<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-023183
CONNING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 43-1719355
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
700 MARKET STREET
ST. LOUIS, MISSOURI 63101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(314) 444-0498
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
COMMON STOCK OUTSTANDING ($.01 PAR VALUE) AS OF JULY 31, 1998:
13,255,750 SHARES
<PAGE> 2
<TABLE>
CONNING CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
PART I - FINANCIAL INFORMATION
------------------------------
1 Financial Statements 1
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 1998 and December 31, 1997 1
Condensed Consolidated Statements of Income (Unaudited)
Three months ended June 30, 1998 and June 30, 1997 2
Condensed Consolidated Statements of Income (Unaudited)
Six months ended June 30, 1998 and June 30, 1997 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 1998 and June 30, 1997 4
Notes to Condensed Consolidated Financial
Statements (Unaudited) 5-7
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II - OTHER INFORMATION
---------------------------
1 Legal Proceedings 12
5 Other Information 13
6 Exhibits and Reports on Form 8-K 13
Signatures 14
Index to Exhibits 15
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
CONNING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(Unaudited)
<CAPTION>
ASSETS 1998 1997
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 43,288,879 $43,085,406
Short-term investments 30,856,185 16,337,362
Accounts receivable, net 8,731,638 10,784,236
Marketable equity securities 525,580 600,662
Income taxes receivable 208,404 1,355,973
Prepaid expenses and other current assets 322,082 358,669
------------ -----------
Total current assets 83,932,768 72,522,308
Non-marketable investments at value 3,469,241 2,349,678
Equipment and leasehold improvements, at cost, less
accumulated depreciation of $1,126,694 and $1,127,320 1,409,138 1,525,436
Deferred income taxes 1,913,473 1,736,413
Goodwill 17,306,296 17,812,822
Other assets 3,108,413 3,910,696
------------ -----------
Total assets $111,139,329 $99,857,353
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Compensation payable $ 6,671,897 $11,149,000
Deferred revenue 4,788,904 3,201,336
Due to affiliates 5,270,387 1,379,188
Accounts payable and other accrued expenses 12,061,409 6,566,742
------------ -----------
Total current liabilities 28,792,597 22,296,266
Accrued rent liability 3,245,814 3,375,465
Other payables 400,000 480,000
------------ -----------
Total liabilities 32,438,411 26,151,731
------------ -----------
Common stock, $.01 par value: 50,000,000 shares authorized;
13,255,000 and 13,250,000 shares issued and outstanding for
1998 and 1997, respectively 132,550 132,500
Additional paid-in capital 73,152,602 73,126,002
Retained earnings 5,415,766 447,120
------------ -----------
Total shareholders' equity 78,700,918 73,705,622
------------ -----------
Total liabilities and shareholders' equity $111,139,329 $99,857,353
============ ===========
See accompanying notes to interim condensed consolidated financial statements.
</TABLE>
1
<PAGE> 4
<TABLE>
CONNING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Asset management and related fees $15,349,592 $11,923,499
Research services 4,338,444 3,511,762
Other income 869,831 198,291
----------- -----------
Total revenues 20,557,867 15,633,552
----------- -----------
EXPENSES:
Employee compensation and benefits 9,544,971 7,462,100
Occupancy and equipment costs 1,120,037 812,290
Marketing and production costs 1,811,022 1,440,940
Professional services 589,714 306,891
Amortization of goodwill and other 707,848 757,344
Other operating expenses 1,151,432 898,993
----------- -----------
Total expenses 14,925,024 11,678,558
----------- -----------
Operating income 5,632,843 3,954,994
Interest expense 64,416 70,466
----------- -----------
Income before provision for income taxes 5,568,427 3,884,528
Provision for income taxes 2,371,718 1,663,981
----------- -----------
Net income $ 3,196,709 $ 2,220,547
=========== ===========
Preferred stock dividends - 248,100
----------- -----------
Net earnings available to common shareholders $ 3,196,709 $ 1,972,447
=========== ===========
Weighted average diluted shares outstanding 14,263,873 11,090,733
Earnings per share:
Basic $ 0.24 $ 0.29
Diluted $ 0.22 $ 0.20
See accompanying notes to interim condensed consolidated financial statements.
