-----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, SBh2A5juW8QASzxDxeeGpK6OknkvT9KgF/iYfgRcF5X/OS5vWLJj2DoenExMb5EO BMEPSDMFCNnnTSh5Cna+oA== 0000718482-98-000003.txt : 19980115 0000718482-98-000003.hdr.sgml : 19980115 ACCESSION NUMBER: 0000718482-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980114 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-Q SEC ACT: SEC FILE NUMBER: 001-08527 FILM NUMBER: 98506334 BUSINESS ADDRESS: STREET 1: ONE N JEFFERSON AVE CITY: ST LOUIS STATE: MO ZIP: 63103 BUSINESS PHONE: 3142893000 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________________ FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended November 30, 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 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No At December 31, 1997, there were 95,763,608 shares of A.G. Edwards, Inc. common stock, par value $1, issued and outstanding. A.G. EDWARDS, INC. INDEX Page PART I. FINANCIAL INFORMATION Consolidated balance sheets 1 Consolidated statements of earnings 2 Consolidated statements of stockholders' equity 3 Consolidated statements of cash flows 4 Notes to consolidated financial statements 5 Management's financial discussion 6-7 PART II. OTHER INFORMATION 7 SIGNATURES 8
A.G. EDWARDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) (Unaudited) November 30, February 28, 1997 1997 ASSETS Cash and cash equivalents $ 57,115 $ 62,799 Cash and government securities, segregated under federal and other regulations 61,718 400,991 Securities purchased under agreements to resell 62,363 200,000 Securities borrowed 818,528 1,392,864 Receivables: Customers, less allowance for doubtful accounts of $3,680 and $3,550 2,183,271 1,677,354 Brokers, dealers and clearing organizations 12,011 14,635 Securities inventory, at fair value: State and municipal 109,999 98,516 Government and agencies 46,032 39,666 Corporate 36,038 25,785 Property and equipment, at cost, net of accumulated depreciation and amortization of $223,012 and $196,414 207,389 189,795 Deferred income taxes 63,032 56,558 Other assets 88,517 85,377 $ 3,746,013 $ 4,244,340 LIABILITIES AND STOCKHOLDERS' EQUITY Checks payable $ 155,566 $ 174,736 Securities sold under agreements to repurchase 9,363 Securities loaned 887,395 1,458,426 Payables: Customers 699,797 816,668 Brokers, dealers and clearing organizations 57,261 47,842 Securities sold but not yet purchased, at fair value 31,278 17,670 Employee compensation and related taxes 430,540 414,177 Income taxes 13,836 13,536 Other liabilities 56,252 39,982 Total Liabilities 2,341,288 2,983,037 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 96,463,114 and 64,312,658 shares 96,463 64,313 Additional paid-in capital 187,938 229,235 Retained earnings 1,135,893 976,011 1,420,294 1,269,559 Less - Treasury stock, at cost (456,618 and 234,921 shares) 15,569 8,256 Total Stockholders' Equity 1,404,725 1,261,303 $ 3,746,013 $ 4,244,340 See Notes to Consolidated Financial Statements.
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A.G. EDWARDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended November 30, November 30, 1997 1996 1997 1996 REVENUES: Commissions $ 296,350 $ 217,948 $ 826,988 $ 672,336 Principal transactions 52,367 52,200 159,805 159,576 Investment banking 49,806 36,024 128,686 117,833 Asset management and service fees 80,778 59,130 223,904 175,312 Interest 45,978 37,170 130,335 108,061 Other 2,064 2,073 6,805 6,966 527,343 404,545 1,476,523 1,240,084 EXPENSES: Compensation and benefits 334,752 257,558 944,620 791,445 Communications 24,563 21,294 72,555 63,239 Occupancy and equipment 24,535 22,408 70,651 63,213 Floor brokerage and clearance 5,143 4,205 14,988 13,417 Other operating expenses 20,319 18,070 54,062 50,828 409,312 323,535 1,156,876 982,142 EARNINGS BEFORE INCOME TAXES 118,031 81,010 319,647 257,942 INCOME TAXES 45,640 29,990 123,470 98,260 NET EARNINGS $ 72,391 $ 51,020 $ 196,177 $ 159,682 Earnings per share $ 0.73 $ 0.52 $ 1.99 $ 1.64 Dividends per share $ 0.13 $ 0.11 $ 0.38 $ 0.32 Average common and common equivalent shares outstanding 99,246 97,918 98,741 97,562 See Notes to Consolidated Financial Statements.
