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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 2004
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Commission file number 0-16633
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THE JONES FINANCIAL COMPANIES, L.L.L.P.
- -------------------------------------------------------------------------------
(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
----------------
Securities registered pursuant to Section 12(b) of the act:
Name of each exchange
Title of each class on which registered
------------------- ------------------
NONE NONE
------------------- ------------------
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [ ] NO [X]
As of the filing date, there were 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 Changes in Partnership Capital.........6
Consolidated Statements of Cash Flows.............................7
Condensed Notes to Consolidated Financial Statements..............8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......22
Item 4. Controls and Procedures..........................................22
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................23
Signatures.......................................................24
2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
(Unaudited)
September 24, December 31,
(Dollars in thousands) 2004 2003
- ------------------------------------------------------------------------------- ---------------
Cash and cash equivalents $ 196,858 $ 187,980
Securities purchased under agreements to resell - 290,000
Receivable from:
Customers 2,462,720 2,134,655
Brokers, dealers and clearing organizations 152,030 155,083
Mortgages and loans 144,374 126,060
Securities owned, at market value
Inventory securities 54,180 115,775
Investment securities 123,386 145,238
Equipment, property and improvements, at cost,
net of accumulated depreciation 315,433 330,626
Other assets 270,026 237,742
--------------- ---------------
TOTAL ASSETS $ 3,719,007 $ 3,723,159
=============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
LIABILITIES AND PARTNERSHIP CAPITAL
(Unaudited)
September 24, December 31,
(Dollars in thousands) 2004 2003
- -----------------------------------------------------------------------------------------------------
Bank loans $ 81,311 $ 23,656
Payable to:
Customers 1,809,999 1,924,882
Brokers, dealers and clearing organizations 22,246 33,598
Depositors 115,126 107,988
Securities loaned 6,541 9,953
Securities sold, not yet purchased, at market value 24,994 20,318
Accrued compensation and employee benefits 262,942 248,729
Accounts payable and accrued expenses 159,032 120,908
Long-term debt 37,568 39,691
--------------- ---------------
2,519,759 2,529,723
--------------- ---------------
Liabilities subordinated to claims of general creditors 387,425 408,150
--------------- ---------------
Partnership capital subject to mandatory redemption,
net of reserve for anticipated withdrawals 777,562 -
Reserve for anticipated withdrawals 34,261 -
--------------- ---------------
Total partnership capital subject to mandatory redemption 811,823 -
--------------- ---------------
Total liabilities 3,719,007 2,937,873
--------------- ---------------
Partnership capital net of reserve for anticipated withdrawals - 727,280
Reserve for anticipated withdrawals - 58,006
--------------- ---------------
Total partnership capital - 785,286
--------------- ---------------
TOTAL LIABILITIES AND PARTNERSHIP CAPITAL $ 3,719,007 $ 3,723,159
=============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
4
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
----------------------------------------------------------------
(Dollars in thousands, September 24, September 26, September 24, September 26,
except per unit information) 2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------------------------
Revenue:
Commissions $ 334,017 $ 319,680 $ 1,101,589 $ 894,018
Asset fees 145,394 122,050 431,288 335,597
Principal transactions 78,212 103,829 242,276 264,251
Account and activity fees 75,015 63,459 226,846 188,387
Interest and dividends 39,090 33,104 108,228 97,401
Investment banking 8,300 9,318 21,423 35,246
Other revenue 6,369 956 8,617 17,370
------------- ------------- --------------- ---------------
Total revenue 686,397 652,396 2,140,267 1,832,270
Interest expense 13,818 14,380 41,800 43,750
------------- ------------- --------------- ---------------
Net revenue 672,579 638,016 2,098,467 1,788,520
------------- ------------- --------------- ---------------
Operating expenses:
Compensation and benefits 395,152 382,142 1,240,909 1,046,145
Communications and data processing 69,657 66,630 206,346 196,700
Occupancy and equipment 62,577 59,962 186,756 176,496
Payroll and other taxes 21,758 21,637 79,725 68,296
Advertising 11,909 10,476 34,241 31,412
Floor brokerage and clearance fees 3,269 3,436 9,907 10,506
Other operating expenses 49,347 39,961 148,281 126,533
------------- ------------- --------------- ---------------
Total operating expenses 613,669 584,244 1,906,165 1,656,088
------------- ------------- --------------- ---------------
Income before allocations to partners 58,910 53,772 192,302 132,432
Allocations to partners:
Limited partners 6,125 - 20,110 -
Subordinated limited partners 6,246 - 20,787 -
General partners 46,539 - 151,405 -
------------- ------------- --------------- ---------------
Net income $ - $ 53,772 $ - $ 132,432
============= ============= =============== ===============
Net income allocated to:
Limited partners $ - $ 6,402 $ - $ 15,860
Subordinated limited partners - 5,729 - 14,343
General partners - 41,641 - 102,229
------------- ------------- --------------- ---------------
$ - $ 53,772 $ - $ 132,432
============= ============= =============== ===============
Income before allocations to partners/net
income per weighted average $1,000
equivalent limited partnership unit outstanding $ 27.92 $ 28.58 $ 91.15 $ 70.40
============= ============= =============== ===============
