INTL FCStone 2014 Annual Report Download - page 50

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INTL FCSTONE INC. Form 10K34
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Year Ended September 30, 2014 Compared to
Year Ended September 30, 2013
Compensation and Other Expenses: Compensation and other
expenses increased $7.5 million, or 3%, to $296.0 million in
fiscal 2014 compared to $288.5 million in fiscal 2013.
Compensation and Benefits: Total compensation and benefits
expenses increased 2% to $201.9 million in fiscal 2014 compared
to $198.7 million in fiscal 2013. Total compensation and benefits
were 63% of net operating revenues in fiscal 2014 compared to
64% of net operating revenues in fiscal 2013. e variable portion
of compensation and benefits increased 7% to $93.9 million in
fiscal 2014 compared to $88.0 million in fiscal 2013. Variable
compensation and benefits were 29% of net operating revenues
in fiscal 2014 compared to 28% in fiscal 2013. Administrative
and executive incentive compensation was $12.2 million in
fiscal 2014 compared to $11.5 million in fiscal 2013.
e fixed portion of compensation and benefits decreased 2%
to $108.0 million in fiscal 2014 compared to $110.7 million in
fiscal 2013. Non-variable salaries increased $1.1 million, or 1%.
Employee benefits increased $1.7 million in fiscal 2014. Share-based
compensation is also a component of the fixed portion, and
includes stock option and restricted stock expense. Stock option
expense was $1.4 million in fiscal 2014 compared to $1.9 million
in fiscal 2013. Restricted stock expense was $2.9 million in fiscal
2014 compared to $7.4 million in fiscal 2013. e decrease in
restricted stock expense is primarily related to the acceleration of
expense in the fourth quarter of fiscal 2013, resulting from the
retirement of an executive of one of our wholly owned subsidiaries.
e number of employees increased 4% to 1,141 at the end of
fiscal 2014 compared to 1,094 at the end of fiscal 2013.
Other Non-Compensation Expenses: Other non-compensation
expenses increased by 5% to $94.1 million in fiscal 2014 compared
to $89.8 million in fiscal 2013. Communication and data services
expenses increased $2.7 million, primarily due to increases in
market information expenses and trading software costs among
the Financial Ag’s & Energy OTC and LME businesses and
higher costs in our foreign exchange prime brokerage business
related to trade system conversions. Professional fees increased
$2.5 million, primarily due to consultancy costs for the FCStone
risk review, service costs related to our restatement of the 2012
and 2011 consolidated financial statements, and higher legal
costs. Depreciation and amortization decreased $0.7 million,
primarily due to lower amortization of intangible assets, as
certain intangibles became fully amortized during fiscal 2013.
Bad debts and impairments increased $4.7 million year-over-year.
During fiscal 2014, bad debts were $5.5 million, net of recoveries
of $0.2 million, including $3.8 million in our Commercial
Hedging segment, primarily related to account deficits from
a Hong Kong commercial LME customer and Brazilian OTC
Financial Ag’s & Energy customers. Additionally, we recorded
bad debts of $0.9 million in our Physical Commodities segment
related to renewable fuels activity in our Physical Ag’s & Energy
component, and $0.7 million in our Securities segment primarily
related to a charge-off of uncollectible service fees. During fiscal
2013, bad debts and impairments were $0.8 million, and included
$0.1 million of impairment charges on intangible assets and
$0.7 million of bad debt expense, net of recoveries of $0.1 million,
primarily related to a charge-off of uncollectible service fees in
our Securities segment.
Other expense decreased $4.7 million, primarily as a result of the
change in the revaluation of contingent liabilities related to certain
business combinations. During fiscal 2014, we revised downward
the additional consideration to be paid for the transfer of accounts
from Tradewire Securities, partially offset by an increase in the
additional consideration to be paid for the acquisition of Hencorp
Futures, netting to an expense recovery of $2.0 million. During
fiscal 2013, we accrued additional contingent consideration of
$3.0 million primarily related to the acquisitions of the Hanley
Companies and Hencorp Futures and the transfer of accounts
from Tradewire Securities. Additionally, increases in non-trading
technology costs and hosted conferences were partially offset by
fiscal 2013 including a regulatory settlement of $1.5 million –
See Note 11 to the Consolidated Financial Statements.
Provision for Taxes: e effective income tax rate on income
from continuing operations was 25% in fiscal 2014 compared
to 13% in fiscal 2013. e effective income tax rate can vary
from period to period depending on, among other factors, the
geographic and business mix of our earnings. In fiscal 2013, we
released a portion of the valuation allowance for state net operating
loss carryforwards and changed our state tax rate, resulting in a
decrease in the effective tax rate. Generally, when the percentage
of pretax earnings generated from the U.S. decreases, our effective
income tax rate decreases.
Year Ended September 30, 2013 Compared to
Year Ended September 30, 2012
Compensation and Other Expenses: Compensation and other
expenses increased $4.8 million, or 2%, to $288.5 million in
fiscal 2013 compared to $283.7 million in fiscal 2012.
Compensation and Benefits: Total compensation and benefits
expenses increased modestly to $198.7 million in fiscal 2013
compared to $197.2 million in fiscal 2012. Total compensation
and benefits were 64% of net operating revenues in fiscal 2013
and fiscal 2012. e variable portion of compensation and
benefits decreased 9% to $88.0 million in fiscal 2013 compared to
$96.4 million in fiscal 2012. Administrative and executive incentive
compensation was $11.5 million in fiscal 2013 compared to
$14.1 million in fiscal 2012.
e fixed portion of compensation and benefits increased 10%
to $110.7 million in fiscal 2013 compared to $100.8 million
in fiscal 2012, related to increases in non-variable salaries,