<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 26, 1997
------------------------------------
Commission file number 0-14140
First Albany Companies Inc.
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 22-2655804
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 South Pearl St., Albany, NY 12207
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(Address of principal executive offices) (Zip Code)
(518) 447-8500
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(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.
5,510,715 Shares of Common Stock were outstanding as of the close
-----------------------------------------------------------------
of business on October 23, 1997.
- --------------------------------
</PAGE>
<PAGE>
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 September 26, 1997 and
December 31, 1996............................ 3
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended
September 26, 1997 and September 27, 1996.... 4
Condensed Consolidated Statements of Cash Flow
for the Nine Months Ended September 26, 1997
and September 27, 1996....................... 5
Notes to Condensed Consolidated Financial
Statements................................... 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 10-16
Part II - Other Information
Item 1. Legal Proceedings......................... 17
Item 6. Exhibits and Reports on Form 8-K.......... 17-19
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
================================================================================
September 26,
1997 December 31,
(In thousands of dollars) (Unaudited) 1996
<S> <C> <C>
- --------------------------------------------------------------------------------
Assets
Cash $ 321 $ 4,005
Securities purchased under agreement
to resell 3,504 2,869
Securities borrowed 587,132 344,904
Receivables from:
Brokers, dealers and clearing agencies 4,849 1,856
Customers 176,670 128,130
Others 25,599 8,181
Securities owned 120,462 156,154
Investments 7,074 6,157
Office equipment and leasehold
improvements, net 13,246 12,584
Other assets 16,301 10,945
- --------------------------------------------------------------------------------
Total assets $955,158 $675,785
================================================================================
Liabilities and Stockholders' Equity
Liabilities
Short-term bank loans $203,002 $134,712
Securities sold under agreement
to repurchase 5,031
Securities loaned 606,583 350,577
Payables to:
Brokers, dealers and clearing agencies 12,261 3,150
Customers 36,457 48,174
Others 12,119 56,615
Securities sold but not yet purchased 4,112 10,075
Accounts payable 3,999 1,928
Accrued compensation 7,228 11,649
Accrued expenses 5,142 5,622
Notes payable 7,927 4,583
Obligations under capitalized leases 2,662 1,426
- --------------------------------------------------------------------------------
Total liabilities 906,523 628,511
- --------------------------------------------------------------------------------
Commitments and Contingencies
Subordinated debt 5,000 5,000
- --------------------------------------------------------------------------------
Stockholders' Equity
Common stock 57 54
Additional paid-in-capital 28,950 25,591
Retained earnings 15,735 18,556
Less treasury stock at cost (1,107) (1,927)
- --------------------------------------------------------------------------------
Total stockholders' equity 43,635 42,274
- --------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $955,158 $675,785
================================================================================
</TABLE>
See notes to the condensed consolidated financial statements.