Weighted average $1,000 equivalent
limited partnership units outstanding 219,377 224,003 220,625 225,284
------------- ------------- --------------- ---------------
The accompanying notes are an integral part of these consolidated financial statements
5
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL
NINE MONTHS ENDED SEPTEMBER 24, 2004 AND SEPTEMBER 26, 2003
(Unaudited)
Subordinated
Limited Limited General
Partnership Partnership Partnership
(Dollars in thousands) Capital Capital Capital Total
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL PARTNERSHIP CAPITAL $ 239,839 $ 98,422 $ 371,684 $ 709,945
Reserve for anticipated withdrawals (11,173) (3,123) (14,278) (28,574)
------------- ------------- -------------- -------------
Partnership capital net of reserve for
anticipated withdrawals,
December 31, 2002 228,666 95,299 357,406 681,371
Issuance of partnership interests - 9,829 - 9,829
Redemption of partnership interests (5,287) (1,190) - (6,477)
Net income 15,860 14,343 102,229 132,432
Withdrawals and distributions (1,089) (12,937) (62,280) (76,306)
------------- ------------- -------------- -------------
TOTAL PARTNERSHIP CAPITAL 238,150 105,344 397,355 740,849
Reserve for anticipated withdrawals (14,770) (1,406) (11,734) (27,910)
------------- ------------- -------------- -------------
Partnership capital net of reserve for
anticipated withdrawals,
September 26, 2003 $ 223,380 $ 103,938 $ 385,621 $ 712,939
============= ============= ============== =============
TOTAL PARTNERSHIP CAPITAL $ 237,845 $ 112,406 $ 435,035 $ 785,286
Reserve for anticipated withdrawals (15,345) (8,468) (34,193) (58,006)
------------- ------------- -------------- -------------
Partnership capital net of reserve for
anticipated withdrawals,
December 31, 2003 222,500 103,938 400,842 727,280
Required reclassification of partnership
capital pursuant to SFAS No.150
(See Notes) (222,500) (103,938) (400,842) (727,280)
------------- ------------- -------------- -------------
Partnership capital net of reserve for
anticipated withdrawals,
September 24, 2004 $ - $ - $ - $ -
------------- ------------- -------------- -------------
The accompanying notes are an integral part of these consolidated financial statements.
6
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
----------------------------------
September 24, September 26,
(Dollars in thousands) 2004 2003
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ - $ 132,432
Adjustments to reconcile net income to net
cash provided by operating activities -
Income before allocations to partners 192,302 -
Depreciation and amortization 71,842 66,036
Changes in assets and liabilities:
Securities purchased under agreements to resell 290,000 (105,000)
Net receivable from customers (442,948) (54,798)
Net receivable from brokers, dealers and
clearing organizations (8,299) (34,006)
Receivable from mortgages and loans (18,314) (8,210)
Securities owned, net 88,123 112,308
Other assets (32,284) (3,378)
Bank loans 57,655 7,520
Payable to depositors 7,138 (2,747)
Securities loaned (3,412) 3,790
Accrued compensation and employee benefits 14,213 85,424
Accounts payable and accrued expenses 38,124 19,432
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Net cash provided by operating activities 254,140 218,803
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, property and improvements, net (56,649) (105,220)
------------- -------------
Net cash used in investing activities (56,649) (105,220)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (2,123) (3,991)
Repayment of subordinated debt (20,725) (20,725)
Issuance of partnership interests 12,727 9,829
Redemption of partnership interests (4,233) (6,477)
Withdrawals and distributions from partnership capital (174,259) (104,880)
------------- -------------
Net cash used in financing activities (188,613) (126,244)
------------- -------------
Net increase/(decrease) in cash and cash equivalents 8,878 (12,661)
CASH AND CASH EQUIVALENTS,
Beginning of period 187,980 175,953
------------- -------------
End of period $ 196,858 $ 163,292
============= =============
Cash paid for interest $ 39,230 $ 41,055
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
7
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per unit information)
BASIS OF PRESENTATION
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
(collectively, the "Partnership"). All material intercompany balances and
transactions have been eliminated in consolidation. Investments in
unconsolidated 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. ("Edward Jones"), is composed of three registered broker-dealers
serving individual investors. Edward Jones derives its revenues from the
retail brokerage business through the sale of listed and unlisted
securities, insurance products, investment banking and principal
transactions and as a distributor of mutual fund shares. Edward Jones
conducts business throughout the United States of America, Canada and the
United Kingdom with its customers, various brokers, dealers, clearing
organizations, depositories and banks. Boone National Savings and Loan
Association, F.A. (the "Association"), a wholly owned subsidiary of the
Partnership, makes commercial, real estate and other loans primarily to
customers in Central Missouri. Additionally, the Association offers trust
services to Edward Jones' customers through its division, the Edward Jones
Trust Co.
The financial statements have been prepared under the accrual basis of
accounting in conformity with accounting principles generally accepted in
the United States of America which require the use of certain estimates by
management in determining the Partnership's assets, liabilities, revenues
and expenses. Actual results could differ from these estimates.
Certain prior period balances have been reclassified to conform with the
current period presentation.
Substantially all of the Partnership's short-term financial assets and
liabilities are carried at fair value or contracted amounts which
approximate fair value.
