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, 2001 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 10, 2001 there were 8,910,307 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, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - Three Months Ended June 30, 2001 and 2000 4 Condensed Consolidated Statements Of operations and Comprehensive Income (Loss) - Six Months Ended June 30, 2001 and 2000 5 Condensed Consolidated Statement of Changes in Shareholders' Equity - Six Months Ended June 30, 2001 6 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2001 and 2000 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, 2001 DECEMBER 31, 2000 ------ ------------- ----------------- Assets: Cash and cash equivalents $ 601,677 $ 3,488,606 Accounts receivable 5,464,424 6,270,846 Due from brokers 2,478,080 3,086,636 Investments, at market 73,172,773 83,597,861 Investments in limited partnerships 25,294,220 25,295,627 Fixed assets, net 1,457,016 1,694,353 Exchange memberships, at cost 402,000 402,000 Other assets 3,208,018 3,078,246 ------------- ------------- Total assets $ 112,078,208 $ 126,914,175 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Income taxes payable $ 5,625,758 $ 10,623,550 Securities sold not yet purchased, at market value ---- 866,469 Accounts payable and other liabilities 1,261,091 674,335 Accrued compensation payable 216,637 5,415,419 Dividends payable ---- 2,268,781 ------------- ------------- Total liabilities 7,103,486 19,848,554 ------------- ------------- 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, 9,075,127 shares issued 90,751 90,751 Additional paid-in capital 19,360,259 19,360,259 Retained earnings 85,143,009 85,210,852 Accumulated other comprehensive income - unrealized gains from investments, net of deferred income tax 2,721,327 4,777,820 Unearned compensation (562,595) (1,687,799) Treasury stock, at cost, 164,820 and 69,900 shares, respectively (1,778,029) (686,262) ------------- ------------- Total shareholders' equity 104,974,722 107,065,621 ------------- ------------- Total liabilities and shareholders' equity $ 112,078,208 $ 126,914,175 ============= ============= Book value per common share $ 11.78 $ 11.89 ============= ============= 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, 2001 JUNE 30, 2000 ------------- ------------- Revenues: Advisory fees $ 3,464,281 $ 4,503,961 Commissions and other operating revenues 416,050 598,595 Realized and unrealized gains (losses) from principal securities transactions, net 2,924,659 341,848 Interest and dividend income, net 133,417 219,443 ----------- ----------- Total revenues 6,938,407 5,663,847 ----------- ----------- Costs and expenses: Employees' compensation 3,014,270 3,773,205 Clearing and execution costs 189,970 326,476 Selling expenses 151,578 181,717 General and administrative expenses 798,768 675,675 ----------- ----------- Total costs and expenses 4,154,586 4,957,073 ----------- ----------- Income before provision for income taxes 2,783,821 706,774 Provision for income taxes 1,230,000 310,000 ----------- ----------- Net income $ 1,553,821 $ 396,774 =========== =========== Earnings per common share - basic $ 0.17 $ 0.04 =========== =========== Earnings per common share - diluted $ 0.17 $ 0.04 =========== =========== Net income, as presented above $ 1,553,821 $ 396,774 Other comprehensive income (loss): Net unrealized gains (losses) from investments, net of deferred income tax (credit) 2,738,747 (3,392,529) ----------- ----------- Comprehensive income (loss) $ 4,292,568 $(2,995,755) =========== =========== 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, 2001 JUNE 30, 2000 ------------ ------------- Revenues: Advisory fees $ 7,072,598 $ 10,032,226 Commissions and other operating revenues 976,529 1,139,803 Realized and unrealized gains (losses) from principal securities transactions, net (330,613) 11,619,178 Interest and dividend income, net 368,010 430,719 ------------ ------------ Total revenues 8,086,524 23,221,926 ------------ ------------ Costs and expenses: Employees' compensation 5,844,732 7,187,755 Clearing and execution costs 428,969 673,390 Selling expenses 279,865 344,831 General and administrative expenses 1,717,801 1,491,548 ------------ ------------ Total costs and expenses 8,271,367 9,697,524 ------------ ------------ Income (loss) before provision for income taxes (credit) (184,843) 13,524,402 Provision for income taxes (credit) (117,000) 5,721,000 ------------ ------------ Net income (loss) $ (67,843) $ 7,803,402 ============ ============ Earnings (loss) per common share - basic $ (0.01) $ 0.86 ============ ============ Earnings per common share - diluted N/A $ 0.86 ============ ============ Net income (loss), as presented above $ (67,843) $ 7,803,402 Other comprehensive income (loss): Net unrealized gains (losses) from investments, net of deferred income tax (credit) (2,056,493) (7,996,185) ------------ ------------ Comprehensive income (loss) $ (2,124,336) $ (192,783) ============ ============ 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, 2001 (UNAUDITED) Accumulated other compre-hensive income - Additional unrealized gains Common Paid-In Retained from Unearned Treasury Stock Capital Earnings investments, net Compensation Stock Total ----- ------- -------- ---------------- ------------ ----- ----- Balance - December 31, 2000 $90,751 $19,360,259 $85,210,852 $4,777,820 ($1,687,799) ($686,262) $107,065,621 Purchase of treasury stock (1,091,767) (1,091,767) Amortization of unearned compensation 1,125,204 1,125,204 Net unrealized losses from investments, net of deferred income tax credit (2,056,493) (2,056,493) Net income (loss) -- -- (67,843) -- -- -- (67,843) ------- ----------- ----------- ---------- --------- ---------- --------------- Balance - June 30, 2001 $90,751 $19,360,259 $85,143,009 $2,721,327 $(562,595) $(1,778,029) $(104,974,722) ======= =========== =========== =========== ========= =========== ============= See Notes to Condensed Consolidated Financial Statements 6 ATALANTA/SOSNOFF CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) 2001 2000 ------------- ------------- Cash flows from operating activities: Net income (loss) $ (67,843) $ 7,803,403 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 260,681 214,875 Amortization of unearned compensation 1,125,204 1,125,204 Realized and unrealized (gains) losses from principal securities transactions, net 330,613 (11,619,178) Increase (decrease) from changes in: Accounts receivable 806,422 (400,570) Other assets (129,772) (125,033) Income taxes payable (3,626,796) (3,019,550) Accounts payable and other liabilities 586,756 436,783 Accrued compensation payable (5,198,782) (2,879,236) ------------- ------------- Net cash used in operating activities (5,913,517) (8,463,302) ------------- ------------- Cash flows from investing activities: Due from (to) brokers 608,556 3,056,152 Purchases of fixed assets (23,344) (355,952) Purchases of investments (120,777,592) (132,789,628) Proceeds from sales of investments 126,579,516 135,472,512 ------------- ------------- Net cash provided by investing activities 6,387,136 5,383,084 ------------- ------------- Cash flows from financing activities: Dividends paid (2,268,781) -- Purchases of treasury stock (1,091,767) (103,227) ------------- ------------- Net cash used in financing activities (3,360,548) (103,227) ------------- ------------- Net increase (decrease) in cash and cash equivalents (2,886,929) (3,183,445) Cash and cash equivalents, beginning of period 3,488,606 4,387,987 ------------- ------------- Cash and cash equivalents, end of period $ 601,677 $ 1,204,542 ============= ============= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 168,820 $ 69,045 ============= ============= Income taxes $ 3,509,796 $ 8,740,550 ============= ============= 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, 2001, and the results of its operations and cash flows for the three and six months ended June 30, 2001 and 2000. 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, 2000 Annual Report on Form 10-K. Information included in the condensed consolidated balance sheet as of December 31, 2000 has been derived from the audited consolidated financial statements appearing in the Company's Annual Report on Form 10-K. New Accounting Pronouncements The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 141 ("SFAS No. 141") "Business Combinations," which is effective for periods beginning after June 30, 2001 and Statement of Financial Accounting Standards No. 142 ("SFAS No. 142") "Goodwill and Other Intangible Assets," which is effective for fiscal years beginning after December 15, 2001. Management does not believe that the impact of the adoption of SFAS No. 141 and SFAS No. 142 on the Company's financial position or results of operations to be material. 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 first-in, first-out 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 a general partner for three Company-sponsored investment partnerships (the "Partnerships") and as the investment manager for a Company-sponsored offshore investment fund (the "Offshore Fund"). Investments in limited partnerships are carried in the accompanying condensed consolidated financial statements at the Company's share of the net asset values as reported by the respective Partnerships with the unrealized gain or loss recorded in the consolidated statements of 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 vest over the four year period ending 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 is recorded as unearned compensation in shareholders' equity and is being amortized over a four-year period which commenced with the fourth quarter of 1997 (approximately $563,000 per quarter and $2.25 million annually). Accordingly, NCCC of approximately $563,000 and $1,126,000 were charged to operations in both the three and six months ended June 30, 2001 and 2000, respectively. Note 4: Senior Vice President Accounts Certain high net worth accounts subject to the over-all supervision and control of the Company are under the management of a Senior Vice President (the "SVP