-----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, R8Ed+HQ9HBfkvHhyCzxlr9fwvizb3bv7ZlYXf7zNyR/gv++joJKOSUY37/+aV2pH pMfRrcOOa0vGlFFL729QdQ== 0000062709-99-000016.txt : 19990816 0000062709-99-000016.hdr.sgml : 19990816 ACCESSION NUMBER: 0000062709-99-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARSH & MCLENNAN COMPANIES INC CENTRAL INDEX KEY: 0000062709 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 362668272 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05998 FILM NUMBER: 99688585 BUSINESS ADDRESS: STREET 1: 2 LIBERTY SQU CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 8002251581 MAIL ADDRESS: STREET 1: 2 LIBERTY SQU STREET 2: MAILSTOP L5 CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: MARLENNAN CORP DATE OF NAME CHANGE: 19760505 10-Q 1 QUARTERLY REPORT FOR PERIOD 06/30/99 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For quarter ended June 30, 1999 Marsh & McLennan Companies, Inc. 1166 Avenue of the Americas New York, New York 10036 (212) 345-5000 Commission file number 1-5998 State of Incorporation: Delaware I.R.S. Employer Identification No. 36-2668272 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No __ . As of July 31, 1999, there were outstanding 264,062,450 shares of common stock, par value $1.00 per share, of the registrant. - ------------------------------------------------------------------------------- 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 Johnson & Higgins and Sedgwick Group plc, Year 2000 remediation and testing of computer systems, market and industry conditions, interest rates, foreign exchange rates, contingencies and matters relating to the operations and income taxes of Marsh & McLennan Companies, Inc. and subsidiaries ("MMC"). Such forward-looking statements are based on available current market and industry materials, experts' reports and opinions, as well as management's expectations concerning future events impacting MMC. Forward-looking statements by their very nature involve risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by any forward- looking statements contained herein include, in the case of MMC's risk and insurance services and consulting businesses, the failure to successfully integrate the businesses of Sedgwick Group plc (including the achievement of synergies and cost reductions) or other adverse consequences from that transaction; in the case of MMC's risk and insurance service business, changes in competitive conditions, a decrease in the premium rate levels in the global property and casualty insurance markets, the impact of changes in insurance markets and natural catastrophes; in the case of MMC's investment management business, changes in worldwide and national equity and fixed income markets; and with respect to all of MMC's activities, the failure of MMC and/or its significant business partners to be Year 2000 compliant on a timely basis, changes in general worldwide and national economic conditions, fluctuations in foreign currencies, actions of competitors or regulators, changes in interest rates, developments relating to claims and lawsuits, changes in the tax or accounting treatment of MMC's operations and the impact of tax and other legislation and regulation in the jurisdictions in which MMC operates. PART I, FINANCIAL INFORMATION MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share figures) (Unaudited) Three Months Ended Six Months Ended Ended June 30, June 30, ------------------ ---------------- 1999 1998 1999 1998 ------ ------ ------- ------- Revenue $ 2,245 $ 1,750 $ 4,596 $ 3,526 Expense 1,898 1,404 3,730 2,776 ------- ------- ------- ------- Operating Income 347 346 866 750 Interest Income 4 7 11 12 Interest Expense (55) (33) (115) (61) ------- ------- ------- ------- Income Before Income Taxes 296 320 762 701 Income Taxes 119 127 306 277 ------- ------- ------- ------- Net Income $ 177 $ 193 $ 456 $ 424 ======= ======= ======= ======= Basic Net Income Per Share $ .68 $ .75 $ 1.76 $ 1.65 ======= ======= ======= ======= Diluted Net Income Per Share $ .63 $ .72 $ 1.66 $ 1.59 ======= ======= ======= ======= Average Number of Shares Outstanding - Basic 263 257 260 257 ======= ======= ======= ======= Average Number of Shares Outstanding - Diluted 272 265 269 264 ======= ======= ======= ======= Dividends Declared $ .45 $ .40 $ .85 $ .73 ======= ======= ======= ======= MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions of dollars) (Unaudited) June 30, December 31, 1999 1998 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 599 $ 610 -------- -------- Receivables- Commissions and fees 1,775 1,575 Advanced premiums and claims 132 129 Other receivables 355 294 -------- -------- 2,262 1,998 Less-allowance for doubtful accounts (89) (89) -------- -------- Net receivables 2,173 1,909 -------- -------- Prepaid dealer commissions - current portion 315 315 Other current assets 339 411 -------- -------- Total current assets 3,426 3,245 Long-term securities 684 828 Fixed assets, net 1,264 1,287 (net of accumulated depreciation and amortization of $817 at June 30, 1999 and $820 at December 31, 1998) Intangible assets 4,846 4,826 Prepaid dealer commissions 805 799 Other assets 952 886 -------- -------- $ 11,977 $ 11,871 ======== ======== MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions of dollars) (Unaudited) June 30, December 31, 1999 1998 --------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt $ 957 $ 2,234 Accounts payable and accrued liabilities 1,451 1,438 Accrued compensation and employee benefits 759 841 Accrued income taxes 318 385 Dividends payable 119 104 -------- -------- Total current liabilities 3,604 5,002 -------- -------- Fiduciary liabilities 3,537 3,257 Less - cash and investments held in a fiduciary capacity (3,537) (3,257) -------- -------- - - -------- -------- Long-term debt 2,597 1,590 -------- -------- Other liabilities 1,695 1,620 -------- -------- Commitments and contingencies - - -------- -------- Stockholders' equity: Preferred stock, $1 par value, authorized 6,000,000 shares, none issued - - Common stock, $1 par value, authorized 800,000,000 shares, issued 264,793,875 shares at June 30, 1999 and 258,867,125 at December 31, 1998 265 259 Additional paid-in capital 1,252 889 Retained earnings 2,644 2,412 Accumulated other comprehensive income (7) 206 -------- -------- 4,154 3,766 Less - treasury shares, at cost, 1,050,059 shares at June 30, 1999 and 1,956,825 shares at December 31, 1998 (73) (107) -------- -------- Total stockholders' equity 4,081 3,659 -------- -------- $ 11,977 $ 11,871 ======== ======== MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions of dollars) (Unaudited) Six Months Ended June 30, ---------------- 1999 1998 ---- ---- Operating cash flows: Net income $ 456 $ 424 Depreciation of fixed assets 109 85 Amortization of intangible assets 69 36 Provision for deferred income taxes 64 90 Other liabilities 47 19 Prepaid dealer commissions (6) (77) Other, net 16 (7) Net changes in operating working capital other than cash and cash equivalents - Receivables (264) (188) Other current assets 112 63 Accounts payable and accrued liabilities (87) (126) Accrued compensation and employee benefits (82) (23) Accrued income taxes (14) 13 Effect of exchange rate changes (29) 25 ------- ------- Net cash generated from operations 391 334 ------- ------- Financing cash flows: Net (decrease) increase in commercial paper (1,359) 619 Other borrowings 1,109 21 Other repayments (36) (164) Purchase of treasury shares - (109) Issuance of common stock 369 63 Dividends paid (208) (171) ------- ------- Net cash (used for) provided by financing activities (125) 259 ------- ------- Investing cash flows: Additions to fixed assets (164) (134) Acquisitions (92) (313) Other, net (13) 30 ------- ------- Net cash used for investing activities (269) (417) ------- ------- Effect of exchange rate changes on cash and cash equivalents (8) (2) ------- ------- (Decrease) increase in cash & cash equivalents (11) 174 Cash & cash equivalents at beginning of period 610 424 ------- ------- Cash & cash equivalents at end of period $ 599 $ 598 ======= ======= MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The consolidated financial statements included herein have been prepared by MMC pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although MMC believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in MMC's latest annual report on Form 10-K. The financial information contained herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the three-and six-month periods ended June 30, 1999 and 1998. 2. Fiduciary Assets and Liabilities In its capacity as an insurance broker or agent, MMC collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurance underwriters; MMC also collects claims or refunds from underwriters on behalf of insureds. Unremitted insurance premiums and claims are held in a fiduciary capacity. Interest income on these fiduciary funds, included in revenue, amounted to $83 million and $62 million for the six months ended June 30, 1999 and 1998, respectively. Net uncollected premiums and claims and the related payables amounting to $10.7 billion at June 30, 1999 and $10.0 billion at December 31, 1998 are not included in the accompanying Consolidated Balance Sheets. 