<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 25, 1998
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.
6,224,959 Shares of Common Stock were outstanding as of the close of
business on October 29, 1998.
</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 25, 1998 and
December 31, 1997........................................3
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended
September 25, 1998 and September 26, 1997................4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended
September 25, 1998 and September 26, 1997................5
Notes to Condensed Consolidated Financial Statements.........6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............12-22
Part II - Other Information
Item 1. Legal Proceedings......................................23
Item 6. Exhibits and Reports on Form 8-K.......................24-25
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<S> <C> <C>
September 25, December 31,
1998 1997
- ---------------------------------------------------------------------------
(In thousands of dollars) (Unaudited)
Assets
Cash $1,084 $ 951
Securities purchased under agreement to resell 12,056 5,299
Securities borrowed 603,562 468,786
Receivables from:
Brokers, dealers and clearing agencies 4,398 4,421
Customers 191,634 182,976
Others 33,775 7,760
Securities owned 151,349 121,116
Investments 12,995 7,026
Office equipment and leasehold improvements, net 12,096 14,057
Other assets 13,030 19,529
- ------------------------------------------------------------------------
Total assets $1,035,979 $831,921
========== ========
Liabilities and Stockholders' Equity
Liabilities
Short-term bank loans $153,792 $99,702
Securities sold under agreement to repurchase 3,158 891
Securities loaned 716,034 547,847
Payables to:
Brokers, dealers and clearing agencies 4,102 2,955
Customers 32,326 49,181
Others 12,592 37,201
Securities sold but not yet purchased 18,585 8,440
Accounts payable 5,655 4,196
Accrued compensation 18,239 13,025
Accrued expenses 6,982 6,076
Notes payable 5,302 7,271
Obligations under capitalized leases 3,655 3,088
- ------------------------------------------------------------------------
Total liabilities 980,422 779,873
- ------------------------------------------------------------------------
Commitments and Contingencies
Subordinated debt 7,500 7,500
- ------------------------------------------------------------------------
Stockholders' Equity
Common stock 62 59
Additional paid-in-capital 37,625 33,024
Retained earnings 10,472 12,070
Less treasury stock at cost (102) (605)
- ------------------------------------------------------------------------
Total stockholders' equity 48,057 44,548
- ------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,035,979 $ 831,921
========== =========
</TABLE>
See notes to the condensed consolidated financial statements.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
(In thousands of dollars September 25, September 26, September 25, September 26,
except for per share 1998 1997 1998 1997
and outstanding share
amounts)
- -------------------------------------------------------------------------------
Revenues
Commissions $ 15,053 $14,679 $44,421 $38,347
Principal transactions 16,617 16,167 55,118 47,246
Investment banking 8,130 4,279 23,333 11,114
Interest 12,275 11,806 35,457 32,748
Fees and other 3,817 2,810 10,118 8,114
- -------------------------------------------------------------------------------
Total revenues 55,892 49,741 168,447 137,569
Interest expense 10,126 10,172 29,102 28,112
- -------------------------------------------------------------------------------
Net revenues 45,766 39,569 139,345 109,457
- -------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 31,378 26,215 97,608 73,183
Clearing, settlement and
brokerage costs 1,133 917 3,035 2,470
Communications and data
processing 3,501 3,227 10,207 9,529
Occupancy and depreciation 3,401 3,395 9,938 9,842
Selling 2,027 2,333 5,782 6,047
Other 2,367 2,331 6,662 6,885
- -------------------------------------------------------------------------------
Total expenses (excluding
interest) 43,807 38,418 133,232 107,956
- -------------------------------------------------------------------------------
Income before income taxes 1,959 1,151 6,113 1,501
- -------------------------------------------------------------------------------
Income tax expense 811 545 2,471 639
- -------------------------------------------------------------------------------
Income before extraordinary
items 1,148 606 3,642 862
- -------------------------------------------------------------------------------
Extraordinary gain, net of
taxes 305
- -------------------------------------------------------------------------------
Net income $1,148 $ 606 $3,642 $1,167
====== ===== ====== ======
Basic Earnings Per Share:
Income before extraordinary
gain $0.18 $0.10 $0.56 $0.14
Extraordinary gain 0.00 0.00 0.00 0.05
- -------------------------------------------------------------------------------
Net income $0.18 $0.10 $0.56 $0.19
===== ===== ===== =====
Dilutive Earnings Per Share:
Income before extraordinary
gain $0.16 $0.09 $0.51 $0.13
Extraordinary gain 0.00 0.00 0.00 0.04
- -------------------------------------------------------------------------------
Net Income $0.16 $0.09 $0.51 $0.17
===== ===== ===== =====
Weighted average common
and common equivalent
shares outstanding:
Basic 6,516,085 6,334,199 6,501,791 6,290,227
Dilutive 7,128,875 7,086,626 7,180,976 6,850,196
- -------------------------------------------------------------------------------
Dividend per common share
outstanding $0.05 $0.05 $0.15 $0.15
===== ===== ===== =====
</TABLE>
See notes to the condensed consolidated financial statements.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Nine Months Ended
<C> <C>
September 25, September 26,
(In thousands of dollars) 1998 1997
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $3,642 $1,167
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 3,335 3,375
Deferred income taxes 553 1,548
Undistributed (earnings) loss of affiliate 190 (773)
Unrealized investment (gain) loss (3,788) (485)
Realized (gain) loss on sale of investments (54) (770)
