SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2001
-------------------------------
Commission file number 0-14140
First Albany Companies Inc.
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(Exact name of registrant as specified in its charter)
New York 22-2655804
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 South Pearl St., Albany, NY 12207
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(Address of principal executive offices) (Zip Code)
(518) 447-8500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X (1) No
------------ ---------
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
8,227,850 Shares of Common Stock were outstanding as of the close of
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business on,July 31, 2001.
- ---------------------------
FIRST ALBANY COMPANIES INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PAGE
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Financial
Condition at June 30, 2001 and
December 31, 2000...................... 3
Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended
June 30, 2001 and June 30, 2000......... 4
Consolidated Statements of Comprehensive Income
for the Six Months Ended
June 30, 2001 and June 30, 2000..........5
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 2001 and June 30, 2000..........6
Notes to Condensed Consolidated Financial
Statements.................................. 7-16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 17-24
Part II - Other Information
Item 1. Legal Proceedings...... ...............25
Item 6. Exhibits and Reports on Form 8-K.......25-26
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
==========================================================================
June 30,
2001 December 31,
(In thousands of dollars) (Unaudited) 2000
- --------------------------------------------------------------------------
Assets
Cash $ 492 $ 689
Cash and securities segregated 4,500 7,000
Securities purchased under
agreement to resell 44,234 60,222
Securities borrowed 476,248 291,029
Receivables from
Brokers, dealers and
clearing agencies 3,325 7,070
Customers 18,417 12,325
Others 7,548 23,603
Securities owned 246,947 189,881
Investments 20,976 21,162
Office equipment and leasehold
improvements, net 5,757 4,823
Other assets 26,620 28,321
- --------------------------------------------------------------------------
Total assets $ 855,064 $ 646,125
==========================================================================
Liabilities and Stockholders' Equity
Liabilities
Short-term bank loans $ 185,650 $ 127,853
Securities loaned 475,900 290,110
Payables to:
Brokers, dealers and
clearing agencies 11,203 6,540
Customers 5,785 8,923
Others 15,202 17,535
Securities sold but not
yet purchased 47,309 63,562
Accounts payable 1,922 3,088
Accrued compensation 20,216 28,701
Accrued expenses 16,114 19,776
Income tax payable 209 2,407
Notes payable 2,493 2,933
Obligations under
capitalized leases 1,894 2,591
- --------------------------------------------------------------------------
Total liabilities 783,897 574,019
- --------------------------------------------------------------------------
Commitments and Contingencies
Subordinated debt 6,000 6,000
- --------------------------------------------------------------------------
Stockholders' Equity
Common stock 94 89
Additional paid-in-capital 86,161 80,947
Deferred compensation 633 354
Unamortized value of
restricted stock (2,148) (864)
(Accumulated deficit)
retained earnings (7,235) 2,046
Less treasury stock at cost (12,978) (16,466)
Accumulated other
comprehensive income (see Note 3) 640 -
- --------------------------------------------------------------------------
Total stockholders' equity 65,167 66,106
- --------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 855,064 $ 646,125
==========================================================================
See notes to the condensed consolidated financial statements.
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
- ------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
(In thousands of dollars except
for per share and outstanding share amounts)
- ------------------------------------------------------------------------------------
Revenues
Commissions $ 3,990 $ 4,243 $ 7,841 $ 9,014
Principal transactions 23,611 12,829 51,721 28,206
Investment banking 4,489 5,879 8,405 13,940
Investment gains (losses) (97) (851) (950) 1,312
Interest income 7,253 21,234 14,699 40,279
Fees and other 1,469 1,260 3,035 2,626
- -------------------------------------------------------------------------------------
Total revenues 40,715 44,594 84,751 95,377
Interest expense 6,472 19,385 13,178 36,566
- -------------------------------------------------------------------------------------
Net revenues 34,243 25,209 71,573 58,811
- -------------------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 26,889 19,555 55,849 43,962
Clearing, settlement and brokerage costs 677 734 1,355 1,532
Communications and data processing 2,623 2,278 5,154 4,526
Occupancy and depreciation 1,818 1,363 3,626 2,722
Selling 1,794 1,387 3,428 2,823
Other 1,416 727 2,919 1,951
- -------------------------------------------------------------------------------------
Total expenses (excluding interest) 35,217 26,044 72,331 57,516
- -------------------------------------------------------------------------------------
Operating (loss) income (974) (835) (758) 1,295
- -------------------------------------------------------------------------------------
Equity in losses of affiliates:
Loss before cumulative effect of change
in accounting principle (914) (1,365) (3,043) (1,962)
Cumulative effect of accounting change
for derivative financial instruments
(see note 3) - - 2,026 -
- -------------------------------------------------------------------------------------
Total equity in losses of affiliates (914) (1,365) (1,017) (1,962)
- -------------------------------------------------------------------------------------
(Loss) income before income taxes (1,888) (2,200) (1,775) (667)
Income tax (benefit) expense (759) (838) (714) (181)
- -------------------------------------------------------------------------------------
Income (loss) from continuing operations (1,129) (1,362) (1,061) (486)
- -------------------------------------------------------------------------------------
Income from discontinued operations,
net of taxes - 275 - 2,462
- -------------------------------------------------------------------------------------
Net (loss) income $(1,129) $ (1,087) $(1,061) $ 1,976
=====================================================================================
Basic share data:
Basic earnings:
Continued operations (0.14) (0.15) (0.13) (0.06)
Discontinued operations - 0.03 - 0.28
- -------------------------------------------------------------------------------------
Net (loss) income (0.14) (0.12) (0.13) 0.22
=====================================================================================
Diluted earnings:
Continued operations (0.14) (0.15) (0.13) (0.06)
Discontinued operations - 0.03 - 0.28
- -------------------------------------------------------------------------------------
Net (loss) income (0.14) (0.12) (0.13) 0.22
=====================================================================================
Weighted average common
and common equivalent
shares outstanding:
Basic 7,928,064 8,981,338 7,946,449 8,821,219
Dilutive 7,928,064 8,981,338 7,946,449 8,821,219
- --------------------------------------------------------------------------------------
Dividend per common share outstanding $ 0.05 $ 0.05 $ 0.10 $ 0.10
=======================================================================================
See notes to the condensed consolidated financial statements.