3. Per Share Data Basic net income per share is calculated by dividing net income by the average number of shares of MMC's common stock outstanding. Diluted net income per share is calculated by reducing net income for the potential minority interest associated with unvested shares granted under the Putnam Equity Partnership Plan. This result is then divided by the average common shares outstanding, which have been adjusted for the dilutive effect of potential common shares. The following reconciles net income to net income for diluted earnings per share and basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the three-and six-month periods ended June 30, 1999 and 1998. (In millions) Three Months Six Months Ended Ended June 30, June 30, -------------- -------------- 1999 1998 1999 1998 Net income $ 177 $ 193 $ 456 $ 424 Less: Potential minority interest associated with Putnam Equity Partnership Plan (4) (2) (8) (3) ----- ----- ----- ----- Net income for diluted earnings per share $ 173 $ 191 $ 448 $ 421 ===== ===== ===== ===== Basic weighted average common shares outstanding 263 257 260 257 Dilutive effect of stock options 9 8 9 7 ----- ----- ----- ----- Diluted weighted average common shares outstanding 272 265 269 264 ===== ===== ===== ===== 4. Comprehensive Income MMC has adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and displaying comprehensive income and its components. Net unrealized gains and losses on MMC's available for sale securities as well as foreign exchange gains or losses, which prior to adoption were reported separately in stockholders' equity, are now included in other comprehensive income. The components of comprehensive income for the six-month periods ended June 30, 1999 and 1998 are as follows: 1999 1998 ---- ---- Foreign currency translation adjustments $(119) $ 11 Unrealized securities holding gains (losses), net of income taxes (82) 105 Less: Reclassification adjustment for gains included in net income, net of income taxes (12) (13) ------ ----- Other comprehensive income (loss) (213) 103 Net income 456 424 ------ ----- Comprehensive income $ 243 $527 ===== ==== 5. Supplemental Disclosure to the Consolidated Statements of Cash Flows The following schedule provides additional information concerning acquisitions and interest and income taxes paid: Six Months Ended June 30, (In millions of dollars) 1999 1998 Purchase acquisitions: Assets acquired, excluding cash $ 92 $313 Liabilities assumed - - ----- ----- Net cash outflow for acquisitions $ 92 $313 ==== ==== Interest paid $101 $ 70 ==== ===== Income taxes paid $222 $207 ==== ===== 6. Income Taxes In 1997, MMC received a Notice of Proposed Adjustment from a local field office of the Internal Revenue Service ("IRS") challenging its tax treatment related to prepaid dealer commissions paid by Putnam and subsequent 12b-1 fees received by Putnam. The notice reflected the preliminary thinking of the IRS field office and did not constitute a formal assertion of liability by the IRS. The notice in question asserts a position contrary to the position enunciated in an IRS 1993 Technical Advice Memorandum. The IRS field office withdrew the Notice of Proposed Adjustment and submitted the matter to the national office of the IRS for consideration in a request for technical advice. Consequently, the issue is under consideration by the IRS. MMC believes its tax treatment of these fees is consistent with current industry practice and applicable requirements of the Internal Revenue Code and previously issued IRS technical advice. Taxing authorities periodically challenge positions taken by MMC on its tax returns. On the basis of present information and advice received from counsel, it is the opinion of MMC's management that any assessments resulting from current tax audits will not have a material adverse effect on MMC's consolidated results of operations or its consolidated financial position. 7. Acquisitions In the fourth quarter of 1998, MMC consummated a business combination with Sedgwick Group plc ("Sedgwick"), a London-based holding company of one of the world's leading insurance and reinsurance broking and consulting groups, for total cash consideration of approximately $2.2 billion, which was initially funded with short-term commercial paper borrowings. In April 1999, MMC completed the sale of 4.1 million common shares, realizing approximately $300 million of net proceeds. In June 1999, MMC sold $600 million of 6 5/8% Senior Notes due 2004 and $400 million of 7 1/8% Senior Notes due 2009. The proceeds of these sales were used to repay a portion of the commercial paper borrowings. The business combination is being accounted for using the purchase method of accounting. Accordingly, goodwill of approximately $2.1 billion resulting from the preliminary purchase price allocation is being amortized over 40 years. Assets acquired and liabilities assumed have been recorded at their estimated fair values and are subject to adjustment when purchase accounting is finalized in 1999. The following unaudited pro forma summary presents the consolidated results of operations of MMC as if the Sedgwick business combination had occurred on January 1, 1998. The pro forma results are shown for illustrative purposes only and do not purport to be indicative of the results which would have been reported if the business combination had occurred on the date indicated or which may occur in the future. The pro forma information reflected below includes the net impact of pretax special charges of $126 million recorded by Sedgwick prior to its being acquired by MMC, primarily related to pension redress issues discussed in Note 9. (In millions of dollars, except per share figures) Six Months Ended June 30, 1998 ---------------- Revenue $ 4,259 Net Income 348 Basic Net Income per share 1.32 Diluted Net Income per share 1.27 Dispositions: As part of the combination with Sedgwick, MMC acquired several insurance underwriting companies that were already in run-off as well as consulting businesses not compatible with its existing operations. MMC intends to sell these operations in the near future and accordingly, $85 million and $84 million of net assets of these businesses at June 30, 1999 and December 31, 1998, respectively, are included in other current assets in the Consolidated Balance Sheets as assets to be sold. The net assets are stated at their estimated realizable value. The results of operations as well as the incremental interest expense incurred in financing the purchase of these companies is not material to the consolidated results of operations of MMC for the three months and six months ended June 30, 1999. 8. Special Charge In the second quarter of 1999, MMC recorded a special charge of $84 million that reduced diluted net income per share by $0.19. This charge includes $71 million of merger costs related to the combination with Sedgwick and $13 million representing acquisition-related awards pertaining to the Sedgwick transaction. The merger costs of $71 million represent severance and related benefits associated with the planned reduction of approximately 1,000 MMC positions worldwide. In addition, as of June 30, 1999, $99 million representing severance and related benefits for the planned reduction of over 1,500 positions of Sedgwick has been allocated to the cost of the acquisition. Through June 30, 1999, $22 million has been paid related to the termination of approximately 650 MMC employees and $51 million has been paid related to the termination of approximately 950 Sedgwick employees. It is expected that another charge will be taken in the fourth quarter related to additional integration efforts. 