U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-KSB
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 1995
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-620
DETROIT & CANADA TUNNEL CORPORATION
-----------------------------------
(Name of small business issuer in its charter)
Michigan 38 - 0477830
-------- ------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
100 East Jefferson Avenue, Detroit, Michigan 48226
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (313) 567-4422
Securities registered under Section 12 (b) of the Exchange Act: None
Securities registered under Section 12 (g) of the Exchange Act: Common Stock
------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
( X ) Yes ( ) No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. ( )
Revenues for the fiscal year ended October 31, 1995 were $9,055,946.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 12, 1996, was $7,312,230.
The number of outstanding shares of the issuer's common stock as of January
12, 1996, was 676,027.
DOCUMENTS INCORPORATED BY REFERENCE
Applicable portions of the Proxy Statement for the Annual Meeting
of Shareholders to be held on March 13, 1996, are incorporated by reference in
Part III of this Form.
Transitional Small Business Disclosure format (check one) Yes ( ) No ( x )
Total pages: 22
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
The Registrant, Detroit & Canada Tunnel Corporation (the "Corporation"), is a
Michigan corporation reorganized in 1936. The Corporation operates an
approximately one mile long international tunnel beneath the Detroit River
connecting the downtown business and shopping districts of Detroit, Michigan,
and Windsor, Ontario, Canada (the "Tunnel"). The Corporation leases the
Detroit Tunnel properties from the City of Detroit as described in Item 2
below. The Windsor Tunnel properties are owned by the City of Windsor. The
Corporation operates the entire Tunnel for itself and the City of Windsor
under a Joint Operating Agreement. The Corporation has exercised options to
lease the Detroit Tunnel properties through November 3, 2020.
In addition to the foregoing, the Corporation maintains investment portfolios
and leases real estate in downtown Detroit.
Operating Agreements
The Corporation operates the Canadian portion of the tunnel pursuant to a
Joint Operating Agreement with the City of Windsor which was effective
November 1, 1991, and expired October 31, 1995. The agreement provides for
expense sharing, reimbursement of operating expenses paid by the Corporation
on behalf of the City of Windsor, cost sharing for capital improvements and a
management fee. The agreement is automatically extended from year to year
unless six month's notice is given by either party and may also be canceled by
either party with six month's notice. The Corporation is in negotiations with
the City of Windsor to extend the Joint Operating Agreement.
Seasonality
Tunnel traffic and resulting revenue are seasonal, with higher traffic and
revenue occurring during the summer months.
Competition
Competition for Tunnel traffic is provided by the Ambassador Bridge which
connects the cities of Detroit and Windsor at a point west on the Detroit
River. The Corporation's competitive position is affected by the geographic
location of the Tunnel relative to the bridge, the height and length
restrictions imposed on Tunnel commercial traffic and the quality of available
customs inspection facilities.
Employees
As of October 31, 1995, the Corporation and its subsidiary employed 117
persons, of whom approximately 64 persons were employed in the United States
and of whom approximately 109 were employed full time. Some of the
Corporation's U.S. employees are covered by a collective bargaining agreement
expiring in 1998. Some of the Corporation's Canadian employees are covered by
a collective bargaining agreement expiring in 1997.
2
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Corporation leases and subleases the Detroit Tunnel properties from the
City of Detroit as follows:
<TABLE>
<CAPTION>
Square Footage
--------------
<S> <C>
Main Plaza and Structures thereon 108,824
(100 East Jefferson Avenue)
Commercial Vehicle Off-Site Inspection Compound 35,511
(Atwater and Rivard Streets)
Vehicular Tunnel North of International Boundary 50,424
</TABLE>
The Corporation's lease of these properties expires November 3, 2020, pursuant
to options exercised in fiscal 1991. These properties other than the vehicular
tunnel are in part subleased to the General Services Administration for use by
the U.S. Customs and U.S. Immigration and Naturalization Services. Rent is
payable under the lease to the City of Detroit in the amount of 20% of average
annual net operating income derived from United States tunnel operations, as
defined in the lease. The Corporation and the City of Windsor are engaged in a
major tunnel renovation program.
