ITEM 1. BUSINESS
The Jones Financial Companies, a Limited Partnership (the "Registrant" and also referred to herein as the "Partnership") is organized under the Revised Uniform Limited Partnership Act of the State of Missouri. The terms "Registrant" and "Partnership" used throughout, refer to The Jones Financial Companies, a Limited Partnership and any or all of its consolidated subsidiaries. The Partnership is the successor to Whitaker & Co., which was established in 1871 and dissolved on October 1, 1943, said date representing the organization date of Edward D. Jones & Co., L.P. ("EDJ"), the Partnership's principal subsidiary. EDJ was reorganized on August 28, 1987, which date represents the organization date of The Jones Financial Companies, a Limited Partnership.
The Partnership is engaged in business as a broker/dealer in listed and unlisted securities, including governmental issues, acts as an investment banker, and is a distributor of mutual fund shares. In addition, the Partnership engages in sales of various insurance products and renders investment advisory services. The Partnership is heavily oriented towards serving individual retail customers.
The Partnership is a member firm of the New York, American and Midwest exchanges, and is a registered broker/dealer with the National Association of Securities Dealers, Inc.
As of February 25, 1994, the Partnership was comprised of 111 general partners, 2,000 limited partners and 54 subordinated limited partners. The Partnership employed 8,086 persons, including 2,013 part-time employees. As of said date, the Partnership employed 2,776 full-time investment representatives actively engaged in sales in 2,704 offices in 48 states. The Partnership anticipates opening its first offices in Hawaii and Ontario, Canada in 1994.
The Partnership owns 100 percent of the outstanding common stock of EDJ Holding Company, Inc., a Missouri corporation and 100 percent of the outstanding common stock of LHC, Inc., a Missouri corporation. The Partnership also holds all of the partnership equity of Edward D. Jones & Co., L.P., a Missouri limited partnership and EDJ Leasing Co., L.P. a Missouri limited partnership. EDJ Holding Company, Inc. and LHC, Inc. are the general partners of Edward D. Jones & Co., L.P. and EDJ Leasing Co., L.P., respectively. In addition, the Partnership owns 100 percent of the outstanding common stock of Conestoga Securities, Inc., a Missouri corporation and also owns, as a limited partner, 49.5 percent of Passport Research Ltd., a Pennsylvania limited partnership, which acts as an investment advisor to a money market mutual fund. The Partnership owns 100% of the equity of Edward D. Jones & Co., an Ontario limited partnership and the general partner is Edward D. Jones & Co. Canada Holding Co. Inc., which is wholly owned by the Partnership. The Partnership has an equity position in several entities formed to act as general partners of various direct participation programs sponsored by the Nooney Corporation as follows: Nooney Capital Corp. (a Missouri corporation), 66-2/3% of outstanding Class B non-voting stock; Nooney-Five Capital Corp. (a Missouri Corporation), 100% of outstanding Class B non-voting stock; Nooney-Six Capital Corp. (a Missouri corporation), 100% of outstanding Class B non-voting stock; Nooney-Seven Capital Corp. (a Missouri corporation), 100% of outstanding Class B non-voting stock; Nooney Income Investments, Inc. (a Missouri corporation), 100% of outstanding Class B non-voting stock; Nooney Income Investments Two, Inc. (a Missouri corporation), 100% of outstanding Class B non-voting stock; Nooney Income Investment Three, Inc., (a Missouri corporation), 100% of outstanding Class B non-voting stock. The Partnership holds all of the partnership equity in a Missouri limited partnership, EDJ Ventures, Ltd., which acts as a partner and renders advisory and other management services to direct participation program partnerships. Conestoga Securities, Inc. is the general partner of EDJ Ventures, Ltd. The Partnership is the sole shareholder of Tempus Corporation, a Missouri corporation, which was formed strictly to facilitate the issuance of certain debt securities of the Partnership in a private transaction.
The Partnership is a limited partner of EDJ Insurance Agency of New Jersey, L.P., a New Jersey limited partnership; EDJ Insurance Agency of Arkansas, an Arkansas limited partnership; EDJ Insurance Agency of Montana, a Montana limited partnership; EDJ Insurance Agency of New Mexico, a New Mexico limited partnership; EDJ Insurance Agency of Utah, a Utah limited partnership; and is a general partner in EDJ Insurance Agency of California, a California general partnership; each of which engage in general insurance brokerage activities. The Partnership owns all of the outstanding stock of EDJ Insurance Agency of Ohio, Inc., which is also engaged in insurance brokerage activities. Affiliates of the partner include EDJ Insurance Agency of Nevada, EDJ Insurance Agency of Texas, EDJ Insurance Agency of Alabama, EDJ Insurance Agency of Florida, EDJ Insurance Agency of Wyoming, EDJ Insurance Agency of Arizona and EDJ Insurance Agency of Massachusetts. The Partnership holds all of the Partnership equity of Unison Investment Trusts, L.P., d/b/a Unison Investment Trusts, Ltd., a Missouri limited partnership, which sponsors unit investment trust programs. The general partner of Unison Investment Trusts, L.P. is Unison Capital Corp., Inc., a Missouri corporation wholly owned by the Partnership. The Partnership owns 100% of the outstanding common stock of Edward D. Jones Homeowners, Inc., a Missouri corporation which, in turn, serves as the general partner of EDJ Residential Mortgage Services, a Missouri limited partnership wholly owned by the Partnership, which formerly provided mortgage brokerage and ancillary services. The Partnership owns 100% of the outstanding common stock of Cornerstone Mortgage Investment Group, Inc., a Delaware limited purpose corporation which has issued and sold collateralized mortgage obligation bonds, and Cornerstone Mortgage Investment Group II, Inc., a Delaware limited purpose corporation which has structured and sold secured mortgage bonds. The Partnership owns 100% of the outstanding stock of CIP Management, Inc., which is the managing general partner of CIP Management, L.P. CIP Management, L.P. is the managing general partner of Community Investment Partners, L.P. and Community Investment Partners II, L.P., business development companies.
Other affiliates of the Partnership include Patronus, Inc. and EDJ Investment Advisory Services. Neither has conducted an active business.
The Partnership owns as a general partner, 1/3 of Commonwealth Pacific Limited Partnership, a Washington limited partnership, which formerly operated as a syndicator of various real estate limited partnership programs, for which the Partnership had served as an underwriter and distributor.
Revenues by Source. The following table sets forth, for the past three years the sources of the Partnership's revenues by dollar amounts, (all amounts in thousands):
1993 1992 1991
Commissions Listed $ 70,634 $ 59,256 $ 44,115 Mutual Funds 272,020 187,411 110,499 O-T-C 20,786 14,424 10,136 Insurance 64,424 42,585 34,964 Other 596 274 60 Principal Transactions 92,471 131,366 104,426 Investment Banking 45,001 60,635 67,376 Interest & Dividends 38,084 30,520 25,533 Money-Market Fees 10,048 10,751 9,320 IRA Custodial Service Fees 4,387 3,310 999 Other Revenues 13,001 9,080 4,160 _________ _________ _________
Total Revenue $ 631,452 $ 549,612 $411,588
Because of the interdependence of the activities and departments of the Partnership's investment business and the arbitrary assumptions involved in allocating overhead, it is impractical to identify and specify expenses applicable to each aspect of the Partnership's operations. Furthermore, the net income of firms principally engaged in the securities business, including the Partnership's, is effected by interest savings as a result of customer and other credit balances and interest earned on customer margin accounts.
Listed Brokerage Transactions. A large portion of the Partnership's revenue is derived from customers' transactions in which the Partnership acts as agent in the purchase and sale of listed corporate securities. These securities include common and preferred stocks and corporate debt securities traded on and off the securities exchanges. Revenue from brokerage transactions is highly influenced by the volume of business and securities prices.
Customers' transactions in securities are effected on either a cash or a margin basis. In a margin account, the Partnership lends the customer a portion of the purchase price up to the limits imposed by the margin regulations of the Federal Reserve Board (Regulation T), New York Stock Exchange (NYSE) margin requirements, or the Partnership's internal policies, which may be more stringent than the regulatory minimum requirements. Such loans are secured by the securities held in customers' margin accounts. These loans provide a source of income to the Partnership since it is able to lend to customers at rates which are higher than the rates at which it is able to borrow on a secured basis. The Partnership is permitted to use as collateral for the borrowings, securities owned by margin customers having an aggregate market value generally up to 140 percent of the debit balance in margin accounts. The Partnership may also use the interest-free funds provided by free credit balances in customers' accounts to finance customers' margin account borrowings.
In permitting customers to purchase securities on margin, the Partnership assumes the risk of a market decline which could reduce the value of its collateral below a customer's indebtedness before the collateral is sold. Under the NYSE rules, the Partnership is required in the event of a decline in the market value of the securities in a margin account to require the customer to deposit additional securities or cash so that at all times the loan to the customer is no greater than 75 percent of the value of the securities in the account ( or to sell a sufficient amount of securities in order to maintain this percentage). The Partnership, however, imposes a more stringent maintenance requirement.
Variations in revenues from listed brokerage commissions between periods is largely a function of market conditions; however, some portion of the overall increases in recent years is due to the growth in the number of registered representatives over these periods.
Mutual Funds. The Partnership distributes mutual fund shares in continuous offerings and new underwritings. As a dealer in mutual fund shares, the Partnership receives a dealers' discount which generally ranges from 1 percent to 5 3/4 percent of the purchase price of the shares, depending on the terms of the dealer agreement and the amount of the purchase. The Partnership also earns service fees which are generally based on 15 to 25 basis points of its customers' assets which are held by the mutual funds. The Partnership does not manage any mutual fund, although it is a limited partner of Passport Research, Ltd., an advisor to a money market mutual fund.
