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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, 2001 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 19, 2002 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 January 25, 2002, the Partnership was comprised of 210 general
partners, 5,401 limited partners and 127 subordinated limited partners.
At December 31, 2001, 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 its Canadian entities, 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, which owns
100% of the equity of Edward Jones Nominees Limited, Edward Jones Nominees
PEP Limited, and Edward Jones Nominees ISA Limited. 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., is the general partner of EDJ Ventures, Ltd.
The Partnership is the sole member of Edward Jones Insurance Agency Holding,
L.L.C., a Missouri limited liability company; California Agency Holding,
L.L.C., a California limited liability company and Edward Jones Insurance
Agency of Nevada, Inc., a Nevada limited liability company and Edward Jones
Insurance Agency of New Mexico, L.L.C., a New Mexico limited liability
company. Edward Jones
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PART I
Insurance Agency Holding, L.L.C. is the sole member of Edward Jones
Insurance Agency of Wyoming, L.L.C., a Wyoming limited liability company and
Edward Jones Insurance Agency of Michigan, L.L.C., a Michigan limited
liability company. The Partnership and Edward Jones Insurance Agency
Holding, L.L.C. are multi-members of Edward Jones Insurance Agency of
Massachusetts, L.L.C., a Massachusetts limited liability company; Edward
Jones Insurance Agency of Alabama, L.L.C., an Alabama limited liability
company; Edward Jones Insurance Agency of Montana, L.L.C., a Montana limited
liability company; and EJ Insurance Agency of Ohio, an Ohio limited
liability company. Edward Jones Insurance Agency Holding, L.L.C. and
California Agency Holding, L.L.C. are multi-members of Edward Jones
Insurance Agency of California, L.L.C., a California limited liability
company. The Partnership is an affiliate of EDJ 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 II, L.P., Community Investment Partners III, L.P., L.L.L.P., and
Community Investment Partners IV, L.P., L.L.L.P., business development
companies.
During 2001, the Partnership affiliates Patronus, Inc. and EDJ Investment
Advisory Services were dissolved. Neither had conducted active businesses.
Within the past five years, the Registrant has added several new legal
entities. In 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: Edward Jones Insurance Agency of Michigan, L.L.C., a limited
liability company. During 2000, Edward Jones Nominees Limited, Edward Jones
Nominees PEP Limited, and Edward Jones Nominee ISA Limited, all three which
are U.K. private limited companies, were organized. United Kingdom
regulations require separate companies for the holding of client investments
in firm name.
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):
2001 2000 1999
Commissions
Listed $ 219,359 $ 272,260 $ 190,313
Mutual Funds 740,209 749,144 583,444
O-T-C 77,618 170,058 168,177
Insurance 216,009 222,175 205,801
Other 667 837 551
Principal Transactions 370,327 264,361 270,830
Investment Banking 24,676 29,545 20,953
Interest and Dividends 176,277 224,497 149,041
Sub-Transfer Agent Revenue 95,022 69,874 34,254
Mutual Fund & Insurance Revenue 79,107 89,993 64,564
Money Market Revenue 73,594 60,604 52,897
IRA Custodial Service Fees 38,554 30,591 21,965
Other Revenue 30,578 28,021 24,044
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Total Revenue $ 2,141,997 $ 2,211,960 $ 1,786,834
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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 customer 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.
Customer 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 customer
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
4
PART I
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 customer accounts to finance customer 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.
Variations in revenues from listed brokerage commissions between periods is
largely a function of market conditions; however, some portion of the
overall increases in 2000 and 1999 were 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
customer 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 customer orders to buy or
sell securities, the Partnership charges a commission for both principal and
agency transactions.
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.
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 increasing
number of investment representatives employed by the Partnership over the
periods indicated.
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
5
PART I
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 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 upon purchase price. Furthermore, the
commitment of capital to an 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, investment securities, 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, sub-transfer agent accounting services, revenue sharing, gains from
sales of certain assets, and other product and service fees.
The Partnership charges a fee to certain mutual funds which it distributes,
for sub-accounting services it performs for accounts registered in firm
name. Additionally, under certain agreements, non-commission revenue is
received from companies whose mutual funds and insurance products 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 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."
6
PART I
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 company and
receives revenue from this service. In 1998, the Partnership began offering
mortgage loans to its customers through a joint venture.
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 customer 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 customer 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's United Kingdom operation clears and settles virtually all
of its listed transactions through CREST. CREST effects clearing of
securities on the London Stock Exchange. In conjunction with clearing and
settling transactions with CREST, the Partnership's United Kingdom operation
holds customer securities on deposit with CREST in lieu of maintaining
physical custody of the certificates. The Partnership's United Kingdom
operation also uses DTC for custody of United States securities, a major
independent brokerage firm for custody of non-United Kingdom and non-United
States securities, and individual unit trust vendors for custody of unit
trust holdings.
The Partnership is substantially dependent upon the operational capacity and
ability of NSCC/DTC/CREST. Any serious delays in the processing of
securities transactions encountered by
7
PART I
NSCC/DTC/CREST 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") and National Bank of Canada provide
automated data processing services for customer account activity and related
records for the United States and Canada, respectively.
In Canada, the Partnership has entered into an introducing/carrying
arrangement with National Bank of Canada. As the carrying broker, National
Bank of Canada handles the routing and settlement of customer transactions.
Transactions are settled through the Canadian Depository for Securities
("CDS"), of which National Bank of Canada is a member. CDS effects clearing
of securities on the Toronto, Montreal, and CDNX stock exchanges. Customer
securities on deposit are also held with CDS.
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. Customers are protected by the Securities
Investors Protection Corporation ("SIPC") in the United States, Investors
Compensation Scheme ("ICS") in the United Kingdom, and Canadian Investor
Protection Fund ("CIPF") in Canada, and through excess insurance coverage
maintained by the Partnership in The United States and the United Kingdom.
In Canada, excess insurance coverage is maintained by National Bank of
Canada. The coverage provided by SIPC, ICS and CIPF, and protection in
excess limits thereof, 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. 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 210 general partners, the Partnership has
approximately 26,460 full and part-time employees. This includes 8,526
registered salespeople as of January 25, 2002. 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
8
PART I
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,
disability insurance plans, 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 8,127 branch offices as of
January 25, 2002, primarily staffed by a single investment representative.
The Partnership operates 7,507 offices in the United States located in all
50 states, predominantly in communities with populations of under 50,000 and
metropolitan suburbs. The Partnership also operates in Canada (through 518
offices as of January 25, 2002) and the United Kingdom (through 102 offices
as of January 25, 2002).
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. 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 customer 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
9
PART I
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 Financial Services 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.
The firm has other operating subsidiaries, including the Association and
broker/dealer subsidiaries in Canada and the United Kingdom. These wholly
owned subsidiaries are required to maintain specified levels of liquidity
and capital standards. Each subsidiary is in compliance with the applicable
regulations as of December 31, 2001.
