SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2002
Commission file number 0-14140
First Albany Companies Inc.______________________________________________
(Exact name of registrant as specified in its charter)
New York 22-2655804
State or other jurisdiction of incorporation
of organization
(I.R.S. Employer Identification No.)
30 South Pearl St., Albany, NY 12207
(Address of principal executive offices) (Zip Code)
(518) 447-8500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X (1) No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
9,351,237 shares of Common Stock were outstanding as of the close of business
on October 31, 2002.
FIRST ALBANY COMPANIES INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page | |
Part I - Financial Information | |
Item 1.Financial Statements | |
Condensed | 3 |
Condensed | 4-5 |
Consolidated | 6 |
Condensed | 7-8 |
Notes | 9-16 |
Item 2.Management's Discussion and Analysis of | 17-23 |
Part II - Other Information | |
Item 1.Legal Proceedings | 24 |
Item 6.Exhibits and Reports | 24-25 |
FIRST ALBANY COMPANIES INC. | ||
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION | ||
| ===================================================================================== | ||
September 30, 2002 | December 31, 2001 | |
(In thousands of dollars) | (Unaudited) | |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Assets | ||
Cash | $ 162 | $ 1,710 |
Cash and securities segregated | 9,200 | 7,600 |
Securities purchased under agreement to resell | 43,577 | 41,219 |
Securities borrowed | 451,666 | 649,097 |
Receivables from: | ||
Brokers, dealers and clearing agencies | 18,812 | 7,177 |
Customers | 8,388 | 14,973 |
Others | 6,004 | 45,494 |
Securities owned | 315,854 | 286,185 |
Investments | 20,512 | 25,641 |
Office equipment and leasehold improvements, net | 5,594 | 5,607 |
Other assets | 27,922 | 24,381 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Total Assets | $ 907,691 | $ 1,109,084 |
| ===================================================================================== | ||
Liabilities and Stockholders' Equity | ||
Liabilities | ||
Short-term bank loans | $ 225,800 | $ 248,650 |
Securities loaned | 447,752 | 649,224 |
Payables to: | ||
Brokers, dealers and clearing | 11,130 | 10,567 |
Customers | 21,537 | 8,509 |
Others | 22,621 | 11,488 |
Securities sold but not yet purchased | 42,211 | 41,157 |
Accounts payable | 2,929 | 1,981 |
Accrued compensation | 36,674 | 39,411 |
Accrued expenses | 14,848 | 14,236 |
Income tax payable | 1,569 | - |
Notes payable | 9,043 | 12,028 |
Obligations under capitalized leases | 2,498 | 2,958 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Total liabilities | 838,612 | 1,040,209 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Commitments and Contingencies | ||
Subordinated debt | 6,000 | 6,000 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Stockholders' Equity | ||
Common stock | 104 | 99 |
Additional paid-in capital | 94,811 | 90,010 |
Deferred compensation | 1,539 | 915 |
Unamortized value of restricted stock | (1,433) | (1,050) |
Retained earnings (deficit) | (22,927) | (14,563) |
Less treasury stock at cost | (9,015) | (11,484) |
Accumulated other comprehensive income | - | (1,052) |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Total stockholders' equity | 63,079 | 62,875 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Total liabilities and stockholders' equity | $ 907,691 | $ 1,109,084 |
| ===================================================================================== | ||
See notes to the condensed consolidated financial
statements.
FIRST ALBANY COMPANIES INC. | ||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
(Unaudited) | ||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||
(In thousands of dollars except for per share amounts | 2002 | 2001 | 2002 | 2001 |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Revenues | ||||
Commissions | $ 4,042 | $ 3,227 | $ 10,423 | $ 11,069 |
Principal transactions | 30,438 | 18,034 | 82,340 | 69,755 |
Investment banking | 8,231 | 6,111 | 23,653 | 14,516 |
Investment gains (losses) | (454) | 490 | (684) | (461) |
Interest | 4,884 | 5,633 | 13,598 | 20,332 |
Fees and other | 1,326 | 1,193 | 3,846 | 4,228 |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Total revenues | 48,467 | 34,688 | 133,176 | 119,439 |
Interest expense | 3,430 | 4,841 | 9,802 | 18,019 |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Net revenues | 45,037 | 29,847 | 123,374 | 101,420 |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Expenses (excluding interest): | ||||
Compensation and benefits | 33,471 | 25,813 | 90,909 | 81,662 |
Clearing, settlement and brokerage costs | 1,304 | 903 | 2,895 | 2,736 |
Communications and data processing | 3,318 | 2,385 | 8,716 | 7,062 |
Occupancy and depreciation | 2,221 | 2,090 | 6,602 | 5,716 |
Selling | 1,405 | 1,524 | 4,588 | 4,951 |
Other | 2,332 | 1,086 | 6,343 | 4,004 |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Total expenses (excluding interest) | 44,051 | 33,801 | 120,053 | 106,131 |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Operating income (loss) | 986 | (3,954) | 3,321 | (4,711) |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Equity in income (losses) of affiliate: | ||||
Gain/(loss) before cumulative effect of change in accounting | (1,859) | 3,830 | (8,046) | 304 |
Cumulative effect of accounting change for derivative | - | - | - | 486 |
Cumulative effect of accounting change for derivative | - | - | - | 2,023 |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Total equity in income (losses) of affiliate | (1,859) | 3,830 | (8,046) | 2,813 |
Gains on sale of equity holdings | - | 1,184 | - | |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Income (loss) before income taxes | (873) | (124) | (3,541) | (1,898) |
Income tax expense (benefit) | (418) | (671) | (1,438) | (1,385) |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Income (loss) from continuing operations | (455) | 547 | (2,103) | (513) |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Income (loss) from discontinued operations, net of taxes | 786 | (826) | 550 | (826) |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Net income (loss) | $ 331 | $ (279) | $ (1,553) | $ (1,339) |
| ===================================================================================== | ||||
Basic share data: | ||||
Basic earnings: | ||||
Continued operations | $ (0.05) | $ 0.06 | $ (0.22) | $ (0.06) |
Discontinued operations | 0.08 | (0.09) | 0.06 | (0.09) |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Net income (loss) | $ 0.03 | $ (0.03) | $ (0.16) | $ (0.15) |
| ===================================================================================== | ||||
Diluted earnings: | ||||
Continued operations | $ (0.05) | $ 0.06 | $ (0.22) | $ (0.06) |
Discontinued operations | 0.08 | (0.09) | 0.06 | (0.09) |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Net income (loss) | $ | $ (0.03) | $ (0.16) | $ (0.15) |
| ===================================================================================== | ||||
FIRST ALBANY COMPANIES INC. | ||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
(Unaudited) | ||||
| ===================================================================================== | ||||
Weighted average common and common equivalent shares | ||||
Basic | 9,665,129 | 9,287,202 | 9,583,052 | 9,228,406 |
Dilutive | 9,665,129 | 9,705,611 | 9,583,052 | 9,228,406 |
| ===================================================================================== | ||||
Dividend per common share outstanding | $ 0.05 | $ 0.05 | $ 0.15 | $ 0.15 |
| ===================================================================================== | ||||
See notes to the condensed consolidated financial statements.
