2015
ANNUAL REPORT
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OPERATING REVENUES (in millions)
2015
2014
2013
2012
2011
$624.3
$490.9
$468.2
$448.1
$398.9
INCOME FROM CONTINUING OPERATIONS, BEFORE TAX (in millions)
2015
2014
2013
2012
2011
$26.0
$21.2
$22.5
TOTAL ASSETS (in millions)
2015
2014
2013
2012
2011
STOCKHOLDERS’ EQUITY (in millions)
$78.1
$5,070.0
$48.1
$3,039.7
$2,848.0
$2,953.0
$397.1
$345.4
$335.4
$2,632.0
2015
2014
2013
2012
2011
NET ASSET VALUE PER SHARE
2015
2014
2013
2012
2011
$313.2
$292.6
$21.11
$18.29
$17.46
$16.50
$15.69
2015 | Annual Report
(in millions, except share and per share amounts)
2015
2014
2013
2012
2011
Year Ended September 30,
Operating revenues
Transaction-based clearing expenses
Introducing broker commissions
Interest expense
Net operating revenues
Compensation and other expenses:
$624.3
122.7
52.7
17.1
431.8
$490.9
108.5
49.9
10.5
322.0
$468.2
110.1
40.5
7.9
309.7
$448.1
105.3
31.0
5.6
306.2
$398.9
75.4
24.0
6.4
293.1
Compensation and benefits
251.1
201.9
198.7
197.2
170.6
Communication and data services
Occupancy and equipment rental
Professional fees
Travel and business development
Depreciation and amortization
Bad debts and impairments
Other
Total compensation and other expenses
Income from continuing operations, before tax
Income tax expense
Net income from continuing operations
(Loss) income from discontinued operations, net
of tax
Net income
Add: Net loss attributable to noncontrolling
interests
Net income attributable to INTL FCStone Inc.
common stockholders
Earnings per share:
Basic
Diluted
Number of shares:
Basic
Diluted
Selected Balance Sheet Information:
Total assets
Lenders under loans
Senior unsecured notes
Convertible notes
Stockholders’ equity
Other Data:
Return on average stockholders’ equity (from
continuing operations) (a)
EBITDA
Employees, end of period
Compensation and benefits as a percentage of
operating revenues
28.1
13.5
12.5
10.5
7.2
7.3
23.5
353.7
78.1
22.4
55.7
—
55.7
—
25.8
12.3
14.9
9.9
7.3
5.5
18.4
296.0
26.0
6.4
19.6
-0.3
19.3
—
23.1
12.0
12.4
10.4
8.0
0.8
23.1
288.5
21.2
2.6
18.6
0.7
19.3
—
22.4
11.0
12.6
10.4
7.2
1.5
21.4
283.7
22.5
5.5
17.0
-4.3
12.7
0.1
15.4
8.9
10.3
8.0
4.7
5.8
21.3
245.0
48.1
18.2
29.9
4.8
34.7
0.1
$55.7
$19.3
$19.3
$12.8
$34.8
$2.94
$2.87
$1.01
$0.98
$1.01
$0.97
$0.67
$0.64
$1.93
$1.83
18,525,374
18,528,302
18,443,233
18,282,939
17,618,085
18,932,235
19,132,302
19,068,497
19,156,899
18,567,454
$5,070.0
$3,039.7
$2,848.0
$2,953.0
$2,632.0
$41.6
$45.5
—
$22.5
$45.5
—
$61.0
$45.5
—
$218.2
—
—
$397.1
$345.4
$335.4
$313.2
15.0%
$102.4
1,231
5.8%
$43.8
1,141
5.7%
$37.1
1,094
5.6%
$35.3
1,074
$77.4
—
$16.7
$292.6
11.2%
$59.2
904
40.2%
41.1%
42.4%
44.0%
42.8%
(a) For all periods presented, the return on average stockholders’ equity (from continuing operations) excludes the effects of
discontinued operations and net loss attributable to noncontrolling interests.
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Annual Report | 2015
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A diversified, global financial services organization, INTL FCStone Inc. provides financial products
and advisory and execution services to help our clients access market liquidity, maximize profits and
manage risk.
Our history and culture of innovation allows us to provide the maximum flexibility and options for our
customers, and supports our leadership in complex markets and businesses around the world. We excel
in opening markets for under-served mid-market clients, including small and mid-sized clients seeking
insights and guidance, as well as larger institutions seeking access to niche markets.
We are a leader in the development of specialized financial services in commodities, securities, global
payments, foreign exchange and other markets. We create added value for our clients by providing
access to global financial markets using our industry and financial expertise, deep partner and
network relationships, insight and guidance, and integrity and transparency. Our client-first approach
differentiates us from large banking institutions, engenders trust, and has enabled us to establish
leadership positions in a number of complex fields in financial markets around the world.
A well-capitalized and regulatory-compliant organization, our businesses are supported by our global
infrastructure of regulated operating subsidiaries, advanced technology platform and team of more
than 1,200 employees. We currently serve more than 20,000 clients, located in more than 130 countries.
Our clients include producers, processors and end-users of nearly all widely traded physical
commodities; commercial counterparties who are end-users of our products and services; governmental
and non-governmental organizations; and commercial banks, brokers, institutional investors and major
investment banks.
Our opportunities vary from mid-sized commercial entities’ need for more sophisticated risk
management as exposure to markets increases, to emerging markets looking for more comprehensive
access to international futures and securities exchanges. Our customer-centric approach tends to lead
to long-term client relationships and annuity-like revenue for the company.
2015 | Annual Report
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Access to
36 Global
Exchanges
$449 Billion
FX Prime
Brokerage
1.6 Million
OTC Contracts
Traded
$56 Million
Net Income
126 Million
Gold Ounces
Traded
$1.8 Billion
Segregated
Funds
$397 Million
Equity
$107 Billion
Equity Market
Making
$624 Million
Operating
Revenue
$102 Million
EBITDA
1,200
Employees
Globally
100 Million
Exchange
Contracts
Traded
Managing
Business in
more than 130
Countries
Annual Report | 2015
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As we look back at the 2015 fiscal year, we have every reason to feel gratified about our results
and confident about the coming year. While we can always perform better and will never become
complacent, it is fitting at this juncture to reflect with some degree of satisfaction on our results and on
the long-term strategies that led us to where we are today.
Among the many strategically driven initiatives we either completed or substantially advanced during
FY2015 was a successfully completed consolidation of four of our U.S. subsidiaries, a complex process
that is already yielding more effective utilization of our capital resources and more efficient and
streamlined service for our clients.
We also acquired a fixed income firm, G.X. Clarke, resulting in an immediate accretive effect on our
earnings; continued our implementation of an interest-rate management program that has already
returned substantial results; and continued to develop and expand our core strategy of providing
advisory services and risk management to middle market companies across the globe. Lastly, we have
instituted a comprehensive sales process in an effort to expand our market share in new regions and
industries, and to increase our business with new customers as well as existing ones.
There also have been a number of gradual but perceptible changes in macroeconomic trends working
in our favor over the past fiscal year, including an increase in market volatility to more-normal levels
after the abnormal events following recent years’ financial crises. In addition, new regulations, while
costly and difficult to implement, made our competitive space less attractive for major banks and more
expensive and difficult for smaller FCMs, even while we have made a concerted and successful effort
over the past few years to adjust to this new regulatory environment.
As a result of all of these factors – and of the hard work of our dedicated employees around the globe
– we experienced an approximate 34% increase in net operating revenues and an approximate 189%
increase in net income. The return on equity was 15%, both a major achievement and an attractive
alternative to the risk-free one year treasury, which is currently returning approximately 70 basis
points! This performance did not go unnoticed and our stock price appreciated approximately 90%
over the past 12 months, an indication that our investors and the market recognize that we are moving
in the right direction and beginning to reap the benefits of hard work, the implementation of strategic
initiatives and our emphasis on core disciplines.
Taken all together, we have every reason to be highly optimistic about our future as a firm, just so
long as we continue to focus on our strengths, maintain our commitment to serving our customers, and
continue to enhance our competitive position.
2015 | Annual Report
Lastly, this 2015 annual report would not be complete without recognizing
the invaluable contributions, past and present, of Scott Branch, who has
announced his retirement from executive duties as of the end of calendar
year 2016. Without Scott’s strategic capabilities, his vision, and his
commitment to a business model that continues to prove its efficacy in the
marketplace, we would not by any measure be the company we are today.
Many thanks are due to Scott, and I am glad to confirm that he will continue
his association with our firm as a member of the Board of Directors. Thank
you, also, to our management and employees for their continuing efforts and
to our shareholders for their loyalty and support.
JOHN RADZIWILL
Chairman
Compound
Growth
2011-2015:
19%
OPERATING
REVENUES
38%
INCOME FROM
CONTINUING
OPERATIONS,
BEFORE TAX
11%
STOCKHOLDERS’
EQUITY
9%
NET BOOK VALUE
PER SHARE
Annual Report | 2015 ’
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2015 was an excellent year for the Company, a year in which we expanded our market share in every
area, met our long-term financial targets and achieved record financial results. This performance
is a validation of our strategy to take a long-term view of our business, to invest, and to expand our
capabilities despite the difficult market conditions prevalent at the time.
INTL FCStone achieved record net earnings of $55.7 million (up 189%) on record operating revenues of
$624.3 million (up 27%). Our Earnings per Share (EPS) was also a record at $2.94, up 189% from a year
ago.
We also achieved our long-term target of 15% Return on Equity (ROE), which we believe is a best-in-class
performance in our industry.
It is interesting to note that our net earnings in 2015 exceeded that of the previous three years
combined, and that our exceptional fourth quarter results exceed those in each of the previous three
years.
We experienced strong growth in transaction volumes across the board, with global payments volumes
up 70%, foreign exchange up 45%, gold trading up 60%, equity market making up 44%, Over the Counter
(OTC) up 24% and exchange traded volumes up 7%. These exceptional transactional volume increases
were in stark contrast to industry statistics and indicative of INTL FCStone’s increasing share across the
board.
During 2015, we expanded our product capabilities and client footprint through the acquisition of the
G.X. Clarke rates business. This is a well-respected and recognized business providing value-added trade
ideas and principal execution in treasuries, agencies, mortgage-backed and other securities to more
than 600 institutional clients. This business has exceeded our expectations so far and we look forward to
further expanding the product set and client base in the coming years.
During 2015, we saw our Global Payments business and our Securities segments achieving critical mass.
Global Payments achieved this as a result of strong organic growth, and in Securities this was as a result
of the G.X. Clarke acquisition combined with strong organic growth in core equities activities. This is a
significant development which has resulted in a more balanced and more diverse earnings base for the
Company.
OUR PHILOSOPHY
In 2003, the current management team reconfigured the Company as a provider of financial services
focused on under-served clients in niche markets. From the outset, we have had to earn our way into
relationships by means of deep and specialized knowledge of our clients’ markets, high-touch, value-
added service, and a total and unwavering commitment to serving our clients’ best interests. As we have
continued to grow, our client-first philosophy and culture has become deeply embedded in all that
we do. Please take the time to read our Corporate Vision statement on our website, which sets out the
deeply held values and principles that we as an organization stand for.
Our common sense approach has allowed us to grow and prosper as the financial markets have endured
wrenching change. From the original group of less than 10 professionals 12 years ago, we now employ
more than 1,200 professionals serving more than 20,000 business relationships located in nearly every
country across the globe.
2015 | Annual Report
“We achieved
record operating
revenues of
$624.3 million,
up 27% from the
previous year.”
FINANCIAL RESULTS
Our overall segment net income increased by $59.3 million to $188.1 million,
up 46% versus a year ago. All of our segments showed strong growth in net
segment income except for physical commodities, which was unchanged on
the year.
Commercial Hedging, our largest segment, provided an incremental $18.3
million in net segment income (up 27% from 2014). Our exchange-traded
business was driven principally by strong continued growth in our London
Metal Exchange (LME) metals business, and steady growth in agricultural and
energy markets.
The OTC volume growth was driven by increases in use of structured
products in domestic grains and strong growth in the softs business.
Our Global Payments segment experienced strong organic growth, adding
$15.0 million in net segment income – up 53% for the year, and now attaining
critical mass. This business is our most scalable platform and has the
highest margin of any of our businesses. We are still in the early innings of
the adoption phase with many of our large banking clients, which should
continue to drive strong transaction volumes and net segment income.
Our Securities segment added $19.5 million on incremental segment income,
up 93%. This was due both to the acquisition of the rates business in January
2015 (included for 9 months) as well as a strong performance from the equity
market making business where we solidified our market leading position.
The Clearing and Execution Services (CES) segment provided an incremental
$6.6 million in segment income, up 105%. This increase was driven by slightly
higher volumes and better pricing on futures and a stronger performance by
the foreign exchange prime brokerage activity.
Lastly, our Physical Commodities segment was flat versus a year ago, with a
strong performance in precious metals offset by a weaker performance in
grains and softs markets.
Our client funds (segregated funds) remained fairly constant at $1.8 billion.
However, we were more active in managing and optimizing our exposure to
interest rates by investing in longer-duration instruments on a laddered basis.
This resulted in an increase in interest earnings of $5.2 million or 90% in our
Commercial Hedging and Clearing and Execution Services segments.
To establish the most flexible cost structure to protect our bottom line,
we aim to have more than 50% of our total costs as variable and linked to
revenue. For 2015, we achieved this objective with 59% of our total costs
variable and only 41% fixed, an improved ratio compared to 2014.
Annual Report | 2015 Fixed compensation and other fixed costs were $217.9 million, up around 8%; the acquisition of the rates
business accounting for most of this increase. We were relatively encouraged by the low increase in
fixed costs (net of acquisition impact) despite increasing expenses associated with growing regulatory
requirements and increased data costs from exchanges.
Variable expenses were $311.2 million, up 23% in line with improved revenues.
The past fiscal year also marked the completion of the consolidation of two major operating entities
in the U.S., our FCM and broker-dealer. This follows the merger of our U.K. operating subsidiaries. This
consolidation will allow us to provide all of our products more seamlessly to our growing client base as
well as leverage our capital and infrastructure more effectively and efficiently. We anticipate receiving
regulatory guidance on the capital requirement for our swap-dealer during the coming year, and if
appropriate, will be merging our swap-dealer into the U.S. broker-dealer/FCM.
We concluded fiscal 2015 in a strong financial position, with almost $400mm in shareholders equity and
$38.0 million in outstanding borrowings versus $280 million in committed facilities. Our book value per
share increased to $21.11, up 15.4% for the year.
Total assets were at $5,070.0 million at the end of the fiscal 2015, a 67% increase over the prior year.
LOOKING FORWARD
As noted in our previous Letters to Shareholders, we believe in the importance of managing our business
for the long-term, and a 15% ROE remains an important goal that we will continue to pursue. This
target will not always be met – especially when we have industry headwinds or when we decide to
invest in new capabilities or markets as was the case in previous years. Also, this long-term target may
be exceeded when we experience exceptional market conditions, as was the case in the fourth quarter
when we achieved 21% ROE.
Generally speaking, we believe market conditions for our business have been improving incrementally
but steadily over the last year or two, although they still remain constrained by coordinated and
unprecedented central bank intervention. This has had the effect of keeping volatility and interest rates
low, both of which negatively impact our business. After much debate and speculation, it does seem
that the slow return to a more normal market environment is about to start, something that should
provide a favorable environment for us.
We believe that we are now uniquely placed in the ever-changing financial services industry to provide
execution, market intelligence, advisory services and post-trade clearing services in nearly every
asset class and market globally. As a consequence, we are ideally positioned to take advantage of
consolidation among smaller mono-line firms struggling with increased costs and capital requirements,
as well as the retreat of the larger banks from serving smaller mid-sized clients requiring a multi-asset
execution capability.
2015 | Annual Report We also have a unique global payments business which provides a “last mile”
capability in more than 130 international markets. During 2015, this business
gained critical mass and has now become a leading provider of international
payments services to many of the world’s largest banks. This is a fast-
growing, highly scalable business with very high net margins.
We believe (and are being told by many investment banks and private equity
firms) that this is an extremely valuable property. To allow our shareholders
to have a better appreciation for this tremendous business, we broke it out as
a separate segment in 2014.
We continue to believe that our business model is a strong and effective
one – “solving real problems for real clients.” Our client-centric, value-added
approach, combined with diverse and, in many instances, complementary
capabilities, has allowed us to leverage our client relationships, expertise
and capital to deliver better returns than most of our peers. We continue
to take a disciplined approach to running our business as we seek to grow
through organic growth and, where appropriate to our business model and
accretive to our shareholders, new acquisition opportunities.
At the end of the fiscal year Scott Branch announced that he would be
retiring at the end of 2016. Scott and I started the company 13 years ago
and have worked together for close to 20 years and enjoyed a business
partnership that has been extraordinarily successful and rewarding both
professionally and personally and is rare to find. It is impossible to fully
quantify Scott’s impact and imprint on the business and we all thank him
for his enormous contribution. Scott will remain as a shareholder and board
member and we hope to continue to have his guidance and advice for many
years to come.
The executive management team would like to thank all of our colleagues
for their exceptional contributions during this very productive and record
year, our Board and advisors for their guidance, our bankers for their
financial support and our stockholders for entrusting their capital to us.
SEAN M. O’CONNOR
Chief Executive Officer
“We believe that
we are now
uniquely placed
to provide
execution, market
intelligence,
advisory services
and post-trade
clearing services
in nearly every
asset class and
market globally.”
Annual Report | 2015 Headquarters: New York (US)
708 Third Avenue, Suite 1500
New York, NY 10017, USA
Tel: +1 212 485-3500
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2015 | Annual Report
US Offices
Chicago (IL)
+1 800 504-5633
Bloomfield (NE)
+1 402 861-2522
Bloomington (IL)
+1 800 747-7001
Boca Raton (FL)
+1 561 544-7611
Bowling Green (OH)
+1 800 238-4146
Indianapolis (IN)
+1 866 825-7942
Jersey City (NJ)
+1 201 200-3600
Kansas City (MO)
+1 800 255-6381
Lawrence (KS)
+1 785 338-9230
Miami (FL)
+1 305 925-4900
Minneapolis (MN)
+1 800 447-7993
Mobile (AL)
+1 251-295-9432
Nashville (TN)
+1 615 724-2225
New York (NY)
+1 212 766-0100
Omaha (NE)
+1 800 228-2316
Orlando (FL)
+1 800 541-1977
St. Louis (MO)
+1 800 888-4254
Twin Falls (ID)
+1 800 635-0821
West Des Moines (IA)
+1 800 422-3087
International Offices
Asunción (Paraguay)
+595 21 624 197
Beijing (China)
+86 10 651 30855
Bogota (Colombia)
+57 1 6040021
Buenos Aires (Argentina)
+54 11 4390 7595
Campinas (Brazil)
+55 19 2102 1300
Ciudad del Este (Paraguay)
+595 21 624 197
Dubai (United Arab Emirates)
+971 4 47 8500
Dublin (Ireland)
+353 1 6349140
Goiânia (Brazil)
+55 62 3432 7912
Hong Kong (China)
+852 3469 1900
London (United Kingdom)
+44 20 3580 6000
Maringá (Brazil)
+55 44 3033 6800
Passo Fundo (Brazil)
+51 54 2103 0200
Recife (Brazil)
+55 81 3040 1900
São Paulo (Brazil)
+55 11 3509 5400
Shanghai (China)
+86 21 5108 1234
Singapore (Singapore)
+65 6309 1000
Sorriso (Brazil)
+55 66 3212 4130
Sydney (Australia)
+61 2 809 42000
INTL FCStone provides clients globally with a comprehensive
range of customized financial services and tools to help them
protect their margins, manage volatility and efficiently access
global markets.
Annual Report | 2015 Corporate Governance Statement
The Company is committed to high standards of corporate governance and has put in place a framework that fosters good
governance, is practical for a company of our size and satisfies our current listing and regulatory requirements. The Company has
instituted a Code of Ethics that demands honest and ethical conduct from all employees. Specific topics covered are conflicts of
interest, fair dealing, compliance with regulations and accurate financial reporting.
Executives
The roles of Chairman and CEO are split. The CEO and CFO make all necessary representations to satisfy regulatory and listing
requirements. Executive compensation is determined by a Compensation Committee composed exclusively of independent
directors.
Board Of Directors
The Company has a Board of Directors consisting of one executive, two non-independent, and six non-executive directors, all
six of whom are independent. The Chairman is a non-executive director. The Board oversees the strategy, finances, operations
and regulatory compliance of the Company through regular quarterly meetings and additional special meetings when required.
The non-executive directors regularly meet independently of the executive directors. The Nominating & Governance, Audit,
Compensation and Risk Committees are each composed of three independent directors. The Audit Committee meets the SEC
requirement that at least one of its members should be a financial expert.
Financial Reporting And Internal Control
The Company strives to present clear, accurate and timely financial statements. Management has a system of internal controls in
place, regularly assesses the effectiveness of these controls and modifies them as necessary. Risk management is an important
aspect of this system of internal controls, and the Risk Committee monitors compliance with risk policies.
Investor Relations
The Company seeks to provide accurate and timely information to stockholders and other stakeholders to facilitate a better
understanding of the Company and its activities. The Company seeks to distribute such information as widely as possible through
filings on Form 8-K, press releases and postings on its website, www.intlfcstone.com.
Forward-Looking Statements
This Annual Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and
uncertainties, many of which are beyond the Company’s control, including adverse changes in economic, political and market
conditions, losses from the Company’s activities arising from customer or counterparty failures, changes in market conditions,
the possible loss of key personnel, the impact of increasing competition, the impact of changes in government regulation, the
possibility of liabilities arising from violations of laws or regulations and the impact of changes in technology on our businesses.
Although the Company believes that its forward-looking statements are based upon reasonable assumptions regarding its
businesses and future market conditions, there can be no assurances that the Company’s actual results will not differ materially
from any results expressed or implied by the Company’s forward-looking statements. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Readers are cautioned that any forward-looking statements are not guarantees of future performance.
2015 | Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2015
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 000-23554
INTL FCSTONE INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
708 Third Avenue, Suite 1500
New York, NY
(Address of principal executive offices)
59-2921318
(I.R.S. Employer Identification No.)
10017
(Zip Code)
(212) 485-3500
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT:
Title of each class
Common Stock, $0.01 par value
8.5% Senior Notes due 2020
Name of Each Exchange on Which Registered
NASDAQ Global Market
NASDAQ Global Market
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark
YES
NO
•• if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
•• if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
•• whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
•• whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files).
•• if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
•• whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
•• whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of March 31, 2015, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $453.5 million.
As of December 7, 2015, there were 18,909,437 shares of the registrant’s common stock outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Certain portions of the definitive Proxy Statement for the Registrant’s Annual Meeting of Stockholders to be held on February 25, 2016 are
incorporated by reference into Part III of this Annual Report on Form 10-K.
Table of Contents
PART I
2
ITEM 1
Business ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������2
ITEM 1A Risk Factors �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������10
ITEM 1B Unresolved Staff Comments ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������19
ITEM 2
Properties ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������19
ITEM 3
Legal Proceedings ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������19
ITEM 4 Mine Safety Disclosures �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������20
PART II
21
ITEM 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������21
ITEM 6
Selected Financial Data �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������22
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations ����������������23
ITEM 7A Quantitative and Qualitative Disclosures about Market Risk ���������������������������������������������������������������������������������������������������������������������������44
ITEM 8
Financial Statements and Supplementary Data�������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������46
ITEM 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure �������������96
ITEM 9A Controls and Procedures ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������96
ITEM 9B Other Information ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������97
PART III
98
ITEM 10 Directors, Executive Officers and Corporate Governance �����������������������������������������������������������������������������������������������������������������������������������������98
ITEM 11 Executive Compensation ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������98
ITEM 12
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������99
ITEM 13 Certain Relationships and Related Transactions, and Director Independence �����������������������������������������������������������������99
ITEM 14 Principal Accountant Fees and Services ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������99
PART IV
100
ITEM 15 Exhibits �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������100
SIGNATURES ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������102
EXHIBIT INDEX ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������E-1
Cautionary Statement about Forward-Looking Statements
Certain statements in this report, other than purely historical
information, including estimates, projections, statements relating to
our business plans, objectives and expected operating results, and the
assumptions upon which those statements are based, are “forward-
looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are based on current expectations and
assumptions that are subject to risks and uncertainties which may cause
actual results to differ materially from the forward-looking statements.
A detailed discussion of these and other risks and uncertainties that
could cause actual results and events to differ materially from such
forward-looking statements is included in the section entitled “Risk
Factors” (refer to Part I, Item 1A). We undertake no obligation to
update or revise publicly any forward-looking statements, whether as
a result of new information, future events or otherwise.
1
- Form 10-K
PART I
Item 1 Business
PART I
Item 1 Business
Overview of Business and Strategy
We are a diversified, global financial services organization providing
financial products and advisory and execution services that help our
clients access market liquidity, maximize profits and manage risk.
We are a leader in the development of specialized financial services
in commodities, securities, global payments, foreign exchange and
other markets. Our revenues are derived primarily from financial
products and advisory services that fulfill our clients’ real needs and
provide bottom-line benefits to their businesses. We create added
value for our clients by providing access to global financial markets
using our industry and financial expertise, deep partner and network
relationships, insight and guidance, and integrity and transparency. Our
client-first approach differentiates us from large banking institutions,
engenders trust, and has enabled us to establish leadership positions
in a number of complex fields in financial markets around the world.
Our leadership positions span markets such as commodity risk
management advisory services; global payments; market-making in
international equities and other securities; fixed income; physical
trading and hedging of precious metals and select other commodities;
execution of listed futures and options on futures contracts on all
major commodity exchanges and foreign currency trading, among
others. These businesses are supported by our global infrastructure of
regulated operating subsidiaries, advanced technology platform and
team of more than 1,200 employees. We currently have more than
20,000 clients, located in over 130 countries.
Our clients include producers, processors and end-users of nearly all
widely traded physical commodities; commercial counterparties who
are end-users of our products and services; governmental and non-
governmental organizations; and commercial banks, asset managers,
insurance companies, brokers, institutional investors and major
investment banks. We believe our clients value us for our focus on
their needs, our expertise and flexibility, our global reach, our ability
to provide access to hard-to-reach markets and opportunities, and our
status as a well-capitalized and regulatory-compliant organization.
Available Information
We believe we are well positioned to capitalize on key trends impacting
the financial services sector. Among others, these trends include the
impact of increased regulation on banking institutions and other
financial services providers; increased consolidation, especially of
smaller sub-scale financial services providers; the growing importance
and complexity of conducting secure cross-border transactions;
and the demand among financial institutions to transact with well-
capitalized counterparties.
We engage in direct sales efforts to seek new customers, with a strategy
of extending our services to potential customers who are similar in
size and operations to our existing customer base, as well as other
kinds of customers that have risk management needs that could be
effectively met by our services. In executing this plan, we intend to
both target new geographic locations and expand the services offered
in current locations, where there is an unmet demand for our services
particularly in areas where commodity price controls have been recently
lifted. In addition, in select instances we pursue small to medium
sized acquisitions in which we target customer-centric organizations
to expand our product offerings and/or geographic presence.
Our strategy is to utilize a centralized and disciplined process for
capital allocation, risk management and cost control, while delegating
the execution of strategic objectives and day-to-day management to
experienced individuals. This requires high quality managers, a clear
communication of performance objectives and strong financial and
compliance controls. We believe this strategy will enable us to build
a scalable and significantly larger organization that embraces an
entrepreneurial approach to business, supported and underpinned
by strong central controls.
INTL FCStone Inc. is a Delaware corporation formed in
October 1987.
Our internet address is www.intlfcstone.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
statements of changes in beneficial ownership and press releases are available free of charge in the Investor Relations section of this website. Our website
also includes information regarding our corporate governance, including our Code of Ethics, which governs our directors, officers and employees.
2
- Form 10-K PART I
Item 1 Business
Capabilities
Clearing and execution
Physical trading
We provide execution services on a wide variety of technology platforms
in a number of markets. We provide clearing and execution of listed
futures and options on futures contracts on all major commodity
exchanges worldwide, and are a member of all major United States
(“U.S.”) and European commodity exchanges. We provide global
payments and treasury services in more than 130 countries to a broad
array of commercial customers, including financial institutions, multi-
national corporations, and governmental and charitable organizations.
We trade in a variety of physical commodities, primarily precious
metals, as well as select soft commodities including various agricultural
oils, animal fats and feed ingredients. We offer customers efficient
off-take or supply services, as well as logistics management. Through
these trading activities, we have the ability to offer complex hedging
structures as part of each physical contract to provide customers with
enhanced price risk mitigation.
Advisory Services
We provide value-added advisory services in a variety of financial
markets by working with commercial clients to systematically identify
and quantify exposures to commodity price risks. We then develop
strategic plans to effectively manage these risks with a view to protecting
margins and mitigating exposures through our proprietary Integrated
Risk Management Program (“IRMP®”).
We provide commercial customers with a full range of investment
banking services from optimizing the customer’s capital structure
through the issuance of loans, debt or equity securities, and advisory
services including mergers, acquisitions and restructurings. In addition,
we participate in the underwriting and trading of municipal securities.
Through our asset management activities, we leverage our specialist
expertise in niche markets to provide institutional investors with
tailored investment products.
trading Revenues
OtC / market-making
We offer customized and complex solutions in the OTC markets
designed to help customers mitigate their specific market risks. We
offer these solutions on a global basis across many markets, including
virtually all traded commodities, foreign currencies and interest rates.
We integrate this process from product design through execution of the
underlying components of the structured risk product to transaction
reporting and valuation.
We also provide market-making and execution in a variety of financial
products including commodity options, unlisted American Depository
Receipts (“ADRs”) and Global Depository Receipts (“GDRs”),
foreign ordinary shares, and foreign currencies. In addition, we are an
institutional dealer in fixed income securities including U.S. Treasury,
U.S. government agency and agency mortgage-backed securities.
In our business, we may act as principal in the purchase and sale of
individual securities, currencies, commodities, or derivative instruments
with our customers. These transactions may be offset simultaneously
with another customer or counterparty, offset with similarly but not
identical positions on an exchange, made from inventory, or aggregated
with other purchases to provide liquidity intra-day, for a number of
days, or in some cases even longer periods (during which fair value
may fluctuate). In addition, in our Clearing and Execution Services
segment, we operate a proprietary foreign exchange desk which
arbitrages the futures and cash markets.
Operating Segments
We organize our business activities into five functional areas: Commercial Hedging, Global Payments, Securities, Physical Commodities and
Clearing and Execution Services.
Commercial Hedging
We serve our commercial clients through our team of risk management
consultants, providing a high-value-added service that we believe
differentiates us from our competitors and maximizes the opportunity
to retain our clients. Our risk management consulting services are
designed to quantify and monitor commercial entities’ exposure
to commodity and financial risk. Upon assessing this exposure,
we develop a plan to control and hedge these risks with post-trade
reporting against specific client objectives. Our clients are assisted
in the execution of their hedging strategies through a wide range of
products from listed exchange-traded futures and options, to basic
OTC instruments that offer greater flexibility, to structured OTC
products designed for customized solutions.
3
- Form 10-K PART I
Item 1 Business
Our services span virtually all traded commodity markets, with the
largest concentrations in agricultural and energy commodities (consisting
primarily of grains, energy and renewable fuels, coffee, sugar, cotton,
and food service) and base metals products listed on the London Metals
Exchange (“LME”). Our base metals business includes a position as a
Category One ring dealing member of the LME, providing execution,
clearing and advisory services in exchange-traded futures and OTC
products. We also provide execution of foreign currency forwards
and options as well as a wide range of structured product solutions
to our commercial customers who are seeking cost-effective hedging
strategies. Generally, our clients direct their own trading activity, and
our risk management consultants do not have discretionary authority
to transact trades on behalf of our clients.
Within this segment, our risk management consultants organize their
marketing efforts into customer industry product lines, and currently
serve customers in the following areas:
•• Financial Agricultural & Energy
•– Agricultural —
•■ Grain elevator operators, grain merchandisers, traders, processors,
manufacturers and end-users.
•■ Livestock production, feeding and processing, dairy and users
of agricultural commodities in the food industry.
•■ Coffee, sugar and cocoa producers, processors and end-users.
•■ Global fiber, textile and apparel industry.
Global Payments
We provide global payment solutions to banks and commercial
businesses as well as charities and non-governmental organizations
and government organizations. We offer payments services in more
than 130 countries, which we believe is more than any other payments
solution provider, and provide competitive and transparent pricing.
Through our technology platform, full-service electronic execution
capability and commitment to customer service, we believe we are
able to provide simple and fast execution, ensuring delivery of funds
in any of these countries quickly through our global network of
correspondent banks. In this business, we primarily act as a principal
in buying and selling foreign currencies on a spot basis. We derive
revenue from the difference between the purchase and sale prices.
Securities
•– Energy and renewable fuels —
•■ Producers, refiners, wholesalers, transportation companies,
convenience store chains, automobile and truck fleet operators,
industrial companies, railroads, and municipalities.
•■ Consumers of natural gas including some of the largest natural
gas consumers in North America, including municipalities and
large manufacturing firms, as well as major utilities.
•■ Ethanol and biodiesel producers and end-users.
•– Other —
•■ Lumber mills, wholesalers, distributors and end-users.
•■ Commercial entities seeking to hedge their foreign exchange
exposures.
•• LME Metals
•– Commercial —
•■ Producers, consumers and merchants of copper, aluminum,
zinc, lead, nickel, tin and other ferrous products.
•– Institutional —
•■ Commodity trading advisors and hedge funds seeking clearing
and execution of LME and NYMEX/COMEX base metal
products.
We believe our clients value our ability to provide exchange rates
that are significantly more competitive than those offered by large
international banks, a competitive advantage that stems from our years
of foreign exchange expertise focused on smaller, less liquid currencies.
Additionally, as a member of SWIFT (Society for Worldwide Interbank
Financial Telecommunication), we are able to offer our services to
large money center and global banks seeking more competitive
international payments services.
We provide value-added solutions that facilitate cross-border trading
and believe our clients value our ability to manage complex transactions,
including foreign exchange, utilizing our local understanding of market
convention, liquidity and settlement protocols around the world. Our
clients include U.S.-based regional and national broker-dealers and
institutions investing or executing client transactions in international
markets and foreign institutions seeking access to the U.S. securities
markets. We are one of the leading market makers in foreign securities,
including unlisted ADRs, GDRs and foreign ordinary shares. We make
markets in over 1,600 ADRs, GDRs and foreign ordinary shares, of
which over 1,300 trade in the OTC market. In addition, we will, on
request, make prices in more than 10,000 unlisted foreign securities.
We are a broker-dealer in Argentina where we are active in providing
institutional executions in the local capital markets.
Following our acquisition of G.X. Clarke & Co., we act as an
institutional dealer in fixed income securities, including U.S. Treasury,
U.S. government agency and agency mortgage-backed securities to
a client base including asset managers, commercial bank trust and
investment departments, broker-dealers and insurance companies.
In addition, we provide a full range of corporate finance advisory
services to our middle market clients, including capital market
solutions and a wide array of advisory services across a broad spectrum
of industries. Our advisory services span mergers and acquisitions,
liability management, restructuring opinions and valuations. We also
originate, structure and place a wide array of debt instruments in the
international and domestic capital markets. These instruments include
complex asset-backed securities (primarily in Argentina), unsecured
4
- Form 10-K bond and loan issues, negotiable notes and other trade-related debt
instruments used in cross-border trade finance. On occasion, we
may invest our own capital in debt instruments before selling them.
We also actively trade in a variety of international debt instruments
as well as operate an asset management business in which we earn
fees, commissions and other revenues for management of third party
assets and investment gains or losses on our investments in funds and
proprietary accounts managed either by our investment managers or
by independent investment managers.
PART I
Item 1 Business
Physical Commodities
This 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. These 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.
During 2015, we transitioned the portion of our precious metals
business conducted through our unregulated domestic subsidiary,
INTL Commodities Inc., to our United Kingdom based broker-dealer
subsidiary, INTL FCStone Ltd, which is regulated by the Financial
Conduct Authority (“FCA”), the regulator of the financial services
industry in the United Kingdom. This transfer resulted in a change in
the valuation of precious metals inventory held by INTL FCStone Ltd.,
Clearing and execution Services (“CeS”)
We seek to provide competitive and efficient clearing and execution
of exchange-traded futures and options for the institutional and
professional trader market segments. Through our platform, client
orders are accepted and directed to the appropriate exchange for
execution. We then facilitate 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 clients. We seek to leverage our capabilities and capacity by offering
facilities management or outsourcing solutions to other futures
commission merchants (“FCM’s”).
In addition, we provide prime brokerage foreign exchange services
to financial institutions and professional traders. We provide our
clients with the full range of OTC products, including 24-hour a day
execution of spot, forwards and options as well as non-deliverable
forwards in both liquid and exotic currencies. We also operate a
proprietary foreign exchange desk that arbitrages the exchange-traded
foreign exchange markets with the cash markets.
as well as the presentation of INTL FCStone Ltd.’s precious metals
sales and cost of sales. See Note 1 of the Consolidated Financial
Statements for further information.
Precious metals inventory held by our subsidiaries that are not broker-
dealers continues to be valued at the lower of cost or market value.
Precious metals sales and cost of sales for subsidiaries that are not
broker-dealers continue to be recorded on a gross basis. In our physical
agricultural and energy commodity business, we value our inventory
at the lower of cost or market and record revenues on a gross basis.
During the second quarter of fiscal 2013, as a result of a change in
management strategy in our base metals product line, we elected
to pursue an exit of our physical base metals business through
the sale and orderly liquidation of then-current open positions.
We completed the exit of the physical base metals business during the
second quarter of fiscal 2014. We have reclassified the physical base
metals activities in the financial statements for all periods presented
as discontinued operations.
Operating revenues and losses from our commodities derivatives
activities are included in ‘trading gains, net’ in the consolidated
income statements. 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.
INTL FCStone Financial Inc. (“INTL FCStone Financial”) is a dually
registered broker-dealer/FCM and a clearing member of all major
U.S. commodity futures exchanges including the Chicago Mercantile
Exchange and its divisions: the Chicago Board of Trade, the New York
Mercantile Exchange and the COMEX Division; InterContinental
Exchange, Inc. (“ICE”) Futures US, and the Minneapolis Grain
Exchange (“MGEX”). INTL FCStone Financial is also a member of
ICE Europe Ltd and as of September 30, 2015, was the third largest
independent FCM in the United States, as measured by required
customer segregated assets, not affiliated with a major financial
institution or commodity intermediary, end-user or producer. As of
September 30, 2015, INTL FCStone Financial had $1.8 billion in
required customer segregated assets.
5
- Form 10-K PART I
Item 1 Business
Acquisitions and Internal Subsidiary Consolidation during Fiscal Year 2015
G.X. Clarke & Co.
Effective January 1, 2015, we acquired all of the partnership interests
of G.X. Clarke & Co. (“G.X. Clarke”), an SEC registered institutional
dealer in fixed income securities. G.X. Clarke is based in New Jersey,
transacts in U.S. Treasury, U.S. government agency and agency
mortgage-backed securities, and was a member of the Financial Industry
Regulatory Authority (“FINRA”) with an institutional client base
consisting of asset managers, commercial bank trust and investment
departments, broker-dealers, and insurance companies. The purchase
price is equal to G.X. Clarke’s net tangible book value at closing of
$25.9 million plus a premium of $1.5 million, and up to an additional
$1.5 million over the next three years, subject to the achievement of
certain profitability thresholds. In conjunction with the acquisition,
the name of G.X. Clarke was changed to INTL FCStone Partners L.P.
Our consolidated financial statements include the operating results of
INTL FCStone Partners L.P. from the date of acquisition.
Internal Subsidiary Consolidation
Effective July 1, 2015, we merged three of our wholly-owned regulated
U.S. subsidiaries into our wholly owned regulated U.S. subsidiary,
INTL FCStone Securities Inc., and the surviving entity was renamed
INTL FCStone Financial Inc. and is registered as both a broker-dealer
and a FCM. As such, the assets, liabilities and equity of FCStone,
LLC, INTL FCStone Partners L.P., and FCC Investments, Inc. were
transferred into INTL FCStone Financial.
Disposals during Fiscal Year 2014
Completed exit of Physical Base metals Business
During fiscal 2013, we began an exit of our physical base metals
business through the sale and orderly liquidation of then-current
open positions. We elected to allow the $100.0 million credit facility
which supported this business to expire without renewal. The exit
of the physical base metals business was substantially completed by
the end of fiscal 2013, including the termination of the physical base
metals trading team and certain operational support personnel. The
remaining open contract positions were fulfilled during fiscal 2014,
at which time we reclassified the physical base metals activities in the
financial statements as discontinued operations. We continue to operate
the component of our base metals business related to non-physical
assets conducted primarily through the London Metals Exchange.
Acquisitions and Disposals during Fiscal Year 2013
tradewire Acquisition
In December 2012, we acquired certain institutional accounts from
Tradewire Securities, LLC (“Tradewire Securities”), a Miami-based
securities broker-dealer servicing customers throughout Latin America
and a wholly owned subsidiary of Tradewire Group Ltd. We transferred
these accounts to our broker-dealer subsidiary, INTL FCStone Securities.
As part of the transaction, we hired more than 20 professional staff
from Tradewire Securities’ securities broker-dealer business based in
Miami, Florida. These professionals provide global brokerage services
to a wide range of customers, including hedge funds, pension funds,
broker-dealers and banks located in Latin America, North America
and Europe. This acquisition was not significant on an individual
basis. Our consolidated financial statements include the operating
results of the acquired accounts from the date of acquisition.
Gletir Agente De Valores S.A. Disposal
In February 2013, we sold all of our ownership interest in Gletir Agente
De Valores S.A., to Gletir Financial Corp, an non-affiliated third party.
Previously the ownership interest was held by our subsidiaries INTL
Netherlands B.V. and Gainvest Asset Management Ltda.
Competition
The international commodities and financial markets are highly
competitive and rapidly evolving. In addition, these markets are
dominated by firms with significant capital and personnel resources
that are not matched by our resources. We expect these competitive
conditions to continue in the future, although the nature of the
competition may change as a result of ongoing changes in the regulatory
environment. The financial crisis has produced opportunities for
us to expand our activities and may produce further opportunities.
We believe that we can compete successfully with other commodities
and financial intermediaries in the markets we seek to serve, based on
our expertise, products and quality of consulting and execution services.
We compete with a large number of firms in the exchange-traded
futures and options on futures execution sector and in the OTC
derivatives sector. We compete primarily on the basis of diversity
and value of services offered, and to a lesser extent on price. Our
6
- Form 10-K PART I
Item 1 Business
competitors in the exchange-traded futures and options sector include
international brokerage firms, national brokerage firms, regional
brokerage firms (both cooperatives and non-cooperatives) as well
as local introducing brokers, with competition driven by price level
and quality of service. Many of these competitors also offer OTC
trading programs. In addition, there are a number of financial firms
and physical commodities firms that participate in the OTC markets,
both directly in competition with us and indirectly through firms
like us. We compete in the OTC market by making specialized OTC
transactions available to our customers in contract sizes that are smaller
than those usually available from major counterparties.
Investor interest in the markets we serve impact and will continue
to impact our activities. The instruments traded in these markets
compete with a wide range of alternative investment instruments.
We seek to counterbalance changes in demand in specified markets
by undertaking activities in multiple uncorrelated markets.
Technology has increased competitive pressures on commodities and
financial intermediaries by improving dissemination of information,
making markets more transparent and facilitating the development of
alternative execution mechanisms. In certain instances, we compete by
providing technology-based solutions to facilitate customer transactions
and solidify customer relationships.
Administration and Operations
We employ operations personnel to supervise and, for certain products,
complete the clearing and settlement of transactions.
INTL FCStone Financial’s securities transactions are cleared through
Broadcort, a division of Merrill Lynch, Pierce, Fenner & Smith, Inc
and Pershing LLC, a subsidiary of The Bank of New York Mellon
Corporation. In relation to security transactions, INTL FCStone
Financial does not hold customer funds or directly clear or settle
securities transactions.
We utilize front-end electronic trading, back office and accounting
systems to process transactions on a daily basis. In some cases these
systems are integrated. The systems provide record keeping, trade
reporting to exchange clearing, internal risk controls, and reporting to
government and regulatory entities, corporate managers, risk managers
and customers. A third-party service bureau located in Hopkins, MN
maintains our futures and options back office system. It has a disaster
recovery site in Salem, NH.
We hold customer funds in relation to certain of our activities.
In regulated entities, these customer funds are segregated, but in
unregulated entities they are not. For a further discussion of customer
segregated funds in our regulated entities, please see the “Customer
Segregated Assets” discussion below.
Our administrative staff manages our internal financial controls,
accounting functions, office services and compliance with regulatory
requirements.
Governmental Regulation and exchange membership
Our activities are subject to significant governmental regulation, both in
the U.S. and overseas. Failure to comply with regulatory requirements
could result in administrative or court proceedings, censure, fines,
issuance of cease-and-desist orders, or suspension or disqualification
of the regulated entity, its officers, supervisors or representatives. The
regulatory environment in which we operate is subject to frequent change
and these changes directly impact our business and operating results.
The commodities industry in the U.S. is subject to extensive regulation
under federal law. We are required to comply with a wide range of
requirements imposed by the Commodity Futures Trading Commission
(the “CFTC”), the National Futures Association (the “NFA”) and the
Chicago Mercantile Exchange, which is our designated self-regulatory
organization. We are also a member of the Chicago Mercantile
Exchange’s divisions: the Chicago Board of Trade, the New York
Mercantile Exchange and COMEX, ICE Futures US, ICE Europe
Ltd, and the Minneapolis Grain Exchange. These regulatory bodies
protect customers by imposing requirements relating to capital
adequacy, licensing of personnel, conduct of business, protection of
customer assets, record-keeping, trade-reporting and other matters.
The securities industry in the U.S. is subject to extensive regulation
under federal and state securities laws. We must comply with a wide
range of requirements imposed by the Securities and Exchange
Commission (the “SEC”), state securities commissions, the Municipal
Securities Rulemaking Board (“MSRB”) and FINRA. These regulatory
bodies safeguard the integrity of the financial markets and protect the
interests of investors in these markets. They also impose minimum
capital requirements on regulated entities.
The Financial Conduct Authority (“FCA”), the regulator of the financial
services industry in the United Kingdom, regulates our subsidiary,
INTL FCStone Ltd., as a Financial Services Firm under part IV of
the Financial Services and Markets Act 2000. The regulations impose
daily regulatory capital, as well as conduct of business, governance,
and other requirements. The conduct of business rules include those
that govern the treatment of client money and other assets which,
under certain circumstances for certain classes of clients must be
segregated from the firm’s own assets.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(the “Dodd-Frank Act”) created a comprehensive new regulatory
regime governing the OTC and listed derivatives markets and their
participants by requiring, among other things: centralized clearing of
standardized derivatives (with certain stated exceptions); the trading
of clearable derivatives on swap execution facilities or exchanges; and
registration and comprehensive regulation of new categories of market
participants as “swap dealers” and swap “introducing brokers.” Our
wholly owned subsidiary, INTL FCStone Markets, LLC, is registered
as a provisionally registered swap dealer. Some important rules, such as
those setting capital and margin requirements, have not been finalized
or fully implemented, and it is too early to predict with any degree
of certainty how we will be affected. We will continue to monitor all
applicable developments in the implementation of the Dodd-Frank
Act. The legislation and implementing regulations affect not only us,
but also our customers and counterparties.
7
- Form 10-K PART I
Item 1 Business
The USA PATRIOT Act contains anti-money laundering and financial
transparency laws and mandates the implementation of various
regulations applicable to broker-dealers and other financial services
companies. The USA PATRIOT Act seeks to promote cooperation
among financial institutions, regulators and law enforcement entities
in identifying parties that may be involved in terrorism or money
laundering. Anti-money laundering laws outside of the U.S. contain
similar provisions. We believe that we have implemented, and that we
maintain, appropriate internal practices, procedures and controls to
enable us to comply with the provisions of the USA PATRIOT Act
and other anti-money laundering laws.
The U.S. maintains various economic sanctions programs administered
by the U.S. Treasury Department’s Office of Foreign Assets Control
(“OFAC”). The OFAC administered sanctions take many forms,
but generally prohibit or restrict trade and investment in and with
sanctions targets, and in some cases require blocking of the target’s
assets. Violations of any of the OFAC-administered sanctions are
punishable by civil fines, criminal fines, and imprisonment. We
established policies and procedures designed to comply with applicable
OFAC requirements. Although we believe that our policies and
procedures are effective, there can be no assurance that our policies
and procedures will effectively prevent us from violating the OFAC-
administered sanctions in every transaction in which we may engage.
Net Capital Requirements
INTL FCStone Financial is subject to minimum capital requirements
under Section 4(f)(b) of the Commodity Exchange Act, Part 1.17 of the
rules and regulations of the CFTC and the SEC Uniform Net Capital
Rule 15c3-1 under the Securities Exchange Act of 1934. These rules
specify the minimum amount of capital that must be available to support
our clients’ open trading positions, including the amount of assets that
INTL FCStone Financial must maintain in relatively liquid form, and
are designed to measure general financial integrity and liquidity. Net
capital and the related net capital requirement may fluctuate on a daily
basis. Compliance with minimum capital requirements may limit our
operations if we cannot maintain the required levels of capital and
restrict the ability of INTL FCStone Financial to make distributions
to us. Moreover, any change in these rules or the imposition of new
rules affecting the scope, coverage, calculation or amount of capital
we are required to maintain could restrict our ability to operate our
business and adversely affect our operations.
INTL FCStone Ltd., a Financial Services Firm regulated by the FCA
is subject to a daily net capital requirement.
The Australian Securities and Investment Commission regulates
INTL FCStone Pty. Ltd. It is subject to a net tangible asset capital
Segregated Customer Assets
INTL FCStone Financial maintains customer segregated deposits
from its customers relating to their trading of futures and options on
futures on U.S. commodities exchanges held with INTL FCStone
Financial, making it subject to CFTC regulation 1.20, which
specifies that such funds must be held in segregation and not
commingled with the firm’s own assets. INTL FCStone Financial
maintains acknowledgment letters from each depository at which
it maintains customer segregated deposits in which the depository
acknowledges the nature of funds on deposit in the account. In
addition, CFTC regulations require filing of a daily segregation
calculation which compares the assets held in customers segregated
depositories (“segregated assets”) to the firm’s total segregated assets
held on deposit from customers (“segregated liabilities”). The amount
of customer segregated assets must be in excess of the segregated
liabilities owed to customers and any shortfall in such assets must
be immediately communicated to the CFTC. As of September
30, 2015, INTL FCStone Financial maintained $49.3 million in
segregated assets in excess of its segregated liabilities.
8
requirement. In addition, INTL FCStone Pty. Ltd. is also subject to
a capital adequacy requirements of New Zealand Clearing Limited.
