SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): March 31, 1998
DAIN RAUSCHER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-8186 41-1228350
(State of other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification No.)
Dain Rauscher Plaza, 60 South Sixth Street
Minneapolis, Minnesota 55402-4422
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 371-2711
Not Applicable
(Former name or former address, if changed since last report.)
The undersigned registrant, Dain Rauscher Corporation (the "Company"), hereby
amends Item 7 of its Current Report on Form 8-K, dated March 31, 1998
(initially filed with the Commission on April 15, 1998), to include the
financial statement information indicated in Item 7 below. The April 15,
1998 original filing of the Form 8-K described the Company's March 31, 1998
acquisition of Wessels, Arnold & Henderson, LLC ("WAH") pursuant to a merger
agreement dated as of February 8, 1998.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
The following financial statements of WAH are incorporated by reference to
Exhibit 99.1 filed herewith:
Independent Auditors' Report
Combined Balance Sheet as of December 31, 1997
Combined Statement of Income for the Year Ended December 31, 1997
Combined Statement of Changes in Members' Equity for the Year Ended December 31,
1997
Combined Statement of Cash Flows for the Year Ended December 31, 1997
Notes to Combined Financial Statements
(b) Pro Forma Financial Information
The following pro forma financial information is incorporated by reference to
Exhibit 99.2 filed herewith:
Pro Forma Combined Balance Sheet as of December 31, 1997 (unaudited)
Pro Forma Combined Statement of Operations for the Year Ended December 31, 1997
(unaudited)
Notes to Pro Forma Combined Balance Sheet and Statement of Operations
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
Date: May 14, 1998 DAIN RAUSCHER CORPORATION
By: David J. Parrin
------------------------------------
David J. Parrin
Senior Vice President and Controller
WESSELS, ARNOLD & HENDERSON
Combined Financial Statements
December 31, 1997
WESSELS, ARNOLD & HENDERSON
TABLE OF CONTENTS
Page(s)
Independent Auditors' Report
Combined Financial Statements:
Combined Balance Sheet
Combined Statement of Income
Combined Statement of Changes in Members' Equity
Combined Statement of Cash Flows
Notes to Combined Financial Statements
INDEPENDENT AUDITORS' REPORT
The Executive Committee
Wessels, Arnold & Henderson Group, L.L.C. and
Wessels, Arnold & Henderson, L.L.C.:
We have audited the accompanying combined balance sheet of Wessels,
Arnold & Henderson Group, L.L.C. and Wessels, Arnold & Henderson,
L.L.C. (collectively referred to as "Wessels, Arnold & Henderson") as
of December 31, 1997, and the related combined statements of income,
changes in members' equity, and cash flows for the year then ended.
These combined financial statements are the responsibility of
management. Our responsibility is to express an opinion on these
combined 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 combined financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the combined financial statements present fairly, in
all material respects, the combined financial position of Wessels,
Arnold & Henderson Group, L.L.C. and Wessels, Arnold & Henderson,
L.L.C. as of December 31, 1997, and the results of their operations
and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Minneapolis, Minnesota KPMG Peat Marwick LLP
March 27, 1998
WESSELS, ARNOLD & HENDERSON
Combined Balance Sheet
December 31, 1997
<TABLE>
Assets
<S> <C>
Cash and cash equivalents $ 17,172,914
Receivable from clearing broker 4,614,642
Receivables from brokers and dealers 4,691,328
Securities inventory, at market value 6,512,549
Equipment and leasehold improvements at cost
less accumulated depreciation of $1,695,518 2,333,505
Other investments available for sale, at market value 2,302,756
Non-marketable investments 2,598,331
Other accounts receivable 3,748,663
Other assets 597,051
------------
Total assets $ 44,571,739
============
Liabilities
Payables to brokers and dealers $ 1,108,854
Trading securities sold, but not yet purchased 4,733,058
Accrued compensation and benefits 1,898,672
Other accrued expenses and accounts payable 2,639,460
------------
Total liabilities 10,380,044
------------
Members' Equity
Members' equity 34,191,695
------------
Total liabilities and members' equity $ 44,571,739
============
See accompanying notes to combined financial statements.
