UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 30, 2001 Commission file number 0-16633
THE JONES FINANCIAL COMPANIES, L.L.L.P.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1450818
- ------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12555 Manchester Road
St. Louis, Missouri 63131
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 515-2000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
--- ---
As of the filing date, there are no voting
securities held by non-affiliates of the Registrant.
THE JONES FINANCIAL COMPANIES, L.L.L.P.
INDEX
Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition....................3
Consolidated Statements of Income ................................5
Consolidated Statements of Cash Flows.............................6
Consolidated Statements of Changes in Partnership Capital.........7
Notes to Consolidated Financial Statements........................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk........14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................15
Item 6. Exhibits and Reports on Form 8-K .................................15
Signatures........................................................16
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
(Unaudited)
March 30, December 31,
(Amounts in thousands) 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 152,852 $ 176,356
Receivable from:
Customers 1,838,862 2,008,469
Brokers, dealers and clearing organizations 68,968 80,626
Mortgages and loans 100,024 98,946
Securities owned, at market value:
Inventory securities 117,165 118,260
Investment securities 190,090 203,741
Equipment, property and improvements 248,675 248,290
Other assets 219,878 235,697
------------ ------------
Total assets $ 2,936,514 $ 3,170,385
============ ============
===================================================================================================================
The accompanying notes are an integral part of these financial statements.
3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
LIABILITIES AND PARTNERSHIP CAPITAL
(Unaudited)
March 30, December 31,
(Amounts in thousands) 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Bank loans $ 232,278 $ 218,314
Securities sold under agreements to repurchase - 24,969
Securities loaned 132,158 140,596
Payable to:
Customers 1,220,074 1,382,088
Brokers, dealers and clearing organizations 26,345 22,268
Depositors 91,826 87,550
Securities sold, not yet purchased, at market value 28,159 18,064
Accounts payable and accrued expenses 121,890 126,119
Accrued compensation and employee benefits 173,317 232,993
Long-term debt 28,325 29,618
------------ ------------
2,054,372 2,282,579
------------ ------------
Liabilities subordinated to claims of general creditors 232,325 232,325
------------ ------------
Partnership capital 620,813 603,090
Partnership capital reserved for anticipated withdrawals 29,004 52,391
------------ ------------
Total partnership capital 649,817 655,481
------------ ------------
Total liabilities and partnership capital $ 2,936,514 $ 3,170,385
============ ============
===================================================================================================================
The accompanying notes are an integral part of these financial statements.
4
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
(Amounts in thousands, March 30, March 31,
except per unit information) 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Net revenue:
Commissions $ 329,743 $ 393,090
Principal transactions 70,240 64,025
Investment banking 3,467 11,603
Interest and dividends 50,052 47,982
Other 75,530 61,179
--------------- ----------------
Total revenue 529,032 577,879
Interest expense 18,272 18,321
--------------- ----------------
Net revenue 510,760 559,558
--------------- ----------------
Operating expenses:
Compensation and benefits 292,618 334,151
Communications and data processing 53,477 51,489
Occupancy and equipment 50,057 41,113
Payroll and other taxes 24,262 21,122
Floor brokerage and clearance fees 3,958 4,527
Other operating expenses 48,602 38,619
--------------- ----------------
Total operating expenses 472,974 491,021
--------------- ----------------
Net income $ 37,786 $ 68,537
=============== ================
Net income allocated to:
Limited partners $ 5,865 $ 7,938
Subordinated limited partners 3,889 6,669
General partners 28,032 53,930
--------------- ----------------
$ 37,786 $ 68,537
=============== ================
Net income per weighted average $1,000 equivalent partnership unit
outstanding:
Limited partners $ 24.54 $ 53.39
=============== ================
Subordinated limited partners $ 47.51 $ 108.51
=============== ================
Weighted average $1,000 equivalent partnership units outstanding:
Limited partners 238,997 148,678
=============== ================
Subordinated limited partners 81,855 61,457
=============== ================
===================================================================================================================
The accompanying notes are an integral part of these financial statements.
