1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSACTION PERIOD FROM ______________
COMMISSION FILE NUMBER 1-7467
_____________________________________
FIRST OF MICHIGAN CAPITAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-2780197
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
100 Renaissance Center, 26th Floor
Detroit, Michigan 48243
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (313) 259-2600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
- ------------------- -----------------------------------------
Common Stock, $.10 par value Chicago Stock Exchange, Incorporated
Securities registered pursuant to Section 12(g) of the Act: None
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 in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the shares of Common Stock owned by persons
other than directors, executive officers, and persons or groups known to the
Registrant to own over 10% of its outstanding Common Stock (none of which
persons or groups are hereby acknowledged to be affiliates) was $10,589,191 on
December 6, 1996 and represented 1,264,381 shares. 2,613,533 shares of Common
Stock, par value $.10 per share, were outstanding as of December 11, 1996.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain information in the definitive proxy statement to be used in
connection with the Annual Meeting of Stockholders to be held in 1997 has been
incorporated herein by reference in Part III hereof.
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PART I
ITEM 1. BUSINESS.
General. Registrant was incorporated on May 13, 1974 and is a holding
company, the principal subsidiary of which is First of Michigan Corporation
("FoM"), founded in 1933.
FoM is a securities broker-dealer and investment banker, and engages in
brokerage of listed securities and principal and agency transactions in
unlisted securities and the underwriting and distribution of securities.
Securities dealt in include equity and debt securities of industrial and
financial companies and institutions, mutual funds, and securities of states,
municipalities, and other governmental entities, including hospital, industrial
development, and pollution control bonds. FoM is a member of the New York
Stock Exchange, Inc. (the "NYSE"), other stock and option exchanges, and the
National Association of Securities Dealers, Inc. (the "NASD").
Under the direction of its Corporate Finance Department, FoM is
responsible for underwritings, mergers and acquisitions, private placements,
valuations, financial advisory work, and other investment banking matters and
manages the underwriting of corporate and certain municipal securities. FoM
also participates as an underwriter in underwriting syndicates managed by other
firms. Through its Public Finance Department, FoM also acts as an underwriter
and dealer in tax-exempt bonds issued by states, cities, and other political
subdivisions and may act as manager or participant in offerings of such
securities managed by other firms.
The management of and participation in public offerings involves
significant risks. An underwriter may incur losses if it is unable to resell
at a profit the securities it has purchased. Under the Securities Act of 1933,
other statutes, and court decisions, an underwriter is subject to substantial
liability for misstatements or omissions that are judged to be material in
prospectuses and other communications related to underwritings. Underwriting
commitments cause a charge against net capital, as defined in Rule 15c3-1 of
the Securities and Exchange Commission (the "Commission") -- see "Regulation"
below; consequently, the aggregate amount of underwriting commitments at any
one time may be limited by the amount of available net capital. Such
limitation has not to date caused FoM to be unable to accept underwriting
commitments it desired to accept.
In its business as a broker-dealer, FoM purchases securities for customers
on either a cash or margin basis. When securities are purchased on a margin
basis, the customer deposits less than the full cost of the security, and FoM
makes a loan for the balance of the purchase price. Such loans are
collateralized by the securities purchased. The amount which may be loaned is
subject to the margin requirements of Regulation T of the Board of Governors of
the Federal Reserve System, NYSE margin requirements, and FoM's internal
policies, which in most instances are more restrictive than Regulation T or
NYSE requirements. In permitting customers to purchase securities on margin,
FoM is subject to the risk of a market decline which could reduce the value of
its collateral below the amount of the customers' indebtedness.
FoM trades as principal in the over-the-counter market, and it acts as
both principal and agent to facilitate the execution of customers' orders. FoM
"makes a market" in various securities of interest to its customers through
buying, selling, and maintaining an inventory of these securities. FoM also
buys corporate and municipal bonds for its own account in the secondary market,
maintains an inventory, and resells from that inventory to other dealers and to
institutional and retail customers.
At September 27, 1996, FoM maintained current accounts for approximately
175,000 customers -- that is, customers for whom at least one transaction had
been effected or for whom securities or money were being held during the
previous 24 months. Also, as of September 27, 1996,
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money or securities were being held, or a transaction had been effected since
August 30, 1996, for approximately 84,000 customers.
FoM is registered as a broker-dealer in all of the fifty states, except
Nebraska, and maintains offices in 34 locations in two states. Thirty-three of
its 34 offices are in Michigan.
Cranbrook Capital Management, Inc. ("CCM"), a subsidiary of Registrant
organized in 1994, is registered as an investment adviser under the Investment
Advisers Act of 1940. CCM acts as investment adviser to the
Cranbrook Money Market Fund and Cranbrook Treasury Fund, both series of
Cranbrook Funds, a registered investment company. At September 27, 1996, $481
million in Cranbrook Funds assets were under management by CCM. First of
Michigan Insurance Agency, Inc., another subsidiary of Registrant, is licensed
to act as a general life insurance agent and thus to sell life insurance.
Registrant's other subsidiaries, FoM Advisers, Inc., First of Michigan Leasing,
Inc., First of Michigan Commodities, Inc., First of Michigan Real Estate, Inc.,
and First of Michigan Venture Capital Associates, Inc. have not engaged in
significant activity in recent years.
Each business area of Registrant uses, for the most part, the same
facilities on an integrated basis, with the result that it is not possible to
identify or make meaningful estimates of the cost and expenses applicable to
and relative profitability of each business area. In fiscal 1996, consolidated
revenues were $71,707,443. (See below for information concerning the
contribution to revenues of various areas of business.) No material part of
Registrant's business is dependent on a single customer or a very few
customers. Currently customers are served by 279 investment executives, and
there are an aggregate of 273 other full-time employees.
Competition. All aspects of the securities business are intensely
competitive. Competition exists directly with other broker-dealers and
investment banking firms, banks, insurance companies, investment advisers,
mutual fund management companies, and other providers of financial services.
In addition, investment vehicles other than those offered by the securities
industry compete for customers' investment dollars. Many competitors have
substantially greater resources than Registrant and its subsidiaries, and
Registrant and its subsidiaries are not a major factor in the securities or
financial service businesses.
In addition to competing more directly for customers in the range and
quality of its products and services and in rates charged to customers, FoM
competes with other broker-dealers and investment banking firms for investment
executives -- both to retain its current sales force and in the hiring of
investment executives from other firms. The financial incentives, including
upfront "bonus" payments, offered by other firms in an effort to hire
investment executives of FoM can be substantial, and FoM's efforts to retain
the services of such personnel may not always succeed. The loss of a
significant number of high-producing FoM investment executives to competitors
could have a material adverse effect on Registrant's gross revenues and
profitability, at least over the short term.
Regulation. FoM is subject to stringent government regulation and
regulation by securities exchanges, principally the NYSE, in the day-to-day
conduct of its business. Such regulation is primarily intended to benefit
FoM's customers rather than Registrant's stockholders. See Note H of Notes to
the Consolidated Financial Statements under Item 8 below with respect to the
net capital requirements of the NYSE and the Commission.
As a member of the NASD and the NYSE, FoM is subject to various rules, the
purpose of which is the self-regulation of the securities industry as
contemplated by Federal laws, including rules requiring just and equitable
principles of trade. The NASD and the NYSE are subject to regulation and
supervision by the Commission under the Securities Exchange Act of 1934.
Included among NASD and NYSE rules are rules with respect to the amounts of
markup or "spread" which a dealer or
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underwriter may charge on sales as a principal, the manner in which securities
may be underwritten, sold, and distributed, and the manner of administering
customers' margin accounts.
Certain of FoM's officers and employees, including all of its investment
executives, must individually qualify for registration with the NYSE, other
exchanges, the NASD, and certain state regulatory authorities. FoM may be
subject to penalties for violations of applicable regulations by its officers,
investment executives, and other employees, whether or not FoM has knowledge of
or participates in such violations.
Violations of the provisions of the Securities Act of 1933, the Securities
Exchange Act of 1934, or the regulatory provisions of the agencies or
authorities having jurisdiction over FoM could subject it to disciplinary
proceedings, including temporary or permanent suspension from the conduct of
its business or civil or criminal liability. Any such proceedings could have
serious adverse effects upon all phases of its business. Violations of the
NASD rules of fair practice or other rules including those of exchanges may
result in disciplinary proceedings, fines, or expulsion from membership.
As an investment adviser, CCM is subject to extensive regulation under the
securities laws, including the Investment Advisers Act and certain provisions of
the Investment Company Act of 1940. Activities of other subsidiaries of the
Registrant also are subject to varying degrees of government regulation.
