Company Quick10K Filing
Quick10K
Intl Fcstone
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$37.19 19 $703
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
10-K 2013-09-30 Annual: 2013-09-30
8-K 2019-08-13 Regulation FD
8-K 2019-08-08 Earnings, Regulation FD, Exhibits
8-K 2019-05-07 Earnings, Regulation FD, Exhibits
8-K 2019-02-22 Enter Agreement, Exhibits
8-K 2019-02-13 Officers, Shareholder Vote, Regulation FD
8-K 2019-02-06 Earnings, Regulation FD, Exhibits
8-K 2018-12-11 Earnings, Regulation FD, Exhibits
8-K 2018-11-27 Regulation FD, Exhibits
8-K 2018-10-30 Regulation FD, Exhibits
8-K 2018-10-22 Enter Agreement, Earnings, Regulation FD, Exhibits
8-K 2018-09-07 Officers, Regulation FD, Exhibits
8-K 2018-08-06 Earnings, Regulation FD, Exhibits
8-K 2018-02-14 Shareholder Vote, Regulation FD
GS Goldman Sachs 74,426
YIN Yintech Investment Holdings 7,402
SEB Seaboard 4,814
BGCP BGC Partners 1,699
WETF Wisdomtree Investments 727
GBL Gamco Investors 497
COWN Cowen 465
UEPS Net 1 UEPS 185
GCAP Gain Capital Holdings 165
PYDS Payment Data Systems 28
INTL 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation and Consolidation and Accounting Standards Adopted
Note 2 - Revenue From Contracts with Clients
Note 3 - Earnings per Share
Note 4 - Assets and Liabilities, At Fair Value
Note 5 - Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk
Note 6 - Allowance for Doubtful Accounts
Note 7 - Physical Commodities Inventory
Note 8 - Goodwill
Note 9 - Intangible Assets
Note 10 - Credit Facilities
Note 11 - Securities and Commodity Financing Transactions
Note 12 - Commitments and Contingencies
Note 13 - Capital and Other Regulatory Requirements
Note 14 - Other Expenses
Note 15 - Accumulated Other Comprehensive Loss, Net
Note 16 - Income Taxes
Note 17 - Acquisitions
Note 18 - Segment Analysis
Note 19 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 intlexhibit3116302019.htm
EX-31.2 intlexhibit3126302019.htm
EX-32.1 intlexhibit3216302019.htm
EX-32.2 intlexhibit3226302019.htm

Intl Fcstone Earnings 2019-06-30

INTL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 intl0630201910-q.htm 10-Q Document

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________ 
FORM 10-Q
 ____________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2019
OR
o
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
 
59-2921318
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
155 East 44th Street, Suite 1500
New York, NY 10017
(Address of principal executive offices) (Zip Code)
(212) 485-3500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
INTL
 
The Nasdaq Stock Market LLC
Indicate by check mark 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.    Yes  x    No  o
Indicate by check mark 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).    Yes  x No o
Indicate by check mark 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
o
  
Accelerated filer
x
 
 
 
 
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
 
 
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No  x
As of August 6, 2019, there were 19,163,763 shares of the registrant’s common stock outstanding.
 
 
 
 
 



INTL FCStone Inc.
Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 2019
Table of Contents
 
 
Page
Part I. FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
Part II. OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTL FCStone Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions, except par value and share amounts)
June 30,
2019
 
September 30,
2018
ASSETS
 
 
 
Cash and cash equivalents
$
345.0

 
$
342.3

Cash, securities and other assets segregated under federal and other regulations (including $358.4 and $643.3 at fair value at June 30, 2019 and September 30, 2018, respectively)
1,079.4

 
1,408.7

Collateralized transactions:
 
 
 
Securities purchased under agreements to resell
1,533.0

 
870.8

Securities borrowed
1,174.1

 
225.5

Deposits with and receivables from broker-dealers, clearing organizations and counterparties, net (including $380.4 and $517.4 at fair value at June 30, 2019 and September 30, 2018, respectively)
2,661.6

 
2,234.5

Receivable from clients, net
282.9

 
288.0

Notes receivable, net
4.4

 
3.8

Income taxes receivable
0.9

 
0.3

Financial instruments owned, at fair value (includes securities pledged as collateral that can be sold or repledged of $370.9 and $123.0 at June 30, 2019 and September 30, 2018, respectively)
2,429.9

 
2,054.8

Physical commodities inventory, net (including $169.9 and $156.9 at fair value at June 30, 2019 and September 30, 2018, respectively)
347.8

 
222.5

Deferred income taxes, net
22.2

 
19.8

Property and equipment, net
45.7

 
42.4

Goodwill and intangible assets, net
65.9

 
59.8

Other assets
62.1

 
51.5

Total assets
$
10,054.9

 
$
7,824.7

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Liabilities:
 
 
 
Accounts payable and other accrued liabilities
$
144.1

 
$
145.4

Payables to:
 
 
 
Clients
3,629.0

 
3,639.6

Broker-dealers, clearing organizations and counterparties (including $14.0 and $0.0 at fair value at June 30, 2019 and September 30, 2018, respectively)
190.7

 
89.5

Lenders under loans
337.7

 
355.2

Senior secured term loan, net
169.7

 

Income taxes payable
10.4

 
8.6

Collateralized transactions:
 
 
 
Securities sold under agreements to repurchase
2,900.7

 
1,936.7

Securities loaned
1,240.9

 
277.9

Financial instruments sold, not yet purchased, at fair value
861.2

 
866.5

Total liabilities
9,484.4

 
7,319.4

Commitments and contingencies (Note 12)
 
 
 
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; 21,251,227 issued and 19,129,270 outstanding at June 30, 2019 and 21,030,497 issued and 18,908,540 outstanding at September 30, 2018
0.2

 
0.2

Common stock in treasury, at cost - 2,121,957 shares at June 30, 2019 and September 30, 2018
(46.3
)
 
(46.3
)
Additional paid-in-capital
274.2

 
267.5

Total retained earnings
374.9

 
317.0

Accumulated other comprehensive loss, net
(32.5
)
 
(33.1
)
Total equity
570.5

 
505.3

Total liabilities and stockholders' equity
$
10,054.9

 
$
7,824.7

See accompanying notes to condensed consolidated financial statements.