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
==========================================================================================
<S> Three Months Ended Nine Months Ended
(In thousands of dollars <C> <C> <C> <C>
except for per share September 26, September 27, September 26, September 27,
and outstanding share amounts) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------
Revenues
Commissions $ 14,679 $ 9,461 $ 38,347 $ 31,804
Principal transactions 16,167 14,403 47,246 48,148
Investment banking 4,279 3,851 11,114 12,475
Interest 11,806 7,451 32,748 20,629
Fees and other 2,810 2,785 8,114 7,397
- ------------------------------------------------------------------------------------------
Total revenues 49,741 37,951 137,569 120,453
Interest expense 10,172 5,972 28,112 16,098
- ------------------------------------------------------------------------------------------
Net revenues 39,569 31,979 109,457 104,355
- ------------------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 26,215 20,955 73,183 70,298
Clearing, settlement and
brokerage costs 917 744 2,470 2,101
Communications and data
processing 3,227 2,730 9,529 8,027
Occupancy and depreciation 3,395 2,064 9,842 5,901
Selling 2,333 1,863 6,047 5,339
Other 2,331 2,019 6,885 5,648
- -------------------------------------------------------------------------------------------
Total expenses (excluding
interest) 38,418 30,375 107,956 97,314
- -------------------------------------------------------------------------------------------
Income before income taxes 1,151 1,604 1,501 7,041
- -------------------------------------------------------------------------------------------
Income tax expense 545 673 639 2,770
- -------------------------------------------------------------------------------------------
Income before extraordinary items 606 931 862 4,271
- -------------------------------------------------------------------------------------------
Extraordinary gain, net of taxes 305
- -------------------------------------------------------------------------------------------
Net income $ 606 $ 931 $ 1,167 $ 4,271
===========================================================================================
Primary Earnings Per Share:
Income before extraordinary
gain $ 0.09 $ 0.16 $ 0.14 $ 0.72
Extraordinary gain 0.00 0.00 0.05 0.00
- -------------------------------------------------------------------------------------------
Net income $ 0.09 $ 0.16 $ 0.19 $ 0.72
===========================================================================================
Fully diluted Earnings Per Share:
Income before extraordinary
gain $ 0.09 $ 0.16 $ 0.14 $ 0.72
Extraordinary gain 0.00 0.00 0.05 0.00
- -------------------------------------------------------------------------------------------
Net Income $ 0.09 $ 0.16 $ 0.19 $ 0.72
===========================================================================================
Weighted average common
and common equivalent
shares outstanding:
Primary 6,427,779 5,893,564 6,213,330 5,936,386
Fully diluted 6,440,733 5,893,564 6,240,817 5,936,386
===========================================================================================
Dividend per common share
outstanding $ 0.05 $ 0.05 $ 0.15 $ 0.15
===========================================================================================
</TABLE>
See notes to the condensed consolidated financial statements.
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
================================================================================
Nine Months Ended
September 26, September 27,
(In thousands of dollars) 1997 1996
<S> <C> <C>
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,167 $ 4,271
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 3,375 2,372
Deferred income taxes 1,548 471
Undistributed earnings of investment (773)
Unrealized investment gains (485)
Realized gains on sale of investments (770)
(Increase) decrease in operating assets:
Cash and securities segregated under
federal regs. (707)
Securities purchased under agreement to
resell (635)
Net receivables from customers (60,257) (47,825)
Net receivables from others (61,914)
Securities owned, net 29,729 (13,631)
Other assets (6,904) (5,039)
Increase (decrease) in operating liabilities:
Securities loaned, net 13,778 22,062
Net payable to brokers, dealers, and
clearing agencies 6,118 6,943
Net payable to others 38,874
Accounts payable and accrued expenses (2,830) 2,488
- --------------------------------------------------------------------------------
Net cash used in operating activities (78,853) 10,279
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of furniture, equipment, and
leaseholds (2,437) (3,659)
Proceeds from the sale of investments 1,046
(Increase)/Decrease in investments (16) (3,113)
- --------------------------------------------------------------------------------
Net cash used in investing activities (1,407) (6,772)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds (payments) of short-term bank
loans 68,290 (10,725)
Proceeds (payments) of subordinated notes 5,000
Proceeds of notes payable 5,000 5,500
Payments of notes payable (1,656) (2,214)
Payments of obligations under capitalized
leases (283)
Securities sold under agreement to
repurchase 5,031 2,996
Payments for purchases of common stock
for treasury (1,245)
Proceeds from issuance of common stock
from treasury 478 233
Proceeds from issuance of restricted stock 510 737
Dividends paid (794) (691)
- --------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities 76,576 (409)
- --------------------------------------------------------------------------------
Increase (Decrease) in cash (3,684) 3,098
Cash at beginning of the year 4,005 5,450
- --------------------------------------------------------------------------------
Cash at end of period $ 321 $ 8,548
================================================================================
</TABLE>
Supplemental cash flow disclosures: In 1997, the Company entered into capital
leases for office and computer equipment totaling approximately $1,519,000.
See notes to the condensed consolidated financial statements.
