Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. INTL FCSTONE INC. (913760) 10-Q published on Feb 05, 2020 at 5:19 pm
Reporting Period: Dec 30, 2019
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). This update requires a lessee to recognize on the balance sheet a liability to make lease payments and a corresponding right-of-use asset. The guidance also requires certain qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842) Targeted Improvements. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements. Among other things, this updated guidance provides an optional transition method, which allows for the initial application of the new accounting standard at the adoption date and the recognition of a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the period of adoption. The Company adopted the new ASUs on October 1, 2019, using the effective date modified retrospective transition approach and has not restated comparative periods. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to not reassess contracts to determine if they contain leases, lease classification and initial direct costs. The Company’s application of the new standard resulted in changes to the condensed consolidated balance sheet but did not have an impact on the condensed consolidated income statement. See Note 2 for more information.
As the office space leases do not provide an implicit rate, the Company applies a collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company applied a collateralized incremental borrowing rate as of October 1, 2019 for operating leases that commenced prior to that date. For office space leases executed by subsidiaries, including foreign subsidiaries, the Company has applied the incremental borrowing rate of the parent company. The Company believes this is a reasonable approach as its subsidiaries either do not have their own treasury functions or the credit facilities available to its subsidiaries do not permit the financing of right-of-use assets. Additionally, in certain instances, the parent company provides a guarantee of the lease payments to the lessor under office space leases executed by its subsidiaries. As such, the Company believes that the pricing of subsidiary leases is more significantly influenced by the credit standing of the parent company than that of its subsidiaries.
The Company acquired certain client base intangible assets and property and equipment in connection with the acquisition. The Company has engaged a third-party valuation specialist to assist with the valuation of the acquired assets. As of December 31, 2019, the valuation of the acquired assets was not yet complete as the Company continues to acquire the information necessary to complete the valuation analysis. As of December 31, 2019, given the status of the valuation analysis, $0.7 million of the purchase price was allocated to the net book value of the property and equipment acquired and the excess consideration of $4.3 million was recorded as goodwill. Once the valuation analysis is complete, the Company will record measurement period adjustments to reclassify a portion of the purchase price recorded to goodwill to the fair value of the identifiable intangible assets acquired and to adjust the property and equipment to its fair market value on the acquisition date.
On January 2, 2020, the Company’s wholly owned subsidiary, INTL Netherlands B.V., executed and closed on a stock purchase agreement to acquire 100% of IFCM Commodities GmbH (“IFCM”) based in Germany. IFCM specializes in providing commodity price risk management solutions for base metals serving clients across Germany and continental Europe and historically introduced clients to INTL FCStone Ltd. This purchase is part of the Company’s overall strategic plan to expand the Company’s footprint in Germany and continental Europe in order to handle European clients and regional metals business following Brexit. The purchase price is equal to net tangible book value upon closing plus a premium of approximately $2.2 million.
In January 2020, the Company’s wholly owned subsidiary, INTL FCStone Ltd, executed a stock purchase agreement to acquire 100% of GIROXX Gmbh based in Germany. Through its digital platform, GIROXX Gmbh provides online payment and foreign exchange hedging services to small and medium sized enterprises in Germany, Austria and Switzerland. The Company offers a wide range of financial services including advisory and execution services in commodities, which will be offered to GIROXX’s corporate client base. This purchase completes a series of acquisitions and restructuring to ensure that all clients of the Company are secure with their continuity of service and market access following Brexit. The closing of the transaction is conditional upon the approval of financial services regulators in Germany. The estimated purchase price is approximately $4.5 million.
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. We intend to adopt this guidance during the first quarter of fiscal year 2022. We are currently evaluating the impact that this new guidance will have on our consolidated financial statements.