1


INTL FCStone Inc.
Condensed Consolidated Income Statements
(Unaudited)
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
(in millions, except share and per share amounts)
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Sales of physical commodities
$
7,599.3

 
$
6,866.2

 
$
20,824.6

 
$
20,836.4

Principal gains, net
102.3

 
94.9

 
305.4

 
270.5

Commission and clearing fees
97.5

 
105.1

 
282.1

 
298.0

Consulting, management, and account fees
20.7

 
18.4

 
58.9

 
53.4

Interest income
53.2

 
33.7

 
146.4

 
85.6

Total revenues
7,873.0

 
7,118.3

 
21,617.4

 
21,543.9

Cost of sales of physical commodities
7,589.6

 
6,858.5

 
20,798.2

 
20,811.3

Operating revenues
283.4

 
259.8

 
819.2

 
732.6

Transaction-based clearing expenses
45.7

 
49.0

 
138.5

 
136.6

Introducing broker commissions
29.6

 
34.1

 
87.0

 
101.4

Interest expense
42.5

 
22.1

 
113.9

 
55.4

Net operating revenues
165.6

 
154.6

 
479.8

 
439.2

Compensation and other expenses:
 
 
 
 
 
 
 
Compensation and benefits
100.9

 
86.9

 
287.9

 
252.3

Trading systems and market information
9.8

 
8.6

 
28.5

 
25.7

Occupancy and equipment rental
5.0

 
4.2

 
14.4

 
12.5

Professional fees
5.8

 
4.8

 
16.1

 
13.4

Travel and business development
4.0

 
3.7

 
11.8

 
10.2

Non-trading technology and support
5.8

 
3.8

 
15.0

 
10.3

Depreciation and amortization
3.5

 
2.8

 
9.6

 
8.4

Communications
1.6

 
1.3

 
4.9

 
4.1

Bad debts
0.5

 
1.6

 
1.5

 
1.9

(Recovery) bad debt on physical coal

 

 
(2.4
)
 
1.0

Other
7.1

 
6.0

 
21.0

 
20.4

Total compensation and other expenses
144.0

 
123.7

 
408.3

 
360.2

Other gain

 
2.0

 
5.4

 
2.0

Income before tax
21.6

 
32.9

 
76.9

 
81.0

Income tax expense
5.3

 
8.9

 
19.0

 
41.2

Net income
$
16.3

 
$
24.0

 
$
57.9

 
$
39.8

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.85

 
$
1.27

 
$
3.04

 
$
2.10

Diluted
$
0.84

 
$
1.25

 
$
2.99

 
$
2.06

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
18,781,401

 
18,597,165

 
18,731,203

 
18,524,846

Diluted
19,011,526

 
18,976,898

 
19,003,720

 
18,876,259

See accompanying notes to condensed consolidated financial statements.

2


INTL FCStone Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
Three Months Ended June 30,
 
Nine Months Ended June 30,
(in millions)
2019
 
2018
 
2019
 
2018
Net income
$
16.3

 
$
24.0

 
$
57.9

 
$
39.8

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
0.3

 
(4.9
)
 
0.6

 
(8.7
)
Other comprehensive income (loss)
0.3

 
(4.9
)
 
0.6

 
(8.7
)
Comprehensive income
$
16.6

 
$
19.1

 
$
58.5

 
$
31.1

See accompanying notes to condensed consolidated financial statements.

3


INTL FCStone Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended June 30,
(in millions)
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
57.9

 
$
39.8

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
9.6

 
8.4

Bad debts
1.5

 
1.9

(Recovery) bad debt on physical coal
(2.4
)
 
1.0

Deferred income taxes
0.3

 
19.7

Amortization of debt issuance costs
1.2

 
0.8

Amortization of share-based compensation
5.9

 
4.9

Bargain purchase gain on acquisition
(5.4
)
 

Changes in operating assets and liabilities, net:
 
 
 
Securities and other assets segregated under federal and other regulations
584.4

 
(657.0
)
Securities purchased under agreements to resell
(662.2
)
 
(363.4
)
Securities borrowed
(948.6
)
 
(89.7
)
Deposits with and receivables from broker-dealers, clearing organizations, and counterparties, net
(238.7
)
 
(622.0
)
Receivables from clients, net
5.9

 
22.5

Notes receivable, net
(0.6
)
 
(0.4
)
Income taxes receivable
(0.6
)
 
(0.8
)
Financial instruments owned, at fair value
(368.0
)
 
(254.0
)
Physical commodities inventory, net
(115.5
)
 
(89.0
)
Other assets
(7.8
)
 
1.5

Accounts payable and other accrued liabilities
(4.0
)
 
1.5

Payables to clients
(7.3
)
 
319.7

Payables to broker-dealers, clearing organizations and counterparties
100.9

 
10.0

Income taxes payable
1.8

 
6.4

Securities sold under agreements to repurchase
964.0

 
206.0

Securities loaned
963.0

 
93.2

Financial instruments sold, not yet purchased, at fair value
(9.7
)
 
294.2

Net cash provided by (used in) operating activities
325.6

 
(1,044.8
)
Cash flows from investing activities:
 
 
 
Cash paid for acquisitions, net
(28.0
)
 

Purchase of property and equipment
(10.3
)
 
(9.3
)
Net cash used in investing activities
(38.3
)
 
(9.3
)
Cash flows from financing activities:
 
 
 
Net change in payables to lenders under loans
(16.9
)
 
131.0

Proceeds from issuance of senior secured term loan
175.0

 

Payment of senior secured term loan
(4.4
)
 

Payments of note payable
(0.6
)
 
(0.6
)
Deferred payments on acquisitions

 
(5.5
)
Debt issuance costs
(3.3
)
 
(0.4
)
Exercise of stock options
0.8

 
2.6

Withholding taxes on stock option exercises

 
(0.8
)
Net cash provided by financing activities
150.6

 
126.3

Effect of exchange rates on cash, segregated cash, cash equivalents, and segregated cash equivalents
0.6

 
3.0

Net increase (decrease) in cash, segregated cash, cash equivalents, and segregated cash equivalents
438.5

 
(924.8
)
Cash, segregated cash, cash equivalents, and segregated cash equivalents at beginning of period
2,190.1

 
2,601.4

Cash, segregated cash, cash equivalents, and segregated cash equivalents at end of period
$
2,628.6

 
$
1,676.6

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
110.1

 
$
54.2

Income taxes paid, net of cash refunds
$
17.5

 
$
15.8

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Identified intangible assets from business acquisition
$
2.7

 
$

Acquisition of business:
 
 
 
Assets acquired
$
40.9

 
$

Liabilities assumed
(7.7
)
 

Total net assets acquired
$
33.2

 
$

Escrow deposits related to acquisitions
$
2.5

 
$

See accompanying notes to condensed consolidated financial statements.

4


INTL FCStone Inc.
Condensed Consolidated Statements of Cash Flows - Continued
(Unaudited)

The following table provides a reconciliation of cash, segregated cash, cash equivalents, and segregated cash equivalents reported within the condensed consolidated balance sheets.
 
June 30,
(in millions)
2019
2018
Cash and cash equivalents
$
345.0

$
347.8

Cash segregated under federal and other regulations(1)
721.0

537.2

Securities segregated under federal and other regulations(1)
299.6


Cash segregated and deposited with or pledged to exchange-clearing organizations and other futures commission merchants (“FCMs”)(2)
1,223.8

738.1

Securities segregated and pledged to exchange-clearing organizations(2)
39.2

53.5

Total cash, segregated cash, cash equivalents, and segregated cash equivalents shown in the condensed consolidated statements of cash flows
$
2,628.6

$
1,676.6


(1) Represents segregated client cash held at third-party banks. Excludes segregated commodity warehouse receipts, segregated United States (“U.S.”) Treasury obligations with original or acquired maturities of greater than 90 days, and other assets of $58.8 million and $675.4 million as of June 30, 2019 and 2018, respectively, included within ‘Cash, securities and other assets segregated under federal and other regulations’ on the condensed consolidated balance sheets.

