-----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, ThGouyIZHOKn1RwvOTRqzyfC7nbzaLajr2XiTHbLhT1LaizxzMdJ1M2AmSO7p3Z6 rNwNj6zWHHXBO1f0QaCBMA== 0000912057-00-013781.txt : 20000328 0000912057-00-013781.hdr.sgml : 20000328 ACCESSION NUMBER: 0000912057-00-013781 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981103 ITEM INFORMATION: FILED AS OF DATE: 20000327 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: 8-K/A SEC ACT: SEC FILE NUMBER: 001-05998 FILM NUMBER: 579908 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 8-K/A 1 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 3 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 - -------------------------------------------------------------------------------- (Date of earliest event reported) Marsh & McLennan Companies, Inc. ---------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-5998 36-266-8272 - ------------------------------ ---------------------------- -------------------- (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 1166 Avenue of the Americas, New York, NY 10036 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 345-5000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Exhibit Index at page 4 The undersigned registrant, Marsh & McLennan Companies, Inc. (the "Registrant") hereby amends the following items 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 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 are filed as Exhibit 99.1 to the Original Form 8-K Filing and are not being filed herewith. The Registrant hereby amends the unaudited financial statements for the nine-months ended September 30, 1998 required to be filed herewith and restates such items in their entirety as Exhibit 99.2 hereto. (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. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MARSH & McLENNAN COMPANIES, INC. By: /s/ Gregory Van Gundy -------------------------------- Name: Gregory Van Gundy Title: Secretary Date: March 27, 2000 3 EXHIBIT INDEX Exhibit No. Exhibit - ----------- ------- 99.2 Consolidated Nine-Month Unaudited Financial Statements of Sedgwick -Consolidated Statements of Income for the nine-months ended September 30, 1998 and 1997 -Consolidated Balance sheet as of September 30, 1998 -Notes to Consolidated Financial Statements -Additional information for US investors 99.3 Unaudited Pro Forma Condensed Combined Financial Statements. 4 EX-99.2 2 EXHIBIT 99.2 Exhibit 99.2 UNAUDITED INTERIM RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 SEDGWICK GROUP PLC UNAUDITED CONSOLIDATED STATEMENTS OF INCOME Nine months ended September 30, 1998
BEFORE EXCEPTIONAL EXCEPTIONAL ITEMS TOTAL TOTAL ITEMS (NOTE 2) 1998 1997 1998 ----------- ----------- -------- -------- ------ (pound)m (pound)m (pound)m (pound)m US $M* REVENUE Brokerage and Fees.................... 694.2 - 694.2 677.2 1,145.4 Interest and investment income........ 34.1 - 34.1 31.9 56.3 ------ ------ ------ ------ -------- 728.3 - 728.3 709.1 1,201.7 EXPENSES.............................. (712.2) (121.4) (833.6) (623.5) (1,375.4) ------ ------ ------ ------ -------- Operating profit/(loss)............... 16.1 (121.4) (105.3) 85.6 (173.7) Share of profits of associated Undertakings.......................... 3.5 - 3.5 3.1 5.8 Interest payable...................... (8.4) - (8.4) (7.0) (13.9) Profit on disposal of businesses...... - 9.4 9.4 - 15.5 Cessation of insurance underwriting... - - - 0.3 - ------ ------ ------ ------ -------- PROFIT/(LOSS) BEFORE TAXATION......... 11.2 (112.0) (100.8) 82.0 (166.3) Taxation.............................. (2.2) 25.7 23.5 (24.6) 38.8 ------ ------ ------ ------ -------- PROFIT/(LOSS) AFTER TAXATION.......... 9.0 (86.3) (77.3) 57.4 (127.5) Minority interests.................... 1.9 - 1.9 (0.3) 3.1 ------ ------ ------ ------ -------- EARNINGS/(LOSS)....................... 10.9 (86.3) (75.4) 57.1 (124.4) ------ ------ DIVIDEND.............................. (16.7) (16.4) (27.5) ------ ------ -------- RETAINED EARNINGS/(LOSS).............. (92.1) 40.7 (151.9) ------ ------ -------- EARNINGS/(LOSS) PER SHARE Before exceptional items.............. 2.0 p 10.4 p 3.2 c ------ ------ -------- After exceptional items............... (13.6) p 10.4 p (22.5) c ------ ------ -------- DIVIDEND PER SHARE.................... 3.0 p 3.0 p 5.0 c ------ ------ -------- Average number of shares in issue (millions)............................ 554.1 548.4 -
These results should be read in conjunction with the notes. - ---------- *For illustration only, the unaudited consolidated statement of income for the nine months ended September 30, 1998 shown above in US dollars has been translated at the average rate of (pound)1 = US$1.65 and not the convenience translation rate which would be (pound)1 = US$1.70 at September 30, 1998. The average rate has been used for the purposes of providing pro forma results set out in Exhibit 99.3. A summary of the significant adjustments that would be required to restate net income for the nine months ended September 30, 1998 in accordance with US GAAP is set out under "Additional information for US investors." UNAUDITED CONSOLIDATED BALANCE SHEET As at September 30, 1998