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A.G. EDWARDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED NOVEMBER 30, 1996 AND 1997 (In thousands, except per share amounts) (Unaudited) Additional Common Paid-in Retained Treasury Stock Capital Earnings Stock Total BALANCES, March 1, 1996 $ 64,313 $ 232,058 $ 798,805 $ (6,492) $ 1,088,684 Net earnings 159,682 159,682 Cash dividends - $0.32 per share (30,410) (30,410) Treasury stock acquired (53,546) (53,546) Stock issued: Employee stock purchase/option plans (3,484) 37,835 34,351 Restricted stock 618 (320) 298 BALANCES, November 30, 1996 $ 64,313 $ 229,192 $ 928,077 $ (22,523) $ 1,199,059 BALANCES, March 1, 1997 $ 64,313 $ 229,235 $ 976,011 $ (8,256) $ 1,261,303 Net earnings 196,177 196,177 Cash dividends - $0.38 per share (36,295) (36,295) Treasury stock acquired (71,153) (71,153) Stock issued: Employee stock purchase/option plans (13,397) 64,756 51,359 Restricted stock 4,411 (916) 3,495 Stock Split - 3 for 2 32,150 (32,150) Cash paid for fractional shares (161) (161) BALANCES, November 30, 1997 $ 96,463 $ 187,938 $ 1,135,893 $ (15,569) $ 1,404,725 See Notes to Consolidated Financial Statements.
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A.G. EDWARDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended November 30, 1997 1996 Cash Flows from Operating Activities: Net earnings $ 196,177 $ 159,682 Noncash items included in earnings 47,381 36,185 Decrease in segregated cash and government securities 339,273 107,369 Net change in securities borrowed and loaned 3,305 13,284 Increase (decrease) in net payable to brokers, dealers and clearing organizations 12,043 (18,549) Increase in net receivable from customers (622,788) (228,172) (Increase) decrease in net securities inventory (14,494) 62,738 Net change in other assets and liabilities 5,350 (7,387) Net cash (used in) provided by operating activities (33,753) 125,150 Cash Flows from Investing Activities: Securities purchased under agreements to resell 128,274 (62,157) Capital expenditures and other investments (48,720) (24,160) Net cash provided by (used in) investing activities 79,554 (86,317) Cash Flows from Financing Activities: Employee stock transactions 56,124 34,936 Cash paid for fractional shares (161) Cash dividends (36,295) (30,410) Purchase of treasury stock (71,153) (53,546) Net cash used in financing activities (51,485) (49,020) Net Decrease in Cash and Cash Equivalents (5,684) (10,187) Cash and Cash Equivalents at March 1 62,799 52,587 Cash and Cash Equivalents at November 30 $ 57,115 $ 42,400 Income tax payments totaled $119,100 and $111,597 during the nine month periods ended November 30, 1997, and 1996, respectively. Interest payments totaled $1,224 and $2,120 during the nine month periods ended November 30, 1997, and 1996, respectively. See Notes to Consolidated Financial Statements.
-4- A.G. EDWARDS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED NOVEMBER 30, 1997 (Dollars in thousands, except per share amounts) (Unaudited) FINANCIAL STATEMENTS: The consolidated financial statements include the accounts of A.G. Edwards, Inc. and its wholly owned subsidiaries (collectively referred to as the "Company"), including its principal subsidiary, A.G. Edwards & Sons, Inc. ("Edwards"), and have been prepared in conformity with generally accepted accounting principles. These financial statements should be read in conjunction with the Company's annual report for the year ended February 28, 1997. All adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods have been reflected. All such adjustments consist of normal recurring accruals unless otherwise disclosed in these interim financial statements. The results of operations for the nine months ended November 30, 1997, are not necessarily indicative of the results for the year ending February 28, 1998. Where appropriate, prior year's financial information has been reclassified to conform with the current year presentation. COMMON STOCK: Options to purchase 1,875,000 shares of common stock granted under the Employee Stock Purchase Plan are exercisable October 1, 1998, at 85% of market price based on dates specified in the plan. Employees purchased 1,871,400 shares at $20.64 per share in October 1997. Treasury shares were utilized for these transactions. Where appropriate, per share amounts and share data have been restated to reflect a three-for-two stock split declared in August 1997, effected in the form of a stock dividend. NET CAPITAL REQUIREMENTS: Edwards is subject to the uniform net capital rule administered by the Securities and Exchange Commission ("SEC"). This rule requires Edwards to maintain a minimum net capital, as defined, and to notify, and sometimes obtain the approval of, the SEC and other regulatory organizations for substantial withdrawals of capital and loans to affiliates. As of November 30, 1997, Edwards' net capital of $979,907 was $937,071 in excess of the minimum required. -5- A.G. EDWARDS, INC. AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION NINE MONTHS ENDED NOVEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED NOVEMBER 30, 1996 Results of Operations The nine months ended November 30, 1997 saw a continuation of the high level of retail investor activity of the last two fiscal years coupled with increased volatility, primarily in late October, in the equity and debt markets this year. The NYSE and