-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QwuvOllUfeu7cJf2dWYJL9WeyJ8eWmMUd5sABD+OFylnf2ggazZWkkrLA2iMvq52 msZYNRZp2KoB5xqBiF40YQ== 0000718482-97-000005.txt : 19970530 0000718482-97-000005.hdr.sgml : 19970530 ACCESSION NUMBER: 0000718482-97-000005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970529 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: 97615554 BUSINESS ADDRESS: STREET 1: ONE N JEFFERSON AVE CITY: ST LOUIS STATE: MO ZIP: 63103 BUSINESS PHONE: 3142893000 10-K405 1 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, 1997 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 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 RIGHTS TO PURCHASE COMMON STOCK NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if 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 $2.2 billion at April 30, 1997. At April 30, 1997, there were 63,956,050 shares of A.G. Edwards, Inc. Common Stock, $1 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the fiscal year ended February 28, 1997 (the "1997 Annual Report to Stockholders") are incorporated by reference into Parts I, II and IV hereof. 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 19, 1997 (the "Company's 1997 Proxy Statement") are incorporated by reference into Part III hereof. Other documents incorporated by reference in this report are listed in the Exhibit Index beginning on page 14 of this Form 10-K. 1 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 to individual, corporate, governmental and institutional clients. Edwards' business, primarily with individual clients, is conducted through one of the largest retail branch office networks (based upon number of offices) in the United States. At February 28, 1997, Edwards had 569 offices (up from 536 at the end of the prior fiscal year) in 48 states and the District of Columbia, and 12,031 full-time employees (up from 11,279), including 6,070 investment brokers (up from 5,757) providing services for approximately 1,880,000 clients (up from 1,720,000). No single client 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 (SIPC). 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 (FCM) 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 four A.G. Edwards Trust companies provide investment advisory, portfolio management and trust services. Gull-AGE Capital Group, Inc. serves as general partner of 61 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 operated residential rental property in the Indianapolis, Indiana area. These properties were sold in fiscal 1997. (b) Financial Information About Industry Segments The Company operates in one principal line of business, that of providing investment services. Because the Company's services use the same distribution personnel and facilities, and the same support services, it is impractical to identify the assets, expenses and profitability of any one class of service. 2 (c) Narrative Description of Business Commissions, principal transactions, investment banking and asset management and service fees were the principal sources of consolidated revenue for the last three fiscal years. The total amount of revenue contributed by these services, including the amount of total revenue by class of products or services that accounted for 10% or more of its consolidated revenues, are set forth on pages 22 and 23 of the 1997 Annual Report to Stockholders under the caption "Ten-Year Financial Summary." Such information is hereby incorporated by reference. The Company markets and distributes its products and services to its clients in the 48 contiguous states and the District of Columbia through its branch office network, 6,070 investment brokers and 5,961 support employees. COMMISSIONS Commission revenue represents the most significant source of revenue for the Company, accounting for approximately 50% of total revenue in each of the last five years. The following briefly describes the Company's 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 clients 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, among other factors. Options. Edwards acts as broker in the purchase and sale of option contracts to buy or sell securities, primarily common stocks and stock indexes. Edwards holds memberships for trading on principal option exchanges. Mutual Funds. Edwards distributes mutual fund shares in continuous offerings of open-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 client's purchase price depending upon the size of the transaction and terms of the selling agreement. Revenues derived from mutual fund sales 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' clients' futures transactions are executed and cleared through Clearing. Nearly all transactions in futures contracts are executed with a relatively low margin deposit, usually 3% to 12% of the total contract amount. Consequently, the risk to the client and resulting credit risk assumed by Edwards is substantial, generally greater than on securities transactions. To limit its exposure, Edwards requires its clients to meet 3 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. As a member of the clearing associations of the principal commodity exchanges, Clearing has potentially significant financial exposure 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, 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. PRINCIPAL TRANSACTIONS Client transactions in the equity and fixed income over-the-counter markets may be affected 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 in the Company's financial statements at fair value 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 and closed- end mutual funds. 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 clients. 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 clients 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 4 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. ASSET MANAGEMENT AND SERVICE FEES Asset management and service fees consist primarily of revenues earned for providing support and services in connection with assets under third-party management, including mutual funds. These revenues include fees based on the amount of client assets under management and transaction-related fees, as well as fees related to the administration of custodial and other specialty accounts. Edwards, through the A.G. Edwards Trust companies, provides its clients 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 clients in most states. Clients desiring professional money management are offered three separate account portfolio services. Edwards, acting as investment manager, offers portfolio management strategies based on the client's investment objectives. Through Asset Performance Monitor(R), Edwards provides its clients access to third-party investment management, performance measurement, management search and related consulting services. The Pathways(SM) and Spectrum programs are personalized, fee-based asset allocation programs that utilize mutual fund investments. Clients select from established asset allocation models, or customize their own, based on their investment objectives, risk tolerance and time horizon. Edwards offers the UltraAsset Account, Total Asset Account(R) and the Cash Convenience Account, 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 client accounts. In addition, the UltraAsset and Total Asset Accounts allow clients access to their margin securities and money market shares through the use of debit cards and checking account services provided by a major bank. The UltraAsset Account offers additional advanced features and special investment portfolio reports. Edwards provides custodial services for clients' self-directed Individual Retirement Accounts and Keogh plans. MARGIN FINANCING Securities transactions are executed on a cash or margin basis. In margin transactions, Edwards extends credit to its clients for a portion of the purchase price, with the client's securities held as 5 collateral. The amount of credit is limited by the initial margin regulations issued by the Board of Governors of the Federal Reserve System. 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 client's indebtedness before the collateral can be liquidated. A substantial portion of the Company's assets and obligations result from transactions with clients 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 client transactions is set forth in Note 10 of the Notes to Consolidated Financial Statements under the caption "Off-Balance Sheet Risk and Concentration of Credit Risk" appearing on page 32 of the 1997 Annual Report to Stockholders. Such information is hereby incorporated by reference. A client, borrowing in a margin account, 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 the client'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 the clients' collateral securities, are an available source of funds to carry client margin accounts, the Company's stockholders' equity, cash received from loans of the clients' 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 clients. 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. 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 clients on the basis of price, the quality of its services, financial resources and reputation within the clients' communities. There is constant competition to attract and retain personnel within the securities industry. Competition for the investment dollar and for clients 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. Recent regulatory actions, which reduced certain restrictions on bank affiliates engaging in securities activities, may have the effect of increasing competition from commercial banks and their affiliates for securities 6 underwriting activities and other brokerage services. In addition, continued legislative proposals, calling for further reductions on restrictions for brokerage service and underwriting activities, may also lead to increased competition from commercial banks and their affiliates. REGULATION Edwards, as a broker-dealer and FCM, is subject to various federal and state laws which specifically regulate its activities as a broker-dealer in securities and commodities, as an investment advisor and as an insurance agent. Clearing, as a FCM, is regulated as a broker in commodities. 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 their clients' funds resulting from securities and commodities transactions and the extension of credit to clients on margin transactions. Infractions of these rules and regulations may include suspension of individual employees 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. Information regarding regulatory minimum net capital is set forth in Note 5 of the Notes to Consolidated Financial Statements under the caption "Net Capital Requirements" appearing on page 30 of the 1997 Annual Report to Stockholders. Such information is hereby incorporated by reference. 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 FCMs 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 or do business. 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 four commodity pools sponsored by Edwards, is regulated by the CFTC and the NFA. OTHER MATTERS As with other organizations, the Company's computer programs were originally designed to recognize calendar years by their last two digits. Calculations performed using these truncated fields would not work properly with dates from the year 2000 and beyond. The Company has initiated efforts to remedy this situation and expects all programs to be corrected and tested prior 7 to the year 2000. The incremental costs of this project will not have a material effect on the Company's consolidated financial statements. However, the Company may be adversely impacted if similar efforts of other organizations are unsuccessful. 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 and a five story parking garage. The buildings are located on approximately 590,000 square feet of land owned by the Company. The Company also owns approximately 495,000 square feet of land adjacent to its headquarters and is using this property principally for additional employee parking areas. The Company began construction of an additional headquarters building in November 1995, which is to be completed in the fall of 1997 at a cost of approximately $40 million. Also, the Company owns two of its branch office buildings and two additional office buildings which serve 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, 1997, was $36,165,000. ITEM 3. LEGAL PROCEEDINGS. (a) Litigation The Company is a defendant in numerous lawsuits and arbitrations, in some of which plaintiffs claim substantial amounts, relating primarily 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. (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, 1997. 8 EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the executive officers of the Company as of May 1, 1997. Executive officers are appointed by the Board of Directors to hold office until their successors are appointed and qualified.