1998 1998 ------- ------- (pound)m US $m* ASSETS EMPLOYED FIXED ASSETS Tangible assets.......................................................... 209.5 356.2 Associated undertakings.................................................. 16.9 28.7 Assets backing retirement contracts...................................... 431.7 733.9 Investments.............................................................. 205.0 348.5 -------- -------- 863.1 1,467.3 -------- -------- CURRENT ASSETS Debtors.................................................................. 2,756.9 4,686.8 Reinsurers' share of technical provisions................................ 151.7 257.9 Investments.............................................................. 83.0 141.1 Cash and deposits........................................................ 502.8 854.7 -------- -------- 3,494.4 5,940.5 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR........................... (3,160.1) (5,372.2) -------- -------- NET CURRENT ASSETS....................................................... 334.3 568.3 -------- -------- TOTAL ASSETS LESS CURRENT LIABILITIES.................................... 1,197.4 2,035.6 -------- -------- CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Borrowings Loans and other borrowings............................................... (84.1) (142.9) 7.25% Convertible Bonds 2008............................................. (41.5) (70.5) -------- -------- (125.6) (213.4) Other liabilities........................................................ (18.4) (31.3) -------- -------- (144.0) (244.7) PROVISIONS FOR LIABILITIES AND CHARGES Liabilities linked to retirement contracts............................... (431.1) (732.9) Insurance technical provisions........................................... (264.4) (449.5) Other provisions......................................................... (254.7) (433.0) -------- -------- 103.2 175.5 FINANCED BY SHAREHOLDERS' FUNDS...................................................... 105.1 178.7 MINORITY INTERESTS....................................................... (1.9) (3.2) -------- -------- NET CAPITAL EMPLOYED..................................................... 103.2 175.5
The balance sheet should be read in conjunction with the notes. - ---------- *For illustration only, the unaudited consolidated balance sheet at September 30, 1998 shown above in US dollars has been translated at the period end rate of (pound)1 = US$1.70. A summary of the significant adjustments that would be required to restate shareholders' equity at September 30, 1998 in accordance with US GAAP is set out under "Additional information for US investors." 2 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of preparation The results for the nine months ended September 30, 1998 have been prepared on the basis of the accounting policies set out in the 1997 annual report. No adjustments have been made to restate the results or the balance sheet to comply with generally accepted accounting principles in the United States of America (US GAAP). Additional information for US investors follows the notes.
2. Exceptional items a. Operating exceptional items EXPENSES TAX EARNINGS -------- -------- -------- (pound)m (pound)m (pound)m Pension transfer review...................... 115.0 (24.0) (91.0) Restructuring costs.......................... 6.4 (1.7) (4.7) -------- -------- -------- 121.4 (25.7) (95.7) -------- -------- --------
Restructuring costs relate to certain of the group's European operations. In 1997, there were no operating exceptional items. Pension transfer review costs are stated net of (pound)54.0 million of expected recoveries from third parties. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT AUDITORS In October 1994, the Securities and Investments Board (SIB), now known as the Financial Services Authority (FSA), issued its report, PENSION TRANSFERS AND OPT-OUTS, REVIEW OF PAST BUSINESS. Its objective was to secure redress for individuals who between April 29, 1988 and June 30, 1994 were wrongly advised to transfer benefits from, or opt-out of, an occupational pension plan and enter into a personal pension plan, and have thereby suffered actual or potential loss. Based on criteria and procedures set out in the SIB's report, Sedgwick is required to review pension transfer and opt-out business conducted during the relevant period and to determine whether redress should be made to clients. At that time, the review was required to be conducted only in respect of individuals considered by the SIB to be priority cases. Sedgwick has satisfied the interim targets set by the regulator in this review and expects the review to be completed by December 31, 1998. On March 12, 1998, the FSA and the Personal Investment Authority (PIA) issued a consultation document on the extension of the review to include non-priority cases. Based on Sedgwick's experience to date and with reference to the methodology contained in the consultation document, the directors have recognized an exceptional charge in the six months ended June 30, 1998 of (pound)80m and an additional exceptional charge of (pound)35.0m during the third quarter ended September 30, 1998, based on their best estimate of the cost to Sedgwick of completing pension review (assuming expected recoveries from third parties). It should be noted that the estimated cost of reviewing pensions may be subject to change due to factors which are beyond Sedgwick's control, such as future movements in long-term interest rates, equity markets, response rates, and the precise scope and duration of the review. The "Final Statement of Policy and Final Guidance" has been recently published by the FSA of which certain issues remain under discussion. 