9. Claims, Lawsuits and Other Contingencies MMC and its subsidiaries are subject to various claims, lawsuits and proceedings consisting principally of alleged errors and omissions in connection with the placement of insurance or reinsurance and in rendering investment and consulting services. Some of these matters seek damages, including punitive damages, in amounts which could, if assessed, be significant. An action captioned "Aiena et al. vs. Olsen et al." ("Aiena") is pending in the United States District Court for the Southern District of New York by certain former directors of Johnson & Higgins ("J&H"), which was acquired by MMC in March 1997, against twenty-four selling shareholders of J&H, as well as J&H itself and MMC. The action essentially challenges the allocation of the consideration paid in connection with MMC's combination with J&H as between the defendants who were directors and shareholders of J&H at the time of the transaction and the plaintiffs who were former directors and shareholders of J&H. The complaint asserts, among others, claims for breach of fiduciary duty, federal securities law violations, breach of contract, and ERISA violations. Plaintiffs seek compensatory and punitive damages. Two other former directors of J&H brought similar actions (Sempier v. Olsen et al.; and Clements v. Olsen et al.), which are also pending before the United States District Court for the Southern District of New York and are contemplated to proceed together with the Aiena action. In 1993, several years prior to the acquisition of J&H, the Equal Employment Opportunity Commission ("EEOC") commenced a lawsuit against J&H in the United States District Court for the Southern District of New York. The action alleges that a mandatory retirement policy for directors then in effect at J&H violated the federal Age Discrimination in Employment Act ("ADEA"). In 1995, the District Court ruled in the EEOC's favor that the J&H mandatory retirement policy violated the ADEA. The Court of Appeals for the Second Circuit affirmed that ruling in 1996. On July 28, 1999, J&H entered into a Consent Judgment with the EEOC settling the litigation. The Consent Judgment, which was approved by the Court, requires J&H to pay certain former directors of J&H a total of $28 million. Pursuant to the Stock Purchase Agreement between MMC and J&H and the stockholders of J&H, MMC will bear one-half of the settlement amount and expenses in this action. This lawsuit was fully reserved in MMC's financial statements. Sedgwick Group plc, since prior to its acquisition, has been engaged in a review of previously undertaken personal pension plan business as required by United Kingdom regulators to determine whether redress should be made to customers. Settlements and related costs previously paid amount to approximately $100 million of which $30 million is due from insurers. The contingent exposure of Sedgwick for pension redress and related costs is estimated to be $200 million. Sedgwick has recorded $130 million of reserves and recognized approximately $70 million of insurance recoveries related to this exposure. Other present and former subsidiaries of MMC are engaged in a comparable review of their personal pension plan businesses, although the extent of their activity in this area, and consequently their financial exposure, was proportionally much less than Sedgwick. The contingent exposure of the present and former non-Sedgwick subsidiaries of MMC for pension redress and related costs is estimated to be approximately $125 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 $25 million. MMC's ultimate exposure from the United Kingdom's personal pension plan review, as presently calculated and including Sedgwick, is subject to a number of variable factors including, among others, equity markets, the rate of response to the pension review mailings, the interest rate established quarterly by the U.K. Pension Investment Authority for calculating compensation, and the precise scope, duration, and methodology of the review as required by that Authority. As part of the combination with Sedgwick, MMC acquired several insurance underwriting companies that were already in run-off. MMC intends to sell these operations in the near future. Sedgwick had given guarantees with respect to certain liabilities relating to some of these operations. On the basis of present information, anticipated insurance coverage and advice received from counsel, it is the opinion of MMC's management that the disposition or ultimate determination of these claims, lawsuits, proceedings or guarantees will not have a material adverse effect on MMC's consolidated results of operations or its consolidated financial position. 10. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard, which establishes new accounting and reporting requirements for derivative instruments, is effective for fiscal years beginning after June 15, 2000. MMC does not expect the adoption of this standard to have a material impact on its results of operations or consolidated financial position. 11. Reclassifications Certain reclassifications have been made to the prior-year amounts to conform to the current-year presentation. 12. Segment Information MMC, a professional services firm, is organized based on the different services that it offers. MMC operates in three principal business segments: risk and insurance services, investment management and consulting. The risk and insurance services segment provides insurance broking, reinsurance broking and insurance program management for business, professional, institutional and public-entity clients. It also provides services principally in connection with originating, structuring and managing insurance and related industry investments. The investment management segment primarily provides securities investment advisory and management services and administrative services for a group of publicly held investment companies. The consulting segment provides advice and services to the managements of organizations primarily in the areas of human resource and employee benefit programs, general management consulting, and economic consulting and analysis. MMC evaluates segment performance based on operating income, which is determined after deductions for directly related expenses but before special charges. The accounting policies of the segments are the same as those used for the consolidated financial statements. Selected information about MMC's operating segments for the six-month periods ended June 30, 1999 and 1998 follow: (In millions of dollars) Revenue Segment from External Operating Customers Income ------------- --------- 1999 Risk and Insurance Services $2,348 (a) $ 465 Investment Management 1,290 420 Consulting 958 120 ------ ------ $4,596 $1,005 ====== ====== 1998 Risk and Insurance Services $1,654 (a) $ 378 Investment Management 1,145 316 Consulting 727 86 ------ ------ $3,526 $ 780 ====== ====== (a) Includes interest income on fiduciary funds ($83 million in 1999 and $62 million in 1998). A reconciliation of the total segment operating income to income before income taxes in the consolidated financial statements is as follows: 1999 1998 ------- ------ Total segment operating income $1,005 $ 780 Severance and related benefits (Note 8) (71) - Acquisition-related charges (Note 8) (13) - Corporate expense (53) (30) Minority interest associated with the Putnam Equity Partnership Plan (2) - ------- ------ Operating income 866 750 Interest income 11 12 Interest expense (115) (61) ------- ------ Total income before income taxes $ 762 $ 701 ======= ====== Marsh & McLennan Companies, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Second Quarter and Six Months Ended June 30, 1999 General Marsh & McLennan Companies, Inc. and Subsidiaries ("MMC") is a global professional services firm. MMC subsidiaries include Marsh, the world's leading risk and insurance services firm; Putnam Investments, one of the largest investment management companies in the United States; and Mercer Consulting Group, a major global provider of consulting services. More than 50,000 employees worldwide provide analysis, advice and transactional capabilities to clients in over 100 countries. MMC is organized in three principal business segments based on the services that each provides. Segment performance is evaluated based on operating income, which is after deductions for directly related expenses but before special charges. This management's discussion and analysis of financial condition and results of operations 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. See "Information Concerning Forward-Looking Statements" on page one of this filing. This Form 10-Q should be read in conjunction with MMC's latest annual report on Form 10-K. The consolidated results of operations follow: - ------------------------------------------------------------------------------- Second Quarter Six Months (In millions of dollars) 1999 1998 1999 1998 - ------------------------------------------------------------------------------- Revenue: Risk and Insurance Services $1,092 $ 784 $2,348 $1,654 Investment Management 661 587 1,290 1,145 Consulting 492 379 958 727 ------ ------ ------ ------ 2,245 1,750 4,596 3,526 ------ ------ ------ ------ Expense: Compensation and Benefits 1,126 866 2,295 1,717 Other Operating Expenses 688 538 1,351 1,059 Special Charge 84 - 84 - ------ ------ ------ ------ 1,898 1,404 3,730 2,776 ------ ------ ------ ------ Operating Income $ 347 $ 346 $ 866 $ 750 ====== ====== ====== ====== Operating Income Margin 15.5% 19.8% 18.8% 21.3% ====== ====== ====== ====== - ------------------------------------------------------------------------------- Revenue, derived mainly from commissions and fees, rose 28% from the second quarter of 1998 and grew by 30% for the six months. This increase primarily is due to the acquisition in November 1998 of Sedgwick Group plc ("Sedgwick"), a London-based holding company of one of the world's leading insurance and reinsurance broking and consulting groups. Sedgwick's results were not