UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 |
3 | ||||||||
Item
2 |
Properties |
7 | ||||||||
Item
3 |
Legal Proceedings |
7 | ||||||||
Item
4 |
Submission of Matters to a Vote of Security Holders |
8 | ||||||||
Part
II |
||||||||||
Item
5 |
Market for Registrants Common Equity and Related Stockholder Matters |
10 | ||||||||
Item
6 |
Selected Financial Data |
12 | ||||||||
Item
7 |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||||||||
Item
7A |
Quantitative and Qualitative Disclosures About Market Risk |
25 | ||||||||
Item
8 |
Financial Statements and Supplementary Data |
25 | ||||||||
Item
9 |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
47 | ||||||||
Item
9A |
Controls and Procedures |
47 | ||||||||
Item
9B |
Other Information |
48 | ||||||||
Part
III |
||||||||||
Item
10 |
Directors and Executive Officers of the Registrant |
48 | ||||||||
Item
11 |
Executive Compensation |
48 | ||||||||
Item
12 |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
49 | ||||||||
Item
13 |
Certain Relationships and Related Transactions |
49 | ||||||||
Item
14 |
Principal Accountant Fees and Services |
49 | ||||||||
Part
IV |
||||||||||
Item
15 |
Exhibits and Financial Statement Schedules |
50 |
PART I
ITEM 1. | BUSINESS. |
(a) |
General Development of Business |
(b) |
Financial Information About Industry Segments |
(c) |
Narrative Description of Business |
Commissions
3
Asset Management and Service Fees
Principal Transactions
Investment Banking
4
Margin Financing
Private Client Services
Investment Activities
Research
Competition
5
Regulation
(d) |
Financial information about geographic areas |
(e) |
Available information |
6
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 |
61 | 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 30 years. Director of Edwards since 1979. |
1991 | |||||||||||
Ronald J.
Kessler |
57 | Vice
Chairman of the Board of the Company and Edwards since 2001. Executive Vice President of Edwards. Director of the Operations Division of Edwards.
Employee of Edwards for 37 years. Director of Edwards since 1989. |
1996 | |||||||||||
Mary V.
Atkin |
50 | Director of the Staff Division of Edwards since March 2005. Executive Vice President of Edwards since 2001. Director of Corporate Strategy
from November 2003 to February 2005. President of A.G. Edwards Technology Group, Inc. from 2001 to 2003. Employee of Edwards for 27 years. Director of
Edwards since 1993. |
1999 | |||||||||||
Gene M.
Diederich |
46 | Executive Vice President of Edwards since February 2005. Director of the Branch Division of Edwards since March 2005. Regional Manager of
Edwards from 2002 to 2005. Branch Manager of Edwards from 1996 to 2002. Employee of Edwards for 21 years. Director of Edwards since
2003. |
2005 | |||||||||||
Charles J.
Galli |
64 | Senior Vice President and Regional Manager of Edwards. Employee of Edwards for 26 years. Director of Edwards since 1990. |
2001 | |||||||||||
Alfred E.
Goldman |
71 | Corporate Vice President, Director of Market Analysis of Edwards. Employee of Edwards for 45 years. Director of Edwards since
1967. |
1991 | |||||||||||
Richard F.
Grabish |
56 | Chairman and Chief Executive Officer of A.G. Edwards Trust Company FSB since 2001. President of A.G. Edwards Trust Company FSB from 1987 to 2001. Senior Vice President of Edwards. Assistant Director of Sales and Marketing Division of Edwards. Employee of Edwards for 24 years. Director of Edwards since 1988. |
2001 |
8
Name |
Age |
Office and Title |
Year First Appointed Executive Officer of the Company | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Douglas L.
Kelly |
56 | Vice
President, Secretary of the Company, Chief Financial Officer and Treasurer of the Company since 2001. Executive Vice President, Secretary, Director of
the Law and Compliance Division of Edwards, Chief Financial Officer, and Treasurer and Director of the Administration Division of Edwards since 2001.
Employee of Edwards for 11 years. Director of Edwards since 1994. |
1994 | |||||||||||
Thomas H.
Martin Jr. |
45 | Assistant Treasurer of the Company. Vice President of the Company since 2002. Controller of the Company and Edwards. Vice President of
Edwards. Employee of Edwards for 24 years. |
1999 | |||||||||||
Peter M.
Miller |
47 | Executive Vice President and Director of the Sales and Marketing Division of Edwards since 2002. Regional Manager of Edwards from 1995 to
2002. Employee of Edwards for 16 years. Director of Edwards since 1997. |
2002 | |||||||||||
John C.
Parker |
45 | Executive Vice President of Edwards. Director and President of the A.G. Edwards Technology Group, Inc. of Edwards since November 2003. Senior Vice President of the A.G. Edwards Technology Group, Inc. of Edwards from 2001 to 2003. Employee of Edwards for more than three 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 |
59 | Executive Vice President and Director of the Capital Markets Division of Edwards since 2000. Director of Corporate Finance of Edwards from 1999 to 2001. Employee of Edwards for seven years. Director of Edwards since 2000. |
2000 | |||||||||||
Joseph G.
Porter |
44 | Assistant Treasurer of the Company. Vice President of the Company since 2002. Principal Accounting Officer of the Company and Edwards.
