SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 16, 1998
Conning Corporation
(Exact Name of Registrant as Specified in its Charter)
Missouri 0-23183 43-1719355
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
700 Market Street, St. Louis, Missouri 63101
(Address of Principal Executive Offices) (zip code)
Registrant's telephone number, including area code: (314) 444-0498
(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 16, 1998, the Registrant's indirect wholly owned subsidiaries,
Conning Asset Management Company ("CAM") and Conning & Company ("CC") completed
the acquisition of substantially all of the assets and certain liabilities of
Noddings Investment Group, Inc. ("NIG") and Noddings & Associates, Inc. ("NA")
from NIG and NA, respectively, pursuant to an Asset Purchase Agreement by and
among CAM, CC, NIG, NA, Thomas C. Noddings, John G. Noddings, Edna F. Noddings
and the Registrant (the "Purchase Agreement"). The assets acquired consisted
principally of contracts with investment advisory clients, working capital of
the business and other intangible assets. NIG is engaged in the business of
providing investment advisory services with a focus on convertible securities on
behalf of institutional clients and high net worth individual clients. NA
provides broker-dealer services on behalf of institutional clients and high net
worth individual clients, including clients of NIG. The purchase price was
approximately $4.5 million in cash (including acquisition expenses), with
additional contingent consideration in the amount of up to $27 million in cash
payable over a three year period after the closing, based on meeting certain
financial targets. The purchase price was paid from CAM's and CC's available
cash. The Registrant intends to continue to use the assets acquired for
generally the same purposes as such assets were used by NIG and NA prior to the
acquisition. The purchase price was determined on the basis of arms-length
negotiations between CAM and CC and NIG and NA based on a variety of factors,
including, but not limited to, comparable transactions, historical and projected
operating results, and cash flow valuation models.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of the business acquired.
2
The following audited financial statements of Noddings & Associates, Inc. are
submitted herewith:
Report of Independent Auditors..........................................F-1
Statement of Financial Condition at March 31, 1998......................F-2
Statement of Operations for the year ended March 31, 1998...............F-3
Statement of Changes in Stockholders' Equity for the year ended
March 31, 1998........................................................F-4
Statement of Cash Flows for the year ended March 31, 1998...............F-5
Notes to Financial Statements...........................................F-6
The following audited financial statements of Noddings Investment Group, Inc.
are submitted herewith:
Report of Independent Auditors..........................................F-8
Statement of Financial Condition at March 31, 1998......................F-9
Statement of Operations for the year ended March 31, 1998..............F-10
Statement of Changes in Stockholders' Equity for the year ended
March 31, 1998.......................................................F-11
Statement of Cash Flows for the year ended March 31, 1998..............F-12
Notes to Financial Statements..........................................F-13
The following unaudited condensed financial statements of Noddings & Associates,
Inc. are submitted herewith:
Statement of Financial Condition at September 30, 1998.................F-15
Statement of Operations for the nine months ended September 30, 1998...F-16
Statement of Changes in Stockholders' Equity for the nine months ended
September 30, 1998...................................................F-17
Statement of Cash Flows for the nine months ended September 30, 1998...F-18
Notes to Condensed Financial Statements................................F-19
The following unaudited condensed financial statements of Noddings Investment
Group, Inc. are submitted herewith:
Statement of Financial Condition at September 30, 1998.................F-20
Statement of Operations for the nine months ended September 30, 1998...F-21
Statement of Changes in Stockholders' Equity for the nine months ended
September 30, 1998...................................................F-22
Statement of Cash Flows for the nine months ended September 30, 1998...F-23
Notes to Condensed Financial Statements................................F-24
(b) Pro Forma financial information (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1998.........F-25
Condensed Consolidated Statement of Income for the year ended
December 31, 1997....................................................F-26
3
Condensed Consolidated Statement of Income for the nine months ended
September 30, 1998...................................................F-27
Notes to Pro Forma Condensed Consolidated Financial Statements.........F-28
(c) Exhibits.
2.1 Asset Purchase Agreement, dated December 16, 1998, by and among
Conning Asset Management Company, Conning & Company, Noddings
Investment Group, Inc., Noddings & Associates, Inc., Thomas C.
Noddings, John G. Noddings, Edna F. Noddings and Conning Corporation
23.1 Consent of Altschuler, Melvoin and Glasser, LLP
4
Report of Independent Auditors
The Board of Directors and Stockholders
Noddings & Associates, Inc.