Revenues. Registrant and its subsidiaries provide several classes of
service, which utilize the same facilities, distribution, accounting, and
service personnel. The following table sets forth, for the five years ended
September 27, 1996, the sources of the Registrant's revenues by dollars and
percentage amounts:
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REVENUES BY SOURCE (1)
FIRST OF MICHIGAN CAPITAL CORPORATION
Fiscal Year Ended
----------------------------------------------------------------------
September 27, 1996 September 29, 1995 September 30, 1994
Amount % Amount % Amount %
------ --------- ------ --------- ------ ---------
Commissions:
Listed Securities $18,328,613 25.6 $16,682,979 26.5 $16,871,142 27.6
Over the Counter 10,428,813 14.5 7,723,565 12.3 9,123,817 14.9
Mutual Funds 13,215,758 18.4 9,810,436 15.6 11,510,489 18.8
----------- ------ ----------- --------- ----------- ---------
41,973,184 58.5 34,216,980 54.4 37,505,448 61.3
----------- ------ ----------- --------- ----------- ---------
Principal Transactions (2):
Municipal Securities 1,558,054 2.2 1,637,277 2.6 919,278 1.5
Corporate Securities 3,270,813 4.5 3,161,722 5.0 2,830,881 4.6
----------- ------ ----------- --------- ----------- ---------
4,828,867 6.7 4,798,999 7.6 3,750,159 6.1
----------- ------ ----------- --------- ----------- ---------
Investment Banking (3):
Municipal Securities 1,796,847 2.5 2,067,402 3.3 1,878,932 3.1
Corporate Securities 6,768,186 9.4 6,353,141 10.1 6,344,106 10.4
Miscellaneous Fees 1,067,674 1.5 1,664,322 2.6 643,409 1.0
----------- ------ ----------- --------- ----------- ---------
9,632,707 13.4 10,084,865 16.0 8,866,447 14.5
----------- ------ ----------- --------- ----------- ---------
Interest:
Securities Owned and
Other 745,408 1.0 604,345 1.0 431,109 .7
Margin Balances 6,253,747 8.8 5,665,573 9.0 4,094,432 6.7
----------- ------ ----------- --------- ----------- ---------
6,999,155 9.8 6,269,918 10.0 4,525,541 7.4
----------- ------ ----------- --------- ----------- ---------
Insurance Commissions 3,006,757 4.2 2,758,840 4.4 3,338,579 5.5
Other Revenues (4) 5,266,773 7.4 4,735,312 7.6 3,210,344 5.2
----------- ------ ----------- --------- ----------- ---------
Total Revenues $71,707,443 100.0 $62,864,914 100.0 $61,196,518 100.0
=========== ====== =========== ========= =========== =========
-------------------------------------------------
September 24, 1993 September 25, 1992
Amount % Amount %
------ --------- ------ ---------
Commissions:
Listed Securities $17,230,266 27.4 $16,144,393 27.0
Over the Counter 8,018,282 12.7 6,973,320 11.6
Mutual Funds 11,684,055 18.5 10,452,539 17.5
----------- --------- -------------- ---------
36,932,603 58.6 33,570,252 56.1
----------- --------- -------------- ---------
Principal Transactions (2):
Municipal Securities 1,123,465 1.8 1,171,574 2.0
Corporate Securities 3,198,075 5.1 3,047,583 5.1
----------- --------- -------------- ---------
4,321,540 6.9 4,219,157 7.1
----------- --------- -------------- ---------
Investment Banking (3):
Municipal Securities 2,637,377 4.2 1,971,343 3.3
Corporate Securities 8,069,965 12.8 9,721,757 16.2
Miscellaneous Fees 1,353,736 2.1 1,239,175 2.1
----------- --------- -------------- ---------
12,061,078 19.1 12,932,275 21.6
----------- --------- -------------- ---------
Interest:
Securities Owned and
Other 481,556 .8 549,362 .9
Margin Balances 2,606,866 4.1 2,357,050 3.9
----------- --------- -------------- ---------
3,088,422 4.9 2,906,412 4.8
----------- --------- -------------- ---------
Insurance Commissions 3,090,235 4.9 2,411,316 4.0
Other Revenues (4) 3,535,704 5.6 3,839,591 6.4
----------- --------- -------------- ---------
Total Revenues $63,029,582 100.0 $59,879,003 100.0
=========== ========= ============== =========
(1) It is impractical to show a dollar and percentage breakdown of the
Registrant's net income from these sources after allocation of all appropriate
expenses, since substantially the same sales personnel and branch office
facilities are engaged in the production of the above revenues at any time,
and it is not practical to allocate to each revenue source its share of such
joint expenses as personnel costs, occupancy and equipment costs, interest and
communications costs.
(2) Principal transaction revenues include realized gains and losses from
sales of trading investment account securities and unrealized gains and
losses from adjusting security positions to market at the end of each period.
(3) Investment banking revenues result from the Registrant's management
and participation as an underwriter or member of the selling group for the sale
of securities and certain other activities. Revenue is the difference between
the sales price of the security and the cost of the security and directly
related underwriting expenses. Unrealized gains and losses from adjusting
security positions to market at the end of each period are also reflected in
such revenues. Such revenues include corporate and municipal underwriting
management fees. Miscellaneous includes financial consulting fees and private
placement fees.
(4) Other Revenues includes fees for cash management accounts, advisory,
distribution and administrative fees for money market funds, etc.
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ITEM 2. PROPERTIES.
All offices of Registrant and its subsidiaries are located in leased
premises. Aggregate space leased for all offices totals 138,000 square feet at
an annual rental of $2,016,854 at November 29, 1996. The longest lease expires
on October 23, 2005. The lease on the Company's principal executive office
expires on August 31, 1997 and,due to space needs of the new owner of the
building, will not be renewed. Alternative space suitable for that office is
available on reasonable terms at several other Detroit office complexes and the
Company expects to relocate to one of them later in the year. The Company's
other offices are suitable and provide adequate space for their intended
purposes.
FoM leases office, communication, and other equipment at an annual rent of
approximately $388,625 at November 29, 1996. All present equipment leases have
remaining terms of four years or less.
See Note E of Notes to the Consolidated Financial Statements included
herein under Item 8 with respect to rental commitments for such properties.
ITEM 3. LEGAL PROCEEDINGS.
FoM is from time to time a party defendant (frequently one of many
defendants) in litigation arising out of its activities as an underwriter of
securities. Also, the terms of underwriting arrangements into which FoM enters
may require that FoM bear a portion of expenses and certain liabilities, if
any, which arise as a result of the underwriting, whether or not FoM is a named
or class defendant in litigation which may be instituted. FoM is also from
time to time involved in litigation in which claims are asserted against it
arising out of its business as a broker-dealer.
At the date hereof FoM is subject to litigation of the nature described in
which substantial amounts are sought. Where it is a defendant FoM is
vigorously contesting such suits by asserting denials and defenses which it
believes to be meritorious and, in the opinion of management, based in part
upon advice of legal counsel, resolution of the litigation by which it may be
affected should have no material adverse effect on the financial position of
the Registrant.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information, as of December 11, 1996,
concerning the age and office(s) with the Registrant and its principal
subsidiary, FoM, of each Executive Officer of the Registrant. Information
concerning the business background of each Executive Officer listed is provided
after the table, in each case based on data furnished by such Executive
Officer. All Executive Officers' terms of office as such extend until the next
Annual Meeting of Stockholders of the Registrant and until their successors
shall be elected and qualified. There are no family relationships among the
Executive Officers nor any such relationship of any Executive Officer to any
Director.
Position
Name Age Office Held Since
---- --- ------ ----------
Conrad W. Koski 51 President and 1996
Chief Executive
Officer of
Registrant and
FoM
Charles M. Grimley 40 Senior Vice- 1996
President,
Treasurer, and
Chief Financial
Officer of
Registrant and FoM
Charles R. Roberts 44 Senior Vice- 1994
President of
Registrant and
FoM
Lenore P. Denys 46 Senior Vice- 1984
President
and Secretary of
Registrant and FoM
Mr. Koski became President and Chief Executive Officer of Registrant and
FoM in November 1996, after serving as Executive Vice-President, Treasurer, and
Chief Financial Officer of both for over five years.
Mr. Grimley became a Senior Vice-President of Registrant and succeeded Mr.
Koski as Treasurer and Chief Financial Officer of Registrant and FoM in
December 1996. He became a Senior Vice-President of FoM in the preceding
month, during which he also held the position of Controller of FoM. Prior to
that, Mr. Grimley held the position of Financial Vice President and Manager of
Accounting of FoM, beginning in February 1991. He originally joined FoM in May
1985.
Mr. Roberts became a Senior Vice-President of Registrant and FoM in
December 1994 after joining FoM as Director of Sales and Branches in July 1994.
Since March of 1996, Mr. Roberts has been responsible for all sales recruiting
activity at FoM. From September 1993 until leaving to join FoM, he held a
comparable position with another broker-dealer, Roney & Co. Mr. Roberts also
has
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served as a regional director for the brokerage firm Stifel, Nicolaus &
Company, Inc., from December 1992 to September 1993, and in various
capacities with PaineWebber, Inc., including as an investment executive, a
regional insurance coordinator, and (most recently) a branch manager,
beginning in August 1979.
Ms. Denys has served Registrant and FoM in the capacities reported above
for over five years.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The only outstanding class of equity security of Registrant is its Common
Stock, $0.10 par value (the "Common Stock"). Shares of Common Stock are listed
for trading on the Chicago Stock Exchange (the "CSE") and at December 11, 1996
were held of record by 598 persons. The information required by this item
concerning dividends paid on the Common Stock and trading prices for such stock
on the CSE is provided in Note K to the Consolidated Financial Statements
included herein under Item 8.
ITEM 6. SELECTED FINANCIAL DATA.
FOR THE FISCAL YEARS 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenue................................. $ 71,707,443 $62,864,914 $ 61,196,518 $63,029,582 $59,879,003
Net Income.............................. 1,763,716 108,067 1,042,893 3,400,467 4,704,952
Net Income Per Common and
Common Equivalent Share*............... $.66 $.04 $.35 $1.16 $1.64
Cash Dividends Per Common Share*........ .00 .18 .16 .36 1.05
Average Number of Common and
Common Equivalent Shares Outstanding... 2,672,477 2,855,460 2,952,969 2,936,217 2,864,901
AT YEAR END
Total Assets $101,553,351 $110,457,474 $103,767,953 $86,506,328 $67,958,688
Stockholders' Equity Per Common Share $11.34 $10.59 $10.80 $10.63 $9.80
*Amounts adjusted to reflect the 10% stock dividend declared in December 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
1996 Compared to 1995
For fiscal 1996, total revenues increased $8.8 million or 14% and net
income increased $1.7 million or 1532% over fiscal 1995. During the quarter
ended March 29, 1996, the Registrant underwent a realignment of the operations
and management structure including the appointment of a new President/CEO. As a
result of the realignment, the Registrant incurred a reduction in net income of
$.6 million or $.22 per share in the second quarter, primarily due to severance
compensation agreements. Essentially all of the Registrant's net income for
fiscal 1996 was earned in the last six months of the year.
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Commissions, the largest revenue category, rose $7.8 million or 23% due to
a favorable market for all of fiscal 1996 fueled by low interest rates and low
inflation. Commission revenues from mutual fund transactions grew $3.4 million
or 35%. Commission revenues from over-the-counter equity transactions increased
$2.8 million or 35%, and revenues from listed equity transactions increased $1.6
million or 10%, as investors were seeking higher yield alternatives to money
market funds and bank savings accounts.
