INTL FCStone 2014 Annual Report Download - page 48

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INTL FCSTONE INC. Form 10K32
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
exchange markets and declining performance on our arbitrage
desk. See Segment Information below for additional information
on activity in each of the segments.
Year Ended September 30, 2013 Compared to
Year Ended September 30, 2012
Operating revenues for fiscal 2013 and fiscal 2012 were
$468.2 million and $448.1 million, respectively. e $20.1 million,
or 4%, increase in operating revenue primarily resulted from
revenue growth in our Securities, CES and Physical Commodity
segments. Operating revenues in the CES and Physical Commodity
segments segments increased $9.4 million and $7.7 million,
respectively, while Securities segment revenues increased
$22.4 million or 47% over the prior year. In addition, Global
Payments revenues increased $1.9 million over the prior year.
ese increases were partially offset by a $28.7 million decline
in our Commercial Hedging segment. In addition, fiscal 2013
operating revenues included a $9.2 million realized gain on the
sale of shares of the LME and KCBT.
Operating revenues in our Commercial Hedging segment
decreased 12% to $202.0 million, primarily as a result of a
$36.1 million decline in OTC revenues driven by a 23% decline
in OTC volumes, as well as a $2.9 million decline in agricultural
exchange-traded revenues as a result of the consecutive droughts
of 2011 and 2012 in the U.S. grain markets. OTC volumes
declined as a result of a reduction in customer activity, primarily
in the Latin American and Brazilan markets. ese declines
were partially offset by an $8.0 million increase in LME metals
revenues as that product line continued to grow following the
acquisition of the business in early fiscal 2012.
Operating revenues in our Global Payments segment increased
$1.9 million to $40.9 million in fiscal 2013 compared to
fiscal 2012, driven by a 16% increase in the number of global
payments made as we had continued success in on-boarding
financial institutions to our electronic transaction order system,
however these volume gains were tempered by a decline in spreads
in this business.
Our Securities segment experienced strong revenue growth of 47%,
or $22.4 million, primarily driven by a 126% increase in the gross
dollar volume traded, as a result of improved market conditions
and the acquisition of accounts from Tradewire Securities late in
the first quarter of fiscal 2013. e addition of the accounts of
Tradewire Securities added $4.3 million incremental debt-trading
revenues, as well as expansion of our export financing business.
Investment banking revenues increased $2.9 million, while asset
management revenues increased $1.1 million.
Physical Commodity segment operating revenues increased as
the result of a 35% increase in precious metals revenues despite
a 28% decline in the number of ounces traded, while physical
agricultural and energy revenues increased $4.0 million, or
51%, as revenues in both commodity financing arrangements
and commodity origination sales increased over the prior year.
Operating revenues in our CES segment increased as exchange-
traded commission and clearing fee revenues increased $9.4 million
as a result of a 5% increase in our average rate per contract while
volumes remained relatively flat with the prior year. In addition,
operating revenues in our customer prime brokerage product
line increased $2.5 million, despite a 21% decrease in foreign
exchange volumes as a result of an increase in spreads realized
in that business. See Segment Information below for additional
information on activity in each of the segments.
In fiscal 2013, operating revenues included 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 fiscal 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 fluctuate from period to
period, were recorded in earnings on a quarterly basis. e
last remaining interest rate swap expired in the fourth quarter
of fiscal 2013.
Interest and Transactional Expenses
Year Ended September 30, 2014 Compared to
Year Ended September 30, 2013
Transaction-based clearing expenses: Transaction-based clearing
expenses decreased 1% to $108.5 million in fiscal 2014 compared to
$110.1 million in fiscal 2013, and were 22% of operating revenues
in fiscal 2014 compared to 24% in fiscal 2013. Decreases in expense
in our CES segment, resulting from lower exchange-traded contract
volumes and FX prime brokerage activities, were nearly offset by
higher ADR conversion fees in our Securities segment’s equity
market-making business and exchange clearing costs in our LME
metals activities in our Commercial Hedging segment.
Introducing broker commissions: Introducing broker
commissions increased 23% to $49.9 million in fiscal 2014
compared to $40.5 million in fiscal 2013, and were 10% of
operating revenues in fiscal 2014 compared to 9% in fiscal 2013.
is increase is primarily due to the higher volume of payments
in our Global Payments segment, and an increase in LME metals
activity. Also, increased activity in our Financial Ag’s & Energy
component of our Commercial Hedging segment resulted in an
increase in introducing broker commission expenses.
Interest expense: Interest expense increased to $10.5 million in
fiscal 2014 compared to $7.9 million in fiscal 2013. is increase
is primarily related to the coupon interest and amortization of
related debt financing costs, which aggregate to $1.1 million
per quarter, related to our offering of 8.5% Senior Notes due
July 2020 completed during the fourth quarter of fiscal 2013.
e increase was partially offset by a decrease in interest expense
related to commodity financing and facilitation activities due
to lower average outstanding borrowings during fiscal 2014.