SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from September 30, 1995 to December 31, 1995
Commission file number 0-14140
First Albany Companies Inc.
(Exact name of registrant as specified in its charter)
New York 22-2655804
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 South Pearl Street, Albany, NY 12207
(Address of principal executive offices) (Zip Code)
(518) 447-8500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X (1) No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
4,737,154 Shares of Common Stock were outstanding as of the close of
business on June 11, 1996.
FIRST ALBANY COMPANIES INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PAGE
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Financial
Condition at December 31, 1995 and
September 29, 1995.......................... 3
Condensed Consolidated Statements of Operations
for the Three Months Ended December 31, 1995 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended December 31, 1995
and December 31, 1994....................... 5
Notes to Condensed Consolidated Financial
Statements.................................. 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................... 9-12
Part II - Other Information
Item 1. Legal Proceedings.............................. 13
Item 6. Exhibits and Reports on Form 8-K............... 13
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, September 29,
1995 1995
(In thousands of dollars) (Unaudited)
- --------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 5,450 $ 3,253
Cash segregated under federal regulations 1,300
Securities borrowed 283,785 376,919
Receivables from
Brokers, dealers and clearing agencies 7,231 1,889
Customers 99,759 88,610
Others 17,492 4,965
Securities owned 82,056 56,025
Office equipment and leasehold improvements, net 6,075 6,062
Other assets 6,933 5,532
- --------------------------------------------------------------------------------
Total assets $510,081 $543,255
================================================================================
Liabilities and Stockholders' Equity
Liabilities
Short-term bank loans $112,292 $ 53,288
Securities loaned 283,146 388,523
Payables to
Brokers, dealers and clearing agencies 3,281 3,104
Customers 48,274 38,335
Others 5,000 4,135
Securities sold but not yet purchased 4,407 3,892
Accounts payable 2,457 1,696
Accrued compensation 7,617 8,108
Accrued expenses 4,408 4,191
Notes payable 1,641 1,791
- --------------------------------------------------------------------------------
Total liabilities 472,523 507,063
- --------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Equity
Common stock 49 49
Additional paid-in-capital 20,257 20,257
Retained earnings 19,153 17,822
Less treasury stock at cost (1,901) (1,936)
- --------------------------------------------------------------------------------
Total stockholders' equity 37,558 36,192
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $510,081 $543,255
================================================================================
See notes to the condensed consolidated financial statements.
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
(In thousands of dollars except for per share December 31, December 31,
and outstanding share amounts) 1995 1994
- --------------------------------------------------------------------------------
Revenues
Commissions $ 9,639 $ 6,587
Principal transactions 12,322 10,699
Investment banking 5,435 3,749
Interest 8,138 6,237
Fees and other 1,870 1,553
- --------------------------------------------------------------------------------
Total revenues 37,404 28,825
Interest expense 6,631 4,551
- --------------------------------------------------------------------------------
Net revenues 30,773 24,274
- --------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 20,433 16,900
Clearing, settlement and brokerage costs 613 493
Communications and data processing 2,264 1,814
Occupancy and depreciation 1,842 1,593
Selling 1,563 1,149
Other 1,576 1,046
- --------------------------------------------------------------------------------
Total expenses (excluding interest) 28,291 22,995
- --------------------------------------------------------------------------------
Income before income taxes 2,482 1,279
- --------------------------------------------------------------------------------
Income tax expense 929 436
- --------------------------------------------------------------------------------
Net income $ 1,553 $ 843
================================================================================
Net income per common and
common equivalent share:
Primary $ 0.32 $ 0.18
Fully diluted 0.32 0.18
Weighted average common
and common equivalent
shares outstanding:
Primary 4,841,035 4,644,236
Fully diluted 4,902,800 4,644,236
Dividend per common share
outstanding $ 0.05 $ 0.05
See notes to the condensed consolidated financial statements.
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three Months Ended
December 31, December 31,
(In thousands of dollars) 1995 1994
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,553 $ 843
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 691 529
(Increase) decrease in operating assets:
Cash and securities segregated under federal regs. (1,300) (9,326)
Securities borrowed, net (12,243) 168
Net receivables from brokers, dealers,
and clearing agencies (5,165)
Net receivable from customers (1,210) (5,719)
Net receivables from others (11,662) (10,368)
Securities owned, net (27,354) (18,209)
Other assets 437 389
Increase (decrease) in operating liabilities:
Net payable to brokers, dealers, and
clearing agencies (1,337)
Accounts payable and accrued expenses 486 (2,575)
- --------------------------------------------------------------------------------
Net cash used in operating activities (55,767) (45,605)
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of furniture, equipment, and leaseholds (705) (920)
- --------------------------------------------------------------------------------
Net cash used in investing activities (705) (920)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds (payments) of short-term bank loans 59,004 46,595
Proceeds (payments) of notes payable (150) (16)
Proceeds from issuance of common stock from treasury 30 155
Dividends paid (215) (191)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 58,669 46,543
- --------------------------------------------------------------------------------
Decrease in cash 2,197 18
Cash at beginning of the year 3,253 3,165
- --------------------------------------------------------------------------------
Cash at end of period $ 5,450 $ 3,183
================================================================================
Supplemental disclosures of cash flow information: Income tax payments totaled
$621 in 1995 and $74 in 1994. Interest payments totaled $6,273 in 1995 and
$3,691 in 1994.