Over-the-Counter and Principal Transactions. Partnership activities in unlisted (over-the-counter) transactions are essentially similar to its activities as a broker in listed securities. In connection with customers' orders to buy or sell securities on an agency basis, the Partnership charges a commission. In dealing on a principal basis, the Partnership charges its customers a net price approximately equal to the current inter-dealer market price plus or minus a mark-up or mark-down from such market price. The National Association of Securities Dealers (NASD) Rules of Fair Practice require that such mark-up (or mark-down) be fair and reasonable.
The Partnership has executed several agency agreements with various national insurance companies. Through its approximately 2,056 investment representatives who hold insurance sales licenses, EDJ is able to offer term life insurance, health insurance, and fixed and variable annuities to its customers. The sale of annuities is the primary product. Revenues from the sale of insurance products approximated 10% of total revenues in 1993, and this area has experienced growth in recent years largely as a result of the growth in the number of representatives licensed to engage in insurance sales.
The Partnership makes a market in over-the-counter corporate securities, municipal obligations, including general obligations and revenue bonds, unit investment trusts and mortgage-backed securities. The Partnership's market-making activities are conducted with other dealers in the "wholesale" market and "retail" market wherein the Partnership acts as a dealer buying from and selling to its customers. In making markets in over-the-counter securities, the Partnership exposes its capital to the risk of fluctuation in the market value of its security positions. It is the Partnership's policy not to trade for its own account.
As in the case of listed brokerage transactions, revenue from over- the-counter and principal transactions is highly influenced by the volume of business and securities prices, as well as by the varying number of registered representatives employed by the Partnership over the periods indicated.
Investment Banking. The Partnership's investment banking activities are carried on through its Syndicate and Underwriting Departments. The principal service which the Partnership renders as an investment banker is the underwriting and distribution of securities either in a primary distribution on behalf of the issuer of such securities or in a secondary distribution on behalf of a holder of such securities. The distributions of corporate and municipal securities are, in most cases, underwritten by a group or syndicate of underwriters. Each underwriter has a participation in the offering.
Unlike many larger firms against which the Partnership competes, the Partnership does not presently engage in other investment banking activities such as assisting in mergers and acquisitions, arranging private placement of securities issues with institutions or providing consulting and financial advisory services to corporations.
The Syndicate and Underwriting Departments are responsible for the largest portion of the Partnership's investment banking business. In the case of an underwritten offering managed by the Partnership, the Departments may form underwriting syndicates and work closely with the branch office system for sales of the Partnership's own participation and with other members of the syndicate in the pricing and negotiation of other terms. In offerings managed by others in which the Partnership participates as a syndicate member, the Departments serve as active coordinators between the managing underwriter and the Partnership's branch office system.
The underwriting activity of the Partnership involves substantial risks. An underwriter may incur losses if it is unable to resell the securities it is committed to purchase or if it is forced to liquidate all or part of its commitment at less than the agreed purchase price. Furthermore, the commitment of capital to underwriting may adversely affect the Partnership's capital position and, as such, its participation in an underwriting may be limited by the requirement that it must at all times be in compliance with the net capital rule.
The Securities Act of 1933 and other applicable laws and regulations impose substantial potential liabilities on underwriters for material misstatements or omissions in the prospectus used to describe the offered securities. In addition, there exists a potential for possible conflict of interest between an underwriter's desire to sell its securities and its obligation to its customers not to recommend unsuitable securities. In recent years there has been an increasing incidence of litigation in these areas. These lawsuits are frequently brought for the benefit of large classes of purchasers of underwritten securities. Such lawsuits often name underwriters as defendants and typically seek substantial amounts in damages.
Interest and dividend income is earned on securities held and margin account balances.
Other revenue sources include money market management fees and IRA custodial services fees, accommodation transfer fees, gains from sales of certain assets, and other product and service fees. The Partnership has an interest in the investment advisor to its money market fund, Daily Passport Cash Trust. Revenue from this source has increased over the periods due to growth in the fund, both in dollars invested and number of accounts. In 1991 EDJ became the trustee for its IRA accounts. Each account is charged an annual service fee for services rendered to it by the Partnership.
The Partnership has registered an investment advisory program with the SEC under the Investment Advisors Act of 1940. This service is offered firmwide and involves income and estate tax planning and analysis for clients. Revenues from this source are insignificant and included under "Other Revenues."
Also included in the category "Other Revenues" are accommodation transfer fees, gains from sales of certain assets, other non-recurring gains and revenue from management fees charged by mutual funds.
Research Department. The Partnership maintains a Research Department to provide specific investment recommendations and market information for retail customers. The Department supplements its own research with the services of various independent research services. The Partnership competes with many other securities firms with substantially larger research staffs in its research activities.
Customer Account Administration and Operations. Operations employees are responsible for activities relating to customers' securities and the processing of transactions with other broker/dealers. These activities include receipt, identification, and delivery of funds and securities, internal financial controls, accounting and personnel functions, office services, storage of customer securities and the handling of margin accounts. The Partnership processes substantially all of its own transactions. It is important that the Partnership maintains current and accurate books and records from both a profit viewpoint as well as for regulatory compliance.
To expedite the processing of orders, the Partnership's branch office system is linked to the St. Louis headquarters office through an extensive communications network. Orders for all securities are centralized in St. Louis and executed there. The Partnership's processing of paperwork following the execution of a security transaction is automated, and operations are generally on a current basis.
There is considerable fluctuation during any one year and from year to year in the volume of transactions the Partnership processes. The Partnership records transactions and posts its books on a daily basis. Operations' personnel monitor day-to-day operations to determine compliance with applicable laws, rules and regulations. Failure to keep current and accurate books and records can render the Partnership liable to disciplinary action by governmental and self-regulatory organizations.
The Partnership has a computerized branch office communication system which is principally utilized for entry of security orders, quotations, messages between offices and cash receipts functions.
The Partnership clears and settles virtually all of its listed transactions through the National Securities Clearing Corporation ("NSCC"), New York, New York. NSCC effects clearing of securities on the New York, American and Midwest Stock Exchanges.
In conjunction with clearing and settling transactions with NSCC the Partnership holds customers' securities on deposit with Depository Trust Company ("DTC") in lieu of maintaining physical custody of the certificates.
The Partnership is substantially dependent upon the operational capacity and ability of NSCC/DTC. Any serious delays in the processing of securities transactions encountered by NSCC/DTC may result in delays of delivery of cash or securities to the Partnership's customers. These services are performed for the Partnership under contracts which may be changed or terminated at will by either party.
Automated Data Processing, Inc., ("ADP") provides automated data processing services for customer account activity and records.
The Partnership does not employ its own floor broker for transactions on exchanges. The Partnership has arrangements with other brokers to execute the Partnership's transactions in return for a commission based on the size and type of trade. If for any reason any of the Partnership's clearing, settling or executing agents were to fail, the Partnership and its customers would be subject to possible loss. While the coverages provided by the Securities Investors Protection Corporation (SIPC) and protection in excess of SIPC limits would be available to customers of the Partnership, to the extent that the Partnership would not be able to meet the obligations of the customers, such customers might experience delays in obtaining the protections afforded them by the SIPC and the Partnership's insurance carrier.
The Partnership believes that its internal controls and safeguards concerning the risks of securities thefts are adequate. Although the possibility of securities thefts is a risk of the industry, the Partnership has not had, to date, a significant problem with such thefts. The Partnership maintains fidelity bonding insurance which, in the opinion of management, provides adequate coverage.
Employees. Including its general partners, the Partnership has approximately 8,086 full and part-time employees, including 2,776 who are registered salespeople as of February 25, 1994. The Partnership's salespersons are compensated on a commission basis and may, in addition, be entitled to bonus compensation based on their respective branch office profitability and the profitability of the Partnership. The Partnership has no formal bonus plan for its non-registered employees. The Partnership has, however, in the past paid bonuses to its non-registered employees on an informal basis, but there can be no assurance that such bonuses will be paid for any given period or will be within any specific range of amounts.
Employees of the Partnership are bonded under a blanket policy as required by NYSE rules. The annual aggregate amount of coverage is $30,000,000 subject to a $2,000,000 deductible provision, per occurrence.
The Partnership maintains a training program for prospective salespeople which includes eight weeks of concentrated instruction and on-the-job training in a branch office. The first phase of training is spent reviewing Series 7 examination materials and preparing for and taking the examination. The first week of the training after passing the examination is spent in a comprehensive training program in St. Louis. The next five weeks include on-the-job training in branch locations reviewing products, office procedures and sales techniques. The broker is then sent to a designated location to establish the EDJ office, conduct market research and prepare for opening the office. After the salesperson has opened a branch office, one final week is spent in a central location to complete the initial training program. Three and nine months later, the investment representative attends additional training classes in St. Louis, and subsequently, EDJ offers periodic continuing training mechanisms to its seasoned sales force. Although the Partnership pays the broker during the transition period, the broker must fulfill special tasks before being awarded full branch status. EDJ's basic brokerage payout is similar to its competitors. A bonus may also be paid based on the profitability of the branch and the profitability of the Partnership.
The Partnership considers its employee relations to be good and believes that its compensation and employee benefits which include medical, life, and disability insurance plans and profit sharing and deferred compensation retirement plans, are competitive with those offered by other firms principally engaged in the securities business.
Competition. The Partnership is subject to intensive competition in all phases of its business from other securities firms, many of which are substantially larger than the Partnership in terms of capital, brokerage volume and underwriting activities. In addition, the Partnership encounters competition from other financially oriented organizations such as banks, insurance companies, and others offering financial services and advice. In recent periods, many regulatory requirements prohibiting non-securities firms from engaging in certain aspects of brokerage firms' business have been eliminated and further removal of such prohibitions is anticipated. With minor exceptions, customers are free to transfer their business to competing organizations at any time.
