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, 2001 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 October 26, 2001 there were 8,885,707 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, 2001
and December 31, 2000 3
Condensed Consolidated Statements
of Operations and Comprehensive Income (Loss) -
Three Months Ended September 30, 2001 and 2000 4
Condensed Consolidated Statements
Of Operations and Comprehensive Income (Loss) -
Nine Months Ended September 30, 2001 and 2000 5
Condensed Consolidated Statement
of Changes in Shareholders' Equity -
Nine Months Ended September 30, 2001 6
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended
September 30, 2001 and 2000 7
Notes to Condensed Consolidated 8-10
Financial Statements
Special Note Regarding Forward-Looking Statements 11
Item 2 - Management's Discussion and Analysis
of Results of Operations and Financial
Condition 12-16
Part II - Other Information
Items 1-6 17
Signatures 18
Exhibit 11 - Computation of Earnings (Loss) Per Share 19
2
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
ASSETS SEPTEMBER 30, 2001 DECEMBER 31, 2000
- ------ ------------------ -----------------
Assets:
Cash and cash equivalents $ 1,267,120 $ 3,488,606
Accounts receivable 3,423,330 6,270,846
Due from brokers 12,549,822 3,086,636
Investments, at market 52,291,386 83,597,861
Investments in limited partnerships 21,698,134 25,295,627
Deferred tax asset 2,489,811 -
Fixed assets, net 1,324,993 1,694,353
Exchange memberships, at cost 402,000 402,000
Other assets 4,200,378 3,078,246
-------------- --------------
Total assets $99,646,974 $126,914,175
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Income taxes payable $ 1,782,566 $ 10,623,550
Accounts payable and other liabilities 1,259,324 674,335
Accrued compensation payable 361,319 5,415,419
Dividends payable - 2,268,781
Securities sold not yet purchased, at market value - 866,469
-------------- --------------
Total liabilities 3,403,209 19,848,554
-------------- --------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $1.00 per share;
5,000,000 shares authorized; none issued - -
Common stock, $.01 par value; 30,000,000
shares authorized , 9,075,127
shares issued 90,751 90,751
Additional paid-in capital 19,360,259 19,360,259
Retained earnings 82,334,559 85,210,852
Accumulated other comprehensive income (loss) -
unrealized gains (losses) from investments,
net of deferred income tax (credit) (3,515,679) 4,777,820
Unearned compensation - (1,687,799)
Treasury stock, at cost, 189,420 and 69,900
shares, respectively (2,026,125) (686,262)
-------------- --------------
Total shareholders' equity 96,243,765 107,065,621
-------------- --------------
Total liabilities and shareholders' equity $99,646,974 $126,914,175
============== ==============
Book value per common share $ 10.83 $ 11.89
============== ==============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED
------------------
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
Revenues:
Advisory fees $ 3,505,266 $ 6,098,779
Commissions and other operating revenues 365,246 425,464
Realized and unrealized gains (losses) from principal
securities transactions, net (5,534,994) 10,638,183
Interest and dividend income, net 246,076 229,551
------------ -----------
Total revenues (1,418,406) 17,391,977
------------ -----------
Costs and expenses:
Employees' compensation 2,514,058 5,042,078
Clearing and execution costs 154,519 226,466
Selling expenses 75,903 114,235
General and administrative expenses 808,409 759,847
------------ -----------
Total costs and expenses 3,552,889 6,142,626
------------ -----------
Income (loss) before provision for
income taxes (benefit) (4,971,295) 11,249,351
Provision for income taxes (benefit) (2,175,000) 4,748,000
------------ -----------
Net income (loss) $(2,796,295) $6,501,351
============ ===========
Earnings (loss) per common share - basic $ (0.31) $ 0.72
============ ===========
Earnings per common share - diluted $ N/A $ 0.72
============ ===========
Net income (loss), as presented above $ (2,796,295) $6,501,351
Comprehensive income (loss):
Net unrealized gains (losses) from investments,
net of deferred income tax (credit) (6,237,006) 2,101,032
------------ -----------
Comprehensive income (loss) $ (9,033,301) $ 8,602,383
============ ===========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
Revenues:
Advisory fees $ 10,577,864 $16,131,005
Commissions and other operating revenues 1,341,775 1,565,267