</TABLE>
WESSELS, ARNOLD & HENDERSON
Combined Statement of Income
For the year ended December 31, 1997
<TABLE>
<S> <C>
Revenues:
Commissions $ 8,298,057
Principal transactions 28,673,240
Investment banking and underwriting 19,791,633
Interest and dividends 1,062,517
Advisory 15,295,202
Gain on in-kind distributions received
from investee partnership 5,000,311
------------
Total revenues 78,120,960
Interest expense 12,526
------------
Net revenues 78,108,434
------------
Expenses:
Compensation and benefits 40,172,135
Communications, occupancy, and equipment rental 7,319,627
Travel and promotion 5,612,473
Floor brokerage and clearing fees 3,106,305
Depreciation and amortization 922,796
Other 1,673,943
------------
Total expenses excluding interest 58,807,279
------------
Net income $ 19,301,155
============
See accompanying notes to combined financial statements.
</TABLE>
WESSELS, ARNOLD & HENDERSON
Combined Statement of Changes in Members' Equity
For the year ended December 31, 1997
<TABLE>
<S> <C>
Members' equity, beginning of year $ 30,381,953
Member draws, including
noncash distributions of $5,279,039 (23,357,603)
Member contributions, including
noncash contributions of $1,329,179 7,697,416
Net income 19,301,155
Unrealized gain on other investments available for sale 168,774
------------
Members' equity, end of year $ 34,191,695
============
See accompanying notes to combined financial statements.
</TABLE>
WESSELS, ARNOLD & HENDERSON
Combined Statement of Cash Flows
For the year ended December 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 19,301,155
Depreciation and amortization 922,796
Gain on in-kind distributions received from investee partnership (5,000,311)
Receivable from clearing broker (3,515,074)
Receivables from and payables to brokers and dealers 1,657,509
Trading securities owned and trading securities sold,
but not yet purchased, net 10,892,452
Other accounts receivable (2,110,145)
Accrued compensation and benefits (2,208,525)
Other accrued expenses and accounts payable 625,282
Other assets (268,693)
-------------
Net cash provided by operating activities 20,296,446
-------------
Cash flows from investing activities:
Payments for other investments available for sale (3,516,817)
Proceeds from sales of other investments available for sale 1,382,835
Payments for equipment and leasehold improvements (1,172,269)
-------------
Net cash used by investing activities (3,306,251)
-------------
Cash flows from financing activities:
Distributions to members (18,078,564)
Contributions from members 6,368,237
-------------
Net cash used by financing activities (11,710,327)
-------------
Increase in cash and cash equivalents 5,279,868
Cash and cash equivalents, beginning of year 11,893,046
-------------
Cash and cash equivalents, end of year $ 17,172,914
=============
Supplemental disclosure of noncash items:
Wessels, Arnold & Henderson received in-kind distributions of securities
totaling $5,279,039 during 1997. At the time the distributions were
received, these securities were distributed to the appropriate members.
Wessels, Arnold & Henderson received contributions of non-marketable
securities totaling $1,088,960 from certain members during 1997.
Included in receivables is $240,219 for a contribution of capital at
December 31, 1997.
See accompanying notes to combined financial statements.
</TABLE>
WESSELS, ARNOLD & HENDERSON
Notes to Combined Financial Statements
December 31, 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying combined financial statements have been prepared
for the purpose of complying with Rule 3.05 of Regulation S-X of
the Securities and Exchange Commission. The combined financial
statements include the accounts of Wessels, Arnold & Henderson
Group, L.L.C. (Group), a financial services holding company; and
Wessels, Arnold & Henderson, L.L.C. (WAH), a registered broker-
dealer which underwrites corporate equity securities and advises
on mergers and acquisition transactions. WAH markets and trades
equity securities on a fully disclosed basis through an
unaffiliated clearing broker. Group owns approximately one
percent of WAH. The accounts of Group include the results of its
51 percent owned subsidiary, Wessels Asset Management, L.L.C.
(WAM), a registered investment advisor. Group and WAH are
collectively referred to as the "Company" hereafter.
All intercompany balances and transactions have been eliminated
in the combined financial statements.
The following is a summary of significant accounting policies
followed by the Company:
(A) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit with banks and
short-term investments with an original maturity of less than 90
days, carried at cost, which approximates market.