ITEM 2. PROPERTIES
The Partnership conducts its headquarters operations from three locations in
St. Louis County, Missouri, and one location in Tempe, Arizona, comprising
twenty-three separate buildings. Nineteen buildings are owned by the
Partnership and four buildings are leased through long-term operating
leases. In addition, the Partnership leases its Canadian headquarters
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 8,127 branch
locations (as of January 25, 2002) 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:
2001 2000 1999 1998* 1997
Revenue $ 2,141,997 $ 2,211,960 $ 1,786,834 $ 1,449,963 $ 1,135,279
Net income $ 149,186 $ 229,823 $ 187,331 $ 199,209 $ 114,184
Net income per
weighted average
$1,000 equivalent
limited partnership
unit outstanding $ 96.89 $ 179.21 $ 173.81 $ 274.30 $ 176.06
Weighted average
$1,000 equivalent
limited partnership
units outstanding 236,696 175,436 150,670 103,747 93,962
Net income per
weighted average
$1,000 equivalent
subordinated limited
partnership unit
outstanding $ 181.70 $ 333.92 $ 325.21 $ 448.17 $ 320.61
Weighted average
$1,000 equivalent
subordinated limited
partnership units
outstanding 82,273 63,770 51,741 44,026 37,332
- -----------------------------------------------------------------------------------------------------------------
11
PART II
Item 6. Selected Financial Data
Summary Balance Sheet Data:
2001 2000 1999 1998* 1997
Total assets $ 3,158,408 $ 3,170,385 $ 2,693,241 $ 2,118,844 $ 1,554,798
=========== =========== =========== =========== ===========
Long-term debt $ 46,285 $ 29,618 $ 34,540 $ 41,825 $ 53,350
Other liabilities,
exclusive of
subordinated
liabilities 2,231,807 2,252,961 1,908,117 1,434,020 979,797
Subordinated liabilities 205,600 232,325 259,050 200,275 216,500
Total partnership capital 674,716 655,481 491,534 442,724 305,151
Total liabilities and
partnership capital $ 3,158,408 $ 3,170,385 $ 2,693,241 $ 2,118,844 $ 1,554,798
=========== =========== =========== =========== ===========
* 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).
2001 vs. 2000 2000 vs. 1999
-------------------------- -------------------------
Amount Percentage Amount Percentage
Net Revenue:
Commissions $ (160,612) (11)% $ 266,188 23%
Principal transactions 105,966 40 (6,469) (2)
Investment banking (4,869) (16) 8,592 41
Interest and dividends (48,220) (21) 75,456 51
Other 37,772 14 81,359 41
---------- ---------
Total revenue (69,963) (3) 425,126 24
Interest expense (21,194) (24) 29,227 50
---------- ---------
Net revenue (48,769) (2) 395,899 23
---------- ---------
Operating Expenses:
Compensation and benefits (37,233) (3) 213,135 21
Communications and data
processing 21,969 10 34,312 19
Occupancy and equipment 28,726 16 48,159 36
Payroll and other taxes 6,584 10 13,175 24
Floor brokerage and
clearance fees (3,208) (18) 5,093 41
Other operating expenses 15,030 8 39,533 29
---------- ---------
Total operating expenses 31,868 2 353,407 23
---------- ---------
Net Income $ (80,637) (35)% $ 42,492 23%
============================================================================================================
13
PART II
RESULTS OF OPERATIONS (2001 VERSUS 2000)
The Partnership's net revenue and net income for the year ended December 31,
2001 decreased from the prior year due primarily to the impact of market
conditions which resulted in lower customer activity, lower customer asset
values and lower net interest income. Net revenue decreased 2% ($48.8
million) to $2.076 billion and net income decreased 35% ($80.6 million) to
$149.2 million.
The Partnership classifies its revenues as trade revenue (revenue from buy
or sell transactions on securities) and net fee revenue (sources other than
trade revenues, net of interest expense). Trade revenue of $1.372 billion
and $1.418 billion comprised 66% and 67% of net revenue for 2001 and 2000.
Conversely, net fee revenue sources, such as service fees, management fees,
IRA fees and net interest income, of $703.7 million and $706.6 million were
34% and 33% of net revenue for 2001 and 2000.
Trade revenue decreased 3% ($45.8 million) during 2001 due primarily to a
decrease in customer dollars invested. Total customer dollars underlying buy
or sell transactions were $50.8 billion during 2001, a 17% ($10.5 billion)
decrease from 2000. The impact of lower customer activity was partially
offset by an increase in the margin earned on each $1,000 invested, to
$26.30 in 2001 from $22.60 in 2000. Year over year, the composition of the
product mix, based on customer dollars invested, has shifted from individual
equities and CDs, which have lower margins, to higher margin fixed income,
mutual funds, and insurance products. Individual equities decreased to 28%
from 44%, and CD's decreased to 6% from 11%. Fixed income increased to 33%
from 18%, mutual funds increased to 26% from 22%, and insurance increased to
7% from 5%. The Partnership added 1,082 IRs since December 31, 2000, ending
2001 with 8,516 IRs in the United States, Canada and the United Kingdom, an
increase of 15%. The increase in IRs partially mitigated the impact of the
market downturn on trade revenues.
Net fee revenues (fee revenues less interest expense), which include service
fees, sub-transfer agent accounting services, revenue sharing agreements
with mutual funds and insurance companies, money market management fees, net
interest income, IRA custodial fees and other fees, decreased $3.0 million
during 2001. Net interest income decreased 20% ($27.0 million) in 2001 due
primarily to the impact of rate reductions in the current year narrowing the
interest margins combined with a small decrease in customer loans
outstanding. Customer loans were $1.9 billion at December 31, 2001 compared
to $2.0 billion at December 31, 2000. Service fees decreased 4% ($11.9
million) during 2001 as the underlying value of customer assets was impacted
by market conditions. The average of the aggregate customer assets related
to service fees decreased from $117.6 billion at December 31, 2000, to
$114.6 billion at December 31, 20001. Other fee revenue sources increased
13% ($35.9 million) for 2001 due primarily to growth in revenue from
sub-transfer agent accounting services, money market fees, and IRA fees.
Focusing on changes in major revenue categories, commissions revenue,
including service fees, decreased 11% ($160.6 million) during 2001. Listed
and over-the-counter (OTC) agency commissions decreased 33% ($145.3
million), due to the shift in product mix away from individual equities.
Mutual fund commissions decreased 1% ($8.9 million) due to the impact of
market conditions on service fees. Mutual
14
PART II
Item 7. Management's Discussion And Analysis of Financial Condition
and Results of Operations
fund commissions decreased, even though customer dollars invested in mutual
funds increased as a percentage of the product mix.
Principal transactions revenue increased 40% ($106.0 million) during 2001.
The increase is primarily attributable to an increase in corporate, US
government and municipal bonds, and mortgage-backed securities, offset by a
decrease in CD sales.
Other revenue, comprised of various fee revenue sources, increased 14%
($37.8 million) for 2001. Revenue received from money market and subtransfer
agent services increased 13% ($26.7 million). Additionally, the number of
IRA accounts increased, resulting in custodial fee revenue growth of 26%
($8.0 million).
Interest expense decreased 24% ($21.2 million) during 2001, due to a
decrease in bank loans outstanding and lower interest rates. The average of
the aggregate short-term bank loans outstanding was $272,000 during 2001,
compared to $413,000 during 2000.
Operating expenses increased 2% ($31.9 million) to $1.9 billion during 2001.
Occupancy and equipment expenses increased 16% ($28.7 million) and
communications and data processing expenses increased 10% ($22.0 million)
during 2001. The Partnership continues to expand its headquarters, branch
locations and communications systems to enable it to continue to increase
its number of IRs, locations and customers.
Compensation costs decreased 3% ($37.2 million). Variable compensation,
including bonuses and profit sharing paid to investment representatives,
branch office assistants and headquarters associates, which expands and
contracts in relation to revenues, net income and profit margin, decreased
54% ($105.9 million) due to the lower revenue and earning levels. Sales
compensation decreased 1% ($6.5 million) due to the decrease in trade
revenue and service fees. Offsetting these decreases in compensation expense
was a 21% ($81.4 million) increase in compensation expense for existing
personnel and additional support personnel at both the headquarters and in
the branches due to growth in the sales force. On a full time equivalent
basis, the firm had 3,748 headquarters associates and 8,632 branch staff as
of December 31, 2001, compared to 3,547 headquarters associates and 7,625
branch staff as of December 31, 2000.
