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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 28, 2002 Commission file number 0-16633
THE JONES FINANCIAL COMPANIES, L.L.L.P.
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(Exact name of registrant as specified in its charter)
MISSOURI 43-1450818
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12555 Manchester Road
St. Louis, Missouri 63131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 515-2000
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
----- -----
As of the filing date, there are no voting
securities held by non-affiliates of the Registrant.
THE JONES FINANCIAL COMPANIES, L.L.L.P.
INDEX
Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition....................3
Consolidated Statements of Income ................................5
Consolidated Statements of Cash Flows.............................6
Consolidated Statements of Changes in Partnership Capital.........7
Notes to Consolidated Financial Statements........................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk........16
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................17
Item 6. Exhibits and Reports on Form 8-K .................................17
Signatures........................................................18
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
(Unaudited)
June 28, December 31,
(Amounts in thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 149,064 $ 196,508
Securities purchased under agreements to resell 6,000 80,000
Receivable from:
Customers 2,002,848 1,881,021
Brokers, dealers and clearing organizations 81,157 80,088
Mortgages and loans 100,539 100,782
Securities owned, at market value:
Inventory securities 172,184 118,872
Investment securities 170,733 180,719
Equipment, property and improvements 304,550 298,072
Other assets 213,923 222,346
------------- -------------
Total assets $ 3,200,998 $ 3,158,408
============= =============
====================================================================================================
The accompanying notes are an integral part of these financial statements.
3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
LIABILITIES AND PARTNERSHIP CAPITAL
(Unaudited)
June 28, December 31,
(Amounts in thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------
Bank loans $ 14,006 $ 13,679
Securities loaned 134,791 132,231
Payable to:
Customers 1,412,010 1,602,726
Brokers, dealers and clearing organizations 26,636 41,990
Depositors 102,784 103,950
Securities sold, not yet purchased, at market value 22,378 35,251
Accounts payable and accrued expenses 132,624 121,558
Accrued compensation and employee benefits 168,255 180,422
Long-term debt 56,556 46,285
------------- -------------
2,070,040 2,278,092
------------- -------------
Liabilities subordinated to claims of general creditors 439,375 205,600
------------- -------------
Partnership capital 668,509 638,944
Partnership capital reserved for anticipated withdrawals 23,074 35,772
------------- -------------
Total partnership capital 691,583 674,716
------------- -------------
Total liabilities and partnership capital $ 3,200,998 $ 3,158,408
============= =============
=====================================================================================================
The accompanying notes are an integral part of these financial statements.
4
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per unit information)
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
---------- ----------- ------------- -------------
Net Revenue
Commissions $ 364,089 $ 314,905 $ 706,112 $ 644,648
Principal transactions 107,023 91,303 209,317 161,543
Investment banking 9,668 6,180 14,891 9,647
Interest and dividends 35,732 46,118 68,034 96,170
Other 97,956 80,311 189,975 155,841
---------- ----------- ------------- -------------
Total revenue 614,468 538,817 1,188,329 1,067,849
Interest expense 14,075 17,247 26,775 35,519
---------- ----------- ------------- -------------
Net revenue 600,393 521,570 1,161,554 1,032,330
---------- ----------- ------------- -------------
Operating expenses:
Compensation and benefits 354,717 301,037 679,395 593,655
Communications and data processing 66,931 55,588 132,280 109,065
Occupancy and equipment 53,004 51,439 106,826 101,496
Payroll and other taxes 22,465 19,919 47,955 44,181
Floor brokerage and clearance fees 4,032 3,746 7,778 7,704
Advertising 11,010 11,105 21,816 22,215
Other operating expenses 38,139 38,033 73,780 75,525
---------- ----------- ------------- -------------
Total operating expenses 550,298 480,867 1,069,830 953,841
---------- ----------- ------------- -------------
Net income $ 50,095 $ 40,703 $ 91,724 $ 78,489
========== =========== ============= =============
Net income allocated to:
Limited partners $ 6,817 $ 6,283 $ 12,497 $ 12,148
Subordinated limited partners 5,372 4,096 9,946 7,985
General partners 37,906 30,324 69,281 58,356
---------- ----------- ------------- -------------
$ 50,095 $ 40,703 $ 91,724 $ 78,489
========== =========== ============= =============
Net income per weighted average $1,000
equivalent partnership unit outstanding:
Limited partners $ 29.45 $ 26.44 $ 53.91 $ 50.98
========== =========== ============= =============
Subordinated limited partners $ 56.53 $ 50.03 $ 104.69 $ 97.54
========== =========== ============= =============
Weighted average $1,000 equivalent
partnership unit outstanding:
Limited partners 231,477 237,633 231,812 238,290
========== =========== ============= =============
Subordinated limited partners 95,029 81,855 95,004 81,855
========== =========== ============= =============
The accompanying notes are an integral part of these financial statements.
