INTL FCStone 2014 Annual Report Download - page 84

INTL FCSTONE INC.  Form 10K68
PART II
ITEM 8 Financial Statements and Supplementary Data
combinations will be released to the individual sellers, over a
five year period from the date of closing based on net profits,
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 shares were earned and subsequently released to
the sellers during the year ended September 30, 2013, respectively.
ere were no shares earned or released during the year ended
September 30, 2014.
Revenue Recognition
Sales of physical commodities revenue are recognized when
persuasive evidence of an arrangement exists, delivery has occurred,
the fee is fixed 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 offset simultaneously
with another customer or counterparty, offset 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 fluctuate). 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 first 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 offset. 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 financing, 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 finished commodity
or raw material and processing costs along with operating costs
relating to the receipt, storage and delivery of the physical
commodities.
Compensation and Benefits
Compensation and benefits consists primarily of salaries, incentive
compensation, commissions, related payroll taxes and employee
benefits. e Company classifies employees as either traders /
risk management consultants, operational or administrative
personnel, which includes the executive officers. e most
significant component of the Company’s compensation expense
is the employment of the traders / risk management consultants,
who are paid commissions based on the revenues that their
customer portfolios generate. e Company accrues commission
expense on a trade date basis.