</TABLE>
2
<PAGE> 5
<TABLE>
CONNING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Asset management and related fees $30,034,956 $24,078,612
Research services 8,506,131 6,465,286
Other income 1,697,233 377,727
----------- -----------
Total revenues 40,238,320 30,921,625
----------- -----------
EXPENSES:
Employee compensation and benefits 19,176,694 15,254,633
Occupancy and equipment costs 2,265,269 1,630,344
Marketing and production costs 3,369,173 2,724,972
Professional services 1,141,302 686,276
Amortization of goodwill and other 1,415,695 1,514,690
Other operating expenses 2,219,142 1,730,133
----------- -----------
Total expenses 29,587,275 23,541,048
----------- -----------
Operating income 10,651,045 7,380,577
Interest expense 130,391 163,761
----------- -----------
Income before provision for income taxes 10,520,654 7,216,816
Provision for income taxes 4,492,008 3,118,919
----------- -----------
Net income $ 6,028,646 $ 4,097,897
=========== ===========
Preferred stock dividends - 502,880
----------- -----------
Net earnings available to common shareholders $ 6,028,646 $ 3,595,017
=========== ===========
Weighted average diluted shares outstanding 14,209,630 11,145,422
Earnings per share:
Basic $ 0.45 $ 0.53
Diluted $ 0.42 $ 0.37
See accompanying notes to interim condensed consolidated financial statements.
</TABLE>
3
<PAGE> 6
<TABLE>
CONNING CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,028,646 $ 4,097,897
Adjustment for items not affecting cash:
Depreciation 362,422 272,100
Amortization of goodwill and other 1,415,696 1,514,690
Deferred income tax provision (177,060) (835,276)
Net unrealized appreciation on non-marketable investments (335,358) -
Net change in securities held for market making 75,082 45,625
Accretion of discounts on short-term investments (335,849) (131,551)
Changes in:
Accounts receivable 2,052,598 (1,787,704)
Prepaid expenses and other assets (70,300) 1,501,554
Accounts payable and other accrued expenses 5,414,667 1,285,514
Income taxes receivable 1,147,569 (963,379)
Due to affiliates 3,891,199 (148,338)
Deferred revenue 1,587,568 (16,720)
Accrued rent liability (129,651) (143,394)
Compensation payable (4,477,103) (3,951,554)
------------ ------------
Net cash provided by operating activities 16,450,126 739,464
------------ ------------
INVESTING ACTIVITIES:
Purchases of non-marketable partnership investments (879,138) (80,808)
Distribution from non-marketable partnership investments 94,933 -
Purchases of equipment and other assets, net (246,124) (600,636)
Purchases of short-term investments (49,023,672) (30,841,503)
Maturities of short-term investments 34,840,698 30,395,168
------------ ------------
Net cash used in investing activities (15,213,303) (1,127,779)
------------ ------------
FINANCING ACTIVITIES:
Repayment of long term debt - (2,000,000)
Issuance of Series B preferred stock - 79,950
Conversion of Series B preferred stock - 183,700
Issuance of common stock 26,650 -
Dividends on common stock (1,060,000) -
Dividends on preferred stock - (502,880)
------------ ------------
Net cash used in financing activities (1,033,350) (2,239,230)
------------ ------------
Net change in cash and cash equivalents 203,473 (2,627,545)
Cash and cash equivalents, beginning of period 43,085,406 9,816,568
------------ ------------
Cash and cash equivalents, end of period $ 43,288,879 $ 7,189,023
============ ============
See accompanying notes to interim condensed consolidated financial statements.
</TABLE>
<PAGE> 7
CONNING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited, interim condensed consolidated financial
statements of Conning Corporation and subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
the financial information reflects all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the financial
position of the Company and its subsidiaries as of June 30, 1998 and their
results of operations for the three and six month periods ended June 30, 1998
and 1997 and their cash flows for the six month periods ended June 30, 1998
and 1997. Operating results for the three and six month periods ended June
30, 1998 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998. These unaudited financial statements
should be read in conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
NOTE 2 - DIVIDENDS
The Company has paid cash dividends of $0.08 per share on its common stock
through June 30, 1998. During July, 1998 the Company declared a $0.04 per
share quarterly cash dividend on the Company's common stock, payable on
September 11, 1998 to shareholders of record on August 21, 1998.
