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, 2000 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 10, 2000 there were 9,005,227 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, 2000
and December 31, 1999 3
Condensed Consolidated Statements
of Income and Comprehensive Income (Loss)-
Three Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements
of Income and Comprehensive Income (Loss)-
Nine Months Ended September 30, 2000 and 1999 5
Condensed Consolidated Statements
of Changes in Shareholders' Equity -
Nine Months Ended September 30, 2000 6
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended
September 30, 2000 and 1999 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 Per Share 19
Exhibit 27 - Financial Data Schedule 20
2
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
ASSETS SEPTEMBER 30, 2000 DECEMBER 31, 1999
- ------ ------------------ -----------------
Assets:
Cash and cash equivalents $ 903,897 $ 4,387,987
Accounts receivable 7,470,922 4,314,257
Due from broker 7,909,428 -
Investments, at market 90,422,046 93,637,682
Investments in limited partnerships 24,282,363 17,447,746
Fixed assets, net 1,637,236 1,429,569
Exchange memberships, at cost 402,000 402,000
Other assets 3,050,137 2,004,225
------------ ------------
Total assets $136,078,029 $123,623,466
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and other liabilities $ 1,661,142 $ 988,348
Accrued compensation payable 3,870,919 4,812,781
Due to broker 1,066,380 -
Securities sold, not yet purchased 5,204,591 -
Income taxes payable 13,183,213 16,046,699
------------ ------------
Total liabilities 24,986,245 21,847,828
------------ ------------
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, 9,005,227 and 9,075,127
shares issued and outstanding, respectively 90,052 90,751
Additional paid-in capital 19,360,958 19,455,259
Retained earnings 90,281,548 75,976,793
Accumulated other comprehensive income -
unrealized gains from investments,
net of deferred tax liabilities 4,295,889 10,191,042
Unearned compensation (2,250,401) (3,938,207)
Treasury stock, at cost, 69,900 shares (686,262) -
------------ ------------
Total shareholders' equity 111,091,784 101,775,638
------------ ------------
Total liabilities and shareholders' equity $136,078,029 $123,623,466
============ ============
Book value per common share $ 12.34 $ 11.21
============ ============
See Notes to Condensed Consolidated Financial Statements
3
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED
------------------
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
Revenues:
Advisory fees $6,098,779 $3,744,958
Commissions and other operating revenues 425,464 451,740
Realized and unrealized gains from principal
securities transactions, net 10,638,183 2,344,099
Interest and dividend income, net 229,551 187,138
---------- ----------
Total revenues 17,391,977 6,727,935
---------- ----------
Costs and expenses:
Employees' compensation 5,042,078 3,196,743
Clearing and execution costs 226,466 192,685
Selling expenses 114,235 65,507
General and administrative expenses 759,847 826,108
---------- ----------
Total costs and expenses 6,142,626 4,281,043
---------- ----------
Income before provision for income taxes 11,249,351 2,446,892
Provision for income taxes 4,748,000 1,064,000
---------- ----------
Net income $6,501,351 $1,382,892
========== ==========
Earnings per common share - basic $ 0.72 $ 0.15
========== ==========
Earnings per common share - diluted $ 0.72 $ 0.15
========== ==========
Net income, as presented above $6,501,351 $1,382,892
Other comprehensive income (loss):
Net unrealized gains (losses) from investments,
net of deferred income tax (benefit) 2,101,032 (2,189,475)
---------- ----------
Comprehensive income (loss) $8,602,383 $(806,583)
========== ==========
See Notes to Condensed Consolidated Financial Statements
4
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
Revenues:
Advisory fees $16,131,005 $11,601,255
Commissions and other operating revenues 1,565,267 1,315,215
Realized and unrealized gains from principal
securities transactions, net 22,257,361 15,345,257
Interest and dividend income, net 660,271 602,288
----------- -----------
