10-Q 1 ck0000815917-10q_20190628.htm 10-Q2 ck0000815917-10q_20190628.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 June 28, 2019

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)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

N/A

N/A

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 every Interactive Data File required to be submitted 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 such files). YES NO

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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 July 26, 2019, 1,256,036 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 Changes in Partnership Capital - June 28, 2019

 

5

 

 

Consolidated Statements of Changes in Partnership Capital - June 29, 2018

 

6

 

 

Consolidated Statements of Cash Flows

 

7

 

 

Notes to Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

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

 

19

 

 

 

 

 

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)

 

 

 

June 28,

 

 

December 31,

 

(Dollars in millions)

 

2019

 

 

2018

 

ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

978

 

 

$

1,498

 

Cash and investments segregated under federal regulations

 

 

7,912

 

 

 

8,241

 

Securities purchased under agreements to resell

 

 

1,391

 

 

 

911

 

Receivables from:

 

 

 

 

 

 

 

 

Clients

 

 

3,353

 

 

 

3,359

 

Mutual funds, insurance companies and other

 

 

617

 

 

 

555

 

Brokers, dealers and clearing organizations

 

 

276

 

 

 

261

 

Securities owned, at fair value:

 

 

 

 

 

 

 

 

Investment securities

 

 

293

 

 

 

250

 

Inventory securities

 

 

59

 

 

 

43

 

Lease right-of-use asset

 

 

828

 

 

 

 

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

   depreciation and amortization

 

 

583

 

 

 

555

 

Other assets

 

 

126

 

 

 

142

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

16,416

 

 

$

15,815

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

Payables to:

 

 

 

 

 

 

 

 

Clients

 

$

10,803

 

 

$

11,117

 

Brokers, dealers and clearing organizations

 

 

73

 

 

 

90

 

Lease liability

 

 

841

 

 

 

 

Accrued compensation and employee benefits

 

 

1,291

 

 

 

1,465

 

Accounts payable, accrued expenses and other

 

 

227

 

 

 

288

 

 

 

 

13,235

 

 

 

12,960

 

Contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partnership capital subject to mandatory redemption, net of reserve for

   anticipated withdrawals and partnership loans:

 

 

 

 

 

 

 

 

Limited partners

 

 

1,258

 

 

 

884

 

Subordinated limited partners

 

 

523

 

 

 

504

 

General partners

 

 

1,231

 

 

 

1,119

 

Total

 

 

3,012

 

 

 

2,507

 

Reserve for anticipated withdrawals

 

 

169

 

 

 

348

 

Total partnership capital subject to mandatory redemption

 

 

3,181

 

 

 

2,855

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

$

16,416

 

 

$

15,815

 

 

 

 

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

 

 

Six Months Ended

 

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

 

June 28,

2019

 

 

June 29,

2018

 

 

June 28,

2019

 

 

June 29,

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-based

 

$

1,665

 

 

$

1,501

 

 

$

3,224

 

 

$

2,954

 

Account and activity

 

 

165

 

 

 

169

 

 

 

337

 

 

 

341

 

Total fee revenue

 

 

1,830

 

 

 

1,670

 

 

 

3,561

 

 

 

3,295

 

Trade revenue

 

 

401

 

 

 

340

 

 

 

769

 

 

 

704

 

Interest and dividends

 

 

110

 

 

 

86

 

 

 

213

 

 

 

165

 

Other revenue

 

 

20

 

 

 

17

 

 

 

48

 

 

 

23

 

Total revenue

 

 

2,361

 

 

 

2,113

 

 

 

4,591

 

 

 

4,187

 

Interest expense

 

 

42

 

 

 

30

 

 

 

82

 

 

 

62

 

Net revenue

 

 

2,319

 

 

 

2,083

 

 

 

4,509

 

 

 

4,125

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

1,616

 

 

 

1,480

 

 

 

3,152

 

 

 

2,934

 

Occupancy and equipment

 

 

123

 

 

 

110

 

 

 

242

 

 

 

219

 

Communications and data processing

 

 

99

 

 

 

85

 

 

 

185

 

 

 

165

 

Fund sub-adviser fees

 

 

39

 

 

 

31

 

 

 

75

 

 

 

61

 

Advertising

 

 

18

 

 

 

22

 

 

 

42

 

 

 

47

 

Professional and consulting fees

 

 

29

 

 

