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