SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended November 30, 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
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 of such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At January 1, 1995, there were 61,656,736 shares of A.G. Edwards, Inc. common
stock, par value $1, issued and outstanding.
A.G. EDWARDS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Consolidated balance sheets
Consolidated statements of earnings
Consolidated statements of
stockholders' equity
Consolidated statements of cash flows
Notes to consolidated financial statements
Management's financial discussion
PART II. OTHER INFORMATION
SIGNATURES
<TABLE>
<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
November 30, February 28,
1994 1994
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 34,573 $ 40,341
Cash and government securities, at market,
segregated under
federal and other regulations 44,536 195,726
Securities purchased under agreements to
resell 18,368 114,553
Receivable from brokers and dealers 175,690 260,858
Receivable from customers, less allowance for
doubtful accounts of $3,425 and $3,400 1,474,984 1,218,145
Securities inventory, at market
State and municipal 73,352 97,991
Government and agencies 18,116 28,864
Corporate 51,220 40,904
Property and equipment, at cost, net of
accumulated depreciation and amortization
of $139,391 and $124,423 167,761 145,441
Other assets 109,120 93,767
$ 2,167,720 $ 2,236,590
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank loans $ 131,900 $ --
Checks payable 128,835 111,947
Securities sold under agreements to repurchase 20,547 --
Payable to brokers and dealers 292,822 623,034
Payable to customers 408,414 355,224
Securities sold but not yet purchased, at market 45,763 24,109
Employee compensation and related taxes 223,801 285,213
Income taxes 2,450 9,959
Other liabilities 31,798 36,737
Total Liabilities 1,286,330 1,446,223
Stockholders' Equity:
Preferred stock, $25 par value:
Authorized 4,000,000 shares, none issued
Common stock, $1 par value:
Authorized 250,000,000 shares
Issued 61,654,223 and 60,446,336 shares 61,654 60,446
Additional paid-in capital 182,778 165,124
Retained earnings 642,538 576,073
886,970 801,643
Less: Unamortized expense of restricted
stock awards 5,580 11,276
Total Stockholders' Equity 881,390 790,367
$ 2,167,720 $ 2,236,590
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended November 30, Ended November 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
REVENUES:
Commissions $150,981 $ 193,612 $ 481,344 $ 563,720
Principal transactions 60,298 43,337 175,141 144,226
Investment banking 24,423 46,656 76,934 121,929
Interest 27,506 18,903 74,573 54,837
Other 25,926 24,764 78,236 71,837
289,134 327,272 886,228 956,549
EXPENSES:
Compensation and benefits 183,965 210,392 572,217 617,945
Communications 18,713 18,335 55,223 54,764
Occupancy and equipment 18,793 17,145 54,432 49,973
Floor brokerage and clearance 3,660 3,606 10,824 11,441
Interest 1,948 249 5,109 971
Other operating expenses 13,829 12,663 39,567 40,408
240,908 262,390 737,372 775,502
EARNINGS BEFORE
INCOME TAXES 48,226 64,882 148,856 181,047
INCOME TAXES 18,369 23,770 56,850 66,240
NET EARNINGS $ 29,857 $ 41,112 $ 92,006 $ 114,807
Earnings per share $.48 $.67 $1.49 $1.91
Dividends per share $.14 $.14 $.42 $.38
Average common and common
equivalent shares outstanding 62,617 60,785 61,853 59,992
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED NOVEMBER 30, 1994 AND 1993
(In thousands, except per share amounts)
(Unaudited)
Unamortized
Additional Expense of
Common Paid-in Retained Restricted Treasury
Stock Capital Earnings Stock Awards Stock
<S> <C> <C> <C> <C> <C> <C>
BALANCES, March 1, 1993 $ 46,159 $ 125,328 $ 452,045 $ (8,292) $ 0
Net earnings 114,807
Cash dividends -
$.38 per share (22,340)
Treasury stock acquired (9)
Stock issued:
Employee stock
purchase/option plans 1,134 22,780 427
Restricted stock 384 13,377 (11,953) (418)
Amortization of restricted
stock awards 6,722
Stock Split -- 5-for-4 11,914 (11,914)
BALANCES, November 30, 1993 $ 59,591 $ 149,571 $ 544,512 $(13,523) $ 0
BALANCES, March 1, 1994 $ 60,446 $ 165,124 $ 576,073 $(11,276) $ 0
Net earnings 92,006
Cash dividends -
$.42 per share (25,541)
Treasury stock acquired (2,766)
Stock issued:
Employee stock
purchase/option plans 1,211 16,848 3,370
Restricted stock (3) 806 381 (604)
Amortization of restricted
stock awards 5,315
BALANCES, November 30, 1994 $ 61,654 $ 182,778 $ 642,538 $ (5,580) $ 0