5
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 30, March 31,
(Amounts in thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Cash Flows Provided by Operating Activities:
Net income $ 37,786 $ 68,537
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 16,483 15,720
Changes in assets and liabilities:
Securities purchased under agreements to resell - 75,000
Securities sold under agreement to repurchase (24,969) (188,880)
Net receivable from customers 7,593 (137,885)
Net receivable from brokers, dealers
and clearing organizations 15,735 7,955
Receivable from mortgages and loans (1,078) (3,579)
Securities owned, net 24,841 7,515
Other assets 15,819 (29,352)
Bank loans 13,964 278,272
Securities loaned (8,438) (14,671)
Payables to depositors 4,276 (1,361)
Accounts payable and other accrued expenses (63,905) 18,506
--------------- -------------
Net cash provided by operating activities 38,107 95,777
--------------- -------------
Cash Flows Used in Investing Activities:
Purchase of equipment, property and improvements (16,868) (17,978)
--------------- -------------
Net cash used in investing activities (16,868) (17,978)
--------------- -------------
Cash Flows Used in Financing Activities:
Repayment of long-term debt (1,293) (1,194)
Issuance of partnership interests 11,450 8,994
Redemption of partnership interests (1,464) (812)
Withdrawals and distributions from
partnership capital (53,436) (48,099)
--------------- -------------
Net cash used in financing activities (44,743) (41,111)
--------------- -------------
Net (decrease) increase in cash and cash equivalents (23,504) 36,688
Cash and Cash Equivalents, beginning of period 176,356 142,545
--------------- -------------
Cash and Cash Equivalents, end of period $ 152,852 $ 179,233
=============== =============
Cash paid for interest $ 19,611 $ 19,389
=============== =============
================================================================================================================
The accompanying notes are an integral part of these financial statements.
6
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL
THREE MONTHS ENDED MARCH 30, 2001 AND MARCH 31, 2000
(Unaudited)
Subordinated
Limited limited General
partnership partnership partnership
(Amounts in thousands) capital capital capital Total
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 149,009 $ 52,463 $ 243,665 $ 445,137
Net income 7,938 6,669 53,930 68,537
Issuance of partnership interests - 8,994 - 8,994
Redemption of partnership interests (812) - - (812)
Withdrawals and distributions (14) (200) (1,488) (1,702)
Reserved for anticipated withdrawals (7,924) (6,469) (37,557) (51,950)
-------------- ------------- ------------- -------------
Balance, March 31, 2000 $ 148,197 $ 61,457 $ 258,550 $ 468,204
Balance, December 31, 2000 $ 240,144 $ 70,405 $ 292,541 $ 603,090
Net income 5,865 3,889 28,032 37,786
Issuance of partnership interests - 11,450 - 11,450
Redemption of partnership interests (1,464) - - (1,464)
Withdrawals and distributions (7) (136) (902) (1,045)
Reserved for anticipated withdrawals (5,858) (3,753) (19,393) (29,004)
------------- ------------- ------------- -------------
Balance, March 30, 2001 $ 238,680 $ 81,855 $ 300,278 $ 620,813
================================================================================================================
The accompanying notes are an integral part of these financial statements.
7
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of The Jones Financial Companies, L.L.L.P. and all wholly owned
subsidiaries (the "Partnership"). All material intercompany balances and
transactions have been eliminated. Investments in nonconsolidated companies
which are at least 20% owned are accounted for using the equity method.
The Partnership's principal operating subsidiary, Edward D. Jones &
Co., L.P. ("EDJ"), is engaged in business as a registered broker/dealer
primarily serving individual investors. The Partnership derives its revenues
from the sale of listed and unlisted securities and insurance products,
investment banking and principal transactions and is a distributor of mutual
fund shares. The Partnership conducts business throughout the United States,
Canada and the United Kingdom with its customers, various brokers, dealers,
clearing organizations, depositories and banks.
The financial statements have been prepared using the accrual basis
of accounting which requires the use of certain estimates by management in
determining the Partnership's assets, liabilities, revenues and expenses.
