-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, gK4VnLNTIFWEHoH410wUVzKieBKbjJMT+hWmsacoVf9gIyBoE3PLkYNfor/oBWdZ kYEieLbNPN1KwRhPoJuOtw== 0000718482-95-000006.txt : 19950531 0000718482-95-000006.hdr.sgml : 19950531 ACCESSION NUMBER: 0000718482-95-000006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950228 FILED AS OF DATE: 19950526 SROS: NYSE 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08527 FILM NUMBER: 95542942 BUSINESS ADDRESS: STREET 1: ONE N JEFFERSON AVE CITY: ST LOUIS STATE: MO ZIP: 63103 BUSINESS PHONE: 3142893000 10-K405 1 A.G. EDWARDS FY 1995 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _____________________ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended February 28, 1995 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) 289-3000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE, INC. RIGHTS TO PURCHASE COMMON STOCK NEW YORK STOCK EXCHANGE, INC. Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of voting stock held by non-affiliates was approximately $1.40 billion at May 1, 1995. At May 1, 1995, there were 62,360,281 shares of A.G. Edwards, Inc. Common Stock, $1 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement filed with the SEC in connection with the Company's Annual Meeting of Stockholders to be held June 22, 1995 (the "Company's 1995 Proxy Statement") are incorporated by reference into Part III hereof. Other documents incorporated by reference in this report are listed in Part IV of this Form 10-K. PART I ITEM 1. BUSINESS. (a) General Development of Business A.G. Edwards, Inc., a Delaware corporation, is a holding company, incorporated in 1983, whose principal subsidiary, A.G. Edwards & Sons, Inc. (Edwards), is successor to a partnership founded in 1887. A.G. Edwards, Inc. and its directly owned and indirectly owned subsidiaries (collectively referred to as the Company) provide securities and commodities brokerage, asset management, insurance, trust, investment banking and other related financial services for individual, corporate, governmental and institutional customers. Edwards' business, primarily with individual customers, is conducted through the fourth largest stock broker branch office network (based upon number of offices) in the United States, which consists of 516 offices (up from 491 at the end of the prior fiscal year) in 48 states and the District of Columbia. At February 28, 1995, Edwards had 10,741 full-time employees (up from 10,206) including 5,483 investment brokers (up from 5,195) providing services for approximately 1,580,000 individual, corporate and institutional customers (up from 1,460,000). No single customer accounts for a significant portion of Edwards' business. Edwards is a member of all major securities exchanges in the United States, the National Association of Securities Dealers, Inc. (NASD) and the Securities Investor Protection Corporation. Additionally, Edwards has memberships on several commodity exchanges and is registered with the Commodity Futures Trading Commission (CFTC) as a futures commission merchant. AGE Commodity Clearing Corp. (Clearing), a commodity clearing subsidiary, is registered with the CFTC as a futures commission merchant and operates exclusively as a commodity clearing company for Edwards. Clearing is a member of all major U.S. commodities exchanges and the National Futures Association (NFA). The A.G. Edwards Trust companies provide investment advisory, portfolio management and trust services. Gull-AGE Capital Group, Inc. serves as general partner in 64 real estate partnerships in connection with 24 limited partnerships sold by Edwards from 1982 through 1985. Edwards Development Corporation is the sole general partner in Indianapolis Historic Partners (IHP), a partnership, in which Edwards owns the entire limited partnership interest. IHP purchased, renovated and now operates residential rental property in the Indianapolis, Indiana area. (b) Financial Information About Industry Segments The Company operates in one principal line of business, that of providing investment services, including services to retail customers, institutional sales and investment banking. Because the Company's services use the same distribution personnel and facilities, and the same support services, it is impractical to identify the assets, costs, expenses, and profitability of any one class of service. The principal sources of revenue for the last three fiscal years are set forth In Item 6 of this Form 10-K. (c) Narrative Description of Business Commissions, principal transactions and investment banking each accounted for 10% or more of the Company's consolidated revenues for one or more of the past three fiscal years. The amounts of the total revenue contributed by such services during the last three fiscal years are set forth in Item 6 of this Form 10-K. The Company markets and distributes its products and services to individual, corporate and institutional customers in the 48 contiguous states and the District of Columbia through its branch office network, 5,483 investment brokers and 5,258 support employees. COMMISSIONS Commission revenue represents the most significant source of revenue for the Company, accounting for more than 50% of total revenue in each of the last five years. The following briefly describes the Company's principal sources of commission revenue. Listed and Over-the-Counter Securities. A significant portion of the Company's revenue is derived from commissions generated on securities transactions executed by Edwards, as a broker, in common and preferred stocks and debt instruments on exchanges or in the over-the-counter markets. Edwards' brokerage customers are primarily individual investors; however, resources continue to be directed to further the development of its institutional business. Edwards' commission rates for brokerage transactions vary with the size and complexity of the transactions. Options. Edwards acts as broker in the purchase and sale of option contracts to buy or sell securities. These contracts primarily cover various common stocks and stock indexes. Edwards also holds memberships for trading on principal option exchanges. Mutual Funds. Edwards distributes mutual fund shares in continuous offerings of open-end funds as well as new underwritings of closed-end funds. Income from the sale of mutual funds is derived primarily from the standard dealer's discount which varies as a percentage of the customer's purchase price depending upon the size of the transaction and terms of the selling agreement. Revenues derived from mutual fund sales, including distribution fees, continue to be a significant portion of overall revenues. Edwards does not sponsor its own mutual fund products. Commodities and Financial Futures. Edwards acts as broker in the purchase and sale of commodity futures contracts, financial futures contracts and options on commodity and financial futures contracts. These contracts cover agricultural products, precious metals, currency, interest rate and stock index futures. Substantially all of Edwards' customer futures transactions are executed and cleared through Clearing. Nearly all transactions in futures contracts are executed requiring a relatively low margin deposit, usually 3% to 12% of the total contract amount. Consequently, the risk to the customer and resulting credit risk assumed by Edwards is substantial, generally greater than on securities transactions. To limit its exposure, Edwards requires customers to meet minimum net worth requirements and other established credit standards, in addition to the margin deposits. Regulations of some commodity exchanges limit the allowable upward or downward price fluctuations for each commodity on a given day. These restrictions on price fluctuations may preclude purchases or sales necessary to limit losses or realize gains. Clearing, as a member of the clearing associations of principal commodity exchanges, has potentially significant exposure of its capital in the event other members default on their obligations to the clearing houses of such exchanges. Insurance. As agent for several life insurance companies, Edwards distributes life insurance and tax-deferred annuities. Edwards also provides financial planning services to assist individuals in structuring financial portfolios to achieve their financial goals. In addition, the A.G. Edwards Life Insurance Company is licensed to issue life insurance policies under the laws of Missouri, but has not issued any to date. Limited Partnership Interests. Edwards participates in offerings of various direct participation programs, typically in limited partnership form, on a best efforts basis. Principal types of programs offered include investments in real estate, oil and gas, and equipment leasing. Due to tax law changes, primarily the "Tax Reform Act of 1986", customer activity in this area is minimal. PRINCIPAL TRANSACTIONS Transactions with customers in the equity and fixed income over-the-counter markets may be effected by Edwards acting as principal as well as agent. Principal transactions, including market making, require maintaining inventories of securities to satisfy customer order flow. These securities are valued at market and unrealized gains or losses are included in the results of operations. Securities fluctuations may be sudden and sharp as a result of changes in market conditions. To the extent Edwards can correctly anticipate such changes, risks may be reduced by varying inventory levels or by use of hedging strategies. INVESTMENT BANKING Edwards is an underwriter of corporate and municipal securities, certificates of deposit, as well as corporate and municipal unit investment trusts. Activities in municipal underwriting include areas of specialization in financing of municipal projects such as infrastructure improvements, education, housing and health facilities. As an underwriter, usually in conjunction with other broker-dealers and financial institutions, Edwards purchases securities for resale to its customers. Edwards acts as a consultant to corporations and municipal entities in planning their capital needs and determining the most advantageous means for raising capital. It also advises customers in merger and acquisition activities and acts as agent in private placements. Underwriting involves risk. As an underwriter, Edwards may incur losses if it is unable to resell the securities it is committed to purchase or if it is forced to liquidate all or a part of its commitment at less than the purchase price. Under federal and state securities laws, an underwriter is exposed to substantial potential liability for material