FIRST ALBANY COMPANIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
==============================================================================
Six Months Ended
June 30, June 30,
(In thousands of dollars) 2001 2000
- --------------------------------------------------------------------------------------
Net income $ (1,061) $ 1,976
Other comprehensive income:
Unrealized gain on available for sale
securities, net of tax 640 -
- --------------------------------------------------------------------------------------
Total other comprehensive income,
net of tax (see note 3) 640 -
- --------------------------------------------------------------------------------------
Total comprehensive income $ (421) $ 1,976
======================================================================================
The unrealized gain on available for sale securities, net of tax
relates to Mechanical Technology Incorporated's ("MTI") investment in
Beacon Power (see note 3). Accumulated net unrealized gains (losses)
related to available for sale securities are recorded as other
comprehensive income. Decreases or increases in other comprehensive
income are recorded as adjustments to stockholders' equity. Since
First Albany Companies Inc. ("the Company") investment in MTI is
recorded under the equity method, the Company must record its
proportionate share of MTI's other comprehensive income accordingly.
See notes to the condensed consolidated financial statements.
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
============================================================================
Six Months Ended
June 30, June 30,
(In thousands of dollars) 2001 2000
- ----------------------------------------------------------------------------
Cash flows from operating activities:
Net (loss)/income $ (1,061) $ 1,976
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 1,119 2,239
Deferred compensation 279 806
Deferred income taxes (255) (1,791)
Undistributed loss of affiliate 1,017 1,961
Unrealized investment loss 950 1,085
Realized (gain) loss on sale of investments (2,332)
Services provided in exchange for common stock 522 868
(Increase) decrease in operating assets:
Cash and securities segregated under
federal regulations 2,500 (4,750)
Securities purchased under
agreement to resell 15,988 (18,857)
Securities borrowed, net 571 56,717
Net receivables from customers (9,230) (52,860)
Securities owned, net (73,319) (4,517)
Other assets 1,221 (6,606)
Increase (decrease) in operating liabilities:
Net payables to brokers, dealers, and
clearing agencies 8,408 4,490
Net payables to others 20,921 12,697
Accounts payable and accrued expenses (13,313) (7,559)
Income taxes payable (2,198) 1,205
- -----------------------------------------------------------------------------
Net cash used in operating activities (45,880) (15,228)
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of furniture, equipment,
and leaseholds (2,011) (1,504)
Disbursements for purchase of investments (299) (1,535)
Proceeds from sale of investments 183 2,638
- -----------------------------------------------------------------------------
Net cash used in investing activities (2,127) (401)
Cash flows from financing activities:
Proceeds of short-term bank loans 57,797 16,025
Payments on notes payable (440) (1,065)
Payments of obligations under
capitalized leases (697) (1,068)
Payments for purchases of common for treasury (1,919) (240)
Proceeds from issuance of common stock 1,004 574
Net increase (decrease) from borrowing
under line-of-credit agreements (7,199) 1,913
Dividends paid (736) (761)
- ------------------------------------------------------------------------------
Net cash provided by financing activities 47,810 15,378
- ------------------------------------------------------------------------------
Decrease in cash (197) (251)
Cash at beginning of the year 689 1,912
- ------------------------------------------------------------------------------
Cash at end of period $ 492 $ 1,661
==============================================================================
In 2001, the Company increased its investment in MTI by $1.7 million,
increased comprehensive income $0.6 million, increased paid-in-capital
by $0.4 million and deferred income taxes by $0.7 million (See Note 3).
See notes to the condensed consolidated financial statements
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all 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 condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes for the year ended December 31, 2000.
Certain amounts in the 2000 financial statements have been reclassified
to conform with the 2001 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:
=============================================================================
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
(In thousands, except per share amounts) 2001 2000 2001 2000
- ----------------------------------------------------------------------------------
Income from continuing operations $(1,129) $(1,362) $(1,061) $ (486)
Income from discontinued operations,
net of taxes - 275 - 2,462
- ----------------------------------------------------------------------------------
Net income (loss) $(1,129) $(1,087) $ (1,061) $1,976
- ----------------------------------------------------------------------------------
Weighted average shares
for basic earnings per share 7,928 8,981 7,946 8,821
Effect of dilutive common
equivalent shares (stock options and stock
issuable under employee benefit plans) - - - -
- ----------------------------------------------------------------------------------
Weighted average shares and
dilutive common equivalent shares
for dilutive earnings per share 7,928 8,981 7,946 8,821
==================================================================================
Earnings per share data:
Basic earnings:
- ----------------------------------------------------------------------------------
Continuing operations $ (0.14) $ (0.15) $ (0.13) $ (0.06)
Discontinued operations - 0.03 - 0.28
- ----------------------------------------------------------------------------------
Net income $ (0.14) $ (0.12) $ (0.13) $ 0.22
==================================================================================
Diluted earnings:
- ----------------------------------------------------------------------------------
Continuing operations $ (0.14) $ (0.15) $ (0.13) $ (0.06)
Discontinued operations - 0.03 - 0.28
- ----------------------------------------------------------------------------------
Net income $ (0.14) $ (0.12) $ (0.13) $ 0.22
==================================================================================
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
For the quarter ended and year ended June 30, 2001, the Company
excluded approximately 0.5 million common equivalent shares in its
computation of dilutive earnings per share because they were anti-
dilutive.
For the quarter ended and year ended June 30, 2000, the Company
excluded approximately 1.3 million and 1.5 million common equivalent
shares, respectively, in its computation of dilutive earnings per
share because they were anti-dilutive.
3. Investments
First Albany Companies Inc., the Parent Company, holds various
investments in its portfolio. Mechanical Technology Incorporated (MTI)
and META Group, Inc. are two of its major publicly traded holdings.
MTI was incorporated in 1961 and over the last five years has
strengthened its commitment to and involvement in the new energy sector.
MTI plans to implement this strategy through the internal development
and growth of businesses, the acquisition of majority stock positions in
emerging new energy companies, and strategic investments in established
new energy businesses.
MTI holds various investments that are recorded under the equity
method. The principal components of these investments are Plug Power
Inc. and SatCon Technology Corporation. Plug Power Inc. is a U.S.
designer and developer of on-site electricity generation systems
utilizing proton exchange membrane fuel cells for residential
applications, while SatCon Technology Corporation is a designer,
developer and manufacturer of high-efficiency, high-reliability
and long-lived power and energy management products to serve
the distributed power generation and power quality markets.
