INTL FCStone 2013 Annual Report Download - page 61

Download and view the complete annual report

Please find page 61 of the 2013 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.

Page out of 152

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152

INTLFCSTONEINC.Form10K40
PART II
ITEM7Management’s Discussion and Analysis of Financial Condition and Results ofOperations
Year Ended September 30, 2012 Compared to
Year Ended September 30, 2011
e net contribution of all our business segments decreased slightly
to $225.2 million in scal 2012 compared to $225.4 million in
scal 2011. e adjusted net contribution of all our business
segments was $232.0 million in fiscal 2012 compared to
$217.0 million in scal 2011.
Total segment income decreased 18% to $106.6 million in
scal2012 compared to $129.8 million in scal 2011. Total
adjusted segment income was $113.4 million in scal 2012
compared to $121.4 million in scal 2011.
Commodity and Risk Management Services – We serve our
commercial customers through our force of risk management
consultants with a high value-added service that dierentiates
us from other competitors and maximizes the opportunity to
retain customers. Customers are assisted in the execution of
their hedging strategies through a wide range of products from
listed exchange-traded futures and options to vanilla look-alike
OTC instruments that oer greater exibility to structured OTC
products designed for customized solutions. We also oer risk
management consulting services to commercial entities designed
to quantify and monitor their exposure to commodity and
nancial risk and develop a plan to control and hedge these risks
with post trade reporting against specic objectives. While our
services span virtually all traded commodity markets, the largest
concentrations are in agricultural (grains,coee, sugar, cotton)
and energy commodities. Generally, customers direct their own
trading activity and risk management consultants do not have
discretionary authority to transact trades on behalf of customers.
In addition, we provide a full range of trading and hedging
capabilities to select producers, consumers, recyclers and investors
in both precious metals and base metals, as well as certain other
related commodities. For base metals, following the exit of the
physical trading business, our business will involve acting as
a Category One ring dealing member of the LME, providing
execution, clearing and advisory services in exchange-traded
futures and OTC products. In precious metals, in addition
to oering OTC products, we act as a principal, committing
our own capital to buy and sell precious metals on a spot and
forward basis.
We record our physical commodities revenues on a gross basis.
Operating revenues and losses from our commodities derivatives
activities are included in ‘trading gains, net’ in the consolidated
income statements. Inventory for the commodities business is
valued at the lower of cost or fair value under the provisions of
the Inventory Topic of the ASC. We generally mitigate the price
risk associated with commodities held in inventory through
the use of derivatives. We do not elect hedge accounting under
U.S. GAAP in accounting for this price risk mitigation. In such
situations, unrealized gains in inventory are not recognized under
U.S. GAAP, but unrealized gains and losses in related derivative
positions are recognized under U.S. GAAP. As a result, our
reported earnings from physical commodities trading may be
subject to signicant volatility when calculated under U.S. GAAP.
e following table provides the nancial performance for this segment.
(in millions)
Year Ended September 30,
2013 % Change 2012 % Change 2011
(As Restated) (As Restated)
Operating revenues $ 221.7 (9)% $ 242.5 (2)% $ 248.5
Gross marked-to-market adjustment (non-GAAP) (13.5) n/m 5.9 n/m (8.4)
Adjusted operating revenues (non-GAAP) 208.2 (16)% 248.4 3% 240.1
Transaction-based clearing expenses 23.9 1% 23.6 17% 20.2
Introducing broker commissions 15.2 22% 12.5 10% 11.4
Interest expense 5.3 (23)% 6.9 (18)% 8.4
Adjusted net operating revenues (non-GAAP) 163.8 (20)% 205.4 3% 200.1
Variable direct compensation and benets 46.2 (23)% 60.0 (2)% 61.0
Adjusted net contribution (non-GAAP) 117.6 (19)% 145.4 5% 139.1
Non-variable direct expenses 71.5 (2)% 73.3 26% 58.1
Adjusted segment income (non-GAAP) $ 46.1 (36)% $ 72.1 (11)% $ 81.0
Reconciliation of C&RM net operating revenues
from GAAP to adjusted, non-GAAP numbers:
C&RM net operating revenues $ 177.3 $ 199.5 $ 208.5
Gross marked-to-market adjustment (non-GAAP) (13.5) 5.9 (8.4)
C&RM adjusted net operating revenues (non-GAAP) $ 163.8 $ 205.4 $ 200.1