SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
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 5
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.
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 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 5. OTHER EVENTS.
On November 3, 1998, the Registrant announced that it had received
the necessary acceptances of its offer to purchase Sedgwick and that all
remaining conditions of the merger had been satisfied. On November 16,
1998, the Registrant remitted approximately $1.9 billion to the United
Kingdom receiving agent for immediate distribution to Sedgwick security
holders who had tendered outstanding Ordinary Shares and Convertible Bonds
representing 87.6% and 97.5% of such securities, respectively.
The audited financial statements of Sedgwick for the year ended
December 31, 1997, note 24c and note 35 (included in the Original Form 8-K
Filing), and the unaudited financial statements for the nine-months ended
September 30, 1998, note 2 (included in the Original Form 8-K Filing),
discuss Sedgwick's review of previously undertaken personal pension plan
business as required by the United Kingdom regulators. The contingent
exposure of Sedgwick for pension redress and related costs as of
Sedgwick's acquisition by the Registrant is estimated to be $220 million.
Sedgwick had recorded $150 million of reserves and recognized
approximately $70 million of insurance recoveries related to this
exposure. Settlements and related costs previously paid amount to $80
million of which $30 million is due from insurers.
Other present and former subsidiaries of the Registrant are engaged in
a comparable review of their personal pension plan businesses, although the
extent of their activity in this area was proportionally much less than
Sedgwick. Consequently, there exists significantly less financial exposure
related to present and former non-Sedgwick subsidiaries of the Registrant
which, in the aggregate, was not deemed material by the management of the
Registrant, as discussed in its Form 10-Q for the quarter ended September
30, 1998, note 8. The contingent exposure of the present and former non-
Sedgwick subsidiaries of the Registrant for pension redress and related
costs is estimated to be approximately $135 million. Approximately $100
million of this amount is expected to be recovered from insurers and
accounting reserves have been provided for the remaining balance.
Settlements and related costs previously paid total approximately $15
million.
It continues to be the position of the management of the Registrant
that potential losses from the United Kingdom's personal pension plan
business review, as presently calculated, will not have a material adverse
effect on the Registrant's consolidated results of operations or its
consolidated financial position. The Registrant notes that its exposure is
subject to a number of variable factors including, among others, equity
markets, the precise scope and duration of the review, the rate of response
to the subsidiaries' pension review mailings and the interest rate
established quarterly by the Pension Investment Authority for calculating
compensation. The pension review process will require substantial cash
payments, including payments in anticipation of insurance recoveries.
Although the timing and the amount of such payments cannot be predicted
with certainty, it may be that the Registrant will temporarily fund such
payments by drawing upon its existing credit lines. The issue of personal
pension plan financial exposure, including the potential financing needs,
was considered as part of the Registrant's economic analysis of the
Sedgwick acquisition.
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.
(c) Exhibits.
23.1 Consent of PricewaterhouseCoopers
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
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Name: Gregory Van Gundy
Title: Secretary
Date: February 3, 1999
EXHIBIT INDEX
Exhibit No. Exhibit
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23.1 Consent of PricewaterhouseCoopers
99.3 Unaudited Pro Forma Condensed Combined Financial Statements.
EXHIBIT 23.1
Letter of Consent of Independent Auditors
PricewaterhouseCoopers, as the successor firm of Coopers & Lybrand, consent
to the inclusion in this Form 8-K/A of Marsh & McLennan Companies, Inc.
(Commission File No. 1-5998) of our report dated February 17, 1998, except
for notes 24(c) and 35 dated May 7, 1998, on our December 31, 1997 audit of
the consolidated financial statements and financial statement schedule of
Sedgwick Group plc.
We also consent to the incorporation by reference in the Amendment No. 1 to
the Registration Statement of Marsh & McLennan Companies, Inc. on Form S-3
(File No. 333-67543) of our report dated February 17, 1998 except for notes
24(c) and 35 dated May 7, 1998 on our December 31, 1997 audit of the
consolidated financial statements and financial statement schedule of
Sedgwick Group plc.
PricewaterhouseCoopers
Chartered Accountants
London, England
February 3, 1999
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 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 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.
<TABLE>
<CAPTION>
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)
Historical (1)
--------------------------------
Marsh & McLennan Sedgwick Group, Pro Forma Pro Forma
Companies, Inc. as adjusted (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 Pro Forma
Companies, Inc. as adjusted (Adjustments Combined
---------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue $6,009 $1,588 $ $7,597
Expense 5,264 1,436 36 (b) 6,736
------- ------- ----- -------
Operating Income (Loss) 745 152 (36) 861
Interest, net (83) (6) (100(c) (189)
------- ------- ----- -------
Income (Loss) Before Income Taxes 662 146 (136) 672
Provision (Benefit) for Income Taxes 263 61 (35)(d) 289
------- ------- ----- -------
Net Income (Loss) $ 399 $ 85 $ (101) $ 383
======= ======== ====== =======
Basic Net Income Per Share $1.63 (2) $ 1.50
======= =======
Diluted Net Income Per Share $1.59 (2) $ 1.47
======= =======
Average Number of Shares
Outstanding - Basic 245 (2) 10 (e) 255
======= ====== =======
Average Number of Shares
Outstanding - Diluted 2 (2) 10 (e) 261
======= ====== =======
(1) Marsh & McLennan's expense includes special charges amounting to $297 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.
<TABLE>
<CAPTION>
MARSH & MCLENNAN COMPANIES, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998 (UNAUDITED)
(In millions of dollars)
Historical (1)
--------------------------------
Marsh & McLennan Sedgwick Group, Pro Forma Pro Forma
Companies, Inc. as adjusted 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.
