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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission file number 014140
F I R S T A L B A N Y C O M P A N I E S I N C .
====================================================
(Exact name of registrant as specified in its charter)
New York 22-2655804
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 S. Pearl Street, Albany, New York 12207
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (518) 447-8500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
none none
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Securities registered pursuant to Section 12(g) of the Act:
Common stock par value $.01 per share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 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 require-
ments for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 14, 1997, 5,171,279 shares, par value $.01 per share, were
outstanding. The aggregate market value of the shares of common stock of
the Registrant held by non-affiliates (based upon the closing price of
Registrant's shares as reported on the NASDAQ system on March 14, 1997,
which was $11.25) was approximately $17,597,508.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission are incorporated by reference into
Part III.
Part I
Item 1. Business
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First Albany Companies Inc. (the Company), through its wholly owned subsidiary
First Albany Corporation (First Albany), conducts a full service investment
banking business with brokerage activity centered in New York and New England.
These activities include securities brokerage for individual and institutional
customers, and market-making and trading of corporate, government, and municipal
securities. In addition, First Albany underwrites and distributes municipal and
corporate securities, provides securities clearance activities for other
brokerage firms, and offers financial advisory services to its customers.
Another of the Company's subsidiaries is First Albany Asset Management
Corporation ("Asset Management"). Asset Management serves as investment manager
to individual and institutional customers. Asset Management directs the invest-
ment of customer and mutual fund assets by making investment decisions, placing
purchase and sales orders, and providing research, statistical analysis,
and continuous supervision of the portfolios.
Brokerage services to retail and institutional customers are provided through
First Albany's salesforce of Investment Executives and Institutional
Salespeople. First Albany believes that its Investment Executives and
Institutional Salespeople are a key factor to the success of its business.
Over the last five years, the number of full-time Investment Executives and
Institutional Salespeople has grown from approximately 213 to 304, many of whom
joined First Albany after previous associations with national brokerage firms.
First Albany has organized its business to focus on and serve the needs and
financial/capital requirements of institutions, individuals, corporations,
and municipalities. As investment bankers, First Albany is positioned to
advise, manage, and conduct a variety of activities as requested including
underwritings, initial and secondary offerings, advisory services, mergers
and acquisitions, and private placements. As a brokerage firm, First
Albany offers customers a full array of investment opportunities.
First Albany operates a total of 25 Retail, Institutional, and Investment
Banking offices in 8 states. First Albany's executive office and largest
sales office are both located in Albany, New York.
The Company (formed in 1985) and First Albany (formed in 1953) are New York
corporations. First Albany is a member of the New York Stock Exchange,
Inc. ("NYSE"), the American Stock Exchange, Inc. ("ASE"), and the Boston
Stock Exchange, Inc. ("BSE") and is registered as a broker-dealer with the
Securities and Exchange Commission ("SEC"). First Albany is also a member
of the National Association of Securities Dealers, Inc. ("NASD") and the
Securities Investor Protection Corporation ("SIPC"), which insures customer
funds and securities deposited with a broker-dealer up to $500,000 per
customer, with a limitation of $100,000 on claims for cash balances. First
Albany has obtained additional coverage of $24,500,000 per account from
National Union, a wholly owned subsidiary of American International Group
(AIG), America's largest commercial insurer. Both companies are rated A+15
(highest rating) by A.M. Best.
Sources of Revenues
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A breakdown of the amount and percentage of revenues from each principal
source for the periods indicated follows:
For the Years Ended
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December 31, December 31, September 29, September 30,
1996 1995 1995 1994
(three-months)
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Amount Percent Amount Percent Amount Percent Amount Percent
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(In thousands of dollars)
Securities commissions:
Listed $ 20,507 12.2% $ 5,128 13.7% $ 17,852 14.5% $ 14,201 13.2%
Over-the-counter 7,749 4.6 1,402 3.7 4,395 3.6 3,588 3.3
Options 1,894 1.1 382 1.0 1,240 1.0 911 0.8
Mutual funds 12,258 7.3 2,712 7.3 8,228 6.7 10,586 9.8
Other 303 0.2 15 0.1 174 0.1 267 0.3
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Sub-total 42,711 25.4 9,639 25.8 31,889 25.9 29,553 27.4
Principal trans-
actions 63,438 37.7 12,322 32.9 43,198 35.1 36,167 33.6
Investment banking 19,558 11.6 5,435 14.5 14,625 11.9 19,164 17.8
Clearing revenues 1,100 0.7 267 0.7 1,059 0.8 1,151 1.1
Fees and other 9,144 5.4 1,603 4.3 6,155 5.0 5,427 5.0
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Total operating
revenues 135,951 80.8 29,266 78.2 96,926 78.7 91,462 84.9
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Interest income 32,240 19.2 8,138 21.8 26,173 21.3 16,222 15.1
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Total revenues $168,191 100.0%$ 37,404 100.0% $123,099 100.0% $107,684 100.0%
================================================================================
In July 1996, the Company changed its fiscal year end to a calendar year
end. Accordingly, results from operations for the period ending December
31, 1996 reflect a twelve-month period ("calendar year") while results for
the transitional period ending December 31, 1995 reflect a three-month
period.
Securities Commissions
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In executing customers' orders to buy or sell listed securities and
securities in which it does not make a market, First Albany generally acts
as an agent and charges a commission.
Principal Transactions
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First Albany buys and maintains inventories of municipal debt, corporate
debt, and equity securities as a "market maker" for sale of those
securities to other dealers and to customers. A staff of 53 traders,
underwriters, and assistants manages First Albany's inventory of
securities. First Albany Investment Executives work directly with these
traders. As of December 31, 1996, First Albany made a market in 175 common
stocks quoted on National Association of Securities Dealers Automated
Quotation ("NASDAQ") and other less actively traded securities. First
Albany also trades municipal bonds and taxable debt obligations, including
U.S. Treasury bills, notes, and bonds; U.S. Government agency notes and
bonds; bank certificates of deposit; mortgage-backed securities; and
corporate obligations. Principal transactions have been a significant
source of revenue and should continue to be so in the future. Continuation
of these activities depends on the availability of sufficient capital and
the services of highly skilled traders, Investment Executives, and
Institutional Salespeople.
In fiscal 1995, First Albany added an institutional municipal risk trading
operation, in which certain inventory positions are hedged by highly liquid
future contracts. Most of the inventory positions are carried
for the purpose of generating sales by the retail and institutional salesforce.
First Albany's trading activities require the commitment of capital and may
place First Albany's capital at risk. Profits and losses are dependent
upon the skill of traders, price movement, trading activity, and the size
of inventories.
In executing customers' orders to buy or sell in the over-the-counter
market in a security in which it makes a market, First Albany may sell to
or purchase from its customers at a price which is substantially equal to
the current inter-dealer market price, plus or minus a markup or markdown.
Alternatively, First Albany may act as an agent, executing a customer's purchase
or sale order with another broker-dealer, who acts as a market maker, at the
best inter-dealer market price available and charging a commission.
The following table sets forth the highest, lowest, and average month-end
inventories (including the net of securities owned and securities sold, but
not yet purchased) for calendar 1996 by securities category where First
Albany acted as principal.
Highest Lowest Average
(In thousands of dollars) Inventory Inventory Inventory
- --------------------------------------------------------------------------------
State and municipal bonds $137,223 $41,726 $82,393
Corporate obligations 21,075 5,974 10,941
Corporate stocks 4,988 2,171 3,304
U.S. Government and federal
agencies obligations 10,072 3,072 6,323
Underwriting and Investment Banking
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First Albany manages, co-manages, and participates in tax-exempt and
corporate securities distributions. For the periods indicated, the table
below highlights the number and dollar amount of corporate and tax-exempt
securities offerings managed or co-managed by First Albany and the number
and amount of First Albany's underwriting participations in syndicates,
including those managed or co-managed by First Albany:
Corporate Stock and Bond Offerings
Managed or Co-Managed Syndicate Participations
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Year Number of Amount of Number of Amount of
Ended Issues Offering Participations Participation
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(In thousands of dollars)
December 1996 9 $ 348,292 177 $ 218,452
December 1995
(three-months) 2 86,828 74 73,303
September 1995 13 514,583 203 227,170
September 1994 13 483,814 334 349,723
September 1993 3 158,300 344 366,314
September 1992 4 212,451 322 130,938
Tax-Exempt Bond Offerings
Managed or Co-Managed Syndicate Participations
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Year Number of Dollar Number of Dollar
Ended Issues Amount Participations Amount
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(In thousands of dollars)
December 1996 267 $ 19,291,904 302 $ 3,226,226
December 1995
(three-months) 47 6,322,205 59 522,292
September 1995 113 12,235,469 222 1,362,845
September 1994 123 14,744,502 332 1,598,182
September 1993 171 18,379,821 349 1,741,206
September 1992 179 14,482,448 328 1,137,423
Participation in an underwriting syndicate or selling group involves both
economic and regulatory risks. An underwriter or selling group member may
incur losses if it is forced to resell the securities it is committed to
purchase at less than the agreed-upon purchase price. In addition, under
the federal securities laws, other statutes, and court decisions with
respect to underwriters' liabilities and limitations on indemnification of
underwriters by issuers, an underwriter is subject to substantial potential
liability for material misstatements or omissions in prospectuses and other
communications with respect to underwritten offerings. Further,
underwriting or selling commitments constitute a charge against net capital
and First Albany's underwriting or selling commitments may be limited by
the requirements that it must at all times be in compliance with the net
capital rule. See "Net Capital Requirements".
Interest
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First Albany derives interest income primarily from the financing of
customer margin loans, securities lending activities, and securities owned.
Customers' securities transactions are effected on either a cash or margin
basis. In margin transactions, First Albany extends credit, which is
collateralized by securities and cash in the customer's account, to the
customer. In accordance with Federal Reserve Bank regulations, NYSE
regulations, and internal policy, First Albany earns interest income as a
result of charging customers at a rate of up to 2% over the brokers' call
rate.
During the past several years, cash balances in customers' accounts have
been a source of funds to finance customers' margin account debit balances.
SEC regulations restrict the use of customers' funds by broker-dealers by
providing generally that free credit balances and funds derived from
pledging and lending customers' securities are to be used only to finance
customers' margin account debit balances, and, to the extent not so used,
the funds must be deposited in a special reserve bank account for the
exclusive benefit of customers. The regulations also require broker-
dealers, within designated periods of time, to obtain physical possession
or control of, and to segregate, customers' fully paid and excess margin
securities.
In the ordinary course of both its trading and brokerage activities, First
Albany borrows securities to cover short sales and to complete transactions
in which customers or other brokers have failed to deliver securities by
the required settlement date. First Albany also lends securities to other
brokers and dealers for similar purposes.
When borrowing securities, First Albany is required to deposit cash or
other collateral, or to post a letter of credit with the lender and receive
a rebate (based on the amount of cash deposited) calculated to yield a
negotiated rate of return. When lending securities, First Albany receives
cash and generally pays a rebate (based on the amount of cash received) to the
other party to the transaction. Securities borrow and loan transactions are
executed pursuant to written agreements with counter-parties which provide that
the securities borrowed or loaned be marked to market on a daily basis and that
excess collateral be refunded or that additional collateral be furnished in
the event of changes in the market value of the securities. Collateral
adjustments are usually made on a daily basis through the facilities of
various clearinghouses.
Operations, Clearing, and Systems
- ---------------------------------
First Albany's operations include: execution of orders; processing of
transactions; receipt, identification, and delivery of funds and
securities; custody of customers' securities; internal financial control;
and compliance with regulatory and legal requirements.
The volume of transactions handled by the operations staff fluctuates
substantially. The monthly number of purchase and sale transactions
processed for the periods indicated were as follows:
Number of Monthly
Transactions
----------------------------
Year Ended High Low Average
--------------
December 1996 96,033 62,694 72,473
December 1995 (three months) 77,275 57,918 64,538
September 1995 71,407 44,409 54,254
September 1994 58,245 40,537 47,257
September 1993 51,745 37,276 43,409
September 1992 43,068 30,907 36,346
First Albany has established internal controls and safeguards against
securities theft, including use of depositories and periodic securities
counts. As required by the NYSE and certain other authorities, First
Albany carries fidelity bonds covering loss or theft of securities as well
as embezzlement and forgery.
First Albany clears its own securities transactions and posts its books and
records daily. Periodic reviews of controls are conducted, and
administrative and operations personnel meet frequently with management to
review operating conditions. Operations, compliance, and legal personnel
monitor compliance with applicable laws, rules, and regulations.
