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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, 1998 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
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 requirements for the past 90 days. Yes X No
--- ---
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 18, 1999, 6,601,128 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 18, 1999,
which was $14.1875 was approximately $41,475,908.
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 predominantly 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 ("FAAM"). FAAM
serves as investment manager to individual and institutional customers.
FAAM 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. First Albany Enterprise Funding ("FAEF") is another subsidiary
of the Company formed in 1998 as a private equity investment company whose
business is to provide venture capital and merchant banking services to
firms in the high technology sector.
Brokerage services to private client and institutional customers are
provided through First Albany's salesforce of Financial Consultants and
Institutional Salespeople. First Albany believes that its Financial
Consultants and Institutional Salespeople are a key factor to the success
of its business. Over the last five years, the number of full-time
Financial Consultants and Institutional Salespeople has grown from
approximately 246 to 327 as of December 31, 1998, 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 30 Private Client and Institutional
(including Investment Banking) offices in 11 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
- -------------------
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, December 31,
1998 1997 1996
Amount Percent Amount Percent Amount Percent
- ------------------------------------------------------------------------------
(In thousands of dollars)
Securities commissions:
Listed $25,723 11.4% $22,523 11.6% $20,507 12.2%
Over-the-counter 13,654 6.0% 11,327 5.9% 7,749 4.6%
Options 3,256 1.4% 2,843 1.5% 1,894 1.1%
Mutual funds 18,378 8.1% 15,805 8.2% 12,258 7.3%
Other (1) 0.0% 489 0.3% 303 0.2%
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Sub-total 61,010 26.9% 52,987 27.5% 42,711 25.4%
Principal transactions 72,060 31.8% 63,235 32.7% 63,438 37.7%
Investment banking 30,544 13.5% 19,636 10.1% 19,558 11.6%
Clearing revenues 1,055 0.5% 1,090 0.6% 1,100 0.7%
Fees and other 13,200 5.8% 10,550 5.5% 9,144 5.4%
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Total operating
revenues 177,869 78.5% 147,498 76.4% 135,951 80.8%
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Interest income 48,697 21.5% 45,474 23.6% 32,240 19.2%
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Total revenues $226,566 100.0% $192,972 100.0% $168,191 100.0%
Securities Commissions
- ----------------------
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 54 traders,
underwriters, and assistants manage First Albany's inventory of securities.
As of December 31, 1998, First Albany made a market in 228 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, Financial Consultants, and
Institutional Salespeople.
In 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 1998 by securities category where First
Albany acted as principal.
Highest Lowest Average
(In thousands of dollars) Inventory Inventory Inventory
- ------------------------------------------------------------------------------
State and municipal bonds $ 147,203 $ 77,566 $ 108,772
Corporate obligations 21,424 5,644 12,317
Corporate stocks 6,277 1,255 3,454
U.S. Government and federal
agencies obligations 13,730 (4,355) 6,137
Underwriting and Investment Banking
- -----------------------------------
First Albany manages, co-manages, and participates in municipal and
corporate securities distributions. For the periods indicated, the table
below highlights the number and dollar amount of corporate and municipal
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 1998 10 $636,660 108 $166,582
December 1997 12 322,137 110 126,250
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
Municipal 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 1998 344 $39,681,183 380 $4,672,904
December 1997 243 26,480,340 293 4,398,478
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
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 3/4% 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
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December 1998 122,150 73,369 93,375
December 1997 101,571 52,773 69,609
December 1996 75,140 49,631 56,956
December 1995 (three months) 60,880 45,543 50,880
September 1995 56,251 35,440 42,181
September 1994 44,917 30,685 36,412
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, internal audit, 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 Services Department advises customers on a variety of
interrelated financial matters, including investment portfolio review, tax
management, insurance analysis, education and retirement planning, survivor
income needs, and estate tax 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, financial services, energy,
utilities, retailing and basic industry. First Albany employs 13 analysts
and 13 research assistants who support First Albany's institutional
equities and corporate finance activities.
In 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; preparation of research
reports which are provided to retail and institutional customers; and
responses to inquiries from customers. In addition, First Albany purchases
outside research services including economic reports, charts, data bases,
company analyses, and technical analyses.
Private Client Business
- -----------------------
Revenues from First Albany's private client brokerage activities are
generated through customer purchases and sales of stocks, bonds, mutual
funds, and other investment products. For the calendar years ended
December 31, 1998, December 31, 1997 and December 31, 1996, these revenues
accounted for approximately 48%, 52%, and 45% of operating revenues,
respectively.
Institutional Business
- ----------------------
Revenues generated from securities transactions with major institutions for
the calendar years ended December 31, 1998, December 31, 1997, and
December 31, 1996, accounted for approximately 46%, 42%, and 42% of
operating revenues, respectively. Institutional revenues are derived from
sales of tax-exempt securities, taxable debt obligations, and equity
securities.
Employees
- ---------
At December 31, 1998, the Company had 850 full-time employees, of which 234
were Private Client Financial Consultants, 118 were Institutional
Salespeople and Institutional Traders, 173 were in branch sales support,
158 were in other revenue producing positions, 60 were in operations, and
107 were in other support and administrative functions.
New Financial Consultants, Salespeople, and Traders 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
Financial Consultants, Salespeople, and Traders with proven 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
- -----------
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 private client 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, the District of Columbia and Puerto Rico.
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
- ------------------------
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,
1998, First Albany's net capital was $22,336,000 which was 10.4% of its
aggregate debit balances (2% minimum requirement) and $18,023,000 in excess
of required minimum net capital.
Item 2. Properties
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As of February 1999, the Company had a total of 30 Private Client Group
and Institutional Sales and Trading ("Institutional") offices in 11 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, research, information technology ("IT"), operations, and
accounting activities are centralized in the 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 Fairfield, CT Norwich, NY
30 South Pearl St. Private Client Group Private Client Group
Private Client Group
& Institutional
IT, Research, Back Office
Garden City, NY Oneonta, NY
Private Client Group Private Client Group
80 State St. Hartford, CT Pittsfield, MA
Private Client Group Private Client Group Private Client Group
& Institutional
Binghamton (Vestal), NY Johnstown, NY Rancho Santa Fe, CA
Private Client Group Private Client Group Institutional
Bonita Springs, FL Los Angeles, CA San Francisco
Institutional Institutional (Burlingame), CA
Institutional
Boston, MA Manchester, NH
Private Client Group Private Client Group
& Institutional Scranton, PA
IT, Research Institutional
Buffalo, NY Morristown, NJ Stamford, CT
Private Client Group Institutional Research
Burlington (Colchester), VT Minneapolis, MN Syracuse, NY
Private Client Group Institutional Private Client Group
Chadds Ford, PA Nashua, NH Wellesley, MA
Institutional Private Client Group 40 Grove St.
Institutional
Chicago, IL New York, NY 330 Washington St.
Private Client Group One Penn Plaza Private Client Group
Private Client Group
Elmira, NY & Institutional IT,
Private Client Group Research, Back Office
Item 3. Legal Proceedings
- --------------------------
In the normal course of business, the Company has been named a defendant,
or otherwise has possible exposure, in several claims. Certain of these
claims 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 8, 1999 there were approximately 1,391
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, 1998 Quarters Ended
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Stock Price Range Mar. 27 June 26 Sept. 25 Dec. 31
High $ 15 $ 14 3/8 $ 13 7/8 $ 12 3/8
Low $ 11 3/4 $ 12 5/8 $ 9 3/4 $ 8 1/4
Cash Dividend per Share $ 0.05 $ 0.05 $ 0.05 $ 0.05
December 31, 1997 Quarters Ended
- ------------------------------------------------------------------------------
Stock Price Range Mar. 28 June 27 Sept. 26 Dec. 31
High $ 9 3/8 $ 13 1/8 $ 14 $ 14 7/8
Low $ 8 1/4 $ 8 3/8 $ 11 $ 11 1/2
Cash Dividend per Share $ 0.05 $ 0.05 $ 0.05 $ 0.05
December 31, 1996 Quarters Ended
- ------------------------------------------------------------------------------
Stock Price Range Mar. 29 June 28 Sept. 27 Dec. 31
High $ 8 3/8 $ 8 1/2 $ 8 1/2 $ 8 3/4
Low $ 7 3/8 $ 7 3/8 $ 7 3/8 $ 7 1/8
Cash Dividend per Share $ 0.05 $ 0.05 $ 0.05 $ 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, 1998, the total number of treasury shares was
2,808. When appropriate, the Company will consider making additional
purchases.
During calendar 1998, 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 1999, subsequent to the period reflected in this report, the
Company declared the regular quarterly cash dividend of $0.05 per share
payable on February 24, 1999 to shareholders of record on February 10,
1999.
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.
