<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 26, 1997 Commission file number 0-16633
THE JONES FINANCIAL COMPANIES, L.P., LLP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1450818
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
201 Progress Parkway
Maryland Heights, Missouri 63043
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 515-2000
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
------- -------
As of the filing date, there are no voting
securities held by non-affiliates of the Registrant.
<PAGE> 2
THE JONES FINANCIAL COMPANIES, L.P., LLP
<TABLE>
INDEX
<CAPTION>
Page
Number
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Financial Condition 3
Consolidated Statement of Income 5
Consolidated Statement of Cash Flows 6
Consolidated Statement of Changes in Partnership Capital 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Signatures 14
</TABLE>
2
<PAGE> 3
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
THE JONES FINANCIAL COMPANIES, L.P., LLP
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<CAPTION>
ASSETS
(Unaudited)
September 26, December 31,
(Amounts in thousands) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 45,650 $ 64,858
Securities purchased under agreements to resell 15,450 145,000
Receivable from:
Customers 764,019 615,399
Brokers or dealers and clearing
organizations 23,519 21,699
Mortgages and loans 73,076 66,116
Securities owned, at market value:
Inventory securities 59,325 58,373
Investment securities 171,206 171,177
Equipment, property and improvements 185,804 173,719
Other assets 70,669 64,075
---------- ----------
$1,408,718 $1,380,416
===========================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE> 4
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
THE JONES FINANCIAL COMPANIES, L.P., LLP
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
LIABILITIES AND PARTNERSHIP CAPITAL
(Unaudited)
<CAPTION>
September 26, December 31,
(Amounts in thousands) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Bank loans $ 6,000 $ 2,750
Payable to:
Customers 556,726 594,737
Brokers or dealers and clearing organizations 20,522 12,999
Depositors 65,353 63,125
Securities sold but not yet purchased,
at market value 16,943 13,215
Accounts payable and accrued expenses 61,653 51,309
Accrued compensation and employee benefits 126,514 88,474
Long-term debt 55,334 67,190
---------- ----------
909,045 893,799
Liabilities subordinated to claims
of general creditors 216,500 216,500
Partnership capital 271,246 248,157
Partner's capital reserved for anticipated withdrawals 11,927 21,960
---------- ----------
283,173 270,117
---------- ----------
$1,408,718 $1,380,416
===========================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE> 5
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
THE JONES FINANCIAL COMPANIES, L.P., LLP
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
(Amounts in thousands September 26, September 27, September 26, September 27,
except per unit information) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $203,009 $139,176 $555,428 $459,307
Principal transactions 36,539 46,766 134,728 133,473
Investment banking 4,682 4,227 10,982 11,105
Interest and dividends 23,650 18,268 64,880 50,487
Other 22,946 19,552 65,623 52,246
-------- -------- -------- --------
290,826 227,989 831,641 706,618
-------- -------- -------- --------
Expenses:
Employee and partner compensation
and benefits 167,244 129,469 475,613 408,391
Occupancy and equipment 34,040 27,585 97,109 76,079
Communications and data processing 18,924 17,301 56,591 51,644
Interest 10,993 9,206 32,167 25,341
Payroll and other taxes 6,718 5,641 25,887 22,275
Floor brokerage and clearance fees 2,234 1,841 5,910 5,372
Other operating expenses 19,124 16,467 54,607 47,914
-------- -------- -------- --------
259,277 207,510 747,884 637,016
-------- -------- -------- --------
Net income $ 31,549 $ 20,479 $ 83,757 $ 69,602
======== ======== ======== ========
Net income allocated to:
Limited partners $ 4,551 $ 3,637 $ 12,172 $ 12,428
Subordinated limited partners 3,268 1,999 8,942 7,120
General partners 23,730 14,843 62,643 50,054
-------- -------- -------- --------
$ 31,549 $ 20,479 $ 83,757 $ 69,602
======== ======== ======== ========
Net income per weighted average
$1,000 equivalent partnership
units outstanding:
Limited partners $ 48.67 $ 37.63 $ 129.14 $ 127.85
======== ======== ======== ========
Subordinated limited partners $ 87.29 $ 65.49 $ 239.78 $ 229.67
