SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended November 30, 1997 Commission file number 1-8527
A.G. EDWARDS, INC.
State of Incorporation: DELAWARE I.R.S. Employer Identification No:
43-1288229
ONE NORTH JEFFERSON AVENUE
ST. LOUIS, MISSOURI 63103
Registrant's telephone number, including area code: (314) 955-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At December 31, 1997, there were 95,763,608 shares of A.G. Edwards, Inc. common
stock, par value $1, issued and outstanding.
A.G. EDWARDS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Consolidated balance sheets 1
Consolidated statements of earnings 2
Consolidated statements of
stockholders' equity 3
Consolidated statements of cash flows 4
Notes to consolidated financial statements 5
Management's financial discussion 6-7
PART II. OTHER INFORMATION 7
SIGNATURES 8
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<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited) November 30, February 28,
1997 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 57,115 $ 62,799
Cash and government securities, segregated under
federal and other regulations 61,718 400,991
Securities purchased under agreements to resell 62,363 200,000
Securities borrowed 818,528 1,392,864
Receivables:
Customers, less allowance for doubtful accounts
of $3,680 and $3,550 2,183,271 1,677,354
Brokers, dealers and clearing organizations 12,011 14,635
Securities inventory, at fair value:
State and municipal 109,999 98,516
Government and agencies 46,032 39,666
Corporate 36,038 25,785
Property and equipment, at cost, net of accumulated depreciation
and amortization of $223,012 and $196,414 207,389 189,795
Deferred income taxes 63,032 56,558
Other assets 88,517 85,377
$ 3,746,013 $ 4,244,340
LIABILITIES AND STOCKHOLDERS' EQUITY
Checks payable $ 155,566 $ 174,736
Securities sold under agreements to repurchase 9,363
Securities loaned 887,395 1,458,426
Payables:
Customers 699,797 816,668
Brokers, dealers and clearing organizations 57,261 47,842
Securities sold but not yet purchased, at fair value 31,278 17,670
Employee compensation and related taxes 430,540 414,177
Income taxes 13,836 13,536
Other liabilities 56,252 39,982
Total Liabilities 2,341,288 2,983,037
Stockholders' Equity:
Preferred stock, $25 par value:
Authorized, 4,000,000 shares, none issued
Common stock, $1 par value:
Authorized, 250,000,000 shares
Issued 96,463,114 and 64,312,658 shares 96,463 64,313
Additional paid-in capital 187,938 229,235
Retained earnings 1,135,893 976,011
1,420,294 1,269,559
Less - Treasury stock, at cost (456,618 and 234,921 shares) 15,569 8,256
Total Stockholders' Equity 1,404,725 1,261,303
<FN> $ 3,746,013 $ 4,244,340
See Notes to Consolidated Financial Statements.
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<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 296,350 $ 217,948 $ 826,988 $ 672,336
Principal transactions 52,367 52,200 159,805 159,576
Investment banking 49,806 36,024 128,686 117,833
Asset management and service fees 80,778 59,130 223,904 175,312
Interest 45,978 37,170 130,335 108,061
Other 2,064 2,073 6,805 6,966
527,343 404,545 1,476,523 1,240,084
EXPENSES:
Compensation and benefits 334,752 257,558 944,620 791,445
Communications 24,563 21,294 72,555 63,239
Occupancy and equipment 24,535 22,408 70,651 63,213
Floor brokerage and clearance 5,143 4,205 14,988 13,417
Other operating expenses 20,319 18,070 54,062 50,828
409,312 323,535 1,156,876 982,142
EARNINGS BEFORE INCOME TAXES 118,031 81,010 319,647 257,942
INCOME TAXES 45,640 29,990 123,470 98,260
NET EARNINGS $ 72,391 $ 51,020 $ 196,177 $ 159,682
Earnings per share $ 0.73 $ 0.52 $ 1.99 $ 1.64
Dividends per share $ 0.13 $ 0.11 $ 0.38 $ 0.32
Average common and common
equivalent shares outstanding 99,246 97,918 98,741 97,562
<FN>
See Notes to Consolidated Financial Statements.
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<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED NOVEMBER 30, 1996 AND 1997
(In thousands, except per share amounts)
(Unaudited)
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C>
BALANCES, March 1, 1996 $ 64,313 $ 232,058 $ 798,805 $ (6,492) $ 1,088,684
Net earnings 159,682 159,682
Cash dividends -
$0.32 per share (30,410) (30,410)
Treasury stock acquired (53,546) (53,546)
Stock issued:
Employee stock
purchase/option plans (3,484) 37,835 34,351
Restricted stock 618 (320) 298
BALANCES, November 30, 1996 $ 64,313 $ 229,192 $ 928,077 $ (22,523) $ 1,199,059
BALANCES, March 1, 1997 $ 64,313 $ 229,235 $ 976,011 $ (8,256) $ 1,261,303
Net earnings 196,177 196,177
Cash dividends -
$0.38 per share (36,295) (36,295)
Treasury stock acquired (71,153) (71,153)
Stock issued:
Employee stock
purchase/option plans (13,397) 64,756 51,359
Restricted stock 4,411 (916) 3,495
Stock Split - 3 for 2 32,150 (32,150)
Cash paid for fractional shares (161) (161)
BALANCES, November 30, 1997 $ 96,463 $ 187,938 $ 1,135,893 $ (15,569) $ 1,404,725
<FN>
See Notes to Consolidated Financial Statements.