reflected in MMC's consolidated results of operations in the first half of 1998. Excluding the impact of acquisitions and dispositions, revenue, on a consolidated basis, grew approximately 8% over 1998 for the quarter with a 12% revenue increase in the investment management segment, approximately a 5% increase in risk and insurance services and 10% growth in revenue in the consulting segment. The increases in the respective segments were driven predominantly by higher levels of business activity in those businesses. For the six months, revenue excluding acquisitions and dispositions rose approximately 8%. Operating expenses rose 35% in the second quarter of 1999 primarily reflecting the acquisition of Sedgwick and the impact of a special charge relating to costs resulting from the Sedgwick integration process. Excluding acquisitions, dispositions and the special charge, expenses grew approximately 6% in the second quarter primarily reflecting staff growth in the consulting segment and generally higher incentive compensation commensurate with strong operating performance. Increased amortization of deferred commissions from both increased sales and redemptions of Putnam Funds also contributed to the expense increase. For the six months, expenses rose approximately 7% excluding acquisitions, dispositions and the special charge. In the second quarter of 1999, MMC recorded a special charge of $84 million representing initial costs relating to the integration of Sedgwick. These costs include severance and related benefits of $71 million associated with the planned reduction of approximately 1,000 MMC positions worldwide and a $13 million charge associated with certain acquisition-related awards pertaining to the Sedgwick transaction. Of the total special charge, $73 million was applicable to risk and insurance services and $11 million related to consulting. The net impact of the special charge was $51 million after tax, or $.19 per diluted share. In addition, $99 million of severance and benefit-related costs for the planned reduction of over 1,500 positions of Sedgwick were allocated to the cost of the acquisition. Of the combined severance-related costs totaling $170 million, cash payments of approximately $73 million have been made as of June 30, 1999. The remaining actions are expected to be completed by the end of 1999. The utilization of these charges is summarized in Note 8 to the consolidated financial statements. It is expected that another charge will be taken in the fourth quarter related to additional integration efforts. MMC expects to achieve gross consolidation savings of at least $200 million upon the full integration of Sedgwick with the majority expected to be realized in the year 2000. Risk and Insurance Services - ------------------------------------------------------------------------------- Second Quarter Six Months (In millions of dollars) 1999 1998 1999 1998 - ------------------------------------------------------------------------------- Revenue $1,092 $ 784 $2,348 $1,654 Expense (a) 921 639 1,883 1,276 ------ ------ ------ ------ Operating Income $ 171 $ 145 $ 465 $ 378 ====== ====== ====== ====== Operating Income Margin 15.6% 18.5% 19.8% 22.8% ====== ====== ====== ====== - ------------------------------------------------------------------------------- (a) Excluding special charge. Revenue Revenue for the risk and insurance services segment grew 39% over the second quarter of 1998 primarily due to the Sedgwick acquisition. Excluding acquisitions and dispositions, revenue for risk and insurance services operations rose approximately 5% primarily reflecting the effect of net new business development. For the six months, revenue for risk and insurance services increased 42% over the same period last year primarily as a result of the Sedgwick acquisition. Excluding acquisitions and dispositions, risk and insurance services revenue rose approximately 5% during the first half of 1999. Overall, market conditions remained competitive in the second quarter as substantial excess insurance capacity continued to exist. However, the rate of decline in commercial insurance premium rates has lessened as compared with the prior year. Expense Risk and insurance services expenses increased 44% for the second quarter and 48% for the first six months of 1999, largely attributable to the acquisition of Sedgwick. Excluding acquisitions and dispositions, expenses increased approximately 4% from the second quarter of 1998 primarily reflecting costs associated with a higher volume of business and increased technology spending, offset by the realization of net integration savings related to the Johnson & Higgins transaction, which closed in March 1997. For the six months, expenses for risk and insurance services, excluding acquisitions and dispositions, rose approximately 4%. Investment Management - ------------------------------------------------------------------------------- Second Quarter Six Months (In millions of dollars) 1999 1998 1999 1998 - ------------------------------------------------------------------------------- Revenue $ 661 $ 587 $1,290 $1,145 Expense 441 423 870 829 ------ ------ ------ ------ Operating Income $ 220 $ 164 $ 420 $ 316 ====== ====== ====== ====== Operating Income Margin 33.2% 28.0% 32.5% 27.6% ====== ====== ====== ====== - ------------------------------------------------------------------------------- Revenue Putnam's revenue increased 12% compared with the second quarter of 1998 and 13% for the six months, reflecting strong growth in the level of average assets under management on which management fees are earned. Assets under management aggregated $325 billion at June 30, 1999 compared with $306 billion at the end of the first quarter, reflecting $4 billion of net new fund sales and additional institutional investments, as well as growth in market value of $15 billion related to an increase in equity market levels during the quarter. Expense Expenses grew 4% in the second quarter of 1999 and 5% for the six months primarily due to increased amortization of deferred commissions from both increased sales and redemptions. Quarter-end and average assets under management for the second quarter are presented below: - ------------------------------------------------------------------------------- (In billions of dollars) 1999 1998 - ------------------------------------------------------------------------------- Mutual Funds: Domestic Equity $174 $143 Taxable Bond 38 38 Tax-Free Income 16 16 International Equity 17 14 ---- ---- 245 211 ---- ---- Institutional Accounts: Fixed Income 22 24 Domestic Equity 38 29 International Equity 20 14 ---- ---- 80 67 ---- ---- Quarter-end Assets $325 $278 ==== ==== Average Assets $315 $271 ==== ==== - ------------------------------------------------------------------------------- Assets under management and revenue levels are particularly affected by fluctuations in domestic and international bond and stock market prices and by the level of investments and withdrawals for current and new fund shareholders and clients. They are also affected by investment performance, service to clients, the development and marketing of new investment products, the relative attractiveness of the investment style under prevailing market conditions and changes in the investment patterns of clients. Revenue levels are sensitive to all of the factors above, but in particular, to significant changes in bond and stock market valuations. Putnam provides individual and institutional investors with a broad range of equity and fixed income investment products and services designed to meet varying investment objectives and which affords its clients the opportunity to allocate their investment resources among various alternative investment products as changing worldwide economic and market conditions warrant. At the end of the second quarter, assets held in equity securities represented 77% of assets under management, compared with 72% in 1998, while investments in fixed income products represented 23%, compared with 28% last year. Consulting - ------------------------------------------------------------------------------- Second Quarter Six Months (In millions of dollars) 1999 1998 1999 1998 - ------------------------------------------------------------------------------- Revenue $492 $379 $958 $727 Expense (a) 420 326 838 641 ---- ---- ---- ---- Operating Income $ 72 $ 53 $120 $ 86 ==== ==== ==== ==== Operating Income Margin 14.7% 13.9% 12.5% 11.9% ==== ==== ==== ==== - ------------------------------------------------------------------------------- (a) Excluding special charge. Revenue Consulting revenue increased 30% in 1999 compared with the second quarter of 1998 reflecting an increase in the level of services provided as well as the Sedgwick acquisition. Excluding acquisitions, consulting revenue increased approximately 10% in 1999. Retirement consulting revenue, which represented 43% of the consulting segment, grew 9% in the second quarter while