SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
----------------------------------------------
For Quarter Ended:
June 30, 2001 Commission File Number: 1-9137
ATALANTA/SOSNOFF CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3339071
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(State or other jurisdiction (I.R.S. Employer I.D. No.)
of incorporation or organization)
101 PARK AVENUE, NEW YORK, NEW YORK 10178
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(Address of principal executive offices) (zip code)
(212) 867-5000
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(Registrant's Telephone Number, including area code)
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(Former name, former address and former fiscal year if changed since last
report)
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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such following
requirements for the past 90 days.
Yes X No
As of August 10, 2001 there were 8,910,307 shares of common stock outstanding.
ATALANTA/SOSNOFF CAPITAL CORPORATION
INDEX
Part I - Financial Information PAGE NO.
--------
Item 1 - Financial Statements
Condensed Consolidated Statements
of Financial Condition - June 30, 2001
and December 31, 2000 3
Condensed Consolidated Statements
of Operations and Comprehensive Income (Loss) -
Three Months Ended June 30, 2001 and 2000 4
Condensed Consolidated Statements
Of operations and Comprehensive Income (Loss) -
Six Months Ended June 30, 2001 and
2000 5
Condensed Consolidated Statement
of Changes in Shareholders' Equity -
Six Months Ended June 30, 2001 6
Condensed Consolidated Statements of
Cash Flows - Six Months Ended
June 30, 2001 and 2000 7
Notes to Condensed Consolidated 8-10
Financial Statements
Special Note Regarding Forward-Looking Statements 11
Item 2 - Management's Discussion and Analysis
of Results of Operations and Financial
Condition 12-16
Part II - Other Information
Items 1-6 17
Signatures 18
Exhibit 11 - Computation of Earnings (Loss) Per Share 19
2
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
ASSETS JUNE 30, 2001 DECEMBER 31, 2000
------ ------------- -----------------
Assets:
Cash and cash equivalents $ 601,677 $ 3,488,606
Accounts receivable 5,464,424 6,270,846
Due from brokers 2,478,080 3,086,636
Investments, at market 73,172,773 83,597,861
Investments in limited partnerships 25,294,220 25,295,627
Fixed assets, net 1,457,016 1,694,353
Exchange memberships, at cost 402,000 402,000
Other assets 3,208,018 3,078,246
------------- -------------
Total assets $ 112,078,208 $ 126,914,175
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Income taxes payable $ 5,625,758 $ 10,623,550
Securities sold not yet purchased, at market value ---- 866,469
Accounts payable and other liabilities 1,261,091 674,335
Accrued compensation payable 216,637 5,415,419
Dividends payable ---- 2,268,781
------------- -------------
Total liabilities 7,103,486 19,848,554
------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $1.00 per share;
5,000,000 shares authorized; none issued - -
Common stock, $.01 par value; 30,000,000
shares authorized, 9,075,127
shares issued 90,751 90,751
Additional paid-in capital 19,360,259 19,360,259
Retained earnings 85,143,009 85,210,852
Accumulated other comprehensive income -
unrealized gains from investments,
net of deferred income tax 2,721,327 4,777,820
Unearned compensation (562,595) (1,687,799)
Treasury stock, at cost, 164,820 and 69,900
shares, respectively (1,778,029) (686,262)
------------- -------------
Total shareholders' equity 104,974,722 107,065,621
------------- -------------
Total liabilities and shareholders' equity $ 112,078,208 $ 126,914,175
============= =============
Book value per common share $ 11.78 $ 11.89
============= =============
See Notes to Condensed Consolidated Financial Statements
3
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------------
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
Revenues:
Advisory fees $ 3,464,281 $ 4,503,961
Commissions and other operating revenues 416,050 598,595
Realized and unrealized gains (losses) from principal
securities transactions, net 2,924,659 341,848
Interest and dividend income, net 133,417 219,443
----------- -----------
Total revenues 6,938,407 5,663,847
----------- -----------
Costs and expenses:
Employees' compensation 3,014,270 3,773,205
Clearing and execution costs 189,970 326,476
Selling expenses 151,578 181,717
General and administrative expenses 798,768 675,675
----------- -----------