Accounts"). Effective October 1, 1998, the Company entered into a facilities agreement with the SVP for the period ended December 31, 2000 under which the SVP relinquished the right to receive revenues generated by the investment management and brokerage services provided to the SVP Accounts to the Company. Pursuant to this Agreement, the Company has made payments to the SVP in three installments in January of 1999, 2000 and 2001 based upon a multiple of annualized revenues of the SVP Accounts in the fourth quarter of 1998, 1999 and 2000, respectively. Based upon the SVP Accounts asset value over the period, the Company recognized approximately $2.9 million as compensation expense ratably over the term of the arrangement. In addition, Management and the SVP agreed to change the split of Net Profits paid to the SVP from 100% during the twelve month period ended September 30, 1998 to 50% for the twelve month period ended September 30, 1999, 25% for the twelve month period ended September 30, 2000, and 0% thereafter. The SVP has remained an employee of the Company. Note 5: 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, 2001 and 2000, respectively. 9 Notes to Condensed Consolidated Financial Statements (cont'd) Note 5: Compensation Expense - cont'd 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 the hedge fund managed by the President, and an annual bonus based upon the pretax earnings of the Company's investment in the hedge fund managed by the President in excess of a base indexed return, subject to a ceiling of 10% of total pretax income. Compensation expense related to these bonuses was $656,000 and $956,000 for the three and six months ended June 30, 2000, compared with none for the three and six months ended June 30, 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, as defined, subject to a ceiling of 10% of total pretax income. Included in compensation expense related to the MIP are accrued bonuses to the CEO totaling $100,000 for the six months ended June 30, 2000, compared with none for the three and six months ended June 30, 2001. Note 6: Treasury Stock In May 2001, the Company purchased 94,920 shares of its common stock at an average market price of $11.50 per share. Note 7: Earnings (Loss) Per Share Basic earnings (loss) per share amounts were computed based on 8,957,888 and 9,063,627 weighted average common shares outstanding in the second quarters of 2001 and 2000, respectively. Diluted earnings per share amounts were computed based on 8,984,650 and 9,076,952 weighted average common shares outstanding in the three months ended June 30, 2001 and 2000, respectively. Basic earnings (loss) per share amounts were computed based on 8,981,557 and 9,064,948 weighted average common shares in the first six months of 2001 and 2000, respectively. Diluted earnings per share amounts were computed based on 9,075,704 weighted average common shares outstanding in the six months ended June 30, 2000. Because the Company reported a loss for the first six months of 2001, 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 Assets totaled $112.1 million at June 30, 2001, compared with $126.9 million at December 31, 2000, and book value per common share totaled $11.78 at June 30, 2001, compared with $11.89 at December 31, 2000. Cash and cash equivalents totaled $602,000 at June 30, 2001, compared with $3.5 million at December 31, 2000. Net investments (at market) totaled $73.2 million at June 30, 2001, compared with $82.7 million at the end of 2000. Unrealized gains on investments, net of deferred tax, totaled $2.7 million at June 30, 2001, compared with $4.8 million at December 31, 2000. Assets under management at June 30, 2001 totaled $2.37 billion, or 8% less than at June 30, 2000 and 1% more than at March 31, 2001. Negative performance results of $73 million combined with net client withdrawals of $138 million over the twelve months ended June 30, 2001 account for the decrease. The Company had net income of $1.6 million ($.17 per common share diluted) for the three months ended June 30, 2001, compared with net income of $397,000 ($.04 per common share diluted) for the same period in 2000. The Company had a net loss of $68,000 (($0.01) per common share) for the six months ended June 30, 2001, compared with net income of $7.8 million ($.86 per common share diluted) for the first six months of 2000. After eliminating non-operating charges, pretax operating income totaled $288,000 in the second quarter of 2001, compared with $1.3 million in the second quarter of 2000, and $903,000 for the six months ended June 30, 2001, compared with $3.7 million for the six months ended June 30, 2000. II. Assets Under Management Assets under management totaled $2.37 billion at June 30, 2001, compared with $2.35 billion at March 31, 2001, and $2.58 billion on June 30, 2000. Average assets under management decreased 7% to $2.40 billion in the second quarter of 2001, compared with $2.58 billion in the comparable period a year ago. Average managed assets for the second quarter of 2001 decreased 7% compared with the first quarter of 2001. During the first six months of 2001, new accounts of $115 million, offset by net withdrawals out of client accounts of $245 million and negative performance of $210 million, accounted for the decrease in managed assets. In the twelve months ended June 30, 2001, new accounts of $211 million, offset by net withdrawals out of client accounts of $349 million and negative performance of $73 million, accounted for the decrease in managed assets. 