<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:
March 31, 1998 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 May 5, 1998 there were 9,587,401 shares of common stock outstanding.
<PAGE>
ATALANTA/SOSNOFF CAPITAL CORPORATION
INDEX
Part I - Financial Information PAGE NO.
-------
Item 1 - Financial Statements
Condensed Consolidated Statements
of Financial Condition - March 31, 1998
and December 31, 1997 3
Condensed Consolidated Statements
of Income - Three Months Ended
March 31, 1998 and 1997 4
Condensed Consolidated Statement
of Changes in Shareholders' Equity
- Three Months Ended March 31, 1998 5
Condensed Consolidated Statements of
Cash Flows - Three Months Ended
March 31, 1998 and 1997 6
Notes to Condensed Consolidated 7-8
Financial Statements
Special Note Regarding Forward-Looking Statements 9
Item 2 - Management's Discussion and Analysis
of Results of Operations and Financial
Condition 10-12
Part II - Other Information
Items 1-6 13
Signatures 14
Exhibit Index 15
Exhibit 11 - Computation of Earnings Per Share 16
Exhibit 27 - Financial Data Schedule 17
2
<PAGE>
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
ASSETS MARCH 31, 1998 DECEMBER 31, 1997
- ------ -------------- -----------------
Cash and cash equivalents $3,185,781 $3,805,243
Accounts receivable 3,044,471 3,355,399
Receivable from clearing broker 866,420 1,323,473
Investments, at market 65,949,719 63,039,613
Investments in limited partnerships 5,423,458 1,928,454
Fixed assets, net 767,924 789,361
Exchange memberships, at cost 402,000 402,000
Other assets 326,562 769,281
------- -------
Total assets $79,966,335 $75,412,824
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and other liabilities $745,134 $854,039
Accrued compensation payable 548,874 839,424
Income taxes payable 3,038,867 1,763,574
Separation costs payable 1,225,000 1,400,000
--------- ---------
Total liabilities 5,557,875 4,857,037
--------- ---------
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; 9,587,401 shares
issued and outstanding 95,874 95,874
Additional paid-in capital 24,648,499 24,648,499
Retained earnings 54,754,008 52,963,643
Unrealized gains from investments,
net of deferred tax liabilities 2,786,500 1,286,794
Unearned compensation (7,876,421) (8,439,023)
--------- ---------
Total shareholders' equity 74,408,460 70,555,787
---------- ----------
Total liabilities and shareholders' equity 79,966,335 $75,412,824
========== ===========
Book value per share $7.76 $7.36
===== =====
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
Revenues:
Advisory fees $3,996,146 $4,385,424
Commissions and other 447,521 389,436
------- -------
Total revenues 4,443,667 4,774,860
--------- ---------
Costs and expenses:
Employees' compensation 2,478,965 1,874,201
Clearing and execution costs 165,317 136,317
Selling expenses 105,153 103,666
General and administrative expenses 622,582 653,194
------- -------
Total costs and expenses 3,372,017 2,767,378
--------- ---------
Operating income 1,071,650 2,007,482
--------- ---------
Other income (expense):
Interest and dividend income 512,984 1,452,680
Interest expense (19,579) (8,739)
Realized and unrealized gains
from investments, net 1,633,310 602,801
--------- -------
Other income, net 2,126,715 2,046,742
--------- ---------
Income before provision for income taxes 3,198,365 4,054,224
Provision for income taxes 1,408,000 1,805,000
--------- ---------
Net income $1,790,365 $2,249,224
========== ==========
Earnings per common share - basic $0.19 $0.26
===== =====
Earnings per common share - diluted $0.19 $0.25
===== =====
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Unrealized Unearned
Stock Capital Earnings Gains - Net Compensation Total
----- ------- -------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance -
December 31, 1997 $95,874 $24,648,499 $52,963,643 $1,286,794 ($8,439,023) $70,555,787
Unrealized gains from
investments, net of
deferred taxes 1,499,706 1,499,706
Amortization of unearned
compensation
562,602 562,602
Net Income 1,790,365 1,790,365
--------- ----------- ----------- ---------- ------------ -----------
Balance -
March 31, 1998 $95,874 $24,648,499 $54,754,008 $2,786,500 ($7,876,421) $74,408,460
======= =========== =========== ========== ============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
------------- ------------
Cash flows from operating activities:
Net income $1,790,365 $2,249,224
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 46,372 30,529
Amortization 562,602
Realized and unrealized gains from
investments, net (1,633,310) (602,801)
Increase (decrease) from changes in:
Accounts receivable 310,928 155,550
Other assets 442,719 279,242
Accounts payable and other liabilities (108,905) 122,890
Accrued compensation payable (290,550) (982,358)
Income taxes payable 275,489 875,432
Separation costs payable (175,000) ----
--------- ---------
Net cash provided by operating activities 1,220,710 2,127,708
--------- ---------
Cash flows from investing activities:
Receivable from clearing broker, net 457,053 (3,092,483)
Purchases of fixed assets (24,936) (28,125)
Purchases of investments (36,952,130) (13,701,727)
Proceeds from sales of investments 34,679,841 15,911,321
---------- ----------
Net cash used in investing activities (1,840,172) (911,014)
----------- ---------
Net increase (decrease) in cash and cash
equivalents (619,462) 1,216,694
Cash and cash equivalents, beginning of year 3,805,243 5,585,953
--------- ---------
Cash and cash equivalents, end of period $3,185,781 $6,802,647
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $19,579 $8,739
======= ======
Income taxes $1,132,511 $929,568
========== ========
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
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 financial statements reflect all adjustments (which include only
normal recurring accruals) necessary to present fairly the Company's financial
position as of March 31, 1998, and the results of its operations for the three
months ended March 31, 1998 and 1997. 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, 1997 Annual Report on Form 10-K. Information
included in the condensed consolidated balance sheet as of December 31, 1997
has been derived from the audited consolidated financial statements appearing
in the Company's Annual Report on Form 10-K.
