INTL FCStone 2011 Annual Report Download - page 48

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INTL FCSTONE INC.Form10K34
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Clearing and Related Expenses: Clearing and related expenses
increased by 13% from $68.2million in 2010 to $77.4million
in 2011. is increase was primarily due to a 2% increase in
exchange-traded customer volume, a 126% increase in OTC
trading volumes in the C&RM segment following the acquisition
of the Hanley Companies in Q42010, as well as an increase in
trading volume in our equities market-making business.
Introducing Broker Commissions: Introducing broker
commissions increased by 27% from $18.9million in 2010
to $24.0million in 2011. is increase was primarily due to
an increase in exchange-traded volumes from our introducing
brokers as well as increased volumes in our foreign exchange
global payments business.
Other Non-Interest Expenses: Other non-interest expenses
increased by 49% from $49.9million in 2010 to $74.4million in
2011. As a result of the acquisitions of the RMI Companies, the
Hanley Companies, Provident Group and Hencorp Futures and
the relocation of offi ce space, communications and data services
and occupancy and equipment rental increased $4.4million and
$2.7million, respectively. Depreciation and amortization increased
$3.1million, primarily due to the $1.6million increase in the
amortization of identifi able intangible assets from the acquisitions
made in 2010 and from depreciation of additional technology
infrastructure placed into service during 2011.
Other non-interest expenses include bad debt expense, net of
recoveries, and impairments of $6.2million and $5.8million for
the years ended 2011 and 2010, respectively. During 2011, the
Company recorded an impairment loss of $1.7million related
to the fair value adjustment of its investment in debentures for
the single asset owning company of Suriwongse Hotel located
in Chiang Mai, ailand, originally issued in August2008, as
more fully described in both Note5 - Assets and Liabilities,
at Fair Value to the Consolidated Financial Statements and in
the Securities section of our 2011 vs. 2010 Segment Analysis.
Additionally, during 2011, the Company recorded bad debt
expense, net of recoveries, of $4.5million, including provision
increases primarily related to credit losses recognized on consigned
gold transactions, within the C&RM segment and a clearing
customer defi cit account within the CES segment. A portion of
the loss on consigned gold related to a customer for a which a
partial provision was recorded during Q42010. During 2011,
negotiation eff orts with the customer resulted in settlement of the
loss in excess of the amount previously estimated, and a charge
to bad debt expense for the incremental uncollectible portion.
During 2011, the Company recorded recoveries of $3.7million
of bad debt expense related to collection of a previous customer
account defi cit, within the C&RM segment and collection
following a settlement relating to a disputed trade, within the CES
segment, that was “given-up” to FCStone in Q32010. During
2010, FCStone had recorded a charge to bad debt expense of
$2.3million related to this disputed trade that was “given-up”
to FCStone. Additionally in 2010, the Company recorded a
$2.5million provision against a receivable from a Dubai customer
to whom INTL Commodities DMCC had consigned gold, and
an impairment charge of $1.1million related to our investment
in INTL Sieramet, a consolidated subsidiary.
Additionally, within ‘other’ expense, the Company recorded
$3.2million in expense during 2011 related to the revaluation of
contingent liabilities related to potential additional consideration
to be paid for the acquisitions of the RMI Companies, the
Hanley Companies and Hencorp Futures. e Company also
accrued additional contingent consideration during 2011
related to FCStone,LLC’s pre-merger acquisitions of Downes&
O’Neill,LLC and Globecot,Inc., in the amount of $1.6million,
which is also included within ‘other’ expense. Also within ‘other’
expense, as a result of the acquisitions made in the last eighteen
months and expansion of our offi ces in Australia, London,
Singapore and South America, employee travel expenses increased
$2.1million in 2011 as compared to the prior year.
Provision for Taxes: e eff ective income tax rate on a U.S.
GAAP basis was 38%, in 2011, compared with 36% in 2010.
e eff ective income tax rate can vary from period to period
depending on, among other factors, the geographic and business
mix of our earnings. In 2011, 46% of the income from continuing
operations, before tax is attributable from U.S. jurisdictions,
compared to 25% in 2010. Generally, when the percentage of
pretax earnings generated from the U.S. increases, our eff ective
income tax rate increases.
2010 Non-Interest Expenses vs. YTD 2009
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 248% from $69.3million in 2009 to $241.2million in 2010.
Excluding expenses in the FCStone operations of $171.1million,
non-interest expenses increased $0.8million.
Compensation and Bene ts: Compensation and benefi ts expense
increased by 159% from $40.2million to $104.2million, and
represented 43% and 58% of total non-interest expenses in 2010
and 2009, respectively. Total compensation and benefi ts were
39% of operating revenues in 2010 compared to 44% in 2009.
e variable portion of compensation and benefi ts increased by
158% from $17.8million in 2009 to $45.9million in 2010,
primarily as a result of the 197% increase in operating revenues
compared to the prior year. e fi xed portion of compensation
and benefi ts increased 160% from $22.4million to $58.3million,
primarily as a result of the FCStone transaction. 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 $6.0million, compared with $6.4million in 2009.
Stock option expense in 2010 was $0.5million, compared with
$1.0million in 2009. e number of employees in the Company
grew 17% from 625 at the end of 2009 to 729 at the end of
2010, primarily as a result of several acquisitions during 2010.