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, 1994 Commission file number 1-8527
A.G. EDWARDS, INC.
State of Incorporation: DELAWARE
I.R.S. Employer Identification No.: 43-1288229
One North Jefferson Avenue
St. Louis, Missouri 63103
Registrant's telephone number, including area code: (314) 289-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
RIGHTS TO PURCHASE COMMON STOCK NEW YORK STOCK EXCHANGE, INC.
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of voting stock held by non-affiliates was
approximately $1.1 billion at May 2, 1994.
At May 2, 1994, there were 60,380,045 shares of A.G. Edwards, Inc. Common Stock,
$1 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement filed with the SEC in connection with
the Company's Annual Meeting of Stockholders to be held June 23, 1994 (the
"Company's 1994 Proxy Statement") are incorporated by reference into Part III
hereof. Other documents incorporated by reference in this report are listed in
the Exhibit Index of this Form 10-K.
PART I
ITEM 1. BUSINESS.
(a) General Development of Business
A.G. Edwards, Inc., a Delaware corporation, is a holding company, incorporated
in 1983, whose principal subsidiary, A.G. Edwards & Sons, Inc. (Edwards), is
successor to a partnership founded in 1887. A.G. Edwards, Inc. and its directly
owned and indirectly owned subsidiaries (collectively referred to as the
Company) provide securities and commodities brokerage, asset management,
insurance, trust, investment banking and other related financial services for
individual, corporate, governmental and institutional customers.
Edwards' business, primarily with individual customers, is conducted through the
fourth largest branch office network (based upon number of offices) in the
United States, which consists of 491 offices (up from 474 in the prior year) in
48 states and the District of Columbia. At February 28, 1994, Edwards had
10,206 full-time employees (up from 9,487) including 5,195 investment brokers
(up from 4,887) providing services for approximately 1,460,000 individual,
corporate and institutional customers (up from 1,300,000). No single customer
accounts for a significant portion of Edwards' business. Edwards is a member of
all major securities exchanges in the United States, the National Association of
Securities Dealers, Inc. (NASD) and the Securities Investor Protection
Corporation (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 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). A.G. Edwards Trust Company, a Missouri trust company, and its wholly-
owned subsidiaries, AGE Asset Management and A.G. Edwards Asset Performance
Monitor, provide investment advisory, portfolio management and trust services to
individual and institutional customers. Two additional A.G. Edwards Trust
Companies, located in Texas and New Jersey, respectively, also provide trust
services to individual and institutional customers. Gull-AGE Capital Group,
Inc. serves as general partner in 64 real estate partnerships in connection with
24 limited partnerships sold by Edwards from 1982 through 1985. Edwards
Development Corporation is the sole general partner in Indianapolis Historic
Partners (IHP), a partnership, in which Edwards owns the entire limited
partnership interest. IHP purchased, renovated and now operates residential
rental property in the Indianapolis, Indiana area.
(b) Financial Information About Industry Segments
The Company operates in one principal line of business, that of providing
investment services, including services to retail customers, institutional sales
and investment banking. Because the Company's services use the same
distribution personnel and facilities, and the same support services, it is
impractical to identify the assets, costs, expenses, and profitability of any
one class of service. The principal sources of revenue for the last three
fiscal years are set forth in Item 6 of this Form 10-K.
(c) Narrative Description of Business
Commissions, principal transactions and investment banking each accounted for
10% or more of the Company's consolidated revenues for one or more of the past
three fiscal years. The amounts of the total revenue contributed by such
services during the last three fiscal years are set forth in Item 6 of this
Form 10-K.
The Company markets and distributes its products and services to individual,
corporate and institutional customers in the 48 contiguous states and the
District of Columbia through its branch office network, 5,195 investment brokers
and 5,011 support employees.
COMMISSIONS
Commission revenue represents the most significant source of revenue for the
Company, accounting for more than 50% of total revenue in each of the last five
years. The following briefly describes the Company's principal sources of
commission revenue.
Listed and Over-the-Counter Securities. A significant portion of the Company's
revenue is derived from commissions as a broker, generated on securities
transactions executed by Edwards in common and preferred stocks and debt
instruments on exchanges or in the over-the-counter markets. Edwards' brokerage
customers are primarily individual investors; however, resources continue to be
directed to further the development of its institutional business. Edwards'
commission rate for brokerage transactions varies with the size and complexity
of each transaction.
Options. Edwards acts as broker in the purchase and sale of option contracts to
buy or sell securities. These contracts primarily cover various common stocks
and stock indexes. Edwards also holds memberships for trading on principal
option exchanges.
Mutual Funds. Edwards distributes mutual fund shares in continuous offerings as
well as new underwritings. Income from the sale of mutual funds is derived
primarily from the standard dealer's discount which varies as a percentage of
the customer's purchase price depending upon the size of the transaction and
terms of the selling agreement. Revenues derived from mutual fund sales,
including distribution fees, continue to be a significant portion of overall
revenues.
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 include agricultural products,
precious metals, currency, interest rate and stock index futures. Substantially
all of Edwards' customer futures transactions are executed and cleared through
Clearing. Nearly all transactions in futures contracts are executed requiring a
relatively low margin deposit, usually 3% to 15% of the total contract amount.
Consequently, the risk to the customer and resulting credit risk assumed by
Edwards is substantial, generally greater than on securities transactions. To
limit its exposure, Edwards requires customers to meet minimum net worth
requirements and other established credit standards, in addition to the margin
deposits. Additionally, regulations of some commodity exchanges limit the
allowable upward or downward price fluctuations for each commodity on a given
day. These restrictions on price fluctuations may preclude purchases or sales
necessary to limit losses or realize gains.
Clearing, as a member of the clearing associations of principal commodity
exchanges, has potentially significant exposure of its capital in the event
other members default on their obligations to the clearing houses of such
exchanges.
Insurance. As agent for several life insurance companies, Edwards distributes
life insurance and tax-deferred annuities. Edwards also provides financial
planning services to assist individuals in structuring financial portfolios to
achieve their financial goals. In addition, the A.G. Edwards Life Insurance
Company is licensed to issue life insurance policies under the laws of Missouri,
but has not issued any to date.
Limited Partnership Interests. Edwards participates in offerings of various
direct participation programs, typically in limited partnership form, on a best
efforts basis. Principal types of programs offered include investments in real
estate, oil and gas, and equipment leasing. Due to tax law changes, primarily
the "Tax Reform Act of 1986", customer activity in this area is minimal.
PRINCIPAL TRANSACTIONS
Transactions with customers in the equity and fixed income over-the-counter
markets may be effected by Edwards acting as principal as well as agent.
Principal transactions, including market making, require maintaining inventories
of securities for resale to customers. These securities are valued at market
and unrealized gains or losses are included in the results of operations.
Securities fluctuations may be sudden and sharp as a result of changes in market
conditions. To the extent Edwards can correctly anticipate such changes, risks
may be reduced by varying inventory levels or by use of hedging strategies.
INVESTMENT BANKING
Edwards is an underwriter of corporate and municipal securities, certificates of
deposit, as well as corporate and municipal unit investment trusts. Activities
in municipal underwriting include areas of specialization in financing of
municipal projects such as infrastructure improvements, education, housing and
health facilities. As an underwriter, usually in conjunction with other
broker-dealers and financial institutions, Edwards purchases securities for
resale to its customers. Edwards acts as a consultant to corporations and
municipal entities in planning their capital needs and determining the most
advantageous means for raising capital. It also advises customers in merger and
acquisition activities and acts as agent in private placements.
Underwriting involves risk. As an underwriter, Edwards may incur losses if it
is unable to resell the securities it is committed to purchase or if it is
forced to liquidate all or a part of its commitment at less than the purchase
price. Under federal and state securities laws, an underwriter is exposed to
substantial potential liability for material misstatements or omissions of fact
in the prospectus used to describe the securities being offered. Generally,
issuers agree to indemnify underwriters against such liabilities, but otherwise,
underwriters are not specifically insured. In addition, the commitment of
capital to underwriting may reduce Edwards' regulatory net capital position and,
consequently, its underwriting participation may be limited by the requirement
that it must at all times be in compliance with the net capital rule of the
Securities and Exchange Commission (SEC).
Although it is generally more profitable to manage or co-manage an underwriting,
as opposed to being a participant, managers generally commit to underwriting a
greater portion of the offering than the other members of the underwriting group
and consequently, managers assume a greater risk.
CUSTOMER FINANCING
Securities transactions are executed on a cash or margin basis. In margin
transactions, Edwards extends credit to customers for a portion of the purchase
price, with the customer's securities held as collateral. The amount of credit
is limited by the initial margin regulations of the Federal Reserve Board. The
current prescribed minimum initial margin is equal to 50% of the value of equity
securities purchased. The regulations of the various exchanges require minimum
maintenance margins, which are below the initial margin. Edwards' maintenance
requirements generally exceed the exchanges' requirements. Such requirements
are intended to reduce the risk that a market decline will reduce the value of
the collateral below that of the customer's indebtedness before the collateral
can be liquidated.
A substantial portion of the Company's assets and obligations result from
transactions with customers who have provided financial instruments as
collateral. The Company manages its risk associated with these transactions
through position and credit limits, and the continuous monitoring of collateral.
Additional information regarding risks associated with customer transactions is
set forth in Note 9 of the Notes to Consolidated Financial Statements under the
caption "Off-Balance Sheet Risk and Concentration of Credit Risk" included in
Item 8 of this Form 10-K.
The customer is charged an interest rate based on the broker call loan rate plus
an amount up to 2 1/2% depending on the amount of customer's borrowings during
each interest period. Interest earned on these balances represents an important
source of revenue for Edwards.