(2) Represents segregated client cash and U.S. Treasury obligations on deposit with, or pledged to, exchange clearing organizations and other FCMs. Excludes non-segregated cash, segregated securities pledged to exchange-clearing organizations with original or acquired maturities greater than 90 days, and other assets of $1,398.6 million and $1,373.6 million as of June 30, 2019 and 2018, respectively, included within ‘Deposits with and receivables from broker-dealers, clearing organizations, and counterparties, net’ on the condensed consolidated balance sheets.

See accompanying notes to condensed consolidated financial statements.


5


INTL FCStone Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)

 
Three months ended June 30, 2018
(in millions)
Common
Stock
 
Treasury
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss, net
 
Total
Balances as of March 31, 2018
$
0.2

 
$
(46.3
)
 
$
263.7

 
$
277.3

 
$
(28.3
)
 
$
466.6

Net income
 
 
 
 
 
 
24.0

 
 
 
24.0

Other comprehensive loss
 
 
 
 
 
 
 
 
(4.9
)
 
(4.9
)
Exercise of stock options
 
 
 
 
0.3

 
 
 
 
 
0.3

Share-based compensation
 
 
 
 
1.7

 
 
 
 
 
1.7

Balances as of June 30, 2018
$
0.2

 
$
(46.3
)
 
$
265.7

 
$
301.3

 
$
(33.2
)
 
$
487.7

 
Three months ended June 30, 2019
(in millions)
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss, net
 
Total
Balances as of March 31, 2019
$
0.2

 
$
(46.3
)
 
$
272.1

 
$
358.6

 
$
(32.8
)
 
$
551.8

Net income
 
 
 
 
 
 
16.3

 
 
 
16.3

Other comprehensive income
 
 
 
 
 
 
 
 
0.3

 
0.3

Share-based compensation
 
 
 
 
2.1

 
 
 
 
 
2.1

Balances as of June 30, 2019
$
0.2

 
$
(46.3
)
 
$
274.2

 
$
374.9

 
$
(32.5
)
 
$
570.5


 
Nine months ended June 30, 2018
(in millions)
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss, net
 
Total
Balances as of September 30, 2017
$
0.2

 
$
(46.3
)
 
$
259.0

 
$
261.5

 
$
(24.5
)
 
$
449.9

Net income
 
 
 
 
 
 
39.8

 
 
 
39.8

Other comprehensive loss
 
 
 
 
 
 
 
 
(8.7
)
 
(8.7
)
Exercise of stock options
 
 
 
 
1.8

 
 
 
 
 
1.8

Share-based compensation
 
 
 
 
4.9

 
 
 
 
 
4.9

Balances as of June 30, 2018
$
0.2

 
$
(46.3
)
 
$
265.7

 
$
301.3

 
$
(33.2
)
 
$
487.7


 
Nine months ended June 30, 2019
(in millions)
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss, net
 
Total
Balances as of September 30, 2018
$
0.2

 
$
(46.3
)
 
$
267.5

 
$
317.0

 
$
(33.1
)
 
$
505.3

Net income
 
 
 
 
 
 
57.9

 
 
 
57.9

Other comprehensive income
 
 
 
 
 
 
 
 
0.6

 
0.6

Exercise of stock options
 
 
 
 
0.8

 
 
 
 
 
0.8

Share-based compensation
 
 
 
 
5.9

 
 
 
 
 
5.9

Balances as of June 30, 2019
$
0.2

 
$
(46.3
)
 
$
274.2

 
$
374.9

 
$
(32.5
)
 
$
570.5

See accompanying notes to condensed consolidated financial statements.


6


INTL FCStone Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1Basis of Presentation and Consolidation and Accounting Standards Adopted
INTL FCStone Inc., a Delaware corporation, and its consolidated subsidiaries (collectively “INTL” or “the Company”), is a diversified global financial services organization providing execution, risk management and advisory services, market intelligence, and clearing services across asset classes and markets around the world. The Company’s services include comprehensive risk management advisory services for commercial clients; 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 metals and select other commodities; trading of more than 140 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 predominantly wholesale organizations 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 Company’s products and services; to governmental and non-governmental organizations; and to commercial banks, brokers, institutional investors and major investment banks.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated balance sheet as of September 30, 2018, which has been derived from the audited consolidated balance sheet of September 30, 2018, and the unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial statements for the interim periods presented have been reflected as required by Rule 10-01 of Regulation S-X.
Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes contained in the Company’s Form 10-K for the fiscal year ended September 30, 2018 filed with the SEC.
These condensed 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.
The Company’s fiscal year end is September 30, and the fiscal quarters end on December 31, March 31, June 30 and September 30. Unless otherwise stated, all dates refer to fiscal years and fiscal interim periods.
The preparation of condensed 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 as of the date of the condensed consolidated 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 measurement for financial instruments and investments, revenue recognition, the provision for bad debts, valuation of inventories, valuation of goodwill and intangible assets, incomes taxes, and contingencies. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.
In the condensed consolidated income statements, the total revenues reported combine gross revenues for the physical commodities business and net revenues for all other businesses. The subtotal ‘operating revenues’ in the condensed consolidated income statements is calculated by deducting cost of sales of physical commodities from total revenues. The subtotal ‘net operating revenues’ in the condensed consolidated income statements is calculated as operating revenues 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 transactional volumes. Introducing broker commissions include commission paid to non-employee third parties that have introduced clients to the Company. 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.

