10-Q 1 ck0000815917-10q_20160930.htm 10-Q ck0000815917-10q_20160930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission file number 0-16633

 

THE JONES FINANCIAL COMPANIES, L.L.L.P.

(Exact name of registrant as specified in its Charter)

 

 

MISSOURI

43-1450818

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

12555 Manchester Road

Des Peres, Missouri 63131

(Address of principal executive office)

(Zip Code)

(314) 515-2000

(Registrant’s telephone number, including area code)

 

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 NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(do not check if a smaller reporting company)

Smaller reporting company

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

As of October 28, 2016, 904,293 units of limited partnership interest (“Interests”) are outstanding, each representing $1,000 of limited partner capital.  There is no public or private market for such Interests.

 

 

 

 


 

THE JONES FINANCIAL COMPANIES, L.L.L.P.

INDEX

 

 

 

 

 

Page

 

 

 

 

 

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition

 

3

 

 

Consolidated Statements of Income

 

4

 

 

Consolidated Statements of Cash Flows

 

5

 

 

Notes to Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

33

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

34

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

35

 

 

 

 

 

Item 1A.

 

Risk Factors

 

35

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

 

 

 

 

 

Item 6.

 

Exhibits

 

37

 

 

 

 

 

 

 

Signatures

 

38

 

 

 

2


PART I. FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

THE JONES FINANCIAL COMPANIES, L.L.L.P.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

(Dollars in millions)

 

2016

 

 

2015

 

ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,097

 

 

$

937

 

Cash and investments segregated under federal regulations

 

 

11,081

 

 

 

9,982

 

Securities purchased under agreements to resell

 

 

770

 

 

 

843

 

Receivable from:

 

 

 

 

 

 

 

 

Clients

 

 

3,148

 

 

 

3,060

 

Mutual funds, insurance companies and other

 

 

499

 

 

 

450

 

Brokers, dealers and clearing organizations

 

 

235

 

 

 

160

 

Securities owned, at fair value:

 

 

 

 

 

 

 

 

Investment securities

 

 

214

 

 

 

201

 

Inventory securities

 

 

81

 

 

 

36

 

Equipment, property and improvements, at cost, net of accumulated

   depreciation and amortization

 

 

549

 

 

 

559

 

Other assets

 

 

130

 

 

 

128

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

17,804

 

 

$

16,356

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

Payable to:

 

 

 

 

 

 

 

 

Clients

 

$

13,903

 

 

$

12,499

 

Brokers, dealers and clearing organizations

 

 

113

 

 

 

71

 

Accrued compensation and employee benefits

 

 

1,024

 

 

 

994

 

Accounts payable, accrued expenses and other

 

 

222

 

 

 

182

 

 

 

 

15,262

 

 

 

13,746

 

Contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partnership capital subject to mandatory redemption, net of reserve for

   anticipated withdrawals and partnership loans:

 

 

 

 

 

 

 

 

Limited partners

 

 

906

 

 

 

916

 

Subordinated limited partners

 

 

421

 

 

 

368

 

General partners

 

 

1,077

 

 

 

1,064

 

Total

 

 

2,404

 

 

 

2,348

 

Reserve for anticipated withdrawals

 

 

138

 

 

 

262

 

Total partnership capital subject to mandatory redemption

 

 

2,542

 

 

 

2,610

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

$

17,804

 

 

$

16,356

 

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

3


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements, continued

 

THE JONES FINANCIAL COMPANIES, L.L.L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(Dollars in millions, except per unit information and units outstanding)

 

Sept 30,

2016

 

 

Sept 25,

2015

 

 

Sept 30,

2016

 

 

Sept 25,

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-based

 

$

957

 

 

$

856

 

 

$

2,678

 

 

$

2,540

 

Account and activity

 

 

184

 

 

 

179

 

 

 

545

 

 

 

511

 

Total fee revenue

 

 

1,141

 

 

 

1,035

 

 

 

3,223

 

 

 

3,051

 

Trade revenue

 

 

495

 

 

 

598

 

 

 

1,563

 

 

 

1,838

 

Interest and dividends

 

 

52

 

 

 

40

 

 

 

143

 

 

 

114

 

Other revenue (loss), net

 

 

14

 

 

 

(9

)

 

 

31

 

 

 

14

 

Total revenue

 

 

1,702

 

 

 

1,664

 

 

 

4,960

 

 

 

5,017

 

Interest expense

 

 

19

 

 

 

19

 

 

 

56

 