See notes to the condensed consolidated financial statements.
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, including only normal, recurring
adjustments, necessary for a fair presentation of results for such periods. The
results for any interim period are not necessarily indicative of results for the
full year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These consolidated financial statements should be
read in conjunction with financial statements and notes for the year ended
September 29, 1995.
2. Cash Segregated Under Federal Regulations
Cash has been segregated in special reserve bank accounts for the exclusive
benefit of customers under Rule 15c3-3 of the Securities and Exchange
Commission.
3. Receivables from Others
Amounts receivable from others as of:
December 31, September 29,
(In thousands of dollars) 1995 1995
- --------------------------------------------------------------------------------
Adjustment to record securities owned on
a trade date basis, net $11,249
Others 6,243 $4,965
- --------------------------------------------------------------------------------
Total $17,492 $4,965
================================================================================
For proprietary securities transactions, amounts receivable and payable for
securities transactions that have not reached their contractual settlement date
are recorded net on the statement of financial condition.
4. Notes Payable
Notes payable consist of:
A note for $1,609,421, which is collateralized by fixed assets, is payable
in monthly payments of principal and interest of $65,005. Interest is at the
prime rate (8.5% at December 31, 1995) plus 1.5%. The note matures April 1,
1998.
An unsecured note for $31,250 is payable in quarterly installments of $15,625
plus interest at the prime rate (8.5% at December 31, 1995) plus 1/2%. The
note matures March 25, 1996.
5. Contingencies
In the normal course of business, the Company has been named a defendant, or
otherwise has possible exposure, in several claims. Certain of these are class
actions which seek unspecified damages that could be substantial. Although there
can be no assurance as to the eventual outcome of litigation in which the
Company has been named as a defendant or otherwise has possible exposure, the
Company has provided for those actions most likely to result in adverse
dispositions.
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Although further losses are possible, the opinion of management, based upon the
advice of its attorneys and general counsel, is that such litigation will not,
in the aggregate, have a material adverse effect on the Company's liquidity or
financial position, although it could have a material effect on quarterly or
annual operating results in the period in which it is resolved.
6. Stockholders' Equity
On October 26, 1995, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the fourth quarter, ended September 29, 1995,
along with a 5% stock dividend. Both were payable on November 22, 1995, to
shareholders of record on November 8, 1995.
On February 1, 1996, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the first quarter, ended December 31, 1995,
payable on February 23, 1996, to shareholders of record on February 9, 1996.
7. Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share for both the primary and
fully diluted computation have been based upon the weighted average number of
common shares and the dilutive common stock equivalents outstanding. The
dilutive effect of the common stock equivalents was determined using the
treasury stock method.
Net income per common and common equivalent share, along with both the primary
and fully dilutive weighted average common and common equivalent shares
outstanding, have been adjusted to reflect all of the 5% stock dividends
declared.
8. Net Capital Requirements
The Company's broker-dealer subsidiary, First Albany Corporation, is subject
to the Securities and Exchange Commission's Uniform Net Capital Rule which
requires the maintenance of a minimum net capital as calculated and defined by
the Rule. As of December 31, 1995, the broker-dealer subsidiary had aggregate
net capital, as defined, of $15,793,000 _ exceeding the required net capital by
$13,673,000.
9. Market Value of Financial Instruments
The financial instruments of the Company are reported on the Statement of
Financial Condition at market or fair value or at carrying amounts that
approximate fair value with the exception of securities not readily marketable
owned by First Albany Companies Inc., which are recorded at cost of
approximately $1,225,000. The market value of securities which are carried at
cost, approximates $6,125,000. The fair value of other financial assets and
liabilities (consisting primarily of receivable from and payable to brokers
dealers, clearing agencies, customers, securities borrowed and loaned, and bank
loans payable) are considered to approximate the carrying value due to the
short-term nature of the financial instruments.
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
10. New Accounting Pronouncements
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). FAS 123 establishes fair value-based method of
accounting for stock-based compensation plans. Entities may either adopt
FAS 123 or elect to continue accounting for the issuance of stock under
compensation plans in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees." The Company has not yet selected the accounting method it
will use to account for stock-based compensation plans and has not measured the
impact of changing its method from APB Opinion No. 25 to FAS 123.
