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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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Commission file number 0-16633
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THE JONES FINANCIAL COMPANIES, L.L.L.P.
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(Exact name of registrant as specified in its Partnership Agreement)
MISSOURI 43-1450818
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
12555 Manchester Road
Des Peres, Missouri 63131
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (314) 515-2000
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Securities registered pursuant to Section 12(b) of the act:
Name of each exchange
Title of each class on which registered
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NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of Class)
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 March 29, 2000 there were no voting securities held by non-
affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
1
PART I
ITEM 1. BUSINESS
The Jones Financial Companies, L.L.L.P. (the "Registrant" and also
referred to herein as the "Partnership") is organized under the Revised
Uniform Limited Partnership Act of the State of Missouri. The terms
"Registrant" and "Partnership" used throughout, refer to The Jones
Financial Companies, L.L.L.P. and any or all of its consolidated
subsidiaries. The Partnership is the successor to Whitaker & Co., which
was established in 1871 and dissolved on October 1, 1943, said date
representing the organization date of Edward D. Jones & Co., L.P.
("EDJ"), the Partnership's principal subsidiary. EDJ was reorganized on
August 28, 1987, which date represents the organization date of The
Jones Financial Companies, L.L.L.P.
The Partnership's principal operating subsidiary, EDJ is a registered
broker/dealer primarily serving individual investors. EDJ derives its
revenues from the sale of listed and unlisted securities and insurance
products, investment banking, principal transactions, and is a
distributor of mutual fund shares. EDJ conducts business throughout the
United States, Canada and the United Kingdom with its customers, various
brokers and dealers, clearing organizations, depositories and banks.
The Partnership is a member firm of the New York, American, Chicago,
Toronto, Montreal and London exchanges, and is a registered
broker/dealer with the National Association of Securities Dealers, Inc.,
("NASD").
As of February 25, 2000, the Partnership was comprised of 186 general
partners, 3,797 limited partners and 106 subordinated limited partners.
At December 31, 1999, the Partnership is organized as follows: The
Partnership owns 100% of the outstanding common stock of EDJ Holding
Company, Inc., a Missouri corporation and 100% of the outstanding common
stock of LHC, Inc. ("LHC"), a Missouri corporation. The Partnership also
holds all of the partnership equity of Edward D. Jones & Co., L.P., a
Missouri limited partnership and EDJ Leasing Co., L.P., a Missouri
limited partnership. EDJ Holding Company, Inc. and LHC, Inc. are the
general partners of Edward D. Jones & Co., L.P. and EDJ Leasing Co.,
L.P., respectively. In addition, the Partnership owns 100% of the
outstanding common stock of Conestoga Securities, Inc., a Missouri
corporation and also owns, as a limited partner, 49.5% of Passport
Research Ltd., a Pennsylvania limited partnership, which acts as an
investment advisor to a money market mutual fund. The Partnership owns
100% of the partnership equity of Edward Jones, an Ontario, Canada
limited partnership and all of the common stock of Edward D. Jones & Co.
Canada Holding Co., Inc., an Ontario, Canada corporation, its general
partner. Through the Canadian entities named in the immediately
preceding sentence, the Partnership owns all of the partnership equity
of Edward Jones Insurance Agency, an Ontario, Canada limited
partnership, and all of the common stock of Edward D. Jones & Co. Agency
Holding Co., Inc., an Ontario, Canada corporation, its general partner.
The Partnership also owns 100% of the equity of Edward Jones Limited, a
U.K. private limited company. The Partnership owns 100% of the equity of
Boone National Savings and Loan Association, F.A., ("Association"), a
federally chartered stock savings and loan association. The Partnership
also owns 100% of the equity of EJ Mortgage L.L.C., a Missouri limited
liability company. EJ Mortgage L.L.C. owns 50% of Edward Jones
Mortgage, a joint venture. The Partnership holds all of the partnership
equity in a Missouri limited partnership, EDJ Ventures, Ltd. Conestoga
Securities, Inc., also a wholly owned subsidiary, is the general partner
of EDJ Ventures, Ltd.
The Partnership is the sole member of EJ Insurance Agency Holding,
L.L.C., a Missouri limited liability company; California Agency Holding,
L.L.C., a California limited liability company; EJ Insurance Agency of
Michigan, L.L.C., a Michigan limited liability company; and EJ Insurance
Agency of New Mexico, L.L.C., a New Mexico limited liability company.
EJ Insurance Agency Holding, L.L.C. is the sole member of EJ Insurance
Agency of Wyoming, L.L.C., a Wyoming limited liability company. The
Partnership and EJ Insurance Agency Holding, L.L.C. are multi-members of
EJ Insurance Agency of Massachusetts, L.L.C., a Massachusetts limited
liability company; EJ Insurance Agency of Alabama,
2
PART I
L.L.C., an Alabama limited liability company; EJ Insurance Agency of
Montana, L.L.C., a Montana limited liability company; and EJ Insurance
Agency of Ohio, an Ohio limited liability company. EJ Insurance Agency
Holding, L.L.C. and California Agency Holding, L.L.C. are multi-members
of EJ Insurance Agency of California, L.L.C., a California limited
liability company. The Partnership owns all of the outstanding common
stock of EJ Insurance Agency of Nevada, Inc. The Partnership is an
affiliate of EJ Insurance Agency of Texas, Inc. All of the insurance
agencies engage in general insurance brokerage activities.
The Partnership holds all of the partnership equity of Unison Investment
Trusts, L.P., d/b/a Unison Investment Trusts, Ltd., a Missouri limited
partnership, which has sponsored unit investment trusts. The general
partner of Unison Investment Trusts, L.P., Unison Capital Corp., Inc., a
Missouri corporation, is wholly owned by LHC. EDJ owns 100% of the
outstanding common stock of Cornerstone Mortgage Investment Group II,
Inc., a Delaware limited purpose corporation which has structured and
sold secured mortgage bonds. EDJ also owns 50% of issued common stock of
S-J Capital Corp., a Missouri corporation. Conestoga owns 100% of the
outstanding stock of CIP Management, Inc., which is the managing general
partner of CIP Management, L.P. CIP Management, L.P. is the managing
general partner of Community Investment Partners, L.L.P., Community
Investment Partners II, L.L.P. and Community Investment Partners III,
L.L.P., business development companies.
Other affiliates of the Partnership include Patronus, Inc. and EDJ
Investment Advisory Services. Neither has conducted an active business.
Within the past five years, the Registrant has added several new legal
entities. In 1995, Boone National Savings and Loan Association, F.A. was
purchased and has allowed EDJ to offer trust services to its customers
in all 50 states. During 1997, Edward Jones Limited, a U.K. private
limited company, was organized. During 1998, the Registrant began
brokerage operations in the United Kingdom under this entity. During
1998, EJ Mortgage L.L.C. was established. EJ Mortgage L.L.C., a wholly
owned subsidiary of EDJ, owns 50% of Edward Jones Mortgage, a joint
venture offering residential mortgage lending services to EDJ's
customers. Due to state laws and regulations, certain states require
separate legal entities to transact insurance business. During 1998,
changes were made to certain insurance entities as a result of changes
in state laws and regulations. The following entity was added: EDJ
Insurance Agency of Michigan, L.L.C., a limited liability company.
3
PART I
REVENUES BY SOURCE. The following table sets forth, for the past three
years, the sources of the Partnership's revenues by dollar amounts (all
amounts in thousands):
1999 1998 1997
Commissions
Listed $ 190,313 $ 170,621 $ 138,199
Mutual Funds 583,444 529,285 407,430
O-T-C 168,177 80,774 64,488
Insurance 205,801 178,436 161,800
Other 551 303 110
Principal Transactions 270,830 147,938 166,209
Investment Banking 20,953 51,726 13,865
Interest and Dividends 149,041 118,238 92,938
Gain on Investment - 40,995 -
Money Market Fees 79,203 43,987 35,831
IRA Custodial Service Fees 21,965 16,121 12,200
Other Revenue 96,556 71,539 42,209
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Total Revenue $1,786,834 $1,449,963 $1,135,279
Because of the interdependence of the activities and departments of the
Partnership's investment business and the arbitrary assumptions involved
in allocating overhead, it is impractical to identify and specify
expenses applicable to each aspect of the Partnership's operations.
Furthermore, the net income of firms principally engaged in the
securities business, including the Partnership's, is affected by
interest savings as a result of customer and other credit balances and
interest earned on customer margin accounts.
LISTED BROKERAGE TRANSACTIONS. A portion of the Partnership's revenue is
derived from customers' transactions in which the Partnership acts as
agent in the purchase and sale of listed corporate securities. These
securities include common and preferred stocks and corporate debt
securities traded on and off the securities exchanges. Revenue from
brokerage transactions is highly influenced by the volume of business
and securities prices.
Customers' transactions in securities are effected on either a cash or a
margin basis. In a margin account, the Partnership lends the customer a
portion of the purchase price up to the limits imposed by the margin
regulations of the Federal Reserve Board ("Regulation T"), New York
Stock Exchange ("NYSE") margin requirements, or the Partnership's
internal policies, which may be more stringent than the regulatory
minimum requirements. Such loans are secured by the securities held in
customers' margin accounts. These loans provide a source of income to
the Partnership since it is able to lend to customers at rates which are
higher than the rates at which it is able to borrow on a secured basis.
The Partnership is permitted to use as collateral for the borrowings,
securities owned by margin customers having an aggregate market value
generally up to 140% of the debit balance in margin accounts. The
Partnership may also use funds provided by free credit balances in
customers' accounts to finance customers' margin account borrowings.
In permitting customers to purchase securities on margin, the
Partnership assumes the risk of a market decline which could reduce the
value of its collateral below a customer's indebtedness before the
collateral is sold. Under the NYSE rules, the Partnership is required in
the event of a decline in the market value of the securities in a margin
account to require the customer to deposit additional securities or cash
so that at all times the loan to the customer is no greater than 75% of
the value of the securities in the account (or to sell a sufficient
amount of securities in order to maintain this percentage). The
Partnership, however, imposes a more stringent maintenance requirement.
4
PART I
Variations in revenues from listed brokerage commissions between periods
is largely a function of market conditions; however, some portion of the
overall increases in recent years is due to the growth in the number of
investment representatives over these periods.
MUTUAL FUNDS. The Partnership distributes mutual fund shares in
continuous offerings and new underwritings. As a dealer in mutual fund
shares, the Partnership receives a dealers' discount which generally
ranges from 1% to 5 3/4% of the purchase price of the shares, depending
on the terms of the dealer agreement and the amount of the purchase. The
Partnership also earns service fees which are generally based on 15 to
25 basis points of its customers' assets which are held by the mutual
funds. The Partnership does not manage any mutual fund, although it is a
limited partner of Passport Research, Ltd., an advisor to a money market
mutual fund.
OVER-THE-COUNTER TRANSACTIONS. Partnership activities in unlisted (over-
the-counter) transactions are essentially similar to its activities as a
broker in listed securities. In connection with customers' orders to buy
or sell securities, the Partnership charges a commission for both
principal and agency transactions.