In addition to processing its own customer transactions, First Albany
processes, for a fee, the transactions of other brokerage firms whose
customer accounts are carried on a fully disclosed basis with all security
positions, margin accounts receivable, and credit balances reflected on the
books and records of First Albany.
Financial Services
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Customized financial services are available to customers of First Albany.
The Financial Planning Department advises customers on a variety of
interrelated financial matters, including investment portfolio review, tax
management, insurance analysis, education and retirement planning, and
estate analysis. For a fee, financial planners will prepare a detailed
analysis with specific recommendations aimed at accumulating wealth and
attaining financial goals.
First Albany also offers a range of retirement plans, including IRAs, SEP
Plans, profit sharing, 401(k), and pension programs. Fixed and variable
annuities are available as well as life, disability, and nursing home
insurance programs, limited partnership interests in real estate, oil and
gas drilling, and similar ventures.
Research
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First Albany maintains a professional staff of equity analysts. Research
is focused on six industry sectors: technology, health care, financial
services, energy, utilities, and basic industry. First Albany employs 13
analysts and 15 research assistants who support First Albany's
institutional and retail brokerage and corporate finance activities.
In fiscal 1995, First Albany enlarged the scope of its research in the
technology sector by entering into a strategic alliance with the META
Group, Inc. ("META"). META, an independent market assessment company,
provides research and analysis of developments and trends in information
technology ("IT"), including computer hardware, software, communications
and related information technology industries to both IT users and IT
vendors. The alliance with META enables First Albany to provide its
investors with insights drawn from META's analysis of technology trends,
user experience, and vendor pricing and negotiating tactics.
Research services include review and analysis of the economy; general
market conditions; technology trends, industries and specific companies via
both fundamental and technical analyses; recommendations of
specific action with regard to industries and specific companies; review of
customer portfolios; preparation of research reports which are provided to
retail and institutional customers; and responses to inquiries from customers
and Investment Executives. In addition, First Albany purchases outside
research services including economic reports, charts, data bases, company
analyses, and technical analyses.
Retail Business
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Revenues from First Albany's retail brokerage activities are generated
through customer purchases and sales of stocks, bonds, mutual funds, and
other investment products. For the calendar year ended December 31, 1996,
the three month period ended December 31, 1995 and fiscal years 1995, and
1994, these revenues accounted for approximately 45%, 49%, 53%, and 54% of
operating revenues, respectively.
Institutional Business
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Revenues generated from securities transactions with major institutions for
the calendar year ended December 31, 1996, the three month period ended
December 31, 1995 and fiscal years 1995, and 1994, accounted for
approximately 34%, 36%, 31%, and 29% of operating revenues, respectively.
Institutional revenues are derived from sales of tax-exempt securities,
taxable debt obligations, and equities and are generated by 83
Institutional Salespeople.
Municipal Bond Business
- -----------------------
The tax-exempt department consists of 70 professionals and offers a broad
range of services, including primary market underwriting, secondary market
trading, institutional sales, sales liaison with branches, portfolio
analysis, credit analysis, investment banking services, and financial
advisory services.
Sales revenues from all secondary market tax-exempt products were $15.0
million for the calendar year ended December 31, 1996; $3.2 million for the
three-month period ended December 31, 1995; $12.9 million in fiscal 1995;
and $9.0 million in fiscal 1994.
Employees
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At December 31, 1996, the Company had 769 full-time employees, of which 221
were Retail Investment Executives, 112 were Institutional Salespeople and
Institutional Traders, 137 were in branch sales support, 145 were in other
revenue producing positions, 78 were in operations, and 76 were in other
support and administrative functions.
New Investment Executives are required to take examinations given by the
NASD and approved by the NYSE and all principal exchanges as well as state
securities authorities in order to be registered. There is intense
competition among securities firms for Investment Executives with proven
sales production records. The Company considers its employee relations to be
good and believes that its compensation and employee benefits are competitive
with those offered by other securities firms. None of the Company's employees
are covered by a collective bargaining agreement.
Competition
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First Albany is engaged in a highly competitive business. Its competition
includes, with respect to one or more aspects of its business, all of the
member organizations of the NYSE and other registered securities exchanges,
all members of the NASD, members of the various commodity exchanges, and
commercial banks and thrift institutions. Many of these organizations are
national firms and have substantially greater financial and human resources
than First Albany. Discount brokerage firms seeking to expand their share of
the retail market, including firms affiliated with commercial banks and thrift
institutions, are devoting substantial funds to advertising and direct
solicitation of customers. In many instances, First Albany is competing
directly with such organizations. In addition, there is competition for
investment funds from the real estate, insurance, banking, and savings and loan
industries. The Company believes that the principal
factors affecting competition for the securities industry are the quality and
ability of professional personnel and relative prices of services and products
offered.
Regulation
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The securities industry in the United States is subject to extensive
regulation under federal and state laws. The SEC is the federal agency
charged with administration of the federal securities laws. Much of the
regulation of broker-dealers, however, has been delegated to self-
regulatory organizations, principally the NASD and the national securities
exchanges. These self-regulatory organizations adopt rules (subject to
approval by the SEC) which govern the industry and conduct periodic
examinations of member broker-dealers. Securities firms are also subject
to regulation by state securities commissions in the states in which they
are registered. First Albany is currently registered as a broker-dealer in
50 states and the District of Columbia.
The regulations to which broker-dealers are subject cover all aspects of
the securities business, including sales methods, trade practices among
broker-dealers, capital structure of securities firms, recordkeeping, and
conduct of directors, officers, and employees. Additional legislation,
changes in rules promulgated by the SEC and by self-regulatory
organizations, or changes in the interpretation or enforcement of existing
laws and rules often directly affect the method of operation and
profitability of broker-dealers. The SEC, self-regulatory organizations,
and state security regulators may conduct administrative proceedings which
can result in censure, fine, suspension, or expulsion of a broker-dealer,
its officers, or employees. The principal purpose of regulation and
discipline of broker-dealers is the protection of customers and the
securities markets rather than protection of creditors and stockholders of
broker-dealers.
Net Capital Requirements
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As a broker-dealer and member of the NYSE, First Albany is subject to the
Uniform Net Capital Rule promulgated by the SEC. The rule is designed to
measure the general financial condition and liquidity of a broker-dealer,
and it imposes a minimum amount of net capital requirement deemed necessary
to meet the
broker-dealer's continuing commitments to its customers.
A broker-dealer may be required to reduce its business and to restrict
withdrawal of subordinated capital if its net capital is less than 4% of
aggregate debit balances; it may be prohibited from expanding its business
and declaring cash dividends if its net capital is less than 5% of
aggregate debit balances; and it will be subject to closer supervision by
the NYSE if its net capital is less than 6% of aggregate debit balances.
Compliance with the Net Capital Rule may limit those operations which
require the use of its capital for purposes, such as maintaining the
inventory required for a firm trading in securities, underwriting
securities, and financing customer margin account balances. Net capital
and aggregate debit balances change from day to day and, at December 31,
1996, First Albany's net capital was $16,478,000 which was 12% of its
aggregate debit balances (2% minimum requirement) and $13,783,000 in excess
of required minimum net capital.
Item 2. Properties
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In February 1997, the Company has a total of 25 Retail, Institutional, and
Investment Banking offices in 8 states, all of which are leased or rented.
The Company's executive offices are located at 30 South Pearl Street,
Albany, New York. The order entry, trading, investment banking, research,
data processing, operations, and accounting activities are centralized in
this Albany office. The offices at 30 South Pearl Street are operated
under a lease which currently expires in the year 2002. All other offices
are subject to lease or rental agreements that expire at various times
through March 2008. These leases, in the opinion of management, are
sufficient to meet the needs of the Company. A list of locations are as
follows:
Albany, NY Garden City, NY Norwich, NY
30 South Pearl St. Retail Sales Retail Sales
Retail & Institutional
Sales, Investment Banking,
DP, Research Hartford, CT Oneonta, NY
Back Office Retail & Institutional Sales Retail Sales
80 State St. Johnstown, NY Philadelphia, PA
Retail Sales Retail Sales Institutional
Sales
Bonita Springs, FL Manchester, NH Pittsfield, MA
Institutional Sales Retail Sales Retail Sales
Boston, MA Morristown, NJ Sewickley, PA
Retail & Institutional Sales Institutional Sales Institutional
Investment Banking, DP, Research Sales
Buffalo, NY Nashua, NH Syracuse, NY
Retail Sales Retail Sales Retail Sales
Colchester, VT New York, NY Vestal, NY
Retail Sales One Penn Plaza Retail Sales
Retail & Institutional Sales
Elmira, NY Investment Banking, DP, Research
Retail Sales Back Office
Fairfield, CT 17 State. St. Wellesley, MA
Retail Sales Retail Sales 40 Grove St.
Operations Institutional
Sales
330 Washington St.
Retail Sales
Item 3. Legal Proceedings
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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 it believes
are likely to result in adverse dispositions. Although further losses are
possible, the opinion of management, based upon the advice of its attorneys
and general counsel, is that such litigation will not, in the aggregate,
have a material adverse effect on the Company's liquidity or financial
position, although it could have a material effect on quarterly or annual
operating results in the period in which it is resolved.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
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The Company's common stock trades on the NASDAQ Stock Market under the
symbol "FACT". As of March 14, 1997 there were approximately 850 holders of
record of the Company's common stock. The following table sets forth the
high and low bid quotations for the common stock as adjusted for subsequent
stock dividends, along with cash dividends during each quarter for the
fiscal years ended:
December 31, 1996 Quarters Ended
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Stock Price Range Mar. 29 June 28 Sept. 27 Dec. 31
- --------------------------------------------------------------------------------
High $10 1/8 $10 3/8 $10 3/8 $10 3/4
Low $ 9 $ 9 $ 9 $ 8 5/8
Cash Dividend per Share $0.05 $0.05 $0.05 $0.05
December 31, 1995 Three-month period
- --------------------------------------------------------------------------------
Stock Price Range Dec. 31
- --------------------------------------------------------------------------------
High $ 9 1/2
Low $ 7 1/8
Cash Dividend per Share $ 0.05
September 29, 1995 Quarters Ended
- --------------------------------------------------------------------------------
Stock Price Range Dec. 31 Mar. 31 June 30 Sept. 29
- --------------------------------------------------------------------------------
High $ 6 1/2 $ 6 7/8 $ 7 1/4 $ 7 3/8
Low $ 5 3/4 $ 5 7/8 $ 6 3/8 $ 6 3/8
Cash Dividend per Share $ .05 $ .05 $ .05 $ 0.05
The Board of Directors has from time to time authorized the Company to
repurchase shares of its common stock either in the open market or
otherwise. As of December 31, 1996, the total number of treasury shares was
311,809. When appropriate, the Company will consider making additional
purchases.
During calendar 1996, the Company declared and paid four quarterly cash
dividends totaling $.20 per share of common stock, and declared and issued
two 5% common stock dividends.
In January 1997, subsequent to the period reflected in this report, the
Company declared the regular quarterly cash dividend of $0.05 per share
payable on February 25, 1997 to shareholders of record on February 11,
1997.
Item 6. Selected Financial Data
- --------------------------------
The following selected financial data have been derived from the
Consolidated Financial Statements of the Company.
First Albany Companies Inc.