Realized and unrealized gains (losses) from principal
securities transactions, net (5,865,607) 22,257,361
Interest and dividend income, net 614,086 660,271
------------ -----------
Total revenues 6,668,118 40,613,904
------------ -----------
Costs and expenses:
Employees' compensation 8,358,799 12,231,632
Clearing and execution costs 583,488 899,856
Selling expenses 360,462 459,066
General and administrative expenses 2,533,662 2,249,595
------------ -----------
Total costs and expenses 11,836,411 15,840,149
------------ -----------
Income (loss) before provision for
income taxes (benefit) (5,168,293) 24,773,755
Provision for income taxes (benefit) (2,292,000) 10,469,000
------------ -----------
Net income (loss) $(2,876,293) $14,304,755
============ ===========
Earnings (loss) per common share - basic $ (0.32) $ 1.58
============ ===========
Earnings per common share - diluted N/A $ 1.58
============ ===========
Net income (loss), as presented above $ (2,876,293) $14,304,755
Comprehensive income (loss):
Net unrealized gains (losses) from investments,
net of deferred income tax (benefit) (8,293,499) (5,895,153)
------------ -----------
Comprehensive income (loss) $(11,169,792) $ 8,409,602
============ ===========
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, 2001
(UNAUDITED)
Accumulated other
comprehensive
income (loss) -
Additional unrealized gains
Common Paid-In Retained (losses) from Unearned Treasury
Stock Capital Earnings investments, net Compensation Stock Total
----- ------- -------- ---------------- ------------ ----- -----
Balance -
December 31, 2000 $90,751 $19,360,259 $85,210,852 $4,777,820 ($1,687,799) ($686,262) $107,065,621
Purchase of treasury stock (1,339,863) (1,339,863)
Amortization of unearned
compensation 1,687,799 1,687,799
Net unrealized losses from
investments, net of
deferred income tax benefit
(8,293,499) (8,293,499)
Net loss (2,876,293) (2,876,293)
------- ----------- ----------- ---------- ----------- --------- ------------
Balance -
September 30, 2001 $90,751 $19,360,259 $82,334,559 $(3,515,679) - $(2,026,125) $96,243,765
======= =========== =========== =========== =========== =========== ===========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
19
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
2001 2000
-------------- --------------
Cash flows from operating activities:
Net income (loss) $ (2,876,293) $ 14,304,755
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 392,704 327,397
Amortization of unearned compensation 1,687,799 1,687,806
Realized and unrealized (gains) losses from
principal securities transactions, net 5,865,607 (22,257,361)
Increase (decrease) from changes in:
Accounts receivable 2,847,516 (3,156,665)
Other assets (1,122,132) (1,045,912)
Income taxes payable (5,801,796) 971,378
Accounts payable and other liabilities 584,989 672,794
Accrued compensation payable (5,054,100) (941,862)
------------- -------------
Net cash used in operating activities (3,475,706) (9,437,670)
------------- -------------
Cash flows from investing activities:
Due to brokers (9,463,186) (6,843,048)
Purchases of fixed assets (23,344) (535,065)
Purchases of investments (146,685,106) (191,219,588)
Proceeds from sales of investments 161,034,500 205,237,543
------------- -------------
Net cash provided by investing activities 4,862,864 6,639,842
------------- -------------
Cash flows from financing activities:
Dividends paid (2,268,781) --
Purchases of treasury stock (1,339,863) (686,262)
------------- -------------
Net cash used in financing activities (3,608,644) (686,262)
------------- -------------
Net decrease in cash and cash equivalents (2,221,486) (3,484,090)
Cash and cash equivalents, beginning of period 3,488,606 4,387,987
------------- -------------
Cash and cash equivalents, end of period $1,267,120 $903,897
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 176,121 $ 124,880
============= =============
Income taxes $ 3,509,796 $ 9,497,425
============= =============
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 September 30, 2001, and the results of its operations and cash flows for
the three and nine months ended September 30, 2001 and 2000. Certain information
normally included in the financial statements and related notes prepared in
accordance with generally accepted accounting principles has been condensed or
omitted. These condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and notes
thereto appearing in the Company's December 31, 2000 Annual Report on Form 10-K.