Total costs and expenses 4,154,586 4,957,073
----------- -----------
Income before provision for
income taxes 2,783,821 706,774
Provision for income taxes 1,230,000 310,000
----------- -----------
Net income $ 1,553,821 $ 396,774
=========== ===========
Earnings per common share - basic $ 0.17 $ 0.04
=========== ===========
Earnings per common share - diluted $ 0.17 $ 0.04
=========== ===========
Net income, as presented above $ 1,553,821 $ 396,774
Other comprehensive income (loss):
Net unrealized gains (losses) from investments,
net of deferred income tax (credit) 2,738,747 (3,392,529)
----------- -----------
Comprehensive income (loss) $ 4,292,568 $(2,995,755)
=========== ===========
See Notes to Condensed Consolidated Financial Statements
4
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
SIX MONTHS ENDED
------------------------------------
JUNE 30, 2001 JUNE 30, 2000
------------ -------------
Revenues:
Advisory fees $ 7,072,598 $ 10,032,226
Commissions and other operating revenues 976,529 1,139,803
Realized and unrealized gains (losses) from principal
securities transactions, net (330,613) 11,619,178
Interest and dividend income, net 368,010 430,719
------------ ------------
Total revenues 8,086,524 23,221,926
------------ ------------
Costs and expenses:
Employees' compensation 5,844,732 7,187,755
Clearing and execution costs 428,969 673,390
Selling expenses 279,865 344,831
General and administrative expenses 1,717,801 1,491,548
------------ ------------
Total costs and expenses 8,271,367 9,697,524
------------ ------------
Income (loss) before provision for
income taxes (credit) (184,843) 13,524,402
Provision for income taxes (credit) (117,000) 5,721,000
------------ ------------
Net income (loss) $ (67,843) $ 7,803,402
============ ============
Earnings (loss) per common share - basic $ (0.01) $ 0.86
============ ============
Earnings per common share - diluted N/A $ 0.86
============ ============
Net income (loss), as presented above $ (67,843) $ 7,803,402
Other comprehensive income (loss):
Net unrealized gains (losses) from investments,
net of deferred income tax (credit) (2,056,493) (7,996,185)
------------ ------------
Comprehensive income (loss) $ (2,124,336) $ (192,783)
============ ============
See Notes to Condensed Consolidated Financial Statements
5
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2001
(UNAUDITED)
Accumulated other
compre-hensive
income -
Additional unrealized gains
Common Paid-In Retained from Unearned Treasury
Stock Capital Earnings investments, net Compensation Stock Total
----- ------- -------- ---------------- ------------ ----- -----
Balance -
December 31, 2000 $90,751 $19,360,259 $85,210,852 $4,777,820 ($1,687,799) ($686,262) $107,065,621
Purchase of treasury stock (1,091,767) (1,091,767)
Amortization of unearned
compensation 1,125,204 1,125,204
Net unrealized losses from
investments, net of
deferred income tax credit
(2,056,493) (2,056,493)
Net income (loss) -- -- (67,843) -- -- -- (67,843)
------- ----------- ----------- ---------- --------- ---------- ---------------
Balance -
June 30, 2001 $90,751 $19,360,259 $85,143,009 $2,721,327 $(562,595) $(1,778,029) $(104,974,722)
======= =========== =========== =========== ========= =========== =============
See Notes to Condensed Consolidated Financial Statements
6
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
2001 2000
------------- -------------
Cash flows from operating activities:
Net income (loss) $ (67,843) $ 7,803,403
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 260,681 214,875
Amortization of unearned compensation 1,125,204 1,125,204
Realized and unrealized (gains) losses from
principal securities transactions, net 330,613 (11,619,178)
Increase (decrease) from changes in:
Accounts receivable 806,422 (400,570)
Other assets (129,772) (125,033)
Income taxes payable (3,626,796) (3,019,550)
Accounts payable and other liabilities 586,756 436,783
Accrued compensation payable (5,198,782) (2,879,236)
------------- -------------
Net cash used in operating activities (5,913,517) (8,463,302)
------------- -------------
Cash flows from investing activities:
Due from (to) brokers 608,556 3,056,152
Purchases of fixed assets (23,344) (355,952)
Purchases of investments (120,777,592) (132,789,628)
Proceeds from sales of investments 126,579,516 135,472,512
------------- -------------
Net cash provided by investing activities 6,387,136 5,383,084
------------- -------------
Cash flows from financing activities:
Dividends paid (2,268,781) --
