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JONES FINANCIAL COMPANIES LLLP - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) The following Management's Discussion and Analysis is intended to help the reader understand the results of operations and the financial condition of the Partnership. Management's Discussion and Analysis should be read in conjunction with the Partnership's Consolidated Financial Statements and accompanying notes included in Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K. Basis of Presentation The Partnership broadly categorizes its net revenues into four categories: trade revenue (revenue from client buy or sell transactions of securities), fee revenue, net interest and dividends revenue (net of interest expense) and other revenue. In the Partnership's Consolidated Statements of Income, trade revenue is composed of commissions, principal transactions and investment banking. Fee revenue is composed of asset-based fees and account and activity fees. These sources of revenue are affected by a number of factors. Trade revenue is impacted by the number of financial advisors, trading volume (client dollars invested), mix of the products in which clients invest, margins earned on the transactions and market volatility. Asset-based fees are generally a percentage of the total value of specific assets in client accounts. These fees are impacted by client dollars invested in and divested from the accounts which generate asset-based fees and change in market values of the assets. Account and activity fees and other revenue are impacted by the number of client accounts and the variety of services provided to those accounts, among other factors. Net interest and dividends revenue is impacted by the amount of cash and investments, receivables from and payables to clients, the variability of interest rates earned and paid on such balances, the number of Interests, and the balances of partnership loans, long-term debt and liabilities subordinated to claims of general creditors. 38-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued OVERVIEW The following table sets forth the change in major categories of the Consolidated Statements of Income as well as several key related metrics for the last three years. Management of the Partnership relies on this financial information and the related metrics to evaluate the Partnership's operating performance and financial condition. All amounts are presented in millions, except the number of financial advisors and as otherwise noted. For the years ended December 31, % Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 Revenue: Trade revenue: Commissions $ 2,134.4 $ 1,979.0 $ 1,698.7 8 % 17 % Principal transactions 182.5 155.9 284.2 17 % -45 % Investment banking 122.4 111.6 153.1 10 % -27 % Total trade revenue 2,439.3 2,246.5 2,136.0 9 % 5 % % of net revenue 43 % 45 % 47 % Fee revenue: Asset-based 2,522.7 2,042.4 1,776.9 24 % 15 % Account and activity 567.6 573.9 522.9 -1 % 10 % Total fee revenue 3,090.3 2,616.3 2,299.8 18 % 14 % % of net revenue 55 % 53 % 51 % Net interest and dividends 75.0 71.2 62.5 5 % 14 % Other revenue 52.3 31.2 11.6 68 % 169 % Net revenue 5,656.9 4,965.2 4,509.9 14 % 10 % Operating expenses 4,982.6 4,410.2 4,028.1 13 % 9 % Income before allocations to partners $ 674.3 $ 555.0 $ 481.8 21 % 15 % Related metrics: Client dollars invested(1): Trade ($ billions) $ 107.9 $ 97.4 $ 88.4 11 % 10 % Advisory programs ($ billions) $ 18.8 $ 11.9 $ 17.8 58 % -33 % Client households at year end (millions) 4.61 4.52 4.48 2 % 1 % Client assets under care: Total: At year end ($ billions) $ 787.1 $ 668.7 $ 591.2 18 % 13 % Average ($ billions) $ 726.4 $ 636.9 $ 586.1 14 % 9 % Advisory Programs: At year end ($ billions) $ 115.6 $ 87.4 $ 68.8 32 % 27 % Average ($ billions) $ 101.0 $ 78.8 $ 63.6 28 % 24 % Financial advisors: At year end 13,158 12,463 12,242 6 % 2 % Average 12,784 12,273 12,359 4 % -1 % Attrition % 9.4 % 10.7 % 14.1 % n/a n/a Dow Jones Industrial Average: At year end 16,577 13,104 12,218 27 % 7 % Average for year 15,010 12,965 11,958 16 % 8 % S&P 500 Index: At year end 1,848 1,426 1,258 30 % 13 % Average for year 1,644 1,379 1,268 19 % 9 % (1) Client dollars invested related to trade revenue represent the principal amount of clients' buy and sell transactions resulting in commissions, principal transactions and investment banking revenues. Client dollars invested related to advisory programs revenue represent the net inflows of client dollars into the programs. 39 -------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued 2013 versus 2012 Overview The Partnership experienced very strong financial results during 2013 compared to a strong 2012, including record net revenue, income before allocations to partners and client assets under care. Financial results benefitted from improved market conditions, including increases of 19% in the average S&P 500 Index and 16% in the average Dow Jones Industrial Average. The Partnership's key performance measures were strong during 2013 and financial advisors attracted $48.2 billion in net new assets. Average client assets under care grew 14% to $726.4 billion, which included a 28% increase in the advisory programs' average assets under care to $101.0 billion. In addition, client dollars invested related to trade revenue were up 11% to $107.9 billion. Net revenue increased 14% to $5.7 billion in 2013. This increase was led by an 18% increase in fee revenue, primarily due to higher levels of asset values on which fees were earned, driven by the continued investment of client dollars into advisory programs and the overall rise in the equity market daily averages. Revenue growth was also driven by a 9% increase in trade revenue. Operating expenses increased 13% in 2013 compared to 2012, primarily due to higher compensation and benefits expense driven by increased financial advisor productivity. Higher variable compensation due to the increase in the Partnership's profitability also contributed to the increase. Overall, the 14% increase in net revenue, partially offset by the 13% increase in operating expenses, generated income before allocations to partners of $674.3 million, a 21% increase over 2012. 2012 versus 2011 Overview During 2012, global market and economic conditions generally improved compared to 2011 even though concerns about U.S. and global economic growth and an uncertain political environment led investors to remain cautious. Despite these concerns, the Partnership experienced record financial results in 2012 through continued focus on providing solutions to its clients. The Partnership's key performance measures were relatively strong in 2012. Average client assets under care grew 9% in 2012 to $636.9 billion, which included a 24% increase in the average advisory programs assets under care to $78.8 billion. In addition, client dollars invested related to trade revenue were up 10% to $97.4 billion. Net revenue increased 10% to $5.0 billion in 2012 compared to 2011. This significant growth in net revenue was primarily attributable to a 14% increase in fee revenue due to higher levels of asset values on which fees were earned, driven by the continued investment of client dollars into advisory programs and the overall rise in the equity market daily averages, evidenced by the 9% increase in the average S&P 500 Index and the 8% increase in the average Dow Jones Industrial Average. Operating expenses increased 9% in 2012 compared to 2011, primarily due to an increase in compensation and benefits driven by increased financial advisor productivity as well as higher variable compensation due to the increase in the Partnership's profitability. 