(B) SECURITIES TRANSACTIONS
WAH's securities owned and securities sold, but not yet
purchased, which consist primarily over-the-counter (OTC) equity
securities, are stated at market value in accordance with
generally accepted accounting principles for broker-dealers.
Market value is determined using public market quotations, quoted
prices from dealers or recent market transactions depending upon
the underlying security. WAH's unrealized gains and losses are
included in principal transactions revenues. WAH accounts for
securities transactions on a trade date basis.
(C) OTHER INVESTMENTS AVAILABLE FOR SALE AND NON-MARKETABLE
SECURITIES
Group has investments in private and OTC equity securities and
two partnerships. The OTC equity securities are included in other
investments and are considered available-for-sale. The sum of all
unrealized gains and losses are reported as a separate component
of members' equity in the combined balance sheet. All interest
and dividend income and realized gains and losses are included in
revenues in the current period in the combined statement of
income. The partnerships are accounted for under the equity
method of accounting.
One of the partnerships, Monterey Bay Partners, L.P. (MBP), is
included in other investments. Group owns 28.2 percent of MBP.
MBP invests primarily in OTC equity securities and is managed by
WAM. All undistributed equity in earnings of MBP are reported as
a separate component of members' equity in the combined balance
sheet. Group received no distributions from MBP during 1997.
The other partnership, WA&H Investment, L.L.C. (Investment), is
owned 29.1 percent by Group and is included in non-marketable
securities. Investment is also owned by certain members of Group
and outside investors and invests in private placements and other
non-marketable securities. Investment records its securities at
the lower of cost or market until distribution to its members.
(D) OTHER ACCOUNTS RECEIVABLE
WAH records advisory revenues upon completion of the transaction.
At December 31, 1997, $3,050,000 of such revenues had been
accrued in other receivables.
(E) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture and equipment is depreciated using straight-line and
accelerated methods over estimated useful lives of three to five
years.
(F) MEMBERS' BONUSES
Members' bonuses are included in compensation and benefits
expense.
(G) INCOME TAXES
Income taxes on members' income are an obligation of each
individual member. Accordingly, no provision for income taxes is
included in the accompanying combined financial statements.
(H) USE OF ESTIMATES
Management of the Company has made certain estimates and
assumptions relating to the reporting of assets, liabilities,
revenues and expenses to prepare these combined financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(2) OTHER INVESTMENTS AVAILABLE FOR SALE
Other investments available for sale at December 31 are
summarized as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
unrealized unrealized Approximate
Cost gains losses market value
----------------------------------------------------------------------
1997 $2,133,982 $247,064 $(78,290) $2,302,756
======================================================================
</TABLE>
Gross realized gains and losses were $174,476 and $146,100 in
1997, respectively.
(3) LINES OF CREDIT
WAH has lines of credit available to a maximum of $15 million,
assuming sufficient collateral, under agreements with banks to
finance securities inventory and/or underwritings. There were no
outstanding balances on these lines at December 31, 1997.
(4) NET CAPITAL REQUIREMENTS
WAH is subject to the Securities and Exchange Commission's net
capital rule which requires the Company to maintain minimum net
capital, as defined, equal to the greater of 6-2/3% of aggregate
indebtedness, $100,000, or market making criteria. At
December 31, 1997, the ratio of aggregate indebtedness to net
capital was .28 to 1 and WAH had net capital in excess of the
minimum requirement of $15,510,844.
WAH is exempt from the provisions of SEC Rule 15c3-3 under
subsection (k) as it does not carry customer balances on its
balance sheet. Under this exemption, the Computation for
Determination of Reserve Requirements and Information Relating to
the Possession or Control Requirements are not required.
(5) RETIREMENT PLAN
The Company has an employee savings plan (the Plan) covering
substantially all members and employees. Company profit sharing
contributions to the Plan are discretionary and were
approximately $1,133,100 for the year ended December 31, 1997.
(6) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable leases for office space which
expire at various periods until 2006. The Company is also
obligated for additional rents for its office premises based upon
increases in operating expenses. The leases provide for minimum
annual rentals of the following:
<TABLE>
<S> <C>
Year ending December 31 Amount
1998 $1,114,807
1999 984,852
2000 984,852
2001 984,852
2002 984,852
Thereafter 3,939,408
----------
$8,993,623
==========
Rental expense of $1,411,691 was charged to operations for the
year ended December 31, 1997.