Year First Appointed Executive Officer of the Name Age Office & Title Company Benjamin F. Edwards III 65 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 40 years. Director of Edwards since 1967. Robert G. Avis 65 Vice Chairman of the Board of 1984 the Company. Vice Chairman of the Board, Executive Vice President of Edwards, Director of the Investment Banking Division since March 1989 and Director of the Sales and Marketing Division of Edwards from September 1984 to February 1997. Employee of Edwards for 31 years. Director of Edwards since 1970. Robert L. Bagby 53 Vice Chairman of the Board of 1991 the Company. Vice Chairman of the Board, Executive Vice President, and since March 1995, Director of the Branch Division of Edwards. Assistant Director of the Branch Division of Edwards prior to March 1995. Employee of Edwards for 22 years. Director of Edwards since 1979. 9 Year First Appointed Executive Officer of the Name Age Office & Title Company Donnis L. Casey 49 Corporate Vice President of Edwards. 1996 Director of the Staff Division of Edwards since March 1996. Assistant Director of the Staff Division prior to March 1996. Employee of Edwards for 30 years. Director of Edwards since 1993. Robert C. Dissett 59 Executive Vice President, 1990 Assistant Treasurer and Director of Operations of Edwards. Employee of Edwards for 35 years. Director of Edwards since 1973. Benjamin F. Edwards IV 41 Executive Vice President of Edwards. 1996 Director of the Sales and Marketing Division since March 1997. Regional Officer of Edwards from March 1995 to February 1997. Assistant Branch Manager of Edwards from April 1991 to February 1995. Employee of Edwards for 19 years. Director of Edwards since 1994. Alfred E. Goldman 63 Corporate Vice President, Technical 1991 Market Analysis of Edwards. Employee of Edwards for 37 years. Director of Edwards since 1967. Douglas L. Kelly 48 Secretary of the Company. 1994 Corporate Vice President, Secretary of Edwards. Director of Law and Compliance of Edwards since January 1994. Partner at the law firm of Peper, Martin, Jensen, Maichel and Hetlage prior to joining the Company. Employee of Edwards for 3 years. Director of Edwards since 1994. 10 Year First Appointed Executive Officer of the Name Age Office & Title Company Ronald J. Kessler 49 Corporate Vice President and Assistant 1996 Director of Operations of Edwards. Employee of Edwards for 29 years. Director of Edwards since 1989. Eugene J. King 65 Vice President, Controller and 1983 Assistant Treasurer of the Company. Senior Vice President, Assistant Treasurer and Controller of Edwards. Employee of Edwards for 26 years. Director of Edwards since 1988. Robert L. Proost 59 Vice President and Treasurer of the 1990 Company. Corporate Vice President, Treasurer, Assistant Secretary and Director of Administration of Edwards. Employee of Edwards for 9 years. Director of Edwards since 1989.
Benjamin F. Edwards III and Benjamin F. Edwards IV are father and son. Benjamin F. Edwards III and Robert G. Avis are stepbrothers. 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information required by this item is contained in the 1997 Annual Report to Stockholders on page 43 under the caption "Quarterly Financial Information" and on page 44 under the caption "Stockholder Information". Such information is hereby incorporated by reference. The approximate number of equity security holders of record includes customers who hold the Company's stock in their accounts on the books of Edwards. ITEM 6. SELECTED FINANCIAL DATA. The information required by this item is contained on pages 22 and 23 of the 1997 Annual Report to Stockholders under the caption "Ten-Year Financial Summary". Such information is hereby incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this item is contained on pages 18 through 21 of the 1997 Annual Report to Stockholders under the caption "Management's Financial Discussion". Such information is hereby incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item is contained in the Consolidated Financial Statements and Notes thereto, together with the Independent Auditors' Report thereon of Deloitte & Touche llp dated April 24, 1997, and under the caption "Quarterly Financial Information" on pages 24 through 33 and page 43 of the 1997 Annual Report to Stockholders. Such information is hereby incorporated by reference. Additional Information - Edwards maintains a Stockbrokers Blanket Bond insuring various loss contingencies. Under the terms of the current policy, Edwards is responsible for the first $1,000,000 of each such occurrence. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 12 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 1997 Proxy Statement and in Part I of this Form 10-K on pages 9 through 11 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 pages 7 through 16 of the Company's 1997 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 1997 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 1997 Proxy Statement under the caption "Certain Transactions". Such information is hereby incorporated by reference. 13 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, included on pages 24 through 33 of the Company's 1997 Annual Report to Stockholders, are hereby incorporated by reference. 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. 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. 14 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. 4(v) Amendment No. 2 to the Rights Agreement dated December 30, 1988, between A.G. Edwards, Inc. and Boatmen's Trust Company as Rights Agent, dated June 22, 1995 filed with the Registrant's Form 8-A/A on August 17, 1995. 10(i) 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(ii) Certificate of Amendment dated April 27, 1993 to A.G. Edwards, Inc. 1988 Incentive Stock Plan (Exhibit 10(i)) 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 24 through 33 in the Company's Annual Report to Stockholders for the fiscal year ended February 28, 1997 and incorporated herein by reference. 13 Annual Report to Stockholders for the fiscal year ended February 28, 1997. Except for those portions of pages expressly incorporated by reference, the 1997 Annual Report to Stockholders is not deemed filed as part of this Annual Report on Form 10-K. 21 Subsidiaries of the Registrant. 23 Independent Auditors' Consent. 24 Power of Attorney. 27 Financial Data Schedule. This Financial Data Schedule is only required to be submitted with the Registrant's Annual Report on Form 10-K as filed electronically to the SEC's EDGAR database. *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, 1997. 