-----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, WgpZJWaRKC46yM1MU/++jfvxqZWFQCWjM2l6RFQlrP2M92/YUs68z29tAQARr1K3 8916iB0OO6kTxpUf75n/iQ== 0000718482-99-000021.txt : 19990716 0000718482-99-000021.hdr.sgml : 19990716 ACCESSION NUMBER: 0000718482-99-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990715 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: 99665143 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 May 31, 1999 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 June 30, 1999, there were 93,817,221 shares of A.G. Edwards, Inc. common stock, par value $1, issued and outstanding. A.G. EDWARDS, INC. INDEX Page PART I. FINANCIAL INFORMATION Consolidated balance sheets 1 Consolidated statements of earnings 2 Consolidated statements of cash flows 3 Notes to consolidated financial statements 4-5 Management's financial discussion 6-8 PART II. OTHER INFORMATION 9 SIGNATURES 10
A.G. EDWARDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited) May 31, February 28, 1999 1999 ASSETS Cash and cash equivalents $ 121,419 $ 99,499 Cash and government securities, segregated under federal and other regulations 59,211 57,959 Securities purchased under agreements to resell 14,887 14,838 Securities borrowed 412,617 243,507 Receivables: Customers 2,902,201 2,626,316 Brokers, dealers and clearing organizations 13,746 27,855 Fees, dividends and interest 69,035 52,077 Securities inventory, at fair value: State and municipal 251,974 144,180 Government and agencies 42,427 50,618 Corporate 89,637 72,297 Property and equipment, at cost, net of accumulated depreciation and amortization of $287,078 and $276,229 241,107 240,367 Deferred income taxes 78,448 88,312 Other assets 86,790 85,307 $ 4,383,499 $ 3,803,132 LIABILITIES AND STOCKHOLDERS' EQUITY Bank loans $ 475,000 $ -- Checks payable 229,168 226,516 Securities loaned 374,412 229,542 Payables: Customers 901,414 949,076 Brokers, dealers and clearing organizations 94,451 68,419 Securities sold but not yet purchased, at fair value 116,369 45,659 Employee compensation and related taxes 412,204 578,073 Income taxes 44,917 24,645 Other liabilities 59,851 53,465 Total Liabilities 2,707,786 2,175,395 Stockholders' Equity: Preferred stock, $25 par value: Authorized, 4,000,000 shares, none issued Common stock, $1 par value: Authorized, 550,000,000 shares Issued, 96,463,114 shares 96,463 96,463 Additional paid-in capital 248,958 239,998 Retained earnings 1,412,676 1,348,094 1,758,097 1,684,555 Less - Treasury stock, at cost (2,383,353 and 1,625,042 shares) 82,384 56,818 Total Stockholders' Equity 1,675,713 1,627,737 $ 4,383,499 $ 3,803,132 See Notes to Consolidated Financial Statements.
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A.G. EDWARDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended May 31, 1999 1998 REVENUES: Commissions $357,139 $310,248 Principal transactions 57,863 52,003 Investment banking 59,024 59,320 Asset management and service fees 121,987 95,414 Interest 53,310 50,787 Other 1,813 2,417 651,136 570,189 EXPENSES: Compensation and benefits 415,864 365,846 Communications 27,330 25,903 Occupancy and equipment 31,861 26,706 Floor brokerage and clearance 5,501 5,094 Interest 2,437 1,424 Other 31,270 21,320 514,263 446,293 EARNINGS BEFORE INCOME TAXES 136,873 123,896 INCOME TAXES 52,330 47,890 NET EARNINGS $ 84,543 $ 76,006 Earnings per share: Diluted $ .88 $ .78 Basic $ .89 $ .79 Dividends per share $ 0.15 $ 0.14 Average common and common equivalent shares outstanding (diluted) 96,134 97,944 (000's omitted) Average common shares outstanding (basic) 94,655 95,883 (000's omitted) See Notes to Consolidated Financial Statements.
