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:
March 31, 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
-------------------------------- --------------------------------
(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 May 10, 2002 there were 8,790,707 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 - March 31, 2002
and December 31, 2001 3
Condensed Consolidated Statements
of Operations and Comprehensive Income (Loss) -
Three Months Ended March 31, 2002 and 2001 4
Condensed Consolidated Statement
of Changes in Shareholders' Equity -
Three Months Ended March 31, 2002 5
Condensed Consolidated Statements of
Cash Flows - Three Months Ended
March 31, 2002 and 2001 6
Notes to Condensed Consolidated 7 - 9
Financial Statements
Special Note Regarding Forward-Looking Statements 10
Item 2 - Management's Discussion and Analysis
of Results of Operations and Financial
Condition 11 - 13
Part II - Other Information
Items 1-6 14
Signatures 15
Exhibit 11 - Computation of Earnings (Loss) Per Share 16
2
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
ASSETS March 31, 2002 DECEMBER 31, 2001
------ -------------- -----------------
Assets:
Cash and cash equivalents $ 1,568,363 $ 1,940,653
Accounts receivable 2,990,769 3,071,180
Due from brokers 777,410 748,263
Investments, at market 71,106,995 73,583,683
Investments in limited partnerships 22,404,471 24,320,671
Fixed assets, net 1,147,814 1,272,504
Exchange memberships, at cost 402,000 402,000
Other assets 4,123,579 4,155,943
------------ ------------
Total assets $104,521,401 $109,494,897
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Income taxes payable $ 2,039,714 $ 4,951,233
Accounts payable and other liabilities 656,133 471,761
Accrued compensation payable 195,048 450,540
Due to broker 2,530,112 1,015,533
Securities sold not yet purchased, at market value -- 203,000
------------ ------------
Total liabilities 5,421,007 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 82,556,228 83,716,965
Accumulated other comprehensive income (loss) -
unrealized gains (losses) from investments,
net of deferred income tax (credit) (776,619) 1,260,980
Treasury stock, at cost, 10,000 and zero
shares, respectively (104,100) --
------------ ------------
Total shareholders' equity 99,100,394 102,402,830
------------ ------------
Total liabilities and shareholders' equity $104,521,401 $109,494,897
============ ============
Book value per common share $ 11.17 $ 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
------------------
MARCH 31, 2002 MARCH 31, 2001
-------------- --------------
Revenues:
Advisory fees $ 3,454,341 $ 3,608,317
Commissions and other operating revenues 403,806 560,478
Realized and unrealized gains (losses) from principal
securities transactions, net (3,107,506) (3,255,272)
Interest and dividend income, net 307,117 234,593
------------ ------------
Total revenues 1,057,758 1,148,116
------------ ------------
Costs and expenses:
Employees' compensation 1,993,814 2,830,463
Clearing and execution costs 155,607 238,999
Selling expenses 119,321 128,057
General and administrative expenses 886,753 919,019
------------ ------------
Total costs and expenses 3,155,495 4,116,538
------------ ------------
Income (loss) before provision for
income taxes (benefit) (2,097,737) (2,968,422)
Provision for income taxes (benefit) (937,000) (1,347,000)
------------ ------------
Net income (loss) $(1,160,737) $(1,621,422)
============ ============
Earnings (loss) per common share - basic $ (0.13) $ (0.18)
============ ============
Earnings per common share - diluted $ N/A $ N/A
============ ============
Net income (loss), as presented above $(1,160,737) $(1,621,422)
Comprehensive income (loss):
Net unrealized gains (losses) from investments,
net of deferred income tax (credit) (2,037,599) (4,795,240)
------------ ------------
Comprehensive income (loss) $(3,198,336) $(6,416,662)
============ ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 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 (104,100) (104,100)
Net unrealized losses from
investments, net of deferred
income tax benefit (2,037,599) (2,037,599)
Net loss (1,160,737) (1,160,737)
------- --------- ----------- ---------- ---------- -----------
Balance -
March 31, 2002 $88,857 $17,336,028 $82,556,228 $(776,619) $(104,100) $99,100,394
======= =========== =========== ========== ========== ===========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
2002 2001
--------------- --------------
Cash flows from operating activities:
Net income (loss) $ (1,160,737) $ (1,621,422)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 136,787 128,223
Amortization of unearned compensation --- 562,602
Realized and unrealized (gains) losses from
principal securities transactions, net 3,107,506 3,255,272
Increase (decrease) from changes in:
Accounts receivable 80,411 565,533
Other assets 32,364 (62,729)
Income taxes payable (1,624,816) (1,373,090)
Accounts payable and other liabilities 184,495 (95,825)
Accrued compensation payable (255,492) (5,282,632)
------------ ------------
Net cash provided by (used in) operating activities 500,518 (3,924,068)
------------ ------------
Cash flows from investing activities:
Due to brokers 1,485,432 4,137,522
Purchases of fixed assets (12,097) (21,770)
Purchases of investments (47,820,875) (78,992,770)
Proceeds from sales of investments 45,578,832 82,464,878
------------ ------------
Net cash provided by (used in) investing activities (768,708) 7,587,860
------------ ------------
Cash flows from financing activities:
Dividends paid -- (2,268,781)
Purchases of treasury stock (104,100) --
------------ ------------
Net cash used in financing activities (104,100) (2,268,781)
------------ ------------
Net decrease in cash and cash equivalents (372,290) 1,395,011
Cash and cash equivalents, beginning of period 1,940,653 988,689
------------ ------------
Cash and cash equivalents, end of period $ 1,568,363 $ 2,383,700
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 19,431 $ 79,138
============= ==============
Income taxes $ 506,893 $ 26,090
============ ==============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
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 March 31, 2002, and the results of its operations and cash flows for the
three months ended March 31, 2002 and 2001. 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, 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.