There is intense competition among securities firms for salespeople with good sales production records. In recent periods, the Partnership has experienced increasing efforts by competing firms to hire away its registered representatives although the Partnership believes that its rate of turnover of investment representatives is not higher than that of other firms comparable to the Partnership.
Regulation. The securities industry in the United States is subject to extensive regulation under both federal and state laws. The SEC is the federal agency responsible for the administration of the federal securities laws. The Partnership's principal subsidiary is registered as a broker-dealer and investment advisor with the SEC. Much of the regulation of broker-dealers has been delegated to self-regulatory organizations, principally the NASD and national securities exchanges such as the NYSE, which has been designated by the SEC as the Partnership's primary regulator. These self-regulatory organizations adopt rules (which are subject to approval by the SEC) that govern the industry and conduct periodic examinations of the Partnership's operations. Securities firms are also subject to regulation by state securities administrators in those states in which they conduct business. The Partnership is registered as a broker-dealer in 50 states and Puerto Rico.
Broker-dealers are subject to regulations which cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of customers' funds and securities, capital structure of securities firms, record-keeping and the conduct of directors, officers and employees. Additional legislation, changes in rules promulgated by the SEC and self- regulatory organizations, or changes in the interpretation or enforcement of existing laws and rules, may directly affect the mode of operation and profitability of broker-dealers. The SEC, self- regulatory organizations and state securities commissions may conduct administrative proceedings which can result in censure, fine, suspension or expulsion of a broker-dealer, its officers or employees. The principal purpose of regulation and discipline of broker-dealers is the protection of customers and the securities markets, rather than protection of the creditors and stockholders of broker-dealers.
Uniform Net Capital Rule. As a broker-dealer and a member firm of the NYSE, the Partnership is subject to the Uniform Net Capital Rule (Rule) promulgated by the SEC. The Rule is designed to measure the general financial integrity and liquidity of a broker-dealer and the minimum net capital deemed necessary to meet the broker-dealer's continuing commitments to its customers. The Rule provides for two methods of computing net capital and the Partnership has adopted what is generally referred to as the alternative method. Minimum required net capital under the alternative method is equal to 2% of the customer debit balances, as defined. The Rule prohibits withdrawal of equity capital whether by payment of dividends, repurchase of stock or other means, if net capital would thereafter be less than 5% of customer debit balances. Additionally, certain withdrawals require the consent of the SEC to the extent they exceed defined levels even though such withdrawals would not cause net capital to be less than 5% of aggregate debit items. In computing net capital, various adjustments are made to exclude assets which are not readily convertible into cash and to provide a conservative statement of other assets such as a company's inventories. Failure to maintain the required net capital may subject a firm to suspension or expulsion by the NYSE, the SEC and other regulatory bodies and may ultimately require its liquidation. The Partnership has, at all times, been in compliance with the net capital rules.
ITEM 2.
ITEM 2. PROPERTIES
All of its headquarter offices are owned by the Partnership. The Partnership conducts its headquarters operations from St. Louis County, Missouri. The headquarters facilities are comprised of 17 separate buildings containing approximately 822,000 usable square feet. One additional building on the campus is leased. The Partnership acquired an existing 397,000 square foot building in St. Louis County in December, 1992, of which 170,000 square feet is occupied at December 31, 1993. This building was substantially renovated in 1993. The Partnership plans to use the unoccupied space for growth in future headquarters personnel which is planned to parallel the growth of the salesforce. The Partnership also maintains facilities in 2,655 branch locations which (as of December 31, 1993) are predominantly rented under cancellable leases.
Further information concerning leased computer equipment, branch satellite equipment and other obligations of the Partnership is given in the Notes to the Consolidated Financial Statements appearing elsewhere herein.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
In recent years there has been an increasing incidence of litigation involving the securities industry. Such suits often seek to benefit large classes of industry customers; many name securities dealers as defendants along with exchanges in which they hold membership and seek large sums as damages under federal and state securities laws, anti- trust laws, and common law.
There are various actions pending against the Partnership which have arisen in the normal course of business. In view of the number and diversity of claims against the Partnership, the number of jurisdictions in which litigation is pending and the inherent difficulty of predicting the outcome of litigation and other claims, the Partnership cannot definitely state what the eventual outcome of these pending claims will be. However, in the opinion of management, after consultation with legal counsel, the impact of this litigation will not have a material adverse affect on the Partnership's financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no market for the Limited or Subordinated Limited Partnership interests and their assignment is prohibited.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following information sets forth, for the past five years, selected financial data. (All amounts in thousands, except per unit information.)
Summary Income Statement Data:
1993 1992 1991 1990 1989
Revenues $631,452 $549,612 $411,588 $316,503 $280,429 Net income 66,211 62,282 40,875 22,553 15,703
Net income per weighted average $1,000 equivalent limited partnership unit outstanding $194.62 $238.41 $185.92 $130.52 $82.50
Weighted average $1,000 equivalent limited partnership units outstanding 50,381 41,160 42,616 25,874 27,274
Net income per weighted average $1,000 equivalent subordinated limited partnership unit outstanding $350.32 $418.21 $322.38 $212.86 $154.82
Weighted average $1,000 equivalent subordinated limited partnership units outstanding 16,936 12,941 10,624 10,190 9,779
Summary Balance Sheet Data:
1993 1992 1991 1990 1989
Total assets $800,478 $653,253 $513,730 $422,257 $387,618 ======= ======= ======= ======= =======
Long-term debt $ 33,317 $ 23,847 $ 24,769 $ 19,977 $ 20,075
Other liabilities, exclusive of subordinated liabilities 514,386 414,110 326,229 250,772 234,732
Subordinated liabilities 73,000 78,000 48,000 50,400 52,800
Total partnership capital 179,775 137,296 114,732 101,108 80,011 ________ ________ ________ ________ ________ Total liabilities and partnership capital $800,478 $653,253 $513,730 $422,257 $387,618 ======== ======== ======== ======== ========
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table summarizes the changes in major categories of revenues and expenses for the last two years (Dollar amounts in thousands.)
1993 vs. 1992 1992 vs. 1991 Increase - (Decrease) Amount % Amount %
Revenues Commissions $ 124,510 41 $ 104,176 52% Principal transactions (38,895) (30) 26,940 26 Investment banking (15,634) (26) (6,741) (10) Interest and dividends 7,564 25 4,987 20 Other 4,295 19 8,662 60 _________ ___ _________ ___
81,840 15 138,024 34 _________ ___ _________ ___ Expenses Employee and partner compensation and benefits 53,859 16 88,142 37 Occupancy and equipment 10,069 20 3,867 8 Communications and data processing 4,898 17 3,556 14 Interest 3,632 23 2,155 16 Payroll and other taxes 1,767 11 3,192 24 Floor brokerage and clearance fees 781 15 691 15 Other operating expenses 2,905 7 15,014 53 ________ ___ ________ ___
77,911 16 116,617 31 ________ ___ ________ ___
Net income $ 3,929 6% $ 21,407 52% ======== === ======== ===
RESULTS OF OPERATIONS (1993 VERSUS 1992)
Revenues increased 15% ($82 million) over 1992 to $631 million. Expenses increased by 16% ($78 million) resulting in net income of $66 million, an increase of 6% ($4 million) over 1992. These results were significantly influenced by the Partnership's activities in connection with the expansion of its salesforce. The number of investment representatives increased 24% in 1993 to 2,745. By comparison, 1992's growth in investment representatives was 22%. The vast majority of these new investment representatives are beginners in the industry who generally achieve profitability after about 30 months. In the interim, the Partnership incurs significant training, salary and support costs. The net impact of these direct expenses amounted to nearly $21 million during 1993 ($14 million in 1992). Additionally, the Partnership made significant increases in home office overhead to support the increased salesforce.
Commission revenues increased $125 million fueled by a $85 million (45%) increase in mutual fund commissions and service fees. Listed and over-the-counter agency commissions increased $18 million or 24% over 1992. Insurance commissions increased 51%, with variable annuity commissions increasing $20.6 million and fixed annuities decreasing by $5 million. The increasing level of securities prices along with lower interest rates turned individual investors to equity markets and equity based investments in search of more attractive returns. The continued strength of the securities markets led to solid increases in commission generated from the sales of securities products.
Principal transaction revenues decreased 30% ($39 million). Collateralized mortgage obligations (CMOs) revenues decreased $11.3 million, government and municipal bond revenues decreased by $9.7 million and $3.7 million, respectively. Prior to 1993, municipal bond syndicate revenues were included in principal transaction revenues. In 1993, these revenues, totalling $10.3 million, were included in investment banking revenues. The majority of the principal transaction revenue decreases largely resulted from historically low interest rates and the resulting popularity of equity based investments.
Investment banking revenues declined $15.6 million resulting from decreases in certificate of deposit revenues ($8 million), CMO revenues ($11 million), and equity and debt originations.
Interest and dividend revenues increased 25% or $7.6 million. Customers' margin loan balances increased 36% in 1993 ($120 million) ending the year at $451 million. The increase in customers' loan balances was attributable to higher securities prices, continuation of marketing efforts targeting individuals to view their securities as access to a personal line of credit and lower interest rates. The increase in loan balances more than offset the decline in short term interest rates during the year resulting in increased interest earnings.
Other revenues increased $4 million (19%) over 1992. Revenues from non-bank custodian IRA accounts resulted in an increase of $1 million in 1993.
