INTL FCStone 2013 Annual Report Download - page 91

INTLFCSTONEINC.Form10K70
PART II
ITEM 8Financial Statements and Supplementary Data
these assumptions could materially change the estimate of the fair
value of contingent consideration and, therefore, materially aect
the Company’s future nancial results.
Additional Paid-In Capital
e Company’s additional paid-in capital (“APIC”) consists of
stockholder contributions that are in excess of par value of common
stock. Included in APIC are amounts related to the exercise of
stock options, share-based compensation and shares held in escrow.
In September 2010, the Company acquired certain assets of
Provident Group (“Provident”). e purchase price for the assets
and services of the sellers was $5.0 million. Subsequent to closing,
the individual sellers placed the entire purchase price into an escrow
account and the funds were used to purchase outstanding shares
of the Company on the open market. ere were 214,325 shares
purchased and placed into escrow as a result of this agreement.
e entire purchase price was recorded as a reduction in additional
paid in capital as shares held in escrow for business combinations.
e shares held in escrow for business combinations will be
released to the individual sellers, over a ve year period from
the date of closing based on net prots, in accordance with the
provisions of the acquisition agreement. However, if the terms of
the agreement are not met, the remaining shares will be forfeited
and the remaining shares and balance in the shares held in escrow
for business combinations will be recorded as treasury stock. In
accordance with the acquisition agreement, 6,799 and 3,255 shares
were earned and subsequently released to the sellers during the
years ended September 30, 2013 and 2012, respectively.
Revenue Recognition
Sales of physical commodities revenue are recognized when
persuasive evidence of an arrangement exists, delivery has occurred,
the fee is xed or determinable, and collectability is reasonably
assured. e Company reports its physical commodities revenues
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, in ‘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 transaction-based clearing 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.