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:
September 30, 1998 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 November 6, 1998 there were 9,587,401 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 - September 30, 1998
and December 31, 1997 3
Condensed Consolidated Statements
of Income - Three and Nine Months Ended
September 30, 1998 and 1997 4-5
Condensed Consolidated Statement
of Changes in Shareholders' Equity
- Nine Months Ended September 30, 1998 6
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended
September 30, 1998 and 1997 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 12-17
Part II - Other Information
Items 1-6 18
Signatures 19
Exhibit Index 20
Exhibit 11 - Computation of Earnings Per Share 21
Exhibit 27 - Financial Data Schedule 22
2
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
ASSETS SEPTEMBER 30, 1998 DECEMBER 31, 1997
- ------ ------------------ -----------------
Cash and cash equivalents $3,591,392 $3,805,243
Accounts receivable 2,638,272 3,355,399
Receivable from clearing broker 0 1,323,473
Investments, at market 69,185,349 63,039,613
Investments in limited partnerships 5,740,212 1,928,454
Fixed assets, net 707,161 789,361
Exchange memberships, at cost 402,000 402,000
Other assets 1,155,778 769,281
--------- -------
Total assets $83,420,164 $75,412,824
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and other liabilities $965,356 $854,039
Payable to clearing broker 118,991 0
Accrued compensation payable 370,465 839,424
Income taxes payable 2,683,251 1,763,574
Separation costs payable 875,000 1,400,000
------- ---------
Total liabilities 5,013,063 4,857,037
--------- ---------
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; 9,587,401 shares
issued and outstanding 95,874 95,874
Additional paid-in capital 24,389,499 24,648,499
Retained earnings 59,076,867 52,963,643
Unrealized gains from investments,
net of deferred tax liabilities 1,596,078 1,286,794
Unearned compensation (6,751,217) (8,439,023)
--------- ---------
Total shareholders' equity 78,407,101 70,555,787
---------- ----------
Total liabilities and shareholders' equity $83,420,164 $75,412,824
=========== ===========
Book value per share $8.18 $7.36
===== =====
See Notes to Condensed Consolidated Financial Statements
3
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
Revenues:
Advisory fees $3,592,550 $4,442,698
Commissions and other 375,351 346,733
------- -------
Total revenues 3,967,901 4,789,431
--------- ---------
Costs and expenses:
Employees' compensation 2,432,017 1,915,720
Clearing and execution costs 129,856 109,049
Selling expenses 95,828 97,642
General and administrative expenses 494,250 1,100,822
Separation costs 0 1,400,000
--------- ---------
Total costs and expenses 3,151,951 4,623,233
--------- ---------
Operating income 815,950 166,198
------- -------
Other income (expense):
Interest and dividend income 375,138 545,762
Interest expense (10,052) (13,386)
Realized and unrealized gains
from investments, net 3,143,714 2,503,502
--------- ---------
Other income, net 3,508,800 3,035,878
--------- ---------
Income before provision for income taxes 4,324,750 3,202,076
Provision for income taxes 1,886,000 1,456,000
--------- ---------
Net income $2,438,750 $1,746,076
========== ==========
Earnings per common share - basic $0.25 $0.20
===== =====
Earnings per common share - diluted $0.25 $0.19
===== =====
See Notes to Condensed Consolidated Financial Statements
4
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
Revenues:
Advisory fees $11,705,783 $12,906,814
Commissions and other 1,217,570 1,152,027
--------- ---------
Total revenues 12,923,353 14,058,841
---------- ----------
Costs and expenses:
Employees' compensation 7,315,343 5,614,766
Clearing and execution costs 431,848 392,147
Selling expenses 322,896 293,118
General and administrative expenses 1,899,990 2,495,532
Separation costs 0 1,400,000
--------- ---------
Total costs and expenses 9,970,077 10,195,563
--------- ----------
Operating income 2,953,276 3,863,278
--------- ---------
Other income (expense):
Interest and dividend income 1,292,816 2,493,231
Interest expense (38,684) (35,727)
Realized and unrealized gains
from investments, net 6,567,818 7,534,768
--------- ---------
Other income, net 7,821,950 9,992,272
--------- ---------
Income before provision for income taxes 10,775,226 13,855,550
Provision for income taxes 4,662,000 6,272,000
--------- ---------
Net income $6,113,226 $7,583,550
========== ==========
Earnings per common share - basic $0.64 $0.86
===== =====
Earnings per common share - diluted $0.64 $0.85
===== =====
See Notes to Condensed Consolidated Financial Statements
5
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Additional
Common Paid-In Retained Unrealized Unearned
Stock Capital Earnings Gains - Net Compensation Total
------ ---------- -------- ----------- ------------ -----
Balance -
