UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THIS FISCAL YEAR ENDED SEPTEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
INTERSTATE/JOHNSON LANE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 56-1470946
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
121 West Trade Street, Suite 1500, Charlotte, North Carolina 28201
(Address of principal executive offices) (Zip Code)
(704) 379-9000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
Common stock, par value $.20 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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
Indicate by check mark if the disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. YES X
As of November 30, 1995, 6,157,019 shares of Common Stock, par value
$.20 per share, were outstanding, and the aggregate market value of the shares
of Common Stock of the Registrant held by non-affiliates (based upon the closing
price of the Registrant's shares on the New York Stock Exchange on November 30,
1995, which was $10.125 was $41,017,823. For purposes of this information, the
outstanding shares of Common Stock which were owned by Interstate/Johnson Lane
Corporation's Employee Stock Ownership Plan, and by all directors and executive
officers of the Registrant, were deemed to be the shares of Common Stock held by
affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended September 30, 1995, are incorporated by reference into Part I,
Part II and Part IV of this Report.
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on January 23, 1996, are incorporated by reference into
Part III of this Report.
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
PART I
ITEM I. BUSINESS
General
Interstate/Johnson Lane, Inc. ("the Company") is a Charlotte, North
Carolina-based holding company which, through its principal subsidiary,
Interstate/Johnson Lane Corporation ("IJL"), and other subsidiaries, engages in
securities and futures brokerage for individual (retail) and institutional
investors, market-making and underwriting of municipal and corporate securities,
investment management, investment banking and other financial advisory services,
and the sale of mutual funds, annuities and other financial products. Many of
these activities are sensitive to marketplace trading volumes and to interest
rate conditions. While the Company has clients throughout the United States and
abroad, its major geographic focus is the Southeast.
The Company was incorporated as Interstate Securities, Inc. in Delaware
in April 1985. Pursuant to a corporate reorganization in June 1985, the Company
acquired all of the issued shares of common stock of Interstate Securities
Corporation and its subsidiaries at that time. During October 1988, the Company
acquired all of the outstanding common shares of Johnson, Lane, Space, Smith &
Co., Inc. ("Johnson Lane"), a Georgia-based broker-dealer and investment banking
firm which was subsequently merged into Interstate Securities Corporation, and
the Company's name was changed to its current name. In addition to IJL, the
Company's principal operating subsidiaries are ISC Realty Corporation
("Realty"), Sovereign Capital Management, Inc. d/b/a Sovereign Advisers, Inc.
("Sovereign") and ISC Futures Corporation.
IJL is registered as a broker-dealer with the Securities and Exchange
Commission ("SEC") and as a futures commission merchant with the Commodity
Futures Trading Commission ("CFTC"). In addition to owning three New York Stock
Exchange ("NYSE") memberships and one American Stock Exchange membership, IJL is
also a member of the Boston Stock Exchange, New York Futures Exchange, Midwest
Stock Exchange, Philadelphia Stock Exchange, the National Association of
Securities Dealers, Inc. ("NASD"), and the Securities Investor Protection
Corporation ("SIPC").
For the fiscal year ended September 30, 1995, approximately 55% of the
Company's total revenues were derived from its retail brokerage activities, 21%
from institutional brokerage activities and 24% from dealer transactions,
investment banking and other activities. The Company's principal sources of
revenue for each of the last three fiscal years, along with other information
regarding the Company's results of operations, are presented in the consolidated
financial statements on pages 16 through 23 of the Company's 1995 Annual Report
to Shareholders and this information is incorporated herein by reference.
PAGE 1
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
Retail Brokerage
IJL presently serves individual investors through 59 retail offices
located in North Carolina (32), South Carolina (10), Georgia (13), Virginia (3),
and Pennsylvania (one). Revenues from retail brokerage activities represent a
substantial portion of the Company's revenues, and are generated primarily
through commissions and sales credits earned on client purchases and sales of
listed and unlisted stocks, bonds, options, futures, mutual funds and other
financial products. When IJL executes-over-the counter ("OTC") transactions for
clients on a principal basis, it may charge mark-ups or mark-downs in lieu of
commissions. In recent years, IJL has experienced rapid growth in asset-based
"wrap" fees paid by retail clients in lieu of commissions or sales credits on
each transaction. In connection with its strategy of providing comprehensive
financial services to its retail clientele, IJL formed a strategic alliance in
1994 with a provider of custodial services to trusteed accounts.
In recent years, the Company's sales force has grown in large part due
to the recruitment and training of individuals without prior securities industry
experience. At September 30, 1995, approximately 26% of the Company's financial
consultants had fewer than three years' industry experience. While this strategy
may be rewarding in the future, near-term slowdowns in individual investor
activity could negatively impact the revenue production of a less seasoned sales
force.
Client Financing
Retail client transactions in securities are effected on either a cash
or margin basis. Margin transactions result in collateralized interest-bearing
loans to clients for a portion of the underlying cost of securities purchased.
Interest charges are tied primarily to published prime or broker loan rates of
various national banks. Client margin loans are financed by other clients'
credit balances retained in their accounts pending reinvestment. When IJL pays
interest on such credit balances, it pays a lower rate than it charges on margin
loans; the income earned on this rate spread has represented a significant
portion of the Company's profits.
Investment Research
The Company believes IJL's research services are important in
generating retail and institutional commissions and sales credits in listed and
OTC stocks. IJL maintains a core staff of 12 analysts to provide investment
recommendations and market information on selected regional and national
companies. These analysts follow approximately 150 companies, a major portion of
which are headquartered in the Southeast. IJL provides clients with specific
recommendations to buy and sell equity securities of companies followed by IJL
and by its correspondents. Management believes that the performance of these
recommended securities has assisted IJL in attracting and retaining its clients.
PAGE 2
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INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
Institutional Brokerage
IJL's institutional clients include mutual funds, commercial banks,
thrift institutions, insurance companies, pension funds and private money
managers. Most of these clients are located in the United States and Canada;
however, some are located overseas, principally in the United Kingdom and
continental Europe. IJL executes transactions in equity and in taxable and
non-taxable fixed income securities for institutional clients on both an agency
and principal basis. Commissions charged on agency transactions are negotiated
and typically include a significant discount from IJL's standard retail
commission rates.
A significant portion of the commission revenues from transactions in
corporate securities are derived from institutional clients for whom IJL
provides research products and services, as well as brokerage services. Most of
these products and services are procured from third parties to which IJL is
contractually obligated, irrespective of whether it receives commissions from
the beneficiary clients. Commissions paid by clients to IJL for furnishing these
products and services are commonly referred to as "soft dollars".
Market-Making and Dealer Activities
IJL commits capital to acquire and carry inventories of both equity and
fixed-income securities for sale to other dealers and to clients. The size of
these inventories fluctuates greatly depending on economic and market
conditions, management allocations of capital, underwriting commitments, client
demands and trading volume.
IJL's OTC traders make markets in the equity securities of
approximately 225 regional and national companies. In addition, IJL acts as a
dealer in bonds issued by the United States Government and its agencies, and by
states and their political agencies and instrumentalities thereof. The Company
believes that these activities provide an important source of product for sale
to retail and institutional clients.
Interest
In the aggregate, interest earned on reserve deposits segregated from
IJL assets under the customer protection rule of the SEC, interest charged on
margin loans in connection with its retail brokerage business, interest earnings
on loans made under securities resale agreements, and interest on fixed income
inventories account for a significant portion of the Company's total revenues.
To facilitate institutional client financing needs, IJL lends money
under securities resale agreements and takes delivery of securities as
collateral in its custodial account at an approved clearing corporation; it may
also concurrently borrow money under repurchase agreements, making delivery of
the same or similar securities as collateral. When the duration of the loans and
borrowings, and the underlying collateral are identical, these transactions are
generally characterized
PAGE 3
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INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
Interest, continued
as matched repurchase agreements. Matched repurchase agreements usually
constitute a significant portion of the Company's total assets, liabilities,
interest revenues and interest expenses. IJL may earn small profits from such
transactions by charging greater amounts of interest than it is required to pay.
While IJL takes steps to ensure that the loans are adequately collateralized,
these transactions could subject the Company to losses if parties entering into
securities resale agreements with IJL fail to meet their obligations to
repurchase the underlying securities and IJL incurs losses in liquidating such
securities in the open market.
Investment Banking
IJL's corporate finance group of 11 professionals provides clients with
financial advisory and consulting services on mergers and acquisitions and on
valuations of equity securities. IJL also derives revenues from serving as a
manager, co-manager, or participant in underwriting syndicates, and as a member
of selling groups formed to distribute new issues of corporate securities. In
connection with its corporate finance activities, IJL holds minority interests
in two venture capital funds.
Augmenting IJL's capital formation capabilities in the public markets
is a private finance group of 6 professionals specializing in raising debt and
equity in the institutional private placement markets for corporate issuers.
Revenues are derived primarily from serving as the issuer's agent in structuring
and sourcing each capital transaction. Prior to joining IJL in 1995, this group
acted as agents on transactions primarily in the $25-50 million dollar range for
middle-market southeastern companies and expects to continue its focus on
transactions of this size.
Public Finance
IJL acts as a manager or co-manager of negotiated public offerings and
private placements of tax-exempt securities issued by state and municipal
governments, power agencies, industrial development and pollution control
financing authorities, sewer and water authorities, and state and local housing
authorities and other units of state and local government. As an underwriter,
IJL also participates in syndicates formed to bid competitively or negotiate
privately for the purchase and distribution of tax-exempt securities.
Investment Management
Through its Sovereign subsidiary, the Company has been providing
investment management services on a private account basis to individuals,
charitable and educational funds and employee benefit plans. As of September 30,
1995, this registered investment adviser had approximately $200
PAGE 4
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
Investment Management, continued
million under management. As part of its strategic plan for developing the
business potential of money management, the Company made a $3.25 million capital
investment in Sovereign during the past three fiscal years. Sovereign became a
wholly owned subsidiary of the Company during 1995; prior to that date, certain
key employees of Sovereign held a significant minority interest.
Real Estate
During the 1970s and 1980s Realty originated private placements and
public offerings of limited partnership interests in real estate programs for
sale to retail clients of IJL. Realty is currently engaged in the oversight and
disposition of many of these properties, and does not anticipate assuming any
new general partner roles.
Through various subsidiaries, the Company also holds proprietary
interests in real estate ventures originally syndicated by Johnson Lane in the
mid 1980s to acquire, rehabilitate and operate certified historic real estate
properties, which are principally office facilities. While the Company has
provided significant financial and management support to these ventures in the
past, it does not expect to provide further financial or management support to
these ventures beyond what is necessary to preserve current values or facilitate
disposition of the properties or the Company's interests in the related
ventures.
Administration and Operations
Administrative and operations personnel are responsible for the
processing of transactions; receipt, identification and delivery of funds and
securities; custody of clients' securities; extension of credit to clients and
dealers; internal audits; telecommunications and other technology services;
general accounting and office services functions; administration of employee
benefits and human resource activities; establishment and monitoring of internal
financial and management controls; and compliance with legal and regulatory
requirements regarding financial, operations and sales practices.
Client transactions and transactions for the Company's own account in
listed and unlisted stocks are generally executed by stock exchange or NASD
based automated systems, or by exchange-based IJL employees. In some instances,
orders are initially routed to intermediaries for ultimate execution, and
compensation may be received from these intermediaries in that connection. Most
options and futures transactions on exchanges are executed by member firms with
which IJL has a correspondent relationship. All securities transactions are
cleared by IJL through its own facilities in Charlotte and those of the National
Securities Clearing Corporation in New York City; futures transactions are
cleared by correspondent firms.