ITEM 3. LEGAL PROCEEDINGS
Windsor Property Tax Assessments
The Corporation is contesting its 1985, 1986, 1987, 1988 and 1990 Windsor
property tax assessments before an Ontario tax tribunal on the grounds that
the assessments do not recognize the effect of Windsor's option to obtain the
Windsor Tunnel properties on the value of the option properties. The trial
judge determined that the option should not be considered in such assessments
and the Corporation's subsidiary appealed this determination. On August 8,
1990, the appeal was decided in the Corporation's favor by the Ontario
Divisional Court. On December 18, 1995, the Divisional Court decision was
upheld by the Court of Appeal for Ontario. The taxing authorities have
indicated that they will apply for leave to appeal to the Supreme Court of
Canada. If the legal issue finally is decided in favor of the Corporation,
the case will be returned to the Ontario tax tribunal for a determination of
the amount of refund due the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
3
<PAGE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) under the symbol DTUN.
The following table sets forth the high and low bid prices on NASDAQ and cash
dividends paid for each quarterly period during fiscal 1995 and 1994:
<TABLE>
<CAPTION>
Dividends per Share
Fiscal 1995 Fiscal 1994 -------------------
-------------- ------------------ Fiscal Fiscal
Quarter Ended High Low High Low 1995 1994
- ------------- ---- --- ---- --- ---- ----
<S> <C> <C> <C> <C> <C> <C>
January 31 26 25 1/2 26 1/2 26 1/2 $.125 $.125
April 30 25 1/2 25 1/4 26 3/4 26 3/4 .125 .125
July 31 24 3/4 24 3/4 26 3/4 26 3/4 .125 .125
October 31 25 24 1/2 26 1/2 26 .125 .125
</TABLE>
As of January 12, 1996, there were 464 shareholders of record of the
Corporation.
4
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
I. Results of Operations
A. Fiscal 1995 Compared to 1994
Toll revenue increased 16.4% overall from 1994 corresponding to a 15.3%
increase in traffic volume due to casino related traffic increases. A second
gaming facility in Windsor opened in October, 1995. Management expects current
high traffic volumes to continue.
Foreign currency transaction gain was $23,839 in 1995 compared to a loss of
$46,002 in 1994 as the value of the Canadian dollar rose against the United
States dollar.
Interest and dividend revenues were $464,553 in 1994, a decrease of 20.4% from
1994 revenues of $583,814 corresponding to the decrease in invested balances
as they were utilized to fund construction work.
B. Fiscal 1994 Compared to 1993
Toll revenue increased 8.6% overall from 1993 corresponding to an 8.3%
increase in traffic volume due to casino related traffic increases and the
decrease in construction activities as discussed below.
Since the advent of casino gambling in Windsor early in the third fiscal
quarter, traffic volumes have increased over 1993 when traffic volumes were
depressed due to extensive construction work at the facility. The casino
opened in May, 1994 and is located in downtown Windsor near the tunnel
facility. The traffic volume decreases experienced earlier in the year which
were attributable to the weak Canadian dollar, the generally poor economy and
the disruption due to construction have been more than offset by casino
related increases.
Invested balances decreased as they were utilized to fund construction work.
However, interest and dividend revenues increased 34.1% from 1993 revenues as
a result of interest received on certain tax refunds.
Included in Other Income are gains from the sale of certain long term
investments of $782,000.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Continued
II. Liquidity
During 1995, the Corporation met its dividend, operating and construction
capital needs using cash provided from operating activities, utilization of
cash reserves and short and long term investments. A $4 million line of credit
is available from a bank to meet short term cash needs.
III. Changes in Financial Condition
The Corporation and the City of Windsor are engaged in a major renovation of
the tunnel property. During fiscal 1995, expenditures for capital projects by
the Corporation were $2.8 million. Projected expenditures for fiscal 1996 are
expected to be $3.9 million. Additional major capital expenditures are
expected in subsequent years. Construction projects will be funded through
current earnings, utilization of short term investments and if necessary,
short term draws against the line of credit. During fiscal 1994 the
Corporation borrowed against its line of credit to meet short term capital
project financing needs; the amount was repaid shortly after the end of that
fiscal year.
