UNITED STATES 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 29, 2004
Commission file number 1-8527
State of Incorporation: DELAWARE I.R.S. Employer Identification No.:
43-1288229
One North Jefferson Avenue, St. Louis, Missouri 63103
Registrants telephone number, including area code: (314)
955-3000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS |
|
NAME OF EACH EXCHANGE 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
DOCUMENTS INCORPORATED BY REFERENCE
A.G. EDWARDS, INC.
TABLE OF CONTENTS
Page |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Part
I |
|||||||||||||
Item
1 |
Business |
37 | |||||||||||
Item
2 |
Properties |
7 | |||||||||||
Item
3 |
Legal Proceedings |
7 | |||||||||||
Item
4 |
Submission of Matters to a Vote of Security Holders |
89 | |||||||||||
Part
II |
|||||||||||||
Item
5 |
Market for Registrants Common Equity and Related Stockholder Matters |
10 | |||||||||||
Item
6 |
Selected Financial Data |
11 | |||||||||||
Item
7 |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
1221 | |||||||||||
Item
7A |
Quantitative and Qualitative Disclosures About Market Risk |
21 | |||||||||||
Item
8 |
Financial Statements and Supplementary Data |
2239 | |||||||||||
Item
9 |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
40 | |||||||||||
Item
9A |
Controls and Procedures |
4041 | |||||||||||
Part
III |
|||||||||||||
Item
10 |
Directors and Executive Officers of the Registrant |
41 | |||||||||||
Item
11 |
Executive Compensation |
41 | |||||||||||
Item
12 |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
42 | |||||||||||
Item
13 |
Certain Relationships and Related Transactions |
42 | |||||||||||
Item
14 |
Principal Accountant Fees and Services |
42 | |||||||||||
Part
IV |
|||||||||||||
Item
15 |
Exhibits, Financial Statement Schedules and Reports on Form 8-K |
4344 |
PART I
ITEM 1. BUSINESS.
(b) |
Financial Information About Industry Segments |
(c) |
Narrative Description of Business |
Commissions
3
Asset Management and Service Fees
Principal Transactions
4
Investment Banking
Margin Financing
Private Client Services
Investment Activities
Research
5
Competition
Regulation
6
the Public Reference Room by calling the SEC at 1-800-SEC-0330. This information may also be obtained from the SECs Website at www.sec.gov.
ITEM 2. PROPERTIES.
ITEM 3. LEGAL PROCEEDINGS.
(a) |
Litigation |
(b) |
Proceedings Terminated During the Fourth Quarter of the Fiscal Year Covered by This Report |
7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
EXECUTIVE OFFICERS OF THE COMPANY
Name |
Age |
Office and Title |
Year First Appointed Executive Officer of the Company |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Robert L.
Bagby |
60 | Chairman of the Board and Chief Executive Officer of the Company and Edwards since 2001. Vice Chairman of the Board, Executive Vice President
and Director of the Branch Division of Edwards prior to 2001. Employee of Edwards for 29 years. Director of Edwards since 1979. |
1991 | |||||||||||
Ronald J.
Kessler |
56 | Vice
Chairman of the Board of the Company and Edwards since 2001. Executive Vice President of Edwards. Director of the Operations Division. Employee of
Edwards for 36 years. Director of Edwards since 1989. |
1996 | |||||||||||
Mary V.
Atkin |
49 | Executive Vice President of Edwards since 2001. Director of Corporate Strategy since November 2003. President of A.G. Edwards Technology
Group, Inc. from 2001 to 2003. Director of A.G. Edwards Technology Group Inc. since 1999. Employee of Edwards for 26 years. Director of Edwards since
1993. |
1999 | |||||||||||
Donnis L.
Casey |
56 | Executive Vice President of Edwards. Director of the Staff Division of Edwards. Employee of Edwards for 37 years. Director of Edwards since
1993. |
1996 | |||||||||||
Charles J.
Galli |
63 | Senior Vice President of Edwards. Regional Manager. Employee of Edwards for 25 years. Director of Edwards since 1990. |
2001 | |||||||||||
Alfred E.
Goldman |
70 | Corporate Vice President, Director of Market Analysis of Edwards. Employee of Edwards for 44 years. Director of Edwards since
1967. |
1991 | |||||||||||
Richard F.
Grabish |
55 | Chairman and Chief Executive Officer of A.G. Edwards Trust Company since 2001. President of A.G. Edwards Trust Company from 1987 to 2001.
Senior Vice President of Edwards. Assistant Director of Sales and Marketing Division of Edwards. Employee of Edwards for 23 years. Director of Edwards
since 1988. |
2001 |
8
Name |
Age |
Office and Title |
Year First Appointed Executive Officer of the Company | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Douglas L.
Kelly |
55 | Vice
President, Secretary of the Company, Chief Financial Officer and Treasurer of the Company since 2001. Executive Vice President, Secretary, Director of
Law and Compliance of Edwards, Chief Financial Officer, Treasurer and Director of Administration of Edwards since 2001. Employee of Edwards for 10
years. Director of Edwards since 1994. |
1994 | |||||||||||
Thomas H.
Martin Jr. |
44 | Assistant Treasurer of the Company since 1999. Vice President of the Company since 2002. Controller of the Company and Edwards since 1999.
Vice President of Edwards. Employee of Edwards for 23 years. |
1999 | |||||||||||
Peter M.
Miller |
46 | Executive Vice President and Director of Sales and Marketing of Edwards since 2002. Regional Manager from 1995 to 2002. Employee of Edwards
for 15 years. Director of Edwards since 1997. |
2002 | |||||||||||
John C.
Parker |
44 | Executive Vice President of Edwards. Director and President of the A.G. Edwards Technology Group, Inc. since November 2003. Senior Vice
President of A.G. Edwards Technology Group, Inc. from 2001 to 2003. Employee of Edwards for 2 years. Employed as Vice President of Information Services
for Northwest Airlines from 1999 to 2001 and with Delta Airlines for 17 years in various positions. Director of Edwards since 2002. |
2003 | |||||||||||
Paul F.
Pautler |
58 | Executive Vice President and Director of Capital Markets of Edwards since 2000. Director of Corporate Finance of Edwards from 1999 to 2001.
Managing Director of Mergers and Acquisitions from 1997 to 1999. Employee of Edwards for 6 years. Director of Edwards since 2000. |
2000 | |||||||||||
Robert A.
Pietroburgo |
47 | Executive Vice President and Director of the Branch Division of Edwards since 2001. Regional Manager of Edwards from 2000 to 2001. Branch
Manager of Edwards prior to 2000. Employee of Edwards for 17 years. Director of Edwards since 2001. |
2001 | |||||||||||
Joseph G.