Senior Vice President and Assistant Director of the Administration Division of Edwards. Employee of Edwards for 22 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 2005
by Quarter |
|||||||||||||||||||||||||||||||
First |
$ | 0.16 | $ | 40.50 $34.40 | $ | 665.9 | $ | 73.3 | $ | 46.3 | $ | 0.57 | $ | 0.58 | |||||||||||||||||
Second |
$ | 0.16 | $ | 37.46 $31.09 | $ | 614.3 | $ | 63.1 | $ | 40.6 | $ | 0.52 | $ | 0.52 | |||||||||||||||||
Third |
$ | 0.16 | $ | 39.74 $33.46 | $ | 638.0 | $ | 77.9 | $ | 49.2 | $ | 0.63 | $ | 0.64 | |||||||||||||||||
Fourth |
$ | 0.16 | $ | 44.09 $39.10 | $ | 689.5 | $ | 80.1 | $ | 50.4 | $ | 0.65 | $ | 0.66 | |||||||||||||||||
Fiscal 2004
by Quarter |
|||||||||||||||||||||||||||||||
First |
$ | 0.16 | $ | 33.00 $23.00 | $ | 557.9 | $ | 43.3 | $ | 27.9 | $ | 0.35 | $ | 0.35 | |||||||||||||||||
Second |
$ | 0.16 | $ | 38.99 $32.51 | $ | 638.8 | $ | 57.4 | $ | 37.5 | $ | 0.46 | $ | 0.47 | |||||||||||||||||
Third |
$ | 0.16 | $ | 41.80 $34.72 | $ | 629.3 | $ | 60.8 | $ | 39.7 | $ | 0.49 | $ | 0.49 | |||||||||||||||||
Fourth |
$ | 0.16 | $ | 40.21 $33.74 | $ | 696.8 | $ | 83.7 | $ | 54.4 | $ | 0.67 | $ | 0.68 |
Issuer Purchases of Equity Securities
Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plan |
Maximum Number of Shares That May Yet Be Purchased Under the Plans |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December (12/1/0412/31/04) |
145,454 | $ | 40.31 | 145,454 | 9,975,764 | |||||||||||||||||
January (1/1/051/31/05) |
166,480 | $ | 41.92 | 166,480 | 9,809,284 | |||||||||||||||||
February (2/1/052/28/05) |
146,429 | $ | 42.94 | 146,429 | 9,662,855 | |||||||||||||||||
Total |
458,363 | $ | 41.74 | 458,363 |
Stock Issuance
10
Annual Meeting
Dividend Payment Dates
Stock Exchange Listing
Registrar/Transfer Agent
11
ITEM 6. | SELECTED FINANCIAL DATA. |
Year Ended |
February 28, 2005 |
February 29, 2004 |
February 28, 2003 |
February 28, 2002 |
February 28, 2001 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands, except per share amounts) |
|||||||||||||||||||||||
Revenues |
|||||||||||||||||||||||
Commissions: |
|||||||||||||||||||||||
Listed
securities |
$ | 440,680 | $ | 448,035 | $ | 387,483 | $ | 403,921 | $ | 482,136 | |||||||||||||
Options |
22,274 | 23,669 | 23,485 | 28,453 | 55,883 | ||||||||||||||||||
Over-the-counter securities |
94,478 | 115,425 | 70,864 | 111,065 | 295,921 | ||||||||||||||||||
Mutual
funds |
259,179 | 260,518 | 201,567 | 214,339 | 293,307 | ||||||||||||||||||
Commodities
and financial futures |
25,536 | 27,758 | 19,331 | 13,289 | 13,158 | ||||||||||||||||||
Insurance |
192,019 | 205,622 | 185,249 | 174,281 | 184,762 | ||||||||||||||||||
Total |
1,034,166 | 1,081,027 | 887,979 | 945,348 | 1,325,167 | ||||||||||||||||||
Asset
management and service fees: |
|||||||||||||||||||||||
Distribution
fees |
498,026 | 366,735 | 336,636 | 377,923 | 370,193 | ||||||||||||||||||
Fee-based
accounts |
323,769 | 246,943 | 225,888 | 220,315 | 214,296 | ||||||||||||||||||
Service
fees |
97,282 | 109,708 | 90,493 | 79,694 | 83,625 | ||||||||||||||||||
Total |
919,077 | 723,386 | 653,017 | 677,932 | 668,114 | ||||||||||||||||||
Principal
transactions: |
|||||||||||||||||||||||
Equities |
75,504 | 79,662 | 58,436 | 73,553 | 114,363 | ||||||||||||||||||
Debt
securities |
178,395 | 217,224 | 252,688 | 246,131 | 177,912 | ||||||||||||||||||
Total |
253,899 | 296,886 | 311,124 | 319,684 | 292,275 | ||||||||||||||||||
Investment
banking: |
|||||||||||||||||||||||
Underwriting
fees and selling concessions |
174,555 | 240,094 | 184,220 | 186,839 | 144,725 | ||||||||||||||||||
Management
fees |
71,067 | 81,767 | 66,960 | 69,590 | 28,572 | ||||||||||||||||||
Total |
245,622 | 321,861 | 251,180 | 256,429 | 173,297 | ||||||||||||||||||
Interest: |
|||||||||||||||||||||||
Margin
account balances |
107,611 | 74,662 | 86,189 | 150,365 | 331,980 | ||||||||||||||||||
Securities
owned and deposits |
21,132 | 21,470 | 20,474 | 23,451 | 35,027 | ||||||||||||||||||
Total |
128,743 | 96,132 | 106,663 | 173,816 | 367,007 | ||||||||||||||||||
Other |
30,288 | 6,384 | 10,239 | 6,592 | 31,630 | ||||||||||||||||||
Total
Revenues |
2,611,795 | 2,525,676 | 2,220,202 | 2,379,801 | 2,857,490 | ||||||||||||||||||
Interest
expense |
4,114 | 2,859 | 5,850 | 27,415 | 104,550 | ||||||||||||||||||
Net
Revenues |
2,607,681 | 2,522,817 | 2,214,352 | 2,352,386 | 2,752,940 | ||||||||||||||||||
Non-Interest Expenses |
|||||||||||||||||||||||
Compensation
and benefits |
1,699,156 | 1,642,999 | 1,448,199 | 1,551,898 | 1,763,037 | ||||||||||||||||||
Communication
and technology |
241,830 | 272,047 | 282,603 | 295,353 | 242,530 | ||||||||||||||||||
Occupancy and
equipment |
151,426 | 137,617 | 134,149 | 133,240 | 126,594 | ||||||||||||||||||
Marketing and
business development |
65,682 | 53,262 | 45,649 | 47,434 | 55,041 | ||||||||||||||||||
Floor
brokerage and clearance |
21,341 | 22,495 | 22,464 | 21,912 | 22,957 | ||||||||||||||||||
Other |
133,839 | 149,123 | 109,854 | 128,029 | 87,627 | ||||||||||||||||||
Restructuring |
| | | 82,462 | | ||||||||||||||||||
Total
Non-Interest Expenses |
2,313,274 | 2,277,543 | 2,042,918 | 2,260,328 | 2,297,786 | ||||||||||||||||||
Earnings
Before Income Taxes |