PAGE 5
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
Administration and Operations, continued
External computer service organizations specializing in securities and
futures industry applications are used to transmit real-time market data to
brokers and traders; to record and process all securities, futures and related
money transactions; to generate client and dealer confirmations and statements;
to exchange transactional information with clearing houses and depositories; and
to produce required accounting and administrative reports. Sales and
administrative personnel have on-line access to client account information and
to various external databases. The firm continued to aggressively increase its
technical infrastructure and deploy value-added technology to the retail sales
force during 1995 in the form of a new desktop configuration complete with an
integrated portfolio and contact management system. It is expected that this
deployment will be completed in mid-1996. Major strides were made in the
migration to a distributed client/server architecture from the existing
mainframe systems.
The Company believes that its internal control structure and safeguards
are adequate, although fraud and misconduct by clients and employees, and the
possibility of theft of securities, are risks inherent in the securities
industry. As required by the NYSE and other regulatory bodies, IJL carries
fidelity bonds covering loss or theft of securities, as well as employee
dishonesty, forgery and alteration of checks or similar items, and forgery of
securities. The Company believes the amounts of coverage provided by such bonds
are adequate.
Employees
As of September 30, 1995, the Company had 1,171 employees, including
486 financial consultants engaged in sales to individual and institutional
investors, and approximately 200 other professionals engaged in trading,
investment banking, and product and administrative support services. IJL has a
four-month training program for potential retail financial consultants that is
intended to prepare them for various registration examinations and to give them
an in-depth knowledge of the securities industry. Management considers
employee relations to be excellent.
Competition
The Company competes with other securities firms, both regional and
national, some of which offer a broader range of brokerage services and possess
substantially greater capital resources. Competition also exists among
securities firms for successful sales representatives and product support
professionals. In addition, competition from banks, insurance companies and
discount brokerages has increased significantly; these firms generally charge
lower commission rates to their clients without offering extensive support
services such as market information, research, reports on individual companies,
and specific recommendations to buy and sell investment products. The Company
believes that its position as a major Southeastern regional firm will permit it
to compete effectively in the current environment.
PAGE 6
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
Regulation
The securities and futures industries in the United States are subject
to extensive regulation under both federal and state law. The SEC, CFTC and the
Municipal Securities Rulemaking Board each administer federal laws regulating
various aspects of IJL's business. Additional regulation of broker-dealers has
been delegated to self-regulatory organizations, principally the NASD, NYSE and
other securities and futures exchanges. Firms such as IJL are also subject to
regulation by state securities commissions in the states in which they do
business. All these authorities may conduct administrative proceedings which can
result in censure, fine, suspension or expulsion of a broker-dealer, its
officers or employees.
The principal purpose of regulation and discipline of broker-dealers is
the protection of clients and the securities markets, rather than protection of
their creditors and shareholders. Broker-dealer regulations cover all aspects of
the securities and futures business, including sales methods, trade practices,
uses and safekeeping of clients' funds, capital structure, recordkeeping,
investment advisory services, and conduct of directors, officers and employees.
In July 1995, the NYSE and other self-regulatory organizations ("SROs") adopted
a uniform continuing education program for all registered persons to keep
industry professionals up to date on products, markets and current industry
rules. Additional legislation, changes in rules promulgated by the SEC, CFTC and
SROs, or changes in the interpretation or enforcement of existing laws and
rules, may directly affect the operation and profitability of broker-dealers.
Net Capital Requirements
Every registered broker-dealer doing business with the public is
subject to the Uniform Net Capital Rule (Rule 15c3-1), promulgated by the SEC
and incorporated into the rules of the NYSE, which is designed to ensure
financial soundness and liquidity through minimum capital requirements. IJL has
elected to use the Rule's alternative method of computation, which requires that
its "net capital" be not less than 2% of its aggregate debit balances (primarily
receivables from clients and other broker-dealers). In computing net capital,
various deductions are made from net worth and qualifying subordinated debt
which include assets not readily convertible into cash, such as intangible
assets and exchange memberships. In addition, the values of certain other assets
(such as securities owned by IJL) are reduced by various amounts to reflect the
possibility of a market decline pending their disposition. IJL is also subject
to the CFTC minimum net capital requirement which requires net capital to be at
least 4% of the amount, as adjusted, required to be segregated in separate
accounts for customers under the Commodity Exchange Act. As a member of the
NYSE, IJL may be required to reduce its business and restrict redemption of
subordinated debt if its net capital becomes less than 4% of its aggregate debit
balances, and it may be prohibited from expanding its business and declaring
cash dividends if its net capital becomes less than 5% of its aggregate debit
balances.
PAGE 7
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
Net Capital Requirements, continued
Compliance with applicable net capital rules could limit IJL's
commitment to certain securities activities such as underwriting and
market-making, which use significant amounts of regulatory capital, as well as
to new activities requiring an infusion of capital. Further, a significant
operating loss or an extraordinary charge against net capital could adversely
affect IJL's ability to expand or even maintain its present levels of business.
While these amounts may vary from day to day, IJL's net capital of $35.5 million
at September 30, 1995, was 18.8% of its aggregate debit balances and
approximately $31.7 million in excess of its minimum regulatory requirements, as
such excess capital and balances are computed under the Rule.
ITEM 2. PROPERTIES
The Company's headquarters are located in Charlotte, and it serves
retail and institutional clients through sales offices located in North
Carolina, South Carolina, Virginia, Georgia, Pennsylvania, New York and Texas.
The Company leases substantially all of its office facilities. See Note
7, "Commitments and Contingencies," of the Notes to Consolidated Financial
Statements for the fiscal year ended September 30, 1995, which is incorporated
herein by reference. Capital assets include three office buildings (two of which
are unoccupied) in Savannah, Georgia, and an investment property in Orlando,
Florida; all were acquired as a result of the Johnson Lane transaction. The
balance of the capital assets consist primarily of office furniture and
equipment and leasehold improvements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain litigation arising in the ordinary
course of business. Management believes, based upon discussion with counsel,
that the outcome of this litigation will not have a material effect on the
Company's financial position. The materiality of legal matters on the Company's
future operating results depends on the level of future results of operations as
well as the timing and ultimate outcome of such legal matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PAGE 8
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange.
The table on page 24 of the 1995 Annual Report to Shareholders shows
the high and low market prices of the Company's common stock, information from
which is incorporated herein by reference. In January 1994, the Company's Board
of Directors declared a $.03 per share quarterly dividend on the Company's
common stock and has subsequently declared quarterly dividends of the same
amount. Continued payment of dividends in the future will depend upon the
Board's evaluation of earnings, financial condition and working capital needs of
the Company.
As of December 1, 1995, the Company had approximately 1,086
shareholders of record.
ITEM 6. SELECTED FINANCIAL DATA
The "Five Year Financial Summary" on page 13 of the 1995 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information on pages 14 through 15 of the 1995 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes to the consolidated
financial statements for Interstate/Johnson Lane, Inc., as appearing on pages 16
through 23 of the 1995 Annual Report to Shareholders, are incorporated herein by
reference.
Quarterly "Supplementary Financial Data" is presented on page 13 of
the 1995 Annual Report to Shareholders and is incorporated herein by
reference.
PAGE 9
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INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning those directors who are executive officers of
the Registrant is presented under the caption "Election of Directors" on pages 3
through 5 of the Proxy Statement, dated December 15, 1995, to be used in
connection with the Company's Annual Shareholders' Meeting to be held January
23, 1996, is incorporated herein by reference.
In addition to the individuals referred to in the preceding paragraph,
the following individuals currently serve as executive officers of the
Registrant.
Edwin A. Dalrymple, Jr., 45, is a Senior Vice President of IJL and the
head of its Retail Division. Mr. Dalrymple joined IJL in 1981, and previously
served as branch manager of the Pinehurst and Charlotte branch offices and as
Associate Director of the Retail Division. He was elected a Senior Vice
President in 1989 and a Director of IJL in 1991.
Harvey D. Harrelson, 46, has been with IJL since 1981, when he joined
the firm as a bond trader, and currently serves as the head of the Fixed Income
Division, which includes a staff of 90 professionals. He has been a Senior Vice
President and a Director of IJL since 1989.
John H. Haynie, 47, is a Senior Vice President of IJL and Director of
Operations. He joined the firm in 1973 as a Margin manager, became Assistant
Director of Operations in 1979 and assumed his current role in 1992. He was
elected a Senior Vice President in 1992 and a Director of IJL in 1995.
Michael D. Hearn, 43, joined IJL in 1976 and has served as Secretary
and General Counsel of the Company since 1985. He was elected a Senior Vice
President of IJL in 1978 and a Director in 1986.
George A. McElveen, III, 47, joined IJL as Senior Vice President and
Director in 1990 after a 16-year career with Smith Barney Harris Upham and
Company, Inc., serving as a managing director of that firm from 1988-90. Mr.
McElveen provided executive support for various business units of IJL until
October 1992 when he was elected Chairman and Chief Executive Officer of
Sovereign.
PAGE 10
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INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Lewis F. Semones, Jr., 37, joined IJL in 1985 as Controller. From May
1988 to November 1989 he was chief financial officer of another regional
securities firm, after which he rejoined IJL as head of internal audit. He was
elected a Senior Vice President in 1992 and a Director in 1994, and presently
has executive responsibility for information technology, strategic planning, and
several other administrative support functions.
Executive officers of the Company serve at the pleasure of the Board of
Directors.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation" on pages 7
through 10 of the Proxy Statement, dated December 15, 1995, to be used in
connection with the Company's Annual Shareholders' Meeting to be held January
23, 1996, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information under the caption "Security Ownership of Certain
Beneficial Owners and Management" on pages 2 and 3 of the Proxy Statement, dated
December 15, 1995, to be used in connection with the Company's Annual
Shareholders' Meeting to be held January 23, 1996, is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Related Transactions" on page 9 of
the Proxy Statement, dated December 15, 1995, to be used in connection with the
Company's Annual Shareholders' Meeting to be held January 23, 1996, is
incorporated herein by reference.
PAGE 11
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INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) (1) and (2) Financial Statements and Schedules Reference (page)
---------------------------------- ----------------
Form 10-K Annual
Annual Shareholder
Report Report
<S> <C> <C>
Data incorporated by reference from the accompanying 1995 Annual
Report to Shareholders:
Consolidated Statements of Financial Condition as of
September 30, 1995 and 1994 17
Consolidated Statements of Operations for the years ended
September 30, 1995, 1994 and 1993 18
Consolidated Statements of Cash Flows for the years
ended September 30, 1995, 1994 and 1993 19
Consolidated Statements of Changes in Shareholders' Equity
for the years ended September 30, 1995, 1994 and 1993 20
Notes to Consolidated Financial Statements 21-23
Data submitted herewith:
Report of Independent Accountants 16
Financial Statement Schedule:
II - Valuation and Qualifying Accounts 17
</TABLE>
All other schedules are omitted because they are not required,
are not applicable, or because the required information is given in
the consolidated financial statements or notes thereto.
With the exception of the specific pages referenced,
(13 through 24), the 1995 Annual Report to Shareholders is
not deemed filed as part of this report.
PAGE 12
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INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
Exhibits:
(i) The following exhibits are filed as part of this report:
Exhibit
11 Statement Regarding Computation of Per Share Earnings
13 1995 Annual Report to Shareholders
21 Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
(ii) The following exhibits have been previously filed:
3(a) Certificate of Incorporation of the Company, as
Amended, incorporated herein by reference to the Company's Form S-1
Registration Statement (Reg. No. 2-98424), which became effective on
July 31, 1985.
(b) By-Laws of the Company, incorporated herein by
reference to the Company's Form S-1 Registration Statement (Reg. No. 2-98424),
which became effective on July 31, 1985.