At June 30, 2001 the Company owned approximately 11,753,745 common
shares (33% of the shares outstanding) of MTI. Shares of MTI are traded
on the NASDAQ National Market System under the symbol MKTY. The
Company's investment in MTI is recorded under the equity method and has
a book value of approximately $16.0 million, which included goodwill of
approximately $0.4 million, which is being amortized over 10 years. At
June 30, 2001 the aggregate market value of the Company's shares of MTI
stock was $84.7 million. Under the equity method, the market value of
MTI's stock is not included in the calculation of the Company's
investment. The Company's equity in MTI's net loss for the six months
ended March 31, 2001 recorded as of the quarter ended June 30, 2001 was
$(1.0) million. This net loss was comprised of the Company's
proportionate share of MTI's loss before the cumulative effect of a
change in accounting principle of ($3.0) million, and of MTI's
cumulative effect of accounting change for derivative financial
instruments of $2.0 million. MTI recorded the cumulative effect of
accounting change for derivative financial instruments upon its adoption
of SFAS No. 133 ( "SFAS No. 133), "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 established a new model for
accounting for derivatives and hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in
the statement of financial position and measure these instruments at
fair value regardless of purpose or intent for holding them.
For the quarters ended December 31, 2000 and March 31, 2001, the
Company's equity in MTI's loss, recorded on a one-quarter delay basis
was ($0.1) million and ($0.9) million, respectively.
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
The following presents unaudited summarized financial information of
MTI at:
--------------------------------------------
March 31,
(In thousands of dollars) 2001
============================================
Assets $81,225
Liabilities 34,047
--------------------------------------------
Shareholders' equity $47,178
============================================
(In thousands of dollars) Three Months Ended Six Months Ended
March 31, March 31,
2001 2001
-----------------------------------------------------------------------
Revenues $ 1,657 $ 3,295
========================================================================
Operating loss $ (1,934) $ (2,978)
Gain on sale of investments 5,551 5,551
Other expenses (1,282) (2,767)
- ------------------------------------------------------------------------
Income (loss) before income taxes,
equity in investee losses and
cumulative effect of change in
accounting principle 2,335 (194)
Income tax (expense) benefit (931) 51
Equity in investee losses,
net of taxes (4,162) (9,034)
- ------------------------------------------------------------------------
Loss before cumulative effect of
accounting change in
accounting principle (2,758) (9,177)
Cumulative effect of accounting change
for derivative financial instruments,
net of taxes - 6,110
- -----------------------------------------------------------------------
Net loss $ (2,758) $(3,067)
=======================================================================
During MTI's quarter ended March 31, 2001, MTI recognized a $5.6 million
gain on the sale of its holdings in Plug Power. This gain related to
MTI's previously announced strategy to raise additional capital through
equity offerings and the sale of up to 10% of its assets in order to pay
down debt, strengthen its balance sheet, and fund its micro fuel cell
operations.
MTI's Stockholders' equity increased $5.2 million (excluding a net
loss of $ 3.1 million) during their fiscal six months ended March 31,
2001. Part of this increase was due to other comprehensive income, net
of taxes from unrealized gains on available for sale securities in
Beacon Power. Beacon Power develops and manufactures a line of energy
storage systems based on advanced flywheel technology. Accumulated net
unrealized gains (losses) related to available for sale securities are
recorded as other comprehensive income. Decreases or increases in other
comprehensive income are recorded as adjustments to stockholders'
equity. Accordingly, the Company has recorded, as of the June 30, 2001
quarter ended, its proportionate share ($1.7 million) of this increase
in MTI's equity as an increase in its investment in MTI. The Company
also recorded $0.6 million (net of deferred taxes) as other comprehensive
income and $0.4 as additional paid-in-capital(net of deferred taxes)
in stockholders' equity as a result of this transaction.
On December 27, 2000 the Company entered into a Put and Call Option
Agreement (the "Option Agreement") with Mechanical Technology
Incorporated ("MTI"). MTI purchased the option from the Company for
$945,000. The Option Agreement was entered into to provide independent
credit support for a loan to MTI from Key Bank, N.A. (the "Loan"). The
Option Agreement provides that MTI may put 6.3 million shares of the
Plug Power Inc. common stock pledged as collateral on the Loan at $4 per
share and the Company has the right to either purchase such shares or
take an assignment of all of the bank's rights under the Loan. The
Option Agreement, originally expired on April 27, 2001, but was amended
to extend the expiration date to August 27, 2001 for a fee of $200,000.
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
In addition, on December 27, 2000, the Company entered into two
loan agreements with MTI totaling approximately $6 million. The loans
are secured by 1.2 million shares of Plug Power Inc. common stock.
During the quarter ended March 31, 2001, MTI was advanced an additional
$1.5 million on the loans and paid down $4.0 million. There was $1.4
million outstanding at March 31, 2001. In April 2001, MTI paid the
outstanding balance on the loans.
MTI's earnings report for the quarter ended June 30, 2001 was not
released as of the Company's filing of form 10-Q for the quarter ended
June 30, 2001. As such, information on the Company's equity in MTI's
earnings, recorded on a one quarter delay basis, is not available for
reporting.
At June 30, 2001, First Albany Companies Inc., the parent company,
owned 134,500 shares of META Group, Inc. The fair market value of this
investment was $347 thousand. During the three months ended June 30,
2001, the Company has recorded unrealized gains of $163 thousand due to
the increase in market value of this investment.
Also, First Albany Corporation, the investment bank and brokerage
firm, purchased 719,424 shares of META Group, Inc. in June 2001. The
fair market value of these shares ($1.9 million) are classified as
"Securities Owned" on the Condensed Consolidated Statements of Financial
Condition.
4. Receivables from Others
Amounts receivable from others as of:
- --------------------------------------------------------------------
June 30, December 31,
(In thousands of dollars) 2001 2000
====================================================================
Adjustment to record securities owned on
a trade date basis, net $ - $ 10,863
Others 7,548 12,740
- ---------------------------------------------------------------------
Total $ 7,548 $ 23,603
=====================================================================
Proprietary securities transactions are recorded on trade date, as if
they had settled. The related amounts receivable and payable for
unsettled securities transactions are recorded net in Receivables or
Payables to Others on the Statement of Financial Condition.
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
5. Securities Owned And Sold But Not Yet Purchased
Securities owned and sold but not yet purchased consisted of the
following as of:
======================================================================
June 30, December 31,
(In thousands of dollars) 2001 2000
- ----------------------------------------------------------------------
Sold, but Sold, but
not yet not yet
Owned Purchased Owned Purchased
Marketable Securities
U.S. Government and federal
agency obligations $ 11,180 $ 43,503 $ 5,349 $ 60,870
State and municipal bonds 181,641 3,446 132,370 200
Corporate obligations 44,369 56 47,198 1,034
Corporate stocks 7,223 299 3,934 513
Options 170 - - -
Not readily marketable securities
securities - - - -
Investment securities with
no publicly quoted market 2,198 - 194 -
Investment securities subject
to restrictions 166 5 836 945
- ----------------------------------------------------------------------
Total $246,947 $ 47,309 $189,881 $63,562
======================================================================
Securities not readily marketable include investment securities (a) for
which there is no market on a securities exchange or no independent
publicly quoted market, (b) that cannot be publicly offered or sold
unless registration has been effected under the Securities Act of 1933,
or (c) that cannot be offered or sold because of other arrangements,
restrictions or conditions applicable to the securities or to the
Company.