Interest income increased $.7 million or 12%, primarily due to higher
average margin account borrowings by customers throughout the entire year. The
average rate charged on margin accounts declined slightly from fiscal 1995.
Insurance commissions increased $.2 million or 9% due to increased sales of
annuity products. Other revenues increased $.5 million or 11% primarily due to
advisory fees received by Cranbrook Capital Management ("CCM"), an investment
adviser subsidiary of the Registrant. CCM was appointed as Investment Advisor
to Cranbrook Funds, a registered investment company, in March 1995, and thus
received advisory fees for only seven months of fiscal 1995. As a part of the
realignment in the second quarter, management decided to redirect the efforts of
CCM away from individual money management and focus on its advisory activities
for Cranbrook Funds, consisting of the Cranbrook Money Market Fund and the
Cranbrook Treasury Fund. The combined net assets of both funds is approximately
$500 million. FoM is the Administrator and Distributor for Cranbrook Funds.
Total expenses increased $6.5 million or 10% over the previous fiscal year.
The largest expense category, employee compensation and benefits, increased $5.4
million or 15% in conjunction with the increase in revenues. Included in
compensation expense is the one-time charge of $1.0 million ($.6 million of net
income or $.22 per share) due to the realignment in the second quarter
previously discussed. Also included in compensation is the final amortization
of certain employee retention agreements, amounting to $.7 million, relating to
an aborted merger agreement with Comerica Incorporated in March 1993 (see note F
to the Consolidated Financial Statements). FoM is continuing to aggressively
recruit experienced investment executives and in certain instances will incur
upfront costs upon hiring as well as additional commission expenses to new
hires. Other increases in compensation were due to the enhancement of the
Registrant's 401(k) plan matching contribution policy, as well as an increase in
certain discretionary bonus programs associated with the level of pre-tax
earnings.
Communications costs decreased $.1 million or 9% due to a change in long
distance telephone carriers as well as a rate reduction through contract
re-negotiation. Occupancy and equipment rental costs have increased $.6 million
or 14% due to new office openings and relocations as well as increased usage
costs associated with the broker-workstation network. Due to the recent
purchase by General Motors of the building in which Registrant's headquarters is
located, its lease expiring on August 31, 1997 will not be renewed. Registrant
is reviewing alternative buildings in the Detroit area and will be moving to a
new location approximately August 1997.
Office supplies and expenses increased $.4 million or 11% due to continued
improvements to the customer statement and, due to increased trade volume,
higher charges from the service bureau providing back-office processing and
accounting to FoM. Increased usage of employment agencies also contributed to
the increase. Taxes, other than income taxes, were up $.2 million or 7% due to
the additional payroll taxes associated with the increase in employee
compensation discussed above.
Other expense increases included legal, continuing education for investment
executives, subscriptions, and advertising. The provision for income taxes rose
$.7 million or 242% due entirely to the associated increase in pre-tax earnings.
In November 1996, Kenneth C. Eich resigned as President/CEO for personal
reasons and was succeeded by Conrad W. Koski. Mr. Koski is a twenty-three year
veteran with FoM and most recently held the positions of Executive
Vice-President and Treasurer of the Registrant and FoM. In December
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1996, Charles M. Grimley was appointed as Senior Vice-President of the
Registrant (a position he already held with FoM) and as Treasurer and Chief
Financial Officer of the Registrant and FoM. Mr. Grimley has eighteen years
experience in the investment industry and has been with FoM for twelve years,
most recently as Senior Vice-President and Controller of FoM.
1995 Compared to 1994
For fiscal 1995, total revenues rose 3% and net income declined 90%. This
was due somewhat to slight changes in the revenue mix but was primarily due to
higher expenses, resulting mainly from Registrant's investments in technology,
office facilities, and new investment executives and support personnel needed
to help Registrant grow its business and compete effectively in the Great Lakes
region.
Total revenues for the year increased by $1.7 million or 3%. Revenues from
commissions were down $3.3 million or 9%, with the first two quarters of fiscal
1995 showing a decrease of over $5.2 million, or 26%, and the last two quarters
increasing by almost $2.0 million, a gain of 12%. Agency stock commissions were
down $1.5 million or 6% for the year, and commissions from mutual fund
transactions decreased $1.7 million or 15%. Registrant's results from retail
commissions were typical of what happened in the securities industry for the
period October 1994 to September 1995 -- to be specific, revenues declined into
Registrant's third quarter, with growth then beginning. Revenues from principal
transactions increased by $1.0 million or 28%, with trading revenues in the
fixed income area, both taxable and non-taxable, accounting for 84% ($.9
million) of the increase as a result of increased emphasis in this area. In
addition, profits earned during the formation of the highly successful First of
Michigan Financial Institution's Trust, Series I and II, contributed to the
increase. Offsetting those increases was a decline in over-the-counter trading
revenues.
Investment banking revenues increased $1.2 million or 14%. As previously
mentioned, FoM originated and sold $30.5 million of the First of Michigan
Financial Institution's Trust, Series I and Series II. These two Series
contributed $1.5 million in revenues during fiscal 1995. The fixed income area
recorded a $.6 million increase over the prior year. In addition, fee-based
revenues from corporate finance activities increased $1 million over fiscal
1994. Offsetting all of these increases in the investment banking area was a
$1.9 million decline in revenues from equity underwritings as a result of a
decline in syndicate underwriting participations. Higher interest rates during
the first nine months of fiscal 1995 contributed to the overall reduction of
underwriting activity during that period. With rates starting to decrease
during the last quarter of fiscal 1995, an increase in underwriting activity
did occur.
Interest income grew to $6.2 million in fiscal 1995 from $4.5 million in
fiscal 1994, an increase of 38%. Average margin account borrowings, which are
Registrant's principal source of interest revenues, increased by approximately
$7.5 million or 12%. Due to increases in short term rates, higher rates charged
to clients with margin accounts also contributed to the increase. Insurance
commission revenues decreased $.6 million or 17% due to commission reductions in
the areas of life insurance and variable rate annuities. Other income increased
$1.5 million or 48%, with Registrant's new investment advisory subsidiary, CCM,
contributing $.7 million. Income contributed by CCM consisted of $.6 million
attributable to advisory fees received from the Cranbrook Money Market and
Treasury Funds, which CCM began advising in March 1995, and $.1 million related
to fees received from other investment advisory services. The remaining
increase in other income was due to increased money market distribution fees,
increased solicitation fees received by FoM, and gains on the sale of certain
investment account securities.
Expenses increased $2.7 million or 5%. Employee compensation and benefits
increased $4 million or 13%, with salary increases accounting for $2.2 million
(54%) of the increase. Salary expense increased because of planned additions
in support areas such as information systems, compliance, human resources,
fixed income, and branch sales management, as well as certain first year salary
guarantees to certain new administrative and sales support executives which
ended during
-10-
11
fiscal 1995. Payouts to investment executives increased $.7 million or 4%
because of slightly higher bonus incentive programs for higher producing
investment executives and increased payouts due to the hiring of additional
investment executives. In addition, with the settlement of the lawsuit with
Comerica Incorporated in August 1994 (see Note F to the Consolidated Financial
Statements), the amortization of certain employee retention agreements,
amounting to $1.3 million, has been included in employee compensation and
benefits for fiscal 1995. In prior years, the merger termination expenses
included legal costs as well as the amortization of certain employee retention
agreements and were shown as a separate line item on Registrant's income
statement. Also contributing to the increase in employee compensation and
benefits were increased salaries at CCM, which began operation at the beginning
of fiscal 1995. Offsetting these increases was a decline of $.5 million in
certain discretionary bonus programs associated with the level of pre-tax
earnings.
Floor brokerage, exchange, clearance, and other fees declined $1.1 million
or 19% as a result of reduced payouts ($.8 million) to fully disclosed brokers
because of a decrease in revenues generated by those brokers. Also
contributing to the decrease was a reduction in fees paid clearing brokers ($.3
million) because of reduced agency business and a redirection of certain agency
equity business to other more cost efficient executing brokers.
Interest expense increased $1.3 million or 75%. An increase in the
average (month-end) borrowing rate accounted for approximately $1 million of
that increase; the remainder was due to an increase in bank borrowings to
support the increase in average margin debits discussed above. Taxes, other
than income taxes, were up $.3 million or 10% as a result of an increase in
payroll taxes associated with the previously described increase in employee
compensation. Communications expense increased $.2 million or 20% due to
increased telephone usage particularly in the home office because of additional
personnel, an increase in conference call usage, and a refund from a provider
recorded in fiscal 1994. Occupancy and equipment rental increased $1.0 million
or 20%, with 71% of the increase ($.7 million) attributable to FoM's
conversion, which began in October 1994, to a new quotation and information
system, as well as increases in the number of quotation machines and in the
service features provided for the use of investment executives. Rental
increases, due to additional space leased in the headquarters office and branch
office lease renewals, accounted for approximately $.3 million (25%) of the
increase. Office supplies and expense increased $.8 million or 28% due to a
combination of factors, including higher paper prices, significant revisions
and additions to FoM's standard communication items, major improvements to the
client statement, an increase in the number of statements mailed, and the 10%
postage rate increase which took effect in January 1995. Also contributing to
the increase were higher charges from the service bureau providing back-office
processing and accounting to FoM because of higher trade count and increased
services provided to FoM clients such as mutual fund networking, dividend
reinvestment, and more detailed year-end reporting information. Increased
usage of employment agencies also contributed to the increase.
Other expenses decreased $.3 million or 4% because of lower consulting,
legal, and insurance costs. Partially offsetting those decreases were
increases in sales promotion costs. Included in the provision for income taxes
is approximately $.3 million related to the surrender of certain whole life
insurance policies insuring the lives of certain officers and naming Registrant
as the beneficiary. The proceeds to Registrant from this surrender amounted to
approximately $5.7 million.
Effects of Inflation
Registrant's business is affected by general trends in business and
finance and by the overall state of the economy. Additionally, revenues and
certain expenses are influenced by the volume of securities transactions, level
of interest rates, and overall securities prices. Sustained periods of reduced
volume, or loss of clients, could have adverse effects upon profitability.
