##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended February 28, 2005



or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from  to



Commission File Number 000-51099



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FCStone Group, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Iowa                                                           |  | 42-1091210                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



2829 Westown
Parkway, Suite 200

West Des Moines, Iowa 50266

(515) 223-3788

(Address of Principal Executive Offices, including zip code;

registrants telephone number, including area code)



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Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports)
with the Commission, and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



There is currently no public market for the registrants securities. As of April 14, 2005 the company has 4,310,285 shares of common stock
outstanding. These shares of common stock will be distributed to stockholders on April 15, 2005 pursuant to the terms of the restructuring.



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##### Table of Contents

|                               |  |                                                                                               |  |                                                                                                            |  |     
|------------------------------ |  | --------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                               |  |                                                                                                            |  | Page
|PART I 
FINANCIAL INFORMATION |  |                                                                                              
|                               |  | Item 1. Financial Statements                                                                  |  |                                                                                                           
|                               |  |                                                                                               |  | Consolidated Statements on Financial Condition  February 28, 2005 and August 31, 2004                     |  | 3   
|                               |  |                                                                                               |  | Consolidated Statements of Operations  Three and Six Months Ended February 28, 2005 and February 29, 2004 |  | 4   
|                               |  |                                                                                               |  | Consolidated Statements of Cash Flows  Six Months Ended February 28, 2005 and February 29, 2004           |  | 5   
|                               |  |                                                                                               |  | Notes to Consolidated Financial Statements                                                                 |  | 6   
|                               |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 9                                                                                                         
|                               |  | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 17                                                                                                        
|                               |  | Item 4. Controls and Procedures                                                               |  | 18                                                                                                        
|PART II 
OTHER INFORMATION    |  |                                                                                              
|                               |  | Item 1. Legal Proceedings                                                                     |  | 18                                                                                                        
|                               |  | Item 4. Submission of Matters to a Vote of Security Holders                                   |  | 19                                                                                                        
|                               |  | Item 6. Exhibits                                                                              |  | 19                                                                                                        
|SIGNATURES                     |  | 20                                                                                           



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##### Table of Contents

Part I. Financial Information

Item 1. Financial Statements



FCSTONE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share and per share amounts)



|                                                                                                                                                                                                                          |  |                               |         |   |                 |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | --------------- | - | ------- | -
|                                                                                                                                                                                                                          |  | February 28, 2005 (Unaudited) |         |   | August 31, 2004 |  
|ASSETS                                                                                                                                                                                                                    |  |                               |         |   |                 |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                 |  |                               |         |   |                 |   |         |  
|Unrestricted                                                                                                                                                                                                              |  | $                             | 21,699  |   |                 | $ | 7,943   |  
|Restricted                                                                                                                                                                                                                |  |                               | 1,403   |   |                 |   | 1,403   |  
|Segregated                                                                                                                                                                                                                |  |                               | 11,385  |   |                 |   | 42,786  |  
|Commodity accounts receivable:                                                                                                                                                                                            |  |                               |         |   |                 |   |         |  
|Commodity exchanges and clearing organizations  customer segregated, including United States treasury bills and notes                                                                                                    |  |                               | 235,050 |   |                 |   | 292,597 |  
|Proprietary commodity accounts                                                                                                                                                                                            |  |                               | 19,562  |   |                 |   | 20,879  |  
|Customer regulated accounts in deficit secured by U.S. treasury bills and notes                                                                                                                                           |  |                               | 8,889   |   |                 |   | 38,964  |  
|                                                                                                                                                                                                                          |  |                               |         |   |                 |   |         |  
|Total commodity deposits and accounts receivable                                                                                                                                                                          |  |                               | 263,501 |   |                 |   | 352,440 |  
|                                                                                                                                                                                                                          |  |                               |         |   |                 |   |         |  
|Marketable securities, at fair value  Customer segregated and other                                                                                                                                                      |  |                               | 134,249 |   |                 |   | 57,799  |  
|Accounts receivable and advances on grain                                                                                                                                                                                 |  |                               | 117,127 |   |                 |   | 106,867 |  
|Notes receivable                                                                                                                                                                                                          |  |                               | 13,902  |   |                 |   | 2,079   |  
|Inventories  grain and fuel                                                                                                                                                                                              |  |                               | 32,087  |   |                 |   | 12,198  |  
|Exchange memberships, at cost                                                                                                                                                                                             |  |                               | 2,080   |   |                 |   | 1,155   |  
|Investment in clearing corporation stock, at cost                                                                                                                                                                         |  |                               | 67      |   |                 |   | 67      |  
|Furniture, equipment, and improvements, net                                                                                                                                                                               |  |                               | 8,286   |   |                 |   | 8,652   |  
|Deferred income taxes                                                                                                                                                                                                     |  |                               | 2,785   |   |                 |   | 2,710   |  
|Investments in affiliates and others                                                                                                                                                                                      |  |                               | 1,701   |   |                 |   | 1,701   |  
|Investments in cooperatives                                                                                                                                                                                               |  |                               | 1,475   |   |                 |   | 1,452   |  
|Other assets                                                                                                                                                                                                              |  |                               | 4,568   |   |                 |   | 4,575   |  
|                                                                                                                                                                                                                          |  |                               |         |   |                 |   |         |  
|                                                                                                                                                                                                                          |  | $                             | 616,315 |   |                 | $ | 603,827 |  
|                                                                                                                                                                                                                          |  |                               |         |   |                 |   |         |  
|LIABILITIES AND MEMBERS EQUITY                                                                                                                                                                                           |  |                               |         |   |                 |   |         |  
|Liabilities:                                                                                                                                                                                                              |  |                               |         |   |                 |   |         |  
|Checks written in excess of bank balance                                                                                                                                                                                  |  | $                             | 9,711   |   |                 | $ | 8,022   |  
|Commodity and customer regulated accounts payable                                                                                                                                                                         |  |                               | 363,504 |   |                 |   | 411,660 |  
|Trade accounts payable and advances                                                                                                                                                                                       |  |                               | 103,604 |   |                 |   | 68,807  |  
|Accrued expenses                                                                                                                                                                                                          |  |                               | 15,093  |   |                 |   | 16,196  |  
|Notes payable                                                                                                                                                                                                             |  |                               | 66,049  |   |                 |   | 41,531  |  
|Subordinated debt                                                                                                                                                                                                         |  |                               | 5,500   |   |                 |   | 5,750   |  
|Patronage refunds payable in cash                                                                                                                                                                                         |  |                               |        |   |                 |   | 1,869   |  
|Obligations under capital leases                                                                                                                                                                                          |  |                               | 4,400   |   |                 |   | 4,675   |  
|                                                                                                                                                                                                                          |  |                               |         |   |                 |   |         |  
|Total liabilities                                                                                                                                                                                                         |  |                               | 567,861 |   |                 |   | 558,510 |  
|                                                                                                                                                                                                                          |  |                               |         |   |                 |   |         |  
|Minority interest                                                                                                                                                                                                         |  |                               | 5,957   |   |                 |   | 5,488   |  
|                                                                                                                                                                                                                          |  |                               |         |   |                 |   |         |  
|Members equity:                                                                                                                                                                                                          |  |                               |         |   |                 |   |         |  
|Preferred stock, nonvoting; $1,000 par value per share, nondividend-bearing, authorized 50,000 shares:                                                                                                                    |  |                               |         |   |                 |   |         |  
|Series I issued 12,969.58 shares at February 28, 2005; 12,972.35 shares at August 31, 2004.                                                                                                                               |  |                               | 12,970  |   |                 |   | 12,972  |  
|Series II issued 897.61 shares at February 28, 2005 and August 31, 2004                                                                                                                                                   |  |                               | 898     |   |                 |   | 898     |  
|Common stock:                                                                                                                                                                                                             |  |                               |         |   |                 |   |         |  
|Class A, voting; $5,000 par value per share, nondividend-bearing, authorized 2,000 shares at February 28, 2005 and August 31, 2004; issued and
outstanding 422 shares at February 28, 2005 and 424 shares August 31, 2004 |  |                               | 2,363   |   |                 |   | 2,369   |  
|Class B, voting; $100,000 par value, nondividend-bearing, authorized 100 shares at February 28, 2005 and August 31, 2004; issued and
outstanding 5 shares at February 28, 2005 and August 31, 2004                        |  |                               | 500     |   |                 |   | 500     |  
|Accumulated other comprehensive loss                                                                                                                                                                                      |  |                               | (3,039  | ) |                 |   | (3,039  | )
|Retained earnings                                                                                                                                                                                                         |  |                               | 28,805  |   |                 |   | 26,129  |  
|                                                                                                                                                                                                                          |  |                               |         |   |                 |   |         |  
|Total members equity                                                                                                                                                                                                     |  |                               | 42,497  |   |                 |   | 39,829  |  
|                                                                                                                                                                                                                          |  |                               |         |   |                 |   |         |  
|Commitments and contingencies                                                                                                                                                                                             |  |                               |        |   |                 |   |        |  
|                                                                                                                                                                                                                          |  |                              
|                                                                                                                                                                                                                          |  | $                             | 616,315 |   |                 | $ | 603,827 |  
|                                                                                                                                                                                                                          |  |                               |         |   |                 |   |         |  



See notes to unaudited consolidated
financial statements.



