Page
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-8952
INTERSTATE/JOHNSON LANE, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
56-1470946
(I.R.S. Employer Identification No.)
Interstate Tower, P.O. Box 1012, Charlotte, North Carolina 28201-1012
(Address of principal executive offices, zip code)
(704) 379-9000
(Registrant's telephone number, including area code)
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 shorter
period that the registrant was requried to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1994
(Common stock, $.20 par value) 6,496,298
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
Index
Page Number
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of
Financial Condition--March 31, 1994 and
September 30, 1993 3
Condensed Consolidated Statements of
Operations--Six Months Ended
March 31, 1994 and 1993 4
Condensed Consolidated Statements of
Cash Flows--Six Months Ended
March 31, 1994 and 1993 5
Notes to Condensed Consolidated Financial
Statements 6
Page 2
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(All dollars in thousands)
March 31, September 30,
1994 1993
Assets
Cash and cash equivalents $ 21,753 $ 20,393
Cash and securities segregated for
regulatory purposes 121,753 117,666
Receivables under securities repurchase
agreements 336,061 254,686
Receivables:
Customers 164,598 155,582
Brokers, dealers and clearing agencies 12,577 17,244
Other 7,082 5,447
Securities owned, at market 56,591 58,755
Land, buildings, and improvements, net 12,435 13,285
Office facilities and equipment, net 5,910 5,568
Goodwill and intangible assets 14,587 14,889
Other assets 13,875 10,895
$767,222 $674,410
Liabilities and Shareholders' Equity
Short-term borrowings:
Check payable $ 12,023 $ 13,273
Bank loans 2,288
Financing repurchase agreements 12,407
Payables under securities repurchase agreements 312,247 241,205
Payables:
Customers 250,489 248,266
Brokers and dealers 8,607 15,115
Income taxes 3,135 3,952
Other 8,155 8,928
Accrued compensation and benefits 12,635 15,887
Securities sold but not yet purchased, at market 31,747 16,744
Notes payable 8,627 9,308
Other liabilities and accrued expenses 17,876 16,882
677,948 591,848
Minority interest 200 200
Subordinated debt 21,999 21,999
Shareholders' equity:
Common stock 1,377 1,377
Additional paid-in-capital 31,327 31,532
Retained earnings 37,775 29,532
70,479 62,441
Less: treasury stock, at cost (3,404) (2,078)
Total shareholders' equity 67,075 60,363
$767,222 $674,410
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 3
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Six Months For the Three Months
Ended March 31, Ended March 31,
1994 1993 1994 1993
(All dollars in thousands)
Revenues:
Commissions and sales credits $ 61,732 $ 55,006 $ 30,638 $ 30,713
Trading gains, net 3,968 5,209 1,836 2,695
Investment banking and
underwriting 3,545 3,154 2,542 2,065
Asset management and advisory 2,927 2,149 1,581 1,008
Interest 11,949 9,073 6,579 4,114
Other 4,027 3,703 2,257 2,200
Total revenues 88,148 78,294 45,433 42,795
Interest expense 7,959 6,220 4,523 2,693
Net revenues 80,189 72,074 40,910 40,102
Expenses:
Compensation and benefits 48,593 43,734 24,922 24,764
Occupancy 4,164 3,918 2,155 1,985
Communications and data
processing 6,190 5,709 3,130 2,997
Execution, clearance and
depository 1,925 1,632 957 902
Promotion and development 2,376 1,931 1,224 1,001
Office supplies and postage 1,850 1,682 1,006 920
Other operating expenses 6,056 5,403 2,730 2,980
Total expenses 71,154 64,009 36,124 35,549
Income before income taxes,
extraordinary item and
cumulative effect of a change
in accounting principle 9,035 8,065 4,786 4,553
Income tax expense 3,652 3,219 1,962 1,774
Income before extraordinary
item and cumulative effect of
a change in accounting principle 5,383 4,846 2,824 2,779
Extraordinary item:
Reduction of income taxes
arising from carryforward
of prior years' operating
losses 2,161 1,194
Cumulative effect of a change
in accounting principle
(Note 5) 3,059
Net income $ 8,442 $ 7,007 $ 2,824 $ 3,973
Primary earnings per share:
Income before extraordinary
item and cumulative effect
of a change in accounting
principle $ 0.81 $ 0.69 $ 0.43 $ 0.40
Extraordinary item 0.31 0.17
Cumulative effect of a
change in accounting
principle (Note 5) 0.47
Net income $ 1.28 $ 1.00 $ 0.43 $ 0.57
Fully diluted earnings per
share:
Income before extraordinary
item and cumulative effect
