FXCM Inc. Announces Second Quarter 2012 Results

FXCM Inc. (NYSE: FXCM), a leading online provider of foreign exchange, or FX, trading and related services, today announced for the quarter ended June 30, 2012, revenues under US GAAP of $91.7 million, compared to $103.3 million for the quarter ended June 30, 2011, a decrease of 11%. Adjusted Pro Forma EBITDA for the second quarter 2012 was $21.0 million, compared to $28.5 million for the second quarter 2011, a decrease of 26%. Adjusted Pro Forma Net Income was $7.9 million for the second quarter 2012, compared to $15.6 million for the second quarter 2011, a decrease of 50%. Adjusted Pro Forma fully diluted earnings per share for the second quarter 2012 of $0.11 on a fully exchanged, fully diluted basis, compared to $0.21 per share for the second quarter 2011, a decrease of 48%. U.S. GAAP net income (loss) was $(1.4) million for the second quarter 2012, compared to $3.3 million for the second quarter 2011. U.S. GAAP earnings (loss) per share for the second quarter 2012 was $(0.06) per fully diluted Class A share, compared to $0.19 per fully diluted Class A share for the second quarter 2011.

Second quarter 2012 results under U.S. GAAP included $15.8 million of one-time expenses, including $11.9 million relating to employee severance and the renegotiation of certain employment contracts in its institutional foreign exchange (“FX”) and retail businesses ($11.1 million of which was non-cash, stock based compensation), $2.3 million in regulatory costs in its Japanese business and $1.6 million in due diligence and other acquisition costs. The employee reductions and renegotiation of certain employment contracts in its institutional and retail businesses are expected to lower annual expenses by approximately $5.0 million going forward.

Adjusted Pro Forma results assume the conversion and exchange of all FXCM Holdings, LLC Units into FXCM Inc. Class A common stock, resulting in the elimination of the non-controlling interest and the corresponding adjustment to the entity’s tax provision. In addition, Adjusted Pro Forma results eliminate certain non-recurring charges, including in the second quarter 2012 the $15.8 million of one-time expenses discussed above, and certain equity based compensation expense granted at the time of FXCM’s initial public offering in December 2010.

“FXCM has always been strong with larger retail clients as they are attracted to our brand, agency execution model and platform,” said Drew Niv, Chief Executive Officer. “You are seeing that in our very strong growth in client equity, which has increased 20% from just year-end 2011 to $1.3 billion and increased 50% from June 30, 2011. This positions us well for future volume increases.”

“However, the macro environment for currency trading has been challenging with historically low FX volatility in the second quarter of this year,” continued Niv. “We have taken a number of steps which did not yet have a material impact in the quarter but should become more significant in the coming quarters.”

“At the end of the June 2012, we completed the acquisition of a 50.1% stake in Lucid Markets Trading Ltd., one of the leading non-bank FX market makers globally, which greatly enhances our capabilities in the institutional marketplace,” said Niv. “In addition, we initiated FastMatch, a joint venture with Credit Suisse, to deploy their technology underpinning the world’s largest equities crossing system. We have re-tooled and tailored the technology to the needs of the global FX market and created a new Electronic Communication Network (ECN) for FX trading. We expect the final release of the FastMatch platform to be available in September 2012.”

“Lastly, we are launching an offering with narrow spreads targeted to small retail customers, a segment that represents the majority of retail FX customers and where we have not been traditionally strong as our agency model has less of an impact. We believe this new offering, which will be offered on a principal execution model, can boost organic growth and capture market share among clients who value narrow spreads.”

FXCM Inc. today announced certain key operating metrics for July 2012 for its retail and institutional foreign exchange businesses. Monthly activities included:

July 2012 Operating Metrics

Retail Trading Metrics
  • Retail customer trading volume(1) of $287 billion in July 2012, 9% lower than June 2012 and 8% lower than July 2011.
  • Average retail customer trading volume per day of $13.0 billion in July 2012, 13% lower than June 2012 and 12% lower than July 2011.
  • An average of 356,255 retail client trades per day in July 2012, 14% lower than June 2012 and 3% lower than July 2011.
  • Tradeable accounts(2) of 206,745 as of July 31, 2012, an increase of 1,634 or 1% from June 2012, and an increase of 34,439 or 19% from June 2011.

