<PAGE>
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, 1996 Commission File Number: 1-9137
ATALANTA/SOSNOFF CAPITAL CORPORATION
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3339071
- - -------------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer I.D. No.)
of incorporation or organization)
101 PARK AVENUE, NEW YORK, NEW YORK 10178
- - --------------------------------------------------------------------------------
(Address of principal executive offices (zip code)
(212) 867-5000
- - --------------------------------------------------------------------------------
(Registrant's Telephone Number, including area code)
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such following
requirements for the past 90 days.
Yes |X| No |_|
As of November 5, 1996 there were 8,812,401 shares of common stock outstanding.
1
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ATALANTA/SOSNOFF CAPITAL CORPORATION
INDEX
Page No.
--------
Part I - Financial Information
Item 1 - Financial Statements
Condensed Consolidated Statements
of Financial Condition - September 30, 1996
and December 31, 1995..................................3
Condensed Consolidated Statements
of Income - Three and Nine Months Ended
September 30, 1996 and 1995............................4-5
Condensed Consolidated Statement
of Changes in Shareholder's Equity
- Nine Months Ended September 30, 1996.................6
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended
September 30, 1996 and 1995............................7-8
Notes to Condensed Consolidated
Financial Statements...................................9
Item 2 - Management's Discussion and Analysis
of Results of Operations and Financial
Condition..............................................10-13
Part II - Other Information
Items 1-6.............................................................14
Signatures.................................................................15
Exhibit Index..............................................................16
Exhibit 11 - Computation of Earnings Per Share.............................17
2
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ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
September 30, December 31,
ASSETS 1996 1995
------ ----------- -----------
(UNAUDITED)
Cash and cash equivalents $ 9,978,295 $27,890,844
Accounts receivable 4,066,177 4,358,970
Receivable from clearing broker 2,324,652
Investments, at market 52,158,690 23,282,531
Fixed assets, net 497,978 110,201
Exchange memberships, at cost 402,000 402,000
Other assets 287,912 127,670
----------- -----------
Totals $67,391,052 $58,496,868
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
Liabilities:
Accounts payable and other liabilities $ 1,588,737 $ 548,422
Accrued compensation payable 454,459 2,332,313
Income taxes payable, net 622,723 1,098,702
Payable to clearing broker 4,292,625
----------- -----------
Totals 6,958,544 3,979,437
----------- -----------
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; 8,812,401 shares
outstanding 88,124 88,124
Additional paid - in capital 15,646,874 15,646,874
Retained earnings 43,970,455 37,551,694
Unrealized gains from investments, net of
deferred taxes of $484,997 and $820,786
respectively 727,055 1,230,739
----------- -----------
Totals 60,432,508 54,517,431
----------- -----------
Totals $67,391,052 $58,496,868
=========== ===========
Book value per share $ 6.86 $ 6.19
=========== ===========
See Notes to Condensed Consolidated Financial Statements
3
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ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------
September 30, September 30,
1996 1995
------------- -------------
Revenues:
Advisory fees $ 4,650,247 $ 4,843,231
Commissions and other 333,175 385,458
----------- -----------
Totals 4,983,422 5,228,689
----------- -----------
Costs and expenses:
Employees' compensation 2,077,610 2,313,193
Clearing and execution costs 110,274 139,304
Selling expenses 95,429 89,643
General and administrative expenses 685,257 637,161
----------- -----------
Totals 2,968,570 3,179,301
----------- -----------
Operating income 2,014,852 2,049,388
----------- -----------
Other income (expense) :
Interest and dividend income 513,950 547,873
Interest expense (4,545) (5,007)
Realized gains from investments, net 930,539 3,070,089
----------- -----------
Other income, net 1,439,944 3,612,955
----------- -----------
Income before provision
for income taxes 3,454,796 5,662,343
Provision for income taxes 1,467,000 2,412,000
----------- -----------
Net income $ 1,987,796 $ 3,250,343
=========== ===========
Earnings per share - primary :
Net income $ 0.23 $ 0.37
=========== ===========
See Notes to Condensed Consolidated Financial Statements
4
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ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED
-----------------------------
September 30, September 30,
1996 1995
------------- -------------
Revenues:
Advisory fees $14,627,659 $13,271,129
Commissions and other 1,207,851 1,269,214
----------- -----------
Totals 15,835,510 14,540,343
----------- -----------
Costs and expenses :
Employees' compensation 6,406,592 6,703,063
Clearing and execution costs 411,849 473,409
Selling expenses 344,144 304,918