Purchases of treasury stock (1,091,767) (103,227)
------------- -------------
Net cash used in financing activities (3,360,548) (103,227)
------------- -------------
Net increase (decrease) in cash and cash equivalents (2,886,929) (3,183,445)
Cash and cash equivalents, beginning of period 3,488,606 4,387,987
------------- -------------
Cash and cash equivalents, end of period $ 601,677 $ 1,204,542
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 168,820 $ 69,045
============= =============
Income taxes $ 3,509,796 $ 8,740,550
============= =============
See Notes to Condensed Consolidated Financial Statements
7
ATALANTA/SOSNOFF CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Unaudited Information
The accompanying condensed consolidated financial statements include the
accounts of Atalanta/Sosnoff Capital Corporation (the "Holding Company") and its
direct and indirect wholly owned subsidiaries, Atalanta/Sosnoff Capital
Corporation (Delaware) ("Capital"), Atalanta/Sosnoff Management Corporation
("Management"), and ASCC Corporation ("ASCC").
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring accruals) necessary to present fairly the Company's financial position
as of June 30, 2001, and the results of its operations and cash flows for the
three and six months ended June 30, 2001 and 2000. Certain information normally
included in the financial statements and related notes prepared in accordance
with generally accepted accounting principles has been condensed or omitted.
These condensed consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements and notes thereto appearing
in the Company's December 31, 2000 Annual Report on Form 10-K. Information
included in the condensed consolidated balance sheet as of December 31, 2000 has
been derived from the audited consolidated financial statements appearing in the
Company's Annual Report on Form 10-K.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 141 ("SFAS No. 141") "Business Combinations," which is
effective for periods beginning after June 30, 2001 and Statement of Financial
Accounting Standards No. 142 ("SFAS No. 142") "Goodwill and Other Intangible
Assets," which is effective for fiscal years beginning after December 15, 2001.
Management does not believe that the impact of the adoption of SFAS No. 141 and
SFAS No. 142 on the Company's financial position or results of operations to be
material.
Note 2: Investments, at Market
The Company records its investments in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, with the exception
of investments held by Management. The Company has designated certain
investments held by the Holding Company, Capital and ASCC in equity and debt
securities as "available for sale" and, accordingly, recorded these investments
at market value with the related unrealized gains and losses net of deferred
taxes reported as a separate component of shareholders' equity. ASCC holds
certain equity and debt securities as "trading" securities which are recorded at
market value, with the related unrealized gains and losses reflected in the
consolidated statements of operations and comprehensive income (loss).
Investments held by Management are recorded at market value, with the related
unrealized gains and losses reflected in the consolidated statements of
operations and comprehensive income (loss).
Investments are recorded on trade date. The cost of investments sold is
determined on the first-in, first-out method. Securities listed on a securities
exchange for which market quotations are available are valued at the last quoted
sales price as of the last business day of the period. Investments in mutual
funds are valued based upon the net asset value of shares held as reported by
the fund. Securities with no reported sales on such date are valued at their
last closing bid price. Dividends and interest are accrued as earned.
8
Notes to Condensed Consolidated Financial Statements (cont'd)
Note 2: Investments, at Market - cont'd
Capital serves as a general partner for three Company-sponsored investment
partnerships (the "Partnerships") and as the investment manager for a
Company-sponsored offshore investment fund (the "Offshore Fund"). Investments in
limited partnerships are carried in the accompanying condensed consolidated
financial statements at the Company's share of the net asset values as reported
by the respective Partnerships with the unrealized gain or loss recorded in the
consolidated statements of operations and comprehensive income (loss).
