarterly dividend promptly after the closing of the merger. As previously disclosed, Aetna Inc. intends to set its quarterly dividend at an annual payout rate of between 10 percent and 20 percent of operating earnings (which excludes net realized capital gains or losses), before amortization of goodwill and other intangibles related to the merger. Aetna Inc. currently expects that, subject to applicable law, the initial dividend on Aetna Inc. common stock will be approximately $0.80 to $0.83 per share on an annualized basis. The Board of Directors of Aetna Inc. will review the cash dividend each quarter after interim operating earnings are known. Aetna and U.S. Healthcare are holding shareholder meetings to vote on the merger and other related matters on July 18, 1996. -----END PRIVACY-ENHANCED MESSAGE-----