15 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 22, 1997 By /s/ Benjamin F. Edwards III Benjamin F. Edwards III, Chairman of the Board 16 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 Robert L. Proost 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 22, 1997 Benjamin F. Edwards III President and Director (Chief Executive Officer) /s/ Robert L. Proost Treasurer May 22, 1997 Robert L. Proost (Principal Financial Officer) /s/ Eugene J. King Vice President May 22, 1997 Eugene J. King (Principal Accounting Officer) /s/ Robert G. Avis Vice Chairman of the Board May 22, 1997 Robert G. Avis and Director /s/ Robert L. Bagby Vice Chairman of the Board May 22, 1997 Robert L. Bagby and Director /s/ Dr. E. Eugene Carter Director May 22, 1997 Dr. E. Eugene Carter /s/ Robert C. Dissett Director May 22, 1997 Robert C. Dissett Director May 22, 1997 Dr. Louis Fernandez /s/ Samuel C. Hutchinson Jr. Director May 22, 1997 Samuel C. Hutchinson Jr. /s/ David W. Mesker Director May 22, 1997 David W. Mesker /s/ Donna C.E. Williamson Director May 22, 1997 Donna C.E. Williamson 17 Exhibit Index Exhibit Description 13 1997 Annual Report to Stockholders. 21 Subsidiaries of the Registrant. 23 Independent Auditors' Consent. 24 Power of Attorney. Included on Signature Page 17. 18 EX-13 2 Management's Financial Discussion (Year references are to fiscal years ended February 28 (29) unless otherwise specified) (General Business Environment) A.G. Edwards, Inc., is a holding company which, through its operating subsidiaries, (collectively the "Company") provides securities and commodities brokerage, investment banking, trust, asset management and insurance services to its clients through one of the industry's largest retail branch distribution systems. Its principal subsidiary, A.G. Edwards & Sons, Inc., is a St. Louis-based financial services firm with more than 560 locations and approximately 13,000 total employees in the 48 contiguous states. The Company's primary business is to provide a full range of financial products and services to individual investors. The Company also provides products and services to institutional investors and investment banking services to corporate, governmental and municipal clients. Many factors affect the Company's revenues and profitability, including changes in economic conditions, the level and volatility of interest rates, inflation, political events, investor sentiment and competition from other financial institutions. Because these factors are unpredictable and beyond the Company's control, earnings may fluctuate significantly from period to period. Calendar 1996 and the Company's fiscal 1997, which ended February 28, 1997, were marked by record profitability for the securities industry and the Company. A growing economy, rising corporate profits, low interest rates and low inflation provided conditions for another year of increased investor activity, record trading volumes and higher stock prices in domestic equity markets. The Dow Jones Industrial Average surpassed two milestones, "6,000" and "7,000," finishing the fiscal year at 6,878, a 25 percent gain following a 37 percent gain in fiscal 1996. The Nasdaq average jumped 19 percent in fiscal 1997 following a 39 percent gain in the prior fiscal year. Industry-wide, corporate debt and equity underwritings soared to record levels. Merger and acquisition activities also reached record levels. Mutual funds attracted record inflows of cash, directed primarily to domestic equity funds. Although interest rates remained stable, domestic bond markets were volatile as investors expected inflation as well as interest rates to rise - an environment that led to substantially lower returns to fixed-income investors, compared with the prior year. (Results of Operations) Revenues, net earnings and earnings per share for the Company reached record levels in 1997 as the entire securities industry experienced its most profitable year on record. Revenues for the Company rose 17 percent to $1.7 billion from $1.5 billion in 1996. Revenues in 1996 were up 23 percent from $1.2 billion in 1995. Net earnings of $219 million increased 28 percent from $171 million in the previous year. Net earnings in 1996 were up 37 percent from $124 million in 1995. Earnings per share for the Company were $3.36 in 1997 versus $2.65 and $2.00 in 1996 and 1995, respectively. Profit margins were 12.9 percent in 1997, compared with 11.7 percent in 1996 and 10.5 percent in 1995. The number of A.G. Edwards investment brokers reached 6,070 at year end, an increase of five percent from the prior year end. This growth rate compared with an average six percent annual growth during the last five years. The number of locations at the end of 1997 was 569, up from 536 at year-end 1996. It is the Company's intent to continue expanding its distribution system as opportunities present themselves. The following table and discussion summarize the changes in the major categories of revenues and expenses for the past two years (dollars in thousands): 18 1997 vs. 1996 1996 vs. 1995 Increase (Decrease)
Revenues: Commissions $122,717 15% $227,259 39% Principal transactions 6,640 3 (34,658) (14) Investment banking 51,160 49 12,269 13 Asset management and service fees 46,249 24 42,297 28 Interest 13,493 10 28,823 27 Other 1,757 23 135 2 Total $242,016 17% $276,125 23% Expenses: Compensation and benefits $151,176 16% $173,019 23% Communications 5,893 7 5,656 8 Occupancy and equipment 6,806 9 5,969 8 Floor brokerage and clearance 1,874 12 1,920 13 Interest (1,088) (35) (3,665) (54) Other operating expenses (1,320) (2) 16,273 31 Total $163,341 14% $199,172 20%
(Commissions) Commissions are the most significant source of revenue for the Company, accounting for 55 percent of total revenue in both 1997 and 1996. Commission revenue jumped 15 percent, from $806 million in 1996 to $929 million in 1997, and accounted for more than 50 percent of the Company's overall revenue in- crease for the year. As commissions are transaction-based revenues, they are directly influenced by changes in trading volume and may vary considerably from period to period. Listed equity securities commissions increased eight percent ($27 million) and over-the-counter equity commission revenue rose 25 percent ($36 million) in 1997 over 1996, fueled by record trading volumes and higher stock prices on the New York Stock Exchange and the Nasdaq. For the industry, average daily trading volume for 1997 was up 17 percent on the New York Stock Exchange and 29 percent on the Nasdaq. The number of equity agency transactions for the Company increased 17 percent over 1996; however, the average ticket size decreased three percent. Company revenues from mutual fund sales rose 17 percent ($33 million) in 1997, consistent with industry-wide record cash flows into funds. Sales of annuities also increased $20 million (25 percent) in 1997. Fiscal 1996's 39 percent ($227 million) increase in total commissions over fiscal 1995 reflected increased retail investor activity due to higher stock prices and trading volumes as well as strong cash flows into mutual funds. (Principal Transactions) The Company seeks to maintain inventories of debt and equity securities to satisfy investor demand and, therefore, effects certain transactions with its clients by acting as principal. Realized and unrealized gains and losses result from holding securities positions for resale to investors and are included in principal transaction revenue. Principal transaction revenue increased three