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, 2000 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
- -------------------------------- -------------------------------
(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, 2000 there were 9,044,627 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, 2000
and December 31, 1999 3
Condensed Consolidated Statements
of Income and Comprehensive Income (Loss)-
Three Months Ended June 30, 2000 and 1999 4
Condensed Consolidated Statements
of Income and Comprehensive Income (Loss)-
Six Months Ended June 30, 2000 and 1999 5
Condensed Consolidated Statements
of Changes in Shareholders' Equity -
Six Months Ended June 30, 2000 6
Condensed Consolidated Statements of
Cash Flows - Six Months Ended
June 30, 2000 and 1999 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 Index 19
Exhibit 11 - Computation of Earnings Per Share 20
Exhibit 27 - Financial Data Schedule 21
2
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
ASSETS JUNE 30, 2000 DECEMBER 31, 1999
- ------ ------------- -----------------
Assets:
Cash and cash equivalents $ 1,204,542 $ 4,387,987
Accounts receivable 4,714,827 4,314,257
Due from broker 1,609,893 -
Investments, at market 86,658,810 93,637,682
Investments in limited partnerships 21,293,702 17,447,746
Fixed assets, net 1,570,645 1,429,569
Exchange memberships, at cost 402,000 402,000
Other assets 2,129,258 2,004,225
------------ ------------
Total assets $119,583,677 $123,623,466
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and other liabilities $ 1,425,298 $ 988,348
Accrued compensation payable 1,933,545 4,812,781
Due to broker 4,666,049 -
Securities sold, not yet purchased 1,257,557 -
Income taxes payable 7,696,396 16,046,699
------------ ------------
Total liabilities 16,978,845 21,847,828
------------ ------------
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 and outstanding 90,751 90,751
Additional paid-in capital 19,455,259 19,455,259
Retained earnings 83,780,195 75,976,793
Accumulated other comprehensive income -
unrealized gains from investments,
net of deferred tax liabilities 2,194,857 10,191,042
Unearned compensation (2,813,003) (3,938,207)
Treasury stock, at cost, 11,500 shares (103,227) -
------------ ------------
Total shareholders' equity 102,604,832 101,775,638
------------ ------------
Total liabilities and shareholders' equity $119,583,677 $123,623,466
============ ============
Book value per common share $ 11.32 $ 11.21
============ ============
See Notes to Condensed Consolidated Financial Statements
3
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED
--------------------------------------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
Revenues:
Advisory fees $ 4,503,961 $ 4,032,947
Commissions and other operating revenues 598,595 463,838
Realized and unrealized gains from principal
securities transactions 341,848 8,454,646
Interest and dividend income, net 219,443 259,591
------------ ------------
Total revenues 5,663,847 13,211,022
------------ ------------
Costs and expenses:
Employees' compensation 3,773,205 3,026,638
Clearing and execution costs 326,476 175,023
Selling expenses 181,717 80,715
General and administrative expenses 675,675 786,084
------------ ------------
Total costs and expenses 4,957,073 4,068,460
------------ ------------
Income before provision for income taxes 706,774 9,142,562
Provision for income taxes 310,000 3,957,000
------------ ------------
Net income $ 396,774 $ 5,185,562
============ ============
Earnings per common share - basic $ 0.04 $ 0.56
============ ============
Earnings per common share - diluted $ 0.04 $ 0.56
============ ============
Net income, as presented above $ 396,774 $ 5,185,562
Other comprehensive income (loss):
Net unrealized losses from investments,
net of deferred income tax benefit (3,392,529) (3,615,067)
------------ ------------
Comprehensive income (loss) $ (2,995,755) $ 1,570,495
============ ============
See Notes to Condensed Consolidated Financial Statements
4
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
SIX MONTHS ENDED
----------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
Revenues:
Advisory fees $ 10,032,226 $ 7,856,297
Commissions and other operating revenues 1,139,803 863,475
Realized and unrealized gains from principal
securities transactions 11,619,178 13,001,158
Interest and dividend income, net 430,719 415,150
------------ ------------
Total revenues 23,221,926 22,136,080
------------ ------------
Costs and expenses:
Employees' compensation 7,187,755 5,861,298
Clearing and execution costs 673,390 312,340
