INTL FCStone 2014 Annual Report Download - page 93

INTL FCSTONE INC.  Form 10K 77
PART II
ITEM 8 Financial Statements and Supplementary Data
In accordance with the Fair Value Measurement Topic 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, 2014, the Company’s investment in the hotel is
$3.6 million, and included within the corporate and municipal
bonds classification in the level 3 financial assets and financial
liabilities tables. e Company has classified its investment in the
hotel within level 3 of the fair value hierarchy because the fair
value is determined using significant unobservable inputs, which
include projected cash flows. ese cash flows 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. e Company continues to monitor the hotel renovation
process and evaluate the fair value of the debentures. ere has
been no significant change in the fair value of the debentures, and
no additional loss has been recognized during the years ended
September 30, 2014 and 2013.
e Company is required to make additional future cash payments
based on certain financial 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 classified its liabilities for the contingent
earnout arrangements within level 3 of the fair value hierarchy
because the fair value is determined using significant unobservable
inputs, which include projected cash flows. 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 flows 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 significant changes in the discount rate environment.
From the dates of acquisition to September 30, 2014, certain
acquisitions have had changes in the estimates of undiscounted cash
flows, based on actual performances fluctuating from estimates.
During the fiscal years ended September 30, 2014 and 2013, the
fair value of the contingent consideration decreased $2.3 million
and increased $2.6 million, respectively, with the corresponding
income or expense classified 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 significant price fluctuations 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 settlement prices and
classified 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 classified as level 2
at March 31, 2013. Such derivative assets and liabilities were
valued using settlement prices, and as such, were classified as
level 1 as of June, 30, 2013, September 30, 2013 and prior to
March 31, 2013. ere were no significant similar occurrences
of upward or downward limit price movements during the
year ended September 30, 2014 and the derivative assets and
liabilities were valued using quoted market prices as of the
respective quarter ends in fiscal year 2014 and as such were
classified as level 1.
Except as described above, the Company did not have any
additional significant transfers between level 1 and level 2 fair
value measurements for the fiscal years ended September 30,
2014 and 2013.
e Company has classified equity investments in exchange firms’
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, 2014, the cost and fair value
of the equity investments in exchange firms is $3.7 million and
$4.8 million, respectively. As of September 30, 2013, the cost
and fair value of the equity investments in exchange firms was
$3.7 million and $4.4 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 offer 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 reflected
in OCI. For the fiscal year ended September 30, 2013, the
Company reclassified the unrealized gain remaining in AOCI
of approximately $6.3 million, net of income tax expense of
$2.0 million, into 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