Institutional Trading Metrics
  • Institutional customer trading volume(1) of $60 billion in July 2012, 63% lower than June 2012 and flat with July 2011.
  • Average institutional trading volume per day of $2.7 billion in July 2012, 64% lower than June 2012 and 4% lower than July 2011.
  • An average of 6,272 institutional client trades per day in July 2012, 65% lower than June 2012 and flat with July 2011.

“While retail volumes in July 2012 were lower than previous month, they were consistent with the second quarter 2012 average,” Niv added. “However, I am pleased to say that our retail revenue per million came in at the higher end of our recent $90-$100/million range due to a favorable mix of clients trading in the month.”

More information, including historical results for each of the above metrics, can be found on the investor relations page of the Company's corporate website, www.fxcm.com.

This operating data is preliminary and subject to revision and should not be taken as an indication of the financial performance of FXCM Inc. FXCM undertakes no obligation to publicly update or review previously reported operating data. Any updates to previously reported operating data will be reflected in the historical operating data that can be found on the Investor Relations page of the Company’s corporate website, www.fxcm.com.

(1) Volume that FXCM customers traded in period is translated into US dollars.

(2) A Tradeable Account is an account with sufficient funds to place a trade in accordance with FXCM trading policies.
   

Consolidated Adjusted Pro Forma and U.S. GAAP Results
 
Adjusted Pro Forma (thousands except per share amounts)
Three Months Ended June 30,   Six Months Ended June 30,
2012   2011   % Change 2012   2011 % Change
 
Total Revenues $ 91,683 $ 103,339 -11 % $ 194,273 $ 197,918 -2 %
 
Referring broker fees 19,968 24,932 -20 % 40,157 46,533 -14 %
Compensation and benefits 19,830 21,154 -6 % 40,939 41,307 -1 %
Other expenses   30,879     28,741 7 %   67,239   56,033 20 %
 
EBITDA   21,006     28,512 -26 %   45,938   54,045 -15 %
 
Depreciation, amortization and interest expense 7,134 4,740 51 % 13,584 8,834 54 %
 
Income before income taxes   13,872     23,772 -42 %   32,354   45,211 -28 %
 
Income tax provision 5,124 8,140 -37 % 11,091 15,840 -30 %
 
Net Income   8,748     15,632 -44 %   21,263   29,371 -28 %
 
Net income attributable to non-controlling interest 872 - 0 % 872 - 0 %
       
Net Income Attributable to FXCM Inc. $ 7,876   $ 15,632 -50 % $ 20,391 $ 29,371 -31 %
 
Pro forma fully exchanged, fully diluted shares outstanding 72,848 75,195 -3 % 72,761 75,247 -3 %
 
Earnings Per Share $ 0.11   $ 0.21 -48 % $ 0.28 $ 0.39 -28 %
 
 
Unaudited U.S. GAAP (thousands except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 % Change 2012 2011 % Change
 
Total net revenues $ 91,683 $ 103,339 -11 % $ 194,273 $ 197,918 -2 %
 
Referring broker fees 19,968 24,932 -20 % 40,157 46,533 -14 %
Compensation and benefits 33,802 23,121 46 % 57,019 45,707 25 %
Other expenses   34,804     44,741 -22 %   71,164   72,033 -1 %
 
EBITDA   3,109     10,545 -71 %   25,933   33,645 -23 %
 
Depreciation, amortization and interest expense 7,134 4,740 51 % 13,584 8,834 54 %
 
Income before income taxes   (4,025 )   5,805 -169 %   12,349   24,811 -50 %
 
Income tax provision (1,109 ) 2,070 -154 % 1,258 2,619 -52 %
 
Net Income   (2,916 )   3,735 -178 %   11,091   22,192 -50 %
 
Net income attributable to non-controlling interest (1,475 ) 420 -451 % 9,644 16,081 -40 %
       
Net Income Attributable to FXCM Inc. $ (1,441 ) $ 3,315 -143 % $ 1,447 $ 6,111 -76 %
 
 
Net Income (in thousands) $ (1,441 ) $ 3,315 -143 % $ 1,447 $ 6,111 -76 %
 
Net Income per Class A Share
Basic and Diluted $ (0.06 ) $ 0.19 -132 % $ 0.07 $ 0.35 -80 %
 