 

 

56

 

Net revenue

 

 

1,683

 

 

 

1,645

 

 

 

4,904

 

 

 

4,961

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

1,191

 

 

 

1,146

 

 

 

3,430

 

 

 

3,476

 

Occupancy and equipment

 

 

101

 

 

 

97

 

 

 

297

 

 

 

286

 

Communications and data processing

 

 

77

 

 

 

71

 

 

 

220

 

 

 

213

 

Professional and consulting fees

 

 

34

 

 

 

26

 

 

 

87

 

 

 

60

 

Advertising

 

 

17

 

 

 

16

 

 

 

56

 

 

 

50

 

Postage and shipping

 

 

13

 

 

 

13

 

 

 

38

 

 

 

39

 

Other operating expenses

 

 

64

 

 

 

68

 

 

 

191

 

 

 

193

 

Total operating expenses

 

 

1,497

 

 

 

1,437

 

 

 

4,319

 

 

 

4,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before allocations to partners

 

 

186

 

 

 

208

 

 

 

585

 

 

 

644

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocations to partners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited partners

 

 

24

 

 

 

30

 

 

 

78

 

 

 

93

 

Subordinated limited partners

 

 

23

 

 

 

23

 

 

 

71

 

 

 

72

 

General partners

 

 

139

 

 

 

155

 

 

 

436

 

 

 

479

 

Net Income

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income allocated to limited partners per weighted average

   $1,000 equivalent limited partnership unit outstanding

 

$

27.49

 

 

$

32.67

 

 

$

86.59

 

 

$

101.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average $1,000 equivalent limited partnership

   units outstanding

 

 

906,511

 

 

 

920,508

 

 

 

910,555

 

 

 

923,199

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

4


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements, continued

 

THE JONES FINANCIAL COMPANIES, L.L.L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended

 

(Dollars in millions)

 

Sept 30,

2016

 

 

Sept 25,

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

 

 

$

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Income before allocations to partners

 

 

585

 

 

 

644

 

Depreciation and amortization

 

 

61

 

 

 

62

 

 

 

 

 

 

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Cash and investments segregated under federal regulations

 

 

(1,099

)

 

 

(101

)

Securities purchased under agreements to resell

 

 

73

 

 

 

(159

)

Net payable to clients

 

 

1,316

 

 

 

(112

)

Net receivable from brokers, dealers and clearing organizations

 

 

(33

)

 

 

(3

)

Receivable from mutual funds, insurance companies and other

 

 

(49

)

 

 

(34

)

Securities owned

 

 

(58

)

 

 

(25

)

Other assets

 

 

(2

)

 

 

21

 

Accrued compensation and employee benefits

 

 

30

 

 

 

16

 

Accounts payable, accrued expenses and other

 

 

41

 

 

 

57

 

Net cash provided by operating activities

 

 

865

 

 

 

366

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of equipment, property and improvements, net

 

 

(52

)

 

 

(71

)

Net cash used in investing activities

 

 

(52

)

 

 

(71

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Issuance of partnership interests

 

 

72

 

 

 

350

 

Redemption of partnership interests

 

 

(174

)

 

 

(156

)

Distributions from partnership capital

 

 

(551

)

 

 

(560

)

Net cash used in financing activities

 

 

(653

)

 

 

(366

)

Net increase (decrease) in cash and cash equivalents

 

 

160

 

 

 

(71

)

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

 

 

Beginning of period

 

 

937

 

 

 

1,033

 

End of period

 

$

1,097

 

 

$

962

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

56

 

 

$

56

 

Cash paid for taxes

 

$

9

 

 

$

11

 

 

 

 

 

 

 

 

 

 

NON-CASH ACTIVITIES:

 

 

 

 

 

 

 

 

Issuance of general partnership interests through partnership loans in current

   period

 

$

146

 

 

$

119

 

 

 

 

 

 

 

 

 

 

Repayment of partnership loans through distributions from partnership

   capital in current period

 

$

97

 

 

$

101

 

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

5


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements, continued

 

THE JONES FINANCIAL COMPANIES, L.L.L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in millions)

 

 

NOTE 1 – INTRODUCTION AND BASIS OF PRESENTATION

The accompanying Consolidated Financial Statements include the accounts of The Jones Financial Companies, L.L.L.P. and all wholly-owned subsidiaries (collectively, the “Partnership”). All material intercompany balances and transactions have been eliminated in consolidation. Non-controlling minority interests are accounted for under the equity method. The results of the Partnership’s subsidiaries in Canada as of August 31, 2016 and November 30, 2015 are included in the Partnership’s Consolidated Balance Sheet and the results for the three and nine month periods ended August 31, 2016 and 2015 are included in the Partnership’s Consolidated Statements of Income and Consolidated Statements of Cash Flows because of the timing of the Partnership’s financial reporting process.

