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.
INTERSTATE/JOHNSON LANE, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 2. PROPERTIES, continued
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, 1994 which information is incorporated herein by reference. Capital assets include three office buildings (two of which are idle) 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 leasehold improvements.
Item 3.
Item 3. Legal Proceedings
The Company is a defendant, or otherwise has possible exposure, in various legal actions arising out of its activities as a broker-dealer, underwriter, or employer. Several of these actions, including some class actions, claim substantial or unspecified damages which could be material. While predicting the outcome of litigation is inherently very difficult, and the ultimate resolution, range of loss, and impact on operating results cannot reliably be estimated, management is of the opinion, based upon its understanding of the facts and the advice of legal counsel, that resolution of these actions will not have a material adverse effect on IJL's financial condition.
The Company, as managing underwriter for common stock offerings of Del-Val Financial Corporation, is a defendant in a consolidated class action seeking damages estimated to potentially exceed $40 million from all defendants. No opinion can be formed at this time concerning the outcome of this litigation.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
INTERSTATE/JOHNSON LANE, INC. AND CONSOLIDATED SUBSIDIARIES
PART II
ITEM 5.
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 11 of the 1994 Annual Report to Shareholders shows the high and low market prices of the Company's common stock which information 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 like 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 2, 1994, the Company had 1,133 shareholders of record.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The "Five Year Financial Summary" on the back of the facing page of the inside cover of the 1994 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information on pages 9 through 11 of the 1994 Annual Report to Shareholders is incorporated herein by reference.
ITEM 8.
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 12 through 19 of the 1994 Annual Report to Shareholders, are incorporated herein by reference.
Quarterly "Supplementary Financial Data" is presented on page 11 of the 1994 Annual Report to Shareholders and is incorporated herein by reference.
The Company reclassified, as cash equivalents, certain short-term investments in securities resale agreements effective October 1, 1993. Management believes that this change in classification is appropriate because these transactions represent investments of excess cash and have original maturities of three months or less. Furthermore, this method of presentation is common among other firms in the securities industry. The effect of the change was to increase stated cash and related cash flows (and decrease stated financing resale agreements) by $22.0 million for the year ended September 30, 1994 and $15.0 million for the year ended September 30, 1993.
INTERSTATE/JOHNSON LANE, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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 16, 1994, to be used in connection with the Company's Annual Shareholders' Meeting to be held January 24, 1995, 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.
Edward T. Burton, III, 52, is a Director and Senior Vice President of IJL. Mr. Burton joined IJL in 1994 after six years as President of Rothschild Financial Services, Inc. He currently serves as the Managing Director of IJL's Corporate Finance Department.
Edwin A. Dalrymple, Jr., 44, 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, 45, 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 70 professionals. He has been a Senior Vice President and a Director of IJL since 1989.
Michael D. Hearn, 42, 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, 46, 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 since 1988. 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 Capital Management, Inc.
INTERSTATE/JOHNSON LANE, INC. AND CONSOLIDATED SUBSIDIARIES
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
W. Allen Rogers, II, 48, has been a Director and Senior Vice President of IJL since 1990 and is an investment banker in IJL's Corporate Finance Department. Prior to joining IJL in 1986, he was President of Robison, McAulay & Rogers, Inc., a private investment banking firm in Charlotte.
Lewis F. Semones, Jr., 36, 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.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation" on pages 6 through 9 of the Proxy Statement, dated December 16, 1994, to be used in connection with the Company's Annual Shareholders' Meeting to be held January 24, 1995, is incorporated herein by reference.
ITEM 12.
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 16, 1994, to be used in connection with the Company's Annual Shareholders' Meeting to be held January 24, 1995, is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Related Transactions" on page 8 of the Proxy Statement, dated December 16, 1994, to be used in connection with the Company's Annual Shareholders' Meeting to be held January 24, 1995, is incorporated herein by reference.