(c) Amendment of the Certificate of Incorporation,
incorporated herein by reference to Form 10Q filed May 14, 1987.
(d) Restated Certificate of Incorporation of Interstate
Securities, Inc., incorporated herein by reference to the Company's Form S-4
Registration Statement, filed September 26, 1988.
(e) Certificate of Amendment of Restated Certificate of
Incorporation of Interstate Securities, Inc., incorporated herein by reference
to Form 10Q filed February 13, 1989.
4(a) Specimen Certificate of Common Stock, incorporated
herein by reference to the Company's Form S-1 Registration Statement (Reg. No.
2-98424), which became effective on July 31, 1985.
Material Contracts:
10(a) 1985 Incentive Stock Option Plan, incorporated
herein by reference to the Company's Form S-1 Registration Statement (Reg.
No. 2-98424), which became effective on July 31, 1985.
(b) Interstate Securities Corporation Profit-Sharing and
Capital Accumulation Plan and Trust, Amended and Restated as of October 1,
1984, incorporated herein by reference to the Company's Form S-1 Registration
Statement (Reg. No. 2-98424), which became effective on July 31, 1985.
PAGE 13
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
(ii) Exhibits previously filed, continued:
10(c) Interstate Securities Corporation Employee Stock
Ownership and PAYSOP Plan and Trust, Amended and Restated as of October 1, 1984,
incorporated herein by reference to the Company's Form S-1 Registration
Statement (Reg. No. 2-98424), which became effective on July 31, 1985.
(d) Lease Agreement dated January 27, 1981, between
Interstate and JACMABRUTER, a North Carolina partnership, incorporated herein by
reference to the Company's Form S-1 Registration Statement (Reg. No. 2- 98424),
which became effective on July 31, 1985.
(e) Lease Agreement dated October 21, 1983, between
Interstate and NCNB National Bank of North Carolina, co-trustee (u/w of Walter
H. Hook, Sr. and u/a Walter W. Hook, Jr.), incorporated herein by reference to
the Company's Form S-1 Registration Statement (Reg. No. 2-98424), which became
effective on July 31, 1985.
(f) Ominbus Account Agreement dated May 1, 1984, between
Interstate and Pershing Futures, a Division of Donaldson, Lufkin & Jenrette
Securities Corporation, incorporated herein by reference to the Company's Form
S-1 Registration Statement (Reg. No. 2-98424), which became effective on July
31, 1985.
(g) Financial Information Service Agreement dated March
5, 1981, between Interstate and Quotron Systems, Inc., incorporated herein by
reference to the Company's Form S-1 Registration Statement (Reg. No. 2-98424),
which became effective on July 31, 1985.
(h) Financial Data Base Services Agreement dated December
3, 1984, between Interstate and Quotron Systems, Inc., incorporated herein by
reference to the Company's Form S-1 Registration Statement (Reg. No. 2-98424),
which became effective on July 31, 1985.
(i) Form of Indemnity Agreement entered into between
Interstate Securities, Inc. and each of its Directors and Officers, incorporated
herein by reference to Form 10K filed December 23, 1986.
(j) Interstate/Johnson Lane, Inc. 1985 Nonqualified Stock
Option Plan, incorporated herein by reference to Form 10Q filed February 12,
1986.
(k) Lease agreement dated October 9, 1987, between
Interstate Securities, Inc., and Office On The Square Limited Partnership, a
North Carolina limited partnership, incorporated herein by reference to Form 10K
filed December 2, 1988.
PAGE 14
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
(l) Lease agreement dated January 25, 1990, between
Interstate/Johnson Lane Corporation and RESURGENS PLAZA SOUTH ASSOCIATES, a
Georgia general partnership, incorporated herein by reference to the Company's
Form S-1 Registration Statement (Reg. No. 2-98424), which became effective on
July 31, 1985.
(m) Lease agreement dated December 30, 1991, between
Interstate/Johnson Lane Corporation and ADP Financial Information Services,
Inc., incorporated herein by reference to the Company's Form S-1 Registration
Statement (Reg. No. 2-98424), which became effective on July 31, 1985.
(n) Lease agreement dated June 8, 1993, between
Interstate/Johnson Lane Corporation and Vanguard/IJL Limited Partnership
incorporated herein by reference to Form 10K filed December 23, 1993.
(b) Reports on Form 8-K
There were no 8-K reports filed during the fourth quarter of fiscal year
1995.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
as follows:
Interstate/Johnson Lane, Inc.
Amended and Restated
1987 Stock Award Plan Filed 10/26/94
Interstate/Johnson Lane, Inc.
Amended and Restated
1987 Stock Award Plan Filed 09/13/91
Interstate/Johnson Lane, Inc.
Amended and Restated
1985 Incentive Stock Option Plan Filed 11/06/89
Interstate/Johnson Lane, Inc.
1985 Non-Qualified Stock Option Plan Filed 11/06/89
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim arises for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person in connection with the securities being registered), the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
PAGE 15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Interstate/Johnson Lane, Inc.:
We have audited the consolidated financial statements of
Interstate/Johnson Lane, Inc. and Subsidiaries as of September 30, 1995 and
1994, and for each of the three years in the period ended September 30, 1995
which financial statements are included on pages 17 through 23 of the 1995
Annual Report to Shareholders of Interstate/Johnson Lane, Inc. and are
incorporated herein by reference. We have also audited the financial statement
schedule listed in the index on page 12 of this Form 10-K. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial condition of
Interstate/Johnson Lane, Inc. and Subsidiaries as of September 30, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 30, 1995, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As discussed in Note 12 to the Consolidated Financial Statements, on
October 1, 1993, the Company adopted Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes."
/s/ Coopers & Lybrand L.L.P.
Charlotte, North Carolina
October 24, 1995
PAGE 16
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning of costs and end of
Description period expenses Deductions period
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1995
Provision for real estate charges:
Asset valuation accounts $6,368,789 $1,250,000 (185,000) C $7,433,789
Reserves 250,000 - - 250,000
Reserves for uncollectible customer
accounts: Asset valuation accounts 262,235 308,477 (94,794) C 475,918
Reserve for lease obligations 109,504 57,697 (129,884) A 37,317
YEAR ENDED SEPTEMBER 30, 1994
Provision for real estate charges:
Asset valuation accounts 5,493,789 1,125,000 (250,000)C 6,368,789
Reserves 550,000 150,000 (450,000)B 250,000
Reserves for uncollectible customer
accounts: Asset valuation accounts 442,398 (4,482) (175,681)C 262,235
Reserve for lease obligations 149,848 114,984 (155,328)A 109,504
YEAR ENDED SEPTEMBER 30, 1993
Provision for real estate charges:
Asset valuation accounts 3,838,215 1,655,574 - 5,493,789
Reserves 2,050,000 - (575,000)A
(925,000)B 550,000
Reserves for uncollectible customer
accounts: Asset valuation accounts 1,680,056 92,075 (1,329,733)C 442,398
Reserve for lease obligations 283,995 89,552 (183,292) A
(40,407) B 149,848
Restructuring reserve 291,884 - (25,000) A
(266,884) B -
</TABLE>
A - Payments charged to reserve
B - Reassessment of reserve
C - Specific account charge-offs
PAGE 17
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15d 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 on December 21, 1995.
INTERSTATE/JOHNSON LANE, INC.
BY: /s/ James H. Morgan
James H. Morgan, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ James H. Morgan President, Chief Executive Officer
James H. Morgan and Director December 21, 1995
/s/ Edward C. Ruff Vice President - Finance and
Edward C. Ruff Treasurer (Principal Financial
Officer) and Director December 21, 1995
/s/ C. Fred Wagstaff, III Assistant Vice President
C. Fred Wagstaff, III (Principal Accounting Officer) December 21, 1995
/s/Parks H. Dalton Chairman of the Board of Directors December 21, 1995
Parks H. Dalton and Director
/s/ Claude S. Abernethy, Jr. Director December 21, 1995
Claude S. Abernethy, Jr.
/s/ Dudley G. Pearson Director December 21, 1995
Dudley G. Pearson
/s/ Grady G. Thomas, Jr. Director December 21, 1995
Grady G. Thomas, Jr.
</TABLE>
PAGE 18
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
11 Statement Regarding Computation
of Per Share Earnings
13 1995 Annual Report to Shareholders
21 Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
PAGE 19
<PAGE>
EXHIBIT 11
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------
1995 1994 1993
---------------- -------------- --------------
<S> <C> <C> <C>
Net income per share was computed as follows:
Primary:
1) Income before extraordinary item and cumulative
effect of a change in accounting principle $ 5,928,392 $ 7,865,909 $ 10,365,048
Extraordinary item - - 3,997,000
Cumulative effect of a change in accounting principle - 3,059,000 -
---------------- -------------- --------------
Net income $ 5,928,392 $ 10,924,909 $ 14,362,048
================ ============== ==============
2) Weighted average shares outstanding 6,304,415 6,530,218 6,724,970
3) Incremental shares under stock options
computed under the treasury stock method
using the average market price of issuer's
stock during the periods 83,103 115,303 100,198
---------------- -------------- --------------
4) Weighted average shares and common
equivalent shares outstanding 6,387,518 6,645,521 6,825,168
================ ============== ==============
5) Weighted average shares outstanding
which were used for calculation since
dilution is less than 3% 6,304,415 6,530,218 6,724,970
================ ============== ==============
6) Income per share before extraordinary item
(item 1 divided by item 5) and cumulative effect of a
change in accounting principle $ 0.94 $ 1.20 $ 1.54
Extraordinary item per share - - 0.60
Cumulative effect of a change in accounting principle
per share - 0.47 -
---------------- -------------- --------------
Net income per share $ 0.94 $ 1.67 $ 2.14
================ ============== ==============
Fully Diluted:
1) Unadjusted income before extraordinary item
and cumulative effect of a change in accounting principle $ 5,928,392 $ 7,865,909 $ 10,365,048
2) Interest on convertible subordinated
debentures, net of tax effect 984,590 984,590 1,074,099
---------------- -------------- --------------
3) Adjusted income before extraordinary item and
cumulative effect of a change in accounting principle 6,912,982 8,850,499 11,439,147
Extraordinary item - - 3,997,000
Cumulative effect of a change in accounting principle - 3,059,000 -
---------------- -------------- --------------
Adjusted net income $ 6,912,982 $ 11,909,499 $ 15,436,147
================ ============== ==============
4) Weighted average shares outstanding 6,304,415 6,530,218 6,724,970
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 95,108 115,303 126,824
6) Incremental shares relating to convertible
subordinated debentures 1,183,042 1,183,042 1,183,042
---------------- -------------- --------------
7) Weighted average shares and common
equivalent shares outstanding 7,582,565 7,828,563 8,034,836
================ ============== ==============
8) Income per share before extraordinary item
(item 3 divided by item 7) and cumulative effect of a
change in accounting principle $ 0.91 $ 1.13 $ 1.42
Extraordinary item per share - - 0.50
Cumulative effect of a change in accounting principle
per share - 0.39 -
---------------- -------------- --------------
Net income per share $ 0.91 $ 1.52 $ 1.92
================ ============== ==============
</TABLE>
INTERSTATE/JOHNSON LANE 1995 Annual Report
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders ........................................................... 2
Investing in the Future .......................................................... 4
Management's Discussion & Analysis .............................................. 13
Audited Financial Statements ................................................... 16
Directors ...................................................................... 24
Investor Information ........................................................... 24
The Path of Commitment ......................................................... 25
</TABLE>
<PAGE>
Interstate/Johnson Lane is a full-service securities firm that has offered
clients solid advice and impeccable service for more than 60 years. Based in
Charlotte, North Carolina, IJL is the largest independent brokerage firm
headquartered in the Carolinas or Georgia and one of the largest in the entire
Southeast. The company has nearly 1,200 employees, including approximately 400
financial consultants serving individual investors through its branch network of
59 offices located primarily in North Carolina, South Carolina, Georgia and
Virginia. In addition, IJL has a sales force of approximately 75 professionals
who provide a full range of financial products and services to institutional
investors throughout the United States and abroad. The company also offers
investment banking services to corporations, state and local governments, and
public agencies. Trading desks in Atlanta and Charlotte make markets in the
common stocks of 225 companies traded over-the-counter. Our firm's reputation is
founded on strong client relationships that stand the test of time. Our
long-standing tradition of diligent service and unwavering fidelity to the best
interests of our clients makes us one of the Southeast's leading investment
firms.