Total revenues 40,613,904 28,864,015
---------- -----------
Costs and expenses:
Employees' compensation 12,231,632 9,058,044
Clearing and execution costs 899,856 505,024
Selling expenses 459,066 285,310
General and administrative expenses 2,249,595 2,307,528
----------- -----------
Total costs and expenses 15,840,149 12,155,906
----------- -----------
Income before provision for income taxes 24,773,755 16,708,109
Provision for income taxes 10,469,000 7,243,000
----------- -----------
Net income $14,304,755 $ 9,465,109
=========== ===========
Earnings per common share - basic $ 1.58 $ 1.03
=========== ===========
Earnings per common share - diluted $ 1.58 $ 1.03
=========== ===========
Net income, as presented above $14,304,755 $ 9,465,109
Other comprehensive income (loss):
Net unrealized gains (losses) from investments,
net of deferred income tax (benefit) (5,895,153) (3,885,272)
----------- ------------
Comprehensive income (loss) $ 8,409,602 $ 5,579,837
=========== ===========
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, 2000
(UNAUDITED)
Accumulated other
comprehensive
income -
Additional unrealized
Common Paid-In Retained losses from Unearned Treasury
Stock Capital Earnings investments, net Compensation Stock Total
----- ------- -------- ---------------- ------------ ----- -----
C>
Balance -
December 31, 1999 $90,751 $19,455,259 $75,976,793 $10,191,042 ($3,938,207) $ - $101,775,638
Purchases of treasury stock (699) 699 (686,262) (686,262)
Amortization of unearned
compensation (95,000) 1,687,806 1,592,806
Net unrealized losses from
investments, net of
deferred income tax benefit (5,895,153) (5,895,153)
Net income 14,304,755 14,304,755
------- ----------- ----------- ----------- ----------- --------- ------------
Balance -
September 30, 2000 $90,052 $19,360,958 $90,281,548 $ 4,295,889 ($2,250,401) ($686,262) $111,091,784
======= =========== =========== =========== =========== ========= ============
See Notes to Condensed Consolidated Financial Statements
6
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
------------- ------------
Cash flows from operating activities:
Net income $ 14,304,755 $ 9,465,109
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 327,397 186,986
Amortization of unearned compensation 1,687,806 1,687,806
Realized and unrealized gains from
principal securities transactions, net (22,257,361) (15,345,257)
Increase (decrease) from changes in:
Accounts receivable (3,156,665) 325,848
Other assets (1,045,912) (989,143)
Accounts payable and other liabilities 672,794 201,284
Accrued compensation payable (941,862) 405,306
Income taxes payable 971,378 3,369,954
Separation costs payable - (525,000)
------------- ------------
Net cash used in operating activities (9,437,670) (1,217,107)
------------- ------------
Cash flows from investing activities:
Due from (to) brokers (6,843,048) (1,445,478)
Purchases of fixed assets (535,065) (753,457)
Purchases of investments (191,219,588) (101,780,529)
Proceeds from sales of investments 205,237,543 105,945,110
------------- ------------
Net cash provided by investing activities 6,639,842 1,965,646
------------- ------------
Cash flows from financing activities:
Purchases of treasury stock (686,262) (2,541,740)
------------- ------------
Net cash used in financing activities (686,262) (2,541,740)
------------- ------------
Net increase (decrease) in cash and cash equivalents (3,484,090) (1,793,201)
Cash and cash equivalents, beginning of period 4,387,987 3,993,963
------------- ------------
Cash and cash equivalents, end of period $ 903,897 $ 2,200,762
============= ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 124,880 $ 52,140
============= ============
Income taxes $ 9,497,425 $ 3,502,630
============= ============
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, 2000, and the results of its operations for the three and
nine months ended September 30, 2000 and 1999. 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, 1999 Annual Report on Form 10-K. Information
included in the condensed consolidated balance sheet as of December 31, 1999 has
been derived from the audited consolidated financial statements appearing in the
Company's Annual Report on Form 10-K.