Although borrowings from banks, either unsecured or secured by customer
collateral securities, are an available source of funds to carry customer margin
accounts, the Company's stockholders' equity, cash received from loans of
customers' collateral securities to other brokers, and, to the extent permitted
by regulations, customer free credit balances, provide most of the funds
required.
RESEARCH
Edwards provides both technical market analysis and fundamental analysis of
numerous industries and individual securities for use by its customers. In
addition, reviews and analysis of general economic conditions, along with asset
allocation recommendations, are available to customers. 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.
ADDITIONAL SERVICES
Edwards offers the Total Asset AccountTM which is an integrated financial
services program that allows customers access to their assets through the use of
a special debit card and checking services offered by a major bank. Customer
assets consist of their margin securities and the value of their money market
shares held with one of several money market mutual funds. This program
includes automatic investment of free credit balances in one of these money
market mutual funds. In addition, Edwards also offers the UltraAsset Account
which combines enhanced features of the Total Asset AccountTM with special
investment portfolio reports.
Edwards also provides a service for any customer, meeting certain minimum
requirements, to have free credit balances automatically invested in one of
several money market mutual funds. Interest is not paid on free credit balances
held in customer accounts.
Through the Company's trust and asset management subsidiaries, Edwards'
customers, with specific investment objectives, are offered managed account
services. The trust companies also provide trust and custodial services for
customers.
Edwards provides custodial services for customers' self-directed Individual
Retirement Accounts and Keogh plans.
Edwards sponsors, from time to time, and acts as selling agent for commodity
pool limited partnerships. These units are offered for sale by Edwards and
other broker-dealers.
COMPETITION
All aspects of the Company's business are highly competitive. Edwards competes
with numerous brokers-dealers, some of whom possess greater financial resources
than the Company. Edwards competes for customers on the basis of price, the
quality of its services, financial resources and reputation within the
customers' communities. There is constant competition to attract and retain
personnel within the securities industry. Competition for the investment dollar
and customers has increased from other sources, such as commercial banks,
savings institutions, mutual fund management companies, investment advisory
companies as well as from insurance, real estate and other investment
opportunities. It is likely that competition from commercial banks and their
affiliates will intensify as these institutions continue to expand their
brokerage service and underwriting activities.
REGULATION
Edwards, as a broker-dealer and futures commission merchant, and Clearing, as a
futures commission merchant, are subject to various federal and state laws which
specifically regulate their activities as a broker-dealer in securities and
commodities, as an investment advisor, as an insurance agent and as a commodity
clearing company. Edwards and Clearing are also subject to various regulatory
requirements imposed by the securities and commodities exchanges and the NASD.
The primary purpose of these requirements is to enhance the protection of
customer assets. Under certain circumstances, these rules may limit the ability
of the Company to make withdrawals of capital from Edwards and Clearing. These
laws and regulatory requirements generally subject Edwards and Clearing to
standards of solvency with respect to capital requirements, financial reporting
requirements, approval of qualifications of personnel engaged in various aspects
of its business, record keeping and business practices, the handling of customer
funds resulting from securities and commodities transactions and the extension
of credit to customers on margin transactions. Infractions of these rules and
regulations may include suspension of individual employees and/or their
supervisors, termination of employees, limitations on certain aspects of
Edwards' and Clearing's regulated businesses, as well as censures and fines, or
even proceedings of a civil or criminal nature which could result in a temporary
or permanent suspension of a part or all of Edwards' and Clearing's activities.
Additional information regarding regulation is set forth in Note 5 of the Notes
to Consolidated Financial Statements under the caption "Net Capital
Requirements" included in Item 8 of this Form 10-K.
Additionally, the three trust companies are regulated by banking laws of the
states of Missouri, Texas and New Jersey, respectively. 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
seven commodity pools sponsored by Edwards, is regulated by the CFTC and the
NFA.
ITEM 2. PROPERTIES.
The Company's headquarters, consisting of several buildings located at One North
Jefferson Avenue, St. Louis, Missouri, contains approximately 1,100,000 square
feet of general office space, as well as underground and surface parking. The
buildings are located on approximately 650,000 square feet of land owned by the
Company. The Company also owns approximately 430,000 square feet of land
adjacent to its headquarters and is using this property principally for
additional employee parking areas. The Company has announced plans to expand
its home office facilities. The estimated cost of this expansion is
$35,000,000. Also, the Company owns two of its branch office buildings and
another office building which serves as a data processing 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, 1994,
was $27,425,000.
ITEM 3. LEGAL PROCEEDINGS.
(a) Litigation
The Company is a defendant in a number of lawsuits, in some of which
plaintiffs claim substantial amounts, relating to its securities and
commodities business. While results of litigation cannot be predicted
with certainty, management, based on advice of counsel, believes that
resolution of all such litigation will have no material adverse effect
on the consolidated financial condition 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, 1994.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
The following table sets forth the executive officers of the Company as of
May 2, 1994. 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
<S> <C> <C> <C>
Benjamin F. Edwards III 62 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 37 years.
Director of Edwards since 1967.
Robert G. Avis 62 Vice Chairman of the Board of 1984
the Company. Vice Chairman of
the Board, Executive Vice President,
Director of the Investment Banking
Division and Director of the Sales and
Marketing Division of Edwards.
Employee of Edwards for 28 years.
Director of Edwards since 1970.
Robert L. Bagby 50 Corporate Vice President, 1991
Assistant Director of the Branch
Division and Central and Pacific
Coast Regional Officer of Edwards.
Employee of Edwards for 19 years.
Director of Edwards since 1979.
Robert C. Dissett 56 Corporate Vice President, 1990
Assistant Treasurer and
Director of Operations of Edwards.
Employee of Edwards for 32 years.
Director of Edwards since 1973.
Alfred E. Goldman 60 Senior Vice President, Technical 1991
Market Analysis of Edwards.
Employee of Edwards for 34 years.
Director of Edwards since 1967.
Douglas L. Kelly 45 Secretary of the Company. Vice President, 1994
Director of Law and Compliance of
Edwards. Employee of Edwards for 4
months. Director of Edwards since
January 1994.
Eugene J. King 62 Vice President, Controller and 1983
Assistant Treasurer of the Company.
Senior Vice President, Assistant
Treasurer, and Controller of Edwards.
Employee of Edwards for 23 years.
Director of Edwards since 1988.
David W. Mesker 62 Treasurer of the Company. Treasurer, 1983
Senior Vice President and Director
of the Staff Division of Edwards.
Employee of Edwards for 32 years.
Director of Edwards since 1967.
Robert L. Proost 56 Vice President of the Company. Corporate 1990
Vice President and Director of
Administration of Edwards. Employee
of Edwards for 6 years. Director of
Edwards since 1989.
David M. Sisler 62 Vice Chairman of the Board of the 1983
Company. Vice Chairman of the Board,
Executive Vice President and Director of
the Branch Division of Edwards. Employee
of Edwards for 31 years. Director of
Edwards since 1970.
<FN>
All of the above officers, except Mr. Kelly, have served as officers of Edwards during the
past five years. Mr. Kelly was a partner at the law firm of Peper, Martin, Jensen, Maichel
and Hetlage practicing law in the corporate, commercial and securities areas for 20 years
prior to his employment with the Company.
Benjamin F. Edwards III and Robert G. Avis are stepbrothers.
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
<TABLE>
<CAPTION>
Quarterly Financial Information (Unaudited)
Cash Stock Price Earnings Net
Dividends Trading Range Revenues Before Tax Earnings Earnings
Per Share High -- Low (In millions)(In millions) (In millions) Per Share
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1993 by Quarter
First $.10 1/3 21 3/8 -- 15 3/4 $252.6 $43.6 $27.4 $.48
Second .10 1/3 18 3/8 -- 13 3/4 257.3 42.8 26.9 .47
Third .10 1/3 20 3/4 -- 15 258.9 45.5 28.7 .49
Fourth .12 22 1/4 -- 18 1/4 305.7 58.1 36.4 .63
Fiscal 1994 by Quarter
First $.12 22 3/4 -- 18 3/8 $314.9 $59.4 $38.1 $.64
Second .12 22 1/4 -- 18 314.4 56.8 35.6 .60
Third .14 25 3/8 -- 21 1/4 327.3 64.9 41.1 .67
Fourth .14 24 3/8 -- 21 1/4 322.1 62.5 40.1 .66
<FN>
Per share and stock price data have been restated for stock splits and stock
dividends.
</TABLE>
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, 1994,
was 19,500. 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.