The effect of the current year's construction projects is reflected in the
balance sheet, in the net decrease in Cash and Short Term Investments as
payments were made and in the increase in Property, Plant and Equipment as
completed projects were capitalized.
Deferred tax benefits relate principally to postretirement benefits which will
be paid in future periods.
The Postretirement Benefits Liability reflects the Corporation's adoption of
The Financial Accounting Standards Board Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". See Financial
Statement Footnote ( 6 ) for additional information.
The Corporation purchased 6,000 and 10,568 shares of its common stock at
market prices for a total cost of $159,003 and $283,463 in 1995 and 1994,
respectively.
6
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
DETROIT & CANADA TUNNEL CORPORATION
AND
SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31 October 31
1995 1994
---------- ----------
<S> <C> <C>
CURRENT ASSETS
CASH $ 2,129,988 $ 1,632,395
SHORT TERM INVESTMENTS 4,840,847 7,471,623
ACCOUNTS RECEIVABLE, Net of allowance
for doubtful accounts of $5,000 and $11,900 1,057,094 992,458
PREPAID EXPENSES 446,199 364,012
------------ ------------
TOTAL CURRENT ASSETS 8,474,127 10,460,488
------------ ------------
LONG TERM INVESTMENTS
EQUITY INVESTMENTS - Available for Sale 1,573,768 343,676
OTHER INVESTMENTS 673,800 878,661
------------ ------------
2,247,568 1,222,337
------------ ------------
PROPERTY, PLANT & EQUIPMENT
Leasehold Improvements 11,694,880 9,334,175
Equipment 1,157,898 992,865
------------ ------------
12,852,778 10,327,040
Accumulated Depreciation and Amortization (2,025,624) (1,845,105)
------------ ------------
10,827,154 8,481,935
------------ ------------
DEFERRED INCOME TAX BENEFIT 415,000 1,012,000
------------ ------------
$ 21,963,850 $ 21,176,760
============ ============
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
7
<PAGE>
DETROIT & CANADA TUNNEL CORPORATION
AND
SUBSIDIARIES
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
October 31 October 31
1995 1994
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 960,616 $ 1,395,638
ACCRUED PAYROLL & VACATION 135,556 153,642
ACCRUED TAXES 301,965 1,559,260
OTHER ACCRUED LIABILITIES 115,507 171,063
----------- -----------
TOTAL CURRENT LIABILITIES 1,513,644 3,279,603
----------- -----------
POSTRETIREMENT BENEFITS 3,383,744 3,152,200
----------- -----------
STOCKHOLDERS' INVESTMENT
COMMON STOCK, 1,000,000 shares authorized, 3,382,965 3,412,965
676,027 (682,027 in 1994) issued and outstanding
CAPITAL SURPLUS 28,124 28,124
RETAINED EARNINGS 12,851,549 11,303,869
UNREALIZED NET GAIN ON INVESTMENT
SECURITIES AVAILABLE FOR SALE 803,823 0
----------- -----------
17,066,461 14,744,958
----------- -----------
$21,963,850 $21,176,760
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
8
<PAGE>
DETROIT & CANADA TUNNEL CORPORATION
AND
SUBSIDIARIES
Consolidated Statements of Stockholders' Investment
For the Years Ended October 31, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Net Gain on
Investment
Securities
Common Capital Retained Available
Stock Surplus Earnings for Sale Total
------ ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balances at November 1, 1993 $ 3,465,805 $ 28,124 $ 10,174,863 $ 0 $13,668,792
Net Income 1,700,999 1,700,999
Cash dividend of $0.50 per share (341,370) (341,370)
Common stock purchase (10,568 shares) (52,840) (230,623) (283,463)
----------- ----------- ------------ -------- -----------
Balances at October 31, 1994 $ 3,412,965 $ 28,124 $ 11,303,869 $ 0 $14,744,958
=========== =========== ============ ======== ===========
Net Income 2,015,450 2,015,450
Cash dividend of $0.50 per share (338,766) (338,766)
Common stock purchase (6,000 shares) (30,000) (129,003) (159,003)
Adjustment to beginning balance for