The financial information included herein is unaudited. However, in
the opinion of management, such information includes all adjustments,
consisting solely of normal recurring accruals, which are necessary for a
fair presentation of the results of interim operations.
The results of operations for the three months ended March 30, 2001
and March 31, 2000 are not necessarily indicative of the results to be
expected for the full year.
8
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
NET CAPITAL REQUIREMENTS
As a result of its activities as a broker/dealer, EDJ is subject to
the Net Capital provisions of Rule 15c3-1 of the Securities Exchange Act of
1934 and the capital rules of the New York Stock Exchange. Under the
alternative method permitted by the rules, EDJ must maintain minimum Net
Capital, as defined, equal to the greater of $250,000 or 2% of aggregate
debit items arising from customer transactions. The Net Capital rule also
provides that partnership capital may not be withdrawn if resulting Net
Capital would be less than 5% of aggregate debit items. Additionally,
certain withdrawals require the consent of the SEC to the extent they exceed
defined levels even though such withdrawals would not cause Net Capital to
be less than 5% of aggregate debit items.
At March 30, 2001, EDJ's Net Capital of $403.5 million was 23% of
aggregate debit items and its Net Capital in excess of the minimum required
was $367.7 million. Net Capital as a percentage of aggregate debits after
anticipated withdrawals was 21%. Net Capital and the related capital
percentage may fluctuate on a daily basis.
The firm has other operating subsidiaries, including Boone National
Savings and Loan Association, F.A. (the "Association") and broker/dealer
subsidiaries in Canada and the United Kingdom. These wholly owned
subsidiaries are required to maintain specified levels of liquidity and
capital standards. Each subsidiary is in compliance with the applicable
regulations as of March 30, 2001.
9
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
THE JONES FINANCIAL COMPANIES, L.L.L.P.
MANAGEMENT'S FINANCIAL DISCUSSION
QUARTER ENDED MARCH 30, 2001, VERSUS
QUARTER ENDED MARCH 31, 2000
RESULTS OF OPERATIONS
For the first three months of 2001, total revenue decreased 8%
($48.8 million) to $529.0 million, and net income decreased 45% ($30.8
million) to $37.8 million. The decrease in revenue and net income is due
primarily to lower customer activity due to market conditions. During the
first quarter of 2000, customer activity was very strong. Beginning in the
second quarter of 2000 and continuing through the first quarter of 2001,
customer investing activity returned to a more average level.
The partnership segments its revenues between trade revenue
(revenue from buy or sell transactions on securities) and fee revenue
(sources other than trade revenues). Trade revenue comprised 63% of total
revenue for the first quarter of 2001, down from 69% in 2000. Conversely fee
revenue sources, such as service fees, management fees, IRA fees and
interest income, were 37% of total revenue for the first quarter of 2001, up
from 31% in 2000. The shift in mix is due primarily to lower customer
activity in the first quarter of 2001, and to a modest increase in fee
revenue year over year.
Trade revenue decreased 17% ($67.1 million) during the first
quarter of 2001 due to a decrease in customer dollars invested. Total
customer dollars invested were $12.7 billion during the first quarter of
2001, representing a 31% ($5.6 billion) decrease from the comparable prior
year period. There was also one less selling day in the current quarter
compared to the first quarter last year. These negative factors were
partially offset by a 19% increase in the margin on each $1,000 invested, to
$25.50 in the first three months of 2001 from $21.50 in the first three
months of 2000. Year over year, the composition of the product mix shifted
from individual equities and CDs, which have the lowest margins, to mutual
funds, fixed income and insurance products.
Fee revenue sources increased 10% ($18.3 million) for the quarter
ended March 30, 2001, due primarily to growth in revenue from mutual fund
fees, subtransfer agent services and IRA fees. The Partnership's continued
expansion in recent years of its product and service offerings has had a
positive impact on fee revenue. Service fees increased 4% ($2.8 million)
year over year, due primarily to a 5%
10
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
increase in average customer assets. Interest income increased 4% ($2.1
million) year over year. The increase is due to a 10% increase in average
customer loan balances outstanding for the first quarter of 2001 compared to
the same period last year, partially offset by a decrease in interest rates
during the current period.