Average Class A shares outstanding  

22,296
    17,214 36 %  

20,142
  17,266 20 %
 
         

Selected Operating Metrics
 
(Unaudited) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 % Change 2012   2011 % Change
 
Total trading volume ($ in billions) $ 869 $ 938 -7% $ 1,854 $ 1,759 5%
 
Total institutional trading volume ($ in billions) $ 402 $ 214 88% $ 799 $ 433 85%
 
Total active accounts 174,218 154,786 13% 174,218 154,786 13%
 
Trading days in period 65 65 0% 130 129 1%
 
Daily average trades 367,051 350,349 5% 372,944 330,220 13%
 
Daily average trades per active account 2.1 2.4 -13% 2.2 2.3 -4%
 
Retail trading revenue per million traded $ 90 $ 100 -10% $ 92 $ 97 -5%
 
Total customer equity ($ in millions) $ 1,254.7 $ 839.0 50% $ 1,254.7 $ 839.0 50%
 

Non-GAAP Financial Measures

Adjusted Pro Forma EBITDA, Adjusted Pro Forma Net Income and Adjusted Pro Forma Net Income per fully diluted share are non-GAAP financial measures. These measures do not represent and should not be considered as a substitute for net income, net income attributable to FXCM Inc. or net income per Class A share or as a substitute for cash flow from operating activities, each as determined in accordance with GAAP, and our calculations of these measures may not be comparable to similarly entitled measures reported by other companies. See “Adjusted Pro Forma Results” beginning on A-3 of this release for additional information regarding these non-GAAP financial measures and for reconciliations of such measure to the most directly comparable measures calculated in accordance with GAAP.

Declaration of Quarterly Dividend

The company also announced today that its board of directors has declared a quarterly dividend of $0.06 per share on its outstanding Class A common stock. The dividend is payable on October 1 st, 2012 to Class A stockholders of record at the close of business on September 19 th, 2012.

Conference Call

As previously announced, FXCM Inc. will host a conference call to discuss its results at 8:15 a.m. (EST) today. This conference call will be available to domestic participants by dialing 800.901.5218 and 617.786.4511 for international participants. The conference ID number is 91751549.

A live, audio webcast, a copy of FXCM's earnings release, and a presentation and replay of this conference call will also be available at http://ir.fxcm.com/.

Disclosure Regarding Forward-Looking Statements

In addition to historical information, this earnings release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect FXCM Inc.’s current views with respect to, among other things, its operations and financial performance for the future. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,”“expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. FXCM Inc. believes these factors include but are not limited to evolving legal and regulatory requirements of the FX industry, the limited operating history of the FX industry, risks related to the protection of its proprietary technology, risks related to its dependence on FX market makers, market conditions and those other risks described under “Risk Factors” in FXCM Inc.’s Annual Report on Form 10-K and other SEC filings, which are accessible on the SEC website at sec.gov.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this presentation and in our SEC filings. FXCM Inc. undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

About FXCM Inc.

FXCM Inc. (NYSE: FXCM) is a global online provider of foreign exchange, or FX, trading and related services to retail and institutional customers world-wide.

At the heart of FXCM's client offering is No Dealing Desk FX trading. Clients benefit from FXCM's large network of forex liquidity providers enabling FXCM to offer competitive spreads on major currency pairs. Clients have the advantage of mobile trading, one-click order execution and trading from real-time charts. FXCM's U.K. subsidiary, Forex Capital Markets Limited, offers Contract for Difference (“CFD”) products with no re-quote trading and allows clients to trade oil, gold, silver and stock indices along with FX on one platform. In addition, FXCM offers educational courses on FX trading and provides free news and market research through DailyFX.com.

Trading foreign exchange and CFDs on margin carries a high level of risk, and may not be suitable for all. Read full disclaimer.