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 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.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 2: INVESTMENTS, AT MARKET - CONT'D
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).
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 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
was charged to operations in the three months ended March 31, 2001 compared to
none in the first three months of 2002.
NOTE 4: 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
months ended March 31, 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 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. Accrued
compensation expense related to these bonuses was $75,000 for the three months
ended March 31, 2002, compared with none for the three months ended March 31,
2001.
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 months ended March 31, 2002
and 2001, respectively.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 5: TREASURY STOCK
In February and March 2002, the Company purchased 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 25,000 shares of its common stock
at an average market price of $12.15 per share.
Due to the resignation of the Company's Chief Operating Officer, the Company has
agreed to buy back 175,000 shares of its common stock, based on book value at
April 30, 2002, by May 31, 2002.
NOTE 6: EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share amounts were computed based on 8,883,207 and
9,005,227 weighted average common shares outstanding in the first quarters of
2002 and 2001, respectively. Because the Company reported a loss for the three
months ended March 31, 2002 and 2001, respectively, 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.
9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q under the caption
"Management's Discussion and Analysis of Results of Operations and Financial
Condition", and elsewhere in this Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include among others, the following: general economic and business
conditions; the loss of, or the failure to replace, any significant clients;
changes in the relative investment performance of client or firm accounts and
changes in the financial marketplace, particularly in the securities markets.
These forward-looking statements speak only as of the date of this Quarterly
Report. The Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
10
Part I. Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
I. GENERAL
The assets of the Company totaled $104.5 million at March 31, 2002,
compared with $109.5 million at December 31, 2001, and book value per
common share totaled $11.17 at March 31, 2002, compared with $11.52 at
December 31, 2001.
Cash and cash equivalents totaled $1.6 million at March 31, 2002,
compared with $1.9 million at December 31, 2001. Net investments (at
market) totaled $71.1 million at March 31, 2002, compared with $73.6
million at the end of 2001. Accumulated unrealized losses on investments,
net of deferred tax benefit, totaled $777,000 at March 31, 2002, compared
with accumulated unrealized gains, net of deferred taxes, of $1.3 million
at December 31, 2001.
Assets under management at March 31, 2002 totaled $2.41 billion, or 2%
more than at March 31, 2001, and 2% more than at December 31, 2001.
Positive performance results of $55 million primarily accounts for the
increase in assets under management over the twelve months ended March
31, 2002.
The Company had a net loss of $1.2 million ($(.13) per common share) for
the three months ended March 31, 2002, compared with a net loss of $1.6
million ($(.18) per common share) for the same period in 2001.
After eliminating non-operating charges, pretax operating income totaled
$703,000 in the first quarter of 2002, compared with $614,000 in the
first quarter of 2001.
II. ASSETS UNDER MANAGEMENT
Assets under management totaled $2.41 billion at March 31, 2002, compared
with $2.36 billion at December 31, 2001, and $2.35 billion at March 31,
2001. Average assets under management decreased to $2.36 billion in the
first quarter of 2002, compared with $2.57 billion in the comparable
period a year ago. Average managed assets for the first quarter of 2002
increased 6% compared with the fourth quarter of 2001.
During the first three months of 2002, new accounts of $35 million and
net positive client cash flows of $50 million, partially offset by lost
accounts of $22 million and negative performance of $13 million,
accounted for the increase in managed assets. In the twelve months ended
March 31, 2002, new accounts of $176 million and positive performance of
$55 million, partially offset by lost accounts and net withdrawals out of
client accounts of $177 million, accounted for the increase in managed
assets.
