<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended JUNE 30, 1995
[ ] Transaction report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________.
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 Number)
incorporation or organization)
100 RENAISSANCE CENTER/26TH FLOOR
DETROIT, MICHIGAN 48243
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(313) 259-2600
________________________________________________________________________________
(Registrant's telephone number, including area code)
NOT APPLICABLE
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.10 Par Value - 2,811,442 shares as of August 2, 1995
10-Q
<PAGE> 2
INDEX
FIRST OF MICHIGAN CAPITAL CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - June 30, 1995 and
September 30, 1994
Condensed consolidated statements of income - Three months ended
June 30, 1995 and June 24, 1994; Nine months ended June 30, 1995 and
June 24, 1994
Consolidated statements of cash flows - Nine months ended June 30,
1995 and June 24, 1994
Notes to condensed consolidated financial statements - June 30, 1995
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
FIRST OF MICHIGAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1995 1994
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . $ 2,650,747 $ 2,612,487
Receivable from brokers and dealers . . . . . . . . . . 7,171,289 2,673,582
Receivable from customers . . . . . . . . . . . . . . . 71,912,879 73,536,305
Notes receivable from employees . . . . . . . . . . . . 2,086,930 2,278,673
Other accounts receivable . . . . . . . . . . . . . . . 1,401,469 1,756,211
Securities owned . . . . . . . . . . . . . . . . . . . 12,861,158 4,656,986
Memberships in exchanges, at cost(market value-
$950,500 at June 30, 1995 and
$918,000 at September 30, 1994). . . . . . . . . . . 430,503 430,503
Equipment and leasehold improvements, at
depreciated cost . . . . . . . . . . . . . . . . . . 2,769,735 2,597,239
Other investments . . . . . . . . . . . . . . . . . . . 716,359 1,134,887
Net cash surrender value of life insurance . . . . . . 7,404,598 6,874,924
Deferred income taxes . . . . . . . . . . . . . . . . . 2,841,000 2,541,000
Other assets . . . . . . . . . . . . . . . . . . . . . 2,648,719 2,675,156
------------ ------------
$114,895,386 $103,767,953
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable to banks . . . . . . . . . . . . . . . $ 34,250,000 $ 26,250,000
Payable to brokers and dealers . . . . . . . . . . . 19,317,827 16,368,327
Payable to customers . . . . . . . . . . . . . . . . 13,600,351 12,685,476
Securities sold, not yet purchased . . . . . . . . . 424,213 318,255
Employee compensation payable . . . . . . . . . . . 12,038,221 12,335,278
Income taxes payable . . . . . . . . . . . . . . . . 0 172,913
Dividend payable . . . . . . . . . . . . . . . . . . 168,655 126,178
Other accounts payable and accrued liabilities . . . 4,050,604 2,884,546
Capital lease obligation . . . . . . . . . . . . . . 1,275,000 1,500,000
------------ ------------
85,124,871 72,640,973
Contingencies - See note
Stockholders' equity:
Common stock, $.10 par value 10,000,000
shares authorized, 2,891,558 issued . . . . . . . . 289,156 289,156
Capital in excess of par value . . . . . . . . . . . . 3,689,801 3,767,157
Retained earnings . . . . . . . . . . . . . . . . . . . 26,793,663 27,202,524
------------ ------------
30,772,620 31,258,837
------------ ------------
Less treasury stock, at cost - 80,641 shares
at June 30, 1995 and 9,674 at
September 30, 1994 . . . . . . . . . . . . . . . . . (1,002,105) (131,857)
------------ ------------
29,770,515 31,126,980
------------ ------------
$114,895,386 $103,767,953
============ ============
</TABLE>
Note: The balance sheet at September 30, 1994 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. See notes to condensed consolidated
financial statements.