PRINCIPAL TRANSACTIONS. The Partnership makes a market in over-the-
counter corporate securities, municipal obligations, U.S. Government
obligations, including general obligations and revenue bonds, unit
investment trusts and mortgage-backed securities. The Partnership's
market-making activities are conducted with other dealers in the
"wholesale" market and "retail" market wherein the Partnership acts as a
dealer buying from and selling to its customers. In making markets in
principal and over-the-counter securities, the Partnership exposes its
capital to the risk of fluctuation in the market value of its security
positions. It is the Partnership's policy not to trade for its own
account.
As in the case of listed brokerage transactions, revenue from over-the-
counter and principal transactions is highly influenced by the volume of
business and securities prices, as well as by the varying number of
investment representatives employed by the Partnership over the periods
indicated.
INSURANCE. The Partnership has executed agency agreements with various
national insurance companies. EDJ is able to offer life insurance, long
term care insurance, and fixed and variable annuities to its customers
through substantially all of its investment representatives who hold
insurance sales licenses. As an agent for the insurance company, the
Partnership receives commission on the purchase price of the policy. The
Partnership also earns service fees which are generally based on its
customer assets held by the insurance companies.
INVESTMENT BANKING. The Partnership's investment banking activities are
performed by its Syndicate and Underwriting Departments. The principal
service which the Partnership renders as an investment banker is the
underwriting and distribution of securities either in a primary
distribution on behalf of the issuer of such securities, or in a
secondary distribution on behalf of a holder of such securities. The
distributions of corporate and municipal securities are, in most cases,
underwritten by a group or syndicate of underwriters. Each underwriter
has a participation in the offering.
Unlike many larger firms against which the Partnership competes, the
Partnership does not presently engage in other investment banking
activities such as assisting in mergers and acquisitions, arranging
private placement of securities issues with institutions or providing
consulting and financial advisory services to corporations.
The Syndicate and Underwriting Departments are responsible for the
largest portion of the Partnership's investment banking business. In the
case of an underwritten offering managed by the Partnership, these
departments may form underwriting syndicates and work closely with the
branch office system for sales of the Partnership's own participation
and with other members of the syndicate in the pricing and negotiation
of other terms. In offerings managed by others in which the Partnership
participates as a
5
PART I
syndicate member, these departments serve as active coordinators between
the managing underwriter and the Partnership's branch office system.
The underwriting activity of the Partnership involves substantial risks.
An underwriter may incur losses if it is unable to resell the securities
it is committed to purchase or if it is forced to liquidate all or part
of its commitment at less than the agreed purchase price. Furthermore,
the commitment of capital to underwriting may adversely affect the
Partnership's capital position and, as such, its participation in an
underwriting may be limited by the requirement that it must at all times
be in compliance with the Securities and Exchange Commission's uniform
Net Capital Rule.
The Securities Act of 1933 and other applicable laws and regulations
impose substantial potential liabilities on underwriters for material
misstatements or omissions in the prospectus used to describe the
offered securities. In addition, there exists a potential for possible
conflict of interest between an underwriter's desire to sell its
securities and its obligation to its customers not to recommend
unsuitable securities. In recent years there has been an increasing
incidence of litigation in these areas. These lawsuits are frequently
brought for the benefit of large classes of purchasers of underwritten
securities. Such lawsuits often name underwriters as defendants and
typically seek substantial amounts in damages.
INTEREST AND DIVIDENDS. Interest and dividend income is earned primarily
on margin account balances and securities held. Interest is also earned
by the Association on its loan portfolio.
MONEY MARKET FEES, IRA CUSTODIAL SERVICE FEES AND OTHER REVENUES. Other
revenue sources include money market management fees, IRA custodial
services fees, gains from sales of certain assets, and other product and
service fees including fees from subtransfer agent services performed
for certain mutual fund companies. Also, non-commission revenue is
received from mutual funds the Partnership distributes.
The Partnership has an interest in the investment advisor to its money
market fund, Daily Passport Cash Trust. Revenue from this source has
increased over the periods due to growth in the fund, both in dollars
invested and number of accounts. EDJ is also the custodian for its IRA
accounts and charges customers an annual service fee for its services.
The Partnership has registered an investment advisory program with the
Securities and Exchange Commission ("SEC") under the Investment Advisors
Act of 1940. This service is offered firmwide and involves income and
estate tax planning and analysis for clients. Revenues from this source
are insignificant and are included under "Other Revenues."
The Partnership also offers trust services to its customers through the
Edward Jones Trust Company, a division of the Association. The
Partnership offers a co-branded credit card with a major credit card
processing company and receives revenue on new card issuances, card
renewals, and a portion of sales transactions made on the credit card.
In 1998, the Partnership began offering mortgage loans to its customers
through a joint venture. The Partnership also offers loans to small
businesses through a regional bank.
GAIN ON INVESTMENT. The Partnership acquired a small interest in
Federated Investors in 1989 for $1.0 million as a strategic investment.
The partnership distributes Federated's mutual funds. Additionally,
since the early 1980's, the Partnership and Federated have jointly owned
Passport Research, Ltd., the investment advisor to the Partnership's
money market fund, Daily Passport Cash Trust. During 1998, the
Partnership sold two million shares of its investment in Federated
Investors in Federated's initial public offering. The partnership
recognized a $41.0 million gain on its Federated holding. The gain
included $34.8 million realized from the sale of two million shares and
$6.2 million unrealized from 400,000 shares still held. In 1999, the
Partnership sold 300,000 of its remaining shares. The resulting gain
was not significant.
6
PART I
RESEARCH DEPARTMENT. The Partnership maintains a Research Department to
provide specific investment recommendations and market information for
retail customers. The Department supplements its own research with the
services of various independent research services. The Partnership
competes with many other securities firms with substantially larger
research staffs in its research activities.
CUSTOMER ACCOUNT ADMINISTRATION AND OPERATIONS. Operations associates
are responsible for activities relating to customers' securities and the
processing of transactions with other broker/dealers. These activities
include receipt, identification, and delivery of funds and securities,
internal financial controls, accounting and personnel functions, office
services, storage of customer securities and the handling of margin
accounts. The Partnership processes substantially all of its own
transactions. It is important that the Partnership maintain current and
accurate books and records from both a profit viewpoint as well as for
regulatory compliance. To expedite the processing of orders, the
Partnership's branch office system is linked to the St. Louis
headquarters office through an extensive communications network. Orders
for all securities are captured at the branch electronically, routed to
St. Louis and forwarded to the appropriate market for execution. The
Partnership's processing of paperwork following the execution of a
security transaction is automated, and operations are generally on a
current basis.
There is considerable fluctuation during any one year and from year to
year in the volume of transactions the Partnership processes. The
Partnership records transactions and posts its books on a daily basis.
Operations personnel monitor day-to-day operations to determine
compliance with applicable laws, rules and regulations. Failure to keep
current and accurate books and records can render the Partnership liable
to disciplinary action by governmental and self-regulatory
organizations.
The Partnership has a computerized branch office communication system
which is principally utilized for entry of security orders, quotations,
messages between offices, research of various customer account
information, and cash and security receipts functions.
The Partnership clears and settles virtually all of its listed
transactions through the National Securities Clearing Corporation
("NSCC"), New York, New York. NSCC effects clearing of securities on the
New York, American and Chicago Stock Exchanges.
In conjunction with clearing and settling transactions with NSCC, the
Partnership holds customers' securities on deposit with the Depository
Trust Company ("DTC") in lieu of maintaining physical custody of the
certificates. The Partnership also uses Participant Trust Company for
custody of Government National Mortgage Association ("GNMA") securities
and a major bank for custody of treasury securities.
The Partnership is substantially dependent upon the operational capacity
and ability of NSCC/DTC. Any serious delays in the processing of
securities transactions encountered by NSCC/DTC may result in delays of
delivery of cash or securities to the Partnership's customers. These
services are performed for the Partnership under contracts which may be
changed or terminated at will by either party.
Automated Data Processing, Inc., ("ADP"), National Bank of Canada and
Pershing Securities Limited provide automated data processing services
for customer account activity and related records for the United States,
Canada, and the United Kingdom, respectively.
The Partnership does not employ its own floor broker for transactions on
exchanges. The Partnership has arrangements with other brokers to
execute the Partnership's transactions in return for a commission based
on the size and type of trade. If, for any reason, any of the
Partnership's clearing, settling or executing agents were to fail, the
Partnership and its customers would be subject to possible loss. While
the coverages provided by the Securities Investors Protection
Corporation ("SIPC") and protection in excess of SIPC limits would be
available to customers of the Partnership, to the extent that the
Partnership would not be able to meet the obligations of the customers,
such customers might experience delays in obtaining the protections
afforded them by the SIPC and the Partnership's insurance carrier.
7
PART I
The Partnership believes that its internal controls and safeguards
concerning the risks of securities thefts are adequate. Although the
possibility of securities thefts is a risk of the industry, the
Partnership has not had, to date, a significant problem with such
thefts. The Partnership maintains fidelity bonding insurance which, in
the opinion of management, provides adequate coverage.
EMPLOYEES. Including its 186 general partners, the Partnership has
approximately 20,541 full and part-time employees. This includes 6,136
registered salespeople as of February 25, 2000. The Partnership's
salespersons are compensated on a commission basis and may, in addition,
be entitled to bonus compensation based on their respective branch
office profitability and the profitability of the Partnership. The
Partnership has no formal bonus plan for its non-registered employees.
The Partnership has, however, in the past paid bonuses to its non-
registered employees on an informal basis, but there can be no assurance
that such bonuses will be paid for any given period or will be within
any specific range of amounts.
Employees of the Partnership are bonded under a blanket policy as
required by NYSE rules. The annual aggregate amount of coverage is
$50,000,000 subject to a $2,000,000 deductible provision, per
occurrence.
The Partnership maintains a training program for prospective salespeople
which includes nine weeks of concentrated instruction and on-the-job
training in a branch office. During the first phase the trainee spends
60 days studying Series 7 examination materials and taking the
examination. Also during this study period, the trainees spend up to 20
hours a week in a branch office to learn the mechanics of running a
branch office. After passing the examination, trainees spend one week
in a comprehensive training program in St. Louis followed by three weeks
at a designated location to conduct market research and prepare for
opening the office. The trainee then spends three weeks of on-the-job
training in a branch location reviewing investments, office procedures
and sales techniques. Next, the trainee returns to his or her
designated location for one week to continue building a prospect base.
One final week is then spent in a central location to complete the
initial training program. Two and four months later, the investment
representative attends additional training classes in St. Louis, and
subsequently, EDJ offers periodic continuing training to its experienced
sales force. EDJ's basic brokerage payout is similar to its competitors.
The Partnership considers its employee relations to be good and believes
that its compensation and employee benefits which include medical, life,
and disability insurance plans and profit sharing and deferred
compensation retirement plans, are competitive with those offered by
other firms principally engaged in the securities business.
BRANCH OFFICE NETWORK. The Partnership operates 5,854 branch offices as
of February 25, 2000, primarily staffed by a single investment
representative. The offices are located in all 50 states, predominantly
in communities with populations of under 50,000 and metropolitan
suburbs. The Partnership also operates in Canada (through 280 offices
as of February 25, 2000) and the United Kingdom (through 86 offices as
of February 25, 2000).
