INTL FCStone 2013 Annual Report Download - page 71

INTLFCSTONEINC.Form10K50
PART II
ITEM7Management’s Discussion and Analysis of Financial Condition and Results ofOperations
agreements, we have obligations to pay additional consideration
if specic conditions and earnings targets are met. In accordance
with the Business Combinations Topic of the ASC, the fair value
of the additional consideration is recognized as a contingent
liability as of the acquisition date. e acquisition date fair
value of additional consideration is remeasured to its fair value
each reporting period, with changes in fair value recorded in
current earnings. e contingent liabilities for these estimated
additional discounted purchase price considerations totaled
$9.6 million as of September 30, 2013, and are included in
‘accounts payable and other accrued liabilities’ in the consolidated
balance sheets. We estimate cash payments during scal 2014, 2015
and 2016 related to these contingent liabilities, to be $1.6 million,
$4.8 million and $5.6 million, respectively.
We contributed $2.9 million to our dened benet pension
plans during the year ended September 30, 2013, and expect to
contribute $2.5 million to the plans during scal 2014, which
represents the minimum funding requirement.
Other Capital Considerations
Our activities are subject to signicant governmental regulations
and capital adequacy requirements, both in the United States
and overseas. Certain other of our non-U.S. subsidiaries are
also subject to capital adequacy requirements promulgated by
authorities of the countries in which they operate.
Our subsidiaries are in compliance with all of their capital
regulatory requirements as of September 30, 2013. Additional
information on these net capital and minimum net capital
requirements can be found in Note 13 of the Consolidated
Financial Statements.
e Dodd-Frank Act created a comprehensive new regulatory
regime governing the OTC and listed derivatives markets and
their participants by requiring, among other things: centralized
clearing of standardized derivatives (with certain stated exceptions);
the trading of clearable derivatives on swap execution facilities
or exchanges; and registration and comprehensive regulation
of new categories of market participants as “swap dealers” and
swap “introducing brokers.” We registered our subsidiary, INTL
Hanley LLC, as a swap dealer on December 31, 2012. Most of
the rules aecting this business have now been nalized, and
external business conduct rules came into eect on May 1,
2013. Nevertheless, some important rules, such as those setting
capital and margin requirements, have not been nalized or fully
implemented, and it is too early to predict with any degree of
certainty how we will be aected.
Cash Flows
Our cash and cash equivalents decreased from $236.3 million
as of September 30, 2012 to $156.1 million as of September 30,
2013, a net decrease of $80.2 million. Net cash of $44.9 million
was provided by operating activities, $5.1 million was provided
by investing activities and net cash of $129.7 million was used in
nancing activities, of which $157.2 million was repaid on lines
of credit and decreased the amounts payable to lenders under
loans, $12.0 million was paid out as earn-outs on acquisitions
and $3.9 million was used to repurchase shares. Fluctuations in
exchange rates caused a reduction of $0.5 million to our cash
and cash equivalents.
In the commodities industry, companies report trading activities
in the operating section of the statement of cash ows. Due to
the daily price volatility in the commodities market, as well as
changes in margin requirements, uctuations in the balances
of deposits held at various exchanges, marketable securities and
customer commodity accounts may occur from day-to-day. A
use of cash, as calculated on the consolidated statement of cash
ows, includes unrestricted cash transferred and pledged to the
exchanges or guarantee funds. ese funds are held in interest-
bearing deposit accounts at the exchanges, and based on daily
exchange requirements, may be withdrawn and returned to
unrestricted cash. Additionally, within our unregulated OTC
and Forex operations, cash deposits received from customers are
reected as cash provided from operations. Subsequent transfer
of these cash deposits to counterparties or exchanges to margin
their open positions will be reected as an operating use of cash
to the extent the transfer occurs in a dierent period than the
cash deposit was received.
In June 2012, the board of LME Holdings Limited (“LME
Holdings”), the parent company of the LME, entered into a
framework agreement regarding the terms of a recommended
cash oer for the entire issued and outstanding ordinary share
capital of LME Holdings. In July 2012, the shareholders of LME
Holdings approved the sale of LME Holdings to the Hong Kong
Exchanges & Clearing Limited. In December 2012, we received
proceeds of $8.6 million from the sale of our shares in the LME.
In December 2012, we sold our exchange membership seats in
the KCBT, in connection with the acquisition of the KCBT by
CME. We received proceeds of $1.5 million and recognized a
gain of $0.9 million before taxes, during the scal year ended
September 30, 2013, in connection with the sale of these seats.
Capital expenditures included in investing activities for property,
plant and equipment totaled $4.9 million in scal 2013, decreasing
from $8.7 million in scal 2012.
On November 15, 2012, our Board of Directors replaced the
August 12, 2011 authorized repurchase of up to 1.0 million
shares of its outstanding common stock with an authorization to
repurchase up to 1.5 million shares of our outstanding common
stock from time to time in open market purchases and private
transactions, subject to the discretion of the senior management
team to implement our stock repurchase plan, and subject to
market conditions and as permitted by securities laws and
other legal and regulatory requirements. During the year ended
September 30, 2013, we repurchased 200,109 shares of our
outstanding common stock in open market transactions, for an