INTL FCStone 2011 Annual Report Download - page 47

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INTL FCSTONE INC.Form10K 33
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
commission merchant, repaid substantially all of its subordinated
debt during the rst six months of 2010, and did not renew
the subordinated credit facility. In 2008, the Company entered
into two three-year interest rate swaps for a total notional value
of $100million, which were originally designated as cash fl ow
hedges. e Company previously discontinued hedge accounting
for one of the swaps. Hedge accounting for the remaining swap
was discontinued during 2011, which resulted in reclassifying a
portion of the deferred loss to earnings during the year. During
2011, both interest rate swap contracts, each with a notional
value of $50million, matured. See Note6 to the Consolidated
Financial Statements for further information.
2010 Interest expense vs. 2009 Interest expense
Interest expense: Interest expense increased from $8.0million
in 2009 to $9.9million in 2010. Excluding interest expense
in the operations of FCStone of $3.2million, interest expense
decreased by $1.3million, or 16%, as a result of both a decrease
in average borrowings and lower interest rates. In 2008, the
Company entered into two three-year interest rate swaps for a
total notional value of $100million. ese were designated as
cash fl ow hedges. e Company discontinued hedge accounting
for one of the swaps during 2010, which resulted in reclassifying
a portion of the deferred loss to earnings during 2010. See Note6
to the Consolidated Financial Statements for further information.
e Company pays a fi xed 3.66% (on average), and receives a
variable rate equal to one-month LIBOR. One-month LIBOR
was lower than the fi xed rate of 3.66% paid by the Company
for much of 2010, resulting in a net interest expense on the
swaps. e eff ective portion of the change in cash fl ows from
the hedge of the remaining forecasted payments during 2010
had the eff ect of increasing the Company’s reported interest
expense by $1.9million.
Non-Interest Expenses
e following table shows a summary of our non-interest expenses.
(in millions)
Year Ended September30,
2011
%
Change 2010
%
Change 2009
NONINTEREST EXPENSES
Compensation and benefi ts $ 176.6 69% $ 104.2 159% $ 40.2
Clearing and related expenses 77.4 13% 68.2 326% 16.0
Introducing broker commissions 24.0 27% 18.9 n/m —
Other non-interest expenses:
Communication and data services 15.5 40% 11.1 429% 2.1
Occupancy and equipment rental 8.9 44% 6.2 464% 1.1
Professional fees 10.6 31% 8.1 268% 2.2
Depreciation and amortization 4.7 194% 1.6 100% 0.8
Bad debts and impairments 6.2 7% 5.8 93% 3.0
Other expense 28.5 67% 17.1 338% 3.9
74.4 49% 49.9 281% 13.1
TOTAL NONINTEREST EXPENSES $ 352.4 46% $ 241.2 248% $69.3
2011 Non-Interest Expenses vs. 2010 Non-
Interest Expenses
To t a l No n - I n t e r e s t Ex p e n s e s : Non-interest expenses increased
by 46% from $241.2million in 2010 to $352.4million in 2011.
Compensation and Bene ts: Compensation and benefi ts expense
increased by 69% from $104.2million to $176.6million, and
represented 50% and 43% of total non-interest expenses in 2011
and 2010, respectively. Total compensation and benefi ts were 42%
of operating revenues and adjusted operating revenues in 2011,
respectively, compared to 39% and 38% in 2010, respectively. e
variable portion of compensation and benefi ts increased by 95%
from $51.3million in 2010 to $99.9million in 2011, mainly as
a result of the 57% increase in operating revenues as compared
to the prior year. e fi xed portion of compensation and benefi ts
increased 43% from $52.9million in 2010 to $75.7million in
2011. Administrative and executive bonuses, including deferred
compensation expenses (a proportion of current year bonuses
allocated to restricted stock awards is deferred and expensed
ratably over three years, as vesting occurs), were $15.7million,
compared with $6.0million in 2010. Stock option expense in
2011 was $0.6million, compared with $0.5million in 2010.
e number of employees increased 24% from 729 at the end
of fi scal2010 to 904 at the end of fi scal2011, primarily as a
result of acquisitions of the Provident Group, Hencorp Futures,
Ambrian Commodities Limited, as well as certain assets purchased
from Hudson Capital Energy,LLC.