Focusing on changes in major revenue categories, commissions
revenue, including service fees, decreased 16% ($63.4 million) during the
first quarter of 2001, due to lower customer volume. Listed and over-the-
counter (OTC) agency commissions decreased 38% ($52.0 million), and mutual
fund commissions decreased 4% ($8.9 million).
Principal transactions revenue increased 10% ($6.2 million) during
the first quarter of 2001. The increase is primarily attributable to an
increase in corporate bonds, partially offset by a shift away from CDs.
Other revenue, comprised of various fee revenue sources, increased
23% ($14.3 million) for the first quarter of 2001. Fee revenue received from
money market, mutual fund and insurance products increased 30% ($13.1
million). Additionally, the number of IRA accounts increased, resulting in
custodial fee revenue growth of 21% ($1.8 million).
Operating expenses decreased 4% ($18.0 million) to $473.0 million
during the quarter ended March 30, 2001. Compensation and benefits costs
decreased 12% ($41.5 million). Sales compensation decreased 12% ($22.7
million) for the quarter due to decreased revenue. Variable compensation,
including bonuses and profit sharing paid to IRs, branch office assistants
and headquarters associates, which expands and contracts in relation to
revenues, net income and profit margin, decreased 62% ($40.7 million) due to
the lower revenue and earnings levels. Offsetting these decreases in
compensation expense was a 25% increase ($22.7 million) in payroll expense
for existing personnel and additional support at both the headquarters and
in the branches as the firm grows its sales force. The Partnership added
1,379 IRs (22%) since March 31, 2000, ending the quarter with 7,653.
Occupancy and equipment expenses increased 22% ($8.9 million). The
Partnership continues to expand its headquarters and branch locations to
enable it to continue to increase its number of IRs, locations and
customers.
11
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's equity capital at March 30, 2001, excluding the
reserve for anticipated withdrawals, was $620.8 million, compared to $603.1
million at December 31, 2000. Equity capital has increased primarily due to
the retention of General Partner earnings ($7.7 million) and to an increase
in Subordinated Limited Partner capital ($11.5 million).
At March 30, 2001, the Partnership had $152.9 million in cash and
cash equivalents. Lines of credit are in place aggregating $1.095 billion
($1.045 billion of which is through uncommitted lines of credit). Actual
borrowing availability is based on securities owned and customers' margin
securities which serve as collateral for the loans.
A substantial portion of the Partnership's assets are primarily
liquid, consisting mainly of cash and assets readily convertible into cash.
These assets are financed primarily by customer credit balances, equity
capital, bank lines of credit and other payables. The Partnership has $190.1
million in U.S. agency and treasury securities (investment securities) which
can be sold to meet liquidity needs. The Partnership believes that the
liquidity provided by existing cash balances, borrowing arrangements, and
investment securities will be sufficient to meet the Partnership's capital
and liquidity requirements.
The Partnership's growth in recent years has been financed through
sales of limited partnership interests to its employees, retention of
earnings, and private placements of long-term and subordinated debt.
For the three months ended March 30, 2001, cash and cash
equivalents decreased $23.5 million. Cash provided by operating activities
was $38.1 million. Cash used in investing activities consisted of $16.9
million in capital expenditures primarily attributable to the firm's
expansion of its headquarters and branch facilities required as the firm
grows its sales force. Cash used in financing activities was $44.7 million
consisting primarily of partnership withdrawals ($53.4 million) partially
offset by issuance of Subordinated Limited Partner interests ($11.5
million).
