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, 2002 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 filing
requirements for the past 90 days.
Yes [X] No [ ]
As of November 8, 2002 there were 8,470,715 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, 2002
and December 31, 2001 3
Condensed Consolidated Statements
of Operations and Comprehensive Income (Loss)-
Three Months Ended September 30, 2002 and 2001 4
Condensed Consolidated Statements
of Operations and Comprehensive Income (Loss)-
Nine Months Ended September 30, 2002 and 2001 5
Condensed Consolidated Statement
of Changes in Shareholders' Equity-
Nine Months Ended September 30, 2002 6
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended
September 30, 2002 and 2001 7
Notes to Condensed Consolidated
Financial Statements 8 - 10
Special Note Regarding Forward - Looking Statements 11
Item 2 - Management's Discussion and Analysis
of Results of Operations and Financial
Condition 12 - 16
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 16
Item 4 - Controls and Procedures 16
Part II - Other Information
Items 1-6 17
Signatures 18
Certification 19 - 22
Exhibit 11 - Computation of Earnings (Loss) Per Common Share 23
2
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
ASSETS SEPTEMBER 30, 2002 DECEMBER 31, 2001
- ------ ------------------ -----------------
Assets:
Cash and cash equivalents $ 1,310,134 $ 1,940,653
Accounts receivable 2,363,076 3,071,180
Due from broker 2,687,264 748,263
Investments, at market 64,268,180 73,583,683
Investments in limited partnerships 6,533,925 24,320,671
Deferred and other tax assets 6,313,432 -
Fixed assets, net 945,936 1,272,504
Exchange memberships, at cost 402,000 402,000
Other assets 3,669,253 4,155,943
------------ ------------
Total assets $ 88,493,200 $109,494,897
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Accounts payable and other liabilities $ 1,152,061 $ 471,761
Accrued compensation payable 206,932 450,540
Income taxes payable - 4,951,233
Due to broker 211,786
1,015,533
Securities sold not yet purchased, at market 73,458 203,000
------------ ------------
Total liabilities 1,644,237 7,092,067
------------ ------------
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; 8,885,707
shares issued 88,857 88,857
Additional paid-in capital 17,336,028 17,336,028
Retained earnings 77,553,007 83,716,965
Accumulated other comprehensive income (loss) -
unrealized gains (losses) from investments,
net of deferred income tax (credit) (3,542,357) 1,260,980
Treasury stock, at cost, 414,992 and zero
shares, respectively (4,586,572) -
------------ ------------
Total shareholders' equity 86,848,963 102,402,830
------------ ------------
Total liabilities and shareholders' equity $ 88,493,200 $109,494,897
============ ============
Book value per common share $ 10.25 $ 11.52
============ ============
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, 2002 SEPTEMBER 30, 2001
------------------ ------------------
Revenues:
Advisory fees $ 3,149,712 $ 3,505,266
Commissions and other operating revenues 296,926 365,246
Realized and unrealized gains (losses) from principal
securities transactions, net (3,740,621) (5,534,994)
Interest and dividend income, net 342,978 246,076
------------ -----------
Total revenues 48,995 (1,418,406)
------------ -----------
Costs and expenses:
Employees' compensation 2,002,318 2,514,058
Clearing and execution costs 143,430 154,519
Selling expenses 124,369 75,903
General and administrative expenses 980,728 808,409
------------ -----------
Total costs and expenses 3,250,845 3,552,889
------------ -----------
Income (loss) before provision for
income taxes (benefit) (3,201,850) (4,971,295)
Provision for income taxes (benefit) (3,882,000) (2,175,000)
------------ -----------
Net income (loss) $ 680,150 $(2,796,295)
============ ===========
Earnings (loss) per common share - basic $ 0.08 $ (0.31)
============ ===========
Earnings (loss) per common share - diluted $ 0.08 $ N/A
============ ===========
Net income (loss), as presented above $ 680,150 $(2,796,295)
Comprehensive income (loss):
Net unrealized gains (losses) from investments,
net of deferred income tax (credit) (384,254) (6,237,006)
------------ -----------
Comprehensive income (loss) $ 295,896 $(9,033,301)
============ ===========
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, 2002 SEPTEMBER 30, 2001
------------------ ------------------
Revenues:
Advisory fees $ 9,873,732 $ 10,577,864
Commissions and other operating revenues 1,030,611 1,341,775
Realized and unrealized gains (losses) from principal
securities transactions, net (15,636,607) (5,865,607)
Interest and dividend income, net 856,767 614,086
------------ ------------
Total revenues (3,875,497) 6,668,118
------------ ------------
Costs and expenses:
Employees' compensation 5,929,049 8,358,799
Clearing and execution costs 410,942 583,488
Selling expenses 376,652 360,462
General and administrative expenses 2,908,816 2,533,662
------------ ------------
Total costs and expenses 9,625,461 11,836,411