12 III. Results of Operations Quarterly Comparison Total revenues for the second quarter of 2001 increased 23% to $6.9 million, from $5.7 million in the second quarter of 2000. Revenue from advisory fees and commissions ("operating revenue") decreased to $3.9 million in the second quarter of 2001, as compared with $5.1 million in the second quarter of 2000. Expenses for the second quarter of 2001 decreased 16% to $4.2 million, from $5.0 million in the second quarter of 2000. The following table depicts variances in significant income statement items for the three months ended June 30, 2001 compared with the same period in 2000. Explanations of the variances follow the table. (000's) 3 Months Ended June 30, ------------------------- Percentage 2001 2000 Change ---- ---- ---------- A. Advisory fees $3,464 $4,504 (23%) B. Realized and unrealized gains from principal securities transactions, net 2,925 342 755% C. Employees' compensation 3,014 3,773 (20%) D. Non-compensation expenses 1,141 1,184 (4%) o The 23% decrease in advisory fees is primarily due to the difficult market conditions in 2001 and the decrease in assets under management as discussed above. Additionally, the Company experienced a decrease in incentive fees earned from a Company sponsored investment partnership; from approximately $347,000 earned in the second quarter of 2000, compared with none in the second quarter of 2001. o The Company recorded a net realized and unrealized gain of $2.9 million from investment transactions in the second quarter of 2001, compared with a net realized and unrealized gain of $342,000 for the second quarter of 2000. The net realized and unrealized gains from principal securities transactions were $979,000 and $1.9 million, respectively, for the second quarter of 2001, as compared to net realized gains and unrealized losses of $1.6 million and $1.2 million, respectively, for the second quarter of 2000. o The decrease of 20% in employees' compensation is primarily due to the aforementioned decrease in advisory fees and the resulting decrease in accrued bonus compensation, including bonuses related to the Company's Management Incentive Plan. Also, payments of $375,000 to a senior officer under a revised facilities agreement involving certain managed accounts are included in the second quarter of 2000, compared with none in the second quarter of 2001. Non-cash compensation charges of $563,000 are included in both the second quarters of 2001 and 2000. 13 o Non-compensation expenses decreased 4% for the three months ended June 30, 2001 as compared to the 2000 comparable quarter. The decrease 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. Year-to-Date Comparison Total revenues for the first six months of 2001 decreased to $8.1 million, as compared with $23.2 million in the first six months of 2000. Operating revenue decreased to $8.0 million in the first six months of 2001, as compared with $11.2 million in the first six months of 2000. Expenses for the first six months of 2001 decreased 15% to $8.3 million, from $9.7 million in the first six months of 2000. The following table depicts variances in significant income statement items for the six months ended June 30, 2001 compared with the same period in 2000. Explanations of the variances follow the table. (000's) 6 Months Ended June 30, ----------------------- Percentage 2001 2000 Change ---- ---- ---------- A. Advisory fees $7,073 $10,032 (30%) B. Realized and unrealized gains (losses) from principal securities transactions, net (331) 11,619 N/A C. Employees' compensation 5,845 7,188 (19%) D. Non-compensation expenses 2,427 2,510 (3%) o The 30% decrease in advisory fees is primarily due to the difficult market conditions in 2001 and the decrease in assets under management as discussed above. Additionally, the Company experienced a decrease in incentive fees earned from a Company sponsored investment partnership; from approximately $1.5 million earned in the first half of 2000, compared with none in 2001. o Difficult market conditions contributed to the Company recording a net realized and unrealized loss from investment transactions in the first half of 2001, compared with a net realized and unrealized gain for the first half of 2000. Total net investment income was $68,000 for the first six months of 2001, compared with net investment income of $12.0 million recorded in the first six months of 2000. The net realized gains and unrealized losses from principal securities transactions were $1.4 million and $1.8 million, respectively, for the first six months of 2001, as compared to net realized and unrealized gains of $9.6 million and $2.0 million, respectively, for the first six months of 2000. 