We have audited the accompanying statement of financial condition of Noddings &
Associates, Inc. as of March 31, 1998, and the related statements of operations,
changes in stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Noddings & Associates, Inc. at
March 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Chicago, Illinois /s/ Altschuler, Melvoin and Glasser, LLP
May 1, 1998
F-1
Noddings & Associates, Inc.
Statement of Financial Condition
March 31, 1998
Assets
Cash and cash equivalent $ 422,417
Investments, at value (cost - $8,155) 7,013
Receivables:
Brokers 966,495
Affiliates 23,690
Other 13,248
Other 2,640
-----------
$ 1,435,503
===========
Liabilities and stockholders' equity
Payable to affiliates 162,810
Accounts payable and accrued liabilities 677,072
Deferred rent 70,904
-----------
910,786
Stockholders' equity:
Class A common stock, no par value; 5,000 shares
authorized, 750 shares issued and outstanding 7,500
Class B common stock, no par value; 15,000 shares
authorized, 6,750 shares issued and outstanding ----
Additional paid-in capital 255,000
Retained earnings 262,217
-----------
Total stockholders' equity 524,717
-----------
$ 1,435,503
===========
See accompanying notes.
F-2
Noddings & Associates, Inc.
Statement of Operations
Year ended March 31, 1998
Revenues
Commissions $ 1,748,528
Interest 8,623,238
Dividends 29,727
Change in unrealized appreciation/depreciation of investments 1,386
Other 189,923
-----------
10,592,802
Expenses
Short interest rebates paid 7,572,710
Compensation and related benefits 1,737,866
Occupancy and equipment rental 385,440
Clearing fees 217,974
Marketing 147,711
Office supplies and expenses 97,925
Professional fees and dues 59,924
Communications 33,545
Net realized loss on investments 19,726
Other operating expenses 20,263
-----------
10,293,084
-----------
Net income $ 299,718
===========
See accompanying notes.
F-3
Noddings & Associates, Inc.
Statement of Changes in Stockholders' Equity
Year ended March 31, 1998
Additional
Common Paid-in Retained
Stock Capital Earnings Total
--------- ---------- ---------- ---------
Balance at March 31, 1997 $ 7,500 $ 255,000 $ (17,501) $ 244,999
Net income ---- ---- 299,718 299,718
Distributions to stockholders ---- ---- (20,000) (20,000)
--------- --------- ---------- ----------
Balance at March 31, 1998 $ 7,500 $ 255,000 $ 262,217 $ 524,717
========= ========= ========== ==========
See accompanying notes.
F-4
Noddings & Associates, Inc.
Statement of Cash Flows
Year ended March 31, 1998
Cash flows from operating activities
Net income $ 299,718
Adjustments to reconcile net income to net cash provided by
operating activities:
Net realized loss on investments 19,726
Change in unrealized appreciation/depreciation
of investments (1,386)
Changes in assets and liabilities:
Increase in receivable from brokers (178,838)
Increase in receivable from affiliates (11,203)
Increase in other receivable (6,707)
Decrease in other assets 901
Increase in payable to affiliates 104,948
Decrease in accounts payable and accrued liabilities (57,105)
Increase in deferred rent 40,562
----------
Net cash provided by operating activities 210,616
Cash flows from investing activities
Cost of securities purchased (80,494)
Proceeds from securities sold 59,149
----------
Net cash used in investing activities (21,345)
Cash flows from financing activities
Distributions to stockholders (20,000)
----------
Net cash used in financing activities (20,000)
----------
Net increase in cash and cash equivalent 169,271
Cash and cash equivalent at beginning of year 253,146
----------
Cash and cash equivalent at end of year $ 422,417
See accompanying notes.
F-5
Noddings & Associates, Inc.
Notes to Financial Statements
1. Organization
Noddings & Associates, Inc. (the Company) is a securities broker-dealer
registered with the Securities and Exchange Commission, a member of the National
Association of Securities Dealers, Inc., and a commodity introducing broker
registered with the Commodity Futures Trading Commission and a member of the
National Futures Association.
2. Significant Accounting Policies
Revenues and expenses from customers' securities and commodities transactions
are recorded on a trade date basis.
The Company considers its investment in a money market mutual fund as a cash
equivalent.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Commitments
An affiliate of the Company has an office lease that expires December 31, 2006.
