HaCKeRz KrOnIcKLeZ 3/HaCKeRz_KrOnIcKLeZ.iso/anarchy/essays/schoolsucks/piae12.txt

Text File | 1996-04-27 | 19KB | 315 lines

Business
Profiles in American Enterprise
A.G. Edwards Inc.

    The industry for securities is undoubtedly an exciting and fast paced
industry.  This means that brokerage firms such as A.G. Edwards and Sons
must always be watching the stock prices on every stock in the market so
that they can give their clients maximum profit.  When A.G. Edwards and
SonsÆ clients do well then in turn so does the brokerage firm.  A.G.
Edwards Inc. is not the biggest corporations in America, but yet it is
still a very large corporation and has great importance in the industry
for which it participates.  This paper will give an in depth explanation
about how A.G. Edwards functions as a cor-poration.
    Along with competition from the government, banks and other brokerage
firms there is also probably the biggest factor involved of interest
rates.  Interest rates are indi-rectly proportional to the activity in
the stock market.  This means that when the interest rates fall the
market for securities becomes active.  This is due to the fact that
people want the highest yield on there money and when interest rates are
low, investing money into a bank would yield less money then it would
have before at a higher interest rate.  So people tend to want to put
there money into something that will give them a higher yield and stocks
are just that.
An example of this inversely proportional relationship is always being
demon-strated and was demonstrated in the past few years.  At the end of
1992 to the beginning of 1993 the volume in most businesses was at
record levels obtaining a pre-tax net income for the whole industry of
9.1 billion dollars setting a new record for the second year in a row
(HooverÆs Company & Industry Database, 1993, p. 1 (Hoover, 1993,p.1)).
This trend continued when in the beginning half of 1993 offerings (new
business for the com-pany) exceeded those of 1992 (Hoover,1993, p. 2).
Examples of this are as follows; more than 700 billion dollars of debt
was issued in 1992 and then in the first half of 1993 an-other 440
billion dollars of debt was issued (Hoover, 1993, p. 2).  More than half
of this debt was due to asset-backed debt such as credit cards and other
charges made to credit (Hoover, 1993, p. 2).  These debts were included
because the debts were more or less sold to banks and other money
lending institutions who were more willing to take the risk for the high
interest rate.
This drop in interest rates did wonders for the brokerage firms involved
and also corporations that had acquired debt over the years.  The fall
of interest rates was great for the brokerage firms because of the
increase in business with the publicÆs desire to invest.  So the
corporations used it to issue off more stock to the public to pay off
their debts (Hoover, 1993, p. 2).
As if interest rates didnÆt have enough effect on brokerage firms, there
is also the heavy competition that was involved.  This competition is
not only from other top broker-age firms such as Merrill Lynch, Morgan
Stanley, Primerica (Smith Barney Shearson), Salomon, and Goldman Sachs,
but there is also competition from big banks and securities over seas.
Banks have a number of ways to compete with security firms, but the most
prevalent and direct is through mutual funds.  Since the late 1980Æs
banks have been ag-gressively competing with mutual fund sponsors by
issuing there own mutual funds to the public (Hoover, 1993, p. 3).
Mutual funds that are issued by banks are now the fastest growing part
of the mutual fund industry, with 10.6 percent of total assets and 30
percent of new sales (Hoover, 1993, p. 3).  There has just recently been
a large amount of compe-tition from markets overseas and this
competition continues to increase.  There are a few theories as to what
has caused so many U.S. investors to invest in foreign markets.  It is
supposed that it is either individual investors who want to further
their portfolio or in-vesting in foreign markets to try and avoid
