SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended February 28, 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE COMMON STOCK NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates was
approximately $4.3 billion at April 30, 1998.
At April 30, 1998, there were 95,593,006 shares of A.G. Edwards, Inc. Common
Stock, $1 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
February 28, 1998 (the "1998 Annual Report to Stockholders") are incorporated by
reference into Parts I, II and IV hereof. Portions of the Company's Proxy
Statement filed with the SEC in connection with the Company's Annual Meeting of
Stockholders to be held June 18, 1998 (the "Company's 1998 Proxy Statement") are
incorporated by reference into Part III hereof. Other documents incorporated by
reference in this report are listed in the Exhibit Index beginning on page 14 of
this Form 10-K.
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PART I
ITEM 1. BUSINESS.
(a) General Development of Business
A.G. Edwards, Inc., a Delaware corporation, is a holding company incorporated in
1983 whose principal subsidiary, A.G. Edwards & Sons, Inc. (Edwards), is
successor to a partnership founded in 1887. A.G. Edwards, Inc. and its directly
owned and indirectly owned subsidiaries (collectively referred to as the
Company) provide securities and commodities brokerage, asset management,
insurance, trust, investment banking and other related financial services to
individual, corporate, governmental and institutional clients.
Edwards' business, primarily with individual clients, is conducted through one
of the largest retail branch office networks (based upon number of offices) in
the United States. At February 28, 1998, Edwards had 594 offices (up from 569
at the end of the prior fiscal year) in 49 states and the District of Columbia,
and 12,967 full-time employees (up from 12,031), including 6,289 investment
brokers (up from 6,070) providing services for approximately 2,060,000 clients
(up from 1,880,000). No single client accounts for a significant portion of
Edwards' business. Edwards is a member of all major securities exchanges in the
United States, the National Association of Securities Dealers, Inc. (NASD) and
the Securities Investor Protection Corporation (SIPC). Additionally, Edwards
has memberships on several commodity exchanges and is registered with the
Commodity Futures Trading Commission (CFTC) as a futures commission merchant.
AGE Commodity Clearing Corp. (Clearing), a commodity clearing subsidiary, is
registered with the CFTC as a futures commission merchant (FCM) and operates
exclusively as a commodity clearing company for Edwards. Clearing is a member
of all major U.S. commodities exchanges and the National Futures Association
(NFA). The four A.G. Edwards Trust companies provide investment advisory,
portfolio management and trust services. Gull-AGE Capital Group, Inc. serves as
general partner of 59 real estate partnerships in connection with 24 limited
partnerships sold by Edwards from 1982 through 1985.
(b) Financial Information About Industry Segments
The Company operates in one principal line of business, that of providing
investment services. Because the Company's services use the same distribution
personnel and facilities, and the same support services, it is impractical to
identify the assets, expenses and profitability of any one class of service.
(c) Narrative Description of Business
Commissions, principal transactions, investment banking, and asset management
and service fees were the principal sources of consolidated revenue for the last
three fiscal years. The total amount of revenue contributed by these services,
including the amount of total revenue by class of products or services that
accounted for 10% or more of its consolidated revenues, are set forth on pages
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22 and 23 of the 1998 Annual Report to Stockholders under the caption "Ten-Year
Financial Summary." Such information is hereby incorporated by reference.
The Company markets and distributes its products and services to its clients in
49 states and the District of Columbia through its branch office network, 6,289
investment brokers and 6,678 support employees.
COMMISSIONS
Commission revenue represents the most significant source of revenue for the
Company, accounting for more than 50% of total revenue in four of the last five
years. The following briefly describes the Company's sources of commission
revenue.
Listed and Over-the-Counter Securities. A significant portion of the Company's
revenue is derived from commissions generated on securities transactions
executed by Edwards, as a broker, in common and preferred stocks and debt
instruments on exchanges or in the over-the-counter markets. Edwards' brokerage
clients are primarily individual investors; however, resources continue to be
directed to further the development of its institutional business. Edwards'
commission rates for brokerage transactions vary with the size and complexity of
the transactions, among other factors.
Options. Edwards acts as broker in the purchase and sale of option contracts to
buy or sell securities, primarily common stocks and stock indexes. Edwards
holds memberships for trading on principal option exchanges.
Mutual Funds. Edwards distributes mutual fund shares in continuous offerings of
open-end funds. Income from the sale of mutual funds is derived primarily from
the standard dealer's discount which varies as a percentage of the client's
purchase price depending upon the size of the transaction and terms of the
selling agreement. Revenues derived from mutual fund sales continue to be a
significant portion of overall revenues. Edwards does not sponsor its own
mutual fund products.
Commodities and Financial Futures. Edwards acts as broker in the purchase and
sale of commodity futures contracts, financial futures contracts and options on
commodity and financial futures contracts. These contracts cover agricultural
products, precious metals, currency, interest rate and stock index futures.
Substantially all of Edwards' clients' futures transactions are executed and
cleared through Clearing. Nearly all transactions in futures contracts are
executed with a relatively low margin deposit, usually 3% to 12% of the total
contract amount. Consequently, the risk to the client and resulting credit risk
assumed by Edwards is substantial, generally greater than on securities
transactions. To limit its exposure, Edwards requires its clients to meet
minimum net worth requirements and other established credit standards, in
addition to the margin deposits. Regulations of some commodity exchanges limit
the allowable upward or downward price fluctuations for each commodity on a
given day. These restrictions on price fluctuations may preclude purchases or
sales necessary to limit losses or realize gains.
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As a member of the clearing associations of the principal commodity exchanges,
Clearing has potentially significant financial exposure in the event other
members default on their obligations to the clearing houses of such exchanges.
Insurance. As agent for several life insurance companies, Edwards distributes
life insurance and tax-deferred annuities. Edwards also provides financial
planning services to assist individuals in structuring financial portfolios to
achieve their financial goals. In addition, A.G. Edwards Life Insurance Company
is licensed to issue life insurance policies under the laws of Missouri, but has
not issued any to date.
PRINCIPAL TRANSACTIONS
Client transactions in the equity and fixed income over-the-counter markets may
be affected by Edwards acting as principal as well as agent. Principal
transactions, including market making, require maintaining inventories of
securities to satisfy customer order flow. These securities are valued in the
Company's financial statements at fair value and unrealized gains or losses are
included in the results of operations. Securities fluctuations may be sudden
and sharp as a result of changes in market conditions. To the extent Edwards
can correctly anticipate such changes, risks may be reduced by varying inventory
levels or by use of hedging strategies.
INVESTMENT BANKING
Edwards is an underwriter of corporate and municipal securities, certificates of
deposit, as well as corporate and municipal unit investment trusts and closed-
end mutual funds. Edwards' municipal underwriting activities include areas of
specialization in kindergarten through 12th grade schools, sports and
entertainment, municipal finance, housing, higher education, health care, and
public utilities. Corporate finance activities are focused on five major areas:
industrial growth, real estate/financial services, emerging growth, consumer
products and energy. As an underwriter, usually in conjunction with other
broker-dealers and financial institutions, Edwards purchases securities for
resale to its clients. Edwards acts as a consultant to corporations and
municipal entities in planning their capital needs and determining the most
advantageous means for raising capital. It also advises clients in merger and
acquisition activities and acts as agent in private placements.
Underwriting involves risk. As an underwriter, Edwards may incur losses if it
is unable to resell the securities it is committed to purchase or if it is
forced to liquidate all or a part of its commitment at less than the purchase
price. Under federal and state securities laws, an underwriter is exposed to
substantial potential liability for material misstatements or omissions of fact
in the prospectus used to describe the securities being offered. Generally,
issuers agree to indemnify underwriters against such liabilities, but otherwise,
underwriters are not specifically insured. In addition, the commitment of
capital to underwriting may reduce Edwards' regulatory net capital position and,
consequently, its underwriting participation may be limited by the requirement
that it must at all times be in compliance with the net capital rules
administered by the Securities and Exchange Commission (SEC).
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Although it is generally more profitable to manage or co-manage an underwriting,
as opposed to being a participant, managers generally commit to underwriting a
greater portion of the offering than the other members of the underwriting group
and consequently, managers assume a greater risk.
ASSET MANAGEMENT AND SERVICE FEES
Asset management and service fees consist primarily of revenues earned for
providing support and services in connection with assets under third-party
management, including mutual funds. These revenues include fees based on the
amount of client assets under management and transaction-related fees, as well
as fees related to the administration of custodial and other specialty accounts.
Edwards, through the A.G. Edwards Trust Companies, provides its clients with
personal, ERISA and custodial trust services. Through four separate state
charters, the A.G. Edwards Trust Companies are able to provide trust services
to clients in most states.
Clients desiring professional money management are offered three types of
account portfolio services. Edwards, acting as investment manager, offers
portfolio management strategies based on the client's investment objectives.
Through Asset Performance Monitor(R), Edwards provides its clients access to
third-party investment management, performance measurement, management search
and related consulting services. The Pathways(SM), Spectrum, Fund Navigator and
Fund Advisor programs are personalized, fee-based asset allocation programs that
utilize load and no-load mutual fund investments. Clients select from
established asset allocation models, or customize their own, based on their
investment objectives, risk tolerance and time horizon.
Edwards offers the UltraAsset Account, Total Asset Account(R) and the Cash
Convenience Account, which combine a full-service brokerage account with a money
market fund. These programs provide for the automatic investment of customer
free credit balances in one of several money market funds. Interest is not paid
on free credit balances held in client accounts. In addition, the UltraAsset
and Total Asset Accounts allow clients access to their margin securities and
money market shares through the use of debit cards and checking account services
provided by a major bank. The UltraAsset Account offers additional advanced
features and special investment portfolio reports.
Edwards provides custodial services to its clients for the various types of
self-directed individual retirement accounts as provided under the Internal
Revenue Code.
MARGIN FINANCING
Securities transactions are executed on a cash or margin basis. In margin
transactions, Edwards extends credit to its clients for a portion of the
purchase price, with the client's securities held as collateral. The amount of
credit is limited by the initial margin regulations issued by the Board of
Governors of the Federal Reserve System. The current prescribed minimum initial
margin for equity securities is equal to 50% of the value of equity securities
purchased. The regulations of the various exchanges require minimum maintenance
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margins, which are below the initial margin. Edwards' maintenance requirements
generally exceed the exchanges' requirements. Such requirements are intended to
reduce the risk that a market decline will reduce the value of the collateral
below that of the client's indebtedness before the collateral can be liquidated.
A substantial portion of the Company's assets and obligations result from
transactions with clients who have provided financial instruments as collateral.