Since the majority of Registrant's assets are highly liquid, they are not
significantly affected by inflation. Securities owned are carried at market
value, with all adjustments to market value included in earnings, thus the
effects of inflation are generally reflected in historical earnings.
-11-
12
Liquidity and Capital Funds
Registrant maintains a highly liquid position at all times with most of
its assets consisting of receivables from customers (collateralized by readily
marketable securities) and brokers (essentially collectible on demand against
delivery of securities). A significant amount of leverage is inherent in
carrying these assets.
Registrant's assets are principally financed by capital funds, short-term
bank loans, and payables to customers and brokers. At September 27, 1996, FoM
had available lines of credit on a secured basis with five banks aggregating
$122 million. FoM had borrowed $18.5 million against these lines of credit at
September 27, 1996.
Under separate agreements, Registrant had available short-term lines of
credit with two banks on an unsecured basis, aggregating $8 million. There
were no borrowings against these lines of credit at September 27, 1996.
Certain minimum amounts of capital must be maintained to satisfy
regulatory requirements applicable to FoM. These requirements include the
uniform net capital rule, designed to assure a measure of financial integrity
and liquidity of registered broker-dealers and provide minimum acceptable
levels of net capital to satisfy commitments to customers. Unless the defined
minimum capital is maintained, FoM would be prohibited from paying dividends to
the parent company. At September 27, 1996, FoM was in compliance with the
uniform net capital rule and had net capital of more than eleven times the
minimum required.
Management believes that funds provided by net cash earnings combined with
the liquidity of its assets, its existing capital base, and its available lines
of credit, are fully adequate to meet Registrant's financing needs for the
foreseeable future.
Registrant does not engage in any derivative trading that would result in
any additional off-balance sheet risk.
Contingent Matters
FoM is the subject of claims made in several civil actions and arbitration
proceedings arising out of its business as a broker-dealer and as an investment
banker. Registrant provides for costs related to contingencies when a loss is
probable and the amount is reasonably determinable. While these actions in the
aggregate seek substantial amounts, management believes that their disposition
will not have a material adverse effect on the financial position of
Registrant. However, depending on the amount and timing of a potential
unfavorable resolution to a contingency, it is possible that Registrant's
future results of operations or cash flows could be materially adversely
affected for the relevant reporting period (see Note E to the Consolidated
Financial Statements).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
[begins on next page]
-12-
13
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
Stockholders and Board of Directors
First of Michigan Capital Corporation
We have audited the accompanying consolidated balance sheets of First of
Michigan Capital Corporation and subsidiaries as of September 27, 1996 and
September 29, 1995, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three fiscal years in the
period ended September 27, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and related
schedule are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and related schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of First of Michigan Capital Corporation and subsidiaries at September 27, 1996
and September 29, 1995, and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended
September 27, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
November 1, 1996
-13-
14
FIRST OF MICHIGAN CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED
-------------------------------------
Sept. 27, Sept. 29, Sept. 30,
1996 1995 1994
----------- ----------- -----------
REVENUES
Commissions .......................................... $41,973,184 $34,216,980 $37,505,448
Principal transactions ............................... 4,828,867 4,798,999 3,750,159
Investment banking ................................... 9,632,707 10,084,865 8,866,447
Interest ............................................. 6,999,155 6,269,918 4,525,541
Insurance commissions ................................ 3,006,757 2,758,840 3,338,579
Other ................................................ 5,266,773 4,735,312 3,210,344
----------- ----------- -----------
71,707,443 62,864,914 61,196,518
EXPENSES
Employee compensation and benefits ................... 40,675,689 35,255,683 31,206,024
Floor brokerage, exchange, clearance and other fees .. 4,742,590 4,834,407 5,938,459
Communications ....................................... 1,069,435 1,180,344 983,186
Interest ............................................. 2,891,359 3,001,553 1,719,427
Occupancy and equipment rental ....................... 5,181,635 4,552,852 3,589,656
Taxes, other than income taxes ....................... 2,977,994 2,776,992 2,522,564
Office supplies and expenses ......................... 4,007,242 3,620,573 2,829,787
Merger related expenses .............................. -- -- 3,385,590
Other operating expenses ............................. 7,422,783 7,249,443 7,553,932
----------- ----------- -----------
68,968,727 62,471,847 59,728,625
----------- ----------- -----------
Income before income taxes ........................... 2,738,716 393,067 1,467,893
Provision for income taxes ........................... 975,000 285,000 425,000
----------- ----------- -----------
NET INCOME ........................................... $ 1,763,716 $ 108,067 $ 1,042,893
=========== =========== ===========
Net income per share ................................. $0.66 $0.04 $0.35
=========== =========== ===========
Cash dividends per share ............................. $0.00 $0.18 $0.16
=========== =========== ===========
Average number of common and
common equivalent shares
outstanding for income per
share ............................................... 2,672,477 2,855,460 2,952,969
See notes to consolidated financial statements.
-14-
15
FIRST OF MICHIGAN CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
YEAR ENDED
--------------------------
SEPT. 27, SEPT. 29,
1996 1995
------------ ------------
ASSETS
Cash and cash equivalents ................................................. $ 4,413,970 $ 2,995,513
Receivable from brokers and dealers ....................................... 2,779,493 4,527,882
Receivable from customers ................................................. 76,358,815 79,368,761
Notes receivable from employees ........................................... 2,008,716 2,126,096
Income taxes receivable ................................................... 1,072,972 --
Other accounts receivable ................................................. 1,114,085 1,879,608
Securities owned .......................................................... 6,574,071 8,387,294
Memberships in exchanges, at cost
(market value - $1,212,000 in 1996 and $856,000 in 1995) ............... 420,453 430,503
Equipment and leasehold improvements, at depreciated cost ................. 3,063,704 2,828,932
Other investments ......................................................... 230,331 711,609
Net cash surrender value of life insurance ................................ -- 1,816,471
Deferred income taxes ..................................................... 826,000 2,892,000
Other assets .............................................................. 2,690,741 2,492,805
------------ ------------
$101,553,351 $110,457,474
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Notes payable to banks .................................................... $ 18,500,000 $ 29,500,000
Payable to brokers and dealers ............................................ 31,630,491 18,165,571
Payable to customers ...................................................... 9,410,879 14,070,912
Securities sold, not yet purchased ........................................ 363,666 530,748
Employee compensation payable ............................................. 7,346,850 12,964,140
Income taxes payable ...................................................... 42,159 452,587
Other accounts payable and accrued liabilities ............................ 3,466,958 3,762,123
Capital lease obligation .................................................. 940,539 1,226,623
------------ ------------
71,701,542 80,672,704
Commitments and contingencies - See notes E & F.
STOCKHOLDERS' EQUITY:
Serial preferred stock, $.10 par value, 500,000
shares authorized and unissued
Common stock, $0.10 par value, 10,000,000 shares authorized,
2,891,558 issued ......................................................... 289,156 289,156
Capital in excess of par value ............................................ 3,676,635 3,687,348
Retained earnings ......................................................... 28,362,180 26,803,153
------------ ------------
32,327,971 30,779,657
Less treasury stock, at cost (258,025 shares in 1996 and 80,116 in 1995) .. (2,476,162) (994,887)
------------ ------------
Total Stockholders' Equity ................................................ 29,851,809 29,784,770
------------ ------------
$101,553,351 $110,457,474
============ ============
See notes to consolidated financial statements.
-15-
16
FIRST OF MICHIGAN CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
---------------------------------------
SEPT. 27, SEPT. 29, SEPT. 30,
1996 1995 1994
------------ ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 1,763,716 $ 108,067 $ 1,042,893
Noncash items included in net income:
Depreciation and amortization .......................... 788,906 666,889 314,638
Deferred income taxes .................................. 2,066,000 (351,000) (281,000)
Loss (gain) on sale of fixed assets .................... 6,502 (2,963) (499)
Other .................................................. 8,625 (332,375) (38,880)
------------ ----------- ------------
4,633,749 88,618 1,037,152
(Increase) decrease in operating receivables:
Brokers and dealers .................................... 1,748,389 (1,854,300) 193,760
Customers .............................................. 3,009,946 (5,832,456) (16,709,935)
Employees .............................................. 117,380 152,577 1,360,145
Other .................................................. (307,449) (123,397) 12,521
Increase (decrease) in operating payables:
Brokers and dealers .................................... 13,464,920 1,797,244 6,559,493
Customers .............................................. (4,660,033) 1,385,436 (4,205,493)
Employee compensation .................................. (5,617,290) 628,862 (1,090,171)
Income taxes ........................................... (410,428) 326,409 (20,962)
Other .................................................. (295,165) 877,577 794,166
(Increase) decrease in:
Securities inventory ................................... 1,813,223 (3,730,308) 1,196,797
Other .................................................. 1,423,896 5,240,804 (1,659,999)
Increase (decrease) in:
Securities sold, not yet purchased ..................... (167,082) 212,493 (231,664)
------------ ----------- ------------
10,120,307 (919,059) (13,801,342)
------------ ----------- ------------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES .......... 14,754,056 (830,441) (12,764,190)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings .......... (11,000,000) 3,250,000 14,250,000
Proceeds from employee stock transactions ................. 17,612 306,533 419,167
Payments for repurchases of common stock .................. (1,509,600) (1,249,372) (625,475)
Dividends paid ............................................ -- (680,351) (1,130,329)
------------ ----------- ------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES .......... (12,491,988) 1,626,810 12,913,363
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment account securities .... -- -- 712,319
Net payments for equipment and leasehold improvements .. (1,316,264) (1,168,996) (514,423)
Purchases, advances and other activity in
other investments-net ................................. 472,653 755,653 (11,510)
------------ ----------- ------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES .......... (843,611) (413,343) 186,386
------------ ----------- ------------
Increase in cash and cash equivalents ..................... 1,418,457 383,026 335,559
Cash and cash equivalents at beginning of year ............ 2,995,513 2,612,487 2,276,928
------------ ----------- ------------
Cash and cash equivalents at end of year .................. $ 4,413,970 $2,995,513 $ 2,612,487
============ =========== ============
See notes to consolidated financial statements.
