10-Q 1 ck0000815917-10q_20200626.htm 10-Q ck0000815917-10q_20200626.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 26, 2020

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 31, 2020, 1,242,141 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 26, 2020

 

5

 

 

Consolidated Statements of Changes in Partnership Capital - June 28, 2019

 

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

 

20

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

37

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

38

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

39

 

 

 

 

 

Item 1A.

 

Risk Factors

 

39

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

 

 

 

 

 

Item 6.

 

Exhibits

 

42

 

 

 

 

 

 

 

Signatures

 

44

 

 

 

2


PART I. FINANCIAL INFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS

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

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

 

 

June 26,

 

 

December 31,

 

(Dollars in millions)

 

2020

 

 

2019

 

ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,228

 

 

$

1,014

 

Cash and investments segregated under federal regulations

 

 

13,012

 

 

 

10,387

 

Securities purchased under agreements to resell

 

 

1,443

 

 

 

1,693

 

Receivables from:

 

 

 

 

 

 

 

 

Clients

 

 

3,260

 

 

 

3,328

 

Mutual funds, insurance companies and other

 

 

691

 

 

 

661

 

Brokers, dealers and clearing organizations

 

 

256

 

 

 

204

 

Securities owned, at fair value:

 

 

 

 

 

 

 

 

Investment securities

 

 

395

 

 

 

332

 

Inventory securities

 

 

59

 

 

 

50

 

Lease right-of-use assets

 

 

890

 

 

 

876

 

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

   depreciation and amortization

 

 

634

 

 

 

616

 

Other assets

 

 

87

 

 

 

156

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

21,955

 

 

$

19,317

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

Payables to:

 

 

 

 

 

 

 

 

Clients

 

$

15,961

 

 

$

12,891

 

Brokers, dealers and clearing organizations

 

 

116

 

 

 

66

 

Lease liabilities

 

 

907

 

 

 

898

 

Accrued compensation and employee benefits

 

 

1,402

 

 

 

1,747

 

Accounts payable, accrued expenses and other

 

 

277

 

 

 

351

 

 

 

 

18,663

 

 

 

15,953

 

Contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partnership capital subject to mandatory redemption, net of reserve for

   anticipated withdrawals and partnership loans:

 

 

 

 

 

 

 

 

Limited partners

 

 

1,244

 

 

 

1,249

 

Subordinated limited partners

 

 

539

 

 

 

523

 

General partners

 

 

1,331

 

 

 

1,185

 

Total

 

 

3,114

 

 

 

2,957

 

Reserve for anticipated withdrawals

 

 

178

 

 

 

407

 

Total partnership capital subject to mandatory redemption

 

 

3,292

 

 

 

3,364

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

$

21,955

 

 

$

19,317

 

 

 

 

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 26,

2020

 

 

June 28,

2019

 

 

June 26,

2020

 

 

June 28,

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-based

 

$

1,718

 

 

$

1,665

 

 

$

3,524

 

 

$

3,224

 

Account and activity

 

 

160

 

 

 

165

 

 

 

331

 

 

 

337

 

Total fee revenue

 

 

1,878

 

 

 

1,830

 

 

 

3,855

 

 

 

3,561

 

Trade revenue

 

 

395

 

 

 

401

 

 

 

888

 

 

 

769

 

Interest and dividends

 

 

41

 

 

 

110

 

 

 

124

 

 

 

213

 

Other revenue, net

 

 

34

 

 

 

20

 

 

 

4

 

 

 

48

 

Total revenue

 

 

2,348

 

 

 

2,361

 

 

 

4,871

 

 

 

4,591

 

Interest expense

 

 

23

 

 

 

42

 

 

 

55

 

 

 

82

 

Net revenue

 

 

2,325

 

 

 

2,319

 

 

 

4,816

 

 

 

4,509

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

1,646

 

 

 

1,616

 

 

 

3,410

 

 

 

3,152

 

Occupancy and equipment

 

 

130

 

 

 

123

 

 

 

261

 

 

 

242

 

Communications and data processing

 

 

106

 

 

 

99

 

 

 

207

 

 

 

185

 

Fund sub-adviser fees

 

 

44

 

 

 

39

 

 

 

86

 

 

 