<TABLE>
<CAPTION>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS COMPARISON OF 1995 VS. 1994
1995 vs.
Three Months Ended 1994 Percentage
December 31, December 31, Increase Increase
(In thousands of dollars) 1995 1994 (Decrease) (Decrease)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Commissions $ 9,639 $ 6,587 $ 3,052 46%
Principal transactions 12,322 10,699 1,623 15%
Investment banking 5,435 3,749 1,686 45%
Interest income 8,138 6,237 1,901 30%
Fees and others 1,870 1,553 317 20%
- --------------------------------------------------------------------------------------
Total revenues 37,404 28,825 8,579 30%
Interest expense 6,631 4,551 2,080 46%
- --------------------------------------------------------------------------------------
Net revenues 30,773 24,274 6,499 27%
- --------------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 20,433 16,900 3,533 21%
Clearing, settlement and
brokerage cost 613 493 120 24%
Communications and
data processing 2,264 1,814 450 25%
Occupancy and depreciation 1,842 1,593 249 16%
Selling 1,563 1,149 414 36%
Other 1,576 1,046 530 51%
- --------------------------------------------------------------------------------------
Total expenses
(excluding interest) 28,291 22,995 5,296 23%
- --------------------------------------------------------------------------------------
Income before income taxes 2,482 1,279 1,203 94%
- --------------------------------------------------------------------------------------
Income tax expense 929 436 493 113%
- --------------------------------------------------------------------------------------
Net income $ 1,553 $ 843 $ 710 84%
======================================================================================
Net interest income
Interest income $ 8,138 $ 6,237 $ 1,901 30%
Interest expense 6,631 4,551 2,080 46%
- --------------------------------------------------------------------------------------
Net interest income $ 1,507 $ 1,686 $ (179) (11)%
======================================================================================
</TABLE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and results of
operations during the periods included in the accompanying condensed
consolidated financial statements.
Business Environment
First Albany Corporation, a wholly owned subsidiary of First Albany Companies
Inc. (the Company), is a full service investment banking and brokerage firm.
Its primary business includes the underwriting, distribution, and trading of
fixed income and equity securities. The investment banking and brokerage
business earns revenues in direct correlation with the general level of trading
activity in the stock and bond markets. This level of activity cannot be
controlled by the Company; however, many of the Company's costs are fixed.
Therefore, the Company's earnings, like those of others in the industry, reflect
the activity in the markets and can fluctuate accordingly.
Results of Operations
Three Months Periods Ended December 31, 1995 and December 31, 1994
Net Income
Net income for the quarter ended December 31, 1995, was $1.6 million or
$0.32 per share compared to $0.8 million or $0.18 per share a year ago. Most of
the firm's business units showed significant revenue gains in the first fiscal
quarter of 1996 compared to the first fiscal quarter of 1995. Revenues in both
the equity capital markets and municipal divisions increased over 50%, while
revenues in the retail division were up almost 20%.
Commissions
Commission revenues increased $3.1 million or 46% in this year's first quarter
reflecting active trading in all major markets. Revenues from listed and
over-the-counter agency stock commissions increased $2.0 million or 44% with
mutual fund commission revenues increasing $1.0 million or 57%.
Principal Transactions
Principal transactions increased $1.6 million or 15% in this year's first
quarter. This was comprised of an increase in equity securities of $0.9
million, an increase in municipal bonds of $0.3 million and an increase in
taxable fixed income of $0.4 million.
Investment Banking
Investment banking revenues increased $1.7 million or 45% in this year's first
quarter. Revenues from selling concessions were up $1.0 million (equities
increased $0.4 million, municipals increased $0.4 million and taxable fixed
income increased $0.2 million), underwriting fees increased $0.6 million
(primarily municipal bonds), and investment banking fees increased $0.1 million
(municipal finance fees increased $ 0.3 million while corporate finance fees
decreased $0.2 million).
Fees and Others
Fees and other revenues increased $0.3 million or 20% reflecting increased
service charge income and financial service revenues.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS COMPARISON OF 1995 VS. 1994
Compensation and Benefits
Compensation and benefits increased $3.5 million or 21% due primarily to the
increase in revenues. Sales-related compensation increased $2.4 million,
salaries increased $0.9 million, and benefits increased $0.2 million.
Communications and Data Processing
Communications and data processing increased 0.5 million or 25% in the first
quarter. Communication expense increased $0.4 million due mainly to the firm's
buildup in institutional equity sales and research. Data processing expense
increased $0.1 million due primarily to a greater number of transactions.
Selling
Selling expense increased $0.4 million or 36% mainly reflecting higher
promotional related costs resulting from institutional sales activity.
Other
Other expense increased $0.5 million or 51% in the first quarter partially
due to an increase in consulting costs.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
A substantial portion of the Company's assets, similar to other brokerage and
investment banking firms, is liquid, consisting of cash and assets readily
convertible into cash. These assets are financed primarily by the Company's
interest-bearing and non-interest-bearing payables to customers, payables to
brokers and dealers secured by loaned securities and bank lines-of-credit.