Porter |
43 | Assistant Treasurer of the Company. Vice President of the Company since 2002. Principal Accounting Officer of the Company and Edwards since
1999. Senior Vice President and Assistant Director of Administration of Edwards since 2000. Employee of Edwards for 21 years. Director of Edwards since
2001. |
1999 |
9
PART II
ITEM 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. |
Quarterly Financial Information
(Unaudited)
Earnings per Share |
|||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dividends Declared per Share |
Stock Price Trading Range High Low |
Net Revenues (in millions) |
Earnings Before Tax (in millions) |
Net Earnings (in millions) |
Diluted |
Basic |
|||||||||||||||||||||||||
Fiscal 2004
by Quarter |
|||||||||||||||||||||||||||||||
First |
$ | 0.16 | $33.00 $23.00 | $ | 552.1 | $43.3 | $27.9 | $ | 0.35 | $ | 0.35 | ||||||||||||||||||||
Second |
$ | 0.16 | $38.99 $32.51 | $ | 632.4 | $57.4 | $37.5 | $ | 0.46 | $ | 0.47 | ||||||||||||||||||||
Third |
$ | 0.16 | $41.80 $34.72 | $ | 622.5 | $60.8 | $39.7 | $ | 0.49 | $ | 0.49 | ||||||||||||||||||||
Fourth |
$ | 0.16 | $40.21 $33.74 | $ | 689.3 | $83.7 | $54.4 | $ | 0.67 | $ | 0.68 | ||||||||||||||||||||
Fiscal 2003
by Quarter |
|||||||||||||||||||||||||||||||
First |
$ | 0.16 | $47.75 $38.85 | $ | 598.2 | $61.0 | $39.1 | $ | 0.48 | $ | 0.48 | ||||||||||||||||||||
Second |
$ | 0.16 | $39.75 $28.80 | $ | 569.1 | $41.3 | $26.6 | $ | 0.33 | $ | 0.34 | ||||||||||||||||||||
Third |
$ | 0.16 | $38.20 $26.50 | $ | 513.0 | $36.3 | $32.0 | $ | 0.39 | $ | 0.40 | ||||||||||||||||||||
Fourth |
$ | 0.16 | $37.04 $25.50 | $ | 513.7 | $32.8 | $21.2 | $ | 0.26 | $ | 0.26 |
Annual Meeting
Dividend Payment Dates
Stock Exchange Listing
Registrar/Transfer Agent
The Bank of New York
Shareholder Relations
Department 11E
P.O. Box 11258
Church Street Station
New York, New York 10286-1258
(800) 524-4458
10
ITEM 6. | SELECTED FINANCIAL DATA. |
Consolidated Five-Year Summary
Year Ended |
February 29, 2004 |
February 28, 2003 |
February 28, 2002 |
February 28, 2001 |
February 29, 2000 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands, except per share amounts) | ||||||||||||||||||||||
Revenues |
||||||||||||||||||||||
Commissions: |
||||||||||||||||||||||
Listed
securities |
$ | 448,035 | $ | 387,483 | $ | 403,921 | $ | 482,136 | $ | 537,005 | ||||||||||||
Options |
23,669 | 23,485 | 28,453 | 55,883 | 62,708 | |||||||||||||||||
Over-the-counter securities |
115,425 | 70,864 | 111,065 | 295,921 | 331,992 | |||||||||||||||||
Mutual
funds |
260,518 | 201,567 | 214,339 | 293,307 | 312,833 | |||||||||||||||||
Commodities |
39,953 | 26,371 | 17,966 | 16,540 | 17,305 | |||||||||||||||||
Insurance |
205,622 | 185,249 | 174,281 | 184,762 | 164,583 | |||||||||||||||||
Total |
1,093,222 | 895,019 | 950,025 | 1,328,549 | 1,426,426 | |||||||||||||||||
Asset
management and service fees: |
||||||||||||||||||||||
Distribution
fees |
340,656 | 315,981 | 359,558 | 355,077 | 317,648 | |||||||||||||||||
Fee-based
accounts |
234,365 | 219,152 | 220,030 | 214,296 | 152,477 | |||||||||||||||||
Service
fees |
109,708 | 90,493 | 79,694 | 83,625 | 74,406 | |||||||||||||||||
Total |
684,729 | 625,626 | 659,282 | 652,998 | 544,531 | |||||||||||||||||
Principal
transactions: |
||||||||||||||||||||||
Equities |
79,662 | 58,436 | 73,553 | 114,363 | 90,202 | |||||||||||||||||
Debt
securities |
217,224 | 252,688 | 246,131 | 177,912 | 194,016 | |||||||||||||||||
Total |
296,886 | 311,124 | 319,684 | 292,275 | 284,218 | |||||||||||||||||
Investment
banking: |
||||||||||||||||||||||
Underwriting
fees and selling concessions |
240,094 | 184,220 | 186,839 | 144,725 | 190,236 | |||||||||||||||||
Management
fees |
81,767 | 66,960 | 69,590 | 28,572 | 35,483 | |||||||||||||||||
Total |
321,861 | 251,180 | 256,429 | 173,297 | 225,719 | |||||||||||||||||
Interest: |
||||||||||||||||||||||
Margin
account balances |
74,662 | 86,189 | 150,365 | 331,980 | 225,319 | |||||||||||||||||
Securities
owned and deposits |
21,130 | 19,838 | 21,603 | 28,419 | 23,269 | |||||||||||||||||
Total |
95,792 | 106,027 | 171,968 | 360,399 | 248,588 | |||||||||||||||||
Other |
6,384 | 10,239 | 6,592 | 31,630 | 89,525 | |||||||||||||||||
Total
Revenues |
2,498,874 | 2,199,215 | 2,363,980 | 2,839,148 | 2,819,007 | |||||||||||||||||
Interest
expense |
2,519 | 5,214 | 25,567 | 97,942 | 22,818 | |||||||||||||||||
Net
Revenues |
2,496,355 | 2,194,001 | 2,338,413 | 2,741,206 | 2,796,189 | |||||||||||||||||
Non-Interest Expenses |
||||||||||||||||||||||
Compensation
and benefits |
1,649,408 | 1,453,671 | 1,557,720 | 1,766,311 | 1,766,711 | |||||||||||||||||
Communication
and technology |
272,047 | 282,603 | 295,353 | 242,530 | 159,258 | |||||||||||||||||
Occupancy and
equipment |
137,617 | 134,149 | 133,240 | 126,594 | 105,297 | |||||||||||||||||
Marketing and
business development |
46,853 | 40,177 | 41,612 | 51,767 | 42,744 | |||||||||||||||||
Floor
brokerage and clearance |
22,495 | 22,464 | 21,912 | 22,957 | 21,667 | |||||||||||||||||
Other |
122,661 | 89,503 | 114,056 | 75,893 | 77,397 | |||||||||||||||||
Restructuring |
| | 82,462 | | | |||||||||||||||||
Total
Non-Interest Expenses |
2,251,081 | 2,022,567 | 2,246,355 | 2,286,052 | 2,173,074 | |||||||||||||||||
Earnings
Before Income Taxes |
245,274 | 171,434 | 92,058 | 455,154 | 623,115 | |||||||||||||||||
Income
Taxes |
85,789 | 52,606 | 20,557 | 167,677 | 240,194 | |||||||||||||||||
Net
Earnings |
$ | 159,485 | $ | 118,828 | $ | 71,501 | $ | 287,477 | $ | 382,921 | ||||||||||||