misstatements or omissions of fact in the prospectus used to describe the securities being offered. Generally, issuers agree to indemnify underwriters against such liabilities, but otherwise, underwriters are not specifically insured. In addition, the commitment of capital to underwriting may reduce Edwards' regulatory net capital position and, consequently, its underwriting participation may be limited by the requirement that it must at all times be in compliance with the net capital rules administered by the Securities and Exchange Commission (SEC). Although it is generally more profitable to manage or co-manage an underwriting, as opposed to being a participant, managers generally commit to underwriting a greater portion of the offering than the other members of the underwriting group and consequently, managers assume a greater risk. CUSTOMER FINANCING Securities transactions are executed on a cash or margin basis. In margin transactions, Edwards extends credit to customers for a portion of the purchase price, with the customer's securities held as collateral. The amount of credit is limited by the initial margin regulations of the Federal Reserve Board. The current prescribed minimum initial margin for equity securities is equal to 50% of the value of equity securities purchased. The regulations of the various exchanges require minimum maintenance margins, which are below the initial margin. Edwards' maintenance requirements generally exceed the exchanges' requirements. Such requirements are intended to reduce the risk that a market decline will reduce the value of the collateral below that of the customer's indebtedness before the collateral can be liquidated. A substantial portion of the Company's assets and obligations result from transactions with customers who have provided financial instruments as collateral. The Company manages its risk associated with these transactions through position and credit limits, and the continuous monitoring of collateral. Additional information regarding risks associated with customer transactions is set forth in Note 9 of the Notes to Consolidated Financial Statements under the caption "Off-Balance Sheet Risk and Concentration of Credit Risk" included in Item 8 of this Form 10-K. The customer is charged an interest rate based on the broker call loan rate plus an amount up to 2 1/2% depending on the amount of customer's borrowings during each interest period. Interest earned on these balances represents an important source of revenue for Edwards. Although borrowings from banks, either unsecured or secured by customer collateral securities, are an available source of funds to carry customer margin accounts, the Company's stockholders' equity, cash received from loans of customers' collateral securities to other brokers and, to the extent permitted by regulations, customer free credit balances, provide most of the funds required. RESEARCH Edwards provides both technical market analysis and fundamental analysis of numerous industries and individual securities for use by its investment brokers and customers. In addition, reviews and analysis of general economic conditions, along with asset allocation recommendations, are also available. These services are provided by Edwards' research analysts, economists and market strategists. Revenues from research activities are derived principally through resulting transactions on an agency or principal basis. TRUST SERVICES Edwards, through the A.G. Edwards Trust companies, provides its customers with a full range of personal, ERISA and custodial trust services. Through four separate state charters, the A.G. Edwards Trust companies are able to provide trust services to customers in most states. MANAGED ACCOUNTS Customers desiring professional money management are offered two separate account portfolio services. Edwards, acting as investment manager, offers portfolio management strategies based on the customer's investment objectives. Through Asset Performance Monitor(R), Edwards provides customers access to investment management, performance measurement, management search and related consulting services. ADDITIONAL SERVICES Edwards offers UltraAsset, Total Asset and the Cash Convenience accounts, which combine a full-service brokerage account with a money market fund. These programs provide for the automatic investment of customer free credit balances in one of several money market funds. Interest is not paid on free credit balances held in customer accounts. In addition, the UltraAsset and Total Asset accounts allow customers access to their margin securities and money market shares through the use of debit cards and checking services provided by a major bank. The UltraAsset account offers additional advanced features and special investment portfolio reports. Edwards provides custodial services for customers' self-directed Individual Retirement Accounts and Keogh plans. Edwards sponsors, from time to time, and acts as selling agent for commodity pool limited partnerships. These units are offered for sale by Edwards and other broker-dealers. COMPETITION All aspects of the Company's business are highly competitive. Edwards competes with numerous broker-dealers, some of whom possess greater financial resources than the Company. Edwards competes for customers on the basis of price, the quality of its services, financial resources and reputation within the customers' communities. There is constant competition to attract and retain personnel within the securities industry. Competition for the investment dollar and customers has increased from other sources, such as commercial banks, savings institutions, mutual fund management companies, investment advisory companies as well as from other companies offering insurance, real estate and other investment opportunities. It is likely that competition from commercial banks and their affiliates will intensify as these institutions continue to expand their brokerage service and underwriting activities. REGULATION Edwards, as a broker-dealer and futures commission merchant, and Clearing, as a futures commission merchant, are subject to various federal and state laws which specifically regulate their activities as a broker-dealer in securities and commodities, as an investment advisor, as an insurance agent and as a commodity clearing company. Edwards and Clearing are also subject to various regulatory requirements imposed by the securities and commodities exchanges and the NASD. The primary purpose of these requirements is to enhance the protection of customer assets. Under certain circumstances, these rules may limit the ability of A.G. Edwards, Inc. to make withdrawals of capital from Edwards and Clearing. These laws and regulatory requirements generally subject Edwards and Clearing to standards of solvency with respect to capital requirements, financial reporting requirements, approval of qualifications of personnel engaged in various aspects of its business, record keeping and business practices, the handling of customer funds resulting from securities and commodities transactions and the extension of credit to customers on margin transactions. Infractions of these rules and regulations may include suspension of individual employees and/or their supervisors, termination of employees, limitations on certain aspects of Edwards' and Clearing's regulated businesses, as well as censures and fines, or even proceedings of a civil or criminal nature which could result in a temporary or permanent suspension of a part or all of Edwards' and Clearing's activities. Additional information regarding regulation is set forth in Note 5 of the Notes to Consolidated Financial Statements under the caption "Net Capital Requirements" included in Item 8 of this Form 10-K. Under the Market Reform Act of 1990 and the Futures Trading Practices Act of 1992, the SEC and CFTC, respectively, adopted regulations requiring certain registered broker-dealers and futures commission merchants (FCM) to maintain, preserve and periodically describe and report their risk management policies and certain other information concerning affiliates whose activities are reasonably likely to have a material impact on the financial or operating condition of the broker-dealer or FCM. Edwards and Clearing are each subject to one or both of these laws and related regulations. Additionally, the four state-chartered trust companies are separately regulated by banking or trust laws of the states in which they are incorporated. A.G. Edwards Life Insurance Company is regulated by the insurance laws of the State of Missouri. The Ceres Investment Company, a commodity pool operator and general partner of five commodity pools sponsored by Edwards, is regulated by the CFTC and the NFA. ITEM 2. PROPERTIES. The Company's headquarters, consisting of several buildings located at One North Jefferson Avenue, St. Louis, Missouri, contains approximately 1,100,000 square feet of general office space, as well as underground and surface parking. The buildings are located on approximately 650,000 square feet of land owned by the Company. The Company also owns approximately 430,000 square feet of land adjacent to its headquarters and is using this property principally for additional employee parking areas. The Company has announced plans to expand its home office facilities. The cost of this expansion, while not determined with certainty, is estimated to be $40 to $45 million. Also, the Company owns two of its branch office buildings and another office building which serves as a data processing and contingency planning facility. The remainder of the Company's branch offices occupy leased premises. Aggregate annual rental for branch office premises for the year ended February 28, 1995, was $30,247,000. ITEM 3. LEGAL PROCEEDINGS. (a) Litigation The Company is a defendant in a number of lawsuits, in some of which plaintiffs claim substantial amounts, relating to its securities and commodities business. While results of litigation cannot be predicted with certainty, management, based on consultation with counsel, believes that resolution of all such litigation will have no material adverse effect on the consolidated financial statements of the Company. (b) Proceedings Terminated during the Fourth Quarter of the Fiscal Year Covered by This Report. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended February 28, 1995. EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the executive officers of the Company as of May 1, 1995. Executive officers are appointed by the Board of Directors to hold office until their successors are appointed and qualified.
