SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended May 31, 1997 Commission file number 1-8527
A.G. EDWARDS, INC.
State of Incorporation: DELAWARE I.R.S. Employer Identification No:
43-1288229
ONE NORTH JEFFERSON AVENUE
ST. LOUIS, MISSOURI 63103
Registrant's telephone number, including area code: (314) 955-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At June 30, 1997, there were 63,658,364 shares of A.G. Edwards, Inc. common
stock, par value $1, issued and outstanding.
A.G. EDWARDS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Consolidated balance sheets 1
Consolidated statements of earnings 2
Consolidated statements of
stockholders' equity 3
Consolidated statements of cash flows 4
Notes to consolidated financial statements 5
Management's financial discussion 6
PART II. OTHER INFORMATION 7
SIGNATURES 8
<PAGE>
<TABLE>
<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
May 31, February 28,
1997 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 70,998 $ 62,799
Cash and government securities, segregated under
federal and other regulations 157,382 400,991
Securities purchased under agreements to resell 115,000 200,000
Securities borrowed 977,296 1,392,864
Receivables:
Customers, less allowance for doubtful accounts
of $3,550 1,737,745 1,677,354
Brokers, dealers and clearing organizations 9,905 14,635
Securities inventory, at fair value:
State and municipal 132,534 98,516
Government and agencies 54,058 39,666
Corporate 32,561 25,785
Property and equipment, at cost, net of accumulated depreciation
and amortization of $204,804 and $196,414 196,953 189,795
Deferred income taxes 53,524 56,558
Other assets 90,612 85,377
$3,628,568 $4,244,340
LIABILITIES AND STOCKHOLDERS' EQUITY
Checks payable $ 142,684 $ 174,736
Securities loaned 1,083,535 1,458,426
Payables:
Customers 697,018 816,668
Brokers, dealers and clearing organizations 44,061 47,842
Securities sold but not yet purchased, at fair value 21,820 17,670
Employee compensation and related taxes 271,313 414,177
Income taxes 25,920 13,536
Other liabilities 44,644 39,982
Total Liabilities 2,330,995 2,983,037
Stockholders' Equity:
Preferred stock, $25 par value:
Authorized, 4,000,000 shares, none issued
Common stock, $1 par value:
Authorized, 250,000,000 shares
Issued 64,312,658 shares 64,313 64,313
Additional paid-in capital 233,224 229,235
Retained earnings 1,019,075 976,011
1,316,612 1,269,559
Less-Treasury stock, at cost (542,794 and 234,921 shares) 19,039 8,256
Total Stockholders' Equity 1,297,573 1,261,303
<FN> $3,628,568 $4,244,340
See Notes to Consolidated Financial Statements.
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended May 31,
1997 1996
<S> <C> <C>
REVENUES:
Commissions $237,633 $246,762
Principal transactions 54,602 53,486
Investment banking 36,628 34,121
Asset management and service fees 67,649 56,713
Interest 40,843 35,026
Other 1,993 2,376
439,348 428,484
EXPENSES:
Compensation and benefits 283,456 275,476
Communications 23,463 21,164
Occupancy and equipment 22,629 19,891
Floor brokerage and clearance 4,536 4,702
Interest 546 718
Other operating expenses 15,847 14,571
350,477 336,522
EARNINGS BEFORE INCOME TAXES 88,871 91,962
INCOME TAXES 34,330 35,520
NET EARNINGS $ 54,541 $ 56,442
Earnings per share $ 0.83 $ 0.87
Dividends per share $ 0.18 $ 0.16
Average common and common
equivalent shares outstanding 65,712 65,045
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MAY 31, 1996 AND 1997
(In thousands, except per share amounts)
(Unaudited)
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Totals
<S> <C> <C> <C> <C> <C>
BALANCES, March 1, 1996 $64,313 $232,058 $ 798,805 $ (6,492) $1,088,684
Net earnings 56,442 56,442
Cash dividends -
$0.16 per share (10,198) (10,198)