Selling expenses 344,831 219,803
General and administrative expenses 1,491,548 1,481,421
------------ ------------
Total costs and expenses 9,697,524 7,874,862
------------ ------------
Income before provision for income taxes 13,524,402 14,261,218
Provision for income taxes 5,721,000 6,179,000
------------ ------------
Net income $ 7,803,402 $ 8,082,218
============ ============
Earnings per common share - basic $ 0.86 $ 0.87
============ ============
Earnings per common share - diluted $ 0.86 $ 0.87
============ ============
Net income, as presented above $ 7,803,402 $ 8,082,218
Other comprehensive income (loss):
Net unrealized losses from investments,
net of deferred income tax benefit (7,996,185) (1,695,802)
------------ ------------
Comprehensive income (loss) $ (192,783) $ 6,386,416
============ ============
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, 2000
(UNAUDITED)
Accumulated other
comprehensive
income -
Additional unrealized
Common Paid-In Retained losses from Unearned Treasury
Stock Capital Earnings investments, net Compensation Stock Total
------ ---------- -------- ----------------- ------------ -------- -----
Balance -
December 31, 1999 $90,751 $19,455,259 $75,976,793 $10,191,042 ($3,938,207) $ - $101,775,638
Purchases of treasury
stock (103,227) (103,227)
Amortization of unearned
compensation
1,125,204 1,125,204
Net unrealized losses
from investments, net of
deferred tax income tax
benefit (7,996,185) (7,996,185)
Net income 7,803,402 7,803,402
------- ----------- ----------- ----------- ------------ --------- ------------
Balance -
June 30, 2000 $90,751 $19,455,259 $83,780,195 $2,194,857 ($2,813,003) ($ 103,227) $102,604,832
======= =========== =========== =========== ============ ========== ============
See Notes to Condensed Consolidated Financial Statements
6
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 7,803,403 $ 8,082,218
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 214,875 112,187
Amortization of unearned compensation 1,125,204 1,125,204
Realized and unrealized gains from
principal securities transactions, net (11,619,178) (13,001,158)
Increase (decrease) from changes in:
Accounts receivable (400,570) 262,084
Other assets (125,033) (538,062)
Accounts payable and other liabilities 436,783 (37,854)
Accrued compensation payable (2,879,236) (147,349)
Income taxes payable (3,019,550) 4,213,933
Separation costs payable - (350,000)
-------------- -------------
Net cash used in operating activities (8,463,302) (278,797)
-------------- -------------
Cash flows from investing activities:
Due from (to) brokers 3,056,152 251,189
Purchases of fixed assets (355,952) (410,395)
Purchases of investments (132,789,628) (66,674,638)
Proceeds from sales of investments 135,472,512 73,567,215
-------------- -------------
Net cash provided by investing activities 5,383,084 6,733,371
-------------- -------------
Cash flows from financing activities:
Purchases of treasury stock (103,227) (2,541,740)
-------------- -------------
Net cash used in financing activities (103,227) (2,541,740)
-------------- -------------
Net increase (decrease) in cash and cash equivalents (3,183,445) 3,912,834
Cash and cash equivalents, beginning of period 4,387,987 3,993,963
-------------- -------------
Cash and cash equivalents, end of period $ 1,204,542 $ 7,906,797
============== =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 69,045 $ 30,109
============== =============
Income taxes $ 8,740,550 $ 1,965,607
============== =============
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, 2000, and the results of its
operations for the three and six months ended June 30, 2000 and 1999. 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, 1999 Annual Report on Form
10-K. Information included in the condensed consolidated balance sheet as of
December 31, 1999 has been derived from the audited consolidated financial
statements appearing in the Company's Annual Report on Form 10-K.
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 those 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. Investments held by
Management are recorded at market value, with the related unrealized gains and
losses reflected in the consolidated statements of income and comprehensive
income (loss).
Investments are recorded on trade date. The cost of investments sold is
determined on the first-in, first-out method. Dividends and interest are accrued
as earned. 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.
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 income and comprehensive income (loss).
