INTL FCStone 2011 Annual Report Download - page 42

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INTL FCSTONE INC.Form10K28
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
As discussed in previous lings and elsewhere in this Form10-K,
U.S. GAAP requires the Company to carry derivatives at fair value
but physical commodities inventory at the lower of cost or fair
value. ese requirements may have a signifi cant temporary impact
on our reported earnings. Under U.S. GAAP, gains and losses
on commodities inventory and derivatives which the Company
intends to be off setting are often recognized in diff erent periods.
Additionally, in certain circumstances, U.S.GAAP does not require
us to refl ect changes in estimated values of forward commitments
to purchase and sell commodities. In such circumstances, the
forward commitments to purchase and sell commodities, which
the Company does not refl ect within the consolidated balance
sheets, qualify for the normal purchases and sales exception in
the Derivatives and Hedging Topic of the ASC.
For these reasons, management primarily assesses the Company’s
operating results on a marked-to-market basis. Management relies
on these adjusted operating results to evaluate the performance of
the Company’s commodities business segment and its personnel.
e Unaudited Adjusted Data in the table above refl ect the
Company’s adjusted operating revenues, adjusted net income
and adjusted stockholders’ equity, which have been adjusted
to refl ect the marked-to-market diff erences in the Company’s
commodities business during each period (in the case of operating
revenues and net income) and the cumulative diff erences (in the
case of stockholders’ equity). e Company has also included
the estimated tax liability which would have been incurred as a
result of these adjustments, utilizing a blended tax rate of 37.5%.
Adjusted operating revenues, adjusted net income, and adjusted
stockholders’ equity are fi nancial measures that are not recognized
by U.S. GAAP, and should not be considered as alternatives to
operating revenues, 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. e
Company has included these non-GAAP fi nancial measures
because it believes that they permit investors to make more
meaningful comparisons of performance between the periods
presented. In addition, these non-GAAP measures are used by
management in evaluating the Company’s performance.
e Company determines the fair value of physical commodities
inventory on a marked-to-market basis by applying quoted
market prices to the inventory owned by the Company on the
balance sheet date. In the Company’s precious metals business,
the Company obtains the closing COMEX nearby futures price
for the last business day of the month and then adjusts that price
to refl ect an exchange for physical transaction, utilizing bids
obtained from one or more market participants. In the Company’s
base metals business, for copper inventory, the Company obtains
the closing COMEX or LME nearby futures price and then
adjusts that price to refl ect any freight charges to the relevant
delivery point. For the Company’s lead inventory, the Company
obtains the closing LME nearby futures month price and then
adjusts that price to refl ect any tolling and freight charges to
the relevant delivery point. If inventories were required to be
valued using fair value instead of under U.S. GAAP at the lower
of cost or market, our physical commodities inventory would
be classifi ed as Level 2 assets using the Fair Value Measurements
and Disclosures Topic of the ASC.
ITEM 7 Management’s Discussion and Analysis of
Financial Condition and Results of Operations
e following discussion should be read together with the
Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Annual Report on Form10-K. Certain statements
in “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” are forward-looking statements that
involve risks and uncertainties. Words such as may, will, should,
would, anticipates, expects, intends, plans, believes, seeks, estimates
and similar expressions identify such forward-looking statements.
e forward-looking statements contained herein are based on
current expectations and entail various risks and uncertainties
that could cause actual results to diff er materially from those
expressed in such forward-looking statements. Factors that might
cause such a diff erence include, among other things, those set
forth under “Risk Factors” and those appearing elsewhere in this
Form10-K. Readers are cautioned not to place undue reliance
on these forward-looking statements, which refl ect management’s
analysis only as of the date hereof. We assume no obligations to
update these forward-looking statements to refl ect actual results
or changes in factors or assumptions aff ecting forward-looking
statements. Readers are cautioned that any forward-looking
statements are not guarantees of future performance.