3 In view of the above uncertainties, the group has entered into insurance arrangements specifically to protect it up to (pound)37m in the estimated total cost of completing the review. The cost of this cover is included in the (pound)115.0m exceptional charge recognized in the nine months ended September 30, 1998. In addition, the group has an option to extend this cover at additional cost to give protection of a further (pound)25m. The cost of purchasing this option itself is also included in the exceptional charge. There still remain potential exposures relating to pension review which are excluded from the scope of this policy or may exceed its limits, but based on current information available, management believes that no further material adjustment is required to the provision made through September 30, 1998. b. Profit on disposal of business In January 1998, the group sold its managing agencies based in The Netherlands for NLG 37 million ((pound)11.0 million) realizing a profit on disposal of (pound)9.4 million. c. Cessation of insurance underwriting Cessation of insurance underwriting represents the net amount recognized in respect of the group's insurance underwriting subsidiaries which are in run-off. 3. Nikols Sedgwick Group EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT AUDITORS In December 1998, Sedgwick disposed of its 49% interest in Nikols Sedgwick B.V. following the exercise of the call option by Securfin S.p.A. and Securfin Altrida B.V. 4 ADDITIONAL INFORMATION FOR US INVESTORS The results for the nine months ended September 30, 1998 have been prepared in accordance with UK GAAP. Estimates of the effect on the group's net income of applying the significant differences between UK GAAP and US GAAP are set out below. NET INCOME
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1998 1997 -------- ------- (pound)m (pound)m (LOSS)/EARNINGS REPORTED UNDER UK GAAP....................... (75.4) 57.1 Adjustments: Amortization of goodwill and identifiable intangible assets.. (9.8) (9.1) Other items.................................................. (32.9) 1.1 Deferred taxation............................................ (4.0) (2.8) Deferred taxation on US GAAP adjustments..................... 12.9 1.2 -------- ------- NET (LOSS)/INCOME IN ACCORDANCE WITH US GAAP................. (109.2) 47.5 -------- ------- (LOSS)/EARNINGS PER ADS* Reported under UK GAAP....................................... (68.1)p 52.1p -------- ------- In accordance with US GAAP Basic........................................................ (98.6)p 43.3p Diluted**.................................................... (98.6)p 42.7p -------- -------
Comparative earnings per ADS figures under US GAAP have been restated in accordance with FAS 128, EARNINGS PER SHARE. - ---------- * Each American Depositary Security (ADS) represents five ordinary shares. ** Options exercisable under Sedgwick's share option schemes could dilute basic earnings per ADS. However, as the options have an anti-dilutive effect on net loss per ADS for the nine months ended September 30, 1998 as Sedgwick had a loss from continuing operations, diluted net loss per ADS is not presented. 5 SHAREHOLDERS' EQUITY
AT SEPTEMBER 30, 1998 ------------- (pound)m SHAREHOLDERS' FUNDS REPORTED UNDER UK GAAP.......................... 105.1 Adjustments: Goodwill and identifiable intangible assets......................... 211.7 Other items......................................................... (24.1) Deferred taxation................................................... 20.5 Deferred taxation on US GAAP adjustments............................ 2.8 --------- SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP..................... 316.0 ---------
FORWARD-LOOKING STATEMENTS Forward-looking statements in this document are made pursuant to the safe-harbor provisions of the US Private Securities Litigation Reform Act of 1995. As a result of, among other things, interest and exchange rate changes, regulatory changes, and competition, actual results may differ materially from those anticipated by, or which may be assumed from, statements made in this document. 6 EX-99.3 3 EXHIBIT 99.3 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 (as amended) and the year ended December 31, 1997 and the unaudited pro forma condensed combined balance sheet as of September 30, 1998 (as amended) give effect to the acquisition of Sedgwick. The purchase method of accounting has been applied to the transaction. The pro forma statements of income assume the acquisition occurred on January 1, 1997 and the pro forma balance sheet assumes the transaction occurred on September 30, 1998. The unaudited pro forma statements of income do not include potential cost savings that may be realized as a result of the acquisition or the effect of a special charge that is expected to include, among other items, the Registrant's cost (non-goodwill) related to severance arrangements, the closing of existing facilities and the issuance of certain deferred