RESULTS OF OPERATIONS (2000 VERSUS 1999)
The Partnership attained record levels of net revenue and net income for the
year ended December 31, 2000 due primarily to active securities markets and
growth in its sales force. Net revenues increased 23% ($395.9 million) to
$2.124 billion and net income increased 23% ($42.5 million) to $229.8
million.
The partnership classifies its revenues as trade revenue (revenue from buy
or sell transactions on securities) and net fee revenue (sources other than
trade revenues). Trade revenue comprised 67% of net revenue for 2000, down
from 70% in 1999. Conversely, net fee revenue sources, such as service fees,
management fees, IRA fees and net interest income, were 33% of net revenue
for 2000, up from 30% in 1999.
Trade revenue increased 17% ($202.5 million) during 2000. Trade revenue
increased due to an increase in the number of investment representatives
(IRs) and customer dollars invested. The Partnership added 1,495 IRs since
December 31, 1999 (25%), ending 2000 with 7,434 IRs in the United States,
Canada and the United Kingdom. Total customer dollars invested were $61.3
billion during 2000, representing a 15% ($8.1 billion) increase over 1999.
The firm experienced record levels of customer activity, net revenue and net
income in the first quarter of 2000. Beginning in the second quarter of
2000, the securities
15
PART II
Item 7. Management's Discussion And Analysis of Financial Condition
and Results of Operations
markets began to move lower and customer activity slowed. The firm's
revenues and net income slowed in the second, third and fourth quarters even
though the Partnership continued to expand its sales force.
Net fee revenues, which include service fees, revenue sharing agreements
with mutual fund and insurance companies, net interest income, IRA custodial
fees, subtransfer agent fees and other fees, increased 38% ($193.4 million)
during 2000. Underlying net fee revenue is the value of customer assets.
Total customer assets increased 7% ($17.1 billion) year over year to $245.7
billion due to market fluctuations and growth in the number of customers
served by the Partnership. Additionally, the Partnership's continued
expansion in recent years of its product and service offerings has had a
positive impact on net fee revenue sources.
Focusing on changes in major revenue categories, commissions revenue,
including service fees, increased 23% ($266.2 million) during 2000. Mutual
fund commissions increased 28% ($165.7 million) during 2000. Listed
commissions increased 43% ($81.9 million). The firm experienced growth in
commissions due to the highly active securities markets and growth in the
number of IRs.
Principal transactions revenue decreased 2% ($6.5 million) during 2000. The
decrease is due primarily to a shift away from fixed income products and
towards equities and mutual funds.
Investment banking revenues increased 41% ($8.6 million), due primarily to
an increased number of corporate debt underwritings ($7.0 million or 80%).
Interest and dividend revenues increased 51% ($75.5 million) during 2000.
Interest from customer loans increased 60% ($74.4 million) as the
Partnership's customer loan balances increased 22% ($363.9 million) year
over year to $2.0 billion at December 31, 2000. The average of customer loan
balances was $1.9 billion during 2000, compared to $1.4 billion during 1999.
Interest expense increased 50% ($29.2 million) during 2000, due primarily to
an increase in bank loans outstanding to fund customer loan balances. The
average of the aggregate short-term bank loans outstanding was $413,000
during 2000, compared to $148,000 during 1999.
Other revenue, comprised of various fee revenue sources, increased 41%
($81.4 million) during 2000. Fee revenue received from money market, mutual
fund and insurance products increased 49% ($69.6 million). Additionally, the
number of IRA accounts increased, resulting in custodial fee revenue growth
of 39% ($8.6 million) during the year.
Operating expenses increased 23% ($353.4 million) to $1.9 billion during
2000. Compensation costs represent 60% ($213.1 million) of the total expense
growth for the year. Sales compensation increased 17% ($103.3 million) due
to increased revenue and an increased number of IRs. Variable compensation,
including bonuses and profit sharing paid to IRs, branch office assistants
(BOAs) and headquarters associates, which expands and contracts in relation
to revenues, net income and the firm's profit margin, increased 16% ($26.7
million) due to the increase in the Partnership's revenue and earnings
levels. Remaining increases in compensation expense are primarily
attributable to increased payroll for existing personnel and additional
personnel at both the headquarters and in the branches as the firm grows its
sales force.
Occupancy and equipment expenses increased 36% ($48.2 million), comprising
14% of the total operating expense increase. Additionally, communications
and data processing expenses increased 19% ($34.3 million), accounting for
10% of the total operating expense growth for the year. The Partnership
continues to expand its headquarters, branch locations and communications
systems to enable it to continue to increase the number of IRs, locations
and customers.
16
PART II
Item 7. Management's Discussion And Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's equity capital at December 31, 2001, excluding the reserve
for anticipated withdrawals, was $638.9 million, compared to $603.1 million
at December 31, 2000. Equity capital has increased primarily due to
retention of General Partner earnings ($30.7 million) and to an increase in
Subordinated Limited Partner capital ($12.0 million), offset by redemption
of Limited Partner interests ($6.9 million).
At December 31, 2001, the Partnership had $196.5 million in cash and cash
equivalents. Lines of credit are in place aggregating $1.195 billion ($1.145
billion of which is through uncommitted lines of credit). Actual borrowing
availability is based on securities owned and customers' margin securities
which serve as collateral for the loans. No amounts were outstanding under
these lines at December 31, 2001. The Association had loans from The Federal
Home Loan Bank of $13.7 million as of December 31, 2001, which are secured
by mortgage loans. The Partnership also participates in securities loaned
transactions, under which it receives collateral in the form of cash or
other collateral in an amount in excess of the market value of securities
loaned. Securities loaned outstanding were $132.2 million at December 31,
2001, for which the Partnership received cash collateral.
A substantial portion of the Partnerships' 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, securities loaned and other payables. The Partnership
has $180.7 million in U.S. agency and treasury securities (Investment
Securities) which can be sold to meet liquidity needs. The Partnership
believes that the liquidity provided by existing cash balances, borrowing
arrangements, and investment securities will be sufficient to meet the
Partnership's capital and liquidity requirements.
In October 2001 the Partnership borrowed $25.0 million in long-term
debt, interest paid quarterly at a variable rate (3.67% at December 31,
2001) based on LIBOR plus applicable margin, due in annual installments
ranging from $4.0 million to $6.0 million, with a final installment on
September 1, 2006. Proceeds were used to fund equipment for the
Partnership's regional headquarters and data center in Tempe, Arizona.
The Partnership's growth in recent years has been financed through sales of
limited partnership interests to its employees, retention of earnings,
private placements of subordinated debt, long-term secured debt and
operating leases under which the firm rents facilities, furniture, fixtures,
computers and communication equipment.
Included in the Partnership's operating lease commitments and contingent
residual payments are synthetic leasing agreements for two buildings, one in
Tempe, Arizona, and one being constructed in St. Louis, Missouri. The lessor
of the buildings, along with a group of financial institutions, has
committed to fund the construction of the facilities. The total cost of the
facilities covered by these leases is estimated to be $62.4 million, of
which $52.7 million has been incurred by the lessor as of December 31, 2001.
