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 March 27, 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.
5,886,808 Shares of Common Stock were outstanding as of the close
-----------------------------------------------------------------
of business on April 22, 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 March 27, 1998
and December 31, 1997................... 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
March 27, 1998 and March 27, 1997.... 4
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
March 27, 1998 and March 27, 1997.... 5-6
Notes to Condensed Consolidated Financial
Statements.............................. 7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.......................... 13-17
Part II - Other Information
Item 1. Legal Proceedings.................. 18
Item 6. Exhibits and Reports on Form 8-K... 18-21
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
March 27,
1998 December 31,
(In thousands of dollars) (Unaudited) 1997
<S> <C> <C>
- --------------------------------------------------------------------------------
Assets
Cash $ 1,756 $ 951
Cash and securities segregated
under federal regs. 260
Securities purchased under agreement
to resell 999 5,299
Securities borrowed 514,332 468,786
Receivables from:
Brokers, dealers and clearing agencies 7,865 4,421
Customers 200,671 182,976
Others 30,063 7,760
Securities owned 121,520 121,116
Investments 7,990 7,026
Office equipment and leasehold
improvements, net 13,334 14,057
Other assets 16,854 19,529
- --------------------------------------------------------------------------------
Total assets $915,644 $831,921
================================================================================
Liabilities and Stockholders' Equity
Liabilities
Short-term bank loans $159,202 $ 99,702
Securities sold under agreement to
repurchase 891
Securities loaned 602,705 547,847
Payables to:
Brokers, dealers and clearing agencies 7,694 2,955
Customers 41,905 49,181
Others 15,115 37,201
Securities sold but not yet purchased 3,463 8,440
Accounts payable 5,943 4,196
Accrued compensation 10,044 13,025
Accrued expenses 5,920 6,076
Notes payable 6,615 7,271
Obligations under capitalized leases 3,205 3,088
- --------------------------------------------------------------------------------
Total liabilities 861,811 779,873
- --------------------------------------------------------------------------------
Commitments and Contingencies
Subordinated debt 7,500 7,500
- --------------------------------------------------------------------------------
Stockholders' Equity
Common stock 59 59
Additional paid-in-capital 33,153 33,024
Retained earnings 13,333 12,070
Less treasury stock at cost (212) (605)
- --------------------------------------------------------------------------------
Total stockholders' equity 46,333 44,548
- --------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $915,644 $831,921
================================================================================
</TABLE>
See notes to the condensed consolidated financial statements.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
(In thousands of dollars except for
per share and oustanding Three Months Ended
share amounts) March 27, March 27,
1998 1997
<S> <C> <C>
- --------------------------------------------------------------------------------
Revenues
Commissions $ 14,707 $ 11,581
Principal transactions 22,045 14,566
Investment banking 6,124 3,196
Interest 11,213 10,052
Fees and other 3,009 2,664
- --------------------------------------------------------------------------------
Total revenues 57,098 42,059
Interest expense 9,105 8,424
- --------------------------------------------------------------------------------
Net revenues 47,993 33,635
- --------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 34,504 22,888
Clearing, settlement and brokerage costs 868 738
Communications and data processing 3,224 3,129
Occupancy and depreciation 3,225 3,107
Selling 1,827 1,755
Other 2,079 1,988
- --------------------------------------------------------------------------------
Total expenses (excluding interest) 45,727 33,605
- --------------------------------------------------------------------------------
Income before income taxes 2,266 30
Income tax (recovery) expense 859 (36)
- --------------------------------------------------------------------------------
Income before extraordinary items 1,407 66
- --------------------------------------------------------------------------------
Extraordinary gain, net of taxes 0 305
- --------------------------------------------------------------------------------
Net Income $ 1,407 $ 371
================================================================================
Basic Earnings Per Share:
Income before extraordinary gain $ 0.23 $ 0.01
Extraordinary gain 0.00 0.05
- --------------------------------------------------------------------------------
Net Income $ 0.23 $ 0.06
================================================================================
Dilutive Earnings Per Share:
Income before extraordinary gain $ 0.21 $ 0.01
Extraordinary gain 0.00 0.05
- --------------------------------------------------------------------------------
Net Income $ 0.21 $ 0.06
================================================================================
Weighted average common
and common equivalent
shares outstanding:
Basic 6,176,490 5,953,276
Dilutive 6,840,488 6,352,324
================================================================================
Dividend per common share
outstanding $ 0.05 $ 0.05