percent ($7 million) in 1997, primarily due to a 15 percent ($9 million) rise in sales of municipal debt securities. Growth in municipal debt securities was due, in part, to subsiding investor concerns about the effect of tax reforms on the municipal securities market. Lower sales of corporate and government debt securities and smaller inventory gains, compared with the previous year, partially offset this increase. Revenue from the principal sale of equity securities also rose six percent ($3 million) in 1997. In 1996, revenues from principal transactions declined 14 percent ($35 million). The decline was due, in large part, to lower interest rates and fear of tax law changes that might eliminate the tax advantage of municipal securities, causing investors to seek other investment vehicles. Overall revenue from the sale of debt securities was down 26 percent ($52 million) in 1996 compared with 1995. A 47 percent ($18 million) increase in the principal sale of equity securities partially offset this decrease in 1996. (Investment Banking) The Company derives investment banking revenue by underwriting public offerings of securities for corporations and governmental entities and by providing advisory services to these clients. Investment banking revenue grew 49 percent from $105 million in 1996 to $156 million in 1997, as favorable market conditions for these activities continued during the year. Underwriting fees and concessions advanced 42 percent ($34 million) in 1997, principally due to a 43 percent ($27 million) increase in revenue from corporate equity and debt issues in 1997. Fees from serving as managing underwriter in corporate equity and debt offerings rose 33 percent ($5 million) in 1997. Fees from participation in municipal debt offerings increased $3 million (39 percent). Also, fees received in connection with 19 serving as advisor in merger and acquisition activities rose $9 million due to a greater number of larger sized deals in 1997 compared to 1996. The most financially significant investment banking transactions in 1997 for the Company included serving as senior manager of the municipal bond offerings used to restructure the debt of Orange County, Calif., and serving as advisor in the $3.4 billion sale of West Publishing, Inc. In 1996, the increase of $12 million (13 percent) in investment banking revenues over 1995 was primarily due to increased underwriting fees and concessions generated from corporate equity and debt offerings, resulting from an improved market for corporate securities issues. (Asset Management and Service Fees) Asset management and service fees consist primarily of revenues earned for providing support and services in connection with client assets under third- party management, including mutual funds. These revenues include fees based on the amount of client assets under management, including assets with the A.G. Edwards Trust Companies, and transaction-related fees, as well as fees related to the administration of custodial and other specialty accounts. Asset management and service fees rose $46 million in 1997, an increase of 24 percent. Fees from the third-party mutual funds were 24 percent ($28 million) higher over 1996, reflecting the strong cash inflows to funds as well as higher market valuations of existing assets. Fees for administration of client assets under other third-party management, as well as the Company's management services, increased 44 percent ($14 million) in 1997. The number of these accounts increased 57 percent while the total assets in these programs grew from $4.2 billion in 1996 to $5.8 billion in 1997, an increase of 38 percent. The 1996 increase of 28 percent ($42 million) was primarily due to service fees from third-party mutual funds as a result of an increase in assets under management from the previous year and higher revenues from transaction-related fees and other administrative fees. (Interest) The Company earns interest revenue principally from financing its clients' margin accounts, from debt securities carried for resale and from short-term investments. Interest revenue rose in 1997 primarily because of a 10 percent ($11 million) increase in interest earned on margin accounts. Although average margin debits increased 23 percent, slightly lower average interest rates charged on these accounts partially offset this increase. Interest earned on short-term investments increased $6 million, while interest revenues from securities owned decreased slightly. The 1996 versus 1995 increase was principally due to a 19 percent ($17 million) increase in interest earned on margin accounts and from increased short-term investments. (Expenses) Compensation and benefits, the major components of the Company's overall expense, rose 16 percent in 1997 and 23 percent in 1996. A significant portion of this expense is variable in nature and directly relates to commissionable sales and to the Company's profitability. Thus, the year-to-year comparisons generally reflect the increase in revenue and profitability in both 1997 and 1996. In addition, general and administrative salary expense increased 13 percent ($22 million) in 1997 and nine percent ($13 million) in 1996 because of general salary increases and an increased number of employees. All remaining expenses increased a combined $12 million (five percent) over last year. Communications expense, and occupancy and equipment expense showed slight increases and were expansion related. (Income Taxes) For information concerning the provision for income taxes as well as information regarding the difference 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 each of the last three years primarily as a result 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 and broker-dealer related receivables and securities inventory, which are highly liquid, represent a substantial percentage of assets. The growth in total assets and liabilities in 1997 was primarily the result of a significant increase in securities lending transactions, and related securities borrowed transactions, due to a record level of short stock sales in the stock market. 