Information included in the condensed consolidated balance sheet as of December
31, 2000 has been derived from the audited consolidated financial statements
appearing in the Company's Annual Report on Form 10-K.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 141 ("SFAS No. 141") "Business Combinations," which is
effective for periods beginning after September 30, 2001 and Statement of
Financial Accounting Standards No. 142 ("SFAS No. 142") "Goodwill and Other
Intangible Assets," which is effective for fiscal years beginning after December
15, 2001. Management does not believe that the impact of the adoption of SFAS
No. 141 and SFAS No. 142 on the Company's financial position or results of
operations to be material.
NOTE 2: INVESTMENTS, AT MARKET
The Company records its investments in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, with the exception
of investments held by Management. The Company has designated certain
investments held by the Holding Company, Capital and ASCC in equity and debt
securities as "available for sale" and, accordingly, recorded these investments
at market value with the related unrealized gains and losses net of deferred
taxes reported as a separate component of shareholders' equity. ASCC holds
certain equity and debt securities as "trading" securities which are recorded at
market value, with the related unrealized gains and losses reflected in the
consolidated statements of operations and comprehensive income (loss).
Investments held by Management are recorded at market value, with the related
unrealized gains and losses reflected in the consolidated statements of
operations and comprehensive income (loss).
Investments are recorded on trade date. The cost of investments sold is
determined on the first-in, first-out method. Securities listed on a securities
exchange for which market quotations are available are valued at the last quoted
sales price as of the last business day of the period. Investments in mutual
funds are valued based upon the net asset value of shares held as reported by
the fund. Securities with no reported sales on such date are valued at their
last closing bid price. Dividends and interest are accrued as earned.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 2: INVESTMENTS, AT MARKET - CONT'D
Capital serves as a general partner for three Company-sponsored investment
partnerships (the "Partnerships") and as the investment manager for a
Company-sponsored offshore investment fund (the "Offshore Fund"). Investments in
limited partnerships are carried in the accompanying condensed consolidated
financial statements at the Company's share of the respective Partnership's net
assets with the unrealized gain or loss recorded in the consolidated statements
of operations and comprehensive income (loss).
NOTE 3: NON-CASH COMPENSATION CHARGES ("NCCC") UNDER 1996 LONG TERM INCENTIVE
PLAN ("LTIP")
In September 1997, the Company awarded 775,000 shares of restricted stock at the
issue price of $.01 per share to two senior executives of the Company under the
terms of the LTIP. Such awards vested over the four year period ended September
30, 2001. The difference of $9.0 million between market value ($11.625 per
share) on the date of grant and the purchase price is recorded as unearned
compensation in shareholders' equity and was amortized over a four-year period
which commenced with the fourth quarter of 1997 (approximately $563,000 per
quarter and $2.25 million annually). Accordingly, NCCC of approximately $563,000
and $1,688,000 were charged to operations in both the three and nine months
ended September 30, 2001 and 2000, respectively.
NOTE 4: SENIOR VICE PRESIDENT ACCOUNTS
Certain high net worth accounts subject to the over-all supervision and control
of the Company are under the management of a Senior Vice President (the "SVP
Accounts"). Effective October 1, 1998, the Company entered into a facilities
agreement with the SVP for the period ended December 31, 2000 under which the
SVP relinquished the right to receive revenues generated by the investment
management and brokerage services provided to the SVP Accounts to the Company.