FINANCIAL SUMMARY
(In thousands of dollars except per share amounts)
- ------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Sept. 29, Sept. 30,
For the years ended 1998 1997 1996 1995 1995 1994
- ------------------------------------------------------------------------------
Operating Results
Revenues:
Commissions $ 61,010 $ 52,987 $ 42,711 $ 34,941 $ 31,889 $ 29,553
Principal
transactions 72,060 63,235 63,438 44,821 43,198 36,167
Investment banking 30,544 19,636 19,558 16,311 14,625 19,164
Fees and other 14,255 11,640 10,244 7,530 7,214 6,578
- ------------------------------------------------------------------------------
Operating revenues 177,869 147,498 135,951 103,603 96,926 91,462
Interest income 48,697 45,474 32,240 28,075 26,173 16,222
- ------------------------------------------------------------------------------
Total revenues 226,566 192,972 168,191 131,678 123,099 107,684
Interest expense 39,946 38,615 26,030 21,985 19,904 10,467
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Net revenues 186,620 154,357 142,161 109,693 103,195 97,217
Expenses (excluding
interest):
Compensation and
benefits 130,169 105,080 95,691 74,596 71,064 65,513
Clearing, settlement
and brokerage costs 4,347 3,358 2,868 2,378 2,258 1,894
Communications and
data processing 13,852 12,872 10,897 8,244 7,794 7,198
Occupancy and
depreciation 13,420 13,203 8,527 6,909 6,660 5,710
Selling 7,863 8,027 7,246 5,231 4,817 4,779
Other 9,837 8,915 7,840 5,912 5,382 4,755
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Total expenses
(excl. interest) 179,488 151,455 133,069 103,270 97,975 89,849
- ------------------------------------------------------------------------------
Income before income
taxes 7,132 2,902 9,092 6,423 5,220 7,368
Income tax expense 2,794 1,251 3,592 2,363 1,870 2,876
- ------------------------------------------------------------------------------
Income before
extraordinary gain 4,338 1,651 5,500 4,060 3,350 4,492
Extraordinary gain,
net of $225 taxes 305
- ------------------------------------------------------------------------------
Net income $ 4,338 $ 1,956 $ 5,500 $ 4,060 $ 3,350 $ 4,492
==============================================================================
Per Common Share:*
Earnings-basic $ 0.67 $ 0.31 $ 0.91 $ 0.67 $ 0.55 $ 0.75
Cash dividend 0.20 0.20 0.20 0.20 0.20 0.20
Book value 7.35 6.93 6.85 6.19 5.98 5.59
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Financial Condition:
Total assets $842,898 $831,921 $675,785 $510,081 $543,255 $482,749
Notes payable 4,750 7,271 4,583 1,641 1,791 94
Obligations under
capitalized leases 3,688 3,088 1,426
Subordinated debt 7,500 7,500 5,000
Stockholders'
equity 48,408 44,548 42,274 37,558 36,192 33,230
- ------------------------------------------------------------------------------
*All per share figures have been restated for all 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.
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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.
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 and insurance companies that
offer a variety of investment products.
1998 was another exceptional year for the stock market. The Dow Jones
Industrial Average rose from 7,908 to 9,181 and stock prices, as measured
by the S&P 500, registered a total return of 28.6%. Large company stocks
dominated the market, making this the fourth consecutive year small company
stocks under performed large company stocks. The period from 1994-1998
ranks as the best five year period for large company stocks in 73 years.
The Fed lowered its Federal Funds Rate on three separate occasions and the
yield on long-term U. S. Treasury bonds decreased from 5.92% to 5.10%.
Bonds registered a return of 9.5% as measured by the Lehman Brothers
Government/Corporate Index.
RESULTS OF OPERATIONS
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
1998 vs.
Twelve Months Ended 1997 Percentage
December 31, December 31, Increase Increase
(In thousands of dollars) 1998 1997 (Decrease) (Decrease)
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Revenues:
Commissions $61,010 $52,987 $8,023 15%
Principal transactions 72,060 63,235 8,825 14%
Investment banking 30,544 19,636 10,908 56%
Fees and other 14,255 11,640 2,615 22%
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Operating revenue 177,869 147,498 30,371 21%
Interest income 48,697 45,474 3,223 7%
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Total Revenues 226,566 192,972 33,594 17%
Interest expense 39,946 38,615 1,331 3%
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Net revenues 186,620 154,357 32,263 21%
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Expenses (excluding interest):
Compensation and benefits 130,169 105,080 25,089 24%
Clearing, settlement and
brokerage cost 4,347 3,358 989 29%
Communications and
data processing 13,852 12,872 980 8%
Occupancy and depreciation 13,420 13,203 217 2%
Selling 7,863 8,027 (164) (2%)
Other 9,837 8,915 922 10%
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Total expenses
(excluding interest) 179,488 151,455 28,033 19%
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Income before income taxes 7,132 2,902 4,230 146%
Income tax expense 2,794 1,251 1,543 123%
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Income before
extraordinary items 4,338 1,651 2,687 163%
Extraordinary gain,
net of $225 taxes 305 (305) (100%)
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Net Income $4,338 $1,956 $2,382 122%
==============================================================================
Net interest income:
Interest income $48,697 $45,474 $3,223 7%
Interest expense 39,946 38,615 1,331 3%
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Net interest income $8,751 $6,859 $1,892 28%
==============================================================================
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Calendar Year 1998 Compared with Calendar Year 1997
Net Income
- ----------
Net income for the calendar year ended December 31, 1998 was $4.3 million
or $0.67 basic earnings per share compared to $2.0 million or $0.31 basic
earnings per share a year ago. This year's net revenue gains reflect an
increase in each of the Company's divisions. Net revenues in the Company's
Institutional Division were up 33% compared to the same period last year
(taxable fixed income had an increase of over 60%, equities increased 30%
while municipals increased 14%), while the Private Client Group's net
revenues increased 13%.
Commissions
- -----------
Commission revenues increased $8.0 million or 15% in calendar 1998
reflecting active trading in all major markets. Revenues from listed
stocks and over-the-counter agency stock commissions increased $5.5 million
or 15% with mutual fund commission revenues increasing $2.5 million or 16%.
Principal Transactions
- ----------------------
Principal transactions increased $8.8 million or 14% in calendar 1998.
This was comprised of an increase in taxable fixed income of $10.6 million
partially due to increased opportunity in international markets, an
increase in investment income of $0.7 million, and a decrease in municipal
bonds of $2.5 million, with equity securities remaining stable.
Investment Banking
- ------------------
Investment banking increased $10.9 million or 56% in calendar 1998,
primarily due to favorable market conditions during this period. Revenues
from selling concessions increased $5.1 million (equities increased $0.5
million, municipals increased $3.1 million and taxable fixed income
increased $1.5 million), underwriting fees increased $1.1 million (equities
increased $0.5 million and municipals increased $0.6 million), and
investment banking fees increased $4.7 million (equities increased $2.6 and
municipals increased $2.1 million).
Fees and Other
- --------------
Fees and other revenues increased $2.6 million or 22% in calendar 1998
resulting partially from the firm's focus to increase fee based revenue.
Net Interest Income
- -------------------
Net interest income increased $1.9 million or 28% in calendar 1998, due
primarily to higher levels of margin borrowings by the Company's clients.
Compensation and Benefits
- -------------------------
Compensation and benefits increased $25.1 million or 24% in calendar 1998
due primarily to higher levels of revenues and profitability. Sales-
related compensation increased $23.2 million, salaries increased $1.9
million, and benefits remained stable.
Clearance, Settlement and Brokerage Costs
- -----------------------------------------
Clearance, settlement and brokerage costs increased $1.0 million or 29%
in calendar 1998 due primarily to increases in listed agency transactions
and customer options activity.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Communications and Data Processing
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Communications and data processing increased $1.0 million or 8% in
calendar 1998. Communications expense increased $0.5 million due mainly to
the firm's upgrade in market data services and the growth of its business
related activity. Data processing expense increased $0.5 million due
mainly to a greater number of transactions.
Income Taxes
- ------------
Income taxes increased $1.5 million in calendar 1998 due primarily to an
increase in pre tax earnings.
Equity Investments
- ------------------
At December 31, 1998, the Company owned approximately 2,444,000 common
shares (34% of the shares outstanding) of Mechanical Technology
Incorporated (MTI). The Company's investment in MTI is recorded under the
equity method and approximated $4,487,000, which included goodwill of
approximately $700,000, which is being amortized over 10 years. For the
years ended December 31, 1998, and 1997, the Company's equity in MTI's net
(loss)income, recorded on a one-quarter delay basis, was ($1,488,000) and
$1,168,000, respectively. For the three month period ended December 31,
1998, MTI reported an unaudited loss of approximately $1.6 million. The
Company's equity in MTI's net loss, was a loss of $544,000, and will be
recorded in the quarter ending March 26, 1999.
In June 1997, Plug Power L.L.C., a joint venture between MTI and Edison
Development Corp. ("EDC"), a subsidiary of DTE Energy Corporation, was
formed. MTI and EDC have each stated they intend to contribute $5 million
to Plug Power to fund continuing operations for the period August 1, 1998
through March 31, 1999. Under applicable accounting standards, MTI
recognized its proportionate share of loss in Plug Power to the extent of
such investment. This resulted in a $3.8 million loss in MTI's fourth
quarter. The Company recognized its proportionate share (34%) of MTI's
losses and reduced its pre-tax income by $1.3 million during its fourth
quarter.
MTI distributed to holders of record of shares of its common stock as of
the close of business on August 12, 1998 (the "Record Date"), non
transferrable subscription rights to purchase additional shares of common
stock at an exercise price of $6.00 per share (the "Rights Offering"). One
right was granted for each five shares of common stock held on the Record
Date. The rights expired September 24, 1998. First Albany Companies,
Inc., exercised rights for a total of 407,340 shares of MTI common stock
during the month of September 1998.
At December 31, 1998, the aggregate market value of the Company's shares
in MTI was $19,705,000. Under the equity method, the market value of MTI's
stock is not included in the calculation of the Company's investment.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
1997 vs.
Twelve Months Ended 1996 Percentage
December 31, December 31, Increase Increase
(In thousands of dollars) 1997 1996 (Decrease) (Decrease)
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Revenues:
Commissions $52,987 $42,711 $10,276 24%
Principal transactions 63,235 63,438 (203) 0%
Investment banking 19,636 19,558 78 0%
Fees and other 11,640 10,244 1,396 14%
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Operating revenue 147,498 135,951 11,547 9%
Interest income 45,474 32,240 13,234 41%
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Total Revenues 192,972 168,191 24,781 15%
Interest expense 38,615 26,030 12,585 48%
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Net revenues 154,357 142,161 12,196 9%
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Expenses (excluding interest):
Compensation and benefits 105,080 95,691 9,389 10%
Clearing, settlement and
brokerage cost 3,358 2,868 490 17%
Communications and
data processing 12,872 10,897 1,975 18%
Occupancy and depreciation 13,203 8,527 4,676 55%
Selling 8,027 7,246 781 11%
Other 8,915 7,840 1,075 14%
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Total expenses
(excluding interest) 151,455 133,069 18,386 14%
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Income before income taxes 2,902 9,092 (6,190) (68%)
Income tax expense 1,251 3,592 (2,341) (65%)
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Income before extraordinary
items 1,651 5,500 (3,849) (70%)
Extraordinary gain,
net of $225 taxes 305 305
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Net Income $1,956 $5,500 $(3,544) (64%)
===============================================================================
Net interest income:
Interest income $45,474 $32,240 $13,234 41%
Interest expense 38,615 26,030 12,585 48%
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Net interest income $6,859 $6,210 $649 10%
==============================================================================
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Calendar Year 1997 Compared with Calendar Year 1996
Net Income
- ----------
Net income for the calendar year ended December 31, 1997, was $2.0
million or $0.31 basic earnings per share compared to $5.5 million or $0.91
basic earnings per share a year ago. This year's increase in net revenues
of $12.2 million primarily reflects increases in the Company's Private
Client Group. Although earnings continued to improve throughout 1997,
earnings remain negatively impacted by our investment in people and
technology. In the fourth quarter of calendar 1997, we began to see
progress from our cost-reduction efforts with a 5% decrease in non
compensation-related expenses over the previous quarter.
