INTL FCStone 2012 Annual Report Download - page 56
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Please find page 56 of the 2012 INTL FCStone annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.INTL FCSTONE INC.Form10K40
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
increased by 3% from $244.2 million in 2011 to $251.9 million
in 2012. Operating revenues within this segment are primarily
driven by the soft commodities, precious metals and base metals
product lines.
Within the soft commodities product line, operating revenues
were relatively unchanged from $206.9 million in 2011 to
$207.0 million in 2012. Exchange-traded contract volumes
decreased 1% and OTC contract volumes increased 38%,
respectively in 2012, over the prior scal year, which includes
primarily agricultural and energy commodities. While drought
related volatility in agricultural commodities drove an increase in
exchange traded contract volumes in the last six months of 2012,
adverse economic and industry conditions in the rst quarter
of 2012 more than o set those increases, resulting in the slight
volume decline in the 2012. Despite relatively at volumes,
exchange traded commission and clearing fee revenues declined
$1.8 million to $64.5 million in 2012, primarily as a result of
the e ect of lost revenues from clients introduced by RMI and
Hencorp Futures to MF Global. e majority of these clients
previously introduced to MF Global have subsequently opened
accounts directly with FCStone LLC. Overall OTC revenues,
primarily re ected within ‘trading gains, net’ in our consolidated
income statements, increased $2.9 million to $123.1 million
in 2012, compared to the prior year. is increase was a result
of the agricultural commodity volatility noted above as well as
strong growth in overall OTC contract volumes, particularly in
Mexico, Latin America and Europe, which was partially o set
by lower structured OTC product volumes, particularly in the
Brazil markets during 2012. Interest income decreased 39% to
$4.5 million, driven by a 8% decrease in the average level of
exchange traded customer deposits to $923.2 million, lower
OTC customer deposits and lower short term interest rates.
Precious metals operating revenues decreased from $25.5 million
in 2011 to $11.1 million in 2012. Precious metals adjusted
operating revenues decreased from $21.4 million in 2011 to
$14.1 million in 2012. ese decreases were primarily a result of a
tightening of spreads due to a lack of market volatility and a 14%
decrease in the number of ounces traded in 2012 as compared
to the prior year period, particularly in the Far East markets.
Base metals operating revenues increased from $20.3 million in
2011 to $27.9 million in 2012. Base metals adjusted operating
revenues increased from $16.0 million in 2011 to $30.8 million
in 2012. ese increases primarily resulted from the addition of
the LME metals team in Q1 2012, which added $21.8 million,
partially o set by a tightening of spreads in the physical base
metals business.
Segment income decreased from $93.5 million in 2011 to $69.7
million in 2012. Adjusted segment income decreased from
$85.1 million to $75.6 million. Variable expenses expressed
as a percentage of operating revenues increased from 37% to
39%. Variable expenses expressed as a percentage of adjusted
operating revenues remained consistent at 38% in each year.
Segment income in 2012 was primarily a ected by the decrease
in revenues, as discussed above, along with increases in non-
variable compensation and bene ts and communications and
data services primarily resulting from the acquisition of the LME
metals team. Segment income in 2011 was a ected by bad debt
expense of $6.0 million, primarily related to two precious metals
customers to whom the Company had consigned gold, which
was partially o set by $1.7 million in recoveries of bad debt
expense, primarily related to a bad debt provision decrease on
a previous customer account de cit based on collection of an
amount in excess of the amount expected to be collected against
a promissory note.
Foreign exchange trading – Operating revenues increased by
6% from $59.3 million in 2011 to $62.6 million in 2012. e
operating revenues in the Company’s global payments product
line increased from $32.4 million in 2011 to $39.0 million in
2012. is increase was driven by a 17% increase in the volume
of trades in the Company’s global payments product line as the
Company continued to bene t from an increase in nancial
institutions and other customers as well as our ability to o er an
electronic transaction order system to our customers.
In 2012, the customer speculative foreign exchange product line
operating revenues increased 3% to $8.2 million as compared
to the prior year. Operating revenues from customer hedging
activity increased 20% to $5.4 million, primarily driven by an
increase of hedging by customers of our Brazilian operations.
e proprietary foreign exchange arbitrage desk, which arbitrages
the cash versus the exchange traded markets, experienced a 30%
decrease in operating revenues to $10.0 million due to fewer
favorable arbitrage opportunities.
Segment income increased 1% from $28.0 million in 2011 to
$28.3 million in 2012. Variable expenses expressed as a percentage
of operating revenues decreased from 36% to 33%, primarily as
a result of the change in mix of revenues in the current period.
Securities – Operating revenues increased by 31% from $30.5
million in 2011 to $39.9 million in 2012. Operating revenues
in the equities market-making product line increased 23% from
the prior year to $25.1 million. Operating revenues in the debt
capital markets product line increased from $10.4 million in
2011 to $14.9 million in 2012.
Operating revenues in the equities market-making product line
are largely dependent on overall volume and volatility, and with
the increased levels of activity in the global equity markets, the
retail customer business which drives the Company’s equity market
making activities has increased. Equity market-making operating
revenues include the trading pro ts earned by the Company
before the related expense deduction for ADR conversion fees.
ese ADR fees are included within the consolidated income
statements as ‘clearing and related expenses’.
e debt capital markets product line, primarily focuses debt
origination, including a wide range of services, including the
arranging and placing of debt issues, merger and acquisition
advisory services and asset backed securitization as well as debt