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, 1996 Commission file number 1-8527
A.G. EDWARDS, INC.
State of Incorporation: DELAWARE I.R.S. Employer Identification No:
43-1288229
ONE NORTH JEFFERSON AVENUE
ST. LOUIS, MISSOURI 63103
Registrant's telephone number, including area code: (314) 955-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At December 31, 1996, there were 63,430,245 shares of A.G. Edwards, Inc. common
stock, par value $1, issued and outstanding.
A.G. EDWARDS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Consolidated balance sheets 1
Consolidated statements of earnings 2
Consolidated statements of
stockholders' equity 3
Consolidated statements of cash flows 4
Notes to consolidated financial statements 5
Management's financial discussion 6 - 7
PART II. OTHER INFORMATION 7
SIGNATURES 8
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<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
November 30, February 29,
1996 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 42,400 $ 52,587
Cash and government securities, segregated under
federal and other regulations 295,416 402,785
Securities purchased under agreements to resell 154,170 92,013
Securities borrowed 914,582 613,266
Receivables:
Customers, less allowance for doubtful accounts
of $3,535 and $3,470 1,620,499 1,428,063
Brokers, dealers and clearing organizations 18,044 13,921
Securities inventory, at fair value:
State and municipal 83,330 117,602
Government and agencies 34,096 36,112
Corporate 29,211 42,078
Property and equipment, at cost, net of accumulated depreciation
and amortization of $188,229 and $167,139 182,588 178,556
Other assets 129,815 125,102
$ 3,504.151 $ 3,102,085
LIABILITIES AND STOCKHOLDERS' EQUITY
Checks payable $ 152,344 $ 148,970
Securities loaned 975,089 660,489
Payables:
Customers 684,253 719,989
Brokers, dealers and clearing organizations 64,221 78,647
Securities sold but not yet purchased, at fair value 35,454 21,871
Employee compensation and related taxes 348,507 331,098
Income taxes 2,575 12,630
Other liabilities 42,649 39,707
Total Liabilities 2,305,092 2,013,401
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 229,192 232,058
Retained earnings 928,077 798,805
1,221,582 1,095,176
Less:Treasury stock, at cost (773,947 and 267,650 shares) 22,523 6,492
Total Stockholders' Equity 1,199,059 1,088,684
$ 3,504,151 $ 3,102,085
<FN>
See Notes to Consolidated Financial Statements.
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<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
1996 1995 1996 1995
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REVENUES:
Commissions $ 217,948 $ 200,224 $ 672,336 $ 567,125
Principal transactions 52,200 46,832 159,576 159,793
Investment banking 36,024 28,817 117,833 76,281
Asset management and service fees 59,130 50,661 175,312 141,660
Interest 37,170 33,464 108,061 98,841
Other 2,073 1,889 6,966 5,536
404,545 361,887 1,240,084 1,049,236
EXPENSES:
Compensation and benefits 257,558 231,557 791,445 672,431
Communications 21,294 20,071 63,239 59,392
Occupancy and equipment 22,408 19,921 63,213 58,098
Floor brokerage and clearance 4,205 3,940 13,417 12,106
Interest 435 524 1,640 2,428
Other operating expenses 17,635 16,025 49,188 47,684
323,535 292,038 982,142 852,139
EARNINGS BEFORE INCOME TAXES 81,010 69,849 257,942 197,097
INCOME TAXES 29,990 26,850 98,260 75,460
NET EARNINGS $ 51,020 $ 42,999 $ 159,682 $ 121,637
Earnings per share $.79 $.67 $2.46 $1.90
Dividends per share $.16 $.16 $.48 $.44
Average common and common
equivalent shares outstanding 65,279 64,909 65,041 64,172
<FN>
See Notes to Consolidated Financial Statements.