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended November 30,
1994 1993
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 92,006 $ 114,807
Noncash items included in earnings 30,658 28,899
Decrease in segregated cash and government securities 151,190 240,479
(Decrease) increase in net payable to brokers
and dealers (245,044) 29,236
Increase in net receivable from customers (203,649) (392,515)
Decrease (increase) in net securities inventory 46,725 (7,864)
Net change in other assets and liabilities (67,176) (16,854)
Net cash used in operating activities (195,290) (3,812)
Cash Flows from (payments for) Investing Activities:
Securities purchased under agreements to resell 96,185
Capital expenditures and other investments (52,812) (17,416)
Net cash provided by (used in) investing activities 43,373 (17,416)
Cash Flows from (payments for) Financing Activities:
Bank loans 131,900 22,300
Securities sold under agreements to repurchase 20,547
Employee stock transactions 22,009 25,731
Cash dividends (25,541) (22,340)
Treasury stock (2,766) (9)
Net cash provided by financing activities 146,149 25,682
Net (Decrease) Increase in Cash and Cash Equivalents (5,768) 4,454
Cash and Cash Equivalents at March 1 40,341 27,963
Cash and Cash Equivalents at November 30 $ 34,573 $ 32,417
<FN>
Income tax payments totaled $67,858 and $80,172 during the nine month periods
ended November 30, 1994 and 1993, respectively.
Interest payments totaled $4,484 and $948 during the nine month periods ended
November 30, 1994 and 1993, respectively.
Supplemental disclosure of noncash financing activities - restricted stock
awarded, net of forfeitures, totaled $11,953 during the nine month period ended
November 30, 1993.
See Notes to Consolidated Financial Statements.
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A.G. EDWARDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 1994
(Unaudited)
FINANCIAL STATEMENTS:
The consolidated financial statements include the accounts of A.G. Edwards, Inc.
and its wholly owned subsidiaries (collectively referred to as the "Company"),
including its principal subsidiary, A.G. Edwards & Sons, Inc. ("Edwards"), and
have been prepared in conformity with generally accepted accounting principles.
These financial statements should be read in conjunction with the Company's
annual report for the year ended February 28, 1994. Where appropriate, prior
years' financial information has been reclassified to conform with the current
year presentation. All adjustments that, in the opinion of management, are
necessary for a fair presentation of the results of operations for the interim
periods have been reflected. All such adjustments consist of normal recurring
accruals unless otherwise disclosed in these interim financial statements. The
results of operations for the nine months ended November 30, 1994, are not
necessarily indicative of the results for the year ending February 28, 1995.
COMMON STOCK:
Options to purchase 1,250,000 shares of common stock granted to employees under
the Employee Stock Purchase Plan are exercisable October 2, 1995, at 85% of
market price based on dates specified in the plan. Employees purchased
1,228,565 shares at $15.30 per share in October 1994, of which, 132,559 shares
were treasury shares.
NET CAPITAL REQUIREMENTS:
Edwards is subject to the uniform net capital rule of the Securities and
Exchange Commission ("SEC"). This rule requires Edwards to maintain a minimum
net capital, as defined, and to notify, and sometimes obtain approval of, the
SEC and other regulatory organizations for substantial withdrawals of capital
and loans to affiliates. At November 30, 1994, Edwards' net capital of
$558,531,000 was $531,905,000 in excess of the minimum required.
A.G. EDWARDS, INC. AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION
NINE MONTHS ENDED NOVEMBER 30, 1994 COMPARED TO
NINE MONTHS ENDED NOVEMBER 30, 1993
Results of Operations
The nine months ended November 30, 1994 saw a downturn of retail investor
activity from the upward trend experienced during our last three fiscal years.
Despite NYSE and Nasdaq overall trading volumes increasing, the retail investor
portion has slowed versus the same period last year. The number of branches and
brokers increased to 505 and 5,396, which represent increases of 4% and 6%,
respectively, compared to the same period last year.
Total revenues declined $70 million (7%) from last year, from $956 million to
$886 million. Expenses were $737 million, a decrease of $38 million (5%),
resulting in profit margins of 10.4% in 1994 versus 12.0% in 1993.
