INTL FCStone 2005 Annual Report Download - page 28

Interest Income
The Company’s interest income was $636,000 in 2005, compared to $167,000 in 2004. Substantially all of
the interest income represented amounts paid by the Company’s clearing organization on cash balances arising
from financial instruments sold, not yet purchased due to increased ADR conversion activities. Offsetting interest
expense arising from debit balances with the Company’s clearing firm is separately reported under interest
expense.
Dividend Expense, net
The Company’s net dividend expense in 2005 was $89,000 compared to net dividend expense of $400,000
in 2004. Dividend income or expense is generated when the Company holds long or short equity positions over a
dividend declaration date.
Equity in Income or Loss from Asset Management Joint Venture
The Company recognized income of $217,000 in 2005, compared with a loss of $41,000 in 2004 on the
asset management joint venture formed during the third quarter of 2004. The loss in 2004 reflects the startup
costs associated with the joint venture. Assets under management grew from over $55 million at the end of fiscal
2004 to over $117 million at the end of fiscal 2005.
Interest Expense
The Company’s interest expense was $1,335,000 for 2005, compared to $3,214,000 in 2004. The main
components of interest expense in 2005 were $460,000 paid to banks (compared to $95,000 in 2004) and
$796,000 paid to the Company’s clearing organization for securities debit balances (compared to $174,000 in
2004). In 2004, the Company also had $378,000 in interest expense with respect to the $12.0 million in
convertible notes issued by the Company in March 2004 arising from the stated interest rate of 7.0% per annum
and $2,483,000 in additional interest expense representing the amortization of debt discount related to the
beneficial conversion feature embedded in the Company’s convertible notes. In March 2004, the Company issued
$12.0 million in convertible notes with a conversion price of $5.75 per share. The conversion price was less than
the market price of the Company’s common stock on the date the conversion features became effective. As a
result, the Company recognized the value of this beneficial conversion feature, or $2,483,000, as debt discount.
This amount was first amortized over the life of the notes and then written off in August 2004 when the
convertible notes were converted into common stock, with these amounts being charged to interest expense. The
write off of the debt discount did not have any cash effect.
Total Non-Interest Expenses
The Company’s total non-interest expenses increased by approximately 22% to $20,685,000 in 2005,
compared to $16,944,000 in 2004. This increase was directly attributable to the acquisition of INTL Global
Currencies and expansion of the Company’s business, which resulted in higher personnel, clearing and business
development costs.
Compensation and Benefits
The Company’s compensation and benefit expense increased 23% from $8,490,000 in 2004 to $10,483,000
in 2005. The increase was a result of both higher staff levels and higher performance based compensation due to
increased revenues and profitability. The average number of employees during the first three quarters of 2004
was approximately 33 (17 producers), rising to 53 (30 producers) by the end of fiscal 2004, and reaching 67 (37
producers) by the end of fiscal 2005.
Clearing and related expenses
Clearing and related expenses increased 3% from $5,990,000 for 2004 to $6,168,000 for 2005, together with
a slight increase in trading volumes. The composition of these expenses changed, following changes in the
18