INTL FCStone 2012 Annual Report Download - page 92
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Please find page 92 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.Form10K76
PART II
ITEM 8 Financial Statements and Supplementary Data
e Company has also classi ed equity investments in exchange
rms’ common stock not pledged for clearing purposes as
available-for-sale. e investments are recorded at fair value, with
unrealized gains and losses recorded, net of taxes, as a component
of OCI until realized. As of September30, 2012, the cost and fair
value of the equity investments in exchange rms is $4.4 million
and $12.4 million, respectively. As of September30, 2011, the
cost and fair value of the equity investments in exchange rms
is $4.4 million and $3.7 million, respectively.
On June15, 2012, London Metal Exchange Holdings Limited,
the parent company of the LME, entered into a framework
agreement regarding the terms of a recommended cash o er
for the entire issued and outstanding ordinary share capital of
LME Holdings. On July23, 2012, the shareholders of LME
Holdings voted to approve the sale of the LME to the Hong
Kong Exchanges & Clearing Limited. Based on the proposed
sale price of the ordinary shares, the shares of the LME held by
the Company were valued at $8.7 million as of September30,
2012. e shares held by the Company, that have been designated
as available-for-sale, re ect an unrealized gain of $6.3 million
net of income tax expense of $2.0 million. is gain is recorded
in OCI as of September30, 2012. In late November2012, the
Financial Services Authority approved the change of ownership
of the LME. e Company expects to collect payment for
the sale of their shares and to reclassify the unrealized gain in
accumulated OCI and recognize the realized gain in earnings
in the rst quarter of scal year 2013.
e Company has recorded unrealized losses of $0.3 million, net
of income tax bene t of $0.1 million in OCI related to remaining
equity investments in exchange rms as of September30, 2012.
e Company has recorded unrealized losses of $0.4 million, net
of income tax bene t of $0.3 million in OCI related to equity
investments in exchange rms as of September30, 2011. e
Company monitors the fair value of exchange common stock on
a periodic basis, and does not consider any current unrealized
losses to be anything other than temporary impairment.
NOTE 4 Financial Instruments with Off -Balance Sheet Risk and Concentrations
of Credit Risk
e Company is party to certain nancial instruments with
o -balance sheet risk in the normal course of its business.
e Company has sold nancial instruments that it does
not currently own and will therefore be obliged to purchase
such nancial instruments at a future date. e Company
has recorded these obligations in the consolidated nancial
statements as of September30, 2012 at the fair values of the
related nancial instruments. e Company will incur losses if
the fair value of the underlying nancial instruments increases
subsequent to September30, 2012. e total of $175.4 million
as of September30, 2012 includes $44.6 million for derivative
contracts, which represent a liability to the Company based on
their fair values as of September30, 2012.
Derivatives
e Company utilizes derivative products in its trading capacity
as a dealer in order to satisfy client needs and mitigate risk.
e Company manages risks from both derivatives and non-
derivative cash instruments on a consolidated basis. e risks of
derivatives should not be viewed in isolation, but in aggregate
with the Company’s other trading activities. e majority of the
Company’s derivative positions are included in the consolidating
balance sheets within ‘ nancial instruments owned, at fair value’,
‘deposits and receivables from exchange-clearing organizations’
and ‘ nancial instruments sold, not yet purchased, at fair value’.
The Company continues to employ an interest rate risk
management strategy that uses derivative nancial instruments
in the form of interest rate swaps to manage a portion of the
aggregate interest rate position. e Company’s objective is
to invest the majority of customer segregated deposits in high
quality, short-term investments and swap the resulting variable
interest earnings into the medium-term interest stream, by using
a strip of interest rate swaps that mature every quarter, in order
to achieve the two year moving average of the two year swap rate.
e risk mitigation of these interest rate swaps is not within the
documented hedging designation requirements of the Derivatives
and Hedging Topic of the ASC, and as a result they are recorded
at fair value, with changes in the marked-to-market valuation
of the nancial instruments recorded within ‘trading gains, net’
in the consolidated income statements. At September30, 2012
and 2011, the Company had $765.0 million and $1.1 billion
in notional principal of interest rate swaps outstanding with a
weighted-average life of 6 and 14 months, respectively.