294,407 | 245,274 | 171,434 | 92,058 | 455,154 | ||||||||||||||||||
Income
Taxes |
107,933 | 85,789 | 52,606 | 20,557 | 167,677 | ||||||||||||||||||
Net
Earnings |
$ | 186,474 | $ | 159,485 | $ | 118,828 | $ | 71,501 | $ | 287,477 | |||||||||||||
Per Share
Data: |
|||||||||||||||||||||||
Diluted
Earnings |
$ | 2.37 | $ | 1.97 | $ | 1.46 | $ | 0.88 | $ | 3.43 | |||||||||||||
Basic
Earnings |
$ | 2.39 | $ | 1.99 | $ | 1.48 | $ | 0.89 | $ | 3.50 | |||||||||||||
Cash
Dividends |
$ | 0.64 | $ | 0.64 | $ | 0.64 | $ | 0.64 | $ | 0.64 | |||||||||||||
Book
Value |
$ | 23.21 | $ | 22.08 | $ | 20.92 | $ | 20.42 | $ | 20.29 | |||||||||||||
Other
Data: |
|||||||||||||||||||||||
Total
Assets |
$ | 4,687,797 | $ | 4,436,085 | $ | 3,980,094 | $ | 4,187,170 | $ | 4,859,984 | |||||||||||||
Stockholders Equity |
$ | 1,787,691 | $ | 1,778,319 | $ | 1,688,537 | $ | 1,647,796 | $ | 1,626,344 | |||||||||||||
Cash
Dividends |
$ | 49,392 | $ | 51,007 | $ | 51,034 | $ | 51,043 | $ | 51,962 | |||||||||||||
Pre-tax
Return on Average Equity |
16.5 | % | 14.1 | % | 10.3 | % | 5.6 | % | 27.2 | % | |||||||||||||
Return on
Average Equity |
10.5 | % | 9.2 | % | 7.1 | % | 4.4 | % | 17.2 | % | |||||||||||||
Net Earnings
as a Percent of Net Revenues |
7.2 | % | 6.3 | % | 5.4 | % | 3.0 | % | 10.4 | % | |||||||||||||
Average
Common and Common Equivalent Shares Outstanding (Diluted) |
78,766 | 80,990 | 81,177 | 81,282 | 83,925 | ||||||||||||||||||
Average
Common Shares Outstanding (Basic) |
77,908 | 80,031 | 80,133 | 80,013 | 82,096 |
Note: Where appropriate, prior years financial information has been reclassified to conform to current-year presentation.
12
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. |
Introduction
Executive Summary
13
Assets in fee-based accounts |
February 28, 2005 |
February 29, 2004 |
Difference |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fund advisory
programs |
$ | 9,871,000 | $ | 7,096,000 | 39 | % | ||||||||
Separately
managed accounts |
11,438,000 | 10,997,000 | 4 | % | ||||||||||
Company-managed and other fee-based accounts |
9,443,000 | 9,182,000 | 3 | % | ||||||||||
Total assets
in fee-based accounts |
$ | 30,752,000 | $ | 27,275,000 | 13 | % |
14
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Commissions |
40 | % | 43 | % | 40 | % | ||||||||
Asset management
and service fees |
35 | % | 28 | % | 30 | % | ||||||||
Principal
transactions |
10 | % | 12 | % | 14 | % | ||||||||
Investment
banking |
9 | % | 13 | % | 11 | % | ||||||||
Net
interest |
5 | % | 4 | % | 5 | % | ||||||||
Other |
1 | % | | |
Results of Operations
Increase (Decrease) |
2005 vs. 2004 |
2004 vs. 2003 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues |
|||||||||||||||||||
Commissions |
$ | (46,861 | ) | (4 | )% | $ | 193,048 | 22 | % | ||||||||||
Asset
management and service fees |
195,691 | 27 | 70,369 | 11 | |||||||||||||||
Principal
transactions |
(42,987 | ) | (14 | ) | (14,238 | ) | (5 | ) | |||||||||||
Investment
banking |
(76,239 | ) | (24 | ) | 70,681 | 28 | |||||||||||||
Interest |
32,611 | 34 | (10,531 | ) | (10 | ) | |||||||||||||
Other |
23,904 | 374 | (3,855 | ) | (38 | ) | |||||||||||||
Total
Revenues |
86,119 | 3 | 305,474 | 14 | |||||||||||||||
Interest
expense |
1,255 | 44 | (2,991 | ) | (51 | ) | |||||||||||||
Net
Revenues |
$ | 84,864 | 3 | % | $ | 308,465 | 14 | % | |||||||||||
Non-Interest Expenses |
|||||||||||||||||||
Compensation
and benefits |
$ | 56,157 | 3 | % | $ | 194,800 | 13 | % | |||||||||||
Communication
and technology |
(30,217 | ) | (11 | ) | (10,556 | ) | (4 | ) | |||||||||||
Occupancy and
equipment |
13,809 | 10 | 3,468 | 3 | |||||||||||||||
Marketing and
business development |
12,420 | 23 | 7,613 | 17 | |||||||||||||||
Floor
brokerage and clearance |
(1,154 | ) | (5 | ) | 31 | 0 | |||||||||||||
Other |
(15,284 | ) | (10 | ) | 39,269 | 36 | |||||||||||||
Total
Non-Interest Expenses |
$ | 35,731 | 2 | % | $ | 234,625 | 11 | % |
Commissions
15
Asset Management and Service Fees
Principal Transactions
Investment Banking
16
Net Interest Revenue
Other Revenue
Compensation and Benefits
Communication and Technology
Occupancy and Equipment
17
Marketing and Business Development
All Other Expenses
Income Taxes
Mutual Fund Matters
18
Auction Rate Securities
Prospectus Delivery Requirements
Liquidity and Capital Resources
19
Tabular Disclosure of Contractual Obligations
Contractual Obligations |
Total |
2006 |
20072008 |
20092010 |
More than 5 years |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating lease
obligations |
$ | 451,200 | $ | 72,300 | $ | 156,500 | $ | 112,300 | $ | 110,100 | ||||||||||||
Communications,
technology, and other service commitments |
187,000 | 45,400 | 71,400 | 48,100 | 22,100 | |||||||||||||||||
$ | 638,200 | $ | 117,700 | $ | 227,900 | $ | 160,400 | $ | 132,200 |
20
Critical Accounting Estimates
21
Recent Accounting Pronouncements
22
Risk Management
General
Off-Balance Sheet Arrangements
Operational Risk
Legal Risk
Credit Risk
23
Market Risk
Forward-Looking Statements
24
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
Supplemental Data
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
May 2, 2005
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
A.G. Edwards, Inc.