20 The principal sources for financing the Company's assets are stockholders' equity, proceeds from securities lending, bank loans, customer free credit balances and other payables. The Company has no long-term debt. Cash generated from operations and proceeds from employee stock plans have kept bank borrowings at low levels in the past three years. Average daily borrowings were $2 million in 1997, $5 million in 1996 and $64 million in 1995. Capital expenditures for the past three years have been financed from operations. Construction of an additional headquarters building, which began in November, 1995, is expected to cost about $40 million. The Company expended $22 million in connection with this construction through February 28, 1997. In May, 1996, the Board of Directors authorized a repurchase of up to 22 million shares of the Company's common stock over a 5 1/2-year period, to fund employee stock plans and partially offset the past effects of these plans. In 1997, 2.3 million shares were purchased at an aggregate cost of $65 million. These treasury shares were purchased with funds generated from operations. Future purchases, as well as dividend payments and the costs of expansion, are also expected to be funded from operations. Because of the Company's size, earnings history and strong financial condition, management believes adequate sources of credit are 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). The net capital of A.G. Edwards & Sons, Inc., in excess of that required by the SEC was approximately $850 million on February 28, 1997, up from $689 million the previous year. (Other Matters) As with other organizations, the Company's computer programs were originally designed to recognize calendar years by their last two digits. Calculations performed using these truncated fields would not work properly with dates from the year 2000 and beyond. The Company has initiated efforts to remedy this situation and expects all programs to be corrected and tested prior to the year 2000. The incremental costs of this project will not have a material effect on the Company's consolidated financial statements. (Recent Accounting Pronouncements) Effective in January, 1998, the Company will adopt certain provisions of Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125), which are applicable to its business. SFAS 125 introduces a financial-components approach which focuses on the recognition of financial assets and liabilities an entity controls and the derecognition of financial assets and liabilities for which control has been transferred. The adoption of this statement is not expected to have a material effect on the Company's financial condition or results of operations. In February, 1997, SFAS No. 128, "Earnings per Share," was issued and is effective for financial statements issued for periods ending after December 15, 1997. This statement changes the method for calculating and disclosing earnings per share. This statement will not have a material effect on the Company's financial statements. 21
Ten-Year Financial Summary Year Ended: 1997 1996 1995 1994 1993 (In thousands, except per share amounts) Revenues: Commissions: Listed Securities $ 365,908 $ 338,241 $ 236,629 $ 273,363 $ 231,312 Options 33,850 29,432 21,576 21,135 19,167 Over-the-Counter Securities 178,752 142,696 80,525 94,075 69,199 Mutual Funds 222,146 189,109 147,709 248,146 193,820 Commodities 16,038 16,448 15,261 16,766 13,016 Insurance 112,099 90,150 77,117 74,862 46,757 Total 928,793 806,076 578,817 728,347 573,271 Principal Transactions: Equities 58,427 55,334 37,565 40,260 31,266 Debt Securities 154,580 151,033 203,460 146,705 184,040 Total 213,007 206,367 241,025 186,965 215,306 Investment Banking: Underwriting Fees and Selling Concessions 114,426 80,572 70,156 111,379 87,061 Management Fees 41,733 24,427 22,574 35,594 21,251 Total 156,159 104,999 92,730 146,973 108,312 Asset Management and Service Fees 241,349 195,100 152,803 135,163 107,306 Interest: Margin Account Balances 118,373 107,192 89,971 60,491 50,098 Securities Owned and Deposits 29,462 27,150 15,548 14,074 14,631 Total 147,835 134,342 105,519 74,565 64,729 Other 9,340 7,583 7,448 6,628 5,464 Total Revenues 1,696,483 1,454,467 1,178,342 1,278,641 1,074,388 Expenses: Compensation and Benefits 1,080,931 929,755 756,736 828,409 692,127 Communications 86,257 80,364 74,708 73,048 66,899 Occupancy and Equipment 85,883 79,077 73,108 67,258 61,701 Floor Brokerage and Clearance 18,149 16,275 14,355 15,062 15,016 Interest 2,065 3,153 6,818 1,113 1,886 Other Operating Expenses 68,241 69,561 53,288 50,180 46,774 Total Expenses 1,341,526 1,178,185 979,013 1,035,070 884,403 Earnings Before Income Taxes 354,957 276,282 199,329 243,571 189,985 Income Taxes 135,900 105,700 75,210 88,700 70,560 Net Earnings $ 219,057 $ 170,582 $ 124,119 $ 154,871 $ 119,425 Per Share Data: Earnings $ 3.36 $ 2.65 $ 2.00 $ 2.57 $ 2.07 Cash Dividends $ 0.66 $ 0.60 $ 0.56 $ 0.52 $ 0.43 Book Value $ 19.68 $ 17.00 $ 14.76 $ 13.08 $ 10.66 Other Data: Total Assets $4,244,340 $3,102,085 $2,224,282 $2,236,590 $2,111,192 Stockholders' Equity $1,261,303 $1,088,684 $ 919,281 $ 790,367 $ 615,240 Cash Dividends $ 41,851 $ 37,769 $ 34,200 $ 30,843 $ 24,624 Return on Average Equity 18.6% 17.0% 14.5% 22.0% 21.6% Pretax Return on Average Equity 30.2% 27.5% 23.3% 34.7% 34.3% Net Earnings as a Percent of Revenues 12.9% 11.7% 10.5% 12.1% 11.1% Average Common and Common Equivalent Shares Outstanding 65,211 64,429 62,178 60,354 57,827 Per share data have been restated for stock splits and stock dividends.
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Year Ended: 1992 1991 1990 1989 1988 (In thousands, except per share amounts) Revenues: Commissions: Listed Securities $ 203,936 $ 140,096 $ 129,288 $ 95,276 $114,906 Options 21,745 20,002 18,141 14,201 26,668 Over-the-Counter Securities 69,415 38,842 38,236 30,608 41,687 Mutual Funds 146,377 80,529 70,299 46,675 87,096 Commodities 13,941 12,322 11,941 12,413 12,087 Insurance 47,343 39,514 40,424 39,082 36,120 Total 502,757 331,305 308,329 238,255 318,564 Principal Transactions: Equities 23,157 10,922 11,741 9,166 7,680 Debt Securities 165,284 145,732 116,624 97,247 60,406 Total 188,441 156,654 128,365 106,413 68,086 Investment Banking: Underwriting Fees and Selling Concessions 77,464 44,167 42,395 54,308 35,847 Management Fees 13,389 11,161 11,542 12,071 7,472 Total 90,853 55,328 53,937 66,379 43,319 Asset Management and Service Fees 87,461 61,084 47,020 30,654 23,083 Interest: Margin Account Balances 47,026 51,209 50,489 44,260 39,722 Securities Owned and Deposits 16,915 15,025 14,817 11,321 8,279 Total 63,941 66,234 65,306 55,581 48,001 Other 5,206 4,302 4,066 3,430 3,477 Total Revenues 938,659 674,907 607,023 500,712 504,530 Expenses: Compensation and Benefits 594,404 422,524 374,119 301,421 309,753 Communications 62,468 58,323 52,527 47,601 42,738 Occupancy and Equipment 56,035 49,783 42,560 36,097 32,459 Floor Brokerage and Clearance 13,741 11,461 10,031 9,400 10,648 Interest 1,186 4,229 6,314 8,604 7,126 Other Operating Expenses 42,793 36,925 29,948 45,292 45,303 Total Expenses 770,627 583,245 515,499 448,415 448,027 Earnings Before Income Taxes 168,032 91,662 91,524 52,297 56,503 Income Taxes 62,500 32,500 32,700 17,348 20,490 Net Earnings $ 105,532 59,162 $ 58,824 $ 34,949 $ 36,013 Per Share Data: Earnings $ 1.88 $ 1.10 $ 1.09 $ 0.66 $ 0.67 Cash Dividends $ 0.37 $ 0.29 $ 0.28 $ 0.26 $ 0.26 Book Value $ 8.84 $ 7.19 $ 6.45 $ 5.64 $ 5.20 Other Data: Total Assets $1,577,143 $1,402,627 $1,126,004 $1,062,640 $869,940 Stockholders' Equity $ 492,010 $ 385,869 $ 343,539 $ 300,585 $274,100 Cash Dividends $ 20,622 $ 15,480 $ 15,185 $ 13,904 $ 13,990 Return on Average Equity 24.0% 16.2% 18.3% 12.2% 13.6% Pretax Return on Average Equity 38.3% 25.1% 28.4% 18.2% 21.3% Net Earnings as a Percent of Revenues 11.2% 8.8% 9.7% 7.0% 7.1% Average Common and Common Equivalent Shares Outstanding 56,101 54,016 53,922 53,119 53,561 Per share data have been restated for stock splits and stock dividends.