-16-
17
FIRST OF MICHIGAN CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ISSUED
---------------------- CAPITAL
NUMBER AGGREGATE IN EXCESS RETAINED
OF SHARES PAR VALUE OF PAR VALUE EARNINGS
---------- ---------- ------------ -----------
Balances at September 24, 1993 ............ 2,628,790 $262,879 $3,867,885 $26,621,660
Net income .............................. -- -- -- 1,042,893
Cash dividends declared ................. -- -- -- (462,029)
Purchase of treasury shares ............. -- -- -- --
Shares issued under stock option plans .. -- -- (74,451) --
Stock dividend .......................... 262,768 26,277 (26,277) --
---------- ---------- ------------ -----------
Balances at September 30, 1994 ............ 2,891,558 $289,156 $3,767,157 $27,202,524
Net income .............................. -- -- -- 108,067
Cash dividends declared ................. -- -- -- (507,438)
Purchase of treasury shares ............. -- -- -- --
Shares issued under stock options plans . -- -- (79,809) --
---------- ---------- ------------ -----------
Balances at September 29, 1995 ............ 2,891,558 $289,156 $3,687,348 $26,803,153
Net income ............................... -- -- -- 1,763,716
Purchase of treasury shares .............. -- -- -- --
Shares issued under stock option plans ... -- -- (10,713) --
Pension plan charge ...................... -- -- -- (204,689)
---------- ---------- ------------ -----------
Balances at September 27, 1996 ............ 2,891,558 $289,156 $3,676,635 $28,362,180
========== ========== ============ ===========
TREASURY STOCK
----------------------- TOTAL
NUMBER OF STOCKHOLDERS'
SHARES COST EQUITY
----------------------- -------------
Balances at September 24, 1993 ............ -- $ -- $30,752,424
Net income ............................... -- -- 1,042,893
Cash dividends declared .................. -- -- (462,029)
Purchase of treasury shares .............. (46,579) (625,475) (625,475)
Shares issued under stock option plans ... 36,905 493,618 419,167
Stock dividend ........................... -- -- --
--------- ------------ -------------
Balances at September 30, 1994 ............ (9,674) (131,857) $31,126,980
Net income ............................... -- -- 108,067
Cash dividends declared .................. -- -- (507,438)
Purchase of treasury shares .............. (98,222) (1,249,372) (1,249,372)
Shares issued under stock options plans .. 27,780 386,342 306,533
--------- ------------ -------------
Balances at September 29, 1995 ............ (80,116) $ (994,887) $29,784,770
Net income ................................ -- -- 1,763,716
Purchase of treasury shares ............... (179,969) (1,509,600) (1,509,600)
Shares issued under stock option plans .... 2,060 28,325 17,612
Pension plan charge ....................... -- -- (204,689)
--------- ------------ -------------
Balances at September 27, 1996 ............ (258,025) $(2,476,162) $29,851,809
========= ============ =============
See notes to consolidated financial statements.
-17-
18
FIRST OF MICHIGAN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
The consolidated financial statements include the accounts and operations
of First of Michigan Capital Corporation and its subsidiary companies (the
Company) including First of Michigan Corporation, (the Corporation), a
registered securities broker-dealer and a member organization of the New York
Stock Exchange, Inc., after elimination of all significant intercompany
accounts and transactions.
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Accounts of officers and employees are included in receivable from and
payable to customers, as they are subject to the normal terms and regulations
as to payment and, in the aggregate, are not significant.
Securities owned and securities sold, not yet purchased, consist of the
Company's trading accounts carried at market value. Unrealized gains and losses
are reflected in operations. Sales of securities, not yet purchased, represent
an obligation of the Company to deliver specified equity securities at a
predetermined date and price. The Company will be obligated to acquire the
required securities at prevailing market prices in the future to satisfy this
obligation.
Securities transactions and related revenues and expenses are recorded on
a settlement date basis which does not differ materially from a trade date
basis. The risk of loss on unsettled transactions is the same as settled
transactions and relates to the customer's or broker's inability to meet the
terms of their contracts. Credit risk is reduced by the industry policy of
obtaining and maintaining adequate collateral until the commitment is
completed.
Depreciation of equipment is provided using the straight-line basis over
the estimated useful lives of the assets. Leasehold improvements are amortized
using the straight-line method over the term of the lease or the useful life of
the improvement, whichever is less. Amortization of assets recorded under
capital leases is included in depreciation expense.
Investment account securities are carried at the lower of cost or market.
Certain other investments are accounted for on the equity method. The Company's
equity in such operations is not material.
Net income per share is computed on the basis of the weighted average
number of common and common equivalent shares outstanding, assuming dilutive
stock options were exercised at the beginning of each quarter or at the date of
issuance, if later, with applicable proceeds used to acquire additional
treasury shares at the average market price.
The Company is a party to financial instruments with off-balance-sheet
risk in its normal course of business. The Company is required, in the event of
the non-delivery of customers' securities owed the Company by other
broker-dealers, or by its customers, to purchase identical securities in the
open market. Such purchases might result in losses not reflected in the
accompanying financial statements. The market values of securities owed the
Company approximates the amounts payable.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions about amounts in the financial statements and accompanying notes.
Actual results could differ.
-18-
19
NOTE B
BROKERS, DEALERS AND CUSTOMERS
The components of the receivable from and payable to brokers and dealers
are as shown.
Receivables from brokers generally are collected within thirty days and are
collateralized by securities in physical possession, on deposit, or receivable
from customers or other brokers. The Company does business with brokers that for
the most part are members of the major securities exchanges.
The Company monitors the credit standing of each broker-dealer and customer
that it conducts business with. In addition, the Company monitors the market
value of collateral held and the market value of securities receivable from
others. It is the Company's policy to request and obtain additional collateral
when exposure to loss exists. The value of securities owned by customers and
held as collateral for these receivables is not included in the balance sheet.
Payable to customers includes free credit balances of $6,425,163 at September
27, 1996 and $7,557,132 at September 29, 1995. Interest paid on stock loan
transactions approximated $889,000, $862,000 and $455,000 for the years ended
September 27, 1996, September 29, 1995 and September 30, 1994, respectively.
In June of 1996, the Financial Accounting Standards Board issued Statement
125, "Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This statement, which becomes effective in two parts on January
1, 1997 and January 1, 1998, provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
The impact of the adoption of this statement has not yet been determined by
management.
YEAR ENDED
------------------------
SEPT. 27, SEPT. 29,
1996 1995
----------- -----------
Receivable from brokers and dealers:
Securities failed-to-deliver ............. $ 877,133 $ 233,145
Deposits on securities borrowed .......... 1,887,360 4,280,000
Other .................................... 15,000 14,737
----------- -----------
$2,779,493 $4,527,882
=========== ===========
Payable to brokers and dealers:
Securities failed-to-receive ............. $ 62,642 $ 364,409
Deposits received for securities loaned .. 29,970,500 16,737,100
Clearing organizations ................... 1,553,914 890,934
Other .................................... 43,435 173,128
----------- -----------
$31,630,491 $18,165,571
=========== ===========
NOTE C
SECURITIES OWNED
YEAR ENDED
------------------------
SEPT. 27, SEPT. 29,
Securities owned are as shown. 1996 1995
----------- -----------
Municipal bonds ............................ $ 2,540,112 $ 2,743,784
Corporate stocks ........................... 1,395,721 1,761,686
Corporate obligations ...................... 2,236,331 3,124,399
U.S. Government obligations ................ 401,907 757,425
----------- -----------
$ 6,574,071 $ 8,387,294
=========== ===========
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20
NOTE D
BANK CREDIT ARRANGEMENTS
First of Michigan Corporation has available lines of credit on a secured
basis with five banks aggregating $122,000,000. The Corporation had borrowed
$18,500,000 against these lines of credit at September 27, 1996. There were
$29,500,000 in borrowings outstanding against these lines of credit at
September 29, 1995. Interest is at the banks' broker call loan interest rate.
The lines of credit may be withdrawn at the sole discretion of the banks.
Under separate agreements, First of Michigan Capital Corporation has
available short-term lines of credit on an unsecured basis, aggregating
$8,000,000 with two banks. Interest is at the banks' broker call loan interest
rate. First of Michigan Capital Corporation had no borrowings against these
lines of credit at September 27, 1996 or at September 29, 1995.
Interest paid for the years ended September 27, 1996, September 29, 1995
and September 30, 1994, exclusive of amounts for stock loaned referred to in
Note B, was $2,079,000, $1,996,000, and $1,201,000, respectively. The weighted
average interest rate paid for the fiscal year ended September 27, 1996 was
5.88% and for the fiscal year ended September 29, 1995 was 6.09%.
NOTE E
COMMITMENTS AND CONTINGENCIES
As of September 27, 1996, First of Michigan Corporation pledged to a
clearing corporation customer securities valued at approximately $3,500,000
which satisfied margin deposit requirements of $2,347,853 at that date.
At September 27, 1996, the aggregate minimum rental commitments under
noncancellable leases and contracts for office space and equipment, expiring
1997 through 2005, are as shown.
Certain of the office leases contain renewal options ranging from one to
five years. The office leases generally provide for rent escalations resulting
from increased assessments for real estate taxes and other charges. Annual
rental expense for office space and equipment was approximately $2,106,000 in
1996, $3,081,000 in 1995, and $2,400,000 in 1994.
RENTAL COMMITMENTS: CAPITAL OPERATING
LEASES LEASES
---------- ----------
1997 ........................................... $ 336,000 $2,405,000
1998 ........................................... 336,000 1,456,000
1999 ........................................... 336,000 1,288,000
2000 ........................................... -- 707,000
2001 ........................................... -- 411,000
Thereafter ..................................... -- 608,000
---------- ----------
Total minimum lease payments ................. 1,008,000 $6,875,000
==========
Amounts representing interest ................ 67,461
----------
Present value of net minimum lease payments .. $ 940,539
==========
In the normal course of business, First of Michigan Corporation enters
into underwriting commitments. Transactions relating to such underwriting
commitments which were open at September 27, 1996 and subsequently settled had
no material effect on the financial statements as of that date.