interest rates and changes in currency (Hoover, 1993, p. 4).  The
investment in foreign markets has also been attributed to technology and
the fact that up to date information can be obtained instantly from any
place in the world (Hoover, 1993, p. 4).  But whatever has caused it
global securities have skyrocketed.
    Before the organization and structure of the company a brief history
and explana-tion of the company will be discussed.  A.G. Edwards & Sons
was founded in 1887 by Benjamin Franklin Edwards making A.G. Edwards &
Son the first St. Louis brokerage to handle trades for the local banks
on the New York Stock Exchange (Flagg, 1994, p. 56).  Then three years
later BenjaminÆs younger brother joined the company changing the name to
read A.G. Edwards & Sons (Flagg, 1994, p. 56).  In 1898 Edwards bought a
seat on the NYSE and then in 1900 opened its first office in New York
(Flagg, 1994, p. 56).  In 1925 BenjaminÆs son joined the team and later
became a managing partner (Flagg, 1994, p. 56).  One of A.G. Edwards &
Sons greatest accomplishments in the past was the fact that on Black
Thursday the single most largest lost was 5,000 dollars out of more than
one million dollars (Flagg, 1994, p. 56).  This well managed event
proved that A.G. Edwards had what it took back then to make it in the
stock brokerage industry.  Later down the line A.G. Edwards & Sons
formed a type of mother company entitled A.G. Edwards Inc. which now
oversees many other businesses.  To this day the company still displays
these similar types of skills and that is why the industry has continued
to excel.
    Despite the fact that most people havenÆt heard of A.G. Edwards Inc.,
it is actually quite a large company.  The corporation is described as a
"holding company (Compact Disclosure, 1996,p. 1 (CD, 1996, p.1))."  The
corporation contains many subsidiaries which are the following: A.G.
Edwards & Sons, Inc., Ceres Investment Co., Indianapolis Historic
Partners, AGE Commodity Clearing Corp., A.G. Edwards Life Insurance Co.,
Edwards Development Corp., A.G. Edwards Trust Co., A.G. Edwards Asset
Performance Monitor, Inc.,  A.G.E. Properties, Inc., A.G.E. Reality
Corp., A.G.E. Redevelopment Corp., Gull-Age Capital Group, Inc., AGE
Investments, Inc. (CD, 1996 , p. 12).  All of these subsidiaries perform
the following tasks: provide security and commodity brokerage services
for individual, corporate and institutional clients; distribute mutual
funds, handle corporate and municipal unit trusts, tax incentive
investments, life insurance and annuities; provide investment banking
services for corporate, governmental and municipal clients; and operate
as a futures commission merchant (CD, 1996, p.1).  As you can see A.G.
Ed-wards Inc. is indeed a big company and has tremendous assets.  Since
A.G. Edwards & Sons is the principle subsidiary, when discussing the
functions of the corporation the func-tions of A.G. Edwards & Sons will
mainly be discussed.
    A.G. Edwards Inc. is the full name of the corporation and is based out
of St. Louis Missouri.  The primary office of the corporation is One
North Jefferson Avenue, St. Louis MO, 63103-2205.  The primary SIC Code
is 6211 Security Brokers and Dealers.  The other two SIC Codes are: 6411
Insurance Agents, Brokers, and Service; and 6719 Hold-ing Companies, nec
(CD, 1996, p. 1).  A.G. Edwards Inc. currently contains 11,279
em-ployees.  Since A.G. Edwards Inc. is a corporation it does contain
numerous officers the following is a list of the main officers:
Name    Age    Title    Salary
Edwards, Benjamin F. ,III    64    Chairman of the Board, President, Chief
Executive Officer, Subsidiary Officer    $1,512,627
King, Eugene J.    64    Vice President, Subsidiary Officer    NA
Proost, Robert L.    58    Vice President, Subsidiary Officer    NA
Avis, Robert    64    Vice Chairman of the board, Subsidiary Oficer    $1,174,034
Dissett, Robert C.    58    Subsidiary Officer    $893,849
Mesker, David W.    64    Treasure, Subsidiary Officer    NA
Ewdards, Mary G.    53    Treasure    NA
Sisler, David M.    60    Vice President    NA