The synthetic leases have initial terms of five years, with renewal options
for two additional terms of up to five years by either the lessor or the
Partnership, subject to the approval of the other party. The Partnership
may, at its option, purchase the buildings during or at the end of the terms
of the leases at approximately the amount expended to construct the
facilities. If the Partnership does not exercise the purchase option by or
at the end of the lease, the Partnership may be obligated to pay up to $27.5
million of the building's cost as determined at the lease inception date for
the Tempe, Arizona, facility. Additionally, should the Partnership terminate
its obligation during the construction phase of the St. Louis, Missouri,
facility, it has a commitment to pay up to $18.2 million of the construction
costs incurred as of December 31, 2001.
17
PART II
Item 7. Management's Discussion And Analysis of Financial Condition
and Results of Operations
The following table summarizes the Partnership's financing commitments and
obligations, excluding customer accounts due on demand.
Payments Due by Period
----------------------
Total 2002 2003-2006 Thereafter
-------------- -------------- -------------- --------------
Bank loans $ 13,679 $ - $ 2,100 $ 11,579
Securities loaned 132,231 132,231 - -
Long-term debt 46,285 9,776 32,609 3,900
Liabilities subordinated to claims
of general creditors 205,600 26,725 130,375 48,500
Rental commitments 437,900 115,800 181,400 140,700
Contingent residual payments 45,700 18,200 27,500 -
---------- ---------- ---------- ----------
Total financing commitments
and obligations $ 881,395 $ 302,732 $ 373,984 $ 204,679
========== ========== ========== ==========
For the year ended December 31, 2001, cash and cash equivalents increased
$20.2 million. Cash provided by operating activities was $287.2 million.
Sources include net income ($149.2 million) and net receivable from
customers ($348.1 million). These sources were partially offset by a
decrease in bank loans ($204.6 million). Cash used in investing activities
consisted of $127.0 million in capital expenditures primarily attributable
to the firm's expansion of its headquarters and branch facilities due to
growth in the sales force, and to investment in information technology
hardware and software. Cash used in financing activities was $140.0 million,
primarily for partnership withdrawals ($135.1 million) and repayment of
subordinated debt ($26.7 million), partially offset by issuance of long-term
secured debt ($25.0 million) and issuance of Subordinated Limited Partner
interests ($12.5 million).
For the year ended December 31, 2000, cash and cash equivalents increased
$33.8 million. Cash provided by operating activities was $221.5 million.
Sources include net income ($229.8 million), increased bank loans ($108.4
million) and securities loaned ($94.4 million) and proceeds from disposition
of securities purchased under agreements to resell ($75.0 million). These
sources were partially offset by a decrease in securities sold under
agreements to repurchase ($163.9 million), and an increase in net receivable
from customers ($120.0 million) due primarily to increased customer loan
balances. Cash used for investing activities consisted of $90.1 million in
capital expenditures primarily attributable to the Partnership's expansion
of its headquarters and branch facilities required as the Partnership grows
its sales force. Cash used in financing activities was $97.5 million
consisting of partnership withdrawals and distributions ($175.0 million) and
repayment of subordinated debt ($26.7 million), partially offset by the
issuance of Limited Partner and Subordinated Limited Partner interests
($114.0 million).
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. Receivable
from customers, net 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.
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
18
PART II
Item 7. Management's Discussion And Analysis of Financial Condition
and Results of Operations
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, 2001, EDJ's Net Capital of $395.0 million was
21% of aggregate debit items and its Net Capital in excess of the minimum
required was $358.2 million. Net Capital as a percentage of aggregate debits
after anticipated withdrawals was 21%. Net capital and the related capital
percentage may fluctuate on a daily basis.
CRITICAL ACCOUNTING POLICIES
The Partnership's financial statements are prepared in accordance with the
accounting principles generally accepted in the United States, which may
require judgement and involve estimation processes to determine its net
assets and which affect its results of operations. Included in management's
discussion and analysis of financial condition and results of operations,
and in the quantitative and qualitative disclosures about market risk, and
in the notes to the financial statements (See Note 1 to the consolidated
financial statements), are discussions of the Partnership's critical
accounting policies.
There were no material changes in the Partnership's overall financial
condition during the year ended December 31, 2001, compared with the year
ended December 31, 2000. The Partnership's consolidated statement of
financial condition is comprised primarily of cash and assets readily
convertible into cash. Securities inventories are carried at market value
and are readily marketable. Customer margin accounts are collateralized by
marketable securities. Other customer receivables and receivables and
payables with other broker/dealers normally settle on a current basis.
Liabilities, including amounts payable to customers, checks and accounts
payable and accrued expenses are sources of funds to the Partnership. These
liabilities, to the extent not utilized to finance assets, are available to
meet liquidity needs and provide funds for short-term investments, which
favorably impacts profitability.
THE EFFECTS OF INFLATION
The Partnership's net assets are primarily monetary, consisting of cash,
securities inventories and receivables less liabilities. Monetary net assets
are primarily liquid in nature and would not be significantly affected by
inflation. Inflation and future expectations of inflation influence
securities prices, as well as activity levels in the securities markets. As
a result, profitability and capital may be impacted by inflation and
inflationary expectations. Additionally, inflation's impact on the
Partnership's operating expenses may affect profitability to the extent that
additional costs are not recoverable through increased prices of services
offered by the Partnership.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), effective for the Partnership in 2002. SFAS 142
addresses how goodwill and other intangible assets should be accounted for
in the financial statements. The Partnership does not expect SFAS 142 to
have a significant effect on its consolidated financial position, results of
operations or cash flows.
Also, the FASB has issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), effective for the Partnership in 2002. SFAS 144 addresses financial
accounting and reporting for the impairment of long-lived assets and for
19
PART II
Item 7. Management's Discussion And Analysis of Financial Condition
and Results of Operations
long-lived assets to be disposed of. The Partnership does not expect SFAS
144 to have a significant effect on its consolidated financial position,
results of operations or cash flows.
FORWARD-LOOKING STATEMENTS
The Management's Financial Discussion contains forward-looking statements
within the meaning of federal securities laws. Actual results are subject to
risks and uncertainties, including both those specific to the Partnership
and those specific to the industry which could cause results to differ
materially from those contemplated. The risks and uncertainties include, but
are not limited to, general economic conditions, actions of competitors,
regulatory actions, changes in legislation and technology changes. Undue
reliance should not be placed on the forward-looking statements, which speak
only as of the date of this Annual Report on Form 10-K. The Partnership does
not undertake any obligation to publicly update any forward-looking
statements.
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 receivables from customers, and payable to
customers, as described in Note 2 to the Consolidated Financial Statements,
and inventory securities as detailed in Note 5 to the Consolidated Financial
Statements. The Partnership earns interest on customer margin account
balances, and pays interest on certain credit balances in customer accounts.
At December 31, 2001, amounts receivable from customers were $1.881 billion,
amounts payable to customers were $1.603 billion, and the fair value of
inventory securities was $118.9 million in long positions and $35.3 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, 2001 will not have a material adverse effect on the
consolidated financial position or results of operations of the Partnership.
20
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements Included in this Item
Page No.