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. Investments held
by Management and certain investments held by ASCC are designated as "trading
securities" and, accordingly, are recorded at market value, with the related
unrealized gains and losses reflected in the consolidated statements of income
and comprehensive income (loss).
Investments are recorded on trade date. The cost of investments sold is
determined on the first-in, first-out method. Dividends and interest are accrued
as earned. 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.
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 net asset values as reported
by the respective Partnerships with the unrealized gain or loss recorded in the
consolidated statements of income and comprehensive income (loss).
8
Notes to Condensed Consolidated Financial Statements (cont'd)
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 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). Accordingly,
NCCC of approximately $563,000 were charged to operations in both the third
quarter of 2000 and 1999. NCCC of approximately $1.69 million was charged to
operations in the first nine months of 2000 and 1999, 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 new facilities
agreement with the SVP for the period ending December 31, 2000 under which the
SVP is relinquishing the revenues generated by the investment management and
brokerage services provided to the SVP Accounts to the Company.
Pursuant to this Agreement, the Company has or will make 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. 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
generated by the SVP Accounts has or 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 is required to remain an employee of
the Company through 2000, and may remain an employee or consultant thereafter.
Pursuant to this Agreement, compensation expense of $375,000 and $1.125 million
was recorded in the three and nine months ended September 30, 2000 and 1999,
respectively.
Note 5: Compensation Expense
Under the Company's Management Incentive Plan ("MIP"), the President of the
Company earns a bonus based upon the pre-tax operating profits earned by the
Company as general partner of the investment partnership managed by the
President, subject to a ceiling of 10% of the Company's total pre-tax income.
Included in compensation expense related to this bonus was approximately
$1,098,000 and $21,000 for the three months ended September 30, 2000 and 1999,
respectively, and approximately $2,054,000 and $108,000 for the nine months
ended September 30, 2000 and 1999, respectively.
In addition, under the MIP, an annual bonus is earned by the Chief Executive
Officer (CEO) based upon the pre-tax earnings of certain managed assets of the
Company in excess of a base indexed return, as defined,
9
Notes to Condensed Consolidated Financial Statements (cont'd)
subject to a ceiling of 10% of the Company's total pre-tax income. Included in
compensation expense related to the MIP are accrued bonuses to the CEO totaling
$650,000 and $550,000 for the three months ended September 30, 2000 and 1999,
respectively, and $750,000 for both the nine months ended September 30, 2000 and
1999, respectively.
Note 6: Treasury Stock
In January and February 2000, the Company purchased 6,500 and 5,000 shares,
respectively, of its common stock at an average market price of $8.98 per share.
In August and September 2000, the Company purchased 19,000 and 39,400 shares,
respectively, of its common stock at an average market price of $9.98 per share.
Note 7: Net Income Per Share
Basic earnings per share amounts were computed based on 9,048,153 and 9,084,227
weighted average common shares outstanding in the third quarters of 2000 and
1999, respectively, and 9,059,350 and 9,231,331 shares for the nine months ended
September 30, 2000 and 1999, respectively. For purposes of determining weighted
average common shares outstanding, the Company considers all shares legally
issued and outstanding in determining basic and diluted net income per share.
Diluted earnings per share amounts were computed based on 9,065,145 and
9,093,906 weighted average common shares outstanding in the third quarters of
2000 and 1999, respectively, and 9,072,468 and 9,239,824 shares for the nine
months ended September 30, 2000 and 1999, respectively. The shares outstanding
have been adjusted to reflect the impact of in the money options, using the
Treasury Stock method.
See Exhibit 11 for further details on the computation of earnings per common
share.
Note 8: 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.
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 $136.1 million at September 30, 2000, compared with
$123.6 million at December 31, 1999, and book value per common share
totaled $12.34 at September 30, 2000, compared with $11.21 at December
31, 1999.