Under the terms of the Partnership agreement, a partner's capital will be
redeemed by the Partnership in the event of the partner's death, resignation
or termination. In the event of a partner's death, the Partnership must
redeem the partner's capital within six months.
Limited partners withdrawing from the Partnership due to termination or
resignation are repaid their capital in three equal annual installments
beginning the month after their resignation or termination. The capital of
general partners resigning or terminated from the Partnership is converted
to subordinated limited partnership capital. Subordinated limited partners
are repaid their capital in four equal annual installments beginning the
month after their resignation or termination. The Partnership's managing
partner has the discretion to waive these withdrawal restrictions. All
current and future partnership capital is subordinate to all current and
future liabilities of the Partnership, including the liabilities
subordinated to claims of general creditors.
8
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
The interim financial information included herein is unaudited. However, in
the opinion of management, such information includes all adjustments,
consisting primarily of normal recurring accruals, which are necessary for a
fair presentation of the results of interim operations.
The results of operations for the nine months ended September 24, 2004 and
September 26, 2003 are not necessarily indicative of the results to be
expected for the full year.
REVENUE RECOGNITION. Customer transactions are recorded on a settlement date
basis and the related commissions, principal transactions and investment
banking revenues are recorded on a trade date basis. All other forms of
revenue are recorded on an accrual basis.
Commissions comprise charges to customers for the sale of securities,
insurance products and mutual fund shares.
Asset fees revenue is composed primarily of service fees and other revenues
received under agreements with mutual fund and insurance companies based on
the underlying value of the Partnership's customers' assets invested in
those companies' products. The asset based portion of the Partnership's
revenues related to its interest in the Edward Jones Money Market Fund is
also included in asset fees revenue.
Principal transactions revenue is the result of the Partnership's
participation in market-making activities 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.
Account and activity fees revenue includes fees received from mutual fund
companies for sub-transfer agent accounting services performed by the
Partnership and self-directed IRA custodian account fees. It also includes
other (non-commission) transaction fee revenues charged to customers or
received from mutual fund and insurance companies.
Interest and dividend income is earned primarily on margin account balances,
inventory securities and investment securities.
Investment banking revenues are derived from the Partnership's underwriting
and distribution of securities on behalf of issuers or existing holders of
securities.
NEW ACCOUNTING STANDARDS
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
SFAS No. 150 establishes standards for classifying and measuring certain
financial instruments with characteristics of both liabilities and equity.
The provisions of SFAS No. 150 were adopted in the Partnership's financial
statements beginning with the quarter ended March 26, 2004.
Under the provisions of SFAS No. 150, the obligation to redeem a partner's
capital in the event of a partner's death is one of the statement's criteria
requiring equity capital to be classified as a liability. Since the
Partnership is obligated to redeem a partner's capital after a partner's
death, the Statement requires all of the Partnership's equity capital to be
classified as a liability. Income allocable to limited, subordinated limited
and general partners was previously classified on the Partnership's
statement of income as net income. In accordance with SFAS No. 150, these
allocations are now considered interest expense and are classified as a
reduction of income before allocations to partners, which results in a
presentation of $0 net income for the quarter and nine months ended
September 24, 2004. The financial statement presentations required to comply
with SFAS No. 150 do not alter the Partnership's treatment of
9
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
income, income allocations or equity capital for any other purposes. In
addition, SFAS No. 150 does not have any effect on, nor is it applicable to,
the Partnership's subsidiaries' financial statements.
Net income, as defined in the Partnership Agreement, is now equivalent to
income before allocations to partners on the Consolidated Statements of
Income. Such income, if any, for each calendar year is allocated to the
Partnership's three classes of capital in accordance with the formulas
prescribed in the Partnership Agreement. First, limited partners are
allocated net income (as defined in the Partnership Agreement) in accordance
with the prescribed formula for their share of net income. Limited partners
do not share in the net loss (as defined in the Partnership Agreement) in
any year in which there is a net loss and the Partnership is not dissolved
or liquidated. Thereafter, subordinated limited partners and general
partners are allocated any remaining net income based on formulas in the
Partnership Agreement. It has been the Partnership's practice to retain
approximately 30% of income allocated to general partners.
Limited partners are guaranteed a minimum 7.5% return on the face amount of
their capital. Such payments to limited partners were $12,405 and $12,692
for the nine months ended September 24, 2004 and September 26, 2003,
respectively, and are included as a component of interest expense. The 7.5%
return is paid to limited partners regardless of the Partnership's earnings.
10
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
PARTNERSHIP CAPITAL
As more fully described under "New Accounting Standards," the firm's
partnership capital has been classified as a liability under SFAS No. 150 as
"Partnership capital subject to mandatory redemption." The firm's
partnership capital subject to mandatory redemption, net of reserve for
anticipated withdrawals of $777,562 consists of $218,717 of limited
partnership capital issued in $1,000 units, $116,214 of subordinated limited
partnership capital and $442,631 of general partnership capital as of
September 24, 2004. The following table shows the activity in the firm's
partnership capital subject to mandatory redemption during the nine months
ended September 24, 2004 along with the amount of partnership capital
anticipated to be withdrawn subsequent to September 24, 2004.
