0000718482-06-000002.txt : 20060109 0000718482-06-000002.hdr.sgml : 20060109 20060109162852 ACCESSION NUMBER: 0000718482-06-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20051130 FILED AS OF DATE: 20060109 DATE AS OF CHANGE: 20060109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDWARDS A G INC CENTRAL INDEX KEY: 0000718482 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 431288229 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08527 FILM NUMBER: 06519515 BUSINESS ADDRESS: STREET 1: ONE N JEFFERSON AVE CITY: ST LOUIS STATE: MO ZIP: 63103 BUSINESS PHONE: 3149553000 10-Q 1 fy063rdquarter.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2005

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________

Commission file number 1-8527

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.

Yesx No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

At December 31, 2005, there were 75,721,754 shares of A.G. Edwards, Inc. common stock, par value $1, issued and outstanding.


A.G. EDWARDS, INC.

Table of Contents


			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets	3

		Condensed Consolidated Statements of Earnings	4

		Condensed Consolidated Statements of Cash Flows	5

		Notes to Condensed Consolidated Financial Statements	6

	Item 2.	Management's Discussion and Analysis of Financial	13
		Condition and Results of Operations

	Item 3.	Quantitative and Qualitative Disclosures About	19
		Market Risk

	Item 4.	Controls and Procedures	20

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	20

	Item 2.	Changes in Securities, Use of Proceeds and Issuer	21
		Purchase of Equity Securities

	Item 6.	Exhibits	22

		SIGNATURES	23

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

A.G. EDWARDS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)

	November 30,	February 28,
	2005	2005
ASSETS
Cash and cash equivalents	$ 117,970	$ 209,039
Cash and government securities, segregated under
federal and other regulations	314,433	392,241
Securities purchased under agreements to resell	90,000	235,540
Securities borrowed	125,922	117,302
Receivables:
Customers, less allowances for doubtful
accounts of $7,136 and $8,045	2,056,630	2,236,170
Brokers, dealers and clearings organizations	223,652	38,901
Fees, dividends and interest	108,904	104,605
Securities inventory, at fair value:
State and municipal	315,461	190,150
U.S. Government and agencies	97,764	152,532
Corporate	47,278	57,521
Investments	371,720	337,394
Property and equipment, at cost, net of accumulated
depreciation and amortization of $773,760 and $715,328	477,686	503,976
Deferred income taxes	90,743	60,189
Other assets	41,330	52,237
	$ 4,479,493	$ 4,687,797
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term bank loans	$ —	$ 16,400
Checks payable	267,966	299,120
Securities loaned	189,827	207,012
Payables:
Customers	1,128,334	749,901
Brokers, dealers and clearing organizations	146,286	735,738
Securities sold but not yet purchased, at fair value	45,102	36,439
Employee compensation and related taxes	401,416	440,833
Deferred compensation	229,958	223,821
Income taxes	5,864	7,378
Other liabilities	200,912	183,464
Total Liabilities	2,615,665	2,900,106
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	297,280	295,478
Retained earnings	2,246,086	2,137,114
	2,639,829	2,529,055
Less - Treasury stock, at cost (20,415,314 and 19,442,437 shares)	776,001	741,364
Total Stockholders' Equity	1,863,828	1,787,691
	$ 4,479,493	$ 4,687,797
See Notes to Condensed Consolidated Financial Statements.

A.G. EDWARDS, INC.

CONDENSED CONSOLIDATED STATEMENT OF EARNINGS

(Dollars and shares in thousands, except per share amounts)

(Unaudited)

	Three Months Ended		Nine Months Ended
	November 30,		November 30,
	2005	2004	2005	2004
REVENUES:
Commissions	$ 247,209	$ 245,002	$ 744,175	$ 757,049
Asset management and service fees	269,789	234,284	777,958	672,511
Principal transactions	50,264	55,969	154,093	196,369
Investment banking	57,974	57,809	184,556	176,122
Interest	48,164	32,858	131,092	91,714
Other	3,966	13,510	15,441	27,189
Total Revenues	677,366	639,432	2,007,315	1,920,954
Interest expense	3,281	1,443	7,755	2,806
Net Revenues	674,085	637,989	1,999,560	1,918,148

NON-INTEREST EXPENSES
Compensation and benefits	430,125	410,421	1,286,623	1,241,442
Communication and technology	56,938	59,429	172,788	184,474
Occupancy and equipment	36,423	35,476	107,809	105,520
Marketing and business development	16,554	15,424	55,650	52,897
Floor brokerage and clearance	5,095	5,307	15,024	16,230
Other	48,795	34,075	122,529	103,278
Total Non-Interest Expenses	593,930	560,132	1,760,423	1,703,841
EARNINGS BEFORE INCOME TAXES	80,155	77,857	239,137	214,307
INCOME TAXES	25,798	28,684	83,087	78,242
EARNINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE	$ 54,357	$ 49,173	$ 156,050	$ 136,065
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE, NET OF INCOME TAXES	—	—	2,768	—
NET EARNINGS	$ 54,357	$ 49,173	$ 158,818	$ 136,065

Earnings per diluted share:
Earnings before cumulative effect
of accounting change	$ 0.71	$ 0.63	$ 2.02	$ 1.72
Cumulative effect of accounting change,
net of income taxes	—	—	.04	—
Earnings per diluted share	$ 0.71	$ 0.63	$ 2.06	$ 1.72

Earnings per basic share:
Earnings before cumulative effect
of accounting change	$ 0.71	$ 0.64	$ 2.02	$ 1.74
Cumulative effect of accounting change,
net of income taxes	—	—	.04	—
Earnings per basic share	$ 0.71	$ 0.64	$ 2.06	$ 1.74

Dividends per share	$ 0.20	$ 0.16	$ 0.52	$ 0.48

Weighted average common and common
equivalent shares outstanding:
Diluted	76,917	77,844	77,248	79,252
Basic	76,635	76,781	76,967	78,423

See Notes to Condensed Consolidated Financial Statements.

A.G. EDWARDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Nine Months Ended
	November 30,
Cash Flows from Operating Activities:	2005			2004
Net earnings	$	158,818		$	136,065
Cumulative effect of accounting change, net of income taxes		(2,768	)		—
Other noncash items included in net earnings		32,346			111,562
Change in:
Cash and government securities, segregated		77,808			178,881
Net securities under resale and repurchase agreements		145,540			22,355
Net securities borrowed and loaned		(59,655	)		4,345
Net receivable from customers		556,981			(258,151	)
Net payable to brokers, dealers
and clearing organizations		(774,203	)		49,611
Fees, dividends and interest receivable		(4,299	)		5,084
Securities inventory, net		(51,637	)		108,277
All other assets and liabilities		(61,300	)		(86,081	)
Net cash from operating activities		17,631			271,948

Cash Flows from Investing Activities:
Purchase of property and equipment, net		(50,371	)		(73,740	)
Purchase of other investments		(19,497	)		(15,362	)
Proceeds from sale or maturity of other investments		19,774			11,259
Proceeds from sale of a subsidiary		—			10,830
Net cash from investing activities		(50,094	)		(67,013	)

Cash Flows from Financing Activities:
Short-term bank loans, net		(16,400	)		(18,400	)
Securities loaned		33,850			45,265
Employee stock transactions		45,643			64,441
Tax benefit associated with stock-based awards		3,549			—
Cash dividends paid		(36,790	)		(37,806	)
Purchase of treasury stock		(88,458	)		(230,993	)
Net cash from financing activities		(58,606	)		(177,493	)

Net (Decrease) Increase in Cash and Cash Equivalents		(91,069	)		27,442
Cash and Cash Equivalents, Beginning of Period		209,039			107,565
Cash and Cash Equivalents, End of Period	$	117,970		$	135,007

Supplemental Disclosure of Cash Flow Information
Cash paid for:
Income taxes	$	112,940		$	56,502
Interest, net of amounts capitalized of $392 and $383	$	7,818		$	2,537

See Notes to Condensed Consolidated Financial Statements.

A.G. EDWARDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED NOVEMBER 30, 2005 AND 2004

(In thousands, except share and per share amounts)

(Unaudited)

1. FINANCIAL STATEMENTS

The condensed consolidated financial statements 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"), are prepared in conformity with accounting principles generally accepted in the United States of America. These condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended February 28, 2005. 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. The results of operations for the nine months ended November 30, 2005, are not necessarily indicative of the results for the year ending February 28, 2006. Where appropriate, prior-period financial information has been reclassified to conform to the current-period presentation.

2. STOCKHOLDERS' EQUITY

In November 2004, the Company’s Board of Directors authorized the repurchase of up to 10,000,000 shares of the Company’s outstanding stock during the period from November 19, 2004, through December 31, 2006. In November 2002, the Company’s Board of Directors authorized the repurchase of up to 10,000,000 shares of the Company’s outstanding common stock during the period from January 1, 2003, through December 31, 2004. The Company purchased 1,947,826 shares at an aggregate cost of $83,928 during the nine-month period ended November 30, 2005, and purchased 6,568,029 shares at an aggregate cost of $230,993 during the nine-month period ended November 30, 2004, under these authorizations. At November 30, 2005, the Company had up to 7,715,029 shares available for repurchase under the November 2004 stock repurchase authorization.

Additionally, in May 2005, the Company’s Board of Directors authorized the repurchase of up to 5,000,000 shares of the Company’s outstanding stock solely to effect employee stock transactions in the Company’s Retirement and Profit Sharing Plan during the period from May 24, 2005, through May 31, 2008. The Company purchased 102,476 shares at an aggregate cost of $4,530 during the nine-month period ended November 30, 2005. At November 30, 2005, the Company had up to 4,897,524 shares available for repurchase under this authorization.

Comprehensive earnings for the three-month and the nine-month periods ended November 30, 2005 and 2004, respectively, were equal to the Company's net earnings.

In November 2005, the Company’s Board of Directors declared a quarterly dividend of $.20 per share up from $.16 per share for the prior quarter. The most recent quarterly dividend was paid on January 3, 2006 to shareholders of record on December 9, 2005.

A.G. EDWARDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED NOVEMBER 30, 2005 AND 2004

(In thousands, except share and per share amounts)

(Unaudited)

3. EARNINGS PER SHARE

The following table presents the computations of basic and diluted earnings per share:

	Three Months Ended					Nine Months Ended
	November 30,					November 30,
		2005		2004		2005		2004
Earnings before cumulative effect of
accounting change	$	54,357	$	49,173	$	156,050	$	136,065
Cumulative effect of accounting
change, net of income taxes		—		—		2,768		—
Net earnings available to common stockholders	$	54,357	$	49,173	$	158,818	$	136,065

Shares:
Weighted average shares outstanding		76,635		76,781		76,967		78,423
Dilutive effect of employee stock plans		282		1,063		281		829
Total weighted average diluted shares		76,917		77,844		77,248		79,252

Diluted earnings per share:
Earnings before cumulative effect of
accounting change	$	0.71	$	0.63	$	2.02	$	1.72
Cumulative effect of accounting change,
net of income taxes		—		—		0.04		—
Diluted earnings per share	$	0.71	$	0.63	$	2.06	$	1.72

Basic earnings per share:
Earnings before cumulative effect of
accounting change	$	0.71	$	0.64	$	2.02	$	1.74
Cumulative effect of accounting change,
net of income taxes		—		—		0.04		—
Basic earnings per share	$	0.71	$	0.64	$	2.06	$	1.74

For the three-month and nine-month periods ended November 30, 2005, there were 755,644 and 348,383 options, respectively, that were considered antidilutive and thus not included in the above calculation. For the three-month and the nine-month periods ended November 30, 2004, there were 3,238,678 and 2,421,106 options, respectively, that were considered antidilutive and thus not included in the above calculation.

A.G. EDWARDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED NOVEMBER 30, 2005 AND 2004

(In thousands, except share and per share amounts)

(Unaudited)

4. EMPLOYEE STOCK PLANS

The Company grants options and restricted stock to employees utilizing two shareholder-approved plans. The 2002 Employee Stock Purchase Plan, as amended, is a qualified plan, as defined under section 423 of the Internal Revenue Code, used to grant options to purchase the Company’s stock at a discount from market value to a broad base of employees. The Incentive Stock Plan, as amended, is a non-qualified plan used to grant options and restricted stock at market value to certain officers and key employees.