6. Payables to Others
Amounts payable to others as of:
- ---------------------------------------------------------------------
June 30, December 31,
(In thousands of dollars) 2001 2000
=====================================================================
Adjustment to record securities owned on
a trade date basis, net $ 5,760 $ -
Borrowing under line-of
-credit agreements 7,499 14,697
Others 1,943 2,838
- ---------------------------------------------------------------------
Total $ 15,202 $ 17,535
=====================================================================
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
7. Notes Payable
Notes payable consist of a note for $2,493,333 which is payable in
monthly principal payments of $73,333 plus interest. The interest rate
is 1.5% over the 30-day London InterBank Offered Rate ("LIBOR") (3.8625%
plus 1.5% on June 30, 2001). This note matures on April 1, 2004.
One of the more significant covenants of the note requires First Albany
Corporation to maintain a minimum net capital (as defined by Rule 15c 3-
1 of the Securities and Exchange Commission) equal to three times the
required minimum net capital. The required minimum net capital as of
June 30, 2001 was $1.0 million. The amount of net capital as of June
30, 2001 was $32.8 million.
8. Obligations under Capitalized Leases
The following is a schedule of future minimum lease payments under
capital leases for office equipment together with the present value of
the net minimum lease payments as of June 30, 2001:
===========================================
(In thousands of dollars)
--------------------------------------------
2001 $ 828
2002 930
2003 191
2004 47
2005 6
---------------------------------------------
Total Minimum Lease Payments 2,002
Less: Amount Representing Interest 108
---------------------------------------------
Present Value of
Minimum Lease Payments $1,894
=============================================
9. Subordinated Debt
The Company has a subordinated debt of $2,000,000 with interest at
8.75% and $4,000,000 with interest at 9.25%. Interest is paid monthly
with the principal amounts due at maturity on December 31, 2002.
Both loan agreements include restrictive financial covenants. One of
the more significant covenants requires the Company to maintain minimum
net capital equal to three times the required net capital (as defined by
Rule 15c3-1 of the Securities and Exchange Commission). The amount of
required net capital as of June 30, 2001 was $1.0 million. The amount
of net capital as of June 30, 2001 was $32.8 million.
10. 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.
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
11. Stockholders' Equity
In January 2001, the Board of Directors declared the regular quarterly
cash dividend of $0.05 per share payable on February 28, 2001, to
shareholders of record on February 14, 2001.
In April, 2001, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the first quarter, ended March 31, 2001,
along with a 5% stock dividend, payable on May 29, 2001 to shareholders
of record on May 15,2001.
In July 2001, the Board of Directors declared the regular quarterly
cash dividend of $0.05 per share payable on August 24, 2001, to
shareholders of record on August 16, 2001.
In October 2000, the Board of Directors authorized a stock repurchase
program of up to 1.5 million shares of its outstanding common stock.
Under the program, the Company may periodically repurchase shares on the
open market at prevailing market prices or in privately negotiated
transactions from time to time over the next 18 months. Shares purchased
under the program will be held in treasury and used for general corporate
purposes. At June 30, 2001 the Company had repurchased approximately
387,000 shares pursuant to this program with an aggregate cost
of $4.0 million.
12. Net Capital Requirements
The Company's broker-dealer subsidiary, First Albany Corporation (the
"Corporation"), is subject to the Securities and Exchange Commission's
Uniform Net Capital Rule, which requires the maintenance of a minimum
net capital. The Corporation has elected to use the alternative method
permitted by the rule, which requires that the Corporation maintain a
minimum net capital of 2 percent of aggregate debit balances arising
from customer transactions as defined. As of June 30, 2001 the
Corporation had aggregate net capital, as defined, of $32.8 million,
which equaled 190.6% of aggregate debit balances and $31.8 million in
excess of required minimum net capital.
13. 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 in 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.
14. Segment Analysis
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.
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
The Company's reportable operating segments are: Institutional
(including Investment Banking, Institutional Sales and Trading, First
Albany Asset Management Corporation and FA Technology Ventures
Corporation), Investments, Equity in Losses of Affiliates and
Discontinued Operations. The financial policies of the Company's
segments are the same as those described in the "Summary of Significant
Accounting Policies." The Institutional segment generates revenues from
securities transactions (equities and fixed-income securities) with
institutional clients along with investment banking activities, which
includes managing, co-managing of tax-exempt and corporate securities
underwritings and financial advisory services. This segment also
includes trading activity in which the Company buys and maintains
inventories of fixed-income products and equities securities (as a
"market maker") for sale to other dealers and to institutional clients.
The Investment segment includes gains and losses associated with the
investment portfolio held at the Company. Discontinued operations is
comprised of the Company's Private Client Group. The Private Client
Group had provided securities brokerage services to individual
investors. Revenues were generated through customer purchase and
sale of various securities: equity, taxable and non-taxable fixed
income, mutual funds and various other investment products and services.
Equity in loss of affiliates includes revenue relating to the Company's
investment in Mechanical Technology Incorporated (MTI), which is
recorded under the equity method (see Note 3). Pre-tax net loss
relating to MTI was ($0.9) million, and ($1.4) million for the quarters
ended June 30, 2001, and 2000, respectively, and ($1.0) million and
($2.0) million for the six months ending June 30, 2001 and 2000,
respectively.
Intersegment revenues and expenses are eliminated between segments.
Interest revenues and interest expenses are reviewed primarily on a net
basis (Net Interest Revenues) and are shown as such. The Company
evaluates the performance of its segments and allocates resources to
them based upon long-term margin opportunities, which are consistent
with the growth strategy of the Company. Asset information by
reportable segments is not reported since the Company does not produce
such information internally for the reportable segments. All assets are
located in the United States.