Subordinated
Limited Limited General
Partnership Partnership Partnership
Capital Capital Capital Total
--------------------------------------------------------------------
Partnership capital subject to mandatory
redemption, January 1, 2004 $ 222,500 $ 103,938 $ 400,842 $ 727,280
Issuance of partnership interests - 12,727 - 12,727
Redemption of partnership interests (3,783) (450) - (4,233)
Income allocated to partners 20,110 20,787 151,405 192,302
Withdrawals and distributions (1,179) (19,330) (95,744) (116,253)
--------------------------------------------------------------------
Total partnership capital subject to
mandatory redemption 237,648 117,672 456,503 811,823
Reserve for anticipated withdrawals (18,931) (1,458) (13,872) (34,261)
--------------------------------------------------------------------
Partnership capital subject to mandatory
redemption, net of reserve for anticipated
withdrawals, September 24, 2004 $ 218,717 $ 116,214 $ 442,631 $ 777,562
====================================================================
11
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
NET CAPITAL REQUIREMENTS
As a result of its activities as a broker-dealer, Edward Jones 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, Inc. Under the
alternative method permitted by the rules, Edward Jones must maintain
minimum Net Capital equal to the greater of $250 or 2% of aggregate debit
items arising from customer transactions. The Uniform Net Capital Rule also
provides that partnership capital may not be withdrawn if the resulting Net
Capital would be less than 5% of aggregate debit items. Additionally,
certain withdrawals require the consent of the Securities and Exchange
Commission ("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 September 24, 2004, Edward Jones' Net Capital of $618,739 was 25.7% of
aggregate debit items and its Net Capital in excess of the minimum required
was $570,522. Net Capital as a percentage of aggregate debits after
anticipated withdrawals was 25.7%. Net Capital and the related capital
percentage fluctuate on a daily basis.
At September 24, 2004, the Partnership's foreign broker-dealer subsidiaries
and the Association were in compliance with regulatory capital requirements
in the jurisdictions in which they operate.
CONTINGENCIES
In the normal course of business, the Partnership has been named, from time
to time, as a defendant in various legal actions, including arbitrations,
class actions and other litigation. Certain of these legal actions include
claims for substantial compensatory and/or punitive damages or claims for
indeterminate amounts of damages. The Partnership is involved, from time to
time, in investigations and proceedings by governmental and self-regulatory
agencies, certain of which may result in adverse judgments, fines or
penalties. Recently, the number of legal actions and investigations has
increased with a focus on mutual fund issues among many firms in the
financial services industry, including the Partnership.
In view of the inherent difficulty of predicting the outcome of such
matters, particularly in cases in which claimants seek substantial or
indeterminate damages, or actions which are in very preliminary stages, the
Partnership cannot predict with certainty the eventual loss or range of loss
related to such matters. The Partnership believes, based on current
knowledge and after consultation with counsel, that the outcome of these
actions will not have a material adverse effect on the consolidated
financial condition of the Partnership, although the outcome could be
material to the Partnership's future operating results for a particular
period or periods.
12
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
BASIS OF PRESENTATION
Due to the adoption of SFAS No. 150 on January 1, 2004, we are providing
certain information that may be considered non-GAAP financial measures in
this discussion of our results of operations, including a measure of income
before allocations to partners. We believe that these figures are helpful in
allowing the reader to more accurately assess the ongoing nature of our
operations and measure our performance more consistently. We use the
presented financial measures internally to understand and assess the
performance of our business. Therefore, we believe that this information is
meaningful in addition to the information contained in the GAAP presentation
of financial information. The presentation of this additional financial
information is not intended to be considered in isolation or as a substitute
for the financial information prepared and presented in accordance with
GAAP. See the New Accounting Standards note to the consolidated financial
statements for further discussion of these items.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 24, 2004 AND
SEPTEMBER 26, 2003
For the third quarter of 2004, net revenue increased 5% ($34.6 million) to
$672.6 million, while income before allocations to partners increased 10%
($5.1 million) to $58.9 million. The Partnership's profit margin based on
income before allocations to partners increased to 8.6% in the third quarter
of 2004, from 8.2% in the third quarter of 2003. The Partnership's net
revenue, income before allocations to partners and profit margin increased
due primarily to an increase in customer activity, growth in customer asset
values and higher account and activity fees. The Partnership added 115 (1%)
Investment Representatives ("IRs") during the twelve months ended September
24, 2004, ending the quarter with 9,419 IRs.
For internal analysis the Partnership broadly categorizes its revenues as
trade revenue (revenue from customer buy or sell transactions of securities)
and net fee revenue (sources other than trade revenue including asset fees,
account and activity fees and net interest income). In the Partnership's
Consolidated Statements of Income, trade revenue is composed of commissions,
principal transactions and investment banking. Net fee revenue is composed
of asset fees, account and activity fees, interest and dividends net of
interest expense and other revenues. Trade revenue comprised 62% of net
revenue for the third quarter of 2004, down from 68% for the third quarter
of 2003.
13
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Trade revenue of $419.7 million decreased 3.5% ($15.0 million) during the
third quarter of 2004 due primarily to a lower gross margin earned on
customer dollars invested compared to the third quarter of 2003 while
customer dollars invested (the principal amount of customers' buy and sell
transactions generating trade revenue) remained constant. The Partnership's
margin earned on each $1,000 invested decreased to $25.90 in the third
quarter of 2004 from $27.10 in the third quarter of 2003. Total customer
dollars invested were $15.5 billion during the third quarter of 2004 and
2003. Year over year, customer dollars invested shifted to mutual funds and
insurance products, from fixed income products.