FIVE YEAR FINANCIAL SUMMARY
(In thousands of dollars except per share amounts)
For the Years Ended
Dec. 31, Dec. 31, Sept. 29, Sept. 30, Sept.24, Sept. 25,
For the years ended 1996 1995 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Operating Results
Revenues:
Commissions $ 42,711 $ 34,941 $ 31,889 $ 29,553 $ 28,884 $ 24,569
Principal trans-
actions 63,438 44,821 43,198 36,167 34,857 31,405
Investment banking 19,558 16,311 14,625 19,164 23,265 16,065
Fees and other 10,244 7,530 7,214 6,578 5,901 4,782
- --------------------------------------------------------------------------------
Operating revenues 135,951 103,603 96,926 91,462 92,907 76,821
Interest income 32,240 28,075 26,173 16,222 9,483 8,999
- --------------------------------------------------------------------------------
Total revenues 168,191 131,678 123,099 107,684 102,390 85,820
Interest expense 26,030 21,985 19,904 10,467 5,257 5,078
- --------------------------------------------------------------------------------
Net revenues 142,161 109,693 103,195 97,217 97,133 80,742
- --------------------------------------------------------------------------------
Expenses (excluding interest):
Compensation and
benefits 95,691 74,596 71,064 65,513 64,388 51,558
Clearing, settlement
and brokerage costs 2,868 2,378 2,258 1,894 1,981 1,978
Communications and data
processing 10,897 8,244 7,794 7,198 6,209 5,213
Occupancy and
depreciation 8,527 6,909 6,660 5,710 5,395 5,130
Selling 7,246 5,231 4,817 4,779 4,152 3,410
Other 7,840 5,912 5,382 4,755 6,242 4,534
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Total expenses
(excl. interest) 133,069 103,270 97,975 89,849 88,367 71,823
- --------------------------------------------------------------------------------
Income before income
taxes 9,092 6,423 5,220 7,368 8,766 8,919
Income tax expense 3,592 2,363 1,870 2,876 3,375 3,352
- --------------------------------------------------------------------------------
Net income $ 5,500 $ 4,060 $ 3,350 $ 4,492 $ 5,391 $ 5,567
================================================================================
Per Common Share: *
Earnings-primary $ 1.02 $ 0.77 $ 0.65 $ 0.87 $ 1.03 $ 1.10
Cash dividend 0.20 0.20 0.20 0.20 0.20 0.20
Book value 8.32 7.52 7.26 6.79 6.06 5.12
- --------------------------------------------------------------------------------
Financial Condition:
Total assets $675,785 $510,081 $543,255 $482,749 $514,794 $203,877
Notes payable 4,583 1,641 1,791 94 456 1,334
Obligations under
capitalized leases 1,426
Subordinated debt 5,000 2,250 2,750
Stockholders' equity 42,274 37,558 36,192 33,230 30,088 25,272
- --------------------------------------------------------------------------------
*All per share figures have been restated for common stock dividends paid.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations.
- ----------------------
BUSINESS ENVIRONMENT
First Albany Corporation (First Albany), a wholly owned subsidiary of
First Albany Companies Inc. (the Company), is a full service investment
banking and brokerage firm. Its primary business includes the
underwriting, distribution, and trading of fixed income and equity
securities. The investment banking and brokerage businesses earn revenues
in direct correlation with the general level of trading activity in the
stock and bond markets. This level of activity cannot be controlled by the
Company; however, many of the Company's costs are fixed. Therefore, the
Company's earnings, like those of others in the industry, reflect the
activity in the markets and can fluctuate accordingly.
In July 1996, the Company changed its fiscal year end to a calendar year
end. Accordingly, results from operations for the period ending December
31, 1996 reflect a twelve-month period ("calendar year") while results for
the transitional period ending December 31, 1995 reflect a three-month
period.
This is a highly competitive business. The competition includes not
only full service national firms and discount houses, but also mutual funds
that sell directly to the customer as well as banks that offer a variety of
investment products.
1996 was an unusually good year for the equity markets in general and many
securities firms in particular. The bond markets did not fare as well as
long-term interest rates rose as the economy recovered from the growth
recession of 1995. The yield on long-term U.S. Treasury bonds rose from
5.99% to 6.72% while the Dow Jones Industrial Average rose from 5117 to
6448. As a result, stock prices registered a total return of 22.8% as
measured by the S&P 500, and bonds registered a return of 2.9% as measured
by the Lehman Brothers Government/Corporate Index. The stock market return
was unusual. The compound annual returns with all the dividends and
interest reinvested between 1926 and 1995 for corporate bonds was 5.7%, for
government bonds 5.2%, and for equities 10.5%.
Although First Albany remains optimistic about the outlook for equity
prices in 1997, a pullback in prices could occur. If such a pullback
should occur, it would have a damaging effect on the secondary markets.
Revenues from security trading, commission revenues, and underwriting fees
and profits of First Albany Corporation would most likely suffer. In such
an environment, it would be difficult for all securities firms to maintain
growth and earnings comparable to the levels achieved in 1996.
RESULTS OF OPERATIONS
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
1996 vs.
Twelve Months Ended 1995 Percentage
December 31, December 31, Increase Increase
(In thousands of
dollars) 1996 1995 (Decrease) (Decrease)
Revenues:
Commissions $ 42,711 $ 34,941 $ 7,770 22%
Principal transactions 63,438 44,821 18,617 42%
Investment banking 19,558 16,311 3,247 20%
Fees and others 10,244 7,530 2,714 36%
- --------------------------------------------------------------------------------
Operating revenues 135,951 103,603 32,348 31%
Interest income 32,240 28,075 4,165 15%
- --------------------------------------------------------------------------------
Total Revenues 168,191 131,678 36,513 28%
Interest expense 26,030 21,985 4,045 18%
- --------------------------------------------------------------------------------
Net revenues 142,161 109,693 32,468 30%
- --------------------------------------------------------------------------------
Expenses
(excluding interest):
Compensation and
benefits 95,691 74,596 21,095 28%
Clearing, settlement and
brokerage cost 2,868 2,378 490 21%
Communications and
data processing 10,897 8,244 2,653 32%
Occupancy and
depreciation 8,527 6,909 1,618 23%
Selling 7,246 5,231 2,015 39%
Other 7,840 5,912 1,928 33%
- --------------------------------------------------------------------------------
Total expenses (excluding
interest) 133,069 103,270 29,799 29%
- --------------------------------------------------------------------------------
Income before income
taxes 9,092 6,423 2,669 42%
Income tax expense 3,592 2,363 1,229 52%
- --------------------------------------------------------------------------------
Net income $ 5,500 $ 4,060 $ 1,440 35%
================================================================================
Net interest income
Interest income $ 32,240 $ 28,075 $ 4,165 15%
Interest expense 26,030 21,985 4,045 18%
- --------------------------------------------------------------------------------
Net interest income $ 6,210 $ 6,090 $ 120 2%
================================================================================
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Calendar Year 1996 Compared with Calendar Year 1995
Net Income
- ----------
Net income for the calendar year ended December 31, 1996 was $5.5
million or $1.02 per share compared to $4.1 million or $0.77 per share a
year ago. This year's revenue gain reflects significant increases in both
the firm's institutional and retail divisions. Net revenues increased over
60% for our equity capital markets division and over 50% for our fixed
income capital markets division, while revenues in the retail division
increased nearly 25%. In the second half of 1996, continued strong
revenues were offset in part by our investments in people and systems.
Management anticipates that this pressure on margins will continue for the
first half of 1997.
Commissions
- -----------
Commission revenues increased $7.8 million or 22% in calendar 1996
reflecting active trading in all major markets. Revenues from listed
stocks and over-the-counter agency stock commissions increased $4.5 million
or 19% with mutual fund commission revenues increasing $3.1 million or 33%.
Principal Transactions
- ----------------------
Principal transactions increased $18.6 million or 42% in calendar 1996.
This growth was comprised of an increase in equity securities of $10.3
million, an increase in municipal bonds of $0.7 million, an increase in
taxable fixed income of $5.9 million and an increase in investment income
of $1.7 million, primarily from META Group, Inc.
Investment Banking
- ------------------
Investment banking revenues increased $3.2 million or 20% in calendar
1996. Revenues from selling concessions were up $0.7 million (municipals
increased $1.6 million, equities decreased $0.8 million and taxable fixed
income decreased $0.1 million), underwriting fees increased $0.5 million
(primarily equities), and investment banking fees increased $2.0 million
(municipal finance fees increased $1.5 million while corporate finance fees
increased $0.5 million).
Fees and Others
- ---------------
Fees and other revenues increased $2.7 million or 36% in calendar 1996
primarily reflecting increased service charge income and financial service
revenues.
Compensation and Benefits
- -------------------------
Compensation and benefits increased $21.1 million or 28% in calendar 1996
due primarily to the increase in revenues. Sales-related compensation
increased $17.8 million, salaries increased $2.7 million, and benefits
increased $0.6 million.
Communications and Data Processing
- ----------------------------------
Communications and data processing increased $2.7 million or 32% in
calendar 1996. Communications expense increased $2.2 million due mainly
to the firm's continued commitment to upgrading technology, its increase in
personnel and the growth of its business related activity. Data processing
expense increased $0.5 million due in most part to a greater number of
transactions.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Occupancy and Depreciation
- --------------------------
Occupancy and depreciation expense increased $1.6 million or 23% in
fiscal 1996 primarily as a result of our continuing investment in new
automated systems.
Selling
- -------
Selling expense increased $2.0 million or 39% in fiscal 1996 mainly
reflecting greater promotional- related expenses resulting from increased
retail and institutional activity.
Other
- -----
Other expense increased $1.9 million or 33% in fiscal 1996 due to an
increase in consulting costs and expenses related to an upgrade in our
customer statement.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
1995 vs.
Three Months Ended 1994 Percentage
December 31, December 31, Increase Increase
(In thousands of
dollars) 1995 1994 (Decrease) (Decrease)
- --------------------------------------------------------------------------------
Revenues:
Commissions $ 9,639 $ 6,587 $ 3,052 46%
Principal transactions 12,322 10,699 1,623 15%
Investment banking 5,435 3,749 1,686 45%
Fees and others 1,870 1,553 317 20%
- --------------------------------------------------------------------------------
Operating revenues 29,266 22,588 6,678 30%
Interest income 8,138 6,237 1,901 30%
- --------------------------------------------------------------------------------
Total Revenues 37,404 28,825 8,579 30%
Interest expense 6,631 4,551 2,080 46%
- --------------------------------------------------------------------------------
Net revenues 30,773 24,274 6,499 27%
- --------------------------------------------------------------------------------
Expenses (excluding interest):
Compensation and
benefits 20,433 16,900 3,533 21%
Clearing, settlement and
brokerage cost 613 493 120 24%
Communications and
data processing 2,264 1,814 450 25%
Occupancy and
depreciation 1,842 1,593 249 16%
Selling 1,563 1,149 414 36%
Other 1,576 1,046 530 51%
- --------------------------------------------------------------------------------
Total expenses (excluding
interest) 28,291 22,995 5,296 23%
- --------------------------------------------------------------------------------
Income before income
taxes 2,482 1,279 1,203 94%
Income tax expense 929 436 493 113%
- --------------------------------------------------------------------------------
Net income $ 1,553 $ 843 $ 710 84%
================================================================================
Net interest income
Interest income $ 8,138 $ 6,237 $ 1,901 30%
Interest expense 6,631 4,551 2,080 46%
- --------------------------------------------------------------------------------
Net interest income $ 1,507 $ 1,686 $ (179) (11)%
================================================================================
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Three Months Periods Ended December 31, 1995 and December 31, 1994
Net Income
- ----------
Net income for the quarter ended December 31, 1995, was $1.6 million
or $0.29 per share compared to $0.8 million or $0.18 per share a year ago.
Most of the firm's business units showed significant revenue gains in the
three month period ending December 31, 1995 compared to the three month
period ending December 31, 1994. Revenues in both the equity capital
markets and municipal divisions increased over 50%, while revenues in the
retail division were up almost 20%.
Commissions
- -----------
Commission revenues increased $3.1 million or 46% in the three month
period ending December 31, 1995 reflecting active trading in all major
markets. Revenues from listed and over-the-counter agency stock commissions
increased $2.0 million or 44% with mutual fund commission revenues
increasing $1.0 million or 57%.
Principal Transactions
- ----------------------
Principal transactions increased $1.6 million or 15% in the three month
period ending December 31, 1995. This growth was comprised of an increase
in equity securities of $0.9 million, an increase in municipal bonds of
$0.3 million and an increase in taxable fixed income of $0.4 million.
Investment Banking
- ------------------
Investment banking revenues increased $1.7 million or 45% in the three
month period ending December 31, 1995. Revenues from selling concessions
were up $1.0 million (equities increased $0.4 million, municipals increased
$0.4 million and taxable fixed income increased $0.2 million), underwriting
fees increased $0.6 million (primarily municipal bonds), and investment
banking fees increased $0.1 million (municipal finance fees increased $0.3
million while corporate finance fees decreased $0.2 million).
Fees and Others
- ---------------
Fees and other revenues increased $0.3 million or 20% reflecting
increased service charge income and financial service revenues.
Compensation and Benefits
- -------------------------
Compensation and benefits increased $3.5 million or 21% due primarily to
the increase in revenues. Sales-related compensation increased $2.4
million, salaries increased $0.9 million, and benefits increased $0.2
million.