As a result of its activities as a broker/dealer, EDJ, the
Partnership's principal subsidiary, is subject to the Net Capital provisions
of Rule 15c3-1 of the Securities Exchange Act of 1934 and the capital rules
of the New York Stock Exchange. Under the alternative method permitted by
the rules, EDJ must maintain minimum Net Capital, as defined, equal to the
greater of $250,000 or 2% of aggregate debit items arising from customer
transactions. The Net Capital Rule also provides that partnership capital
12
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
may not be withdrawn if resulting Net Capital would be less than 5% of
aggregate debit items. Additionally, certain withdrawals require the consent
of the SEC to the extent they exceed defined levels even though such
withdrawals would not cause Net Capital to be less than 5% of aggregate
debit items. At March 30, 2001, EDJ's Net Capital of $403.5 million was 23%
of aggregate debit items and its Net Capital in excess of the minimum
required was $367.7 million. Net Capital as a percentage of aggregate debits
after anticipated withdrawals was 21%. Net Capital and the related capital
percentage may fluctuate on a daily basis. The firm has other operating
subsidiaries, including the Association and broker/dealer subsidiaries in
Canada and the United Kingdom. These wholly owned subsidiaries are required
to maintain specified levels of liquidity and capital standards. Each
subsidiary is in compliance with the applicable regulations as of March 30,
2001.
There were no material changes in the Partnership's overall
financial condition during the three months ended March 30, 2001, compared
with the three months ended March 31, 2000. The Partnership's consolidated
statement of financial condition is comprised primarily of cash and assets
readily convertible into cash. Securities inventories are carried at market
value and are readily marketable. Customer margin accounts are
collateralized by marketable securities. Other customer receivables and
receivables and payables with other broker/dealers normally settle on a
current basis. Liabilities, including amounts payable to customers,
outstanding checks and accounts payable and accrued expenses are sources of
funds to the Partnership. These liabilities, to the extent not utilized to
finance assets, are available to meet liquidity needs and provide funds for
short-term investments, which favorably impacts profitability.
THE EFFECTS OF INFLATION
The Partnership's net assets are primarily monetary, consisting of
cash, securities inventories and receivables less liabilities. Monetary net
assets are primarily liquid in nature and would not be significantly
affected by inflation. Inflation and future expectations of inflation
influence securities prices, as well as activity levels in the securities
markets. As a result, profitability and capital may be impacted by inflation
and inflationary expectations. Additionally, inflation's impact on the
Partnership's operating expenses may affect profitability to the extent that
additional costs are not recoverable through increased prices of services
offered by the Partnership.
13
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
FORWARD-LOOKING STATEMENTS
The Management's Financial Discussion contains forward-looking
statements within the meaning of federal securities laws. Actual results are
subject to risks and uncertainties, including both those specific to the
Partnership and those specific to the industry which could cause results to
differ materially from those contemplated. The risks and uncertainties
include, but are not limited to, general economic conditions, actions of
competitors, regulatory actions, changes in legislation and technology
changes. Undue reliance should not be placed on the forward-looking
statements, which speak only as of the date of this Quarterly Report on Form
10-Q. The Partnership does not undertake any obligation to publicly update
any forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The SEC issued market risk disclosure requirements to enhance
disclosures of accounting policies for derivatives and other financial
instruments and to provide quantitative and qualitative disclosures about
market risk inherent in derivatives and other financial instruments. Various
levels of management within the Partnership manage the firm's risk exposure.
Position limits in trading and inventory accounts are established and
monitored on an ongoing basis. Credit risk related to various financing
activities is reduced by the industry practice of obtaining and maintaining
collateral. The Partnership monitors its exposure to counterparty risk
through the use of credit exposure information, the monitoring of collateral
values and the establishment of credit limits.
There were no significant changes in the Partnership's exposure to
interest rate risk during the quarter ended March 30, 2001.
14
Part II. OTHER INFORMATION
THE JONES FINANCIAL COMPANIES, L.L.L.P.
Item 1. Legal Proceedings
There have been no material changes in the legal proceedings previously
reported.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
15
Part II. OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE JONES FINANCIAL COMPANIES, L.L.L.P.
(Registrant)
Dated: May 11, 2001 /s/ Steven Novik
---------------------
Steven Novik
Chief Financial Officer
16