Commissions revenue increased 5% ($14.3 million) during the third quarter of
2004 to $334.0 million. Commissions revenue increased due primarily to a 6%
($0.5 billion) increase in customer dollars invested in mutual funds,
equities and insurance products to $10.5 billion in the third quarter of
2004 from $10.0 billion in the third quarter of 2003. Underlying the
increase in commissions revenue, insurance commissions increased 21% ($8.7
million), mutual fund commissions increased 2% ($4.1 million) and individual
equity agency commissions increased 2% ($1.5 million). The following table
summarizes commissions revenue quarter over quarter:
Quarter ended
---------------------------------
September 24, September 26,
(in millions) 2004 2003
-------------- --------------
Mutual Funds $ 214.3 $ 210.2
Individual Equity Agency Commissions 69.4 67.9
Insurance 50.2 41.5
Corporate Bond Agency Commissions 0.1 0.1
-------------- --------------
$ 334.0 $ 319.7
============== ==============
Principal transactions revenue decreased 25% ($25.6 million) to $78.2
million during the third quarter of 2004 due to a decrease in customer
dollars invested in fixed income products and to a lower margin earned on
principal transactions. Customer dollars invested decreased 11% ($0.6
billion) to $4.8 billion in the third quarter of 2004 compared to $5.4
billion in the third quarter of 2003. The Partnership's margin earned on
each $1,000 invested decreased to $15.10 in the third quarter of 2004 from
$18.70 in the third quarter of 2003 due primarily to a product mix shift to
lower margin shorter maturity fixed income products in 2004. Revenue from
municipal bonds decreased 40% ($18.3 million) and government bonds decreased
47% ($7.1 million). The following table summarizes principal transaction
revenue quarter over quarter:
Quarter ended
---------------------------------
September 24, September 26,
(in millions) 2004 2003
-------------- --------------
Municipal Bonds $ 27.9 $ 46.3
Corporate Bonds 23.8 24.0
Government Bonds 8.0 15.1
Unit Investment Trusts 6.0 7.6
Collateralized Mortgage Obligations 5.8 9.0
Certificates of Deposit and Other 6.7 1.8
-------------- --------------
$ 78.2 $ 103.8
============== ==============
14
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Investment banking revenue decreased 11% ($1.0 million) during the third
quarter of 2004 to $8.3 million, due primarily to a decrease in syndicate
corporate equity and municipal bond unit investment trust offerings in the
current quarter.
Net fee revenue increased 24% ($49.6 million) during the third quarter of
2004. Asset fees increased 19% ($23.3 million) to $145.4 million due to the
favorable impact of market conditions on customers' mutual fund and
insurance assets generating asset fees. Average customer mutual fund and
insurance assets increased $37.4 billion or 27% to $174.4 billion in the
third quarter of 2004 compared to $137.0 billion in the third quarter of
2003.
Account and activity and other fees of $82.2 million increased 32% ($19.7
million) quarter over quarter due to growth in customer accounts. Revenue
received from mutual fund and money market sub-transfer agent services
increased 23% ($8.2 million) to $43.9 million, due to a 21% increase in the
number of customer accounts for which the Partnership provides mutual fund
sub-transfer agent services. The number of retirement accounts for which the
Partnership is custodian increased by 16%, resulting in custodial fee
revenue growth of 19% ($2.5 million) to $15.3 million. The third quarter of
2004 includes a gain on inventory that the Partnership holds for principal
transactions of $0.8 million versus a loss of $1.9 million in the third
quarter of 2003. In addition to these increases in account, activity and
other fee revenue was a foreign currency translation gain of $1.4 million
during the third quarter of 2004 versus a $0.4 million loss during the third
quarter of 2003.
Interest and dividend income, net of interest expense, increased 35% ($6.5
million) to $25.3 million during the third quarter of 2004 due primarily to
an increase in customer margin loans outstanding and an increase in interest
rates. Interest income from customer loans increased 30% ($7.5 million).
Average customer margin loan balances were $2.414 billion in the third
quarter of 2004, compared to $2.010 billion in the third quarter of 2003, an
increase of 20%. The average rate earned on customer loan balances increased
to approximately 5.27% during the third quarter of 2004 from approximately
4.95% during the third quarter of 2003, primarily due to the Federal Reserve
recently raising interst rates by 75 basis points.
Operating expenses increased 5% ($29.4 million) to $613.7 million during the
third quarter of 2004. Compensation and benefits costs increased 3% ($13.0
million) to $395.2 million. Within compensation and benefits costs, sales
compensation increased 5.1% ($10.6 million) due to increased revenue.
Variable compensation, including bonuses and profit sharing paid to IRs,
branch office assistants and headquarters associates, which expands and
contracts in relation to revenues, income before allocations to partners and
the Partnership's related profit margin, decreased 7% ($2.6 million). IR
bonuses are calculated on a calendar trimester basis. As a result, calendar
quarter profit margins are not necessarily the same as the trimester profit
margins which determined the IR bonus expense amounts. Payroll expense
increased 5% ($5.8 million) due to increased costs for existing personnel
and additional support at both the headquarters and in the branches as the
Partnership grows its sales force. On a full time equivalent basis, the
Partnership added 92 (2%) headquarters associates and 330 (3%) branch staff
associates during the twelve months ended September 24, 2004, ending the
quarter with 3,951 headquarters associates and 9,810 branch staff
associates.