5
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 28, June 29,
(Amounts in thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------
Cash Flows (Used in) Provided by Operating Activities:
Net income $ 91,724 $ 78,489
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Depreciation and amortization 43,158 33,902
Changes in assets and liabilities:
Securities purchased under agreements to resell 74,000 -
Securities sold under agreement to repurchase - (24,969)
Net receivable from customers (312,543) (80,946)
Net receivable from brokers, dealers
and clearing organizations (16,423) 17,745
Receivable from mortgages and loans 243 (4,628)
Securities owned, net (56,199) (16,511)
Other assets 8,423 (9,797)
Bank loans 327 186,909
Securities loaned 2,560 (10,579)
Payables to depositors (1,166) 7,085
Accounts payable and other accrued expenses (1,101) (55,701)
------------ ------------
Net cash (used in) provided by operating activities (166,997) 120,999
------------ ------------
Cash Flows Used in Investing Activities:
Purchase of equipment, property and improvements (49,636) (39,357)
------------ ------------
Net cash used in investing activities (49,636) (39,357)
------------ ------------
Cash Flows Provided by (Used in) Financing Activities:
Issuance of long-term debt 13,100 -
Repayment of long-term debt (2,829) (5,613)
Issuance of subordinated debt 250,000 -
Repayment of subordinated debt (16,225) (16,225)
Issuance of partnership interests 13,124 11,450
Redemption of partnership interests (2,680) (2,994)
Withdrawals and distributions from
partnership capital (85,301) (91,711)
------------ ------------
Net cash provided by (used in) financing activities 169,189 (105,093)
------------ ------------
Net decrease in cash and cash equivalents (47,444) (23,451)
Cash and Cash Equivalents, beginning of period 196,508 176,356
------------ ------------
Cash and Cash Equivalents, end of period $ 149,064 $ 152,905
============ ============
Cash paid for interest $ 25,939 $ 35,535
============ ============
The accompanying notes are an integral part of these financial statements.
6
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL
SIX MONTHS ENDED JUNE 28, 2002 AND JUNE 29, 2001
(Unaudited)
Subordinated
Limited limited General
partnership partnership partnership
(Amounts in thousands) capital capital capital Total
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $ 240,144 $ 70,405 $ 292,541 $ 603,090
Net income 12,148 7,985 58,356 78,489
Issuance of partnership interests - 11,450 - 11,450
Redemption of partnership interests (2,994) - - (2,994)
Withdrawals and distributions (1,210) (6,686) (31,424) (39,320)
Reserved for anticipated withdrawals (10,938) (1,299) (10,825) (23,062)
------------ ------------ ------------ ------------
Balance, June 29, 2001 $ 237,150 $ 81,855 $ 308,648 $ 627,653
============ ============ ============ ============
Balance, December 31, 2001 $ 233,228 $ 82,455 $ 323,261 $ 638,944
Net income 12,497 9,946 69,281 91,724
Issuance of partnership interests - 13,124 - 13,124
Redemption of partnership interests (2,093) (587) - (2,680)
Withdrawals and distributions (900) (8,874) (39,755) (49,529)
Reserved for anticipated withdrawals (11,597) (1,072) (10,405) (23,074)
------------ ------------ ------------ ------------
Balance, June 28, 2002 $ 231,135 $ 94,992 $ 342,382 $ 668,509
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
7
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of The Jones Financial Companies, L.L.L.P. and all wholly owned
subsidiaries (the "Partnership"). All material intercompany balances and
transactions have been eliminated. Investments in nonconsolidated companies
which are at least 20% owned are accounted for using the equity method.