75

 

Professional and consulting fees

 

 

23

 

 

 

29

 

 

 

52

 

 

 

52

 

Advertising

 

 

12

 

 

 

18

 

 

 

36

 

 

 

42

 

Postage and shipping

 

 

14

 

 

 

14

 

 

 

26

 

 

 

29

 

Other operating expenses

 

 

62

 

 

 

96

 

 

 

147

 

 

 

206

 

Total operating expenses

 

 

2,037

 

 

 

2,034

 

 

 

4,225

 

 

 

3,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before allocations to partners

 

 

288

 

 

 

285

 

 

 

591

 

 

 

526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocations to partners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited partners

 

 

42

 

 

 

43

 

 

 

92

 

 

 

80

 

Subordinated limited partners

 

 

34

 

 

 

34

 

 

 

69

 

 

 

63

 

General partners

 

 

212

 

 

 

208

 

 

 

430

 

 

 

383

 

Net Income

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income allocated to limited partners per weighted average

   $1,000 equivalent limited partnership unit outstanding

 

$

33.10

 

 

$

34.55

 

 

$

68.00

 

 

$

63.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average $1,000 equivalent limited partnership

   units outstanding

 

 

1,244,724

 

 

 

1,258,842

 

 

 

1,246,549

 

 

 

1,260,627

 

 

 

 

 

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 26, 2020

(Unaudited)

 

 

(Dollars in millions)

 

Limited

Partnership

Capital

 

 

Subordinated

Limited

Partnership

Capital

 

 

General

Partnership

Capital

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL PARTNERSHIP CAPITAL SUBJECT TO MANDATORY

   REDEMPTION, DECEMBER 31, 2019

 

$

1,359

 

 

$

566

 

 

$

1,439

 

 

$

3,364

 

Reserve for anticipated withdrawals

 

 

(110

)

 

 

(43

)

 

 

(254

)

 

 

(407

)

Partnership capital subject to mandatory redemption, net of

   reserve for anticipated withdrawals, December 31, 2019

 

$

1,249

 

 

$

523

 

 

$

1,185

 

 

$

2,957

 

Partnership loans outstanding, December 31, 2019

 

 

 

 

 

4

 

 

 

356

 

 

 

360

 

Total partnership capital, including capital financed with partnership loans,

   net of reserve for anticipated withdrawals, December 31, 2019

 

 

1,249

 

 

 

527

 

 

 

1,541

 

 

 

3,317

 

Issuance of partnership interests

 

 

1

 

 

 

49

 

 

 

163

 

 

 

213

 

Redemption of partnership interests

 

 

(3

)

 

 

(35

)

 

 

(43

)

 

 

(81

)

Income allocated to partners

 

 

50

 

 

 

35

 

 

 

218

 

 

 

303

 

Distributions

 

 

 

 

 

 

 

 

(5

)

 

 

(5

)

Total partnership capital, including capital financed with partnership loans,

   March 27, 2020

 

 

1,297

 

 

 

576

 

 

 

1,874

 

 

 

3,747

 

Issuance of partnership interests

 

 

 

 

 

 

 

 

 

 

 

 

Redemption of partnership interests

 

 

(3

)

 

 

(1

)

 

 

(2

)

 

 

(6

)

Income allocated to partners

 

 

42

 

 

 

34

 

 

 

212

 

 

 

288

 

Distributions

 

 

(14

)

 

 

(58

)

 

 

(277

)

 

 

(349

)

Total partnership capital, including capital financed with partnership loans,

   June 26, 2020

 

 

1,322

 

 

 

551

 

 

 

1,807

 

 

 

3,680

 

Partnership loans outstanding

 

 

 

 

 

(1

)

 

 

(387

)

 

 

(388

)

TOTAL PARTNERSHIP CAPITAL SUBJECT TO MANDATORY

   REDEMPTION, JUNE 26, 2020

 

$

1,322

 

 

$

550

 

 

$

1,420

 

 

$

3,292

 

Reserve for anticipated withdrawals

 

 

(78

)

 

 

(11

)

 

 

(89

)

 

 

(178

)

Partnership capital subject to mandatory redemption, net of reserve

   for anticipated withdrawals, June 26, 2020

 

$

1,244

 

 

$

539

 

 

$

1,331

 

 

$

3,114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 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.