The Brazilian Central Bank and Securities and Exchange Commission
of Brazil regulates INTL FCStone DTVM Ltda. (“INTL FCStone
DTVM”). It is a registered broker-dealer and is subject to a capital
adequacy requirement.
The Comision Nacional de Valores regulates Gainvest S.A. Sociedad
Gerente de FCI and INTL CIBSA S.A. and they are subject to net
capital and capital adequacy requirements. The Rosario Futures
Exchange and the General Inspector of Justice regulate INTL Capital,
S.A. It is subject to a capital adequacy requirement.
Certain of our other non-U.S. subsidiaries are also subject to capital
adequacy requirements promulgated by authorities of the countries
in which they operate.
All of our subsidiaries are in compliance with all of their capital
regulatory requirements as of September 30, 2015. Additional
information on these net capital and minimum net capital requirements
can be found in Note 12 to the Consolidated Financial Statements.
In addition, INTL FCStone Financial is subject to CFTC regulation
1.25, which governs the acceptable investment of customer segregated
assets. This regulation allows for the investment of customer segregated
assets in readily marketable instruments including U.S. Treasury
securities, municipal securities, government sponsored enterprise
securities, certificates of deposit, commercial paper and corporate
notes or bonds which are guaranteed by the U.S. under the Temporary
Liquidity Guarantee Program, interest in money market mutual funds,
and repurchase transactions with unaffiliated entities in otherwise
allowable securities. INTL FCStone Financial predominately invests
its customer segregated assets in U.S. Treasury securities and money
market mutual funds.
INTL FCStone Ltd. is subject to certain business rules, including
those that govern the treatment of client money and other assets
which under certain circumstances for certain classes of client must
be segregated from the firm’s own assets. As of September 30, 2015,
INTL FCStone Ltd. was in compliance with the applicable segregated
funds requirements.
- Form 10-K PART I
Item 1 Business
Secured Customer Assets
INTL FCStone Financial maintains customer secured deposits from
its customers funds relating to their trading of futures and options
on futures traded on, or subject to the rules of, a foreign board of
trade held with INTL FCStone Financial, making it subject to CFTC
Regulation 30.7, which requires that such funds must be carried in
separate accounts in an amount sufficient to satisfy all of INTL FCStone
Financial’s current obligations to customers trading foreign futures and
foreign options on foreign commodity exchanges or boards of trade,
which are designated as secured customers’ accounts. As of September
30, 2015, INTL FCStone Financial maintained $20.4 million in
secured assets in excess of its secured liabilities.
Foreign Operations
We operate in a number of foreign jurisdictions, including Canada,
Ireland, the United Kingdom, Argentina, Brazil, Colombia, Uruguay,
Paraguay, Mexico, Nigeria, Dubai, China, South Korea, Hong Kong,
Australia and Singapore. We established wholly owned subsidiaries
in Uruguay and Nigeria but do not have offices or employees in
those countries.
INTL FCStone Ltd. is domiciled in the United Kingdom, and subject
to regulation by the FCA.
In Argentina, the activities of Gainvest S.A. Sociedad Gerente de FCI
and INTL CIBSA S.A. are subject to regulation by the Comision
Nacional de Valores and the activities of INTL Capital, S.A. are
subject to regulation by the Rosario Futures Exchange and the General
Inspector of Justice.
Business Risks
In Brazil, the activities of FCStone do Brasil are subject to regulation
by BM&F Bovespa, and the activities of INTL FCStone DTVM
Ltda. are regulated by the Brazilian Central Bank and Securities and
Exchange Commission of Brazil.
The activities of INTL Commodities DMCC are subject to regulation
by the Dubai Multi Commodities Centre.
INTL FCStone Pte. Ltd. is subject to regulation by the Monetary
Authority of Singapore.
INTL FCStone Pty. Ltd. is subject to regulation by the Australian
Securities and Investments Commission and New Zealand Clearing Ltd.
INTL FCStone (Hong Kong) Limited holds a type 2 derivatives license
and is subject to regulation by the Securities & Futures Commission
of Hong Kong.
We seek to mitigate the market and credit risks arising from our
financial trading activities through an active risk management program.
The principal objective of this program is to limit trading risk to an
acceptable level while maximizing the return generated on the risk
assumed.
We have a defined risk policy administered by our risk management
committee, which reports to the risk committee of our board of
directors. We established specific exposure limits for inventory positions
in every business, as well as specific issuer limits and counterparty
limits. We designed these limits to ensure that in a situation of
unexpectedly large or rapid movements or disruptions in one or more
markets, systemic financial distress, the failure of a counterparty or
the default of an issuer, the potential estimated loss will remain within
acceptable levels. The risk committee of our board of directors reviews
the performance of the risk management committee on a quarterly
basis to monitor compliance with the established risk policy.
employees
As of September 30, 2015, we employed 1,231 people globally: 822 in the U.S., 176 in the United Kingdom, 82 in Brazil, 62 in Argentina,
40 in Singapore, 13 in Dubai, 13 in Australia, 9 in Paraguay, 8 in China, and 6 in Hong Kong. None of our employees operate under a collective
bargaining agreement, and we have not suffered any work stoppages or labor disputes. Many of our employees are subject to employment
agreements, certain of which contain non-competition provisions.
9
- Form 10-K PART I
Item 1A Risk Factors
Item 1A Risk Factors
We face a variety of risks that could adversely impact our financial
condition and results of operations, including the following:
Our ability to achieve consistent profitability is
subject to uncertainty due to the nature of our
businesses and the markets in which we operate.
During the fiscal year ended September 30, 2015 we recorded net
income of $55.7 million, compared to net income of $19.3 million
in fiscal 2014 and in fiscal 2013.
Our revenues and operating results may fluctuate significantly in the
future because of the following factors:
•• Market conditions, such as price levels and volatility in the
commodities, securities and foreign exchange markets in which
we operate;
•• Changes in the volume of our market-making and trading activities;
•• Changes in the value of our financial instruments, currency and
commodities positions and our ability to manage related risks;
•• The level and volatility of interest rates;
•• The availability and cost of funding and capital;
•• Our ability to manage personnel, overhead and other expenses;
•• Changes in execution and clearing fees;
•• The addition or loss of sales or trading professionals;
•• Changes in legal and regulatory requirements; and
•• General economic and political conditions.
Although we continue our efforts to diversify the sources of our
revenues, it is likely that our revenues and operating results will
continue to fluctuate substantially in the future and such fluctuations
could result in losses. These losses could have a material adverse effect
on our business, financial condition and operating results.
The manner in which we account for our commodities
inventory and forward commitments may increase
the volatility of our reported earnings.
Our net income is subject to volatility due to the manner in which we
report our commodities inventory. Our inventory held in subsidiaries
which are not broker-dealers is stated at the lower of cost or market
value. We generally mitigate the price risk associated with our
commodities inventory through the use of derivatives. This price risk
mitigation does not generally qualify for hedge accounting under U.S.
GAAP. In such situations, any unrealized gains in inventory in our
non-broker dealer subsidiaries are not recognized under U.S. GAAP,
but unrealized gains and losses in related derivative positions are
recognized under U.S. GAAP. Additionally, in certain circumstances,
U.S. GAAP does not permit us to reflect changes in estimated values
of forward commitments to purchase and sell commodities. The
forward commitments to purchase and sell commodities, which we
do not reflect in our consolidated balance sheets, do not qualify as a
derivative under the Derivatives and Hedging Topic of the ASC. As a
result, our reported earnings from these business segments are subject
to greater volatility than the earnings from our other business segments.
10
Our indebtedness could adversely affect our financial
condition.
As of September 30, 2015, our total consolidated indebtedness was
$87.1 million, and we may increase our indebtedness in the future
as we continue to expand our business. Our indebtedness could have
important consequences, including:
•• increasing our vulnerability to general adverse economic and industry
conditions;
•• requiring that a portion of our cash flow from operations be used
for the payment of interest on our debt, thereby reducing our ability
to use our cash flow to fund working capital, capital expenditures,
acquisitions and general corporate requirements;
•• limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, acquisitions and general
corporate requirements;
•• limiting our flexibility in planning for, or reacting to, changes in
our business and the securities industry; and
•• restricting our ability to pay dividends or make other payments.
We may be able to incur additional indebtedness in the future, including
secured indebtedness. If new indebtedness is added to our current
indebtedness levels, the related risks that we now face could intensify.
Committed credit facilities currently available to us
might not be renewed.
We currently have four committed credit facilities under which we
may borrow up to $280.0 million, consisting of:
•• a $140.0 million facility available to INTL FCStone Inc., for general
working capital requirements, committed until September 20, 2016.
•• a $75.0 million facility available to our wholly owned subsidiary,
INTL FCStone Financial, for short-term funding of margin to
commodity exchanges, committed until April 7, 2016.
•• a $40.0 million committed facility available to our wholly owned
subsidiary, FCStone Merchant Services, LLC, for financing traditional
commodity financing arrangements and commodity repurchase
agreements, committed until May 1, 2016.
•• a $25.0 million facility available to our wholly owned subsidiary,
INTL FCStone Ltd., for short-term funding of margin to commodity
exchanges, committed until October 31, 2016.
During fiscal 2016, $255 million of our committed credit facilities are
scheduled to expire. There is no guarantee that we will be successful
in renewing, extending or rearranging these facilities.
It is possible that these facilities might not be renewed at the end of
their commitment periods and that we will be unable to replace them
with other facilities. If our credit facilities are unavailable or insufficient
to support future levels of business activities, we may need to raise
additional funds externally, either in the form of debt or equity. If
we cannot raise additional funds on acceptable terms, we may not
be able to develop or enhance our business, take advantage of future
opportunities or respond to competitive pressure or unanticipated
requirements, leading to reduced profitability.
- Form 10-K Our failure to successfully integrate the operations of
businesses acquired by us in the last twelve months
could have a material adverse effect on our business,
financial condition and operating results.
Since September 30, 2014, we have acquired G.X. Clarke. We will
need to meet challenges to realize the expected benefits and synergies
of this acquisition, including:
•• integrating the management teams, strategies, cultures, technologies
and operations of the acquired companies;
•• retaining and assimilating the key personnel of acquired companies;
•• retaining existing clients of the acquired companies;
•• creating uniform standards, controls, procedures, policies and
information systems; and
•• achieving revenue growth because of risks involving (1) the ability
to retain clients, (2) the ability to sell the services and products of
the acquired companies to the existing clients of our other business
segments, and (3) the ability to sell the services and products of
our other business segments to the existing clients of the acquired
companies.
The accomplishment of these objectives will involve considerable
risk, including:
•• the potential disruption of each company’s ongoing business and
distraction of their respective management teams;
•• unanticipated expenses related to technology integration; and
•• potential unknown liabilities associated with the acquisition.
It is possible that the integration process could result in the loss of
the technical skills and management expertise of key employees, the
disruption of the ongoing businesses or inconsistencies in standards,
controls, procedures and policies due to possible cultural conflicts
or differences of opinions on technical decisions and product road
maps that adversely affect our ability to maintain relationships with
customers, counterparties, and employees or to achieve the anticipated
benefits of the acquisition.
We face risks associated with our market-making
and trading activities.
We conduct our market-making and trading activities predominantly
as a principal, which subjects our capital to significant risks. These
activities involve the purchase, sale or short sale for customers and
for our own account of financial instruments, including equity and
debt securities, commodities and foreign exchange. These activities are
subject to a number of risks, including risks of price fluctuations, rapid
changes in the liquidity of markets and counterparty creditworthiness.
These risks may limit our ability to either resell financial instruments we
purchased or to repurchase securities we sold in these transactions. In
addition, we may experience difficulty borrowing financial instruments
to make delivery to purchasers to whom we sold short, or lenders
from whom we have borrowed. From time to time, we have large
position concentrations in securities of a single issuer or issuers in
specific countries and markets. This concentration could result in
higher trading losses than would occur if our positions and activities
were less concentrated.
PART I
Item 1A Risk Factors
The success of our market-making activities depends on:
•• the price volatility of specific financial instruments, currencies and
commodities,
•• our ability to attract order flow;
•• the skill of our personnel;
•• the availability of capital; and
•• general market conditions.
To attract market-trading, market-making and trading business, we
must be competitive in:
•• providing enhanced liquidity to our customers;
•• the efficiency of our order execution;
•• the sophistication of our trading technology; and
•• the quality of our customer service.
In our role as a market maker and trader, we attempt to derive a
profit from the difference between the prices at which we buy and
sell financial instruments, currencies and commodities. However,
competitive forces often require us to:
•• match the quotes other market makers display; and
•• hold varying amounts of financial instruments, currencies and
commodities in inventory.
By having to maintain inventory positions, we are subject to a high
degree of risk. We cannot ensure that we will be able to manage our
inventory risk successfully or that we will not experience significant
losses, either of which could materially adversely affect our business,
financial condition and operating results.
We operate as a principal in the OTC derivatives
markets which involves the risks associated with
commodity derivative instruments.
We offer OTC derivatives to our customers in which we act as a principal
counterparty. We endeavor to simultaneously offset the commodity
price risk of the instruments by establishing corresponding offsetting
positions with commodity counterparties, or alternatively we may
offset those transactions with similar but not identical positions on
an exchange. To the extent that we are unable to simultaneously offset
an open position or the offsetting transaction is not fully effective to
eliminate the commodity derivative risk, we have market risk exposure
on these unmatched transactions. Our exposure varies based on the
size of the overall positions, the terms and liquidity of the instruments
brokered, and the amount of time the positions remain open.
To the extent an unhedged position is not disposed of intra-day,
adverse movements in the commodities underlying these positions
or a downturn or disruption in the markets for these positions could
result in a substantial loss. In addition, any principal gains and losses
resulting from these positions could on occasion have a disproportionate
effect, positive or negative, on our financial condition and results of
operations for any particular reporting period.
Transactions involving OTC derivative contracts may be adversely
affected by fluctuations in the level, volatility, correlation or relationship
between market prices, rates, indices and/or other factors. These types
of instruments may also suffer from illiquidity in the market or in
a related market.
11
- Form 10-K PART I
Item 1A Risk Factors
OTC derivative transactions are subject to unique
risks.
OTC derivative transactions are subject to the risk that, as a result
of mismatches or delays in the timing of cash flows due from or to
counterparties in OTC derivative transactions or related hedging,
trading, collateral or other transactions, we or our counterparty may
not have adequate cash available to fund its current obligations.
We could incur material losses pursuant to OTC derivative transactions
because of inadequacies in or failures of our internal systems and controls
for monitoring and quantifying the risk and contractual obligations
associated with OTC derivative transactions and related transactions
or for detecting human error, systems failure or management failure.
OTC derivative transactions may be modified or terminated only by
mutual consent of the original parties and subject to agreement on
individually negotiated terms. Accordingly it may not be possible
to modify, terminate or offset obligations or exposure to the risk
associated with a transaction prior to its scheduled termination date.
We may have difficulty managing our growth.
We have experienced significant growth in our business. Our operating
revenues grew from $398.9 million in fiscal 2011 to $624.3 million
in fiscal 2015.
This growth required, and will continue to require, us to increase our
investment in management personnel, financial and management
systems and controls, and facilities. In the absence of continued revenue
growth, the costs associated with our expected growth would cause
our operating margins to decline from current levels. In addition,
as is common in the financial industry, we are and will continue to
be highly dependent on the effective and reliable operation of our
communications and information systems.
The scope of procedures for assuring compliance with applicable rules
and regulations changes as the size and complexity of our business
increases. In response, we have implemented and continue to revise
formal compliance procedures.
It is possible that we will not be able to manage our growth successfully.
Our inability to do so could have a material adverse effect on our
business, financial condition and operating results.
Our risk management policies and procedures may
leave us exposed to unidentified or unanticipated
risk, which could harm our business.
We have devoted significant resources to develop our risk management
policies and procedures and expect to continue to do so in the
future. However, our risk management policies and procedures may
not be fully effective in mitigating our risk exposure in all market
environments or against all types of risk, including risks that are
unidentified or unanticipated. Our risk management policies and
procedures require, among other things, that we properly record and
verify many thousands of transactions and events each day, and that
we continuously monitor and evaluate the size and nature of our or
our clients’ positions and the associated risks. In light of the high
volume of transactions, it is impossible for us to review and assess
every single transaction or to monitor at every moment in time our
or our customers’ positions and the associated risks.
12
Our policies and procedures used to identify, monitor and control a
variety of risks, including risks related to human error, customer defaults,
market movements, fraud and money-laundering, are established and
reviewed by the Risk Committee of our Board of Directors. Some of
our methods for managing risk are discretionary by nature and are
based on internally developed controls and observed historical market
behavior, and also involve reliance on standard industry practices. These
methods may not adequately prevent losses, particularly as they relate
to extreme market movements, which may be significantly greater than
historical fluctuations in the market. Our risk management policies
and procedures also may not adequately prevent losses due to technical
errors if our testing and quality control practices are not effective in
preventing software or hardware failures. In addition, we may elect
to adjust our risk management policies and procedures to allow for
an increase in risk tolerance, which could expose us to the risk of
greater losses. Our risk management policies and procedures rely on
a combination of technical and human controls and supervision that
are subject to error and failure. These policies and procedures may not
protect us against all risks or may protect us less than anticipated, in
which case our business, financial condition and results of operations
and cash flows may be materially adversely affected.
We are exposed to the credit risk of our customers and
counterparties and their failure to meet their financial
obligations could adversely affect our business.
We have substantial credit risk in both our securities and commodities
businesses. As a market-maker of OTC and listed securities and a
dealer in fixed income securities, we conduct the majority of our
securities transactions as principal with institutional counterparties.
We clear our securities transactions through unaffiliated clearing
brokers. Substantially all of our equity and debt securities are held
by these clearing brokers. Our clearing brokers have the right to
charge us for losses that result from a counterparty’s failure to fulfill
its contractual obligations.
As a clearing broker in futures and option transactions, we act on
behalf of our customers for all trades consummated on exchanges.
We must pay initial and variation margin to the exchanges before
we receive the required payments from our customers. Accordingly,
we are responsible for our customers’ obligations with respect to
these transactions, including margin payments, which exposes us to
significant credit risk. Customer positions which represent a significant
percentage of open positions in a given market or concentrations in
illiquid markets may expose us to the risk that we are not able to
liquidate a customer’s position in a manner which does not result in
a deficit in that customers account. A substantial part of our working
capital is at risk if customers default on their obligations to us and
their account balances and security deposits are insufficient to meet
all of their obligations.
We act as a principal for OTC commodity and foreign exchange
derivative transactions, which exposes us to both the credit risk of our
customers and the counterparties with which we offset the customer’s
position. As with exchange-traded transactions, our OTC transactions
require that we meet initial and variation margin payments on behalf
of our customers before we receive the required payment from our
customers. In addition, with OTC transactions, there is a risk that
a counterparty will fail to meet its obligations when due. We would
then be exposed to the risk that a settlement of a transaction which is
- Form 10-K due a customer will not be collected from the respective counterparty
with which the transaction was offset. Customers and counterparties
that owe us money, securities or other assets may default on their
obligations to us due to bankruptcy, lack of liquidity, operational
failure or other reasons.
We act as a principal in our physical commodities trading activities
which exposes us to the credit risk of our counterparties and customers
in these activities. Any metals or other physical commodities positions
are held by third party custodians.
Although we have procedures for reviewing credit exposures to specific
customers and counterparties to address present credit concerns, default
risk may arise from events or circumstances that are difficult to detect
or foresee, including rapid changes in securities, commodity and
foreign exchange price levels. Some of our risk management methods
depend upon the evaluation of information regarding markets, clients
or other matters that are publicly available or otherwise accessible
by us. That information may not, in all cases, be accurate, complete,
up-to-date or properly evaluated. In addition, concerns about, or a
default by, one institution could lead to significant liquidity problems,
losses or defaults by other institutions, which in turn could adversely
affect us. We may be materially and adversely affected in the event of
a significant default by our customers and counterparties.
In our securities and commodities trading businesses we rely on the
ability of our clearing brokers to adequately discharge their obligations
on a timely basis. We also depend on the solvency of our clearing
brokers and custodians. Any failure by a clearing broker to adequately
discharge its obligations on a timely basis, or insolvency of a clearing
broker or custodian, or any event adversely affecting our clearing
brokers or custodians, could have a material adverse effect on our
business, financial condition and operating results.
As a clearing member firm of commodities clearing houses in the
U.S. and abroad, we are also exposed to clearing member credit risk.
Commodities clearing houses require member firms to deposit cash
and/or government securities to a clearing fund. If a clearing member
defaults in its obligations to the clearing house in an amount larger than
its own margin and clearing fund deposits, the shortfall is absorbed
pro rata from the deposits of the other clearing members. Several
clearing houses of which we are members also have the authority
to assess their members for additional funds if the clearing fund is
depleted. A large clearing member default could result in a substantial
cost to us if we are required to pay such assessments.
Our net operating revenues may decrease due to
changes in market volume, prices or liquidity.
Declines in the volume of securities, commodities and foreign exchange
transactions and in market liquidity generally may result in lower
revenues from market-making and trading activities. Changes in price
levels of securities and commodities and foreign exchange rates also
may result in reduced trading activity and reduce our revenues from
market-making transactions. Changed price levels also can result in
losses from changes in the fair value of securities and commodities
held in inventory. Sudden sharp changes in fair values of securities
and commodities can result in:
•• illiquid markets;
•• fair value losses arising from positions held by us;
•• the failure of buyers and sellers of securities and commodities to
fulfill their settlement obligations,
PART I
Item 1A Risk Factors
•• redemptions from funds managed in our asset management business
segment and consequent reductions in management fees;
•• reductions in accrued performance fees in our asset management
business segment; and
•• increases in claims and litigation.
Any change in market volume, price or liquidity or any other of these
factors could have a material adverse effect on our business, financial
condition and operating results.
Our net operating revenues may decrease due to
changes in customer trading volumes which are
dependent in large part on commodity prices and
commodity price volatility.
Customer trading volumes are largely driven by the degree of
volatility—the magnitude and frequency of fluctuations—in prices of
commodities. Higher volatility increases the need to hedge contractual
price risk and creates opportunities for arbitrage trading. Energy and
agricultural commodities markets periodically experience significant
price volatility. In addition to price volatility, increases in commodity
prices lead to increased trading volume. As prices of commodities
rise, especially energy prices, new participants enter the markets to
address their growing risk-management needs or to take advantage
of greater trading opportunities. Sustained periods of stability in the
prices of commodities or generally lower prices could result in lower
trading volumes and, potentially, lower revenues. Lower volatility
and lower volumes could lead to lower customer balances held on
deposit, which in turn may reduce the amount of interest revenue
based on these deposits.
Factors that are particularly likely to affect price volatility and price
levels of commodities include:
•• supply and demand of commodities;
•• weather conditions affecting certain commodities;
•• national and international economic and political conditions;
•• perceived stability of commodities and financial markets;
•• the level and volatility of interest rates and inflation; and
•• financial strength of market participants.
Any one or more of these factors may reduce price volatility or price
levels in the markets for commodities trading, which in turn could
reduce trading activity in those markets. Moreover, any reduction in
trading activity could reduce liquidity which in turn could further
discourage existing and potential market participants and thus
accelerate any decline in the level of trading activity in these markets.
Our net operating revenues may be impacted by
diminished market activity due to adverse economic,
political and market conditions.
The amount of our revenues depends in part on the level of activity
in the securities, foreign exchange and commodities markets in which
we conduct business. The level of activity in these markets is directly
affected by numerous national and international factors that are
beyond our control, including:
•• economic, political and market conditions;
•• the availability of short-term and long-term funding and capital;
13
- Form 10-K PART I
Item 1A Risk Factors
•• the level and volatility of interest rates;
•• legislative and regulatory changes; and
•• currency values and inflation.
Any one or more of these factors may reduce the level of activity
in these markets, which could result in lower revenues from our
market-making and trading activities. Any reduction in revenues or
any loss resulting from these factors could have a material adverse
effect on our business, financial condition and operating results.
We depend on our management team.
Our future success depends, in large part, upon our management
team who possess extensive knowledge and management skills with
respect to securities, commodities and foreign exchange businesses
we operate. The unexpected loss of services of any of our executive
officers could adversely affect our ability to manage our business
effectively or execute our business strategy. Although some of these
officers have employment contracts with us, they are generally not
required to remain with us for a specified period of time.
We depend on our ability to attract and retain key
personnel.
Competition for key personnel and other highly qualified management,
sales, trading, compliance and technical personnel is significant. It
is possible that we will be unable to retain our key personnel and to
attract, assimilate or retain other highly qualified personnel in the
future. The loss of the services of any of our key personnel or the
inability to identify, hire, train and retain other qualified personnel
in the future could have a material adverse effect on our business,
financial condition and operating results.
From time to time, other companies in the financial sector have
experienced losses of sales and trading professionals. The level of
competition to attract these professionals is intense. It is possible
that we will lose professionals due to increased competition or other
factors in the future. The loss of a sales and trading professional,
particularly a senior professional with broad industry expertise, could
have a material adverse effect on our business, financial condition
and operating results.
In the event of employee misconduct or error, our
business may be harmed.
There have been a number of highly publicized cases involving fraud
or other misconduct by employees of financial services firms in recent
years. Employee misconduct or error could subject us to legal liability,
financial losses and regulatory sanctions and could seriously harm our
reputation and negatively affect our business. Misconduct by employees
could include engaging in improper or unauthorized transactions or
activities, failing to properly supervise other employees or improperly
using confidential information. Employee errors, including mistakes
in executing, recording or processing transactions for customers,
could cause us to enter into transactions that clients may disavow and
refuse to settle, which could expose us to the risk of material losses
even if the errors are detected and the transactions are unwound or
reversed. If our clients are not able to settle their transactions on a
timely basis, the time in which employee errors are detected may be
increased and our risk of material loss could be increased. The risk
14
of employee error or miscommunication may be greater for products
that are new or have non-standardized terms. It is not always possible
to deter employee misconduct or error, and the precautions we take
to detect and prevent this activity may not be effective in all cases.
Internal or third party computer systems failures,
capacity constraints and breaches of security could
increase our operating costs and/or credit losses, decrease
net operating revenues and cause us to lose clients.
We are heavily dependent on the capacity and reliability of the
computer and communications systems supporting our operations,
whether owned and operated internally or by third parties, including
those used for execution and clearance of our customer’s trades
and our market making activities. We receive and process a large
portion of our trade orders through electronic means, such as through
public and private communications networks. These computer and
communications systems and networks are subject to performance
degradation or failure from any number of reasons, including loss of
power, acts of war or terrorism, human error, natural disasters, fire,
sabotage, hardware or software malfunctions or defects, computer
viruses, intentional acts of vandalism, customer error or misuse,
lack of proper maintenance or monitoring and similar events. Our
systems, or those of our third party providers, may fail or operate
slowly, causing one or more of the following:
•• unanticipated disruptions in service to our clients;
•• slower response times;
•• delays in our clients’ trade execution;
•• failed settlement of trades;
•• decreased client satisfaction with our services;
•• incomplete, untimely or inaccurate accounting, recording, reporting
or processing of trades;
•• financial losses;
•• litigation or other client claims; and
•• regulatory sanctions.
The occurrence of degradation or failure of the communications
and computer systems on which we rely may lead to financial losses,
litigation or arbitration claims filed by or on behalf of our customers
and regulatory investigations and sanctions, including by the CFTC,
which require that our trade execution and communications systems
be able to handle anticipated present and future peak trading volumes.
Any such degradation or failure could also have a negative effect on
our reputation, which in turn could cause us to lose existing customers
to our competitors or make it more difficult for us to attract new
customers in the future. Further, any financial loss that we suffer as
a result of such degradations or failures could be magnified by price
movements of contracts involved in transactions impacted by the
degradation or failure, and we may be unable to take corrective action
to mitigate any losses we suffer.
We are subject to extensive government regulation.
The securities and commodities futures industries are subject to
extensive regulation under federal, state and foreign laws. In addition,
the SEC, the CFTC, FINRA, MSRB, the NFA, the CME Group and
other self-regulatory organizations, commonly referred to as SROs,
- Form 10-K state securities commissions, and foreign securities regulators require
compliance with their respective rules and regulations. These regulatory
bodies are responsible for safeguarding the integrity of the financial
markets and protecting the interests of participants in those markets.
As participants in various financial markets, we may be subject to
regulation concerning certain aspects of our business, including:
•• trade practices;
•• the way we communicate with, and disclose risks to clients;
•• financial and reporting requirements and practices;
•• client identification and anti-money laundering requirements;
•• capital structure;
•• record retention; and
•• the conduct of our directors, officers and employees.
Failure to comply with any of these laws, rules or regulations could
result in adverse consequences. We and certain of our officers and
employees have, in the past, been subject to claims arising from acts
that regulators asserted were in contravention of these laws, rules
and regulations. These claims resulted in the payment of fines and
settlements. It is possible that we and our officers and other employees
will be subject to similar claims in the future. An adverse ruling
against us or our officers and other employees could result in our or
our officers and other employees being required to pay a substantial
fine or settlement and could result in a suspension or revocation of
required registrations or memberships. Such sanctions could have
a material adverse effect on our business, financial condition and
operating results.
The regulatory environment in which we operate is subject to change.
On November 14, 2013, the CFTC finalized new rules known as
“Enhancing Customer Protections Rules”. These provisions, among
other things, require enhanced customer protections, risk management
programs, internal monitoring and controls, capital and liquidity
standards, customer disclosures, and auditing and examination
programs for FCMs. These rule changes, additional legislation or
regulations, changes required under the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-Frank Act”) and
any new or revised regulation by the SEC, the CFTC, other U.S. or
foreign governmental regulatory authorities, SROs, MSRB or FINRA
could have a material adverse effect on our business, financial condition
and operating results. Changes in the interpretation or enforcement
of existing laws and rules by these governmental authorities, SROs,
MSRB and FINRA could also have a material adverse effect on our
business, financial condition and operating results. Failure to comply
with current or future legislation or regulations that apply to our
operations could subject us to fines, penalties, or material restrictions
on our business in the future.
Additional regulation, changes in existing laws and rules, or changes
in interpretations or enforcement of existing laws and rules often
directly affect financial services firms. We cannot predict what effect
any such changes might have. Our business, financial condition and
operating results may be materially affected by both regulations that
are directly applicable to us and regulations of general application.
Our level of trading and market-making activities can be affected not
only by such legislation or regulations of general applicability, but
also by industry-specific legislation or regulations.
PART I
Item 1A Risk Factors
We have incurred significant additional operational
and compliance costs to meet the requirements of recent
legislation and related regulations. This legislation
and the related regulations may significantly affect our
business in the future.
Recent market and economic conditions have led to legislation and
regulation affecting the financial services industry. These changes could
eventually have an effect on our revenue and profitability, limit our
ability to pursue certain business opportunities, impact the value of assets
that we hold, require us to change certain business practices, impose
additional costs on us, and otherwise adversely affect our business.
Accordingly, we cannot provide assurance that new legislation and
regulation will not eventually have an adverse effect on our business,
results of operations, cash flows and financial condition.
The principal legislation is the Dodd-Frank Act which creates a
comprehensive new regulatory regime governing the OTC and
listed derivatives markets and their participants by requiring, among
other things: centralized clearing of standardized derivatives (with
certain stated exceptions); the trading of clearable derivatives on swap
execution facilities or exchanges; and registration and comprehensive
regulation of new categories of market participants as “swap dealers”
and swap “introducing brokers.” The Dodd-Frank Act grants regulatory
authorities, such as the CFTC and the SEC, broad rule-making
authority to implement various provisions of the Dodd-Frank Act,
including comprehensive regulation of the OTC derivatives market.
These regulators will continue to exercise, their expanded rule-making
powers in ways that will affect how we conduct our business.
We have incurred and expect to continue to incur significant costs to
comply with these regulatory requirements. We have also incurred and
expect to continue to incur significant costs related to the development,
operation and enhancement of our technology relating to trade
execution, trade reporting, surveillance, record keeping and data
reporting obligations, compliance and back-up and disaster recovery
plans designed to meet the requirements of the regulators.
Changes that will be required in our OTC and clearing businesses may
adversely impact our results of operations. Following the implementation
of all of the rules contemplated by the Dodd-Frank Act, the markets
for cleared and non-cleared swaps may be less robust, there may be less
volume and liquidity in these markets and there may be less demand
for our services. Certain banks and other institutions will be limited
in their conduct of proprietary trading and will be further limited or
prohibited from trading in certain derivatives. The new rules, including
the restrictions on the trading activities for certain banks and large
institutions, could impact transaction volumes and liquidity in these
markets and our revenues would be adversely impacted as a result.
Changes that will be required in our OTC and clearing businesses may
also adversely impact our cash flows and financial condition. Registration
will impose substantial new requirements upon these entities including,
among other things, capital and margin requirements, business conduct
standards and record keeping and data reporting obligations. Increased
regulatory oversight could also impose administrative burdens on us
related to, among other things, responding to regulatory examinations
or investigations. We provisionally registered our subsidiary, INTL
FCStone Markets, LLC, as a swap dealer on December 31, 2012.
Most of the rules affecting this business have now been finalized, and
external business conduct rules came into effect on May 1, 2013.
Nevertheless, some important rules, such as those setting capital and
15
- Form 10-K PART I
Item 1A Risk Factors
margin requirements, have not been finalized or fully implemented,
and it is too early to predict with any degree of certainty how we
will be affected.
The European Markets Infrastructure Regulation (“EMIR”) is the
European regulations on OTC derivatives, central counterparties
and trade repositories. The EMIR has been implemented across the
European Economic Area member states by the European Securities
and Markets Authority (“ESMA”). The EMIR has imposed new
requirements on our European operations, including (a) reporting
derivatives to a trade repository; (b) putting in place certain risk
management procedures for OTC derivative transactions that are
not cleared; (c) changes to our clearing account models and increased
central counterparty margin requirements. Reporting requirements
came into effect in February 2014 and most risk mitigation procedures
were set at the end of 2013. European institutions have yet to decide
what collateral obligations will be applicable to non-cleared OTC
transactions. ESMA is evaluating and setting clearing obligations
for certain OTC derivatives. INTL FCStone Ltd will comply with
these EMIR provisions when finalized and relevant to its activities.
In addition to the EMIR, the FCA will be enforcing additional
European Union issued regulations such as Market Abuse Directive
extending the scope of previous rules to Commodities (2016) and
the Markets in Financial Instruments Directive II(“MiFID II”) for
which implementation is scheduled for 2017. It is likely some of
MiFID II provisions implementation might be postponed to 2018.
Principal areas of impact related to this directive will involve organized
trade facilities for trading OTC non-equity products, client type
re-assessment, investor protection, enhanced conflict of interest and
execution policies and increased transparency and reporting.
The increased costs associated with compliance, and the changes that
will be required in our OTC and clearing businesses, may adversely
impact our results of operations, cash flows, and/or financial condition.
We are subject to net capital requirements.
The SEC, FINRA and the CFTC require our dually registered
broker-dealer/FCM subsidiary, INTL FCStone Financial Inc. to
maintain specific levels of net capital. Failure to maintain the required
net capital may subject this subsidiary to suspension or revocation of
registration by the SEC, and suspension or expulsion by FINRA and
other regulatory bodies and may subject this subsidiary to limitations
on its activities, including suspension or revocation of its registration
by the CFTC and suspension or expulsion by the NFA and various
exchanges of which it is a member.
The FCA requires our UK subsidiary, INTL FCStone Ltd. to maintain
specific levels of net capital. Failure to maintain the required net
capital may subject INTL FCStone Ltd. to suspension or revocation
of its registration by the FCA.
Ultimately, any failure to meet capital requirements by our dually
registered broker-dealer/FCM subsidiary or our UK subsidiary could
result in liquidation of the subsidiary. Failure to comply with the net
capital rules could have material and adverse consequences such as
limiting their operations, or restricting us from withdrawing capital
from these subsidiaries.
In addition, a change in the net capital rules, the imposition of new
rules or any unusually large charge against net capital could limit
our operations that require the intensive use of capital. They could
16
also restrict our ability to withdraw capital from these subsidiaries.
Any limitation on our ability to withdraw capital could limit our
ability to pay cash dividends, repay debt and repurchase shares of our
outstanding stock. A significant operating loss or any unusually large
charge against net capital could adversely affect our ability to expand
or even maintain our present levels of business, which could have an
adverse effect on our business, financial condition and operating results.
We are subject to margin funding requirements on
short notice.
Our business involves establishment and carrying of substantial
open positions for customers on futures exchanges and in the OTC
derivatives markets. We are required to post and maintain margin
or credit support for these positions. Although we collect margin or
other deposits from our customers for these positions, significant
adverse price movements can occur which will require us to post
margin or other deposits on short notice, whether or not we are able
to collect additional margin or credit support from our customers.
We maintain borrowing facilities for the purpose of funding margin
and credit support and have systems to endeavor to collect margin
and other deposits from customers on a same-day basis, there can
be no assurance that these facilities and systems will be adequate to
eliminate the risk of margin calls in the event of severe adverse price
movements affecting open positions of our customers. Generally, if
a customer is unable to meet its margin call, we promptly liquidate
the customer’s account. However, there can be no assurance that in
each case the liquidation of the account will not result in a loss to us
or that liquidation will be feasible, given market conditions, size of
the account and tenor of the positions.
Low short-term interest rates negatively impact our
profitability.
The level of prevailing short-term interest rates affects our profitability
because we derive a portion of our revenue from interest earned from
the investment of funds deposited with us by our customers. As of
September 30, 2015, we had $1.9 billion in customer segregated
assets, the majority of which are generally invested in U.S. Treasury
securities and money market mutual funds. Our financial performance
generally benefits from rising interest rates. Higher interest rates
increase the amount of interest income earned from these customer
deposits. If short-term interest rates remain low or continue to fall,
our revenues derived from interest will decline which would negatively
impact our profitability.
Short-term interest rates are highly sensitive to factors that are beyond
our control, including general economic conditions and the policies
of various governmental and regulatory authorities. In particular,
decreases in the federal funds rate by the Board of Governors of the
Federal Reserve System usually lead to decreasing interest rates in the
U.S., which generally lead to a decrease in short-term interest rates.
We may issue additional equity securities.
The issuance of additional common stock or securities convertible into
our common stock could result in dilution of the ownership interest in
us held by existing stockholders. We are authorized to issue, without
stockholder approval, a significant number of additional shares of
our common stock and securities convertible into either common
stock or preferred stock.
- Form 10-K We are subject to risks relating to litigation and
potential securities and commodities law liability.
We face significant legal risks in our businesses, including risks
related to currently pending litigation involving the Company. Many
aspects of our business involve substantial risks of liability, including
liability under federal and state securities and commodities laws, other
federal, state and foreign laws and court decisions, as well as rules and
regulations promulgated by the SEC, the CFTC, FINRA, MSRB, the
NFA, the FCA and other regulatory bodies. Substantial legal liability
or significant regulatory action against us and our subsidiaries could
have adverse financial effects or cause significant reputational harm
to us, which in turn could seriously harm our business prospects.
Any such litigation could lead to more volatility of our stock price.
For a further discussion of litigation risks, see Item 3—Legal Proceedings
below and Note 11 – Commitments and Contingencies in the
Consolidated Financial Statements.
We are subject to intense competition.
We derive a significant portion of our revenues from market-making
and trading activities involving securities and commodities. The
market for these services, particularly market-making services through
electronic communications gateways, is rapidly evolving and intensely
competitive. We expect competition to continue and intensify in the
future. We compete primarily with wholesale, national, and regional
broker-dealers and FCMs, as well as electronic communications
networks. We compete primarily on the basis of our expertise and
quality of service.
We also derive a significant portion of our revenues from commodities
risk management services. The commodity risk management industry
is very competitive and we expect competition to continue to intensify
in the future. Our primary competitors in this industry include both
large, diversified financial institutions and commodity-oriented
businesses, smaller firms that focus on specific products or regional
markets and independent FCMs.
A number of our competitors have significantly greater financial,
technical, marketing and other resources than we have. Some of
them may:
•• offer alternative forms of financial intermediation as a result of
superior technology and greater availability of information;
•• offer a wider range of services and products than we offer;
•• be larger and better capitalized;
•• have greater name recognition; and
•• have more extensive customer bases.
These competitors may be able to respond more quickly to new or
evolving opportunities and customer requirements. They may also
be able to undertake more extensive promotional activities and offer
more attractive terms to customers. Recent advances in computing
and communications technology are substantially changing the means
by which market-making services are delivered, including more direct
access on-line to a wide variety of services and information. This has
created demand for more sophisticated levels of customer service.
Providing these services may entail considerable cost without an
offsetting increase in revenues. In addition, current and potential
competitors have established or may establish cooperative relationships
PART I
Item 1A Risk Factors
or may consolidate to enhance their services and products. New
competitors or alliances among competitors may emerge and they
may acquire significant market share.
We cannot assure you that we will be able to compete effectively with
current or future competitors or that the competitive pressures we face
will not have an adverse effect on our business, financial condition
and operating results.
Our business could be adversely affected if we are
unable to retain our existing customers or attract new
customers.
The success of our business depends, in part, on our ability to maintain
and increase our customer base. Customers in our market are sensitive
to, among other things, the costs of using our services, the quality
of the services we offer, the speed and reliability of order execution
and the breadth of our service offerings and the products and markets
to which we offer access. We may not be able to continue to offer
the pricing, service, speed and reliability of order execution or the
service, product and market breadth that customers desire. In addition,
once our risk management consulting customers have become better
educated with regard to sources of risk and the tools available to
facilitate the management of this risk and we have provided them with
recommended hedging strategies, they may no longer continue paying
monthly fees for these services. Furthermore, our existing customers,
including IRMP customers, are not generally obligated to use our
services and can switch providers of clearing and execution services
or decrease their trading activity conducted through us at any time.
As a result, we may fail to retain existing customers or be unable to
attract new customers. Our failure to maintain or attract customers
could have an adverse effect on our business, financial condition and
operating results.
We rely on relationships with introducing brokers
for obtaining some of our customers.
The failure to maintain these relationships could adversely affect
our business. We have relationships with introducing brokers who
assist us in establishing new customer relationships and provide
marketing and customer service functions for some of our customers.
These introducing brokers receive compensation for introducing
customers to us. Many of our relationships with introducing brokers
are non-exclusive or may be canceled on relatively short notice. In
addition, our introducing brokers have no obligation to provide new
customer relationships or minimum levels of transaction volume.
Our failure to maintain these relationships with these introducing
brokers or the failure of these introducing brokers to establish and
maintain customer relationships would result in a loss of revenues,
which could adversely affect our business.
Certain provisions of Delaware law and our charter
may adversely affect the rights of holders of our common
stock and make a takeover of us more difficult.
We are organized under the laws of the State of Delaware. Certain
provisions of Delaware law may have the effect of delaying or preventing
a change in control. In addition, certain provisions of our certificate of
incorporation may have anti-takeover effects and may delay, defer or
prevent a takeover attempt that a stockholder might consider in its best
17
- Form 10-K PART I
Item 1A Risk Factors
interest. Our certificate of incorporation authorizes the board to determine
the terms of our unissued series of preferred stock and to fix the number
of shares of any series of preferred stock without any vote or action by
our stockholders. As a result, the board can authorize and issue shares
of preferred stock with voting or conversion rights that could adversely
affect the voting or other rights of holders of our common stock. In
addition, the issuance of preferred stock may have the effect of delaying
or preventing a change of control, because the rights given to the holders
of a series of preferred stock may prohibit a merger, reorganization, sale,
liquidation or other extraordinary corporate transaction.
Our stock price is subject to volatility.
The market price of our common stock has been and can be expected
to be subject to fluctuation as a result of a variety of factors, many of
which are beyond our control, including:
•• actual or anticipated variations in our results of operations;
•• announcements of new products by us or our competitors;
•• technological innovations by us or our competitors;
•• changes in earnings estimates or buy/sell recommendations by
financial analysts;
•• the operating and stock price performance of other companies;
•• general market conditions or conditions specific in specific markets;
•• conditions or trends affecting our industry or the economy generally;
•• announcements relating to strategic relationships or acquisitions; and
•• risk factors and uncertainties set forth elsewhere in this Form 10-K.
Because of this volatility, we may fail to meet the expectations of our
stockholders or of securities analysts, and the trading prices of our
common stock could decline as a result. In addition, any negative
change in the public’s perception of the securities industry could
depress our stock price regardless of our operating results.
Future sales by existing stockholders could depress the market price of
our common stock. If our stockholders sell substantial amounts of our
common stock in the public market, the market price of our common
stock could fall. Such sales also might make it more difficult for us to sell
equity securities in the future at a time and price that we deem appropriate.
Our international operations involve special
challenges that we may not be able to meet, which
could adversely affect our financial results.
We engage in a significant amount of business with customers in the
international markets. Certain additional risks are inherent in doing
business in international markets, particularly in a regulated industry.
These risks include:
•• the inability to manage and coordinate the various regulatory
requirements of multiple jurisdictions that are constantly evolving
and subject to unexpected change;
•• tariffs and other trade barriers;
•• difficulties in recruiting and retaining personnel, and managing
international operations;
•• difficulties of debt collection in foreign jurisdictions;
•• potentially adverse tax consequences; and
•• reduced protection for intellectual property rights.
18
Our operations are subject to the political, legal and
economic risks associated with politically unstable and
less developed regions of the world, including the risk
of war and other international conflicts and actions
by governmental authorities, insurgent groups,
terrorists and others.
Specifically, we conduct business in countries whose currencies may
be unstable. Future instability in such currencies or the imposition
of governmental or regulatory restrictions on such currencies could
impede our foreign business and our ability to collect on collateral
held in such currencies.
Our operations are required to comply with the laws
and regulations of foreign governmental and regulatory
authorities of each country in which we conduct
business, and if we violate these regulations, we may be
subject to significant penalties.
The financial services industry is subject to extensive laws, rules and
regulations in every country in which we operate. Firms that engage
in commodity futures brokerage, securities and derivatives trading and
investment banking must comply with the laws, rules and regulations
imposed by the governing country, state, regulatory bodies and self-
regulatory bodies with governing authority over such activities. Such
laws, rules and regulations cover all aspects of the financial services
business, including, but not limited to, sales and trading methods, trade
practices, use and safekeeping of customers’ funds and securities, capital
structure, anti-money laundering and anti-bribery and corruption efforts,
recordkeeping and the conduct of directors, officers and employees.
Each of our regulators supervises our business activities to monitor
compliance with such laws, rules and regulations in the relevant
jurisdiction. In addition, if there are instances in which our regulators
question our compliance with laws, rules, and regulations, they may
investigate the facts and circumstances to determine whether we
have complied. At any moment in time, we may be subject to one or
more such investigation or similar reviews. At this time, we believe
all such investigations, and similar reviews are insignificant in scope
and immaterial to us. However, there can be no assurance that, in
the future, the operations of our businesses will not violate such laws,
rules, and regulations and that related investigations and similar
reviews could result in adverse regulatory requirements, regulatory
enforcement actions and/or fines.
Additional legislation, changes in rules, changes in the interpretation or
enforcement of existing laws and rules, or the entering into businesses
that subject us to new rules and regulations may directly affect our
business, results of operations and financial condition.
We are reviewing the regulatory changes that will be introduced by
the Markets in Financial Instruments Directive II (“MIFID II”) and
the Markets in Financial Instruments Regulation (“MIFIR”) to assess
the impact this legislation is likely to have on our United Kingdom
business which is expected to be implemented in 2017. Among other
things, the legislation will impose additional transaction and position
reporting requirements, disclosure obligations, as well as requiring
certain over-the-counter derivatives to be traded on organized trading
facilities (“OTFs”).
If we are unable to manage any of these risks effectively, our business
could be adversely affected.
- Form 10-K Item 1B Unresolved Staff Comments
We have received no written comments regarding our periodic or current reports from the staff of the SEC that were issued 180 days or more
preceding the end of our fiscal year 2015 that remain unresolved.
PART I
Item 3 Legal Proceedings
Item 2 Properties
The Company maintains offices in New York, New York; Winter
Park, Florida; West Des Moines, Iowa; Chicago, Illinois; Kansas City,
Missouri; St. Louis, Missouri; Jersey City, New Jersey; Bloomfield,
Nebraska; Omaha, Nebraska; Minneapolis, Minnesota; Bloomington,
Illinois; Miami, Florida; Indianapolis, Indiana; Bowling Green,
Ohio; Nashville, Tennessee; Lawrence, Kansas; Mobile, Alabama;
Boca Raton, Florida; Twin Falls, Idaho; Seoul, South Korea; Buenos
Aires, Argentina; Campinas, Brazil; Sao Paulo, Brazil; Maringa, Brazil;
Passo Fundo, Brazil; Goiania, Brazil; Recife, Brazil; Sorriso, Brazil;
Asuncion and Ciudad del Este, Paraguay; Bogota, Colombia; London,
United Kingdom; Dublin, Ireland; Dubai, United Arab Emirates;
Singapore, Singapore; Beijing and Shanghai, China; Hong Kong,
and Sydney, Australia. All of our offices and other principal business
properties are leased, except for the space in Buenos Aires, which we
own. We believe that our leased and owned facilities are adequate
to meet anticipated requirements for our current lines of business.
Item 3 Legal Proceedings
In addition to the matters discussed below, from time to time and
in the ordinary course of business, we are involved in various legal
actions and proceedings, including tort claims, contractual disputes,
employment matters, workers’ compensation claims and collections.
We carry insurance that provides protection against certain types of
claims, up to the policy limits of our insurance. In the opinion of
management, possible exposure from loss contingencies in excess of
the amounts accrued, and in addition to the possible losses discussed
below, is not material to our earnings, financial position or liquidity.
The following is a summary of our significant legal matters.
Securities Litigation and Regulatory Proceedings
In January 2014, a purported class action was filed in the United
States District Court for the Southern District of New York against
the Company and certain of our officers and directors. The complaint
alleged violations of federal securities laws, and claimed that the
Company issued false and misleading information concerning its
business and prospects. The action sought unspecified damages on
behalf of persons who purchased the Company’s shares between
February 17, 2010 and December 16, 2013. The lead plaintiff’s
amended complaint was filed in June 2014. Our motion to dismiss the
complaint was filed in July 2014. At the court hearing on February 4,
2015, our motion was granted and the amended complaint was
dismissed, however the lead plaintiff was given leave to amend its
complaint. The lead plaintiff’s second amended complaint was filed
on March 6, 2015, and it narrowed the purported class to persons
who purchased Company’s shares between December 15, 2010 and
December 16, 2013. On March 27, 2015, we filed a motion to dismiss
the second amended complaint. The lead plaintiff’s memorandum
in opposition was filed on April 13, 2015, and our reply in support
of its motion to dismiss the second amended complaint was filed
on April 27, 2015. The matter was heard on July 9, 2015 and on
July 13, 2015 the second amended complaint was dismissed in its
entirety, with prejudice and without leave to replead.
During fiscal 2014, settlement of a previously disclosed shareholder
class action complaint against us and our directors originating in
August 2008 was approved, resulting in a payment of $0.3 million
after consideration of insurance coverage, recorded as expense in
fiscal 2014.