The Company amended the terms of its 2002 Employee Stock Purchase Plan effective October 1, 2004. The discount from the market for purchases under the plan was reduced to 5% from 15% and the look-back period for pricing the options issued under the plan was eliminated. As a result of these changes, the options granted under this plan are no longer considered compensatory for accounting and reporting purposes.

Under the 2002 Employee Stock Purchase Plan, prior to its most recent amendment, employees purchased shares once a year and purchased 1,843,334 shares at $29.54 per share for the plan year ended September 30, 2004. Under the 2002 Employee Stock Purchase Plan, as amended, the Company’s Board of Directors authorized up to 1,875,000 shares of common stock to be purchased by employees. These shares are exercisable in monthly installments at 95 percent of the market price on the last business day of each month. Employees purchased an aggregate of 198,916 and 688,923 shares at an average price of $41.16 and $40.92, respectively, during the three-month period and nine-month periods ended November 30, 2005. During the months of October 2004 and November 2004, the only months in the prior comparable period after the plan was amended, employees purchased an aggregate of 149,409 shares at an average price of $36.03. Treasury shares were utilized for all of the shares issued.

Effective March 1, 2005, the Company early adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No. 123R”) which was issued by the Financial Accounting Standards Board (“FASB”) in December 2004. SFAS No. 123R revises SFAS No. 123, “Accounting for Stock–Based Compensation,” and supersedes Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations. SFAS No. 123R requires recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). SFAS No. 123R also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. SFAS No. 123R also amends SFAS No. 95, “Statement of Cash Flows,” to require that excess tax benefits be reported as financing cash inflows, rather than as a reduction of taxes paid, which is included within operating cash flows.

Upon adoption of SFAS No. 123R using the modified prospective approach, the Company recognized a $4,423 benefit ($2,768 after-tax) as the cumulative effect of a change in accounting principle resulting from the requirement to estimate forfeitures of restricted stock awards at the date of grant instead of recognizing them as incurred. The cumulative benefit, net of tax, increased both basic and diluted earnings per share by $0.04.

In addition, as a result of adopting SFAS No. 123R, the Company did not recognize any compensation expense in the three-month or nine-month periods for incentive stock awards as all compensation expense related to outstanding awards had already been recognized or disclosed in the consolidated financial statements of previous periods. Awards related to fiscal year 2006 will not be granted until after the end of the fiscal year and the related expense will be recognized over the subsequent vesting period, generally three years. The Company recognized compensation expense of $6,600 and $22,300 for the three-month and nine-month periods ended November 30, 2004, respectively.

A.G. EDWARDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED NOVEMBER 30, 2005 AND 2004

(In thousands, except share and per share amounts)

(Unaudited)

Prior to March 1, 2005, the Company applied the provisions of APB No. 25 and its related interpretations to account for stock options and restricted stock granted under employee stock plans as allowed under SFAS No. 123. Under APB No. 25 and its related interpretations, the Company recognized compensation expense related to restricted stock in net earnings in the year of grant, but did not recognize any associated compensation expense related to stock options. If compensation expense associated with these plans was determined in accordance with SFAS No. 123, the Company’s net earnings and earnings per share for the three-month and nine-month periods ended November 30, 2004, respectively, would have been as follows:

	Three Months			Nine Months
	Ended			Ended
	November 30, 2004			November 30, 2004

Net earnings, as reported	$	49,173		$	136,065

Add back compensation related to Incentive
Stock Plans included in net earnings		4,131			13,959
Deduct effect of stock option based
employee compensation:
Employee Stock Purchase Plan		(736	)		(8,776	)
Incentive Stock Plan		(5,384	)		(17,717	)
Pro forma net earnings	$	47,184		$	123,531
Earnings per share, as reported:
Diluted	$	0.63		$	1.72
Basic	$	0.64		$	1.74
Pro forma earnings per share:
Diluted	$	0.60		$	1.55
Basic	$	0.61		$	1.58

Pro forma net earnings	$	47,184		$	123,531
Add back reduction in incentive
compensation funding formulas		734			3,436
Pro forma net earnings after reduction for
incentive compensation plans	$	47,918		$	126,967
Diluted	$	0.61		$	1.60
Basic	$	0.62		$	1.62

The Black-Scholes option pricing model was used to calculate the estimated fair value of the options.

A.G. EDWARDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED NOVEMBER 30, 2005 AND 2004

(In thousands, except share and per share amounts)

(Unaudited)

5. COMMITMENTS AND CONTINGENT LIABILITIES

The Company is engaged in a major business process and technology transformation program, the Gateway Initiative, which, when fully developed and implemented, is designed to update the Company’s technology infrastructure, streamline its back-office processing and strengthen its data management capabilities. The Company has currently designated up to $193,100, including internal development costs, to fund this program. Total costs through November 30, 2005, were $176,800, of which $48,700 was capitalized. In May 2005, the Company completed the most significant aspect of the project, which was the conversion of securities-processing functions to an application service provider. Since the conversion, an application service provider has provided the software and computer operations that support substantially all of the Company’s securities processing functions. Under the terms of the Hosting and Services Agreement with th e application service provider, which became effective in May 2005, minimum payments are $10,000 a year with an expected range of payments of between $18,000 and $22,000 a year.

While the Company’s migration of its back-office systems to an application service provider is intended to better align securities-processing expenses with client transaction activity, the Company intends to maintain certain of its existing back-office systems for a transitional period that began in May 2005 and has approximately 12 to 18 months remaining. The full benefit of the Gateway Initiative will not be realized until after this transition is completed.

The Company is a defendant in a number of lawsuits, in some of which plaintiffs claim substantial amounts, relating primarily to its securities and commodities business. Management has determined that it is likely that ultimate resolution in favor of the plaintiffs will result in losses to the Company on certain of these claims and as a result, established accruals for potential litigation losses. The Company also is involved in investigations and proceedings by governmental and self-regulatory agencies, certain of which may result in adverse judgments, fines or penalties. Factors considered by management in estimating the Company’s reserves for these matters are the loss and damages sought by the plaintiffs, the merits of the claims, the total cost of defending the litigation, the likelihood of a successful defense against the claims, and the potential for fines and penalties from regulatory agencies. Management, based on its understanding of the facts, reasonably estimates a range of loss and accrues what it considers appropriate to reserve against probable loss for certain claims and regulatory matters. While results of litigation and investigations and proceedings by governmental and self-regulatory agencies or the resulting judgments, fines or penalties cannot be predicted with certainty, management, after consultation with counsel, believes that resolution of all such matters will not have a material adverse effect on the condensed consolidated financial condition of the Company but could be material to its operating results in one or more future periods.

6. INCOME TAXES

The effective tax rates for the three-month and nine-month periods ended November 30, 2005, were 32.2 percent and 34.8 percent, respectively. The effective tax rates for the same periods ended November 30, 2004, were 36.8 percent and 36.5 percent, respectively. During the three-month and nine-month periods ended November 30, 2005, the Company recognized tax benefits of $3,463, and $4,688, respectively, from the resolution of certain tax matters.

During the three months ended November 30, 2005, the Company adopted a plan to repatriate foreign earnings of $3,500 attributable to a foreign subsidiary. The Company has accrued for income taxes on the repatriated earnings. All remaining and future earnings in the foreign subsidiary will be indefinitely invested.

A.G. EDWARDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED NOVEMBER 30, 2005 AND 2004

(In thousands, except share and per share amounts)

(Unaudited)

7. NET CAPITAL REQUIREMENTS

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 self-regulatory organizations for substantial withdrawals of capital or loans to affiliates. At November 30, 2005, Edwards’ net capital of $647,079 was $604,581 in excess of the minimum requirement.

8. FINANCIAL INSTRUMENTS

Edwards receives collateral in connection with resale agreements, securities-borrowed transactions, customer-margin loans and other loans. Under many agreements, Edwards is permitted to repledge these securities held as collateral and use these securities to enter into securities-lending arrangements or deliver them to counterparties to cover short positions. At November 30, 2005, the fair value of securities received as collateral where Edwards is permitted to repledge the securities was $2,808,246 and the fair value of the collateral that had been repledged was $391,033.

9. SALE OF SUBSIDIARY

In March 2004, the Company sold CPI Qualified Plan Consultants, Inc. (“CPI”), a third-party administrator of employee benefit plans and a wholly owned subsidiary, to a group of investors headed by CPI’s management. The transaction price was $17,000 with $10,830 received immediately. As of November 30, 2005, $4,546 was receivable, with payments scheduled to be received through March 2009.

10. STOCKHOLDER RIGHTS PLAN

On June 23, 2005, the Board of Directors of the Company determined not to renew the Stockholder Rights Plan, which expired by its terms on June 25, 2005. The Board of Directors, however, reserved the right to adopt a stockholder rights plan without prior stockholder approval if the Board of Directors, including a majority of the independent directors, determines in light of the circumstances then existing that it is in the best interests of the Company and its stockholders. If a stockholder rights plan is adopted by the Board of Directors without prior stockholder approval, the Company has established a policy that such plan will expire within 12 months of its effective date unless ratified by the Company’s stockholders.

11. RECENT ACCOUNTING PRONOUNCEMENTS

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations – an interpretation of FASB Statement No. 143” (“FIN No. 47”). FIN No. 47 clarifies that SFAS No. 143, “Accounting for Asset Retirement Obligations,” requires that an entity recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company does not expect the adoption of FIN No. 47 to have a material impact on the Company’s condensed consolidated financial statements.

In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3,” (“SFAS No. 154”). SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 to have a material impact on the Company’s condensed consolidated financial statements.

A.G. EDWARDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED NOVEMBER 30, 2005 AND 2004

(In thousands, except share and per share amounts)

(Unaudited)

In June 2005, the FASB ratified the consensus reached by the Emerging Issues Task Force on Issue 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, (“EITF 04-5”). EITF 04-5 presumes that a general partner controls a limited partnership, and should therefore consolidate a limited partnership, unless the limited partners have the substantive ability to remove the general partner without cause based on a simple majority vote or can otherwise dissolve the limited partnership, or unless the limited partners have substantive participating rights over decision making. The guidance in EITF 04-5 became effective after June 29, 2005 for all new limited partnership agreements and any limited partnership agreements that are modified. During the period from June 29, 2005 to November 30, 2005, the Company did not enter into any new limited partnership agreements and no existing limited partnership agreements were modified. The guidance is effective for existing partnership agreements for financial reporting periods beginning after December 15, 2005 and may be reported as either a cumulative effect of a change in accounting principle or via retroactive restatement. The Company is currently assessing the adoption of EITF 04-5 for existing partnerships to determine what impact, if any, it will have on the Company’s condensed consolidated financial statements.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Year references are to fiscal years ended February 28(29) unless otherwise specified)

Introduction

A.G. Edwards, Inc. is a St. Louis-based financial services holding company whose primary subsidiary is the national brokerage firm of A.G. Edwards & Sons, Inc. (“Edwards”). A.G. Edwards, Inc. and its operating subsidiaries (collectively, the “Company”), provide securities and commodities brokerage, investment banking, trust, asset management, retirement and financial planning, insurance products, and other related financial services to individual, corporate, governmental, municipal and institutional clients through one of the industry’s largest retail branch distribution systems with locations in all 50 states, the District of Columbia, London, England and Geneva, Switzerland.

At November 30, 2005, the Company had 734 locations, up 13 from the end of fiscal 2005. The number of the Company’s financial consultants at November 30, 2005 was 6,844, down 46 from the end of fiscal 2005. The total number of full-time employees at November 30, 2005 was 15,472, up 82 from the end of fiscal 2005.

Executive Summary

Many factors affect the Company’s net revenues and profitability, including economic and market conditions, the level and volatility of interest rates, inflation, political events, investor sentiment, legislative and regulatory developments, and competition. Because many of these factors are unpredictable and beyond the Company’s control, earnings may fluctuate significantly from period to period.

Retail investors have managed to look past rising interest rates, volatile energy prices, geopolitical uncertainties, and effects of hurricanes to maintain a gradual increase in their investment activity throughout the first nine months of fiscal 2006. General trends among retail investors at Edwards continue to show a growing attraction to asset-management programs and services. For the first nine months of fiscal 2006, the Dow Jones Industrial Average increased 40 points (0.4 percent) to close the quarter at 10,806, the Standard & Poor’s 500 Index increased 45 points (4 percent) to close the quarter at 1,249, and the Nasdaq Composite Index increased 181 points (9 percent) to close the quarter at 2,233.