The Company is allocated a portion of the rent expense. Rent expense
approximated $139,200 for the fiscal year ended March 31, 1998.
The Company is an introducing broker and clears all transactions with and for
customers on a fully disclosed basis. In accordance with the clearing agreement
with PaineWebber, Inc., securities transactions are cleared by Correspondent
Services Corporation, an affiliate of PaineWebber, Inc., and commodity
transactions are cleared by PaineWebber, Inc. The Company promptly transmits all
customer funds and securities to its clearing broker. In connection with this
arrangement, the Company is contingently liable for its customers' transactions.
4. Related Parties
Operations of the Company's affiliates have been conducted by personnel of the
Company. The Company allocates certain expenses to an affiliate that totaled
$2,185,136 for the fiscal year ended March 31, 1998.
F-6
Noddings & Associates, Inc.
Notes to Financial Statements (continued)
The Company earns commissions from transactions with various affiliates. In
addition, the Company shares with its clearing broker in a portion of the
interest income rebate resulting from the short securities positions from
certain affiliates. Total commissions and interest earned from affiliates for
the fiscal year ended March 31, 1998 were $875,278 and $612,516, respectively.
5. Tax Status
The Company's tax year-end is December 31. The Company has elected S corporation
status, and therefore, no provision for federal income taxes has been made. The
Company is liable for Illinois replacement tax, based on its taxable income.
6. Employee Benefit Plans
Effective December 31, 1992, the Company terminated its profit-sharing plan.
Once certain necessary approvals are obtained, all assets will be distributed to
the participants in accordance with the plan agreement.
The Company sponsors a defined contribution 401(k) plan covering eligible
employees. The Company did not make a contribution to this plan during fiscal
1998.
7. Net Capital Requirements
The Company is subject to the net capital rule of the Securities and Exchange
Commission (SEC). This rule prohibits a broker/dealer from engaging in any
securities transaction at a time when: (a) its aggregate indebtedness exceeds 15
times its net capital; or (b) its net capital is less than $100,000, as those
terms are defined by the rule. At March 31, 1998, the Company's net capital and
required net capital were $475,786 and $100,000, respectively, and its ratio of
aggregate indebtedness to net capital was 1.91 to 1. Additionally, the Company
is required by its clearing broker to maintain minimum net capital of $100,000.
F-7
Report of Independent Auditors
The Stockholders
Noddings Investment Group, Inc.
We have audited the accompanying statement of financial condition of Noddings
Investment Group, Inc. as of March 31, 1998, and the related statements of
operations, changes in stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Noddings Investment Group, Inc.
at March 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Chicago, Illinois /s/ Altschuler, Melvoin and Glasser, LLP
May 1, 1998
F-8
Noddings Investment Group, Inc.
Statement of Financial Condition
March 31, 1998
Assets
Current assets:
Cash and cash equivalent $ 264,583
Receivables:
Management and incentive fees 404,249
Affiliates 298,345
Other 3,609
-----------
Total current assets 970,786
Office furnishings and equipment, net of accumulated
depreciation of $518,039 153,075
Employee loan 82,035
-----------
Total assets $ 1,205,896
===========
Liabilities and stockholders' equity
Current liabilities:
Payable to affiliates 14,315
Accounts payable and accrued liabilities 183,594
-----------
Total current liabilities 197,909
Deferred rent 47,269
Stockholders' equity:
Class A common stock, no par value; 50,000 shares
authorized; 1,000 shares issued and outstanding 949,682
Class B common stock, no par value; 50,000 shares
authorized; 9,000 shares issued and outstanding ----
Retained earnings 11,036
-----------
Total stockholders' equity 960,718
-----------
Total liabilities and stockholders' equity $ 1,205,896
===========
See accompanying notes.
F-9
Noddings Investment Group, Inc.
Statement of Operations
Year ended March 31, 1998
Revenues:
Management and incentive fees $ 3,180,100
Gains from interest in affiliated partnerships 61,968
Other 30,239
-----------
3,272,307
Expenses:
Compensation and related benefits 2,135,336
Occupancy and equipment expense 179,558
Marketing 160,019
Professional fees and dues 61,068
Other 126,568
-----------
2,662,549
Net income $ 609,758
===========
See accompanying notes.
F-10
Noddings Investment Group, Inc.