FIRST ALBANY COMPANIES INC. | ||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||
Nine Months Ended | ||
(In thousands of dollars) | 2002 | 2001 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Net income (loss) | $ (1,553) | $ (1,339) |
Other comprehensive income (loss): | ||
Unrealized gain on available for sale securities, net | 1,052 | 1,388 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Total other comprehensive income, net of tax (see Note | 1,052 | 1,388 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Total comprehensive income (loss) | $ (501) | $ 49 |
| ==================================================================================== | ||
The unrealized gain on available for sale securities, net of
tax relates to Mechanical Technology Incorporated's ("MTI") investment
in Beacon Power (see Note 4). 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.'s ("the Company's")
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
statement
FIRST ALBANY COMPANIES INC. | ||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
(Unaudited) | ||
(Continued) | ||
Nine Months Ended September 30, | ||
(In thousands of dollars) | 2002 | 2001 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Cash flows from operating activities: | ||
Net income (loss) | $ (1,553) | $ (1,339) |
Adjustments to reconcile net income (loss) to net cash | ||
Depreciation and amortization | 2,043 | 1,791 |
Deferred compensation | 642 | 468 |
Deferred income taxes | (3,059) | 1,400 |
Undistributed (gain)/loss of affiliate | 8,046 | (2,813) |
Unrealized investment (gain) loss | 488 | 45 |
Realized (gain) loss on sale of investments | 196 | 416 |
Loss on abandonment of fixed assets | 246 | - |
Gain on sales of equity holdings | (1,184) | - |
Services provided in exchange for common stock | 346 | 973 |
(Increase) decrease in operating assets: | ||
Cash and securities segregated under federal regulations | (1,600) | (16,200) |
Securities purchased under agreement to resell | (2,358) | 27,182 |
Securities borrowed, net | (4,041) | 939 |
Net receivables from brokers, dealers, and clearing agencies | (11,072) | (6,365) |
Securities owned, net | (28,615) | (65,438) |
Other assets | (4,178) | (538) |
Increase (decrease) in operating liabilities: | ||
Net payable to customers | 19,613 | (21,400) |
Net payables to others | 49,474 | 54,890 |
Accounts payable and accrued expenses | (1,177) | (7,319) |
Income taxes payable, net | 4,827 | (1,481) |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Net cash provided by (used in) operating activities | 27,084 | (34,789) |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Cash flows from investing activities: | ||
Purchase of furniture, equipment, and leaseholds, net | (1,569) | (2,630) |
Disbursements for purchase of investments | (2,367) | (2,069) |
Proceeds from sale of investments | 2,054 | 183 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Net cash provided by (used in) investing activities | (1,882) | (4,516) |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||
See notes to the condensed consolidated financial
statements
FIRST ALBANY COMPANIES INC. | ||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
(Unaudited) | ||
(Continued) | ||
Nine Months Ended September 30, | ||
(In thousands of dollars) | 2002 | 2001 |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Cash flows from financing activities: | ||
Net (payment) proceeds of short-term bank loans | (22,850) | 33,472 |
Payments on notes payable | (2,985) | (660) |
Payments of obligations under capitalized leases | (1,167) | (1,045) |
Payments for purchases of common stock for treasury | (952) | (2,761) |
Proceeds from issuance of common stock | 979 | 975 |
Net increase from borrowing under line-of-credit agreements | 1,555 | 10,679 |
Dividends paid | (1,330) | (1,158) |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Net cash provided by (used in) financing activities | (26,750) | 39,502 |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Increase (decrease) in cash | (1,548) | 197 |
Cash at beginning of the year | 1,710 | 689 |
| ---------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Cash at end of period | $ 162 | $ 886 |
| ===================================================================================== | ||
In 2002, the Company increased its investment
in MTI by $2.5 million, increased comprehensive income by $1.1 million, increased
paid-in-capital by $1.0 million and deferred income taxes by $0.4 million (See
Note 4).
In 2002, the Company entered into capital leases for office
and computer equipment totaling approximately $0.7 million.
See notes to the condensed consolidated financial
statements
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, 2001.
2. Reclassification
Certain 2001 amounts have been reclassified to conform to the
2002 presentation.
3. Earnings Per Common Share
Basic earnings per share have 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 calculated for the three months and nine months ended September
30:
| =========================================================================================== | ||||
Three Months Ended | Nine Months Ended | |||
2002 | 2001 | 2002 | 2001 | |
| =========================================================================================== | ||||
(In thousands) | ||||
| =========================================================================================== | ||||
Weighted average shares for basic | 9,665,129 | 9,287,202 | 9,583,052 | 9,228,406 |
Effect of dilutive common equivalent | - | 418,409 | - | - |
| --------------------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Weighted average shares and dilutive | 9,665,129 | 9,705,611 | 9,583,052 | 9,228,406 |
| =========================================================================================== | ||||
For the three months and the nine months ended September 30,
2002, the Company excluded approximately 0.1 million common equivalent shares,
in its computation of dilutive earnings per share because they were anti-dilutive.
For the nine months ended September 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.
4. Investments
First Albany Companies Inc., the Parent Company, holds various
investments in its portfolio. The following provides information regarding the
Company's equity and other investments:
Equity Investment
At September 30, 2002 the Company owned 11,091,040 common shares
(approximately 31% of the shares outstanding) of Mechanical Technology Incorporated
(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
because the Company owns more than 20% of MTI's common stock and is deemed to
have the ability to exercise significant influence over MTI. The Company's investment
in MTI has a book value of approximately $11.9 million, which included goodwill
of approximately $0.3 million. At September 30, 2002 the aggregate market value
of the Company's shares of MTI stock was $14.2 million. Under the equity method,
the market value of MTI's stock is not included in the valuation of the Company's
investment.
The Company entered into a plan under Rule 10b5-1 under the
Securities Act of 1933, dated December 27, 2001, to sell up to 1,400,000 shares
of MTI common stock in 2002. The Company has sold approximately 663,000 shares
of MTI common stock in the nine months ended September 30, 2002 for approximately
$2.0 million, realizing a gain of approximately $1.2 million. There have been
no sales pursuant to the plan since May 2002.
FIRST ALBANY COMPANIES INC. | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
(Unaudited) | |
The following presents summarized financial information of MTI at: | |
| ======================================================================================== | |
(In thousands of dollars) | June 30, 2002 |
Assets | $ 41,543 |
Liabilities | (4,287) |
Commitments and Contingencies | (345) |
| --------------------------------------------------------------------------------------------------------------------------------------------------------- | |
Shareholders' Equity | $ 36,911 |
| ======================================================================================== | |
Three Months Ended | Six Months Ended | Short YearThree Months Ended | |
(In thousands of dollars) | June 30, 2002 | June 30, 2002 | December 31, 2001 |
| ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | |||
Revenues | $ 1,980 | $ 2,742 | $ 1,336 |
| =========================================================================================================== | |||
Operating loss | $ (1,648) | $ (4,301) | $ (1,770) |
Gain on sale of holdings | 2,369 | 4,610 | |
Impairment losses | (1,900) | (7,182) | (15,433) |
Other income (expenses) | (19) | (189) | 42 |
| ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | |||
Income (loss) before income taxes, equity in holdings | (1,198) | (7,062) | (17,161) |
Income tax expense benefit | (492) | 1,861 | 6,788 |
Equity in holdings losses, net of taxes | (4,374) | (6,240) | (3,316) |
Minority interest in losses | 108 | 229 | 104 |
| ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | |||
Net Loss | $ (5,956) | $ (11,212) | $ (13,585) |
| =========================================================================================================== | |||
In February 2002, MTI announced a change in its fiscal year
end from September 30 to December 31, effective January 1, 2002.
MTI's shareholders' equity increased $0.5 million (excluding
net loss of $6.0 million) during the three months ended June 30, 2002.