Per Share
Data: |
||||||||||||||||||||||
Diluted
Earnings |
$ | 1.97 | $ | 1.46 | $ | 0.88 | $ | 3.43 | $ | 4.08 | ||||||||||||
Basic
Earnings |
$ | 1.99 | $ | 1.48 | $ | 0.89 | $ | 3.50 | $ | 4.16 | ||||||||||||
Cash
Dividends |
$ | 0.64 | $ | 0.64 | $ | 0.64 | $ | 0.64 | $ | 0.61 | ||||||||||||
Book
Value |
$ | 22.08 | $ | 20.92 | $ | 20.42 | $ | 20.29 | $ | 19.69 | ||||||||||||
Other
Data: |
||||||||||||||||||||||
Total
Assets |
$ | 4,435,059 | $ | 3,980,094 | $ | 4,187,170 | $ | 4,859,984 | $ | 5,347,587 | ||||||||||||
Stockholders Equity |
$ | 1,778,319 | $ | 1,688,537 | $ | 1,647,796 | $ | 1,626,344 | $ | 1,717,122 | ||||||||||||
Cash
Dividends |
$ | 51,007 | $ | 51,034 | $ | 51,043 | $ | 51,962 | $ | 55,483 | ||||||||||||
Pre-tax
Return on Average Equity |
14.1 | % | 10.3 | % | 5.6 | % | 27.2 | % | 37.3 | % | ||||||||||||
Return on
Average Equity |
9.2 | % | 7.1 | % | 4.4 | % | 17.2 | % | 22.9 | % | ||||||||||||
Net Earnings
as a Percent of Net Revenues |
6.4 | % | 5.4 | % | 3.1 | % | 10.5 | % | 13.7 | % | ||||||||||||
Average
Common and Common Equivalent Shares Outstanding (Diluted) |
80,990 | 81,177 | 81,282 | 83,925 | 93,814 | |||||||||||||||||
Average
Common Shares Outstanding (Basic) |
80,031 | 80,133 | 80,013 | 82,096 | 92,140 |
11
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Introduction
Executive Summary
12
an increase in net earnings and earnings per share in 2003 compared to 2002. Net revenues increased 14 percent to $2.5 billion in 2004 after declining 6 percent to $2.2 billion in 2003. In 2004, the Companys net revenues from equity-based transactions increased $203 million (32 percent) while net revenues from fixed income-based transactions, primarily corporate and municipal debt, decreased $56 million (17 percent), reflecting an increased client interest in the rising equity markets and a shift away from fixed-income products due to comparably lower yields. Net earnings increased 34 percent ($41 million) to $159 million in 2004 after increasing 66 percent ($47 million) in 2003. Diluted earnings per share for the Company were $1.97 in 2004 versus $1.46 in 2003 and $0.88 in 2002. The Companys profit margin was 6.4 percent in 2004, 5.4 percent in 2003 and 3.1 percent in 2002. The results for 2002 included restructuring and other charges of $107 million, which decreased net earnings $70 million.
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Commissions |
44 | % | 41 | % | 41 | % | ||||||||
Asset management
and service fees |
27 | % | 29 | % | 28 | % | ||||||||
Principal
transactions |
12 | % | 14 | % | 14 | % | ||||||||
Investment
banking |
13 | % | 11 | % | 11 | % | ||||||||
Net
interest |
4 | % | 5 | % | 6 | % |
Results of Operations
Increase (Decrease) |
2004 vs 2003 |
2003 vs 2002 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues |
|||||||||||||||||||
Commissions |
$ | 198,203 | 22 | % | $ | (55,006 | ) | (6 | )% | ||||||||||
Asset
management and service fees |
59,103 | 9 | (33,656 | ) | (5 | ) | |||||||||||||
Principal
transactions |
(14,238 | ) | (5 | ) | (8,560 | ) | (3 | ) | |||||||||||
Investment
banking |
70,681 | 28 | (5,249 | ) | (2 | ) | |||||||||||||
Interest |
(10,235 | ) | (10 | ) | (65,941 | ) | (38 | ) | |||||||||||
Other |
(3,855 | ) | (38 | ) | 3,647 | 55 | |||||||||||||
Total
Revenues |
299,659 | 14 | (164,765 | ) | (7 | ) | |||||||||||||
Interest
expense |
(2,695 | ) | (52 | ) | (20,353 | ) | (80 | ) | |||||||||||
Net
Revenues |
$ | 302,354 | 14 | % | $ | (144,412 | ) | (6 | )% | ||||||||||
Non-Interest Expenses |
|||||||||||||||||||
Compensation
and benefits |
$ | 195,737 | 13 | % | $ | (104,049 | ) | (7 | )% | ||||||||||
Communication
and technology |
(10,556 | ) | (4 | ) | (12,750 | ) | (4 | ) | |||||||||||
Occupancy and
equipment |
3,468 | 3 | 909 | 1 | |||||||||||||||
Marketing and
business development |
6,676 | 17 | (1,435 | ) | (3 | ) | |||||||||||||
Floor
brokerage and clearance |
31 | 0 | 552 | 3 | |||||||||||||||
Other |
33,158 | 37 | (24,553 | ) | (22 | ) | |||||||||||||
Restructuring |
| | (82,462 | ) | (100 | ) | |||||||||||||
Total
Non-Interest Expenses |
$ | 228,514 | 11 | % | $ | (223,788 | ) | (10 | )% |
13
Commissions
Asset Management and Service Fees
Principal Transactions
14
while revenues from the sale of municipal and government securities increased $10 million (9 percent) and $7 million (15 percent), respectively. Corporate accounting scandals and market volatility related to concerns about the economy and the possibility of war led investors to the higher after-tax yields of municipal securities and increased safety of Treasury products.
Investment Banking
Net Interest Revenue
Non-Interest Expenses
15
Edwards, to conduct self-assessments to determine whether the firms had provided appropriate breakpoint discounts and report the results to the NASD. The NASD subsequently ordered 450 firms, including Edwards, to send letters to clients that purchased front-end sales load mutual funds between January 1, 1999, and November 3, 2003, notifying them that they might be entitled to a refund. These letters were mailed from December 2003 through February 2004. The Company established a reserve for estimated claims of $4.5 million for customers who purchased mutual funds during the purchase period. The charge for this reserve, net of decreases in related compensation expenses, is $2.6 million. (Please also refer to the section captioned Mutual Fund Regulatory Matters below).