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Information concerning operations in these segments is as follows:
============================================================================
Three Months Ended Six Months Ended
(In thousands of dollars) June 30, June 30, June 30, June 30,
2001 2000 2001 2000
- ----------------------------------------------------------------------------------
Revenues (excluding interest):
Institutional $ 33,559 $ 24,211 $ 71,002 $ 53,786
Investments (97) (851) (950) 1,312
- -----------------------------------------------------------------------------------
Continued operations $ 33,462 $ 23,360 $ 70,052 $ 55,098
Discontinued operations - 22,309 - 54,626
- -----------------------------------------------------------------------------------
Total $ 33,462 $ 45,669 $ 70,052 $109,724
===================================================================================
Net Interest Revenues:
Institutional $ 781 $ 1,849 $ 1,521 $ 3,713
- -----------------------------------------------------------------------------------
Continued operations $ 781 $ 1,849 $ 1,521 $ 3,713
Discontinued operations - 1,096 - 2,180
- -----------------------------------------------------------------------------------
Total $ 781 $ 2,945 $ 1,521 $ 5,893
===================================================================================
Net Revenues:
Institutional $ 34,340 $ 26,060 $ 72,523 $ 57,499
Investments (97) (851) (950) 1,312
- ------------------------------------------------------------------------------------
Continued operations $ 34,243 $ 25,209 $ 71,573 $ 58,811
Discontinued operations - 23,405 - 56,806
- ------------------------------------------------------------------------------------
Total $ 34,243 $ 48,614 $ 71,573 $115,617
====================================================================================
Pre-Tax Income:
Institutional $ (877) $ 16 $ 192 $ (17)
Investments (97) (851) (950) 1,312
Equity in losses of affiliates (914) (1,365) (1,017) (1,962)
- -------------------------------------------------------------------------------------
Continued operations $(1,888) $ (2,200) $ (1,775) $ (667)
Discontinued operations - 481 - 4,248
- -------------------------------------------------------------------------------------
Total $(1,888) $ (1,719) $ (1,775) $ 3,581
=====================================================================================
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
15. Discontinued Operations
On May 9, 2000, the Company announced that it signed an agreement for
the sale of the assets of its Private Client Group, its retail brokerage
branch network, to First Union Securities, a subsidiary of First Union
Corp. The transaction closed on August 4, 2000.
In accordance with Accounting Principles Board Opinion No. 30 (APB 30),
"Reporting the Results of Operations - Reporting the Effect of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions", the results of the Private Client
Group have been reported separately as a discontinued operation for all
periods presented.
Components of amounts reflected in condensed consolidated statement of
financial condition and condensed consolidated statement of operations
are presented in the following tables:
==========================================================================
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
(In thousands of dollars) 2001 2000 2001 2000
- ---------------------------------------------------------------------------
Net revenues $ - $ 23,405 $ - $ 56,806
Expenses - 22,924 - 52,558
- ----------------------------------------------------------------------------
Income before income taxes - 481 - 4,248
Income tax expense - 206 - 1,786
- ----------------------------------------------------------------------------
Income from discontinued
operations, net taxes $ - $ 275 $ - $ 2,462
============================================================================
Included in the balance sheet, for the period ending June 30, 2001 was
approximately $8.7 million in accrued expenses relating to discontinued
operations. These accruals consisted primarily of impairment of future
lease space of $7.9 million and other costs relating to the divestiture
of the Private Client Group.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
=========================================================================
2001 vs.
Three Months Ended 2000 Percentage
June 30, June 30, Increase Increase
(In thousands of dollars) 2001 2000 (Decrease) (Decrease)
- --------------------------------------------------------------------------
Revenues
Commissions $ 3,990 $ 4,243 $ (253) (6)%
Principal transactions 23,611 12,829 10,782 84%
Investment banking 4,489 5,879 (1,390) (24)%
Investment gain (loss) (97) (851) 754 (89)%
Interest income 7,253 21,234 (13,981) (66)%
Fees and others 1,469 1,260 209 17%
- ---------------------------------------------------------------------------
Total revenues 40,715 44,594 (3,879) (9)%
Interest expense 6,472 19,385 (12,913) (67)%
- ---------------------------------------------------------------------------
Net revenues 34,243 25,209 9,034 36%
- ---------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 26,889 19,555 7,334 38%
Clearing, settlement and
brokerage costs 677 734 (57) (8)%
Communications and
data processing 2,623 2,278 345 15%
Occupancy and depreciation 1,818 1,363 455 33%
Selling 1,794 1,387 407 29%
Other 1,416 727 689 95%
- ---------------------------------------------------------------------------
Total expenses
(excluding interest) 35,217 26,044 9,173 35%
- ---------------------------------------------------------------------------
Operating loss (974) (835) (139) (17)%
- ---------------------------------------------------------------------------
Equity in losses of affiliates:
Loss before cumulative effect
of change in
accounting principle (914) (1,365) 451 (33)%
Cumulative effect of accounting
change for derivative financial
instruments (see note 3) - - - -
- ---------------------------------------------------------------------------
Total equity in losses
of affiliates (914) (1,365) 451 (33)%
- ---------------------------------------------------------------------------
Loss before income taxes (1,888) (2,200) 312 14%
Income tax benefits (759) (838) 79 9%
- ---------------------------------------------------------------------------
Loss from
continuing operations (1,129) (1,362) 233 17%
- ---------------------------------------------------------------------------
Income from discontinued operations,
net of taxes - 275 (275) (100)%
- ---------------------------------------------------------------------------
Net loss $ (1,129) $ (1,087) $ (42) (4)%
===========================================================================
Net interest income
Interest income $ 7,253 $ 21,234 $(13,981) (66)%
Interest expense 6,472 19,385 (12,913) (67)%
- --------------------------------------------------------------------------
Net interest income $ 781 $ 1,849 $ (1,068) (58)%
==========================================================================
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 Companies Inc. (the Company) is the parent company of
First Albany Corporation, First Albany Asset Management Corporation and
FA Technology Ventures Corporation. First Albany Corporation provides
investment banking services to corporate and public clients, and engages
in market-making and trading of corporate, government and municipal
securities. The Company also provides venture capital and merchant
banking to the investment and corporate communities, and asset
management services to individuals and institutions.
The investment banking and brokerage businesses generate revenues in
direct correlation with the general level of trading activity in the
stock and bond markets. The Company cannot control this level of
activity; 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
- ---------------------
First Albany Corporation, the investment bank and brokerage firm, had
net revenues of $32.9 million for the second quarter ended June 30,
2001, compared to $25.9 million for the same period in 2000, an increase
of 27 percent. Consolidated net revenues for the second quarter were
$34.2 million compared to $25.2 million for the same period in 2000, an
increase of 36 percent. Net revenues for First Albany Corporation, the
investment bank and brokerage firm, were $69.2 million for the first
six months of 2001, compared to $57.0 million for the same period in
2000, an increase of 21 percent. Consolidated net revenues for first
six months of 2001 were $71.6 million compared to $58.8 million for the
same period in 2000, an increase of 22 percent.