As is the case with many firms in the securities industry, First of
Michigan Corporation is a defendant or co-defendant in a number of lawsuits or
arbitrations alleging damages, which are ordinary and routine litigation and
arbitration, incidental to the securities and investment banking business. The
Company is contesting the allegations of the complaints in these cases and
believes there are meritorious defenses in each of them. Some of the
proceedings relate to public underwritings of securities in which First of
Michigan Corporation participated as a member of the underwriting syndicate.
-20-
21
In view of the number and diversity of claims against the Company and the
inherent difficulty of predicting the outcome of litigation and other claims,
the Company cannot state with certainty what the eventual outcome of the
pending litigation and other claims will be. The Company provides for costs
relating to these matters when a loss is probable and the amount can be
reasonably estimated. The effect of the outcome of these matters on the
Company's future results of operations cannot be predicted with certainty
because such effects depend on future results of operations and timing of the
resolution of such matters. While it is not possible to predict with
certainty, management believes that the ultimate resolution of such matters
will not have a material adverse effect on the consolidated financial position
of the Company.
NOTE F
TERMINATION OF MERGER AND CORPORATE REALIGNMENT EXPENSES
On January 10, 1993, the Company and Comerica Incorporated (Comerica)
entered into an Agreement and Plan of Merger (Merger Agreement). The Company
was notified on March 31, 1993 by Comerica that it was terminating the Merger
Agreement. Under the Merger Agreement, the Company entered into a number of
retention agreements with certain investment executives and branch managers
which included up-front cash payments. The termination of the Merger Agreement
entitled each investment executive to retain payments made to them.
As a result of the termination of the Merger Agreement, the Company
entered into additional retention agreements with certain investment executives
which were being amortized ratably over 36 months. The agreements required the
registered representatives to repay any unearned portion in the event of their
separation prior to April 1996. The amortization of these agreements resulted
in compensation expense of approximately $657,000 in 1996.
Due to certain one-time expenses resulting from a realignment of the
Company's operations and management structure, operating expenses include a
realignment charge of $1,050,000, consisting principally of compensation, for
the year ended September 27, 1996.
NOTE G
STOCK OPTIONS
The Company has a Stock Option Plan for its employees under which the
Company may grant options for up to 550,000 shares of common stock at a price
not less than 85% of the market value of the common stock on the date of grant.
All options granted through September 27, 1996 have prices equal to at least
100% of the market value at date of grant. Options become exercisable after 3
years but not later than 5 years from date of grant except options for 7,425
shares at $7.16 per share granted December 12, 1990 and options for 3,300
shares at $9.55 per share granted December 27, 1991, which become exercisable
after 5 years but not later than 7 years from date of grant. Options for 8,000
shares were granted on March 16, 1995 at a price of $13.38, which become
exercisable upon the attainment of specific performance objectives and which
expire March 16, 2005.
Options outstanding at September 27, 1996, of which 115,404 were
exercisable, carried exercise prices ranging from $7.16 to $13.38 per share
(weighted average of $10.05 per share) and 461,806 shares were available for
future grants.
The Company has a separate Stock Option Plan for its non-employee
Directors under which the Company may grant options for up to 55,000 shares of
common stock at a price equal to the market value of the common stock on the
date of grant. Options become exercisable after 5 years but no later than 7
years from date of grant. Additional option information is shown.
Options outstanding at September 27, 1996, of which 4,125 were
exercisable, carried exercise prices ranging from $7.16 to $9.55 per share
(weighted average of $8.05 per share) and 48,400 shares were available for
future grants.
Statement 123, "Accounting for Stock-Based Compensation," was issued by
the Financial Accounting Standards Board and is effective for 1996 financial
statements. The Company has elected not to adopt the recognition provisions of
Statement 123, but will continue accounting for stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," as permitted by the new standard.
-21-
22
EMPLOYEE STOCK OPTION PLAN 1996 1995 1994
--------- -------- --------
Outstanding at beginning of fiscal year .. 384,029 384,040 265,012
Granted (a) ............................. -- 36,500 210,204
Exercised (b) ........................... (2,060) (27,780) (38,598)
Canceled or expired ..................... (190,138) (8,731) (52,578)
--------- -------- --------
Outstanding at end of fiscal year (c) ... 191,831 384,029 384,040
========= ======== ========
DIRECTORS STOCK OPTION PLAN 1996 1995 1994
--------- -------- --------
Outstanding at beginning of fiscal year .. 6,600 6,600 8,800
Granted ................................. -- -- --
Exercised ............................... -- -- --
Canceled or expired ..................... -- -- (2,200)
--------- -------- --------
Outstanding at end of fiscal year ....... 6,600 6,600 6,600
========= ======== ========
(a) Grant prices per share were $12.88, $13.38, $13.50 and $14.25 in 1995,
$12.61, $13.38 and $16.72 in 1994.
(b) Weighted average price per share of $8.41 in 1996, $9.81 in 1995, and
$10.04 in 1994.
(c) Includes 73,306 shares in 1995 and 103,078 shares in 1994, granted under a
previous Stock Option Plan.
NOTE H
CAPITAL REQUIREMENTS
The Corporation is subject to the Securities and Exchange Commission'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 minimum net
capital, as defined, equal to the greater of $1,000,000 or 2 percent of
aggregate debit balances arising from customer transactions, as defined. The
net capital rule of the New York Stock Exchange, Inc., also provides that
equity capital may not be withdrawn or cash dividends paid if resulting net
capital would be less than 5 percent of aggregate debits.
At September 27, 1996, the Corporation had net capital of $17,750,630,
which was 22 percent of aggregate debit balances and $16,146,002 in excess of
required net capital.
NOTE I
INCOME TAXES
The provision for income taxes consists of the following:
YEAR ENDED
------------ ---------- ---------
SEPT 27, SEPT. 29, SEPT. 30,
1996 1995 1994
------------ ---------- ---------
Federal:
Current ..................................................... $(1,141,000) $ 611,000 $ 681,000
Deferred (credit) ........................................... 2,066,000 (351,000) (281,000)
------------ ---------- ---------
925,000 260,000 400,000
State and local ............................................. 50,000 25,000 25,000
------------ ---------- ---------
$ 975,000 $ 285,000 $ 425,000
============ ========== =========
-22-
23
A reconciliation of the total income tax provision and the
amount computed by applying the statutory federal income
tax rate of 34% to earnings before income taxes is as follows:
YEAR ENDED
-------- ---------- ---------
SEPT 27, SEPT. 29, SEPT. 30,
1996 1995 1994
-------- ---------- ---------
Computed amounts ............................................. $931,000 $ 135,000 $499,000
Municipal interest income .................................... (54,000) (61,000) (72,000)
Redemption of life insurance policies ........................ 43,000 312,000 --
Other ........................................................ 5,000 (126,000) (27,000)
-------- --------- --------
Federal Income Tax Provision ................................. $925,000 $ 260,000 $400,000
======== ========= ========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of September 27, 1996
and September 29, 1995 are as follows:
SEPT. 27, SEPT. 29,
1996 1995
---------- ----------
Deferred tax liabilities:
Prepaid expenses ............. $ 80,000 $ 73,000
Lease payment accrual ........ 21,000 39,000
Depreciation ................. 148,000 78,000
Other - net .................. 57,000 65,000
---------- ----------
Total deferred tax liabilities 306,000 255,000
Deferred tax assets:
Deferred compensation ........ -- 1,954,000
Retirement benefits .......... 791,000 743,000
Other - net .................. 341,000 450,000
---------- ----------
Total deferred tax assets .... 1,132,000 3,147,000
---------- ----------
Net deferred tax assets ...... $ 826,000 $2,892,000
========== ==========
Federal, state and local income taxes paid during the year approximated
$392,000 in 1996, $176,000 in 1995, and $861,000 in 1994.
NOTE J - RETIREMENT PLANS
The Company terminated its Employee Stock Option Plan and its Employee
Profit Sharing Plan during the fiscal year ended September 27, 1996. The
Company continues to sponsor a defined contribution "401(k)" plan covering
substantially all full-time employees, to which the Company makes matching
contributions, and an unfunded Supplemental Executive Retirement Program
(SERP), which is a non-qualified plan that provides certain current and former
officers additional retirement benefits.
-23-
24
The unfunded status for the SERP was as follows:
FISCAL YEAR ENDED
----------------------
SEPT. 27, SEPT. 29,
1996 1995
---------- ----------
Projected Benefit Obligation ............ $3,709,863 $3,169,569
Accumulated Benefit Obligation .......... 3,564,089 3,101,747
Minimum Liability ....................... 3,564,089 3,101,747
Unrecognized Net Transition Obligation .. 902,073 702,883
Net Recorded Liability .................. 2,807,790 2,466,686
The cost of the retirement plans, including the SERP plan expense of
$476,315, $355,187, and $556,748, for the fiscal years ended in 1996, 1995 and
1994, respectively, consisted of the following components:
FISCAL YEAR ENDED
-----------------
SEPT 27, SEPT. 29, SEPT. 30,
1996 1995 1994
-------- --------- ---------
Service Cost ................ $ 90,500 $ 63,934 $139,187
Interest Cost ............... 266,736 202,457 289,509
Amortization ................ 119,079 88,796 128,052
Defined Contribution Plans .. 767,476 184,370 245,456
---------- -------- --------
Total Costs ................. $1,243,791 $539,557 $802,204
========== ======== ========
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 7.5% and 5% at September 27, 1996 and 8% and
5% at September 29, 1995 and at September 30, 1994.
-24-
25
NOTE K
QUARTERLY INFORMATION (UNAUDITED)
The table shown below sets forth the unaudited results of operations of
the Company by quarter for 1996 and 1995. The information was prepared in
conformity with generally accepted accounting principles. As such, it reflects
all adjustments which were, in the opinion of management, necessary for a fair
presentation of the results of operations for the periods presented. The nature
of the Company's business is such that the results of any interim period are
not necessarily indicative of results for a full year. Due to certain one-time
expenses resulting from a realignment of the Company's operations and
management structure, operating expenses include a realignment charge of
$1,050,000, consisting primarily of compensation, during the quarter ended
March 29, 1996.