Pursuant to this Agreement, the Company has made payments to the SVP in three
installments in January of 1999, 2000 and 2001 based upon a multiple of
annualized revenues of the SVP Accounts in the fourth quarter of 1998, 1999 and
2000, respectively. Based upon the SVP Accounts asset value over the period, the
Company recognized approximately $2.9 million as compensation expense ratably
over the term of the arrangement. In addition, Management and the SVP agreed to
change the split of Net Profits paid to the SVP from 100% during the twelve
month period ended September 30, 1998 to 50% for the twelve month period ended
September 30, 1999, 25% for the twelve month period ended September 30, 2000,
and 0% thereafter. The SVP has remained an employee of the Company.
NOTE 5: COMPENSATION EXPENSE
Effective January 1, 1993, the Company adopted the Management Incentive Plan
(the "MIP") for certain senior executives. Under one component of the MIP, each
participant is entitled to receive their assigned share of the annual reward
pool, which is computed based on operating income performance goals, as defined
in the MIP. There was no MIP operating bonus earned and accrued in the three and
nine months ended September 30, 2001 and 2000, respectively.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 5: COMPENSATION EXPENSE - CONT'D
Pursuant to another component of the MIP, the President of the Company earns a
bonus based upon the pretax operating profits earned by the Company as general
partner of the hedge fund managed by the President, and an annual bonus based
upon the pretax earnings of the Company's investment in the hedge fund managed
by the President in excess of a base indexed return, subject to a ceiling of 10%
of total pretax income. Compensation expense related to these bonuses was
$150,000 for the three and nine months ended September 30, 2001, compared with
$1.1 million and $2.1 million for the three and nine months ended September 30,
2000, respectively.
In addition, under a separate component of the MIP, an annual bonus is earned by
the Chief Executive Officer (CEO) based upon the pretax earnings of certain
managed assets of the Company in excess of a base indexed return, as defined,
subject to a ceiling of 10% of total pretax income. Included in compensation
expense related to the MIP are accrued bonuses to the CEO totaling $650,000 and
$750,000 for the three and nine months ended September 30, 2000, respectively,
compared with none for the three and nine months ended September 30, 2001.
NOTE 6: TREASURY STOCK
In May 2001, the Company purchased 94,920 shares of its common stock at an
average market price of $11.50 per share. In September 2001, the Company
purchased 24,600 shares of its common stock at an average market price of $10.09
per share.
NOTE 7: EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share amounts were computed based on 8,907,667 and
9,048,153 weighted average common shares outstanding in the third quarters of
2001 and 2000, respectively. Diluted earnings per share amounts were computed
based on 9,065,145 weighted average common shares outstanding in the three
months ended September 30, 2000. Basic earnings (loss) per share amounts were
computed based on 8,956,927 and 9,059,350 weighted average common shares in the
first nine months of 2001 and 2000, respectively. Diluted earnings per share
amounts were computed based on 9,072,468 weighted average common shares
outstanding in the nine months ended September 30, 2000. Because the Company
reported a loss for the three and nine months ended September 30, 2001, the
effect of stock options is antidilutive in determining dilutive earnings per
share.
See Exhibit 11 for further details on the computation of earnings per common
share.
10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q under the caption
"Management's Discussion and Analysis of Results of Operations and Financial
Condition", and elsewhere in this Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include among others, the following: general economic and business
conditions; the loss of, or the failure to replace, any significant clients;
changes in the relative investment performance of client or firm accounts and
changes in the financial marketplace, particularly in the securities markets.
These forward-looking statements speak only as of the date of this Quarterly
Report. The Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
11
Part I. Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
I. GENERAL
Assets totaled $99.6 million at September 30, 2001, compared with
$126.9 million at December 31, 2000, and book value per common share
totaled $10.83 at September 30, 2001, compared with $11.89 at December
31, 2000.