40 -------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Overall, the 10% increase in net revenue, partially offset by the 9% increase in operating expenses, generated income before allocations to partners of $555.0 million, a 15% increase over the prior year. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011 The discussion below details the significant fluctuations and their drivers for each of the major categories of the Partnership's Consolidated Statements of Income. Trade Revenue Trade revenue, which consists of commissions, principal transactions and investment banking revenue, increased 9% to $2.4 billion during 2013 and 5% to $2.2 billion during 2012. The increase in trade revenue for both 2013 and 2012 was primarily due to the impact of increased client dollars invested, partially offset by a decrease in the margin earned. Commissions Years Ended December 31, % Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 Commissions revenue ($ millions): Mutual funds $ 1,166.7 $ 1,050.9 $ 866.0 11 % 21 % Equities 594.7 539.2 447.5 10 % 20 % Insurance 373.0 388.9 385.2 -4 % 1 % Total commissions revenue $ 2,134.4 $ 1,979.0 $ 1,698.7 8 % 17 % Related metrics: Client dollars invested ($ billions) $ 87.3 $ 79.4 $ 65.3 10 % 22 % Margin per $1,000 invested $ 24.4 $ 24.9 $ 26.0 -2 % -4 % U.S. business days 252 250 252 1 % -1 % Commissions revenue increased 8% in 2013 to $2.1 billion primarily due to a 10% increase in client dollars invested in commission generating transactions resulting from the continued improvement in market conditions and clients continuing to reinvest their dollars from fixed income products into mutual fund and equity products. This increase was partially offset by a 2% decrease in the margin per $1,000 invested, reflecting a change in product mix due to proportionally less insurance revenue which earns a higher margin. In addition, the average trade size of mutual fund products increased, resulting in lower commission rates and thus a decrease in margin earned. Commissions revenue increased 17% in 2012 to $2.0 billion primarily due to a 22% increase in client dollars invested in commission generating transactions resulting from improvement in market conditions and the fact that clients reinvested their dollars from maturing fixed income products into mutual fund and equity products. This increase was partially offset by a 4% decrease in the margin per $1,000 invested caused by a shift from higher-margin equity mutual funds to lower-margin debt mutual funds. 41-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Principal Transactions Principal transactions revenue increased 17% in 2013 to $182.5 million. Overall, principal transactions revenue was positively impacted by relatively higher interest rates during the last half of 2013, which increased demand and led to an increase in client dollars invested. In addition, there was an increase in margin earned per $1,000 invested. Principal transactions revenue decreased 45% in 2012 to $155.9 million primarily due to the low interest rate environment and the improvement in equity market conditions which decreased demand. In addition, margin decreased 28% in 2012 as client investments shifted during the period towards products with shorter maturities which have lower margins. Investment Banking Investment banking revenue increased 10% in 2013 to $122.4 million. The increase in investment banking revenue was primarily due to an increase in client dollars invested resulting from improved market conditions. This increase was partially offset by an 11% decrease in the margin earned per $1,000 invested. Client investments shifted away from higher-margin municipal and corporate unit investment trusts towards lower-margin equity unit investment trusts. Investment banking revenue decreased 27% in 2012 to $111.6 million. The decrease reflects lower demand in 2012 due to the low interest rate environment and lower supply of state and municipal obligations. The decrease in investment banking revenue was further caused by a decrease in margin which resulted from a shift in client investments to lower-margin equity unit investment trusts. 42-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Fee Revenue Fee revenue, which consists of asset-based fees and account and activity fees, increased 18% in 2013 to $3.1 billion and 14% in 2012 to $2.6 billion. The increase in fee revenue for both 2013 and 2012 was primarily due to higher asset values and continued investment in advisory programs. A discussion of fee revenue components follows. Asset-based Years Ended December 31, % Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011Asset-based fee revenue ($ millions): Advisory programs fees $ 1,367.4 $ 1,052.5 $ 849.6 30 % 24 % Service fees 958.5 808.7 765.0 19 % 6 % Revenue sharing 155.0 138.6 129.0 12 % 7 % Trust fees 34.2 28.4 23.9 20 % 19 % Cash solutions 7.6 14.2 9.4 -46 % 51 % Total asset-based fee revenue $ 2,522.7 $ 2,042.4 $ 1,776.9 24 % 15 % Related metrics ($ billions): Average U.S. client asset values(1): Mutual fund assets held outside of advisory programs $ 396.6 $ 329.3 $ 305.3 20 % 8 % Advisory programs 100.6 78.8 63.6 28 % 24 % Insurance 62.6 54.6 50.4 15 % 8 % Cash solutions 19.9 18.4 17.9 8 % 3 % Total client asset values $ 579.7 $ 481.1 $ 437.2 20 % 10 % (1) Assets on which the partnership earns asset-based fee revenue. The U.S. portion of consolidated asset-based fee revenue was 98%, 97% and 97% for 2013, 2012 and 2011, respectively. Asset-based fee revenue increased 24% in 2013 to $2.5 billion primarily due to higher advisory programs fees and service fees. Advisory programs fee revenue growth was primarily due to increased investment of client dollars into advisory programs, which includes new client assets and increases in the market value of the underlying assets. Service fees increased in 2013 primarily due to increases in the market value of the underlying assets as well as continued investment of client dollars into mutual fund products, which includes new client assets. A majority of client assets held in advisory programs were converted from other client investments previously held with the Partnership. Asset-based fee revenue increased 15% in 2012 to $2.0 billion primarily due to increases in advisory programs fees. Advisory programs fee revenue increased 24% primarily due to market appreciation of asset values as well as continued investment of client dollars into advisory programs. A majority of client assets held in advisory programs were converted from other client investments previously held with the Partnership. 