INTL FCStone 2014 Annual Report Download - page 97

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INTL FCSTONE INC. Form 10K 81
PART II
ITEM 8 Financial Statements and Supplementary Data
NOTE 5 Receivables From Customers, net and Notes Receivable, net
Receivables from customers, net and notes receivable, net include
an allowance for bad debts, which reflects the Company’s best
estimate of probable losses inherent in the receivables from
customers and notes receivable. e Company provides for an
allowance for doubtful accounts based on a specific-identification
basis. e Company continually reviews its allowance for bad debts.
e allowance for doubtful accounts related to receivables from
customers was $5.7 million and $1.1 million as of September 30,
2014 and 2013, respectively. e allowance for doubtful accounts
related to notes receivable was $0.1 million as of September 30,
2014 and 2013.
During the year ended September 30, 2014, the Company
recorded bad debt expense, net of recoveries, of $5.5 million,
including provision increases of $5.1 million and direct write-
offs of $0.6 million, offset by recoveries of $0.2 million. e
provision increases during fiscal 2014 was $3.8 million in the
Commercial Hedging segment, primarily related to account
deficits from a Hong Kong commercial LME customer and
Brazilian OTC Financial Ag’s & Energy customers. Additionally,
the Company recorded bad debts of $0.9 million in the Physical
Commodities segment, related to renewable fuels activity, and
$0.7 million in the Securities segment primarily related to
charge-offs of uncollectible service fees.
During the year ended September 30, 2013, the Company
recorded bad debt expense, net of recoveries, of $0.7 million,
including provision increases of $0.2 million and direct write-
offs of $0.6 million, offset by recoveries of $0.1 million. e
provision increase during fiscal 2013 was primarily related to
customer deficits in the Commercial Hedging segment, and the
direct write-offs were primarily related to investment banking
advisory services in the Securities segment.
During the year ended September 30, 2012, the Company
recorded bad debt expense, net of recoveries, of $0.7 million,
including provision increases of $0.5 million and direct write-
offs of $0.3 million, offset by recoveries of $0.1 million. e
provision increase during fiscal 2012 was primarily related to
customer deficits in the Commercial Hedging segment. During
fiscal 2012, the Company charged-off receivables on consigned
gold transactions of $8.5 million and CES customer deficits of
$2.7 million, which were fully reserved.
Activity in the allowance for doubtful accounts and notes for the years ended September 30, 2014, 2013 and 2012 was as follows:
(in millions)
2014 2013 2012
Balance, beginning of year $ 1.2 $ 1.0 $ 11.9
Provision for bad debts 5.3 0.2 0.4
Deductions:
Charge-offs (0.7) — (11.2)
Recoveries — — (0.1)
Balance, end of year $ 5.8 $ 1.2 $ 1.0
e Company originates short-term notes receivable from
customers with the outstanding balances being insured 90%
to 98% by a third party, including accrued interest. e total
balance outstanding under insured notes receivable was $33.8
million and $21.1 million as of September 30, 2014 and 2013,
respectively. e Company has sold $25.8 million and $18.7
million of the insured portion of the notes through non-recourse
participation agreements with other third parties as of September
30, 2014 and 2013, respectively.
See discussion of notes receivable related to commodity repurchase
agreements in Note 13.
NOTE 6 Physical Commodities Inventory
e carrying values of the Company’s inventory, which consist
of all finished commodities, are $40.0 million and $59.0 million
as of September 30, 2014 and 2013, respectively.
As a result of declining market prices for some commodities
towards the end of the fiscal year, the Company has recorded
LCM adjustments for physical commodities inventory of
$1.0 million and $0.9 million as of September 30, 2014
and 2013, respectively. The adjustments are included in
‘cost of sales of physical commodities’ in the consolidated
income statements.