Overall expenses increased 16% ($78 million). The Partnership's compensation structure for its investment representatives is designed to expand or contract substantially as a result of changes in revenues, net income and profit margins. Similarly, non-sales personnel compensation from bonuses and profit sharing contributions expands and contracts in relation to net income. The Partnership's non-compensation related expenses are less responsive to changes in revenues and net income. Rather, these expenses are influenced by the number of salespeople, growth of the salesforce, the number of customer accounts and, to a lesser extent, the volume of transactions. As a result of its expense structure, the Partnership's compensation expense increase of 16% matched the overall increase in expenses of 16%. The Partnership's expenses other than compensation increased 15%. The increase in other expenses resulted from several items. Increased expense levels related to supporting a larger number of investment representatives and branch offices were primarily responsible for the increase in operating expenses.
RESULTS OF OPERATIONS (1992 VERSUS 1991)
Revenues increased 34% ($138 million) over 1991 to $550 million. Expenses increased by 31% ($117 million) resulting in net income of $62 million, an increase of 52% ($21 million) over 1991. The number of investment representatives increased 22% in 1992 to 2,216. By comparison, 1991's growth in investment representatives was 9%. The increased size of the salesforce and higher securities prices along with a very steeply sloped yield curve were significant factors contributing to 1992's financial results.
Commission revenues increased $104 million fueled by a $77 million (70%) increase in mutual fund commissions and service fees. Listed and over-the-counter agency commissions increased $19 million or 36% over 1991. Insurance commissions increased 22%, with variable annuity commissions increasing $10 million and fixed annuities decreasing by $4 million. The increasing level of securities prices along with lower interest rates turned individual investors to equity markets and equity based investments in search of more attractive returns.
Principal transaction revenues increased 26% ($27 million) with taxable and tax free fixed income securities increasing $21 million. At the same time, O-T-C principal stock sales increased by $3 million. Individual investors were attracted to longer term fixed income products to increase or maintain their returns compared to other shorter term alternatives. Additionally, tax free bonds experienced relatively high yields during the year when compared to treasury securities with similar maturities. The increase in O-T-C stock sales resulted from higher equity prices and investors directing their investment dollars into smaller capitalization companies. The returns experienced during the year from investing in smaller capitalization companies was higher than the investment returns of larger exchange listed securities.
Investment banking revenues declined $6.7 million from substantial decreases in certificate of deposit revenues ($6 million) and CMOs revenues ($4 million). These decreases were partially offset by equity originations and syndicate equity participation increases of $3 million. Initial public offerings continued to be popular during the year along with investor interest in utility unit investment trust underwritings. The decrease in investment banking CMO revenues was partially offset by increased sales of CMOs on a principal basis.
Interest and dividend revenues increased 20% or $5 million. Customers' margin loan balances increased 66% in 1992 ($132 million) ending the year at $331 million. The increase in customers' loan balances was attributable to higher securities prices, continuation of marketing efforts targeting individuals to view their securities as access to a personal line of credit and lower interest rates. The increase in loan balances more than offsets the decline in short term interest rates during the year resulting in increased interest earnings.
Other revenues increased $9 million (60%) over 1991. During the last quarter of 1991, the Partnership qualified as a non-bank custodian for its IRA accounts resulting in an increase of $2.3 million in 1992 from IRA service fee revenues. Revenues for fees and services received from the Edward D. Jones & Co. Daily Passport Cash Trust money market account and a related tax free money market account offered through Edward D. Jones & Co. increased $1.4 million over 1991.
Overall expenses increased 31% ($117 million). The Partnership's compensation structure for its investment representatives is designed to expand or contract substantially as a result of changes in revenues, net income and profit margins. Similarly, non-sales personnel compensation from bonuses and profit sharing contributions expands and contracts in relation to net income. The Partnership's non-compensation related expenses tend to be less responsive to changes in revenues and net income. Rather, these expenses tend to be more influenced by the number of salespeople, growth of the salesforce, the number of customer accounts and, to a lesser extent, the volume of transactions. As a result of its expense structure, the Partnership's compensation expense increase of 37% exceeded the overall increase in expenses of 31%. The Partnership's expenses other than compensation increased 22%. Other operating expenses increased 53% or $15 million over 1991. The increase in other operating expenses resulted from several items. Increased expense levels related to supporting a larger number of investment representatives and branch offices were primarily responsible for the increase in operating expenses.
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.
LIQUIDITY AND CAPITAL ADEQUACY
The Partnership's equity capital at December 31, 1993, was $179.8 million compared to $137.3 million at December 31, 1992. Overall, equity capital increased 31%, primarily due to the retention of earnings and issuance of partnership interests. The Partnership issued additional limited partnership interests in August 1993 of $24.8 million and additional subordinated limited partnership interest of $4.4 million in January 1993.
At December 31, 1993, the Partnership had a $28.8 million balance of cash and cash equivalents. Lines of credit are in place at nine banks aggregating $445 million ($420 million of which are through uncommitted lines of credit), of which $310 million was available at December 31, 1993.
The Partnership believes that the liquidity provided by existing cash balances and borrowing arrangements will be sufficient to meet the Partnership capital and liquidity requirements.
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 $150,000 or 2% of aggregate debit items arising from customer transactions. The Net Capital rule also provides the partnership capital may not be withdrawn if resulting Net Capital would be less than 5% of aggregate debit items. Additionally, certain withdrawals require the consent of the SEC to the extent they exceed defined levels even though such withdrawals would not cause Net Capital to be less than 5% of aggregate debit items. At December 31, 1993, EDJ's Net Capital of $89,790,000 was 20% of aggregate debit items and its net capital in excess of the minimum required was $80,681,000. Net Capital and the related capital percentage may fluctuate on a daily basis.
CASH FLOWS
Cash and cash equivalents decreased $8,932,000 from December 31, 1992, to December 31, 1993. Cash flows were primarily provided from net income, decreases in securities owned, short and long term bank loans and the issuance of partnership interests. Cash flows were primarily used to increase net receivables from customers and brokers, purchase equipment, property and improvements, and fund withdrawals and distributions.
Cash and cash equivalents increased $5,308,000 from December 31, 1991, to December 31, 1992. Cash flows were primarily provided from net income, short term bank loans and the issuance of subordinated debt. Cash flows were primarily used to increase net receivables from customers, increase securities owned, purchase equipment, property and improvements, and fund withdrawals and distributions.
Cash and cash equivalents increased $5,078,000 from December 31, 1990, to December 31, 1991. Cash flows were primarily provided from net income, an increase in accounts payable and accrued expenses, short term bank loans and the issuance of long term debt. Cash flows were primarily used to increase net receivables from customers, increase securities owned, purchase equipment, property and improvements, and fund withdrawals and distributions.
There were no material changes in the Partnership's overall financial condition during the year ended December 31, 1993, compared with the year ended December 31, 1992. The Partnership's consolidated statement of financial condition is comprised primarily of cash and assets readily convertible into cash. Securities inventories are carried at market value and are readily marketable. The firm carried lower trading inventory levels in 1993 as compared to 1992. Customer margin accounts are collateralized by marketable securities. Other customer receivables and receivables and payables with other broker/dealers normally settle on a current basis. Liabilities, including amounts payable to customers, checks and accounts payable and accrued expenses are non-interest bearing sources of funds to the Partnership. These liabilities, to the extent not utilized to finance assets, are available to meet liquidity needs and provide funds for short term investments, which favorably impacts profitability.
The Partnership's growth in recent years has been financed through sales of limited partnership interest to its employees, retention of earnings and private placements of long-term and subordinated debt.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements Included in this Item
Page No.
Report of Independent Public Accountants
Consolidated Statements of Financial Condition as of December 31, 1993 and 1992
Consolidated Statements of Income for the years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Changes in Partnership Capital for the years ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Jones Financial Companies, a Limited Partnership:
We have audited the accompanying consolidated statements of financial condition of The Jones Financial Companies, a Limited Partnership (a Missouri limited partnership) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, cash flows and changes in partnership capital for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Jones Financial Companies, a Limited Partnership and subsidiaries as of December 31, 1993 and 1992, and the results of their operations, their cash flows and the changes in their partnership capital for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
St. Louis, Missouri, February 22, 1994
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
December 31, December 31, (Amounts in thousands) 1993 1992
Cash and cash equivalents $ 28,798 $ 37,730
Receivable from: Customers (Note 2) 464,760 352,686 Brokers or dealers and clearing organizations (Note 3) 32,550 13,880
Securities owned, at market value (Note 4): Inventory securities 60,371 67,873 Investment securities 73,575 78,797
Office equipment, property and improvements, at cost, net of accumulated depreciation and amortization of $79,903 and $69,989, respectively 102,434 72,125
Other assets 37,990 30,162 __________ __________
$ 800,478 $ 653,253 ========== ==========
The accompanying notes are an integral part of these statements.
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
LIABILITIES AND PARTNERSHIP CAPITAL
December 31, December 31, (Amounts in thousands) 1993 1992
Bank loans (Note 5) $ 139,261 $ 123,000
Payable to: Customers (Note 2) 242,584 167,884 Brokers or dealers and clearing organizations (Note 3) 8,092 13,915
Securities sold but not yet purchased, at market value (Note 4) 17,766 9,588
Accounts payable and accrued expenses 37,419 37,600
Accrued compensation and employee benefits 69,264 62,123
Long-term debt (Note 6) 33,317 23,847 ____________ __________ 547,703 437,957 Liabilities subordinated to claims of general creditors (Note 7) 73,000 78,000
Partnership capital (Notes 8 and 9): Limited partners 71,222 47,328 Subordinated limited partners 19,163 14,716 General partners 89,390 75,252 ____________ __________ 179,775 137,296 ____________ __________
$ 800,478 $ 653,253 ========== ==========
The accompanying notes are an integral part of these statements.
