Back to GetFilings.com
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:
June 30, 2002 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 August 13, 2002 there were 8,528,707 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 - June 30, 2002
and December 31, 2001 3
Condensed Consolidated Statements
of Operations and Comprehensive Income (Loss)-
Three Months Ended June 30, 2002 and 2001 4
Condensed Consolidated Statements
of Operations and Comprehensive Income (Loss)-
Six Months Ended June 30, 2002 and 2001 5
Condensed Consolidated Statement
of Changes in Shareholders' Equity-
Six Months Ended June 30, 2002 6
Condensed Consolidated Statements of
Cash Flows - Six Months Ended
June 30, 2002 and 2001 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 (Loss) Per Share 19
2
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
ASSETS JUNE 30, 2002 DECEMBER 31, 2001
- ------ ------------- -----------------
Assets:
Cash and cash equivalents $ 1,495,724 $ 1,940,653
Accounts receivable 2,625,358 3,071,180
Due from brokers 3,637,927 748,263
Investments, at market 54,915,774 73,583,683
Investments in limited partnerships 19,386,374 24,320,671
Deferred tax asset 2,176,900 -
Fixed assets, net 1,023,292 1,272,504
Exchange memberships, at cost 402,000 402,000
Other assets 3,252,767 4,155,943
------------ ------------
Total assets $ 88,916,116 $109,494,897
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and other liabilities $ 825,484 $ 471,761
Accrued compensation payable 183,744 450,540
Income taxes payable - 4,951,233
Due to broker - 1,015,533
Securities sold not yet purchased, at market value - 203,000
------------ ------------
Total liabilities 1,009,228 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 76,872,856 83,716,965
Accumulated other comprehensive income (loss) -
unrealized gains (losses) from investments,
net of deferred income tax (credit) (3,158,103) 1,260,980
Treasury stock, at cost, 285,000 and zero
shares, respectively (3,232,750) -
------------ ------------
Total shareholders' equity 87,906,888 102,402,830
------------ ------------
Total liabilities and shareholders' equity $ 88,916,116 $109,494,897
============ ============
Book value per common share $ 10.22 $ 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
------------------
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
Revenues:
Advisory fees $ 3,269,679 $ 3,464,281
Commissions and other operating revenues 329,879 416,050
Realized and unrealized gains (losses) from principal
securities transactions, net (8,788,480) 2,924,659
Interest and dividend income, net 206,674 133,417
------------ ------------
Total revenues (4,982,248) 6,938,407
------------ ------------
Costs and expenses:
Employees' compensation 1,932,918 3,014,270
Clearing and execution costs 111,905 189,970
Selling expenses 132,962 151,578
General and administrative expenses 1,041,337 798,768
------------ ------------
Total costs and expenses 3,219,122 4,154,586
------------ ------------
Income (loss) before provision for
income taxes (benefit) (8,201,370) 2,783,821
Provision for income taxes (benefit) (2,518,000) 1,230,000
------------ ------------
Net income (loss) $ (5,683,370) $ 1,553,821
============ ============
Earnings (loss) per common share - basic $ (0.65) $ 0.17
============ ============
Earnings (loss) per common share - diluted $ N/A $ 0.17
============ ============
Net income (loss), as presented above $ (5,683,370) $ 1,553,821
Comprehensive income (loss):
Net unrealized gains (losses) from investments,
net of deferred income tax (credit) (2,381,484) 2,738,747
------------ ------------
Comprehensive income (loss) $ (8,064,854) $ 4,292,568
============ ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
SIX MONTHS ENDED
----------------
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
Revenues:
Advisory fees $ 6,724,020 $ 7,072,598
Commissions and other operating revenues 733,684 976,529
Realized and unrealized gains (losses) from principal
securities transactions, net (11,895,986) (330,613)
Interest and dividend income, net 513,790 368,010
------------- -------------
Total revenues (3,924,492) 8,086,524