The Company generates revenues primarily through Edwards. These revenues can be categorized into four main components: transaction-based revenues, asset-management services, investment-banking transactions and interest revenue.

Transaction-based revenues are driven from the purchase or sale of securities by clients for their accounts. The Company earns commissions for acting as an agent for the client in the equity and fixed-income markets, as a dealer when the client purchases either fixed-income or equity securities from inventory, or from selling concessions when the client purchases newly issued securities in investment-banking transactions. The Company maintains inventories of fixed-income and equity securities to effect sales to clients; realized and unrealized gains and losses resulting from the sale and holding of securities positions for resale to clients are included in principal-transaction revenues. Additionally, the Company earns commissions from client transactions in mutual funds and insurance products. These revenues can be affected by trading volumes, by the dollar value of individual transactions, by market and economic conditions, and by investor sentiment because the Company’s clients are primarily retail-oriented.

Revenues from asset-management services are based principally on the amount of certain client assets purchased or held through the Company. These assets may be managed by the Company or by third-party investment managers, including mutual funds, managed futures funds, money market funds, annuities and insurance company. The Company manages certain client assets through the A.G. Edwards Trust Company FSB, a wholly owned subsidiary. In addition, the Company offers a non-discretionary advisory program known as Portfolio Advisor and a discretionary advisory program known as FC Advisor. The Company also offers fee-based fund advisory programs that allow clients to select from recommended, established asset allocation models or customize their own models in certain programs. The fund advisory programs are known individually as AGE Allocation Advisors, AGE Pathways and AGE Professional Fund Advisor. Additionally, effective October 1, 2005, the Company incorporated a new subsidiary known as Gallatin Asset Management, Inc. (“Gallatin”), which combines what had been Edwards’ asset-management services and Edwards’ asset-manager research and performance-evaluation functions. Gallatin provides separately managed accounts and other services to Edwards and markets its investment-management services to unaffiliated mutual-fund firms, pension-fund

providers, insurance companies and other financial institutions, including banks and brokerage firms. Gallatin receives management fees for its services. The Company, in addition to its advisory programs, offers a fee-based brokerage account known as Client Choice.

Client assets in fee-based accounts increased $5 billion (18 percent) from the end of the third quarter of 2005. An analysis of changes in assets in fee-based accounts from November 30, 2004 to November 30, 2005 is detailed below (dollars in thousands):

Assets in fee-based	November 30,		November 30,
accounts	2005		2004		Increase

Fund advisory programs	$	12,645,000	$	8,888,000	42	%
Separately managed accounts		11,856,000		11,164,000	6	%
Company-managed and other fee-based accounts		9,881,000		9,183,000	8	%
Total assets in fee-based accounts	$	34,382,000	$	29,235,000	18	%

Investment-banking revenue results primarily from bringing new issues of securities, both equity-based and fixed income-based, to the market for issuers. The issuers are generally corporate or municipal clients but may be institutional clients of Edwards in the case of exchange-traded funds and related products. Investment-banking revenue varies depending on the number and size of transactions successfully completed and generally is received in the form of underwriting fees or selling concessions. Additionally, the Company receives fees for financial advisory services, including advice on mergers and acquisitions, restructurings, and other strategic advisory needs.

Interest revenue is derived primarily from financing clients’ margin transactions. These revenues are based on the amount of client margin balances and the rate of interest charged on these balances.

The Company’s expenses are primarily related to compensation and benefits. The largest components are variable in nature and relate to commissions paid to the Company’s financial consultants for transaction-based or asset-management services and to incentive compensation, which is largely based on the profitability of the Company. The Company is focusing on making a larger portion of its non-compensation expenses more variable in nature, particularly those expenses related to its back-office systems. A significant step toward this objective was taken with the mid-May 2005 migration of the Company’s core securities-processing operations to an application service provider.

During the first nine months of 2006, the Company experienced an increase in net revenues, net earnings and diluted earnings per share versus the same period last year. Net revenues increased $81 million (4 percent), while net earnings increased $23 million (17 percent). Diluted earnings per share for the first nine months were $2.06 versus $1.72 for the year-ago period. The Company’s pre-tax profit margin for the nine-month period ended November 30, 2005 was 12.2 percent, up from 11.2 percent for the same period last year.

The Company’s year-to-date results benefited from continued, increasing client interest in fee-based products and services, which resulted in revenues from asset management and service fees increasing $105 million (16 percent), reaching a new nine-month record for the Company. The growth in net revenues during the period also can be attributed to net interest revenues, which increased $34 million (39 percent), and investment-banking revenues, which increased $8 million (5 percent). On the expense side, the Company had a $12 million (6 percent) decline in communication and technology expenses as it lowered technology-consulting costs due to the completion of various projects under its Gateway Initiative.

The 2006 year-to-date results included a $7 million (33 percent) increase, or $0.04 per diluted share, in reserves and settlements for various legal and regulatory matters. The 2006 year-to-date results additionally reflected $5 million in tax benefits, or $0.06 per diluted share, resulting from the resolution of certain tax matters, including a $3.5 million tax benefit, or $0.05 per diluted share, in the third quarter from the resolution of tax matters related to technology research and development tax credits.

Effective March 1, 2005, the Company early adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”). As a result of this adoption, the Company was required to recognize in the first quarter of 2006 a one-time, $3 million, or $0.04 per diluted share, after-tax benefit ($0.03 per diluted share net of incentive compensation and income taxes), related to estimated future forfeitures of previously issued restricted-stock awards that were unvested as of March 1, 2005.

The following table illustrates the composition of the Company’s net revenues for the nine-month period ended November 30, 2005, and November 30, 2004:

	2005	2004
Commissions	37%	39%
Asset management and service fees	39%	35%
Principal transactions	8%	10%
Investment banking	9%	9%
Net interest	6%	5%
Other	1%	2%

In addition to continued competition from firms traditionally engaged in the investment services business, there has been increased competition in recent years from other sources, such as commercial banks, insurance companies, online service providers, mutual fund sponsors and other companies offering financial services both in the United States and globally for a similar client base, including the client base served by the Company.

Results of Operations – For the Nine Months Ended November 30, 2005 vs. November 30, 2004

Commissions

As client interest continues to grow in fee-based products and services, the combination of reduced client interest in individual equities and individual mutual funds caused the Company’s commission revenues to decrease by $13 million (2 percent). Commissions in over-the-counter transactions decreased $10 million (15 percent), commissions from individual mutual fund purchases decreased $12 million (7 percent), and commissions from commodities and financial futures declined $2 million (8 percent), mainly as a result of decreased client interest. Partially offsetting these decreases were an $8 million (3 percent) increase in commissions from listed transactions and a $2 million (1 percent) increase in commissions from annuity transactions.

Asset Management and Service Fees

Asset-management and service-fee revenues increased $105 million (16 percent). Fees received in connection with client assets under third-party management and the Company’s trust services and fee-based transaction accounts increased $44 million (19 percent), primarily as a result of an increase in the number of accounts choosing fee-based alternatives and the increased valuation of these accounts. Fees received from third-party mutual funds, managed futures and insurance providers increased $61 million (23 percent) primarily reflecting increased asset values.

Principal Transactions

Revenues from principal transactions decreased $42 million (22 percent), reflecting a lower volume of fixed-income transactions, with more transactions in shorter-term securities given the current interest-rate environment. Revenue from the sale of municipal, government and corporate fixed-income securities decreased $43 million (31 percent). As a partial offset to the overall decline in principal-transaction revenues, sales of corporate-equity securities increased $1 million (2 percent) reflecting slightly increased activity in certain over-the-counter equity securities.

Investment Banking

Revenues from investment-banking activities increased $8 million (5 percent). Underwriting fees and selling concessions from corporate-equity transactions increased $9 million (10 percent), as the Company increased its underwriting of equity products from a number of different sectors. Additionally, underwriting fees and selling concessions from municipal debt products increased $5 million (39 percent) resulting from increased volume by municipal clients issuing new debt or refinancing existing debt. Management fees increased $3 million (5 percent) primarily as a result of increased volume in corporate and municipal transactions. Underwriting fees and selling concessions from corporate

and government debt products declined $8 million (28 percent) resulting from fewer offerings of these debt products.

Net Interest Revenue

Interest revenue net of interest expense increased $34 million (39 percent). Multiple increases in the prime rate prompted higher interest rates charged on client margin balances, resulting in a $24 million (31 percent) increase in revenue from these balances, partially offset by lower average client margin balances. In addition, the Company experienced a $9 million (80 percent) increase in revenue from interest earned on securities inventory held for sale to clients due primarily to an increase in rates.

Other Revenue

Other revenue declined $12 million (43 percent) partly because last year’s first quarter included a $6 million September 11, 2001 business-interruption settlement. Additionally, last year’s first nine months included $10 million in gains on the sale of shares in the Chicago Mercantile Exchange and the mark-to-market on other shares in this exchange the Company held at that time. These results were partially offset by a $3 million increase in revenue from private-equity investment valuations.

Compensation and Benefits

Compensation and benefits increased $45 million (4 percent). The Company’s increased profitability largely prompted a $35 million (18 percent) increase in incentive compensation. Commission expense increased $10 million (2 percent) as a result of higher commissionable revenue. Administrative salaries and related benefits increased $23 million (5 percent) primarily due to an increase in general salary and medical costs.

Additionally, the adoption of No. SFAS 123R resulted in no expense for stock awards being recognized in the first nine months of fiscal 2006. Fiscal 2006 stock awards to be granted after year’s end will be expensed over their vesting period, generally three years, beginning in fiscal 2007. The operating results for the first nine months of fiscal 2005 included restricted stock-award expense of $22 million.

Communication and Technology

Communication and technology expenses decreased $12 million (6 percent). The decrease resulted in part from an $18 million (57 percent) decline in professional expenses for outside consultants working on the Company’s Gateway Initiative. These decreases were partially offset by a $7 million increase in securities-processing expenses associated with the conversion of the Company’s securities-processing operations to an application service provider.

Marketing and Business Development

Marketing and business development increased $3 million (5 percent) primarily as a result of a $3 million (11 percent) increase in advertising expenses associated with the Company’s branding initiative and other business promotion expenses. While the amount has not been determined with certainty, the Company expects its branding initiative to cost approximately $20 million annually, with fluctuations from period to period.

All Other Expenses

All remaining expenses increased $20 million (9 percent) mainly due to a $7 million (33 percent) increase in reserves and settlements for legal and regulatory matters, along with a $9 million (27 percent) increase in professional services expenses for additional resources needed to address various regulatory changes, investigations and legal matters. Occupancy expenses increased $2 million (2 percent) during the period due to an increase in branch office locations.

Income Taxes

The Company’s effective tax rate was 34.8 percent for the first nine months of 2006 compared with 36.5 percent for the same period last year due in part to the recognition of $5 million in tax benefits from the resolution of certain tax matters during 2006, including a $3.5 million tax benefit in the third quarter from the resolution of a tax matter related to technology research and development tax credits.

Results of Operations – For the Three Months Ended November 30, 2005 vs. November 30, 2004

Net earnings for the quarter ended November 30, 2005, were $54 million on net revenues of $674 million compared to net earnings of $49 million on net revenues of $638 million for the same period a year ago. The explanation for revenue and expense fluctuations for the nine-month period are generally applicable to the three-month period, except as noted below.

Commissions

Commission revenues increased $2 million (1 percent) primarily resulting from a $6 million (16 percent) increase in revenues from annuity transactions and a $2 million (52 percent) increase in revenues from managed futures transactions, partially offset by a $6 million (9 percent) decline in revenues from transactions in individual mutual funds.

Investment Banking

Investment banking revenues for the third quarter were essentially flat compared to the same quarter last year, as a $2 million (12 percent) increase in revenues from management fees and municipal underwritings was offset by a $2 million (26 percent) decline in revenues from corporate and government debt issues.

Other Expenses

Other expenses increased $15 million (43 percent) mainly resulting from an $11 million (222 percent) increase in reserves and settlements for various legal and regulatory matters and a $1 million (12 percent) increase in professional services expenses for additional resources needed to address various regulatory changes, investigations and legal matters.