Officer of the Name Age Office & Title Company Benjamin F. Edwards III 63 Chairman of the Board, 1983 President and Chief Executive Officer of the Company. Chairman of the Board, President and Chief Executive Officer of Edwards. Employee of Edwards for 38 years. Director of Edwards since 1967. Robert G. Avis 63 Vice Chairman of the Board of 1984 the Company. Vice Chairman of the Board, Executive Vice President, Director of the Investment Banking Division and Director of the Sales and Marketing Division of Edwards. Employee of Edwards for 29 years. Director of Edwards since 1970. Robert L. Bagby 51 Corporate Vice President, 1991 Director of the Branch Division of Edwards since March 1995. Assistant Director of the Branch Division of Edwards from 1980 to 1995. Employee of Edwards for 20 years. Director of Edwards since 1979. Robert C. Dissett 57 Corporate Vice President, 1990 Assistant Treasurer and Director of Operations of Edwards. Employee of Edwards for 33 years. Director of Edwards since 1973. Alfred E. Goldman 61 Senior Vice President, Technical 1991 Market Analysis of Edwards. Employee of Edwards for 35 years. Director of Edwards since 1967. Douglas L. Kelly 46 Secretary of the Company. Vice President, 1994 Secretary and Director of Law and Compliance of Edwards. Employee of Edwards for 1 year. Director of Edwards since January 1994. Eugene J. King 63 Vice President, Controller and 1983 Assistant Treasurer of the Company. Senior Vice President, Assistant Treasurer and Controller of Edwards. Employee of Edwards for 24 years. Director of Edwards since 1988. David W. Mesker 63 Treasurer of the Company. Treasurer, 1983 Senior Vice President and Director of the Staff Division of Edwards. Employee of Edwards for 33 years. Director of Edwards since 1967. Robert L. Proost 57 Vice President of the Company. Corporate 1990 Vice President, Assistant Secretary and Director of Administration of Edwards. Employee of Edwards for 7 years. Director of Edwards since 1989.
All of the above officers, except Mr. Kelly, have served as officers of Edwards during the past five years. Mr. Kelly was a partner at the law firm of Peper, Martin, Jensen, Maichel and Hetlage practicing law in the corporate, commercial and securities areas for 20 years prior to his employment with the Company. Peper, Martin, Jensen, Maichel and Hetlage serves as one of the Company's legal counsel. Benjamin F. Edwards III and Robert G. Avis are stepbrothers. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Quarterly Financial Information (Unaudited) Cash Stock Price Earnings Net Dividends Trading Range Revenues Before Tax Earnings Earnings Per Share High -- Low (In millions) (In millions) (In millions) Per Share Fiscal 1994 by Quarter First $.12 22 3/4 -- 18 3/8 $314.9 $59.4 $38.1 $.64 Second .12 22 1/4 -- 18 314.4 56.8 35.6 .60 Third .14 25 3/8 -- 21 1/4 327.3 64.9 41.1 .67 Fourth .14 24 3/8 -- 21 1/4 322.1 62.5 40.1 .66 Fiscal 1995 by Quarter First $.14 22 1/2 -- 16 7/8 $301.6 $49.4 $30.6 $.50 Second .14 20 1/4 -- 16 5/8 295.5 51.2 31.6 .51 Third .14 20 3/8 -- 16 1/2 289.1 48.2 29.9 .48 Fourth .14 22 1/2 -- 16 1/2 292.1 50.5 32.0 .51 Per share data have been restated for stock splits and stock dividends.
A.G. Edwards, Inc. stock is traded on the New York Stock Exchange. (The stock symbol is AGE.) The approximate number of stockholders on February 28, 1995, was 22,800, including customers who hold the Company's stock in their accounts on the books of Edwards. The next four anticipated dividend payment dates are July 3 and October 2, 1995, and January 2 and April 1, 1996. ITEM 6. SELECTED FINANCIAL DATA.
Ten-Year Financial Summary (In thousands, except per share amounts) 1995 1994 1993 1992 1991 Revenues: Commissions: Listed Securities $ 236,629 $ 273,363 $ 231,312 $ 203,936 $ 140,096 Options 21,576 21,135 19,167 21,745 20,002 Over-the-Counter Securities 79,887 92,846 67,781 68,628 37,807 Mutual Funds 203,410 292,756 222,033 166,356 93,914 Commodities 15,261 16,766 13,016 13,941 12,322 Insurance 77,117 74,862 46,757 47,343 39,514 Limited Partnership Interests 638 1,229 1,418 787 1,035 Total 634,518 772,957 601,484 522,736 344,690 Principal Transactions: Equities 37,565 40,260 31,266 23,157 10,922 Debt Securities 203,460 146,705 184,040 165,284 145,732 Total 241,025 186,965 215,306 188,441 156,654 Investment Banking: Underwriting Fees and Selling Concessions 70,156 111,379 87,061 77,464 44,167 Management Fees 22,574 35,594 21,251 13,389 11,161 Total 92,730 146,973 108,312 90,853 55,328 Interest: Margin Account Balances 89,971 60,491 50,098 47,026 51,209 Securities Owned and Deposits 15,548 14,074 14,631 16,915 15,025 Total 105,519 74,565 64,729 63,941 66,234 Other 104,550 97,181 84,557 72,688 52,001 Total Revenues 1,178,342 1,278,641 1,074,388 938,659 674,907 Expenses: Compensation and Benefits 756,736 828,409 692,127 594,404 422,524 Communications 74,708 73,048 66,899 62,468 58,323 Occupancy and Equipment 73,108 67,258 61,701 56,035 49,783 Floor Brokerage and Clearance 14,355 15,062 15,016 13,741 11,461 Interest 6,818 1,113 1,886 1,186 4,229 Other Operating Expenses 53,288 50,180 46,774 42,793 36,925 Total Expenses 979,013 1,035,070 884,403 770,627 583,245 Earnings Before Income Taxes 199,329 243,571 189,985 168,032 91,662 Income Taxes 75,210 88,700 70,560 62,500 32,500 Net Earnings $ 124,119 $ 154,871 $ 119,425 $ 105,532 $ 59,162 Per Share Data: Earnings $2.00 $2.57 $2.07 $1.88 $1.10 Cash Dividends $ .56 $ .52 $ .43 $ .37 $ .29 Book Value $14.76 $13.08 $10.66 $8.84 $7.19 Other Data: Total Assets $2,224,282 $2,236,590 $2,111,192 $1,577,143 $1,402,627 Stockholders' Equity $919,281 $790,367 $615,240 $492,010 $385,869 Cash Dividends $34,200 $30,843 $24,624 $20,622 $15,480 Return on Average Equity 14.5% 22.0% 21.6% 24.0% 16.2% Pretax Return on Average Equity 23.3% 34.7% 34.3% 38.3% 25.1% Net Earnings as a Percent of Revenues 10.5% 12.1% 11.1% 11.2% 8.8% Average Common and Common Equivalent Shares Outstanding 62,178 60,354 57,827 56,101 54,016
Ten-Year Financial Summary (continued) (In thousands, except per share amounts) 1990 1989 1988 1987 1986 Revenues: Commissions: Listed Securities $ 129,288 $ 95,276 $ 114,906 $ 109,511 $ 82,450 Options 18,141 14,201 26,668 23,073 16,787 Over-the-Counter Securities 36,500 28,765 38,810 37,684 26,163 Mutual Funds 80,998 54,197 92,769 148,413 95,312 Commodities 11,941 12,413 12,087 10,991 9,335 Insurance 40,424 39,082 36,120 15,728 11,056 Limited Partnership Interests 1,736 1,843 2,877 3,216 8,069 Total 319,028 245,777 324,237 348,616 249,172 Principal Transactions: Equities 11,741 9,166 7,680 10,951 6,750 Debt Securities 116,624 97,247 60,406 45,693 48,013 Total 128,365 106,413 68,086 56,644 54,763 Investment Banking: Underwriting Fees and Selling Concessions 42,395 54,308 35,847 47,502 39,963 Management Fees 11,542 12,071 7,472 14,506 9,449 Total 53,937 66,379 43,319 62,008 49,412 Interest: Margin Account Balances 50,489 44,260 39,722 32,539 30,278 Securities Owned and Deposits 14,817 11,321 8,279 8,642 7,945 Total 65,306 55,581 48,001 41,181 38,223 Other 40,387 26,562 20,887 17,953 12,759 Total Revenues 607,023 500,712 504,530 526,402 404,329 Expenses: Compensation and Benefits 374,119 301,421 309,753 323,524 246,142 Communications 52,527 47,601 42,738 37,521 32,226 Occupancy and Equipment 42,560 36,097 32,459 27,788 24,230 Floor Brokerage and Clearance 10,031 9,400 10,648 9,464 7,539 Interest 6,314 8,604 7,126 4,089 3,784 Other Operating Expenses 29,948 45,292 45,303 25,661 21,558 Total Expenses 515,499 448,415 448,027 428,047 335,479 Earnings Before Income Taxes 91,524 52,297 56,503 98,355 68,850 Income Taxes 32,700 17,348 20,490 44,625 30,768 Net Earnings $ 58,824 $ 34,949 $ 36,013 $ 53,730 $ 38,082 Per Share Data: Earnings $1.09 $ .66 $ .67 $1.00 $ .72 Cash Dividends $ .28 $ .26 $ .26 $ .24 $ .21 Book Value $6.45 $5.64 $5.20 $4.82 $4.08 Other Data: Total Assets $1,126,004 $1,062,640 $869,940 $982,300 $917,961 Stockholders' Equity $343,539 $300,585 $274,100 $256,833 $214,598 Cash Dividends $15,185 $13,904 $13,990 $12,734 $11,169 Return on Average Equity 18.3% 12.2% 13.6% 22.8% 18.8% Pretax Return on Average Equity 28.4% 18.2% 21.3% 41.7% 33.9% Net Earnings as a Percent of Revenues 9.7% 7.0% 7.1% 10.2% 9.4% Average Common and Common Equivalent Shares Outstanding 53,922 53,119 53,561 53,584 53,020 Per share data have been restated for stock splits and stock dividends.