FXCM Inc. Announces Third 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 September 30, 2012, revenues under US GAAP of $115.0 million, compared to $109.0 million for the quarter ended September 30, 2011, an increase of 5%. Adjusted Pro Forma EBITDA for the Third Quarter 2012 was $37.2 million, compared to $31.4 million for the Third Quarter 2011, an increase of 18%. Adjusted Pro Forma Net Income was $12.5 million for the Third Quarter 2012, compared to $17.1 million for the Third Quarter 2011, a decrease of 27%. Adjusted Pro Forma Cash Net Income was $22.9 for the Third Quarter 2012, compared to $27.4 million for the Third Quarter 2011, a decrease of 16%. Adjusted Pro Forma fully diluted earnings per share for the Third Quarter 2012 was $0.17 on a fully exchanged, fully diluted basis compared to $0.23 for the Third Quarter 2011, a decrease of 26%. Adjusted Pro Forma fully diluted cash earnings per share for the Third Quarter 2012 was $0.31 on a fully exchanged, fully diluted basis compared to $0.37 for the Third Quarter 2011, a decrease of 16%. U.S. GAAP net income was $4.5 million for the Third Quarter 2012, compared to $3.4 million for the Third Quarter 2011, an increase of 33%. U.S. GAAP earnings per share for the Third Quarter 2012 was $0.17 per fully diluted Class A share, compared to $0.21 per fully diluted Class A share for the Third Quarter 2011, a decrease of 19%.

“FXCM turned in a solid quarter despite the continued low volatility of the global FX markets and subdued trading environment,” said Drew Niv, Chief Executive Officer. “In addition, our cash generation in the quarter was particularly strong and we earned $37.2 million in EBITDA and $0.31 in cash earnings per share.”

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 and equity based compensation expense regarding a grant of stock options at the time of FXCM’s initial public offering (“IPO”) in December 2010.

Adjusted Pro Forma Cash results further adjusts Adjusted Pro Forma results to eliminate certain non-cash items, including the further elimination of equity based compensation expense unrelated to the IPO as well as depreciation and amortization. In addition, Adjusted Pro Forma Cash results adjusts the tax provision of Adjusted Pro Forma results to reflect only the provision for taxes expected to be paid in the following twelve months.

FXCM Inc. today announced that it has received additional commitments from a group of banks and has increased its credit facility to $155 million. In addition, certain of the terms of the credit facility were modified to among other things provide additional flexibility regarding financing and investment initiatives.

“We are pleased with being able to increase the size of our credit facility,” said Niv, “We now have seven banks in the facility and received a great deal of demand as we sought to increase its size. The increased size of the facility will allow us to conduct our current initiatives on a larger scale.”

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

October 2012 Operating Metrics

Retail Trading Metrics
  • Retail customer trading volume(1) of $324 billion in October 2012, 7% higher than September 2012 and 5% lower than October 2011.
  • Average retail customer trading volume(1) per day of $14.1 billion in October 2012, 7% lower than September 2012 and 13% lower than October 2011.
  • An average of 341,293 retail client trades per day in October 2012, 6% lower than September 2012 and 26% lower than October 2011.
  • Tradable accounts(2) of 203,714 as of October 31, 2012, an increase 1,320, or 1% from September 2012, and an increase of 12,139,or 6%, from October 2011.

Institutional Trading Metrics
  • Institutional customer trading volume(1) of $53 billion in October 2012, 16% higher than September 2012 and 69% lower than October 2011.
  • Average institutional trading volume(1) per day of $2.3 billion in October 2012, flat with September 2012 and 72% lower than October 2011.
  • An average of 5,850 institutional client trades per day in October 2012, 3% higher than September 2012 and 86% lower than October 2011.

“FXCM showed continued progress in October despite the low volatility in the FX markets,” stated Niv. “In addition, we look forward to our organic initiatives for growth such as our recently launched product to attract smaller clients as well as the migration of our institutional customers to our in-house platform which we believe will become more material in the near future.”