ANNEX I
Schedule   Page Number
     
U.S. GAAP Results    
Unaudited U.S. GAAP Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2011   A-1
Unaudited U.S. GAAP Consolidated Statements of Financial Condition As of June 30, 2012 and December 31, 2011   A-2
     
Adjusted Pro Forma Results   A-3
Unaudited Adjusted Pro Forma and U.S. GAAP Consolidated Statements of Operations for the Three Months Ended June 30, 2012 and 2011   A-4
Unaudited Adjusted Pro Forma and U.S. GAAP Consolidated Statements of Operations for the Six Months Ended June 30, 2012 and 2011   A-5
Reconciliation of EBITDA to U.S. GAAP Net Income   A-6
       
FXCM Inc.
Consolidated Statement of Operations
(In thousands, except per share amounts)

(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011
Revenues
 
Retail trading revenues 77,870 93,482 170,596 171,217
Institutional trading revenues   11,220     6,721     17,040     14,100  

Trading revenues
89,090 100,203 187,636 185,317
 
Interest Income 1,059 933 1,920 1,874
Brokerage interest expense   (78 )   (60 )   (169 )   (133 )
Net interest income 981 873 2,089 1,741
 
Other Income   1,612     2,263     4,886     10,860  
 
Total net revenues   91,683     103,339     194,273     197,918  
 
Operating Expenses
 
Referring broker fees 19,968 24,932 40,157 46,533
Compensation and benefits 33,802 23,121 57,019 45,707
Advertising and marketing 7,487 7,487 15,757 14,505
Communication and technology 8,611 8,010 16,991 15,369
Trading costs, prime brokerage and clearing fees 1,893 2,190 3,206 4,389
General and administrative 16,813 27,054 35,210 37,770
Depreciation and amortization 6,863 4,740 13,044 8,834
       
 
Total operating expenses   95,437     97,534     181,384     173,107  
 
Operating income (3,754 ) 5,805 12,889 24,811
 
Other Expense
Interest on borrowings   271     -     540     -  
 
Income before income taxes (4,025 ) 5,805 12,349 24,811
Income tax provision   (1,109 )   2,070     1,258     2,619  
Net income (2,916 ) 3,735 11,091 22,192
Net income attributable to non-controlling interest   (1,475 )   420     9,644     16,081  
Net income attributable to FXCM, Inc.   (1,441 )   3,315     1,447     6,111  
 
 
 
Net Income (in thousands)   (1,441 )   3,315     1,447     6,111  
 
Net Income per Class A Share
Basic and Diluted $ (0.06 ) $ 0.19   $ 0.07   $ 0.35  
 
Average Class A shares outstanding   22,296     17,214     20,142     17,266  
 

A-1
   
FXCM Inc.
Consolidated Statements of Financial Condition

As of June 30, 2012 and December 31, 2011
(Amounts in thousands except for share data)
(Unaudited)
June 30, December 31,
  2012 2011
 
Assets
 
Current assets
Cash and cash equivalents $ 214,000 $ 184,721
Cash and cash equivalents, held for customers 1,254,668 1,046,983
Due from brokers 29,032 1,311
Accounts receivables, net 23,978 17,004
Deferred tax asset - current 6,552 6,982
Tax receivable   3,854     2,016
Total current assets 1,532,084 1,259,017
 
Deferred tax asset 116,519 88,556
Office, communication and computer equipment, net 48,758 39,686
Intangible assets and goodwill, net 418,576 80,656
Other assets   16,809     19,218
Total assets $ 2,132,746   $ 1,487,133
 
Liabilities and Equity
 
Current liabilities
Customer account liabilities $ 1,254,668 $ 1,046,983
Accounts payable and accrued expenses 69,430 56,723
Credit agreement 45,000 -
Note payable 87,162
Due to brokers 934 13,495
Deferred tax liability - current 7,581 2,241
Due to related parties - pursuant to tax receivable agreement   4,686     3,575
Total current liabilities   1,469,461     1,123,017
 
Deferred tax liability 22,256 7,044
Due to related parties - pursuant to tax receivable agreement   84,415     63,639
Total liabilities   1,576,132     1,193,700
 
Commitments and Contingencies
 
Stockholders' equity
Class A common stock, par value $0.01 per share; 335 149
3,000,000,000 shares authorized, 33,578,560 and 14,899,391 shares issued
and outstanding as of June 30, 2012 and December 31, 2011, respectively
Class B common stock, par value $0.01 per share; 1 1
1,000,000 shares authorized, 100 shares issued
and outstanding as of June 30, 2012 and December 31, 2011, respectively
Additional paid-in-capital 191,248 86,152
Retained earnings 7,746 8,977
Accumulated other comprehensive income   (235 )   142
Total stockholders' equity, FXCM Inc. 199,095 95,421
Non-controlling interest 357,519 198,012
Total stockholders' equity   556,614     293,433
Total liabilities and stockholders' equity $ 2,132,746   $ 1,487,133
 