Communications and Data Processing
- ----------------------------------
Communications and data processing increased $0.5 million or 25% in the
three month period ending December 31, 1995. Communications expense
increased $0.4 million due mainly to the firm's buildup in institutional
equity sales and research. Data processing expense increased $0.1 million
due primarily to a greater number of transactions.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Selling
- -------
Selling expense increased $0.4 million or 36% mainly reflecting higher
promotional related costs resulting from institutional sales activity.
Other
- -----
Other expenses increased $0.5 million or 51% in the three month period
ending December 31, 1995, partially due to an increase in consulting costs.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
1995 vs.
Twelve Months Ended 1994 Percentage
September 29, September 30, Increase Increase
(In thousands
of dollars) 1995 1994 (Decrease) (Decrease)
- --------------------------------------------------------------------------------
Revenues:
Commissions $ 31,889 $ 29,553 $ 2,336 8%
Principal transactions 43,198 36,167 7,031 19%
Investment banking 14,625 19,164 (4,539) (24)%
Fees and others 7,214 6,578 636 10%
- --------------------------------------------------------------------------------
Operating Revenues 96,926 91,462 5,464 6%
Interest income 26,173 16,222 9,951 61%
- --------------------------------------------------------------------------------
Total Revenues 123,099 107,684 15,415 14%
Interest expense 19,904 10,467 9,437 90%
- --------------------------------------------------------------------------------
Net revenues 103,195 97,217 5,978 6%
- --------------------------------------------------------------------------------
Expenses (excluding interest):
Compensation and
benefits 71,064 65,513 5,551 8%
Clearing, settlement and
brokerage cost 2,258 1,894 364 19%
Communications and
data processing 7,794 7,198 596 8%
Occupancy and
depreciation 6,660 5,710 950 17%
Selling 4,817 4,779 38 1%
Other 5,382 4,755 627 13%
- --------------------------------------------------------------------------------
Total expenses (excluding
interest) 97,975 89,849 8,126 9%
- --------------------------------------------------------------------------------
Income before income
taxes 5,220 7,368 (2,148) (29)%
Income tax expense 1,870 2,876 (1,006) (35)%
- --------------------------------------------------------------------------------
Net income $ 3,350 $ 4,492 $ (1,142) (25)%
================================================================================
Net interest income
Interest income $ 26,173 $ 16,222 $ 9,951 61%
Interest expense 19,904 10,467 9,437 90%
- --------------------------------------------------------------------------------
Net interest income $ 6,269 $ 5,755 $ 514 9%
================================================================================
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Fiscal Year 1995 Compared with Fiscal Year 1994
Net Income
- ----------
Net income for the 1995 fiscal year was $3.4 million or $0.65 per share
compared to $4.5 million or $0.87 per share earned in fiscal 1994. During
fiscal 1995, both the Company's municipal and equity institutional
businesses showed substantial growth, along with an ongoing solid
contribution by the retail division. The Company continued to make
investments in people and technology, which have negatively impacted short-
term operating results.
Commissions
- -----------
Commission revenues increased $2.3 million or 8% in fiscal 1995,
reflecting active trading in institutional equities. Revenues from listed
and over-the-counter stock commissions increased $4.6 million or 25%, while
mutual fund commission revenues decreased $2.3 million or 22%.
Principal Transactions
- ----------------------
Principal transactions increased $7.0 million or 19% in fiscal 1995.
This growth was comprised of an increase in equities of $2.1 million, an
increase in municipal bonds of $7.8 million (primarily due to the addition
in fiscal 1995 of an institutional municipal risk trading operation), a
decrease in taxable fixed income securities of $2.1 million, and a decrease
in investment income of $0.8 million. A primary reason for the decrease in
investment income was the result of an unrealized gain of $1.4 million
recorded in fiscal 1994 due to the Company's investment in a firm which
completed an initial public offering in February 1994.
Investment Banking
- ------------------
Investment banking revenues decreased $4.5 million or 24% in fiscal
1995. Revenues from selling concessions decreased $3.4 million (equities
decreased $2.4 million, while municipal bonds decreased $1.2 million and
taxable fixed income increased $0.2 million), underwriting fees decreased
$0.2 million, and investment banking fees decreased $0.9 million (corporate
finance fees decreased $0.1 million, while municipal finance fees decreased
$0.8 million). The drop in investment banking revenues was largely a
result of an industry-wide decline in underwriting activity.
Compensation and Benefits
- -------------------------
Compensation and benefits increased $5.6 million or 8% in fiscal 1995.
Sales-related compensation was $0.9 million higher and salaries increased
$3.8 million causing benefits to rise $0.9 million.
Occupancy and Depreciation
- --------------------------
Occupancy and depreciation expense increased $1.0 million or 17% in
fiscal 1995 primarily due to the firm's increased investment in new
automated systems.
Income Taxes
- ------------
Income taxes decreased $1.0 million or 35% in fiscal 1995 due to a
decrease in pre-tax earnings. The Company's effective tax rate decreased
to 36% from 39% as a result of an increased proportion of tax-exempt
interest income to income before taxes.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
LIQUIDITY AND CAPITAL RESOURCES
A substantial portion of the Company's assets, similar to other
brokerage and investment banking firms, is liquid, consisting of cash and
assets readily convertible into cash. These assets are financed primarily
by the Company's interest-bearing and non-interest-bearing payables to
customers; payables to brokers and dealers collateralized by loaned
securities; and bank lines-of-credit. Securities borrowed and securities
loaned will fluctuate due primarily to the current level of business
activity in this area. Net payables to others increased due primarily to
the adjustment to record securities owned on a trade date basis. (Amounts
receivable and payable for securities transactions that have not reached
their contractual settlement are recorded net on the statement of financial
condition.) Securities owned will fluctuate as a result of changes in the
level of positions held to facilitate customer transactions and changes in
market conditions. Net receivables from customers increased due to an
increase in customer margin debits. Short-term bank loans increased due
primarily to an increase in securities owned and an increase in net
receivables from customers.
At fiscal year-end 1996, First Albany Corporation and Northeast
Brokerage Services Corporation, both registered broker-dealer subsidiaries
of First Albany Companies Inc., were each in compliance with the net
capital requirements of the Securities and Exchange Commission and had
capital in excess of the minimum required.
Management believes that funds provided by operations and a variety of
committed and uncommitted bank lines-of-credit-totaling $200,000,000 of
which approximately $65,288,000 were unused as of December 31, 1996-will
provide sufficient resources to meet present and reasonably foreseeable
short-term financial needs.
During calendar 1996, the Company declared and paid four quarterly cash
dividends totaling $0.20 per share of common stock, as well as declared and
issued two 5% common stock dividends. During the transitional period ending
December 31, 1995, the Company declared and paid a quarterly cash dividend
of $0.05 per share along with a 5% common stock dividend.
In January 1997, subsequent to the period reflected in this report, the
Company declared the regular quarterly cash dividend of $0.05 per share
payable on February 25, 1997, to shareholders of record on February 11,
1997.
Management believes that funds provided by operations will be sufficient
to fund the acquisition of office equipment, leasehold improvements, and
other long-term requirements.
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
Index to Financial Statements and Supplementary Data
----------------------------------------------------
Page
----
REPORT OF INDEPENDENT ACCOUNTANTS 23
FINANCIAL STATEMENTS:
Consolidated Statements of Income For the Calendar
Year Ended December 31, 1996; the three-month
Transition Period ended December 31, 1995;
the Fiscal Year Ended September 29, 1995, and
the Fiscal Year Ended September 30, 1994 24
Consolidated Statements of Financial Condition
as of December 31, 1996, December 31, 1995
(unaudited) and September 29, 1995 25
Consolidated Statements of Changes in Stockholders'
Equity for the Calendar Year Ended December 31,
1996; the three-month Transition Period ended
December 31, 1995, the Fiscal Year Ended
September 29, 1995, and the Fiscal Year Ended
September 30, 1994 26
Consolidated Statements of Cash Flows for the
Calendar Year Ended December 31, 1996; the
Three-month Transition Period ended
December 31, 1995; the Fiscal Year Ended
September 29, 1995, and the Fiscal Year Ended
September 30, 1994 27
Notes to Consolidated Financial Statements 28-41
SUPPLEMENTARY DATA:
Selected Quarterly Financial Data (Unaudited) 42
Report of Independent Accountants
Board of Directors and Stockholders
First Albany Companies Inc.
We have audited the accompanying consolidated statements of financial
condition of First Albany Companies Inc. as of December 31, 1996 and
September 29, 1995 and the related statements of income, changes in
stockholders' equity and cash flows for the year ended December 31, 1996, the
three months ended December 31, 1995 and the years ended September 29, 1995 and
September 30, 1994 as listed in Item 14(a) of this Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Albany
Companies Inc. as of December 31, 1996, and September 29, 1995, and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1996, the three months ended December 31, 1995, and for each of the
years ended September 29, 1995 and September 30, 1994 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As described in Note 1, the Company changed its fiscal year from the last
Friday in September to a calendar year basis ending December 31.
COOPERS & LYBRAND L.L.P.
Albany, New York
February 7, 1997
First Albany Companies Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share amounts)
Three-Month
Transition Period
December 31, December 31, September 29, September 30,
For the years ended 1996 1995 1995 1994
- --------------------------------------------------------------------------------
Revenues:
Commissions $ 42,711 $ 9,639 $ 31,889 $ 29,553
Principal transactions 63,438 12,322 43,198 36,167
Investment banking 19,558 5,435 14,625 19,164
Interest 32,240 8,138 26,173 16,222
Fees and other 10,244 1,870 7,214 6,578
- --------------------------------------------------------------------------------
Total revenues 168,191 37,404 123,099 107,684
Interest expense 26,030 6,631 19,904 10,467
- --------------------------------------------------------------------------------
Net revenues 142,161 30,773 103,195 97,217
- --------------------------------------------------------------------------------
Expenses (excluding
interest):
Compensation and
benefits 95,691 20,433 71,064 65,513
Clearing, settlement and
brokerage costs 2,868 613 2,258 1,894
Communications and data
processing 10,897 2,264 7,794 7,198
Occupancy and
depreciation 8,527 1,842 6,660 5,710
Selling 7,246 1,563 4,817 4,779
Other 7,840 1,576 5,382 4,755
- --------------------------------------------------------------------------------
Total expenses (excluding
interest) 133,069 28,291 97,975 89,849
- --------------------------------------------------------------------------------
Income before income
taxes 9,092 2,482 5,220 7,368
Income tax expense 3,592 929 1,870 2,876
- --------------------------------------------------------------------------------
Net income $ 5,500 $ 1,553 $ 3,350 $ 4,492
================================================================================
Net income per common and
common equivalent share*
Primary $ 1.02 $ 0.29 $ 0.65 $ 0.87
Fully diluted $ 1.02 $ 0.29 $ 0.64 $ 0.87
================================================================================
*All per share figures have been restated to reflect the stock dividends paid.
The accompanying notes are an integral
part of the consolidated financial statements.
First Albany Companies Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands of dollars)
December 31, December 31, September 29,
1996 1995 1995
(unaudited)
- --------------------------------------------------------------------------------
Assets
Cash $ 4,005 $ 5,450 $ 3,253
Cash segregated under federal regulations 1,300
Securities purchased under agreement
to resell 2,869
Securities borrowed 344,904 283,785 376,919
Receivables from:
Brokers, dealers and clearing agencies 1,856 7,231 1,889
Customers 128,130 99,759 88,610
Others 8,181 17,492 4,965
Securities owned 156,154 80,586 54,187
Investments 6,157 1,470 1,838
Office equipment and leasehold
improvements, net 12,584 6,075 6,062
Other assets 10,945 6,933 5,532
- --------------------------------------------------------------------------------
Total Assets $675,785 $510,081 $543,255
================================================================================
Liabilities and Stockholders' Equity
Liabilities
Short-term bank loans $134,712 $112,292 $ 53,288
Securities loaned 350,577 283,146 388,523
Payables to:
Brokers, dealers and clearing agencies 3,150 3,281 3,104
Customers 48,174 48,274 38,335
Others 56,615 5,000 4,135
Securities sold but not yet purchased 10,075 4,407 3,892
Accounts payable 1,928 2,457 1,696
Accrued compensation 11,649 7,617 8,108
Accrued expenses 5,622 4,408 4,191
Notes payable 4,583 1,641 1,791
Obligations under capitalized leases 1,426
- --------------------------------------------------------------------------------
Total Liabilities 628,511 472,523 507,063
- --------------------------------------------------------------------------------
Commitments and Contingencies
Subordinated debt 5,000
- --------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock; $1.00 par value;
authorized 500,000 shares; none issued
Common stock; $.01 par value; authorized
10,000,000 shares; issued 5,390,594;
4,889,747; and 4,889,747 respectively 54 49 49
Additional paid-in capital 25,591 20,257 20,257
Retained earnings 18,556 19,153 17,822
Less treasury stock at cost (1,927) (1,901) (1,936)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 42,274 37,558 36,192
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity $675,785 $510,081 $543,255
================================================================================
The accompanying notes are an integral
part of the consolidated financial statements.