Cash and cash equivalents totaled $1.3 million at September 30, 2001,
compared with $3.5 million at December 31, 2000. Net investments (at
market) totaled $52.3 million at September 30, 2001, compared with
$82.7 million at the end of 2000. Unrealized losses on investments, net
of deferred tax benefit, totaled $3.5 million at September 30, 2001,
compared with unrealized gains, net of deferred taxes, of $4.8 million
at December 31, 2000.
Assets under management at September 30, 2001 totaled $2.09 billion, or
23% less than at September 30, 2000 and 12% less than at June 30, 2001.
Negative performance results of $467 million combined with net client
withdrawals of $155 million over the twelve months ended September 30,
2001 account for the decrease.
The Company had a net loss of $2.8 million ($(.31) per common share)
for the three months ended September 30, 2001, compared with net income
of $6.5 million ($.72 per common share diluted) for the same period in
2000. The Company had a net loss of $2.9 million (($.32) per common
share) for the nine months ended September 30, 2001, compared with net
income of $14.3 million ($1.58 per common share diluted) for the first
nine months of 2000.
After eliminating non-operating charges, pretax operating income
totaled $880,000 in the third quarter of 2001, compared with $2.1
million in the third quarter of 2000, and $1.8 million for the nine
months ended September 30, 2001, compared with $5.8 million for the
nine months ended September 30, 2000.
II. ASSETS UNDER MANAGEMENT
Assets under management totaled $2.09 billion at September 30, 2001,
compared with $2.37 billion at June 30, 2001, and $2.71 billion at
September 30, 2000. Average assets under management decreased to $2.24
billion in the third quarter of 2001, compared with $2.67 billion in
the comparable period a year ago. Average managed assets for the third
quarter of 2001 decreased 7% compared with the second quarter of 2001.
During the first nine months of 2001, new accounts of $154 million,
offset by net withdrawals out of client accounts of $298 million and
negative performance of $471 million, accounted for the decrease in
managed assets. In the twelve months ended September 30, 2001, new
accounts of $187 million, offset by net withdrawals out of client
accounts of $342 million and negative performance of $467 million,
accounted for the decrease in managed assets.
12
III. RESULTS OF OPERATIONS
QUARTERLY COMPARISON
Revenue from advisory fees and commissions ("operating revenue")
decreased to $3.9 million in the third quarter of 2001, as compared
with $6.5 million in the third quarter of 2000. The Company had a net
loss on investments of $5.3 million in the third quarter of 2001,
compared with net investment income of $10.9 million in the third
quarter of 2000.
Expenses for the third quarter of 2001 decreased 42% to $3.6 million,
from $6.1 million in the third quarter of 2000.
The following table depicts variances in significant statement of
operations items for the three months ended September 30, 2001 compared
with the same period in 2000. Explanations of the variances follow the
table.
(000's)
3 Months Ended September 30,
---------------------------- Percentage
2001 2000 Change
----- ------ ------
A. Advisory fees $3,505 $6,099 (43%)
B. Realized and unrealized gains
(losses) from principal securities
transactions, net (5,535) 10,638 N/A
C. Employees' compensation 2,514 5,042 (50%)
D. Non-compensation expenses 1,039 1,102 (6%)
o The 43% decrease in advisory fees is primarily due to the difficult
market conditions in 2001 and the decrease in assets under management
as discussed above. Additionally, the Company experienced a decrease in
incentive fees earned from a Company sponsored investment partnership;
from approximately $1.9 million earned in the third quarter of 2000,
compared with none in the third quarter of 2001.
o The Company recorded a net realized and unrealized loss from investment
transactions of $5.5 million in the third quarter of 2001, compared
with a net realized and unrealized gain from investment transactions of
$10.6 million for the third quarter of 2000. The net realized gains and
unrealized losses from principal securities transactions were $189,000
and $5.7 million, respectively, for the third quarter of 2001, as
compared to net realized gains and unrealized gains of $6.2 million and
$4.5 million, respectively, for the third quarter of 2000.
o The decrease of 50% in employees' compensation is primarily due to the
aforementioned decrease in advisory fees and the resulting decrease in
sales payouts and accrued bonus compensation, including bonuses related
to the Company's Management Incentive Plan. Also, payments of $375,000
to a senior officer under a revised facilities agreement involving
certain managed accounts are included in the third quarter of 2000,
compared with none in the third quarter of 2001. Non-cash compensation
charges of $563,000 are included in both the third quarters of 2001 and
2000.