change in accounting method, net
of income taxes of $294,254 571,203 571,203
Change in unrealized gain on
investment securities available for
sale, net of income taxes of $119,835 232,620 232,620
----------- ----------- ------------ -------- -----------
Balances at October 31, 1995 $ 3,382,965 $ 28,124 $ 12,851,549 $803,823 $17,066,461
=========== =========== ============ ======== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
9
<PAGE>
DETROIT & CANADA TUNNEL CORPORATION
AND
SUBSIDIARIES
Consolidated Statements of Operations
For the years ended
<TABLE>
<CAPTION>
October 31 October 31
1995 1994
---------- ----------
<S> <C> <C>
OPERATING REVENUE
Tolls $ 7,482,575 $6,427,609
Management Fee 620,281 555,290
Rental and Lease Income 953,090 1,018,549
----------- ----------
9,055,946 8,001,449
----------- ----------
OPERATING EXPENSES
Tunnel Operations 5,733,764 5,508,910
Taxes Other than Income 537,652 549,252
Foreign Currency Transaction (Gain) Loss (23,839) 46,002
----------- ----------
6,247,576 6,104,164
----------- ----------
2,808,370 1,897,285
----------- ----------
OTHER INCOME
Interest and Dividends 464,553 583,814
Other Income - net (5,061) 619,006
----------- ----------
459,491 1,202,820
----------- ----------
Income before taxes 3,267,862 3,100,105
Provision for income taxes 1,252,412 1,399,106
----------- ----------
Net Income $ 2,015,450 $1,700,999
=========== ==========
Net Income per Average Share $ 2.97 $ 2.49
=========== ==========
Dividends declared per share $ 0.500 $ 0.500
=========== ==========
Average Shares Outstanding 677,560 684,472
=========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
10
<PAGE>
DETROIT & CANADA TUNNEL CORPORATION
AND
SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended
<TABLE>
<CAPTION>
October 31 October 31
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,015,450 $ 1,700,999
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Postretirement Benefits 231,545 220,200
Depreciation and amortization 407,382 244,070
Loss (Gain) on sale of investments, net (8,816) (782,309)
Loss (Gain) on sale of property 20,177 160,151
Cash provided (used) by changes in
Operating assets and liabilities:
Accounts receivable (64,636) (32,162)
Prepaid expenses (82,187) (14,901)
Accounts payable (961,213) (1,843,252)
Accrued liabilities (73,642) (40,744)
Accrued taxes (1,257,295) 789,398
Deferred tax liabilities 182,911 (122,000)
----------- -----------
Net cash provided by (used in)
operating activities 409,676 279,449
Cash flows from investing activities:
Purchase of investment securities (50,323) 0
Proceeds from sale of investment securities 31,786 1,159,045
Net change in short term investments 2,850,808 1,135,430
Purchase of property, plant & equipment (2,246,586) (1,814,292)
Proceeds from sale of property 0 7,667
----------- -----------
Net cash provided by (used in)
investing activities 585,685 487,850
Cash flows from financing activities:
Dividends paid (338,766) (341,370)
Purchase of common stock (159,003) (283,463)
----------- -----------
Net cash used by financing activities (497,769) (624,833)
----------- -----------
Net increase (decrease) in cash 497,593 142,466
Cash at beginning of period 1,632,395 1,489,928
----------- -----------
Cash at end of period $ 2,129,988 $ 1,632,395
=========== ===========
Supplemental non-cash investing and operating disclosure information:
Additions to property, plant & equipment
included in accounts payable $ 526,192 $ 1,069,578
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
11
<PAGE>
DETROIT & CANADA TUNNEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND OPERATIONS
The consolidated financial statements include the accounts of Detroit & Canada
Tunnel Corporation and its wholly-owned Canadian subsidiary (the Corporation)
after elimination of intercompany accounts and transactions.
