INTL FCStone 2011 Annual Report Download - page 82

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INTL FCSTONE INC.Form10K68
PART II
ITEM 8 Consolidated Financial Statements and Supplementary Data
to FCStone,LLC by another FCM for a customer that held
an account with FCStone,LLC. Despite expressly informing
the FCM that FCStone,LLC would not accept the “give-up”
trade, the “give-up” trade was submitted through the electronic
clearing process and erroneously cleared, generating a de cit in
the customer’s trading account. e customer lacked the fi nancial
capacity to cover the account defi cit. Additionally, the Company
recorded a $2.5million charge to bad debt expense related to
a Dubai customer to whom INTL Commodities DMCC had
consigned gold.
As a result of the acquisition of FCStone, the Company acquired
notes receivable of $133.7million as of September30,2009
from certain customers and an introducing broker which arose
from previous customer account defi cits. At the time of the
acquisition, the Company estimated collectability of these notes
to be $16.7million. During 2011, the Company recovered
$15.6million as partial payment against these notes, and charged
off $111.5million of note receivable which was fully reserved.
Since the acquisition of FCStone, total recoveries from these
customers and introducing broker through September30,2011
is $15.5million, and remaining notes receivable related to these
customer account defi cits is $1.2million. e Company expects
to collect the remaining amounts from the introducing broker,
by withholding commissions due on future revenues collected
by the Company, although no assurance can be given as to the
timing of collection.
Activity in the allowance for doubtful accounts and notes for
the years ended September30,2011 and 2010 was as follows:
(in millions)
2011 2010
Balance, beginning of year $ 119.2 $ 123.4
Provision for bad debts 7.2 2.3
Transfer in(1) 2.5 —
Deductions:
Charge-off s (113.3 ) (5.8 )
Recoveries (3.7 ) (0.7 )
BALANCE, END OF YEAR $ 11.9 $ 119.2
(1) During the three months ended December31,2010, certain open position derivative contracts, which had a $2.5million credit reserve as of September30,2010
were closed, and the deficit account balance was reclassified from financial instruments owned to a receivable from customer. Accordingly, the previously established
credit reserve amount was transferred into the allowance for doubtful accounts during the three months ended December31,2010.
Additionally, in the normal course of operations the Company
accepts notes receivable under sale/repurchase agreements with
customers whereby the customers sell certain commodity inventory
and agree to repurchase the commodity inventory at a future
date at either a fi xed or fl oating rate. ese transactions are short-
term in nature, and are treated as secured borrowings rather than
commodity inventory, purchases and sales in the Company’s
consolidated fi nancial statements. As of September30,2011
and 2010, the Company had outstanding notes receivable of
$24.3million and $13.6million, respectively, related to this
program.
NOTE 5 Assets and Liabilities, at Fair Value
e Company’s fi nancial and nonfi nancial assets and liabilities
reported at fair value are included within the following captions
on the consolidated balance sheets:
•Cash and cash equivalents
•Cash, securities and other assets segregated under federal and
other regulations
•Securities purchased under agreements to resell
•
Deposits and receivables from exchange-clearing organizations
•
Deposits and receivables from broker-dealers, clearing
organizations and counterparties
•Financial instruments owned
•Accounts payable and other accrued liabilities
•Payables to customers
•
Payables to broker-dealers, clearing organizations and
counterparties
•Financial instruments sold, not yet purchased