Securities borrowed and securities loaned will fluctuate due primarily to the
current level of business activity in this area. Receivables from others
increased due primarily to a increase in the adjustment to record securities
owned on a trade date basis. Securities owned increased primarily due to the
addition of an institutional municipal risk trading operation. Short term bank
loans increased due primarily to an increase in securities owned. The Company's
broker-dealer subsidiaries-First Albany Corporation and Northeast Brokerage
Services Corp.-at December 31, 1995 were in compliance with the net capital
requirements of the Securities and Exchange Commission (SEC);and had capital in
excess of the minimum required.
Management believes that funds provided by operations and a variety of
committed and uncommitted bank lines-of-credit-totaling $175,000,000 of which
approximately $66,488,000 were unused as of December 31, 1995-will provide
sufficient resources to meet present and reasonably foreseeable short-term
financing needs.
On October 26, 1995, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the fourth quarter, ended September 29, 1995,
along with a 5% stock dividend, both payable on November 22, 1995, to
shareholders of record on November 8, 1995.
On February 1, 1996, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the first quarter, ended December 31, 1995,
payable on February 23, 1996, to shareholders of record on February 9, 1996.
The Company believes that funds provided by operations will also provide
sufficient resources to fund the acquisition of office equipment and leasehold
improvements, current long-term loan repayment requirements, and other
long-term requirements.
Part II Other Information
Item 1. Legal Proceedings
In the normal course of business, the Company has been named a defendant, or
otherwise has possible exposure, in several claims. Certain of these are class
actions which seek unspecified damages that could be substantial. Although
there can be no assurance as to the eventual outcome of litigation in which the
Company has been named as a defendant or otherwise has possible exposure, the
Company has provided for those actions most likely to result in adverse
dispositions. Although further losses are possible, the opinion of management,
based upon the advice of its attorneys and general counsel, is that such
litigation will not, in the aggregate, have a material adverse effect on the
Company's liquidity or financial position, although it could have a material
effect on quarterly or annual operating results in the period in which it is
resolved.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(11) Statement Re: Computations of per share earnings.
(27) Selected Financial Data Schedule BD
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the
quarter ended December 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
First Albany Companies Inc.
(Registrant)
Date: July 22, 1996 /s/ Alan P. Goldberg
- ----------------------- ---------------------
Alan P. Goldberg
President/Director
Date: July 22, 1996 /s/ David J. Cunningham
- ----------------------- -----------------------
David J. Cunningham
Vice President and Chief Financial Officer
(Principal Accounting Officer)
FIRST ALBANY COMPANIES INC.
(Exhibit 11)
COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
December 31, December 31,
(In thousands of dollars, except per share amounts) 1995 1994
- --------------------------------------------------------------------------------
Primary:
- --------------------------------------------------------------------------------
Net Income $1,553 $ 843
================================================================================
Weighted average number of shares
outstanding during the period** 4,528 4,442
Incremental shares under stock options
computed under the treasury stock
method using the average market price
of the issuer's stock during the period 313 202
- --------------------------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding 4,841 4,644
================================================================================
Net income per share $ 0.32 $ 0.18
================================================================================
Fully Diluted:
- --------------------------------------------------------------------------------
Net Income $1,553 $ 843
================================================================================
Weighted average number of shares
outstanding during the period** 4,528 4,442
Incremental shares under stock options
computed under the treasury stock method
using the higher of the average or ending
market price of the issuer's stock at the
end of the period 375 202
- --------------------------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding 4,903 4,644
================================================================================
Net income per share $ 0.32 $ 0.18
================================================================================
** (Per share figures and shares outstanding have been restated for all
dividends declared through December 1995.)
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 6750
<RECEIVABLES> 124482
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 283785
<INSTRUMENTS-OWNED> 82056
<PP&E> 6075
<TOTAL-ASSETS> 510081
<SHORT-TERM> 112292
<PAYABLES> 56555
<REPOS-SOLD> 0
<SECURITIES-LOANED> 283146
<INSTRUMENTS-SOLD> 4407
<LONG-TERM> 1641
<COMMON> 49
0
0
<OTHER-SE> 37509
<TOTAL-LIABILITY-AND-EQUITY> 510081
<TRADING-REVENUE> 12322
<INTEREST-DIVIDENDS> 8138
<COMMISSIONS> 9639
<INVESTMENT-BANKING-REVENUES> 5435
<FEE-REVENUE> 1870
<INTEREST-EXPENSE> 6631
<COMPENSATION> 20433
<INCOME-PRETAX> 2482
<INCOME-PRE-EXTRAORDINARY> 1553
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1553
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</TABLE>
