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:
March 31, 1997 Commission File Number: 1-9137
ATALANTA/SOSNOFF CAPITAL CORPORATION
(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
(Address of principal executive offices (zip code)
(212) 867-5000
(Registrant's Telephone Number, including area code)
(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 May 8, 1997 there were 8,812,401 shares of common stock outstanding.
ATALANTA/SOSNOFF CAPITAL CORPORATION
INDEX
Page No.
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Part I - Financial Information
Item 1 - Financial Statements
Condensed Consolidated Statements
of Financial Condition - March 31, 1997
and December 31, 1996 3
Condensed Consolidated Statements
of Income - Three Months Ended
March 31, 1997 and 1996 4
Condensed Consolidated Statement
of Changes in Shareholders' Equity
- Three Months Ended March 31, 1997 5
Condensed Consolidated Statements of
Cash Flows - Three Months Ended
March 31, 1997 and 1996 6-7
Notes to Condensed Consolidated 8
Financial Statements
Special Note Regarding Foward-Looking Statements 9
Item 2 - Management's Discussion and Analysis
of Results of Operations and Financial
Condition 10-12
Part II - Other Information
Items 1-6 13
Signatures 14
Exhibit Index 15
Exhibit 11 - Computation of Earnings Per Share 16
Exhibit 27 - Financial Data Schedule 17
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31,1997 AND DECEMBER 31,1996
(UNAUDITED)
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
------- ----------- -----------
Cash and cash equivalents $ 6,802,647 $5,585,953
Accounts receivable 3,626,548 3,782,098
Receivable from clearing broker 5,530,304 2,437,821
Investments, at market 51,529,243 51,362,185
Fixed assets, net 607,827 610,231
Exchange memberships, at cost 402,000 402,000
Other assets 236,796 516,038
----------- -----------
Total assets $68,735,365 $64,696,326
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts payable and other liabilities $ 1,119,986 $ 647,096
Accrued compensation payable 414,741 1,397,099
Income taxes payable, net 2,469,183 1,024,210
----------- -----------
Total liabilities 4,003,910 3,068,405
----------- -----------
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;8,812,401 shares issued and
outstanding 88,124 88,124
Additional paid-in capital 15,646,874 15,646,874
Retained earnings 47,280,974 45,031,750
Unrealized gains from investments,
net of deferred tax liabilities of
$1,143,950 and $574,409 respectively 1,715,483 861,173
----------- -----------
Total shareholders' equity 64,731,455 61,627,921
----------- -----------
Totals $68,735,365 $64,696,326
=========== ===========
Book value per share $ 7.35 $ 6.99
=========== ===========
See Notes to Condensed Consolidated Financial Statements
- 3 -
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996
----------- -----------
Revenues:
Advisory fees $ 4,385,424 $5,033,976
Commissions and other 389,436 442,717
----------- -----------
Total revenues 4,774,860 5,476,693
----------- -----------
Costs and expenses:
Employees' compensation 1,874,201 2,335,484
Clearing and execution costs 136,317 158,444
Selling expenses 103,666 128,424
General and administrative expenses 653,194 685,209
----------- -----------
Total costs and expenses 2,767,378 3,307,561
----------- -----------
Operating income 2,007,482 2,169,132
----------- -----------
Other income (expense):
Interest and dividend income 1,452,680 419,248
Interest expense (8,739) (3,280)
Realized gains from investments,net 602,801 1,431,988
----------- -----------
Other income, net 2,046,742 1,847,956
----------- -----------
Income before provision
for income taxes 4,054,224 4,017,088
Provision for income taxes 1,805,000 1,717,000
----------- -----------
Net income $2,249,224 $2,300,088
----------- -----------
Earnings per share - primary:
Net income $0.25 $0.26
=========== ===========
See Notes to Condensed Consolidated Financial Statements
- 4 -
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
Additional Unrealized
Common Paid-in Retained Gains
Stock Capital Earnings (Losses)-net Total
------- ----------- ------------ ---------- -----------
Balance, December 31, 1996 $88,124 $15,646,874 $45,031,750 $861,173 $61,627,921
Unrealized gains
from investments, net
of deferred taxes 854,310 854,310
Net income 2,249,224 2,249,224
------- ----------- ------------ ---------- -----------
Balance, March 31, 1997 $88,124 $15,646,874 $47,280,974 $l,715,483 $64,731,455
======= =========== ============ ========== ===========
See Notes to Condensed Consolidated Financial Statements