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<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED NOVEMBER 30, 1995 AND 1996
(In thousands, except per share amounts)
(Unaudited)
Unamortized
Additional Expense of
Common Paid-in Retained Restricted Treasury
Stock Capital Earnings Stock Awards Stock
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BALANCES, March 1, 1995 $ 62,294 $ 194,863 $ 665,992 $ (3,868) $ 0
Net earnings 121,637
Cash dividends -
$.44 per share (27,624)
Treasury stock acquired (5,129)
Stock issued:
Employee stock
purchase/option plans 1,376 23,994 530
Restricted stock 272 135 (439)
Amortization of restricted
stock awards 2,910
BALANCES, November 30, 1995 $ 63,670 $ 219,129 $ 760,005 $ (823) $ (5,038)
BALANCES, March 1, 1996 $ 64,313 $ 232,058 $ 798,805 $ 0 $ (6,492)
Net earnings 159,682
Cash dividends -
$.48 per share (30,410)
Treasury stock acquired (53,546)
Stock issued:
Employee stock
purchase/option plans (3,484) 37,835
Restricted stock 618 (320)
BALANCES, November 30, 1996 $ 64,313 $ 229,192 $ 928,077 $ 0 $ (22,523)
<FN>
See Notes to Consolidated Financial Statements.
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<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended November 30,
1996 1995
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Cash Flows from Operating Activities:
Net earnings $ 159,682 $ 121,637
Noncash items included in earnings 36,185 31,935
Decrease (increase) in segregated cash and government securities 107,369 (3,471)
Net change in securities borrowed and loaned 13,284 (38,104)
Decrease in net payable to brokers and dealers (18,549) (35,242)
Increase in net receivable from customers (228,172) (14,452)
Decrease (increase) in net securities inventory 62,738 (24,279)
Net change in other assets and liabilities (7,387) 47,790
Net cash provided by operating activities 125,150 85,814
Cash Flows from Investing Activities:
Securities purchased under agreements to resell (62,157) (49,174)
Capital expenditures and other investments (24,160) (35,908)
Net cash used in investing activities (86,317) (85,082)
Cash Flows from Financing Activities:
Employee stock transactions 34,936 25,868
Cash dividends (30,410) (27,624)
Treasury stock (53,546) (5,129)
Net cash used in financing activities (49,020) (6,885)
Net Decrease in Cash and Cash Equivalents (10,187) (6,153)
Cash and Cash Equivalents at March 1 52,587 41,464
Cash and Cash Equivalents at November 30 $ 42,400 $ 35,311
<FN>
Income tax payments totaled $111,597 and $79,257 during the nine month periods
ended November 30, 1996, and 1995, respectively.
Interest payments totaled $2,120 and $2,691 during the nine month periods ended
November 30, 1996, and 1995, respectively.
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, 1996
(Dollars in thousands, except per share amounts)
(Unaudited)
FINANCIAL STATEMENTS:
The consolidated financial statements include the accounts of A.G. Edwards, Inc.
and its wholly owned subsidiaries (collectively referred to as the "Company"),
including its principal subsidiary, A.G. Edwards & Sons, Inc. ("Edwards"), and
have been prepared in conformity with generally accepted accounting principles.
These financial statements should be read in conjunction with the Company's
annual report for the year ended February 29, 1996. 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, 1996, are not necessarily indicative of the results for the year
ending February 28, 1997. Where appropriate, prior year's financial information
has been reclassified to conform with the current year presentation.
COMMON STOCK:
Options to purchase 1,250,000 shares of common stock granted under the Employee
Stock Purchase Plan are exercisable October 1, 1997, at 85% of market price
based on dates specified in the plan. Employees purchased 1,246,883 shares at
$22.47 per share in October 1996. Treasury shares were utilized for these
transactions.
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
approval of, the SEC and other regulatory organizations for substantial
withdrawals of capital and loans to affiliates. As of November 30, 1996,
Edwards' net capital of $847,465 was $816,460 in excess of the minimum required.
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A.G. EDWARDS, INC. AND SUBSIDIARIES
MANAGEMENT FINANCIAL DISCUSSION
NINE MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO
NINE MONTHS ENDED NOVEMBER 30, 1995
Results of Operations
The nine months ended November 30, 1996 saw a continuation of the high level of
retail investor activity experienced since the second half of the last fiscal
year. The NYSE and Nasdaq overall trading volumes increased 15% and 33%,
respectively, over the same period last year, resulting in an 18% increase in
total client trades. The number and size of client trades and the product mix
generally affect the level of revenues. The number of branches and brokers
increased to 560 and 5,972, respectively, which represent increases of 5%
compared with the same period last year.
Total revenues increased $191 million (18%) over the nine month period last
year, from $1.05 billion to $1.24 billion. Expenses were $982 million, an
increase of $130 million (15%), resulting in a rise in net profit margins from
11.6% in 1995 to 12.9% this year.