43-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Account and Activity Years Ended December 31, % Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 Account and activity fee revenue ($ millions): Sub-transfer agent services $ 350.2 $ 322.2 $ 289.1 9 % 11 % Retirement account fees 125.8 141.6 136.9 -11 % 3 % Other account and activity fees 91.6 110.1 96.9 -17 % 14 % Total account and activity fee revenue $ 567.6 $ 573.9 $ 522.9 -1 % 10 % Related metrics (millions): Average client accounts: Sub-transfer agent services(1) 19.8 18.4 17.1 8 % 8 % Retirement accounts 4.2 3.9 3.8 8 % 3 % (1) Amount represents average number of individual mutual fund holdings serviced on which the Partnership recognizes sub-transfer agent services revenue. Account and activity fee revenue decreased 1% in 2013 to $567.6 million primarily due to decreases in retirement account fees and other account and activity fees. Retirement account fees decreased as more client accounts reached the asset level at which fees are waived. Effective January 1, 2013, the Partnership reduced the asset level on which retirement account fees and certain other account activity fees are waived. These decreases were partially offset by higher sub-transfer agent services primarily related to an increase in the number of average client mutual fund holdings serviced. Account and activity fee revenue increased 10% in 2012 to $573.9 million primarily due to increases in revenue from sub-transfer agent services and other account and activity fees. Sub-transfer agent services increased primarily due to an increase in the number of average client holdings serviced as well as a contract rate adjustment effective for 2012. Other account and activity fees increased primarily due to increases in various other types of fees including credit card revenue and other transaction fees. 44-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Net Interest and Dividends Years Ended December 31, % Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 Net interest and dividends revenue ($ millions): Client loan interest $ 108.0 $ 112.9 $ 115.2 -4 % -2 % Short-term investing interest 14.2 11.3 7.4 26 % 53 % Other interest and dividends 11.5 9.2 7.5 25 % 23 % Limited partnership interest expense (48.4 ) (49.2 ) (50.1 ) -2 % -2 % Other interest expense (10.3 ) (13.0 ) (17.5 ) -21 % -26 % Total net interest and dividends revenue $ 75.0 $ 71.2 $ 62.5 5 % 14 % Related metrics ($ millions): Average aggregate client loan balance $ 2,109.4 $ 2,187.9 $ 2,213.9 -4 % -1 % Average rate earned 5.12 % 5.15 % 5.20 % -1 % -1 % Average funds invested $ 8,764.6 $ 6,560.0 $ 4,815.0 34 % 36 % Average rate earned 0.16 % 0.17 % 0.15 % -6 % 13 % Weighted average $1,000 equivalent limited partnership units outstanding 644,856 655,663 668,450 -2 % -2 % Net interest and dividends revenue increased 5% in 2013 to $75.0 million. Interest income from cash and cash equivalents, cash and investments segregated under federal regulations and securities purchased under agreements to resell increased 26% in 2013 primarily due to an increase in the average funds invested. Interest expense decreased in 2013 primarily due to lower average debt balances during the current period related to debt repayments in 2012 and 2013. Other interest and dividends revenue increased 25% primarily due to an increase in interest income recognized on general partner partnership loans. See further discussion of these loans in Note 10 to the Consolidated Financial Statements. These favorable increases were partially offset by a 4% decrease in interest income from client loans, a reflection of a lower average aggregate client loan balance and a lower average rate earned. Net interest and dividends revenue increased 14% in 2012 to $71.2 million. Interest expense decreased in 2012 primarily due to lower average debt balances during the current period related to debt repayments in 2011 and 2012. Interest income from short-term investing increased 53% in 2012 primarily due to an increase in the average funds invested on these types of investments as well as an increase in the rate earned. Other interest and dividends revenue increased 23% primarily due to an increase in interest income recognized on general partner partnership loans. Other Revenue Other revenue increased 68% to $52.3 million in 2013 and increased 169% to $31.2 million in 2012. The increase in both years is primarily attributable to increases in the value of investments held related to the Partnership's nonqualified deferred compensation plan. The Partnership has chosen to hedge the future liability for the plan by purchasing investments in an amount similar to the future expected liability. As the market value of these investments fluctuates, the gains or losses are recorded in other revenue with an offset in compensation and fringe benefits expense, resulting in minimal net impact to the Partnership's income before allocations to partners. 45-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Operating Expenses Years Ended December 31, % Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 Operating expenses ($ millions): Compensation and benefits: Financial advisor compensation $ 2,003.9 $ 1,738.6 $ 1,597.0 15 % 9 % Home office and branch 946.8 917.4 855.3 3 % 7 % Variable compensation 643.1 497.0 378.3 29 % 31 % Financial advisor salary and subsidy 199.3 132.2 109.5 51 % 21 % Total compensation and benefits 3,793.1 3,285.2 2,940.1 15 % 12 % Occupancy and equipment 356.0 353.0 356.6 1 % -1 % Communications and data processing 291.5 279.3 289.4 4 % -3 % Payroll and other taxes 207.3 186.0 171.1 11 % 9 % Advertising 58.0 56.3 54.2 3 % 4 % Postage and shipping 50.9 47.6 48.5 7 % -2 % Clearance fees 12.6 12.6 12.6 0 % 0 % Other operating expenses 213.2 190.2 155.6 12 % 22 % Total operating expenses $ 4,982.6 $ 4,410.2 $ 4,028.1 13 % 9 % Related metrics: Number of branches At period end 11,647 11,415 11,408 2 % 0 % Average 11,510 11,396 11,394 1 % 0 % Financial advisors: At period end 13,158 12,463 12,242 6 % 2 % Average 12,784 12,273 12,359 4 % -1 % Branch employees(1): At period end 13,832 13,619 12,889 2 % 6 % Average 13,639 13,365 13,130 2 % 2 % Home office employees(1): At period end 5,174 5,087 4,933 2 % 3 % Average 5,119 5,008 4,919 2 % 2 % Home office employees(1) per 100 financial advisors (average) 40.0 40.8 39.8 -2 % 3 % Branch employees(1) per 100 financial advisors (average) 106.7 108.9 106.2 -2 % 3 % Average operating expenses per financial advisor(2) $ 182,697 $ 177,177 $ 166,096 3 % 7 % (1) Counted on a full-time equivalent basis. (2) Operating expenses used in calculation represent total operating expenses less financial advisor and variable compensation. Operating expenses increased 13% in 2013 to $5.0 billion primarily due to a 15% increase in compensation and benefits (described below). The remaining operating expenses increased 6% ($64.5 million) primarily due to an 11% increase in payroll and other taxes caused by the increases in compensation and a 12% increase in other operating expenses. Financial advisor compensation increased 15% ($265.3 million) in 2013 primarily due to increases in trade and asset-based fee revenue on which financial advisor commissions are paid. Financial advisor salary and subsidy increased 51% ($67.1 million) primarily due to growth in financial advisors and new compensation initiatives. 