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##### Table of Contents

FCSTONE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)



|                                                             |  |                    |         |                   |   |                   |  |                   |         |  |   |        
|------------------------------------------------------------ |  | ------------------ | ------- | ----------------- | - | ----------------- |  | ----------------- | ------- |  | - | -------
|                                                             |  | Three months ended |         | Six months ended 
|                                                             |  | February 28, 2005  |         | February 29, 2004 |   | February 28, 2005 |  | February 29, 2004
|Revenues:                                                    |  |                    |         |                   |   |                   |  |                   |         |  |   |        
|Commissions  commodity futures and options                  |  | $                  | 12,144  |                   | $ | 11,977            |  | $                 | 25,662  |  | $ | 24,870 
|Service, consulting and brokerage fees                       |  |                    | 5,007   |                   |   | 2,831             |  |                   | 7,941   |  |   | 5,706  
|Clearing and transaction fees                                |  |                    | 4,842   |                   |   | 3,414             |  |                   | 9,714   |  |   | 6,992  
|Interest                                                     |  |                    | 1,844   |                   |   | 1,295             |  |                   | 3,116   |  |   | 2,127  
|Other                                                        |  |                    | 1,125   |                   |   | 1,239             |  |                   | 1,537   |  |   | 1,323  
|Sales of commodities                                         |  |                    | 320,939 |                   |   | 384,235           |  |                   | 743,248 |  |   | 822,436
|                                                             |  |                    |         |                   |   |                   |  |                   |         |  |   |        
|Total revenues                                               |  |                    | 345,901 |                   |   | 404,991           |  |                   | 791,218 |  |   | 863,454
|                                                             |  |                    |         |                   |   |                   |  |                   |         |  |   |        
|Costs and expenses:                                          |  |                    |         |                   |   |                   |  |                   |         |  |   |        
|Cost of commodities sold                                     |  |                    | 316,455 |                   |   | 380,621           |  |                   | 735,044 |  |   | 815,203
|Employee compensation and broker commissions                 |  |                    | 7,763   |                   |   | 6,494             |  |                   | 15,073  |  |   | 13,246 
|Pit brokerage and clearing fees                              |  |                    | 7,599   |                   |   | 5,826             |  |                   | 15,303  |  |   | 11,909 
|Introducing broker commissions                               |  |                    | 2,771   |                   |   | 2,319             |  |                   | 5,810   |  |   | 4,609  
|Employee benefits and payroll taxes                          |  |                    | 2,024   |                   |   | 1,734             |  |                   | 3,693   |  |   | 3,401  
|Office, equipment and facilities rent and expenses           |  |                    | 1,258   |                   |   | 1,044             |  |                   | 2,606   |  |   | 2,109  
|Communications and marketing information                     |  |                    | 857     |                   |   | 735               |  |                   | 1,664   |  |   | 1,518  
|Interest                                                     |  |                    | 915     |                   |   | 1,505             |  |                   | 1,545   |  |   | 2,373  
|Travel and related                                           |  |                    | 582     |                   |   | 486               |  |                   | 1,078   |  |   | 909    
|Depreciation and amortization                                |  |                    | 229     |                   |   | 196               |  |                   | 456     |  |   | 391    
|Other operating expenses                                     |  |                    | 2,226   |                   |   | 1,426             |  |                   | 4,152   |  |   | 2,613  
|                                                             |  |                    |         |                   |   |                   |  |                   |         |  |   |        
|Total costs and expenses                                     |  |                    | 342,679 |                   |   | 402,386           |  |                   | 786,424 |  |   | 858,281
|                                                             |  |                    |         |                   |   |                   |  |                   |         |  |   |        
|Income before income tax expense and minority interest       |  |                    | 3,222   |                   |   | 2,605             |  |                   | 4,794   |  |   | 5,173  
|Minority interest                                            |  |                    | 416     |                   |   | 82                |  |                   | 468     |  |   | 212    
|                                                             |  |                    |         |                   |   |                   |  |                   |         |  |   |        
|Income after minority interest and before income tax expense |  |                    | 2,806   |                   |   | 2,523             |  |                   | 4,326   |  |   | 4,961  
|Income tax expense                                           |  |                    | 1,060   |                   |   | 570               |  |                   | 1,650   |  |   | 1,130  
|                                                             |  |                    |         |                   |   |                   |  |                   |         |  |   |        
|Net income                                                   |  | $                  | 1,746   |                   | $ | 1,953             |  | $                 | 2,676   |  | $ | 3,831  
|                                                             |  |                    |         |                   |   |                   |  |                   |         |  |   |        



See notes to unaudited consolidated
financial statements.



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FCSTONE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)



|                                                                                                          |  |                   |         |   |                   |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                          |  | Six months ended  |        
|                                                                                                          |  | February 28, 2005 |         |   | February 29, 2004 |  
|Cash flows from operating activities:                                                                     |  |                   |         |   |                   |   |         |  
|Net income                                                                                                |  | $                 | 2,676   |   |                   | $ | 3,831   |  
|Depreciation and amortization; including amounts in costs of commodities sold                             |  |                   | 692     |   |                   |   | 415     |  
|Gain on disposal of Chicago Board of Trade Clearing Corporation Stock                                     |  |                   |        |   |                   |   | (833    | )
|Minority interest, net of distributions                                                                   |  |                   | 468     |   |                   |   | 212     |  
|Change in commodity accounts receivable/payable, marketable securities and customer segregated funds, net |  |                   | (4,265  | ) |                   |   | (7,882  | )
|Increase in accounts receivable and advances on grain                                                     |  |                   | (12,848 | ) |                   |   | (6,223  | )
|Increase in inventory  grain and fuel                                                                    |  |                   | (19,889 | ) |                   |   | (38,534 | )
|Increase in other assets                                                                                  |  |                   | (91     | ) |                   |   | (1,139  | )
|Increase (decrease) in accounts payable                                                                   |  |                   | 34,797  |   |                   |   | (971    | )
|(Decrease) increase in accrued expenses                                                                   |  |                   | (1,103  | ) |                   |   | 578     |  
|                                                                                                          |  |                   |         |   |                   |   |         |  
|Net cash provided by (used in ) operating activities                                                      |  |                   | 437     |   |                   |   | (50,546 | )
|                                                                                                          |  |                   |         |   |                   |   |         |  
|Cash flows from investing activities                                                                      |  |                   |         |   |                   |   |         |  
|Purchase of furniture, equipment, and improvements                                                        |  |                   | (326    | ) |                   |   | (404    | )
|Purchase of exchange membership seat                                                                      |  |                   | (925    | ) |                   |   |        |  
|Issuance of notes receivable, net                                                                         |  |                   | (9,235  | ) |                   |   | (26,025 | )
|Proceeds from sale of Chicago Board of Trade Clearing Corporation Stock                                   |  |                   |        |   |                   |   | 1,912   |  
|                                                                                                          |  |                   |         |   |                   |   |         |  
|Net cash used in investing activities                                                                     |  |                   | (10,486 | ) |                   |   | (24,517 | )
|                                                                                                          |  |                   |         |   |                   |   |         |  
|Cash flows from financing activities:                                                                     |  |                   |         |   |                   |   |         |  
|Increase in checks written in excess of bank balance                                                      |  |                   | 1,689   |   |                   |   | 7,346   |  
|Proceeds from note payable, net                                                                           |  |                   | 24,518  |   |                   |   | 61,749  |  
|Payment for redemption of stock                                                                           |  |                   | (8      | ) |                   |   | (182    | )
|Payment of prior year patronage                                                                           |  |                   | (1,869  | ) |                   |   | (1,429  | )
|Payments under capital lease                                                                              |  |                   | (275    | ) |                   |   | (275    | )
|Proceeds from subordinated debt                                                                           |  |                   | 2,000   |   |                   |   | 7,750   |  
|Payments on subordinated debt                                                                             |  |                   | (2,250  | ) |                   |   |        |  
|                                                                                                          |  |                   |         |   |                   |   |         |  
|Net cash provided by financing activities                                                                 |  |                   | 23,805  |   |                   |   | 74,959  |  
|                                                                                                          |  |                   |         |   |                   |   |         |  
|Net increase (decrease) in cash and cash equivalents  unrestricted                                       |  |                   | 13,756  |   |                   |   | (104    | )
|                                                                                                          |  |                  
|Cash and cash equivalents  unrestricted  beginning of period                                            |  |                   | 7,943   |   |                   |   | 5,106   |  
|                                                                                                          |  |                   |         |   |                   |   |         |  
|Cash and cash equivalents  unrestricted  end of period                                                  |  | $                 | 21,699  |   |                   | $ | 5,002   |  
|                                                                                                          |  |                   |         |   |                   |   |         |  
|Supplemental disclosures of cash flow information:                                                        |  |                   |         |   |                   |   |         |  
|Interest paid                                                                                             |  | $                 | 1,404   |   |                   | $ | 1,497   |  
|                                                                                                          |  |                   |         |   |                   |   |         |  
|Income taxes paid                                                                                         |  | $                 | 1,219   |   |                   | $ | 932     |  
|                                                                                                          |  |                   |         |   |                   |   |         |  



See notes to unaudited consolidated
financial statements.



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FCSTONE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS



BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION



The consolidated financial statements of FCStone Group, Inc. and subsidiaries (the Company) included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission, and represent the consolidation of all companies in which the Company has a controlling interest. The Company also has minority holdings in three other entities, all of
which are carried under the equity method. Certain information and disclosures normally included in comprehensive financial statements, prepared in accordance with U.S. generally accepted accounting principles (US GAAP), have been condensed or
omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the financial statements reflect all adjustments, which
are of a normal recurring nature, necessary to present fairly the Companys consolidated financial position, results of operations and cash flows for the periods presented. These interim financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the Companys registration statement on Form S-4 as filed with the Securities and Exchange Commission on August 18, 2004, as amended.



USE OF ESTIMATES



The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.



REVENUE RECOGNITION ON COMMODITY FINANCING TRANSACTIONS



The Company recognizes revenue on sales in instances where the Company is
not the primary obligor in the arrangement, based on the amount retained. These commodity financing transactions include activities in which the Company does not take title to the commodities and does not have the risks and rewards of ownership. The
Companys compensation, a stated percentage of the transactions profit, is calculated and recorded upon settlement of the transaction, as funds become available for distribution.