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<CAPTION>
A.G. EDWARDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended November 30,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 196,177 $ 159,682
Noncash items included in earnings 47,381 36,185
Decrease in segregated cash and government securities 339,273 107,369
Net change in securities borrowed and loaned 3,305 13,284
Increase (decrease) in net payable to brokers, dealers
and clearing organizations 12,043 (18,549)
Increase in net receivable from customers (622,788) (228,172)
(Increase) decrease in net securities inventory (14,494) 62,738
Net change in other assets and liabilities 5,350 (7,387)
Net cash (used in) provided by operating activities (33,753) 125,150
Cash Flows from Investing Activities:
Securities purchased under agreements to resell 128,274 (62,157)
Capital expenditures and other investments (48,720) (24,160)
Net cash provided by (used in) investing activities 79,554 (86,317)
Cash Flows from Financing Activities:
Employee stock transactions 56,124 34,936
Cash paid for fractional shares (161)
Cash dividends (36,295) (30,410)
Purchase of treasury stock (71,153) (53,546)
Net cash used in financing activities (51,485) (49,020)
Net Decrease in Cash and Cash Equivalents (5,684) (10,187)
Cash and Cash Equivalents at March 1 62,799 52,587
Cash and Cash Equivalents at November 30 $ 57,115 $ 42,400
<FN>
Income tax payments totaled $119,100 and $111,597 during the nine month periods
ended November 30, 1997, and 1996, respectively.
Interest payments totaled $1,224 and $2,120 during the nine month periods ended
November 30, 1997, and 1996, respectively.
See Notes to Consolidated Financial Statements.
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A.G. EDWARDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 1997
(Dollars in thousands, except per share amounts)
(Unaudited)
FINANCIAL STATEMENTS:
The consolidated financial statements include the accounts of A.G. Edwards, Inc.
and its wholly owned subsidiaries (collectively referred to as the "Company"),
including its principal subsidiary, A.G. Edwards & Sons, Inc. ("Edwards"), and
have been prepared in conformity with generally accepted accounting principles.
These financial statements should be read in conjunction with the Company's
annual report for the year ended February 28, 1997. All adjustments that, in
the opinion of management, are necessary for a fair presentation of the results
of operations for the interim periods have been reflected. All such adjustments
consist of normal recurring accruals unless otherwise disclosed in these interim
financial statements. The results of operations for the nine months ended
November 30, 1997, are not necessarily indicative of the results for the year
ending February 28, 1998. Where appropriate, prior year's financial information
has been reclassified to conform with the current year presentation.
COMMON STOCK:
Options to purchase 1,875,000 shares of common stock granted under the Employee
Stock Purchase Plan are exercisable October 1, 1998, at 85% of market price
based on dates specified in the plan. Employees purchased 1,871,400 shares at
$20.64 per share in October 1997. Treasury shares were utilized for these
transactions.
Where appropriate, per share amounts and share data have been restated to
reflect a three-for-two stock split declared in August 1997, effected in the
form of a stock dividend.
NET CAPITAL REQUIREMENTS:
Edwards is subject to the uniform net capital rule administered by the
Securities and Exchange Commission ("SEC"). This rule requires Edwards to
maintain a minimum net capital, as defined, and to notify, and sometimes obtain
the approval of, the SEC and other regulatory organizations for substantial
withdrawals of capital and loans to affiliates. As of November 30, 1997,
Edwards' net capital of $979,907 was $937,071 in excess of the minimum required.
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A.G. EDWARDS, INC. AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION
NINE MONTHS ENDED NOVEMBER 30, 1997 COMPARED TO
NINE MONTHS ENDED NOVEMBER 30, 1996
Results of Operations
The nine months ended November 30, 1997 saw a continuation of the high level of
retail investor activity of the last two fiscal years coupled with increased
volatility, primarily in late October, in the equity and debt markets this year.
The NYSE and Nasdaq overall trading volumes increased 27% and 18%, respectively,
over the prior year as reflected by a 23% increase in the Company's total
customer trades. The number and size of customer trades and the product mix
generally affect the level of revenues. The number of branches and brokers
increased to 590 and 6,207, which represent increases of 5% and 4%,
respectively, compared with the same period last year.
Total revenues increased $236 million (19%) to $1.48 billion from $1.24 billion
last year. Operating expenses were $1.16 billion, an increase of $175 million
(18%). Net earnings were $196 million, an increase of $36 million (23%),
resulting in a rise in net profit margins to 13.3% this year from 12.9% in 1996.