COMPETITION. The Partnership is subject to intensive competition in all
phases of its business from other securities firms, many of which are
substantially larger than the Partnership in terms of capital, brokerage
volume and underwriting activities. In addition, the Partnership
encounters competition from other organizations such as banks, insurance
companies, and others offering financial services and advice. The
Partnership also competes with a number of firms offering discount
brokerage services, usually with lower levels of service to individual
customers. In recent periods, many regulatory requirements prohibiting
non-securities firms from engaging in certain aspects of brokerage
firms' business have been eliminated and further removal of such
prohibitions is anticipated. With minor exceptions, customers are free
to transfer their business to competing organizations at any time.
8
PART I
There is intense competition among securities firms for salespeople with
good sales production records. In recent periods, the Partnership has
experienced increasing efforts by competing firms to hire away its
registered representatives although the Partnership believes that its
rate of turnover of investment representatives is not higher than that
of other firms comparable to the Partnership.
REGULATION. The securities industry in the United States is subject to
extensive regulation under both federal and state laws. The SEC is the
federal agency responsible for the administration of the federal
securities laws. The Partnership's principal subsidiary is registered as
a broker-dealer and investment advisor with the SEC. Much of the
regulation of broker-dealers has been delegated to self-regulatory
organizations, principally the NASD and national securities exchanges
such as the NYSE, which has been designated by the SEC as the
Partnership's primary regulator. These self-regulatory organizations
adopt rules (which are subject to approval by the SEC) that govern the
industry and conduct periodic examinations of the Partnership's
operations. Securities firms are also subject to regulation by state
securities administrators in those states in which they conduct
business. EDJ or an affiliate is registered as a broker-dealer in 50
states, Puerto Rico, Canada, and the United Kingdom.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities,
capital structure of securities firms, record-keeping and the conduct of
directors, officers and employees. Additional legislation, changes in
rules promulgated by the SEC and self-regulatory organizations, or
changes in the interpretation or enforcement of existing laws and rules,
may directly affect the mode of operation and profitability of broker-
dealers. The SEC, self-regulatory organizations and state securities
commissions may conduct administrative proceedings which can result in
censure, fine, suspension or expulsion of a broker-dealer, its officers
or employees. The principal purpose of regulation and discipline of
broker-dealers is the protection of customers and the securities
markets, rather than protection of the creditors and stockholders of
broker-dealers. In addition, EDJ conducts business in Canada, through a
subsidiary partnership which is regulated by the Investment Dealers
Association of Canada and in the United Kingdom which is regulated by
The Securities and Futures Authority. As a federally chartered savings
and loan, the Association is subject to regulation by the Office of
Thrift Supervision ("OTS").
UNIFORM NET CAPITAL RULE. As a broker-dealer and a member firm of the
NYSE, the Partnership is subject to the Uniform Net Capital Rule
("Rule") promulgated by the SEC. The Rule is designed to measure the
general financial integrity and liquidity of a broker-dealer and the
minimum Net Capital deemed necessary to meet the broker-dealer's
continuing commitments to its customers. The Rule provides for two
methods of computing Net Capital and the Partnership has adopted what is
generally referred to as the alternative method. Minimum required Net
Capital under the alternative method is equal to 2% of the customer
debit balances, as defined. The Rule prohibits withdrawal of equity
capital whether by payment of dividends, repurchase of stock or other
means, if Net Capital would thereafter be less than 5% of customer debit
balances. 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. In computing Net Capital, various adjustments are made to
exclude assets which are not readily convertible into cash and to
provide a conservative statement of other assets such as a company's
inventories. Failure to maintain the required Net Capital may subject a
firm to suspension or expulsion by the NYSE, the SEC and other
regulatory bodies and may ultimately require its liquidation. The
Partnership has, at all times, been in compliance with the Net Capital
Rule.
9
PART I
ITEM 2. PROPERTIES
The Partnership conducts its headquarters operations from three
locations in St. Louis County, Missouri, comprising 20 separate
buildings. Two of the locations (18 buildings) are owned by the
Partnership and the third location is leased through a long-term
operating lease. In addition, the Partnership leases its Canadian
headquarters (2 buildings) facility in Mississauga, Ontario through an
operating lease and has a long-term operating lease for its United
Kingdom headquarters located in London, England. The Partnership also
maintains facilities in 5,854 branch locations (as of February 25,
2000) which are located in the United States, Canada and the United
Kingdom and are rented under predominantly cancelable leases. The
Partnership believes that its properties are both suitable and adequate
to meet the current and future growth projections of the organization.
ITEM 3. LEGAL PROCEEDINGS
In recent years there has been an increasing incidence of litigation
involving the securities industry. Such suits often seek to benefit
large classes of industry customers; many name securities dealers as
defendants along with exchanges in which they hold membership and seek
large sums as damages under federal and state securities laws, anti-
trust laws, and common law.
Various legal actions are pending against the Partnership, with certain
cases claiming substantial damages. These actions are in various stages
and the results of such actions cannot be predicted with certainty. In
the opinion of management, after consultation with legal counsel, the
ultimate resolution of these actions is not expected to have a material
adverse impact on the Partnership's operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Limited or
Subordinated Limited Partnership interests and their assignment is
prohibited.
ITEM 6. SELECTED FINANCIAL DATA
The following information sets forth, for the past five years, selected
financial data.
(All amounts in thousands, except per unit information.)
Summary Income Statement Data:
1999 1998 1997 1996 1995
Revenue $1,786,834 $1,449,963 $1,135,279 $952,068 $722,785
Net income $ 187,331 $ 199,209 $ 114,184 $ 92,888 $ 58,186
Net income per
weighted average
$1,000 equivalent
limited partnership
unit outstanding $ 173.81 $ 274.30 $ 176.06 $ 170.63 $ 125.01
Weighted average
$1,000 equivalent
limited partnership
units outstanding 150,670 103,747 93,962 96,879 67,345
Net income per
weighted average
$1,000 equivalent
subordinated limited
partnership unit
outstanding $ 325.21 $ 448.17 $ 320.61 $ 301.44 $ 225.00
Weighted average
$1,000 equivalent
subordinated limited
partnership units
outstanding 51,741 44,026 37,332 30,543 27,720
- --------------------------------------------------------------------------------------------------------
11
PART II
Item 6. Selected Financial Data
Summary Balance Sheet Data:
1999 1998 1997 1996 1995
Total assets $2,693,241 $2,118,844 $1,554,798 $1,380,416 $1,045,501
========== ========== ========== ========== ==========
Long-term debt $ 34,540 $ 41,825 $ 53,350 $ 67,190 $ 70,127
Other liabilities,
exclusive of
subordinated
liabilities 1,908,117 1,434,020 979,797 826,609 605,080
Subordinated liabilities 259,050 200,275 216,500 216,500 122,000
Total partnership capital 491,534 442,724 305,151 270,117 248,294
---------- ---------- ---------- ---------- ----------
Total liabilities and
partnership capital $2,693,241 $2,118,844 $1,554,798 $1,380,416 $1,045,501
Net income for 1998 included a $41.0 million gain on investment in
Federated Investors. The Partnership acquired a small interest in
Federated in 1989 for $1.0 million as a strategic investment.
During 1998, the Partnership sold a significant portion of its
investment in Federated's initial public offering.
12
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table summarizes the increase (decrease) in major
categories of revenues and expenses for the last two years (dollar
amounts in thousands).
1999 vs. 1998 1998 vs. 1997
------------------------ ------------------------
Amount Percentage Amount Percentage
Net Revenue:
Commissions $188,867 20% $187,392 24%
Principal transactions 122,892 83 (18,271) (11)
Investment banking (30,773) (59) 37,861 273
Interest and dividends 30,803 26 25,300 27
Gain on investment (40,995) (100) 40,995 100
Other 66,077 50 41,407 46
-------- --------
Total revenue 336,871 23 314,684 28
Interest expense 11,449 24 3,012 7
-------- --------
Net revenue 325,422 23 311,672 29
-------- --------
Operating Expenses:
Compensation and benefits 213,622 26 168,698 26
Occupancy and equipment 5,947 5 13,115 11
Communications and data
processing 62,630 55 18,195 19
Payroll and other taxes 9,328 21 10,054 29
Floor brokerage and
clearance fees 3,368 37 1,018 13
Other operating expenses 42,405 44 15,567 19
-------- --------
Total operating expenses 337,300 28 226,647 23
-------- --------
Net income $(11,878) (6)% $ 85,025 74%
RESULTS OF OPERATIONS (1999 VERSUS 1998)
Total revenue for 1999 was $1.8 billion compared to $1.4 billion in
1998, an increase of 23%. Operating expenses for 1999 were $1.5
billion, an increase of 28% compared to 1998. Net income of $187.3
million for 1999 decreased 6% compared to net income of $199.2 million
for 1998. Excluding the gain on investment in 1998, 1999's net income
increased 18%. Net income for 1998 included a $41.0 million gain on
investment in Federated Investors. The partnership acquired a small
interest in Federated in 1989 for $1.0 million as a strategic
investment. During 1998, the Partnership sold a significant portion of
its investment in Federated's initial public offering.
13
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership continued to focus on sales force growth in 1999. The
Partnership added 1,254 (27%) Investment Representatives (IRs) in 1999,
ending the year with 5,939 IRs in the United States, Canada and the
United Kingdom.
Total revenue increased 23% ($336.9 million) during 1999 compared to
1998. Excluding the gain on investment in 1998, total net revenue
increased 27% ($377.9 million) during 1999 compared to 1998. Revenue
growth was attributable to strong securities markets, an increase in the
number of IRs and continued maturity of existing IRs. The Partnership
segments its revenues between trade revenues (revenues from buy or sell
transactions on securities) and fee revenues (sources other than trade
revenues). Trade revenue comprised 68% of total revenue in 1999 versus
70% during 1998 (excluding the Federated gain). Fee revenue sources,
such as service fees, management fees, IRA fees and interest income
represented the remaining 32% and 30% of revenue for 1999 and 1998,
respectively.
Trade revenue increased 23% ($228.4 million) to $1.2 billion during
1999. Revenue growth resulted from growth in the number of IRs and
customer dollars invested, offset by a decrease in the commission earned
on each dollar invested. Total customer dollars invested were $53.2
billion during 1999, representing a 33% ($13.3 billion) increase
compared to 1998. Continued maturity and growth of the sales force and
strong securities markets contributed to increasing customer dollars
invested to record levels. A shift in product mix to lower margin
products resulted in a 8% decrease in revenue per $1,000 invested from
$24.80 in 1998 to $22.60 in 1999.
Fee revenue sources, which include service fees, revenue sharing
agreements with mutual funds and insurance companies, interest income,
IRA custodial fees and other fees increased 35% ($148.5 million) to
$571.6 million. Fee revenue is primarily associated with the value of
customers' assets. Total customers' assets increased 25% to $228.7
billion in 1999. Additionally, the Partnership's continued expansion of
its product and service offerings has had a positive impact on fee
revenue.
Focusing on changes in major revenue categories, commissions increased
20% ($188.9 million) during 1999. Mutual fund commissions increased 11%
($55.4 million) and accounted for 29% of commission revenue growth.
Listed and over-the-counter (OTC) agency commissions increased 43%
($107.1 million) over 1998 levels accounting for 57% of the total
commission growth for 1999. The remaining commission growth resulted
primarily from a $27.1 million increase in insurance commissions. The
firm experienced strong growth in commissions due to the highly active
securities markets in 1999 and to growth in the number of IRs.
