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 June 30, 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 required 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 July 31, 1994
(Common stock, $.20 par value) 6,453,346
PAGE 1 OF 15
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Page Number
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of
Financial Condition--June 30, 1994 and
September 30, 1993 3
Condensed Consolidated Statements of
Operations--Nine Months Ended
June 30, 1994 and 1993 4
Condensed Consolidated Statements of
Cash Flows--Nine Months Ended
June 30, 1994 and 1993 5
Notes to Condensed Consolidated Financial
Statements 6
</TABLE>
Page 2
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
(All dollars in thousands)
June 30, September 30,
1994 1993
<S> <C> <C>
Assets
Cash and cash equivalents $22,374 $20,393
Cash and securities segregated for
regulatory purposes 106,832 117,666
Loans under matched securities resale agreements 238,957 240,358
Receivables:
Financing resale agreements 6,436 14,328
Customers 169,007 155,582
Brokers, dealers and clearing agencies 6,861 17,244
Other 4,973 5,447
Securities owned, at market 63,006 58,755
Land, buildings, and improvements, net 12,043 13,328
Office facilities and equipment, net 6,327 5,568
Goodwill and intangible assets 14,435 14,889
Other assets 13,158 10,852
$664,409 $674,410
Liabilities and Shareholders' Equity
Short-term borrowings:
Checks payable $ 10,069 $ 13,273
Bank loans 2,288
Financing repurchase agreements 21,612
Borrowings under matched securities repurchase agreements 241,140 241,205
Payables:
Customers 241,839 248,266
Brokers and dealers 4,075 15,115
Income taxes 1,458 3,952
Other 7,815 8,928
Accrued compensation and benefits 11,747 15,887
Securities sold but not yet purchased, at market 9,579 16,744
Notes payable 8,452 9,308
Other liabilities and accrued expenses 18,106 16,882
575,892 591,848
Minority interest 200 200
Subordinated debt 20,999 21,999
Shareholders' equity:
Common stock 1,377 1,377
Additional paid-in-capital 31,384 31,532
Retained earnings 38,315 29,532
71,076 62,441
Less: treasury stock, at cost (3,758) (2,078)
Total shareholders' equity 67,318 60,363
$643,410 $652,411
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
Page 3
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Commissions and sales credits $ 86,892 $ 84,489 $25,160 $29,483
Trading gains, net 4,801 7,076 832 1,867
Investment banking and underwriting 5,001 5,260 1,457 2,105
Asset management and advisory 4,502 3,264 1,575 1,115
Interest 19,243 13,915 7,294 4,842
Other 5,732 5,364 1,705 1,662
Total revenues 126,171 119,368 38,023 41,074
Interest expense 12,877 9,030 4,917 2,810
Net revenues 113,294 110,338 33,106 38,264
Expenses:
Compensation and benefits 70,128 67,386 21,446 23,560
Occupancy 5,874 5,431 1,988 1,852
Technology 10,260 9,530 3,568 3,320
Execution, clearance and depository 2,884 2,603 959 971
Promotion and development 3,685 2,909 1,309 978
Office supplies and postage 2,457 2,347 831 827
Other operating expenses 7,748 8,180 1,782 2,871
Total expenses 103,036 98,386 31,883 34,379
Income before income taxes, extraordinary
item and cumulative effect of a change
in accounting principle 10,258 11,951 1,223 3,885
Income tax expense 4,141 4,844 489 1,625
Income before extraordinary item and
cumulative effect of a change in
accounting principle 6,117 7,107 734 2,260
Extraordinary item:
Reduction of income taxes arising
from carryforward of prior years'
operating losses 3,202 1,041
Cumulative effect of a change in
accounting principle (Note 5) 3,059
Net Income $ 9,176 $ 10,309 $ 734 $ 3,301
Primary earnings per share:
Income before extraordinary item and
cumulative effect of a change in
accounting principle $ 0.93 $ 1.02 0.11 0.33
Extraordinary item 0.46 0.15
Cumulative effect of a change in
accounting principle (Note 5) 0.47
Net income $ 1.40 $ 1.48 $ 0.11 $ 0.48
Fully diluted earnings per share:
Income before extraordinary item and
cumulative effect of change in
accounting principle $ 0.87 $ 0.97 $ 0.11 $ 0.31
Extraordinary item 0.39 0.13
Cumulative effect of a change in
accounting principle (Note 5) 0.39
Net income $ 1.26 $ 1.36 $ 0.11 $ 0.44
Weighted average shares:
Primary 6,576,172 6,973,306 6,492,165 6,946,697