stock units. The Registrant has indicated that it anticipates ultimately achieving gross pretax cost savings in the range of $200 million per year, over a period of years. See "Information Concerning Forward-Looking Statements". The unaudited pro forma condensed combined financial statements have been prepared by the Registrant based upon the assumptions disclosed in the notes to the pro forma condensed combined financial statements and reflect the Registrant's expectation that it will acquire 100% of Sedgwick's issued share capital and issued convertible bonds. The unaudited pro forma financial statements presented herein are shown for illustrative purposes only and do not purport to be indicative of the results which would have been reported if the transaction had occurred on the dates indicated or which may occur in the future. The unaudited pro forma condensed combined financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 1998 and Annual Report on Form 10-K/A for the year ended December 31, 1997 and the Sedgwick financial statements included in Exhibits 99.1 and 99.2 of this Form 8-K. MARSH & MCLENNAN COMPANIES, INC. PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) (In millions, except per share figures)
Historical (1) ----------------------------------- Marsh & McLennan Sedgwick Group, Pro Forma Pro Forma Companies, Inc. as adjusted (a) Adjustments Combined ---------------- --------------- ----------- --------- Revenue $ 5,245 $ 1,214 $ - $ 6,459 Expense 4,160 1,442 30 (b) 5,632 -------- ------- ------- -------- Operating Income (Loss) 1,085 (228) (30) 827 Interest, net (77) (4) (75) (c) (156) -------- ------- ------- -------- Income (Loss) Before Income Taxes 1,008 (232) (105) 671 Provision (Benefit) for Income Taxes 398 (52) (26) (d) 320 -------- ------- ------- -------- Net Income (Loss) $ 610 $ (180) $ (79) $ 351 ======== ======= ======= ======== Basic Net Income Per Share $ 2.38 $ 1.32 ======== ======== Diluted Net Income Per Share $ 2.28 $ 1.25 ======== ======== 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. See accompanying notes to pro forma condensed combined financial statements. 2 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)
Historical (1) --------------------------------------------- Marsh & McLennan Sedgwick Group, Pro Forma Pro Forma Companies, Inc. as adjusted(a) Adjustments Combined (as amended) -------------- ----------- (as amended) ------------ ------------ Revenue $ 6,009 $ 1,588 $ -- $ 7,597 Expense 5,211 1,436 39(b) 6,686 ------- ------- -------- ------- Operating Income (Loss) 798 152 (39) 911 Interest, net (83) (6) (100)(c) (189) ------- ------- -------- ------- Income (Loss) Before Income Taxes 715 146 (139) 722 Provision (Benefit) for Income Taxes 281 61 (35)(d) 307 ------- ------- -------- ------- Net Income (Loss) $ 434 $ 85 $ (104) $ 415 ======= ======= ======== ======= Basic Net Income Per Share $ 1.77(2) $ 1.63 ======= ======= Diluted Net Income Per Share $ 1.73(2) $ 1.59 ======= ======= Average Number of Shares Outstanding - Basic 245(2) 10(e) 255 ======= ======= ======= Average Number of Shares Outstanding - Diluted 251(2) 10(e) 261 ======= ======= =======
(1) Marsh & McLennan's expense includes special charges amounting to $244 million for the year ended December 31, 1997. (2) Restated to reflect the three-for-two stock split in the form of a stock distribution issued on June 26, 1998. See accompanying notes to pro forma condensed combined financial statements. 3
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 (f) Adjustments (g) Combined --------------- --------------- --------------- -------- ASSETS Current Assets: Cash and cash equivalents $ 667 $ 340 $ -- $ 1,007 Receivables 1,704 637 -- 2,341 Less - allowance for doubtful accounts (68) (88) -- (156) -------- -------- -------- -------- Net receivables 1,636 549 -- 2,185 Prepaid dealer commissions - current portion 311 -- -- 311 Deferred tax assets 119 3 -- 122 Other current assets 113 88 -- 201 -------- -------- -------- -------- Total current assets 2,846 980 -- 3,826 -------- -------- -------- -------- Long-term securities 752 1,083 -- 1,835 Fixed assets, net 934 331 -- 1,265 Intangible assets 2,822 360 1,577(h) 4,759 Prepaid dealer commissions 823 -- -- 823 Other assets 551 64 -- 615 -------- -------- -------- -------- $ 8,728 $ 2,818 $ 1,577 $ 13,123 ======== ======== ======== ======== 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 1,645 -- 2,802 Commitments and contingencies -- -- -- -- Stockholders' equity: Preferred stock -- -- -- -- Common stock 261 91 (91)(j) 271 10(e) Other stockholders' equity 3,490 447 (447)(j) 4,009 519(e) -------- -------- -------- -------- 3,751 538 (9) 4,280 Less - treasury shares (174) -- -- (174) -------- -------- -------- -------- Total stockholders' equity 3,577 538 (9) 4,106 -------- -------- -------- -------- $ 8,728 $ 2,818 $ 1,577 $ 13,123 ======== ======== ======== ========
See accompanying notes to pro forma condensed combined financial statements. 4 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 $1.577 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. 5 (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 $538 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 $538 million of Sedgwick stockholders' equity. 6 -----END PRIVACY-ENHANCED MESSAGE-----