Treasury stock acquired (9,000) (9,000)
Stock issued:
Employee stock
purchase/option plans 482 1,648 2,130
Restricted stock 562 (25) 537
BALANCES, May 31, 1996 $64,313 $233,102 $ 845,049 $(13,869) $1,128,595
BALANCES, March 1, 1997 $64,313 $229,235 $ 976,011 $ (8,256) $1,261,303
Net earnings 54,541 54,541
Cash dividends -
$0.18 per share (11,477) (11,477)
Treasury stock acquired (17,245) (17,245)
Stock issued:
Employee stock
purchase/option plans (343) 6,740 6,397
Restricted stock 4,332 (278) 4,054
BALANCES, May 31, 1997 $64,313 $233,224 $1,019,075 $(19,039) $1,297,573
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended May 31,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 54,541 $ 56,442
Noncash items included in earnings 13,603 15,938
Decrease in segregated cash and government securities 243,609 248,708
Net change in securities borrowed and loaned 40,677 11,896
Increase (decrease) in net payable to brokers,dealers
and clearing orginizations 949 (38,478)
Increase in net receivable from customers (180,041) (186,080)
(Increase) decrease in net securities inventory (51,036) 37,482
Net change in other assets and liabilities (165,037) (78,426)
Net cash (used in) provided by operating activities (42,735) 67,482
Cash Flows from Investing Activities:
Securities purchased under agreements to resell 85,000 (29,941)
Capital expenditures and other investments (16,496) (10,937)
Net cash provided by (used in) investing activities 68,504 (40,878)
Cash Flows from Financing Activities:
Employee stock transactions 11,152 2,720
Cash dividends (11,477) (10,198)
Purchase of treasury stock (17,245) (9,000)
Net cash used in financing activities (17,570) (16,478)
Net Increase in Cash and Cash Equivalents 8,199 10,126
Cash and Cash Equivalents at March 1 62,799 52,587
Cash and Cash Equivalents at May 31 $ 70,998 $ 62,713
<FN>
Income tax payments totaled $11,122 and $11,760 during the three month periods
ended May 31, 1997, and 1996, respectively.
Interest payments totaled $768 and $586 during the three month periods ended May
31, 1997, and 1996, respectively.
See Notes to Consolidated Financial Statements.
</TABLE>
-4-
<PAGE>
A.G. EDWARDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 1997
(Dollars in thousands)
(Unaudited)
FINANCIAL STATEMENTS:
The consolidated financial statements include the accounts of A.G. Edwards, Inc.
and its wholly owned subsidiaries (collectively referred to as the "Company"),
including its principal subsidiary, A.G. Edwards & Sons, Inc. ("Edwards"), and
have been prepared in conformity with generally accepted accounting principles.
These financial statements should be read in conjunction with the Company's
annual report for the year ended February 28, 1997. All adjustments that, in
the opinion of management, are necessary for a fair presentation of the results
of operations for the interim periods have been reflected. All such adjustments
consist of normal recurring accruals unless otherwise disclosed in these interim
financial statements. The results of operations for the three months ended May
31, 1997, are not necessarily indicative of the results for the year ending
February 28, 1998. Where appropriate, prior year's financial information has
been reclassified to conform with the current year presentation.
NET CAPITAL REQUIREMENTS:
Edwards is subject to the uniform net capital rule administered by the
Securities and Exchange Commission ("SEC"). This rule requires Edwards to
maintain a minimum net capital, as defined, and to notify, and sometimes obtain
the approval of, the SEC and other regulatory organizations for substantial
withdrawals of capital and loans to affiliates. As of May 31, 1997, Edwards'
net capital of $924,721 was $891,024 in excess of the minimum required.