 

18

 

 

 

52

 

 

 

36

 

Postage and shipping

 

 

14

 

 

 

15

 

 

 

29

 

 

 

29

 

Other operating expenses

 

 

96

 

 

 

82

 

 

 

206

 

 

 

161

 

Total operating expenses

 

 

2,034

 

 

 

1,843

 

 

 

3,983

 

 

 

3,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before allocations to partners

 

 

285

 

 

 

240

 

 

 

526

 

 

 

473

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocations to partners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited partners

 

 

43

 

 

 

28

 

 

 

80

 

 

 

55

 

Subordinated limited partners

 

 

34

 

 

 

31

 

 

 

63

 

 

 

61

 

General partners

 

 

208

 

 

 

181

 

 

 

383

 

 

 

357

 

Net Income

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income allocated to limited partners per weighted average

   $1,000 equivalent limited partnership unit outstanding

 

$

34.55

 

 

$

31.02

 

 

$

63.75

 

 

$

61.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average $1,000 equivalent limited partnership

   units outstanding

 

 

1,258,842

 

 

 

890,974

 

 

 

1,260,627

 

 

 

892,318

 

 

 

 

 

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 CHANGES IN PARTNERSHIP CAPITAL

SUBJECT TO MANDATORY REDEMPTION

FOR THE THREE AND SIX MONTHS ENDED JUNE 28, 2019

(Unaudited)

 

(Dollars in millions)

 

Limited

Partnership

Capital

 

 

Subordinated

Limited

Partnership

Capital

 

 

General

Partnership

Capital

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL PARTNERSHIP CAPITAL SUBJECT TO MANDATORY

   REDEMPTION, DECEMBER 31, 2018

 

$

956

 

 

$

545

 

 

$

1,354

 

 

$

2,855

 

Reserve for anticipated withdrawals

 

 

(72

)

 

 

(41

)

 

 

(235

)

 

 

(348

)

Partnership capital subject to mandatory redemption, net of reserve for

   anticipated withdrawals

 

$

884

 

 

$

504

 

 

$

1,119

 

 

$

2,507

 

Partnership loans outstanding

 

 

 

 

 

4

 

 

 

328

 

 

 

332

 

Total partnership capital, including capital financed with partnership loans,

   net of reserve for anticipated withdrawals, December 31, 2018

 

 

884

 

 

 

508

 

 

 

1,447

 

 

 

2,839

 

Issuance of partnership interests

 

 

380

 

 

 

51

 

 

 

162

 

 

 

593

 

Redemption of partnership interests

 

 

(3

)

 

 

(31

)

 

 

(37

)

 

 

(71

)

Income allocated to partners

 

 

37

 

 

 

29

 

 

 

175

 

 

 

241

 

Distributions

 

 

 

 

 

 

 

 

(6

)

 

 

(6

)

Total partnership capital, including capital financed with partnership loans,

   March 29, 2019

 

 

1,298

 

 

 

557

 

 

 

1,741

 

 

 

3,596

 

Issuance of partnership interests

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Redemption of partnership interests

 

 

(3

)

 

 

(1

)

 

 

 

 

 

(4

)

Income allocated to partners

 

 

43

 

 

 

34

 

 

 

208

 

 

 

285

 

Distributions

 

 

(5

)

 

 

(52

)

 

 

(241

)

 

 

(298

)

Total partnership capital, including capital financed with partnership loans,

   June 28, 2019

 

 

1,333

 

 

 

538

 

 

 

1,709

 

 

 

3,580

 

Partnership loans outstanding

 

 

 

 

 

(4

)

 

 

(395

)

 

 

(399

)

TOTAL PARTNERSHIP CAPITAL SUBJECT TO MANDATORY

   REDEMPTION, JUNE 28, 2019

 

$

1,333

 

 

$

534

 

 

$

1,314

 

 

$

3,181

 

Reserve for anticipated withdrawals

 

 

(75

)

 

 

(11

)

 

 

(83

)

 

 

(169

)

Partnership capital subject to mandatory redemption, net of reserve

   for anticipated withdrawals, June 28, 2019

 

$

1,258

 

 

$

523

 

 

$

1,231

 

 

$

3,012

 

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.