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A.G. EDWARDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended May 31, 1999 1998 Cash Flows from Operating Activities: Net earnings $ 84,543 $ 76,006 Noncash items included in earnings 19,775 18,660 Change in: Segregated cash and government securities (1,252) (2,829) Net securities borrowed and loaned (24,240) (10,769) Net payable to brokers, dealers and clearing organizations 40,141 (125,086) Net receivable from customers (323,547) (136,447) Fees, dividends and interest receivable (16,958) (11,309) Net securities inventory (46,233) 105,275 Other assets and liabilities (135,315) (142,997) Net cash from operating activities (403,086) (229,496) Cash Flows from Investing Activities: Securities purchased under agreements to resell (49) 195,000 Capital expenditures and other investments (13,916) (15,058) Net cash from investing activities (13,965) 179,942 Cash Flows from Financing Activities: Bank loans 475,000 100,100 Employee stock transactions 12,632 18,290 Cash dividends paid (14,120) (12,446) Purchase of treasury stock (34,541) (51,234) Net cash from financing activities 438,971 54,710 Net change in Cash and Cash Equivalents 21,920 5,156 Cash and Cash Equivalents at March 1 99,499 84,764 Cash and Cash Equivalents at May 31 $ 121,419 $ 89,920 Income tax payments totaled $13,549 and $11,696 during the three month periods ended May 31, 1999, and 1998, respectively. Interest payments totaled $1,447 and $1,143 during the three month periods ended May 31, 1999, and 1998, respectively. See Notes to Consolidated Financial Statements.
-3- A.G. EDWARDS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MAY 31, 1999 (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 on Form 10-K for the year ended February 28, 1999. 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 three months ended May 31, 1999, are not necessarily indicative of the results for the year ending February 29, 2000. Where appropriate, prior year's financial information has been reclassified to conform with the current year presentation. Comprehensive earnings for the three month periods ended May 31, 1999 and 1998 was equal to the Company's net earnings. STOCKHOLDERS' EQUITY: Under the stock repurchase program, the Company purchased 1,000,000 shares at an aggregate cost of $34,541 in the first quarter ended May 31, 1999. For the quarter ended May 31, 1998, the Company purchased 1,160,000 shares at an aggregate cost of $51,234. NET CAPITAL REQUIREMENTS: Edwards is subject to the net capital rule administered by the Securities and Exchange Commission ("SEC"). This rule requires Edwards to maintain a minimum net capital, as defined, and to notify and sometimes obtain the approval of the SEC and other regulatory organizations for substantial withdrawals of capital and loans to affiliates. At May 31, 1999, Edwards' net capital of $1,121,600 was $1,064,752 in excess of the minimum required. -4-
A.G. EDWARDS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MAY 31, 1999 (Dollars in thousands, except per share amounts) (Unaudited) EARNINGS PER SHARE: The following table presents the computations of basic and diluted earnings per share. Three Months Ended May 31, 1999 1998 Net earnings available to common stockholders $84,543 $76,006 (shares in thousands) Weighted average basic shares outstanding 94,655 95,883 Dilutive effect of employee stock plans 1,479 2,061 Total weighted average diluted shares 96,134 97,944 Diluted earnings per share $ 0.88 $ 0.78 Basic earnings per share $ 0.89 $ 0.79
ENTERPRISE WIDE DISCLOSURE: The Company operates and is managed, as a single business segment, that of providing investment services to its clients through its financial consultants in more than 640 branch offices. Transaction services include commissions and sales credits earned by executing or facilitating the execution of security and commodity trades. Asset management fees are earned by providing portfolio advisory services through third-party managers, including mutual funds, and the Company's in-house portfolio managers. The Company earns interest revenue principally from financing its clients' margin accounts, debt securities carried for resale and short-term investments. The following table presents the Company's revenue by type of service for the quarters ended May 31: 1999 1998 Transaction services $482,595 $427,190 Asset management services 104,453 82,023 Interest 53,310 50,787 Other 10,778 10,189 $651,136 $570,189 * * * * * -5- A.G. EDWARDS, INC. AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION THREE MONTHS ENDED MAY 31, 1999 COMPARED TO THREE MONTHS ENDED MAY 31, 1998 Results of Operations The three months ended May 31, 1999 saw a continuation of the high level of retail investor activity that existed during the last four fiscal years in spite of some volatility in the equity and debt markets this year. The Dow Jones Industrial Average (the Dow) began this fiscal year at 9,307 and rose dramatically to a peak of 11,107 in mid-May, only to retreat to 10,560 by May 31,1999. The New York Stock Exchange and Nasdaq overall trading volumes increased 35% and 30%, respectively, over the prior year which contributed to a 26% increase in total customer trades for the Company. The number and size of customer trades and the product mix generally affect the level of revenues. The number of branches and financial consultants increased to 646 and 6,610, which