======== ======== ======== ========
Weighted average $1,000 equivalent
partnership units outstanding:
Limited partners 93,501 96,647 94,255 97,210
======== ======== ======== ========
Subordinated limited partners 37,446 30,526 37,294 30,998
======== ======== ======== ========
===============================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE> 6
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
THE JONES FINANCIAL COMPANIES, L.P., LLP
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
September 26, September 27,
(Amounts in thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Net income $ 83,757 $ 69,602
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 28,023 21,536
Increase in net receivable from customers (186,631) (12,577)
Increase (decrease) in securities held for repurchase 129,550 (71,385)
Decrease in net receivable from/increase in
payable to brokers or dealers and clearing
organizations 5,703 20,808
Increase in receivable from mortgages and loans (6,960) (4,464)
Decrease in securities owned, net 2,747 34,803
Increase (decrease) in payable to depositors 2,228 (461)
Increase in accounts payable and accrued expenses 48,384 32,814
Other assets (6,594) (1,544)
--------- --------
Net cash provided by operating activities 100,207 89,132
--------- --------
Cash Flows Used by Investing Activities:
Purchase of equipment, property and improvements (40,108) (42,726)
Increase in investment securities -- (48,183)
--------- --------
(40,108) (90,909)
Cash Flows Used by Financing Activities:
Issuance of bank loans 3,250 7,993
Repayment of bank loans -- (31,053)
Issuance of subordinated debt -- 94,500
Repayment of long-term debt (11,856) (7,929)
Issuance of partnership interests 8,833 3,365
Redemption of partnership interests (3,032) (5,160)
Withdrawals and distributions from
partnership capital (76,502) (60,845)
--------- --------
Net cash (used) provided by financing activities (79,307) 871
--------- --------
Net decrease in cash and cash equivalents (19,208) (906)
Cash and Cash Equivalents, beginning of period 64,858 44,112
--------- --------
Cash and Cash Equivalents, end of period $ 45,650 $ 43,206
=========================================================================================================
Interest payments for the periods were $31,511 and $22,152.
The accompanying notes are an integral part of these financial statements.
</TABLE>
6
<PAGE> 7
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
THE JONES FINANCIAL COMPANIES, L.P., LLP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERSHIP CAPITAL
NINE MONTHS ENDED SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996
(Unaudited)
<CAPTION>
Subordinated
Limited limited General
partnership partnership partnership
(Amounts in thousands) capital capital capital Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $98,410 $28,943 $103,465 $230,818
Issuance of partnership interests -- 3,365 -- 3,365
Redemption of partnership interests (2,029) (3,131) -- (5,160)
Net income 12,428 7,120 50,054 69,602
Withdrawals and distributions (5,291) (6,521) (31,560) (43,372)
Reserved for anticipated withdrawals (7,138) (598) (4,682) (12,418)
------- ------- -------- --------
Balance, September 27, 1996 $96,380 $29,178 $117,277 $242,835
=======================================================================================================================
Balance, December 31, 1996 $95,807 $29,178 $123,172 $248,157
Issuance of partnership interests -- 8,833 -- 8,833
Redemption of partnership interests (2,468) (564) -- (3,032)
Net income 12,172 8,942 62,643 83,757
Withdrawals and distributions (6,365) (8,202) (39,974) (54,541)
Reserved for anticipated withdrawals (5,807) (741) (5,380) (11,928)
------- ------- -------- --------
Balance, September 26, 1997 $93,339 $37,446 $140,461 $271,246
=======================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
7
<PAGE> 8
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
THE JONES FINANCIAL COMPANIES, L.P., LLP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of The Jones Financial Companies, L.P., LLP and all wholly owned subsidiaries
(The "Partnership"), including the Partnership's principal subsidiary, Edward
D. Jones & Co., L.P., ("EDJ"), a registered broker/dealer. All material
intercompany balances and transactions have been eliminated. Investments in
nonconsolidated companies which are at least 20% owned are accounted for
under the equity method.
