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 December 31, 1993
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 January 31, 1994
(Common stock, $.20 par value) 6,631,266
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INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
Index
Page Number
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of
Financial Condition--December 31, 1993 and
September 30, 1993 3
Condensed Consolidated Statements of
Operations--Three Months Ended
December 31, 1993 and 1992 4
Condensed Consolidated Statements of
Cash Flows--Three Months Ended
December 31, 1993 and 1992 5
Notes to Condensed Consolidated Financial
Statements 6
Part II.Other Information
Item 6. Exhibits and Reports on Form 8-K 9
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INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(All dollars in thousands)
December 31, September 30,
1993 1993
Assets
Cash and cash equivalents $11,271 $20,393
Cash and securities segregated for
regulatory purposes 129,246 117,666
Receivables under securities repurchase agreements 191,876 254,686
Receivables:
Customers 157,367 155,582
Brokers, dealers and clearing agencies 29,130 17,244
Other 6,253 5,447
Securities owned, at market 76,478 58,755
Land, buildings, and improvements, net 12,860 13,285
Office facilities and equipment, net 5,454 5,568
Goodwill and intangible assets 14,738 14,889
Other assets 13,951 10,895
$648,624 $674,410
Liabilities and Shareholders' Equity
Short-term borrowings:
Checks payable $15,276 $13,273
Bank loans 2,288
Financing repurchase agreements 21,482
Payables under securities repurchase agreements 175,444 241,205
Payables:
Customers 271,849 248,266
Brokers and dealers 8,134 15,115
Income taxes 2,552 3,952
Other 9,026 8,928
Accrued compensation and benefits 9,454 15,887
Securities sold but not yet purchased, at market 20,578 16,744
Notes payable 8,797 9,308
Other liabilities and accrued expenses 18,098 16,882
560,690 591,848
Minority interest 200 200
Subordinated debt 21,999 21,999
Shareholders' equity:
Common stock 1,377 1,377
Additional paid-in-capital 31,263 31,532
Retained earnings 35,150 29,532
67,790 62,441
Less: treasury stock, at cost (2,055) (2,078)
Total shareholders' equity 65,735 60,363
$648,624 $674,410
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31,
(Unaudited)
(All dollars in thousands)
1993 1992
Revenues:
Commissions and sales credits $31,094 $24,293
Trading gains, net 2,132 2,514
Investment banking and underwriting 1,003 1,090
Asset management and advisory 1,346 1,140
Interest 5,370 4,959
Other 1,769 1,503
Total revenues 42,714 35,499
Interest expense 3,436 3,527
Net revenues 39,278 31,972
Expenses:
Compensation and benefits 23,670 18,970
Occupancy 2,010 1,934
Communications and data processing 3,060 2,714
Execution, clearance and depository 968 729
Promotion and development 1,152 930
Office supplies and postage 843 762
Other operating expenses 3,326 2,421
Total expenses 35,029 28,460
Income before income taxes, extraordinary
item and cumulative effect of a change
in accounting principle 4,249 3,512
Income tax expense 1,690 1,445
Income before extraordinary item and
cumulative effect of a change in
accounting principle 2,559 2,067
Extraordinary item:
Reduction of income taxes arising
from carryforward of prior years'
operating losses 967
Cumulative effect of a change in
accounting principle (Note 5) 3,059
Net income $5,618 $3,034
Primary earnings per share:
Income before extraordinary item and
cumulative effect of a change in
accounting principle $0.39 $0.31
Extraordinary item 0.14
Cumulative effect of a change in
accounting principle (Note 5) 0.46
Net income $0.85 $0.45
Fully diluted earnings per share:
Income before extraordinary item and
cumulative effect of change in
accounting principle $0.36 $0.29
Extraordinary item 0.11
Cumulative effect of a change in
accounting principle (Note 5) 0.38
Net income $0.74 $0.40
Weighted average shares:
Primary 6,638,798 6,777,011
Fully diluted 7,995,112 8,184,481
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31,
(Unaudited)
(All dollars in thousands)
1993 1992
Cash flows from operating activities:
Net income $5,618 $3,034
Adjustments to reconcile net income to cash provided
(used) by operating activities:
Depreciation and amortization 774 841
Provision for real estate charges 850 250
Other non-cash items 444 668
Cash and securities segregated for
regulatory purposes (11,581) (4,505)
Receivables under repurchase agreements, net (2,951) (5,701)
Net payables to customers 21,799 4,931
Net receivables from brokers, dealers and clearing agencies (18,867) (5,045)
Other receivables (805) 1,578
Securities owned, net (13,889) 15,576
Other assets (3,094) (1,417)
Income taxes payable (1,400) 97
Accrued compensation and benefits (3,919) (3,586)
Other liabilities and accrued expenses (2,196) (534)
(34,835) 3,153
Cash (used) provided by operating activities (29,217) 6,187
Cash flows from financing activities:
Proceeds from (repayment of ):
Short-term bank borrowings (285) (6,457)
Borrowings under financing repurchase agreements 21,482 (2,152)
Notes payable (512) 1,183
Proceeds from issuance of common stock 98 711
Purchase of treasury stock (519) (431)
Cash provided (used) by financing activities 20,264 (7,146)
Cash flows from investing activities:
Capital expenditures (169) (327)
Cash used by investing activities (169) (327)
Net decrease in cash (9,122) (1,286)
Cash at beginning of period 20,393 9,104
Cash at end of period $11,271 $7,818
Cash paid during the quarter for:
Interest $2,972 $3,595
Income taxes $3,168 $473
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>
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.