During fiscal 2013, we reached a settlement with the CFTC in
connection with its investigation of the losses that occurred in
2008 and 2009 in a customer energy trading account of our former
wholly owned subsidiary FCStone, LLC. Effective July 1, 2015,
FCStone, LLC was merged with other certain wholly owned subsidiaries,
and is now known as INTL FCStone Financial Inc. The CFTC’s
findings, neither admitted nor denied by us, were that FCStone, LLC
violated CFTC Regulation 166.3 in that it failed to diligently supervise
its officers’ and employees’ activities relating to risks associated with
its customers’ accounts, and in particular one account controlled by
two of FCStone, LLC’s customers who traded in natural gas futures,
swaps and option contracts. The settlement resulted in a payment of
$1.5 million recorded as expense in fiscal 2013.
Sentinel Litigation
Prior to the July 1, 2015 merger of certain wholly owned subsidiaries, our
former subsidiary, FCStone, LLC, had a portion of its excess segregated
funds invested with Sentinel Management Group Inc. (“Sentinel”), a
registered FCM and an Illinois-based money manager that provided
cash management services to other FCMs. In August 2007, Sentinel
halted redemptions to customers and sold certain of the assets it
managed to an unaffiliated third party at a significant discount. On
19
- Form 10-K PART I
Item 4 mine Safety Disclosures
August 17, 2007, subsequent to Sentinel’s sale of certain assets, Sentinel
filed for bankruptcy protection. In aggregate, $15.5 million of FCStone,
LLC’s $21.9 million in invested funds were returned to it before and
after Sentinel’s bankruptcy petition.
In August 2008, the bankruptcy trustee of Sentinel filed adversary
proceedings against FCStone, LLC, and a number of other FCMs in
the Bankruptcy Court for the Northern District of Illinois. The case
was subsequently reassigned to the United States District Court, for
the Northern District of Illinois. In the complaint, the trustee sought
avoidance of alleged transfers or withdrawals of funds received by
FCStone, LLC and other FCMs within 90 days prior to the filing of
the Sentinel bankruptcy petition, as well as avoidance of post-petition
distributions and disallowance of the proof of claim filed by FCStone,
LLC. The trustee sought recovery of pre- and post-petition transfers
totaling approximately $15.5 million.
The trial of this matter took place, as a test case, during October 2012.
The trial court entered a judgment against FCStone, LLC on January 4,
2013. On January 17, 2013, the trial court entered an agreed order,
staying execution and enforcement, pending an appeal of the judgment.
On March 19, 2014, the appeal court ruled in favor of FCStone,
LLC. In April 2014, the trustee filed a petition for rehearing of the
appeal. In May 2014, the U.S. Court of Appeals for the Seventh
Circuit denied the petition. The trustee did not file a writ for certiorari
with the U.S. Supreme Court during the time allotted to do so. The
Company continues to be involved in litigation against the trustee to
recover its share of the cash held in reserve accounts under Sentinel’s
Fourth Amended Chapter 11 Plan of Liquidation.
On February 10, 2015, based on a new theory, the trustee filed a
motion for judgment against FCStone, LLC in the United States
District Court, for the Northern District of Illinois, seeking to claw
back the post-petition transfer of $14.5 million and to recover the
funds held in reserve in the name of FCStone, LLC. FCStone, LLC
filed its opposition brief and an associated motion for judgment on
March 17, 2015. The trustee filed its reply briefs on April 7, 2015
and we filed our reply briefs on April 22, 2015. We have determined
that losses related to this matter are neither probable nor reasonably
possible. We believe the case is without merit and intend to defend
ourselves vigorously.
Our assessments are based on estimates and assumptions that
have been deemed reasonable by management, but that may later
prove to be incomplete or inaccurate, and unanticipated events
and circumstances may occur that might cause us to change those
estimates and assumptions.
Item 4 mine Safety Disclosures
Not applicable.
20
- Form 10-K PART II
Item 5 market for Registrant’s Common equity, Related Stockholder matters and Issuer Purchases of equity Securities
PART II
Item 5 market for Registrant’s Common equity,
Related Stockholder matters and Issuer
Purchases of equity Securities
Our common stock is listed on The NASDAQ Stock Market LLC (“NASDAQ”) under the symbol ‘INTL’. Our common stock trades on
the NASDAQ Global Select Market. As of September 30, 2015, there were approximately 324 registered holders of record of our common
stock. The high and low sales prices per share of our common stock for each full quarterly period during fiscal 2015 and 2014 were as follows:
Price Range
High
Low
$
$
$
$
$
$
$
$
35.22 $
37.15 $
30.44 $
20.70 $
20.29 $
20.20 $
19.24 $
21.10 $
24.50
29.74
19.25
16.96
17.32
17.76
17.24
17.95
Value over 5 years of $100 invested on September 30, 2010 in each
of the company’s stock (“INTL”), S&P 500 Index and NYSE/Arca Securities Broker/Dealer Index
2015:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2014:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
200
180
160
140
120
100
80
60
40
20
2010
INTL
2011
2012
2013
2014
2015
S&P 500 Index
NYSE/Arca Securities Broker/Dealer Index
We have never declared any cash dividends on our common stock, and do not currently have any plans to pay dividends on our common
stock. The payment of cash dividends in the future is subject to the discretion of the Board of Directors and will depend on our earnings,
financial condition, capital requirements, contractual restrictions and other relevant factors. Our credit agreements currently prohibit the
payment of cash dividends by us.
21
- Form 10-K
PART II
Item 6 Selected Financial Data
On December 10, 2014, our Board of Directors authorized the repurchase of up to 1.0 million shares of our outstanding common stock
from time to time in open market purchases and private transactions, subject to the discretion of the senior management team to implement
our stock repurchase plan, and subject to market conditions and as permitted by securities laws and other legal, regulatory and contractual
requirements and covenants.
Our common stock repurchase program activity for the three months ended September 30, 2015 was as follows:
Total Number
of Shares
Purchased(1)
Period
July 1, 2015 to July 31, 2015
August 1, 2015 to August 31, 2015
September 1, 2015 to September 30, 2015
Total
(1) The September 2015 activity represents shares released to us from an escrow account established in connection with the acquisition of certain assets of Provident Group in September
2010. The shares held in escrow were to be released to the individual sellers, over a five year period from the date of closing based on net profits, in accordance with the provisions
of the acquisition agreement. Certain terms of the agreement were not met, and the shares were forfeited to us and recorded as treasury stock at the end of the five year period.
775,491
775,491
775,491
204,271
204,271 $
— $
—
—
—
—
—
Average Price
Paid per Share
—
—
23.33
23.33
Total Number of Shares
Purchased as Part of Publicly
Announced Program
Maximum Number of Shares
Remaining to be Purchased
Under the Program
Information relating to compensation plans under which our equity securities are authorized for issuance is set forth in Part III, Item 12 of our
Annual Report on Form 10-K.
Item 6 Selected Financial Data
The following selected financial and operating data are derived from our consolidated financial statements and should be read in conjunction with
Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in Item 7 and our Consolidated Financial
Statements included in Item 8.
SeLeCteD SUmmARY FINANCIAL INFORmAtION
(in millions, except share and per share amounts)
Operating revenues
Transaction-based clearing expenses
Introducing broker commissions
Interest expense
Net operating revenues
Compensation and other expenses:
Compensation and benefits
Communication and data services
Occupancy and equipment rental
Professional fees
Travel and business development
Depreciation and amortization
Bad debts and impairments
Other
Total compensation and other expenses
Income from continuing operations, before tax
Income tax expense
Net income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Add: Net loss attributable to noncontrolling interests
Net income attributable to INTL FCStone Inc. common stockholders
Earnings per share:
Basic
Diluted
Number of shares:
Basic
Diluted
Selected Balance Sheet Information:
Total assets
Lenders under loans
22
2015
2014
2013
2012
2011
Year Ended September 30,
$
624.3
122.7
52.7
17.1
431.8
251.1
28.1
13.5
12.5
10.5
7.2
7.3
23.5
353.7
78.1
22.4
55.7
—
55.7
490.9
108.5
49.9
10.5
322.0
201.9
25.8
12.3
14.9
9.9
7.3
5.5
18.4
296.0
26.0
6.4
19.6
(0.3)
19.3
$
$
468.2
110.1
40.5
7.9
309.7
198.7
23.1
12.0
12.4
10.4
8.0
0.8
23.1
288.5
21.2
2.6
18.6
0.7
19.3
—
$
55.7
2.94
2.87
$
$
—
$
19.3
1.01
0.98
$
$
—
$
19.3
1.01
0.97
$
$
448.1 $
105.3
31.0
5.6
306.2
197.2
22.4
11.0
12.6
10.4
7.2
1.5
21.4
283.7
22.5
5.5
17.0
(4.3)
12.7
0.1
12.8 $
0.67 $
0.64 $
398.9
75.4
24.0
6.4
293.1
170.6
15.4
8.9
10.3
8.0
4.7
5.8
21.3
245.0
48.1
18.2
29.9
4.8
34.7
0.1
34.8
1.93
1.83
18,525,374
18,932,235
18,528,302
19,132,302
18,443,233
19,068,497
18,282,939
19,156,899
17,618,085
18,567,454
5,070.0
41.6
$
$
3,039.7
22.5
$
$
2,848.0
61.0
$
$
2,953.0 $
218.2 $
2,632.0
77.4
$
$
$
$
$
$
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
(in millions, except share and per share amounts)
2015
2014
2013
2012
2011
Year Ended September 30,
Senior unsecured notes
Convertible notes
Stockholders’ equity
Other Data:
Return on average stockholders’ equity
(from continuing operations)(a)
EBITDA(b)
Employees, end of period
Compensation and benefits as a percentage
of operating revenues
$
$
$
$
45.5
$
— $
$
397.1
45.5
$
— $
$
345.4
45.5
$
— $
$
335.4
— $
— $
313.2 $
—
16.7
292.6
15.0%
102.4
1,231
$
5.8%
$
43.8
1,141
5.7%
$
37.1
1,094
5.6%
35.3 $
1,074
11.2%
59.2
904
42.8%
(a) For all periods presented, the return on average stockholders’ equity (from continuing operations) excludes the effects of discontinued operations and net loss attributable to noncontrolling interests.
(b) See “Non-GAAP Financial Measure” below.
41.1 %
40.2%
44.0%
42.4%
Non-GAAP Financial measure
EBITDA consists of net income from continuing operations before
interest expense, income tax expense and depreciation and amortization.
We have included EBITDA in our Form 10-K because we use it as
an important supplemental measure of our performance and believe
that it is frequently used by securities analysts, investors and other
interested persons in the evaluation of companies in our industry,
some of which present EBITDA when reporting their financial results.
EBITDA is a financial measure that is not recognized by U.S. GAAP,
and should not be considered as an alternative to operating revenues,
net operating revenues, net income from continuing operations, net
income or stockholders’ equity calculated under U.S. GAAP or as an
alternative to any other measures of performance derived in accordance
with U.S. GAAP. The following table reconciles EBITDA with our
net income from continuing operations.
(in millions)
Net income from continuing operations
Plus: interest expense
Plus: depreciation and amortization
Plus: income taxes
EBITDA
Year Ended September 30,
2015
2014
2013
2012
2011
$
$
55.7
17.1
7.2
22.4
102.4
$
$
19.6
10.5
7.3
6.4
43.8
$
$
18.6
7.9
8.0
2.6
37.1
$
$
17.0 $
5.6
7.2
5.5
35.3 $
29.9
6.4
4.7
18.2
59.2
Item 7 management’s Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read together with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this
Annual Report on Form 10-K. Certain statements in “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” are forward-looking statements that involve known and
unknown risks and uncertainties, many of which are beyond our
control. Words such as “may”, “will”, “should”, “would”, “anticipates”,
“expects”, “intends”, “plans”, “believes”, “seeks”, “estimates” and
similar expressions identify such forward-looking statements. The
forward-looking statements contained herein are based on current
expectations and entail various risks and uncertainties that could cause
actual results to differ materially from those expressed in such forward-
looking statements. Factors that might cause such a difference include,
among other things, those set forth under “Risk Factors” and those
appearing elsewhere in this Form 10-K. Readers are cautioned not
to place undue reliance on these forward-looking statements, which
reflect management’s analysis only as of the date hereof. We assume
no obligation to update these forward-looking statements to reflect
actual results or changes in factors or assumptions affecting forward-
looking statements. Readers are cautioned that any forward-looking
statements are not guarantees of future performance.
Overview
INTL FCStone Inc. is a diversified, global financial services organization
providing financial products and advisory and execution services that
help our clients access market liquidity, maximize profits and manage
risk. We are a leader in the development of specialized financial services
in commodities, securities, global payments, foreign exchange and
other markets. Our revenues are derived primarily from financial
products and advisory services that fulfill our clients’ real needs and
provide bottom-line benefits to their businesses. We create added
value for our clients by providing access to global financial markets
using our industry and financial expertise, deep partner and network
23
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
relationships, insight and guidance, and integrity and transparency. Our
client-first approach differentiates us from large banking institutions,
engenders trust, and has enabled us to establish leadership positions
in a number of complex fields in financial markets around the world.
investment banks. We believe our clients value us for our focus on
their needs, our expertise and flexibility, our global reach, our ability
to provide access to hard-to-reach markets and opportunities, and our
status as a well-capitalized and regulatory-compliant organization.
Our leadership positions span markets such as commodity risk
management advisory services; global payments; market-making in
international equities and other securities; fixed income; physical
trading and hedging of precious metals and select other commodities;
execution of listed futures and options on futures contracts on all
major commodity exchanges and foreign currency trading, among
others. These businesses are supported by our global infrastructure of
regulated operating subsidiaries, advanced technology platform and
team of more than 1,200 employees. We currently have more than
20,000 clients, located in more than 130 countries.
Our clients include producers, processors and end-users of nearly all
widely traded physical commodities; commercial counterparties who
are end-users of our products and services; governmental and non-
governmental organizations; and commercial banks, asset managers,
insurance companies, brokers, institutional investors and major
We believe we are well positioned to capitalize on key trends impacting
the financial services sector. Among others, these trends include the
impact of increased regulation on banking institutions and other
financial services providers; increased consolidation, especially of
smaller sub-scale financial services providers; the growing importance
and complexity of conducting secure cross-border transactions; and the
demand among financial institutions to transact with well-capitalized
counterparties.
We focus on mitigating exposure to market risk, ensuring adequate
liquidity to maintain daily operations and making non-interest expenses
variable, to the greatest extent possible. We report our operating
segments based on services provided to clients. Our activities are
divided into the following functional areas consisting of Commercial
Hedging, Global Payments, Securities, Physical Commodities, and
Clearing and Execution Services (“CES”).
Recent events Affecting the Financial Services Industry
The Dodd-Frank Act created a comprehensive new regulatory regime
governing the OTC and listed derivatives markets and their participants
by requiring, among other things: centralized clearing of standardized
derivatives (with certain stated exceptions); the trading of clearable
derivatives on swap execution facilities or exchanges; and registration
and comprehensive regulation of new categories of market participants
as “swap dealers” and swap “introducing brokers.” Our subsidiary, INTL
FCStone Markets, LLC, is a provisionally registered swap dealer. Some
important rules, such as those setting capital and margin requirements,
have not been finalized or fully implemented, and it is too early to
predict with any degree of certainty how we will be affected. We will
continue to monitor all applicable developments in the implementation
of the Dodd-Frank Act. The legislation and implementing regulations
affect not only us, but also many of our customers and counterparties.
We are reviewing the regulatory changes that will be introduced by
the Markets in Financial Instruments Directive II (“MIFID II”) and
the Markets in Financial Instruments Regulation (“MIFIR”) to assess
the impact this legislation is likely to have on our United Kingdom
business when implemented. Implementation is expected in 2017 and
the legislation will impose, among other things, additional transaction
and position reporting requirements, disclosure obligations, as well
as requiring certain over-the-counter derivatives to be traded on
organized trading facilities (“OTFs”).
Fiscal 2015 Highlights
•• Record overall operating revenues of $624.3 million, as well as record
operating revenues in our Commercial Hedging, Global Payments
and Securities segments.
•• Completed the acquisition of G.X. Clarke & Co., an SEC registered
institutional dealer in fixed income securities.
•• Excluding incremental expenses of the G.X. Clarke business acquired,
fixed expenses increased modestly at 3%, versus fiscal 2014.
executive Summary
•• Realized a 15.0% return on equity for fiscal 2015, equal to our
internal target for the Company.
•• Completed the consolidation of four of our U.S. regulated subsidiaries,
forming one financial services firm which is dually registered as a
broker-dealer and an FCM, realizing capital and other synergies.
We experienced strong revenue growth across all of our business
segments during fiscal 2015, increasing 27% versus the prior year,
led by our Securities, Commercial Hedging and Global Payment
segments. Overall, segment income increased 46% while net income
from continuing operations increased 184% to $55.7 million in fiscal
2015. Global Payments continued its growth, adding an additional
$14.9 million in segment income in fiscal 2015 to $43.2 million,
while our Securities and Commercial Hedging segments increased
segment income by 93% and 27%, respectively. Segment income
in our CES segment more than doubled versus the prior year, while
Physical Commodities declined modestly.
Our Securities segment’s strong growth in operating performance was a
result of a 44% increase in equity market-making volumes as well as the
acquisition of G.X. Clarke, which added an incremental $31.4 million
24
- Form 10-K PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
in operating revenues since the acquisition on January 1, 2015. The
growth in Global Payments segment income was attributable to the
continued on-boarding of additional financial institutions to our
platform which led to an increase of 70% in the number of payments
made compared to the prior year. This growth was partially tempered
by a narrowing of the average revenue per payment.
The growth in our core Commercial Hedging segment income was
primarily the result of increased interest income on customer deposits
and an increase in exchange-traded revenues, particularly on the LME.
In addition, OTC volumes increased 24% versus the prior year, driven
by strong performance in the agricultural commodities.
In our CES segment, increased interest income as well as a 64% increase
in foreign exchange prime brokerage volumes drove the improved
performance versus the prior year. Exchange-traded volumes in this
segment increased 5%, however exchange-traded operating revenues
were relatively flat as a result of a 5% decline in the average rate per
contract due to the overall business mix. Our Physical Commodity
segment income declined 2% versus the prior year, as a 13% increase
in operating revenues was offset by $2.8 million of bad debt provisions,
primarily related to a customer in the renewable fuels industry.
In connection with the merger of our wholly owned U.S. subsidiaries,
we transferred our remaining available-for-sale of securities to the trading
category during the fourth quarter of fiscal 2015. The transfer resulted
in $3.3 million, net of tax, of unrealized gains not previously recognized
in earnings. See further discussion in our Results of Operations.
On the expense side, we continue to focus on maintaining our variable
cost model and limiting the growth of our non-variable expenses. To
that end, variable expenses were 59% of total expenses in fiscal 2015
compared to 56% in the fiscal 2014. Non-variable expenses increased
8% year-over-year, primarily as a result of incremental expenses from
the acquisition of G.X. Clarke.
Selected Summary Financial Information
Discontinued Operations
During fiscal 2013, we began an exit of our physical base metals business through the sale and orderly liquidation of then-current open positions.
We completed the exit of the physical base metals business during fiscal 2014. The physical base metals activities in the financial statements
for fiscal 2014 and 2013 are presented as discontinued operations. We continue to operate the portion of our base metals business related to
non-physical assets, conducted primarily through the LME in our Commercial Hedging segment.
Results of Operations
Set forth below is our discussion of the results of our operations, as viewed by management, for the fiscal years ended September 30, 2015,
2014, and 2013.
The discussion below relates only to continuing operations. All revenues and expenses, including income tax expense, relating to discontinued
operations have been removed from disclosures of total revenues and expenses for the applicable periods, and are reported net in our consolidated
income statements in “(loss) income from discontinued operations, net of tax”.
Financial Overview
The following table shows an overview of our financial results:
FINANCIAL OVeRVIeW (UNAUDIteD)
(in millions)
Operating revenues
Transaction-based clearing expenses
Introducing broker commissions
Interest expense
Net operating revenues
Compensation and other expenses
Income from continuing operations, before tax
2015
624.3
122.7
52.7
17.1
431.8
353.7
78.1
$
$
Year Ended September 30,
2014
% Change
% Change
27% $
13%
6%
63%
34%
19%
200% $
490.9
108.5
49.9
10.5
322.0
296.0
26.0
5% $
(1)%
23%
33%
4%
3%
23% $
2013
468.2
110.1
40.5
7.9
309.7
288.5
21.2
25
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
The selected data table below reflects key operating metrics used by management in evaluating our product lines, for the periods indicated:
Volumes and Other Data:
Exchange-traded volume (contracts, 000’s)
OTC volume (contracts, 000’s)
Global payments (# of payments, 000’s)
Gold equivalent ounces traded (000’s)
Equity market-making (gross dollar volume, millions)
Foreign exchange prime brokerage volume
(U.S. notional, millions)
Average assets under management (U.S. dollar, millions)
Average customer segregated equity (millions)
2015
99,879.2
1,670.0
325.4
126,365.5
$ 107,052.9
$ 449,344.1
572.1
$
1,788.2
$
Year Ended September 30,
2014
% Change
% Change
2013
7%
24%
70%
60%
44% $
93,566.6
1,342.1
191.5
79,127.1
74,162.9
45% $ 310,297.5
530.9
1,789.9
8% $
—% $
(7)%
8%
36%
(15)%
29% $
100,749.9
1,245.1
140.8
93,256.8
57,705.8
6% $ 292,526.7
462.3
15% $
1,674.9
7% $
Operating Revenues
Year ended September 30, 2015 Compared to
Year ended September 30, 2014
Operating revenues for fiscal 2015 and fiscal 2014 were $624.3 million
and $490.9 million, respectively. All of our business segments
experienced operating revenue growth compared to the prior year,
led by our Securities and Commercial Hedging segments which
increased $49.5 million and $38.4 million, respectively. In addition,
operating revenues in our Global Payments segment increased
$21.6 million, while our CES and Physical Commodities segments
increased $9.7 million and $2.6 million, respectively.
Operating revenues in our Commercial Hedging segment increased
17% in fiscal 2015 to $262.4 million, as exchange-traded revenues
increased $20.1 million to $129.4 million and OTC revenues increased
$16.1 million to $111.0 million in fiscal 2015. Strong growth in our
LME metals business combined with improved market conditions in
the domestic agricultural markets, drove a 16% increase in exchange-
traded volumes. OTC revenues increased as a result of a 24% increase
in volumes while the average rate per contract declined 6% compared
to the prior year. Growth in agricultural commodity OTC revenues
and the addition of interest rate OTC derivatives to our customer
offering helped to drive the growth in OTC revenues.
Operating revenues in our Securities segment increased 62% in fiscal
2015 to $129.8 million, primarily as a result of a $17.5 million increase
in our equity market-making product line, as well as the acquisition
of G.X. Clarke which added $31.4 million in incremental revenues
to our debt trading product line.
Operating revenues in our Global Payments segment increased 39%
in fiscal 2015 to a record $77.0 million compared to the prior year,
driven by a 70% increase in the number of global payments made,
however spreads have narrowed in this business due to a continuing
increase in lower dollar value per payment transaction volume from
financial institutions.
Physical Commodity segment operating revenues increased 13% to
$23.2 million in fiscal 2015 as a result of a 60% increase in the number
of ounces traded in precious metals, which was partially offset by a
decrease of customer activity in the physical agricultural and energy
commodity product line.
Operating revenues in our CES segment increased 9% in fiscal 2015 to
$123.4 million. Exchange-traded commission and clearing fee revenues
were relatively flat with the prior year at $96.5 million, while operating
26
revenues in our customer prime brokerage product line increased
$7.4 million to $21.5 million in fiscal 2015 as a result of increased
market volatility in foreign exchange markets.
Interest income increased $31.4 million to $39.4 million in fiscal 2015
compared to fiscal 2014, and was significantly impacted by the acquisition
of G.X. Clarke, which added $19.6 million in interest income during
the nine months following the acquisition effective January 1, 2015.
In addition, while average customer segregated equity was relatively flat
with the prior year, the continued implementation of our interest rate
management program, resulted in an aggregate $5.2 million increase
in interest income in our Commercial Hedging and CES segments.
On July 1, 2015, the Company merged three of its wholly owned U.S.
subsidiaries (FCStone, LLC, INTL FCStone Partners L.P., and FCC
Investments, Inc.) into its wholly owned subsidiary, INTL FCStone
Securities Inc., and renamed the surviving subsidiary INTL FCStone
Financial Inc. INTL FCStone Financial is registered as a broker-dealer
with FINRA and is registered as a futures commission merchant with
the CFTC and NFA.
In connection with the merger of wholly owned subsidiaries, the
Company transferred its remaining available-for-sale investments, at
fair value, to the trading category in accordance with the accounting
requirements for broker-dealers. The July 1, 2015 transfer of securities
resulted in $5.4 million of pre-tax unrealized gains not previously
recognized in earnings being included in operating revenues during
the fourth quarter of fiscal 2015. In addition, operating revenues for
fiscal 2015 include a $1.2 million pre-tax gain on the sale of common
stock held in the Intercontinental Exchange, Inc.
Year ended September 30, 2014 Compared to
Year ended September 30, 2013
Operating revenues for fiscal 2014 and fiscal 2013 were
$490.9 million and $468.2 million, respectively. This $22.7 million,
or 5% increase in operating revenues primarily resulted from strong
revenue growth in our Commercial Hedging, Global Payments
and Securities segments. Operating revenues in the Commercial
Hedging and Securities segments increased $22.0 million and
$10.3 million, respectively, while Global Payments increased
$14.5 million, or 35%, over the prior year. These increases were partially
offset by declines in our Physical Commodities and CES segments of
$6.2 million and $7.6 million, respectively. Also, fiscal 2013 operating
revenues included a $9.2 million realized gain on the sale of shares
of the LME and Kansas City Board of Trade.
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Operating revenues in our Commercial Hedging segment increased
11% to $224.0 million, primarily as a result of a $15.6 million
increase in exchange-traded revenues driven by growth in growth
in the agricultural commodity and LME metals markets, as the
agricultural market conditions improved and our LME product
line expanded into the Far Eastern markets. Also contributing to
this growth was a $6.0 million increase in OTC revenues, driven
by growth in the energy and renewable fuels markets.
Operating revenues in our Global Payments segment increased
$14.5 million to $55.4 million in fiscal 2014, compared to fiscal
2013, driven by a 36% increase in the number of global payments
made as we continue to be successful in adding and on-boarding
financial institutions to our electronic transaction order system.
The increase in operating revenues in our Securities segment was
primarily a result of $5.2 million increase in asset management revenues
in Argentina, as well as a $3.9 million increase in debt trading revenues.
Debt trading revenues increased from continued growth in our export
financing business, as well as from increased customer activity in
the Latin American and Argentina markets. Physical Commodity
segment operating revenues decreased as the result of a 15% decline
in the number of ounces traded in our precious metals product line,
particularly in the Far Eastern markets, as well as diminished customer
activity in our physical agricultural and energy business.
Operating revenues in our CES segment decreased as exchange-
traded commission and clearing fee revenues decreased $1.1 million,
primarily as a result of a 10% decline in exchange-traded volumes and
partially offset by an improvement in the overall average commission
rate per contract. In addition, operating revenues in our customer
prime brokerage product line declined $6.5 million as a result of a
narrowing of spreads in the foreign exchange markets and declining
performance on our arbitrage desk. See Segment Information below
for additional information on activity in each of the segments.
Interest and transactional expenses
Year ended September 30, 2015 Compared to
Year ended September 30, 2014
Transaction-based clearing expenses: Transaction-based clearing
expenses increased 13% to $122.7 million in fiscal 2015 compared to
$108.5 million in fiscal 2014, and were 20% of operating revenues in
fiscal 2015 compared to 22% in fiscal 2014. The increase in expense
is primarily related to higher exchange clearing costs in our CES and
LME metals activities resulting from increased contract volumes.
Additionally, increases in our Global Payments and Equities operating
revenues resulted in higher transactional charges.
Introducing broker commissions: Introducing broker commissions
increased 6% to $52.7 million in fiscal 2015 compared to $49.9 million
in fiscal 2014, and were 8% of operating revenues in fiscal 2015 compared
to 10% in fiscal 2014. The increase in expense is primarily due to
increased activity in our Financial Ag’s & Energy and Global Payments
components, while the decrease in the percentage of introducing broker
commissions to operating revenues is a result of increased non-introducing
broker sourced revenues, including interest income.
Interest expense: Interest expense increased to $17.1 million in fiscal
2015 compared to $10.5 million in fiscal 2014. The increase in interest
expense is primarily related to $5.8 million of incremental expense
from the acquisition of G.X. Clarke. Additionally, higher average
borrowings outstanding on the corporate credit facility available for
working capital needs resulted in increased expense.
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. This 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. This 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. The 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.
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, 2015 Compared to
Year ended September 30, 2014
Net operating revenues increased $109.8 million, or 34%, to
$431.8 million in fiscal 2015 compared to $322.0 million in fiscal 2014.
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.
27
- Form 10-K PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Compensation and Other expenses
The following table shows a summary of expenses, other than interest and transactional expenses.
(in millions)
COMPENSATION AND BENEFITS:
Fixed compensation and benefits
Variable compensation and benefits
OTHER NON-COMPENSATION EXPENSES:
Communication and data services
Occupancy and equipment rental
Professional fees
Travel and business development
Depreciation and amortization
Bad debts and impairments
Other expense
Total compensation and other expenses
Year Ended September 30,
2015
% Change
2014
% Change
2013
$
$
115.3
135.8
251.1
28.1
13.5
12.5
10.5
7.2
7.3
23.5
102.6
353.7
7% $
45%
24%
9%
10%
(16)%
6%
(1)%
33%
28%
9%
19% $
108.0
93.9
201.9
25.8
12.3
14.9
9.9
7.3
5.5
18.4
94.1
296.0
(2)% $
7%
2%
12%
3%
20%
(5)%
(9)%
588%
(20)%
5%
3% $
110.7
88.0
198.7
23.1
12.0
12.4
10.4
8.0
0.8
23.1
89.8
288.5
Year ended September 30, 2015 Compared to
Year ended September 30, 2014
Compensation and Other Expenses: Compensation and other
expenses increased $57.7 million, or 19%, to $353.7 million in fiscal
2015 compared to $296.0 million in fiscal 2014.
Compensation and Benefits: Total compensation and benefits
expenses increased 24% to $251.1 million in fiscal 2015 compared to
$201.9 million in fiscal 2014. Total compensation and benefits were
40% of operating revenues in fiscal 2015 compared to 41% of operating
revenues in fiscal 2014. The variable portion of compensation and
benefits increased 45% to $135.8 million in fiscal 2015 compared
to $93.9 million in fiscal 2014. Variable compensation and benefits
were 31% of net operating revenues in fiscal 2015 compared to 29%
in fiscal 2014, as the front office compensation, as a percentage of
net operating revenues, increased modestly and also due to higher
administrative and executive incentive compensation. Administrative
and executive incentive compensation was $25.1 million in fiscal
2015 compared to $12.2 million in fiscal 2014, primarily related to
incremental expense from the acquisition of G.X. Clarke, as well as
our significantly improved financial performance.
The fixed portion of compensation and benefits increased 7% to
$115.3 million in fiscal 2015 compared to $108.0 million in fiscal 2014.
Non-variable salaries increased $8.0 million, or 10%, primarily due to
incremental costs from the acquisition of G.X. Clarke, and additional
headcount increases across certain front office and administrative
departments. Employee benefits, excluding share-based compensation,
increased $2.3 million in fiscal 2015, primarily due to higher employer
health care and retirement costs. Share-based compensation is a
component of the fixed portion, and includes stock option and
restricted stock expense. Stock option expense was $1.6 million in
fiscal 2015 compared to $1.4 million in fiscal 2014. Restricted stock
expense was $2.0 million in fiscal 2015 compared to $2.9 million
in fiscal 2014. The number of employees increased 8% to 1,231 at
the end of fiscal 2015 compared to 1,141 at the end of fiscal 2014.
Other Non-Compensation Expenses: Other non-compensation
expenses increased by 9% to $102.6 million in fiscal 2015 compared
to $94.1 million in fiscal 2014. Communication and data services
expenses increased $2.3 million, primarily due to increases in market
information expenses related to incremental costs from the acquisition
of G.X. Clarke and expansion of our Financial Ag’s & Energy business
activities. Professional fees decreased $2.4 million, primarily due to
lower legal, consultancy, and service costs.
Bad debts and impairments increased $1.8 million year-over-year.
During fiscal 2015, bad debts were $7.3 million, primarily related to
$2.8 million of customer receivables in our Physical Ag’s & Energy
component of our Physical Commodities segment, $2.3 million of
OTC customer deficits and $0.6 million of LME customer deficits
in our Commercial Hedging segment, $0.5 million of uncollectible
service fees and notes in our Securities segment, and $1.1 million of
notes receivable related to loans pertaining to a former acquisition.
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.
Other expense increased $5.1 million, primarily as a result of the
change in the revaluation of contingent liabilities related to certain
business combinations. During fiscal 2015, we recorded $1.8 million
of additional consideration related to the acquisition of G.X. Clarke
and Tradewire Securities. 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 paid for the acquisition of Hencorp Futures, netting to
an expense recovery of $2.0 million - See Note 11 to the Consolidated
Financial Statements.
28
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Provision for Taxes: The effective income tax rate on income from
continuing operations was 29% in fiscal 2015 compared to 25%
in fiscal 2014. The effective income tax rate can vary from period
to period depending on, among other factors, the geographic and
business mix of our earnings. Generally, when the percentage of pretax
earnings generated from the U.S. increases, our effective income tax
rate increases. Our effective income tax rate during both periods was
lower than the U.S. federal statutory rate primarily due to a higher
mix of earnings taxed at lower rates in foreign jurisdictions.
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
41% of operating revenues in fiscal 2014 compared to 42% of operating
revenues in fiscal 2013. The 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.
The 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. The 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. The 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: The effective income tax rate on income from
continuing operations was 25% in fiscal 2014 compared to 13% in
fiscal 2013. The 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.
29
- Form 10-K PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Unallocated Costs and expenses
The following table is a breakout of our unallocated costs and expenses from the total costs and expenses shown above. The unallocated costs
and expenses include certain shared services such as information technology, accounting and treasury, credit and risk, legal and compliance,
and human resources and other activities.
(in millions)
COMPENSATION AND BENEFITS:
Fixed compensation and benefits
Variable compensation and benefits
OTHER NON-COMPENSATION EXPENSES:
Communication and data services
Occupancy and equipment rental
Professional fees
Travel and business development
Depreciation and amortization
Bad debts and impairments
Other expense
Total compensation and other expenses
2015
36.7
23.1
59.8
4.5
13.4
7.6
2.3
5.8
1.1
17.8
52.5
112.3
$
$
Year Ended September 30,
2014
% Change
% Change
5% $
89%
27%
5%
10%
(20)%
5%
(6)%
—%
35%
10%
19% $
34.8
12.2
47.0
4.3
12.2
9.5
2.2
6.2
—
13.2
47.6
94.6
(7)% $
7%
(4)%
13%
2%
44%
—%
(10)%
—%
(19)%
—%
(2)% $
2013
37.6
11.4
49.0
3.8
12.0
6.6
2.2
6.9
—
16.2
47.7
96.7
Year ended September 30, 2015 Compared to
Year ended September 30, 2014
Total unallocated costs and other expenses increased $17.7 million
to $112.3 million in fiscal 2015 compared to $94.6 million in fiscal
2014. Compensation and benefits increased $12.8 million, or 27%
to $59.8 million in fiscal 2015 compared to $47.0 million in fiscal
2014. During fiscal 2015, the increase in variable compensation and
benefits is primarily related to our improved financial performance
over the prior year and the incremental costs from the acquisition of
G.X. Clarke. The decrease in professional fees is primarily due to lower
legal and consultancy costs related to legal and regulatory matters over
the prior year. The increase in other expense is primarily related to the
previously discussed change in the revaluation of contingent liabilities
related to certain business combinations. Excluding the impacts of the
revaluation of contingent liabilities and the incremental unallocated
costs from the acquisition of G.X. Clarke, total compensation and
other expenses increased 7% over the prior year.
Year ended September 30, 2014 Compared to
Year ended September 30, 2013
Total unallocated costs and other expenses decreased $2.1 million, or
2%, to $94.6 million in fiscal 2014 compared to $96.7 million in fiscal
2013. Compensation and benefits decreased $2.0 million, or 4% to
$47.0 million in fiscal 2014 compared to $49.0 million in fiscal 2013.
The increase in professional fees is primarily due to legal costs related
to regulatory and employment matters and service costs related to our
restatement of the 2012 and 2011 consolidated financial statements.
Variable vs. Fixed expenses
(in millions)
Variable compensation and benefits
Transaction-based clearing expenses
Introducing broker commissions
Total variable expenses
Fixed compensation and benefits
Other fixed expenses
Bad debts and impairments
Total non-variable expenses
Total non-interest expenses
2015
% of Total
2014
% of Total
2013
% of Total
Year Ended September 30,
$
$
135.8
122.7
52.7
311.2
115.3
95.3
7.3
217.9
529.1
26% $
23%
10%
59%
22%
18%
1%
41%
100% $
93.9
108.5
49.9
252.3
108.0
88.6
5.5
202.1
454.4
21% $
24%
11%
56%
24%
19%
1%
44%
100% $
88.0
110.1
40.5
238.6
110.7
89.0
0.8
200.5
439.1
20%
25%
9%
54%
26%
20%
—%
46%
100%
We seek to make our non-interest expenses variable to the greatest
extent possible, and to keep our fixed costs as low as possible. The
table above shows an analysis of our variable expenses and non-variable
expenses as a percentage of total non-interest expenses for the years
ended September 30, 2015, 2014, and 2013.
Our variable expenses consist of variable compensation paid to traders
and risk management consultants, bonuses paid to operational,
administrative and executive employees, transaction-based clearing
expenses and introducing broker commissions. As a percentage of
total non-interest expenses, variable expenses were 59% in fiscal 2015,
56% in fiscal 2014 and 54% in fiscal 2013.
30
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Segment Information
Our business activities are managed as operating segments and organized into reportable segments as follows:
INTL FCStone Inc.
Commercial Hedging
Global Payments
Securities
Components:
- Financial Ag’s
& Energy
- LME metals
Component:
- Global Payments
Components:
- Equity market-
making
- Debt Trading
- Investment Banking
- Asset Management
Physical
Commodities
Components:
- Precious metals
- Physical Ag’s &
Energy
Clearing and
Execution Services
Components:
- Clearing and
Execution Services
- FX Prime Brokerage
We report our operating segments based on services provided to
customers. 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 our resources. Net contribution
is calculated as revenues less direct cost of sales, interest expense,
transaction-based clearing expenses, introducing broker commissions
and variable compensation. Variable compensation paid to risk
management consultants and traders generally represents a fixed
percentage of an amount equal to revenues generated, and in some
cases, revenues produced less transaction-based clearing expense and
related charges, base salaries and an overhead allocation.
Segment income is calculated as net contribution less non-variable
direct expenses of the segment. These non-variable direct expenses
include trader base compensation and benefits, operational employee
compensation and benefits, communication and data services, business
development, professional fees, bad debt expense, trade errors and
direct marketing expenses.
total Segment Results
The following table shows summary information concerning all of our business segments combined.
(in millions)
Operating revenues
Transaction-based clearing expenses
Introducing broker commissions
Interest expense
Net operating revenues
Variable direct compensation and benefits
Net contribution
Non-variable direct expenses
Segment income
% of
Operating
Revenues
Year Ended September 30,
% of
Operating
Revenues
2014
2013
100% $
20%
9%
2%
18%
22%
$
494.0
107.8
49.9
5.4
330.9
81.7
249.2
120.4
128.8
100% $
22%
10%
1%
17%
24%
$
461.0
109.7
40.5
5.6
305.2
76.5
228.7
115.7
113.0
% of
Operating
Revenues
100%
24%
9%
1%
17%
25%
2015
615.8
121.0
52.7
10.8
431.3
110.7
320.6
132.5
188.1
$
$
Year ended September 30, 2015 Compared to
Year ended September 30, 2014
Year ended September 30, 2014 Compared to
Year ended September 30, 2013
The net contribution of all our business segments increased 29% to
$320.6 million in fiscal 2015 compared to $249.2 million in fiscal
2014. Segment income increased 46% to $188.1 million in fiscal
2015 compared to $128.8 million in fiscal 2014.
The net contribution of all our business segments increased 9% to
$249.2 million in fiscal 2014 compared to $228.7 million in fiscal
2013. Segment income increased 14% to $128.8 million in fiscal
2014 compared to $113.0 million in fiscal 2013.
31
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Commercial Hedging
We serve our commercial clients through our team of risk management
consultants, providing a high-value-added service that we believe
differentiates us from our competitors and maximizes the opportunity
to retain our clients. Our risk management consulting services are
designed to quantify and monitor commercial entities’ exposure to
commodity and financial risk. Upon assessing this exposure, we develop
a plan to control and hedge these risks with post-trade reporting against
specific client objectives. Our clients are assisted in the execution of
their hedging strategies through a wide range of products from listed
exchange-traded futures and options, to basic OTC instruments that
offer greater flexibility, to structured OTC products designed for
customized solutions.
Our services span virtually all traded commodity markets, with
the largest concentrations in agricultural and energy commodities
(consisting primarily of grains, energy and renewable fuels, coffee,
sugar, cotton, and food service) and base metals products listed on
the LME. Our base metals business includes a position as a Category
One ring dealing member of the LME, providing execution, clearing
and advisory services in exchange-traded futures and OTC products.
We also provide execution of foreign currency forwards and options as
well as a wide range of structured product solutions to our commercial
customers who are seeking cost-effective hedging strategies. Generally,
our clients direct their own trading activity, and our risk management
consultants do not have discretionary authority to transact trades on
behalf of our clients.
The following table provides the financial performance for Commercial Hedging for the periods indicated.
(in millions)
Trading gains, net
Commission and clearing fees
Consulting and management fees
Interest income
Operating revenues
Transaction-based clearing expenses
Introducing broker commissions
Interest expense
Net operating revenues
Variable direct compensation and benefits
Net contribution
Non-variable direct expenses
Segment income
2015
152.3
88.0
15.1
7.0
262.4
27.6
19.9
0.2
214.7
63.0
151.7
66.1
85.6
$
$
Year Ended September 30,
2014
% Change
% Change
23% $
10%
(4)%
71%
17%
10%
9%
(33)%
19%
32%
14%
1%
27% $
124.3
79.9
15.7
4.1
224.0
25.0
18.2
0.3
180.5
47.9
132.6
65.3
67.3
9% $
17%
4%
(2)%
11%
5%
21%
—%
11%
11%
11%
4%
18% $
The following tables set forth transactional revenues and selected data for Commercial Hedging for the periods indicated.
Transactional revenues (in millions):
Agricultural
Energy and renewable fuels
LME metals
Other
Selected data:
Volume (contracts, 000’s)
Average rate per contract(1)
Average customer segregated equity (millions)
2015
62.0
6.8
52.8
7.8
129.4
20,686.1
6.16
844.8
$
$
$
$
Exchange-traded
Year Ended September 30,
2014
% Change
% Change
7% $
19%
37%
10%
18% $
57.9
5.7
38.6
7.1
109.3
14% $
(10)%
30%
4%
17% $
50.8
6.3
29.8
6.8
93.7
16%
2% $
(4)% $
17,827.2
6.04
878.2
9%
8% $
(3)% $
16,356.5
5.61
900.8
(1) Give-up fee revenues included in exchange-traded transactional revenues have been excluded from the calculation of exchange-traded average rate per contract.
32
2013
114.3
68.4
15.1
4.2
202.0
23.7
15.0
0.3
163.0
43.3
119.7
62.6
57.1
2013
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
OTC
Year Ended September 30,
2014
% Change
% Change
2013
Transactional revenues (in millions):
Agricultural
Energy and renewable fuels
Other
Selected data:
2015
$
$
68.3
33.3
9.4
111.0
24% $
3%
24%
17% $
54.9
32.4
7.6
94.9
Volume (contracts, 000’s)
Average rate per contract(1)
1,342.1
68.25
(1) Cash brokerage revenues included in OTC transactional revenues have been excluded from the calculation of OTC average rate per contract.
24%
(6)% $
1,670.0
64.19
$
—% $
50%
(39)%
7% $
54.9
21.6
12.4
88.9
8%
—% $
1,245.1
68.35
For information about the assets of this segment, see Note 22 to the Consolidated Financial Statements.
Year ended September 30, 2015 Compared to
Year ended September 30, 2014
Operating revenues increased 17% to $262.4 million in fiscal 2015
compared to $224.0 million in fiscal 2014. Exchange-traded revenues
increased 18% to $129.4 million in fiscal 2015, resulting primarily
from strong growth in LME metals revenues, driven by increased
customer activity and expansion activities in the Far East. In addition,
agricultural commodity exchange- traded revenues increased as a result
of increased volatility and an increase in customer hedging activity
related to the large domestic crop in calendar 2014 being purchased
by our customers. Overall exchange-traded contract volume increased
16% and the average rate per contract increased to $6.16.
OTC revenues increased 17% to $111.0 million in fiscal 2015,
primarily driven by strong performance in agricultural commodities,
in particular grains, coffee, dairy and sugar. Energy and renewable
fuels OTC revenues increased modestly compared to the prior year.
OTC volumes increased 24% to 1.7 million contracts in fiscal 2015
compared to 1.3 million in fiscal 2014, while the average rate per
contract declined 6% compared to the prior year.
Consulting and management fees decreased 4% to $15.1 million
in fiscal 2015 compared to fiscal 2014 while interest income, which
remains constrained by low short-term interest rates, increased 71%,
to $7.0 million in fiscal 2015 compared to $4.1 million in fiscal 2014.
The increase in interest income is driven by the implementation of our
interest rate management program which includes an extension of the
duration of our U.S. Treasury investments and the utilization of interest
rate swaps to manage a portion of our interest rate position, which was
partially offset by a 4% decrease in average customer equity.
Segment income increased 27% to $85.6 million in fiscal 2015
compared to $67.3 million in fiscal 2014, driven by the increase in
operating revenues. Variable expenses, excluding interest, expressed
as a percentage of operating revenues increased to 42% in fiscal 2015
compared to 41% in fiscal 2014.
Year ended September 30, 2014 Compared to
Year ended September 30, 2013
Operating revenues increased 11% to $224.0 million in fiscal 2014
compared to $202.0 million in fiscal 2013. Exchange-traded revenues
increased 17% to $109.3 million in fiscal 2014, driven primarily
by growth in agricultural commodity and LME metals revenues.
Agricultural commodity exchange-traded revenues benefited from
improved market conditions in the domestic grain and global coffee
markets. The LME metals revenue growth was driven by increased
customer activity and expansion activities in the Far East. Overall
exchange-traded contract volume increased 9% and the average rate per
contract increased to $6.04 primarily driven by an increase in business
from introducing brokers, as evidenced by the $3.2 million increase
in introducing broker commission expense and overall business mix.
OTC revenues increased 7% to $94.9 million in fiscal 2014, with
growth in energy and renewable fuels revenues offset by declines in
foreign exchange hedging revenues, while agricultural commodity
hedging revenues were flat. OTC volumes increased 8% to 1.3 million
contracts in fiscal 2014 compared to 1.2 million in fiscal 2013.
Consulting and management fees increased 4% to $15.7 million in
fiscal 2014 compared to fiscal 2013 while interest income, which
remains constrained by low short-term interest rates, declined 2%,
to $4.1 million in fiscal 2014 compared to $4.2 million in fiscal
2013, driven by a 3% decrease in average customer equity as a result
of lower exchange-traded margin requirements.
Segment income increased 18% to $67.3 million in fiscal 2014
compared to $57.1 million in fiscal 2013, driven by the increase in
operating revenues, partially offset by a $3.8 million increase in bad
debt expense. Variable expenses expressed as a percentage of operating
revenues remained unchanged at 41% in fiscal 2014 and fiscal 2013.
Global Payments
We provide global payment solutions to banks and commercial
businesses as well as charities and non-governmental organizations
and government organizations. We offer payments services in more
than 130 countries, which we believe is more than any other payments
solution provider, and provide competitive and transparent pricing.
Through our technology platform, full-service electronic execution
capability and commitment to customer service, we believe we are
able to provide simple and fast execution, ensuring delivery of funds
in any of these countries quickly through our global network of
correspondent banks. In this business, we primarily act as a principal
in buying and selling foreign currencies on a spot basis. We derive
revenue from the difference between the purchase and sale prices.
We believe our clients value our ability to provide exchange rates
that are significantly more competitive than those offered by large
international banks, a competitive advantage that stems from our years
of foreign exchange expertise focused on smaller, less liquid currencies.
Additionally, as a member of SWIFT (Society for Worldwide Interbank
Financial Telecommunication), we are able to offer our services to
large money center and global banks seeking more competitive
international payments services.
33
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
The following table provides the financial performance and selected data for Global Payments for the periods indicated.
(in millions)
Operating revenues
Transaction-based clearing expenses
Introducing broker commissions
Interest expense
Net operating revenues
Variable direct compensation and benefits
Net contribution
Non-variable direct expenses
Segment income
Selected data:
Global payments (number of trades, 000’s)
Average revenue per trade
$
$
$
2015
77.1
3.5
5.0
0.1
68.5
14.0
54.5
11.2
43.3
Year Ended September 30,
2014
% Change
% Change
39% $
35%
16%
(67)%
42%
32%
45%
20%
53% $
55.4
2.6
4.3
0.3
48.2
10.6
37.6
9.3
28.3
35% $
(7)%
378%
(40)%
31%
22%
34%
24%
38% $
2013
40.9
2.8
0.9
0.5
36.7
8.7
28.0
7.5
20.5
325.4
236.94
70%
(18)% $
191.5
289.30
36%
—% $
140.8
290.48
For information about the assets of this segment, see Note 22 to the Consolidated Financial Statements.
Year ended September 30, 2015 Compared to
Year ended September 30, 2014
Operating revenues increased 39% to $77.1 million in fiscal 2015
compared to $55.4 million in fiscal 2014. The operating revenue
growth was driven by a 70% increase in the volume of payments
made. An increase in volumes from financial institutions resulted in
a lower average size of payment made, producing an 18% decrease
in the average revenue per trade.
Segment income increased 53% to $43.3 million in fiscal 2015
compared to $28.3 million in fiscal 2014. The increase primarily
resulted from the higher operating revenues partially offset by a
$1.9 million increase in non-variable expenses. Variable expenses,
excluding interest, expressed as a percentage of operating revenues
decreased to 29% in fiscal 2015 compared to 32% in fiscal 2014.