-5-
<PAGE>
A.G. EDWARDS, INC. AND SUBSIDIARIES
MANAGEMENT FINANCIAL DISCUSSION
THREE MONTHS ENDED MAY 31, 1997 COMPARED TO
THREE MONTHS ENDED MAY 31, 1996
Results of Operations
The three months ended May 31, 1997 saw a continuation of the high level of
retail investor activity of the last two fiscal years coupled with increased
volatility in the equity and debt markets this year. The NYSE overall trading
volume increased 13% while the Nasdaq volume was virtually unchanged when
compared to the first quarter last year, which combined to contribute to a 7%
increase in total customer trades. The number and size of customer trades and
the product mix generally affect the level of revenues. The number of branches
and brokers increased to 573 and 6,113, which represent increases of 7% and 5%,
respectively, compared with the same period last year.
Total revenues increased $11 million (3%) to $439 million from $428 million last
year. Expenses were $350 million, an increase of $14 million (4%), resulting in
a decline in net profit margins to 12.4% this year from 13.2% last year.
Total commission revenue decreased $9 million (4%) as a result of a $5 million
(3%) decline in equity related commissions and a $4 million (7%) decrease in
mutual fund revenue. Contributing to these decreases is a shift of client
assets to fee-based products.
Investment banking revenue increased $3 million (7%). Underwriting fees and
concessions from corporate debt issues rose primarily as a result of increased
customer demand for unit trusts following higher interest rates coupled with
favorable market conditions for debt security instruments.
Asset management and service fees increased $11 million (19%). This increase is
primarily due to increases in service fees from third-party management,
including mutual funds, as a result of an increase in client assets under
management.
Compensation and benefits increased $8 million (3%) due to a $7 million (16%)
increase in general and administrative salaries caused by general increases and
higher employment.
Communication expense increased $2 million (11%) and occupancy and equipment
expenses increased $3 million (14%) primarily due to branch and home office
expansion.
Liquidity and Capital Resources
No material changes have taken place since February 28, 1997 regarding the
Company's liquidity, capital resources and overall financial condition.
-6-
<PAGE>
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
There have been no material changes in the legal proceedings previously
reported in the Company's Annual Report on Form 10-K for the year ended
February 28, 1997.
Item 2: Changes in Securities
Effective July 11, 1997, the Rights Agreement dated December 30, 1988
(the "Rights Agreement") governing the common stock purchase rights of
the Company was amended to allow resignation of the rights agent at any
time by agreement with the Company, to allow a successor rights agent to
have a principal office in a state other than Missouri, and to provide
for a revision in the legend concerning the Rights Agreement on the
certificates representing the shares of common stock of the Company.
The amendments were made as the rights agent under the Rights Agreement
will be changed effective July 21, 1997 to The Bank of New York from
Boatmen's Trust Company. The change of the rights agent will be made at
the same time as the transfer agent and registrar for the Company's
common stock is changed to The Bank of New York from Boatmen's Trust
Company. All of the changes are being made as the Company was informed
that Boatmen's Trust Company will not continue in the business of
providing transfer agent and registrar services.
Item 4: Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders on June 19, 1997,
stockholders approved a number of nominations and proposals. Results of
these nominations and proposals were:
Votes Votes
Votes For Against Withheld*
Nominations for director:
Charmaine S. Chapman 48,589,384 1,438,919
Dr. Louis Fernandez 49,040,556 987,747
Benjamin F. Edwards IV 49,028,549 999,754
Ratification of auditors 49,788,656 150,684 88,963
A total of 50,028,303 shares were present in person or by proxy at the
Annual Meeting.
*Includes abstentions and broker non-votes.
Item 6: Exhibits and Reports on 8-K
Exhibit 4 Amendment No. 3 to the Rights Agreement dated December 30,
1988 effective July 11, 1997.
Exhibit 27 Financial Data Schedule. (This financial data schedule
is only required to be submitted with the registrant's Quarterly Report
on Form 10-Q as filed electronically to the SEC's EDGAR database.)
Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended May 31,
1997.
-7-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
A.G. EDWARDS, INC.