 

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 26,

2020

 

 

June 28,

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

 

 

$

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Income before allocations to partners

 

 

591

 

 

 

526

 

Depreciation and amortization

 

 

62

 

 

 

54

 

 

 

 

 

 

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Investments segregated under federal regulations

 

 

(4,702

)

 

 

(595

)

Securities purchased under agreements to resell

 

 

250

 

 

 

(480

)

Net payable to clients

 

 

3,138

 

 

 

(308

)

Net receivable from brokers, dealers and clearing organizations

 

 

(2

)

 

 

(32

)

Receivable from mutual funds, insurance companies and other

 

 

(30

)

 

 

(62

)

Securities owned

 

 

(72

)

 

 

(59

)

Lease right-of-use assets

 

 

(14

)

 

 

(23

)

Other assets

 

 

69

 

 

 

16

 

Lease liabilities

 

 

9

 

 

 

36

 

Accrued compensation and employee benefits

 

 

(345

)

 

 

(174

)

Accounts payable, accrued expenses and other

 

 

(74

)

 

 

(61

)

Net cash used in operating activities

 

 

(1,120

)

 

 

(1,162

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of equipment, property and improvements

 

 

(80

)

 

 

(82

)

Cash used in investing activities

 

 

(80

)

 

 

(82

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Issuance of partnership interests

 

 

50

 

 

 

430

 

Redemption of partnership interests

 

 

(87

)

 

 

(75

)

Distributions from partnership capital

 

 

(626

)

 

 

(555

)

Net cash used in financing activities

 

 

(663

)

 

 

(200

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(1,863

)

 

 

(1,444

)

 

 

 

 

 

 

 

 

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

 

 

 

 

 

 

 

 

Beginning of period

 

 

8,007

 

 

 

8,737

 

End of period

 

$

6,144

 

 

$

7,293

 

 

See Note 12 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").  The financial position of the Partnership’s subsidiaries in Canada as of May 31, 2020 and November 30, 2019 are included in the Partnership’s Consolidated Statements of Financial Condition and the results for the three and six month periods ended May 31, 2020 and 2019 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 eight sub-advised mutual funds comprising the Bridge Builder® Trust ("BB Trust").  Passport Research, Ltd., a wholly-owned subsidiary of the Partnership, provides investment advisory services to the sub-advised Edward Jones Money Market Fund (the "Money Market 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 current coronavirus (COVID-19) pandemic and the ongoing response of the U.S. government and various state, local and foreign governments have adversely affected global business activities and have resulted in significant uncertainty in the global economy and volatility in financial markets. Given the significant global health, market, employment and economic impacts of COVID-19 and the uncertainty of its duration, the Partnership may experience negative impacts to its business operations and financial results in fiscal 2020. However, the Partnership cannot reliably predict their impact on future periods. The recent financial impacts of COVID-19 were included in the Partnership's estimates for assets, liabilities, revenues and expenses as of June 26, 2020. The Partnership has evaluated subsequent events for recognition and disclosure 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, 2019 (the "Annual Report"), except as disclosed in Note 2 herein.  The results of operations for the three and six month periods ended June 26, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020. 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 ADOPTED ACCOUNTING STANDARDS

 

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).  ASU 2016-13 replaces the “incurred loss” credit losses framework with a new accounting standard that requires management's measurement of the allowance for credit losses to be based on a broader range of reasonable and supportable information for lifetime credit loss estimates.  Effective January 1, 2020, the Partnership adopted the standard with an immaterial expected credit loss and no adjustment to the opening balance of Partnership capital. See Note 3 for additional information.

 

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). ASU 2018-15 aligns the capitalization requirements for implementation costs for cloud computing arrangement service contracts (including those without a software license) with the current guidance for internal-use software licenses. Companies could elect to adopt the standard either prospectively or retrospectively. The Partnership adopted the standard on January 1, 2020 on a prospective basis without a material impact to the Consolidated Financial Statements.

NOTE 3 – CURRENT EXPECTED CREDIT LOSSES

The Partnership individually assessed the current expected credit loss for assets in scope of ASU 2016-13 below.