QUARTER ENDED
------------------------
DEC. 29, MARCH 29, JUNE 28, SEPT. 27,
1995 1996 1996 1996
----------- ----------- ----------- -----------
Revenues ............................. $17,007,607 $18,464,120 $19,327,927 $16,907,789
Expenses ............................. 16,371,276 19,058,171 17,771,905 15,767,375
----------- ----------- ----------- -----------
Income (loss) before income taxes .... 636,331 (594,051) 1,556,022 1,140,414
Provision (credit) for income taxes .. 220,000 (210,000) 550,000 415,000
----------- ----------- ----------- -----------
Net income (loss) .................... $416,331 $ (384,051) $1,006,022 $725,414
=========== =========== =========== ===========
Net income (loss) per share .......... $0.15 $(0.14) $0.38 $0.27
=========== ============ =========== ===========
Dividends per share .................. $0.00 $0.00 $0.00 $0.00
=========== =========== =========== ===========
Stock price range:
High ................................. $9.50 $8.75 $8.25 $8.00
Low .................................. $7.88 $7.88 $7.13 $7.50
QUARTER ENDED
----------- ------------------------ -----------
DEC. 30, MARCH 31, JUNE 30, SEPT. 29,
1994 1995 1995 1995
----------- ----------- ----------- -----------
Revenues ............................. $14,048,655 $14,643,998 $15,648,355 $18,523,906
Expenses ............................. 13,551,982 14,787,718 16,117,731 18,014,416
----------- ----------- ----------- -----------
Income (loss) before income taxes .... 496,673 (143,720) (469,376) 509,490
Provision (credit) for income taxes .. 130,000 (105,000) (240,000) 500,000
----------- ----------- ----------- -----------
Net income (loss) .................... $366,673 $ (38,720) $ (229,376) $9,490
=========== =========== =========== ===========
Net income (loss) per share .......... $0.13 $(0.02) $(0.08) $0.01
=========== =========== =========== ===========
Dividends per share .................. $0.06 $0.06 $0.06 $0.00
=========== =========== =========== ===========
Stock price range:
High ................................. $14.25 $12.50 $11.13 $10.13
Low .................................. $13.00 $10.50 $9.25 $8.88
-25-
26
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
FIRST OF MICHIGAN CAPITAL CORPORATION
(PARENT COMPANY)
CONDENSED BALANCE SHEETS
ASSETS September 27, 1996 September 29, 1995
- ------ ------------------ ------------------
Cash $ 749 $ 1,332
Receivable from affiliates (a) 287,117 644,600
Prepaid expenses 35,765 37,500
Investments in subsidiaries, at equity (a) 38,385,108 36,096,071
Other Investments 82,479 128,251
Fixed Assets 900,000 1,200,000
----------- -----------
$39,691,218 $38,107,754
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to subsidiaries (a) $ 8,787,871 $ 6,847,454
Other Accounts Payable 111,000 248,907
Capital lease obligation 940,539 1,226,623
----------- -----------
9,839,410 8,322,984
----------- -----------
Stockholders' equity:
Serial preferred stock--
none issued
Common stock 289,156 289,156
Capital in excess of par value 3,676,635 3,687,348
Retained earnings 28,362,179 26,803,153
----------- -----------
32,327,970 30,779,657
Less treasury stock, at cost (2,476,162) (994,887)
----------- -----------
Total Stockholders' equity 29,851,808 29,784,770
----------- -----------
$39,691,218 $38,107,754
=========== ===========
- --------------------
(a) Eliminated upon consolidation
Notes to Consolidated Financial Statements are incorporated herein by
reference.
-26-
27
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
FIRST OF MICHIGAN CAPITAL CORPORATION
(PARENT COMPANY)
CONDENSED INCOME STATEMENTS
Fiscal Year Ended
----------------------------------------------------------
September 27, 1996 September 29, 1995 September 30, 1994
------------------ ------------------ ------------------
Income:
Interest $ -- $ 1,814 $ 5,063
Dividends -- -- 23,036
Income from
investments 7,649 332,386 34,977
Other (a) 336,000 336,000 --
------------ ---------- ----------
343,649 670,200 63,076
Expenses:
Interest expense (b) 641,831 461,837 274,087
General and 764,810* 1,176,743* 521,137
administrative ------------ ---------- ----------
expenses 1,406,641 1,638,580 795,224
Income (loss) before
income tax credits
and equity in net
income of
subsidiaries (1,062,992) (968,380) (732,148)
Federal and state
income tax (credits) (c) (361,000) (365,000) (263,000)
------------ ---------- ----------
(701,992) (603,380) (469,148)
Equity in net income
of subsidiaries (a) 2,465,708 711,447 1,512,041
----------- ---------- ----------
Net Income $ 1,763,716 $ 108,067 $1,042,893
=========== ========== ==========
- -----------------------
(a) Eliminated upon consolidation.
(b) Includes $591,915, $399,214, and $274,087 eliminated upon
consolidation for the years ended September 27, 1996, September 29, 1995, and
September 30, 1994, respectively.
(c) Calculated on a separate-return basis; the tax credit results from the
utilization of the loss in the consolidated return.
*Includes $300,000 depreciation expense related to a capital lease, as
well as $346,230 in expenses associated with a tender offer made and withdrawn
by Registrant during fiscal 1995.
Notes to Consolidated Financial Statements are incorporated herein by
reference.
-27-
28
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
FIRST OF MICHIGAN CAPITAL CORPORATION
(PARENT COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
----------------------------------------------------------
September 27, 1996 September 29, 1995 September 30, 1994
------------------ ------------------ ------------------
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income $1,763,716 $ 108,067 $ 1,042,893
Noncash items included
in net income:
Equity in net income
of subsidiaries
Depreciation and (2,289,037) (884,008) (1,202,277)
amortization 300,000 300,000 --
Gain on sale of investment
account securities -- -- (38,880)
Other (7,649) (332,375) --
- -------------------------------------------------------------------------------------------
(232,970) (808,316) (198,264)
Decrease in operating
receivables:
Subsidiaries 357,483 69,931 14,303
Increase (decrease) in
operating payables:
Subsidiaries 1,940,417 1,160,005 573,807
Other (137,907) 248,907 --
(Increase) decrease in
other assets: 1,735 23,440 (10,940)
- -------------------------------------------------------------------------------------------
2,161,728 1,502,283 577,170
- -------------------------------------------------------------------------------------------
CASH PROVIDED BY
OPERATING ACTIVITIES $1,928,758 $ 693,967 $ 378,906
-28-
29
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
FIRST OF MICHIGAN CAPITAL CORPORATION
(PARENT COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Fiscal Year Ended
----------------------------------------------------------
September 27, 1996 September 29, 1995 September 30, 1994
------------------ ------------------ ------------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from:
Employee stock transactions $ 17,612 $ 306,533 $ 419,167
Net payments for:
Repurchases of common stock (1,509,600) (1,249,372) (625,475)
Dividends paid __ (680,351) (1,130,329)
- ------------------------------------------------------------------------------------------------
CASH USED FOR
FINANCING ACTIVITIES (1,491,988) (1,623,190) (1,336,637)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of
investment account securities -- -- 712,319
Payments for
equipment - net (286,084) (247,351) (26,026)
Purchase, advances
and other activity
in other investments - net (151,269) 877,038 99,239
- ------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED
FOR) INVESTING ACTIVITIES (437,353) 629,687 785,532
- ------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (583) (299,536) (172,199)
CASH AND CASH
EQUIVALENTS AT BEGINNING
OF YEAR 1,332 300,868 473,067
- ------------------------------------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS
AT END OF YEAR $ 749 $ 1,332 $ 300,868
================================================================================================
Interest payments $ 49,916 $ 62,623 $ --
Notes to Consolidated Financial Statements are incorporated herein by
reference.
-29-
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Such information relating to Directors and Executive Officers of
Registrant as is required by Item 401 of Regulation S-K and contained in
Registrant's definitive proxy statement for its 1997 annual meeting of
stockholders to be filed pursuant to Regulation 14A (the "1997 Proxy
Statement") and such information with respect to reports under Section 16(a) of
the Securities Exchange Act of 1934 as is required by Item 405 of Regulation
S-K and contained in the 1997 Proxy Statement hereby is incorporated herein by
reference. Also see "Executive Officers of the Registrant" in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION.
Such information relating to executive compensation as is required by Item
402 of Regulation S-K and contained in the 1997 Proxy Statement (other than
information required to be included therein solely by virtue of Item 402(i),
(k), or (l) of Regulation S-K) hereby is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Such information relating to security ownership of certain beneficial
owners and management as is required by Item 403 of Regulation S-K and
contained in the 1997 Proxy Statement hereby is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Such information relating to relationships and transactions as is required
by Item 404 of Regulation S-K and contained in the 1997 Proxy Statement hereby
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) The following consolidated financial statements of the
Registrant are included in this Report under Item 8:
Report of independent auditors
Consolidated balance sheets - September 27, 1996 and
September 29, 1995
Consolidated statements of income - Fiscal Years ended
September 27, 1996, September 29, 1995, and September 30,
1994
Consolidated statements of stockholders' equity - Fiscal
Years ended September 27, 1996, September 29, 1995, and
September 30, 1994
-30-
31
Consolidated statements of cash flows - Fiscal Years ended
September 27, 1996, September 29, 1995, and September 30,
1994
Notes to consolidated financial statements - September 27,
1996
(2) The following consolidated financial statement schedule is
included in this Report under Item 8:
Schedule III - Condensed Financial Information of Registrant
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(3) Exhibits.
(i) Exhibits Filed Herewith
(10)-(viii)* Employment Agreement dated July 26, 1994 between FoM and
Charles R. Roberts and related Promissory Note from Charles
R. Roberts to FoM.
(10)-(ix)* Letter agreement, dated November 15, 1996, between
Registrant and Kenneth C. Eich, concerning severance
arrangements.