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Consolidated Balance Sheets Year Ended: February 28, February 29, 1997 1996 (In thousands, except per share amounts) Assets: Cash and cash equivalents $ 62,799 $ 52,587 Cash and government securities, segregated under federal and other regulations 400,991 402,785 Securities purchased under agreements to resell 200,000 92,013 Securities borrowed 1,392,864 613,266 Receivables: Customers, less allowance for doubtful accounts of $3,550 and $3,470 1,677,354 1,428,063 Brokers, dealers and clearing organizations 14,635 13,921 Securities inventory, at fair value: State and municipal 98,516 117,602 Government and agencies 39,666 36,112 Corporate 25,785 42,078 Property and equipment, at cost, net of accumulated depreciation and amortization of $196,414 and $167,139 189,795 178,556 Deferred income taxes 56,558 42,614 Other assets 85,377 82,488 $4,244,340 $3,102,085 Liabilities and Stockholders' Equity: Checks payable $ 174,736 $ 148,970 Securities loaned 1,458,426 660,489 Payables: Customers 816,668 719,989 Brokers, dealers and clearing organizations 47,842 78,647 Securities sold but not yet purchased, at fair value 17,670 21,871 Employee compensation and related taxes 414,177 331,098 Income taxes 13,536 12,630 Other liabilities 39,982 39,707 Total Liabilities 2,983,037 2,013,401 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, 64,312,658 shares 64,313 64,313 Additional paid-in capital 229,235 232,058 Retained earnings 976,011 798,805 1,269,559 1,095,176 Less- Treasury stock, at cost (234,921 and 267,650 shares) 8,256 6,492 Total Stockholders' Equity 1,261,303 1,088,684 $4,244,340 $3,102,085 See Notes to Consolidated Financial Statements.
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Consolidated Statements of Earnings Year Ended: February 28, February 29, February 28, 1997 1996 1995 (In thousands, except per share amounts) Revenues: Commissions $ 928,793 $ 806,076 $ 578,817 Principal transactions 213,007 206,367 241,025 Investment banking 156,159 104,999 92,730 Asset management and service fees 241,349 195,100 152,803 Interest 147,835 134,342 105,519 Other 9,340 7,583 7,448 1,696,483 1,454,467 1,178,342 Expenses: Compensation and benefits 1,080,931 929,755 756,736 Communications 86,257 80,364 74,708 Occupancy and equipment 85,883 79,077 73,108 Floor brokerage and clearance 18,149 16,275 14,355 Interest 2,065 3,153 6,818 Other operating expenses 68,241 69,561 53,288 1,341,526 1,178,185 979,013 Earnings before income taxes 354,957 276,282 199,329 Income taxes 135,900 105,700 75,210 Net earnings $ 219,057 $ 170,582 $ 124,119 Earnings per share $ 3.36 $ 2.65 $ 2.00 See Notes to Consolidated Financial Statements.
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Consolidated statements of Stockholders' Equity Three years ended February 28, 1997 Common Additional Retained Unamortized Treasury Stock Paid-in Earnings Expense Stock Capital of Restricted Stock Awards (In thousands, except per share amounts) Balances, March 1, 1994 $60,446 $165,124 $576,073 $(11,276) $ - Net earnings 124,119 Cash dividends - $0.56 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) - Net earnings 170,582 Cash dividends - $0.60 per share (37,769) Treasury stock acquired (12,511) Stock issued: Employee stock purchase/option plans 1,376 22,282 3,280 Restricted stock 643 14,913 189 2,739 Amortization of restricted stock awards 3,679 Balances, February 29, 1996 64,313 232,058 798,805 - (6,492) Net earnings 219,057 Cash dividends - $0.66 per share (41,851) Treasury stock acquired (64,805) Stock issued: Employee stock purchase/option plans (6,041) 42,938 Restricted stock 3,218 20,103 Balances, February 28, 1997 $64,313 $229,235 $976,011 $ - $(8,256) See Notes to Consolidated Financial Statements.
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Consolidated statements of Cash Flows Year Ended: February 28, February 29, February 28, 1997 1996 1995 (In thousands) Cash Flows From Operating Activities: Net earnings $ 219,057 $ 170,582 $ 124,119 Noncash items included in earnings: Depreciation and amortization 33,066 31,141 28,722 Amortization/expense of restricted stock awards 22,173 21,697 18,778 Deferred items (13,944) (13,096) (6,095) (Increase) decrease in operating assets: Segregated cash and government securities 1,794 (358,977) 151,918 Securities borrowed (779,598) (333,595) (36,250) Receivable from brokers, dealers and clearing organizations (714) 15,825 (12,309) Receivable from customers (249,291) (68,891) (141,027) Securities inventory 31,825 (43,230) 15,197 Other assets (9,388) (10,274) 927 Increase (decrease) in operating liabilities: Checks payable 25,766 41,997 (4,974) Securities loaned 797,937 280,762 104,432 Payable to brokers, dealers and clearing organizations (30,805) (4,319) (264,773) Payable to customers 96,679 304,248 60,517 Securities sold but not yet purchased (4,201) (17,607) 15,369 Employee compensation and related taxes 83,079 84,978 (39,093) Income taxes 906 10,260 (7,589) Other liabilities 275 8,081 (5,111) Net cash provided by operating activities 224,616 119,582 2,758 Cash Flows From Investing Activities: Securities purchased under agreements to resell (107,987) (49,194) 71,734 Purchase of property and equipment (44,305) (42,127) (50,851) Long-term investments included in other assets 6,499 5,738 (8,535) Net cash (used in) provided by investing activities (145,793) (85,583) 12,348 Cash Flows From Financing Activities: Employee stock transactions 38,045 27,404 22,983 Purchase of treasury stock (64,805) (12,511) (2,766) Cash dividends paid (41,851) (37,769) (34,200) Net cash used in financing activities (68,611) (22,876) (13,983) Net increase in cash and cash equivalents 10,212 11,123 1,123 Cash and cash equivalents, at beginning of year 52,587 41,464 40,341 Cash and cash equivalents, at end of year $ 62,799 $ 52,587 $ 41,464 Interest payments totaled $2,650 in 1997, $3,806 in 1996 and $6,425 in 1995. Supplemental disclosures of noncash financing activities: Restricted stock awards, net of forfeitures, totaled $21,768 in 1997, $18,291 in 1996 and $11,561 in 1995. See Notes to Consolidated Financial Statements.