================================================================================
</TABLE>
See notes to the condensed consolidated financial statements.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Three Months Ended
March 27, March 27,
(In thousands of dollars) 1998 1997
<S> <C> <C>
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,407 $ 371
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,130 1,054
Deferred income taxes 42 891
Undistributed (earnings) loss of affiliate 579 (620)
Unrealized investment (gain) loss (1,574) 133
Realized gain (loss) on sale of investments (54)
(Increase) decrease in operating assets:
Cash and securities segregated under federal regs. (260) (2,000)
Securities purchased under agreement to resell 4,300 (3,728)
Securities sold under agreement to repurchase (891)
Net receivables from customers (24,971) (29,233)
Net receivables from brokers and dealers 1,295
Net receivables from others (46,888)
Securities owned, net (5,381) 71,972
Other assets 2,633 (1,957)
Increase (decrease) in operating liabilities:
Securities loaned, net 9,312 8,629
Net payables to brokers, dealers, and
clearing agencies 1,753
Net payables to others (35,706)
Accounts payable and accrued expenses (1,390) (9,393)
- --------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities (60,711) 2,166
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of furniture, equipment, and leaseholds (34) (2,370)
(Increase) decrease in investments (15)
Proceeds from sale of investments 66
- --------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 32 (2,385)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds (payments) of short-term bank loans 59,500 (3,400)
Proceeds of notes payable 5,000
Payments on notes payable (656) (343)
Payments of obligations under capitalized leases (237) (90)
Proceeds from issuance of common stock from treasury 544 478
Proceeds from issuance of restricted stock 129
Net increase/(decrease) from borrowing under
line-of-credit agreements 2,499 (2,773)
Dividends paid (295) (258)
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 61,484 (1,386)
- --------------------------------------------------------------------------------
</TABLE>
See notes to the condensed consolidated financial statements.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
<TABLE>
Three Months Ended
March 27, March 27,
(In thousands of dollars) 1998 1997
<S> <C> <C>
- --------------------------------------------------------------------------------
Increase (decrease) in cash 805 (1,605)
Cash at beginning of the year 951 4,005
- --------------------------------------------------------------------------------
Cash at end of period $ 1,756 $ 2,400
================================================================================
</TABLE>
In 1998, the Company entered into capital leases for office and computer
equipment totaling approximately $354,000.
See notes to the condensed consolidated financial statements.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal, recurring adjustments necessary
for a fair presentation of results for such periods. The results for any
interim period are not necessarily indicative of those for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. These consolidated financial statements
should be read in conjunction with the financial statements and notes for
the year ended December 31, 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>
Three Months Ended
March 27, March 27,
(In thousands of dollars, except per share amounts) 1998 1997
<S> <C> <C>
- --------------------------------------------------------------------------------
Net income $ 1,407 $ 371
- --------------------------------------------------------------------------------
Weighted average shares
for basic earnings per share 6,176 5,953
Effect of dilutive common
equivalent shares 664 399
- --------------------------------------------------------------------------------
Weighted average shares and
dilutive common equivalent shares
for dilutive earnings per share 6,840 6,352
================================================================================
Basic earnings per share $ 0.23 $ 0.06
Dilutive earnings per share $ 0.21 $ 0.06
</TABLE>
3. Investments
-----------
At March 27, 1998 the Company owned approximately 2,037,000 common shares
(35% of the shares outstanding) of Mechanical Technology Incorporated
(MTI). The Company's investment in MTI is recorded under the equity method
and approximated $3,018,000, which included goodwill of approximately
$764,000 which is being amortized over 10 years. The Company's equity in
MTI's net loss, recorded on a one-quarter delay basis, was $579,000 for the
three months ended March 27, 1998 and related primarily to a loss from
discontinued operations.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
The following presents unaudited summarized financial information of MTI
for the three months ended December 31, 1997:
<TABLE>
(in thousands of dollars)
<S> <C>
========================================
Assets $ 11,154
Liabilities 4,618
----------------------------------------
Shareholder's equity $ 6,536
========================================
Revenues $ 3,250
Operating income (242)
Loss before extraordinary items
and income taxes (186)
Loss from discontinued operations,
net of taxes (1,493)
Net loss $(1,679)
========================================
</TABLE>
At March 27, 1998 the aggregate market value of the Company's shares of
MTI stock was $16,421,000. Under the equity method, the market value of
MTI's stock is not included in the calculation of the Company's investment.