MTI's shareholders' equity increased $7.7 million (excluding
net loss of $24.8 million) during the nine month period ended June 30, 2002.
This was comprised of an increase of $2.5 million in other shareholders' equity,
primarily related to MTI's holdings in Plug and SatCon, and an increase of $5.2
million for comprehensive income related to unrealized gains on available for
sale securities in Beacon. Decreases or increases in other comprehensive income
are recorded as adjustments to shareholders' equity. Accordingly, the Company
has recorded, as of September 30, 2002, its proportionate share of the $2.5
million increase in other shareholders' equity as an increase in its investment
in MTI of $0.8 million and its proportionate share of MTI's comprehensive gain
of $5.2 million as an increase in its investment in MTI of $1.7 million.
The Company's equity in MTI's earnings are recorded on a one-quarter-delay
basis. For the three month period ended June 30, 2002, MTI reported a net loss
of approximately $6.0 million. Accordingly, the Company recorded a loss on its
investment in MTI of $1.9 million in the quarter ended September 30, 2002.
MTI's earnings report for the quarter ended September 30, 2002
was not released in time for the Company's filing of form 10-Q for the quarter
ended September 30, 2002. As such, information on the Company's equity in MTI's
earnings, recorded on a one quarter delay basis, is not available for reporting.
For the nine month period ended June 30, 2002, MTI reported
a net loss of approximately $24.8 million. This net loss included a non-cash
charge (impairment losses) of $22.6 million associated with a decline in the
market value of MTI's holdings - $14.4 million for holdings in Beacon and $8.2
million for holdings in SatCon. Accordingly, the Company has recorded a loss
on its investment in MTI of $8.0 million for the nine months ended September
30, 2002.
Other Investments
The Company's investment portfolio also includes interests in
other publicly and privately held companies. Information regarding these other
investments has been aggregated as follows for the nine months ended September
30:
| ============================================================================== | ||
(In thousands of dollars) | 2002 | 2001 |
| ---------------------------------------------------------------------------------------------------------------------------------------- | ||
Carrying value | $ 8,648 | $ 7,191 |
Net realized gain (loss) | (196) | (416) |
Net unrealized gain (loss) | (488) | (45) |
| ============================================================================== | ||
5. Receivables from Customers
Receivables from customers include amounts due on cash and margin
transactions. Securities owned by customers are held as collateral for receivables.
Such collateral is not reflected in the financial statements. Included in receivables
from customers are accounts of executive officers and directors which as of
September 30, 2002, approximated $3.3 million and as of December 31, 2001 approximated
$3.4 million.
6. Receivables from Others
Amounts receivable from others consisted of the following at:
| =================================================================================== | ||
(In thousands of dollars) | September 30, 2002 | December 31, 2001 |
Adjustment to record securities owned on a trade date | $ - | $ 39,786 |
Others | 6,004 | 5,708 |
| ------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Total | $ 6,004 | $ 45,494 |
| =================================================================================== | ||
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.
7. Securities Owned And Sold But Not Yet Purchased
Securities owned and sold but not yet purchased consisted of
the following at:
| =================================================================================== | ||||
(In thousands of dollars) | September 30, 2002 | December 31,2001 | ||
| ------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Owned | Sold, but not yet purchased | Owned | Sold, but not yet purchased | |
| ------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Marketable Securities | ||||
U.S. Government and federal agency obligations | $ 16,501 | $ 41,055 | $ 20,328 | $ 40,643 |
State and municipal bonds | 248,337 | 218 | 236,199 | 4 |
Corporate obligations | 41,339 | 386 | 21,543 | 391 |
Corporate stocks | 6,263 | 550 | 5,576 | 114 |
Options | 173 | 2 | 33 | 5 |
Not Readily Marketable Securities | ||||
Investment securities with no publicly quoted market | 226 | - | 505 | - |
Investment securities subject to restrictions | 3,015 | - | 2,001 | - |
| ------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Total | $ 315,854 | $ 42,211 | $ 286,185 | $ 41,157 |
| =================================================================================== | ||||
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.
8. Payables to Others
Amounts payable to others consisted of the following at:
| ------------------------------------------------------------------------------------------------------------------------------------------------- | ||
(In thousands of dollars) | September 30, 2002 | December 31, 2001 |
| =================================================================================== | ||
Adjustment to record securities owned on a trade date | $ 7,154 | $ - |
Borrowing under line-of-credit agreements | 11,456 | 9,901 |
Others | 4,011 | 1,587 |
| ------------------------------------------------------------------------------------------------------------------------------------------------- | ||
Total | $ 22,621 | $ 11,488 |
| =================================================================================== | ||
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.
9. Notes Payable
Notes payable consist of a note for $1.3 million 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") (1.81%
plus 1.50% at September 30, 2002). This note matures on April 1, 2004.
A note for $7.7 million collateralized by 11,091,040 shares
of Mechanical Technology Incorporated ("MTI") is payable in quarterly
principal payments of $525,000 plus interest. The interest rate is fixed at
7% for the term of the loan. This loan matures September 1, 2006.
10. Commitments and Contingencies
Commitments: FA Technology Ventures Corporation (FATV),
a wholly owned subsidiary of the Company, acts as an advisor to FA Technology
Ventures, L.P. ("the Partnership"). The Partnership's primary purpose
is to provide a source of venture capital to enable privately owned businesses
to expand, with a focus on businesses located in New York State, while providing
market-rate investment returns consistent with risks of investing in venture
capital. The Partnership has commitments from various investors, including the
Company, to invest up to $80 million into the Partnership and up to $20 million
in parallel funds with the Partnership through July 2011.
The Partnership's commitment from the Company is to invest up
to $20 million. As of September 30, 2002, $3.9 million of this commitment had
been funded by the Company. The Company intends to fund the remaining commitment
of $16.1 million from the sale of other investments, including the sale of a
portion of its equity investment in Mechanical Technology Inc. ("MTI"),
and operating cash flows. In addition to the Company, certain other limited
partners of the Partnership are officers or directors of the Company.
The General Partner for the Partnership is FATV GP LLC. The
General Partner is responsible for the management of the Partnership, including
among other things, making investments for the Partnership. The members of the
General Partnership are George McNamee, Chairman of the Company, First Albany
Enterprise Funding, Inc., a wholly-owned subsidiary of the Company, and other
employees of the Company or its subsidiaries. Mr. McNamee is required under
the Partnership agreement to devote a majority of his business time to the conduct
of the affairs of the Partnership and any parallel funds. Subject to the terms
of the Partnership Agreement, under certain conditions, the General Partner
is entitled to share in the gains received by the Partnership in respect of
its investment in a portfolio company. The General Partner has contracted with
FATV to act as an investment advisor to the General Partner. Certain individuals,
including Mr. McNamee, who are partners in the General Partnership have established
their own fund to invest at least $2.6 million in parallel with the Partnership.
This fund is managed by the General Partners and is not charged a management
or override fee.
The Company had an additional commitment to invest up to $15
million in parallel funds with the Partnership. As of September 30, 2002, $2.2
million of this commitment had been funded by Employee Investment Funds ("EIFs").
The Company intends to fund the remaining commitment of $12.8 million through
current and future EIFs. EIFs are limited liability companies, established by
the Company for the purpose of allowing employees to invest in private equity
placements. The EIFs are managed by FAC Management Corp., which has contracted
with FATV to act as an investment advisor with respect to funds invested in
parallel with the Partnership. The Company anticipates that the commitment related
to the EIFs will be funded by employees; however, the Company must fund the
full amount of the commitment regardless of whether it is successful in raising
EIFs.