- 5 -
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
------------ -------------
Cash flows from operating
activities :
Net income $2,249,224 $2,300,088
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 30,529 32,809
Realized gains from
investments (602,801) (1,431,988)
Increase (decrease) from
changes in :
Accounts receivable 155,550 89,288
Other assets 279,242 21,930
Accounts payable and
other liabilities 122,890 421,676
Accrued compensation payable (982,358) (1,948 559)
Income taxes payable,net 875,432 1,186,700
------------ -------------
Net cash provided by
operating activities 2,127,708 671,944
------------ -------------
Cash flows from investing activities :
Receivable from clearing broker (3,092,483) (7,944,156)
Purchases of fixed assets (28,125) (38,000)
Purchases of investments (13,701,727) (26,829,218)
Proceeds from sales of investments 15,911,321 27,959,784
------------ -------------
Net cash used in
investing activities (911,014) (6,851,590)
------------ -------------
- 6 -
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
------------ -----------
Continued from page 6 :
Cash flows from financing
activities :
Repurchases of common stock
Dividends paid $0 $0
0 0
------------ ------------
Net cash used in
financing activities 0 0
------------ ------------
Net increase (decrease) in
cash and cash equivalents 1,216,694 (6,179,646)
Cash and cash equivalents,
beginning of year 5,585,953 27,890,844
------------ ------------
Cash and cash equivalents,
end of period $6,802,647 $21,711,198
============ ============
Supplemental disclosure of
cash flow information :
Cash paid during the period for:
Interest $8,739 $3,280
============ ============
Income taxes $929,568 $530,300
============ ============
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 and its direct and indirect
wholly-owned subsidiaries, Atalanta/Sosnoff Capital Corporation (Delaware)
("Capital"), and Atalanta/Sosnoff Management Corporation ("Management").
In the opinion of management, the accompanying unaudited condensed
consolidated historical financial statements reflect all adjustments (which
include only normal recurring accruals) necessary to present fairly the
Company's financial position as of March 31, 1997, and the results of its
operations for the three months ended March 31, 1997 and 1996. 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, 1996 Annual Report on Form
10-K. Information included in the condensed consolidated balance sheet as of
December 31, 1996 has been derived from the audited consolidated financial
statements appearing in the Company's Annual Report on Form 10-K.
Note 2: Net Income Per Share
Primary earnings per share amounts were computed based on 8,820,588 and
8,909,240 weighted average common shares outstanding in the first quarters of
1997 and 1996, respectively. The shares outstanding have been adjusted to
reflect the impact of in the money options, using the Treasury Stock method.
See Exhibit ll for further details on the computation of net income per
share.
Note 3: Provision for 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.
8
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.
9
Part I. Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
I. General
Total assets were $68.7 million at March 31, 1997, compared with $64.7
million at December 31, 1996, while book value per share totaled $7.35
at March 31, 1997, compared with $6.99 at December 31, 1996.
Cash and cash equivalents were $6.8 million at March 31, 1997, compared
with $5.6 million at December 31, 1996. Investments (at market) totaled
$51.5 million at March 31, 1997, compared with $51.4 million at the end
of 1996. Unrealized gains on investments, net of deferred taxes,
totaled $1.7 million at March 31, 1997, compared with $861,000 at
December 31, 1996.
Owing to the loss of several sizeable institutional accounts in 1996
and some withdrawals from existing accounts, assets under management at
March 31, 1997 totaled $2.59 billion, 26% less than a year ago, and 6%
below year-end 1996. Account losses are the result of below market
performance for equity accounts over the last year as well as
style-drift concerns of consultants.
Net income totaled $2.2 million ($.25 per share) for the three months
ended March 31, 1997, compared with $2.3 million ($.26 per share) for
the same period in 1996. Income from money management operations before
taxes ("operating income") decreased 8% to $2.0 million, compared with
$2.2 million in the 1996 quarter. Other income increased 11% during the
same period.