Note 2: Non-Cash Compensation Expense ("NCCE")
NCCE of approximately $563,000 was charged to operations in the first quarter
of 1998, compared with none in the first quarter of 1997 (see Note 3 below).
Note 3: 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).
Note 4: Net Income Per Share
Primary earnings per share amounts were computed based on 9,587,401
and 8,812,401 weighted average common shares outstanding in the first
quarters of 1998 and 1997, respectively.
Diluted earnings per share amounts were computed based on 9,607,858
and 8,820,588 weighted average common shares outstanding in the first quarters
of 1998 and 1997, 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.
7
<PAGE>
Notes to Condensed Consolidated Financial Statements (cont'd)
Note 5: 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 those
investments held by the Holding Company and Capital in equity and debt
securities as "available for sale," for which unrealized gains and losses are
reported as a separate component of shareholders' equity. Investments held by
Management are recorded at market value, with the related unrealized gains and
losses reflected in the consolidated statements of income.
Note 6: 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.
8
<PAGE>
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.
9
<PAGE>
Part I. Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
I. General
Total assets were $80.0 million at March 31, 1998, compared with
$75.4 million at December 31, 1997, and book value per share totaled
$7.76 at March 31, 1998, compared with $7.36 at December 31, 1997.
Cash and cash equivalents were $3.2 million at March 31, 1998,
compared with $3.8 million at December 31, 1997. Investments (at
market) totaled $65.9 million at March 31, 1998, compared with $63.0
million at the end of 1997. Unrealized gains on investments, net of
deferred taxes, totaled $2.8 million at March 31, 1998, compared with
$1.3 million at December 31, 1997.
Owing to strong performance results in equity accounts over the last
year, partially offset by the loss of sizeable institutional accounts
in 1997 and some withdrawals from existing accounts, assets under
management at March 31, 1998 totaled $2.70 billion, 4% more than a
year ago, and 1% above year-end 1997. Account losses have been the
result of below market performance for equity accounts in 1996 and
1997, as well as style-drift concerns of consultants.
Net income totaled $1.8 million ($.19 per share diluted) for the
three months ended March 31, 1998, compared with $2.2 million ($.25
per share diluted) for the same period in 1997. Before non-cash
compensation charges of $563,000, net income totaled $.22 per share
diluted in the 1998 quarter. Income from money management operations
before taxes ("operating income") decreased 47% to $1.1 million,
compared with $2.0 million in the 1997 quarter. Excluding non-cash
compensation charges, operating income declined 19% in the 1998
quarter. Other income increased 4% during the same period.
The Company has been informed that its second largest account ($314
million in managed assets as of March 31, 1998) will be terminating
this June. This account generated 3.8% of operating revenues in 1997.
While total operating revenues may decline in 1998, the Company
intends to continue to keep operating expenses under close control.
II. Assets Under Management
Assets under management totaled $2.70 billion at March 31, 1998,
compared with $2.68 billion on December 31, 1997, and $2.59 billion
on March 31, 1997.
During the first quarter of 1998, new accounts totaled $2 million,
net withdrawals out of client accounts totaled $279 million, and
performance increased client account balances by $295
million.
In the twelve months ended March 31, 1998, new accounts totaled $13
million, net withdrawals out of client accounts totaled $752 million,
and performance added $846 million to managed assets.
10
<PAGE>
III. Results of Operations
Quarterly Comparison
In the first quarter of 1998 operating revenues decreased 7% to $4.4
million, compared with $4.8 million a year ago. Average managed
assets totaled $2.67 billion in the 1998 quarter, or 4% less than the
$2.78 billion average in the first quarter of 1997, and 4% below the
$2.78 billion average in the fourth quarter of 1997.
Owing to the non-cash compensation charges of $563,000, operating
expenses increased 22% to $3.4 million, compared with $2.8 million a
year ago. Before these charges, operating expenses totaled $2.8
million, or a 2% increase over 1997. As a result, operating income
before non-cash compensation charges declined 19% to $1.6 million
(37% margin), compared with $2.0 million (42% margin) in the 1997
quarter. Reported operating income declined 47% to total $1.1 million
in the 1998 quarter.