</PAGE>
<PAGE>
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 normal, recurring adjustments necessary for a fair
presentation of results for such periods. The results for any interim period
are not necessarily indicative of those 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 the
financial statements and notes for the year ended December 31, 1996.
2. Investments
-----------
At September 26, 1997 the Company owned approximately 2,037,000 common shares
(35% of the shares outstanding) of Mechanical Technology Incorporated (MTI),
which operates in upstate New York. The Company's investment in MTI is recorded
under the equity method and approximated $3,296,000, which included goodwill of
approximately $885,000 which is being amortized. At September 26, 1997 the
aggregate market value of the Company's shares of MTI stock was $6,874,000. The
Company's equity in MTI's net income, recorded on a one-quarter delay basis, was
$773,000 for the nine months ended September 26, 1997 and related primarily due
to the extinguishment of debt.
The following presents summarized financial information of MTI for the nine
months ended June 30, 1997:
<TABLE>
========================================
<C> <S>
Assets $14,596,000
Liabilities 7,526,000
----------------------------------------
Shareholder's equity $ 7,070,000
========================================
</TABLE>
<TABLE>
========================================
<C> <S>
Revenues $24,701,000
Operating income 1,133,000
Income before extraordinary
items and income taxes 953,000
Gain on extinguishment of
debt, net of taxes 2,507,000
Net income 3,374,000
========================================
At October 29, 1997, the aggregate market value of the Company's shares in MTI
was $12,092,000. Under the equity method, the market value of MTI's stock is
not included in the calculation of the Company's Investment.
At September 26, 1997, the Company owned 155,000 shares of META Group, Inc.
The fair market value of this investment was $3,778,000. During the nine months
ended September 26, 1997 the Company has recorded a realized gain of $770,000
and unrealized gains of $485,000 with respect to this investment.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
3. Receivables from Others
-----------------------
Amounts receivable from others as of:
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
September 26, December 31,
(In thousands of dollars) 1997 1996
<S> <C> <C>
================================================================================
Adjustment to record securities owned on
a trade date basis, net $ 19,104
Others 6,495 $ 8,181
- --------------------------------------------------------------------------------
Total $ 25,599 $ 8,181
================================================================================
</TABLE>
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. Payables to Others
------------------
Amounts payable to others as of:
<TABLE>
- --------------------------------------------------------------------------------
September 26, December 31,
(In thousands of dollars) 1997 1996
<S> <C> <C>
- --------------------------------------------------------------------------------
Adjustment to record securities owned on
a trade date basis, net $ $ 39,401
Others 12,119 17,214
- --------------------------------------------------------------------------------
Total $ 12,119 $ 56,615
================================================================================
</TABLE>
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.
5. Notes Payable
-------------
Notes payable consists of a note for $3,552,000, which is collateralized by
fixed assets and is payable in monthly principal payments of $114,583 plus
interest. The interest rate is 2.5% over the 90-day United States Treasury
Securities Rate (4.99% plus 2.5% on September 26, 1997). This note matures
April 1, 2000.
Notes payable also consists of a note for $4,375,000, which is collateralized
by fixed assets and is payable in monthly principal payments of $104,167 plus
interest. The interest rate is 2% over the 30-day London InterBank Offered Rate
("LIBOR") (5.6445% plus 2% on September 26,1997). One of the more significant
covenants requires First Albany Corporation to maintain a minimum net capital
(as defined by Rule 15c3-1 of the Securities and Exchange Commission) equal to
three times the required minimum net capital. The required minimum net capital
as of September 26, 1997 was $3,929,000. The amount of net capital as of
September 27, 1997 was $15,517,000. This note matures on March 27, 2001.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
6. Obligations under Capitalized Leases
------------------------------------
The following is a schedule of future minimum lease payments under capital
leases together with the present value of the net minimum lease payments as
of September 27, 1997:
<TABLE>
============================================
(In thousands of dollars)
<S> <C>
--------------------------------------------
1997 - (three months) $ 178
1998 712
1999 714
2000 685
2001 641
2002 199
--------------------------------------------
Total Minimum Lease Payments 3,129
Less: Amount Representing Interest 467
--------------------------------------------
Present Value of Minimum Lease
Payments $ 2,662
============================================
</TABLE>
7. Subordinated Debt
-----------------
The subordinated debt of $5,000,000 bears interest at 9.25%. Interest is paid
monthly with the principal amount due at maturity on July 31, 2001. The loan
agreement includes financial covenants for debt and equity. One of the more
significant covenants requires First Albany Corporation to maintain a minimum
net capital (as defined by Rule 15c3-1 of the Securities and Exchange
Commission) equal to three and a half times the required minimum net capital.