The Company manages its risk associated with these transactions through position
and credit limits, and the continuous monitoring of collateral. Additional
information regarding risks associated with client transactions is set forth in
Note 9 of the Notes to Consolidated Financial Statements under the caption "Off-
Balance Sheet Risk and Concentration of Credit Risk" appearing on page 32 of the
1998 Annual Report to Stockholders. Such information is hereby incorporated by
reference.
A client, borrowing in a margin account, is charged an interest rate based on
the broker call loan rate plus up to an additional 2 1/2% depending on the
amount of the client's borrowings during each interest period. Interest earned
on these balances represents an important source of revenue for Edwards.
Although borrowings from banks, either unsecured or secured by the clients'
collateral securities, are an available source of funds to carry client margin
accounts, the Company's stockholders' equity, cash received from loans of the
clients' collateral securities to other brokers and, to the extent permitted by
regulations, customer free credit balances provide most of the funds required.
PRIVATE CLIENT SERVICES
Edwards' Private Client Services group helps individuals and businesses meet a
wide range of financial and investment needs. Individual investors can receive
tailored asset allocation, tax- and risk-reduction strategies, portfolio reviews
of stocks, bonds and mutual funds (including concentrated equity strategies) and
comprehensive estate planning recommendations. Closely-held and publicly-traded
business clients can access services for risk management, employee benefit
programs (retirement plans and key employee compensation), capital formation and
management and ownership succession.
RESEARCH
Edwards provides both technical market analysis and fundamental analysis of
numerous industries and individual securities for use by its investment brokers
and clients. In addition, reviews and analysis of general economic conditions,
along with asset allocation recommendations, are also available. These services
are provided by Edwards' research analysts, economists and market strategists.
Revenues from research activities are derived principally through resulting
transactions on an agency or principal basis.
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COMPETITION
All aspects of the Company's business are highly competitive. Edwards competes
with numerous broker-dealers, including on-line services, some of whom possess
greater financial resources than the Company. Edwards competes for clients on
the basis of price, the quality of its services, financial resources and
reputation within the clients' communities. There is constant competition to
attract and retain personnel within the securities industry. Competition for
the investment dollar and for clients has increased from other sources, such as
commercial banks, savings institutions, mutual fund management companies,
investment advisory companies as well as from other companies offering
insurance, real estate and other investment opportunities. Recent regulatory
actions, which reduced certain restrictions on bank affiliates engaging in
securities activities, increased competition from commercial banks and their
affiliates for securities underwriting activities and other brokerage services.
In addition, legislative proposals, calling for further reductions on
restrictions for brokerage service and underwriting activities, may also lead to
increased competition from commercial banks and their affiliates.
REGULATION
Edwards, as a broker-dealer and FCM, is subject to various federal and state
laws which specifically regulate its activities as a broker-dealer in securities
and commodities, as an investment advisor and as an insurance agent. Clearing,
as a FCM, is regulated as a broker in commodities. Edwards and Clearing are
also subject to various regulatory requirements imposed by the securities and
commodities exchanges and the NASD. The primary purpose of these requirements
is to enhance the protection of customer assets. Under certain circumstances,
these rules may limit the ability of A.G. Edwards, Inc. to make withdrawals of
capital from Edwards and Clearing. These laws and regulatory requirements
generally subject Edwards and Clearing to standards of solvency with respect to
capital requirements, financial reporting requirements, approval of
qualifications of personnel engaged in various aspects of its business, record
keeping and business practices, the handling of their clients' funds resulting
from securities and commodities transactions and the extension of credit to
clients on margin transactions. Infractions of these rules and regulations may
include suspension of individual employees or their supervisors, termination of
employees, limitations on certain aspects of Edwards' and Clearing's regulated
businesses, as well as censures and fines, or even proceedings of a civil or
criminal nature which could result in a temporary or permanent suspension of a
part or all of Edwards' and Clearing's activities. Information regarding
regulatory minimum net capital is set forth in Note 5 of the Notes to
Consolidated Financial Statements under the caption "Net Capital Requirements"
appearing on page 30 of the 1998 Annual Report to Stockholders. Such
information is hereby incorporated by reference.
Under the Market Reform Act of 1990 and the Futures Trading Practices Act of
1992, the SEC and CFTC, respectively, adopted regulations requiring certain
registered broker-dealers and FCMs to maintain, preserve and periodically
describe and report their risk management policies and certain other information
concerning affiliates whose activities are reasonably likely to have a material
impact on the financial or operating condition of the broker-dealer or FCM.
Edwards and Clearing are each subject to one or both of these laws and related
regulations.
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Additionally, the four state-chartered trust companies are separately regulated
by banking or trust laws of the states in which they are incorporated or do
business. A.G. Edwards Life Insurance Company is regulated by the insurance
laws of the State of Missouri. The Ceres Investment Company, a commodity pool
operator and general partner of four commodity pools sponsored by Edwards, is
regulated by the CFTC and the NFA.
OTHER MATTERS
Information concerning the Company's year 2000 compliance efforts is contained
in the Management's Discussion and Analysis under Item 7 of this Form 10-K.
Such information is hereby incorporated by reference.
ITEM 2. PROPERTIES.
The Company's headquarters are located at One North Jefferson Avenue, St. Louis,
Missouri. It consists of several buildings owned by the Company which contain
approximately 1,500,000 square feet of general office space, as well as
underground and surface parking and a five story parking garage. The buildings
are located on approximately 630,000 square feet of land owned by the Company.
The Company also owns approximately 407,000 square feet of land adjacent to its
headquarters and is using this property principally for additional employee
parking areas. The Company completed construction of an additional headquarters
building in February 1998 at a total cost of approximately $43 million. Also,
the Company owns two of its branch office buildings and two additional office
buildings which serve as a data processing and contingency planning facility.
The remainder of the Company's branch offices occupy leased premises. Aggregate
annual rental for branch office premises for the year ended February 28, 1998,
was $41,859,000.
ITEM 3. LEGAL PROCEEDINGS.
(a) Litigation
The Company is a defendant in numerous lawsuits and arbitrations, in some
of which plaintiffs claim substantial amounts, relating primarily to its
securities and commodities business. While results of litigation cannot
be predicted with certainty, management, after consultation with
counsel, believes that resolution of all such litigation will have no
material adverse effect on the consolidated financial statements of the
Company.
(b) Proceedings Terminated during the Fourth Quarter of the Fiscal Year
Covered by This Report.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended February 28, 1998.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the executive officers of the Company as of
May 1, 1998. Executive officers are appointed by the Board of Directors to hold
office until their successors are appointed and qualified.
<TABLE>
<CAPTION>
Year First
Appointed Executive
Officer of the
Name Age Office & Title Company
<S> <C> <C>
Benjamin F. Edwards III 66 Chairman of the Board, 1983
President and Chief Executive
Officer of the Company.
Chairman of the Board,
President and Chief Executive
Officer of Edwards. Employee
of Edwards for 41 years.
Director of Edwards since 1967.
Robert G. Avis 66 Vice Chairman of the Board of 1984
the Company. Vice Chairman of the
Board, Executive Vice President of
Edwards, Director of the Investment
Banking Division since 1989 and
Director of the Sales and Marketing
Division of Edwards from 1984 to
1997. Employee of Edwards for 32
years. Director of Edwards since 1970.
Robert L. Bagby 54 Vice Chairman of the Board of 1991
the Company. Vice Chairman of
the Board, Executive Vice President,
and since 1995, Director of the
Branch Division of Edwards.
Assistant Director of the Branch
Division of Edwards prior to 1995.
Employee of Edwards for 23 years.
Director of Edwards since 1979.
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Year First
Appointed Executive
Officer of the
Name Age Office & Title Company
Donnis L. Casey 50 Corporate Vice President of Edwards. 1996
Director of the Staff Division of
Edwards since 1996. Assistant
Director of the Staff Division prior
to 1996. Employee of Edwards for
31 years. Director of Edwards since 1993.
Benjamin F. Edwards IV 42 Executive Vice President of Edwards. 1996
Director of the Sales and Marketing
Division since 1997. Regional
Officer of Edwards from 1995 to
1997. Assistant Branch Manager of
Edwards from 1991 to 1995.
Employee of Edwards for 20 years.
Director of Edwards since 1994.
Alfred E. Goldman 64 Corporate Vice President, Technical 1991
Market Analysis of Edwards.
Employee of Edwards for 38 years.
Director of Edwards since 1967.
Douglas L. Kelly 49 Secretary of the Company. 1994
Corporate Vice President, Secretary
of Edwards. Director of Law and
Compliance of Edwards since
1994. Partner at the law firm of
Peper, Martin, Jensen, Maichel and Hetlage
prior to joining the Company.
Employee of Edwards for 4 years.
Director of Edwards since 1994.
Ronald J. Kessler 50 Corporate Vice President of Edwards. 1996
Director of Operations since
January 1998. Assistant Director of
Operations prior to January 1998.
Employee of Edwards for 30 years.
Director of Edwards since 1989.
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Year First
Appointed Executive
Officer of the
Name Age Office & Title Company
Eugene J. King 66 Vice President, Controller and 1983
Assistant Treasurer of the Company.
Senior Vice President, Assistant
Treasurer and Controller of Edwards.
Employee of Edwards for 27 years.
Director of Edwards since 1988.
Robert L. Proost 60 Vice President and Treasurer of the 1990
Company. Corporate Vice President,
Treasurer, Assistant Secretary and
Director of Administration of Edwards.
Employee of Edwards for 10 years.
Director of Edwards since 1989.
Benjamin F. Edwards III and Benjamin F. Edwards IV are father and son.
Benjamin F. Edwards III and Robert G. Avis are stepbrothers.
</TABLE>
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information required by this item is contained in the 1998 Annual Report to
Stockholders on page 43 under the caption "Quarterly Financial Information" and
on page 44 under the caption "Stockholder Information." Such information is
hereby incorporated by reference. The approximate number of equity security
holders of record includes customers who hold the Company's stock in their
accounts on the books of Edwards.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is contained on pages 22 and 23 of the
1998 Annual Report to Stockholders under the caption "Ten-Year Financial
Summary." Such information is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information required by this item is contained on pages 18 through 21 of the
1998 Annual Report to Stockholders under the caption "Management's Financial
Discussion." Such information is hereby incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
The information required by this item does not yet apply to the Company as its
market capitalization at January 28, 1997, was less than $2.5 billion.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is contained in the Consolidated Financial
Statements and Notes thereto, together with the Independent Auditors' Report
thereon of Deloitte & Touche LLP dated April 23, 1998, and under the caption
"Quarterly Financial Information" on pages 24 through 33 and page 43 of the 1998
Annual Report to Stockholders. Such information is hereby incorporated by
reference.