46 -------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Home office and branch salary and fringe benefit expense increased 3% ($29.4 million) in 2013 primarily due to higher wages and more personnel to support increased productivity of the Partnership's financial advisor network. The average number of both the Partnership's home office and branch employees increased 2%. Variable compensation expands and contracts in relation to revenues, income before allocations to partners and the Partnership's related profit margin. As the Partnership's financial results and profit margin improve, a significant portion is allocated to variable compensation and paid to employees in the form of increased profit sharing and bonuses. As a result, variable compensation increased 29% ($146.1 million) in 2013 to $643.1 million. The Partnership uses the ratios of both the number of home office and the number of branch employees per 100 financial advisors and the average operating expenses per financial advisor as key metrics in managing its costs. In 2013, both the average number of home office employees and branch employees per 100 financial advisors decreased 2%, reflecting the Partnership's longer term cost management strategy to grow its financial advisor network at a faster pace than its home office and branch support staff. The average operating expense per financial advisor increased 3% primarily due to increases in home office employees' salary and fringe benefit expenses and branch operating expenses to support the Partnership's financial advisor network, partially offset by the impact of spreading those costs over more financial advisors. Operating expenses increased 9% in 2012 to $4.4 billion primarily due to a 12% increase in compensation and benefits (described below). The remaining operating expenses increased 3% ($37.0 million) primarily due to a 9% increase in payroll and other taxes caused by the increase in compensation and a 22% increase in other operating expenses. Financial advisor compensation increased 9% ($141.6 million) in 2012 primarily due to increases in trade and asset-based fee revenue on which financial advisor commissions are paid. Financial advisor salary and subsidy increased 21% ($22.7 million) primarily due to new financial advisor compensation initiatives implemented in July 2012, in addition to more financial advisors participating in the programs. Home office and branch salary and fringe benefit expense increased 7% ($62.1 million) in 2012 primarily due to salary increases, higher healthcare costs, and increases in personnel to support increased productivity of the Partnership's financial advisor network. The average number of both the Partnership's home office and branch employees increased 2%. As a result of the Partnership's strong financial results and profit margin, variable compensation increased 31% ($118.7 million) in 2012 to $497.0 million. In 2012, the average number of home office employees and branch employees per 100 financial advisors both increased 3%. This result is despite the Partnership's longer term cost management strategy to grow its financial advisor network at a faster pace than its home office support staff. Although the average number of financial advisors in 2012 decreased 1% as compared to 2011, the number of financial advisors at December 31, 2012 increased 2% as compared to December 31, 2011. The average operating expense per financial advisor increased 7% primarily due to increases in home office employees' salary and fringe benefit expenses and branch operating expenses to support the Partnership's financial advisor network, in addition to a decrease in the average number of financial advisors. 47-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Segment Information An operating segment is defined as a component of an entity that has all of the following characteristics: it engages in business activities from which it may earn revenues and incur expenses; the entity's chief operating decision-maker (or decision-making group) regularly reviews its operating results for resource allocation and to assess performance; and discrete financial information is available. Operating segments may be combined in certain circumstances into reportable segments for financial reporting. The Partnership has determined it has two operating and reportable segments based upon geographic location, the U.S. and Canada. Each segment, in its own geographic location, primarily derives revenue from the retail brokerage business for the purchase or sale of mutual fund shares, listed and unlisted securities and insurance products, as well as from principal transactions, investment banking, and fees related to assets held by and account services provided to its clients. The Partnership evaluates segment performance based upon income before allocations to partners, as well as income before variable compensation. Variable compensation is determined at the Partnership level for profit sharing and home office and branch employee bonus amounts, and therefore is allocated to each geographic segment independent of that segment's individual income (loss) before variable compensation. Financial advisor bonuses are determined by the overall Partnership's profitability, as well as the performance of the individual financial advisors. Both income (loss) before allocations to partners and income (loss) before variable compensation are considered in evaluating segment performance. Canada segment information, as reported in the following table, is based upon the Consolidated Financial Statements of the Partnership's Canada operations without eliminating intercompany items, such as management fees paid to affiliated entities. The U.S. segment information is derived from the Consolidated Financial Statements less the Canada segment information as presented. This is consistent with how management reviews the segments in order to assess performance. 