Commissions
- -----------
Commission revenues increased $10.3 million or 24% in calendar 1997
reflecting active trading in all major markets. Revenues from listed
stocks and over-the-counter agency stock commissions increased $5.6 million
or 20%, with mutual fund commission revenues increasing $3.6 million or 29%
and options commissions increased $1.0 million or 50%.
Principal Transactions
- ----------------------
Principal transactions remained stable in calendar 1997. Taxable fixed
income increased $2.4 million, municipal bonds increased $2.1 million,
equities decreased $3.8 million, and investment income decreased $0.9
million.
Investment Banking
- ------------------
Investment banking revenues remained stable in calendar 1997. Revenues
from investment banking fees increased $2.3 million (municipal finance fees
increased $1.6 million while corporate finance fees increased $0.7
million). Selling concessions were down $1.8 million (municipals were the
same as the prior year, equities decreased $1.4 million and taxable fixed
income decreased $0.4 million), and underwriting fees decreased $0.4
million (municipals increased $0.5 million, equities decreased $0.9
million).
Fees and Other
- --------------
Fees and other revenues increased $1.4 million or 14% in calendar 1997
primarily reflecting increased service charge income and financial service
revenues.
Compensation and Benefits
- -------------------------
Compensation and benefits increased $9.4 million or 10% in calendar 1997
due partly to the increase in revenues. Sales-related compensation
increased $3.2 million, salaries increased $3.5 million, and benefits
increased $2.7 million partly due to an increase in medical insurance
costs.
Communications and Data Processing
- ----------------------------------
Communications and data processing increased $2.0 million or 18% in
calendar 1997. Communications expense increased $1.5 million due mainly
to the firm's upgrade in technology and increased headcount. 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 $4.7 million or 55% in
calendar 1997 primarily as a result of the upgrade of our private client
branch technology and the expansion of our private client and institutional
offices in New York City.
Other
- -----
Other expense increased $1.1 million or 14% in calendar 1997 due to an
increase in consulting fees and investments in enhanced client
communications.
Extraordinary Gain, net of taxes
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The Company realized an extraordinary gain of $0.3 million, net of taxes.
This extraordinary gain was the result of the Company's investment in
Mechanical Technology Incorporated ("MTI"). The Company's investment in
MTI is recorded under the equity method. The Company recorded its share of
MTI's extraordinary gains as an extraordinary gain on the Company's books.
During the first quarter of MTI's 1997 fiscal year, MTI realized an
extraordinary gain due to the extinguishment of debt.
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)
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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 other 10,244 7,530 2,714 36%
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Operating revenues 135,951 103,603 32,348 31%
Interest income 32,240 28,075 4,165 15%
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Total Revenues 168,191 131,678 36,513 28%
Interest expense 26,030 21,985 4,045 18%
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Net revenues 142,161 109,693 32,468 30%
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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%
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Total expenses
(excluding interest) 133,069 103,270 29,799 29%
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Income before income taxes 9,092 6,423 2,669 42%
Income tax expense 3,592 2,363 1,229 52%
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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%
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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 $0.91 basic earnings per share compared to $4.1 million or $0.67
basic earnings per share a year ago. Net revenues increased by 40% in the
Company's Institutional Division compared to last year (equities increased
58%, taxable fixed income increased 49% and municipals increased 20%),
while revenues in the Private Client Group increased nearly 31%. In the
second half of 1996, continued strong revenues were offset in part by our
investment in people and systems.
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 Other
- --------------
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 Company'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.
Occupancy and Depreciation
- --------------------------
Occupancy and depreciation expense increased $1.6 million or 23% in
calendar 1996 primarily as a result of our continuing investment in new
automated systems.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Selling
- -------
Selling expense increased $2.0 million or 39% in calendar 1996 mainly
reflecting greater promotional- related expenses resulting from increased
retail and institutional activity.
Other
- -----
Other expense increased $1.9 million or 33% in calendar 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.)
LIQUIDITY AND CAPITAL RESOURCES
A substantial portion of the Company's assets, similar to other
brokerage and investment banking firms, is liquid, consisting of cash and
assets readily convertible into cash. These assets are financed primarily
by the Company's interest bearing and non interest bearing payables to
customers, payables to brokers and dealers secured by loaned securities,
and bank lines-of-credit. Securities borrowed and securities loaned along
with receivables from customers and payable to customers will fluctuate
primarily due to the current level of business activity in these areas.
Securities owned will fluctuate as a result of the changes in the level of
positions held to facilitate customer transactions and changes in market
conditions. Short-term bank loans and securities loaned, net, increased
primarily due to an increase in net customer receivables and an increase in
receivable from others. Receivables from others and payables to others
will fluctuate primarily due to the change in the adjustment to record
securities owned on a trade date basis.
At fiscal year-end 1998, First Albany Corporation, a registered broker-
dealer subsidiary of First Albany Companies Inc., was in compliance with
the net capital requirements of the Securities and Exchange Commission and
had capital in excess of the minimum required.
Management believes that funds provided by operations and a variety of
bank lines-of-credit-totaling $250,000,000 of which approximately
$145,321,000 were unused as of December 31, 1998,-will provide sufficient
resources to meet present and reasonably, foreseeable short-term financial
needs.
During 1998, 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.
In January 1999, subsequent to the period reflected in this report, the
Company declared the regular quarterly cash dividend of $0.05 per share
payable on February 24, 1999, to shareholders of record on February 10,
1999.
Management believes that funds provided by operations will be sufficient
to fund the acquisition of office equipment, leasehold improvements, and
other long-term requirements.
Year 2000
- ---------
The Year 2000 Issue (Y2K) concerns the potential impact of historic
computer software code that only utilizes two digits to represent the
calendar year (e.g., "98" for "1998"). Software so developed and not
corrected, could produce inaccurate or unpredictable results commencing
January 1, 2000, when current and future dates present a lower two-digit
year number than dates in the prior century. The Company, similar to most
securities institutions, is significantly subject to the potential impact
of the Y2K due to the nature of the industry. Potential impacts to the
Company may arise from software, computer hardware, and other equipment
both within the Company's direct control and outside the Company's
ownership, yet with which the Company interfaces either electronically or
operationally. Securities industry regulators have intensively focused upon
Y2K exposures issuing guidance concerning the responsibilities of senior
management and directors. Y2K testing and certification is being addressed
as a key safety and soundness issue in conjunction with regulatory
examinations of securities firms.
In August 1998, the Company filed form BD-Y2K, a mandatory filing with
the Securities & Exchange Commission, New York Stock Exchange and National
Association of Securities Dealers describing its Y2K compliance efforts and
its Y2K readiness status. The Company will file the second of these
mandatory filings in April 1999. The SEC has highly prioritized Y2K
compliance in order to avoid major disruptions to the operations of
securities institutions. Institutions failing to file this mandatory
disclosure may be and in some cases already have been subject to formal
enforcement action, supervisory agreements, cease and desist orders or
civil money penalties.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
The Project
- -----------
The Company has initiated a comprehensive project to prepare its
internally and externally dependent computer and peripheral systems for the
year 2000, and have completed changes to critical systems. This will allow
time for first quarter 1999 industry testing and to assure the accurate
processing of information and data for January 1, 2000. The approach is
multiphase, as follows:
Phase I - Inventory & Assessment: A comprehensive inventory of all
hardware, software, vendor interfaces and service providers is being
completed and stored in a database that allows for easy access and
updating.
Phase II - Planning, Analysis & Design: The detailed Project Plan has
been completed, to allow for easy tracking and updating.
Phase III - Remediation: In some cases, remediation is undertaken either
by the Company or by an outsourced third party in the form of upgrades,
replacements or code fixes. In other cases, the Company monitors its
vendors' progress in making its systems Y2K compliant.
Phase IV - Testing: As programs and hardware are fixed, replaced or
upgraded, they are extensively tested before being placed into production.
Phase V - Implementation: All production-ready systems (hardware,
software, and programming) are placed into production and carefully
monitored.
Phase VI - Post Implementation: The Company will keep a careful eye out
for any new products put into production after the Y2K plan has been fully
executed.
The Company is currently participating in external testing with its
service providers and is participating in industry-wide testing. In
addition to our own testing, securities industry service providers, such as
the New York Stock Exchange, the Depository Trust Company and the National
Securities Clearance Corporation, are conducting tests of the critical
clearance and execution systems that drive the industry as a whole. This is
being done with the oversight of the Securities and Exchange Commission.
State of Readiness
- ------------------
The Company had defined "mission-critical" applications as those
necessary for the Company to continue with business as usual. Beta Systems,
which represents 90% of the Company's mission-critical applications,
provides the Company with its official books and records, order entry and
clearing capabilities related to securities transaction processing. Beta
Systems has certified to the Company that they are Y2K compliant. Full
testing with Beta Systems, for mission critical applications, began in the
third quarter of 1998 and was completed in the fourth quarter of 1998.