14 o The decrease of 19% in employees' compensation is primarily due to a decrease in accrued bonus compensation as a result of the decline in operating revenues, including bonuses related to the Company's Management Incentive Plan. Also, payments of $750,000 to a senior officer under a revised facilities agreement involving certain managed accounts are included in the first six months of 2000, compared with none in the first six months of 2001. Non-cash compensation charges of $1,126,000 are included in the first six months of 2001 and 2000, respectively. o Non-compensation expenses decreased 3% for the six months ended June 30, 2001 as compared to the 2000 comparable period. The decrease 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. 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 $73.2 million at June 30, 2001, compared with $82.7 million at the end of 2000. Shareholders' equity decreased to $105.0 million at June 30, 2001, from $107.1 million at the end of 2000, primarily from unrealized losses (net of deferred tax credit) of $2.1 million in the investment portfolio. The Company had a net unrealized gain on investments of $2.7 million in shareholders' equity at June 30, 2001, compared with $4.8 million at December 31, 2000. At June 30, 2001, the Company's net investment portfolio at market totaled $99.1 million (cost basis $78.8 million), compared with $111.5 million (cost $86.0 million) at the end of 2000, which was comprised of cash and cash equivalents, net investments described above and investments in limited partnerships. At June 30, 2001, 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. The largest security position was in Microsoft, which represented 8% of the Company's investment portfolio as of June 30, 2001. If the equity market (defined as the S&P 500 index) were to decline by 10%, the Company might experience unrealized losses of approximately $10 million; if the market were to decline by 20%, the Company might experience unrealized losses of $20 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 June 30, 2001, the Company had cash and cash equivalents of $602,000, compared with $3.5 million at the end of 2000. Operating activities generated net cash outflows of $5.9 million in the six months ended June 30, 2001, compared with $8.5 million of outflows in the same period in 2000, reflecting the changing levels of operating assets and liabilities and net income (loss) over those periods. Net cash provided by investing activities totaled $6.4 million in the first six months of 2001, compared with $5.4 million in the comparable 2000 period. The increase in 2001 and 2000 15 was primarily the result of net proceeds from investment transactions. Net cash outflows from financing activities was $3.4 million in the first six months of 2001 compared to $103,000 of cash outflows in the comparable 2000 period. The cash outflow in 2001 was the result of purchasing treasury stock and paying dividends accrued at December 31, 2000, and the outflow in 2000 is a result of purchasing treasury stock. In January and February 2000, the Company purchased 6,500 and 5,000 shares of its common stock, respectively, at an average market price of $8.98 per share. In August and September 2000, the Company purchased 19,000 and 39,400 shares of its common stock, respectively, at an average market price of $9.98 per share. In May 2001, the Company purchased 94,920 shares of its common stock at an average market price of $11.50 per share. At June 30, 2001, there were no liabilities for borrowed money. New Accounting Pronouncements The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 141 ("SFAS No. 141") "Business Combinations," which is effective for periods beginning after June 30, 2001 and Statement of Financial Accounting Standards No. 142 ("SFAS No. 142") "Goodwill and Other Intangible Assets," which is effective for fiscal years beginning after December 15, 2001. Management does not believe that the impact of the adoption of SFAS No. 141 and SFAS No. 142 on the Company's financial position or results of operations to be material. 16 Part II. Other Information Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Default upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K Exhibit Number Description Page ------ ----------- ---- 2 None. 4 None. 11 Computation of Earnings per Share. 19 15 None. 18 None. 19 None. 20 None. 23 None. 24 None. 25 None. 28 None. Reports on Form 8-K: None. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Atalanta/Sosnoff Capital Corporation Date: August 10, 2001 /s/ Martin T. Sosnoff ---------------------------------- Martin T. Sosnoff Chairman of the Board and Chief Executive Officer Date: August 10, 2001 /s/ Anthony G. Miller ----------------------------------- Anthony G. Miller Executive Vice President, Chief Operating Officer Date: August 10, 2001 /s/ Kevin S. Kelly ---------------------------------- Kevin S. Kelly Senior Vice President, Chief Financial Officer 18