Future Impact of Pending NYSE-Archipelago Merger

On December 6, 2005, the New York Stock Exchange (“NYSE”) and Archipelago Holdings, Inc. (“Archipelago”) approved and adopted a merger agreement providing for the combination of the NYSE and Archipelago under a new holding company, NYSE Group, Inc. (“NYSE Group”). In the merger, NYSE members will be entitled, and the Company has elected, to receive $300,000 and 80,177 shares of NYSE Group common stock for each NYSE membership seat. The shares are subject to certain restrictions that expire ratably over a three-year period, unless the NYSE Group board of directors removes or reduces the transfer restrictions earlier. In addition, Edwards will have to purchase trading licenses through a modified Dutch auction process every year in order to receive the right to trade securities on the floor of the exchange. On January 4, 2006, Edwards purchased four NYSE trading licenses at a price of $49,290 each.

Currently, Edwards has four NYSE membership seats included in other assets on the condensed consolidated balance sheet at a total cost of $809,075. Assuming the merger closes in January 2006, as expected, and given Archipelago’s share price of $50 as of December 30, 2005, the Company would receive consideration of approximately $17 million. The entire amount of the gain on the excess between the cost of the membership seats and the consideration received will not be recorded in the fourth quarter of 2006. The amount of the gain recognized in the fourth quarter will be the consideration received discounted for any restrictions on the shares received. Gains or losses will be recorded in future periods as transfer restrictions expire and the share price of NYSE Group stock fluctuates.

Litigation and Regulatory Matters

condensed consolidated financial condition of the Company but could be material to its operating results in one or more future periods.

Investment Advisers Act

The Securities and Exchange Commission (“SEC”) adopted rules effective April 15, 2005, with compliance dates between April 15, 2005, and January 31, 2006, concerning when broker-dealers providing advice will and will not be exempted from the Investment Advisers Act of 1940 (the “Advisers Act”). The rules require additional disclosures for certain brokerage accounts at Edwards and may make certain accounts and services subject to the Advisers Act that were not previously subject to the act or require changes in such accounts and services. Accounts and services subject to the Advisers Act are subject, among other things, to additional disclosures, a fiduciary standard of care and restrictions on certain transactions.

Liquidity and Capital Resources

The Company’s assets fluctuate in the normal course of business, primarily due to the timing of certain transactions. The Company monitors and evaluates the composition and size of its balance sheet. A substantial portion of the Company’s total assets consist of short-term receivables mainly resulting from margin loans to clients, along with highly liquid marketable securities. The principal sources for financing the Company’s business are stockholders’ equity, cash generated from operations, short-term bank loans and securities-lending arrangements. The Company has no long-term debt. Average short-term bank loans of $37 million and $42 million and average securities-lending arrangements of $141 million and $209 million for the nine-months ended November 30, 2005 and 2004, respectively, were primarily used to finance customer margin transactions.

The Company is engaged in a major business process and technology transformation program, the Gateway Initiative, which, when fully developed and implemented, is designed to update the Company’s technology infrastructure, streamline its back-office processing and strengthen its data management capabilities. The Company has currently designated up to $193 million, including internal development costs, to fund this program. Total costs through November 30, 2005, were $177 million, of which $49 million was capitalized. In May 2005, the Company completed the most significant aspect of the project, which was the conversion of securities-processing functions to an application service provider. Since the conversion, an application service provider has provided the software and computer operations that support substantially all of the Company’s securities processing functions. Under the terms of the Hosting and Services Agreement with the application service provider, which became effective in May 2005, minimum payments are $10 million a year with an expected range of payments of between $18 million and $22 million a year.

While the Company’s migration of its back-office systems is intended to better align securities-processing expenses with client transaction activity, the Company intends to maintain certain of its existing back-office systems for a transitional period that began in May 2005 and has approximately 12 to 18 months remaining. The full benefit of the Gateway Initiative will not be realized until this transition is completed.

In November 2004, the Company’s Board of Directors authorized the repurchase of up to 10 million shares of the Company’s outstanding stock during the period November 19, 2004, through December 31, 2006. In November 2002, the Company’s Board of Directors authorized the repurchase of up to 10 million shares of the Company’s outstanding common stock during the period of January 1, 2003, through December 31, 2004. The Company purchased 1,947,826 shares at an aggregate cost of $84 million during the nine-month period ended November 30, 2005 and purchased 6,568,029 shares at an aggregate cost of $231 million during the nine-month period ended November 30, 2004 under these authorizations. At November 30, 2005, the Company had up to 7,715,029 shares available for repurchase under the November 2004 stock repurchase authorization.

In May 2005, the Company’s Board of Directors authorized the repurchase of up to 5,000,000 shares of the Company’s outstanding stock solely to effect employee stock transactions in the Company’s Retirement and Profit Sharing Plan during the period May 24, 2005, through May 31, 2008. The Company purchased 102,476 shares at an aggregate cost of $5 million during the nine-month period ended November 30, 2005. At November 30, 2005, the Company had up to 4,897,524 shares available for repurchase under this authorization.

The Company had committed $117 million to various private equity partnerships, of which $39 million remained unfunded at November 30, 2005. These commitments are subject to calls by the partnerships as funds are needed.

There were no material changes to the Company’s long-term commitments or obligations table as reported in the Annual Report on Form 10-K for the fiscal year ended February 28, 2005.

Management believes the Company has adequate sources of credit available, if needed, to finance customer-trading volumes, expansion of its branch system, stock repurchases, dividend payments and major capital expenditures. Currently the Company, with certain limitations, has access to $1.1 billion in uncommitted lines of credit as well as the ability to increase its securities lending activities.

Edwards is required by the SEC to maintain specified amounts of liquid net capital to meet its obligations to clients. At November 30, 2005, Edwards’ net capital of $647 million was $605 million in excess of the minimum requirement.

Critical Accounting Estimates

For a description of critical accounting estimates, including those involving a higher degree of complexity and judgment, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended February 28, 2005. In addition, see Note 1 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended February 28, 2005, for a comprehensive summary of significant accounting policies.

In addition to those estimates referred to above, the Company’s employee compensation and benefits expense for interim periods is impacted by estimates and assumptions. A substantial portion of the Company’s employee compensation and benefits expense represents incentive compensation that is generally determined on the basis of the fiscal year results and paid at year’s end. The Company’s incentive compensation accruals are primarily formulaic, generally based upon the pre-tax profitability of the Company. However, management has discretion to alter incentive compensation accruals in certain instances. At interim periods, management accrues incentive compensation based on the results of the formulas, and may revise these accruals for any anticipated discretionary changes.

Recent Accounting Pronouncements

See Note 11 of this filing for discussion of recent accounting pronouncements.

Forward-Looking Statements

The Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Form 10-Q contain 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 materially from those contemplated. The risks and uncertainties include, but are not limited to, general economic conditions, government monetary and fiscal policy, the actions of competitors, changes in and effects of marketing strategies, client interest in specific products and services, regulatory changes and actions, changes in legislation, risk management, legal claims, technology changes, compensation changes, the impact of outsourcing agreements, the ultimate impact of the adoption of SFAS No. 123R, the impact of the pending merger between the NYSE and Archipelago, implementation and effects of expense-reduction strategies, and efforts to make more of non-compensation expenses variable in nature. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date of this Form 10-Q. The Company does not undertake any obligation to publicly update any forward-looking statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the third quarter and first nine months of fiscal 2006, there were no material changes to the Company’s legal, credit or market risk. The Company’s operational risk profile did materially change in the first quarter as a result of the conversion of the software and computer operations that support the Company’s securities-processing functions to an application service provider. In order to mitigate risks associated with the conversion, the Company established new policies and procedures specific to the new technology environment.

Item 4. CONTROLS AND PROCEDURES

Management has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based on the evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Management has designed and implemented disclosure controls and procedures to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. The Company’s management, including the CEO and CFO, does not expect that these disclosure controls and procedures will prevent or detect all errors or fraud. Disclosure controls and procedures, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the control system’s objectives will be met. See Item 9A, as reported in the Annual Report on Form 10-K for the fiscal year ended February 28, 2005, for a more detailed discussion regarding disclosure controls and procedures.

No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) occurred during the fiscal quarter ended November 30, 2005 that materially affected, or is reasonable likely to materially affect, the Company’s internal control over financial reporting. However, during the first fiscal quarter ended May 31, 2005, the Company migrated to an application service provider. The application service provider is supplying the software and computer operations that support the Company’s securities processing functions. Securities processing is a significant business process affecting a number of the Company’s significant financial statement accounts. In addition, the services provided are a part of the Company’s information systems. As such, they are part of the information and communication component of the Company’s internal control over financial reporting. For these reasons, the CEO and CFO concluded the migration to the application service provider materially affected the Company’s internal control over financial reporting. The CEO and CFO have also determined that subsequent to the migration, the Company’s internal control over financial reporting, as modified, continues to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

PART II – OTHER INFORMATION

Item 1: Legal Proceedings

The following information supplements the discussion in Part I, Item 3, “Legal Proceedings,” of the Company’s Annual Report on Form 10-K for the year ended February 28, 2005.

The staff of the SEC has informed Edwards that it intends to recommend that a civil injunctive action be brought against Edwards with respect to mutual fund transactions occurring prior to October 2003 and alleged to involve market timing. Edwards has made a Wells submission stating why Edwards believes such action should not be brought.

The NYSE has informed Edwards that it is considering bringing a formal disciplinary action against Edwards in connection with the supervision of Edwards’ Client Choice accounts, including the supervision of accounts with limited trading activity and accounts with concentrations of mutual funds. Client Choice accounts are brokerage accounts for which a fee, rather than commissions, is charged. Edwards has submitted a Wells-type submission to the NYSE stating why Edwards believes such an action should not be brought.

The Attorney General of South Carolina, Securities Division, has filed an administrative proceeding against Edwards and two former employees in connection with actions taken from 1995 until 2002 involving securities transactions with residents of South Carolina by financial consultants in Edwards’ Augusta, Georgia branch. In March 2004, Edwards agreed under a consent order with the Georgia Secretary of State’s Securities and Business Regulation Division to make certain payments to the State of Georgia and to customers related to transactions in the Augusta, Georgia branch. The NYSE has informed Edwards that it is considering a formal disciplinary action related to the transactions in the Augusta, Georgia branch apparently including transactions that were the subject of the consent order with the Georgia Secretary of State and that are the subject of the proceeding by the Attorney General of South Carolina. Edwards has made payments in excess of $36.3 million to customers and to the State of Georgia related to these matters. Edwards believes the actions involved in these matters were isolated to one branch and a limited number of financial consultants formerly with Edwards and had no connection with any other Edwards office.

A former employee has filed an action against the Company seeking class certification alleging, among other matters, violations of the Employee Retirement Income Security Act (“ERISA”) by allegedly failing to minimize fees paid in connection with investments in the Company’s Retirement and Profit Sharing Plan and by the selection of mutual funds for investments in the plan.

Edwards is a defendant in a complaint filed in the United States District Court for the Southern District of California that seeks to be a class action on behalf of all financial consultants and trainees who worked for Edwards in California after June 30, 2000. The action, among other relief, seeks overtime pay for financial consultants, including trainees, on the basis that the financial consultants should be classified as non-exempt employees under California law, restitution of amounts that were deducted from commissions owed to financial consultants to repay advances made in prior months, payment for meal rest breaks to which financial consultants are claimed to be entitled, and reimbursement for certain alleged business-related expenses paid by financial consultants. Several other financial services firms have been sued in California in similar actions.

The NASD has filed a disciplinary proceeding against Edwards concerning the sale of certain mutual funds to IRA accounts in 2001 and 2002 for which certain mutual fund companies made additional payments to Edwards for sales. The NASD asks for unspecified sanctions and disgorgements or restitutions of unspecified amounts.

The Company is not able to determine or predict with certainty the impact of the matters described above, individually or in the aggregate, in terms of eventual fines, other payments or losses, or changes in operations, product offerings or expenses because of the preliminary stages of certain of such matters, the uncertainty of outcomes and the evolving basis of such regulatory actions. The Company believes, based on current knowledge and after consulting with counsel, that the impact of the resolution of such matters will not have a material adverse effect on the condensed consolidated financial condition of the Company, but could be material to its operating results in one or more periods.

