INTL FCStone 2014 Annual Report Download - page 120

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INTL FCSTONE INC. Form 10K104
PART II
ITEM 8 Financial Statements and Supplementary Data
appropriate exchange for execution. e Company then facilitates
the clearing of clients’ transactions. Clearing involves the matching
of clients’ trades with the exchange, the collection and management
of client margin deposits to support the transactions, and the
accounting and reporting of the transactions to customers. e
Company seeks to leverage its capabilities and capacity by offering
facilities management or outsourcing solutions to other FCMs.
In addition, the Company provides prime brokerage foreign
exchange services to financial institutions and professional
traders. e Company provides its customers with the full range
of OTC products, including 24 hour execution of spot, forwards
and options as well as non-deliverable forwards in both liquid
and exotic currencies. e Company also operates a proprietary
foreign exchange desk which arbitrages the exchange-traded
foreign exchange markets with the cash markets.
********
e total revenues reported combine gross revenues for the
physical commodities business and net revenues for all other
businesses. In order to reflect the way that the Company’s
management views the results, the tables below also reflect the
segment contribution to ‘operating revenues’, which is shown
on the face of the consolidated income statements and which
is calculated by deducting physical commodities cost of sales
from total revenues.
Segment data includes the profitability measure of net contribution
by segment. Net contribution is one of the key measures used by
management to assess the performance of each segment and for
decisions regarding the allocation of the Company’s resources.
Net contribution is calculated as revenue less direct cost of sales,
transaction-based clearing expenses, variable compensation,
introducing broker commissions, and interest expense. Variable
compensation paid to risk management consultants/traders
generally represents a fixed percentage of an amount equal to
revenues generated, and in some cases, revenues produced less
transaction-based clearing charges, base salaries and an overhead
allocation.
Segment data also includes segment income which is calculated
as net contribution less non-variable direct expenses of the
segment. ese non-variable direct expenses include trader base
compensation and benefits, operational employee compensation
and benefits, communication and data services, business
development, professional fees, bad debts and other direct expenses.
Inter-segment revenues, charges, receivables and payables are
eliminated upon consolidation, except revenues and costs related
to foreign currency transactions undertaken on an arm’s length
basis by the foreign exchange trading business for the securities
business. e foreign exchange trading business competes for
this business as it does for any other business. If its rates are not
competitive, the securities businesses buy or sell their foreign
currency through other market counterparties.
On a recurring basis, the Company sweeps excess cash from
certain operating segments to a centralized corporate treasury
function in exchange for an intercompany receivable asset. e
intercompany receivable asset is eliminated during consolidation,
and therefore this practice may impact reported total assets
between segments.