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, 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 July 21, 1997 there were 8,812,401 shares of common stock outstanding.
ATALANTA/SOSNOFF CAPITAL CORPORATION
INDEX
Page No.
Part I - Financial Information
Item 1 - Financial Statements
Condensed Consolidated Statements
of Financial Condition - June 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements
of Income - Three and Six Months Ended
June 30, 1997 and 1996 4-5
Condensed Consolidated Statement
of Changes in Shareholders' Equity
- Six Months Ended June 30, 1997 6
Condensed Consolidated Statements of
Cash Flows - Six Months Ended
June 30, 1997 and 1996 7-8
Notes to Condensed Consolidated
Financial Statements 9
Special Note Regarding Forward-Looking Statements 10
Item 2 - Management's Discussion and Analysis
of Results of Operations and Financial
Condition 11-15
Part II - Other Information
Items 1-6 16
Signatures 17
Exhibit Index 18
Exhibit 11 - Computation of Earnings Per Share 19
Exhibit 27 - Financial Data Schedule 20
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30,1997 AND DECEMBER 31,1996
(UNAUDITED)
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
------- ------------ ------------
Cash and cash equivalents $15,890,443 $ 5,585,953
Accounts receivable 3,281,693 3,782,098
Receivable from clearing broker 7,055,952 2,437,821
Investments, at market 47,445,646 51,362,185
Fixed assets, net 671,296 610,231
Exchange memberships, at cost 402,000 402,000
Other assets 542,613 516,038
----------- -----------
Total assets $75,289,643 $64,696,326
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts payable and other liabilities $992,996 $647,096
Accrued compensation payable 425,637 1,397,099
Income taxes payable, net 4,053,828 1,024,210
----------- ------------
Total liabilities 5,472,461 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 50,869,226 45,031,750
Unrealized gains from investments,
net of deferred tax liabilities of
$2,142,266 and $574,409 respectively 3,212,958 861,173
----------- -----------
Total shareholders' equity 69,817,182 61,627,921
----------- -----------
Totals $75,289,643 $64,696,326
----------- -----------
Book value per share $7.92 $6.99
=========== ============
t
See Notes to Condensed Consolidated Financial Statements.
- 3 -
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
----------------------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
Revenues:
Advisory fees $ 4,078,691 $ 4,943,435
Commissions and other 415,859 431,960
----------- -----------
Total revenues 4,494,550 5,375,395
----------- -----------
Costs and expenses:
Employees' compensation 1,824,845 1,993,497
Clearing and execution costs 146,781 143,132
Selling expenses 91,810 120,290
General and administrative expenses 741,514 658,628
----------- -----------
Total costs and expenses 2,804,950 2,915,547
----------- -----------
Operating income 1,689,600 2,459,848
----------- -----------
Other income (expense):
Interest and dividend income 494,789 413,553
Interest expense (13,602) (2,565)
Realized gains from investments, net 4,428,465 871,042
----------- -----------
Other income, net 4,909,652 1,282,030
----------- -----------
Income before provision
for income taxes 6,599,252 3,741,878
Provision for income taxes 3,011,000 1,611,000
----------- -----------
Net income $ 3,588,252 $ 2,130,878
=========== ===========
Earnings per share - primary:
Net income $ 0.41 $ 0.24
=========== ===========
See Notes to Condensed Consolidated Financial Statements
- 4 -
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
SIX MONTHS ENDED
----------------------------------------
JUNE 30, JUNE 30,
1997 1996
------------ ------------
Revenues:
Advisory fees $ 8,464,115 $ 9,977,412
Commissions and other 805,295 874,676
----------- -------------
Total revenues 9,269,410 10,852,088
----------- -------------
Costs and expenses :
Employees' compensation 3,699,046 4,328,982
Clearing and execution costs 283,098 301,575
Selling expenses 195,476 248,715
General and administrative expenses 1,394,708 1,343,836
------------ ------------
Total costs and expenses 5,572,328 6,223,108
------------ ------------
Operating income 3,697,082 4,628,980
------------ ------------
Other income (expense) :
Interest and dividend income 1,947,469 832,801
Interest expense (22,341) (5,846)
Realized gains from investments, net 5,031,266 2,303,030
------------ -------------
Other income, net 6,956,394 3,129,985
------------ -------------
Income before provision
for income taxes 10,653,476 7,758,965
Provision for income taxes 4,816,000 3,328,000
------------ ------------
Net income $ 5,837,476 $ 4,430,965
============ ============
Earnings per share - primary :
Net income $ 0.66 $ 0.50
============ ============
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, 1997
(UNAUDITED)
Additional
Common Paid-in Retained Unrealized
Stock Capital Earnings Gains 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 2,351,785 2,351,785
Net income 5,837,476 5,837,476
- - --------------------- ---------- ----------- ----------- ---------- -----------
Balance, June 30,
1997 $88,124 $15,646,874 $50,869,226 $3,212,958 $69,817,182
========== =========== =========== ========== ===========
See Notes to Condensed Consolidated Financial Statements.
- 6 -
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1997 1996
------------- -------------
Cash flows from operating
activities :
Net income $5,837,476 $4,430,965
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation 65,917 73,380
Realized gains from investments, net (5,031,266) (2,303,030)
Increase (decrease) from changes in:
Accounts receivable 500,405 236,604
Other assets (26,575) 10,976
Accounts payable and
other liabilities 345,900 595,581
Accrued compensation payable (971,462) (1,897,636)
Income taxes payable, net 1,461,761 (183,300)
------------- -------------
Net cash provided by
operating activities 2,182,156 963,540
------------- -------------
Cash flows from investing activities :
Receivable from clearing broker (4,618,131) 3,595,737
Purchases of fixed assets (126,982) (329,212)
Purchases of investments (33,697,445) (46,271,303)
Proceeds from sales of
investments 46,564,892 42,984,799
------------- -------------
Net cash provided by (used in)
investing activities 8,122,334 (19,979)
------------- --------------
- 7 -
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1997 1996
----------- -----------
Continued from page 7:
Net increase in cash
and cash equivalents 10,304,490 943,561
Cash and cash equivalents,
beginning of year 5,585,953 27,890,844
----------- -----------
Cash and cash equivalents,
end of period $15,890,443 $28,834,405
=========== ===========
Supplemental disclosure of
cash flow information:
Cash paid during the period for:
Interest $22,341 $5,846
=========== ===========
Income taxes $3,354,239 $3,511,300
=========== ===========
See Notes to Condensed Consolidated Financial Statements
- 8 -
ATALANTA/SOSNOFF CAPITAL CORPORATION
Notes to Condensed Consolidated Financia11Statements
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 June 30, 1997, and the results of its
operations for the three and six months ended June 30, 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, as amended. 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, as
amended.
Note 2: Net Income Per Share
Primary earnings per share amounts were computed based on 8,829,789 and
8,847,214 weighted average common shares outstanding in the second quarters of
1997 and 1996, respectively, and 8,828,541 and 8,889,784 weighted average common
shares outstanding in the first six months 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.
9
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.
10
Part I. Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
I. General
Total assets were $75.3 million at June 30, 1997, compared with $64.7
million at December 31, 1996, while book value per share totaled $7.92
at June 30, 1997, compared with $6.99 at December 31, 1996.
Cash and cash equivalents were $15.9 million at June 30, 1997, compared
with $5.6 million at December 31, 1996. Investments (at market) totaled
$47.4 million at June 30, 1997, compared with $51.4 million at the end
of 1996. Unrealized gains on investments, net of deferred taxes,
totaled $3.2 million at June 30, 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
June 30, 1997 totaled $2.87 billion, 9% less than a year ago, and 4%
above year-end 1996. Account losses are the result of below market
performance for equity accounts in 1996 as well as "style-drift"
concerns of consultants, while strong performance over the first six
months of 1997 accounts for the growth since the end of 1996.
Net income totaled $3.6 million ($.41 per share) for the three months
ended June 30, 1997, compared with $2.1 million ($.24 per share) for
the same period in 1996. Income from money management operations before
taxes ("operating income") decreased 31% to $1.7 million, compared with
$2.5 million in the 1996 quarter. Other income increased 283% during
the same period.
Net income totaled $5.8 million ($.66 per share) for the six months
ended June 30, 1997, compared with $4.4 million ($.50 per share) for
the same period in 1996. Operating income decreased 20% to $3.7
million, compared with $4.6 million in the comparable 1996 period.
Other income increased 122% during the same period.
Unless managed asset levels improve significantly from the June 30,
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 $2.87 billion at June 30, 1997,
compared with $2.76 billion on December 31, 1996, and $3.15 billion on
June 30, 1996.
During the second quarter of 1997, new accounts totaled $7 million, net
withdrawals out of client accounts totaled $128 million, and
performance increased managed assets by $393 million.
11
For the six months ended June 30, 1997, new accounts totaled $15
million, net withdrawals out of client accounts totaled $381 million,
and performance increased managed assets by $469 million.
In the twelve months ended June 30, 1997, new accounts totaled $18
million, net withdrawals out of client accounts totaled $1,031 million,
and performance added $727 million to managed assets.
III. Results of Operations
Quarterly Comparison
In the second quarter of 1997 operating revenues decreased 16% to $4.5
million, compared with $5.4 million in the same quarter a year ago.
Average managed assets totaled $2.75 billion in the 1997 quarter, or
17% less than the $3.32 billion average in the second quarter of 1996,
and 1% below the $2.78 billion average in the first quarter of 1997.
Operating expenses in the second quarter of 1997 decreased 4% to $2.8
million, compared with $2.9 million in the second quarter of 1996, in
expectation of reduced 1997 bonus payments to senior executives under
the Company's Management Incentive Plan. As a result, operating income
declined 31% to $1.7 million (38% margin), compared with $2.5 million
(46% margin) in the 1996 quarter. The second quarter of 1996
represented the high point for operating earnings and operating margin
during 1996.