NOTE 3 - MORTGAGE SERVICING OPERATIONS
During January, 1998, the Company assumed certain mortgage servicing
functions for its clients which include acting as an agent in the collection
and processing of principal and interest loan payments and escrow items. As
of June 30, 1998, the Company maintained approximately $8.3 million in escrow
balances off-balance sheet as the amounts were not considered to be owned or
operated by the Company.
<PAGE> 8
NOTE 4 - EARNINGS PER SHARE
The following table represents a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 1998:
Income (numerator) Shares (denominator) Per Share Amount
------------------ -------------------- ----------------
<S> <C> <C> <C>
BASIC EPS:
Net earnings available to common
shareholders $3,196,709 13,250,722 $ 0.24
---------- ======
EFFECT OF DILUTIVE SECURITIES:
Stock options 1,013,151
----------
DILUTED EPS:
Net earnings available to common
shareholders and assumed full conversions $3,196,709 14,263,873 $ 0.22
========== ========== ======
<CAPTION>
FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 1997:
Income (numerator) Shares (denominator) Per Share Amount
------------------ -------------------- ----------------
<S> <C> <C> <C>
Net income $2,220,544
Less: preferred stock dividends (248,100)
----------
BASIC EPS:
Net earnings available to common
shareholders 1,972,444 6,810,222 $ 0.29
======
EFFECT OF DILUTIVE SECURITIES:
Preferred stock dividends 248,100
----------
Conversion of preferred stock 3,665,000
Stock options 615,511
----------
DILUTED EPS:
Net earnings available to common
shareholders and assumed full conversions $2,220,544 11,090,733 $ 0.20
========== ========== ======
<PAGE> 9
<CAPTION>
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998:
Income (numerator) Shares (denominator) Per Share Amount
------------------ -------------------- ----------------
<S> <C> <C> <C>
BASIC EPS:
Net earnings available to common
shareholders $6,028,646 13,250,342 $ 0.45
---------- ======
EFFECT OF DILUTIVE SECURITIES:
Stock options 959,288
----------
DILUTED EPS:
Net earnings available to common
shareholders and assumed full conversions $6,028,646 14,209,630 $ 0.42
========== ========== ======
<CAPTION>
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1997:
Income (numerator) Shares (denominator) Per Share Amount
------------------ -------------------- ----------------
<S> <C> <C> <C>
Net income $4,097,897
Less: preferred stock dividends (502,880)
----------
BASIC EPS:
Net earnings available to common
shareholders 3,595,017 6,760,111 $ 0.53
======
EFFECT OF DILUTIVE SECURITIES:
Preferred stock dividends 502,880
----------
Conversion of preferred stock 3,663,750
Stock options 721,561
----------
DILUTED EPS:
Net earnings available to common
shareholders and assumed full conversions $4,097,897 11,145,422 $ 0.37
========== ========== ======
</TABLE>
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
- --------
Conning Corporation revenues consist of asset management and related fees,
research services, and other income.
The Company's asset management and related revenues are derived from three
sources: asset management fees, private equity fund management fees, and fees
related to the Company's mortgage and real estate activities. Asset
management fees primarily reflect fees for discretionary asset management
services provided to insurance company clients, including GenAmerica
Corporation ("GenAmerica"), its subsidiaries and its affiliates. Asset
management fees are generally a function of the overall fee rate charged to
each account and the level of assets under management. A portion of these
revenues is generated when the Company provides investment advisory services
as well as when the Company provides investment accounting and reporting
services on a stand-alone basis. Assets under management can be affected by
the addition of new client accounts or client contributions to existing
accounts, withdrawals of assets from or terminations of client accounts and
investment performance which may depend on general market conditions.
The Company's private equity fund management fees represent annual management
fees based on a percentage of committed capital and a participation in
specified net gains of the funds. The Company's commercial mortgage fees
primarily reflect fees associated with loan originations, which approximate
.75-1.0% of the loan balance, as well as fees associated with ongoing
servicing and management fees with respect to loans originated in portfolios
managed by the Company. In addition to loans for GenAmerica subsidiaries and
affiliates, the Company originates mortgage loans for securitized offerings
by investment banking firms from time to time.