Additional Information:
Edwards maintains a Stockbrokers Blanket Bond insuring various loss
contingencies. Under the terms of the current policy, Edwards is responsible
for the first $1,000,000 of each such occurrence.
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The securities held by Edwards for client accounts are protected up to $500,000,
including up to $100,000 for cash claims, by the Securities Investor Protection
Corporation (SIPC). In addition to the SIPC coverage, securities held in client
accounts are provided additional protection up to the full value of the accounts
(as determined by SIPC) by a commercial insurance company. Neither SIPC
protection nor the additional protection applies to fluctuations in the market
value of securities.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is included under the caption "Election of
Directors - Nominees for Directors" on pages 4 through 6 of the Company's
1998 Proxy Statement and in Part I of this Form 10-K on pages 9 through 11 under
the caption "Executive Officers of the Company". Such information is hereby
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included under the captions "Director
Compensation" and "Executive Compensation" on pages 7 through 16 of the
Company's 1998 Proxy Statement. Such information is hereby incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item is contained on pages 7 and 8 of the
Company's 1998 Proxy Statement under the caption "Ownership of the Company's
Common Stock." Such information is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is contained on page 17 of the Company's
1998 Proxy Statement under the caption "Certain Transactions." Such information
is hereby incorporated by reference.
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PART IV
ITEM 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES,
EXHIBITS AND REPORTS ON FORM 8-K.
PAGE
INDEX NUMBER
(a) 1. Financial Statements
Independent Auditors' Report (X)
Consolidated balance sheets (X)
Consolidated statements of earnings (X)
Consolidated statements of stockholders' equity (X)
Consolidated statements of cash flows (X)
Notes to consolidated financial statements (X)
(X) The consolidated financial statements, together with the Independent
Auditors' Report thereon of Deloitte & Touche LLP, included on pages 24
through 33 of the Company's 1998 Annual Report to Stockholders, are hereby
incorporated by reference.
2. Financial Statement Schedules
All schedules are omitted due to the absence of conditions under which
they are required or because the required information is provided in the
consolidated financial statements or notes thereto.
3. Exhibits*
Some of the following exhibits were previously filed as exhibits to other
reports or registration statements filed by the Registrant and are incorporated
by reference as indicated below.
3(i) Certificate of Incorporation filed as Exhibit 3(i) to the
Registrant's Form 10-K for the fiscal year ended February 28,
1993.
3(ii) By-laws filed as Exhibit 3(ii) to the Registrant's Form 10-K
for the fiscal year ended February 28, 1994.
4(i) Reference is made to Articles IV, V, X, XII, XIII and XV of
the Certificate of Incorporation filed as Exhibit 3(i) to this
Form 10-K.
4(ii) Reference is made to Article II, Article III Sections 1 and
15, Article IV Sections 1 and 3, Article VI and Article VII
Sections 1-3 of the By-laws filed as Exhibit 3(ii) to this
Form 10-K.
4(iii) Rights Agreement dated as of December 30, 1988 between A.G.
Edwards, Inc. and Boatmen's Trust Company as Rights Agent filed
as Exhibit 4 to the Registrant's Form 8-K Report dated December
30, 1988.
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4(iv) Amendment No. 1 to the Rights Agreement dated December 30,
1988, between A.G. Edwards Inc. and Boatmen's Trust Company as
Rights Agent, dated May 24, 1991 filed as Exhibit 4.4 to
Registrant's Form 10-K for the fiscal year ended February 29,
1992.
4(v) Amendment No. 2 to the Rights Agreement dated December 30,
1988, between A.G. Edwards, Inc. and Boatmen's Trust Company as
Rights Agent, dated June 22, 1995 filed with the Registrant's
Form 8-A/A on August 17, 1995.
4(vi) Amendment No. 3 to the Rights Agreement dated December 30,
1998, between A.G. Edwards, Inc. and Boatmen's Trust Company as
Rights Agent, dated July 11, 1997, filed as Exhibit 4.6 to this
Form 10-K.
10(i) A.G. Edwards, Inc. 1988 Incentive Stock Plan (as amended and
restated) filed as Exhibit 10.2 to Registrant's Form 10-K for the
fiscal year ended February 29, 1992.
10(ii) Certificate of Amendment dated April 27, 1993 to A.G.
Edwards, Inc. 1988 Incentive Stock Plan (Exhibit 10(i)) filed as
Exhibit 10(iii) to Registrant's Form 10-K for the fiscal year
ended February 28, 1994.
11 Computation of per share earnings may be clearly determined from
the consolidated financial statements and notes thereto contained
on pages 24 through 33 in the Company's Annual Report to
Stockholders for the fiscal year ended February 28, 1998 and
incorporated herein by reference.
13 Annual Report to Stockholders for the fiscal year ended
February 28, 1998. Except for those portions of pages expressly
incorporated by reference, the 1998 Annual Report to Stockholders
is not deemed filed as part of this Annual Report on Form 10-K.
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
24 Power of Attorney.
27 Financial Data Schedule. This Financial Data Schedule is only
required to be submitted with the Registrant's Annual Report on
Form 10-K as filed electronically to the SEC's EDGAR database.
*Numbers correspond to document numbers in Exhibit Table of Item 601 of
Regulation S-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year ended
February 28, 1998.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: May 21, 1998 By /s/ Benjamin F. Edwards III
Benjamin F. Edwards III,
Chairman of the Board
16
<PAGE>
POWER OF ATTORNEY EXHIBIT 24
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Benjamin F. Edwards III, and Robert L. Proost and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign this Report, any and all amendments to this
Report, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Benjamin F. Edwards III Chairman of the Board, May 21, 1998
Benjamin F. Edwards III President and Director
(Chief Executive Officer)
/s/ Robert L. Proost Treasurer May 21, 1998
Robert L. Proost (Principal Financial Officer)
/s/ Eugene J. King Vice President May 21, 1998
Eugene J. King (Principal Accounting Officer)
/s/ Robert G. Avis Vice Chairman of the Board May 21, 1998
Robert G. Avis and Director
/s/ Robert L. Bagby Vice Chairman of the Board May 21, 1998
Robert L. Bagby and Director
/s/ Dr. E. Eugene Carter Director May 21, 1998
Dr. E. Eugene Carter
Director May 21, 1998
Charmain S. Chapman
/s/ Benjamin F. Edwards IV Director May 21, 1998
Benjamin F. Edwards IV
/s/ Dr. Louis Fernandez Director May 21, 1998
Dr. Louis Fernandez
/s/ Samuel C. Hutchinson Jr. Director May 21, 1998
Samuel C. Hutchinson Jr.
17
<PAGE>
EXHIBIT INDEX
Exhibit Description
4.6 Amendment No. 3 to the Rights Agreement (available on
request)
13 1998 Annual Report to Stockholders.
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
24 Power of Attorney. Included on Signature Page 17.
18
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.
<PAGE>
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 if the 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
<PAGE>
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/ H.E. Bradford__________
Name: Jerry L. Rector_____________ Name: H. Eugene Bradford_______
Title: Vice President______________ Title: Senior Vice President____
MANAGEMENT'S FINANCIAL DISCUSSION
(Year references are to fiscal years ended February 28 or 29 unless otherwise
specified.)
GENERAL BUSINESS ENVIRONMENT
A.G. Edwards, Inc., is a holding company which, through its operating
subsidiaries (collectively, the Company), provides securities and commodities
brokerage, investment banking, trust, asset management and insurance services to
its clients through one of the industry's largest retail branch distribution
systems. Its principal subsidiary, A.G. Edwards & Sons, Inc., is a St. Louis-
based financial services firm with more than 590 locations and approximately
13,800 total employees in 49 states. The Company's primary business is providing
a full range of financial products and services to individual investors. The
Company also provides products and services to institutional investors and
investment banking services to corporate, governmental and municipal clients.
Many factors affect the Company's revenues and profitability, including
changes in economic conditions, the level and volatility of interest rates,
inflation, political events, investor sentiment, and competition from other
financial institutions. Because these factors are unpredictable and beyond the
Company's control, earnings may fluctuate significantly from period to period.
Calendar 1997 and the Company's fiscal 1998, which ended February 28, 1998,
once again resulted in record profitability for the securities industry and the
Company. A strong economy, low inflation and low interest rates provided
conditions for another year of increased investor activity, record trading
volumes and rising stock prices in the domestic equity markets. Although some
volatility in interest rates occurred early in calendar 1997, inflation remained
low, resulting in a continuation of lower returns to fixed-income investors. As
a result, retail investors continued to shift their holdings to the equity
markets.
After beginning the fiscal year at 6,878, the Dow Jones Industrial Average
surpassed the 8,000 mark in July 1997 for the first time. Following the crisis
in the Asian financial markets, the Dow Jones Industrial Average fell 554 points
to 7,161 on October 27, the largest one-day point drop in market history. The
Dow then rebounded to finish the fiscal year at an all-time high of 8,546, a 24
percent rise for the year, following a 25 percent gain in fiscal 1997. The
Nasdaq average jumped 35 percent, following a 19 percent gain in the prior
fiscal year. The volatility in the markets on October 27 and 28, 1997, led to
unprecedented daily trading volume as both the New York Stock Exchange and the
Nasdaq exceeded 1 billion shares on October 28 for the first time.
RESULTS OF OPERATIONS
Revenues, net earnings and earnings per share for the Company once again reached
record levels in 1998 as the securities industry experienced its most profitable
year on record. Revenues for the Company rose 18 percent to just more than $2
billion from $1.7 billion in 1997. Revenues in 1997 were up 17 percent from $1.5
billion in 1996. Net earnings of $269 million in 1998 increased 23 percent from
$219 million in the previous year. Net earnings in 1997 were up 28 percent from
$171 million in 1996. Basic earnings per share for the Company were $2.81 in
1998, versus $2.29 and $1.80 in 1997 and 1996, respectively. Diluted earnings
per share for the Company were $2.75 in 1998, versus $2.24 and $1.77 in 1997 and
1996, respectively. The Company's net profit margin was a record 13.4 percent in
1998, compared with 12.9 percent in 1997 and 11.7 percent in 1996.
The number of A.G. Edwards investment brokers reached 6,289 at fiscal year
end, an increase of 4 percent from the prior year end. The number of locations
at the end of 1998 was 594, up from 569 at year-end 1997. The Company intends to
continue expanding its distribution system as opportunities present themselves.