Mutual Fund Regulatory Matters
16
Income Taxes
Liquidity and Capital Resources
Tabular Disclosure of Contractual Commitments
Contractual Obligations |
Payments due by period |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total |
2005 |
20062007 |
20082009 |
More than 5 years |
|||||||||||||||||||
Operating lease
obligations |
$ | 463,000 | $ | 98,100 | $ | 159,600 | $ | 110,000 | $ | 95,300 |
17
Critical Accounting Estimates
Valuation of Investments
Valuation of Stock Options
Software Development Costs
Allowance for Doubtful Accounts From Customers
18
Legal Reserves
Income Tax Accruals
Recent Accounting Pronouncements
19
Risk Management
General
Off-Balance Sheet Arrangements
Operational Risk
Legal Risk
Credit Risk
Market Risk
20
Forward-Looking Statements
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
21
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
Supplemental Data
A.G. Edwards, Inc.
Consolidated Balance Sheets
February 29, 2004 |
February 28, 2003 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands, except per share amounts) |
|||||||||||
Assets |
|||||||||||
Cash and cash
equivalents |
$ | 107,565 | $ | 97,552 | |||||||
Cash and
government securities, segregated under federal and other regulations |
373,726 | 103,714 | |||||||||
Securities
purchased under agreements to resell |
22,355 | 220,000 | |||||||||
Securities
borrowed |
106,034 | 77,130 | |||||||||
Receivables: |
|||||||||||
Customers,
less allowance for doubtful accounts of $45,593 and $44,508 |
2,351,136 | 2,038,807 | |||||||||
Brokers,
dealers and clearing organizations |
14,693 | 22,469 | |||||||||
Fees,
dividends and interest |
90,053 | 60,051 | |||||||||
Securities
inventory, at fair value: |
|||||||||||
State and
municipal |
292,741 | 316,172 | |||||||||
Government
and agencies |
30,806 | 50,134 | |||||||||
Corporate |
104,974 | 75,599 | |||||||||
Investments |
298,441 | 237,183 | |||||||||
Property and
equipment, at cost, net of accumulated depreciation and amortization of $639,756 and $579,225 |
498,706 | 526,387 | |||||||||
Deferred
income taxes |
94,191 | 93,775 | |||||||||
Other
assets |
49,638 | 61,121 | |||||||||
$ | 4,435,059 | $ | 3,980,094 | ||||||||
Liabilities and Stockholders Equity |
|||||||||||
Short-term
bank loans |
$ | 28,300 | $ | 40,000 | |||||||
Checks
payable |
257,566 | 236,525 | |||||||||
Securities
loaned |
231,438 | 227,356 | |||||||||
Payables: |
|||||||||||
Customers |
1,125,014 | 960,679 | |||||||||
Brokers,
dealers and clearing organizations |
153,451 | 134,911 | |||||||||
Securities
sold but not yet purchased, at fair value |
44,908 | 35,440 | |||||||||
Employee
compensation and related taxes |
440,764 | 346,292 | |||||||||
Deferred
compensation |
206,734 | 170,690 | |||||||||
Income
taxes |
13,588 | 15,222 | |||||||||
Other
liabilities |
154,977 | 124,442 | |||||||||
Total
Liabilities |
2,656,740 | 2,291,557 | |||||||||
Stockholders Equity: |
|||||||||||
Preferred
stock, $25 par value: |
|||||||||||
Authorized,
4,000,000 shares, none issued |
| | |||||||||
Common stock,
$1 par value: |
|||||||||||
Authorized,
550,000,000 shares: issued, 96,463,114 shares |
96,463 | 96,463 | |||||||||
Additional
paid-in capital |
292,699 | 289,028 | |||||||||
Retained
earnings |
2,029,562 | 1,943,325 | |||||||||
2,418,724 | 2,328,816 | ||||||||||
Less:
Treasury stock, at cost (15,936,194 and 15,737,245 shares) |
640,405 | 640,279 | |||||||||
Total
Stockholders Equity |
1,778,319 | 1,688,537 | |||||||||
$ | 4,435,059 | $ | 3,980,094 |
See Notes to Consolidated Financial Statements.
22
A.G. Edwards, Inc.
Consolidated Statements of Earnings
Year Ended |
February 29, 2004 |
February 28, 2003 |
February 28, 2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands, except per share amounts) |
|||||||||||||||
Revenues |
|||||||||||||||
Commissions |
$ | 1,093,222 | $ | 895,019 | $ | 950,025 | |||||||||
Asset
management and service fees |
684,729 | 625,626 | 659,282 | ||||||||||||
Principal
transactions |
296,886 | 311,124 | 319,684 | ||||||||||||
Investment
banking |
321,861 | 251,180 | 256,429 | ||||||||||||
Interest |
95,792 | 106,027 | 171,968 | ||||||||||||
Other |
6,384 | 10,239 | 6,592 | ||||||||||||
Total
Revenues |
2,498,874 | 2,199,215 | 2,363,980 | ||||||||||||
Interest
expense |
2,519 | 5,214 | 25,567 | ||||||||||||
Net
Revenues |
2,496,355 | 2,194,001 | 2,338,413 | ||||||||||||
Non-Interest Expenses |
|||||||||||||||
Compensation
and benefits |
1,649,408 | 1,453,671 | 1,557,720 | ||||||||||||
Communication
and technology |
272,047 | 282,603 | 295,353 | ||||||||||||
Occupancy and
equipment |
137,617 | 134,149 | 133,240 | ||||||||||||
Marketing and
business development |
46,853 | 40,177 | 41,612 | ||||||||||||
Floor
brokerage and clearance |
22,495 | 22,464 | 21,912 | ||||||||||||
Other |
122,661 | 89,503 | 114,056 | ||||||||||||
Restructuring |
| | 82,462 | ||||||||||||
Total
Non-Interest Expenses |
2,251,081 | 2,022,567 | 2,246,355 | ||||||||||||
Earnings
Before Income Taxes |
245,274 | 171,434 | 92,058 | ||||||||||||
Income
Taxes |
85,789 | 52,606 | 20,557 | ||||||||||||
Net
Earnings |
$ | 159,485 | $ | 118,828 | $ | 71,501 | |||||||||
Earnings
Per Share: |
|||||||||||||||
Diluted |
$ | 1.97 | $ | 1.46 | $ | 0.88 | |||||||||
Basic |
$ | 1.99 | $ | 1.48 | $ | 0.89 |
See Notes to Consolidated Financial Statements.
23
A.G. Edwards, Inc.