Operating income totaled 34% of pre-tax income in the first quarter
of 1998, compared with 50% in the 1997 quarter. Other income totaled
$2.1 million in the 1998 quarter, which included $1.6 million in net
realized and unrealized capital gains. Other income totaled $2.0
million for the same period a year ago, reflecting net realized and
unrealized capital gains of $603,000.
The following table depicts variances in significant income statement
items for the three months ended March 31, 1998 compared with the
same period in 1997. Explanations of the variances follow the table.
(000's)
3 Months Ended March 31
----------------------- Percentage
1998 1997 Change
----- ------ ------
A. Advisory fees $3,996 $4,385 -9%
B. Employees' compensation 2,479 1,874 +32
C. Non-compensation expenses 893 893 0
D. Other income, net 2,127 2,047 +4
E. Income taxes 1,408 1,805 -22
o The decline in advisory fees is due to the decline in average
assets under management previously discussed.
o The increase in employees' compensation is the result of
$563,000 in non-cash compensation charges recorded in the 1998
quarter, compared with none in the 1997 quarter. Excluding this
charge, compensation expense increased 2%.
o Non-compensation expenses remained unchanged from a year ago.
11
<PAGE>
o Other income increased due to an 171% increase in net realized
and unrealized capital gains, partially offset by a 65% decrease
in interest and dividend income (primarily due to a special
dividend received in 1997 from a company whose securities were
held in the Firm's investment portfolio).
o Income taxes decreased due to the 21% decline in pre-tax income.
IV. Liquidity and Capital Resources
At March 31, 1998 the Company had cash and cash equivalents of $3.2
million, compared with $3.8 million at the end of 1997. Operating
activities provided net cash inflows of $1.2 million in the three
months ended March 31, 1998, compared with $2.1 million in the same
period in 1997. This reflects the changing levels of operating income
and net income over those periods. Net cash used in investing
activities totaled $1.8 million in the March, 1998 quarter, compared
with $911,000 in the similar 1997 period. This reflects the Company's
increased commitment to marketable securities over those periods.
Investments in marketable securities aggregated $65.9 million at
March 31, 1998 , compared with $63.0 million at the end of 1997.
Shareholders' equity totaled $74.4 million at March 31, 1998,
compared with $70.6 million at the end of 1997, primarily due to net
income of $1.8 million recorded in the first quarter of 1998. The
Company has adopted SFAS No. 115, and it resulted in a net unrealized
gain of $2.8 million in shareholders' equity at March 31, 1998,
compared with $1.3 million at the end of 1997. At March 31, 1998, the
Company had no liabilities for borrowed money.
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 the market value ($11.625 per
share) of the shares awarded on the date of grant and the purchase
price of $.01 per share 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.
The Company believes that the foreseeable capital and liquidity
requirements of its existing businesses will continue to be met with
funds generated from operations.
12
<PAGE>
Part II. Other Information
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 April 29, 1998, the election of the Board
of Directors' nominees 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.
27 Financial Data Schedule.
28 None.
Reports on Form 8-K: None.
13
<PAGE>
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 6, 1998 /s/ Martin T. Sosnoff
----------------------
Martin T. Sosnoff
Chairman of the Board and
Chief Executive Officer
Date: May 6, 1998 /s/ Anthony G. Miller
----------------------
Anthony G. Miller
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
------ ----------- ----
2 None
4 None
11 Computation of Earnings per Share 16
15 None
18 None
20 None
23 None
24 None
25 None
27 Financial Data Schedule 17
28 None
15
<PAGE>
EXHIBIT 11
ATALANTA/SOSNOFF CAPITAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
THREE MONTHS ENDED
------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
PRIMARY:
Earnings:
Net income $1,790,365 $2,249,224
========== ==========
Weighted average common shares
outstanding 9,587,401 8,812,401
Add - common stock equivalents
from in the money options 20,457 8,187
------ -----
Dilutive weighted average common
shares outstanding 9,607,858 8,820,588
========= =========
Earnings per common share - basic $0.19 $0.26
===== =====
Earnings per common share - diluted $0.19 $0.25
===== =====
Antidilutive options -- 800,000
======== =======
See Notes to Condensed Consolidated Financial Statements
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,186
<SECURITIES> 65,950
<RECEIVABLES> 3,911
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 73,046
<PP&E> 1,053
<DEPRECIATION> (285)
<TOTAL-ASSETS> 79,966
<CURRENT-LIABILITIES> 5,558
<BONDS> 0
0
0
<COMMON> 96
<OTHER-SE> 74,313
<TOTAL-LIABILITY-AND-EQUITY> 79,966
<SALES> 4,444
<TOTAL-REVENUES> 6,590
<CGS> 0
<TOTAL-COSTS> 3,372
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 3,198
<INCOME-TAX> 1,408
<INCOME-CONTINUING> 1,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,790
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