Statement of Changes in Stockholders' Equity
Year ended March 31, 1998
Common Retained
Stock Earnings Total
---------- ----------- -----------
Balance at March 31, 1997 $ 949,682 $ (298,722) $ 650,960
Net income ---- 609,758 609,758
Distributions to stockholders ---- (300,000) (300,000)
---------- ----------- -----------
Balance at March 31, 1998 $ 949,682 $ 11,036 $ 960,718
========== =========== ===========
See accompanying notes.
F-11
Noddings Investment Group, Inc.
Statement of Cash Flows
Year ended March 31, 1998
Cash flows from operating activities
Net income $ 609,758
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 77,116
Gains from interest in affiliated partnerships (61,968)
Changes in assets and liabilities:
Increase in management and incentive fees receivable (53,811)
Increase in receivable from affiliates (239,684)
Increase in other receivables (3,609)
Increase in payable to affiliates 1,848
Increase in accounts payable and accrued liabilities 139,858
Increase in deferred rent 27,041
----------
Net cash provided by operating activities 496,549
Cash flows from investing activities
Purchases of office furnishings and equipment (89,478)
Decrease in employee loans 11,355
Distributions from affiliated partnerships 61,968
----------
Net cash used in investing activities (16,155)
Cash flows from financing activities
Contribution from stockholders ----
Distributions to stockholders (300,000)
----------
Net cash used in financing activities (300,000)
----------
Net increase in cash and cash equivalent 180,394
Cash and cash equivalent at beginning of year 84,189
----------
Cash and cash equivalent at end of year $ 264,583
==========
See accompanying notes.
F-12
Noddings Investment Group, Inc.
Notes to Financial Statements
1. Organization and Business
Noddings Investment Group, Inc. (the Company) is a registered investment advisor
incorporated in the state of Illinois. The Company's business is to serve as
investment advisor to several affiliated limited partnerships (the
partnerships), various individually managed accounts, and certain customers of
Noddings & Associates, Inc. (N&A), a registered broker/dealer. The stockholders
of the Company are also the stockholders of N&A. In addition, the Company serves
as the general partner of the partnerships.
2. Significant Accounting Policies
The Company considers its investment in a money market mutual fund as a cash
equivalent.
Office furnishings and equipment are carried at cost and depreciated on the
straight-line method over estimated useful lives.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Related Parties
Operations of the Company have been conducted by personnel of N&A. Certain
expenses of the Company were paid by N&A and allocated to the Company. These
expenses totaled $2,185,136 for the year ended March 31, 1998.
The Company acts as the investment manager to certain partnerships and receives
management and incentive fees from these partnerships based on terms defined by
the partnership agreements. Total management and incentive fees earned from
affiliates for the year ended March 31, 1998, were $1,038,633, of which $277,541
is included in receivable from affiliates at March 31, 1998. In addition, as
general partner of the partnerships, the Company is allocated a 1% interest in
the profits or losses of each partnership. For the year ended March 31, 1998,
$61,968 was allocated, of which $20,804 is included in receivable from
affiliates at March 31, 1998.
F-13
Noddings Investment Group, Inc.
Notes to Financial Statements (continued)
4. Lease Commitment
As of January 1, 1998, the Company entered into an office lease that expires
December 31, 2006. The lease provides for rent escalations based on the lessor's
taxes, maintenance, and other operating costs. Total rental expense for fiscal
1998 amounted to $232,000, of which $139,200 was allocated to N&A for the year
ended March 31, 1998.
Minimum future rents due under the above lease are approximately as follows:
Fiscal Year Amount
----------- ----------
1999 $ 169,000
2000 174,000
2001 179,000
2002 185,000
2003 190,000
Thereafter 764,000
-----------
$1,661,000
===========
5. Tax Status
The Company's tax year-end is December 31. The Company has elected S corporation
status and, therefore, no provision for federal income taxes has been made. The
Company is liable for Illinois replacement tax, based on its taxable income.
F-14
Noddings & Associates, Inc.
