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 August 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 September 30, 1997, there were 94,662,129 shares of A.G. Edwards, Inc. common
stock, par value $1, issued and outstanding. The shares were adjusted for the
October 1, 1997 stock split.
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)
August 31, February 28,
1997 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 58,577 $ 62,799
Cash and government securities, segregated under
federal and other regulations 157,753 400,991
Securities purchased under agreements to resell 224,362 200,000
Securities borrowed 910,066 1,392,864
Receivables:
Customers, less allowance for doubtful accounts
of $3,600 and $3,550 1,899,111 1,677,354
Brokers, dealers and clearing organizations 27,964 14,635
Securities inventory, at fair value:
State and municipal 90,706 98,516
Government and agencies 41,397 39,666
Corporate 33,431 25,785
Property and equipment, at cost, net of accumulated depreciation
and amortization of $214,269 and $196,414 202,789 189,795
Deferred income taxes 58,304 56,558
Other assets 97,886 85,377
$ 3,802,346 $ 4,244,340
LIABILITIES AND STOCKHOLDERS' EQUITY
Checks payable $ 160,058 $ 174,736
Securities sold under agreements to repurchase 9,363
Securities loaned 944,032 1,458,426
Payables:
Customers 822,245 816,668
Brokers, dealers and clearing organizations 48,621 47,842
Securities sold but not yet purchased, at fair value 32,221 17,670
Employee compensation and related taxes 379,152 414,177
Income taxes 23,755 13,536
Other liabilities 49,500 39,982
Total Liabilities 2,468,947 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 96,468,990 and 64,312,658 shares 96,469 64,313
Additional paid-in capital 199,665 229,235
Retained earnings 1,075,981 976,011
1,372,115 1,269,559
Less - Treasury stock, at cost (1,535,306 and 234,921 shares) 38,716 8,256
Total Stockholders' Equity 1,333,399 1,261,303
$ 3,802,346 $ 4,244,340
<FN>
See Notes to Consolidated Financial Statements.
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A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
August 31, August 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 293,005 $ 207,626 $ 530,638 $ 454,388
Principal transactions 52,836 53,890 107,438 107,376
Investment banking 42,252 47,688 78,880 81,809
Asset management and service fees 75,477 59,469 143,126 116,182
Interest 43,514 35,865 84,357 70,891
Other 2,748 2,517 4,741 4,893
509,832 407,055 949,180 835,539
EXPENSES:
Compensation and benefits 326,412 258,411 609,868 533,887
Communications 24,529 20,781 47,992 41,945
Occupancy and equipment 23,487 20,914 46,116 40,805
Floor brokerage and clearance 5,309 4,510 9,845 9,212
Other operating expenses 17,350 17,469 33,743 32,758
397,087 322,085 747,564 658,607
EARNINGS BEFORE INCOME TAXES 112,745 84,970 201,616 176,932
INCOME TAXES 43,500 32,750 77,830 68,270
NET EARNINGS $ 69,245 $ 52,220 $ 123,786 $ 108,662
Earnings per share $ 0.71 $ 0.54 $ 1.26 $ 1.12
Dividends per share $ 0.13 $ 0.11 $ 0.25 $ 0.21
Average common and common
equivalent shares outstanding 98,408 97,199 98,488 97,383
<FN>
See Notes to Consolidated Financial Statements.
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<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED AUGUST 31, 1996 AND 1997
(In thousands, except per share amounts)
(Unaudited)
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C>
BALANCES, March 1, 1996 $ 64,313 $ 232,058 $ 798,805 $ (6,492) $ 1,088,684
Net earnings 108,662 108,662
Cash dividends -
$0.21 per share (20,245) (20,245)
Treasury stock acquired (36,918) (36,918)
Stock issued:
Employee stock
purchase/option plans 800 3,683 4,483
Restricted stock 595 (110) 485
BALANCES, August 31, 1996 $ 64,313 $ 233,453 $ 887,222 $ (39,837) $ 1,145,151
BALANCES, March 1, 1997 $ 64,313 $ 229,235 $ 976,011 $ (8,256) $ 1,261,303
Net earnings 123,786 123,786
Cash dividends -
$0.25 per share (23,816) (23,816)
Treasury stock acquired (41,471) (41,471)
Stock issued:
Employee stock
purchase/option plans (1,783) 11,841 10,058
Restricted stock 4,369 (830) 3,539
Stock Split - 3 for 2 32,156 (32,156)
BALANCES, August 31, 1997 $ 96,469 $ 199,665 $ 1,075,981 $ (38,716) $ 1,333,399
<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)
Six Months Ended August 31,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 123,786 $ 108,662
Noncash items included in earnings 30,049 27,321
Decrease in segregated cash and government securities 243,238 250,998
Net change in securities borrowed and loaned (31,596) 12,992
Decrease in net payable to brokers, dealers
and clearing organizations (12,550) (41,178)
Increase in net receivable from customers (216,180) (339,890)
Decrease in net securities inventory 12,984 52,279
Net change in other assets and liabilities (55,530) (48,632)
Net cash provided by operating activities 94,201 22,552
Cash Flows from Investing Activities:
Securities purchased under agreements to resell (15,000) 47,013
Capital expenditures and other investments (32,953) (18,814)
Net cash (used in) provided by investing activities (47,953) 28,199
Cash Flows from Financing Activities:
Employee stock transactions 14,817 5,075
Cash dividends (23,816) (20,245)
Purchase of treasury stock (41,471) (36,918)
Net cash used in financing activities (50,470) (52,088)
Net Decrease in Cash and Cash Equivalents (4,222) (1,337)
Cash and Cash Equivalents at March 1 62,799 52,587
Cash and Cash Equivalents at August 31 $ 58,577 $ 51,250
<FN>
Income tax payments totaled $60,336 and $78,387 during the six month periods
ended August 31, 1997, and 1996, respectively.