Occupancy and equipment expenses increased 4% ($2.6 million) and
communications and data processing increased 5% ($3.0 million) due to
changes in estimated useful lives of equipment as the Partnership plans to
replace certain computer equipment and to growth in the number of branch
offices as the Partnership expands its sales force. Other operating expenses
increased due to growth in the Partnership's business and additional costs
associated with regulatory matters.
15
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 24, 2004 AND
SEPTEMBER 26, 2003
For the nine months ended September 24, 2004, net revenue increased 17%
($309.9 million) to $2.098 billion, while income before allocations to
partners increased 45% ($59.9 million) to $192.3 million. The Partnership's
profit margin based on income before allocations to partners increased to
9.0% for the first nine months of 2004 from 7.2% for the first nine months
of 2003. The Partnership's net revenue, income before allocations to
partners and profit margin increased due primarily to an increase in
customer activity, growth in customer asset values and higher account and
activity fees.
Trade revenue of $1.365 billion, which comprised 65% of net revenue,
increased 14% ($169.8 million) in the first nine months of 2004 due
primarily to an increase in customer dollars invested (the principal amount
of customers' buy and sell transactions generating trade revenue), partially
offset by a lower gross margin earned on customer dollars invested and two
fewer selling days compared to the first nine months of 2003. Total customer
dollars invested were $49.7 billion during the first nine months of 2004, an
18% ($7.7 billion) increase from the $42.0 billion invested during the first
nine months of 2003. The Partnership's margin earned on each $1,000 invested
decreased to $26.30 in the first nine months of 2004 from $27.60 in the
first nine months of 2003 due to a shift in product mix. Year over year,
customer dollars invested shifted to mutual funds, individual equities and
insurance products from fixed income products.
Commissions revenue increased 23% ($207.6 million) during the first nine
months of 2004 to $1.102 billion. Commissions revenue increased year over
year due primarily to a 31% ($8.2 billion) increase in underlying customer
dollars invested in mutual funds, equities and insurance products to $34.8
billion. Underlying the increase in commissions revenue, mutual fund
commissions increased 24% ($140.4 million), individual equity agency
commissions increased 19% ($34.7 million) and insurance commissions
increased 29% ($32.7 million). The following table summarizes commissions
revenue for the nine month periods ending September 24, 2004 and September
26, 2003.
Nine months ended
---------------------------------
September 24, September 26,
(in millions) 2004 2003
-------------- --------------
Mutual Funds $ 732.4 $ 592.0
Individual Equity Agency Commissions 222.7 188.0
Insurance 146.2 113.5
Corporate Bond Agency Commissions 0.3 0.5
-------------- --------------
$1,101.6 $ 894.0
============== ==============
16
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Principal transactions revenue decreased 8% ($22.0 million) to $242.3
million during the first nine months of 2004. Customers invested $14.3
billion in principal transactions in the first nine months of 2004 and 2003.
The Partnership's margin earned on each $1,000 invested decreased to $16.00
during the first nine months of 2004 from $17.60 during the same period of
2003 due primarily to a product mix shift to lower margin shorter maturity
fixed income products in 2004. Revenue from municipal bonds decreased 28%
($32.6 million) and collateralized mortgage obligations decreased 30% ($8.7
million) while corporate bonds increased 27% ($15.9 million). The following
table summarizes principal transaction revenue for the nine month periods
ending September 24, 2004 and September 26, 2003:
Nine months ended
---------------------------------
September 24, September 26,
(in millions) 2004 2003
-------------- --------------
Municipal Bonds $ 85.5 $ 118.2
Corporate Bonds 75.5 59.6
Government Bonds 28.2 29.5
Collateralized Mortgage Obligations 20.3 29.0
Unit Investment Trusts 18.2 19.4
Certificates of Deposit and Other 14.6 8.6
-------------- --------------
$ 242.3 $ 264.3
============== ==============
Investment banking revenue decreased 39% ($13.8 million) during the first
nine months of 2004 to $21.4 million, due primarily to a decrease in
syndicate corporate debt offerings in the current year.
Net fee revenue of $733.3 million, comprising 35% of net revenue increased
24% ($140.2 million) during the first nine months of 2004. Asset fees
increased 29% ($95.7 million) to $431.3 million due to the favorable impact
of market conditions on customers' mutual fund and insurance assets
generating asset fees. Average customer mutual fund and insurance assets
increased $45.1 billion or 36% to $169.4 billion for the first nine months
of 2004 compared to $124.3 billion for the first nine months of 2003.