The Partnership’s principal operating subsidiary, Edward D. Jones & Co., L.P. (“Edward Jones”), is a registered broker-dealer and investment adviser in the United States (“U.S.”) and one of Edward Jones’ subsidiaries is a registered securities dealer in Canada. Through these entities, the Partnership primarily serves individual investors in the U.S. and Canada. Edward Jones primarily derives its revenues from the retail brokerage business through the distribution of mutual fund shares, fees related to assets held by, and account services provided to, its clients, including investment advisory services, the purchase or sale of securities and insurance products, and principal transactions. The Partnership conducts business throughout the U.S. and Canada with its clients, various brokers, dealers, clearing organizations, depositories and banks. Trust services are offered to Edward Jones’ U.S. clients through Edward Jones Trust Company (“Trust Co.”), a wholly-owned subsidiary of the Partnership. Olive Street Investment Advisers, L.L.C. ("Olive Street"), a wholly-owned subsidiary of the Partnership, provides investment advisory services to the sub-advised mutual funds in the Bridge Builder Trust (the "Trust").  

The Consolidated Financial Statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the U.S. (“GAAP”) which require the use of certain estimates by management in determining the Partnership’s assets, liabilities, revenues and expenses.  Actual results could differ from these estimates.  The Partnership has evaluated subsequent events through the date these Consolidated Financial Statements were issued and identified no matters requiring disclosure.

The interim financial information included herein is unaudited. However, in the opinion of management, such information includes all adjustments, consisting primarily of normal recurring accruals, which are necessary for a fair presentation of the results of interim operations. Certain prior period amounts have been reclassified to conform to the current period presentation.

There have been no material changes to the Partnership’s significant accounting policies as described in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2015 (“Annual Report”). The results of operations for the three and nine month periods ended September 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016. These Consolidated Financial Statements should be read in conjunction with the Annual Report.

 

 

 

6


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements, continued

 

NOTE 2 – FAIR VALUE

Substantially all of the Partnership’s financial assets and financial liabilities covered under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 820, Fair Value Measurement and Disclosure (“ASC 820”), are carried at fair value or at contracted amounts which approximate fair value given the short time to maturity.

Fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, also known as the “exit price.” Financial assets are marked to bid prices and financial liabilities are marked to offer prices. The Partnership’s financial assets and financial liabilities recorded at fair value in the Consolidated Statements of Financial Condition are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by ASC 820 with the related amount of subjectivity associated with the inputs to value these assets and liabilities at fair value for each level, are as follows:

Level I – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

The types of assets and liabilities categorized as Level I generally are U.S. treasuries, investments in publicly traded mutual funds with quoted market prices, equities listed in active markets and government and agency obligations.

Level II – Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with related market data at the measurement date and for the duration of the instrument’s anticipated life. The Partnership uses the market approach valuation technique which incorporates third-party pricing services and other relevant observable information (such as market interest rates, yield curves, prepayment risk and credit risk generated by market transactions involving identical or comparable assets or liabilities) in valuing these types of investments. When third-party pricing services are used, the methods and assumptions used are reviewed by the Partnership.

The types of assets and liabilities categorized as Level II generally are certificates of deposit, state and municipal obligations, corporate bonds and notes, and collateralized mortgage obligations.

Level III – Inputs are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the inputs to the model.

The Partnership did not have any assets or liabilities categorized as Level III during the nine and twelve month periods ended September 30, 2016 and December 31, 2015, respectively. In addition, there were no transfers into or out of Levels I, II or III during these periods.