Year ended September 30, 2014 Compared to
Year ended September 30, 2013
Operating revenues increased 35% to $55.4 million in fiscal 2014
compared to $40.9 million in fiscal 2013. The operating revenue
growth was driven by a 36% increase in the volume of trades while the
average revenue per trade remained relatively unchanged. We continue
to benefit from an increase in the number of clients transacting,
including financial institutions, as well as our ability to offer an
electronic transaction order system to our clients.
Segment income increased 38% to $28.3 million in fiscal 2014
compared to $20.5 million in fiscal 2013. The increase primarily
resulted from the higher operating revenues partially offset by a
$1.3 million increase in non-variable compensation and benefits.
Variable expenses expressed as a percentage of operating revenues
increased to 32% in fiscal 2014 compared to 30% in fiscal 2013,
primarily as a result of an increase in introducing broker commissions
due to new customer revenue mix.
Securities
We provide value-added solutions that facilitate cross-border trading.
We believe our clients value our ability to manage complex transactions,
including foreign exchange, utilizing our local understanding of market
convention, liquidity and settlement protocols around the world. Our
clients include U.S.-based regional and national broker-dealers and
institutions investing or executing client transactions in international
markets and foreign institutions seeking access to the U.S. securities
markets. We are one of the leading market makers in foreign securities,
including unlisted ADRs, GDRs and foreign ordinary shares. We make
markets in over 1,600 ADRs, GDRs and foreign ordinary shares, of
which over 1,300 trade in the OTC market. In addition, we will, on
request, make prices in more than 10,000 unlisted foreign securities.
We are a broker-dealer in Argentina where we are active in providing
institutional executions in the local capital markets.
Following our acquisition of G.X. Clarke effective January 1, 2015,
we act as an institutional dealer in fixed income securities, including
U.S. Treasury, U.S. government agency and agency mortgage-backed
securities to a client base including asset managers, commercial bank
trust and investment departments, broker-dealers, and insurance
companies. In addition, we provide a full range of corporate finance
advisory services to our middle market clients, including capital market
solutions and a wide array of advisory services across a broad spectrum
of industries. Our advisory services span mergers and acquisitions,
liability management, restructuring opinions and valuations. We also
originate, structure and place a wide array of debt instruments in the
international and domestic capital markets. These instruments include
complex asset-backed securities (primarily in Argentina), unsecured
bond and loan issues, negotiable notes and other trade-related debt
instruments used in cross-border trade finance. On occasion, we
may invest our own capital in debt instruments before selling them.
We also actively trade in a variety of international debt instruments
as well as operate an asset management business in which we earn
fees, commissions and other revenues for management of third party
assets and investment gains or losses on our investments in funds and
proprietary accounts managed either by our investment managers or
by independent investment managers.
34
- Form 10-K
2013
70.0
16.0
4.1
1.9
48.0
10.4
37.6
18.1
19.5
2013
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
The following table provides the financial performance for Securities for the periods indicated.
(in millions)
Operating revenues
Transaction-based clearing expenses
Introducing broker commissions
Interest expense
Net operating revenues
Variable direct compensation and benefits
Net contribution
Non-variable direct expenses
Segment income
2015
129.8
23.7
8.5
9.0
88.6
21.2
67.4
26.9
40.5
$
$
Year Ended September 30,
2014
% Change
% Change
62% $
37%
49%
233%
62%
55%
65%
35%
93% $
80.3
17.3
5.7
2.7
54.6
13.7
40.9
19.9
21.0
15% $
8%
39%
42%
14%
32%
9%
10%
8% $
The following table sets forth operating revenues by product line and selected data for Securities for the periods indicated.
Operating revenues by product line (in millions):
Equity market-making
Debt trading
Investment banking
Asset management
Selected data:
Equity market-making (gross dollar volume, millions)
Equity revenue per $1,000 traded
Average assets under management (millions)
2015
$
$
57.7
48.6
9.5
14.0
129.8
$ 107,052.9
0.54
$
572.1
$
Year Ended September 30,
2014
% Change
% Change
44% $
191%
1%
—%
62% $
40.2
16.7
9.4
14.0
80.3
3% $
30%
1%
59%
15% $
39.1
12.8
9.3
8.8
70.0
44% $
—% $
8% $
74,162.9
0.54
530.9
29% $
(21)% $
15% $
57,705.8
0.68
462.3
For information about the assets of this segment, see Note 22 to the Consolidated Financial Statements.
Year ended September 30, 2015 Compared to
Year ended September 30, 2014
Year ended September 30, 2014 Compared to
Year ended September 30, 2013
Operating revenues increased 62% to $129.8 million in fiscal 2015
compared to $80.3 million in fiscal 2014.
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 44%, to
$57.7 million in fiscal 2015 compared to fiscal 2014, as favorable
market conditions drove a 44% increase in the gross dollar volume
traded, while the average revenue per $100 traded was flat with the
prior year.
Operating revenues from debt trading increased 191% to $48.6 million
in fiscal 2015 compared to fiscal 2014. The increase in operating
revenues resulted from the acquisition of G.X. Clarke, adding an
incremental $31.4 million in operating revenues. Investment banking
operating revenues increased 1% in fiscal 2015 compared to fiscal 2014,
while asset management revenues in fiscal 2015 were flat compared to
fiscal 2014. Average assets under management were $572.1 million
in fiscal 2015 compared to $530.9 million in fiscal 2014.
Segment income increased 93% to $40.5 million in fiscal 2015
compared to $21.0 million in fiscal 2014 primarily as a result of the
strong performance in equity market making and the acquisition
of G.X. Clarke. Variable expenses, excluding interest, expressed as
a percentage of operating revenues decreased to 41% in fiscal 2015
compared to 46% in fiscal 2014, as G.X. Clarke has relatively low
transaction-based clearing expenses.
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. The 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. The 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.
35
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Physical Commodities
This 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. These 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.
On April 10, 2015 (the “transfer date”), we transitioned the portion
of our precious metals business conducted through our unregulated
domestic subsidiary, INTL Commodities Inc., to our United Kingdom
based broker-dealer subsidiary, INTL FCStone Ltd., which is regulated
by the FCA, the regulator of the financial services industry in the
United Kingdom. This transfer resulted in a change in the valuation
of precious metals inventory held by INTL FCStone Ltd. as well as
the presentation of INTL FCStone Ltd.’s precious metals sales and
cost of sales. See Note 1 of the Consolidated Financial Statements
for further information.
Precious metals inventory held by our subsidiaries that are not
broker-dealers continues to be valued at the lower of cost or market
value. Precious metals sales and cost of sales for subsidiaries that are
not broker-dealers continue to be recorded on a gross basis. In our
physical agricultural and energy commodities business, we value our
inventory at the lower of cost or market value and record revenues
on a gross basis.
During fiscal 2013, we began an exit of our physical base metals
business through the sale and orderly liquidation of then-current
open positions. We completed the exit of the physical base metals
business during fiscal 2014. We have reclassified the physical base
metals activities in the financial statements for fiscal 2014 and fiscal
2013 as discontinued operations.
Operating revenues and losses from our commodities derivatives
activities are included in ‘trading gains, net’ in the consolidated
income statements. 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.
The following table provides the financial performance for Physical Commodities for the periods indicated.
(in millions)
Operating revenues
Transaction-based clearing expenses
Introducing broker commissions
Interest expense
Net operating revenues
Variable direct compensation and benefits
Net contribution
Non-variable direct expenses
Segment income
2015
23.1
0.4
0.3
1.2
21.2
4.3
16.9
11.1
5.8
$
$
Year Ended September 30,
2014
% Change
% Change
12% $
(33)%
(25)%
(29)%
18%
13%
20%
35%
(2)% $
20.6
0.6
0.4
1.7
17.9
3.8
14.1
8.2
5.9
(23)% $
(14)%
100%
(32)%
(24)%
(36)%
(19)%
9%
(41)% $
2013
26.8
0.7
0.2
2.5
23.4
5.9
17.5
7.5
10.0
The following tables set forth operating revenue by product line and selected data for Physical Commodities for the periods indicated.
Total revenues
Cost of sales of physical commodities
Operating revenues
Selected data:
Gold equivalent ounces traded (000’s)
Average revenue per ounce traded
Total revenues
Cost of sales of physical commodities
Operating revenues
2015
$ 33,816.4
33,802.2
14.2
$
126,365.5
0.11
$
2015
275.6
266.6
9.0
$
$
% Change
% Change
Precious Metals
Year Ended September 30,
2014
31,142.5
31,131.4
9% $
9%
28% $
11.1
(25)% $
(25)%
(26)% $
2013
41,746.7
41,731.7
15.0
60%
(21)% $
79,127.1
0.14
(15)%
(13)% $
93,256.8
0.16
Physical Ag’s & Energy
Year Ended September 30,
2014
% Change
% Change
2013
(18)% $
(19)%
(5)% $
337.7
328.2
9.5
11% $
12%
(20)% $
305.3
293.4
11.9
For information about the assets of this segment, see Note 22 to the Consolidated Financial Statements.
36
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Year ended September 30, 2015 Compared to
Year ended September 30, 2014
Operating revenues increased 12% to $23.1 million in fiscal 2015
compared to $20.6 million in fiscal 2014.
Precious metals operating revenues increased 28% to $14.2 million
in fiscal 2015 compared to $11.1 million in fiscal 2014. The
increase in operating revenues is a result of a 60% increase in the
number of ounces traded, primarily in the Far Eastern markets,
however this was partially offset by a narrowing of spreads due to
market conditions.
Operating revenues in Physical Ag’s & Energy decreased 5% to
$9.0 million in fiscal 2015 compared to $9.5 million in fiscal 2014.
The decrease in operating revenues is primarily due to a decline in
commercial commodity-related financing transactions.
Segment income decreased 2% to $5.8 million in fiscal 2015 compared
to $5.9 million in fiscal 2014, and primarily resulted from the decline
in operating revenues and a $2.8 million increase in bad debt expense
in Physical Ag’s & Energy, related to a customer in the renewable fuels
industry. Variable expenses expressed as a percentage of operating revenues
decreased to 22% in fiscal 2015 compared to 23% in fiscal 2014.
Year ended September 30, 2014 Compared to
Year ended September 30, 2013
Operating revenues decreased 23% to $20.6 million in fiscal 2014
compared to $26.8 million in fiscal 2013.
Precious metals operating revenues decreased 26% to $11.1 million
in fiscal 2014 compared to $15.0 million in fiscal 2013. The decline
in operating revenues is a result of a 15% decrease in the number
of ounces traded, primarily in the Far Eastern markets, as well as a
decline in the average revenue per ounce traded.
Operating revenues in the physical agricultural and energy commodity
product line decreased 20% to $9.5 million in fiscal 2014 compared
to $11.9 million in fiscal 2013. The decrease in operating revenues is
primarily due to a decline in customer volumes as a result of market
conditions.
Segment income decreased 41% to $5.9 million in fiscal 2014
compared to $10.0 million in fiscal 2013, and primarily resulted from
the decline in operating revenues and $0.9 million of bad debts in
the Physical Ag’s & Energy product line, related to renewable fuels
activity. Variable expenses expressed as a percentage of operating
revenues decreased to 23% in fiscal 2014 compared to 25% in fiscal
2013, due to a decrease in variable direct compensation and benefits.
Clearing and execution Services
We seek to provide competitive and efficient clearing and execution
of exchange-traded futures and options for the institutional and
professional trader market segments. Through our platform, client
orders are accepted and directed to the appropriate exchange for
execution. We then facilitate 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 clients. We seek to leverage our capabilities and capacity by offering
facilities management or outsourcing solutions to other FCMs.
In addition, we provide prime brokerage foreign exchange services
to financial institutions and professional traders. We provide our
clients with the full range of OTC products, including 24-hour a day
execution of spot, forwards and options as well as non-deliverable
forwards in both liquid and exotic currencies. We also operate a
proprietary foreign exchange desk that arbitrages the exchange-traded
foreign exchange markets with the cash markets.
The following table provides the financial performance and selected data for Clearing and Execution Services for the periods indicated.
(in millions)
Trading gains, net
Commission and clearing fees
Consulting and management fees
Interest income
Operating revenues
Transaction-based clearing expenses
Introducing broker commissions
Interest expense
Net operating revenues
Variable direct compensation and benefits
Net contribution
Non-variable direct expenses
Segment income
Selected data:
Exchange-traded volume (contracts, 000’s)
Exchange-traded average rate per contract(1)
Average customer segregated equity (millions)
Foreign exchange prime brokerage volume
(U.S. notional, millions)
2015
21.5
96.5
1.6
3.8
123.4
65.8
19.0
0.3
38.3
8.2
30.1
17.2
12.9
79.2
1.15
943.4
$
$
$
$
$
Year Ended September 30,
2014
% Change
% Change
52% $
—%
(11)%
153%
9% $
6%
(11)%
(25)%
29%
44%
25%
(3)%
105% $
5%
(5)% $
3% $
14.1
96.3
1.8
1.5
113.7
62.3
21.3
0.4
29.7
5.7
24.0
17.7
6.3
75.7
1.21
911.7
(32)% $
(1)%
(10)%
15%
(6)% $
(6)%
5%
—%
(13)%
(30)%
(7)%
(12)%
7% $
(10)%
10% $
18% $
2013
20.6
97.4
2.0
1.3
121.3
66.5
20.3
0.4
34.1
8.2
25.9
20.0
5.9
84.4
1.10
774.1
449,344.1
45%
310,297.5
6%
292,526.7
(1) Give-up fee revenues included in commission and clearing fees have been excluded from the calculation of exchange-traded average rate per contract.
For information about the assets of this segment, see Note 22 to the Consolidated Financial Statements.
37
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Year ended September 30, 2015 Compared to
Year ended September 30, 2014
Year ended September 30, 2014 Compared to
Year ended September 30, 2013
Operating revenues increased 9% to $123.4 million in fiscal 2015
compared to $113.7 million in fiscal 2014.
Operating revenues decreased 6% to $113.7 million in fiscal 2014
compared to $121.3 million in fiscal 2013.
Commission and clearing fee revenues was relatively flat at
$96.5 million in fiscal 2015, compared to $96.3 million in fiscal
2014, as a 5% increase in exchange-traded volumes was mostly offset
by a lower average rate per contract compared to fiscal 2014. Interest
income, which continues to be constrained by the effect of low
short-term interest rates, was $3.8 million in fiscal 2015 compared to
$1.5 million in fiscal 2014. The increase in interest income was the
result of a 3% increase in the average level of customer segregated equity
to $943.4 million in fiscal 2015 compared to $911.7 million in fiscal
2014, and the implementation of our interest rate management program.
Operating revenues from customer prime brokerage, reflected on the
“trading gains, net” line above, increased 52% to $21.5 million in
fiscal 2015 compared to $14.1 million in fiscal 2014, as a result of
a 45% increase in foreign exchange volumes as a result of increased
foreign currency market volatility.
Segment income increased 105% to $12.9 million in fiscal 2015 compared
to $6.3 million in fiscal 2014, primarily as a result of the increase in
operating revenues and a decline in variable expenses as a percentage of
operating revenues driven by lower introducing broker expenses. Variable
expenses, excluding interest, as a percentage of operating revenues were
75% in fiscal 2015 compared to 79% in fiscal 2014.
Commission and clearing fee revenues decreased 1% to $96.3 million
in fiscal 2014, as a result of a 10% decrease in exchange-traded
volumes, which was mostly offset by an increase in our average rate per
contract compared to fiscal 2013. Interest income, which continues
to be constrained by the effect of low short-term interest rates, was
$1.5 million in fiscal 2014 compared to $1.3 million in fiscal 2013.
The average level of customer segregated equity increased 18%
to $911.7 million in fiscal 2014 compared to $774.1 million in
fiscal 2013.
Operating revenues from customer prime brokerage, reflected on the
“trading gains, net” line above, decreased 32% to $14.1 million in
fiscal 2014 compared to $20.6 million in fiscal 2013, despite a 6%
increase in foreign exchange volumes as a result of declining spreads
and lower performance on the arbitrage desk.
Segment income increased 7% to $6.3 million in fiscal 2014 compared
to $5.9 million in fiscal 2013, primarily as a result of a decline in
professional fees, and from fiscal 2013 including a $1.5 million
regulatory settlement in non-variable direct expenses. Variable expenses
as a percentage of operating revenues were 79% in fiscal 2014 compared
to 78% in fiscal 2013, primarily a result of an increase in introducing
broker commissions.
Liquidity, Financial Condition and Capital Resources
Overview
Liquidity is defined as our ability to generate sufficient amounts of
cash to meet all of our cash needs. Liquidity is of critical importance
to us and imperative to maintaining our operations on a daily basis.
On July 1, 2015, we merged three of our wholly owned subsidiaries
(FCStone, LLC, INTL FCStone Partners L.P., and FCC Investments,
Inc.) into INTL FCStone Securities, and renamed the surviving
subsidiary INTL FCStone Financial Inc. INTL FCStone Financial is
registered as a broker-dealer with FINRA and is registered as a futures
commission merchant with the CFTC and NFA.
In INTL FCStone Financial, our broker-dealer/FCM subsidiary, we
have responsibilities to meet margin calls at all exchanges on a daily
basis and intra-day basis, if necessary. We require our customers to
make any required margin deposits the next business day, and we
require our largest customers to make intra-day margin payments
during periods of significant price movement. Margin required to
be posted to the exchanges is a function of the net open positions of
our customers and the required margin per contract. INTL FCStone
Financial is subject to minimum capital requirements under Section
4(f )(b) of the Commodity Exchange Act, Part 1.17 of the rules and
regulations of the CFTC and the SEC Uniform Net Capital Rule
15c3-1 under the Securities Exchange Act of 1934. These rules specify
the minimum amount of capital that must be available to support our
clients’ open trading positions, including the amount of assets that
INTL FCStone Financial must maintain in relatively liquid form,
and are designed to measure general financial integrity and liquidity.
INTL FCStone Ltd, our UK regulated subsidiary, is required to be
compliant with the UK’s Individual Liquidity Adequacy Standards
(“ILAS”). To comply with these standards, we have implemented
daily liquidity procedures, conduct periodic reviews of liquidity by
stressed scenarios, and have created liquidity buffers.
In addition, in our physical commodities trading, commercial hedging
OTC, securities and foreign exchange trading activities, we may be
called upon to meet margin calls with our various trading counterparties
based upon the underlying open transactions we have in place with
those counterparties.
We continuously review our overall credit and capital needs to ensure
that our capital base, both stockholders’ equity and debt, as well as
available credit facilities can appropriately support the anticipated
financing needs of our operating subsidiaries.
As of September 30, 2015, we had total equity capital of $397.1 million,
$45.5 million aggregate principal amount of our issued 8.5% senior
unsecured notes, due in July 2020 and bank loans of $41.6 million.
A substantial portion of our assets are liquid. As of September 30, 2015,
approximately 95% of our assets consisted of cash; securities purchased
under agreements to resell; deposits and receivables from exchange-
clearing organizations, broker-dealers, clearing organizations and
counterparties; customer receivables, marketable financial instruments
and investments, and physical commodities inventory. All assets
that are not customer and counterparty deposits are financed by
our equity capital, senior unsecured notes, bank loans, short-term
borrowings from financial instruments sold, not yet purchased and
under repurchase agreements, and other payables.
38
- Form 10-K PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
As of September 30, 2015, we had deferred tax assets totaling
$28.2 million. We are required to assess our deferred tax assets
and the need for a valuation allowance at each reporting period. In
assessing the realizability of deferred tax assets, we consider whether
it is more likely than not that we will not realize some or all of the
deferred tax assets. We are required to record a valuation allowance
against deferred tax assets when it is considered more likely than not
that all or a portion of our deferred tax assets will not be realized.
The valuation allowance for deferred tax assets as of September 30,
2015 and September 30, 2014 was $3.2 million and $2.8 million,
respectively. The valuation allowances as of September 30, 2015 and
September 30, 2014 were primarily related to U.S. state and local
and foreign net operating loss carryforwards that, in the judgment of
management, are not more likely than not to be realized.
We incurred U.S. federal, state, and local taxable income/(losses)
for the years ended September 30, 2015, 2014, and 2013 of
$17.7 million, $(18.4) million, and $(24.5) million, respectively.
There are no significant differences between actual levels of past
taxable income and the results of continuing operations, before
income taxes in these jurisdictions. U.S. federal, state, and local
taxable losses incurred during the year ended September 30, 2013
were attributable to a decrease in exchange-traded and OTC derivative
transactional volumes and revenue caused by consecutive droughts
in the U.S., as well as losses incurred in the physical base metals
business. During 2013, we elected to pursue an exit of our physical
base metals business through an orderly liquidation of open positions,
which was completed during fiscal 2014. When evaluating if U.S.
federal, state, and local deferred taxes are realizable, we considered
deferred tax liabilities of $2.4 million that are scheduled to reverse from
2016 to 2019 and $1.0 million of deferred tax liabilities associated
with unrealized gains in securities which we could sell, if necessary.
Furthermore, we considered our ability to implement business and
tax planning strategies that would allow the remaining U.S. federal,
state, and local deferred tax assets, net of valuation allowances, to be
realized within 10 years. Based on the tax planning strategies that
are prudent and feasible, management believes that it is more likely
than not that we will realize the tax benefit of the deferred tax assets,
net of the existing valuation allowance, in the future. However, the
realization of deferred income taxes is dependent on future events,
and changes in estimate in future periods could result in adjustments
to the valuation allowance.
Customer and Counterparty Credit and
Liquidity Risk
Our operations expose us to credit risk of default of our customers
and counterparties. The risk includes liquidity risk to the extent our
customers or counterparties are unable to make timely payment of
margin or other credit support. These risks expose us indirectly to
the financing and liquidity risks of our customers and counterparties,
including the risks that our customers and counterparties may not
be able to finance their operations.
As a clearing broker, we act on behalf of our customers for all trades
consummated on exchanges. We must pay initial and variation
margin to the exchanges, on a net basis, before we receive the required
payments from our customers. Accordingly, we are responsible for our
customers’ obligations with respect to these transactions, which exposes
us to significant credit risk. Our customers are required to make any
required margin deposits the next business day, and we require our
largest customers to make intra-day margin payments during periods of
significant price movement. Our clients are required to maintain initial
margin requirements at the level set by the respective exchanges, but
we have the ability to increase the margin requirements for customers
based on their open positions, trading activity, or market conditions.
With OTC derivative transactions, we act as a principal, which exposes
us to the credit risk of both our customers and the counterparties
with which we offset our customer positions. As with exchange-traded
transactions, our OTC transactions require that we meet initial and
variation margin payments on behalf of our customers before we
receive the required payment from our customers. OTC customers
are required to post sufficient collateral to meet margin requirements
based on Value-at-Risk models as well as variation margin requirement
based on the price movement of the commodity or security in which
they transact. Our customers are required to make any required margin
deposits the next business day, and we may require our largest clients
to make intra-day margin payments during periods of significant price
movement. We have the ability to increase the margin requirements
for customers based on their open positions, trading activity, or
market conditions. On a limited basis, we provide credit thresholds
to certain customers, based on internal evaluations and monitoring
of customer creditworthiness.
In addition, with OTC transactions, we are at risk that a counterparty
will fail to meet its obligations when due. We would then be exposed
to the risk that the settlement of a transaction which is due a customer
will not be collected from the respective counterparty with which the
transaction was offset. We continuously monitor the credit quality of
our respective counterparties and mark our positions held with each
counterparty to market on a daily basis.
In our debt trading business, we enter into receivable under reverse
repurchase agreements and payables under repurchase agreements
primarily to finance inventory positions, acquire securities to cover
short positions or to acquire securities for settlement. We either receive
or pledge securities to adequately collateralize such agreements and
transactions. The value of this collateral is marked-to-market on a daily
basis and we may require counterparties, or be required, to deposit
additional collateral or return collateral pledged, when appropriate.
During the fiscal years ended September 30, 2015, 2014, and 2013, we
recorded bad debts, net of recoveries of $7.3 million, $5.5 million, and
$0.7 million, respectively. During the year ended September 30, 2015,
primarily related to $2.8 million of customer receivables in our Physical
Ag’s & Energy component of our Physical Commodities segment,
$2.3 million of OTC customer deficits and $0.6 million of LME
customer deficits in our Commercial Hedging segment, $0.5 million
of uncollectible service fees and notes in our Securities segment, and
$1.1 million of notes receivable related to loans pertaining to a former
acquisition. During the year ended September 30, 2014, our bad debts
included $3.8 million in our Commercial Hedging segment, related
to account deficits from a Hong Kong commercial LME customer
and Brazilian OTC Financial Ag’s & Energy customers, $0.9 million
in our Physical Ag’s & Energy component, related to renewable fuels
activity, and $0.7 million in our Securities segment related to charge-
offs of uncollectible service fees. Additional information related to
bad debts, net of recoveries, for the fiscal years ended September 30,
2015, 2014, and 2013 is set forth in Note 5 of the Consolidated
Financial Statements.
39
- Form 10-K PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Primary Sources and Uses of Cash
Our assets and liabilities may vary significantly from period to period due
to changing customer requirements, economic and market conditions
and our growth. Our total assets as of September 30, 2015 and
September 30, 2014, were $5,070.0 million and $3,039.7 million,
respectively. Our operating activities generate or utilize cash as a result of
net income or loss earned or incurred during each period and fluctuations
in our assets and liabilities. The most significant fluctuations arise from
changes in the level of customer activity, commodities prices and changes
in the balances of financial instruments and commodities inventory.
INTL FCStone Financial and INTL FCStone Ltd. occasionally uses
their margin line credit facilities, on a short-term basis, to meet intraday
settlements with the commodity exchanges prior to collecting margin
funds from their customers.
The majority of the assets of INTL FCStone Financial Inc. are restricted
from being transferred to its parent or other affiliates due to specific
regulatory requirements. These restrictions have no impact on our ability
to meet our cash obligations, and no impact is expected in the future.
We have liquidity and funding policies and processes in place that are
intended to maintain significant flexibility to address both company-
specific and industry liquidity needs. The majority of our excess funds
are held with high-quality institutions, under highly-liquid reverse
repurchase agreements, U.S. government obligations and AA-rated
money market investments. We do not hold any direct investments
in the general obligations of any sovereign nations.
As of September 30, 2015, $220.0 million of cash, cash equivalents
and available-for-sale investment securities was held by our foreign
subsidiaries. If these funds are needed for operations in the U.S., we
would be required to accrue and pay U.S. taxes to repatriate these
funds, up to the amount of undistributed earnings of $227.2 million.
However, our intent is to indefinitely reinvest these funds outside
of the U.S., and our current plans do not demonstrate a need to
repatriate them to fund our U.S. operations.
As of September 30, 2015, approximately $89.5 million of our financial
instruments owned and $90.0 million of financial instruments sold,
not yet purchased, are exchangeable foreign equities and ADRs.
As of September 30, 2015, we had $45.5 million outstanding in
aggregate principal amount of our 8.5% Senior Notes due 2020 (the
“Notes”). The Notes were issued in July 2013, and bear interest at
a rate of 8.5% per year (payable quarterly on January 30, April 30,
July 30 and October 30 of each year). The Notes mature on July 30,
2020. We may redeem the Notes, in whole or in part, at any time
on and after July 30, 2016, at a redemption price equal to 100% of
the principal amount redeemed plus accrued and unpaid interest to,
but not including, the redemption date. We incurred debt issuance
costs of $1.7 million in connection with the issuance of the Notes,
which are being amortized over the term of the Notes.
In April 2015, we obtained a $4.0 million loan from a commercial
bank, secured by equipment purchased with the proceeds. The note
is payable in monthly installments, ending in March 2020.
As of September 30, 2015, we had four committed bank credit facilities,
totaling $280.0 million, of which $38.0 million was outstanding.
The credit facilities include:
•• A three-year syndicated loan facility, committed until September
20, 2016, under which INTL FCStone Inc. is entitled to borrow
up to $140 million, subject to certain terms and conditions of the
40
credit agreement. The loan proceeds are used to finance working
capital needs of us and certain subsidiaries. We paid debt issuance
costs of $1.5 million in connection with the issuance of this credit
facility, which are being amortized over the thirty-six month term
of the facility.
•• An unsecured syndicated loan facility, committed until April 7, 2016,
under which our subsidiary, INTL FCStone Financial is entitled to
borrow up to $75 million, subject to certain terms and conditions
of the credit agreement. This line of credit is intended to provide
short-term funding of margin to commodity exchanges as necessary.
•• A syndicated borrowing facility, committed until May 1, 2016,
under which our subsidiary, FCStone Merchant Services, LLC is
entitled to borrow up to $40 million, subject to certain terms and
conditions of the credit agreement. The loan proceeds are used
to finance traditional commodity financing arrangements and
commodity repurchase agreements.
•• An unsecured syndicated loan facility, committed until October 31,
2016, under which our subsidiary, INTL FCStone Ltd is entitled to
borrow up to $25 million, subject to certain terms and conditions of
the credit agreement. This facility is intended to provide short-term
funding of margin to commodity exchanges as necessary.
Additional information regarding the committed bank credit facilities
can be found in Note 10 of the Consolidated Financial Statements.
During fiscal 2015, $255 million of our committed credit facilities are
scheduled to expire. We intend to renew or replace these facilities as
they expire, and based on our liquidity position and capital structure,
we believe we will be able to do so.
In May 2015, we obtained a secured, uncommitted loan facility, under
which our subsidiary, INTL FCStone Financial may borrow up to
$50.0 million, collateralized by commodity warehouse receipts, to
facilitate U.S. commodity exchange deliveries of its customers, subject
to certain terms and conditions of the credit agreement.
Our facility agreements contain certain financial covenants relating
to financial measures on a consolidated basis, as well as on a certain
stand-alone subsidiary basis, including minimum net worth, minimum
regulatory capital, minimum net unencumbered liquid assets, maximum
net loss, minimum fixed charge coverage ratio and maximum funded
debt to net worth ratio. Failure to comply with any such covenants
could result in the debt becoming payable on demand. We and our
subsidiaries are in compliance with all of our financial covenants
under the outstanding facilities.
We have contingent liabilities relating to several acquisitions we have
completed since December 2012. See Note 11 to the Consolidated
Financial Statements for additional information on these contingent
liabilities. Under the terms of the purchase agreements, we have
obligations to pay additional consideration if specific conditions and
earnings targets are met. In accordance with the Business Combinations
Topic of the ASC, the fair value of the additional consideration is
recognized as a contingent liability as of the acquisition date. The
acquisition date fair value of additional consideration is remeasured
to its fair value each reporting period, with changes in fair value
recorded in current earnings. The contingent liabilities for these
estimated additional discounted purchase price considerations totaled
$3.3 million as of September 30, 2015, and are included in ‘accounts
payable and other accrued liabilities’ in the consolidated balance sheets.
We estimate cash payments related to these contingent liabilities to be
$3.1 million during fiscal 2016 and $0.8 million during fiscal 2018.
- Form 10-K PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
We contributed $2.2 million to our defined benefit pension plans
during the year ended September 30, 2015, and expect to contribute
$2.1 million to the plans during fiscal 2016, which represents the
minimum funding requirement.
Other Capital Considerations
Our activities are subject to significant governmental regulations
and capital adequacy requirements, both in the U.S. and overseas.
Certain other of our non-U.S. subsidiaries are also subject to capital
adequacy requirements promulgated by authorities of the countries
in which they operate.
Our subsidiaries are in compliance with all of their capital regulatory
requirements as of September 30, 2015. Additional information on
these net capital and minimum net capital requirements can be found
in Note 12 of the Consolidated Financial Statements.
The Dodd-Frank Act created a comprehensive new regulatory regime
governing the OTC and listed derivatives markets and their participants
by requiring, among other things: centralized clearing of standardized
derivatives (with certain stated exceptions); the trading of clearable
derivatives on swap execution facilities or exchanges; and registration
and comprehensive regulation of new categories of market participants
as “swap dealers” and swap “introducing brokers.” Our subsidiary,
INTL FCStone Markets, LLC, is a provisionally registered swap
dealer. Some important rules, such as those setting capital and margin
requirements, have not been finalized or fully implemented, and it is
too early to predict with any degree of certainty how we will be affected.
Cash Flows
Our cash and cash equivalents increased from $231.3 million as of
September 30, 2014 to $268.1 million as of September 30, 2015,
a net increase of $36.8 million. Net cash of $37.9 million was
provided by operating activities, $15.5 million was used in investing
activities and net cash of $15.0 million was provided by financing
activities, of which $15.5 million was drawn on lines of credit and
increased the amounts payable to lenders under loans, $2.2 million
was paid out as earn-outs on acquisitions and $4.7 million was used to
repurchase shares. Fluctuations in exchange rates caused a reduction of
$0.6 million to our cash and cash equivalents.
In the commodities industry, companies report trading activities
in the operating section of the statement of cash flows. Due to the
daily price volatility in the commodities market, as well as changes
in margin requirements, fluctuations in the balances of deposits held
at various exchanges, marketable securities and customer commodity
accounts may occur from day-to-day. A use of cash, as calculated on
the consolidated statement of cash flows, includes unrestricted cash
transferred and pledged to the exchanges or guarantee funds. These
funds are held in interest-bearing deposit accounts at the exchanges,
and based on daily exchange requirements, may be withdrawn and
returned to unrestricted cash. Additionally, within our unregulated
OTC and foreign exchange operations, cash deposits received from
customers are reflected as cash provided from operations. Subsequent
transfer of these cash deposits to counterparties or exchanges to margin
their open positions will be reflected as an operating use of cash to the
extent the transfer occurs in a different period than the cash deposit
was received.
In July 2015, we received proceeds of $2.1 million from the sale of
our shares in ICE.
Capital expenditures included in investing activities for property, plant
and equipment totaled $9.1 million in fiscal 2015, increasing from
$4.3 million in fiscal 2014. The increase in capital expenditures is
primarily due to the replacement of a leased aircraft with a purchased
aircraft during the current year, that was financed with a note payable,
which is included in financing activities.
On December 10, 2014, our Board of Directors authorized repurchase
of up to 1.0 million shares of our outstanding common stock from time
to time in open market purchases and private transactions, subject to
the discretion of the senior management team to implement our stock
repurchase plan, and subject to market conditions and as permitted
by securities laws and other legal and regulatory requirements. During
fiscal 2015, we have repurchased 224,509 shares of our outstanding
common stock in open market transactions, for an aggregate purchase
price of $4.5 million. During fiscal 2014, we repurchased 513,800
shares of our outstanding common stock in open market transactions,
for an aggregate purchase price of $9.7 million. During fiscal 2013, we
repurchased 200,109 shares of our outstanding common stock in open
market transactions, for an aggregate purchase price of $3.7 million.
Apart from what has been disclosed above, there are no known trends,
events or uncertainties that have had or are likely to have a material
impact on our liquidity, financial condition and capital resources.
Contractual Obligations
The following table summarizes our cash payment obligations as of September 30, 2015:
Total
Less than 1 year
1 - 3 Years
3 - 5 Years
After 5 Years
Payments Due by Period
$
(in millions)
Operating lease obligations
Purchase obligations(1)
Senior unsecured notes
Contingent acquisition consideration
Other
12.2
—
45.5
—
2.1
59.8
(1) Represents an estimate of contractual purchase commitments in the ordinary course of business primarily for the purchase of precious and base metals. Unpriced contract commitments have
been estimated using September 30, 2015 fair values. The purchase commitments for less than one year will be partially offset by corresponding sales commitments of $217.0 million.
41.8 $
333.9
45.5
3.9
9.0
434.1 $
7.2 $
333.9
—
3.1
2.0
346.2 $
10.6 $
—
—
—
1.5
12.1 $
11.8 $
—
—
0.8
3.4
16.0 $
$
41
- Form 10-K
PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Total contractual obligations exclude defined benefit pension obligations.
In fiscal 2016, we anticipate making contributions of $2.1 million
to defined benefit plans. Additional information on the funded
status of these plans can be found in Note 15 of the Consolidated
Financial Statements.
Based upon our current operations, we believe that cash flow from
operations, available cash and available borrowings under our credit
facilities will be adequate to meet our future liquidity needs.
Off Balance Sheet Arrangements
We are party to certain financial instruments with off-balance sheet
risk in the normal course of business as a registered securities broker-
dealer and FCM and from our market-making and proprietary trading
in the foreign exchange and commodities trading business. These
financial instruments include futures, forward and foreign exchange
contracts, exchange-traded and OTC options, mortgage-backed TBAs,
and interest rate swaps. Derivative financial instruments involve
varying degrees of off-statement of financial condition market risk
whereby changes in the fair values of underlying financial instruments
may result in changes in the fair value of the financial instruments
in excess of the amounts reflected in the statement of financial
condition. Exposure to market risk is influenced by a number of
factors, including the relationships between the financial instruments
and the Company’s positions, as well as the volatility and liquidity
in the markets in which the financial instruments are traded. The
principal risk components of financial instruments include, among
other things, interest rate volatility, the duration of the underlying
instruments and changes in commodity pricing and foreign exchange
rates. The Company attempts to manage its exposure to market
risk through various techniques. Aggregate market limits have
been established and market risk measures are routinely monitored
against these limits. Derivative contracts are traded along with cash
transactions because of the integrated nature of the markets for such
products. We manage the risks associated with derivatives on an
aggregate basis along with the risks associated with our proprietary
trading and market-making activities in cash instruments as part of
our firm-wide risk management policies.
A significant portion of these instruments are primarily the execution
of orders for commodity futures and options on futures contracts
on behalf of its customers, substantially all of which are transacted
on a margin basis. Such transactions may expose the Company
to significant credit risk in the event margin requirements are not
sufficient to fully cover losses which customers may incur. The
Company controls the risks associated with these transactions by
requiring customers to maintain margin deposits in compliance with
individual exchange regulations and internal guidelines. The Company
monitors required margin levels daily and, therefore, may require
customers to deposit additional collateral or reduce positions when
necessary. The Company also establishes contract limits for customers,
which are monitored daily. The Company evaluates each customer’s
creditworthiness on a case-by-case basis. Clearing, financing, and
settlement activities may require the Company to maintain funds
with or pledge securities as collateral with other financial institutions.
Generally, these exposures to exchanges are subject to netting of open
positions and collateral, while exposures to customers are subject to
netting, per the terms of the customer agreements, which reduce the
exposure to the Company by permitting receivables and payables
with such customers to be offset in the event of a customer default.
Management believes that the margin deposits held are adequate to
minimize the risk of material loss that could be created by positions
held as of September 30, 2015. Additionally, the Company monitors
collateral fair value on a daily basis and adjusts collateral levels in
the event of excess market exposure. Generally, these exposures to
both counterparties and customers are subject to master netting
agreements and the terms of the customer agreements, which reduce
the exposure to the Company.
As a broker-dealer in U.S. Treasury obligations, U.S. government agency
obligations, and agency mortgage-backed obligations, the Company is
engaged in various securities trading, borrowing and lending activities
servicing solely institutional counterparties. The Company’s exposure
to credit risk associated with the nonperformance of counterparties
in fulfilling their contractual obligations pursuant to these securities
transactions and market risk associated with the sale of securities not
yet purchased can be directly impacted by volatile trading markets
which may impair their ability to satisfy outstanding obligations to the
Company. In the event of non-performance and unfavorable market
price movements, the Company may be required to purchase or sell
financial instruments, which may result in a loss to the Company.
We transact OTC and foreign exchange contracts with our customers,
and our OTC and foreign exchange trade desks will generally offset
the customer’s transaction simultaneously with one of our trading
counterparties or will offset that transaction with a similar, but not
identical, position on the exchange. These unmatched transactions are
intended to be short-term in nature and are conducted to facilitate
the most effective transaction for our customer.
Additionally, we hold options and futures on options contracts
resulting from market-making and proprietary trading activities in
these product lines. We assist customers in our commodities trading
business to protect the value of their future production (precious or
base metals) by selling them put options on an OTC basis. We also
provide our commodities trading business customers with sophisticated
option products, including combinations of buying and selling puts
and calls. We mitigate our risk by effecting offsetting options with
market counterparties or through the purchase or sale of exchange-
traded commodities futures. The risk mitigation of offsetting options
is not within the documented hedging designation requirements of
the Derivatives and Hedging Topic of the ASC.
We also carry short positions, selling financial instruments that we
do not own and borrowing financial instruments to make good
delivery, and therefore we are obliged to purchase such financial
instruments at a future date in order to return the borrowed financial
instruments. We have recorded these obligations in the consolidated
financial statements at September 30, 2015 and September 30,
2014, at fair value of the related financial instruments, totaling
$568.3 million and $264.0 million, respectively. These positions are
held to offset the risks related to financial assets owned, and reported
in our consolidated balance sheets in ‘financial instruments owned, at
fair value’, and ‘physical commodities inventory’. We will incur losses
if the fair value of the financial instruments sold, not yet purchased,
increases subsequent to September 30, 2015, which might be partially
or wholly offset by gains in the value of assets held as of September 30,
2015. The totals of $568.3 million and $264.0 million include a net
liability of $54.1 million and $84.4 million for derivatives, based
on their fair value as of September 30, 2015 and September 30,
2014, respectively.
42
- Form 10-K PART II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
The Company does not anticipate non-performance by counterparties
in the above situations. The Company has a policy of reviewing the
credit standing of each counterparty with which it conducts business.
The Company has credit guidelines that limit the Company’s current
and potential credit exposure to any one counterparty. The Company
administers limits, monitors credit exposure, and periodically reviews
the financial soundness of counterparties. The Company manages
the credit exposure relating to its trading activities in various ways,
including entering into collateral arrangements and limiting the
duration of exposure. Risk is mitigated in certain cases by closing
out transactions and entering into risk reducing transactions.
We are a member of various commodity exchanges and clearing
organizations. Under the standard membership agreement, all members
are required to guarantee the performance of other members and,
accordingly, in the event another member is unable to satisfy its
obligations to the exchange, we may be required to fund a portion of
the shortfall. Our liability under these arrangements is not quantifiable
and could exceed the cash and securities we have posted as collateral
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reported period.
The accounting estimates and assumptions discussed in this section
are those that we consider the most critical to the financial statements.
We believe these estimates and assumptions can involve a high degree
of judgment and complexity. Due to their nature, estimates involve
judgment based upon available information. Actual results or amounts
could differ from estimates and the difference could have a material
impact on the financial statements. Therefore, understanding these
policies is important in understanding our reported and potential
future results of operations and financial position.
Valuation of Financial Instruments and Foreign Currencies.
Substantially all financial instruments are reflected in the consolidated
financial statements at fair value or amounts that approximate fair
value. These financial instruments include: cash and cash equivalents;
cash, securities and other assets segregated under federal and other
regulations; financial instruments purchased under agreements to resell;
deposits with clearing organizations; financial instruments owned;
and financial instruments sold but not yet purchased. Unrealized
gains and losses related to these financial instruments, which are not
customer owned positions, are reflected in earnings. Where available,
we use prices from independent sources such as listed market prices,
or broker or dealer price quotations. Fair values for certain derivative
contracts are derived from pricing models that consider current market
and contractual prices for the underlying financial instruments or
commodities, as well as time value and yield curve or volatility factors
underlying the positions. In some cases, even though the value of a
security is derived from an independent market price or broker or
dealer quote, certain assumptions may be required to determine the
fair value. However, these assumptions may be incorrect and the
actual value realized upon disposition could be different from the
current carrying value. The value of foreign currencies, including
foreign currencies sold, not yet purchased, are converted into its
at the exchanges. However, management believes that the potential
for us to be required to make payments under these arrangements is
remote. Accordingly, no contingent liability for these arrangements has
been recorded in the consolidated balance sheets as of September 30,
2015 and 2014.
effects of Inflation
Because our assets are, to a large extent, liquid in nature, they are
not significantly affected by inflation. Increases in our expenses, such
as compensation and benefits, transaction-based clearing expenses,
occupancy and equipment rental, due to inflation, may not be readily
recoverable from increasing the prices of our services. While rising
interest rates are generally favorable for us, to the extent that inflation
has other adverse effects on the financial markets and on the value of
the financial instruments held in inventory, it may adversely affect
our financial position and results of operations.
U.S. dollar equivalents at the foreign exchange rates in effect at the
close of business at the end of the accounting period. For foreign
currency transactions completed during each reporting period, the
foreign exchange rate in effect at the time of the transaction is used.
The application of the valuation process for financial instruments and
foreign currencies is critical because these items represent a significant
portion of our total assets. Valuations for substantially all of the
financial instruments held are available from independent publishers
of market information. The valuation process may involve estimates
and judgments in the case of certain financial instruments with limited
liquidity and OTC derivatives. Given the wide availability of pricing
information, the high degree of liquidity of the majority of our assets,
and the relatively short periods for which they are typically held in
inventory, there is insignificant sensitivity to changes in estimates and
insignificant risk of changes in estimates having a material effect on
our financial statements. The basis for estimating the valuation of any
financial instruments has not undergone any change.
Revenue Recognition. A significant portion of our revenues are
derived principally from realized and unrealized trading income in
securities, derivative instruments, commodities and foreign currencies
purchased or sold for our account. We record realized and unrealized
trading income on a trade date basis. We state securities owned and
securities sold, not yet purchased and foreign currencies sold, not yet
purchased, at fair value with related changes in unrealized appreciation
or depreciation reflected in ‘trading gains, net’ in the consolidated
income statements. We record fee and interest income on the accrual
basis and dividend income is recognized on the ex-dividend date.
Revenue on commodities that are purchased for physical delivery to
customers and that are not readily convertible into cash is recognized
at the point in time when the commodity has been shipped, title and
risk of loss has been transferred to the customer, and the following
conditions have been met: persuasive evidence of an arrangement
exists, the price is fixed and determinable, and collectability of the
resulting receivable is reasonably assured.
43
- Form 10-K PART II
Item 7A Quantitative and Qualitative Disclosures about market Risk
The critical aspect of revenue recognition is recording all known
transactions as of the trade date of each transaction for the financial
period. We have developed systems for each of our businesses to capture
all known transactions. Recording all known transactions involves
reviewing trades that occur after the financial period that relate to
the financial period. The accuracy of capturing this information is
dependent upon the completeness and accuracy of data capture of
the operations systems and our clearing firms.
Income Taxes. We are subject to income taxes in the U.S. and
numerous foreign jurisdictions. Significant judgment is required
in determining the consolidated provision for income taxes and in
evaluating tax positions, including evaluating uncertainties. As a
result, the company recognizes tax liabilities based on estimates of
whether additional taxes and interest will be due. These tax liabilities
are recognized when despite our belief that our tax return positions
are supportable, we believe that certain positions may not be fully
sustained upon review by the relevant tax authorities.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Significant judgment is also required in determining any valuation
allowance recorded against deferred tax assets. In assessing the need
for a valuation allowance, management considers all available evidence
for each jurisdiction including past operating results, estimates of
future taxable income, and the feasibility of ongoing tax planning
strategies. In the event that we change our determination as to the
amount of deferred tax assets that can be realized, we will adjust
our valuation allowance with a corresponding impact to income tax
expense in the period in which such determination is made.
We believe that our accruals for tax liabilities are adequate for all
open audit years based on our assessment of many factors including
past experience and interpretations of tax law. This assessment relies
on estimates and assumptions and may involve series of complex
judgments about future events. To the extent that new information
becomes available which causes us to change our judgment regarding
the adequacy of existing tax liabilities, such changes to tax liabilities will
impact income tax expense in the period in which such determination
is made. The consolidated provision for income taxes will change
period to period based on non-recurring events, such as the settlement
of income tax audits and changes in tax law, as well as recurring
factors including the geographic mix of income before taxes, state
and local taxes, and the effects of various global income tax strategies.
Item 7A Quantitative and Qualitative Disclosures
about market Risk
See also Note 4 to the Consolidated Financial Statements, ‘Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk’.
We utilize derivative products in a trading capacity as a dealer to
satisfy client needs and mitigate risk. We manage risks from both
derivatives and non-derivative cash instruments on a consolidated
basis. The risks of derivatives should not be viewed in isolation, but
in aggregate with our other trading activities.
Management believes that the volatility of revenues is a key indicator
of the effectiveness of its risk management techniques.
market Risk
We conduct our market-making and trading activities predominantly
as a principal, which subjects our capital to significant risks. These
risks include, but are not limited to, absolute and relative price
movements, price volatility and changes in liquidity, over which
we have virtually no control. Our exposure to market risk varies
in accordance with the volume of client-driven market-making
transactions, the size of the proprietary positions and the volatility
of the financial instruments traded.
We seek to mitigate exposure to market risk by utilizing a variety of
qualitative and quantitative techniques:
•• Diversification of business activities and instruments;
•• Limitations on positions;
•• Allocation of capital and limits based on estimated weighted risks; and
•• Daily monitoring of positions and mark-to-market profitability.
44
- Form 10-K The graph below summarizes volatility of our daily revenue, determined on a marked-to-market basis, during the year ended September 30, 2015.
PART II
Item 7A Quantitative and Qualitative Disclosures about market Risk
Days
90
80
70
60
50
40
30
20
10
0
Market-to-Market Revenues
83
71
45
27
6
5
12
7
2
$0
to
$500
$500
to
$1,000
$1,000
to
$1,500
$1,500
to
$2,000
$2,000
to
$2,500
$2,500
to
$3,000
$3,000
to
$3,500
$3,500
to
$4,000
$4,000
to
$4,500
Daily Revenues ($000’s)
1
$4,500
to
$5,000
In our Securities market-making and trading activities, we maintain inventories of equity and debt securities. In our Physical Commodities
segment, our positions include physical inventories, forwards, futures and options on futures. Our commodity trading activities are managed
as one consolidated book for each commodity encompassing both cash positions and derivative instruments.We monitor the aggregate position
for each commodity in equivalent physical ounces, metric tons, or other relevant unit.
Interest Rate Risk
In the ordinary course of our operations, we have interest rate risk from
the possibility that changes in interest rates will affect the values of
financial instruments and impact interest income earned. Following the
acquisition of G.X. Clarke (see Note 18 to the Consolidated Financial
Statements), the Company acquired a significant amount of trading assets
and liabilities which are sensitive to changes in interest rates. G.X. Clarke’s
trading activities consists primarily of securities trading in connection
with U.S. Treasury obligations, U.S. government agency obligations,
and agency mortgage-backed obligations. Derivative instruments, which
consist of futures, mortgage-backed “to be announced” (TBA) securities
and forward settling transactions, are used to manage risk exposures
in the newly acquired subsidiary’s trading inventory. The Company
enters into TBA securities transactions for the sole purpose of managing
risk associated with the purchase of mortgage pass-through securities.
In addition, we generate interest income from the positive spread
earned on customer deposits. We typically invest in U.S. Treasury
bills, notes, and obligations issued by government sponsored entities,
reverse repurchase agreements involving U.S. Treasury bills and
government obligations or AA-rated money market funds. We have
an investment policy which establishes acceptable standards of credit
quality and limits the amount of funds that can be invested within a
particular fund and institution.