Services provided in exchange for common stock 199 510
(Increase) decrease in operating assets:
Securities purchased under agreement to resell (6,757) (635)
Net receivables from customers (25,513) (60,257)
Net receivables from brokers and dealers 1,170
Net receivables from others (48,779) (59,096)
Securities owned, net (20,088) 29,729
Other assets 6,499 (6,904)
Increase (decrease) in operating liabilities:
Securities loaned, net 33,411 13,778
Net payables to brokers, dealers, and
clearing agencies 6,118
Accounts payable and accrued expenses 7,026 (2,830)
- ------------------------------------------------------------------------------
Net cash used in operating activities (48,954) (75,525)
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of furniture, equipment,
and leaseholds (96) (2,437)
(Increase) decrease in investments (16)
Disbursements for purchase of investments (2,444)
Proceeds from sale of investments 66 1,046
- ------------------------------------------------------------------------------
Net cash used in investing activities (2,474) (1,407)
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds (payments) of short-term bank loans 54,090 68,290
Proceeds of notes payable 5,000
Payments on notes payable (1,969) (1,656)
Payments of obligations under capitalized
leases (650) (283)
Securities sold under agreement to repurchase 2,267 5,031
Proceeds from issuance of common stock from
treasury 568 478
Net increase/(decrease) from borrowing under
line-of-credit agreements (1,845) (2,818)
Dividends paid (900) (794)
- ------------------------------------------------------------------------------
Net cash provided by financing activities 51,561 73,248
- ------------------------------------------------------------------------------
Increase (Decrease) in cash 133 (3,684)
Cash at beginning of the year 951 4,005
- ------------------------------------------------------------------------------
Cash at end of period $1,084 $ 321
====== =====
</TABLE>
See notes to the condensed consolidated financial statements.
In 1998, the Company entered into capital leases for office and computer
equipment totaling approximately $1,217,000.
</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, 1997.
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation.
2. Earnings Per Common Share
Basic earnings per share has been computed based upon the weighted average
number of common shares outstanding. Dilutive earnings per share has been
computed based upon the weighted average common shares outstanding for all
potentially dilutive common stock outstanding during the reporting period.
The weighted average number of common shares and dilutive common equivalent
shares were:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 25, September 26, September 25, September 26,
(In thousands of dollars, 1998 1997 1998 1997
except per share amounts)
- -------------------------------------------------------------------------------
Net income $1,148 $606 $3,642 $1,167
- -------------------------------------------------------------------------------
Weighted average shares
for basic earnings
per share 6,516 6,334 6,502 6,290
Effect of dilutive common
equivalent shares
(options) 613 753 679 560
- -------------------------------------------------------------------------------
Weighted average shares
and dilutive common
equivalent shares
for dilutive earnings
per share 7,129 7,087 7,181 6,850
- -------------------------------------------------------------------------------
Basic earnings per share $0.18 $0.10 $0.56 $0.19
Dilutive earnings per share $0.16 $0.09 $0.51 $0.17
</TABLE>
3. Investments
AT September 25, 1998, the Company owned approximately 2,444,000 common shares
(34% of the shares outstanding) of Mechanical Technology Incorporated (MTI).
The Company's investment in MTI is recorded under the equity method and
approximated $5,809,000, which included goodwill of approximately $680,000. The
goodwill is being amortized over 10 years. The Company's equity in MTI's net
income, recorded on a one-quarter delay basis, was $300,000 for the three months
ended September 25, 1998. At September 25, 1998, the aggregate market value of
the Company's shares of MTI stock was $18,330,285. Under the equity method, the
market value of MTI's stock is not included in the calculation of the Company's
investment.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
MTI distributed to holders of record of shares of its common stock as of the
close of business on August 12, 1998 (the "Record Date"), non transferrable
subscription rights to purchase additional shares of common stock at an exercise
price of $6.00 per share (the "Rights Offering"). One right was granted for
each five shares of common stock held on the Record Date. The rights expired
September 24, 1998. First Albany Companies Inc. exercised rights for a total of
407,340 shares of MTI common stock during the month of September 1998.
In June 1997, Plug Power L.L.C., a joint venture between MTI and Edison
Development Corp, ("EDC"), a subsidiary of DTE Energy Corporation, was formed.
Plug Power is engaged in the research and development of a Proton Exchange
Membrane fuel cell. Plug Power is a development company and has never earned
any profits. MTI stated in the prospectus for the Rights Offering that a
sustantial portion of the net proceeds of the Rights Offering will likely be
invested in or loaned to Plug Power. MTI and EDC have each stated they intend
to contribute $5 million to Plug Power to fund continuing operations for the
period August 1, 1998 through March 31, 1999, the form and timing of which have
not yet been determined. Nevertheless, if MTI makes or commits to make further
investments in or loans to Plug Power, it will recognize its proportionate share
of loss in Plug Power to the extent of such investments. Under applicable
accounting standards, if MTI were to have contributed $5 million in cash to Plug
Power prior to September 30, 1998, it is estimated that MTI would recognize a
substantial portion of the $5 million as a loss in its fiscal year 1998. In
any event, the Company will then be required to recognize its proportionate
share (34%) of MTI's losses and thereby reduce its pre-tax income.