Testing of non mission critical applications began during the fourth
quarter 1998 and will be completed in the first quarter of 1999. The
Company is utilizing BETA Systems for participation in Industry Wide
Testing and it is not until this testing is final that the Company will
have independent verification of BETA System's compliance.
The Company has included facilities management concerns in its overall
Y2K plan. This includes issues with power, HVAC, elevators, fire alarm
systems, and security systems, among others. The Company is confident that
these systems will work normally after January 1, 2000. The Company has
delayed several Information Technology projects so thatY2K issues could be
timely and efficiently dealt with. The delay of these projects has not
affected the Company's financial condition and the results of operations.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
The Costs to Address the Company's Y2K Issues
- ---------------------------------------------
The Company has allocated a budget of $1.2 million for the Y2K project.
The Company has spent $175,000 on its Y2K project through the fourth
quarter 1998. This amount was spent on upgrades to its Novell and NT
operating systems, upgrading three voice/data applications, and building a
Y2K compliant environment. The Company has committed $1.1 million in funds
to be paid in the first and second quarters of 1999. This amount will
include the replacement of non compliant desktop machines, which will be
capitalized, as well as independent-verification testing of its internal
applications which will be expensed as incurred. These costs are being
funded through operating cash flow. All internal remediation has been
accomplished by utilizing existing Company personnel. The Company's Y2K
budget does not reflect the costs of the extensive resource allocation and
management from internal sources. The Novell, NT, voice/data applications
and the rollout of new desktop computer projects were all accelerated to
meet the Company's Y2K project deadlines.
The Risks of the Company's Y2K Issues
- -------------------------------------
The failure to correct a material Y2K problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Company's results of operations, liquidity and financial condition. Due to
the general uncertainty inherent in the Y2K problem, resulting in part from
the uncertainty of the Y2K readiness of third-party suppliers and
customers, the Company is unable to determine at this time whether the
consequences of Y2K failures will have a material impact on the Company's
results of operations, liquidity or financial condition.
Although all of Company's internal critical systems are now believed to
be compliant, the Company cannot give any assurances that this result was
actually achieved. Specific factors that give rise to this uncertainty
include: failure to identify all susceptible systems, non compliance by
third parties whose systems and operations impact the Company, and other
similar uncertainties. A reasonably possible worst case scenario might
include one or more of the Company's significant systems being non
compliant. Such an event could result in a material disruption to the
Company's operations. Specifically, the Company could experience an
interruption in its ability to process trades, safeguard and manage its
invested assets and operating cash accounts, accurately maintain client
information, accurately maintain accounting records, and/or perform adequate
customer service. Should the worst-case scenario occur it could, depending
on its duration, have a material impact on the Company's results of
operations and financial position.
The Company believes that, with implementation and completion of its Y2K
project, the possibility of significant interruptions of normal business
operations should be reduced.
The Company's Contingency Plans
- -------------------------------
There are certain industry-service centers that are so fundamental to the
securities business that they cannot be replaced. The Company acknowledges
that while a close watch must be kept on these, they have not been factored
into the Company's contingency strategy. These service centers include, but
are not limited to the following:
National Exchanges (NYSE, AMEX, NASDAQ, CBOT, etc.)
DTC Trading systems
Local and long-distance telephone carriers
Utility companies, including gas and electric
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
The Company has determined that if it cannot independently confirm
through extensive testing that Beta Systems is Y2K compliant, it will be
necessary to convert to a service bureau that is compliant. While the
Company believes that Beta Systems will be able to prove their compliance
within an acceptable time frame, the Company has contracted with an
established service bureau to convert the Company in the event that Beta
Systems is determined to be non compliant. The Company will make this
decision early in the third quarter 1999 to allow enough time for the
conversion. The Company will continue to reassess the need for formal
contingency plans based on progress of Y2K efforts by the Company and third
parties.
New Accounting Standards
- ------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction.
The Company will adopt SFAS 133 in its 2000 fiscal year, as required, and
has not determined whether its implementation will have a material impact
on the Company's financial condition, results of operations or cash flows.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------
MARKET RISK
- -----------
Market risk generally represents the risk of loss that may result from
the potential change in the value of a financial instrument as a result of
fluctuations in interest rates and equity prices, changes in the implied
volatility of interest rate and equity prices and also changes in the
credit ratings of either the issuer or its related country of origin.
Market risk is inherent to both derivative and non-derivative financial
instruments, and accordingly, the scope of the Company's market risk
management procedures extends beyond derivatives to include all market risk
sensitive financial instruments. The Company's exposure to market risk is
directly related to its role as a financial intermediary in customer-
related transactions and to its proprietary trading.
The Company trades 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. The Company is also an active market-maker in
over-the-counter equity markets. In connection with these activities, the
Company may be required to maintain inventories in order to ensure
availability and to facilitate customer transactions. In connection with
some of these activities, the Company attempts to mitigate its exposure to
such market risk by entering into hedging transactions, which may include
highly liquid future contracts, options and U.S. Government securities.
Following is a discussion of the Company's primary market risk exposures
as of December 31, 1998, including a discussion of how those exposures are
currently managed.
Interest Rate Risk
- ------------------
Interest rate risk is a consequence of maintaining inventory positions
and trading in interest-rate-sensitive financial instruments. In
connection with trading activities, the Company exposes itself to interest
rate risk, arising from changes in the level or volatility of interest
rates or the shape and slope of the yield curve. The Company's fixed income
activities also expose it to the risk of loss related to changes in credit
spreads. The Company attempts to hedge its exposure to interest rate risk
primarily through the use of U.S. government securities, highly liquid
futures and options designed to reduce the Company's risk profile.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
A sensitivity analysis has been prepared to estimate the Company's
exposure to interest rate risk of its inventory position. The fair market
value of these securities included in the Company's inventory at December
31, 1998 was $111.9 million. Interest rate risk is estimated as the
potential loss in fair value resulting from a hypothetical one-half percent
decrease in interest rates. At year end, the potential change in fair
value, assuming this hypothetical decrease, was $4.5 million. The actual
risks and results of such adverse effects may differ substantially.
Equity Price Risk
- -----------------
The Company is exposed to equity price risk as a consequence of making
markets in equity securities. Equity price risk results from changes in
the level or volatility of equity prices, which affect the value of equity
securities or instruments that derive their value from a particular stock.
The Company attempts to reduce the risk of loss inherent in its inventory
of equity securities by monitoring those security positions constantly
throughout each day.
Marketable equity securities included in the Company's inventory at
December 31, 1998, which were recorded at a fair value of $2.8 million,
have exposure to equity price risk. This risk is estimated as the
potential loss in fair value resulting from a hypothetical 10% adverse
change in prices quoted by stock exchanges and amounts to $0.3 million.
The actual risks and results of such adverse effects may differ
substantially. The Company's non-trading portfolio at December 31, 1998
had a fair market value of $6,232,000. (See Note 6). This equity price
risk is also estimated as the potential loss in fair value resulting from a
hypothetical 10% adverse change in prices quoted by stock exchanges and
amounts to $0.6 million. Actual results may differ.
CREDIT RISK
- -----------
The Company is engaged in various trading and brokerage activities whose
counterparties primarily include broker-dealers, banks, and other financial
institutions. In the event counterparties do not fulfill their
obligations, the Company may be exposed to risk. The 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 attempts to reduce its
exposure to changes in securities valuation with the use of highly liquid
municipal bond index futures contracts.
OPERATING RISK
- --------------
Operating risk is the potential for loss arising from limitations in the
Company's financial systems and controls, deficiencies in legal
documentation and the execution of legal and fiduciary responsibilities,
deficiencies in technology and the risk of loss attributable to operational
problems. These risks are less direct than credit and market risk, but
managing them is critical, particularly in a rapidly changing environment
with increasing transaction volumes. In order to reduce or mitigate these
risks, the Company has established and maintains an effective internal
control environment which incorporates various control mechanisms at
different levels throughout the organization and within such departments as
Financial and Accounting, Operations, Legal, Compliance and Internal Audit.
These control mechanisms attempt to ensure that operational policies and
procedures are being followed and that the Company's various businesses are
operating with established corporate policies and limits.
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
OTHER RISKS
- -----------
Other risks encountered by the Company include political, regulatory and
tax risks. These risks reflect the potential impact that changes in local
laws, regulatory requirements or tax statutes have on the economics and
viability of current or future transactions. In an effort to mitigate
these risks, the Company seeks to continuously review new and pending
regulations and legislation and their potential impact on its business.
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
Index to Financial Statements and Supplementary Data
----------------------------------------------------
Page
----
REPORT OF INDEPENDENT ACCOUNTANTS 30
FINANCIAL STATEMENTS:
Consolidated Statements of Income For the
Years Ended December 31, 1998,
December 31, 1997 and December 31, 1996. 31
Consolidated Statements of Financial Condition
as of December 31, 1998 and December 31, 1997 32
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31,
1998, December 31, 1997 and December 31, 1996 33
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998,
December 31, 1997 and December 31, 1996. 34-35
Notes to Consolidated Financial Statements 36-51
SUPPLEMENTARY DATA:
Selected Quarterly Financial Data (Unaudited) 52
Report of Independent Accountants
To the Board of Directors and
Stockholders of First Albany Companies Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) present fairly, in all material respects, the
financial position of First Albany Companies Inc. at December 31, 1998 and
1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 14(a)
presents fairly, in all material aspects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
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 of these statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS L.L.P.