Since mid-2010, we have employed an interest rate management
strategy, where we have used derivative financial instruments in the
form of interest rate swaps to manage a portion of our aggregate interest
rate position. Our objective is to invest the majority of customer
segregated deposits in high quality, short-term investments and swap
the resulting variable interest earnings into a medium-term interest
stream when a sufficient interest rate spread exists between the two
durations, by using a strip of interest rate swaps that mature every
quarter, and enable us to achieve the two-year moving average of the
two-year swap rate. These interest rate swaps are not designated for
hedge accounting treatment, and changes in the fair values of these
interest rate swaps, which are volatile and can fluctuate from period
to period, are recorded in earnings on a quarterly basis.
During the prior year, we amended this interest management strategy,
to include outright purchases of medium term U.S. Treasury notes.
Under this amended program, on a quarterly basis, we evaluate our
overall level of short term investable balances, net of our of variable
rate debt, and either invest a portion of these investable balances in
medium term U.S. Treasury notes or enter into interest rate swaps as
described above, when a sufficient interest rate spread exists between
short term and medium term rates exist. Under this strategy, excluding
cash deposits and our investments in AA-rated money market funds,
the weighted average time to maturity of our portfolio is not to exceed
24 months in duration. As part of this strategy we hold $680 million
in par value of medium term U.S. Treasury notes and $375 million
in interest rate swap derivative contracts, with the remainder being
held in short term U.S. Treasury bills and AA-rated money market
fund investments and the weighted average time to maturity of the
portfolio, excluding cash deposits and our investments in AA-rated
money market funds is 19 months.
We manage interest expense using a combination of variable and fixed
rate debt as well as including the average outstanding borrowings in our
calculations of the notional value of interest rate swaps to be entered into
as part of our interest rate management strategy discussed above. Refer
to Note 4 to the Consolidated Financial Statements for information
on the interest rate swap transactions. The debt instruments are carried
at their unpaid principal balance which approximates fair value. As
of September 30, 2015, $38.0 million of our debt was variable-rate
debt. We are subject to earnings and liquidity risks for changes in
the interest rate on this debt. As of September 30, 2015, we had
$49.1 million outstanding in fixed-rate long-term debt. There are no
earnings or liquidity risks associated with our fixed-rate debt.
45
- Form 10-K PART II
PART II
Item 8 Financial Statements and Supplementary Data
Item 8 Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
INTL FCStone Inc.:
We have audited INTL FCStone Inc. and subsidiaries’ (the Company)
internal control over financial reporting as of September 30, 2015,
based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management is responsible
for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on
Internal Control over Financial Reporting appearing under Item 9A
of the Company’s September 30, 2015 annual report on Form 10-K.
Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of September 30,
2015, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Management’s assessment of the effectiveness of the Company’s
internal control over financial reporting as of September 30, 2015
excluded G.X. Clarke & Co. (G.X. Clarke), acquired with effect from
January 1, 2015. Our audit of internal control over financial reporting
of the Company also excluded an evaluation of the internal control
over financial reporting of G.X. Clarke.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of September 30,
2015 and 2014, and the related consolidated statements of income,
comprehensive income, cash flows, and stockholders’ equity for each
of the years in the three-year period ended September 30, 2015, as
well as the accompanying financial statement schedule. Our report
dated December 9, 2015 expressed an unqualified opinion on those
consolidated financial statements and the accompanying financial
statement schedule.
/s/ KPMG LLP
Kansas City, Missouri
December 9, 2015
46
- Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
INTL FCStone Inc.:
We have audited the accompanying consolidated balance sheets of
INTL FCStone Inc. and subsidiaries (the Company) as of September 30,
2015 and 2014, and the related consolidated statements of income,
comprehensive income, cash flows, and stockholders’ equity for each
of the years in the three-year period ended September 30, 2015. In
connection with our audits of the consolidated financial statements,
we also have audited the accompanying financial statement schedule.
These consolidated financial statements and financial statement
schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
the Company as of September 30, 2015 and 2014, and the results of
its operations and its cash flows for each of the years in the three-year
period ended September 30, 2015, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements,
subsequent to the transfer of the portion of precious metals business
conducted through INTL Commodities Inc. to INTL FCStone Ltd.,
this portion of precious metals sales and cost of sales are presented
on a net basis as a component of trading gains, net. Prior to the
transfer, these precious metals sales and cost of sales were recorded
on a gross basis.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the Company’s
internal control over financial reporting as of September 30, 2015,
based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission, and our report dated December 9, 2015
expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
/s/ KPMG LLP
Kansas City, Missouri
December 9, 2015
47
- Form 10-K Item 8 Financial Statements and Supplementary Data
PART II
Item 8 Financial Statements and Supplementary Data
Consolidated Balance Sheets
(in millions, except par value and share amounts)
ASSETS
Cash and cash equivalents
Cash, securities and other assets segregated under federal and other regulations (including $515.5
and $15.3 at fair value at September 30, 2015 and September 30, 2014 respectively)
Securities purchased under agreements to resell
Deposits with and receivables from:
Exchange-clearing organizations (including $1,009.4 and $1,255.4 at fair value at
September 30, 2015 and September 30, 2014, respectively)
Broker-dealers, clearing organizations and counterparties (including $(52.9) and $(1.1) at fair value
at September 30, 2015 and September 30, 2014, respectively)
Receivable from customers, net
Notes receivable, net
Income taxes receivable
Financial instruments owned, at fair value (includes securities pledged as collateral that can be sold
or repledged of $170.7)
Physical commodities inventory (including precious metals of $15.2 at fair value at September 30, 2015)
Deferred income taxes, net
Property and equipment, net
Goodwill and intangible assets, net
Other assets
Total assets
LIABILITIES AND EQUITY
Liabilities:
Accounts payable and other accrued liabilities (including $3.3 and $5.5 at fair value at
September 30, 2015 and September 30, 2014)
Payable to:
Customers
Broker-dealers, clearing organizations and counterparties (including $1.6 at fair value at
September 30, 2015)
Lenders under loans
Senior unsecured notes
Income taxes payable
Securities sold under agreements to repurchase
Financial instruments sold, not yet purchased, at fair value
Total liabilities
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; no shares issued or outstanding
Common stock, $0.01 par value. Authorized 30,000,000 shares; 20,184,556 issued and
18,812,803 outstanding at September 30, 2015 and 19,826,635 issued and 18,883,662
outstanding at September 30, 2014
Common stock in treasury, at cost - 1,371,753 shares at September 30, 2015 and 942,973
shares at September 30, 2014
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
September 30, 2015
September 30, 2014
$
268.1
$
756.9
325.3
231.3
448.0
—
1,533.5
1,731.4
277.6
217.3
78.4
10.6
1,421.9
32.8
28.2
19.7
58.1
41.6
5,070.0
123.0
55.6
65.2
10.8
197.9
40.0
32.0
15.9
58.0
30.6
$
3,039.7
144.8 $
114.1
2,593.5
2,228.7
262.9
41.6
45.5
9.0
1,007.3
568.3
4,672.9
—
0.2
(26.8)
240.8
200.4
(17.5)
397.1
$
5,070.0
11.9
22.5
45.5
7.6
—
264.0
2,694.3
—
0.2
(17.5)
229.6
144.7
(11.6)
345.4
3,039.7
$
$
$
48
- Form 10-K
Consolidated Income Statements
(in millions, except share and per share amounts)
Revenues:
Sales of physical commodities
Trading gains, net
Commission and clearing fees
Consulting and management fees
Interest income
Other income
Total revenues
Cost of sales of physical commodities
Operating revenues
Transaction-based clearing expenses
Introducing broker commissions
Interest expense
Net operating revenues
Compensation and other expenses:
Compensation and benefits
Communication and data services
Occupancy and equipment rental
Professional fees
Travel and business development
Depreciation and amortization
Bad debts and impairments
Other
Total compensation and other expenses
Income from continuing operations, before tax
Income tax expense
Net income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Basic earnings per share:
Income from continuing operations
(Loss) income from discontinued operations
Net income per common share
Diluted earnings per share:
Income from continuing operations
(Loss) income from discontinued operations
Net income per common share
Weighted-average number of common shares outstanding:
Basic
Diluted
See accompanying notes to consolidated financial statements.
PART II
Item 8 Financial Statements and Supplementary Data
Year Ended September 30,
2014
2015
2013
$
$
$
$
$
$
34,089.9 $
328.6
192.5
42.5
39.4
0.3
34,693.2
34,068.9
624.3
122.7
52.7
17.1
431.8
251.1
28.1
13.5
12.5
10.5
7.2
7.3
23.5
353.7
78.1
22.4
55.7
—
55.7 $
2.94 $
—
2.94 $
2.87 $
—
2.87 $
33,546.4 $
244.5
180.7
42.1
8.0
0.7
34,022.4
33,531.5
490.9
108.5
49.9
10.5
322.0
201.9
25.8
12.3
14.9
9.9
7.3
5.5
18.4
296.0
26.0
6.4
19.6
(0.3)
19.3 $
1.03 $
(0.02)
1.01 $
1.00 $
(0.02)
0.98 $
42,031.2
244.0
173.3
35.1
8.9
0.9
42,493.4
42,025.2
468.2
110.1
40.5
7.9
309.7
198.7
23.1
12.0
12.4
10.4
8.0
0.8
23.1
288.5
21.2
2.6
18.6
0.7
19.3
0.97
0.04
1.01
0.93
0.04
0.97
18,525,374
18,932,235
18,528,302
19,132,302
18,443,233
19,068,497
49
- Form 10-K
PART II
Item 8 Financial Statements and Supplementary Data
Consolidated Statements of Comprehensive Income
2015
Year Ended September 30,
2014
2013
$
55.7
$
19.3
$
19.3
(4.0)
(1.5)
2.7
—
0.3
(5.4)
2.0
(3.1)
(5.9)
$
49.8
(4.6)
(0.8)
0.2
—
0.2
(0.1)
(0.1)
—
(5.2)
$
14.1
(1.8)
2.9
0.6
(0.1)
0.8
(8.3)
1.7
(5.9)
(4.2)
15.1
(in millions)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment
Pension liabilities adjustment
Net unrealized gain on available-for-sale securities
Reclassification of adjustment for gains included in net income:
Foreign currency translation adjustment (included in other income)
Periodic pension costs (included in compensation and benefits)
Realized gain on available-for-sale securities (included in trading gains,
net and interest income)
Income tax expense from reclassification adjustments (included in income tax expense)
Reclassification adjustment for gains included in net income
Other comprehensive loss
Comprehensive income
See accompanying notes to consolidated financial statements.
$
50
- Form 10-K
PART II
Item 8 Financial Statements and Supplementary Data
Consolidated Cash Flows Statements
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2015
Year Ended September 30,
2014
2013
$
55.7
$
19.3
$
19.3
Depreciation and amortization
Provision for bad debts and impairments
Deferred income taxes
Amortization of debt issuance costs and debt discount
Amortization of share-based compensation expense
Loss on sale of property and equipment
Gain on disposal of affiliate
Gain on sale of exchange memberships and common stock
Changes in operating assets and liabilities, net:
Cash, securities and other assets segregated under federal and other regulations
Change in securities purchased under agreements to resell
Deposits and receivables from exchange-clearing organizations
Deposits and receivables from broker-dealers, clearing organizations,
and counterparties
Receivable from customers, net
Notes receivable, net
Income taxes receivable
Financial instruments owned, at fair value
Physical commodities inventory
Other assets
Accounts payable and other accrued liabilities
Payable to customers
Payable to broker-dealers, clearing organizations and counterparties
Income taxes payable
Change in securities sold under agreements to repurchase
Financial instruments sold, not yet purchased, at fair value
Net cash provided by operating activities
Cash flows from investing activities:
Disposal and deconsolidation of affiliates
Cash paid for acquisitions, net
Purchase of exchange memberships and common stock
Sale of exchange memberships and common stock
Purchase of property and equipment
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Net change in payable to lenders under loans
Payments related to earn-outs on acquisitions
Proceeds from issuance of senior unsecured notes
Proceeds from note payable
Repayment of note payable
Share repurchase
Debt issuance costs
Exercise of stock options
Income tax benefit on stock options and awards
Net cash provided by (used in) financing activities
7.2
7.3
4.8
0.9
3.6
0.5
—
(1.2)
(315.0)
15.2
195.1
(150.2)
(169.0)
(14.5)
—
(565.0)
7.1
(16.2)
23.2
332.1
251.1
1.7
186.0
177.5
37.9
—
(7.8)
(0.7)
2.1
(9.1)
(15.5)
15.5
(2.2)
—
4.0
(0.4)
(4.7)
(0.2)
2.5
0.5
15.0
7.3
5.5
(6.8)
1.0
4.3
0.3
—
—
(1.3)
—
(159.2)
1.1
32.0
(27.9)
4.2
(42.6)
17.8
0.1
1.9
191.5
(5.2)
5.2
—
84.1
132.6
—
—
—
—
(4.3)
(4.3)
(38.5)
(1.6)
—
—
—
(9.7)
(0.3)
1.4
(0.1)
(48.8)
8.0
0.8
(7.8)
1.2
9.3
0.4
(0.4)
(9.1)
(95.1)
—
42.3
(53.4)
(23.7)
66.6
(0.2)
3.1
72.7
4.3
(0.2)
24.0
(22.3)
0.5
—
4.6
44.9
0.2
—
(0.3)
10.1
(4.9)
5.1
(157.2)
(12.0)
45.5
—
—
(3.9)
(3.7)
1.5
0.1
(129.7)
51
- Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
(in millions)
Effect of exchange rates on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid for interest
Income taxes paid, net of cash refunds
Supplemental disclosure of non-cash investing and financing activities:
Identified intangible assets and goodwill on acquisitions
Additional consideration payable related to acquisitions
Acquisition of business:
Assets acquired
Liabilities acquired
Total net assets acquired
Deferred consideration payable related to acquisitions
Escrow deposits related to acquisitions
See accompanying notes to consolidated financial statements.
2015
Year Ended September 30,
2014
2013
(0.6)
36.8
231.3
268.1
15.8
15.3
1.6
1.9
1,011.4
(995.1)
16.3
5.0
5.0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(4.3)
75.2
156.1
231.3
9.6
3.0
$
$
$
0.5
$
(1.8) $
— $
—
— $
— $
— $
(0.5)
(80.2)
236.3
156.1
8.9
10.2
5.6
8.2
—
—
—
—
—
52
- Form 10-K Consolidated Statements of Stockholders’ equity
PART II
Item 8 Financial Statements and Supplementary Data
(in millions)
Balances as of September 30, 2012
Net income
Other comprehensive loss
Exercise of stock options
Share-based compensation
Repurchase of stock
Stock held in escrow for business combination
Balances as of September 30, 2013
Net income
Other comprehensive loss
Exercise of stock options
Share-based compensation
Repurchase of stock
Balances as of September 30, 2014
Net income
Other comprehensive loss
Exercise of stock options
Share-based compensation
Repurchase of stock
Stock held in escrow for business combination
Balances as of September 30, 2015
See accompanying notes to consolidated financial statements.
Common
Stock
Treasury
Stock
Additional
Paid-in
Capital
$
0.2 $
(4.1) $
213.2
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
$ 106.1 $
19.3
(3.7)
0.2
(7.8)
(9.7)
(17.5)
0.2
(4.5)
(4.8)
$
0.2 $ (26.8) $
1.5
9.3
(0.2)
0.2
224.0
1.3
4.3
—
229.6
125.4
19.3
144.7
55.7
3.0
3.6
(0.2)
4.8
240.8
$ 200.4 $
(4.2)
(6.4)
(5.2)
Total
(2.2) $ 313.2
19.3
(4.2)
1.5
9.3
(3.9)
0.2
335.4
19.3
(5.2)
1.3
4.3
(9.7)
345.4
55.7
(5.9)
3.0
3.6
(4.7)
—
(17.5) $ 397.1
(11.6)
(5.9)
53
- Form 10-K
PART II
Item 8 Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
NOte 1 Description of Business and Significant Accounting Policies
INTL FCStone Inc., a Delaware corporation, and its consolidated
subsidiaries (collectively “INTL” or “the Company”), form a financial
services group focused on domestic and select international markets.
The Company’s services include comprehensive risk management
advisory services for commercial customers; execution of listed
futures and options on futures contracts on all major commodity
exchanges; structured over-the-counter (“OTC”) products in a wide
range of commodities; physical trading and hedging of precious and
base metals and select other commodities; trading of more than 150
foreign currencies; market-making in international equities; fixed
income; debt origination and asset management.
The Company provides these services to a diverse group of more than
20,000 accounts, representing approximately 11,000 consolidated
customers located throughout the world, including producers, processors
and end-users of nearly all widely-traded physical commodities to
manage their risks and enhance margins; to commercial counterparties
who are end-users of the firm’s products and services; to governmental
and non-governmental organizations; and to commercial banks,
brokers, institutional investors and major investment banks.
Basis of Presentation
The accompanying consolidated financial statements include the
accounts of INTL FCStone Inc. and all other entities in which the
Company has a controlling financial interest. All material intercompany
transactions and balances have been eliminated in consolidation.
Unless otherwise stated herein, all references to fiscal 2015, fiscal 2014,
and fiscal 2013 refer to the Company’s fiscal years ended September 30.
Use of estimates
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America (“U.S. GAAP”) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent liabilities as of the date of the financial statements
and the reported amounts of revenue and expenses during the reporting
period. The most significant of these estimates and assumptions relate
to fair value measurements for financial instruments and investments,
revenue recognition, the provision for potential losses from bad debts,
valuation of inventories, valuation of goodwill and intangible assets,
self-insurance liabilities, incomes taxes and contingencies. These
estimates are based on management’s best knowledge of current events
and actions the Company may undertake in the future. The Company
reviews all significant estimates affecting the financial statements on a
recurring basis and records the effect of any necessary adjustments prior
to their issuance. Although these and other estimates and assumptions
are based on the best available information, actual results could be
materially different from these estimates.
Internal Subsidiary Consolidation
Effective July 1, 2015, the Company merged three of its wholly-owned
regulated U.S. subsidiaries into its wholly owned regulated U.S.
subsidiary, INTL FCStone Securities Inc., and the surviving entity
was renamed INTL FCStone Financial Inc. and is registered as both a
broker-dealer and a FCM. As such, the assets, liabilities and equity of
FCStone, LLC, INTL FCStone Partners L.P., and FCC Investments,
Inc. were transferred into INTL FCStone Financial.
Foreign Currency translation
Assets and liabilities recorded in foreign currencies are translated at
the exchange rates prevailing on the balance sheet date. Revenue and
expenses are translated at average rates of exchange prevailing during
the period. Gains or losses on translation of the financial statements of
a non-United States (“U.S.”) operation, when the functional currency
is other than the U.S. dollar, are recorded in other comprehensive
income (“OCI”), net of tax, a component of stockholders’ equity.
Foreign currency remeasurement gains or losses on transactions in
nonfunctional currencies are included in ‘trading gains, net’ in the
consolidated income statements.
Cash and Cash equivalents
The Company considers cash held at banks and all highly liquid
investments, including certificates of deposit, which may be withdrawn
at any time at the discretion of the Company without penalty, to be
cash and cash equivalents. Cash and cash equivalents consist of cash,
foreign currency, money market funds and certificates of deposit not
deposited with or pledged to exchange-clearing organizations, broker-
dealers, clearing organizations or counterparties. The money market
funds are valued at period-end at the net asset value provided by the
fund’s administrator, which approximates fair value. Certificates of
deposit are stated at cost plus accrued interest, which approximates
fair value. The Company has an investment policy, which limits the
maximum amount placed in any one fund and with any one institution
in order to reduce credit risk. The Company does not believe that it
is exposed to significant risk on cash and cash equivalents.
Cash, Securities and Other Assets Segregated
under Federal and other Regulations
Pursuant to requirements of the Commodity Exchange Act in the
U.S. and similarly in the United Kingdom (“UK”), pursuant to the
Markets in Financial Instruments Implementing Directive 2006/73/EC
underpinning the Client Asset or ‘CASS’ rules in the Financial Services
Authority (“FSA”) handbook, funds deposited by customers relating
to futures and options on futures contracts in regulated commodities
must be carried in separate accounts which are designated as segregated
54
- Form 10-K customer accounts. The deposits in segregated customer accounts are
not commingled with the funds of the Company. Under the FSA’s
rules, certain categories of clients may choose to opt-out of segregation.
As of September 30, 2015 and 2014, cash, securities and other assets
segregated under federal and other regulations consisted of cash held
at banks and money market funds of approximately $240.0 million
and $432.1 million, respectively, U.S. government securities and
U.S. government agency obligations of approximately $493.4 million
and $0.5 million, respectively, and commodities warehouse receipts
of approximately $22.1 million and $14.8 million, respectively (see
fair value measurements discussion in Note 3).
Deposits and Receivables from exchange-
Clearing Organizations, Broker-dealers,
Clearing Organizations and Counterparties,
and Payables to Broker-dealers, Clearing
Organizations and Counterparties
As required by the regulations of the U.S. Commodity Futures Trading
Commission (“CFTC”) and the aforementioned FSA handbook,
customer funds received to margin, guarantee, and/or secure commodity
futures transactions are segregated and accounted for separately from
the general assets of the Company. Deposits with exchange-clearing
organizations, broker-dealers and counterparties pertain primarily
to deposits made to satisfy margin requirements on customer and
proprietary open futures and options on futures positions and to satisfy
the requirements set by clearing exchanges for clearing membership.
The Company also pledges margin deposit with various counterparties
for OTC derivative contracts, and these deposits are also included
in deposits and receivables from broker-dealers and counterparties.
Deposits with and receivables from exchange-clearing organizations
and broker-dealers and counterparties are reported gross, except
where a right of offset exists. As of September 30, 2015 and 2014, the
Company had cash and cash equivalents on deposit with or pledged
to exchange-clearing organizations, broker-dealers and counterparties
of $0.9 billion and $1.3 billion, respectively.
These balances also include securities pledged by the Company on
behalf of customers and customer-owned securities that are pledged.
It is the Company’s practice to include customer owned securities
on its consolidated balance sheets, as the rights to those securities
have been transferred to the Company under the terms of the futures
trading agreement. Securities pledged include U.S. Treasury bills
and instruments backed by U.S. government sponsored entities and
government-sponsored enterprise backed mortgage-backed securities
(“mortgage-backed securities”). Securities that are not customer-owned
are adjusted to fair value with associated changes in unrealized gains or
losses recorded through current period earnings. For customer owned
securities, the change in fair value is offset against the payable to customers
with no impact recognized on the consolidated income statements.
The securities, primarily U.S. government obligations and mortgage-
backed securities, held by INTL FCStone Financial Inc. (“INTL
FCStone Financial”), a subsidiary of the Company, as collateral or
as margin have been deposited with exchange-clearing organizations,
broker-dealers or other counterparties. The fair value of these securities
was approximately $0.5 billion and $0.7 billion as of September 30,
2015 and 2014, respectively.
Management has considered guidance required by the Transfers
and Servicing Topic of the ASC as it relates to securities pledged
PART II
Item 8 Financial Statements and Supplementary Data
by customers to margin their accounts. Based on a review of the
agreements with the customer, management believes the transferor
surrenders control over those assets because: (a) the transferred assets
have been isolated from the transferor—put presumptively beyond the
reach of the transferor and its creditors, even in bankruptcy or other
receivership, (b) each transferee has the right to pledge or exchange
the assets (or beneficial interests) it received, and no condition both
constrains the transferee (or holder) from taking advantage of its right
to pledge or exchange and provides more than a trivial benefit to the
transferor and (c) the transferor does not maintain effective control
over the transferred assets through either (1) an agreement that both
entitles and obligates the transferor to repurchase or redeem them
before their maturity or (2) the ability to unilaterally cause the holder
to return specific assets, other than through a cleanup call. Under
this guidance, the Company reflects the customer collateral assets
and corresponding liabilities in the Company’s consolidated balance
sheets as of September 30, 2015 and 2014.
In addition to margin, deposits with exchange-clearing organizations
include guaranty deposits. The guaranty deposits are held by the clearing
organization for use in potential default situations by one or more
members of the clearing organization. The guaranty deposits may be
applied to the Company’s obligations to the clearing organization, or
to the clearing organization’s obligations to other clearing members
or third parties.
The Company maintains customer omnibus and proprietary accounts
with other counterparties, and the equity balances in those accounts
along with any margin cash or securities deposited with the carrying
broker are included in deposits and receivables from broker-dealers
and counterparties.
Receivables from and payables to exchange-clearing organizations
are also comprised of amounts due from or due to exchange-clearing
organizations for daily variation settlements on open futures and
options on futures positions. The variation settlements due from
or due to exchange-clearing organizations are paid in cash on the
following business day.
Deposits and receivables from broker-dealers, clearing organizations and
counterparties, and payables to broker-dealers, clearing organizations
and counterparties also include amounts related to the value of
customers cross-currency payment transactions related to the Global
Payments segment. These amounts arise due to a clearing period
before the funds are received and payments are made, which usually
is one to two business days.
Deposits and receivables with exchange-clearing organizations
also includes the unrealized gains and losses associated with the
customers’ options on futures contracts. See discussion in the
Financial Instruments and Derivatives section below for additional
information on the treatment of derivative contracts. For customer
owned derivative contracts, the fair value is offset against the payable
to customers with no impact recognized on the consolidated income
statements.
Receivable from and Payable to Customers
Receivable from customers, net of the allowance for doubtful accounts,
include the total of net deficits in individual exchange-traded and
OTC trading accounts carried by the Company. Customer deficits
arise from realized and unrealized trading losses on futures, options
55
- Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
on futures, swaps and forwards and amounts due on cash and
margin transactions. Customer deficit accounts are reported gross
of customer accounts that contain net credit or positive balances,
except where a right of offset exists. Net deficits in individual
exchange-traded and OTC trading accounts include both secured
and unsecured deficit balances due from customers as of the balance
sheet date. Secured deficit amounts are backed by U.S. Treasury bills
and notes and commodity warehouse receipts. These U.S Treasury
bills and notes and commodity warehouse receipts are not netted
against the secured deficit amounts, as the conditions for right of
setoff have not been met.
Payable to customers represent the total of customer accounts with
credit or positive balances. Customer accounts are used primarily in
connection with commodity transactions and include gains and losses
on open commodity trades as well as securities and other deposits
made as required by the Company, the exchange-clearing organizations
or other clearing organizations. Customer accounts with credit or
positive balances are reported gross of customer deficit accounts,
except where a right of offset exists.
Receivables from and payables to customers also include amounts
related to the value of customers cross-currency payment transactions
related to the Global Payments segment. These amounts arise due
to a clearing period before the funds are received and payments are
made, which usually is one to two business days.
The future collectability of the receivable from customers can be
impacted by the Company’s collection efforts, the financial stability
of its customers, and the general economic climate in which it
operates. The Company evaluates accounts that it believes may
become uncollectible on a specific identification basis, through
reviewing daily margin deficit reports, the historical daily aging of the
receivables, and by monitoring the financial strength of its customers.
The Company may unilaterally close customer trading positions in
certain circumstances. In addition, to evaluate customer margining
and collateral requirements, customer positions are stress tested
regularly and monitored for excessive concentration levels relative
to the overall market size.
The Company generally charges off an outstanding receivable balance
when all economically sensible means of recovery have been exhausted.
That determination considers information such as the occurrence of
significant changes in the customer’s financial position such that the
customer can no longer pay the obligation, or that the proceeds from
collateral will not be sufficient to pay the balance.
Notes Receivable
The Company originates short-term notes receivable from customers
with the outstanding balances typically being insured 90% to 98%
by a third party, including accrued interest, subject to applicable
deductible amounts. The Company may sell the insured portion of
the notes through non-recourse participation agreements with other
third parties. See discussion of notes receivable related to commodity
repurchase agreements below.
Accrual of commodity financing income on any note is discontinued
when, in the opinion of management, there is reasonable doubt as to
the timely collectability of interest or principal. Nonaccrual notes are
returned to an accrual status when, in the opinion of management,
the financial position of the borrower indicates there is no longer any
56
reasonable doubt as to the timely payment of principal and interest.
The Company records a charge against earnings for notes receivable
losses when management believes that collectability of the principal
is unlikely.
Physical Commodities Inventory
Physical commodities inventories, except as described below, are
stated at the lower of cost or market (“LCM”), using the weighted-
average price and first-in first-out costing method. Cost includes
finished commodity or raw material and processing costs related to
the purchase and processing of inventories.
Prior to the transfer of the Company’s precious metals business
(see following discussion), precious metals inventory held by INTL
Commodities Inc. was valued at LCM under the provisions of the
Inventory Topic of the Accounting Standards Codification (“ASC”),
using the weighted-average price and first-in first-out costing method.
Subsequent to the transfer, precious metals inventory held by INTL
FCStone Ltd. is measured at fair value, with changes in fair value
included as a component of ‘trading gains, net’ on the consolidated
income statements.
Change in Precious metals Accounting
The Company engages in trading activities in a variety of physical
commodities, including actively trading precious metals whereby the
Company provides a full range of trading and hedging capabilities,
including OTC products, to select producers, consumers, and investors.
In the Company’s precious metals trading activities, it acts as a
principal, committing its own capital to buy and sell precious metals
on a spot and forward basis.
On April 10, 2015 (the “transfer date”), the Company transitioned
the portion of its precious metals business conducted through its
unregulated domestic subsidiary, INTL Commodities Inc., to its
United Kingdom based broker-dealer subsidiary, INTL FCStone
Ltd. INTL FCStone Ltd. is regulated by the Financial Conduct
Authority (“FCA”), the regulator of the financial services industry
in the United Kingdom.
In anticipation of the transfer of the precious metals business, INTL
Commodities Inc. liquidated all of its precious metals inventory
as of the transfer date. Subsequent to the transfer, precious metals
inventory held by INTL FCStone Ltd. is measured at fair value,
with changes in fair value included as a component of ‘trading gains,
net’ on the consolidated income statement, in accordance with U.S.
GAAP accounting requirements for broker-dealers. Precious metals
inventory held by subsidiaries that are not broker-dealers continues
to be valued at the lower of cost or market value.
Property and equipment
Property and equipment is stated at cost, net of accumulated
depreciation and amortization and depreciated using the straight-
line method over the estimated useful lives of the assets. Leasehold
improvements are amortized on a straight-line basis over the estimated
useful life of the improvement or the term of the lease, whichever is
shorter. Certain costs of software developed or obtained for internal
use are capitalized and amortized over the estimated useful life of the
- Form 10-K software. Expenditures for maintenance, repairs, and minor replacements
are charged against earnings, as incurred. Expenditures that increase the
value or productive capacity of assets are capitalized. When property
and equipment are retired, sold, or otherwise disposed of, the asset’s
carrying amount and related accumulated depreciation are removed
from the accounts and any gain or loss is included in earnings.
Goodwill and Identifiable Intangible Assets
Goodwill is the cost of acquired companies in excess of the fair value
of identifiable net assets at acquisition date. In accordance with the
Intangibles – Goodwill and Other Topic of the ASC, goodwill is
tested for impairment on an annual basis at the fiscal year-end, and
between annual tests if indicators of potential impairment exist, using
a fair-value-based approach. No impairment of goodwill has been
identified during any of the periods presented.
Identifiable intangible assets subject to amortization are amortized
using the straight-line method over their estimated period of benefit,
ranging from two to twenty years. Identifiable intangible assets are
tested for impairment whenever events or changes in circumstances
suggest that an asset’s or asset group’s carrying value may not be
fully recoverable in accordance with the Intangibles – Goodwill
and Other Topic of the ASC. Residual value is presumed to be zero.
Identifiable intangible assets not subject to amortization are reviewed
at each reporting period to re-evaluate if the intangible asset’s useful
life remains indefinite. Additionally, intangible assets not subject to
amortization are tested annually for impairment at the fiscal year-end,
and between annual tests if indicators of potential impairment exist,
using a fair-value-based approach.
Financial Instruments and Derivatives
Financial instruments owned and sold, not yet purchased, at fair value
consist of financial instruments carried at fair value or amounts that
approximate fair value, with related unrealized changes in gains or losses
recognized in earnings, except for securities classified as available-for-
sale. The fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale.
The Company accounts for its securities pledged on behalf of customers
and proprietary securities as trading securities in accordance with
U.S. GAAP accounting requirements for broker-dealers.
Investment in managed funds, at fair value represents investments in
funds managed by the Company’s fund managers. The investments
are valued at period-end at the net asset value provided by the fund’s
administrator.
Commodities warehouse receipts are valued at the cash price, or the
nearby futures prices in the absence of a cash price, for the commodity
based on published market quotes. For commodities warehouse receipts,
the change in fair value is offset against the payable to customers with
no impact on the consolidated income statements.
The Company utilizes derivative instruments to manage exposures
to foreign currency, commodity price and interest rate risks for the
Company and its customers. The Company’s objectives for holding
derivatives include reducing, eliminating, and efficiently managing
PART II
Item 8 Financial Statements and Supplementary Data
the economic impact of these exposures as effectively as possible.
Derivative instruments are recognized as either assets or liabilities
and are measured at fair value. The accounting for changes in the fair
value of a derivative depends on the intended use of the derivative
and the resulting designation. For a derivative instrument designated
as a cash flow hedge, the effective portion of the derivative’s gain
or loss is initially recorded in OCI, net of tax, and is subsequently
recognized in earnings when the hedged exposure affects earnings.
The ineffective portion of the gain or loss is recognized in earnings.
Gains and losses from changes in fair values of derivatives that are
not designated as cash flow hedges for accounting purposes are
recognized in earnings.
The Company’s derivative contracts consist of exchange-traded and
OTC derivatives. Fair values of exchange-traded derivatives are generally
determined from quoted market prices. OTC derivatives are valued
using valuation models. The valuation models used to derive the
fair values of OTC derivatives require inputs including contractual
terms, market prices, yield curves and measurements of volatility. The
Company uses similar models to value similar instruments. Where
possible, the Company verifies the values produced by pricing models
by comparing them to market transactions. Inputs may involve
judgment where market prices are not readily available. The Company
does not elect hedge accounting under the Derivatives and Hedging
Topic of the ASC in accounting for derivatives used as economic
hedges on its commodities.
The Company provides clearing and execution of exchange-traded
futures and options on futures for middle-market intermediaries, end-
users, producers of commodities and the institutional and professional
trader market segments. The Company has a subsidiary that is a
registered broker-dealer and futures commission merchant (“FCM”),
clearing on various exchanges. A primary source of revenues for the
Company’s BD/FCM are commissions and clearing fees derived from
executing and clearing orders for commodity futures contracts and
options on futures on behalf of its customers.
The Company also brokers foreign exchange forwards, options
and cash, or spot, transactions between customers and external
counterparties. A portion of the contracts are arranged on an
offsetting basis, limiting the Company’s risk to performance of the
two offsetting parties. The offsetting nature of the contracts eliminates
the effects of market fluctuations on the Company’s operating
results. Due to the Company’s role as a principal participating in
both sides of these contracts, the amounts are presented gross on
the consolidated balance sheets at their respective fair values, net
of offsetting assets and liabilities.
During fiscal 2014, the Company concluded its business activities
related to speculative trading and holding proprietary positions in
futures, options and swaps, including corn, wheat, soybeans, sugar.
Since some of the derivatives held or sold by the Company were for
speculative trading purposes, those derivative instruments were not
designated as hedging instruments and accordingly, the changes in
fair value during the period were recorded in the consolidated income
statements as a component of ‘trading gains, net’ (see Note 4).
The Company holds proprietary positions in its foreign exchange line
of business. On a limited basis, the Company’s foreign exchange trade
desk will accept a customer transaction and will offset that transaction
with a similar but not identical position with a counterparty. These
57
- Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
unmatched transactions are intended to be short-term in nature and
are often conducted to facilitate the most effective transaction for the
Company’s customer. These spot and forward contracts are accounted
for as free-standing derivatives and reported in the consolidated
balance sheets at their fair values. The Company does not seek hedge
accounting treatment for these derivatives, and accordingly, the
changes in fair value during the period are recorded in the consolidated
income statements in ‘trading gains, net’ (see Note 4). In applying
the guidance in the Balance Sheet-Offsetting Topic of the ASC, the
Company’s accounting policy is such that open contracts with the
same customer are netted at the account level, in accordance with
netting arrangements in place with each party, as applicable and rights
to reclaim cash collateral or obligations to return cash collateral are
netted against fair value amounts recognized for derivative instruments
with the same customer in accordance with the master netting
arrangements in place with each customer.
The Company may lease commodities to or from customers or
counterparties, or advance commodities to customers on an unpriced
basis, receiving payment when they become priced. These are valued
at fair value utilizing the fair value option based on guidance in the
Financial Instruments Topic of the ASC. As permitted by the fair value
option election, the entire instrument is recorded at fair value in the
consolidated balance sheets as a component of ‘financial instruments
owned and sold, not yet purchased’. Due to the short term nature
of the instruments, the balance of the agreements is not materially
different than the recorded fair value. The corresponding change in
fair value of the instrument is recognized in the consolidated income
statements as a component of ‘trading gains, net’ for the fiscal years
ended September 30, 2015, 2014, and 2013. The Company does
elect to value all of their commodities lease agreements at fair value
using the fair value option. See fair value measurements in Note 3.
exchange memberships and Stock
The Company is required to hold certain exchange membership
seats and exchange firm common stock and pledge them for clearing
purposes, in order to provide the Company the right to process trades
directly with the various exchanges. Exchange memberships include
seats on the Chicago Board of Trade (“CBOT”), the Minneapolis
Grain Exchange, the New York Mercantile Exchange (“NYMEX”), the
Commodity Exchange, Inc. (“COMEX”) Division of the New York
Mercantile Exchange, Mercado de Valores de Buenos Aires S.A.
(“MERVAL”), the Chicago Mercantile Exchange (“CME”) Growth
and Emerging Markets, InterContinental Exchange, Inc. (“ICE”)
Futures US, ICE Europe Ltd and London Metal Exchange (“LME”).
Exchange firm common stock include shares of CME Group, Inc.,
ICE and LME.
Exchange memberships and firm common stocks pledged for clearing
purposes are recorded at cost and are included in ‘other assets’ on
the consolidated balance sheets. Equity investments in exchange
firm common stock not pledged for clearing purposes are classified
as trading securities and recorded at fair value, with unrealized
gains and losses recorded as a component of “trading gains, net”
on the consolidated income statements. Equity investments in
exchange firm common stock not pledged for clearing purposes
are included in ‘financial instruments owned’ on the consolidated
balance sheets.
58
The cost basis for exchange memberships and firm common stock
pledged for clearing purposes was $9.9 million and $10.3 million
as of September 30, 2015 and 2014, respectively. The fair value of
exchange memberships and firm common stock pledged for clearing
purposes was $7.6 million and $9.7 million as of September 30, 2015
and 2014, respectively. The fair value of exchange firm common
stock is determined by quoted market prices, and the fair value of
exchange memberships is determined by recent sale transactions. The
Company monitors the fair value of exchange membership seats and
firm common stock on a quarterly basis, and does not consider any
current unrealized losses on individual exchange memberships to be
anything other than a temporary impairment.
Commodity and Other Repurchase Agreements
and Collateralized transactions
In the normal course of operations the Company accepts notes
receivable under sale/repurchase agreements with customers whereby
the customers sell certain commodity inventory or other investments
and agree to repurchase the commodity inventory or investment at
a future date at either a fixed or floating rate. These transactions are
short-term in nature, and in accordance with the guidance contained
in the Transfers and Servicing Topic of the ASC, are treated as secured
borrowings rather than commodity inventory and purchases and sales
in the Company’s consolidated financial statements.
Additionally, the Company participates in transactions involving
commodities or other investments sold under repurchase agreements
(“repos”). In accordance with the guidance contained in the Transfers
and Servicing Topic of the ASC, these transactions are treated as
secured borrowings that are recorded as a liability in the consolidated
balance sheets. Commodities or investments sold under repurchase
agreements are reflected at the amount of cash received in connection
with the transactions. The Company may be required to provide
additional collateral based on the fair value of the underlying asset.
Business Combinations
Acquisitions are accounted for as business combinations in accordance
with the provisions of the Business Combinations Topic of the ASC.
Under this accounting guidance most of the assets and liabilities
acquired and assumed are measured at fair value as of the acquisition
date. Certain contingent liabilities acquired require remeasurement
at fair value in each subsequent reporting period. Noncontrolling
interests are initially measured at fair value and classified as a separate
component of equity. Acquisition related costs, such as fees for attorneys,
accountants, and investment bankers, are expensed as incurred and
are not capitalized as part of the purchase price. For all acquisitions,
regardless of the consummation date, deferred tax assets, valuation
allowances, and uncertain tax position adjustments occurring after
the measurement period are recorded as a component of income,
rather than adjusted through goodwill.
Determining the fair value of certain assets and liabilities acquired is
subjective in nature and often involves the use of significant estimates
and assumptions. Estimating the fair value of the assets and liabilities
acquired requires significant judgment.
- Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
Contingent Consideration
Change in Precious metals Accounting
The Company estimates and records the acquisition date estimated
fair value of contingent consideration as part of purchase price
consideration for acquisitions. Additionally, each reporting period,
the Company estimates changes in the fair value of contingent
consideration, and any change in fair value is recognized in the
consolidated income statement. An increase in the earn-out expected
to be paid will result in a charge to operations in the period that
the anticipated fair value of contingent consideration increases,
while a decrease in the earn-out expected to be paid will result in a
credit to operations in the period that the anticipated fair value of
contingent consideration decreases. The estimate of the fair value of
contingent consideration requires subjective assumptions to be made
of future operating results, discount rates, and probabilities assigned
to various potential operating result scenarios. Future revisions to
these assumptions could materially change the estimate of the fair
value of contingent consideration and, therefore, materially affect
the Company’s future financial results.
Additional Paid-In Capital
The Company’s additional paid-in capital (“APIC”) consists of
stockholder contributions that are in excess of par value of common
stock. Included in APIC are amounts related to the exercise of stock
options, share-based compensation and shares held in escrow.
In September 2010, the Company acquired certain assets of
Provident Group (“Provident”). The purchase price for the assets
and services of the sellers was $5.0 million. Subsequent to closing,
the individual sellers placed the entire purchase price into an escrow
account and the funds were used to purchase outstanding shares
of the Company on the open market. There were 214,325 shares
purchased and placed into escrow as a result of this agreement.
The entire purchase price was recorded as a reduction in additional
paid in capital as shares held in escrow for business combinations.
The shares held in escrow for business combinations were to be
released to the individual sellers, over a five year period from
the date of closing based on net profits, in accordance with the
provisions of the acquisition agreement. At September 30, 2015,
the end of the five year period, the terms of the agreement were
not met and 204,271 shares were forfeited to the Company and
recorded as treasury stock. In accordance with the acquisition
agreement, there were no shares earned or released during the
years ended September 30, 2015 and 2014, while 6,799 shares
were earned and subsequently released to the sellers during the
year ended September 30, 2013, and 3,255 shares were earned
and subsequently released prior to fiscal 2013.
Revenue Recognition
Sales of physical commodities revenue are recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the fee
is fixed or determinable, and collectability is reasonably assured.
The Company reports its physical commodities revenues, except as
described below, on a gross basis, with the corresponding cost of sales
shown separately, in accordance with the guidelines provided in the
Revenue Recognition Topic of the ASC.
Prior to the transfer, INTL Commodities Inc. precious metals sales
and costs of sales were recorded on a gross basis in accordance with the
Revenue Recognition Topic of the ASC. Subsequent to the transfer,
INTL FCStone Ltd. precious metals sales and cost of sales are presented
on a net basis and included as a component of ‘trading gains, net’ on
the consolidated income statements, in accordance with U.S GAAP
accounting requirements for broker-dealers. Precious metals sales and
cost of sales for subsidiaries that are not broker-dealers continue to
be recorded on a gross basis.
The change has no effect on the Company’s operating revenues,
income from continuing operations, or net income. Management
has historically assessed the performance of the physical commodities
businesses on an operating revenue basis, and continues to do so.
Trading gains, net include brokerage fees and margins generated
from OTC derivative trades executed with customers and other
counterparties and are recognized when trades are executed. Trading
gains, net also include activities where the Company acts as principal in
the purchase and sale of individual securities, currencies, commodities
or derivative instruments with customers. These transactions may be
offset simultaneously with another customer or counterparty, offset
with similar but not identical positions on an exchange, made from
inventory, or may be aggregated with other purchases to provide
liquidity intraday, for a number of days, or in some cases, particularly
the base metals business, even longer periods (during which fair value
may fluctuate). In addition, trading gains, net includes activities from
the Company’s operations of a proprietary foreign exchange desk which
arbitrages the futures and cash markets (see additional discussion in
the Financial Instruments and Derivatives policy note for revenue
recognition on proprietary trading activities). Net dealer inventory
and investment gains are recognized on a trade-date basis and include
realized gains or losses and changes in unrealized gains or losses on
investments at fair value. Dividend income and dividend expense,
on short equity positions, are recognized net, in ‘trading gain, net’ on
the ex-dividend date.
Commissions on futures contracts are recognized on a half-turn basis
in two equal parts. The first half is recognized when the contract is
opened and the second half is recognized when the transaction is
closed. Commissions on options on futures contracts are generally
recognized on a half-turn basis, except that full commissions are
recognized on options expected to expire without being exercised
or offset. Commissions and fees are charged at various rates based
on the type of account, the products traded, and the method of
trade. Clearing and transaction fees are charged to customers on a
per exchange contract basis based on the trade date. Such fees are
for clearing customers’ exchange trades and include fees charged to
the Company by the various futures exchanges. See discussion of
transaction-based clearing expenses below.
Consulting and management fees include risk management consulting
fees which are billed and recognized as revenue on a monthly basis
when risk management services are provided. Such agreements are
generally for one year periods, but are cancelable by either party
upon providing thirty days written notice to the other party and the
amounts are not variable based on customer trading activities. Asset
management fees are recognized as they are earned based on fees due
59
- Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
at each period-end date. These include performance fees based on
the amount that is due under the formula for exceeding performance
targets as of the period-end date. Fee income for structuring and
arrangement of debt transactions and management and investment
advisory income is recorded when the services related to the underlying
transactions are provided and success fees are recorded when complete,
as determined under the terms of the assignment or engagement.
Interest income, generated primarily from investments and customer
inventory financing, is recognized on an accrual basis. Interest from
investments is generated from securities purchased using customer
funds deposited with the Company to satisfy margin requirements,
net of interest returned to customers, and from securities acquired
through internally-generated company funds. Interest also includes
unrealized gains and losses on securities owned and those deposited
with other parties.
Revenue generally is recognized net of any taxes collected from
customers and subsequently remitted to governmental authorities.
Cost of Revenue
Cost of sales of physical commodities include finished commodity or
raw material and processing costs along with operating costs relating
to the receipt, storage and delivery of the physical commodities.
Compensation and Benefits
Compensation and benefits consists primarily of salaries, incentive
compensation, variable compensation, including commissions,
related payroll taxes and employee benefits. The Company classifies
employees as either risk management consultants / traders, operational or
administrative personnel, which includes the executive officers. Variable
compensation paid to risk management consultants and traders generally
represents a fixed percentage of revenues generated, and in some cases,
revenues produced less direct costs and an overhead allocation. The
Company accrues commission expense on a trade date basis.
Share-Based Compensation
The Company accounts for share-based compensation in accordance
with the guidance of the Compensation-Stock Compensation Topic of
the ASC. The cost of employee services received in exchange for a share-
based award is generally measured based on the grant-date fair value
of the award. Share-based employee awards that require future service
are amortized over the relevant service period. Expected forfeitures
are included in determining share-based employee compensation
expense. For option awards granted, compensation cost is recognized
on a straight-line basis over the vesting period for the entire award.
transaction-Based Clearing expenses
Clearing fees and related expenses include primarily variable expenses
for clearing and settlement services, including fees the Company pays
to executing brokers, exchanges, clearing organizations and banks.
60
These fees are based on transaction volume, and recorded as expense
on the trade date. Clearing fees are passed on to customers and are
presented gross in the consolidated statements of income under the
Revenue Recognition Topic of the ASC, as the Company acts as a
principal for these transactions.
Introducing Broker Commissions
Introducing broker commissions include commissions paid to non-
employee third parties that have introduced customers to the Company.
Introducing brokers are individuals or organizations that maintain
relationships with customers and accept futures and options orders
from those customers. The Company directly provides all account,
transaction and margining services to introducing brokers, including
accepting money, securities and property from the customers. The
commissions are determined and settled monthly.
Income taxes
Income tax expense includes U.S. federal, state and local and foreign
income taxes. Certain items of income and expense are not reported
in tax returns and financial statements in the same year. The tax effect
of such temporary differences is reported as deferred income taxes.
Tax provisions are computed in accordance with the Income Taxes
Topic of the ASC.
Comprehensive Income
Comprehensive income consists of net income and other gains and
losses affecting stockholders’ equity that, under U.S. GAAP, are excluded
from net income. Other comprehensive income (loss) includes net
actuarial losses from defined benefit pension plans, gains and losses
on foreign currency translations, and changes in the fair value of
interest rate swap agreements, to the extent they are, or previously
were, effective as cash flow hedges.
Noncontrolling Interest and Variable Interest
entities
In accordance with the Consolidation Topic of the ASC, the Company
consolidates any variable interest entities for which it is the primary
beneficiary, as defined. The Company applies the equity method of
accounting when the Company does not have a controlling interest
in an entity, but exerts significant influence over the entity.
Preferred Stock
The Company is authorized to issue one million shares of preferred
stock, par value of $0.01 per share, in one or more classes or series to be
established by the Company’s board of directors. As of September 30,
2015 and 2014, no preferred shares were outstanding and the Company’s
board of directors had not yet established any class or series of shares.
- Form 10-K Recent Accounting Pronouncements
On May 28, 2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2014-09, Revenue from
Contracts with Customers, which requires an entity to recognize the
amount of revenue to which it expects to be entitled for the transfer
of promised goods or services to customers. The ASU will replace
most existing revenue recognition guidance in U.S. GAAP when
it becomes effective. For public entities, the ASU is effective for
fiscal years, and interim periods within those years, beginning after
December 15, 2017. Early application is not permitted. The Company
expects to adopt this guidance starting with the first quarter of fiscal
year 2019. The standard permits the use of either the retrospective
or cumulative effect transition method. The Company is evaluating
the effect that ASU 2014-09 will have on its consolidated financial
statements and related disclosures. The Company has not yet selected
a transition method nor has it determined the effect of the standard
on its ongoing financial reporting.
In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing:
Repurchase-to-Maturity Transactions, Repurchase Financings, and
Disclosures, which changes the accounting for repurchase-to-maturity
transactions to secured borrowing accounting. Additionally, for
repurchase financing arrangements, the amendments of this ASU
require separate accounting for a transfer of a financial asset executed
contemporaneously with a repurchase agreement with the same
counterparty, which will result in secured borrowing accounting for
the repurchase agreement. For public entities, the ASU is effective
for the first interim or annual period beginning after December 15,
2014. Earlier application is not permitted. The Company adopted
this guidance starting with the second quarter of fiscal year 2015.