Principal transaction revenue increased 83% ($122.9 million) during
1999. Fixed income products, including municipal bonds, CDs and
corporate bonds all increased in revenue compared to the prior year.
Rising interest rates in 1999 combined with growth in the number of IRs
contributed to the increase.
Investment banking revenues decreased 59% ($30.8 million) compared to
1998. The Partnership was less active in originating securities during
1999.
Interest and dividend income increased 26% ($30.8 million) compared to
1998. Interest from customer loans increased 30% ($29.1 million) as the
Partnership's customer loan balances increased to $1.6 billion (43%)
during 1999.
Other revenue increased 50% ($66.1 million) compared to 1998. Fee
revenue received from money market management fees and mutual fund and
insurance products increased 122% ($29.1 million) and 30% ($20.5
million), respectively. Fee revenues are generally associated with
customer asset balances. Customers' assets continued to grow during
1999 due to strong securities markets and an increase in the number of
customers the Partnership serves. Additionally, the number of IRA
accounts increased, resulting in custodial fee revenue growth of 36%
($5.8 million).
14
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Interest expense increased 24% ($11.4 million) compared to 1998. The
growth in interest expense is due primarily to an increase in bank loans
outstanding to fund customer loan balances.
Operating expenses increased 28% ($337.3 million) to $1.5 billion in
1999. Compensation costs represent 63% ($213.6 million) of the total
expense growth for the year. Sales compensation increased 24% ($117.3
million) due to increased revenue and an increased number of IRs.
Variable compensation, which expands and contracts in relation to
revenues, net income and profit margin, increased 25% ($33.4 million) in
1999 due to the Partnership's strong revenue and earnings levels. Within
variable compensation, bonuses paid to IRs and BOAs increased 29%
($24.8 million), and profit sharing expense increased 18% ($7.1
million). Remaining increases in compensation expense are primarily
attributable to increased payroll for existing personnel and additional
support at both the headquarters and in the branches as the firm grows
its sales force.
Communications and data processing expenses account for 19% ($62.6
million) of the total expense growth in 1999 compared to 1998. The
Partnership continues to expand its headquarters, branch locations and
communications systems to enable it to continue to increase the number
of its IRs, locations, and customers.
Other operating expenses include costs associated with the firm's
marketwide advertising program which expanded in 1999. Remaining
expense increases represent costs necessary to support a larger
organization.
RESULTS OF OPERATIONS (1998 VERSUS 1997)
Revenue and net income in 1998 were $1.4 billion and $199.2 million,
respectively. Total revenue compared to 1997 increased 28% and included
a $41.0 million investment gain. Operating expenses increased 23%
compared to 1997. Net income excluding the gain on investment increased
38% while total net income (including the investment gain) increased 74%
during 1998.
The Partnership has continued to focus on sales force growth and
increased product and service offerings. The Partnership added 731
(18%) Investment Representatives (IRs) to its sales force, in 1998
ending the year with 4,685 IRs in the United States, Canada and the
United Kingdom. The Partnership continued to expand its offering of
products and financial services during 1998, through the formation of a
joint venture, Edward Jones Mortgage, to provide residential mortgage
lending to Edward Jones' customers. Continued efforts are underway to
provide the technology infrastructure necessary for the partnership to
support continued office growth and new product offerings.
Total revenue increased 28% ($314.7 million) during 1998 compared to
1997. Revenue growth was attributable to strong securities markets, an
increase in the number of IRs, continued maturity of existing IRs and
the gain from the Partnership's holdings of Federated securities. The
Partnership segments its revenues between trade revenues (revenues from
buy or sell transactions on securities) and fee revenues (sources other
than trade revenues). Trade revenue comprised 70% of revenue (excluding
the Federated gain) versus 72% during 1997. Fee revenue sources, such as
service fees, management fees, IRA fees and interest income
represented the remaining 30% of revenue (excluding the Federated gain)
reported for 1998.
Trade revenue increased 21% ($168.7 million) to $986.8 million during
1998. Revenue growth resulted from growth in the number of IRs and
customer dollars invested, offset by a decrease in the commission earned
on each dollar invested and one less selling day in 1998 compared to
1997. Total customer dollars invested were $39.9 billion during 1998,
representing a 22% ($7.3 billion) increase compared to 1997. Continued
maturity and growth of the sales force and strong securities markets
contributed to increasing customer dollars invested to record levels. A
shift in product mix to lower margin products resulted in a 1% decrease
in revenue per $1,000 invested from $25.10 in 1997 to $24.80 in 1998.
15
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Fee revenue sources, which include service fees, revenue sharing
agreements with mutual funds and insurance companies, interest income,
IRA custodial fees and other fees increased 33% ($106.0 million) to
$423.1 million. Fee revenue is primarily associated with the value of
customers' assets. Total customers' assets increased 27% to $182.8
billion in 1998. The Partnership's expansion of its product and service
offerings had a positive impact on fee revenue.
The Partnership acquired a small interest in Federated Investors in 1989
for $1.0 million as a strategic investment. The Partnership distributes
Federated's mutual funds. Additionally, since the early 1980's, the
Partnership and Federated have jointly owned Passport Research, Ltd.,
the investment advisor to the Partnership's money market fund, Daily
Passsport Cash Trust. During 1998, the Partnership sold two million
shares of its investment in Federated Investors in Federated's initial
public offering. The Partnership recognized a $41.0 million gain on
its Federated holding. The gain included $34.8 million realized from
the sale of two million shares and $6.2 million unrealized from 400,000
shares still held.
Focusing on changes in major revenue categories, commissions increased
24% ($187.4 million) during 1998. Mutual fund commissions increased 30%
($121.8 million) and accounted for 65% of commission revenue growth.
Listed and over-the-counter (OTC) agency commissions increased 24%
($48.7 million) over 1997 levels accounting for 26% of the total
commission growth for 1998. The remaining commission growth resulted
primarily from a $16.9 million increase in insurance commissions.
Principal transaction revenue decreased 11% ($18.3 million) during 1998.
Product categories experiencing the greatest declines were CDs and
corporate bonds. Customers tended to invest more in mutual fund and
equities in 1998 and trended away from fixed income securities.
Investment banking revenues increased 273% ($37.9 million) compared to
1997 and represented 12% of total revenue growth for the partnership.
The Partnership was more active in originating equity and debt
securities for major issuers.
Interest and dividend income increased 27% ($25.3 million) to $118.2
million. Interest from customer loans increased 41% ($27.4 million) as
the Partnership's customer loan balances increased to $1.1 billion (29%)
during 1998.
Other revenue increased 46% ($41.4 million) compared to 1997. Fee
revenue received from mutual fund and insurance products, and money
market management fees increased 80% ($26.0 million) and 25% ($9.5
million), respectively. Fee revenues are earned based on customer asset
balances. Customers' assets continued to grow during 1998 due to strong
securities markets and an increase in the number of customers the
Partnership serves as it increased its sales force. Additionally, the
number of IRA accounts increased, resulting in custodial fee revenue
growth of 32% ($3.8 million).
Interest expense increased 7% ($3.0 million) compared to 1997. The
interest expense growth is directly related to interest paid on customer
balances.
Operating expenses increased 23% ($226.6 million) to $1.2 billion in
1998. Compensation costs represent 74% ($168.7 million) of the total
expense growth for the year. Sales compensation increased 22% ($87.8
million) due to increased revenue and an increased number of IRs.
Variable compensation which expands and contracts in relation to
revenues net income and profit margin, increased 50% ($45.0 million) in
1998 due to the Partnership's strong revenue and earnings levels.
Bonuses paid to IRs and BOAs increased 57% ($31.3 million), and profit
sharing expense increased 37% ($10.8 million). Remaining increases in
compensation expense are primarily attributable to increased payroll for
existing personnel and additional support at both the headquarters and
in the branches.
Occupancy and equipment and communications and data processing expenses
increased 11% ($13.1 million) and 19% ($18.2 million) compared to 1997.
The Partnership continues to expand its
16
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
headquarters, branch locations and communications systems to enable it
to continue to increase the number of its IRs, locations, and customers.
Other operating expenses include costs associated with the firm's
marketwide advertising program which expanded in 1998. Remaining
expense increases represent costs necessary to support a larger
organization.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's equity capital at December 31, 1999, including the
reserve for anticipated withdrawals, was $491.5 million compared to
$442.7 million as of December 31, 1998. Equity capital has increased
primarily due to retention of General Partner earnings.
At December 31, 1999, the Partnership had $142.5 million in cash and
cash equivalents and $75.0 million in securities purchased under
agreements to resell. Lines of credit are in place at ten banks
aggregating $665.0 million ($615.0 million of which is through
uncommitted lines of credit). Actual borrowing availability is
primarily 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
$210.5 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 capital and liquidity requirements.
The Partnership issued $75.0 million of subordinated debt through
private placements in September 1999.
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.
The Partnership's principal subsidiary, Edward D. Jones & Co., L.P.
("EDJ") as a securities broker/dealer, is subject to the Securities and
Exchange Commission regulations requiring EDJ to maintain certain
liquidity and capital standards. EDJ has been in compliance with these
regulations.
For the year ended December 31, 1999, cash and cash equivalents
decreased $1.2 million. Cash flows from operating activities provided
$168.1 million. Net income adjusted for depreciation provided $246.7
million, securities sold under agreements to repurchase provided $188.9
million, and borrowings under the Firm's bank lines of credit provided
$102.9 million. Receivables from customers, net of payables to
customers, used $386.3 million. Investing activities used $82.2 million
for the purchase of fixed assets. Cash flows from financing activities
used $87.0 million for withdrawals and distributions of partnership
capital, net of issuance of subordinated limited partnership interests
and $75.0 million in subordinated debt.
For the year ended December 31, 1998, cash and cash equivalents
increased $82.0 million. Cash flows from operating activities provided
$194.4 million. Investing activities used $23.0 million. Fixed asset
purchases totalled $58.6 million, and were offset by $35.6 million in
proceeds from the Federated security sale. Cash flows from financing
activities used $89.4 million for partnership withdrawals and repayment
of subordinated liabilities. A significant source of cash from
financing activities was a $62.3 million limited partnership offering in
July, 1998.
For the year ended December 31, 1997, cash and cash equivalents
decreased $3.1 million. Cash flows from operating activities provided
$143.4 million. Investing activities used $53.6 million for the
purchase
17
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
of fixed assets primarily related to the purchase of client server
equipment. Cash flows from financing activities used $93.0 million
primarily for withdrawals and distributions from partnership capital and
to repay long-term debt.
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 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 December 31, 1999, EDJ's
Net Capital of $345.0 million was 21% of aggregate debit items and its
Net Capital in excess of the minimum required was $312.6 million. Net
Capital as a percentage of aggregate debits after anticipated
withdrawals was 20%. Net Capital and the related capital percentage may
fluctuate on a daily basis.
There were no material changes in the Partnership's overall financial
condition during the year ended December 31, 1999, compared with the
year ended December 31, 1998. 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,
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.
YEAR 2000 SYSTEM ISSUES
As of March 29, 2000, the Company has not encountered any significant
business disruptions as a result of internal or external Year 2000
issues. However, while no such occurrence has developed, Year 2000
issues may arise that may not become immediately apparent. Therefore,
the company will continue to monitor and work to remediate any issues
that may arise. Although the Company expects not to be materially
impacted, such future events cannot be known with certainty.