Nasdaq overall trading volumes increased 27% and 18%, respectively, over the prior year as reflected by a 23% increase in the Company's total customer trades. The number and size of customer trades and the product mix generally affect the level of revenues. The number of branches and brokers increased to 590 and 6,207, which represent increases of 5% and 4%, respectively, compared with the same period last year. Total revenues increased $236 million (19%) to $1.48 billion from $1.24 billion last year. Operating expenses were $1.16 billion, an increase of $175 million (18%). Net earnings were $196 million, an increase of $36 million (23%), resulting in a rise in net profit margins to 13.3% this year from 12.9% in 1996. Total commission revenue increased $155 million (23%) reflecting increased trading volume and, to a lesser extent, expansion of the Company's distribution system. Equity related commissions rose $108 million (26%) while mutual fund and insurance sales increased $29 million (18%) and $17 million (21%), respectively. Client demand for equities, mutual funds and variable annuities continued to rise due to the continuation of the relatively strong equity market conditions and increased volatility reflecting the higher trading volumes and the 14% rise in the Dow Jones Industrial Average during the first nine months of this fiscal year. Investment banking revenue increased $11 million (9%). Underwriting fees and concessions rose $20 million (23%) as a result of increased customer demand for unit trusts primarily caused by slightly higher interest rates coupled with favorable market conditions for debt security instruments. This was partially offset by a $9 million (27%) decline in management fees primarily due to the participation in two large transactions last year. Asset management and service fees increased $49 million (28%). Fees from third- party mutual funds rose $29 million (27%) reflecting strong mutual fund sales as well as higher market valuations of existing assets. Fees for administration of client assets under third-party management, as well as the Company's management services, increased $17 million (53%) as a result of a 56% rise in the average number of accounts while average assets in these programs grew 49%. Interest revenue increased $22 million (21%). Interest revenue from margin accounts rose $19 million (22%) due to a 19% rise in average margin debits coupled with slightly higher interest rates. Interest revenue from short-term investments increased $3 million (25%) caused by a 19% rise in average short- term investments as well as higher interest rates. -6- Compensation and benefits increased $153 million (19%). Commission expense increased due to the rise in commissionable revenue. General and administrative salaries and related benefits increased primarily because of general increases and higher employment. Incentive related compensation rose primarily as a result of higher earnings. Communication expense increased $9 million (15%) and occupancy and equipment expenses increased $7 million (12%) primarily due to branch and home office expansion. Liquidity and Capital Resources No material changes have taken place since February 28, 1997 regarding the Company's liquidity, capital resources and overall financial condition. THREE MONTHS ENDED NOVEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED NOVEMBER 30, 1996 Net earnings for the quarter ended November 30, 1997 were $72 million on revenues of $527 million compared to net earnings of $51 million on revenues of $405 million for the same period a year ago. The explanation of revenue and expense fluctuations presented for the nine month period are generally applicable to the three months of operations with the exception of the following items. Equity related commissions rose $50 million (36%) while mutual fund and insurance sales increased $19 million (40%) and $8 million (30%), respectively. Client activity in equities, mutual funds and variable annuities was extremely heavy in the third quarter this year due to the volatile market and unprecedented trading volumes in October. Investment banking revenue rose $14 million (38%) due to the continued demand for unit trusts coupled with an increase in activity in initial public offerings. PART II. OTHER INFORMATION Item 1: Legal Proceedings There have been no material changes in the legal proceedings previously reported in the Company's Annual Report on Form 10-K for the year ended February 28, 1997. Item 6: Exhibits and Reports on 8-K Exhibit 27 Financial Data Schedule. (This financial data schedule is only required to be submitted with the registrant's Quarterly Report on Form 10-Q as filed electronically to the SEC's EDGAR database.) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended November 30, 1997. -7- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. A.G. EDWARDS, INC. (Registrant) Date: January 14, 1998 /s/ Benjamin F. Edwards III BENJAMIN F. EDWARDS, III Principal Executive Officer Date: January 14, 1998 /s/ Robert L. Proost ROBERT L. PROOST Principal Financial Officer -8- EX-27 2
BD 9-MOS FEB-28-1998 NOV-30-1997 57,115 2,195,282 62,363 818,528 192,069 207,389 3,746,013 0 1,343,164 9,363 887,395 31,278 0 0 0 96,463 1,308,262 3,746,013 159,805 130,335 826,988 128,686 185,285 0 944,620 319,647 319,647 0 0 196,177 1.99 1.99
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