St. Louis,
Missouri
We have audited managements assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting, that A.G. Edwards, Inc. and subsidiaries (the Company) maintained effective internal control over financial reporting as of February 28, 2005, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective internal control over financial reporting as of February 28, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 28, 2005, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended February 28, 2005 of the Company and our report dated May 3, 2005 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
St. Louis, Missouri
May 3, 2005
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
A.G. Edwards, Inc.
St. Louis,
Missouri
We have audited the accompanying consolidated balance sheets of A.G. Edwards, Inc. and subsidiaries (the Company) as of February 28, 2005 and February 29, 2004, and the related consolidated statements of earnings, stockholders equity, and cash flows for each of the three years in the period ended February 28, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, 2005 and February 29, 2004, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of February 28, 2005, based on Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 3, 2005 expressed an unqualified opinion on managements assessment of the effectiveness of the Companys internal control over financial reporting and an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
St. Louis, Missouri
May 3, 2005
27
Financial Statements
February 28, 2005 |
February 29, 2004 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands, except per share amounts) |
|||||||||||
Assets |
|||||||||||
Cash and cash
equivalents |
$ | 209,039 | $ | 107,565 | |||||||
Cash and
government securities, segregated under federal and other regulations |
392,241 | 373,726 | |||||||||
Securities
purchased under agreements to resell |
235,540 | 22,355 | |||||||||
Securities
borrowed |
117,302 | 106,034 | |||||||||
Receivables: |
|||||||||||
Customers,
less allowance for doubtful accounts of $8,045 and $45,593 |
2,236,170 | 2,373,007 | |||||||||
Brokers and
dealers |
37,387 | 13,888 | |||||||||
Clearing
organizations |
1,514 | 805 | |||||||||
Fees,
dividends and interest |
104,605 | 90,053 | |||||||||
Securities
inventory, at fair value: |
|||||||||||
State and
municipal |
190,150 | 292,741 | |||||||||
Government
and agencies |
152,532 | 30,806 | |||||||||
Corporate |
57,521 | 83,103 | |||||||||
Investments |
337,394 | 298,441 | |||||||||
Property and
equipment, at cost, net of accumulated depreciation and amortization of $715,328 and $639,756 |
503,976 | 498,706 | |||||||||
Deferred
income taxes |
60,189 | 94,191 | |||||||||
Other
assets |
52,237 | 50,664 | |||||||||
$ | 4,687,797 | $ | 4,436,085 | ||||||||
Liabilities and Stockholders Equity |
|||||||||||
Short-term
bank loans |
$ | 16,400 | $ | 28,300 | |||||||
Checks
payable |
299,120 | 257,566 | |||||||||
Securities
loaned |
207,012 | 231,438 | |||||||||
Payables: |
|||||||||||
Customers |
749,901 | 1,125,014 | |||||||||
Brokers and
dealers |
655,486 | 43,448 | |||||||||
Clearing
organizations |
80,252 | 110,003 | |||||||||
Securities
sold but not yet purchased, at fair value |
36,439 | 44,908 | |||||||||
Employee
compensation and related taxes |
440,833 | 440,764 | |||||||||
Deferred
compensation |
223,821 | 206,734 | |||||||||
Income
taxes |
7,378 | 13,588 | |||||||||
Other
liabilities |
183,464 | 156,003 | |||||||||
Total
Liabilities |
2,900,106 | 2,657,766 | |||||||||
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 |
295,478 | 292,699 | |||||||||
Retained
earnings |
2,137,114 | 2,029,562 | |||||||||
2,529,055 | 2,418,724 | ||||||||||
Less:
Treasury stock, at cost (19,442,437 and 15,936,194 shares) |
741,364 | 640,405 | |||||||||
Total
Stockholders Equity |
1,787,691 | 1,778,319 | |||||||||
$ | 4,687,797 | $ | 4,436,085 |
See Notes to Consolidated Financial Statements.
28
A.G. Edwards, Inc.