The following presents unaudited summarized financial information of MTI for
the three months ended June 30, 1998:
<TABLE>
<S> <C> <C>
(in thousands of dollars)
----------------------------------------
Assets $13,108
Liabilities 5,222
----------------------------------------
Shareholder's equity $ 7,886
========================================
Revenues $ 5,767
Operating income 841
Net Income $869
========================================
</TABLE>
At September 25, 1998, the Company owned 229,500 shares of META Group,
Inc. The fair market value of this investment was $7,186,000. During the
three months ended September 25, 1998 the Company has recorded unrealized
gains of $1,951,000 with respect to this investment.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
4. Receivables from Others
Amounts receivable from others as of:
<TABLE>
<S> <C> <C>
September 25, December 31,
(In thousands of dollars) 1998 1997
- -------------------------------------------------------------------------------
Adjustment to record securities on a
trade date basis, net $25,582 $
Others 8,193 7,760
- -------------------------------------------------------------------------------
Total $33,775 $ 7,760
</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. Payables to Others
Amounts payable to others as of:
<TABLE>
<S> <C> <C>
September 25, December 31,
(In thousands of dollars) 1998 1997
- -------------------------------------------------------------------------------
Adjustment to record securities owned on
a trade date basis, net $ $23,737
Borrowing under line-of-credit agreements 8,948 10,793
Others 3,644 2,671
- -------------------------------------------------------------------------------
Total $12,592 $37,201
</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.
6. Notes Payable
Notes payable consists of a note for $2,177,083, 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 (4.494% plus 2.5% on September 25, 1998). This
note matures April 1, 2000.
Notes payable also consists of a note for $3,125,000, 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") (5.3125% plus 2% on September 25,
1998). 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 25,
1998 was $3,966,000. The amount of net capital as of September 25, 1998
was $20,021,000. This note matures on March 27, 2001.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANIAL STATEMENTS
(Unaudited)
(Continued)
7. 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 25, 1998:
<TABLE>
<S> <C> <C>
(In thousands of dollars)
-----------------------------------------------
1998 $ 326
1999 1,310
2000 1,275
2001 895
2002 284
2003 40
-----------------------------------------------
Total Minimum Lease Payments 4,130
Less: Amount Representing Interest 475
-----------------------------------------------
Present Value of Minimum Lease Payments $3,655
===============================================
</TABLE>
8. Subordinated Debt
The Company has a subordinated debt of $2,500,000. This debt bears
interest at 8.75%. Interest is paid monthly with the principal amount due
at maturity on December 31, 2002. The lender has the right to exercise
stock options on 29,648 shares of the Company's stock at $16.86 per share.
This right expires December 31, 2002.
The Company also has an additional subordinated debt of $5,000,000 which
bears interest at 9.25%. Interest is paid monthly with the principal
amount due at maturity on December 31, 2002. The lender has the right to
exercise stock options on 97,241 shares of the Company's stock at $10.29
per share. This right expires December 31, 2002.
Both loan agreements include restrictive financial covenants. One of the
more significant covenants requires the Company to maintain a minimum net
capital (as defined by Rule 15c3-1 of the Securities and Exchange
Commission) equal to three times the required net capital. The amount of
required net capital as of September 25, 1998 was $3,966,000. The amount
of net capital as of September 25, 1998 was $20,021,000.
9. 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)
The Company's broker-dealer subsidiary, First Albany Corporation (the
Corporation), has been named in a lawsuit relating to certain real estate
investments (in which the provider of these investments was also named) for
which the Corporation acted as placement agent. Plaintiff claims damages
of approximately $16 million and the right to treble damages under the
Indiana RICO statute. The Corporation intends to vigorously defend this
action. Management believes that the risk of any possible liability to the
Corporation cannot be currently estimated. At this time, based on advice
of counsel, management believes that resolution of this matter will not
have a material effect on the financial position of the Corporation,
although it may have a material effect on the results of operations in the
period in which it is resolved. The case is currently scheduled for trial
in 1999.
10. Stockholders' Equity
Dividends:
In January 1998, the Board of Directors declared the regular quarterly
cash dividend of $0.05 per share paid on February 26, 1998, to shareholders
of record on February 12, 1998.
In April 1998, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the first quarter, ended March 27, 1998,
along with a 5% stock dividend. Both were payable on May 26, 1998 to
shareholders of record on May 12, 1998.
In July 1998, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the second quarter, ended June 26, 1998,
payable on August 25, 1998 to shareholders of record on August 11, 1998.
In October 1998, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the third quarter, ended September 25,
1998, along with a 5% stock dividend. Both are payable on November 24,
1998 to shareholders of record on November 10, 1998.
