-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HuWdWbwSIcU5cPB3JffVk+vy5d0TgXWUPlDzbvsDnlCcpGjWntNHjT5lI55hkmvI 4yRC4LAMi9D9YJapTGGriQ== /in/edgar/work/0000718482-00-000026/0000718482-00-000026.txt : 20001017 0000718482-00-000026.hdr.sgml : 20001017 ACCESSION NUMBER: 0000718482-00-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000831 FILED AS OF DATE: 20001016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDWARDS A G INC CENTRAL INDEX KEY: 0000718482 STANDARD INDUSTRIAL CLASSIFICATION: [6211 ] IRS NUMBER: 431288229 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08527 FILM NUMBER: 740810 BUSINESS ADDRESS: STREET 1: ONE N JEFFERSON AVE CITY: ST LOUIS STATE: MO ZIP: 63103 BUSINESS PHONE: 3142893000 10-Q 1 0001.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________________ FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended August 31, 2000 Commission file number 1-8527 A.G. EDWARDS, INC. State of Incorporation: DELAWARE I.R.S. Employer Identification No: 43-1288229 ONE NORTH JEFFERSON AVENUE ST. LOUIS, MISSOURI 63103 Registrant's telephone number, including area code: (314) 955-3000 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 At September 29, 2000, there were 80,884,927 shares of A.G. Edwards, Inc. common stock, par value $1, issued and outstanding. A.G. EDWARDS, INC. INDEX Page PART I. FINANCIAL INFORMATION Consolidated balance sheets 1 Consolidated statements of earnings 2 Consolidated statements of cash flows 3 Notes to consolidated financial statements 4-5 Management's financial discussion 6-8 PART II.OTHER INFORMATION 9 SIGNATURES 10
A.G. EDWARDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited) August 31, February 29, ASSETS 2000 2000 Cash and cash equivalents $ 102,268 $ 154,487 Cash and government securities, segregated under federal and other regulations 83,690 86,851 Securities purchased under agreements to resell 13,633 10,674 Securities borrowed 85,858 278,199 Receivables: Customers 3,935,539 3,777,352 Brokers, dealers and clearing organizations 16,970 22,529 Fees, dividends and interest 85,052 62,989 Securities inventory, at fair value: State and municipal 262,696 240,154 Government and agencies 56,433 57,943 Corporate 78,629 110,311 Investments 198,835 116,307 Property and equipment, at cost, net of accumulated depreciation and amortization of $325,945 and $337,602 428,017 312,942 Deferred income taxes 53,743 75,361 Other assets 45,668 41,488 $5,447,031 $5,347,587 LIABILITIES AND STOCKHOLDERS' EQUITY Bank loans $ 414,100 $ 638,000 Checks payable 225,171 283,602 Securities loaned 1,409,055 637,684 Payables: Customers 867,434 946,373 Brokers, dealers and clearing organizations 109,316 203,129 Securities sold but not yet purchased, at fair value 37,428 24,920 Employee compensation and related taxes 618,034 740,188 Income taxes 51,207 73,557 Other liabilities 91,171 83,012 Total Liabilities 3,822,916 3,630,465 Stockholders' Equity: Preferred stock, $25 par value: Authorized, 4,000,000 shares, none issued Common stock, $1 par value: Authorized, 550,000,000 shares Issued, 96,463,114 shares 96,463 96,463 Additional paid-in capital 262,728 253,917 Retained earnings 1,798,343 1,645,332 2,157,534 1,995,712 Less - Treasury stock, at cost (15,621,508 and 9,254,005 shares) 533,419 278,590 Total Stockholders' Equity 1,624,115 1,717,122 $5,447,031 $5,347,587 See Notes to Consolidated Financial Statements.