Condensed Statement of Financial Condition
(unaudited)
September 30, 1998
Assets
Cash and cash equivalents $ 465,151
Investments 3,733
Receivables:
Brokers 911,041
Affiliates 5,516
Other 10,350
Other 7,546
----------
$1,403,337
==========
Liabilities and stockholders' equity
Accounts payable and accrued liabilities $ 817,182
Deferred rent 73,519
----------
890,701
Stockholders' equity:
Class A common stock, no par value; 5,000 shares
authorized, 750 shares issued and outstanding 7,500
Class B common stock, no par value; 15,000 shares
authorized, 6,750 shares issued and outstanding ----
Additional paid-in capital 255,000
Retained earnings 250,136
----------
Total stockholders' equity 512,636
----------
$1,403,337
==========
The accompanying notes are an integral part of the condensed
financial statements.
F-15
Noddings & Associates, Inc.
Condensed Statement of Operations
(unaudited)
Nine Months ended September 30, 1998
Revenues
Commissions $ 801,796
Interest 6,185,196
Dividends 27,350
Change in unrealized appreciation/depreciation of investments 25,419
Other 68,380
-----------
7,108,141
Expenses
Short interest rebates paid 5,398,220
Compensation and related benefits 974,383
Occupancy and equipment rental 154,302
Clearing fees 213,232
Marketing 67,818
Office supplies and expenses 39,264
Professional fees and dues 69,134
Communications 33,026
Other operating expenses 31,440
-----------
6,980,819
-----------
Net income $ 127,322
===========
The accompanying notes are an integral part of the condensed
financial statements.
F-16
Noddings & Associates, Inc.
Condensed Statement of Changes in Stockholders' Equity
(unaudited)
Nine Months ended September 30, 1998
Additional
Common Paid-in Retained
Stock Capital Earnings Total
-------- ---------- ---------- ----------
Balance at December 31, 1997 $ 7,500 $ 255,000 $ 127,814 $ 390,314
Net income ---- ---- 127,322 127,322
Distributions to stockholders ---- ---- (5,000) (5,000)
-------- --------- --------- ----------
Balance at September 30, 1998 $ 7,500 $ 255,000 $ 250,136 $ 512,636
======== ========= ========= ==========
The accompanying notes are an integral part of the condensed
financial statements.
F-17
Noddings & Associates, Inc.
Condensed Statement of Cash Flows
(unaudited)
Nine months ended September 30, 1998
Cash flows from operating activities
Net income $ 127,322
Adjustments to reconcile net income to net cash provided by
operating activities:
Net realized loss on investments 928
Change in net unrealized appreciation/depreciation
of investments 2,753
Changes in assets and liabilities:
Decrease in receivable from brokers 262,260
Decrease in receivable from affiliates 13,507
Increase in other receivable (1,995)
Decrease in accounts payable and accrued liabilities (265,681)
Increase in deferred rent 28,951
----------
Net cash provided by operating activities 168,045
Cash flows from investing activities
Cost of securities purchased (1,355)
----------
Net cash used in investing activities (1,355)
Cash flows from financing activities
Distributions to stockholders (5,000)
----------
Net cash used in financing activities (5,000)
----------
Net increase in cash and cash equivalent 161,690
Cash and cash equivalent at beginning of period 303,461
----------
Cash and cash equivalent at end of period $ 465,151
==========
The accompanying notes are an integral part of the condensed
financial statements.
F-18
Noddings & Associates, Inc.
Notes to Condensed Financial Statements
Note 1 - Basis of Presentation
The accompanying unaudited financial statements should be read in conjunction
with the financial statements and notes for the year ended March 31, 1998. In
the opinion of management, the financial information reflects all adjustments
which are of a normal recurring nature and are necessary for a fair presentation
of the financial position, results of operations, and cash flows for the interim
period. The results of operations for the interim period are not necessarily
indicative of the results to be expected for the entire year.
F-19
Noddings Investment Group, Inc.
Condensed Statement of Financial Condition
(unaudited)
September 30, 1998
Assets
Current assets:
Cash and cash equivalent $ 384,164
Receivables:
Management and incentive fees 322,026
---------
Total current assets 706,190
Office furnishings and equipment, net of accumulated
depreciation of $549,879 121,235
Employee loan 77,299
---------
Total assets $ 904,724
=========
Liabilities and stockholders' equity
Current liabilities:
Payable to affiliates 14,320
Accounts payable and accrued liabilities 160,712
---------
Total current liabilities 175,032
Deferred rent 49,012
Stockholders' equity:
Class A common stock, no par value; 50,000 shares
authorized; 1,000 shares issued and outstanding 949,682
Class B common stock, no par value; 50,000 shares
authorized; 9,000 shares issued and outstanding ----
Accumulated deficit (269,002)
---------
Total stockholders' equity 680,680
---------
Total liabilities and stockholders' equity $ 904,724
=========
The accompanying notes are an integral part of the condensed
financial statements.