27 Notes to Consolidated Financial Statements Three years ended February 28, 1997 (Dollars in thousands, except per share amounts) (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) and are prepared in conformity with generally accepted accounting principles. In accordance with accounting principles and industry practice, management has made use of estimates concerning certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and certain revenues and expenses during the reporting period. Actual results could differ from these estimates. 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, including securities and commodities brokerage, asset management, insurance, trust, investment banking, and other related financial services to individual retail, corporate, governmental and institutional clients. 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 of 90 days or less at the date of acquisition. Securities purchased under agreements to resell (Resale Agreements) are recorded at amounts at which the purchased securities will be resold, including accrued interest. Cash and government securities segregated under federal and other regulations include Resale Agreements of $350,000 in 1997 and 1996. The Company's policy is to obtain possession or control of securities purchased under Resale Agreements and to obtain additional collateral when necessary to minimize the risk associated with this activity. Securities borrowed and securities loaned are recorded at the amount of the cash collateral provided for securities borrowed transactions and received for securities loaned transactions, respectively. The adequacy of the collateral is continuously monitored and adjusted when deemed necessary to minimize the risk associated with this activity. Substantially all of these transactions are executed under master netting agreements, which give the Company right of offset in the event of counterparty default. 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 carried at fair value. Fair value is based on quoted market or dealer prices, pricing models, or management's estimates. 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 esti- mated 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 65,211,000 in 1997, 64,429,000 in 1996 and 62,178,000 in 1995. 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. Effective in January, 1998, the Company will adopt certain provisions of Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125), which are applicable to its business. SFAS 125 introduces the financial- components approach, which focuses on the recognition of financial assets and liabilities an entity controls and the derecognition of financial assets and liabilities for which control has been transferred. The adoption of this statement is not expected to have a material effect on the Company's financial condition or results of operations. In February, 1997, SFAS No. 128, "Earnings per Share," was issued and is effective for financial statements issued for periods ending after December 15, 1997. This statement 28 changes the method for calculating and disclosing earnings per share. This statement will not have a material effect on the Company's financial statements. (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 $2,191 in 1997, $4,878 in 1996 and $63,803 in 1995, at effective interest rates of 5.8 percent, 6.5 percent and 5.0 percent, respectively. Substantially all such borrowings were secured by customer-owned securities. There were no borrowings outstanding at February 28, 1997, and February 29, 1996. (3. Employee Stock Plans) The Company applies the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," (APB No. 25), and related interpretations in accounting for its employee stock plans. Accordingly, as options granted under the plans are either "non-compensatory" or are fixed cost stock options at market value at date of grant, under APB No. 25 no compensation expense has been recognized. If compensation expense for the Company's stock options and stock purchase plan had been determined based on the estimated fair value of the options granted, consistent with SFAS No. 123, "Accounting for Stock Based Compensation," the Company's net earnings and earnings per share would have been reduced to $214,000 and $3.28, respectively, in 1997, and $166,000 and $2.58, respectively, in 1996. The Black- Scholes option pricing model was used to calculate the estimated fair value of the options. Employee Stock Purchase Plan Options to purchase 1,250,000 shares of common stock granted to employees under the Company's stock purchase plan are exercisable October 1, 1997, at 85 percent of market price based on dates specified in the plan. Employees purchased 1,246,883 shares at $22.47 per share in 1997, 1,247,073 shares at $18.09 per share in 1996 and 1,228,565 shares at $15.30 per share in 1995. Of the shares exercised, treasury shares were utilized for all of the shares purchased in 1997 and for 132,559 shares in 1995. The fair value of the options granted under this plan was estimated using the following assumptions for 1997 and 1996, respectively: dividend yield of 2.21 percent and 2.41 percent; an expected life of one year; expected volatility of 25 percent and 23 percent; and risk-free interest rates of 5.74 percent and 5.81 percent. The fair value of the options granted in 1997 and 1996 was $5.89 and $5.17, respectively. Restricted Stock and Stock Options Under the Company's Incentive Stock 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, 1997, 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 the plan to define the service period in connection with 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 before 1994, this amount was amortized over the vesting period. Eligible employees as of February 28, 1997, were awarded 693,816 shares with a market value of $22,070. As of February 29 (28), 1996 and 1995, the awards were 742,755 and 546,590 shares, respectively, with corresponding market values of $18,480 and $11,888. As of February 28, 1997, restricted stock awards covering 2,668,329 shares were outstanding, with the restrictions expiring at various dates through the year 2000. Stock options are granted to purchase common stock at 100 percent 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. The fair value of each option grant was estimated at the date of grant using the following assumptions for 1997 and 1996, respectively: dividend yield of 2.21 percent and 2.41 percent; expected lives of six years; expected volatility of 25 percent and 23 percent; risk-free interest rates of 6.41 percent and 5.89 percent; and a forfeiture rate of eight percent. The fair value of options granted under this plan in 1997 and 1996 was $9.43 and $6.57, respectively. A summary of the status of the Company's stock options as of February 28 (29), 1997, 1996 and 1995, and changes during the years ending on those dates is presented as follows: 29
1997 1996 1995 Shares Weighted- Shares Weighted- Shares Weighted- (000) Average (000) Average (000) Average Exercise Exercise Exercise Price Price Price Outstanding, beginning of year 3,241 $18.91 3,008 $17.03 2,848 $15.55 Granted 528 $31.81 563 $24.88 473 $21.75 Exercised (413) $13.77 (270) $10.34 (265) $ 9.21 Forfeited (27) $20.51 (60) $19.46 (48) $18.87 Outstanding, end of year 3,329 $21.58 3,241 $18.91 3,008 $17.03 Treasury shares utilized for exercises 413 133 67
The following table summarizes information about outstanding stock options at February 28, 1997:
Options Outstanding Options Exercisable Range of Number Weighted-Average Weighted- Number Weighted- Exercise Outstanding Remaining Average Exercisable Average Prices (000) Contractual Exercise (000) Exercise Life (years) Price Price $10 - $15 408 1.4 $11.73 408 $11.73 $16 - $20 1,050 4.4 $18.39 326 $19.80 $21 - $25 1,343 5.9 $23.06 332 $21.80 $26 - $32 528 8.0 $31.81 0 Total 3,329 1,066