First Albany Companies Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Periods Ended December 31, 1996,
December 31, 1995, September 29, 1995, and September 30, 1994
(In thousands of dollars except for number of shares)
Common Stock Additional
Issued Paid-In Retained Treasury Stock
Shares Amount Capital Earnings Shares Amount
- --------------------------------------------------------------------------------
Balance
September 24, 1993 4,023,421 $ 40 $13,142 $18,719 (320,786) $(1,813)
Issuance of re-
stricted stock 132 (104) 16,028 104
Stock dividends
declared 412,033 4 3,215 (3,219) (37,973)
Cash dividends paid (742)
Options exercised (47) 64,281 379
Treasury stock purchase (130,000) (1,072)
Net income 4,492
- --------------------------------------------------------------------------------
Balance
September 30, 1994 4,435,454 44 16,489 19,099 (408,450) (2,402)
Issuance of re-
stricted stock 186 (155) 19,635 130
Stock dividends
declared 454,293 5 3,582 (3,587) (35,175)
Cash dividends paid (815)
Options exercised (70) 58,251 336
Net income 3,350
- --------------------------------------------------------------------------------
Balance
September 29, 1995 4,889,747 49 20,257 17,822 (365,739) (1,936)
Cash dividends paid (217)
Options exercised (5) 6,370 35
Net income 1,553
- --------------------------------------------------------------------------------
Balance
December 31, 1995 4,889,747 49 20,257 19,153 (359,369) (1,901)
Issuance of re-
stricted stock 340 45 74,557 413
Stock dividends
declared 500,847 5 4,994 (4,999) (38,768)
Cash dividends paid (932)
Options exercised (211) 136,276 806
Treasury stock purchase (124,505) (1,245)
Net income 5,500
- --------------------------------------------------------------------------------
Balance
December 31, 1996 5,390,594 $ 54 $25,591 $18,556 (311,809) $(1,927)
================================================================================
The accompanying notes are an integral
part of the consolidated financial statements.
First Albany Companies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Three Months
Dec. 31, Dec. 31, Sept.29, Sept. 30,
For the years ended 1996 1995 1995 1994
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 5,500 $ 1,553 $ 3,350 $ 4,492
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,230 691 2,302 1,511
Deferred income taxes 146 587 (1,278) 658
Undistributed earnings of
affiliate (555)
Unrealized investment gains (2,343)
(Increase) decrease in operating assets:
Cash and securities segregated
under federal regs. 1,300 (1,300) 250
Securities purchased under
agreement to resell (2,869) 2,806
Securities borrowed, net (12,243) (1,641)
Net receivables from brokers,
dealers, and clearing agencies (5,165)
Net receivable from customers (28,471) (1,210) (10,394) (12,364)
Net receivable from others (11,662) 15,865 (16,584)
Securities owned, net (69,900) (27,354) (33,031) 2,355
Other assets (4,158) (150) 1,283 (294)
Increase (decrease) in operating liabilities:
Securities sold under agreement
to repurchase (2,825)
Securities loaned, net 6,312 13,335
Net payables to brokers, dealers,
and clearing agencies 5,244 (2,351) (1,997)
Net payable to others 60,926
Accounts payable and accrued
expenses 4,717 487 382 (2,158)
- --------------------------------------------------------------------------------
Net cash used in operating
activities (20,921) (55,766) (10,537) (25,791)
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of furniture, equipment,
and leaseholds (8,288) (705) (3,213) (3,043)
(Increase) decrease in
investments (1,789) (1,838)
- --------------------------------------------------------------------------------
Net cash used in investing
activities (10,077) (705) (5,051) (3,043)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds of short-term bank
loans, net 22,420 59,004 14,367 28,990
Proceeds (payments) of
subordinated debt 5,000 (2,250)
Proceeds (payments) of notes
payable 2,942 (150) 1,697 (362)
Payments of obligations under
capitalized leases (25)
Payments for purchases of common
stock for treasury (1,245) (1,072)
Proceeds from issuance of common
stock from treasury 595 31 266 332
Proceeds from issuance of restricted
stock 798 161 132
Dividends paid (932) (217) (815) (742)
- --------------------------------------------------------------------------------
Net cash provided by
financing activities 29,553 58,668 15,676 25,028
- --------------------------------------------------------------------------------
Increase (decrease) in cash (1,445) 2,197 88 (3,806)
Cash at beginning of the period 5,450 3,253 3,165 6,971
- --------------------------------------------------------------------------------
Cash at the end of the period $ 4,005 $ 5,450 $ 3,253 $ 3,165
================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Income Tax Payments $ 3,410 $ 608 $ 1,753 $ 2,660
Interest Payments $25,404 $ 6,273 $18,989 $10,108
The accompanying notes are an integral part of the consolidated financial
statements.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies
Organization and Nature of Business
- -----------------------------------
The consolidated financial statements include the accounts of First Albany
Companies Inc. and its wholly owned subsidiaries (the "Company"). First
Albany Corporation (the "Corporation") is the Company's principal
subsidiary and a registered broker-dealer. The Corporation is registered
with the Security and Exchange Commission ("SEC") and is a member of
various exchanges and the National Association of Securities Dealers, Inc.
The Corporation's primary business includes securities brokerage for
individual and institutional customers, and market-making and trading of
corporate, government, and municipal securities. In addition, the
Corporation underwrites and distributes municipal and corporate securities,
provides securities clearance activities for other brokerage firms, and
offers financial advisory services to its customers. Another of the
Company's subsidiaries is First Albany Asset Management Corporation ("Asset
Management"). Under management agreements, Asset Management serves as
investment manager to individual and institutional customers. Asset
Management directs the investment of customer and mutual fund assets by
making investment decisions, placing purchase and sales orders, and
providing research, statistical analysis, and continuous supervision of the
portfolios. All significant intercompany balances and transactions have
been eliminated in consolidation. Investments in affiliates which are not
majority owned are reported using the equity method.
In July 1996, the Company changed its fiscal year end to a calendar year
end. Accordingly, results from operations for the period ending December
31, 1996 reflect a twelve-month period ("calendar year") while results for
the transitional period ending December 31, 1995 reflect a three-month
period. Previously, the Company's fiscal year end was the last Friday in
September, and therefore, the Company's fiscal year would contain either a
52 or 53 week period. The fiscal years ended September 29, 1995 and
September 30, 1994 contained 52 weeks and 53 weeks, respectively.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Securities Transactions
- -----------------------
Proprietary securities transactions are recorded on trade date, as if
they had settled. Profit and loss arising from all securities transactions
entered for the account and risk of the Company are recorded on trade date.
Customers' securities transactions are reported on a settlement date basis
(normally the third business day following the transaction) with related
commission income and expenses reported on a trade date basis.
As a broker-dealer, the Corporation values marketable securities at
market value and securities not readily marketable at fair value as
determined by management. The resulting unrealized gains and losses are
included as revenues from principal transactions. First Albany Companies
Inc. also purchases securities for investment purposes and, as a non-broker-
dealer, classifies them as trading securities and values them at market
value, unless they are restricted, in which case they are valued at cost.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Resale and Repurchase Agreements
- --------------------------------
Transactions involving purchases of securities under agreements to
resell or sales of securities under agreements to repurchase are treated as
collateralized financing transactions and are recorded at their contracted
resale or repurchase amounts plus accrued interest. It is the policy of
the Company to obtain possession or control of collateral with a market
value equal to or in excess of the principal amount loaned under resale
agreements. Collateral is valued daily, and the Company may require
counterparties to deposit additional collateral or return collateral
pledged, when appropriate. At December 31, 1996, the Company had entered
into a resale agreement in the amount of $2,869,000.
Securities-Lending Activities
- -----------------------------
Securities borrowed and securities loaned are recorded at the amount of
cash collateral advanced or received. Securities borrowed transactions
require the Company to deposit cash or other collateral with the lender.
With respect to securities loaned, the Company receives collateral in the
form of cash or other collateral in an amount generally in excess of the
market value of securities loaned. The Company monitors the market value
of securities borrowed and loaned on a daily basis, with additional
collateral obtained or refunded as necessary.
Office Equipment and Leasehold Improvements
- -------------------------------------------
Office equipment and leasehold improvements are stated at cost less
accumulated depreciation of $11,682,000 at December 31, 1996, $10,513,000
at December 31, 1995 (unaudited), and $9,834,000 at September 29, 1995.
Depreciation is provided on a straight-line basis over the shorter of the
estimated useful life of the asset or the term of the lease.
Statement of Cash Flows
- -----------------------
For purposes of the statement of cash flows, the Company considers
amounts in demand deposit accounts at various financial institutions, other
than those segregated under federal regulations, to be cash equivalents.
Investment Banking
- ------------------
Investment banking revenues include gains, losses, and fees, net of
syndicate expenses, arising from securities offerings in which the Company
acts as an underwriter or agent. Investment banking revenues also include
fees earned from providing merger-and-acquisition and financial
restructuring advisory services. Investment banking management fees are
recorded on offering date, sales concessions on trade date, and underwriting
fees at the time the underwriting is completed and the income is reasonably
determinable.
Income Taxes
- ------------
The amount of current taxes payable is recognized as of the date of the
financial statements, utilizing currently enacted tax laws and rates.
Deferred income taxes are recognized for the future tax consequences of
"temporary differences" which are attributable to differences between the
financial statement and tax basis of existing assets and liabilities.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Earnings per Common Share
- -------------------------
Net income per common and common equivalent share have been computed
based upon the weighted average number of common shares and dilutive common
equivalent shares (stock options) outstanding. The weighted average number
of common shares and dilutive common equivalent shares were:
Three-month
transition period
December 31, December 31, September 29, September 30,
1996 1995 1995 1994
- --------------------------------------------------------------------------------
Primary 5,376,396 5,337,241 5,187,600 5,157,227
Fully diluted 5,376,396 5,405,337 5,222,654 5,157,227
All per share figures, as well as the weighted average number of common
and dilutive common equivalent shares, have been restated for all stock
dividends declared.
Reclassifications
- -----------------
Certain amounts in the financial statements have been reclassified to
conform with the 1996 presentation.
NOTE 2. Receivables From and Payables To Brokers, Dealers, and Clearing Agencies
Amounts receivable from and payable to brokers, dealers, and clearing
agencies, other than correspondents, as of:
(In thousands of dollars) December 31, December 31, September 29,
1996 1995 1995
(unaudited)
---------------------------------------------------------------------------
Securities failed to deliver $ 1,856 $ 3,893 $ 1,882
Receivable from clearing agencies 3,338 7
---------------------------------------------------------------------------
Total receivables $ 1,856 $ 7,231 $ 1,889
===========================================================================
Securities failed to receive $ 3,150 $ 3,281 $ 3,060
Payable to clearing agencies 44
---------------------------------------------------------------------------
Total payables $ 3,150 $ 3,281 $ 3,104
===========================================================================
NOTE 3. Receivables From and Payables To Customers
Receivables from and payables to 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. Total unsecured and partly secured customer
receivables were $329,000, $307,000 and $125,000 as of December 31, 1996,
December 31, 1995 (unaudited) and September 29, 1995, respectively. An
allowance for doubtful accounts, based upon an aging of accounts receivable
and specific identification, was recorded for $304,000, $219,000, and
$125,000 as of December 31, 1996, December 31, 1995, (unaudited) and
September 29, 1995, respectively.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4. Receivables From Others
Amounts receivable from others as of:
================================================================================
(In thousands of dollars) December 31, December 31, September 29,
1996 1995 1995
(unaudited)
- --------------------------------------------------------------------------------
Adjustment to record securities
on a trade date basis, net $11,249
Others $ 8,181 6,243 $ 4,965
- --------------------------------------------------------------------------------
Total $ 8,181 $17,492 $ 4,965
================================================================================
For proprietary securities transactions, amounts receivable and payable
for securities transactions that have not reached their contractual
settlement date are recorded net on the statement of financial condition.