As of September 30, 2002, $18.4 million of these aggregate commitments
had been funded.
Litigation: First Albany Corporation has received a subpoena
from the Attorney General's Office of the State of New York in connection with
the industry-wide probe of research analyst activities, and is responding to
that subpoena. Management does not believe that this proceeding will have a
material adverse effect on the Company's liquidity or financial position. There
can be no assurance, however, that such proceeding will not have a material
adverse effect on quarterly or annual operating results in the period in which
it is resolved. Published reports indicate that an industry-wide settlement
of these matters may be pending and could result in structural changes in certain
aspects of our business. The outcome of these negotiations and the impact of
such possible changes on the business of the Company or its results of operations
remain uncertain.
In 1999, the Company acted as a placement agent for a $7.5 million
bond issue. In July 2002, as a result of a dispute between the Company and the
buyer of the bonds, the Company entered into an agreement which indemnified
the buyer for up to $3.7 million of potential realized losses which might be
incurred on the outstanding principal amount of the bonds and up to $0.5 million
for related legal fees and $0.5 million for unpaid debt service. These bonds
are collateralized by a first security interest in certain rights, titles and
interests of the company for whom the bonds were issued. As of September 30,
2002, management has estimated the probable amount of the loss expected to be
incurred based upon current conditions
and has accordingly accrued a $2.0 million expense related to this agreement
of which $0.6 million of this liability has been paid. In entering into this
agreement, the Company and the buyer of the bonds did not admit or concede to
any liability, wrongdoing, misconduct or damages of any kind.
In 1998 the Company was
named in lawsuits by Lawrence Group, Inc. and certain related entities (the
"Lawrence Parties") in connection with a private sale of Mechanical
Technology Incorporated stock from the Lawrence Parties that was previously
approved by the United States Bankruptcy Court for the Northern District of
New York (the "Bankruptcy Court"). The Company acted as placement
agent in that sale, and a number of employees and officers of the Company, who
have also been named as defendants, purchased shares in the sale. The complaints
alleged that the defendants did not disclose certain information to the sellers
and that the price approved by the court was therefore not proper. The cases
were initially filed in the Bankruptcy Court and the UnitedStates District Court
for the Northern District of New York (the "District Court"), and
were subsequently consolidated in the District Court. The District Court dismissed
the cases, and that decision was subsequently vacated by the United States Court
of Appeals for the Second Circuit, which remanded the cases for consideration
of the plaintiffs' claims as motions to modify the Bankruptcy Court sale order.
The plaintiffs' claims have now been referred back to the Bankruptcy Court for
such consideration. The Company believes that it has strong defenses to and
intends to vigorously defend itself against the plaintiffs' claims, and believes
that the claims lack merit.
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 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.
Other: The Company enters into underwriting commitments
to purchase securities as part of its investment banking business. As of September
30, 2002, the Company had $0.3 million in underwriting commitments.
11. Stockholders' Equity
In April 2002, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the first quarter ended March 31, 2002, along
with a 5% stock dividend, both payable on May 29, 2002 to stockholders of record
on May 15, 2002.
In July, 2002, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the second quarter ended June 30, 2002 payable
on August 28, 2002 to stockholders of record on August 14, 2002.
In October 2002, the Board of Directors declared the regular
quarterly dividend of $0.05 per share for the third quarter ended September
30, 2002, along with a 5% stock dividend, payable on November 29, 2002 to stockholders
of record on November 15, 2002. Also, the Board of Directors has determined
to discontinue future stock dividends while the Company maintains an active
stock repurchase program.
The Board of Directors has authorized a stock repurchase program
of up to 1.5 million shares of its outstanding common stock on the open market
at prevailing market prices or in privately negotiated transactions from time
to time through April 2003. Shares purchased under the program will be held
in treasury and used for general corporate purposes. At September 30, 2002,
the Company had repurchased approximately 635,000 shares pursuant to this program
with an aggregate cost of $5.7 million.
12. Benefit Plans
First Albany Companies Inc. has established several stock incentive
plans through which eligible employees of the Company may be awarded stock options,
stock appreciation rights and restricted common stock of the Company. The purpose
of these stock incentive plans are to promote the interests of the Company,
its subsidiaries and its shareholders by enabling the Company and its subsidiaries
to attract, retain and motivate employees and officers or those who will become
employees or officers of the Company and/or its subsidiaries, and to align the
interest of those individuals with the Company's stockholders. To do this, these
plans offer performance-based incentive awards and equity-based opportunities
to provide such persons with a proprietary interest in maximizing the growth,
profitability and overall success of the Company. During 2002, the Company increased
the number of shares available for grants for both the 1999 Long Term Incentive
Plan and the 2001 Long Term Incentive Plan by 800,000 shares and 400,000 shares,
respectively. At September 30, 2002, the Company had approximately 730,000 shares
available for awards under the 1999 Long Term Incentive Plan and 150,000 shares
available for awards under the 2001 Long Term Incentive Plan.
13. 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 the Corporation to maintain a minimum net capital of 2 percent
of aggregate debit balances arising from customer transactions
as defined or $1 million, whichever is greater. As of September 30, 2002, the
Corporation had aggregate net capital, as defined, of $28.0 million, which equaled
160.4% of aggregate debit balances and $27.0 million in excess of required minimum
net capital.
14. Segment Analysis
The Company's reportable segments include Taxable Fixed Income, Municipal Fixed Income, Equity Capital Markets, Fixed Income-Other and Corporate-Other
which collectively comprise First Albany Corporation, the Company's brokerage
operations; Parent and Affiliates, Investments, and Discontinued Operations.
The Company evaluates the performance of its segments and allocates resources
to them based upon long-term contribution margin opportunities consistent with
the growth strategy of the Company.
The Taxable Fixed Income segment includes institutional sales
and trading of corporate, federal government and agency securities. The Municipal
Fixed Income segment includes underwriting and institutional sales and trading
of municipal securities. The Equity Capital Markets segment includes institutional
sales and trading of equity securities, corporate finance advisory services
and underwritings. The Fixed Income-Other segment includes institutional sales
and trading of fixed income middle markets and taxable municipal securities.
The Corporate-Other segment includes stock loan/borrow operations and other
unallocated revenues and expenses. Unallocated expenses are comprised primarily
of indirect operating costs to support operations.
The Investment segment includes realized gains and losses, unrealized
gains and losses and the equity in income and loss of affiliate from the Company's
investment portfolio including gains on sale of equity holdings. The Parent
and Affiliates segment, includes the parent company, excluding its investment
portfolio, and the asset management services of FA Technology Ventures and First
Albany Asset Management. The Discontinued Operations segment includes the net
revenues and expenses from the Company's Private Client Group which provided
brokerage services to individual clients and was sold in August 2000.
Intersegment revenue has been eliminated for purposes of presenting
net revenue so that all net revenue presented is from external sources. Interest
revenue is allocated to the operating segments and is presented net of interest
expense for purposes of assessing the performance of the business segment. Depreciation
and amortization is allocated to the business segments. Total Net Revenue presented
below differs from that presented in the financial statements as a result of
the inclusion of the equity in income and loss of affiliate and sale of equity
holdings as a component of the segment financial information.