    In the subsequent paragraphs the organization of the company will be
discussed.  From reading over all of the sources that have been compiled
for this paper it is relevant to me that A.G. Edwards Inc. is a good
solid company that treats its customers well and contains employees who
are on top of things.  One of the biggest problems that brokerage firms
are facing is the complexity and strict rules and regulations that are
now being pressed upon the firms (1996 Annual Report, 1996, p. 5 (1996
Report, 1996, p. 5)).  Since this is occurring in the industry of
securities it is very important for A.G. Edwards to stay on top of
everything in order to keep up with the competition and stay in
business.   The following is a quote from A.G. EdwardsÆ annual report:
To remain flexible, offer the services investors need and deliver value
for what is charged.  A.G. Edwards is prepared to meet these
challenges.  We are confident our service-oriented philosophy, along
with our ongoing efforts to provide our in-vestment brokers the latest
technology and support resources, will position us well as we look
toward the next century (1996 Report, 1996, p. 5).
From this statement A.G. Edwards declares that they are very prepared
for whatever is ahead of them in the future and will make the sacrifices
to stay in business and continue to have content stock holders,
employees and clients.  Benjamin Edwards III, the CEO of the corporation
states numerous times that the number one interest of the corporation is
to look out for the customer and always be placing them first.
    The Organization of A.G. Edwards Inc. is organized like most other
corporations.  The organization of A.G. Edwards Inc. can be considered
centralized.  As it can be seen from the preceding chart the
organization is hierarchical.  There is Banjamin Edwards who is the
president and resides over all the other positions in the corporation.
The other posi-tions include subsidiary officer, treasure, vice chairman
of the board, vice president, sec-retary, and controller assistant
secretary.  Under the people in these positions is the board of
directors and then the stock holders.  The interesting aspect about A.G.
Edwards Inc. is since A.G. Edwards Inc. is composed of numerous small
corporations each subsidiary has its own board of directors.
    Integration in a business sense has been described to me as in the
vertical and hori-zontal senses; vertical integration being defined as
containing a general sense of one or more industries or being a full
service corporation.  So basically a corporation that sup-plies numerous
services under one roof would be considered vertically integrated.  With
this in mind A.G. Edwards Inc. is definitely a vertically integrated
company.  A.G. Ed-wards Inc. is certainly a generalized company since is
contains so many subsidiaries.
    Since A.G. Edwards Inc. oversees many other smaller companies, it also
competes in  numerous other markets.  These markets are the markets for:
stock, futures and com-modity brokerage, life insurance and annuities,
mutual funds, corporate and municipal trusts, and investment banking.
    This is the section of the paper where the financial aspects of the
company are dis-cussed.  A chart will mostly be used in order to express
the companies standing and then the chart will be explained as to what
the figures for the company signify.  The following chat gives a good
general outlook as to what is numerically happening financially to the
company.