8
Notes to Condensed Consolidated Financial Statements (cont'd)
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 under the terms of
the LTIP. Such awards vest over four years. The difference of $9.0 million
between market value ($11.625 per share) on the date of grant and the purchase
price was 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 were charged to operations in both
the second quarter of 2000 and 1999. NCCC of approximately $1.13 million was
charged to operations in the first six months of 2000 and 1999, 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 new facilities
agreement with the SVP for the period ending December 31, 2000 under which the
SVP is relinquishing the revenues generated by the investment management and
brokerage services provided to the SVP Accounts to the Company.
Pursuant to this Agreement, the Company has or will make 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. The Company estimates that the related compensation will
total approximately $3 million, based on the SVP Accounts' current asset value,
and will be recognized ratably as compensation expense over the term of the
arrangement.
Additionally, the SVP's compensation related to the pre-tax operating income
generated by the SVP Accounts has or will decline from 100% in the twelve-month
period ended September 30, 1998, to 50% in the comparable 1999 period, and to
25% in the comparable 2000 period. The SVP is required to remain an employee of
the Company through 2000, and may remain an employee or consultant thereafter.
Pursuant to this Agreement, compensation expense of $375,000 and $750,000 was
recorded in the three and six months ended June 30, 2000 and 1999, respectively.
Note 5: Compensation Expense
Under the Company's Management Incentive Plan ("MIP"), the President of the
Company earns a bonus based upon the pre-tax operating profits earned by the
Company as general partner of the investment partnership managed by the
President, subject to a ceiling of 10% of the Company's total pretax income.
Included in compensation expense related to this bonus were approximately
$413,000 and $74,000 for the three months ended June 30, 2000 and 1999,
respectively, and approximately $713,000 and $86,000 for the six months ended
June 30, 2000 and 1999, respectively.
In addition, under the MIP, an annual bonus is earned by the Chief Executive
Officer (CEO) based upon the pre-tax earnings of certain managed assets of the
Company in excess of a base indexed return, as defined,
9
Notes to Condensed Financial Statements (Cont'd)
subject to a ceiling of 10% of the Company's total pre-tax income. Included in
compensation expense related to the MIP are accrued bonuses to the CEO totaling
$200,000 for the three months ended June 30, 1999, and $100,000 and $200,000 for
the six months ended June 30, 2000 and 1999, respectively.
Note 6: Treasury Stock
In January and February 2000, the Company purchased 6,500 and 5,000 shares,
respectively, of its common stock at an average market price of $8.98 per share.
Note 7: Net Income Per Share
Basic earnings per share amounts were computed based on 9,063,627 and 9,274,159
weighted average common shares outstanding in the second quarters of 2000 and
1999, respectively, and 9,064,948 and 9,306,103 shares for the six months ended
June 30, 2000 and 1999, respectively. For purposes of determining weighted
average common shares outstanding, the Company considers all shares legally
issued and outstanding in determining basic and diluted net income per share.
Diluted earnings per share amounts were computed based on 9,076,952 and
9,282,673 weighted average common shares outstanding in the second quarters of
2000 and 1999, respectively, and 9,075,704 and 9,314,322 shares for the six
months ended June 30, 2000 and 1999, respectively. The shares outstanding have
been adjusted to reflect the impact of in the money options, using the Treasury
Stock method.
See Exhibit 11 for further details on the computation of earnings per common
share.
Note 8: Income Taxes
The Company records income taxes in accordance with the provisions of SFAS No.
109. Accordingly, deferred taxes are provided to reflect temporary differences
between the recognition of income and expense for financial reporting and tax
purposes.
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 $119.6 million at June 30, 2000, compared with $123.6
million at December 31, 1999, and book value per common share totaled
$11.32 at June 30, 2000, compared with $11.21 at December 31, 1999.
Cash and cash equivalents totaled $1.2 million at June 30, 2000,
compared with $4.4 million at December 31, 1999. Investments (at
market) totaled $86.7 million at June 30, 2000, compared with $93.6
million at the end of 1999. Unrealized gains on investments, net of
deferred taxes, totaled $2.2 million at June 30, 2000, compared with
$10.2 million at December 31, 1999.
Assets under management at June 30, 2000 totaled $2.58 billion, 9% more
than a year ago, and approximately 4% less than year-end 1999. The
strong positive performance results of $261 million more than offset
net client withdrawals of $45 million for the twelve months ended June
30, 2000.