Consolidated Statements of Earnings
Year Ended |
February 28, 2005 |
February 29, 2004 |
February 28, 2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands, except per share amounts) |
|||||||||||||||
Revenues |
|||||||||||||||
Commissions |
$ | 1,034,166 | $ | 1,081,027 | $ | 887,979 | |||||||||
Asset
management and service fees |
919,077 | 723,386 | 653,017 | ||||||||||||
Principal
transactions |
253,899 | 296,886 | 311,124 | ||||||||||||
Investment
banking |
245,622 | 321,861 | 251,180 | ||||||||||||
Interest |
128,743 | 96,132 | 106,663 | ||||||||||||
Other |
30,288 | 6,384 | 10,239 | ||||||||||||
Total
Revenues |
2,611,795 | 2,525,676 | 2,220,202 | ||||||||||||
Interest
expense |
4,114 | 2,859 | 5,850 | ||||||||||||
Net
Revenues |
2,607,681 | 2,522,817 | 2,214,352 | ||||||||||||
Non-Interest Expenses |
|||||||||||||||
Compensation
and benefits |
1,699,156 | 1,642,999 | 1,448,199 | ||||||||||||
Communication
and technology |
241,830 | 272,047 | 282,603 | ||||||||||||
Occupancy and
equipment |
151,426 | 137,617 | 134,149 | ||||||||||||
Marketing and
business development |
65,682 | 53,262 | 45,649 | ||||||||||||
Floor
brokerage and clearance |
21,341 | 22,495 | 22,464 | ||||||||||||
Other |
133,839 | 149,123 | 109,854 | ||||||||||||
Total
Non-Interest Expenses |
2,313,274 | 2,277,543 | 2,042,918 | ||||||||||||
Earnings
Before Income Taxes |
294,407 | 245,274 | 171,434 | ||||||||||||
Income
Taxes |
107,933 | 85,789 | 52,606 | ||||||||||||
Net
Earnings |
$ | 186,474 | $ | 159,485 | $ | 118,828 | |||||||||
Earnings
Per Share: |
|||||||||||||||
Diluted |
$ | 2.37 | $ | 1.97 | $ | 1.46 | |||||||||
Basic |
$ | 2.39 | $ | 1.99 | $ | 1.48 |
See Notes to Consolidated Financial Statements.
29
A.G. Edwards, Inc.
Consolidated Statements of Stockholders
Equity
(Three Years Ended February 28, 2005)
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Total Stockholders Equity |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands, except per share amounts) |
|||||||||||||||||||||||
Balances,
March 1, 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 | |||||||||||||||||
Net
earnings |
186,474 | 186,474 | |||||||||||||||||||||
Dividends
declared $0.64 per share |
(49,392 | ) | (49,392 | ) | |||||||||||||||||||
Treasury
stock acquired |
(250,123 | ) | (250,123 | ) | |||||||||||||||||||
Stock
issued: |
|||||||||||||||||||||||
Employee
stock purchase/option plans |
1,761 | (25,436 | ) | 112,582 | 88,907 | ||||||||||||||||||
Restricted
stock |
1,018 | (4,094 | ) | 36,582 | 33,506 | ||||||||||||||||||
Balances,
February 28, 2005 |
$ | 96,463 | $ | 295,478 | $ | 2,137,114 | $ | (741,364 | ) | $ | 1,787,691 |
See Notes to Consolidated Financial Statements.
30
A.G. Edwards, Inc.
Consolidated Statements of Cash Flows
Year Ended |
February 28, 2005 |
February 29, 2004 |
February 28, 2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands) |
|||||||||||||||
Cash Flows
From Operating Activities: |
|||||||||||||||
Net
earnings |
$ | 186,474 | $ | 159,485 | $ | 118,828 | |||||||||
Noncash and
nonoperating items included in earnings: |
|||||||||||||||
Depreciation
and amortization |
111,519 | 127,296 | 131,903 | ||||||||||||
Expense of
restricted stock awards |
33,076 | 29,384 | 19,415 | ||||||||||||
Deferred
income taxes |
34,002 | (416 | ) | (315 | ) | ||||||||||
(Gain) Loss
on investments, net |
(21,798 | ) | 598 | 9,193 | |||||||||||
Allowance for
doubtful accounts |
(916 | ) | 1,274 | 9,009 | |||||||||||
(Increase)
decrease in operating assets: |
|||||||||||||||
Cash and
government securities, segregated |
(18,515 | ) | (270,012 | ) | (10,793 | ) | |||||||||
Securities
purchased under agreements to resell |
(213,185 | ) | 197,645 | (175,177 | ) | ||||||||||
Securities
borrowed |
(11,268 | ) | (28,904 | ) | (8,866 | ) | |||||||||
Receivable
from customers |
137,753 | (313,603 | ) | 412,937 | |||||||||||
Receivable
from brokers and dealers |
(23,499 | ) | 7,304 | 22,555 | |||||||||||
Receivable
from clearing organizations |
(709 | ) | 472 | (409 | ) | ||||||||||
Fees,
dividends and interest receivable |
(14,552 | ) | (30,002 | ) | 15,953 | ||||||||||
Securities
inventory |
6,447 | 13,384 | (64,397 | ) | |||||||||||
Trading
investments, net |
(11,134 | ) | (43,478 | ) | (20,739 | ) | |||||||||
Other
assets |
(12,723 | ) | 11,504 | 18,093 | |||||||||||
Increase
(decrease) in operating liabilities: |
|||||||||||||||
Checks
payable |
41,554 | 21,041 | (3,082 | ) | |||||||||||
Securities
sold under agreements to repurchase |
| | (45,861 | ) | |||||||||||
Securities
loaned |
68,224 | (19,824 | ) | (4,549 | ) | ||||||||||
Payable to
customers |
(375,113 | ) | 164,335 | (21,692 | ) | ||||||||||
Payable to
brokers and dealers |
612,038 | (15,615 | ) | (52,949 | ) | ||||||||||
Payable to
clearing organizations |
(29,751 | ) | 34,155 | 46,349 | |||||||||||
Securities
sold but not yet purchased |
(8,469 | ) | 9,468 | 5,240 | |||||||||||
Employee
compensation and related taxes |
69 | 94,472 | (45,895 | ) | |||||||||||
Deferred
compensation |
17,087 | 36,044 | (14,309 | ) | |||||||||||
Income
taxes |
(1,521 | ) | (1,582 | ) | 9,409 | ||||||||||
Other
liabilities |
21,711 | 30,535 | (3,483 | ) | |||||||||||
Net cash from
operating activities |
526,801 | 214,960 | 346,368 | ||||||||||||
Cash Flows
From Investing Activities: |
|||||||||||||||
Purchase of
property and equipment, net |
(116,789 | ) | (99,615 | ) | (127,007 | ) | |||||||||
Purchase of
other investments |
(22,008 | ) | (27,004 | ) | (18,116 | ) | |||||||||
Proceeds from
sale of a subsidiary |
10,830 | | | ||||||||||||
Proceeds from
sale or maturity of other investments |
22,620 | 8,626 | 10,433 | ||||||||||||
Net cash from
investing activities |
(105,347 | ) | (117,993 | ) | (134,690 | ) | |||||||||
Cash Flows
From Financing Activities: |
|||||||||||||||
Short-term
bank loans |
(11,900 | ) | (11,700 | ) | (67,300 | ) | |||||||||
Securities
loaned |
(92,650 | ) | 23,906 | (42,630 | ) | ||||||||||
Employee
stock transactions |
84,648 | 57,323 | 60,967 | ||||||||||||
Purchase of
treasury stock |
(250,123 | ) | (105,455 | ) | (114,500 | ) | |||||||||
Cash
dividends paid |
(49,955 | ) | (51,028 | ) | (51,088 | ) | |||||||||
Net cash from
financing activities |
(319,980 | ) | (86,954 | ) | (214,551 | ) | |||||||||
Net Increase
(Decrease) in Cash and Cash Equivalents |
101,474 | 10,013 | (2,873 | ) | |||||||||||
Cash and Cash
Equivalents, at Beginning of Year |
107,565 | 97,552 | 100,425 | ||||||||||||
Cash and Cash
Equivalents, at End of Year |
$ | 209,039 | $ | 107,565 | $ | 97,552 |
See Notes to Consolidated Financial Statements.