Note 3: Non-Cash Compensation Charges ("NCCC") Under 1996 Long Term Incentive
Plan ("LTIP")
In September 1997, the Company awarded 775,000 shares of restricted stock at the
issue price of $.01 per share to two senior executives of the Company under the
terms of the LTIP. Such awards vest over the four year period ending September
30, 2001. The difference of $9.0 million between market value ($11.625 per
share) on the date of grant and the purchase price is recorded as unearned
compensation in shareholders' equity and is being amortized over a four-year
period which commenced with the fourth quarter of 1997 (approximately $563,000
per quarter and $2.25 million annually). Accordingly, NCCC of approximately
$563,000 and $1,126,000 were charged to operations in both the three and six
months ended June 30, 2001 and 2000, respectively.
Note 4: Senior Vice President Accounts
Certain high net worth accounts subject to the over-all supervision and control
of the Company are under the management of a Senior Vice President (the "SVP
Accounts"). Effective October 1, 1998, the Company entered into a facilities
agreement with the SVP for the period ended December 31, 2000 under which the
SVP relinquished the right to receive revenues generated by the investment
management and brokerage services provided to the SVP Accounts to the Company.
Pursuant to this Agreement, the Company has made payments to the SVP in three
installments in January of 1999, 2000 and 2001 based upon a multiple of
annualized revenues of the SVP Accounts in the fourth quarter of 1998, 1999 and
2000, respectively. Based upon the SVP Accounts asset value over the period, the
Company recognized approximately $2.9 million as compensation expense ratably
over the term of the arrangement. In addition, Management and the SVP agreed to
change the split of Net Profits paid to the SVP from 100% during the twelve
month period ended September 30, 1998 to 50% for the twelve month period ended
September 30, 1999, 25% for the twelve month period ended September 30, 2000,
and 0% thereafter. The SVP has remained an employee of the Company.
Note 5: Compensation Expense
Effective January 1, 1993, the Company adopted the Management Incentive Plan
(the "MIP") for certain senior executives. Under one component of the MIP, each
participant is entitled to receive their assigned share of the annual reward
pool, which is computed based on operating income performance goals, as defined
in the MIP. There was no MIP operating bonus earned and accrued in the three and
six months ended June 30, 2001 and 2000, respectively.
9
Notes to Condensed Consolidated Financial Statements (cont'd)
Note 5: Compensation Expense - cont'd
Pursuant to another component of the MIP, the President of the Company earns a
bonus based upon the pretax operating profits earned by the Company as general
partner of the hedge fund managed by the President, and an annual bonus based
upon the pretax earnings of the Company's investment in the hedge fund managed
by the President in excess of a base indexed return, subject to a ceiling of 10%
of total pretax income. Compensation expense related to these bonuses was
$656,000 and $956,000 for the three and six months ended June 30, 2000, compared
with none for the three and six months ended June 30, 2001.
In addition, under a separate component of the MIP, an annual bonus is earned by
the Chief Executive Officer (CEO) based upon the pretax earnings of certain
managed assets of the Company in excess of a base indexed return, as defined,
subject to a ceiling of 10% of total pretax income. Included in compensation
expense related to the MIP are accrued bonuses to the CEO totaling $100,000 for
the six months ended June 30, 2000, compared with none for the three and six
months ended June 30, 2001.
Note 6: Treasury Stock
In May 2001, the Company purchased 94,920 shares of its common stock at an
average market price of $11.50 per share.
Note 7: Earnings (Loss) Per Share
Basic earnings (loss) per share amounts were computed based on 8,957,888 and
9,063,627 weighted average common shares outstanding in the second quarters of
2001 and 2000, respectively. Diluted earnings per share amounts were computed
based on 8,984,650 and 9,076,952 weighted average common shares outstanding in
the three months ended June 30, 2001 and 2000, respectively. Basic earnings
(loss) per share amounts were computed based on 8,981,557 and 9,064,948 weighted
average common shares in the first six months of 2001 and 2000, respectively.