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.
FORWARD-LOOKING STATEMENTS
The Management's Financial Discussion, including the discussion under
"Year 2000 System Issues," 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, third-party or
Partnership failures to achieve timely, effective remediation of the
Year 2000 issues, general economic conditions, actions of competitors,
regulatory actions, changes in legislation and technology changes.
Undue reliance should not be placed on the
18
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
forward-looking statements, which speak only as of the date of this
Annual Report on Form 10-K. The Partnership does not undertake any
obligation to publicly update any forward-looking statements.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS NO. 133
"Accounting for Derivative Instruments and Hedging Activities", which
requires that all derivatives be recognized as either assets or
liabilities in the statement of financial position at fair value unless
specific hedge criteria are met. The Partnership is required to adopt
the provisions of SFAS 133 in the year 2001. Adoption of this statement
is not expected to significantly impact the Partnership's consolidated
financial position, results of operations or cash flows.
ITEM 7A. 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.
The Partnership maintains inventories as detailed in Note 5 to the
Consolidated Financial Statements. The fair value of these securities
at December 31, 1999 was $122.1 million in long positions and $18.7
million in short positions. The Partnership performed an analysis of
its financial instruments and assessed the related interest rate risk
and materiality in accordance with the rules. Based on this analysis,
in the opinion of management, the risk associated with the Partnership's
financial instruments at December 31, 1999 will not have a material
adverse effect on the consolidated financial position or results of
operations of the Partnership.
19
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements Included in this Item
Page No.
Report of Independent Public Accountants 21
Consolidated Statements of Financial Condition as of
December 31, 1999 and 1998 22
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997 24
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 25
Consolidated Statements of Changes in Partnership Capital
for the years ended December 31, 1999, 1998 and 1997 26
Notes to Consolidated Financial Statements 27
20
PART II
Item 8. Financial Statements and Supplemental Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Jones Financial Companies, L.L.L.P.
We have audited the accompanying consolidated statements of financial
condition of The Jones Financial Companies, L.L.L.P. (a Missouri Limited
Liability Limited Partnership) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of income, cash flows
and changes in partnership capital for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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, the financial statements referred to above present
fairly, in all material respects, the financial position of The Jones
Financial Companies, L.L.L.P. and subsidiaries as of December 31, 1999
and 1998, and the results of their operations, their cash flows and the
changes in their partnership capital for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 22, 2000
21
PART II
Item 8. Financial Statements and Supplemental Data
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
December 31, December 31,
(Amounts in thousands) 1999 1998
Cash and cash equivalents $ 142,545 $ 143,745
Securities purchased under agreements to resell 75,000 115,000
Receivable from:
Customers (Note 2) 1,662,257 1,165,483
Brokers, dealers and clearing organizations (Note 3) 25,517 34,518
Mortgages and loans (Note 4) 82,724 68,822
Securities owned, at market value (Note 5):
Inventory securities 122,078 110,864
Investment securities 210,510 166,887
Equipment, property and improvements (Note 6) 224,792 201,901
Other assets 147,818 111,624
---------- ----------
TOTAL ASSETS $2,693,241 $2,118,844
The accompanying notes are an integral part of these statements.
22
PART II
Item 8. Financial Statements and Supplemental Data
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
LIABILITIES AND PARTNERSHIP CAPITAL
December 31, December 31,
(Amounts in thousands) 1999 1998
Bank loans (Note 7) $ 109,897 $ 6,967
Securities sold under agreements to repurchase 188,880 -
Payable to:
Customers (Note 2) 1,155,884 1,045,440
Brokers, dealers and clearing organizations (Note 3) 57,218 55,423
Depositors (Note 8) 77,252 74,152
Securities sold, not yet purchased,
at market value (Note 5) 18,666 18,928
Accounts payable and accrued expenses 83,386 75,811
Accrued compensation and employee benefits 216,934 157,299
Long-term debt (Note 9) 34,540 41,825
---------- ----------
1,942,657 1,475,845
---------- ----------
Liabilities subordinated to claims
of general creditors (Note 10) 259,050 200,275
---------- ----------
Partnership capital (Notes 11 and 12):
Limited partners 149,009 152,732
Subordinated limited partners 52,463 44,896
General partners 243,665 204,734
---------- ----------
445,137 402,362
Partnership capital reserved for anticipated withdrawals 46,397 40,362
---------- ----------
TOTAL PARTNERSHIP CAPITAL 491,534 442,724
---------- ----------
TOTAL LIABILITIES AND CAPITAL $2,693,241 $2,118,844
The accompanying notes are an integral part of these statements.
23
PART II
Item 8. Financial Statements and Supplemental Data
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended
-----------------------------------------
(Amounts in thousands, December 31, December 31, December 31,
except per unit information) 1999 1998 1997
Net revenue:
Commissions $1,148,286 $ 959,419 $ 772,027
Principal transactions 270,830 147,938 166,209
Investment banking 20,953 51,726 13,865
Interest and dividends 149,041 118,238 92,938
Gain on investment - 40,995 -
Other 197,724 131,647 90,240
---------- ---------- ----------
Total revenue 1,786,834 1,449,963 1,135,279
Interest expense (Notes 2, 7, 8, 9, 10 and 11) 58,435 46,986 43,974
---------- ---------- ----------
Net revenue 1,728,399 1,402,977 1,091,305
---------- ---------- ----------
Operating expenses:
Compensation and benefits (Note 13) 1,024,323 810,701 642,003
Occupancy and equipment (Notes 6 and 14) 134,502 128,555 115,440
Communications and data processing 176,943 114,313 96,118
Payroll and other taxes 54,346 45,018 34,964
Floor brokerage and clearance fees 12,491 9,123 8,105
Other operating expenses 138,463 96,058 80,491
---------- ---------- ----------
Total operating expenses 1,541,068 1,203,768 977,121
---------- ---------- ----------
Net income $ 187,331 $ 199,209 $ 114,184
========== ========== ==========
Net income allocated to:
Limited partners $ 26,189 $ 28,458 $ 16,543
Subordinated limited partners 16,827 19,731 11,969
General partners 144,315 151,020 85,672
---------- ---------- ----------
$ 187,331 $ 199,209 $ 114,184
========== ========== ==========
Net income per weighted average $1,000
equivalent partnership units outstanding:
Limited partners $ 173.81 $ 274.30 $ 176.06
========== ========== ==========
Subordinated limited partners $ 325.21 $ 448.17 $ 320.61
========== ========== ==========
Weighted average $1,000 equivalent
partnership units outstanding:
Limited partners 150,670 103,747 93,962
========== ========== ==========
Subordinated limited partners 51,741 44,026 37,332
========== ========== ==========
The accompanying notes are an integral part of these statements.
24
PART II
Item 8. Financial Statements and Supplemental Data
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
------------------------------------------
December 31, December 31, December 31,
(Amounts in thousands) 1999 1998 1997
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 187,331 $ 199,209 $ 114,184
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 59,356 44,201 39,741
Gain on investment - (40,995) -
Decrease (increase) in securities purchased under
agreements to resell 40,000 (113,550) 143,550
Increase in securities sold under agreements to
repurchase 188,880 - -
(Increase) decrease in net receivable from customers (386,330) 109,592 (208,973)
Increase in net payable to brokers, dealers and
clearing organizations 10,796 13,254 16,351
(Increase) decrease in receivable from mortgages
and loans (13,902) 1,723 (4,429)
Increase in securities owned, net (55,099) (41,527) (961)
Increase in payable to depositors 3,100 6,564 4,463
Increase in accounts payable
and other accrued expenses 67,210 56,073 37,254
Increase (decrease) in bank loans 102,930 (12,033) 16,250
Increase in other assets (36,194) (28,151) (13,998)
--------- --------- ---------
Net cash provided by operating activities 168,078 194,360 143,432
--------- --------- ---------
CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES:
Purchase of equipment, property and improvements (82,247) (58,562) (53,562)
Proceeds from sale of investment - 35,595 -
--------- --------- ---------
Net cash used in investing activities (82,247) (22,967) (53,562)
--------- --------- ---------
CASH FLOWS (USED) PROVIDED BY FINANCING ACTIVITIES:
Repayment of long-term debt (7,285) (11,525) (13,840)
Issuance of subordinated liabilities 75,000 - -
Repayment of subordinated liabilities (16,225) (16,225) -
Issuance of partnership interests 8,297 69,771 8,833
Redemption of partnership interests (4,453) (2,554) (3,407)
Withdrawals and distributions from partnership capital (142,365) (128,853) (84,576)
--------- --------- ---------
Net cash used by financing activities (87,031) (89,386) (92,990)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (1,200) 82,007 (3,120)
CASH AND CASH EQUIVALENTS,
Beginning of year 143,745 61,738 64,858
End of year $ 142,545 $ 143,745 $ 61,738
========= ========= =========
Cash paid for interest $ 55,795 $ 47,274 $ 43,823
The accompanying notes are an integral part of these statements.
25
PART II
Item 8. Financial Statements and Supplemental Data
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Subordinated
Limited Limited General
Partnership Partnership Partnership
(Amounts in thousands) Capital Capital Capital Total
Balance, December 31, 1996 $ 95,807 $ 29,178 $123,172 $ 248,157
Issuance of partnership interests - 8,833 - 8,833
Redemption of partnership interests (2,842) (565) - (3,407)
Net income 16,543 11,969 85,672 114,184
Withdrawals and distributions (6,388) (8,262) (47,966) (62,616)
Reserved for anticipated withdrawals (10,155) (3,707) (14,061) (27,923)
-------- -------- -------- ---------
Balance, December 31, 1997 92,965 37,446 146,817 277,228
Issuance of partnership interests 62,265 7,506 - 69,771
Redemption of partnership interests (2,498) (56) - (2,554)
Net income 28,458 19,731 151,020 199,209
Withdrawals and distributions (10,804) (15,775) (74,351) (100,930)
Reserved for anticipated withdrawals (17,654) (3,956) (18,752) (40,362)
-------- -------- -------- ---------
Balance, December 31, 1998 152,732 44,896 204,734 402,362
Issuance of partnership interests - 8,297 - 8,297
Redemption of partnership interests (3,723) (730) - (4,453)
Net income 26,189 16,827 144,315 187,331
Withdrawals and distributions (10,278) (11,805) (79,920) (102,003)
Reserved for anticipated withdrawals (15,911) (5,022) (25,464) (46,397)
-------- -------- -------- ---------
Balance, December 31, 1999 $149,009 $ 52,463 $243,665 $ 445,137
The accompanying notes are an integral part of these statements.
26
PART II
Item 8. Financial Statements and Supplemental Data
THE JONES FINANCIAL COMPANIES, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(Amounts in thousands)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
THE PARTNERSHIP'S BUSINESS AND BASIS OF ACCOUNTING. 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 under 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 under the accrual basis of
accounting which requires the use of certain estimates by management in
determining the Partnership's assets, liabilities, revenues and
expenses. Where appropriate, prior years' financial statements have
been reclassified to conform with the 1999 presentation.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD
UNDER AGREEMENTS TO REPURCHASE. The Partnership participates in short-
term resale agreements and repurchase agreements collateralized by U.S.
government and agency securities. The market value of the underlying
collateral as determined daily, plus accrued interest thereon, must
equal or exceed 102% of the carrying amount of the transaction. It is
the Partnership's policy to have such underlying collateral deposited in
its accounts at its custodian banks. Repurchase transactions require
the Partnership to deposit collateral with the lender. Resale and
repurchase agreements are carried at the amount at which the securities
will be subsequently resold/repurchased as specified in the agreements.