(The Numbers 1995 appear down the right hand side of page)
1
<PAGE>
Dear Fellow Shareholders
The year just ended was one of expansion and development at
Interstate/Johnson Lane. The firm established offices in new high-growth
markets, enhanced the products and services offered to clients and added
talented professionals across the firm. We can look back with pride at the
progress made in 1995, and we see great opportunities in the year to come.
The year began in an environment difficult for us and the industry as a
whole. However, falling interest rates and a stable economy gradually fueled
investor activity as the months progressed, pushing prices higher in both the
stock and bond markets. These factors contributed to a final September quarter
that set records in revenue and productivity for IJL.
For the fiscal year ended September 30, 1995, operating and net income were
$5.9 million, or 94 cents per share. Operating income for fiscal 1994 was $7.9
million, or $1.20 per share, while net income, enhanced by a one-time credit
from an accounting principle change, was $10.9 million, or $1.67 per share.
Total revenues for fiscal 1995 rose to $184 million, an increase of 10.6 percent
from last year's $167 million.
In August, the company's symbol on The New York Stock Exchange changed from
IS to IJL. Since the firm increasingly is referred to as IJL, this change gives
us a more consistent public image. We also are pleased to report the favorable
settlement of the Del-Val class action suit filed more than four years ago.
Previously established reserves fully covered the settlement, and we now can
move forward without the potential for future earnings charges in connection
with this matter.
We advise our clients in part through paying attention to the securities
markets on a daily basis -- but we urge them to make investment decisions that
will stand the test of time. We are following that same strategy at IJL, making
significant investments in today's vibrant business environment to position your
firm as a formidable competitor in the years to come. Successful recruiting
efforts brought proven financial consultants into the firm during 1995. Three
new brokerage offices were added in Virginia, expanding our retail branch
network to 59 locations. In recognition of the strong institutional market for
fixed-income products in the Southwest, IJL opened a sales office in Houston
that now has 18 producers. To enhance our investment banking capabilities, we
established a group specializing in the private placement of debt and equity
securities, and added experienced, high-profile bankers in our corporate and
public finance departments. The common link in each of these expansions was the
ability to attract professionals of the highest caliber.
(The following text appears down the left hand side of the page)
We pay attention to the securities markets on a daily basis--but urge our
clients to make investment decisions that will stand the test of time. We are
following that same strategy, making significant investments in today's vibrant
business environment to position IJL as a formidable competitor in the years to
come.
2
<PAGE>
As technological advancements have given the public access to vastly more
economic and market information, investors increasingly seek more sophisticated
and more specific advice. In order to address this revolution, IJL has expanded
its array of consulting services, enabling our financial consultants to provide
clients with more comprehensive advice in the areas of financial planning, trust
services, money management and retirement planning. We will continue to enhance
and expand our commitment to these areas.
The firm also moved forward aggressively on the first phase of a strategic
technology plan that is improving productivity throughout the firm. Our
financial consultants are using new computer workstations and some of the
industry's most sophisticated software to manage client relationships more
efficiently and to provide those investors with a higher level of service.
While confident that the firm is on a steady and true course, we are not
fully satisfied with our 1995 results, which were marked by uneven contributions
from our various business units. The Retail Division and The Interstate Group
continued their strong performances, and the Fixed Income Division rebounded
well from the devastating bond markets of 1994. On the other hand, investment
banking, institutional equities and investment management revenues and
contributions did not keep pace. Several changes have been made, and others are
in progress that should bring IJL closer to optimum performance in 1996. As
always, we will be subject to the vagaries of the economy and the financial
markets. Additional uncertainties accompany a major election, and unique
challenges are likely to develop as the presidential and congressional campaigns
heat up. Management feels that your company is well positioned to respond
quickly to whatever changes or challenges the new year brings.
IJL's progress has been made possible in large part through the support of
our shareholders. In addition, special thanks are due our employees for their
hard work, careful attention to detail and unswerving dedication to the values
of the firm and the success of our clients.
Sincerely,
/s/ Parks H. Dalton /s/ James H. Morgan
Parks H. Dalton James H. Morgan
Chairman President and Chief Executive Officer
(The following text appears down the right hand side of the page)
As technological advancements have opened access to market information,
investors are seeking more sophisticated and more specific advice. IJL has
expanded its array of consulting services and will continue to enhance its
commitment to these areas.
3
<PAGE>
(The numbers 1995 appear down the left hand side of page)
Strategic investments in people
and technology have positioned us
ahead of the curve
and expanded our vision of what
levels we can reach in the future.
<PAGE>
(A picture of a man on a phone appears the full size of page the following
wording appears on the top of it in white)
It is our people
who make the
decided difference.
<PAGE>
(A picture of two computer screens appears the full size of page the following
wording appears on the top of it in white)
By harnessing technology,
we unleash the power
to reach our full potential.
<PAGE>
The last 12 months will be remembered as a lively and invigorating time at
Interstate/Johnson Lane -- a year when the firm enhanced its position as a
premier brokerage firm in the Southeast. In its long and distinguished history,
IJL has built a reputation for providing superior service to individual,
institutional and corporate clients. We undertook a number of initiatives that
further strengthen our ability to add value to our clients' financial assets.
The most significant of these initiatives was a recruiting effort that
brought a wealth of new talent to the firm. We were particularly successful in
attracting experienced financial consultants who appreciate the combination of
Wall Street savvy and person-to-person commitment present at IJL. The open lines
of communication, accessibility of information and value placed on teamwork are
particularly appealing to those coming from larger and more impersonal
organizations.
We closed the year with 411 financial consultants (FCs) serving individual
investors -- an increase of five percent. More significant than the numeric
increase was the improvement in the overall quality and productivity of the
group. The Retail Division registered record revenues, and its assets under
management grew by 34 percent to $8.3 billion.
Our success in drawing experienced professionals to IJL has not diminished
efforts to cultivate young talent and enhance the skills of our current staff. A
curriculum was created to provide continuing education for financial
consultants, with courses covering such topics as retirement planning,
fixed-income strategies and international investing. We plan to offer an
expanded curriculum in 1996 to enhance the skills both of financial consultants
and their sales assistants. Continuing education is not a luxury; it is a
requirement if we are to build lasting relationships with clients. Financial
institutions across the nation are positioning themselves to offer a wide range
of financial services. IJL is working to stay ahead of the curve in providing
both forward-looking advice to our clients and comprehensive management of their
financial assets.
Value-added services are an important growth area for the firm. In order to
maximize this potential, we added expertise in financial, retirement and tax
planning; financial consultants can draw on knowledgeable specialists for advice
on everything from paying tuition to drawing a pension. Through our Trust
Services group, clients took advantage of the opportunity to look to a single
source for setting up trusts, maintaining custody of trust assets and managing
those same trust assets. The augmented investment consulting staff launched a
five-step training program to enhance the planning skills of financial
consultants in the areas of asset allocation and portfolio manager selection and
performance monitoring.
Financial products and services have proliferated, as has the availability
of information in the marketplace. The expanded menu of options is potentially
(The following text appears down the right hand side of the page)
The success of IJL ultimately depends on our ability to draw together
the right people, position them in the right places, give them the right
tools -- then step back and let them do their jobs. There is a healthy balance
of entrepreneurial spirit and team ethic.
7
<PAGE>
beneficial to investors, but it also makes the job of investing more
time-consuming and complex. IJL is in an excellent position to address the
growing need of clients for money-management advice. The expertise added to the
firm is an essential part of our ability to respond; the other key element is
our commitment to technology.
Great strides were made in 1995 to bring the firm to the forefront of
technology. IJL financial consultants now have desktop access to some of the
most sophisticated software in the securities industry. Across the Southeast,
IJL FCs and sales assistants are serving clients more effectively --and working
more efficiently. FC productivity increased by 34 percent from the first to the
fourth quarters, aided no doubt by active markets but also very much a
reflection of the increased professionalism of the staff and the improved tools
available to them. The right people in the right places with the right tools are
a winning combination!
Several new locations were added to the IJL map this past year. We
established a firm foothold in Virginia, opening a Richmond office in January,
then adding Roanoke in July and Virginia Beach in September. Virginia is a
comfortable strategic fit for IJL, and we see excellent growth potential there.
While IJL has been known historically for the quality of its advice to
individual investors, we also made steady and meaningful progress during the
past year in enhancing other areas of the firm that contribute to or complement
this core business.
Our investment banking groups serve a dual purpose. They provide a
significant source of non-commission revenue through services provided to
corporate clients and to public agencies -- services ranging from underwriting
to financial engineering to long-term financial planning. And they also offer a
constant flow of attractive, well-analyzed investment opportunities to our
individual and institutional brokerage clients. A close relationship between
investment bankers and the sales force is essential if both groups are to
achieve their full potential.
We are especially excited about several recent developments in this sector
of our business. In the Corporate Finance Department, a quality business with
considerable growth potential, new leadership has strengthened the capabilities
of our core group of seasoned professionals. Our objective is to be the
investment banker of choice for growth companies in the Southeast. Our focus
will be on financial institutions, REITs, software, telecommunications, health
care, specialty retailing and restaurants as well as traditional manufacturing
industries. In May, we were joined by a team of professionals highly experienced
in raising capital through the private placement of debt and equity securities
in the institutional market. The addition of this dynamic business unit enables
IJL to immediately enter the private-placement arena as a major player and fits
into the firm's strategic plan to expand into areas that offer
(The following text appears down the left hand side of the page)
Technology is key to our efforts to stay ahead of the curve in providing both
advice to investors and comprehensive management of their financial assets.
Technology is not an end, but a means through which we add value to client
relationships.
8
<PAGE>
(A picture of a building appears the full size of the page with the following
words in white on top)
We strive to build partnerships
that will remain strong
for generations to come.
<PAGE>
(A picture of a sphere in closed in rings appears the full size of page with
the following words in white on top)
Our quest
to reach ever higher levels
is unending.
<PAGE>
synergies with existing businesses.
Activity in the tax-exempt capital markets slowed considerably; the market
lull gave IJL the opportunity to add to our public finance capabilities. The
expanded team worked throughout the year to strengthen relationships with public
sector decision-makers across the Southeast and to forge closer ties with local
community officials through our branch offices. We feel confident about our
ability to participate at a much higher level in this business in 1996 and
beyond, thus ensuring a strong flow of tax-exempt products to our institutional
and individual clients.
The IJL Research Department provides analysis and ideas for our retail and
institutional sales forces, and closely supports our corporate finance efforts.
The department earned national recognition in 1995. The Wall Street Journal's
All-Star Analysts list included IJL, and analysts and strategists worked closely
with CEO Jim Morgan on management of a portfolio for SmartMoney magazine. The
42.2 percent appreciation of that portfolio led all contestants and offered the
opportunity to showcase IJL's research capabilities. The technology upgrade that
brought new tools to the firm's financial consultants also enhanced the work of
research analysts. Not only do analysts have desktop access to a wealth of
additional information, but they now have the ability to distribute research
electronically to designated subscribers all over the world.
