INTL FCStone 2011 Annual Report Download - page 97

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INTL FCSTONE INC.Form10K 83
PART II
ITEM 8 Consolidated Financial Statements and Supplementary Data
complaint in April,2010. e remaining three holders of the
Notes, Highbridge International LLC (“Highbridge”), LBI
GroupInc. and Iroquois Master FundLtd. (“Iroquois”), holding
Notes in an aggregate amount of $13.0million, fi led a similar
lawsuit on the Company on October20,2010.
On December14,2010 Portside delivered a Conversion Notice
to the Company in compliance with the terms of the relevant
agreement. e full remaining principal amount and accrued
interest converted into 173,966shares of common stock of the
Company. Portside fi led a notice of discontinuance thereafter.
On April21,2011 the Company’s motion to dismiss the
investors’ lawsuit was denied. Prior to April21,2011, one of
the investors, Iroquois, converted $3.0million of its $4.0million
investment in principal amount of the Notes, and accrued interest,
into 139,136shares of common stock of the Company. On
April25,2011, Iroquois converted the remaining $1.0million of
its original $4.0million investment in the Notes into 46,133shares
of common stock of the Company.
During July,2011, LBI GroupInc. sold its entire $5.0million
investment in principal amount of the Notes to Leucadia
National Corporation (the holder of approximately 8% of the
outstanding common stock of the Company), fi led a stipulation
of discontinuance in the aforementioned lawsuit and released
the Company from any further claims in connection with its
prior investment in the Notes.
During September,2011, Highbridge and Leucadia National
Corporation converted the remaining $9.0million, and accrued
interest, into 419,468shares of common stock of the Company.
Highbridge and Iroquois, each holder of $4.0million in principal
amount of the convertible notes as of September30,2009, persist
in their claim against the Company. e Company intends to
defend the claim vigorously. e matter is expected to go to trial
during the summer of 2012.
Sentinel Litigation
In August,2008, the bankruptcy trustee of Sentinel Management
Group,Inc. (“Sentinel”) fi led adversary proceedings against one
of the Company’s subsidiaries, FCStone,LLC, and a number of
other FCMs in the Bankruptcy Court, subsequently reassigned
within the UnitedStates District Court, for the Northern
District of Illinois seeking avoidance of alleged transfers or
withdrawals of funds received by the Company and other FCMs
within 90 days prior to the fi ling of the Sentinel bankruptcy
petition, as well as avoidance of post-petition distributions and
disallowance of the proof of claim fi led by the FCStone,LLC.
e trustee seeks recovery of pre- and post-petition transfers
totaling approximately $15.5million and, in April,2009, fi led
an amended complaint adding a claim for unjust enrichment.
FCStone,LLC answered the complaints and all parties entered
into the discovery phase of the litigation. On January21,2011
the bankruptcy trustee of Sentinel fi led a motion for summary
judgment against FCStone,LLC on various counts in the adversary
proceedings fi led in August,2008 against FCStone,LLC and a
number of other FCMs. e motion has since been fully briefed,
and is pending before the Court awaiting decision. FCStone,LLC
intends to defend the matter vigorously, and to coordinate its
defense with the other FCMs.
Contractual Commitments
Contingent Liabilities - Acquisitions
Under the terms of the purchase agreements, related to the
acquisitions listed below, the Company has obligations to pay
additional consideration if specifi c conditions and earnings
targets are met. In accordance with the Business Combinations
To p ic o f th e AS C , th e fa i r va l u e o f t h e a d di t i o n al c on s i d e ra t i o n
is recognized as a contingent liability as of the acquisition date.
e contingent liability for these estimated additional purchase
price considerations are included within ‘accounts payable and
other accrued liabilities’ in the consolidated balance sheet as of
September30,2011. e acquisition date fair value of additional
consideration is remeasured to its fair value each reporting period,
with changes in fair value recorded in current earnings.
The Company has a contingent liability relating to the
October2010 acquisition of Hencorp Becstone Futures, L.C.,
subsequently renamed INTL Hencorp Futures,LLC (“Hencorp
Futures”), which may result in the payment of additional purchase
price consideration, see Note18 for discussion of the acquisition.
e acquisition date fair value of additional consideration was
estimated to be $2.3million. e contingent liability recorded
represents a contingent payment of $0.3million based on adjusted
pre-tax net earnings of Hencorp Futures for fi scal2011 and the
fair value of the expected consideration to be paid, based on the
forecasted adjusted pre-tax net earnings during the second, third
and fourth fi scal years following the closing of the acquistion
and a discount rate being applied to those future payments. e
change in fair value for the year ended September30,2011 was
an increase of $0.5million, included within ‘other expense’ in
the consolidated income statements. e present value of the
estimated total purchase price, including contingent consideration,
is $6.4million as of September30,2011, of which $2.7million
has not been paid and is included within ‘accounts payable and
other liabilities’ in the consolidated balance sheets.
e Company has a contingent liability relating to the July2010
acquisition of the Hanley Companies, which may result in the
payment of additional purchase price consideration, see Note18
for discussion of the acquisition. e acquisition date fair value
of additional consideration was estimated to be $15.6million.
e contingent liability recorded represents contingent payments
equal to 15% of the adjusted earnings before interest and taxes of
the soft commodities derivatives business of the acquired Hanley
Companies and INTL Hanley,LLC (the “Derivatives Division”)
for the two twelve-month periods ending June30,2012 and
June30,2013, a fi nal contingent payment based on the cumulative