The required minimum net capital as of September 26, 1997 was $3,929,000. The
amount of net capital as of September 26,1997 was $15,517,000. The lender has
the right to exercise stock options on 88,200 shares of the Company's stock at
$11.34 per share. This right expires July 31, 2000.
8. Commitments and 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 which 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 it believes are 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.
9. Stockholders' Equity
--------------------
In January 1997, the Board of Directors declared the regular quarterly
dividend of $0.05 per share payable on February 25, 1997 to shareholders of
record on February 11, 1997.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
In April 1997, the Board of Directors declared the regular quarterly dividend
of $0.05 per share for the first quarter, ended March 27, 1997, along with a 5%
stock dividend. Both are payable on May 27, 1997 to shareholders of record on
May 12, 1997.
In July 1997, the Board of Directors declared the regular quarterly dividend of
$0.05 per share payable on August 27, 1997 to shareholders of record on August
12, 1997.
In October 1997, the Board of Directors declared the regular quarterly dividend
of $0.05 per share for the third quarter, ended September 26, 1997, along with a
5% stock dividend. Both are payable on November 20, 1997 to shareholders of
record on November 12, 1997.
10. Net Income Per Common and Common Equivalent Share
-------------------------------------------------
Net income per common and common equivalent share for both the primary and
fully diluted computations 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.
11. 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 September 26, 1997, the broker-dealer subsidiary had aggregate net
capital, as defined, of $15,517,000 - exceeding the required net capital by
$11,588,000.
12. Derivative Financial Instruments
--------------------------------
The Company does not engage in the proprietary trading of derivative securities
with the exception of highly liquid index futures contracts and options. These
index futures contracts and options are used to hedge certain securities
positions in the Company's inventory. Gains and losses are included as revenues
from principal transactions.
The contractual or notional amounts reflected to these financial statements
reflect the volume and activity and do not reflect the amounts at risk. The
amounts at risk are generally limited to the unrealized market valuation gains
or losses on the instruments and will vary based on changes in market value.
Futures contracts are executed on an exchange, and cash settlement is made on a
daily basis for market movements. Open equity in the futures contracts are
recorded as receivables from clearing organizations. The settlement of these
transactions is not expected to have a material adverse effect on the financial
condition of the Company.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
13. New Accounting Standards
------------------------
Financial Accounting Standards Board No. 125 - "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement, which would be effective for all transfers after December 31, 1997,
addresses several matters that have a significant impact of the Broker/Dealer
industry. It addresses how and when to record transferred assets, transfers of
partial interests, servicing of financial assets, securitizations, transfers of
sales-type and direct financing lease receivables, securities lending
transactions, repurchase agreements including "dollar rolls," "wash sales," loan
syndications and participations, risk participations in banker's acceptances,
factoring arrangements, transfers of receivables with recourse, and
extinguishments of liabilities, collateral, repurchase agreements and how to
amortize servicing assets and liabilities. Management has not yet made a
determination of the impact, if any, that the adoption of this statement would
have on the consolidated financial statements.
Financial Accounting Standards No. 128 - "Earnings Per Share." This statement
which is effective for financial statements issued for periods ending after
December 15, 1997, simplifies the computation of earnings per share (EPS) by
replacing the "primary" EPS requirements with a "basic" EPS computation based
upon weighted-average shares outstanding. This new standard requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Management has
estimated that under this statement, the "basic" EPS for the three months and
nine months ended September 26, 1997 would be $0.11 and $0.20 respectively, and
the "dilutive" EPS for the three months and nine months ended September 26, 1997
would be $0.09 and $0.19 respectively.