7


Reclassifications
During the three and nine months ended June 30, 2019, the Company reclassified certain brokerage related revenues for which the Company earns commissions on trading activity in the capacity of an agent. In performing this reclassification, the Company has made a retrospective adjustment to the condensed consolidated income statements for the three and nine months ended June 30, 2018. For the three and nine months ended June 30, 2018, brokerage related revenues of $8.5 million and $26.4 million, respectively, were reclassified from ‘trading gains, net’ to ‘commissions and clearing fees’. Additionally, the Company has changed the name of the line item ‘trading gains, net’ to ‘principal gains, net’ on the condensed consolidated income statements in order to reflect the fact that these revenue streams are earned from trading financial instruments in the capacity of a principal and in order to properly segregate revenues earned from contracts with clients in connection with the adoption of the new revenue standard as discussed below.
Accounting Standards Adopted
On October 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“Topic 606”) using the modified retrospective transition method applied to those contracts which were not completed as of October 1, 2018. Results for reporting periods beginning after October 1, 2018, are presented under Topic 606, and amounts prior to October 1, 2018 are not adjusted and continue to be reported in accordance with historical accounting standard, FASB ASC 605, Revenue Recognition (“Topic 605”). The adoption of Topic 606 had no impact to retained earnings as of October 1, 2018, or to revenue for the three or nine months ended June 30, 2019. The Company’s accounting for revenues within the scope of Topic 606 are materially consistent with those accounting principles and practices applied to accounting for revenues under Topic 605. The new revenue recognition model does not apply to revenues associated with financial instruments or contracts, including derivatives and interest income. For further information refer to Note 2.
In August 2016, the FASB issued ASU 2016-15, Statements of Cash Flows (“Topic 230”): Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The Company adopted ASU 2016-15 on October 1, 2018 and the adoption of this ASU had no impact on its condensed consolidated financial statements and related disclosures.
On October 1, 2018, the Company adopted FASB Accounting Standards Update (“ASU”) 2016-18, Statements of Cash Flows (“Topic 230”): Classification and Presentation of Restricted Cash in the Statements of Cash Flows, using the retrospective transition method. In accordance with the provisions of ASU 2016-18, the Company changed its condensed consolidated statements of cash flows presentation convention to explain the changes in cash and cash equivalents, as well as cash and cash equivalents segregated for regulatory purposes. U.S. Treasury obligations with original or acquired maturities of 90 days or less held with third-party banks or pledged to exchange-clearing organizations representing investments of segregated client funds, or which are held for particular clients in lieu of cash margin, are included in segregated cash equivalents. Purchases, sales, as well as client pledges and redemptions in lieu of cash margin, of U.S. Treasury obligations with original or acquired maturities of greater than 90 days representing investments of segregated client funds are presented as operating uses and sources of cash, respectively, within the operating section of the condensed consolidated statements of cash flows.
In May 2017, the FASB issued ASU No. 2017- 09, Scope of Modification Accounting (“Topic 718”), which amends the scope of modification accounting for share- based payment arrangements. ASU 2017- 09 provides guidance on the types of changes to the terms or conditions of share- based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The Company adopted ASU 2017- 09 on October 1, 2018. The adoption of the ASU had no impact on the Company's condensed consolidated financial statements and related disclosures.
Note 2Revenue from Contracts with Clients
Beginning on October 1, 2018, the Company accounts for revenue earned from contracts with clients for services such as the execution, clearing, brokering, and custody of futures and options on futures contracts, OTC derivatives, and securities, investment management, and underwriting services under Topic 606. As such, revenues for these services are recognized when the performance obligations related to the underlying transaction are completed.
Revenues are recognized when control of the promised goods or services are transferred to clients, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Revenues are analyzed to determine whether the Company is the principal (i.e. reports revenue on a gross basis) or agent (i.e., reports revenues on a net basis) in the contract. Principal or agent designations depend primarily on the control an entity has over the good or service before control is transferred to a client. The indicators of which party exercises control include primary responsibility over performance obligations, inventory risk before the good or service is transferred, and discretion in establishing the price.

8


The new revenue recognition model does not apply to revenues associated with dealing, or market-making, activities in financial instruments or contracts in the capacity of a principal, including derivative sales contracts which result in physical settlement and interest income.
The Company’s revenues from contracts with clients subject to Topic 606 represent approximately 1.5% and 1.7% of the Company’s total revenues for the three months ended June 30, 2019 and 2018, respectively, and approximately 1.6% of the Company’s total revenues for the nine months ended June 30, 2019 and 2018.
The Company’ revenues from contracts with clients subject to Topic 606 represent approximately 41.7% and 47.6% of the Company’s operating revenues for the three months ended June 30, 2019 and 2018, respectively, and approximately 41.6% and 48.0% of the Company’s operating revenues for the nine months ended June 30, 2019 and 2018, respectively.
This includes all of the Company’s commission and clearing fees and consulting, management, and account fees revenues. Revenues within the scope of Topic 606 are presented within ‘Commission and clearing fees’ and ‘Consulting, management, and account fees’ on the condensed consolidated income statements. Revenues that are not within the scope of Topic 606 are presented within ‘Sales of physical commodities’, ‘Principal gains, net’, and ‘Interest income’ on the condensed consolidated income statements.

9


The following table represents a disaggregation of the Company’s total revenues separated between revenues from contracts with clients and other sources of revenue for the three and nine months ended June 30, 2019 and 2018 (in millions):
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenues from contracts with clients:
 
 
 
 
 
 
 
Commission and clearing fees:
 
 
 
 
 
 
 
Sales-based:
 
 
 
 
 
 
 
Exchange-traded futures and options
$
40.4

 
$
45.0

 
$
110.7

 
$
123.6

OTC derivative brokerage
7.7

 
7.3

 
23.9

 
23.1

Equities and fixed income
4.3

 
2.7

 
11.1

 
8.3

Mutual funds
1.6

 
1.5

 
6.1

 
5.6

Insurance and annuity products
2.1

 
1.5

 
5.1

 
4.5

Other
0.3

 
0.6

 
1.0

 
1.2

Total sales-based commission
56.4

 
58.6

 
157.9

 
166.3

Trailing:
 
 
 
 
 
 
 
Mutual funds
3.1

 
3.2

 
9.3

 
9.8

Insurance and annuity products
3.6

 
3.7

 
10.7

 
11.0

Total trailing commission
6.7

 
6.9

 
20.0

 
20.8

 
 
 
 
 
 
 
 
Clearing fees
30.3

 
34.2

 
89.7

 
93.7

Trade conversion fees
1.3

 
1.6

 
6.2

 
5.4

Other
2.8

 
3.8

 
8.3

 
11.8

Total commission and clearing fees:
97.5

 
105.1

 
282.1

 
298.0

 
 
 
 
 
 
 
 
Consulting, management, and account fees:
 
 
 
 
 
 
 
Underwriting fees
0.2

 
0.2

 
0.7

 
1.5

Asset management fees
7.2

 
6.4

 
19.4

 
18.9

Advisory and consulting fees
5.1

 
4.9

 
14.8

 
14.3

Sweep program fees
4.2

 
3.3

 
12.1

 
8.2
Client account fees
2.6

 
2.9

 
7.8

 
8.6

Other
1.4

 
0.7

 
4.1

 
1.9

Total consulting, management, and account fees
20.7

 
18.4

 
58.9

 
53.4

Total revenues from contracts with clients
$
118.2

 
$
123.5

 
$
341.0

 
$
351.4

 
 
 
 
 
 
 
 
Method of revenue recognition:
 
 
 
 
 
 
 
Point-in-time
$
95.0

 
$
102.0

 
$
274.7

 
$
289.2

Time elapsed
23.2

 
21.5

 
66.3

 
62.2

Total revenues from contracts with clients
118.2

 
123.5

 
341.0

 
351.4

Other sources of revenues
 
 
 
 
 
 
 
Physical precious metals trading
7,327.8

 
6,613.0

 
19,944.2

 
20,176.5

Physical agricultural and energy product trading
271.5

 
253.2

 
880.4

 
659.9

Principal gains, net
102.3

 
94.9

 
305.4

 
270.5

Interest income
53.2

 
33.7

 
146.4

 
85.6

Total revenues
$
7,873.0

 
$
7,118.3

 
$
21,617.4

 
$
21,543.9

 
 
 
 
 
 
 
 
Primary geographic region:
 