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
Years Ended (Amounts in thousands, Dec. 31, Dec. 31, Dec. 31, except per unit information) 1993 1992 1991
Revenues: Commissions $ 428,460 $ 303,950 $199,774 Principal transactions 92,471 131,366 104,426 Investment banking 45,001 60,635 67,376 Interest and dividends 38,084 30,520 25,533 Other 27,436 23,141 14,479 _________ _________ _________ 631,452 549,612 411,588 _________ _________ _________ Expenses: Employee and partner compensation and benefits (Note 10) 381,805 327,946 239,804 Occupancy and equipment (Note 11) 59,549 49,480 45,613 Communications and data processing 34,167 29,269 25,713 Interest (Notes 5, 6 and 7) 19,128 15,496 13,341 Payroll and other taxes 18,180 16,413 13,221 Floor brokerage and clearance fees 6,141 5,360 4,669 Other operating expenses 46,271 43,366 28,352 _________ _________ _________ 565,241 487,330 370,713 _________ _________ _________ Net income $ 66,211 $ 62,282 $ 40,875 ======== ======== ========
Net income allocated to: Limited partners $ 9,805 $ 9,813 $ 7,923 Subordinated limited partners 5,933 5,412 3,425 General partners 50,473 47,057 29,527 _________ _________ _________ 66,211 $ 62,282 $ 40,875 ======== ======== ======== Net income per weighted average $1,000 equivalent partnership units outstanding: Limited partners $ 194.62 $ 238.41 $ 185.92 ======== ======== ======== Subordinated limited partners $ 350.32 $ 418.21 $ 322.38 ======== ======== ======== Weighted average $1,000 equivalent partnership units outstanding: Limited partners 50,381 41,160 42,616 ======== ======== ======== Subordinated limited partners 16,936 12,941 10,624 ======== ======== ========
The accompanying notes are an integral part of these statements.
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended Dec. 31, Dec. 31, Dec. 31, (Amounts in thousands) 1993 1992 1991
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES: Net income $ 66,211 $ 62,282 $ 40,875 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 16,800 14,728 11,203 Increase in net receivable from/payable to customers (37,374) (90,526) (82,200) (Increase) decrease in net receivable from/payable to brokers or dealers and clearing organizations (24,493) 13,401 9,939 Decrease (increase) in securities owned, net 20,902 2,573 (27,365) Increase in accounts payable and other accrued expenses 6,960 106 37,069 Increase in other assets (7,828) (7,744) (2,700) _________ _________ _________ Net cash provided (used) by operating activities 41,178 (5,180) (13,179) _________ _________ _________ CASH FLOWS USED BY INVESTING ACTIVITIES: Purchase of office equipment, property and improvements (47,109) (28,872) (20,284) _________ _________ _________ CASH FLOWS (USED) PROVIDED BY FINANCING ACTIVITIES: Increase in bank loans, net 16,261 50,000 63,400 Issuance of long-term debt 11,700 - 13,300 Repayment of long-term debt (2,230) (922) (8,508) (Repayment) issuance of subordinated liabilities (5,000) 30,000 (2,400) Issuance of partnership interests 29,195 2,396 802 Redemption of partnership interests (1,193) (1,326) (2,176) Withdrawals and distributions from partnership capital (51,734) (40,788) (25,877) _________ _________ _________ Net cash (used) provided by financing activities (3,001) 39,360 38,541 Net (decrease) increase in cash _________ _________ _________ and cash equivalents (8,932) 5,308 5,078
CASH AND CASH EQUIVALENTS, beginning of year 37,730 32,422 27,344 _________ _________ _________ end of year $ 28,798 $ 37,730 $ 32,422 ======== ======== ========
The accompanying notes are an integral part of these statements.
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL
YEARS ENDED DECEMBER 31, 1993, 1992 and 1991
Subordinated Limited Limited General Partnership Partnership Partnership (Amounts in thousands) Capital Capital Capital Total
Balance, December 31, 1990 $ 46,173 $ 10,635 $ 44,300 $101,108 Issuance of partnership interests - 802 - 802 Redemption of partnership interests (2,044) (132) - (2,176) Net income 7,923 3,425 29,527 40,875 Withdrawals and distributions (5,365) (2,942) (17,570) (25,877) _________ _________ _________ _________
Balance, December 31, 1991 $ 46,687 $ 11,788 $ 56,257 $114,732 Issuance of partnership interests - 2,396 - 2,396 Redemption of partnership interests (1,175) (151) - (1,326) Net income 9,813 5,412 47,057 62,282 Withdrawals and distributions (7,997) (4,729) (28,062) (40,788) _________ _________ _________ _________
Balance, December 31, 1992 $ 47,328 $ 14,716 $ 75,252 $137,296 Issuance of partnership interests 24,763 4,432 - 29,195 Redemption of partnership interests (1,193) - - (1,193) Net income 9,805 5,933 50,473 66,211 Withdrawals and distributions (9,481) (5,918) (36,335) (51,734) _________ _________ _________ _________
Balance, December 31, 1993 $ 71,222 $ 19,163 $ 89,390 $179,775 ======== ======== ======== ========
The accompanying notes are an integral part of these statements.
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
The Partnership's Business and Basis of Accounting. The accompanying consolidated financial statements include the accounts of The Jones Financial Companies, a Limited Partnership, and all wholly owned subsidiaries (the "Partnership"). All material intercompany balances and transactions have been eliminated.
The Partnership conducts business throughout the United States with its customers, various brokers and dealers, clearing organizations, depositories and banks. The Partnership's principal operating subsidiary is Edward D. Jones & Co., L.P. (EDJ), a registered broker/dealer.
Cash and Cash Equivalents. The Partnership considers all short-term investments with original maturities of three months or less, which are not held for sale to customers, to be cash equivalents.
Securities Transactions. The Partnership's securities activities involve execution, settlement and financing of various securities transactions for customers. These transactions (and related revenue and expense) are recorded on a settlement date basis, generally representing the fifth business day following the transaction date, which is not materially different than a trade date basis. They may expose the Partnership to risk 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. Securities owned are valued at current market prices. Unrealized gains or losses are reflected in revenues as "principal transactions."
Office Equipment, Property and Improvements. Office equipment is depreciated using straight-line and accelerated methods over estimated useful lives of five to eight years. Buildings are depreciated using the straight-line method over estimated useful lives approximating thirty to forty years. Amortization of property improvements is computed based on the remaining life of the property or economic useful life of the improvement, whichever is less. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and any resulting gain or loss is reflected in income for the period. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.
Segregated Cash Equivalents and Securities Owned. Rule 15c3-3 of the Securities and Exchange Commission requires deposits of cash or securities to a special reserve bank account for the benefit of customers if total customer related credits exceed total customer related debits, as defined. No deposits of cash or securities were required as of December 31, 1993 or 1992.
Income Taxes. Income taxes have not been provided for in the consolidated financial statements since the Partnership is organized as a partnership, and each partner is liable for its own tax payments.
Reclassifications. Certain 1992 and 1991 amounts have been reclassified to conform to the 1993 financial statement presentation.
Fiscal Year End Change. The Partnership changed its year end from the last Friday in September to December 31, effective December 31, 1992, for various reporting purposes. The 1991 amounts have been restated on a calendar year basis.
NOTE 2 - RECEIVABLE FROM AND PAYABLE TO CUSTOMERS
Accounts receivable from and payable to customers include margin balances and amounts due on uncompleted transactions. Values of securities owned by customers and held as collateral for these receivables are not reflected in the financial statements. Substantially all amounts payable to customers are subject to withdrawal upon customer request.
NOTE 3 - RECEIVABLE FROM AND PAYABLE TO BROKERS OR DEALERS AND CLEARING ORGANIZATIONS
The components of receivable from and payable to brokers or dealers and clearing organizations are as follows:
(Amounts in thousands) 1993 1992
Securities failed to deliver $ 7,030 $ 2,485 Deposits paid for securities borrowed 22,048 9,255 Deposits with clearing organizations 2,446 1,971 Other 1,026 169 __________ __________ Total receivable from brokers or dealers and clearing organizations $ 32,550 $ 13,880 ========== ==========
Securities failed to receive $ 6,580 $ 10,434 Deposits received for securities loaned 1,239 3,481 Other 273 - __________ __________ Total payable to brokers or dealers and clearing organizations $ 8,092 $ 13,915 ========== ==========
"Fails" represent the contract value of securities which have not been received or delivered by settlement date.
NOTE 4 - SECURITIES OWNED
Security positions are summarized as follows (at market value):
1993 1992 ____________________ ___________________
Securities Securities Sold but Sold but Securities not yet Securities not yet Owned Purchased Owned Purchased
Inventory Securities: Certificates of deposit $ 3,691 $ 49 $ 2,498 $ 86 U.S. government and agency obligations 4,123 15,070 5,702 7,299 State and municipal obligations 34,306 839 45,708 284 Corporate bonds and notes 10,045 818 11,108 566 Corporate stocks 8,206 990 2,857 1,353 _________ _________ _________ _________ $ 60,371 $ 17,766 $ 67,873 $ 9,588 ======== ======== ======== ======== Investment Securities: U.S. government and agency obligations $ 73,575 $ 78,797 ======== ========
NOTE 5 - BANK LOANS
The Partnership borrows from banks primarily to finance customer margin balances and firm trading securities. Interest is at a fluctuating rate (weighted average rate of 4.17%, 4.35% and 4.97%at December 31, 1993, 1992 and 1991, respectively) based on short-term lending rates.
The average of the aggregate short-term bank loans outstanding was $99,100,000, $57,794,000, and $23,257,000 and the average interest rate (computed on the basis of the average aggregate loans outstanding) was 4.04%, 4.40%, and 6.35% for the years ended December 31, 1993, 1992 and 1991, respectively. The highest month-end borrowing was $154,500,000, $142,000,000 and $96,200,000 during the years ended December 31, 1993, 1992 and 1991, respectively.