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 Cash
Adjusted Pro Forma (thousands except (thousands except per share Adjusted Pro Forma (thousands
per share amounts) amounts) except per share amounts)
Three Months Ended September 30, Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 % Change 2012 2011 % Change 2012 2011 % Change
 
Total Revenues $ 114,948 $ 108,975 5% $ 114,948 $ 108,975 5% $ 309,221 $ 306,893 1%
 
Referring broker fees 18,708 25,720 -27% 18,708 25,720 -27% 58,865 72,253 -19%
Compensation and benefits 21,778 20,835 5% 20,640 20,743 0% 62,717 62,142 1%
Other expenses   37,270   30,995 20%   37,270   30,995 20%   104,509   87,028 20%
 
EBITDA   37,192   31,425 18%   38,330   31,517 22%   83,130   85,470 -3%
 
Depreciation, amortization and interest expense 12,875 5,367 140% 1,158 - 26,459 14,201 86%
 
Income before income taxes   24,317   26,058 -7%   37,172   31,517 18%   56,671   71,269 -20%
 
Income tax provision 7,397 8,932 -17% 7,167 4,102 75% 18,489 24,820 -26%
 
Net Income   16,920   17,126 -1%   30,005   27,415 9%   38,182   46,449 -18%
 
Net income attributable to non-controlling interest 4,381 - 0% 7,063 - 0% 5,254 - 0%
           
Net Income Attributable to FXCM Inc. $ 12,539 $ 17,126 -27% $ 22,942 $ 27,415 -16% $ 32,928 $ 46,449 -29%
 
Pro forma fully exchanged, fully diluted shares outstanding 75,103 74,449 1% 75,103 74,449 1% 73,548 74,978 -2%
 
Earnings Per Share $ 0.17 $ 0.23 -26% $ 0.31 $ 0.37 -16% $ 0.45 $ 0.62 -27%
 
 
Unaudited U.S. GAAP (thousands except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 % Change 2012 2011 % Change
 
Total net revenues $ 114,948 $ 108,975 5% $ 309,221 $ 306,893 1%
 
Referring broker fees 18,708 25,720 -27% 58,865 72,253 -19%
Compensation and benefits 24,156 22,955 5% 81,175 68,662 18%
Other expenses 37,771 31,257 21% 108,935 103,290 5%
Depreciation, amortization and interest expense 12,875 5,367 140% 26,459 14,201 86%
 
Income before income taxes   21,438   23,676 -9%   33,787   48,487 -30%
 
Income tax provision 3,598 8,136 -56% 4,856 10,756 -55%
 
Net Income   17,840   15,540 15%   28,931   37,731 -23%
 
Net income attributable to non-controlling interest 13,327 12,142 10% 22,971 28,222 -19%
       
Net Income Attributable to FXCM Inc. $ 4,513 $ 3,398 33% $ 5,960 $ 9,509 -37%
 
 
Net Income (in thousands) $ 4,513 $ 3,398 33% $ 5,960 $ 9,509 -37%
 
Net Income per Class A Share
Basic and Diluted $ 0.17 $ 0.21 -19% $ 0.27 $ 0.56 -53%
 
Average Class A shares outstanding   26,913   16,468 63%   22,416   16,997 32%
 
           

Selected Operating Metrics
 
(Unaudited) (Unaudited)
Three Months Ended September 30,

Nine Months Ended September 30,
2012 2011 % Change 2012 2011 % Change
 
Total trading volume ($ in billions) $ 861 $ 1,042 -17% $ 2,715 $ 2,802 -3%
 
Total institutional trading volume ($ in billions) $ 156 $ 309 -50% $ 956 $ 742 29%
 
Total active accounts 171,274 156,053 10% 171,274 156,053 10%
 
Trading days in period 65 66 -2% 195 195 0%
 
Daily average trades 345,790 438,599 -21% 363,893 366,902 -1%
 
Daily average trades per active account 2.0 2.8 -29% 2.2 2.5 -12%
 
Retail trading revenue per million traded $ 99 $ 93 6% $ 94 $ 96 -2%
 
Total customer equity ($ in millions) $ 1,278.4 $ 828.2 54% $ 1,278.4 $ 828.2 54%
 

Non-GAAP Financial Measures

Adjusted Pro Forma EBITDA, Adjusted Pro Forma Net Income, Adjusted Pro Forma Cash Net Income, Adjusted Pro Forma Net Income per fully diluted share and Adjusted Pro Forma Cash 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 December 31 st, 2012 to Class A stockholders of record at the close of business on December 19th, 2012.

Share Repurchase Program

FXCM Inc. today announced that its board of directors increased its share repurchase program from $50 million to $80 million of its Class A common stock and/or FXCM Holdings, LLC units. Under this program, shares may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. This leaves approximately $51.5 million under the plan for future purchases, given the shares the company has already acquired to date.

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 877.303.9132 and 408.337.0136 for international participants. The conference ID number is 51391814.