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL

SUBJECT TO MANDATORY REDEMPTION

FOR THE THREE AND SIX MONTHS ENDED JUNE 29, 2018

(Unaudited)

 

(Dollars in millions)

 

Limited

Partnership

Capital

 

 

Subordinated

Limited

Partnership

Capital

 

 

General

Partnership

Capital

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL PARTNERSHIP CAPITAL SUBJECT TO MANDATORY

   REDEMPTION, DECEMBER 31, 2017

 

$

956

 

 

$

499

 

 

$

1,340

 

 

$

2,795

 

Reserve for anticipated withdrawals

 

 

(66

)

 

 

(36

)

 

 

(188

)

 

 

(290

)

Partnership capital subject to mandatory redemption, net of reserve

   for anticipated withdrawals

 

$

890

 

 

$

463

 

 

$

1,152

 

 

$

2,505

 

Partnership loans outstanding

 

 

 

 

 

3

 

 

 

294

 

 

 

297

 

Total partnership capital, including capital financed with partnership loans,

   net of reserve for anticipated withdrawals, December 31, 2017

 

 

890

 

 

 

466

 

 

 

1,446

 

 

 

2,802

 

Issuance of partnership interests

 

 

4

 

 

 

51

 

 

 

170

 

 

 

225

 

Redemption of partnership interests

 

 

(2

)

 

 

(6

)

 

 

(151

)

 

 

(159

)

Income allocated to partners

 

 

27

 

 

 

30

 

 

 

176

 

 

 

233

 

Distributions

 

 

 

 

 

(1

)

 

 

(11

)

 

 

(12

)

Total partnership capital, including capital financed with partnership loans,

   March 30, 2018

 

 

919

 

 

 

540

 

 

 

1,630

 

 

 

3,089

 

Issuance of partnership interests

 

 

1

 

 

 

1

 

 

 

1

 

 

 

3

 

Redemption of partnership interests

 

 

(2

)

 

 

(4

)

 

 

(8

)

 

 

(14

)

Income allocated to partners

 

 

28

 

 

 

31

 

 

 

181

 

 

 

240

 

Distributions

 

 

(6

)

 

 

(51

)

 

 

(226

)

 

 

(283

)

Total partnership capital, including capital financed with partnership loans,

   June 29, 2018

 

 

940

 

 

 

517

 

 

 

1,578

 

 

 

3,035

 

Partnership loans outstanding

 

 

 

 

 

(2

)

 

 

(351

)

 

 

(353

)

TOTAL PARTNERSHIP CAPITAL SUBJECT TO MANDATORY

   REDEMPTION, JUNE 29, 2018

 

$

940

 

 

$

515

 

 

$

1,227

 

 

$

2,682

 

Reserve for anticipated withdrawals

 

 

(49

)

 

 

(9

)

 

 

(70

)

 

 

(128

)

Partnership capital subject to mandatory redemption, net of reserve for

   anticipated withdrawals, June 29, 2018

 

$

891

 

 

$

506

 

 

$

1,157

 

 

$

2,554

 

 

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

 

6


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements, continued

 

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) 

 

 

 

Six Months Ended

 

(Dollars in millions)

 

June 28,

2019

 

 

June 29,

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

 

 

$

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Income before allocations to partners

 

 

526

 

 

 

473

 

Depreciation and amortization

 

 

54

 

 

 

45

 

 

 

 

 

 

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Investments segregated under federal regulations

 

 

(595

)

 

 

705

 

Securities purchased under agreements to resell

 

 

(480

)

 

 

327

 

Net payable to clients

 

 

(308

)

 

 

(2,142

)

Net receivable from brokers, dealers and clearing organizations

 

 

(32

)

 

 

4

 

Receivable from mutual funds, insurance companies and other

 

 

(62

)

 

 

(10

)

Securities owned

 

 

(59

)

 

 

(19

)

Lease right-of-use asset

 

 

(23

)

 

 

 

Other assets

 

 

16

 

 

 

21

 

Lease liability

 

 

36

 

 

 

 

Accrued compensation and employee benefits

 

 

(174

)

 

 

(137

)

Accounts payable, accrued expenses and other

 

 

(61

)

 

 

38

 

Net cash used in operating activities

 

 

(1,162

)

 

 

(695

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of equipment, property and improvements

 

 

(82

)

 

 

(52

)

Cash used in investing activities

 

 

(82

)

 

 

(52

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Issuance of partnership interests

 

 

430

 

 

 

60

 

Redemption of partnership interests

 

 

(75

)

 

 

(173

)

Distributions from partnership capital

 

 

(555

)

 

 

(473

)

Net cash used in financing activities

 

 

(200

)

 

 

(586

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(1,444

)

 

 

(1,333

)

 

 

 

 

 

 

 

 

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

 

 

 

 

 

 

 

 

Beginning of period

 

 

8,737

 

 

 

8,537

 

End of period

 

$

7,293

 

 

$

7,204

 

 

See Note 11 for additional cash flow information.

