INTL FCStone 2011 Annual Report Download - page 103

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INTL FCSTONE INC.Form10K 89
PART II
ITEM 8 Consolidated Financial Statements and Supplementary Data
First, the Company must determine the actuarial assumption
for the discount rate used to refl ect the time value of money
in the calculation of the projected benefi t obligations for the
end of the current fi scal year and to determine the net periodic
pension cost for the subsequent fi scal year. e objective of the
discount rate assumption is to refl ect the interest rate at which
pension benefi ts could be eff ectively settled. In making this
determination, the Company considers the timing and amount
of benefi ts that would be available under the plans. e discount
rates as of September30,2011 and 2010 were based on a model
portfolio of high-quality fi xed-income debt instruments with
durations that are consistent with the expected cash fl ows of
the benefi t obligations.
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. e 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. ese 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 infl ation and interest rates, and a forecast of expected
future asset returns. e Company reviews this long-term
assumption on an annual basis.
As a result of the defi ned benefi t plans having a frozen status, no
additional benefi ts 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.
e components of net periodic pension cost recognized
in the consolidated income statements for the years ended
September30,2011 and 2010 were as follows:
(in millions)
Year Ended September30,
2011 2010
Interest cost $ 1.9 $ 2.0
Less expected return on assets (1.7) (1.7)
NET PERIODIC PENSION COST $ 0.2 $ 0.3
Plan Assets
e following table sets forth the actual asset allocation as of September30,2011 and 2010, and the target asset allocation for the
Company’s plan assets:
September30,2011 September30,2010
Target Asset
Allocation
Equity securities 70% 70% 70%
Debt securities 30% 30% 30%
TOTAL 100% 100%
e long-term goal for equity exposure and for fi xed income
exposure is presented above. e 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 fi xed income exposure.
e investment philosophy of the Company’s pension plans
refl ect 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 fi xed income investments. e primary
objective is for the plan to achieve a rate of return suffi cient to
fully fund the pension obligation without assuming undue risk.
Investments in the Company’s pension plans include debt and
equity securities. e 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. eshares of common stock, U.S. government securities
and federal agency obligations, municipal and corporate bonds are
stated at estimated fair value based upon quoted market prices,
if available, or dealer quotes. e equity funds are investment
vehicles valued using the net asset value (“NAV”) provided by the
administrator of the fund. e NAV is based on the underlying
assets owned by the fund, minus its liabilities, and then divided
by the number ofshares outstanding.
e methods described above may produce a fair value calculation
that may not be indicative of net realizable value or refl ective
of future fair values. Furthermore, while the Company believes
the valuation methods are appropriate and consistent with
other market participants, the use of diff erent methodologies
or assumptions to determine the fair value of certain fi nancial
instruments could result in a diff erent fair value measurement
at the reporting date.
Equity securities did not include any INTLFCStoneInc. common
stock as of September30,2011 and 2010, respectively.