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 Nine Months Ended September 30, 2012 and 2011     A-1
Unaudited U.S. GAAP Consolidated Statements of Financial Condition As of September 30, 2012 and December 31, 2011     A-2
       

Adjusted Pro Forma and Adjusted Pro Forma Cash Results
    A-3

Unaudited Adjusted Pro Forma, Adjusted Pro Forma Cash and U.S. GAAP Consolidated Statements of Operations for the Three Months Ended September 30, 2012 and 2011
    A-5
Unaudited Adjusted Pro Forma, Adjusted Pro Forma Cash and U.S. GAAP Consolidated Statements of Operations for the Nine Months Ended September 30, 2012 and 2011     A-6
Reconciliation of EBITDA to U.S. GAAP Net Income     A-7
 
 
FXCM Inc.
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited )
  Three Months Ended September 30,  

Nine Months Ended September 30,
2012   2011 2012   2011
Revenues
 
Retail trading revenues 85,237 97,017 255,833 268,234
Institutional trading revenues   25,868     7,720     42,908     21,820  

Trading revenue
111,105 104,737 298,741 290,054
 
Interest Income 990 963 2,910 2,837
Brokerage interest expense   (66 )   (93 )   (235 )   (226 )
Net interest income 924 870 2,675 2,611
 
Other Income   2,919     3,368     7,805     14,228  
 
Total net revenues   114,948     108,975     309,221     306,893  
 
Operating Expenses
 
Referring broker fees 18,708 25,720 58,865 72,253
Compensation and benefits 24,156 22,955 81,175 68,662
Advertising and marketing 7,509 9,870 23,266 24,375
Communication and technology 9,600 8,190 26,591 23,559
Trading costs, prime brokerage and clearing fees 6,981 2,095 10,187 6,484
General and administrative 13,681 11,102 48,891 48,872
Depreciation and amortization 11,717 5,367 24,761 14,201
       
 
Total operating expenses   92,352     85,299     273,736     258,406  
 
Operating income 22,596 23,676 35,485 48,487
 
Other Expense
Interest on borrowings   1,158     -     1,698     -  
 
Income before income taxes 21,438 23,676 33,787 48,487
Income tax provision   3,598     8,136     4,856     10,756  
Net income 17,840 15,540 28,931 37,731
Net income attributable to non-controlling interest   13,327     12,142     22,971     28,222  
Net income attributable to FXCM, Inc.   4,513     3,398     5,960     9,509  
 
 
 
Net Income (in thousands)   4,513     3,398     5,960     9,509  
 
Net Income per Class A Share
Basic and Diluted $ 0.17   $ 0.21   $ 0.27   $ 0.56  
 
Average Class A shares outstanding   26,913     16,468     22,416     16,997  
 

A-1
 
FXCM Inc.
Consolidated Statements of Financial Condition
As of September 30, 2012 and December 31, 2011
(Amounts in thousands except for share data)
(Unaudited)
  September 30,   December 31,
  2012 2011
 
Assets
 
Current assets
Cash and cash equivalents $ 260,026 $ 184,721
Cash and cash equivalents, held for customers 1,278,392 1,046,983
Due from brokers 9,823 1,311
Accounts receivables, net 16,798 17,004
Deferred tax asset - current 8,094 6,982
Tax receivable   3,576   2,016
Total current assets 1,576,709 1,259,017
 
Deferred tax asset 114,069 88,556
Office, communication and computer equipment, net 49,793 39,686
Intangible assets and goodwill, net 413,321 80,656
Other assets   15,746   19,218
Total assets $ 2,169,638 $ 1,487,133
 
Liabilities and Equity
 
Current liabilities
Customer account liabilities $ 1,278,392 $ 1,046,983
Accounts payable and accrued expenses 77,764 56,723
Credit agreement 30,000 -
Note payable 87,162
Due to brokers 1,100 13,495
Deferred tax liability - current 7,085 2,241
Due to related parties - pursuant to tax receivable agreement   4,782   3,575
Total current liabilities   1,486,285   1,123,017
 
Deferred tax liability 18,950 7,044
Due to related parties - pursuant to tax receivable agreement   84,780   63,639
Total liabilities   1,590,015   1,193,700
 