At March 27, 1998, the Company owned 153,000 shares of META Group, Inc.
The fair market value of this investment was $4,972,000. During the three
months ended March 27, 1998 the Company has recorded a realized gain of
$54,000 and unrealized gains of $1,574,000 with respect to this investment.
4. Receivables from Others
-----------------------
Amounts receivable from others as of:
<TABLE>
March 27, December 31,
(In thousands of dollars) 1998 1997
<S> <C> <C>
- --------------------------------------------------------------------------------
Adjustment to record securities owned on
a trade date basis, net $23,666
Others 6,397 $ 7,760
- --------------------------------------------------------------------------------
Total $30,063 $ 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.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
5. Payables to Others
------------------
Amounts payable to others as of:
<TABLE>
March 27, December 31,
(In thousands of dollars) 1998 1997
<S> <C> <C>
================================================================================
Adjustment to record securities owned on
a trade date basis, net $23,737
Borrowing under line-of-credit agreements $13,292 10,793
Others 1,823 2,671
- --------------------------------------------------------------------------------
Total $15,115 $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 $2,864,583, 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 (5.27% plus 2.5% on March 27, 1998). This note
matures April 1, 2000.
Notes payable also consists of a note for $3,750,000, 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") (5.09% plus 2% on March 27, 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 March 27, 1998 was
$4,589,000. The amount of net capital as of March 27, 1998 was
$20,480,000. This note matures on March 27, 2001.
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 March 27, 1998:
(In thousands of dollars)
-----------------------------------
1998 $ 764
1999 1,020
2000 995
2001 670
2002 238
-----------------------------------
Total Minimum Lease Payments 3,687
Less: Amount Representing
Interest 482
-----------------------------------
Present Value of Minimum
Lease Payments $ 3,205
===================================
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
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 26,891 shares of the Company's stock at $18.594 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 88,200 shares of the Company's stock at $11.34
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 March 27, 1998 was $4,589,000. The amount of
net capital as of March 27, 1998 was $20,480,000.
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.
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 early 1999.
10. Stockholders' Equity
--------------------
In January 1998, the Board of Directors declared the regular quarterly
cash dividend of $0.05 per share payable 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 are payable on May 26, 1998 to
shareholders of record on May 12, 1998.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
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.
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 March 27, 1998, the broker-dealer
subsidiary had aggregate net capital, as defined, of $20,480,000 -
exceeding the required net capital by $15,891,000.
12. Derivative Financial Instruments
--------------------------------
The Company does not engage in the proprietary trading of derivative
securities with the exception of highly liquid index futures contracts and
options. These index futures contracts and options are used to hedge
certain securities positions in the Company's inventory. Gains and losses
are included as revenues from principal transactions.
The contractual or notional amounts reflected to these financial
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
------------------------
Financial Accounting Standards Board No. 125 - "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement was adopted in 1998. The statement addresses how and when
to record transferred assets, transfers of partial interest, 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, transfer of receivables with recourse, and extinguishment of
liabilities, collateral, repurchase agreements and how to amortize
servicing assets and
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
liablities. This statement had no material effect on the presentation of
the consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive
Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"), respectively (collectively, the
"Statements"). The Statements are effective for fiscal years beginning
after December 15, 1997. SFAS 130 establishes standards for reporting
comprehensive income and its components in annual financial statements.
SFAS 130 was adopted in 1998. The Company does not have any other elements
of comprehensive income other than net income. 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 a material impact on
the Company's consolidated financial position, results of operations or
earnings per share data as currently reported.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
1998 vs.
