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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 December 31, 1994
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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.)
41 State Street, 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 Preced- Ing 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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
4,066,372 Shares Of Common Stock Were Outstanding As Of The Close Of Business
On January 26, 1995.
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1
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 December 31, 1994, and
September 30, 1994.................................... 3
Condensed Consolidated Statements of Operations
for the Three Months Ended
December 31, 1994, and 1993........................... 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended
December 31, 1994, and 1993.......................... 5
Notes to Condensed Consolidated Financial
Statements............................................... 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................... 8-11
Part II - Other Information
Item 1. Legal Proceedings.................................... 12
Item 6. Exhibits and Reports on Form 8-K..................... 12-13
2
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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December 31, September 30,
1994 1994
(In thousands of dollars) (Unaudited)
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Assets
Cash and cash equivalents $ 3,183 $ 3,165
Cash and securities segregated under federal regs. 9,326
Securities borrowed 254,674 331,209
Receivables from
Brokers, dealers and clearing agencies 1,714 1,511
Customers 97,590 96,830
Others (See note 3) 39,102 18,358
Securities owned 38,695 20,988
Office equipment and leasehold improvements, net 5,542 5,151
Other assets 5,148 5,537
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Total assets $454,974 $482,749
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Liabilities and Stockholders' Equity
Liabilities
Short-term bank loans $ 85,516 $ 38,921
Securities loaned 253,111 329,478
Payables to
Brokers, dealers and clearing agencies 3,943 5,077
Customers 51,990 56,949
Others 12,039 1,663
Securities sold but not yet purchased 3,222 3,724
Accounts payable 1,908 1,411
Accrued compensation 5,413 9,149
Accrued expenses 3,717 3,053
Notes payable 78 94
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Total liabilities 420,937 449,519
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Commitments and Contingencies
Stockholders' Equity
Common stock 44 44
Additional paid-in-capital 16,489 16,489
Retained earnings 19,704 19,099
Less treasury stock at cost (2,200) (2,402)
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Total stockholders' equity 34,037 33,230
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Total liabilities and stockholders' equity $454,974 $482,749
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See notes to the condensed consolidated financial statements.
3
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
(In thousands of dollars except for per share December 31, December 31,
and outstanding share amounts) 1994 1993
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Revenues
Commissions $ 6,587 $ 8,860
Principal transactions 10,699 9,830
Investment banking 3,749 5,709
Interest 6,237 3,780
Fees and other 1,553 1,570
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Total revenues 28,825 29,749
Interest expense 4,551 2,428
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Net revenues 24,274 27,321
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Expenses excluding interest
Compensation and benefits 16,900 18,451
Clearing, settlement and brokerage costs 493 530
Communications and data processing 1,814 1,706
Occupancy and depreciation 1,593 1,333
Selling 1,149 1,134
Other 1,046 1,189
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Total expenses excluding interest 22,995 24,343
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Income before income taxes 1,279 2,978
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Income tax expense 436 1,216
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Net income $ 843 $ 1,762
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Net income per common and common equivalent share:
Primary $ 0.20 $ 0.41
Fully diluted 0.20 0.41
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Weighted average common and common
equivalent shares outstanding:
Primary 4,212,459 4,311,847
Fully diluted 4,212,459 4,311,847
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Dividend per common share
outstanding $ 0.05 $ 0.05
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See notes to the condensed consolidated financial statements.
4
FIRST ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended
December 31, December 31,
(In thousands of dollars) 1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 843 $ 1,762
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 529 335
(Increase) decrease in operating assets:
Cash and securities segregated under federal regs. (9,326) (7,304)
Securities purchased under agreement to resell 2,806
Securities borrowed, net 168 (10,950)
Net receivable from customers (5,719) 20,982
Net receivable from others (10,368) (45,292)
Securities owned, net (18,209) (7,361)
Other assets 389 833
(Increase) decrease in operating liabilities:
Securities sold under agreement to repurchase 30,277
Net payable to brokers, dealers, and
clearing agencies (1,337) (4,858)
Accounts payable and accrued expenses (2,575) (3,828)
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Net cash used in operating activites (45,605) (22,598)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment, and
leaseholds (920) (431)
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Net cash used in investing activities (920) (431)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term bank loans 46,595 21,157
Payments of subordinated notes (2,250)
Payments of long-term notes payable (16) (315)
Proceeds from issuance of common stock
from treasury 155 163
Dividends paid (191) (176)
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Net cash provided by financing activiities 46,543 18,579
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INCREASE(DECREASE)IN CASH 18 (4,450)
CASH AT BEGINNING OF THE YEAR 3,165 6,971
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CASH AT END OF THE PERIOD $ 3,183 $ 2,521
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income tax payments $ 74 $ 576
Interest payments $ 3,691 $ 2,320
See notes to the condensed consolidated financial statements.