The following table and discussion summarize the changes in the major
categories of revenues and expenses for the past two years (dollars in
thousands):
<TABLE>
<CAPTION>
1998 vs. 1997 1997 vs. 1996
Increase (Decrease)
<S> <C> <C> <C> <C>
Revenues:
Commissions $179,736 19% $122,717 15%
Principal transactions (5,055) (2) 6,640 3
Investment banking 34,759 22 51,160 49
Asset management and service fees 65,221 27 46,249 24
Interest 33,035 22 13,493 10
Other (46) (1) 1,757 23
$307,650 18% $242,016 17%
Expenses:
Compensation and benefits $196,000 18% $151,176 16%
Communications 12,692 15 5,893 7
Occupancy and equipment 10,613 12 6,806 9
Floor brokerage and clearance 1,676 9 1,874 12
Interest (629) (30) (1,088) (35)
Other 4,458 7 (1,320) (2)
$224,810 17% $163,341 14%
</TABLE>
18
<PAGE>
COMMISSIONS
Commissions are the most significant source of revenue for the Company,
accounting for more than 50 percent of total revenue in both 1998 and 1997.
Commission revenue rose 19 percent, from $929 million in 1997 to $1.1 billion in
1998, and accounted for more than 58 percent of the Company's overall revenue
increase in 1998. As commissions are transaction-based revenues, they are
directly influenced by changes in trading volume and may vary considerably from
period to period.
Listed equity securities commissions increased 26 percent
($96 million) and over-the-counter equity commission revenue rose 6 percent ($11
million) in 1998, once again fueled by record trading volumes and higher stock
prices on the New York Stock Exchange and the Nasdaq. For the industry, average
daily trading volume for 1998 was up 26 percent on the New York Stock Exchange
and 17 percent on the Nasdaq.
Company revenues from mutual fund sales rose 19 percent
($42 million) in 1998, consistent with industry-wide record cash flows into
funds. Following this trend, sales of variable annuities increased $21 million
(21 percent).
Fiscal 1997's 15 percent ($123 million) increase in total commissions over
fiscal 1996 reflected increased retail investor activity due to higher stock
prices and trading volumes as well as strong cash flows into mutual funds in
1997 compared with 1996.
PRINCIPAL TRANSACTIONS
The Company maintains inventories of debt and equity securities to satisfy
investor demand and, therefore, effects certain transactions with its clients by
acting as principal. Realized and unrealized gains and losses result from
holding securities positions for resale to investors and are included in
principal transaction revenue.
Principal transaction revenue decreased 2 percent ($5 million) in 1998,
primarily because of an 8 percent ($6 million) decline in sales of municipal
debt securities. Lower yields and the strength of the equity markets reduced
client demand for municipal securities.
In 1997, revenues from principal transactions increased 3 percent ($7
million) over 1996. Sales of municipal debt securities in 1997 in-creased 15
percent ($9 million). Partially offsetting this increase was a decline in sales
of corporate and government debt securities.
INVESTMENT BANKING
The Company derives investment banking revenue from underwriting public
offerings of securities for corporations and governmental entities and by
providing advisory services to these clients.
In 1998, investment banking revenue jumped 22 percent to $191 million from
$156 million in 1997 as a result of the Company's participation in the industry-
wide record levels of equity underwriting and merger and acquisition activities.
Underwriting fees and selling concessions increased 33 percent ($38 million) in
1998, principally because of a 46 percent ($42 million) increase in revenue from
corporate equity and debt issues in 1998, which was partially offset by a 7
percent ($3 million) decline in management fees.
In 1997, favorable market conditions for investment banking activities
resulted in revenue growth of 49 percent ($51 million) over 1996. Underwriting
fees and selling concessions advanced 42 percent ($34 million) in 1997,
primarily because of a 43 percent rise in revenue associated with corporate
equity and debt issues. Fees from serving as managing underwriter in corporate
and municipal offerings and as advisor in merger and acquisition activities rose
71 percent ($17 million), primarily as a result of two large transactions in
1997.
ASSET MANAGEMENT AND SERVICE FEES
Asset management and service fees consist primarily of revenues earned from
providing support and services in connection with client assets under third-
party management, including mutual funds, and the A.G. Edwards Trust Companies.
These revenues include fees based on the amount of client assets under
management and transaction-related fees, as well as fees related to the
administration of custodial and other specialty accounts.
Asset management and service fees rose $65 million in 1998,
an increase of 27 percent. Fees from third-party mutual funds were 25 percent
($37 million) higher than 1997's fees, reflecting the strong industry-wide cash
19
<PAGE>
inflows to funds and higher market valuations of existing assets. Fees resulting
from the administration of client assets under other third-party management and
from the Company's management services improved 57 percent ($26 million) in
1998. The average number of these accounts increased 57 percent, while the total
assets in these programs grew from $5.8 billion at the end of 1997 to $9.5
billion by the close of 1998, an increase of 64 percent.
The 1997 increase of 24 percent ($46 million) over 1996 was primarily due to
a 24 percent ($28 million) jump in service fees from third-party mutual funds.
Fees from the Company's management services in 1997 rose 44 percent ($14
million) as a result of the growth in the number of client accounts and higher
market valuations of existing assets.
INTEREST
The Company earns interest revenue principally from financing its clients'
margin accounts, from debt securities carried for resale and from short-term
investments.
Interest revenue rose 22 percent ($33 million) in 1998, primarily because of
a 27 percent ($31 million) increase in interest earned on margin accounts. The
increase resulted from a 24 percent rise in average margin debits combined with
slightly higher interest rates charged on margin accounts. Interest revenues
from securities owned increased $3 million, while interest earned on short-term
investments decreased slightly.
The 1997 versus 1996 increase was principally due to a 10 percent ($11
million) increase in interest earned on margin accounts and from increased
short-term investments.
EXPENSES
Compensation and benefits, the major component of the Company's overall
expenses, rose 18 percent ($196 million) in 1998 and 16 percent ($151 million)
in 1997. A significant portion of this expense is variable in nature and
directly relates to commissionable sales and to the Company's profitability.
Thus the year-to-year comparisons generally reflect the increases in revenue and
profitability in both 1998 and 1997. General and administrative salary expense
increased 17 percent ($31 million) in 1998 and 13 percent
($22 million) in 1997 because of general salary increases and a 12 percent
growth in the number of support employees this year and 8 percent last year.
Communication expense rose 15 percent ($13 million) in 1998, primarily
because of increased business volume coupled with branch and headquarters
expansion. Occupancy and equipment increased 12 percent ($11 million) in 1998,
principally because of branch expansion and the cost associated with the
purchase of technology-related equipment. All remaining expenses increased a
combined 6 percent ($6 million) over last year.
In 1997, all non-compensation-related expenses increased a combined 5 percent
($12 million), mainly as a result of expansion.
INCOME TAXES
For information concerning the provision for income taxes and information
regarding the difference between effective tax rates and statutory rates, see
Note 6 of the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets fluctuate in the normal course of business, primarily
because of the timing of certain transactions, which may result in corresponding
changes in related liabilities. Securities-lending transactions and related
securities-borrowed transactions decreased from fiscal 1997, reflecting the
record level of securities sold "short" in the stock market last year. Customer
receivables continued to increase in 1998 as a result of business expansion. The
increase in government securities inventory, and the related increase in
payables to brokers and dealers, resulted from the Company's designation this
year as a member of the Government National Mortgage Association's selling group
and an underwriting of such securities in progress at February 28, 1998. The
decrease in cash and government securities segregated under federal and other
regulations reflects the use of excess resale agreements primarily to fund the
increase in customer receivables.
The principal sources for financing the Company's assets are stockholders'
equity, proceeds from securities lending, bank loans, customer free-credit
balances and other payables. The Company has no long-term debt. Cash generated
20
<PAGE>
from operations and proceeds from employee stock plans have kept bank borrowings
at low levels in the past three years. Average daily borrowings were $11 million
in 1998, $2 million in 1997 and $5 million in 1996.
Capital expenditures for the past three years have been financed from
operations. Construction of an additional headquarters building has been
completed, and the Company began to occupy the new space in February 1998. The
Company expended $43 million for this construction through February 28, 1998.
Under the Company's stock repurchase program, which began
in May 1996, the Company is authorized to repurchase up to
33 million shares of the Company's common stock over a 5 1/2 year period ending
in 2001 in part to offset the issuance of stock under the employee stock plans.
In 1998, the Company purchased 3.4 million shares at an aggregate cost of $106
million. In 1997, 3.4 million shares were purchased at an aggregate cost of $65
million. These treasury shares were purchased with funds generated from
operations. Future purchases, as well as dividend payments and the costs of
expansion, are also expected to be funded from operations.
The Company has adequate sources of credit available, if needed, to finance
higher trading volumes, branch expansion, stock repurchases and major capital
expenditures. Management believes that, if necessary, additional sources of
credit are available.
The Company's principal subsidiary, A.G. Edwards & Sons, Inc., is required by
the Securities and Exchange Commission (SEC) to maintain specified amounts of
liquid net capital to meet its obligations to clients (see Note 5 of the Notes
to Consolidated Financial Statements). A.G. Edwards & Sons, Inc.'s net capital,
in excess of that required by the SEC, was approximately $940 million on
February 28, 1998, up from $850 million the previous year.
YEAR 2000
The "Year 2000" issue arises because many computer hardware
and software systems use only two digits to represent the year. As a result,
these systems and programs may not accurately calculate dates beyond 1999,
causing system failures or miscalculations leading to disruptions in the
Company's operations if the Company fails to correct Year 2000 issues.
With respect to its internal systems, the Company's efforts to remediate the
Year 2000 issues are proceeding according to plan. The Company expects to
complete its programming efforts before the end of calendar 1998 and devote 1999
to industry-wide and internal testing. The costs of these efforts have not had,
and are not expected to have, a material impact on the Company's financial
condition or results of operations.
Remediation efforts go beyond the Company's internal computer systems and
require coordination with industry groups, vendors, clients and other third
parties to assure that their systems and related interfaces are compliant. The
Company could be adversely affected to the extent third parties with which it
interfaces or has contractual relations have not properly addressed their Year
2000 issues or to the extent economic conditions or customers are adversely
affected by Year 2000 issues.
******************************************************************************
The Management's Financial Discussion, including the discussion under "Year
2000," together with other sections of this Annual Report, contains forward-
looking statements within the meaning of federal securities laws. Actual results
are subject to risks and uncertainties, including both those specific to the
Company and those specific to the industry which could cause results to differ
materially from those contemplated. The risks and uncertainties include, but are
not limited to, third-party or Company failures to achieve timely, effective
remediation of the Year 2000 issues, general economic conditions, actions of
competitors, regulatory actions, changes in legislation and technology changes.
