INTL FCStone 2013 Annual Report Download - page 55

INTLFCSTONEINC.Form10K34
PART II
ITEM7Management’s Discussion and Analysis of Financial Condition and Results ofOperations
Operating revenues in the Foreign Exchange segment in scal
2013 increased primarily as a result of higher volumes in the
global payments business which contributed to a $1.9 million
increase in operating revenues, while increased activity from
Brazilian customers drove a $2.0 million increase in customer
hedging foreign exchange revenues. Operating revenues increased
$1.5 million from increased trading activity from institutional
clients in our foreign exchange prime brokerage business, however
this was partially oset by a $1.2 million decline in operating
revenues in the foreign exchange arbitrage business.
Operating revenues in the Securities segment increased as a result
of a $14.0 million increase in equity market-making operating
revenues, driven by $9.0 million in revenue contributed by
the transfer of accounts from Tradewire Securities in the rst
quarter of scal 2013. In addition, debt capital markets operating
revenues increased $7.2 million as a result of increased business
activity with our Latin and South American customers as well
as increased investment banking activity.
An increase in the average commission rate per contract in the CES
segment drove a $7.0 million increase in operating revenues in the
CES segment on relatively at volumes, however interest income
earned on customer margin deposits in this segment continues
to be constrained by historically low short-term interest rates.
Operating revenues and adjusted operating revenues in the
Other segment increased by $5.1 million and $6.6 million,
driven by continued growth in our grain nancing and physical
commodity origination product lines as well as increased asset
management revenues. See Segment Information below for
additional information on activity in each of the operating
segments.
In scal 2013, operating revenues include realized gains of
$1.4 million and unrealized losses of $1.3 million on interest
rate swap derivative contracts used to manage a portion of our
aggregate interest rate position. In scal 2012, operating revenues
included realized gains of $2.5 million and unrealized losses of
$1.1 million on interest rate swap derivative contracts. ese
interest rate swaps were not designated for hedge accounting
treatment, and changes in the fair values of the interest rate swaps,
which can be volatile and can uctuate from period to period,
are recorded in earnings on a quarterly basis. e last remaining
interest rate swap expired in the fourth quarter of scal 2013.
Year Ended September 30, 2012 Compared to
Year Ended September 30, 2011
Our operating revenues under U.S. GAAP for scal 2012 and
scal2011 were $454.2 million and $419.1 million, respectively. is
8% increase in operating revenue was primarily driven by 42%and
31% increases in the CES and Securities segments, respectively. In
addition, there were increases in operating revenues of 6% in the
Foreign Exchange segment and 9% in the Other segment, which
were partially oset by a 2% decrease in the operating revenues in
the C&RM segment compared to the prior year.
Our adjusted operating revenues were $461.0 million in scal2012,
compared with $410.7 million in scal 2011, an increase of
$50.3 million, or 12%. e only dierence between operating
revenues and adjusted operating revenues, a non-GAAP measure,
is the gross marked-to-market adjustment of $6.8 million and
$(8.4) million for scal 2012 and scal 2011, respectively. e
gross marked-to-market adjustment only aects the adjusted
operatingrevenues in the C&RM and Other segments. Adjusted
operating revenues increased 3% and 15% in the C&RM and Other
segments, respectively, compared to the prior year. Adjusted operating
revenues are identical to operating revenues in all other segments.
Operating revenues decreased slightly in the C&RM segment in
scal 2012, primarily due to $14.4 million decrease in operating
revenues in the precious metals product line due to a tightening
of spreads and a decrease in the number of ounces traded caused
by low market volatility. Adjusted operating revenues in the
precious metals product line decreased $7.3 million in scal 2012
compared to the prior year. Operating revenues and adjusted
operating revenues in our base metals product line increased
$7.6 million and $14.8 million, respectively, primarily as a result
of the addition of the LME metals team in the rst quarter of
scal 2012. e LME metals team added $21.8 million in both
operating and adjusted operating revenues in scal 2012.
In the C&RM segment, operating revenues in the soft commodity
product line were relatively unchanged in scal 2012 compared
to the prior year at $203.4 million, as a $1.8 million decline
in exchange-traded commission and clearing fee revenue and
a $2.8 million decline in interest income were nearly oset by
increases in both OTC and consulting fee revenues. e decline
in exchange-traded commission and clearing fee revenues was
primarily related to lost revenues from clients introduced to MF
Global during the rst quarter of 2012, while interest income
continued to be constrained by slightly lower customer deposits
and lower short-term interest rates. OTC volumes increased 38%
over the prior year, resulting from drought-related agricultural
commodity volatility as well as strong volume growth in Mexico,
Latin America and Europe.
Operating revenues in the Foreign Exchange segment in scal2012
increased primarily as a result of higher volumes in the global
payments business and higher commercial hedging activity,
most notably in Brazil, as well as increased trading activity in
our customer prime brokerage business. ese increases were
partially oset by a 30% decrease in operating revenues in the
foreign exchange arbitrage business.
Operating revenues in the Securities segment in scal 2012
beneted from an increase in demand from customers of our
equities market-making product line, as the overall industry
volumes recovered, as well as a $4.5 million increase in operating
revenues in the debt capital markets product line driven by
increased activity in our Argentina operations.
Operating revenues in the CES segment increased 42%, driven by
a 67% increase in exchange-traded volumes primarily attributable
to accounts transferred from MF Global. However, operating