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's Financial Discussion General Business Environment As its principal business, the Company provides investment services to retail clients. It also provides investment services to institutional clients and investment banking services to corporate and governmental clients. Many factors affect the Company's revenues, including changes in economic conditions, investor sentiment, the level and volatility of interest rates, inflation, political events, and competition from other financial institutions. Because investor reaction to these factors is unpredictable and beyond the Company's control, earnings may fluctuate significantly from period to period. The securities industry's sensitivity to interest rate trends was demonstrated again in fiscal 1995 as profitability declined industry-wide following three years of record profits in a declining interest rate environment. In February 1994, the Federal Reserve increased interest rates for the first time in five years and subsequently raised rates an additional six times. What followed was a steep decline in bond prices, resulting in the bond market's worst performance in decades. Rising interest rates also adversely affected underwriting activities in both the government and corporate sectors, leading to a substantial decline in debt refundings and new issuance of both debt and equity securities. Debt refundings, which occur when issuers refinance their debt at lower rates, were especially hard hit after rising to record levels during the prior three years of lower interest rates. Mutual fund sales decreased industry- wide, and redemptions of mutual fund shares rose sharply over the previous year. The Mexican government devalued the peso in December, sending tremors through emerging markets. Overall, foreign stock markets were in decline. However, despite the decline in bond prices and underwriting activities, the stock market, buoyed by corporate earnings, increased modestly, as the Dow Jones Industrial Average closed the fiscal year at 4,011, up from 3,832 on February 28, 1994. The New York Stock Exchange and the Nasdaq reported a record volume of securities traded for the year. Results of Operations After five consecutive years of achieving record revenues and profitability, the Company's revenues, net earnings and earnings per share declined in fiscal 1995, reflecting the overall trend in the securities industry. Fiscal 1995 revenues decreased 8% ($100 million) from $1.3 billion in 1994 to $1.2 billion, but remained $100 million over 1993's revenues. Net earnings of $124 million in fiscal 1995 were down 20% from $155 million in 1994 and up slightly over 1993's net earnings of $119 million. Earnings per share were $2.00 in the current year, versus $2.57 and $2.07 in 1994 and 1993, respectively. Profit margins declined to 10.5% in fiscal 1995 compared with 12.1% and 11.1% in 1994 and 1993, respectively. Despite their decline, fiscal 1995 revenues and profitability were still the second highest in the Company's history. Fiscal 1995 earnings per share represented the third highest. During the last five years, the number of A.G. Edwards investment brokers increased 42%. This included a 6% increase in 1995, which brought the total number of investment brokers to 5,483 at fiscal year end. The number of investment brokers also grew by 6% in 1994 and approximately 8% in each of the previous three years. The number of locations increased to 516 in 1995, from 491 at the prior year's end. It is the Company's intent to continue expanding its distribution system as opportunities present themselves. The following table summarizes the changes in the major categories of revenues and expenses for the past two fiscal years (in thousands):
1995 vs. 1994 1994 vs. 1993 Increase (Decrease) Revenues: Commissions $(138,439) (18)% $171,473 29% Principal transactions 54,060 29 (28,341) (13) Investment banking (54,243) (37) 38,661 36 Interest 30,954 42 9,836 15 Other 7,369 8 12,624 15 Total $(100,299) (8)% $204,253 19% Expenses: Compensation and benefits $(71,673) (9)% $136,282 20% Communications 1,660 2 6,149 9 Occupancy and equipment 5,850 9 5,557 9 Floor brokerage and clearance (707) (5) 46 -- Interest 5,705 513 (773) (41) Other operating expenses 3,108 6 3,406 7 Total $(56,057) (5)% $150,667 17%
Commissions Commissions represent the most significant source of revenue for the Company, accounting for more than 50% of total revenue. Commission revenue dropped 18% ($138 million) in fiscal 1995, compared with a 29% ($171 million) increase in 1994. Commissions from mutual fund sales and listed and over-the-counter equity transactions accounted for nearly all of the 1995 decline, reflecting decreased retail investor activity due to uncertainties in the equities markets. Following the industry-wide trend, commissions from mutual fund sales declined 40% ($100 million), as sales of bond funds and other income-oriented funds dropped 63%, and growth fund sales decreased 29% from the previous year. Distribution fees received from mutual funds increased $11 million to partially offset the decrease in sales revenue. Despite record trading volume and slightly higher stock prices, commissions generated from equity transactions declined approximately 13% ($49 million) in fiscal 1995. In contrast, fiscal 1994 mutual fund revenues, including distribution fees, rose 32% ($71 million), reflecting record industry-wide sales. During 1994, mutual funds attracted investors searching for higher yields. Commissions from listed equities transactions and over-the-counter equities transactions increased 18% ($42 million) and 37% ($25 million) in 1994, respectively, as the equity markets benefited from a three-year trend of declining interest rates. Investor demand for small- and medium-capitalization stocks contributed to the higher over-the-counter revenue. Trading volume on the New York Stock Exchange and the Nasdaq increased 30% and 42%, respectively. A 60% ($28 million) increase in the sale of insurance products, primarily tax-deferred annuities, also contributed to the fiscal 1994 increase in commission revenues. Principal Transactions The Company effects transactions with customers by acting as a principal, and as such, must maintain the levels of securities inventory necessary to satisfy customer order flow. Realized and unrealized gains and losses may result from holding securities positions for resale to customers and are included in principal transaction revenue. Principal transaction revenues were up 29% ($54 million) in fiscal 1995, partially offsetting the decline in the Company's overall revenues. This rise in principal transaction revenue in 1995 was primarily due to increased sales of municipal and government debt securities, which collectively produced 45% ($51 million) higher revenues than 1994. Volatility in the bond markets following rising interest rates led investors to longer-term, more conservative investments, and higher interest rates contributed to an increased demand for tax-free investments. Higher sales of mortgage securities also contributed to the increase in principal transaction revenues. In contrast, fiscal 1994's revenue from debt securities decreased primarily due to a 23% ($33 million) drop in revenue from municipal and government bonds; a declining interest rate environment led investors to alternative investment vehicles, such as stocks and equity mutual funds. Fiscal 1995 results include a $4.1 million increase in bond inventory gains, compared with the $11 million decline reported in fiscal 1994. Revenue from equity securities was down slightly in 1995 due principally to lower equity inventory gains, while fiscal 1994 reflected a 29% ($9 million) increase due to the more favorable market conditions for stocks. Investment Banking The Company derives investment banking revenue from underwriting public offerings of securities for corporations and governmental entities and by providing advisory services for such clients. The rising interest rate environment of fiscal 1995 was reflected in the 37% ($54 million) reduction of revenue generated from investment banking activities compared to fiscal 1994. Underwriting fees and selling concessions from corporate equity underwriting, primarily closed-end mutual funds, declined 46% ($34 million) in 1995 after increasing 48% ($24 million) in 1994. Fiscal 1994 reflected more favorable market conditions for the issuance of equity securities. Revenues from municipal debt issues declined 33% ($9 million) due to a significant reduction in debt refundings and in the supply of new bonds. Increased revenues of $4 million from corporate debt issues, due to two large offerings in the current year, partially offset the revenue decline from municipal issues. Fees received for serving as managing underwriter fell to $23 million from $36 million in the previous year and were $21 million in 1993. The Company participated as manager in 58 corporate offerings in 1995 and 119 in 1994. Closed-end mutual funds accounted for five corporate offerings in 1995 and 66 in 1994. Interest The Company earns interest revenue principally from financing customer purchases of securities, from debt securities carried for resale to customers and from short-term investments. Interest revenue rose in 1995 primarily due to a 22% increase in average receivables in customer margin accounts and an increase in interest rates charged on such receivables. The fiscal 1994 increase was due principally to a 28% rise in average margin account receivables, partially offset by lower interest rates charged on these accounts. Other Other revenues increased 8% in 1995 and 15% in 1994. Fees received in connection with customer investments under professional management and administrative transaction fees accounted for the majority of this increase in both years. Expenses Compensation and benefits, the major components of the Company's overall expenses, declined 9% in fiscal 1995 and rose 20% in 1994. A significant dollar amount of these expenses is directly related to commissionable sales and the firm's profitability. Therefore, a year-to-year comparison generally reflects the 1995 decrease in revenue and profitability and the 1994 increase in revenue and profitability. General and administrative salary expense increased 12% ($16 million) in 1995 and 13% ($16 million) in 1994 due to general increases and expansion. In 1994, an amendment to the Company's Incentive Stock Plan defined the service period in connection with restricted stock awards to coincide with the period for which the amount of the award is determined. Beginning in 1994, the amount of the award is expensed in the year granted instead of being amortized over the subsequent three-year restricted period. As a result of this transaction, both 1995 and 1994 include expense for the current-year awards and amortization of awards granted prior to fiscal 1994. The amount charged to expense was $19 million (including $7 million of amortization) in 1995, $25 million (including $9 million of amortization) in 1994 and $6 million (amortization only) in 1993. Communication expense was flat in 1995 compared with 1994 due to savings realized by the Company's implementing its own broker workstations to replace leased communications equipment in the branches. These expenses were 9% higher in 1994 than 1993, reflecting higher costs and branch expansion. Occupancy expense increased 9% each year because of rent increases and expansion. Interest expense increased to $7 million in 1995 from $1 million in 1994 because of higher average bank borrowings and higher interest rates. Income Taxes For information concerning the provision for income taxes as well as information regarding differences between effective tax rates and statutory rates, see Note 6 of the Notes to Consolidated Financial Statements. Liquidity and Capital Resources Average assets increased during the last three years primarily because of expansion, increased customer margin activities and growth of earnings. Assets fluctuate in the normal course of business principally because of the timing of certain transactions, which may result in corresponding fluctuations in related liabilities. Customer-related receivables and securities inventory, which are highly liquid, represent a substantial percentage of these assets. The principal sources for financing the Company's assets are stockholders' equity, customer free credit balances, proceeds from securities lending, bank loans and other payables. The Company has no long-term debt. Cash generated from operations, earnings and proceeds from employee stock plans have kept bank borrowings at low levels in the past three years. Average daily borrowings were $64 million in 1995, $14 million in 1994 and $26 million in 1993. Capital expenditures for the past three years, including $51 million in fiscal 1995, primarily for computer equipment and branch expansion, have been financed from operations. The Company has commenced plans for future expansion with construction of an employee parking garage to be completed in fiscal 1996. The cost of the garage is expected to be approximately $10 million. Costs for construction of additional Home Office facilities, expected to begin in late fiscal 1996, are estimated to be $40 to $45 million. The Company may purchase treasury shares for its employee stock plans. During fiscal 1995, 162,700 shares were purchased and issued in connection with these plans. These expenditures, as well as dividend payments and the cost of expansion, are expected to be financed from operations. Because of the Company's size, earnings history and strong financial condition, management believes adequate sources of credit would be available, if needed, to finance higher trading volumes, branch expansion, stock repurchases and major capital expenditures. The Company's principal subsidiary, A.G. Edwards & Sons, Inc., is required by the Securities and Exchange Commission (SEC) to maintain specified amounts of liquid net capital to meet its obligations to customers (see Note 5 of the Notes to Consolidated Financial Statements). A.G. Edwards & Sons, Inc.'s net capital in excess of that required by the SEC on February 28, 1995, was approximately $562 million, up from $474 million the previous year. Other Matters The Company does not act as dealer, trader or end-user of complex derivatives, such as swaps, collars or caps. During the past fiscal year, the Company initiated efforts to provide advice and guidance on complex derivative products to selected clients; however, this activity does not involve the Company's acquiring a position or commitment in these products. The Company will occasionally hedge a portion of its debt inventory through the use of financial futures contracts. These transactions are not material to the Company's financial condition or results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The quarterly financial information required by this item is contained in the table included as Item 5 of this Form 10-K. Additional Information: Edwards maintains a Stockbroker's Blanket Bond insuring various loss contingencies. Under the terms of the current policy, Edwards is responsible for the first $2 million of each such occurrence. Independent Auditors' Report To the Board of Directors and Stockholders of A.G. Edwards, Inc.: We have audited the accompanying consolidated balance sheets of A.G. Edwards, Inc. and subsidiaries as of February 28, 1995 and 1994, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended February 28, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of A.G. Edwards, Inc. and subsidiaries as of February 28, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 1995, in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP April 20, 1995 St. Louis, Missouri
Consolidated Balance Sheets February 28, February 28, (In thousands, except share amounts) 1995 1994 Assets Cash and cash equivalents $ 41,464 $ 40,341 Cash and government securities, at market, segregated under federal and other regulations 43,808 195,726 Securities purchased under agreements to resell 42,819 114,553 Receivable from brokers and dealers 309,417 260,858 Receivable from customers, less allowance for doubtful accounts of $3,450 and $3,400 1,359,172 1,218,145 Securities inventory, at market: State and municipal 77,834 97,991 Government and agencies 30,239 28,864 Corporate 44,489 40,904 Property and equipment, at cost, net of accumulated depreciation and amortization of $145,072 and $124,423 167,570 145,441 Other assets 107,470 93,767 $2,224,282 $2,236,590 Liabilities and Stockholders' Equity Checks payable $106,973 $111,947 Payable to brokers and dealers 462,693 623,034 Payable to customers 415,741 355,224 Securities sold but not yet purchased, at market 39,478 24,109 Employee compensation and related taxes 246,120 285,213 Income taxes 2,370 9,959 Other liabilities 31,626 36,737 Total Liabilities 1,305,001 1,446,223 Stockholders' Equity: Preferred stock, $25 par value: Authorized, 4,000,000 shares, none issued Common stock, $1 par value: Authorized, 250,000,000 shares Issued, 62,294,211 and 60,446,336 shares 62,294 60,446 Additional paid-in capital 194,863 165,124 Retained earnings 665,992 576,073 923,149 801,643 Less - Unamortized expense of restricted stock awards 3,868 11,276 Total Stockholders' Equity 919,281 790,367 $2,224,282 $2,236,590 See Notes to Consolidated Financial Statements.