------------ ------------
Income (loss) before provision for
income taxes (benefit) (13,500,958) (5,168,293)
Provision for income taxes (benefit) (7,337,000) (2,292,000)
------------ ------------
Net income (loss) $ (6,163,958) $ (2,876,293)
============ ============
Earnings (loss) per common share - basic $ (0.71) $ (0.32)
============ ============
Earnings (loss) per common share - diluted $ N/A $ N/A
============ ============
Net income (loss), as presented above $ (6,163,958) $ (2,876,293)
Comprehensive income (loss):
Net unrealized gains (losses) from investments,
net of deferred income tax (credit) (4,803,337) (8,293,499)
------------ ------------
Comprehensive income (loss) $(10,967,295) $(11,169,792)
============ ============
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, 2002
(UNAUDITED)
Accumulated other
comprehensive
income (loss) -
Additional unrealized gains
Common Paid-In Retained (losses) from Treasury
Stock Capital Earnings investments, net Stock Total
----- ------- -------- ---------------- ----- -----
Balance - December 31, 2001 $88,857 $17,336,028 $83,716,965 $1,260,980 $ -- $102,402,830
Purchases of treasury stock (4,586,572) (4,586,572)
Net unrealized losses from
investments, net of deferred
income tax benefit (4,803,337) (4,803,337)
Net loss (6,163,958) (6,163,958)
------- ----------- ----------- ----------- ----------- ------------
Balance - September 30, 2002 $88,857 $17,336,028 $77,553,007 $(3,542,357) $(4,586,572) $ 86,848,963
======= =========== =========== =========== =========== ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
------------- -------------
Cash flows from operating activities:
Net income (loss) $ (6,163,958) $ (2,876,293)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 376,551 392,704
Amortization of unearned compensation - 1,687,799
Realized and unrealized (gains) losses from
principal securities transactions, net 15,636,607 5,865,607
Increase (decrease) from changes in:
Accounts receivable 708,104 2,847,516
Other assets (58,732) (1,122,132)
Income taxes (8,060,614) (5,801,796)
Accounts payable and other liabilities 680,300 584,989
Accrued compensation payable (243,608) (5,054,100)
------------- -------------
Net cash provided by (used in) operating activities 2,874,650 (3,475,706)
------------- -------------
Cash flows from investing activities:
Due from/to brokers (2,742,748) (7,915,233)
Purchases of fixed assets (49,983) (23,344)
Purchases of investments (126,759,307) (146,685,106)
Proceeds from sales of investments 130,088,019 161,034,500
------------- -------------
Net cash provided by investing activities 535,981 6,410,817
------------- -------------
Cash flows from financing activities:
Dividends paid - (2,268,781)
Purchases of treasury stock (4,041,150) (1,339,863)
------------- -------------
Net cash used in financing activities (4,041,150) (3,608,644)
------------- -------------
Net decrease in cash and cash equivalents (630,519) (673,533)
Cash and cash equivalents, beginning of period 1,940,653 1,940,653
------------- -------------
Cash and cash equivalents, end of period $ 1,310,134 $ 1,267,120
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 38,998 $ 176,121
============= =============
Income taxes $ 472,439 $ 3,509,796
============= =============
Noncash investing and financing activity:
Repayment of a loan receivable with
treasury stock $ 565,422 $ -
============= =============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7
ATALANTA/SOSNOFF CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
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, 2002, and the results of its operations and cash flows for
the three and nine months ended September 30, 2002 and 2001. Certain information
normally included in the financial statements and related notes prepared in
accordance with accounting principles generally accepted in the United States of
America 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,
2001 Annual Report on Form 10-K. Information included in the condensed
consolidated balance sheet as of December 31, 2001 has been derived from the
audited consolidated financial statements appearing in the Company's Annual
Report on Form 10-K.
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 high-cost 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 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
INVESTMENTS IN LIMITED PARTNERSHIPS
Capital serves as the 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).
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. Included in the third quarter of 2002 was a positive adjustment to the
Company's estimated provision for income taxes of $3.2 million.
NOTE 2: 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 was 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 was charged to operations in both the three and nine months ended
September 30, 2001 compared to none in the three and nine months ended September
30, 2002.
NOTE 3: 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, 2002 and 2001, respectively.