Short-term bank loans outstanding at December 31, 1993, 1992 and 1991, consist of $139,261,000, $109,000,000 and $73,000,000 of loans collateralized by securities owned by the Partnership and customers' margin securities with a market value of $363,740,000, $197,514,000 and $140,000,000, respectively. At December 31, 1992, the Partnership had a $14,000,000 short term loan secured by property with a carrying value of $16,198,000.
Cash paid during the year for interest on bank loans, capital notes and other liabilities was $14,059,000, $10,956,000, and $8,956,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
NOTE 6 - LONG-TERM DEBT
Long-term debt is comprised of the following:
(Amounts in thousands) 1993 1992
Note payable, secured by property, interest at 9.0% per annum, interest due in monthly installments, principal due on June 1, 1994. $ 9,600 $ 9,600
Note payable, secured by property, interest at 9.875% per annum, principal and interest due in monthly installments of $141,907 with a final installment of $6,840,192 due on August 5, 2001. 12,282 12,747
Note payable, secured by property, interest at 8.5% per annum, principal and interest due in monthly installments of $115,215 through April 5, 2008. 11,435 -
Note payable, secured by property, interest at prime rate per annum, interest due in monthly installments. - 1,500 __________ __________ $ 33,317 $ 23,847 ========== ==========
Required annual principal payments, as of December 31, 1993, are as follows: Principal Payment Year (Amounts in thousands) _____ ___________________
1994 $ 10,540 1995 1,031 1996 1,130 1997 1,239 1998 1,359 Thereafter 18,018 __________ $ 33,317 ==========
The Partnership has land and buildings with a carrying value of $45,971,000 at December 31, 1993, which are subject to security agreements that collateralize various real estate related notes payable. The Partnership has estimated the fair value of the long- term debt to be approximately $36,493,000 and $25,368,000 as of December 31, 1993 and 1992, respectively.
Subsequent to December 31, 1993, the Partnership arranged to refinance its long-term debt. After the refinancing is complete, the Partnership will have a $21,759,000 8.72% note due in monthly installments of approximately $290,000 through May 5, 2003, and a $14,900,000 8.23% note due in monthly installments of $150,000 through April 5, 2008. These notes replace all long-term debt which existed as of December 31, 1993, and will have the same underlying collateral.
NOTE 7 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to the claims of general creditors consist of:
(Amounts in thousands) 1993 1992
Capital notes, 10.6%, due in annual installments of $7,000,000 commencing on March 15, 1994, with a final installment on March 15, 1997 $ 28,000 $ 28,000
Capital notes, 9.375%, due in annual installments of $5,000,000 commencing on July 1, 1993, with a final installment on April 1, 1996 15,000 20,000
Capital notes, 8.96%, due in annual installments of $6,000,000 commencing on May 1, 1998, with a final installment on May 1, 2002 30,000 30,000 __________ __________
$ 73,000 $ 78,000 ========== ==========
The capital note agreements contain restrictions which, among other things, require maintenance of certain financial ratios, restrict encumbrance of assets and creation of indebtedness and limit the withdrawal of partnership capital. As of December 31, 1993, the Partnership was required, under the note agreements, to maintain minimum partnership capital of $65,000,000 and Net Capital as computed in accordance with the uniform Net Capital rule of 7.5% of aggregate debit items (See Note 9).
The subordinated liabilities are subject to cash subordination agreements approved by the New York Stock Exchange and, therefore, are included in the Partnership's computation of Net Capital under the Securities and Exchange Commission's uniform Net Capital rule. The Partnership has estimated the fair value of the subordinated capital notes to be approximately $76,726,000 and $81,300,000 as of December 31, 1993 and 1992, respectively. Subsequent to year end the Partnership intends to exercise its right to repay $17,000,000 of the capital notes prior to maturity.
NOTE 8 - PARTNERSHIP CAPITAL
The limited partnership capital, consisting of 64,280 and 40,710 $1,000 units at December 31, 1993 and 1992, respectively, is held by current and former employees and general partners. Each limited partner receives interest at seven and one-half percent on the principal amount of capital contributed and a varying percentage of the net income of the Partnership. Interest expense includes $ 3,781,000, $3,090,000, and $3,198,000 for the years ended December 31, 1993, 1992 and 1991, respectively, paid to limited partners on capital contributed.
The subordinated limited partnership capital, consisting of 17,290 and 12,858 $1,000 units at December 31, 1993 and 1992, respectively, is held by current and former general partners. Each subordinated limited partner receives a varying percentage of the net income of the Partnership. The subordinated limited partner capital is subordinated to the limited partnership capital.
Included in partnership capital at December 31, 1993 and 1992, are undistributed profits of $17,964,000 and $18,438,000, respectively, that will be withdrawn by the partners.
NOTE 9 - NET CAPITAL REQUIREMENTS
As a result of its activities as a broker/dealer, EDJ, is subject to the Net Capital provisions of Rule 15c3-1 of the Securities Exchange Act of 1934 and the capital rules of the New York Stock Exchange. Under the alternative method permitted by the rules, EDJ must maintain minimum Net Capital, as defined, equal to the greater of $150,000 or 2% of aggregate debit items arising from customer transactions. The Net Capital rule also provides that partnership capital may not be withdrawn if resulting Net Capital would be less than 5% of aggregate debit items. Additionally, certain withdrawals require the consent of the SEC to the extent they exceed defined levels even though such withdrawals would not cause Net Capital to be less than 5% of aggregate debit items. At December 31, 1993, EDJ's Net Capital of $89,790,000 was 20% of aggregate debit items and its Net Capital in excess of the minimum required was $80,681,000. Net Capital as a percentage of aggregate debits after anticipated capital withdrawals was 17%. Net Capital and the related capital percentage may fluctuate on a daily basis. EDJ's Net Capital excludes $19,782,000 of undistributed profits which will be withdrawn by the partners and $27,254,000 of cash capital contributions that were pending New York Stock Exchange approval.
Subsequent to December 31, 1993, EDJ received approval from the New York Stock Exchange to add $27,254,000 of cash capital contributions that were made during 1993 as allowable Net Capital. EDJ also received permission to prepay in advance of its scheduled maturity $17,000,000 of subordinated debt. The effect of these approvals would have been to increase Net Capital to $117,044,000 and excess Net Capital to $107,935,000 as of December 31, 1993. The percentage of Net Capital to aggregate debits and the percentage of Net Capital to aggregate debits after anticipated capital withdrawals, would have been 26% and 19%, respectively. Net Capital in excess of 5% of aggregate debit items would have been $94,272,000.
NOTE 10 - EMPLOYEE BENEFIT PLAN
The Partnership maintains a profit sharing plan covering all eligible employees. Contributions to the plan are at the discretion of the Partnership. However, participants may contribute on a voluntary basis. Approximately $16,716,000, $15,625,000, and $10,347,000 were provided by the Partnership for its contributions to the plan for the years ended December 31, 1993, 1992 and 1991, respectively. No post retirement benefits are provided.
NOTE 11 - COMMITMENTS
Branch office facilities, computer system equipment and branch satellite equipment are rented under various operating leases. Additionally, branch offices are leased on a three to five year basis, and are cancellable at the option of the Partnership. The Partnership's computer system equipment and branch satellite equipment lease commitments are $10,823,000 in 1994, $5,321,000 in 1995, $3,661,000 in 1996, and $2,770,000 in 1997 and $1,221,000 in 1998 and thereafter.
Rent expense was $28,385,000, $24,837,000, and $24,703,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
NOTE 12 - CONTINGENCIES
Various legal actions, primarily relating to the distribution of securities, are pending against the Partnership. Certain cases are class actions (or purported class actions) claiming substantial damages. These actions are in various stages and the results of such actions cannot be predicted with certainty. In the opinion of management, after consultation with legal counsel, the ultimate resolution of these actions will not have a material adverse impact on the Partnership's financial condition.
ITEM 9.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Jones Financial Companies, a Limited Partnership, being organized as a partnership, does not have individuals associated with it designated as officers or directors. Presently, the Partnership is comprised of 111 general partners, 2,000 limited partners and 54 subordinated limited partners. Under the terms of the Partnership Agreement, John W. Bachmann is designated Managing Partner and in said capacity has primary responsibility for administering its business, determining its policies, controlling the management and conduct of the Partnership's business and has the power to appoint and dismiss general partners of the Partnership and to fix the proportion of their respective interests in the Partnership. Subject to the foregoing, the Partnership is managed by its 111 general partners.
The Executive Committee of the Partnership is comprised of John W. Bachmann, James W. Harrod, Douglas E. Hill, Charles R. Larimore, Richie L. Malone, Darryl L. Pope, Ray L. Robbins, Jr., Edward Soule and James D. Weddle. The purpose of the Executive Committee is to provide counsel and advice to the Managing Partner in discharging his functions. Furthermore, in the event the position of Managing Partner is vacant, the Executive Committee shall succeed to all of the powers and duties of the managing partner.
None of the general partners are appointed for any specific term nor are there any special arrangements or understandings pursuant to their appointment other than as contained in the Partnership Agreement.
No general partner is or has been individually, nor in association with any prior business, the subject of any action under any insolvency law or criminal proceeding or has ever been enjoined temporarily or permanently from engaging in any business or business practice.