Cash and cash equivalents include cash invested in short-term instruments
with original maturities of three months or less. The Company reclassified,
as cash equivalents, certain short-term investments in securities resale
agreements effective October 1, 1993. Management believes that this change
in classification is appropriate because these transactions represent
investments of excess cash and have original maturities of three
months or less. Furthermore, this method of presentation is common among other
firms in the securities industry. The effect of the change was to increase
stated cash (and decrease receivables under securities repurchase agreements)
$15.0 million as of September 30, 1993. There was no impact as a result of
this change as of December 31, 1993.
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 December 31, 1993, IJL's net capital was 20.7% of its aggregate debit
balances and approximately $32.2 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 nine months ended September 30, 1994 $6.7
For the fiscal year ended September 30,
1995 8.3
1996 6.0
1997 4.6
1998 4.0
Thereafter 8.3
$37.9
<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 December 31, 1993, contingent liabilities under these obligations
amounted to approximately $1.4 million in the aggregate.
Of a $20 million irrevocable letter of credit available, the amount outstanding
at December 31, 1993 under this facility was $6.5 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 and impact on operating results cannot reliably be determined,
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 three months ended December 31, 1993.
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 December 31, 1993 were comprised of the following:
<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
December 31, 1993, IJL's commitments included forward purchase and sale
contracts involving mortgage-backed securities with long market values of
approximately $62.3 million and short market values of approximately $60.4
million and futures purchase and sale contracts with long market values of
approximately $6 million and short values of $10.5 million.
<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 93% of all receivables under securities repurchase
agreements at December 31, 1993 were from three counterparties.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Designation of Exhibit Sequential
in this Report Description Page Number
11 Statement Regarding
Computation of Per
Share Earnings 15
18 Preferability Letter
Regarding Change in
Accounting Principle 18
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
December 31, 1993.
<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
Signature Title Date
(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
Exhibit 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
December 31,
Net income per share was computed as follows: 1993 1992
<S> <C> <C>
Primary:
1) Income before extraordinary item and cumulative
effect of a change in accounting principle $2,558,634 $2,067,073
Extraordinary item 967,000
Cumulative effect of a change in accounting principle 3,059,000
Net income $5,617,634 $3,034,073
2) Weighted average shares outstanding 6,638,798 6,777,011
3) Incremental shares under stock options
computed under the treasury stock method
using the average market price of
issuer's stock during the periods 166,033 184,652
4) Weighted average shares and common
equivalent shares outstanding 6,798,831 6,961,663
5) Weighted average shares outstanding
which were used for calculation 6,638,798(A) 6,777,011(A)
6) Income per share before extraordinary item
(item 1 divided by item 5) and cumulative effect $0.39 $0.31
of a change in accounting principle
Extraordinary item per share 0.14
Cumulative effect of a change in accounting principle per share 0.46
Net income per share $0.85 $0.45
Fully Diluted:
1) Unadjusted income before extraordinary item and
cumulative effect of a change in accounting principle $2,558,634 $2,067,073
2) Interest on convertible subordinated
debentures, net of tax effect 268,525 268,525
3) Adjusted income before extraordinary item and
cumulative effect of a change in accounting principle $2,827,159 $2,335,598
Extraordinary item 967,000
Cumulative effect of a change in accounting principle 3,059,000
Adjusted net income $5,886,159 $3,302,598
4) Weighted average shares outstanding 6,638,798 6,777,011
5) Incremental shares under stock options
computed under the treasury stock method
using the higher of the average or ending
market price of issuer's stock at the end
of the periods 173,272 224,428
6) Incremental shares relating to
convertible subordinated debentures 1,183,042 1,183,481
7) Weighted average shares and common
equivalent shares outstanding 7,995,112 8,184,920
8) Income per share before extraordinary item (item 3
divided by item 7) and cumulative effect of a change
in accounting principle $0.36 $0.29
Extraordinary item per share 0.11
Cumulative effect of change in accounting principle 0.38
Net income per share $0.74 $0.40
(A) Dilutive effect of common equivalent shares not included since dilution is less than 3%.
</TABLE>
Exhibit 18
December 20, 1994
Interstate/Johnson Lane, Inc.
Interstate Tower
P.O. Box 1012
Charlotte, NC 28201-1012
We are providing this letter to you for inclusuion as an exhibit to your
Form 10-Q/A filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in accounting for
determining cash equivalents contained in the Company's Form
10-Q/A for the quarter ended December 31, 1993. Based on our reading of the
data and discussions with Company officials of the business judgment factors
relating to the change, we believe management's justification to be
reasonable. Accordingly, in reliance on management's determination as
regards elements of business judgment, we concur that the newly adopted
accounting principle described above is preferable in the Company's
circumstances to the method previously applied.
(Signature of Coopers & Lybrand L.L.P. appears here)