48 -------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued The following table shows financial information for the Partnership's reportable segments. All amounts are presented in millions, except the number of financial advisors and as otherwise noted. Years Ended December 31, % Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 Net revenue: U.S. $ 5,457.5 $ 4,789.9 $ 4,324.5 14 % 11 % Canada 199.4 175.3 185.4 14 % -5 % Total net revenue 5,656.9 4,965.2 4,509.9 14 % 10 % Operating expenses (excluding variable compensation): U.S. 4,147.2 3,734.4 3,468.6 11 % 8 % Canada 192.3 178.8 181.2 8 % -1 % Total operating expenses 4,339.5 3,913.2 3,649.8 11 % 7 % Pre-variable income (loss): U.S. 1,310.3 1,055.5 855.9 24 % 23 % Canada 7.1 (3.5 ) 4.2 303 % -183 % Total pre-variable income 1,317.4 1,052.0 860.1 25 % 22 % Variable compensation: U.S. 626.0 485.2 366.7 29 % 32 % Canada 17.1 11.8 11.6 45 % 2 % Total variable compensation 643.1 497.0 378.3 29 % 31 % Income (loss) before allocations to partners: U.S. 684.3 570.3 489.2 20 % 17 % Canada (10.0 ) (15.3 ) (7.4 ) 35 % -107 % Total income before allocations to partners $ 674.3 $ 555.0 $ 481.8 21 % 15 % Client assets under care ($ billions): U.S. At year end $ 768.8 $ 651.9 $ 576.4 18 % 13 % Average $ 708.9 $ 621.1 $ 570.5 14 % 9 % Canada At year end $ 18.3 $ 16.8 $ 14.8 9 % 14 % Average $ 17.5 $ 15.9 $ 15.6 10 % 2 % Financial advisors: U.S. At year end 12,483 11,822 11,622 6 % 2 % Average 12,131 11,652 11,740 4 % -1 % Canada At year end 675 641 620 5 % 3 % Average 653 621 619 5 % 0 % 49 -------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued U.S. Net revenue increased 14% in 2013 primarily due to increases in asset-based fee revenue and trade revenue. Asset-based fee revenue increased 24% ($471.4 million) primarily due to an increase in advisory programs fee revenue of 30% ($313.7 million) which was the result of continued growth in client assets under care. The increase to trade revenue of 9% ($184.5 million) was primarily due to the impact of increased client dollars invested, partially offset by a decrease in the margin earned in 2013 compared to 2012. Strong market performance also contributed to overall revenue growth. Operating expenses (excluding variable compensation) increased 11% in 2013 primarily due to higher financial advisor compensation and salary and fringe benefits. The increase in financial advisor compensation was due to increases in trade and asset-based fee revenue on which financial advisor commissions are paid. Salary and fringe benefits expense increased due to more personnel to support increased productivity of the Partnership's financial advisor network. Net revenue increased 11% in 2012 primarily due to increases in asset-based fee revenue, trade revenue and account and activity fees. Asset-based fee revenue increased 15% ($263.9 million) primarily due to an increase in advisory programs fee revenue of 24% ($201.4 million) which was the result of continued growth in client assets under care. The increase to trade revenue of 6% ($121.0 million) was primarily due to the impact of increased client dollars invested, partially offset by a decrease in the margin earned in 2012 compared to 2011. The increase in account and activity fees of 10% ($51.6 million) was primarily the result of an increase in revenue from sub-transfer agent services due to an increase in the number of average client holdings serviced. Operating expenses (excluding variable compensation) increased 8% in 2012 primarily due to increases in financial advisor compensation and salary and fringe benefits. The increase in financial advisor compensation was due to increases in trade and asset-based fee revenue on which financial advisor commissions are paid. Salary and fringe benefits expense increased due to salary increases and increased personnel to support increased productivity of the Partnership's financial advisor network, as well as an increase in healthcare costs. Canada Net revenue increased 14% in 2013 primarily due to increases in asset-based fee revenue and trade revenue. Asset-based fee revenue increased 18% ($8.9 million) primarily due to an increase in service fee revenue of 16% ($7.6 million), reflecting an increase in client assets under care due to the investment of client dollars and higher market values of the underlying assets. Trade revenue increased 8% ($8.3 million) primarily due to an increase in client dollars invested and favorable market conditions, reflected in the 5% increase in the daily average of the TSX. Operating expenses (excluding variable compensation) increased 8% in 2013 primarily due to higher financial advisor compensation resulting from increases in trade and asset-based fee revenues on which financial advisor commissions are paid. 50 -------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued As a result, pre-variable income (loss) improved from a loss of $3.5 million in 2012 to income of $7.1 million in 2013. Improvement in the Canada segment is due in part to the continued focus to achieve profitability. This includes several initiatives to increase revenue and control expenses. Revenue initiatives include the plan to grow the number of financial advisors, client assets under care and the depth of financial solutions provided to clients, and the roll out of additional advisory programs. Net revenue decreased 5% in 2012 primarily due to a decrease in trade revenue. Trade revenue decreased 9% ($10.5 million) primarily due to a decrease in client dollars invested. This decrease was consistent with the lower levels of client activity and unfavorable market conditions, reflected in the 8% decrease in the daily average of the TSX. Operating expenses (excluding variable compensation) decreased 1% in 2012 primarily due to lower financial advisor compensation caused by a decrease in trade revenue on which financial advisor commissions are paid. As a result, there was a pre-variable loss of $3.5 million in 2012. Further, the Canada business segment experienced a slight increase in the average number of financial advisors in 2012 and 3% growth year-over-year. LEGISLATIVE AND REGULATORY REFORM As discussed more fully in the "Legislative and Regulatory Initiatives" risk factor in Part I, Item 1A - Risk Factors, the Partnership continues to monitor Regulatory Initiatives, including the possibility of a universal fiduciary standard of care applicable to both broker-dealers and investment advisers under the Dodd-Frank Act, limits on fees paid by mutual funds (often called 12b-1 fees), and reforms to the regulation of money market funds. The Regulatory Initiatives may impact the manner in which the Partnership markets its products and services, manages its business and operations, and interacts with clients and regulators, any or all of which could materially impact the Partnership's results of operations, financial condition, and liquidity. However, the Partnership cannot presently predict when or if any Regulatory Initiatives will be enacted or the impact that any Regulatory Initiatives will have on the Partnership. MUTUAL FUNDS AND ANNUITIES The Partnership derived 75%, 74% and 70% of its total revenue from sales and services related to mutual fund and annuity products in 2013, 2012 and 2011, respectively. In addition, the Partnership derived from one mutual fund company 19% of its total revenue in 2013, 2012 and 2011. The revenue generated from this company relates to business conducted with the Partnership's U.S. segment. Significant reductions in these revenues due to regulatory reform or other changes to the Partnership's relationship with mutual fund companies could have a material adverse effect on the Partnership's results of operations. 