The Partnership's principal operating subsidiary, Edward D. Jones &
Co., L.P. ("EDJ"), is engaged in business as a registered broker/dealer
primarily serving individual investors. The Partnership derives its revenues
from the sale of listed and unlisted securities and insurance products,
investment banking and principal transactions and is a distributor of mutual
fund shares. The Partnership conducts business throughout the United States,
Canada and the United Kingdom with its customers, various brokers, dealers,
clearing organizations, depositories and banks.
The financial statements have been prepared using the accrual basis
of accounting which requires the use of certain estimates by management in
determining the Partnership's assets, liabilities, revenues and expenses.
The financial information included herein is unaudited. However, in
the opinion of management, such information includes all adjustments,
including all normal recurring accruals, which are necessary for a fair
presentation of the results of interim operations.
The results of operations for the six months ended June 28, 2002
and June 29, 2001 are not necessarily indicative of the results to be
expected for the full year.
MATERIAL TRANSACTIONS DURING THE QUARTER ENDING JUNE 28, 2002
During June 2002, the Partnership privately placed with
institutional investors $250 million of subordinated debt. The debt bears
interest at 7.33% and has an average maturity of ten years, with annual
payments of $50 million per year commencing in year eight. The proceeds of
the placement will be used to fund the Partnership's growth.
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
8
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
defined, equal to the greater of $250,000 or 2% of aggregate debit items
arising from customer transactions. The Net Capital rule also provides that
partnership capital may not be withdrawn if resulting Net Capital would be
less than 5% of aggregate debit items. Additionally, certain withdrawals
require the consent of the SEC to the extent they exceed defined levels even
though such withdrawals would not cause Net Capital to be less than 5% of
aggregate debit items.
At June 28, 2002, EDJ's Net Capital of $641,426 million was 33% of
aggregate debit items and its Net Capital in excess of the minimum required
was $602,363 million. Net Capital as a percentage of aggregate debits after
anticipated withdrawals was 32%. Net Capital and the related capital
percentage may fluctuate on a daily basis.
The firm has other operating subsidiaries, including Boone National
Savings and Loan Association, F.A. (the "Association") and broker/dealer
subsidiaries in Canada and the United Kingdom. These wholly owned
subsidiaries are required to maintain specified levels of liquidity and
capital standards. Each subsidiary is in compliance with the applicable
regulations as of June 28, 2002.
9
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
THE JONES FINANCIAL COMPANIES, L.L.L.P.
MANAGEMENT'S FINANCIAL DISCUSSION
QUARTER AND SIX MONTHS ENDED JUNE 28, 2002, VERSUS
QUARTER AND SIX MONTHS ENDED JUNE 29, 2001
RESULTS OF OPERATIONS
For the second quarter of 2002, net revenue increased 15% ($78.8
million) to $600.4 million, and net income increased 23% ($9.4 million) to
$50.1 million. For the six months ended June 28, 2002, net revenue increased
13% ($129.2 million), and net income increased 17% ($13.2 million). The
increase in net revenue and net income for both periods is due primarily to
higher trade revenue from increased customer activity and a shift in product
mix to higher margin products, partially offset by increased operating
expenses as the firm expands its operations. The Partnership has 8,782
Investment Representatives ("IRs") at June 28, 2002, an increase of 11% from
7,937 as of June 29, 2001.
The Partnership classifies its revenues between 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
comprised 68% of net revenue for the second quarter of 2002, up from 66% in
2001. Year to date, trade revenue comprised 67% of net revenue in 2002
compared to 66% in 2001. Conversely net fee revenue sources, such as service
fees, management fees, retirement fees and interest income, represented 32%
of net revenue for the second quarter of 2002, down from 34% in the second
quarter 2001, and 33% and 34% for the first six months of 2002 and 2001,
respectively.