The financial statements have been prepared under the accrual basis of
accounting which requires the use of certain estimates by management in
determining the Partnership's assets, liabilities, revenues and expenses.
The financial information included herein is unaudited. However, in the
opinion of management, such information includes all adjustments, consisting
solely of normal recurring accruals, which are necessary for a fair
presentation of the results of interim operations.
The results of operations for the three and nine months ended September
26, 1997, are not necessarily indicative of the results to be expected for
the full year.
NET CAPITAL REQUIREMENTS
As a result of its activities as a registered broker/dealer, EDJ is
subject to the Net Capital requirements of the Securities and Exchange
Commission and the New York Stock Exchange. Under the alternative method
permitted by the rules, EDJ is required to maintain minimum Net Capital of 2%
of aggregate debit items arising from customer transactions. The Net Capital
rules also provide that EDJ may not expand its business nor may partnership
capital be withdrawn if resulting Net Capital would be less than 5% of
aggregate debit items. At September 26, 1997, EDJ's Net Capital of $262.3
million was 35% of aggregate debit items and its Net Capital in excess of the
minimum required was $247.3 million.
8
<PAGE> 9
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THE JONES FINANCIAL COMPANIES, L.P., LLP
MANAGEMENT'S FINANCIAL DISCUSSION
QUARTER AND NINE MONTHS ENDED SEPTEMBER 26, 1997
VERSUS QUARTER AND NINE MONTHS ENDED SEPTEMBER 27, 1996
OPERATIONS
During the quarter ended September 26, 1997, strong securities markets
and growth of the salesforce continued, making this the most profitable
quarter and year to date in the Partnership's history. Revenue increased 28%
($62.8 million) to $290.8 million compared to the quarter ending September
27, 1996, and expenses increased 25% ($51.8 million) to $259.3 million. As a
result, net income increased 54% ($11.0 million) to $31.5 million.
Comparing the nine months ending September 26, 1997 to the nine months
ending September 27, 1996 shows similar results, as revenues increased 18%
($125.0 million) to $831.6 million, expenses increased 17% ($110.0 million)
to $747.9 million and net income increased 20% ($14.0 million) to $83.8
million.
The strong securities markets continue to have a positive effect on
revenue derived from securities transactions. Revenue derived from
securities transactions increased 26% and 13% ($43.8 million and $70.9
million), respectively, comparing the three and nine months ending September
26, 1997, to the related periods in 1996. Continued implementation of the
Partnership's long term strategy to grow the salesforce has positively
impacted securities transaction revenue. The Partnership has increased the
size of the salesforce by 12% since September 1996. Additionally, the
salesforce experienced higher daily production in 1997. Security transaction
revenues are reflected in Commission, Principal transaction, and Investment
banking revenue.
Growth in non transaction revenues also has been positively impacted by
the strong securities markets and the growth in the salesforce. Other
Revenue sources include service fees earned from mutual funds and annuities,
IRA custodian fees, revenue sharing arrangements with mutual funds and
insurance products distributed by the Partnership, and Interest Income. Many
of these Other Revenue sources are based upon Customers' Assets. Customers'
Assets have increased due to appreciation in the underlying value of the
investments as well as accumulation of assets through securities
transactions. Customers' Assets have increased 7% and 32% ($9.6 billion and
$33.6 billion), since June, 1997 and September 1996, respectively.
Service fees have increased 44% and 39% ($10.4 million and $26.4
million), respectively, when comparing the three and nine months ending
September 26, 1997, to the three and nine months ending September 27, 1996.