Undue reliance should not be placed on the forward-looking statements, which
speak only as of the date of this Annual Report. The Company does not undertake
any obligation to publicly update any forward-looking statements.
21
<PAGE>
<TABLE>
<CAPTION>
TEN-YEAR FINANCIAL SUMMARY
Year Ended: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenues Commissions:
Listed Securities $ 462,276 $ 365,908 $ 338,241 $ 236,629 $ 273,363
Options 44,188 33,850 29,432 21,576 21,135
Over-the-Counter Securities 190,092 178,752 142,696 80,525 94,075
Mutual Funds 263,733 222,146 189,109 147,709 248,146
Commodities 16,315 16,038 16,448 15,261 16,766
Insurance 131,925 112,099 90,150 77,117 74,862
Total 1,108,529 928,793 806,076 578,817 728,347
Principal Transactions:
Equities 61,184 58,427 55,334 37,565 40,260
Debt Securities 146,768 154,580 151,033 203,460 146,705
Total 207,952 213,007 206,367 241,025 186,965
Investment Banking:
Underwriting Fees and Selling Concessions 152,029 114,426 80,572 70,156 111,379
Management Fees 38,889 41,733 24,427 22,574 35,594
Total 190,918 156,159 104,999 92,730 146,973
Asset Management and Service Fees 306,570 241,349 195,100 152,803 135,163
Interest:
Margin Account Balances 149,738 118,373 107,192 89,971 60,491
Securities Owned and Deposits 31,132 29,462 27,150 15,548 14,074
Total 180,870 147,835 134,342 105,519 74,565
Other 9,294 9,340 7,583 7,448 6,628
Total Revenues 2,004,133 1,696,483 1,454,467 1,178,342 1,278,641
Expenses
Compensation and Benefits 1,276,931 1,080,931 929,755 756,736 828,409
Communications 98,949 86,257 80,364 74,708 73,048
Occupancy and Equipment 96,496 85,883 79,077 73,108 67,258
Floor Brokerage and Clearance 19,825 18,149 16,275 14,355 15,062
Interest 1,436 2,065 3,153 6,818 1,113
Other Operating Expenses 72,699 68,241 69,561 53,288 50,180
Total Expenses 1,566,336 1,341,526 1,178,185 979,013 1,035,070
Earnings Before Income Taxes 437,797 354,957 276,282 199,329 243,571
Income Taxes 168,500 135,900 105,700 75,210 88,700
Net Earnings $ 269,297 $ 219,057 $ 170,582 $ 124,119 $ 154,871
Per Basic Earnings $ 2.81 $ 2.29 $ 1.80 $ 1.35 $ 1.75
Share Diluted Earnings $ 2.75 $ 2.24 $ 1.77 $ 1.33 $ 1.71
Data Cash Dividends $ 0.51 $ 0.44 $ 0.40 $ 0.37 $ 0.35
Book Value $ 15.21 $ 13.12 $ 11.33 $ 9.84 $ 8.72
Other Data Total Assets $4,193,328 $4,244,340 $3,102,085 $2,224,282 $2,236,590
Stockholders' Equity $1,463,121 $1,261,303 $1,088,684 $ 919,281 $ 790,367
Cash Dividends $ 48,740 $ 41,851 $ 37,769 $ 34,200 $ 30,843
Return on Average Equity 19.8% 18.6% 17.0% 14.5% 22.0%
Pre-tax Return on Average Equity 32.1% 30.2% 27.5% 23.3% 34.7%
Net Earnings as a Percent of Revenues 13.4% 12.9% 11.7% 10.5% 12.1%
Average Common Shares
Outstanding (Basic) 95,950 95,483 94,621 91,809 88,643
Average Common and Common
Equivalent Shares Outstanding (Diluted) 98,051 97,816 96,644 93,267 90,530
<FN>
Share and per share data have been restated for stock splits and stock dividends.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
TEN-YEAR FINANCIAL SUMMARY
Year Ended: 1993 1992 1991 1990 1989
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues Commissions:
Listed Securities $ 231,312 $ 203,936 $ 140,096 $ 129,288 $ 95,276
Options 19,167 21,745 20,002 18,141 14,201
Over-the-Counter Securities 69,199 69,415 38,842 38,236 30,608
Mutual Funds 193,820 146,377 80,529 70,299 46,675
Commodities 13,016 13,941 12,322 11,941 12,413
Insurance 46,757 47,343 39,514 40,424 39,082
Total 573,271 502,757 331,305 308,329 238,255
Principal Transactions:
Equities 31,266 23,157 10,922 11,741 9,166
Debt Securities 184,040 165,284 145,732 116,624 97,247
Total 215,306 188,441 156,654 128,365 106,413
Investment Banking:
Underwriting Fees and Selling Concessions 87,061 77,464 44,167 42,395 54,308
Management Fees 21,251 13,389 11,161 11,542 12,071
Total 108,312 90,853 55,328 53,937 66,379
Asset Management and Service Fees 107,306 87,461 61,084 47,020 30,654
Interest:
Margin Account Balances 50,098 47,026 51,209 50,489 44,260
Securities Owned and Deposits 14,631 16,915 15,025 14,817 11,321
Total 64,729 63,941 66,234 65,306 55,581
Other 5,464 5,206 4,302 4,066 3,430
Total Revenues 1,074,388 938,659 674,907 607,023 500,712
Expenses Compensation and Benefits 692,127 594,404 422,524 374,119 301,421
Communications 66,899 62,468 58,323 52,527 47,601
Occupancy and Equipment 61,701 56,035 49,783 42,560 36,097
Floor Brokerage and Clearance 15,016 13,741 11,461 10,031 9,400
Interest 1,886 1,186 4,229 6,314 8,604
Other Operating Expenses 46,774 42,793 36,925 29,948 45,292
Total Expenses 884,403 770,627 583,245 515,499 448,415
Earnings Before Income Taxes 189,985 168,032 91,662 91,524 52,297
Income Taxes 70,560 62,500 32,500 32,700 17,348
Net Earnings $ 119,425 $ 105,532 $ 59,162 $ 58,824 $ 34,949
Per Basic Earnings $ 1.40 $ 1.28 $ 0.74 $ 0.74 $ 0.44
Share Diluted Earnings $ 1.38 $ 1.25 $ 0.73 $ 0.73 $ 0.44
Data Cash Dividends $ 0.29 $ 0.25 $ 0.19 $ 0.19 $ 0.17
Book Value $ 7.11 $ 5.89 $ 4.79 $ 4.30 $ 3.76
Other Data Total Assets $2,111,192 $1,577,143 $1,402,627 $1,126,004 $1,062,640
Stockholders' Equity $ 615,240 $ 492,010 $ 385,869 $ 343,539 $ 300,585
Cash Dividends $ 24,624 $ 20,622 $ 15,480 $ 15,185 $ 13,904
Return on Average Equity 21.6% 24.0% 16.2% 18.3% 12.2%
Pre-tax Return on Average Equity 34.3% 38.3% 25.1% 28.4% 18.2%
Net Earnings as a Percent of Revenues 11.1% 11.2% 8.8% 9.7% 7.0%
Average Common Shares
Outstanding (Basic) 85,421 82,331 80,205 79,976 79,300
Average Common and Common
Equivalent Shares Outstanding (Diluted) 86,740 84,152 81,023 80,884 79,679
<FN>
Share and per share data have been restated for stock splits and stock dividends.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
February 28, February 28,
<S> <C> 1998 <C> 1997
(In thousands, except share amounts)
Assets Cash and cash equivalents $ 84,764 $ 62,799
Cash and government securities, segregated under
federal and other regulations 57,294 400,991
Securities purchased under agreements to resell 204,363 200,000
Securities borrowed 786,119 1,392,864
Receivables:
Customers, less allowance for doubtful accounts of $3,800 and $3,550 2,229,128 1,677,354
Brokers, dealers and clearing organizations 12,521 14,635
Securities inventory, at fair value:
State and municipal 142,692 98,516
Government and agencies 209,247 39,666
Corporate 51,714 25,785
Property and equipment, at cost, net of accumulated depreciation and
amortization of $229,938 and $196,414 230,158 189,795
Deferred income taxes 70,432 56,558
Other assets 114,896 85,377
$4,193,328 $4,244,340
Liabilities Checks payable $ 203,017 $ 174,736
Securities loaned 820,918 1,458,426
Payables:
Customers 920,791 816,668
Brokers, dealers and clearing organizations 185,756 47,842
Securities sold but not yet purchased, at fair value 19,141 17,670
Employee compensation and related taxes 505,731 414,177
Income taxes 17,137 13,536
Other liabilities 57,716 39,982
Total Liabilities 2,730,207 2,983,037
Stockholders' Preferred stock, $25 par value:
Equity Authorized, 4,000,000 shares, none issued
Common stock, $1 par value:
Authorized, 250,000,000 shares
Issued, 96,463,114 and 64,312,658 shares 96,463 64,313
Additional paid-in capital 181,826 229,235
Retained earnings 1,196,568 976,011
1,474,857 1,269,559
Less -
Treasury stock, at cost (284,173 and 234,921 shares) 11,736 8,256
Total Stockholders' Equity 1,463,121 1,261,303
$4,193,328 $4,244,340
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended: February 28, February 28, February 29,
1998 1997 1996
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues Commissions $1,108,529 $ 928,793 $ 806,076
Principal transactions 207,952 213,007 206,367
Investment banking 190,918 156,159 104,999
Asset management and service fees 306,570 241,349 195,100
Interest 180,870 147,835 134,342
Other 9,294 9,340 7,583
2,004,133 1,696,483 1,454,467
Expenses Compensation and benefits 1,276,931 1,080,931 929,755
Communications 98,949 86,257 80,364
Occupancy and equipment 96,496 85,883 79,077
Floor brokerage and clearance 19,825 18,149 16,275
Interest 1,436 2,065 3,153
Other 72,699 68,241 69,561
1,566,336 1,341,526 1,178,185
Earnings before income taxes 437,797 354,957 276,282
Income taxes 168,500 135,900 105,700
Net earnings $ 269,297 $ 219,057 $ 170,582
Earnings per share:
Basic $ 2.81 $ 2.29 $ 1.80
Diluted $ 2.75 $ 2.24 $ 1.77
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three years ended February 28, 1998 Common Additional Retained Unamortized Treasury Total
Stock Paid-in Earnings Expense of Stock
Capital Restricted
Stock Awards
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Balances, March 1, 1995 $62,294 $194,863 $ 665,992 $ (3,868) $ 0 $ 919,281
Net earnings 170,582 170,582
Cash dividends -
$0.40 per share (37,769) (37,769)
Treasury stock acquired (12,511) (12,511)
Stock issued:
Employee stock
purchase/option plans 1,376 22,282 3,280 26,938
Restricted stock 643 14,913 189 2,739 18,484
Amortization of
restricted stock awards 3,679 3,679
Balances, February 29, 1996 64,313 232,058 798,805 0 (6,492) 1,088,684
Net earnings 219,057 219,057
Cash dividends -
$0.44 per share (41,851) (41,851)
Treasury stock acquired (64,805) (64,805)
Stock issued:
Employee stock
purchase/option plans (6,041) 42,938 36,897
Restricted stock 3,218 20,103 23,321
Balances, February 28, 1997 64,313 229,235 976,011 0 (8,256) 1,261,303
Net earnings 269,297 269,297
Cash dividends -
$0.51 per share (48,740) (48,740)
Treasury stock acquired (106,006) (106,006)
Stock issued:
Employee stock
purchase/option plans (22,107) 78,677 56,570
Restricted stock 7,009 23,849 30,858
Stock split-3-for-2 32,150 (32,150)
Cash paid for fractional shares (161) (161)
Balances, February 28, 1998 $96,463 $181,826 $1,196,568 $ 0 $ (11,736) $1,463,121
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended: February 28, February 28, February 29,
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Cash Flows Net earnings $269,297 $219,057 $170,582
From Operating Noncash items included in earnings:
Activities Depreciation and amortization 37,855 33,066 31,141
Amortization/expense of restricted stock awards 25,155 22,173 21,697
Deferred items (13,874) (13,944) (13,096)
(Increase) decrease in operating assets:
Segregated cash and government securities 343,697 1,794 (358,977)
Securities borrowed 606,745 (779,598) (333,595)
Receivable from brokers, dealers and
clearing organizations 2,114 (714) 15,825
Receivable from customers (551,774) (249,291) (68,891)
Securities inventory (239,686) 31,825 (43,230)