Consolidated Statements of Stockholders
Equity
(Three Years Ended February 29, 2004)
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Total Stockholders Equity |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands, except per share amounts) | ||||||||||||||||||||||
Balances,
March 1, 2001 |
$ | 96,463 | $ | 280,094 | $ | 1,875,379 | $ | (625,592 | ) | $ | 1,626,344 | |||||||||||
Net
earnings |
71,501 | 71,501 | ||||||||||||||||||||
Dividends
declared $0.64 per share |
(51,043 | ) | (51,043 | ) | ||||||||||||||||||
Treasury
stock acquired |
(85,137 | ) | (85,137 | ) | ||||||||||||||||||
Stock
issued: |
||||||||||||||||||||||
Employee
stock purchase/option plans |
908 | (3,648 | ) | 66,520 | 63,780 | |||||||||||||||||
Restricted
stock |
5,478 | 16,873 | 22,351 | |||||||||||||||||||
Balances,
February 28, 2002 |
96,463 | 286,480 | 1,892,189 | (627,336 | ) | 1,647,796 | ||||||||||||||||
Net
earnings |
118,828 | 118,828 | ||||||||||||||||||||
Dividends
declared $0.64 per share |
(51,034 | ) | (51,034 | ) | ||||||||||||||||||
Treasury
stock acquired |
(114,500 | ) | (114,500 | ) | ||||||||||||||||||
Stock
issued: |
||||||||||||||||||||||
Employee
stock purchase/option plans |
1,432 | (10,320 | ) | 75,396 | 66,508 | |||||||||||||||||
Restricted
stock |
1,116 | (6,338 | ) | 26,161 | 20,939 | |||||||||||||||||
Balances,
February 28, 2003 |
96,463 | 289,028 | 1,943,325 | (640,279 | ) | 1,688,537 | ||||||||||||||||
Net
earnings |
159,485 | 159,485 | ||||||||||||||||||||
Dividends
declared $0.64 per share |
(51,007 | ) | (51,007 | ) | ||||||||||||||||||
Treasury
stock acquired |
(105,455 | ) | (105,455 | ) | ||||||||||||||||||
Stock
issued: |
||||||||||||||||||||||
Employee
stock purchase/option plans |
3,883 | (22,241 | ) | 79,284 | 60,926 | |||||||||||||||||
Restricted
stock |
(212 | ) | 26,045 | 25,833 | ||||||||||||||||||
Balances,
February 29, 2004 |
$ | 96,463 | $ | 292,699 | $ | 2,029,562 | $ | (640,405 | ) | $ | 1,778,319 |
See Notes to Consolidated Financial Statements.
24
A.G. Edwards, Inc.
Consolidated Statements of Cash Flows
Year Ended |
February 29, 2004 |
February 28, 2003 |
February 28, 2002 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands) | ||||||||||||||
Cash Flows
From Operating Activities: |
||||||||||||||
Net
earnings |
$ | 159,485 | $ | 118,828 | $ | 71,501 | ||||||||
Noncash and
nonoperating items included in earnings: |
||||||||||||||
Depreciation
and amortization |
127,296 | 131,903 | 123,125 | |||||||||||
Expense of
restricted stock awards |
29,384 | 19,415 | 22,568 | |||||||||||
Deferred
income taxes |
(416 | ) | (315 | ) | (22,443 | ) | ||||||||
Loss on
investments, net |
598 | 9,193 | 5,625 | |||||||||||
Allowance for
doubtful accounts |
1,274 | 9,009 | 27,056 | |||||||||||
Restructuring
charge |
| | 52,395 | |||||||||||
(Increase)
decrease in operating assets: |
||||||||||||||
Cash and
government securities, segregated |
(270,012 | ) | (10,793 | ) | (14,466 | ) | ||||||||
Securities
purchased under agreements to resell |
197,645 | (175,177 | ) | (27,471 | ) | |||||||||
Securities
borrowed |
(28,904 | ) | (8,866 | ) | 59,064 | |||||||||
Receivable
from customers |
(313,603 | ) | 412,937 | 797,411 | ||||||||||
Receivable
from brokers, dealers and clearing organizations |
7,776 | 22,146 | (14,301 | ) | ||||||||||
Fees,
dividends and interest receivable |
(30,002 | ) | 15,953 | (5,070 | ) | |||||||||
Securities
inventory |
13,384 | (64,397 | ) | (84,192 | ) | |||||||||
Trading
investments, net |
(43,478 | ) | (20,739 | ) | 47,655 | |||||||||
Other
assets |
11,504 | 18,093 | (36,805 | ) | ||||||||||
Increase
(decrease) in operating liabilities: |
||||||||||||||
Checks
payable |
21,041 | (3,082 | ) | (12,951 | ) | |||||||||
Securities
sold under agreements to repurchase |
| (45,861 | ) | 45,861 | ||||||||||
Securities
loaned |
(19,824 | ) | (4,549 | ) | (98,699 | ) | ||||||||
Payable to
customers |
164,335 | (21,692 | ) | 83,280 | ||||||||||
Payable to
brokers, dealers and clearing organizations |
18,540 | (6,600 | ) | 18,427 | ||||||||||
Securities
sold but not yet purchased |
9,468 | 5,240 | (994 | ) | ||||||||||
Employee
compensation and related taxes |
94,472 | (45,895 | ) | (105,974 | ) | |||||||||
Deferred
compensation |
36,044 | (14,309 | ) | 9,404 | ||||||||||
Income
taxes |
(1,582 | ) | 9,409 | (40,858 | ) | |||||||||
Other
liabilities |
30,535 | (3,483 | ) | 26,842 | ||||||||||
Net cash from
operating activities |
214,960 | 346,368 | 925,990 | |||||||||||
Cash Flows
From Investing Activities: |
||||||||||||||
Purchase of
property and equipment, net |
(99,615 | ) | (127,007 | ) | (190,808 | ) | ||||||||
Purchase of
other investments |
(27,004 | ) | (18,116 | ) | (72,926 | ) | ||||||||
Proceeds from
sale or maturity of other investments |
8,626 | 10,433 | 19,695 | |||||||||||
Net cash from
investing activities |
(117,993 | ) | (134,690 | ) | (244,039 | ) | ||||||||
Cash Flows
From Financing Activities: |
||||||||||||||
Short-term
bank loans |
(11,700 | ) | (67,300 | ) | (212,500 | ) | ||||||||
Securities
loaned |
23,906 | (42,630 | ) | (407,432 | ) | |||||||||
Employee
stock transactions |
57,323 | 60,967 | 58,428 | |||||||||||
Purchase of
treasury stock |
(105,455 | ) | (114,500 | ) | (85,137 | ) | ||||||||
Cash
dividends paid |
(51,028 | ) | (51,088 | ) | (50,889 | ) | ||||||||
Net cash from
financing activities |
(86,954 | ) | (214,551 | ) | (697,530 | ) | ||||||||
Net Increase
(Decrease) in Cash and Cash Equivalents |
10,013 | (2,873 | ) | (15,579 | ) | |||||||||
Cash and Cash
Equivalents, at Beginning of Year |
97,552 | 100,425 | 116,004 | |||||||||||
Cash and Cash
Equivalents, at End of Year |
$ | 107,565 | $ | 97,552 | $ | 100,425 |
See Notes to Consolidated Financial Statements.