Rights Plan:
On March 27, 1998, the Board of Directors adopted a Shareholder Rights
Plan. The rights will be distributed as a dividend of one right for each
share of First Albany Companies, Inc. common stock outstanding, with a
record date of March 30, 1998. The Shareholder Rights Plan is intended to
deter coercive takeover tactics and strengthen the Company's ability to
deal with an unsolicited takeover proposal.
The rights will expire on March 30, 2008. Each right will entitle the
holder to buy one one-hundredth of a newly-issued share of preferred stock
at an exercise price of $56.00. The rights will become exercisable at such
time as any person or group acquires more than 15% of the outstanding
shares of common stock of the Company (subject to certain exceptions) or
within 10 days following the commencement of a tender offer that will
result in any person or group owning such percentage of the outstanding
voting shares.
Upon any person or group acquiring 15% of the outstanding shares of
voting stock, each right will entitle its holder to buy shares of First
Albany Companies Inc. common stock (or of the stock of the acquiring
company if it is the surviving entity in a business combination) having a
market value equal to twice the exercise price of each right. The rights
will be redeemable at any time prior to their becoming exercisable.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
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 25, 1998, the broker-dealer
subsidiary had aggregate net capital, as defined, of $20,021,000-exceeding
the required net capital by $16,055,000.
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 related to these financial
instruments 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.
13. New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 is effective
for fiscal years beginning after December 15, 1997. SFAS 131 establishes
standards for reporting financial and descriptive information about an
enterprise's operating segments in its annual financial statements and
selected segment information in interim financial reports. SFAS 131 does
not need to be applied to interim financial statements in the year adopted.
Reclassification or restatement of comparative financial statements or
financial information for earlier periods is required upon adoption of SFAS
131. Application of SFAS 131 is not expected to have an impact on the
Company's consolidated financial position, results of operations or
earnings per share data as currently reported.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Reclassification or restatement of comparative
financial statements or financial information is not permitted under this
statement. Management has not yet determined the impact, if any, that
adoption of SFAS 133 would have on the financial statements.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C>
1998 vs.
Three Months Ended 1997 Percentage
September 25, September 26, Increase Increase
(In thousands of dollars) 1998 1997 (Decrease) (Decrease)
- -------------------------------------------------------------------------------
Revenues
Commissions $15,053 $14,679 $ 374 3%
Principal transactions 16,617 16,167 450 3%
Investment banking 8,130 4,279 3,851 90%
Interest income 12,275 11,806 469 4%
Fees and others 3,817 2,810 1,007 36%
- -------------------------------------------------------------------------------
Total revenues 55,892 49,741 6,151 12%
Interest expense 10,126 10,172 (46) 0%
- -------------------------------------------------------------------------------
Net revenues 45,766 39,569 6,197 16%
- -------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 31,378 26,215 5,163 20%
Clearing, settlement and
brokerage costs 1,133 917 216 24%
Communications and
data processing 3,501 3,227 274 8%
Occupancy and depreciation 3,401 3,395 6 0%
Selling 2,027 2,333 (306) -13%
Other 2,367 2,331 36 2%
- -------------------------------------------------------------------------------
Total expenses
(excluding interest) 43,807 38,418 5,389 14%
- -------------------------------------------------------------------------------
Income before income taxes 1,959 1,151 808 70%
Income tax expense 811 545 266 49%
- -------------------------------------------------------------------------------
Net Income $ 1,148 $ 606 $ 542 89%
======= ======= ======= ====
Net interest income
Interest income $12,275 $11,806 $ 469 4%
Interest expense 10,126 10,172 (46) 0%
- -------------------------------------------------------------------------------
Net Interest Income $ 2,149 $ 1,634 $ 515 32%
======= ======= ======= ====
</TABLE>
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
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 (First Albany), 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 businesses earn 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 25, 1998 and September 26, 1997
Net Income
- ----------
Net income for the quarter ended September 25, 1998 was $1.1 million or $
0.18 basic earnings per share ($0.16 dilutive earnings per share),
compared to $0.6 million or $0.10 basic earnings per share ($0.09 dilutive
earnings per share) in the comparable 1997 period. This quarter's net
revenue gains reflect an increase in each of the firm's divisions. The
firm's Equities Division continues to show significant growth with an
increase in net revenues of over 35% compared to the same period last year.
Net revenues in the Municipal Division increased over 25%, the Taxable
Fixed Income Division increased over 15%, and net revenues in the Private
Client Group increased slightly compared to the same period last year.
The firm's margins continue to show significant improvement in comparison
to 1997's results, as we maintain our focus on controlling expenses.
Investment Banking
- ------------------
Investment banking revenues for this year's third quarter increased $3.9
million or 90% compared to the comparable 1997 period. Revenues from
selling concessions increased $1.3 million (equities increased
$0.2 million, municipals increased $0.9 million and taxable fixed income
increased $0.2 million), underwriting fees increased $0.8 million (equities
increased $0.5 million and municipals increased
$0.3 million), and investment banking fees increased $1.8 million (equities
increased $0.5 million and municipals increased $1.3 million).