Report of Independent Public Accountants...................................... 22
Consolidated Statements of Financial Condition as of
December 31, 2001 and 2000.................................................... 23
Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999.............................................. 25
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999.............................................. 26
Consolidated Statements of Changes in Partnership Capital
for the years ended December 31, 2001, 2000 and 1999.......................... 27
Notes to Consolidated Financial Statements.................................... 28
21
PART II
Item 8. Financial Statements And Supplementary 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, 2001 and
2000, 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, 2001. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated 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, 2001 and 2000, and
the results of their operations, cash flows and the changes in their
partnership capital for each of the three years in the period ended December
31, 2001 in conformity with accounting principles generally accepted in the
United States.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 22, 2002
22
PART II
Item 8. Financial Statements And Supplementary Data
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
December 31, December 31,
(Amounts in thousands) 2001 2000
Cash and cash equivalents $ 196,508 $ 176,356
Securities purchased under agreements to resell 80,000 -
Receivable from:
Customers 1,881,021 2,008,469
Brokers, dealers and clearing organizations 80,088 80,626
Mortgages and loans 100,782 98,946
Securities owned, at market value
Inventory securities 118,872 118,260
Investment securities 180,719 203,741
Equipment, property and improvements 298,072 248,290
Other assets 222,346 235,697
----------- -----------
TOTAL ASSETS $ 3,158,408 $ 3,170,385
=========== ===========
The accompanying notes are an integral part of these statements.
23
PART II
Item 8. Financial Statements And Supplementary 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) 2001 2000
Bank loans $ 13,679 $ 218,314
Securities sold under agreements to repurchase - 24,969
Securities loaned 132,231 140,596
Payable to:
Customers 1,602,726 1,382,088
Brokers, dealers and clearing organizations 41,990 22,268
Depositors 103,950 87,550
Securities sold, not yet purchased,
at market value 35,251 18,064
Accounts payable and accrued expenses 121,558 126,119
Accrued compensation and employee benefits 180,422 232,993
Long-term debt 46,285 29,618
----------- -----------
2,278,092 2,282,579
----------- -----------
Liabilities subordinated to claims
of general creditors 205,600 232,325
----------- -----------
Partnership capital:
Limited partners 233,228 240,144
Subordinated limited partners 82,455 70,405
General partners 323,261 292,541
----------- -----------
638,944 603,090
Partnership capital reserved for anticipated withdrawals 35,772 52,391
----------- -----------
TOTAL PARTNERSHIP CAPITAL 674,716 655,481
----------- -----------
TOTAL LIABILITIES AND CAPITAL $ 3,158,408 $ 3,170,385
=========== ===========
The accompanying notes are an integral part of these statements.
24
PART II
Item 8. Financial Statements And Supplementary 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) 2001 2000 1999
Net revenue:
Commissions $ 1,253,862 $ 1,414,474 $ 1,148,286
Principal transactions 370,327 264,361 270,830
Investment banking 24,676 29,545 20,953
Interest and dividends 176,277 224,497 149,041
Other 316,855 279,083 197,724
----------- ----------- -----------
Total revenue 2,141,997 2,211,960 1,786,834
Interest expense 66,468 87,662 58,435
----------- ----------- -----------
Net revenue 2,075,529 2,124,298 1,728,399
----------- ----------- -----------
Operating expenses:
Compensation and benefits 1,200,225 1,237,458 1,024,323
Communications and data processing 233,224 211,255 176,943
Occupancy and equipment 211,387 182,661 134,502
Payroll and other taxes 74,105 67,521 54,346
Floor brokerage and clearance fees 14,376 17,584 12,491
Other operating expenses 193,026 177,996 138,463
----------- ----------- -----------
Total operating expenses 1,926,343 1,894,475 1,541,068
----------- ----------- -----------
Net income $ 149,186 $ 229,823 $ 187,331
=========== =========== ===========
Net income allocated to:
Limited partners $ 22,935 $ 31,440 $ 26,189
Subordinated limited partners 14,949 21,294 16,827
General partners 111,302 177,089 144,315
----------- ----------- -----------
$ 149,186 $ 229,823 $ 187,331
=========== =========== ===========
Net income per weighted average $1,000 equivalent
partnership unit outstanding:
Limited partners $ 96.89 $ 179.21 $ 173.81
=========== =========== ===========
Subordinated limited partners $ 181.70 $ 333.92 $ 325.21
=========== =========== ===========
Weighted average $1,000 equivalent partnership
units outstanding:
Limited partners 236,696 175,436 150,670
=========== =========== ===========
Subordinated limited partners 82,273 63,770 51,741
=========== =========== ===========
The accompanying notes are an integral part of these statements.
25
PART II
Item 8. Financial Statements And Supplementary 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) 2001 2000 1999
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 149,186 $ 229,823 $ 187,331
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 77,237 66,643 59,356
Changes in assets and liabilities:
Securities purchased under agreements to resell (80,000) 75,000 40,000
Securities sold under agreements to repurchase (24,969) (163,911) 188,880
Net receivable from customers 348,086 (120,008) (386,330)
Net receivable from brokers, dealers and
clearing organizations 20,260 (43,848) 8,236
Receivable from mortgages and loans (1,836) (16,222) (13,902)
Securities owned, net 39,597 9,985 (55,099)
Other assets 13,351 (87,879) (36,194)
Bank loans (204,635) 108,417 102,930
Securities loaned (8,365) 94,385 2,560
Payable to depositors 16,400 10,298 3,100
Accounts payable and other accrued expenses (57,132) 58,792 67,210
---------- ---------- ----------
Net cash provided by operating activities 287,180 221,475 168,078
---------- ---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of equipment, property and improvements (127,019) (90,141) (82,247)
---------- ---------- ----------
Net cash used in investing activities (127,019) (90,141) (82,247)
---------- ---------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Issuance of long-term debt 25,000 - -
Repayment of long-term debt (8,333) (4,922) (7,285)
Issuance of subordinated liabilities - - 75,000
Repayment of subordinated liabilities (26,725) (26,725) (16,225)
Issuance of partnership interests 12,450 114,014 8,297
Redemption of partnership interests (7,316) (4,937) (4,453)
Withdrawals and distributions from partnership capital (135,085) (174,953) (142,365)
---------- ---------- ----------
Net cash used in financing activities (140,009) (97,523) (87,031)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 20,152 33,811 (1,200)
CASH AND CASH EQUIVALENTS,
Beginning of year 176,356 142,545 143,745
End of year $ 196,508 $ 176,356 $ 142,545
========== ========== ==========
Cash paid for interest $ 67,523 $ 87,479 $ 55,795
The accompanying notes are an integral part of these statements.
26
PART II
Item 8. Financial Statements And Supplementary Data
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Subordinated
Limited Limited General
Partnership Partnership Partnership
(Amounts in thousands) Capital Capital Capital Total
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
Issuance of partnership interests 95,572 18,442 - 114,014
Redemption of partnership interests (4,437) (500) - (4,937)
Net Income 31,440 21,294 177,089 229,823
Withdrawals and distributions (10,867) (15,496) (102,193) (128,556)
Reserved for anticipated withdrawals (20,573) (5,798) (26,020) (52,391)
---------- ---------- ---------- -----------
Balance, December 31, 2000 240,144 70,405 292,541 603,090
Issuance of partnership interests - 12,450 - 12,450
Redemption of partnership interests (6,916) (400) - (7,316)
Net Income 22,935 14,949 111,302 149,186
Withdrawals and distributions (8,445) (10,750) (63,499) (82,694)
Reserved for anticipated withdrawals (14,490) (4,199) (17,083) (35,772)
---------- ---------- ---------- -----------
Balance, December 31, 2001 $ 233,228 $ 82,455 $ 323,261 $ 638,944
========== ========== ========== ===========
The accompanying notes are an integral part of these statements.
27
PART II
Item 8. Financial Statements And Supplementary Data
THE JONES FINANCIAL COMPANIES, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per unit information)
NOTE 1 - SUMMARY OF SIGNIFICANT 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, principal transactions, and is a distributor of mutual fund shares.