While the equity markets were robust in 1995, the external environment was a
particularly challenging one for the Fixed Income Division. While lower interest
rates and higher prices certainly halted the devastating carnage of 1994, most
of the rate decline was in the long end of the market, resulting in a much
flatter yield curve. That trend, combined with a changing regulatory climate,
slowed activity in the market. There was a concomitant reduction in the issuance
of public, corporate and mortgage-backed securities.
Internally, the division dramatically increased its distribution capability
in 1995. A sales office was opened in Houston, and the staff there had grown to
23 by the close of the year. Overall, the fixed-income sales force grew by about
40 percent, and we are looking to a further expansion of the distribution
network in the coming year. IJL wants to be known not as the largest or most
aggressive player on the field, but as the most agile and responsive one. Our
goal is to bring together a team of salespeople and traders who have a keen
understanding of the needs of clients in the middle and upper end of the
institutional market. While there is strong and healthy competition for this
sector, few firms can offer our combination of sophisticated advice and personal
attention. In addition, our individual investor clients benefit from the higher
level of expertise and broader range of ideas that our institutional efforts
bring to the firm.
The Interstate Group, which provides execution and a wide array of
independent
(The following text appears down the right hand side of the page)
The IJL staff is exceptional in its ability to blend professional
expertise with personal attention. There is no one-size-fits-all
advice here; we are committed to building long-term partnerships
with our clients.
11
<PAGE>
research services for institutions and third-party money managers, remained a
solid contributor to the firm's financial performance in fiscal 1995. Largely
because of the work of this team, our firm is one of the leaders in block order
executions on The New York Stock Exchange.
Sovereign Advisers, our asset management subsidiary, closed out its third
year under current management with assets of more than $200 million. We continue
to believe that the combination of the dividend performers philosophy and our
proven portfolio managers will provide excellent long-term results for our
asset-management clients.
The growth potential of the Southeast remains strong; forecasts show the
addition of 700,000 jobs across the region by the end of 1996. IJL is well
positioned geographically to capitalize on this growth, and we are confident
that the firm has the financial and human resources to compete at the highest
level. We have a sizable capital base of more than $90 million; our staff is
experienced, stable and committed to the highest-quality client service. Our
conservative business practices and cost-conscious attitude allow us to provide
superior investment products and services at an affordable cost.
In summary, IJL offers clients an incredible wealth of talented
professionals and a rich variety of ideas and services for a regional firm. In
truth, size is one of Interstate/Johnson Lane's greatest assets. The firm can
maintain a culture built on close, personal relationships, both externally with
clients and internally with each other. IJL has earned a reputation as one of
the best places in the industry to work. We are proud of that record, for in the
end, it is the quality of our people that will carry us to greatness.
We also want to be good citizens. The IJL Path of Commitment calls on
employees to become actively involved in community service, and it places
special emphasis on programs that improve the educational opportunities
available to children and youth. Across the firm, employees provided support to
community organizations in 1995 through service as fund-raising chairs, board
members, trustees and volunteers. The people of IJL, their families and friends
have tutored and mentored elementary students, taught adults to read, helped
Junior Achievement, introduced youngsters to the joy of reading, counseled
troubled teenagers, provided Christmas presents to those who otherwise might
have received very little, put on a fair for special-needs children, painted a
Boys' Club, walked and run, putted and pedaled to raise money for charity, and
performed countless other acts of kindness.
Interstate/Johnson Lane is a 63-year-old firm that is in the infant stage of
realizing its full potential. We are a firm that consists of people who care --
about each other, our clients, our shareholders and our communities. It is this
extraordinary team that gives us confidence that our future is a bright and
promising one.
(The following text appears down the left hand side of the page)
While IJL's roots are in the Southeast, our efforts on behalf of clients know no
bounds. In this age of instant communication, investment opportunities cross
borders and span oceans. We have become agile navigators on this ever-changing
global journey.
12
<PAGE>
Interstate/Johnson Lane
Five-Year Financial Summary
(All dollars in millions except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Years ended September 30
1995 1994 1993 1992 1991
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results:
Total Revenues $184.2 $166.6 $163.5 $141.5 $121.9
Net Revenues After Interest Expense 151.5 147.9 151.3 125.3 99.7
Income (Loss) Before Taxes and
Non-Recurring Items 9.9 13.3 16.9 10.6 (0.3)
Operating Income (Loss) 5.9 7.9 10.4 7.0 (0.3)
Non-Recurring Items -- 3.0 4.0 3.0 --
Net Income (Loss) 5.9 10.9 14.4 10.0 (0.3)
Primary Earnings (Loss) Per Share:
Operating $ 0.94 $ 1.20 $ 1.54 $ 1.05 $(0.04)
Net 0.94 1.67 2.14 1.50 (0.04)
Dividends Per Share: $ 0.12 $ 0.09 -- -- --
Financial Condition:
Total Assets $616.5 $767.8 $675.0 $556.6 $463.7
Total Assets, Net of Matched
Securities Resale Agreements 486.9 428.6 434.1 379.9 349.5
Long-Term Subordinated Debt 21.0 21.0 22.0 22.0 22.0
Shareholders' Equity 69.4 68.0 60.4 46.5 36.6
Book Value Per Share $11.67 $10.74 $9.13 $ 7.01 $ 5.53
</TABLE>
Supplementary Financial Data
(All dollars in thousands except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Income
Before Income Earnings Per
Taxes and Before Share Before
Cumulative Cumulative Cumulative
Effect of a Effect of a Effect of a
Change in Change in Change in Net
Total Net Accounting Accounting Net Accounting Earnings
Revenues Revenues Principle Principle Income Principle Per Share
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1995
Fourth Quarter $50,715 $43,549 $3,481 $2,034 $2,034 $0.33 $ 0.33
Third Quarter 48,241 39,024 2,239 1,360 1,360 0.22 0.22
Second Quarter 45,578 36,993 2,590 1,602 1,602 0.25 0.25
First Quarter 39,667 31,892 1,553 932 932 0.15 0.15
Fiscal 1994
Fourth Quarter $40,430 $34,586 $2,993 $1,749 $1,749 $0.27 $ 0.27
Third Quarter 38,023 33,106 1,223 734 734 0.11 0.11
Second Quarter 45,433 40,910 4,786 2,824 2,824 0.43 0.43
First Quarter 42,714 39,278 4,249 2,559 5,618 0.39 0.85
13
(The number 1995 appears on the right hand side of page)
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
General Business Environment
The Company's principal activities -- securities brokerage for individual
(retail) and institutional investors, market-making in equity and fixed-income
securities, investment banking and underwriting, and investment management and
advisory services -- are highly competitive. Strategic alliances between
investment firms and commercial banks, insurance companies, and other financial
services entities have intensified this competition. Many of the Company's
revenue sources are sensitive to marketplace trading volumes and to interest
rate conditions, both of which can be cyclical and volatile. As a result,
revenues and earnings may vary significantly from quarter to quarter and year to
year.
In recent years, the Company's retail sales force has grown in large part
due to the recruitment and training of individuals without prior securities
industry experience. At September 30, 1995, approximately 26% of the Company's
retail financial consultants had fewer than three years' industry experience.
While this strategy may be rewarding in the future, near-term slowdowns in
individual investor activity could negatively impact the revenue production of a
less seasoned sales force. Implementation of prospective Securities and Exchange
Commission disclosure requirements for broker-dealers regarding payment for
order flow, and for money managers regarding "soft dollar" arrangements with
broker-dealers, could also indirectly stifle certain revenue streams in the
future.
Liquidity and Capital Resources
During the 1995 fiscal year, operating activities and capital
expenditures consumed $22.2 million of cash, partially funded by $12.4 million
of net income adjusted for depreciation and other non-cash charges. Financing
sources provided an additional $6.1 million of cash. As a result, the Company's
cash position decreased $3.7 million to $26.5 million at September 30, 1995.
The Company's asset base consists primarily of cash, cash equivalents,
and other assets which can be converted to cash within one year; at September
30, 1995, these assets comprised approximately 93% of the balance sheet.
Day-to-day financing requirements generally are influenced by the level of
securities inventories, net receivables from customers and broker-dealers, and
net receivables under resale agreements. Significant incremental cash
requirements also may occur from time to time in connection with payments under
deferred compensation plans, repurchase of the Company's common stock and/or
convertible debentures, payment of dividends, and litigation settlements arising
out of normal business operations. In addition, incremental capital spending of
$2.3 million in fiscal 1995 reflected implementation of the first phase of a
planned $10 million program of technology improvements over the next several
years.
At September 30, 1995, the Company had $125 million of call loan
financing available. In addition, the Company maintains credit lines of several
hundred million dollars for collateralized repurchase agreements with other
financial institutions, and has financed its customer receivables with customer
payables for many years. Management believes that these resources, funds
provided by operations, and permanent capital of shareholders' equity and
long-term subordinated debt, will satisfy normal financing needs for the
foreseeable future.
The Company's broker-dealer subsidiary, Interstate/Johnson Lane
Corporation ("IJL"), is subject to liquidity and capital requirements of the
Securities and Exchange Commission ("SEC"), Commodities Futures Trading
Commission ("CFTC"), and the New York Stock Exchange ("NYSE"), and consistently
has operated well in excess of the minimum requirements. At September 30, 1995,
IJL had "net capital" of $35.5 million, excess net capital of $31.7 million, and
a net capital ratio of 18.8%.
Results of Operations
Revenue & Expense Analysis
</TABLE>
<TABLE>
<CAPTION>
Year ended September 30 1995 1994 1993
<S> <C> <C> <C>
Distribution of Net Revenues
Commissions and sales credits 76.6% 75.4% 75.4%
Trading gains, net 4.5 3.6 5.8
Investment banking and underwriting 2.2 4.4 5.4
Asset management and advisory 4.9 4.2 3.0
Other operating revenues 4.9 6.0 5.5
Net interest 6.9 6.4 4.9
Net revenues 100.0% 100.0% 100.0%
Utilization of Net Revenues
Compensation and benefits 63.6% 61.4% 60.4%
Technology and telephone 10.1 9.0 8.4
Occupancy 5.6 5.5 4.8
Execution, clearance and depository 2.5 2.5 2.3
Promotion and development 3.7 3.6 2.9
Professional services 2.4 2.8 2.1
Printing, postage and supplies 2.3 2.2 2.1
Other operating expenses 3.3 4.1 5.8
93.5 91.1 88.8
Income taxes 2.6 3.6 4.3
Non-recurring items -- (2.1) (2.6)
96.1% 92.6% 90.5%
</TABLE>
1995 Compared with 1994
Net revenues increased $3.6 million, or 2%, from the previous year, while
expenses, other than interest, increased $7.0 million, or 5%. Net income of $5.9
million was down $5.0 million from the results of a year ago which were
augmented by a $3.0 million credit from the cumulative effect of adopting
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes."
Overall, improved securities markets produced an increase in commission
revenues of $4.4 million, or 4%. A significant increase in secondary market
activity in both exchange listed and OTC equities contributed to a 10% increase
in the retail sector, while substantially
14
<PAGE>
fewer equity underwritings were the principal cause of a 14% decline in the
institutional equities sector.
A recovery in the bond market produced improved trading gains in
corporate, government and tax-exempt debt of $2.7 million; these gains were
partially offset by declines of $1.1 million in OTC trading arising out of
unusually volatile markets. As a result, overall net trading profits increased
$1.6 million, or 29%.
Investment banking fees and underwriting profits decreased $3.1 million,
or 48%, due to a generally sluggish new issues market, coupled with a low level
of originations during the year. Asset management and advisory fees were up $1.2
million, or 19%, due to the continued growth of "wrap fees" paid by clients in
lieu of transaction-based commissions. Other revenues were down $1.4 million, or
16%, due primarily to non-recurring revenues in 1994 associated with the sale of
a mutual fund.