 

7


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements, continued

 

The following tables show the Partnership’s financial assets measured at fair value:

 

 

 

Financial Assets at Fair Value as of

 

 

 

September 30, 2016

 

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

 

 

$

150

 

 

$

 

 

$

150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments segregated under federal regulations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

2,601

 

 

$

 

 

$

 

 

$

2,601

 

Certificates of deposit

 

 

 

 

 

300

 

 

 

 

 

 

300

 

Total investments segregated under federal

   regulations

 

$

2,601

 

 

$

300

 

 

$

 

 

$

2,901

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities owned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds(1)

 

$

204

 

 

$

 

 

$

 

 

$

204

 

Equities

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Government and agency obligations

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Corporate bonds and notes

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Total investment securities

 

$

213

 

 

$

1

 

 

$

 

 

$

214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

 

 

$

34

 

 

$

 

 

$

34

 

Equities

 

 

19

 

 

 

 

 

 

 

 

 

19

 

Mutual funds

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Certificates of deposit

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Corporate bonds and notes

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Collateralized mortgage obligations

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Total inventory securities

 

$

35

 

 

$

46

 

 

$

 

 

$

81

 

 

(1)

The mutual funds balance consists primarily of securities held to economically hedge future liabilities related to the non-qualified deferred compensation plan.

 

8


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements, continued

 

 

 

 

Financial Assets at Fair Value as of

 

 

 

December 31, 2015

 

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

 

 

$

150

 

 

$

 

 

$

150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments segregated under federal regulations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

2,706

 

 

$

 

 

$

 

 

$

2,706

 

Certificates of deposit

 

 

 

 

 

300

 

 

 

 

 

 

300

 

Total investments segregated under federal

   regulations

 

$

2,706

 

 

$

300

 

 

$

 

 

$

3,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities owned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

$

192

 

 

$

 

 

$

 

 

$

192

 

Equities

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Government and agency obligations

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Corporate bonds and notes

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Total investment securities

 

$

200

 

 

$

1

 

 

$

 

 

$

201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

$

17

 

 

$

 

 

$

 

 

$

17

 

State and municipal obligations

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Mutual funds

 

 

7

 

 

 

 

 

 

 

 

 

7

 

Corporate bonds and notes

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Total inventory securities

 

$

24

 

 

$

12

 

 

$

 

 

$

36

 

 

 

NOTE 3 – PARTNERSHIP CAPITAL

The Partnership makes loans available to those general partners and, in limited circumstances, subordinated limited partners, in each case, other than members of the Executive Committee (as defined in the Partnership’s Nineteenth Amended and Restated Agreement of Registered Limited Liability Limited Partnership, dated June 6, 2014 (the “Partnership Agreement”)), who require financing for some or all of their Partnership capital contributions. 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. It is anticipated that, of the future general and subordinated limited partnership capital contributions (in each case, other than for Executive Committee members) requiring financing, the majority will be financed through Partnership loans. Loans made by the Partnership to such partners are generally for a period of one year but are expected to be renewed and bear interest at the interest rate defined in the loan documents. The Partnership recognizes interest income for the interest earned related to these loans. The outstanding amount of Partnership loans is reflected as a reduction to total Partnership capital. As of September 30, 2016 and December 31, 2015, the outstanding amount of Partnership loans was $267 and $218, respectively. Interest income earned from these loans, which is included in interest and dividends in the Consolidated Statements of Income, was $3 and $8 for the three and nine month periods ended September 30, 2016, respectively, and $2 and $6 for the three and nine month periods ended September 25, 2015, respectively.

 

9


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements, continued

 

The following table shows the roll forward of outstanding Partnership loans for:

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 25,

 

 

 

2016

 

 

2015

 

Partnership loans outstanding at beginning of period

 

$

218

 

 

$

198

 

Partnership loans issued during the period

 

 

146

 

 

 

119

 

Repayment of Partnership loans during the period

 

 

(97

)

 

 

(101

)

Total Partnership loans outstanding

 

$

267

 

 

$

216

 

 

The minimum 7.5% annual payment on the face amount of limited partnership capital was $17 and $51 for the three and nine month periods ended September 30, 2016, respectively, and $17 and $52 for the three and nine month periods ended September 25, 2015, respectively. These amounts are included as a component of interest expense in the Consolidated Statements of Income.

 

The Partnership filed a Registration Statement on Form S-8 with the U.S. Securities and Exchange Commission (“SEC”) on January 17, 2014, to register $350 in Interests to be issued pursuant to the Partnership’s 2014 Employee Limited Partnership Interest Purchase Plan (the “Plan”). The Partnership has previously issued approximately $292 of Interests in connection with the Plan. The remaining $58 of Interests may be issued in connection with the Plan at the discretion of the Partnership in the future.