Net income totaled $397,000 ($.04 per common share diluted) for the
three months ended June 30, 2000, compared with $5.2 million ($.56 per
common share diluted) for the same period in 1999.
Net income totaled $7.8 million ($.86 per common share diluted) for the
six months ended June 30, 2000, compared with $8.1 million ($.87 per
common share diluted) for the same period in 1999.
II. Assets Under Management
Assets under management totaled $2.58 billion at June 30, 2000, $2.69
billion at December 31, 1999, and $2.36 billion on June 30, 1999.
Average assets under management increased 7% to $2.58 billion in the
second quarter of 2000, compared with $2.43 billion in the comparable
period a year ago. Average managed assets increased 6% to $2.60 billion
in the first six months of 2000, compared with $2.46 billion in the
comparable period a year ago. Average managed assets for the second
quarter of 2000 decreased 2% compared with the first quarter of 2000.
During the second quarter of 2000, new accounts totaled $53 million,
net withdrawals out of client accounts totaled $53 million, and
negative performance of $111 million reduced managed assets.
During the first six months of 2000, new accounts totaled $116 million,
net withdrawals out of clients accounts totaled $102 million, and
negative performance of $122 million reduced managed assets.
In the twelve months ended June 30, 2000, new accounts totaled $154
million, net withdrawals out of client accounts totaled $199 million,
and performance added $261 million to managed assets.
12
III. Results of Operations
Quarterly Comparison
Total revenues for the second quarter of 2000 decreased 57% to $5.7
million, from $13.2 million in the second quarter of 1999. However,
revenue from advisory fees and commissions ("operating revenue")
increased 13% to $5.1 million in 2000, as compared with $4.5 million in
1999.
Expenses for the second quarter of 2000 increased 22% to $5.0 million,
from $4.1 million in the second quarter of 1999. The increase is
primarily due to an increase in accrued bonus compensation, including
bonuses related to the Company's Management Incentive Plan ("MIP
Expense" --see Note 6). Non-cash compensation charges of $563,000
("NCCC" --see Note 3) and payments of $375,000 to a senior officer
under a revised facilities agreement involving certain managed accounts
("SVP Payments" --see Note 4) are also included in both the second
quarter of 2000 and 1999, respectively.
After eliminating the accrued MIP bonus, NCCC and the SVP Payments,
pre-tax income from operations was $1.7 million and $1.6 million for
the second quarter of 2000 and 1999, respectively.
Total revenues from principal securities transactions and net interest
and dividend income was $561,000 for the second quarter of 2000, which
is a 94% decrease from the $8.7 million recorded in the second quarter
of 1999. The net realized gains and unrealized losses from principal
securities transactions were $1.6 million and $(1.1) million,
respectively, for the second quarter of 2000, as compared to net
realized gains and unrealized gains of $6.1 million and $2.4 million,
respectively, for the second quarter of 1999.
The following table depicts variances in significant income statement
items for the three months ended June 30, 2000 compared with the same
period in 1999. Explanations of the variances follow the table.
(000's)
3 Months Ended March 31,
------------------------ Percentage
2000 1999 Change
---- ---- ------
A. Advisory fees $4,504 $4,033 12%
B. Realized and unrealized gains from
principal securities transactions 342 8,455 (96)%
C. Employees' compensation 3,773 3,027 25%
D. Non-compensation expenses 1,184 1,042 14%
E. Income taxes 310 3,957 (92)%
o The 12% increase in advisory fees is due to the 7% increase in average
assets under management previously discussed, and an increase in fees
earned from a Company sponsored investment partnership of approximately
$470,000 in the second quarter of 2000, compared with $320,000 in the
second quarter of 1999.
13
o Realized and unrealized gains from principal securities transactions
decreased 96% from the 1999 comparable period due to a decreases in net
realized and unrealized gains on investments, as previously discussed.
o The increase of 25% in employees' compensation is the result of an increase
in accrued bonuses (including accrued bonuses accrued under the Company's
MIP) of $1,249,000 in the 2000 quarter, compared with $567,000 in the
comparable 1999 period. In addition, the increase in employees'
compensation is the result of an increase in accrued payouts to sales
persons arising from an increase in operating revenues. Excluding these
accrued bonuses and sales payouts, compensation expense increased 3% in the
second quarter of 2000 compared with the second quarter of 1999.
o Non-compensation expenses increased 14% for the three months ended June 30,
2000 as compared to the 1999 quarter. The increase was primarily related to
certain professional service charges and an increase in clearing and
execution costs from increased commission revenues.
o Income taxes in 2000 decreased 92% due to a comparable decrease in pre-tax
income.