Other assets (13,218) (9,388) (10,274)
Increase (decrease) in operating liabilities:
Checks payable 28,281 25,766 41,997
Securities loaned (637,508) 797,937 280,762
Payable to brokers, dealers and clearing organizations 137,914 (30,805) (4,319)
Payable to customers 104,123 96,679 304,248
Securities sold but not yet purchased 1,471 (4,201) (17,607)
Employee compensation and related taxes 91,554 83,079 84,978
Income taxes 3,601 906 10,260
Other liabilities 17,734 275 8,081
Net cash provided by operating activities 213,481 224,616 119,582
Cash Flows Securities purchased under agreements to resell (4,363) (107,987) (49,194)
From Investing Purchase of property and equipment (78,218) (44,305) (42,127)
Activities Long-Term investments included in other assets (16,301) 6,499 5,738
Net cash used in investing activities (98,882) (145,793) (85,583)
Cash Flows Employee stock transactions 62,273 38,045 27,404
From Financing Purchase of treasury stock (106,006) (64,805) (12,511)
Activities Cash dividends paid (48,740) (41,851) (37,769)
Cash paid for fractional shares (161)
Net cash used in financing activities (92,634) (68,611) (22,876)
Cash and Cash Net increase in cash and cash equivalents 21,965 10,212 11,123
Equivalents Cash and cash equivalents, at beginning of year 62,799 52,587 41,464
Cash and cash equivalents, at end of year $ 84,764 $ 62,799 $ 52,587
<FN>
Interest payments totaled $3,245 in 1998, $2,650 in 1997 and $3,806 in 1996.
Income taxes paid totaled $165,618 in 1998, $145,216 in 1997 and $106,740 in 1996.
Supplemental disclosures of noncash financing activities:
Restricted stock awards, net of forfeitures, totaled $24,818 in 1998,
$21,768 in 1997 and $18,291 in 1996.
See Notes to Consolidated Financial Statements.
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended February 28, 1998
(Dollars in thousands, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Information
The consolidated financial statements include the accounts of
A.G. Edwards, Inc., and its wholly owned subsidiaries (collectively referred to
as the Company) and are prepared in conformity with generally accepted
accounting principles. In accordance with generally accepted accounting
principles and industry practice, management has made use of estimates
concerning certain assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and certain revenues and
expenses during the reporting period. Actual results could differ from these
estimates. All material intercompany balances and transactions have been
eliminated in consolidation. Where appropriate, prior years' financial
information has been reclassified to conform with the current-year presentation.
The Company is in one principal line of business, that of providing
investment services, including securities and commodities brokerage, asset
management, insurance, trust, investment banking and other related financial
services to individual retail, corporate, governmental and institutional
clients. These services are provided through its principal subsidiary, A.G.
Edwards & Sons, Inc., and other wholly owned subsidiaries.
All per share amounts and share data have been restated to reflect a 3-for-
2 stock split declared in August 1997, effected in the form of a stock dividend.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with
maturities of 90 days or less at the date of acquisition.
Securities Transactions
Securities purchased under agreements to resell (Resale Agreements) and
securities sold under agreements to repurchase are recorded at the contractual
amounts that the securities will be resold/repurchased, including accrued
interest. Cash and government securities segregated under federal and other
regulations included Resale Agreements of $350,000 in 1997. The Company's policy
is to obtain possession or control of securities purchased under Resale
Agreements and to obtain additional collateral when necessary to minimize the
risk associated with this activity.
Securities borrowed and securities loaned are recorded at the amount of the
cash collateral provided for securities-borrowed transactions and received for
securities-loaned transactions, respectively. The adequacy of the collateral is
continuously monitored and adjusted when deemed necessary to minimize the risk
associated with this activity. Substantially all of these transactions are
executed under master netting agreements, which give the Company right of offset
in the event of counterparty default.
Customer securities transactions are recorded on settlement date. Revenues
and related expenses for transactions executed but unsettled are accrued on a
trade-date basis.
Securities inventory, securities sold but not yet purchased, and securities
segregated under federal and other regulations are recorded on a trade-date
basis and are carried at fair value. Fair value is based on quoted market or
dealer prices, pricing models, or management's estimates. Unrealized gains and
losses are reflected in revenue.
Investment Banking
Investment banking revenue, which includes underwriting fees, selling
concessions and management fees, is recorded when services for the transaction
are substantially completed. Transaction-related ex-penses are deferred and
later expensed to match revenue recognition.
Stock-Based Compensation
The Company applies the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB No. 25), and related
interpretations to account for its employee stock plans. Accordingly, no
compensation expense has been recognized for options issued under these plans.
Restricted stock awards are expensed in the year granted, which coincides
with the defined service period. Prior to 1994, the awards were amortized over
the three-year vesting period.
Property and Equipment
Depreciation of buildings is provided using both straight-line and accelerated
methods over estimated useful lives of 15 to 45 years. Leasehold improvements
are amortized over the lesser of the life of the lease or estimated useful life
of the improvement. Depreciation of equipment is provided over estimated useful
lives of five to 10 years using both straight-line and accelerated methods.
28
<PAGE>
Income Taxes
Income tax expense is provided for using the asset and liability method, under
which deferred tax assets and liabilities are determined based upon the
temporary differences between the financial statement and income tax bases of
assets and liabilities, using current tax rates. The Company files a
consolidated federal income tax return.
Recent Accounting Pronouncements
Effective January 1, 1998, the Company adopted certain provisions of Statement
of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which are
applicable to its business. SFAS No. 125 introduced a financial-components
approach that focuses on the recognition of financial assets and liabilities an
entity controls and the derecognition of financial assets and liabilities for
which control has been transferred. The adoption of this statement did not have
a material effect on the Company's financial condition or results of operations.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
These statements, which are effective for fiscal years beginning after December
15, 1997, establish standards for the reporting and display of comprehensive
income and the disclosure requirements related to segments.
2. BANK LOANS
Bank loans are short-term borrowings with interest generally based on the
federal funds rate. Such loans are payable on demand and may be unsecured or
collateralized by customer-owned securities held in margin accounts. The average
of such borrowings was $10,656 in 1998, $2,191 in 1997 and $4,878 in 1996, at
effective interest rates of 6.0 percent, 5.8 percent and 6.5 percent,
respectively. Substantially all such borrowings were secured by customer-owned
securities. There were no borrowings outstanding at February 28, 1998 and 1997.
3. EMPLOYEE STOCK PLANS
The Company applies the provisions of APB No. 25 to account for its employee
stock plans. If compensation expense for the Company's stock options and stock
purchase plans was determined based on the estimated fair value of the options
granted, consistent with SFAS
No. 123, "Accounting for Stock Based Compensation," the Company's net earnings
and earnings per share would have been as follows:
1998 1997 1996
Net earnings $258,000 $214,000 $166,000
Earnings per share
Basic $ 2.69 $ 2.24 $ 1.75
Diluted $ 2.63 $ 2.19 $ 1.72
The Black-Scholes option pricing model was used to calculate the estimated fair
value of the options.
Employee Stock Purchase Plan
Options to purchase 1,875,000 shares of common stock granted to employees under
the Company's stock purchase plan are exercisable October 1, 1998, at 85 percent
of market price based on dates specified in the plan. Employees purchased
1,871,400 shares at $20.64 per share in 1998, 1,870,325 shares at $14.98 per
share in 1997 and 1,870,610 shares at $12.06 per share in 1996. Treasury shares
were utilized for all of the shares purchased in 1998 and 1997. The fair value
of the options granted under this plan was estimated using the following
assumptions for 1998, 1997 and 1996, respectively: dividend yield of 1.34
percent, 2.21 percent and 2.41 percent; an expected life of one year; expected
volatility of 34 percent, 25 percent and 23 percent; and risk-free interest
rates of 5.68 percent, 5.74 percent and 5.81 percent. The fair value of the
options granted in 1998, 1997 and 1996 was $8.16, $3.93 and $3.45, respectively.
Restricted Stock and Stock Options
Under the Company's Incentive Stock Plan, three types of benefits may be granted
to officers and key employees: restricted stock, stock options and stock
appreciation rights. Such awards are subject to forfeiture upon termination of
employment during a restricted period. Through February 28, 1998, no stock
appreciation rights have been granted.
Restricted stock awards are made, and shares issued, without cash payment
by the employee. The shares are restricted for a vesting period, generally three
years from the award date. Eligible employees as of February 28, 1998, were
awarded 597,595 shares with a market value of $25,732. At February 28 (29), 1997
and 1996, the awards were 1,040,724 and 1,114,133 shares, respectively, with
corresponding market values of $22,070 and $18,480. As of February 28, 1998,
restricted stock awards covering 3,343,009 shares were outstanding, with the
restrictions expiring at various dates through the year 2001.