The Partnership conducts business throughout the United States, Canada and
the United Kingdom with its customers, various brokers, dealers, clearing
organizations, depositories and banks.
The financial statements have been prepared using the accrual basis of
accounting which requires the use of certain estimates by management in
determining the Partnership's assets, liabilities, revenues and expenses.
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. 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.
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.
SECURITIES-LENDING ACTIVITIES. Securities borrowed and securities loaned
transactions are 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 in excess of
the market value of securities loaned. The
28
PART II
Item 8. Financial Statements And Supplementary Data
Partnership monitors the market value of securities borrowed and loaned on a
daily basis, with additional collateral obtained or refunded as necessary.
COLLATERAL. The Partnership continues to report as assets collateral it has
pledged in secured borrowings 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 does not
report as an asset collateral it has received in secured lending and other
arrangements because the debtor typically has the right to redeem or
substitute the collateral on short notice.
SECURITIES OWNED. Securities owned are valued at current market prices.
EQUIPMENT, PROPERTY AND IMPROVEMENTS. Equipment, including furniture and
fixtures, is recorded at cost and 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 at thirty 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 are
capitalized. Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the book value of the asset may
not be fully recoverable. If impairment is indicated, the asset value is
written down to its fair market value.
SEGREGATED CASH. Cash of $51 was segregated in a special reserve bank
account for the benefit of customers as of December 31, 2001 and 2000,
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.
29
PART II
Item 8. Financial Statements And Supplementary 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:
2001 2000
--------- ---------
Receivable from clearing organizations $ 50,849 $ 27,070
Securities failed to deliver 17,385 11,921
Dividends receivable 7,843 40,026
Deposits paid for securities borrowed 2,331 235
Other 1,680 1,374
--------- ---------
Total receivable from brokers, dealers
and clearing organizations $ 80,088 $ 80,626
========= =========
Securities failed to receive $ 32,071 $ 17,467
Other 9,919 4,801
--------- ---------
Total payable to brokers, dealers and
clearing organizations $ 41,990 $ 22,268
========= =========
Receivable from clearing organizations represents balances and deposits with
United States clearing organizations and the Partnership's Canadian carrying
broker. "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.
30
PART II
Item 8. Financial Statements And Supplementary Data
NOTE 5 - SECURITIES OWNED
Securities owned are summarized as follows (at market value):
2001 2000
-------------------------- --------------------------
Securities Securities
Sold, Sold,
Securities not yet Securities not yet
Owned Purchased Owned Purchased
----------- ----------- ----------- -----------
Inventory Securities:
Certificates of deposit $ 4,515 $ 1,553 $ 6,607 $ 3,927
U.S. and Canadian government
and U.S. agency obligations 16,849 866 15,561 1,858
State and municipal obligations 58,935 24,577 62,174 233
Corporate bonds and notes 24,540 2,308 27,310 8,829
Equities 2,833 2,810 2,660 1,879
Collateralized Mortgage Obligations 7,368 - 704 -
Other 3,832 3,137 3,244 1,338
----------- ----------- ----------- -----------
$ 118,872 $ 35,251 $ 118,260 $ 18,064
=========== =========== =========== ===========
Investment Securities:
U.S. government and agency
obligations $ 180,719 $ 203,741
=========== ===========
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 fixed income 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. The futures contracts are settled daily, and any gain or loss is
recognized in principal transactions revenue. The notional amount of futures
contracts sold was $12,000 and $16,000 at December 31, 2001 and 2000,
respectively.
31
PART II
Item 8. Financial Statements And Supplementary Data
NOTE 6 - EQUIPMENT, PROPERTY AND IMPROVEMENTS
Equipment, property and improvements are summarized as follows:
2001 2000
------------ -----------
Land $ 12,749 $ 13,599
Buildings and improvements 211,522 170,059
Equipment, furniture and fixtures 487,957 401,985
------------ -----------
Total equipment, property and improvements 712,228 585,643
Accumulated depreciation and amortization (414,156) (337,353)
------------ -----------
Equipment, property and improvements, net $ 298,072 $ 248,290
============ ===========
32
PART II
Item 8. Financial Statements And Supplementary Data
NOTE 7 - BANK LOANS
The Partnership borrows from banks on a short-term basis primarily to
finance customer margin balances and inventory securities. As of December
31, 2001, the Partnership had bank lines of credit aggregating $1,195,000 of
which $1,145,000 were through uncommitted facilities. Actual borrowing
availability is primarily based on the value of securities owned and
customers' margin securities. At December 31, 2001, collateral with a market
value of $1,487,000 was available to support secured bank loans of EDJ.
Total bank loans outstanding under these lines were $0 and $204,000 as of
December 31, 2001 and 2000, respectively. Additionally, the Association had
loans from The Federal Home Loan Bank of $13,679 and $14,314 as of December
31, 2001 and 2000, respectively, which are secured by mortgage loans. Bank
loans outstanding approximate their fair value.
Interest is at a fluctuating rate (weighted average rate of 5.8% and 7.1% at
December 31, 2001 and 2000, respectively) based on short-term lending rates.
The average of the aggregate short-term bank loans outstanding was $272,000,
$413,000 and $148,000 and the average interest rate was 4.6%, 7.0%, and
5.9% for the years ended December 31, 2001, 2000 and 1999, respectively.
NOTE 8 - PAYABLE TO DEPOSITORS
Amounts payable to depositors are 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.
NOTE 9 - LONG-TERM DEBT
Long-term debt is comprised of the following:
2001 2000
--------- ---------
Note payable, interest paid quarterly at a variable rate (3.67% at
December 31, 2001) based on LIBOR plus applicable margin, due in
annual installments ranging from $4,000 to $6,000, with a final
installment on September 1, 2006. $ 25,000 $ -
Note payable, secured by equipment, interest paid monthly at a variable rate
(8.22% at December 31, 2000) based on LIBOR plus applicable margin,
with a final installment on July 30, 2001. - 3,000
Notes payable, secured by real estate, fixed rates of 8.23% and 6.82%,
principal and interest due in monthly installments,
with a final installment on April 5, 2008. 15,461 17,296
Notes payable, secured by real estate, fixed rates of 8.72% and 6.52%,
principal and interest due in monthly installments,
with a final installment on June 5, 2003. 5,824 9,322
--------- ---------
$ 46,285 $ 29,618
========= =========
33
PART II
Item 8. Financial Statements And Supplementary Data
Scheduled annual principal payments, as of December 31, 2001, are as
follows:
Principal
Year Payment
---------- -----------
2002 $ 9,776
2003 9,154
2004 7,299
2005 7,480
2006 8,676
Thereafter 3,900
-----------
$ 46,285
===========
The real estate debt of $21,285 at December 31, 2001 is collateralized by
land and buildings with a carrying value of $35,000 at December 31, 2001.
Certain agreements contain restrictions that among other things, require
maintenance of a fixed charge coverage ratio and minimum net capital. The
carrying amounts of the long-term debt approximate their fair value as of
December 31, 2001 and 2000.