13
o Non-compensation expenses decreased 6% for the three months ended
September 30, 2001 as compared to the 2000 comparable quarter. The
decrease was primarily related to a decrease in clearing and execution
costs and in selling expenses partially offset by a moderate increase
in general and administrative expenses.
YEAR-TO-DATE COMPARISON
Total revenues for the first nine months of 2001 decreased to $6.7
million, as compared with $40.6 million in the first nine months of
2000. Operating revenue decreased to $11.9 million in the first nine
months of 2001, as compared with $17.7 million in the first nine months
of 2000. The Company had a net loss on investments of $5.3 million in
the nine months ended September 30, 2001, compared with net investment
income of $22.9 million in the first nine months of 2000.
Expenses for the first nine months of 2001 decreased 25% to $11.8
million, compared with $15.8 million in the first nine months of 2000.
The following table depicts variances in significant statement of
operations items for the nine months ended September 30, 2001 compared
with the same period in 2000. Explanations of the variances follow the
table.
(000's)
9 Months Ended September 30,
---------------------------- Percentage
2001 2000 Change
----- ------ ------
A. Advisory fees $10,578 $16,131 (34%)
B. Realized and unrealized gains
(losses) from principal securities
transactions, net (5,866) 22,257 N/A
C. Employees' compensation 8,359 12,232 (32%)
D. Non-compensation expenses 3,478 3,609 (4%)
o The 34% decrease in advisory fees is primarily due to the difficult
market conditions in 2001 and the decrease in assets under management
as discussed above. Additionally, the Company experienced a decrease in
incentive fees earned from a Company sponsored investment partnership;
from approximately $3.4 million earned in the first nine months of
2000, compared with none in 2001.
o Difficult market conditions contributed to the Company recording a net
realized and unrealized loss from investment transactions of $5.9
million in the first nine months of 2001, compared with a net realized
and unrealized gain of $22.3 million for the first half of 2000. The
net realized gains and unrealized losses from principal securities
transactions were $1.6 million and $7.5 million, respectively, for the
first nine months of 2001, as compared with net realized and unrealized
gains of $15.8 million and $6.5 million, respectively, for the first
nine months of 2000.
14
o The decrease of 32% in employees' compensation is primarily due to a
decrease in sales payouts and accrued bonus compensation as a result of
the decline in operating revenues, including bonuses related to the
Company's Management Incentive Plan. Also, payments of $1,125,000 to a
senior officer under a revised facilities agreement involving certain
managed accounts are included in the first nine months of 2000,
compared with none in the first nine months of 2001. Non-cash
compensation charges of $1,688,000 are included in the first nine
months of 2001 and 2000, respectively.
o Non-compensation expenses decreased 4% for the nine months ended
September 30, 2001 as compared with the 2000 comparable period. The
decrease was primarily related to a decrease in clearing and execution
costs and in selling expenses, partially offset by a moderate increase
in general and administrative expenses.
IV. LIQUIDITY AND CAPITAL RESOURCES
Investments, net, which includes corporate and convertible debt, U.S.
government agency debt instruments, marketable equity securities and
the Atalanta/Sosnoff Mutual Funds, aggregated $52.3 million at
September 30, 2001, compared with $82.7 million at the end of 2000.
Shareholders' equity decreased to $96.2 million at September 30, 2001,
from $107.1 million at the end of 2000, primarily from unrealized
losses (net of deferred tax credit) of $8.3 million in the investment
portfolio and a net loss from operations of $2.9 million for the nine
months ended September 30, 2001. The Company had a net unrealized loss
on investments of $3.5 million in shareholders' equity at September 30,
2001, compared with an unrealized gain on investments of $4.8 million
at December 31, 2000.