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 one of the Partnerships and the Offshore Fund managed by the
President, and an annual bonus based upon the pretax earnings of the Company's
investment in the Partnership managed by the President in excess of a base
indexed return. There was no MIP bonus earned and accrued for the three and nine
months ended September 30, 2002 and 2001, 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. There was no
MIP bonus earned and accrued to the CEO in the three and nine months ended
September 30, 2002 and 2001, respectively.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 4: TREASURY STOCK
In February and March 2002, the Company purchased an aggregate of 10,000 shares
of its common stock at an average market price of $10.41 per share. In April
2002, the Company purchased 60,000 shares of its common stock at an average
market price of $12.05 per share. In May 2002, the Company purchased 40,000
shares of its common stock at an average market price of $12.19 per share. In
July 2002, the Company purchased 72,000 shares of its common stock at an average
market price of $10.95 per share.
In May 2002, upon the resignation of the Company's Chief Operating Officer, the
Company bought back from him 175,000 shares of its common stock at a price of
$10.96 per share, the stock's book value at April 30, 2002.
In accordance with the terms of his agreements with the Company entered into in
September 1997, the President of the Company sold 57,992 shares of the Company
stock back to the Company at a market price of $9.75 per share in September 2002
to satisfy a loan to the President arising from the tax consequences of the 1997
award to him under the LTIP.
NOTE 5: EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share amounts were computed based on 8,501,837
and 8,907,667 weighted average common shares outstanding in the third quarters
of 2002 and 2001, respectively. Diluted earnings per common share amounts were
computed based on 8,519,224 weighted average common shares outstanding in the
three months ended September 30, 2002. Basic earnings (loss) per common share
amounts were computed based on 8,710,910 and 8,956,927 weighted average common
shares in the first nine months of 2002 and 2001, respectively. Because the
Company reported a loss in the third quarter of 2001 and for the first nine
months of 2002 and 2001, respectively, the effect of stock options is
antidilutive in determining dilutive earnings per common share.
See Exhibit 11 for further details on the computation of earnings (loss) 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
The assets of the Company totaled $88.5 million at September 30, 2002,
compared with $109.5 million at December 31, 2001, and book value per
common share totaled $10.25 at September 30, 2002, compared with $11.52 at
December 31, 2001.
Cash and cash equivalents totaled $1.3 million at September 30, 2002,
compared with $1.9 million at December 31, 2001. Net investments (at
market) totaled $64.2 million at September 30, 2002, compared with $73.4
million at the end of 2001. Accumulated unrealized losses on investments,
net of deferred tax benefit, totaled $3.5 million at September 30, 2002,
compared with accumulated unrealized gains, net of deferred taxes, of $1.3
million at December 31, 2001.
Assets under management at September 30, 2002 totaled $1.96 billion, or 6%
less than at September 30, 2001 and 17% less than at December 31, 2001.
Negative performance results of $190 million and lost accounts of $103
million, partially offset by new accounts of $142 million and net positive
client cash flows of $17 million, accounted for the $138 million net
decrease in assets under management over the twelve months ended September
30, 2002.
The Company had net income of $680,000 ($.08 per common share diluted) for
the three months ended September 30, 2002, compared with a net loss of $2.8
million ($(.31) per common share) for the same period in 2001. The Company
had a net loss of $6.2 million ($(.71) per common share) for the nine
months ended September 30, 2002, compared with a net loss of $2.9 million
($(.32) per common share) for the first nine months of 2001. Included in
the third quarter of 2002 was a positive adjustment to the Company's
estimated provision for income taxes of $3.2 million.
After eliminating non-operating charges, pretax operating income totaled
$196,000 in the third quarter of 2002, compared with $880,000 in the third
quarter of 2001 and $1.3 million for the nine months ended September 30,
2002, compared with $1.8 million for the nine months ended September 30,
2001.
II. ASSETS UNDER MANAGEMENT
Assets under management totaled $1.96 billion at September 30, 2002,
compared with $2.36 billion at December 31, 2001, and $2.09 billion at
September 30, 2001. Average assets under management decreased 7% to $2.07
billion in the third quarter of 2002, compared with $2.24 billion in the
comparable period a year ago. Average managed assets for the third quarter
of 2002 decreased 11% compared with the second quarter of 2002.
During the first nine months of 2002, new accounts of $105 million, offset
by lost accounts of $86 million and negative performance of $417 million,
accounted for the $398 million net decrease in managed assets. In the
twelve months ended September 30, 2002, new accounts of $142 million and
net positive client cash flows of $17 million, offset by lost accounts of
$103 million and negative performance of $190 million, accounted for the
$138 million net decrease in managed assets.