Item 2: Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities

The table below sets forth the information with respect to purchases made by the Company of the Company’s common stock during the three months ended November 30, 2005:

Period	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares that May Yet be Purchased Under the Plans
September
(9/1/05 - 9/30/05)	178,548	$45.22	178,548	13,439,287
October
(10/1/05 - 10/31/05)	328,677	$41.31	328,677	13,110,610
November
(11/1/05 - 11/30/05)	498,057	$43.92	498,057	12,612,553

Total	1,005,282	$43.30	1,005,282

In November 2004, the Board of Directors authorized the repurchase of up to 10,000,000 shares of the Company’s outstanding common stock during the period November 19, 2004 through December 31, 2006. In May 2005, the Board of Directors authorized the repurchase of up to 5,000,000 shares of the Company’s outstanding common stock solely to effect employee stock transactions in the Company’s Retirement and Profit Sharing Plan during the period May 24, 2005 through May 31, 2008. There were 7,715,029 shares and 4,897,524 shares available to repurchase under the November 2004 and May 2005 plans, respectively.

On June 23, 2005, the Board of Directors determined not to renew the Stockholder Rights Plan, which expired by its terms on June 25, 2005. If a stockholder rights plan is adopted by the Board of Directors without prior stockholder approval, the Company has established a policy that such plan will expire within 12 months of its effective date unless ratified by the Company’s stockholders.

Item 6: Exhibits

Exhibits

10.1

A.G. Edwards, Inc. 2002 Excess Profit Sharing Deferred Compensation Plan (as amended).

31(i)

Principal Executive Officer Certification as required by Rule 13a-14(a)/15d-14(a).

31(ii)

Principal Financial Officer Certification as required by Rule 13a-14(a)/15d-14(a).

32(i)

Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.

32(ii)

Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.

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:	January 9, 2006	/s/ Robert L. Bagby
		Robert L. Bagby
		Chairman of the Board and
		Chief Executive Officer


Date:	January 9, 2006	/s/ Douglas L. Kelly
		Douglas L. Kelly
		Treasurer and Chief Financial Officer

EX-31.1 2 exhibit31i.htm

CERTIFICATIONS

EXHIBIT 31(i)

I, Robert L. Bagby, certify that:

I have reviewed this quarterly report on Form 10-Q of A.G. Edwards, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 9, 2006

			/s/ Robert L. Bagby
			Robert L. Bagby
			Chairman of the Board and
			Chief Executive Officer

EX-31.2 3 exhibit31ii.htm

CERTIFICATIONS

EXHIBIT 31(ii)

I, Douglas L. Kelly, certify that:

I have reviewed this quarterly report on Form 10-Q of A.G. Edwards, Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 9, 2006

			/s/ Douglas L. Kelly
			Douglas L. Kelly
			Chief Financial Officer

EX-32.1 4 exhibit32i.htm

EXHIBIT 32(i)

CERTIFICATION PURSUANT

TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*

In connection with the Quarterly Report of A.G. Edwards, Inc. (the “Registrant”) on Form 10-Q for the period ended November 30, 2005, as filed with the Securities and Exchange Commission on January 9, 2006, hereof (the “Report”), I, Robert L. Bagby, Chairman of the Board and Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

		A.G. EDWARDS, INC.

Date: January 9, 2006		By: /s/ Robert L. Bagby
		Robert L. Bagby
		Chairman of the Board and
		Chief Executive Officer

*A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 5 exhibit32ii.htm

EXHIBIT 32(ii)

CERTIFICATION PURSUANT

TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*

In connection with the Quarterly Report of A.G. Edwards, Inc. (the “Registrant”) on Form 10-Q for the period ended November 30, 2005, as filed with the Securities and Exchange Commission on January 9, 2006, hereof (the “Report”), I, Douglas L. Kelly, Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

		A.G. EDWARDS, INC.

Date: January 9, 2006		By: /s/ Douglas L. Kelly
		Douglas L. Kelly
		Chief Financial Officer

EX-10.1 6 exhibit101.htm

A.G. EDWARDS, INC.

		EXCESS PROFIT SHARING
	DEFERRED COMPENSATION PLAN

2002 RESTATEMENT

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

		TABLE OF CONTENTS
1.	Purpose			1
2.	Eligibility			1
3.	Basic Benefit			2
4.	Plan Year Accounts			3
5.	Pre-1987 Creditation of Interest			3
6.	Plan Year Account Return Options – Post 1986			4
7.	Fees Charged to Plan Year Accounts			5
8.	Vesting Provisions for A Accounts			5
9.	Vesting Provisions for B Accounts			7
10.	Vesting Provisions For All Plan Year Accounts			8
11.	Payment of A Accounts			9
12.	Payment of B Accounts		12
13.	Payment Upon Change in Control		13
14.	Payment Upon Death		13
15.	Severance Plan Override		14
16.	Amendment or Discontinuance		14
17.	Plan Administrator		14
18.	Unfunded		14
19.	Definitions and Rules of Construction		14
20.	Official Actions		15
21.	Tax Withholding		15

- i -

		A.G. EDWARDS, INC.
	EXCESS PROFIT SHARING
DEFERRED COMPENSATION PLAN

As Amended and Restated effective January 1, 2002

The A.G. Edwards, Inc. Excess Profit Sharing Deferred Compensation Plan (the “Plan”) was originally effective beginning with the 1983 calendar year. The Plan was amended and restated as of January 1, 1987, January 1, 1994, January 1, 1995, August 20, 1999, and February 22, 2001. As of February 28, 2001, all existing post 1986 Plan Year Accounts were designated Plan Year A Accounts. Beginning with the 2001 Plan Year, awards are allocated evenly between an A Account and a B Account. Amounts allocated to B Accounts are subject to different vesting and payment provisions, as set forth in this restated instrument.

A.G. Edwards, Inc. now wishes to amend the Plan to accelerate vesting and payment of benefits for certain retirees and to add certain severance payment provisions.

NOW, THEREFORE, the Plan is hereby amended and restated by the following instrument, which shall be entitled the 2002 Restatement.

The amendments made by this 2002 Restatement generally are effective as of January 1, 2002, except as otherwise explicitly provided in the Plan.

The rights and benefits of a participant shall be governed by this Plan as amended from time to time and as in effect at the relevant time. Except as otherwise explicitly provided in the Plan, the rights and benefits of each participant shall be determined pursuant to the provisions of the Plan as in effect on the date of the applicable event.

1. Purpose. The purpose of the Plan is to provide unfunded deferred compensation to certain highly compensated employees whose benefit under the A.G. Edwards, Inc. Retirement and Profit Sharing Plan (the “Profit Sharing Plan”) is limited by the Allocation Limitations contained in the Profit Sharing Plan. For purposes of this Plan, “Allocation Limitations” means the limitations on benefits in the Profit Sharing Plan imposed by Section 402(g) of the Code, which limits the amount an employee may elect to contribute to the Profit Sharing Plan, as described in Article VI of the Profit Sharing Plan, the limitation on the amount of Compensation which may be considered under the Profit Sharing Plan, as described in Article III of the Profit Sharing Plan, and the limitation imposed by Section 415 of the Code, which limits the amount that may be allocated to the account of an employee, as described in Section 7.6 of the Profit Sharing Plan.

2. Eligibility. Any employee of A.G. Edwards, Inc. and its Affiliates (the “Company”) who is eligible to make a Deductible Employee Contribution pursuant to Section 6.1 of the Profit Sharing Plan for a Plan Year beginning after 1994 shall be eligible to participate in this Plan for that Plan Year whether or not a contribution is made.

- 1 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

3. Basic Benefit. The “Basic Benefit” of a participant in this Plan for a Plan Year beginning after 1994 shall, subject to the limitations in this Paragraph 3, equal the sum of (A) and (B) as follows:

(A)	The product of the “Applicable Percentage” of the participant for the Plan Year multiplied by the “Excess Profit Sharing Compensation” of the participant for the Plan Year where:

(i)

The Applicable Percentage is the sum of (a) the rate of the Required Employer Non-matching Contribution with respect to Excess Compensation for that Plan Year made in accordance with Section 6.3 of the Profit Sharing Plan and (b) the rate of the FICA Discretionary Employer Non-matching Contribution for that Plan Year made in accordance with Section 6.4 of the Profit Sharing Plan; and

(ii)

The Excess Profit Sharing Compensation for a Plan Year is Compensation as defined in the first Paragraph of Section 3.6 of the Profit Sharing Plan to the extent such compensation exceeds the limitation on Compensation in Sections 6.3 and 6.4 of the Profit Sharing Plan; and

(B)

The amount, if any, that would have been prevented from being allocated to the account of the participant in the Profit Sharing Plan for the Plan Year with respect to Compensation below the limitation on Compensation in Sections 6.3 and 6.4 of the Profit Sharing Plan solely as a result of the dollar limitation of Section 415(c)(1)(A) of the Code as set forth in Section 7.6(A) of the Profit Sharing Plan if the participant had made the maximum Deductible Employee Contribution permitted for the participant by the Profit Sharing Plan.

Notwithstanding anything to the contrary in this Paragraph 3, in no event shall the amount of the Basic Benefit for a Plan Year under this Plan, when added to the combined maximum amount of the Employer Contributions under the Profit Sharing Plan, exceed the maximum amount, if any, established for such Plan Year by the Plan Administrator.

Notwithstanding anything to the contrary in this Paragraph 3, if the Basic Benefit of a participant for a Plan Year, computed pursuant to the formula as described above that is applicable to that Plan Year, shall be less than $500, such participant shall not be entitled to any benefit under this Plan for that Plan Year.

- 2 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

4. Plan Year Accounts. A separate Plan Year Account shall be established and maintained for each participant with respect to each Plan Year for which the participant is entitled to creditation of a Basic Benefit. The Plan Administrator shall record the dollar amount of the Basic Benefit of a participant for each Plan Year to a separate Plan Year Account for that participant for that year.

As of February 28, 2001, all existing post-1986 Plan Year Accounts shall be designated Plan Year A Accounts. Beginning with the 2001 Plan Year, awards shall be allocated evenly between an A Account and a B Account for each participant.

5. Pre-1987 Creditation of Interest. As of the last day of each Plan Year, the Plan Administrator shall adjust the pre-1987 Plan Year Accounts of each participant by crediting simple interest on the balance credited to each such account as of the beginning of the Plan Year (after reduction of the account balances to reflect the amount paid to participants during such Plan Year) at the applicable rate, as follows:

(A)	Except as provided below in subparagraphs (B) and (C) of this Paragraph 5, the applicable rate shall be the average of the broker call rates of A.G. Edwards & Sons, Inc. as of the end of each month during the twelve-month period of the Plan Year.

(B)

In the event a participant elects a lump-sum payment of the balance of a Plan Year Account after June 30 of a Plan Year, the Plan Administrator shall adjust the Plan Year Account by crediting simple interest on the balance credited to such account for the partial year ending on the last day of the month as of which such Account becomes payable at the average broker call rate of A.G. Edwards & Sons, Inc. as of the end of each month during the period from the last year-end date interest was credited until the end of the month preceding the payment date.

(C)	The applicable rate for a participant who incurs a Termination of Employment before the participant attains sixty (60) years of age, for the period beginning on the January 1 of the calendar year in which such a Termination of Employment occurred, shall be the lesser of:

(i)

The average of one-half of the broker call rates of A.G. Edwards & Sons, Inc. as of the end of each month during the twelve-month period of the Plan Year, and

(ii)

The average of the Federal Reserve discount rates as of the end of each of such twelve (12) months.

- 3 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

In the event such a terminated participant is rehired before the first anniversary of his or her Termination of Employment, the applicable interest rate shall be the average broker call rate determined as if the participant had not incurred a Termination of Employment.

In the event such a terminated participant is rehired on or after the first anniversary of his or her Termination of Employment, the lower interest rate applicable to former employees as described above shall apply until the January 1 next following the date of reemployment of the participant, at which time the average broker call rate applicable to active employees shall again become applicable.

6. Plan Year Account Return Options – Post 1986. On and after June 1, 2000, participants may base the return of a post-1986 Plan Year Account on the performance of one or a combination of securities (the “Funds”) designated from time to time by the Plan Administrator. Participants will have no ownership interest in the Funds, but their Plan Year Account balance shall increase or decrease based on the performance of the designated Fund(s). The Funds’ performance will be determined by industry acceptable performance measurement standards as determined by the Plan Administrator. Effective December 26, 2001, the broker call rate is eliminated as a basis for determining the return for any unvested Plan Year Account. The Plan Administrator in its sole discretion may from time to time add or delete Funds or other return options from the list of Funds or other return options which participants may base the return for a Plan Year Account

From time to time, at such times and upon such effective dates as the Plan Administrator may determine, participants may change the Fund(s) they have designated by notifying the Plan Administrator or its designee in such manner as determined by the Plan Administrator.