Consolidated Statements of Earnings (In thousands, except per share amounts) Year Ended February 28, February 28, February 28, 1995 1994 1993 Revenues: Commissions $ 634,518 $ 772,957 $ 601,484 Principal transactions 241,025 186,965 215,306 Investment banking 92,730 146,973 108,312 Interest 105,519 74,565 64,729 Other 104,550 97,181 84,557 1,178,342 1,278,641 1,074,388 Expenses: Compensation and benefits 756,736 828,409 692,127 Communications 74,708 73,048 66,899 Occupancy and equipment 73,108 67,258 61,701 Floor brokerage and clearance 14,355 15,062 15,016 Interest 6,818 1,113 1,886 Other operating expenses 53,288 50,180 46,774 979,013 1,035,070 884,403 Earnings Before Income Taxes 199,329 243,571 189,985 Income Taxes 75,210 88,700 70,560 Net Earnings $ 124,119 $ 154,871 $ 119,425 Earnings per share $ 2.00 $ 2.57 $ 2.07 See Notes to Consolidated Financial Statements.
Consolidated Statements of Stockholders' Equity Three years ended February 28, 1995 (In thousands, except per share amounts) Unamortized Additional Expense Common Paid-in Retained of Restricted Treasury Stock Capital Earnings Stock Awards Stock Balances, March 1, 1992 $44,466 $ 95,033 $ 357,244 $ (4,733) $ 0 Net earnings 119,425 Cash dividends -- $.43 per share (24,624) Treasury stock acquired (21) Stock issued: Employee stock purchase/option plans 1,306 19,450 141 Restricted stock 387 10,845 (10,036) (120) Amortization of restricted stock awards 6,477 Balances, February 28, 1993 46,159 125,328 452,045 (8,292) 0 Net earnings 154,871 Cash dividends -- $.52 per share (30,843) Treasury stock acquired (26) Stock issued: Employee stock purchase/option plans 1,154 23,087 575 Restricted stock 1,219 28,623 (11,893) (549) Amortization of restricted stock awards 8,909 Stock split -- 5 for 4 11,914 (11,914) Balances, February 28, 1994 60,446 165,124 576,073 (11,276) 0 Net earnings 124,119 Cash dividends -- $.56 per share (34,200) Treasury stock acquired (2,766) Stock issued: Employee stock purchase/option plans 1,293 17,538 3,500 Restricted stock 555 12,201 439 (734) Amortization of restricted stock awards 6,969 Balances, February 28, 1995 $62,294 $ 194,863 $ 665,992 $ (3,868) $ 0 See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows Year Ended February 28, February 28, February 28, (In thousands) 1995 1994 1993 Cash Flows From Operating Activities: Net earnings $ 124,119 $ 154,871 $ 119,425 Noncash items included in earnings: Depreciation and amortization 28,722 22,895 22,056 Amortization/expense of restricted stock awards 18,778 24,598 6,477 Deferred items (6,095) (11,486) (5,896) (Increase) decrease in operating assets: Segregated cash and government securities 151,918 90,513 (73,238) Receivable from brokers and dealers (48,559) 214,610 (265,828) Receivable from customers (141,027) (267,208) (195,065) Securities inventory 15,197 (18,011) 10,917 Other assets 927 (1,975) (10,098) Increase (decrease) in operating liabilities: Checks payable (4,974) (1,718) 11,282 Payable to brokers and dealers (160,341) 119,655 259,156 Payable to customers 60,517 (220,059) 91,019 Securities sold but not yet purchased 15,369 13,533 (14,585) Employee compensation and related taxes (39,093) 40,987 52,120 Income taxes (7,589) (8,283) 4,888 Other liabilities (5,111) 6,156 6,939 Net cash provided by operating activities 2,758 159,078 19,569 Cash Flows From Investing Activities: Securities purchased under agreements to resell 71,734 (114,553) Purchase of property and equipment (50,851) (27,546) (31,970) Long-term investments included in other assets (8,535) (259) 1,547 Net cash provided by (used in) investing activities 12,348 (142,358) (30,423) Cash Flows From Financing Activities: Employee stock transactions 22,983 26,527 21,928 Purchase of treasury stock (2,766) (26) (21) Cash dividends paid (34,200) (30,843) (24,624) Net cash used in financing activities (13,983) (4,342) (2,717) Net Increase (Decrease) in Cash and Cash Equivalents 1,123 12,378 (13,571) Cash and Cash Equivalents, at Beginning of Year 40,341 27,963 41,534 Cash and Cash Equivalents, at End of Year $ 41,464 $ 40,341 $ 27,963 See Notes to Consolidated Financial Statements. Income tax payments totaled $87,269 in 1995, $105,604 in 1994 and $68,638 in 1993. Interest payments totaled $6,425 in 1995, $1,059 in 1994 and $1,862 in 1993. Supplemental disclosures of noncash financing activities: Restricted stock awards, net of forfeitures, totaled $11,561 in 1995, $27,582 in 1994 and $10,036 in 1993.
Notes to Consolidated Financial Statements Three years ended February 28, 1995 (1) Summary of Significant Accounting Policies The consolidated financial statements include the accounts of A.G. Edwards, Inc. and its wholly owned subsidiaries (collectively referred to as the "Company"). All material intercompany balances and transactions have been eliminated in consolidation. Where appropriate, prior years' financial information has been reclassified to conform with the current year presentation. The Company is in one principal line of business, that of providing investment services. These services are provided through its principal subsidiary, A.G. Edwards & Sons, Inc., and other wholly owned subsidiaries. Cash equivalents consist of interest-earning investments purchased with maturities under 90 days. Securities purchased under agreements to resell (Resale Agreements) are recorded at amounts at which the purchased securities will be sold. Cash and government securities segregated under federal and other regulations included Resale Agreements of $150,000,000 in 1994. The Company's policy is to obtain possession or control of securities purchased under Resale Agreements. Customer securities transactions are recorded on settlement date. Revenues and related expenses for transactions executed but unsettled are accrued on a trade- date basis. Securities inventory and securities segregated under federal and other regulations are recorded on a trade-date basis and are valued at market. Unrealized gains and losses are reflected in revenue. Depreciation of buildings is provided using both straight line and accelerated methods over estimated useful lives of 15 to 45 years. Leasehold improvements are amortized over the lesser of the life of the lease or estimated useful life of the improvement. Depreciation of equipment is provided over estimated useful lives of five to 10 years using both straight line and accelerated methods. Earnings per share is based on the weighted average number of common shares and common share equivalents outstanding of 62,178,000 in 1995, 60,354,000 in 1994 and 57,827,000 in 1993. Common share equivalents represent the effect of shares issuable under the Company's employee stock plans. Primary and fully diluted earnings per share are substantially the same. (2) Bank Loans Bank loans are short-term borrowings with interest generally based on the federal funds rate. Such loans are payable on demand and may be unsecured or collateralized by customer-owned securities held in margin accounts. The average of such borrowings was $63,803,000 in 1995, $14,140,000 in 1994 and $25,600,000 in 1993, at effective interest rates of 5.0%, 3.6% and 4.0%, respectively. Substantially all such borrowings were secured by customer-owned securities. There were no borrowings outstanding at February 28, 1995 and 1994. (3) Employee Stock Plans Options to purchase 1,250,000 shares of common stock granted to employees under the Company's stock purchase plan are exercisable October 2, 1995, at 85% of market price based on dates specified in the plan. Employees purchased 1,228,565 shares at $15.30 per share in 1995, 1,227,908 shares at $17.17 per share in 1994 and 1,227,534 shares at $13.05 per share in 1993. Of the shares exercised, 132,559 treasury shares were utilized in 1995. Under the Company's stock option plan, three types of benefits may be granted to officers and key employees: restricted stock, stock options and stock appreciation rights. Such awards are subject to forfeiture upon termination of employment during a restricted period. Through February 28, 1995, no stock appreciation rights have been granted. Restricted stock awards are made, and shares issued, without cash payment by the employee. The shares are restricted for a vesting period, generally three years, from the award date. In 1994, the Company amended its Incentive Stock Plan to define the service period in connection with restricted stock awards to coincide with the period for which the amount of the award is determined. Therefore, beginning in 1994, awards are expensed in the year granted. For awards prior to 1994, this amount is amortized over the vesting period. Eligible employees as of February 28, 1995, were awarded 546,590 shares with a market value of $11,888,000. As of February 28, 1994, and February 29, 1993, the awards were 883,860 shares and 571,020 shares, respectively, with corresponding market values of $15,689,000 and $12,448,000. As of February 28, 1995, restricted stock awards covering 2,362,183 shares were outstanding with the restrictions expiring at various dates through 1998. Stock options are granted to purchase common stock at 100% of market value at date of grant. Such