12
III. RESULTS OF OPERATIONS
QUARTERLY COMPARISON
Revenue from advisory fees and commissions ("operating revenue") decreased
11% to $3.4 million in the third quarter of 2002, as compared with $3.9
million in the third quarter of 2001. The Company had a net loss on
investments of $3.4 million in the third quarter of 2002, compared with a
net loss on investments of $5.3 million in the third quarter of 2001.
Expenses for the third quarter of 2002 decreased 9% to $3.3 million, from
$3.6 million in the third quarter of 2001.
The following table depicts variances in significant statement of
operations items for the three months ended September 30, 2002 compared
with the same period in 2001. Explanations of the variances follow the
table.
(000's)
3 Months Ended September 30,
---------------------------- Percentage
2002 2001 Change
----- ------ ------
A. Advisory fees $3,150 $3,505 (10)%
B. Realized and unrealized gains
(losses) from principal securities
transactions, net (3,741) (5,535) N/A
C. Employees' compensation 2,002 2,514 (20)%
D. Non-compensation expenses 1,248 1,039 20%
o The 10% decrease in advisory fees is primarily due to the difficult market
conditions in 2002 and the decrease in average assets under management and
thus a decline in advisory fees.
o The Company recorded a net realized and unrealized loss from investment
transactions of $3.7 million in the third quarter of 2002, compared with a
net realized and unrealized loss from investment transactions of $5.5
million for the third quarter of 2001. The net realized gains and
unrealized losses from principal securities transactions were $4.2 million
and $7.9 million, respectively, for the third quarter of 2002, as compared
to net realized gains and unrealized losses of $189,000 and $5.7 million,
respectively, for the third quarter of 2001.
o The decrease of 20% in employees' compensation is primarily due to non-cash
compensation charges of $563,000 included in the second quarter of 2001,
compared to none in the second quarter of 2002. In addition, a significant
portion of employee's compensation is directly related to operating
revenues including bonuses and sales payouts.
o Non-compensation expenses increased 20% for the three months ended
September 30, 2002 as compared to the 2001 comparable quarter. The increase
was primarily related to increases in selling expenses and certain
professional fees and related costs included in general and administrative
expenses.
13
YEAR-TO-DATE COMPARISON
Operating revenue decreased 9% to $10.9 million in the first nine months of
2002, as compared with $11.9 million in the first nine months of 2001. The
Company had a net loss on investments of $14.8 million in the nine months
ended September 30, 2002, compared with a net loss on investments of $5.3
in the 2001 period. Expenses for the first nine months of 2002 decreased
19% to $9.6 million, from $11.8 million in the first nine months of 2001.
The following table depicts variances in significant statement of
operations items for the nine months ended September 30, 2002 compared with
the same period in 2001. Explanations of the variances follow the table.
(000's)
9 Months Ended September 30,
---------------------------- Percentage
2002 2001 Change
----- ------ ------
A. Advisory fees $9,874 $10,578 (7)%
B. Realized and unrealized gains
(losses) from principal securities
transactions, net (15,637) (5,866) N/A
C. Employees' compensation 5,929 8,359 (29)%
D. Non-compensation expenses 3,696 3,478 6%
o The 7% decrease in advisory fees is primarily due to the difficult market
conditions in 2001 and 2002 and the decrease in assets under management and
thus a decline in advisory fees.
o The Company recorded a net realized and unrealized loss from investment
transactions of $15.6 million in the first nine months of 2002, compared
with a net realized and unrealized loss of $5.9 million for the first nine
months of 2001. The net realized and unrealized losses from principal
securities transactions were $728,000 and $14.9 million, respectively, for
the first nine months of 2002, as compared to net realized gains and
unrealized losses of $1.6 million and $7.5 million, respectively, for the
first nine months of 2001.
o The decrease of 29% in employees' compensation is primarily due to a
decrease in accrued bonus and sales payout compensation as a result of the
decline in operating revenues and non-cash compensation charges of
$1,688,000 included in the first nine months of 2001, compared with none in
the same period for 2002.
o Non-compensation expenses increased 6% for the nine months ended September
30, 2002 as compared to the 2001 comparable period. The increase was
primarily related to a moderate increase in general and administrative
expenses partially offset by a decrease in clearing and execution costs.
14
IV. LIQUIDITY AND CAPITAL RESOURCES
Investments
Net investments, which includes corporate and convertible debt, U.S.
government agency debt instruments, marketable equity securities and the
Atalanta/Sosnoff Mutual Funds, aggregated $64.2 million at September 30,
2002, compared with $73.4 million at the end of 2001. Shareholders' equity
decreased to $86.8 million at September 30, 2002, from $102.4 million at
the end of 2001, primarily from an unrealized loss on investments (net of
deferred tax credit) of $4.8 million in the investment portfolio, treasury
stock transactions of $4.6 million and a net loss of $6.2 million for the
nine months ended September 30, 2002. The Company had a net accumulated
unrealized loss on investments of $3.5 million in shareholders' equity at
September 30, 2002, compared with a net accumulated unrealized gain on
investments of $1.3 million at December 31, 2001.
