INTL FCStone 2014 Annual Report Download - page 83

INTL FCSTONE INC.  Form 10K 67
PART II
ITEM 8 Financial Statements and Supplementary Data
Exchange memberships and firm common stocks pledged
for clearing purposes are recorded at cost, in accordance with
U.S. GAAP and CFTC regulations and are included in ‘other
assets’ on the consolidated balance sheets. Equity investments in
exchange firm common stock not pledged for clearing purposes
are classified as available-for-sale and recorded at fair value, with
unrealized gains and losses recorded as a component of OCI,
net of tax, until realized. Equity investments in exchange firm
common stock not pledged for clearing purposes are included in
‘financial instruments owned’ on the consolidated balance sheets.
e cost basis for exchange memberships and firm common
stock pledged for clearing purposes was $10.3 million and
$10.4 million as of September 30, 2014 and 2013, respectively.
e fair value of exchange memberships and firm common stock
pledged for clearing purposes was $9.7 million and $8.5 million
as of September 30, 2014 and 2013, respectively. e fair value
of exchange firm common stock is determined by quoted market
prices, and the fair value of exchange memberships is determined
by recent sale transactions. e Company monitors the fair value
of exchange membership seats and firm common stock on a
quarterly basis, and does not consider any current unrealized
losses on individual exchange memberships to be anything other
than a temporary impairment.
Commodity and Other Repurchase
Agreements
In the normal course of operations the Company accepts notes
receivable under sale/repurchase agreements with customers
whereby the customers sell certain commodity inventory or other
investments and agree to repurchase the commodity inventory
or investment at a future date at either a fixed or floating rate.
ese transactions are short-term in nature, and in accordance
with the guidance contained in the Transfers and Servicing
Topic of the ASC, are treated as secured borrowings rather than
commodity inventory and purchases and sales in the Company’s
consolidated financial statements.
Additionally, the Company participates in transactions involving
commodities or other investments sold under repurchase
agreements (“repos”). In accordance with the guidance contained
in the Transfers and Servicing Topic of the ASC, these transactions
are treated as secured borrowings that are recorded as a liability
in the consolidated balance sheets. Commodities or investments
sold under repurchase agreements are reflected at the amount of
cash received in connection with the transactions. e Company
may be required to provide additional collateral based on the
fair value of the underlying asset.
Business Combinations
Acquisitions during fiscal 2014 and fiscal 2013 are accounted
for as business combinations in accordance with the provisions
of the Business Combinations Topic of the ASC. Under this
accounting guidance most of the assets and liabilities acquired
and assumed are measured at fair value as of the acquisition date.
Certain contingent liabilities acquired require remeasurement at
fair value in each subsequent reporting period. Noncontrolling
interests are initially measured at fair value and classified as a
separate component of equity. Acquisition related costs, such
as fees for attorneys, accountants, and investment bankers, are
expensed as incurred and are not capitalized as part of the purchase
price. For all acquisitions, regardless of the consummation date,
deferred tax assets, valuation allowances, and uncertain tax position
adjustments occurring after the measurement period are recorded
as a component of income, rather than adjusted through goodwill.
Determining the fair value of certain assets and liabilities acquired
is subjective in nature and often involves the use of significant
estimates and assumptions. Estimating the fair value of the assets
and liabilities acquired requires significant judgment.
Contingent Consideration
e Company estimates and records the acquisition date estimated
fair value of contingent consideration as part of purchase price
consideration for acquisitions. Additionally, each reporting period,
the Company estimates changes in the fair value of contingent
consideration, and any change in fair value is recognized in the
consolidated income statement. An increase in the earn-out
expected to be paid will result in a charge to operations in the
period that the anticipated fair value of contingent consideration
increases, while a decrease in the earn-out expected to be paid will
result in a credit to operations in the period that the anticipated
fair value of contingent consideration decreases. e estimate
of the fair value of contingent consideration requires subjective
assumptions to be made of future operating results, discount
rates, and probabilities assigned to various potential operating
result scenarios. Future revisions to these assumptions could
materially change the estimate of the fair value of contingent
consideration and, therefore, materially affect the Company’s
future financial 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