Total commission revenue increased $105 million (19%) reflecting increased
trading volume and, to a lesser extent, expansion of the Company's distribution
system. Equity related commissions rose $55 million (15%) while mutual fund and
insurance sales increased $32 million (25%) and $18 million (27%), respectively.
Client demand for stocks, mutual funds and variable annuities continued to rise
due to the continuation of the strong equity market conditions and slightly
lower interest rates during the current nine month period.
Investment banking revenue increased $42 million (55%). Underwriting fees and
concessions from corporate equity and debt issues rose $10 million (31%) and $10
million (80%), respectively, as a result of improved market conditions for
corporate securities issues. Management fees increased $16 million (94%) due to
participation as manager or co-manager in a large number of public and corporate
offerings coupled with increased activity in mergers and acquisitions this year.
The larger transactions included the debt restructuring for Orange County,
California and assisting in the sale of Minneapolis-based West Publishing
Company.
Asset management and service fees increased $34 million (24%). Service fees
from third-party management, including mutual funds, increased $30 million (28%)
as a result of additional accounts and appreciation of assets under management.
Transaction-related revenue and other administrative fees increased $4 million
(11%), reflecting record activity levels.
Compensation and benefits increased $119 million (18%) due to increases in every
category. Commission expense increased due to the rise in commissionable
revenue. General and administrative salaries and related benefits increased
primarily due to general increases and expansion. Incentive related
compensation rose as a result of higher earnings.
Liquidity and Capital Resources
No material changes have taken place since February 29, 1996 regarding the
Company's liquidity, capital resources and overall financial condition.
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THREE MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO
THREE MONTHS ENDED NOVEMBER 30, 1995
Net earnings for the quarter ended November 30, 1996 were $51 million on
revenues of $405 million compared to net earnings of $43 million on revenues of
$362 million for the same period a year ago. The explanation of revenue and
expense fluctuations presented for the nine month period are generally
applicable to the three months of operations, except for the following:
Principal transaction revenue increased $5 million (12%) primarily due to
increases in corporate equity and municipal debt revenue. Corporate equity
revenue rose $2 million (15%) resulting from strong market conditions reflected
in a 21% increase in overall Nasdaq volume. Municipal debt revenue increased $3
million (19%) as investor demand resumed following the caution caused by
possible tax reforms last year, coupled with larger supplies from increased
municipal syndicate activity in recent periods.
Although investment banking revenue increased $7 million (25%), the increase for
the third quarter lags the year-to-date growth due to several large transactions
in the second quarter this year.
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 29, 1996.
Item 6: Exhibits and Reports on 8-K
Exhibit 27 Financial Data Schedule. (This financial data schedule
is only required to be submitted with the registrant's
Quarterly Report in Form 10-Q as filed electronically
to the SEC's EDGAR database.)
Reports on Form 8-K There were no reports on Form 8-K filed during the
quarter ended November 30, 1996.
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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, 1997 /s/ Benjamin F. Edwards III
BENJAMIN F. EDWARDS, III
Principal Executive Officer
Date: January 13, 1997 /s/ David W. Mesker
DAVID W. MESKER
Principal Financial Officer
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<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> NOV-30-1996
<CASH> 42,400
<RECEIVABLES> 1,638,543
<SECURITIES-RESALE> 154,170
<SECURITIES-BORROWED> 914,582
<INSTRUMENTS-OWNED> 146,637
<PP&E> 182,588
<TOTAL-ASSETS> 3,504,151
<SHORT-TERM> 0
<PAYABLES> 1,249,325
<REPOS-SOLD> 0
<SECURITIES-LOANED> 975,089
<INSTRUMENTS-SOLD> 35,454
<LONG-TERM> 0
0
0
<COMMON> 64,313
<OTHER-SE> 1,134,746
<TOTAL-LIABILITY-AND-EQUITY> 3,504,151
<TRADING-REVENUE> 159,576
<INTEREST-DIVIDENDS> 108,061
<COMMISSIONS> 672,336
<INVESTMENT-BANKING-REVENUES> 117,833
<FEE-REVENUE> 139,183
<INTEREST-EXPENSE> 1,640
<COMPENSATION> 791,445
<INCOME-PRETAX> 257,942
<INCOME-PRE-EXTRAORDINARY> 257,942
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 159,682
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