INTL FCStone 2011 Annual Report Download - page 58

INTL FCSTONE INC.Form10K44
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
periods ending June30,2012 and 2013, subject to an annual
limit of $7.0million and an overall maximum of $12.5million
and a  nal payment based on the cumulative Adjusted EBIT of
the Derivatives Division for the three year period commencing
on July1,2010. In the event that the cumulative Adjusted
EBIT equals or exceeds $100million, then the  nal EBIT
Payment will be equal to $10million. In the event that the
cumulative Adjusted EBIT is greater than $80million, but less
than $100million, then the  nal EBIT Payment will be equal to
the product of: (A)$10million, and (B)a fraction, the numerator
of which is the amount by which the cumulative Adjusted
EBIT exceeds $80million, and the denominator of which is
$20million.  e present value of the estimated total purchase
price, including contingent consideration, is $51.6million as of
September30,2011, of which $13.5million has not been paid
and is included within ‘accounts payable and other liabilities’
in the consolidated balance sheets.
In October,2010, the Company acquired Hencorp Futures.
 e purchase price consists of an initial payment in 2011 of
$2.3million, a contingent payable of $0.3million based on
the adjusted pre-tax net earnings of Hencorp Futures for the
year ended September30,2011, three additional contingent
payments which will be based on Hencorp Futures’ adjusted
pre-tax net earnings for the second, third and fourth years
after the closing and a fi nal contingent payment based on the
average of the second, third and fourth years payments.  e
present value of the estimated total purchase price, including
contingent consideration is approximately $6.4million as of
September30,2011, of which $2.7million has not been paid
and is included within ‘accounts payable and other liabilities’
in the consolidated balance sheets.
In April,2011, the Company entered into an agreement with
Hudson Capital EnergyLLC (“HCEnergy”), a NewYork-based
energy risk-management fi rm, to acquire certain assets from
HCEnergy.  e purchase price consideration included the
aggregate net asset value of certain commodity futures brokerage
accounts and certain proprietary software, totaling $1.0million.
In April,2011, the Company’s wholly-owned subsidiary in the
UnitedKingdom, INTL Global Currencies Limited, agreed
to acquire the issued share capital of Ambrian Commodities
Limited (“Ambrian”), the London Metals Exchange brokerage
subsidiary of Ambrian Capital Plc.In August2011, the Financial
Services Authority granted its approval of the change of control of
Ambrian, and the transaction was completed on August31,2011.
At closing, the Company paid $7.1million, representing the
net asset value of Ambrian less certain intercompany balances
due to Ambrian from its affi liates.
In November,2011, the Company arranged with the trustee of
MF Global’s UK operations to hire more than 50 professional
staff from MF Global’s metals trading business based in London.
 e Company anticipates that a substantial number of the
customers of this metals trading business will elect to become
customers of the Company.  e Company expects to allocate
equity capital to integrate these brokers and their customers into
the Company’s operations, through a combination of increased
regulatory capital to support the accounts of these customers
and increased compensation and related personnel costs for
the brokers.  e amount of the required capital will primarily
depend upon the number and balances of the new accounts.
 e Company contributed $3.5million to its defi ned benefi t
pension plans during the year ended September30,2011, and
expects to contribute $2.0million to the plans during fi scal2012,
which represents the minimum funding requirement.
Other Capital Considerations
Our FCM subsidiary, FCStone,LLC is subject to various
regulations and capital adequacy requirements. Pursuant to the
rules, regulations, and requirements of the CFTC and other self-
regulatory organizations, FCStone,LLC is required to maintain
certain minimum net capital as defi ned in such rules, regulations,
and requirements. Net capital will fl uctuate on a daily basis.
INTL Trading, a broker-dealer subsidiary, is subject to the net
capital requirements of the SEC relating to liquidity and net
capital levels.  e Company’s ability to receive distributions
from INTL Trading is restricted by regulations of the SEC.  e
Company’s right to receive distributions from its subsidiaries is
also subject to the rights of the subsidiaries’ creditors, including
customers of INTL Trading.
FCStone Australia Pty,Ltd (“FCStone Australia”) is regulated
by the Australian Securities and Investment Commission and is
subject to a surplus liquid funds requirement. FCStone Australia
is also regulated by the New Zealand Clearing Limited, and is
subject to a capital adequacy requirement.
FCC Investments,Inc., a broker-dealer subsidiary, is subject
to the net capital requirements of the SEC relating to liquidity
and net capital levels.
Risk Management Incorporated and Hencorp Futures are regulated
by the CFTC and the National Futures Association and are both
subject to a minimum capital requirement.
Certain other non-U.S. subsidiaries of the Company are also
subject to capital adequacy requirements promulgated by
authorities of the countries in which they operate.
 e subsidiaries of the Company are in compliance with all of
their capital regulatory requirements as of September30,2011.
Additional information on these net capital and minimum
net capital requirements can be found within Note15 of the
Consolidated Financial Statements.
Cash Flows
 e Company’s cash and cash equivalents increased from
$81.9million as of September30,2010 to $220.6million as of
September30,2011, a net increase of $138.7million. Net cash of