A-2

Adjusted Pro Forma Results

Throughout the discussion of FXCM Inc.’s results, information is presented on an Adjusted Pro Forma basis, which is a non-generally accepted accounting principles (“non-GAAP”) measure. Adjusted Pro Forma results begin with information prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), adjusted to exclude certain items and reflects the conversion of all units of FXCM Holdings, LLC for shares of Class A common stock of FXCM Inc. FXCM believes that the disclosed Adjusted Pro Forma measures and any adjustments thereto, when presented in conjunction with comparable U.S. GAAP measures, are useful to investors to compare FXCM’s results across several periods and facilitate an understanding of FXCM’s operating results. The Company uses these measures to evaluate its operating performance, as well as the performance of individual employees. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. The differences between Adjusted Pro Forma and U.S. GAAP results are as follows:

1. Assumed Exchange of Units of FXCM Holdings, LLC for FXCM Inc. Class A Shares. As a result of the exchange of FXCM Holdings units, the non-controlling interest related to these units is converted to controlling interest. The Company’s management believes that it is useful to provide the per-share effect associated with the assumed exchange of all FXCM Holdings units.

2. Compensation Expense. Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate expense relating to stock based compensation associated with the Company’s initial public offering, severance and stock based compensation in connection with the renegotiation of certain employment contracts in the Company’s institutional and retail businesses. The Company’s management believes it is useful to provide the effects of eliminating these expenses.

3. Income Taxes. Prior to the initial public offering FXCM was organized as a series of limited liability companies and foreign corporations, and even following the initial public offering not all of the Company’s income is subject to corporate-level taxes. As a result, adjustments have been made to the Adjusted Pro Forma earnings to assume that the Company has adopted a conventional corporate tax structure and is taxed as a C corporation in the U.S. at the prevailing corporate rates and the deferred tax assets related to tax benefits for equity-based compensation awards are realized when the stock options are exercised. This assumption is consistent with the assumption that all of FXCM Holdings’ units are exchanged for shares of FXCM Inc. Class A common stock, as discussed in Item 1 above, as the assumed exchange would change the tax structure of the Company.

4. Regulatory Reserve. During the three months ended June 30, 2011, the Company established a reserve of $16.0 million regarding a settlement with the NFA and ongoing discussions with the CFTC relating to trade execution activities. Pursuant to an agreement with a subsidiary of FXCM Holdings LLC, certain founding members of FXCM Holdings agreed to reimburse the cost of these matters, up to $16.0 million. In July 2011, $16.0 million of additional capital was provided by the respective founding members. Given there was no impact to FXCM Inc.'s net income for the three and six months ended June 30, 2011 as the expense was allocated to such members as permitted under the specific allocations terms of Holdings’ partnership agreement, the Company believes it is useful to provide the effects of eliminating these expenses.

5. Regulatory Reserve. During the three months ended June 30, 2012, the Company established a reserve of $2.3 million to settle trading system matters with the Financial Services Agency of Japan. The Company’s management believes it is useful to provide the effects of eliminating these expenses.

6. Acquisition-related costs. Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate acquisition related expenses incurred. The Company’s management believes it is useful to provide the effects of eliminating these expenses.

A-3
           
FXCM Inc.
Adjusted Pro Forma Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited )
Three Months Ended June 30,  
2012           2011          
As Adjusted As Adjusted
Reported Adjustments Pro Forma Reported Adjustments Pro Forma
Revenues
 
Retail trading revenues $ 77,870 - $ 77,870 $ 93,482 - $ 93,482
Institutional trading revenues   11,220     -     11,220     6,721     -     6,721  
Trading revenues 89,090 - 89,090 100,203 - 100,203
 
Interest Income 1,059 - 1,059 933 - 933
Brokerage interest expense   (78 )   -     (78 )   (60 )   -     (60 )
Net interest income 981 - 981 873 - 873
 
Other Income   1,612     -     1,612     2,263     -     2,263  
 
Total net revenues   91,683     -     91,683     103,339     -     103,339  
 
Operating Expenses
 
Referring broker fees 19,968 - 19,968 24,932 - 24,932
Compensation and benefits 33,802 (13,972 )