(10)-(x)* Letter agreement dated March 18, 1996 between Registrant and
Steve Gasper, Jr., concerning severance arrangements.
(11) Computation of Per Share Earnings.
(21) Subsidiaries of Registrant.
(23) Consent of Independent Auditors - The consent of Ernst &
Young LLP with respect to incorporation by reference of its
report on the financial statements and schedules of
Registrant included herein into Registration Statements
(Form S-8 No. 2-95535 and Form S-8 No. 33-16204) relating to
Registrant's Amended and Restated Employee Stock Option Plan
of 1981, as amended, and in the related Prospectus,
Registration Statement (Form S-8 No. 33-51640) relating to
Registrant's Employee Stock Option Plan of 1992 and in the
related Prospectus, and Registration Statement (Form S-8 No.
33-51638) relating to Registrant's Director Stock Option
Plan of 1989 and in the related Prospectus.
(27) Financial Data Schedule (EDGAR filing only)
(ii) Exhibits Incorporated herein by
Reference
(3) Restated Certificate of Incorporation of Registrant dated
March 15, 1988. (Exhibit (3) to Form 10-K for the year
ended September 30, 1988. File No. 1-7467)
(3)(a) Bylaws of Registrant as currently in effect. (Exhibit
(3)(a) to Form 10-Q for the quarter ended March 31, 1989 and
Exhibit 2 to Form 8-K dated January 11, 1993. File
No.1-7467 for each)
-31-
32
(4) Articles Fourth, Tenth, and Eleventh of the Restated
Certificate of Incorporation of Registrant dated March 15,
1988 (Exhibit (4) to Form 10-K for the year ended September
30, 1988. File No. 1-7467)
(10)-(i)* Restated Agreement dated December 1, 1983 between Registrant
and Conrad W. Koski with respect to supplemental retirement
benefit. (Exhibit (10)-(viii) to Form 10-K for the year
ended September 30, 1983. File No. 1-7467)
(10)-(i)(a)* Form of Amendment dated April 22, 1989 to Restated Agreement
dated December 1, 1983 between Registrant and Conrad W.
Koski. (Exhibit (10)-(1) to Form 10-K for the year ended
September 29, 1989. File No. 1-7467)
(10)-(ii)* First of Michigan Corporation Supplemental Retirement and
Survivor Income Plan (Junior Management). (Exhibit
(10)-(xv) to Form 10-K for the year ended September 26,
1986. File No. 1-7467)
(10)-(iii)* Form of Indemnification Agreement which Registrant has
entered into with each of its Directors, its Secretary
Lenore P. Denys, and certain other officers of FoM.
(Exhibit (11)-(1) to Form 10-K for the year ended September
30, 1988. File No. 1-7467)
(10)-(iv)* Amended and Restated Employee Stock Option Plan of 1981.
(Exhibit (10)-(3) to Form 10-K for the year ended September
29, 1989. File No. 1-7467)
(10)-(v)* First of Michigan Capital Corporation Directors Stock Option
Plan of 1989. (Exhibit (10)-(4) to Form 10-K for the year
ended September 29, 1989. File No. 1-7467)
(10)-(v)(a)* Paragraph 8 as amended of the Directors Stock Option Plan of
1989. (Exhibit (10)-(2) to Form 10-K for the year ended
September 25, 1992. File No. 1-7467)
(10)-(vi)* First of Michigan Capital Corporation Employee Stock Option
Plan of 1992. (Appendix A to the definitive proxy statement
of Registrant dated January 24, 1992. File No. 1-7467)
(10)-(vii)* Employment Agreement dated April 1, 1994 among Registrant,
FoM, and Steven Gasper, Jr. and amendment thereto dated
January 24, 1995 (now modified into a severance agreement).
(Exhibit (10)-(xx) to Form 10-K for the year ended
September 30, 1994 and Exhibit 19 to Form 10-Q for the
quarter ended March 31, 1995, respectively. Both File No.
1-7467)
- --------------------
* Designates a management contract or a compensatory plan or arrangement to
which one or more current Directors or Executive Officers of Registrant or
one or more former Executive Officers of Registrant named in the Summary
Compensation Table of the 1997 Proxy Statement is a party or in which one
or more of such current or former Directors or Executive Officers
participates or may participate.
(b) Reports on Form 8-K
No report on Form 8-K was filed by Registrant in the quarter ended
September 27, 1996.
-32-
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
FIRST OF MICHIGAN CAPITAL CORPORATION
By /s/ Conrad W. Koski
---------------------------------------
Conrad W. Koski
President and Chief Executive Officer
Dated: December 20, 1996
S-1
34
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the date indicated.
Signature Office Date of Signing
--------- ------ ---------------
/s/ William H. Cuddy Chairman of the December 20, 1996
--------------------- Board of Directors
William H. Cuddy
/s/ Conrad W. Koski President, Chief December 20, 1996
------------------- Executive Officer
Conrad W. Koski (principal executive
officer) and Director
/s/ Craig P. Baker Director December 20, 1996
-------------------
Craig P. Baker
/s/ Geoffrey B. Baker Director December 20, 1996
---------------------
Geoffrey B. Baker
/s/ Gerard M. Lavin Director December 20, 1996
--------------------
Gerard M. Lavin
Director December __, 1996
-----------------------
Thomas A. McDonnell
/s/ Charles M. Grimley Senior Vice-President, December 20, 1996
----------------------- Treasurer and Chief
Charles M. Grimley Financial Officer
(principal financial and
accounting officer)
S-2
35
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the fiscal year ended Commission File
September 27, 1996 Number 1-7467
FIRST OF MICHIGAN CAPITAL CORPORATION
E-1
36
EXHIBIT INDEX
Exhibit
Number Title
- ------- -----
(i) Exhibits Filed Herewith
(10)-(viii)* Employment Agreement dated July 26, 1994 between FoM and
Charles R. Roberts and related Promissory Note from Charles
R. Roberts to FoM.
(10)-(ix)* Letter agreement, dated November 15, 1995, between
Registrant and Kenneth C. Eich concerning severance
arrangements.
(10)-(x)* Letter agreement, dated March 18, 1996, between Registrant
and Steve Gasper, Jr., concerning severance arrangements.
(11) Computation of Per Share Earnings.
(21) Subsidiaries of Registrant.
(23) Consent of Independent Auditors - The consent of Ernst &
Young LLP with respect to incorporation by reference of its
report on the financial statements and schedules of
Registrant included herein into Registration Statements
(Form S-8 No. 2-95535 and Form S-8 No. 33-16204) relating to
Registrant's Amended and Restated Employee Stock Option Plan
of 1981, as amended, and in the related Prospectus,
Registration Statement (Form S-8 No. 33-51640) relating to
Registrant's Employee Stock Option Plan of 1992 and in the
related Prospectus, and Registration Statement (Form S-8 No.
33-51638) relating to Registrant's Director Stock Option
Plan of 1989 and in the related Prospectus.
(27) Financial Data Schedule (EDGAR filing only)
(ii) Exhibits Incorporated herein by
Reference
(3) Restated Certificate of Incorporation of Registrant dated
March 15, 1988. (Exhibit (3) to Form 10-K for the year ended
September 30, 1988. File No. 1-7467)
(3)(a) Bylaws of Registrant as currently in effect. (Exhibit
(3)(a) to Form 10-Q for the quarter ended March 31, 1989 and
Exhibit 2 to Form 8-K dated January 11, 1993. File
No.1-7467 for each)
(4) Articles Fourth, Tenth, and Eleventh of the Restated
Certificate of Incorporation of Registrant dated March 15,
1988 (Exhibit (4) to Form 10-K for the year ended September
30, 1988. File No. 1-7467)
(10)-(i)* Restated Agreement dated December 1, 1983 between Registrant
and Conrad W. Koski with respect to supplemental retirement
benefit. (Exhibit (10)-(viii) to Form 10-K for the year
ended September 30, 1983. File No. 1-7467)
(10)-(i)(a)* Form of Amendment dated April 22, 1989 to Restated Agreement
dated December 1, 1983 between Registrant and Conrad W.
Koski. (Exhibit (10)-(1) to Form 10-K for the year ended
September 29, 1989. File No. 1-7467)
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37
(10)-(ii)* First of Michigan Corporation Supplemental Retirement and
Survivor Income Plan (Junior Management). (Exhibit
(10)-(xv) to Form 10-K for the year ended September 26,
1986. File No. 1-7467)
(10)-(iii)* Form of Indemnification Agreement which Registrant has
entered into with each of its Directors, its Secretary
Lenore P. Denys, and certain other officers of FoM.
(Exhibit (11)-(1) to Form 10-K for the year ended September
30, 1988. File No. 1-7467)
(10)-(iv)* Amended and Restated Employee Stock Option Plan of 1981.
(Exhibit (10)-(3) to Form 10-K for the year ended September
29, 1989. File No. 1-7467)
(10)-(v)* First of Michigan Capital Corporation Directors Stock Option
Plan of 1989. (Exhibit (10)-(4) to Form 10-K for the year
ended September 29, 1989. File No. 1-7467)
(10)-(v)(a)* Paragraph 8 as amended of the Directors Stock Option Plan of
1989. (Exhibit (10)-(2) to Form 10-K for the year ended
September 25, 1992. File No. 1-7467)
(10)-(vi)* First of Michigan Capital Corporation Employee Stock Option
Plan of 1992. (Appendix A to the definitive proxy statement
of Registrant dated January 24, 1992. File No. 1-7467)
(10)-(vii)* Employment Agreement dated April 1, 1994 among Registrant,
FoM, and Steve Gasper, Jr., and amendment thereto dated
January 24, 1995 (now modified into a severance agreement).
(Exhibit (10)-(xx) to Form 10-K for the year ended
September 30, 1994, and exhibit 19 to Form 10-Q for the
quarter ended March 31, 1995, respectively. Both File No.
1-7467)
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* Designates a management contract or a compensatory plan or arrangement to
which one or more current Directors or Executive Officers of Registrant or
one or more former Executive Officers of Registrant named in the Summary
Compensation Table of the 1997 Proxy Statement is a party or in which one
or more such current or former Directors or Executive Officers
participates or may participate.
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