Six Month Comparison
Total revenues for the first six months of 2000 increased 5% to $23.2
million, from $22.1 million in the first six months of 1999. Operating
revenue increased 28% to $11.2 million in 2000, as compared with $8.7
million in the comparable 1999 period.
Expenses for the first six months of 2000 increased 23% to $9.7
million, from $7.9 million in the first six months of 1999. The
increase is primarily due to accrued bonus compensation, including
bonuses related to the Company's MIP. NCCC of $1.13 million and SVP
Payments of $750,000 are also included in both the first six months of
2000 and 1999, respectively.
After eliminating the accrued MIP bonus, NCCC and the SVP Payments,
pre-tax income from operations was $4.4 million and $3.0 million for
the first six months of 2000 and 1999, respectively.
Total revenues from principal securities transactions and net interest
and dividend income was $12.0 million for the first six months of 2000,
which is a 10% decrease from the $13.4 million recorded in the first
six months of 1999. The net realized and unrealized gains from
principal securities transactions were $9.7 million and $1.9 million,
respectively, for the first six months of 2000 as compared to realized
and unrealized gains of $7.9 million and $5.1 million, respectively,
for the first six months of 1999.
14
The following table depicts variances in significant income statement items for
the six months ended June 30, 2000 compared with the same period in 1999.
Explanations of the variances follow the table.
(000's)
Six Months Ended June 30,
------------------------- Percentage
2000 1999 Change
---- ---- ------
A. Advisory fees $10,032 $ 7,856 28%
B. Realized and unrealized gains from
principal securities transactions 11,619 13,001 (11)%
C. Employees' compensation 7,188 5,861 23%
D. Non-compensation expenses 2,510 2,014 25%
E. Income taxes 5,721 6,179 (7)%
o The 28% increase in advisory fees is due to the 6% increase in average
assets under management previously discussed, and an increase in fees
earned from a Company sponsored investment partnership of approximately
$1.7 million in 2000, compared with $472,000 in 1999.
o Realized and unrealized gains from principal securities transactions
decreased 11% from the 1999 comparable period due to increases in net
realized and unrealized gains on investments, as previously discussed.
o The increase in employees' compensation is the result of an increase in
accrued bonuses (including accrued bonuses related to the Company's MIP) of
$2.1 million in the first six months of 2000, compared with $878,000 in the
comparable 1999 period. In addition, the increase in employees'
compensation is the result of an increase in accrued payouts to sales
persons arising from an increase in operating revenues. Excluding these
accrued bonuses and sales payouts, compensation expense increased 3% in the
first six months of 2000 compared with the first six months of 1999.
o Non-compensation expenses increased 25% for the six months ended June 30,
2000 as compared to the 1999 comparable period. The increase was primarily
related to certain professional service charges and an increase in clearing
and execution costs from increased commission revenues.
o Income taxes in 2000 decreased 7% due to a comparable decrease in pre-tax
income.
IV. Liquidity and Capital Resources
Investments in marketable securities, net, aggregated $85.4 million at
June 30, 2000, compared with $93.6 million at the end of 1999.
Shareholders' equity totaled $102.6 million at June 30, 2000, compared
with $101.8 million at the end of 1999, primarily from net income of
$7.8 million recorded in the first six months of 2000 and unrealized
losses (net of deferred taxes) of $8.0 million in the investment
portfolio. The Company had a net unrealized gain of $2.2 million in
shareholders' equity at June 30, 2000, compared with $10.2 million at
December 31, 1999.
At June 30, 2000, the Company's net investment portfolio at market
totaled $106.7 million (cost basis $85.7 million), compared with $115.5
million (cost $83.6 million) at the end of 1999,
15
comprised of cash and cash equivalents, corporate and convertible debt,
large-cap equity securities, and investments in limited partnerships
and the Atalanta/Sosnoff Mutual Funds. At June 30, 2000, the Company
was invested primarily in 22 separate large-cap securities, in a more
concentrated fashion of what it does for its managed client accounts.