Total commission revenue increased $155 million (23%) reflecting increased
trading volume and, to a lesser extent, expansion of the Company's distribution
system. Equity related commissions rose $108 million (26%) while mutual fund
and insurance sales increased $29 million (18%) and $17 million (21%),
respectively. Client demand for equities, mutual funds and variable annuities
continued to rise due to the continuation of the relatively strong equity market
conditions and increased volatility reflecting the higher trading volumes and
the 14% rise in the Dow Jones Industrial Average during the first nine months of
this fiscal year.
Investment banking revenue increased $11 million (9%). Underwriting fees and
concessions rose $20 million (23%) as a result of increased customer demand for
unit trusts primarily caused by slightly higher interest rates coupled with
favorable market conditions for debt security instruments. This was partially
offset by a $9 million (27%) decline in management fees primarily due to the
participation in two large transactions last year.
Asset management and service fees increased $49 million (28%). Fees from third-
party mutual funds rose $29 million (27%) reflecting strong mutual fund sales as
well as higher market valuations of existing assets. Fees for administration of
client assets under third-party management, as well as the Company's management
services, increased $17 million (53%) as a result of a 56% rise in the average
number of accounts while average assets in these programs grew 49%.
Interest revenue increased $22 million (21%). Interest revenue from margin
accounts rose $19 million (22%) due to a 19% rise in average margin debits
coupled with slightly higher interest rates. Interest revenue from short-term
investments increased $3 million (25%) caused by a 19% rise in average short-
term investments as well as higher interest rates.
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Compensation and benefits increased $153 million (19%). Commission expense
increased due to the rise in commissionable revenue. General and administrative
salaries and related benefits increased primarily because of general increases
and higher employment. Incentive related compensation rose primarily as a
result of higher earnings.
Communication expense increased $9 million (15%) and occupancy and equipment
expenses increased $7 million (12%) primarily due to branch and home office
expansion.
Liquidity and Capital Resources
No material changes have taken place since February 28, 1997 regarding the
Company's liquidity, capital resources and overall financial condition.
THREE MONTHS ENDED NOVEMBER 30, 1997 COMPARED TO
THREE MONTHS ENDED NOVEMBER 30, 1996
Net earnings for the quarter ended November 30, 1997 were $72 million on
revenues of $527 million compared to net earnings of $51 million on revenues of
$405 million for the same period a year ago. The explanation of revenue and
expense fluctuations presented for the nine month period are generally
applicable to the three months of operations with the exception of the following
items. Equity related commissions rose $50 million (36%) while mutual fund and
insurance sales increased $19 million (40%) and $8 million (30%), respectively.
Client activity in equities, mutual funds and variable annuities was extremely
heavy in the third quarter this year due to the volatile market and
unprecedented trading volumes in October. Investment banking revenue rose $14
million (38%) due to the continued demand for unit trusts coupled with an
increase in activity in initial public offerings.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
There have been no material changes in the legal proceedings previously
reported in the Company's Annual Report on Form 10-K for the year ended
February 28, 1997.
Item 6: Exhibits and Reports on 8-K
Exhibit 27 Financial Data Schedule. (This financial
data schedule is only required to be submitted with the
registrant's Quarterly Report on Form 10-Q as filed
electronically to the SEC's EDGAR database.)
Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
November 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
A.G. EDWARDS, INC.
(Registrant)
Date: January 14, 1998 /s/ Benjamin F. Edwards III
BENJAMIN F. EDWARDS, III
Principal Executive Officer
Date: January 14, 1998 /s/ Robert L. Proost
ROBERT L. PROOST
Principal Financial Officer
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<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> NOV-30-1997
<CASH> 57,115
<RECEIVABLES> 2,195,282
<SECURITIES-RESALE> 62,363
<SECURITIES-BORROWED> 818,528
<INSTRUMENTS-OWNED> 192,069
<PP&E> 207,389
<TOTAL-ASSETS> 3,746,013
<SHORT-TERM> 0
<PAYABLES> 1,343,164
<REPOS-SOLD> 9,363
<SECURITIES-LOANED> 887,395
<INSTRUMENTS-SOLD> 31,278
<LONG-TERM> 0
0
0
<COMMON> 96,463
<OTHER-SE> 1,308,262
<TOTAL-LIABILITY-AND-EQUITY> 3,746,013
<TRADING-REVENUE> 159,805
<INTEREST-DIVIDENDS> 130,335
<COMMISSIONS> 826,988
<INVESTMENT-BANKING-REVENUES> 128,686
<FEE-REVENUE> 185,285
<INTEREST-EXPENSE> 0
<COMPENSATION> 944,620
<INCOME-PRETAX> 319,647
<INCOME-PRE-EXTRAORDINARY> 319,647
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196,177
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.99
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