Fees and Others
- ---------------
Fees and other revenues for this year's third quarter increased $1.0
million or 36% compared to the same period of 1997, reflecting increased
revenues from investment advisory services and service charges.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Net Interest Income
- -------------------
Net interest income for this year's third quarter increased $0.5 million
compared to the same period of 1997, due primarily to higher levels of
margin borrowings by the Company's clients.
Compensation and Benefits
- -------------------------
Compensation and benefits for this year's third quarter increased $5.2
million or 20% compared to the same period of 1997, due primarily to the
higher levels of revenues and profitability.
Income Taxes
- ------------
Income taxes increased $0.3 million compared to the same period of
1997, due to an increase in pre-tax earnings.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS COMPARISON OF 1998 VS. 1997
<TABLE>
<S> <C> <C> <C> <C>
1998 vs.
Nine Months Ended 1997 Percentage
September 25, September 26, Increase Increase
(In thousands of dollars) 1998 1997 (Decrease) (Decrease)
- -------------------------------------------------------------------------------
Revenues
Commissions $ 44,421 $ 38,347 $ 6,074 16%
Principal transactions 55,118 47,246 7,872 17%
Investment banking 23,333 11,114 12,219 110%
Interest income 35,457 32,748 2,709 8%
Fees and others 10,118 8,114 2,004 25%
- -------------------------------------------------------------------------------
Total revenues 168,447 137,569 30,878 22%
Interest expense 29,102 28,112 990 4%
- -------------------------------------------------------------------------------
Net revenues 139,345 109,457 29,888 27%
- -------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 97,608 73,183 24,425 33%
Clearing, settlement and
brokerage cost 3,035 2,470 565 23%
Communications and
data processing 10,207 9,529 678 7%
Occupancy and depreciation 9,938 9,842 96 1%
Selling 5,782 6,047 (265) -4%
Other 6,662 6,885 (223) -3%
- -------------------------------------------------------------------------------
Total expenses
(excluding interest) 133,232 107,956 25,276 23%
- ------------------------------------------------------------------------------
Income before income taxes 6,113 1,501 4,612 307%
Income tax expense 2,471 639 1,832 287%
- -------------------------------------------------------------------------------
Income before extraordinary
items 3,642 862 2,780 323%
Extraordinary gain,
net of taxes 0 305 (305) (100%)
- -------------------------------------------------------------------------------
Net income $3,642 $1,167 $2,475 212%
====== ====== ====== =====
Net interest income
Interest income $35,457 $32,748 $2,709 8%
Interest expense 29,102 28,112 990 4%
- -------------------------------------------------------------------------------
Net interest income $6,355 $4,636 $1,719 37%
====== ====== ====== ====
</TABLE>
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Nine Months Periods Ended September 25, 1998 and September 26, 1997
Net Income
- ----------
Net income for the nine months ended September 25, 1998, was $3.6 million
or $0.56 basic earnings per share ($0.51 dilutive earnings per share),
compared to $1.2 million or $0.19 basic earnings per share
($0.17 dilutive earnings per share) in the comparable 1997 period.
Commissions
- -----------
Commission revenues increased $6.0 million or 16% 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 14%
while mutual fund commission revenues increased $2.6 million or 23%.
Principal Transactions
- ----------------------
Principal transactions increased $7.9 million or 17% in this year's first
nine-months. This was comprised of an increase in taxable fixed income of
$8.0 million, partially due to increased opportunity in international
markets, an increase in investment income of $2.4 million, primarily from
META Group, Inc., a decrease in municipal bonds of $2.1 million and a
decrease in equity securities of $0.4 million.
Investment Banking
- ------------------
Investment banking revenues increased $12.2 million or 110% in this
year's first nine-months, primarily due to favorable market conditions
during this period and an increase in equity offerings in which the Company
participated as manager or co-manager. Revenues from selling concessions
increased $6.0 million (equities increased $1.8 million, municipals
increased $2.8 million and taxable fixed income increased $1.4 million),
underwriting fees increased $0.9 million (equities increased $0.6 million
and municipals increased $0.3 million), and investment banking fees
increased $5.3 million (equities increased $2.9 and municipals increased
$2.4 million).
Fees and Others
- ---------------
Fees and other revenues for this year's first nine months increased
$2.0 million or 25% compared to the same period of 1997, reflecting
increased revenues from investment advisory services and service charges.
Net Interest Income
- -------------------
Net interest income for this year's first nine-months increased $1.7
million compared to the same period of 1997, due primarily to higher levels
of margin borrowings by the Company's clients.
Compensation and Benefits
- -------------------------
Compensation and benefits increased $24.4 million or 33%, due primarily
to higher levels of revenues and profitability.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Clearance, Settlement and Brokerage Costs
- -----------------------------------------
Clearance, settlement and brokerage costs for this year's first nine
months increased $0.6 million or 23% compared to the same period of 1997, due
primarily to increases in listed agency transactions and customer options
activity.
Communications and Data Processing
- ----------------------------------
Communications and data processing expenses increased $0.7 million or
7% in this year's first nine months. Communication expense increased $0.3
million due mainly to the firm's upgrade in technology. Data processing
expense increased $0.4 million due mainly to an increase in transactions.