For Plan Year Accounts vested prior to December 26, 2001, for participants who choose not to base the return of a Plan Year Account on the performance of a Fund(s), the Plan Year Account will be credited interest monthly at the average of the A.G. Edwards & Sons, Inc. broker call rates determined as of the 30-day period ending in the previous month for which data is available. For participants choosing to base the return of a Plan Year Account previously based on broker call rates on the performance of a Fund(s), the Plan Year Account will be credited interest at the previous month’s average of the A.G. Edwards & Sons, Inc. broker call rates through the effective date of the transfer from the broker call rate method. No Plan Year Account Balance may be transferred from a Fund(s) to the broker call rate method. No Plan Year Account can have its return based on both the broker call rate and a Fund(s).

Effective with Plan Year 2001 awards, the return on all new Plan Year Accounts must be based on the performance of a Fund(s). The broker call rate method will no longer be a return measurement option. The return on new Plan Year Accounts initially will be based on the performance of the Fund(s) designated for the Plan Year Accounts of the participant for the immediately preceding Plan Year, if applicable. After the new Plan Year Account is initially directed to a Fund(s), the participant may change the Fund(s) on which the performance of the Plan Year Account is based, independent of other Plan Year Accounts.

- 4 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

Participants who do not designate a return option for Plan Year Accounts will have the return on their Plan Year Accounts determined by a default Fund as determined by the Plan Administrator.

7. Fees Charged to Plan Year Accounts. On and after January 1, 2001, all Plan Year Accounts based on the return of a Fund(s) will be charged an annual administration fee in the manner determined by the Plan Administrator, but in no event will the administration fee exceed 25 basis points of the Plan Year Account’s ending quarterly balance. The administration fee shall be based on the value of the Plan Year Account(s) at the end of the quarter and charged after the end of the quarter (retroactively), not in advance. The administration fee will apply if the return on the Plan Year Account(s) at any time during the quarter was based on a Fund(s). The Plan Administrator in its sole discretion shall determine which Fund(s) the administration fee will apply to.

8. Vesting Provisions for A Accounts. The amount from time to time credited to each respective Plan Year A Account of a participant maintained for a Plan Year after 1986 shall vest at the rate for each year of service following the Plan Year for which the Basic Benefit was credited to that account of the participant, determined by the following schedule:

Years of Service

Vested Percentage

Less than 6		0%
6	100%

The vested percentage of each separate Plan Year Account shall be determined independently of the vested percentage of any other Plan Year Account of that participant.

Years of Service. A year of service for purposes of this Paragraph means any calendar year during which the participant is employed continuously by the Company. An approved leave of absence for medical reasons shall be treated as a period of continuous employment for vesting. Any other leave of absence shall not count as a period of continuous employment for vesting, but commencing such a leave shall not cause a Termination of Employment. A participant shall receive no vesting credit for a calendar year unless the participant is employed continuously by the Company throughout such year.

- 5 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

Years of service completed prior to the Termination of Employment of a re-employed former participant shall be disregarded completely after the participant is rehired unless the participant is re-employed by the Company no later than the first anniversary of the Termination of Employment of the participant. In the event such a participant is re-employed on or before the first anniversary of his or her Termination of Employment, years of service completed before and after the Termination of Employment shall be aggregated for purposes of determining the vested percentage credited to the respective Plan Year A Accounts of the participant, regardless of whether the participant engages in competition with the Company during such a period of severance.

Forfeiture for Early Termination of Employment. Effective on and after March 1, 2001, in the event of Termination of Employment of a participant, for reasons other than death or disability, before the participant attains fifty-five (55) years of age, and before the combination of full years of age plus full years of service of the participant exceeds 70, the unvested portion of the respective Plan Year A Account balances of such a participant shall be forfeited at the time of such a Termination of Employment of the participant. In the event the participant is rehired by the Company on or before the first anniversary of such a Termination of Employment, no portion of the Plan Year A Account balances shall be forfeited or become payable to the participant on account of such a Termination of Employment and the previously forfeited Plan Year A Account balances of the participant shall be restored and distributed to the participant as determined under the remaining provisions of this Plan (including the provision mentioned previously in this Paragraph that only complete continuous years of employment are credited for increased vesting).

Extended Vesting - Early Retirement. Effective on and after March 1, 2001, upon Termination of Employment of a participant after the participant attains age fifty-five (55); or after the combination of full years of age plus full years of service of the participant exceeds 70, but before the participant attains sixty-five (65) years of age (“early retirement”), the respective Plan Year A Account balances of a participant that are not fully vested at the time the participant takes early retirement shall continue to vest as provided above, except that the time after early retirement during which the participant does not engage in competition, as defined in Article X of the Profit Sharing Plan, shall be treated as continued employment of the participant with the Company solely for purposes of vesting.

In the event a participant who takes early retirement shall subsequently engage in competition, as defined in Article X of the Profit Sharing Plan, each Plan Year A Account balance of the participant that is not fully vested at the time the participant first so engages in competition shall be forfeited, unless the participant is rehired by the Company on or before the first anniversary of his or her early retirement date.

- 6 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

Accelerated Vesting at Normal Retirement. For each respective Plan Year A Account of a participant maintained for a Plan Year before 1995, upon Termination of Employment of the participant on or after the participant attains sixty-five (65) years of age, the full amount credited to the Plan Year A Account of the participant as of the last day of the calendar year during which such Termination of Employment occurred shall become fully vested regardless of the number of years of service of the participant at such time, and shall be paid at such time or times as provided below.

For each respective Plan Year A Account of a participant maintained for a Plan Year after 1994, upon the Termination of Employment of the participant on or after the participant attains sixty-five (65) years of age, the respective Plan Year A Account balances of the participant that are not fully vested at the time the participant so retires shall become fully vested at the earlier of the time such accounts vest in accordance with the above six-year schedule, or the first anniversary of the date of such a Termination of Employment. In the event a participant who so retires shall subsequently engage in competition, as defined in Article X of the Profit Sharing Plan, each Plan Year A Account balance of the participant that is not fully vested at the time the participant first so engages in competition shall be forfeited, unless the participant is rehired by the Company on or before the first anniversary of his or her retirement date. The balance credited to each respective Plan Year A Account of a participant that becomes fully vested after the participant so retires shall (so long as the participant is not rehired) be paid at such time or times as provided below as if the participant had incurred a Termination of Employment on the day which each such account becomes fully vested.

Vesting Provisions for B Accounts.

Forfeiture for Early Termination of Employment. In the event of Termination of Employment of a participant, for reasons other than death or disability, before the participant attains fifty-five (55) years of age, and before the combination of full years of age plus full years of service of the participant exceeds 70, the unvested portion of the respective B Account balance of such a participant shall be forfeited at the time of such a Termination of Employment of the participant. In the event the participant is rehired by the Company on or before the first anniversary of such a Termination of Employment, no portion of the B Account balance shall be forfeited on account of such a Termination of Employment and the previously forfeited B Account balance of the participant shall be restored and paid to the participant as determined under the remaining provisions of this Plan.

Vesting after Retirement. Upon Termination of Employment of a participant after the participant attains age fifty-five (55); or after the combination of full years of age plus full years of service of the participant exceeds 70, the balance remaining in the B Account at the end of each anniversary of the participant’s Termination of Employment shall vest over a six year period, as follows:

	1^st anniversary – 17%	4^th anniversary – 67%
	2^nd anniversary –33%	5^th anniversary – 83%
	3^rd anniversary – 50%	6^th anniversary – 100%

- 7 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

Vesting of the B Account shall be suspended in the event such a retired participant is rehired by the Company. All amounts allocated to the B Account of the participant shall vest as described above upon the subsequent Termination of Employment of the participant, as if the participant had retired for the first time.

In the event a participant who so retires subsequently engages in competition, as defined in Article X of the Profit Sharing Plan, the B Account balance of the participant that is not fully vested at the time the participant first so engages in competition shall be forfeited, unless the participant is rehired by the Company on or before the first anniversary of his or her early retirement date.

The following provision is effective December 26, 2001

Accelerated Vesting at Normal Retirement. Upon Termination of Employment of the participant on or after the participant attains sixty-five (65) years of age, the full amount credited to the B Account of the participant shall become fully vested upon the first anniversary of such Termination of Employment regardless of the number of years of service of the participant at such time. In the event a participant who so retires shall subsequently engage in competition, as defined in Article X of the Profit Sharing Plan, the B Account balance of the participant that is not fully vested at the time the participant first so engages in competition shall be forfeited, unless the participant is rehired by the Company on or before the first anniversary of his or her retirement date. The balance credited to the B Account of a participant that becomes fully vested after the participant so retires shall (so long as the participant is not rehired) be paid as such time or times provided below as if the participant had incurred a Termination of Employment on the day the B Account becomes fully vested.

10.

Vesting Provisions For All Plan Year Accounts.

Forfeiture for Cause. Notwithstanding anything to the contrary in the Plan, the entire balance credited to all respective Plan Year Accounts of a participant that are not fully vested shall be forfeited at the time of Termination of Employment in the event the participant is Terminated for Aggravated Cause, as defined in Article III of the Profit Sharing Plan.

- 8 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

Full Vesting for Disability. Upon the Termination of Employment of a participant on account of Total Disability (as defined in Article III of the Profit Sharing Plan), the full amount credited to all of the Accounts of the participant as of the last day of the calendar year during which such a Termination of Employment occurred shall become fully vested regardless of the number of years of service of the participant at such time, and shall be paid at such time or times as provided below.

Full Vesting at Death. In the event of the death of a participant, the entire balance credited to all of the Accounts of the participant that are not forfeited on account of an event, such as Termination of Employment or engaging in competition, that occurred prior to death, whether or not vested in accordance with Paragraphs 8 and 9, shall be fully vested.

Full Vesting at Change in Control. Notwithstanding the provisions prescribed in the preceding Paragraphs governing the time of vesting, the balance credited to all Plan Year Accounts of each participant shall become fully vested and nonforfeitable immediately upon a Change in Control and shall be paid to the participant in a single lump sum as soon as administratively feasible after the Change in Control occurs.

For purposes of this Paragraph, “Change in Control” means the occurrence of any of the following events without the prior approval of the Board of Directors: (a) a merger, consolidation or reorganization of the Company in which the Company does not survive as an independent entity; (b) a sale of all or substantially all of the assets of the Company; (c) the first purchase of shares of Common Stock of the Company pursuant to a tender or exchange offer for more than 20% of the Company’s outstanding shares of Common Stock; or (d) any change in control of a nature that, in the opinion of the Board of Directors, would be required to be reported under the federal securities laws; provided that such a change in control shall be deemed to have occurred if (i) any person is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding securities; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute a majority thereof unless the election of any director, who was not a director at the beginning of the period, was approved by a vote of at least 70% of the directors then still in office who were directors at the beginning of the period.

11.

Payment of A Accounts.

Normal Time of Payment. Benefits payable under this Plan attributable to a Plan Year A Account that is vested at the time the participant incurs a Termination of Employment generally shall become payable after the end of the Plan Year in which the participant incurs a Termination of Employment; provided that benefits for a Plan Year after 1994 of a participant who incurs a Termination of Employment after attaining sixty-five (65) years of age shall become payable one (1) year after the Termination of Employment. Subject to the deferral election provisions below, such benefits shall be paid to the participant in one lump-sum payment as soon as practical after such time.

- 9 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

Effective on and after March 1, 2001, upon Termination of Employment of a participant after the participant attains age fifty-five (55); or after the combination of full years of age plus full years of service of the participant exceeds 70, but before the participant attains sixty-five (65) years of age (“early retirement”), the balance credited to a Plan Year A Account of the participant that becomes fully vested after the participant takes early retirement shall (so long as the participant is not rehired) be paid at such time or times as if the participant had incurred a Termination of Employment on the day on which each such account becomes fully vested.

