INTL FCStone 2011 Annual Report Download - page 77

INTL FCSTONE INC.Form10K 63
PART II
ITEM 8 Consolidated Financial Statements and Supplementary Data
require remeasurement at fair value in each subsequent reporting
period. Noncontrolling interests will initially be measured at
fair value and classi ed as a separate component of equity.
Acquisition related costs, such as fees for attorneys, accountants,
and investment bankers, will be expensed as incurred and no
longer 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 will be recorded as a component
of income, rather than adjusted through goodwill.
Acquisitions during  scal2009 were accounted for as purchase
business combinations in accordance with the provisions of
Statement of Financial Accounting Standards (“SFAS”) No.
141, Business Combinations. Under the purchase method of
accounting, the costs, including transaction costs, are allocated
to the underlying net assets acquired, based on their respective
estimated fair values. Any excess of the purchase price over the
estimated fair values of the net assets acquired is recorded as
goodwill, which is not amortized to expense. Any excess of the
estimated fair values of the net assets acquired over the purchase
price results in negative goodwill. Negative goodwill is allocated
as a pro rata reduction of the amounts assigned to the assets
acquired excluding  nancial assets, deferred taxes and other current
assets. If negative goodwill exceeds the amount of those assets,
the remaining excess is recognized as an extraordinary gain in
the income statement. Direct out-of-pocket or incremental costs
that are directly related to a business combination are included
in the cost of the acquired enterprise. Costs included in the cost
of the acquired enterprise include  nder’s fees or other fees paid
to outside consultants for accounting, legal or appraisal services.
Determining the fair value of certain assets and liabilities acquired
is subjective in nature and often involves the use of signi cant
estimates and assumptions. Estimating the fair value of the assets
and liabilities acquired requires signi cant judgment.
Revenue Recognition
Sales of physical commodities revenue are recognized when
persuasive evidence of an arrangement exists, delivery has occurred,
the fee is  xed or determinable, and collectability is probable.
 e Company reports its physical commodities revenues 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.
Trading gains include brokerage fees and margins generated
from OTC derivative trades executed with customers and other
counterparties and are recognized when trades are executed.
Tr a d i n g g a i n s a l s o i n c l u d e a c t i v i t i e s w h e r e t h e C o m p a n y a c t s
as principal in the purchase and sale of individual securities,
currencies, commodities or derivative instruments with our
customers.  ese transactions may be off set simultaneously
with another customer or counterparty, off set with similarly 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 fl uctuate). In addition, trading gains 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, within ‘trading gain’ on the ex-dividend date.
Commissions on futures contracts are recognized on a half-turn
basis in two equal parts.  e fi rst half is recognized when the
contract is purchased (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 off set. 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.
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 estimates of fees due at each period-end date.
 ese include estimated performance fees based on the amount that
would be due under the formula for exceeding performance targets
as of the period-end date. Estimated performance fees may be at
risk due to future performance contingencies until such time as
they are fi xed. 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 fi nancing, 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.