25
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Three
years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
Business Description
Basis of Financial Information
Use of Estimates
Cash and Cash Equivalents
Securities Transactions
26
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
Investment Banking
Allowance for Doubtful Accounts
Fair Value
Investments
Property and Equipment
27
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
the improvement, generally five to 10 years. Equipment, primarily consisting of office equipment and building components, is depreciated over estimated useful lives of three to 15 years using accelerated methods of depreciation. Computer hardware, including servers and mainframes, and satellite equipment are depreciated over estimated useful lives of three to five years using the straight-line method. Internally developed applications and purchased software meeting the criteria for capitalization are amortized over their estimated useful lives, generally not exceeding three years, using the straight-line method. The Company periodically evaluates and adjusts the carrying value of its property and equipment when impairment exists.
Stock-Based Compensation
Income Taxes
Comprehensive Earnings
Recent Accounting Pronouncements
28
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
2. Employee Stock Plans
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net earnings,
as reported |
$ | 159,485 | $ | 118,828 | $ | 71,501 | ||||||||
Add back
Incentive Stock Plans included in Earnings |
19,560 | 14,756 | 19,076 | |||||||||||
Deduct effect
of stock option based employee compensation, net of tax effects: |
||||||||||||||
Employee
Stock Purchase Plan |
(14,570 | ) | (16,074 | ) | (23,271 | ) | ||||||||
Incentive
Stock Plan |
(25,022 | ) | (18,889 | ) | (24,286 | ) | ||||||||
Pro forma net
earnings |
$ | 139,453 | $ | 98,621 | $ | 43,020 | ||||||||
Earnings per
share, as reported: |
||||||||||||||
Diluted |
$ | 1.97 | $ | 1.46 | $ | 0.88 | ||||||||
Basic |
$ | 1.99 | $ | 1.48 | $ | 0.89 | ||||||||
Pro forma
earnings per share: |
||||||||||||||
Diluted |
$ | 1.72 | $ | 1.21 | $ | 0.53 | ||||||||
Basic |
$ | 1.74 | $ | 1.23 | $ | 0.54 | ||||||||
Pro forma net
earnings |
$ | 139,453 | $ | 98,621 | $ | 43,020 | ||||||||
Decrease to
incentive compensation funding formulas* |
5,117 | 5,212 | 8,148 | |||||||||||
Pro forma net
earnings after reduction for incentive compensation plans |
$ | 144,570 | $ | 103,833 | $ | 51,168 | ||||||||
Diluted |
$ | 1.79 | $ | 1.28 | $ | 0.63 | ||||||||
Basic |
$ | 1.81 | $ | 1.30 | $ | 0.64 |
29
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
2. Employee Stock Plans (Continued)
Employee Stock Purchase Plan
Restricted Stock and Stock Options
Shares (000) |
2004 Weighted Average Exercise Price |
Shares (000) |
2003 Weighted Average Exercise Price |
Shares (000) |
2002 Weighted Average Exercise Price |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding,
beginning of year |
4,911 | $ | 33.61 | 4,730 | $ | 29.49 | 4,803 | $ | 30.74 | |||||||||||||||||
Granted |
578 | $ | 39.33 | 756 | $ | 25.75 | 446 | $ | 43.60 | |||||||||||||||||
Exercised |
(390 | ) | $ | 18.20 | (519 | ) | $ | 21.36 | (474 | ) | $ | 13.77 | ||||||||||||||
Forfeited |
(58 | ) | $ | 33.94 | (56 | ) | $ | 38.98 | (45 | ) | $ | 37.12 | ||||||||||||||
Outstanding,
end of year |
5,041 | $ | 34.96 | 4,911 | $ | 33.61 | 4,730 | $ | 29.49 | |||||||||||||||||
Treasury
shares utilized for exercises |
390 | 519 | 474 |
30
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
2. Employee Stock Plans (Continued)
Options Outstanding |
Options Exercisable |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices |
Number Outstanding (000) |
Weighted Average Remaining Contractual Life (years) |
Weighted Average Exercise Price |
Number Exercisable (000) |
Weighted Average Exercise Price |
||||||||||||||||||
$21$25 | 326 | 1 | $ | 21.21 | 326 | $ | 21.21 | ||||||||||||||||
$26$30 | 734 | 9 | $ | 25.75 | | | |||||||||||||||||
$31$35 | 690 | 3 | $ | 32.50 | 690 | $ | 32.50 | ||||||||||||||||
$36$40 | 2,335 | 5.85 | $ | 38.17 | 1,757 | $ | 37.79 | ||||||||||||||||
$41$45 | 956 | 3.78 | $ | 43.30 | 530 | $ | 43.30 | ||||||||||||||||
5,041 | 3,303 |
3. | Employee Profit Sharing Plan |
31
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
4. | Restructuring Charge |
Technology Assets |
Severance Cost |
Real Estate Consolidation |
Total |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Initial
restructuring charges |
$ | 46,332 | $ | 18,605 | $ | 17,525 | $ | 82,462 | ||||||||||
Utilized in
Fiscal-Year 2002 |
(45,932 | ) | | (7,938 | ) | (53,870 | ) | |||||||||||
Balance at
February 28, 2002 |
400 | 18,605 | 9,587 | 28,592 | ||||||||||||||
Utilized in
Fiscal-Year 2003 |
(264 | ) | (10,987 | ) | (1,767 | ) | (13,018 | ) | ||||||||||
Adjustments
in 2003 to Initial Estimate |
| (640 | ) | 1,505 | 865 | |||||||||||||
Balance at
February 28, 2003 |
136 | 6,978 | 9,325 | 16,439 | ||||||||||||||
Utilized in
Fiscal-Year 2004 |
(136 | ) | (6,978 | ) | (3,955 | ) | (11,069 | ) | ||||||||||
Adjustments
in 2004 to Initial Estimate |
| | 1,820 | 1,820 | ||||||||||||||
Balance at
February 29, 2004 |
$ | | $ | | $ | 7,190 | $ | 7,190 |
5. | Property and Equipment |
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Land |
$ | 20,248 | $ | 20,523 | ||||||
Building and
leasehold improvements |
449,060 | 276,973 | ||||||||
Equipment and
computer hardware |
519,193 | 486,173 | ||||||||
Software and
software applications |
123,644 | 143,546 | ||||||||
Software
development in progress |
26,064 | 17,509 | ||||||||
Construction in
progress |
253 | 160,888 | ||||||||
Total property
and equipment |
1,138,462 | 1,105,612 | ||||||||
Less:
Accumulated depreciation and amortization |
(639,756 | ) | (579,225 | ) | ||||||
Total property
and equipment, net |
$ | 498,706 | $ | 526,387 |
6. | Short-Term Financing |
32
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
6. Short-Term Financing (Continued)
not have the ability to sell or repledge such investments. At February 29, 2004, and February 28, 2003, there were outstanding short-term bank loans of $28,300 and $40,000, respectively.