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
==========================================================================================
1997 vs.
Three Months Ended 1996 Percentage
September26, September 27, Increase Increase
(In thousands of dollars) 1997 1996 (Decrease) (Decrease)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Revenues
Commissions $ 14,679 $ 9,461 $ 5,218 55%
Principal transactions 16,167 14,403 1,764 12%
Investment banking 4,279 3,851 428 11%
Interest income 11,806 7,451 4,355 58%
Fees and others 2,810 2,785 25 1%
- ------------------------------------------------------------------------------------------
Total revenues 49,741 37,951 11,790 31%
Interest expense 10,172 5,972 4,200 70%
- ------------------------------------------------------------------------------------------
Net revenues 39,569 31,979 7,590 24%
- ------------------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 26,215 20,955 5,260 25%
Clearing, settlement and
brokerage costs 917 744 173 23%
Communications and data processing 3,227 2,730 497 18%
Occupancy and depreciation 3,395 2,064 1,331 64%
Selling 2,333 1,863 470 25%
Other 2,331 2,019 312 15%
- ------------------------------------------------------------------------------------------
Total expenses (excluding
interest) 38,418 30,375 8,043 26%
- ------------------------------------------------------------------------------------------
Income before income taxes 1,151 1,604 (453) (28)%
- ------------------------------------------------------------------------------------------
Income tax expense 545 673 (128) (19)%
- ------------------------------------------------------------------------------------------
Net income $ 606 $ 931 $ (325) (35)%
==========================================================================================
Net interest income
Interest income $ 11,806 $ 7,451 $ 4,355 58%
Interest expense 10,172 5,972 4,200 70%
- ------------------------------------------------------------------------------------------
Net interest income $ 1,634 $ 1,479 $ 155 10%
==========================================================================================
</TABLE>
</PAGE>
<PAGE>
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 Month Periods Ended September 26, 1997 and September 27, 1996
- -------------------------------------------------------------------
Net Income
- ----------
Net income for the quarter ended September 26,1997 was $0.6 million or $0.09
per share compared to $0.9 million or $0.16 per share a year ago. This
quarter's revenue gains are the result of increases in each of the firm's
divisions. Compared to the same period last year, revenues in the retail
division increased over 30%, revenues in our municipal and fixed income capital
markets division each increased over 25%, and revenues in the equities division
were up over 10%. Despite these increases, earnings continue to be
disappointing because of our significant investments in people and technology.
We are beginning to see some results from the aggressive cost reduction and
containment program we launched in the Spring, and we hope to continue to
improve margins through early 1998.
Commissions
- ----------
Commission revenues increased $5.2 million or 55% in this year's third quarter
reflecting active trading in all major markets. Revenues from listed and over-
the-counter agency stock commissions increased $3.3 million or 54%, mutual fund
commission revenues increased $1.5 million or 51%, and option commission
revenues increased $0.4 million or 93%.
Principal Transactions
- ----------------------
Principal transactions increased $1.8 million or 12% in this year's third
quarter. This was comprised of an increase in equity securities of $0.3
million, an increase in taxable fixed income of $1.4 million and an increase in
municipal bonds of $0.1 million.
Investment Banking
- ------------------
Investment banking revenues increased $0.4 million or 11% in this year's third
quarter. Revenues from selling concessions remained constant, underwriting fees
decreased $0.5 million (equities decreased $0.3 million and municipals decreased
$0.2 million), and investment banking fees increased $0.9 million (equities
increased $0.7 million and municipals increased $0.2 million).
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS COMPARISON OF 1997 VS. 1996
Compensation and Benefits
- -------------------------
Compensation and benefits increased $5.2 million or 25% due primarily to the
increase in net revenues. Sales related compensation increased $3.8 million,
salaries increased $0.9 million, and benefits increased $0.5 million.