------------- -------------
Costs and expenses:
Employees' compensation 3,926,732 5,844,732
Clearing and execution costs 267,512 428,969
Selling expenses 252,283 279,865
General and administrative expenses 1,928,090 1,717,801
------------- -------------
Total costs and expenses 6,374,617 8,271,367
------------- -------------
Income (loss) before provision for
income taxes (benefit) (10,299,109) (184,843)
Provision for income taxes (benefit) (3,455,000) (117,000)
------------- -------------
Net income (loss) $ (6,844,109) $ (67,843)
============= =============
Earnings (loss) per common share - basic $ (0.78) $ (0.01)
============= =============
Earnings (loss) per common share - diluted $ N/A $ N/A
============= =============
Net income (loss), as presented above $ (6,844,109) $ (67,843)
Comprehensive income (loss):
Net unrealized gains (losses) from investments,
net of deferred income tax (credit) (4,419,083) (2,056,493)
------------- -------------
Comprehensive income (loss) $ (11,263,192) $ (2,124,336)
============= =============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
Accumulated other
comprehensive
income (loss) -
Additional unrealized gains
Common Paid-In Retained (losses) from Treasury
Stock Capital Earnings investments, net Stock Total
----- ------- -------- ---------------- ----- -----
Balance -
December 31, 2001 $88,857 $17,336,028 $83,716,965 $ 1,260,980 $ -- $102,402,830
Purchases of treasury stock (3,232,750) (3,232,750)
Net unrealized losses from
investments, net of deferred
income tax benefit (4,419,083) (4,419,083)
Net loss (6,844,109) (6,844,109)
------- ----------- ----------- ------------ ----------- ------------
Balance -
June 30, 2002 $88,857 $17,336,028 $76,872,856 $ (3,158,103) $(3,232,750) $ 87,906,888
======= =========== =========== ============ =========== ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
ATALANTA/SOSNOFF CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
2002 2001
------------- -------------
Cash flows from operating activities:
Net income (loss) $ (6,844,109) $ (67,843)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 274,148 260,681
Amortization of unearned compensation - 1,125,204
Realized and unrealized (gains) losses from
principal securities transactions, net 11,895,986 330,613
Increase (decrease) from changes in:
Accounts receivable 445,822 806,422
Other assets 903,176 (129,772)
Income taxes payable (4,180,040) (3,626,796)
Accounts payable and other liabilities 353,723 586,756
Accrued compensation payable (266,796) (5,198,782)
------------- -------------
Net cash provided by (used in) operating activities 2,581,910 (5,913,517)
------------- -------------
Cash flows from investing activities:
Due from brokers (3,905,197) 3,104,535
Purchases of fixed assets (24,936) (23,344)
Purchases of investments (83,492,567) (120,777,592)
Proceeds from sales of investments 87,628,611 126,579,516
------------- -------------
Net cash provided by investing activities 205,911 8,883,115
------------- -------------
Cash flows from financing activities:
Dividends paid - (2,268,781)
Purchases of treasury stock (3,232,750) (1,091,767)
------------- -------------
Net cash used in financing activities (3,232,750) (3,360,548)
------------- -------------
Net decrease in cash and cash equivalents (444,929) (390,950)
Cash and cash equivalents, beginning of period 1,940,653 988,689
------------- -------------
Cash and cash equivalents, end of period $ 1,495,724 $ 597,739
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 35,026 $ 168,820
============= =============
Income taxes $ 474,023 $ 3,509,796
============= =============
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 June 30, 2002, and the results of its operations and cash flows for the
three and six months ended June 30, 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.
8
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
and $1,126,000 was charged to operations in both the three and six months ended
June 30, 2001 compared to none in the three and six months ended 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 and
six months ended June 30, 2002 and 2001, respectively.
