INTL FCStone 2013 Annual Report Download - page 97

INTLFCSTONEINC.Form10K76
PART II
ITEM 8Financial Statements and Supplementary Data
collateral with counterparties. e Company has assessed the
nature of these deposits and used its discretion to adjust each based
on the underlying credit considerations for the counterparty and
determined that the collateral deposits minimize the exposure
to counterparty credit risk in the evaluation of the fair value of
OTC instruments as determined by a market participant.
e majority of nancial assets and liabilities on the consolidated
balance sheets are reported at fair value. Cash is reported at
the balance held at nancial institutions. Cash equivalents
includes money market funds, which are valued at period-end
at the net asset value provided by the fund’s administrator, and
certicates of deposit, which are stated at cost plus accrued
interest, which approximates fair value. Cash, securities and other
assets segregated under federal and other regulations include
the value of cash collateral as well as the value of other pledged
investments, primarily U.S.Treasury bills and obligations issued
by government sponsored entities and commodities warehouse
receipts. Deposits with and receivables from exchange-clearing
organizations and broker-dealers, clearing organizations and
counterparties and payable to customers and broker-dealers,
clearing organizations and counterparties include the value of cash
collateral as well as the value of money market funds and other
pledged investments, primarily U.S.Treasury bills and obligations
issued by government sponsored entities and mortgage-backed
securities. ese balances also include the fair value of exchange-
traded futures and options-on-futures and exchange-cleared swaps
and options determined by prices on the applicable exchange.
Financial instruments owned and sold, not yet purchased include
the value of U.S. and foreign government obligations, corporate
debt securities, derivative nancial instruments, commodities,
mutual funds and investments in managed funds. e fair value
of exchange common stock is determined by quoted market
prices, and the fair value of exchange memberships is determined
by recent sale transactions. Payables to lenders under loans carry
variable rates of interest and thus approximate fair value. e fair
value of the Company’s senior unsecured notes is estimated to be
$46.4 million (carrying value of $45.5 million) as of September 30,
2013, based on the transaction prices at public exchanges for
the same or similar issues.
e fair value estimates presented herein are based on pertinent
information available to management as of September 30, 2013
and 2012. Although management is not aware of any factors
that would signicantly aect the estimated fair value amounts,
such amounts have not been comprehensively revalued for
purposes of these nancial statements since that date and current
estimates of fair value may dier signicantly from the amounts
presented herein.
Cash equivalents, securities, commodities warehouse receipts,
derivative nancial instruments and contingent liabilities are
carried at fair value, on a recurring basis, and are classied
and disclosed into three levels in the fair value hierarchy. e
Company did not have any fair value adjustments for assets or
liabilities measured at fair value on a non-recurring basis during
the years ended September 30, 2013 and 2012. e three levels
of the fair value hierarchy under the Fair Value Measurements
and Disclosures Topic of the ASC are:
Level 1 - Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted
assets or liabilities. Level 1 consists of nancial assets and liabilities
whose fair values are estimated using quoted market prices.
Included in Level 1 are money market funds, certicates of
deposit, commodities warehouse receipts, common stock and
American Depositary Receipts (“ADRs”), some U.S. and foreign
obligations, equity investments in exchange rms, some mutual
funds, as well as futures and options-on-futures contracts traded
on national exchanges, exchange-cleared swaps and options which
are valued using exchange closing prices, and OTC swaps and
options contracts using quoted prices from national exchanges
in which the Company executes transactions for customer and
proprietary accounts;
Level 2 - Quoted prices for identical or similar assets or liabilities
in markets that are less active, that is, markets in which there
are few transactions for the asset or liability that are observable
for substantially the full term. Included in Level 2 are those
nancial assets and liabilities for which fair values are estimated
using models or other valuation methodologies. ese models
are primarily industry-standard models that consider various
observable inputs, including time value, yield curve, volatility
factors, observable current market and contractual prices for
the underlying nancial instruments, as well as other relevant
economic measures. Included in Level 2 are U.S. and foreign
government obligations, mortgage-backed securities, some
common stock and ADRs, corporate and municipal bonds,
some mutual funds, investments in managed funds and OTC
forwards, swaps, and options; and
Level 3 - Prices or valuation techniques that require inputs that are
both signicant to the fair value measurement and unobservable
(i.e., supported by little or no market activity). Level 3 comprises
nancial assets and liabilities whose fair value is estimated based
on internally developed models or methodologies utilizing
signicant inputs that are not readily observable from objective
sources. Included in Level 3 are common stock and ADRs, some
corporate and municipal bonds, some other investments and
contingent liabilities.
e following tables set forth the Company’s nancial and
nonnancial assets and liabilities accounted for at fair value, on
a recurring basis, as of September30, 2013 and September30,
2012 by level in the fair value hierarchy. ere were no assets
or liabilities that were measured at fair value on a nonrecurring
basis as of September 30, 2013 and 2012.