A listing of the names, ages, dates of becoming a general partner and area of responsibility for each general partner follows:
BECAME NAME AGE G.P. AREA OF RESPONSIBILITY
Warren K. Akerson 51 1974 Sales Allan J. Anderson 51 1992 Sales Management John W. Bachmann 55 1970 Managing Partner Thomas M. Bartow 44 1989 Sales Training James D. Bashor 39 1990 Regional Sales Leader Robert J. Beck 39 1983 Municipal Trading John D. Beuerlein 40 1979 Sales Management John S. Borota 53 1978 Sales Hiring William H. Broderick, III 41 1986 Syndicate Morton L. Brown 47 1978 Managed Investments Alan J. Bubalo 40 1984 Regional Sales Leader Spencer B. Burke 45 1987 Investment Banking Daniel A. Burkhardt 46 1979 Investment Banking Jack L. Cahill 44 1980 Sales Management Brett A. Campbell 35 1993 Marketing Donald H. Carter 50 1994 Regional Sales Leader John J. Caruso 47 1988 Data Processing Guy R. Cascella 36 1992 Regional Sales Leader Craig E. Christell 37 1994 Regional Sales Leader Richard A. Christensen, Jr.46 1978 Mutual Funds Processing Robert J. Ciapciak 38 1988 Market Research David W. Clapp 44 1978 Sales Management Stephen P. Clement 44 1990 Video Communications Loyola A. Cronin 36 1987 Branch Staff Training Harry J. Daily, Jr. 47 1985 Regional Sales Leader A. Randal Dickinson 42 1984 Regional Sales Leader Terry A. Doyle 44 1992 Regional Sales Leader William T. Dwyer, Jr. 38 1994 Regional Sales Leader Abe W. Dye 49 1984 Sales Management Allen R. Eaker 47 1989 Regional Sales Leader Norman L. Eaker 37 1984 Securities Processing Kevin Eberle 43 1993 Regional Sales Leader Michael J. Esser 45 1983 Advanced Sales Training Kevin N. Flatt 45 1989 Fixed Income/Equity Trading John A. Fowler 46 1979 Customer Tax Support Steve Fraser 38 1993 Securities Processing Chris A. Gilkison 40 1994 Branch Locations Barbara G. Gilman 55 1988 Trust Marketing Steven L. Goldberg 35 1987 Central Services James R. Gonso 38 1986 Regional Sales Leader Ronald Gorgen 44 1993 Field Services Robert L. Gregory 51 1974 Sales Hiring Patricia F. Hannum 33 1988 Financial Services Stephen P. Harrison 45 1990 Regional Sales Leader James W. Harrod 58 1974 Sales Training David L. Hayes 38 1994 Regional Sales Leader Randy K. Haynes 38 1994 Operations John M. Hess 46 1992 Regional Sales Leader Mary Beth Heying 36 1994 Communications Douglas E. Hill 49 1974 Product Management Stephen M. Hull 49 1994 Regional Sales Leader Earl H. Hull, Jr. 48 1990 Regional Sales Leader Glennon D. Hunn 51 1984 Data Processing Gary R. Hunziker 53 1994 Regional Sales Leader Paul C. Husted 40 1990 Regional Sales Leader Thomas G. Iorio 33 1994 Regional Sales Leader Mellany F. Isom 40 1984 Sales Hiring Myles P. Kelly 40 1989 Accounting Loren G. Kolpin 48 1985 Regional Sales Leader Charles R. Larimore 53 1981 Branch Administration Ronald E. Lemonds 57 1972 Equity Marketing Michele Liebman 37 1994 Data Processing Steven F. Litchfield 38 1983 Regional Sales Leader Richie L. Malone 45 1979 Data Processing Richard G. McCarty 54 1990 Regional Sales Leader James A. McKenzie 49 1977 Regional Sales Leader Thomas Migneron 33 1993 Internal Audit Richard G. Miller, Jr. 38 1991 Regional Sales Leader Thomas W. Miltenberger 46 1985 Mutual Funds Marketing Merry L. Mosbacher 35 1986 Investment Banking Joseph M. Mott, III 36 1989 Insurance/Annuities Marketing William D. Murphy 53 1980 Regional Sales Leader Matt B. Myre 37 1988 Regional Sales Leader Rodger W. Naugle 52 1992 Regional Sales Leader Steven Novik 44 1983 Accounting Cynthia Paquette 33 1993 Data Processing Robert K. Pearce 44 1989 Human Resources Darryl L. Pope 54 1971 Operations Gary D. Reamey 38 1984 Canada Division James L. Regnier 36 1994 Sales Training Ray L. Robbins, Jr. 49 1975 Research Stephen T. Roberts 41 1981 Compliance Wann V. Robinson 43 1992 Regional Sales Leader Douglas Rosen 33 1993 Regional Sales Leader Harry John Sauer, III 36 1988 Dividend Processing Philip R. Schwab 45 1978 Syndicate Darrell G. Seibel 59 1985 Regional Sales Leader Robert D. Seibel 59 1974 Regional Sales Leader Festus W. Shaughnessy, III 38 1988 Sales Training Connie M. Silverstein 38 1988 Sales Hiring Alan F. Skrainka 32 1989 Research John S. Sloop 45 1990 Sales Management Ronald H. Smith 54 1984 Regional Sales Leader Lawrence R. Sobol 43 1977 General Counsel Edward Soule 41 1986 Accounting Lawrence E. Thomas 38 1983 Government Bond Trading Terry R. Tucker 39 1988 Data Processing Richard G. Unnerstall 38 1989 Data Processing Robert Virgil, Jr. 59 1994 Headquarters Administration JoAnn Von Bergen 44 1986 Cash Processing John R. Wagner 46 1987 Regional Sales Leader Donald E. Walter 48 1983 Compliance Director Bradley T. Wastler 41 1989 Sales Management James D. Weddle 40 1984 Sales Management Vicki Westall 34 1993 Product Review Thomas J. Westphal 35 1989 Customer Statements Heidi Whitfield 33 1993 Product Review Robert D. Williams 32 1994 Regional Sales Leader A. Thomas Woodward 47 1985 Sales Management Price P. Woodward 31 1993 Regional Sales Leader Alan T. Wright 47 1994 Investment Banking
Except as indicated below, each of the General Partners has been a general partner of the Partnership for more than the preceding five years.
Allan J. Anderson, joined the Partnership in 1984 as a registered representative and became a general partner in 1992.
James D. Bashor, joined the Partnership in 1983 as a registered representative and became a general partner in 1990.
Brett A. Campbell, joined the Partnership in 1984 as a registered representative and became a general partner in January 1993.
Donald H. Carter, joined the Partnership in 1982 as a registered representative and became a general partner in January 1994.
Guy Cascella, joined the Partnership in 1983 as a registered representative and became a general partner in 1992.
Stephen P. Clement, joined the Partnership in 1987 as Video manager and became a general partner in 1990. Prior to this, he was a news director for an ABC affiliate television station.
Craig E. Christell, joined the Partnership in 1982 as a registered representative and became a general partner in January 1994.
Terry Doyle, joined the Partnership in 1981 as a registered representative and became a general partner in 1992.
William T. Dwyer, joined the Partnership in 1982 as a registered representative and became a general partner in January 1994.
Kevin Eberle, joined the Partnership in 1985 as a registered representative and became a general partner in 1993.
Steve Fraser, joined the Partnership in 1985 in the Operations Department and became a general partner in January, 1993. Prior to this, he was employed by Automated Data Processing Inc.
Chris A. Gilkison, joined the Partnership in 1987 as a registered representative and became a general partner in January 1994.
Ron Gorgen, joined the Partnership in 1980 as a registered representative and became a general partner in January 1993.
David L. Hayes, joined the Partnership in 1977 active in hiring and training and became a general partner in January 1994.
Stephen P. Harrison, joined the Partnership in 1978 as a registered representative and became a general partner in 1990.
Randy K. Haynes, joined the Partnership in 1984 as a registered representative and became a general partner in January 1994.
John Hess, joined the Partnership in 1982 as a registered representative and became a general partner in 1992.
Mary Beth Heying, joined the Partnership in 1984 in the Communications Department and became a general partner in January 1994.
Earl H. Hull, Jr., joined the Partnership in 1975 as a registered representative and became a general partner in 1990.
Steven M. Hull, joined the Partnership in 1973 as a registered representative and became a general partner in 1994.
Gary R. Hunziker, joined the Partnership in 1986 as a registered representative and became a general partner in January 1994.
Paul C. Husted, joined the Partnership in 1982 as a registered representative and became a general partner in 1990.
Thomas G. Iorio, joined the Partnership in 1982 as a registered representative and became a general partner in January 1994.
Michele M. Liebman, joined the Partnership in 1985 in the Data Processing Department and became a general partner in January 1994.
Richard G. McCarty, joined the Partnership in 1980 as a registered representative and became a general partner in 1990.
Thomas Migneron, joined the Partnership in 1985 as an internal auditor and became a general partner in January, 1993.
Richard G. Miller, Jr., joined the Partnership in 1981 as a registered representative and became a general partner in 1991.
Rodger Naugle, joined the Partnership in 1981 as a registered representative and became a general partner in 1992.
Cynthia Paquette, joined the Partnership in 1985 in the Data Processing Department and became a general partner in January 1993.
James L. Regnier, joined the Partnership in 1983 as a registered representative and became a general partner in January 1994.
Wann V. Robinson, joined the Partnership in 1985 as a registered representative and became a general partner in 1992.
Douglas Rosen, joined the Partnership in 1982 as a registered representative and became a general partner in January 1993.
John S. Sloop, joined the Partnership in 1983 as a registered representative and became a general partner in 1990.
Robert Virgil, Jr., joined the Partnership in 1993 as a general partner. Prior to this, he served as dean of the John M. Olin School of Business at Washington University.
Vicki Westall, joined the Partnership in 1984 in the Product Review Department and became a general partner in January, 1993. Prior to this, she was an accountant with Peat, Marwick, Mitchell & Co.
Heidi Whitfield, joined the Partnership in 1982 as an equity analyst and became a general partner in January 1993.
Robert D. Williams, joined the Partnership in 1986 as a registered representative and became a general partner in 1994.
Price P. Woodward, joined the Partnership in 1984 as a registered representative and became a general partner in January 1993.
Alan T. Wright, joined the Partnership in 1985 in Investment Banking Department and became a general partner in January 1994.
