INTL FCStone 2005 Annual Report Download - page 23

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(1) On March 12, 2004, the Company issued $12,000,000 in principal amount of the Company’s 7% convertible
subordinated notes. As part of the underwriting agreement the placement agent received warrants to
purchase 200,000 shares of the Company’s common stock at an exercise price of $6.00 per share. These
warrants expire after three years, in March 2007. In certain circumstances, the Company can force exercise
of these warrants.
ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
The Company’s principal activities include market-making and trading in international financial
instruments, currencies and commodities, and asset management. The markets in which the Company operates
are highly competitive and volatile. The Company has little or no control over many of the factors which affect
its operations. As a result, the Company’s earnings are subject to potentially wide fluctuations. The Company
seeks to counteract many of these influences by focusing on niche, uncorrelated markets and, when possible,
linking the Company’s expenses to revenues.
The Company’s activities have changed significantly over the past three fiscal years due to the following
developments.
• In the first quarter of fiscal 2003, the Company appointed new management and raised approximately
$3,400,000 in additional capital.
• In the second quarter of fiscal 2003, the Company began trading and related activities in international
debt capital markets.
• In the fourth quarter of fiscal 2003, the Company began trading precious metals and foreign exchange.
• In the second quarter of fiscal 2004, the Company raised $12,000,000 from the issuance of the
Company’s 7% convertible subordinated notes.
• In the third quarter of fiscal 2004, the Company and an unrelated third party formed INTL Consilium,
an asset management firm. The Company received a 50.1% interest in INTL Consilium in exchange for
a $500,000 capital contribution.
• In the fourth quarter of fiscal 2004, the Company acquired INTL Global Currencies, a specialist foreign
exchange trading business, based in London.
• In the fourth quarter of fiscal 2004, the Company exercised its right to convert the outstanding 7%
subordinated notes into 2,086,923 shares of the Company’s common stock.
• In the third quarter of fiscal 2005 the Company expanded its debt capital markets team in London and
Florida, introducing structuring and additional origination and distribution capabilities.
• In the fourth quarter of fiscal 2005 the Company recruited a base metals trading team whose initial focus
will be on physical lead trading, commencing in October 2005.
The Company believes that it has made significant progress in its effort to build a diversified financial
services firm focusing on niche markets. The Company has successfully acquired or established businesses in
key product areas and geographic locations.
The foreign exchange business acquired through INTL Global Currencies was fully integrated during fiscal
2005 and performed significantly better than anticipated, as the scope of its activities and customer relationships
expanded. In the fourth quarter of fiscal 2005 the Company expanded its capabilities in debt capital markets, by
recruiting a team based in London and Florida that has substantial experience in debt origination, structuring and
distribution. In the fourth quarter of fiscal 2005 the Company also recruited a team with substantial experience in
base metals trading. This business commenced in October 2005. It will focus initially on physical lead trading
but will thereafter seek out other base metals opportunities.
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