(4. Employee Profit Sharing Plan) The Company has an employee profit sharing plan covering substantially all employees, whereby the Company 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 $65,754 in 1997, $56,107 in 1996 and $41,788 in 1995. (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 two percent 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 five percent of such items. These rules also require A.G. Edwards & Sons, Inc., to notify and sometimes obtain approval of the SEC and other regulatory organizations for substantial withdrawals of capital and loans to affiliates. At February 28, 1997, the subsidiary's net capital of $882,248 was 54 percent of aggregate debit items and $849,609 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 only restriction with regard to the payment of cash dividends by A.G. Edwards, Inc., is its ability to obtain cash dividends and advances from its subsidiaries, if needed. 30 (6. Income Taxes) The provisions for income taxes consist of: 1997 1996 1995 Current: Federal $124,871 $ 99,934 $67,821 State and local 24,973 18,862 13,484 Subtotal 149,844 118,796 81,305 Deferred (13,944) (13,096) (6,095) Total $135,900 $105,700 $75,210 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. These temporary differences result in taxable or deductible amounts in future years. Deferred tax assets totaled $73,337 at February 28, 1997, and $60,826 at February 29, 1996, and consisted primarily of employee benefits that are not currently deductible. The Company expects to fully realize these deferred tax assets, given the Company's historical levels of earnings and related taxes paid; accordingly, no valuation allowance has been established. Deferred tax liabilities totaled $16,779 at February 28, 1997, and $18,212 at February 29, 1996, and consisted primarily of accelerated depreciation deductions. The Company's effective tax rate was 38 percent in 1997, 1996 and 1995, which differed from the federal statutory rate of 35 percent. State and local taxes, net of federal benefit, increased the effective rate by four percent in 1997, 1996 and 1995. No other single item had a material impact on the difference in the rates. (7. Stockholders' Rights Plan) The Company's Stockholders' Rights Plan, as amended, provides for the 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 percent or more of the Company's outstanding common stock or commences a tender or exchange offer that would result in the third party acquiring 20 percent or more of the outstanding common stock. Each right, upon becoming exercisable, entitles the registered holder to purchase one share of common stock for $90 from the Company. If a person actually acquires 20 percent 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 $90 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 $180. The rights, which are redeemable by the Company at a price of $0.00384 each prior to a person's acquiring 20 percent or more of the Company's common stock, are subject to adjustment to prevent dilution and expire June 22, 2005. (8. Stock Repurchase Program) The Company's stock repurchase program, which began in May, 1996, authorizes the Company to repurchase up to 22 million of its outstanding shares over a 5 1/2-year period. This program supersedes an existing stock repurchase program. The Company purchased 2,289,000 shares at an aggregate cost of $64,805 in 1997, 500,000 shares at a cost of $12,511 in 1996 and 162,700 shares at a cost of $2,766 in 1995. Repurchased shares are added to treasury stock to be used for employee stock plans and to partially offset the past effect of these plans. (9. 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, 1997, are as follows: Year ending February 28 (29), 1998 $41,200 1999 38,100 2000 32,300 2001 26,500 2002 21,000 Later years 45,700 Total $204,800 Rental expense under all operating leases and equipment maintenance contracts was $39,598 in 1997, $36,381 in 1996 and $34,203 in 1995. 31 In the normal course of business, the Company enters into when-issued and underwriting commitments. Transactions relating to open commitments at February 28, 1997, and subsequently settled, had no material effect on the consolidated financial statements as of that date. At February 28, 1997, and February 29, 1996, the Company had $119,975 and $94,938, respectively, of outstanding letters of credit, principally to satisfy margin deposit requirements with a clearing corporation. Of this amount, $15,000 and $8,000, respectively, were collateralized by customer-owned securities. 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. 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. (10. Financial Instruments) Off-Balance Sheet Risk and Concentration of Credit Risk The Company records customer transactions on a settlement date basis, generally three 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 affect 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. Derivatives The Company does not act as dealer, trader or end-user of complex derivatives such as swaps, collars and caps. The Company provides advice and guidance on complex derivative products to selected clients; however, this activity does not involve the Company 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. Fair Value Considerations Substantially all the Company's financial instruments are carried at fair value or amounts that approximate fair value. 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. 32 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, 1997 and February 29, 1996, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended February 28, 1997. 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, 1997 and February 29, 1996, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 1997, in conformity with generally accepted accounting principles. April 24, 1997 St. Louis, Missouri 33
Quarterly Financial Information (Unaudited) Cash Stock Price Revenues Earnings Net Earnings Dividends Trading Range (in millions) Before Tax Earnings per Share per Share High - Low (in millions) (in millions) Fiscal 1996 by Quarter First $0.14 23 5/8 - 20 3/8 $325.3 $57.2 $35.4 $0.56 Second $0.14 25 1/2 - 22 $362.0 $70.0 $43.3 $0.67 Third $0.16 27 - 23 1/2 $361.9 $69.8 $43.0 $0.67 Fourth $0.16 26 15/16 - 22 5/8 $405.3 $79.3 $48.9 $0.75 Fiscal 1997 by Quarter First $0.16 26 1/4 - 22 1/2 $428.5 $92.0 $56.4 $0.87 Second $0.16 29 1/2 - 25 1/2 $407.1 $85.0 $52.2 $0.80 Third $0.16 31 7/8 - 27 3/8 $404.5 $81.0 $51.0 $0.79 Fourth $0.18 41 1/4 - 30 1/4 $456.4 $97.0 $59.5 $0.90
43 Stockholder Information Annual Meeting The 1997 Annual Meeting of Stockholders will be held at the Company's headquarters, One North Jefferson, St. Louis, Missouri, on Thursday, June 19, 1997, at 10:00 a.m. Notice of Annual Meeting, Proxy Statement and Proxy Voting Card are mailed in May to each stockholder. The Proxy Statement describes the items of business to be voted on at the Annual Meeting and provides information on the Board's nominees for director and their principal affiliations with other organizations, as well as other information about the Company. Quarterly Reports Mailed in June, September and December, the quarterly reports contain a Chairman's letter, a balance sheet and a summary of earnings. Dividend Payment Dates The next four anticipated dividend payment dates are July 1 and October 1, 1997, and January 2 and April 1, 1998. Form 10-K The Form 10-K Annual Report filed with the Securities and Exchange Commission, which provides further details on A.G. Edwards' business, is available at no charge from the Secretary, A.G. Edwards, Inc., One North Jefferson, St. Louis, Missouri 63103. Stock Exchange Listing 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, 1997, was 21,400. Registrar/Transfer Agent Boatmen's Trust Company, St. Louis, Missouri. Account protection package The securities held by A.G. Edwards & Sons, Inc., for the accounts of clients are protected up to $500,000, including up to $100,000 for cash claims, by the Securities Investor Protection Corporation (SIPC). In addition to the SIPC coverage, securities held in client accounts are provided $49.5 million in protection by an independent commercial insurance company. Exchange Memberships A.G. Edwards companies are members of all major stock and commodity exchanges, including the American, Boston, Chicago, New York, Pacific and Philadelphia stock exchanges; the Chicago Board Options Exchange; the Chicago Board of Trade; the Chicago Mercantile Exchange; the New York Futures Exchange and other commodity exchanges; as well as the National Futures Association and the National Association of Securities Dealers. 44 EX-21 3 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 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 4 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements (File Nos. 33-61949, 33-52786, 33-36609 and 33-23837) of the A.G. Edwards, Inc. 1988 Incentive Stock Plan on Form S-8 of our report dated April 24, 1997, 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, 1997. /s/ Deloitte & Touche LLP May 27, 1997 St. Louis, Missouri EX-27 5
BD YEAR FEB-28-1997 FEB-28-1997 62,799 1,691,989 200,000 1,392,864 163,967 189,795 4,244,340 0 1,453,423 0 1,458,426 17,670 0 0 0 64,313 1,196,990 4,244,340 213,007 147,835 928,793 156,159 193,263 2,065 1,080,931 354,957 354,957 0 0 219,057 3.36 3.36
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