Commitments and Contingencies
 
Stockholders' equity
Class A common stock, par value $0.01 per share; 342 149
3,000,000,000 shares authorized, 34,228,927 and 14,899,391 shares issued
and outstanding as of September 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 September 30, 2012 and December 31, 2011, respectively
Additional paid-in-capital 199,888 86,152
Retained earnings 10,204 8,977
Accumulated other comprehensive income   1,168   142
Total stockholders' equity, FXCM Inc. 211,603 95,421
Non-controlling interest 368,020 198,012
Total stockholders' equity   579,623   293,433
Total liabilities and stockholders' equity $ 2,169,638 $ 1,487,133
 

A-2

Adjusted Pro Forma and Adjusted Pro Forma Cash 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. Stock Based Compensation Expense. Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate expense relating to stock based compensation relating to the Company’s initial public offering and compensation costs associated with the renegotiation of certain employment contracts. The Company’s management believes it is useful to provide the effects of eliminating these expenses relating to these one-time items.

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

4. Regulatory Costs. Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate certain costs associated with a settlement with the Company’s regulators in the United States and the estimated expense associated with reimbursement of clients of regarding trading issues at the Company’s Japanese subsidiary. The Company’s management believes it is useful to provide the effects of eliminating these expenses of a one-time nature.

5. 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.

In addition, the Company presents results on an Adjusted Pro Forma Cash basis where Adjusted Pro Forma results are adjusted for certain non-cash items. The Company believes Adjusted Pro Forma Cash presentation may be 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. The differences between Adjusted Pro Forma Cash and Adjusted Pro Forma results are as follows:

1. Stock Based Compensation Expense. Additional adjustments have been made to Adjusted Pro Forma Earnings to eliminate expense relating to stock based compensation and other non-cash compensation granted subsequent to the Company’s initial public offering. The Company’s management believes it is useful to provide the effects of eliminating these non-cash expenses to evaluate the potential impact on the Company’s cash flow.

2. Depreciation and amortization. Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate the depreciation of fixed assets and the amortization of intangible assets. The Company’s management believes it is useful to provide the effects of eliminating these non-cash expenses to evaluate the potential impact on the Company’s cash flow.

3. Income Taxes. Adjustments have been made to the Adjusted Pro Forma Earnings to present the Company’s estimate of tax expense in the next twelve months under the assumptions regarding taxes discussed in the above. The Company’s management believes it is useful to provide the effects of eliminating these expenses to evaluate the potential impact on the Company’s cash flow.

A-4
                                 
FXCM Inc.
Adjusted Pro Forma Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited )
Three Months Ended September 30,
2012 2011  
 
 
Adjusted Adjusted
As Adjusted Pro Forma As Adjusted Pro Forma
Reported Adjustments Pro Forma Adjustments Cash Reported Adjustments Pro Forma Adjustments Cash
Revenues
 
Retail trading revenues $ 85,237 - $ 85,237 - $ 85,237 $ 97,017 - $ 97,017 - $ 97,017
Institutional trading revenues   25,868     -     25,868     -     25,868     7,720     -     7,720     -     7,720  
Trading revenues 111,105 - 111,105 - 111,105 104,737 - 104,737 - 104,737
 
Interest Income 990 - 990 - 990 963 - 963 - 963
Brokerage interest expense   (66 )   -     (66 )   -     (66 )   (93 )   -     (93 )   -     (93 )
Net interest income 924 - 924 - 924 870 - 870 - 870
 
Other Income   2,919     -     2,919     -     2,919     3,368     -     3,368     -     3,368  
-
Total net revenues   114,948     -     114,948     -     114,948     108,975     -     108,975     -     108,975  
 
Operating Expenses
 
Referring broker fees 18,708 - 18,708 - 18,708 25,720 - 25,720 - 25,720
Compensation and benefits 24,156 (2,378 )

(1)
21,778 (1,138 )

(5)
20,640 22,955 (2,120 )

(9)
20,835 (92 )

(11)
20,743
Advertising and marketing 7,509 - 7,509 - 7,509 9,870 - 9,870 - 9,870
Communication and technology 9,600 - 9,600 - 9,600 8,190 - 8,190 - 8,190
Trading costs, prime brokerage and clearing fees 6,981 6,981 6,981 2,095 - 2,095 2,095
General and administrative 13,681 (501 )

(2)
13,180 - 13,180 11,102 (262 )

(10)
10,840 - 10,840
Depreciation and amortization 11,717 - 11,717 (11,717 )

(6)
- 5,367 - 5,367 (5,367 )

(6)
-
          -            
Total operating expenses   92,352     (2,879 )   89,473     (12,855 )   76,618     85,299     (2,382 )   82,917     (5,459 )   77,458  
-
Operating income 22,596 2,879 25,475 12,855 38,330 23,676 2,382 26,058 5,459 31,517
 