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<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
JUNE 30, JUNE 24, JUNE 30, JUNE 24,
1995 1994 1995 1994
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Commissions . . . . . . . . . . . . . . . . . . . $9,038,531 $8,441,971 $24,220,737 $28,896,869
Principal transactions . . . . . . . . . . . . . 1,189,237 726,728 3,450,608 2,800,795
Investment banking . . . . . . . . . . . . . . . 1,929,145 2,928,122 6,647,277 7,069,909
Interest . . . . . . . . . . . . . . . . . . . . 1,598,303 1,249,877 4,624,763 3,114,537
Insurance commissions . . . . . . . . . . . . . . 627,993 805,271 1,957,693 2,513,131
Other . . . . . . . . . . . . . . . . . . . . . . 1,265,146 773,051 3,439,930 2,357,481
---------- ---------- ----------- -----------
TOTAL REVENUES . . . . . . . . . . . . . . . . . 15,648,355 14,925,020 44,341,008 46,752,722
---------- ---------- ----------- -----------
EXPENSES:
Employee compensation and benefits . . . . . . . 8,614,283 7,099,889 23,519,264 22,746,529
Floor brokerage, exchange, clearance and other
fees . . . . . . . . . . . . . . . . . . . . . 1,214,997 1,265,566 3,608,336 4,612,905
Communications . . . . . . . . . . . . . . . . . 300,189 246,907 874,539 712,143
Interest . . . . . . . . . . . . . . . . . . . . 796,977 519,317 2,180,895 1,110,200
Occupancy and equipment rental . . . . . . . . . 1,268,890 904,898 3,425,824 2,671,961
Taxes, other than income taxes . . . . . . . . . 728,310 693,997 2,093,563 1,977,906
Office supplies and expenses . . . . . . . . . . 950,033 682,030 2,643,655 2,023,151
Merger termination expenses . . . . . . . . . . . --- 1,450,180 --- 3,390,082
Other operating expenses . . . . . . . . . . . . 2,244,052 1,925,218 6,111,355 5,633,762
---------- ---------- ----------- -----------
TOTAL EXPENSES . . . . . . . . . . . . . . . . . 16,117,731 14,788,002 44,457,431 44,878,639
---------- ---------- ----------- -----------
Income (loss) before income taxes . . . . . . . . . . . . (469,376) 137,018 (116,423) 1,874,083
Provision (credit) for income taxes . . . . . . . . . . . (240,000) 10,000 (215,000) 575,000
---------- ---------- ----------- -----------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . $ (229,376) $ 127,018 $ 98,577 $ 1,299,083
---------- ---------- ----------- -----------
Net income (loss) per share . . . . . . . . . . . . . . . $ (.08) $ .04 $ .03 $ .44
Average number of common and common equivalent
shares outstanding for income (loss) per share . . . . . 2,824,321 2,953,601 2,867,971 2,953,490
Cash dividends per share . . . . . . . . . . . . . . . . $ .06 $ .05 $ .18 $ .10
</TABLE>
See accompanying notes.
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<PAGE> 5
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
JUNE 30, JUNE 24,
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,577 $ 1,299,083
Noncash items included in Net Income:
Depreciation and amortization . . . . . . . . . . . . . . . . . 313,173 268,031
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . (300,000) (315,000)
Gain on sale of fixed assets . . . . . . . . . . . . . . . . . . (3,523) (139)
Gain on sale of investment account securities . . . . . . . . . (261,013) (14,580)
-------------- --------------
(152,786) 1,237,395
-------------- --------------
(Increase) decrease in operating receivables:
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,623,426 (14,001,408)
Brokers and dealers . . . . . . . . . . . . . . . . . . . . . . (4,497,707) 388,460
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 191,743 1,075,769
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354,742 (236,920)
Increase (decrease) in operating payables:
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . 914,875 (7,482,491)
Brokers and dealers . . . . . . . . . . . . . . . . . . . . . . 2,949,500 5,683,893
Employee compensation . . . . . . . . . . . . . . . . . . . . . (297,057) (1,311,101)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (172,913) 69,269
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,166,058 339,336
(Increase) decrease in:
Securities inventory . . . . . . . . . . . . . . . . . . . . . . (8,204,172) 1,635,715
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . (503,237) (1,417,484)
Increase (decrease) in:
Securities sold, not yet purchased . . . . . . . . . . . . . . . 105,958 (452,858)
-------------- --------------
(6,368,784) (15,709,819)
-------------- --------------
CASH USED FOR OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . (6,521,570) (14,472,424)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings . . . . . . . . . . . . . . . 8,000,000 16,520,000
Payments on capital lease obligation . . . . . . . . . . . . . . (225,000) ---
Employee stock transactions . . . . . . . . . . . . . . . . . . 301,768 301,980
Repurchases of common stock . . . . . . . . . . . . . . . . . . (1,249,372) (359,600)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . (464,961) (985,787)
-------------- --------------
CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . 6,362,435 15,476,593
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment account securities . . . . . . 704,125 138,839
Net payments for equipment and leasehold improvements . . . . . (482,146) (225,044)
Purchases, advances and other activity in other
investments - net . . . . . . . . . . . . . . . . . . . . . . . (24,584) (11,510)
-------------- --------------
CASH PROVIDED (USED) FOR INVESTING ACTIVITIES . . . . . . . . . . . . . . 197,395 (97,715)
-------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . 38,260 906,454
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . 2,612,487 2,276,928
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . $ 2,650,747 $ 3,183,382
============== ==============
Income tax payments . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 174,923 $ 820,731
Interest payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,035,360 $ 1,087,015
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1995 AND JUNE 24, 1994
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, 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.