These increases are directly attributable to increased Customers' Assets
and are reflected in Commission revenue.
9
<PAGE> 10
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Other non transaction revenues, derived primarily from IRA custodian
fees and revenue sharing arrangements with vendors, have increased 17% and
27% ($3.3 million and $13.9 million) to $22.9 million and $65.6 million,
respectively, for the three and nine months ending September 26, 1997. These
revenue sharing arrangements have also been positively impacted by increases
in Customers' Assets discussed above.
Interest Income increased 29% ($5.4 million and $14.3 million) to $23.7
million and $64.9 million when comparing the three and nine months ending
September 26, 1997 to the related periods ending September 27, 1996. The
primary source of the increase is an increase in loans to customers of EDJ.
Since the beginning of 1997, these loans have increased 25% from $600.6
million to $749.8 million as of September 26, 1997.
Expenses increased 25% and 17% ($51.8 million and $110.0 million),
respectively, for the three and nine months ended September 26, 1997, as the
Partnership continued its long-term strategies of converting to new
technology and expanding the salesforce.
Compensation expenses increased 29% and 16% ($37.8 million and $67.2
million) to $167.2 million and $475.6 million, respectively, for the three
and nine months ended September 26, 1997, due to two factors. First, strong
revenues and net income have increased both the commissions paid to
Investment Representatives (IR) and variable compensation paid to all
Associates. IR Compensation increased 27% and 15% ($21.1 million and $39.1
million) to $99.6 million and $292.6 million for the three and nine months
ending September 26, 1997. Variable compensation increased 67% and 18%
($10.1 million and $10.2 million) to $25.1 million and $67.4 million for the
three and nine months ending September 26, 1997. Second, with the expansion
of the salesforce, additional support personnel have been added at individual
branch locations and in headquarters, increasing support payroll 16% and 17%
($5.9 million and $17.3 million) to $41.7 million and $121.2 million,
respectively, for the three and nine months ended September 26, 1997.
Occupancy expenses have increased 23% and 28% ($6.5 million and $21.0
million) to $34.0 million and $97.1 million for the three and nine months
ended September 26, 1997, primarily due to growth of the salesforce and
conversion to client server technology. Since September 1996, the
Partnership has converted all of its existing branch locations to client
server technology and expanded its branch network by 11% (387 branch
locations). With the Partnership's strategy of one Investment Representative
offices, each branch requires a separate facility and equipment.
Interest expense increased 19% and 27% ($1.8 million and $6.8 million)
to $11.0 million and $32.2 million for the three and nine months ended
September 26, 1997, primarily as a result of a subordinated debt offering of
$94.5 million in September 1996.
Of the Partnership's remaining expenses, the most significant changes
related to support of the Partnership's strategy of implementing new
technology and expanding its sales force.
10
<PAGE> 11
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL ADEQUACY
The Partnership's equity capital at September 26, 1997, excluding
reserves for anticipated withdrawals was $271.2 million compared to $248.2
million as of December 31, 1996. Equity capital increased primarily due to
retention of earnings and contributions of subordinated limited partnership
capital, net of redemptions of subordinated limited partnership and limited
partnership capital.
At September 26, 1997, the Partnership had $45.7 million in cash and
cash equivalents. Lines of credit are in place at ten banks aggregating $575
million ($500 million of which are through uncommitted lines of credit).
Actual borrowing availability is primarily based on securities owned and
customers' margin securities which serve as collateral for the loans.
A substantial portion of the Partnership's assets are primarily liquid,
consisting mainly of cash and assets readily convertible into cash. These
assets are financed primarily by customer credit balances, equity capital,
bank lines of credit and other payables. The Partnership believes that the
liquidity provided by existing cash balances and borrowing arrangements will
be sufficient to meet the Partnership capital and liquidity requirements.