TRANSACTIONS. The Partnership's securities activities involve execution,
settlement and financing of various securities transactions for
customers. The related revenue and expenses are recorded on a trade date
basis. Prior to 1999, recording was done on a settlement date basis,
generally representing the third business day following the transaction
date, which was not materially different than a trade date basis. The
Partnership may be exposed to risk of loss in the event customers, other
brokers and dealers, banks, depositories or clearing organizations are
unable to fulfill contractual obligations. For transactions in which it
extends credit to customers, the Partnership seeks to control the risks
associated with these activities by requiring customers to maintain
margin collateral in compliance with various regulatory and internal
guidelines. Boone National Savings and Loan Association, F.A. (the
"Association"), a wholly owned subsidiary of the Partnership, makes
commercial, real estate, and other loans to individuals primarily to
customers in Central Missouri. Additionally, the Association offers
trust services to EDJ customers through its division, the Edward Jones
Trust Co.
27
PART II
Item 8. Financial Statements and Supplemental Data
SECURITIES-LENDING ACTIVITIES. Securities borrowed and securities
loaned transactions are generally reported as collateralized financings.
Securities borrowed transactions require the Partnership to deposit
cash, or other collateral with the lender. With respect to securities
loaned, the Partnership receives collateral in the form of cash or other
collateral in an amount generally in excess of the market value of
securities loaned. The Partnership monitors the market value of
securities borrowed and loaned on a daily basis, with additional
collateral obtained or refunded as necessary.
SECURITIES OWNED. Securities owned are valued at current market prices.
COLLATERAL. The Partnership continues to report assets it has pledged
as collateral in secured borrowing and other arrangements when the
secured party cannot sell or repledge the assets or the Partnership can
substitute collateral or otherwise redeem it on short notice. The
Partnership generally does not report assets received as collateral in
secured lending and other arrangements because the debtor typically has
the right to redeem the collateral on short notice.
EQUIPMENT, PROPERTY AND IMPROVEMENTS. Equipment, including furniture and
fixtures, is depreciated using straight-line and accelerated methods
over estimated useful lives of five to seven years. Buildings are
depreciated using the straight-line method over their useful lives,
which are estimated between thirty and thirty-two years. Property
improvements are amortized based on the remaining life of the property
or economic useful life of the improvement, whichever is less. When
assets are retired or otherwise disposed of, the cost and related
accumulated depreciation or amortization are removed from the accounts,
and any resulting gain or loss is reflected in income for the period.
The cost of maintenance and repairs is charged against income as
incurred, whereas significant enhancements and betterments are
capitalized.
SEGREGATED CASH AND SECURITIES OWNED. Cash of $51 and cash and
securities of $34,338 were segregated in a special reserve bank account
for the benefit of customers as of December 31, 1999 and 1998,
respectively, under rule 15c3-3 of the Securities and Exchange
Commission.
INCOME TAXES. Income taxes have not been provided for in the
consolidated financial statements since The Jones Financial Companies,
L.L.L.P. is organized as a partnership, and each partner is liable for
their own tax payments.
NOTE 2 - RECEIVABLE FROM AND PAYABLE TO CUSTOMERS
Accounts receivable from and payable to customers include margin
balances and amounts due on uncompleted transactions. The value of
securities owned by customers and held as collateral for these
receivables is not reflected in the financial statements. Substantially
all amounts payable to customers are subject to withdrawal upon customer
request. The Partnership pays interest on certain credit balances in
customer accounts.
28
PART II
Item 8. Financial Statements and Supplemental Data
NOTE 3 - RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS
AND CLEARING ORGANIZATIONS
The components of receivable from and payable to brokers, dealers and
clearing organizations are as follows:
1999 1998
------- -------
Securities failed to deliver $ 7,187 $ 9,397
Deposits paid for securities borrowed 4,307 12,243
Deposits with clearing organizations 3,496 2,394
Other 10,527 10,484
------- -------
Total receivable from brokers, dealers
and clearing organizations $25,517 $34,518
======= =======
Securities failed to receive $10,809 $11,651
Deposits received for securities loaned 46,211 43,651
Other 198 121
------- -------
Total payable to brokers, dealers and
clearing organizations $57,218 $55,423
======= =======
"Fails" represent the contract value of securities which have not been
received or delivered by settlement date.
NOTE 4 - RECEIVABLE FROM MORTGAGES AND LOANS
Receivable from mortgages and loans is comprised of the Association's
primarily adjustable rate mortgage loans, commercial and other loans,
net of discounts, deferred origination fees and the allowance for loan
losses. The carrying amounts of the receivables approximate their fair
values.
NOTE 5 - SECURITIES OWNED
Securities owned are summarized as follows (at market value):
1999 1998
--------------------------- --------------------------
Securities Securities
Sold, Sold,
Securities not yet Securities not yet
Owned Purchased Owned Purchased
---------- ---------- ---------- ----------
Inventory Securities:
Certificates of deposit $ 7,301 $ 3,127 $ 1,481 $ 875
U.S. and Canadian government
and U.S. agency obligations 23,497 4,710 11,239 12,782
State and municipal obligation 67,119 5,157 76,764 384
Corporate bonds and notes 12,140 2,553 17,955 3,307
Corporate stocks 12,021 3,119 3,425 1,580
-------- -------- -------- --------
$122,078 $ 18,666 $110,864 $ 18,928
======== ======== ======== ========
Investment Securities:
U.S. government and agency
obligations $210,510 $166,887
======== ========
29
PART II
Item 8. Financial Statements and Supplemental Data
The Partnership attempts to reduce its exposure to market price
fluctuations of its inventory securities through the sale of U.S.
government securities and, to a limited extent, the sale of futures
contracts. The amount of the securities purchased or sold will
fluctuate on a daily basis due to changes in inventory securities owned,
interest rates and market conditions. Any gain or loss on hedging
activities is recognized in principal transactions revenue. The
notional amount of futures contracts sold was $10,000 and $0 at December
31, 1999 and 1998, respectively.
NOTE 6 - EQUIPMENT, PROPERTY AND IMPROVEMENTS
Equipment, property and improvements are summarized as follows:
1999 1998
--------- ---------
Land $ 13,599 $ 13,505
Buildings and improvements 134,814 112,215
Equipment, furniture and fixtures 348,296 291,964
--------- ---------
Total equipment, property and improvements 496,709 417,684
Accumulated depreciation and amortization (271,917) (215,783)
--------- ---------
Equipment, property and improvements, net $ 224,792 $ 201,901
========= =========
NOTE 7 - BANK LOANS
EDJ borrows from banks on a short-term basis primarily to finance
customer margin balances and inventory securities. As of December 31,
1999, the Partnership had bank lines of credit aggregating $665,000 of
which $615,000 was through uncommitted facilities. Actual borrowing
availability is primarily based on securities owned and customers'
margin securities. At December 31, 1999, collateral with a market value
of $1,527,786 was available to support secured bank loans of EDJ. Total
bank loans outstanding under these lines were $100,000 as of December
31, 1999. Additionally, the Association had loans from The Federal Home
Loan Bank of $9,897 and $6,967 as of December 31, 1999 and 1998,
respectively, which are secured by mortgage loans. Bank loans
outstanding approximate their fair value.
Interest is at a fluctuating rate (weighted average rate of 5.3% and
5.8% at December 31, 1999 and 1998, respectively) based on short-term
lending rates. The average of the aggregate short-term bank loans
outstanding was $148,284, $13,107 and $10,424 and the average interest
rate (computed on the basis of the average aggregate loans outstanding)
was 5.9%, 6.1%, and 6.0% for the years ended December 31, 1999, 1998 and
1997, respectively.
NOTE 8 - PAYABLE TO DEPOSITORS
Amounts payable to depositors is comprised of the Association's various
savings instruments offered to its customers, which include transaction
accounts and certificates of deposit with maturities ranging from 90
days to 72 months. The carrying amounts of the deposits approximate
their fair values.
30
PART II
Item 8. Financial Statements and Supplemental Data
NOTE 9 - LONG-TERM DEBT
Long-term debt is comprised of the following:
1999 1998
------- -------
Note payable, secured by equipment, interest at
a rate of 7.55% at December 31, 1999, annual
principal due plus monthly interest, maturing
July 2000. $ 3,000 $ 4,250
Notes payable, secured by property, interest
rates ranging from 6.62% to 8.72% at
December 31, 1999, principal and interest
due in monthly installments, maturing from
June 2003 through April 2008. 31,540 36,082
Note payable, secured by the Association's
stock, interest at a rate of 7.6% at
December 31, 1998. - 1,493
------- -------
$34,540 $41,825
======= =======
Scheduled annual principal payments, as of December 31, 1999 are as
follows:
Year Principal Payment
---------- -----------------
2000 $ 7,922
2001 5,334
2002 5,781
2003 4,157
2004 2,300
Thereafter 9,046
-------
$34,540
=======
The Partnership has land, buildings and equipment with a carrying value
at December 31, 1999 of $50,881 which are subject to security agreements
which collateralize various notes payable. Certain agreements contain
restrictions that among other things, require maintenance of certain
financial ratios, levels of indebtedness and limit the withdrawal of
partnership capital. The carrying amounts of the long-term debt
approximate their fair value as of December 31, 1999 and 1998.
31
PART II
Item 8. Financial Statements and Supplemental Data
NOTE 10 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to the claims of general creditors consist of:
1999 1998
-------- --------
Capital notes, 8.18%, due in annual installments of $10,500
commencing on September 1, 2000, with a final
installment on September 1, 2008. $ 94,500 $ 94,500
Capital notes, 7.95%, due in annual installments
of $10,225 with a final installment of
of $10,200 due on April 15, 2006. 71,550 81,775
Capital notes, 8.96%, due in annual
installments of $6,000 with a final
installment on May 1, 2002. 18,000 24,000
Capital notes, with rates ranging from 7.51% to 7.79%,
due in annual installments commencing on August 15, 2005,
with a final installment on August 15, 2011. 75,000 -
-------- --------
$259,050 $200,275
======== ========
Required annual principal payments, as of December 31, 1999, are as
follows:
Principal
Year Payment
---- ---------
2000 $ 26,725
2001 26,725
2002 26,725
2003 20,725
2004 20,725
Thereafter 137,425
--------
$259,050
========
The capital note agreements contain restrictions that among other
things, require maintenance of certain financial ratios, restrict
encumbrance of assets and creation of indebtedness and limit the
withdrawal of partnership capital. As of December 31, 1999, the
Partnership was required, under the note agreements, to maintain minimum
partnership capital of $300,000 and Net Capital as computed in
accordance with the uniform Net Capital Rule of 7.5% of aggregate debit
items, or $121,304 (see Note 12).
The subordinated liabilities are subject to cash subordination
agreements approved by the New York Stock Exchange and, therefore, are
included in the Partnership's computation of Net Capital under the
Securities and Exchange Commission's uniform Net Capital Rule. The
Partnership has estimated the fair value of the subordinated capital
notes to be approximately $265,245 and $213,315 as of December 31, 1999
and 1998, respectively.
