SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM 8-K
ON FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
November 3, 1998
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(Date of earliest event reported)
Marsh & McLennan Companies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-5998 36-266-8272
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1166 Avenue of the Americas, New York, New York 10036
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(Address of principal executive offices) (Zip Code)
(212) 345-5000
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(Registrant's telephone number, including area code)
Exhibit Index at page 6
The undersigned registrant, Marsh & McLennan Companies, Inc. (the
"Registrant") hereby amends the following items, financial statements,
exhibits, or other portions of the Current Report on Form 8-K filed by the
Registrant on December 23, 1998 (the "Original Form 8-K Filing") as set
forth below.
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS.
On November 12, 1998, the Registrant filed a Current Report on Form
8- K reporting its acquisition of ordinary shares (the "Ordinary Shares")
and 7.25% Convertible Bonds 2008 (the "Convertible Bonds") of Sedgwick
Group plc ("Sedgwick") and stated that it would file no later than January
15, 1999, historical financial statements for Sedgwick and pro forma
financial information for the Registrant giving effect to the acquisition.
Such financial information was filed in the Original Form 8-K Filing and
is amended in part hereby.
Subsequent to the issuance of the Company's 1997 consolidated
financial statements, management determined that certain costs which were
accrued in connection with the 1997 acquisition of Johnson & Higgins and
certain London real estate consolidations should be expensed as incurred.
Consequently, the 1997 results of operations presented herein have been
restated to reflect a $53 million reduction in the special charges
originally reported. The effect of this restatement was to increase 1997
net income and retained earnings by $34.8 million and to increase basic
net income per share and diluted net income per share by $.14 per share.
Information Concerning Forward-Looking Statements
This report contains certain statements relating to future results
which are forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. Such statements may
include, without limitation, discussions concerning revenue and expense
growth, cost savings and efficiencies expected from the integration of
Sedgwick. Please refer to the Registrant's 1997 Annual Report on Form
10-K/A and its Quarterly Reports on Form 10-Q under "Information
Concerning Forward- Looking Statements" for specific factors which would
cause actual results to differ materially from such forward-looking
statements.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Business Acquired.
The audited financial statements of Sedgwick for the year ended
December 31, 1997 and the unaudited financial statements for the
nine-months ended September 30, 1998 are filed as Exhibits 99.1 and 99.2
to the Original Form 8-K Filing and are not being filed herewith.
(b) Pro Forma Financial Information.
The Registrant hereby amends the pro forma financial data
required to be filed herewith and restates such items in their entirety as
Exhibit 99.3 hereto.
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.
MARSH & MCLENNAN COMPANIES, INC.
By: /s/ Gregory Van Gundy
-----------------------------------
Name: Gregory Van Gundy
Title: Secretary
Date: March 31, 1999
EXHIBIT INDEX
Exhibit No. Exhibit
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99.3 Unaudited Pro Forma Condensed Combined Financial
Statements.
EXHIBIT 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
The following unaudited pro forma condensed combined statements of income
for the nine months ended September 30, 1998 and the year ended December
31, 1997 (as amended) and the unaudited pro forma condensed combined
balance sheet as of September 30, 1998 give effect to the acquisition of
Sedgwick. The purchase method of accounting has been applied to the
transaction. The pro forma statements of income assume the acquisition
occurred on January 1, 1997 and the pro forma balance sheet assumes the
transaction occurred on September 30, 1998.
The unaudited pro forma statements of income do not include potential cost
savings that may be realized as a result of the acquisition or the effect
of a special charge that is expected to include, among other items, the
Registrant's cost (non-goodwill) related to severance arrangements, the
closing of existing facilities and the issuance of certain deferred stock
units. The Registrant has indicated that it anticipates ultimately
achieving gross pretax cost savings in the range of $200 million per year,
over a period of years. See "Information Concerning Forward-Looking
Statements".
The unaudited pro forma condensed combined financial statements have been
prepared by the Registrant based upon the assumptions disclosed in the
notes to the pro forma condensed combined financial statements and reflect
the Registrant's expectation that it will acquire 100% of Sedgwick's issued
share capital and issued convertible bonds. The unaudited pro forma
financial statements presented herein are shown for illustrative purposes
only and do not purport to be indicative of the results which would have
been reported if the transaction had occurred on the dates indicated or
which may occur in the future. The unaudited pro forma condensed combined
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Registrant's
Quarterly Report on Form 10-Q for the nine months ended September 30, 1998
and Annual Report on Form 10-K/A for the year ended December 31, 1997 and
the Sedgwick financial statements included in Exhibits 99.1 and 99.2 of
this Form 8-K.
