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, 1998 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, 1998, there were 95,031,152 shares of A.G. Edwards, Inc. common
stock, par value $1, issued and outstanding.
<PAGE>
A.G. EDWARDS, INC.
INDEX
Page
PART I.FINANCIAL INFORMATION
Consolidated balance sheets 1
Consolidated statements of earnings 2
Consolidated statements of cash flows 3
Notes to consolidated financial statements 4-5
Management's financial discussion 6-7
PART II.OTHER INFORMATION 7-8
SIGNATURES 9
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<TABLE>
<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
May 31, February 28,
1998 1998
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 89,920 $ 84,764
Cash and government securities, segregated under
federal and other regulations 60,123 57,294
Securities purchased under agreements to resell 9,363 204,363
Securities borrowed 221,600 786,119
Receivables:
Customers, less allowance for doubtful accounts
of $3,800 2,290,734 2,229,128
Brokers, dealers and clearing organizations 14,355 12,521
Securities inventory, at fair value:
State and municipal 137,659 142,692
Government and agencies 159,039 209,247
Corporate 54,097 51,714
Property and equipment, at cost, net of accumulated depreciation
and amortization of $240,842 and $229,938 231,275 230,158
Deferred income taxes 70,862 70,432
Other assets 124,666 114,896
$3,463,693 $4,193,328
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank loans $ 100,100 $
Checks Payable 200,734 203,017
Securities loaned 245,630 820,918
Payables:
Customers 845,950 920,791
Brokers, dealers and clearing organizations 62,504 185,756
Securities sold but not yet purchased, at fair value 71,558 19,141
Employee compensation and related taxes 349,595 505,731
Income taxes 39,606 17,137
Other liabilities 56,076 57,716
Total Liabilities 1,971,753 2,730,207
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, 96,463,114 shares 96,463 96,463
Additional paid-in capital 186,146 181,826
Retained earnings 1,259,235 1,196,568
1,541,844 1,474,857
Less - Treasury stock, at cost (1,131,943 and 284,173 shares) 49,904 11,736
Total Stockholders' Equity 1,491,940 1,463,121
$3,463,693 $4,193,328
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended May 31,
<S> <C> 1998 <C> 1997
REVENUES:
Commissions $ 312,303 $ 237,633
Principal transactions 52,003 54,602
Investment banking 59,320 36,628
Asset management and service fees 93,359 67,649
Interest 50,787 40,843
Other 2,417 1,993
570,189 439,348
EXPENSES:
Compensation and benefits 365,846 283,456
Communications 25,903 23,463
Occupancy and equipment 26,706 22,629
Floor brokerage and clearance 5,094 4,536
Interest 1,424 546
Other 21,320 15,847
446,293 350,477
EARNINGS BEFORE INCOME TAXES 123,896 88,871
INCOME TAXES 47,890 34,330
NET EARNINGS $ 76,006 $ 54,451
Earnings per share:
Basic $ 0.79 $ 0.57
Diluted $ 0.78 $ 0.56
Dividends per share $ 0.14 $ 0.12
Average common shares outstanding (basic) 95,883 96,212
Average common and common
equivalent shares outstanding (diluted) 97,944 97,874
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended May 31,
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 76,006 $ 54,541
Noncash items included in earnings 18,660 13,603
(Increase)/decrease in segregated cash and government securities (2,829) 243,609
Net change in securities borrowed and loaned (10,769) 40,677
(Decrease)/increase in net payable to brokers, dealers
and clearing organizations (125,086) 949
Increase in net receivable from customers (136,447) (180,041)
Decrease/(increase) in net securities inventory 105,275 (51,036)
Net change in other assets and liabilities (54,206) (165,073)
Net cash used in operating activities (129,396) (42,771)
Cash Flows from Investing Activities:
Securities purchased under agreements to resell 195,000 85,000
Capital expenditures and other investments (15,058) (16,496)
Net cash provided by investing activities 179,942 68,504
Cash Flows from Financing Activities:
Employee stock transactions 18,290 11,152
Cash dividends (12,446) (11,441)
Purchase of treasury stock (51,234) (17,245)
Net cash used in financing activities (45,390) (17,534)
Net Increase in Cash and Cash Equivalents 5,156 8,199
Cash and Cash Equivalents at March 1 84,764 62,799
Cash and Cash Equivalents at May 31 $ 89,920 $ 70,998
<FN>
Income tax payments totaled $11,696 and $11,122 during the three month periods
ended May 31, 1998, and 1997, respectively.
Interest payments totaled $1,143 and $768 during the three month periods ended
May 31, 1998, and 1997, respectively.
See Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
A.G. EDWARDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 1998
(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 28, 1998. 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, 1998, are not
necessarily indicative of the results for the year ending February 28, 1999.
Where appropriate, prior year's financial information has been reclassified to
conform with the current year presentation.
Where appropriate, per share amounts and share data have been restated to
reflect a three-for-two stock split declared in August 1997, effected in the
form of a stock dividend.
STOCKHOLDER'S EQUITY:
Under the stock repurchase program, the Company purchased 1,160,000 shares at an
aggregate cost of $51 million in the first quarter ended May 31, 1998. For the
quarter ended May 31, 1997, the Company purchased 738,000 shares at a cost of
$17 million.
EMPLOYEE STOCK PLANS:
Employees exercised options for 325,000 shares during the three month period
ended May 31, 1998 and 200,000 shares in the same period last year. Treasury
shares were utilized for these exercises.
NET CAPITAL REQUIREMENTS:
Edwards is subject to the 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, 1998, Edwards' net capital of $998,930
was $953,726 in excess of the minimum required.
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<PAGE>
A.G. EDWARDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 1998
(In thousands, except per share amounts)
(Unaudited)
COMPREHENSIVE INCOME:
Effective March 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," which established standards
for the reporting and display of comprehensive income and its components. The
adoption of this statement did not affect the Company's consolidated financial
statements for the three month periods ended May 31, 1998 and 1997.
Comprehensive income for the first quarter of fiscal 1999 and 1998 was equal to
the Company's net earnings.
EARNINGS PER SHARE:
The following table presents the computations of basic and diluted earnings per
share.
Three Months Ended May 31,
1998 1997
Net earnings available to common stockholders $76,006 $54,541
Weighted average basic shares outstanding 95,883 96,212
Dilutive effect of employee stock plans 2,061 1,662
Total weighted average diluted shares 97,944 97,874
Basic earnings per share $ 0.79 $0.57
Diluted earnings per share $ 0.78 $0.56
* * * * *
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<PAGE>
A.G. EDWARDS, INC. AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION
THREE MONTHS ENDED MAY 31, 1998 COMPARED TO
THREE MONTHS ENDED MAY 31, 1997
Results of Operations
The three months ended May 31, 1998 saw a continuation of the high level of
retail investor activity that existed during the last three fiscal years in
spite of some volatility in the equity and debt markets this year. The New York
Stock Exchange and Nasdaq overall trading volumes increased 29% and 31%,
respectively, over the prior year which contributed to a 25% increase in total
customer trades for the Company. 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 604 and 6,326, which represent increases of 5% and 3%,
respectively, compared with the same period last year.
Total revenues increased $131 million (30%) to $570 million from $439 million
last year. Expenses were $446 million, an increase of $96 million (27%),
resulting in a rise in net profit margins to 13.3% this year from 12.4% last
year.
Total commission revenue increased $75 million (31%), reflecting increased
trading volume and, to a lesser extent, expansion of the Company's distribution
system. Equity related commissions rose $40 million (28%) while mutual fund and
insurance sales increased $26 million (46%) and $9 million (30%), respectively.
Client demand for equities, mutual funds and variable annuities remained strong
due to the continuation of the relatively strong equity market conditions and
increased volatility during the first three months of this fiscal year.
Principal transaction revenue decreased $3 million (5%). Sales from municipal
and government bonds declined a combined $5 million (16%) primarily as a result
of lower yields this year. This was partially offset by a $2 million (18%)
increase in corporate equity revenue reflecting the 31% rise in Nasdaq volume
which translated into a 26% rise in over-the-counter equity trades.
Investment banking revenue increased $23 million (62%). Underwriting fees and
concessions rose $14 million (46%) due to the continued strength in initial
public offerings coupled with an increased customer demand for equity-based unit
trusts. Management fees increased $9 million (137%) due to participation as
manager or co-manager in a larger number of corporate offerings coupled with
increased activity in mergers and acquisitions this year.
Asset management and service fees increased $26 million (38%). Service fees
from third-party management, including mutual funds, increased $24 million (44%)
resulting from a higher level of assets under management.
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<PAGE>
Interest revenue increased $10 million (24%). Interest revenue from margin
accounts rose $9 million (26%) due to a 26% increase in average margin debits.
Interest revenues from securities owned increased $3 million (108%) as a result
of higher average inventory partially offset by a $2 million (48%) decline in
interest earned on short-term investments.
Compensation and benefits increased $82 million (29%). Commission expense
increased $46 million (31%) due to the rise in commissionable revenue. General
and administrative salaries and related benefits increased primarily as a result
of general increases and higher employment. Incentive-related compensation rose
primarily as a result of higher earnings.