NOTE 5. Securities Owned And Sold, But Not Yet Purchased
Securities owned and sold, but not yet purchased consisted of the
following as of:
================================================================================
(In thousands of dollars) December 31, December 31, September 29,
1996 1995 1995
(unaudited)
- --------------------------------------------------------------------------------
Sold, but Sold, but Sold, but
not yet not yet not yet
Owned Purchased Owned Purchased Owned Purchased
- --------------------------------------------------------------------------------
Marketable
U.S. government and federal
agencies obligations $ 6,124 $ 2,923 $ 7,149 $ 1,191 $ 5,164 $ 1,045
State and municipal
bonds 137,223 4,976 63,882 231 39,936 244
Corporate obligations 9,486 824 2,997 796 3,558 1,246
Corporate stocks 2,171 1,352 5,982 2,189 4,869 1,357
Options 1 20 100
Not readily marketable
securities, fair value 1,149 556 560
- --------------------------------------------------------------------------------
$156,154 $10,075 $80,586 $ 4,407 $54,187 $ 3,892
================================================================================
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.
NOTE 6. Investments
At year end 1996, the Company owned approximately 2,037,000 common shares
(or 35% of the shares outstanding) of Mechanical Technology Incorporated
(MTI), which operates in upstate New York. The Company's investment in MTI
is recorded under the equity method and approximated $2,588,000, which
included goodwill of approximately $922,000 which is being amortized.
At December 31, 1996, the aggregate market value of the Company's shares of MTI
stock was $4,074,000.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company's equity in MTI's net income, recorded on a one-quarter delay
basis, was $555,000 during the year ended December 31, 1996, related
primarily to a gain recorded from discontinued operations.
At year end 1996, the Company owned 200,000 shares of META Group, Inc.
This investment was carried at the value of $3,569,000 at December 31,
1996. Part of this investment is recorded at cost due to certain
restrictions placed on the sale of these securities. The other portion of
these securities became readily marketable pursuant to Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities", resulting in an unrealized gain of $2.3 million for the year
ended December 31, 1996. The fair market value of this investment was
$5,400,000 at December 31, 1996.
NOTE 7. Bank Loans
Short-term bank loans are made under a variety of committed and
uncommitted bank lines of credit which are limited to financing securities
eligible for collateralization under these arrangements. This includes
Company owned securities and certain customer owned securities purchased on
margin, subject to certain regulatory formulae. These loans bear interest
at fluctuating rates based primarily on the Federal Funds interest rate.
The average weighted interest rates on these loans were 6.8%, 5.7% and 7.5%
at December 31, 1996, December 31, 1995, and September 29, 1995,
respectively. Short-term bank loans and unused lines of credit were
collateralized by Company owned securities of $100,244,000 and customers'
margin account securities of $106,822,000 at December 31, 1996.
A note for $4,583,333, which is collateralized by fixed assets, is payable
in monthly principal payments of $114,583 and accrued interest. Interest
is at the 90-day U.S. Treasury Securities rate (7.48% at December 31, 1996)
plus 2.5%. The note matures April 1, 2000.
Future annual principal loan repayment requirements as of December 31,
1996 are as follows:
=========================================
(In thousands of dollars)
-----------------------------------------
1997 $1,375
1998 1,375
1999 1,375
2000 458
-----------------------------------------
Total $4,583
=========================================
NOTE 8. Obligations under Capitalized Leases
In December, 1996, the Company entered into a capital lease for office
equipment totaling approximately $1,451,000.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a schedule of future minimum lease payments under
capital leases together with the present value of the net minimum lease
payments as of December 31, 1996:
-----------------------------------------------
(In thousands of dollars)
-----------------------------------------------
1997 $ 333
1998 333
1999 335
2000 306
2001 380
2002 11
-----------------------------------------------
Total Minimum Lease Payments 1,698
Less: Amount Representing Interest 272
-----------------------------------------------
Present Value of Minimum Lease Payments $1,426
===============================================
NOTE 9. Payables To Others
Amounts payable to others as of:
(In thousands of dollars) December 31, December 31, September 29,
1996 1995 1995
(unaudited)
--------------------------------------------------------------------------
Adjustment to record
securities on a trade date
basis, net $ 39,401 $ 773
Others 17,214 $ 5,000 3,362
--------------------------------------------------------------------------
Total $ 56,615 $ 5,000 $ 4,135
==========================================================================
For proprietary securities transactions, amounts receivable and payable
for securities transactions that have not reached their contractual
settlement date are recorded net on the statement of financial condition.
NOTE 10. Subordinated Debt
During 1996, the Company increased its subordinated debt by $5,000,000.
This subordinated debt bears interest at 9.25%. Interest is paid monthly
with the principal amount due at maturity on July 31, 2001. The loan
agreement includes financial covenants for debt and equity. One of the
more significant covenants requires First Albany Corporation to maintain a
minimum net capital (as defined by Rule 15c 3-1 of the Securities and
Exchange Commission) of $7,500,000. The amount of net capital as of
December 31, 1996 was $16,478,000. The lender has the right to exercise
stock options on 84,000 shares of the Company's stock at $11.90 per share.
This right expires July 31, 2000.
NOTE 11. Stockholders' Equity
During calendar 1996, the Company declared and paid four quarterly cash
dividends totaling $0.20 per share of common stock, and also declared and
issued two 5% common stock dividends. During the transitional period ending
December 31, 1995, the Company declared and paid a quarterly cash dividend
of $0.05 per share along with a 5% common stock dividend.
In January 1997, subsequent to the period reflected in this report, the
Board of Directors declared the regular quarterly cash dividend of $0.05
per share payable on February 25, 1997, to shareholders of record
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
on February 11, 1997. (Stockholders' Equity and all per share figures have
been adjusted to reflect all common stock dividends.)
NOTE 12. Income Taxes
Under the asset and liability method, deferred income taxes are recognized
for the tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable for future years to differences between the
financial statement and tax basis of existing assets and liabilities. The
effect of tax rate changes on deferred taxes is recognized in the income
tax provision in the period that includes the enactment date.
The components of income taxes are:
================================================================================
(In thousands of Three-Months
dollars) December 31, December 31, September 29, September 30,
1996 1995 1995 1994
- --------------------------------------------------------------------------------
Federal
Current $ 2,455 $ 260 $ 2,051 $ 1,463
Deferred (3) 416 (904) 466
State and local
Current 991 82 1,097 755
Deferred 149 171 (374) 192
================================================================================
Total income taxes $ 3,592 $ 929 $ 1,870 $ 2,876
================================================================================
The reasons for the difference between the expected income tax expense
using the federal statutory rate and the income tax expense are as follows:
================================================================================
(In thousands of Three-Months
dollars) December 31, December 31, September 29, September 30,
1996 1995 1995 1994
- --------------------------------------------------------------------------------
Income taxes
at federal
statutory rate $ 3,092 $ 844 $ 1,775 $ 2,505
State income taxes,
net of federal income
taxes 753 167 477 625
Tax-exempt interest
income (420) (126) (514) (348)
Non-deductible expenses 167 44 132 94
- --------------------------------------------------------------------------------
Total income taxes $ 3,592 $ 929 $ 1,870 $ 2,876
================================================================================
The temporary differences that give rise to significant portions of
deferred tax assets are as follows:
============================================================================
(In thousands of dollars) December 31, December 31, September 29,
1996 1995 1995
(unaudited)
--------------------------------------------------------------------------
Receivables $ 128 $ 67 $ 80
Securities held for investment (964) (262) (345)
Fixed assets 486 309 267
Deferred compensation 1,631 1,633 2,057
Other 190 (130) 145
--------------------------------------------------------------------------
Total deferred tax assets $ 1,471 $ 1,617 $ 2,204
==========================================================================
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has not recorded a valuation allowance for deferred tax assets
since income in the carryback period is sufficient to realize the benefit
of future deductions.
NOTE 13. Employee Benefit Plans
The Company maintains a deferred profit sharing plan (Internal Revenue
Code Section 401(k) Plan) which permits eligible employees to defer a
percentage of their compensation. Company contributions to eligible
participants may be made at the discretion of the Board of Directors.
During the year ended December 31, 1996, the transitional period ending
December 31, 1995, and the years ended September 29, 1995, and September
30, 1994 the Company contributed $103,000, $0, $140,000, and $56,000,
respectively.
The Company also maintains an Employee Stock Bonus Plan (Internal Revenue
Code Section 401(a)) which permits eligible employees to contribute up to
8% of their compensation on an after-tax basis. The Company makes matching
contributions equal to a percentage of each employee's contributions.
Company contributions vest in accordance with the Plan and are tax deferred
until withdrawal. Employee and Company contributions are invested solely
in the common stock of the Company. During the year ended December 31,
1996, the transitional period ending December 31, 1995, and the years ended
September 29, 1995, and September 30, 1994, the Company contributed
$617,000, $163,000, $408,000, and $334,000, respectively.
NOTE 14. Incentive Plans
In 1982, the Company established a Stock Incentive Plan (the "1982 Plan")
which, as amended by stockholders in 1987, authorized issuance of options
to officers and key employees to purchase up to 800,000 shares of common stock.
On February 27, 1989, stockholders approved adoption of the First Albany
Companies Inc. 1989 Stock Incentive Plan (the "1989 Plan"). Coincident with
the adoption of the 1989 Plan, the 1982 Plan was terminated. Options previously
granted under the 1982 Plan remain valid in accordance with the terms of the
grant of such options; however, the grant of new options under the 1982 Plan
was ended. Both the 1982 Plan and 1989 Plan enable the Company to grant
incentive stock options (ISOs) which meet the requirements of Section 422A of
the Internal Revenue Code of 1954, as amended, and nonqualified stock options
(NSOs). ISOs are granted at prices not less than fair value at the date of the
grant; NSOs may be issued at prices less than fair market value. ISOs and NSOs
may not have a term of more than ten years. Under certain conditions, the
Company is required to purchase shares issued under this Plan at prices ranging
from the original exercise or award price to the greater of the then book or
market value. If NSOs are exercised, the difference between the option price
and the selling price will be recognized as an expense in the income statement.
In addition, under the 1989 Plan, stock appreciation rights (SARs) may be
granted in tandem with ISOs or NSOs. SARs may be exercised only if the
related options (or portions thereof) are surrendered and at such time as
the fair market value of the shares underlying the option exceeds the
option price for such shares. Upon exercise of SAR and surrender of the
related option, an employee will be entitled to receive an amount equal to
the excess of the fair market value of one share at the time of such surrender
over the option price per share specified in such option times the number of
such shares called for by the option, or portion thereof, which is so
surrendered. Payment may be made in cash, shares of common stock, or a
combination thereof. SARs may not be exercised before six months from date of
grant. As of December 31, 1996, no SARs have been granted.
Option transactions for the 3-year period ended December 31, 1996
under the 1982 Plan were as follows: (all are ISOs)
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Shares Weighted Average
Subject Exercise
to Option Price
- --------------------------------------------------------------------------------
Balance at September 24, 1993 39,950 $ 5.39
Options granted 3,280 5.07
Options exercised (7,220) 5.14
Options terminated (4,410) 4.76
- --------------------------------------------------------------------------------
Balance at September 30, 1994 31,600 4.95
Options granted 2,908 4.60
Options exercised (11,605) 4.76
- --------------------------------------------------------------------------------
Balance at September 29, 1995 22,903 4.47
Options granted 1,145 4.08
Options exercised (4,923) 4.26
- --------------------------------------------------------------------------------
Balance at December 31, 1995 19,125 4.04
Options granted 1,959 3.75
Options exercised (4,022) 3.55
- --------------------------------------------------------------------------------
Balance at December 31, 1996 17,062 $ 3.73
================================================================================
There were no shares available for grants of options under the 1982 Plan
at December 31, 1996; December 31, 1995; September 29, 1995; and September
30, 1994. During calendar year 1996, the Company declared two 5% common
stock dividends. These dividends resulted in an additional 1,959 options
authorized. All shares subject to options were exercisable at the end of
each period presented. At December 31, 1996, options outstanding and
exercisable under the 1982 Plan had an average exercise price of $3.73 and
an average remaining contractual life of 1.48 years.