The next four anticipated dividend payment dates are July 1 and October 3, 1994,
and January 3 and April 3, 1995.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Ten-Year Financial Summary
(In thousands, except per share amounts)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions
Listed Securities $ 273,363 $ 231,312 $ 203,936 $ 140,096 $ 129,288
Options 21,135 19,167 21,745 20,002 18,141
Over-the-Counter
Securities 92,846 67,781 68,628 37,807 36,500
Mutual Funds 292,756 222,033 166,356 93,914 80,998
Commodities 16,766 13,016 13,941 12,322 11,941
Insurance 74,862 46,757 47,343 39,514 40,424
Limited Partnership
Interests 1,229 1,418 787 1,035 1,736
Total 772,957 601,484 522,736 344,690 319,028
Principal Transactions
Equities 40,260 31,266 23,157 10,922 11,741
Debt Securities 146,705 184,040 165,284 145,732 116,624
Total 186,965 215,306 188,441 156,654 128,365
Investment Banking
Underwriting Fees and
Selling Concessions 111,379 87,061 77,464 44,167 42,395
Management Fees 35,594 21,251 13,389 11,161 11,542
Total 146,973 108,312 90,853 55,328 53,937
Interest
Margin Account Balances 60,491 50,098 47,026 51,209 50,489
Securities Owned
and Deposits 14,074 14,631 16,915 15,025 14,817
Total 74,565 64,729 63,941 66,234 65,306
Other 97,181 84,557 72,688 52,001 40,387
Total Revenues 1,278,641 1,074,388 938,659 674,907 607,023
Expenses:
Compensation and
Benefits 828,409 692,127 594,404 422,524 374,119
Communications 73,048 66,899 62,468 58,323 52,527
Occupancy and Equipment 67,258 61,701 56,035 49,783 42,560
Floor Brokerage
and Clearance 15,062 15,016 13,741 11,461 10,031
Interest 1,113 1,886 1,186 4,229 6,314
Other Operating Expenses 50,180 46,774 42,793 36,925 29,948
Total Expenses 1,035,070 884,403 770,627 583,245 515,499
Earnings Before
Income Taxes 243,571 189,985 168,032 91,662 91,524
Income Taxes 88,700 70,560 62,500 32,500 32,700
Net Earnings $ 154,871 $ 119,425 $ 105,532 $ 59,162 $ 58,824
Per Share Data:*
Earnings $ 2.57 $ 2.07 $ 1.88 $ 1.10 $ 1.09
Cash Dividends $ .52 $ .43 $ .37 $ .29 $ .28
Book Value $ 13.08 $ 10.66 $ 8.84 $ 7.19 $ 6.45
Other Data:
Total Assets $2,236,590 $2,111,192 $1,577,143 $1,402,627 $1,126,004
Stockholders' Equity $ 790,367 $ 615,240 $ 492,010 $ 385,869 $ 343,539
Cash Dividends $ 30,843 $ 24,624 $ 20,622 $ 15,480 $ 15,185
Return on Average
Equity 22.0% 21.6% 24.0% 16.2% 18.3%
Net Earnings as a
Percent of Revenues 12.1% 11.1% 11.2% 8.8% 9.7%
Average Common and
Common Equivalent
Shares Outstanding* 60,354 57,827 56,101 54,016 53,922
<CAPTION>
1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions
Listed Securities $ 95,276 $ 114,906 $ 109,511 $ 82,450 $ 64,423
Options 14,201 26,668 23,073 16,787 14,533
Over-the-Counter
Securities 28,765 38,810 37,684 26,163 17,959
Mutual Funds 54,197 92,769 148,413 95,312 40,687
Commodities 12,413 12,087 10,991 9,335 11,182
Insurance 39,082 36,120 15,728 11,056 8,982
Limited Partnership
Interests 1,843 2,877 3,216 8,069 12,626
Total 245,777 324,237 348,616 249,172 170,392
Principal Transactions
Equities 9,166 7,680 10,951 6,750 4,151
Debt Securities 97,247 60,406 45,693 48,013 33,362
Total 106,413 68,086 56,644 54,763 37,513
Investment Banking
Underwriting Fees and
Selling Concessions 54,308 35,847 47,502 39,963 41,667
Management Fees 12,071 7,472 14,506 9,449 7,717
Total 66,379 43,319 62,008 49,412 49,384
Interest
Margin Account Balances 44,260 39,722 32,539 30,278 35,203
Securities Owned
and Deposits 11,321 8,279 8,642 7,945 5,404
Total 55,581 48,001 41,181 38,223 40,607
Other 26,562 20,887 17,953 12,759 11,536
Total Revenues 500,712 504,530 526,402 404,329 309,432
Expenses:
Compensation and
Benefits 301,421 309,753 323,524 246,142 182,239
Communications 47,601 42,738 37,521 32,226 27,763
Occupancy and Equipment 36,097 32,459 27,788 24,230 20,555
Floor Brokerage
and Clearance 9,400 10,648 9,464 7,539 6,964
Interest 8,604 7,126 4,089 3,784 6,032
Other Operating Expenses 45,292 45,303 25,661 21,558 20,117
Total Expenses 448,415 448,027 428,047 335,479 263,670
Earnings Before
Income Taxes 52,297 56,503 98,355 68,850 45,762
Income Taxes 17,348 20,490 44,625 30,768 19,183
Net Earnings $ 34,949 $ 36,013 $ 53,730 $ 38,082 $ 26,579
Per Share Data:*
Earnings $ .66 $ .67 $ 1.00 $ .72 $ .50
Cash Dividends $ .26 $ .26 $ .24 $ .21 $ .21
Book Value $ 5.64 $ 5.20 $ 4.82 $ 4.08 $ 3.62
Other Data:
Total Assets $1,062,640 $ 869,940 $ 982,300 $ 917,961 $ 782,283
Stockholders' Equity $ 300,585 $ 274,100 $ 256,833 $ 214,598 $ 191,324
Cash Dividends $ 13,904 $ 13,990 $ 12,734 $ 11,169 $ 10,877
Return on Average
Equity 12.2% 13.6% 22.8% 18.8% 14.6%
Net Earnings as a
Percent of Revenues 7.0% 7.1% 10.2% 9.4% 8.6%
Average Common and
Common Equivalent
Shares Outstanding* 53,119 53,561 53,584 53,020 52,882
<FN>
*Restated for stock splits and stock dividends.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General Business Environment
As its principal business, the Company provides investment services to retail
clients. It also provides investment services to institutional clients and
investment banking services to corporate and governmental clients. Many factors
affect the Company's revenues, including changes in economic conditions,
investor sentiment, the level and volatility of interest rates, inflation,
political events, and competition from other financial institutions. Because
investor reaction to these factors is unpredictable and beyond the Company's
control, earnings may fluctuate significantly from period to period.
The securities industry experienced another excellent year, and the Company
achieved record revenues and earnings for the fiscal year ended February 28,
1994. Stock prices, driven by lower interest rates and increased market
participation by individual investors, continued to improve as the Dow Jones
Industrial Average rose 14% to 3,832 by fiscal year end. January 1994 marked a
record high close of 3,978. Demand for small- and medium-capitalization stocks
produced an 18% increase in the Nasdaq composite index and a 19% increase in the
Russell 2000 Small Stock Index during the fiscal year. U.S. investors placed
substantial funds in global stock markets or in mutual funds investing in global
stocks.
Throughout the industry, mutual fund sales and initial public offerings were at
record levels. As a result of historically low interest rates, an increased
number of municipalities and corporations refinanced their debt, generating new
highs in the dollar volume of debt offerings.
The bond market's performance for the year was volatile. The 30-year Treasury
bond began the year yielding 6.84% and ended at 6.66%; however, the yield
climbed to a high of 7.06% in early April and then steadily declined to 5.76% by
mid-October. In February 1994, the Federal Reserve's tightening of monetary
policy for the first time in approximately five years resulted in an increase of
1/4% in short-term interest rates.
Results of Operations
Fiscal 1994 is the fifth consecutive year that the Company achieved record
revenues, record net earnings and record earnings per share. Revenues rose to
$1.3 billion from $1.1 billion in 1993 and $939 million in 1992. Net earnings
were $155 million for 1994, up from $119 million last year and $106 million in
1992. Earnings per share were $2.57, compared with $2.07 and $1.88,
respectively, in the prior two years. After-tax profit margins were 12% in 1994,
up from 11% in the prior two years. These record results reflect the increased
activity in the securities markets during the last three years, combined with
the growth of the Company's distribution system. During the last five years, the
number of A.G. Edwards investment brokers increased 49%. This included a 6%
increase in 1994, which brought the total number of investment brokers to 5,195.
The number of locations increased from 373 to 491 during the last five years,
including 17 new branches opened in 1994.
As opportunities arise, management expects to continue expanding the Company's
distribution system by adding new offices and hiring additional investment
brokers in existing offices. Management is not able to predict the impact such
expansion may have on the Company's future results of operations.
The following table summarizes the changes in the major categories of revenues
and expenses for the past two fiscal years (in thousands):
1994 vs. 1993 1993 vs. 1992
Increase (Decrease)
Revenues:
Commissions $171,473 29% $78,748 15%
Principal transactions (28,341) (13) 26,865 14
Investment banking 38,661 36 17,459 19
Interest 9,836 15 788 1
Other 12,624 15 11,869 16
$204,253 19% $135,729 15%
Expenses:
Compensation and
benefits $136,282 20% $97,723 16%
Communications 6,149 9 4,431 7
Occupancy and equipment 5,557 9 5,666 10
Floor brokerage and
clearance 46 -- 1,275 9
Interest (773) (41) 700 59
Other operating expenses 3,406 7 3,981 9
$150,667 17% $113,776 15%
Commissions
Commissions represent the most significant source of revenue for the Company,
accounting for more than 50% of total revenue. In 1994, revenue from sales of
mutual funds, including distribution fees, surpassed revenue from listed
securities transactions for the first time. Mutual funds continued to attract
dollars from other investments, primarily fixed-income products, because of the
low yields these investments provided. In addition, mutual funds have become a
popular medium for investors seeking to own global securities. As a result,
overall revenue from mutual funds increased 32% ($71 million) in 1994 and 33%
($56 million) in 1993, following record industry sales in both years.
Revenues from equity transactions also rose in both 1994 and 1993 on continued
investor demand fueled by three years of declining interest rates. Revenue from
listed securities transactions increased 18% ($42 million) in 1994 and 13% ($27
million) in 1993. These increases followed a 30% increase in trading volume on
the New York Stock Exchange in 1994 and an 11% increase in 1993. Revenue from
over-the-counter equity transactions rose 37% in 1994, reflecting investor
demand for small- and medium-capitalization stocks. Trading volume on the Nasdaq
increased 42% over 1993. Revenue from over-the-counter transactions was flat in
1993 compared to 1992.