(Registrant)
Date: July 14, 1997 /s/ Benjamin F. Edwards III
BENJAMIN F. EDWARDS, III
Principal Executive Officer
Date: July 14, 1997 /s/ Robert L. Proost
ROBERT L. PROOST
Principal Financial Officer
-8-
AMENDMENT NO. 3 TO THE
RIGHTS AGREEMENT
DATED DECEMBER 30, 1988
THIS AGREEMENT is made and entered into as of this 11th day of July, 1997, by
and between A.G. Edwards, Inc., a Delaware corporation (the "Company"), and
Boatmen's Trust Company, a Missouri corporation (the "Rights Agent").
WITNESSETH:
WHEREAS, the Company and the Rights Agent executed a Rights Agreement dated
December 30, 1988 which was thereafter amended by Amendment No. 1 to the Rights
Agreement entered into on the 24th day of May, 1991 and was thereafter amended
by Amendment No. 2 to the Rights Agreement entered into as of the 22nd day of
June, 1995 (collectively, the "Rights Agreement").
WHEREAS, Boatmen's Trust Company has informed the Company that Boatmen's
Trust Company no longer will serve as the Rights Agent.
WHEREAS, the Company believes it is in the best interest of the Company and
its shareholders to amend the Rights Agreement to allow the resignation of the
Rights Agent by agreement between the Rights Agent and the Company, to allow
selection of a Rights Agent whose principal office is in a state other than the
state of Missouri, and to amend the legend which is to be placed on the common
stock certificates.
WHEREAS, pursuant to Section 26 of the Rights Agreement, the Company and
the Rights Agent are authorized to amend the Rights Agreement without the
approval of any holders of Rights Certificates if, prior to the Distribution
Date as defined in the Rights Agreement, the Company deems the change to be
necessary or desirable and the Rights Agent determines that such a change will
not adversely affect its interests under the Rights Agreement; and
WHEREAS, the Company deems it desirable and in the best interest of the
Company and its stockholders to amend the provisions of Section 21 of the Rights
Agreement so that the Rights Agent may resign by agreement of the Rights Agent
and the Company and so that the Rights Agent may have its principal office in a
state other than the State of Missouri and to amend Section 3(c) of the Rights
Agreement governing the legend on the certificates representing the shares of
common stock.
WHEREAS, the Rights Agents has determined that the proposed changes to the
provisions of Section 21 and to Section 3(c) of the Rights Agreement will not
adversely affect its interests under the Rights Agreement.
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Amendment of Rights Agreement.
(a) Section 21 of the Rights Agreement is hereby amended in its entirety to
read as follows:
"The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon 30 days' notice in
writing mailed to the Company, and to each transfer agent of the Common
Stock, by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. The Company may remove the Rights Agent
or any successor Rights Agent upon 30 days' notice in writing, mailed to
the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Stock, by registered or certified mail, and to
the holders of the Rights Certificates by first-class mail. The Rights
Agent and the Company may agree to the resignation of the Rights Agent at
any time. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting or the if Rights Agent and the Company
agree to the resignation of the Rights Agent, the Company shall appoint a
successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after agreement as to such
resignation, after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Rights Certificate (who
shall, with such notice, submit his Rights Certificate for inspection by
the Company), then the registered holder of any Rights Certificate may
apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company
or by such a court, shall be a corporation organized and doing business
under the laws of the United States or of the States of Missouri or New
York (or of any other state of the United States so long as such
corporation is authorized to do business as a banking institution in the
States of Missouri or New York), in good standing, having a principal
office in the state of Missouri or New York or of any other state of the
United States, which is authorized under such laws to exercise corporate
trust powers and is subject to supervision or examination by federal or
state authority and which has at the time of its appointment as Rights
Agent a combined capital and surplus of at least $100,000,000. After
appointment, the successor Rights Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor
Rights Agent shall deliver and transfer to the successor Rights Agent any
property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment the Company shall
file notice thereof in writing with the predecessor Rights Agent and each
transfer agent of the Common Stock, and mail a notice thereof in writing to
the registered holders of the Rights Certificates. Failure to give any
notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of
the Rights Agent or the appointment of the successor Rights Agent, as the
case may be."