The adoption of this guidance did not have a material impact on
the Company’s consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of
Financial Statements - Going Concern: Disclosures of Uncertainties
about an Entity’s Ability to Continue as a Going Concern, which
requires management to evaluate whether there are conditions
or events that raise substantial doubt about the entity’s ability to
continue as a going concern within one year after the date that the
financial statements are issued or are available to be issued. This
ASU also requires management to disclose certain information
depending on the results of the going concern evaluation. The
provisions of this ASU are effective for annual periods ending after
December 15, 2016, and for interim and annual periods thereafter.
Early adoption is permitted. This amendment is applicable to the
Company for the fiscal year ending September 30, 2017. The
adoption of this standard is not expected to have a material impact
on the consolidated financial statements.
In January 2015, the FASB issued ASU 2015-01, Income Statement
- Extraordinary and Unusual Items: Simplifying Income Statement
Presentation by Eliminating the Concept of Extraordinary Items,
which eliminates from U.S. GAAP the concept of extraordinary
items. The ASU retains and expands the existing presentation and
disclosure guidance for items that are unusual in nature or occur
infrequently to also include items that are both unusual in nature
and infrequently occurring. The provisions of this ASU are effective
for annual periods and interim periods within those annual periods
PART II
Item 8 Financial Statements and Supplementary Data
beginning after December 15, 2015. Early adoption is permitted,
provided that presentation applied to the beginning of the fiscal
year of adoption. This amendment is applicable to the Company
beginning October 1, 2016. The adoption of this standard is not
expected to have a material impact on the consolidated financial
statements.
In April 2015, the FASB issued ASU 2015-03, Interest- Imputation
of Interest (Subtopic 835-03) - Simplifying the Presentation of Debt
Issuance Costs which requires unamortized debt issuance costs to be
presented as a reduction of the corresponding debt liability rather
than a separate asset. Amortization of the costs is reported as interest
expense. The provisions of this ASU are effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15,
2015. Early adoption is allowed for all entities for financial statements
that have not been previously issued. Entities should apply the new
guidance retrospectively to all prior periods. The guidance is applicable
to the Company beginning October 1, 2016. The adoption of this
standard is not expected to have a material impact on the consolidated
financial statements.
In July 2015, the FASB issued ASU No, 2015-11, “Inventory
(Topic 330): Simplifying the Measurement of Inventory.” Topic
330, Inventory, currently requires an entity to measure inventory
at the lower of cost or market. Market could be replacement cost,
net realizable value, or net realizable value less an approximately
normal profit margin. The amendments do not apply to inventory
that is measured using last-in, first-out (LIFO) or the retail inventory
method. The amendments apply to all other inventory, which includes
inventory that is measured using first-in, first-out (FIFO) or average
cost. An entity should measure in scope inventory at the lower of cost
and net realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal, and transportation. Subsequent
measurement is unchanged for inventory measured using LIFO
or the retail inventory method. The amendments are effective for
fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The amendments should be applied
prospectively with earlier application permitted as of the beginning
of an interim or annual reporting period. The guidance is applicable
to the Company beginning October 1, 2017. The adoption of this
standard is not expected to have a material impact on the consolidated
financial statements.
In September 2015, FASB issued ASU No.2015-16, Business
Combinations (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments. The amendments in ASU
2015-16 require that an acquirer recognize adjustments to provisional
amounts that are identified during the measurement period in the
reporting period in which the adjustment amounts are determined.
The amendments are effective for fiscal years beginning after
December 15, 2015, including interim periods within those
fiscal years. The amendments should be applied prospectively to
adjustments to provisional amounts that occur after the effective
date of this update with earlier application permitted for financial
statements that have not been issued. The guidance is applicable
to the Company beginning October 1, 2016. The adoption of
this standard is not expected to have a material impact on the
consolidated financial statements.
61
- Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
NOte 2 earnings per Share
The Company presents basic and diluted earnings per share (“EPS”)
using the two-class method which requires all outstanding unvested
share-based payment awards that contain rights to non-forfeitable
dividends and therefore participate in undistributed earnings with
common stockholders be included in computing earnings per share.
Under the two-class method, net earnings are reduced by the amount
of dividends declared in the period for each class of common stock and
participating security. The remaining undistributed earnings are then
allocated to common stock and participating securities, based on their
respective rights to receive dividends. Restricted stock awards granted
(in millions, except share amounts)
Numerator:
Income from continuing operations
Less: Allocation to participating securities
Income from continuing operations allocated to common stockholders
Income (loss) from discontinued operations
Less: Allocation to participating securities
Income (loss) from discontinued operations allocated to common stockholders
Diluted net income
Less: Allocation to participating securities
Diluted net income allocated to common stockholders
Denominator:
Weighted average number of:
Common shares outstanding
Dilutive potential common shares outstanding:
Share-based awards
Diluted weighted-average shares
to certain employees and directors and shares formerly held in trust
for the Provident Group acquisition contain non-forfeitable rights
to dividends at the same rate as common stock, and are considered
participating securities.
Basic EPS has been computed by dividing net income by the weighted-
average number of common shares outstanding. The following is a
reconciliation of the numerator and denominator of the diluted net
income per share computations for the periods presented below.
Year Ended September 30,
2014
2015
2013
$
$
$
$
$
$
55.7
(1.3)
54.4
$
— $
—
— $
$
55.7
(1.3)
54.4
$
$
19.6
(0.5)
19.1
(0.3)
—
(0.3)
19.3
(0.5)
18.8
$
$
$
$
$
$
18.6
(0.7)
17.9
0.7
(0.1)
0.6
19.3
(0.8)
18.5
18,525,374
18,528,302
18,443,233
406,861
18,932,235
604,000
19,132,302
625,264
19,068,497
The dilutive effect of share-based awards is reflected in diluted net
income per share by application of the treasury stock method, which
includes consideration of unamortized share-based compensation
expense required under the Compensation – Stock Compensation
Topic of the ASC.
Options to purchase 997,459, 1,120,985 and 1,447,688 shares of
common stock for fiscal years ended September 30, 2015, 2014, and
2013, respectively, were excluded from the calculation of diluted
earnings per share because they would have been anti-dilutive.
NOte 3 Assets and Liabilities, at Fair Value
The Company’s financial and nonfinancial assets and liabilities
reported at fair value are included in the following captions on the
consolidated balance sheets:
•• Cash and cash equivalents
•• Cash, securities and other assets segregated under federal and other
regulations
•• Deposits and receivables from exchange-clearing organizations,
broker-dealers, clearing organizations and counterparties
•• Financial instruments owned and sold, not yet purchased
•• Physical commodities inventory
•• Accounts payable and other accrued liabilities
•• Payable to broker-dealers, clearing organizations and counterparties
Fair Value Hierarchy
As required by the Fair Value Measurement Topic of the ASC, financial
and nonfinancial assets and liabilities are classified in their entirety
based on the lowest level of input that is significant to the fair value
measurement. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements). A market is active if there are sufficient transactions on
an ongoing basis to provide current pricing information for the asset or
liability, pricing information is released publicly, and price quotations
do not vary substantially either over time or among market makers.
Observable inputs reflect the assumptions market participants would
use in pricing the asset or liability developed based on market data
obtained from sources independent of the reporting entity. The guidance
requires the Company to consider counterparty credit risk of all parties
62
- Form 10-K
to outstanding derivative instruments that would be considered by a
market participant in the transfer or settlement of such contracts (exit
price). The Company’s exposure to credit risk on derivative financial
instruments relates to the portfolio of OTC derivative contracts as all
exchange-traded contracts held can be settled on an active market with
the credit guarantee by the respective exchange. The Company requires
each counterparty to deposit margin collateral for all OTC instruments
and is also required to deposit margin collateral with counterparties. The
Company has assessed the nature of these deposits and used its discretion
to adjust each based on the underlying credit considerations for the
counterparty and determined that the collateral deposits minimize the
exposure to counterparty credit risk in the evaluation of the fair value
of OTC instruments as determined by a market participant.
The majority of financial assets and liabilities on the consolidated balance
sheets are reported at fair value. Cash is reported at the balance held at
financial institutions. Cash equivalents includes money market funds,
which are valued at period-end at the net asset value provided by the
fund’s administrator, and certificates of deposit, which are stated at cost
plus accrued interest, which approximates fair value. Cash, securities and
other assets segregated under federal and other regulations include the
value of cash collateral as well as the value of other pledged investments,
primarily U.S. Treasury bills and obligations issued by government
sponsored entities and commodities warehouse receipts. Deposits with
and receivables from exchange-clearing organizations and broker-dealers,
clearing organizations and counterparties and payable to customers and
broker-dealers, clearing organizations and counterparties include the
value of cash collateral as well as the value of money market funds and
other pledged investments, primarily U.S. Treasury bills and obligations
issued by government sponsored entities and mortgage-backed securities.
These balances also include the fair value of exchange-traded futures and
options on futures and exchange-cleared swaps and options determined
by prices on the applicable exchange. Financial instruments owned and
sold, not yet purchased include the value of U.S. and foreign government
obligations, corporate debt securities, derivative financial instruments,
commodities, mutual funds and investments in managed funds. The
fair value of exchange common stock is determined by quoted market
prices, and the fair value of exchange memberships is determined by
recent sale transactions. Physical commodities inventory includes precious
metals that are a part of the trading activities of the regulated broker-
dealer subsidiary and is recorded at fair value using spot prices. The
carrying value of receivables from customers, net and notes receivable,
net approximates fair value, given their short duration. Payables to
lenders under loans carry variable rates of interest and thus approximate
fair value. The fair value of the Company’s senior unsecured notes is
estimated to be $46.6 million (carrying value of $45.5 million) as of
September 30, 2015, based on the transaction prices at public exchanges
for the same or similar issues.
As part of the acquisition of G.X. Clarke, the Company acquired
amounts receivable from and payable to broker-dealers, clearing
organizations and counterparties in connection with U.S. Treasury
obligations, U.S. government agency obligations, and agency
mortgage-backed obligations. Receivables from broker-dealers,
clearing organizations and counterparties primarily include amounts
receivable for securities sold but not yet delivered by the Company
on settlement date (“fails-to-deliver”) and net receivables arising from
unsettled trades. Payables to broker-dealers, clearing organizations
and counterparties primarily include amounts payable for securities
purchased, but not yet received by the Company on settlement date
(“fails-to-receive”), net payables arising from unsettled trades. Due to
PART II
Item 8 Financial Statements and Supplementary Data
their short-term nature, receivables from and payables to broker-dealers,
clearing organizations and counterparties approximate fair value.
Also as part of the acquisition of G.X. Clarke, the Company acquired a
significant amount of trading assets and liabilities. G.X. Clarke’s trading
activities consists primarily of securities trading in connection with
U.S. Treasury obligations, U.S. government agency obligations, and
agency mortgage-backed obligations. The acquired assets and liabilities,
including derivatives, are recorded on a trade date basis at fair value.
The fair value estimates presented herein are based on pertinent
information available to management as of September 30, 2015 and
2014. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts
have not been comprehensively revalued for purposes of these financial
statements since that date and current estimates of fair value may
differ significantly from the amounts presented herein.
Cash equivalents, securities, commodities warehouse receipts, derivative
financial instruments and contingent liabilities are carried at fair
value, on a recurring basis, and are classified and disclosed into three
levels in the fair value hierarchy. The Company did not have any fair
value adjustments for assets or liabilities measured at fair value on a
non-recurring basis during the years ended September 30, 2015 and
2014. The three levels of the fair value hierarchy under the Fair Value
Measurement Topic of the ASC are:
Level 1 - Unadjusted quoted prices in active markets that are accessible
at the measurement date for identical, unrestricted assets or liabilities.
Level 1 consists of financial assets and liabilities whose fair values are
estimated using quoted market prices. Included in Level 1 are money
market funds, certificates of deposit, commodities warehouse receipts,
common stock and American Depositary Receipts (“ADRs”), some
U.S. and foreign obligations, physical precious metals commodities,
equity investments in exchange firms, some mutual funds, as well as
futures and options on futures contracts traded on national exchanges,
exchange-cleared swaps and options which are valued using exchange
closing prices, and OTC swaps and options contracts using quoted
prices from national exchanges in which the Company executes
transactions for customer and proprietary accounts;
Level 2 - Quoted prices for identical or similar assets or liabilities in
markets that are less active, that is, markets in which there are few
transactions for the asset or liability that are observable for substantially
the full term. Included in Level 2 are those financial assets and liabilities
for which fair values are estimated using models or other valuation
methodologies. These models are primarily industry-standard models
that consider various observable inputs, including time value, yield
curve, volatility factors, observable current market and contractual
prices for the underlying financial instruments, as well as other relevant
economic measures. Included in Level 2 are U.S. and foreign government
obligations, mortgage-backed securities, some common stock and ADRs,
corporate and municipal bonds, some mutual funds, investments in
managed funds and OTC forwards, swaps, and options; and
Level 3 - Prices or valuation techniques that require inputs that are
both significant to the fair value measurement and unobservable
(i.e., supported by little or no market activity). Level 3 comprises
financial assets and liabilities whose fair value is estimated based on
internally developed models or methodologies utilizing significant
inputs that are not readily observable from objective sources. Included
in Level 3 are common stock and ADRs, some corporate and municipal
bonds, some other investments and contingent liabilities.
63
- Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
The following tables set forth the Company’s financial and nonfinancial assets and liabilities accounted for at fair value, on a recurring basis,
as of September 30, 2015 and September 30, 2014 by level in the fair value hierarchy. There were no assets or liabilities that were measured
at fair value on a nonrecurring basis as of September 30, 2015 and 2014.
(in millions)
ASSETS:
Unrestricted cash equivalents - certificates of deposits
Commodities warehouse receipts
U.S. government obligations
Securities and other assets segregated under federal and other
regulations
Money market funds
U.S. government obligations
Derivatives
Deposits and receivables from exchange-clearing organizations
“To be announced” (TBA) and forward settling securities
Derivatives
Deposits and receivables from broker-dealers, clearing
organizations and counterparties
Common and preferred stock and ADRs
Exchangeable foreign ordinary equities and ADRs
Corporate and municipal bonds
U.S. government obligations
Foreign government obligations
Mortgage-backed securities
Derivatives
Commodities leases
Commodities warehouse receipts
Exchange firm common stock
Mutual funds and other
Financial instruments owned
Physical commodities inventory - precious metals
Total assets at fair value
LIABILITIES:
Accounts payable and other accrued liabilities - contingent
liabilities
$
$
TBA and forward settling securities
Derivatives
September 30, 2015
Level 1
Level 2
Level 3
Netting and
Collateral(1)
Total
$
1.3 $
22.1
—
— $
—
493.4
— $
—
—
— $
—
—
1.3
22.1
493.4
22.1
431.8
—
3,615.9
4,047.7
—
0.1
0.1
23.7
82.9
26.1
—
—
—
278.5
—
2.8
5.6
3.4
423.0
15.2
4,509.4 $
493.4
—
501.4
—
501.4
1.2
537.9
539.1
1.9
6.6
2.0
513.4
12.1
699.5
1,702.0
64.6
—
—
—
3,002.1
—
4,536.0 $
— $
—
3,491.3
— $
2.6
528.7
—
—
—
—
—
—
—
—
0.5
—
3.2
—
—
—
—
—
—
—
—
3.7
—
3.7 $
3.3 $
—
—
—
—
—
(3,539.7)
(3,539.7)
(1.0)
(591.1)
(592.1)
—
—
—
—
—
—
(1,949.9)
(57.0)
—
—
—
(2,006.9)
—
(6,138.7)
$
515.5
431.8
501.4
76.2
1,009.4
0.2
(53.1)
(52.9)
26.1
89.5
31.3
513.4
12.1
699.5
30.6
7.6
2.8
5.6
3.4
1,421.9
15.2
2,910.4
— $
(1.0)
(4,020.0)
3.3
1.6
—
Payables to broker-dealers, clearing organizations and
counterparties
Common and preferred stock and ADRs
Exchangeable foreign ordinary equities and ADRs
U.S. government obligations
Foreign government obligations
Mortgage-backed securities
Derivatives
Commodities leases
1.6
18.6
90.0
341.0
6.4
2.8
54.1
55.4
568.3
Financial instruments sold, not yet purchased
573.2
Total liabilities at fair value
(1) Represents cash collateral and the impact of netting across the levels of the fair value hierarchy. Netting among positions classified within the same level are included in that level.
531.3
0.6
1.0
341.0
6.4
2.8
1,723.5
99.1
2,174.4
2,705.7 $
3,491.3
18.0
89.0
—
—
—
264.0
—
371.0
3,862.3 $
(4,021.0)
—
—
—
—
—
(1,933.4)
(43.7)
(1,977.1)
(5,998.1)
—
—
—
—
—
—
—
—
—
3.3 $
$
$
64
- Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
September 30, 2014
Level 1
Level 2
Level 3
Netting and
Collateral(1)
Total
$
1.5 $
14.8
—
— $
—
0.5
14.8
826.8
—
3,397.1
4,223.9
549.0
66.8
27.2
7.1
—
—
332.4
—
3.6
4.8
2.7
444.6
5,233.8 $
0.5
—
702.5
—
702.5
—
15.0
—
9.0
0.3
10.7
2,328.3
60.1
—
—
—
2,423.4
3,126.4 $
$
$
— $
—
—
—
—
—
—
—
—
0.7
—
3.6
—
—
—
—
—
—
—
4.3
4.3 $
— $
—
—
1.5
14.8
0.5
—
—
—
(3,671.0)
(3,671.0)
(550.1)
—
—
—
—
—
(2,616.4)
(58.0)
—
—
—
(2,674.4)
(6,895.5)
$
15.3
826.8
702.5
(273.9)
1,255.4
(1.1)
82.5
27.2
19.7
0.3
10.7
44.3
2.1
3.6
4.8
2.7
197.9
1,469.0
(in millions)
ASSETS:
Unrestricted cash equivalents - certificates of deposits
Commodities warehouse receipts
U.S. government obligations
Securities and other assets segregated under federal and other
regulations
Money market funds
U.S. government obligations
Derivatives
Deposits and receivables from exchange-clearing organizations
Deposits and receivables from broker-dealers, clearing
organizations and counterparties - derivatives
Common and preferred stock and ADRs
Exchangeable foreign ordinary equities and ADRs
Corporate and municipal bonds
U.S. government obligations
Foreign government obligations
Derivatives
Commodities leases
Commodities warehouse receipts
Exchange firm common stock
Mutual funds and other
Financial instruments owned
Total assets at fair value
LIABILITIES:
Accounts payable and other accrued liabilities -
contingent liabilities
Payable to broker-dealers, clearing organizations and
counterparties - derivatives
— $
— $
5.5 $
— $
5.5
Common and preferred stock and ADRs
Exchangeable foreign ordinary equities and ADRs
Corporate and municipal bonds
Derivatives
Commodities leases
—
95.4
5.8
2.8
84.4
75.6
264.0
Financial instruments sold, not yet purchased
Total liabilities at fair value
269.5
(1) Represents cash collateral and the impact of netting across the levels of the fair value hierarchy. Netting among positions classified within the same level are included in that level.
—
2.6
—
—
2,257.7
176.0
2,436.3
2,436.3 $
3,469.8
92.8
5.8
2.8
327.0
—
428.4
3,898.2 $
(3,469.8)
—
—
—
(2,500.3)
(100.4)
(2,600.7)
(6,070.5)
—
—
—
—
—
—
—
5.5 $
$
$
Realized and unrealized gains and losses are included in ‘trading gains, net’ in the consolidated income statements.
65
- Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
Information on Level 3 Financial Assets and Liabilities
The Company’s financial assets at fair value classified within level 3 of the fair value hierarchy as of September 30, 2015 and 2014 are
summarized below:
(in millions)
Total level 3 assets
Level 3 assets for which the Company bears economic exposure
Total assets
Total financial assets at fair value
Total level 3 assets as a percentage of total assets
Level 3 assets for which the Company bears economic exposure as a percentage of total assets
Total level 3 assets as a percentage of total financial assets at fair value
September 30, 2015
$
$
$
$
3.7
3.7
5,070.0
2,910.4
September 30, 2014
4.3
$
4.3
$
3,039.7
$
1,469.0
$
0.1%
0.1%
0.1%
0.1%
0.3%
0.1%
The following tables set forth a summary of changes in the fair value of the Company’s level 3 financial assets and liabilities during the fiscal
years ended September 30, 2015 and 2014, including a summary of unrealized gains (losses) during the fiscal year ended on the Company’s
level 3 financial assets and liabilities still held as of September 30, 2015.
(in millions)
ASSETS:
Common and preferred stock
and ADRs
Corporate and municipal
bonds
Balances at
beginning of
period
Realized gains
(losses) during
period
Level 3 Financial Assets and Financial Liabilities
For the Year Ended September 30, 2015
Unrealized
gains (losses)
during period
Purchases/
issuances
Settlements
Transfers in
or (out) of
Level 3
Balances at
end of period
$
$
0.7 $
3.6
4.3 $
— $
—
— $
(0.2) $
(0.4)
(0.6) $
— $
—
— $
— $
— $
—
— $
—
— $
0.5
3.2
3.7
(in millions)
LIABILITIES:
Contingent liabilities
Balances at
beginning of
period
Realized gains
(losses) during
period
Remeasurement
gains (losses)
during period Acquisitions
Settlements
Transfers in
or (out) of
Level 3
Balances at
end of period
$
5.5 $
— $
1.8 $
0.1 $
(4.1) $
— $
3.3
(in millions)
ASSETS:
Common and preferred stock
and ADRs
Corporate and municipal
bonds
Balances at
beginning of
period
Realized gains
(losses) during
period
Level 3 Financial Assets and Financial Liabilities
For the Year Ended September 30, 2014
Unrealized
gains (losses)
during period
Purchases/
issuances
Settlements
Transfers in
or (out) of
Level 3
Balances at
end of period
$
$
0.7 $
3.5
4.2 $
— $
—
— $
— $
0.1
$
0.1
— $
—
— $
— $
— $
—
— $
—
— $
0.7
3.6
4.3
(in millions)
LIABILITIES:
Contingent liabilities
Balances at
beginning of
period
Realized gains
(losses) during
period
Remeasurement
gains (losses)
during period Acquisitions
Settlements
Transfers in
or (out) of
Level 3
Balances at
end of period
$
9.6 $
— $
(2.3) $
0.5 $
(2.3) $
— $
5.5
66
- Form 10-K
In accordance with the Fair Value Measurement Topic of the ASC, the
Company has estimated on a recurring basis each period the fair value
of debentures issued by a single asset owning company of Suriwongse
Hotel located in Chiang Mai, Thailand. As of September 30, 2015,
the Company’s investment in the hotel is $3.2 million, and included
within the corporate and municipal bonds classification in the level
3 financial assets and financial liabilities tables. The Company has
classified its investment in the hotel within level 3 of the fair value
hierarchy because the fair value is determined using significant
unobservable inputs, which include projected cash flows. These
cash flows are discounted employing present value techniques. The
Company estimates the fair value of its investment in these debentures
by using a management-developed forecast, which is based on the
income approach. The Company continues to monitor the hotel
renovation process and evaluate the fair value of the debentures. There
has been no significant change in the fair value of the debentures,
and no additional loss has been recognized during the years ended
September 30, 2015, 2014 and 2013.
The Company is required to make additional future cash payments based
on certain financial performance measures of its acquired businesses.
The Company is required to remeasure the fair value of the cash earnout
arrangements on a recurring basis in accordance with the guidance
in the Business Combinations Topic of the ASC. The Company has
classified its liabilities for the contingent earnout arrangements within
level 3 of the fair value hierarchy because the fair value is determined
using significant unobservable inputs, which include projected cash
flows. The estimated fair value of the contingent purchase consideration
is based upon management-developed forecasts, a level 3 input in
the fair value hierarchy. These cash flows are discounted employing
present value techniques in arriving at fair value. The discount rate
was developed using market participant company data and there have
been no significant changes in the discount rate environment. From
the dates of acquisition to September 30, 2015, certain acquisitions
have had changes in the estimates of undiscounted cash flows, based on
actual performances fluctuating from estimates. During the fiscal years
ended September 30, 2015 and 2014, the fair value of the contingent
consideration increased $1.8 million and decreased $2.3 million,
respectively, with the corresponding income or expense classified as
‘other’ in the consolidated income statements.
The value of an exchange-traded derivative contract is equal to the
unrealized gain or loss on the contract determined by marking the
contract to the current settlement price for a like contract on the
valuation date of the contract. A settlement price may not be used if
the market makes a limit move with respect to a particular derivative
contract or if the securities underlying the contract experience significant
price fluctuations after the determination of the settlement price.
When a settlement price cannot be used, derivative contracts will
be valued at their fair value as determined in good faith pursuant to
procedures adopted by management of the Company.
PART II
Item 8 Financial Statements and Supplementary Data
The Company reports transfers in and out of levels 1, 2 and 3, as
applicable, using the fair value of the securities as of the beginning of
the reporting period in which the transfer occurred. The Company
did not have any additional significant transfers between level 1 and
level 2 fair value measurements for the fiscal years ended September 30,
2015 and 2014.
The Company has classified equity investments in exchange firms’
common stock not pledged for clearing purposes as trading. The
investments are recorded at fair value, with unrealized gains and losses
recorded, net of taxes, included in earnings. As of September 30, 2015,
the cost and fair value of the equity investments in exchange firms
is $3.7 million and $5.6 million, respectively. As of September 30,
2014, the cost and fair value of the equity investments in exchange
firms was $3.7 million and $4.8 million, respectively.
In June 2015, the Company sold shares of common stock in the
Intercontinental Exchange, Inc. (“ICE”). The Company was required
to hold these ICE shares for clearing purposes and, as a result, the
shares were being held at cost on the consolidated balance sheet. The
Company recorded a receivable for the proceeds of $2.1 million, which
was received in July 2015, and recognized a gain of $1.2 million before
taxes, during the year ended September 30, 2015, in connection with
the sale of these shares.
For the fiscal year ended September 30, 2015, the Company reclassified
the unrealized gain remaining in AOCI of approximately $3.3 million,
net of income tax expense of $2.0 million, into earnings.
In December 2012, the Company sold its exchange membership seats
in the Board of Trade of Kansas City, Missouri, Inc. (“KCBT”), in
connection with the acquisition of the KCBT by Chicago Mercantile
Exchange (“CME”). The Company was required to hold these
exchange membership seats for clearing purposes and, as a result, the
associated KCBT shares were being held at cost on the consolidated
balance sheet. The Company received proceeds of $1.5 million and
recognized a gain of $0.9 million before taxes, during the fiscal year
ended September 30, 2013, in connection with the sale of these seats.
During the year ended September 30, 2014, the Company sold all of
its investments in mortgage-backed securities and the U.S. government
obligations there were held as of September 30, 2014, matured, and
as a result, realized gains of $0.1 million, net of tax, were reclassified
from OCI for the year ended September 30, 2014.
Except as discussed previously, there were no other sales of AFS
Securities during years ended September 30, 2015 and September 30,
2014, and as a result, no additional realized gains or losses were
recorded for the years ended September 30, 2015 and September 30,
2014. The company recognized changes in unrealized gains on
available-for-sale securities of $2.7 million during the year ended
September 30, 2015.
NOte 4 Financial Instruments with Off-Balance Sheet Risk and Concentrations
of Credit Risk
The Company is party to certain financial instruments with off-balance
sheet risk in the normal course of its business. The Company has sold
financial instruments that it does not currently own and will therefore
be obliged to purchase such financial instruments at a future date.
The Company has recorded these obligations in the consolidated
financial statements as of September 30, 2015 at the fair values of
the related financial instruments. The Company will incur losses
if the fair value of the underlying financial instruments increases
67
- Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
subsequent to September 30, 2015. The total of $568.3 million as of
September 30, 2015 includes $54.1 million for derivative contracts,
which represent a liability to the Company based on their fair values
as of September 30, 2015.
Derivatives
The Company utilizes derivative products in its trading capacity as a
dealer in order to satisfy client needs and mitigate risk. The Company
manages risks from both derivatives and non-derivative cash instruments
on a consolidated basis. The risks of derivatives should not be viewed in
isolation, but in aggregate with the Company’s other trading activities.
The majority of the Company’s derivative positions are included in
the consolidating balance sheets in ‘deposits and receivables from
exchange-clearing organizations’, ‘financial instruments owned and
sold, not yet purchased, at fair value’ and ‘payables to broker-dealers,
clearing organizations and counterparties’.
(in millions)
Derivative contracts not accounted for as hedges:
Exchange-traded commodity derivatives
OTC commodity derivatives
Exchange-traded foreign exchange derivatives
OTC foreign exchange derivatives
Exchange-traded interest rate derivatives
Equity index derivatives
TBA and forward settling securities
Gross fair value of derivative contracts
Impact of netting and collateral
Total fair value included in ‘Deposits and receivables from exchange-clearing
organizations’
Total fair value included in ‘Deposits and receivables from broker-dealers,
clearing organizations and counterparties’
Total fair value included in ‘Financial instruments owned, at fair value’
Total fair value included in ‘Payables to broker-dealers, clearing organizations
and counterparties
Fair value included in ‘Financial instruments sold, not yet purchased,
at fair value’
The Company employs an interest rate risk management strategy
that uses derivative financial instruments in the form of interest rate
swaps to manage a portion of the aggregate interest rate position. The
Company’s objective is to invest the majority of customer segregated
deposits in high quality, short-term investments and swap the resulting
variable interest earnings into the medium-term interest stream.
The risk mitigation of these interest rate swaps is not within the
documented hedging designation requirements of the Derivatives and
Hedging Topic of the ASC, and as a result they are recorded at fair
value, with changes in the marked-to-market valuation of the financial
instruments recorded within ‘trading gains, net’ in the consolidated
income statements. At September 30, 2015, the Company had
$375 million in notional principal of interest rate swaps outstanding
with a weighted-average life of 27 months.
Listed below are the fair values of the Company’s derivative assets
and liabilities as of September 30, 2015 and 2014. Assets represent
net unrealized gains and liabilities represent net unrealized losses.
September 30, 2015
September 30, 2014
Assets(1)
Liabilities(1)
Assets(1)
Liabilities(1)
$
$
$
$
3,443.6
1,621.2
27.8
892.2
126.8
22.8
1.2
6,135.6
(6,081.7)
76.2
(52.9)
30.6
$
$
$
3,255.4
1,842.9
90.2
741.8
10.2
114.0
—
6,054.5
(5,970.1)
3,313.8
1,650.7
20.6
865.4
136.0
21.0
2.6
6,010.1
(5,954.4)
$
$
$
$
$
3,777.7
1,852.3
93.5
808.0
13.4
61.9
—
6,606.8
(6,837.5)
(273.9)
(1.1)
44.3
1.6
54.1
$
$
—
84.4
(1) As of September 30, 2015 and 2014, the Company’s derivative contract volume for open positions was approximately 4.1 million and 4.5 million contracts, respectively.
The Company’s derivative contracts are principally held in its
Commodities and Risk Management Services (“Commercial Hedging”)
segment. The Company assists its Commercial Hedging segment
customers in protecting the value of their future production by
entering into option or forward agreements with them on an OTC
basis. The Company also provides its Commercial Hedging segment
customers with option products, including combinations of buying
and selling puts and calls. The Company mitigates its risk by generally
offsetting the customer’s transaction simultaneously with one of
the Company’s trading counterparties or will offset that transaction
with a similar but not identical position on the exchange. The risk
mitigation of these offsetting trades is not within the documented
hedging designation requirements of the Derivatives and Hedging
Topic of the ASC. These derivative contracts are traded along with
cash transactions because of the integrated nature of the markets
for these products. The Company manages the risks associated with
derivatives on an aggregate basis along with the risks associated
with its proprietary trading and market-making activities in cash
instruments as part of its firm-wide risk management policies. In
particular, the risks related to derivative positions may be partially
offset by inventory, unrealized gains in inventory or cash collateral
paid or received.
Also as part of the acquisition of G.X. Clarke, the Company acquired
derivative instruments, which consist of futures, mortgage-backed TBA
securities and forward settling transactions, that are used to manage
risk exposures in the newly acquired subsidiary’s trading inventory.
The fair value on these transactions are recorded in receivables or
payables to broker-dealers, clearing organizations and counterparties.
Realized and unrealized gains and losses on securities and derivative
transactions are reflected in ‘trading gains, net’.
68
- Form 10-K
PART II
Item 8 Financial Statements and Supplementary Data
The Company enters into TBA securities transactions for the sole purpose of managing risk associated with the purchase of mortgage pass-
through securities. TBA securities are included within payables to broker-dealers, clearing organizations and counterparties. Forward settling
securities represent non-regular way securities and are included in financial instruments owned and sold. As of September 30, 2015, these
transactions are summarized as follows (in millions):
Gain/(Loss)
Notional
Amounts
Unrealized gain on TBA securities purchased within payables to broker-dealers, clearing organizations and
counterparties and related notional amounts(1)
Unrealized loss on TBA securities purchased within payables to broker-dealers, clearing organizations and
counterparties and related notional amounts(1)
Unrealized gain on TBA securities sold within payables to broker-dealers, clearing organizations and
counterparties and related notional amounts(1)
Unrealized loss on TBA securities sold within payables to broker-dealers, clearing organizations and
counterparties and related notional amounts(1)
Unrealized gain on forward settling securities purchased within receivables from broker-dealers, clearing
organizations and counterparties and related notional amounts
Unrealized loss on forward settling securities sold within payables to broker-dealers, clearing organizations
and counterparties and related notional amounts
(286.3)
(1) The notional amounts of these instruments reflect the extent of the Company’s involvement in TBA securities and do not represent risk of loss due to counterparty non-performance.
(314.1)
(563.8)
163.7
194.6
163.4
(0.4)
(0.2)
(2.0)
0.6
0.4
0.1
$
$
$
$
$
$
$
$
$
$
$
$
The following table sets forth the Company’s net gains (losses) related to derivative financial instruments for the fiscal years ended September 30,
2015, 2014, and 2013, in accordance with the Derivatives and Hedging Topic of the ASC. The net gains (losses) set forth below are included
in ‘trading gains, net’ in the consolidated income statements.
(in millions)
Commodities
Foreign exchange
Interest rate and equity
TBA and forward settling securities
Net gains from derivative contracts
Credit Risk
In the normal course of business, the Company purchases and sells
financial instruments, commodities and foreign currencies as either
principal or agent on behalf of its customers. If either the customer
or counterparty fails to perform, the Company may be required
to discharge the obligations of the nonperforming party. In such
circumstances, the Company may sustain a loss if the fair value of
the financial instrument or foreign currency is different from the
contract value of the transaction.
The majority of the Company’s transactions and, consequently, the
concentration of its credit exposure are with commodity exchanges,
customers, broker-dealers and other financial institutions. These
activities primarily involve collateralized and uncollateralized
arrangements and may result in credit exposure in the event that a
counterparty fails to meet its contractual obligations. The Company’s
exposure to credit risk can be directly impacted by volatile financial
markets, which may impair the ability of counterparties to satisfy
their contractual obligations. The Company seeks to control its
credit risk through a variety of reporting and control procedures,
including establishing credit limits based upon a review of the
counterparties’ financial condition and credit ratings. The Company
monitors collateral levels on a daily basis for compliance with
regulatory and internal guidelines and requests changes in collateral
levels as appropriate.
Year Ended September 30,
2015
2014
2013
$
$
78.6
7.5
3.2
(5.1)
84.2
$
$
65.7 $
7.5
—
—
73.2 $
84.6
11.6
0.1
—
96.3
The Company is a party to financial instruments in the normal course
of its business through customer and proprietary trading accounts in
exchange-traded and OTC derivative instruments. These instruments
are primarily the execution of orders for commodity futures, options
on futures and forward foreign currency contracts on behalf of its
customers, substantially all of which are transacted on a margin basis.
Such transactions may expose the Company to significant credit risk
in the event margin requirements are not sufficient to fully cover
losses which customers may incur. The Company controls the risks
associated with these transactions by requiring customers to maintain
margin deposits in compliance with individual exchange regulations
and internal guidelines. The Company monitors required margin
levels daily and, therefore, may require customers to deposit additional
collateral or reduce positions when necessary. The Company also
establishes credit limits for customers, which are monitored daily. The
Company evaluates each customer’s creditworthiness on a case by case
basis. Clearing, financing, and settlement activities may require the
Company to maintain funds with or pledge securities as collateral
with other financial institutions. Generally, these exposures to both
customers and exchanges are subject to master netting, or customer
agreements, which reduce the exposure to the Company by permitting
receivables and payables with such customers to be offset in the event
of a customer default. Management believes that the margin deposits
held as of September 30, 2015 and September 30, 2014 were adequate
to minimize the risk of material loss that could be created by positions
69
- Form 10-K
PART II
Item 8 Financial Statements and Supplementary Data
held at that time. Additionally, the Company monitors collateral fair
value on a daily basis and adjusts collateral levels in the event of excess
market exposure. Generally, these exposures to both customers and
counterparties are subject to master netting, or customer agreements
which reduce the exposure to the Company.
Derivative financial instruments involve varying degrees of off-balance
sheet market risk whereby changes in the fair values of underlying
financial instruments may result in changes in the fair value of
the financial instruments in excess of the amounts reflected in the
consolidated balance sheets. Exposure to market risk is influenced by
a number of factors, including the relationships between the financial
instruments and the Company’s positions, as well as the volatility
and liquidity in the markets in which the financial instruments
are traded. The principal risk components of financial instruments
include, among other things, interest rate volatility, the duration
of the underlying instruments and changes in commodity pricing
and foreign exchange rates. The Company attempts to manage its
exposure to market risk through various techniques. Aggregate market
limits have been established and market risk measures are routinely
monitored against these limits.
NOte 5 Receivables From Customers, Net and Notes Receivable, Net
Receivables from customers, net and notes receivable, net include an
allowance for bad debts, which reflects the Company’s best estimate of
probable losses inherent in the receivables from customers and notes
receivable. The Company provides for an allowance for doubtful accounts
based on a specific-identification basis. The Company continually reviews
its allowance for bad debts. The allowance for doubtful accounts related
to receivables from customers was $10.2 million and $5.7 million as of
September 30, 2015 and 2014, respectively. The allowance for doubtful
accounts related to notes receivable was $1.0 million and $0.1 million
as of September 30, 2015 and 2014, respectively.
During the year ended September 30, 2015, the Company recorded
bad debt expense, net of recoveries, of $7.3 million, including provision
increases of $6.6 million and direct write-offs of $0.7 million, offset
by minimal recoveries. The increase in bad debts during fiscal 2015
related to $2.8 million of receivables from a renewable fuels customer
in the Physical Commodities segment, $2.3 million of OTC customer
deficits and $0.6 million of LME customer deficits in the Commercial
Hedging segment, $0.5 million of uncollectible service fees and notes
in our Securities segment, and $1.1 million of notes receivable related
to loans pertaining to a former acquisition.
During the year ended September 30, 2014, the Company recorded
bad debt expense, net of recoveries, of $5.5 million, including provision
increases of $5.1 million and direct write-offs of $0.6 million, offset
by recoveries of $0.2 million. The provision increases during fiscal
2014 was $3.8 million in the Commercial Hedging segment, primarily
related to account deficits from a Hong Kong commercial LME
customer and Brazilian OTC Financial Ag’s & Energy customers.
Additionally, the Company recorded bad debts of $0.9 million in the
Physical Commodities segment, related to renewable fuels activity, and
$0.7 million in the Securities segment primarily related to charge-offs
of uncollectible service fees.
During the year ended September 30, 2013, the Company
recorded bad debt expense, net of recoveries, of $0.7 million,
including provision increases of $0.2 million and direct write-offs
of $0.6 million, offset by recoveries of $0.1 million. The provision
increase during fiscal 2013 was primarily related to customer deficits
in the Commercial Hedging segment, and the direct write-offs
were primarily related to investment banking advisory services in
the Securities segment.
Activity in the allowance for doubtful accounts and notes for the years ended September 30, 2015, 2014, and 2013 was as follows:
(in millions)
Balance, beginning of year
Provision for bad debts
Deductions:
Charge-offs
Balance, end of year
2015
2014
2013
$
$
$
5.8
6.0
(0.6)
11.2 $
1.2
5.3
(0.7)
5.8
$
$
1.0
0.2
—
1.2
The Company originates short-term notes receivable from customers
with the outstanding balances typically being insured 90% to 98%
by a third party, including accrued interest, subject to applicable
deductible amounts. The total balance outstanding under insured notes
receivable was $41.4 million and $33.8 million as of September 30,
2015 and 2014, respectively. The Company has sold $30.7 million
and $25.8 million of the insured portion of the notes through non-
recourse participation agreements with other third parties as of
September 30, 2015 and 2014, respectively.
See discussion of notes receivable related to commodity repurchase
agreements in Note 13.
NOte 6 Physical Commodities Inventory
The carrying values of the Company’s inventory, which consist of all finished commodities, are $32.8 million and $40.0 million as of
September 30, 2015 and 2014, respectively.
As a result of declining market prices for some commodities towards the end of the fiscal year, the Company has recorded LCM adjustments
for physical commodities inventory of $0.3 million and $1.0 million as of September 30, 2015 and 2014, respectively. The adjustments are
included in ‘cost of sales of physical commodities’ in the consolidated income statements.
70
- Form 10-K
PART II
Item 8 Financial Statements and Supplementary Data
NOte 7 Property and equipment, Net
Property and equipment are stated at cost, and reported net of accumulated depreciation on the consolidated balance sheets. Depreciation
on plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of
property and equipment range from 3 to 10 years. During the fiscal years ended September 30, 2015, 2014, and 2013, depreciation expense
was $5.7 million, $5.7 million and $5.8 million, respectively.
A summary of property and equipment, at cost less accumulated depreciation as of September 30, 2015 and 2014 is as follows:
(in millions)
Property and equipment:
Furniture and fixtures
Software
Equipment
Leasehold improvements
Total property and equipment
Less accumulated depreciation
Property and equipment, net
NOte 8 Goodwill
September 30, 2015
September 30, 2014
$
$
5.2
9.0
16.1
9.9
40.2
(20.5)
19.7
$
$
5.2
6.2
10.9
9.3
31.6
(15.7)
15.9
Goodwill allocated to the Company’s operating segments as of September 30, 2015 and 2014 is as follows:
(in millions)
Commercial Hedging
Global Payments
Physical Commodities
Securities
Goodwill
NOte 9 Intangible Assets
September 30, 2015
$
$
30.7
6.3
2.4
8.1
47.5
$
September 30, 2014
$
30.7
6.3
2.4
8.1
47.5
Intangible assets of $1.6 million, attributed to customer relationships and software programs/platforms, acquired during the fiscal year ended
September 30, 2015 relate to an acquisition, as discussed in note 18.
The gross and net carrying values of intangible assets as of the balance sheet dates, by major intangible asset class are as follows:
(in millions)
Intangible assets subject to amortization:
Software programs/platforms
Customer base
Intangible assets not subject to amortization:
Trade name
Total intangible assets
September 30, 2015
Accumulated
Amortization
Gross
Amount
Net
Amount
Gross
Amount
September 30, 2014
Accumulated
Amortization
Net
Amount
$
$
2.7 $
14.0
16.7
1.1
17.8 $
(2.3)
(4.9)
(7.2)
—
(7.2)
$
$
0.4 $
9.1
9.5
1.1
10.6 $
2.2 $
12.9
15.1
1.1
16.2 $
(1.9)
(3.8)
(5.7)
—
(5.7)
$
$
0.3
9.1
9.4
1.1
10.5
Amortization expense related to intangible assets was $1.5 million, $1.6 million, and $2.2 million for the fiscal years ended September 30,
2015, 2014, and 2013, respectively.
The estimated future amortization expense as of September 30, 2015 is as follows (in millions):
Year ending September 30,
2016
2017
2018
2019
2020 and thereafter
$
$
1.0
1.0
1.0
1.1
5.4
9.5
71
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
NOTE 10 Credit Facilities
Variable-Rate Credit Facilities
The Company has four committed credit facilities under which the
Company and its subsidiaries may borrow up to $280.0 million,
subject to the terms and conditions for these facilities. The amounts
outstanding under these credit facilities are short term borrowings
and carry variable rates of interest, thus approximating fair value. The
Company’s credit facilities are as follows:
A three-year syndicated committed loan facility established on
September 20, 2013 under which $140 million is available to the
Company for general working capital requirements. The line of credit
is secured by a pledge of shares held in certain of the Company’s
subsidiaries. Unused portions of the loan facility require a commitment
fee of 0.625% on the unused commitment. Borrowings under the
facility bear interest at the Eurodollar Rate, as defined, plus 3.00%
or Base Rate, as defined, plus 2.00%, and averaged 5.25% as of
September 30, 2015. The agreement contains financial covenants related
to consolidated tangible net worth, consolidated funded debt to net
worth ratio, consolidated fixed charge coverage ratio and consolidated
net unencumbered liquid assets, as defined. The Company was in
compliance with these financial covenants as of September 30, 2015.
The Company paid debt issuance costs of $1.5 million in connection
with the issuance of this credit facility, which are being amortized over
the thirty-six month term of the facility.
An unsecured syndicated committed line of credit, established on
June 21, 2010 and renewed by amendment on March 30, 2015,
under which $75 million is available to the Company’s subsidiary,
INTL FCStone Financial to provide short term funding of margin to
commodity exchanges as necessary. This line of credit is subject to annual
review, and the continued availability of this line of credit is subject to
INTL FCStone Financial’s financial condition and operating results
continuing to be satisfactory as set forth in the agreement. Unused
portions of the margin line require a commitment fee of 0.50% on
the unused commitment. Borrowings under the margin line are on
a demand basis and bear interest at the Base Rate, as defined, plus
2.00%, which was 5.25% as of September 30, 2015. The agreement
contains financial covenants related to INTL FCStone Financial’s
tangible net worth, excess net capital and maximum net loss over a
trailing twelve month period, as defined. INTL FCStone Financial
was in compliance with these covenants as of September 30, 2015.
The facility is guaranteed by the Company.
A syndicated committed borrowing facility established on August 10,
2012, and amended on May 1, 2015, under which $40.0 million is
available to the Company’s subsidiary, FCStone Merchant Services,
LLC (“FCStone Merchants”) for financing traditional commodity
financing arrangements and commodity repurchase agreements. The
facility is secured by the assets of FCStone Merchants, and guaranteed
by the Company. Unused portions of the borrowing facility require a
72
commitment fee of 0.50% on the unused commitment. The borrowings
outstanding under the facility bear interest at a rate per annum equal
to the Base Rate plus Applicable Margin, as defined, which averaged
4.25% as of September 30, 2015. The agreement contains financial
covenants related to tangible net worth, as defined. FCStone Merchants
was in compliance with this covenant as of September 30, 2015.
FCStone Merchants paid minimal debt issuance costs in connection
with this credit facility.
A syndicated committed borrowing facility established on November 15,
2013, and amended on November 10, 2015, under which $25.0 million
is available to the Company’s subsidiary, INTL FCStone, Ltd for short
term funding of margin to commodity exchanges. The borrowings
outstanding under the facility bear interest at a rate per annum equal
to 2.50% plus the Federal Funds Rate, as defined. The agreement
contains financial covenants related to consolidated tangible net worth,
as defined. INTL FCStone Ltd was in compliance with this covenant
as of September 30, 2015. INTL FCStone, Ltd paid minimal debt
issuance costs in connection with this credit facility. The facility is
guaranteed by the Company.
The Company also has a secured, uncommitted loan facility, under
which the Company’s wholly owned subsidiary, Financial may borrow
up to $50.0 million, collateralized by commodity warehouse receipts,
to facilitate U.S. commodity exchange deliveries of its customers,
subject to certain terms and conditions of the credit agreement.
Note Payable to Bank
In April 2015, the Company obtained a $4.0 million loan from a
commercial bank, secured by equipment purchased with the proceeds.
The note is payable in monthly installments, ending in March 2020.
The note bears interest at a rate per annum equal to LIBOR plus 2.00%.
Senior Unsecured Notes
In July 2013, the Company completed the offering of $45.5 million
aggregate principal amount of the Company’s 8.5% Senior Notes
due 2020 (the “Notes”). The net proceeds of the sale of the Notes are
being used for general corporate purposes. The Notes bear interest
at a rate of 8.5% per year (payable quarterly on January 30, April
30, July 30 and October 30 of each year). The Notes will mature
on July 30, 2020. The Company may redeem the Notes, in whole
or in part, at any time on and after July 30, 2016, at a redemption
price equal to 100% of the principal amount redeemed plus accrued
and unpaid interest to, but not including, the redemption date. The
Company incurred debt issuance costs of $1.7 million in connection
with the issuance of the Notes, which are being amortized over the
term of the Notes.
- Form 10-K part II
ITEM 8 Financial Statements and Supplementary Data
The following table sets forth a listing of credit facilities, the committed amounts as of September 30, 2015 on the facilities, and outstanding
borrowings on the facilities as well as indebtedness on a promissory note an on senior notes as of September 30, 2015 and 2014:
CREDIT FACILITIES
(in millions)
Borrower
INTL FCStone Inc.
FCStone, LLC
FCStone, LLC
FCStone Merchants
INTL FCStone, Ltd
Security
Certain pledged shares of certain subsidiares
None
Commodity warehouse receipts
Certain commodities assets
None
NOTE PAYABLE TO BANK
Monthly installments, due March 2020 and secured by certain equipment
SENIOR UNSECURED NOTES
8.50% senior notes, due July 30, 2020
Total indebtedness
renewal/
Expiration Date
total
Commitment
September 30,
2015
September 30,
2014
amounts Outstanding
September 20, 2016 $
April 7, 2016
n/a
May 1, 2016
October 31, 2016
$
140.0 $
75.0
—
40.0
25.0
280.0 $
28.0 $
—
—
10.0
—
38.0 $
15.0
—
—
7.5
—
22.5
3.6
—
45.5
87.1 $
45.5
68.0
$
As reflected above, $255 million of the Company’s committed credit facilities are scheduled to expire during the fiscal year ended September
30, 2016. The Company intends to renew or replace these facilities as they expire, and based on the Company’s liquidity position and capital
structure, the Company believes it will be able to do so.
NOTE 11 Commitments and Contingencies
Legal Proceedings
Certain conditions may exist as of the date the financial statements
are issued, which may result in a loss to the Company but which
will only be resolved when one or more future events occur or fail
to occur. The Company assesses such contingent liabilities, and such
assessment inherently involves an exercise of judgment. In assessing loss
contingencies related to legal proceedings that are pending against the
Company or unasserted claims that may result in such proceedings,
the Company’s legal counsel evaluates the perceived merits of any legal
proceedings or unasserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable
that a material loss had been incurred at the date of the financial
statements and the amount of the liability can be estimated, then
the estimated liability would be accrued in the Company’s financial
statements. If the assessment indicates that a potentially material
loss contingency is not probable, but is reasonably possible, or is
probable but cannot be estimated, then the nature of the contingent
liability, together with an estimate of the range of possible loss if
determinable and material, would be disclosed. Neither accrual nor
disclosure is required for loss contingencies that are deemed remote.