Diluted earnings per share amounts were computed based on 9,075,704 weighted
average common shares outstanding in the six months ended June 30, 2000. Because
the Company reported a loss for the first six months of 2001, the effect of
stock options is antidilutive in determining dilutive earnings per share.
See Exhibit 11 for further details on the computation of earnings per common
share.
10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q under the caption
"Management's Discussion and Analysis of Results of Operations and Financial
Condition", and elsewhere in this Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include among others, the following: general economic and business
conditions; the loss of, or the failure to replace, any significant clients;
changes in the relative investment performance of client or firm accounts and
changes in the financial marketplace, particularly in the securities markets.
These forward-looking statements speak only as of the date of this Quarterly
Report. The Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
11
Part I. Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
I. General
Assets totaled $112.1 million at June 30, 2001, compared with $126.9
million at December 31, 2000, and book value per common share totaled
$11.78 at June 30, 2001, compared with $11.89 at December 31, 2000.
Cash and cash equivalents totaled $602,000 at June 30, 2001, compared
with $3.5 million at December 31, 2000. Net investments (at market)
totaled $73.2 million at June 30, 2001, compared with $82.7 million at
the end of 2000. Unrealized gains on investments, net of deferred tax,
totaled $2.7 million at June 30, 2001, compared with $4.8 million at
December 31, 2000.
Assets under management at June 30, 2001 totaled $2.37 billion, or 8%
less than at June 30, 2000 and 1% more than at March 31, 2001. Negative
performance results of $73 million combined with net client withdrawals
of $138 million over the twelve months ended June 30, 2001 account for
the decrease.
The Company had net income of $1.6 million ($.17 per common share
diluted) for the three months ended June 30, 2001, compared with net
income of $397,000 ($.04 per common share diluted) for the same period
in 2000. The Company had a net loss of $68,000 (($0.01) per common
share) for the six months ended June 30, 2001, compared with net income
of $7.8 million ($.86 per common share diluted) for the first six
months of 2000.
After eliminating non-operating charges, pretax operating income
totaled $288,000 in the second quarter of 2001, compared with $1.3
million in the second quarter of 2000, and $903,000 for the six months
ended June 30, 2001, compared with $3.7 million for the six months
ended June 30, 2000.
II. Assets Under Management
Assets under management totaled $2.37 billion at June 30, 2001,
compared with $2.35 billion at March 31, 2001, and $2.58 billion on
June 30, 2000. Average assets under management decreased 7% to $2.40
billion in the second quarter of 2001, compared with $2.58 billion in
the comparable period a year ago. Average managed assets for the second
quarter of 2001 decreased 7% compared with the first quarter of 2001.
During the first six months of 2001, new accounts of $115 million,
offset by net withdrawals out of client accounts of $245 million and
negative performance of $210 million, accounted for the decrease in
managed assets.
In the twelve months ended June 30, 2001, new accounts of $211 million,
offset by net withdrawals out of client accounts of $349 million and
negative performance of $73 million, accounted for the decrease in
managed assets.
12
III. Results of Operations
Quarterly Comparison
Total revenues for the second quarter of 2001 increased 23% to $6.9
million, from $5.7 million in the second quarter of 2000. Revenue from
advisory fees and commissions ("operating revenue") decreased to $3.9
million in the second quarter of 2001, as compared with $5.1 million in
the second quarter of 2000.
Expenses for the second quarter of 2001 decreased 16% to $4.2 million,
from $5.0 million in the second quarter of 2000.
The following table depicts variances in significant income statement
items for the three months ended June 30, 2001 compared with the same
period in 2000. Explanations of the variances follow the table.