 
 
 
 
 
 
United States
$
474.8

 
$
431.9

 
$
1,458.4

 
$
1,159.9

Europe
77.8

 
48.5

 
184.9

 
141.5

South America
15.3

 
16.7

 
39.2

 
48.4

Middle East and Asia
7,303.8

 
6,620.0

 
19,929.7

 
20,191.0

Other
1.3

 
1.2

 
5.2

 
3.1

Total revenues
$
7,873.0

 
$
7,118.3

 
$
21,617.4

 
$
21,543.9



10


The substantial majority of the Company’s performance obligations for revenues from contracts with clients are satisfied at a point in time and are typically collected from clients by debiting their accounts with the Company.
Commission and clearing fees revenue is primarily related to the Commercial Hedging and Clearing and Execution Services reportable segments. Consulting, management, and accounts fees are primarily related to the Commercial Hedging, Clearing and Execution Services, and Securities reportable segments. Principal gains, net is primarily related to the Commercial Hedging, Global Payments, and Securities reportable segments. Interest income is primarily related to the Commercial Hedging, Securities, and Clearing and Execution Services reportable segments. Precious metals trading and agricultural and energy merchandising and origination revenues are primarily related to the Physical Commodities reportable segment.
Commission and Clearing Fees
Commission revenue represents sales and brokerage commissions generated by internal brokers, introducing broker-dealers, or registered investment advisors of introducing-broker dealers for their clients’ trading activity in futures, options on futures, OTC derivatives, fixed income securities, equity securities, mutual funds, and annuities. The Company views the selling, distribution, and marketing, or any combination thereof, of mutual funds and insurance and annuity products to clients on the Company’s registered investment advisor (“RIA”) platform as a single performance obligation to the product sponsors.
The Company is the principal for commission revenue, as it is responsible for the execution of the clients’ purchases and sales, and maintains relationships with product sponsors for trailing commission. Introducing broker dealers and registered investment advisors assist the Company in performing its obligations. Accordingly, total commission revenues are reported on a gross basis.
The Company primarily generates commission revenue on exchange-traded derivatives, OTC derivatives, and securities. Exchange-traded and OTC derivative commissions are recognized at a point in time on the trade date when the client, either directly or through the use of an internal broker or introducing broker, requests the clearance and execution of a trade. Securities commissions are either sale-based commissions that are recognized at a point in time on the trade date or trailing commission that are recognized over time as earned. Sales-based securities commissions are typically a flat fee per security transaction and in certain instances are based on a percentage of the trade date transaction value.
Trailing commission revenue is generally based on a percentage of the periodic fair value of clients’ investment holdings in trail-eligible assets, and is recognized over the period during which services, such as on-going support, are performed. As trailing commission revenue is based on the fair value of clients’ investment holdings in trail-eligible assets, this variable consideration is constrained until the fair value of trail-eligible assets is determinable.
Clearing fees generally represent transactional based fees charged by the various exchanges and clearing organizations for which the Company or one of its clearing brokers is a member for the privilege of executing and clearing trades through them. Clearing fees are generally passed through to the clients’ accounts and are reported gross as the Company maintains control over the clearing and execution services provided, maintains relationships with the exchanges or clearing brokers, and has ultimate discretion in whether the fees are passed through to the clients and the rates at which they are passed through. As clearing fees are transactional based revenues they are recognized at a point in time on the trade date along with the related commission revenue when the client requests the clearance and execution of a trade.
Trade Conversion Fees
Trade conversion fees include revenue earned from converting foreign ordinary equities into an American Depository Receipt (“ADR”) or Global Depository Receipt (“GDR”) and fees earned from converting an ADR or GDR into foreign ordinary equities on behalf of clients. Trade conversion revenue is recognized at a point in time on the trade date.
Underwriting Fees
Revenues from investment banking consists of revenues earned from underwriting fixed income securities, primarily municipal and asset-backed securities, and are recognized in revenues upon completion of the underlying transaction, which is generally the trade date, based upon the terms of the assignment as the performance obligation is to successfully broker a specific transaction.
Asset Management Fees
The Company earns asset management fees on Company sponsored and managed mutual funds and on the advisory accounts of independent registered investment advisors on the Company’s platform. The Company provides ongoing investment advice and acts as a custodian, providing brokerage and execution services on transactions, and performs administrative services for these accounts. This series of performance obligations transfers control of the services to the client over time as the services are performed. This revenue is recognized ratably over time to match the continued delivery of the performance obligations to the client over the life of the contract. The asset management revenue generated is based on a percentage of the market value of the

11


eligible assets in the clients’ accounts. As such, the consideration for this revenue is variable and this variable consideration is constrained until the market value of eligible assets in the clients’ accounts is determinable.
Advisory and Consulting Fees
Advisory and consulting fees are primarily related to 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 generally cancelable by either party upon providing thirty days’ written notice to the other party and the amounts are not variable based on client trading activities. This revenue is generally recognized ratably over time to match the continued delivery of the performance obligation to the client over the life of the contract.
Sweep Program Fees
The Company earns fees generated in lieu of interest income from a multi-bank sweep program with unaffiliated banks and money market funds. Pursuant to contractual arrangements with clients and their introducing-brokers, available cash balances in client accounts are swept into either Federal Deposit Insurance Corporation (“FDIC”) insured cash accounts at unaffiliated banks or unaffiliated money market funds for which the Company earns a portion of the interest income generated by the client balances for administration and recordkeeping. The fees generated by the Company’s multi-bank sweep program are reported net of the balances remitted to the introducing-brokers and the clients of introducing-brokers. These fees are paid and recognized over time to match the continued delivery of the administration and recordkeeping performance obligations to the life of the contract. The fees earned under this program are generally based upon the type of sweep account, prevailing interest rates, and the amount of client balances invested.
Client Accounts Fees
Client accounts fees represent fees earned for custodial, recordkeeping, and administrative functions performed for the securities clearing accounts of clients. These include statement delivery fees, account transfer fees, safekeeping fees, errors and omission insurance fees, platform fees, and other fees. Client account fees that are transactional based, such as account transfer fees, are recognized at a point in time when the related performance obligation is satisfied. Client account fees that are related to ongoing services, such as statement delivery fees and errors and omission insurance fees, are recognized over time. Client account fees that relate to ongoing services are typically billed to clients’ accounts on a monthly or quarterly basis.
Physical Precious Metals Trading
The Company principally generates revenue from trading physical precious metals on an OTC basis. Revenues from the sale of physical precious metals are recorded on a trade date basis and generally settle on an unallocated basis. Substantially all of the Company’s sales of precious metals are conducted using sales contracts that meet the definition of derivative instruments in accordance with ASC 815 - Derivatives and Hedging (“Topic 815”). The contracts underlying the Company’s commitment to deliver precious metals are referred to as fixed price forward commodity contracts because the price of the commodity is fixed at the time the order is placed. Although the contracts typically are executed on a spot basis and settle on unallocated account, the client has the option to request delivery of the precious metals, the option to net settle out of the position by executing an offsetting trade, or the option to roll the transaction to a subsequent maturity date. Thus, the sales contracts contain embedded option derivatives that would be subject to the guidance in Topic 815. As the contracts are subject to the guidance in Topic 815, the fixed price derivative sales contracts are outside the scope of Topic 606. The Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606.
Physical Agricultural and Energy Product Trading
The Company principally generates revenue from merchandising and originating physical agricultural and energy commodities from forward firm sales commitments accounted in accordance with Topic 815. The fixed and provisionally-priced derivative sales contracts that result in physical delivery are outside the scope of Topic 606. The Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606.
Principal Gains, Net
Principal gains, net includes revenues on financial transactions or contracts for which the Company acts as principal that is reported on a net basis and is primarily outside the scope of ASC 606. Principal gains, net includes margins generated from OTC derivative trades, equities, fixed income, and foreign exchange executed with clients and other counterparties and are recognized on a trade-date basis. Principal gains, net, also includes realized and unrealized gains and losses derived principally from market making activities in OTC derivatives, equities, fixed income, and foreign exchange. 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. Principal gains, net also includes dividend income on long equity positions and dividend expense on short equity positions, which are recognized on the ex-dividend date.