Income Taxes
- ------------
Income taxes increased $1.8 million due to an increase in pre-tax
earnings.
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 collateralized by loaned securities, and
bank lines-of-credit. Securities borrowed and securities loaned along with
receivables from customers and payable to customers will fluctuate
primarily due to the current level of business activity in these areas.
Securities owned will fluctuate as a result of the changes in the level of
positions held to facilitate customer transactions and changes in market
conditions. Short-term bank loans and securities loaned, net, increased
primarily due to an increase in net customer receivables and an increase in
securities owned. 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.
At September 25, 1998, 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 $250,000,000 of
which approximately $96,208,000 were unused as of
September 25, 1998-will provide sufficient resources to meet present and
reasonably foreseeable short-term financing needs.
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.
In January 1998, the Board of Directors declared the regular quarterly
cash dividend of $0.05 per share paid on February 26, 1998, to shareholders
of record on February 12, 1998.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
In April 1998, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the first quarter ended March 27, 1998,
along with a 5% stock dividend. Both were paid on May 26, 1998 to
shareholders of record on May 12, 1998.
In July 1998, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the second quarter ended June 26, 1998,
payable on August 25, 1998 to shareholders of record on August 11, 1998.
In October 1998, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the third quarter, ended September 24,
1998, along with a 5% stock dividend. Both are payable on November 24,
1998 to shareholders of record on November 10, 1998.
Equity Investments
- ------------------
At September 25, 1998, the Company owned approximately 2,444,000 common
shares (34% of the shares outstanding) of Mechanical Technology Incorporated
(MTI). The Company's investment in MTI is recorded under the equity method and
approximated $5,809,000, which included goodwill of approximately $680,000.
The goodwill is being amortized over 10 years. The Company's equity in MTI's
net income, recorded on a one-quarter basis, was $300,000 for the three months
ended September 25, 1998. At September 25, 1998, the aggregate market value of
the Company's shares of MTI stock was $18,330,285. Under the equity method, the
market value of MTI's stock is not included in the calculation of the Company's
investment.
MTI distributed to holders of record of shares of its common stock as of the
close of business on August 12, 1998 (the "Record Date"), non transferrable
subscription rights to purchase additional shares of common stock at an exercise
price of $6.00 per share (the "Rights Offering"). One right was granted for
each five shares of common stock held on the Record Date. The rights expired
September 24, 1998. First Albany Companies, Inc., exercised rights for a total
407,340 shares of MTI common stock during the month of September 1998.
In June 1997, Plug Power L.L.C., a joint venture between MTI and Edison
Development Corp. ("EDC"), a subsidiary of DTE Energy Corporation, was formed.
Plug Power is engaged in the research and development of a Proton Exhange
Membrane fuel cell. Plug Power is a development company and has never earned
any profits. MTI stated in the prospectus for the Rights Offering that a
substantial portion of the net proceeds of the Rights Offering will likely be
invested in or loaned to Plug Power. MTI and EDC have each stated they intend
to contribute $5 million to Plug Power to fund continuing operations for the
period August 1, 1998 through March 31, 1999, the form and timing of which have
not yet been determined. Nevertheless, if MTI makes or commits to make further
investments in or loans to Plug Power, it will recognize its proportionate
share of loss in Plug Power to the extent of such investments. Under applicable
accounting standards, if MTI were to have contributed $5 million in cash to
Plug Power prior to September 30, 1998, it is estimated that MTI would recognize
a substantial portion of the $5 million as a loss in its fiscal year 1998. In
any event, the Company will then be required to recognize its proportionate
share (34%) of MTI's losses and thereby reduce its pre-tax income.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
New Accounting Standards
- ------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 is effective for
fiscal years beginning after December 15, 1997. SFAS 131 establishes standards
for reporting financial and descriptive information about an enterprise's
operating segments in its annual financial statements and selected segment
information in interim financial reports. SFAS 131 does not need to be applied
to interim financial statements in the year adopted. Reclassification or
restatement of comparative financial statements or financial information for
earlier periods is required upon adoption of SFAS 131. Application of SFAS 131
is not expected to have an impact on the Company's consolidated financial
position, results of operations or earnings per share data as currently
reported.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. SFAS 133 establishes accounting and reporting
standards for derivative instruments including certain derivative
instruments embedded in other contracts and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. Reclassification or restatement of comparative
financial statements or financial information is not permitted under this
statement. Management has not yet determined the impact, if any, that
adaption of SFAS 133 would have on the financial statements.
Year 2000 Issues
- ----------------
The Year 2000 Issue (Y2K) concerns the potential impact of historic
computer software code that only utilizes two digits to represent the
calendar year (e.g., "98" for "1998"). Software so developed, and not
corrected, could produce inaccurate or unpredictable results commencing
January 1, 2000, when current and future dates present a lower two digit
year number than dates in the prior century. The Company, similar to most
securities institutions, is significantly subject to the potential impact
of the Y2K due to the nature of the industry. Potential impacts to the
Company may arise from software, computer hardware, and other equipment
both within the Company's direct control and outside the Company's
ownership, yet with which the Company interfaces either electronically or
operationally. Securities industry regulators have intensively focused upon
Y2K exposures, issuing guidance concerning the responsibilities of senior
management and directors. Y2K testing and certification is being addressed
as a key safety and soundness issue in conjunction with regulatory
examinations of securities firms.