(000's)
3 Months Ended June 30,
------------------------- Percentage
2001 2000 Change
---- ---- ----------
A. Advisory fees $3,464 $4,504 (23%)
B. Realized and unrealized gains
from principal securities
transactions, net 2,925 342 755%
C. Employees' compensation 3,014 3,773 (20%)
D. Non-compensation expenses 1,141 1,184 (4%)
o The 23% decrease in advisory fees is primarily due to the difficult
market conditions in 2001 and the decrease in assets under management
as discussed above. Additionally, the Company experienced a decrease in
incentive fees earned from a Company sponsored investment partnership;
from approximately $347,000 earned in the second quarter of 2000,
compared with none in the second quarter of 2001.
o The Company recorded a net realized and unrealized gain of $2.9 million
from investment transactions in the second quarter of 2001, compared
with a net realized and unrealized gain of $342,000 for the second
quarter of 2000. The net realized and unrealized gains from principal
securities transactions were $979,000 and $1.9 million, respectively,
for the second quarter of 2001, as compared to net realized gains and
unrealized losses of $1.6 million and $1.2 million, respectively, for
the second quarter of 2000.
o The decrease of 20% in employees' compensation is primarily due to the
aforementioned decrease in advisory fees and the resulting decrease in
accrued bonus compensation, including bonuses related to the Company's
Management Incentive Plan. Also, payments of $375,000 to a senior
officer under a revised facilities agreement involving certain managed
accounts are included in the second quarter of 2000, compared with none
in the second quarter of 2001. Non-cash compensation charges of
$563,000 are included in both the second quarters of 2001 and 2000.
13
o Non-compensation expenses decreased 4% for the three months ended June
30, 2001 as compared to the 2000 comparable quarter. The decrease was
primarily related to a decrease in clearing and execution costs and in
selling expenses partially offset by a moderate increase in general and
administrative expenses.
Year-to-Date Comparison
Total revenues for the first six months of 2001 decreased to $8.1
million, as compared with $23.2 million in the first six months of
2000. Operating revenue decreased to $8.0 million in the first six
months of 2001, as compared with $11.2 million in the first six months
of 2000.
Expenses for the first six months of 2001 decreased 15% to $8.3
million, from $9.7 million in the first six months of 2000.
The following table depicts variances in significant income statement
items for the six months ended June 30, 2001 compared with the same
period in 2000. Explanations of the variances follow the table.
(000's)
6 Months Ended June 30,
----------------------- Percentage
2001 2000 Change
---- ---- ----------
A. Advisory fees $7,073 $10,032 (30%)
B. Realized and unrealized gains
(losses) from principal securities
transactions, net (331) 11,619 N/A
C. Employees' compensation 5,845 7,188 (19%)
D. Non-compensation expenses 2,427 2,510 (3%)
o The 30% decrease in advisory fees is primarily due to the difficult
market conditions in 2001 and the decrease in assets under management
as discussed above. Additionally, the Company experienced a decrease in
incentive fees earned from a Company sponsored investment partnership;
from approximately $1.5 million earned in the first half of 2000,
compared with none in 2001.
o Difficult market conditions contributed to the Company recording a net
realized and unrealized loss from investment transactions in the first
half of 2001, compared with a net realized and unrealized gain for the
first half of 2000. Total net investment income was $68,000 for the
first six months of 2001, compared with net investment income of $12.0
million recorded in the first six months of 2000. The net realized
gains and unrealized losses from principal securities transactions were
$1.4 million and $1.8 million, respectively, for the first six months
of 2001, as compared to net realized and unrealized gains of $9.6
million and $2.0 million, respectively, for the first six months of
2000.
14
o The decrease of 19% in employees' compensation is primarily due to a
decrease in accrued bonus compensation as a result of the decline in
operating revenues, including bonuses related to the Company's
Management Incentive Plan. Also, payments of $750,000 to a senior
officer under a revised facilities agreement involving certain managed
accounts are included in the first six months of 2000, compared with
none in the first six months of 2001. Non-cash compensation charges of
$1,126,000 are included in the first six months of 2001 and 2000,
respectively.
o Non-compensation expenses decreased 3% for the six months ended June
30, 2001 as compared to the 2000 comparable period. The decrease was
primarily related to a decrease in clearing and execution costs and in
selling expenses partially offset by a moderate increase in general and
administrative expenses.