General and administrative expenses 2,029,093 1,843,800
----------- -----------
Totals 9,191,678 9,325,190
----------- -----------
Operating income 6,643,832 5,215,153
----------- -----------
Other income (expense) :
Interest and dividend income 1,346,751 1,459,143
Interest expense (10,391) (16,272)
Realized gains from investments, net 3,233,569 6,800,482
----------- -----------
Other income, net 4,569,929 8,243,353
----------- -----------
Income before provision
for income taxes 11,213,761 13,458,506
Provision for income taxes 4,795,000 5,744,000
----------- -----------
Net income $ 6,418,761 $ 7,714,506
=========== ===========
Earnings per share - primary :
Net income $ 0.73 $ 0.88
=========== ===========
See Notes to Condensed Consolidated Financial Statements
5
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ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Additional Gains
Common Paid-in Retained (Losses) -
Stock Capital Earnings net Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1995 $ 88,124 $ 15,646,874 $ 37,551,694 $ 1,230,739 $ 54,517,431
Unrealized losses from
investments, net of
deferred taxes (503,684) (503,684)
Net Income 6,418,761 6,418,761
------------ ------------ ------------ ------------ ------------
Balance, September 30,
1996 $ 88,124 $ 15,646,874 $ 43,970,455 $ 727,055 $ 60,432,508
============ ============ ============ ============ ============
</TABLE>
6
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ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- -----------
Cash flows from operating activities:
Net income $ 6,418,761 $ 7,714,506
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation 91,186 107,281
Gain from investments (3,233,569) (6,800,482)
Increase (decrease) from changes in :
Accounts receivable 292,793 (799,070)
Other assets (160,242) 224,903
Accounts payable and
other liabilities 1,040,315 2,115,098
Accrued compensation payable (1,877,854) (762,423)
Income taxes payable (140,190) 1,110,630
----------- -----------
Net cash provided by
operating activities 2,431,200 2,910,443
----------- -----------
Cash flows from investing activities:
Payable to clearing broker 6,617,278 2,310,780
Purchases of fixed assets (478,964) (13,616)
Purchases of investments (87,767,162) (101,591,699)
Proceeds from sales of
investments 61,285,099 124,949,883
----------- -----------
Net cash (used in) provided by
investing activities (20,343,749) 25,655,348
----------- -----------
Continued on page 8
7
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ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- -----------
Continued from page 7 :
Cash flows from financing activities:
Repurchases of common stock $ 0 $ 0
Dividends paid 0 (1,321,860)
----------- -----------
Net cash used in
financing activities 0 (1,321,860)
----------- -----------
Net increase (decrease) in cash
and cash equivalents (17,912,549) 27,243,931
Cash and cash equivalents,
beginning of year 27,890,844 3,408,374
----------- -----------
Cash and cash equivalents,
end of period $ 9,978,295 $30,652,305
=========== ===========
Supplemental disclosure of
cash flow information :
Cash paid during the period for:
Interest $ 10,391 $ 16,272
=========== ===========
Income taxes $ 4,935,190 $ 4,633,370
=========== ===========
See Notes to Condensed Consolidated Financial Statements
8
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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 and its direct and indirect
wholly-owned subsidiaries, Atalanta/Sosnoff Capital Corporation (Delaware)
("Capital"), and Atalanta/Sosnoff Management Corporation ("Management").
In the opinion of management, the accompanying unaudited condensed
consolidated historical financial statements reflect all adjustments (which
include only normal recurring accruals) necessary to present fairly the
Company's financial position as of September 30, 1996, and the results of its
operations for the three and nine months ended September 30, 1996 and 1995.
Certain information normally included in 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, 1995 Annual Report on Form
10-K. Information included in the condensed consolidated balance sheet as of
December 31, 1995 has been derived from the audited consolidated financial
statements appearing in the Company's Annual Report on Form 10-K.
Note 2: Net Income Per Share
Primary earnings per share amounts were computed based on 8,828,954 and
8,819,792 weighted average common shares outstanding in the third quarters of
1996 and 1995, respectively, and 8,866,440 and 8,817,364 shares outstanding in
the first nine months of 1996 and 1995, respectively. The shares outstanding
have been adjusted to reflect the impact of in the money options, using the
Treasury Stock method.
See Exhibit ll for further details on the computation of net income per
share.
Note 3: Provision for 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.
9
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Part I. Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
I. General
Total assets were $67.4 million at September 30, 1996, compared with $58.5
million at December 31, 1995. Book value per share was $6.86 at September
30, 1996, compared with $6.19 at December 31, 1995.
Cash and cash equivalents were $10.0 million at September 30, 1996,
compared with $27.9 million at December 31, 1995, while investments totaled
$52.2 million at September 30, 1996, compared with $23.3 million at the end
of 1995. Unrealized gains on investments, net of deferred taxes, totaled
$727,000 at September 30, 1996, compared with $1.2 million at December 31,
1995.
Net income totaled $2.0 million ($.23 per share) for the three months ended
September 30, 1996, compared with $3.3 million ($.37 per share) for the
same period in 1995. For the nine months ended September 30, 1996, net
income totaled $6.4 million ($.73 per share), compared with $7.7 million
($.88 per share) for the same period in 1995.
Owing to the recent loss of four sizeable institutional accounts and some
withdrawals from existing accounts, assets under management at September
30th totaled $2.91 billion, 20% less than a year ago, and 20% below yearend
1995. Account losses are the result of below market performance for equity
accounts over the last year as well as a shift in investment philosophy of
one client to indexing. Also, some clients rebalanced portfolios after the
strong equity results posted in 1995, thereby reducing assets allocated to
Company management. Unless managed asset levels improve from the September
30, 1996 level, the Company believes that operating earnings will be lower
for the remainder of 1996 and into 1997. The Company intends to keep
operating expenses under close control.
II. Assets Under Management
Assets under management totaled $2.91 billion at September 30, 1996,
compared with $3.15 billion on June 30, 1996, $3.61 billion on December 31,
1995, and $3.63 billion on September 30, 1995.
During the third quarter of 1996, new accounts totaled $2 million, net
withdrawals out of client accounts totaled $361 million, and performance
increased client account balances by $112 million.
In the nine months ended September 30, 1996, new accounts totaled $103
million, net withdrawals out of client accounts totaled $1.01 billion, and
performance increased managed assets by $202 million.
10
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In the twelve months ended September 30, 1996, new accounts totaled $114
million, net withdrawals out of client accounts totaled $1.10 billion, and
performance added $261 million to managed assets.
III. Results of Operations
Quarterly Comparison
In the third quarter of 1996 operating revenues decreased 5% to $5.0
million, compared with $5.2 million a year ago. Average managed assets
totaled $3.05 billion in the 1996 period, or 13% less than the $3.49
billion average over the third quarter of 1995. Operating expenses declined
7% to $3.0 million, compared with $3.2 million a year ago. As a result,
operating income declined 2% to $2.01 million (40% margin), compared with
$2.05 million (39% margin) in the 1995 quarter.
Operating income totaled 58% of pretax income in the third quarter of 1996,
compared with 36% in the 1995 quarter. Due to difficult market conditions,
other income declined 60% from the comparable period a year ago. Other
income totaled $1.4 million in the 1996 third quarter, which included
$931,000 in net realized capital gains. Other income totaled $3.6 million
for the same period a year ago, reflecting net realized capital gains of
$3.1 million. The effective tax rate was 43% in both the 1996 and 1995
quarters.
The following table depicts significant variances in selected income
statement items for the three months ended September 30, 1996 compared with
the same period in 1995. Explanations of the variances follow the table.
(000's)
3 Months Ended September 30,
-----------------------------------
Percentage
1996 1995 Change
---------- ---------- ----------
A. Advisory fees $ 4,650 $ 4,843 -4%
B. Commissions and other 333 385 -14
C. Employees' compensation 2,078 2,313 -10
D. General and administrative
expenses 685 637 8
E. Other income, net 1,440 3,613 -60
F. Income taxes 1,467 2,412 -39
o The decline in advisory fees is due to the delcine in average assets
under management previously discussed.
o Commissions and other revenues declined due to the decline in average
assets under management previously discussed.
11
<PAGE>
o Employees' compensation declined as a result of sharply reduced bonus
accruals in expectation of a difficult 1996, as previously discussed.
o General and administrative expenses increased due to increases in
various professional fees.
o Other income declined owing to the decrease in net realized capital
gains previously discussed, and a 6% decrease in net interest and
dividends earned during the quarter.
o Income taxes decreased owing to the 39% decrease in pretax income.
Nine Month Comparison
For the first nine months of 1996 operating revenues increased 9% to $15.8
million, compared with $14.5 million in the 1995 period. Average managed
assets totaled $3.31 billion in the 1996 period, or 5% greater than the
$3.17 billion average over the first nine months of 1995. Operating
expenses declined 1% to $9.2 million, vs. $9.3 million in the 1995 nine
month period. As a result, operating income increased 27% to $6.6 million
(42% margin), compared with $5.2 million (36% margin) in 1995.
Operating income totaled 59% of pretax income in the first nine months of
1996, compared with 39% in the 1995 period. Due to difficult market
conditions, other income declined 45% from a year ago. Other income totaled
$4.6 million in the 1996 period, which included $3.2 million in net
realized capital gains. Other income totaled $8.2 million in the 1995
period, reflecting $6.8 million in net capital gains. The effective tax
rate was 43% in both the 1995 and 1996 periods.
The following table depicts significant variances in selected income
statement items for the nine months ended September 30, 1996 compared with
the same period in 1995. Explanations of the variances follow the table.
(000's)
3 Months Ended September 30,
----------------------------
Percentage
1996 1995 Change
---------- ---------- ----------
A. Advisory fees $ 14,628 $ 13,271 10 %
B. Commissions and other 1,208 1,269 -5
C. Employees' compensation 6,407 6,703 -4
D. General and administrative
expenses 2,029 1,844 10
E. Other income, net 4,570 8,243 -45
F. Income taxes 4,795 5,744 -17
12
<PAGE>
o The growth in advisory fees is due to the growth in average assets
under management previously discussed.
o Commissions and other revenues declined as a result of lower portfolio
turnover in the Individually Managed Account business.
o Employees' compensation declined as a result of reduced bonus accruals
in expectation of a difficult 1996.
o General and administrative expenses increased due to increases in
various professional fees.
o Other income declined due to the decrease in net realized capital
gains previusly discussed, and a 7% decrease in net interest and
dividends earned in 1996.
o Income taxes decreased owing to the 17% decline in pretax income.
IV. Liquidity and Capital Resources
At September 30, 1996 the Company had cash and marketable securities of
$62.1 million, compared with $53.5 million at December 31, 1995, and $56.7
million at September 30, 1995.
The Company believes that the foreseeable capital and liquidity
requirements of its existing businesses will continue to be met with funds
generated from operations.
13
<PAGE>
Part II. Item 1. Legal Proceedings
None.
Item 2. Changes in Securities Holders
None.
Item 3. Default upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security
Holders
At the Company's Annual Meeting of Stockholders held on
September 12, 1996, the election of the Board of Directors'
nominees was approved, the Amendment to the Management
Incentive Plan was approved, the 1996 Long Term Incentive
Plan was approved, and the 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
------ -----------
2- None.
4- None.
11- Computation of Earnings per Share
15- None.
18- None.
19- None.
20- None.
23- None.
24- None.
25- None.
28- None.
Reports on Form 8-K: None.
14
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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 6, 1996 /s/ Robert J. Kobel
--------------------
Robert J. Kobel
President and Chief Operating Officer
Date: November 6, 1996 /s/ Anthony G. Miller
----------------------
Anthony G. Miller
Senior Vice President, Finance and
Chief Financial Officer
15
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EXHIBIT INDEX
Exhibit
Number Description Page
------ ----------- ----
2 -None
4 -None
11 -Computation of Earnings per Share 17
15 -None
18 -None
20 -None
23 -None
24 -None
25 -None
28 -None
16
<PAGE>
EXHIBIT 11
ATALANTA/SOSNOFF CAPITAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
3 months ended 9 months ended
----------------------- -----------------------
9/30/96 9/30/95 9/30/96 9/30/95
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY :
Earnings :
Net income $1,987,796 $3,250,343 $6,418,761 $7,714,506
========== ========== ========== ==========
Shares- weighted average
number of common shares
outstanding 8,812,401 8,812,401 8,812,401 8,812,401
Add- common stock equivalents
from in the money options 16,553 7,391 54,039 4,963
---------- ---------- ---------- ----------
Weighted average number
of common shares out-
standing, as adjusted 8,828,954 8,819,792 8,866,440 8,817,364
========== ========== ========== ==========
Per share:
Net income $ 0.23 $ 0.37 $ 0.73 $ 0.88
========== ========== ========== ==========
</TABLE>
See Note 2 of the Notes to Condensed Consolidated Financial Statements
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANTS
QUARTERLY REPORT ON FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FINANCIAL STATEMENTS IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,978
<SECURITIES> 52,159
<RECEIVABLES> 4,066
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 66,203
<PP&E> 1,616
<DEPRECIATION> (1,118)
<TOTAL-ASSETS> 67,391
<CURRENT-LIABILITIES> 6,959
<BONDS> 0
0
0
<COMMON> 88
<OTHER-SE> 60,344
<TOTAL-LIABILITY-AND-EQUITY> 67,391
<SALES> 15,836
<TOTAL-REVENUES> 20,416
<CGS> 0
<TOTAL-COSTS> 9,192
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 11,214
<INCOME-TAX> 4,795
<INCOME-CONTINUING> 6,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,419
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
</TABLE>