FIRST ALBANY COMPANIES INC. | ||||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||||
(Unaudited) | ||||
| Information concerning operations in these segments is as follows: | ||||
| ==================================================================================== | ||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||
(In thousands of dollars) | 2002 | 2001 | 2002 | 2001 |
| ==================================================================================== | ||||
Net revenue (including net interest income) | ||||
Taxable Fixed Income | $ 15,911 | $ 10,158 | $ 46,286 | $ 41,262 |
Municipal Fixed Income | 14,019 | 8,366 | 36,844 | 22,504 |
Equity Capital Markets | 8,163 | 6,101 | 20,867 | 19,001 |
Fixed Income-Other | 5,888 | 4,008 | 15,577 | 12,738 |
Corporate-Other | 541 | 48 | 1,702 | 2,341 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
First Albany Corporation | 44,522 | 28,681 | 121,276 | 97,846 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Parent & Affiliates | 969 | 676 | 2,782 | 4,035 |
Investments | (2,313) | 4,320 | (7,546) | 2,352 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Total Net Revenue | $ 43,178 | $ 33,677 | $ 116,512 | $ 104,233 |
| ==================================================================================== | ||||
Net interest income (included in total net revenue) | ||||
Taxable Fixed Income | $ 200 | $ 30 | $ 490 | $ 47 |
Municipal Fixed Income | 227 | (25) | 702 | (751) |
Equity Capital Markets | 4 | (8) | 18 | (56) |
Fixed Income-Other | 241 | (67) | 615 | (503) |
Corporate-Other | 926 | 978 | 2,427 | 3,895 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
First Albany Corporation | 1,598 | 908 | 4,252 | 2,632 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Parents & Affiliates | (144) | (116) | (456) | (319) |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Total Net Interest Income | $ 1,454 | $ 792 | $ 3,796 | $ 2,313 |
| ==================================================================================== | ||||
Pre-tax Contribution: | ||||
Taxable Fixed Income | $ 3,427 | $ 1,879 | $ 9,975 | $ 9,181 |
Municipal Fixed Income | 3,609 | 1,623 | 9,208 | 3,129 |
Equity Capital Markets | (1,831) | (5,494) | (5,245) | (14,387) |
Fixed Income-Other | 3,002 | 1,809 | 8,150 | 6,352 |
Corporate-Other | (6,040) | (3,283) | (16,066) | (8,367) |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
First Albany Corporation | 2,167 | (3,466) | 6,022 | (4,092) |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Parent & Affiliates | (727) | (978) | (2,017) | (158) |
Investments | (2,313) | 4,320 | (7,546) | 2,352 |
Discontinued Operations | 1,332 | (1,400) | 932 | (1,400) |
| -------------------------------------------------------------------------------------------------- | ||||
Total Pre-tax Contribution | $ 459 | $ (1,524) | $ (2,609) | $ (3,298) |
| ==================================================================================== | ||||
Depreciation and amortization expense (charged to each | ||||
Taxable Fixed Income | $ 72 | $ 63 | $ 217 | $ 152 |
Municipal Fixed Income | 98 | 102 | 306 | 273 |
Equity Capital Markets | 281 | 214 | 730 | 541 |
Fixed Income-Other | 15 | 15 | 46 | 35 |
Corporate-Other | 224 | 238 | 675 | 681 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
First Albany Corporation | 690 | 632 | 1,974 | 1,682 |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Parent & Affiliates | 24 | 40 | 69 | 109 |
Discontinued Operations | - | - | - | - |
| --------------------------------------------------------------------------------------------------------------------------------------------------- | ||||
Total | $ 714 | $ 672 | $ 2,043 | $ 1,791 |
| ==================================================================================== | ||||
The financial policies of the Company's segments
are the same as those described in the "Summary of Significant Accounting
Policies" footnote. Asset information by segment is not reported since
the Company does not produce such information. All assets are located in the
United States of America. Prior period's financial information has been reclassified
to conform to the current presentation.
During the third quarter of 2000, the Company sold assets of
its Private Client Group, its retail brokerage branch network, to First Union
Securities, a subsidiary of First Union Corp.
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 | Nine Months Ended | |||
September 30, | September 30, | |||
| (In thousands of dollars) | 2002 | 2001 | 2002 | 2001 |
| -------------------------------------------------------------------------------------------------------------------------------------------- | ||||
| Gain on sale of discontinued operations | $1,732 | - | $1,732 | - |
| Loss from discontinued operations | (400) | (1,400) | (800) | (1,400) |
| -------------------------------------------------------------------------------------------------------------------------------------------- | ||||
| (Loss) before income taxes | 1,332 | (1,400) | 932 | (1,400) |
| Income tax expense | (546) | 574 | (382) | 574 |
| -------------------------------------------------------------------------------------------------------------------------------------------- | ||||
| Income (loss) from discontinued | ||||
| operations, net taxes | $786 | $(826) | $550 | $ (826) |
| ================================================================================ | ||||
Gain on sale of discontinued operations for 2002 is comprised
of refunds from First Union Corp. for costs related to the jointly enhanced
financial consultant retention program relating to the Private Client Group
and for net revenues derived from subleasing office space impaired due to the
sale of the Private Client Group. Loss from discontinued operations for 2002
and 2001 are the result of legal costs. Additional refunds, revenues and litigation
costs are possible, and will be included in income (loss) from discontinued
operations, net of taxes when these revenues and costs occur and/or may be reasonably
estimated.
FIRST ALBANY COMPANIES INC. | |||
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION | |||
AND RESULTS OF OPERATIONS | |||
| ================================================================== | |||
Three Months Ended September 30, | |||
(In thousands of dollars) | 2002 | 2001 | |
| -------------------------------------------------------------------------------------------------------------------- | |||
Revenues | |||
Commissions | $ 4,042 | $ 3,227 | |
Principal transactions | 30,438 | 18,034 | |
Investment banking | 8,231 | 6,111 | |
Investment gain (loss) | (454) | 490 | |
Interest income | 4,884 | 5,633 | |
Fees and others | 1,326 | 1,193 | |
| -------------------------------------------------------------------------------------------------------------------- | |||
Total revenues | 48,467 | 34,688 | |
Interestexpense | 3,430 | 4,841 | |
| -------------------------------------------------------------------------------------------------------------------- | |||
Net revenues | 45,037 | 29,847 | |
| -------------------------------------------------------------------------------------------------------------------- | |||
Expenses (excluding interest) | |||
Compensation and benefits | 33,471 | 25,813 | |
Clearing, settlement and Brokerage costs | 1,304 | 903 | |
Communications and data processing | 3,318 | 2,385 | |
Occupancy and depreciation | 2,221 | 2,090 | |
Selling | 1,405 | 1,524 | |
Other | 2,332 | 1,086 | |
| -------------------------------------------------------------------------------------------------------------------- | |||
Total expenses (excluding interest) | 44,051 | 33,801 | |
| -------------------------------------------------------------------------------------------------------------------- | |||
Operating income (loss) | 986 | (3,954) | |
Gains on sales of equity holdings | - | - | |
| -------------------------------------------------------------------------------------------------------------------- | |||
Income (loss) before income taxes | 986 | (3,954) | |
Income tax expense (benefit) | 315 | (2,180) | |
| -------------------------------------------------------------------------------------------------------------------- | |||
Income before equity in income (loss) | |||
of affiliate and discontinued | 671 | (1,774) | |
Equity in income (losses) of affiliate, net of taxes | (1,126) | 2,321 | |
Income from discontinued operations, net of taxes | 786 | (826) | |
| -------------------------------------------------------------------------------------------------------------------- | |||
Net income (loss) | $ 331 | $ (279) | |
| ================================================================== | |||
Net interest income | |||
Interest income | $ 4,884 | $$ 5,633 | |
Interest expense | 3,430 | 4,841 | |
| -------------------------------------------------------------------------------------------------------------------- | |||
Net interest income | $ 1,454 | $ 792 | |
| ================================================================== | |||
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.
