INTL FCStone 2005 Annual Report Download - page 29

composition of the equity trading activities. Foreign settlement fees increased from $749,000 to $1,414,000.
Total ADR fees decreased from $3,155,000 in 2004 to $2,023,000 in 2005. There were several large equity
trading transactions in the first quarter of 2004 that led to unusually high ADR fees, which were not repeated in
2005.
Occupancy and Equipment Rental
Occupancy and equipment rental expense increased 56% from $513,000 in 2004 to $803,000 in 2005. This
increase in rent expense is primarily due to increased office rental following the acquisition of INTL Global
Currencies in London and the lease of additional space in New York. The Company also had additional expense
for equipment rental, primarily information services, required for the Company’s additional employees.
Professional Fees
Professional fees principally consist of legal, taxation and accounting fees. These fees increased 33% from
$419,000 in 2004 to $558,000 in 2005 due mainly to legal fees associated with the Company’s restatement,
higher audit fees and fees associated with the application to open a London branch office of the Company’s
broker-dealer subsidiary, INTL Trading.
Depreciation and Amortization
Depreciation and amortization increased 72% from $186,000 in 2004 to $320,000 in 2005. This is largely a
result of the amortization of intangible assets arising from the acquisition of INTL Global Currencies and
depreciation on its fixed assets; and increased depreciation expense arising from the purchase of fixed assets for
the Company’s New York and Florida offices.
Business Development Expense
Business development expense increased 62% from $472,000 in 2004 to $765,000 in 2005. This increase
relates to expanded marketing efforts to further develop the Company’s new and expanded activities, particularly
in INTL Global Currencies.
Insurance Expense
Insurance expense increased 93% from $362,000 in 2004 to $701,000 in 2005. The increase was primarily
due to increases in the cost of health insurance caused by higher staff levels and increased cost per employee.
The growth in the number of employees may be seen in the discussion under ‘Compensation and Benefits’
above. There was also additional property insurance cost associated with the acquisition of INTL Global
Currencies.
Other Operating Expenses
Other operating expenses increased from $512,000 in 2004 to $887,000 in 2005. The increase was primarily
related to expenses arising from the Company’s growth, including the acquisition of INTL Global Currencies in
the fourth quarter of 2004. The main contributors to the increase were value added tax in the United Kingdom
and other taxes, and additional telephone costs.
Tax Expense
The Company recognized income tax expense of $1,484,000 in 2005 compared with $1,998,000 in 2004.
Expressed as a percentage of pretax income, the average rate of income tax expense for 2005 is 36%. This is not
comparable with 2004 because of the effects of the restatement. The difference between the Company’s taxable
income in 2004 and its reported net loss of $118,000 arose because the Company fully amortized $2,483,000 in
debt discount relating to the issuance and subsequent conversion of the Company’s convertible notes in 2004.
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