Option transactions for the 3-year period ended December 31, 1996 under
the 1989 Plan were as follows: (all are ISOs)
Shares Weighted Average
Subject Exercise
to Option Price
- --------------------------------------------------------------------------------
Balance at September 24, 1993 459,345 $ 5.40
Options granted 176,862 6.77
Options exercised (57,061) 5.23
Options terminated (11,663) 4.98
- --------------------------------------------------------------------------------
Balance at September 30, 1994 567,483 5.86
Options granted 199,454 7.28
Options exercised (46,646) 4.59
Options terminated (479) 4.51
- --------------------------------------------------------------------------------
Balance at September 29, 1995 719,812 5.85
Options granted 47,569 6.06
Options exercised (1,447) 7.14
- --------------------------------------------------------------------------------
Balance at December 31, 1995 765,934 5.60
Options granted 262,441 8.51
Options exercised (132,255) 4.39
Options terminated (51,359) 6.59
- --------------------------------------------------------------------------------
Balance at December 31, 1996 844,761 $ 6.11
================================================================================
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On May 30, 1996, the Company's stockholders approved an amendment to the
1989 Plan, which was adopted by the Board of Directors on April 25, 1996.
This amendment increased the number of shares available for issuance under
the 1989 plan by 500,000. Additionally, during calendar year 1996, the
Company declared two 5% common stock dividends. These dividends resulted
in an additional 133,983 options authorized.
There were 760,402; 337,501; 332,456 and 431,374 shares available for
grants of options at December 31, 1996, December 31, 1995, September 29,
1995 and September 30, 1994, respectively.
The following table summarizes information about stock options outstanding
under the 1989 Plan at December 31, 1996:
Outstanding Exercisable
Exercise Average Average
Price Average Life Exercise Exercise
Range Shares (years) Price Shares Price
- --------------------------------------------------------------------------------
$3.51-$4.35 378,940 4.40 $ 3.79 373,135 $ 3.78
$6.48-$7.39 272,621 5.04 7.09 208,155 7.22
$9.29 193,200 3.81 9.29
- --------------------------------------------------------------------------------
844,761 4.48 $ 6.11 581,290 $ 5.01
================================================================================
At December 31, 1995, 634,204 options with an average exercise price of
$5.27 were exercisable; at September 29, 1995, 557,442 options with an
average exercise price of $5.41 were exercisable; and at September 30,
1994, 523,625 options with an average exercise price of $5.91 were
exercisable.
As discussed in Note 10, the Company granted options to purchase 84,000
shares of the Company's stock pursuant to a subordinated debt agreement
entered into in 1996. The market price of the Company's stock at the date
of agreement was $10 per share. The exercise price of these options is
$11.90 per share, and they expire on July 31, 2000.
The Company has elected to follow Accounting Principals Board No. 25
"Accounting for Stock Issued to Employees" ("APB 25") in accounting for the
stock option plans. Under APB 25, no compensation cost has been recognized
in 1996, 1995, and 1994. Had compensation cost and fair value been
determined pursuant to Financial Accounting Standard No. 123 (FAS 123)
"Accounting for Stock-Based Compensation", net income would have decreased
from $5,500,000 to $5,294,000 in 1996 and from $3,350,000 to $3,245,000 in
1995. Primary earnings per share would decrease from $1.02 to $0.98 in
1996 and from $0.65 to $0.63 in 1995. Fully diluted earnings per share
would decrease from $1.02 to $0.98 in 1996 and from $0.64 to $0.62 in 1995.
The initial impact of FAS 123 on pro forma earnings per share may not be
representative of the effect on income in future years because options vest
over several years and additional option grants may be made each year. The
weighted average fair value of options granted during 1996 and 1995 under
FAS 123 was $3.21 and $2.45, respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1996 and 1995, respectively:
dividend yield of 2.76% for both years; expected volatility of 54.7% for
both years; risk-free interest rates ranging from 5.17% to 6.26% in 1996
and 5.38% to 6.66% in 1995; and expected lives of 2.6 and 1.2 years for
1996 and 1995, respectively.
In 1992, the Company established the First Albany Companies Inc.
Restricted Stock Plan which authorized the issuance of up to 370,996 shares
of common stock (adjusted for all stock dividends) to
The First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
certain key employees of the Company. Awards under this plan expire over a
four-year period after the award date and are subject to certain
restrictions including continued employment. As of December 31, 1996,
105,226 shares have been awarded under this plan. The fair market value of
the awards will be amortized over the period in which the restrictions are
outstanding.
The Company has various other incentive programs which are offered to
eligible employees. These programs consist of cash incentives and deferred
bonuses. Amounts awarded vest over periods ranging from three to five
years. Costs are amortized over the vesting period and aggregated
$4,484,000 in 1996, $395,000 in the transitional period ending December 31,
1995, $1,343,000 for the year ended September 29, 1995, and $1,828,000 for the
year ended September 30, 1994.
NOTE 15. Commitments and Contingencies
The Company's headquarters, sales offices, and certain office and communication
equipment are leased under noncancellable operating leases, which expire at
various times through 2008. Future minimum annual rentals payable are as
follows:
-------------------------------
-------------------------------
(In thousands of dollars)
1997 $ 5,888
1998 6,166
1999 6,505
2000 4,677
2001 4,286
Thereafter 19,229
-------------------------------
Total $46,751
===============================
Annual rental expense including utilities for the year ended December 31,
1996, the transitional period ending December 31, 1995, and the fiscal
years ended September 29, 1995 and September 30, 1994 approximated
$4,175,000, $906,000, $3,630,000, and $3,955,000, respectively.
In the normal course of business, the Company has been named a defendant,
or otherwise has possible exposure, in several claims. Certain of these
are class actions which seek unspecified damages which could be
substantial. Although there can be no assurance as to the eventual outcome
of litigation in which the Company has been named as a defendant or
otherwise has possible exposure, the Company has provided for those actions
it believes are likely to result in adverse dispositions. Although further
losses are possible, the opinion of management, based upon the advice of
its attorneys and general counsel, is that such litigation will not, in the
aggregate, have a material adverse effect on the Company's liquidity or
financial position, although it could have a material effect on quarterly
or annual operating results in the period in which it is resolved.
The Company is contingently liable under bank stand-by letter of credit
agreements, executed in connection with security clearing activities,
totaling $3,200,000 at December 31, 1996.
NOTE 16. Net Capital Requirements
The Corporation is subject to the SEC's Uniform Net Capital Rule (Rule
15c3-1), which requires the maintenance of minimum net capital. The
Corporation has elected to use the alternative method, permitted
by the Rule, which requires that the Corporation maintain a minimum net
capital equal to 2 percent of aggregate debit balances arising from
customer transactions, as defined. At December 31, 1996, the
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Corporation had net capital of $16,478,000 which equaled 12% of aggregate
debit balances and $13,783,000 in excess of required minimum net capital.
NOTE 17. Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, the Company's customer and correspondent
clearance activities involve the execution, settlement, and financing of
various customer securities transactions. These activities may
expose the Company to off-balance-sheet risk in the event the customer or
other broker is unable to fulfill its contracted obligations, and the
Company has to purchase or sell the financial instrument underlying the
contract at a loss.
The Company's customer securities activities are transacted on either a
cash or margin basis. In margin transactions, the Company extends credit
to its customers, subject to various regulatory and internal margin
requirements, collateralized by cash and securities in the customers'
accounts. In connection with these activities, the Company executes and
clears customer transactions involving the sale of securities not yet
purchased, substantially all of which are transacted on a margin basis
subject to individual exchange regulations. Such transactions may expose
the Company to significant off-balance-sheet risk in the event margin
requirements are not sufficient to fully cover losses that customers may
incur. In the event the customer fails to satisfy its obligations, the
Company may be required to purchase or sell financial instruments at
prevailing market prices to fulfill the customer's obligations.
The Company seeks to control the risks associated with its customer
activities by requiring customers to maintain margin collateral in
compliance with various regulatory and internal guidelines. The Company
monitors required margin levels daily and, pursuant to such guidelines,
requires the customer to deposit additional collateral, or to reduce
positions, when necessary.
The Company's customer financing and securities settlement activities
require the Company to pledge customer securities as collateral in support
of various secured financing sources such as bank loans and securities
loaned. In the event the counterparty is unable to meet its contractual
obligation to return customer securities pledged as collateral, the Company
may be exposed to the risk of acquiring the securities at prevailing market
prices in order to satisfy its customer obligations.
The Company controls this risk by monitoring the market value of
securities pledged on a daily basis and by requiring adjustments of
collateral levels in the event of excess market exposure. In addition, the
Company establishes credit limits for such activities and monitors
compliance on a daily basis.
In addition, the Company has sold securities that it does not currently
own and therefore will be obligated to purchase such securities at a future
date. The Company has recorded these obligations in the financial
statements at the market values of the related securities and will incur a
loss if the market value of the securities increases.
The Company acts as a manager and co-manager in underwriting security
transactions. In this capacity, there is risk if the potential customer
does not fulfill the obligation to purchase the securities. This risk is
mitigated by the fact that the Company deals primarily with institutional
investors. In most cases, no one institutional customer subscribes to the
majority of the securities being sold, thereby spreading the risk for
this type of loss among many established customers. The Company also
maintains credit limits for these activities and monitors compliance with
applicable limits and industry regulations on a daily basis.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 18. Concentrations of Credit Risk
The Company is engaged in various trading and brokerage activities whose
counterparties primarily include broker-dealers, banks, and other financial
institutions. In the event counterparties do not fulfill their
obligations, the Company may be exposed to risk. The risk of default
depends on the credit worthiness of the counterparty or issuer of the
instrument. The Company seeks to control credit risk by following an
established credit approval process, monitoring credit limits, and
requiring collateral where appropriate.
The Company purchases debt securities and may have significant positions
in its inventory subject to market and credit risk. In order to control
these risks, security positions are monitored on at least a daily basis.
Should the Company find it necessary to sell such a security, it may not be
able to realize the full carrying value of the security due to the
significance of the position sold. The Company reduces its
exposure to changes in securities valuation with the use of municipal bond
index futures contracts. (See Note 20.) If a single security position
held in inventory represents a significant portion of net capital, referred
to as "undue concentration" as defined by SEC Rule 15c3-1, the Company may
not be able to realize the full carrying value of the security if the
entire position was required to be sold. The total value of securities
held in inventory at December 31, 1996, December 31, 1995 (unaudited) and
September 29, 1995 which met this criterion was $76,151,000, $29,214,000,
and $8,659,000, respectively. The securities held in inventory at December
31, 1996 which met the criterion were sold subsequently at a net realized
gain.
NOTE 19. Market Value of Financial Instruments
The financial instruments of the Company are reported on the Statement of
Financial Condition at market or fair value or at carrying amounts that
approximate fair value with the exception of its investments described in
Note 6. The fair value of other financial assets and liabilities
(consisting primarily of receivables from and payables to brokers, dealers,
clearing agencies and customers; securities borrowed and loaned; and bank
loans payable) is considered to approximate the carrying value due to the
short-term nature of the financial instruments.
The Company also enters into transactions in financial instruments that
are not recognized in the Statement of Financial Condition. The notional
amounts of the open transactions at December 31, 1996 are disclosed in Note
20.
NOTE 20. Derivative Financial Instruments
The Company does not engage in the proprietary trading of derivative
securities with the exception of highly liquid index futures contracts and
options. These index futures contracts and options are used to hedge
securities positions in the Company's inventory. Gains and losses on these
financial instruments are included as revenues from principal transactions.
Trading profits and losses relating to these financial instruments were as
follows:
================================================================================
(In thousands of
dollars) Year Ended Three-Months Year Ended
December 31, 1996 December 31, 1995 September 29,1995
- --------------------------------------------------------------------------------
Trading Profits-State
and Municipal Bonds $2,032 $2,345 $5,068
Index Futures Hedging 594 (457) (1,350)
Trading Profits-Corporate Stocks 1,159
Options (206)
- --------------------------------------------------------------------------------
Net Revenues $2,626 $1,888 $4,671
================================================================================
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the year ended September 30, 1994, the Company did not engage in
proprietary trading of index future contracts and options.
As of December 31, 1996, the contractual or notional amounts related to
these financial instruments were as follows:
================================================================================
(In thousands of dollars) Average Notional or Year End Notional or
Contract Market Value Contract Market Value
- --------------------------------------------------------------------------------
Index Futures Contracts $(7,750) $(5,881)
- --------------------------------------------------------------------------------
As of September 29, 1995, the contractual or notional amounts related to
these financial instruments were as follows:
================================================================================
(In thousands of dollars) Average Notional or Year End Notional or
Contract Market Value Contract Market Value
- --------------------------------------------------------------------------------
Index Futures Contracts $(5,819) $(20,773)
Options 121 100
The contractual or notional amounts related to these financial instruments
reflect the volume and activity and do not reflect the amounts at risk.
