INTL FCStone 2005 Annual Report Download - page 27

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Commodities revenue also increased significantly, with 2005 revenue 148% higher than 2004 revenue. This
increase was due to the addition of new customers in 2005, as well as increased customer activity in 2005 caused
by higher bullion prices and increased market volatility. The Company expanded into platinum group metals
during 2005, which added a new source of revenues.
Foreign exchange/commodities revenue increased from 12% of total revenue in 2004 to 40% in 2005.
Net Contribution
The net contribution of all the Company’s business segments increased from $12,628,000 for 2004 to
$15,139,000 for 2005, or 20%. Net contribution consists of revenues, less direct clearing and clearing related
charges and variable trader compensation, as more fully described below. Net contribution is one of the key
measures used by management to assess the performance of each segment and for decisions regarding the
allocation of the Company’s resources.
International Equity Market-Making — For this business activity, net contribution is calculated as total
revenues less clearing and clearing related charges paid to the Company’s clearing organization and to ADR
conversion banks, and less variable trader compensation. Variable trader compensation represents compensation
paid to the Company’s traders on the basis of a fixed percentage of revenues less clearing and related charges,
ADR conversion costs, base salaries and a fixed overhead allocation.
The net contribution of the equity trading business decreased from $8,737,000 in 2004 to $5,450,000 in
2005, a decrease of 38%.
International Debt Capital Markets — For this business activity, net contribution is calculated as total
revenues less clearing and clearing related charges paid to the Company’s clearing organization; and less variable
trader compensation. Variable trader compensation represents compensation paid to the Company’s traders on
the basis of a fixed percentage of revenues less clearing and related charges, base salaries and a fixed overhead
allocation.
The net contribution of the debt trading business decreased from $1,910,000 in 2004 to $1,654,000 in 2005,
a decrease of 13%.
Foreign exchange/Commodities trading — For this business activity, net contribution is calculated as total
revenues less bank charges and variable trader compensation. Variable trader compensation represents
compensation paid to the Company’s traders on the basis of a fixed percentage of revenues, less bank charges,
bank interest, base salaries and a fixed overhead allocation.
The net contribution of the foreign exchange/commodities trading segment increased from $1,981,000 in
2004 to $8,035,000 in 2005, an increase of 306%. The Company acquired INTL Global Currencies at the
beginning of the fourth quarter of 2004, so that this result reflects four quarters of INTL Global Currencies’
activity in 2005 compared with only one quarter of activity in 2004.
Trading Revenue (Net Dealer Inventory and Investment Gains)
The Company generated trading revenue of $24,851,000 in 2005, compared to $21,407,000 for 2004. The
25% decrease in income from equity and debt securities trading was more than offset by the 311% increase in
income from foreign exchange and commodities trading. Trading revenue decreased from 97% of total revenue
in 2004 to 95% in 2005.
Commission Revenue
The Company generated commission revenue of $513,000 in 2005, compared to $904,000 in 2004, due to
the decline in wholesale brokerage activities. Commission revenue fell from 4% of total revenue in 2004 to 2%
in 2005 reflecting growth in market-making rather than wholesale brokerage.
17