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A.G. EDWARDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended August 31, August 31, 2000 1999 2000 1999 REVENUES: Commissions $325,134 $311,249 $ 736,412 $ 662,500 Principal transactions 74,226 72,440 153,743 130,303 Investment banking 41,410 57,063 96,596 116,087 Asset management and service fees 162,409 133,464 323,404 261,339 Interest 96,505 57,780 189,476 111,090 Other 10,250 4,106 20,721 5,919 709,934 636,102 1,520,352 1,287,238 EXPENSES: Compensation and benefits 437,343 407,001 941,134 822,865 Occupancy and equipment 50,845 33,879 91,001 65,740 Communications 34,124 26,527 67,543 53,857 Floor brokerage and clearance 5,488 5,210 11,770 10,711 Interest 29,818 5,743 53,677 8,180 Other 29,578 24,981 61,764 56,251 587,196 503,341 1,226,889 1,017,604 EARNINGS BEFORE INCOME TAXES 122,738 132,761 293,463 269,634 INCOME TAXES 45,700 50,450 109,140 102,780 NET EARNINGS $ 77,038 $ 82,311 $ 184,323 $ 166,854 Earnings per share: Diluted $ .93 $ .86 $ 2.17 $ 1.74 Basic $ .95 $ .88 $ 2.21 $ 1.77 Dividends per share $ .16 $ .15 $ .32 $ .30 Average common and common equivalent shares outstanding (in thousands): Diluted 83,608 95,245 84,948 95,690 Basic 81,704 93,515 83,287 94,085 See Notes to Consolidated Financial Statements.
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A.G. EDWARDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Six Months Ended August 31, 2000 1999 Cash Flows from Operating Activities: Net earnings $ 184,323 $ 166,854 Noncash and nonoperating items included in earnings 73,703 48,424 Change in: Segregated cash and government securities 3,161 (1,267) Net securities borrowed and loaned 29,601 9 Net receivable from customers (237,126) 73,058 Net payable to brokers, dealers and clearing organizations (88,254) (588,964) Fees, dividends and interest receivable (22,063) (25,435) Net securities inventory 23,158 (146,578) Other assets and liabilities (217,752) (44,901) Net cash from operating activities (251,249) (518,800) Cash Flows from Investing Activities: Securities purchased under agreements to resell (2,959) 7,774 Purchase of property and equipment (157,516) (40,771) Investments (73,721) (10,463) Net cash from investing activities (234,196) (43,460) Cash Flows from Financing Activities: Bank loans (223,900) 535,000 Securities loaned 934,111 156,950 Employee stock transactions 16,973 15,513 Cash dividends paid (27,202) (28,232) Purchase of treasury stock (266,756) (76,982) Net cash from financing activities 433,226 602,249 Net change in Cash and Cash Equivalents (52,219) 39,989 Cash and Cash Equivalents, Beginning of Period 154,487 99,499 Cash and Cash Equivalents, End of Period $ 102,268 $ 139,488 Income tax payments totaled $101,820 and $54,657 during the six month periods ended August 31, 2000, and 1999, respectively. Interest payments totaled $47,704 and $6,229 during the six month periods ended August 31, 2000, and 1999, respectively. See Notes to Consolidated Financial Statements.
-3- A.G. EDWARDS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED AUGUST 31, 2000 (Dollars in thousands, except per share amounts) (Unaudited) FINANCIAL STATEMENTS: The consolidated financial statements include the accounts of A.G. Edwards, Inc., and its wholly owned subsidiaries (collectively referred to as the "Company"), including its principal subsidiary, A.G. Edwards & Sons, Inc. ("Edwards"), and are prepared in conformity with accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended February 29, 2000. All adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods have been reflected. All such adjustments consist of normal recurring accruals unless otherwise disclosed in these interim financial statements. The results of operations for the six months ended August 31, 2000, are not necessarily indicative of the results for the year ending February 28, 2001. Where appropriate, prior year's financial information has been reclassified to conform with the current period presentation. STOCKHOLDERS' EQUITY: Under the stock repurchase program, the Company purchased 6,809,500 shares at an aggregate cost of $266,756 during the six month period ended August 31, 2000. For the six month period ended August 31, 1999, the Company purchased 2,483,700 shares at an aggregate cost of $76,982. Comprehensive earnings for the six month periods ended August 31, 2000 and 1999 were equal to the Company's net earnings. NET CAPITAL REQUIRMENTS: Edwards is subject to the net capital rule administered by the Securities and Exchange Commission ("SEC"). This rule requires Edwards to maintain a minimum net capital, as defined, and to notify and sometimes obtain the approval of the SEC and other regulatory organizations for substantial withdrawals of capital and loans to affiliates. At August 31, 2000, Edwards' net capital of $904,053 was $823,142 in excess of the minimum requirement. -4-