of change in accounting
principle $ 0.74 $ 0.66 $ 0.39 $ 0.37
Extraordinary item 0.26 0.15
Cumulative effect of a
change in accounting
principle (Note 5) 0.38
Net income $ 1.12 $ 0.92 $ 0.39 $ 0.52
Weighted average shares:
Primary 6,618,176 6,990,842 6,597,095 7,020,817
Fully diluted 7,945,401 8,194,705 7,926,571 8,203,859
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 4
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31,
(Unaudited)
(All dollars in thousands)
1994 1993
Cash flows from operating activities:
Net income $ 8,442 $ 7,007
Adjustments to reconcile net income to
cash provided (used) by operating activities:
Depreciation and amortization 1,557 1,584
Provision for real estate charges 500 200
Other non-cash items 1,145 829
Cash and securities segregated for regulatory
purposes (4,087) (25,251)
Receivables under repurchase agreements, net (10,334) 2,040
Net payables to customers (6,793) 24,761
Net receivables from brokers, dealers and
clearing agencies (1,841) (536)
Other receivables (1,635) (1,197)
Securities owned, net 17,168 15,408
Other assets (3,054) (2,612)
Income taxes payable (817) 414
Accrued compensation and benefits (3,252) 1,401
Other liabilities and accrued expenses (798) 1,138
(12,241) 18,179
Cash (used) provided by operating
activities (3,799) 25,186
Cash flows from financing activities:
Proceeds from (repayment of):
Short-term bank borrowings (3,538) (14,381)
Borrowings under financing repurchase
agreements 12,407 (11,373)
Notes payable (681) 1,032
Proceeds from issuance of common stock 192 849
Purchase of treasury stock (2,097) (1,119)
Cash dividends paid (199)
Cash provided (used) by financing
activities 6,084 (24,991)
Cash flows from investing activities:
Capital expenditures (925) (431)
Cash used by investing activities (925) (431)
Net increase (decrease) in cash 1,360 (237)
Cash at beginning of period 20,393 9,104
Cash at end of period $ 21,753 $ 8,867
Cash paid during the quarter for:
Interest $ 4,207 $ 2,814
Income taxes $ 1,049 $ 648
Non-cash financing activity:
Cumulative effect of a change in accounting
principle $ 3,059
Settlement of ESOP liability with treasury
stock $ 325
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 5
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The interim financial statements are unaudited; however, such
information reflects all normal recurring adjustments which, in the
opinion of management, are necessary for a fair presentation of the
results for the period. 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 fiscal year.
2. Net Capital Requirements:
As a registered broker-dealer and member of the New York Stock
Exchange, Interstate/Johnson Lane Corporation ("IJL"), the principal
operating subsidiary of the Company, is subject to the Securities and
Exchange Commission's uniform net capital rule. IJL has elected to
operate under the alternative method of the rule, which prohibits a
broker-dealer from engaging in any transactions when its "net capital"
is less than 2% of its "aggregate debit balances" arising from
customer transactions, as these terms are defined in the rule. The
Exchange may also impose business restrictions on a member firm if its
net capital falls below 5% of its aggregate debit balances. IJL is
also subject to the Commodity Futures Trading Commission minimum net
capital requirement.
At March 31, 1994, IJL's net capital was 23.4% of its aggregate debit
balances and approximately $34.4 million in excess of its minimum
regulatory requirements.
3. Commitments and Contingencies:
Leases for office space and equipment are accounted for as operating
leases. Approximate minimum rental commitments under noncancelable
leases, some of which contain escalation clauses and renewal options,
are as follows:
Millions
For the six months ended September 30, 1994 $4.8
For the fiscal year ended September 30,
1995 8.0
1996 6.2
1997 4.7
1998 4.1
Thereafter 8.5
$36.3
Page 6
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Commitments and Contingencies, continued:
In connection with its involvement as a general partner and/or
placement agent of various real estate limited partnerships, the
Company has guaranteed certain obligations of limited partners and,
with others, has jointly or severally guaranteed mortgage loan
obligations of some of the partnerships. At March 31, 1994,
contingent liabilities under these obligations amounted to
approximately $1.3 million in the aggregate.
