INTL FCStone 2014 Annual Report Download - page 58

INTL FCSTONE INC.  Form 10K42
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
Operating revenues increased 15% to $80.3 million in
fiscal 2014 compared to $70.0 million in fiscal 2013.
Operating revenues from equity market-making increased
3%, to $40.2 million in fiscal 2014 compared to fiscal 2013,
primarily as a result of a 29% increase in the gross dollar volume
traded due to an increase in customer demand for our services,
given the overall increase in industry volumes. e impact on
operating revenues from increased volume was partially offset
by a narrowing of margins.
Operating revenues from debt trading increased 30% to
$16.7 million in fiscal 2014 compared to fiscal 2013. e
increase in operating revenues was a result of an increase in
export financing revenues, as well as increased customer activity
in Latin America and Argentina. Investment banking operating
revenues increased 1% in fiscal 2014 compared to fiscal 2013,
while asset management revenues increased 59% in fiscal 2014
compared to fiscal 2013 driven by both an increase in assets
under management and performance of the underlying funds.
Average assets under management were $530.9 million in
fiscal 2014 compared to $462.3 million in fiscal 2013.
Segment income increased 8% to $21.0 million in fiscal 2014
compared to $19.5 million in fiscal 2013 primarily as a result
of the increase in operating revenues, partially offset by a
$1.4 million increase in non-variable compensation and benefits.
Variable expenses expressed as a percentage of operating revenues
increased to 46% in fiscal 2014 compared to 44% in fiscal 2013,
driven by an increase in introducing broker commissions and
variable direct compensation and benefits.
Year Ended September 30, 2013 Compared to
Year Ended September 30, 2012
Operating revenues increased 47% to $70.0 million in
fiscal 2013 compared to $47.6 million in fiscal 2012.
Operating revenues from equity market-making increased 56%,
to $39.1 million in fiscal 2013 compared to fiscal 2012, primarily
as a result of a 126% increase in the gross dollar volume traded,
as a result of improved market conditions and the transfer of
accounts from Tradewire Securities late in the first quarter of
fiscal 2013, partially offset by an overall narrowing of margins.
Operating revenues from debt trading increased 51% to
$12.8 million in fiscal 2013 compared to fiscal 2012. e
increase in operating revenues was a result of an increase in export
financing revenues, increased customer activity in Argentina and
the transfer of accounts from Tradewire Securities. Investment
banking operating revenues increased 45% to $9.3 million in
fiscal 2013 compared to fiscal 2012, while asset management
revenues increased 14% in fiscal 2013 compared to fiscal 2012
driven by an 8% increase in assets under management. Average
assets under management were $462.3 million in fiscal 2013
compared to $428.6 million in fiscal 2012.
Segment income increased 153% to $19.5 million in fiscal 2013
compared to $7.7 million in fiscal 2012, primarily as a result of
the increase in operating revenues. Variable expenses expressed
as a percentage of operating revenues were 44% in fiscal 2013
compared to 45% in fiscal 2012.
Physical Commodities
is segment consists of our physical precious metals trading
and physical agricultural and energy commodity businesses. In
precious metals, we provide a full range of trading and hedging
capabilities, including OTC products, to select producers,
consumers, and investors. In our trading activities, we act as a
principal, committing our own capital to buy and sell precious
metals on a spot and forward basis.
Our physical agricultural and energy commodity business
provides financing to commercial commodity-related companies
against physical inventories, including grain, lumber, meats,
energy products and renewable fuels. We use sale and repurchase
agreements to purchase commodities evidenced by warehouse
receipts, subject to a simultaneous agreement to sell such
commodities back to the original seller at a later date. ese
transactions are accounted for as product financing arrangements,
and accordingly no commodity inventory, purchases or sales
are recorded. Additionally, we engage as a principal in physical
purchase and sale transactions related to inputs to the renewable
fuels and feed ingredient industries.
We record our physical commodities revenues on a gross basis.
Operating revenues and losses from our commodities derivatives
activities are included in ‘trading gains, net’ in the consolidated
income statements. Inventory for the commodities business is
valued at the lower of cost or fair value under the provisions of
the Inventory Topic of the ASC. We generally mitigate the price
risk associated with commodities held in inventory through
the use of derivatives. We do not elect hedge accounting under
U.S. GAAP in accounting for this price risk mitigation. In such
situations, unrealized gains in inventory are not recognized under
U.S. GAAP, but unrealized gains and losses in related derivative
positions are recognized under U.S. GAAP. As a result, our
reported earnings from physical commodities trading may be
subject to significant volatility, and these requirements may have
a temporary impact on our reported earnings.
Following the discontinuance of our physical base metals business,
we believe the effects of these requirements on our results have
lessened and whereas we previously managed this business segment
as well as assessed our overall performance on an adjusted marked-
to-market basis, we now manage both on a U.S. GAAP basis.