7. | Net Capital Requirements |
8. | Income Taxes |
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current: |
||||||||||||||
Federal |
$ | 81,531 | $ | 54,747 | $ | 53,282 | ||||||||
State and
local |
4,674 | (1,826 | ) | (10,282 | ) | |||||||||
86,205 | 52,921 | 43,000 | ||||||||||||
Deferred |
(416 | ) | (315 | ) | (22,443 | ) | ||||||||
$ | 85,789 | $ | 52,606 | $ | 20,557 |
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Deferred Tax
Assets: |
||||||||||
Employee
benefits |
$ | 126,002 | $ | 124,471 | ||||||
Other |
14,647 | 14,216 | ||||||||
140,649 | 138,687 | |||||||||
Deferred Tax
Liabilities: |
||||||||||
Receivables |
17,555 | 20,682 | ||||||||
Investments |
19,631 | 14,186 | ||||||||
Property and
equipment |
9,272 | 5,257 | ||||||||
Other |
| 4,787 | ||||||||
46,458 | 44,912 | |||||||||
Net Deferred Tax
Assets |
$ | 94,191 | $ | 93,775 |
33
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
8. Income Taxes (Continued)
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Federal
statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||||
State and local
income taxes, net of federal tax benefit |
2.0 | 2.0 | 2.0 | |||||||||||
Resolution of
tax matters |
(1.2 | ) | (5.2 | ) | (8.1 | ) | ||||||||
Research and
development credits |
| | (4.3 | ) | ||||||||||
Municipal bond
interest |
(0.8 | ) | (1.6 | ) | (3.3 | ) | ||||||||
Meal and
entertainment expenses |
0.6 | 0.9 | 1.3 | |||||||||||
Other |
(0.6 | ) | (0.4 | ) | (0.3 | ) | ||||||||
35.0 | % | 30.7 | % | 22.3 | % |
9. | Investments |
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Private
equity |
$ | 117,339 | $ | 101,485 | ||||||
Mutual
funds |
160,074 | 113,794 | ||||||||
U.S. government
securities |
15,633 | 13,509 | ||||||||
Other |
5,395 | 8,395 | ||||||||
Total
Investments |
$ | 298,441 | $ | 237,183 |
34
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
10. Stockholders Equity
Earnings Per Share
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net earnings
available to common stockholders |
$ | 159,485 | $ | 118,828 | $ | 71,501 | ||||||||
Shares (in
thousands): |
||||||||||||||
Weighted
average shares outstanding |
80,031 | 80,133 | 80,013 | |||||||||||
Effect of
dilutive common shares: |
||||||||||||||
Restricted
shares |
341 | 327 | 217 | |||||||||||
Stock
purchase plan |
287 | 355 | 276 | |||||||||||
Stock option
plan |
331 | 362 | 776 | |||||||||||
Dilutive
common shares |
959 | 1,044 | 1,269 | |||||||||||
Total weighted
average diluted shares |
80,990 | 81,177 | 81,282 | |||||||||||
Earnings per
share: |
||||||||||||||
Diluted |
$ | 1.97 | $ | 1.46 | $ | 0.88 | ||||||||
Basic |
$ | 1.99 | $ | 1.48 | $ | 0.89 |
Stock Repurchase Program
Stockholders Rights Plan
35
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
11. | Commitments and Contingent Liabilities |
Year ending February 28 (29), |
||||||
---|---|---|---|---|---|---|
2005 |
$ | 98,100 | ||||
2006 |
86,700 | |||||
2007 |
72,900 | |||||
2008 |
63,400 | |||||
2009 |
46,600 | |||||
Later
years |
95,300 | |||||
$ | 463,000 |
36
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
11. Commitments and Contingent Liabilities
(Continued)
members would be required to meet any shortfall. The Companys liability under these agreements is not quantifiable and may exceed the cash and securities it has posted as collateral. However, the potential requirement for the Company to make payments under these agreements is remote. Accordingly, no liability has been recognized for these transactions.
12. | Financial Instruments |
Off-Balance Sheet Risk and Concentration of Credit Risk
Derivatives
37
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 29, 2004)
(Dollars in thousands, except per share amounts)
12. Financial Instruments (Continued)
Fair Value Consideration
13. | Enterprise Wide Disclosure |
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Transaction
services |
$ | 1,738,755 | $ | 1,479,388 | $ | 1,548,824 | ||||||||
Asset management
services |
575,021 | 535,132 | 579,588 | |||||||||||
Interest |
93,273 | 100,813 | 146,580 | |||||||||||
Other |
89,306 | 78,668 | 63,421 | |||||||||||
$ | 2,496,355 | $ | 2,194,001 | $ | 2,338,413 |
* * * * * *
38
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders of
A.G. Edwards,
Inc.:
/s/ Deloitte & Touche LLP
St. Louis, Missouri
April 26, 2004
39
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. |
ITEM 9A. | CONTROLS AND PROCEDURES. |
40
PART III
ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. |
ITEM 11. EXECUTIVE COMPENSATION.
41
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
(a) |
(b) |
(c) |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Plan category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
|||||||||||
Equity
compensation plans approved by security holders (1): |
||||||||||||||
Incentive
Stock Plan |
5,041,000 | $34.96 | 3,210,585 | |||||||||||
Employee
Stock Purchase Plan |
3,806,943 | (*) | ||||||||||||
Equity
compensation plans not approved by security holders: |
||||||||||||||
Non-Employee
Director Stock Plan (2) |
None | N/A | 9,556 | |||||||||||
Total |
5,041,000 | 7,027,084 |
(*) |
Includes 1,875,000 shares authorized under the 2004 Employee Stock Purchase Plan. |
(1) |
The 1988 Incentive Stock Plan and the 2002 Employee Stock Purchase Plan were approved by shareholders. |
(2) |
The Company has one plan that was not submitted for approval by the shareholders, the Non-Employee Director Stock Compensation Plan. This plan provides that one half of the annual compensation as defined for each non-employee director shall be awarded in Common Stock with the value of the stock based on the market price on July 1 of the fiscal year in which the compensation is earned. |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. |
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
42
PART IV
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. |
Index |
Page Number |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
(a) 1. |
Financial Statements |
|||||||||
Consolidated balance sheets |
22 | |||||||||
Consolidated statements of earnings |
23 | |||||||||
Consolidated statements of stockholders equity |
24 | |||||||||
Consolidated statements of cash flows |
25 | |||||||||
Notes to consolidated financial statements |
2638 | |||||||||
Independent Auditors Report |
39 | |||||||||
2. |
Financial Statement Schedules |
|||||||||
Schedule II Valuation and Qualifying Accounts |
47 | |||||||||
Independent Auditors Report |
48 |
3. |
Exhibits* |
3(i) |
Certificate of Incorporation filed as Exhibit 3(i) to the Registrants Form 10-K for the fiscal year ended February 28, 1993, as amended
by the Certificate of Amendment of Certificate of Incorporation filed as Exhibit 3(i)(a) to the Registrants Form 10-Q for the quarter ended May
31, 1998. |
|||||
3(ii) |
By-laws filed as Exhibit 3(ii) to the Registrants 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 Boatmens Trust Company as Rights Agent filed as Exhibit 4
to the Registrants Form 8-K Report dated December 30, 1988. |
|||||
4(iv) |
Amendment No. 1 to the Rights Agreement dated December 30, 1988, between A.G. Edwards, Inc. and Boatmens Trust Company as Rights Agent,
dated May 24, 1991, filed as Exhibit 4(iv) to Registrants 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 Boatmens Trust Company as Rights Agent,
dated June 22, 1995, filed with the Registrants Form 8-A/A (Amendment No. 1) on July 12, 1995. |
|||||
4(vi) |
Amendment No. 3 to the Rights Agreement dated December 30, 1988, between A.G. Edwards, Inc. and Boatmens Trust Company as Rights Agent,
dated July 11, 1997, filed as Exhibit 4(vi) to Registrants Form 10-K for the fiscal year ended February 28, 1998. |
|||||
4(vii) |
Amendment No. 4 dated December 15, 2000, to the Rights Agreement dated December 30, 1988, filed as Exhibit 4(vii) to Registrants Form
8-A/A (Amendment No. 2) on December 19, 2000. |
43
10.1 |
A.G.
