INTL FCStone 2013 Annual Report Download - page 101

Download and view the complete annual report

Please find page 101 of the 2013 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.

Page out of 152

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152

INTLFCSTONEINC.Form10K80
PART II
ITEM 8Financial Statements and Supplementary Data
In accordance with the Fair Value MeasurementsTopic of the
ASC, the Company has estimated on a recurring basis each
period the fair value of debentures issued by a single asset owning
company of Suriwongse Hotel located in Chiang Mai, ailand.
As of September30, 2013, the Company’s investment in the
hotel is $3.5 million, and included within the corporate and
municipal bonds classication in the level 3 nancial assets
and nancial liabilities tables. e Company has classied its
investment in the hotel within level 3 of the fair value hierarchy
because the fair value is determined using signicant unobservable
inputs, which include projected cash ows. ese cash ows are
discounted employing present value techniques. e Company
estimates the fair value of its investment in these debentures by
using a management-developed forecast, which is based on the
income approach. During the year ended September30, 2011,
the Company recorded a loss of $1.7 million, representing an
other than temporary impairment. e Company continues to
monitor the hotel renovation process and evaluate the fair value
of the debentures. ere has been no signicant change in the
fair value of the debentures, and no additional loss has been
recognized during the years ended September 30, 2013 and 2012.
e Company is required to make additional future cash payments
based on certain 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 classied its liabilities
for the contingent earnout arrangements within level 3 of the
fair value hierarchy because the fair value is determined using
signicant unobservable inputs, which include projected cash
ows. e estimated fair value of the contingent purchase
consideration is based upon management-developed forecasts,
a level 3 input in the fair value hierarchy. ese cash ows are
discounted employing present value techniques in arriving
at fair value. e discount rate was developed using market
participant company data and there have been no signicant
changes in the discount rate environment. From the dates of
acquisition to September30, 2013, certain acquisitions have
had changes in the estimates of undiscounted cash ows, based
on actual performances uctuating from estimates. During the
scal years ended September 30, 2013 and 2012, the fair value
of the contingent consideration increased $2.6 million and
$2.0 million, with the corresponding expense classied as ‘other’
in the consolidated income statements.
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 signicant price 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.
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.
On March31, 2013, the commodities market experienced
downward limit price movements on certain commodities. As a
result, certain exchange-traded derivative contracts, which would
normally be valued using quoted market prices and classi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 liabilities were classied as level 2 at March31, 2013.
Such derivative assets and liabilities were valued using quoted
market prices, and as such, were classied as level 1 as of June, 30,
2013, September 30, 2013 and prior to March31, 2013. ere
were no signicant similar occurrences of upward or downward
limit price movements during the year ended September 30,
2012 and the derivative assets and liabilities were valued using
quoted market prices as of the respective quarter ends in scal
year 2012 and as such were classied as level 1.
Except as described above, the Company did not have any
additional signicant transfers between level 1 and level 2 fair
value measurements for the scal years ended September 30,
2013 and 2012.
e Company has 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 September30, 2013, the cost and fair value
of the equity investments in exchange rms is $3.7 million and
$4.4 million, respectively. As of September30, 2012, the cost
and fair value of the equity investments in exchange rms is
$4.4 million and $12.4 million, respectively.
In June 2012, the board of LME Holdings Limited
(“LME Holdings”), the parent company of e London Metal
Exchange (“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. In July 2012,
the shareholders of LME Holdings approved the sale of LME
Holdings to the Hong Kong Exchanges & Clearing Limited. In
December 2012, the Company received proceeds of $8.6 million
from the sale of its shares in the LME. e shares of the LME
were previously held by the Company as available-for-sale and
the unrealized gain for those shares was reected in OCI. For the
scal year ended September30, 2013, the Company reclassied
the unrealized gain remaining in AOCI of approximately
$6.3 million, net of income tax expense of $2.0 million, into
the current period earnings.
In December 2012, the Company sold its exchange membership
seats in the Board of Trade of Kansas City, Missouri, Inc.
(“KCBT”), in connection with the acquisition of the KCBT
by Chicago Mercantile Exchange (“CME”). e Company
was required to hold these exchange membership seats for
clearing purposes and, as a result, the associated KCBT shares