Conning's assets under discretionary management were $28.2 billion as of June
30, 1998, an increase of $2.2 billion from $26.0 billion under management at
December 31, 1997. The net increase in assets during the six month period is
due to an increase in assets from existing clients and net additions of new
clients since year-end. Total assets serviced increased $6.9 billion since
year-end to $87.0 billion at June 30, 1998. New client activity in investment
advisory assets serviced was the key cause of this increase, accompanied by
stable growth in the Company's core assets under discretionary management.
<PAGE> 11
RESULTS OF OPERATIONS
- ---------------------
Statement of income for the three months ended June 30, 1998 compared to the
three months ended June 30, 1997
Total revenues increased 31% to $20.6 million for the three months ended June
30, 1998 versus $15.6 million for the same period in 1997. This increase was
primarily attributable to the increase in asset management and related fees
resulting from the growth in assets managed for existing clients and net
additions of new clients. Research service revenues increased 24% to $4.3
million for the three months ended June 30, 1998 from $3.5 million for the
same period in 1997 as a result of continued strong core research fees
supplemented by the Company's participation in public securities
underwritings. Other income for the three months ended June 30, 1998
increased over $670,000, primarily due to investment income earned on the
proceeds from the Company's initial public offering of common stock.
Total expenses increased 28% to $14.9 million for the three months ended June
30, 1998 from $11.7 million for the same period in 1997, due to increased
employee compensation and benefits expenses, and an increase in occupancy,
marketing and certain other expenses associated with the growth in revenues.
Total compensation and benefits increased 28% to $9.5 million from $7.5
million for the three months ended June 30, 1998 and 1997, respectively, due
to moderate staffing increases for Company growth and additional incentive
compensation accruals as a result of growth in operating income. The
Company's incentive compensation practice continues to be based on the level
of growth in the Company's operating profits.
Provision for income taxes increased by 43% to $2.4 million for the three
month period ended June 30, 1998 from $1.7 million for the same period in
1997 as a result of higher taxable income. The effective tax rate for both
periods remained relatively consistent.
As a result of all of the above, net income increased 44% to $3.2 million
during the three month period ended June 30, 1998 compared to $2.2 million
for the same period in 1997.
Statement of income for the six months ended June 30, 1998 compared to the
six months ended June 30, 1997
Total revenues increased 30% to $40.2 million for the six months ended June
30, 1998 versus $30.9 million for the same period in 1997. This increase was
primarily attributable to the increase in asset management and related fees
resulting from the growth in assets managed for existing clients and net
additions of new clients. Research service revenues increased 32% to $8.5
million for the six months ended June 30, 1998 from $6.5 million for the same
period in 1997 as a result of continued strong core research fees and the
Company's increased activity in the capital markets. Other income for the
six months ended June 30, 1998 increased over $1.3 million, primarily due to
investment income earned on the proceeds from the Company's initial public
offering of common stock.
Total expenses increased 26% to $29.6 million for the six months ended June
30, 1998 from $23.5 million for the same period in 1997, due to increased
employee compensation and benefits expenses, and an increase in occupancy,
marketing and certain other expenses associated with the growth in revenues.
Total compensation and benefits increased 26% to $19.2 million from $15.3
million for the six months ended June 30, 1998 and 1997, respectively,
primarily due to additional staffing related to the Company's growth and
additional incentive compensation accruals as a result of growth in operating
income. The Company's incentive compensation practice continues to be based
on the level of growth in the Company's operating profits.
Provision for income taxes increased by 44% to $4.5 million for the six month
period ended June 30, 1998 from $3.1 million for the same period in 1997 as a
result of higher taxable income. The effective tax rate for both periods
remained relatively consistent.
As a result of all of the above, net income increased 47% to $6.0 million
during the six month period ended June 30, 1998 compared to $4.1 million for
the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's business is not capital-intensive. Working capital requirements
for the Company have historically been provided almost exclusively by
operating cash flow. Management believes that the Company's existing
capital, together with operating cash flow, will provide the Company with
sufficient resources to meet its present and foreseeable future cash needs.