Trade revenue increased 18% ($62.4 million) during the second
quarter and 16% ($105.9 million) during the first six months of 2002 due to
an increase in customer dollars invested and to higher gross margins. Total
customer dollars invested were $14.8 billion and $28.5 billion during the
second quarter and first six months of 2002, representing a 16% ($2.0
billion) and 11% ($2.9 billion) increase from comparable prior year periods.
The firm's gross margin earned on each $1,000 invested increased to $26.70
in the six months of 2002 from $25.80 in the first six months of 2001. Year
over year, the composition of the product mix has shifted to fixed income
and mutual fund products, from individual equities which have a lower
margin.
Net fee revenue (fee revenue less interest expense) increased 9%
($16.4 million) for the second quarter and 7% ($23.7 million) for the first
six months of 2002. Service fees increased 9% ($6.1 million)
10
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
for the quarter and 6% ($7.9 million) year to date, due to growth in the
value of customer assets under guidance. The average of the aggregate
customer assets related to service fees increased to $119.2 billion for the
first six months of 2002, compared to $115.8 billion over the first six
months of 2001. Management, retirement and other fee revenue increased 22%
($17.5 million) for the quarter and 23% ($34.9 million) year to date, due
primarily to growth in revenue from sub-transfer agent accounting services,
revenue sharing agreements with mutual funds and insurance companies, and
retirement fees. Net interest income decreased 25% ($7.2 million) for the
second quarter and 32% ($19.4 million) year to date due primarily to the
impact of interest rate reductions that occurred during 2001 on rates
charged for customer margin balances and rates incurred for bank loans and
customer credit balances. Interest from customer loans outstanding decreased
27% ($10.3 million) for the quarter and 34% ($28.5 million) year to date.
The average rate earned on customer balances decreased to approximately 5.7%
during the first half of 2002 from approximately 8.7% during the first half
of 2001. Interest expense from bank loans decreased 69% ($2.7 million) for
the quarter and 74% ($5.9 million) year to date, and interest expense on
customer credits decreased 58% ($0.8 million) for the quarter and 73% ($3.1
million) year to date, partially offsetting the decrease in interest income
from customer loans.
Focusing on changes in major revenue categories, commissions
revenue, including service fees, increased 16% ($49.2 million) during the
second quarter and 10% ($61.5 million) for the first half of 2002, due to an
increase in customer dollars invested, a higher gross margin and an increase
in the value of customer assets. Mutual fund commissions increased 23%
($43.1 million) for the second quarter and 17% ($66.2 million) year to date,
and insurance commissions increased 12% ($6.5 million) for the second
quarter and 11% ($11.2 million) year to date. Listed and over-the-counter
(OTC) agency commissions decreased 1% ($0.6 million) for the second quarter
and 10% ($16.4 million) year to date.
Principal transactions revenue increased 17% ($15.7 million) during
the second quarter and 30% ($47.8 million) during the first six months of
2002. The increase is primarily attributable to an increase in government
and municipal bonds sales, partially offset by a decrease in corporate bond
sales. For the second quarter, revenue from government bonds increased 213%
($11.6 million), municipal bonds increased 15% ($6.5 million), while revenue
from corporate bonds decreased 16% ($4.0 million). Year to date, revenue
from government bonds increased 319% ($27.5 million), municipal bonds
increased 38% ($25.9 million), while corporate bonds decreased 22% ($11.4
million). Generally, over the past year customer activity has shifted to
fixed income products and mutual funds from equities.
Other revenue, comprised of various fee revenue sources, increased
22% for the second quarter ($17.6 million) and first six months ($34.1
million) of 2002. Revenue received from money market, sub-
11
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
transfer agent accounting services and mutual fund and insurance products
increased 17% for the second quarter ($9.9 million) for the first six months
($20.4 million) of 2002. Additionally, the number of retirement accounts
increased, resulting in custodial fee revenue growth of 30% ($3.1 million)
for the second quarter and 29% ($5.9 million) for the first six months of
2002.
Operating expenses increased 14% ($69.4 million) for the quarter
and 12% ($116.0 million) for the first six months of 2002. Compensation and
benefits costs increased 18% ($53.7 million) for the quarter and 14% ($85.7
million) for the first six months of 2002. Sales compensation increased 18%
($29.4 million) for the quarter and 16% ($50.4 million) due to increased
revenue. Payroll expense increased 16% ($14.4 million) for the quarter and
16% ($27.9 million) for the first six months due to existing personnel and
additional support at both the headquarters and in the branches as the firm
grows its sales force.