Interest revenues were up $14.9 million for the year, while interest
expenses increased $14.0 million. Roughly half of the increase in both revenues
and expenses is attributable to significantly higher levels of matched resale
and repurchase agreements; the remaining increase is attributable to higher
interest rates applied to increased customer margin loans and to customer free
credit balances. The improvement in net interest income of $915,000 is due to
higher rate spreads on funds segregated for regulatory purposes and to higher
levels of net interest-bearing customer balances.
Compensation and benefits costs increased $5.6 million, or 6%, due to an
increase in transaction-based revenues, higher acquisition costs of attracting
seasoned producers, and expansion into new markets during the year. Technology
and telephone costs increased $1.8 million, or 14%, due primarily to expenses
related to the Company's ongoing program of technology improvements. Other
operating expenses decreased $1.1 million, or 17%, as a result of smaller
provisions for legal and related matters. All other expenses increased $614,000,
or 3%, in the aggregate.
Results of Operations: 1994 Compared with 1993
Net revenues decreased $3.5 million, or 2%, from the previous year, while
expenses, other than interest, increased a modest $150,000, or 0.1%. Operating
income decreased $2.5 million to $7.9 million, but was augmented by a $3.0
million credit from the cumulative effect of a change in accounting principle,
pushing net income up to $10.9 million, or $1.67 per share.
Overall, stagnant markets produced a decrease in commission revenues of
$2.6 million, or 2%; this decrease represented losses of 2% and 3%,
respectively, in the retail and institutional sectors. Fewer equity
under-writings and secondary market transactions in listed equity and taxable
debt securities were the primary contributors to the decline, with both the
retail and institutional sectors impacted.
The poorest bond market in more than 60 years precipitated trading losses
in both corporate and tax-exempt debt; these losses were partially offset by a
$2.5 million improvement in government and mortgage-backed securities trading.
As a result, overall net trading profits decreased $3.6 million, or 40%.
Investment banking and underwriting profits decreased $1.8 million, or
21%, due to a slower market for new equity and debt offerings in both the
corporate and public sectors. Asset management and advisory fees were up $1.6
million, or 35%, due to the continued growth of "wrap fees" paid by retail
clients in lieu of transaction-based commissions.
Interest revenues increased approximately $8.8 million, while expenses
rose $6.6 million from last year. The increase in revenues was attributable to
higher levels of both conventional margin loans and average loans under matched
resale agreements. The increase in expense was due to higher levels of
borrowings under matched securities repurchase agreements. The improvement in
net interest income of $2.2 million can be attributed primarily to larger
interest rate spreads on higher levels of margin loans, and to improved earnings
on funds segregated for regulatory purposes.
Technology and telephone costs increased $666,000 primarily from
increased transaction processing charges. Occupancy costs rose by $934,000 in
conjunction with the relocation of IJL's Operations Center.
Promotion and development costs increased $823,000, or 19%, in connection
with the continuing effort to build revenue. Professional services were up
$812,000, or 26%, primarily from an increase in amounts paid to third-party
money managers under "wrap fee" arrangements. Other operating expenses decreased
$2.7 million, or 30%, largely as a result of lesser charges to asset valuation
accounts and smaller provisions for legal and related matters.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which is effective for the Company's 1997
fiscal year. In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation," which is effective for the Company's 1997 fiscal
year. Adoption of these statements is not expected to have a material impact on
the financial condition of the Company.
Effects of Inflation
Because the Company's assets are largely liquid, and because securities
inventories are carried at current market values, the impact of inflation is
reflected in its consolidated financial statements. However, the rate of
inflation also affects expenses such as employee compensation, rent, and
communications, and such effects may not be readily recoverable through
commission rates, trading profits, or fees. To the extent that inflation has
other adverse effects on prices and activities in the securities markets and, in
particular, on interest rate conditions in the credit markets, it may adversely
affect the Company's financial position and results of operations.
15
<PAGE>
Financial Reporting Responsibility
The management of Interstate/Johnson Lane is responsible for the
preparation of the consolidated financial statements and related financial
information presented in this annual report. We are also responsible for
maintaining a system of internal accounting controls designed to provide
reasonable assurance of the reliability of financial records and the protection
of assets. The effectiveness of internal controls and procedures is reviewed
throughout the year by an internal audit staff, which reports its findings to
the Audit Committee of the Board of Directors, comprised solely of outside
directors.
The accompanying financial statements, which include amounts based on
judgments of management, have been prepared in accordance with generally
accepted accounting principles consistently applied except for the adoption of a
new accounting standard for income taxes and the reclassification of certain
short-term investments, both for 1994. These statements have been audited by
Coopers & Lybrand L.L.P., independent accountants, who are responsible for
performing their audit in accordance with generally accepted auditing standards
and whose report follows.
Both the independent auditors and the internal auditors have access to
the Audit Committee without the presence of management; they meet regularly with
this Committee to discuss the results of their audits and to present their
opinions with respect to the adequacy of internal controls and the quality of
financial reporting.
/s/ James H. Morgan
James H. Morgan
Chief Executive Officer
/s/ Edward C. Ruff
Edward C. Ruff
Chief Financial Officer
Charlotte, North Carolina
October 24, 1995
Report of Independent Accountants
To the Shareholders of Interstate/Johnson Lane, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Interstate/Johnson Lane, Inc. and Subsidiaries as of September 30,
1995 and 1994, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended September 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial condition of
Interstate/Johnson Lane, Inc. and Subsidiaries as of September 30, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 30, 1995, in conformity
with generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, on
October 1, 1993, the Company adopted Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes."
/s/ Coopers & Lybrand L.L.P.
Charlotte, North Carolina
October 24, 1995
16
<PAGE>
Consolidated Statements of Financial Condition
(All dollars in thousands)
September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 26,537 $ 30,193
Cash and securities segregated for regulatory purposes 117,616 83,983
Loans under matched securities resale agreements 129,623 339,189
Receivables:
Financing resale agreements 23,848 20,989
Customers 175,328 170,060
Brokers, dealers and clearing agencies 18,048 15,573
Other 4,722 9,418
Trading securities owned 75,749 57,023
Land, buildings and improvements, net 7,285 9,135
Office facilities and equipment, net 8,865 6,406
Goodwill and intangible assets 13,678 14,285
Other assets 15,213 11,579
- - ----------------------------------------------------------------------------------------------
$616,512 $767,833
==============================================================================================
Liabilities and Shareholders' Equity
Short-term borrowings:
Checks payable $ 11,872 $ 18,179
Bank loans -- 4,997
Financing repurchase agreements 38,561 11,935
Borrowings under matched securities
repurchase agreements 130,453 339,777
Payables:
Customers 267,714 227,431
Brokers and dealers 6,619 6,388
Other 7,322 8,639
Accrued compensation and benefits 14,460 13,010
Securities sold but not yet purchased 25,305 23,258
Notes payable 7,772 8,487
Other liabilities and accrued expenses 15,864 16,563
- - ----------------------------------------------------------------------------------------------
525,942 678,664
- - ----------------------------------------------------------------------------------------------
Minority interests 200 200
- - ----------------------------------------------------------------------------------------------
Long-term subordinated debt 20,999 20,999
- - ----------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.20 par value, 30,000,000 shares
authorized, 6,883,105 shares issued in 1995 and 1994 1,377 1,377
Additional paid-in capital 31,510 31,589
Retained earnings 45,043 39,871
- - ----------------------------------------------------------------------------------------------
77,930 72,837
Less, treasury stock, at cost, 936,783 shares in 1995
and 554,359 shares in 1994 (8,559) (4,867)
- - ----------------------------------------------------------------------------------------------
Total shareholders' equity 69,371 67,970
- - ----------------------------------------------------------------------------------------------
$616,512 $767,833
==============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
Consolidated Statements of Operations
(All dollars in thousands except per-share amounts)
For the years ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues:
Commissions and sales credits $116,003 $111,568 $114,164
Trading gains, net 6,839 5,283 8,834
Investment banking and underwriting 3,354 6,441 8,195
Asset management and advisory 7,334 6,162 4,551
Interest 43,261 28,324 19,508
Other 7,410 8,822 8,234
- - ----------------------------------------------------------------------------------------------
Total revenues 184,201 166,600 163,486
Interest expense 32,743 18,720 12,144
- - ----------------------------------------------------------------------------------------------
Net revenues 151,458 147,880 151,342
- - ----------------------------------------------------------------------------------------------
Expenses:
Compensation and benefits 96,370 90,785 91,492
Technology and telephone 15,198 13,380 12,714
Occupancy 8,444 8,192 7,258
Execution, clearance and depository 3,809 3,744 3,508
Promotion and development 5,627 5,258 4,435
Professional services 3,611 3,976 3,163
Printing, postage and supplies 3,503 3,209 3,162
Other operating expenses 5,033 6,085 8,747
- - ----------------------------------------------------------------------------------------------
Total expenses 141,595 134,629 134,479
- - ----------------------------------------------------------------------------------------------
Income before income taxes, extraordinary item
and cumulative effect of a change in
accounting principle 9,863 13,251 16,863
Income tax expense 3,935 5,385 6,498
- - ----------------------------------------------------------------------------------------------
Income before extraordinary item and
cumulative effect of a change in
accounting principle 5,928 7,866 10,365
Extraordinary item:
Reduction of income taxes arising from
carryforward of prior years' operating losses 3,997
Cumulative effect of a change in accounting principle 3,059
- - ----------------------------------------------------------------------------------------------
Net Income: $ 5,928 $ 10,925 $ 14,362
==============================================================================================
Primary Earnings per Share:
Income before extraordinary item and cumulative
effect of a change in accounting principle $ 0.94 $ 1.20 $ 1.54
Extraordinary item 0.60
Cumulative effect of a change in accounting principle 0.47
- - ----------------------------------------------------------------------------------------------
Net income $ 0.94 $ 1.67 $ 2.14
==============================================================================================
Fully Diluted Earnings per Share:
Income before extraordinary item and cumulative
effect of a change in accounting principle $ 0.91 $ 1.13 $ 1.42
Extraordinary item 0.50
Cumulative effect of a change in accounting principle 0.39
- - ----------------------------------------------------------------------------------------------
Net income $ 0.91 $ 1.52 $ 1.92
==============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
Consolidated Statements of Cash Flows
(All dollars in thousands)
For the years ended September 30,
1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 5,928 $ 10,925 $ 14,362
- - -----------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash
provided (used) by operating activities:
Depreciation and amortization 3,584 3,166 3,092
Deferred income taxes 1,413 (997) (1,782)
Provision for real estate charges 1,250 675 731
Other non-cash items 222 1,536 1,741
- - -----------------------------------------------------------------------------------------------
6,469 4,380 3,782
- - -----------------------------------------------------------------------------------------------
Changes in operating assets and liabilities:
Cash and securities segregated for
regulatory purposes (33,633) 33,683 (2,016)
Loans under matched securities resale
and repurchase agreements, net 241 (259) (8,734)
Net payables to customers 35,015 (35,313) (4,622)
Net receivables from brokers, dealers and
clearing agencies (2,243) (7,056) 6,108
Other receivables 4,697 (1,385) (695)
Trading securities owned, net (16,680) 8,246 14,824
Other assets (5,090) 182 (2,599)
Accrued compensation and benefits 1,450 (2,877) 6,001
Other liabilities and accrued expenses (1,376) (5,103) 7,271
- - -----------------------------------------------------------------------------------------------
(17,619) (9,882) 15,538
- - -----------------------------------------------------------------------------------------------
Cash provided (used) by operating activities (5,222) 5,423 33,682
- - -----------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from (repayment of):
Short-term bank borrowings (11,305) 7,615 (7,741)
Borrowings under financing repurchase
and resale agreements, net 23,767 5,274 (12,332)
Notes payable (715) (1,170) 493
Maturity of secured demand note (1,000)
Proceeds from stock options exercised 137 237 1,003
Purchase of stock for treasury (5,026) (3,747) (2,378)
Dividends paid (756) (586)
- - -----------------------------------------------------------------------------------------------
Cash provided (used) by financing activities 6,102 6,623 (20,955)
- - -----------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (4,536) (2,246) (1,438)
- - -----------------------------------------------------------------------------------------------
Cash used by investing activities (4,536) (2,246) (1,438)
- - -----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,656) 9,800 11,289
Cash and cash equivalents at beginning of year 30,193 20,393 9,104
- - -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 26,537 $ 30,193 $20,393
===============================================================================================
Cash paid during the year for:
Interest $32,846 $ 17,983 $12,238
Income taxes $ 2,614 $ 6,930 $ 940
Non-cash financing activity:
Settlement of esop liability with treasury stock $ 325
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
(All dollars in thousands)
For the years ended September 30,
1995, 1994 and 1993
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Retained Treasury Stock Shareholders'
Shares Amount Capital Earnings Shares Amount Equity
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1992 6,883,105 $ 1,377 $ 31,005 $ 15,170 245,370 $ (1,023) $ 46,529
Forfeiture of restricted shares, net 11 9,915 (45) (34)
Purchase of treasury shares 296,200 (2,378) (2,378)
Issuance of restricted shares 93 (211,715) 924 1,017
Amortization of restricted shares 549 549
Stock options exercised (126) (68,048) 444 318
Net income 14,362 14,362
- - ------------------------------------------------------------------------------------------------------------------------------------
September 30, 1993 6,883,105 1,377 31,532 29,532 271,722 (2,078) 60,363
- - ------------------------------------------------------------------------------------------------------------------------------------
Forfeiture of restricted shares, net 21 4,985 (21)
Purchase of treasury shares 397,900 (3,747) (3,747)
Issuance of restricted shares (470) (59,400) 470
Amortization of restricted shares 778 778
Stock options exercised (272) (60,848) 509 237
Net income 10,925 10,925
Dividends paid ($0.09 per share) (586) (586)
- - ------------------------------------------------------------------------------------------------------------------------------------
September 30, 1994 6,883,105 1,377 31,589 39,871 554,359 (4,867) 67,970
Forfeiture of restricted shares, net 80 12,893 (80)
Purchase of treasury shares 531,300 (5,026) (5,026)
Issuance of restricted shares (320) (123,790) 1,086 766
Amortization of restricted shares 352 352
Stock options exercised (191) (37,979) 328 137
Net income 5,928 5,928
Dividends paid ($0.12 per share) (756) (756)
- - ------------------------------------------------------------------------------------------------------------------------------------
September 30, 1995 6,883,105 $ 1,377 $ 31,510 $45,043 936,783 $ (8,559) $ 69,371
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
Notes to Consolidated Financial Statements
Note 1 Significant Accounting Policies
The consolidated financial statements include the accounts of
Interstate/Johnson Lane, Inc. and its majority-owned subsidiaries, collectively
referred to as the "Company." All intercompany balances and transactions have
been eliminated. The Company's principal subsidiary is Interstate/Johnson Lane
Corporation ("IJL"), a registered broker-dealer.