Total commission revenue decreased $82 million (15%) primarily due to decreases
in listed, over-the-counter and mutual fund revenue partially offset by an
increase in the sale of annuities. The combination of listed and over-the-
counter revenue decreased $34 million reflecting the uncertainty in the equity
markets caused by rising interest rates. Despite NYSE total volume increasing
9%, the Company's listed trades were down 9%. Mutual fund revenue declined $53
million due mainly to a 60% drop in sales of income funds which reflects the
industry wide downturn in mutual fund sales. Insurance revenue rose $5 million
primarily due to increased customer demand for annuities.
Revenues from principal transactions increased $31 million (21%). This increase
was principally the result of rising interest rates this year which was followed
by increased revenue from sales of debt securities, primarily municipal and
government bonds. These sales increased $35 million while inventory gains
decreased $3 million.
Investment banking revenue decreased $45 million (37%) due to declines in nearly
every category. Revenues from corporate equity issues dropped $26 million (43%)
due to the drastic slow down in initial public offerings caused by the
uncertainty and the poor performance of the equity markets. Municipal bond sales
revenue decreased $8 million (53%) primarily due to the slow down in refundings
as well as the decrease in the supply of new issues caused by higher interest
rates this year. Management fees have also decreased $9 million (32%) due to
participation as manager or co-manager in a smaller number of offerings in both
corporate equity and municipal bond issues this year.
Interest revenues increased $20 million (36%) due to higher customer
receivables, which are up 24%, coupled with higher interest rates.
Other revenues increased $6 million (9%) due to an increase in fees received in
connection with customer investments under professional management. Service fees
have also increased due to a rise in custodial and transaction fees.
Compensation and benefits decreased $46 million (7%) primarily from lower
commission expense due to decreased commissionable revenue and a decline in
incentive related compensation caused by reduced earnings. These were partially
offset by increased salaries and related benefits as a result of branch and home
office expansion.
Occupancy and equipment expense increased $4 million (9%) primarily due to
branch expansion and an increase in software costs.
Interest expense rose $4 million due to higher interest rates coupled with an
increase in average short-term borrowings resulting from a continued increase in
average customer receivables.
Other expense decreased slightly with a decrease in costs associated with
litigation being offset by increases in travel and broker registration fees.
The effective income tax rate increased due to higher state income taxes.
Liquidity and Capital Resources
No material changes have taken place since February 28, 1994 regarding the
Company's liquidity, capital resources and overall financial condition.
THREE MONTHS ENDED NOVEMBER 30, 1994 COMPARED TO
THREE MONTHS ENDED NOVEMBER 30, 1993
Net earnings for the quarter ended November 30,1994 were $30 million on revenues
of $289 million compared to net earnings of $41 million on revenues of $327
million for the same period a year ago. The explanation of revenue and expense
fluctuations presented in the results for the nine months ended are generally
applicable to the three months of operations.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
There have been no material changes in the legal proceedings previously
reported in the Company's Annual Report on Form 10-K for the year ended
February 28, 1994.
Item 6: Exhibits and Reports on 8-K
Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended November
30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
A.G. EDWARDS, INC.
(Registrant)
Date: January 13, 1995 /s/ BENJAMIN F. EDWARDS,III
BENJAMIN F. EDWARDS, III
Principal Executive Officer
Date: January 13, 1995 /s/ DAVID W. MESKER
DAVID W. MESKER
Principal Financial Officer
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<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR
THE NINE MONTH PERIOD ENDED NOVEMBER 30, 1994, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-START> MAR-01-1994
<PERIOD-END> NOV-30-1994
<CASH> 34,573
<RECEIVABLES> 1,498,291
<SECURITIES-RESALE> 18,368
<SECURITIES-BORROWED> 152,383
<INSTRUMENTS-OWNED> 142,688
<PP&E> 167,761
<TOTAL-ASSETS> 2,167,720
<SHORT-TERM> 131,900
<PAYABLES> 832,961
<REPOS-SOLD> 20,547
<SECURITIES-LOANED> 223,361
<INSTRUMENTS-SOLD> 45,763
<LONG-TERM> 0
<COMMON> 61,654
0
0
<OTHER-SE> 819,736
<TOTAL-LIABILITY-AND-EQUITY> 2,167,720
<TRADING-REVENUE> 175,141
<INTEREST-DIVIDENDS> 74,573
<COMMISSIONS> 439,517
<INVESTMENT-BANKING-REVENUES> 76,934
<FEE-REVENUE> 88,155
<INTEREST-EXPENSE> 5,109
<COMPENSATION> 572,217
<INCOME-PRETAX> 148,856
<INCOME-PRE-EXTRAORDINARY> 148,856
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,006
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.49
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