Securities owned and securities sold, not yet purchased, are valued at market
and unrealized gains and losses are reflected in revenues.
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 was not material in amount during the
periods ended June 30, 1995 and June 24, 1994.
Net income per share is computed on the basis of the weighted average number of
common shares outstanding, assuming dilutive stock options were exercised at
the beginning of the quarter or at the date of issuance, if later, with
applicable proceeds used to acquire additional treasury shares at the average
market price.
INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
JUNE 30, 1995 JUNE 24, 1994
------------- -------------
FEDERAL STATE & LOCAL FEDERAL STATE & LOCAL
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Current . . . . . . . . . . . . . . . $ 75,000 $ (10,000) $ 865,000 $ 25,000
Deferred . . . . . . . . . . . . . . (280,000) --- (315,000) ---
----------- ---------- ---------- ---------
Total . . . . . . . . . . . . . . . . $ (205,000) $ (10,000) $ 550,000 $ 25,000
=========== ========== ========== =========
</TABLE>
Deferred income taxes principally arise from deferred compensation expense.
CONTINGENCIES
In the normal course of business, First of Michigan Corporation enters into
underwriting commitments. Transactions relating to such underwriting
commitments which were open at June 30, 1995 and subsequently settled, had no
material effect on the financial statements as of that date.
First of Michigan Corporation is the subject of claims made in several civil
actions arising out of its business as a broker-dealer and as an investment
banker. 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 the Company.
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<PAGE> 7
TERMINATION OF MERGER AND RELATED EXPENSES
Merger termination expense for the three months and nine months ended June 24,
1994, includes both legal costs as well as the amortization of certain employee
retention agreements. With the settlement of the lawsuit with Comerica,
Incorporated, in August 1994, the amortization of the retention agreements,
amounting to $338,383 and $992,836 for the three months and nine months ended
June 30, 1995, respectively, has been included in employee compensation and
benefits.
CAPITAL REQUIREMENTS
First of Michigan Corporation is subject to the uniform net capital rule (Rule
15c3-1) of the Securities and Exchange Commission and the capital rules of the
New York Stock Exchange, Inc., of which it is a member, and elects to compute
its net capital requirements in accordance with the alternative method.
Under this method, the Corporation is required to maintain minimum net capital,
as defined, equal to 2 percent of aggregate debit balances arising from
customer transactions, as defined. The net capital rules also provide that
equity capital may not be withdrawn or cash dividends paid if the resulting net
capital would be less than 5 percent of aggregate debits. At June 30, 1995
First of Michigan Corporation's net capital of $17,111,172 was 23 percent of
aggregate debit balances, and was $15,644,986 in excess of the 2 percent
minimum net capital required and $13,445,708 in excess of the 5 percent
dividend restriction.
SUBSEQUENT EVENT
On August 3, 1995, the Company announced the commencement of a cash tender
offer to purchase up to 625,000 shares of the Company's common stock at $11.375
per share. The terms and conditions of the tender offer are set forth in the
Offer to Purchase dated August 3, 1995 and the related letter of transmittal
which is being distributed to all Company stockholders. The Company's tender
offer is set to expire on Thursday, August 31, 1995, unless the offer is
extended by the Company.
The Company's tender offer is not conditioned on any minimum number of shares
being tendered. Certain stockholders have agreed not to tender any of the
1,386,312 shares of the Company that they own. The Company will buy shares
first from those stockholders holding fewer that 100 shares. If more than
625,000 share are tendered, the shares in excess of the shares tendered by
stockholders with fewer than 100 shares will be purchased on a pro rata basis.
The purpose of the tender offer is to use the Company's excess capitalization
to provide an opportunity for the Company's common stockholders to receive
immediate liquidity for the shares up to the 625,000 shares offered to be
purchased and to reduce the operating capital expenses by eliminating Company
common stockholdings of fewer than 100 shares and removing the Company's common
stock from registration under the Securities Exchange Act of 1934 and from
listing on the Chicago Stock Exchange.
