INTL FCStone 2012 Annual Report Download - page 59
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Please find page 59 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.Form10K 43
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
e Company has an investment in debentures for the single
asset owning company of Suriwongse Hotel located in Chiang
Mai, ailand, originally issued in August 2008. Renovations
on the hotel, to be nanced by the debentures, were delayed,
but are continuing. During 2011, the hotel owner defaulted on
the interest payment due to debenture holders in March 2011,
and the Company recorded an impairment loss of $1.7 million
related to the fair value adjustment of its investment in the
debentures. e Company and other debenture holders have
exercised their rights under the share pledge provisions of the
debentures, and held a share auction of 100% of the shares of
the single asset owning company. e debenture holders won the
share auction and the previous owner of the single asset owning
company, who is also a personal guarantor of the debentures, has
led a complaint to revoke the completed auction. e Company
intends on vigorously defending actions taken in its capacity
as a debenture holder. Judgment on the complaint led by the
previous owner is expected during the rst quarter of 2013.As
of September30, 2011, the carrying value of the debentures was
$3.6 million. See Note 3 - Assets and Liabilities, at Fair Value
to the Consolidated Financial Statements.
Segment income decreased 66%, from $5.6 million in 2010
to $1.9 million in 2011, primarily as a result of the fair value
adjustment, discussed above, as well as compensation and bene ts
costs related to the expansion of the investment banking and
advisory business acquired from the Provident Group. Variable
expenses expressed as a percentage of operating revenues increased
from 43% to 45%.
Clearing and execution services – Operating revenues in the
segment were $66.1 million for 2011 as compared to $61.8
million for 2010. Operating revenues are primarily generated
from two sources: commission and clearing fee revenues from
the execution and clearing of exchange-traded futures and
options-on-futures contracts, and interest income derived from
cash balances in our customers’ accounts.
Commission and clearing fee revenues were relatively at as
exchange-traded volumes increased 2% over the prior year
period. A $0.8 million proprietary trading gain related to open
commodity positions acquired from an under-margined customer
contributed to the increase in operating revenues, while the prior
year period included a $2.7 million trading loss related to these
open commodity positions. e Company does not expect any
further signi cant gains or losses from these remaining open
commodity positions prior to their expiration. Interest income
declined 18% to $2.7 million in 2011 as an increase in average
customer deposits was more than o set by a decline in short-
term interest rates.
Segment income increased $3.8 million from $1.1 million
in 2010 to $4.9 million in 2011. Segment income for 2010
includes the e ect of a $2.3 million bad debt provision related
to a disputed trade that was “given-up” to FCStone by another
futures commission merchant for a customer that held an account
with us, while 2011 includes a $1.3 million recovery of bad
debt expense related to the settlement of the “given-up” trade
dispute, partially o set by a $1.0 million bad debt provision
related to a clearing customer de cit account. Variable expenses
as a percentage of operating revenues declined from 80% to 77%
and are primarily clearing and related expenses.
Other – e Company’s asset management revenues include
management and performance fees, commissions and other
revenues received by the Company for management of third
party assets and investment gains or losses on the Company’s
investments in funds or proprietary accounts managed either by
the Company’s investment managers or by independent investment
managers. In addition, this segment’s revenues include interest
income and fees earned in relation to commodity nancing
transactions as well as a limited amount of principal physical
commodity sales transactions related to inputs to the renewable
fuels and feed ingredient industries.
Operating revenues increased 61% from $8.9 million in 2010
to $14.3 million in 2011. Assets under management as of
September30, 2011 were $385.0 million compared with $349.3
million as of September 30, 2010. Operating revenues in the
asset management product line increased $1.1 million to $8.6
million in 2011. Operating revenues in the grain nancing and
physical commodity origination product line increased 280% to
$5.7 million in 2011, driven by the establishment of a committed
credit facility to nance commodities, which facilitated additional
business as well as the expansion of our physical inputs business
into the feed ingredient industry and increased demand for fats
and oils origination from commercial customers. Segment income
was $5.6 million in 2011 as compared to $3.7 million in 2010.