(1)
19,830 23,121 (1,967 )

(5)
21,154
Advertising and marketing 7,487 - 7,487 7,487 - 7,487
Communication and technology 8,611 - 8,611 8,010 - 8,010
Trading costs, prime brokerage and clearing fees 1,893 1,893 2,190 - 2,190
General and administrative 16,813 (3,925 )

(2)
12,888 27,054 (16,000 )

(6)
11,054
Depreciation and amortization 6,863 - 6,863 4,740 - 4,740
           
Total operating expenses   95,437     (17,897 )   77,540     97,534     (17,967 )   79,567  
 
Operating income (3,754 ) 17,897 14,143 5,805 17,967 23,772
 
Other expense
Interest on borrowings   271     -     271     -     -     -  
 
Income before income taxes (4,025 ) 17,897 13,872 5,805 17,967 23,772
Income tax provision   (1,109 )   6,233  

(3)
  5,124     2,070     6,070  

(3)
  8,140  
Net income (2,916 ) 11,664 8,748 3,735 11,897 15,632
  (1,475 )   2,347  

(4)
  872     420     (420 )

(4)
  -  
Net income attributable to non-controlling interest            
Net income attributable to FXCM Inc. $ (1,441 ) $ 9,317   $ 7,876   $ 3,315   $ 12,317   $ 15,632  
 
 
Pro Forma fully exchanged, fully diluted weighted average shares outstanding   72,848  

(7)
  75,195  

(7)
 
Adjusted Pro Forma net income per fully exchanged, fully diluted weighted average shares outstanding $ 0.11   $ 0.21  
 

(1) Represents the elimination of equity-based compensation associated with the IPO, severance and equity based compensation in connection with the renegotiation of certain employment contracts in the Company's institutional and retail businesses.
 
(2) Represents the elimination of acquisition-related costs and an adjustment to reflect a reserve established to settle certain trading system matters with the Financial Services Agency of Japan.
 
(3) Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 36.9% and 34.2% for the three months ended June 30, 2012 and 2011, respectively, which includes a provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction. The adjustment assumes full exchange of existing unitholders FXCM Holdings, LLC units for shares of Class A common stock of the Company.
 
(4) Represents the elimination of the non-controlling interest associated with the ownership by existing unitholders of FXCM Holdings, LLC (excluding FXCM, Inc.), as if the unitholders had fully exchanged their FXCM Holdings, LLC units for shares of Class A common stock of the Company.
 
(5) Represents the elimination of equity-based compensation associated with the IPO.
 

(6) Represents an adjustment to reflect a reserve established relating to a settlement with the National Futures Association (the "NFA") and ongoing discussions with the Commodity Futures Trading Commission (the "CFTC") regarding trade execution activities. Pursuant to an agreement with a subsidiary of FXCM Holdings, ("Holdings") certain founding members of Holdings agreed to reimburse the cost of these matters, up to $16.0 million. Consequently, there was no impact to FXCM Inc.'s net income for the three months ended June 30, 2011 as the entire expense was allocated to such funding members. In July 2011, $16.00 million of additional capital was provided by the respective founding members.
 
(7) Fully diluted shares assuming all unitholders had fully exchanged their FXCM Holdings, LLC units for shares of Class A common stock of the Company.
 

A-4
           
FXCM Inc.
Adjusted Pro Forma Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited )
Six Months Ended June 30
2012 2011
As Adjusted As Adjusted
Reported Adjustments

Pro Forma
Reported Adjustments Pro Forma
Revenues
 
Retail trading revenues $ 170,596 - $ 170,596 $ 171,217 - $ 171,217
Institutional trading revenues   17,040     -     17,040     14,100     -    

14,100
 

Trading revenues
187,636 - 187,636 185,317 - 185,317
 
Interest Income 1,920 - 1,920 1,874 - 1,874
Brokerage interest expense   (169 )   -     (169 )   (133 )   -     (133 )
Net interest income 1,751 - 1,751 1,741 - 1,741
 
Other Income   4,886     -     4,886     10,860     -     10,860  
 
Total net revenues   194,273     -     194,273     197,918     -     197,918  
 
Operating Expenses
 
Referring broker fees 40,157 - 40,157 46,533 - 46,533
Compensation and benefits 57,019 (16,080 )