Account and activity and other fees of $235.6 million increased 16% ($31.7
million) year over year. Revenue for the first nine months of 2003 includes
a business interruption insurance claim of $7.0 million pertaining to
September 11, 2001, which is included in other revenue. Excluding this item,
account, activity and other fees have increased $38.7 million over the prior
year due to growth in customer accounts and increased fees related to mutual
fund and insurance sales. Revenue received from mutual fund and money market
sub-transfer agent services increased 22% ($23.3 million) to $127.0 million,
due to a 21% increase in the number of customer accounts for which the
Partnership provides mutual fund sub-transfer agent services. The number of
retirement accounts for which the Partnership is custodian increased by 16%,
resulting in custodial fee revenue growth of 16% ($7.0 million) to $52.4
million. Fee revenue from mutual fund and insurance sales increased 49%
($3.8 million) to $11.6 million due to higher sales volumes. Additionally,
the first nine months of 2004 includes a gain on inventory that the
Partnership holds for principal transactions of $0.1 million versus a loss
of $1.9 million for the first nine months of 2003. Offsetting these
increases in account, activity and other fee revenue was a foreign currency
translation loss of $0.1 million during the first nine months of 2004 versus
a $5.3 million gain during the first nine months of 2003.
Interest and dividend income, net of interest expense, increased 24% ($12.8
million) to $66.4 million during the first nine months of 2004 due primarily
to an increase in customer margin loans outstanding offset by a decrease in
interest rates. Interest income from customer loans increased 18% ($13.4
million).
17
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Average customer margin loan balances were $2.303 billion in the
first nine months of 2004, compared to $1.952 billion in the first nine
months of 2003, an increase of 18%. The average rate earned on customer loan
balances decreased to approximately 5.05% during the first nine months of
2004 from approximately 5.11% during the first nine months of 2003.
Operating expenses increased 15% ($250.1 million) to $1.906 billion during
the first nine months of 2004. Compensation and benefits costs increased 19%
($194.8 million) to $1.241 billion. Within compensation and benefits costs,
sales compensation increased 20% ($115.4 million) due to increased revenue.
Variable compensation, including bonuses and profit sharing paid to IRs,
branch office assistants and headquarters associates, which expands and
contracts in relation to revenues, income before allocations to partners and
the Partnership's related profit margin, increased 82% ($59.9 million).
Payroll expense increased 7% ($23.8 million) due to increased costs for
existing personnel and additional support at both the headquarters and in
the branches as the Partnership grows its sales force.
Payroll and other taxes increased 17% ($11.4 million) due to higher sales
compensation, variable compensation and payroll expense as well as the
increased number of full time equivalent associates. Occupancy and equipment
expenses increased 6% ($10.3 million) and communications and data processing
increased 5% ($9.6 million) due to changes in estimated useful lives of
equipment as the Partnership plans to replace certain computer equipment and
to growth in the number of branch offices as the Partnership expands its
sales force. Other operating expenses increased due to growth in the
Partnership's business and additional costs associated with regulatory
matters.
MUTUAL FUND MATTERS
Recently, mutual fund and annuity products have come under increased
scrutiny from various state and federal regulatory authorities in connection
with several industry issues including market timing, late trading, the
failure of various broker-dealers to provide breakpoint discounts to mutual
fund purchasers and the manner in which mutual fund and annuity companies
compensate broker-dealers.
The Partnership has received information requests and subpoenas from various
regulatory and enforcement authorities regarding the Partnership's mutual
fund compensation arrangements, mutual fund sales practices and other mutual
fund issues. The Partnership is voluntarily cooperating with each inquiry.
Also, the Partnership has been named as a defendant in various class actions
on behalf of purchasers of recommended mutual funds. For additional
discussions, refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the December 31, 2003 Form
10-K.
In addition to the regulatory actions directed at the Partnership, there are
various regulatory and legislative proposals being considered that could
significantly impact the compensation that broker-dealers derive from mutual
funds and annuity products. It is likely in the future that broker-dealers
will be required to provide more disclosure to their clients with respect to
payments received by them from the sales of these products. It is also
possible that such payments may be restricted by law or regulation. The
Partnership derived 65% of its total revenue from sales and services related
to mutual fund and annuity products in the first nine months of 2004 and 59%
in the first nine months of 2003. Significant reductions in the revenues
from these products could have a material adverse impact on the Partnership.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's capital subject to mandatory redemption at September 24,
2004, excluding the reserve for anticipated withdrawals, was $777.6 million,
compared to partnership equity capital, excluding the reserve for
anticipated withdrawals, of $727.3 million at December 31, 2003. The
increase is primarily
18
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
due to the retention of General Partner earnings ($41.8 million) and the
issuance, net of redemptions, of Subordinated Limited Partner interests
($12.3 million), offset by redemption of Limited Partner interests ($3.8
million).
At September 24, 2004, the Partnership had $196.9 million in cash and cash
equivalents. Lines of credit are in place aggregating $1.160 billion ($1.110
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. There were $49.0 million in bank
loans outstanding under these lines at September 24, 2004. The Association
had loans from The Federal Home Loan Bank of $32.3 million as of September
24, 2004 which were 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
$6.5 million at September 24, 2004 for which the Partnership received cash
collateral.
The Partnership believes that the liquidity provided by existing cash
balances, other highly liquid assets 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.
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 Partnership rents facilities, furniture,
fixtures, computers and communication equipment. There were no significant
changes in the Partnership's financial commitments and obligations for the
nine months ended September 24, 2004.