F-20
Noddings Investment Group, Inc.
Condensed Statement of Operations
(unaudited)
Nine Months ended September 30, 1998
Revenues:
Management and incentive fees $ 1,279,107
Losses from interest in affiliated partnerships (33,722)
Other 163,137
-----------
1,408,522
Expenses:
Compensation and related benefits 1,377,184
Occupancy and equipment expense 118,618
Marketing 122,451
Professional fees and dues 59,945
Other 39,791
-----------
1,717,989
-----------
Net loss $ (309,467)
===========
The accompanying notes are an integral part of the condensed
financial statements.
F-21
Noddings Investment Group, Inc.
Condensed Statement of Changes in Stockholders' Equity
(unaudited)
Nine Months ended September 30, 1998
Retained
Common Earnings
Stock (Deficit) Total
----------- ------------ ------------
Balance at December 31, 1997 $ 949,682 $ 312,965 $ 1,262,647
Net loss ---- (309,467) (309,467)
Distributions to stockholders ---- (272,500) (272,500)
----------- ------------ ------------
Balance at September 30, 1998 $ 949,682 $ (269,002) $ 680,680
=========== ============ ============
The accompanying notes are an integral part of the condensed
financial statements.
F-22
Noddings Investment Group, Inc.
Condensed Statement of Cash Flows
(unaudited)
Nine months ended September 30, 1998
Cash flows from operating activities
Net loss $ (309,467)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 50,028
Losses from interest in affiliated partnerships 33,722
Changes in assets and liabilities:
Decrease in management and incentive fees receivable 552,532
Decrease in receivable from affiliates 15,782
Decrease in other receivables 3,609
Decrease in payable to affiliates (76,114)
Decrease in accounts payable and accrued liabilities (412,529)
Increase in deferred rent 19,300
-----------
Net cash used in operating activities (123,137)
Cash flows from investing activities
Sales of office furnishings and equipment 2,574
Decrease in employee loans 9,861
Distributions to affiliated partnerships (945)
-----------
Net cash provided by investing activities 11,490
Cash flows from financing activities
Distributions to stockholders (272,500)
-----------
Net cash used in financing activities (272,500)
-----------
Net decrease in cash and cash equivalent (384,147)
Cash and cash equivalent at beginning of period 768,311
-----------
Cash and cash equivalent at end of period $ 384,164
===========
The accompanying notes are an integral part of the condensed
financial statements.
F-23
Noddings Investment Group, Inc.
Notes to Condensed Financial Statements
Note 1 - Basis of Presentation
The accompanying unaudited financial statements should be read in conjunction
with the financial statements and notes for the year ended March 31, 1998. In
the opinion of management, the financial information reflects all adjustments
which are of a normal recurring nature and are necessary for a fair presentation
of the financial position, results of operations, and cash flows for the interim
period. The results of operations for the interim period are not necessarily
indicative of the results to be expected for the entire year.