WAH may sell securities not yet purchased in the course of its
market-making activities. The sale of such securities exposes WAH
to off-balance-sheet market risk in the event WAH may be
obligated to purchase the securities at higher market prices.
The Company is a defendant in various actions, suits and
proceedings before a court or arbitrator. While the outcome of
any litigation is uncertain, management, based in part upon
consultation with legal counsel as to certain of the actions
pending against the Company, believes that the resolution of all
such matters will not have a material adverse effect on the
Company's financial condition or results of operations of the
Company as set forth in the combined financial statements
included herein.
(7) SUBSEQUENT EVENTS
On February 9, 1998, the Company announced that it had entered
into an agreement to be acquired by Dain Rauscher Incorporated, a
securities broker-dealer and investment banking firm based in
Minneapolis, Minnesota. The transaction was completed on March
31, 1998.
</TABLE>
Exhibit 99.2
DAIN RAUSCHER CORPORATION
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following represents selected unaudited financial information for the
combined operations of the Company and Wessels, Arnold and Henderson, LLC
("WAH") prepared on a pro forma basis consistent with Article 11 of Regulation
S-X. The pro forma financial statements have been prepared assuming the
acquisition of WAH had occurred on January 1, 1997.
The combined financial statements do not include the effect of a $20 million
charge recorded by the Company in the quarter ended March 31, 1998 that was
directly related to the acquisition of WAH.
The unaudited pro forma financial statements are presented for illustrative
purposes only and are not necessarily indicative of the actual results that
would have been achieved had the transaction occurred on the date indicated,
nor do they purport to indicate the results of future operations or financial
position of the Company.
DAIN RAUSCHER CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
(in thousands)
<TABLE>
<S> <C> <C> <C>
Dain WAH Pro Forma
Rauscher Acquisition Dain Rauscher
Corporation Adjustments Corporation
----------- ----------- -----------
(Historical)
(A) (B)
ASSETS:
Cash $ 35,909 $ 17,173 $ 53,082
Receivable from customers 1,170,160 1,170,160
Receivable from clearing broker 4,615 4,615
Receivable from brokers and dealers 229,421 4,691 234,112
Securities purchased under
agreements to resell 135,777 135,777
Trading securities owned 541,511 6,513 548,024
Equipment, leasehold improvements 0
and buildings, at cost,
less accumulated depreciation 42,376 2,334 44,710
Other receivables 80,867 3,749 84,616
Goodwill 109,464(C) 109,464
Deferred income taxes 44,868 44,868
Other assets 23,512 5,498 29,010
----------- ----------- -----------
$ 2,304,401 $ 154,037 $ 2,458,438
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS EQUITY:
LIABILITIES:
Short-term borrowings $ 179,000 $ 51,000(D) $ 230,000
Drafts payable 83,499 83,499
Payables to customers 601,949 601,949
Payables to brokers and dealers 580,970 1,109 582,079
Securities sold under agreements
to repurchase 170,906 170,906
Trading securities sold, but not
yet purchased 127,364 4,733 132,097
Accrued compensation and benefits 128,463 1,899 130,362
Other accrued expenses and
accounts payable 97,500 2,639 100,139
Subordinated and other debt 15,659 92,657(E) 108,316
----------- ----------- -----------
1,985,310 154,037 2,139,347
----------- ----------- -----------
SHAREHOLDERS EQUITY:
Common stock 1,546 1,546
Additional paid-in capital 89,321 89,321
Retained earnings 233,419 233,419
Treasury stock, at cost (5,195) (5,195)
----------- ----------- -----------
319,091 319,091
----------- ----------- -----------
$ 2,304,401 $ 154,037 $ 2,458,438
=========== =========== ===========
See accompanying notes to combined financial statements.