IJL records securities transactions on a settlement date basis, which does
not differ materially from a trade date basis. Securities and futures positions
in trading accounts are valued at market quotations. Securities not readily
marketable are carried at fair realizable value as determined by management. The
resulting unrealized gains and losses are reflected in income.
Cash and cash equivalents include cash invested in short-term instruments
with original maturities of three months or less.
Goodwill is recorded at cost less accumulated amortization of $3.8 million
at September 30, 1995, and $3.2 million at September 30, 1994. This amount
represents the excess of cost over fair value of net assets acquired, which is
being amortized over 30 years on the straight-line method.
Buildings and improvements, and office facilities and equipment, are stated
at cost, less accumulated depreciation and amortization of $3.8 million and
$13.7 million, respectively, at September 30, 1995, and $3.2 million and $11.8
million, respectively, at September 30, 1994. Depreciation and amortization are
provided by using the straight-line method over an asset's estimated useful
economic life.
Primary earnings per share are based on weighted average shares outstanding
after consideration of the potential dilutive effect of certain common stock
equivalents. Fully diluted earnings per share also include equivalent shares for
the dilutive effect of stock options and the assumed conversion of the
convertible subordinated debentures, after appropriate adjustment for interest
expense.
Certain 1994 and 1993 amounts have been reclassified for comparative
purposes in 1995.
Note 2 Cash and Securities Segregated
for Regulatory Purposes
Segregated for the exclusive benefit of customers at September 30, 1995,
under the provisions of Rule 15c3-3 of the Securities and Exchange Commission
("SEC") were U.S. government securities valued at approximately $50.5 million,
plus cash and other U.S. government securities collateralizing approximately $67
million of securities resale agreements. Also segregated under the
Commodities Exchange Act was cash of $119,000.
Note 3 Trading Securities Owned/Securities
Sold but Not Yet Purchased
Securities owned and securities sold but not yet purchased consist of long
and short positions, respectively, in trading accounts.
<TABLE>
<CAPTION>
Securities Sold But
(All dollars in thousands) Securities Owned Not Yet Purchased
- - -----------------------------------------------------------------------------------------------------
1995 1994 1995 1994
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government/
agency securities $12,326 $10,761 $24,184 $21,976
Mortgage-backed
securities 21,796 8,726 -- 6
Corporate debt 15,871 7,865 195 243
Corporate stocks 4,247 2,294 737 870
State and
municipal debt 21,509 27,377 189 163
- - --------------------------------------------------------------------------------
$75,749 $57,023 $25,305 $23,258
================================================================================
</TABLE>
Note 4 Short-Term Borrowings
Bank loans are obtained from time to time to finance trading securities
owned by IJL (of which a substantial portion is pledged as collateral) and are
payable on demand. At September 30, 1995, IJL had $125 million of unused call
loan facilities. Interest rates on all such loans generally fluctuate with the
lending institutions' respective broker loan rates; the weighted average
interest rate for the year was 6.63%.
Note 5 Notes Payable
Notes payable to various entities at September 30, 1995 and 1994, consisted
of the following:
<TABLE>
<CAPTION>
(All dollars in thousands)
1995 1994
- - -------------------------------------------------------------------
<S> <C> <C>
10% note with monthly payments
of $58,127 and a balloon payment
due December 31, 1996 $ 6,672 $ 6,736
Note, bearing interest at 84% of
prime, with quarterly payments
of $27,500 through May 1, 2001 -- 751
Note, bearing interest at 90-day
adjusted libor plus 1.5%, with
interest paid monthly and a
single payment of principal
due December 20, 1995 1,100 1,000
- - -------------------------------------------------------------------
$ 7,772 $ 8,487
===================================================================
</TABLE>
The net book value of buildings and improvements collateralizing $6.7
million of these notes was $6.0 million at September 30, 1995.
Approximate maturities of notes in each of the next five years are as
follows:
Year ending September 30 (All dollars in thousands)
______________________________________________________________________________
1996.........................................................$ 1,167
1997......................................................... 6,605
THEREAFTER................................................... --
Note 6 Long-Term Subordinated Debt
Borrowings under subordination agreements are as follows:
<TABLE>
<CAPTION>
(All dollars in thousands) 1995 1994
- - ----------------------------------------------------------------
<S> <C> <C>
7.75% convertible subordinated
debentures, due March 31, 2011 $20,999 $20,999
================================================================
21
<PAGE>
Notes to Consolidated Financial Statements
The subordinated debentures are convertible into common stock at $17.75 per
share, and are redeemable at the option of the Company at varying rates.
Beginning in 2001 the debentures require an annual sinking fund of $1,050,000,
calculated to retire 50% of the debentures prior to maturity. Under the
indenture, conversions satisfy the scheduled sinking fund requirements.
Note 7 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>
<TABLE>
<CAPTION>
Year Ending September 30 Millions
<S> <C>
1996 $10.6
1997 7.2
1998 5.0
1999 3.3
2000 1.2
Thereafter 4.9
$32.2
</TABLE>
Lease expense was $7.4 million in 1995, $7.1 million in 1994, and $6.7
million in 1993.
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
September 30, 1995, contingent liabilities under these obligations amounted to
approximately $3.1 million in the aggregate.
In lieu of margin deposits with certain clearing agencies, IJL had $2.3
million outstanding at September 30, 1995, on a $20 million irrevocable letter
of credit issued by a commercial bank.
Note 8 Legal Proceedings
The Company is involved in certain litigation arising in the ordinary
course of business. Management believes, based upon discussion with counsel,
that the outcome of this litigation will not have a material effect on the
Company's financial position. The materiality of legal matters on the Company's
future operating results depends on the level of future results of operations as
well as the timing and ultimate outcome of such legal matters.
Note 9 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
September 30, 1995, IJL's commitments included forward purchase and sale
contracts, involving mortgage-backed securities with long market values of
approximately $48.7 million and short market values of approximately $47.2
million, and futures sales contracts with short values of $6.1 million used
primarily to hedge municipal bonds. While the Company may from time to time
participate in the trading of some derivative securities for its customers, this
trading is not a significant portion of the Company's business.
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 credit-worthiness of the borrower. Approximately 80%
of all loans under securities resale agreements at September 30, 1995, were made
to three counterparties.
IJL incurs risk in underwriting public securities offerings to the extent
that prospective buyers fail to purchase the securities. The Company attempts to
mitigate this risk through due diligence carried out prior to undertaking the
contractual obligation.
Note 10 Employee Stock Plans
The Company has two stock option plans under which 370,000 shares with
tandem stock appreciation rights were reserved at September 30, 1995 and 1994.
In addition, the Company has a stock award plan under which 1,800,000 shares
were reserved at September 30, 1995 (750,000 shares at September 30, 1994) for
issuance of restricted stock or stock options. Options granted are at or above
the market value of the shares at the date of grant. Options generally become
exercisable at the rate of one-third each year as of one year after the date of
grant, and expire 10 years thereafter.
Information with respect to options under the above plans follows:
<TABLE>
<CAPTION>
Number of Options Option Price
Outstanding Per Share
- - --------------------------------------------------------------------------
<S> <C> <C>
October 1, 1992 369,578 $2.25-12.75
Cancelled (6,270)
Exercised (68,048) 2.25-7.50
- - --------------------------------------------------------------------------
September 30, 1993 295,260 2.25-12.75
Cancelled (2,000)
Exercised (60,848) 2.25-7.50
- - --------------------------------------------------------------------------
September 30, 1994 232,412 2.25-12.75
Cancelled (8,000)
Exercised (37,979) 2.25-6.00
- - --------------------------------------------------------------------------
September 30, 1995 186,433 2.25-12.75
==========================================================================
</TABLE>
22
<PAGE>
At September 30, 1995, options to purchase 186,433 shares were exercisable,
and no stock appreciation rights had been granted. The Company awarded 123,790
and 59,400 restricted shares from treasury stock during 1995 and 1994,
respectively.
Note 11 Qualified Employee Benefit Plans
IJL sponsors a Profit-Sharing and Capital Accumulation Plan (CAP) and an
Employee Stock Ownership Plan (ESOP), both of which are qualified under the
Employee Retirement Income Security Act (ERISA). Under the CAP eligible
employees may defer a portion of their first $100,000 of annual compensation,
pursuant to Sections 401(a) and 401(k) of the Internal Revenue Code. IJL may
match employee deferrals up to the first 3% of eligible compensation. Provisions
of the ESOP call for the IJL Board of Directors to establish the amounts to be
contributed each year. All employees with one calendar quarter of service are
eligible to participate in both plans. Company contributions to the plans are
made so as not to exceed the maximum amounts allowable as deductions under the
Internal Revenue Code and totaled approximately $1.2 million in 1995, $1.5
million in 1994, and $1.5 million in 1993.