Due to the sale of the assets of the Private Client Group, the
Company's retail brokerage network, to First Union Securities, the
operating results of the Private Client Group are reported as
discontinued operations on a net income basis.
Net loss from First Albany Corporation, the investment bank and
brokerage firm, for the second quarter was ($0.5) million compared to
($0.2) million for the same period in 2000. The decline in earnings
from the brokerage operations was driven by an extremely weak equity
market and poor corporate investment banking results. Also, for the
second quarter the Company reported consolidated loss from continued
operations of ($1.1) million compared to ($1.4) million for the same
period in 2000, or loss from continued operations of ($0.14) per diluted
share compared to ($0.15) per diluted share, respectively. Included in
the consolidated loss is a ($0.9) million (pre-tax) pass-through loss
from Mechanical Technology Inc. ("MKTY").
Net loss from First Albany Corporation, the investment bank and
brokerage firm, for the first six months was ($0.3) million compared to
a $0.5 million net profit for the same period in 2000. Again, for the
first six months, the decline in earnings from the brokerage operations
was driven by the extremely weak equity market and a poor corporate
investment banking environment. The Company reported a consolidated loss
from continued operations for the first six months ($1.1) million
compared to ($0.5) million for the same period in 2000, or loss from
continued operations of ($0.13) per diluted share compared to ($0.06)
per diluted share, respectively.
A portion of First Albany Companies Inc.'s investment portfolio is
accounted for at market value while the remainder is accounted for under
the equity method. The aggregate market value of the Company's
investment portfolio increased from $56.3 million at March 31, 2001, to
$ 89.7 million at June 30, 2001,
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
primarily as a result of an increase in the market value of its
investment in Mechanical Technology Inc. ("MKTY"). The Company is
required to account for the MKTY investment under the equity method of
accounting because it owns in excess of 20% (approximately 33%) of the
shares outstanding, and does not recognize changes in the market value
of this investment in the income statement. Changes in the value of
those portions of the Company's investment portfolio accounted for at
market value may impact the financial results of future periods either
positively or negatively.
Three Month Periods Ended June 30, 2001 and June 30, 2000
- ---------------------------------------------------------
Principal Transactions
- ----------------------
Principal transactions for this year's second quarter increased $10.8
million or 84% compared to the comparable 2000 period. This amount was
comprised of an increase in corporate fixed income of $6.2
million, an increase in municipal bonds of $2.5 million and an increase
in equity securities of $2.1 million.
Investment Banking
- ------------------
Investment banking revenues for this year's second quarter decreased
$1.4 million or 24% compared to the comparable 2000 period. The decrease
was comprised of a decrease in corporate underwritings of $2.2 million ,
due to unfavorable conditions in the stock market, offset by an increase
in fixed income underwriting of $0.8 million
Investment Losses
- -----------------
Investment losses for this year's second quarter decreased $0.8 million
compared to the comparable 2000 period. The decrease was primarily due
to the investment portfolio held at First Albany Companies Inc, the
Parent Company.
Net Interest Income
- -------------------
Net interest income for this year's second quarter decreased $1.1
million or 58% reflecting a decrease in the Company's stock loan conduit
business and an increase in the Company's inventory in tax exempt
municipal bonds which carry a negative spread in relation to the
Company's average cost of funds.
Compensation and Benefits
- -------------------------
Compensation and benefits expense for this year's second quarter
increased $7.3 million or 38% compared to the same period of 2000,
mainly due to an increase in net revenues.
Other
- -----
Other expense for this year's second quarter increased $0.7 million or
95% compared to the same period of 2000, mainly due to an increase in
professional fees.
Equity in losses of affiliates
- ------------------------------
Equity in losses of affiliates for this year's second quarter decreased
$0.5 million due to a decrease in the net loss of Mechanical Technology
Incorporated. (See note 3)
Income from Discontinued Operations, Net Of Taxes
- -------------------------------------------------
Income from discontinued operations, net of taxes decreased $0.3
million for this year's first second quarter, resulting from the
completion of the sale of the Private Client Group network to First
Union Securities on August 4, 2000.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
=========================================================================
2001 vs.
Six Months Ended 2000 Percentage
June 30, June 30, Increase Increase
(In thousands of dollars) 2001 2000 (Decrease) (Decrease)
- --------------------------------------------------------------------------
Revenues
Commissions $ 7,841 $ 9,014 $ (1,173) (13)%
Principal transactions 51,721 28,206 23,515 83%
Investment banking 8,405 13,940 (5,535) (40)%
Investment gain (loss) (950) 1,312 (2,262) (172)%
Interest income 14,699 40,279 (25,580) (64)%
Fees and others 3,035 2,626 409 16%
- --------------------------------------------------------------------------
Total revenues 84,751 95,377 (10,626) (11)%
Interest expense 13,178 36,566 (23,388) (64)%
- --------------------------------------------------------------------------
Net revenues 71,573 58,811 12,762 22%
- --------------------------------------------------------------------------
Expenses (excluding interest)
Compensation and benefits 55,849 43,962 11,887 27%
Clearing, settlement and
brokerage costs 1,355 1,532 (177) (12)%
Communications and
data processing 5,154 4,526 628 14%
Occupancy and depreciation 3,626 2,722 904 33%
Selling 3,428 2,823 605 21%
Other 2,919 1,951 968 50%
- --------------------------------------------------------------------------
Total expenses
(excluding interest) 72,331 57,516 14,815 26%
- --------------------------------------------------------------------------
Operating (loss) income (758) 1,295 (2,053) (159)%
- --------------------------------------------------------------------------
Equity in losses of affiliates:
Loss before cumulative effect of change
in accounting principle (3,043) (1,962) (1,081) (55)%
Cumulative effect of accounting change for
derivative financial
instruments (see note 3) 2,026 - 2,026 -
- ---------------------------------------------------------------------------
Total equity in losses
of affiliates (1,017) (1,962) 945 (48)%
- ---------------------------------------------------------------------------
(Loss) income before
income taxes (1,775) (667) (1,108) (166)%
Income tax (benefit) expense (714) (181) (533) (294)%
- ---------------------------------------------------------------------------
(Loss) income from
continuing operations (1,061) (486) (575) (118)%
- ---------------------------------------------------------------------------
Income from discontinued operations,
net of taxes - 2,462 (2,462) (100)%
- ---------------------------------------------------------------------------
Net (loss) income $ (1,061) $ 1,976 $ (3,037) (154)%
===========================================================================
Net interest income
Interest income $ 14,699 $40,279 $(25,580) (64)%
Interest expense 13,178 36,566 (23,388) (64)%
- ---------------------------------------------------------------------------
Net interest income $ 1,521 $ 3,713 $ (2,192) (59)%
===========================================================================
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Six Month Periods Ended June 30, 2001 and June 30, 2000
- --------------------------------------------------------
Commissions
- -----------
Commission revenues for this year's first six months decreased
$1.2 million or 13% compared to the comparable 2000 period primarily due
to decrease in listed agency transactions.