The U.S. tunnel properties are leased from the City of Detroit. The lease
agreement with the City of Detroit provides for the Corporation's right to
operate the U.S. portion of the tunnel after 1990 in three ten year intervals
through 2020. The annual rent is 20% of average annual net operating income
derived from United States tunnel operations, as defined. Rent expense was
$186,000 in 1995 and $376,000 in 1994. Current year rent expense was partially
offset by utilization of certain credits due from the City.
The Corporation operates the Canadian portion of the tunnel pursuant to a
Joint Operating Agreement with the City of Windsor which was effective
November 1, 1991, and expires October 31, 1995. The agreement provides for
expense sharing, reimbursement of operating expenses paid by the Corporation
on behalf of the City of Windsor, cost sharing for capital improvements and a
management fee. The agreement is automatically extended from year to year
unless six month's notice is given by either party and may also be canceled by
either party with six month's notice. The Corporation is currently engaged in
negotiations with the City of Windsor to extend the Joint Operating Agreement.
The Corporation leases a portion of its office facility to the United States
General Services Administration (GSA). In addition to making lease payments,
the GSA reimburses the Corporation for maintenance and operating services
provided. Revenues from the GSA for 1995 and 1994 were $872,000 each year and
are included in Rental and Lease Income. The lease agreement expires in 2000
and allows one five year renewal. The GSA is reviewing expense reimbursements
to the Corporation for maintenance and operating services provided since 1980.
Any adjustments to previously paid amounts are not expected to be material to
the financial condition of the Corporation.
12
<PAGE>
(2) SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation: Significant intercompany balances and
transactions of the Corporation have been eliminated.
Cash: Cash includes interest bearing demand deposits.
Foreign Currency Transactions: The functional currency of the Corporation and
its subsidiary is the U.S. dollar. Certain transactions of the Corporation and
its subsidiary are denominated in Canadian dollars. Foreign currency
transaction gains or losses result from exchange rate fluctuations between the
U.S. and Canadian dollars and are recognized in the period in which the
exchange rate changes.
Depreciation and Amortization: Depreciation and amortization are calculated on
a straight-line basis over the estimated useful lives of the assets. The
amortization period for the Corporation's leasehold interest in the US tunnel
properties reflects the Corporation's exercise of its lease option through
2020.
Investment Securities: Effective November 1, 1994, the Corporation adopted the
provisions of Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (FAS 115)
which requires that investments in certain equity and debt securities be
classified as either held-to-maturity, available-for-sale or trading.
Management determines the appropriate classification of securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Available-for-sale securities are stated at fair value, with unrealized gains
and losses, net of tax, reported as a separate component of stockholders'
equity.
Income Taxes: 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.
(3) INVESTMENTS
Short term investments are recorded at cost, which approximates fair value.
Equity investments are classified as available-for-sale securities and
accordingly, are recorded at fair value. Other Investments which includes
partnership interests are carried at cost adjusted for partnership profits and
losses. Realized gains and losses on the disposition of equity investments are
based on average cost. Proceeds and gross realized gains from sales of
available-for-sale securities were $31,786 and $8,816 in 1995 and $1,159,045
and $782,309 in 1994. There were no gross unrealized losses in these years.
In accordance with Statement of Financial Accounting Standard No. 115, prior
period financial statements have not been restated to reflect this change in
accounting principle. The opening balance of stockholders' equity was
increased by $571,203 (net of $294,254 of deferred income tax) to reflect the
net unrealized gains on securities classified as available-for-sale which were
previously carried at the lower of cost or market. During its fiscal year
ending October 31, 1995, the Corporation recorded additional unrealized gains
of $232,620 (net of $119,835 of deferred income tax).
