INTL FCStone 2012 Annual Report Download - page 65
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Please find page 65 of the 2012 INTL FCStone annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.INTL FCSTONE INC.Form10K 49
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
approximate fair value. ese nancial instruments include: cash
and cash equivalents; cash, securities and other assets segregated
under federal and other regulations; nancial instruments purchased
under agreements to resell; deposits with clearing organizations;
nancial instruments owned; and nancial instruments sold but
not yet purchased. Unrealized gains and losses related to these
nancial instruments, which are not customer owned positions,
are re ected in earnings. Where available, we use prices from
independent sources such as listed market prices, or broker or
dealer price quotations. Fair values for certain derivative contracts
are derived from pricing models that consider current market
and contractual prices for the underlying nancial instruments
or commodities, as well as time value and yield curve or volatility
factors underlying the positions. In some cases, even though the
value of a security is derived from an independent market price
or broker or dealer quote, certain assumptions may be required
to determine the fair value. However, these assumptions may be
incorrect and the actual value realized upon disposition could be
di erent from the current carrying value. e value of foreign
currencies, including foreign currencies sold, not yet purchased,
are converted into its U.S. dollar equivalents at the foreign
exchange rates in e ect at the close of business at the end of the
accounting period. For foreign currency transactions completed
during each reporting period, the foreign exchange rate in e ect
at the time of the transaction is used.
e application of the valuation process for nancial instruments
and foreign currencies is critical because these items represent a
signi cant portion of our total assets. Valuations for substantially
all of the nancial instruments held are available from independent
publishers of market information. e valuation process may
involve estimates and judgments in the case of certain nancial
instruments with limited liquidity and OTC derivatives. Given
the wide availability of pricing information, the high degree of
liquidity of the majority of our assets, and the relatively short
periods for which they are typically held in inventory, there is
insigni cant sensitivity to changes in estimates and insigni cant
risk of changes in estimates having a material e ect on our nancial
statements. e basis for estimating the valuation of any nancial
instruments has not undergone any change.
Revenue Recognition. A signi cant portion of our revenues
are derived principally from realized and unrealized trading
income in securities, derivative instruments, commodities and
foreign currencies purchased or sold for our account. Realized
and unrealized trading income is recorded on a trade date basis.
Securities owned and securities sold, not yet purchased and
foreign currencies sold, not yet purchased, are stated at fair value
with related changes in unrealized appreciation or depreciation
re ected within ‘trading gains, net’ in the consolidated income
statements. Fee and interest income are recorded on the accrual
basis and dividend income is recognized on the ex-dividend date.
Revenue on commodities that are purchased for physical delivery
to customers and that are not readily convertible into cash is
recognized at the point in time when the commodity has been
shipped, title and risk of loss has been transferred to the customer,
and the following conditions have been met: persuasive evidence
of an arrangement exists, the price is xed and determinable, and
collectability of the resulting receivable is reasonably assured.
e critical aspect of revenue recognition is recording all known
transactions as of the trade date of each transaction for the nancial
period. We have developed systems for each of our businesses to
capture all known transactions. Recording all known transactions
involves reviewing trades that occur after the nancial period
that relate to the nancial period. e accuracy of capturing this
information is dependent upon the completeness and accuracy
of data capture of the operations systems and our clearing rms.
Income Taxes. We are subject to income taxes in the U.S. and
numerous foreign jurisdictions. Signi cant judgment is required
in determining the consolidated provision for income taxes and
in evaluating tax positions, including evaluating uncertainties. As
a result, the company recognizes tax liabilities based on estimates
of whether additional taxes and interest will be due. ese tax
liabilities are recognized when despite our belief that our tax return
positions are supportable, we believe that certain positions may
not be fully sustained upon review by the relevant tax authorities.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to di erences
between the nancial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in e ect
for the year in which those temporary di erences are expected
to be recovered or settled. e e ect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Signi cant judgment
is also required in determining any valuation allowance recorded
against deferred tax assets. In assessing the need for a valuation
allowance, management considers all available evidence for each
jurisdiction including past operating results, estimates of future
taxable income, and the feasibility of ongoing tax planning
strategies. In the event that we change our determination as to the
amount of deferred tax assets that can be realized, we will adjust
our valuation allowance with a corresponding impact to income
tax expense in the period in which such determination is made.
We believe that our accruals for tax liabilities are adequate for all
open audit years based on our assessment of many factors including
past experience and interpretations of tax law. is assessment
relies on estimates and assumptions and may involve series of
complex judgments about future events. To the extent that new
information becomes available which causes us to change our
judgment regarding the adequacy of existing tax liabilities, such
changes to tax liabilities will impact income tax expense in the
period in which such determination is made. e consolidated
provision for income taxes will change period to period based on
non-recurring events, such as the settlement of income tax audits
and changes in tax law, as well as recurring factors including the
geographic mix of income before taxes, state and local taxes, and
the e ects of various global income tax strategies.