Pursuant to another component of the MIP, the President of the Company earns a
bonus based upon the pretax operating profits earned by the Company as general
partner of one of the Partnerships managed by the President, and an annual bonus
based upon the pretax earnings of the Company's investment in the Partnership
managed by the President in excess of a base indexed return. There was no MIP
bonus earned and accrued for the three and six months ended June 30, 2002 and
2001, respectively.
In addition, under a separate component of the MIP, an annual bonus is earned by
the Chief Executive Officer (CEO) based upon the pretax earnings of certain
managed assets of the Company in excess of a base indexed return. There was no
MIP bonus earned and accrued to the CEO in the three and six months ended June
30, 2002 and 2001, respectively.
9
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 40,000 shares of its common stock
at an average market price of $12.19 per share.
In May 2002, due to the resignation of the Company's Chief Operating Officer,
the Company bought back 175,000 shares of its common stock at a price of $10.96
per share, the stock's book value at April 30, 2002.
In July 2002, the Company purchased 72,000 shares of its common stock at an
average market price of $10.95 per share.
NOTE 6: EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share amounts were computed based on 8,747,685 and
8,957,888 weighted average common shares outstanding in the second quarters of
2002 and 2001, respectively. Diluted earnings per share amounts were computed
based on 8,984,650 weighted average common shares outstanding in the three
months ended June 30, 2001. Basic earnings (loss) per share amounts were
computed based on 8,815,446 and 8,981,557 weighted average common shares in the
first six months of 2002 and 2001, respectively. Because the Company reported a
loss in the second quarter of 2002 and for the first six months of 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.
10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q under the caption
"Management's Discussion and Analysis of Results of Operations and Financial
Condition", and elsewhere in this Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include among others, the following: general economic and business
conditions; the loss of, or the failure to replace, any significant clients;
changes in the relative investment performance of client or firm accounts and
changes in the financial marketplace, particularly in the securities markets.
These forward-looking statements speak only as of the date of this Quarterly
Report. The Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
11
Part I. Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
I. GENERAL
The assets of the Company totaled $88.9 million at June 30, 2002,
compared with $109.5 million at December 31, 2001, and book value per
common share totaled $10.22 at June 30, 2002, compared with $11.52 at
December 31, 2001.
Cash and cash equivalents totaled $1.5 million at June 30, 2002,
compared with $1.9 million at December 31, 2001. Net investments (at
market) totaled $54.9 million at June 30, 2002, compared with $73.6
million at the end of 2001. Accumulated unrealized losses on
investments, net of deferred tax benefit, totaled $3.2 million at June
30, 2002, compared with accumulated unrealized gains, net of deferred
taxes, of $1.3 million at December 31, 2001.
Assets under management at June 30, 2002 totaled $2.20 billion, or 7%
less than at June 30, 2001 and December 31, 2001, respectively.
Negative performance results of $248 million and lost accounts of $56
million, partially offset by new accounts of $140 million, accounted
for the net decrease in assets under management over the twelve months
ended June 30, 2002.
The Company had a net loss of $5.7 million ($(.65) per common share)
for the three months ended June 30, 2002, compared with a net income of
$1.6 million ($.17 per common share diluted) for the same period in
2001. The Company had a net loss of $6.8 million ($(.78) per common
share) for the six months ended June 30, 2002, compared with a net loss
of $68,000 (($.01) per common share) for the first six months of 2001.
After eliminating non-operating charges, pretax operating income
totaled $380,000 in the second quarter of 2002, compared with $288,000
in the second quarter of 2001 and $1.1 million for the six months ended
June 30, 2002, compared with $903,000 for the six months ended June 30,
2001.
II. ASSETS UNDER MANAGEMENT
Assets under management totaled $2.20 billion at June 30, 2002,
compared with $2.36 billion at December 31, 2001, and $2.37 billion at
June 30, 2001. Average assets under management decreased 3% to $2.33
billion in the second quarter of 2002, compared with $2.40 billion in
the comparable period a year ago. Average managed assets for the second
quarter of 2002 decreased 1% compared with the first quarter of 2002.