For the nine months ended September 24, 2004, cash and cash equivalents
increased $8.9 million. Cash provided by operating activities was $254.1
million. The primary sources of cash from operating activities include
income before allocations to partners ($192.3 million), $71.8 million from
depreciation, a $290.0 million decrease in securities purchased under
agreements to resell, an $88.1 million decrease in inventory securities and
$57.7 million increase in bank loans. These increases to cash and cash
equivalents were partially offset by growth in both customer margin loans
($328.1 million) and reductions in payable to customers ($114.9 million).
Cash used in investing activities was $56.6 million consisting of capital
expenditures supporting the Partnership's operations. Cash used in financing
activities was $188.6 million, consisting primarily of partnership
withdrawals ($174.3 million) and repayment of subordinated debt ($20.7
million).
As a result of its activities as a broker-dealer, EDJ, the Partnership's
principal subsidiary, is subject to the Net Capital provisions of Rule
15c3-1 of the Securities Exchange Act of 1934 and the capital rules of the
New York Stock Exchange. Under the alternative method permitted by the
rules, EDJ must maintain minimum Net Capital, as defined, equal to the
greater of $250 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 September 24, 2004, EDJ's Net Capital of $618.7 million was
25.7% of aggregate debit items and its Net Capital in excess of the minimum
required was $570.5 million. Net Capital as a percentage of aggregate debits
after anticipated withdrawals was 25.7%. Net capital and the related capital
percentage may fluctuate on a daily basis.
19
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
CRITICAL ACCOUNTING POLICIES
The Partnership's financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America,
which may require judgment and involve estimation processes to determine its
assets, liabilities, revenues and expenses which affect its results of
operations.
The Partnership believes that of its significant accounting policies, the
following critical policies may involve a higher degree of judgment and
complexity.
Customers' transactions are recorded on a settlement date basis with the
related revenue and expenses 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.
Securities owned and sold, not yet purchased, including inventory securities
and investment securities, are valued at market value which is determined by
using quoted market or dealer prices.
The Partnership provides for potential losses that may arise out of
litigation, regulatory proceedings and other contingencies to the extent
that such losses can be estimated, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies." The
Partnership regularly monitors its exposures for potential losses. The
Partnership's total liability with respect to litigation represents the best
estimate of probable losses after considering, among other factors, the
progress of each case, the Partnership's experience and the opinions and
views of legal counsel.
The Association's periodic evaluation of the adequacy of its allowance for
loan losses is based on past loan loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the borrower's ability
to repay, the estimated value of any underlying collateral and current
economic conditions.
The Partnership's periodic evaluation of the estimated useful lives of
equipment, property and improvements is based on the original life
determined at the time of purchase and considers any events or changes in
circumstances that would result in a change in the useful life.
For additional discussions of the Partnership's accounting policies, refer
to "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Critical Accounting Policies" included in the December 31,
2003 Form 10-K.
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.
20
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain 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.
21
PART I. FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The SEC issued market risk disclosure requirements to enhance disclosures of
accounting policies for derivatives and other financial instruments and to
provide quantitative and qualitative disclosures about market risk inherent
in derivatives and other financial instruments. Various levels of management
within the Partnership manage the Partnership'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 is exposed to market risk from changes in interest rates.
Such changes in interest rates impact the income from interest earning
assets, primarily receivables from customers on margin balances, and may
have an impact on the expense from liabilities that finance these assets. At
September 24, 2004, amounts receivable from customers were $2.463 billion.
Liabilities include amounts payable to customers and other interest and
non-interest bearing liabilities.
Under current market conditions and based on current levels of interest
earning assets and the liabilities that finance these assets, the
Partnership estimates that a 100 basis point increase in interest rates
could increase its annual net interest income by approximately $15.5
million. Conversely, the Partnership estimates that a 100 basis point
decrease in interest rates could decrease the Partnership's annual net
interest income by up to $26.1 million. A decrease in interest rates has a
more significant impact on net interest income because under the current low
interest rate environment the Partnership's interest bearing liabilities are
less sensitive compared to its interest earning assets.
There were no material changes in the Partnership's exposure to market risk
and changes in interest rates during the nine months ended September 24,
2004 that would have a material adverse effect on the consolidated financial
position or results of operations of the Partnership.
ITEM 4. CONTROLS AND PROCEDURES
Based upon an evaluation performed as of the end of the period covered by
this report, the Partnership's certifying officers, the Chief Executive
Officer and the Chief Financial Officer, have concluded that the
Partnership's disclosure controls and procedures were effective.
There have been no significant changes in internal controls or other factors
that significantly affect these controls subsequent to the date of the
evaluation.
22
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31. Certification pursuant to 18 U.S.C. section 1350,
as adopted pursuant to section 302 of the
Sarbanes-Oxley act of 2002.
32. Certification pursuant to 18 U.S.C. section 1350,
as adopted pursuant to section 906 of the
Sarbanes-Oxley act of 2002.
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the third quarter of 2004.
23
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:
(Registrant) THE JONES FINANCIAL COMPANIES, L.L.L.P.
----------------------------------------
By (Signature and Title) /s/ Douglas E. Hill
----------------------------------------
Douglas E. Hill, Chief Executive Officer
Date November 5, 2004
----------------------------------------
By (Signature and Title) /s/ Steven Novik
----------------------------------------
Steven Novik, Chief Financial Officer
Date November 5, 2004
----------------------------------------
24