The Board of Directors of the Company has received an opinion from Duff &
Phelps Capital Markets Co. to the effect that, as of July 20, 1995, the
offering price of $11.375 is fair to the Company's stockholders from a
financial point of view. Neither the Company nor its Board of Directors is
making any recommendation to any stockholder as to whether to tender or refrain
from tendering shares in the offer and has not authorized any person to make
any such recommendation. On August 2, 1995, the closing price of the Company's
common stock on the Chicago Stock Exchange was bid at $8.50 and offered at
$10.00.
Assuming the Company purchases the maximum amount at the purchase price per
share, the Company expects the maximum aggregate cost of the offer, including
all fees and expenses applicable to the offer, to be approximately $7,383,375.
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<PAGE> 8
The Company anticipates that it will fund the purchase of shares pursuant to
the offer, and the payment of related fees and expenses, from proceeds to be
received from the surrender of certain whole life insurance policies (insuring
the lives of certain Company officers and naming the Company as the
beneficiary) and the sales of certain securities and other investments. The
tax liability arising from the surrender of the life insurance policies is
approximately $375,000 ($.13 per share), while the tax liabilities on the sale
of certain securities and other assets cannot presently be determined.
Assuming the Company purchases the maximum amount of shares pursuant to the
offer, the Company's excess net capital, which is $17.1 million at June 30,
1995, will be reduced by approximately $7.4 million, which will leave the
Company with excess net capital of approximately $9.7 million, representing 13
percent of aggregate debit balances, and will be approximately $8.2 million in
excess of the 2 percent minimum net capital required and approximately $6
million in excess of the 5 percent dividend restriction.
_____________________________________
The preceding information is unaudited and accordingly, does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation of the results of the period have been
included. The results for the interim period are not necessarily indicative of
the results to be expected for the full year. For further information, refer
to the financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended September 30, 1994.
I-6
<PAGE> 9
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Third quarter fiscal 1995 compared to third quarter fiscal 1994.
GENERAL
First of Michigan Capital Corporation's principal subsidiary is First of
Michigan Corporation, a member of the New York Stock Exchange and Michigan's
largest full-service securities firm. Founded more than 60 years ago, First of
Michigan Corporation specializes in a wide range of financial services that
include investment products such as stocks, bonds, unit trusts and mutual
funds; investment services such as retirement plans, money management,
underwriting and trading and investment banking. First of Michigan offers
these services through its 545 employees located in 32 offices throughout
Michigan, as well as an office at 100 Wall Street, New York.
The Company's profitability, to a large degree, is sensitive to the volume of
trading in securities and the volatility and general level of securities market
prices. While the Company places emphasis on controlling fixed costs, many of
its activities have high operating costs which do not decrease proportionately
with reduced levels of activity. Sustained periods of reduced volume, or loss
of clients, could have adverse effects upon profitability.
RECENT DEVELOPMENT
On August 3, 1995, the Company announced the commencement of a cash tender
offer to purchase up to 625,000 shares of the Company's common stock at $11.375
per share. The terms and conditions of the tender offer are set forth in the
Offer to Purchase dated August 3, 1995 and the related letter of transmittal
which is being distributed to all Company stockholders. The Company's tender
offer is set to expire on Thursday, August 31, 1995, unless the offer is
extended by the Company. Please refer to Notes to Condensed Consolidated
Financial Statements (Subsequent Event) for a further description of the offer.
Further information concerning the offer may be obtained from the information
agent, Morrow & Co., Inc. at 1-800-662-5200.
RESULTS OF OPERATIONS
Total revenues increased 5% for the quarter but decreased 5% for the nine month
period. Overall, retail trading volume was up for the quarter at First of
Michigan Corporation as it has been throughout the securities industry as a
whole. Commission revenues showed a modest increase for the quarter but
continued to show a decrease for the year due to a reduction of retail
commissions generated from listed and over-the-counter stock business as well
as reduced revenues from mutual fund transactions. Revenues from principal
transactions increased primarily in the areas of secondary corporate and
municipal bond trading. Investment banking revenues have increased as both
municipal and corporate bond underwritings has increased. Fees received from
the participation in underwriting syndicates as well as other financial
consulting engagements has also increased. Offsetting these increases is a
decrease in revenues from equity underwritings, particularly in the area of
initial public offerings of stock. Interest income has increased due to
increased customer margin loan balances coupled with the increase in short-term
interest rates. Insurance commissions continue to decrease in the areas of
life insurance and variable rate annuities. Fixed rate annuities are
attracting attention again as interest rates continue to remain relatively
high. Other income has increased primarily due to additional service fees
received for money management as well as distribution and advisory fees for
certain money market funds. The Company also recognized a gain on the sale of
securities in its investment account earlier in the year. In addition, new
account openings and assets under management have continued to grow.