Fully diluted 7,885,971 8,175,481 7,780,523 8,135,214
</TABLE>
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 nine months ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
(All dollars in thousands)
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,176 $ 10,309
Adjustments to reconcile net income to cash provided
(used) by operating activities:
Depreciation and amortization 2,187 2,357
Provision for real estate charges 440 350
Other non-cash items 1,300 2,470
Cash and securities segregated for
regulatory purposes 10,834 (5,086)
Loans under matched securities resale and repurchase agreements, net 1,337 (122)
Net payables to customers (19,852) (15,808)
Net receivables from brokers, dealers and clearing agencies (656) 11,640
Other receivables 474 471
Securities owned, net (11,416) 11,813
Other assets (2,358) (2,574)
Income taxes payable (2,494) 819
Accrued compensation and benefits (4,140) 2,539
Other liabilities and accrued expenses (665) 1,758
(25,009) 10,627
Cash (used) provided by operating activities (15,833) 20,936
Cash flows from financing activities:
Proceeds from (repayment of):
Short-term bank borrowings (5,491) (1,913)
Borrowings under financing repurchase and resale agreements, net 29,503 (19,861)
Notes payable (856) 872
Secured demand note (1,000)
Proceeds from stock options exercised 227 899
Purchase of treasury stock (2,622) (1,734)
Cash dividends paid (393)
Cash provided (used) by financing activities 19,368 (21,737)
Cash flows from investing activities:
Capital expenditures (1,554) (1,413)
Cash used by investing activities (1,554) (1,413)
Net increase (decrease) in cash 1,981 (2,214)
Cash at beginning of period 20,393 9,103
Cash at end of period $ 22,374 $ 6,889
Cash paid during the quarter for:
Interest $ 4,727 $ 2,542
Income taxes $ 1,936 $ 147
Non-cash financing activity:
Cumulative effect of a change in accounting principle $ 3,059
Settlement of ESOP liability with treasury stock $ 325
</TABLE>
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 June 30, 1994, IJL's net capital was 21.3% of its
aggregate debit balances and approximately $30.7
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:
<TABLE>
<CAPTION>
Millions
<S> <C>
For the three months ended September 30, 1994 $2.2
For the fiscal year ended September 30,
1995 8.6
1996 6.3
1997 4.7
1998 4.1
Thereafter 8.4
$34.3
</TABLE>
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 June 30, 1994, contingent
liabilities under these obligations amounted to
approximately $1 million in the aggregate.
Of a $20 million irrevocable letter of credit
available, the amount outstanding at June 30, 1994
under this facility was $5.1 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
t h e 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 nine months
ended June 30, 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 June 30, 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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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. IJL controls the risk
associated with collateralized loans 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 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
June 30, 1994, IJL's commitments included forward
purchase and sale contracts involving mortgage-
backed securities with long market values of
approximately $42.4 million and short market values
of approximately $38.5 million and futures sale
contracts with short values of $9.7 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 resale 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 are held in custody by IJL and may be
converted into cash at IJL's option. In addition,
IJL monitors the market value of the collateral, and
issues margin calls as necessary according to the
creditworthiness of the borrower. Approximately 68%
of all receivables under securities resale
agreements at June 30, 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 appears here)
_________________________ Vice President - Finance
Edward C. Ruff and Treasurer (Principal
Financial Officer) December 20, 1994
(Signature of C. Fred Wagstaff, III appears here)
_________________________ Assistant Vice President
C. Fred Wagstaff, III (Principal Accounting
Officer) December 20, 1994
</TABLE>
Page 14