MARSH & MCLENNAN COMPANIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
(In millions, except per share figures)
<TABLE>
<CAPTION>
Historical (1)
----------------------------------
Marsh & McLennan Sedgwick Group, Pro Forma Pro Forma
Companies, Inc. as adjusted (a) Adjustments Combined
----------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue $ 5,245 $1,214 $ $6,459
Expense 4,160 1,282 27 (b) 5,469
------- ------ ----- ------
Operating Income (Loss) 1,085 (68) (27) 990
Interest, net (77) (4) (75) (c) (156)
------ ----- --- ---------
Income (Loss) Before Income Taxes 1,008 (72) (102) 834
Provision (Benefit) for Income Taxes 398 (19) (26) (d) 353
------- ----- --- --------
Net Income (Loss) $ 610 $ (53) $(76) 481
======= ===== ========= ========
Basic Net Income Per Share $ 2.38 $ 1.81
======= ========
Diluted Net Income Per Share $ 2.28 $ 1.73
======= ========
Average Number of Shares
Outstanding - Basic 256 10 (e) 266
======= ===== ======
Average Number of Shares
Outstanding - Diluted 264 10 (e) 274
======= ===== ======
(1) Sedgwick's net loss for the nine months ended September 30, 1998
includes a $16 million exceptional pretax gain and a $200 million
exceptional pretax charge.
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
MARSH & MCLENNAN COMPANIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
(In millions, except per share figures)
<TABLE>
<CAPTION>
Historical (1)
---------------------------------
Marsh & McLennan Sedgwick Group, Pro Forma ProForma
Companies, Inc. as adjusted (a) Adjustments Combined
(as amended) --------------- ----------- (as amended)
---------------- ------------
<S> <C> <C> <C> <C>
Revenue $6,009 $1,588 $ $7,597
Expense 5,211 1,436 36(b) 6,683
------ ------- ------ ------
Operating Income (Loss) 798 152 (36) 914
Interest, net (83) (6) (100)(c) (189)
-------- ------- ------ ------
Income (Loss) Before Income Taxes 715 146 (136) 725
Provision (Benefit) for Income Taxes 281 61 (35)(d) 307
-------- ------- ------ ------
Net Income (Loss) $ 434 $ 85 $(101) $ 418
======= ======== ====== ======
Basic Net Income Per Share $ 1.77 (2) $ 1.64
======= =======
Diluted Net Income Per Share $ 1.73 (2) $ 1.61
======= ======
Average Number of Shares
Outstanding - Basic 245 (2) 10(e) 255
======= ====== =====
Average Number of Shares
Outstanding - Diluted 251 (2) 10(e) 261
======= ====== =====
(1) Marsh & McLennan's expense includes special charges amounting to $244 million for
the year ended December 31, 1997.
(2) Restated to reflect the three-for-two stock split in the form of a
stock distribution issued on June 26, 1998.
</TABLE>
See accompanying notes to pro forma condensed combined financial
statements.
