INTL FCStone 2011 Annual Report Download - page 74

INTL FCSTONE INC.Form10K60
PART II
ITEM 8 Consolidated Financial Statements and Supplementary Data
Payables 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 or the
exchange-clearing organizations. Customer accounts with credit or
positive balances are reported gross of customer de cit accounts,
except where a right of o set exists. Payables to customers for
regulated accounts are for transactions facilitated by FCStone, a
futures commission merchants (“FCM”), with exchange-clearing
organizations. Payables to customers for unregulated accounts
are for transactions occurring in the OTC markets.
For regulatory purposes, certain customers, which would include
persons who are a liated with the Company or is a principal,
such as an o cer or director, and any person who is materially
involved in the management of the Company, are identi ed as
noncustomers. A noncustomer account may not be carried as a
customer account due to an a liation with the Company. In a
liquidation event, amounts owed to noncustomers are paid in the
same priority as amounts owed to general creditors of the Company.
 ese accounts are also referred to as proprietary accounts.  e
amounts related to noncustomer accounts are included in ‘payables
to customers’ on the consolidated balance sheets.
 e future collectability of the receivables from customers can
be impacted by the Company’s collection eff orts, the fi nancial
stability of its customers, and the general economic climate
in which it operates.  e Company evaluates accounts that it
believes may become uncollectible on a specifi c identifi cation
basis, through reviewing daily margin defi cit reports, the historical
daily aging of the receivables, and by monitoring the fi nancial
strength of its customers.  e 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.
 e Company generally charges off an outstanding receivable
balance when all economically sensible means of recovery have
been exhausted.  at determination considers information
such as the occurrence of signifi cant changes in the customer’s
fi nancial position such that the customer can no longer pay
the obligation, or that the proceeds from collateral will not be
suffi cient to pay the balance.
Notes Receivable from Customers
 e Company accepts notes receivable under sale/repurchase
agreements with customers whereby the customers sell certain
commodity inventory to the Company and agree to repurchase
the commodity inventory at a future date at either a fi xed or
fl oating rate. In accordance with the guidance contained in the
Revenue Recognition Topic of the ASC, these transactions are
treated as secured borrowings rather than commodity inventory
in the Company’s consolidated fi nancial statements.
Accrual of commodity fi nancing 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 fi nancial position of the borrower indicates
there is no longer any reasonable doubt as to the timely payment
of principal and interest.  e Company records a charge against
operations for notes receivable losses when management believes
that collectability of the principal is unlikely.
Physical Commodities Inventory
Physical commodities inventories are stated at the lower of cost
or market (“LCM”), using the weighted-average price and fi rst-in
fi rst-out costing method. Cost includes fi nished commodity or
raw material and processing costs related to the purchase and
processing of inventories.
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 software. Expenditures for maintenance,
repairs, and minor replacements are charged to operations, 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 Identifi able Intangible Assets
Goodwill is the cost of acquired companies in excess of the
fair value of identifi able 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 fi scal year-end, and between annual tests if indicators of
potential impairment exist, using a fair-value-based approach.
No impairment of goodwill has been identifi ed during any of
the periods presented.
Identifi able intangible assets subject to amortization are amortized
using the straight-line method over their estimated period of benefi t,
ranging from two to twenty years. Identifi able 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. Identifi able intangible assets not subject to amortization are