Notwithstanding the above, benefits payable under this Plan attributable to a Plan Year A Account of a participant maintained for a Plan Year after 1986 that was fully vested on August 20, 1999, shall be payable at such time or times as determined in accordance with the terms of this Plan (including elective deferred payment date rules) as in effect before the adoption of the 1999 Restatement.

Accelerated Lump Sum Payment. A participant may elect to receive a lump sum distribution of the benefits payable under this Plan attributable to a Plan Year A Account that is vested. If such an election is made in the first six (6) months of the Plan Year, the Plan Year Account shall become payable after the end of the Plan Year in which the participant made the election. If such an election is made in the last six (6) months of the Plan Year, the Plan Year Account shall become payable after the end of the sixth full calendar month beginning after the participant made the election. An election to receive an accelerated lump sum payment of a Plan Year A Account balance shall be irrevocable.

Installment Payments. A participant may elect installment payments of the balances credited to his or her respective Plan Year A Accounts in lieu of a normal lump-sum distribution, subject to the following:

(A)

A participant may elect to receive five (5) annual installment payments of the balance of a Plan Year A Account, with the first payment payable at the time a normal lump-sum distribution of such balance would have been paid but for such election, and each of the next four (4) annual installment payments payable as of the next four (4) anniversaries of such date; except that in the case of a participant who has attained sixty-five (65) years of age whose benefit is payable one (1) year after Termination of Employment, the first payment shall be payable after the end of the second Plan Year after Termination of Employment, and each of the next four (4) annual installment payments payable after the end of the next four Plan Years; and

- 10 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

(B)

The first installment payment shall equal one-fifth (1/5) of the balance of such Plan Year A Account payable to the participant as of the normal payment date, the second installment payment shall equal one-fourth (1/4) of the remaining balance of such account as of the last day of the Plan Year immediately preceding the payment, the third installment payment shall equal one-third (1/3) of the remaining balance of such account as of the last day of the Plan Year immediately preceding the payment, the fourth installment payment shall equal one-half (1/2) of the remaining balance of such account as of the last day of the Plan Year immediately preceding the payment, and the fifth installment payment shall equal the entire remaining balance of such account as of the last day of the Plan Year immediately preceding the payment.

General Deferral Election. Effective March 1, 2001, a participant may elect to defer payment of a Plan Year A Account balance in a lump sum payment to the end of the first, second, third, fourth, or fifth year following the year in which the participant incurs a Termination of Employment. Such an election shall be made within (60) days after Termination of Employment but no later than December 31 of the year in which the participant incurs a Termination of Employment.

Age 65 Deferral Election. A participant who has attained sixty-five (65) years of age may elect to defer payment of a Plan Year A Account in one lump sum until after the end of the first, second, third, fourth or fifth year following the year in which the participant Retires, regardless of any previous election with respect to such Plan Year Account. Effective March 1, 2001, such an election shall be made no later than six (6) months before the day the Plan Year Account first becomes payable without regard to any election. For purposes of this Paragraph, “Retire” means the Termination of Employment of a participant after the participant attains sixty-five (65) years of age.

Election Procedures. Effective March 1, 2001, except as otherwise explicitly provided in this Paragraph, an election made pursuant to this Paragraph shall be made within sixty (60) days after termination or retirement but no later than December 31 in the year of termination or retirement; except that in the case of a participant who has attained age sixty-five (65) years of age electing installment payments, such an election shall be made no later than six (6) months before the day the Plan Year Account first becomes payable without regard to any election. An election to receive installment payments or to defer a benefit pursuant to this Paragraph must be delivered to the Plan Administrator at such time and in such form and manner as is acceptable to the Plan Administrator. An election shall be irrevocable after the deadline for making such election. A participant may elect a payment with respect to each Plan Year A Account independently of any other Plan Year A Account.

- 11 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

Payments scheduled to be made after the end of a Plan Year shall be made as soon as administratively practicable after the end of the year.

12.

Payment of B Accounts.

Normal Time of Payment. The vested portion of the B Account shall become payable on the date such portion becomes vested in accordance with Paragraph 9 or 10, whichever is applicable, and shall be paid in a lump sum payment as soon as administratively feasible after such time.

Deferral Election. A participant may elect to defer payment of the vested amount, which otherwise would be paid each year at the time of vesting, to the following annual payment date. On the following annual payment date, the cumulative deferral (the current year vested portion and any previous year deferred payments) may be deferred to the following annual payment date. However, the Plan Year B Account will become payable when such account becomes fully vested, with no further elective deferrals after that time.

Except as otherwise explicitly provided in this Paragraph, an election made pursuant to this Paragraph shall be made no later than sixty (60) days before the amount would otherwise become payable; except in the case of a participant who has attained age sixty-five (65) years of age, such an election shall be made no later than six (6) months before the day the B Account first becomes payable (as explained below).

Effective December 26, 2001

Lump Sum Payment. A participant who has attained sixty-five (65) years of age may elect to defer payment of the B Account in one lump sum until after the end of the first second, third, fourth or fifth year following the year in which the participant Retires. Such election shall be made no later than six (6) months before the day the B Account first becomes payable. For purposes of this Paragraph, "Retire" means the Termination of Employment of a participant after the participant attains sixty-five (65) years of age.

Installment Payments. A participant who has attained sixty-five (65) years of age may elect installment payments credited to his or her respective B Account in lieu of a normal lump-sum distribution, subject to the following:

- 12 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

(A)	The first payment shall be payable after the end of the second Plan Year after Termination of Employment, and each of the next four (4) annual installment payments payable after the end of the next four Plan Years.

(B)

The first installment payment shall equal one-fifth (1/5) of the balance of such B Account payable to the participant as of the normal payment date, the second installment shall equal one-fourth (1/4) of the remaining balance of such account as of the last day of the Plan Year immediately preceding the payment, the third installment payment shall equal one-third (1/3) of the remaining balance of such account as of the last day of the Plan Year immediately preceding the payment, the fourth installment payment shall equal one-half (1/2) of the remaining balance of such account as of the last day of the Plan Year immediately preceding the payment, and the fifth installment payment shall equal the entire remaining balance of such account as of the last day of the Plan Year immediately preceding the payment.

Such election shall be made no later than six (6) months before the day the B Account first becomes payable.

An election to receive installment payments or to defer a payment pursuant to this Paragraph must be delivered to the Plan Administrator at such time and in such form and manner as is acceptable to the Plan Administrator. An election shall be irrevocable after the deadline for making such election.

13. Payment Upon Change in Control. Notwithstanding the provisions prescribed in the preceding Paragraphs governing the time of payment, the balance credited to all Plan Year Accounts of each participant be paid to the participant in a single lump sum as soon as administratively feasible after the Change in Control, as defined in Paragraph 10, occurs.

14. Payment Upon Death. In the event of the death of a participant, the entire balance credited to all Accounts of the participant at the time of the death of the participant shall be paid to the beneficiary in a single lump sum as soon as administratively practical after the death of the participant, or in five (5) annual installment payments (each in the amount described in subparagraph (B) of Paragraph 11), as determined by the Plan Administrator in its sole discretion.

Each participant may designate any person or persons, including a trust (concurrently, contingently, or successively) to whom his benefits under this Plan are to be paid if the participant dies before receipt of all such benefits. A beneficiary designation shall be effective only if made in writing in a form suitable to the Plan Administrator and filed with the Plan Administrator by the participant. Each participant may change a beneficiary designation from time to time. If a participant shall fail to designate a beneficiary pursuant to this Plan, the beneficiary under this Plan shall be the beneficiary of such participant determined pursuant to the Profit Sharing Plan.

- 13 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

15. Severance Plan Override. Notwithstanding the provisions prescribed in the preceding Paragraphs, the provisions governing amounts credited to Accounts of Participants may be modified, as determined by the Plan Administrator, to conform to the terms, conditions and provisions of the A.G. Edwards, Inc. Severance Benefit Plan, including any Appendix thereto.

16. Amendment or Discontinuance. A.G. Edwards, Inc. reserves the right to amend, alter or discontinue this Plan at any time, provided that no such amendment, alteration or discontinuance may cause any forfeiture or diminution of the rights and benefits under this Plan in which a participant shall have become vested on or before the date of such amendment, alteration or discontinuance. Such action may be taken by an instrument in writing signed by the President of A.G. Edwards, Inc. or by any other officer or committee who has been duly authorized by the Board of Directors of A.G. Edwards, Inc.

17. Plan Administrator. The Plan Administrator of this Plan shall be the Plan Administrator appointed under the Profit Sharing Plan, and shall have all of the authority, rights and duties to administer this Plan as is assigned to the Plan Administrator to administer the Profit Sharing Plan.

18. Unfunded. Benefits payable under this Plan shall be paid by the respective employer of each participant out of its general assets. A participant shall have no rights with respect to benefits under this Plan other than the unsecured right to receive payments from the Company as provided herein. The Company shall not be obligated to set aside, earmark or escrow any funds or other assets to satisfy its obligations hereunder. Any benefit payable hereunder shall not be represented by a note or any evidence of indebtedness other than the promises contained in this Plan. No benefit or any part thereof which shall be payable hereunder shall be subject in any manner to anticipation, alienation, transfer, sale, assignment, pledge, encumbrance, garnishment, attachment, execution, or the claims of creditors of any person having an interest hereunder, nor be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of such person.

19. Definitions and Rules of Construction. The terms and provisions of this Plan shall be construed as defined in, and in accordance with the meaning under, the Profit Sharing Plan. Reference to a particular section or article of the Profit Sharing Plan shall refer to the section or article of such Plan as in effect on the date of adoption of this Plan or any comparable section or sections, or article or articles of any future plan document that amends, supplements or supersedes said section.

- 14 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

20. Official Actions. Any action required to be taken by the Board of Directors of A.G. Edwards, Inc. pursuant to this Plan may be performed by any person or persons, including a committee, to which the Board of Directors of A.G. Edwards, Inc. delegates the authority to take actions of that kind. Whenever under the terms of this Plan a corporation is permitted or required to take some action, such action may be taken by an officer of the corporation who has been duly authorized by the Board of Directors of such corporation to take actions of that kind, and if no such authorization is given by the Board, by the President of such corporation.

21. Tax Withholding. The Company will withhold any amount otherwise payable under this Plan as necessary to enable it to remit to the appropriate government entity or entities on behalf of the Employee the amount required to be withheld from wages with respect to benefits under this Plan.

IN WITNESS WHEREOF, A.G. Edwards, Inc. has adopted the foregoing amendment this 27th day of August, 2002.

A.G. EDWARDS, INC.

By:

/s/ Robert L. Bagby

Title:

Chairman

ATTEST:

/s/ Douglas L. Kelly

- 15 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

FIRST AMENDMENT

A.G. EDWARDS, INC.

EXCESS PROFIT SHARING

DEFERRED COMPENSATION PLAN

2002 RESTATEMENT

The A.G. Edwards, Inc. Excess Profit Sharing Deferred Compensation Plan (the “Plan”) originally effective beginning with the 1983 calendar year. The Plan was amended and restated as of January 1, 1987, January 1, 1994, January 1, 1995, August 20, 1999, and February 22, 2001. As of February 28, 2001, all existing post 1986 Plan Year Accounts were designated Plan Year A Accounts. Beginning with the 2001 Plan Year, awards are allocated evenly between an A Account and a B Account. Amounts allocated to B Accounts are subject to different vesting and payment provisions, as set forth in this restated instrument.

A.G. Edwards, Inc., now wishes to amend the Plan allow the Plan Administrator to impose transfer restrictions on return options and to provide accelerate vesting and of benefits for certain Participants in conjunction with the sale of CPI Qualified Plan Consultants, Inc. by A.G. Edwards, Inc.

NOW THEREFORE, the Plan is hereby amended as follows:

Effective February 20, 2004, the following paragraph is added as the last paragraph of existing paragraph 7:

The Plan Administrator may from time to time impose transfer restrictions as to how often a participant may change his or her designation of a return option. The Plan Administrator may from time to time impose a redemption fee to be charged to a participant’s Account or Accounts for violation of such transfer restrictions or may take other actions including blocking or reversing transactions to enforce such restrictions.

Effective March 15, 2004, an additional paragraph is added to paragraph 10 as follows:

Accelerated Vesting Upon Sale of CPI. Upon the Termination of Employment of a Participant on the account of the sale of CPI Qualified Plan Consultants, Inc. by A.G. Edwards, Inc., the full amount credited to all the Accounts of the participant at the time of Termination of Employment shall become fully vested regardless of the number of years of service of the participant at such time, and shall be paid at such time or times as provided below.