 

 


 

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

 

7


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” or "JFC").  All material intercompany balances and transactions have been eliminated in consolidation.  The financial position of the Partnership’s subsidiaries in Canada as of May 31, 2019 and November 30, 2018 are included in the Partnership’s Consolidated Statements of Financial Condition and the results for the three and six month periods ended May 31, 2019 and 2018 are included in the Partnership’s Consolidated Statements of Income, Consolidated Statements of Changes in Partnership Capital Subject to Mandatory Redemption, 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 broker-dealer in Canada.  Through these entities, the Partnership primarily serves individual investors in the U.S. and Canada. Edward Jones is a retail brokerage business and primarily derives revenues from fees for providing investment advisory and other account services to its clients, fees for assets held by clients, the distribution of mutual fund shares, and commissions for the purchase or sale of securities and the purchase of insurance products.  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, LLC, a wholly-owned subsidiary of the Partnership, provides investment advisory services to the sub-advised mutual funds in the Bridge Builder® Trust ("BB Trust").  Passport Research, Ltd., a wholly-owned subsidiary of the Partnership, provides investment advisory services to the Edward Jones Money Market Fund (the "Fund").    

The Consolidated Financial Statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“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 statement of the results of interim operations.

There have been no material changes to the Partnership’s significant accounting policies or disclosures of recently issued accounting standards as described in Part II, Item 8 – Financial Statements and Supplementary Data – Note 1 of the Partnership's Annual Report on Form 10-K for the year ended December 31, 2018 (the "Annual Report"), except as disclosed in Note 2 herein.  The results of operations for the three and six month periods ended June 28, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019.  These unaudited Consolidated Financial Statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and notes thereto included in the Annual Report.

 

 


 

8


PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements, continued

 

NOTE 2 – RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) (“ASC 842”), which requires lessees to recognize leases with terms greater than 12 months on the balance sheet as lease right-of-use assets and lease liabilities. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), which allows an entity to recognize a cumulative-effect adjustment to the opening balance of Partnership capital in the period of adoption and prior periods do not have to be restated.  Effective January 1, 2019, the Partnership adopted ASC 842 and recorded a lease right-of-use asset of $785 and lease liability of $805 related to the Partnership's branch office network and home offices. The lease right-of-use asset was reduced by $20 for deferred rent on existing leases at adoption. The cumulative-effect adjustment to the opening balance of Partnership capital was zero and prior periods were not restated. The Partnership elected the package of practical expedients for leases that commenced prior to January 1, 2019, which allowed the Partnership to not reassess whether any contracts are or contain leases, lease classification for expired or existing leases, and initial direct costs for existing leases.  There was no material impact on the Consolidated Statements of Income, Consolidated Statements of Cash Flows or net capital requirements of Edward Jones. See Note 3 for additional information.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).  ASU 2016-13 removes the "probable" threshold for credit loss recognition, requiring companies to capture all expected credit losses and to consider a broader range of reasonable and supportable information to inform credit loss estimates.  The Partnership is in the process of evaluating the update and expects to adopt ASU 2016-13 as of January 1, 2020 with no material impact to the Consolidated Financial Statements from adoption.

 

NOTE 3 – LEASES

The Partnership leases branch office space under numerous operating leases from non-affiliates and financial advisors.  Branch offices are generally leased for terms of five years and generally contain a renewal option.  Renewal options are not included in the lease term because it is not reasonably certain the Partnership will exercise the renewal option. The Partnership also leases a few of its home office spaces from non-affiliates with terms ranging from 12 to 30 years.