32
PART II
Item 8. Financial Statements and Supplemental Data
NOTE 11 - PARTNERSHIP CAPITAL
The limited partnership capital, consisting of 149,009 and 152,732 units
at December 31, 1999 and 1998, respectively, is held by current and
former employees and general partners of the Partnership. Each limited
partner receives interest at seven and one-half percent on the principal
amount of capital contributed and a varying percentage of the net income
of the Partnership. Interest expense includes $11,300, $8,808 and
$7,053, for the years ended December 31, 1999, 1998 and 1997,
respectively, paid to limited partners on capital contributed.
The subordinated limited partnership capital, consisting of 52,463 and
44,896 units at December 31, 1999 and 1998, respectively, is held by
current and former general partners of the Partnership. Each
subordinated limited partner receives a varying percentage of the net
income of the Partnership. The subordinated limited partner capital is
subordinated to the limited partnership capital.
Under the Partnership agreement, a withdrawing limited partner's capital
is payable in three equal annual installments; a withdrawing
subordinated limited or general partner's capital is payable in four
equal annual installments. The repayments of withdrawing limited,
subordinated limited and general partners' capital commence at their
withdrawal dates.
NOTE 12 - 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 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 December 31, 1999, EDJ's Net Capital of $344,962 was 21% of aggregate
debit items and its Net Capital in excess of the minimum required was
$312,614. Net Capital as a percentage of aggregate debits after
anticipated withdrawals was 20%. Net Capital and the related capital
percentage may fluctuate on a daily basis.
The Association is required under federal regulation to maintain
specified levels of liquidity and capital standards. The Association is
in compliance with these regulations as of December 31, 1999.
NOTE 13 - EMPLOYEE BENEFIT PLAN
The Partnership maintains a profit sharing plan covering all eligible
employees. Contributions to the plan are at the discretion of the
Partnership. Additionally, participants may contribute on a voluntary
basis. Approximately $46,868, $39,805 and $29,014 were provided by the
Partnership for its contributions to the plan for the years ended
December 31, 1999, 1998 and 1997, respectively.
33
PART II
Item 8. Financial Statements and Supplemental Data
NOTE 14 - COMMITMENTS
Furniture, fixtures, computers and communication equipment are rented
under various operating leases. Additionally, branch offices are leased
on a three to five year basis and are cancellable at the option of the
Partnership. Rent expense was $105,309, $82,670, and $73,146 for the
years ended December 31, 1999, 1998 and 1997, respectively. The
Partnership's noncancelable lease commitments greater than one year are
summarized below:
Year
----------
2000 $90,442
2001 64,222
2002 42,823
2003 29,096
2004 22,401
Thereafter 70,963
NOTE 15 - CONTINGENCIES
Various legal actions are pending against the Partnership with certain
cases claiming substantial damages. These actions are in various stages
and the results of such actions cannot be predicted with certainty. In
the opinion of management, after consultation with legal counsel, the
ultimate resolution of these actions is not expected to have a material
adverse impact on the Partnership's results of operations or financial
condition.
34
PART III
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Jones Financial Companies, L.L.L.P., organized as a partnership,
does not have individuals associated with it designated as officers or
directors. As of February 25, 2000, the Partnership was comprised of
186 general partners, 3,797 limited partners and 106 subordinated
limited partners. Under the terms of the Partnership Agreement, John W.
Bachmann is designated Managing Partner and in said capacity has primary
responsibility for administering the Partnership's business, determining
its policies, controlling the management and conduct of the Partnership's
business and has the power to appoint and dismiss general partners of the
Partnership and to fix the proportion of their respective interests in the
Partnership. Subject to the foregoing, the Partnership is managed by its
186 general partners.
The Executive Committee of the Partnership is comprised of John W.
Bachmann, Douglas E. Hill, Michael R. Holmes, Richie L. Malone, Steven
Novik, Darryl L. Pope and Robert Virgil, Jr. The purpose of the
Executive Committee is to provide counsel and advice to the Managing
Partner in discharging his functions. Furthermore, in the event the
position of Managing Partner is vacant, the Executive Committee shall
succeed to all of the powers and duties of the Managing Partner.
None of the general partners are appointed for any specific term nor are
there any special arrangements or understandings pursuant to their
appointment other than as contained in the Partnership Agreement.
No general partner is or has been individually, nor in association with
any prior business, the subject of any action under any insolvency law
or criminal proceeding or has ever been enjoined temporarily or
permanently from engaging in any business or business practice.
Following is a listing of the names of the Executive Committee, ages,
dates of becoming a general partner and area of responsibility for each
as of February 25, 2000:
Name Age Partner Area of Responsibility
John W. Bachmann 61 1970 Managing Partner
Douglas E. Hill 55 1974 Product & Sales Division
Michael R. Holmes 41 1996 Human Resources
Richie L. Malone 51 1979 Information Systems
Steven Novik 50 1983 Finance & Accounting
Darryl L. Pope 60 1971 Service Division
Robert Virgil, Jr. 65 1993 Headquarters Administration
Each member of the Executive Committee has been a general partner of the
Partnership for more than five preceding years, except for Michael R.
Holmes. Prior to 1996, Michael R. Holmes served as the Human Resource
Officer for Automatic Data Processing.
35
PART III
Item 10. Directors and Executive Officers of the Registrant
John W. Bachmann is a director of Trans World Airlines, St. Louis,
Missouri. Robert Virgil, Jr. is a director of CPI Corp., St. Louis,
Missouri, General American Life Insurance Company, St. Louis, Missouri,
and OmniQuip International, Inc., Port Washington, Wisconsin.
ITEM 11. EXECUTIVE COMPENSATION
The following table identifies the six highest compensated individuals
of the Partnership during the three most recent years (including
respective shares of profit participation).
Returns to General
Partner Capital
------------------------------
Net income General Partner
Deferred allocated invested
Compen- to General Capital at Total
Year Salaries sation Partners 12/31
John W. Bachmann 1999 200,000 8,400 3,132,295 4,871,121 3,340,695
1998 193,750 8,736 3,894,758 4,955,447 4,097,244
1997 175,000 7,976 2,528,085 4,894,502 2,711,061
Douglas E. Hill 1999 160,000 8,400 4,771,544 8,493,237 4,939,944
1998 153,750 8,736 5,116,327 7,591,323 5,278,813
1997 135,000 7,976 2,843,359 5,506,315 2,986,335
Richie L. Malone 1999 160,000 8,400 4,439,619 7,868,735 4,608,019
1998 153,750 8,736 4,955,823 7,064,148 5,118,309
1997 135,000 7,976 2,764,542 5,353,361 2,907,518
Jim Weddle 1999 160,000 8,400 4,046,838 7,244,232 4,215,238
1998 153,750 8,736 4,267,475 6,431,538 4,429,961
1997 135,000 7,976 2,364,562 4,588,595 2,507,538
Ray L. Robbins 1999 150,000 8,400 4,027,173 6,869,530 4,185,573
1998 143,750 8,736 4,267,475 6,431,538 4,419,961
1997 125,000 7,976 2,364,562 4,555,595 2,497,538
Larry R. Sobol 1999 150,000 8,400 4,027,173 7,244,232 4,185,573
1998 143,750 8,736 4,267,475 6,413,538 4,419,961
1997 125,000 7,976 2,364,562 4,555,595 2,497,538
Each non-selling general partner receives a salary generally
ranging from $90,000 - $200,000 annually. Selling general
partners do not receive a specified salary, rather, they receive
the net sales commissions earned by them (none of the six
individuals listed above earned any such commissions).
Additionally, general partners who are principally engaged in
sales are entitled to office bonuses based on the profitability of
their respective branch office, on the same basis as the office
bonus program established for all investment representative
employees.
36
PART III
Item 11. Executive Compensation
Each general partner is a participant in the Partnership's profit
sharing plan which covers all eligible employees. Contributions
to the plan, which are within the discretion of the Partnership,
are made annually and have historically been determined based on
approximately twenty-four percent of the Partnership's net income.
Allocation of the Partnership's contribution among participants is
determined by each participant's relative level of eligible
earnings, including in the case of general partners, their net
income participation.
Each general partner is entitled to participate in the annual net
income of the Partnership based upon the respective percentage
interest in the Partnership of each partner. Interests in the
Partnership held by each general partner ranged from .05% to 3.80%
in 1999 and .05% to 3.60% in 1998 and 1997. At the discretion of
the Managing Partner, the partnership agreement provides that,
generally, the first eight percent of net income allocable to
general partners be distributed on the basis of individual merit
or otherwise as determined by the Managing Partner. Thereafter,
the remaining net income allocable to general partners is
distributed based upon each individual's percentage interest in
the Partnership.
Net income allocable to general partners is the amount remaining
after payment of interest and earnings on capital invested to
limited partners and subordinated limited partners.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Being organized as a limited partnership, management is vested in the
general partners thereof and there are no other outstanding "voting" or
"equity" securities. It is the opinion of the Partnership that the
general partnership interests are not securities within the meaning of
federal and state securities laws primarily because each of the general
partners participates in the management and conduct of the business.
In connection with outstanding limited and subordinated limited
partnership interests (non-voting securities), 137 of the general
partners also own limited partnership interests and 53 of the general
partners also own subordinated limited partnership interests, as noted
in the table below.
As of February 25, 2000:
Name of Amount of
Beneficial Beneficial % of
Title of Class Owner Ownership Class
Limited Partnership All General
Interests Partners as
a Group $14,881,000 10%
Subordinated All General
Limited Partnership Partners as
Interests a Group $28,319,035 46%
37
PART III
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the ordinary course of its business the Partnership has extended
credit to certain of its partners and employees in connection with their
purchase of securities. Such extensions of credit have been made on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with non-
affiliated persons, and did not involve more than the normal risk of
collectibility or present other unfavorable features. The Partnership
also, from time to time and in the ordinary course of business, enters
into transactions involving the purchase or sale of securities from or
to partners or employees and members of their immediate families, as
principal. Such purchases and sales of securities on a principal basis
are effected on substantially the same terms as similar transactions
with unaffiliated third parties.
38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
Page No.
INDEX
(a) (1) The following financial statements are included in Part II, Item 8:
Report of Independent Public Accountants 21
Consolidated Statements of Financial Condition as of
December 31, 1999 and 1998 22
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997 24
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 25
Consolidated Statements of Changes in Partnership Capital
for the years ended December 31, 1999, 1998 and 1997 26
Notes to Consolidated Financial Statements 27
(2) The following financial statements are included in Schedule I:
Parent Company Only Condensed Statements of Financial Condition as of
December 31, 1999 and 1998 45
Parent Company Only Condensed Statements of Income for the years ended
December 31, 1999, 1998 and 1997 46
Parent Company Only Condensed Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 47
Report of Independent Public Accountants 48
Schedules are omitted because they are not required, inapplicable,
or the information is otherwise shown in the consolidated financial statements or
notes thereto.
(b) Report on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of 1999.
(c) Exhibits
Reference is made to the Exhibit Index hereinafter contained.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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:
(Registrant) THE JONES FINANCIAL COMPANIES, L.L.L.P.
---------------------------------------------
By (Signature and Title) /s/ John W. Bachmann
---------------------------------------------
John W. Bachmann, Managing Partner
Date March 29, 2000
---------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person on behalf of
the registrant and in the capacity and on the date indicated.