13
<PAGE>
(4) INCOME TAXES
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 Corporation's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Domestic:
Deferred tax liabilities:
Depreciation $ 255,000 $ 138,000
FAS 115 414,000 -0-
Pension 71,000 57,000
Other 24,000 5,000
---------- ----------
764,000 200,000
---------- ----------
Deferred tax asset:
Postretirement benefits 1,150,000 1,071,000
Other 29,000 141,000
---------- ----------
1,179,000 1,212,000
---------- ----------
Net Deferred tax asset $ 415,000 $1,012,000
========== ==========
Foreign:
Deferred tax asset:
Foreign tax credit carry over $ 486,000 $ 486,000
Valuation Allowance 486,000 486,000
---------- ----------
Net Deferred tax asset $ -0- $ -0-
=========== ==========
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Liability Liability
Method Method
1995 1994
--------- ---------
<S> <C> <C>
Current:
United States 812,500 1,031,000
Canada 375,000 490,000
--------- ---------
1,187,500 1,521,000
Deferred:
United States 65,000 (122,000)
Canada -0- -0-
65,000 (122,000)
--------- ---------
1,252,500 1,399,000
========= =========
Deferred unrealized gain on investment 414,089 -0-
========= =========
</TABLE>
Income taxes paid were $1,746,176 and $859,946 in 1995 and 1994 respectively.
A reconciliation of the Corporation's effective tax rate to the federal
statutory tax rate follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Tax at federal statutory rate of 34% $ 1,111,073 $1,054,000
Effect of state and local taxes 65,528 5,000
Effect of foreign taxes 110,000 324,000
Permanent differences (34,101) 16,000
----------- ----------
$ 1,252,500 $1,399,000
=========== ==========
</TABLE>
The Corporation has provided for income taxes on the unremitted earnings of
its Canadian subsidiary which it intends to repatriate during fiscal 1996.
14
<PAGE>
(5) PENSION PLANS
The Corporation has pension plans covering substantially all of its employees.
The Corporation's funding policy for these plans is to make the minimum annual
contribution required by the applicable government regulations. Plan assets
are invested in various money market, stock and bond funds. Benefits under the
plans are based on years of service and the employee's average compensation
during the last ten years of employment for salaried employees and on years of
service and a contractually established rate for union employees.
Components of pension expense are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Service cost $ 148,452 $ 135,054
Interest cost 277,176 267,174
Actual return on assets (527,218) (113,218)
Net amortization and deferral 195,410 (243,392)
--------- ---------
Net pension expense $ 93,820 $ 45,618
========= =========
Assumptions used:
Discount rate 7.50% 7.50%
Rate of compensation increase 5.00% 5.00%
Expected long term rate of return on assets 8.00% 8.00%
</TABLE>
Plan funded status and amounts recognized in consolidated balance sheets as of
October 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 3,295,090 $ 3,209,647
=========== ===========
Accumulated benefit obligation $ 3,434,380 $ 3,349,851
=========== ===========
Projected benefit obligation $ 3,828,287 $ 3,754,697
Fair value of plan assets 4,472,004 3,882,037
----------- -----------
Funded status 643,717 127,340
Unrecognized net asset at 10/31 (267,638) (324,821)
Unrecognized prior service cost 310,911 344,573
Unrecognized net (gain) loss (412,807) 41,375
Minimum liability -0- -0-
----------- -----------
Prepaid pension $ 274,184 $ 188,467
=========== ===========
</TABLE>
15
<PAGE>
(6) OTHER POSTRETIREMENT BENEFITS
In addition to the Corporation's pension plans, the Corporation sponsors
defined benefit health care plans covering substantially all of its employees
who have 10 years of service and have attained age 60 while in service with
the Corporation. The plans have various cost sharing features such as
deductibles and co-pays. The Corporation's policy is to fund the cost of
medical benefits in amounts determined at the discretion of management.