In August 1998, the Company filed form BD-Y2K, a mandatory filing with
the Securities & Exchange Commission, New York Stock Exchange and National
Association of Securities Dealers describing its Y2K compliance efforts and
its Y2K readiness status. The Company will file the second of these
mandatory filings in June 1999. The SEC has highly prioritized Y2K
compliance in order to avoid major disruptions to the operations of
securities institutions. Institutions failing to file this mandatory
disclosure may be and in some cases already have been subject to formal
enforcement action, supervisory agreements, cease and desist orders or
civil money penalties.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
The Project
- -----------
The Company has initiated a comprehensive project to prepare its internally
and externally dependent computer and peripheral systems for the year 2000,
and plans to have changes to critical systems completed by the end of 1998.
This will allow time for first quarter 1999 industry testing and to assure the
accurate processing of information and data for January 1, 2000.
The approach is multiphase, as follows:
Phase I - Inventory & Assessment: A comprehensive inventory of all
hardware, software, vendor interfaces and service providers is being
completed and stored in a database that will allow for easy access and
updating.
Phase II - Planning, Analysis & Design: The detailed Project Plan has
been completed, to allow for easy tracking and updating.
Phase III - Remediation: In some cases, remediation is undertaken
either by the Company or by an outsourced third party in the form of
upgrades, replacements or code fixes. In other cases, the Company monitors
its vendors' progress in making its systems Y2K compliant.
Phase IV - Testing: As programs and hardware are fixed, replaced or
upgraded, they are extensively tested before being placed into production.
Phase V - Implementation: All production-ready systems (hardware,
software, and programming) are placed into production and carefully
monitored.
Phase VI - Post Implementation: The Company will keep a careful eye
out for any new products put into production after the Y2K plan has been
fully executed.
The Company is currently participating in external testing with its
service providers and will participate in industry-wide testing beginning
the first quarter 1999. In addition to our own testing, securities industry
service providers, such as the New York Stock Exchange, the Depository
Trust Company and the National Securities Clearance Corporation, are
conducting tests of the critical clearance and execution systems that drive
the industry as a whole. This is being done with the oversight of the
Securities and Exchange Commission.
State of Readiness
- ------------------
The Company had defined "mission-critical" applications as those necessary
for the Company to continue with business as usual.
Beta Systems, which represents 90% of the Company's mission-critical
applications, provides the Company with its official books and records,
order entry and clearing capabilities related to securities transaction
processing. Beta Systems has certified to the Company that they are Y2K
compliant. Full testing with Beta Systems, for mission critical
applications, began in the third quarter of 1998 and will be completed in
the fourth quarter of 1998.
Of the remaining mission critical applications, which include Informix
scripts and several key vendor-provider applications, the Company has
remediated, tested and implemented 95% of these, with completion scheduled
for the fourth quarter of 1998. Testing of non-mission critical
applications will begin during the fourth quarter 1998 and will be
completed in the first quarter of 1999.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
The Company has included facilities management concerns in its overall
Y2K plan. This includes issues with power, HVAC, elevators, fire alarm
systems, and security systems, among others. The Company is confident that
these systems will work normally after January 1, 2000.
The Company has delayed several Information Technology projects so that
Y2K issues could be timely and efficiently dealt with. The delay of these
projects has not affected the Company's financial condition and the results
of operations.
The Costs to Address the Company's Y2K Issues
- ---------------------------------------------
The Company has allocated a budget of $1.2 million for the Y2K project.
The Company has spent $175,000 on its Y2K project through the third quarter
1998. This amount was spent on upgrades to its Novell and NT operating
systems, upgrading three voice/data applications, and building a Y2K compliant
environment. The Company anticipates spending an additional $725,000 from the
fourth quarter 1998 through the first quarter 1999. This amount will include
the replacement of non-compliant desktop machines, which will be capitalized,
as well as independent verification testing of its internal applications which
will be expensed as incurred. These costs are being funded through operating
cash flow. All internal remediation has been accomplished by utilizing
existing Company personnel. The Company's Y2K budget does not include extensive
resource allocation and management from internal sources.
The Novell, NT, voice/data applications and the rollout of new desktop
computer projects were all accelerated to meet the Company's Y2K project
deadlines.
The Risks of the Company's Y2K Issues
- -------------------------------------
The failure to correct a material Y2K problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Company's results of operations, liquidity and financial condition. Due to
the general uncertainty inherent in the Y2K problem, resulting in part from
the uncertainty of the Y2K readiness of third-party suppliers and
customers, the Company is unable to determine at this time whether the
consequences of Y2K failures will have a material impact on the Company's
results of operations, liquidity or financial condition.
Although the Company expects its critical systems to be compliant by
year-end 1998, there is no guarantee that these results will be achieved.