revenue rose 15% in global compensation consulting, 7% in general management consulting and 23% in the economic consulting practice due to a higher volume of business in these practice lines. Health care consulting revenue grew 3% during the same period. For the six months, consulting revenue increased 32% over the same period of 1998 primarily reflecting the Sedgwick acquisition. Excluding acquisitions, revenue increased approximately 11% for the six months. Expense Consulting expenses increased 29% for the second quarter of 1999 and 31% for the six months primarily reflecting the Sedgwick acquisition. Excluding acquisitions, expenses increased approximately 7% for the second quarter and approximately 9% for the six months reflecting the effect of staff growth to support new business and higher incentive compensation commensurate with strong operating performance. Interest Interest income earned on corporate funds was $4 million in the second quarter of 1999 compared with $7 million in 1998. Interest expense increased to $55 million in the second quarter of 1999 from $33 million in 1998. Interest expense increased to $115 million for the six months ended June 30, 1999 from $61 million in 1998. The increase in interest expense for the quarter and six months is primarily due to incremental debt incurred in November 1998 to finance the Sedgwick acquisition. Income Taxes MMC's consolidated tax rate was 40.4% of income before income taxes in the second quarter and 40.2% for the first half of 1999. Excluding the tax effect of the special charges, the underlying tax rate was 40.0% compared with 39.5% last year. The increase in the 1999 tax rate is largely attributable to certain items associated with recent acquisitions. The overall tax rates are higher than the U.S. Federal statutory rate primarily because of provisions for state and local income taxes. Liquidity and Capital Resources MMC's cash and cash equivalents aggregated $599 million on June 30, 1999, a decrease of $11 million from the end of 1998. Cash flow from operations includes the net cash requirements of Putnam's prepaid dealer commissions, which amounted to $6 million for the six months compared with $77 million during the same period of 1998. MMC's capital expenditures, which amounted to $164 million in the first six months of 1999 and $134 million during the same period last year, primarily relate to computer equipment purchases and the refurbishing and modernizing of office facilities. As previously mentioned, during the fourth quarter of 1998, MMC acquired Sedgwick for total cash consideration of (pound)1.25 billion or approximately $2.2 billion. MMC initially financed the transaction with short-term commercial paper that was supported by a committed bank facility led by J. P. Morgan. In April 1999, MMC completed the sale of 4.1 million common shares realizing approximately $300 million of net proceeds. In June 1999, MMC sold $600 million of 6 5/8% Senior Notes due 2004 and $400 million of 7 1/8% Senior Notes due 2009, the proceeds of which were used to repay a portion of the commercial paper borrowings that were used initially to finance the Sedgwick acquisition. The balance of the commercial paper remains outstanding. In June 1999, MMC arranged a new $1.4 billion revolving credit facility for the use of its subsidiary, Marsh USA, Inc. Borrowings under the facility are guaranteed by MMC and support Marsh USA, Inc.'s commercial paper borrowings. The previously existing J. P. Morgan facility has been terminated. As further explained in Note 9 to the consolidated financial statements, certain present and former subsidiaries in the United Kingdom are under review by the Personal Investment Authority concerning the disclosure and advice given to clients regarding certain personal pension transactions. The contingent exposure for pension redress and related cost is estimated to be approximately $325 million of which $170 million is expected to be recovered from insurers. Approximately two-thirds of the contingent exposure is associated with the Sedgwick acquisition while the balance is associated with other current and former subsidiaries of MMC. All amounts in excess of anticipated insurance recoveries have been reserved for in the accompanying balance sheet. Although the timing and amount of payments relating to the pension review process cannot be predicted with certainty, it may be that MMC will temporarily fund such payments by drawing upon its existing credit lines. Other In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard, which establishes new accounting and reporting requirements for derivative instruments, is effective for fiscal years beginning after June 15, 2000. MMC does not expect that the adoption of this standard will have a material impact on its results of operations or consolidated financial position. Market Risk Certain of MMC's recorded revenues, expenses, assets and liabilities are exposed to the impact of interest rate changes and fluctuations in foreign currency exchange rates. MMC manages its net exposure to interest rate changes by utilizing a mixture of variable and fixed rate borrowings to finance MMC's asset base. Interest rate swaps are utilized on a very limited basis. MMC does not enter into foreign currency or interest rate transactions for trading or other speculative purposes. The translated values of revenue and expense from MMC's international risk and insurance services and consulting operations are subject to fluctuations due to changes in currency exchange rates. However, the net impact of these fluctuations on MMC's results of operations or cash flows has not been material. Year 2000 Issue MMC has substantially completed updating its systems in preparation for the Year 2000. Remaining efforts include planned installations of certain systems in conjunction with the integration of Sedgwick offices and contingency planning efforts. The systems installations are scheduled to be completed by the end of the third quarter of 1999 and contingency planning is discussed below. For this purpose, the term "systems" includes computer equipment and software that are commonly thought of as information technology ("IT") systems including accounting, data processing, telephone and other miscellaneous systems, as well as non-information technology ("non-IT") systems, such as embedded technology in MMC's facilities and equipment. In connection with this project, which began in 1995, MMC and each of its operating segments have undertaken a five-step process consisting of (1) taking an inventory of all technical areas, including hardware, software (application and system), data, third-party services and infrastructure that could potentially be affected by the Year 2000 issue, (2) assessing the scope and severity of the issue, (3) performing necessary remediation, (4) testing/implementation and (5) preparing contingency plans for possible internal and/or external failures. Management level steering committees have been established in each operating segment and at the MMC level. The Audit Committee of MMC's Board of Directors is regularly updated on the status of MMC's Year 2000 efforts. The individual operating units of MMC have integrated the Year 2000 risks assumed as a result of the Sedgwick acquisition. Accordingly, the statements included in this filing cover those risks. The total cost of the Year 2000 project is estimated to be $65 million. Of the total cost, $22 million is anticipated to be incurred in 1999, $26 million was expensed during 1998 and $17 million prior to 1998. Approximately $10 million was expensed during the first six months of 1999. Such costs do not include expenses incurred in replacing systems and applications in the ordinary course which have the effect of making such systems and applications Year 2000 compliant, but which were not incurred for that specific purpose. Costs of modifying computer software for Year 2000 conversion are being charged to expense as they are incurred and are funded from operating cash flows. No significant projects have been deferred or canceled as a result of Year 2000 efforts. In 1998, Year 2000 expenses represented approximately 5% of MMC's overall information technology budget. Future costs associated with addressing this issue are not expected to have a material adverse impact on MMC's financial position or results of operations. Non-mission critical IT and non-IT systems that could impact MMC's ability to serve clients and conduct business beyond January 1, 2000 have been assessed and are expected to be Year 2000 ready before the end of 1999. MMC recognizes that there may be some non-mission critical IT and non-IT systems utilized for internal purposes that may not be compliant by the end of 1999. It is expected that these systems will be replaced or phased out of use. In addition, MMC is continuing its inquiries as to the state of readiness of its significant third party relationships including clients and vendors. This process has included