At September 30, 2001, the Company's net investment portfolio at
market totaled $75.3 million (cost basis $71.1 million), compared with
$111.5 million (cost $86.0 million) at the end of 2000, which was
comprised of cash and cash equivalents, net investments described above
and investments in limited partnerships. At September 30, 2001, the
Company was invested primarily in 15 separate large-cap equity
securities, in a more concentrated fashion of what it does for its
managed client accounts. The largest security position was in Philip
Morris, which represented 10.9% of the Company's investment portfolio
as of September 30, 2001.
If the equity market (defined as the S&P 500 index) were to decline by
10%, the Company might experience unrealized losses of approximately $8
million; if the market were to decline by 20%, the Company might
experience unrealized losses of $15 million. However, incurring
unrealized losses of this magnitude is unlikely with active management
of the portfolio. Since the positions are primarily large-cap equity
holdings, they can be sold easily on short notice with little market
impact. Ultimately, the Company will raise and hold cash to reduce
market risk.
At September 30, 2001, the Company had cash and cash equivalents of
$1.3 million, compared with $3.5 million at the end of 2000. Operating
activities generated net cash outflows of $3.5 million in the nine
months ended September 30, 2001, compared with $9.4 million of outflows
in the same period in 2000, reflecting the changing levels of operating
assets and liabilities and net income (loss) over those periods. Net
cash provided by investing activities totaled $4.9 million in the first
nine months of 2001, compared with $6.6 million in the comparable 2000
period. The increase in 2001 and 2000 was primarily the result of net
proceeds from investment transactions. Net cash outflows from financing
activities was $3.6 million in the first nine months of 2001 compared
with $686,000 of cash outflows in the comparable 2000 period. The cash
outflow in 2001 was the result of purchasing treasury stock and
15
paying dividends accrued at December 31, 2000, and the outflow in 2000
is a result of purchasing treasury stock.
In January and February 2000, the Company purchased 6,500 and 5,000
shares of its common stock, respectively, at an average market price of
$8.98 per share. In August and September 2000, the Company purchased
19,000 and 39,400 shares of its common stock, respectively, at an
average market price of $9.98 per share. In May 2001, the Company
purchased 94,920 shares of its common stock at an average market price
of $11.50 per share. In September 2001, the Company purchased 24,600
shares of its common stock at an average market price of $10.09 per
share.
At September 30, 2001, there were no liabilities for borrowed money.
New Accounting Pronouncements The Financial Accounting Standards Board
has issued Statement of Financial Accounting Standards No. 141 ("SFAS
No. 141") "Business Combinations," which is effective for periods
beginning after September 30, 2001 and Statement of Financial
Accounting Standards No. 142 ("SFAS No. 142") "Goodwill and Other
Intangible Assets," which is effective for fiscal years beginning after
December 15, 2001. Management does not believe that the impact of the
adoption of SFAS No. 141 and SFAS No. 142 on the Company's financial
position or results of operations to be material.
16
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Default upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit
Number Description Page
------ ----------- ----
2 None.
4 None.
11 Computation of Earnings (loss) per Share. 19
15 None.
18 None.
19 None.
20 None.
23 None.
24 None.
25 None.
28 None.
Reports on Form 8-K: None.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Atalanta/Sosnoff Capital Corporation
Date: November 5, 2001 /s/ Martin T. Sosnoff
----------------------
Martin T. Sosnoff
Chairman of the Board and Chief Executive Officer
Date: November 5, 2001 /s/ Anthony G. Miller
---------------------
Anthony G. Miller
Executive Vice President, Chief Operating Officer
Date: November 5, 2001 /s/ Kevin S. Kelly
------------------
Kevin S. Kelly
Senior Vice President, Chief Financial Officer
18