Edwards, Inc. 1988 Incentive Stock Plan (as amended and restated) filed as Exhibit 10 to Registrants Form 10-K for the fiscal year ended February
28, 2001.** |
|||||
10.2 |
A.G.
Edwards, Inc. Non-Employee Director Stock Compensation Plan. (as amended and restated) filed as Exhibit 10 to Registrants Form 10-Q for the
fiscal quarter ended November 30, 2003.** |
|||||
11 |
Computation of per share earnings is set forth in Note 10 (Stockholders Equity) of the Notes to Consolidated Financial Statements under
the caption Earnings Per Share in this Form 10-K. |
|||||
14.1 |
A.G.
Edwards, Inc. Code of Ethical Conduct. |
|||||
14.2 |
A.G.
Edwards, Inc. Financial Code of Ethical Conduct. |
|||||
21 |
Registrants Subsidiaries. |
|||||
23 |
Independent Auditors Consent. |
|||||
24 |
Power of Attorney (included on the signature page of this Form 10-K). |
|||||
31(i) |
Principal Executive Officer Certification as required by Rule 13a-14(a)/15d-14(a). |
|||||
31(ii) |
Principal Financial Officer Certification as required by Rule 13a-14(a)/15d-14(a). |
|||||
32(i) |
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|||||
32(ii) |
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
* |
Numbers correspond to document numbers in Exhibit Table of Item 601 of Regulation S-K. |
** |
Compensatory plan or arrangement under which executive officers or directors of the Company may participate. |
(b) | Reports on Form 8-K |
The following current reports on Form 8-K were filed by the Registrant during the fourth quarter of 2004 with the SEC under captions Item 5. Other Events or Item 12. Results of Operations and Financial Condition:
Current report dated December 19, 2003, for the purpose of filing the Unaudited Earnings Summaries for the three-month and nine-month periods ended November 30, 2003, and supplemental quarterly information for A.G. Edwards, Inc.
Current report dated February 24, 2004, for the purpose of reporting an announcement of A.G. Edwards Inc.s Info Tech Staffing Arrangements as part of its ongoing efforts to upgrade its securities processing and information technology platforms.
44
SIGNATURES
A.G. EDWARDS, INC. (Registrant) | ||
Date: April 26, 2004 | By | /s/ Robert L. Bagby Robert L. Bagby Chairman of the Board and Chief Executive Officer |
45
POWER OF ATTORNEY
/s/ Robert L.
Bagby Robert L. Bagby |
Chairman of the Board, Chief Executive Officer and Director |
April 26,
2004 |
||||||||
/s/ Ronald J.
Kessler Ronald J. Kessler |
Vice
Chairman of the Board and Director |
April 26,
2004 |
||||||||
/s/ Dr. E.
Eugene Carter Dr. E. Eugene Carter |
Director |
April 26,
2004 |
||||||||
/s/ Vicki B.
Escarra Vicki B. Escarra |
Director |
April 26,
2004 |
||||||||
/s/ Samuel C.
Hutchinson Jr. Samuel C. Hutchinson Jr. |
Director |
April 26,
2004 |
||||||||
/s/ Peter B.
Madoff Peter B. Madoff |
Director |
April 26,
2004 |
||||||||
/s/ Mark S.
Wrighton Mark S. Wrighton |
Director |
April 26,
2004 |
||||||||
/s/ Douglas L.
Kelly Douglas L. Kelly |
Treasurer, Chief Financial Officer and Secretary |
April 26,
2004 |
||||||||
/s/ Thomas H.
Martin Jr. Thomas H. Martin Jr. |
Controller |
April 26,
2004 |
||||||||
/s/ Joseph G.
Porter Joseph G. Porter |
Principal Accounting Officer |
April 26,
2004 |
46
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
A.G. EDWARDS, INC.
(dollars in thousands)
Description |
Balance at Beginning of Period |
Additions Charged to Costs and Expenses |
Deductions |
Balance at End of Period |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year ended
February 29, 2004 Deducted from asset account: Allowance for doubtful accounts |
$ | 44,508 | $ | 1,490 | $ | 405 | $ | 45,593 | ||||||||||
Year ended
February 28, 2003 Deducted from asset account: Allowance for doubtful accounts |
$ | 38,214 | $ | 9,661 | $ | 3,367 | $ | 44,508 | ||||||||||
Year ended
February 28, 2002 Deducted from asset account: Allowance for doubtful accounts |
$ | 10,697 | $ | 27,542 | $ | 25 | $ | 38,214 |
47
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders of
A.G. Edwards,
Inc.
/s/ Deloitte & Touche LLP
St. Louis, Missouri
April
26, 2004
48
EXHIBIT INDEX
Exhibit |
Description |
|||||
---|---|---|---|---|---|---|
14.1 |
A.G.
Edwards, Inc. Code of Ethical Conduct |
|||||
14.2 |
A.G.
Edwards, Inc. Financial Code of Ethical Conduct |
|||||
21 |
Registrants Subsidiaries |
|||||
23 |
Independent Auditors Consent |
|||||
24 |
Power of Attorney (included on signature page of this Form 10-K) |
|||||
31(i) |
Principal Executive Officer Certification as required by Rule 13a-14(a)/15d-14(a) |
|||||
31(ii) |
Principal Financial Officer Certification as required by Rule 13a-14(a)/15d-14(a) |
|||||
32 (i) |
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
|||||
32 (ii) |
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
49