February 12, 1999
First Albany Companies Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars except per share amounts)
December 31, December 31, December 31,
For the years ended 1998 1997 1996
- -----------------------------------------------------------------------------
Revenues:
Commissions $ 61,010 $ 52,987 $ 42,711
Principal transactions 72,060 63,235 63,438
Investment banking 30,544 19,636 19,558
Interest 48,697 45,474 32,240
Fees and other 14,255 11,640 10,244
- -----------------------------------------------------------------------------
Total revenues 226,566 192,972 168,191
Interest expense 39,946 38,615 26,030
- -----------------------------------------------------------------------------
Net revenues 186,620 154,357 142,161
- -----------------------------------------------------------------------------
Expenses (excluding interest):
Compensation and benefits 130,169 105,080 95,691
Clearing, settlement and
brokerage costs 4,347 3,358 2,868
Communications and data
processing 13,852 12,872 10,897
Occupancy and depreciation 13,420 13,203 8,527
Selling 7,863 8,027 7,246
Other 9,837 8,915 7,840
- -----------------------------------------------------------------------------
Total expenses (excluding interest) 179,488 151,455 133,069
- -----------------------------------------------------------------------------
Income before income taxes 7,132 2,902 9,092
Income tax expense 2,794 1,251 3,592
- -----------------------------------------------------------------------------
Income before extraordinary items 4,338 1,651 5,500
Extraordinary gain, net of $225 taxes 305
- -----------------------------------------------------------------------------
Net income $ 4,338 $ 1,956 $ 5,500
=============================================================================
Basic Earnings Per Share:
Income before extraordinary gain $0.67 $0.26 $0.91
Extraordinary gain 0.00 0.05 0.00
- -----------------------------------------------------------------------------
Net Income $0.67 $0.31 $0.91
=============================================================================
Dilutive Earnings Per Share:
Income before extraordinary gain $0.61 $0.24 $0.84
Extraordinary gain 0.00 0.04 0.00
- -----------------------------------------------------------------------------
Net Income $0.61 $0.28 $0.84
=============================================================================
*All per share figures have been restated to reflect all 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,
1998 1997
- -----------------------------------------------------------------------------
Assets
Cash $ 1,424 $ 951
Cash segregated under federal regulations
Securities purchased under agreement
to resell 1,631 5,299
Securities borrowed 470,693 468,786
Receivables from:
Brokers, dealers and clearing agencies 6,434 4,421
Customers 194,401 182,976
Others 12,228 7,760
Securities owned 118,370 121,116
Investments 10,719 7,026
Office equipment and leasehold
improvements, net 11,390 14,057
Other assets 15,608 19,529
- -----------------------------------------------------------------------------
Total Assets $ 842,898 $ 831,921
=============================================================================
Liabilities and Stockholders' Equity
Liabilities
Short-term bank loans $ 104,679 $ 99,702
Securities sold under agreement
to repurchase 891
Securities loaned 565,571 547,847
Payables to:
Brokers, dealers and clearing agencies 4,862 2,955
Customers 48,467 49,181
Others 17,742 37,201
Securities sold but not yet purchased 2,814 8,440
Accounts payable 4,970 4,196
Accrued compensation 23,584 13,025
Accrued expenses 5,863 6,076
Notes payable 4,750 7,271
Obligations under capitalized leases 3,688 3,088
- -----------------------------------------------------------------------------
Total Liabilities 786,990 779,873
- -----------------------------------------------------------------------------
Commitments and Contingencies
Subordinated debt 7,500 7,500
- -----------------------------------------------------------------------------
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 6,584,464
and 5,943,381 respectively 66 59
Additional paid-in capital 40,354 33,024
Retained earnings 8,001 12,070
Less treasury stock at cost (13) (605)
- -----------------------------------------------------------------------------
Total Stockholders' Equity 48,408 44,548
- -----------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 842,898 $ 831,921
=============================================================================
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, 1998,
December 31, 1997 and December 31, 1996.
(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
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)
Issuance of re-
stricted stock 261 (39) 51,411 287
Stock dividends
declared 552,787 5 7,172 (7,177) (21,765)
Cash dividends paid (1,072)
Options exercised (154) 172,884 1,035
Net income 1,956
- -------------------------------------------------------------------------------
Balance
December 31, 1997 5,943,381 59 33,024 12,070 (109,279) (605)
Issuance of re-
stricted stock (655) 132 33,059 178
Stock dividends
declared 609,176 6 7,500 (7,506) (4,689)
Cash dividends paid (1,165)
Options exercised 31,907 1 243 132 67,136 354
Treasury stock sold 102 10,965 60
Non-employee options 140
Net income 4,338
- -------------------------------------------------------------------------------
Balance
December 31, 1998 6,584,464 $ 66 $ 40,354 $ 8,001 (2,808) $ (13)
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)
Dec. 31, Dec. 31, Dec. 31,
For the years ended 1998 1997 1996
- -----------------------------------------------------------------------------
Cash flows from operating activities:
Net income $4,338 $1,956 $5,500
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 4,429 4,562 3,230
Deferred income taxes (901) 2,251 146
Undistributed earnings of affiliate 1,488 (1,168) (555)
Unrealized investment gains (2,916) (117) (2,343)
Realized gains on sale of investments (475) (770)
Loss on sale of fixed assets 60
Services provided in exchange for
common stock 637 509 798
(Increase) decrease in operating assets:
Cash and securities segregated under
federal regulations 1,300
Securities purchased under agreement
to resell 3,668 (2,430) (2,869)
Net receivables from brokers,
dealers, and clearing agencies (106) (2,760)
Net receivable from customers (12,139) (53,839) (28,471)
Securities owned, net (2,880) 33,403 (69,900)
Other assets 3,980 (11,945) (4,158)
Increase (decrease) in operating
liabilities:
Securities loaned, net 15,817 73,388 6,312
Net payables to brokers, dealers,
and clearing agencies 5,244
Net payable to others (27,869) (16,494) 48,934
Accounts payable and accrued expenses 11,120 4,098 4,717
- ------------------------------------------------------------------------------
Net cash (used in) provided by operating
activities (1,749) 30,644 (32,115)
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of furniture, equipment,
and leaseholds (226) (2,682) (8,288)
Purchases of investments (2,444) (15) (1,789)
Proceeds from sale of investments 570 1,045
- ------------------------------------------------------------------------------
Net cash used in investing activities (2,100) (1,652) (10,077)
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds (payments) of short-term
bank loans, net 4,977 (35,010) 22,420
Proceeds from subordinated debt 2,500 5,000
Proceeds of notes payable 5,000 5,500
Payments of notes payable (2,521) (2,312) (2,558)
Payments of obligations under
capitalized leases (912) (425) (25)
Securities sold under agreement
to repurchase (891) 891
Payments for purchases of common
stock for treasury (1,245)
Proceeds from issuance of common
stock from treasury 892 881 595
Net increase (decrease) from borrowing
under line-of-credit agreements 3,942 (2,499) 11,992
Dividends paid (1,165) (1,072) (932)
- -----------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 4,322 (32,046) 40,747
- -----------------------------------------------------------------------------
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)
(continued)
Dec. 31, Dec. 31, Dec. 31,
For the years ended 1998 1997 1996
- ------------------------------------------------------------------------------
Increase (decrease) in cash 473 (3,054) (1,445)
Cash at beginning of the period 951 4,005 5,450
- ------------------------------------------------------------------------------
Cash at the end of the period $ 1,424 $ 951 $ 4,005
==============================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Income Tax Payments $ 956 $ 681 $ 3,410
Interest Payments $39,837 $39,808 $25,404
In 1998, 1997 and 1996, the Company entered into capital leases for office
and computer equipment totaling approximately $1,513,000, $2,087,000 and
$1,451,000, respectively.
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 Securities 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
("FAAM"). Under management agreements, FAAM serves as investment manager
to individual and institutional customers. FAAM 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. First Albany Enterprise
Funding ("FAEF") is also a subsidiary of the Company formed in 1998 as a
private equity investment company whose business is to provide venture
capital and merchant banking services to firms in the high technology
sector. 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.
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. The related amounts receivable and payable for unsettled
securities transactions are recorded net in Receivables or Payables to
Others on the Statement of Financial Condition. 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 from being sold, in which case they are
valued at cost.
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, acquisition and financial 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.
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, 1998 and December 31, 1997,
the Company had entered into resale agreements in the amount of $1,631,000
and $5,299,000, respectively. At December 31, 1998, and December 31, 1997,
the Company had entered into repurchase agreements with counterparties in
the amounts of $0 and $891,000, respectively.
Securities-Lending Activities
- -----------------------------
Securities borrowed and securities loaned transactions 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.
Collateral
- ----------
The Company continues to report assets it has pledged as collateral in
secured borrowing and other arrangements when the secured party cannot sell
or repledge the assets or the Company can substitute collateral or
otherwise redeem it on short notice. The Company generally does not
report assets received as collateral in secured lending and other
arrangements because the debtor typically has the right to redeem the
collateral on short notice.
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, which
are attributed to differences between the financial statement and tax basis
of existing assets and liabilities.
Statement of Cash Flows
- -----------------------
For purposes of the statement of cash flows, the Company has defined cash
equivalents as highly liquid investments, with original maturities of less
than 90 days that are not segregated under federal regulations or held for
sale in the ordinary course of business.
Office Equipment and Leasehold Improvements
- -------------------------------------------
Office equipment and leasehold improvements are stated at cost less
accumulated depreciation of $19,916,000 at December 31, 1998 and
$15,624,000 at December 31, 1997. Depreciation is provided on a straight-
line basis over the shorter of the estimated useful life of the asset (3 to
5 years) or the term of the lease.
Securities Issued for Services
- ------------------------------
The Company accounts for stock and options issued for services by
reference to the fair market value of the Company's stock on the date of
stock issuance or option grant. Compensation expense is recorded for the
fair market value of the stock issued, or in the case of options, for the
difference between the stock's fair market value on the date of the grant
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
and the option exercise price. In the event that recipients are required
to render future services to obtain full rights in the securities received,
the compensation expense so recorded is deferred and amortized as a charge
to income over the period that such rights vest to the recipient.
Reclassification
- ----------------
Certain 1997 and 1996 amounts have been reclassified to conform to the
1998 presentation.
Earnings per Common Share
- -------------------------
Basic earnings per share is computed based upon weighted-average shares
outstanding. Dilutive earnings per share is computed consistently with
basic while giving effect to all dilutive potential common shares that were
outstanding during the period.