Nonqualified stock options are granted to purchase common stock at 100
percent of market value at date of grant. Such options are exercisable beginning
three years from date of grant and expire eight years from date of grant, or
earlier upon termination of employment. The fair value of each option grant was
29
<PAGE>
estimated at the date of grant using the following assumptions for 1998, 1997
and 1996, respectively: dividend yield of 1.34 percent, 2.21 percent and 2.41
percent; expected lives of six years; expected volatility of 34 percent, 25
percent and 23 percent; risk-free interest rates of 5.70 percent, 6.41 percent
and 5.89 percent; and a forfeiture rate of 6 percent, 8 percent and 8 percent.
The fair value of options granted under this plan in 1998, 1997 and 1996 was
$16.35, $6.29 and $4.38, respectively.
A summary of the status of the Company's stock options as of February 28
(29), 1998, 1997 and 1996, and changes during the years ended on those dates is
presented as follows:
<TABLE>
<CAPTION> 1998 1997 1996
Shares Weighted- Shares Weighted- Shares Weighted-
(000) Average (000) Average (000) Average
Exercise Exercise Exercise
Price Price Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 4,993 $14.39 4,862 $12.61 4,512 $11.35
Granted 575 $43.06 792 $21.21 845 $16.59
Exercised (1,050) $10.47 (620) $9.18 (405) $6.89
Forfeited (73) $17.50 (41) $13.67 (90) $12.97
Outstanding, end of year 4,445 $18.97 4,993 $14.39 4,862 $12.61
Treasury shares utilized for exercises 1,050 620 200
</TABLE>
The following table summarizes information about outstanding stock options at
February 28, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of Number Weighted-Average Weighted- Number Weighted
Exercise Outstanding Remaining Average Exercisable Average
Prices (000) Contractual Exercise (000) Exercise
Life (years) Price Price
<S> <C> <C> <C> <C> <C>
$5 - $10 202 1.0 $ 9.23 202 $ 9.23
$11 - $15 2,096 3.8 $13.40 2,096 $13.40
$16 - $20 805 6.0 $16.59 0
$21 - $25 767 7.0 $21.21 0
$40 - $45 575 8.0 $43.06 0
4,445 2,298
</TABLE>
4. EMPLOYEE PROFIT SHARING PLANS
The Company has a defined contribution plan (401(k)) covering substantially all
employees whereby the Company is obligated to match, in specified amounts as
defined therein, portions of contributions made by eligible employees.
Additional contributions may be made at the discretion of the Company and are
based on the Company's pre-tax earnings. The Company expensed $76,933 in 1998,
$65,754 in 1997 and $56,107 in 1996 in connection with the 401(k).
The Company also has an unfunded, nonqualified deferred compensation plan
that provides benefits to participants whose contributions from the Company in
the 401(k) are subject to Internal Revenue Service limitations. The Company
expensed $22,961 in 1998, $17,296 in 1997 and $10,463 in 1996 in connection with
this plan. At February 28, 1998 and 1997, the employee compensation and related
taxes liability included deferred compensation for this plan of $87,041 and
$63,690, respectively.
5. NET CAPITAL REQUIREMENTS
A.G. Edwards & Sons, Inc., is subject to net capital rules administered by the
Securities and Exchange Commission (SEC) and the New York Stock Exchange. Under
such rules, this subsidiary must maintain net capital of not less than 2 percent
of aggregate debit items, as defined, arising from customer transactions and
would be restricted from expanding its business or paying cash dividends or
advancing loans to affiliates if its net capital were less than 5 percent of
such items. These rules also require A.G. Edwards & Sons, Inc., to notify and
sometimes obtain approval of the SEC and other regulatory organizations for
substantial withdrawals of capital and loans to affiliates. At February 28,
1998, the subsidiary's net capital of $984,524 was 44 percent of aggregate debit
items and $940,029 in excess of the minimum required.
Certain other subsidiaries are also subject to minimum capital requirements
that may restrict the payment of cash dividends and advances to A.G. Edwards,
Inc. The only restriction with regard to the payment of cash dividends by A.G.
Edwards, Inc., is its ability to obtain cash dividends and advances from its
subsidiaries, if needed.
30
<PAGE>
6. INCOME TAXES
The provisions for income taxes consist of:
1998 1997 1996
Current:
Federal $154,428 $124,871 $ 99,934
State and local 27,946 24,973 18,862
182,374 149,844 118,796
Deferred (13,874) (13,944) (13,096)
$168,500 $135,900 $105,700
Deferred income taxes reflect temporary differences in the bases of the
Company's assets and liabilities for income tax purposes and for financial
reporting purposes, using current tax rates. These temporary differences result
in taxable or deductible amounts in future years.
Deferred tax assets totaled $86,607 at February 28, 1998, and $73,337 at
February 28, 1997, and consisted primarily of employee benefits that are not
currently deductible. The Company expects to fully realize these deferred tax
assets, given the Company's historical levels of earnings and related taxes
paid; accordingly, no valuation allowance has been established. Deferred tax
liabilities totaled $16,175 at February 28, 1998, and $16,779 at February 28,
1997, and consisted primarily of accelerated depreciation deductions.
The Company's effective tax rate was 39 percent in 1998 and 38 percent in
1997 and 1996, which differed from the federal statutory rate of 35 percent.
State and local taxes, net of federal benefit, increased the effective rate by 4
percent in 1998, 1997 and 1996. No other single item had a material impact on
the difference in the rates.
7. STOCKHOLDERS' EQUITY
Earnings per Share
Effective February 28, 1998, the Company adopted SFAS No. 128, "Earnings Per
Share" (EPS). Under SFAS No. 128, basic and diluted EPS replace primary and
fully diluted EPS. Basic EPS is calculated by dividing earnings available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS is similar to basic EPS but adjusts for the
effect of potential common shares. EPS information for prior periods has been
restated to conform with SFAS No. 128. The following table presents the
computations of basic and diluted EPS.
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net earnings available to common stockholders $269,297 $219,057 $170,582
(shares in thousands)
Weighted average shares outstanding 95,950 95,483 94,621
Effect of dilutive common shares:
Restricted shares 386 557 469
Stock purchase plan 392 305 382
Stock option plan 1,323 1,471 1,171
Dilutive common shares 2,101 2,333 2,022
Total weighted average diluted shares 98,051 97,816 96,643
Basic EPS $ 2.81 $ 2.29 $ 1.80
Diluted EPS $ 2.75 $ 2.24 $ 1.77
</TABLE>
Stock Repurchase Program
The Company's stock repurchase program, which began in May 1996, authorizes the
Company to repurchase up to 33 million of its outstanding shares over a 51/2
year period. This program superseded an existing stock repurchase program. The
Company purchased 3,438,000 shares with an aggregate cost of $106,006 in 1998,
3,433,500 shares at a cost of $64,805 in 1997 and 750,000 shares at a cost of
$12,511 in 1996. Repurchased shares are added to treasury stock to be used for
employee stock plans and to partially offset the past effect of these plans.
Stockholders' Rights Plan
The Company's Stockholders' Rights Plan, as amended, provides for the
distribution of one Common Stock Purchase Right for each outstanding share of
the Company's common stock. The rights cannot be exercised or traded apart from
the common stock until, without the prior consent of the Company, a third party
either acquires 20 percent or more of the Company's outstanding common stock or
commences a tender or exchange offer that would result in the third party
acquiring 20 percent or more of the outstanding common stock. Each right, upon
becoming exercisable, entitles the registered holder to purchase one share of
common stock for $60 from the Company. If a person actually acquires 20 percent
or more of the Company's common stock without the Board of Directors' consent,
then each right will entitle its holder, other than the acquiring company, to
purchase for $60 the number of shares of the Company's common stock (or in the
31
<PAGE>
event of a merger or other business combination, the number of shares of the
acquirer's stock) which has a market value of $120. The rights, which are
redeemable by the Company at a price of $0.00256 each prior to a person's
acquiring 20 percent or more of the Company's common stock, are subject to
adjustment to prevent dilution and expire June 22, 2005.
8. COMMITMENTS AND CONTINGENT LIABILITIES
The Company has long-term operating leases for office space and communications
equipment. Minimum rental commitments under all such noncancelable leases, some
of which contain escalation clauses and renewal options, at February 28, 1998,
are as follows:
Year ending February 28 (29),
1999 $ 45,900
2000 40,600
2001 36,500
2002 31,200
2003 25,100
Later years 59,100
$238,400
Rental expense under all operating leases and equipment maintenance
contracts was $45,893 in 1998, $39,598 in 1997 and $36,381 in 1996.
In the normal course of business, the Company enters into when-issued and
underwriting commitments and delayed-delivery transactions. Settlement of these
transactions at February 28, 1998, would not have had a material effect on the
consolidated financial statements.
At February 28, 1998 and 1997, the Company had $109,850 and $119,975,
respectively, of outstanding letters of credit, principally to satisfy margin
deposit requirements with a clearing corporation. Of this amount, $10,000 and
$15,000, respectively, were collateralized by customer-owned securities.
The Company is a defendant in a number of lawsuits, in some of which
plaintiffs claim substantial amounts, relating primarily to its securities and
commodities business. While results of litigation cannot be predicted with
certainty, management, after consultation with counsel, believes that resolution
of all such litigation will have no material adverse effect on the consolidated
financial statements of the Company.
9. FINANCIAL INSTRUMENTS
Off-Balance Sheet Risk and Concentration of Credit Risk
The Company records customer transactions on a settlement date basis, generally
three business days after trade date. The risk of loss on unsettled transactions
is identical to that of settled transactions and relates to customers' and other
counterparties' inability to fulfill their contracted obligations.
In the normal course of business, the Company also executes customer
transactions involving the sale of securities not yet purchased, the purchase
and sale of futures contracts, and the writing of option contracts on both
securities and futures. In the event customers or other counterparties such as
broker-dealers or clearing organizations fail to satisfy their obligations, the
Company may be required to purchase or sell financial instruments in order to
fulfill its obligations at prices that may differ from amounts recorded in the
balance sheet.
Customer financing and securities settlement activities generally require
the Company to pledge customer securities as collateral in support of various
financing sources. Additionally, customer securities may be pledged as
collateral to satisfy margin deposits at various clearing organizations. To the
extent these counterparties are unable to fulfill their contracted obligation to
return securities pledged, the Company is exposed to the risk of obtaining
securities at prevailing market prices to meet its customer obligations.
Securities sold but not yet purchased represent obligations of the Company
to deliver specified securities at contracted prices. Settlement of such
obligations may be at amounts greater than those recorded in the balance sheet.