options are exercisable beginning three years from date of grant and expire eight years from date of grant, or earlier upon termination of employment. During the year ended February 28, 1995, options to purchase 472,872 shares were granted and options to purchase 264,747 shares were exercised. During the years 1994 and 1993, respectively, options to purchase 789,347 shares and 462,726 shares were granted, and options for 241,657 shares and 372,559 shares were exercised. Treasury shares of 66,958 in 1995, 30,560 in 1994 and 8,525 in 1993, were utilized for options exercised. Options to acquire 3,007,976 shares of common stock at prices ranging from $6.81 to $21.80 per share were outstanding at February 28, 1995, and expire at various dates through the year 2003. (4) Employee Profit Sharing Plan The Company has an employee profit sharing plan covering substantially all employees, whereby it is obligated to match, in specified amounts as defined therein, portions of contributions made by eligible employees. Additional contributions may be made at the discretion of the Company. Required and discretionary contributions totaled $41,788,000 in 1995, $52,164,000 in 1994 and $44,604,000 in 1993. (5) Net Capital Requirements A.G. Edwards & Sons, Inc. is subject to net capital rules administered by the Securities and Exchange Commission (SEC) and the New York Stock Exchange. Under such rules, this subsidiary must maintain net capital of not less than 2% of aggregate debit items, as defined, arising from customer transactions and would be restricted from expanding its business or paying cash dividends and loans to affiliates, if its net capital were less than 5% of such items. These rules also require A.G. Edwards & Sons, Inc. to notify and sometimes obtain approval from the SEC and other regulatory organizations for substantial withdrawals of capital and loans to affiliates. At February 28, 1995, the subsidiary's net capital of $587,456,000 was 45% of aggregate debit items and $561,518,000 in excess of the minimum required. Certain other subsidiaries are also subject to minimum capital requirements that may restrict the payment of cash dividends and advances to A.G. Edwards, Inc. The Company's only restriction with regard to the payment of cash dividends is its ability to obtain cash dividends and advances from its subsidiaries, if needed. (6) Income Taxes Effective March 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting For Income Taxes" (SFAS 109). This statement replaces the Company's previous income tax accounting method under Accounting Principles Board Opinion No. 11 (APB Opinion 11), which required deferred income taxes to reflect timing differences between taxable income for tax purposes and for financial reporting purposes. Under SFAS 109, deferred income taxes reflect temporary differences in the basis of the Company's assets and liabilities for income tax purposes and for financial reporting purposes, using current tax rates. The adoption of SFAS 109 did not have a material effect on the Company's financial condition or results of operations.
The provisions for income taxes consist of (in thousands): 1995 1994 1993 Current: Federal $ 67,821 $ 85,940 $ 65,631 State and local 13,484 14,246 10,870 81,305 100,186 76,501 Deferred (6,095) (11,486) (5,941) $ 75,210 $ 88,700 $ 70,560
Deferred tax assets totaled $45,545,000 at February 28, 1995, and $37,919,000 at February 28, 1994, and consisted primarily of employee benefits that are not currently deductible. The Company expects to fully realize these deferred tax assets given its historical levels of earnings and related taxes paid; accordingly, no valuation allowance has been established. Deferred tax liabilities totaled $16,027,000 at February 28, 1995, and $14,496,000 at February 28, 1994, and consisted primarily of accelerated depreciation deductions.
In 1993, the components of deferred income taxes included in the provision for income taxes computed under APB Opinion 11 were as follows (in thousands): 1993 Employee benefits $ (6,883) Accelerated depreciation 1,209 Other (267) $ (5,941)
The Company's effective tax rate was 38% in 1995, 36% in 1994 and 37% in 1993, which differed from the federal statutory rate of 35% in 1995 and 1994 and 34% in 1993. State and local taxes, net of federal benefit, increased the effective rate by 4% in 1995, 3% in 1994 and 4% in 1993. No other single item had a material impact on the difference in the rates. (7) Common Stock Rights On December 30, 1988, the Board of Directors adopted a Stockholders' Rights Plan by declaring a distribution of one Common Stock Purchase Right for each outstanding share of the Company's common stock. The rights cannot be exercised or traded apart from the common stock until, without the prior consent of the Company, a third party either acquires 20% or more of the Company's outstanding common stock or commences a tender or exchange offer that would result in it acquiring 20% or more of the outstanding common stock. Each right, upon becoming exercisable, entitles the registered holder to purchase one share of common stock for $29.09 from the Company. If a person actually acquires 20% or more of the Company's common stock without the Board of Directors' consent, then each right will entitle its holder, other than the acquiring company, to purchase for $29.09 the number of shares of the Company's common stock (or in the event of a merger or other business combination, the number of shares of the acquirer's stock), which has a market value of $58.18. The rights, which are redeemable by the Company at a price of $0.00384 each prior to a person's acquiring 20% or more of the Company's common stock, are subject to adjustment to prevent dilution and expire January 18, 1999. (8) Commitments and Contingent Liabilities
The Company has long-term operating leases for office space and communications equipment. Minimum rental commitments under all such noncancelable leases, some of which contain escalation clauses and renewal options, at February 28, 1995, are as follows (in thousands): Year ending February 28(29), 1996 $ 34,100 1997 29,300 1998 22,200 1999 17,000 2000 12,500 Later years 23,700 $ 138,800
Rental expense under all operating leases and equipment maintenance contracts was $34,203,000 in 1995, $37,829,000 in 1994 and $35,006,000 in 1993. In the normal course of business, the Company enters into when-issued and underwriting commitments. Transactions relating to open commitments at February 28, 1995, and subsequently settled, had no material effect on the consolidated financial statements as of that date. The Company was contingently liable under letter of credit agreements, principally to satisfy margin deposit requirements with a clearing corporation, in the amount of $56,938,000 at February 28, 1995, and $58,000,000 at February 28, 1994. Of this amount, $5,000,000 and $10,000,000, respectively, were collateralized by customer-owned securities. Such agreements are for periods of three months to one year. The Company is a defendant in a number of lawsuits, in some of which plaintiffs claim substantial amounts, relating to its securities and commodities business. While results of litigation cannot be predicted with certainty, management, after consultation with counsel, believes that resolution of all such litigation will have no material adverse effect on the consolidated financial statements of the Company. (9) Financial Instruments Off-Balance Sheet Risk and Concentration of Credit Risk The Company records customer transactions on a settlement-date basis, generally five business days after trade date. The risk of loss on unsettled transactions is identical to settled transactions and relates to customers' and other counterparties' inability to fulfill their contracted obligations. In the normal course of business, the Company also executes customer transactions involving the sale of securities not yet purchased, the purchase and sale of futures contracts, and the writing of option contracts on both securities and futures. In the event customers or other counterparties such as broker-dealers or clearing organizations fail to satisfy their obligations, the Company may be required to purchase or sell financial instruments in order to fulfill its obligations at prices that may differ from amounts recorded in the balance sheet. Customer financing and securities settlement activities generally require the Company to pledge customer securities as collateral in support of various financing sources. Additionally, customer securities may be pledged as collateral to satisfy margin deposits at various clearing organizations. To the extent these counterparties are unable to fulfill their contracted obligation to return securities pledged, the Company is exposed to the risk of obtaining securities at prevailing market prices to meet its customer obligations. Securities sold but not yet purchased represent obligations of the Company to deliver specified securities at contracted prices. Settlement of such obligations may be at amounts greater than those recorded in the balance sheet. A substantial portion of the Company's assets and obligations result from transactions with customers and other counterparties who have provided financial instruments as collateral. Volatile trading markets could impair the value of such collateral and impact customers' and other counterparties' ability to satisfy their obligations to the Company. The Company manages its risk associated with the aforementioned transactions through position and credit limits, and the continuous monitoring of collateral. Additional collateral is requested from customers and other counterparties when appropriate. Fair Value Considerations Substantially all of the Company's financial instruments are carried at fair value or amounts that approximate fair value. Government securities segregated, securities inventory and securities sold but not yet purchased are valued using quoted market or dealer prices. Customer receivables, primarily consisting of floating rate loans collateralized by margin securities, are charged interest at rates similar to other such loans made throughout the industry. The Company's remaining financial instruments are generally short-term in nature and liquidate at their carrying values. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item is included under the caption "Election of Directors - Nominees for Directors" on pages 4 through 6 of the Company's 1995 Proxy Statement and in Part I of this Form 10-K under the caption "Executive Officers of the Company". Such information is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is included under the captions "Director Compensation" and "Executive Compensation" on page 6 and pages 8 through 16 of the Company's 1995 Proxy Statement. Such information is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is contained on pages 7 and 8 of the Company's 1995 Proxy Statement under the caption "Ownership of the Company's Common Stock". Such information is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is contained on page 17 of the Company's 1995 Proxy Statement under the caption "Certain Transactions". Such information is hereby incorporated by reference. PART IV ITEM 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K. PAGE INDEX NUMBER (a) 1. Financial Statements Independent Auditors' Report (X) Consolidated balance sheets (X) Consolidated statements of earnings (X) Consolidated statements of stockholders' equity (X) Consolidated statements of cash flows (X) Notes to consolidated financial statements (X) (X) The consolidated financial statements, together with the independent auditors' report thereon of Deloitte & Touche LLP, are included in Item 8 of this Form 10-K. 2. Financial Statement Schedules All schedules are omitted due to the absence of conditions under which they are required or because the required information is provided in the consolidated financial statements or notes thereto. 3. Exhibits* Some of the following exhibits were previously filed as exhibits to other reports or registration statements filed by the Registrant and are incorporated by reference as indicated below. 2 Not applicable. 3(i) Certificate of Incorporation filed as Exhibit 3(i) to the Registrant's Form 10-K for the fiscal year ended February 28, 1993. 3(ii) By-laws filed as Exhibit 3(ii) to the Registrant's Form 10-K for the fiscal year ended February 28, 1994. 4(i) Reference is made to Articles IV, V, X, XII, XIII and XV of the Certificate of Incorporation filed as Exhibit 3(i) to this Form 10-K. 4(ii) Reference is made to Article II, Article III Sections 1 and 15, Article IV Sections 1 and 3, Article VI and Article VII Sections 1-3 of the By-laws filed as Exhibit 3(ii) to this Form 10-K. 4(iii) Rights Agreement dated as of December 30, 1988 between A.G. Edwards, Inc. and Boatmen's Trust Company as Rights Agent filed as Exhibit 4 to the Registrant's Form 8-K Report dated December 30, 1988. 4(iv) Amendment No. 1 to the Rights Agreement dated December 30, 1988, between A.G. Edwards Inc. and Boatmen's Trust Company as Rights Agent, dated May 24, 1991 filed as Exhibit 4.4 to Registrant's Form 10-K for the fiscal year ended February 29, 1992. 9 Not applicable. 10(i) 1982 Restricted Stock and Stock Option Plan. Previously filed as Exhibit 10.3 to Registrant's Form 10-K for the year ended February 28, 1987. 10(ii) A.G. Edwards, Inc. 1988 Incentive Stock Plan (as amended and restated) filed as Exhibit 10.2 to Registrant's Form 10-K for the fiscal year ended February 29, 1992. 10(iii) Certificate of Amendment dated April 27, 1993 to A.G. Edwards, Inc. 1988 Incentive Stock Plan (Exhibit 10(ii)) filed as Exhibit 10(iii) to Registrant's Form 10-K for the fiscal year ended February 28, 1994. 11 Computation of per share earnings may be clearly determined from the consolidated financial statements and notes thereto contained on pages 31 through 37 in the Company's Annual Report to Stockholders for the fiscal year ended February 28, 1995 and incorporated herein by reference. 12 Not applicable. 13 Annual Report to Stockholders for the Fiscal Year ended February 28, 1995, was furnished for the information of the Commisson on or about May 15, 1995, and is not deemed "filed" as part of this form 10-K 16 Not applicable. 18 Not applicable. 21 Subsidiaries of the Registrant. 22 Not applicable. 23 Independent Auditors' Consent. 24 Power of Attorney. 27 Financial Data Schedule. 28 Not applicable. *Numbers correspond to document numbers in Exhibit Table of Item 601 of Regulation S-K. (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of the year ended February 28, 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: May 25, 1995 By /s/ Benjamin F. Edwards III Benjamin F. Edwards III, Chairman of the Board POWER OF ATTORNEY EXHIBIT 24 KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Benjamin F. Edwards III, and David W. Mesker and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign this Report, any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Benjamin F. Edwards III Chairman of the Board, May 25, 1995 Benjamin F. Edwards III President and Director (Chief Executive Officer) /s/ David W. Mesker Treasurer and Director May 25, 1995 David W. Mesker (Principal Financial Officer) /s/ Eugene J. King Vice President May 25, 1995 Eugene J. King (Principal Accounting Officer) /s/ Robert G. Avis Vice Chairman of the Board May 25, 1995 Robert G. Avis and Director /s/ David M. Sisler Vice Chairman of the Board May 25, 1995 David M. Sisler and Director /s/ Dr. E. Eugene Carter Director May 25, 1995 Dr. E. Eugene Carter /s/ Robert C. Dissett Director May 25, 1995 Robert C. Dissett /s/ Dr. Louis Fernandez Director May 25, 1995 Dr. Louis Fernandez /s/ Samuel C. Hutchinson, Jr. Director May 25, 1995 Samuel C. Hutchinson, Jr. /s/ Donna C. E. Williamson Director May 25, 1995 Donna C.E. Williamson
Exhibit Index Exhibit Description 21 Subsidiaries of the Registrant. 23 Independent Auditors' Consent. 24 Power of Attorney. Included on Signature Page 17. 27 Financial Data Schedule. EX-21 2 REGISTRANT'S SUBSIDIARIES EXHIBIT 21 A.G. EDWARDS, INC. REGISTRANT'S SUBSIDIARIES The following listing includes the registrant's directly-owned subsidiaries and indirectly-owned subsidiaries (certain subsidiaries which are not significant are omitted from the listing), all of which are included in the consolidated financial statements:
State of Incorporation/ Name of Company Organization Subsidary of A.G. Edwards & Sons, Inc. (Edwards) Delaware Registrant The Ceres Investment Company Missouri Edwards Indianapolis Historic Partners Indiana Edwards AGE Commodity Clearing Corp. Delaware Registrant A.G. Edwards Life Insurance Company Missouri Registrant Edwards Development Corporation Missouri Registrant A.G. Edwards Trust Company (Missouri Trust) Missouri Registrant AGE Asset Management, Inc. Delaware Missouri Trust A.G. Edwards Asset Performance Monitor, Inc. Missouri Missouri Trust A.G. Edwards Trust Company New Jersey Registrant A.G. Edwards Trust Company Texas Registrant A.G. Edwards Trust Company Florida Registrant A.G.E. Properties, Inc. (Properties) Missouri Registrant A.G.E. Realty Corp. Missouri Properties A.G.E. Redevelopment Corporation Missouri Properties GULL-AGE Capital Group, Inc. Delaware Registrant AGE Investments, Inc. Delaware Registrant
EX-23 3 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements (File Nos. 33-52786, 33-36609, 33-23837, 2-99699, 2-92762 and 2-84977), the A.G. Edwards, Inc. 1988 Incentive Stock Plan, Employee Stock Purchase Plan and Stock Option Plan and the A.G. Edwards, Inc. 1982 Restricted Stock and Stock Option Plan on Form S-8, of our report dated April 20, 1995, appearing in and/or incorporated by reference in the Annual Report on Form 10-K of A.G. Edwards, Inc. for the year ended February 28, 1995. /s/ DELOITTE & TOUCHE LLP May 26, 1995 St. Louis, Missouri EX-27 4 FINANCIAL DATA SCHEDULE FY 95
BD THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR FEB-28-1995 MAR-01-1994 FEB-28-1995 41,464 1,388,918 42,819 279,671 152,562 167,570 2,224,282 0 851,800 0 379,727 39,478 0 62,294 0 0 856,987 2,224,282 241,025 105,519 578,817 92,730 117,796 6,818 756,736 199,329 199,329 0 0 124,119 2.00 2.00
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