REVENUE RECOGNITION ON PURCHASE AND SALE OF OTHER COMMODITIES



The Company recognizes revenue on sales when the commodities are shipped and/or the customer
takes ownership and assumes risk of loss. In addition, in accordance with US GAAP, revenues from these activities should be reported gross with a separate display of cost of sales. These commodity sales include activities in which we are the primary
obligor responsible for fulfillment, act as principal, change the product or perform part of the service, take title to the inventory and assume the risk and rewards of ownership, such as the risk of loss for collection and delivery.



2. PENSION PLANS



The Company has a noncontributory retirement plan, which is a defined benefit plan that covers substantially all employees. The
Companys policy is to fund amounts that are intended to provide for benefits attributed to service to date. Pension expense for the three and six month periods ended February 28, 2005 and February 29, 2004 for the defined benefit plans
consists of the following components:



|                                    |  |                    |         |                   |   |                   |  |                   |           |  |   |          
|----------------------------------- |  | ------------------ | ------- | ----------------- | - | ----------------- |  | ----------------- | --------- |  | - | ---------
|                                    |  | Three months ended |         | Six months ended 
|                                    |  | February 28, 2005  |         | February 29, 2004 |   | February 28, 2005 |  | February 29, 2004
|Service cost                        |  | $                  | 427,232 |                   | $ | 406,032           |  | $                 | 854,464   |  | $ | 812,064  
|Interest cost                       |  |                    | 285,950 |                   |   | 247,199           |  |                   | 571,900   |  |   | 494,398  
|Less expected return on plan assets |  |                    | 243,076 |                   |   | 347,750           |  |                   | 486,152   |  |   | 695,500  
|Net amortization and deferral       |  |                    | 109,733 |                   |   | 323,397           |  |                   | 219,466   |  |   | 646,794  
|                                    |  |                    |         |                   |   |                   |  |                   |           |  |   |          
|Net periodic pension expense        |  | $                  | 579,839 |                   | $ | 628,878           |  | $                 | 1,159,678 |  | $ | 1,257,756
|                                    |  |                    |         |                   |   |                   |  |                   |           |  |   |          



3. ACCOUNTS RECEIVABLE



During the first quarter ended November 30, 2004, a customer located in
Mexico failed to make timely payment on a portion of its $24.5 million of receivables. An $8.0 million portion of these receivables was previously sold to



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##### Table of Contents

CoBank, ACB leaving $16.5 million of receivables with the Company. The Company filed claims under its credit insurance
policy issued by Export Import Bank of the United States (EXIM) and a commercial credit insurance policy. In April 2005, the Company recovered $23.5 million from these insurers subsequent to the balance sheet date. The insurance payments were
applied to fully satisfy the interest of CoBank and to partially offset the amounts due under the Companys remaining receivable. As a result, the Companys exposure to loss from this default is approximately $1.0 million. During the
previous three month period ended November 30, 2004, the Company increased the allowance for doubtful accounts through a $0.7 million charge to bad debt expense in addition to $0.3 million previously recorded for this matter. Management believes
that the reserve is adequate to cover the total exposure to the Company resulting from this default, based upon information presently available.



During the three month period ended February 28, 2005, another customer located in Mexico failed to make timely payment on accounts owed to the company in the amount of
$2.9 million. This customer has subsequently provided a mortgage on real estate located in Mexico. The Company has discounted the account to reflect managements expectations of the timing of collection, using the Companys current
incremental borrowing rate.



4. OPERATING SEGMENT INFORMATION



The Company reports its operating segments based on services provided to
customers, which includes Commodity and Risk Management Services, Clearing and Execution Services, Grain Merchandising, and Financial Services. The Commodity and Risk Management Services segment offers commodity services to its customers, with an
emphasis on risk management using futures, options and other derivative instruments traded on exchanges and through over-the-counter markets. The Clearing and Execution Services segment offers low-cost clearing and direct execution services to
commodities firms, fund operators, commodities traders and others. The Grain Merchandising segment acts as a dealer in, and manager of, physical grain and fertilizer in the United States and international markets. The Financial Services segment
offers financing and facilitation for customers to finance the purchase of commodities.



The following table presents the significant items by operating segment for the results of operations for the three and six month periods ended February 28, 2005 and February 29, 2004 and balance sheet data as of those dates:



|                                  |  |                                      |         |                               |   |                     |  |                    |         |  |                   |        |   |       |   |        |   |  |   |        
|--------------------------------- |  | ------------------------------------ | ------- | ----------------------------- | - | ------------------- |  | ------------------ | ------- |  | ----------------- | ------ | - | ----- | - | ------ | - |  | - | -------
|                                  |  | Commodity & Risk Management Services |         | Clearing & Execution Services |   | Grain Merchandising |  | Financial Services |         |  | Corporate & Other |        |   | Total
|                                  |  | (in thousands)                      
|Three months ended:               |  |                                      |         |                               |   |                     |  |                    |         |  |                   |        |   |       |   |        |   |  |   |        
|                                  |  |                                      |         |                               |   |                    
|February 28, 2005                 |  |                                      |         |                               |   |                     |  |                    |         |  |                   |        |   |       |   |        |   |  |   |        
|Total revenues                    |  | $                                    | 14,864  |                               | $ | 11,892              |  | $                  | 309,026 |  | $                 | 10,096 |   |       | $ | 23     |   |  | $ | 345,901
|Interest revenue                  |  |                                      | 530     |                               |   | 869                 |  |                    | 29      |  |                   | 395    |   |       |   | 21     |   |  |   | 1,844  
|Interest expense                  |  |                                      | 8       |                               |   | 45                  |  |                    | 516     |  |                   | 295    |   |       |   | 51     |   |  |   | 915    
|Income (loss) before income taxes |  |                                      | 1,849   |                               |   | 869                 |  |                    | 565     |  |                   | 454    |   |       |   | (931   | ) |  |   | 2,806  
|Total assets                      |  |                                      | 170,296 |                               |   | 294,194             |  |                    | 128,222 |  |                   | 17,533 |   |       |   | 6,070  |   |  |   | 616,315
|                                  |  |                                      |         |                               |   |                    
|February 29, 2004                 |  |                                      |         |                               |   |                     |  |                    |         |  |                   |        |   |       |   |        |   |  |   |        
|Total revenues                    |  | $                                    | 29,608  |                               | $ | 8,998               |  | $                  | 365,545 |  | $                 | 840    |   |       | $ |       |   |  | $ | 404,991
|Interest revenue                  |  |                                      | 317     |                               |   | 367                 |  |                    | 14      |  |                   | 597    |   |       |   |       |   |  |   | 1,295  
|Interest expense                  |  |                                      | 31      |                               |   | 52                  |  |                    | 921     |  |                   | 501    |   |       |   |       |   |  |   | 1,505  
|Income (loss) before income taxes |  |                                      | 2,379   |                               |   | 813                 |  |                    | 192     |  |                   | (39    | ) |       |   | (822   | ) |  |   | 2,523  
|Total assets                      |  |                                      | 164,557 |                               |   | 258,590             |  |                    | 158,266 |  |                   | 39,358 |   |       |   | 4,588  |   |  |   | 625,359
|                                  |  |                                      |         |                               |   |                    
|                                  |  | Commodity & Risk Management Services |         | Clearing & Execution Services |   | Grain Merchandising |  | Financial Services |         |  | Corporate & Other |        |   | Total
|                                  |  | (in thousands)                      
|Six months ended:                 |  |                                      |         |                               |   |                     |  |                    |         |  |                   |        |   |       |   |        |   |  |   |        
|                                  |  |                                      |         |                               |   |                    
|February 28, 2005                 |  |                                      |         |                               |   |                     |  |                    |         |  |                   |        |   |       |   |        |   |  |   |        
|Total revenues                    |  | $                                    | 37,356  |                               | $ | 23,755              |  | $                  | 711,877 |  | $                 | 18,188 |   |       | $ | 42     |   |  | $ | 791,218
|Interest revenue                  |  |                                      | 942     |                               |   | 1,589               |  |                    | 79      |  |                   | 466    |   |       |   | 40     |   |  |   | 3,116  
|Interest expense                  |  |                                      | 24      |                               |   | 131                 |  |                    | 929     |  |                   | 370    |   |       |   | 91     |   |  |   | 1,545  
|Income (loss) before income taxes |  |                                      | 3,212   |                               |   | 1,725               |  |                    | 740     |  |                   | 412    |   |       |   | (1,763 | ) |  |   | 4,326  
|Total assets                      |  |                                      | 170,296 |                               |   | 294,194             |  |                    | 128,222 |  |                   | 17,533 |   |       |   | 6,070  |   |  |   | 616,315
|                                  |  |                                      |         |                               |   |                    
|February 29, 2004                 |  |                                      |         |                               |   |                     |  |                    |         |  |                   |        |   |       |   |        |   |  |   |        
|Total revenues                    |  | $                                    | 62,549  |                               | $ | 18,408              |  | $                  | 781,169 |  | $                 | 1,328  |   |       | $ |       |   |  | $ | 863,454
|Interest revenue                  |  |                                      | 670     |                               |   | 605                 |  |                    | 14      |  |                   | 838    |   |       |   |       |   |  |   | 2,127  
|Interest expense                  |  |                                      | 50      |                               |   | 47                  |  |                    | 1,581   |  |                   | 695    |   |       |   |       |   |  |   | 2,373  
|Income (loss) before income taxes |  |                                      | 4,643   |                               |   | 1,609               |  |                    | 494     |  |                   | (126   | ) |       |   | (1,659 | ) |  |   | 4,961  
|Total assets                      |  |                                      | 164,557 |                               |   | 258,590             |  |                    | 158,266 |  |                   | 39,358 |   |       |   | 4,588  |   |  |   | 625,359



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5. CONTINGENCIES



On August 21, 2003, August 21, 2003, September 23, 2003, October 16, 2003, and July 16, 2004, Euro-Maritime Chartering, Inc. filed five separate claims under the
arbitration facility established by the London Maritime Arbitrators Association of London, England, alleging a breach by FGDI, LLC of charter party agreements regarding five vessels and seeking to recover damages of $242,655, $230,863, $769,302,
$649,031 and $403,167, respectively. Euro-Maritime Chartering alleges that these damages arise from detention and demurrage encountered at China ports with respect to cargos that FGDI sold to Chinese buyers. FGDI claims that, under the sales
contracts with the Chinese buyers, any detention and demurrage charges were for the account of the buyers. FGDI does not dispute the demurrage claims, which are estimated to total approximately $690,000. FGDI has collected deposits from the Chinese
buyers in the total amount of $669,436, which is being held pending resolution of the detention claims. FGDI intends to vigorously defend the detention claims. If the claimant prevails on any of the detention claims, or otherwise in amounts above
the corresponding deposit, FGDI expects to seek collection of such amounts from the buyers.



On December 13, 2003, Liaoyang Edible Oils filed a claim in arbitration under the arbitration facility established by the Federation of Oils, Seeds and Fats Associations Ltd. of Hong Kong alleging a breach of a sales
contract by FGDI and seeking to recover damages of $1,125,000. Liaoyang Edible Oils alleges that these damages arise out of disputes related to the final pricing of the contract. This dispute has been heard on the merits and the company is currently
awaiting a decision from the arbitration panel.



On February 18, 2005, FGDI was
notified that Xiamen Zhonge filed a claim in arbitration under the arbitration facility established by the Federation of Oils, Seeds and Fats Associations Ltd. of Hong Kong. Xiamens claim alleges that FGDI breached its duty to accept pricing
instructions provided by Xiamen to FGDI. FGDI responded to Xiamens request for arbitration on March 18, 2005. FGDI intends to vigorously defend this claim.



Management is currently unable to predict the outcome of these claims and believes their current status does not warrant accrual under the
guidance of Statement on Financial Accounting Standards No. 5, Accounting for Contingencies, since the amount of any liability is neither probable nor reasonably estimable. As such, no amounts have been accrued in the financial statements.
Management intends to vigorously defend these claims and will continue to monitor the result of arbitration and assess the need for future accruals.



6. SUBSEQUENT EVENT



Member Approval of Restructuring



On March 1, 2005, the voting members of the Company approved the restructuring of the Company by terminating the Companys cooperative status and ending the patronage-based rights accruing to the Companys members. Pursuant to the
restructuring, stockholders and subscribers will receive on April 15, 2005, 500 shares of new common stock for each fully-paid share of Class A common stock, $5,000 par value, 10,000 shares of new common stock for each fully-paid share of Class B
common stock, $100,000 par value, one share of new common stock for each $10.00 of paid subscription and one share of new common stock for each $10.00 par value of preferred stock held. Membership interests in the Company represented by
patronage-based rights as of August 31, 2004, will be converted on April 15, 2005 into (i) shares of new common stock based on an appraised value and relative patronage; and (ii) subscription rights exercisable at a purchase price of $10.00 per
share within 60 days after the distribution of new common stock and subscription rights. We expect to distribute 4,310,285 shares of new common stock on April 15, 2005 pursuant to the restructuring. The company plans to commence the subscription
rights offering on or about April 15, 2005 and expects to continue the offering until about June 14, 2005.



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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



Overview



We are a commodities risk management and trading company headquartered in West Des Moines, Iowa. Our risk management programs are designed to identify and then limit and control potential factors that could negatively
impact the success of a business. Our primary services are to research, recognize and quantify the potential risks involved in our customers operations, then plan and execute programs that effectively mitigate those risks by capping
operational expenses and maximizing margin opportunities. While our initial business was centered on the risks of grain marketing of domestic elevators, todays programs are designed to serve a much broader commodity spectrum including grain
and livestock, dairy, the entire energy complex, ingredient users, food processors, and other commodity end-users. We utilize all of the tools of the commodities marketplace, including exchange-traded futures and options, cash and physical commodity
trades, and over-the-counter derivatives to provide risk management services to our customers for their businesses. We also offer direct execution clearing services to commodities firms, traders, fund operators and others. Our grain merchandising
operations facilitate the movement of grain from an originator to fill the demand of an end-user. This approach offers opportunities to add value for our customers by merchandising their inventories as far into the marketing pipeline as possible. We
also offer financing and facilitation for customers to carry energy, grain and other commodities through sale/repurchase agreements, transactional commodity finance arrangements and processing and tolling arrangements.



Our revenues are derived from: (1) commissions on futures and option trades, (2) service and
consulting fees, (3) brokerage mark-ups on over-the-counter and commodities trades, (4) fees for clearing customers direct trades, (5) the sale of grain and fuel, and (6) interest income on margin funds on deposit with the various commodity
exchanges. As a service company, our expenses primarily consist of employee compensation, broker commissions and related fringe benefits and payroll taxes. As commission, pit brokerage and clearing fees expense are directly related to revenues, they
are for the most part a variable expense, as they are directly related to the number of futures exchange trades. Other significant operating expenses consist of communications, marketing information, travel, office and equipment rent and marketing
and promotion.



Recent Developments, Market Trends and Capital



We have realized a significant increase in our nonmember
business revenues, especially over the last five years. This increase is a result of the company expanding our risk management services into other commodities in addition to our traditional grain marketing base. We expect this trend to continue at
an accelerated rate as we offer more risk management programs and services to other industries and companies to help them manage their commodity risks. We have also seen a consolidation in the commodity exchange clearing business, which has allowed
us to capture additional customers and business, and we believe this trend will continue.



Customer deposits and accounts receivable related to our Commodity and Risk Management Services and Clearing and Execution Services segments have grown from $127 million at the beginning of FY 2001 to $264 million at
February 28, 2005. As these segments continue to grow, we anticipate needing additional regulatory capital to meet CFTC guidelines. Because of the need for continued growth, in late FY2004 and early FY2005, we set in motion a plan to restructure our
business from a cooperative form to a regular business corporation and seek additional capital through the offering of subscription rights (as described in the Registration on Form S-4 filed with the Commission on August 18, 2004, as amended). We
mailed a proxy statement-prospectus to solicit votes on the proposed conversion and held a special meeting on March 1, 2005, at which the members approved the restructuring of the company into a regular business corporation. Upon completion of the
restructuring, the board of directors intends to set up an employee stock ownership plan (ESOP) to provide an additional capital infusion to the company. As a result of the restructuring, we expect to raise between $5 million and $10 million in
additional equity capital through the member subscription rights exercised and the initial ESOP investment.



Although the expansion of our services to other industries and to foreign markets does require additional personnel and related expenses, it does not generally require any significant capital expenditures. Our primary
capital concern is meeting CFTC regulatory requirements from our anticipated increased business. We expect our new business structure to alleviate most of these concerns. In addition, with the ESOP in place, we also expect to raise an additional $1
million annually in equity capital from ESOP common stock purchases. This amount, plus our ability to better control annual dividends based upon net earnings, should provide the company with significant annual capital resources. With the additional
$5 million to $10 million in estimated capital noted above and the expected annual capital resources generated through the ESOP and operations, we anticipate meeting our expected growth capital needs for the next several years.



As noted above, on March 1, 2005, the voting shareholder members of the company approved the
restructuring of the company by terminating the companys cooperative status and ending the patronage-based rights accruing to our stockholders. Pursuant to the restructuring, stockholders and subscribers will receive, on April 15, 2005, 500
shares of



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new common stock for each fully-paid share of Class A common stock, $5,000 par value, 10,000 shares of new common stock
for each fully-paid share of Class B common stock, $100,000 par value, one share of new common stock for each $10.00 of paid subscription and one share of new common stock for each $10.00 par value of preferred stock held. Membership interests in
the company represented by patronage-based rights as of August 31, 2004, will be converted, on April 15, 2005, into (i) shares of new common stock based on the appraised value and relative patronage; and (ii) subscription rights exercisable at a
purchase price of $10.00 per share within 60 days after the distribution of new common stock and subscription rights. The subscription rights offering will commence on or about April 15, 2005 and we expect to continue the offering until about June
14, 2005.



With our new structure now in place, we also have the flexibility to
raise capital in a more timely manner through a stock or debt offering to our current stockholders or others approved by our board of directors. Although we have no current plans for such an offering, the availability of such capital raising
mechanisms will allow the company to be more flexible and remain competitive in the future.



Results of Operations



Three
Months Ended February 28, 2005 Compared to Three Months Ended February 29, 2004



Executive Summary. Revenues for the second quarter of 2005 were $345.9 million compared to $405.0 million in 2004, a decrease of $59.1 million. This decrease was a result of the sales of commodities
being $63.3 million lower than the prior year due to lower commodities prices. Despite such lower revenues, the gross profit on the sales of commodities was higher in 2005 at $4.5 million as compared to $3.6 million in 2004, due to higher margins.
Commission revenues increased $0.2 million over the prior year, service, consulting, and brokerage fees increased $2.2 million and clearing and transaction fees increased $1.4 million primarily due to increased risk management and clearing volume
resulting from higher energy and other commodities prices and price volatility. Interest income increased $0.5 million over 2004 due to higher short-term interest rates. Revenues earned as a profit share in financing arrangements were $0.8 million.



Costs and expenses were $342.7 million for 2005 compared to $402.4 million in
2004, a decrease of $59.7 million. The cost of commodities sold as noted above was $64.2 million lower. Higher volume related broker commissions, pit brokerage and clearing fees and introducing broker commissions accounted for the most of the
increases in costs and expenses. Minority interest was higher at $0.4 million in 2005 compared to $0.1 million in 2004 due to increased earnings at the companys partially owned subsidiaries.



Income before taxes was $2.8 million compared to $2.5 million. Income tax expense was much
higher at $1.1 million (38% effective rate) compared to $0.6 million (23% effective rate) primarily as a result of the companys structure change, under which the company is no longer taxed as a cooperative. As a result of the above, net income
was $1.7 million in 2005 compared to $2.0 million in 2004.



Operations by
Segment



Our reportable operating segments consist of Commodity and Risk
Management Services, Clearing and Execution Services, Grain Merchandising, Financial Services and Corporate and Other. We include the earnings of equity affiliates that are closely associated with our operating segments in the respective
segments net income. Segment amounts exclude revenues, expenses and equity earnings not specifically identifiable to segments. These amounts are included in the Corporate and Other segment.



We prepared the financial results for our operating segments on a basis that is consistent
with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We have allocated certain common expenses among segments differently than we would for stand-alone financial information
prepared in accordance with GAAP. Segment income before income taxes may not be consistent with measures used by other companies. The accounting policies of our operating segments are the same as those applied in the consolidated financial
statements.



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##### Table of Contents

The following table and discussion provides a summary of each segments revenues, costs and expenses, and income
before taxes; and compares the operating results for the three month period ending February 28, 2005 with the three month period ended February 29, 2004:



|                                  |  |                                      |        |                               |   |                     |  |                    |         |  |                   |        |   |       |   |      |   |  |   |        
|--------------------------------- |  | ------------------------------------ | ------ | ----------------------------- | - | ------------------- |  | ------------------ | ------- |  | ----------------- | ------ | - | ----- | - | ---- | - |  | - | -------
|                                  |  | Commodity & Risk Management Services |        | Clearing & Execution Services |   | Grain Merchandising |  | Financial Services |         |  | Corporate & Other |        |   | Total
|                                  |  | (in thousands)                      
|Three months ended:               |  |                                      |        |                               |   |                     |  |                    |         |  |                   |        |   |       |   |      |   |  |   |        
|                                  |  |                                      |        |                               |   |                    
|February 28, 2005                 |  |                                      |        |                               |   |                     |  |                    |         |  |                   |        |   |       |   |      |   |  |   |        
|Revenues                          |  | $                                    | 14,864 |                               | $ | 11,892              |  | $                  | 309,026 |  | $                 | 10,096 |   |       | $ | 23   |   |  | $ | 345,901
|Costs and expenses                |  |                                      | 13,015 |                               |   | 11,023              |  |                    | 308,219 |  |                   | 9,468  |   |       |   | 954  |   |  |   | 342,679
|Minority interest                 |  |                                      |       |                               |   |                    |  |                    | 242     |  |                   | 174    |   |       |   |     |   |  |   | 416    
|Income (loss) before income taxes |  |                                      | 1,849  |                               |   | 869                 |  |                    | 565     |  |                   | 454    |   |       |   | (931 | ) |  |   | 2,806  
|                                  |  |                                      |        |                               |   |                    
|Grain bushels                     |  |                                      |        |                               |   |                     |  |                    | 64,238  |  |                   |        |   |       |   |      |   |  |   |        
|Gross profit on grain sales       |  |                                      |        |                               |   |                     |  |                    | 4,175   |  |                   |        |   |       |   |      |   |  |   |        
|                                  |  |                                      |        |                               |   |                    
|February 29, 2004                 |  |                                      |        |                               |   |                     |  |                    |         |  |                   |        |   |       |   |      |   |  |   |        
|Revenues                          |  | $                                    | 29,608 |                               | $ | 8,998               |  | $                  | 365,545 |  | $                 | 840    |   |       | $ |     |   |  | $ | 404,991
|Costs and expenses                |  |                                      | 27,229 |                               |   | 8,185               |  |                    | 365,271 |  |                   | 879    |   |       |   | 822  |   |  |   | 402,386
|Minority interest                 |  |                                      |       |                               |   |                    |  |                    | 82      |  |                   |       |   |       |   |     |   |  |   | 82     
|Income (loss) before income taxes |  |                                      | 2,379  |                               |   | 813                 |  |                    | 192     |  |                   | (39    | ) |       |   | (822 | ) |  |   | 2,523  
|                                  |  |                                      |        |                               |   |                    
|Grain bushels                     |  |                                      |        |                               |   |                     |  |                    | 63,682  |  |                   |        |   |       |   |      |   |  |   |        
|Gross profit on grain sales       |  |                                      |        |                               |   |                     |  |                    | 3,280   |  |                   |        |   |       |   |      |   |  |   |        



Commodity and
Risk Management Services. Our Commodity and Risk Management Services segment offers commodity services to our customers, with an emphasis on risk management using futures, options and other derivative instruments.



Revenues decreased $14.7 million between the comparative periods. This
decrease was primarily a result of the companys much lower fuel sales of $15.6 million as the company in moving more towards brokering fuel rather than acting as a principal. Accordingly, though fuel sales declined $15.6 million from 2004, the
margin on such fuel sales decreased only $0.1 million. Service consulting and brokerage fees were up $2.3 million due to increased energy and grain risk management brokerage and additional customers on our fee based risk management program.
Commission revenues were down $0.7 million as lower grain commodity prices resulted in reduced volume in 2005. With higher short-term interest rates, interest income increased $0.2 million in 2005. Other revenues were lower in 2005, as 2004 included
a $0.8 million gain on the sale of Board of Trade Clearing Corporation Stock.



Costs and expenses decreased $14.2 million between the comparative periods. As noted above, much lower fuel volume accounted for $15.4 million of such decreased costs and expenses.



Clearing and Execution Services. The Clearing and Execution
Services segment offers low-cost clearing and direct execution services to commodities firms, fund operators, commodities traders and others.



Revenues increased $2.9 million between comparative periods. Commission revenues were up $0.8 million and transaction fees were $1.6 million higher on
increased volume due primarily to continued energy commodities price volatility. Interest income increased by $0.5 million due to much higher short-term interest rates.



Costs and expenses increased $2.8 million between comparative periods. This increase was primarily due to volume-related
clearing fees, pit brokerage and introducing broker compensation / commissions.



Grain Merchandising. The Grain Merchandising segment acts as a dealer in, and manager of, physical grain and fertilizer through a majority interest in FGDI, LLC. FGDI acts as a grain dealer in the United
States and international markets, primarily in Canada, Latin America and the Far East and also manages a pool of grain originated by a group of elevators in Texas.



Grain sales decreased $56.5 million, as a result of significantly lower grain prices. Gross profit on the sale of grain
increased $0.9 million, due to improved margins, as the volume of bushels sold remained relatively constant, increasing less than one percent.



Costs and expenses decreased $57.1 million. Components of this decrease include a $57.4 million decrease in the cost of commodities sold and a $0.4
million decrease in interest expense, which are partially offset by increases in employee compensation, bad debt expense, and other operating expenses of $0.1 million, $0.3 million and $0.1 million, respectively.



11



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##### Table of Contents

Please see additional disclosure under the heading Liquidity and Capital Resources.



Financial Services. The Financial Services
segment offers financing and facilitation for customers to carry commodities through the use of sale/repurchase agreements whereby we purchase grain evidenced by warehouse receipts subject to a simultaneous agreement to resell such grain to the
seller at a later date. Additionally, we offer clients specialized financing through transactional commodity finance arrangements and processing and tolling arrangements. Historically, our business in this segment primarily consisted of entering
into sale/repurchase agreements involving the purchase of grain evidenced by warehouse receipts. In late 2004, through the recently formed subsidiary FCStone Merchant Services, LLC, this segment began engaging in similar transactions in energy,
grain, and other commodities, as well as transactions where we share in commodity profits with customers in exchange for financial support.



Revenues totaled $10.1 million for the three month period ended February 28, 2005 compared to $0.8 million for the three month period ended February 29,
2004, an increase of $9.3 million. This increase in revenue is from the additional financing arrangements the company began offering in early FY2005 through FCStone Merchant Services, LLC a recently formed subsidiary initiating transactional
commodity financing arrangements in energy, grain and other commodities. During the three month period ended February 28, 2005, $8.7 million of revenues were generated from activities involving the purchase and sale of commodities and $0.8 million
of revenues were earned as a profit-share in financing arrangements.



Costs and expenses totaled $9.5 million for the three month period ended February 28, 2005 compared to $0.9 million for the three month period ended February 29, 2004, an increase of $8.6 million. This increase is also the result of $8.7
million of expenses from the additional financing arrangements the company began offering in early FY2005 through FCStone Merchant Services, LLC.



Corporate and Other. The Corporate and Other segment generated insignificant amounts of revenue, comprised of interest income for the three
month period ended February 28, 2005 and February 29, 2004. Operating expenses remained comparable at $1.0 million for the three month period ended February 28, 2005 and $0.8 million for the three month period ended February 29, 2004.



Six Months Ended February 28, 2005 Compared to Six Months Ended February 29, 2004



Executive Summary. Revenues for the first six months of
2005 were $791.2 million compared to $863.5 million in the comparative period of 2004, a decrease of $72.3 million. This decrease was a result of the sales of commodities being $79.2 million lower than the prior year primarily due to lower
commodities prices. Despite such lower revenues, the gross profit on the sales of commodities was higher in 2005 at $8.2 million as compared to $7.2 million in 2004, due to higher margins. Commission revenues increased $0.8 million over the prior
year, service, consulting, and brokerage fees increased $2.2 million and clearing and transaction fees increased $2.7 million primarily due to increased risk management and clearing volume resulting from higher energy and other commodities prices
and price volatility. Interest income increased $1.0 million over 2004 due to higher short-term interest rates.



Costs and expenses were $786.4 million for 2005 compared to $858.3 million in 2004, a decrease of $71.9 million. The cost of commodities sold as noted above was $80.2
million lower. Higher volume related broker commissions, pit brokerage and clearing fees and introducing broker commissions accounted for the most of the increases in costs and expenses. Also, the company had approximately $1.0 million in bad debts
relating to Mexican grain receivables in 2005. Minority interest was higher at $0.5 million in 2005 compared to $0.2 million in 2004 due to increased earnings at the companys partially owned subsidiaries.



Income before taxes was $4.3 million compared to $5.0 million. Income tax expense was much
higher at $1.7 million (38% effective rate) compared to $1.1 million (23% effective rate) primarily as a result of the companys structure change, under which the company is no longer taxed as a cooperative. As a result of the above, net income
was $2.7 million in 2005 compared to $3.8 million in 2004.



Operations by
Segment



12



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##### Table of Contents

The following table and discussion provides a summary of each segments revenues, costs and expenses, and income
before taxes; and compares the operating results for the six month period ending February 28, 2005 with the six month period ended February 29, 2004:



|                                  |  |                                      |        |                               |   |                     |  |                    |         |  |                   |        |   |       |   |        |   |  |   |        
|--------------------------------- |  | ------------------------------------ | ------ | ----------------------------- | - | ------------------- |  | ------------------ | ------- |  | ----------------- | ------ | - | ----- | - | ------ | - |  | - | -------
|                                  |  | Commodity & Risk Management Services |        | Clearing & Execution Services |   | Grain Merchandising |  | Financial Services |         |  | Corporate & Other |        |   | Total
|                                  |  | (in thousands)                      
|Six months ended:                 |  |                                      |        |                               |   |                     |  |                    |         |  |                   |        |   |       |   |        |   |  |   |        
|                                  |  |                                      |        |                               |   |                    
|February 28, 2005                 |  |                                      |        |                               |   |                     |  |                    |         |  |                   |        |   |       |   |        |   |  |   |        
|Revenues                          |  | $                                    | 37,356 |                               | $ | 23,755              |  | $                  | 711,877 |  | $                 | 18,188 |   |       | $ | 42     |   |  | $ | 791,218
|Costs and expenses                |  |                                      | 34,144 |                               |   | 22,030              |  |                    | 710,820 |  |                   | 17,625 |   |       |   | 1,805  |   |  |   | 786,424
|Minority interest                 |  |                                      |       |                               |   |                    |  |                    | 317     |  |                   | 151    |   |       |   |       |   |  |   | 468    
|Income (loss) before income taxes |  |                                      | 3,212  |                               |   | 1,725               |  |                    | 740     |  |                   | 412    |   |       |   | (1,763 | ) |  |   | 4,326  
|                                  |  |                                      |        |                               |   |                    
|Grain bushels                     |  |                                      |        |                               |   |                     |  |                    | 142,505 |  |                   |        |   |       |   |        |   |  |   |        
|Gross profit on grain sales       |  |                                      |        |                               |   |                     |  |                    | 7,721   |  |                   |        |   |       |   |        |   |  |   |        
|                                  |  |                                      |        |                               |   |                    
|February 29, 2004                 |  |                                      |        |                               |   |                     |  |                    |         |  |                   |        |   |       |   |        |   |  |   |        
|Revenues                          |  | $                                    | 62,549 |                               | $ | 18,408              |  | $                  | 781,169 |  | $                 | 1,328  |   |       | $ |       |   |  | $ | 863,454
|Costs and expenses                |  |                                      | 57,906 |                               |   | 16,799              |  |                    | 780,463 |  |                   | 1,454  |   |       |   | 1,659  |   |  |   | 858,281
|Minority interest                 |  |                                      |       |                               |   |                    |  |                    | 212     |  |                   |       |   |       |   |       |   |  |   | 212    
|Income (loss) before income taxes |  |                                      | 4,643  |                               |   | 1,609               |  |                    | 494     |  |                   | (126   | ) |       |   | (1,659 | ) |  |   | 4,961  
|                                  |  |                                      |        |                               |   |                    
|Grain bushels                     |  |                                      |        |                               |   |                     |  |                    | 143,108 |  |                   |        |   |       |   |        |   |  |   |        
|Gross profit on grain sales       |  |                                      |        |                               |   |                     |  |                    | 6,372   |  |                   |        |   |       |   |        |   |  |   |        



Commodity and
Risk Management Services. Revenues decreased $25.1 million between the comparative periods. This decrease was primarily a result of the companys much lower fuel sales of $ 26.3 million as the company in moving more towards brokering
fuel rather than acting as a principal. Accordingly, though fuel sales declined $26.3 million from 2004, the margin on such fuel sales decreased only $0.5 million. Service consulting and brokerage fees were up $2.8 million due to increased energy
and grain risk management brokerage and additional customers on our fee based risk management program. Commission revenues were down $1.0 million as lower grain commodity prices resulted in reduced volume in 2005. With higher short-term interest
rates, interest income increased $0.3 million in 2005. Other revenues were lower in 2005, as 2004 included a $0.8 million gain on the sale of Board of Trade Clearing Corporation Stock.



Costs and expenses decreased $23.8 million between the comparative periods. As noted above, much lower fuel volume accounted for $25.8
million of such decreased costs and expenses.



Clearing
and Execution Services. Revenues increased $5.3 million between comparative periods. Commission revenues were up $1.6 million and transaction fees were $2.8 million higher on increased volume due primarily to energy commodities price
volatility. Interest income increased by $0.9 million due to much higher short-term interest rates.



Costs and expenses increased $5.2 million between comparative periods. This increase was primarily due to volume-related clearing fees, pit brokerage and
introducing broker compensation / commissions.



Grain
Merchandising. Grain sales decreased $69.3 million, as a result of significantly lower grain prices during the first six months of fiscal 2005. Gross profit on the sale of grain increased $1.3 million, due to improved margins, as the volume
of bushels sold remained relatively constant, decreasing less than one percent.



Costs and expenses decreased $69.6 million, primarily as a result of the lower grain prices, and additionally, due to a $0.7 million decrease in interest costs. The costs and expenses decrease was offset by an
increase in bad debt expense of $1.0 million.



Please see
additional disclosure under the heading Liquidity and Capital Resources.



Financial Services. Revenues increased $16.9 million between comparative periods. The increase is primarily due to the transactions of FCStone Merchant Services, LLC, a subsidiary formed during fiscal
year 2004. The newly formed subsidiary, while having no revenues during the comparative period of fiscal 2004, had revenues of $17.3 million during the first six months of fiscal 2005, of which $16.5 million of revenues were generated from
activities involving the purchase and sale of commodities; and $0.8 million of revenues were earned as a profit-share in financing arrangements. Revenues from the financing of grain warehouse receipts decreased $0.4 million during the comparative
period due to decreased activity in the program by customers.



Costs and expenses also increased between the comparative periods by $16.2 million. The increase is a result of $16.4 million of expenses from the activities involving the purchase and sale of commodities, discussed above. Additionally,
interest expense decreased $0.4 million due to a decrease in the amount borrowed as part of the warehouse repurchase program.



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Corporate and Other. The Corporate and Other segment generated insignificant amounts of
revenue, comprised of interest income for the six month period ended February 28, 2005 and February 29, 2004. Operating expenses remained comparable at $1.8 million for the six month period ended February 28, 2005 and $1.7 million for the comparable
six month period ended February 29, 2004.



Liquidity and Capital Resources



The following table presents a summary of unrestricted cash flows for the
six months ended February 28, 2005 compared to the six months ended February 29, 2004:



|                                                         |  |                        |         |   |                  |   |         |  
|-------------------------------------------------------- |  | ---------------------- | ------- | - | ---------------- | - | ------- | -
|                                                         |  | Six months ended       |        
|                                                         |  | February 28 2005       |         |   | February 28 2004 |  
|                                                         |  | (dollars in thousands) |        
|Cash Flows provided by (used in):                        |  |                        |         |   |                  |   |         |  
|Operating Activities                                     |  | $                      | 437     |   |                  | $ | (50,546 | )
|Investing Activities                                     |  |                        | (10,486 | ) |                  |   | (24,517 | )
|Financing Activities                                     |  |                        | 23,805  |   |                  |   | 74,959  |  
|                                                         |  |                        |         |   |                  |   |         |  
|Net Increase in cash and cash equivalents - unrestricted |  | $                      | 13,756  |   |                  | $ | (104    | )
|                                                         |  |                        |         |   |                  |   |         |  



Our principal sources of liquidity are
from internally generated funds from operations and from borrowings under various credit facilities. We expect that cash on hand, internally generated cash flow, and available credit from third-party financing agreements will provide sufficient
funds for operating and recurring cash needs (including working capital, capital expenditures and debt repayments) into the foreseeable future. We have up to $369 million available under current credit agreements. While there is no guarantee that we
will be able to replace current credit agreements when they expire, we expect to be able to do so.



Cash and cash equivalents increased $13.8 million in the three month period ending February 28, 2005; they decreased $0.1 million in the comparable period of fiscal 2004.



The Company generated cash of $0.4 million from operations for the three month period ending
February 28, 2005, while we used $50.5 million in operations for the three month period ended February 29, 2004, primarily due to changes in the following:



| |  |  | Accounts payable increased by $34.8 million during the first six months of fiscal 2005 compared to a decrease of $1.0 million in the comparable period of fiscal 2004. The variance
is primarily due to the timing of grain inventory purchases and related freight costs;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Accounts receivable and advances on grain increased by $12.8 million during the first six months of fiscal 2005 compared to an increase of $6.2 million in the comparable period of
fiscal 2004. The variance is primarily a result of the higher grain prices experienced in the first half of fiscal 2004, compared to the grain prices during the first half of fiscal 2005. Additionally, sales volume of grain decreased in the first
half of fiscal 2005 compared to the same period of fiscal 2004; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inventories of grain and fuel increased by $19.9 million during the first six months of fiscal 2005 compared to an increase of $38.5 million in the comparable period of fiscal 2004.
The variance is primarily due to the fluctuations in grain bushels held in inventory. During the first half of fiscal 2005, grain inventory bushels increased by 3.5 million to 6.4 million bushels. During the first half of fiscal 2004, grain
inventory bushels increased by 3.1 million to 8.5 million bushels. Additionally, higher grain prices in the first half of fiscal 2004 compared to the first half of fiscal 2005 resulted in a larger increase in fiscal 2004.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In fiscal year 2004, FGDI entered into master purchase agreements with CoBank, ACB under
which it could sell, and has sold, at a discount and with limited recourse, receivables of a Mexican customer insured by an Export Import Bank policy and a commercial credit insurance policy. These sales of receivables were an attempt to accelerate
the receipt of funds, and enable us to utilize the line of credit available to generate additional sales. No sales of receivables occurred in the first six months of fiscal year 2005 and the program terminated on February 17, 2005.



14



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##### Table of Contents

The accounts receivable of our grain merchandising segment include amounts due with respect to shipments to a customer
located in Mexico. Under the receivables purchase program, CoBank held $8.0 million of the outstanding receivables owed by this customer. During the first quarter ended November 30, 2004, this customer failed to make timely payment on a portion of
its $24.5 million owed to the company and CoBank, $16.5 million of which is owed to the company. This debtor has not paid the remaining receivables when they were due and we are uncertain as to whether these receivables will be collectible. We filed
claims under our credit insurance policy issued by Export Import Bank of the United States and a commercial credit insurance policy, which cover these receivables. In April 2005, we recovered $23.5 million from these insurers. The insurance payments
were used to fully satisfy the interest in receivables held by CoBank and the balance applied to partially offset the companys retained receivables. As a result, the Companys total exposure to loss from this default is approximately $1.0
million. During the previous three month period ended November 30, 2004, we increased the allowance for doubtful accounts through a $0.7 million charge to bad debt expense in addition to $0.3 million previously recorded for this matter. Management
believes that the reserve is adequate to cover the total exposure to the company resulting from this default based upon information presently available.



The company anticipates an infusion of $5 million to $10 million in additional capital as a result of the restructuring, which was approved by our members on March 1,
2005, from the exercise of stock subscription rights and the initial sale of stock to the ESOP. The subscription offering will commence on or about April 15, 2005 and we expect to continue the offering until about June 14, 2005. The timing of the
initial ESOP sale has not yet been established. These transactions would provide substantial capital to fund significant growth for the next several years. Such capital would primarily be used to meet expected CFTC regulatory capital guidelines as a
result of our increased growth in the Commodity and Risk Management Services and the Clearing and Execution Services segments of our business. Such additional capital is also expected to enable us to increase our lines of credit above current
levels.



An expansion of the grain facility located in Mobile, Alabama is
currently under construction. The expansion is being constructed under a design/build type of contract and is financed by an offering of $5.5 million in industrial development revenue bonds. On October 15, 2004, after major construction was
complete, but before acceptance of the project, the foundation of one of the four bins subsided during initial bin filling operations, causing significant damage to the affected bin, its foundation and other structures. The company expects to be
able to hold its contractors and subcontractors and their insurers responsible for remediation of the damage, but the cost, timing and specifics of such remediation are not yet established or ascertainable and there is no assurance that collection
efforts will be wholly successful. We may be forced to initially fund the remediation project to fix the damage to the bin and other affected structures while we seek to collect the remediation amount from our contractors, subcontractors and their
insurers.



Financing Activities. The company maintains a number
of lines of credit to support operations. A summary of such lines is noted in the following table:



|                                                         |  |                            |  |                                                                           |  |                  |               |                                         |   |             
|-------------------------------------------------------- |  | -------------------------- |  | ------------------------------------------------------------------------- |  | ---------------- | ------------- | --------------------------------------- | - | ------------
|Creditor                                                 |  | Renewal/Expiration Date*   |  | Use                                                                       |  | AmountAvailable* |               | Amount Outstanding at February 28, 2005
|Deere Credit, Inc.                                       |  | March 1, 2006              |  | Margin Calls                                                              |  | $                | 40.8 million  |                                         |   | -0-         
|Deere Credit, Inc.                                       |  | March 1, 2006              |  | Repurchase Agreements                                                     |  | $                | 46.0 million  |                                         | $ | 22.5 million
|Deere Credit, Inc.                                       |  | December 1, 2006           |  | Subordinated Debt for Regulatory Capital                                  |  | $                | 7.0 million   |                                         | $ | 4.0 million 
|Deere Credit, Inc.                                       |  | October 1, 2006            |  | General Corporate                                                         |  | $                | 6.2 million   |                                         | $ | 4.2 million 
|                                                         |  |                            |  |                                                                           |  |                  |               |                                         |   |             
|Total Deere                                              |  |                            |  |                                                                           |  | $                | 100.0 million |                                         | $ | 30.7 million
|                                                         |  |                            |  |                                                                           |  |                  |               |                                         |   |             
|CoBank, ACB                                              |  | October 1, 2005            |  | Grain Merchandising                                                       |  | $                | 68.0 million  |                                         | $ | 29.3 million
|CoBank, ACB                                              |  | October 1, 2006            |  | Grain Merchandising                                                       |  | $                | 8.0 million   |                                         |   | -0-         
|CoBank, ACB                                              |  | June 30, 2006              |  | OTC & Fuel Operations                                                     |  | $                | 15.0 million  |                                         |   | -0-         
|CoBank, ACB                                              |  | May 1, 2005                |  | Repurchase Agreements                                                     |  | $                | 75.0 million  |                                         |   | -0-         
|                                                         |  |                            |  |                                                                           |  |                  |               |                                         |   |             
|Total CoBank                                             |  |                            |  |                                                                           |  | $                | 166.0 million |                                         | $ | 29.3 million
|                                                         |  |                            |  |                                                                           |  |                  |               |                                         |   |             
|Harris Bank                                              |  | March 1, 2006              |  | Margin Calls                                                              |  | $                | 15.0 million  |                                         | $ | 2.0 million 
|AFG Trust Finance Limited                                |  | May 26, 2005               |  | Grain Merchandising                                                       |  | $                | 15.0 million  |                                         | $ | 7.5 million 
|Industrial Revenue Bonds (Capitalized Lease Obligations) |  | Annual paymentsto 2013     |  | Mobile, Alabama facility additional storage                               |  | $                | 5.5 million   |                                         | $ | 4.4 million 
|Sowood Commodity Partners Fund, LP                       |  | March 4, 2006              |  | Junior, secured revolving credit facility  Financial Services operations |  | $                | 30.0 million  |                                         |   | -0-         
|Fortis Capital Corp                                      |  | Demand                     |  | Financial Services operations                                             |  | $                | 20.0 million  |                                         |   | -0-         
|RZB Finance, LLC                                         |  | Demand                     |  | Financial Services operations                                             |  | $                | 5.0 million   |                                         |   | -0-         
|UFJ Bank                                                 |  | Demand                     |  | Financial Services operations                                             |  | $                | 10.0 million  |                                         |   | -0-         
|Subordinated Debt                                        |  | June 30 toDecember 1, 2006 |  | Regulatory Capital                                                        |  | $                | 1.8 million   |                                         | $ | 1.5 million 
|Long-Term Note                                           |  | Monthlypayments for 5years |  | NYMEX Seat                                                                |  | $                | 0.5 million   |                                         | $ | 0.5 million 

---

|* | Renewal/Expiration dates and amounts available are as of April 14, 2005
|- | -----------------------------------------------------------------------



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##### Table of Contents

All of our credit facilities include financial covenants and the failure to comply with any such covenants could result
in the debt becoming payable on demand. The company was in compliance with all debt covenants at February 28, 2005 and expects to remain in compliance in the future.



We carry significant open futures positions on behalf of our customers in the Commodity and Risk Management Services and the Clearing and
Execution Services segments of our business. The above lines of credit in place for margin calls are rarely used, but necessary to cover any margin calls produced by abnormal commodity market fluctuations. With the company and customer funds on
deposit and the available credit lines noted above, we believe we have adequate capital reserves to meet any foreseeable market fluctuations based upon current commodity market activities.



Our Grain Merchandising segment has a $76.0 million line of credit with CoBank available to
finance its operations. The segment can also utilize part of the Deere Credit repurchase agreement line to carry inventories when considered appropriate. As this segment of our business carries significant accounts receivable and inventory, the
CoBank line is utilized to a great extent.



Seasonality and Fluctuations in
Operating Results



We generally experience seasonality in our operations
with the first quarter typically being our strongest period as a result of the U.S. grain harvest, however with lower commodities prices this fall our volume was not as strong as in prior years. Also, with global political factors and their effect
on the commodities markets, we are seeing more frequent trading volume spikes throughout the year.



Off-balance Sheet Financing Activities



During fiscal year 2004, the companys grain merchandising subsidiary, FGDI, began participating in a bank program to provide liquidity through the sale of insured receivables of a customer, with limited recourse. This program ended
February 17, 2005. We believe that the expiration of this program will not be significant with respect to the companys and FGDIs liquidity and capital resources so long as FGDIs borrowings remain below its borrowing limits under
its line of credit. We do not anticipate that the expiration of this program will have a material impact on our future operations as we intend to concentrate more on domestic business that, along with current lower commodity prices, should result in
reduced financing requirements for this segment.



Other Matters



Critical Accounting Estimates. In preparing its registration
statement on Form S-4, filed with the Commission on August 18, 2004, as amended, we disclosed information about critical accounting estimates the company utilizes in applying its accounting policies. We have made no changes to the methods of
application or the assumptions used in applying these policies from what was disclosed in the registration statement on Form S-4.



Significant Accounting Policies. As a result of activities from the additional financing arrangements the company began offering in early fiscal year 2005, we have
added revenue recognition policies related to the new types of transactions (see Note 1 of the Notes to Consolidated Financial Statements).



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##### Table of Contents

Item 3. Quantitative and Qualitative Disclosures about Market Risk



Commodity Price Risk



As part of
our trading activity, we utilize futures and option contracts offered through regulated commodity exchanges to reduce risk. The company follows the policy of hedging its grain transactions and physical fuel through the use of cash and futures
contracts in order to minimize risk due to market fluctuations. The commodity price risk associated with physical fuel is not material and is for the account of our customers. Inventories and purchases and sales contracts are hedged to the extent
practical so as to arrive at a net commodity position within the formal position limits set by the company and deemed prudent for each commodity. The company is exposed to risk of loss in the market value of net open commodity positions, which are
calculated by aggregating grain inventories and grain subject to contract for purchase and sale. The following table presents the number of bushels in inventory, under purchase and sales contracts, and in futures positions by commodity at February
28, 2005:



|                   |  |                        |   |  |          |   |  |        |   |  |               |  
|------------------ |  | ---------------------- | - |  | -------- | - |  | ------ | - |  | ------------- | -
|                   |  | Bushels (in thousands) |  
|                   |  | Corn                   |   |  | Soybeans |   |  | Wheat  |   |  | Oats & Barley |  
|Inventory          |  | 1,632                  |   |  | 2,754    |   |  | 1,806  |   |  | 177           |  
|                   |  |                        |   | 
|Purchase Contracts |  | 32,197                 |   |  | 17,774   |   |  | 2,243  |   |  | 1,302         |  
|Sale Contracts     |  | (12,804                | ) |  | (8,970   | ) |  | (4,566 | ) |  | (1,197        | )
|                   |  |                        |   | 
|Futures Long       |  | 1,565                  |   |  | 205      |   |  | 1,138  |   |  |              |  
|Futures Short      |  | (22,628                | ) |  | (12,020  | ) |  | (620   | ) |  | (100          | )
|                   |  |                        |   | 
|Net Open Position  |  | (38                    | ) |  | (257     | ) |  | 1      |   |  | 182           |  



Bushel information is used to
calculate the net open commodity position, which is sensitive to changes in commodity prices. Open cash and futures contracts for the purchase and sale of grain are reported at market value; therefore the net open commodity position multiplied by
the year-end market price approximates fair value.



A hypothetical 10% increase
(or decrease) in the market price of corn from the February 28, 2005 level of $2.14 per bushel would result in a gain (or loss) to future earnings of $8,000.



A hypothetical 10% increase (or decrease) in the market price of soybeans from the February 28, 2005 level of $6.15 per bushel would result in a gain (or loss) to future
earnings of $(158,000).



A hypothetical 10% increase (or decrease) in the
market price of wheat from the February 28, 2005 level of $3.68 per bushel would result in a gain (or loss) to future earnings of $400.



A hypothetical 10% increase (or decrease) in the market price of oats and barley from the February 28, 2005 level of $1.62 per bushel would result in a gain (or loss) to
future earnings of $29,000.



The companys commodity price risk associated
with physical fuels is not material and is held for the account of our customers.



Interest Rate Risk



The company manages interest
expense using fixed and floating rate debt. The debt instruments are carried at amounts approximating estimated fair value. Currently, all lines of credit with an outstanding balance at February 28, 2005 have a variable interest rate, and except for
the industrial revenue development bonds associated with the Mobile facility, practically all of our borrowing is on a short-term basis.



Short-term debt used to finance inventories and receivables is represented by notes payable within thirty days or less so that the blended interest rate to the company
for all such notes approximates current market rates. In the financing of grain, as interest rates increase, the spread between future option months generally becomes wider, allowing larger incomes in grain margins to offset the potential increases
in interest expense. A portion of the outstanding balance of variable rate debt is used to finance certain notes receivable to customers. The interest charged on the notes receivable is also at a variable rate, therefore eliminating the interest
rate risk on that amount of debt. Of the short-term variable rate debt, the average outstanding balance subject to interest rate risk is $48 million. A hypothetical 100 basis point increase (or decrease) in interest rates would result in a (loss) or
gain to future earnings of $480,000, on an annualized basis.



Market risk on
variable rate long-term debt in the amount of $5 million is not material to the financial statements. We believe the risk associated with these borrowings will not have an adverse effect on our financial position, results of operations or cash
flows.



17



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##### Table of Contents

Foreign Currency Risk



The company conducts most of its business in U.S. dollars but does have minor risk regarding foreign currency fluctuations. The company
hedges foreign currency risk using futures contracts on U.S. exchanges to the extent practicable on those transactions involving foreign currency. Foreign currency fluctuations do, however, impact the ability of foreign buyers to purchase U.S.
agricultural products and the competitiveness of U.S. agricultural products compared to the same products offered by alternative sources of world supply.



Item 4. Controls and Procedures



Evaluation of
disclosure controls and procedures. The Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in the Exchange Act
Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by the Quarterly Report (the Evaluation Date). They have concluded that, as of the Evaluation Date, these disclosure controls and procedures were effective to ensure that
material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities and would be disclosed on a timely basis.



Changes in internal control over financial reporting. As of the end of the period covered by this Quarterly Report on Form 10-Q,
there were no changes in the Companys internal control over financial reporting that occurred during the three months ended February 28, 2005 that have materially affected or are reasonable likely to materially affect the Companys
internal control over financial reporting.



Limitations on the effectiveness
of controls. The Companys management, including the CEO and CFO, does not expect that the Companys disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met.



Institution of internal controls in compliance with Section 404 of Sarbanes-Oxley. As a result of the restructuring described above, the company will be subject to Section 404 of the Sarbanes-Oxley Act of 2002
and regulations promulgated thereunder. We are currently in the process of instituting an internal controls program that will meet the requirements of Section 404 and the applicable regulations. Our CEO and CFO currently believe that the internal
controls program will be implemented by the SECs extended compliance deadline, which will require the company to meet the requirements of Section 404 by the end of its 2006 fiscal year. We believe, however, that any deficiencies uncovered by
our 404 compliance process will not affect the accuracy of our financial statements included in this report.



Part II. Other Information



Item 1. Legal Proceedings



On August 21, 2003,
August 21, 2003, September 23, 2003, October 16, 2003, and July 16, 2004, Euro-Maritime Chartering, Inc. filed five separate claims under the arbitration facility established by the London Maritime Arbitrators Association of London, England,
alleging a breach by FGDI, LLC of charter party agreements regarding five vessels and seeking to recover damages of $242,655, $230,863, $769,302, $649,031 and $403,167 respectively. Euro-Maritime Chartering alleges that these damages arise from
detention and demurrage encountered at China ports with respect to cargos that FGDI sold to Chinese buyers. FGDI claims that, under the sales contracts with the Chinese buyers, any detention and demurrage charges were for the account of the buyers.
FGDI does not dispute the demurrage claims, which are estimated to total approximately $690,000. FGDI has collected deposits from the Chinese buyers in the total amount of $669,436, which is being held pending resolution of the detention claims.
FGDI intends to vigorously defend the detention claims and believes that it has meritorious defenses. If the claimant prevails on any of the detention claims, or otherwise in amounts above the corresponding deposit, FGDI expects to seek collection
of such amounts from the buyers.



On December 13, 2003, Liaoyang Edible Oils
filed a claim in arbitration under the arbitration facility established by the Federation of Oils, Seeds and Fats Associations Ltd. of Hong Kong alleging a breach of a sales contract by FGDI and seeking to recover damages of $1,125,000. Liaoyang
Edible Oils alleges that these damages arise out of disputes related to the final pricing of the contract. This dispute has been heard on the merits and the company is currently awaiting a decision from the arbitration panel.



On February 18, 2005, FGDI was notified that Xiamen Zhonge filed a claim in arbitration under
the arbitration facility established by the Federation of Oils, Seeds and Fats Associations Ltd. of Hong Kong. Xiamens claim alleges that FGDI breached its duty to accept pricing instructions provided by Xiamen to FGDI. FGDI responded to
Xiamens request for arbitration on March 18, 2005. FGDI intends to vigorously defend this claim.



18



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##### Table of Contents

From time to time and in the ordinary course of its business, we are a plaintiff or are a defendant in other legal
proceedings related to various issues, including workers compensation claims, tort claims and contractual disputes. We are not aware of other potential claims that could result in the commencement of material legal proceedings. We carry
insurance that provides protection against certain types of claims, up to the policy limits of our insurance. In the opinion of management, liabilities, if any, arising from existing litigation and claims will not have a material effect on the
companys earnings, financial position or liquidity.



Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds



Not
Applicable



Item 3. Defaults upon Senior Securities



Not Applicable



Item 4. Submission of Matters to a Vote of Security Holders



At the companys annual meeting held on January 6, 2005, David Andresen was elected as a Class I director and Jack Friedman and Eric Parthemore were re-elected as Class I directors. The terms of the directorships
held by Bruce Krehbiel, Rolland Svoboda, Tom Leiting, Brent Bunte, Dave Reinders, Doug Derscheid and Kenneth Hahn did not expire this year and these individuals continued as directors after the meeting.



|                |  |     |  |                 
|--------------- |  | --- |  | ----------------
|                |  | For |  | Against/Withheld
|David Andresen  |  | 158 |  | 0               
|Jack Friedman   |  | 158 |  | 0               
|Eric Parthemore |  | 158 |  | 0               



Item 5. Other Information



None



Item 6. Exhibits



Exhibits



|     |  |                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------
|10.1 |  | Change in Terms Agreement, dated February 28, 2005, between FCStone Group, Inc. and Deere Credit, Inc.                 
|     | 
|10.2 |  | Change in Terms Agreement, dated February 28, 2005, between FCStone, L.L.C. and Deere Credit, Inc.                     
|     | 
|31.1 |  | Certification of Paul G. Anderson, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
|     | 
|31.2 |  | Certification of Robert V. Johnson, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|               |  |                                |  |                        
|-------------- |  | ------------------------------ |  | -----------------------
|               |  | FCStone Group, Inc. Registrant
|               |  |                               
|April 14, 2005 |  | By:                            |  | /s/ Paul G. Anderson   
|               |  |                                |  | Paul G. Anderson       
|               |  |                                |  | Chief Executive Officer
|               |  |                               
|April 14, 2005 |  | By:                            |  | /s/ Robert V. Johnson  
|               |  |                                |  | Robert V. Johnson      
|               |  |                                |  | Chief Financial Officer



20