Communications and Data Processing
- ----------------------------------
Communications and data processing expenses increased $0.5 million or 18% in
this year's third quarter. Communication expense increased $0.3 million due
mainly to the firm's upgrade in technology and increased headcount. Data
processing expense increased $0.2 million, due mainly to an increase in
transactions.
Occupancy and Depreciation
- --------------------------
Occupancy and depreciation expenses increased $1.3 million or 64% primarily
as a result of the upgrade of our retail branch technology and the expansion
of our retail and institutional offices in New York City.
Selling Expense
- ---------------
Selling expense increased $0.5 million or 25% in part as a result of an
increase in promotional activity in our equities division.
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
==========================================================================================
1997 vs.
Nine Months Ended 1996 Percentage
September 26, September 27, Increase Increase
(In thousands of dollars) 1997 1996 (Decrease) (Decrease)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Revenues
Commissions $ 38,347 $ 31,804 $ 6,543 21%
Principal transactions 47,246 48,148 (902) (2)%
Investment banking 11,114 12,475 (1,361) (11)%
Interest income 32,748 20,629 12,119 59%
Fees and others 8,114 7,397 717 10%
- ------------------------------------------------------------------------------------------
Total revenues 137,569 120,453 17,116 14%
Interest expense 28,112 16,098 12,014 75%
- ------------------------------------------------------------------------------------------
Net revenues 109,457 104,355 5,102 5%
- ------------------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 73,183 70,298 2,885 4%
Clearing, settlement and
brokerage costs 2,470 2,101 369 18%
Communications and data
processing 9,529 8,027 1,502 19%
Occupancy and depreciation 9,842 5,901 3,941 67%
Selling 6,047 5,339 708 13%
Other 6,885 5,648 1,237 22%
- ------------------------------------------------------------------------------------------
Total expenses (excluding
interest) 107,956 97,314 10,642 11%
- ------------------------------------------------------------------------------------------
Income before income taxes 1,501 7,041 (5,540) (79)%
- ------------------------------------------------------------------------------------------
Income tax expense 639 2,770 (2,131) (77)%
- ------------------------------------------------------------------------------------------
Income before extraordinary items 862 4,271 (3,409) (80)%
- ------------------------------------------------------------------------------------------
Extraordinary gain, net of taxes 305 305
- ------------------------------------------------------------------------------------------
Net income $ 1,167 $ 4,271 $ (3,104) (73)%
==========================================================================================
Net interest income
Interest income $ 32,748 $ 20,629 $ 12,119 59%
Interest expense 28,112 16,098 12,014 75%
- ------------------------------------------------------------------------------------------
Net interest income $ 4,636 $ 4,531 $ 105 2%
==========================================================================================
</TABLE>
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Nine Months Periods Ended September 26, 1997 and September 27, 1996
- -------------------------------------------------------------------
Net Income
- ----------
Net income for the nine months ended September 26, 1997, was $1.2 million or
$.19 per share compared to $4.3 million or $0.72 per share a year ago.
Commissions
- -----------
Commission revenues increased $6.5 million or 21% in this year's nine-month
period reflecting active trading in all major markets. Revenues from listed and
over-the-counter agency commissions increased $3.4 million or 16%, mutual fund
commission revenues increased $2.3 million or 25%, and options commission
revenues increased $0.6 million or 45%.
Principal Transactions
- ----------------------
Principal transactions decreased $0.9 million or 2% in this year's first nine-
months. This was comprised of a decrease in equity securities of $3.7 million,
an increase in taxable fixed income of $1.4 million and an increase in municipal
bonds of $1.4 million.
Investment Banking
- ------------------
Investment banking revenues decreased $1.4 million or 11% in this year's
first nine-months. Revenues from selling concessions were down $2.1 million
(equities decreased $2.5 million, municipals increased $0.4 million and taxable
fixed income remained constant), underwriting fees decreased $0.8 (equities
decreased $0.9 and municipals increased $0.1 million), and investment banking
fees increased $1.5 million (equities increased $0.2 and municipals increased
$1.3 million).