Other expense
Interest on borrowings   1,158     -     1,158     -     1,158     -     -     -     -     -  
 
Income before income taxes 21,438 2,879 24,317 12,855 37,172 23,676 2,382 26,058 5,459 31,517
Income tax provision   3,598     3,799  

(3)
  7,397     (230 )

(7)
  7,167     8,136     796  

(3)
  8,932     (4,830 )

(7)
  4,102  
Net income 17,840 (920 ) 16,920 13,085 30,005 15,540 1,586 17,126 10,289 27,415
Net income attributable to non-controlling interest   13,327     (8,946 )

(4)
  4,381     2,682  

(8)
  7,063     12,142     (12,142 )

(4)
  -     (12,142 )

(8)
  -  
Net income attributable to FXCM Inc. $ 4,513   $ 8,026   $ 12,539   $ 10,403   $ 22,942   $ 3,398   $ 13,728   $ 17,126   $ 22,431   $ 27,415  
 
 
Pro Forma fully exchanged, fully diluted weighted average shares outstanding   75,103  

(12)
  75,103  

(12)
  74,449  

(12)
  74,449  
 
Adjusted Pro Forma net income per fully exchanged, fully diluted weighted average shares outstanding $ 0.17   $ 0.31   $ 0.23   $ 0.37  
 

(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 30.4% and 34.3% for the three months ended September 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 granted subsequent to the IPO and of compensation costs associated with the recognition of deferred compensation in connection with the Lucid Market Trading ("Lucid") which was acquired by the Company on June 18, 2012 (the "Acquisition") . Pursuant to the terms of the Acquisition, the Company issued shares of FXCM Inc. Class A common stock to the Lucid sellers subject to certain liquidity restrictions (the " Lucid Liquidity Restriction"). In accordance with Accounting Standards Codification, Topic 718, Compensation — Stock Compensation (“ASC 718”), the fair value of the Lucid Liquidity Restriction is accounted for as deferred compensation and recognized as expense over the three year period from closing of the Acquisition.

(6) Represents the elimination of the depreciation of fixed assets and the amortization of intangible assets.

(7) Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 19.3% and 13.0.% for the three months ended September 30, 2012 and 2011, respectively, which includes U.S. federal cash taxes and assumes the highest statutory rates for cash taxes 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.

(8)Represents an adjustment to reflect the Lucid's non-controlling interest amortization expense related to the identified intangible assets associated with the Acquisition.

(9) Represents the elimination of equity-based compensation associated with the IPO.

(10) 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 September 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.

(11) Represents the elimination of equity-based compensation granted subsequent to the IPO.

(12) 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.
Adjusted Pro Forma Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited )

Nine Months Ended September 30
2012 2011
Adjusted Adjusted
As Adjusted Pro Forma As Adjusted Pro Forma
Reported Adjustments Pro Forma Adjustments Cash Reported Adjustments Pro Forma Adjustments Cash
Revenues
 
Retail trading revenues $ 255,833 - $ 255,833 - $ 255,833 $ 268,234 - $ 268,234 - $ 268,234
Institutional trading revenues   42,908   -   42,908   -   42,908   21,820   -   21,820   -   21,820

Trading revenues
298,741 - 298,741 - 298,741 290,054 - 290,054 - 290,054
 
Interest Income 2,910 - 2,910 - 2,910 2,837 - 2,837 - 2,837
Brokerage interest expense   (235)   -   (235)   -   (235)   (226)   -   (226)   -   (226)
Net interest income 2,675 - 2,675 - 2,675 2,611 - 2,611 - 2,611
 
Other Income   7,805   -   7,805   -   7,805   14,228   -   14,228   -   14,228
 
Total net revenues   309,221   -   309,221   -   309,221   306,893   -   306,893   -   306,893
 
Operating Expenses
 
Referring broker fees 58,865 - 58,865 - 58,865 72,253 - 72,253 - 72,253
Compensation and benefits 81,175 (18,458)

(1)
62,717 (1,845) (5) 60,872 68,662 (6,520) (9) 62,142 (92) (11) 62,050
Advertising and marketing 23,266 - 23,266 - 23,266 24,375 - 24,375 - 24,375
Communication and technology 26,591 - 26,591 - 26,591 23,559 - 23,559 - 23,559
Trading costs, prime brokerage and clearing fees 10,187 - 10,187 10,187 6,484 - 6,484 6,484
General and administrative 48,891 (4,426)