</TABLE>
DAIN RAUSCHER CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(in thousands, except per-share amounts)
<TABLE>
<S> <C> <C> <C>
Dain WAH Pro Forma
Rauscher Acquisition Dain Rauscher
Corporation Adjustments Corporation
----------- ----------- -------------
(Historical)
(A) (B)
REVENUES:
Commissions $ 274,847 $ 8,298 $ 283,145
Principal transactions 152,150 28,673 180,823
Investment banking and underwriting 111,280 19,792 131,072
Interest and dividends 122,492 1,063 123,555
Asset management 46,304 15,295 61,599
Correspondent clearing 19,827 19,827
Other 23,775 5,000 28,775
---------- ---------- -----------
Total revenues 750,675 78,121 828,796
---------- ---------- -----------
Interest expense (58,573) (8,598)(C) (67,171)
---------- ---------- -----------
Net revenues 692,102 69,523 761,625
---------- ---------- -----------
EXPENSES EXCLUDING INTEREST:
Compensation and benefits 427,599 40,172 467,771
Communications 46,450 4,548 50,998
Occupancy and equipment rental 41,512 3,695 45,207
Travel and promotion 30,293 5,612 35,905
Floor brokerage and clearing fees 12,328 3,106 15,434
Other 42,165 1,674 43,839
Amortization of goodwill 4,379(D) 4,379
Restructuring charge 15,000 15,000
---------- ---------- ----------
Total expenses excluding interest 615,347 63,186 678,533
---------- ---------- ----------
EARNINGS:
Earnings before income taxes 76,755 6,337 83,092
Income tax expense (27,480) (2,267)(E) (29,747)
---------- ---------- ----------
Net earnings $ 49,275 $ 4,070 $ 53,345
========== ========== ==========
EARNINGS PER SHARE:
Basic $ 4.01 $ 4.35
========== ==========
Diluted $ 3.77 $ 4.08
========== ==========
Shares for Earnings per Share Calculation:
Basic 12,277 12,277
Diluted 13,060 13,060
See accompanying notes to combined financial statements.
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
(in thousands)
BALANCE SHEET:
(A) Reflects the Company's historical audited consolidated balance sheet as of
December 31, 1997.
(B) Represents pro forma adjustments to reflect the assets, liabilities and
equity from the acquisition of Wessels, Arnold & Henderson, LLC ("WAH").
(C) Represents the following transactions which occurred in connection with
the WAH acquisition:
<TABLE>
<S> <C>
Cash portion of purchase price $120,000
Present value of subordinated debentures
issued by the Company to WAH partners 21,657
Payment of transaction-related costs 2,000
Net assets purchased (34,193)
--------
Goodwill $109,464
========
</TABLE>
(D) Represents the following transactions which occurred in connection with
the WAH acquisition:
<TABLE>
<S> <C>
Cash portion of purchase price $120,000
Repayment of the Company's existing
subordinated debt 9,000
Payment of transaction related costs 2,000
--------
Cash to be paid by the Company 131,000
Less: Portion of purchase price financed
with subordinated debt (Note E) (80,000)
--------
Short-term borrowings $ 51,000
========
</TABLE>
(E) Represents the following transactions which occurred in connection with
the WAH acquisition:
<TABLE>
<S> <C>
Cash portion of purchase price $120,000
Repayment of the Company's existing
subordinated debt 9,000
Payment of transaction related costs 2,000
--------
Cash to be paid by the Company 131,000
Present value of subordinated debentures
issued by the Company to WAH partners 21,657
Less: Portion of purchase price financed
with short-term borrowings (Note D) (51,000)
Repayment of the Company's existing
subordinated debt (9,000)
--------
Subordinated and other debt $ 92,657
========
</TABLE>
STATEMENT OF OPERATIONS:
The Statement of Operations does not include the effect of a $20 million charge
recorded by the Company in the 1998 first quarter that was directly related to
the merger.
(A) Reflects the Company's historical audited consolidated statement of
operations as of December 31, 1997.
(B) Represents pro forma adjustments to the Company's results of operations
assuming the acquisition of WAH had occurred at the beginning of the period
presented.
(C) Represents interest expense and amortization of financing costs which
would have been incurred on the borrowings which were used to purchase WAH,
including interest on the subordinated debentures issued by the Company to WAH
partners. This amount has been reduced by the interest expense on the Company's
existing subordinated debt repaid in connection with the financing of the WAH
acquisition.
(D) Represents the amortization expense of goodwill related to the WAH
acquisition based upon an estimated life of 25 years.
(E) Represents income tax expense adjustment at the Company's effective tax
rate of 35.8 percent.