31
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Three
years ended February 28, 2005)
(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
32
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
(Continued)
Asset Management and Service Fees
Investment Banking
Allowance for Doubtful Accounts
Investments
33
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
(Continued)
Property and Equipment
Stock-Based Compensation
Income Taxes
Comprehensive Earnings
Sale of a Subsidiary
34
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
(Continued)
Recent Accounting Pronouncements
35
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
2. | Employee Stock Plans |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net earnings,
as reported |
$ | 186,474 | $ | 159,485 | $ | 118,828 | ||||||||
Add back
compensation related to Incentive Stock Plan included in net earnings |
21,720 | 19,560 | 14,756 | |||||||||||
Deduct effect
of stock-based employee compensation, net of tax effects: |
||||||||||||||
Employee
Stock Purchase Plan |
(8,776 | ) | (14,570 | ) | (16,074 | ) | ||||||||
Incentive
Stock Plan |
(25,125 | ) | (25,022 | ) | (18,889 | ) | ||||||||
Pro forma net
earnings |
$ | 174,293 | $ | 139,453 | $ | 98,621 | ||||||||
Earnings per
share, as reported: |
||||||||||||||
Diluted |
$ | 2.37 | $ | 1.97 | $ | 1.46 | ||||||||
Basic |
$ | 2.39 | $ | 1.99 | $ | 1.48 | ||||||||
Pro forma net
earnings per share |
||||||||||||||
Diluted |
$ | 2.20 | $ | 1.72 | $ | 1.21 | ||||||||
Basic |
$ | 2.24 | $ | 1.74 | $ | 1.23 | ||||||||
Pro forma net
earnings |
$ | 174,293 | $ | 139,453 | $ | 98,621 | ||||||||
Add back
reduction in Incentive compensation funding formulas |
3,349 | 5,117 | 5,212 | |||||||||||
Pro forma net
earnings after reduction for incentive compensation plans |
$ | 177,642 | $ | 144,570 | $ | 103,833 | ||||||||
Pro forma
earnings per share: |
||||||||||||||
Diluted |
$ | 2.24 | $ | 1.79 | $ | 1.27 | ||||||||
Basic |
$ | 2.28 | $ | 1.81 | $ | 1.30 |
Employee Stock Purchase Plan
36
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
2. Employee Stock Plans (Continued)
Restricted Stock and Stock Options
Shares (000) |
2005 Weighted Average Exercise Price |
Shares (000) |
2004 Weighted Average Exercise Price |
Shares (000) |
2003 Weighted Average Exercise Price |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding,
beginning of year |
5,041 | $ | 34.96 | 4,911 | $ | 33.61 | 4,730 | $ | 29.49 | |||||||||||||||||
Granted |
354 | $ | 44.24 | 578 | $ | 39.33 | 756 | $ | 25.75 | |||||||||||||||||
Exercised |
(605 | ) | $ | 27.83 | (390 | ) | $ | 18.20 | (519 | ) | $ | 21.36 | ||||||||||||||
Forfeited |
(26 | ) | $ | 35.95 | (58 | ) | $ | 33.94 | (56 | ) | $ | 38.98 | ||||||||||||||
Outstanding,
end of year |
4,764 | $ | 37.08 | 5,041 | $ | 34.96 | 4,911 | $ | 33.61 | |||||||||||||||||
Treasury
shares utilized for exercises |
605 | 390 | 519 |
37
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(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 |
||||||||||||||||||
$26$30 | 724 | 8.00 | $ | 25.75 | | | |||||||||||||||||
$31$35 | 587 | 2.00 | $ | 32.50 | 587 | $ | 32.50 | ||||||||||||||||
$36$40 | 2,154 | 4.91 | $ | 38.24 | 1,592 | $ | 37.85 | ||||||||||||||||
$41$45 | 1,299 | 4.75 | $ | 43.56 | 945 | $ | 43.30 | ||||||||||||||||
4,764 | 3,124 |
3. | Employee Profit Sharing Plan |
38
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
4. | Restructuring Charge |
Technology Assets |
Severance Cost |
Real Estate Consolidation |
Total |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at
March 1, 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 | ||||||||||||||
Utilized in
Fiscal-Year 2005 |
| | (5,192 | ) | (5,192 | ) | ||||||||||||
Balance at
February 28, 2005 |
$ | | $ | | $ | 1,998 | $ | 1,998 |
5. | Property and Equipment |
2005 |
2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Land |
$ | 20,163 | $ | 20,248 | ||||||
Building and
leasehold improvements |
465,638 | 449,060 | ||||||||
Equipment and
computer hardware |