Principal Transactions
- ----------------------
Principal transactions for this year's first six months increased $23.5
million or 83% compared to the comparable 2000 period. This amount was
comprised of an increase in corporate fixed income of $17.1 million, an
increase in municipal bonds of $5.1 million and an increase in equity
securities of $1.3 million.
Investment Banking
- ------------------
Investment banking revenues for this year's first six months decreased
$5.5 million or 40% compared to the comparable 2000 period. The decrease
was comprised of a decrease in corporate underwritings of $5.9 million ,
due to unfavorable conditions in the stock market, offset by an increase
in fixed income underwriting of $0.4 million
Investment Gains/(Losses)
- -------------------------
Investment gains (losses) for this year's first six months decreased
$2.3 million compared to the comparable 2000 period. The decrease was
due primarily to the investment portfolio held at First Albany Companies
Inc, the Parent Company.
Net Interest Income
- -------------------
Net Interest Income for this year's first six months decreased $2.2
million or 59% reflecting a decrease in the Company's stock loan conduit
business and an increase in the Company's inventory in tax exempt
municipal bonds which carry a negative spread in relation to the
Company's average cost of funds.
Compensation and Benefits
- -------------------------
Compensation and Benefits for this year's first six months increased
$11.9 million or 27% compared to the same period of 2000, attributed
primarily to an increase in net revenues.
Occupancy and Depreciation
- --------------------------
Occupancy and depreciation expense for this year's first six months
increased $0.9 million or 33% compared to the same period of 2000,
partially due to an increase in office rental expense.
Other
- -----
Other expense for this year's first six months increased $1.0 million
or 50% compared to the same period of 2000, mainly due to an increase in
professional fees.
Equity in losses of affiliates
- ------------------------------
Equity in losses of affiliates for this year's first six months
decreased $0.9 million due to a decrease in the net loss of Mechanical
Technology Incorporated. (See note 3)
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 bank lines-of-credit interest-bearing and non-
interest-bearing payables to customers and payables to brokers and
dealers secured by loaned securities. 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,
is a source of financing for the Company and will fluctuate accordingly.
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 June 30, 2001 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
bank lines-of-credit-totaling $470 million of which approximately
$284 million were unused as of June 30, 2001-will provide sufficient
resources to meet present and reasonably foreseeable short-term
financing needs.
In January 2001, the Board of Directors declared the regular quarterly
cash dividend of $0.05 per share payable on February 28, 2001, to
shareholders of record on February 14, 2001.
In April 2001, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the first quarter, ended March 31, 2001,
along with a 5% stock dividend, both payable on May 29, 2001 to
shareholders of record on May 15, 2001.
In July 2001, the Board of Directors declared the regular quarterly
cash dividend of $0.05 per share payable on August 24, 2001, to
shareholders of record on August 16, 2001.
In October 2000, the Board of Directors authorized a stock repurchase
program of up to 1.5 million shares of its outstanding common stock.
Under the program, the Company may periodically repurchase shares on the
open market at prevailing market prices or in privately negotiated
transactions from time to time over the next 18 months. Shares
purchased under the program will be held in treasury and used for
general corporate purposes. At June 30, 2001 the Company had
repurchased approximately 387,000 shares pursuant to this
program with an aggregate cost of $4.0 million.
On December 27, 2000 the Company entered into a Put and Call Option
Agreement (the "Option Agreement") with Mechanical Technology
Incorporated ("MTI"). MTI purchased the option from the Company for
$945,000. The Option Agreement was entered into to provide independent
credit support for a loan to MTI from Key Bank, N.A. (the "Loan"). The
Option Agreement provides that MTI may put 6.3 million shares of the
Plug Power Inc. common stock pledged as collateral on the Loan at $4 per
share and the Company has the right to either purchase such shares or
take an assignment of all of the bank's rights under the Loan. The
Option Agreement originally expired on April 27, 2001 but was amended to
extend the expiration date to August 27, 2001 for a fee of $200,000.
The Company believes that funds provided by operations will be
sufficient to fund the acquisition of office equipment, leasehold
improvements, current long-term loan repayment requirements, and other
long-term requirements.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------
Market Risk
- -----------
Market risk generally represents the risk of loss that may result from
the potential change in the value of a financial instrument as a result
of fluctuations in interest rates, yield curve, credit worthiness and
equity prices. Market risk is inherent to both derivative and non-
derivative financial instruments, and accordingly, the scope of the
Company's market risk management procedures extends beyond derivatives
to include all market risk sensitive financial instruments. The
Company's exposure to market risk is directly related to its role as a
financial intermediary in customer-related transactions and to its
proprietary trading.
The Company trades tax exempt and taxable debt obligations, including
U.S. Treasury bills, notes, and bonds; U.S. Government agency notes and
bonds; state and local obligations; bank certificates of deposit;
mortgage-backed securities, and corporate obligations. The Company is
also an active market-maker in over-the-counter equity markets and
trades certain listed equities as well. In connection with these
activities, the Company may be required to maintain inventories in order
to ensure availability and to facilitate customer transactions. In
connection with some of these activities, the Company attempts to
mitigate its exposure to such market risk by entering into hedging
transactions, which may include highly liquid future contracts, options
and U.S. Government securities.
Following is a discussion of the Company's primary market risk
exposures as of June 30, 2001, including a discussion of how those
exposures are currently managed.
Interest Rate and Bond Price Risk
Maintaining inventory positions and trading interest-rate-sensitive
financial instruments exposes the Company to interest rate risk.
Changes in the level or volatility of interest rate credit spreads and
the shape and slope of the yield curve expose the Company to risk of
loss. The Company hedges its exposure to interest rate risk primarily
through the use of U.S. Government securities, highly liquid futures and
options designed to reduce the Company's risk profile.