First Albany Companies Inc. (the Company) is the parent company
whose principal subsidiaries include 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. FA Technology Ventures Corporation provides venture capital and
merchant banking to the investment and corporate communities, and First Albany
Asset Management Corporation provides 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.
First Albany Corporation, the Company's investment banking and
brokerage operations, had net revenues of $44.5 million for the third quarter
ended September 30, 2002, compared to $28.7 million for the same period in 2001,
an increase of 55%. First Albany Corporation's net revenues for the first nine
months of 2002 were $121.3 million, compared to $97.8 million for the same period
in 2001, an increase of 24%. First Albany Corporation had income from continuing
operations of $1.2 million for the third quarter 2002, compared to loss from
continuing operations of $(1.4) million for the same period in 2001 and income
from continuing operations for the first nine months of $3.6 million compared
to a $(1.7) million loss from continuing operations for the same period in 2001.
First Albany Companies Inc. had consolidated net revenues for
the third quarter of $45 million, compared to $29.9 million for the same period
in 2001, an increase of 51%. Consolidated net revenues for the first nine months
of 2002 were $123.4 million compared to $101.4 million for the same period in
2001, an increase of 22%. The Company reported a consolidated net income of
$0.3 million for the third quarter 2002, compared to a net loss of ($0.3) million
for the same period in 2001, net income of $0.03 per diluted share compared
to a net loss of ($0.03) per diluted share, respectively. The Company also reported
a consolidated net loss for the first nine months of ($1.6) million compared
to ($1.3) million for the same period in 2001, or a consolidated net loss of
($0.16) per diluted share compared to ($0.15) per diluted share, respectively.
The Company's net income included a $(1.9) million and ($8.0) million pre-tax
non-operating equity loss in affiliate from its equity investment in Mechanical
Technology Inc. ("MTI") for the quarter and the nine months ended
September 30, 2002 respectively, compared to a pretax non-operating equity in
income from MTI of $3.8 million and $2.8 million for the same periods in 2001.
On a pro-forma basis, excluding the impact of the equity loss from MTI and excluding
discontinued operations, the Company would have had consolidated net income
of $0.7 million or $0.07 per diluted share for the third quarter 2002 and consolidated
net income of $2.8 million or $0.29 per diluted share for the nine months ended
September 30, 2002.
The pre-tax contribution from the Corporate-Other segment decreased
for the nine months period ending September 30, 2002. This decrease was primarily
due to increased legal costs, increased occupancy costs related to office relocation
and office rental space operating and real estate tax escalation charges, increased
compensation related costs, and a decline in other revenues primarily attributed
to net interest income. For information regarding the Company's reportable segments
refer to Note 14-Segment Analysis.
The Parent Company's investment portfolio is accounted for at
market value except for MTI, which is recorded under the equity method. The
aggregate market value of the Company's investment portfolio increased from
$18.9 million at June 30, 2002, to $22.8 million at September 30, 2002, primarily
as a result of an increase in the market value of its investment in MTI. Shares
of MTI are traded on the NASDAQ National System under the symbol MKTY. The Company
accounts for the MTI investment under the equity method of accounting because
it owns in excess of 20% (approximately 31%) of the shares outstanding and is
deemed to have the ability to exercise significant influence over MTI. The Company
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 Period Ended September 30, 2002
Commissions
Commissions revenue increased $0.8 million or 25% primarily
due to increases in listed agency transactions.
Principal Transactions
Principal transactions increased $12.4 million or 69%. This
amount was comprised of an increase in taxable fixed income securities of $8.9
million, an increase in equity securities of $2.3 million and an increase in
tax-exempt fixed income securities of $1.2 million.
Investment Banking
Investment banking revenues increased $2.1 million or 35%. The
increase was comprised of an increase in municipal investment banking of $3.7
million which more than offset a $1.6 million decline in corporate investment
banking.
Net Interest Income
Net interest income increased $0.7 million or 84% due primarily
to a decrease in interest rates for short-term bank loans.
Compensation and Benefits
Compensation and benefits increased by $7.7 million or 30% due
primarily to an increase in net revenues partially offset by a reduction in
compensation expense due to restructuring efforts in the firm's equity business.
Communications and Data Processing
Communications and data processing expense increased $0.9 million
or 39% due primarily to an increase in the number of equity securities transactions.
Other
Other expense increased $1.2 million or 115% primarily due to
an increase in legal costs.
Equity in income (losses) of affiliate
Equity in income (losses) of affiliate decreased $5.7 million
due to the net loss of Mechanical Technology Incorporated. (See Note 4)
| =================================================================== | ||
Nine Months Ended | ||
(In thousands of dollars) | 2002 | 2001 |
| --------------------------------------------------------------------------------------------------------------------- | ||
Revenues | ||
Commissions | $ 10,423 | $ 11,069 |
Principal transactions | 82,340 | 69,755 |
Investment banking | 23,653 | 14,516 |
Investment gain (loss) | (684) | (461) |
Interest income | 13,598 | 20,332 |
Fees and others | 3,846 | 4,228 |
| --------------------------------------------------------------------------------------------------------------------- | ||
Total revenues | 133,176 | 119,439 |
Interestexpense | 9,802 | 18,019 |
| --------------------------------------------------------------------------------------------------------------------- | ||
Net revenues | 123,374 | 101,420 |
| --------------------------------------------------------------------------------------------------------------------- | ||
Expenses (excluding interest) | ||
Compensation and benefits | 90,909 | 81,662 |
Clearing, settlement and Brokerage costs | 2,895 | 2,736 |
Communications and data processing | 8,716 | 7,062 |
Occupancy and depreciation | 6,602 | 5,716 |
Selling | 4,588 | 4,951 |
Other | 6,343 | 4,004 |
| --------------------------------------------------------------------------------------------------------------------- | ||
Total expenses (excluding interest) | 120,053 | 106,131 |
| --------------------------------------------------------------------------------------------------------------------- | ||
Operating income (loss) | 3,321 | (4,711) |
Gains on sales of equity holdings | 1,184 | - |
| --------------------------------------------------------------------------------------------------------------------- | ||
Income (loss) before income taxes | 4,505 | (4,711) |
Income tax expense (benefit) | 1,733 | (2,494) |
| --------------------------------------------------------------------------------------------------------------------- | ||
Income before equity in income (loss) | ||
of affiliate and discontinued | 2,772 | (2,217) |
Equity in income (losses) of affiliate, net of taxes | (4,875) | 1,704 |
Income from discontinued operations, net of taxes | 550 | (826) |
| --------------------------------------------------------------------------------------------------------------------- | ||
Net income (loss) | $ (1,553) | $ (1,339) |
| =================================================================== | ||
Net interest income | ||
Interest income | $ 13,598 | $ 20,332 |
Interest expense | 9,802 | 18,019 |
| --------------------------------------------------------------------------------------------------------------------- | ||
Net interest income | $ 3,796 | $ 2,313 |
| =================================================================== | ||
Nine-Month Period Ended September 30, 2002
Commissions
Commissions revenue decreased $0.6 million or 6% primarily due
to decreases in listed agency transactions.
Principal Transactions
Principal transactions increased $12.6 million or 18%. This
amount was comprised of an increase in taxable fixed income securities of $8.7
million, an increase in equity securities of $2.4 million and an increase in
tax-exempt fixed income securities of $1.5 million.