The following table presents the funded status of the plans reconciled with
amounts recognized in the Corporation's balance sheet ( in thousands):
<TABLE>
<CAPTION>
October 31, 1995 October 31, 1994
--------------------- ---------------------
US Canadian US Canadian
-- -------- -- --------
<S> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 730 $ 573 $ 737 $ 562
Fully eligible active participants 455 288 398 253
Other active participants 780 196 662 172
------- ------- ------- -------
1,965 1,057 1,797 987
Plan assets at fair value -0- -0- -0- -0-
Funded status (1,965) (1,057) (1,797) (987)
Unrecognized net gain (loss) (331) (88) (342) (88)
Unrecognized prior service cost -0- 57 -0- 62
Unrecognized transition asset (obligation) -0- -0- -0- -0-
------- ------- ------- -------
Prepaid (accrued) postretirement benefit cost ($2,296) ($1,088) ($2,139) ($1,013)
======= ======= ======= =======
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
October 31, 1995 October 31, 1994
------------------- -----------------
US Canadian US Canadian
-- -------- -- --------
<S> <C> <C> <C> <C>
Service cost $ 65 $ 25 $ 67 $ 21
Interest cost 141 77 156 77
Return on plan assets -0- -0- -0- -0-
Amortization of:
Unrecognized net gain (loss) (11) -0- -0- -0-
Unrecognized prior service cost -0- 5 -0- 2
Unrecognized transition asset (obligation) -0- -0- -0- -0-
----- ---- ----- ----
Net periodic postretirement benefit expense $ 195 $107 $ 223 $100
===== ==== ===== ====
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits was 11% and 12% for medical and 9.2% and 9.5% for dental, in
1995 and 1994 respectively. Both rates are assumed to decrease gradually to 6%
by 2007 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as
of October 31, 1995 by $3,473,300 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for 1995
to $375,300. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 8.0% at October 31, 1995.
16
<PAGE>
(7) LINE OF CREDIT
The Corporation has a $4,000,000 line of credit with a bank. Interest is at
the bank's prime rate at the date of issuance and there is no compensating
balance requirement.
(8) COMMITMENTS
The Corporation has outstanding commitments at October 31, 1995 of $1,518,700
for the continued renovation of the tunnel facility.
17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Detroit & Canada Tunnel Corporation
We have audited the accompanying consolidated balance sheets of
Detroit & Canada Tunnel Corporation and subsidiaries (the "Corporation")
as of October 31, 1995 and 1994, and the related consolidated statements
of operations, stockholders' investment, and cash flows for the years then
ended. Our audits also included the 1995 and 1994 financial statement
schedules listed at Section 7 of the 10-KSB. These financial statements
and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Detroit & Canada Tunnel Corporation and subsidiaries at
October 31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for the years then ended inconformity with
generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
December 15, 1995
18
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Set forth below is certain information with respect to the executive officers
of the Corporation:
<TABLE>
<CAPTION>
Executive Officers Age Positions and Offices Held
- ------------------ --- --------------------------
<S> <C> <C>
Donald M. Vuchetich 49 President, Chief Executive Officer,
and Director
Charles J. O'Brien 60 Secretary and Vice President -
Administration
David C. Canavesio 45 Treasurer and Vice President - Finance
</TABLE>
Donald M. Vuchetich has been Chief Executive Officer of the Corporation since
September 1990, President of the Corporation since November 1990 and a
Director of the Corporation since December 1990. Mr. Vuchetich was a marketing
consultant with CIM/Data from 1985 through 1990, and now maintains a private
marketing consultant practice.
Charles J. O'Brien has been Secretary of the Corporation since 1987 and Vice
President - Administration of the Corporation since December 1990. Mr. O'Brien
was Treasurer of the Corporation from 1976 to 1991, Assistant Secretary of the
Corporation from 1976 to February 1987 and Assistant Treasurer from 1973 to
1976 and held various positions with the Corporation before 1973.
David C. Canavesio has been Treasurer and Vice President - Finance of the
Corporation since March 1991. Prior to 1991, Mr. Canavesio served as Vice
President - Finance and Administration and Secretary of Trans Continental
Airlines, Inc. from October 1985. Trans Continental Airlines, Inc. filed for
protection under the federal bankruptcy laws in October 1990, and operated
under the protection of such laws during the remainder of Mr. Canavesio's
tenure with such Corporation.
Information required by this Item with respect to members of the Board of
Directors of the Corporation will be contained in the Proxy Statement for the
Annual Meeting of Shareholders to be held March 13, 1995(the "1995 Proxy
Statement"), under the caption "Election of Directors" and is incorporated
herein by this reference.
