INTL FCStone 2013 Annual Report Download - page 62

INTLFCSTONEINC.Form10K 41
PART II
ITEM7Management’s Discussion and Analysis of Financial Condition and Results ofOperations
(in millions)
Year Ended September 30,
2013 % Change 2012 % Change 2011
Reconciliation of C&RM net contribution from
GAAP to adjusted, non-GAAP numbers:
C&RM net contribution $ 131.1 $ 139.5 $ 147.5
Gross marked-to-market adjustment (non-GAAP) (13.5) 5.9 (8.4)
C&RM adjusted net contribution (non-GAAP) $ 117.6 $ 145.4 $ 139.1
Reconciliation of C&RM segment income from
GAAP to adjusted, non-GAAP numbers:
C&RM segment income $ 59.6 $ 66.2 $ 89.4
Gross marked-to-market adjustment (non-GAAP) (13.5) 5.9 (8.4)
C&RM adjusted segment income (non-GAAP) $ 46.1 $ 72.1 $ 81.0
For information about the assets of this segment, see Note 22
to the Consolidated Financial Statements.
Year Ended September 30, 2013 Compared to
Year Ended September 30, 2012
Operating revenues under U.S. GAAP decreased from
$242.5 million in scal 2012 to $221.7 million in scal 2013.
Adjusted operating revenues decreased 16% from $248.4 million
in scal 2012 to $208.2 million in scal 2013. Operating revenues
in this segment are primarily driven by our soft commodities,
precious metals, physical base metals and LME metal product lines.
In the soft commodities product line, operating revenues decreased
20% from $203.5 million in scal 2012 to $167.0 million in
scal 2013. ere is no dierence between operating and adjusted
operating revenues in the soft commodities product line. In
scal 2013, exchange-traded contract volumes decreased 9%
and OTC contract volumes decreased 26% compared to the
prior scal year, consisting primarily of agricultural and energy
commodities. Commission and clearing fee revenues decreased
$0.6 million, or 1%, compared to the prior year period, however
commercial grain commission and clearing fee revenues declined
$3.3 million, primarily driven by signicantly lower customer
stocks following the consecutive droughts of 2011 and 2012
as well as the eect of inverted prices on customer trading
activity. is decline in commercial grain commission and
clearing fee revenue was partially oset by revenue increases in
the coee and cocoa markets, as well as the fact that exchange-
traded commission and clearing fee revenues in scal 2012 were
aectedby lost revenues from clients previously introduced by
RMI and Hencorp Futures to MF Global. e majority of the
clients previously introduced to MF Global have subsequently
opened accounts directly with FCStone, LLC.
Overall OTC revenues, primarily reected in ‘trading gains, net’
in our consolidated income statements, decreased $35.8 million
to $83.8 million in scal 2013, compared to the prior year. is
decline in OTC revenues is a result of lower volumes in agricultural
commodities, primarily in Brazil and Latin America as a result of
lower volatility and inverted prices as noted above, as well as in
the domestic energy markets. Interest income decreased 7% to
$4.2 million, resulting from a 2% decrease in the average level
of exchange-traded customer deposits to $908.1 million, lower
OTC customer deposits and lower short-term interest rates.
Precious metals operating revenues increased from $11.1 million
in scal 2012 to $15.0 million in scal 2013, primarily as
a result of the eect of realized gains on the sale of precious
metals inventories which were carried at cost at September 30,
2012, which was below market value. Precious metals adjusted
operating revenues decreased from $14.1 million in scal 2012
to $12.8 million in scal 2013. ese decreases were primarily
a result of a 28% decrease in the number of ounces traded in
scal 2013 compared to the prior year, particularly in the Far
East markets.
Operating revenues in our physical base metals business increased
from $6.1 million in scal 2012 to $10.3 million in scal 2013,
primarily as a result of the eect of realized gains on the sale of
base metals inventories which were carried at cost at September30,
2012, which was below market value. Physical base metals
adjusted operating revenues declined from $9.0 million in scal
2012 to ($1.1) million in scal 2013. is decline was primarily
a result of the decision made in the second quarter of scal
2013 to exit the physical base metals business. In conjunction
with the exit of the physical base metals, during the following
six months ended September 30, 2013, we paid premiums to
counterparties to exit forward contracts which contributed to the
decline in adjusted operating revenues. Operating revenues in our
continuing LME metals business, which operates in the nancial
exchange-traded markets increased 35% from $21.8 million in
scal 2012 to $29.6 million in scal 2013. ere is no dierence
between operating and adjusted operating revenues in our LME
metalsbusiness.
Segment income decreased from $66.2 million in scal 2012
to$59.6 million in scal 2013. Adjusted segment income
decreasedfrom $72.1 million to $46.1 million. Variable expenses
expressed as a percentage of operating revenues decreased from
40%to 39%. Variable expenses expressed as a percentage of
adjusted operating revenues increased from 39% to 41%.
e decrease in segment income primarily resulted from the
$21.1 million decline in soft commodities segment income
asaresult of the operating revenue decrease discussed above,
which was partially oset by the eect of realized gains on the