NOTE 10 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to the claims of general creditors consist of:
2001 2000
----------- -----------
Capital notes, 8.18%, due in annual installments of $10,500,
with a final installment on September 1, 2008. $ 73,500 $ 84,000
Capital notes, 7.95%, due in annual installments of $10,225,
with a final installment of $10,200 on April 15, 2006. 51,100 61,325
Capital notes, 8.96%, due in annual installments of $6,000,
with a final installment on May 1, 2002. 6,000 12,000
Capital notes, with rates ranging from 7.51% to 7.79%, due in annual
installments ranging from $3,700 to $25,000, commencing on August 15,
2005, with a final installment of $3,700 on August 15, 2011. 75,000 75,000
----------- -----------
$ 205,600 $ 232,325
=========== ===========
34
PART II
Item 8. Financial Statements And Supplementary Data
Required annual principal payments, as of December 31, 2001, are as follows:
Principal
Year Payment
---------- -----------
2002 $ 26,725
2003 20,725
2004 20,725
2005 43,225
2006 45,700
Thereafter 48,500
-----------
$ 205,600
===========
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, 2001, 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 5% of
aggregate debit items "as defined," or $91,922 (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 $213,000
and $247,000 as of December 31, 2001 and 2000, respectively.
NOTE 11 - PARTNERSHIP CAPITAL
The limited partnership capital, consisting of 233,228 and 240,144 $1,000
units at December 31, 2001 and 2000, 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 $17,754, $13,423 and $11,300, for
the years ended December 31, 2001, 2000 and 1999, respectively, paid to
limited partners on capital contributed.
The subordinated limited partnership capital, consisting of 82,455 and
70,405 $1,000 units at December 31, 2001 and 2000, 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 - NET CAPITAL REQUIREMENTS
As a result of its activities as a broker/dealer, EDJ is subject to the Net
Capital provisions of Rule 15c3-1 of the Securities Exchange Act of 1934 and
the capital rules of the New York Stock Exchange. Under the alternative
method permitted by the rules, EDJ must maintain minimum Net Capital, as
defined, equal to
35
PART II
Item 8. Financial Statements And Supplementary Data
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, 2001, EDJ's Net Capital of $395,001 was 21% of aggregate
debit items and its Net Capital in excess of the minimum required was
$358,232. Net Capital as a percentage of aggregate debits after anticipated
withdrawals was also 21%. Net Capital and the related capital percentage may
fluctuate on a daily basis.
The firm has other operating subsidiaries, including the Association and
broker/dealer subsidiaries in Canada and the United Kingdom. These wholly
owned subsidiaries are required to maintain specified levels of liquidity
and capital standards. Each subsidiary is in compliance with the applicable
regulations as of December 31, 2001.
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 $36,000, $58,000 and $47,000 were provided by the Partnership
for its contributions to the plan for the years ended December 31, 2001,
2000 and 1999, respectively.
NOTE 14 - COMMITMENTS
The Partnership leases headquarters office space, furniture, computers and
communication equipment under various operating leases. Additionally, branch
offices are leased generally for terms of three to five years. Rent expense
was $162,200, $136,500 and $105,300 for the years ended December 31, 2001,
2000 and 1999, respectively.
The Partnership's noncancelable lease commitments greater than one year, and
its contingent residual payments, as of December 31, 2001, are summarized
below:
Contingent
Rental Residual
Year Commitments Payments
---------- ------------- -------------
2002 $ 115,800 $ 18,200
2003 73,500 -
2004 54,500 -
2005 34,200 -
2006 19,200 27,500
Thereafter 140,700 -
Included in the Partnership's operating lease commitments and contingent
residual payments are synthetic lease agreements for two buildings, one in
Tempe, Arizona, and one building being constructed in St. Louis, Missouri.
The lessor of the buildings, along with a group of financial institutions,
has committed to fund the construction of the facilities. The total cost of
the facilities covered by these leases is estimated to be $62,400, of which
$52,700 has been incurred by the lessor as of December 31, 2001. The
synthetic leases have initial terms of five years, with renewal options for
two additional terms of up to
36
PART II
Item 8. Financial Statements And Supplementary Data
five years by either the lessor or the Partnership, subject to the approval
of the other party. The Partnership may, at its option, purchase the
buildings during or at the end of the terms of the leases at approximately
the amount expended to construct the facilities. If the Partnership does
not exercise the purchase option by or at the end of the lease, the
Partnership may be obligated to pay up to $27,500 of the building's cost as
determined at the lease inception date for the Tempe, Arizona, facility
("contingent residual payment"). Additionally, should the Partnership
terminate its obligation during the construction phase of the St. Louis,
Missouri, facility, it has a commitment to pay up to $18,200 of
construction costs incurred as of December 31, 2001.
EDJ has an equipment acquisition agreement with a financial institution.
Under terms of the agreement, equipment is purchased by the lessor and the
financial institution is obligated to lease the equipment to EDJ. The amount
outstanding under the agreement at December 31, 2001, is $10,500, which is
not included in the operating lease commitment table above.
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.
NOTE 16 - QUARTERLY INFORMATION
(Unaudited)
Quarters Ended
-----------------------------------------------------------------
March 31, June 30, September 29, December 31,
----------- -------- ------------- ------------
2000
Total revenue $ 577,879 $ 566,932 $ 531,864 $ 535,285
Net income 68,537 63,228 50,591 47,467
Net income per weighted average
$1,000 equivalent partnership
unit outstanding:
Limited partners $ 53.39 $ 49.28 $ 39.61 $ 36.93
Subordinated limited partners 108.51 95.22 70.20 59.99
March 30, June 29, September 28, December 31,
----------- -------- ------------- ------------
2001
Total revenue $ 529,032 $ 538,817 $ 528,467 $ 545,681
Net income 37,786 40,703 33,938 36,759
Net income per weighted average
$1,000 equivalent partnership
unit outstanding:
Limited partners $ 24.54 $ 26.44 $ 22.04 $ 23.87
Subordinated limited partners 47.51 50.03 40.79 43.37
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
37
PART III
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 January 25, 2002, the Partnership was comprised of 210 general
partners, 5,401 limited partners and 127 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 210 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
January 25, 2002:
Name Age Partner Area of Responsibility
John W. Bachmann 63 1970 Managing Partner
Douglas E. Hill 57 1974 Product & Sales Division
Michael R. Holmes 43 1996 Human Resources
Richie L. Malone 53 1979 Information Systems
Steven Novik 52 1983 Finance & Accounting
Darryl L. Pope 62 1971 Service Division
Robert Virgil, Jr. 67 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 Robert Virgil,
Jr. As of December 31, 2000, Robert Virgil, Jr. was no longer a general
partner. He is a subordinated limited partner and is still a member of the
Executive Committee.
John W. Bachmann is a director of AMR Corporation, Fort Worth, Texas. Robert
Virgil, Jr. is a director of CPI Corp., St. Louis, Missouri.
38
PART III
ITEM 11. EXECUTIVE COMPENSATION
The following table identifies the compensation of the firm's Managing
Partner and the four highest compensated individuals of the Partnership
during the three most recent years (including respective shares of profit
participation).
(1) (2) (3)
Net Income
Deferred Allocated
Compen- to General Total
Year Salaries sation Partners (1) (2) (3)
John W. Bachmann 2001 $200,000 $5,202 $1,014,482 $1,219,684
2000 200,000 8,789 2,192,317 2,401,106
1999 200,000 8,400 2,213,756 2,422,156
Douglas E. Hill 2001 175,000 5,202 2,168,380 2,348,582
2000 175,000 8,789 3,861,752 4,045,541
1999 160,000 8,400 3,372,481 3,540,881
Richie L. Malone 2001 160,000 5,202 2,096,701 2,261,903
2000 160,000 8,789 3,576,640 3,745,429
1999 160,000 8,400 3,137,883 3,306,283
Gary D. Reamey 2001 135,000 5,202 2,078,682 2,218,884
2000 135,000 8,789 3,307,308 3,451,097
1999 135,000 8,400 2,580,572 2,723,972
James D. Weddle 2001 160,000 5,202 1,935,325 2,100,527
2000 160,000 8,789 3,259,964 3,428,753
1999 160,000 8,400 2,860,236 3,028,636
(1) 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 five 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.