A sensitivity analysis has been prepared to estimate the Company's
exposure to interest rate risk of its inventory position. The fair
market value of these securities included in the Company's inventory at
June 30, 2001 was $ 168.6 million. Interest rate risk is estimated as
the potential loss in fair value resulting from a hypothetical one-half
percent decrease in interest rates. At June 30, 2001, the potential
change in fair value, assuming this hypothetical decrease, was $ 6.5
million. The actual risks and results of such adverse effects may
differ substantially.
Equity Price Risk
The Company is exposed to equity price risk as a consequence of making
markets in equity securities. Equity price risk results from changes in
the level or volatility of equity prices, which affect the value of
equity securities or instruments that derive their value from a
particular stock. The Company attempts to reduce the risk of loss
inherent in its inventory of equity securities by monitoring those
security positions daily.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Marketable equity securities included in the Company's inventory at
June 30, 2001, which were recorded at a fair value of $ 9.3 million,
have exposure to equity price risk. This risk is estimated as the
potential loss in fair value resulting from a hypothetical 10% adverse
change in prices quoted by stock exchanges and amounts to $ 0.9 million.
The actual risks and results of such adverse effects may differ
substantially. The Company's investment portfolio, excluding its
investment in MTI, at June 30, 2001 had a fair market value of $ 4.9
million. (See Note 3). This equity price risk is also estimated as the
potential loss in fair value resulting from a hypothetical 10% adverse
change in prices quoted by stock exchanges and amounts to $ 0.5 million.
Actual results may differ.
CREDIT RISK
The Company is engaged in various trading and brokerage activities
whose counterparties primarily include broker-dealers, banks, and other
financial institutions. In the event counterparties do not fulfill
their obligations, the Company may be exposed to risk. The Company
seeks to control credit risk by following an established credit approval
process, monitoring credit limits, and requiring collateral where
appropriate.
The Company purchases debt securities and may have significant
positions in its inventory subject to market and credit risk. In order
to control these risks, security positions are monitored on at least a
daily basis. Should the Company find it necessary to sell such a
security, it may not be able to realize the full carrying value of the
security due to the significance of the position sold. The Company
attempts to reduce its exposure to changes in securities valuation with
the use of highly liquid municipal bond index futures contracts.
OPERATING RISK
Operating risk is the potential for loss arising from limitations in
the Company's financial systems and controls, deficiencies in legal
documentation and the execution of legal and fiduciary responsibilities,
deficiencies in technology and the risk of loss attributable to
operational problems. These risks are less direct than credit and
market risk, but managing them is critical, particularly in a rapidly
changing environment with increasing transaction volumes. In order to
reduce or mitigate these risks, the Company has established and
maintains an effective internal control environment which incorporates
various control mechanisms at different levels throughout the organization
and within such departments as Finance and Accounting, Operations,
Legal, Compliance and Internal Audit. These control mechanisms
attempt to ensure that operational policies and procedures are
being followed and that the Company's various businesses
are operating with established corporate policies and limits.
OTHER RISKS
Other risks encountered by the Company include political, regulatory
and tax risks. These risks reflect the potential impact that changes in
local laws, regulatory requirements or tax statutes have on the
economics and viability of current or future transactions. In an effort
to mitigate these risks, the Company seeks to continuously review new
and pending regulations and legislation and their potential impact on
its business.
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 4. Submission of matters to a vote of security holders.
- ------------------------------------------------------------
A. Annual meeting was held on May 22, 2001
B. Elected as Directors: (There were no broker non-votes with
respect to the election of Directors).
Votes For Withheld Authority
--------- ------------------
Alan P. Goldberg 6,819,882 212,965
J. Anthony Boeckh 6,819,882 212,965
Benaree P. Wiley 6,819,882 212,965
C. Other matters voted on at Annual Meeting
1. To ratify the selection of PricewaterhouseCoopers L.L.P.
as independent auditors of the Company for the fiscal
year ending December 31, 2001.
For: 6,877,178
Against: 145,658
Abstain: 10,011
Broker Non-Votes 0
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
Item No. Item
------- -----
(10.28) First Albany Companies Inc. Employee Stock Purchase Plan
(filed as registration No. 333-60244 (form S-8) dated
May 4,2001.
(11) Statement Re: Computation of Per Share Earnings
(filed herewith)
(b) Reports on Form 8-K
-------------------
No Form 8K was filed during the quarter ended June 30, 2001.
-------------
FIRST ALBANY COMPANIES INC. (Exhibit 11)
COMPUTATION OF PER SHARE EARNINGS
==========================================================================
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
(In thousands, except 2001 2000 2001 2000
per share amounts)
- ---------------------------------------------------------------------------
Basic:
- ---------------------------------------------------------------------------
(Loss) income from
continuing operations $(1,129) $(1,362) $(1,061) $ (486)
(Loss) income from
Discontinued operations,
net of taxes - 275 - 2,462
- ---------------------------------------------------------------------------
Net (loss) income $(1,129) $(1,087) $(1,061) $ 1,976
===========================================================================
Weighted average number of shares
outstanding during the period 7,928 8,981 7,946 8,821
- ---------------------------------------------------------------------------
(Loss)income per share for
continuing operations $(0.14) $(0.15) $(0.13) $(0.06)
(Loss) income per share
for discontinued operations - 0.03 - 0.28
- ---------------------------------------------------------------------------
Net income (loss) per share $(0.14) $(0.12) $(0.13) $ 0.22
===========================================================================
Dilutive:
- ---------------------------------------------------------------------------
(Loss) income from
continuing operations $ (1,129) $ (1,362) $(1,061) $ (486)
(Loss)income from
discontinued operations,
net of taxes - 275 - 2,462
- ---------------------------------------------------------------------------
Net(loss)income $ (1,129) $ (1,087) $(1,061) $ 1,976
===========================================================================
Weighted average number of shares
outstanding during the period 7,928 8,981 7,946 8,821
Effective of dilutive common
equivalent shares - - - -
- ---------------------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding 7,928 8,981 7,946 8,821
- ---------------------------------------------------------------------------
(Loss) income per share for
continuing operations $ (0.14) $ (0.15) $ (0.13) $ (0.06)
(Loss)income per share for
discontinued operations - 0.03 - 0.28
- ---------------------------------------------------------------------------
Net income (loss) per share $ (0.14) $ (0.12) $ (0.13) $ 0.22
===========================================================================
**Per share figures and shares outstanding have been restated for all
dividends declared.
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: /s/
-----------------------------
Alan P. Goldberg
President/Co-Chief Executive Officer
Date: /s/
-------------------------------
Steven Jenkins
Chief Financial Officer
(Principal Accounting Officer)