51-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued LIQUIDITY AND CAPITAL RESOURCES The Partnership requires liquidity to cover its operating expenses, net capital requirements, capital expenditures, debt repayment obligations and redemptions of partnership interests. The principal sources for meeting the Partnership's liquidity requirements include existing liquidity and capital resources of the Partnership, discussed further below, and funds generated from operations. The Partnership believes that the liquidity provided by these sources will be sufficient to meet its capital and liquidity requirements for the next twelve months. Depending on conditions in the capital markets and other factors, the Partnership will, from time to time, consider the issuance of debt and additional partnership capital, the proceeds of which could be used to meet growth needs or for other purposes. Partnership Capital The Partnership's growth in capital has historically been through the sale of limited partnership interests to its employees and existing limited partners, the sale of subordinated limited partnership interests to its current or retiring general partners, general partnership interest contributions, and retention of general partner earnings. The Partnership filed a Registration Statement on Form S-8 with the SEC on January 17, 2014 to register $350 million in securities in preparation for its anticipated 2014 Limited Partnership offering. The Partnership intends to offer approximately $300 million in Interests to eligible financial advisors, branch office administrators and home office associates. The remaining $50 million may be issued in the discretion of the Executive Committee, which may include issuances to financial advisors who complete a retirement transition plan in future years and who may be considered for additional limited partnership interest. The 2014 Limited Partnership offering is expected to close early next year. The issuance of limited partnership interests will reduce the percentage of participation in net income by general partners, subordinated limited partners and current limited partners. Proceeds from the 2014 Limited Partnership offering are expected to be used toward working capital and general corporate purposes and to ensure there is adequate general liquidity of the Partnership for future needs. Any addition of new Interests will decrease the Partnership's net interest income by the 7.5% Payment for any such additional Interests, and holders of existing Interests may suffer decreased returns on their investment because the amount of the Partnership's net income they participate in may be reduced as a consequence. Accordingly, the issuance of LP interests will reduce the Partnership's net interest income and profitability beginning in 2015. The Partnership's capital subject to mandatory redemption at December 31, 2013, net of reserve for anticipated withdrawals, was $1,857.9 million, an increase of $45.7 million from December 31, 2012. This increase in the Partnership's capital subject to mandatory redemption was primarily due to the retention of general partner earnings ($72.2 million) and additional capital contributions related to subordinated limited partner and general partner interests ($31.5 million and $102.3 million, respectively), partially offset by the redemption of limited partner, subordinated limited partner and general partner interests ($10.5 million, $10.6 million and $94.9 million, respectively) and the increase of partnership loans outstanding ($44.3 million). During the years ended December 31, 2013, 2012 and 2011, the Partnership retained 13.8%, 23.0% and 23.0%, respectively, of income allocated to general partners. Beginning in 2013, the Partnership decreased the amount of retention to 13.8% of net income allocated to general partners due to the increase in individual income tax rates in 2013 and current capital needs. The decrease in the percentage of retention of income allocated to general partners did not have a material impact on the Partnership's capital or liquidity. 52-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Under the terms of the Partnership Agreement, a partner's capital is required to be redeemed by the Partnership in the event of the partner's death or withdrawal from the Partnership, subject to compliance with ongoing regulatory capital requirements. In the event of a partner's death, the Partnership must generally redeem the partner's capital within six months. The Partnership has withdrawal restrictions in place limiting the amount of capital that can be withdrawn at the discretion of the partner. Under the terms of the Partnership Agreement, limited partners withdrawing from the Partnership are to be repaid their capital in three equal annual installments beginning the month after their withdrawal. The capital of general partners withdrawing from the Partnership is converted to subordinated limited partnership capital or, at the discretion of the Managing Partner, redeemed by the Partnership. Subordinated limited partners are repaid their capital in six equal annual installments beginning the month after their request for withdrawal of contributed capital. The Partnership's Managing Partner has discretion to waive or modify these withdrawal restrictions and to accelerate the return of capital. The Partnership makes loans available to those general partners (other than members of the Executive Committee, which consists of the executive officers of the Partnership) who require financing for some or all of their partnership capital contributions. Additionally, in limited circumstances a general partner may withdraw from the Partnership and become a subordinated limited partner while he or she still has an outstanding partnership loan. Loans made by the Partnership to partners are generally for a period of one year but are expected to be renewed and bear interest at the prime rate, as defined in the loan documents. The Partnership recognizes interest income for the interest received related to these loans. Partners borrowing from the Partnership will be required to repay such loans by applying the earnings received from the Partnership to such loans, net of amounts retained by the Partnership and amounts distributed for income taxes. Prior to 2013, bank loans administered by the Partnership and entered into by general or subordinated limited partners to finance their capital contributions in the Partnership were repaid prior to any application of earnings towards that partner's partnership loan. On January 18, 2013, the Partnership paid, through earnings on behalf of the general and subordinated limited partners, the $35.4 million outstanding balance on partnership administered bank loans related to capital contributions of general or subordinated limited partners. The maturity date of these loans was February 22, 2013. In connection with this payoff, the Partnership issued $11.2 million of partnership loans. It is anticipated that future general and subordinated limited partnership capital contributions (other than for Executive Committee members) requiring financing will be financed through partnership loans. The Partnership has full recourse against any partner that defaults on loan obligations to the Partnership. The Partnership