December 31, December 31, December 31,
1998 1997 1996
- -----------------------------------------------------------------------------
Net Income $4,338 $1,956 $5,500
- -----------------------------------------------------------------------------
Weighted average shares
for basic EPS 6,510 6,318 6,072
Effect of dilutive common
equivalent shares 638 616 463
- -----------------------------------------------------------------------------
Weighted average shares
and dilutive common
equivalent shares for
dilutive EPS 7,148 6,934 6,535
- -----------------------------------------------------------------------------
Basic EPS $0.67 $0.31 $0.91
Dilutive EPS $0.61 $0.28 $0.84
=============================================================================
All per share figures have been restated for all stock dividends declared.
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, consists of the following:
(In thousands of dollars) December 31, December 31,
1998 1997
- -----------------------------------------------------------------------------
Securities failed to deliver $6,434 $4,421
- -----------------------------------------------------------------------------
Total receivables $6,434 $4,421
=============================================================================
Securities failed to receive $4,862 $2,955
- -----------------------------------------------------------------------------
Total payables $4,862 $2,955
=============================================================================
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.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Total unsecured and partly secured customer receivables were $333,000 and
$341,000 as of December 31, 1998 and December 31, 1997, respectively. An
allowance for doubtful accounts was recorded for $305,000 and $340,000 as
of December 31, 1998 and December 31, 1997 respectively.
NOTE 4. Payables to Others
- -------
Amounts receivables from others as of:
(In thousands of dollars) December 31, December 31,
1998 1997
- -----------------------------------------------------------------------------
Adjustment to record securities
on a trade date basis, net $ 3,773 $
Others 8,455 7,760
- -----------------------------------------------------------------------------
Total $12,228 $ 7,760
=============================================================================
Proprietary securities transactions are recorded on trade date, as if
they had settled. The related amounts receivable and payable for unsettled
securities transactions are recorded net in Receivables or Payables to
Others on the Statement of Financial Condition.
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,
1998 1997
Sold, but Sold, but
not yet not yet
Owned Purchased Owned Purchased
- -------------------------------------------------------------------------------
Marketable
U.S. government and federal
agency obligations $ 6,321 $ 1,626 $18,296 $ 5,482
State and municipal bonds 85,836 54 94,642 57
Corporate obligations 21,434 10 4,646 1,065
Corporate stocks 3,898 1,124 3,061 1,836
Not readily-marketable
securities, fair value 881 471
- ------------------------------------------------------------------------------
$118,370 $ 2,814 $121,116 $ 8,440
==============================================================================
Securities not readily marketable include investment securities (a) for
which there is no market on a securities exchange or no independent
publicly quoted market ($187 at December 31, 1998 and $87 at December 31,
1997), (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 ($694 at December 31, 1998
and $384 at December 31, 1997).
NOTE 6. Investments
- -------
At December 31, 1998, the Company owned approximately 2,444,000 common
shares (34% of the shares outstanding) of Mechanical Technology
Incorporated (MTI). The Company's investment in MTI is recorded under the
equity method and approximated $4,487,000, which included goodwill of
approximately $700,000, which is being amortized over 10 years.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 1998, 1997 and 1996, the Company's equity
in MTI's net (loss)income, recorded on a one-quarter delay basis, was
($1,488,000), $1,168,000 and $555,000, respectively. For the three month
period ended December 31, 1998, MTI reported an unaudited loss of
approximately $1.6 million. The Company's equity in MTI's net loss, was
a loss of $544,000, and will be recorded in the quarter ending March 26, 1999.
The following presents summarized financial information of MTI for the
year ended September 30, 1998:
--------------------------------------------------------
Assets $21,128,000
Liabilities 10,004,000
--------------------------------------------------------
Shareholders' equity $11,124,000
========================================================
--------------------------------------------------------
Net Sales $21,028,000
--------------------------------------------------------
Operating income 1,999,000
Loss from continuing operations (2,031,000)
Loss from discontinued operations (2,285,000)
Net loss $(4,316,000)
========================================================
In June 1997, Plug Power L.L.C., a joint venture between MTI and Edison
Development Corp. ("EDC"), a subsidiary of DTE Energy Corporation, was
formed. MTI and EDC have each stated they intend to contribute $5 million
to Plug Power to fund continuing operations for the period August 1, 1998
through March 31, 1999. Under applicable accounting standards, MTI
recognized its proportionate share of loss in Plug Power to the extent of
such investment. This resulted in a $3.8 million loss in MTI's fourth
quarter. The Company recognized its proportionate share (34%) of MTI's
losses and reduced its pre-tax income by $1.3 million during its fourth
quarter.
MTI distributed to holders of record of shares of its common stock as of
the close of business on August 12, 1998 (the "Record Date"), non
transferrable subscription rights to purchase additional shares of common
stock at an exercise price of $6.00 per share (the "Rights Offering"). One
right was granted for each five shares of common stock held on the Record
Date. The rights expired September 24, 1998. First Albany Companies,
Inc., exercised rights for a total of 407,340 shares of MTI common stock
during the month of September 1998.
At December 31, 1998, the aggregate market value of the Company's shares
in MTI was $19,705,000. Under the equity method, the market value of MTI's
stock is not included in the calculation of the Company's investment.
At December 31, 1998, the Company owned 209,500 shares of META Group,
Inc. The fair market value of this investment was $6,232,000. During the
year ended December 31, 1998, the Company has recorded a realized gain of
$475,000 and net unrealized gains of $2,917,000 with respect to this
investment. During the year ended December 31, 1997, the Company recorded
a realized gain of $770,000 and net unrealized gains of $117,000 with
respect to this investment. During the year ended December 31, 1996, the
Company recorded unrealized gains of $2.3 million with respect to this
investment.
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. This includes Company owned securities and certain
customer-owned securities purchased on margin, subject to certain regulatory
formulas. These loans bear interest at fluctuating rates based primarily on
the Federal Funds interest rate. The weighted average interest rates on
these loans were 5.3%, 6.1%, and 5.9%, at December 31, 1998, December 31,
1997, and December 31, 1996, respectively.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Short-term bank loans were collateralized by Company-owned securities of
$104,095,000 and customers' margin account securities of $23,793,000 at
December 31, 1998.
A note for $1,833,333, 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 (4.43% at December
31, 1998) plus 2.5%. The note matures April 1, 2000.
A note for $2,916,667 is collateralized by fixed assets and is payable in
monthly principal payments of $104,167 plus interest. The interest rate is
2% over the 30-day London InterBank Offered Rate ("LIBOR") (5.07 plus 2% on
December 31 ,1998). One of the more significant covenants requires First
Albany Corporation to maintain a minimum net capital (as defined by Rule
15c3-1 of the Securities and Exchange Commission) equal to three times the
required minimum net capital. The required minimum net capital as of
December 31, 1998, was $4,313,000. The amount of net capital as of December 31,
1998, was $22,336,000. This note matures on March 27, 2001.
Future annual principal loan repayment requirements as of December 31,
1998, are as follows:
(In thousands of dollars)
--------------------------------------
1999 $ 2,625
2000 1,709
2001 416
--------------------------------------
Total $ 4,750
======================================
NOTE 8. Obligations under Capitalized Leases
- -------
The Company entered into capital leases for office equipment. 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, 1998:
(In thousands of dollars)
--------------------------------------------------
1999 $ 1,409
2000 1,375
2001 1,008
2002 291
2003 49
--------------------------------------------------
Total Minimum Lease Payments 4,132
Less: Amount Representing Interest 444
--------------------------------------------------
Present Value of Minimum Lease Payments $ 3,688
==================================================
NOTE 9. Payables To Others
- -------
Amounts payable to others as of:
(In thousands of dollars) December 31, December 31,
1998 1997
- ----------------------------------------------------------------------------
Adjustment to record securities
on a trade date basis, net $ $ 23,737
Borrowing under line-of-credit agreements 14,735 10,793
Others 3,007 2,671
- ----------------------------------------------------------------------------
Total $ 17,742 $ 37,201
============================================================================
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Proprietary securities transactions are recorded on trade date, as
if they had settled. The related amounts receivable and payable for
unsettled securities transactions are recorded net in Receivables or
Payables to Others on the statement of financial condition.
NOTE 10. Subordinated Debt
- --------
During 1997, the Company increased its subordinated debt by $2,500,000.
This debt bears interest at 8.75%. Interest is paid monthly with the
principal amount due at maturity on December 31, 2002. The lender has the
right to exercise stock options on 29,648 shares of the Company's stock at
$16.87 per share. This right expires December 31, 2002. The Company also
has an additional subordinated debt of $5,000,000 which bears interest at
9.25%. Interest is paid monthly with the principal amount due at maturity
on December 31, 2002. The lender has the right to exercise stock options
on 97,241 shares of the Company's stock at $10.29 per share. This right
expires December 31, 2002.
Both loan agreements include restrictive financial covenants. One of the
more significant covenants requires the Company to maintain a minimum net
capital (as defined by Rule 15c3-1 of the Securities and Exchange
Commission) equal to three times the required net capital. The amount of
required net capital as of December 31, 1998 was $4,313,000. The amount of
net capital as of December 31, 1998 was $22,336,000.
NOTE 11. Stockholders' Equity
- --------
Dividends:
During 1998, 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.
In January 1999, the Board of Directors declared the regular quarterly
cash dividend of $0.05 per share payable on February 24, 1999, to
shareholders of record on February 10, 1999.
Rights Plan:
On March 27, 1998, the Board of Directors adopted a Shareholder Rights
Plan. The rights were distributed as a dividend of one right for each
share of First Albany Companies, Inc. common stock outstanding, with a
record date of March 30, 1998. The Shareholder Rights Plan is intended to
deter coercive takeover tactics and strengthen the Company's ability to
deal with an unsolicited takeover proposal.