Cash and cash equivalents totaled approximately $904,000 at September
30, 2000, compared with $4.4 million at December 31, 1999. Net
investments (at market) totaled $85.2 million at September 30, 2000,
compared with $93.6 million at the end of 1999. Unrealized gains on
investments, net of deferred taxes, totaled $4.3 million at September
30, 2000, compared with $10.2 million at December 31, 1999.
Assets under management at September 30, 2000 totaled $2.71 billion,
22% more than a year ago and 1% more than year-end 1999. Strong
positive performance results of $495 million combined with net client
contributions of $3 million over the twelve months ended September 30,
2000 accounted for the increase.
Net income totaled $6.5 million ($.72 per common share diluted) for the
three months ended September 30, 2000, compared with $1.4 million ($.15
per common share diluted) for the same period in 1999.
Net income totaled $14.3 million ($1.58 per common share diluted) for
the nine months ended September 30, 2000, compared with $9.5 million
($1.03 per common share diluted) for the same period in 1999.
II. Assets Under Management
Assets under management totaled $2.71 billion at September 30, 2000,
compared with $2.69 billion at December 31, 1999, and $2.22 billion on
September 30, 1999. Average assets under management increased 17% to
$2.67 billion in the third quarter of 2000, compared with $2.28 billion
in the comparable period a year ago. Average managed assets increased
10% to $2.63 billion in the first nine months of 2000, compared with
$2.39 billion in the comparable period a year ago. Average managed
assets for the third quarter of 2000 increased 3% compared with the
second quarter of 2000.
During the third quarter of 2000, new accounts totaled $51 million, net
withdrawals out of client accounts totaled $49 million, and positive
performance of $134 million increased managed assets.
During the first nine months of 2000, new accounts totaled $167
million, net withdrawals out of clients accounts totaled $150 million,
and positive performance of $11 million increased managed assets.
In the twelve months ended September 30, 2000, new accounts totaled
$190 million, net withdrawals out of client accounts totaled $187
million, and positive performance of $495 million increased managed
assets.
12
III. Results of Operations
Quarterly Comparison
Total revenues for the third quarter of 2000 increased 159% to $17.4
million, from $6.7 million in the third quarter of 1999. Revenue from
advisory fees and commissions ("operating revenue") increased 55% to
$6.5 million in 2000, as compared with $4.2 million in 1999.
Expenses for the third quarter of 2000 increased 43% to $6.1 million,
from $4.3 million in the third quarter of 1999. The increase is
primarily due to an increase in accrued bonus compensation, including
bonuses related to the Company's Management Incentive Plan ("MIP
Expense" - see Note 6). Non-cash compensation charges of $563,000
("NCCC" - see Note 3) and payments of $375,000 to a senior officer
under a revised facilities agreement involving certain managed accounts
("SVP Payments" - see Note 4) are also included in both the third
quarter of 2000 and 1999, respectively.
Excluding the accrued MIP bonus, NCCC and the SVP Payments, pre-tax
income from operations was $3.1 million and $1.4 million for the third
quarter of 2000 and 1999, respectively.
Total revenues from principal securities transactions and net interest
and dividend income was $10.9 million for the third quarter of 2000,
which is a 329% increase from the $2.5 million recorded in the third
quarter of 1999. The net realized and unrealized gains from principal
securities transactions were $6.2 million and $4.4 million,
respectively, for the third quarter of 2000, as compared to net
realized gains and unrealized losses of $2.3 million and $7,000
respectively, for the third quarter of 1999.
The following table depicts variances in significant income statement
items for the three months ended September 30, 2000 compared with the
same period in 1999. Explanations of the variances follow the table.