Commissions derived from sales of insurance products, primarily annuities, also
contributed to increased commission revenue, rising 60% ($28 million) over 1993.
Demand for tax-deferred investments increased with the tax law changes enacted
in August 1993, which increased income tax rates for high-income individuals.
Principal Transactions
Revenue from principal transactions dropped 13% ($28 million) in 1994, compared
with an increase of 14% ($27 million) in 1993. This decline was the result of
lower investor demand for debt securities and lower trading gains following
rising interest rates in the latter part of the fiscal year. Revenue from sales
of debt securities declined 16% ($26 million) from the prior year as investors
seeking higher returns shifted to alternatives, such as mutual funds. Trading
gains declined by $11 million, a decrease of 46% from the previous year. Revenue
from the sale of equity securities increased 29% ($9 million), partially
offsetting the decrease in revenue from debt securities sales. The favorable
market climate for stocks was the major reason for this increase.
The fiscal 1993 increase in principal transaction revenue was primarily due to
an 11% ($19 million) increase in revenue from debt securities sales and trading
gains and a 35% ($8 million) increase in revenue from the sale of equity
securities. Declining interest rates favorably affected revenues from debt
securities, which included a $9 million increase in trading gains. Growth in
the Company's branch distribution system and strong market conditions
contributed to the increased revenue from equity securities.
Investment Banking
The Company derives investment banking revenue by underwriting public offerings
of securities for corporations and governmental entities as well as by providing
advisory services for such clients. These revenues increased 36% ($39 million)
in 1994. Favorable market conditions and investor demand for equities
contributed to a record number of initial public offerings during the year.
Underwriting fees and selling concessions from equity offerings rose from $49
million to $73 million. The Company received $21 million in fees for serving as
managing underwriter of equity offerings, up from $15 million in the prior year.
The Company participated as manager in 119 corporate offerings in 1994, compared
with 104 in 1993. Closed-end mutual funds accounted for 66 corporate offerings
in 1994 and 67 in 1993.
In fiscal 1993, investment banking revenues rose 19% ($17 million), principally
on increased underwriting fees and selling concessions from initial public
offerings and increased revenues generated from municipal bond offerings. Market
conditions were favorable for initial public offerings in 1993, and sharply
lower interest rates influenced municipalities to issue new debt and refinance
existing debt.
Interest
The Company earns interest revenue principally from financing customer purchases
of securities, from debt securities carried for resale to customers and from
short-term investments.
Interest revenue increased in 1994 primarily from a 28% increase in average
receivables from customer margin accounts, partially offset by lower rates.
Interest revenue increased only slightly in 1993, despite a 38% rise in such
receivables, due to lower interest rates earned on these and other interest-
bearing assets.
Other
Other revenues increased 15% in 1994 and 16% in 1993. Fees received in
connection with customer investments under professional management and
administrative transaction fees accounted for the majority of this increase in
both years.
Expenses
Because of the nature of the Company's business, compensation and employee
benefits represent the major component of its overall expenses. These expenses
rose 20% in 1994 and 16% in 1993, reflecting increased commission expenses
related to higher revenue levels, increased incentive compensation related to
higher earnings, and higher salary and benefit costs related to expansion and
general increases.
Fiscal 1994 also included an increase in deferred compensation expense, from $8
million to $28 million, due primarily to an amendment under the Company's
Incentive Stock Plan to define the service period in connection with restricted
stock awards to coincide with the period for which the amount of the award is
determined. Beginning in 1994, the amount of the award is expensed in the
current year instead of being amortized over the subsequent three-year
restriction period. As a result of this transition, $16 million for the 1994
awards and $9 million for the prior three years' awards were charged to expense
in 1994.
Communications expense and occupancy and equipment costs increased in 1994 and
1993, reflecting expansion of the branch system and higher costs for postage,
quote services and leased facilities. Conversion to a satellite communications
system and enhancements to computer systems contributed to increased expenses in
1993.
The Company is not greatly dependent on external financing. Consequently,
interest expense (which includes interest on bank borrowings and securities
lending activities) was not significant in either year.
Income Taxes
For information concerning the provision for income taxes, as well as
information regarding differences between effective tax rates and statutory
rates, see Note 6 of the Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
Average assets increased during the last three years primarily because of
expansion, increased customer margin activities and growth of earnings. Assets
fluctuate in the normal course of business, principally due to the timing of
certain transactions, which may result in corresponding fluctuations in related
liabilities. Customer-related receivables and securities inventory, which are
highly liquid, represent a substantial percentage of these assets. The principal
sources of financing the Company's assets are stockholders' equity, customer
free credit balances, proceeds from securities lending, bank loans and other
payables. The Company has no long-term debt. Cash generated from operations,
increased earnings and proceeds from employee stock plans have kept bank
borrowings at low levels in the past three years. Average borrowings were $14
million in 1994, $26 million in 1993 and $10 million in 1992.
During 1995, the Company expects to complete the installation of its new
computer-based broker workstations that began in the last quarter of fiscal
1994, replacing the current branch quote and communications equipment in all
branch offices. In addition, the Company has announced plans to expand its home
office facilities. The estimated cost of this expansion has not yet been
determined. The Company may also purchase treasury shares for its employee stock
plans. These expenditures, as well as dividend payments and the costs of
expansion, should continue to be financed from operations.
Because of the Company's size, earnings history and strong financial condition,
management believes adequate sources of credit would be available, if needed, to
finance higher trading volumes, branch expansion, stock repurchases and major
capital expenditures.
The Company's principal subsidiary, A.G. Edwards & Sons, Inc., is required by
the Securities and Exchange Commission (SEC) to maintain specified amounts of
liquid net capital to meet its obligations to customers (see Note 5 of the Notes
to Consolidated Financial Statements). A.G. Edwards & Sons, Inc.'s net capital,
in excess of that required by the SEC on February 28, 1994, was approximately
$474 million, up from $359 million the previous year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The quarterly financial information required by this item is contained in the
table included in Item 5 of this Form 10-K.
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 $5,000,000 of each such occurrence.
Independent Auditors' Report
To the Board of Directors and Stockholders of
A.G. Edwards, Inc.:
We have audited the accompanying consolidated balance sheets of A.G.Edwards,
Inc. and subsidiaries as of February 28, 1994 and 1993, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended February 28, 1994. 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, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended February 28, 1994, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche
April 21, 1994
St. Louis, Missouri
<TABLE>
<CAPTION>
Consolidated Balance Sheets
February 28, February 28,
(In thousands, except share amounts) 1994 1993
<S> <C> <C>
Assets
Cash and cash equivalents $ 40,341 $ 27,963
Cash and government securities, at market,
segregated under federal and other regulations 195,726 286,239
Securities purchased under agreements to resell 114,553
Receivable from brokers and dealers 260,858 475,468
Receivable from customers, less allowance for doubtful
accounts of $3,400 and $3,250 1,218,145 950,937
Securities inventory, at market:
State and municipal 97,991 87,418
Government and agencies 28,864 34,827
Corporate 40,904 27,503
Property and equipment, at cost, net of
accumulated depreciation and amortization of
$124,423 and $106,760 145,441 140,790
Other assets 93,767 80,047
$ 2,236,590 $ 2,111,192
Liabilities and Stockholders' Equity
Checks payable $ 111,947 $ 113,665
Payable to brokers and dealers 623,034 503,379
Payable to customers 355,224 575,283
Securities sold but not yet purchased, at market 24,109 10,576
Employee compensation and related taxes 285,213 244,226
Income taxes 9,959 18,242
Other liabilities 36,737 30,581
Total Liabilities 1,446,223 1,495,952
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, 60,446,336 and 46,158,664 shares 60,446 46,159
Additional paid-in capital 165,124 125,328
Retained earnings 576,073 452,045
801,643 623,532
Less -- Unamortized expense of
restricted stock awards 11,276 8,292
Total Stockholders' Equity 790,367 615,240
$ 2,236,590 $ 2,111,192
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
(In thousands, except per share amounts)
Year Ended
February 28, February 28, February 29,
1994 1993 1992
<S> <C> <C> <C>
Revenues:
Commissions $ 772,957 $ 601,484 $ 522,736
Principal transactions 186,965 215,306 188,441
Investment banking 146,973 108,312 90,853
Interest 74,565 64,729 63,941
Other 97,181 84,557 72,688
1,278,641 1,074,388 938,659
Expenses:
Compensation and benefits 828,409 692,127 594,404
Communications 73,048 66,899 62,468
Occupancy and equipment 67,258 61,701 56,035
Floor brokerage and clearance 15,062 15,016 13,741
Interest 1,113 1,886 1,186
Other operating expenses 50,180 46,774 42,793
1,035,070 884,403 770,627
Earnings Before Income Taxes 243,571 189,985 168,032
Income Taxes 88,700 70,560 62,500
Net Earnings $ 154,871 $ 119,425 $ 105,532
Earnings Per Share $ 2.57 $ 2.07 $ 1.88
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
Three years ended February 28, 1994
(In thousands, except per share amounts)
Unamortized
Additional Expense
Common Paid-in Retained of Restricted Treasury
Stock Capital Earnings Stock Awards Stock
<S> <C> <C> <C> <C> <C>
Balances, March 1, 1991 $ 23,005 $ 96,899 $ 272,334 $(3,408) $(2,961)
Net earnings 105,532
Cash dividends --
$.37 per share (20,622)
Treasury stock acquired (7)
Stock issued:
Employee stock
purchase/option plans 881 14,267 1,938
Restricted stock 140 4,307 (5,008) 1,030
Amortization of
restricted stock awards 3,683
Stock split -- 3 for 2 11,550 (11,550)
Stock split -- 5 for 4 8,890 (8,890)
Balances, February 29, 1992 44,466 95,033 357,244 (4,733) 0
Net earnings 119,425
Cash dividends --
$.43 per share (24,624)
Treasury stock acquired (21)
Stock issued:
Employee stock
purchase/option plans 1,306 19,450 141
Restricted stock 387 10,845 (10,036) (120)
Amortization of
restricted stock awards 6,477
Balances, February 28, 1993 46,159 125,328 452,045 (8,292) 0
Net earnings 154,871
Cash dividends --
$.52 per share (30,843)
Treasury stock acquired (26)
Stock issued:
Employee stock
purchase/option plans 1,154 23,087 575
Restricted stock 1,219 28,623 (11,893) (549)
Amortization of
restricted stock awards 8,909
Stock split -- 5 for 4 11,914 (11,914)
Balances, February 28, 1994 $ 60,446 $ 165,124 $ 576,073 $(11,276) $ 0
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Year Ended
February 28, February 28, February 29,
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $154,871 $ 119,425 $ 105,532
Noncash items included in earnings:
Depreciation and amortization 22,895 22,056 18,884
Amortization/expense of restricted stock awards 24,598 6,477 3,683
Deferred items (11,486) (5,896) (2,939)
(Increase) decrease in operating assets:
Segregated cash and government securities 90,513 (73,238) (59,422)
Receivable from brokers and dealers 214,610 (265,828) 160,913
Receivable from customers (267,208) (195,065) (218,973)
Securities inventory (18,011) 10,917 (21,976)
Other assets (1,975) (10,098) (6,489)
Increase (decrease) in operating liabilities:
Checks payable (1,718) 11,282 24,673
Payable to brokers and dealers 119,655 259,156 (105,498)
Payable to customers (220,059) 91,019 55,923
Securities sold but not yet purchased 13,533 (14,585) 11,028
Employee compensation and related taxes 40,987 52,120 73,716
Income taxes (8,283) 4,888 7,047
Other liabilities 6,156 6,939 1,486
Net cash provided by operating activities 159,078 19,569 47,588
Cash Flows From Investing Activities:
Securities purchased under agreements to resell (114,553)
Purchase of property and equipment (27,546) (31,970) (24,977)
Long-term investments included in other assets (259) 1,547 67
Net cash used in investing activities (142,358) (30,423) (24,910)
Cash Flows From Financing Activities:
Employee stock transactions 26,527 21,928 17,521
Purchase of treasury stock (26) (21) (7)
Cash dividends paid (30,843) (24,624) (20,622)
Net cash used in financing activities (4,342) (2,717) (3,108)
Net Increase (Decrease) in Cash and Cash Equivalents 12,378 (13,571) 19,570
Cash and Cash Equivalents, at Beginning of Year 27,963 41,534 21,964
Cash and Cash Equivalents, at End of Year $ 40,341 $ 27,963 $ 41,534
<FN>
See Notes to Consolidated Financial Statements.
