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 27, 1997
-------------------------------
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 St., 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.
5,429,687 Shares of Common Stock were outstanding as of the
close of business on July 24, 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 June 27, 1997 and
December 31, 1996.......................... 3
Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended
June 27, 1997 and June 28, 1996............ 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 27, 1997
and June 28, 1996.......................... 5
Notes to Condensed Consolidated Financial
Statements................................. 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 9-15
Part II - Other Information
Item 1. Legal Proceedings......................... 16
Item 4. Submission of matters to a vote of security
holders................................... 16
Item 6. Exhibits and Reports on Form 8-K.......... 17-21
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
================================================================================
June 27,
1997 December 31,
(In thousands of dollars) (Unaudited) 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 1,314 $ 4,005
Cash and securities segregated
under federal regs. 5,600
Securities purchased under
agreement to resell 3,882 2,869
Securities borrowed 538,785 344,904
Receivables from:
Brokers, dealers and clearing agencies 4,468 1,856
Customers 141,068 128,130
Others 6,701 8,181
Securities owned 185,646 156,154
Investments 7,128 6,157
Office equipment and leasehold improvements,
net 13,608 12,584
Other assets 15,820 10,945
- --------------------------------------------------------------------------------
Total assets $924,020 $675,785
================================================================================
Liabilities and Stockholders' Equity
Liabilities
Short-term bank loans $204,012 $134,712
Securities sold under agreement to
repurchase 5,132
Securities loaned 559,711 350,577
Payables to:
Brokers, dealers and clearing agencies 5,596 3,150
Customers 34,911 48,174
Others 35,757 56,615
Securities sold but not yet purchased 7,286 10,075
Accounts payable 2,826 1,928
Accrued compensation 4,978 11,649
Accrued expenses 5,264 5,622
Notes payable 8,583 4,583
Obligations under capitalized leases 2,140 1,426
- --------------------------------------------------------------------------------
Total liabilities 876,196 628,511
- --------------------------------------------------------------------------------
Commitments and Contingencies
Subordinated debt 5,000 5,000
- --------------------------------------------------------------------------------
Stockholders' Equity
Common stock 57 54
Additional paid-in-capital 28,712 25,591
Retained earnings 15,404 18,556
Less treasury stock at cost (1,349) (1,927)
- --------------------------------------------------------------------------------
Total stockholders' equity 42,824 42,274
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $924,020 $675,785
================================================================================
</TABLE>
See notes to the condensed consolidated financial statements.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
========================================================================================
Three Months Ended Six Months Ended
(In thousands of dollars except for June 27, June 28, June 27, June 28,
per share and outstanding share 1997 1996 1997 1996
amounts)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Revenues
Commissions $ 12,088 $ 11,199 $ 23,668 $ 22,343
Principal transactions 16,513 17,557 31,080 33,745
Investment banking 3,638 4,329 6,834 8,624
Interest 10,891 6,739 20,942 13,179
Fees and other 2,640 2,389 5,304 4,612
- ----------------------------------------------------------------------------------------
Total revenues 45,770 42,213 87,828 82,503
Interest expense 9,516 5,173 17,940 10,127
- ----------------------------------------------------------------------------------------
Net revenues 36,254 37,040 69,888 72,376
- ----------------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 24,079 24,998 46,968 49,343
Clearing, settlement and brokerage costs 815 722 1,553 1,357
Communications and data processing 3,173 2,784 6,302 5,298
Occupancy and depreciation 3,341 1,980 6,448 3,836
Selling 1,959 1,972 3,714 3,476
Other 2,566 2,004 4,553 3,629
- ----------------------------------------------------------------------------------------
Total expenses (excluding interest) 35,933 34,460 69,538 66,939
- ----------------------------------------------------------------------------------------
Income before income taxes 321 2,580 350 5,437
- ----------------------------------------------------------------------------------------
Income tax expense 130 995 94 2,098
- ----------------------------------------------------------------------------------------
Income before extraordinary items 191 1,585 256 3,339
- ----------------------------------------------------------------------------------------
Extraordinary gain, net of taxes 305
- ----------------------------------------------------------------------------------------
Net income $ 191 $ 1,585 $ 561 $ 3,339
========================================================================================
Primary Earnings Per Share:
Income before extraordinary gain $ 0.03 $ 0.28 $ 0.05 $ 0.59
Extraordinary gain 0.00 0.00 0.05 0.00
- ----------------------------------------------------------------------------------------
Net Income $ 0.03 $ 0.28 $ 0.10 $ 0.59
========================================================================================
Fully diluted Earnings Per Share:
Income before extraordinary gain $ 0.03 $ 0.28 $ 0.05 $ 0.59
Extraordinary gain 0.00 0.00 0.05 0.00
- ----------------------------------------------------------------------------------------
Net Income $ 0.03 $ 0.28 $ 0.10 $ 0.59
========================================================================================
Weighted average common
and common equivalent
shares outstanding:
Primary 5,868,931 5,630,099 5,815,338 5,650,762
Fully diluted 5,935,129 5,630,099 5,848,437 5,674,595
========================================================================================
Dividend per common share
outstanding $ 0.05 $ 0.05 $ 0.10 $ 0.10
========================================================================================
</TABLE>
See notes to the condensed consolidated financial statements.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
================================================================================
Six Months Ended
June 27, June 28,
(In thousands of dollars) 1997 1996
<S> <C> <C>
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 561 $ 3,339
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,180 1,521
Deferred income taxes 1,620 233
Undistributed earnings of affiliate (655)
Unrealized investment gains (332)
(Increase) decrease in operating assets:
Cash and securities segregated under
federal regs. (5,600) 1,300
Securities repurchased under agreement to
resell (1,013)
Net receivable from customers (26,201) (32,510)
Net receivables from brokers and dealers 1,080
Securities owned, net (32,281) (42,182)
Other assets (6,495) (4,625)
Increase (decrease) in operating liabilities:
Securities loaned, net 15,253 9,948
Net payable to brokers, dealers, and
clearing agencies (166)
Net payable to others (19,378) 32,982
Accounts payable and accrued expenses (6,131) 632
- --------------------------------------------------------------------------------
Net cash used in operating activities (78,638) (28,282)
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of furniture, equipment, and
leaseholds (3,204) (2,443)
(Increase) decrease in investments 16 (2,865)
- --------------------------------------------------------------------------------
Net cash used in investing activities (3,188) (5,308)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds (payments) of short-term bank loans 69,300 23,741
Proceeds of notes payable 5,894 5,500
Payments of notes payable (1,000) (1,985)
Payments of obligations under capitalized leases (180)
Securities sold under agreement to repurchase 5,132 4,975
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 30 738
Dividends paid (519) (455)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 79,135 31,502
- --------------------------------------------------------------------------------
Decrease in cash (2,691) (2,088)
Cash at beginning of the year 4,005 5,450
- --------------------------------------------------------------------------------
Cash at end of period $ 1,314 $ 3,362
================================================================================
</TABLE>
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
-----------
The Company's investment in Mechanical Technology Incorporated ("MTI") is
recorded under the equity method and at June 27, 1997 approximated $3,228,000,
which included goodwill of approximately $907,000 which is being amortized. At
June 27, 1997, the aggregate market value of the Company's shares of MTI stock
was $4,201,000.
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 MTI. Per the equity method of accounting for investments, the
Company must record 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.
At June 27, 1997, the Company owned 200,000 shares of META Group, Inc. The
fair market value of this investment was $3,900,000 at June 27,1997.
3. Payables to Others
------------------
Amounts payable to others as of:
<TABLE>
- ------------------------------------------------------------------------------
June 27, December 31,
(In thousands of dollars) 1997 1996
<S> <C> <C>
================================================================================
Adjustment to record securities owned on
a trade date basis, net $19,692 $39,401
Others 16,065 17,214
- --------------------------------------------------------------------------------
Total $35,757 $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.
4. Notes Payable
-------------
Notes payable consists of a note for $3,895,833, 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 (5.25% plus 2.5% on June 27, 1997). This note matures April 1,
2000.
Notes payable also consists of a note for $4,687,500, 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
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
London InterBank Offered Rate ("LIBOR") (5.71875% plus 2% on June 27,1997). 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 June 27, 1997 was $3,067,000. The amount of net
capital as of June 27, 1997 was $16,510,000. This note matures on March 27,
2001.
5. 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 June 27, 1997:
<TABLE>
=================================================
(In thousands of dollars)
<S> <C>
-------------------------------------------------
1997 - (six months) $ 265
1998 530
1999 532
2000 501
2001 573
2002 134
-------------------------------------------------
Total Minimum Lease Payments 2,535
Less: Amount Representing Interest 395
-------------------------------------------------
Present Value of Minimum Lease Payments $ 2,140
=================================================
</TABLE>
6. 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 net capital as of June 27, 1997 was $3,067,000. The amount of net
capital as of June 27,1997 was $16,510,000. 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.