The Company accrues legal fees related to contingent liabilities as
they are incurred.
In addition to the matters discussed below, from time to time
and in the ordinary course of business, the Company is involved
in various legal actions and proceedings, including tort claims,
contractual disputes, employment matters, workers’ compensation
claims and collections. The Company carries insurance that provides
protection against certain types of claims, up to the policy limits
of the insurance.
As of September 30, 2015 and 2014, the consolidated balance sheets
include loss contingency accruals, recorded during and prior to these
fiscal years then ended, which are not material, individually or in the
aggregate, to the Company’s financial position or liquidity. In the
opinion of management, possible exposure from loss contingencies
in excess of the amounts accrued, and in addition to the possible
losses discussed below, is not material to the Company’s earnings,
financial position or liquidity.
The following is a summary of significant legal matters involving
the Company.
Securities Litigation and Regulatory Proceedings
On January 13, 2014, a purported class action was filed in the United
States District Court for the Southern District of New York against
the Company and certain of the Company’s officers and directors.
The complaint alleges violations of federal securities laws, and claims
that the Company has issued false and misleading information
concerning its business and prospects. The action seeks unspecified
damages on behalf of persons who purchased the Company’s shares
between February 17, 2010 and December 16, 2013. The lead
plaintiff’s amended complaint was filed in June 2014. The Company’s
motion to dismiss the complaint was filed in July 2014. At the court
73
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
hearing on February 4, 2015, the Company’s motion was granted
and the amended complaint was dismissed, however the lead plaintiff
was given leave to amend its complaint. The lead plaintiff’s second
amended complaint was filed on March 6, 2015, and it narrowed the
purported class to persons who purchased Company’s shares between
December 15, 2010 and December 16, 2013. On March 27, 2015, the
Company filed a motion to dismiss the second amended complaint.
The lead plaintiff’s memorandum in opposition was filed on April 13,
2015 and the Company’s reply in support of its motion to dismiss
the second amended complaint was filed on April 27, 2015. The
matter was heard on July 9, 2015 and on July 13, 2015 the second
amended complaint was dismissed in its entirety, with prejudice and
without leave to replead.
During fiscal 2014, settlement of a previously disclosed shareholder
class action complaint against the Company and its directors originating
in August 2008 was approved, resulting in a payment of $0.3 million
after consideration of insurance coverage, recorded as expense in
fiscal 2014.
During fiscal 2013, the Company reached a settlement with the
CFTC in connection with its investigation of the losses that occurred
in 2008 and 2009 in a customer energy trading account of the
Company’s former wholly owned subsidiary FCStone, LLC. Effective
July 1, 2015, FCStone, LLC was merged with other certain wholly
owned subsidiaries, and is now known as INTL FCStone Financial
Inc. The CFTC’s findings, neither admitted nor denied by us, were
that FCStone, LLC violated CFTC Regulation 166.3 in that it
failed to diligently supervise its officers’ and employees’ activities
relating to risks associated with its customers’ accounts, and in
particular one account controlled by two of FCStone’s customers
who traded in natural gas futures, swaps and option contracts.
The settlement resulted in a payment of $1.5 million recorded as
expense in fiscal 2013.
Sentinel Litigation
Prior to the July 1, 2015 merger of certain wholly owned subsidiaries,
the Company’s former subsidiary FCStone, LLC, had a portion
of its excess segregated funds invested with Sentinel Management
Group Inc. (“Sentinel”), a registered FCM and an Illinois-based
money manager that provided cash management services to other
FCMs. In August 2007, Sentinel halted redemptions to customers
and sold certain of the assets it managed to an unaffiliated third
party at a significant discount. On August 17, 2007, subsequent
to Sentinel’s sale of certain assets, Sentinel filed for bankruptcy
protection. In aggregate, $15.5 million of FCStone, LLC’s
$21.9 million in invested funds were returned to it before and after
Sentinel’s bankruptcy petition.
In August 2008, the bankruptcy trustee of Sentinel filed adversary
proceedings against FCStone, LLC, and a number of other FCMs
in the Bankruptcy Court for the Northern District of Illinois. The
case was subsequently reassigned to the United States District Court,
for the Northern District of Illinois. In the complaint, the trustee is
seeking avoidance of alleged transfers or withdrawals of funds received
by FCStone, LLC and other FCMs within 90 days prior to the filing
of the Sentinel bankruptcy petition, as well as avoidance of post-
petition distributions and disallowance of the proof of claim filed by
FCStone, LLC. The trustee seeks recovery of pre- and post-petition
transfers totaling approximately $15.5 million.
The trial of this matter took place, as a test case, during October 2012.
The trial court entered a judgment against FCStone, LLC on January
4, 2013. On January 17, 2013, the trial court entered an agreed order,
staying execution and enforcement, pending an appeal of the judgment.
On March 19, 2014, the appeal court ruled in favor of FCStone,
LLC. On April 16, 2014, the trustee filed a petition for rehearing
of the appeal. On May 19, 2014, the U.S. Court of Appeals for the
Seventh Circuit denied the petition. The trustee did not file a writ
for certiorari with the U.S. Supreme Court during the time allotted
to do so. The Company continues to be involved in litigation against
the trustee to recover its share of the cash held in reserve accounts
under Sentinel’s Fourth Amended Chapter 11 Plan of Liquidation.
On February 10, 2015, based on a new theory, the trustee filed a
motion for judgment against FCStone in the United States District
Court, for the Northern District of Illinois, seeking to claw back
the post-petition transfer of $14.5 million and to recover the funds
held in reserve in the name of FCStone. FCStone filed its opposition
brief and an associated motion for judgment on March 17, 2015.
The trustee filed its reply briefs on April 7, 2015 and the Company
filed its reply briefs on April 22, 2015. The Company has determined
that losses related to this matter are neither probable nor reasonably
possible. The Company believes the case is without merit and intends
to defend itself vigorously.
Our assessments are based on estimates and assumptions that
have been deemed reasonable by management, but that may later
prove to be incomplete or inaccurate, and unanticipated events
and circumstances may occur that might cause us to change those
estimates and assumptions.
Contractual Commitments
Contingent Liabilities - Acquisitions
Under the terms of the purchase agreements, related to the acquisitions
listed below, the Company has obligations to pay additional
consideration if specific conditions and earnings targets are met. In
accordance with the Business Combinations Topic of the ASC, the
fair value of the additional consideration is recognized as a contingent
liability as of the acquisition date. The contingent liability for these
estimated additional purchase price considerations of $3.3 million
and $5.5 million are included in ‘accounts payable and other accrued
liabilities’ in the consolidated balance sheets as of September 30, 2015
and 2014, respectively. The acquisition date fair value of additional
consideration is remeasured to its fair value each reporting period,
with changes in fair value recorded in current earnings. The change
in fair value during the years ended September 30, 2015, 2014, and
2013 were an increase of $1.8 million, decrease of $2.3 million and
increase of $2.6 million , respectively, and are included in ‘other’ in
the consolidated income statements.
74
- Form 10-K part II
ITEM 8 Financial Statements and Supplementary Data
The Company has a contingent liability relating to the January 2015
acquisition of G.X. Clarke, which may result in the payment of
additional purchase price consideration. The contingent consideration,
which in no event shall exceed $1.5 million, is expected to be paid
in two payments. See additional discussion of the acquisition and
contingent consideration in Note 18 - Acquisitions. The estimated total
purchase price, including contingent consideration, is $27.5 million
as of September 30, 2015, of which $1.0 million remains outstanding
and is included in ‘accounts payable and other accrued liabilities’ in
the consolidated balance sheet.
The Company has a contingent liability relating to the December 2012
acquisition of the accounts of Tradewire Securities, LLC, as described
in Note 18, which may result in the payment of additional purchase
price consideration. The contingent liability recorded represents the
fair value of the expected consideration to be paid, based on the
forecasted adjusted pre-tax net earnings during three annual periods
and a six month period, after the third annual period, following the
closing of the acquisition, for a total of four payments, with a discount
rate being applied to those future payments. The present value of the
estimated total purchase price, including contingent consideration, is
$4.4 million as of September 30, 2015, of which $2.3 million remains
outstanding and is included in ‘accounts payable and other accrued
liabilities’ in the consolidated balance sheet.
Operating Leases
The Company is obligated under various noncancelable operating
leases for the rental of office facilities, automobiles, service obligations
and certain office equipment, and accounts for these lease obligations
on a straight line basis. The expense associated with operating leases
amounted to $10.1 million, $9.5 million and $9.2 million, for fiscal
years ended September 30, 2015, 2014, and 2013, respectively. The
expenses associated with the operating leases and service obligations
are reported in the consolidated income statements in ‘occupancy
and equipment rental’, ‘transaction-based clearing expenses’ and
‘other’ expenses.
Future aggregate minimum lease payments under noncancelable operating leases as of September 30, 2015 are as follows:
(in millions)
Year ending September 30,
2016
2017
2018
2019
2020
Thereafter
$
$
7.2
6.3
5.5
5.4
5.2
12.2
41.8
Purchase Commitments
The Company determines an estimate of contractual purchase
commitments in the ordinary course of business primarily for the
purchase of precious metals. Unpriced contract commitments have
been estimated using September 30, 2015 fair values. The purchase
commitments and other obligations as of September 30, 2015 for
less than one year, one to three years and three to five years were
$335.9 million, $3.4 million and $1.5 million, respectively. There
were $2.1 million purchase commitments and other obligations after
five years as of September 30, 2015. The purchase commitments
for less than one year will be partially offset by corresponding sales
commitments of $217 million.
Exchange Member Guarantees
The Company is a member of various exchanges that trade and clear
futures and option contracts. Associated with its memberships, the
Company may be required to pay a proportionate share of the financial
obligations of another member who may default on its obligations
to the exchanges. While the rules governing different exchange
memberships vary, in general the Company’s guarantee obligations
would arise only if the exchange had previously exhausted its resources.
In addition, any such guarantee obligation would be apportioned
among the other non-defaulting members of the exchange. Any
potential contingent liability under these membership agreements
cannot be estimated. The Company has not recorded any contingent
liability in the consolidated financial statements for these agreements
and believes that any potential requirement to make payments under
these agreements is remote.
Self-Insurance
On January 1, 2014, the Company entered into a program to self-
insure its costs related to medical and dental claims. The Company
is self-insured, up to a stop loss amount, for eligible participating
employees and retirees, and for qualified dependent medical and
dental claims, subject to deductibles and limitations. Liabilities are
recognized based on claims filed and an estimate of claims incurred
but not reported. The Company has purchased stop-loss coverage to
limit its exposure on a per claim basis and in aggregate in the event
that aggregated actual claims would exceed 120% of actuarially
estimated claims. The Company is insured for covered costs in excess
of these limits. Although the ultimate outcome of these matters
may exceed the amounts recorded and additional losses may be
incurred, the Company does not believe that any additional potential
exposure for such liabilities will have a material adverse effect on the
Company’s consolidated financial position or results of operations. As
of September 30, 2015, the Company had $0.8 million accrued for
self-insured medical and dental claims included in ‘accounts payable
and other liabilities’ in the consolidated balance sheet.
75
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
NOTE 12 Regulatory Requirements and Subsidiary Dividend Restrictions
The Company’s subsidiary INTL FCStone Financial is registered as
a broker dealer and member of the Financial Industry Regulatory
Authority (“FINRA”) subject to the SEC Uniform Net Capital Rule
15c3-1, which requires the maintenance of minimum net capital.
INTL FCStone Financial is also a commodity futures commission
merchant registered with the CFTC and subject to the net capital
requirements of the CFTC Regulation 1.17. Under the more restrictive
of these rules, INTL FCStone Financial is required to maintain
“adjusted net capital”, equivalent to the greater of $1,000,000 or
8 percent of customer and noncustomer risk maintenance margin
requirements on all positions, as defined in such rules, regulations,
and requirements. Net capital and the related net capital requirement
may fluctuate on a daily basis. INTL FCStone Financial also has
restriction on dividends, which restricts the withdrawal of equity
capital if the planned withdrawal would reduce net capital, subsequent
to haircuts and charges, to an amount less than 120% of the greatest
minimum requirement.
Pursuant to the requirements of the Commodity Exchange Act, funds
deposited by customers of INTL FCStone Financial relating to their
trading of futures and options on futures on a U.S. commodities
exchange must be carried in separate accounts which are designated
as segregated customers’ accounts. Pursuant to the requirements of
the CFTC, funds deposited by customers of INTL FCStone Financial
relating to their trading of futures and options on futures traded on,
or subject to the rules of, a foreign board of trade must be carried
in separate accounts in an amount sufficient to satisfy all of INTL
FCStone Financial’s current obligations to customers trading foreign
futures and foreign options on foreign commodity exchanges or boards
of trade, which are designated as secured customers’ accounts. See
Additional Information of INTL FCStone Financial Related to Customer
Segregated and Secured Funds further below for additional information
regarding INTL FCStone Financial’s calculation of segregated and
secured customer funds.
The Company’s subsidiary INTL FCStone Ltd. is regulated by the
Financial Conduct Authority (“FCA”), the regulator of the financial
services industry in the United Kingdom, as a Financial Services
Firm under part IV of the Financial Services and Markets Act 2000.
The regulations impose daily regulatory capital, as well as conduct of
business, governance, and other requirements. The conduct of business
rules include those that govern the treatment of client money and
other assets which under certain circumstances for certain classes of
client must be segregated from the firm’s own assets.
The Company’s subsidiary INTL FCStone Pty Ltd is regulated by
the Australian Securities and Investment Commission and is subject
to a net tangible asset capital requirement. INTL FCStone Pty Ltd
is also regulated by New Zealand Clearing Limited, and is subject to
a capital adequacy requirement.
FCStone Commodity Services (Europe), Ltd. is domiciled in Ireland
and subject to regulation by the Central Bank of Ireland, and is subject
to a net capital requirement.
INTL FCStone DTVM Ltda. (“INTL FCStone DTVM”) is a
registered broker-dealer and regulated by the Brazilian Central Bank
and Securities and Exchange Commission of Brazil, and is subject to
a capital adequacy requirement.
All subsidiaries of the Company are in compliance with all of their regulatory requirements as of September 30, 2015, as follows:
(in millions)
Subsidiary
INTL FCStone Financial Inc.
INTL FCStone Financial Inc.
INTL FCStone Financial Inc.
INTL FCStone Ltd
INTL FCStone Ltd
INTL Netherlands BV
INTL FCStone Pty Ltd.
INTL FCStone Pty Ltd.
INTL FCStone Pty Ltd.
INTL FCStone DTVM Ltda.
Gainvest S.A. Sociedad Gerente de FCI
Gainvest S.A. Sociedad Gerente de FCI
INTL Capital S.A.
INTL CIBSA S.A.
INTL CIBSA S.A.
as of September 30, 2015
regulatory authority
requirement type
actual
SEC and CFTC
CFTC
CFTC
FCA (United Kingdom)
FCA (United Kingdom)
FCA (United Kingdom)
Australian Securities and Investment Commission
Australian Securities and Investment Commission
New Zealand Clearing Ltd
Brazilian Central Bank and Securities and
Exchange Commission of Brazil
Comision Nacional de Valores
Comision Nacional de Valores
General Inspector of Justice (Argentina)
Comision Nacional de Valores
Comision Nacional de Valores
Net capital
Segregated funds
Secured funds
Net capital
Segregated funds
Net capital
Net capital
Segregated funds
Capital adequacy
Capital adequacy
Capital adequacy
Net capital
Net capital
Capital adequacy
Net capital
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
146.3 $
1,880.2 $
85.6 $
110.8 $
149.9 $
100.9 $
1.7 $
23.3 $
11.4 $
2.6 $
6.4 $
0.4 $
12.1 $
5.1 $
9.1 $
Minimum
requirement
67.2
1,830.9
65.2
59.7
149.9
59.9
0.7
12.5
3.2
0.4
0.2
0.1
9.9
1.7
0.9
Certain other non-U.S. subsidiaries of the Company are also subject to capital adequacy requirements promulgated by authorities of the
countries in which they operate. As of September 30, 2015, these subsidiaries were in compliance with their local capital adequacy requirements.
76
- Form 10-K part II
ITEM 8 Financial Statements and Supplementary Data
Additional Information of INTL FCStone
Financial Related to Customer Segregated and
Secured Funds
Pursuant to the requirements of the Commodity Exchange Act,
funds deposited by customers of INTL FCStone Financial relating
to futures and options on futures positions in regulated commodities
must be carried in separate accounts which are designated as segregated
customers’ accounts. Certain amounts in the accompanying table
reflect reclassifications and eliminations required for regulatory filing.
Funds deposited by customers and other assets, which have been
segregated as belonging to the commodity customers as of September 30,
2015 and 2014, are as follows:
(in millions)
Cash, at banks - segregated
Securities representing investments of customers' funds, at banks
Securities held for customers in lieu of cash, at banks
Deposits with and receivables from:
Exchange-clearing organizations, including securities, net of omnibus eliminations
Securities held for customers in lieu of cash
Total customer-segregated funds
Amount required to be segregated
Excess funds in segregation
September 30, 2015
September 30, 2014
$
$
126.9 $
492.5
0.9
1,237.8
22.1
1,880.2
1,830.9
49.3 $
314.0
—
0.5
1,476.5
14.8
1,805.8
1,769.3
36.5
Funds deposited by customers and other assets, which are held in separate accounts for customers trading foreign futures and foreign options
customers, as of September 30, 2015 and 2014 are as follows:
(in millions)
Cash - secured
Securities
Equities with registered futures commission merchants
Amounts held by clearing organizations of foreign boards of trade
Amounts held by members of foreign boards of trade
Total customer-secured funds
Amount required to be secured
Excess secured funds
September 30, 2015
September 30, 2014
$
$
64.7 $
—
2.6
—
18.3
85.6
65.2
20.4 $
46.8
—
11.9
—
14.5
73.2
53.3
19.9
NOTE 13 Commodity and Other Repurchase Agreements and Collateralized Transactions
The Company’s outstanding notes receivable in connection with
the sale/repurchase agreements, whereby the customers sell certain
commodity inventory and agree to repurchase the commodity inventory
at a future date at either a fixed or floating rate, as of September 30,
2015 and 2014 was $26.7 million and $20.6 million, respectively.
The obligations outstanding related to commodities sold under
repurchase agreements that are recorded in ‘lenders under loans’ as of
September 30, 2015 and 2014 were $10.0 million and $7.5 million,
respectively.
The Company enters into securities purchased under agreements to
resell and payables under repurchase agreements primarily to finance
financial instruments, acquire securities to cover short positions or
to acquire securities for settlement. These agreements are recorded at
their contractual amounts plus accrued interest. The related interest is
recorded in the consolidated income statement as interest income or
interest expense, as applicable. In connection with these agreements
and transactions, it is the policy of the Company to receive or pledge
cash or securities to adequately collateralize such agreements and
transactions in accordance with general industry guidelines and
practices. The value of the collateral is valued daily and the Company
may require counterparties to deposit additional collateral or return
collateral pledged, when appropriate. The carrying amounts of these
agreements and transactions approximate fair value due to their
short-term nature and the level of collateralization.
The Company pledges financial instruments owned to collateralize
repurchase agreements. At September 30, 2015, on a settlement date
basis, financial instruments owned of $170.7 million were pledged
as collateral under repurchase agreements. The counterparty has the
right to repledge the collateral in connection with these transactions.
These financial instruments owned have been pledged as collateral and
have been parenthetically disclosed on the consolidated balance sheet.
In addition, as of September 30, 2015, the Company pledged settlement
date securities owned of $843.5 million and securities received under
reverse repurchase agreements of $84.3 million to cover collateral for
tri-party repurchase agreements. For these securities, the counterparty
does not have the right to sell or repledge the collateral.
At September 30, 2015, the Company has accepted collateral that it is
permitted by contract or custom to sell or repledge. This collateral consists
primarily of securities received in reverse repurchase agreements. The
fair value of such collateral at September 30, 2015, was $396.6 million
of which $315.3 million was used to cover securities sold short which
are recorded in financial instruments sold, not yet purchased on the
consolidated balance sheet. In the normal course of business, this
collateral is used by the Company to cover financial instruments sold,
not yet purchased and to obtain financing in the form of repurchase
agreements. At September 30, 2015, substantially all of the above
collateral had been delivered against financial instruments sold, not
yet purchased or repledged by the Company to obtain financing.
77
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
NOTE 14 Share-Based Compensation
Share-based compensation expense is included in ‘compensation
and benefits’ in the consolidated income statements and totaled
$3.6 million, $4.3 million and $9.3 million for the fiscal years ended
September 30, 2015, 2014, and 2013, respectively.
Stock Option Plans
The Company sponsors a stock option plan for its directors, officers,
employees and consultants. The 2013 Stock Option Plan, which was
approved by the Company’s Board of Directors and shareholders,
authorizes the Company to issue stock options covering up to 1.0 million
shares of the Company’s common stock. As of September 30, 2015,
there were 0.8 million shares authorized for future grant under this
plan. Awards that expire or are canceled generally become available
for issuance again under the plan. The Company settles stock option
exercises with newly issued shares of common stock.
Fair value is estimated at the grant date based on a Black-Scholes-Merton option-pricing model using the following weighted-average assumptions:
Expected stock price volatility
Expected dividend yield
Risk free interest rate
Average expected life (in years)
Year Ended September 30,
2014
2013
2015
28%
—%
0.66%
3.22
34%
—%
0.80%
2.88
35%
—%
0.37%
2.88
Expected stock price volatility rates are primarily based on the historical
volatility. The Company has not paid dividends in the past and does
not currently expect to do so in the future. Risk free interest rates
are based on the U.S. Treasury yield curve in effect at the time of
grant for periods corresponding with the expected life of the option
or award. The average expected life represents the estimated period of
time that options or awards granted are expected to be outstanding,
based on the Company’s historical share option exercise experience
for similar option grants. The weighted average fair value of options
issued during fiscal years ended September 30, 2015, 2014, and 2013
was $4.31, $4.48 and $4.21, respectively.
The following is a summary of stock option activity for the year ended September 30, 2015:
Balances at September 30, 2014
Granted
Exercised
Forfeited
Expired
Balances at September 30, 2015
Exercisable at September 30, 2015
Shares
available
for Grant
913,500
(91,000)
—
—
822,500
Number of
Options
Outstanding
Weighted
average
Exercise price
$
$
$
$
$
$
355,350 $
1,578,056
91,000
(316,048)
(9,665)
(45,359)
1,297,984
25.38 $
20.54 $
11.87 $
19.35 $
27.92 $
28.28 $
37.93 $
Weighted average
Grant Date
Fair Value
Weighted average
remaining term
(in years)
aggregate
Intrinsic Value
($ millions)
11.58
4.31
6.42
4.83
12.08
12.37
13.55
4.16 $
1.9
4.24 $
1.29 $
1.8
0.9
The total compensation cost not yet recognized for non-vested awards of $6.5 million as of September 30, 2015 has a weighted-average period
of 4.36 years over which the compensation expense is expected to be recognized. The total intrinsic value of options exercised during fiscal
years 2015, 2014 and 2013 was $3.6 million, $1.8 million and $2.0 million, respectively.
The options outstanding as of September 30, 2015 broken down by exercise price are as follows:
Exercise price
$
$
$
$
$
$
$
$
$
$
$
—
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
78
-
-
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
$
$
$
$
$
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
55.00
Number of Options
Outstanding
Weighted average
Exercise price
Weighted average
remaining term
(in years)
—
—
—
220,525 $
168,000 $
720,000 $
—
—
—
—
189,459 $
1,297,984 $
n/a
n/a
n/a
18.57
21.97
25.91
n/a
n/a
n/a
n/a
54.23
28.28
n/a
n/a
n/a
1.32
2.77
6.22
n/a
n/a
n/a
n/a
1.41
4.24
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
Restricted Stock Plan
The Company sponsors a restricted stock plan for its directors, officers
and employees. The Company’s 2012 restricted stock plan, which was
approved by the Company’s Board of Directors and shareholders,
authorizes up to 1.5 million shares to be issued. As of September 30,
2015, 1.0 million shares were authorized for future grant under the
restricted stock plan. Awards that expire or are canceled generally
become available for issuance again under the plan. The Company
utilizes newly issued shares of common stock to make restricted
stock grants.
The following is a summary of restricted stock activity through September 30, 2015:
Balances at September 30, 2014
Granted
Vested
Forfeited
Balances at September 30, 2015
Shares
available
for Grant
1,096,325
(126,148)
4,742
974,919
Number
of Shares
Outstanding
Weighted average
Grant Date
Fair Value
Weighted average
remaining term
(in years)
aggregate
Intrinsic Value
($ millions)
229,851
126,148
(121,214)
(4,742)
230,043
$
$
$
$
$
20.03
21.16
21.16
18.24
20.10
1.79
$
4.0
2.17
$
5.7
The total compensation cost not yet recognized of $3.2 million as
of September 30, 2015 has a weighted-average period of 2.17 years
over which the compensation expense is expected to be recognized.
Compensation expense is amortized on a straight-line basis over the
vesting period. Restricted stock grants are included in the Company’s
total issued and outstanding common shares.
The Company and an executive of a wholly owned subsidiary mutually
agreed to the executive’s retirement from employment as of July 1, 2013.
As a result of the executive’s retirement from employment, the Company
recorded compensation cost, related to the individual’s restricted stock,
of $2.6 million during the fiscal year ended September 30, 2013.
NOTE 15 Retirement Plans
Defined Benefit Retirement Plans
The Company has a qualified and a nonqualified noncontributory
retirement plan, which are defined benefit plans that cover certain
employees. The plans are closed to new employees and frozen with
respect to all future benefit accruals, therefore no additional benefits
accrue for active participants under the plans.
The following table presents changes in, and components of, the
Company’s net liability for retirement costs as of and for the years
ended September 30, 2015, 2014, and 2013, based on measurement
dates of September 30, 2015, 2014, and 2013, respectively:
(in millions)
Changes in benefit obligation:
Benefit obligation, beginning of year
Interest cost
Actuarial loss
Benefits paid
Benefit obligation, end of year
Changes in plan assets:
Fair value, beginning of year
Actual return
Employer contribution
Benefits paid
Fair value, end of year
Funded status
September 30, 2015
September 30, 2014
September 30, 2013
$
$
38.2
1.5
0.6
(3.2)
37.1
31.2
—
2.2
(3.2)
30.2
(6.9)
$
$
37.5
1.7
2.3
(3.3)
38.2
28.9
2.9
2.7
(3.3)
31.2
(7.0)
$
$
42.8
1.5
(2.6)
(4.2)
37.5
26.5
3.7
2.9
(4.2)
28.9
(8.6)
The Company is required to recognize the funded status of its
defined benefit pension plans measured as the difference between
plan assets at fair value and the projected benefit obligation on the
consolidated balance sheets as of September 30, 2015 and 2014, and
to recognize changes in the funded status, that arise during the periods
but are not recognized as components of net periodic pension cost,
within accumulated other comprehensive loss, net of tax. Amounts
recognized in the consolidated balance sheets consist of $0.5 million
and $0.7 million included in ‘other assets’ as of September 30, 2015
and 2014, respectively, and $7.4 million and $7.7 million included
in ‘accounts payable and other accrued liabilities’ as of September 30,
2015 and 2014, respectively.
Accumulated other comprehensive loss, net of tax, includes amounts
for actuarial losses in the amount of $4.8 million and $3.6 million
as of September 30, 2015 and 2014, respectively. The estimated net
loss for the defined benefit pension plans that will be amortized from
accumulated other comprehensive loss into net periodic pension cost
during fiscal 2016 is $0.4 million.
79
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
The following table displays the Company’s defined benefit plans that have accumulated benefit obligations and projected benefit obligations
in excess of the fair value of plans assets (underfunded ABO) as of September 30, 2015 and 2014:
(in millions)
Accumulated benefit obligations
Projected benefit obligations
Plan assets
September 30, 2015
September 30, 2014
$
$
$
37.1
37.1
30.2
$
$
$
38.2
38.2
31.2
The defined benefit obligations were based upon annual measurement dates of September 30, 2015 and 2014. The following weighted-average
assumptions were used to determine benefit obligations in the accompanying consolidated balance sheets as of September 30, 2015 and 2014:
Weighted average assumptions:
Discount rate
Expected return on assets
September 30, 2015
September 30, 2014
4.25%
5.94%
4.15%
6.00%
The following weighted-average assumptions were used to determine net periodic pension cost for the years ended September 30, 2015, 2014,
and 2013:
2015
2014
2013
Year Ended September 30,
Weighted average assumptions:
Discount rate
Expected return on assets
To account for the defined benefit pension plans in accordance with
the guidance in the Compensation – Retirement Benefits Topic of the
ASC the Company makes two main determinations at the end of each
fiscal year. These determinations are reviewed annually and updated as
necessary, but nevertheless, are subjective and may vary from actual results.
First, the Company must determine the actuarial assumption for the
discount rate used to reflect the time value of money in the calculation
of the projected benefit obligations for the end of the current fiscal
year and to determine the net periodic pension cost for the subsequent
fiscal year. The objective of the discount rate assumption is to reflect
the interest rate at which pension benefits could be effectively settled.
In making this determination, the Company considers the timing and
amount of benefits that would be available under the plans. The discount
rates as of September 30, 2015, 2014, and 2013 were based on a model
portfolio of high-quality fixed-income debt instruments with durations
that are consistent with the expected cash flows of the benefit obligations.
4.15%
6.00%
4.60%
7.00%
3.80%
7.00%
Second, the Company must determine the expected long-term rate
of return on assets assumption that is used to determine the expected
return on plan assets component of the net periodic pension cost for
the subsequent period. The expected long-term rate of return on asset
assumption was determined, with the assistance of the Company’s
investment consultants, based on a variety of factors. These factors
include, but are not limited to, the plan’s asset allocations, a review
of historical capital market performance, historical plan performance,
current market factors such as inflation and interest rates, and a
forecast of expected future asset returns. The Company reviews this
long-term assumption on an annual basis.
As a result of the defined benefit plans having a frozen status, no
additional benefits will be accrued for active participants under the
plan, and accordingly no assumption will be made for the rate of
increase in compensation levels in the future.
The components of net periodic pension cost recognized in the consolidated income statements for the years ended September 30, 2015,
2014, and 2013 were as follows:
(in millions)
Interest cost
Less expected return on assets
Net amortization and deferral
Net periodic pension cost
2015
2014
2013
Year Ended September 30,
$
$
$
1.5
(1.8)
0.3
— $
1.7
(2.0)
0.2
(0.1)
$
$
1.5
(1.8)
0.8
0.5
Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended September 30, 2015 and
2014 were as follows:
(in millions)
Net (gain) loss
Amortization of loss
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and other comprehensive income
Year Ended September 30,
2015
2014
$
$
$
2.4
(0.3)
2.1
2.1 $
1.4
(0.2)
1.2
1.1
80
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
Plan Assets
The following table sets forth the actual asset allocation as of September 30, 2015 and 2014, and the target asset allocation for the Company’s
plan assets:
Equity securities
Debt securities
Total
September 30, 2015
September 30, 2014
target asset allocation
33%
67%
100%
34%
66%
100%
35%
65%
The long-term goal for equity exposure and for fixed income exposure
is presented above. The exact allocation at any point in time is at
the discretion of the investment manager, but should recognize the
need to satisfy both the volatility and the rate of return objectives
for equity exposure and satisfy the objective of preserving capital for
the fixed income exposure.
and corporate bonds are stated at estimated fair value based upon
quoted market prices, if available, or dealer quotes. The equity funds
are investment vehicles valued using the net asset value (“NAV”)
provided by the administrator of the fund. The NAV is based on the
underlying assets owned by the fund, minus its liabilities, and then
divided by the number of shares outstanding.
The investment philosophy of the Company’s pension plans reflect that
over the long-term, the risk of owning equities has been and should
continue to be rewarded with a greater return than that available from
fixed income investments. The primary objective is for the plan to
achieve a rate of return sufficient to fully fund the pension obligation
without assuming undue risk.
Investments in the Company’s pension plans include debt and equity
securities. The fair value of plan assets is based upon the fair value of
the underlying investments, which include cash equivalents, common
stock, U.S. government securities and federal agency obligations,
municipal and corporate bonds, and equity funds. Cash equivalents
consist of short-term money market funds that are stated at cost,
which approximates fair value. The shares of common stock, U.S.
government securities and federal agency obligations, municipal
The methods described above may produce a fair value calculation
that may not be indicative of net realizable value or reflective of future
fair values. Furthermore, while the Company believes the valuation
methods are appropriate and consistent with other market participants,
the use of different methodologies or assumptions to determine the
fair value of certain financial instruments could result in a different
fair value measurement at the reporting date.
Equity securities did not include any INTL FCStone Inc. common
stock as of September 30, 2015 and 2014, respectively.
The following tables summarize the Company’s pension assets, excluding
cash held in the plan, by major category of plan assets measured at
fair value on a recurring basis (at least annually) as of September 30,
2015 and 2014. For additional information and a detailed description
of each level within the fair value hierarchy, see Note 3.
(in millions)
Assets:
Cash equivalents
Fixed income:
Government and agencies
Collective funds:
Fixed income
Equities
Real estate
Total
(in millions)
Assets:
Cash equivalents
Fixed income:
Government and agencies
Collective funds:
Fixed income
Equities
Real estate
Total
Level 1
Level 2
Level 3
total
September 30, 2015
— $
—
—
—
—
— $
0.6
$
—
19.5
9.5
0.6
30.2
$
— $
—
—
—
—
— $
Level 1
Level 2
Level 3
total
September 30, 2014
— $
—
—
—
—
— $
1.0
$
—
19.6
10.0
0.6
31.2
$
— $
—
—
—
—
— $
$
$
$
$
0.6
—
19.5
9.5
0.6
30.2
1.0
—
19.6
10.0
0.6
31.2
81
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
Cash equivalents are mostly comprised of short-term money market
instruments and the valuation is based on inputs derived from
observable market data of related assets.
Fixed Income: These securities primarily include debt issued by the
U.S. Department of Treasury and securities issued or backed by
U.S. government sponsored entities and municipal bonds. These
investments are valued utilizing a market approach that includes
various valuation techniques and sources such as, broker quotes
in active and non-active markets, benchmark yields and securities,
reported trades, issuer spreads, and/or other applicable reference data
and are generally classified within Level 2.
Collective Funds: These collective investment funds are unregistered
investment vehicles that invest in portfolios of stock, bonds, or other
securities. The fair value of these investments is based on the NAV of
the units held in the respective funds. As no redemption restrictions
or other features are noted that require adjustment to NAV. These
funds are classified as Level 2 investments.
The Company expects to contribute $2.1 million to the pension
plans during fiscal 2016, which represents the minimum funding
requirement. However, the Company is currently determining what
voluntary pension plan contributions, if any, will be made in fiscal 2016.
The following benefit payments, which reflect expected future service, are expected to be paid:
(in millions)
Year ending September 30,
2016
2017
2018
2019
2020
2021 - 2025
$
$
3.2
2.9
2.0
1.9
1.9
9.4
21.3
Defined Contribution Retirement Plans
U.K. based employees of INTL FCStone are eligible to participate
in a defined contribution pension plan. The Company contributes
double the employee’s contribution up to 10% of total base salary
for this plan. For this plan, employees are 100% vested in both the
employee and employer contributions at all times.
The Company offers participation in the INTL FCStone Inc. 401(k)
Plan (“401(k) Plan”), a defined contribution plan providing retirement
benefits, to all domestic employees who have reached 21 years of age,
and provided four months of service to the Company. Employees
may contribute from 1% to 80% of their annual compensation
to the 401(k) Plan, limited to a maximum annual amount as set
periodically by the Internal Revenue Service. The Company makes
matching contributions to the 401(k) Plan in an amount equal to
62.5% of each participant’s eligible elective deferral contribution to
the 401(k) Plan, up to 8% of employee compensation. Matching
contributions vest, by participant, based on the following years of
service schedule: less than two years – none, after two years – 33%,
after three years – 66%, and after four years – 100%.
For fiscal years ended September 30, 2015, 2014, and 2013, the
Company’s contribution to these defined contribution plans were
$5.1 million, $4.1 million and $4.0 million, respectively.
NOTE 16 Other Expenses
Other expenses for the years ended September 30, 2015, 2014, and 2013 are comprised of the following:
Year Ended September 30,
2014
2015
$
(in millions)
Contingent consideration, net(1)
Insurance
Advertising, meetings and conferences
Non-trading hardware and software maintenance and software
licensing
Office supplies and printing
Other clearing related expenses
Other non-income taxes
Other
Total other expenses
(1) Contingent consideration includes remeasurement of contingent liabilities related to business combinations accounted for in accordance with the provisions of the Business
4.7
1.2
1.1
3.7
6.6
23.5
3.8
1.1
1.2
3.9
5.7
18.4
2.8
1.2
1.6
3.8
6.7
23.1
(2.0)
1.6
3.1
1.8
1.7
2.7
3.0
1.7
2.3
$
$
$
$
$
2013
Combinations Topic of the ASC (see Note 3).
82
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
2.6
0.7
(1.6)
1.8
—
3.5
(1.7)
(1.4)
13.4
10.3
(7.7)
2.6
(23.3)
44.5
21.2
NOTE 17 Income Taxes
Income tax expense (benefit) for the years ended September 30, 2015, 2014, and 2013 was allocated as follows:
(in millions)
Income tax expense attributable to income from continuing operations
Income tax (benefit) expense attributable to loss from discontinued
operations
Taxes allocated to stockholders’ equity, related to unrealized gains
(losses) on available-for-sale securities
Taxes allocated to stockholders’ equity, related to pension liabilities
Taxes allocated to additional paid-in capital, related to share-based
compensation
Total income tax expense
$
$
2015
Year Ended September 30,
2014
2013
22.4
$
6.4
$
—
(0.4)
(0.8)
(0.5)
20.7
$
(0.2)
0.1
(0.5)
0.1
5.9
$
The components of the provision for income taxes attributable to income from continuing operations were as follows:
(in millions)
Current taxes:
U.S. federal
U.S. State and local
International
Total current taxes
Deferred taxes
Income tax expense
Year Ended September 30,
2015
2014
2013
$
$
0.8
1.2
15.4
17.4
5.0
22.4
$
$
0.5
$
—
11.6
12.1
(5.7)
6.4
U.S. and international components of (loss) income from continuing operations, before income taxes, was as follows:
(in millions)
U.S.
International
Income from continuing operations, before tax
Year Ended September 30,
2015
2014
14.5
63.7
78.2
$
$
(13.0)
39.0
26.0
$
$
$
$
$
2013
Items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes were as follows:
Federal statutory rate effect of:
U.S. State and local income taxes
Foreign earnings taxed at lower rates
Change in foreign valuation allowance
Change in state valuation allowance
Tax impact of U.S. State and local rate change
Uncertain tax positions
U.S. permanent items
Foreign permanent items
Other reconciling items
Effective rate
Year Ended September 30,
2015
2014
2013
35.0%
1.8%
(10.1)%
(0.1)%
0.6%
—%
—%
0.5%
1.1%
(0.1)%
28.7%
35.0%
—%
(14.7)%
1.9%
(0.2)%
—%
(0.5)%
1.9%
7.0%
(5.7)%
24.7%
35.0%
0.7%
(21.6)%
(0.2)%
(8.1)%
(2.6)%
(0.3)%
3.9%
4.6%
1.7%
13.1%
83
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
The components of deferred income tax assets and liabilities were as follows:
(in millions)
Deferred tax assets:
Share-based compensation
Pension liability
Deferred compensation
Foreign net operating loss carryforwards
U.S. State and local net operating loss carryforwards
U.S. federal net operating loss carryforwards
Intangible assets
Capital loss carryforwards
Bad debt reserve
Tax Credit Carryforwards
Other compensation
Other
Total gross deferred tax assets
Less valuation allowance
Deferred tax assets
Deferred income tax liabilities:
Unrealized gain on securities
Prepaid expenses
Fixed assets
Deferred income tax liabilities
Deferred income taxes, net
September 30, 2015
September 30, 2014
$
$
3.2
2.7
2.3
2.3
4.3
8.6
4.6
0.2
2.4
1.0
1.9
1.3
34.8
(3.2)
31.6
1.0
1.1
1.3
3.4
28.2
$
$
2.8
2.7
2.1
2.3
5.1
14.4
5.3
0.6
0.8
0.5
1.9
1.5
40.0
(2.8)
37.2
1.3
1.2
2.7
5.2
32.0
Deferred income tax balances reflect the effects of temporary differences
between the carrying amounts of assets and liabilities and their tax
bases and are stated at enacted tax rates expected to be in effect when
taxes are actually paid or recovered.
As of September 30, 2015 and 2014, the Company has net operating
loss carryforwards for U.S. federal, state, local, and foreign income
tax purposes of $12.0 million and $19.0 million, net of valuation
allowances, respectively, which are available to offset future taxable
income in these jurisdictions. The U.S. federal net operating loss
carryforward of $8.6 million begins to expire after September 2033.
The state and local net operating loss carryforwards of $3.4 million,
net of valuation allowance, begin to expire after September 2020.
The Company has an Alternative Minimum Tax credit carryforward
of $0.9 million, which has an indefinite life.
The valuation allowance for deferred tax assets as of September 30, 2015
was $3.2 million. The net change in the total valuation allowance for
the year ended September 30, 2015 was an increase of $0.4 million.
The valuation allowances as of September 30, 2015 and 2014 were
primarily related to U.S. state and local and foreign net operating loss
carryforwards that, in the judgment of management, are not more
likely than not to be realized. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not
that some or all of the deferred tax assets will not be realized.
The Company incurred U.S. federal, state, and local taxable income/
(losses) for the years ended September 30, 2015, 2014, and 2013 of
$17.7 million, $(18.4) million, and $(24.5) million, respectively.
There are no significant differences between actual levels of past
taxable income and the results of continuing operations, before income
taxes in these jurisdictions. U.S. federal, state, and local taxable losses
incurred during the year ended September 30, 2013 were attributable
to a decrease in exchange-traded and OTC derivative transactional
volumes and revenue caused by consecutive droughts in the U.S., as
well as losses incurred in the physical base metals business. During
2013, the Company elected to pursue an exit of its physical base
metals business through an orderly liquidation of open positions,
which was completed during fiscal 2014. When evaluating if U.S.
federal, state, and local deferred taxes are realizable, the Company
considered deferred tax liabilities of $2.4 million that are scheduled to
reverse from 2016 to 2019 and $1.0 million of deferred tax liabilities
associated with unrealized gains in securities which the Company
could sell, if necessary. Furthermore, the Company considered its
ability to implement business and tax planning strategies that would
allow the remaining U.S. federal, state, and local deferred tax assets,
net of valuation allowances, to be realized within 10 years. Based on
the tax planning strategies that can be implemented, management
believes that it is more likely than not that the Company will realize
the tax benefit of the deferred tax assets, net of the existing valuation
allowance, in the future.
The total amount of undistributed earnings in the Company’s
foreign subsidiaries, for income tax purposes, was $227.2 million and
$175.1 million as of September 30, 2015 and 2014, respectively. It is
the Company’s current intention to reinvest undistributed earnings of its
foreign subsidiaries in the foreign jurisdictions, resulting in the indefinite
postponement of the remittance of those earnings. Accordingly, no
provision has been made for foreign withholding taxes or U.S. federal
income taxes which may become payable if undistributed earnings of
foreign subsidiaries were paid as dividends to the Company.
The Company recognizes the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will
be sustained on examination by the taxing authority, based upon the
technical merits of the position. The tax benefit recognized in the
consolidated financial statements from such a position is measured
based on the largest benefit that has a greater than 50% likelihood
of being realized upon ultimate settlement.
84
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in millions)
Balance, beginning of year
Gross increases for tax positions related to current year
Gross increases for tax positions related to prior years
Gross decreases for tax positions of prior years
Settlements
Lapse of statute of limitations
Balance, end of year
2015
Year Ended September 30,
2014
2013
$
—
—
—
—
—
—
— $
0.1
$
—
—
(0.1)
—
—
— $
0.5
0.1
—
(0.2)
(0.2)
(0.1)
0.1
$
$
The Company has a minimal balance of uncertain tax benefits as of
September 30, 2015, that, if recognized, would affect the effective
tax rate. While it is expected that the amount of unrecognized tax
benefits will change in the next twelve months, the Company does
not expect this change to have a material impact on the results of
operations or the financial position of the Company.
Accrued interest and penalties are included in the related tax liability
line in the consolidated balance sheets. The Company had no accrued
interest, net of federal benefit, and penalties included in the consolidated
balance sheets as of September 30, 2015 and 2014.
The Company recognizes accrued interest and penalties related to
income taxes as a component of income tax expense. The Company
had no amount of interest, net of federal benefit, and penalties
recognized as a component of income tax expense during the year
ended September 30, 2015. During the years ended September 30,
2014 and 2013, the amount of interest, net of federal benefit, and
penalties recognized as a component of income tax expense was
$0.0 million and $(0.2) million, respectively.
The Company and its subsidiaries file income tax returns with
the U.S. federal jurisdiction and various U.S. state and local and
foreign jurisdictions. The Company has open tax years ranging from
September 30, 2008 through September 30, 2015 with U.S. federal
and state and local taxing authorities. In the U.K., the Company has
open tax years ending September 30, 2014 to September 30, 2015. In
Brazil, the Company has open tax years ranging from December 31,
2010 through December 31, 2014. In Argentina, the Company has
open tax years ranging from September 30, 2008 to September 30,
2015. The Company’s U.S. net operating loss carryback claim is being
reviewed by the Joint Committee of Taxation. The Company expects
to receive a full refund. The Company settled their state examination
in 2015 with no material adjustments.
NOTE 18 Acquisitions and Disposals
Acquisitions in Fiscal 2015
The Company’s consolidated financial statements include the operating
results of the acquired businesses from the dates of acquisition. The
total amount of goodwill and intangible assets, in connection with
the current year acquisition, that is expected to be deductible for tax
purposes is $1.6 million as of September 30, 2015.
G.X. Clarke & Co.
Effective January 1, 2015, the Company acquired all of the partnership
interests of G.X. Clarke & Co., an SEC registered institutional dealer
in fixed income securities. G.X. Clarke is based in New Jersey, transacts
in U.S. Treasury, U.S. government agency and agency mortgage-backed
securities, and is a FINRA member with an institutional client base
consisting of asset managers, commercial bank trust and investment
departments, broker-dealers, and insurance companies. The purchase
price payable by the Company is equal to G.X. Clarke’s net tangible
book value at closing of approximately $25.9 million plus a premium of
$1.5 million, and up to an additional $1.5 million over the next three
years, subject to the achievement of certain profitability thresholds.
In conjunction with the acquisition, the name of G.X. Clarke was
changed to INTL FCStone Partners L.P.
The acquisition agreement includes the purchase of certain tangible
assets and assumption of certain liabilities. For the acquisition,
management made an initial fair value estimate of the assets acquired
and liabilities assumed as of January 1, 2015. The Company believes
that due to the short-term nature of many of the tangible assets
acquired and liabilities assumed, that their carrying values, as included
in the historical financial statements of G.X. Clarke, approximate
their fair values. The Company finalized its purchase accounting
estimates with the assistance of a third-party valuation expert. The
portion of the purchase price representing the initial premium of
$1.5 million and the contingent consideration of $0.1 million has
been assigned to the customer base and software programs/platforms
intangible assets (see Note 9). The Company has assigned useful lives
of 5 years for the customer base and software programs/platforms
intangible assets.
As part of the net cash paid, the Company and G.X. Clarke
established two escrow accounts totaling $10.0 million, related to
an Adjustment Escrow and Indemnity Escrow. The Adjustment
Escrow, of $5.0 million, related to potential purchase price adjustment
obligations was released, during year ended September 30, 2015,
upon determination of the final tangible book value of net assets
of G.X. Clarke. The Indemnity Escrow, of $5.0 million, relates
to potential claims made by the Company for indemnification in
accordance with the terms of the acquisition agreement and is to be
released immediately following the twenty-four month anniversary
of the closing date of the acquisition. The remaining escrow balance
is included in ‘other assets’ in the consolidated balance sheet.
85
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
In addition, as part of the net cash paid for the acquisition, the
Company has deferred payment of $5.0 million, in accordance with
the terms of the acquisition agreement. The deferred payment shall
be equal to $5.0 million less the aggregate net loss, if any, incurred
for the twelve full fiscal quarters commencing after the closing date.
The deferred payment amount shall be due and payable shortly after
the twelfth full fiscal quarter commencing after the closing date. The
deferred payment is included in ‘accounts payable and other accrued
liabilities’ in the consolidated balance sheet.
As discussed above, the terms of the acquisition agreement include
a contingent payment of an additional purchase price of up to
$1.5 million, based on the performance of the acquired business. The
contingent consideration, which in no event shall exceed $1.5 million,
is expected to be paid in two payments. The first payment is expected
to occur after the first four full fiscal quarters commencing after the
closing date. This payment is estimated to be $0.5 million, if the
acquired business generates at least $5.0 million in after-tax net
income over the first four full fiscal quarters after the closing date.
The second and final payment is expected to occur after the twelfth
full fiscal quarter commencing after the closing date. This payment is
estimated to be $1.0 million, if the acquired business has generated
accumulated after-tax net income of greater than $30.0 million over
the twelve full fiscal quarters commencing after the closing date.
Effective July 1, 2015, the Company merged three of its regulated
U.S. subsidiaries, including INTL FCStone Partners L.P., into INTL
FCStone Securities, and the surviving entity was renamed INTL
FCStone Financial, and is dually registered as a broker-dealer and a
futures commission merchant.
Per ASC 805-10-50-2 and S-X Rule 10-01(b)(4) pro forma results of
operations for revenues, net income and net income per share are to
be presented for the current year, up to the end of the current quarter
and for the comparable period of the preceding year, as though the
companies had been combined at the beginning of the period being
reported on.
The following unaudited pro forma information presents a summary
of the consolidated results of operations for the Company as if the
acquisition had occurred on October 1, 2013. The unaudited pro
forma consolidated results of operations are based on the Company’s
historical financial statements and those of G.X. Clarke and do not
necessarily indicate the results of operations that would have resulted
had the acquisition actually been completed at the beginning of the
applicable period presented. The pro forma results reflect the business
combination accounting effects from the acquisition including
adjusting for non-recurring interest expense on subordinated debt
incurred by G.X. Clarke, acquisition related expenses incurred by the
Company and G.X. Clarke, and income taxes of G.X. Clarke, which
was treated as a partnership for U.S. federal income tax purposes
prior to the acquisition.
The unaudited pro forma consolidated results are not indicative of the results of operations in future periods.