A.G. EDWARDS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED AUGUST 31, 2000 (Dollars in thousands, except per share amounts) (Unaudited) EARNINGS PER SHARE: The following table presents the computations of basic and diluted earnings per share: Three Months Ended Six Months Ended August 31, August 31, 2000 1999 2000 1999 Net earnings available to common stockholders $77,038 $82,311 $184,323 $166,854 Shares (in thousands): Weighted average shares outstanding 81,704 93,515 83,287 94,085 Dilutive effect of employee stock plans 1,904 1,730 1,661 1,605 Total weighted average diluted shares 83,608 95,245 84,948 95,690 Diluted earnings per share $ 0.93 $ 0.86 $ 2.17 $ 1.74 Basic earnings per share $ 0.95 $ 0.88 $ 2.21 $ 1.77 ENTERPRISE WIDE DISCLOSURE: The Company operates and is managed as a single business segment, that of providing investment services to its clients through its financial consultants in more than 680 sales offices. Transaction services include commissions and sales credits earned by executing or facilitating the execution of security and commodity trades. Asset management fees are earned by providing portfolio advisory services through third-party managers, including mutual funds, and the Company's in-house portfolio managers. The Company earns interest revenue principally from financing its clients' margin accounts, debt securities carried for resale and short-term investments. The following table presents the Company's revenue by type of service: Three Months Ended Six Months Ended August 31, August 31, 2000 1999 2000 1999 Transaction services $448,461 $448,091 $1,004,854 $ 924,798 Asset management services 142,043 116,874 278,951 227,215 Interest 96,505 57,780 189,476 111,090 Other 22,925 13,357 47,071 24,135 $709,934 $636,102 $1,520,352 $1,287,238 -5-
A.G. EDWARDS, INC. AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION SIX MONTHS ENDED AUGUST 31, 2000 COMPARED TO SIX MONTHS ENDED AUGUST 31, 1999 Results of Operations The six months ended August 31, 2000 produced strong revenue gains in nearly every category in spite of some volatility in the equity and debt markets this year. This volatility may have been fueled to a certain degree by the Federal Reserve raising the target Federal Funds rate for the sixth time in less than a year in an effort to guard against "future inflation risk". In addition, the high price of oil, the federal budget surplus and the U.S. Treasury Department's buyback program all contributed to investors' uncertainty and the resulting volatility in the markets. The Dow Jones Industrial Average began the period at 10,128 and ended the period at 11,215 for an increase of 10.7 percent, despite the volatility during the period as the Dow was as low as 9,796 and as high as 11,287. The Nasdaq Composite Index began the period at 4,697 and ended the period at 4,206 for a decline of 10.5 percent. However, at one point the decline was 32.6 percent as the index closed at 3,165 on May 23, 2000. Investors did not allow the markets' volatility to keep them on the sidelines as trading volumes increased 27% and 59% over the prior year on the New York Stock Exchange and Nasdaq, respectively. For the Company, total customer trades increased 30% while the number of branches and financial consultants increased to 685 and 6,858, which represent increases of 5% and 3%, respectively, compared to last year. Total revenues increased $233 million (18%) to $1.5 billion from $1.3 billion last year. Expenses were $1.2 billion, an increase of $209 million (21%), resulting in a decrease in net profit margins to 12.1% this year from 13.0% last year. Total commission revenue increased $74 million (11%) reflecting increased trading volume and, to a lesser extent, continued expansion of the Company's distribution system. Equity related commissions rose $45 million (11%), mutual fund commissions rose $20 million (13%) and insurance commissions rose $9 million (11%). Client demand for equities, equity related mutual funds and variable annuities remained strong due to the combination of a robust economic environment and low inflation. Principal transaction revenue increased $23 million (18%) primarily as a result of a $31 million (91%) rise in revenue from sales of equity products reflecting an increase in the number of OTC equity trades resulting from higher volumes in the technology-driven Nasdaq market. In addition, the Company acted as a market maker in a greater number of actively-traded, larger-capitalized securities than in the prior year. Revenue from sales of debt products declined $8 million (8%), as bond investors were hesitant to enter the markets due to uncertainty caused by federal and state budget surpluses, the U.S. Treasury Department's buyback program and the Federal Reserve's stance on interest rates. -6- Investment banking revenue decreased $19 million (17%). Revenue from underwriting corporate stocks decreased $15 million (45%) following an industry- wide decrease in domestic IPO activities this year. Management fees declined $8 million (36%) primarily due to a decline in the number of corporate offerings managed or co-managed this year. Revenue from underwriting debt products declined $8 million (27%). New municipal bond issuance is near a five-year low as state and local governments are finding that strong economic growth has decreased their need to borrow. Corporate equity unit revenue increased $11 million (32%) due to strong investor demand for equity-based unit trusts. Asset management and service fees increased $62 million (24%). Fees from third- party mutual funds and annuities rose $22 million (14%) reflecting the strong cash flows into funds and annuities and higher market valuations of existing assets. Fees resulting