Note 12 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 year ended September 30, 1994.
Income tax expense recorded for financial reporting purposes is comprised
of the following items:
<TABLE>
<CAPTION>
(All dollars in thousands) 1995 1994 1993
- - ------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,524 $2,269 $5,862
State 998 1,054 1,312
- - ------------------------------------------------------------------
2,522 3,323 7,174
- - ------------------------------------------------------------------
Deferred:
Federal 1,611 1,897 (676)
State (198) 165 --
- - ------------------------------------------------------------------
1,413 2,062 (676)
- - ------------------------------------------------------------------
Total tax expense $3,935 $5,385 $6,498
==================================================================
</TABLE>
Deferred tax expense or benefit results from different timing in the
recognition of certain revenue and expense items for income tax and financial
statement purposes. The sources of these differences and the tax effect of each
are as follows:
<TABLE>
<CAPTION>
(All dollars in thousands) 1995 1994 1993
- - ------------------------------------------------------------------
<S> <C> <C> <C>
Compensation and benefits $ (640) $(742) $ (378)
Real estate, bad debt
and other expenses 846 1,131 (673)
Partnership tax losses 154 144 369
Tax credits 353 1,276 --
Other 700 253 6
- - ------------------------------------------------------------------
Deferred tax expense (benefit) $1,413 $2,062 $ (676)
==================================================================
</TABLE>
The principal differences between the federal statutory rate and the
effective income tax rate are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- - ------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 35.0% 34.0%
State taxes, less federal benefit 5.4 6.0 5.1
Tax-exempt interest, net (4.8) (2.9) (3.1)
Goodwill amortization 2.0 1.5 1.2
Benefit of operating
loss carryforward -- -- (23.7)
Other 3.3 1.0 1.3
- - ------------------------------------------------------------------
Effective tax rate 39.9% 40.6% 14.8%
==================================================================
</TABLE>
Cumulative deferred taxes not yet realized are included in the statement of
financial condition on a net basis as deferred tax assets or liabilities. At
September 30, 1995 and 1994, these were comprised of the following:
<TABLE>
<CAPTION>
(All dollars in thousands) 1995 1994
- - ------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Compensation and benefits $3,103 $2,462
Real estate, bad debt and other expenses 943 1,850
Tax credits 378 731
- - ------------------------------------------------------------------
4,424 5,043
- - ------------------------------------------------------------------
Deferred tax liabilities:
Partnership tax losses 924 769
Other 2,134 1,495
- - ------------------------------------------------------------------
3,058 2,264
- - ------------------------------------------------------------------
Net deferred tax assets $1,366 $2,779
==================================================================
</TABLE>
Note 13 Net Capital Requirements
As a registered broker-dealer and member of the New York Stock Exchange,
IJL is subject to the SEC'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 September 30, 1995, IJL's net capital was $35.5 million, or 18.8% of its
aggregate debit balances, and approximately $31.7 million in excess of its
minimum regulatory requirements.
23
<PAGE>
Interstate/Johnson Lane
Office Locations
Georgia Newton
Albany North
Athens Wilkesboro
Atlanta (2) Pinehurst
Augusta (2) Raleigh
Columbus Roanoke
LaGrange Rapids
Macon Salisbury
Marietta Sanford
Rome Shelby
Savannah (2) Statesville
Wilmington
New York Winston-
New York Salem
City
Pennsylvania
North Berwyn
Carolina
Asheville South Carolina
Brevard Anderson
Chapel Hill Charleston
Charlotte (4) Columbia
Clinton Florence
Fayetteville Greenville
Gastonia Greenwood
Goldsboro Kiawah Island
Greensboro Myrtle Beach
Greenville Rock Hill
Hendersonville Spartanburg
Hickory
High Point Texas
Kinston Houston
Lenoir
Morehead City Virginia
Morganton Richmond (2)
Murphy Roanoke
New Bern Virginia Beach
Common Stock Price
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal 1995
Fourth Quarter $11 $9 3/4
Third Quarter 10 1/8 9 5/8
Second Quarter 9 7/8 7 5/8
First Quarter 8 1/4 7 1/4
Fiscal 1994
Fourth Quarter $ 8 1/4 $7 1/2
Third Quarter 9 5/8 8 1/8
Second Quarter 11 7/8 9 1/2
First Quarter 12 9 1/2
</TABLE>
Board of Directors
Interstate/Johnson
Lane, Incorporated
Claude S. Abernethy, Jr.
Senior Vice President
Interstate/Johnson Lane Corporation
Parks H. Dalton (3)
Chairman
Interstate/Johnson Lane, Inc.
Interstate/Johnson Lane Corporation
John B. Ellis (2)(3)
Private Investor
W. Clay Hamner (1)
Chairman and
Chief Executive Officer
Montrose Capital Corporation
Peter R. Kellogg (1)(2)(3)
Senior Partner and Chief Executive Officer
Spear, Leeds & Kellogg
James H. Morgan
President and
Chief Executive Officer
Interstate/Johnson Lane, Inc.
Interstate/Johnson Lane Corporation
Dudley G. Pearson
Senior Vice President
Interstate/Johnson Lane Corporation
Richard S. Pechter (1)(2)
Chairman
Financial Services Group
Donaldson, Lufkin & Jenrette, Inc.
Edward C. Ruff
Chief Financial Officer
Interstate/Johnson Lane, Inc.
Interstate/Johnson Lane Corporation
Grady G. Thomas, Jr.
Senior Vice President
Interstate/Johnson Lane Corporation
- - --------------------------
J. David T. Johnson
Director Emeritus
(1) Audit Committee Member
(2) Compensation & Stock Plans
Committee Member
(3) Nominating Committee Member
Board of Directors
Interstate/Johnson
Lane Corporation
Edwin A. Dalrymple, Jr.
Senior Vice President
Parks H. Dalton
Chairman
Harvey D. Harrelson
Senior Vice President
John H. Haynie
Senior Vice President
Michael D. Hearn
Senior Vice President and Secretary
George A. McElveen, III
Senior Vice President
James H. Morgan
President and Chief Executive Officer
Edward C. Ruff
Senior Vice President and
Chief Financial Officer
Lewis F. Semones, Jr.
Senior Vice President
Investor Information
Operating Subsidiaries
Interstate/Johnson Lane
Corporation
ISC Futures Corporation
ISC Realty Corporation
Sovereign Capital Management, Inc.
d/b/a Sovereign Advisers, Inc.
Corporate Headquarters
Interstate Tower
121 W. Trade Street
P.O. Box 1012
Charlotte, NC 28201-1012
(704) 379-9000
Common Stock
Ticker Symbol: IJL
New York Stock Exchange
At December 1, 1995, there
were approximately 1,086
shareholders of record.
Registrar and Transfer Agent
First Union National Bank
230 S. Tryon Street
Charlotte, NC 28288-1153
Independent Accountants
Coopers & Lybrand L.L.P.
NationsBank Corporate Center
100 N. Tryon Street, Suite 3400
Charlotte, NC 28202
(704) 375-8414
Shareholder Inquiries
Transfer Agent or
Michael D. Hearn, Secretary
(704) 379-9000
Security Analyst Inquiries
Edward C. Ruff,
Chief Financial Officer
(704) 379-9000
Form 10-K
Interstate/Johnson Lane's
Form 10-K report
to the Securities
and Exchange Commission
for fiscal 1995 is
available upon
written request to
C. Fred Wagstaff
III, Controller.
Annual Meeting
The annual meeting
of shareholders will
be held at 3:00 p.m.
on January 23, 1996,
at the Radisson
Plaza Hotel, Two
NationsBank Plaza,
Charlotte, North Carolina.
Shareholders of
record as of
December 1, 1995,
will be entitled to
vote at this meeting.
24
<PAGE>
Interstate/Johnson Lane is firmly committed to enhancing clients' financial
success by delivering superior ideas, products and service through the unique
commitment of our employees, both to personal excellence and to ensuring each
other's and the firm's success. Our success in this mission will be measured by
the degree to which individuals, institutions, corporations and public entities
regard Interstate/Johnson Lane as the firm of choice for providing solutions to
their financial needs. We will be...
Committed to the financial success of our clients. No product or service
will be offered simply to enhance our corporate revenues, and our investment
advice must be designed to stand the test of time.
Committed to ensuring each other's success. In order for all of us to work
together as a truly unified team, we must communicate honestly, directly and
frequently with one another. Departmental boundaries should never be perceived
as obstacles to teamwork.
Committed to dramatically raising our expectations of ourselves and each
other in terms of both energy level and depth of commitment. Responsibility will
be delegated, and employees will be held fully accountable for their
performance. Managers and other key leaders must serve as role models in terms
of strategic vision, work ethic and energy level.
Committed to attracting and retaining people who meet extraordinarily high
standards of personal integrity and professional excellence. We will maintain a
work environment that is exceptional in its ability to blend personal warmth
with professionalism. Committed to improving the communities in which we live
and work. We will encourage all employees to become actively involved in
community service, and we are especially committed to improving the educational
opportunities available to children and youth.
Committed to ensuring superior financial performance. Our responsibility to
our fellow employees and our shareholders demands that all of us work to ensure
that the firm functions as productively and cost-effectively as possible, by
streamlining procedures, being innovative and unbureaucratic, and justifying
additional costs with acceptable returns.
<PAGE>
Exhibit 21
INTERSTATE/JOHNSON LANE, INC.
List of Subsidiaries
September 30, 1995
<TABLE>
<CAPTION>
Percentage of
State in voting securities
Name which Incorporated owned
<S> <C> <C>
Interstate/Johnson Lane Corporation North Carolina 100%
ISC Realty Corporation North Carolina 100
Sovereign Capital Management, Inc.* North Carolina 100
ISC Futures Corporation North Carolina 100
The Johnson, Lane, Space, Smith Corporation Georgia 100
</TABLE>
*d/b/a Sovereign Advisers, Inc.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Interstate/Johnson Lane, Inc. on Form S-8 (File No. 33-25323) of
our report dated October 24, 1995, on our audits of the consolidated financial
statements and financial statement schedule of Interstate/Johnson Lane, Inc. as
of September 30, 1995 and 1994, and for each of the three years in the period
ended September 30, 1995, which report is included in this Annual Report on Form
10-K.
/s/ Coopers & Lybrand L.L.P
Charlotte, North Carolina
December 21, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 26,537
<RECEIVABLES> 187,632
<SECURITIES-RESALE> 153,471
<SECURITIES-BORROWED> 10,466
<INSTRUMENTS-OWNED> 75,749
<PP&E> 16,150
<TOTAL-ASSETS> 616,512
<SHORT-TERM> 11,872
<PAYABLES> 281,655
<REPOS-SOLD> 169,014
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 25,305
<LONG-TERM> 28,771
<COMMON> 1,377
0
0
<OTHER-SE> 67,994
<TOTAL-LIABILITY-AND-EQUITY> 616,512
<TRADING-REVENUE> 6,839
<INTEREST-DIVIDENDS> 43,261
<COMMISSIONS> 116,003
<INVESTMENT-BANKING-REVENUES> 3,354
<FEE-REVENUE> 7,334
<INTEREST-EXPENSE> 32,743
<COMPENSATION> 96,370
<INCOME-PRETAX> 9,863
<INCOME-PRE-EXTRAORDINARY> 5,928
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,928
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.91
</TABLE>