Year Ended September 30, 2015
Year Ended September 30, 2014
INtL
INtL
FCStone Inc.(1) G.X. Clarke(2) Combined
(in millions, except per share amounts)
proforma results of Operations:
Operating revenues
Net income
Basic earnings per share
Diluted earnings per share
(1) Includes the amounts of the acquired business from January 1, 2015. The amounts of revenues and earnings of the acquired business since the acquisition date included in the
41.9 $
5.1 $
0.27 $
0.27 $
8.7 $
0.7 $
0.04 $
0.04 $
532.8
24.4
1.28
1.25
624.3
55.7
2.94
2.87
633.0
56.4
2.98
2.91
490.9
19.3
1.01
0.98
FCStone Inc. G.X. Clarke
$
$
$
$
Combined
$
$
$
$
consolidated income statement were $31.4 million and $4.3 million, respectively.
(2) Consists of the amounts for G.X. Clarke for the three months ended December 31, 2014.
Acquisition in Fiscal 2014
The Company’s consolidated financial statements include the operating
results of the acquired businesses from the dates of acquisition. The
total amount of goodwill and intangible assets, in connection with
the fiscal 2014 acquisition, that is deductible for tax purposes is
$0.3 million as of September 30, 2015.
Forward Insight Commodities LLC
In an acquisition agreement dated April 2, 2014, the Company’s
wholly owned subsidiary, FCStone Group, Inc. (“FCG”), agreed to
acquire all of the outstanding member interests of Forward Insight
Commodities, LLC (“FIC”). FIC was a brokerage firm focused
on the structuring and execution of transactions in the energy
derivative space.
The consideration paid for the acquisition consisted of contingent
payments based on the pre-tax earnings of the business for the twelve
month period following the acquisition and was estimated to be
$0.5 million as of the acquisition date. The purchase price for the
acquisition was not material to the consolidated financial statements.
The intangible assets recognized in this transaction of $0.5 million
were assigned to the Clearing and Execution Services segment and
were amortized over a 12 month useful life.
Acquisitions in Fiscal 2013
The Company’s consolidated financial statements include the operating
results of the acquired businesses from the dates of acquisition. The
total amount of goodwill and intangible assets, in connection with
these acquisitions, that is expected to be deductible for tax purposes
is $4.7 million as of September 30, 2015.
86
- Form 10-K
Tradewire
In December 2012, the Company acquired certain institutional
accounts from Tradewire Securities, LLC (“Tradewire Securities”), a
Miami-based securities broker-dealer servicing customers throughout
Latin America and a wholly owned subsidiary of Tradewire Group
Ltd. These accounts were transferred to INTL FCStone Inc.’s broker-
dealer subsidiary, INTL FCStone Securities. As part of the transaction,
the Company hired more than 20 professional staff from Tradewire
Securities’ securities broker-dealer business based in Miami, Florida.
These professionals provide global brokerage services to a wide range
of customers, including hedge funds, pension funds, broker-dealers
and banks located in Latin America, the Caribbean, North America
and Europe.
The consideration to be paid for the acquisition of institutional
accounts from Tradewire Securities consists of three annual contingent
payments and a final contingent payment and the original estimated
present value was estimated to be $5.6 million as of the acquisition
date. The purchase price for the acquisition is not expected to be
material to the consolidated financial statements. The present value of
the estimated total purchase price, including contingent consideration,
is $4.4 million (see Note 11). The Company obtained a third-party
valuation of the intangible assets and contingent liabilities, and
part II
ITEM 8 Financial Statements and Supplementary Data
allocated the purchase costs among identified intangible assets with
determinable useful lives and goodwill. The goodwill and intangible
asset recognized in this transaction of $2.8 million and $2.8 million,
respectively, were assigned to the Securities segment. The intangible
asset is being amortized over a 10 year useful life.
Disposals in Fiscal 2013
Gletir Agente De Valores S.A.
On February 28, 2013, the Company, through its subsidiaries INTL
Netherlands B.V. and Gainvest Asset Management Ltda, entered into
an agreement to sell all of its ownership interest in another subsidiary,
Gletir Agente De Valores S.A. (“Gletir Agente”), to Gletir Financial
Corp (the “Purchaser”). The Company sold the capital stock of Gletir
Agente for $0.8 million. Gletir Agente had net assets of $0.6 million,
which included $0.1 million of AOCI related to foreign currency
translation, included in the consolidated balance sheet of the Company,
at the time of the sale. The gain resulting from the sale price less the
carrying amount of the net assets and the gain from the AOCI balance
were recorded as components of other income on the consolidated
income statement for the fiscal year ended ended September 30, 2013.
NOTE 19 Accumulated Other Comprehensive Income (Loss)
Comprehensive income consists of net income and other gains and losses affecting stockholders’ equity that, under U.S. GAAP, are excluded
from net income. Other comprehensive income (loss) includes net actuarial losses from defined benefit pension plans, unrealized gains on
available-for-sale securities, and gains and losses on foreign currency translations.
The following table summarizes the changes in accumulated other comprehensive income (loss) for the year ended September 30, 2015.
(in millions)
Balances as of September 30, 2014
Other comprehensive income (loss), net of tax before
reclassifications
Amounts reclassified from AOCI, net of tax
Other comprehensive income (loss), net of tax
Balances as of September 30, 2015
Foreign
Currency
translation
adjustment
pension
Benefits
adjustment
Unrealized
Gain or Loss on
available-for-Sale
Securities
accumulated Other
Comprehensive
Loss
$
$
(8.7) $
(3.5)
$
0.6
$
(4.0)
—
(4.0)
(12.7) $
(1.5)
0.2
(1.3)
(4.8)
2.7
(3.3)
(0.6)
$
— $
(11.6)
(2.8)
(3.1)
(5.9)
(17.5)
In connection with the internal merger of wholly owned U.S. subsidiaries (see note 18), the Company transferred its remaining available-for-
sale of securities to the trading category on July 1, 2015. The transfer resulted in $3.3 million, net of tax of $2.0 million, of unrealized gains
not previously recognized in earnings recorded on the consolidated income statement for the year ended September 30, 2015.
NOTE 20 Discontinued Operations
Exit of Physical Base Metals Business
During fiscal 2013, the Company began an exit of its physical base
metals business through the sale and orderly liquidation of then-
current open positions. The exit of the physical base metals business
was substantially completed by the end of fiscal 2013, including the
termination of the physical base metals trading team and certain
operational support personnel. The remaining open contract positions
were fulfilled during fiscal 2014. Under existing accounting guidance,
before the implementation of ASU 2014-08, the Company reclassified
the physical base metals activities in the financial statements as
discontinued operations for all periods presented. The Company
continues to operate the portion of its base metals business related
to non-physical assets, conducted primarily through the London
Metals Exchange.
87
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
Summarized below are the components of the Company’s (loss) income from discontinued operations for the years ended September 30,
2015, 2014, and 2013:
(in millions)
Total revenues from discontinued operations
Total cost of sales of physical commodities from discontinued operations
Operating revenues
(Loss) income from discontinued operations before income taxes
Income tax benefit (expense)
(Loss) income from discontinued operations, net of tax
Year Ended September 30,
2015
2014
2013
$
$
$
$
—
—
—
$
$
— $
—
— $
40.9
40.2
0.7
(0.5)
0.2
(0.3)
$
$
$
$
1,275.0
1,264.7
10.3
1.4
(0.7)
0.7
NOTE 21 Quarterly Financial Information (Unaudited)
The Company has set forth certain quarterly unaudited financial data for the past two years in the tables below:
(in millions, except per share amounts)
Total revenues
Cost of sales of physical commodities
Operating revenues
Transaction-based clearing expenses
Introducing broker commissions
Interest expense
Net operating revenues
Compensation and other expenses
Income from continuing operations, before tax
Income tax expense
Net income
Net basic earnings per share
Net diluted earnings per share
(in millions, except per share amounts)
Total revenues
Cost of sales of physical commodities
Operating revenues
Transaction-based clearing expenses
Introducing broker commissions
Interest expense
Net operating revenues
Compensation and other expenses
(Loss) income from continuing operations, before tax
Income tax (benefit) expense
Income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Net basic earnings per share
Net diluted earnings per share
December 31
$
September 30
2,628.4
2,449.7
178.7
31.3
15.1
5.0
127.3
98.1
29.2
8.1
21.1
1.12
1.09
$
$
$
$
For the 2015 Fiscal Quarter Ended
June 30
March 31
$
$
$
$
3,995.1
3,843.5
151.6
30.2
13.1
4.9
103.4
86.2
17.2
5.0
12.2
0.64
0.62
$
$
$
$
14,442.0
14,285.5
156.5
31.8
12.3
4.5
107.9
89.8
18.1
5.1
13.0
0.68
0.67
$
September 30
10,655.7
$
10,525.1
130.6
27.5
13.9
2.5
86.7
78.9
7.8
2.0
5.8
—
$
5.8
$
0.30
$
0.29
$
$
$
7,005.1
6,886.9
118.2
28.1
11.6
2.5
76.0
72.0
4.0
0.3
3.7
(0.2)
3.5
0.19
0.18
$
$
$
$
8,452.9
8,323.7
129.2
27.7
12.8
2.8
85.9
75.6
10.3
2.6
7.7
(0.2)
7.5
0.39
0.39
$
$
$
$
$
$
13,627.7
13,490.2
137.5
29.4
12.2
2.7
93.2
79.6
13.6
4.2
9.4
0.50
0.49
7,908.7
7,795.8
112.9
25.2
11.6
2.7
73.4
69.5
3.9
1.5
2.4
0.1
2.5
0.13
0.12
For the 2014 Fiscal Quarter Ended
March 31
June 30
December 31
$
As discussed further in note 22, during fiscal year 2015, the Company
transitioned the portion of its precious metals business conducted
through its unregulated domestic subsidiary, INTL Commodities Inc.,
to its United Kingdom based broker-dealer subsidiary, INTL FCStone
Ltd. Prior to the transfer, INTL Commodities Inc.’s precious metals
sales and costs of sales were recorded on a gross basis in accordance
with the Revenue Recognition Topic of the ASC. Subsequent to the
transfer, INTL FCStone Ltd.’s precious metals sales and cost of sales
are presented on a net basis and included as a component of ‘trading
gains, net’ on the consolidated income statements, in accordance
with U.S GAAP accounting requirements for broker-dealers. Precious
metals sales and cost of sales for subsidiaries that are not broker-dealers
continue to be recorded on a gross basis.
88
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
NOTE 22 Segment and Geographic Information
The Company reports its operating segments based on services provided
to customers. The Company’s business activities are managed as
operating segments and organized into reportable segments as follows:
•• Commercial Hedging (includes components Financial Agricultural
(Ag’s) & Energy and LME metals)
•• Global Payments
•• Securities (includes components Equity market-making, Debt Trading,
Investment Banking, and Asset Management)
•• Physical Commodities (includes components Precious metals and
Physical Ag’s & Energy)
•• Clearing and Execution Services (includes components Clearing and
Execution Services and FX Prime Brokerage)
Commercial Hedging
The Company serves its commercial clients through its team of
risk management consultants, providing a high-value-added service
that we believe differentiates it from its competitors and maximizes
the opportunity to retain clients. The Company’s risk management
consulting services are designed to quantify and monitor commercial
entities’ exposure to commodity and financial risk. Upon assessing this
exposure the Company develops a plan to control and hedge these
risks with post-trade reporting against specific client objectives. Clients
are assisted in the execution of their hedging strategies through a wide
range of products from listed exchange-traded futures and options,
to basic OTC instruments that offer greater flexibility, to structured
OTC products designed for customized solutions.
The Company’s services span virtually all traded commodity markets,
with the largest concentrations in agricultural and energy commodities
(consisting primarily of grains, energy and renewable fuels, coffee,
sugar, cotton, and food service) and base metals. The Company’s base
metals business includes a position as a Category One ring dealing
member of the LME, providing execution, clearing and advisory services
in exchange-traded futures and OTC products. The Company also
provides execution of foreign currency forwards and options as well
as a wide range of structured product solutions to commercial clients
who are seeking cost-effective hedging strategies. Generally, clients
direct their own trading activity and the Company’s risk management
consultants do not have discretionary authority to transact trades on
behalf of clients.
Global Payments
The Company provides global payment solutions to banks and
commercial businesses as well as charities and non-governmental
organizations and government organizations. The Company offers
payments services in over 130 countries, which it believes is more
than any other payments solution provider, and provides competitive
and transparent pricing. Through its technology platform, full-service
electronic execution capability and commitment to customer service,
the Company believes it is able to provide simple and fast execution,
ensuring delivery of funds in any of these countries quickly through
its global network of correspondent banks. In this business, the
Company primarily acts as a principal in buying and selling foreign
currencies on a spot basis. The Company derives revenue from the
difference between the purchase and sale prices.
The Company believes its clients value the Company’s ability to
provide exchange rates that are significantly more competitive than
those offered by large international banks, a competitive advantage
that stems from our years of foreign exchange expertise focused on
smaller, less liquid currencies. Additionally, as a member of SWIFT
(Society for Worldwide Interbank Financial Telecommunication), the
Company is able to offer its services to large money center and global
banks seeking more competitive international payments services.
Securities
The Company provides value-added solutions that facilitate cross-
border trading. The Company believes its clients value the Company’s
ability to manage complex transactions, including foreign exchange,
utilizing its local understanding of market convention, liquidity and
settlement protocols around the world. The Company’s clients include
U.S.-based regional and national broker-dealers and institutions
investing or executing customer transactions in international markets
and foreign institutions seeking access to the U.S. securities markets.
The Company is one of the leading market makers in foreign securities,
including unlisted ADRs, GDRs and foreign ordinary shares. The
Company makes markets in over 1,600 ADRs, GDRs and foreign
ordinary shares , of which over 1,300 trade in the OTC market. In
addition, it will, on request, make prices in more than 10,000 unlisted
foreign securities. The Company is a broker-dealer in Argentina
where we are active in providing institutional executions in the local
capital markets.
Following the acquisition of G.X. Clarke, the Company acts as an
institutional dealer in fixed income securities, including U.S. Treasury,
U.S. government agency and agency mortgage-backed securities to
a client base including asset managers, commercial bank trust and
investment departments, broker-dealers and insurance companies.
The Company provides a full range of corporate finance advisory services
to its middle market clients, including capital market solutions and a
wide array of advisory services across a broad spectrum of industries.
The Company’s advisory services span mergers and acquisitions,
liability management, restructuring opinions and valuations. The
Company also originates, structures and places a wide array of debt
instruments in the international and domestic capital markets. These
instruments include complex asset-backed securities (primarily in
Argentina), unsecured bond and loan issues, negotiable notes and other
trade-related debt instruments used in cross-border trade finance. On
occasion, the Company may invest its own capital in debt instruments
before selling them. The Company also actively trades in a variety of
international debt instruments and operates an asset management
business in which it earns fees, commissions and other revenues for
management of third party assets and investment gains or losses on
its investments in funds and proprietary accounts managed either by
its investment managers or by independent investment managers.
89
- Form 10-K part II
ITEM 8 Financial Statements and Supplementary Data
Physical Commodities
This segment consists of the Company’s physical precious metals
trading and physical agricultural and energy commodity businesses.
In precious metals, the Company provides a full range of trading and
hedging capabilities, including OTC products, to select producers,
consumers, and investors. In the Company’s trading activities, it acts
as a principal, committing its own capital to buy and sell precious
metals on a spot and forward basis.
The Company’s 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. The Company uses 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. These transactions are accounted for
as product financing arrangements, and accordingly no commodity
inventory, purchases or sales are recorded. Additionally, the Company
engages as a principal in physical purchase and sale transactions
related to inputs to the renewable fuels and feed ingredient industries.
On April 10, 2015 (the “transfer date”), the Company transitioned
the portion of its precious metals business conducted through its
unregulated domestic subsidiary, INTL Commodities Inc., to its
United Kingdom based broker-dealer subsidiary, INTL FCStone
Ltd. INTL FCStone Ltd. is regulated by the Financial Conduct
Authority (“FCA”), the regulator of the financial services industry
in the United Kingdom. Subsequent to the transfer, precious metals
inventory held by INTL FCStone Ltd. is measured at fair value,
with changes in fair value included as a component of ‘trading gains,
net’ on the consolidated income statement, in accordance with U.S.
GAAP accounting requirements for broker-dealers. Precious metals
inventory held by subsidiaries that are not broker-dealers continues
to be valued at the lower of cost or market value.
Prior to the transfer, INTL Commodities Inc.’s precious metals
sales and costs of sales were recorded on a gross basis in accordance
with the Revenue Recognition Topic of the ASC. Subsequent to the
transfer, INTL FCStone Ltd.’s precious metals sales and cost of sales
are presented on a net basis and included as a component of ‘trading
gains, net’ on the consolidated income statements, in accordance
with U.S GAAP accounting requirements for broker-dealers. Precious
metals sales and cost of sales for subsidiaries that are not broker-dealers
continue to be recorded on a gross basis.
The Company records its physical agricultural and energy commodities
revenues on a gross basis. Operating revenues and losses from its
commodities derivatives activities are included in ‘trading gains, net’
in the consolidated income statements. Inventory for the physical
agricultural and energy commodities business is valued at the lower of
cost or fair value under the provisions of the Inventory Topic of the ASC.
The Company generally mitigates the price risk associated with
commodities held in inventory through the use of derivatives. The
Company does not elect hedge accounting under U.S. GAAP in
accounting for this price risk mitigation.
Clearing and Execution Services (CES)
The Company seeks to provide competitive and efficient clearing and
execution of exchange-traded futures and options for the institutional
90
and professional trader market segments. Through its platform,
customer orders are accepted and directed to the appropriate exchange
for execution. The 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. The 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. The
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.
The Company also operates a proprietary foreign exchange desk
which arbitrages the exchange-traded foreign exchange markets
with the cash markets.
********
The 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.
These 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. The
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. The intercompany
receivable asset is eliminated during consolidation, and therefore this
practice may impact reported total assets between segments.
- Form 10-K Information concerning operations in these segments of business is shown in accordance with the Segment Reporting Topic of the ASC as follows:
part II
ITEM 8 Financial Statements and Supplementary Data
(in millions)
Total revenues:
Commercial Hedging
Global Payments
Securities
Physical Commodities
Clearing and Execution Services
Corporate unallocated
Total
Operating revenues (loss):
Commercial Hedging
Global Payments
Securities
Physical Commodities
Clearing and Execution Services
Corporate unallocated
Total
Net operating revenues (loss):
Commercial Hedging
Global Payments
Securities
Physical Commodities
Clearing and Execution Services
Corporate unallocated
Total
Net contribution:
(Revenues less cost of sales, transaction-based clearing expenses, variable bonus
compensation, introducing broker commissions and interest expense):
Commercial Hedging
Global Payments
Securities
Physical Commodities
Clearing and Execution Services
Total
Segment income:
(Net contribution less non-variable direct segment costs):
Commercial Hedging
Global Payments
Securities
Physical Commodities
Clearing and Execution Services
Total
Reconciliation of segment income to income from continuing operations, before tax:
Segment income
Costs not allocated to operating segments
Income from continuing operations, before tax
Year Ended September 30,
2015
2014
2013
$
$
$
$
$
$
$
$
$
$
$
$
262.4
77.1
129.8
34,092.0
123.4
8.5
34,693.2
262.4
77.1
129.8
23.1
123.4
8.5
624.3
214.7
68.5
88.6
21.2
38.3
0.5
431.8
151.7
54.5
67.4
16.9
30.1
320.6
85.6
43.3
40.5
5.8
12.9
188.1
188.1
110.0
78.1
$
$
$
$
$
$
$
$
$
$
$
$
224.0 $
55.4
80.3
33,552.1
113.7
(3.1)
34,022.4 $
202.0
40.9
70.0
42,052.0
121.3
7.2
42,493.4
224.0 $
55.4
80.3
20.6
113.7
(3.1)
490.9 $
180.5 $
48.2
54.6
17.9
29.7
(8.9)
322.0 $
132.6 $
37.6
40.9
14.1
24.0
249.2 $
67.3 $
28.3
21.0
5.9
6.3
128.8 $
128.8 $
102.8
26.0 $
202.0
40.9
70.0
26.8
121.3
7.2
468.2
163.0
36.7
48.0
23.4
34.1
4.5
309.7
119.7
28.0
37.6
17.5
25.9
228.7
57.1
20.5
19.5
10.0
5.9
113.0
113.0
91.8
21.2
91
- Form 10-K
part II
ITEM 8 Financial Statements and Supplementary Data
(in millions)
Total assets:
Commercial Hedging
Global Payments
Securities
Physical Commodities
Clearing and Execution Services
Corporate unallocated
Total
as of September 30, 2015
as of September 30, 2014
as of September 30, 2013
$
$
1,548.1
207.3
1,861.0
190.9
1,163.8
98.9
5,070.0
$
$
1,400.9
51.9
235.5
116.8
1,136.2
98.4
3,039.7
$
$
1,005.1
57.2
204.2
132.5
1,333.3
115.7
2,848.0
Information regarding revenues and operating revenues for the years ended September 30, 2015, 2014, and 2013, and information regarding
long-lived assets (defined as property, equipment, leasehold improvements and software) as of September 30, 2015, 2014, and 2013 in
geographic areas were as follows:
2015
Year Ended September 30,
2014
2013
$
$
$
$
25,959.0
121.2
49.0
8,560.0
4.0
34,693.2
424.3
125.0
49.0
21.9
4.1
624.3
$
$
$
$
19,055.3
86.0
53.2
14,822.4
5.5
34,022.4
330.4
86.0
53.2
15.8
5.5
490.9
$
$
$
$
27,788.0
65.6
51.3
14,581.2
7.3
42,493.4
323.9
65.6
51.3
20.1
7.3
468.2
as of September 30, 2015
as of September 30, 2014
as of September 30, 2013
$
$
$
13.8
4.0
1.7
0.2
—
$
19.7
8.5
5.0
2.0
0.3
0.1
15.9
$
$
9.1
5.4
2.4
0.5
0.1
17.5
(in millions)
Total revenues:
United States
Europe
South America
Asia
Other
Total
Operating revenues:
United States
Europe
South America
Asia
Other
Total
(in millions)
Long-lived assets, as defined:
United States
Europe
South America
Asia
Other
Total
92
- Form 10-K
part II
SCHEDULE I INTL FCStone Inc. Condensed Balance Sheets
SCHEDULE I
INTL FCStone Inc. Condensed
Balance Sheets
Parent Company Only
(in millions)
ASSETS
Cash and cash equivalents
Receivable from subsidiaries, net
Notes receivable, net
Income taxes receivable
Investment in subsidiaries(1)
Financial instruments owned, at fair value
Deferred income taxes, net
Property and equipment, net
Goodwill and intangible assets, net
Other assets
Total assets
LIABILITIES AND EQUITY
Liabilities:
Accounts payable and other accrued liabilities
Payable to customers
Payable to lenders under loans
Payable to subsidiaries, net
Senior unsecured notes
Financial instruments sold, not yet purchased, at fair value
Total liabilities
EQUITY:
INTL FCStone Inc. (Parent Company Only) stockholders’ equity:
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; no shares issued or outstanding
Common stock, $0.01 par value. Authorized 30,000,000 shares; 20,184,556 issued and
18,812,803 outstanding at September 30, 2015 and 19,826,635 issued and 18,883,662
outstanding at September 30, 2014
Common stock in treasury, at cost - 1,371,753 shares at September 30, 2015 and 942,973 shares at
September 30, 2014
Additional paid-in capital
Retained earnings(1)
September 30, 2015
September 30, 2014
$
$
$
$
2.5
0.4
46.4
24.3
286.0
3.0
12.0
9.2
—
$
$
13.1
396.9
29.3
30.7
31.6
123.7
45.5
—
260.8
—
0.2
3.0
—
40.0
12.9
237.7
—
16.6
3.6
—
4.9
318.7
8.8
25.8
15.0
61.7
45.5
—
156.8
—
0.2
(26.8)
240.8
(78.1)
136.1
396.9
(17.5)
229.6
(50.4)
161.9
318.7
Total INTL FCStone Inc. (Parent Company Only) stockholders’ equity
Total liabilities and equity
(1) Within the Condensed Balance Sheets and Condensed Statements of Operations of INTL FCStone Inc. - Parent Company Only, the Company has accounted for its investment in
wholly owned subsidiaries using the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such subsidiaries are not included in the Condensed
Balance Sheet or Condensed Statements of Operations. If the accounting for its investment in wholly owned subsidiaries were presented under the equity method of accounting,
investment in subsidiaries and retained earnings would each increase by $278.5 million as of September 30, 2015, respectively, and $195.1 million, as of September 30, 2014,
respectively.
$
$
93
- Form 10-K
part II
SCHEDULE I INTL FCStone Inc. Condensed Statements of Operations
SCHEDULE I
INTL FCStone Inc. Condensed
Statements of Operations
Parent Company Only
(in millions)
Revenues:
Management fees from affiliates
Trading gains, net
Consulting fees
Interest income
Dividend income from subsidiaries(2)
Interest expense
Net revenues
Non-interest expenses:
Compensation and benefits
Clearing and related expenses
Introducing broker commissions
Communication and data services
Occupancy and equipment rental
Professional fees
Travel and business development
Depreciation and amortization
Bad debts and impairments
Management services fees to affiliates
Other
2015
Year Ended September 30,
2014
2013
$
$
26.6
3.2
2.1
4.6
6.0
42.5
12.7
29.8
$
9.5
—
1.6
4.3
—
15.4
10.6
4.8
9.2
—
1.6
3.6
—
14.4
7.1
7.3
43.5
1.2
0.5
5.7
2.1
4.6
1.4
1.8
1.6
4.3
10.2
76.9
(47.1)
19.4
(27.7)
29.8
0.3
0.3
1.3
2.0
5.0
1.1
1.8
0.1
2.9
3.5
48.1
(43.3)
17.1
(26.2)
30.5
0.5
0.5
0.9
1.4
2.3
1.2
1.5
—
2.7
3.6
45.1
(37.8)
13.2
(24.6)
Total non-interest expenses
Loss from continuing operations, before tax
Income tax benefit
Net loss
(2) Within the Condensed Balance Sheets and Condensed Statements of Operations of INTL FCStone Inc. - Parent Company Only, the Company has accounted for its investment
in wholly owned subsidiaries using the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such subsidiaries are not included in the
Condensed Balance Sheet or Condensed Statements of Operations. If the accounting for its investment in wholly owned subsidiaries were presented under the equity method of
accounting, revenues would include income from investment in subsidiaries of $83.4 million, $45.5 million, and $43.9 million, for the years ended September 30, 2015, 2014,
and 2013, respectively.
$
$
$
Certain amounts previously reported have been reclassified to conform to the current period presentation.
94
- Form 10-K
part II
SCHEDULE I INTL FCStone Inc. Condensed Statements of Cash Flows
SCHEDULE I
INTL FCStone Inc. Condensed
Statements of Cash Flows
Parent Company Only
(in millions)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation and amortization
Provision for impairments
Deferred income taxes
Amortization of debt issuance costs and debt discount
Amortization of share-based compensation expense
Changes in operating assets and liabilities:
Due to/from subsidiaries
Notes receivable, net
Income taxes receivable
Financial instruments owned, at fair value
Other assets
Accounts payable and other accrued liabilities
Payable to customers
Financial instruments sold, not yet purchased, at fair value
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Capital contribution in affiliates
Capital withdrawals from affiliates
Purchase of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Payable to lenders under loans
Proceeds from note payable
Payments of notes payable
Proceeds from issuance of senior unsecured notes
Payments related to earn-outs on acquisitions
Share repurchase
Debt issuance costs
Exercise of stock options
Income tax benefit on stock options and awards
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid for interest
Income taxes (received) paid, net of cash refunds
Supplemental disclosure of non-cash investing and financing activities:
Additional consideration payable related to acquisitions
2015
Year Ended September 30,
2014
2013
$
(27.7)
$
(26.2)
$
(24.6)
1.8
1.6
4.6
0.8
3.6
33.2
(7.8)
(11.4)
(3.0)
(3.9)
12.6
4.9
—
9.3
(22.4)
7.8
(7.8)
(22.4)
13.0
4.0
(0.4)
—
(2.2)
(4.7)
(0.1)
2.5
0.5
12.6
(0.5)
3.0
2.5
11.9
(12.9)
1.9
$
$
$
$
1.8
0.1
(9.6)
0.8
4.3
84.6
(12.8)
4.6
—
(1.1)
(1.1)
7.1
(0.6)
51.9
(0.5)
—
(1.8)
(2.3)
(40.0)
—
—
—
(1.1)
(9.7)
(0.2)
1.4
(0.1)
(49.7)
(0.1)
3.1
3.0
$
6.9
(5.3)
(3.0)
$
$
$
$
$
$
$
1.5
—
(6.1)
0.5
9.3
(2.8)
(17.1)
(3.2)
1.5
1.7
1.4
18.0
(24.7)
(44.6)
(11.5)
—
(0.8)
(12.3)
7.0
—
—
45.5
—
(4.0)
(3.2)
1.5
0.1
46.9
(10.0)
13.1
3.1
3.0
(1.6)
5.6
95
- Form 10-K
part II
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
ITEM 9A Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures
In connection with the filing of this Form 10-K, our management,
including the principal executive officer and principal financial officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) as of September 30, 2015. We seek to design
our disclosure controls and procedures to provide reasonable assurance
that the reports we file or submit under the Exchange Act contain
the required information and that we submit these reports within
the time periods specified in SEC rules and forms. We also seek to
design these controls and procedures to ensure that we accumulate
and communicate correct information to our management, including
our principal executive and principal financial officers, as appropriate,
to allow timely decisions regarding required disclosure.
Based on the evaluation, our principal executive officer and principal
financial officer have concluded that our disclosure controls and
procedures were effective as of September 30, 2015.
(b) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is
defined in Exchange Act Rule 13a-15(f ). Our internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S.
generally accepted accounting principles (“GAAP”). Our internal
control over financial reporting includes those policies and procedures
that: (i) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets
of the Company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements
in accordance with GAAP, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could
have a material effect on the financial statements.
There are limitations inherent in any internal control, such as the
possibility of human error and the circumvention or overriding
of controls. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met, and may not prevent or
detect misstatements. As conditions change over time, so too may the
effectiveness of internal controls. A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not
be prevented or detected on a timely basis.
Management (with the participation of our principal executive officer
and principal financial officer) evaluated the Company’s internal
control over financial reporting as of September 30, 2015, based
on the framework in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations (COSO) of
the Treadway Commission.
Management’s assessment of the effectiveness of the Company’s internal
control over financial reporting as of September 30, 2015 excluded
G.X. Clarke & Co., acquired with effect from January 1, 2015.
Based on its assessment, management has concluded that our internal
control over financial reporting was effective as of September 30, 2015.
KPMG LLP, an independent registered public accounting firm, audited
the effectiveness of our internal control over financial reporting as
of September 30, 2015, and KPMG LLP issued a report on the
effectiveness of the Company’s internal control over financial reporting
as of September 30, 2015, which is included in Item 8 “Consolidated
Financial Statements and Supplementary Data” of this Annual Report
on Form 10-K.
96
- Form 10-K (c)
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2015 that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
part II
ITEM 9B Other Information
ITEM 9B Other Information
None.
97
- Form 10-K PART III
Item 10 Directors, executive Officers and Corporate Governance
PART III
Item 10 Directors, executive Officers and Corporate
Governance
We will include a list of our executive officers and biographical and
other information about them and our directors in the definitive Proxy
Statement for our 2016 Annual Meeting of Stockholders to be held
on February 25, 2016. We will file the proxy within 120 days of the
end of our fiscal year ended September 30, 2015 (the “2016 Proxy
Statement”). The 2016 Proxy Statement is incorporated herein by
reference. Information about our Audit Committee may be found
in the Proxy Statement. That information is incorporated herein by
reference.
We adopted a code of ethics that applies to the directors, officers
and employees of the Company and each of its subsidiaries.
The code of ethics is publicly available on our Website at
www.intlfcstone.com/ethics.aspx. If we make any substantive
amendments to the code of ethics or grant any waiver, including
any implicit waiver, from a provision of the code to our Chief
Executive Officer, Chief Financial Officer, or Chief Accounting
Officer, we will disclose the nature of the amendment or waiver on
that website or in a report on Form 8-K.
Item 11 executive Compensation
We will include information relating to our executive officer and director compensation and the compensation committee of our board of
directors in the 2016 Proxy Statement and is incorporated herein by reference.
98
- Form 10-K PART III
Item 14 Principal Accountant Fees and Services
Item 12 Security Ownership of Certain Beneficial
Owners and management and Related
Stockholder matters
We will include information relating to security ownership of certain
beneficial owners of our common stock and information relating to the
security ownership of our management in the 2016 Proxy Statement
and is incorporated herein by reference.
The following table provides information generally as of September 30,
2015, the last day of fiscal 2015, regarding securities to be issued
on exercise of stock options, and securities remaining available for
issuance under our equity compensation plans that were in effect
during fiscal 2015.
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under equity
compensation plans
1,297,984 $
—
1,297,984 $
28.28
—
28.28
822,500
—
822,500
Item 13 Certain Relationships and Related transactions,
and Director Independence
We will include information regarding certain relationships and related transactions and director independence in the 2016 Proxy Statement
and is incorporated herein by reference.
Item 14 Principal Accountant Fees and Services
Information regarding principal accountant fees and services will be included in the 2016 Proxy Statement and is incorporated herein by reference.
99
- Form 10-K PART IV
Item 15 exhibits
PART IV
Item 15 exhibits
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Amended and Restated Certificate of Incorporation (incorporated by reference from the Company’s Form 8-K filed with the SEC on
October 9, 2009).
Amended and Restated By-laws (incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed with the SEC on
August 14, 2007).
International Assets Holding Corporation 2003 Stock Option Plan (incorporated by reference from the Company’s Proxy Statement on
Schedule 14A filed on January 14, 2003).
Amendment to International Assets Holding Corporation 2003 Stock Option Plan (incorporated by reference from the Company’s Proxy
Statement on Form 14A filed with the SEC on February 11, 2004).
Amendment to International Assets Holding Corporation 2003 Stock Option Plan (incorporated by reference from the Company’s Proxy
Statement on Form 14A filed with the SEC on January 23, 2006).
FCStone Group, Inc. 2006 Equity Incentive Plan (incorporated by reference from the Registration Statement on Form S-8 filed by FCStone
Group, Inc. with the SEC on June 12, 2006).
INTL FCStone Inc. 2013 Stock Option Plan (incorporated by reference from the Company’s Proxy Statement on Schedule 14A filed on
January 11, 2013).
Employment Agreement, dated October 22, 2002, by and between the Company and Sean O’Connor (incorporated by reference from the
Company’s Form 8-K filed with the SEC on October 24, 2002).
Employment Agreement, dated October 22, 2002, by and between the Company and Scott Branch (incorporated by reference from the
Company’s Form 8-K filed with the SEC on October 24, 2002).
Registration Rights Agreement, dated October 22, 2002, by and between the Company, and Sean O’Connor (incorporated by reference from
the Company’s Form 8-K filed with the SEC on October 24, 2002).
First Amendment to Registration Rights Agreement, dated December 6, 2002, by and between the Company and Sean O’Connor
(incorporated by reference from the Company’s Form 8-K filed with the SEC on December 10, 2002).
Registration Rights Agreement, dated October 22, 2002, by and between the Company and Scott Branch (incorporated by reference from the
Company’s Form 8-K filed with the SEC on October 24, 2002).
First Amendment to Registration Rights Agreement, dated December 6, 2002, by and between the Company and Scott Branch (incorporated
by reference from the Company’s Form 8-K filed with the SEC on December 10, 2002).
Registration Rights Agreement, dated October 22, 2002, by and between the Company and John Radziwill (incorporated by reference from
the Company’s Form 8-K filed with the SEC on October 24, 2002).
First Amendment to Registration Rights Agreement, dated December 6, 2002, by and between the Company and John Radziwill
(incorporated by reference from the Company’s Form 8-K filed with the SEC on December 10, 2002).
Employment Agreement, effective December 1, 2004, by and between the Company and Brian T. Sephton (incorporated by reference from
the Company’s Form 8-K, as filed with the SEC on November 24, 2004).
International Assets Holding Corporation form of Registration Rights Agreement (incorporated by reference from the Company’s Form 8-K
filed with the SEC on September 15, 2006).
2012 Restricted Stock Plan (incorporated by reference from the Company’s Proxy Statement on Form 14A filed with the SEC on
January 13, 2012).
2012 Executive Compensation Plan (incorporated by reference from the Company’s Proxy Statement on Form 14A filed with the SEC on
January 13, 2012).
Farmers Commodities Corporation Supplemental Nonqualified Pension Plan (incorporated by reference from Amendment No. 2 to the
Registration Statement on Form S-4 filed by FCStone Group, Inc. with the SEC on December 9, 2004).
Form of Director Indemnification Agreement (incorporated by reference from Amendment No. 3 to the Registration Statement on Form S-4
filed by FCStone Group, Inc. with the SEC on December 30, 2004).
Amended and Restated Credit Agreement, made as of June 21, 2010, by and between FCStone, LLC, as borrower, FCStone Group, Inc., as
a guarantor, International Assets Holding Corporation, as a guarantor, Bank of Montreal, as administrative agent, BMO Capital Markets, as
Sole Lead Arranger, and the lenders party thereto (incorporated by reference from the Company’s Current Report on Form 8-K filed with the
SEC on June 24, 2010).
100
- Form 10-K PART IV
Item 15 exhibits
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
14
21
23.1
31.1
31.2
32.1
32.2
Seventh Amendment to Amended and Restated Credit Agreement, made as of March 30, 2015, by and between FCStone, LLC, as Borrower,
FCStone Group, Inc., as Guarantor, INTL FCStone Inc., as Guarantor, Bank of Montreal, as Administrative Agent, and BMO Harris
Financing, Inc., as a lender party thereto (incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on
April 2, 2015).
Eighth Amendment to Amended and Restated Credit Agreement entered into as of June 30, 2015 with Bank of Montreal, as Administrative
Agent, and BMO Harris Financing, Inc., as a lender party thereto (incorporated by reference from the Company’s Current Report on Form
8-K filed with the SEC on July 7, 2015).
Credit Agreement, made as of August 10, 2012, by and between FCStone Merchant Services, LLC, as Borrower, INTL FCStone Inc., as
Guarantor, Bank of Montreal, as Administrative Agent and a Lender, BMO Capital Markets, as Sole Lead Arranger and Sole Book Runner, and
the lenders party thereto (incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on August 14, 2012).
Seventh Amendment to Credit Agreement, made as of April 21, 2015, by and between FCStone Merchant Services, LLC, as Borrower,
INTL FCStone Inc., as Guarantor, Bank of Montreal, Chicago Branch, as Administrative Agent and a Lender, and the lenders party thereto
(incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on April 24, 2015).
Credit Agreement made as of September 20, 2013 by and between INTL FCStone Inc. as Borrower, the Subsidiaries of INTL FCStone
Inc. identified therein, as guarantors, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Bank of America
Merrill Lynch and Capital One, N.A., as Joint Lead Arrangers and Joint Book Managers, Bank Hapoalim B.M., BMO Harris Bank N.A. and
The Korea Development Bank, New York Branch, as additional Lenders, and with the lenders from time to time parties thereto (incorporated
by reference from the Company’s Current Report on Form 8-K filed with the SEC on September 24, 2013).
First Amendment to Credit Agreement, made as of April 18, 2014, by and between INTL FCStone Inc., as Borrower, the Subsidiaries of
INTL FCStone Inc. identified therein, as Guarantors, with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C
Issuer, Bank of America Merrill Lynch and Capital One, N.A., as Joint Lead Arrangers and Joint Book Managers, Bank Hapoalim B.M.,
BMO Harris Bank N.A. and The Korea Development Bank, New York Branch, as additional Lenders (incorporated by reference from the
Company’s Current Report on Form 8-K filed with the SEC on April 22, 2014).
Second Amendment to Credit Agreement entered into as of May 12, 2015 with Bank of America, N.A., as Administrative Agent, Lender, L/C
Issuer and Swing Line Lender, Capital One, N.A., Bank Hapoalim B.M., BMO Harris Bank N.A. and The Korea Development Bank, New
York Branch, as additional Lenders, and with the lenders from time to time parties thereto (incorporated by reference from the Company’s
Current Report on Form 8-K filed with the SEC on May 18, 2015).
Credit Agreement, made as of November 15, 2013, by and between INTL FCStone Ltd., as Borrower, INTL FCStone Inc., as Guarantor,
Bank of America, N.A., as Administrative Agent and a Lender, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger
and Sole Book Manager, and with the lenders party thereto (incorporated by reference from the Company’s Current Report on Form 8-K filed
with the SEC on November 20, 2013).
First Amendment to Credit Agreement, made as of November 10, 2014, by and between INTL FCStone Ltd., as Borrower, INTL FCStone
Inc., as Guarantor, Bank of America, N.A., as Administrative Agent and a Lender, and with the lenders party thereto (incorporated by
reference from the Company’s Current Report on Form 8-K filed with the SEC on November 13, 2014).
Second Amendment to Credit Agreement, made as of November 5, 2015, by and between INTL FCStone Ltd., as Borrower, INTL FCStone
Inc., as Guarantor, Bank of America, N.A., as Administrative Agent and a Lender, and with the lenders party thereto (incorporated by
reference from the Company’s Current Report on Form 8-K filed with the SEC on November 10, 2015).
Loan Authorization Agreement entered into as of May 5, 2015, by and between FCStone, LLC, as Borrower, and BMO Harris Bank N.A., as
Bank (incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on May 8, 2015).
Reaffirmation and Assumption entered into as of June 30, 2015 with BMO Harris Bank N.A. (incorporated by reference from the Company’s
Current Report on Form 8-K filed with the SEC on July 7, 2015).
Assignment, Assumption and Amendment Agreement entered into as of July 1, 2015 with JPMorgan Chase Bank (incorporated by reference
from the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2015).
International Assets Holding Corporation Code of Ethics (incorporated by reference from the Company’s Form 10-KSB filed with the SEC
on December 29, 2003).
List of the Company’s subsidiaries. *
Consent of KPMG LLP *
Certification of Chief Executive Officer, pursuant to Rule 13a—14(a). *
Certification of Chief Financial Officer, pursuant to Rule 13a—14(a). *
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. *
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. *
*
Filed as part of this report.
101
- Form 10-K PART IV
Item 15 Signatures
Schedules and exhibits excluded
All schedules and exhibits not included are not applicable, not required or would contain information which is included in the Consolidated
Financial Statements, Summary of Significant Accounting Policies, or the Notes to the Consolidated Financial Statements.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
INTL FCStone Inc.
Dated:
/S/ SEAN M. O’CONNOR
Sean M. O’Connor
Chief Executive Officer
December 9, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature
/s/ JOHN RADZIWILL
John Radziwill
/s/ SEAN M. O’CONNOR
Sean M. O’Connor
/s/ SCOTT J. BRANCH
Scott J. Branch
/s/ PAUL G. ANDERSON
Paul G. Anderson
/s/ EDWARD J. GRZYBOWSKI
Edward J. Grzybowski
/s/ JOHN M. FOWLER
John M. Fowler
/s/ BRUCE KREHBIEL
Bruce Krehbiel
/s/ DARYL HENZE
Daryl Henze
/s/ ERIC PARTHEMORE
Eric Parthemore
/s/ WILLIAM J. DUNAWAY
William J. Dunaway
Title
Director and Chairman of the Board
Director, President and Chief Executive Officer
(Principal Executive Officer)
Director
Director
Director
Director
Director
Director
Director
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date
December 9, 2015
December 9, 2015
December 9, 2015
December 9, 2015
December 9, 2015
December 9, 2015
December 9, 2015
December 9, 2015
December 9, 2015
December 9, 2015
102
- Form 10-K eXHIBIt 21 Subsidiaries of the Registrant
Name
FCC Futures, Inc.
FCStone Canada ULC
FCStone do Brazil Ltda.
FCStone Group, Inc.
FCStone Merchant Services, LLC
FCStone Paraguay S.R.L.
Gainvest Asset Management Ltd.
Gainvest S.A. Sociedad Gerente de Fondos Comunes de Inversion
Gainvest Uruguay Asset Management S.A.
INTL Asia Pte. Ltd.
INTL FCStone Nigeria Ltd.
INTL Capital S.A.
INTL CIBSA S.A.
INTL FCStone Commodities DMCC
INTL Commodities, Inc.
INTL FCStone Capital Assessoria Financeira Ltda.
INTL FCStone DTVM Ltda.
INTL FCStone Financial Inc.
INTL FCStone (HK) Ltd.
INTL FCStone Ltd
INTL FCStone (Netherlands) B.V.
INTL FCStone Pte. Ltd.
INTL FCStone Pty Ltd
INTL FCStone S.A.
INTL FCStone (Shanghai) Trading Co., Ltd
INTL FCStone Markets, LLC
INTL Korea Limited
INTL Participacoes Ltda.
INTL FCStone Assets, Inc.
INTL Netherlands B.V.
IFCS de Mexico Asesores Independientes
Westown Commodities, LLC
Place of Incorporation
Iowa, US
Nova Scotia, Canada
Brazil
Delaware
Delaware, US
Paraguay
British Virgin Islands
Argentina
Uruguay
Singapore
Nigeria
Argentina
Argentina
Dubai, United Arab Emirates
Delaware, US
Brazil
Brazil
Florida, US
Hong Kong
United Kingdom
The Netherlands
Singapore
Australia
Argentina
China
Iowa, US
Republic of Korea
Brazil
Florida, US
The Netherlands
Mexico
Iowa, US
e-1
- Form 10-K eXHIBIt 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
INTL FCStone Inc.:
We consent to the incorporation by reference in the registration
statements (Nos. 333-117544, 333-137992, 333-144719, 333-152461,
and 333-186704 on Form S-3 and Nos. 333-108332, 333-142262,
333-196413, 333-160832, 333-197773, and 333-10727 on
Form S-8) of INTL FCStone Inc. (the Company) of our reports
dated December 9, 2015, with respect to the consolidated balance
sheets of the Company as of September 30, 2015 and 2014, and the
related consolidated statements of income, comprehensive income, cash
flows, and stockholders’ equity for each of the years in the three-year
period ended September 30, 2015, and the related financial statement
schedule, and the effectiveness of internal control over financial
reporting as of September 30, 2015, which reports appear in the
September 30, 2015 annual report on Form 10-K of the Company.
Our report dated December 9, 2015, on the consolidated financial
statements refers to a change in presentation of sales and cost of sales
for a portion of the precious metals business.
Our report dated December 9, 2015, on the effectiveness of internal
control over financial reporting as of September 30, 2015, contains
an explanatory paragraph that states management’s assessment of
the effectiveness of the Company’s internal control over financial
reporting as of September 30, 2015 excluded G.X. Clarke & Co.
(G.X. Clarke), acquired with effect from January 1, 2015. Our
audit of internal control over financial reporting of the Company
also excluded an evaluation of the internal control over financial
reporting of G.X. Clarke.
/s/ KPMG LLP
Kansas City, Missouri
December 9, 2015
e-2
- Form 10-K eXHIBIt 31.1 Section 302 Certification
I, Sean M. O’Connor, certify that:
1.
I have reviewed this Annual Report on Form 10-K of INTL
FCStone Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d - 15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal controls over financial reporting,
or caused such internal controls over financial reporting to
be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal
control over financial reporting that occurred during the
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: December 9, 2015
/s/ SEAN M. O’CONNOR
Sean M. O’Connor
Chief Executive Officer
e-3
- Form 10-K eXHIBIt 31.2 Section 302 Certification
I, William J. Dunaway certify that:
1.
I have reviewed this Annual Report on Form 10-K of INTL
FCStone Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d - 15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal controls over financial reporting,
or caused such internal controls over financial reporting to
be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal
control over financial reporting that occurred during the
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: December 9, 2015
/s/ WILLIAM J. DUNAWAY
William J. Dunaway
Chief Financial Officer
e-4
- Form 10-K eXHIBIt 32.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of INTL FCStone Inc. (the
Company) on Form 10-K for the period ended September 30, 2015
as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Sean M. O’Connor, Chief Executive Officer
of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the
best of my knowledge:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: December 9, 2015
/s/ SEAN M. O’CONNOR
Sean M. O’Connor
Chief Executive Officer
A signed original of this written statement required by Section 906 or other document authenticating, acknowledging or otherwise adopting
the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to
INTL FCStone Inc. and will be retained by INTL FCStone Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.
e-5
- Form 10-K eXHIBIt 32.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of INTL FCStone Inc. (the
Company) on Form 10-K for the period ended September 30, 2015
as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, William J. Dunaway, Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the
best of my knowledge:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: December 9, 2015
/s/ WILLIAM J. DUNAWAY
William J. Dunaway
Chief Financial Officer
A signed original of this written statement required by Section 906 or other document authenticating, acknowledging or otherwise adopting
the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to
INTL FCStone Inc. and will be retained by INTL FCStone Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.
e-6
- Form 10-K Designed and Published by Labrador-company.com
Executive Directors
Sean O’Connor
Chief Executive Officer/President
Officers
William Dunaway
Chief Financial Officer
Xuong Nguyen
Chief Operating Officer
Brian Sephton
Chief Legal & Governance Officer
Bruce Fields
Group Treasurer
Tricia Harrod
Chief Risk Officer
Aaron Schroeder
Chief Accounting Officer
David Bolte
Corporate Secretary
Non-Executive Directors
John Radziwill
Chairman
Member Compensation Committee
Private Investor
Company Director
Paul G. (Pete) Anderson
Retired Company President
Scott Branch
Retired Company President
John M. Fowler
Chairman Compensation Committee
Member Nominating & Governance
Committee
Member Risk Committee
Private Investor
Independent Consultant
Daryl Henze
Chairman Audit Committee
Member Risk Committee
Independent Consultant
Company Director
Bruce Krehbiel
Member Audit Committee
Member Nominating & Governance
Committee
Chief Executive Officer
Kanza Cooperative Association
Eric Parthemore
Chairman Nominating & Governance
Member Compensation
Committee
Chief Executive Officer
Heritage Cooperative, Inc.
Edward J. Grzybowski
Chairman Risk Committee
Member Audit Committee
Independent Consultant
Corporate Headquarters &
Stockholder Relations
708 Third Avenue, Suite 1500
New York, NY 10017, USA
Tel: +1 212 485 3500
Stock Listing
The Company’s common stock trades
on NASDAQ under the symbol “INTL”.
Company Information
To receive Company material,
including additional copies of this
annual report, Forms 10-K or 10-Q,
or to obtain information on other
matters of investor interest, please
contact Group Treasurer Bruce Fields
at the Stockholder Relations address
or visit our website at
www.intlfcstone.com.
Annual Meeting
The annual meeting of stockholders
will be held at 10:00 am on Thursday,
February 25, 2016 at the following
address:
The Alford Inn
300 E. New England Ave.
Winter Park, FL 32789
Stock Transfer Agent &
Registrar
Computershare is the transfer agent
and registrar for INTL FCStone
Inc. Inquiries about stockholders’
accounts, address changes or
certificates should be directed to
Computershare.
To contact by mail:
211 Quality Circle, Suite 210
College Station, TX 77845
Annual Report | 2015
www.intlfcstone.com