Interest payments totaled $1,353 and $1,198 during the six month periods ended
August 31, 1997, and 1996, respectively.
See Notes to Consolidated Financial Statements.
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A.G. EDWARDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 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 six months ended August
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.
COMMON STOCK:
All share amounts and share data have been restated to reflect a three-for-two
stock split, effected in the form of a stock dividend, declared on August 22,
1997 and payable on October 1, 1997 to holders of record September 5, 1997.
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 August 31, 1997, Edwards'
net capital of $975,670 was $937,935 in excess of the minimum required.
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A.G. EDWARDS, INC. AND SUBSIDIARIES
MANAGEMENT FINANCIAL DISCUSSION
SIX MONTHS ENDED AUGUST 31, 1997 COMPARED TO
SIX MONTHS ENDED AUGUST 31, 1996
Results of Operations
The six months ended August 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 and Nasdaq
overall trading volumes increased 25% and 11%, respectively, over the prior year
reflected by a 20% increase in the Company's 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 581 and 6,131, which
represent increases of 6% and 5%, respectively, compared with the same period
last year.
Total revenues increased $113 million (14%) to $949 million from $836 million
last year. Operating expenses were $748 million, an increase of $89 million
(14%). Net earnings were $124 million, an increase of $15 million (14%),
resulting in a 13% profit margin for both years.
Total commission revenue increased $76 million (17%) reflecting increased
trading volume and, to a lesser extent, expansion of the Company's distribution
system. Equity related commissions rose $58 million (21%) while mutual fund and
insurance sales increased $10 million (9%) and $9 million (16%), respectively.
Client demand for stocks, mutual funds and variable annuities continues to rise
due to the continuation of the strong equity market conditions reflecting the
higher trading volumes and the 11% rise in the Dow Jones Industrial Average
during the first six months of this fiscal year.
Investment banking revenue decreased $3 million (4%). Management fees declined
$10 million (39%) primarily due to the participation in two large transactions
last year; this decline was partially offset by increased underwriting fees and
concessions of $7 million (13%) as a result of increased customer demand for
unit trusts primarily caused by slightly higher interest rates coupled with
favorable market conditions for debt security instruments.
Asset management and service fees increased $27 million (23%). Fees from third-
party mutual funds rose $16 million (23%) reflecting strong mutual fund sales as
well as higher market valuations of existing assets. Fees for administration of
client assets under third-party management, as well as the Company's management
services, increased $10 million (46%) as a result of a 60% rise in the average
number of accounts while average assets in these programs grew 49%.
Interest revenue increased $13 million (19%). Interest revenue from margin
accounts rose $10 million (17%) due to a 14% rise in average margin debits
coupled with slightly higher interest rates. Interest revenue from short-term
investments increased $3 million (48%) caused by a 41% rise in average short-
term investments as well as higher interest rates.
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Compensation and benefits increased $76 million (14%) 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 because of general increases and higher employment. Incentive related
compensation rose primarily as a result of higher earnings.
Communication expense increased $6 million (14%) and occupancy and equipment
expenses increased $5 million (13%) 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.
THREE MONTHS ENDED AUGUST 31, 1997 COMPARED TO
THREE MONTHS ENDED AUGUST 31, 1996
Net earnings for the quarter ended August 31, 1997 were $69 million on revenues
of $510 million compared to net earnings of $52 million on revenues of $407
million for the same period a year ago. The explanation of revenue and expense
fluctuations presented for the six month period 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, 1997.
Item 4: Submission of Matters to a Vote of Security Holders
(c) The results of the annual meeting of stockholders, held on June 19,
1997, were previously reported on Form 10-Q filed for the quarter
ended May 31, 1997.
Item 6: Exhibits and Reports on 8-K
Exhibit 27 Financial Data Schedule. (This financial
data schedule is only required to be submitted with the
registrant's Quarterly Report on Form 10-Q as filed
electronically to the SEC's EDGAR database.)
Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
August 31, 1997.
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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: October 14, 1997 /s/ Benjamin F. Edwards III
BENJAMIN F. EDWARDS, III
Principal Executive Officer
Date: October 14, 1997 /s/ Robert L. Proost
ROBERT L. PROOST
Principal Financial Officer
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> AUG-31-1997
<CASH> 58,577
<RECEIVABLES> 1,927,075
<SECURITIES-RESALE> 224,362
<SECURITIES-BORROWED> 910,066
<INSTRUMENTS-OWNED> 165,534
<PP&E> 202,789
<TOTAL-ASSETS> 3,802,346
<SHORT-TERM> 0
<PAYABLES> 1,410,076
<REPOS-SOLD> 9,363
<SECURITIES-LOANED> 944,032
<INSTRUMENTS-SOLD> 32,221
<LONG-TERM> 0
0
0
<COMMON> 96,469
<OTHER-SE> 1,236,930
<TOTAL-LIABILITY-AND-EQUITY> 3,802,346
<TRADING-REVENUE> 107,438
<INTEREST-DIVIDENDS> 84,357
<COMMISSIONS> 530,638
<INVESTMENT-BANKING-REVENUES> 78,880
<FEE-REVENUE> 117,312
<INTEREST-EXPENSE> 0
<COMPENSATION> 609,868
<INCOME-PRETAX> 201,616
<INCOME-PRE-EXTRAORDINARY> 201,616
<EXTRAORDINARY> 0
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<NET-INCOME> 123,786
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