INTL FCStone 2014 Annual Report Download - page 49

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INTL FCSTONE INC. Form 10K 33
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Year Ended September 30, 2013 Compared to
Year Ended September 30, 2012
Transaction-based clearing expenses: Transaction-based clearing
expenses increased 5% to $110.1 million in fiscal 2013 compared
to $105.3 million in fiscal 2012, and were 24% of operating
revenues in fiscal 2013 compared to 23% in fiscal 2012. e
increase in expense was primarily related to higher ADR conversion
and exchange fees in the Securities segment activities, which
resulted from internal revenue growth as well as the acquisition
of the accounts of Tradewire Securities in the Securities segment.
Introducing broker commissions: Introducing broker
commissions increased 31% to $40.5 million in fiscal 2013
compared to $31.0 million in fiscal 2012, and were 9% of operating
revenues in fiscal 2013 compared to 7% in fiscal 2012. e increase
was primarily due to the addition of several new introducing broker
relationships, particularly in our CES segment, that followed the
bankruptcy filing of MF Global in October 2011. Additionally,
expanded activities through our acquisitions of the LME metals
team and the accounts of Tradewire Securities resulted in an
increase in introducing broker commission expenses.
Interest expense: Interest expense increased to $7.9 million
in fiscal 2013 compared to $5.6 million during fiscal 2012.
e increase was primarily due to higher average outstanding
borrowings during fiscal 2013 compared to fiscal 2012, on our
loan facilities used for working capital needs and commodity
financing and facilitation. On July 22, 2013, we completed the
offering of $45.5 million aggregate principal amount of our
8.5% Senior Notes due July 2020, which added $0.8 million
of interest expense in fiscal 2013.
Net Operating Revenues
Net operating revenues is one of the key measures used by
management to assess the performance of our operating
segments. Net operating revenue is calculated as operating
revenue less transaction-based clearing expenses, introducing
broker commissions and interest expense. Transaction-based
clearing expenses represent variable expenses paid to executing
brokers, exchanges, clearing organizations and banks in relation
to our transactional volumes. Introducing broker commissions
include commission paid to non-employee third parties that
have introduced customers to us. Net operating revenues
represent revenues available to pay variable compensation
to risk management consultants and traders and direct non-
variable expenses, as well as variable and non-variable expenses
of operational and administrative employees.
Year Ended September 30, 2014 Compared to
Year Ended September 30, 2013
Net operating revenues increased $12.3 million, or 4%, to
$322.0 million in fiscal 2014 compared to $309.7 million in
fiscal 2013.
Year Ended September 30, 2013 Compared to
Year Ended September 30, 2012
Net operating revenues increased $3.5 million, or 1%, to
$309.7 million in fiscal 2013 compared to $306.2 million
in fiscal 2012.
Compensation and Other Expenses
e following table shows a summary of expenses, other than interest and transactional expenses.
(in millions)
Year Ended September 30,
2014 % Change 2013 % Change 2012
COMPENSATION AND BENEFITS:
Fixed compensation and benefits $ 108.0 (2)% $ 110.7 10% $ 100.8
Variable compensation and benefits 93.9 7% 88.0 (9)% 96.4
201.9 2% 198.7 1% 197.2
OTHER NONCOMPENSATION EXPENSES:
Communication and data services 25.8 12% 23.1 3% 22.4
Occupancy and equipment rental 12.3 3% 12.0 9% 11.0
Professional fees 14.9 20% 12.4 (2)% 12.6
Travel and business development 9.9 (5)% 10.4 —% 10.4
Depreciation and amortization 7.3 (9)% 8.0 11% 7.2
Bad debts and impairments 5.5 588% 0.8 (47)% 1.5
Other expense 18.4 (20)% 23.1 8% 21.4
94.1 5% 89.8 4% 86.5
Total compensation and other expenses $ 296.0 3% $ 288.5 2% $ 283.7