does not anticipate that partner loans will have an adverse impact on the Partnership's short-term liquidity or capital resources. The Partnership has not and will not provide loans to members of the Executive Committee. Executive Committee members who require financing for some or all of their partnership capital contributions will continue to borrow directly from banks willing to provide such financing on an individual basis. Other partners may also choose to have individual banking arrangements for their partnership capital contributions. Any bank financing of capital contributions is in the form of unsecured bank loan agreements and are between the individual and the bank. The Partnership does not guarantee these bank loans, nor can the partner pledge his or her partnership interest as collateral for the bank loan. The Partnership performs certain administrative functions in connection with its limited partners who have elected to finance a portion of their partnership capital contributions through individual unsecured bank loan agreements from banks with whom the Partnership has other banking relationships. 53-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued For all limited partner capital contributions financed through such bank loan agreements, each agreement instructs the Partnership to apply the proceeds from the liquidation of that individual's capital account to the repayment of their bank loan prior to any funds being released to the partner. In addition, the partner is required to apply partnership earnings, net of any distributions to pay taxes, to service the interest and principal on the bank loan. Should a partner's individual bank loan not be renewed upon maturity for any reason, the Partnership could experience increased requests for capital liquidations, which could adversely impact the Partnership's liquidity. In addition, partners who finance all or a portion of their capital contributions with bank financing may be more likely to request the withdrawal of capital to meet bank financing requirements should the partners experience a period of reduced earnings. As a partnership, any withdrawals by general partners, subordinated limited partners or limited partners would reduce the Partnership's available liquidity and capital. Many of the same banks that provide financing to limited partners also provide various forms of financing to the Partnership. To the extent these banks increase credit available to the partners, financing available to the Partnership may be reduced. The Partnership, while not a party to any partner unsecured bank loan agreements, does facilitate making payments of allocated income to certain banks on behalf of the limited partner. The following table represents amounts related to partnership loans as well as bank loans (for which the Partnership facilitates certain administrative functions). Partners may have arranged their own bank loans to finance their partnership capital for which the Partnership does not facilitate certain administrative functions and therefore any such loans are not included in the table. As of December 31, 2013 Subordinated Limited Limited General Total Partnership Partnership Partnership Partnership ($ millions) Interests Interests Interests CapitalPartnership capital(1) : Total partnership capital $ 640.3 $ 304.5 $ 1,127.6 $ 2,072.4 Partnership capital owned by partners with individual loans $ 95.2 $ 0.5 $ 583.6 $ 679.3 Partnership capital owned by partners with individual loans as a percent of total partnership capital 14.9 % 0.2 % 51.8 % 32.8 % Partner loans: Bank loans $ 22.7 $ - $ - $ 22.7 Partnership loans $ - $ 0.1 $ 214.4 $ 214.5 Total loans $ 22.7 $ 0.1 $ 214.4 $ 237.2 Partner loans as a percent of total partnership capital 3.5 % 0.0 % 19.0 % 11.4 % Partner loans as a percent of partnership capital owned by partners with loans 23.8 % 20.0 % 36.7 % 34.9 % (1) Partnership capital, as defined for this table, is before the reduction of partnership loans and is net of reserve for anticipated withdrawals. 54 -------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Historically, neither the amount of partnership capital financed with individual loans as indicated in the table above, nor the amount of partner capital withdrawal requests has had a significant impact on the Partnership's liquidity or capital resources. Lines of Credit The following table shows the composition of the Partnership's aggregate bank lines of credit in place as of December 31, 2013 and 2012: ($ millions) 2013 2012 2013 Credit Facility $ 400 $ - 2011 Credit Facility - 395 Uncommitted secured credit facilities 415 415 Total bank lines of credit $ 815 $ 810 In March 2011, the Partnership entered into a three-year $395 million committed unsecured revolving line of credit ("2011 Credit Facility") with an expiration date of March 18, 2014. In November 2013, the Partnership replaced the 2011 Credit Facility with an agreement with 12 banks for a five-year $400 million committed unsecured revolving line of credit ("2013 Credit Facility"). The 2013 Credit Facility is intended to provide short-term liquidity to the Partnership should the need arise. In addition, the Partnership has uncommitted lines of credit that are subject to change at the discretion of the banks. Based on credit market conditions and the uncommitted nature of these credit facilities, it is possible that these lines of credit could decrease or not be available in the future. Actual borrowing availability on the uncommitted secured lines is based on client margin securities and partnership securities, which would serve as collateral on loans in the event the Partnership borrowed against these lines. There were no amounts outstanding on the 2013 Credit Facility and the uncommitted lines of credit as of December 31, 2013 and 2012. In addition, the Partnership did not have any draws against these lines of credits during the years ended December 31, 2013 and 2012. The Partnership is in compliance with all covenants related to its outstanding debt agreements as of December 31, 2013. For further details on covenants, see discussion regarding debt covenants in Notes 7 and 9 to the Consolidated Financial Statements. Cash Activity As of December 31, 2013, the Partnership had $0.6 billion in cash and cash equivalents and $1.0 billion in securities purchased under agreements to resell, which have maturities of less than one week. This totals $1.6 billion of Partnership liquidity as of December 31, 2013, a 4% ($67 million) decrease from $1.7 billion at December 31, 2012. This decrease is primarily due to timing of client cash activity and the resulting requirement for segregation. The Partnership had $8.4 billion and $7.7 billion in cash and investments segregated under federal regulations as of December 31, 2013 and 2012, respectively, which was not available for general use. 55-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Capital Expenditures The Partnership estimates 2014 capital expenditures will approximate $130 million and will be funded by normal operations. Approximately half of the capital