A substantial portion of the Company's assets and obligations result from
transactions with customers and other counterparties who have provided financial
instruments as collateral. Volatile trading markets could impair the value of
such collateral and affect customers' and other counterparties' ability to
satisfy their obligations to the Company.
The Company manages its risk associated with the aforementioned
transactions through position and credit limits and the continuous monitoring of
collateral. Additional collateral is requested from customers and other
counterparties when appropriate.
Derivatives
The Company does not act as dealer, trader or end-user of complex derivatives
such as swaps, collars and caps. The Company provides advice and guidance on
complex derivative products to selected clients; however, this activity does not
involve the Company acquiring a position or commitment in these products. The
Company will occasionally hedge a portion of its debt inventory through the use
of financial futures contracts. These transactions are not material to the
Company's financial condition or results of operations.
Fair Value Considerations
Substantially all of the Company's financial instruments are carried at fair
value or amounts that approximate fair value. Customer receivables, primarily
consisting of floating rate loans collateralized by margin securities, are
charged interest at rates similar to other such loans made throughout the
industry. The Company's remaining financial instruments are generally short-term
in nature and liquidate at their carrying values.
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
A.G. Edwards, Inc.:
We have audited the accompanying consolidated balance sheets of A.G. Edwards,
Inc. and subsidiaries as of February 28, 1998 and 1997, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended February 28, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of
A.G. Edwards, Inc. and subsidiaries as of February 28, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended February 28, 1998, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
April 23, 1998
St. Louis, Missouri
33
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL INFORMATION
(Unaudited)
Cash Stock Price Revenues Earnings Net Earnings
Dividends Trading Range (in millions) Before Tax Earnings per Share
per Share High-Low (in millions) (in millions) Basic Diluted
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1997
By Quarter
First $0.10 2/3 17 1/2 - 15 $428.5 $ 92.0 $56.4 $0.59 $0.58
Second $0.10 2/3 19 11/16 - 17 $407.1 $ 85.0 $52.2 $0.55 $0.54
Third $0.10 2/3 21 1/4 - 18 1/4 $404.5 $ 81.0 $51.0 $0.53 $0.52
Fourth $0.12 27 1/2 - 20 3/16 $456.4 $ 97.0 $59.5 $0.62 $0.60
Fiscal 1998
By Quarter
First $0.12 25 13/16 - 20 1/2 $439.3 $ 88.9 $54.5 $0.57 $0.56
Second $0.13 29 1/8 - 23 15/16 $509.8 $112.7 $69.2 $0.72 $0.71
Third $0.13 39 - 26 9/16 $527.3 $118.0 $72.4 $0.76 $0.73
Fourth $0.13 43 - 34 3/8 $527.7 $118.2 $73.2 $0.76 $0.75
<FN>
Per share data have been restated for stock splits and stock dividends.
</TABLE>
43
<PAGE>
STOCKHOLDER INFORMATION
Annual Meeting
The 1998 Annual Meeting of Stockholders will be held at the
company's headquarters, One North Jefferson, St. Louis, Missouri, on Thursday,
June 18, 1998, at 10 a.m. The Notice of Annual Meeting, Proxy Statement and
Proxy Voting Card are mailed in May to each stockholder. The Proxy Statement
describes the items of business to be voted on at the Annual Meeting and
provides information on the Board's nominees for director and their principal
affiliations with other organizations, as well as other information about the
company.
Quarterly Reports
Mailed in June, September and December, the quarterly reports contain a
chairman's letter, a balance sheet and a summary of earnings.
Dividend Payment Dates
The next four anticipated dividend payment dates are July 1 and October 1, 1998,
and January 4 and April 1, 1999.
Form 10-K
The Form 10-K Annual Report filed with the Securities
and Exchange Commission, which provides further details on A.G. EdwardsO
business, is available at no charge from the:
Secretary, A.G. Edwards, Inc.
One North Jefferson
St. Louis, Missouri 63103
Stock Exchange Listing
A.G. Edwards, Inc., stock is traded on the New York Stock Exchange. (The stock
symbol is AGE.) The approximate number of stockholders on February 28, 1998, was
24,400.
Registrar/Transfer Agent
The Bank of New York
Shareholder Relations Department-11E
P.O. Box 11258
Church Street Station
New York, New York 10286-1002
(800) 524-4458
Account Protection Package
The securities held by A.G. Edwards & Sons, Inc., for client accounts are
protected up to $500,000, including up to $100,000 for cash claims, by the
Securities Investor Protection Corporation (SIPC). In addition to the SIPC
coverage, securities held in client
accounts are provided additional protection up to the full value
of the account (as determined by SIPC) by a commercial
insurance company.
Exchange Memberships
A.G. Edwards companies are members of all major stock and
commodity exchanges, including the American, Boston,
Chicago, New York, Pacific and Philadelphia stock exchanges;
the Chicago Board Options Exchange; the Chicago Board of Trade;
the Chicago Mercantile Exchange; the New York Mercantile Exchange; and other
commodity exchanges. A.G. Edwards
companies are also members of the National Futures Association and the National
Association of Securities Dealers.
44
EXHIBIT 21
A.G. EDWARDS, INC.
REGISTRANT'S SUBSIDIARIES
The following listing includes the registrant's directly-owned subsidiaries
and indirectly-owned subsidiaries (certain subsidiaries which are not
significant are omitted from the listing), all of which are included in the
consolidated financial statements:
State of
Incorporation/
Name of Company Organization Subsidiary of
A.G. Edwards & Sons, Inc. (Edwards) Delaware Registrant
The Ceres Investment Company Missouri Edwards
Indianapolis Historic Partners Indiana Edwards
AGE Commodity Clearing Corp. Delaware Registrant
A.G. Edwards Life Insurance Company Missouri Registrant
Edwards Development Corporation Missouri Registrant
A.G. Edwards Trust Company (Missouri Trust) Missouri Registrant
A.G. Edwards Asset Performance Monitor, Inc. Missouri Missouri Trust
A.G. Edwards Trust Company New Jersey Registrant
A.G. Edwards Trust Company Texas Registrant
A.G. Edwards Trust Company Florida Registrant
A.G.E. Properties, Inc. (Properties) Missouri Registrant
A.G.E. Realty Corp. Missouri Properties
A.G.E. Redevelopment Corporation Missouri Properties
GULL-AGE Capital Group, Inc. Delaware Registrant
AGE Investments, Inc. Delaware Registrant
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
(File Nos. 33-61949, 33-52786, 33-36609 and 33-23837) of the A.G. Edwards,
Inc. 1988 Incentive Stock Plan on Form S-8 of our report dated April 23,
1998, appearing in and/or incorporated by reference in the Annual Report on
Form 10-K of A.G. Edwards, Inc. for the year ended February 28, 1998.
/s/ Deloitte & Touche LLP
May 27, 1998
St. Louis, Missouri
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1000
<S> <C>
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<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> FEB-28-1998
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<TABLE> <S> <C>
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<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
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<FISCAL-YEAR-END> FEB-28-1997 FEB-29-1996 FEB-28-1997 FEB-28-1997
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42,400
<RECEIVABLES> 1,691,989 1,441,984 1,598,904 1,608,398
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<SECURITIES-RESALE> 200,000 92,013 121,954 45,000
154,170
<SECURITIES-BORROWED> 1,392,864 613,266 628,622 510,878
914,582
<INSTRUMENTS-OWNED> 163,967 195,792 166,383 155,230
146,637
<PP&E> 189,795 178,556 178,611 178,984
182,588
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<SECURITIES-LOANED> 1,458,426 660,489 687,741 571,093
975,089
<INSTRUMENTS-SOLD> 17,670 21,871 29,944 33,588
35,454
<LONG-TERM> 0 0 0 0
0
0 0 0 0
0
0 0 0 0
0
<COMMON> 64,313 64,313 64,313 64,313
64,313
<OTHER-SE> 1,196,990 1,024,371 1,064,282 1,080,838
1,134,746
<TOTAL-LIABILITY-AND-EQUITY> 4,244,340 3,102,085 3,044,422 2,837,971
3,504,151
<TRADING-REVENUE> 213,007 206,367 53,486 107,376
159,576
<INTEREST-DIVIDENDS> 147,835 134,342 35,026 70,891
108,061
<COMMISSIONS> 928,793 806,076 246,762 454,388
672,336
<INVESTMENT-BANKING-REVENUES> 156,159 104,999 34,121 81,809
117,833
<FEE-REVENUE> 193,263 151,088 44,430 91,276
139,183
<INTEREST-EXPENSE> 2,065 3,153 718 1,205
1,640
<COMPENSATION> 1,080,931 929,755 275,476 533,887
791,445
<INCOME-PRETAX> 354,957 276,282 91,962 176,932
257,942
<INCOME-PRE-EXTRAORDINARY> 354,957 276,282 91,962 176,932
257,942
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 219,057 170,582 56,442 108,662
159,682
<EPS-PRIMARY> 2.29 1.80 .59 1.14
1.67
<EPS-DILUTED> 2.24 1.77 .58 1.12
1.64
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
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<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> FEB-28-1998 FEB-28-1998 FEB-28-1998
<PERIOD-END> MAY-31-1997 AUG-31-1997 NOV-30-1997
<CASH> 70,998 58,577 57,115
<RECEIVABLES> 1,747,650 1,927,075 2,195,282
<SECURITIES-RESALE> 115,000 224,362 62,363
<SECURITIES-BORROWED> 977,296 910,066 818,528
<INSTRUMENTS-OWNED> 219,153 165,534 192,069
<PP&E> 196,953 202,789 207,389
<TOTAL-ASSETS> 3,628,568 3,802,346 3,746,013
<SHORT-TERM> 0 0 0
<PAYABLES> 1,155,076 1,410,076 1,343,164
<REPOS-SOLD> 0 9,363 9,363
<SECURITIES-LOANED> 1,083,535 944,032 887,395
<INSTRUMENTS-SOLD> 21,820 32,221 31,278
<LONG-TERM> 0 0 0
0 0 0
0 0 0
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<OTHER-SE> 1,233,260 1,236,930 1,308,262
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<TRADING-REVENUE> 54,602 107,438 159,805
<INTEREST-DIVIDENDS> 40,843 84,357 130,335
<COMMISSIONS> 237,633 530,638 826,988
<INVESTMENT-BANKING-REVENUES> 36,628 78,880 128,686
<FEE-REVENUE> 55,561 117,312 185,285
<INTEREST-EXPENSE> 546 0 0
<COMPENSATION> 283,456 609,868 944,620
<INCOME-PRETAX> 88,871 201,616 319,647
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