Investment Banking
Investment banking revenues increased $9.1 million or 63%. This
increase was comprised of an increase in municipal investment banking of $10.7
million which more than offset a $1.5 million decline in corporate investment
banking.
Investment Gains/(Losses)
Investment gains (losses) decreased $0.2 million due primarily
to the investment portfolio held at First Albany Companies Inc., the Parent
Company.
Net Interest Income
Net interest income increased $1.5 million or 64% due primarily
to a decrease in interest rates for short-term bank loans.
Compensation and Benefits
Compensation and benefits expense increased $9.2 million
or 11% due primarily to an increase in net revenues partially offset by a reduction
in compensation expense due to restructuring efforts in the firm's equity business.
Communications and Data Processing
Communications and data processing expense increased $1.7 million
or 23% due primarily to an increase in the number of equity securities transactions.
Other
Other expense increased $2.3 million or 58% due primarily
to an increase in legal costs.
Equity in income (losses) of affiliate
Equity in income (losses) of affiliate decreased $10.9 million
due to the net loss of Mechanical Technology Incorporated. (See Note 4)
Gain on Sale of Equity Holdings
Gain on sale of equity holdings increased $1.2 million due to
the sale of approximately 663,000 shares of Mechanical Technology Incorporated
(NASDAQ: MKTY).
Liquidity and Capital Resources
A substantial portion of the Company's assets, similar to other
brokerage and investment banking firms, are liquid, consisting of cash and assets
readily convertible into cash. These assets are financed primarily by the Company's
payables to brokers and dealers, securities loaned, bank lines of credit and
customer payables. The level of assets and liabilities will fluctuate as a result
of the changes in the level of positions held to facilitate customer transactions
and changes in market conditions.
At September 30, 2002 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.
In April 2002, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the first quarter ended March 31, 2002, along
with a 5% stock dividend, both payable on May 29, 2002 to stockholders of record
on May 15, 2002.
In July, 2002, the Board of Directors declared the regular quarterly
dividend of $0.05 per share for the second quarter ended June 30, 2002 payable
on August 28, 2002 to stockholders of record on August 14, 2002.
In October 2002, the Board of Directors declared the regular
quarterly dividend of $0.05 per share for the third quarter ended September
30, 2002, along with 5% stock dividend, payable on November 29, 2002 to stockholders
of record on November 15, 2002. Also, the Board of Directors has determined
to discontinue future stock dividends while the Company maintains an active
stock repurchase program.
The Board of Directors authorized a stock repurchase program
of up to 1.5 million shares of its outstanding common stock on the open market
at prevailing market prices or in privately negotiated transactions from time
to time through April 2003. Shares purchased under the program will be held
in treasury and used for general corporate purposes. At September 30, 2002,
the Company had repurchased approximately 635,000 shares pursuant to this program
with an aggregate cost of $5.7 million.
Related to the sale of the Company's equity investment in MTI,
the Company has entered into a plan under Rule 10b5-1 under the Securities Act
of 1933, dated December 27, 2001, to sell up to 1,400,000 shares of MTI common
stock in 2002. As of September 30, 2002, the Company had sold approximately
663,000 shares at an average price of $3.09 per share. The Company owned 11,091,040
shares of MTI common stock as of September 30, 2002. There have been no sales
pursuant to the plan since May 2002.
The Company enters into underwriting commitments to purchase
securities as part of its investment banking business. As of September 30, 2002,
the Company had $0.3 million in underwriting commitments.
In 1999, the Company acted as a placement agent for a $7.5 million
bond issue. In July 2002, as a result of a dispute between the Company and the
buyer of the bonds, the Company entered into an agreement which indemnified
the buyer for up to $3.7 million of potential realized losses which might be
incurred on the outstanding principal amount of the bonds and up to $0.5 million
for related legal fees and $0.5 million for unpaid debt service. These bonds
are collateralized by a first security interest in certain rights, titles and
interests of the company for whom the bonds were issued. As of September 30,
2002, management has estimated the probable amount of the loss expected to be
incurred based upon current conditions and has accrued a $2.0 million expense
related to this agreement of which $0.6 million of this liability has been paid.
In entering into this agreement, the Company and the buyer of the bonds did
not admit or concede to any liability, wrongdoing, misconduct or damages of
any kind.
FA Technology Ventures Corporation (FATV), a wholly owned subsidiary
of the Company, acts as an advisor to FA Technology Ventures, L.P. ("the
Partnership"). The Partnership's primary purpose is to provide a source
of venture capital to enable privately owned businesses to expand, with a focus
on businesses located in New York State, while providing market-rate investment
returns consistent with risks of investing in venture capital. The Partnership
has commitments from various investors, including the Company, to invest up
to $80 million into the Partnership and up to $20 million in parallel funds
with the Partnership through July 2011.
The Partnership's commitment from the Company is to invest up
to $20 million. As of September 30, 2002, $3.9 million of this commitment had
been funded by the Company. The Company intends to fund the remaining commitment
of $16.1 million from the sale of other investments, including the sale of a
portion of its equity investment in Mechanical Technology Inc. ("MTI"),
and operating cash flows. In addition to the Company, certain other limited
partners of the Partnership are officers or directors of the Company.
The General Partner for the Partnership is FATV GP LLC.
The General Partner is responsible for the management of the Partnership, including
among other things, making investments for the Partnership. The members of the
General Partnership are George McNamee, Chairman of the Company, First Albany
Enterprise Funding, Inc., a wholly-owned subsidiary of the Company, and other
employees of the Company or its subsidiaries. Mr. McNamee is required under
the Partnership agreement to devote a majority of his business time to the conduct
of the affairs of the Partnership and any parallel funds. Subject to the terms
of the Partnership Agreement, under certain conditions, the General Partner
is entitled to share in the gains received by the Partnership in respect of
its investment in a portfolio company. The General Partner has contracted with
FATV to act as an investment advisor to the General Partner. Certain individuals,
including Mr. McNamee, who are partners in the General Partnership have established
their own fund to invest at least $2.6 million in parallel with the Partnership.
This fund is managed by the General Partners and is not charged a management
or override fee.
The Company had an additional commitment to invest up to $15
million in parallel funds with the Partnership. As of September 30, 2002, $2.2
million of this commitment had been funded by Employee Investment Funds ("EIFs").
The Company intends to fund the remaining commitment of $12.8 million through
current and future EIFs. EIFs are limited liability companies, established by
the Company for the purpose of allowing employees to invest in private equity
placements. The EIFs are managed by FAC Management Corp., which has contracted
with FATV to act as an investment advisor with respect to funds invested in
parallel with the Partnership. The Company anticipates that the commitment related
to the EIFs will be funded by employees; however, the Company must fund the
full amount of the commitment regardless of whether it is successful in raising
EIFs.
As of September 30, 2002, $18.4 million of these aggregate commitments
relating to the partnership and the parallel funds had been funded.
Management believes that funds provided by operations and a
variety of uncommitted bank lines of credit totaling $400 million, of which
approximately $174 million was unused as of September 30, 2002, will provide
sufficient resources to meet present and reasonably foreseeable short-term and
long-term financial needs. Uncommitted lines of credits consist of credit lines
that the Company has been advised are available but for which no contractual
lending obligations exist. These uncommitted lines of credit are limited to
financing securities eligible for collateralization including Company-owned
securities and certain customer-owned securities purchased on margin, subject
to certain regulatory formulas.
As of September 30, 2002, First Albany Corporation has $6
million of subordinated debt outstanding, which matures on December 31, 2002.