Specific factors that give rise to this uncertainty include a possible loss
of technical resources to perform the work, failure to identify all susceptible
systems, non-compliance by third parties whose systems and operations impact
the Company, and other similar uncertainties. A reasonably possible worst case
scenario might include one or more of the Company's significant systems being
non-compliant. Such an event could result in a material disruption to the
Company's operations. Specifically, the Company could experience an
interruption in its ability to process trades, safeguard and manage its invested
assets and operating cash accounts, accurately maintain client information,
accurately maintain accounting records, and/or perform adequate customer
service. Should the worst case scenario occur it could, depending on its
duration, have a material impact on the Company's results of operations and
financial position.
The Company believes that, with implementation and completion of its Y2K
project, the possibility of significant interruptions of normal business
operations should be reduced.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
The Company's Contingency Plans
- -------------------------------
There are certain industry service centers that are so fundamental to
the securities business that they cannot be replaced. The Company acknowledges
that while a close watch must be kept on these, they have not been factored
into the Company's contingency strategy. These service centers include, but
are not limited to the following:
National Exchanges (NYSE, AMEX, NASDAQ, CBOT, etc.)
DTC
Trading systems
Local and long distance telephone carriers
Utility companies, including gas and electric
The Company has determined tht if it cannot independently confirm through
extensive testing that Beta Systems is Y2K compliant, it will be necessary to
convert to a service bureau that is compliant. The Company has resolved to
make this decision by the end of the first quarter 1999 so that enough time
will be available to proceed with the conversion.
The Company will continue to reassess the need for formal contingency
plans, based on progress of Y2K efforts by the Company and third parties.
</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 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.
The Company's broker-dealer subsidiary, First Albany Corporation (the
Corporation), has been named in a lawsuit relating to certain real estate
investments (in which the provider of these investments was also named) for
which the Corporation acted as placement agent. Plaintiff claims damages of
approximately $16 million and the right to treble damages under the Indiana
RICO statute. The Corporation intends to vigorously defend this action.
Management believes that the risk of any possible liability to the Corporation
cannont currently be estimated. At this time, based on advice of counsel,
management believes that resolution of this matter will not have a material
effect on the financial position of the Corporation, although it may have a
material effect on the results of operations in the period in which it is
resolved. The case is currently scheduled for trial in 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement Re: Computation of Per Share Earnings.
(27) Selected Financial Data Schedule BD
(b) Reports on Form 8-K
No Form 8K was filed during the quarter ended September 25, 1998.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC. (Exhibit 11)
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 25, September 26, September 25, September 26,
1998 1997 1998 1997
- -------------------------------------------------------------------------------
Basic:
Net income $1,148 $ 606 $3,642 $1,167
- -------------------------------------------------------------------------------
Weighted average
number of shares
outstanding during
the period 6,516 6,334 6,502 6,290
- -------------------------------------------------------------------------------
Net income per share $0.18 $0.10 $0.56 $0.19
- -------------------------------------------------------------------------------
Dilutive:
Net income $1,148 $ 606 $3,642 $1,167
- -------------------------------------------------------------------------------
Weighted average
number of shares
outstanding during
the period 6,516 6,334 6,502 6,290
Effective of dilutive
common equivalent
shares 613 753 679 560
- -------------------------------------------------------------------------------
Weighted average shares
and common equivalent
shares outstanding 7,129 7,087 7,181 6,850
- -------------------------------------------------------------------------------
Net income per share $0.16 $0.09 $0.51 $0.17
===== ===== ===== =====
</TABLE>
**Per share figures and shares outstanding have been restated for all
dividends declared.
</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 3, 1998 /s/ ALAN P. GOLDBERG
---------------------------
Alan P. Goldberg
President/Co-Chief Executive Officer
Date: November 3, 1998 /s/ TIMOTHY R. WELLES
---------------------------
Timothy R. Welles
Chief Financial Officer
(Principal Accounting Officer)
</PAGE>
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-25-1998
<CASH> 1,084
<RECEIVABLES> 229,807
<SECURITIES-RESALE> 12,056
<SECURITIES-BORROWED> 603,562
<INSTRUMENTS-OWNED> 151,349
<PP&E> 12,096
<TOTAL-ASSETS> 1,035,979
<SHORT-TERM> 153,792
<PAYABLES> 49,020
<REPOS-SOLD> 3,158
<SECURITIES-LOANED> 716,034
<INSTRUMENTS-SOLD> 18,585
<LONG-TERM> 5,302
0
0
<COMMON> 62
<OTHER-SE> 47,995
<TOTAL-LIABILITY-AND-EQUITY> 1,035,979
<TRADING-REVENUE> 55,118
<INTEREST-DIVIDENDS> 35,457
<COMMISSIONS> 44,421
<INVESTMENT-BANKING-REVENUES> 23,333
<FEE-REVENUE> 10,118
<INTEREST-EXPENSE> 29,102
<COMPENSATION> 97,608
<INCOME-PRETAX> 6,113
<INCOME-PRE-EXTRAORDINARY> 3,642
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,642
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.51
</TABLE>