Three Months Ended 1997 Percentage
March 27, March 27, Increase Increase
(In thousands of dollars) 1998 1997 (Decrease) (Decrease)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Revenues
Commissions $ 14,707 $ 11,581 $ 3,126 27%
Principal transactions 22,045 14,566 7,479 51%
Investment banking 6,124 3,196 2,928 92%
Interest income 11,213 10,052 1,161 12%
Fees and others 3,009 2,664 345 13%
- --------------------------------------------------------------------------------
Total revenues 57,098 42,059 15,039 36%
Interest expense 9,105 8,424 681 8%
- --------------------------------------------------------------------------------
Net revenues 47,993 33,635 14,358 43%
- --------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 34,504 22,888 11,616 51%
Clearing, settlement and
brokerage costs 868 738 130 18%
Communications and
data processing 3,224 3,129 95 3%
Occupancy and depreciation 3,225 3,107 118 4%
Selling 1,827 1,755 72 4%
Other 2,079 1,988 91 5%
- --------------------------------------------------------------------------------
Total expenses (excluding
interest) 45,727 33,605 12,122 36%
- --------------------------------------------------------------------------------
Income before income taxes 2,266 30 2,236 7453%
- --------------------------------------------------------------------------------
Income tax (recovery) expense 859 (36) 895 2486%
- --------------------------------------------------------------------------------
Income before extraordinary items 1,407 66 1,341 2032%
- --------------------------------------------------------------------------------
Extraordinary gain, net of taxes 305 (305)
- --------------------------------------------------------------------------------
Net Income $ 1,407 $ 371 $ 1,036 279%
================================================================================
Net interest income
Interest income $ 11,213 $ 10,052 $ 1,161 12%
Interest expense 9,105 8,424 681 8%
- --------------------------------------------------------------------------------
Net Interest Income $ 2,108 $ 1,628 $ 480 29%
================================================================================
</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 (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 March 27, 1998 and March 27, 1997
- -----------------------------------------------------------
Net Income
- ----------
Net income for the quarter ended March 27, 1998 was $1.4 million or $0.23
basic earnings per share ($0.21 dilutive earnings per share), compared to
$0.4 million or $0.06 basic earnings per share ($0.06 dilutive earnings per
share) in the comparable 1997 period. All of the firm's business units
showed significant net revenue gains in the first quarter of 1998 compared
to the first quarter of 1997. Net revenues more than doubled in the
Taxable Fixed Income Division, increased by over 50% in the Equities
Division, and increased by approximately 20% in each of the Municipal
Division and Private Client Group. The firm's margins continue to show
improvement, with non-compensation related expenses decreasing for the
second consecutive quarter.
Commissions
- -----------
Commission revenues for this year's first quarter increased $3.1 million
or 27% compared to the comparable 1997 period reflecting active trading in
all major markets. Revenues from mutual fund commissions increased $1.4
million while revenues from listed and over-the-counter commissions
increased $1.6 million.
Principal Transactions
- ----------------------
Principal transactions for this year's first quarter increased $7.5
million or 51% compared to the comparable 1997 period. This amount was
comprised of an increase in equity securities of $1.1 million, an increase
in taxable fixed income of $6.2 million (due mainly to increased
opportunity in the international markets) and an increase in municipal
bonds of $0.2 million.
Investment Banking
- ------------------
Investment banking revenues for this year's first quarter increased $2.9
million or 92% compared to the comparable 1997 period. Revenues from
selling concessions increased $1.4 million (equities increased $0.2
million, municipals increased $0.7 million and taxable fixed income
increased $0.5 million), underwriting fees increased $0.1 million, and
investment banking fees increased $1.4 million (equities
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
increased $1.3 million and municipals increased $0.2 million).
Fees and Others
- ---------------
Fees and other revenues for this year's first quarter increased $0.3
million or 13% compared to the comparable 1997 period reflecting increased
revenues from investment advisory services and service charges.
Net Interest Income
- -------------------
Net interest income for this year's first quarter increased $0.5 million
compared to the comparable 1997 period due primarily to higher levels of
margin borrowings by the firm's clients.
Compensation and Benefits
- -------------------------
Compensation and benefits for this year's first quarter increased $11.7
million or 51% compared to the comparable 1997 period due primarily to the
increase in revenues.
Clearance, Settlement and Brokerage Costs
- -----------------------------------------
Clearance, settlement and brokerage costs for this year's first quarter
increased $0.1 million or 18% compared to the comparable 1997 period due
primarily to increases in listed agency transactions.
Income Taxes
- ------------
Income taxes increased $0.9 million compared to the comparable 1997 period
due to an increase in pre-tax earnings.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
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 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 increased due partly to an increase in
net receivables from others. Securities loaned, net, increased primarily
due to an increase in net customer receivables. 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 March 27, 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 $200,000,000 of
which approximately $40,798,000 were unused as of March 27, 1998-will
provide sufficient resources to meet present and reasonably foreseeable
short-term financing needs.
In January 1998, the Board of Directors declared the regular quarterly
cash dividend of $0.05 per share payable 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 are payable on May 26, 1998 to
shareholders of record on May 12, 1998.