Income tax payments totaled $105,604 in 1994, $68,638 in 1993 and $56,695 in
1992.
Interest payments totaled $1,059 in 1994, $1,862 in 1993 and $1,192 in 1992.
Supplemental disclosures of noncash financing activities: Restricted stock
awards, net of forfeitures, totaled $27,582 in 1994, $10,036 in 1993 and
$5,008 in 1992.
</TABLE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of A.G.Edwards, Inc.
and its wholly owned subsidiaries (collectively referred to as the "Company").
All material intercompany balances and transactions have been eliminated in
consolidation. Where appropriate, prior years' financial information has been
reclassified to conform with the current year presentation.
The Company is in one principal line of business, that of providing investment
services. These services are provided through its principal subsidiary, A.G.
Edwards & Sons, Inc., and other wholly owned subsidiaries.
Cash equivalents consist of interest-earning investments purchased with
maturities under 90 days.
Securities purchased under agreements to resell (Resale Agreements) are recorded
at amounts at which the purchased securities will be sold. Cash and government
securities segregated under federal and other regulations include Resale
Agreements of $150,000,000 in 1994 and $239,975,000 in 1993. The Company's
policy is to obtain possession or control of securities purchased under Resale
Agreements.
Customer securities transactions are recorded on settlement date. Revenues and
related expenses for transactions executed but unsettled are accrued on a trade-
date basis.
Securities inventory and securities segregated under federal and other
regulations are recorded on a trade-date basis and are valued at market.
Unrealized gains and losses are reflected in revenue.
Depreciation of buildings is provided using both straight line and accelerated
methods over estimated useful lives of 15 to 45 years. Leasehold improvements
are amortized over the lesser of the life of the lease or estimated useful life
of the improvement. Depreciation of equipment is provided over estimated useful
lives of five to 10 years using both straight line and accelerated methods.
Earnings per share is based on the weighted average number of common shares and
common share equivalents outstanding of 60,354,000 in 1994, 57,827,000 in 1993
and 56,101,000 in 1992. 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. Where appropriate, per share
amounts and share data have been restated to reflect a five-for-four stock split
declared in November 1993, effected in the form of a stock dividend.
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 $14,140,000 in 1994, $25,600,000 in 1993 and $9,670,000
in 1992, at effective interest rates of 3.6%, 4.0% and 6.1%, respectively.
Substantially all such borrowings were secured by customer-owned securities.
There were no borrowings outstanding at February 28, 1994 and 1993.
3. Employee Stock Plans
Options to purchase 1,231,250 shares of common stock granted to employees under
the Company's stock purchase plan are exercisable October 1, 1994, at 85% of
market price based on dates specified in the plan. Employees purchased 1,227,908
shares at $17.17 per share in 1994, 1,227,534 shares at $13.05 per share in 1993
and 1,227,394 shares at $10.68 per share in 1992.
Under the Company's stock option plan, three types of benefits may be granted to
officers and key employees: restricted stock, stock options and stock
appreciation rights. Such awards are subject to forfeiture upon termination of
employment during a restricted period. Through February 28, 1994, 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. The Company amended its Incentive Stock Plan in 1994 to
define the service period in connection with restricted stock awards to coincide
with the period for which the amount of the award is determined. Therefore, the
1994 awards were expensed in the current year. For awards prior to 1994, this
amount is amortized over the vesting period. Eligible employees as of February
28, 1994, were awarded 883,860 shares with a market value of $15,689,000, which
was expensed in 1994. As of February 28, 1993, and February 29, 1992, the awards
were 571,020 shares and 513,946 shares, respectively, with corresponding market
values of $12,448,000 and $10,176,000. As of February 28, 1994, restricted stock
awards covering 2,248,417 shares were outstanding with the restrictions expiring
at various dates through 1997.
Stock options are granted to purchase common stock at 100% of market value at
date of grant. Such options are exercisable beginning three years from date of
grant and expire eight years from date of grant, or earlier upon termination of
employment. During the year ended February 28, 1994, options to purchase 789,347
shares were granted and options to purchase 241,657 shares were exercised.
During the years 1993 and 1992, respectively, options to purchase 462,726 shares
and 480,035 shares were granted, and options for 372,559 shares and 376,981
shares were exercised. Treasury shares of 30,560 in 1994, 8,525 in 1993 and
204,403 in 1992, were utilized for options exercised. Options to acquire
2,848,190 shares of common stock at prices ranging from $6.81 to $21.80 per
share were outstanding at February 28, 1994, and expire at various dates through
the year 2002.
4. Employee Profit Sharing Plan
The Company has an employee profit sharing plan covering substantially all
employees, whereby it is obligated to match, in specified amounts as defined
therein, portions of contributions made by eligible employees. Additional
contributions may be made at the discretion of the Company. Required and
discretionary contributions totaled $52,164,000 in 1994, $44,604,000 in 1993 and
$38,660,000 in 1992.
5. Net Capital Requirements
A.G. Edwards & Sons, Inc. is subject to the net capital rules of the Securities
and Exchange Commission (SEC) and the New York Stock Exchange. Under such rules,
this subsidiary must maintain net capital of not less than 2% of aggregate debit
items, as defined, arising from customer transactions and would be restricted
from expanding its business or paying cash dividends and loans to affiliates, if
its net capital were less than 5% of such items. These rules also require A.G.
Edwards & Sons, Inc. to notify and sometimes obtain approval from the SEC and
other regulatory organizations for substantial withdrawals of capital and loans
to affiliates. At February 28, 1994, the subsidiary's net capital of
$498,178,000 was 42% of aggregate debit items and $474,418,000 in excess of the
minimum required.
Certain other subsidiaries are also subject to minimum capital requirements that
may restrict the payment of cash dividends and advances to A.G. Edwards, Inc.
The Company's only restriction with regard to the payment of cash dividends is
its ability to obtain cash dividends and advances from its subsidiaries, if
needed.
6. Income Taxes
Effective March 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting For Income Taxes" (SFAS 109). This statement
replaces the Company's previous income tax accounting method under Accounting
Principles Board Opinion No. 11, which required deferred income taxes to reflect
timing differences between taxable income for tax purposes and for financial
reporting purposes. Under SFAS 109, deferred income taxes reflect temporary
differences in the basis of the Company's assets and liabilities for income tax
purposes and for financial reporting purposes, using current tax rates. The
adoption of SFAS 109 did not have a material effect on the Company's financial
condition or results of operations.
The provisions for income taxes consist of (in thousands):
1994 1993 1992
Current:
Federal $85,940 $65,631 $54,573
State and local 14,246 10,870 10,900
100,186 76,501 65,473
Deferred (11,486) (5,941) (2,973)
$88,700 $70,560 $62,500
Deferred tax assets totaled $37,919 at February 28, 1994, and consisted
primarily of employee benefits that are not currently deductible. Deferred tax
liabilities totaled $14,496 and consisted primarily of accelerated depreciation
deductions. The federal statutory rate increased during 1994 to 35%, retroactive
to January 1, 1993. The effect of this increase on the Company's deferred income
taxes was not material.