The rights will expire on March 30, 2008. Each right will entitle the
holder to buy one one-hundredth of a newly-issued share of preferred stock
at an exercise price of $56.00. The rights will become exercisable at such
time as any person or group acquires more than 15% of the outstanding
shares of common stock of the Company (subject to certain exceptions) or
within 10 days following the commencement of a tender offer that will
result in any person or group owning such percentage of the outstanding
voting shares.
Upon any person or group acquiring 15% of the outstanding shares of
voting stock, each right will entitle its holders to buy shares of First
Albany Companies Inc. common stock (or of the stock of the acquiring
company if it is the surviving entity in a business combination) having a
market value equal to twice the exercise price of each right. The rights
will be redeemable at any time prior to their becoming exercisable.
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.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The components of income taxes are:
(In thousands of dollars) December 31, December 31, December 31,
1998 1997 1996
-------------------------------------------------------------------------
Federal
Current $1,897 $ (956) $2,455
Deferred (680) 1,642 (3)
State and local
Current 1,798 181 991
Deferred (221) 609 149
------------------------------------------------------------------------
Total income taxes $2,794 $1,476 $3,592
========================================================================
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 dollars) December 31, December 31, December 31,
1998 1997 1996
- -----------------------------------------------------------------------------
Income taxes at federal
statutory rate $2,425 $1,167 $3,092
State and local income taxes,
net of federal income taxes 1,118 439 753
Meals and entertainment 171 169 160
Tax-exempt interest income, net (970) (405) (420)
Non deductible expenses 50 106 7
- -----------------------------------------------------------------------------
Total income taxes $2,794 $1,476 $3,592
=============================================================================
The temporary differences that give rise to significant portions of
deferred tax assets and liabilities are as follows:
(In thousands of dollars) December 31, December 31,
1998 1997
-----------------------------------------------------------------------
Bad debt reserve $ 127 $ 149
Securities held for investment (1,842) (1,082)
Fixed assets 623 9
Deferred compensation 1,381 577
Other (168) (433)
-----------------------------------------------------------------------
Total deferred tax assets (liablities) $ 121 $ (780)
=======================================================================
The Company has not recorded a valuation allowance for deferred tax
assets since it has determined that it is more likely than not that
deferred tax assets will be fully realized through a combination of future
taxable income and income available in carryback years.
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 years ended December 31, 1998, December 31, 1997, and December
31, 1996, the Company contributed $297,000, $107,000 and $103,000
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.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 years ended December 31,
1998, December 31, 1997 and December 31, 1996, the Company contributed
$864,000, $788,000 and $617,000 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 of the Company 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"). As of December 31, 1998 and December 31, 1997, there were
2,199,673 and 2,041,121 shares authorized for the issuance of options.
These shares include subsequent amendments to the 1989 plan for the
issuance of additional shares, and the cumulative effect of subsequent
stock dividends. 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. Options granted under the 1989 plan vest over a period ranging
from 0 to 5 years.
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, 1998, no SARs have been
granted.
Option transactions for the 36-month period ended December 31, 1998,
under the 1982 Plan were as follows:
Shares Weighted Average
Subject Exercise
to Option Price
- ----------------------------------------------------------------------------
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
Options granted 967 3.15
Options exercised (8,654) 4.04
- ----------------------------------------------------------------------------
Balance at December 31, 1997 9,375 3.07
Options granted 517 2.92
Options exercised (4,335) 3.07
- ----------------------------------------------------------------------------
Balance at December 31, 1998 5,557 $ 2.78
============================================================================
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
There were no shares available for grants of options under the 1982 Plan
at December 31, 1998; December 31, 1997, and December 31, 1996. During
calendar year 1998, the Company declared two 5% common stock dividends.
These dividends resulted in an additional 517 options authorized. All
shares subject to options were exercisable at the end of each period
presented. At December 31, 1998, options outstanding and exercisable under
the 1982 Plan had an average exercise price of $2.78 and expired during
January, 1999.
Option transactions for the 36 month period ended December 31, 1998 under
the 1989 Plan were as follows: (all are ISOs)
Shares Weighted Average
Subject Exercise
to Option Price
- -----------------------------------------------------------------------------
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
Options granted 681,161 10.03
Options exercised (164,230) 5.15
Options terminated (50,616) 8.40
- -----------------------------------------------------------------------------
Balance at December 31, 1997 1,311,076 7.46
Options granted 427,326 11.10
Options exercised (94,708) 7.55
Options terminated (52,356) 8.56
- -----------------------------------------------------------------------------
Balance at December 31, 1998 1,591,338 $ 7.67
=============================================================================
During calendar year 1998, the Company declared two 5% common stock
dividends. These dividends resulted in an additional 158,552 options
authorized.
There were 66,605, 283,023 and 760,402 shares available for grants of
options at December 31, 1998, December 31, 1997, and December 31, 1996.
The following table summarizes information about stock options
outstanding under the 1989 Plan at December 31, 1998:
|----------Outstanding---------------| |------Exercisable-----|
Exercise Average Average
Price Average Life Exercise Exercise
Range Shares (years) Price Shares Price
- -----------------------------------------------------------------------------
$2.89-$3.58 358,733 2.46 $3.14 358,733 $3.14
$5.32-$7.64 305,856 3.76 6.58 210,885 6.14
$8.43-$11.93 863,904 8.58 9.57 205,230 10.69
$12.93 62,845 9.30 12.93 ------- -----
- -----------------------------------------------------------------------------
1,591,338 6.30 $7.67 774,848 $5.95
=============================================================================
At December 31, 1998, 1,591,338 options were outstanding of which 1,246,402
were ISOs and 344,936 were NSOs.
At December 31, 1998, 774,848 options with an average exercise price of
$5.95 were exercisable; at December 31, 1997, 602,333 options with an
average exercise price of $5.19 were exercisable; and at December 31, 1996,
581,250 options with an average exercise price of $5.01 were exercisable.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 1998, 1997, and 1996. 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 $4,338,000 to $3,283,000 in calendar year 1998, $1,956,000 to $1,557,000
in calendar year 1997, and $5,500,000 to $5,388,000 in calendar year 1996.
Basic earnings per share would decrease from $0.67 to $0.50 in 1998, $0.31
to $0.25 in 1997, and $0.91 to $0.89 in 1996. Dilutive earnings per share
would decrease from $0.61 to $0.46 in 1998, $0.28 to $0.22 in year 1997, and
$0.84 to $0.82 in calendar year 1996. The initial impact of FASB 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 1998, 1997 and
1996 under FAS 123 was $8.12, $5.53 and $3.21, respectively. The fair
value of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants: dividend yield 1.5% for both 1998 and 1997,
and 2.76% for 1996; expected volatility of 66.4%, 59.4% and 54.7% for 1998,
1997 and 1996, respectively; risk-free interest rates of 5.0%, 5.5%, and
5.17% to 6.26% for 1998, 1997 and 1996, respectively; and expected lives of
6.0, 5.0, and 2.6 years for 1998, 1997 and 1996, respectively.
In 1992, the Company established the First Albany Companies Inc.
Restricted Stock Plan which authorized the issuance of up to 471,412 shares
of common stock (adjusted for all stock dividends) to 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, 1998, December 31, 1997, and
December 31, 1996, 163,052, 153,229, and 105,226 shares, respectively, 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 ten
years. Costs are amortized over the vesting period and aggregated
$5,859,000 in 1998, $3,641,000 in 1997, and $1,983,000 in 1996.
NOTE 15. Commitments and Contingencies
- --------
The Company's headquarters, sales offices, and certain office and
communication equipment are leased under noncancelable operating leases,
which expire at various times through 2008. Future minimum annual rentals
payable are as follows:
(In thousands of dollars)
----------------------------
1999 $ 7,889
2000 6,827
2001 6,325
2002 5,043
2003 4,012
Thereafter 12,824
----------------------------
Total $ 42,920
============================
Annual rental expense including utilities for the year ended December 31,
1998, December 31, 1997, December 31, 1996, approximated $6,366,000,
$5,565,000 and $4,175,000, respectively.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 1998. The Company also has guaranteed
a note payable to another for $700,000 which is collateralized by assets
where the fair value approximates $700,000.
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, 1998, the Corporation had net
capital of $22,336,000 which equaled 10.4% of aggregate debit balances and
$18,023,000 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 clearing 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 customer's
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.
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 is obligated to purchase such securities at a future date. The
Company has recorded these obligations in the financial statements at the
December 31, 1998 market values of the related securities and will incur a
loss if the market value of the securities increases subsequent to December
31, 1998.
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.
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.)
NOTE 19. Fair 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, due to the short-term nature of the financial
instruments, with the exception of its investment in MTI (Note 6) and its
subordinated debt. The fair value of subordinated debt at December 31,
1998, approximates its carrying value based on current rates available.
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 Year Ended Year Ended
Dec. 31, 1998 Dec. 31,1997 Dec. 31, 1996
- -----------------------------------------------------------------------------
Trading Profits State
and Municipal Bonds $ 4,730 $ 6,840 $ 2,032
Index Futures Hedging (2,172) (2,061) 594
Net Revenues $ 2,558 $ 4,779 $ 2,626
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 1998, 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 ($18,253) ($8,347)
- -----------------------------------------------------------------------------
As of December 31, 1997, 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 ($12,401) ($14,994)
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
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.
NOTE 21. Segment Analysis
- --------
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 is effective for
fiscal years beginning after December 15, 1997. SFAS 131 establishes
standards for reporting financial and descriptive information about an
enterprise's operating segments in its annual financial statements and
selected segment information in interim financial reports.
The Company's reportable operating segments are: Private Client Group,
Institutional Sales and Trading ("Institutional"), and Other. The Private
Client Group provides securities brokerage services to individual
investors. Revenues are generated through customer purchase and sale of
equity securities, taxable and non-taxable fixed income securities, along
with mutual funds and various other investment products and services. The
Institutional segment generates revenues from securities transactions
(equities and fixed-income securities) with major institutions along with
investment banking activities, which includes the managing, co-managing and
participating in tax-exempt and corporate securities underwritings
(excluding sales credits relating to such underwritings which are included
in the Private Client Group). This segment also includes trading activity
in which the Company buys and maintains inventories of fixed-income
products and equities securities (as a "market maker") for sale to other
dealers and to customers. The Other segment revenues are derived from a
variety of sources which include investment income, net interest revenues
relating to securities lending transactions and revenues from correspondent
services.