Compensation and Benefits
- -------------------------
Compensation and benefits increased $2.9 million or 4%. Sales related
compensation decreased $2.2 million, salaries increased $2.7 million, and
benefits increased $2.4 million.
Communications and Data Processing
- ----------------------------------
Communications and data processing expenses increased $1.5 million or 19% in
this year's first nine-months. Communication expense increased $1.3 million due
mainly to firm's upgrade in technology and increased headcount. Data processing
expense increased $0.2 million due mainly to an increase in transactions.
Occupancy and Depreciation
- --------------------------
Occupancy and depreciation expenses increased $3.9 million or 67% in this
year's first nine-months, primarily as a result of the upgrade of our retail
branch technology and the expansion of our retail and institutional offices in
New York City.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Other
- -----
Other expense increased $1.2 million or 22% in this year's nine-months due to
an increase in consulting costs and an investment in enhanced client
communications.
Extraordinary gain, net of taxes
- --------------------------------
During the first quarter of 1997, the Company realized an extraordinary gain
of $0.3 million. This extraordinary gain was the result of the Company's
investment in Mechanical Technology Incorporated ("MTI"). The Company's
investment in MTI is recorded under the equity method. Per the equity method
of accounting for investments, the Company records its share of MTI's
extraordinary gains as an extraordinary gain on the Company's books. During the
first quarter of MTI's 1997 fiscal year, MTI realized an extraordinary gain due
to the extinguishment of debt.
</PAGE>
<PAGE>
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 along with receivables from customers
and payables to customers will fluctuate primarily due to the current level of
business activity in these areas. Securities owned will fluctuate as a result
of changes in the level of positions held to facilitate customer transactions
and changes in market conditions. Short-term bank loans increased due primarily
to an increase in net receivables from customers. Receivables from others and
payables to others will fluctuate primarily due to the change in the adjustment
to record securities owned on a trade date basis. Accrued compensation
decreased primarily due to the payment in the March 1997 quarter of calendar
1996 year-end bonuses and incentive compensation.
At September 26, 1997, First Albany Corporation, a registered broker-dealer
subsidiary of First Albany Companies Inc., was in compliance with the net
capital requirements of the Securities and Exchange Commission 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 $240,000,000 of which
approximately $36,998,000 were unused as of September 26, 1997-will provide
sufficient resources to meet present and reasonably foreseeable short-term
financing needs.
In January 1997, the Board of Directors declared the regular quarterly dividend
of $0.05 per share payable on February 25, 1997 to shareholders of record on
February 11, 1997.
In April 1997 the Board of Directors declared the regular quarterly dividend of
$0.05 per share for the first quarter, ended March 27, 1997, along with a 5%
stock dividend. Both are payable on May 27, 1997 to shareholders of record on
May 12, 1997.
In July, 1997 the Board of Directors declared the regular quarterly dividend of
$0.05 per share payable on August 27, 1997 to shareholders of record on August
12,1997.
In October 1997 the Board of Directors declared the regular quarterly dividend
of $0.5 per share for the third quarter, ended September 26,1997, along with a
5% stock dividend. Both are payable on November 26, 1997 to shareholders of
record on November 12, 1997.
The Company believes that funds provided by operations will also provide
sufficient resources for the acquisition of office equipment and leasehold
improvements, current long-term loan repayment requirements, and other long-
term requirements.
New Accounting Standards
- ------------------------
Financial Accounting Standards Board No. 125 - "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement, which would be effective for all transfers after December 31, 1997,
addresses several matters that have a significant impact of the Broker/Dealer
industry. It addresses how and when to record transferred assets, transfers of
partial interests, servicing of financial
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
assets, securitizations, transfers of sales-type and direct financing lease
receivables, securities lending transactions, repurchase agreements including
"dollar rolls," "wash sales," loan syndications and participations, risk
participations in banker's acceptances, factoring arrangements, transfers of
receivables with recourse, and extinguishments of liabilities, collateral,
repurchase agreements and how to amortize servicing assets and liabilities.