The components of deferred income taxes included in the provision for income
taxes are as follows:
1993 1992
Employee benefits $(6,883) $(3,360)
Accelerated depreciation 1,209 1,010
Other (267) (623)
$(5,941) $(2,973)
The Company's effective tax rate was 36% in 1994, and 37% in 1993 and 1992,
which differed from the federal statutory rate of 35% in 1994, and 34% in 1993
and 1992. State and local taxes, net of federal benefit, increased the effective
rate by 3% in 1994, and 4% in 1993 and 1992. No other single item had a material
impact on the difference in the rates.
7. Common Stock Rights
On December 30, 1988, the Board of Directors adopted a Stockholders' Rights Plan
by declaring a distribution of one Common Stock Purchase Right for each
outstanding share of the Company's common stock. The rights cannot be exercised
or traded apart from the common stock until, without the prior consent of the
Company, a third party either acquires 20% or more of the Company's outstanding
common stock or commences a tender or exchange offer that would result in it
acquiring 20% or more of the outstanding common stock. Each right, upon becoming
exercisable, entitles the registered holder to purchase one share of common
stock for $29.09 from the Company. If a person actually acquires 20% or more of
the Company's common stock without the Board of Directors' consent, then each
right will entitle its holder, other than the acquiring company, to purchase for
$29.09 the number of shares of the Company's common stock (or in the event of a
merger or other business combination, the number of shares of the acquirer's
stock), which has a market value of $58.18. The rights, which are redeemable by
the Company at a price of $0.00384 each prior to a person's acquiring 20% or
more of the Company's common stock, are subject to adjustment to prevent
dilution and expire January 18, 1999.
8. Commitments and Contingent Liabilities
The Company has long-term operating leases for office space and communications
equipment. Minimum rental commitments under all such noncancelable leases, some
of which contain escalation clauses and renewal options, at February 28, 1994,
are as follows (in thousands):
Year ending February 28 (29),
1995 $ 30,900
1996 27,400
1997 22,100
1998 15,800
1999 11,000
Later years 18,900
$ 126,100
Rental expense under all operating leases and equipment maintenance contracts
was $37,829,000 in 1994, $35,006,000 in 1993 and $32,935,000 in 1992.
In the normal course of business, the Company enters into when-issued and
underwriting commitments. Transactions relating to open commitments at February
28, 1994, and subsequently settled, had no material effect on the consolidated
financial statements as of that date.
At February 28, 1994, the Company was contingently liable under letter of credit
agreements, principally to satisfy margin deposit requirements with a clearing
corporation, in the amount of $58,000,000. Of this amount, $10,000,000 was
collateralized by customer-owned securities. Such agreements are for periods of
three months to one year.
The Company is a defendant in a number of lawsuits, in some of which plaintiffs
claim substantial amounts, relating to its securities and commodities business.
While results of litigation cannot be predicted with certainty, management,
based on advice of counsel, believes that resolution of all such litigation will
have no material adverse effect on the consolidated financial condition of the
Company.
9. Financial Instruments
Off-Balance Sheet Risk and Concentration of Credit Risk
The Company records customer transactions on a settlement date basis, generally
five business days after trade date. The risk of loss on unsettled transactions
is identical to settled transactions and relates to customers' and other
counterparties' inability to fulfill their contracted obligations.
In the normal course of business, the Company also executes customer
transactions involving the sale of securities not yet purchased, the purchase
and sale of futures contracts, and the writing of option contracts on both
securities and futures. In the event customers or other counterparties such as
broker-dealers or clearing organizations fail to satisfy their obligations, the
Company may be required to purchase or sell financial instruments in order to
fulfill its obligations at prices that may differ from amounts recorded in the
balance sheet.
Customer financing and securities settlement activities generally require the
Company to pledge customer securities as collateral in support of various
financing sources. Additionally, customer securities may be pledged as
collateral to satisfy margin deposits at various clearing organizations. To the
extent these counterparties are unable to fulfill their contracted obligation to
return securities pledged, the Company is exposed to the risk of obtaining
securities at prevailing market prices to meet its customer obligations.
Securities sold but not yet purchased represent obligations of the Company to
deliver specified securities at contracted prices. Settlement of such
obligations may be at amounts greater than those recorded in the balance sheet.
A substantial portion of the Company's assets and obligations result from
transactions with customers and other counterparties who have provided financial
instruments as collateral. Volatile trading markets could impair the value of
such collateral and impact customers' and other counterparties' ability to
satisfy their obligations to the Company.
The Company manages its risk associated with the aforementioned transactions
through position and credit limits, and the continuous monitoring of collateral.
Additional collateral is requested from customers and other counterparties when
appropriate.
Fair Value Considerations
Substantially all of the Company's financial instruments are carried at fair
value or amounts that approximate fair value. Government securities segregated,
securities inventory and securities sold but not yet purchased are valued using
quoted market or dealer prices. Customer receivables, primarily consisting of
floating rate loans collateralized by margin securities, are charged interest at
rates similar to other such loans made throughout the industry. The Company's
remaining financial instruments are generally short-term in nature and liquidate
at their carrying values.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There were no disagreements on accounting and financial disclosure for the year
ended February 28, 1994.
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 1994
Proxy Statement and in Part I of this Form 10-K under the caption "Executive
Officers of the Company". Such information is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included under the captions "Director
Compensation" and "Executive Compensation" on pages 6 and 8 through 10 of the
Company's 1994 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 1994 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
1994 Proxy Statement under the caption "Certain Transactions". Such information
is hereby incorporated by reference.
PART IV
ITEM 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, EXHIBITS
AND REPORTS ON FORM 8-K.
INDEX
(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 are included in Item 8 of this
Form 10-K.
2. Financial Statement Schedules
All schedules are omitted because of the absence of conditions under
which they are required or because the required information is provided in the
consolidated financial statements or notes thereto.
3. Exhibits*
Some of the following exhibits were previously filed as exhibits
to other reports or registration statements filed by the Registrant and are
incorporated by reference as indicated below.
2 Not applicable.
3(i) Certificate of Incorporation filed as Exhibit 3(i) to the
Registrant's Form 10-K for the fiscal year ended February 28, 1993.
3(ii) By-laws, as amended to date.
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 the Registrant's Form 10-K
for the fiscal year ended February 28, 1993.
4(ii) Reference is made to Article II, Article III Sections 1 and 15,
Article IV Sections 1 and 3, Article VI and Article VII Sections 1-3 of the By-
laws filed as Exhibit 3(ii) to this Form 10-K.
4(iii) Rights Agreement dated as of December 30, 1988 between A.G.
Edwards, Inc. and Boatmen's Trust Company as Rights Agent filed as Exhibit 4 to
the Registrant's Form 8-K Report dated December 30, 1988.
4(iv) Amendment No. 1 to the Rights Agreement dated December 30, 1988,
between A.G. Edwards Inc. and Boatmen's Trust Company as Rights Agent, dated May
24, 1991 filed as Exhibit 4.4 to Registrant's Form 10-K for the fiscal year
ended February 29, 1992.
9 Not applicable.
10(i) 1982 Restricted Stock and Stock Option Plan. Previously filed as
Exhibit 10.3 to Registrant's Form 10-K for the year ended February 28, 1987.
10(ii) A.G. Edwards, Inc. 1988 Incentive Stock Plan (as amended and
restated) filed as Exhibit 10.2 to Registrant's Form 10-K for the fiscal year
ended February 29, 1992.
10(iii) Certificate of Amendment dated April 27, 1993 to A.G. Edwards,
Inc. 1988 Incentive Stock Plan filed as Exhibit 10 (ii) to Registrant's Form 10-
K for the fiscal year ended February 29, 1992.
11 Computation of per share earnings may be clearly determined from
the consolidated financial statements and notes thereto contained in Item 8 of
this Form 10-K and incorporated herein by reference.
12 Not applicable.
13 Annual Report to Stockholders for the fiscal year ended was
furnished for the information of the Commission on or about May 16, 1994 and is
not deemed "filed" as part of this Form 10-K.
16 Not applicable.
18 Not applicable.
21 Subsidiaries of the Registrant.
22 Not applicable.
23 Independent Auditors' Consent.
24 Power of Attorney.
27 Not applicable.
28 Not applicable.
*Numbers correspond to document numbers in Exhibit Table of Item 601 of
Regulation S-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year ended
February 28, 1994.
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 19, 1994 By /s/ Benjamin F. Edwards
Benjamin F. Edwards III,
Chairman of the Board
POWER OF ATTORNEY EXHIBIT 24
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Benjamin F. Edwards III, and David W. Mesker and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign this Report, any and all amendments to this
Report, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Benjamin F. Edwards III Chairman of the Board, May 19, 1994
Benjamin F. Edwards III President and Director
(Chief Executive Officer)
/s/ David W. Mesker Treasurer and Director May 19, 1994
David W. Mesker (Principal Financial Officer)
/s/ Eugene J. King Vice President May 19, 1994
Eugene J. King (Principal Accounting Officer)
/s/ Robert G. Avis Vice Chairman of the Board May 19, 1994
Robert G. Avis and Director
/s/ David M. Sisler Vice Chairman of the Board May 19, 1994
David M. Sisler and Director
/s/ Dr. E. Eugene Carter Director May 19, 1994
Dr. E. Eugene Carter
/s/ Robert C. Dissett Director May 19, 1994
Robert C. Dissett
/s/ Dr. Louis Fernandez Director May 19, 1994
Dr. Louis Fernandez
/s/ Samuel C. Hutchinson, Jr. Director May 19, 1994
Samuel C. Hutchinson, Jr.