7. 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.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
8. 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.
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.
9. 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, including the 5% stock dividends declared in April 1997, payable on
May 27, 1997.
10. 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 June 27, 1997, the broker-dealer subsidiary had aggregate net capital,
as defined, of $16,510,000 - exceeding the required net capital by $13,443,000.
11. 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
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)
12. 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
six months ended June 27, 1997 would be $0.04 and $0.10 respectively, and the
"dilutive" EPS for the three months and six months ended June 27, 1997 would be
$0.03 and $0.10 respectively.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS COMPARISON OF 1997 VS. 1996
<TABLE>
1997 vs.
Three Months Ended 1996 Percentage
June 27, June 28, Increase Increase
(In thousands of dollars) 1997 1996 (Decrease) (Decrease)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Revenues
Commissions $ 12,088 $ 11,199 $ 889 8%
Principal transactions 16,513 17,557 (1,044) (6)%
Investment banking 3,638 4,329 (691) (16)%
Interest income 10,891 6,739 4,152 62%
Fees and others 2,640 2,389 251 11%
- --------------------------------------------------------------------------------
Total revenues 45,770 42,213 3,557 8%
Interest expense 9,516 5,173 4,343 84%
- --------------------------------------------------------------------------------
Net revenues 36,254 37,040 (786) (2)%
- --------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 24,079 24,998 (919) (4)%
Clearing, settlement and
brokerage cost 815 722 93 13%
Communications and data
processing 3,173 2,784 389 14%
Occupancy and depreciation 3,341 1,980 1,361 69%
Selling 1,959 1,972 (13) (1)%
Other 2,566 2,004 562 28%
- --------------------------------------------------------------------------------
Total expenses (excluding
interest) 35,933 34,460 1,473 4%
- --------------------------------------------------------------------------------
Income before income taxes 321 2,580 (2,259) (88)%
- --------------------------------------------------------------------------------
Income tax expense 130 995 (865) (87)%
- --------------------------------------------------------------------------------
Net income $ 191 $ 1,585 $ (1,394) (88)%
================================================================================
Net interest income
Interest income $ 10,891 $ 6,739 $ 4,152 62%
Interest expense 9,516 5,173 4,343 84%
- --------------------------------------------------------------------------------
Net interest income $ 1,375 $ 1,566 $ (191) (12)%
================================================================================
</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 Months Periods Ended June 27, 1997 and June 28, 1996
- ----------------------------------------------------------
Net Income
- ----------
Net income for the quarter ended June 27,1997 was $0.2 million or $0.03 per
share compared to $1.6 million or $0.28 per share a year ago. The firm's
divisions experienced mixed results during the second quarter. Our municipal
division's net revenues were up 27%, while our retail division's net revenues
remained unchanged. Weaker revenues in our fixed income capital markets
division and continued disappointing results from our equity division, together
with our continued important investments in people and technology led to the
decrease in earnings. We have continued to work to decrease our costs and
improve the prospects for our equity division.
Commissions
- -----------
Commission revenues increased $0.9 million or 8% in this year's second
quarter reflecting active trading in all major markets. Revenues from listed
and over-the-counter agency stock commissions increased $0.3 million or 5% while
mutual fund commission revenues increased $0.4 million or 12%.
Principal Transactions
- ----------------------
Principal transactions decreased $1.0 million or 6% in this year's second
quarter. This was comprised of a decrease in equity securities of $2.2 million,
an increase in taxable fixed income of $0.2 million and an increase in municipal
bonds of $1.0 million.
Investment Banking
- ------------------
Investment banking revenues decreased $0.7 million or 16% in this year's
second quarter. Revenues from selling concessions were down $0.9 million
(equities decreased $0.1 million, municipals decreased $1.0 million and taxable
fixed income increased $0.2 million), underwriting fees remained constant and
investment banking fees increased $0.2 million (equities decreased $0.1 million
and municipals increased $0.3).
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS COMPARISON OF 1997 VS. 1996
Compensation and Benefits
- -------------------------
Compensation and benefits decreased $0.9 million or 4% due primarily to the
decrease in net revenues.
Occupancy and Depreciation
- --------------------------
Occupancy and depreciation expenses increased $1.4 million or 69% 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.
Other
- -----
Other expense increased $0.6 million or 28% primarily reflecting an increase
in consulting costs.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS COMPARISON OF 1997 VS. 1996
<TABLE>
================================================================================
1997 vs.