December 31, 1997 $95,874 $24,648,499 $52,963,643 $1,286,794 ($8,439,023) $70,555,787
Unrealized gains from
investments, net of
deferred taxes 309,284 309,284
Amortization of
unearned
compensation
(259,000) 1,687,806 1,428,806
Net Income 6,113,226 6,113,226
------- ----------- ----------- ---------- ------------ -----------
Balance -
September 30, 1998 $95,874 $24,389,499 $59,076,869 $1,596,078 ($6,751,217) $78,407,103
======= =========== =========== ========== ============ ===========
See Notes to Condensed Consolidated Financial Statements
6
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
-------- ---------
Cash flows from operating activities:
Net income $6,113,226 $7,583,550
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 140,796 109,152
Amortization 1,687,806 0
Realized and unrealized gains from
investments, net (6,567,818) (7,534,768)
Increase (decrease) from changes in:
Accounts receivable 717,127 408,566
Other assets (386,497) 240,437
Accounts payable and other liabilities 111,317 581,425
Accrued compensation payable (468,959) (909,773)
Income taxes payable 713,489 (176,384)
Separation costs payable (525,000) 1,400,000
--------- ---------
Net cash provided by operating activities 1,535,487 1,702,205
--------- ---------
Cash flows from investing activities:
Receivable from clearing broker, net 1,204,482 2,565,920
Purchases of fixed assets (58,596) (284,742)
Purchases of investments (105,011,666) (57,154,685)
Proceeds from sales of investments 102,116,442 61,623,852
----------- ----------
Net cash (used in)/provided by investing activities (1,749,338) 6,750,345
--------- ---------
Cash flows from financing activities:
Issuance of restricted shares 0 7,750
--------- ---------
Net cash provided by investing activities 0 7,750
--------- ---------
Net increase (decrease) in cash and cash equivalents (213,851) 8,460,300
Cash and cash equivalents, beginning of year 3,805,243 5,585,953
--------- ---------
Cash and cash equivalents, end of period $3,591,392 $14,046,253
========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $38,684 $35,727
======= =======
Income taxes $4,207,511 $6,448,384
========== ==========
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 ("Holding Company") 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
financial statements reflect all adjustments (which include only normal
recurring accruals) necessary to present fairly the Company's financial position
as of September 30, 1998, and the results of its operations for the three and
nine months ended September 30, 1998 and 1997. 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, 1997 Annual Report on Form 10-K. Information
included in the condensed consolidated balance sheet as of December 31, 1997 has
been derived from the audited consolidated financial statements appearing in the
Company's Annual Report on Form 10-K.
Note 2: Non-Cash Compensation Charges ("NCCC")
NCCC of approximately $563,000 were charged to operations in the third quarter
of 1998, compared with none in the third quarter of 1997. NCCC of approximately
$1.7 million were charged to operations in the first nine months of 1998,
compared with none in the first nine months of 1997. (See Note 3 below).
Note 3: 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).
Note 4: 1997 Special Charges
During the third quarter of 1997, special charges totaling $1.9 million were
recorded, comprised of $1.4 million in separation costs and $.5 million in
various professional fees.
The separation costs relate to the Company's termination without cause of its
former president on August 15, 1997, and the resulting severance payments due
him over the following two years.
8
Notes to Condensed Consolidated Financial Statements (cont'd)
During the third quarter of 1997, the Company also disclosed (see Form 8-K as
filed) that it had abandoned an attempt to take the Company private. Costs
associated with this abandoned transaction totaled $492,000, primarily in the
form of fees to financial advisors, legal counsel, and accounting firms.
Note 5: Net Income Per Share
Primary earnings per share amounts were computed based on 9,587,401 and
8,930,336 weighted average common shares outstanding in the third quarters of
1998 and 1997, respectively, and 9,587,401 and 8,852,145 weighted average common
shares outstanding in the first nine months of 1998 and 1997, respectively.
Diluted earnings per share amounts were computed based on 9,596,232 and
9,043,680 weighted average common shares outstanding in the third quarters of
1998 and 1997, respectively, and 9,602,054 and 8,891,989 weighted average common
shares outstanding in the first nine months of 1998 and 1997, 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 6: 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 and Capital in equity and debt securities as
"available for sale," for which unrealized gains and losses are 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.