(000's)
3 Months Ended September 30,
---------------------------- Percentage
2000 1999 Change
------- ------- ------
A. Advisory fees $6,099 $3,745 63%
B. Realized and unrealized gains from
principal securities transactions 10,638 2,344 354%
C. Employees' compensation 5,042 3,197 58%
D. Non-compensation expenses 1,101 1,084 2%
E. Income taxes 4,748 1,064 346%
o The 63% increase in advisory fees is due to the 17% increase in average
assets under management previously discussed, and an increase in management
and incentive fees earned from a Company sponsored investment partnership of
approximately $2.1 million in the third quarter of 2000, compared with a loss
of ($16,000) in the third quarter of 1999.
13
o Realized and unrealized gains from principal securities transactions
increased 354% from the 1999 comparable period due to a increases in net
realized and unrealized gains on investments, as previously discussed.
o The increase of 58% in employees' compensation is the result of an increase
in accrued bonuses (including accrued bonuses accrued under the Company's
MIP) of $2,048,000 in the 2000 quarter, compared with $660,000 in the
comparable 1999 period. In addition, the increase in employees' compensation
is the result of an increase in accrued payouts to salespersons arising from
an increase in operating revenues and managed assets. Excluding these accrued
bonuses and sales payouts, compensation expense increased 9% in the third
quarter of 2000 compared with the third quarter of 1999.
o Non-compensation expenses increased 2% for the three months ended September
30, 2000 as compared to the 1999 quarter. The increase was primarily related
to an increase in clearing and execution costs from increased commission
revenues and an increase in selling expenses related to an increased effort
to raise assets in 2000.
o Income taxes in 2000 increased 346% due to a comparable increase in pre-tax
income.
Nine Month Comparison
Total revenues for the first nine months of 2000 increased 41% to $40.6
million, from $28.9 million in the first nine months of 1999. Operating
revenue increased 37% to $17.7 million in 2000, as compared with $12.9
million in the comparable 1999 period.
Expenses for the first nine months of 2000 increased 30% to $15.8
million, from $12.2 million in the first nine months of 1999. The
increase is primarily due to accrued bonus compensation, including
bonuses related to the Company's MIP. NCCC of $1.69 million and SVP
Payments of $1.125 million are also included in both the first nine
months of 2000 and 1999, respectively.
Excluding the accrued MIP bonus, NCCC and the SVP Payments, pre-tax
income from operations was $7.4 million and $4.4 million for the first
nine months of 2000 and 1999, respectively.
Total revenues from principal securities transactions and net interest
and dividend income was $22.9 million for the first nine months of
2000, which is a 44% increase from the $15.9 million recorded in the
first nine months of 1999. The net realized and unrealized gains from
principal securities transactions were $15.9 million and $6.4 million,
respectively, for the first nine months of 2000 as compared to realized
and unrealized gains of $10.2 million and $5.1 million, respectively,
for the first nine months of 1999.
14
The following table depicts variances in significant income statement items for
the nine months ended September 30, 2000 compared with the same period in 1999.
Explanations of the variances follow the table.
(000's)
Nine Months Ended September 30,
------------------------------- Percentage
2000 1999 Change
------ ------ ----------
A. Advisory fees $16,131 $11,601 39%
B. Realized and unrealized gains from
principal securities transactions 22,257 15,345 45%
C. Employees' compensation 12,232 9,058 35%
D. Non-compensation expenses 3,608 3,098 16%
E. Income taxes 10,469 7,243 45%
o The 39% increase in advisory fees is due to the 10% increase in average
assets under management previously discussed, and an increase in management
and incentive fees earned from a Company sponsored investment partnership of
approximately $3.8 million in 2000, compared with $456,000 in 1999.
o Realized and unrealized gains from principal securities transactions
increased 45% from the 1999 comparable period due to increases in net
realized and unrealized gains on investments, as previously discussed.
o The increase in employees' compensation is the result of an increase in
accrued bonuses (including accrued bonuses related to the Company's MIP) of
$3.5 million in the first nine months of 2000, compared with $1.2 million in
the comparable 1999 period. In addition, the increase in employees'
compensation is the result of an increase in accrued payouts to sales persons
arising from an increase in operating revenues and managed assets. Excluding
these accrued bonuses and sales payouts, compensation expense increased 6% in
the first nine months of 2000 compared with the first nine months of 1999.
o Non-compensation expenses increased 16% for the nine months ended September
30, 2000 as compared to the 1999 comparable period. The increase was
primarily related to an increase in clearing and execution costs from
increased commission revenues, and an increase in selling expenses related to
an increased effort to raise assets in 2000.
o Income taxes in 2000 increased 45% due to a comparable increase in pre-tax
income.