12


Interest Income
Interest income is generated from client funds deposited with the Company to satisfy margin requirements which is held by third-party banks or on deposit with or pledged to exchange-clearing organizations or other FCMs. Interest income is also generated from the investment of client funds in allowable securities, primarily U.S. Treasury obligations. Interest income is also generated from trading fixed income securities that the Company holds in its market-making businesses. Interest income also includes interest generated from collateralized transactions, including securities borrowed and securities purchased under agreements to resell, and from extending margin loans to clients. Interest income is recognized on an accrual basis and is not within the scope of Topic 606.
Remaining Performance Obligations
Remaining performance obligations are services that the firm has committed to perform in the future in connection with its contracts with clients. The Company’s remaining performance obligations are generally related to its risk management consulting and asset management contracts with clients. Revenues associated with remaining performance obligations related to these contracts with clients are not material to the overall consolidated results of the Company. For the Company’s asset management activities, where fees are calculated based on a percentage of the market value of eligible assets in client’s accounts, future revenue associated with remaining performance obligations cannot be determined as such fees are subject to fluctuations in the market value of eligible assets in clients’ accounts.
Practical Expedients
The Company has applied Topic 606’s practical expedient that permits for the non-disclosure of the value of performance obligations for (i) contracts with an original expected length or one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which is has the right to invoice for services performed.
The Company has also applied Topic 606’s practical expedient that allows for no adjustment to consideration due to a significant financing component if the expectation at contract inception is such that the period between payment by the client and the transfer of the promised goods or services to the client will be one year or less.
Note 3Earnings 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 income is 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 to certain employees and directors 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 earnings per share computations for the periods presented below.
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
(in millions, except share amounts)
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net income
$
16.3

 
$
24.0

 
$
57.9

 
$
39.8

Less: Allocation to participating securities
(0.3
)
 
(0.3
)
 
(1.0
)
 
(0.6
)
Net income allocated to common stockholders
$
16.0

 
$
23.7

 
$
56.9

 
$
39.2

Denominator:
 
 
 
 
 
 
 
Weighted average number of:
 
 
 
 
 
 
 
Common shares outstanding
18,781,401

 
18,597,165

 
18,731,203

 
18,524,846

Dilutive potential common shares outstanding:
 
 
 
 
 
 
 
Share-based awards
230,125

 
379,733

 
272,517

 
351,413

Diluted weighted-average common shares
19,011,526

 
18,976,898

 
19,003,720

 
18,876,259

The dilutive effect of share-based awards is reflected in diluted earnings 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 1,209,943 and 76,587 shares of common stock for the three months ended June 30, 2019 and 2018, respectively, and options to purchase 835,441 and 147,640 shares of common stock for the nine months ended June 30, 2019 and 2018, respectively, were excluded from the calculation of diluted earnings per share as they would have been anti-dilutive.

13


Note 4Assets and Liabilities, at Fair Value
Fair value is defined by U.S. GAAP as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants on the measurement date.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company is required to develop a set of assumptions that reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.
The Company has designed independent price verification controls and periodically performs such controls to ensure the reasonableness of such values.
In accordance with FASB ASC 820, Fair Value Measurement, the Company groups its assets and liabilities measured at fair value in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1 - Valuation is based upon 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.
Level 2 - Valuation is based upon 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.
Level 3 - Valuation is based on prices or valuation techniques that require an input that is 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. The Company had no assets or liabilities classified within Level 3 of the fair value hierarchy as of June 30, 2019 and September 30, 2018.
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 participants. 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 of 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 principally relates to the portfolio of OTC derivative contracts as all exchange-traded contracts held can be settled on an active market with a credit guarantee from 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 to these trades. 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.
Fair value of financial and nonfinancial assets and liabilities that are carried on the Condensed Consolidated Balance Sheets at fair value on a recurring basis
Cash and cash equivalents reported at fair value on a recurring basis includes certificates of deposit and demand deposits, which are stated at cost plus accrued interest, which approximates fair value.
Cash, securities and other assets segregated under federal and other regulations reported at fair value on a recurring basis include the value of pledged investments, primarily U.S. Treasury obligations and commodities warehouse receipts.
Deposits with and receivables from broker-dealers, clearing organizations and counterparties and payable to clients and broker-dealers, clearing organizations and counterparties include the value of pledged investments, primarily U.S. Treasury obligations