Receivables from Clients

Receivables from clients is primarily composed of margin loan balances. The value of securities owned by clients and held as collateral for these receivables is not reflected in the Consolidated Financial Statements.  Collateral held as of June 26, 2020 and January 1, 2020 was $3,808 and $3,915, respectively, and was not repledged or sold.  The Partnership considers these financing receivables to be of good credit quality due to the fact that these receivables are primarily collateralized by the related client investments.

To estimate expected credit losses on margin loans, the Partnership applied the collateral maintenance practical expedient by comparing the amortized cost basis of the margin loans with the fair value of collateral at the reporting date. Margin loans are limited to a fraction of the total value of the securities held in the client's account against those loans.  In accordance with Financial Industry Regulatory Authority (“FINRA”) rules, the Partnership requires, in the event of a decline in the market value of the securities in a margin account, the client to deposit additional securities or cash so that, at all times, the loan to the client is no greater than 75% of the value of the securities in the account (or to sell a sufficient amount of securities in order to maintain this percentage).  The Partnership, however, generally imposes a more stringent maintenance requirement, which requires that the loan to the client be no greater than 65% of the value of the securities in the account. As such, the Partnership reasonably expects that the borrower will be able to continually replenish collateral securing the financial asset and does not expect the fair value of collateral to fall below the value of margin loans and, as a result, the Partnership considers credit risk related to these receivables to be minimal. The fair value of collateral was higher than the amortized cost basis for virtually all margin loans as of June 26, 2020 and January 1, 2020, and the expected credit loss for those loans was zero for each period. In limited circumstances, a margin loan may become undercollateralized. When this occurs, the Partnership records a reserve for the undercollateralized portion of the loan, which was an immaterial amount as of June 26, 2020 and January 1, 2020.

Securities Purchased under Agreements to Resell

The Partnership participates in short-term resale agreements collateralized by government and agency securities.  These transactions are reported as collateralized financing and are carried at cost with accrued interest in receivable from mutual funds, insurance companies and other within the Consolidated Statements of Financial Condition.  The fair value of the underlying collateral, plus accrued interest, must equal or exceed 102% of the carrying amount of the transaction in U.S. agreements and must equal or exceed 100% of the carrying amount of the transaction in Canada agreements.  It is the Partnership’s policy to have such underlying resale agreement collateral delivered to the Partnership or deposited in its accounts at its custodian banks.  

 

 

9


PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements, continued

 

To estimate expected credit losses on the resale agreements, the Partnership applied the collateral maintenance practical expedient by comparing the amortized cost basis of the resale agreements with the fair value of collateral at the reporting date. The counterparties are all financial institutions that the Partnership considers to be reputable and reliable, and the Partnership reasonably expects the counterparties will be able to continually replenish collateral securing the financial asset and does not expect the fair value of collateral to fall below the value of the resale agreements. The fair value of collateral, plus accrued interest, was 102% of the related assets in U.S. agreements and 100% in Canada agreements as of June 26, 2020 and January 1, 2020, and the expected credit loss was zero for each period.

Partnership Loans

The Partnership makes loans available to those general partners and, in limited circumstances, subordinated limited partners who require financing for some or all of their Partnership capital contributions as discussed in more detail in Note 7.  General partners and subordinated limited partners must repay any amount of principal and interest outstanding on their Partnership loans prior to receiving a return of their Partnership capital. The loan value never exceeds the value of capital allocated to the partner, and there has been no historical loss on Partnership loans.  As such, the risk of loss is remote, and the expected credit loss was zero as of June 26, 2020 and January 1, 2020.

Receivables from Revenue Contracts with Customers

 

The majority of the Partnership's receivables are collateralized financial assets, including advisory program fees, retirement fees, mutual fund and insurance service fees, and fund advisor fees, because the fees are paid out of client accounts or third-party products consisting of cash and securities. Due to the size of the fees in relation to the value of the cash and securities in accounts or funds, the collateral value always exceeds the amortized cost basis of the receivables, resulting in a remote risk of loss. In addition, the receivables have a short duration, generally due within 30 to 90 days, and there is no historical evidence of market declines that would cause the fair value of the underlying collateral to decline below the amortized cost of the receivables. The Partnership considered current conditions, and there is not a foreseeable expectation of an event or change which would result in the receivables being undercollateralized or unpaid. The expected credit loss for receivables from revenue contracts with customers was zero as of June 26, 2020 and January 1, 2020.