Note 7: 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.
Note 8: Subsequent Event
Subject to the overall supervision and control of the Company, a Senior Vice
President and Portfolio Manager of a Company subsidiary has provided sole
investment management and brokerage services to certain of the accounts of
Company clients (the "SVP Accounts").
9
Notes to Condensed Consolidated Financial Statements (cont'd)
Pursuant to a facilities arrangement with SVP, the Company historically has paid
the resulting pre-tax operating income attributable to the SVP Accounts to the
SVP as compensation and related benefits. On October 29, 1998, the SVP and the
Company entered into a new facilities arrangement, effective as of October 1,
1998, for the period ended December 21, 2000, in contemplation of the SVP
transferring sole investment management and brokerage services of the SVP
Accounts to the Company.
Pursuant to this agreement, the Company will make payments 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
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 will be required to remain an employee through year 2000, and may remain
an employee or consultant thereafter.
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;
the Year 2000 Issue. 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 $83.4 million at September 30, 1998, compared with $75.4
million at December 31, 1997, and book value per share totaled $8.18 at
September 30, 1998, compared with $7.36 at December 31, 1997.
Cash and cash equivalents totaled $3.6 million at September 30, 1998,
compared with $3.8 million at December 31, 1997. Investments (at
market) totaled $69.2 million at September 30, 1998, compared with
$63.0 million at the end of 1997. Unrealized gains on investments, net
of deferred taxes, totaled $1.6 million at September 30, 1998, compared
with $1.3 million at December 31, 1997.
Owing to the loss of sizeable institutional accounts in 1997 and 1998,
and some withdrawals from existing accounts, partially offset by
positive performance results in equity accounts over the last year,
assets under management at September 30, 1998 totaled $2.02 billion,
30% less than a year ago, and 25% below year-end 1997. Account losses
have been the result of below market performance for equity accounts in
1996 and 1997.
Net income totaled $2.4 million ($.25 per share diluted) for the three
months ended September 30, 1998, compared with $1.7 million ($.19 per
share diluted) for the same period in 1997. Before non-cash
compensation charges of $563,000, net income totaled $.29 per share
diluted in the 1998 quarter. Income from money management operations
before taxes ("operating income") increased 391% to $816,000 compared
with $166,000 in the 1997 quarter. Excluding 1998 non-cash compensation
charges (see Note 2) and 1997 special charges totaling $1.9 million
(see Note 4), operating income declined 33% in the 1998 quarter. Other
income increased 16% during the same period.
Net income totaled $6.1 million ($.64 per share diluted) for the nine
months ended September 30, 1998, compared with $7.6 million ($.85 per
share diluted) for the same period in 1997. Before non-cash
compensation charges of $1.7 million, net income totaled $.74 per share
diluted in the first nine months of 1998. Operating income decreased
24% to $3.0 million in the 1998 period, compared with $3.9 million in
the first nine months of 1997. Excluding 1998 non-cash compensation
charges and 1997 special charges, operating income declined 19% in the
1998 period. Other income decreased 22% during the same period.
As previously reported, the Company's second largest account ($311
million in managed assets) terminated at the end of May. This account
generated 3.8% of operating revenues in 1997. While total operating
revenues may decline in 1998, the Company intends to continue to keep
operating expenses under close control.
II. Assets Under Management
Assets under management totaled $2.02 billion at September 30, 1998,
compared with $2.22 billion on June 30, 1998, $2.68 billion on December
31, 1997, and $2.88 billion on September 30, 1997.
During the third quarter of 1998, new accounts totaled $2 million, net
withdrawals out of client accounts totaled $7 million, and performance
decreased client account balances by $196 million.
12
For the nine months ended September 30, 1998, new accounts totaled $12
million, net withdrawals out of client accounts totaled $895 million,
and performance increased client account balances by $221 million.
In the twelve months ended September 30, 1998, new accounts totaled $15
million, net withdrawals out of client accounts totaled $1,037 million,
and performance added $162 million to managed assets.
Account losses and net cash withdrawn from existing accounts are
primarily the result of the 1996 and 1997 below market performance for
equity accounts. Performance in the first nine months of 1998 was
strong on an absolute and relative basis, and the Company's peer group
rankings continue to improve. Net client withdrawals were minimal in
the third quarter of 1998.
III. Results of Operations
Quarterly Comparison
In the third quarter of 1998 operating revenues totaled $4.0 million,
compared with $4.8 million a year ago. Average managed assets totaled
$2.10 billion in the 1998 quarter, or 27% less than the $2.88 billion
average in the third quarter of 1997, and 17% below the $2.54 billion
average in the second quarter of 1998.
Operating expenses decreased 32% to $3.2 million, compared with $4.6
million a year ago. After adjusting for the 1998 non-cash compensation
charges, and special charges recorded in the 1997 third quarter,
operating expenses decreased 5% compared with the 1997 quarter. As a
result, operating income as adjusted declined 33% to $1.4 million (35%
margin), compared with $2.1 million (43% margin) in the 1997 quarter.
Other income totaled $3.5 million in the 1998 quarter, which included
$3.1 million in net realized and unrealized capital gains. Other income
totaled $3.0 million for the same period a year ago, reflecting net
realized and unrealized capital gains of $2.5 million.
The following table depicts variances in significant income statement
items for the three months ended September 30, 1998 compared with the
same period in 1997. Explanations of the variances follow the table.
(000's)
3 Months Ended September 30
--------------------------- Percentage
1998 1997 Change
----- ------ ------
A. Advisory fees $3,593 $4,443 -19%
B. Employees' compensation 2,432 1,916 +27
C. Non-compensation expenses 720 1,307 -45
D. Separation costs --- 1,400 -100
E. Other income, net 3,509 3,036 +16
F. Income taxes 1,886 1,456 +30
13
. The decrease in advisory fees is due to the 27% decline in average
assets under management previously discussed, partially offset by an
increase in the weighted fee yield.
. The increase in employees' compensation is the result of $563,000 in
non-cash compensation charges recorded in the 1998 quarter, compared
with none in the 1997 quarter. Excluding this charge, compensation
expense decreased 2.5%.
. Non-compensation expenses decreased from a year ago due to $492,000 in
special charges recorded in the 1997 quarter. Excluding these charges,
non-compensation expenses decreased 12%.
. Separation costs of $1.4 million were recorded in the third quarter of
1997 relating to the termination without cause of the Company's former
president.
. Other income increased due to a 26% increase in net realized and
unrealized capital gains, partially offset by a 32% decrease in net
interest and dividend income.
. Income taxes increased due to the 35% increase in pre-tax income.
Nine Month Comparison
In the first nine months of 1998 operating revenues decreased 8% to
$12.9 million, compared with $14.1 million in the 1997 period. Average
managed assets totaled $2.43 billion in the first nine months of 1998,
or 14% less than the $2.82 billion average in the first nine months of
1997.
Operating expenses decreased 2% to $10.0 million, compared with $10.2
million a year ago. After adjusting for the 1998 non-cash compensation
charges, and special charges recorded in 1997, operating expenses were
unchanged compared with 1997. As a result, operating income as adjusted
declined 19% to $4.6 million (36% margin), compared with $5.8 million
(41% margin) in the 1997 period.
Other income totaled $7.8 million in the 1998 period, which included
$6.6 million in net realized and unrealized capital gains. Other income
totaled $10.0 million for the same period a year ago, reflecting net
realized and unrealized capital gains of $7.5 million.
14
The following table depicts variances in significant income statement
items for the nine months ended September 30, 1998 compared with the
same period in 1997. Explanations of the variances follow the table.
(000's)
9 Months Ended September 30
--------------------------- Percentage
1998 1997 Change
----- ------ ------
A. Advisory fees $11,706 $12,907 -9%
B. Employees' compensation 7,315 5,615 +30
C. Non-compensation expenses 2,655 3,181 -17
D. Separation costs --- 1,400 -100
E. Other income, net 7,822 9,992 -22
F. Income taxes 4,662 6,272 -26
. The decrease in advisory fees is due to the 14% decline in average
assets under management previously discussed, partially offset by an
increase in the weighted fee yield.
. The increase in employees' compensation is the result of $1.7 million
in non-cash compensation charges recorded in the 1998 period, compared
with none in the 1997 period. Excluding this charge, compensation
expense was unchanged from a year ago.
. Non-compensation expenses decreased from a year ago due to $492,000 in
special charges recorded in 1997. Excluding these charges,
non-compensation expenses decreased 1% in the 1998 period.
. Separation costs of $1.4 million were recorded in 1997 relating to the
termination without cause of the Company's former president.
. Other income decreased due to a 13% decrease in net realized and
unrealized capital gains, and a 49% decline in net interest and
dividend income (primarily due to a special dividend received in
1997).
. Income taxes decreased due to the 22% decline in pre-tax income.
IV. Liquidity and Capital Resources
At September 30, 1998 the Company had cash and cash equivalents of $3.6
million, compared with $3.8 million at the end of 1997. Operating
activities provided net cash inflows of $1.5 million in the nine months
ended September 30, 1998, compared with $1.7 million in the same period
in 1997, reflecting the changing levels of operating income and net
income over those periods. Net cash used in investing activities
totaled $1.7 million in the 1998 period, compared with net cash
provided of $6.8 million in the similar 1997 period.
15
Investments in marketable securities aggregated $69.2 million at
September 30, 1998, compared with $63.0 million at the end of 1997.
Shareholders' equity totaled $78.4 million at September 30, 1998,
compared with $70.6 million at the end of 1997, primarily due to net
income of $6.1 million recorded in the first nine months of 1998. At
September 30, 1998, the Company had no liabilities for borrowed money.
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 the market value ($11.625 per share)
of the shares awarded on the date of grant and the purchase price of
$.01 per share 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.
The first 25% of this award vested on September 17, 1998 at a market
price of $8.50 per share, resulting in a permanent tax difference
compared with the $11.625 per share the award is being amortized at.
This resulted in a $259,000 charge to paid-in capital during the third
quarter of 1998.
The Company believes that the foreseeable capital and liquidity
requirements of its existing businesses will continue to be met with
funds generated from operations.
Year 2000
As all businesses in the securities industry, the Company's operating
businesses are materially dependent on the efficient and continuous
operation of their information technology systems (consisting of
computer software, hardware, local and remote communications networks)
and the imbedded microprocessors in its equipment. Substantially all
aspects of the securities industry's activities are time sensitive,
including the execution, processing, settlement and recording of
securities transactions, the maintenance and transmission of
information about such transactions and the collection and analysis of
information about issuers, markets and economies. Moreover, all of
these functions are highly interdependent and rely on the functioning
of the information technology systems of other organizations in the
securities industry, including counterparties, brokers, clearing agents
and custodians.
Because of the potential impact of the Year 2000 Issue ("Y2K") on the
securities industry, the Securities and Exchange Commission and other
regulatory and self-regulatory securities organizations have monitored
and required reports from their members concerning Y2K and encouraged
planning for system wide function tests. Y2K arises because of concern
that there is widely distributed in information technology systems and
imbedded microprocessors date recognition and processing functions
which designate and recognize a year by the year's last two digits and
therefore would not distinguish a year in the twenty-first century from
one in the twentieth century.
The Company has conducted a full assessment of its information
technology systems and imbedded technology to determine whether they
are Y2K compliant (i.e., that they will recognize and specify dates to
properly function in the year 2000 and thereafter). It anticipates
that it will have completed the remediation and testing of all critical
systems by the end of 1998. It has completed approximately two-thirds
of that process. It has begun point-to-point testing with the systems
of third parties with which its systems interfaces and anticipates that
this process will be completed by mid-1999.
16
The Company plans to participate in several industry-wide tests next
year. Implementation of remediation and testing of non-critical systems
is substantially complete. Because much of the Company's information
technology systems are proprietary and maintained by its designer and
MIS employees, Y2K compliance has been conducted in the normal course
of business without material incremental expenditures or personnel. In
the cases where external support in the form of software upgrades or
services are required, the Company anticipates that they will be
provided by suppliers in the fourth quarter of 1998. Based on its
progress to date, the Company does not believe that the costs of Y2K
compliance will have a material effect on its financial position,
results of operations or cash flow.
However, the Company is closely monitoring the progress of third
parties' information technology systems in Y2K compliance on which its
systems are dependent. It has solicited and received assurances of
progress from such third parties and is evaluating their responses. The
Company has developed contingency plans in the event of Y2K compliance
failure by such third parties based on non-digital, traditional systems
for securities execution, processing, settlement and record keeping
which it intends to continue to develop based on the results of testing
next year. The Company is not currently in a position to assess the
effect of critical third parties' ability to achieve Y2K compliance
but believes that the impact of failure would be adverse to its
business.
17
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.
18
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: November 9, 1998 /s/ Martin T. Sosnoff
----------------------
Martin T. Sosnoff
Chairman of the Board and
Chief Executive Officer
Date: November 9, 1998 /s/ Anthony G. Miller
----------------------
Anthony G. Miller
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
19
EXHIBIT INDEX
Exhibit
Number Description Page
------- ----------- ----
2 None
4 None
11 Computation of Earnings per Share 21
15 None
18 None
19 None
20 None
23 None
24 None
25 None
27 Financial Data Schedule 22
28 None
20