531,461 | 519,193 | ||||||||
Software and
software applications |
161,902 | 123,644 | ||||||||
Software
development in progress |
38,329 | 26,064 | ||||||||
Construction in
progress |
1,811 | 253 | ||||||||
Total property
and equipment |
1,219,304 | 1,138,462 | ||||||||
Less:
Accumulated depreciation and amortization |
(715,328 | ) | (639,756 | ) | ||||||
Total property
and equipment, net |
$ | 503,976 | $ | 498,706 |
6. | Short-Term Financing |
39
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
6. Short-Term Financing (Continued)
7. | Net Capital Requirements |
8. | Income Taxes |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current |
||||||||||||||
Federal |
$ | 65,402 | $ | 81,531 | $ | 54,747 | ||||||||
State and
local |
8,073 | 4,082 | (2,345 | ) | ||||||||||
Non-U.S. |
456 | 592 | 519 | |||||||||||
$ | 73,931 | $ | 86,205 | $ | 52,921 | |||||||||
Deferred |
34,002 | (416 | ) | (315 | ) | |||||||||
$ | 107,933 | $ | 85,789 | $ | 52,606 |
40
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
8. Income Taxes (Continued)
2005 |
2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Deferred Tax
Assets: |
||||||||||
Employee
benefits |
$ | 126,149 | $ | 126,002 | ||||||
Other |
17,744 | 14,647 | ||||||||
143,893 | 140,649 | |||||||||
Deferred Tax
Liabilities: |
||||||||||
Receivables |
18,410 | 17,555 | ||||||||
Investments |
22,868 | 19,631 | ||||||||
Property and
equipment |
20,600 | 9,272 | ||||||||
Prepaid
expenses |
20,686 | | ||||||||
Other |
1,140 | | ||||||||
83,704 | 46,458 | |||||||||
Net Deferred
Tax Assets |
$ | 60,189 | $ | 94,191 |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Federal
statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||||
State and
local income taxes, net of federal tax benefit |
2.5 | 2.0 | 2.0 | |||||||||||
Resolution of
tax matters |
(0.3 | ) | (1.2 | ) | (5.2 | ) | ||||||||
Municipal
bond interest |
(0.7 | ) | (0.8 | ) | (1.6 | ) | ||||||||
Meal and
entertainment expense disallowance |
0.5 | 0.6 | 0.9 | |||||||||||
Other |
(0.3 | ) | (0.6 | ) | (0.4 | ) | ||||||||
36.7 | % | 35.0 | % | 30.7 | % |
9. | Investments |
2005 |
2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Private
equity |
$ | 140,864 | $ | 117,339 | ||||||
Mutual
funds |
174,819 | 160,074 | ||||||||
U.S. government
securities |
14,813 | 15,633 | ||||||||
Other |
6,898 | 5,395 | ||||||||
Total
Investments |
$ | 337,394 | $ | 298,441 |
41
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
9. Investments (Continued)
10. | Stockholders Equity |
Earnings Per Share
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net earnings
available to common stockholders |
$ | 186,474 | $ | 159,485 | $ | 118,828 | ||||||||
Shares (in
thousands): |
||||||||||||||
Weighted
average shares outstanding |
77,908 | 80,031 | 80,133 | |||||||||||
Effect of
dilutive common shares: |
||||||||||||||
Restricted
shares |
417 | 341 | 327 | |||||||||||
Stock
purchase plan |
163 | 287 | 355 | |||||||||||
Stock option
plan |
278 | 331 | 362 | |||||||||||
Dilutive
common shares |
858 | 959 | 1,044 | |||||||||||
Total
weighted average diluted shares |
78,766 | 80,990 | 81,177 | |||||||||||
Earnings per
share: |
||||||||||||||
Diluted |
$ | 2.37 | $ | 1.97 | $ | 1.46 | ||||||||
Basic |
$ | 2.39 | $ | 1.99 | $ | 1.48 |
Stock Repurchase Program
Stockholders Rights Plan
42
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
10. Stockholders Equity
(Continued)
11. | Commitments and Contingent Liabilities |
Year ending February 28 (29), |
||||||
---|---|---|---|---|---|---|
2006 |
$ | 117,700 | ||||
2007 |
120,700 | |||||
2008 |
107,200 | |||||
2009 |
94,900 | |||||
2010 |
65,500 | |||||
Later
years |
132,200 | |||||
$ | 638,200 |
43
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
11. Commitments and Contingent Liabilities
(Continued)
44
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
11. Commitments and Contingent Liabilities
(Continued)
12. | Financial Instruments |
Off-Balance Sheet Risk and Concentration of Credit Risk
Derivatives
45
A.G. Edwards, Inc.