F-24
Conning Corporation and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheets
As of September 30, 1998
(unaudited)
Pro Forma
Noddings Pro Forma Condensed
Noddings & Investment Adjusting Consolidated
Conning Associates Group Entries Conning
ASSETS
Current assets:
Cash & cash equivalents $ 30,288,429 $ 465,151 $ 384,164 $ (4,629,441)[F1,2] $ 26,508,303
Short-term investments 23,091,892 - - - 23,091,892
Accounts receivable, net 9,246,060 926,907 322,026 - 10,494,993
Marketable equity securities 251,390 3,733 - - 255,123
Prepaid expenses & other current assets 506,504 7,546 - - 514,050
------------ ------------ ------------ ------------- ------------
Total current assets 63,384,275 1,403,337 706,190 (4,629,441) 60,864,361
Non-marketable investments at value 3,926,859 - - - 3,926,859
Equipment & leasehold improvements net 1,416,332 - 121,235 - 1,537,567
Deferred income taxes 3,225,630 - - - 3,225,630
Goodwill 37,921,783 - - 3,176,250 [F1] 41,098,033
Other assets 2,734,950 - 77,299 - 2,812,249
============ ============ ============= ============= ============
Total assets $112,609,829 $ 1,403,337 $ 904,724 $ (1,453,191) $113,464,699
============ ============ ============= ============= ============
LIABILITIES & SHAREHOLDERS EQUITY
Current liabilities:
Compensation payable $ 9,616,515 $ - $ - $ - $ 9,616,515
Deferred revenue 3,411,961 - - - 3,411,961
Due to affiliates 4,150,759 - 14,320 - 4,165,079
Income taxes payable 1,661,251 - - (185,648)[F3] 1,475,603
Accounts payable and other accrued
expenses 14,951,082 817,182 160,712 - 15,928,976
------------ ------------ ------------ ------------- ------------
Total current liabilities 33,791,568 817,182 175,032 (185,648) 34,598,134
Accrued rent liability 3,169,669 73,519 49,012 - 3,292,200
Other payables 360,000 - - - 360,000
------------ ------------ ------------ ------------- ------------
Total liabilities 37,321,237 890,701 224,044 (185,648) 38,250,334
------------ ------------ ------------ ------------- ------------
Common stock 132,558 7,500 949,682 (957,182)[F1] 132,558
Additional Paid in Capital 73,157,845 255,000 - (255,000)[F1] 73,157,845
Retained earnings (deficit) 8,395,677 250,136 (269,002) (55,361)[F1,2,3] 8,321,450
Treasury stock (6,397,488) - - - (6,397,488)
------------ ------------ ------------ ------------- ------------
Total common shareholders' equity 75,288,592 512,636 680,680 (1,267,543) 75,214,365
============ ============ ============ ============= ============
Total liabilities and shareholders'
equity $112,609,829 $ 1,403,337 $ 904,724 $ (1,453,191) $113,464,699
============ ============ ============ ============= ============
See notes to pro forma condensed consolidated financial statements.
F-25
Conning Corporation and Subsidiaries
Pro Forma Condensed Consolidated Statement of Income
For the year ended December 31, 1997
(unaudited)
Pro Forma
Pro Forma Condensed
Noddings & Noddings Adjusting Consolidated
Conning Associates Investment Entries Conning
Revenues:
Asset management and related fees $ 49,502,655 $ 10,401,493 $ 3,180,100 $ - $ 63,084,248
Research services 15,478,709 - - - 15,478,709
Other income 1,634,143 171,583 92,207 (181,500)[F2] 1,716,433
------------ ------------ ------------ ------------- ------------
Total revenue 66,615,507 10,573,076 3,272,307 (181,500) 80,279,390
------------ ------------ ------------ ------------- ------------
Expenses
Employee compensation & benefits 33,632,314 1,737,866 2,135,336 - 37,505,516
Short interest rebates paid - 7,572,710 - - 7,572,710
Occupancy and equipment costs 3,552,179 385,440 179,558 - 4,117,177
Marketing and production costs 5,674,545 463,610 160,019 - 6,298,174
Professional services 1,992,032 59,924 61,068 - 2,113,024
Amortization of goodwill and other 2,968,964 - - 165,000 [F1] 3,133,964
Other operating expenses 3,352,641 53,808 126,568 - 3,533,017
------------ ------------ ------------ ------------- ------------
Total expenses 51,172,675 10,273,358 2,662,549 165,000 64,273,582
------------ ------------ ------------ ------------- ------------
Operating income 15,442,832 299,718 609,758 (346,500) 16,005,808
Interest expense 300,261 - - - 300,261
------------ ------------ ------------ ------------- ------------
Income before provision for
income taxes 15,142,571 299,718 609,758 (346,500) 15,705,547
Provision for income taxes 6,226,242 - - 236,450 [F3] 6,462,692
------------ ------------ ------------ ------------- ------------
Net income (loss) $ 8,916,329 $ 299,718 $ 609,758 $ (582,950) $ 9,242,855
============ ============ ============ ============= ============
Preferred stock dividends 963,127 - - - 963,127
------------ ------------ ------------ ------------- ------------
Net earnings (loss) available to
common shareholders $ 7,953,202 $ 299,718 $ 609,758 $ (582,950) $ 8,279,728
============ ============ ============ ============= ============
Earnings per share:
Basic $ 1.13 $ 1.17
Fully diluted $ 0.80 $ 0.83
See notes to pro forma condensed consolidated financial statements.