IV. Liquidity and Capital Resources
Investments in marketable securities, net, aggregated $85.2 million at
September 30, 2000, compared with $93.6 million at the end of 1999.
Shareholders' equity totaled $111.1 million at September 30, 2000,
compared with $101.8 million at the end of 1999, primarily from net
income of $14.3 million recorded in the first nine months of 2000 and
unrealized losses (net of deferred taxes) of $5.9 million in the
investment portfolio. The Company had a net unrealized gain of $4.3
million in shareholders' equity at September 30, 2000, compared with
$10.2 million at December 31, 1999.
15
At September 30, 2000, the Company's net investment portfolio at market
totaled $110.4 million (cost basis $82.0 million), compared with $115.5
million (cost $83.6 million) at the end of 1999, comprised of cash and
cash equivalents, corporate and convertible debt, large-cap equity
securities, and investments in limited partnerships and the
Atalanta/Sosnoff Mutual Funds. At September 30, 2000, the Company was
invested primarily in 19 separate large-cap securities, in a more
concentrated fashion of what it does for its managed client accounts.
No single security position represented 5% or more of the Company's
investment portfolio as of September 30, 2000.
If the equity market (defined as the S&P 500 index) were to decline by
10%, the Company might experience unrealized losses of approximately
$11 million; if the market were to decline by 20%, the Company might
experience unrealized losses of $22 million. However, incurring
unrealized losses of this magnitude is unlikely with active management
of the portfolio. Since the positions are primarily large-cap 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, 2000 the Company had cash and cash equivalents of
$904,000, compared with $4.4 million at the end of 1999. Operating
activities generated net cash outflows of $9.4 million in the nine
months ended September 30, 2000, compared with $1.2 million of outflows
in the same period in 1999, reflecting the changing levels of operating
assets and liabilities and net income over those periods. Net cash
provided by investing activities totaled $6.6 million in the first nine
months of 2000, compared with $2.0 million in the comparable 1999
period. The increase in 2000 was primarily the result of net proceeds
from sales of investments. Net cash outflows from financing activities
was $686,000 in the first nine months of 2000 compared to $2.5 million
of cash outflows in the comparable 1999 period.
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.
At September 30, 2000, there were no liabilities for borrowed money.
o o o
V. Year 2000
The Company has conducted a full assessment of its information
technology systems and imbedded technology and has determined that they
are Y2K compliant (i.e., that they recognize and specify dates to
properly function in the year 2000 and thereafter). The remediation and
testing of all critical systems and point-to-point testing with the
systems of third parties with which our existing systems interface has
been successfully completed. In conjunction with its Y2K readiness
process, the Company replaced its two core critical systems, trading
and portfolio accounting, with off-the-shelf commercial software
packages during 1999. To date, all of the Company's systems are
operating properly in 2000. The Company's Y2K costs were not material
through December 31, 1999 and it does not expect to incur any material
costs during 2000.
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 per Share. 19
15 None.
18 None.
19 None.
20 None.
23 None.
24 None.
25 None.
27 Financial Data Schedule 20
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 10, 2000 /s/ Martin T. Sosnoff
-------------------------------------------------
Martin T. Sosnoff
Chairman of the Board and Chief Executive Officer
Date: November 10, 2000 /s/ Anthony G. Miller
-------------------------------------------------
Executive Vice President, Chief Operating Officer
and Chief Financial Officer
18