Liquidity and Capital Resources
Securities lending and related securities borrowed transactions have decreased
significantly reflecting management's re-evaluation of the profitability
associated with this activity. No other material changes have taken place since
February 28, 1998 regarding the Company's liquidity, capital resources and
overall financial condition.
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, 1998.
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<PAGE>
Item 4: Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders on June 18, 1998,
stockholders approved the following nominations and proposals:
Votes Votes
Votes For Against Withheld*
Nominations for director:
Robert G. Avis 74,480,660 1,254,616
Robert L. Bagby 74,513,884 1,221,392
Dr. E. Eugene Carter 74,400,818 1,334,458
Ratification of auditors 75,375,130 185,411 174,735
Approval of amendment to
Company's Certificate of
Incorporation to increase the
authorized shares of common
stock, $1.00 par value, from 55,249,547 20,191,558 294,171
250,000,000 to 550,000,000.
A total of 75,735,276 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 3(i)(a) Certificate of Amendment (dated June 18,1998) to the
Certificate of Incorporation filed as Exhibit 3(i) to
the Registrants Form 10-K for the fiscal year ended
February 28, 1993.
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,
1998.
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<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, 1998 /s/ Benjamin F. Edwards III
BENJAMIN F. EDWARDS, III
Principal Executive Officer
Date: July 14, 1998 /s/ Robert L. Proost
ROBERT L. PROOST
Principal Financial Officer
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
A.G. EDWARDS, INC.
A.G. EDWARDS, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That a resolution was duly adopted by the Board of Directors of the
Corporation at its meeting on February 20, 1998, setting forth a proposed
amendment of the Corporation's Certificate of Incorporation, declaring the
amendment to be advisable and calling for the amendment to be submitted to the
stockholders of the Corporation at the next Annual Meeting of the stockholders
for consideration, approval and adoption thereof. The resolution proposed that
the first paragraph of Article IV of the Certificate of Incorporation be amended
in its entirety to read as follows:
ARTICLE IV
1. The total number of shares of capital stock which the
Corporation shall have authority to issue is five hundred fifty-four
million (554,000,000) shares, of which five hundred fifty million
(550,000,000) shares with a par value of One Dollar ($1.00) each shall
be of a class designated "Common Stock" and four million (4,000,000)
shares with a par value of Twenty-Five Dollars ($25.00) each shall be
of a class designated "Preferred Stock."
SECOND: That, thereafter, pursuant to the resolution of the Corporation's
Board of Directors, the resolution was submitted to the stockholders at the
Annual Meeting of Stockholders held on June 18, 1998, in accordance with Section
222 of The General Corporation Law of the State of Delaware, and the
stockholders voted the necessary number of shares as required by statute in
favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of The General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said Corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, said A.G. EDWARDS, INC., has caused this Certificate to
be signed by Benjamin F. Edwards, III, its Chairman of the Board, and Douglas L.
Kelly, its Secretary, as of the 18th day of June, 1998.
A.G. EDWARDS, INC.,
a Delaware corporation
ATTEST: By: /s/ Benjamin F. Edwards III
Benjamin F. Edwards, III,
Chairman of the Board
/s/ Douglas L. Kelly
Douglas L. Kelly, Secretary
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> MAY-31-1998
<CASH> 89,920
<RECEIVABLES> 2,305,089
<SECURITIES-RESALE> 9,363
<SECURITIES-BORROWED> 221,600
<INSTRUMENTS-OWNED> 350,795
<PP&E> 231,275
<TOTAL-ASSETS> 3,463,693
<SHORT-TERM> 0
<PAYABLES> 1,458,783
<REPOS-SOLD> 0
<SECURITIES-LOANED> 245,630
<INSTRUMENTS-SOLD> 71,558
<LONG-TERM> 0
0
0
<COMMON> 96,463
<OTHER-SE> 1,395,477
<TOTAL-LIABILITY-AND-EQUITY> 3,463,693
<TRADING-REVENUE> 52,003
<INTEREST-DIVIDENDS> 50,787
<COMMISSIONS> 312,303
<INVESTMENT-BANKING-REVENUES> 59,320
<FEE-REVENUE> 79,968
<INTEREST-EXPENSE> 1,424
<COMPENSATION> 365,846
<INCOME-PRETAX> 123,896
<INCOME-PRE-EXTRAORDINARY> 123,896
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,006
<EPS-PRIMARY> .79
<EPS-DILUTED> .78
</TABLE>