The amounts at risk are generally limited to the unrealized market
valuation gains on the instruments and will vary based on changes in market
value. Futures contracts are executed on an exchange, and cash settlement
is made on a daily basis for market movements. Open equity in the futures
contracts are recorded as receivables from clearing organizations. The
settlement of these transactions is not expected to have a material adverse
effect on the financial condition of the Company.
FIRST ALBANY COMPANIES INC.
SUPPLEMENTARY DATA
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands of dollars, except per share data)
Quarters Ended
- --------------------------------------------------------------------------------
1996 - Calendar Year Mar. 29 June 28 Sep. 27 Dec. 31
- --------------------------------------------------------------------------------
Total revenues $ 40,290 $ 42,213 $ 37,951 $ 47,738
Interest expense (4,954) (5,173) (5,972) (9,932)
- --------------------------------------------------------------------------------
Net revenues 35,336 37,040 31,979 37,806
Total expenses (excluding interest)(32,479) (34,460) (30,375) (35,756)
- --------------------------------------------------------------------------------
Income before income taxes 2,857 2,580 1,604 2,050
Income tax expense (1,103) (995) (673) (821)
- --------------------------------------------------------------------------------
Net income $ 1,754 $ 1,585 $ 931 $ 1,229
================================================================================
Net income per common
and common equivalent share:
Primary $ .32 $ .30 $ .17 $ .23
Fully diluted $ .32 $ .30 $ .17 $ .23
Three months ended
- --------------------------------------------------------------------------------
1995 - Transitional Period Dec. 31
- --------------------------------------------------------------------------------
Total revenues $ 37,404
Interest expense (6,631)
- --------------------------------------------------------------------------------
Net revenues 30,773
Total expenses (excluding interest) (28,291)
- --------------------------------------------------------------------------------
Income before income taxes 2,482
Income tax expense (929)
- --------------------------------------------------------------------------------
Net income $ 1,553
================================================================================
Net income per common
and common equivalent share:
Primary $ .29
Fully diluted $ .29
Quarters Ended
- --------------------------------------------------------------------------------
1995 - Fiscal Year Dec. 31 Mar. 31 June 30 Sept. 29
- --------------------------------------------------------------------------------
Total revenues $ 28,825 $ 27,884 $ 32,760 $ 33,630
Interest expense (4,551) (4,173) (5,681) (5,499)
- --------------------------------------------------------------------------------
Net revenues 24,274 23,711 27,079 28,131
Total expenses (excluding
interest) (22,995) (22,994) (25,494) (26,492)
- --------------------------------------------------------------------------------
Income before income taxes 1,279 717 1,585 1,639
Income tax expense (436) (205) (592) (636)
- --------------------------------------------------------------------------------
Net income $ 843 $ 512 $ 993 $ 1,003
================================================================================
Net income per common
and common equivalent share:
Primary $ .16 $ .10 $ .19 $ .19
Fully diluted $ .16 $ .10 $ .19 $ .19
FIRST ALBANY COMPANIES INC.
All per share figures have been restated for common stock dividends paid.
The sum of the quarters' earnings per share amount does not always equal
the full fiscal year's amount due to the effect of averaging the number of
shares of common stock and common stock equivalents throughout the year.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure.
- --------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- -----------------------------------------------------------
Except as set forth below, the information required by this item will be
contained under the caption "Election of Directors" in the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be
held on or about May 15, 1997. Such information is incorporated herein by
reference to the proxy statement.
Information (not included in the Company's definitive proxy statement for
the 1997 Annual Meeting of Stockholders) regarding certain executive
officers of the Company is as follows:
Edwin T. Brondo, age 49, Vice President of the Company and Senior Vice
President and Chief Administrative Officer of First Albany Corporation,
joined First Albany Corporation in 1993 and was elected Vice President of
First Albany Companies Inc. in 1994. He previously held senior management
positions at Bankers Trust, Goldman Sachs, and Morgan Stanley.
David J. Cunningham, age 50, Chief Financial Officer of the Company and
Senior Vice President and Chief Financial Officer of First Albany
Corporation, joined First Albany Corporation in 1975 and has served as
Chief Financial Officer of First Albany Corporation since 1980 and First
Albany Companies Inc. since fiscal 1986.
Michael R. Lindburg, age 47, Secretary, and General Counsel of the Company, and
Senior Vice President, Managing Director of Retail Sales of First Albany
Corporation, joined First Albany Corporation in 1986 and has served as Vice
President, Secretary, and General Counsel of First Albany Companies Inc. since
1986. He previously served as Vice President and General Counsel of the Boston
Stock Exchange.
Item 11. Executive Compensation.
- --------------------------------
The information required by this item will be contained under the caption
"Compensation of Executive Officers and Directors" in the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be
held on or about May 15, 1997. Such information is incorporated herein by
reference to the proxy statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -----------------------------------------------------------------------
The information required by this item will be contained under the caption
"Stock Ownership of Principal Owners and Management" in the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be
held on or about May 15, 1997. Such information is incorporated herein by
reference to the proxy statement.
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The information required by this item will be contained under the caption
"Certain Transactions" in the Company's definitive proxy statement for the
Annual Meeting of Stockholders to be held on or about May 15, 1997. Such
information is incorporated herein by reference to the proxy statement.
Part IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
- -------------------------------------------------------------------------
(a) (1) The following financial statements are included in Part II, Item 8:
Report of Independent Accountants
Financial Statements:
Consolidated Statements of Income For the Calendar
Year Ended December 31, 1996; the three-month
Transition Period ended December 31, 1995
and; the Fiscal Year Ended September 29, 1995, and
the Fiscal Year Ended September 30, 1994
Consolidated Statements of Financial Condition
as of December 31, 1996, December 31, 1995
(unaudited) and September 29, 1995
Consolidated Statements of Changes in Stockholders'
Equity for the Calendar Year Ended December 31,
1996; the three-month Transition Period ended
December 31, 1995, the Fiscal Year Ended
September 29, 1995, and the Fiscal Year Ended
September 30, 1994
Consolidated Statements of Cash Flows for the
Calendar Year Ended December 31, 1996; the
Three-month Transition Period ended
December 31, 1995; the Fiscal Year Ended
September 29, 1995, and the Fiscal Year Ended
September 30, 1994
Notes to Consolidated Financial Statements
(2) The following financial statement schedule for the periods 1996,
1995, and 1994 are submitted herewith:
Schedule II-Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes
thereto.
(3) Exhibits included herein:
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation of First Albany Companies Inc. (filed as
Exhibit No. 3.1 to Registration Statement No. 33-1353).
3.2 By-laws of First Albany Companies Inc. (filed as Exhibit No. 3.2 to
Registration Statement No. 33-1353).
3.2a By-laws of First Albany Companies Inc., as amended (as filed as
Exhibit No. 3.2a to Form 10-K for the fiscal year ended September 24,
1993).
3.2b By-laws of First Albany Companies Inc., as amended (restated for
purpose of this filing).
4 Specimen Certificate of Common Stock, par value $.01 per share (filed
as Exhibit No. 4 to Registration Statement No. 33-1353).
10.6 Deferred Profit Sharing Plan of First Albany Corporation effective
October 1, 1982, as amended by shareholder vote, dated January 19,
1987 (filed as Exhibit 10.6 to Form 10-K for the fiscal year ended
September 30, 1986).
10.7 Incentive Stock Option Plan of First Albany Corporation effective
October 1, 1982, as amended by shareholder vote, dated January 19, 1987
(filed as Exhibit 10.7 to Form 10-K for the fiscal year ended September
30, 1987).
10.10 First Albany Companies Inc. Stock Bonus Plan effective July 8, 1987
(filed as Registration Statement No. 33-15220 (Form B) dated July 8,
1987).
10.10a First Albany Companies Inc. Stock Bonus Plan, as amended,
effective June 25, 1990 (filed as Registration Statement No. 33-35166
(Form S-8) dated June 25, 1990).
10.10b First Albany Companies Inc. Stock Bonus Plan, as amended,
effective February 4, 1994 (filed as Registration Statement 33-52153
(Form S-8) dated February 4, 1994).
10.10c First Albany Companies Inc. Stock Bonus Plan, as amended,
effective June 2, 1995 (filed as Registration Statement 33-59855
(Form S-8) dated June 2, 1995).
10.10d First Albany Companies Inc. Stock Bonus Plan, as amended,
effective June 2, 1995 (filed as Registration Statement 333-18645
(Form S-8) dated December 23, 1996).
10.12 First Albany Companies Inc. 1989 Stock Incentive Plan effective
February 27, 1989, as approved by shareholder vote dated February 27,
1989 (filed as Exhibit 10.12 to Form 10-K for the fiscal year ended
September 30, 1989).
10.15 Lease dated June 12, 1992, between First Albany Companies Inc.
and Olympia and York Limited Partnership for office space at 53 State
Street, Boston, Massachusetts (filed as Exhibit 10.15 to Form 10-K for
the fiscal year ended September 25, 1992).
10.16 The First Albany Companies Inc. Restricted Stock Plan as adopted
by the Company on April 27, 1992 (filed as Exhibit 10.16 to Form 10-K
for the fiscal year ended September 25, 1992).
(3) Exhibits included herein: (continued)
Exhibit
Number Description
- ------- -----------
10.18 Sublease dated October 13, 1995 between First Albany Companies
Inc. and KeyCorp for office facilities at 30 South Pearl Street,
Albany, New York. (Filed as Exhibit 10.18 to Form 10K for fiscal year
ended September 29, 1995).
10.19 Term Loan Agreement dated March 29, 1996 between First Albany
Companies Inc. and OnBank Trust & Co.
10.20 Subordinated Loan Agreement dated September 16, 1996 between
First Albany Companies Inc. and Sharon M. Duker.
10.21 Master Equipment Lease Agreement dated September 25, 1996 between
First Albany Companies Inc. and KeyCorp Leasing Ltd.
10.22 Lease dated March 21, 1996, between First Albany Companies Inc.
and Mid-City Associates for office space at One Penn Plaza, New York,
New York.
11 Computation of per share earnings.
22 List of Subsidiaries of First Albany Companies Inc.
24 Consent of Coopers & Lybrand L.L.P.
24b Reports on Form 8-K:
No reports on Form 8-K have been filed by the Registrant during the
last quarter of the period covered by this report.
27 Financial Data Schedule BD
FIRST ALBANY COMPANIES INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
PERIODS ENDED DECEMBER 31, 1996, DECEMBER 31, 1995,
SEPTEMBER 29, 1995, AND SEPTEMBER 30, 1994
COL. A COL. B COL. C COL. D COL. E
Additions
Balance at Charged to Balance
Beginning Costs and at End of
Description of Period Expenses Deductions Period
- --------------------------------------------------------------------------------
Allowance for doubtful
accounts -- deducted
from receivables from
customers:
Calendar Year 1996 $ 219,000 $ 120,000 $ 35,000 $ 304,000
Three Month
Transition
Period 1995 $ 125,000 $ 94,000 $ 0 $ 219,000
Fiscal Year 1995 $ 106,000 $ 120,000 $ 101,000 $ 125,000
Fiscal Year 1994 $ 125,000 $ 120,000 $ 139,000 $ 106,000
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FIRST ALBANY COMPANIES INC.
By: /s/ GEORGE C. MCNAMEE
---------------------
George C. McNamee,
Chairman and Co-Chief Executive Officer
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ GEORGE C. MCNAMEE Chairman and Co-Chief
- --------------------- Executive Officer March 26, 1997
George C. McNamee
/s/ ALAN P. GOLDBERG President and Co-Chief
- -------------------- Executive Officer March 26, 1997
Alan P. Goldberg
/s/ DAVID J. CUNNINGHAM Vice President and March 26, 1997
- ----------------------- Chief Financial Officer
David J. Cunningham (Principal Accounting Officer)
/s/ HUGH A. JOHNSON, JR. Vice President and Director March 26, 1997
- ------------------------
Hugh A. Johnson, Jr.
/s/ J. ANTHONY BOECKH Director March 26, 1997
- ---------------------
J. Anthony Boeckh
/s/ WALTER M. FIEDEROWICZ Director March 26, 1997
- -------------------------
Walter M. Fiederowicz
/s/ DANIEL V. MCNAMEE Director March 26, 1997
- ---------------------
Daniel V. McNamee
/s/ CHARLES L. SCHWAGER Director March 26, 1997
- -----------------------
Charles L. Schwager
Director March , 1997
- --------------------
Benaree P. Wiley