INTL FCStone 2012 Annual Report Download - page 81
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Please find page 81 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 65
PART II
ITEM 8 Financial Statements and Supplementary Data
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, net include brokerage fees and margins generated
from OTC derivative trades executed with customers and other
counterparties and are recognized when trades are executed.
Trading gains, net also include activities where the Company
acts as principal in the purchase and sale of individual securities,
currencies, commodities or derivative instruments with customers.
ese transactions may be o set simultaneously with another
customer or counterparty, o set with similar 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 uctuate). In addition, trading gains, net 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, net’ on the ex-dividend date.
Commissions on futures contracts are recognized on a half-
turn basis in two equal parts. e rst half is recognized when
the contract is 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 o 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. See discussion of clearing and
related expenses below.
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 fees due at each period-end date. ese
include performance fees based on the amount that is due under
the formula for exceeding performance targets as of the period-
end date. 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 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.
Cost of Revenue
Cost of sales of physical commodities include nished commodity
or raw material and processing costs along with operating costs
relating to the receipt, storage and delivery of the physical
commodities.
Compensation and Benefi ts
Compensation and bene ts consists primarily of salaries, incentive
compensation, commissions, related payroll taxes and employee
bene ts. e Company classi es employees as either traders /
risk management consultants, operational or administrative
personnel, which includes the executive o cers. e most
signi cant component of the Company’s compensation expense
is the employment of the traders / risk management consultants,
who are paid commissions based on the revenues that their
customer portfolios generate. e Company accrues commission
expense on a trade date basis.
Share-Based Compensation
e Company accounts for share-based compensation in
accordance with the guidance of the Compensation-Stock
Compensation Topic of the ASC. e cost of employee services
received in exchange for a share-based award is generally measured
based on the grant-date fair value of the award. Share-based
employee awards that require future service are amortized over
the relevant service period. Expected forfeitures are included in
determining share-based employee compensation expense. In the
rst quarter of 2006, the Company adopted the guidance under
the Compensation-Stock Compensation Topic of the ASC using
the modi ed prospective method. For option awards granted
subsequent to the adoption, compensation cost is recognized
on a straight-line basis over the vesting period for the entire
award. e expense of unvested option awards granted prior
to the adoption are recognized on a straight-line basis, over the
balance of the vesting period.