For net capital purposes, the subordinated debt is considered as capital. The
Corporation is in the process of seeking to refinance this debt on a long-term
basis. To the extent that the Corporation is not able to refinance this debt
with subordinated debt, net capital will be reduced by the amount of the subordinated
debt. Management believes that the Corporation has sufficient resources to pay
this debt if refinancing does not occur.
Part II-Other Information
First Albany Corporation has received a subpoena
from the Attorney General's Office of the State of New York in connection with
the industry-wide probe of research analyst activities, and is responding to
that subpoena. Management does not believe that this proceeding will have a
material adverse effect on the Company's liquidity or financial position. There
can be no assurance, however, that such proceeding will not have a material
adverse effect on quarterly or annual operating results in the period in which
it is resolved. Published reports indicate that an industry-wide settlement
of these matters may be pending and could result in structural changes in certain
aspects of our business. The outcome of these negotiations and the impact of
such possible changes on the business of the Company or its results of operations
remain uncertain.
In 1998 the Company was
named in lawsuits by Lawrence Group, Inc. and certain related entities (the
"Lawrence Parties") in connection with a private sale of Mechanical
Technology Incorporated stock from the Lawrence Parties that was previously
approved by the United States Bankruptcy Court for the Northern District of
New York (the "Bankruptcy Court"). The Company acted as placement
agent in that sale, and a number of employees and officers of the Company, who
have also been named as defendants, purchased shares in the sale. The complaints
alleged that the defendants did not disclose certain information to the sellers
and that the price approved by the court was therefore not proper. The cases
were initially filed in the Bankruptcy Court and the United States District
Court for the Northern District of New York (the "District Court"),
and were subsequently consolidated in the District Court. The District Court
dismissed the cases, and that decision was subsequently vacated by the United
States Court of Appeals for the Second Circuit, which
remanded the cases for consideration of the plaintiffs' claims as motions to
modify the Bankruptcy Court sale order. The plaintiffs' claims have now been
referred back to the Bankruptcy Court for such consideration. The Company believes
that it has strong defenses to and intends to vigorously defend itself against
the plaintiffs' claims, and believes that the claims lack merit.
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
Item No. Item
10.25a) First Albany Companies Inc. 1999 Long
Term Incentive Plan, as amended by
(filed as registration No.333-97465 form S-8) dated
July 31, 2001.
(10.36) First Albany Companies Inc. 2001
Long Term Incentive Plan (filed as registration No.
333-97467 form S-8) dated July 31, 2001.
(11) Statement Re: Computation of Per Share Earnings (filed herewith)
(99.1) Certification of CEO and CFO pursuant to Section 906
of the Sarbanes-Oxley Act
(b)Reports on Form 8-K
The following report on Form 8K was filed during the quarter
ended September 30, 2002:
1. Form 8-K filed September 12, 2002 announcing that Alan Goldberg
will be taking sole responsibility for role of Chief Executive Officer of First
Albany Corporation.
FIRST ALBANY COMPANIES INC.(Exhibit 11) | ||||
COMPUTATION OF PER SHARE EARNINGS | ||||
Three Months Ended | Nine Months Ended | |||
September 30, | September 30, | |||
(In thousands, except per share amounts) | 2002 | 2001 | 2002 | 2001 |
Basic: | ||||
Income (loss) from continuing operations | $ (455) | $ 547 | $ (2,103) | $ (513) |
Income (loss) from discontinued operations, net of taxes | 786 | (826) | 550 | (826) |
Net income (loss) | $ 331 | $ (279) | $ (1,553) | $ (1,339) |
Weighted average number of shares outstanding during the | 9,665 | 9,287 | 9,583 | 9,228 |
Income (loss) per share for continuing operations | $ (0.05) | $ 0.06 | $ (0.22) | $ (0.06) |
Income (loss) per share for discontinued operations | 0.08 | (0.09) | 0.06 | (0.09) |
Net income (loss) per share | $ 0.03 | $ (0.03) | $ ( 0.16) | $ (0.15) |
Dilutive: | ||||
Income (loss) from continuing operations | $ (455) | $ 547 | $ (2,103) | $ (513) |
Income (loss) from discontinued operations, net of taxes | 786 | (826) | 550 | (826) |
Net (loss) income | $ 331 | $ (279) | $ (1,553) | $ (1,339) |
Weighted average number of shares outstanding during the | 9,665 | 9,287 | 9,583 | 9,228 |
Effect of dilutive common equivalent shares | - | 419 | - | - |
Weighted average shares and common equivalent shares outstanding | 9,665 | 9,706 | 9,583 | 9,228 |
Income (loss) per share for continuing operations | $ (0.05) | $ 0.06 | $ (0.22) | $ (0.06) |
Income (loss) per share for discontinued operations | 0.08 | (0.09) | 0.06 | (0.09) |
Net (loss) income | $ 0.03 | $ (0.03) | $ (0.16) | $ (0.15) |
Per share figures and shares outstanding have been restated
for all stock dividends declared.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
First Albany Companies Inc.
| (Registrant) | |
| Date: November 12, 2002 | /s/ ALAN P. GOLDBERG |
| --------------------------------------------------------- | |
| Alan P. Goldberg | |
| President/Co-Chief Executive Officer | |
| (Principal Accounting Officer) | |
| Date: November 12, 2002 | /s/ STEVEN R. JENKINS |
| --------------------------------------------------------- | |
| Steven R. Jenkins | |
| Chief Financial Officer |
I, Alan P. Goldberg, certify
that:
1. I have reviewed this
quarterly report on Form 10-Q of First Albany Companies Inc.;
2. Based on my knowledge,
this quarterly report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report;
3. Based on my knowledge,
the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other
certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure
controls and procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness
of the registrant's disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly
report our conclusions about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other
certifying officers and I have disclosed, based on our most recent evaluation,
to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies
in the design or operation of internal controls which could adversely affect
the registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or
not material, that involves management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other
certifying officers and I have indicated in this quarterly report whether or
not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
| Date: November 12, 2002 | /s/ ALAN. P. GOLDBERG |
| --------------------------------------------------------- | |
| Alan P. Goldberg | |
Co-Chief Executive |
I, Steven R. Jenkins, certify
that:
1. I have reviewed this
quarterly report on Form 10-Q of First Albany Companies Inc.;
2. Based on my knowledge,
this quarterly report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report;
3. Based on my knowledge,
the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other
certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure
controls and procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness
of the registrant's disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly
report our conclusions about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other
certifying officers and I have disclosed, based on our most recent evaluation,
to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies
in the design or operation of internal controls which could adversely affect
the registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or
not material, that involves management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other
certifying officers and I have indicated in this quarterly report whether or
not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
| Date: November 13, 2002 | /s/ STEVEN R. JENKINS |
| --------------------------------------------------------- | |
| Steven R. Jenkins | |
| Chief Financial Officer |
I, George C. McNamee, certify
that:
1. I have reviewed this
quarterly report on Form 10-Q of First Albany Companies Inc.;
2. Based on my knowledge,
this quarterly report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report;
3. Based on my knowledge,
the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other
certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure
controls and procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness
of the registrant's disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly
report our conclusions about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other
certifying officers and I have disclosed, based on our most recent evaluation,
to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies
in the design or operation of internal controls which could adversely affect
the registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or
not material, that involves management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other
certifying officers and I have indicated in this quarterly report whether or
not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
| Date: November 13, 2002 | /s/ GEORGE C. McNAMEE |
| --------------------------------------------------------- | |
| George C. McNamee | |
| Co-Chief Executive Officer |