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 was adopted in 1998. The statement addresses how and when
to record transferred assets, transfers of partial interest, 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, transfer of receivables with recourse, and extinguishment of
liabilities, collateral, repurchase agreements and how to amortize
servicing assets and liablities. This statement had no material effect on
the presentation of the consolidated financial statements.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive
Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"), respectively (collectively, the
"Statements"). The Statements are effective for fiscal years beginning
after December 15, 1997. SFAS 130 establishes standards for reporting
comprehensive income and its components in annual financial statements.
SFAS 130 was adopted in 1998. The Company does not have any other elements
of comprehensive income other than net income. 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 a material impact on
the Company's consolidated financial position, results of operations or
earnings per share data as currently reported.
Year 2000
- ---------
The Company relies on both internal systems and systems of other parties
in regard to its business, accounting and operational software. As the
millennium approaches, the Company is working toward becoming year 2000
compliant. Many of our internal systems are already year 2000 compliant.
The Company currently has plans that if successful will have all internal
systems year 2000 compliant during 1998.
The Company has contacted its outside vendor software providers regarding
the year 2000 and has developed specific plans to address this issue.
These vendors are in the process of implementing these plans with an
expected completion date of late 1998. If any vendor is not successful,
the Company will evaluate selecting alternative vendors at that time.
The incremental costs of this project are estimated to be approximately
$700,000. Most of these costs are attributable to software/hardware
upgrades. The Company presently believes that with modifications to
existing software or conversion to new software, year 2000 problems can be
effectively avoided. However, if such modifications and conversions are
not made, or are not completed timely, year 2000 problems could have a
material impact on the operations of the Company.
</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.
Item 2. Changes in Securities
- ------------------------------
The Company's Board of Directors adopted a Shareholder Rights Plan. For
further information, see Form 8-K filed on March 30, 1998, which is
incorporated herein by reference.
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
-------------------
The Company filed Form 8-K on March 30, 1998 in connection with
the issuance of certain rights to purchase preferred shares to
each stockholder of record on March 30, 1998 pursuant to a Rights
Agreement dated as of March 30, 1998 between the Company and the
American Stock Transfer & Trust Company, as Rights Agent.
</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: May 5, 1998 /s/ ALAN P. GOLDBERG
-------------------------------
Alan P. Goldberg
President/Director
Date: May 5, 1998 /s/ TIMOTHY R. WELLES
-------------------------------
Timothy R. Welles
Chief Financial Officer
(Principal Accounting Officer)
</PAGE>
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-27-1998
<CASH> $2,016
<RECEIVABLES> 238,599
<SECURITIES-RESALE> 999
<SECURITIES-BORROWED> 514,332
<INSTRUMENTS-OWNED> 121,520
<PP&E> 13,334
<TOTAL-ASSETS> 915,644
<SHORT-TERM> 159,202
<PAYABLES> 64,714
<REPOS-SOLD> 0
<SECURITIES-LOANED> 602,705
<INSTRUMENTS-SOLD> 3,463
<LONG-TERM> 7,500
0
0
<COMMON> 59
<OTHER-SE> 46,274
<TOTAL-LIABILITY-AND-EQUITY> 915,644
<TRADING-REVENUE> 22,045
<INTEREST-DIVIDENDS> 11,213
<COMMISSIONS> 14,707
<INVESTMENT-BANKING-REVENUES> 6,124
<FEE-REVENUE> 3,009
<INTEREST-EXPENSE> 9,105
<COMPENSATION> 34,504
<INCOME-PRETAX> 2,266
<INCOME-PRE-EXTRAORDINARY> 1,407
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,407
<EPS-PRIMARY> $0.23
<EPS-DILUTED> $0.21
</TABLE>
FIRST ALBANY COMPANIES INC. (Exhibit 11)
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
Three Months Ended
March 27, March 27,
(In thousands of dollars, except per share amounts) 1998 1997
<S> <C> <C>
- --------------------------------------------------------------------------------
Basic:
Net income $ 1,407 $ 371
================================================================================
Weighted average number of shares
outstanding during the period 6,176 5,953
================================================================================
Net income per share $ 0.23 $ 0.06
================================================================================
Dilutive:
Net income $ 1,407 $ 371
================================================================================
Weighted average number of shares
outstanding during the period 6,176 5,953
Effective of dilutive common
equivalent shares 664 399
- --------------------------------------------------------------------------------
Weighted average shares and
dilutive common equivalent shares
for dilutive earnings per share 6,840 6,352
================================================================================
Net income per share $ 0.21 $ 0.06
================================================================================
</TABLE>
*Per share figures and shares outstanding have been restated for all
dividends declared, including the May 1998 5% stock dividends.