<PAGE> 12
In December, 1997, the Company received approximately $34.5 million in net
proceeds from its initial public offering of common stock that will be used
for general corporate purposes, including potential strategic alliances and
acquisitions. As of June 30, 1998, the Company has continued to invest the
net proceeds from the offering in short-term, investment-grade,
interest-bearing securities. On July 2, 1998, the Company announced that it
had entered into a definitive agreement to acquire substantially all of the
assets and operations of Schroder Mortgage Associates LP, a specialty asset
manager providing mortgage products and servicing to institutional buyers of
commercial mortgages and mortgage-backed securities. This transaction has an
initial cash purchase payment of approximately $21.0 million and is expected
to close during the third quarter of 1998. An additional $3.0 million may be
paid contingent upon achieving certain financial objectives.
The Company generated approximately $16.5 million in cash flow from
operations during the six months ended June 30, 1998. The Company uses its
cash flow for existing operations, working capital, to pay dividends to
shareholders, and for general corporate purposes. The Company invests excess
cash in deposits with major financial institutions and short-term securities.
The Company had no outstanding debt as of June 30, 1998 or December 31, 1997.
On July 28, 1998, pursuant to the Board of Directors' authorization, the
Company purchased 318,188 shares of common stock held by Maurice W. Slayton,
a director and President of the Company, for total consideration of
$6,397,488 based upon the average closing price per share of the Company's
common stock for the five trading days preceding the date of purchase. The
Company believed this transaction represented an opportunity to obtain
treasury stock on attractive terms and intends to use the shares for
acquisitions, employee stock plans and other related corporate purposes.
Mr. Slayton continues to have a significant financial interest in the Company.
Mr. Slayton will continue to be a member of the Board of Directors and will
remain in his capacity as President of the Company for the foreseeable future.
However, over the past several months, other members of the senior management
team have assumed responsibility for the day-to-day operations of the Company's
various lines of business as part of Mr. Slayton's transition toward retirement.
The Company's subsidiary, Conning & Company, is subject to the net capital
requirement imposed on registered broker-dealers under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). At June 30, 1998,
Conning & Company had net capital of approximately $10.2 million, which was
approximately $9.5 million in excess of the regulatory minimum.
The Company has a revolving subordinated loan agreement with a commercial
bank for $2.0 million that, when utilized, qualifies as capital for purposes
of the Exchange Act's net capital rules. The agreement expires on July 7,
1998. The Company did not utilize the revolving agreement during the six
months ended June 30, 1998.
The Company or a subsidiary acts as a general partner of certain private
equity funds and maintains a 1% general partner's capital interest in such
funds. The Company may also invest as a limited partner in future funds it
may organize. Interests in such private equity funds are generally illiquid.
IMPACT OF INFLATION
- -------------------
The Company does not believe that inflation has had a significant impact on
the Company's consolidated operations.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
- ---------------------------------------------------------
Certain statements contained in this filing are or may constitute
forward-looking statements, including, without limitation, statements relating
to the Company's financial position, plans to increase revenues, competitive
strengths, business objectives or strategies, insurance industry trends and
expectations regarding GenAmerica's assets or activities. Because such
statements are subject to risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements
or from historical results. The Company's business entails a variety of
additional risks, which are set forth in documents the Company has filed or
will file from time to time with the SEC. Investors are cautioned not to
place undue reliance on such statements, which speak only as of the date
hereof. The Company undertakes no obligation to release publicly any
revisions which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On November 14, 1994, the Insurance Commissioner of the Commonwealth of
Pennsylvania, in its capacity as statutory liquidator of Rockwood Insurance
Company ("Rockwood"), initiated an action in the Commonwealth Court of
Pennsylvania against Conning & Company and certain of the officers of Conning
& Company styled Maleski v. Conning & Company, et al., No. 94-7507
(subsequently amended to Linda S. Kaiser v. Conning). The action arises out
of the Commissioner's previous retention of Conning & Company as placement
agent for the sale of one of Rockwood's subsidiaries. The complaint alleges
breach of fiduciary duty, breach of contract, professional negligence, bad
faith and conspiracy, and seeks compensatory damages for approximately $6.5
million and unspecified punitive damages, costs and interest. During the
second quarter, Conning & Company concluded an immaterial settlement
agreement and mutual release with Rockwood that released Conning & Company
and the officers named in the suit from any and all action pertaining to the
Rockwood matter.