Total expenses increased 9% for the quarter but decreased 1% for the nine month
period which is in line with the revenue trend. The largest expense category,
employee compensation and benefits, increased in conjunction with the increase
in commission revenues as well as an increase in salaries associated with staff
additions. Offsetting these increases was a decrease in certain discretionary
bonus programs associated with the level of pre-tax earnings. Floor brokerage,
exchange, clearance and other fees decreased due to a decrease in clearance
fees paid resulting from contract re-negotiations as well as a decrease in
commissions paid to a fully-disclosed broker-dealer because of an associated
decrease in its revenues. Communications costs, primarily telephone, has
increased due to increased marketing efforts to attract new clients as well as
the increase in overall trade volume. Interest expense has increased due to
the increased borrowings required to support the increase in customer margin
loan balances. Higher interest rates have also contributed to the increase.
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<PAGE> 10
Taxes, other than income taxes, showed modest increases due to the payroll
taxes associated with net staff additions as well as an increase in the
Michigan Single Business Tax associated with the increase in revenues and
payroll costs for the quarter. Office supplies and expenses increased as a
result of increased service bureau costs associated with trade processing and
customer statement processing. The firm is continuing to update its forms and
add new ones as our products and services continue to expand. Other operating
expenses increased due to increases in sales promotion and advertising. The
provision (credit) for income taxes decreased due to the decrease in earnings
and certain book/tax differences utilized in the computation of the tax
provision.
LIQUIDITY AND CAPITAL RESOURCES
Cash used for operating activities showed a net decrease due to increases in
receivables from brokers and dealers. The largest use of cash for operating
activities was to purchase securities inventories. Due to the nature of the
Company's business, the changes in operating asset and liability account
balances, relative to net income for any particular accounting period, can be
quite large and therefore, are not very useful indicators of long-term trends
in the Company's cash uses for operations. Cash provided by financing
activities consisted of an increase in bank loans outstanding which was
partially offset by the Company's repurchases of its common stock as well as an
increase in dividends paid. At June 30, 1995, approximately 89% of the
Company's assets were liquid, consisting mainly of cash or assets readily
convertible into cash. The Company's largest asset is its receivable from
customers, representing borrowings from the Company by customers to finance the
purchase of securities on margin. Such receivables from customers are
substantially financed by equity capital and short-term borrowings under
established lines of credit with several banking institutions. A total of
$112,000,000 in approved lines of credit was available to the Company at June
30, 1995, of which $34,250,000 was outstanding.
The Company is subject to the net capital requirements of the Securities and
Exchange Commission and the New York Stock Exchange which are designed to
measure the general financial soundness and liquidity of broker-dealers. The
Company has consistently operated well in excess of the minimum requirements.
At June 30, 1995, the Company's net capital of $17,111,172 exceeded the minimum
requirement by $15,644,986. Assuming the Company purchases the maximum amount
of shares pursuant to the offer, (as described in the Notes to Condensed
Consolidated Financial Statements) the Company's excess net capital, which is
$17.1 million at June 30, 1995, will be reduced by approximately $7.4 million,
which will leave the Company with excess net capital of approximately $9.7
million, representing 13 percent of aggregate debit balances, and will be
approximately $8.2 million in excess of the 2 percent minimum net capital
required and approximately $6 million in excess of the 5 percent dividend
restriction.
Effective June 7, 1995, the SEC has mandated a reduction in the time allotted
to settle securities transactions from 5 days to 3 days from trade date
("T+3"). Internal studies have shown that a majority of the Company's clients
are already settling their trades in less than 5 days. In addition, the
Company has provided extensive information to its Investment Executives and
clients to educate and prepare them for "T+3". While the full effect of "T+3"
cannot be fully ascertained until it's implementation, 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 the Company's financing needs for the foreseeable future.
The Company does not engage in any derivative trading that would result in any
additional off-balance sheet risk, and in addition, carries no "junk" bonds in
its inventory.