11
III. RESULTS OF OPERATIONS
QUARTERLY COMPARISON
Revenue from advisory fees and commissions ("operating revenue")
decreased to $3.9 million in the first quarter of 2002, as compared with
$4.2 million in the first quarter of 2001. The Company had a net loss on
investments of $2.8 million in the first quarter of 2002, compared with a
net loss on investments of $3.0 million in the first quarter of 2001.
Expenses for the first quarter of 2002 decreased 23% to $3.2 million,
from $4.1 million in the first quarter of 2001.
The following table depicts variances in significant statement of
operations items for the three months ended March 31, 2002 compared with
the same period in 2001. Explanations of the variances follow the table.
(000's)
3 Months Ended March 31,
------------------------ Percentage
2002 2001 Change
---- ---- ------
A. Advisory fees $3,454 $3,608 (4%)
B. Realized and unrealized gains
(losses) from principal securities
transactions, net (3,108) (3,255) N/A
C. Employees' compensation 1,994 2,830 (30%)
D. Non-compensation expenses 1,162 1,286 (10%)
o The 4% decrease in advisory fees is primarily due to the difficult market
conditions in 2001 and 2002 and the decrease in average assets under
management as discussed above.
o The Company recorded a net realized and unrealized loss from investment
transactions of $3.1 million in the first quarter of 2002, compared with
a net realized and unrealized loss from investment transactions of $3.3
million for the first quarter of 2001. The net realized and unrealized
losses from principal securities transactions were $748,000 and $2.4
million, respectively, for the first quarter of 2002, as compared to net
realized gains and unrealized losses of $517,000 and $3.7 million,
respectively, for the first quarter of 2001.
o The decrease of 30% in employees' compensation is primarily due to the
aforementioned decrease in advisory fees and the resulting decrease in
sales payouts and accrued bonus compensation. Additionally, non-cash
compensation charges of $563,000 are included in the first quarter of
2001, compared to none in the first quarter of 2002.
o Non-compensation expenses decreased 10% for the three months ended March
31, 2002 as compared to the 2001 comparable quarter. The decrease was
primarily related to a decrease in clearing and execution costs and in
general and administrative expenses.
12
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 $71.1 million at March 31,
2002, compared with $73.6 million at the end of 2001. Shareholders'
equity decreased to $99.1 million at March 31, 2002, from $102.4 million
at the end of 2001, primarily from unrealized losses from investments
(net of deferred tax credit) of $2.1 million in the investment portfolio
and a net loss from operations of $1.2 million for the three months ended
March 31, 2002. The Company had a net accumulated unrealized loss on
investments of $776,000 in shareholders' equity at March 31, 2002,
compared with a net accumulated unrealized gain on investments of $1.3
million at December 31, 2001.
At March 31, 2002, the Company's net investment portfolio at market
totaled $95.1 million (cost basis $90.3 million), compared with $99.8
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 limited partnerships. At March 31, 2002, the Company was
invested primarily in 17 separate large-cap equity securities, 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 $9
million; if the market were to decline by 20%, the Company might
experience unrealized losses of $18 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 March 31, 2002, the Company had cash and cash equivalents of $1.6
million, compared with $1.9 million at the end of 2001. Operating
activities generated net cash inflows of $501,000 in the three months
ended March 31, 2002, compared with $3.9 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
used in investing activities totaled $769,000 in the first three months
of 2002, compared with $7.6 million provided by investing activities in
the comparable 2001 period. The increase and decrease in 2002 and 2001
was primarily the result of net proceeds from investment transactions.
Net cash outflows from financing activities was $104,000 in the first
three months of 2002 compared with $2.3 million in the comparable 2001
period. The cash outflow in 2001 was the result of paying dividends
accrued at December 31, 2000.
In February and March 2002, the Company purchased 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 25,000 shares of its common stock at an average market price
of $12.15 per share.
Due to the resignation of the Company's Chief Operating Officer, the
Company has agreed to buy back 175,000 shares of its common stock, based
on book value of April 30, 2002 by May 31, 2002.
At March 31, 2002, there were no liabilities for borrowed money.
13
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
At the Company's Annual Meeting of Shareholders held on
May 9, 2002, the election of the Board of Directors'
nominees was approved, the amendment to the Management
Incentive Plan was approved, and ratification of the
appointment of the company's independent auditors was
approved.
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. 16
15 None.
18 None.
19 None.
20 None.
23 None.
24 None.
25 None.
28 None.
Reports on Form 8-K: March 28, 2002
Reports on Form 8-KA April 10, 2002
14
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: May 10, 2002 /s/ Martin T. Sosnoff
----------------------
Martin T. Sosnoff
Chairman of the Board and Chief Executive Officer
Date: May 10, 2002 /s/ Kevin S. Kelly
------------------
Kevin S. Kelly
Senior Vice President, Chief Financial Officer
15