represent increases of 7% and 4%, respectively, compared with the same period last year. Total revenues increased $81 million (14%) to $651 million from $570 million last year. Expenses were $514 million, an increase of $68 million (15%), resulting in a decline in net profit margins to 13.0% this year from 13.3% last year. Total commission revenue increased $47 million (15%), reflecting increased trading volume and, to a lesser extent, continued expansion of the Company's distribution system. Equity related commissions rose $47 million (25%). Client demand for equities remained strong due to the continuation of the relatively strong equity market conditions which resulted in record exchange volumes. Principal transaction revenue increased $6 million (11%) as a result of the rise in revenue from debt products. Sales from debt products rose in corporate, municipal and government bonds primarily due to higher yields this year. Investment banking revenue decreased slightly, down less than $1 million (1%). Underwriting fees and concessions rose $2 million (5%) due to the increased customer demand for corporate debt products. Management fees declined $3 million (18%) due to participation as manager or co-manager in a smaller number of corporate offerings coupled with decreased activity in mergers and acquisitions this year. Asset management and service fees increased $27 million (28%). Fees from third- party mutual funds rose $14 million (24%) reflecting the strong industry-wide cash flows into funds and higher market valuations of existing assets. Fees resulting from the administration of client assets under third-party management and from the Company's management services improved $9 million (35%) due to an increase in the number of accounts and assets under management. -6- Interest revenue increased $3 million (5%). Interest revenue from margin accounts rose $5 million (12%) due to a 24% increase in average margin debits, partially offset by a drop in the average broker call rate. Interest revenues from securities owned decreased $2 million (26%) as a result of lower average inventory. Interest earned on short-term investments fell $1 million (45%) as a result of a 48% drop in average short-term investments which is related to the rise in margin debits. Compensation and benefits increased $50 million (14%). Commission expense increased $26 million (13%) due to the rise in commissionable revenue. General and administrative salaries and related benefits increased primarily as a result of general increases and higher employment. Incentive-related compensation rose primarily as a result of higher earnings. All other expenses increased $18 million (22%) as a result of branch and home office expansion and technology related expenses. LIQUIDITY AND CAPITAL RESOURCES Bank loans consist of short-term borrowings and are primarily used to finance customer receivables. At May 31, 1999 bank loans outstanding were $475 million. Average bank loans outstanding for the three month period ended May 31, 1999, were $122 million at an effective interest rate of 5.17%. In late April, the Company entered into an agreement to upgrade its broker workstations. The equipment, which will include new desktop equipment and servers, will cost approximately $76 million over a three-year period. No other material changes have taken place since February 28, 1999 regarding the Company's liquidity, capital resources and overall financial condition. YEAR 2000 This section is a Year 2000 readiness disclosure pursuant to the provisions of the Year 2000 Information Readiness and Disclosure Act. The "Year 2000" issue arose because many computer hardware and software systems use only two digits to represent the year. As a result, these systems and programs may not accurately calculate dates beyond 1999, causing system failures or miscalculations. The Company, along with the entire financial industry, is heavily reliant on computer technology. As such, any unresolved Year 2000 issues of the Company, other industry members, or entities that support the industry, may result in a material and negative impact on the Company's operations or financial condition. While the Company has contacted significant third parties concerning their Year 2000 progress, there can be no assurance that these other parties have provided accurate and complete information concerning their Year 2000 efforts. -7- With respect to its internal systems, the Company's efforts to remediate the Year 2000 issues are proceeding according to plan. All information technology systems have been assessed, modified, tested and placed in production. Non- information technology systems have been assessed, modified and tested. In March and April 1999, the Company participated in an industry-wide testing program with approximately 400 other broker-dealers, clearing organizations, securities exchanges and depository institutions. The Security Industry Association reported that these tests were successful. In addition, the Company will continue both internal and point-to-point testing with significant counterparties throughout the remainder of calendar 1999. Management estimates the total cost of the Company's Year 2000 efforts will not exceed $15 million. Most of these costs have already been incurred and expensed. Actual costs may differ materially from this estimate. The Company has incorporated various Year 2000 issues into its corporate contingency plans. The