a review of third parties' Year 2000 readiness statements and the incorporation of certain third party dependencies into MMC's test plans. Where MMC has been unable to obtain information concerning the status of a third party or has received information such that the timing or readiness status of that third party's Year 2000 project does not align with MMC's, if significant, that supplier has been or will be replaced. For example, Marsh is notifying clients when responses to its inquiries as to the status of their readiness have not been received from insurance companies. The individual operating segments of MMC continue to analyze and monitor the potential operational problems and costs (including loss of revenues) that would be reasonably likely to result from MMC's failure or the failure of certain third parties to complete efforts necessary to achieve Year 2000 readiness on a timely basis. For internal systems, although MMC's expectation is that no significant disruption will occur, MMC's 1999 test plans and contingency processes have been or will be designed to address such a risk. For third party risks, efforts are being made to assess and test those risks. For example, Putnam has been actively involved in industry-wide Year 2000 testing. Putnam has successfully participated in all aspects of "Street-wide Testing" carried out under the auspices of the Securities Industry Association. Putnam will participate in all future testing. To prepare for the potential for disruptions as noted above, MMC is in the process of identifying the most reasonably likely worst case scenarios presented by the Year 2000 problem and completing a contingency plan for dealing with such scenarios. This process has been based, in part, upon MMC's existing disaster recovery process. These analyses and contingency plans will be completed during the second half of 1999. While MMC expects its Year 2000 efforts to reduce the scope and likelihood of potential Year 2000 failures, due to the overall uncertainty of the effect of a potential failure in Year 2000 readiness, particularly with respect to MMC's business partners or the communities in which MMC operates, MMC is unable specifically to determine whether any particular failure or groups of failures will have a material adverse impact on MMC. PART II, OTHER INFORMATION MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES INFORMATION REQUIRED FOR FORM 10-Q QUARTERLY REPORT JUNE 30, 1999 Item 4. Submission of Matters to a Vote of Security Holders. The Annual Meeting of Stockholders of MMC was held on May 20, 1999. Represented at the Meeting, at which stockholders took the following actions, were 203,474,355 shares or 79.3 percent of MMC's 256,478,034 shares of common stock outstanding and entitled to vote: 1. Each of the seven nominees for election as directors received at least 200,171,753 or 98.4 percent of the shares represented at the meeting. They are Jeffrey W. Greenberg, Stephen R. Hardis, The Rt. Hon. Lord Lang of Monkton, John D. Ong, Saxon Riley, Adele Smith Simmons and A.J.C. Smith. George Putnam retired from the board, having served as a director since 1987. 2. Shareholders approved an amendment to MMC's Restated Certificate of Incorporation increasing the number of authorized shares of common stock to 800 million from 400 million with a vote of 178,519,697 or 69.6 percent of the shares issued and outstanding (24,187,956 opposing and 766,702 abstaining). 3. Shareholders approved the Marsh & McLennan Companies 1999 Employee Stock Purchase Plan with a vote of 172,573,833 or 90.5 percent of the shares represented (17,356,764 opposing, 692,554 abstaining and 12,851,204 broker non-votes). 4. Deloitte & Touche LLP was ratified as MMC's independent public accountants for the year ending December 31, 1999, with a vote of 202,047,523 or 99.3 percent of the shares represented (577,938 opposing and 848,894 abstaining). Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4.1 Indenture dated as of June 14, 1999 between MMC and State Street Bank and Trust Company, as trustee (incorporated by reference to the registrant's Registration Statement on Form S-3, Registration No. 333-67543) 4.2 First Supplemental Indenture dated as of June 14, 1999 between MMC and State Street Bank and Trust Company, as trustee 10.1 First Amendment dated as of May 20, 1999 to the Marsh & McLennan Capital, Inc. Long Term Incentive Plan 27 Financial Data Schedule (b) Reports on Form 8-K A Current Report on Form 8-K dated April 12, 1999 was filed by MMC in connection with its registered block trade of 4.1 million shares of its common stock to Goldman, Sachs & Co. MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, MMC has duly caused this report to be signed this 13th day of August, 1999 on its behalf by the undersigned, thereunto duly authorized and in the capacity indicated. MARSH & McLENNAN COMPANIES, INC. /s/ Frank J. Borelli Senior Vice President and Chief Financial Officer EX-4 2 FIRST SUPPLEMENTAL INDENTURE AS OF 06/14/99 MARSH & McLENNAN COMPANIES INC., Issuer, and STATE STREET BANK AND TRUST COMPANY, Trustee -------------- FIRST SUPPLEMENTAL INDENTURE Dated as of June 14, 1999 -------------- $600,000,000 principal amount of 6-5/8% Senior Notes Due 2004 $400,000,000 principal amount of 7-1/8% Senior Notes Due 2009 FIRST SUPPLEMENTAL INDENTURE, dated as of June 14, 1999, between MARSH & McLENNAN COMPANIES, INC., a Delaware corporation (the "Company" and hereinafter the "Issuer"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, as trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the Issuer and the Trustee executed and delivered an Indenture dated as of June 14, 1999 (as supplemented hereby, the "Indenture"), to provide for the issuance by the Issuer from time to time of senior debt securities evidencing its unsecured indebtedness; WHEREAS, pursuant to a Board Resolution, the Issuer has authorized the issuance of $600,000,000 principal amount of 6-5/8% Senior Notes due 2004 (the "6-5/8% Notes") and $400,000,000 principal amount of 7-1/8% Senior Notes due 2009 (the "7-1/8% Notes", together with the 6-5/8% Notes, the "Offered Securities"); WHEREAS, the entry into this First Supplemental Indenture by the parties hereto is in all respects authorized by the provisions of the Indenture; WHEREAS, the Issuer desires to establish the terms of the Offered Securities in accordance with Section 2.01 of the Indenture and to establish the form of the Offered Securities in accordance with Section 2.02 of the Indenture; WHEREAS, all things necessary to make this First Supplemental Indenture a valid indenture and agreement according to its terms have been done; and NOW, THEREFORE, for and in consideration of the premises, the Issuer and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective holders from time to time of the Offered Securities as follows: ARTICLE 1. Section 1.1. Terms of Offered Securities. The following terms relating to the Offered Securities are hereby established: (1) The 6-5/8% Notes shall constitute a series of securities having the title "6-5/8% Senior Notes due 2004" and the 7-1/8% Notes shall constitute a series of securities having the title "7-1/8% Senior Notes due 2009." (2) The aggregate principal amount of the 6-5/8% Notes that may be authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Notes pursuant to Sections 2.05, 2.06, 2.07 or 9.01) shall be up to $600,000,000. The aggregate principal amount of the 7-1/8% Notes that may be authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Notes pursuant to Sections 2.05, 2.06, 2.07 or 9.01) shall be up to $400,000,000. (3) The entire outstanding principal of the 6-5/8% Notes shall be payable on June 15, 2004 plus any unpaid interest accrued to such date and the entire outstanding principal of the 7-1/8% Notes shall be payable on June 15, 2009 plus any unpaid interest accrued to such date. (4) The rate at which the 6-5/8% Notes shall bear interest shall be 6-5/8% per annum and the rate at which the 7-1/8% Notes shall bear interest shall be 7-1/8% per annum; the date from which interest shall accrue on the Offered Securities shall be June 14, 1999; the Interest Payment Dates for the Offered Securities on which interest will be payable shall be June 15 and December 15 in each year, beginning December 15, 1999; the Regular Record Dates for the interest payable on the Offered Securities on any Interest Payment Date shall be the June 1 and December 1 preceding the applicable Interest Payment Date; and the basis upon which interest shall be calculated shall be that of a 360-day year consisting of twelve 30-day months. (5) (A) Each of the Offered Securities may be redeemed in whole at any time or in part from time to time, at the option of the Issuer, at a redemption price equal to the greater of (i) 100% of the principal amount of the applicable series of Offered Securities to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the applicable series of Offered Securities discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Rate plus 10 basis points for the 6-5/8% Notes or the applicable Treasury Rate plus 15 basis points for the 7-1/8% Notes, plus, in either case, accrued and unpaid interest on the principal amount being redeemed to the redemption date (the "Redemption Price"). (B)(i) In case the Company shall desire to exercise such right to redeem all or, as the case may be, a portion of the Offered Securities in accordance with Section 1.1(5)(A), the Company shall, or shall cause the Trustee to, give notice of such redemption to holders of the Offered Securities of such series to be redeemed by mailing, first class postage prepaid, a notice of such redemption not less than 30 days and not more than 60 days before the date fixed for redemption of that series to such holders at their last addresses as they shall appear upon the Security Register. Any notice that is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the registered holder received the notice. In any case, failure duly to give such notice to the holder of any Offered Security designated for redemption in whole or in part, or any defect in the notice, shall not affect the validity of the proceedings for the redemption of any other Offered Security of such series or of another series. Each such notice of redemption shall specify the date fixed for redemption and the Redemption Price at which the Offered Securities are to be redeemed, and shall state that payment of the Redemption Price of such Offered Securities to be redeemed will be made at the office or agency of the Company in the Borough of Manhattan, the City and State of New York, upon presentation and surrender of such Offered Securities, that interest accrued to the date fixed for redemption will be paid as specified in said notice and, that from and after said date interest will cease to accrue. If less than all the Offered Securities of a series are to be redeemed, the notice to the holders of the Offered Securities of that series to be redeemed in whole or in part shall specify the particular Offered Securities to be redeemed. In case any Offered Security is to be redeemed in part only, the notice that relates to such Offered Security shall state the portion of the principal amount thereof to be redeemed, and shall state that on and after the redemption date, upon surrender of such security, a new Offered Security or Offered Securities of such series in principal amount equal to the unredeemed portion thereof will be issued. (ii) If less than all the Offered Securities of a series are to be redeemed, the Company shall give the Trustee at least 45 days' notice in advance of the date fixed for redemption as to the aggregate principal amount of Offered Securities of the series to be redeemed, and thereupon the Trustee shall select, by lot or in such other manner as it shall deem appropriate and fair in its discretion and that may provide for the selection of a portion or portions (equal to one thousand U.S. dollars ($1,000) or any integral multiple thereof) of the principal amount of such Offered Securities of a denomination larger than $1,000, the Offered Securities to be redeemed and shall thereafter promptly notify the Company in writing of the numbers of the Offered Securities to be redeemed, in whole or in part. The Company may, if and whenever it shall so elect, by delivery of instructions signed on its behalf by its President or any Vice President, instruct the Trustee or any paying agent to call all or any part of the Offered Securities of a particular series for redemption and to give notice of redemption in the manner set forth in this Section, such notice to be in the name of the Company or its own name as the Trustee or such paying agent may deem advisable. In any case in which notice of redemption is to be given by the Trustee or any such paying agent, the Company shall deliver or cause to be delivered to, or permit to remain with, the Trustee or such paying agent, as the case may be, such Security Register, transfer books or other records, or suitable copies or extracts therefrom, sufficient to enable the Trustee or such paying agent to give any notice by mail that may be required under the provisions of this Section. (C) As used herein: "Treasury Rate" means, with respect to any redemption date, (i) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated "H.15(519)" or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption "Treasury Constant Maturities," for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Remaining Life, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue will be determined and the Treasury Rate will be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month) or (ii) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per annum equal to the semi-annual equivalent yield-to-maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price of such redemption date. The Treasury Rate will be calculated by the Independent Investment Banker on the third Business Day preceding the redemption date. "Business Day" means any calendar day that is not a Saturday, Sunday or legal holiday in New York, New York and on which commercial banks are open for business in New York, New York. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term ("Remaining Life") of the Offered Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Offered Securities. "Independent Investment Banker" means either Chase Securities Inc. or Morgan Stanley & Co. Incorporated, and their respective successors, or, if both firms are unwilling or unable to select the Comparable Treasury Issue, an independent investment banking institution of national standing appointed by the Trustee after consultation with the Issuer. "Comparable Treasury Price" means (i) the average of five Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest Reference Treasury Dealer Quotations, or (ii) if the Independent Investment Banker obtains fewer than five such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer" means (i) Chase Securities Inc. and Morgan Stanley & Co. Incorporated, and their respective successors, provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company will substitute for such underwriter another Primary Treasury Dealer and (ii) any other Primary Treasury Dealer selected by the Independent Investment Banker after consultation with the Issuer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Independent Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Independent Investment Banker at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. With respect to Section 5(A)(ii) above, the Trustee shall be entitled to rely upon the calculations of the Independent Investment Banker. (6) The Offered Securities shall not be redeemable at the option of any holder thereof, upon the occurrence of any particular circumstances or otherwise. The Offered Securities will not have the benefit of any sinking fund. (7) The Offered Securities shall be issuable in denominations of $1,000 and any integral multiple thereof. (8) The Trustee shall also be the security registrar and paying agent for the Offered Securities. (9) Payments of the principal of and interest on the Offered Securities shall be made in U.S. Dollars, and the Notes shall be denominated in U.S. Dollars. (10) The holders of the Offered Securities shall have no special rights in addition to those provided in the Indenture upon the occurrence of any particular events. (11) The Notes shall not be subordinated to any other debt of the Issuer, and shall constitute senior unsecured obligations of the Issuer. (12) The Offered Securities are issuable in book entry form and are not convertible into shares of common stock or other securities of the Company. Section 1.2. Amendment to Article IV. Article IV of the Indenture is hereby amended to include the following covenant with respect to the Offered Securities only (and not with respect to any other series of securities issuable pursuant to the Indenture unless the supplemental indenture relating thereto expressly so provides), which reads in its entirety as follows: Section 4.06. Limitation on Liens on Stock of Significant Subsidiaries. The Company will not, and it will not permit any Subsidiary of the Company to, at any time directly or indirectly create, assume, incur or permit to exist any Indebtedness secured by a pledge, lien or other encumbrance (any pledge, lien or other encumbrance being hereinafter in this Section referred to as a "lien") on the voting stock of Marsh Inc., Putnam Investments, Inc. or Mercer Consulting Group, Inc. (each a "Significant Subsidiary") without making effective provision whereby the Offered Securities then Outstanding (and, if the Company so elects, any other Indebtedness of the Company that is not subordinate to the Offered Securities and with respect to which the governing instruments require, or pursuant to which the Company is otherwise obligated or required, to provide such security) shall be equally and ratably secured