The Partnership recognizes lease liabilities for future lease payments and lease right-of-use assets for the right of use of an underlying asset within a contract.  Current leases are all classified as operating leases. Lease right-of-use assets and lease liabilities are recognized on the Consolidated Statements of Financial Condition at commencement date and calculated as the present value of the sum of the remaining fixed lease payments over the lease term. The lease right-of-use asset includes the impact from the timing of lease payments and straight-line rent expense. The Partnership used its incremental borrowing rate based on information available at lease commencement as leases do not contain a readily determinable implicit rate.  A single lease cost, or rent expense, is recognized on a straight-line basis over the lease term. The Partnership does not separate lease components (i.e., fixed payments including rent, real estate taxes and insurance costs) from non-lease components (i.e., common-area maintenance) and recognizes them as a single lease component. Variable lease payments not included within lease contracts are expensed as incurred.  

For the three and six months ended June 28, 2019, cash paid for amounts included in the measurement of operating lease liabilities was $70 and $137, respectively, and lease right-of-use assets obtained in exchange for new operating lease liabilities was $110 and $177, respectively.  As of June 28, 2019, the weighted-average remaining lease term was four years, and the weighted-average discount rate was 3.4%.

 

 

 

 

 

 

9


PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements, continued

 

For the three and six months ended June 28, 2019, operating lease cost was $70 and $136, respectively, and variable lease costs not included in the lease liability were $13 and $27, respectively. Total lease cost for the three and six months ended June 28, 2019 was $83 and $163, respectively. The Partnership's future undiscounted cash outflows for operating leases as of June 28, 2019 are summarized below:

2019

$

141

 

2020

 

251

 

2021

 

203

 

2022

 

147

 

2023

 

93

 

Thereafter

 

79

 

Total lease payments

 

914

 

Less: Interest

 

73

 

Total present value of lease liabilities

$

841

 

 

While the rights and obligations for leases that have not yet commenced are not significant, the Partnership does continually enter into new branch office leases.    

The Partnership's portion of the long-term lease commitments that are non-cancellable as of December 31, 2018 are summarized below:

 

2019

$

182

 

2020

 

56

 

2021

 

39

 

2022

 

19

 

2023

 

9

 

Thereafter

 

10

 

Total

$

315

 

 

NOTE 4 – REVENUE

As of June 28, 2019 and December 31, 2018, $432 and $377, respectively, of the receivable from clients balance and $321 and $278, respectively, of the receivable from mutual funds, insurance companies and other balance related to revenue contracts with customers.  

The Partnership derived 14% of its total revenue from one mutual fund complex for both the three and six month periods ended June 28, 2019 and June 29, 2018.

 

The following tables show the Partnership's disaggregated revenue information. See Note 9 for segment information.

 

10


PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements, continued

 

 

 

 

Three Months Ended June 28, 2019

 

 

Three Months Ended June 29, 2018

 

 

 

U.S.

 

 

Canada

 

 

Total

 

 

U.S.

 

 

Canada

 

 

Total

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-based fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisory programs fees

 

$

1,161

 

 

$

17

 

 

$

1,178

 

 

$

1,025

 

 

$

14

 

 

$

1,039

 

Service fees

 

 

308

 

 

 

22

 

 

 

330

 

 

 

303

 

 

 

22

 

 

 

325

 

Other asset-based fees

 

 

157

 

 

 

 

 

 

157

 

 

 

137

 

 

 

 

 

 

137

 

Total asset-based fee revenue

 

 

1,626

 

 

 

39

 

 

 

1,665

 

 

 

1,465

 

 

 

36

 

 

 

1,501

 

Account and activity fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholder accounting services

   fees

 

 

107

 

 

 

 

 

 

107

 

 

 

109

 

 

 

 

 

 

109

 

Other account and activity fee

   revenue

 

 

55

 

 

 

3

 

 

 

58

 

 

 

57

 

 

 

3

 

 

 

60

 

Total account and activity fee

   revenue

 

 

162

 

 

 

3

 

 

 

165

 

 

 

166

 

 

 

3

 

 

 

169

 

   Total fee revenue

 

 

1,788

 

 

 

42

 

 

 

1,830

 

 

 

1,631

 

 

 

39

 

 

 

1,670

 

Trade revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commissions

 

 

360

 

 

 

13

 

 

 

373

 

 

 

290

 

 

 

12

 

 

 

302

 

Principal transactions

 

 

27

 

 

 

1

 

 

 

28

 

 

 

37

 

 

 

1

 

 

 

38

 

Total trade revenue

 

 

387

 

 

 

14

 

 

 

401

 

 

 

327

 

 

 

13