NOTE 4 – LEASES

For the three and six month periods ended June 26, 2020 and June 28, 2019, cash paid for amounts included in the measurement of operating lease liabilities was $76 and $151 and $70 and $137, respectively, and lease right-of-use assets obtained in exchange for new operating lease liabilities were $75 and $161 and $110 and $177, respectively.  The weighted-average remaining lease term was four years as of both June 26, 2020 and December 31, 2019, and the weighted-average discount rate was 2.9% and 3.2%, respectively.

For the three and six month periods ended June 26, 2020 and June 28, 2019, operating lease costs were $75 and $149 and $70 and $136, respectively, and variable lease costs not included in the lease liability were $15 and $30 and $13 and $27, respectively. Total lease costs for the three and six month periods ended June 26, 2020 and June 28, 2019 were $90 and $179 and $83 and $163, respectively. The Partnership's future undiscounted cash outflows for operating leases are summarized below as of:

 

 

10


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements, continued

 

 

June 26,

 

 

 

 

December 31,

 

 

2020

 

 

 

 

2019

 

2020

$

152

 

 

 

 

$

283

 

2021

 

269

 

 

 

 

 

239

 

2022

 

214

 

 

 

 

 

183

 

2023

 

158

 

 

 

 

 

128

 

2024

 

95

 

 

 

 

 

65

 

Thereafter

 

86

 

 

 

 

 

63

 

Total lease payments

 

974

 

 

 

 

 

961

 

Less: Interest

 

67

 

 

 

 

 

63

 

Total present value of lease liabilities

$

907

 

 

 

 

$

898

 

 

While the rights and obligations for leases that have not yet commenced are not significant, the Partnership typically enters into branch office leases for new locations regularly. Given the current state of the global economy in response to the COVID-19 pandemic, the Partnership has temporarily paused entering into new branch lease arrangements.

NOTE 5 – REVENUE

As of June 26, 2020 and December 31, 2019, $479 and $470, respectively, of the receivable from clients balance and $267 and $291, respectively, of the receivable from mutual funds, insurance companies and other balance related to revenue contracts with customers.  

The Partnership derived 13% and 14% of its total revenue for the three and six month periods ended June 26, 2020, respectively, and 14% of its total revenue for both of the three and six month periods ended June 28, 2019 from one mutual fund company.  The revenue generated from this company relates to business conducted with the Partnership's U.S. segment.

 

The following table shows the Partnership's disaggregated revenue information. See Note 10 for segment information.

 

 

11


PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements, continued

 

 

 

 

Three Months Ended June 26, 2020

 

 

Three Months Ended June 28, 2019

 

 

 

U.S.

 

 

Canada

 

 

Total

 

 

U.S.

 

 

Canada

 

 

Total

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-based fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisory programs fees

 

$

1,238

 

 

$

20

 

 

$

1,258

 

 

$

1,161

 

 

$

17

 

 

$

1,178

 

Service fees

 

 

304

 

 

 

19

 

 

 

323

 

 

 

308

 

 

 

22

 

 

 

330

 

Other asset-based fees

 

 

137

 

 

 

 

 

 

137

 

 

 

157

 

 

 

 

 

 

157

 

Total asset-based fee revenue

 

 

1,679

 

 

 

39

 

 

 

1,718

 

 

 

1,626

 

 

 

39

 

 

 

1,665

 

Account and activity fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholder accounting services

   fees

 

 

104

 

 

 

 

 

 

104

 

 

 

107

 

 

 

 

 

 

107

 

Other account and activity fee

   revenue

 

 

53

 

 

 

3

 

 

 

56

 

 

 

55

 

 

 

3

 

 

 

58

 

Total account and activity fee

   revenue

 

 

157

 

 

 

3

 

 

 

160

 

 

 

162

 

 

 

3

 

 

 

165

 

   Total fee revenue

 

 

1,836

 

 

 

42

 

 

 

1,878

 

 

 

1,788

 

 

 

42

 

 

 

1,830

 

Trade revenue: