INTL FCStone 2005 Annual Report Download - page 79

INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
September 30, 2005 and 2004
trades and invests in international bonds, including both investment grade and higher yielding emerging market
bonds. The Company generally focuses on smaller issues, such as emerging market sovereign, corporate and
bank bonds that trade worldwide on an over-the-counter basis. Through its customer relationships, the Company
periodically identifies opportunities to arrange, purchase or sell debt transactions that fall outside the parameters
of established financial markets. These transactions generally involve negotiable emerging market debt and may
be documented by promissory notes, bills of exchange, loan agreements, accounts receivable and other types of
debt instruments. The revenues, expenses, assets and liabilities relating to the Trust Certificates and Total Return
Swap discussed in Note 12 are included in this segment.
Foreign Exchange/Commodities Trading:
The Company trades select illiquid currencies of developing countries. The Company’s target customers are
financial institutions, multi-national corporations, governmental and charitable organizations operating in these
developing countries. In addition, the Company executes trades based on the foreign currency flows inherent in
the Company’s existing international securities activities. The Company primarily acts as a principal in buying
and selling foreign currencies on a spot basis. The Company derives revenue from the difference between the
purchase and sale prices. The Company periodically holds foreign currency positions for longer periods to create
liquidity for customers or generate proprietary earnings potential.
The Company provides a full range of trading and hedging capabilities to select producers, consumers,
recyclers and investors in precious metals and some base metals. Acting as a principal, the Company commits its
own capital to buy and sell the metals on a spot and forward basis.
Other:
All other transactions that do not relate to the operating segments above are classified as ‘Other’. Certain
cash accounts and balances were maintained to support administrative as well as all of the operating segments.
These multi-segment assets were allocated to ‘Other’. Revenue reported for ‘Other’ includes all the Company’s
interest income but not interest expense; and the gain or loss on the Company’s asset management joint venture,
which is accounted for by the equity method.
Segment data includes the profitability measure of net contribution by segment. 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. Net contribution is calculated as revenue less direct clearing and clearing
related charges and variable trader compensation. Variable trader compensation represents compensation paid to
the Company’s traders based on a fixed percentage of revenues produced less clearing and related charges, base
salaries and an overhead allocation.
Inter-segment revenues, charges, receivables and payables are eliminated between segments, except
revenues and costs related to foreign currency transactions, which are undertaken on arm’s length basis by the
Company’s foreign exchange trading business on behalf of the Company’s equity and debt trading business. The
foreign exchange trading business competes for this business as it does for any other business. If its rates are not
competitive, the Company’s equity and debt trading businesses buy or sell their foreign currency through other
market counterparties. The profit or loss made by the Company’s foreign exchange trading business on these
transactions is not quantifiable.
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