(2) 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
39
PART III
determined by each participant's relative level of eligible earnings,
including in the case of general partners, their net income
participation.
(3) 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 0.03% to 3.1% in
2001, 0.05% to 3.4% in 2000, and 0.05% to 3.8% in 1999. 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. Amounts herein exclude profits retained as capital. Net
income allocated to general partners excludes income required to be
reinvested under the Partnership Agreement.
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), 159 of the general partners also own
limited partnership interests and 51 of the general partners also own
subordinated limited partnership interests, as noted in the table below.
As of January 25, 2002:
Name of Amount of
Beneficial Beneficial % of
Title of Class Owner Ownership Class
Limited Partnership All General
Interests Partners as
a Group $ 20,523,800 9%
Subordinated All General
Limited Partnership Partners as
Interests a Group $ 49,224,397 52%
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
40
PART III
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.
41
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..................................................22
Consolidated Statements of Financial Condition as of
December 31, 2001 and 2000................................................................23
Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999..........................................................25
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999..........................................................26
Consolidated Statements of Changes in Partnership Capital
for the years ended December 31, 2001, 2000 and 1999......................................27
Notes to Consolidated Financial Statements ...............................................28
(2) The following financial statements are included in Schedule I:
Parent Company Only Condensed Statements of Financial Condition as
of December 31, 2001 and 2000.............................................................47
Parent Company Only Condensed Statements of Income for the years
ended December 31, 2001, 2000 and 1999....................................................48
Parent Company Only Condensed Statements of Cash Flows for the
years ended December 31, 2001, 2000 and 1999..............................................49
Report of Independent Public Accountants..................................................50
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 2001.
(c) Exhibits
Reference is made to the Exhibit Index hereinafter contained.
42
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 19, 2002
---------------------------------------------
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 19, 2002
---------------------------------------------
By (Signature and Title) /s/ Steven Novik
---------------------------------------------
Steven Novik, Chief Financial Officer
Date March 19, 2002
---------------------------------------------
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.
43
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001
Exhibit
Number Page Description
3.1 Twelfth Amended and Restated Agreement of Registered Limited
Liability Limited Partnership of The Jones Financial Companies,
L.L.L.P., dated as of June 15, 2001.
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 * 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.
10.3 * 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.
10.4 * 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.
10.5 * 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.
10.6 * 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.
44
10.7 * 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.
10.8 * 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.
10.9 * 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.
10.10 * 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.
10.11 * 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.
10.12 * 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.
10.13 * 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.
10.14 * 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.
10.15 * 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
45
reference to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 27, 1996.
10.16 * 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.
10.17 Lease between Eckelkamp Office Center South, L.L.C., a Missouri
Limited Liability Company, as Landlord and Edward D. Jones & Co., L.P.,
a Missouri Limited Partnership, as Tenant, dated February 3, 2000.
10.18 Master Agreement dated as of November 30, 2000 among Edward D. Jones
& Co., L.P., as Lessee, Construction Agent and Guarantor, Atlantic
Financial Group, Ltd., (registered to do business in Arizona as AFG
Equity, Limited Partnership) as Lessor, Suntrust Bank and Certain
Financial Institutions Parties Hereto, as Lenders, and Suntrust Bank as
agent, and joined in by the The Jones Financial Companies, L.L.L.P.
10.19 Master Lease Agreement dated as of November 30, 2000 between Atlantic
Financial Group, Ltd. (registered to do business in Arizona as AFG
Equity, Limited Partnership), as Lessor, and Edward D. Jones & Co.,
L.P., as Lessee.
10.20 Master Lease Agreement between Edward D. Jones & Co., L.P. and Fleet
Capital Corporation dated as of August 22, 2001.
10.21 Credit Agreement dated as of August 27, 2001 between EDJ Leasing Co., L.P.
and Soust Bank.
10.22 Master Lease Agreement between EDJ Leasing Co., L.P. and Edward D.
Jones & Co., L.P. dated August 27, 2001.
10.23 Master Agreement dated as of September 18, 2001 among Edward D. Jones
& Co., L.P., as Lessee, Construction Agent and Guarantor, Atlantic
Financial Group, Ltd., (registered to do business in Missouri as
Atlantic Financial Group, L.P.) as Lessor, Suntrust Bank and Certain
Financial Institutions Parties Hereto, as Lenders, and Suntrust Bank, as
Agent and joined in by The Jones Financial Companies, L.L.L.P.
10.24 Master Lease Agreement dated as of September 18, 2001 between
Atlantic Financial Group, Ltd. (registered to do business in Missouri as
Atlantic Financial Group, L.P.), as Lessor, and Edward D. Jones & Co.,
L.P., as Lessee.
23.1 Consent of Independent Public Accountants, filed herewith.
25 * Delegation of Power of Attorney to Managing Partner contained within
Exhibit 3.1
* Incorporated by reference to previously filed exhibits.
46
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) 2001 2000
ASSETS:
Cash and cash equivalents $ 3,678 $ 137
Investment in subsidiaries 667,352 654,592
Other assets 5,256 6,030
----------- -----------
TOTAL ASSETS $ 676,286 $ 660,759
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL:
Payable to limited partners, accounts payable
and accrued expenses $ 1,570 $ 5,278
----------- -----------
TOTAL LIABILITIES $ 1,570 5,278
TOTAL PARTNERSHIP CAPITAL 674,716 655,481
----------- -----------
TOTAL LIABILITIES AND CAPITAL $ 676,286 $ 660,759
=========== ===========
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
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) 2001 2000 1999
NET REVENUE:
Subsidiary earnings $ 147,835 $ 226,225 $ 185,598
Management fee income 32,876 27,905 24,028
Other 495 2,032 351
----------- ----------- -----------
Total revenue 181,206 256,162 209,977
----------- ----------- -----------
Interest expense 17,800 13,501 11,414
----------- ----------- -----------
Net revenue 163,406 242,661 198,563
----------- ----------- -----------
OPERATING EXPENSES:
Compensation and benefits 14,099 12,584 11,057
Payroll and other taxes 73 84 123
Other operating expenses 48 170 52
----------- ----------- -----------
Total operating expenses 14,220 12,838 11,232
----------- ----------- -----------
NET INCOME $ 149,186 $ 229,823 $ 187,331
=========== =========== ===========
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.
48
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) 2001 2000 1999
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 149,186 $ 229,823 $ 187,331
Adjustments to reconcile net income to net cash
provided by operating activities -
Increase in investment in subsidiaries (12,760) (168,753) (49,109)
(Increase) decrease in other assets and
liabilities, net (2,934) 4,356 1,803
----------- ----------- ------------
Net cash provided by operating activities 133,492 65,426 140,025
----------- ----------- ------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of long-term debt - - (1,493)
Issuance of partnership interests 12,450 114,014 8,297
Redemption of partnership interests (7,316) (4,937) (4,453)
Withdrawals and distributions from
partnership capital (135,085) (174,953) (142,365)
----------- ----------- ------------
Net cash used in financing activities (129,951) (65,876) (140,014)
------------ ----------- ------------
Net increase (decrease) in cash and
cash equivalents 3,541 (450) 11
CASH AND CASH EQUIVALENTS,
Beginning of year 137 587 576
------------ ----------- ------------
End of year $ 3,678 $ 137 $ 587
=========== =========== ===========
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.
49
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, 2001, and have
issued our report thereon dated February 22, 2002. 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, 2001, 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, 2002
50