plans include steps to address internal system processing errors that may occur after December 31, 1999. The Company's corporate contingency plan is a continually evolving document and is subject to modification. Management continues to assess potential Year 2000 scenarios and will update the contingency plan as necessary. Consideration was given to alternatives for mission critical third parties. However, management believes that the Company's primary mission critical third parties are securities and commodities exchanges, clearing associations, and utilities, and that the industry currently has no available alternatives for most or all of these entities. RISK MANAGEMENT No material changes have occurred to the Company's policies, procedures and controls. A discussion of the Company's primary risks is included in the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1999. Such information is hereby incorporated by reference. FORWARD-LOOKING STATEMENTS The Management's Financial Discussion, including the discussion under "Year 2000," contains forward-looking statements within the meaning of federal securities laws. Actual results are subject to risks and uncertainties, including both specific to the Company and those specific to the industry, which could cause results to differ materially from those contemplated. The risks and uncertainties include, but are not limited to, third-party or Company failures to achieve timely, effective remediation of the Year 2000 issues, risk management, general economic conditions, actions of competitors, regulatory actions, changes in legislation and technology changes. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. The Company does not undertake any obligation to publicly update any forward-looking statements. -8- PART II. OTHER INFORMATION Item 1: Legal Proceedings There have been no material changes in the legal proceedings previously reported in the Company's Annual Report on Form 10-K for the year ended February 28, 1999. Item 4: Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting of Stockholders on June 24, 1999, stockholders approved the following nominations and proposals:
Votes Votes Votes For Against Withheld* Nominations for director: Benjamin F. Edwards, III 74,057,010 1,770,830 Samuel C. Hutchinson, Jr. 73,093,891 2,733,949 Robert L. Proost 74,171,187 1,656,653 Approval of amendment to Company's 1988 Incentive Stock Plan to increase number of shares of common stock available under the Plan from 39,492,188 to 54,492,188. 44,436,479 24,773,083 6,618,278 Ratification of auditors 75,431,961 270,504 125,375 A total of 75,827,840 shares were present in person or by proxy at the Annual Meeting. *Includes abstentions and broker non-votes
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 May 31, 1999. -9- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. A.G. EDWARDS, INC. (Registrant) Date: July 14, 1999 /s/ Benjamin F. Edwards, III BENJAMIN F. EDWARDS, III Principal Executive Officer Date: July 14, 1999 /s/ Robert L. Proost ROBERT L. PROOST Principal Financial Officer -10- EX-27.1 2
BD 1000 3-MOS FEB-29-2000 MAY-31-1999 121,419 2,984,982 14,887 412,617 384,038 241,107 4,383,499 475,000 1,637,237 0 374,412 116,369 0 0 0 96,463 1,579,250 4,383,499 57,863 53,310 357,139 59,024 121,987 2,437 415,864 136,873 136,873 0 0 84,543 .89 .88
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BD 1000 YEAR 3-MOS 6-MOS 9-MOS FEB-28-1998 FEB-28-1998 FEB-28-1998 FEB-28-1998 FEB-28-1998 MAY-31-1997 AUG-31-1997 NOV-30-1997 84,764 70,998 58,577 57,115 2,288,936 1,792,244 1,979,044 2,234,547 204,363 115,000 224,362 62,363 786,119 977,296 910,066 818,528 403,653 219,153 165,534 192,069 230,158 196,953 202,789 207,389 4,193,328 3,628,568 3,802,346 3,746,013 0 0 0 0 1,815,295 1,155,076 1,410,076 1,343,164 0 0 9,363 9,363 820,918 1,083,535 944,032 887,395 19,141 21,820 32,221 31,278 0 0 0 0 0 0 0 0 0 0 0 0 96,463 64,313 96,469 96,463 1,366,658 1,233,260 1,236,930 1,308,262 4,193,328 3,628,568 3,802,346 3,746,013 207,952 54,602 107,438 159,805 180,870 40,843 84,357 130,335 1,099,801 236,021 527,714 822,113 190,918 36,628 78,880 128,686 315,298 69,261 146,050 228,779 1,436 546 0 0 1,276,931 283,456 609,868 944,620 437,797 88,871 201,616 319,647 437,797 88,871 201,616 319,647 0 0 0 0 0 0 0 0 269,297 54,541 123,786 196,177 2.81 .57 1.29 2.05 2.75 .56 1.27 2.00
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BD 1000 YEAR 3-MOS 6-MOS 9-MOS FEB-28-1999 FEB-28-1999 FEB-28-1999 FEB-28-1999 FEB-28-1999 MAY-31-1998 AUG-31-1998 NOV-30-1998 99,499 89,920 106,647 96,029 2,706,248 2,363,685 2,424,760 2,293,879 14,838 9,363 180,000 220,000 243,507 221,600 145,788 253,649 267,095 350,795 214,328 259,525 240,367 231,275 232,437 235,462 3,803,132 3,463,693 3,505,821 3,820,107 0 100,100 0 0 1,822,084 1,458,783 1,696,605 1,861,859 0 0 0 0 229,542 245,630 186,593 280,779 45,659 71,558 24,039 29,937 0 0 0 0 0 0 0 0 0 0 0 0 96,463 96,463 96,463 96,463 1,531,274 1,395,477 1,420,043 1,483,494 3,803,132 3,463,693 3,505,821 3,820,107 202,022 52,003 100,245 151,547 201,512 50,787 102,427 151,696 1,201,519 310,248 603,050 869,747 219,001 59,320 115,306 169,675 405,385 95,414 195,073 294,823 5,628 1,424 3,112 4,659 1,431,697 365,846 718,392 1,047,405 470,787 123,896 240,683 350,222 470,787 123,896 240,683 350,222 0 0 0 0 0 0 0 0 292,117 76,006 148,263 216,232 3.07 .79 1.55 2.27 3.00 .78 1.52 2.22
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