INTERSTATE/JOHNSON LANE, INC. AND CONSOLIDATED SUBSIDIARIES
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
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, (back of facing page of the inside cover, 9 through 19), the 1994 Annual Report to Shareholders is not deemed filed as part of this report.
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 1994 Annual Report to Shareholders 21 Subsidiaries 23 Consent of Independent Accountants
(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.
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.
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 1994.
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.
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, 1994 and 1993, and for each of the three years in the period ended September 30, 1994, which financial statements are included on pages 13 through 19 of the 1994 Annual Report to Shareholders of Interstate/Johnson Lane, Inc. and incorporated by reference herein. We have also audited the financial statement schedules listed in the index on page 12 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules 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, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1994 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
As discussed in Note 8 to the Consolidated Financial Statements, the Company is a defendant in lawsuits arising from its role as managing underwriter for a common stock offering. The ultimate outcome of the litigation cannot presently be determined.
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."
As discussed in Note 1 to the Consolidated Financial Statements, the Company reclassified as cash equivalents certain short-term investments in repurchase agreements.
Charlotte, North Carolina (Signature of Coopers & Lybrand L.L.P.-- See appendix) October 25, 1994
SCHEDULE VIII -- Valuation and Qualifying Accounts INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
A - Payments charged to reserve B - Reassessment of reserve C - Specific account charge-offs
SCHEDULE IX -- SHORT-TERM BORROWINGS INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
NOTE: Bank loans outstanding were obtained to finance securities owned by Interstate/Johnson Lane Corporation and are payable on demand. Interest rates on such loans fluctuate with the lending institutions' respective broker loan rates. The average amount outstanding and average interest rate were computed on a monthly basis.
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 22, 1994.
INTERSTATE/JOHNSON LANE, INC.
BY: 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.
Signature Title Date
President, Chief Executive Officer James H. Morgan and Director December 22, 1994
Vice President - Finance and Edward C. Ruff Treasurer (Principal Financial Officer) and Director December 22, 1994
Assistant Vice President C. Fred Wagstaff, III (Principal Accounting Officer) December 22, 1994
Chairman of the Board of Directors December 22, 1994 Parks H. Dalton
Director December 22, 1994 Claude S. Abernethy, Jr.
Director December 22, 1994 Dudley G. Pearson
Director December 22, 1994 Grady G. Thomas, Jr.
EXHIBIT INDEX
Exhibit Number Description of Exhibit
11 Statement Regarding Computation of Per Share Earnings
13 1994 Annual Report to Shareholders
21 Subsidiaries
23 Consent of Independent Accountants
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APPENDIX
On The Report of Independent Accountants page Coopers & Lybrand L.L.P. signature appears where indicated.
On the front cover of Exhibit 13 the words INTERSTATE/JOHNSON LANE appears in the top left corner and four pictures in each of the corners. The picture in the upper left corner is one of a building that has several statues and the words "Stock Exchange" on the front. In the bottom left corner the is a picture of a bird's nest with three eggs in it. In the upper right corner is a picture of some gears and in the bottom right corner is a picture of three keys on a ring with the words 1994 ANNUAL REPORT under it.
On page three of Exhibit 13 the Signatures of Parks H. Dalton and James H. Morgan appear where indicated.
On page four of Exhibit 13 a picture appears in the bottom left corner of a building that has several statues and the words "Stock Exchange" on the front.
On page five of Exhibit 13 in the upper right corner a picture of some gears appears.
On page six of Exhibit 13 in the upper left corner a picture of a birds nest appears with three eggs in it.
On page seven of Exhibit 13 in the bottom right corner a picture of three keys on a ring appears.
On page twelve of Exhibit 13 the Signatures of James H. Morgan, Edward C. Ruff and Coopers & Lybrand L.L.P. appear where indicated.
On the inside back cover of Exhibit 13 in the bottom right corner a picture of a little girl with a book is talking to a man.
On the back cover of Exhibit 13 the Interstate/Johnson Lane logo appears in the bottom left corner.
On Exhibit 23 the Signature of Coopers & Lybrand, L.L.P. appears where indicated.