IV. Liquidity and Capital Resources
Investments, net, which includes corporate and convertible debt, U.S.
government agency debt instruments, marketable equity securities and
the Atalanta/Sosnoff Mutual Funds, aggregated $73.2 million at June 30,
2001, compared with $82.7 million at the end of 2000. Shareholders'
equity decreased to $105.0 million at June 30, 2001, from $107.1
million at the end of 2000, primarily from unrealized losses (net of
deferred tax credit) of $2.1 million in the investment portfolio. The
Company had a net unrealized gain on investments of $2.7 million in
shareholders' equity at June 30, 2001, compared with $4.8 million at
December 31, 2000.
At June 30, 2001, the Company's net investment portfolio at market
totaled $99.1 million (cost basis $78.8 million), compared with $111.5
million (cost $86.0 million) at the end of 2000, which was comprised of
cash and cash equivalents, net investments described above and
investments in limited partnerships. At June 30, 2001, the Company was
invested primarily in 17 separate large-cap equity securities, in a
more concentrated fashion of what it does for its managed client
accounts. The largest security position was in Microsoft, which
represented 8% of the Company's investment portfolio as of June 30,
2001.
If the equity market (defined as the S&P 500 index) were to decline by
10%, the Company might experience unrealized losses of approximately
$10 million; if the market were to decline by 20%, the Company might
experience unrealized losses of $20 million. However, incurring
unrealized losses of this magnitude is unlikely with active management
of the portfolio. Since the positions are primarily large-cap equity
holdings, they can be sold easily on short notice with little market
impact. Ultimately, the Company will raise and hold cash to reduce
market risk.
At June 30, 2001, the Company had cash and cash equivalents of
$602,000, compared with $3.5 million at the end of 2000. Operating
activities generated net cash outflows of $5.9 million in the six
months ended June 30, 2001, compared with $8.5 million of outflows in
the same period in 2000, reflecting the changing levels of operating
assets and liabilities and net income (loss) over those periods. Net
cash provided by investing activities totaled $6.4 million in the first
six months of 2001, compared with $5.4 million in the comparable 2000
period. The increase in 2001 and 2000
15
was primarily the result of net proceeds from investment transactions.
Net cash outflows from financing activities was $3.4 million in the
first six months of 2001 compared to $103,000 of cash outflows in the
comparable 2000 period. The cash outflow in 2001 was the result of
purchasing treasury stock and paying dividends accrued at December 31,
2000, and the outflow in 2000 is a result of purchasing treasury stock.
In January and February 2000, the Company purchased 6,500 and 5,000
shares of its common stock, respectively, at an average market price of
$8.98 per share. In August and September 2000, the Company purchased
19,000 and 39,400 shares of its common stock, respectively, at an
average market price of $9.98 per share. In May 2001, the Company
purchased 94,920 shares of its common stock at an average market price
of $11.50 per share.
At June 30, 2001, there were no liabilities for borrowed money.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 141 ("SFAS No. 141") "Business
Combinations," which is effective for periods beginning after June 30,
2001 and Statement of Financial Accounting Standards No. 142 ("SFAS No.
142") "Goodwill and Other Intangible Assets," which is effective for
fiscal years beginning after December 15, 2001. Management does not
believe that the impact of the adoption of SFAS No. 141 and SFAS No.
142 on the Company's financial position or results of operations to be
material.
16
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Default upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit
Number Description Page
------ ----------- ----
2 None.
4 None.
11 Computation of Earnings per Share. 19
15 None.
18 None.
19 None.
20 None.
23 None.
24 None.
25 None.
28 None.
Reports on Form 8-K: None.
17
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.
Atalanta/Sosnoff Capital Corporation
Date: August 10, 2001 /s/ Martin T. Sosnoff
----------------------------------
Martin T. Sosnoff
Chairman of the Board and Chief Executive Officer
Date: August 10, 2001 /s/ Anthony G. Miller
-----------------------------------
Anthony G. Miller
Executive Vice President, Chief Operating Officer
Date: August 10, 2001 /s/ Kevin S. Kelly
----------------------------------
Kevin S. Kelly
Senior Vice President, Chief Financial Officer
18