with such secured Indebtedness so long as such other Indebtedness shall be so secured. "Indebtedness" of any person means the principal of and premium, if any, and interest due on indebtedness of such Person, whether outstanding on the date of this Indenture or thereafter created, incurred or assumed, which is (a) indebtedness for money borrowed, and (b) any amendments, renewals, extensions, modifications and refundings of any such indebtedness. For the purposes of this definition, "indebtedness for money borrowed" means (i) any obligation of, or any obligation guaranteed by, such Person for the repayment of borrowed money, whether or not evidenced by bonds, debentures, notes or other written instruments, (ii) any obligation of, or any such obligation guaranteed by, such Person evidenced by bonds, debentures, notes or similar written instruments, including obligations assumed or incurred in connection with the acquisition of properly, assets or businesses (provided, however, that the deferred purchase price of any business or property or assets shall not be considered Indebtedness if the purchase price thereof is payable in full within 90 days from the date on which such indebtedness was created), and (iii) any obligations of such Person as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles and leases of property or assets made as part of any sale and lease-back transaction to which such Person is a party. For purposes of this covenant only, Indebtedness also includes any obligation of, or any obligation guaranteed by, any Person for the payment of amounts due under a swap agreement or similar instrument or agreement, or under a foreign currency hedge or similar instrument or agreement. If the Company shall hereafter be required to secure the Offered Securities equally and ratably with any other Indebtedness pursuant to this Section, (i) the Company will promptly deliver to the Trustee an Officers' Certificate stating that the foregoing covenant has been complied with, and an Opinion of Counsel stating that in the opinion of such counsel the foregoing covenant has been complied with and (ii) the Trustee is hereby authorized to enter into an indenture or agreement supplemental hereto and to take such action, if any, as it may deem advisable to enable it to enforce the rights of the holders of the Offered Securities so secured. Section 1.3. Amendment of Section 6.01(a)(1). Section 6.01(a)(1) of the Indenture is hereby amended and restated in its entirety with respect to the Offered Securities only (and not with respect to any other series of securities issuable pursuant to the Indenture unless the supplemental indenture relating thereto expressly so provides) as follows: (1) the Company defaults in the payment of any installment of interest upon any of the Securities of that series, as and when the same shall become due and payable, and continuance of such default for a period of 30 days; provided, however, that a valid extension of an interest payment period by the Company in accordance with the terms of any indenture supplemental hereto shall not constitute a default in the payment of interest for this purpose. Section 1.4. Amendment of Article Ten. Article Ten of the Indenture is hereby amended and restated in its entirety with respect to the Offered Securities only (and not with respect to any other series of securities issuable pursuant to the Indenture unless the supplemental indenture relating thereto expressly so provides) as follows: Section 10.01. Company May Consolidate, Etc., Only on Certain Terms. (a) Subject to Section 10.01(c) below, the Company shall not consolidate with or merge into any other Person or convey, transfer or lease all or substantially all of its properties and assets to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company, unless: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease all or substantially all of its properties and assets to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, all or substantially all of the properties and assets of the Company shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, the due and punctual payment of the principal of and any premium and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. Section 10.02. Successor Substitute. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of all or substantially all of the properties and assets of the Company in accordance with Section 10.01 above, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under the Indenture and the Offered Securities. Section 10.03. Evidence of Consolidation, Etc. to Trustee. The Trustee, subject to the provisions of Section 7.01, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or other disposition, and any such assumption, comply with the provisions of this Article. Section 1.5. Trustee's obligations with respect to the Covenants. The Trustee shall not be obligated to monitor or confirm, on a continuing basis or otherwise, the Issuer's compliance with the covenants contained in this Article One or with respect to reports or other documents filed under the Indenture; provided, however, that nothing herein shall relieve the Trustee of any obligations to monitor the Issuer's timely delivery of all reports and certificates required under Sections 5.01 and 5.03 of the Indenture and to fulfill its obligations under Article Seven of the Indenture. Section 1.6. Form of Note. The form of the 6-5/8 Notes and the 7-1/8 Notes is attached hereto as Exhibit A. ARTICLE II MISCELLANEOUS Section 2.1. Definitions. Capitalized terms used but not defined in this First Supplemental Indenture shall have the meanings ascribed thereto in the Indenture. Section 2.2. Confirmation of Indenture. The Indenture, as heretofore supplemented and amended by this First Supplemental Indenture, is in all respects ratified and confirmed, and the Indenture, this First Supplemental Indenture and all indentures supplemental thereto shall be read, taken and construed as one and the same instrument. Section 2.3. Concerning the Trustee. The Trustee assumes no duties, responsibilities or liabilities by reason of this First Supplemental Indenture other than as set forth in the Indenture and, in carrying out its responsibilities hereunder, shall have all of the rights, protections and immunities which it possesses under the Indenture. Section 2.4. Governing Law. This First Supplemental Indenture, the Indenture and the Securities shall be governed by and construed in accordance with the law of the State of New York. Section 2.5. Seperability. In case any provision in this First Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 2.6. Counterparts. This First Supplemental Indenture may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, this Supplemental Indenture has been duly executed by the Company and the Trustee as of the day and year first written above. MARSH & McLENNAN COMPANIES, INC. By: /s/ Pierre D. Bognon Authorized Signatory Name: Pierre D. Bognon Title: Vice President & Treasurer STATE STREET BANK AND TRUST COMPANY, as Trustee By: /s/ Roland S. Gustafsen Authorized Signatory Name: Roland S. Gustafsen Title: Assistant Vice President EX-10 3 FIRST AMENDMENT AS OF 05/20/99 TO LT INCENTIVE PL EXHIBIT 10.1 First Amendment dated as of May 20, 1999 to the Marsh & McLennan Capital, Inc. Long Term Incentive Plan. Section II(h) of the Marsh & McLennan Capital, Inc. Long Term Incentive Plan is amended to read in its entirety as follows: "II.(h) LTIP Committee shall mean a committee with authority to administer the LTIP, initially comprised of the following individuals: Jeffrey W. Greenberg, Robert Clements, Stephen Friedman and Charles A. Davis. The appointment of any additional or successor members to the LTIP Committee shall be subject to approval by the MMC Compensation Committee. Notwithstanding the foregoing, the MMC Compensation Committee shall serve as the LTIP Committee with respect to employees of M&M Capital who are members of the LTIP Committee or the MMC Partners Group, and the Chief Executive Officer of MMC shall serve as the LTIP Committee with respect to consultants of M&M Capital who are members of the LTIP Committee. In the event of a deadlock on any matter submitted to the LTIP Committee, the composition of the LTIP Committee will be expanded (solely for purposes of resolving such matter) by the appointment of an additional member selected by MMC." EX-27 4 FDS --
5 This schedule contains summary financial information extracted from the consolidated Marsh & McLennan Companies, Inc. and subsidiaries June 30, 1999 financial statements and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1999 JUN-30-1999 599,000,000 0 2,266,000,000 93,000,000 0 3,426,000,000 2,081,000,000 817,000,000 11,977,000,000 3,604,000,000 2,597,000,000 0 0 265,000,000 3,816,000,000 11,977,000,000 0 4,596,000,000 0 3,730,000,000 0 11,000,000 115,000,000 762,000,000 306,000,000 456,000,000 0 0 0 456,000,000 1.76 1.66
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