Notes to Consolidated Financial Statements
(Continued)
(Three years ended February 28, 2005)
(Dollars in thousands, except per share amounts)
12. Financial Instruments (Continued)
Fair Value Consideration
13. | Enterprise Wide Disclosure |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Transaction
services |
$ | 1,559,718 | $ | 1,726,560 | $ | 1,472,348 | ||||||||
Asset
management services |
821,795 | 613,678 | 562,523 | |||||||||||
Interest,
net |
124,629 | 93,273 | 100,813 | |||||||||||
Other |
101,539 | 89,306 | 78,668 | |||||||||||
$ | 2,607,681 | $ | 2,522,817 | $ | 2,214,352 |
* * * * *
46
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES. |
ITEM 9A. | CONTROLS AND PROCEDURES. |
47
ITEM 9B. | OTHER INFORMATION |
PART III
ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. |
ITEM 11. | EXECUTIVE COMPENSATION |
48
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 |
4,764,000 | $ | 37.08 | 3,971,851 | ||||||||||
Employee
Stock Purchase Plan |
4,020,908 | (*) | ||||||||||||
Equity
compensation plans not approved by security holders: |
||||||||||||||
Non Employee
Director Stock Compensation Plan (2) |
None | N/A | 5,027 | |||||||||||
Total |
4,764,000 | 7,997,786 |
(*) |
Includes 1,515,445 shares authorized to be purchased under the 2002 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 estimated 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. This plan is being submitted for shareholder approval at the Annual Meeting of Shareholders on June 23, 2005. |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. |
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
49
PART IV
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
INDEX |
PAGE NUMBER |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
(a) 1. |
Financial Statements |
|||||||||
Managements Report on Internal Control Over Financial Reporting |
25 | |||||||||
Reports of Independent Registered Public Accounting Firm |
26 | |||||||||
Consolidated balance sheets |
28 | |||||||||
Consolidated statements of earnings |
29 | |||||||||
Consolidated statements of stockholders equity |
30 | |||||||||
Consolidated statements of cash flows |
31 | |||||||||
Notes to consolidated financial statements |
32 | |||||||||
2. |
Financial Statement Schedules |
|||||||||
Schedule II Valuation and Qualifying Accounts |
54 |
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, as amended, 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 (the Rights
Agreement) 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 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 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 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 filed as Exhibit 4(vii) to Registrants Form 8-A/A (Amendment No. 2) on
December 19, 2000. |
|||||
10.1 |
A.G.
Edwards, Inc. 1988 Incentive Stock Plan (as amended and restated) filed as Exhibit 10.3 to Registrants Form 8-K dated March 1,
2005.** |
50
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.** |
|||||
10.3 |
A.
G. Edwards, Inc. Retirement and Profit Sharing Plan filed as Exhibit 10.3 to this Form 10-K.** |
|||||
10.4 |
A.G.
Edwards, Inc. Corporate Executive Bonus Plan filed as Exhibit 10.4 to this Form 10-K.** |
|||||
10.5 |
A.G.
Edwards, Inc. 2004 Performance Plan for Executives filed as Exhibit 10.5 to Registrants Form 8-K dated March 1, 2005.** |
|||||
10.6 |
A.G.
Edwards, Inc. Excess Profit Sharing Plan filed as Exhibit 10.4 to Registrants Form 8-K dated March 1, 2005.** |
|||||
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 filed as Exhibit 14.1 to Registrants Form 10-K for the fiscal year ended February 29,
2004. |
|||||
14.2 |
A.G.
Edwards, Inc. Financial Code of Ethical Conduct filed as Exhibit 14.2 to Registrants Form 10-K for the fiscal year ended February 29,
2004. |
|||||
21 |
Registrants Subsidiaries. |
|||||
23 |
Consent of Independent Registered Public Accounting Firm. |
|||||
24 |
Power of Attorney (included on the signature page of this Form 10-K). |
|||||
31(i)(a) |
Principal Executive Officer Certification as required by Rule 13a-14(a)/15d-14(a). |
|||||
31(i)(b) |
Principal Financial Officer Certification as required by Rule 13a-14(a)/15d-14(a). |
|||||
32(i)(a) |
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(i)(b) |
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 the Exhibit Table of Item 601 of Regulation S-K. |
** |
Compensatory plan or arrangement under which executive officers or directors of the Company may participate. |
51
SIGNATURES
By |
/s/ Robert L. Bagby Robert L. Bagby Chairman of the Board, President and Chief Executive Officer |
52
POWER OF ATTORNEY
/s/ Robert L.
Bagby Robert L. Bagby |
Chairman of the Board, President and Chief Executive Officer |
May 4,
2005 |
||||||||
/s/ Ronald J.
Kessler Ronald J. Kessler |
Vice
Chairman of the Board |
May 4,
2005 |
||||||||
/s/ Dr. E.
Eugene Carter Dr. E. Eugene Carter |
Director |
May 4,
2005 |
||||||||
/s/ Vicki B.
Escarra Vicki B. Escarra |
Director |
May 4,
2005 |
||||||||
/s/ Samuel C.
Hutchinson Jr. Samuel C. Hutchinson Jr. |
Director |
May 4,
2005 |
||||||||
/s/ Peter B.
Madoff Peter B. Madoff |
Director |
May 4,
2005 |
||||||||
/s/ Mark S.
Wrighton Mark S. Wrighton |
Director |
May 4,
2005 |
||||||||
/s/ Douglas L.
Kelly Douglas L. Kelly |
Treasurer, Chief Financial Officer and Secretary |
May 4,
2005 |
||||||||
/s/ Thomas H.
Martin Jr. Thomas H. Martin Jr. |
Controller |
May 4,
2005 |
||||||||
/s/ Joseph G.
Porter Joseph G. Porter |
Principal Accounting Officer |
May 4,
2005 |
53
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 28, 2005, Deducted from asset account: |
||||||||||||||||||
Allowance for
doubtful accounts |
$ | 45,593 | $ | 2,262 | $ | 39,810 | $ | 8,045 | ||||||||||
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 |
(*) |
Write-offs net of recoveries. |
54
EXHIBIT INDEX
Exhibit |
Description |
|||||
---|---|---|---|---|---|---|
10.3 |
A.
G. Edwards, Inc. 2002 Retirement and Profit Sharing Plan (available upon request) |
|||||
10.4 |
A.
G. Edwards, Inc. Corporate Executive Bonus Plan (as amended and restated) (available upon request) |
|||||
21 |
Registrants Subsidiaries |
|||||
23 |
Consent of Independent Registered Public Accounting Firm |
|||||
24 |
Power of Attorney (included on signature page of this Form 10-K) |
|||||
31(i)(a) |
Principal Executive Officer Certification as required by Rule 13a-14(a)/15d-14(a) |
|||||
31(i)(b) |
Principal Financial Officer Certification as required by Rule 13a-14(a)/15d-14(a) |
|||||
32(i)(a) |
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(i)(b) |
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 |
55