INTL FCStone 2011 Annual Report Download - page 87

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INTL FCSTONE INC.Form10K 73
PART II
ITEM 8 Consolidated Financial Statements and Supplementary Data
e proceeds of this issue were to be used to refi nance the previous
loan to the hotel owner, fi nance the hotel’s renovation and fund
interest up to 50.0million THB. Renovations were initially
planned to be completed by April2011 and the outstanding
debentures were to be refi nanced following the completion of
renovations. e renovations have been delayed and are currently
expected to be completed by the end of fi scal2012.
In addition, the political and economic conditions in ailand
over the past two years have impacted the performance of the
hotel. Following the interest capitalization period, the hotel
owner was able to meet four quarterly interest payments on the
debentures, however the hotel owner defaulted on the interest
payment that was due in March2011. e Company and other
debenture holders have exercised their rights under the share
pledge provisions of the debentures, and held a share auction
of 100% of theshares of the single asset owning company.
e debenture holders won the share auction (see additional
discussion in Note14).
In accordance with the Fair Value Measurements and Disclosures
To pi c o f t h e AS C , t he Co m p an y h as e s ti m a te d t he f ai r v al u e
of the debentures on a recurring basis each period. As of
September30,2011, the Company’s investment in the hotel is
$3.6million, and included within the corporate and municipal
bonds classifi cation in the level3 fi nancial assets and fi nancial
liabilities tables. e Company has classifi ed its investment in
the hotel within level3 of the fair value hierarchy because the fair
value is determined using signifi cant unobservable inputs, which
include projected cash fl ows. ese cash fl ows are discounted
employing present value techniques. During the year ended
September30,2011, the Company recorded a loss of $1.7million,
representing an other than temporary impairment.
e Company is required to make additional future cash payments
based on certain fi nancial performance measures of its acquired
businesses. e Company is required to remeasure the fair value of
the cash earnout arrangements on a recurring basis in accordance
with the guidance in the Business Combinations Topic of the ASC.
e Company has classifi ed its net liabilities for the contingent
earnout arrangements within level3 of the fair value hierarchy
because the fair value is determined using signifi cant unobservable
inputs, which include projected cash fl ows. e estimated fair
value of the contingent purchase consideration is based upon
management-developed forecasts, a level3 input in the fair value
hierarchy. ese cash fl ows are discounted employing present
value techniques in arriving at the acquisition-date fair value. e
discount rate was developed using market participant company
data, a level 2 input in the fair value hierarchy, and there have
been no signifi cant changes in the discount rate environment.
From the dates of acquisition to September30,2011, certain
acquisitions have had changes in the estimates of undiscounted cash
fl ows, based on actual performances fl uctuating from estimates.
During the fi scal year ended September30,2011, the fair value
of the contingent consideration increased $2.9million, with the
corresponding expense classifi ed as ‘other’ within the consolidated
income statements.
e Company reports transfers in and out of levels 1, 2 and
3, as applicable, using the fair value of the securities as of the
beginning of the reporting period in which the transfer occurred.
e value of an exchange-traded derivative contract is equal
to the unrealized gain or loss on the contract determined by
marking the contract to the current settlement price for a like
contract on the valuation date of the contract. A settlement price
may not be used if the market makes a limit move with respect
to a particular derivative contract or if the securities underlying
the contract experience signifi cant price fl uctuations after the
determination of the settlement price. When a settlement price
cannot be used, derivative contracts will be valued at their fair
value as determined in good faith pursuant to procedures adopted
by management of the Company.
On June30,2011, the commodities market experienced
downward limit price movements on certain commodities,
and on March31,2011, the commodities market experienced
upward limit price movements on certain commodities. As a
result, certain exchange-traded derivative contracts, which would
normally be valued using quoted market prices and classifi ed as
level 1 within the fair value hierarchy, were priced using a valuation
model using observable inputs. Due to the change in valuation
techniques because of the limit moves, some derivative assets and
derivative liabilities were transferred from level 1 and classifi ed
as level 2 during the year ended September30,2011. Such
derivative assets and liabilities were valued using quoted market
prices prior to March31,2011 and as of September30,2011
and as such, were classifi ed as level 1.
e Company did not have any additional signifi cant transfers
between level 1 and level 2 fair value measurements for the year
ended September30,2011.
e Company transferred $0.7million of U.S. and foreign
obligations from level3 to level 2 during the fiscal year
ended September30,2010. e Company re-evaluated the
observability of the inputs for the fair value of the securities
that were transferred into level 2 from level3 and determined
that there was improvement in the market for these securities
and that resulted in the Company being able to utilize inputs
that were observable.