expenditures will be for construction at the north campus location in St. Louis where the Partnership is currently renovating two facilities and building a new parking structure. Regulatory Requirements As a result of its activities as a U.S. broker-dealer, Edward Jones is subject to the net capital provisions of Rule 15c3-1 of the Exchange Act and capital compliance rules of the FINRA Rule 4110. Under the alternative method permitted by the rules, Edward Jones must maintain minimum net capital, as defined, equal to the greater of $0.25 million or 2% of aggregate debit items arising from client transactions. The net capital rules also provide that Edward Jones' partnership capital may not be withdrawn if the resulting net capital would be less than minimum requirements. Additionally, certain withdrawals require the approval of the SEC and FINRA to the extent they exceed defined levels, even though such withdrawals would not cause net capital to be less than minimum requirements. The Partnership's Canada broker-dealer is a registered securities dealer regulated by IIROC. Under the regulations prescribed by IIROC, the Partnership is required to maintain prescribed/minimum levels of risk-adjusted capital, which are dependent on the nature of the Partnership's assets and operations. The following table shows the Partnership's net capital figures for its U.S. and Canada broker-dealers as of December 31, 2013 and 2012: ($ millions) 2013 2012 % Change U.S.: Net capital $ 873 $ 712 23 % Net capital in excess of the minimum required $ 830 $ 670 24 % Net capital as a percentage of aggregate debit items 41.4 % 34.0 % 22 % Net capital after anticipated capital withdrawals, as a percentage of aggregate debit items 24.8 % 18.5 % 34 % Canada: Regulatory risk adjusted capital $ 34 $ 38 -11 % Regulatory risk adjusted capital in excess of the minimum required to be held by IIROC $ 27 $ 28 -4 % Net capital and the related capital percentage may fluctuate on a daily basis. In addition, EJTC was in compliance with regulatory capital requirements. The Partnership and its subsidiaries are subject to examination by the Internal Revenue Service ("IRS") and by various state and foreign taxing authorities in the jurisdictions in which the Partnership and its subsidiaries conduct business. In 2012, the IRS began an examination of Edward Jones' income tax returns for the years ended 2009 and 2010. This examination is on-going and is not expected to have a material impact to the Partnership. 56-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued OFF BALANCE SHEET ARRANGEMENTS The Partnership does not have any significant off-balance-sheet arrangements. CONTRACTUAL COMMITMENTS AND OBLIGATIONS The following table summarizes the Partnership's long-term financing commitments and obligations as of December 31, 2013. Subsequent to December 31, 2013, these commitments and obligations may have fluctuated based on the changing business environment. The interest on financing commitments is based upon the stated rates of the underlying instruments, which range from 7.28% to 7.33%. For further disclosure regarding long-term debt, liabilities subordinated to claims of general creditors and rental commitments, see Notes 8, 9 and 14, respectively, to the Consolidated Financial Statements. ($ millions) Payments Due by Period 2014 2015 2016 2017 2018 Thereafter Total Long-term debt $ 1.2 $ 1.2 $ 1.3 $ 0.7 $ - $ - $ 4.4 Liabilities subordinated to claims of general creditors 50.0 - - - - - 50.0 Interest on financing commitments(1) 2.1 0.2 0.1 - - - 2.4 Rental commitments 132.0 34.2 22.9 16.0 11.8 32.4 249.3 Total financing commitments and obligations $ 185.3 $ 35.6 $ 24.3 $ 16.7 $ 11.8 $ 32.4 $ 306.1 (1) Interest paid may vary depending on timing of principal payments in addition to changes in variable interest rates on underlying obligations. In addition to the above table, the Partnership has a revolving unsecured line of credit outstanding as of December 31, 2013 (see Note 7 to the Consolidated Financial Statements). Additionally, the Partnership would incur termination fees of approximately $146 million in 2014 in the event the Partnership terminated existing contractual commitments with certain vendors providing ongoing services primarily for information technology, operations and marketing. These termination fees will decrease over the related contract periods, which generally expire within the next three years. CRITICAL ACCOUNTING POLICIES The Partnership's financial statements are prepared in accordance with GAAP, which may require judgment and involve estimation processes to determine its assets, liabilities, revenues and expenses which affect its results of operations. The Partnership believes that of its significant accounting policies, the following critical policies require estimates that involve a higher degree of judgment and complexity. Asset-Based Fees. Due to the timing of receipt of information, the Partnership must use estimates in recording the accruals related to certain asset-based fees. These accruals are based on historical trends and are adjusted to reflect market conditions for the period covered. Additional adjustments, if needed, are recorded in subsequent periods. 57-------------------------------------------------------------------------------- Table of Contents PART IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Legal Reserves. The Partnership provides for potential losses that may arise out of litigation, regulatory proceedings and other contingencies to the extent that such losses can be estimated, in accordance with ASC No. 450, Contingencies. See Note 15 to the Consolidated Financial Statements and Part I, Item 3 - Legal Proceedings for further discussion of these items. The Partnership regularly monitors its exposures for potential losses. The Partnership's total liability with respect to litigation and regulatory proceedings represents the best estimate of probable losses after considering, among other factors, the progress of each case, the Partnership's experience and discussions with legal counsel. Included in Part II, Item 7A - Quantitative and Qualitative Disclosures about Market Risk and in Note 1 to the Consolidated Financial Statements, are additional discussions of the Partnership's accounting policies. THE EFFECTS OF INFLATION The Partnership's net assets are primarily monetary, consisting of cash and cash equivalents, cash and investments segregated under federal regulations, securities owned 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. RECENTLY ADOPTED ACCOUNTING STANDARDS In December 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-11, Disclosures about Offsetting Assets and Liabilities ("ASU 2011-11"), which established requirements for an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 was adopted on January 1, 2013 and adoption did not have a material impact on the Partnership's Consolidated Financial Statements (see Note 19 to the Consolidated Financial Statements). 58-------------------------------------------------------------------------------- Table of Contents PART II |