Of a $20 million irrevocable letter of credit available, the amount
outstanding at March 31, 1994 under this facility was $6.2 million.
4. Legal Proceedings:
IJL is a defendant, or otherwise has possible exposure, in various
legal actions arising out of its activities as a broker-dealer,
underwriter, or employer. Several of these actions, including some
class actions, claim substantial or unspecified damages which could be
material. While predicting the outcome of litigation is inherently
very difficult, and the ultimate resolution, range of loss, and impact
on operating results cannot reliably be estimated, management is of
the opinion, based upon its understanding of the facts and the advice
of legal counsel, that resolution of these actions will not have a
material adverse effect on the Company's consolidated financial
condition.
IJL as managing underwriter for common stock offerings of Del-Val
Financial Corporation, is a defendant in a consolidated class action
seeking damages estimated to potentially exceed $40 million from all
defendants. No opinion can be formed at this time concerning the
outcome of this litigation.
5. Income Taxes:
Effective October 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability
method as required by Financial Accounting Standards Board Statement
No. 109, "Accounting for Income Taxes". As permitted under the new
rules, prior years' financial statements have not been restated. The
cumulative effect of adopting Statement 109 as of October 1, 1993 was
to increase net income by approximately $3.1 million for the six
months ended March 31, 1994.
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. Net deferred tax assets of $4,841,000 at March 31, 1994
were comprised of the following:
Page 7
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Income Taxes, continued:
Deferred tax assets attributable to:
Deferred compensation and other benefits
not currently deductible $1,744
Other accruals not currently deductible 2,732
Tax credits awaiting utilization 2,007
Other 45
Total deferred tax assets 6,528
Deferred tax liabilities attributable to:
Carrying value of partnership investments 1,687
Net deferred tax assets $4,841
6. Financial Instruments with Off-Balance-Sheet Risk:
IJL's business activities involve the execution, settlement and
financing of securities transactions generating accounts receivable,
and thus may expose IJL to financial risk in the event a customer or
other counterparty is unable to fulfill its contractual obligations.
For example, IJL may be required to liquidate a customer's margin loan
collateral at prevailing market prices which may not totally satisfy
his obligations. IJL controls this risk by revaluing collateral at
current prices, monitoring compliance with applicable credit limits
and industry regulations, and requiring the posting of additional
collateral when appropriate.
Obligations arising from financial instruments sold short in
connection with its normal trading activities expose IJL to off-
balance-sheet risk in the event market prices increase, since it may
be obligated to repurchase those positions at a greater price. IJL's
short selling primarily involves debt securities, which are typically
less volatile than equities or options.
Forward and futures contracts provide for the seller agreeing to make
delivery of securities or other instruments at a specified future date
and price. Risk arises from the potential inability of counterparties
to honor contract terms, and from changes in values of the underlying
instruments. At March 31, 1994, IJL's commitments included forward
purchase and sale contracts involving mortgage-backed securities with
long market values of approximately $105.8 million and short market
values of approximately $109.5 million and futures sale contracts with
short values of $14 million.
Page 8
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Financial Instruments with Off-Balance-Sheet Risk, continued:
IJL enters into repurchase agreements, whereby it lends money by
purchasing U.S. government/agency or mortgage-backed securities from
customers or dealers with an agreement to resell them to the same
customers or dealers at a later date. Such loans are collateralized
by the underlying securities, which may be converted into cash at
IJL's option. It is IJL's policy to take delivery of such underlying
collateral in its custodial account. In addition, it monitors the
market value of the collateral underlying each such receivable, and
issues margin calls as necessary according to the creditworthiness of
the borrower. Approximately 92% of all receivables under securities
repurchase agreements at March 31, 1994 were from two counterparties.
Page 9
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
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.
INTERSTATE/JOHNSON LANE, INC.
Registrant
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
(Signature of Edward C. Ruff Vice President - Finance
appears here) and Treasurer (Principal
_________________________ Financial Officer) December 20, 1994
Edward C. Ruff
Signature of C. Fred Wragstaff, III Assistant Vice President
appears here) (Principal Accounting
_________________________ Officer) December 20, 1994
C. Fred Wagstaff, III
</TABLE>
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