F-26
Conning Corporation and Subsidiaries
Pro Forma Condensed Consolidated Statement of Income
For the nine months ended September 30, 1998
(unaudited)
Pro Forma
Pro Forma Condensed
Noddings & Noddings Adjusting Consolidated
Conning Associates Investment Entries Conning
Revenues:
Asset management and related fees $ 46,242,381 $ 7,014,342 $ 1,279,107 $ $ 54,535,830
Research services 12,816,500 - - - 12,816,500
Other income 1,882,218 93,799 129,415 (136,125)[F2] 1,969,307
------------ ------------ ------------ ------------- ------------
Total revenue 60,941,099 7,108,141 1,408,522 (136,125) 69,321,637
------------ ------------ ------------ ------------- ------------
Expenses
Employee compensation & benefits 28,473,128 974,383 1,377,184 - 30,824,695
Short interest rebates paid - 5,398,220 - - 5,398,220
Occupancy and equipment costs 3,449,639 154,302 118,618 - 3,722,559
Marketing and production costs 5,277,236 320,314 122,451 - 5,720,001
Professional services 1,719,100 69,134 59,945 - 1,848,179
Amortization of goodwill and other 2,008,403 - - 123,750 [F1] 2,132,153
Other operating expenses 3,244,616 64,466 39,791 - 3,348,873
------------ ------------ ------------ ------------- ------------
Total expenses 44,172,122 6,980,819 1,717,989 123,750 52,994,680
------------ ------------ ------------ ------------- ------------
Operating income (loss) 16,768,977 127,322 (309,467) (259,875) 16,326,957
Interest expense 193,218 - - - 193,218
------------ ------------ ------------ ------------- ------------
Income (loss) before provision for
(benefit from) income taxes 16,575,759 127,322 (309,467) (259,875) 16,133,739
Provision for (benefit from) income taxes 7,049,700 (185,648)[F3] 6,864,052
============ ============ ============ ============= ============
Net income (loss) $ 9,526,059 $ 127,322 $ (309,467) $ (74,227) $ 9,269,687
============ ============ ============ ============= ============
Earnings per share:
Basic $ 0.72 $ 0.70
Fully diluted $ 0.67 $ 0.66
See notes to pro forma condensed consolidated financial statements.
F-27
Conning Corporation and Subsidiaries
Notes to Pro Forma Condensed Consolidated Financial Statements
(Unaudited)
These pro forma condensed consolidated financial statements should be read
in conjunction with Conning Corporation and Subsidiaries' ("Conning") audited
financial statements filed with the Securities and Exchange Commission ("SEC")
filed on Form 10-K in March 1998 and the unaudited condensed consolidated
financial statements for the nine month period ended September 30, 1998 filed
with the SEC on form 10-Q in November 1998. The pro forma condensed consolidated
balance sheet presents the combined balance sheets of Conning and Noddings &
Associates and Noddings Investment Group (together, "Noddings") as of September
30, 1998. The pro forma condensed consolidated statement of income for the year
ended December 31, 1997 combines the statement of income of Conning for the year
ended December 31, 1997 with the statements of operations of Noddings for the
year ended March 31, 1998. The pro forma condensed consolidated statement of
income for the nine months ended September 30, 1998 combines the statements of
income of Conning and the statements of operations of Noddings for the nine
months ended September 30, 1998.
F1 The acquisition of Noddings will be accounted for as a purchase
transaction. As a result, the pro forma excess cost over fair value of net
assets acquired was approximately $3.3 million for Noddings as of the
closing date. The annual amount of goodwill amortization is $165,000, based
on a 20-year amortization period. The goodwill is considered deductible for
Federal income tax purposes. The pro forma condensed consolidated financial
statements are exclusive of any additional contingent consideration that
may be paid in the future subject to meeting certain financial targets
during the three years following the closing.
F2 Represents the impact of the investment income lost related to the cash
consideration paid for Noddings for the nine month period ended September
30, 1998 and for the year ended December 31, 1997.
F3 The income tax expense reflected on the December 31, 1997 pro forma
statement of income and the income tax benefit reflected on the September
30, 1998 pro forma statement of income are computed at an effective rate of
42%. Prior to the acquisition, Noddings' legal structure was an S
corporation and, therefore, incurred no Federal or state income tax.
F-28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: December 30, 1998 CONNING CORPORATION
By: /s/ Leonard M. Rubenstein
Name: Leonard M. Rubenstein
Title: Chairman and Chief Executive
Officer
5