Communications and data processing expenses increased 20% ($11.3
million) during the second quarter and 21% ($23.2 million) during the first
six months of 2002. Occupancy and equipment expenses increased 3% ($1.6
million) for the quarter and 5% ($5.3 million) for the first six months of
2002. Underlying the increase in communications and data processing and
occupancy and equipment expenses is the opening in November 2001 of the
firm's Southwest regional headquarters in Tempe, Arizona, containing a
second data center. Additionally, the Firm added headquarters facilities in
Tempe for branch office training and in St. Louis for headquarters support.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's equity capital at June 28, 2002, excluding the
reserve for anticipated withdrawals, was $668.5 million, compared to $638.9
million at December 31, 2001. Equity capital has increased primarily due to
an increase in Subordinated Limited Partner capital ($12.5 million) and the
retention of General Partner earnings ($19.1 million).
At June 28, 2002, the Partnership had $149.1 million in cash and
cash equivalents. Lines of credit are in place aggregating $1.19 billion
($1.14 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 June 28, 2002. The Partnership also
participates in securities loaned transactions, under which it receives
collateral in the
12
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
form of cash or other collateral in an amount in excess of the market value
of securities loaned. Securities loaned outstanding were $134.8 million at
June 28, 2002, for which the Partnership received cash collateral.
A substantial portion of the Partnership's assets are primarily
liquid, consisting mainly of cash and assets readily convertible into cash.
These assets are financed primarily by customer credit balances, equity
capital, bank lines of credit, securities loaned and other payables. The
Partnership believes that the liquidity provided by existing cash balances
and borrowing arrangements will be sufficient to meet the Partnership's
capital and liquidity requirements. Depending on conditions in the capital
markets and other factors, the Partnership will, from time to time, consider
the issuance of debt, the proceeds of which could be used to meet growth
needs or for other purposes. During June 2002, the Partnership privately
placed with institutional investors $250 million of subordinated debt. The
debt bears interest at 7.33% and has an average maturity of ten years, with
annual payments of $50 million per year commencing in year eight. The
proceeds of the placement will be used to fund the Partnership's growth.
The Partnership's growth in recent years has been financed through
sales of limited partnership interests to its employees, retention of
earnings, and private placements of long-term and subordinated debt,
long-term secured debt and operating leases under which the firm rents
facilities, furniture, fixtures, computers and communication equipment.
There were no significant changes in the Partnership's financial commitments
and obligations for the six months ended June 28, 2002, other than the
issuance of subordinated debt discussed above.
For the six months ended June 28, 2002, cash and cash equivalents
decreased $47.4 million. Cash used in operating activities was $167.0
million. Sources include net income of $91.7 million and a reduction of
securities purchased under agreements to resell ($74.0 million). Uses
include an increase in the net receivable from customers ($312.5 million)
and an increase in securities owned ($56.2 million). Cash used in investing
activities consisted of $49.6 million in capital expenditures primarily
attributable to the firm's expansion of its headquarters and branch
facilities required as the firm grows its sales force. Cash provided by
financing activities was $169.2 million consisting primarily of the issuance
of subordinated debt ($250.0 million) and the issuance, net of withdrawals,
of Subordinated Limited Partner interests ($12.5 million), partially offset
by partnership withdrawals ($85.3 million).
As a result of its activities as a broker/dealer, EDJ, the
Partnership's principal subsidiary, is subject to the Net Capital provisions
of Rule 15c3-1 of the Securities Exchange Act of 1934 and the capital rules
of the New York Stock Exchange. Under the alternative method permitted by
the rules, EDJ
13
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
must maintain minimum Net Capital, as defined, equal to the greater of
$250,000 or 2% of aggregate debit items arising from customer transactions.