Six Months Ended 1996 Percentage
June 27, June 28, Increase Increase
(In thousands of dollars) 1997 1996 (Decrease) (Decrease)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Revenues
Commissions $ 23,668 $ 22,343 $ 1,325 6%
Principal transactions 31,080 33,745 (2,665) (8)%
Investment banking 6,834 8,624 (1,790) (21)%
Interest income 20,942 13,179 7,763 59%
Fees and others 5,304 4,612 692 15%
- --------------------------------------------------------------------------------
Total revenues 87,828 82,503 5,325 6%
Interest expense 17,940 10,127 7,813 77%
- --------------------------------------------------------------------------------
Net revenues 69,888 72,376 (2,488) (3)%
- --------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 46,968 49,343 (2,375) (5)%
Clearing, settlement and
brokerage cost 1,553 1,357 196 14%
Communications and data
processing 6,302 5,298 1,004 19%
Occupancy and depreciation 6,448 3,836 2,612 68%
Selling 3,714 3,476 238 7%
Other 4,553 3,629 924 25%
- --------------------------------------------------------------------------------
Total expenses (excluding
interest) 69,538 66,939 2,599 4%
- --------------------------------------------------------------------------------
Income before income taxes 350 5,437 (5,087) (94)%
- --------------------------------------------------------------------------------
Income tax expense 94 2,098 (2,004) (96)%
- --------------------------------------------------------------------------------
Income before extraordinary items 256 3,339 (3,083) (92)%
- --------------------------------------------------------------------------------
Extraordinary gain, net of
taxes 305 305
- --------------------------------------------------------------------------------
Net income $ 561 $ 3,339 $ (2,778) (83)%
================================================================================
Net interest income
Interest income $ 20,942 $ 13,179 $ 7,763 59%
Interest expense 17,940 10,127 7,813 77%
- --------------------------------------------------------------------------------
Net interest income $ 3,002 $ 3,052 $ (50) (2)%
================================================================================
</TABLE>
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Six Months Periods Ended June 27, 1997 and June 28, 1996
- --------------------------------------------------------
Net Income
- ----------
Net income for the six months ended June 27, 1997, was $0.6 million or $0.10
per share compared to $3.3million or $0.59 per share a year ago.
Commissions
- -----------
Commission revenues increased $1.3 million or 6% in this year's six-month
period reflecting active trading in all major markets. Revenues from listed
and over-the-counter agency commissions increased $0.1 million or 1% while
mutual fund commission revenues increased $0.9 million or 14%.
Principal Transactions
- ----------------------
Principal transactions decreased $2.7 million or 8% in this year's first
six-months. This was comprised of a decrease in equity securities of $3.9
million, a decrease in taxable fixed income of $0.1 million and an increase
in municipal bonds of $1.3 million.
Investment Banking
- ------------------
Investment banking revenues decreased $1.8 million or 21% in this year's
first six-months. Revenues from selling concessions were down $2.1 million
(equities decreased $2.4 million, municipals increased $0.3 million and
taxable fixed income remained constant), underwriting fees decreased $0.3
(equities decreased $0.6 and municipals increased $0.3 million), and investment
banking fees increased $0.6 million (equities decreased $0.4 and municipals
increased $1.0 million).
Compensation and Benefits
- -------------------------
Compensation and benefits decreased $2.4 million or 5% due primarily to the
decrease in net revenues.
Communications and Data Processing
- ----------------------------------
Communications and data processing expenses increased $1.0 million or 19%
in this year's first six-months. Communication expense increased $0.9 million
due mainly to firm's upgrade in technology and increased headcount. Data
processing expense increased $0.1 million.
Occupancy and Depreciation
- --------------------------
Occupany and Depreciation expenses increased $2.6 million or 68% in this
year's first six-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.
Other
- -----
Other expense increased $0.9 million or 25% in this year's six-months due
to an increase in consulting costs and an investment in enhanced client
communications.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Income Taxes
- ------------
Income taxes decreased $1.1 million due to a decrease in pre-tax earnings.
The Company's effective tax rate decreased as a result of an increased
proportion of tax-exempt interest income to "income before taxes".
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 fiscal year 1997, 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 securities owned and an increase in net receivables from
customers. Payable to others decreased primarily because of a decrease 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 June 27, 1997, First Albany Corporation and Northeast Brokerage Services
Corporation, both registered broker-dealer subsidiaries of First Albany
Companies Inc., were each 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 $35,988,000 were unused as of June 27, 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.