(b) Section 3(c) of the Rights Agreement is hereby amended in its entirety to
read as follows:
"Rights shall be issued in respect of all shares of Common Stock
(whether originally issued or delivered from the Company's treasury) issued
after the Record Date but prior to the earlier of the Distribution Date or
the Expiration Date (as hereinafter defined). Certificates representing
such shares of Common Stock shall bear either the legend authorized by the
Rights Agreement prior to Amendment No. 3 of the Rights Agreement or the
following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement entered into by
A.G. Edwards, Inc. (the "Company"), dated as of December 30, 1988, as
amended (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal offices of the Company. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this certificate
a copy of the Rights Agreement without charge promptly after receipt
of a written request therefor. Under certain circumstances, Rights
beneficially owned by Acquiring Persons (as defined in the Rights
Agreement) and any subsequent holder of such Rights may become null
and void."
With respect to such certificates containing the foregoing legend or
the legend authorized by the Rights Agreement prior to Amendment No. 3 to
the Rights Agreement, until the Distribution Date, the Rights associated
with the Common Stock shall be represented by such certificates alone, and
the surrender for transfer of any of such certificates, shall also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate.
Section 2. Savings Clause. All of the provisions of the Rights Agreement not
amended by this Agreement shall remain in full force and effect.
Section 3. Miscellaneous.
(a) This Amendment, as it amends the Rights Agreement as previously amended,
constitutes the entire agreement and understanding of the parties with
respect to the subject matter hereof, and it supersedes all prior
negations, commitments, representations and undertakings of the parties
with respect to the subject matter hereof. Any terms used herein, which
are not defined herein, shall have the meanings attached to them in the
Rights Agreement.
(b) This Agreement shall be binding upon and insure to the benefit of the
Company, the Rights Agent and their respective successors and permitted
assigns.
(c) This Agreement shall be deemed to be a contract made under the laws of the
State of Missouri and for all purposes shall be governed by and construed
in accordance with the laws of such State applicable to contracts made and
to be performed entirely within such State.
(d) This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and
all such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and their respective corporate seals to be hereto affixed and attested, all on
the day and year first above written.
ATTEST: A.G. EDWARDS, INC.
By: /s/ Douglas L. Kelly By: /s/ Robert L. Bagby
Name: DOUGLAS L. KELLY Name: ROBERT L. BAGBY
Title: Corporate Vice President and Secretary Title: Vice Chairman and
Executive Vice President
ATTEST: BOATMEN'S TRUST COMPANY
By: /s/ Jerry L. Rector By: /s/ W. E. Bradford
Name: JERRY L. RECTOR Name: W. EUGENE BRADFORD
Title: Vice President Title: Senior Vice President
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> MAY-31-1998
<CASH> 70,998
<RECEIVABLES> 1,747,650
<SECURITIES-RESALE> 115,000
<SECURITIES-BORROWED> 977,296
<INSTRUMENTS-OWNED> 219,153
<PP&E> 196,953
<TOTAL-ASSETS> 3,628,568
<SHORT-TERM> 0
<PAYABLES> 1,155,076
<REPOS-SOLD> 0
<SECURITIES-LOANED> 1,083,535
<INSTRUMENTS-SOLD> 21,820
<LONG-TERM> 0
0
0
<COMMON> 64,313
<OTHER-SE> 1,233,260
<TOTAL-LIABILITY-AND-EQUITY> 3,628,568
<TRADING-REVENUE> 54,602
<INTEREST-DIVIDENDS> 40,843
<COMMISSIONS> 237,633
<INVESTMENT-BANKING-REVENUES> 36,628
<FEE-REVENUE> 55,561
<INTEREST-EXPENSE> 546
<COMPENSATION> 283,456
<INCOME-PRETAX> 88,871
<INCOME-PRE-EXTRAORDINARY> 88,871
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,541
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