No single security position represented 5% or more of the Company's
investment portfolio as of June 30, 2000.
If the equity market (defined as the S&P 500 index) were to decline by
10%, the Company might experience unrealized losses of approximately
$11 million; if the market were to decline by 20%, the Company might
experience unrealized losses of $22 million. However, incurring
unrealized losses of this magnitude is unlikely with active management
of the portfolio. Since the positions are primarily large-cap 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, 2000 the Company had cash and cash equivalents of $1.2
million, compared with $4.4 million at the end of 1999. Operating
activities generated net cash outflows of $8.5 million in the six
months ended June 30, 2000, compared with $279,000 of outflows in the
same period in 1999, reflecting the changing levels of operating income
and net income over those periods. Net cash provided by investing
activities totaled $5.4 million in the first six months of 2000,
compared with $6.7 million in the comparable 1999 period. The decrease
in 2000 was primarily the result of net proceeds from sales of
investments. Net cash outflows from financing activities was $103,000
in the first half of 2000 compared to $2.5 million of cash outflows in
the comparable 1999 period.
In January and February 2000, the Company purchased 6,500 and 5,000
shares, respectively, of its common stock at an average market price of
$8.98 per share. On August 2, 2000, the Company purchased 19,000 shares
of its common stock at a market price of $10.00 per share.
At June 30, 2000, there were no liabilities for borrowed money.
o o o
V. Year 2000
The Company has conducted a full assessment of its information
technology systems and imbedded technology and has determined that they
are Y2K compliant (i.e., that they recognize and specify dates to
properly function in the year 2000 and thereafter). The remediation and
testing of all critical systems and point-to-point testing with the
systems of third parties with which our existing systems interface has
been successfully completed. In conjunction with its Y2K readiness
process, the Company replaced its two core critical systems, trading
and portfolio accounting, with off-the-shelf commercial software
packages during 1999. To date, all of the Company's systems are
operating properly in 2000. The Company's Y2K costs were not material
through December 31, 1999 and it does not expect to incur any material
costs during 2000.
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.
In July 2000, Mr. William J. Landberg resigned as
director of the Corporation and his employment as an
officer and employee of its Operating Subsidiary
ended.
Item 6. Exhibits and Reports on Form 8-K
Exhibit
Number Description
------ -----------
2 None.
4 None.
11 Computation of Earnings per Share.
15 None.
18 None.
19 None.
20 None.
23 None.
24 None.
25 None.
27 Financial Data Schedule
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, 2000 /s/ Martin T. Sosnoff
-----------------------------------
Martin T. Sosnoff
Chairman of the Board and
Chief Executive Officer
Date: August 10, 2000 /s/ Anthony G. Miller
-----------------------------------
Anthony G. Miller
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
18
EXHIBIT INDEX
Exhibit
Number Description Page
------ ----------- ----
2 None
4 None
11 Computation of Earnings per Share 20
15 None
18 None
19 None
20 None
23 None
24 None
25 None
27 Financial Data Schedule 21
28 None
Reports on Form 8-K: None
19
EXHIBIT 11
ATALANTA/SOSNOFF CAPITAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2000 1999 2000 1999
PRIMARY:
Earnings:
Net income $ 396,774 $5,185,562 $7,803,402 $8,082,218
========== ========== ========== ==========
Weighted average common shares
outstanding 9,063,627 9,274,159 9,064,948 9,306,103
Add - common stock equivalents
from in the money options 13,325 8,514 10,756 8,219
Dilutive weighted average common
shares outstanding 9,076,952 $9,282,673 9,075,704 9,314,322
========== ========== ========== ==========
Earnings per common share - basic $ 0.04 $ 0.56 $ 0.86 $ 0.87
========== ========== ========== ==========
Earnings per common share - diluted $ 0.04 $ 0.56 $ 0.86 $ 0.87
========== ========== ========== ==========
Antidilutive options -0- 200,000 150,000 -0-
========== ========== ========== ==========
Average closing price of the
Company's common stock (ATL) $ 9.63 $ 8.73 $ 9.32 $ 8.61
========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements
20