ITEM 10. EXECUTIVE COMPENSATION
Information required by this Item will be contained in the 1995 Proxy
Statement under the captions "Compensation of Executive Officers" and
"Election of Directors" and is incorporated herein by this reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
Information required by this Item will be contained in the 1995 Proxy
Statement under the captions "Voting Rights and Principal Holders of
Securities" and "Election of Directors" and is incorporated herein by this
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be contained in the 1995 Proxy
Statement under the caption "Election of Directors" and "Compensation of
Executive Officers" and is incorporated herein by this reference.
19
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
Exhibit 3.1 Restated Articles of Incorporation, filed as Exhibit
3.1 to the Registrant's Annual Report on Form 10-K for
the year ended October 31, 1990, are incorporated herein
by this reference.
Exhibit 3.2 Bylaws, filed as Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1990, are incorporated herein by this reference.
Exhibit 10 Joint Operating Agreement, filed as Exhibit 10 to the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1991, is incorporated herein by this
reference.
Exhibit 21 Subsidiaries of the Registrant, filed as Exhibit 22 to
the Registrant's Annual Report on Form 10-K for the year
ended October 31, 1990, are incorporated herein by this
reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Corporation during the last
quarter of the fiscal year ended October 31, 1995.
20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DETROIT & CANADA TUNNEL CORPORATION
BY: /s/ Donald M. Vuchetich
------------------------
Donald M. Vuchetich
Chief Executive Officer and President
(Principal Executive Officer)
Date January 29, 1996
----------------------
BY: /s/ David C. Canavesio
------------------------
David C. Canavesio
Treasurer and Vice President - Finance
(Principal Financial Officer and Principal
Accounting Officer)
Date January 29, 1996
----------------------
21
<PAGE>
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated.
Signature Date
--------- ----
/s/ Douglas L. Bridges January 29, 1996
- ------------------------------------ --------------------
Douglas L. Bridges
Director
/s/ Miles Jaffe January 29, 1996
- ------------------------------------ --------------------
Miles Jaffe
Director
/s/ Charles C. Stewart January 29, 1996
- ------------------------------------ --------------------
Charles C. Stewart
Director
/s/ Robert M. Teeter January 29, 1996
- ------------------------------------ --------------------
Robert M. Teeter
Director
/s/ Donald M. Vuchetich January 29, 1996
- ------------------------------------ --------------------
Donald M. Vuchetich
Director
/s/ Henry Penn Wenger January 29, 1996
- ------------------------------------ --------------------
Henry Penn Wenger
Director
22
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Page No.
Exhibit 3.1 Restated Articles of Incorporation, filed as
Exhibit 3.1 to the Registrant's Annual Report
on Form 10-K for the year ended October 31,
1990, are incorporated herein by this reference.
Exhibit 3.2 Bylaws, filed as Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the year ended
October 31, 1990, are incorporated herein by
this reference.
Exhibit 10 Joint Operating Agreement, filed as Exhibit 10 to
the Registrant's Annual Report on Form 10-K for
the year ended October 31, 1991, is incorporated
herein by this reference.
Exhibit 21 Subsidiaries of the Registrant, filed as Exhibit 22
to the Registrant's Annual Report on Form 10-K for
the year ended October 31, 1990, are incorporated
herein by this reference.
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEETS AND STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<CASH> $ 2,129,988
<SECURITIES> 4,840,847
<RECEIVABLES> 1,057,094
<ALLOWANCES> 11,900
<INVENTORY> 0
<CURRENT-ASSETS> 8,474,127
<PP&E> 12,852,778
<DEPRECIATION> (2,025,624)
<TOTAL-ASSETS> 21,963,850
<CURRENT-LIABILITIES> 1,513,644
<BONDS> 0
3,382,965
0
<COMMON> 0
<OTHER-SE> 12,879,673
<TOTAL-LIABILITY-AND-EQUITY> 21,963,850
<SALES> 0
<TOTAL-REVENUES> 9,515,438
<CGS> 0
<TOTAL-COSTS> 6,247,576
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,267,862
<INCOME-TAX> 1,252,412
<INCOME-CONTINUING> 2,015,450
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,015,450
<EPS-PRIMARY> 2.97
<EPS-DILUTED> 2.97
</TABLE>