At September 30, 2002, the Company's net investment portfolio at market
totaled $72.0 million (cost basis $78.0 million), compared with $99.6
million (cost $83.1 million) at the end of 2001, which was comprised of
cash and cash equivalents, net investments described above and investments
in company sponsored limited partnerships. At September 30, 2002, the
Company was invested primarily in 19 separate large-cap equity securities
and corporate bonds, in a more concentrated fashion of what it does for its
managed client accounts.
If the equity market (defined as the S&P 500 index) were to decline by 10%,
the Company might experience unrealized losses of approximately $7 million;
if the market were to decline by 20%, the Company might experience
unrealized losses of $14 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.
Cash Flows
At September 30, 2002, the Company had cash and cash equivalents of $1.3
million, compared with $1.9 million at the end of 2001. Operating
activities generated net cash inflows of $2.9 million in the nine months
ended September 30, 2002, compared with $3.5 million of net cash outflows
in the same period in 2001, reflecting the changing levels of operating
assets and liabilities and net income (loss) over those periods. Net cash
provided by investing activities totaled $536,000 in the first nine months
of 2002, compared with $4.9 million in the comparable 2001 period. The
increase in 2002 and 2001 was primarily the result of net proceeds from
investment transactions. Net cash outflows from financing activities was
$4.0 million in the first nine months of 2002 compared with $3.6 million in
the comparable 2001 period. The cash outflow in 2002 was the result of
purchasing treasury stock, as described below. The cash outflow in 2001 was
the result of paying dividends accrued at December 31, 2000 and purchases
of treasury stock.
Equity Transactions
In February and March 2002 the Company purchased an aggregate of 10,000
shares of its common stock at an average market price of $10.41 per share.
In April 2002, the Company purchased 60,000 shares of its common stock, at
an average market price of $12.05 per share. In May 2002, the Company
purchased 40,000 shares of its common stock at an average market price of
$12.19 per share. In July
15
2002, the Company purchased 72,000 shares of its common stock at an average
market price of $10.95 per share.
In May 2002, upon the resignation of the Company's Chief Operating Officer,
the Company bought back from him 175,000 shares of its common stock at a
price of $10.96 per share, the stock's book value of April 30, 2002.
In accordance with the terms of his agreements with the Company entered
into in September 1997, the President of the Company sold 57,992 shares of
the Company stock back to the Company at a market price of $9.75 per share
in September 2002 to satisfy a loan to the President arising from the tax
consequences of the 1997 award to him under the LTIP.
Financing Arrangements
At September 30, 2002, there were no liabilities for borrowed money.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
None, except as set forth under heading, "Investments", in Part I,
Item 2., Subpart IV hereof.
Item 4. Controls and Procedures
The Chief Executive Officer and Principal Financial Officer of the
Corporation, based on their evaluation of the Disclosure Controls and
Procedures in place on November 8, 2002, have concluded that they are
effective to provide reasonable assurance that the Corporation is able to
collect, process and disclose the information required by this Quarterly
Report and there were not any significant changes in the Corporation's
internal controls or in other factors which could significantly effect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses in such controls and procedures. The Corporation has initiated a
program of regular review of its disclosure controls and procedures by a
newly formed committee composed of its General Counsel and Chief Financial
Officer.
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 Holders
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 Common Share. 23
15 None.
18 None.
19 None.
20 None.
23 None.
24 None.
25 None.
28 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 8, 2002 /s/ Martin T. Sosnoff
---------------------------------
Martin T. Sosnoff
Chairman of the Board and
Chief Executive Officer
Date: November 8, 2002 /s/ Kevin S. Kelly
---------------------------------
Kevin S. Kelly
Senior Vice President, Chief
Financial Officer, Secretary
18
CERTIFICATION
I, Martin T. Sosnoff, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atalanta/Sosnoff
Capital Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date");
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
19
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 8, 2002
/s/ Martin T. Sosnoff
- ----------------------------------------
Martin T. Sosnoff, Chairman of the Board
and Chief Executive Officer
20
CERTIFICATION
I, Kevin S. Kelly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atalanta/Sosnoff
Capital Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date");
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
21
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 8, 2002
/s/ Kevin S. Kelly
- -----------------------------------------------
Kevin S. Kelly, Senior Vice President, Finance,
Chief Financial Officer and Secretary
22