14


and foreign government obligations. These balances also include the fair value of exchange-traded options on futures and OTC derivative financial instruments.
Financial instruments owned and sold, not yet purchased include the fair value of equity securities, which includes common, preferred, and foreign ordinary shares, ADRs, GDRs, and exchange-traded funds (“ETFs”), corporate and municipal bonds, U.S. Treasury obligations, U.S. government agency obligations, foreign government obligations, agency mortgage-backed obligations, asset-backed obligations, OTC derivative financial instruments, commodities warehouse receipts, exchange firm common stock, and mutual funds and investments in managed funds.
Cash equivalents, debt and equity securities, commodities warehouse receipts, physical commodities inventory, and derivative financial instruments are carried at fair value, on a recurring basis, and are classified and disclosed into three levels in the fair value hierarchy.
Except as disclosed in Note 7, the Company did not have any fair value adjustments for assets or liabilities measured at fair value on a non-recurring basis as of June 30, 2019 and September 30, 2018.
The following section describes the valuation methodologies used by the Company to measure classes of financial and non-financial assets and liabilities at fair value and specifies the level within the fair value hierarchy where various financial and non-financial assets and liabilities are classified.
The Company uses quoted prices in active markets, where available, and classifies such instruments within Level 1 of the fair value hierarchy. Examples include U.S. Treasury obligations, foreign government obligations, commodities warehouse receipts, certain equity securities traded in active markets, physical precious metals held by a regulated broker-dealer subsidiary, exchange firm common stock, mutual funds and investments in managed funds, as well as exchange traded options on futures contracts.
When instruments are traded in secondary markets and observable prices are not available for substantially the full term, the Company generally relies on internal valuation techniques or prices obtained from third-party pricing services or brokers or a combination thereof, and accordingly, classified these instruments as Level 2. Examples include corporate and municipal bonds, U.S. government agency obligations, agency-mortgage backed obligations, asset-backed obligations, certain equity securities traded in less active markets, and OTC derivative contracts, which include purchase and sale commitments related to the Company’s agricultural and energy commodities.
Certain derivatives without a quoted price in an active market and derivatives executed OTC are valued using internal valuation techniques, including pricing models which utilize inputs observable to market participants. The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instrument. The key inputs depend upon the type of derivative and the nature of the underlying instrument and include interest yield curves, foreign exchange rates, commodity prices, volatilities and correlation. These derivative instruments are included within Level 2 of the fair value hierarchy.
Physical commodities inventory includes precious metals that are a part of the trading activities of a regulated broker-dealer subsidiary and is recorded at fair value using exchange-quoted prices. Physical commodities inventory also includes agricultural commodities that are a part of the trading activities of a non-broker dealer subsidiary and are recorded at net realizable value using exchange-quoted prices. The fair value of precious metals physical commodities inventory is based upon unadjusted exchange-quoted prices and is, therefore, classified within Level 1 of the fair value hierarchy. The fair value of agricultural physical commodities inventory and the related OTC firm sale and purchase commitments are generally based upon exchange-quoted prices, adjusted for basis or differences in local markets, broker or dealer quotations or market transactions in either listed or OTC markets. Exchange-quoted prices are adjusted for location and quality because the exchange-quoted prices for agricultural and energy related products represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The basis or local market adjustments are observable inputs or have an insignificant impact on the measurement of fair value and, therefore, the agricultural physical commodities inventory as well as the related OTC forward firm sale and purchase commitments have been included within Level 2 of the fair value hierarchy.
With the exception of certain derivative instruments where the valuation approach is disclosed above, financial instruments owned and sold are primarily valued using third-party pricing vendors. Third-party pricing vendors compile prices from various sources and often apply matrix pricing for similar securities when market-observable transactions for the instruments are not observable for substantially the full term. The Company reviews the pricing methodologies used by third-party pricing vendors in order to evaluate the fair value hierarchy classification of vendor-priced financial instruments and the accuracy of vendor pricing, which typically involves the comparison of primary vendor prices to internal trader prices or secondary vendor prices. When evaluating the propriety of vendor-priced financial instruments using secondary prices, considerations include the range and quality of vendor prices, level of observable transactions for identical and similar instruments, and judgments based upon knowledge of a particular market and asset class. If the primary vendor price does not represent fair value, justification for using a secondary price, including source data used to make the determination, is subject to review and approval by authorized personnel prior to using a secondary price. Financial instruments owned and sold that are valued using third party pricing

15


sources are included within either Level 1 or Level 2 of the fair value hierarchy based upon the observability of the inputs used and the level of activity in the market.
The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2019 and September 30, 2018. 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 condensed consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

16


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 June 30, 2019 by level in the fair value hierarchy.
 
June 30, 2019
(in millions)
Level 1
 
Level 2
 
Level 3
 
Netting and Collateral (1)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Unrestricted cash equivalents - certificates of deposit
$
6.5

 
$

 
$

 
$

 
$
6.5

Commodities warehouse receipts
58.6

 

 

 

 
58.6

U.S. Treasury obligations
299.8

 

 

 

 
299.8

Securities and other assets segregated under federal and other regulations
358.4

 

 

 

 
358.4

U.S. Treasury obligations
484.2

 

 

 

 
484.2

"To be announced" (TBA) and forward settling securities

 
6.1

 

 
(0.5
)
 
5.6

Foreign government obligations
10.5

 

 

 

 
10.5

Derivatives
3,809.1

 
8.6

 

 
(3,937.6
)
 
(119.9
)
Deposits with and receivables from broker-dealers, clearing organizations and counterparties, net
4,303.8

 
14.7

 

 
(3,938.1
)
 
380.4

Equity securities
79.8

 
8.0

 

 

 
87.8

Corporate and municipal bonds

 
111.6

 

 

 
111.6

U.S. Treasury obligations
248.0

 

 

 

 
248.0

U.S. government agency obligations

 
465.1

 

 

 
465.1

Foreign government obligations
4.5

 

 

 

 
4.5

Agency mortgage-backed obligations

 
1,148.7

 

 

 
1,148.7

Asset-backed obligations

 
30.4

 

 

 
30.4

Derivatives
2.0

 
587.9

 

 
(343.7
)
 
246.2

Commodities leases

 
38.1

 

 
(11.3
)
 
26.8

Commodities warehouse receipts
39.6

 

 

 

 
39.6

Exchange firm common stock
11.7

 

 

 

 
11.7

Mutual funds and other
9.5

 

 

 

 
9.5

Financial instruments owned
395.1

 
2,389.8

 

 
(355.0
)
 
2,429.9

Physical commodities inventory
22.3

 
147.6

 

 

 
169.9

Total assets at fair value
$
5,086.1

 
$
2,552.1

 
$

 
$
(4,293.1
)
 
$
3,345.1

Liabilities:
 
 
 
 
 
 
 
 
 
TBA and forward settling securities

 
8.4

 

 
(0.5
)
 
7.9

Derivatives
4,005.3

 
26.7

 

 
(4,025.9
)
 
6.1

Payables to broker-dealers, clearing organizations and counterparties
4,005.3

 
35.1

 

 
(4,026.4
)
 
14.0

Equity securities
50.7

 
1.1

 

 

 
51.8

Foreign government obligations
2.7

 

 

 

 
2.7

Corporate and municipal bonds

 
29.2

 

 

 
29.2

U.S. Treasury obligations
479.9

 

 

 

 
479.9

U.S. government agency obligations

 
53.0

 

 

 
53.0

Derivatives

 
685.3

 

 
(486.3
)
 
199.0

Commodities leases

 
55.4

 

 
(9.8
)
 
45.6

Financial instruments sold, not yet purchased
533.3

 
824.0

 

 
(496.1
)
 
861.2

Total liabilities at fair value
$
4,538.6

 
$
859.1

 
$

 
$
(4,522.5
)
 
$
875.2

 
(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 is included in that level.


17


The following table sets forth the Company’s financial and nonfinancial assets and liabilities accounted for at fair value, on a recurring basis, as of September 30, 2018 by level in the fair value hierarchy.
 
