INTL FCStone 2012 Annual Report Download - page 58
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Please find page 58 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.Form10K42
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Within the soft commodities product line, operating revenues
increased 93% from $107.2 million in 2010 to $206.8 million
in 2011. e acquisition of the Hanley Companies in July 2010
led to an increased o ering of structured OTC products to our
commercial customers, contributing to the signi cant increase in
operating revenues in 2011 as compared to the prior-year. Within
the soft commodities product line, exchange-traded and OTC
volumes increased 4% and 126%, respectively over the prior
year comparative period, which includes primarily agricultural
and energy commodities. An increase in underlying volatility
in agricultural commodities, the e ect of rising agricultural
commodity prices, and the contribution of recent acquisitions
were the main contributors to the increase in exchange-traded
volumes. Exchange-traded and consulting revenues increased as
a result of the acquisition of the RMI Companies in April 2010,
primarily in the natural gas markets, and Hencorp Futures at
the beginning of Q1 2011, primarily in the co ee markets. e
increased o ering of structured OTC products and commodity
price volatility has resulted in the increase in OTC volumes and
revenues, primarily re ected within ‘trading gains, net’ in our
consolidated income statements, as compared to the prior-year
period, particularly in the Brazilian markets where commodities
traded by the Company have expanded to include corn and cotton
in addition to the historical soybeans and sugar. In addition, volatile
energy markets have increased the demand for the Company’s
OTC risk management strategies and recent acquisitions have led
to a more diversi ed OTC customer base including the natural
gas and co ee markets. Interest income increased 97% over the
prior year period as the average level of customer deposits increased
113% to $971 million, with the increase in exchange-traded and
OTC volumes driving the increased average level of customer
deposits. However, interest income remains a modest contributor
to operating revenues given the continuation of historically low
short-term interest rates.
Precious metals operating revenues increased from $14.0 million
in 2010 to $25.5 million in 2011. Precious metals adjusted
operating revenues increased from $16.5 million in 2010 to
$21.4 million in 2011. ese increases were primarily a result of
a widening of spreads due to market volatility, and an increase
in the number of ounces traded as compared to the prior year
period as business activity increased globally, particularly in the
Singapore and Dubai markets.
Base metals operating revenues increased from $8.6 million in
2010 to $20.2 million in 2011. Base metals adjusted operating
revenues increased from $12.1 million in 2010 to $15.9 million
in 2011. ese increases primarily resulted from an increase in
the volume of metric tons traded, while spreads remained similar
to levels experienced in 2010.
Segment income increased from $32.8 million in 2010 to $93.5
million in 2011. Adjusted segment income increased from $38.8
million to $85.1 million. Variable expenses expressed as a percentage
of operating revenues decreased from 40% to 37%. Variable
expenses expressed as a percentage of adjusted operating revenues
remained consistent at 38%, year-over-year. Segment income in
2011 was a ected by increases in non-variable compensation and
bene ts and communications and data services primarily resulting
from the acquisitions discussed above. Segment income in 2011
was also 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
25% from $47.5 million in 2010 to $59.3 million in 2011. e
operating revenues in the Company’s global payments product line
increased from $25.8 million in 2010 to $31.9 million in 2011.
is increase was driven by a 33% increase in the volume of trades
in the Company’s global payments product line as compared to
the prior year period 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 2011, the customer speculative foreign exchange product line
operating revenues increased 7% to $8.0 million as compared
to the prior year. Operating revenues from customer hedging
activity increased 433% from the prior year period to $4.8 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 10% increase in operating revenues to $14.6 million
as compared to the prior year period.
Segment income increased 28% from $21.8 million in 2010 to
$28.0 million in 2011. Variable expenses expressed as a percentage
of operating revenues decreased from 40% to 36%, primarily as
a result of the change in mix of revenues in the current period.
Securities – Operating revenues increased by 47% from $20.8
million in 2010 to $30.5 million in 2011. Operating revenues
in the equities market-making business increased 19% from the
prior year to $20.3 million. Operating revenues in the debt capital
markets business increased from $3.6 million in 2010 to $10.2
million in 2011.
Operating revenues in the equities market-making business 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 increase in the operating revenues in the debt capital markets
business, was primarily driven by the acquisition of the Provident
Group in Q4 2010. is business focuses on 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 trading in the international markets.