During the first six months of 2002, new accounts of $59 million and
net positive client cash flows of $42 million, offset by lost accounts
of $37 million and negative performance of $217 million, accounted for
the $153 million net decrease in managed assets. In the twelve months
ended June 30, 2002, new accounts of $140 million and net positive
client cash flows of $8 million, offset by lost accounts of $64 million
and negative performance of $248 million, accounted for the $164
million net decrease in managed assets.
12
III. RESULTS OF OPERATIONS
QUARTERLY COMPARISON
Revenue from advisory fees and commissions ("operating revenue")
decreased 7% to $3.6 million in the second quarter of 2002, as compared
with $3.9 million in the second quarter of 2001. The Company had a net
loss on investments of $8.6 million in the second quarter of 2002,
compared with net income on investments of $3.1 million in the second
quarter of 2001.
Expenses for the second quarter of 2002 decreased 23% to $3.2 million,
from $4.2 million in the second quarter of 2001.
The following table depicts variances in significant statement of
operations items for the three months ended June 30, 2002 compared with
the same period in 2001. Explanations of the variances follow the
table.
(000's)
3 Months Ended June 30,
----------------------- Percentage
2002 2001 Change
---- ---- ------
A. Advisory fees $3,270 $3,464 (6)%
B. Realized and unrealized
gains (losses) from
principal securities
transactions, net (8,788) 2,925 N/A
C. Employees' compensation 1,933 3,014 (36)%
D. Non-compensation expenses 1,286 1,140 13%
o The 6% 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 $8.8 million in the second quarter of 2002, compared
with a net realized and unrealized gain from investment transactions of
$2.9 million for the second quarter of 2001. The net realized and
unrealized losses from principal securities transactions were $4.2
million and $4.6 million, respectively, for the second quarter of 2002,
as compared to net realized and unrealized gains of $978,000 and $1.9
million, respectively, for the second quarter of 2001.
o The decrease of 36% 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 is included in the second quarter of
2001, compared to none in the second quarter of 2002.
o Non-compensation expenses increased 13% for the three months ended June
30, 2002 as compared to the 2001 comparable quarter. The increase was
primarily related to an increase in certain professional fees included
in general and administrative expenses, partially offset by a decrease
in clearing and execution costs.
13
YEAR-TO-DATE COMPARISON
Operating revenue decreased 7% to $7.5 million in the first six months
of 2002, as compared with $8.0 million in the first six months of 2001.
Expenses for the first six months of 2002 decreased 23% to $6.4
million, from $8.3 million in the first six months of 2001.
The following table depicts variances in significant statement of
operations items for the six months ended June 30, 2002 compared with
the same period in 2001. Explanations of the variances follow the
table.
(000's)
6 Months Ended June 30,
----------------------- Percentage
2002 2001 Change
---- ----- ------
A. Advisory fees $6,724 $7,073 (5%)
B. Realized and unrealized
gains (losses) from
principal securities
transactions, net (11,896) (331) N/A
C. Employees' compensation 3,927 5,845 (33%)
D. Non-compensation expenses 2,448 2,427 1%
o The 5% decrease in advisory fees is primarily due to the difficult
market conditions in 2002 and the decrease in assets under management
as discussed above.
o The Company recorded a net realized and unrealized loss from investment
transactions of $11.9 million in the first half of 2002, compared with
a net realized and unrealized loss of $331,000 for the first half of
2001. The net realized and unrealized losses from principal securities
transactions were $4.9 million and $7.0 million, respectively, for the
first six months of 2002, as compared to net realized gains and
unrealized losses of $1.4 million and $1.8 million, respectively, for
the first six months of 2001.
o The decrease of 33% in employees' compensation is primarily due to a
decrease in accrued bonus and sales payout compensation as a result of
the decline in operating revenues and non-cash compensation charges of
$1,126,000 that is included in the first six months of 2001, compared
with none in the same period for 2002.
o Non-compensation expenses increased 1% for the six months ended June
30, 2002 as compared to the 2001 comparable period. The increase was
primarily related to a decrease in clearing and execution costs and in
selling expenses partially offset by a moderate increase in general and
administrative expenses.