5
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 adjustments, consisting of only normal,
recurring adjustments, necessary for a fair presentation of results for such
periods. The results for any interim period are not necessarily indicative of
results 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 financial statements and notes for the year
ended September 30, 1994.
2. Cash and Securities Under Federal Regulations
Cash and resale agreements collateralized by U.S. Government securities
have been segregated in special reserve bank accounts for the exclusive benefit
of customers under Rule 15c3-3 of the Securities and Exchange Commission.
3. Receivables from Others
Amounts receivable from others as of:
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December 31, December 31,
(In thousands of dollars) 1994 1993
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Adjustment to record securities owned on
a trade date basis, net $ 32,440 $ 15,040
Others 6,662 3,318
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Total $ 39,102 $ 18,358
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Amounts receivable and payable for securities transactions that have not
reached their contractual date are recorded net on the Statement of Financial
Condition.
4. Debt
For the purpose of short-term bank loans the Company maintains a variety of
committed and uncommitted bank lines of credit totaling $140,000,000 which are
limited to financing securities eligible for collateralization under these
arrangements. This includes Company securities owned and certain customer owned
securities purchased on margin, subject to certain regulatory formulae.
5. 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 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.
6
FIRST ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
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.
6. Stockholders' Equity
On October 27, 1994, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the fourth quarter along with a 5% stock
dividend. Both were payable on November 23, 1994, to shareholders of record on
November 9, 1994.
On January 24, 1995, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the first quarter, ended December 31, 1994,
payable on February 21, 1995, to shareholders of record of February 7, 1995.
7. Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share for both the primary and
fully diluted computation have been based upon the weighted average number of
common shares and the dilutive common stock equivalents outstanding. The
dilutive effect of the common stock equivalents was determined using the
treasury stock method.
Net income per common and common equivalent share, along with both the
primary and fully dilutive weighted average common and common equivalent shares
outstanding, have been adjusted to reflect all of the 5% stock dividents
declared.
8. 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 required the manintenance of a minimum net capital as calculated and
defined in the Rule. As of December 31, 1994, the broker-dealer subsidiary had
aggregate net capital, as dedined, of $17,288,000--exceeding Business
Environment by $15,410,000.
7
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS COMPARISON
OF 1994 VS. 1993
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1994 vs. 1993
Three Months Ended Percentage
December 31 December 31 Increase Increase
(In thousands of dollars) 1994 1993 (Decrease) (Decrease)
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Revenues
Commisions $ 6,587 $ 8,860 $ (2,273) (26)%
Principal transactions 10,699 9,830 869 9%
Investment banking 3,749 5,709 (1,960) (34)%
Interest income 6,237 3,780 2,457 65%
Fees and others 1,553 1,570 (17) (1)%
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Total revenues 28,825 29,749 (924) (3)%
Interest expense 4,551 2,428 2,123 87%
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Net revenues 24,274 27,321 (3,047) (11)%
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Expenses excluding interest
Compensation and benefits 16,900 18,451 (1,551) (8)%
Clearing, settlement and
brokerage cost 493 530 (37) (7)%
Communications and
data processing 1,814 1,706 108 6%
Occupancy and depreciation 1,593 1,333 260 20%
Selling 1,149 1,134 15 1%
Other 1,046 1,189 (143) (12)%
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Total expenses excluding interest 22,995 24,343 (1,348) (6)%
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Income before income taxes 1,279 2,978 (1,699) (57)%
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Income tax expense 436 1,216 (780) (64)%
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Net income $ 843 $ 1,762 $ (919) (52)%
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Net interest income
Interest income $ 6,237 $ 3,780 $ 2,457 65%
Interest expense 4,551 2,428 2,123 87%
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Net interest income $ 1,686 $ 1,352 $ 334 25%
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8
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
results of operations during the periods included in the accompanying condensed
consolidated financial statements.