(1)
40,939 45,707 (4,400 )

(5)
41,307
Advertising and marketing 15,757 - 15,757 14,505 - 14,505
Communication and technology 16,991 - 16,991 15,369 - 15,369
Trading costs, prime brokerage and clearing fees 3,206 - 3,206 4,389 - 4,389
General and administrative 35,210 (3,925 )

(2)
31,285 37,770 (16,000 )

(6)
21,770
Depreciation and amortization   13,044       13,044     8,834       8,834  
Total operating expenses   181,384     (20,005 )   161,379     173,107     (20,400 )   152,707  
 
Operating income 12,889 20,005 32,894 24,811 20,400 45,211
 
Other expense
Interest on borrowings   540     -     540     -     -     -  
 
Income before income taxes 12,349 20,005 32,354 24,811 20,400 45,211
Income tax provision   1,258     9,833  

(3)
  11,091     2,619     13,221  

(2)
  15,840  
Net income 11,091 10,172 21,263 22,192 7,179 29,371
Net income attributable to non-controlling interest   9,644     (8,772 )

(3)
  872     16,081     (16,081 )

(3)
  -  
Net income attributable to FXCM Inc. $ 1,447   $ 18,944   $ 20,391   $ 6,111   $ 23,260   $ 29,371  
 
 
Pro Forma fully exchanged, fully diluted weighted average shares outstanding   72,761  

(7)
  75,247  
 
Adjusted Pro Forma net income per fully exchanged, fully diluted weighted average shares outstanding $ 0.28   $ 0.39  
 
(1) Represents the elimination of equity-based compensation associated with the IPO, severance and equity based compensation in connection with the renegotiation of certain employment contracts in the Company's institutional and retail businesses.
 
(2) Represents the elimination of acquisition-related costs and an adjustment to reflect a reserve established to settle certain trading system matters with the Financial Services Agency of Japan.
 
(3) Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 34.3% and 35.0% for the six months ended June 30, 2012 and 2011, respectively, which includes a provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction. The adjustment assumes full exchange of existing unitholders FXCM Holdings, LLC units for shares of Class A common stock of the Company.
 
(4) Represents the elimination of the non-controlling interest associated with the ownership by existing unitholders of FXCM Holdings, LLC (excluding FXCM, Inc.), as if the unitholders had fully exchanged their FXCM Holdings, LLC units for shares of Class A common stock of the Company.
 
(5) Represents the elimination of equity-based compensation associated with the IPO.
 

(6) Represents an adjustment to reflect a reserve established relating to a settlement with the National Futures Association (the "NFA")and ongoing discussions with the Commodity Futures Trading Commission (the "CFTC") regarding trade execution activities. Pursuant to an agreement with a subsidiary of FXCM Holdings, ("Holdings") certain founding members of Holdings agreed to reimburse the cost of these matters, up to $16.0 million. Consequently, there was no impact to FXCM Inc.'s net income for the six months ended June 30, 2011 as the entire expense was allocated to such funding members. In July 2011, $16.00 million of additional capital was provided by the respective founding members.
 
(7) Fully diluted shares assuming all unitholders had fully exchanged their FXCM Holdings, LLC units for shares of Class A common stock of the Company.
 

A-5
FXCM Inc.
Reconciliation of EBITDA to Net Income
(In thousands)
(Unaudited )
               
Three Months Ended June 30, Six Months Ended June 30,
Adjusted Pro Forma U.S. GAAP Adjusted Pro Forma U.S. GAAP
2012 2011 2012 2011 2012 2011 2012 2011
 
Revenues 91,683 103,339 91,683 103,339 194,273 197,918 194,273 197,918
 
Net income attributable to FXCM Inc. 7,876 15,632 (1,441) 3,315 20,391 29,371 1,447 6,111
Net income attributable to noncontrolling interest 872 - (1,475) 420 872 - 9,644 16,081
Provision for income taxes 5,124 8,140 (1,109) 2,070 11,091 15,840 1,258 2,619
Depreciation, amortization and interest expense 7,134 4,740 7,134 4,740 13,584 8,834 13,584 8,834
EBITDA 21,006

 
28,512 3,109

 
10,545

 
45,938 54,045 25,933 33,645

A-6

Copyright Business Wire 2010

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