 

 

NOTE 4 – NET CAPITAL 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 Securities Exchange Act of 1934, as amended (“Exchange Act”), and capital compliance rules of the Financial Industry Regulatory Authority (“FINRA”) Rule 4110. Under the alternative method permitted by the rules, Edward Jones must maintain minimum net capital equal to the greater of $0.25 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 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 the Investment Industry Regulatory Organization of Canada (“IIROC”). Under the regulations prescribed by IIROC, the Partnership’s Canada broker-dealer is required to maintain minimum levels of risk-adjusted capital, which are dependent on the nature of the Partnership’s Canada broker-dealer’s assets and operations.

The following table shows the Partnership’s net capital figures for its U.S. and Canada broker-dealers as of:

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

U.S.:

 

 

 

 

 

 

 

 

Net capital

 

$

1,018

 

 

$

1,140

 

Net capital in excess of the minimum required

 

$

960

 

 

$

1,083

 

Net capital as a percentage of aggregate debit

   items

 

 

35.0

%

 

 

40.1

%

Net capital after anticipated capital withdrawals,

   as a percentage of aggregate debit items

 

 

23.3

%

 

 

26.0

%

 

 

 

 

 

 

 

 

 

Canada:

 

 

 

 

 

 

 

 

Regulatory risk adjusted capital

 

$

39

 

 

$

24

 

Regulatory risk adjusted capital in excess of the

   minimum required to be held by IIROC

 

$

28

 

 

$

19

 

 

Net capital and the related capital percentages may fluctuate on a daily basis. In addition, Trust Co. was in compliance with its regulatory capital requirements as of September 30, 2016 and December 31, 2015.

 

10


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements, continued

 

NOTE 5 – CONTINGENCIES

In the normal course of its business, the Partnership is involved, from time to time, in various legal and regulatory matters, including arbitrations, class actions, other litigation, and examinations, investigations and proceedings by governmental authorities and self-regulatory organizations, which may result in losses. In addition, the Partnership provides for potential losses that may arise related to other contingencies.

The Partnership assesses its liabilities and contingencies utilizing available information. For those matters where it is probable the Partnership will incur a potential loss and the amount of the loss is reasonably estimable, in accordance with FASB ASC No. 450, Contingencies, an accrued liability has been established. This liability represents the Partnership’s estimate of the potential loss contingency at September 30, 2016 and is believed to be sufficient. Such liability may be adjusted from time to time to reflect any relevant developments.

For such matters where an accrued liability has not been established and the Partnership believes a loss is both reasonably possible and estimable, as well as for matters where an accrued liability has been recorded but for which an exposure to loss in excess of the amount accrued is both reasonably possible and estimable, the current estimated aggregated range of additional possible loss is $0 to $11 as of September 30, 2016. This range of reasonably possible loss does not necessarily represent the Partnership's maximum loss exposure as the Partnership was not able to estimate a range of reasonably possible loss for all matters.

Further, the matters underlying any disclosed estimated range will change from time to time, and actual results may vary significantly. While the outcome of these matters is inherently uncertain, based on information currently available, the Partnership believes that its established liabilities at September 30, 2016 are adequate and the liabilities arising from such matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Partnership. However, based on future developments and the potential unfavorable resolution of these matters, the outcome could be material to the Partnership’s future consolidated operating results for a particular period or periods.

 

 

NOTE 6 – SEGMENT INFORMATION

The Partnership has determined it has two operating and reportable segments based upon geographic location, the U.S. and Canada. Canada segment information, as reported in the following table, is based upon the Consolidated Financial Statements of the Partnership's Canada operations. The U.S. segment information is derived from the Consolidated Financial Statements less the Canada segment information as presented. Pre-variable income represents income before variable compensation expense and before allocations to partners. This is consistent with how management views the segments in order to assess performance.

 

11


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements, continued

 

The following table shows financial information for the Partnership’s reportable segments:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

Sept 30,

2016

 

 

Sept 25,

2015

 

 

Sept 30,

2016

 

 

Sept 25,

2015

 

Net revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

1,638

 

 

$

1,599

 

 

$

4,775

 

 

$

4,816

 

Canada

 

 

45

 

 

 

46

 

 

 

129

 

 

 

145

 

Total net revenue

 

$

1,683

 

 

$

1,645

 

 

$

4,904

 

 

$

4,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-variable income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

358

 

 

$

413

 

 

$

1,115

 

 

$

1,270

 

Canada

 

 

1

 

 

 

2

 

 

 

(2

)

 

 

6

 

Total pre-variable income

 

 

359

 

 

 

415

 

 

 

1,113

 

 

 

1,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

169

 

 

 

203

 

 

 

517

 

 

 

619

 

Canada

 

 

4