Management has not yet made a determination of the impact, if any, that the
adoption of this statement would have on the consolidated financial statements.
Financial Accounting Standards No. 128 - "Earnings Per Share." This
statement which is effective for financial statements issued for periods ending
after December 15, 1997, simplifies the computation of earnings per share (EPS)
by replacing the "primary" EPS requirements with a "basic" EPS computation based
upon weighted-average shares outstanding. This new standard requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Management has
estimated that under this statement, the "basic" EPS for the three months and
nine months ended September 26, 1997 would be $0.11 and $0.20 respectively, and
the "dilutive" EPS for the three months and nine months ended September 26, 1997
would be $0.09 and $0.19 respectively.
</PAGE>
<PAGE>
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, in the aggregate, will not 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.
--------------------
No Form 8-K was filed during the quarter ended September 26, 1997.
------------------
</PAGE>
<PAGE>
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: November 4, 1997 /s/ Alan P. Goldberg
---------------------------
Alan P. Goldberg
President/Director
Date: November 4, 1997 /s/ David J. Cunningham
----------------------------
David J. Cunningham
Vice President and Principal
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-26-1997
<CASH> $321
<RECEIVABLES> $207,118
<SECURITIES-RESALE> $3,504
<SECURITIES-BORROWED> $587,132
<INSTRUMENTS-OWNED> $120,462
<PP&E> $13,246
<TOTAL-ASSETS> $955,158
<SHORT-TERM> $203,002
<PAYABLES> $60,837
<REPOS-SOLD> $5,031
<SECURITIES-LOANED> $606,583
<INSTRUMENTS-SOLD> $4,112
<LONG-TERM> $7,927
$0
$0
<COMMON> $57
<OTHER-SE> $43,578
<TOTAL-LIABILITY-AND-EQUITY> $955,158
<TRADING-REVENUE> $47,246
<INTEREST-DIVIDENDS> $32,748
<COMMISSIONS> $38,347
<INVESTMENT-BANKING-REVENUES> $11,114
<FEE-REVENUE> $8,114
<INTEREST-EXPENSE> $28,112
<COMPENSATION> $73,183
<INCOME-PRETAX> $1,501
<INCOME-PRE-EXTRAORDINARY> $862
<EXTRAORDINARY> $305
<CHANGES> $0
<NET-INCOME> $1,167
<EPS-PRIMARY> $0.19
<EPS-DILUTED> $0.19
</TABLE>
FIRST ALBANY COMPANIES INC. (Exhibit 11)
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
======================================================================================
Three Months Ended Nine Months Ended
(In thousands of dollars, September 26, September 27, September 26, September 27,
except per share amounts) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Primary:
- --------------------------------------------------------------------------------------
Net income $ 606 $ 931 $ 1,167 $ 4,271
======================================================================================
Weighted average number of
shares outstanding during
the period* 5,746 5,486 5,705 5,518
Incremental shares under
stock options computed under
the treasury stock method
using the average market price
of the issuer's stock during
the period 682 408 508 418
- --------------------------------------------------------------------------------------
Weighted average shares and
common equivalent shares
outstanding 6,428 5,894 6,213 5,936
======================================================================================
Net income per share $ 0.09 $ 0.16 $ 0.19 $ 0.72
======================================================================================
Fully Diluted:
- --------------------------------------------------------------------------------------
Net income $ 606 $ 931 $ 1,167 $ 4,271
======================================================================================
Weighted average number of
shares outstanding during
the period* 5,746 5,486 5,705 5,519
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 695 408 536 417
- --------------------------------------------------------------------------------------
Weighted average shares and
common equivalent shares
outstanding 6,441 5,894 6,241 5,936
======================================================================================
Net income per share $ 0.09 $ 0.16 $ 0.19 $ 0.72
======================================================================================
</TABLE>
*Per share figures and shares outstanding have been restated for all
dividends declared.