CASH FLOWS
For the nine months ended September 26, 1997, cash and cash equivalents
decreased $19.2 million. Cash flows from operating activities provided
$100.2 million, primarily attributable to net income adjusted for
depreciation and amortization, decreases in securities held for repurchase,
and increases in accounts payable and accrued expenses, used to fund
increases in net receivables from customers. Investing activities used $40.1
million for the purchase of fixed assets. Cash flows from financing
activities used $79.3 million primarily for withdrawals and distributions
from partnership capital, net of issuance of partnership interests.
There were no material changes in the partnership's overall financial
condition during the nine months ended September 26, 1997, compared with the
nine months ended September 27, 1996. The Partnership's balance sheet is
comprised primarily of cash and assets readily convertible into cash.
Securities inventories are carried at market values and are readily
marketable. Customer margin accounts are collateralized by marketable
securities. Other customer receivables and receivables and payables with
other broker/dealers normally settle on a current basis. Liabilities,
including certain amounts payable to customers, checks, accounts payable and
accrued expenses are sources of funds to the Partnership. These liabilities,
to the extent not utilized to finance assets, are available to meet liquidity
needs and provide funds for short term investments, which favorably impacts
profitability.
11
<PAGE> 12
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership's growth in recent years has been financed through sales
of limited partnership interests to its employees, retention of earnings, and
private placements of long-term and subordinated debt.
The Partnership's principal subsidiary, Edward D. Jones & Co., L.P.,
("EDJ") as a securities broker/dealer, is subject to the Securities and
Exchange Commission regulations requiring EDJ to maintain certain liquidity
and capital standards. EDJ has been in compliance with these regulations.
The Partnership's subsidiary, Boone National Savings and Loan
Association, F.A. (Boone), a Federally-chartered stock savings and loan
association, is required under federal regulations to maintain specified
levels of liquidity and capital standards. Boone has been in compliance with
these regulations.
12
<PAGE> 13
Part II. FINANCIAL INFORMATION
THE JONES FINANCIAL COMPANIES, L.P., LLP
Item 1: Legal Proceedings
There have been no material changes in the legal proceedings previously
reported.
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Reference is made to the Exhibit Index contained hereinafter.
(b) Reports on Form 8-K
No reports were filed on Form 8-K for the nine months ended
September 26, 1997.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE JONES FINANCIAL COMPANIES, L.P., LLP
(Registrant)
Dated: November 7, 1997 /s/ John W. Bachmann
---------------------
John W. Bachmann
Managing Partner
Dated: November 7, 1997 /s/ Steven Novik
---------------------
Steven Novik
Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
THE JONES FINANCIAL COMPANIES, L.P., LLP
For the quarter ended September 26, 1997
Exhibit No. Description Page
- -------------------------------------------------------------------------------
27.0 Financial Data Schedule (provided for the
Securities and Exchange Commission only)
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND> This schedule contains summary financial information
extracted from the financial statements for The
Jones Financial Companies for the 3 months ended
September 26, 1997 and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-26-1997
<CASH> 45,650
<RECEIVABLES> 850,365
<SECURITIES-RESALE> 15,450
<SECURITIES-BORROWED> 10,249
<INSTRUMENTS-OWNED> 230,531
<PP&E> 185,804
<TOTAL-ASSETS> 1,408,718
<SHORT-TERM> 6,000
<PAYABLES> 631,958
<REPOS-SOLD> 0
<SECURITIES-LOANED> 10,643
<INSTRUMENTS-SOLD> 16,943
<LONG-TERM> 271,834
0
0
<COMMON> 0
<OTHER-SE> 271,246
<TOTAL-LIABILITY-AND-EQUITY> 1,408,718
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 64,880
<COMMISSIONS> 690,156
<INVESTMENT-BANKING-REVENUES> 10,982
<FEE-REVENUE> 65,623
<INTEREST-EXPENSE> 32,167
<COMPENSATION> 475,613
<INCOME-PRETAX> 83,757
<INCOME-PRE-EXTRAORDINARY> 83,757
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,757
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