September 30, 2018
(in millions)
Level 1
 
Level 2
 
Level 3
 
Netting and Collateral (1)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Unrestricted cash equivalents - certificates of deposit
$
3.8

 
$

 
$

 
$

 
$
3.8

Commodities warehouse receipts
42.9

 

 

 

 
42.9

U.S. Treasury obligations
600.4

 

 

 

 
600.4

Securities and other assets segregated under federal and other regulations
643.3

 

 

 

 
643.3

U.S. Treasury obligations
778.4

 

 

 

 
778.4

TBA and forward settling securities

 
5.0

 

 
(2.1
)
 
2.9

Foreign government obligations
7.7

 

 

 

 
7.7

Derivatives
7,495.9

 
19.6

 

 
(7,787.1
)
 
(271.6
)
Deposits with and receivables from broker-dealers, clearing organizations and counterparties, net
8,282.0

 
24.6

 

 
(7,789.2
)
 
517.4

Equity securities
71.2

 
3.0

 

 

 
74.2

Corporate and municipal bonds

 
79.1

 

 

 
79.1

U.S. Treasury obligations
120.1

 

 

 

 
120.1

U.S. government agency obligations

 
472.9

 

 

 
472.9

Foreign government obligations
6.4

 

 

 

 
6.4

Agency mortgage-backed obligations

 
1,022.5

 

 

 
1,022.5

Asset-backed obligations

 
42.9

 

 

 
42.9

Derivatives
0.8

 
514.6

 

 
(329.3
)
 
186.1

Commodities leases

 
29.5

 

 
(11.8
)
 
17.7

Commodities warehouse receipts
16.4

 

 

 

 
16.4

Exchange firm common stock
10.2

 

 

 

 
10.2

Mutual funds and other
6.3

 

 

 

 
6.3

Financial instruments owned
231.4

 
2,164.5

 

 
(341.1
)
 
2,054.8

Physical commodities inventory
42.1

 
114.8

 

 

 
156.9

Total assets at fair value
$
9,202.6

 
$
2,303.9

 
$

 
$
(8,130.3
)
 
$
3,376.2

Liabilities:
 
 
 
 
 
 
 
 
 
TBA and forward settling securities

 
2.1

 

 
(2.1
)
 

Derivatives
7,809.3

 
11.6

 

 
(7,820.9
)
 

Payables to broker-dealers, clearing organizations and counterparties
7,809.3

 
13.7

 

 
(7,823.0
)
 

Equity securities
51.1

 
0.4

 

 

 
51.5

Corporate and municipal bonds

 
20.1

 

 

 
20.1

U.S. Treasury obligations
484.8

 

 

 

 
484.8

U.S. government agency obligations

 
57.2

 

 

 
57.2

Agency mortgage-backed obligations

 
0.2

 

 

 
0.2

Derivatives

 
688.0

 

 
(494.6
)
 
193.4

Commodities leases

 
75.5

 

 
(16.2
)
 
59.3

Financial instruments sold, not yet purchased
535.9

 
841.4

 

 
(510.8
)
 
866.5

Total liabilities at fair value
$
8,345.2

 
$
855.1

 
$

 
$
(8,333.8
)
 
$
866.5

(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 is included in that level.
Realized and unrealized gains and losses are included in ‘principal gains, net’, ‘interest income’, and ‘cost of sales of physical commodities’ in the condensed consolidated income statements.

18


Additional disclosures about the fair value of financial instruments that are not carried on the Condensed Consolidated Balance Sheets at fair value
Many, but not all, of the financial instruments that the Company holds are recorded at fair value in the Condensed Consolidated Balance Sheets. The following represents financial instruments in which the ending balance at June 30, 2019 and September 30, 2018 was not carried at fair value in accordance with U.S. GAAP on the Condensed Consolidated Balance Sheets:
Short-term financial instruments: The carrying value of short-term financial instruments, including cash and cash equivalents, cash segregated under federal and other regulations, securities purchased under agreements to re-sell and securities sold under agreements to re-purchase, and securities borrowed and loaned are recorded at amounts that approximate the fair value of these instruments due to their short-term nature and level of collateralization. These financial instruments generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market rates. Under the fair value hierarchy, cash and cash equivalents and cash segregated under federal and other regulations are classified as Level 1. Securities purchased under agreements to re-sell and securities sold under agreements to re-purchase, and securities borrowed and loaned are classified as Level 2 under the fair value hierarchy as they are generally overnight or short-term in nature and are collateralized by equity securities, U.S. Treasury obligations, U.S. government agency obligations, agency mortgage-backed obligations, and asset-backed obligations.
Receivables and other assets: Receivables from broker-dealers, clearing organizations, and counterparties, receivables from clients, net, notes receivables, and certain other assets are recorded at amounts that approximate fair value due to their short-term nature and are classified as Level 2 under the fair value hierarchy.
Payables: Payables to clients and payables to brokers-dealers, clearing organizations, and counterparties are recorded at amounts that approximate fair value due to their short-term nature and are classified as Level 2 under the fair value hierarchy.
Lenders under loans: Payables to lenders under loans carry variable rates of interest and are relatively short-term in duration and, thus, approximate fair value and are classified as Level 2 under the fair value hierarchy.
Senior secured term loan: The senior secured term loan carries a variable rate of interest and thus approximates fair value and is classified as Level 2 under the fair value hierarchy.
Note 5Financial 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 condensed consolidated financial statements as of June 30, 2019 and September 30, 2018 at the fair values of the related financial instruments. The Company will incur losses if the fair value of the underlying financial instruments increases subsequent to June 30, 2019. The total financial instruments sold, not yet purchased of $861.2 million and $866.5 million as of June 30, 2019 and September 30, 2018, respectively, includes $199.0 million and $193.4 million for derivative contracts, respectively, which represented a liability to the Company based on their fair values as of June 30, 2019 and September 30, 2018.
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 condensed consolidated balance sheets in ‘Deposits with and receivables from broker-dealers, clearing organizations and counterparties, net’, ‘Financial instruments owned, at fair value’, ‘Financial instruments sold, not yet purchased, at fair value’ and ‘Payables to broker-dealers, clearing organizations and counterparties’.

19


Listed below are the fair values of the Company’s derivative assets and liabilities as of June 30, 2019 and September 30, 2018. Assets represent net unrealized gains and liabilities represent net unrealized losses.
 
June 30, 2019
 
September 30, 2018
(in millions)
Assets (1)
 
Liabilities (1)
 
Assets (1)
 
Liabilities (1)
Derivative contracts not accounted for as hedges:
 
 
 
 
 
 
 
Exchange-traded commodity derivatives
$
1,577.7

 
$
1,610.4

 
$
2,455.7

 
$
2,499.3

OTC commodity derivatives
241.9

 
380.8

 
207.0

 
369.9

Exchange-traded foreign exchange derivatives
76.9

 
73.1

 
49.8

 
37.2

OTC foreign exchange derivatives
334.2

 
308.7

 
302.5

 
303.9

Exchange-traded interest rate derivatives
1,200.7

 
1,417.6

 
449.3

 
478.7

OTC interest rate derivatives
20.4

 
22.5

 
24.8

 
25.9

Exchange-traded equity index derivatives
955.8

 
904.2

 
4,541.8

 
4,794.0

TBA and forward settling securities
6.1

 
8.4

 
5.0

 
2.1

Gross fair value of derivative contracts
4,413.7

 
4,725.7

 
8,035.9

 
8,511.0

Impact of netting and collateral
(4,281.8
)
 
(4,512.7
)