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 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
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
six months ended June 27, 1997 would be $0.04 and $0.10 respectively, and the
"dilutive" EPS for the three months and six months ended June 27, 1997 would be
$0.03 and $0.10 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 4. Submission of matters to a vote of security holders.
- ------------------------------------------------------------
A. Annual meeting was held on May 15, 1997
B. Elected as Directors: (There were no broker non-votes with
respect to the election of Directors).
Votes For Withheld Authority
--------- ------------------
George C. McNamee 4,906,275 2,650
Alan P. Goldberg 4,906,275 2,650
Daniel V. McNamee, III 4,906,275 2,650
J. Anthony Boeckh 4,906,275 2,650
Walter Fiederowicz 4,838,665 70,260
Hugh A. Johnson, Jr. 4,896,681 12,244
Benaree P. Wiley 4,844,450 64,475
Charles L. Schwager 4,906,275 2,650
C. Other matters voted on at Annual Meeting
1. Ratified the selection of Coopers & Lybrand L.L.P. as
independent auditors of the Company for the fiscal year ending
December 31, 1997.
For: 4,858,924
Against: 47,983
Abstain: 2,018
Broker Non-Votes: 0
2. Other business coming before the meeting:
For: 4,354,881
Against: 181,927
Abstain: 372,117
Broker Non-Votes: 0
</PAGE>
<PAGE>
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 June 27, 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: August 5, 1997 /s/ David J. Cunningham
-------------- ---------------------------
David J. Cunningham
Vice President and Chief Financial
Officer
(Principal Accounting Officer)
Date: August 5, 1997 /s/ Michael R. Lindburg
-------------- ---------------------------
Michael R. Lindburg
General Counsel/Secretary
</PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-27-1997
<CASH> 1,314
<RECEIVABLES> 152,237
<SECURITIES-RESALE> 3,882
<SECURITIES-BORROWED> 538,785
<INSTRUMENTS-OWNED> 185,646
<PP&E> 13,608
<TOTAL-ASSETS> 924,020
<SHORT-TERM> 204,012
<PAYABLES> 76,264
<REPOS-SOLD> 5,132
<SECURITIES-LOANED> 559,711
<INSTRUMENTS-SOLD> 7,286
<LONG-TERM> 8,583
0
0
<COMMON> 57
<OTHER-SE> 42,767
<TOTAL-LIABILITY-AND-EQUITY> 924,020
<TRADING-REVENUE> 31,080
<INTEREST-DIVIDENDS> 20,942
<COMMISSIONS> 23,668
<INVESTMENT-BANKING-REVENUES> 6,834
<FEE-REVENUE> 5,304
<INTEREST-EXPENSE> 17,940
<COMPENSATION> 46,968
<INCOME-PRETAX> 350
<INCOME-PRE-EXTRAORDINARY> 256
<EXTRAORDINARY> 305
<CHANGES> 0
<NET-INCOME> 561
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
FIRST ALBANY COMPANIES INC. (Exhibit 11)
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
Three Months Ended Six Months Ended
June, 27 June 28, June, 27 June 28,
(In thousands of dollars, 1997 1996 1997 1996
except per share amounts)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Primary:
- --------------------------------------------------------------------------------
Net income $ 191 $ 1,585 $ 561 $ 3,339
================================================================================
Weighted average number of
shares outstanding during
the period** 5,430 5,223 5,415 5,261
Incremental shares under stock
options computed under the
treasury stock method using the
average market price of the
issuer's stock during the period 439 407 400 390
- --------------------------------------------------------------------------------
Weighted average shares and
common equivalent shares
outstanding 5,869 5,630 5,815 5,651
================================================================================
Net income per share $ 0.03 $ 0.28 $ 0.10 $ 0.59
================================================================================
Fully Diluted:
- --------------------------------------------------------------------------------
Net income $ 191 $ 1,585 $ 561 $ 3,339
================================================================================
Weighted average number of
shares outstanding during
the period** 5,430 5,223 5,415 5,261
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 505 407 433 414
- --------------------------------------------------------------------------------
Weighted average shares and
common equivalent shares
outstanding 5,935 5,630 5,848 5,675
================================================================================
Net income per share $ 0.03 $ 0.28 $ 0.10 $ 0.59
================================================================================
</TABLE>
**Per share figures and shares outstanding have been restated for all
dividends declared.