- 16 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

IN WITNESS WHEREOF, the undersigned as Secretary of A.G. Edwards, Inc. hereby certifies that this First Amendment was duly adopted by A.G. Edwards, Inc.

By:

/s/ Douglas L. Kelly

Title:

Corporate Secretary

- 17 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

SECOND AMENDMENT

A.G. EDWARDS, INC.

EXCESS PROFIT SHARING

DEFERRED COMPENSATION PLAN

2002 RESTATEMENT

The A.G. Edwards, Inc. Excess Profit Sharing Deferred Compensation Plan (the “Plan”) was originally effective beginning with the 1983 calendar year. The Plan has been amended from time to time, most recently in the form of a restated plan document dated August 22, 2002 (the “2002 Restatement”) and a First Amendment to such Restatement.

A.G. Edwards, Inc. now wishes to amend the Plan.

NOW THEREFORE, the Plan is hereby amended as follows:

The first paragraph of existing Paragraph 6 is restated as follows:

Plan Year Account Return Options – Post 1986. On and after June 1, 2000, participants may base the return of a post-1986 Plan Year Account on the performance of one or a combination of securities (the “Funds”) designated from time to time by the Investment Committee. Participants will have no ownership interest in the Funds, but their Plan Year Account balance shall increase or decrease based on the performance of the designated Fund(s). The Funds’ performance will be determined by industry acceptable performance measurement standards as determined by the Investment Committee. Effective December 26, 2001, the broker call rate is eliminated as a basis for determining the return for any unvested Plan Year Account.

The Investment Committee in its sole discretion may from time to time add or delete Funds or other return options from the list of Funds or other return options which participants may base the return for a Plan Year Account.

2. The following paragraph is added as the second to last paragraph of existing Paragraph 9:

Vesting After Age 65. The full amount credited to the B Account of the participant shall become fully vested on December 31 of the year in which the participant attains sixty-five (65) years of age and all subsequent amounts credited to the B Account of the participant shall vest on December 31 of the year awarded in which the amount is credited to the B Account.

- 18 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

The last paragraph of Paragraph 9 is restated as follows:

Accelerated Vesting at Normal Retirement. Upon the Termination of Employment of the participant on or after the participant attains age sixty-five (65) years of age, the unvested balance of the B Account of the participant shall become fully vested upon the first anniversary of such Termination of Employment regardless of the number of years of service of the participant at such time. In the event a participant who so retires subsequently engages in competition, as defined in Paragraph 23 of this Plan, the B Account balance of the participant that is not fully vested at the time the participant first so engages in competition shall be forfeited, unless the participant is rehired by the Company on or before the first anniversary of his or her retirement date. The balance credited to the B Account of a participant that becomes fully vested after the participant so retires shall (so long as the participant is not rehired) be paid as such time or times provided below as if the participant had incurred a Termination of Employment on the day the B Account becomes fully vested.

4. Change the heading of existing Paragraph 11 to read: Payment of A Accounts -- Pre-1999 Plan Years.

Add Paragraph 12 as follows and renumber remaining Paragraphs as applicable:

Payment of A Accounts – Post 1998 Plan Years.

Normal Time of Payment. Benefits payable under this Plan attributable to a Plan Year A Account shall become payable upon vesting and paid as soon as administratively practical after such time; provided that Benefits for a Plan year of a participant who incurs a Termination of Employment after attaining sixty-five (65) years of age shall become payable one (1) year after the Termination of Employment. Subject to the deferral election provisions below, such benefits shall be paid to the participant in one-lump sum payment as soon as practical after such time.

Upon Termination of Employment of a participant after the participant attains age fifty-five (55); or after the combination of full years of age plus full years of service of the participant exceeds 70, but before the participant attains sixty-five (65) years of age (“early retirement”), the balance credited to a Plan Year A Account of the participant that becomes fully vested after the participant takes early retirement shall (so long as the participant is not rehired) become payable upon vesting and paid as soon as administratively practical after such time.

- 19 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

General Deferral Election. A participant may elect to defer payment of a Plan Year A Account balance in a lump sum payment for a period of at least five (5) years from the normal time of payment. Such an election shall be made no later than twelve (12) months before the normal time of payment. A participant may again elect a further deferred payment date that is at least five years later than the previously scheduled payment date. Such a subsequent election also shall be made no later than twelve (12) months before the previously scheduled payment date.

Election Procedures. An election to defer a benefit pursuant to this Paragraph must be delivered to the Plan Administrator at such time and in such form and manner as is acceptable to the Plan Administrator. An election shall be irrevocable after the deadline for making such election. A participant may elect a payment with respect to each Plan Year A Account independently of any other Plan Year A Account.

A payment scheduled to be made after the end of a Plan Year shall be made as soon as administratively practicable after the end of the year.

Notwithstanding any of the payment provisions noted in this Paragraph, a participant will receive payment of all vested monies the earlier of 1) 5 years following termination of employment; or 2) his or her scheduled fixed payment date.

Existing Paragraph 12 is restated as follows:

13.

Payment of B Accounts.

- 20 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

Age 65 Deferral Election. Provided the participant is employed by the Company, the participant may elect to defer payment of his or her B Account balance in a lump sum payment for a period of at least five (5) years from the normal time of payment. Such an election shall be made no later than twelve (12) months prior to the normal time of payment.

Election Procedures. An election to defer pursuant to this Paragraph must be delivered to the Plan Administrator at such time and in such form and manner as is acceptable to the Plan Administrator. An election shall be irrevocable after the deadline for making such election.

The first paragraph of existing Paragraph 14 is restated as follows:

Payment Upon Death. In the event of the death of a participant, the entire balance credited to all Accounts of the participant at the time of the death of the participant shall be paid to the beneficiary in a single lump sum as soon as administratively practical after the death of the participant as determined by the Plan Administrator in its sole discretion.

The following is added as the second paragraph to existing Paragraph 16:

The Plan Administrator may adopt policies and procedures necessary or advisable to implement the Treasury Department’s temporary regulations relating to the American Jobs Creation Act of 2004 (the “2004 Act”). The Executive Committee of A.G. Edwards, Inc. may approve any Plan amendments necessary or advisable to implement such temporary regulations of the 2004 Act.

Add Paragraph 19 as follows:

Investment Committee. The Plan Administrator shall appoint an Investment Committee to serve at its pleasure. The members of the Investment Committee may be a corporation (including the Sponsor), one or more individuals or any combination of the above. The Plan Administrator may change such appointments from time to time provided that such changes are published to the

- 21 -

A.G. Edwards, Inc.

Excess Profit Sharing

Deferred Compensation Plan

2002 Restatement

extent of enabling interested parties to ascertain the person or persons responsible for operating the Plan.

In the absence of such an appointment, the Compensation Committee of A.G. Edwards & Sons, Inc. shall serve as the Investment Committee.

Any member serving on the Investment Committee may, but need not, be an employee, and may, but need not, be a participant. Any member shall serve, in the case of natural persons until his death, resignation or removal and in the case of a corporation until its liquidation, resignation or removal. The Compensation Committee of A.G. Edwards & Sons, Inc. in its sole discretion, may remove any member of the Investment Committee at any time. A member serving on the Investment Committee may resign by delivering a written resignation to the Compensation Committee of A.G. Edwards & Sons, Inc.

All resolutions and other actions of the Investment Committee may be adopted and effected by a majority of a quorum of the Investment Committee at the time of such action. A quorum of the Investment Committee shall be comprised of no fewer than fifty percent (50%) of the members then serving. An action of the Investment Committee also shall be valid if concurred in by unanimous written consent in lieu of a meeting. A member may participate in a meeting by means of a conference telephone or similar communications equipment.

The Investment Committee may appoint one or more of its members to carry out any particular duty or duties or to execute any and all documents. Any documents so executed shall have the same effect as if executed by all such persons. Such appointment shall be made by an instrument in writing that specifies which duties and powers are so allocated and to whom each such duty or power is so allocated.

IN WITNESS WHEREOF, the undersigned as Secretary of A.G. Edwards, Inc. hereby certifies that this Second Amendment was duly adopted by A.G. Edwards, Inc.

By:

/s/ Douglas L. Kelly

Title:

Corporate Secretary

- 22 -

GRAPHIC 7 img1.jpg begin 644 img1.jpg M_]C_X``02D9)1@`!`0$`8`!@``#_VP!#``H'!P@'!@H("`@+"@H+#A@0#@T- M#AT5%A$8(Q\E)"(?(B$F*S7J#A(6&AXB)BI*3E)66EYB9FJ*CI*6FIZBI MJK*SM+6VM[BYNL+#Q,7&Q\C)RM+3U-76U]C9VN'BX^3EYN?HZ>KQ\O/T]?;W M^/GZ_]H`"`$!```_`/9*****Y&X\*W-SXQU2_P#MUS:I=VL7V>:WD(:&1?2K6B7^HZ=JZ^'-;NEO)VMO/M;T)L,ZC`=6']Y20(=6C=+#Q0K00 MVX!)A0']UD>O(/T9C6U>^)K/4?BK8+:R"6WTB-H)94.0T\[*@0'OC&?P/I7H MM%%%%%%%%>;^+Y;SQIX@;P]IC6W]FZ.5N-3EN680R.#D1$KS@`$G_P"M7'>- M/BG>:T1HVA&*W@C79+>H-F_C#;">43'XD?E61X6F\FYLOL"M]GM[I5@9AAKR M\?Y5;']U`Q('8=>6KZ!TC6K+7+>:>Q=GC@G>W]7Z******S= M:CUJ:U:+1I[2WE=2#-<*S%#Z@#K^->?ZYX>U3PE\(-8L1+#<7$C^9-W^`O!;Z1<6_B+Q9+;V+PJ4T^Q= MPBV^>I.3][]>YYZ>BZ4=)4W*Z7<6\AEE:>9890_SMU/!XSBM"BBBBBBBLOQ% MIMSJ6E/'9-&+J/YHUF&8Y."&1Q_=920?3.>U>9>"+;PQX0\5WD^J;]'NI(PL M-KJ2X\@Y^;9+]UU/&&X.*[WQ/K.A3^$M3+:EI\J/:2A,SHP)*'`'/7-97PQ^3=00W"?W)4#C\C6?%X4\.0R^;%H&F)(#]Y;2,$?I6HNQ%"+M4+P` M.,4X\=>*0$$X!!/UI:171\[65L'!P+?%D:S\,=&\77<"R:GICI=2-M&9HDVEO?(K#\&:SJ%IXL:/5H[N)/$<9N8QH\O;S_LU/XJBL5^)-JUWI$FHQ/I$K20P1!V8AP`V,C)`XSUYK8\`QI<>`K9 M9;M;^*42$!V\SRT).(F)Y)4<'/I6/\/_``OHNL?#ZQDO;"-YY/-S.I*RC$C` M$..01]:F\/IJVN>"]>T1M4D,MM=SV-IJ#M\TBKC!)'7KM)JWX)FLUU*[L9]# M31MA'PY<:9'\M_99MI(L!'/R)]]MV.H/.?6I+NQT+6M-@\/?:)XK951% MAA+1APJAE0G'/R@'%+J$?A_Q3]ELI+YVGM)HYX&AS+'=>)!(R MQLQR-VTC&[.>1U(JK;:!H.CZ4;2+6M6M;&$D-`;EUVY4R$=-PR,GK5Z4>&7T M>G-&EZ3H]W+<3VU]?7%VXC\ZYDE99 M=N,JF<#"_-G`'?-95ZBQ'PHD2A$F"K(JC`<80X/J,@'ZBLC1II9IC%+*\D9M M,%&8D$+/\O'MV]*Z#Q9%')/J(DC5Q]A8_,,\B.4BJ&I@1?:I(QL?[99?,O!_ MU0_Q-%N3)H^HR.2SL+_+-R3\JCK]`/RJ3PK))-XI"RNTBK9QR`,<@/Y8&[ZX MXSZ5+H\48U?1I!&H??(N['./LR<5A2R2#2[QP[!HM36WC8'E(L,-@]%P3QTY M-;ZQQQVOB)4157RGDP!@;@\F&^HP.?85@+"[#+$?9/6J6HNXO)L.WR1VJ+ST7R\X'MGFO_]D_ ` end