On July 8, 1997, a consolidated amended class-action complaint was
filed against SS&C Technologies, Inc. ("SS&C") in the United States District
Court, District of Connecticut, styled Marc A. Feiner, M.D., et al. v. SS&C
Technologies, Inc., et al. (Civil Action No. 397CV00656(JBA) consolidated
with Civil Action No. 397CV01077). The complaint names SS&C, the directors of
SS&C at the time of SS&C's initial public offering (including John B.
Clinton, an officer of Conning & Company), and lead underwriters Alex. Brown
& Sons Incorporated and Hambrecht & Quist as defendants. The complaint
alleges, among other things, that there were material misstatements in the
prospectus used by SS&C in an initial public offering in May 1996 and seeks,
among other things, rescission and/or money damages, equitable relief and
costs and expenses. Conning & Company, a subsidiary of the Company, was a
participant of the underwriting syndicate in connection with SS&C's initial
public offering, and thus may share, to the extent of its participation in
the initial public offering, in any potential liability of the lead
underwriters. General American Life Insurance Company (a GenAmerica
subsidiary) and a private equity fund of which a Conning & Company affiliate
was a general partner were selling shareholders in SS&C's initial public
offering, and the lead underwriters have demanded of the selling shareholders
indemnity against any losses, claims, damages or liabilities arising out of
the action and reimbursement for legal or other expenses incurred in
connection with investigating or defending the action. Although the matter
is subject to uncertainty because, among other things, the action is in the
preliminary stages, the Company believes that the probable outcome of the
pending action should not have a material adverse effect upon the Company.
<PAGE> 14
ITEM 5. OTHER INFORMATION.
Securities Exchange Act Rule 14a-8 permits shareholders to submit
proposals to be included in the Company's proxy statement for the annual
meeting of the shareholders. The Company must consider including a proposal
in the proxy statement if the Company receives notice of the proposal at
least 120 days prior to the corresponding date of the Company's proxy
statement for the previous year's annual meeting. Shareholder proposals
submitted outside the processes of Rule 14a-8 must be submitted to the
Company by February 22, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits.
(b) No reports on Form 8-K were filed during the six months
ended June 30, 1998, however, the Company filed a
Form 8-K on July 7, 1998, relating to the definitive
agreement to acquire substantially all of the assets and
operations of Schroder Mortgage Associates, LP.
<PAGE> 15
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.
CONNING CORPORATION
By: /s/ Leonard M. Rubenstein
-------------------------
Leonard M. Rubenstein
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Fred M. Schpero
-------------------
Fred M. Schpero
Senior Vice President and Chief
Financial Officer
<PAGE> 16
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <S>
3.1 Restated Articles of Incorporation of the Company, as amended,
incorporated by reference to Exhibit 3.1 to Form 10-K (File No.
0-023183) for the fiscal year ended December 31, 1997 filed March
23, 1998
3.2 Bylaws of the Company incorporated by reference to Exhibit 3.3 to
Registration Statement on Form S-1 (No. 333-35993) filed
September 19, 1997
27.1 Financial Data Schedule
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements of the registrant and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 74,145,064
<SECURITIES> 525,580
<RECEIVABLES> 8,896,701
<ALLOWANCES> 165,063
<INVENTORY> 0
<CURRENT-ASSETS> 83,932,768
<PP&E> 2,535,832
<DEPRECIATION> 1,126,694
<TOTAL-ASSETS> 111,139,329
<CURRENT-LIABILITIES> 28,792,597
<BONDS> 0
<COMMON> 132,550
0
0
<OTHER-SE> 78,568,368
<TOTAL-LIABILITY-AND-EQUITY> 111,139,329
<SALES> 38,541,087
<TOTAL-REVENUES> 40,238,320
<CGS> 28,171,580
<TOTAL-COSTS> 29,587,275
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130,391
<INCOME-PRETAX> 10,520,654
<INCOME-TAX> 4,492,008
<INCOME-CONTINUING> 6,028,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,028,646
<EPS-PRIMARY> .45
<EPS-DILUTED> .42
</TABLE>