from the administration of client assets under third- party management and from the Company's management services improved $30 million (43%). The average number of fee-based accounts increased 56%, while the average total assets in these programs increased 49%. Interest revenue increased $78 million (71%). Interest revenue from margin accounts rose $74 million (74%) due to a 47% increase in average margin balances coupled with a rise in the average broker call rate. Interest revenues from securities owned increased $4 million (49%) as a result of higher average inventory levels. Other revenue increased $15 million (250%) primarily due to changes in the fair value of several private equity and venture capital fund investments held by the Company. Compensation and benefits increased $118 million (14%). Commission expense increased $54 million (13%) due to the rise in commissionable revenue. General and administrative salaries increased $39 million (26%), incentive-related compensation rose $17 million (11%) and related benefits increased $8 million (9%) primarily as a result of general increases, higher employment and higher Company earnings. Occupancy and equipment expense and communication expense increased $39 million (33%) as a result of technology-related expenditures, increased business volume and branch and home office expansion. All remaining expenses increased $52 million (69%) primarily due to a $45 million (556%) increase in interest expense. The increase in interest expense is due to increases in securities lending and bank loans used to finance the increase in margin balances, capital expenditures and stock repurchases. -7- THREE MONTHS ENDED AUGUST 31, 2000 COMPARED TO THREE MONTHS ENDED AUGUST 31, 1999 Net earnings for the quarter ended August 31, 2000 were $77 million on revenues of $710 million compared to net earnings of $82 million on revenues of $636 million for the same period a year ago. The explanation of revenue and expense fluctuations presented for the six-month period are generally applicable to the three months of operations. The increase in revenues was outpaced by a rise in expenses primarily due to higher employment, technology-related expenditures and branch and home office expansion. LIQUIDITY AND CAPITAL RESOURCES The Company's assets fluctuate in the normal course of business, primarily because of the timing of certain transactions. Customer receivables continued to increase as a result of business expansion for the six-month period ended August 31, 2000. This increase was financed primarily with short-term bank loans and increased securities lending activities. The mix of bank loans and securities lending arrangements fluctuates based on the interest rates available on a day-to-day basis. During the first six months, the Company purchased 6.8 million shares under its stock repurchase program. The cost of these repurchased shares was $267 million. A total of 29.2 million shares have been repurchased since this program began in May 1996. The principle sources of financing the Company's business are stockholder's equity, cash generated from operations, short-term bank loans and securities lending activities. The Company believes it has adequate sources of credit available, if needed, to finance higher trading volumes, branch and headquarters expansion, stock repurchases and other capital expenditures. RISK MANAGEMENT No material changes have occurred to the Company's policies, procedures and controls for risk profile. FORWARD LOOKING STATEMENTS The Management's Financial Discussion contains forward-looking statements within the meaning of federal securities laws. Actual results are subject to risks and uncertainties, including both those specific to the Company and those specific to the industry, which could cause results to differ from those contemplated. The risks include, but are not limited to, general economic conditions, actions of competitors, regulatory actions, changes in legislation, risk management and technology changes. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. The Company does not undertake any obligation to publicly update any forward-looking statements. -8- PART II. OTHER INFORMATION Item 1:Legal Proceedings There have been no material changes in the legal proceedings previously reported in the Company's Annual Report on Form 10-K for the year ended February 29, 2000. Item 6:Exhibits and Reports on Form 8-K Exhibit 27 Financial Data Schedule. (This financial data schedule is only required to be submitted with the registrant's Quarterly Report on Form 10-Q as filed electronically to the SEC's EDGAR database.) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended August 31, 2000. -9- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. A.G. EDWARDS, INC. (Registrant) Date: October 16, 2000 /s/Benjamin F. Edwards, III BENJAMIN F. EDWARDS, III Principal Executive Officer Date: October 16, 2000 /s/Robert L. Proost ROBERT L. PROOST Principal Financial Officer -10- EX-27 2 0002.txt
BD 1000 6-MOS FEB-28-2001 AUG-31-2000 102,268 4,037,561 13,633 85,858 397,758 428,017 5,447,031 414,100 1,819,955 0 1,409,055 37,428 0 0 0 96,463 1,527,652 5,447,031 153,743 189,476 736,412 96,596 323,404 53,677 941,134 293,463 293,463 0 0 184,323 2.21 2.17
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