The Net Capital Rule also provides that partnership capital may not be
withdrawn if resulting Net Capital would be less than 5% of aggregate debit
items. Additionally, certain withdrawals require the consent of the SEC to
the extent they exceed defined levels even though such withdrawals would not
cause Net Capital to be less than 5% of aggregate debit items. At June 28,
2002, EDJ's Net Capital of $641.4 million was 33% of aggregate debit items
and its Net Capital in excess of the minimum required was $602.4 million.
Net Capital as a percentage of aggregate debits after anticipated
withdrawals was 32%. Net Capital and the related capital percentage may
fluctuate on a daily basis. The Partnership 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 June 28,
2002.
CRITICAL ACCOUNTING POLICIES
The Partnership's financial statements are prepared in accordance
with accounting principles generally accepted in the United States, which
may require judgement and involve estimation processes to determine its net
assets which may affect its results of interim operations. For a discussion
of the Partnership's accounting policies that may involve a higher degree of
judgement and complexity, refer to "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting
Policies" included in Form 10-K.
There were no material changes in the Partnership's overall
financial condition during the six months ended June 28, 2002, compared with
the six months ended June 29, 2001, except for the issuance of subordinated
debt. The Partnership's consolidated statement of financial condition is
comprised primarily of cash and assets readily convertible into cash which
may fluctuate in the normal course of business. Securities inventories are
carried at market value and are readily marketable. Customer margin accounts
are collateralized by marketable securities. Other customer receivables and
receivables and payables with other broker/dealers normally settle on a
current basis. Liabilities, including amounts payable to customers,
outstanding checks and accounts payable and accrued expenses are sources of
funds to the Partnership. These liabilities, to the extent not utilized to
finance assets, are available to meet liquidity needs and provide funds for
short-term investments, which favorably impacts profitability.
14
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
THE EFFECTS OF INFLATION
The Partnership's net assets are primarily monetary, consisting of
cash, securities inventories and receivables less liabilities. Monetary net
assets are primarily liquid in nature and would not be significantly
affected by inflation. Inflation and future expectations of inflation
influence securities prices, as well as activity levels in the securities
markets. As a result, profitability and capital may be impacted by inflation
and inflationary expectations. Additionally, inflation's impact on the
Partnership's operating expenses may affect profitability to the extent that
additional costs are not recoverable through increased prices of services
offered by the Partnership.
FORWARD-LOOKING STATEMENTS
The Management's Financial Discussion contains forward-looking
statements within the meaning of federal securities laws. Actual results are
subject to risks and uncertainties, including both those specific to the
Partnership and those specific to the industry which could cause results to
differ materially from those contemplated. The risks and uncertainties
include, but are not limited to, general economic conditions, actions of
competitors, regulatory actions, changes in legislation and technology
changes. Undue reliance should not be placed on the forward-looking
statements, which speak only as of the date of this Quarterly Report on Form
10-Q. The Partnership does not undertake any obligation to publicly update
any forward-looking statements.
15
Part I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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 earns
interest on customer margin account balances and pays interest on certain
credit balances in customer accounts.
There were no changes in the Partnership's exposure to interest
rate risk during the quarter ended June 28, 2002, that would have a material
adverse effect on the consolidated financial position or results of
operations of the Partnership.
16
Part II. OTHER INFORMATION
THE JONES FINANCIAL COMPANIES, L.L.L.P.
Item 1. Legal Proceedings
There have been no material changes in the legal proceedings previously
reported.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Reference is made to the Exhibit Index contained hereinafter.
(b) Reports on Form 8-K
Reference is made to the Exhibit Index contained hereinafter.
17
Part II. OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE JONES FINANCIAL COMPANIES, L.L.L.P.
(Registrant)
Dated: August 12, 2002 /s/ Steven Novik
------------------------
Steven Novik
Chief Financial Officer
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EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 28, 2002
Exhibit
Number Page Description
10.1 Note Purchase Agreement by Edward D. Jones & Co., L.P.
for $250,000,000 aggregate principal amount of 7.33%
subordinated capital notes due June 12, 2014.
16 * Changes in Registrant's certifying accountant,
incorporated by reference to Form 8-K dated
July 16, 2002.
99 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley act of 2002.
* Incorporated by reference to previously filed exhibits.
19