Daniel A. Burkhardt is a director of Essex County Gas Company, Amsebury, Massachusetts; Galaxy Cablevision Management, Inc., Sikeston, Missouri; Dial Reit, Omaha, Nebraska; Met Life Farm & Ranch Properties, Kansas City, Missouri; Southeastern MI Gas Enterprises, Port Huron, Michigan; and Community Investment Partners, L.P. John C. Heisler, Philip R. Schwab and John D. Beuerlein are directors of Cornerstone Mortgage Investment Group, Inc. and Cornerstone Mortgage Investment Group II, Inc. Ray L. Robbins, Jr. is a director of Community Investment Partners, L.P. Robert Virgil, Jr. is a director of CPI Corp., St. Louis, Missouri; Angelica Corp., St. Louis, Missouri; and Allied Healthcare Products, Inc., St. Louis, Missouri.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by the Partnership during the three most recent years to the five general partners receiving the greatest compensation (including respective shares of profit participation).
Returns to General Partner Capital _____________________ (1) (2) (3) & (4) General Net income Partner Deferred allocated invested Total Compen-to General Capital at (1) (2) Year Salaries sation Partners 12/31/93 (3)
John W. Bachmann1993 120,000 10,707 2,350,562 3,213,597 2,481,269 1992 120,000 11,306 2,298,834 3,408,360 2,430,140 1991 120,000 10,111 1,556,853 2,752,555 1,686,964
Douglas E. Hill 1993 118,000 10,707 1,994,416 2,726,688 2,123,123 1992 118,000 11,306 1,948,536 2,888,991 2,077,842 1991 115,000 10,111 1,318,416 2,330,993 1,443,527
Ron Larimore 1993 118,000 10,707 1,994,416 2,726,688 2,123,123 1992 118,000 11,306 1,992,323 2,953,912 2,121,629 1991 115,000 10,111 1,346,468 2,380,588 1,471,579
Richie L. Malone1993 118,000 10,707 1,899,444 2,596,846 2,028,151 1992 118,000 11,306 1,810,493 2,596,846 1,939,799 1991 115,000 10,111 1,122,057 1,983,823 1,247,168
Darryl W. Pope 1993 118,000 10,707 1,994,416 2,726,688 2,123,123 1992 118,000 11,306 1,926,642 2,856,530 2,055,948 1991 115,000 10,111 1,304,391 2,306,195 1,429,502
(1) Each non-selling general partner receives a salary presently ranging from $78,000 - $120,000 annually. Selling general partners do not receive a specified salary, rather, they receive the net sales commissions earned by them (none of the five individuals listed above earned any such commissions). Additionally, general partners who are principally engaged in sales are entitled to office bonuses based on the profitability of their respective branch office, on the same basis as the office bonus program established for all investment representative employees.
(2) Each general partner is a participant in the Partnership's profit sharing plan which covers all eligible employees. Contributions to the plan, which are within the discretion of the Partnership, are made annually and have historically been determined based on approximately twenty-four percent of the Partnership's net income. Allocation of the Partnership's contribution among participants is determined by each participant's relative level of eligible earnings, including in the case of general partners, their profit participation.
(3) Each general partner is entitled to participate in the annual net income of the Partnership based upon the respective percentage interest in the Partnership of each partner. These interests in the Partnership held by each general partner currently range from 1/10 of 1% to 4.95% in 1993. (1/10 of 1% to 5.25% in 1992 and 1/10 of 1% to 5.55% in 1991). At the discretion of the Managing Partner, the partnership agreement provides that, generally, the first five percent of net income allocable to general partners be distributed on the basis of individual merit as determined by the Managing Partner. Thereafter, the remaining net income allocable to general partners is distributed based upon each individual's percentage interest in the Partnership. In 1993, 6% of net income was distributed on the basis of individual merit.
(4) Net income allocable to general partners is the amount remaining after payment of interest and earnings on capital invested to limited partners and subordinated limited partners.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Being organized as a limited partnership, management is vested in the general partners thereof and there are no other outstanding "voting" or "equity" securities. It is the opinion of the Partnership that the general partnership interests are not securities within the meaning of federal and state securities laws primarily because each of the general partners participates in the management and conduct of the business.
In connection with outstanding limited and subordinated limited partnership interests (non-voting securities), 82 of the general partners also own limited partnership interests and 37 of the general partners also own subordinated limited partnership interests, as noted in the table below.
As of February 25, 1994:
Name of Amount of Beneficial Beneficial Percent of Title of Class Owner Ownership Class
Limited Partnership All General Interests Partners as a Group $ 5,448,000 8%
Subordinated All General Limited Partnership Partners as Interests a Group $13,715,000 64%
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the ordinary course of its business the Partnership has extended credit to certain of its partners and employees in connection with their purchase of securities. Such extensions of credit have been made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with non-affiliated persons, and did not involve more than the normal risk of collectibility or present other unfavorable features. The Partnership also, from time to time and in the ordinary course of business, enters into transactions involving the purchase or sale of securities from or to partners or employees and members of their immediate families, as principal. Such purchases and sales of securities on a principal basis are effected on substantially the same terms as similar transactions with unaffiliated third parties.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
INDEX
(a) (1) The following financial statements are included in Part II, Item 8:
Page No.
Report of Independent Public Accountants
Consolidated Statements of Financial Condition as of December 31, 1993 and 1992
Consolidated Statements of Income for the years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Changes in Partnership Capital for the years ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
All schedules are omitted because they are not required, inapplicable, or the information is otherwise shown in the financial statements or notes thereto.
(b) Report on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of 1993.
(c) Exhibits
Reference is made to the Exhibit Index hereinafter contained.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1993
Exhibit Number Page Description
3.1 * Amended and Restated Agreement and Certificate of Limited Partnership of Registrant dated October 1, 1993.
3.2 * Form of Limited Partnership Agreement of Edward D. Jones & Co., L.P., dated November 1,
10.1 * Form of Cash Subordination Agreement between the Registrant and Edward D. Jones & Co., incorporated herein by reference to Exhibit 10.1 to the Company's registration statement of Form S-1 (Reg. No. 33-14955).
10.2(a) * Note Purchase Agreement between Tempus Corporation and Edward D. Jones & Co. dated as of April 15, 1986, incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1986.
10.2(b) * Note Purchase Agreement between Tempus Corporation and Edward D. Jones & Co., L.P. dated as of March 15, 1988, incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1988.
10.3 * Complaint for Permanent Injunction and Other Equitable Relief and Final Judgment of Permanent Injunction in re: SEC v. Edward D. Jones & Co. (U.S. Dist. Ct. for Dist. of Columbia; Civil Action No. 85-3078), incorporated herein by reference to Exhibit 10(i) to the Company's current report on Form 8-K dated September 24, 1985.
10.4 * Volume Discount Agreement dated May 27, 1987, between Digital Equipment Corporation and Edward D. Jones & Co., incorporated herein by reference to Exhibit 10.13(c) to the Company's registration statement on Form S-1 (Reg. No. 33-14955).
10.5 * Master Lease Agreement dated as of May 29, 1987, between Digital Equipment Corporation and Edward D. Jones & Co., incorporated herein by reference to Exhibit 10.13(b) to the Company's registration statement on Form S-1 (Reg. No. 33-14955).
10.6 * Master Lease Agreement dated as of October 17, 1988, between Edward D. Jones & Co., L.P., and BancBoston Leasing, incorporated herein by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1988.
10.7 * Satellite Communications Agreement dated as of September 12, 1988, between Hughes Network Systems and Edward D. Jones & Co., L.P., incorporated herein by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1988.
10.8 * Agreements of Lease between EDJ Leasing Company and Edward D. Jones & Co., L.P., dated August 1, 1991, incorporated herein by reference to Exhibit 10.18 to the Company's Annual Report or Form 10-K for the year ended September 27, 1991.
10.9 * Loan Agreement between EDJ Leasing Co., L.P. and Nationwide Insurance Company dated August 2, 1991, incorporated herein by reference to Exhibit 10.19 to the Company's Annual Report or Form 10-K for the year ended September 27, 1991.
10.10 * Edward D. Jones & Co., L.P. Note Purchase Agreement dated as of May 8, 1992, incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 26, 1992.
10.11 * Purchase and Sale Agreement by and between EDJ Leasing Co., L.P. and the Resolution Trust Corporation incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report or Form 10-K for the year ended December 31, 1992.
10.12 Master Lease Agreement between EDJ Leasing Company and Edward D. Jones & Co., L.P., dated March 9, 1993, and First Amendment to Lease dated March 9, 1994.
10.13 Purchase Agreement by and between Edward D. Jones & Co., L.P. and Genicom Corporation dated November 25, 1992.
10.14 Mortgage Note and Deed of Trust and Security Agreement between EDJ Leasing Co., L.P. and Nationwide Insurance Company dated March 9, 1993.
10.15 Mortgage Note and Amendment to Deed of Trust between EDJ Leasing Co., L.P. and Nationwide Insurance Company dated March 9, 1994.
24.1 Consent of Independent Public Accountants
25 * Delegation of Power of Attorney to Managing Partner contained within Exhibit 3.1.
________________________________________________________________________
* - Incorporated by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:
(Registrant) THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP ___________________________________________________
By (Signature and Title) /s/ John W. Bachmann __________________________________ John W. Bachmann, Managing Partner
Date March 28, 1994 __________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity and on the date indicated.
(Registrant) THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP ___________________________________________________
By (Signature and Title) /s/ John W. Bachmann __________________________________ John W. Bachmann, Managing Partner
Date March 28, 1994 __________________________________
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
There have been no annual reports sent to security holders covering the registrant's last fiscal year nor have there been any proxy statements, form of proxy or other proxy soliciting material sent to any of registrant's security holders.