CONTINGENT MATTERS
First of Michigan Corporation is the subject of claims made in several civil
actions arising out of its business as a broker-dealer and as an investment
banker. The Company 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 the
Company. However, depending on the amount and timing of a potential
unfavorable resolution to a contingency, it is possible that the Company's
future results of operations or cash flows could be materially adversely
affected in that quarter.
OUTLOOK
Management anticipates continued operating losses from its money management
services subsidiary for the remainder of fiscal 1995. In addition, the Company
has experienced increased costs as a result of additional
I-8
<PAGE> 11
space leased at the corporate offices as well as increases associated with its
newly enhanced computer systems that have been installed throughout the entire
branch network. While these increased expenses initially have a net impact on
earnings, management believes that the tools provided to the Company's
Investment Executives, as well as increased marketing efforts, will result in
superior client service and ultimately will have a positive impact on the
Company's profitability.
I-9
<PAGE> 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(11) Statement Re Computation of Per Share Earnings
(b) Reports on Form 8-K:
On July 27, 1995, the Company filed a report on Form 8-K containing a
press release dated July 26, 1995, announcing its intention to
commence a self-tender offer for 625,000 shares of its common stock at
$11.375 per share. There were no financial statements filed with this
Form 8-K and the only exhibit filed with this Form 8-K was a copy of
the July 26, 1995 press release.
II-1
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST OF MICHIGAN CAPITAL CORPORATION
August 11, 1995 /s/ Steve Gasper, Jr.
-----------------------------------------
STEVE GASPER, JR. - PRESIDENT AND
CHIEF EXECUTIVE OFFICER
August 11, 1995 /s/ Conrad W. Koski
-----------------------------------------
CONRAD W. KOSKI
EXECUTIVE VICE PRESIDENT & TREASURER
(PRINCIPAL FINANCIAL & ACCOUNTING OFFICER)
S-1
<PAGE> 14
Exhibit Index
Exhibit Number Description
-------------- -----------
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
TO REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1995
FIRST OF MICHIGAN CAPITAL CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
JUNE 30, 1995 JUNE 24, 1994
------------- -------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding:
Common shares 2,810,917 2,810,917 2,890,364 2,890,364
Dilutive shares available
under stock options 13,404 13,033 63,237 63,169
---------- ---------- ---------- ---------
Weighted average common shares
and common stock equivalents
outstanding 2,824,321 2,823,950 2,953,601 2,953,533
========== ========== ========== =========
Net earnings applicable to
common shares $ (229,376) $ (229,376) $ 127,018 $ 127,018
========== ========== ========== =========
Earnings per share $( .08) $ ( .08) $.04 $.04
========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------
JUNE 30, 1995 JUNE 24, 1994
------------- -------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
--------- -------------- --------- ---------------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding:
Common shares 2,836,585 2,836,585 2,891,343 2,891,343
Dilutive shares available
under stock options 31,386 30,450 62,147 65,285
Weighted average common shares
and common stock equivalents ---------- ----------- ---------- ----------
outstanding 2,867,971 2,867,035 2,953,490 2,956,628
========== =========== ========== ==========
Net earnings applicable to
common shares $ 98,577 $ 98,577 $1,299,083 $1,299,083
========== =========== ========== ==========
Earnings per share $.03 $.03 $.44 $.44
========== =========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-29-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 2,650,747
<RECEIVABLES> 73,832,337
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 6,653,300
<INSTRUMENTS-OWNED> 12,861,158
<PP&E> 2,769,735
<TOTAL-ASSETS> 114,895,386
<SHORT-TERM> 34,250,000
<PAYABLES> 21,484,482
<REPOS-SOLD> 0
<SECURITIES-LOANED> 15,484,300
<INSTRUMENTS-SOLD> 424,213
<LONG-TERM> 0
<COMMON> 289,156
0
0
<OTHER-SE> 29,481,359
<TOTAL-LIABILITY-AND-EQUITY> 114,895,386
<TRADING-REVENUE> 3,450,608
<INTEREST-DIVIDENDS> 4,624,763
<COMMISSIONS> 26,178,430
<INVESTMENT-BANKING-REVENUES> 6,647,277
<FEE-REVENUE> 3,439,930
<INTEREST-EXPENSE> 2,180,895
<COMPENSATION> 23,519,264
<INCOME-PRETAX> (116,423)
<INCOME-PRE-EXTRAORDINARY> 98,577
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,577
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