By (Signature and Title) /s/ John W. Bachmann
---------------------------------------------
John W. Bachmann, Managing Partner
Date March 29, 2000
---------------------------------------------
By (Signature and Title) /s/ Steven Novik
---------------------------------------------
Steven Novik, Chief Financial Officer
Date March 29, 2000
---------------------------------------------
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
There have been no annual reports sent to security holders covering the
registrant's last fiscal year nor have there been any proxy statements,
form of proxy or other proxy soliciting material sent to any of
registrant's security holders.
40
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
Exhibit
Number Page Description
3.1 Tenth Amended and Restated Limited
Partnership Agreement of The Jones Financial
Companies, L.L.L.P., dated February 25, 1999,
incorporated herein by reference to Exhibit
3.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 26, 1999.
3.2 Form of Limited Partnership Agreement of
Edward D. Jones & Co., L.P.
10.1 Form of Cash Subordination Agreement between
the Registrant and Edward D. Jones & Co.,
incorporated herein by reference to Exhibit
10.1 to the Company's registration statement
of Form S-1 (Reg. No. 33-14955).
10.2 Master Lease Agreement dated as of October
17, 1988, between Edward D. Jones & Co.,
L.P., and BancBoston Leasing, incorporated
herein by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the
year ended September 30, 1988.
10.3 Satellite Communications Agreement dated as
of September 12, 1988, between Hughes Network
Systems and Edward D. Jones & Co., L.P.,
incorporated herein by reference to Exhibit
10.1 to the Company's Annual Report on Form
10-K for the year ended September 30, 1988.
10.4 Agreements of Lease between EDJ Leasing
Company and Edward D. Jones & Co., L.P.,
dated August 1, 1991, incorporated herein by
reference to Exhibit 10.18 to the Company's
Annual Report or Form 10-K for the year
ended September 27, 1991.
10.5 Edward D. Jones & Co., L.P. Note Purchase
Agreement dated as of May 8, 1992,
incorporated herein by reference to Exhibit
10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 26,
1992.
10.6 Purchase and Sale Agreement by and between
EDJ Leasing Co., L.P. and the Resolution
Trust Corporation incorporated herein by
reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1992.
Incorporated by reference to previously filed exhibits.
41
10.7 Master Lease Agreement between EDJ Leasing
Company and Edward D. Jones & Co., L.P.,
dated March 9, 1993, and First Amendment to
Lease dated March 9, 1994, incorporated
herein by reference to the Company's
Quarterly Report on Form 10-Q for the quarter
ended March 25, 1994.
10.8 Purchase Agreement by and between Edward D.
Jones & Co., L.P. and Genicom Corporation
dated November 25, 1992, incorporated herein
by reference to the Company's Annual Report
on Form 10-K for the year ended December 31,
1992.
10.9 Mortgage Note and Deed of Trust and Security
Agreement between EDJ Leasing Co., L.P. and
Nationwide Insurance Company dated March 9,
1993, incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for
the quarter ended March 24, 1993.
10.10 Mortgage Note and Amendment to Deed of Trust
between EDJ Leasing Co., L.P. and Nationwide
Insurance Company dated March 9, 1994,
incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for
the quarter ended March 25, 1994.
10.11 Mortgage Note; Deed of Trust and Security
Agreement; Assignment of Leases, Rents and
Profits; and Subordination and Attornment
Agreement between EDJ Leasing Co., L.P. and
Nationwide Insurance Company dated April 6,
1994, incorporated by reference to exhibit
10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 25,
1994.
10.12 Note Purchase Agreement by Edward D. Jones &
Co., L.P., for $92,000,000 aggregate
principal amount of 7.95% subordinated
capital notes due April 15, 2006,
incorporated herein by reference to Exhibit
10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 24,
1994.
10.13 Equipment Lease Agreement between IFA
Incorporated and Edward D. Jones & Company,
L.P., dated June 8, 1994, incorporated herein
by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 24, 1994.
10.14 Master Lease Agreement and Addendum by and
between Edward D. Jones & Co., L.P. and
General Electric Capital Corporated dated
April 21, 1994, incorporated herein by
reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 24, 1994.
10.15 Equipment Lease by and between Edward D.
Jones & Co., L.P., and EDJ Leasing Co., L.P.
dated April 1, 1994, incorporated herein by
reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 24,
1994.
42
10.16 $8,200,000 Promissory Note to Commerce Bank
National Association by EDJ Leasing Co.,
L.P., dated April 5, 1994, incorporated
herein by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended June 24, 1994.
10.17 Agreement and Plan of Acquisition between The
Jones Financial Companies and Boone National
Savings and Loan Association, F.A.,
incorporated herein by reference to Exhibit
10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30,
1994.
10.18 Credit Agreement between EDJ Leasing Co.,
L.P. and Southtrust Bank of Alabama, N.A.
dated October 26, 1994 incorporated herein by
reference to the company's Annual Report on
Form 10-K for the year ended December 31,
1994.
10.19 Master Lease Agreement between EDJ Leasing
Company and Edward D. Jones & Co., L.P. dated
October 26, 1994, incorporated herein by
reference to the Company's Annual Report on
Form 10-K for the year ended December 31,
1994.
10.20 Lease Financing Line of Credit Agreement and
Term Note Agreement between EDJ Leasing Co.,
L.P. and Enterprise Bank dated December 6,
1994 incorporated herein by reference to the
company's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.21 Master Lease Agreement between EDJ Leasing
Co. and Edward D. Jones & Co., L.P., dated
December 6, 1994 incorporated herein by
reference to the company's Annual Report on
Form 10-K for the year ended December 31,
1994.
10.22 Purchase Agreement by and between Edward D.
Jones & Co., L.P. and Tektronix, Inc. dated
February 28, 1995 incorporated herein by
reference to the company's Annual Report on
Form 10-K for the year ended December 31,
1994.
10.23 Loan Agreement between Edward D. Jones & Co.,
L.P. and Boatmen's Bank dated April 28, 1995,
incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for
the quarter ended March 25, 1995.
10.24 Conforming Systems Agreement between Tri-Tek
Information Systems, Inc. and Edward D. Jones
& Co., L.P., dated May 31, 1995, incorporated
herein by reference to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995.
43
10.25 Mortgage Note; South Second Deed of Trust and
Security Agreement between EDJ Leasing Co.,
L.P. and Nationwide Life Insurance Company
dated August 31, 1995, incorporated herein by
reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September
29, 1995.
10.26 Mortgage Note; North Second Deed of Trust and
Security Agreement between EDJ Leasing Co.,
L.P. and Nationwide Life Insurance Company
dated August 31, 1995, incorporated herein by
reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September
29, 1995.
10.27 Note Purchase Agreement by Edward D. Jones &
Co., L.P. for $94,500,000 aggregate principal
amount of 8.18% subordinated capital notes
due September 1, 2008, incorporated herein by
reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September
27, 1996.
10.28 Note Purchase Agreement by Edward D. Jones &
Co., L.P. for $75,000,000 aggregate principal
amount of subordinated capital notes with
rates ranging from 7.51% to 7.79% due
September 15, 2011, incorporated herein by
reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September
24, 1999.
21 Subsidiaries of the Registrant, filed
herewith.
23.1 Consent of Independent Public Accountants.
25 Delegation of Power of Attorney to Managing
Partner contained within Exhibit 3.1
27 Financial Data Schedule (provided for the
Securities and Exchange Commission only),
filed herewith.
44
Schedule I
THE JONES FINANCIAL COMPANIES, L.L.L.P.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
December 31, December 31,
(Amounts in thousands) 1999 1998
ASSETS:
Cash and cash equivalents $ 587 $ 576
Investment in subsidiaries 485,839 436,730
Other assets 5,494 8,999
-------- --------
TOTAL ASSETS $491,920 $446,305
======== ========
LIABILITIES AND PARTNERSHIP CAPITAL:
Payable to limited partners, accounts payable
and accrued expenses $ 386 $ 2,088
Long-term debt - 1,493
-------- --------
TOTAL LIABILITIES 386 3,581
TOTAL PARTNERSHIP CAPITAL 491,534 442,724
-------- --------
TOTAL LIABILITIES AND CAPITAL $491,920 $446,305
These financial statements should be read in conjunction with the notes to the consolidated
financial statements of The Jones Financial Companies, L.L.L.P.
45
Schedule I (continued)
THE JONES FINANCIAL COMPANIES, L.L.L.P.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
Years Ended
------------------------------------------------
December 31, December 31, December 31,
(Amounts in thousands) 1999 1998 1997
NET REVENUE:
Equity in earnings of subsidiaries $185,598 $157,047 $113,627
Management Fee Income 24,028 20,665 18,661
Gain on investment - 40,995 -
Other 351 179 141
-------- -------- --------
Total Revenue 209,977 218,886 132,429
-------- -------- --------
Interest expense 11,414 9,027 7,406
-------- -------- --------
Net Revenue 198,563 209,859 125,023
OPERATING EXPENSES:
Compensation and benefits 11,057 10,517 10,794
Payroll and other taxes 123 - -
Other operating expenses 52 133 45
-------- -------- --------
Total Operating Expenses 11,232 10,650 10,839
NET INCOME $187,331 $199,209 $114,184
These financial statements should be read in conjunction with the notes to the consolidated
financial statements of The Jones Financial Companies, L.L.L.P.
46
Schedule I (continued)
THE JONES FINANCIAL COMPANIES L.L.L.P.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended
------------------------------------------------
December 31, December 31, December 31,
(Amounts in thousands) 1999 1998 1997
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 187,331 $ 199,209 $114,184
Adjustments to reconcile net income to net cash
provided by operating activities -
Gain on investment - (40,995) -
Increase in investment in affiliate (49,109) (132,266) (30,832)
Decrease (increase) in other assets and liabilities,
net 1,803 2,004 (1,352)
--------- --------- --------
Net cash provided by operating activities 140,025 27,952 82,000
--------- --------- --------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Proceeds from sale of investment - 35,595 -
--------- --------- --------
Net cash provided by investing activities - 35,595 -
--------- --------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of long-term debt (1,493) (2,204) (2,204)
Issuance of partnership interests 8,297 69,771 8,833
Redemption of partnership interests (4,452) (2,554) (3,407)
Withdrawals and distributions from
partnership capital (142,366) (128,853) (84,576)
--------- --------- --------
Net cash used in financing activities (140,014) (63,840) (81,354)
--------- --------- --------
Net increase (decrease) in cash and
cash equivalents 11 (293) 646
CASH AND CASH EQUIVALENTS,
Beginning of year 576 869 223
--------- --------- --------
End of year $ 587 $ 576 $ 869
These financial statements should be read in conjunction with the notes to the consolidated financial statements of
The Jones Financial Companies, L.L.L.P.
47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Jones Financial Companies, L.L.L.P.
We have audited in accordance with auditing standards generally accepted
in the United States, the financial statements included in The Jones
Financial Companies, L.L.L.P. Form 10-K for the year ended December 31,
1999, and have issued our report thereon dated February 22, 2000. Our
audit was made for the purpose of forming an opinion on those statements
taken as a whole. Schedule I listed in the index to Item 14 on Form 10-
K for the year ended December 31, 1999, is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. Schedule I has been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 22, 2000
48