/s/ Donna C.E. Williamson Director May 19, 1994
Donna C.E. Williamson
</TABLE>
Exhibit Index
Exhibit Description
3(ii) By-laws, as amended to date.
13 1994 Annual Report to Stockholders.
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
24 Power of Attorney. Included on Signature Page.
As Amended as of August 25, 1989;
February 22, 1991 (effective July 1, 1991); and
May 21, 1993 (effective June 1, 1993)
BY-LAWS
OF
A.G. EDWARDS, INC.
____________________
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the Corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meetings. Annual meetings of stockholders shall be
held on such day, at such time and at such place as may be fixed from time to
time by a resolution or resolutions of the Board of Directors, for the purpose
of the election of directors by a plurality vote, and to transact such other
business as may be properly brought before the meeting.
Section 2. Notice of Annual Meeting. Written notice of the annual
meeting shall be given to each stockholder entitled to vote thereat not less
than 10 nor more than 60 days before the day of the meeting.
Section 3. List of Stockholders Entitled to Vote. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, at least
10 days before every election of directors, a complete list of stockholders
entitled to vote at said election, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting during ordinary business hours, for a period of at least
ten days prior to the election, either at a place within the city where the
election is to be held and which place shall be specified in the notice of the
meeting, or, if not specified, at the place where said meeting is to be held.
The list shall also be produced and kept at the time and place of meeting during
the whole time thereof, and subject to the inspection of any stockholder who may
be present.
Section 4. Call of Special Meeting. Special meetings of the
stockholders, for any purpose or purposes, may be called by the President or
Chairman of the Board of Directors and shall be called by the President or
Secretary at the request in writing of a majority of the Board of Directors.
Such request shall state the purpose or purposes of the proposed meeting. This
Section may not be amended or repealed without the approval of 70% of the
outstanding shares of the Corporation.
Section 5. Notice of Special Meeting. Written notice of a special
meeting of stockholders, stating the time, place and object thereof, shall be
given to each stockholder entitled to vote thereat, not less than 10 nor more
than 60 days before the date fixed for the meeting.
Section 6. Transactions at Special Meeting. Business transacted at any
special meeting of the stockholders shall be limited to the purposes stated in
the notice.
Section 7. Quorum. The holders of a majority of the capital stock
issued and outstanding and entitled to a vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, a majority of
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. Voting at Meetings of Stockholders. When a quorum is
present at any meeting, the vote of the holders of a majority of the stock
having voting power present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one upon which by
express provision of the statutes or of the Certificate of Incorporation, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 9. Vote in Person or by Proxy. Each stockholder shall at every
meeting of the stockholders be entitled to one vote in person or by proxy for
each share of the capital stock having voting power held by such stockholder,
but no proxy shall be voted on after three years from its date, unless the proxy
provides for a longer period, and, except where the transfer books of the
Corporation have been closed or a date has been fixed as a record date for the
determination of its stockholders entitled to vote, no share of stock shall be
voted at any meeting of the stockholders which has been transferred on the books
of the Corporation within 20 days next preceding such meeting.
Section 10. Consent of Stockholders in Lieu of Meeting. No action
required to be taken or which may be taken at the annual or any special meeting
of stockholders of the Corporation may be taken without a meeting and the power
of stockholders to consent in writing without a meeting to the taking of any
action is specifically denied.
ARTICLE III
DIRECTORS
Section 1. Number, Election, Tenure and Qualifications. The Board of
Directors shall be comprised of not less than three nor more than fifteen
members. The Board of Directors shall be divided into three classes, with the
term of office in one class expiring each year. Within such limits, the number
of directors shall be fixed from time to time by resolutions adopted by the
Board of Directors. No decrease in the number of directors shall shorten the
term of any incumbent director. Notwithstanding the foregoing and except as
otherwise provided by law, whenever the Corporation shall have one or more
series of Preferred Stock outstanding, and the holders of any said series of
Preferred Stock shall have the right, voting separately as a class, to elect one
or more directors of the Corporation, the terms of the director or directors
elected by such holders shall expire at the next succeeding annual meeting of
stockholders. Subject to the foregoing, at each annual meeting of stockholders,
the successors of the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting.
Section 2. Vacancies and Newly Created Directorships. Any vacancies on
the Board of Directors for any reason, and the newly created directorships
resulting from any increase in the number of directors, shall be filled only by
the Board of Directors, acting by a majority of the directors then in office,
although less than a quorum. Any director so chosen shall hold office until the
next election of the class for which such director shall have been chosen and
until his successor shall be elected and qualified.
Section 3. Power to Manage Corporation. The business of the
Corporation shall be managed by its Board of Directors which may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Certificate of Incorporation or by these By-Laws directed
or required to be exercised or done by the stockholders.
Section 4. Place of Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 5. Organization Meeting. The first meeting of each newly
elected Board of Directors shall be held at such time and place as shall be
fixed by the vote of the stockholders at the annual meeting and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present. In the event of
the failure of such stockholders to fix the time or place of such first meeting
of the newly elected Board of Directors, or in the event such meeting is not
held at the time and place so fixed by such stockholders, the meeting may be
held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors, or as shall
be specified in a written waiver signed by all of the directors.
Section 6. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board, but not less often than annually.
Section 7. Special Meetings. Special meetings of the Board may be
called by the President or Chairman of The Board of Directors on one days'
notice to each director, either personally or by mail or by telegram; special
meetings shall be called by the President, Chairman of the Board of Directors or
Secretary in like manner and on like notice on the written request of three
directors.
Section 8. Quorum. At all meetings of the Board, a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if prior to such action a written consent
thereto is signed by all members of the Board or such committee as the case may
be, and such written consent is filed with the minutes of proceedings of the
Board or committee.
Section 10. Executive Committee. There shall be an Executive Committee
comprised of one or more directors, the number and selection of the directors to
serve on such Committee to be determined from time to time by resolution of the
Board of Directors. The Executive Committee shall meet when necessary and shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, at any time when
the Board of Directors is not in session, without limitation, including the
power and authority to authorize the issuance of capital stock of this
Corporation, except the Executive Committee shall not have the authority to
exercise the power of the Board of Directors with respect to any matters
specifically prohibited under Delaware law.
Section 11. Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
and to the extent allowed under Delaware law, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it. If the resolution
of the Board of Directors expressly so provides, and unless these By-laws or the
Corporation's Certificate of Incorporation otherwise provides, the committee
shall have the power and authority to declare a dividend and to authorize the
issuance or reservation of capital stock of the Corporation. In addition, the
Board of Directors may, by resolution, establish such advisory committees as it
deems necessary or desirable and appoint as members of such committees either
directors or nondirectors. Such advisory committees shall be advisory only and
shall have no power to bind the Board of Directors.
Section 12. Executive Committee Quorum. At all meetings of the
Executive Committee, a majority of the members shall constitute a quorum for the
transaction of business, and the act of a majority of the members present at any
meeting at which there is a quorum shall be the act of the whole committee. If
a quorum shall not be present at any meeting of the Executive Committee, the
members present thereat may adjoin the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present.
Section 13. Committee Minutes. Each committee designated pursuant to
the Certificate of Incorporation, or these By-Laws, shall keep regular minutes
of its meetings and report the same to the Board of Directors when required.
Section 14. Compensation of Directors. The Board of Directors shall
have the authority to fix the compensation of directors.
Section 15. Nomination of Directors and Proposed Business. Subject to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation, nominations for
election to the Board of Directors and proposals for business to be brought
before any stockholder meeting may be made by the Board of Directors, or a
committee designated by the Board of Directors, or by any stockholder of any
outstanding class of capital stock of the Corporation entitled to vote in the
election of directors. Any stockholder may nominate one or more persons for
election as directors, or propose business to be brought before a stockholder
meeting, only if such stockholder has given notice of intent to make such
nomination or nominations, or propose such business, by delivering written
notice of such intent to the Secretary of the Corporation not less than sixty
(60) nor more than ninety (90) days prior to the meeting; provided, however,
that if less than seventy (70) days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be received not later than the close of business on the 10th
day following the date on which the notice of such meeting was mailed or such
public disclosure was made. Any such notice shall contain the following
information:
a. the name and address of the stockholder who intends to make
the nominations or propose the business;
b. the name and address of the person or persons to be
nominated;
c. a written statement from any proposed nominee for director
that the person consents to be named as a nominee and to serve as
director of the Corporation if elected;
d. a representation that the stockholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and
whether the stockholder intends to appear in person or by proxy at the
meeting to nominate the person or persons or propose the business
specified in the notice;
e. a description of all arrangements or understandings, if any,
between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which any
nomination or nominations are to be made by the stockholder; and
f. such other information regarding each nominee or each matter
of business to be proposed by such stockholder as would be required to
be included in a proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission had the nominee been nominated,
or intended to be nominated, or the matter been proposed; or intends
to be proposed, by the Board of Directors, and
The Chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with this Section.
The requirements of this Section are separate from and in addition to the
requirements a stockholder must meet to have a proposal included in the
Corporation's proxy statement for any meeting.
ARTICLE IV
NOTICES
Section 1. Notice to Stockholders. Notices to stockholders shall be in
writing and delivered personally or mailed to the stockholders at their
addresses appearing on the books of the Corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed.
Section 2. Notice to Directors. Notices to directors may be oral or
written, and if in writing must be delivered personally or mailed to the
directors at their addresses appearing on the books of the Corporation. Notice
by mail shall be deemed to be given at the time when the same shall be mailed.
Notice may also be given by telegram or by telephone.