MARSH & MCLENNAN COMPANIES, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998 (UNAUDITED)
(In millions of dollars)
<TABLE>
<CAPTION>
Historical (1)
----------------------------------
Marsh & McLennan Sedgwick Group, Pro Forma Pro Forma
Companies, Inc. as adjusted (f) Adjustments(g) Combined
---------------- --------------- -------------- ---------
ASSETS
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 667 $ 340 $ - $ 1,007
Receivables 1,704 642 - 2,346
Less - allowance for doubtful
accounts (68) (54) - (122)
--------- --------- -------- --------
Net receivables 1,636 588 0 2,224
Prepaid dealer commissions -
current portion 311 - - 311
Deferred tax assets 119 3 - 122
Other current assets 113 88 - 201
-------- --------- -------- --------
Total current assets 2,846 1,019 - 3,865
------- -------- -------- --------
Long-term securities 752 1,083 - 1,835
Fixed assets, net 934 373 - 1,307
Intangible assets 2,822 360 1,450(h) 4,632
Prepaid dealer commissions 823 - - 823
Other assets 551 70 - 621
-------- --------- -------- --------
$8,728 $2,905 $1,450 $13,083
======== ========= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term debt $ 480 $ 44 $ 200(i) $ 724
Accounts payable and accrued liabilities 1,880 309 2,189
Accrued income taxes 354 47 - 401
-------- -------- --------- --------
Total current liabilities 2,714 400 200 3,314
-------- -------- --------- --------
Fiduciary liabilities 2,570 571 3,141
Less - cash and investments
held in a fiduciary capacity (2,570) (571) - (3,141)
------- -------- --------- --------
- - - -
------- -------- --------- --------
Long-term debt 1,280 235 1,386(i) 2,901
------- -------- --------- --------
Other liabilities 1,157 1,605 - 2,762
------- -------- --------- --------
Commitments and contingencies - - - -
Stockholders' equity:
Preferred stock - - - -
Common stock 261 91 (91)(j) 271
10 (e)
Other stockholders' equity 3,490 574 (574)(j) 4,009
519 (e)
------- -------- --------- --------
3,751 665 (136) 4,280
Less - treasury shares (174) (174)
-------- -------- --------- --------
Total stockholders' equity 3,577 665 (136) 4,106
------- -------- --------- --------
$8,728 $2,905 $1,450 $13,083
======= ======== ========= ========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
A description of the adjustments reflected in the pro forma condensed
combined financial statements follows:
(a) Certain amounts included in the Sedgwick consolidated statements of
income (interest income, interest expense, equity in income of
affiliates and minority interest in income of subsidiaries) have
been reclassified to conform with the Registrant's financial
statement presentation and have been presented in accordance with
U.S. Generally Accepted Accounting Principles. (See note 32 of the
financial statements in Exhibit 99.1 and Additional information for
US investors in Exhibit 99.2) Results for the year ended December
31, 1997 and the nine months ended September 30, 1998 have been
translated at(pound) = US$1.64 and(pound) = US$1.65, respectively.
(b) To reflect the incremental estimated annual goodwill amortization
charge associated with the acquisition of Sedgwick (the
"acquisition"). Goodwill is estimated at $1.45 billion and is being
amortized over a forty-year period.
(c) To record the additional annual interest expense associated with the
estimated $1.586 billion of incremental debt that is expected to be
incurred by the Registrant as a result of the acquisition. The
assumed interest rate of 6.31% represents the weighted average
interest rate of the expected incremental debt based on prevailing
rates. The actual interest rate may vary from the assumed rate. The
annual effect on pretax income of a one-eighth percent variance in
this rate is $2.0 million.
(d) To record the tax effect of the pro forma adjustments related to the
additional annual interest expense. The assumed tax rate of 35%
represents the federal tax benefit on the estimated incremental
interest expense. The Registrant does not anticipate any state and
local tax benefit on this interest expense.
(e) To reflect the issuance of $529 million (10 million shares) of the
Registrant's $1 par value common stock representing the estimated
portion of the acquisition cost to be financed through equity.
(f) Certain amounts included in the Sedgwick consolidated balance sheet
have been reclassified to conform with the Registrant's financial
statement presentation. In particular, fiduciary cash and
investments of $571 million have been offset against the related
liabilities and presented in the liability section of the balance
sheet. In addition, receivables and payables for uncollected
premiums and claims are presented in footnote disclosure in the
Registrant's financial statements. The balance sheet has been
translated at(pound) = US$1.70.
(g) The Registrant's management is in the preliminary stages of
identifying the impact of purchase related matters, principally
related to severance, duplicative real estate, and adjustments of
asset and liability balances to fair values. The preliminary
estimate of these purchase related matters of $600 million and the
related income tax benefit of $210 million, which may differ from
the final resolution of such items, are not included in the pro
forma financial statements.
(h) Represents the excess of the $2.115 billion acquisition
consideration over the $665 million acquired net assets of Sedgwick.
The Registrant's management is in the process of, but has not
completed, identifying intangibles or fair values of assets acquired
and liabilities assumed. Since there are no known adjustments at
this time, the fair values of assets and liabilities are assumed to
be the carrying values on the Sedgwick balance sheet and the excess
of the acquisition consideration over the acquired net assets has
been allocated to goodwill. The preliminary purchase price
allocation to the underlying assets and liabilities of Sedgwick,
including goodwill, is subject to further refinement as the
Registrant's management continues to review the estimated fair
values of the assets acquired and the liabilities assumed. The final
purchase price allocation could be materially different from this
preliminary allocation.
(i) To reflect the incremental debt assumed to be incurred to finance
$1.586 billion of the acquisition.
(j) To record the elimination of $665 million of Sedgwick stockholders'
equity.