Business Environment
First Albany Corporation, a wholly owned subsidiary of First Albany
Companies Inc. (the Company), is a full service investment banking and brokerage
firm. Its primary business includes the underwriting, distribution, and trading
of fixed income and equity securities. The investment banking and brokerage
business earns revenues in direct correlation with the general level of trading
activity in the stock and bond markets. This level of activity cannot be
controlled by the Company; however, many of the Company's costs are fixed.
Therefore, the Company's earnings, like those of others in the industry, reflect
the activity in the markets and can fluctuate accordingly.
Results of Operations
Three Months Periods Ended December 31, 1994 and December 31, 1993
Net Income
Net income for the quarter ended December 31, 1994, was $0.8 million or
$0.20 per share compared to $1.8 million or $0.41 per share a year ago. Two of
our business units showed revenue gains, first quarter fiscal 1994 to first
quarter fiscal 1995: our municipal business and our corporate finance group.
Investors seeking higher yields and improved market conditions at year end
resulted in municipal revenues increasing 48%. Our corporate finance group
continued its growth with revenues increasing over 47% . Uncertainty in the
market, due to interest rates increasing, affected our other business units
resulting in a net revenue decline of 11%.
Commissions
Commission revenues decreased $2.3 million or 26% in this year's first
quarter, resulting primarily from a decrease in listed stock commissions of $0.6
million or 13% and from a decrease in mutual funds commission revenues of $1.6
million or 48%.
Principal Transactions
Principal transactions increased $0.9 million or 9% in this year's first
quarter. This increase was comprised mainly of an increase in municipal bonds of
$2.7 million, a decrease in taxable fixed income securities of $1.9 million, and
an increase in equity securities of $0.1 million.
Investment Banking
Investment banking revenues decreased $2.0 million or 34% in this year's
first quarter. Revenues from selling concessions decreased $1.7 million
(equities decreased $1.5 million, while municipal bonds declined $0.2 million),
underwriting fees decreased $0.4 million (primarily equity securities), and
investment banking fees increased $0.1 million (primarily corporate finance
fees).
9
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Net Interest Income
Net interest income increased $0.3 million due primarily to increased
revenues from customer margin balances.
Compensation and Benefits
Compensation and benefits decreased $1.5 million due primarily to the
decrease in revenues. Sales-related compensation decreased $2.5 million,
salaries increased $0.8 million, and benefits increased $0.2 million.
Occupancy and depreciation
Occupancy and depreciation expense increased $0.3 million or 20% in this
year's first quarter due primarily to our increased investment in new automated
systems.
Income Taxes
Income taxes decreased $0.8 million or 64% in this year's first quarter due
to an decrease in pre-tax earnings. The Company's effective tax rate decreased
to 34% from 40% as a result of increased tax exempt interest income in this
year's first quarter.
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 and payables to
brokers and dealers secured by loaned securities and bank lines-of-credit.
Securities borrowed and securities loaned will fluctuate due primarily to the
current level of business activity in this area. Receivable from others
increased due primarily from municipal bond activities related to transactions
which were sold for a January settlement date (See Note 3). Short term bank
loans and payable to others increased due primarily to an increase in
receivables from others (See Note 3) and securities owned. The Company's
broker-dealer subsidiaries--First Albany Corporation and Northeast Brokerage
Services Corp.--at December 31, 1994, were in compliance with the net capital
requirements of the Securities and Exchange Commission (SEC) 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 $140,000,000--of which
approximately $55,968,000 were unused as of December 31, 1994--will provide
sufficient resources to meet present and reasonably foreseeable short-term
financial needs.
On October 27, 1994, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the fourth quarter along with a 5% stock
dividend. Both were payable on November 23, 1994, to shareholders of record on
November 9, 1994.
10
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
On January 24, 1995, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the first quarter, ended December 31, 1994,
payable on February 21, 1995, to shareholders of record on February 7, 1995.
The Company believes that funds provided by operations will also provide
sufficient resources to fund the acquisition of office equipment and leasehold
improvements, current long-term loan repayment requirements, and other long-term
requirements.
11
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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(11) Statement Re: Computations of per share earnings.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended
December 31, 1994.
12
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: February 7, 1995 /s/ Alan P. Goldberg
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Alan P. Goldberg
President - Director
Date: February 7, 1995 /s/ David J. Cunningham
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David J. Cunningham
Vice President and Chief Financial Officer
(Principal Accounting Officer)
13