14
IV. LIQUIDITY AND CAPITAL RESOURCES
Investments
Net investments, which includes corporate and convertible debt, U.S.
government agency debt instruments, marketable equity securities and
the Atalanta/Sosnoff Mutual Funds, aggregated $54.9 million at June 30,
2002, compared with $73.6 million at the end of 2001. Shareholders'
equity decreased to $87.9 million at June 30, 2002, from $102.4 million
at the end of 2001, primarily from an unrealized loss on investments
(net of deferred tax credit) of $4.4 million in the investment
portfolio, purchases of treasury stock of $3.2 million and a net loss
of $6.8 million for the six months ended June 30, 2002. The Company had
a net accumulated unrealized loss on investments of $3.2 million in
shareholders' equity at June 30, 2002, compared with a net accumulated
unrealized gain on investments of $1.3 million at December 31, 2001.
At June 30, 2002, the Company's net investment portfolio at market
totaled $75.8 million (cost basis $74.5 million), compared with $99.6
million (cost $83.1 million) at the end of 2001, which was comprised of
cash and cash equivalents, net investments described above and
investments in limited partnerships. At June 30, 2002, the Company was
invested primarily in 18 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 $8
million; if the market were to decline by 20%, the Company might
experience unrealized losses of $15 million. However, incurring
unrealized losses of this magnitude is unlikely with active management
of the portfolio. Since the positions are primarily large-cap equity
holdings, they can be sold easily on short notice with little market
impact. Ultimately, the Company will raise and hold cash to reduce
market risk.
Cash Flows
At June 30, 2002, the Company had cash and cash equivalents of $1.5
million, compared with $1.9 million at the end of 2001. Operating
activities generated net cash inflows of $2.6 million in the six months
ended June 30, 2002, compared with $5.9 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 provided by investing activities totaled $206,000 in the first six
months of 2002, compared with $6.4 million in the comparable 2001
period. The increase in 2002 and 2001 was primarily the result of net
proceeds from investment transactions. Net cash outflows from financing
activities was $3.2 million in the first six months of 2002 compared
with $3.4 million in the comparable 2001 period. The cash outflow in
2002 was the result of purchasing treasury stock, as described below.
The cash outflow in 2001 was the result of paying dividends accrued at
December 31, 2000 and purchases of treasury stock.
Equity Transactions
In February and March 2002, the Company purchased 10,000 shares of its
common stock at an average market price of $10.41 per share. In April
2002, the Company purchased 60,000 shares of its common stock, at an
average market price of $12.05 per share. In May 2002, the Company
purchased 40,000 shares of its common stock at an average market price
of $12.19 per share.
In May 2002, upon the resignation of the Company's Chief Operating
Officer, the Company bought back from him 175,000 shares of its common
stock at a price of $10.96 per share, the stock's book value
15
of April 30, 2002.
In July 2002, the Company purchased 72,000 shares of its common stock
at an average market price of $10.95 per share.
Financing Arrangements
At June 30, 2002, there were no liabilities for borrowed money.
16
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Default upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit
Number Description Page
------ ----------- ----
2 None.
4 None.
11 Computation of Earnings (loss) per Share. 19
15 None.
18 None.
19 None.
20 None.
23 None.
24 None.
25 None.
28 None.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Atalanta/Sosnoff Capital Corporation
Date: August 13, 2002 /s/ Martin T. Sosnoff
-------------------------------------------------
Martin T. Sosnoff
Chairman of the Board and Chief Executive Officer
Date: August 13, 2002 /s/ Kevin S. Kelly
-------------------------------------------------
Kevin S. Kelly
Senior Vice President, Chief Financial Officer,
Secretary
18