(2)
44,465 - 44,465 48,872 (16,262) (10) 32,610 - 32,610
Depreciation and amortization 24,761 24,761 (24,761) (6) - 14,201 - 14,201 (14,201) (6) -
                   
Total operating expenses   273,736   (22,884)   250,852   (26,606)   224,246   258,406   (22,782)   235,624   (14,293)   221,331
 
Operating income 35,485 22,884 58,369 26,606 84,975 48,487 22,782 71,269 14,293 85,562
 
Other expense
Interest on borrowings   1,698   -   1,698   -   1,698   -   -   -   -   -
 
Income before income taxes 33,787 22,884 56,671 26,606 83,277 48,487 22,782 71,269 14,293 85,562
Income tax provision   4,856   13,633

(3)
  18,489   (8,953) (7)   9,536   10,756   14,064 (3)   24,820   (11,821) (7)   12,999
Net income 28,931 9,251 38,182 35,559 73,741 37,731 8,718 46,449 26,114 72,563
Net income attributable to non-controlling interest   22,971   (17,717)

(4)
  5,254   2,990 (8)   8,244   28,222   (28,222) (4)   -   (28,222) (8)   -
Net income attributable to FXCM Inc. $ 5,960 $ 26,968 $ 32,928 $ 32,569 $ 65,497 $ 9,509 $ 36,940 $ 46,449 $ 54,336 $ 72,563
 
 
Pro Forma fully exchanged, fully diluted weighted average shares outstanding   73,548 (12)   73,548 (12)   74,978 (12)   74,978
 
Adjusted Pro Forma net income per fully exchanged, fully diluted weighted average shares outstanding $ 0.45 $ 0.89 $ 0.62 $ 0.97
 

(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 32.6% and 34.8% for the three months ended September 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 granted subsequent to the IPO and of compensation costs associated with the recognition of deferred compensation in connection with the Lucid Market Trading ("Lucid") which was acquired by the Company on June 18, 2012 (the "Acquisition") . Pursuant to the terms of the Acquisition, the Company issued shares of FXCM Inc. Class A common stock to the Lucid sellers subject to certain liquidity restrictions (the " Lucid Liquidity Restriction"). In accordance with Accounting Standards Codification, Topic 718, Compensation — Stock Compensation (“ASC 718”), the fair value of the Lucid Liquidity Restriction is accounted for as deferred compensation and recognized as expense over the three year period from closing of the Acquisition.

(6) Represents the elimination of the depreciation of fixed assets and the amortization of intangible assets.

(7) Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 11.5% and 15.2% for the three months ended September 30, 2012 and 2011, respectively, which includes U.S. federal cash taxes and assumes the highest statutory rates for cash taxes 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.

(8) Represents an adjustment to reflect the Lucid's non-controlling interest amortization expense related to the identified intangible assets associated with the Acquisition.

(9) Represents the elimination of equity-based compensation associated with the IPO.

(10) 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 September 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.

(11) Represents the elimination of equity-based compensation granted subsequent to the IPO.

(12) 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-6
               
FXCM Inc.
Reconciliation of EBITDA to Net Income
(In thousands)
(Unaudited )
     
Three Months Ended September 30, Nine Months Ended September 30,
Adjusted Pro Forma   Adjusted Pro Forma Cash U.S. GAAP Adjusted Pro Forma Adjusted Pro Forma Cash U.S. GAAP
2012   2011 2012   2011 2012 2011 2012 2011 2012 2011 2012 2011
 
Revenues 114,948 108,975 114,948 108,975 114,948 108,975 309,221 306,893 309,221 306,893 309,221 306,893
 
Net income attributable to FXCM Inc. 12,539 17,126 22,942 27,415 4,513 3,398 32,928 46,449 65,497 72,563 5,960 9,509
Net income attributable to noncontrolling interest 4,381 - 7,063 - 13,327 12,142 5,254 - 8,244 - 22,971 28,222
Provision for income taxes 7,397 8,932 7,167 4,102 3,598 8,136 18,489 24,820 9,536 12,999 4,856 10,756
Depreciation, amortization and interest expense 12,875 5,367 1,158 - 12,875 5,367 26,459 14,201 1,698 - 26,459 14,201
EBITDA 37,192 31,425 38,330 31,517 34,313 29,043 83,130 85,470 84,975 85,562 60,246 62,688
 

A-7

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