Section 3. Written Waiver of Notice. Whenever any notice is required
to be given under the provisions of the statutes or of the Certificate of
Incorporation or of these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. Officers Shall be Chosen by Directors. The officers of the
Corporation shall be chosen by the Board of Directors and shall be a Chairman of
the Board of Directors, a President, a Secretary and a Treasurer. The Board of
Directors may also choose a Vice Chairman of the Board of Directors, Executive
Vice Presidents, Senior Vice Presidents, Corporate Vice Presidents and Vice
Presidents and one or more Associate Vice Presidents, Assistant Secretaries and
Assistant Treasurers. The Board of Directors may elect or appoint other
officers who shall have such authority and perform such duties as may be
prescribed by the Board of Directors. Two or more offices may be held by the
same person, except that where the offices of President and Secretary are held
by the same person, such person shall not hold any other office.
Section 2. Election at Directors' Organization Meeting. The Board of
Directors at its first meeting after each annual meeting of stockholders shall
elect a Chairman of the Board of Directors, a President, a Secretary and a
Treasurer and the Board of Directors may, in its discretion, choose such other
officers as it deems appropriate.
Section 3. Appointment of Other Officers. The Board of Directors may
appoint such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
Section 4. Compensation. The salaries of all officers and agents of
the Corporation shall be fixed by tile Board of Directors.
Section 5. Tenure; Vacancies. The officers of the Corporation shall
hold office until their successors are chosen and qualify. Any officer elected
or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the members of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors.
Section 6. Chairman of the Board of Directors. The Chairman of the
Board of Directors shall be the Chief Executive Officer of the Corporation,
shall preside at all meetings of the stockholders, the Board of Directors and
the Executive Committee, shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors and of the Executive Committee are carried into effect. He
shall execute bonds, mortgages and other contracts requiring a seal, under the
seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or
agent of the Corporation.
Section 7. Vice-Chairman of the Board of Directors. In the absence or
disability of the Chairman of the Board of Directors, the Vice Chairman of the
Board of Directors shall perform the duties and exercise the powers of the
Chairman of the Board of Directors. In the absence or disability of the
President, in the event that the Board of Directors or the Chairman of the Board
of Directors shall not have specifically designated any Executive Vice
President, Senior Vice President, Corporate Vice President or Vice President to
perform the duties and exercise the powers of the President as provided in this
Article , the Vice Chairman of the Board of Directors shall perform the duties
and exercise the powers of President. The Vice Chairman of the Board of
Directors shall perform such other duties as may be prescribed from time to time
by the Board of Directors. The Vice Chairman of the Board of Directors may sign
and execute contracts and other documents pertaining to the regular course of
his duties.
Section 8. President. The President shall perform such duties and have
such powers as the Board of Directors may from time to time prescribe. The
President may sign and execute contracts and other documents pertaining to the
regular course of his duties.
Section 9. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or the Chairman of the Board of Directors, under whose supervision
he shall be. He shall have custody of the corporate seal of the Corporation and
he, or an Assistant Secretary, shall have authority to affix the same to any
instrument requiring it, and when so affixed it may be attested by his signature
or by the signature of such Assistant Secretary. The Board of Directors may
give general authority to any other officer to affix the seal of the Corporation
and to attest the affixing by his signature.
Section 10. Assistant Secretaries. An Assistant Secretary shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Board of Directors or the Chairman of the Board of Directors may
from time to time prescribe.
Section 11. The Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Chairman of the Board of Directors and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation.
Section 12. Assistant Treasurer. An Assistant Treasurer shall, in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as the Board of Directors or the Chairman of the Board of Directors may
from time to time prescribe.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificate of Stock. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the President or a Vice President and the Secretary or an
Assistant Secretary of the Corporation certifying the number of shares owned by
him in the Corporation. Any or all of the foregoing signatures may be by a
facsimile.
Section 2. Lost Certificate. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue
of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal repre
sentative, to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost or destroyed.
Section 3. Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation, subject to the provisions of
the Certificate of Incorporation, to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
Section 4. Fixing Record Date. The Board of Directors may fix in
advance a date not exceeding 60 nor less than 10 days preceding the date of any
meeting of stockholders, and not exceeding 60 days preceding the date for the
payment of any dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of capital stock shall go into effect,
or a date in connection with obtaining the consent of stockholders for any
purpose, as a record date for the determination of the stockholders entitled to
notice of, and to vote at, any such meeting, and any adjournment thereof, or
entitled to receive payment of any such dividend, or to any such allotment of
rights, or to exercise the rights in respect of any such change, conversion or
exchange of capital stock, or to give such consent, and in such case such
stockholders and only such stockholders as shall be stockholders of record on
the date so fixed shall be entitled to such notice of, and to vote at, such
meeting and any adjournment thereof, or to receive payment of such dividends, or
to receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.
Section 5. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE VII
INDEMNIFICATION
Section 1. Indemnification and Insurance. (a) Each person who was or
is made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative or spouse, is or
was a director or officer of the Corporation or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the General Corporation Law of
Delaware as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to, or with respect to (in the case of a legal representative or
spouse), a person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that except as provided in Section 1(b)
hereof, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section 1(a)
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the General Corporation Law
of Delaware requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section 1(a) or otherwise. Such right shall survive any amendment or
repeal of this Article with respect to expenses incurred in connection with
claims, regardless of when such claims are brought, arising out of acts or
omissions occurring prior to such amendment or repeal. The Corporation may, by
action of its Board of Directors, provide indemnification to employees and
agents of the Corporation with the same scope and effect as the foregoing
indemnification of directors and officers.
(b) If a claim under Section 1(a) of this Article is not paid in full
by the Corporation within thirty (30) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant (or, in the case of a legal representative or spouse, the person with
respect to whom the claimant is seeking indemnification) has not met the
standards of conduct which make it permissible under the General Corporation Law
of Delaware for the Corporation to indemnify the claimant (or, in the case of a
legal representative or spouse, the person with respect to whom the claimant is
seeking indemnification) for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he (or, in the case of a legal representative or spouse, the person with
respect to whom the claimant is seeking indemnification) has met the applicable
standard of conduct set forth in the General Corporation Law of Delaware, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant (or, in the
case of a legal representative or spouse, the person with respect to whom the
claimant is seeking indemnification) has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant (or, in the case of a legal representative or spouse, the person with
respect to whom the claimant is seeking indemnification) has not met the
applicable standard of conduct.
(c) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Article shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
(d) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent (or any legal
representative or spouse of any of the foregoing) of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
General Corporation Law of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, may
be declared by the Board of Directors at any regular or special meeting.
Dividends may be paid in cash, in property, or in shares of the capital stock.
Section 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
amount in which it was created.
Section 3. Annual Statement. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, without regard to class or series, a full and
clear statement of the business and condition of the Corporation.
Section 4. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be
the year ending on the last day of February.
Section 6. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation and the words "Seal" and "Delaware". The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
CERTIFICATE OF AMENDMENT
I, Douglas L. Kelly, Secretary of A.G. Edwards, Inc., a Corporation organized
and existing under the laws of Delaware, do hereby certify that at a meeting of
the Executive Committee of the Board of Directors of this Corporation duly held
on April 27, 1993, at which a quorum was present and acting throughout, the
following resolution was duly adopted which amended the 1988 Incentive Stock
Plan:
RESOLVED, that the 1988 Incentive Stock Plan be amended by adding a
new sentence to Section 5(b) as follows:
The Award Amount hereunder to an Eligible Employee is for
services rendered by the Eligible Employee during the fiscal year
of the Company on which such Award Amount is based.
I do further certify that as Secretary of A.G. Edwards, Inc. I have custody of
the records of meetings of the Board of Directors of this Corporation; that the
above resolution is still in full force and effect and is not in conflict with
any provisions of the Certificate of Incorporation or the By-Laws of this
Corporation.
In witness whereof, I have hereunto set my hand and affixed the seal of this
Corporation this 18th day of May, 1994.
/s/Douglas L. Kelly
-------------------
Douglas L. Kelly
Secretary
EXHIBIT 21
A.G. EDWARDS, INC.
REGISTRANT'S SUBSIDIARIES
The following listing includes the registrant's directly-owned subsidiaries
and indirectly-owned subsidiaries (certain subsidiaries which are not
significant are omitted from the listing), all of which are included in the
consolidated financial statements:
State of
Incorporation/
Name of Company Organization Subsidary of
A.G. Edwards & Sons, Inc. (Edwards) Delaware Registrant
The Ceres Investment Company Missouri Edwards
Indianapolis Historic Partners Indiana Edwards
AGE Commodity Clearing Corp. Delaware Registrant
A.G. Edwards Life Insurance Company Missouri Registrant
Edwards Development Corporation Missouri Registrant
A.G. Edwards Trust Company (Missouri Trust) Missouri Registrant
AGE Asset Management, Inc. Delaware Missouri Trust
A.G. Edwards Asset Performance Monitor, Inc. Missouri Missouri Trust
A.G. Edwards Trust Company (New Jersey Trust) New Jersey Registrant
A.G. Edwards Trust Company (Texas Trust) Texas 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
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statements (File Nos. 33-52786, 33-36609, 33-23837, 2-99699,
2-92762 and 2-84977), the A.G. Edwards, Inc. 1988 Incentive Stock
Plan, Employee Stock Purchase Plan and Stock Option Plan and the
A.G. Edwards, Inc. 1982 Restricted Stock and Stock Option Plan on
Form S-8 of our report dated April 21, 1994, incorporated by
reference in the Annual Report on Form 10-K of A.G. Edwards, Inc.
for the year ended February 28, 1994.
/s/ Deloitte & Touche
St. Louis, Missouri
May 26, 1994