Operating Results    1996    1995    1994    1993    1992
Revenues    $1,454,467    $1,178,342    $1,278,641    $1,074,388    $938,659
Net Earnings    $170,582    $124,119    $154,871    $119,425    $105,532
Net Earnings as a Percent of Revenues    11.7%    10.5%    12.1%    11.1%    11.2%
Earnings Per Share    $2.65    $2.00    $2.57    $2.07    $1.88
StockholdersÆ Equity     $1,088,684    $919,281    $790,367    $615,240    $492,010
Return on Average Equity     17.0%    14.5%    22.0%    21.6%    24.0%
Total Assets    $3,102,085    $2,224,282    $2,236,590    $2,111,192    $1,577,143


    From this chart many conclusions can be drawn.  Before what the actual
numbers signify, the terms in the chart will be explained.  Revenue is
the total gross amount of money that the corporation brought in for that
year.  Net Earnings is the net income or the monetary value that the
corporation brought in that year after expenses.  The earnings per share
is how much net earnings the corporation made for every share of the
company.  Earnings per share is more or less the earnings divided by the
number of shares that have been issued by the corporation.  The
stockholders equity is basically what return the public has gotten for
investing in the company.  Then the total assets is the monetary value
of the company and everything that is connected to it.  There is also
the statistics of the shares of A.G. Edwards Inc.  The return on average
equity is the return on the money that is in-vested internally.  The
current outstanding shares are 63,430,245.  From that number the number
of shares held by insiders is 2,238,256 and the number of shareholders
is 21,500.  On January 31, 1997 the high for the price of the stock was
34.625 and the low was 33.125 and then closing at 34.000 (CD, 1996, p.
8).  The stock price for March 4, 1997 was a high for the day at 36 and
a low for the day at 35 3/8 and then closed at 35 3/8 which is the
unchanged price from the previous day (America Online, 1996).  The
earning per share for that day was 3.21 (America Online, 1996).
    Based on what has been presented in the preceding paragraphs I think
that A.G. Edwards would be a good investment.  From what I have read in
the all of the materials that have been at my disposal, A.G. Edwards
Inc. made a very good impression on me.  They seem to be a corporation
that is on a right track and once it can break away from the competition
it will be huge.  I also think that it is very possible for A.G. Edwards
to be-come a great company if it continues with the upward trend in
earnings that it has been displaying for the past decade.  From the
chart I can draw these conclusions just by look-ing at the net earnings
and how they have increased almost 70 thousand dollars.  This shows that
the company has been doing something right and thus could potentially be
a good investment.
    A.G. Edwards Inc. has done very well in the industry this year making
it a record year for 1996, although much of the credit was because of
the big jump in the Dow Jones average (1996 Report. 1996, p. 3).  A.G.
Edwards Inc.Æs net earnings reached an all time high and resulted in the
paying of more that 100 million dollars in current year income taxes for
the first time (1996 Report, 1996, p. 3).  Related to the jump in net
earnings was the fact that the stockholderÆs net worth went to 1.1
billion dollars, or 17 dollars per share (1996 Report, p. 3).
    A.G. Edwards Inc. has undoubtedly  experienced a great year weather or
not they can be credited with their success.  Because of the increase in
earnings that A.G. Edwards has experienced the corporation was able to
expand their office locations (1996 Report, 1996, p. 3).  In the fourth
fiscal quarter A.G. Edwards Inc. opened offices in Harrisburg, PA;
Galesburg, Ill; Griffin, GA; granting A.G. Edwards a total of 536
locations (1996 Re-port, 1996, p. 3).  Including these office locations,
there were twenty more other office locations added around the United
States for the year of 1996 (1996 Report, 1996, p. 23).  A.G. Edwards
was also able to increase its number of investment brokers to 5,757 by
the end of the year, an increase of 5% from the prior year (1996 Report,
1996, p. 23).  Also in the past twenty years A.G. Edwards has grown to
483 offices in 48 states (Siconolfi, 1993, p. 23).  The broker sales
force more than doubled since the year of 1984 (Siconolfi, 1993, p.
24).  These are great changes for the corporation and shows investors
that the company has a sure footing in the industry.  There has also
been the past changes in the corporation with the continuous adding of
smaller subsidiary corporations which all per-form separate tasks under
the name of A.G. Edwards Inc.
    From this paper the reader should have learned a great deal about A.G.
Edwards Inc.  A.G. Edwards Inc. is an interesting corporation because of
numerous reasons.  Probably the number one reason for this is the fact
that its main subsidiary is a brokerage firm and brokerage firms are
fast paced people working together with other people.  When you have
this combination the future can never be predicted with great accuracy.
The corporation is so big considering that it contains so many other
companies, and any corpo-ration with numerous other corporations
underneath it is always fun to learn about.  From this paper it is my
hope that the reader has become  more knowledgeable about the
corpo-ration A.G. Edwards.  Not only how much money the corporation has
pulled in or what it does, but also about how it is run and what the
attitude of the company is.
References
Anthony, Van "Securities Firms" 1993, September) The Securities and
Exchange Com-mission Report. HooverÆs Company & Industry Database.
CD-ROM. September 1993.

A.G. Edwards Inc. (1996, February 29). 1996 Annual Report

Siconolfi, Michael. (1993 December). "Rating The Brokers" Smart Money,
23-26.

"Complete Company Records" (1996, February) Compact Disclosure. CD-ROM.
February 1996.

"Quotes and Portfolios." (1997 March 5). America Online. Online. America
Online.
Keyword: Quotes.

Flagg, Jonas. (1994 August/September) "A.G. Edwards: A 107-Year-Old
Legacy"
Securities Industry Management Magazine, 56.


Other References

1). I made the graph myself from data in:
"Complete Company Records" (1996, February) Compact Disclosure. CD-ROM.
     February 1996.

2). I made the graph myself from data in:
A.G. Edwards Inc. (1996, February 29). 1996 Annual Report



Table of Contents

I.  Industry Overview
A.  History of the industry
B.  Identification of the corporation
C.  Competition in the industry
D.  Interesting Information about the industry
II.  Company Overview
A.  History of the company
B.  Company Information
C.  Organization of the company
III.   Financial Information
A.  Financial Statistics
B.  Financial Analysis
IV.   Corporate Culture & Trends
A.  Key Recent Events
B.  How the company is holding up
C.  Improvements on the company
V.   Conclusion
VI.   References