The Company's Other segment also includes revenue relating to the
Company's investment in Mechanical Technology Incorporated (MTI) which is
recorded under the equity method (see Note 6 - "Investments").
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pre-tax net (loss)income relating to MTI was $(1,488,000), $1,168,000 and
$555,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
The financial policies of the Company's segments are the same as those
described in the "Summary of Significant Accounting Policies."
Intersegment revenues and expenses are eliminated between segments.
Interest revenues and interest expenses are reviewed primarily on a net
basis (Net Interest Revenues) and are shown as such. The Company evaluates
the performance of its segments and allocates resources to them based upon
operating margins. Included in the Other segment are operations,
administrative functions and other support costs along with an accrual for
general discretionary variable compensation which are not allocated to the
various segments. Asset information by reportable segments is not reported
since the Company does not produce such information internally for the
reportable segments. All assets are located in the United States.
Information concerning operations in these segments is as follows:
For years ended December 31, December 31, December 31,
(in thousands of dollars) 1998 1997 1996
- -----------------------------------------------------------------------------
Revenues (excluding interest):
Private Client Group $ 85,183 $ 77,158 $ 68,030
Institutional 86,718 65,206 61,502
Other 5,968 5,134 6,419
- -----------------------------------------------------------------------------
Total $177,869 $147,498 $135,951
=============================================================================
Net Interest Revenues:
Private Client Group $ 3,540 $ 1,397 $ 903
Institutional (1,538) (1,055) (1,104)
Other 6,749 6,517 6,411
- -----------------------------------------------------------------------------
Total $ 8,751 $ 6,859 $ 6,210
=============================================================================
Net Revenues:
Private Client Group $ 88,723 $ 78,555 $ 68,933
Institutional 85,180 64,151 60,398
Other 12,717 11,651 12,830
- -----------------------------------------------------------------------------
Total $186,620 $154,357 $142,161
=============================================================================
Pre-Tax Income:
Private Client Group $ 14,974 $ 16,310 $ 14,523
Institutional 13,073 4,232 2,801
Other (20,915) (17,640) (8,232)
- -----------------------------------------------------------------------------
Total $ 7,132 $ 2,902 $ 9,092
=============================================================================
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 22. New Accounting Standards
- --------
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction.
The Company will adopt SFAS 133 in its 2000 fiscal year, as required, and
has not determined whether its implementation will have a material impact
on the Company's financial condition, results of operations or cash flows.
FIRST ALBANY COMPANIES INC.
SUPPLEMENTARY DATA
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands of dollars, except per share data)
Quarters Ended
- ----------------------------------------------------------------------------
1998 - Calendar Year Mar. 27 June 26 Sep. 25 Dec. 31
- ----------------------------------------------------------------------------
Total revenues $57,098 $55,457 $55,892 $58,119
Interest expense (9,105) (9,871) (10,126) (10,844)
- ----------------------------------------------------------------------------
Net revenues 47,993 45,586 45,766 47,275
Total expenses
(excluding interest) (45,727) (43,698) (43,807) (46,256)
- ----------------------------------------------------------------------------
Income before income taxes 2,266 1,888 1,959 1,019
Income tax expense (859) (801) (811) (323)
- ----------------------------------------------------------------------------
Net income $ 1,407 $ 1,087 $ 1,148 $ 696
============================================================================
Net income per common
and common equivalent share:
Basic $ 0.22 $ 0.17 $ 0.18 $ 0.11
Dilutive $ 0.20 $ 0.15 $ 0.16 $ 0.10
Quarters Ended
1997 - Calendar Year Mar. 28 June 27 Sep. 26 Dec. 31
- -----------------------------------------------------------------------------
Total revenues $42,059 $45,770 $49,741 $55,402
Interest expense (8,424) (9,516) (10,172) (10,503)
- -----------------------------------------------------------------------------
Net revenues 33,635 36,254 39,569 44,899
Total expenses (excluding
interest) (33,605) (35,933) (38,418) (43,499)
- -----------------------------------------------------------------------------
Income before income taxes 30 321 1,151 1,400
Income tax benefit/(expense) 36 (130) (545) (612)
- -----------------------------------------------------------------------------
Income before extraordinary items 66 191 606 788
Extraordinary gain (net of taxes) 305 --- --- ---
- -----------------------------------------------------------------------------
Net income $ 371 $ 191 $ 606 $ 788
=============================================================================
Net income per common
and common equivalent share:
Basic $ 0.06 $ 0.03 $ 0.10 $ 0.13
Dilutive $ 0.06 $ 0.03 $ 0.09 $ 0.11
All per share figures have been restated for common stock dividends paid.
The sum of the quarter 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 18, 1999. Such information is incorporated herein by
reference.
Information (not included in the Company's definitive proxy statement for
the 1998 Annual Meeting of Stockholders) regarding certain executive
officers of the Company is as follows:
Item 11. Executive Compensation.
- --------------------------------
The information required by this item will be contained under the caption
"Compensation of Executive Officers" in the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held on or about May
18, 1999. Such information is incorporated herein by reference.
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 18, 1999. Such information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The information required by this item will be contained under the caption
"Certain Relationships and Related Transactions" in the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be
held on or about May 18, 1999. Such information is incorporated herein by
reference.
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
Years Ended December 31, 1998, December 31, 1997,
and December 31, 1996.
Consolidated Statements of Financial Condition
as of December 31, 1998 and December 31, 1997.
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31,
1998, December 31, 1997 and December 31, 1996.
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, December 31, 1997,
and December 31, 1996.
Notes to Consolidated Financial Statements
(2) The following financial statement schedule for the periods 1998,
1997, and 1996 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).
3.1a Amendment to Certificate of Incorporation of First Albany Companies
Inc. (as filed as Exhibit No. (3) (i) to Form 10-Q for the quarter
ended June 26, 1998).
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 (as filed as
Exhibit No. 3.2b to Form 10-K for the calendar year ended December 31,
1996).
3.2c By laws of First Albany Companies Inc., as amended (as filed as
Exhibit No. 3.2c to Form 10-K for the calendar year ended December 31,
1997).
3.2d By laws of First Albany Companies Inc., as amended (as filed as
Exhibit (3) (ii) to Form 10-Q for the quarter ended June 26, 1998).
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).
(3) Exhibits included herein: (continued)
Exhibit
Number Description
- ------- -----------
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).
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. (Filed as Exhibit 10.19 to Form
10K for calendar year ended December 31,1996).
10.20 Subordinated Loan Agreement dated September 16, 1996, between First
Albany Companies Inc. and Sharon M. Duker. (Filed as Exhibit 10.20 to
Form 10K for calendar year ended December 31, 1996).
10.20a Subordinated Loan Agreement between First Albany Companies Inc. and
Sharon M. Duker as amended effective December 23, 1997 (filed as
Exhibit 10.20a to Form 10-K for calendar year ended December 31, 1997).
10.21 Master Equipment Lease Agreement dated September 25, 1996, between
First Albany Companies Inc. and KeyCorp Leasing Ltd. (Filed as Exhibit
10.21 to Form 10K for calendar year ended December 31, 1996).
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. (Filed as Exhibit 10.22 to Form 10K for calendar year ended
December 31, 1996).
10.23 Subordinated Loan Agreement dated December 23, 1997 between First
Albany Companies Inc. and Sharon M. Duker (filed as Exhibit 10.23 to
Form 10K for calendar year ended December 31, 1997).
10.24 First Albany Companies Inc. Executive Officers Deferred Compensation
Plan and First Albany Companies Inc. Investment Executive Deferred
Compensation Plan effective January 7, 1998 (filed as Registration
Statement No. 333-43825 (Form S-8) dated January 7, 1998).
11 Computation of per share earnings.
21 List of Subsidiaries of First Albany Companies Inc.
23 Consent of PricewaterhouseCoopers L.L.P.
27 Financial Data Schedule BD
(b) 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.
(3) Exhibits included herein: (continued)
Exhibit
Number Description
- ------- -----------
(c) Exhibits: The exhibits to this report are listed in section (a)(3)
of Item 14 above.
(d) Financial Statement Schedules: The financial statement schedule
filed with this report is listed in section (a)(2) of Item 14 above.
FIRST ALBANY COMPANIES INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
PERIODS ENDED DECEMBER 31, 1998, DECEMBER 31, 1997
AND DECEMBER 31, 1996.
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 1998 $ 340,000 $ 133,000 $ 168,000 $ 305,000
Calendar Year 1997 $ 304,000 $ 120,000 $ 84,000 $ 340,000
Calendar Year 1996 $ 219,000 $ 120,000 $ 35,000 $ 304,000
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, 1999
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, 1999
George C. McNamee
/s/ ALAN P. GOLDBERG
- --------------------- President and Co-Chief Executive Officer March 26, 1999
Alan P. Goldberg
/s/ TIMOTHY R. WELLES
- ------------------------- Chief Financial Officer March 26, 1999
Timothy R. Welles (Principal Accounting Officer)
/s/ HUGH A. JOHNSON, JR.
- ------------------------- Senior Vice President and Director March 26, 1999
Hugh A. Johnson, Jr.
- ------------------------- Director March 26, 1999
Peter Barton
- ------------------------- Director March 26, 1999
J. Anthony Boeckh
/s/ WALTER M. FIEDEROWICZ
- ------------------------- Director March 26, 1999
Walter M. Fiederowicz
/s/ DANIEL V. MCNAMEE
- ------------------------- Director March 26, 1999
Daniel V. McNamee
/s/ CHARLES L. SCHWAGER
- ------------------------- Director March 26, 1999
Charles L. Schwager
/s/ BENAREE P. WILEY
- ------------------------- Director March 26, 1999
Benaree P. Wiley