Operating income totaled 26% of pre-tax income in the second quarter of
1997, compared with 66% in the 1996 quarter. Due to a strong equity
market, other income totaled $4.9 million in the 1997 quarter, which
included $4.4 million in net realized capital gains. Other income
totaled $1.3 million for the same period a year ago, reflecting net
realized capital gains of $871,000.
The following table depicts significant variances in selected income
statement items for the three months ended June 30, 1997 compared with
the same period in 1996. Explanations of the variances follow the
table.
(000's)
Three Months Ended June 30 Percentage
1997 1996 Change
--------- ------ ---
A. Advisory fees $4,079 $4,943 -17%
B. Employees' compensation 1,825 1,993 -8
C. Non-compensation expenses 980 922 6
D. Other income, net 4,910 1,282 283
E. Income taxes 3,011 1,611 87
12
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 grew due to one-time increases in various
professional fees, partially offset by reduced selling expenses from a
slow-down in prospect presentations in the 1997 period.
o Other income increased due to a 17% increase in net interest and
dividends received, and a 408% increase in net realized capital gains
as previously discussed.
o Income taxes increased due to the 76% growth in pre-tax income, and
an increase in the effective rate at the State level.
13
Six Month Comparison
For the first six months of 1997 operating revenues decreased 15% to
$9.3 million, compared with $10.9 million in the first six months of
1996. Average managed assets totaled $2.79 billion in the 1997 period,
or 19% less than the $3.44 billion average in the first six months of
1996.
Operating expenses in the first six months of 1997 decreased 10% to
$5.6 million, compared with $6.2 million in the 1996 six month period,
in expectation of sharply lower 1997 bonus payments to senior
executives under the Company's Management Incentive Plan. As a result,
operating income declined 20% to $3.7 million (40% margin), compared
with $4.6 million (43% margin) in the 1996 period.
Operating income totaled 35% of pre-tax income in the first six months
of 1997, compared with 60% in the comparable 1996 period. Due to a
strong equity market, other income totaled $7.0 million in the 1997
period, which included $5.0 million in net realized capital gains.
Other income totaled $3.1 million for the same period a year ago,
reflecting net realized capital gains of $2.3 million.
The following table depicts significant variances in selected income
statement items for the six months ended June 30, 1997 compared with
the same period in 1996. Explanations of the variances follow the
table.
(000's)
Six Months Ended
June 30
----------------- Percentage
1997 1996 Change
---- ---- ------
A. Advisory fees $8,464 $9,977 -15%
B. Employees' compensation 3,699 4,329 -15
C. Non-compensation expenses 1,873 1,894 -1
D. Other income, net 6,956 3,130 122
E. Income taxes 4,816 3,328 45
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.
14
o Non-compensation expenses declined due to: a 6% reduction in clearing
and execution costs from reduced commission revenues; a 21% reduction
in selling expenses from a slow-down in prospect presentations in the
1997 period; partially offset by one-time increases in various
professional fee expenditures.
o Other income increased due to an 133% increase in net interest and
dividends received (primarily due to a special dividend received from a
company whose securities were held in the Firm's investment portfolio),
and an 118% increase in net realized capital gains as previously
discussed.
o Income taxes increased due to the 37% growth in pre-tax income, and
an increase in the effective rate at the State level.
IV. Liquidity and Capital Resources
At June 30, 1997 the Company had cash and cash equivalents totaling
$15.9 million, compared with $5.6 million at the end of 1996. Operating
activities provided net cash inflows of $2.2 million in the six months
ended June 30, 1997, compared with $964,000 in the same period in 1996.
This reflects the changing levels of operating income and net income
over those periods. Net cash provided by investing activities totaled
$8.1 million in the six months ended June 30, 1997, compared with a net
use of $20,000 in the similar 1996 period. This reflects the Company's
reduced commitment to marketable securities in the 1997 period.
Investments in marketable securities aggregated $47.4 million at June
30, 1997, compared with $51.4 million at the end of 1996. Shareholders'
equity totaled $69.8 million at June 30, 1997, compared with $61.6
million at the end of 1996, primarily due to net income of $5.8 million
recorded in the first six months of 1997. The Company has adopted SFAS
No. 115, and it resulted in a net unrealized gain of $3.2 million in
shareholders' equity at June 30, 1997, compared with $861,000 at the
end of 1996. At June 30, 1997, the Company had no liabilities for
borrowed money.
The Company believes that the foreseeable capital and liquidity
requirements of its existing businesses will continue to be met with
funds generated from operations.
15
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
None.
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.
Reports on Form 8-K: None.
16
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: July 22, 1997 /s/ Robert J. Kobel
-----------------------
Robert J. Kobel
President and Chief Operating Officer
Date: July 22, 1997 /s/ Anthony G. Miller
------------------------
Anthony G. Miller
Senior Vice President, Finance and
Chief Financial Officer
17
EXHIBIT INDEX
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
27 Financial Data Schedule 20
28 None
18