Unless managed asset levels improve from the March 31, 1997 level, the
Company believes that operating income will be lower in 1997 than 1996.
The Company intends to keep operating expenses under close control.
II. Assets Under Management
Assets under management totaled $2.59 billion at March 31, 1997,
compared with $2.76 billion on December 31, 1996, and $3.50 billion on
March 31, 1996.
During the first quarter of 1997, new accounts totaled $8 million, net
withdrawals out of client accounts totaled $253 million, and
performance increased client account balances by $76 million.
In the twelve months ended March 31, 1997, new accounts totaled $56
million, net withdrawals out of client accounts totaled $1,344 million,
and performance added $382 million to managed assets.
10
III. Results of Operations
Quarterly Comparison
In the first quarter of 1997 operating revenues decreased 13% to $4.8
million, compared with $5.5 million a year ago. Average managed assets
totaled $2.78 billion in the 1997 quarter, or 22% less than the $3.58
billion average in the first quarter of 1996, and 4% below the $2.91
billion average in the fourth quarter of 1996.
Operating expenses decreased 16% to $2.8 million, compared with $3.3
million a year ago, in expectation of sharply lower 1997 bonus payments
to senior excutives under the Company's Management Incentive Plan. As a
result, operating income declined 8% to $2.0 million (42% margin),
compared with $2.2 million (40% margin) in the 1996 quarter.
Operating income totaled 50% of pre-tax income in the first quarter of
1997, compared with 54% in the 1996 quarter. Other income totaled $2.0
million in the 1997 quarter, which included $603,000 in net realized
capital gains. Other income totaled $1.8 million for the same period a
year ago, reflecting net realized capital gains of $1.4 million.
The following table depicts significant variances in selected income
statement items for the three months ended March 31, 1997 compared with
the same period in 1996. Explanations of the variances follow the
table.
(000's)
3 Months Ended March 31 Percentage
1997 1996 Change
--------- ------ ---------
A. Advisory fees $4,385 $5,034 -13%
B. Employees' compensation 1,874 2,335 -20
C. Non-compensation expenses 893 972 -8
D. Other income, net 2,047 1,848 11
E. Income taxes 1,805 1,717 5
11
o The decline in advisory fees is due to the decline in average assets
under management previously discussed.
o The decrease in employees' compensation is the result of expected
1997 bonus payments significantly lower than 1996, based on expected
operating results for the year.
o Non-compensation expenses declined due to a reduction in clearing and
execution charges from reduced commission revenues; reduced selling
expenses from a slow-down in prospect presentations in the 1997 period;
and savings in various professional fee expenditures.
o Other income increased due to a 247% increase in interest and
dividends received (primarily due to a special dividend received from a
company whose securities are held in the Firm's investment portfolio),
partially offset by a 58% decline in net realized capital gains.
o Income taxes increased due to the 1% growth in pre-tax income, and a
slight increase in the effective rate at the State level.
IV. Liquidity and Capital Resources
At March 31, 1997 the Company had cash, cash equivalents and marketable
securities of $58.3 million, compared with $56.9 million at December
31, 1996, and $53.6 million at March 31, 1996.
The Company believes that the foreseeable capital and liquidity
requirements of its existing businesses will continue to be met with
funds generated from operations.
12
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities Holders
None.
Item 3. Default upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held
on May 8, 1997, the election of the Board of
Directors' nominees was approved, and the
ratification of the appointment of the Company's
independent auditors was approved.
Item 5. Other Information.
None.
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.
13
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
/s/ Robert J. Kobel
Date: May 9, 1997 -------------------------------------
Robert J. Kobel
President and Chief Operating Officer
/s/ Anthony G. Miller
Date: May 9, 1997 -------------------------------------
Anthony G. Miller
Senior Vice President, Finance and
Chief Financial Officer
14
EXHIBIT INDEX
Exhibit
Number Description Page
------- ----------- ----
2 None
4 None
11 Computation of Earnings per Share 16
15 None
18 None
19 None
20 None
23 None
24 None
25 None
27 Financial Data Schedule 17
28 None
15